<PAGE> 1
As filed with the Securities and Exchange Commission October 31, 1997
1933 Act Registration No. 33-21489
1940 Act File No. 811-5545
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 43 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 45 [X]
THE SESSIONS GROUP
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road
Columbus, Ohio 43219
(Address of Principal Executive Offices)
Registrant's Telephone Number:
(800) 752-1823
CHARLES H. HIRE, ESQ.
Baker & Hostetler LLP
65 East State Street, Suite 2100
Columbus, Ohio 43215
(Name and Address of Agent for Service)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: Immediately, upon effectiveness.
It is proposed that this filing will become effective (check appropriate
box):
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Title of Securities Being Registered:
Shares of beneficial interest, without par value.
<PAGE> 2
CROSS REFERENCE SHEET
---------------------
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
Six Funds
of
The Sessions Group
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C> <C>
1. Cover page.................. Cover Page
2. Synopsis.................... Fee Table; Prospectus Summary
3. Condensed Financial
Information............... Financial Highlights; Performance
Information
4. General Description of
Registrant................ Investment Objectives and Policies;
Investment Restrictions; General
Information - Description of the
Group and Its Shares
5. Management of the Fund...... Management of the Group; General
Information - Custodian; General
Information - Transfer Agent
5A. Management's Discussion
of Fund Performance....... Inapplicable.
6. Capital Stock and Other
Securities................ How to Purchase and Redeem Shares;
Dividends and Taxes; General Informa-
tion - Description of the Group and
Its Shares; General Information -
Miscellaneous
7. Purchase of Securities
Being Offered............. Valuation of Shares; How to Purchase
and Redeem Shares; Management of the
Group - Distribution Plan
8. Redemption or Repurchase.... How to Purchase and Redeem Shares
9. Pending Legal Proceedings... Inapplicable
</TABLE>
<PAGE> 3
[LOGO]
RIVERSIDE (C)
CAPITAL FUNDS
-----------------------------
Money Market Fund
Value Equity Fund
Fixed Income Fund
Tennessee
Municipal Obligations Fund
Low Duration
Government Securities Fund
Growth Fund
-----------------------------
[LOGO]
NATIONAL BANK
OF COMMERCE
Memphis, Tennessee
Investment Adviser
------------------
Prospectus dated October 31, 1997
Begins on Page One
------------------
<PAGE> 4
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
<TABLE>
<S> <C>
3435 Stelzer Road For current yield, purchase, and
Columbus, Ohio 43219 redemption information, call
(800) 874-8376.
</TABLE>
The Sessions Group (the "Group") is an open-end management investment
company. The Group includes the Riverside Capital Money Market Fund (the "Money
Market Fund"), the Riverside Capital Value Equity Fund (the "Value Fund"), the
Riverside Capital Fixed Income Fund (the "Fixed Income Fund"), the Riverside
Capital Low Duration Government Securities Fund (the "Government Securities
Fund") and the Riverside Capital Growth Fund (the "Growth Fund"), each of which
is a diversified investment fund of the Group, and the Riverside Capital
Tennessee Municipal Obligations Fund (the "Tennessee Fund"), which is a
non-diversified investment fund of the Group (the Money Market, Value, Fixed
Income, Tennessee, Government Securities, and Growth Funds are hereinafter
collectively referred to as the "Funds" and individually as a "Fund"). The
Trustees of the Group have divided each Fund's beneficial ownership into an
unlimited number of transferable units called shares (the "Shares").
National Bank of Commerce, Memphis, Tennessee (the "Adviser"), which is a
wholly owned subsidiary of National Commerce Bancorporation ("NCB"), acts as the
investment adviser to each of the Funds.
THE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, THE ADVISER, NCB OR ANY OF THEIR AFFILIATES. SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY, AND AN INVESTMENT IN A FUND
INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
IN ADDITION, AN INVESTMENT IN THE MONEY MARKET FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THE MONEY MARKET FUND SEEKS TO MAINTAIN A
CONSTANT NET ASSET VALUE OF $1.00 PER SHARE, BUT THERE CAN BE NO ASSURANCE THAT
NET ASSET VALUE WILL NOT VARY.
Additional information about the Funds, contained in a Statement of
Additional Information, has been filed with the Securities and Exchange
Commission and is available upon request without charge by writing to the Funds
at their address or by calling the Funds at the telephone number shown above.
The Statement of Additional Information bears the same date as this Prospectus
and is incorporated by reference in its entirety into this Prospectus.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing. Investors should read this
Prospectus and retain it for future reference.
(Continued on next page)
------------------------------
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 October 31, 1997.
<PAGE> 5
(Continued from previous page)
The MONEY MARKET FUND seeks current income with liquidity and stability of
principal. The Money Market Fund invests in high-quality money market
instruments and other instruments of high quality. All securities or instruments
in which the Money Market Fund invests have remaining maturities of 397 days or
less, although instruments subject to repurchase agreements may bear longer
maturities.
The VALUE FUND seeks growth of capital by investing primarily in a
diversified portfolio of common stocks and securities convertible into common
stock. The Value Fund will invest in securities of companies believed by the
Adviser to exhibit strong financial characteristics and to be selling below
their long-term intrinsic value.
The FIXED INCOME FUND seeks current income and preservation of capital
through investment in high grade fixed income securities.
The TENNESSEE FUND seeks (1) income which is exempt from federal income tax
and Tennessee state income tax, although such income may be subject to the
federal alternative minimum tax when received by certain Shareholders, and (2)
preservation of capital. The Tennessee Fund will invest, under normal market
conditions, at least 80% of its net assets in Exempt Securities (as defined
below).
The GOVERNMENT SECURITIES FUND seeks current income consistent with
preservation of capital. The Government Securities Fund will invest primarily in
obligations issued or guaranteed by the U.S. Government and its agencies and
instrumentalities, and, under normal market conditions, will maintain an average
portfolio duration of approximately one to four years and a dollar-weighted
average portfolio maturity of approximately two to six years.
The GROWTH FUND seeks growth of capital by investing primarily in a
diversified portfolio of common stocks and securities convertible into common
stock. The Growth Fund will invest in securities of companies believed by its
investment adviser to have an attractive outlook for growth in earnings.
Each of the Value Fund's, the Growth Fund's, the Fixed Income Fund's, the
Tennessee Fund's, and the Government Securities Fund's net asset value per share
will fluctuate as the value of its portfolio changes in response to changing
market prices, market rates of interest and/or other factors.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS"), Columbus, Ohio, acts as the Funds' administrator and distributor.
BISYS Fund Services Ohio, Inc., Columbus, Ohio, an affiliate of BISYS, acts as
the Funds' transfer agent (the "Transfer Agent"), and BISYS Fund Services, Inc.,
the general partner of BISYS, performs certain fund accounting services for each
of the Funds.
2
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................................................................... 4
Fee Table............................................................................. 6
Financial Highlights.................................................................. 8
Performance Information............................................................... 12
Investment Objectives and Policies.................................................... 13
Investment Restrictions............................................................... 25
Valuation of Shares................................................................... 28
How to Purchase and Redeem Shares..................................................... 29
Dividends and Taxes................................................................... 36
Management of the Group............................................................... 38
General Information................................................................... 42
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR THEIR DISTRIBUTOR, BISYS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
ANY FUND OR BY BISYS IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
3
<PAGE> 7
PROSPECTUS SUMMARY
Shares Offered............... Units of beneficial interest ("Shares") of the
Money Market Fund, the Value Fund, the Fixed
Income Fund, the Tennessee Fund, the Government
Securities Fund and the Growth Fund, six
separate investment funds (collectively, the
"Funds") of The Sessions Group, an Ohio business
trust (the "Group").
Offering Price............... The public offering price of the Money Market
Fund is equal to the net asset value per share
which such Fund will seek to maintain at $1.00
per Share.
The public offering price of each of the other
Funds is equal to the net asset value per share
plus a sales charge ranging from 4.5% to 2%
(depending upon the Fund) of the public offering
price, reduced on investments of $100,000
($250,000 for the Government Securities Fund) or
more (See "HOW TO PURCHASE AND REDEEM
SHARES -- Sales Charges"). Under certain
circumstances, the sales charge may be
eliminated (See "HOW TO PURCHASE AND REDEEM
SHARES -- Sales Charge Waivers").
Minimum Purchase............. $1,000 minimum initial investment with $50
minimum subsequent investments. Such minimum
initial investment is reduced to $100 for
investors using the Auto Invest Plan described
herein, such minimum subsequent investment may
be waived if purchases are made in connection
with an IRA, and both minimums may be waived if
purchases are made pursuant to a payroll
deduction plan.
Type of Company.............. Each Fund is a series of an open-end, management
investment company. The Money Market Fund, the
Value Fund, the Fixed Income Fund, the
Government Securities Fund and the Growth Fund
are each a diversified Fund. The Tennessee Fund
is a non-diversified Fund.
Investment Objectives........ For the MONEY MARKET FUND, current income with
liquidity and stability of principal.
For the VALUE FUND, growth of capital by
investing primarily in a diversified portfolio
of common stocks and securities convertible into
common stocks.
For the FIXED INCOME FUND, current income and
preservation of capital through investment in
high grade fixed income securities.
For the TENNESSEE FUND, (1) income which is
exempt from federal income tax and Tennessee
state income tax, although such income may be
subject to the federal alternative minimum tax
when received by certain Shareholders, and (2)
preservation of capital.
For the GOVERNMENT SECURITIES FUND, current
income consistent with preservation of capital.
For the GROWTH FUND, growth of capital by
investing primarily in a diversified portfolio
of common stocks and securities convertible into
common stock.
Investment Policies.......... The MONEY MARKET FUND invests in high-quality
money market instruments and other instruments
of high quality. All securities or instruments
in which the Money Market Fund invests have
remaining maturities of 397 days (13 months) or
less, although instruments subject to repurchase
agreements may bear longer maturities.
4
<PAGE> 8
Under normal market conditions, the VALUE FUND
will invest at least 80% of its total assets in
common stocks, and securities convertible into
common stocks, of companies believed by the
Adviser to exhibit strong financial
characteristics and to be selling below their
long-term intrinsic value.
Under normal market conditions, the FIXED INCOME
FUND will invest at least 80% of its total
assets in debt securities of all types.
Under normal market conditions, the TENNESSEE
FUND will invest at least 80% of its net assets
in municipal securities issued by or on behalf
of the State of Tennessee or any county,
political subdivision or municipality thereof,
including any agency, board, authority or
commission of any of the foregoing, and debt
obligations issued by the Government of Puerto
Rico, which generate interest income which is
exempt from federal and Tennessee state income
taxes (but may be treated as a preference item
of certain Shareholders for purposes of the
federal alternative minimum tax).
Under normal market conditions, the GOVERNMENT
SECURITIES FUND will invest at least 65% of its
net assets in obligations issued or guaranteed
by the U.S. Government, its agencies or
instrumentalities, and will maintain an average
portfolio duration of approximately one to four
years and a dollar-weighted average portfolio
maturity of approximately two to six years.
Under normal market conditions, the GROWTH FUND
will invest at least 65% of its total assets in
common stocks, and securities convertible into
common stocks, of companies believed by the
Adviser to have an attractive outlook for growth
in earnings.
Risk Factors and
Special Considerations..... An investment in any of the Funds is subject to
certain risks, as set forth in detail under
"INVESTMENT OBJECTIVES AND POLICIES -- Risk
Factors and Investment Techniques." As with
other mutual funds, there can be no assurance
that any of the Funds will achieve its
investment objectives. The Funds, to the extent
set forth under "INVESTMENT OBJECTIVES AND
POLICIES," may engage in one or more of the
following practices: the purchase of securities
from primarily one state, the use of repurchase
agreements and reverse repurchase agreements,
investing in foreign securities and derivative
securities, including entering into options
transactions on securities in which the Funds
may invest, the lending of portfolio securities
and the purchase of securities on a when-issued
or delayed-delivery basis.
Investment Adviser........... National Bank of Commerce (the "Adviser").
Dividends.................... For the Money Market Fund, dividends from net
income are declared daily and generally paid
monthly. For each of the other Funds, dividends
from net income are declared and generally paid
monthly. Net realized capital gains are
distributed at least annually.
Distributor.................. BISYS Fund Services Limited Partnership d/b/a
BISYS Fund Services ("BISYS").
5
<PAGE> 9
FEE TABLE
<TABLE>
<CAPTION>
MONEY MARKET VALUE FIXED INCOME
FUND FUND FUND
------------ ----- ------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)........................ 0% 4.50% 3.00%
Maximum Sales Load Imposed on Reinvested Dividends (as a
percentage of offering price).............................. 0% 0% 0%
Deferred Sales Load (as a percentage of original purchase
price or redemption proceeds, as applicable)............... 0% 0% 0%
Redemption Fees (as a percentage of amount redeemed, if
applicable)................................................ 0% 0% 0%
Exchange Fee................................................ $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees............................................. .35% .91% .65%
12b-1 Fees After Voluntary Fee Reduction (1)................ .15 .09 .05
Other Expenses After Voluntary Fee Reduction (2)............ .56 .59 .62
---- ---- ----
Total Fund Operating Expenses After Voluntary Fee
Reduction.................................................. 1.06% 1.59% 1.32%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT
TENNESSEE SECURITIES GROWTH
FUND FUND FUND
--------- ---------- ------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)........................... 3.00% 2.00% 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)........................... 0% 0% 0%
Deferred Sales Load (as a percentage of original purchase price
or redemption proceeds, as applicable)........................ 0% 0% 0%
Redemption Fees (as a percentage of amount redeemed, if
applicable)................................................... 0% 0% 0%
Exchange Fee................................................... $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (3)............................................ .25% 0% .35%
12b-1 Fees After Voluntary Fee Reduction (1)................... .15 .11 .08
Other Expenses After Voluntary Fee Reduction (2)............... .78 .81 .63
---- ---- ----
Total Fund Operating Expenses After Voluntary Fee Reduction.... 1.18% .92% 1.06%
==== ==== ====
</TABLE>
Example
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Fund................................... $ 11 $34 $ 58 $129
Value Fund.......................................... $ 60 $93 $ 127 $225
Fixed Income Fund................................... $ 43 $71 $ 100 $184
Tennessee Fund...................................... $ 42 $66 $ 93 $169
Government Securities Fund.......................... $ 29 $49 $ 70 $131
Growth Fund......................................... $ 55 $77 $ 101 $169
</TABLE>
6
<PAGE> 10
The purpose of the above table is to assist a potential purchaser of Shares
of any of the Funds in understanding the various costs and expenses that an
investor in a Fund will bear directly or indirectly. Such expenses do not
include any fees charged by the Adviser or any of its affiliates to its customer
accounts which may have invested in Shares of the Funds. See "MANAGEMENT OF THE
GROUP" and "GENERAL INFORMATION" for a more complete discussion of the
Shareholder transaction expenses and annual operating expenses of each Fund. As
a result of the payment of sales loads, as applicable, and Rule 12b-1 Fees,
long-term Shareholders may pay more than the maximum front-end sales charge
permitted by the Rules of the National Association of Securities Dealers, Inc.
(the "NASD"). The expense information above reflects current fees. For
information on fees and expenses for the fiscal year ended June 30, 1997, please
see the Funds' annual report or the financial information contained in the
Funds' Statement of Additional Information. THE FOREGOING EXAMPLES SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
- ------------------------------
(1) BISYS has agreed with the Group to reduce voluntarily the amount of its
12b-1 fees until on or about December 31, 1997, to the extent necessary to
cause the total of Rule 12b-1 fees and administrative servicing fees to not
exceed .29% of each Fund's respective net assets. Absent such voluntary fee
reductions, Rule 12b-1 fees and administrative services fees would each be
.25% for each of the Funds. Absent such voluntary fee reductions and the
voluntary advisory fee reductions described in Note 3 below, Total Fund
Operating Expenses would have been 1.27% for the Money Market Fund, 1.80%
for the Value Fund, 1.53% for the Fixed Income Fund, 1.79% for the Tennessee
Fund, 1.63% for the Government Securities Fund and 1.92% for the Growth
Fund.
(2) "Other Expenses" include administration fees and administrative servicing
fees.
(3) The Adviser has agreed with the Group to reduce voluntarily the amount of
its investment advisory fee with respect to the Tennessee Fund, the
Government Securities Fund and the Growth Fund until at least December 31,
1998. Absent such voluntary fee reductions, Management Fees for the
Tennessee Fund, the Government Securities Fund and the Growth Fund would be
.65%, .50% and 1.00%, respectively.
7
<PAGE> 11
FINANCIAL HIGHLIGHTS
Each Fund is a separate fund of the Group. The table below sets forth
certain information concerning the investment results of each Fund since its
inception. Further financial information is included in the Statement of
Additional Information. The Financial Highlights contained in the following
tables have been audited by KPMG Peat Marwick LLP, independent certified public
accountants for the Group, whose report on the five fiscal years ended June 30,
1997, 1996, 1995, 1994 and 1993, or such shorter period as the Funds may have
been in existence, is included in the Statement of Additional Information and
which may be obtained by Shareholders.
<TABLE>
<CAPTION>
THE MONEY MARKET FUND
----------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1995 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
Beginning of period..... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Income from investment
operations:
Net investment income.. 0.044 0.046 0.044 0.026 0.032 0.051 0.071 0.081
Net gains or losses on
securities
(both realized and
unrealized)........... -- -- (0.004) -- -- 0.003 -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations.............. 0.044 0.046 0.040 0.026 0.032 0.054 0.071 0.081
-------- -------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends (from net
investment income).... (0.044) (0.046) (0.044) (0.026) (0.032) (0.051) (0.071) (0.081)
Distributions (from
capital gains)........ -- -- -- -- -- (0.003) -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions.... (0.044) (0.046) (0.044) (0.026) (0.032) (0.054) (0.071) (0.081)
-------- -------- -------- -------- -------- -------- -------- --------
Capital Transactions..... -- -- 0.004 -- -- -- -- --
Net asset value,
End of period........... $ 1,000 $ 1,000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ======== ======== ======== ========
Total Return............. 4.44%+ 4.75%+ 4.44%+ 2.65% 3.20% 5.61% 7.29% 8.41%
ANNUALIZED
RATIOS/SUPPLEMENTAL
DATA:
Net assets, End of
period (000
omitted).............. $140,174 $134,146 $157,904 $128,001 $141,840 $162,361 $165,242 $103,809
Ratio of expenses to
average net asset..... 1.09% 0.99% 0.97% 0.95% 0.85% 0.66% 0.63% 0.59%
Ratio of net investment
income to average net
assets................ 4.36% 4.65% 4.41% 2.62% 3.17% 5.12% 6.95% 8.09%
Ratio of expenses to
average net assets*... 1.30% 1.20% 1.18% 1.09% 0.94% 0.91% 0.68% 0.76%
Ratio of net investment
income to average net
assets*............... 4.15% 4.44% 4.20% 2.48% 3.08% 4.87% 6.90% 7.92%
<CAPTION>
JULY 25,
1988 TO
JUNE 30,
1989(A)
---------
<S> <C>
Net asset value,
Beginning of period..... $ 1.000
Income from investment
operations:
Net investment income.. 0.077
Net gains or losses on
securities
(both realized and
unrealized)........... --
--------
Total from investment
operations.............. 0.077
--------
Less Distributions:
Dividends (from net
investment income).... (0.077)
Distributions (from
capital gains)........ --
--------
Total Distributions.... (0.077)
--------
Capital Transactions..... --
Net asset value,
End of period........... $ 1.000
========
Total Return............. 7.97%(b)
ANNUALIZED
RATIOS/SUPPLEMENTAL
DATA:
Net assets, End of
period (000
omitted).............. $85,441
Ratio of expenses to
average net asset..... 0.83%(c)
Ratio of net investment
income to average net
assets................ 8.24%(c)
Ratio of expenses to
average net assets*... 1.05%(c)
Ratio of net investment
income to average net
assets*............... 8.02%(c)
</TABLE>
- ---------------
+ The capital contribution had no impact on the total return for the years ended
June 30, 1995, June 30, 1996, and June 30, 1997.
8
<PAGE> 12
<TABLE>
<CAPTION>
THE VALUE FUND
-------------------------------------------------------------------------------------------------
OCTOBER 31, 1991
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993 JUNE 30, 1992 (A)
-------------- -------------- -------------- -------------- -------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
Beginning of period............ $ 14.54 $ 12.63 $12.67 $11.57 $11.04 $10.00
Income from investment
operations:
Net investment income......... 0.09 0.14 0.14 0.07 0.21 0.17
Net gains or losses on
securities
(both realized and
unrealized).................. 3.06 2.40 0.76 1.28 0.96 1.03
-------- ------- ------- ------- ------- -------
Total from investment
operations................... 3.15 2.54 0.90 1.35 1.17 1.20
-------- ------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment
income)...................... (0.10) (0.14) (0.13) (0.05) (0.22) (0.16)
Distributions (from capital
gains)....................... (2.06) (0.49) (0.15) (0.19) (0.42) --
In excess of net realized
gains........................ -- -- (0.66) -- -- --
-------- ------- ------- ------- ------- -------
Total Distribution............ (2.16) (0.63) (0.94) (0.25) (0.64) (0.16)
-------- ------- ------- ------- ------- -------
Net asset value,
End of period.................. $ 15.53 $ 14.54 $12.63 $12.67 $11.57 $11.04
======== ======= ======= ======= ======= =======
Total Return (excludes sales
charges)....................... 23.66% 20.50% 8.03% 11.75% 10.94% 12.04%(b)
ANNUALIZED RATIOS/SUPPLEMENTAL
DATA:
Net assets, End of period (000
omitted)..................... $79,564 $81,055 $80,264 $79,232 $52,629 $25,461
Ratio of expenses to average
net assets................... 1.62% 1.58% 1.58% 1.36% 0.73% 0.67%(c)
Ratio of net investment income
to average net assets........ 0.61% 1.01% 1.13% 0.52% 1.84% 2.43%(c)
Ratio of expenses to average
net assets*.................. 1.83% 1.79% 1.79% 1.74% 1.69% 1.95%(c)
Ratio of net investment income
to average net assets*....... 0.40% 0.80% 0.92% 0.14% 0.88% 1.15%(c)
Portfolio turnover............ 11.47% 27.89% 35.64% 62.17% 16.13% 23.07%
Average commission rate
paid(d)...................... $0.0604 $ 0.0605 -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
THE FIXED INCOME FUND
-------------------------------------------------------------------------------------------------
OCTOBER 31, 1991
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993 JUNE 30, 1992 (A)
-------------- -------------- -------------- -------------- -------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
Beginning of period............ $ 8.77 $ 9.27 $ 9.43 $10.44 $10.26 $10.00
Income from investment
operations:
Net investment income......... 0.57 0.59 0.58 0.57 0.68 0.42
Net gains or losses on
securities (both realized and
unrealized).................. (1.39) (0.48) (0.15) (0.76) 0.27 0.22
------- ------- ------- ------- ------- -------
Total from investment
operation................... (.82) 0.11 0.43 (0.19) 0.95 0.64
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment
income)...................... (0.56) (0.58) (0.58) (0.57) (0.69) (0.38)
Distributions (from capital
gains)....................... -- -- -- -- (0.08) --
In excess of net realized
gains........................ -- (0.03) -- (0.25) -- --
In excess of net investment
income....................... -- -- (0.01) -- -- --
------- ------- ------- ------- ------- -------
Total Distributions........... (0.56) (0.61) (0.59) (0.82) (0.77) (0.38)
------- ------- ------- ------- ------- -------
Capital Transactions............ $ 1.29 -- -- -- -- --
------- ------- ------- ------- ------- -------
Net asset value,
End of period.................. $ 8.68 $ 8.77 $ 9.27 $ 9.43 $10.44 $10.26
======= ======= ======= ======= ======= =======
Total Return (excludes sales
charges)...................... 5.55%+ 1.05% 4.82% (2.20)% 9.64% 6.56%(b)
ANNUALIZED RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period (000
omitted)..................... $18,227 $28,847 $39,496 $42,309 $35,951 $27,256
Ratio of expenses to average
net assets................... 1.49% 1.48% 1.43% 1.37% 0.74% 0.69%(c)
Ratio of net investment income
to average net assets........ 6.44% 6.32% 6.33% 5.61% 6.65% 6.51%(c)
Ratio of expenses to average
net assets*.................. 1.70% 1.69% 1.64% 1.70% 1.42% 1.63%(c)
Ratio of net investment income
to average net assets*....... 6.23% 6.11% 6.12% 5.28% 5.97% 5.58%(c)
Portfolio turnover............ 196.97% 363.84% 223.29% 328.44% 234.71% 40.85%
</TABLE>
- ---------------
+ The total return for the year ended June 30, 1997, includes the effect of a
capital contribution from the Adviser. Without such capital contribution, the
total return would have been (12.33%).
9
<PAGE> 13
<TABLE>
<CAPTION>
THE TENNESSEE FUND
---------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED NOVEMBER 4, 1992
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994 TO JUNE 30, 1993(A)
------------- ------------- ------------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Net asset value, Beginning of
period........................... $ 9.76 $ 9.84 $ 9.81 $ 10.44 $ 10.00
Income from investment operations:
Net investment income........... 0.53 0.53 0.50 0.48 0.30
Net gains or losses on
securities
(both realized and
unrealized).................... 0.17 (0.08) 0.03 (0.57) 0.43
------- ------- ------- ------- -------
Total from investment
operations...................... 0.70 0.45 0.53 (0.09) 0.73
------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment
income)....................... (0.51) (0.53) (0.50) (0.48) (0.29)
Distributions (from capital
gains)........................ -- -- -- -- --
In excess of net realized
gains......................... -- -- -- (0.06) --
------- ------- ------- ------- -------
Total Distributions............... (0.51) (0.53) (0.50) (0.54) (0.29)
------- ------- ------- ------- -------
Net asset value, End of period.... $ 9.95 $ 9.76 $ 9.84 $ 9.81 $ 10.44
======= ======= ======= ======= =======
Total Return (excludes sales
charges)........................ 7.38% 4.67% 5.61% (1.00)% 7.39%(b)
ANNUALIZED RATIOS/SUPPLEMENTAL
DATA:
Net Assets, end of period (000
omitted)....................... $18,352 $19,037 $20,827 $19,965 $17,425
Ratio of expenses to average net
assets......................... 1.10% 0.98% 1.12% 1.19% 0.82%(c)
Ratio of net investment income
to average net assets.......... 5.33% 5.40% 5.24% 4.67% 4.76%(c)
Ratio of expenses to average net
assets*........................ 1.91% 1.83% 1.98% 1.99% 1.62%(c)
Ratio of net investment income
to average net assets*......... 4.52% 4.55% 4.38% 3.87% 3.96%(c)
Portfolio turnover.............. 38.66% 60.76% 62.59% 86.57% 52.52%
</TABLE>
<TABLE>
<CAPTION>
THE GOVERNMENT SECURITIES FUND
----------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED APRIL 15, 1994
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 TO JUNE 30, 1994(A)
------------- ------------- ------------- -------------------
<S> <C> <C> <C> <C>
Net asset value, Beginning of period.......... $ 9.95 $ 10.15 $ 9.93 $ 10.00
Income from investment operations:
Net investment income....................... 0.54 0.53 0.56 0.07
Net gains on losses on securities (both
realized and unrealized)................... 0.05 (0.20) 0.21 (0.08)
------- ------- ------- -------
Total from investment operations.............. 0.59 0.33 0.77 (0.01)
------- ------- ------- -------
Less Distributions:
Dividends (from net investment income)...... (0.54) (0.53) (0.55) (0.06)
Distributions (from capital gains).......... -- -- -- --
------- ------- ------- -------
Total Distributions........................... (0.54) (0.53) (0.55) (0.06)
------- ------- ------- -------
Net asset value, End of period................ $ 10.00 $ 9.95 $ 10.15 $ 9.93
======= ======= ======= =======
Total Return (excludes sales charges)......... 6.12% 3.31% 8.03% (0.13)%(b)
ANNUALIZED RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000 omitted)..... $ 6,945 $ 7,461 $ 7,653 $ 7,692
Ratios of expenses to average net assets.... 1.31% 1.44% 1.33% 2.85%(c)
Ratio of net investment income to average
net assets................................ 5.39% 5.19% 5.67% 3.63%(c)
Ratio of expenses to average net assets*.... 2.07% 2.20% 2.10% 3.67%(c)
Ratio of net investment income to average
net assets*............................... 4.63% 4.43% 4.89% 2.81%(c)
Portfolio turnover.......................... 104.79% 20.87% 34.47% 21.20%
</TABLE>
10
<PAGE> 14
<TABLE>
<CAPTION>
THE GROWTH FUND
----------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED APRIL 18, 1994
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 TO JUNE 30, 1994(A)
------------- ------------- ------------- -------------------
<S> <C> <C> <C> <C>
Net asset value, Beginning of
Period............................. $ 14.01 $ 12.14 $ 9.82 $ 10.00
Income from investment operations:
Net investment income.............. 0.16 0.18 0.16 --
Net gains on losses on securities
(both realized and unrealized).... 3.92 2.13 2.30 (0.18)
------- ------- ------- ------
Total from investment operations..... 4.08 2.31 2.46 (0.18)
------- ------- ------- ------
Less Distributions:
Dividends (from net investment
income)........................... (0.16) (0.18) (0.14) --
In excess of net investment
income............................ -- (0.01) -- --
Distributions (from capital
gains)............................ (0.42) (0.25) -- --
------- ------- ------- ------
Total Distributions.................. (0.58) (0.44) (0.14) --
------- ------- ------- ------
Net asset value, End of period....... $ 17.51 $ 14.01 $ 12.14 $ 9.82
======= ======= ======= ======
Total Return (excludes sales
charges)........................... 29.91% 19.35% 25.27% (1.80)%(b)
ANNUALIZED RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000
omitted)........................ $37,405 $33.767 $21,485 $6,345
Ratios of expenses to average net
assets.......................... 1.08% 1.05% 1.24% 2.59%(c)
Ratio of net investment income to
average net assets.............. 1.06% 1.37% 1.64% 0.25%(c)
Ratio of expenses to average net
assets*......................... 1.99% 1.97% 2.51% 3.90%(c)
Ratio of net investment income to
average net assets*............. 0.15% 0.45% 0.37% (1.07)%(c)
Portfolio turnover................. 24.07% 31.22% 29.36% 0.00%
Average commissions rate paid(d)... $0.0696 $0.0686 -- --
</TABLE>
- ------------------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged. Disclosure of these rates was not
required until fiscal 1996.
11
<PAGE> 15
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing the Funds'
average annual total return, yield, taxable equivalent yield, seven-day yield
and/or seven-day effective yield may be presented in advertisements, sales
literature and shareholder reports. SUCH PERFORMANCE FIGURES ARE BASED ON
HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. Average
annual total return will be calculated for the period since commencement of
operations for a Fund and will reflect the imposition of the maximum sales
charge, if any. Average annual total return is measured by comparing the value
of an investment in such Fund at the beginning of the relevant period to the
redeemable value of the investment at the end of the period (assuming immediate
reinvestment of any dividends or capital gains distributions), which figure is
then annualized. Yield will be computed by dividing a Fund's net investment
income per share earned during a recent one-month period by that Fund's per
share maximum offering price (reduced by any undeclared earned income expected
to be paid shortly as a dividend) on the last day of the period and annualizing
the result. Taxable equivalent yield of a Fund demonstrates the taxable yield
necessary to produce an after-tax yield equivalent to the yield of that Fund.
Each of the Funds may also present its average annual total return, aggregate
total return, yield and taxable equivalent yield, as the case may be, excluding
the effect of a sales charge, if any.
The seven-day yield of the Money Market Fund refers to the income generated
by an investment therein over a seven-day period (which period will be stated in
the advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.
The Money Market Fund may also present a 30-day yield which is calculated
similarly but instead refers to a 30-day period rather than a seven-day period.
The seven-day effective yield is calculated similarly but, when annualized, the
income earned by an investment in the Money Market Fund is assumed to be
reinvested. The seven-day effective yield is slightly higher than the seven-day
yield because of the compounding effect of this assumed reinvestment.
In addition, from time to time, the Funds may present their distribution
rates in supplemental sales literature and in shareholder reports, both of which
must be accompanied or preceded by a prospectus. Distribution rates will be
computed by dividing the distribution per share made by a Fund over a
twelve-month period by the maximum offering price per share at the end of that
period. The calculation of income in the distribution rate includes both income
and capital gain dividends and does not reflect unrealized gains or losses,
although each Fund may also present a distribution rate excluding the effect of
capital gains and/or a sales charge, if any. The distribution rate differs from
the yield, because it includes capital gain dividends which are often
non-recurring in nature, whereas yield does not include such items.
Investors may also judge the performance of each Fund by comparing or
referencing it to the performance of other mutual funds with comparable
investment objectives and policies through various mutual fund or market indices
and to data prepared by various services, which indices or data may be published
by such services or by other services or publications. In addition to
performance information, general information about these Funds that appears in
such publications may be included in advertisements, sales literature and
reports to Shareholders.
Yield and total return are generally functions of market conditions,
interest rates, types of investments held, and operating expenses. Consequently,
current yields and total return will fluctuate and are not necessarily
representative of future results. Any fees charged by NCB or by any of its
affiliated or correspondent banks, including the Adviser, to its customer
accounts which may have invested in Shares of a Fund will not be included in
performance calculations; such fees, if charged, will reduce the actual
performance from that quoted. In addition, if the Adviser or BISYS voluntarily
reduces all or part of its fees for a Fund, as discussed below, the yield and
total return for that Fund will be higher than they would otherwise be in the
absence of such voluntary fee reductions.
Further information about the performance of the Funds is contained in the
Funds' Annual Report to Shareholders which may be obtained without charge by
contacting the Group at (800) 874-8376.
12
<PAGE> 16
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
The investment objective of the Money Market Fund is to seek current income
with liquidity and stability of principal. The investment objective of the Value
Fund is to seek growth of capital by investing primarily in a diversified
portfolio of common stocks and securities convertible into common stocks. The
investment objective of the Fixed Income Fund is to seek current income as well
as preservation of capital by investing in high grade fixed income securities.
The investment objectives of the Tennessee Fund are to seek (1) income which is
exempt from federal income tax and Tennessee state income tax, although such
income may be subject to the federal alternative minimum tax when received by
certain Shareholders, and (2) preservation of capital. The investment objective
of the Government Securities Fund is to seek current income consistent with
preservation of capital. The investment objective of the Growth Fund is to seek
growth of capital by investing primarily in a diversified portfolio of common
stocks and securities convertible into common stocks.
The investment objectives with respect to a Fund are fundamental policies
and as such may not be changed without a vote of the holders of a majority of
the outstanding Shares of that Fund (as defined below under "GENERAL
INFORMATION -- Miscellaneous"). There can be no assurance that the investment
objectives of any Fund will be achieved.
THE MONEY MARKET FUND
As a money market fund, the Money Market Fund invests exclusively in United
States dollar-denominated instruments which the Trustees of the Group and the
Adviser determine present minimal credit risks and which at the time of
acquisition are rated by one or more appropriate nationally recognized
statistical rating organizations ("NRSROs") (e.g., Standard & Poor's Corporation
and Moody's Investors Service, Inc.) in one of the two highest rating categories
for short-term debt obligations or, if unrated, are of comparable quality. The
Money Market Fund also diversifies its investments so that, with minor
exceptions and except for United States Government securities, not more than
five percent of its total assets is invested in the securities of any one
issuer, not more than five percent of its total assets is invested in securities
of issuers rated by the NRSRO at the time of investment in the second highest
rating category for short-term debt obligations or, if unrated, deemed by the
Adviser to be of comparable quality ("Second Tier Securities") and not more than
the greater of one percent of total assets or one million dollars is invested in
the securities of one issuer that are Second Tier Securities. All securities or
instruments in which the Money Market Fund invests have remaining maturities of
397 calendar days or less. The dollar-weighted average maturity of the
securities in the Money Market Fund will not exceed 90 days.
Subject to the foregoing general limitations, the Money Market Fund expects
to invest in the following types of securities.
The Money Market Fund may invest in a variety of U.S. Treasury obligations,
differing in their interest rates, maturities, and times of issuance, and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities (collectively, "Government Obligations"). Obligations of
certain agencies and instrumentalities of the U.S. Government, such as the
Government National Mortgage Association ("GNMA") and the Export-Import Bank of
the United States, are supported by the full faith and credit of the U.S.
Treasury; others, such as those of the Federal National Mortgage Association
("FNMA"), are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Student Loan Marketing Association, are supported
by the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation ("FHLMC"), are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so by law. The Money Market
Fund will invest in the obligations of such agencies or instrumentalities only
when the Adviser believes that the credit risk with respect thereto is minimal.
The Money Market Fund may also invest in taxable State Securities, as defined
below under "The Government Securities Fund."
13
<PAGE> 17
The Money Market Fund may invest in bankers' acceptances guaranteed by
domestic and foreign banks if at the time of investment the guarantor bank has
capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most recently published financial statements). The Money Market Fund
may also invest in certificates of deposit and time deposits of domestic and
foreign banks and savings and loan associations if (a) at the time of investment
the depositor institution has capital, surplus, and undivided profits in excess
of $100,000,000 (as of the date of their most recently published financial
statements) or (b) the principal amount of the instrument is insured in full by
the Federal Deposit Insurance Corporation.
The Money Market Fund may also invest in Eurodollar Certificates of Deposit
("ECDs") which are U.S. dollar denominated certificates of deposit issued by
offices of foreign and domestic banks located outside the United States;
Eurodollar Time Deposits ("ETDs") which are U.S. dollar denominated deposits in
a foreign branch of a U.S. bank or a foreign bank; Canadian Time Deposits
("CTDs") which are essentially the same as ETDs except they are issued by
Canadian offices of major Canadian banks; and Yankee Certificates of Deposit
("Yankee CDs") which are certificates of deposit issued by U.S. branch of a
foreign bank denominated in U.S. dollars and held in the United States. Under
normal market conditions, the Money Market Fund will not invest more than 20% of
its total assets in such foreign securities (including CCP and Europaper as
defined below).
The Money Market Fund will not invest in excess of 10% of its net assets in
time deposits with maturities in excess of seven days which are subject to
penalties upon early withdrawal. Such time deposits include ETDs and CTDs but do
not include certificates of deposit.
The Money Market Fund may invest in short-term promissory notes issued by
corporations (including variable amount master demand notes) and in taxable
municipal obligations rated at the time of purchase by one or more appropriate
NRSROs in one of the two highest rating categories for short-term debt
obligations or, if not rated, found by the Adviser to be of comparable quality
to instruments that are so rated. Instruments may be purchased in reliance upon
a rating only when the rating organization is not affiliated with the issuer or
guarantor of the instrument. For a description of the rating symbols of the
NRSROs, see the Appendix to the Statement of Additional Information. The Money
Market Fund may also invest in Canadian Commercial Paper ("CCP"), which is
commercial paper issued by a Canadian corporation or a Canadian subsidiary of a
U.S. corporation, and in Europaper, which is U.S. dollar denominated commercial
paper of a foreign issuer which, in each case, is rated at the time of purchase
by one or more appropriate NRSROs in one of the two highest rating categories
for short-term debt obligations or, if not rated, found by the Adviser to be of
comparable quality to instruments that are rated high quality.
The Money Market Fund may also invest in corporate debt securities with
remaining maturities of 397 days or less although at the time of issuance such
securities had maturities exceeding 397 days. The Money Market Fund may invest
in such securities so long as comparable securities of such issuer have been
rated in the highest rating category for short-term debt obligations by the
appropriate NRSROs or are otherwise deemed to be eligible for purchase by the
Money Market Fund in accordance with the guidelines adopted by the Group's Board
of Trustees.
Variable amount master demand notes in which the Money Market Fund may
invest are unsecured demand notes that permit the indebtedness thereunder to
vary and that provide for periodic adjustments in the interest rate according to
the terms of the instrument. Because master demand notes are direct lending
arrangements between the Money Market Fund and the issuer, they are not normally
traded. Although there is no secondary market in the notes, the Money Market
Fund may demand payment of principal and accrued interest at any time. While the
notes are not typically rated by NRSROs, such variable amount master demand
notes must be determined by the Adviser to be of comparable quality to the
commercial paper in which the Fund may invest. The Adviser will consider the
earning power, cash flow, and other liquidity ratios of the issuers of such
notes and will continuously monitor their financial status and ability to meet
payment on demand. In determining dollar-weighted average portfolio maturity, a
variable amount master demand note will be deemed to have a maturity equal to
the period of time remaining until the principal amount can be recovered from
the issuer through demand. The period of time remaining until the principal
amount can be recovered under a variable master demand note shall not exceed
seven days.
14
<PAGE> 18
The Money Market Fund may also acquire variable and floating rate notes
issued by both governmental and nongovernmental issuers, subject to the Money
Market Fund's investment objective, policies and restrictions. A variable rate
note is one whose terms provide for the adjustment of its interest rate on set
dates and which, upon such adjustment, can reasonably be expected to have a
market value that approximates its amortized cost. However, in the event the
interest rate of such a note is established by reference to an index or an
interest rate that may from time to time lag behind other market interest rates,
there is the risk that the market value of such note, on readjustment of its
interest rate, will not approximate its amortized cost which could adversely
affect the Money Market Fund's ability to maintain a stable net asset value. In
such an instance, the Adviser will seek to sell such note to the extent it can
do so in an orderly fashion given current market conditions.
A floating rate note is one whose terms provide for the adjustment of its
interest rate whenever a specified interest rate changes and which, at any time,
can reasonably be expected to have a market value that approximates its
amortized cost. Such notes are frequently not rated by credit rating agencies;
however, unrated variable and floating rate notes purchased by the Money Market
Fund will be determined by the Adviser under guidelines established by the
Group's Board of Trustees to be of comparable quality at the time of purchase to
rated instruments eligible for purchase under the Money Market Fund's investment
policies. In making such determinations, the Adviser will consider the earning
power, cash flow and other liquidity ratios of the issuers of such notes (such
issuers include financial, merchandising, bank holding and other companies) and
will continuously monitor their financial condition. Although there may be no
active secondary market with respect to a particular variable or floating rate
note purchased by the Money Market Fund, the Money Market Fund may attempt to
resell the note at any time to a third party. The absence of an active secondary
market, however, could make it difficult for the Money Market Fund to dispose of
a variable or floating rate note in the event the issuer of the note defaulted
on its payment obligations and the Money Market Fund could, as a result or for
other reasons, suffer a loss to the extent of the default. Variable or floating
rate notes may be secured by bank letters of credit.
To the extent that the Money Market Fund holds a note for which the Money
Market Fund is not entitled to receive the principal amount within seven days of
demand and for which no readily available market exists, such a note will be
treated as an illiquid security for purposes of calculation of the 10%
limitation on illiquid securities as set forth below.
THE VALUE FUND
Under normal market conditions, the Value Fund will invest at least 80% of
its total assets in common stocks and securities convertible into common stocks
(i.e., convertible bonds, convertible preferred stock, warrants, options and
rights), traded in U.S. markets, including the New York Stock Exchange, the
American Stock Exchange and NASDAQ, and issued by companies believed by the
Adviser to exhibit strong financial characteristics and to be selling below
their long-term intrinsic value. The Value Fund may also invest up to 20% of its
total assets in preferred stocks, corporate bonds, notes, warrants, and
short-term obligations (with maturities of 12 months or less) such as commercial
paper (including variable amount master demand notes), bankers' acceptances,
certificates of deposit, repurchase agreements, Government Obligations (as
described above), and demand and time deposits of domestic and foreign banks and
savings and loan associations. The Value Fund may also invest in equity real
estate investment trusts ("REITs") and may hold securities of other investment
companies, including Shares of the Money Market Fund as described more fully
below under "Risk Factors and Investment Techniques -- Other Investment
Policies." During temporary defensive periods as determined by the Adviser, the
Value Fund may hold up to 100% of its total assets in short-term obligations
including domestic bank certificates of deposit, bankers' acceptances and
repurchase agreements secured by bank instruments. However, to the extent that
the Value Fund is so invested in debt obligations, the Fund may not achieve its
investment objective.
Subject to the foregoing limitations, the Value Fund will invest only in
corporate debt securities which are rated at the time of purchase within the
three highest rating groups assigned by one or more appropriate NRSROs or, if
unrated, which the Adviser deems to be of comparable quality. For a description
of the rating symbols of the NRSROs, see the Appendix to the Statement of
Additional Information.
15
<PAGE> 19
Equity securities such as those in which the Value Fund may invest are more
volatile and carry more risk than some other forms of investment, including
investments in high grade fixed income funds. Depending upon the performance of
the Value Fund's investments, the net asset value per share of the Value Fund
may decrease instead of increase.
Subject to the foregoing limitations, the Equity Fund may invest in foreign
securities through the purchase of sponsored and unsponsored American Depositary
Receipts ("ADRs"). Unsponsored ADRs may be less liquid than sponsored ADRs and
there may be less information available regarding the underlying foreign issuer
for unsponsored ADRs. The Value Fund may also invest in securities issued by
foreign branches of U.S. banks and foreign banks, in CCP, and in Europaper.
Investment in foreign securities is subject to special risks, as more fully
discussed below under "Risk Factors and Investment Techniques--Foreign
Investments."
THE FIXED INCOME FUND
Under normal market conditions, the Fixed Income Fund will invest at least
80% of its total assets in debt securities of all types, although up to 20% of
its total assets may be invested in preferred stocks and other investments. Debt
securities include bonds, debentures, notes, mortgage-related securities, state,
municipal or industrial revenue bonds, Government Obligations, taxable State
Securities (as defined below under "The Government Fund") and fixed-income
securities convertible into, or exchangeable for, common stocks. In addition, a
portion of the Fixed Income Fund may from time to time be invested in first
mortgage loans and participation certificates in pools of mortgages issued or
guaranteed by the U.S. Government or its agencies or instrumentalities and in
securities which are restricted as to their disposition, including those
eligible for resale under Rule 144A under the Securities Act of 1933 ("Rule 144A
Securities"). Some of the securities in which the Fixed Income Fund invests may
have warrants or options attached.
Under normal market conditions, the Fixed Income Fund expects to invest
primarily in Government Obligations and in debt obligations of United States
corporations. The Fixed Income Fund also intends that, under normal market
conditions, its portfolio will maintain a dollar-weighted average maturity of
approximately seven years. However, the Fixed Income Fund may extend or shorten
the dollar-weighted average maturity of its portfolio depending upon anticipated
changes in interest rates or other relevant market factors.
The Fixed Income Fund expects to invest in a variety of U.S. Treasury
obligations, differing in their interest rates, maturities, and times of
issuance, and other Government Obligations as more fully described above under
"The Money Market Fund." The Fixed Income Fund will invest in the obligations of
such U.S. Government agencies or instrumentalities only when the Adviser
believes that the credit risk with respect thereto is minimal.
The Fixed Income Fund also expects to invest in bonds, notes and debentures
of a wide range of U.S. corporate issuers. Such obligations may be secured or
unsecured promises to pay and will in most cases differ in their interest rates,
maturities and times of issuance.
The Fixed Income Fund will invest only in corporate debt securities which
are rated at the time of purchase within the three highest rating groups
assigned by one or more appropriate NRSROs or, if unrated, which the Adviser
deems to be of comparable quality. For a description of the rating symbols of
the NRSROs see the Appendix to the Statement of Additional Information.
The Fixed Income Fund may hold some short-term obligations (with maturities
of 12 months or less) such as domestic and foreign commercial paper (including
variable amount master demand notes), bankers' acceptances, certificates of
deposit and demand and time deposits of domestic and foreign branches of U.S.
banks and foreign banks, and repurchase agreements. The Fixed Income Fund may
also invest in securities of other investment companies, including other
investment companies advised by the Adviser, as described more fully below.
The Fixed Income Fund may also invest in U.S. dollar denominated
international bonds for which the primary trading market is in the United States
("Yankee Bonds"), or for which the primary trading market is abroad ("Eurodollar
Bonds"), and in Canadian Bonds and bonds issued by institutions organized for a
specific purpose, such as the World Bank and the European Economic Community, by
two or more sovereign governments ("Supranational Agency Bonds").
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The Fixed Income Fund may invest in mortgage-related securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or by
nongovernmental entities which are rated, at the time of purchase, within the
three highest bond rating categories assigned by one or more appropriate NRSROs,
or, if unrated, which the Adviser deems present attractive opportunities and are
of comparable quality. Such mortgage-related securities have mortgage
obligations backing such securities, including among others, conventional thirty
year fixed rate mortgage obligations, graduated payment mortgage obligations,
fifteen year mortgage obligations and adjustable rate mortgage obligations. All
of these mortgage obligations can be used to create pass-through securities. A
pass-through security is created when mortgage obligations are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgage obligations is passed through to the holders of the securities in the
form of periodic payments of interest, principal and prepayments (net of a
service fee). Prepayments occur when the holder of an individual mortgage
obligation prepays the remaining principal before the mortgage obligation's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate. Because the prepayment characteristics of the underlying mortgage
obligations vary, it is not possible to predict accurately the 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 a Fund's average portfolio duration and its
dollar-weighted average portfolio maturity. Accelerated prepayments have an
adverse impact on yields for pass-through securities purchased at a premium
(i.e., a price in excess of principal amount) and may involve additional risk of
loss of principal because the premium may not have been fully amortized at the
time the obligations are repaid. The opposite is true for pass-through
securities purchased at a discount. The Fixed Income Fund may purchase
mortgage-related securities at a premium or a discount. Reinvestment of
principal payments may occur at higher or lower rates than the original yield on
such securities. Due to the prepayment feature and the need to reinvest payments
and prepayments of principal at current rates, mortgage-related securities can
be less effective than typical bonds of similar maturities at maintaining yields
during periods of declining interest rates.
Certain debt securities such as, but not limited to, mortgage-backed
securities, collateralized mortgage obligations (CMOs) and asset backed
securities, as well as securities subject to prepayment of principal prior to
the stated maturity date, are expected to be repaid prior to their stated
maturity dates. As a result, the effective maturity of these securities is
expected to be shorter than the stated maturity. For purposes of compliance with
stated maturity policies and calculation of the Fixed Income Fund's
dollar-weighted average maturity, the effective maturity of such securities will
be used. The Fixed Income Fund may invest up to 10% of its net assets in CMOs.
CMOs are debt obligations collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by GNMA, FNMA or
FHLMC certificates, but also may be collateralized by whole loans or private
mortgage pass-through securities (such collateral collectively referred to as
"Mortgage Assets"). Payments of principal or interest on the Mortgage Assets,
and any reinvestment income thereon, provide the funds to pay debt service on
the CMOs. CMOs may be issued by agencies or instrumentalities of the U.S.
Government or by private originators of, or investors in, mortgage loans.
An increase in interest rates will generally reduce the value of the
investments in the Fixed Income Fund, and a decline in interest rates will
generally increase the value of those investments. Depending upon the prevailing
market conditions, the Adviser may purchase debt securities at a discount from
face value, which produces a yield greater than the coupon rate. Conversely, if
debt securities are purchased at a premium over face value, the yield will be
lower than the coupon rate. In making investment decisions, the Adviser will
consider many factors other than current yield, including the preservation of
capital, maturity, and yield to maturity.
THE TENNESSEE FUND
Under normal market conditions, at least 80% of the net assets of the
Tennessee Fund will be invested in a portfolio of obligations consisting of
bonds, notes, commercial paper and certificates of indebtedness, issued by or on
behalf of the State of Tennessee, or any county, political subdivision or
municipality thereof (including any agency, board, authority or commission of
any of the foregoing), the interest on which, in the opinion of bond counsel to
the issuer, is exempt from federal income tax and Tennessee income tax (but may
be treated as a
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preference item for individuals for purposes of the federal alternative minimum
tax) ("Tennessee Exempt Securities") and in debt obligations issued by the
Government of Puerto Rico and such other governmental entities whose debt
obligations, either by law or treaty, generate interest income which is exempt
from federal and Tennessee state income taxes (but may be treated as a
preference item for certain Shareholders for purposes of the federal alternative
minimum tax) (together, with Tennessee Exempt Securities, called "Exempt
Securities"). In addition, under normal market conditions, at least 65% of the
Tennessee Fund's total assets will be invested in Tennessee Exempt Securities.
As a matter of fundamental policy, under normal market conditions, at least 80%
of the net assets of the Tennessee Fund will be invested in securities, the
interest on which is exempt from federal income tax, although such income may be
subject to the federal alternative minimum tax when received by certain
Shareholders.
The two principal classifications of Exempt Securities which may be held by
the Tennessee Fund are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from proceeds of a special
excise tax or other specific revenue source such as the user of the facility
being financed. Private activity bonds held by the Tennessee Fund are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
The Tennessee Fund may also invest in "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
The Tennessee Fund invests in Exempt Securities which are rated at the time
of purchase within the three highest rating groups assigned by one or more
appropriate NRSROs for bonds, notes, tax-exempt commercial paper, or variable
rate demand obligations, as the case may be. The Tennessee Fund may also
purchase Exempt Securities which are unrated at the time of purchase but are
determined to be of comparable quality by the Adviser. The applicable Exempt
Securities ratings are described in the Appendix to the Statement of Additional
Information.
The Tennessee Fund may hold uninvested cash reserves pending investment
during temporary defensive periods or if, in the opinion of the Adviser,
suitable Exempt Securities are unavailable. There is no percentage limitation on
the amount of assets which may be held uninvested. Uninvested cash reserves will
not earn income.
Under normal market conditions, at least 80% of the net assets of the
Tennessee Fund will be invested in Exempt Securities. However, investments of
the Tennessee Fund may be made in taxable obligations if, for example, suitable
tax-exempt obligations are unavailable or if acquisition of U.S. Government or
other taxable securities is deemed appropriate for temporary defensive purposes
as determined by the Adviser to be warranted due to market conditions. Such
taxable obligations consist of Government Obligations, certificates of deposit
and bankers' acceptances of selected banks, securities which are restricted as
to disposition, including Rule 144A Securities, and commercial paper meeting the
Tennessee Fund's quality standards (as described above) for tax-exempt
commercial paper, and such taxable obligations which may be subject to
repurchase agreements. These obligations are described further in the Statement
of Additional Information. The Tennessee Fund may also invest up to 10% of its
total assets in money market mutual funds for purposes of short-term cash
management, including shares of the Money Market Fund, as discussed more fully
below under "Risk Factors and Investment Techniques -- Other Investment
Policies." Under such circumstances and during the period of such investment,
the Tennessee Fund may not achieve its stated investment objectives.
Interest income from certain types of Exempt Securities may be subject to
federal alternative minimum tax. The Tennessee Fund will include securities
issued by or on behalf of the State of Tennessee, or any county, political
subdivision or municipality thereof, which are subject to federal alternative
minimum tax in the calculation of compliance with the 80% test described above
as a fundamental policy of the Tennessee Fund. Therefore, to the extent the
Tennessee Fund invests in these securities, individual shareholders, depending
on their own tax status, may be subject to alternative minimum tax on that part
of the Tennessee Fund's distributions
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derived from these bonds. For further information relating to the types of
municipal securities the interest on which will be included in income subject to
alternative minimum tax, see "ADDITIONAL INFORMATION -- Additional Tax
Information" in the Statement of Additional Information.
Opinions relating to the validity of Exempt Securities and to the exemption
of interest thereon from federal and Tennessee state income taxes are normally
rendered by bond counsel to the respective issuers at the time of issuance.
Neither the Tennessee Fund nor the Adviser will review the proceedings relating
to the issuance of Exempt Securities or the basis for such opinions.
Exempt Securities purchased by the Tennessee Fund may include rated and
unrated variable and floating rate notes the interest on which is tax-exempt.
Such notes are more fully described above under "The Money Market Fund."
Variable and floating rate notes for which no readily available market exists
will be purchased in an amount which, together with other illiquid securities,
exceeds 15% of the Fund's net assets only if such notes are subject to a demand
feature that will permit the Tennessee Fund to receive payment of the principal
within seven days after demand by the Tennessee Fund.
An increase in interest rates will generally reduce the value of the
investments in the Tennessee Fund, and a decline in interest rates will
generally increase the value of those investments. Depending upon the prevailing
market conditions, the Adviser may purchase debt securities at a discount from
face value, which produces a yield greater than the coupon rate. Conversely, if
debt securities are purchased at a premium over face value, the yield will be
lower than the coupon rate. In making investment decisions, the Adviser will
consider many factors other than current yield, including the preservation of
capital, maturity, and yield to maturity.
The Tennessee Fund may use one or more of the investment techniques
described below. Use of such techniques may cause such Fund to earn income which
would be taxable to its Shareholders.
THE GOVERNMENT SECURITIES FUND
Under normal market conditions, the Government Securities Fund will invest
no less than 65% of its net assets in Government Obligations. The Government
Securities Fund may also invest, under normal market conditions, in the
obligations of States of the United States or their counties, political
subdivisions, municipalities, instrumentalities, agencies or authorities
(collectively "agencies") ("State Securities") and in the other fixed income
instruments described below, in securities of other investment companies and in
repurchase agreements. It may also engage in the options transactions and in
other investment techniques described below. Under current market conditions,
the Government Securities Fund expects to maintain an average portfolio duration
of approximately one to four years and a dollar-weighted average portfolio
maturity of approximately two to six years.
Duration is a measure of the average life of a fixed income security that
was developed as a more precise alternative to the concept of "term to maturity"
as a measure 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. Duration is computed by determining
the expected period of time until each scheduled payment or unscheduled
prepayment of principal or interest and averaging such time periods on a
weighted basis in accordance with the present value of such expected payments. A
reduction in the coupon interest rate would generally increase duration; an
increase in the coupon interest rate would generally reduce duration.
The Government Securities Fund may, for daily cash management purposes,
invest in high quality money market securities, in securities of other
investment companies, and in repurchase agreements. Such money market securities
consist of commercial paper (including variable amount master demand notes),
bankers' acceptances, certificates of deposit, and demand and time deposits of
domestic and foreign banks and savings and loan associations. The Government
Securities Fund may also invest in securities of other investment companies,
including Shares of the Money Market Fund as described more fully below. The
Government Securities Fund may invest, without limit, in any combination of
Government Obligations, State Securities, money market securities and repurchase
agreements during temporary defensive periods as determined by the Adviser.
The types of Government Obligations invested in by the Government
Securities Fund are those Government Obligations, including mortgage related
securities issued by governmental issuers, in which the Fixed Income Fund may
invest as described above under "The Fixed Income Fund."
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In addition, the Government Securities Fund may also purchase (1) U.S.
Treasury securities that have been stripped of their unmatured interest coupons
(which typically provide for interest payments semi-annually), (2) interest
coupons that have been stripped from such U.S. Treasury securities and (3)
receipts and certificates for such stripped debt obligations and stripped
coupons ("Stripped Treasury Securities"). 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.
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"), or (2) U.S. Treasury securities that are
stripped by investment banks and sold under proprietary names. Securities
stripped by investment banks may not be as liquid as STRIPS and CUBES and are
not viewed by the staff of the Commission as U.S. Government securities for
purposes of the Investment Company Act of 1940, as amended (the "1940 Act").
Also included among the Government Obligations that the Government
Securities Fund may purchase are CMOs and real estate mortgage investment
conduits ("REMICs"). CMOs may be collateralized by whole mortgage loans but are
more typically collateralized by portfolios of mortgage pass-through securities
guaranteed by the Government National Mortgage Association, the Federal Home
Loan Mortgage Corporation or the Federal National Mortgage Association, and
their income streams. Certain CMOs and REMICs are issued by private issuers.
Although they will not be treated as Government Obligations for purposes of the
65% policy stated above, they may be eligible for purchase by the Government
Securities Fund if (1) the issuer has obtained an exemptive order from the
Commission regarding purchases by investment companies of equity interests of
other investment companies or (2) such purchase is within the limitations
imposed by Section 12 of the 1940 Act.
The Government Securities Fund invests in State Securities which are rated
at the time of purchase within the three highest rating groups assigned by one
or more appropriate NRSROs for bonds, notes, commercial paper, or variable rate
demand obligations, as the case may be. The Government Securities Fund may also
purchase State Securities which are unrated at the time of purchase but are
determined to be of comparable quality by the Adviser. The applicable State
Securities ratings are described in the Appendix to the Statement of Additional
Information. The State Securities in which the Government Securities Fund will
invest may be "general obligation," "revenue" or "moral obligations" securities
as described above under "The Tennessee Fund" and are expected to be subject to
federal income tax.
Certain debt securities such as, but not limited to, mortgage related
securities and CMOs described above, as well as securities subject to prepayment
of principal prior to the stated maturity date, are expected to be repaid prior
to their stated maturity dates. As a result, the effective maturity of these
securities is expected to be shorter than the stated maturity. For purposes of
calculating the Government Securities Fund's dollar-weighted average portfolio
maturity, the effective maturity of such securities will be used.
THE GROWTH FUND
Under normal market conditions, the Growth Fund will invest substantially
all, but in no event less than 65%, of its total assets in common stocks and
securities convertible into common stocks (i.e., convertible bonds, convertible
preferred stock, warrants, options and rights), traded in U.S. markets,
including the New York Stock Exchange, the American Stock Exchange and NASDAQ,
and issued by companies believed by the Adviser to exhibit an attractive outlook
for growth in earnings. The Growth Fund may also invest up to 35% of its total
assets in preferred stocks, corporate bonds, notes, warrants, and short-term
obligations (with maturities of 12 months or less) such as commercial paper
(including variable amount master demand notes), bankers' acceptances,
certificates of deposit, repurchase agreements, Government Obligations, and
demand and time deposits of domestic and foreign banks and savings and loan
associations. The Growth Fund may also invest in equity REITs and securities of
other investment companies, including Shares of the Money Market Fund, as
described more fully below. It may also engage in the options transactions and
in other investment techniques described below. During temporary defensive
periods as determined by the Adviser, the Growth Fund may hold
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up to 100% of its total assets in such short-term obligations. However, to the
extent that the Growth Fund is so invested in debt obligations, such Fund may
not achieve its investment objective.
Subject to the foregoing limitations, the Growth Fund will invest only in
corporate debt securities which are rated at the time of purchase within the
three highest rating groups assigned by one or more NRSROs or, if unrated, which
the Adviser deems to be of comparable quality. For a description of the rating
symbols of the NRSROs, see the Appendix to the Statement of Additional
Information.
Equity securities such as those in which the Growth Fund may invest are
more volatile and carry more risk than some other forms of investment, including
investments in high grade fixed income funds. Depending upon the performance of
the Growth Fund's investments, the net asset value per share of the Growth Fund
may decrease instead of increase.
Subject to the foregoing limitations, the Growth Fund may invest in foreign
securities through the purchase of sponsored and unsponsored American Depositary
Receipts ("ADRs"). Unsponsored ADRs may be less liquid than sponsored ADRs and
there may be less information available regarding the underlying foreign issuer
for unsponsored ADRs. The Growth Fund may also invest in securities issued by
foreign branches of U.S. banks and foreign banks, in CCP and in Europaper.
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in any of the Funds entails
certain risks. Equity securities such as those in which the Value Fund and the
Growth Fund may invest are more volatile and carry more risk than some other
forms of investment including investments in high grade fixed income securities.
Therefore, the Value and Growth Funds are each subject to stock market risk,
i.e., the possibility that stock prices in general will decline over short or
even extended periods of time.
Since the Fixed Income Fund, the Government Securities Fund and the
Tennessee Fund each invest in bonds, investors in those Funds 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. While bonds normally fluctuate less in price than stocks, there have been
in the recent past extended periods of cyclical increases in interest rates that
have caused significant declines in bond prices and have caused the effective
maturity of securities with prepayment features to be extended, thus effectively
converting short or intermediate term securities (which tend to be less volatile
in price) into longer term securities (which tend to be more volatile in price).
Depending upon the performance of each Fund's investments, the net asset
value per share of a Fund may decrease instead of increase, except with respect
to the Money Market Fund, the net asset value of which the Adviser will attempt
to maintain at $1.00.
Each Fund may invest in one or more of the following securities: certain
variable or floating rate securities, mortgage-backed securities, and as
described below, some of the Funds may invest in put and call options. 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. No Fund will invest more than 15% of its total assets in any such
derivatives, except that with respect to the Money Market Fund, the Fixed Income
Fund, the Government Securities Fund, and the Tennessee Fund, there is no
limitation on the amount of its total assets which may be invested in variable
or floating rate obligations.
Risks of Non-Diversification. Because the Tennessee Fund invests primarily
in securities of the State of Tennessee and its political subdivisions,
municipalities and public authorities, the Tennessee Fund's performance is
closely tied to the general economic conditions within the State as a whole and
to the economic conditions within particular industries and geographic areas
represented or located within the State.
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Historically, the economy of Tennessee has been dominated by manufacturing
and agriculture and is sensitive to the effects of recessions. However, since
1969, the retail and wholesale trade and the services industries combined have
accounted for more than 65% of the new jobs created in Tennessee, while
manufacturing accounted for only 20.7% of total employment by 1996, down from
over 34% during the 1960's.
While both the Tennessee economy and the national economy did experience a
downturn during the most recent recession, the downward trend began to reverse
itself in the first quarter of 1991. The economic expansion that began in
Tennessee at such time is continuing; however, the economy of Tennessee began to
slow toward the end of 1996 and into 1997. A number of factors have contributed
to the deceleration of Tennessee's economic growth, including a loss of jobs in
the manufacturing sector of the economy and slower growth in the trade and
services and construction sectors of the economy. The July 1997 unemployment
rate for Tennessee was 5.5% compared to 4.8% for the nation as a whole.
Tennessee is the 17th most populous state in the nation, with an estimated
state-wide population of 5,319,654 as of December 1996 but it has a relatively
small state government in terms of tax collections. During 1996 Tennessee ranked
45th in the nation in terms of state tax collections per capita.
The four largest cities in Tennessee by population are Memphis, Nashville,
Knoxville, and Chattanooga, in order from largest to smallest. Moody's Investor
Services, Inc. has rated long-term bonds for all four cities, with Memphis,
Nashville, Knoxville and Chattanooga receiving ratings of Aa2, Aa, Aa3 and A1,
respectively. Standard and Poor's Corporation has rated Memphis, Knoxville, and
Chattanooga at AA, AA, and AA-, respectively.
The Tennessee Fund's classification as "non-diversified" investment
companies means that the proportion of that Fund's assets that may be invested
in the securities of a single issuer is not limited by the 1940 Act. However,
the Tennessee Fund intends to conduct its operations so as to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended, which requires such Fund generally to invest as of the end of
each fiscal quarter, with respect to 50% of its total assets, not more than 5%
of such assets in the obligations of a single issuer; as to the remaining 50% of
its total assets, such Fund is not so restricted. In no event, however, may the
Tennessee Fund invest more than 25% of its total assets in the obligations of
any one issuer as of the end of each fiscal quarter. Since a relatively high
percentage of such Fund's assets may be invested in the obligations of a limited
number of issuers, some of which may be within the same economic sector, the
Tennessee Fund's portfolio securities may be more susceptible to any single
economic, political or regulatory occurrence than the portfolio securities of a
diversified investment company.
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 a Fund plus interest negotiated on the basis of current short-term
rates, which may be more or less than the rate on the underlying portfolio
securities. Securities subject to repurchase agreements must be of the same type
and quality as those in which such Fund may invest directly. For further
information about repurchase agreements and the related risks, see "INVESTMENT
OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments -- Repurchase Agreements" in the Statement of Additional
Information.
Reverse Repurchase Agreements. Each Fund may borrow funds for temporary
purposes by entering into reverse repurchase agreements in accordance with the
investment restrictions described below. Pursuant to such agreements, a Fund
would sell portfolio securities to financial institutions such as banks and
broker-dealers, and agree to repurchase them at a mutually agreed-upon date and
price. At the time a Fund enters into a reverse repurchase agreement, it will
place in a segregated custodial account assets such as U.S. Government
securities or other liquid securities consistent with such Fund's investment
restrictions having a value equal to the repurchase price (including accrued
interest), and will continually monitor the account to ensure that such
equivalent value is maintained at all times. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Fund may
decline below the price at which the Fund is obligated to repurchase the
securities. Reverse repurchase agreements are considered to be borrowings by a
Fund under the 1940 Act. For further information
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about reverse repurchase agreements, see "INVESTMENT OBJECTIVES AND
POLICIES -- Additional Information on Portfolio Instruments -- Reverse
Repurchase Agreements" in the Statement of Additional Information.
Except as otherwise disclosed to the Shareholders of the 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.
Real Estate Investment Trusts, The Value Fund and the Growth Fund may each
invest in equity REITs. REITs pool investors' funds for investment primarily in
commercial real estate properties. Investment in REITs may subject a Fund to
certain risks. REITs may be affected by changes in the value of the underlying
property owned by the trust. REITs are dependent upon specialized management
skill, may not be diversified and are subject to the risks of financing
projects. REITs are also subject to heavy cash flow dependency, defaults by
borrowers, self liquidation and the possibility of failing to qualify for the
beneficial tax treatment available to REITs under the Internal Revenue Code and
to maintain its exemption from the 1940 Act. As a shareholder in a REIT, a Fund
would bear, along with other shareholders, its pro rata portion of the REIT's
operating expenses. These expenses would be in addition to the advisory and
other expenses a Fund bears directly in connection with its own operations.
Restricted Securities. Securities in which the Fixed Income and Tennessee
Funds may invest include securities issued by corporations without registration
under the Securities Act of 1933, as amended (the "1933 Act"), such as
securities issued in reliance on the so-called "private placement" exemption
from registration which is afforded by Section 4(2) of the 1933 Act ("Section
4(2) securities"). Section 4(2) securities are restricted as to disposition
under the Federal securities laws, and generally are sold to institutional
investors such as the Funds who agree that they are purchasing the securities
for investment and not with a view to public distribution. Any resale must also
generally be made in an exempt transaction. Section 4(2) securities are normally
resold to other institutional investors through or with the assistance of the
issuer or investment dealers who assist in the placement of such Section 4(2)
securities, thus providing liquidity. Any such restricted securities will be
considered to be illiquid for purposes of a Fund's limitations on investments in
illiquid securities unless, pursuant to procedures adopted by the Board of
Trustees of the Group, the Adviser has determined such securities to be liquid
because such securities are eligible for resale under Rule 144A under the 1933
Act and are readily saleable.
Options. The Value Fund, the Fixed Income Fund, the Tennessee Fund, the
Government Securities Fund and the Growth Fund may also each purchase put and
call options for hedging purposes. The Funds anticipate that such options will
be exchange traded options. However, in the future such options may also include
OTC-issued options, meaning that such options are purchased from or sold
directly to the other party, are not standardized and are not guaranteed by a
clearing agency, which is in contrast to exchange traded options. A put option
gives the purchaser of the option the right to sell, and obligates the writer
(seller) of the option to buy, the underlying security at the stated exercise
price at any time prior to the expiration date of the option, regardless of the
market price of the security. A call option gives the purchaser of the option
the right to buy, and obligates the seller of the option to sell, the underlying
security at the stated exercise price at any time prior to the expiration date
of the option, regardless of the market price of the security. Purchasing
options is a specialized investment technique that entails a substantial risk of
a complete loss of the amounts paid as premiums to writers of options.
For hedging purposes, each of such Funds may also engage in writing call
options from time to time as the Adviser deems appropriate. A Fund will write
only covered call options (options on securities owned by that Fund). When a
Fund writes a covered call option and such option is exercised, that Fund will
forego the appreciation, if any, on the underlying security in excess of the
exercise price. In order to close out a call option it has written, a Fund will
enter into a "closing purchase transaction" -- the purchase of a call option on
the same security with the same exercise price and expiration date as the call
option which that Fund previously wrote on any particular securities. When a
portfolio security subject to a call option is sold, the Fund which wrote the
call will effect a closing purchase transaction to close out any existing call
option on that security. There is no
23
<PAGE> 27
assurance of liquidity in the secondary market for purposes of closing out
options positions. If that Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
option expires or such Fund delivers the underlying security upon exercise. A
Fund may lose the expected benefit of options transactions if interest rates or
securities prices move in an unanticipated manner. In addition, the value of a
Fund's options positions may not prove to be perfectly or even highly correlated
with the value of its portfolio securities, limiting such Fund's ability to
hedge effectively against market or interest rate risk. Under normal conditions,
it is not expected that any such Fund would permit the underlying value of its
portfolio securities subject to such options to exceed 25% of its net assets.
In addition, the Tennessee Fund may acquire "puts" with respect to Exempt
Securities held in its portfolio. Under a put, the Tennessee Fund would have the
right to sell a specified Exempt Security within a specified period of time at a
specified price. A put would be sold, transferred, or assigned only with the
underlying security. The Tennessee Fund will acquire puts solely to either
facilitate portfolio liquidity, shorten the maturity of the underlying
securities, or permit the investment of its funds at a more favorable rate of
return. The Tennessee Fund expects that it will generally acquire puts only
where the puts are available without the payment of any direct or indirect
consideration. However, if necessary or advisable, the Tennessee Fund may pay
for a put either separately in cash or by paying a higher price for portfolio
securities which are acquired subject to the puts (thus reducing the yield to
maturity otherwise available for the same securities).
Guaranteed Investment Contracts. The Money Market Fund and the Fixed
Income Fund may each invest in guaranteed investment contracts ("GICs") issued
by insurance companies. Pursuant to such contracts, the Fund makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the deposit fund on a monthly basis guaranteed
interest which is based on an index. The GICs provide that this guaranteed
interest will not be less than a certain minimum rate. The insurance company may
assess periodic charges against a GIC for expense and service costs allocable to
it, and the charges will be deducted from the value of the deposit fund. A Fund
will only purchase a GIC when the Adviser has determined that the GIC presents
minimal credit risks to such Fund and is of comparable quality to instruments
that are rated high quality by an appropriate NRSRO. Because a Fund may not
receive the principal amount of a GIC from the insurance company on seven days'
notice or less, the GIC is considered an illiquid investment, and, together with
other instruments in such Fund which are not readily marketable, will not exceed
such Fund's limitation on investments in illiquid securities as set forth below.
In determining average weighted portfolio maturity, a GIC will be deemed to have
a maturity equal to the earlier of the period of time remaining until the next
readjustment of the guaranteed interest rate or the period remaining until the
principal amount can be recovered through demand.
Foreign Investments. Investments in foreign securities (including ECDs,
ETDs, CTDs, Yankee CDs, CCP and Europaper) may subject a Fund to investment
risks that differ in some respects from those related to investments in
securities of U.S. domestic issuers. Such risks include future adverse political
and economic developments, the possible imposition of withholding taxes on
interest or other investment income, possible seizure, nationalization, or
expropriation of foreign deposits or investments, the possible establishment of
exchange controls or taxation at the source, less stringent disclosure
requirements, less liquid or developed securities markets or the adoption of
other foreign governmental restrictions which might adversely affect the payment
of principal, interest or dividends on such securities or the purchase or sale
thereof. In addition, foreign branches of U.S. banks and foreign banks may be
subject to less stringent reserve requirements and to different accounting,
auditing, reporting, and recordkeeping standards than those applicable to
domestic branches of U.S. banks. A Fund will acquire securities issued by
foreign branches of U.S. banks, foreign banks, or other foreign issuers only
when the Adviser believes that the risks associated with such instruments are
minimal.
Other Investment Policies. In order to generate additional income, the
Value Fund, the Fixed Income Fund, the Tennessee Fund, the Government Securities
Fund and the Growth Fund may each, from time to time, lend its portfolio
securities to broker-dealers, banks, or institutional borrowers of securities. A
Fund must receive 100% collateral in the form of cash or liquid 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
that Fund. During the time portfolio securities are on loan, the borrower pays
that Fund any dividends or interest received on such securities. Loans are
subject to termination by such Fund or the borrower at any time. While a Fund
does not
24
<PAGE> 28
have the right to vote securities on loan, each Fund intends to terminate the
loan and regain the right to vote if that is considered important with respect
to the investment. In the event the borrower would default in its obligations,
the Fund bears the risk of delay in recovery of the portfolio securities and the
loss of rights in the collateral. A Fund will enter into loan agreements only
with broker-dealers, banks, or other institutions that the Adviser has
determined are creditworthy under guidelines established by the Group's Board of
Trustees.
The Value Fund, the Fixed Income, the Tennessee Fund, the Government
Securities Fund and the Growth Fund may each purchase securities on a
when-issued or delayed-delivery basis. These transactions are arrangements in
which a Fund purchases securities with payment and delivery scheduled for a
future time. A Fund will engage in when-issued and delayed-delivery transactions
only for the purpose of acquiring portfolio securities consistent with and in
furtherance of its investment objective(s) and policies, not for investment
leverage, although such transactions represent a form of leveraging. When-issued
securities are securities purchased for delivery beyond the normal settlement
date at a stated price and yield and thereby involve a risk that the yield
obtained in the transaction will be less than those available in the market when
delivery takes place. A Fund will generally not pay for such securities or start
earning interest on them until they are received on the settlement date. When a
Fund agrees to purchase such securities, however, its custodian will set aside
cash or liquid securities equal to the amount of the commitment in a separate
account. Securities purchased on a when-issued basis are recorded as an asset
and are subject to changes in the value based upon changes in the general level
of interest rates. In when-issued and delayed-delivery transactions, a Fund
relies on the seller to complete the transaction; the seller's failure to do so
may cause such Fund to miss a price or yield considered to be advantageous.
Each of the Value Fund, the Fixed Income Fund, the Government Securities
Fund, the Tennessee Fund and the Growth Fund may also invest in the securities
of other investment companies, including Shares of the Money Market Fund, in
accordance with the limitations of the 1940 Act and any exemptions therefrom.
Each such Fund intends to invest in the securities of other investment companies
which, in the opinion of the Adviser, will assist such Fund in achieving its
investment objectives and/or in money market mutual funds for purposes of
short-term cash management. A Fund will incur additional expenses due to the
duplication of fees and expenses as a result of investing in mutual funds. In
order to avoid the imposition of additional fees as a result of investing in
shares of the Money Market Fund, the Adviser, the Administrator and their
affiliates will reduce their fees charged to a Fund by an amount equal to the
fees charged by such service providers based on a percentage of that Fund's
assets attributable to such Fund's investment in the Money Market Fund.
Additional restrictions on the Funds' investments in the securities of other
mutual funds are contained in the Statement of Additional Information.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of a Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the portfolio securities. The Commission requires
that the calculation exclude all securities whose remaining maturities at the
time of acquisition are one year or less. For the Money Market Fund, portfolio
turnover rate is expected to be zero percent for regulatory purposes. The
portfolio turnover rate for each of the other Funds may vary greatly from year
to year, as well as within a particular year, and may also be affected by cash
requirements for redemptions of Shares. High portfolio turnover rates will
generally result in higher transaction costs, including brokerage commissions,
to a Fund and may result in additional tax consequences to a Fund's
Shareholders. Portfolio turnover will not be a limiting factor in making
investment decisions. Portfolio turnover information is set forth above under
"FINANCIAL HIGHLIGHTS."
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding Shares of that Fund (as
defined under "GENERAL INFORMATION -- Miscellaneous" herein).
The Money Market Fund will not:
25
<PAGE> 29
1. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, if, immediately after such purchase, more than 5% of the
value of the Fund's total assets would be invested in such issuer, except
that 25% or less of the value of the Fund's total assets may be invested
without regard to such 5% limitation. There is no limit to the percentage
of assets that may be invested in U.S. Treasury bills, notes, or other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
2. Purchase any securities which would cause more than 25% of the
value of the Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation
with respect to obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities, domestic bank certificates of deposit or
bankers' acceptances, and repurchase agreements secured by bank instruments
or obligations of the U.S. Government, its agencies or instrumentalities;
(b) wholly owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the 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.
Each of the Value and Fixed Income Funds will not:
1. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, if, immediately after such purchase, more than 5% of the
value of such Fund's total assets would be invested in such issuer, or such
Fund would hold more than 10% of any class of securities of the issuer,
except that up to 25% of the value of a Fund's total assets may be invested
without regard to such limitations, or such Fund would hold more than 10%
of the outstanding voting securities of such issuer. There is no limit to
the percentage of assets that may be invested in U.S. Treasury bills,
notes, or other obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities.
2. Purchase any securities which would cause more than 25% of the
value of such Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation
with respect to obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities and repurchase agreements secured by
obligations of the U.S. Government, its agencies or instrumentalities; (b)
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.
In addition, each of the Money Market, Value and Fixed Income Funds will
not:
1. Borrow money or issue senior securities, except that each Fund may
borrow from banks or enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of its total assets at the time
of such borrowing; or mortgage, pledge, or hypothecate any assets, except
in connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of such Fund's
total assets at the time of its borrowing. A Fund will not purchase
securities while its borrowings (including reverse repurchase agreements)
exceed 5% of its total assets.
2. Make loans, except that each Fund may purchase or hold debt
instruments and lend portfolio securities in accordance with its investment
objective and policies, and may enter into repurchase agreements.
3. Invest more than 5% of total assets in securities of issuers which,
together with any predecessors, have a record of less than three years of
continuous operation.
The Tennessee Fund will not:
1. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, if at the end of each fiscal quarter, (a) more than 5%
of the value of the Fund's total assets (taken at current value) would be
invested in such issuer (except that up to
26
<PAGE> 30
50% of the value of the Fund's total assets may be invested without regard
to such 5% limitation), and (b) more than 25% of its total assets (taken at
current value) would be invested in securities of a single issuer. There is
no limit to the percentage of assets that may be invested in U.S. Treasury
bills, notes, or other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental
entity (or entities) whose assets and revenues back the security, or, with
respect to a private activity bond that is backed only by the assets and
revenues of a non-governmental user, such nongovernmental user.
2. Purchase any securities which would cause more than 25% of the
value of the Fund's total assets (taken at current value) to be invested in
industrial development revenue bonds which are based, directly or
indirectly, on the credit of private issuers in any one industry.
3. Borrow money or issue senior securities, except that the Fund may
borrow from banks or enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of its total assets at the time
of such borrowing. The Fund will not purchase securities while its
borrowings (including reverse repurchase agreements) exceed 5% of its total
assets.
4. Make loans, except that the Fund may purchase or hold debt
instruments and lend portfolio securities in accordance with its investment
objectives and policies, and may enter into repurchase agreements.
Each of the Government Securities Fund and the Growth Fund will not:
1. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, if, immediately after such purchase, more than 5% of the
value of such Fund's total assets would be invested in such issuer, or such
Fund would hold more than 10% of any class of securities of the issuer,
except that up to 25% of the value of a Fund's total assets may be invested
without regard to such limitations. There is no limit to the percentage of
assets that may be invested in U.S. Treasury bills, notes, or other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
2. Purchase any securities which would cause more than 25% of the
value of such Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation
with respect to obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities and repurchase agreements secured by
obligations of the U.S. Government, its agencies or instrumentalities; (b)
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 each Fund may
borrow from banks or enter into reverse repurchase agreements or dollar
roll agreements for temporary purposes in amounts up to 10% of the value of
its total assets at the time of such borrowing, and except as permitted
pursuant to appropriate exemptions from the 1940 Act. A Fund will not
purchase securities while its borrowings (including reverse repurchase
agreements and dollar roll agreements) exceed 5% of its total assets.
4. Make loans, except that each Fund may purchase or hold debt
instruments and lend portfolio securities in accordance with its investment
objective and policies, make time deposits with financial institutions, and
enter into repurchase agreements.
The following additional investment restrictions, as to a particular Fund,
may be changed without the vote of a majority of the outstanding Shares of such
Fund. The Money Market Fund may not:
1. Purchase or otherwise acquire any security if, as a result, more
than 10% of its net assets would be invested in securities that are
illiquid.
Each of the Value, Fixed Income, Tennessee, Government Securities and
Growth Funds will not:
27
<PAGE> 31
1. Purchase or otherwise acquire any security, if, as a result, more
than 15% of its net assets would be invested in securities that are
illiquid.
For purposes of this investment restriction, illiquid securities include
securities which are not readily marketable and repurchase agreements with
maturities in excess of seven days.
In addition to the above investment restrictions, each Fund is subject to
certain other investment restrictions set forth under "INVESTMENT OBJECTIVES AND
POLICIES -- Investment Restrictions" in the Funds' Statement of Additional
Information.
Irrespective of fundamental investment restriction number 1 above for the
Money Market Fund, and pursuant to Rule 2a-7 under the 1940 Act, the Money
Market Fund will, with respect to 100% of its total assets, limit its investment
in the securities of any one issuer in the manner provided by such Rule, which
limitations are referred to above under the caption "INVESTMENT OBJECTIVES AND
POLICIES -- The Money Market Fund."
VALUATION OF SHARES
The net asset value of the Money Market Fund is determined and its Shares
are priced as of 12:00 noon (Eastern time) and the close of regular trading on
the New York Stock Exchange (the "Exchange") (generally 4:00 p.m. Eastern time)
on each Business Day. The net asset value of each of the other Funds is
determined and their Shares are priced as of the close of regular trading on the
Exchange on each Business Day. The time or times at which the Shares of a Fund
are priced are hereinafter referred to as the "Valuation Time" or "Valuation
Times," as the case may be. A "Business Day" of a Fund is a day on which the
Exchange is open for trading and any other day (other than a day on which no
Shares of that Fund are tendered for redemption and no order to purchase any
Shares of that Fund is received) during which there is sufficient trading in
portfolio instruments such that such Fund's net asset value per share might be
materially affected. The Exchange will not be open in observance of the
following holidays: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. Net asset value per share for purposes of pricing purchases and
redemptions is calculated by dividing the value of all securities and other
assets belonging to a Fund, less the liabilities charged to that Fund, by the
number of that Fund's outstanding Shares.
The net asset value per share for each of the Funds, other than the Money
Market Fund, will fluctuate as the value of the investment portfolio of a Fund
changes.
The assets in the Money Market Fund are valued based upon the amortized
cost method which the Trustees of the Group believe fairly reflects the
market-based net asset value per share. Pursuant to the rules and regulations of
the Commission regarding the use of the amortized cost method, the Money Market
Fund will maintain a dollar-weighted average portfolio maturity of 90 days or
less. Although the Group seeks to maintain the Money Market Fund's net asset
value per share at $1.00, there can be no assurance that net asset value will
not vary.
The portfolio securities in each of the other Funds for which market
quotations are readily available are valued based upon their current available
prices in the principal market in which such securities normally are traded.
Unlisted securities for which market quotations are readily available are valued
at such market values. Other securities, including restricted securities and
other securities for which market quotations are not readily available, and
other assets are valued at fair value by the Adviser under procedures
established by, and under the supervision of the Group's Board of Trustees.
Securities may be valued by an independent pricing service approved by the
Group's Board of Trustees. Investments in debt securities with remaining
maturities of 60 days or less may be valued based upon the amortized cost
method. For further information about valuation of investments, see "NET ASSET
VALUE" in the Statement of Additional Information.
28
<PAGE> 32
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Fund are sold on a continuous basis by the Group's
distributor, BISYS (the "Distributor"). The principal office of the Distributor
is 3435 Stelzer Road, Columbus, Ohio 43219. If you wish to purchase Shares,
telephone the Group at (800) 874-8376.
PURCHASES OF SHARES
Shares may be purchased through procedures established by the Distributor
in connection with the requirements of qualified accounts maintained by or on
behalf of certain persons ("Customers") by the Adviser or its correspondent or
affiliated banks (collectively, the "Banks"). These procedures may include
instructions under which a Customer's account is "swept" automatically no less
frequently than weekly and amounts in excess of a minimum amount agreed upon by
the Bank and the Customer are invested by the Distributor in Shares of a
particular Fund, depending upon the type of the Customer's account and/or the
instructions of the Customer.
Shares of the Funds sold to the Banks acting in a fiduciary, advisory,
custodial, agency, or other similar capacity on behalf of Customers will
normally be held of record by the Banks. With respect to Shares of the Funds so
sold, it is the responsibility of the particular Bank to transmit purchase or
redemption orders to the Distributor and to deliver federal funds for purchase
on a timely basis. Beneficial ownership of Shares will be recorded by the Banks
and reflected in the account statements provided by the Banks to Customers. A
Bank will exercise voting authority for those Shares for which it is granted
authority by the Customer.
Investors may also purchase Shares of a Fund by completing and signing an
Account Registration Form and mailing it, together with a check (or other
negotiable bank draft or money order) in at least the minimum initial purchase
amount, payable to the appropriate Fund, to the Riverside Capital Funds,
Department L-1406, Columbus, Ohio 43260-1406. Subsequent purchases of Shares of
that Fund may be made at any time by mailing a check (or other negotiable bank
draft or money order) payable to the Group, to the above address.
If an Account Registration Form has been previously received by the Group,
investors may also purchase Shares by wiring funds to the Fund's custodian.
Prior to wiring any such funds and in order to ensure that wire orders are
invested promptly, investors must call the Group at (800) 874-8376 to obtain
instructions regarding the bank account number into which the funds should be
wired and other pertinent information.
Shares of each Fund are purchased at the net asset value per share (see
"VALUATION OF SHARES") next determined after receipt by the Distributor, its
agents or broker-dealers with whom it has an agreement of an order in good form
to purchase Shares plus any applicable sales charge as described below.
Purchases of Shares of a Fund will be effected only on a Business Day (as
defined in "VALUATION OF SHARES") of that Fund.
An order to purchase Shares of the Money Market Fund will be deemed to have
been received by the Distributor only when federal funds with respect thereto
are available to the Money Market Fund's custodian for investment. Federal funds
are monies credited to a bank's account with a Federal Reserve Bank. Payment for
an order to purchase Shares of the Money Market Fund which is transmitted by
federal funds wire will be available the same day for investment by the Money
Market Fund's custodian, if received prior to the last Valuation Time (see
"VALUATION OF SHARES"). Payments transmitted by other means (such as by check
drawn on a member of the Federal Reserve System) will normally be converted into
federal fund within two banking days after receipt. The Group strongly
recommends that investors of substantial amounts use federal funds to purchase
Shares. Shares of the Money Market Fund purchased before 12:00 noon, Eastern
Time, begin earning dividends on the same Business Day. Shares of the Money
Market Fund purchased after 12:00 noon, Eastern Time, begin earning dividends on
the next Business Day. All Shares of the Money Market Fund continue to earn
dividends through the day before their redemption.
In the case of orders for the purchase of Shares of the other Funds placed
through a broker-dealer, the applicable public offering price will be the net
asset value as so determined (plus any applicable sales charge), but only if the
broker-dealer receives the order and transmits it to the Distributor prior to
the Valuation Time for that day. The broker-dealer is responsible for
transmitting such orders by the Valuation Time. If the broker-dealer fails
29
<PAGE> 33
to do so, the investor's right to that day's closing price must be settled
between the investor and the broker-dealer. If the broker-dealer receives the
order after the Valuation Time for that day, the price will be based on the net
asset value determined as of the Valuation Time for the next day.
MINIMUM INVESTMENT
Except as otherwise discussed below under "Auto Invest Plan," the minimum
investment is $1,000 for the initial purchase of Shares of a Fund by an investor
and $50 for subsequent purchases of Shares of that Fund. The subsequent purchase
minimum may be waived if purchases are made in connection with an Individual
Retirement Account ("IRA") and both the initial and subsequent minimum
investments may be waived if purchases are made in connection with a payroll
deduction plan.
Depending upon the terms of a particular Customer's account, the Banks or
their affiliates may charge a Customer account fees for automatic investment and
other cash management services provided in connection with investment in a Fund.
Information concerning these services and any charges will be provided by the
Banks. This Prospectus should be read in conjunction with any such information
received from the Banks or their affiliates.
Each Fund reserves the right to reject any order for the purchase of its
Shares in whole or in part, including purchases made with foreign checks and
third party checks not originally made payable to the order of the investor.
Every Shareholder will receive a confirmation of each new transaction in
his or her account, which will also show the total number of Shares owned by the
Shareholder and the number of Shares being held in safekeeping by the Transfer
Agent for the account of the Shareholder. Reports of purchases and redemptions
of Shares by Banks on behalf of their Customers will be sent by the Banks to
their Customers. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Shares will not be issued.
RIVERSIDE CAPITAL INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A Riverside Capital IRA enables individuals, even if they participate in an
employer-sponsored retirement plan, to establish their own retirement program.
Riverside Capital IRA contributions may be tax-deductible and earnings are tax
deferred. Under the Tax Reform Act of 1986, the tax deductibility of IRA
contributions is restricted or eliminated for individuals who participate in
certain employer pension plans and whose annual income exceeds certain limits.
Existing IRAs and future contributions up to the IRA maximums, whether
deductible or not, still earn income on a tax-deferred basis.
All Riverside Capital IRA distribution requests must be made in writing to
the Distributor. Any deposits to a Riverside Capital IRA must distinguish the
type and year of the contributions.
For more information on the Riverside Capital IRAs call the Group at (800)
874-8376. Investment in shares of a tax-exempt fund, including the Tennessee
Fund, would not be appropriate for a Riverside Capital IRA. Shareholders are
advised to consult a tax adviser on Riverside Capital IRA contribution and
withdrawal requirements and restrictions and whether an investment in the
Tennessee Fund would be appropriate.
AUTO INVEST PLAN
The Riverside Capital Funds Auto Invest Plan enables Shareholders to make
regular monthly or quarterly purchases of Shares of a Fund through automatic
deduction from their bank accounts, provided that the Shareholder's bank is a
member of the Federal Reserve and the Automated Clearing House (ACH) system.
With Shareholder authorization the Transfer Agent will deduct the amount
specified (subject to the applicable minimums) from the Shareholder's bank
account which will automatically be invested in Shares of the designated Fund at
the public offering price on the date of such deduction. The required minimum
initial investment when opening an account using the Auto Invest Plan is $100;
the minimum amount for subsequent investments is $50. To participate in the Auto
Invest Plan, Shareholders should complete the appropriate section of the Account
Registration Form or a supplemental sign-up form which can be acquired by
calling the Group at (800) 874-8376.
30
<PAGE> 34
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.
SALES CHARGES
The public offering price of Shares of each of the Funds, other than the
Money Market Fund, equals net asset value plus a sales charge in accordance with
the tables below. BISYS receives this sales charge as Distributor and reallows a
portion of it as dealer discounts and brokerage commissions. However, the
Distributor, in its sole discretion may pay certain dealers all or part of the
portion of the sales charge it receives. The broker or dealer who receives a
reallowance in excess of 90% of the sales charge may be deemed to be an
"underwriter" for purposes of the 1933 Act.
There is no sales charge imposed by the Money Market Fund in connection
with the purchase of its shares.
VALUE AND GROWTH FUNDS
<TABLE>
<CAPTION>
DEALER
DISCOUNTS AND
BROKERAGE
SALES CHARGE AS SALES CHARGE AS COMMISSIONS AS
AMOUNT OF TRANSACTION AT % OF NET AMOUNT % OF PUBLIC % OF PUBLIC
PUBLIC OFFERING PRICE INVESTED OFFERING PRICE OFFERING PRICE
- -------------------------------------- ---------------- ---------------- ---------------
<S> <C> <C> <C>
Less than $100,000.................... 4.71% 4.50% 4.05%
$100,000 but less than $250,000....... 3.63 3.50 3.15
$250,000 but less than $500,000....... 2.56 2.50 2.25
$500,000 but less than $1,000,000..... 1.52 1.50 1.35
$1,000,000 but less than $2,000,000... 0.50 0.50 0.45
$2,000,000 or more.................... 0 0 0*
</TABLE>
FIXED INCOME AND TENNESSEE FUNDS
<TABLE>
<CAPTION>
DEALER
DISCOUNTS AND
BROKERAGE
SALES CHARGE AS SALES CHARGE AS COMMISSIONS AS
AMOUNT OF TRANSACTION AT % OF NET AMOUNT % OF PUBLIC % OF PUBLIC
PUBLIC OFFERING PRICE INVESTED OFFERING PRICE OFFERING PRICE
- -------------------------------------- ---------------- ---------------- ---------------
<S> <C> <C> <C>
Less than $100,000.................... 3.09% 3.00% 2.70%
$100,000 but less than $250,000....... 2.56 2.50 2.25
$250,000 but less than $500,000....... 2.04 2.00 1.80
$500,000 but less than $1,000,000..... 1.01 1.00 0.90
$1,000,000 but less than $2,000,000... 0.50 0.50 0.45
$2,000,000 or more.................... 0 0 0*
</TABLE>
GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
DEALER
DISCOUNTS AND
BROKERAGE
SALES CHARGE AS SALES CHARGE AS COMMISSIONS AS
AMOUNT OF TRANSACTION AT % OF NET AMOUNT % OF PUBLIC % OF PUBLIC
PUBLIC OFFERING PRICE INVESTED OFFERING PRICE OFFERING PRICE
- -------------------------------------- ---------------- ---------------- ---------------
<S> <C> <C> <C>
Less than $250,000.................... 2.04% 2.00% 1.80%
$250,000 but less than $500,000....... 1.52 1.50 1.35
$500,000 but less than $1,000,000..... 1.01 1.00 0.90
$1,000,000 but less than $2,000,000... 0.50 0.50 0.45
$2,000,000 or more.................... 0 0 0*
</TABLE>
- ------------------------------
31
<PAGE> 35
* Brokers or dealers will be paid a fee of 0.25% on purchases of $2 million or
more if the assets on which the 0.25% is paid remain in the Funds, other than
the Money Market Fund, for one year. Such fee, however, will not be paid on
purchases that otherwise are entitled to a sales charge waiver as described
below. If all of the assets on which the 0.25% fee is paid do not remain in
one of the Funds, other than the Money Market Fund, for a period of one
uninterrupted year, the broker or dealer will be required to refund this fee
to the Distributor.
From time to time dealers who receive dealer discounts and brokerage
commissions from the Distributor may reallow all or a portion of such dealer
discounts and brokerage commissions to other dealers or brokers. The
Distributor, at its expense, will also provide additional compensation to
dealers in connection with sales of Shares of any of the Funds. Such
compensation will include financial assistance to dealers in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising campaigns regarding one of more funds of the Group, and/or
other dealer-sponsored special events. In some instances, this compensation will
be made available only to certain dealers whose representatives have sold a
significant amount of such Shares. Compensation will include payment for travel
expenses, including lodging, incurred in connection with trips taken by invited
registered representatives and members of their families to locations within or
outside of the United States for meetings or seminars of a business nature.
Compensation will also include the following types of non-cash compensation
offered through sales contests: (1) vacation trips, including the provision of
travel arrangements and lodging at vacation resorts, (2) tickets for
entertainment events (such as concerts, cruises and sporting events) and (3)
merchandise (such as clothing, trophies, clocks and pens). Dealers may not use
sales of a Fund's Shares to qualify for this compensation to the extent such may
be prohibited by the laws of any state or any self-regulatory agency, such as
the NASD. None of the aforementioned compensation is paid for by any Fund or its
Shareholders.
SALES CHARGE WAIVERS
The Distributor may waive sales charges for the purchase of Shares of a
Fund by or on behalf of (1) purchasers for whom NCB, the Adviser, banks, trust
companies, savings and loan associations and credit unions or one of their
affiliates acts in a fiduciary, advisory, agency, custodial (other than
individual retirement accounts), or similar capacity, (2) employees and retired
employees (including spouses, children and parents of employees and retired
employees) of NCB, the Adviser, BISYS and any affiliates thereof, (3) purchasers
pursuant to the terms of a payroll deduction plan, (4) Trustees of the Group,
(5) directors of NCB, the Adviser and any affiliates thereof, (6) brokers,
dealers and agents who have a sales agreement with the Distributor, and their
employees (and their spouses and children under the age of 21), and (7) orders
placed on behalf of other investment companies distributed by The BISYS Group,
Inc. or its affiliated companies. The Distributor may change or eliminate the
foregoing waivers at any time. The Distributor may also periodically waive all
or a portion of the sales charge for all investors with respect to a Fund.
CONCURRENT PURCHASES
For purposes of qualifying for a lower sales charge, investors have the
privilege of combining concurrent purchases of a Fund and one or more of the
other funds of the Group sold with a sales charge and advised by the Adviser
("Riverside Load Funds"). For example, if a shareholder concurrently purchases
Shares in the Value Fund at the total public offering price of $50,000 and
Shares in the Tennessee Fund at the total public offering price of $50,000, the
sales charge on the Shares of the Value Fund would be that applicable to a
$100,000 purchase as shown in the appropriate table above. This privilege,
however, may be modified or eliminated at any time or from time to time by the
Group without notice thereof.
LETTER OF INTENT
An investor may obtain a reduced sales charge by means of a written Letter
of Intent which expresses the intention of such investor to purchase Shares of a
Fund at a designated total public offering price within a designated 13-month
period. Each purchase of Shares under a Letter of Intent will be made at the net
asset value plus the sales charge applicable at the time of such purchase to a
single transaction of the total dollar amount indicated in the Letter of Intent.
A Letter of Intent may include purchases of Shares made not more than 90 days
prior to the date such investor signs a Letter of Intent; however, the 13-month
period during which the Letter of
32
<PAGE> 36
Intent is in effect will begin on the date of the earliest purchase to be
included. This program may be modified or eliminated at any time or from time to
time by the Group without notice. For further information about letters of
intent, interested investors should contact the Group at (800) 874-8376.
A Letter of Intent is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment under a
Letter of Intent is 5% of such amount. Shares purchased with the first 5% of
such amount will be held in escrow (while remaining registered in the name of
the investor) to secure payment of the higher sales charge applicable to the
Shares actually purchased if the full amount indicated is not purchased, and
such escrowed Shares will be involuntarily redeemed to pay the additional sales
charge, if necessary. Dividends on escrowed Shares, whether paid in cash or
reinvested in additional Shares, are not subject to escrow. The escrowed Shares
will not be available for disposal by the investor until all purchases pursuant
to the Letter of Intent have been made or the higher sales charge has been paid.
When the full amount indicated has been purchased, the escrow will be released.
An adjustment will be made to reflect any reduced sales charge applicable to
Shares purchased during the 90-day period prior to the date the Letter of Intent
was entered into at the conclusion of the 13-month period and in the form of
additional Shares credited to the Shareholder's account at the then current
public offering price applicable to a single purchase of the total amount of the
total purchases. Additionally, if the total purchases within the 13-month period
exceed the amount specified, a similar adjustment will be made to reflect
further reduced sales charges applicable to such purchases.
RIGHT OF ACCUMULATION
Pursuant to the right of accumulation, investors are permitted to purchase
Shares of a Fund at the public offering price applicable to the total of (a) the
total public offering price of the Shares of the Riverside Load Fund then being
purchased plus (b) an amount equal to the then current net asset value of the
purchaser's combined holdings of the Shares of all of the Riverside Load Funds.
The "purchaser's combined holdings" described in the preceding sentence shall
include the combined holdings of the purchaser, the purchaser's spouse and
children under the age of 21 and the purchaser's retirement plan accounts. To
receive the applicable public offering price pursuant to the right of
accumulation, Shareholders must, at the time of purchase, give the Transfer
Agent sufficient information to permit confirmation of qualification. This right
of accumulation, however, may be modified or eliminated at any time or from time
to time by the Group without notice.
EXCHANGE PRIVILEGE
For investors who were Shareholders of the Funds prior to November 1, 1994,
Shares of a Riverside Load Fund may be exchanged without payment of any fees or
sales charge for Shares of any of the other Riverside Load Funds at respective
net asset values. For investors who become Shareholders of the Funds on or after
November 1, 1994, Shares of a Riverside Load Fund may be exchanged for Shares of
any of the other Riverside Load Funds at respective net asset values upon the
payment of a sales charge equal to the difference, if any, between the sales
charge payable upon purchase of Shares of such Riverside Load Fund and the sales
charge previously paid on the Fund Shares to be exchanged. Provided further,
that with respect to every exchange, the amount to be exchanged must meet the
applicable minimum investment requirements and the exchange is made in states
where it is legally authorized. When Shares of the Money Market Fund are
exchanged for Shares of a Riverside Load Fund, the applicable sales load will be
assessed, unless such Shares to be exchanged were acquired through a previous
exchange for Shares on which a sales charge was paid. Under such circumstances,
the Shareholder must notify the Group that a sales charge was originally paid
and provide the Group with sufficient information to permit confirmation of the
Shareholder's right not to pay a sales charge.
An exchange is considered a sale of Shares for federal income tax purposes.
However, a Shareholder may not include any sales charge on Shares of a Fund as a
part of the cost of those Shares for purposes of calculating the gain or loss
realized on an exchange of those Shares within 90 days of their purchase.
This exchange privilege is not intended to afford Shareholders a way to
speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Funds and increase transaction costs, the Group has
established a policy of limiting the number of exchanges by a Shareholder to
four during any one calendar year. The Group may at any
33
<PAGE> 37
time modify or terminate the foregoing exchange privileges. The Group, however,
will give shareholders 60 days' advance written notice of any such modification.
A Shareholder wishing to exchange his or her Shares may do so by contacting
the Group at (800) 874-8376 or by providing written instructions to the Group.
Any Shareholder who wishes to make an exchange should obtain and review the
current prospectus of the Fund in which he or she wishes to invest before making
the exchange. For a discussion of risks associated with unauthorized telephone
exchanges, see "Redemption by Telephone" below.
REDEMPTION OF SHARES
Shares may ordinarily be redeemed by mail or by telephone. However, all or
part of a Customer's Shares may be redeemed in accordance with instructions and
limitations pertaining to his or her account at a Bank. For example, if a
Customer has agreed with a Bank to maintain a minimum balance in his or her
account with the Bank, and the balance in that account falls below that minimum,
the Customer may be obliged to redeem, or the Bank may redeem on behalf of the
Customer, all or part of the Customer's Shares of a Fund to the extent necessary
to maintain the required minimum balance.
REDEMPTION BY MAIL
A written request for redemption must be received by the Group, at the
address shown on the front page of this Prospectus, in order to honor the
request. The Transfer Agent will require a signature guarantee by an eligible
guarantor institution. The signature guarantee requirement will be waived if the
following conditions apply: (1) the redemption check is payable to the
Shareholder(s) of record, and (2) the redemption check is mailed to the
Shareholder(s) at the address of record or mailed or wired to a commercial bank
account previously designated on the Account Registration Form. There is no
charge for having redemption proceeds mailed to a designated bank account. To
change the address to which a redemption check is to be mailed, a written
request therefor must be received by the Transfer Agent. In connection with such
request, the Transfer Agent will require a signature guarantee by an eligible
guarantor institution. For purposes of this policy, the term "eligible guarantor
institution" shall include banks, brokers, dealers, credit unions, securities
exchanges and associations, clearing agencies and savings associations as those
terms are defined in the Securities Exchange Act of 1934. The Transfer Agent
reserves the right to reject any signature guarantee if (1) it has reason to
believe that the signature is not genuine, (2) it has reason to believe that the
transaction would otherwise be improper, or (3) the guarantor institution is a
broker or dealer that is neither a member of a clearing corporation nor
maintains net capital of at least $100,000.
REDEMPTION BY TELEPHONE
If a Shareholder has so designated on the Account Registration Form, a
Shareholder may request a redemption of his or her Shares by telephoning the
Group and having the payment of redemption requests sent electronically directly
to a domestic commercial bank account previously designated by the Shareholder
on the Account Registration Form. A Shareholder may also have such payment
mailed directly to the Shareholder at the Shareholder's address as recorded by
the Transfer Agent; however, this option may be suspended for a period of 10
days following a telephonic address change. Under most circumstances, such
payments will be transmitted on the next Business Day following receipt of a
valid request for redemption. Such wire redemption requests may be made by the
Shareholder by telephone to the Transfer Agent. The Group may reduce the amount
of a wire redemption payment by the then-current wire redemption charge of the
Funds' custodian. There is currently no charge for having payment of redemption
requests mailed or sent electronically to a designated bank account. For
telephone redemptions, call the Group at (800) 874-8376.
Neither the Funds nor their service providers will be liable for any loss,
damages, expense or cost arising out of any telephone redemption effected in
accordance with a Fund's telephone redemption procedures, acting upon
instructions reasonably believed to be genuine. Each Fund will employ procedures
designed to provide reasonable assurance that instructions by telephone are
genuine; if these procedures are not followed, such Fund or its service
providers may be liable for any losses due to unauthorized or fraudulent
instructions. These
34
<PAGE> 38
procedures include recording all phone conversations, sending confirmations to
Shareholders within 72 hours of the telephone transaction, verification of
account name and account number or tax identification number, and sending
redemption proceeds only to the address of record or to a previously authorized
bank account. If, due to temporary adverse conditions, Shareholders are unable
to effect telephone transactions, Shareholders may also mail the redemption
request to the Group at the address shown on the front page of this Prospectus.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables Shareholders of a Fund, with an account
balance in such Fund of $5,000 or more, to make regular monthly or quarterly
redemptions of Shares. With Shareholder authorization, the Transfer Agent will
automatically redeem Shares at the net asset value on the dates of the
withdrawal and have a check in the amount specified mailed to the Shareholder.
The required minimum withdrawal is $100 quarterly. To participate in the Auto
Withdrawal Plan, Shareholders should call (800) 874-8376 for more information.
Purchases of additional Shares, including use of the Auto Invest Plan,
concurrent with withdrawals may be disadvantageous to certain Shareholders
because of tax liabilities and sales charges. For a Shareholder to change the
Auto Withdrawal instructions, the request must be made in writing to the Group.
PAYMENTS TO SHAREHOLDERS
Redemption orders are effected at the net asset value per share next
determined after the Shares are properly tendered for redemption, as described
above. Payment to Shareholders for Shares redeemed will be made within seven
days after receipt by the Distributor of the request for redemption. However,
with respect to the Money Market Fund, to the greatest extent possible, such
Fund will attempt to honor requests from Shareholders for same day payments upon
redemption of Shares if the request for redemption is received by the
Distributor before 12:00 noon, Eastern Time, on a Business Day or, if the
request for redemption is received after 12:00 noon, Eastern Time, to honor
requests for payment on the next Business Day. With respect to each of the other
Funds, to the greatest extent possible, such Funds will attempt to honor
requests from Shareholders for next day payments upon redemption of Shares if
the request for redemption is received by the Distributor before the Valuation
Time, on a Business Day or, if the request for redemption is received after the
Valuation Time, to honor requests for payment on the second Business Day. Each
Fund will attempt to so honor redemption requests unless it would be
disadvantageous to that Fund or the Shareholders of that Fund to sell or
liquidate portfolio securities in an amount sufficient to satisfy requests for
payments in that manner.
At various times, the Group may be requested to redeem Shares for which it
has not yet received good payment. In such circumstances, the Group may delay
the forwarding of proceeds for up to 15 days or more until payment has been
collected for the purchase of such Shares. With respect to Shares of the Money
Market Fund, during the period of any such delay, such Shares to be redeemed
would continue to receive daily dividends as declared until execution of the
redemption. The Group intends to pay cash for all Shares redeemed, but under
abnormal conditions which make payment in cash unwise, the Group may make
payment wholly or partly in portfolio securities at their then market value
equal to the redemption price. In such cases, an investor may incur brokerage
costs in converting such securities to cash.
Due to the relatively high cost of handling small investments, each Fund
reserves the right to redeem, at net asset value, the Shares of that Fund of any
Shareholder if, because of redemptions of Shares by or on behalf of the
Shareholder (but not as a result of a decrease in the market price of such
Shares, the deduction of any sales charge or the establishment of an account
with less than $1,000 using the Auto Invest Plan or pursuant to a payroll
deduction plan), the account of such Shareholder has a value of less than
$1,000. Accordingly, an investor purchasing Shares of a Fund in only the minimum
investment amount may be subject to such involuntary redemption if he or she
thereafter redeems some of his or her Shares. Before a Fund exercises its right
to redeem such Shares and to send the proceeds to the Shareholder, the
Shareholder will be given notice that the value of the Shares in his or her
account is less than the minimum amount and will be allowed 60 days to make an
additional investment in an amount which will increase the value of the account
to at least $1,000.
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<PAGE> 39
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" and "NET ASSET VALUE"
in the Statement of Additional Information for examples of when the Group may
suspend the right of redemption or redeem shares involuntarily in light of the
Group's responsibilities under the 1940 Act.
DIVIDENDS AND TAXES
DIVIDENDS
The net income of the Money Market Fund is declared daily and such
dividends are generally paid monthly. For the Money Market Fund, dividends are
paid periodically in cash, generally on the first Business Day of the month, but
may be paid on the last Business Day of the preceding month.
A dividend for each of the other Funds is declared monthly at the close of
business on the day of declaration consisting of an amount of accumulated
undistributed net income of that Fund as determined necessary or appropriate by
the appropriate officers of the Group. Such dividend is generally paid monthly.
Shareholders will automatically receive all income dividends and capital gains
distributions in additional full and fractional Shares of that particular Fund
at the net asset value as of the date of payment, unless the Shareholder elects
to receive dividends or distributions in cash. Such election, or any revocation
thereof, must be made in writing to the Transfer Agent at 3435 Stelzer Road,
Columbus, Ohio 43219, and will become effective with respect to dividends and
distributions having record dates after its receipt by the Transfer Agent.
Distributable net realized capital gains for each Fund are distributed at
least annually. Dividends are paid in cash not later than seven Business Days
after a Shareholder's complete redemption of his or her Shares in a Fund.
If a Shareholder elects to receive distributions in cash, and checks (1)
are returned and marked as "undeliverable" or (2) remain uncashed for six
months, the Shareholder's cash election will be changed automatically and future
dividend and capital gains distributions will be reinvested in that Fund at the
per share net asset value determined as of the date of payment of the
distribution. In addition, any undeliverable checks or checks that remain
uncashed for six months will be canceled and will be reinvested in that Fund at
the per share net asset value determined as of the date of cancellation.
FEDERAL TAXES
General. Each of the Funds is treated as a separate entity for federal
income tax purposes and intends to qualify as a "regulated investment company"
under the Code for so long as such qualification is in the best interest of that
Fund's Shareholders. Qualification as a regulated investment company under the
Code requires, among other things, that the regulated investment company
distribute to its shareholders at least 90% of its investment company taxable
income. Each Fund contemplates declaring as dividends all or substantially all
of that Fund's investment company taxable income (before deduction of dividends
paid).
A non-deductible 4% excise tax is imposed on regulated investment companies
that do not distribute in each calendar year (regardless of whether they
otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. If
distributions during a calendar year were less than the required amount, that
Fund would be subject to a nondeductible 4% excise tax on the deficiency.
It is expected that each Fund will distribute annually to Shareholders all
or substantially all of that Fund's net ordinary income and net realized capital
gains and that such distributed net ordinary income and distributed net realized
capital gains will be taxable income to Shareholders for federal income tax
purposes, even if paid in additional Shares of the Fund and not in cash. The
dividends-received deduction for corporations will apply to the aggregate of
such ordinary income distributions in the same proportion as the aggregate
dividends eligible for the dividends deduction, if any, received by the Fund
bear to its gross income. Since all of the Money Market Fund's, the Government
Securities Fund's and the Fixed Income Fund's net investment income is expected
to be derived from earned interest and capital gains, it is anticipated that no
part of any distribution from such Funds will be eligible for the dividends
received deduction for corporation. The Money Market Fund also does not expect
to
36
<PAGE> 40
realize any mid-term or long-term capital gains and, therefore, does not foresee
paying any "capital gains dividends" as described in the Code.
Distribution by a Fund of the excess of net mid-term or net long-term
capital gain over net short-term capital loss is taxable to Shareholders as
mid-term or long-term capital gain, respectively, in the year in which it is
received, regardless of how long the Shareholder has held the Shares. Such
distributions are not eligible for the dividends-received deduction.
If the net asset value of a Share is reduced below the Shareholder's cost
of that Share by the distribution of income or gain realized on the sale of
securities, the distribution, from a practical stand point, is a return of
invested principal, although taxable as described above.
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of Shares prior to the record
date will have the effect of reducing the per share net asset value of the
Shares by the amount of the dividends or distributions. All or a portion of such
dividends or distributions, although in effect a return of capital, is subject
to tax.
Additional information regarding federal taxes is contained in the
Statement of Additional Information under the heading "ADDITIONAL
INFORMATION -- Additional Tax Information." However, the information contained
in this Prospectus and the additional material in the Statement of Additional
Information are only brief summaries of some of the important tax considerations
generally affecting the Funds and their Shareholders. Accordingly, potential
investors are urged to consult their tax advisers concerning the application of
federal, state and local taxes as such laws and regulations affect their own tax
situation.
Shareholders will be advised at least annually as to the federal and state
income tax consequences of distributions made to them during the year.
The Tennessee Fund. The Tennessee Fund will distribute substantially all
of its net investment income and net capital gains to its Shareholders.
Dividends derived from interest earned on Exempt Securities constitute
"exempt-interest dividends" when designated as such by the Tennessee Fund and
will be excludable from gross income for federal income tax purposes. However,
exempt-interest dividends attributable to certain municipal obligations issued
on or after August 8, 1986, to finance certain private activities will be
treated as a tax preference item in computing the alternative minimum tax. Also,
a portion of all other interest excluded from gross income for federal income
tax purposes earned by a corporation may be subject to the alternative minimum
tax as a result of the inclusion in alternative minimum taxable income of 75% of
the excess of adjusted current earnings over alternative minimum taxable income.
Distributions, if any, derived from capital gains will generally be taxable
to Shareholders as capital gains for federal income tax purposes to the extent
so designated by the Tennessee Fund. Dividends, if any, derived from sources
other than interest excluded from gross income for federal income tax purposes
and capital gains will be taxable to Shareholders as ordinary income for federal
income tax purposes whether or not reinvested in additional Shares. Shareholders
not subject to federal income tax on their income will not, of course, be
required to pay federal income tax on any amounts distributed to them. The
Tennessee Fund anticipates that substantially all of its dividends will be
excluded from gross income for federal income tax purposes. The Tennessee Fund
will notify each Shareholder annually of the tax status of all distributions.
If a Shareholder receives an exempt-interest dividend with respect to any
Share and such Share is held by the Shareholder for six months or less, any loss
on the sale or exchange of such Share will be disallowed to the extent of the
amount of such exempt-interest dividend. In certain limited instances, the
portion of Social Security benefits that may be subject to federal income
taxation, may be affected by the amount of tax-exempt interest income, including
exempt-interest dividends, received by a Shareholder.
Interest on indebtedness incurred or continued by a Shareholder to purchase
or carry Shares of the Tennessee Fund is not deductible for federal income taxes
assuming the Tennessee Fund distributes exempt-interest dividends during the
Shareholder's taxable year. It is anticipated that distributions from the
Tennessee Fund will not be eligible for the dividends received deduction for
corporations.
37
<PAGE> 41
STATE TAXES -- THE TENNESSEE FUND
Tennessee imposes a limited income tax, known as the "Hall Income Tax," on
certain interest and dividend income. The Hall Income Tax statutes, amended
effective for dividends received after January 1, 1992, provide that, as set
forth below, no tax will be levied on dividends from a regulated investment
company qualified as such under the Code, provided a part of such investment
company's portfolio is invested in bonds or securities of the United States
government or any agency or instrumentality thereof or in bonds of the State of
Tennessee or any county, municipality or political subdivision thereof
(including any agency, board, authority or commission of any of the foregoing).
In the opinion of Messrs. Burch, Porter & Johnson PLLC, Tennessee tax counsel to
the Tennessee Fund, so long as the Tennessee Fund qualifies as a "regulated
investment company" under the Code, dividends, whether paid as distributions of
cash, other property or additional Shares, by the Tennessee Fund to a resident
of Tennessee, will be exempt from the Hall Income Tax, as amended, in proportion
to the income received by the Tennessee Fund attributable to interest on
Tennessee Exempt Securities. The balance of the dividends, including any
dividends attributable to capital gains, will be subject to the Hall Income Tax.
In addition, in a letter dated August 14, 1992, from the Commissioner of
the Tennessee Department of Revenue, the Commissioner stated his position that
mutual fund distributions attributable to fund investments in Puerto Rican bonds
are exempt from the Hall Income Tax.
MANAGEMENT OF THE GROUP
TRUSTEES OF THE GROUP
Overall responsibility for management of the Group rests with its Board of
Trustees. Unless so required by the Group's Declaration of Trust or By-Laws or
by Ohio law, at any given time all of the Trustees may not have been elected by
the shareholders of the Group. The Group will be managed by the Trustees in
accordance with the laws of Ohio governing business trusts. The Trustees, in
turn, elect the officers of the Group to supervise its day-to-day operations.
The Trustees of the Group receive fees and are reimbursed for their
expenses in connection with each meeting of the Board of Trustees they attend.
However, no officer or employee of BISYS Fund Services Inc., the sole general
partner of BISYS, or BISYS Fund Services Ohio, Inc. receives any compensation
from the Group for acting as a Trustee of the Group. The officers of the Group
receive no compensation directly from the Group for performing the duties of
their offices. BISYS receives fees from the Group for acting as Administrator
and under the Distribution Plan discussed below, may receive fees under the
Administrative Services Plan discussed below, and may retain all or a portion of
any sales load imposed upon purchases of Shares. BISYS Fund Services Ohio, Inc.
receives fees from each of the Funds for acting as Transfer Agent and for
providing certain fund accounting services.
INVESTMENT ADVISER
National Bank of Commerce, One Commerce Square, Memphis, Tennessee 38150,
is the investment adviser of each Fund and has served as such since each Fund's
inception. The Adviser is a wholly owned subsidiary of National Commerce
Bancorporation ("NCB"). The Adviser and its affiliates also administer, on
behalf of their clients, assets which as of September 30, 1997, totalled $4.6
billion, and of which approximately $1.6 billion are managed in a variety of
balanced, equity and fixed income portfolios. The Adviser has over 120 years of
banking experience and as of September 30, 1997, had over $3.2 billion in
assets.
Subject to the general supervision of the Board of Trustees of the Group
and in accordance with the investment objectives and restrictions of the Funds,
the Adviser manages 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.
Since October 31, 1997, Russell M. Niemie and Gary L. Lazarini have been
primarily responsible for the day-to-day management of the Fixed Income Fund's,
the Tennessee Fund's and the Government Securities Fund's portfolios. As of
February 15, 1995, Alan Catmur assumed primary responsibility for the day-to-day
38
<PAGE> 42
management of the Value Fund's portfolio. Since the commencement of the Growth
Fund's operations, Jay Brooks has been responsible for the day-to-day management
of such Fund's portfolio.
Mr. Niemie has served as the Group Head of Trust and Asset Management for
the Adviser since August, 1997. Prior thereto, Mr. Niemie served as the Chief
Investment Officer of the Texas Employees Retirement System. He has over 18
years of investment management experience working with banks, pension plans and
investment banking firms.
Mr. Lazarini has held various positions with the Adviser since 1966 and is
currently Executive Vice President of the Adviser and Chairman of NBC Capital
Markets Group, Inc., a wholly owned subsidiary of the Adviser and a registered
broker-dealer (the "Capital Markets Group").
Since 1991, Mr. Catmur has been an equity analyst and portfolio manager of
the Adviser and has served as a member of its Equity Investment Committee. Prior
to 1991, Mr. Catmur serviced retail and institutional accounts at Robinson
Humphrey Company, Inc., an Atlanta investment banking firm.
Mr. Brooks has been an employee of the Adviser since February, 1994, and
has been President of Brooks, Montague & Associates, an investment advisory firm
and an affiliate of the Adviser, since 1986.
For the services provided and expenses assumed pursuant to its investment
advisory agreements with the Group, the Adviser receives a fee from each of the
Funds, computed daily and paid monthly, at the following rates: with respect to
the Money Market Fund, the annual rate of thirty-five one-hundredths of one
percent (.35%) of such Fund's average daily net assets; with respect to the
Value Fund, the annual rate equal to the lesser of (a) a fee computed at the
annual rate of one percent (1.00%) of the first $50 million of such Fund's
average daily net assets and seventy-five one-hundredths of one percent (0.75%)
of such Fund's remaining average daily net assets or (b) such other fee as may
be agreed upon in writing by the Group and the Adviser; with respect to each of
the Fixed Income Fund and the Tennessee Fund, an annual rate equal to the lesser
of a fee at the annual rate of sixty-five one-hundredths of one percent (0.65%)
of such Fund's average daily net assets, or such other fee as may be agreed upon
in writing by the Group and the Adviser; with respect to the Government
Securities Fund, the annual rate of fifty one-hundredths of one percent (0.50%)
of such Fund's average daily net assets; and with respect to the Growth Fund,
the annual rate of one percent (1.00%) of the first $50 million of such Fund's
average daily net assets and seventy-five one-hundredths of one percent (0.75%)
of such Fund's remaining average daily net assets.
The Adviser may periodically voluntarily reduce all or a portion of its
advisory fee with respect to a Fund to increase the net income of that Fund
available for distribution as dividends. The Adviser may not seek reimbursement
of such voluntarily reduced fees at a later date. The reduction of such fee will
cause the yield and total return of that Fund to be higher than they would
otherwise be in the absence of such a reduction.
The Group may, from time to time, engage the Capital Markets Group to
effect portfolio transactions on behalf of certain of the Funds on an agency
basis. The Capital Markets Group will receive compensation for such services in
the form of brokerage commissions. The Group, the Adviser and the Capital
Markets Group will comply with the requirements of Rule 17e-1 of the 1940 Act in
connection with such brokerage transactions.
ADMINISTRATOR AND DISTRIBUTOR
BISYS is the administrator for each Fund and also acts as each Fund's
principal underwriter and distributor (the "Administrator" or the "Distributor,"
as the context indicates). BISYS and its affiliated companies, including BISYS
Fund Services Ohio, Inc. and BISYS Fund Services, Inc., are wholly owned by The
BISYS Group, Inc., a publicly-held company which is a provider of information
processing, loan servicing and 401(k) administration and recordkeeping services
to and through banking and other financial organizations.
The Administrator generally assists in all aspects of a Fund's
administration and operation. For expenses assumed and services provided as
administrator pursuant to its Administration Agreement with the Group and as
fund accountant, the Administrator receives a fee from each Fund, computed daily
and paid periodically, calculated at an annual rate of twenty one-hundredths of
one percent (.20%) of that Fund's average daily net assets. The Administrator
may periodically voluntarily reduce all or a portion of its administration/fund
39
<PAGE> 43
accounting fee with respect to a Fund to increase the net income of such Fund
available for distribution as dividends. The Administrator may not seek
reimbursement of such reduced fees at a later date. The voluntary reduction of
such fee will cause the yield and total return of that Fund to be higher than
they would otherwise be in the absence of such a fee reduction.
While the combined fees of the Adviser and the Administrator with respect
to the Value, Fixed Income, Tennessee and Growth Funds are higher than similar
fees paid by most mutual funds, the Board of Trustees believes such fees to be
fair and reasonable and to be comparable to the fees paid by many funds having
similar investment objectives and policies.
The Distributor acts as agent for each of the Funds in the distribution of
their Shares and, in such capacity, solicits orders for the sale of Shares,
advertises, and pays the costs of advertising, office space and its personnel
involved in such activities. The Distributor receives no compensation under its
Distribution Agreement with the Group, but receives compensation under the
Distribution and Shareholder Service Plan described below and may retain all or
a portion of any sales charge imposed upon the purchase of Shares. See "HOW TO
PURCHASE AND REDEEM SHARES -- Sales Charges."
EXPENSES
The Adviser and the Administrator each bear all expenses in connection with
the performance of their services as investment adviser and administrator,
respectively, other than the cost of securities (including brokerage
commissions, if any) purchased for a Fund.
DISTRIBUTION PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Group has adopted a
Distribution and Shareholder Service Plan (the "Plan"), under which each Fund is
authorized to pay or reimburse BISYS, as Distributor, a periodic amount
calculated at an annual rate not to exceed twenty-five one-hundredths of one
percent (.25%) of the average daily net asset value of that Fund. Such amount
may be used by BISYS to pay banks (including the Adviser), broker-dealers, and
other institutions (a "Participating Organization") for distribution and/or
shareholder service assistance pursuant to an agreement between BISYS and the
Participating Organization. Under the Plan, a Participating Organization may
include BISYS, its subsidiaries, and its affiliates.
As authorized by the Plan, BISYS has entered into Rule 12b-1 Agreements
with the Capital Markets Group to provide certain distribution and shareholder
services in connection with the distribution of the Shares of each of the Funds
including, but not limited to, maintaining Shareholder relations, answering
questions about the Funds and distributing prospectuses to persons other than
Shareholders of the Funds. In consideration of such services BISYS has agreed to
pay the Capital Markets Group a monthly fee, computed at the annual rate of .25%
of the average aggregate net asset value of Shares held during the period in
accounts for which the Capital Markets Group provided services under such
Agreement. BISYS will be compensated by each Fund in an amount equal to its
payments to the Capital Markets Group under the Rule 12b-1 Agreement with
respect to that Fund. Such fee may exceed the actual costs incurred by the
Capital Markets Group in providing such services.
The Group has also entered into Rule 12b-1 Agreements with BISYS pursuant
to which BISYS has agreed to provide certain distribution and shareholder
support services to the Funds and their Shareholders, including, but not limited
to, maintaining Shareholder relations, advertising and marketing the Shares of
the Funds, answering questions about the Funds, distributing prospectuses to
persons other than Shareholders of the Funds, and providing such other services
as a Fund may reasonably request. In consideration of such services, the Group
has agreed to pay BISYS a monthly fee, computed at the annual rate of .25% of
the average aggregate net asset value of Shares held during the period in client
accounts for which BISYS has provided services under this Rule 12b-1 Agreement.
Such fee may exceed the actual costs incurred by BISYS in providing such
services.
In addition, BISYS may enter into, from time to time, other Rule 12b-1
Agreements with selected dealers pursuant to which such dealers will provide
certain services in connection with the distribution of a Fund's Shares such as
those described above.
40
<PAGE> 44
ADMINISTRATIVE SERVICES PLAN
The Group has adopted an Administrative Services Plan (the "Services Plan")
pursuant to which each Fund is authorized to pay compensation to banks and other
financial institutions (each a "Service Organization"), which may include the
Adviser, its correspondent and affiliated banks, and BISYS, which agree to
provide certain ministerial, record keeping and/or administrative support
services for their customers or account holders (collectively, "customers") who
are the beneficial or record owner of Shares of that Fund. In consideration for
such services, a Service Organization receives a fee from a Fund, computed daily
and paid monthly, at an annual rate of up to .25% of the average daily net asset
value of Shares of that Fund owned beneficially or of record by such Service
Organization's customers for whom the Service Organization provides such
services.
The servicing agreements adopted under the Services Plan (the "Servicing
Agreements") require the Service Organizations receiving such compensation to
perform certain ministerial, record keeping and/or administrative support
services with respect to the beneficial or record owners of Shares of the Funds,
such as processing dividend and distribution payments from the Fund on behalf of
customers, providing periodic statements to customers showing their positions in
the Shares of the Fund, providing sub-accounting with respect to Shares
beneficially owned by such customers and providing customers with a service that
invests the assets of their accounts in Shares of the Fund pursuant to specific
or pre-authorized instructions.
As authorized by the Services Plan, the Group has entered into Servicing
Agreements with the Adviser pursuant to which the Adviser has agreed to provide
certain administrative support services in connection with Shares of the Funds
owned of record or beneficially by its customers. Such administrative support
services may include, but are not limited to, (i) processing dividend and
distribution payments from a Fund on behalf of customers; (ii) providing
periodic statements to its customers showing their positions in the Shares;
(iii) arranging for bank wires; (iv) responding to routine customer inquiries
relating to services performed by the Adviser; (v) providing sub-accounting with
respect to the Shares beneficially owned by the Adviser's customers or the
information necessary for sub-accounting; (vi) if required by law, forwarding
shareholder communications from a Fund (such as proxies, shareholder reports,
annual and semi-annual financial statements and dividend, distribution and tax
notices) to its customers; (vii) aggregating and processing purchase, exchange,
and redemption requests from customers and placing net purchase, exchange, and
redemption orders for customers; and (viii) providing customers with a service
that invests the assets of their account in the Shares pursuant to specific or
pre-authorized instructions. In consideration of such services, the Group, on
behalf of each Fund, has agreed to pay the Adviser a monthly fee, computed at
the annual rate of twenty-five one-hundredths of one percent (.25%) of the
average aggregate net asset value of Shares of that Fund held during the period
by customers for whom the Adviser has provided services under the Servicing
Agreement.
BANKING LAWS
The Adviser believes that it possesses the legal authority to perform the
investment advisory services for each Fund contemplated by its investment
advisory agreement with the Group and administrative support services
contemplated by the servicing agreements with the Group, as described in this
Prospectus, without violation of applicable banking laws and regulations, and
has so represented in its investment advisory agreement and its servicing
agreements with the Group. The Capital Markets Group believes that it possesses
the legal authority to perform its distribution services as set forth in the
Rule 12b-1 Agreements with BISYS, as described above, without violation of
applicable banking laws and regulations, and has so represented in such Rule
12b-1 Agreements. Future changes in Federal or state statutes and regulations
relating to permissible activities of banks or bank holding companies and their
subsidiaries and affiliates as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations
could change the manner in which the Adviser and the Capital Markets Group could
continue to perform such services for the Funds. See "MANAGEMENT AND SERVICE
PROVIDERS OF THE GROUP -- Glass-Steagall Act" in the Statement of Additional
Information for further discussion of applicable law and regulations.
41
<PAGE> 45
GENERAL INFORMATION
DESCRIPTION OF THE GROUP AND ITS SHARES
The Group was organized as an Ohio business trust on April 25, 1988. The
Group consists of seventeen funds, each having its own class of shares. Each
share represents an equal proportionate interest in a fund with other shares of
the same fund, and is entitled to such dividends and distributions out of the
income earned on the assets belonging to that fund as are declared at the
discretion of the Trustees (see "Miscellaneous" below). The other funds of the
Group are The KeyPremier Prime Money Market Fund, The KeyPremier Pennsylvania
Municipal Bond Fund, The KeyPremier Established Growth Fund, The KeyPremier
Intermediate Term Income Fund, The KeyPremier U.S. Treasury Obligations Money
Market Fund, The KeyPremier Limited Duration Government Securities Fund, 1st
Source Monogram Diversified Equity Fund, 1st Source Monogram Income Equity Fund,
1st Source Monogram Special Equity Fund and 1st Source Monogram Income Fund.
Shareholders are entitled to one vote for each dollar of value invested and
a proportionate fractional vote for any fraction of a dollar invested, and will
vote in the aggregate and not by series except as otherwise expressly required
by law. For example, Shareholders of each Fund will vote in the aggregate with
other shareholders of the Group with respect to the election of trustees.
However, Shareholders of a Fund will vote as a fund, and not in the aggregate
with other shareholders of the Group, for purposes of approval of that Fund's
investment advisory agreement and the Plan.
Overall responsibility for the management of the Funds is vested in the
Board of Trustees of the Group. See "MANAGEMENT OF THE GROUP -- Trustees of the
Group" above. Individual Trustees are elected by the shareholders of the Group
and may be removed by the Board of Trustees or shareholders in accordance with
the provisions of the Declaration of Trust and By-Laws of the Group and Ohio
law. See "ADDITIONAL INFORMATION -- Miscellaneous" in the Statement of
Additional Information for further information.
An annual or special meeting of shareholders to conduct necessary business
is not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, the investment advisory agreement, the Plan or a Fund's fundamental
policies and to satisfy certain other requirements. To the extent that such a
meeting is not required, the Group does not intend to have an annual or special
meeting.
The Group has represented to the Commission that the Trustees will call a
special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request therefor from shareholders holding not
less than 10% of the outstanding votes of the Group. At such a meeting, a quorum
of shareholders (constituting a majority of votes attributable to all
outstanding shares of the Group), by majority vote, has the power to remove one
or more Trustees.
As of October 16, 1997, the Adviser possessed, on behalf of its underlying
accounts, voting or investment power with respect to more than 25% of the
outstanding Shares of each of the Funds and therefore may be presumed to control
each of the Funds within the meaning of the 1940 Act.
CUSTODIAN
National City Bank serves as the custodian for each of the Funds.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio 43219,
serves as the Funds' transfer agent pursuant to a Transfer Agency Agreement with
the Group and receives a fee for such services. BISYS Fund Services, Inc.
provides certain accounting services for each Fund pursuant to a Fund Accounting
Agreement and receives a fee for such services as described above under
"Administrator and Distributor." See "MANAGEMENT AND SERVICE PROVIDERS OF THE
GROUP -- Transfer Agency and Fund Accounting Services" in the Statement of
Additional Information for further information.
While each of BISYS Fund Services Ohio, Inc. and BISYS Fund Services, Inc.
is a distinct legal entity from BISYS (the Group's administrator and
distributor), BISYS Fund Services Ohio, Inc. and BISYS Fund Services, Inc. are
each considered to be an affiliated person of BISYS under the 1940 Act.
42
<PAGE> 46
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to a fund" means the consideration received by the fund upon
the issuance or sale of shares in that fund, together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale, exchange, or liquidation of such investments, and any
funds or amounts derived from any reinvestment of such proceeds, and any general
assets of the Group not readily identified as belonging to a particular fund
that are allocated to the fund by the Group's Board of Trustees. The Board of
Trustees may allocate such general assets in any manner it deems fair and
equitable. Determinations by the Board of Trustees of the Group as to the timing
of the allocation of general liabilities and expenses and as to the timing and
allocable portion of any general assets with respect to a Fund are conclusive.
As used in this Prospectus and in the Statement of Additional Information,
a "vote of a majority of the outstanding Shares" of a Fund means the affirmative
vote, at a meeting of Shareholders duly called, of the lesser of (a) 67% or more
of the votes of Shareholders of that Fund present at a meeting at which the
holders of more than 50% of the votes attributable to Shareholders of record of
that Fund are represented in person or by proxy, or (b) the holders of more than
50% of the outstanding votes of Shareholders of that Fund.
Inquiries regarding any of the Funds may be directed in writing to the
Group at 3435 Stelzer Road, Columbus, Ohio 43219, or by calling toll free (800)
874-8376.
43
<PAGE> 47
INVESTMENT ADVISER
National Bank of Commerce
One Commerce Square
Memphis, Tennessee 38150
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Baker & Hostetler LLP
65 East State Street
Columbus, Ohio 43215
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
<PAGE> 48
CROSS REFERENCE SHEET
---------------------
1ST SOURCE MONOGRAM DIVERSIFIED EQUITY FUND
1ST SOURCE MONOGRAM INCOME EQUITY FUND
1ST SOURCE MONOGRAM SPECIAL EQUITY FUND
1ST SOURCE MONOGRAM INCOME FUND
Four Funds
of
The Sessions Group
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C> <C>
1. Cover page.................. Cover Page
2. Synopsis.................... Fee Table
3. Condensed Financial
Information............... Financial Highlights; Performance
Information
4. General Description of
Registrant................ Investment Objectives and Policies;
Investment Restrictions; General
Information - Description of the Group
and Its Shares
5. Management of the Fund...... Management of the Group; General
Information - Custodian; General
Information - Transfer Agent
5A. Management's Discussion
of Fund Performance....... Inapplicable.
6. Capital Stock and Other
Securities................ How to Purchase and Redeem Shares;
Dividends and Taxes; General Informa-
tion - Description of the Group and Its
Shares; General Information - Miscel-
laneous
7. Purchase of Securities
Being Offered............. Valuation of Shares; How to Purchase
and Redeem Shares; Management of the
Group - Distribution Plan
8. Redemption or Repurchase.... How to Purchase and Redeem Shares
9. Pending Legal Proceedings... Inapplicable
</TABLE>
<PAGE> 49
1ST SOURCE MONOGRAM INCOME EQUITY FUND
1ST SOURCE MONOGRAM DIVERSIFIED EQUITY FUND
1ST SOURCE MONOGRAM SPECIAL EQUITY FUND
1ST SOURCE MONOGRAM INCOME FUND LOGO
- --------------------------------------------------------------------------------
3435 Stelzer Road
Columbus, Ohio 43219
For current yield, purchase, and redemption
information, call (800) 766-8938.
- --------------------------------------------------------------------------------
The Sessions Group (the "Group") is an open-end management investment company.
The Group includes the 1st Source Monogram Income Equity Fund (the "Income
Equity Fund"), the 1st Source Monogram Diversified Equity Fund (the "Diversified
Equity Fund"), the 1st Source Monogram Special Equity Fund (the "Special Equity
Fund") and the 1st Source Monogram Income Fund (the "Income Fund"), each of
which is a diversified investment fund of the Group (the Income Equity,
Diversified Equity, Special Equity and Income Funds are hereinafter collectively
referred to as the "Funds" and individually as a "Fund"). The Trustees of the
Group have divided each Fund's beneficial ownership into an unlimited number of
transferable units called shares (the "Shares").
1st Source Bank, South Bend, Indiana (the "Adviser"), which is a wholly owned
subsidiary of 1st Source Corporation ("FSC"), acts as the investment adviser to
each of the Funds. In addition, with respect to the Diversified Equity Fund, the
Adviser has retained Miller Anderson & Sherrerd LLP, Loomis Sayles & Company,
L.P. and Columbus Circle Investors to provide sub-investment advisory services.
Additional information about the Funds, contained in a Statement of Additional
Information, has been filed with the Securities and Exchange Commission and is
available upon request without charge by writing to the Funds at their address
or by calling the Funds at the telephone number shown above. The Statement of
Additional Information bears the same date as this Prospectus and is
incorporated by reference in its entirety into this Prospectus.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing. Investors should read this
Prospectus and retain it for future reference.
Each Fund's net asset value per share will fluctuate as the value of its
portfolio changes in response to changing market prices, market rates of
interest and/or other factors.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"),
Columbus, Ohio, acts as the Funds' administrator and distributor. BISYS Fund
Services, Inc., Columbus, Ohio, an affiliate of BISYS, acts as the Funds'
transfer agent (the "Transfer Agent") and performs certain fund accounting
services for each of the Funds.
THE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, THE ADVISER, FSC OR ANY OF THEIR AFFILIATES. SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY, AND AN INVESTMENT IN A FUND
INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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 October 31, 1997.
<PAGE> 50
PROSPECTUS SUMMARY
SHARES OFFERED: Units of beneficial interest ("Shares") of the Income Equity
Fund, the Diversified Equity Fund, the Special Equity Fund and the Income Fund,
four separate investment funds (collectively, the "Funds") of The Sessions
Group, an Ohio business trust (the "Group").
OFFERING PRICE: The public offering price of each of the Funds is equal to the
net asset value per share plus a sales charge of 5.00% (with respect to the
Income Equity, Diversified Equity and Special Equity Funds) and 4.00% (with
respect to the Income Fund) of the public offering price, reduced on investments
of $50,000 or more (See "HOW TO PURCHASE AND REDEEM SHARES--Sales Charges").
Under certain circumstances, the sales charge may be eliminated (See "HOW TO
PURCHASE AND REDEEM SHARES--Sales Charge Waivers").
MINIMUM PURCHASE: $1,000 minimum initial investment with $25 minimum
subsequent investments. Such minimum initial and subsequent investments are
reduced for investors using the Auto Invest Plan described herein and for
employees of the Adviser or one of its affiliates.
TYPE OF COMPANY: Each Fund is a diversified series of an open-end, management
investment company.
INVESTMENT OBJECTIVES: For the INCOME EQUITY FUND, capital appreciation with
current income as a secondary objective.
For the DIVERSIFIED EQUITY FUND and the SPECIAL EQUITY FUND, capital
appreciation.
For the INCOME FUND, current income consistent with preservation of capital.
INVESTMENT POLICIES: Under normal market conditions, the INCOME EQUITY FUND
will invest substantially all, but in no event less than 65%, of its total
assets in common stocks and securities convertible into common stocks.
Under normal market conditions, the DIVERSIFIED EQUITY FUND will invest
substantially all, but in no event less than 65%, of its total assets in common
stocks and securities convertible into common stocks--of that amount 25% to 40%
will be committed to each of the following styles, representing the three
different styles of the Sub-Advisers: (1) investing in companies believed to
have strong value measures whose stock is traded at a price below its perceived
value, (2) investing in companies believed to have growth potential, and (3)
investing in companies believed to be in a position to take advantage of
political, economic, industrial or secular trends or developments.
Under normal market conditions, the SPECIAL EQUITY FUND will invest
substantially all, but in no event less than 65%, of its total assets in equity
securities issued by companies with market capitalizations ranging on average
between $50 million and $1.5 billion and which are considered to have growth
potential.
Under normal market conditions, the INCOME FUND will invest substantially all,
but in no event less than 65%, of its total assets in debt securities of all
types, including high grade corporate bonds and U.S. Government bonds.
RISK FACTORS AND SPECIAL CONSIDERATIONS: An investment in any of the Funds is
subject to certain risks, including market risk and interest rate risk, as set
forth in detail under "INVESTMENT OBJECTIVES AND POLICIES--Risk Factors And
Investment Techniques." As with other mutual funds, there can be no assurance
that any of the Funds will achieve its investment objectives. The Funds, to the
extent set forth under "INVESTMENT OBJECTIVES AND
2
<PAGE> 51
POLICIES," may engage in the following practices: the use of repurchase
agreements and reverse repurchase agreements, purchasing futures contracts,
foreign securities and restricted securities, entering into option transactions
on securities in which the Funds may invest directly and the purchase of
securities on a when-issued or delayed-delivery basis.
INVESTMENT ADVISER: 1st Source Bank (the "Adviser").
SUB-ADVISERS: With respect to the Diversified Equity Fund only, Miller,
Anderson & Sherrerd LLP, Loomis, Sayles & Company, L.P. and Columbus Circle
Investors (collectively, the "Sub-Advisers").
DIVIDENDS: For each of the Funds, other than the Special Equity Fund,
dividends from net income are declared and generally paid monthly. For the
Special Equity Fund, dividends from net income are declared and generally paid
quarterly. Net realized capital gains, if any, for each of the Funds are
distributed at least annually.
DISTRIBUTOR: BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS").
3
<PAGE> 52
FEE TABLE
<TABLE>
<CAPTION>
INCOME DIVERSIFIED
EQUITY EQUITY
FUND FUND
----------- ------------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price).............................................................. 5.00% 5.00%
Exchange Fee.......................................................... $ 0 $ 0
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees....................................................... .80% 1.10%
12b-1 Fees After Fee Waivers(1)....................................... .03 .03
Other Expenses(2)..................................................... .41 .38
---- ----
Estimated Total Fund Operating Expenses After Fee Waivers(1).......... 1.24% 1.51%
==== ====
</TABLE>
<TABLE>
<CAPTION>
SPECIAL
EQUITY INCOME
FUND FUND
------- -----------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price)......................................................... 5.00% 4.00%
Exchange Fee.............................................................. $ 0 $ 0
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees........................................................... .80% .55%
12b-1 Fees After Fee Waivers(1)........................................... .03 .03
Other Expenses(2)......................................................... .45 .37
---- ----
Estimated Total Fund Operating Expenses After Fee Waivers(1).............. 1.28% 0.95%
==== ====
</TABLE>
- ---------------
1. BISYS has agreed with the Group to waive a portion of its Rule 12b-1 Fees
until on or about October 31, 1998 so that such fees will not exceed during
that period, on an annual basis, 0.03% of any Fund's average daily net
assets. Absent such Fee Waivers, 12b-1 Fees for each of the Funds would be
0.25% and Estimated Total Fund Operating Expenses would be 1.46%, 1.73%,
1.50% and 1.17% for the Income Equity Fund, Diversified Equity Fund, Special
Equity Fund and Income Fund, respectively.
2. "Other Expenses" are based upon estimated amounts for the current fiscal
year.
4
<PAGE> 53
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>
Income Equity Fund........................................................ $ 62 $87
Diversified Equity Fund................................................... 65 95
Special Equity Fund....................................................... 62 89
Income Fund............................................................... 49 69
</TABLE>
The purpose of the above table is to assist a potential purchaser of Shares of
any of the Funds in understanding the various costs and expenses that an
investor in a Fund will bear directly or indirectly. Such expenses do not
include any fees charged by the Adviser or any of its affiliates to its customer
accounts which may have invested in Shares of the Funds. See "MANAGEMENT OF THE
GROUP" and "GENERAL INFORMATION" for a more complete discussion of the
Shareholder transaction expenses and annual operating expenses of each Fund. As
a result of the payment of sales loads and Rule 12b-1 Fees, long-term
Shareholders may pay more than the maximum front-end sales charge permitted by
the Rules of the National Association of Securities Dealers, Inc. (the "NASD").
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
Each Fund is one separate fund of the Group. The table below sets forth
certain information concerning the investment results of the Funds since their
inception. Further financial information is included in the Statement of
Additional Information. The Financial Highlights contained in the following
table have been audited by Coopers & Lybrand L.L.P., independent certified
public
5
<PAGE> 54
accountants for the Funds, whose report on the periods ended June 30, 1997, is
included in the Statement of Additional Information and which may be obtained by
shareholders.
<TABLE>
<CAPTION>
INCOME DIVERSIFIED SPECIAL
EQUITY EQUITY EQUITY INCOME
------------ ------------ ------------ ------------
FOR PERIOD FOR PERIOD FOR PERIOD FOR PERIOD
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 (a) 1997 (a) 1997 (a) 1997 (a)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- -------- -------- --------
INVESTMENT ACTIVITIES
Net investment income..................... 0.20 (0.01) -- 0.44
Net realized and unrealized gains (losses)
on investments.......................... 2.32 2.03 (0.10)(d) 0.12
-------- -------- -------- --------
Total from Investment Activities........ 2.52 2.02 (0.10) 0.56
-------- -------- -------- --------
DISTRIBUTIONS
Net investment income..................... (0.19) -- -- (0.43)
Net realized gains........................ (0.05) (0.22) -- --
In excess of realized gains............... -- -- (0.31) --
-------- -------- -------- --------
Total Distributions..................... (0.24) (0.22) (0.31) (0.43)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.............. $ 12.28 $ 11.80 $ 9.59 $ 10.13
======== ======== ======== ========
Total Return (excludes sales charge)........ 25.58%(b) 20.42%(b) -1.03%(b) 5.71%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (000)........ $ 39,196 $ 74,990 $ 30,524 $ 54,789
Ratio of expenses to average net assets... 1.37%(c) 1.62%(c) 1.39%(c) 1.05%(c)
Ratio of net investment income to average
net assets.............................. 2.38%(c) -0.10%(c) 0.05%(c) 5.71%(c)
Ratio of expenses to average net
assets*................................. 1.62%(c) 1.87%(c) 1.65%(c) 1.30%(c)
Ratio of net investment income to average
net assets*............................. 2.13%(c) -0.35%(c) -0.21%(c) 5.46%(c)
Portfolio Turnover Rate................... 38.49% 76.54% 152.81% 118.33%
Average Brokerage Commission Paid......... $ 0.0988(e) $ 0.0572(e) $ 0.0941(e) --
</TABLE>
- ---------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Commencement of the Funds began September 25, September 23, September 20,
and September 24, respectively.
(b) Not annualized.
(c) Annualized.
(d) The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the portfolio of
securities during the period because of the timing of sales and purchases of
Fund shares in relation to fluctuating market values during the period.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged. Pertains to Funds with a greater
than 10% investment in equity securities.
6
<PAGE> 55
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing the Funds'
average annual total return and yield may be presented in advertisements, sales
literature and shareholder reports. SUCH PERFORMANCE FIGURES ARE BASED ON
HISTORICAL PERFORMANCE AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE.
Average annual total return will be calculated for the period since commencement
of operations for a Fund (or its respective predecessor collective investment
fund) and will reflect the imposition of the maximum sales charge. Average
annual total return is measured by comparing the value of an investment in such
Fund at the beginning of the relevant period to the redeemable value of the
investment at the end of the period (assuming immediate reinvestment of any
dividends or capital gains distributions), which figure is then annualized.
Yield will be computed by dividing a Fund's net investment income per share
earned during a recent one-month period by that Fund's per share maximum
offering price (reduced by any undeclared earned income expected to be paid
shortly as a dividend) on the last day of the period and annualizing the result.
Each of the Funds may also present its average annual total return and yield, as
the case may be, excluding the effect of a sales charge.
Each of the Funds was initially funded in part by the transfer of all of the
assets of a corresponding collective investment fund managed by the Adviser and,
in the case of the Diversified Equity Fund, the Sub-Advisers (the "CIFs").
Because the management of the Funds is substantially the same as the
corresponding CIF, the quoted performance of those Funds includes the
performance of the CIFs for periods prior to the effectiveness of the Group's
registration statement as it relates to the Funds. The CIFs were not registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), and
therefore were not subject to certain investment restrictions that are imposed
by the 1940 Act. If the CIFs had been so registered, their performance might
have been adversely affected.
For the one year, five year and ten year periods ended June 30, 1997, and the
respective periods from commencement of operations to June 30, 1997, the average
annual total returns for the Income Equity Fund, the Diversified Equity Fund,
the Special Equity Fund and the Income Fund are set forth in the following
table. Such performance information includes the prior performance of the
respective CIFs for such Funds during those periods which has been restated to
reflect the estimated fees for those Funds.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
------------------------------------------------------------------------------------
WITH MAXIMUM SALES LOAD(1) WITHOUT SALES LOAD
---------------------------------------- ----------------------------------------
SINCE SINCE
FUND 1 YEAR 5 YEAR 10 YEAR INCEPTION 1 YEAR 5 YEAR 10 YEAR INCEPTION
- -------------------------------- ------ ------ ------- --------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Equity(2)................ 20.98% 17.07% 11.52% 13.38% 27.42% 18.32% 17.09% 13.91%
Diversified Equity(3)........... 16.23% 15.06% 11.40% 11.78% 22.52% 16.26% 11.96% 12.27%
Special Equity(2)............... -8.10% 16.11% 12.49% 12.88% -3.27% 17.27% 13.04% 13.37%
Income(3)....................... 2.63% 5.08% 6.77% 7.11% 6.84% 5.96% 7.21% 7.56%
</TABLE>
- ---------------
1. The maximum sales load for the Income Equity, Diversified Equity and Special
Equity Funds is 5.00%. For the Income Fund, the maximum sales load is 4.00%.
2. Commenced operations November 30, 1985.
3. Commenced operations June 30, 1985.
Of course, past performance is no guarantee as to future performance.
In addition, from time to time the Funds may also present their distribution
rates in supplemental sales literature and in shareholder re-
7
<PAGE> 56
ports, both of which must be accompanied or preceded by a prospectus.
Distribution rates will be computed by dividing the distribution per share made
by a Fund over a twelve-month period by the maximum offering price per share at
the end of that period. The calculation of income in the distribution rate
includes both income and capital gain dividends and does not reflect unrealized
gains or losses, although each Fund may also present a distribution rate
excluding the effect of capital gains and/or a sales charge. The distribution
rate differs from the yield because it includes capital gain dividends which are
often non-recurring in nature, whereas yield does not include such items.
Investors may also judge the performance of each Fund by comparing or
referencing it to the performance of other mutual funds with comparable
investment objectives and policies through various mutual fund or market indices
and to data prepared by various services, which indices or data may be published
by such services or by other services or publications. In addition to
performance information, general information about these Funds that appears in
such publications may be included in advertisements, sales literature and
reports to Shareholders.
Yield and total return are generally functions of market conditions, interest
rates, types of investments held, and operating expenses. Consequently, current
yields and total return will fluctuate and are not necessarily representative of
future results. Any fees charged by FSC or by any of its affiliated or
correspondent banks, including the Adviser, to its customer accounts which may
have invested in Shares of a Fund will not be included in performance
calculations; such fees, if charged, will reduce the actual performance from
that quoted. In addition, if the Adviser or BISYS voluntarily reduces all or
part of its fees for a Fund, as discussed below, the yield and total return for
that Fund will be higher than they would otherwise be in the absence of such
voluntary fee reductions.
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
The investment objectives of the Income Equity Fund are capital appreciation
with current income as a secondary objective. The investment objective for each
of the Diversified Equity Fund and the Special Equity Fund is capital
appreciation. The investment objectives of the Income Fund are current income
consistent with preservation of capital.
The investment objectives with respect to a Fund are non-fundamental policies
and as such may be changed by the Group's Trustees without a vote of the holders
of a majority of the outstanding Shares of that Fund (as defined below under
"GENERAL INFORMATION--Miscellaneous"). There can be no assurance that the
investment objectives of any Fund will be achieved.
THE INCOME EQUITY FUND
Under normal market conditions, the Income Equity Fund will invest
substantially all, but in no event less than 65%, of its total assets in common
stocks and securities convertible into common stocks of companies with market
capitalization of at least $100 million which the Adviser believes pay above
average dividends or interest. For purposes of the foregoing, securities
convertible into common stocks include convertible bonds, convertible preferred
stock, options and rights. The securities purchased by the Income Equity Fund
are those considered by the Adviser to be generally undervalued by the market.
Under normal market conditions, the Income Equity Fund may also invest up to
35% of its total assets in warrants, sponsored and unsponsored American
Depositary Receipts ("ADRs"), as described more fully below, preferred stock,
securities of other investment companies and real estate investment trusts
("REITs"), cash and short-term obligations
8
<PAGE> 57
(with maturities of 12 months or less) (collectively, "Short-Term Obligations")
such as commercial paper, bankers' acceptances, certificates of deposit,
obligations of the U.S. Government or its agencies or instrumentalities, demand
and time deposits of domestic banks and savings and loan associations and
repurchase agreements secured by such Short-Term Obligations. Commercial paper
which is included within "Short-Term Obligations" is that which is rated at the
time of purchase within the two highest rating groups assigned by one or more
appropriate nationally recognized statistical rating organizations ("NRSROs")
(e.g., Standard & Poor's Corporation and Moody's Investors Service, Inc.), or,
if unrated, which the Adviser or the Sub-Adviser, as the case may be, deems to
be of comparable quality. For a description of the rating symbols of the NRSROs,
see the Appendix to the Statement of Additional Information. The Income Equity
Fund may engage in other investment techniques described below.
THE DIVERSIFIED EQUITY FUND
Under normal market conditions, the Diversified Equity Fund will invest
substantially all, but in no event less than 65%, of its total assets in common
stocks and securities convertible into common stocks of companies with market
capitalizations of $100 million or greater--of that amount, 25% to 40% will be
committed to each of the following styles, representing the three different
styles of the Sub-Advisers: (1) investing in companies believed to have strong
value measures whose stock is traded at a price below its perceived value, (2)
investing in companies believed to have growth potential, and (3) investing in
companies believed to be in a position to take advantage of political, economic,
industrial or secular trends or developments. For purposes of the foregoing,
securities convertible into common stocks include convertible bonds, convertible
preferred stock, options and rights. To the extent the Diversified Equity Fund
invests in options or rights, such investments may contribute to its investment
objective of capital appreciation.
Miller Anderson & Sherrerd LLP, one of the Sub-Advisers ("Miller Anderson"),
will manage its portion of the Diversified Equity Fund's portfolio with an
emphasis on equity securities of companies it believes have traditional value
characteristics, i.e., high yield, low price to earnings ratios and low price to
book value ratios, which Miller Anderson believes have unrecognized potential
for earnings improvement.
Loomis, Sayles & Company, L.P., another of the Sub-Advisers ("Loomis"), will
manage its portion of the Diversified Equity Fund's portfolio with an emphasis
on equity securities of companies Loomis believes are entering into a phase of
accelerating earnings growth. The criteria used by Loomis to select such
securities are historic and current relative price to earnings ratios, and the
extent to which Loomis believes that the market has recognized the accelerating
growth of such company.
Columbus Circle Investors, the third Sub-Adviser ("Columbus"), will manage its
portion of the Diversified Equity Fund's portfolio based upon Columbus'
identification of companies where political or economic developments, secular
trends, industry or group dynamics and company-specific events present greater
than market expected growth.
Under normal market conditions, the Diversified Equity Fund may also invest up
to 35% of its total assets in ADRs, preferred stock, securities of other
investment companies, units of REITs, warrants, cash and Short-Term Obligations.
The Diversified Equity Fund may also engage in other investment techniques
described below.
THE SPECIAL EQUITY FUND
Under normal market conditions, the Special Equity Fund will invest
substantially all, but in no event less than 65%, of its total assets in
9
<PAGE> 58
common stocks and securities convertible into common stocks (i.e., convertible
bonds, convertible preferred stock, options and rights), traded in U.S. markets,
and issued by companies believed by the Adviser to exhibit an attractive outlook
for growth in sales and earnings and with market capitalizations of between $50
million and $1.5 billion. Such companies may include "unseasoned" companies,
i.e., companies that, together with any predecessor, have less than three years
of continuous operation. The Special Equity Fund will not invest more than 25%
of its total assets in the securities of unseasoned companies.
The Special Equity Fund may also invest up to 35% of its total assets in
warrants, ADRs, securities of other investment companies and REITs, cash and
Short-Term Obligations and may engage in other investment techniques described
below.
THE INCOME FUND
Under normal market conditions, the Income Fund will invest substantially all,
but in no event less than 65%, of its total assets in debt securities of all
types, including variable and floating rate securities, although up to 35% of
its total assets may be invested in securities of other investment companies and
in preferred stock and dividend paying common stocks. Debt securities include
bonds, debentures, notes, mortgage-related securities, state, municipal or
industrial revenue bonds, obligations issued or guaranteed as to principal and
interest by the U.S. Government or its agencies or instrumentalities
("Government Obligations") and fixed-income securities convertible into, or
exchangeable for, common stocks. In addition, a portion of the Income Fund may
from time to time be invested in participation certificates in pools of
mortgages issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
Under normal market conditions, the Income Fund expects to invest primarily in
Government Obligations and in debt obligations of United States corporations.
The Income Fund also intends that, under normal market conditions, its portfolio
will maintain a dollar-weighted average maturity of no more than 18 years.
The Income Fund expects to invest in a variety of U.S. Treasury obligations,
differing in their interest rates, maturities, and times of issuance, and other
Government Obligations. Obligations of certain agencies and instrumentalities of
the U.S. Government, such as the Government National Mortgage Association
("GNMA") and the Export-Import Bank of the United States, are supported by the
full faith and credit of the U.S. Treasury; others, such as those of the Federal
National Mortgage Association ("FNMA"), are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Student Loan Marketing
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Federal
Farm Credit Banks or the Federal Home Loan Mortgage Corporation ("FHLMC"), are
supported only by the credit of the instrumentality. No assurance can be given
that the U.S. Government would provide financial support to U.S.
Government-sponsored agencies or instrumentalities if it is not obligated to do
so by law. The Income Fund will invest in the obligations of such agencies or
instrumentalities only when the Adviser believes that the credit risk with
respect thereto is minimal.
The Income Fund also expects to invest in bonds, notes and debentures of a
wide range of U.S. corporate issuers. Such obligations may be secured or
unsecured promises to pay and will in most cases differ in their interest rates,
maturities and times of issuance.
The Income Fund will invest only in corporate debt securities which are rated
at the time of purchase within the three highest rating groups assigned by one
or more appropriate NRSROs or, if unrated, which the Adviser
10
<PAGE> 59
deems to be of comparable quality. In the event that a security's rating falls
below "A" by an appropriate NRSRO, the Adviser will reevaluate the security in
order to determine whether to sell. In no event, however, will the Income Fund
be required to liquidate such security if it would suffer a loss on the sale of
such security or so long as one appropriate NRSRO has rated such security within
its three highest rating groups. For a description of the rating symbols of the
NRSROs, see the Appendix to the Statement of Additional Information.
The Income Fund may hold some Short-Term Obligations and securities of other
investment companies for cash management purposes.
The Income Fund may also invest in U.S. dollar denominated international bonds
for which the primary trading market is in the United States ("Yankee Bonds"),
or for which the primary trading market is abroad ("Eurodollar Bonds"), and in
Canadian Bonds and bonds issued by institutions organized for a specific
purpose, such as the World Bank and the European Economic Community, by two or
more sovereign governments ("Supranational Agency Bonds").
The Income Fund may invest up to 25% of its total assets in mortgage-related
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or by nongovernmental entities which are rated, at the time of
purchase, within the three highest bond rating categories assigned by one or
more appropriate NRSROs, or, if unrated, which the Adviser deems to be of
comparable quality. Such mortgage-related securities have mortgage obligations
backing such securities, including among others, conventional thirty year fixed
rate mortgage obligations, graduated payment mortgage obligations, fifteen year
mortgage obligations and adjustable rate mortgage obligations. All of these
mortgage obligations can be used to create pass-through securities. A
pass-through security is created when mortgage obligations are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgage obligations is passed through to the holders of the securities in the
form of periodic payments of interest, principal and prepayments (net of a
service fee). Prepayments occur when the holder of an individual mortgage
obligation prepays the remaining principal before the mortgage obligation's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate. Because the prepayment characteristics of the underlying mortgage
obligations vary, it is not possible to predict accurately the realized yield or
average life of a particular issue of pass-through certificates. Prepayment
rates are important because of their effect on the yield and price of the
securities. In addition, prepayment rates will be used to determine a security's
estimated average life and the Income Fund's average portfolio duration and its
dollar-weighted average portfolio maturity. Accelerated prepayments have an
adverse impact on yields for pass-through securities purchased at a premium
(i.e., a price in excess of principal amount) and may involve additional risk of
loss of principal because the premium may not have been fully amortized at the
time the obligations are repaid. The opposite is true for pass-through
securities purchased at a discount. The Income Fund may purchase
mortgage-related securities at a premium or a discount. Reinvestment of
principal payments may occur at higher or lower rates than the original yield on
such securities. Due to the prepayment feature and the need to reinvest payments
and prepayments of principal at current rates, mortgage-related securities can
be less effective than typical bonds of similar maturities at maintaining yields
during periods of declining interest rates. The term "mortgage-related
securities" does not include obligations issued or guaranteed by the U.S.
Government,
11
<PAGE> 60
its agencies or instrumentalities that are not backed by mortgage obligations.
The Income Fund may also acquire collateralized mortgage obligations or
"CMOs." CMOs are debt obligations collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by GNMA, FNMA or
FHLMC certificates, but also may be collateralized by whole loans or private
mortgage pass-through securities (such collateral collectively referred to as
"Mortgage Assets"). Payments of principal or interest on the Mortgage Assets,
and any reinvestment income thereon, provide the funds to pay debt service on
the CMOs. CMOs may be issued by agencies or instrumentalities of the U.S.
Government or by private originators of, or investors in, mortgage loans.
Asset-backed securities are similar to mortgage-backed securities except that
instead of using mortgages to collateralize the obligations, a broad range of
other assets may be used as collateral, primarily automobile and credit card
receivables and home equity loans. Such receivables and loans are securitized in
pass-through structures similar to the mortgage pass-through or pay-through
structures described above.
Certain debt securities such as, but not limited to, mortgage-backed
securities, CMOs, asset backed securities and securitized loan receivables, as
well as securities subject to prepayment of principal prior to the stated
maturity date, are expected to be repaid prior to their stated maturity dates.
As a result, the effective maturity of these securities is expected to be
shorter than the stated maturity. For purposes of compliance with stated
maturity policies and calculation of the Income Fund's dollar-weighted average
maturity, the effective maturity of such securities will be used.
An increase in interest rates will generally reduce the value of the
investments in the Income Fund, and a decline in interest rates will generally
increase the value of those investments. Depending upon the prevailing market
conditions, the Adviser may purchase debt securities at a discount from face
value, which produces a yield greater than the coupon rate. Conversely, if debt
securities are purchased at a premium over face value, the yield will be lower
than the coupon rate. In making investment decisions, the Adviser will consider
many factors other than current yield, including the preservation of capital,
maturity, and yield to maturity.
IN GENERAL
Each of the Funds may purchase securities of other investment companies which
in the opinion of the Adviser or Sub-Adviser, as the case may be, will assist
such Fund in achieving its investment objective and/or for cash management
purposes, may enter into repurchase and reverse repurchase agreements, and may
enter into options and futures transactions and write covered call options on
securities that such Fund could otherwise purchase directly. In addition, the
Income Fund may purchase securities on a when-issued basis.
The securities purchased by the Funds are generally traded on U.S. markets,
including the New York Stock Exchange, the American Stock Exchange and NASDAQ,
although each Fund may purchase securities which are restricted as to their
disposition, including those eligible for resale under Rule 144A under the
Securities Act of 1933 ("Rule 144A Securities").
During temporary defensive periods as determined by the Adviser or the
appropriate Sub-Adviser, as the case may be, based upon current or anticipated
market conditions, each Fund may hold up to 100% of its total assets in
Short-Term Obligations as described above or in cash. However, to the extent
that a Fund is so invested, it may not achieve its investment objective or
objectives.
Each of the Funds may invest in certain types of securities which are
considered to be "derivative" securities, such as certain variable or floating
rate securities, options and futures. A
12
<PAGE> 61
derivative is generally defined as an instrument whose value is based upon, or
derived from, some underlying index, reference rate (e.g., interest rates),
security, commodity or other asset. The Income Equity Fund, the Diversified
Equity Fund, and the Special Equity Fund each will not invest more than 25% of
its total assets in such derivatives. With respect to the Income Fund, such Fund
may invest up to 35% of its total assets in CMOs and asset-backed securities and
up to 25% of its total assets in any other derivatives. Notwithstanding the
foregoing, with respect to the Income Fund, there is no limitation on the amount
of its total assets which may be invested in variable or floating rate
obligations regardless of whether or not such obligations are deemed to be
"derivatives."
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in any of the Funds entails certain
risks. Equity securities such as those in which the Income Equity, Diversified
Equity and Special Equity Funds may invest are more volatile and carry more risk
than some other forms of investment, including investments in high grade fixed
income securities. Therefore, such Funds are subject to stock market risk, i.e.,
the possibility that stock prices in general will decline over short or even
extended periods of time.
Since the Income Fund invests in bonds, investors in such Fund, to the extent
so invested, are exposed to bond market risk, i.e., fluctuations in the market
value of bonds. Bond prices are influenced primarily by changes in the level of
interest rates. When interest rates rise, the prices of bonds generally fall;
conversely, when interest rates fall, bond prices generally rise. While bonds
normally fluctuate less in price than stocks, there have been in the recent past
extended periods of cyclical increases in interest rates that have caused
significant declines in bond prices and have caused the effective maturity of
securities with pre-payment features to be extended, thus effectively converting
short or intermediate term securities into longer term securities which are
generally more volatile in price.
The Special Equity Fund is intended for investors who can accept the higher
risks involved in seeking potentially higher capital appreciation through
investments in growth oriented companies. A growth oriented company typically
invests most of its net income in its enterprise and does not pay out much, if
any, in dividends. Accordingly, the Special Equity Fund does not anticipate any
significant distributions to shareholders from net investment income, and
potential investors should be in a financial position to forego current income
from their investment in the Special Equity Fund. The securities of less
seasoned companies may have limited marketability, and therefore may be less
liquid, and may be subject to more abrupt or erratic market movements over time
than securities of more seasoned companies or the market as a whole.
Depending upon the performance of each Funds' investments, the net asset value
per share of a Fund may decrease instead of increase.
Repurchase Agreements. Securities held by each Fund may be subject to
repurchase agreements. Under the terms of a repurchase agreement, a Fund would
acquire securities, in exchange for cash from banks and/or registered
broker-dealers which the Adviser or Sub-Adviser, as the case may be, deems
creditworthy under guidelines approved by the Group's Board of Trustees. The
seller agrees to repurchase such securities at a mutually agreed date and price.
The repurchase price generally equals the price paid by a Fund plus interest
negotiated on the basis of current short-term rates, which may be more or less
than the rate on the underlying portfolio securities. Securities subject to
repurchase agreements must be of the same type and quality as those in which
such Fund may invest directly. For further information about repurchase
agreements and the related risks, see "INVESTMENT OBJECTIVES AND POLI-
13
<PAGE> 62
CIES--Additional Information on Portfolio Instruments--Repurchase Agreements" in
the Statement of Additional Information.
Reverse Repurchase Agreements. Each Fund may borrow funds by entering into
reverse repurchase agreements in accordance with the investment restrictions
described below. Pursuant to such agreements, a Fund would sell portfolio
securities to financial institutions such as banks and broker-dealers, and agree
to repurchase them at a mutually agreed-upon date and price. At the time a Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account assets such as U.S. Government securities or other liquid
securities consistent with such Fund's investment restrictions having a value
equal to the repurchase price (including accrued interest), and will continually
monitor the account to ensure that such equivalent value is maintained at all
times. Reverse repurchase agreements involve the risk that the market value of
the securities sold by a Fund may decline below the price at which the Fund is
obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings by a Fund under the 1940 Act and therefore a form of
leverage. A Fund may experience a negative impact on its net asset value if
interest rates rise during the term of a reverse repurchase agreement. A Fund
generally will invest the proceeds of such borrowings only when such borrowings
will enhance the Fund's liquidity or when the Fund reasonably expects that the
interest income to be earned from the investment of the proceeds is greater than
the interest expense of the transaction. For further information about, and
limitations on the use of, reverse repurchase agreements, see investment
restriction no. 3 under "INVESTMENT RESTRICTIONS" below and "INVESTMENT
OBJECTIVES AND POLICIES--Additional Information on Portfolio
Instruments--Reverse Repurchase Agreements" in the Statement of Additional
Information.
Except as otherwise disclosed to the Shareholders of the Funds, the Group will
not execute portfolio transactions through, acquire portfolio securities issued
by, make savings deposits in, or enter into repurchase or reverse repurchase
agreements with the Adviser, 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.
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.
A floating rate obligation is one whose terms provide for the adjustment of
its interest rate whenever a specified interest rate changes and which, at any
time, can reasonably be expected to have a market value that approximates its
par value.
Such obligations are frequently not rated by credit rating agencies; however,
unrated variable and floating rate obligations purchased by the Income Fund will
be determined by the Adviser to be of comparable quality at the time of purchase
to rated instruments eligible for purchase under the Income Fund's investment
policies. In making such determinations, the Adviser will consider the earning
power, cash flow and other liquidity ratios of the issuers of such obligations
and will continuously monitor their financial condition. Although there may be
no active secondary market with respect to a particular variable or floating
rate obligation purchased by the Income Fund, the Income Fund may attempt to
resell the obligation at any time to a third party. The absence of an active
secondary market, however, could make it difficult for the Income Fund to
dispose of a variable or floating rate obligation in the event the issuer of the
obligation defaulted on its payment obligations and the Income Fund
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<PAGE> 63
could, as a result or for other reasons, suffer a loss to the extent of the
default. Variable or floating rate obligations may be secured by bank letters of
credit.
In the event the interest rate of a variable or floating rate obligation is
established by reference to an index or an interest rate that may from time to
time lag behind other market interest rates, there is the risk that the market
value of such obligation, on readjustment of its interest rate, will not
approximate its par value.
Variable and floating rate obligations for which no readily available market
exists will be purchased in an amount which, together with other illiquid
securities, exceeds 15% of the Income Fund's net assets only if such obligations
are subject to a demand feature that will permit the Income Fund to receive
payment of the principal within seven days after demand by the Income Fund.
Options. Each Fund may also purchase put and call options for hedging
purposes. The Funds anticipate that options will be exchange traded options,
meaning that such options are generally standardized and are guaranteed by a
clearing agency, which is in contrast to over-the-counter or OTC traded options.
A put option gives the purchaser of the option the right to sell, and obligates
the writer (seller) of the option to buy, the underlying security at the stated
exercise price at any time prior to the expiration date of the option,
regardless of the market price of the security. A call option gives the
purchaser of the option the right to buy, and obligates the seller of the option
to sell, the underlying security at the stated exercise price at any time prior
to the expiration date of the option, regardless of the market price of the
security. Purchasing options is a specialized investment technique that entails
a substantial risk of a complete loss of the amounts paid as premiums to writers
of options.
For hedging purposes, each of the Funds may also engage in writing call
options from time to time as the Adviser or the Sub-Adviser, as the case may be,
deems appropriate. A Fund will write only covered call options (options on
securities owned by that Fund). When a Fund writes a covered call option and
such option is exercised, that Fund will forego the appreciation, if any, on the
underlying security in excess of the exercise price. In order to close out a
call option it has written, a Fund will enter into a "closing purchase
transaction"--the purchase of a call option on the same security with the same
exercise price and expiration date as the call option which that Fund previously
wrote on any particular securities. When a portfolio security subject to a call
option is sold, the Fund which wrote the call will effect a closing purchase
transaction to close out any existing call option on that security. There is no
assurance of liquidity in the secondary market for purposes of closing out
options positions. If that Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
option expires or such Fund delivers the underlying security upon exercise.
Each of the Funds, as part of its options transactions, also may purchase
index put and call options and write index options. Through the writing or
purchase of index options a Fund can achieve many of the same objectives as
through the use of options on individual securities. Options on securities
indices are similar to options on a security except that, rather than the right
to take or make delivery of a security at a specified price, an option on a
securities index gives the holder the right to receive, upon exercise of the
option, an amount of cash if the closing level of the securities index upon
which the option is based is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option.
A Fund may lose the expected benefit of options transactions if interest rates
or securities prices move in an unanticipated manner. In
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<PAGE> 64
addition, the value of a Fund's options positions may not prove to be perfectly
or even highly correlated with the value of its portfolio securities, limiting
such Fund's ability to hedge effectively against market or interest rate risk.
Because index options are settled in cash, a call writer cannot determine the
amount of its settlement obligations in advance and, unlike call writing on
specific securities, cannot provide in advance for, or cover, its potential
settlement obligations by acquiring and holding the underlying securities. A
Fund may be required to segregate assets or provide an initial margin to cover
index options that would require it to pay cash upon exercise. Under normal
conditions, it is not expected that any such Fund would permit the underlying
value of its portfolio securities subject to such options to exceed 25% of its
net assets.
Futures Contracts. Each Fund may also enter into contracts for the future
delivery of securities and futures contracts based on a specific security, class
of securities, interest rate or an index, purchase or sell options on any such
futures contracts and engage in related closing transactions. A futures contract
on a securities index or based on an interest rate is an agreement obligating
either party to pay, and entitling the other party to receive, while the
contract is outstanding, cash payments based on the level of a specified
securities index or interest rate, as the case may be. A Fund may use this
investment technique as a substitute for a comparable market position in the
underlying securities or to hedge against anticipated future changes in market
prices or interest rates, which otherwise might adversely affect either the
value of such Fund's securities or the prices of securities which the Fund
intends to purchase at a later date. Alternatively, a Fund may purchase or sell
futures contracts to hedge against changes in market interest rates which may
result in the premature call at par value of certain securities which the Fund
has purchased at a premium.
Each Fund may engage in such futures contracts in an effort to hedge against
market risks. For example, when interest rates are expected to rise or market
values of portfolio securities are expected to fall, a Fund can seek through the
sale of futures contracts to offset a decline in the value of its portfolio
securities. When interest rates are expected to fall or market values are
expected to rise, a Fund, through the purchase of such contracts, can attempt to
secure better rates or prices for such Fund than might later be available in the
market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period. A Fund may also sell options
on futures contracts as part of closing purchase transactions to terminate its
options positions. No assurance can be given that such closing transactions can
be effected, that there will be a correlation between price movements in the
Fund's portfolio securities which are the subject of the hedge or of liquidity
in the secondary market for purposes of closing out future positions. In
addition, a Fund's purchase of such options will be based upon predictions as to
anticipated interest rate or other market trends, which could prove to be
inaccurate.
In general, the value of futures contracts sold by a Fund to offset declines
in its portfolio securities will not exceed the total market value of the
portfolio securities to be hedged, and futures contracts purchased by a Fund
will be covered by a segregated account consisting of cash or liquid securities
in an amount equal to the total market value of such futures contracts, less the
initial margin deposited therefor.
When buying futures contracts and when writing put options, a Fund will be
required to segregate in a separate account cash and/or
16
<PAGE> 65
liquid securities in an amount sufficient to meet its obligations. When writing
call options, a Fund will be required to own the financial instrument or futures
contract underlying the option or segregate cash and/or liquid securities in an
amount sufficient to meet its obligations under written calls.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed five percent of a Fund's total assets, and the
value of securities that are the subject of such futures and options (both for
receipt and delivery) may not exceed one-third of the market value of a Fund's
total assets. Futures transactions will be limited to the extent necessary to
maintain each Fund's qualifications as a regulated investment company.
A Fund may lose the expected benefit of futures transactions if interest rates
or securities prices move in an unanticipated manner. Such unanticipated changes
may also result in poorer overall performance than if the Fund had not entered
into any futures transactions. In addition, the value of a Fund's futures
positions may not prove to be perfectly or even highly correlated with the value
of its portfolio securities, limiting such Fund's ability to hedge effectively
against interest rate and/or market risk and giving rise to additional risks.
For futures contracts based on indices, the risk of imperfect correlation
increases as the composition of the Fund's portfolio varies from the composition
of the index. In an effort to compensate for the imperfect correlation of
movements in the price of the securities being hedged and movements in the price
of futures contracts, a Fund may buy or sell futures contracts in a greater or
lesser dollar amount than the dollar amount of the securities being hedged if
the historical volatility of the futures contract has been less or greater than
that of the securities. Such "over hedging" or "under hedging" may adversely
affect the Fund's net investment results if the market does not move as
anticipated when the hedge is established.
Foreign Investments. As described above, each of the Income Equity,
Diversified Equity and Special Equity Funds may invest in sponsored and
unsponsored ADRs. ADRs are receipts typically issued by a United States bank or
trust company evidencing ownership of the underlying foreign securities and are
denominated in U.S. dollars. Unsponsored ADRs may be less liquid than sponsored
ADRs, and there may be less information available regarding the underlying
foreign issuer for unsponsored ADRs.
Investments in foreign securities, including ADRs, may subject a Fund to
investment risks that differ in some respects from those related to investments
in securities of U.S. domestic issuers. Such risks include future adverse
political and economic developments, the possible imposition of withholding
taxes on interest or other investment income, fluctuations in exchange rates,
possible seizure, nationalization, or expropriation of foreign deposits or
investments, the possible establishment of exchange controls or taxation at the
source, less stringent disclosure requirements, less liquid or developed
securities markets or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal, interest or dividends on
such securities or the purchase or sale thereof. In addition, foreign branches
of U.S. banks and foreign banks may be subject to less stringent reserve
requirements and to different accounting, auditing, reporting, and recordkeeping
standards than those applicable to domestic branches of U.S. banks. A Fund will
acquire securities issued by foreign branches of U.S. banks, foreign banks, or
other foreign issuers only when the Adviser believes that the risks associated
with such instruments are minimal.
Securities Lending. In order to generate additional income, each Fund may,
from time to time, lend its portfolio securities to broker-dealers, banks, or
institutional borrowers of securities. A Fund must receive 100% collateral in
the form of cash or U.S. Government securities. This collateral will be valued
daily by the
17
<PAGE> 66
Adviser or the Sub-Adviser, as the case may be. Should the market value of the
loaned securities increase, the borrower must furnish additional collateral to
that Fund. During the time portfolio securities are on loan, the borrower pays
that Fund any dividends or interest received on such securities. Loans are
subject to termination by such Fund or the borrower at any time. While a Fund
does not have the right to vote securities on loan, each Fund intends to
terminate the loan and regain the right to vote if that is considered important
with respect to the investment. In the event the borrower would default on its
obligations, the Fund bears the risk of delay in recovery of the portfolio
securities and the loss of rights in the collateral. A Fund will enter into loan
agreements only with broker-dealers, banks, or other institutions that the
Adviser or the Sub-Adviser, as the case may be, has determined are creditworthy
under guidelines established by the Group's Board of Trustees.
When-Issued and Delayed Delivery Transactions. The Income Fund may purchase
securities on a when-issued or delayed-delivery basis. These transactions are
arrangements in which a Fund purchases securities with payment and delivery
scheduled for a future time. The Income Fund will engage in when-issued and
delayed-delivery transactions only for the purpose of acquiring portfolio
securities consistent with and in furtherance of its investment objective and
policies, not for investment leverage, although such transactions represent a
form of leveraging. When-issued securities are securities purchased for delivery
beyond the normal settlement date at a stated price and yield and thereby
involve a risk that the yield obtained in the transaction will be less than
those available in the market when delivery takes place. A Fund will generally
not pay for such securities or start earning interest on them until they are
received on the settlement date. When a Fund agrees to purchase such securities,
however, its custodian will set aside cash or liquid securities equal to the
amount of the commitment in a separate account. Securities purchased on a
when-issued basis are recorded as an asset and are subject to changes in the
value based upon changes in the general level of interest rates. In when-issued
and delayed-delivery transactions, the Fund relies on the seller to complete the
transaction; the seller's failure to do so may cause such Fund to miss a price
or yield considered to be advantageous.
Restricted Securities. Securities in which the Funds may invest include
securities issued by corporations without registration under the Securities Act
of 1933, as amended (the "1933 Act"), such as securities issued in reliance on
the so-called "private placement" exemption from registration which is afforded
by Section 4(2) of the 1933 Act ("Section 4(2) securities"). Section 4(2)
securities are restricted as to disposition under the federal securities laws,
and generally are sold to institutional investors such as the Funds who agree
that they are purchasing the securities for investment and not with a view to
public distribution. Any resale must also generally be made in an exempt
transaction. Section 4(2) securities are normally resold, if at all, to other
institutional investors through or with the assistance of the issuer or
investment dealers who facilitate the resale of such Section 4(2) securities,
thus providing some liquidity.
Pursuant to procedures adopted by the Board of Trustees of the Group, the
Adviser, or the Sub-Adviser, as the case may be, may determine Section 4(2)
securities to be liquid if such securities are eligible for resale under Rule
144A under the 1933 Act and are readily saleable. Rule 144A permits a Fund to
purchase securities which have been privately placed and resell such securities
to certain qualified institutional buyers without restriction. For purposes of
determining whether a Rule 144A security is readily saleable, and therefore
liquid, the Adviser or the Sub-Adviser, as the case may be, must consider, among
other things, the frequency of trades and quotes for the security, the number of
dealers willing to purchase or
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<PAGE> 67
sell the security and the number of potential purchasers, dealer undertakings to
make a market in the security, and the nature of the security and marketplace
trades of such security. However, investing in Rule 144A securities, even if
such securities are initially determined to be liquid, could have the effect of
increasing the level of the Fund's illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities.
Investment Company Securities. Each Fund may also invest in the securities of
other investment companies in accordance with the limitations of the 1940 Act
and any exemptions therefrom. Each Fund intends to invest in the securities of
other investment companies which, in the opinion of the Adviser or the
Sub-Adviser, as the case may be, will assist such Fund in achieving its
investment objectives and in money market mutual funds for purposes of
short-term cash management. A Fund will incur additional expenses due to the
duplication of fees and expenses as a result of investing in mutual funds.
Additional restrictions on the Funds' investments in the securities of other
mutual funds are described in the Statement of Additional Information.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is calculated by dividing the lesser
of a Fund's purchases or sales of portfolio securities for the year by the
monthly average value of the portfolio securities. The Commission requires that
the calculation exclude all securities whose remaining maturities at the time of
acquisition are one year or less. The portfolio turnover rate for each of the
Funds may vary greatly from year to year, as well as within a particular year,
and may also be affected by cash requirements for redemptions of Shares. High
portfolio turnover rates will generally result in higher transaction costs,
including brokerage commissions, to a Fund and may result in additional tax
consequences to a Fund's shareholders. Portfolio turnover will not be a limiting
factor in making investment decisions. Portfolio turnover information is set
forth above under "FINANCIAL HIGHLIGHTS."
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding Shares of that Fund
(as defined under "GENERAL INFORMATION--Miscellaneous" herein).
Each of the Funds will not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements secured by such obligations, if, immediately after such
purchase, more than 5% of such Fund's total assets would be invested in such
issuer, or such Fund would hold more than 10% of outstanding voting securities
of such issuer, except that up to 25% of a Fund's total assets may be invested
without regard to such limitations. There is no limit to the percentage of
assets that may be invested in U.S. Treasury bills, notes, or other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or repurchase agreements secured by such obligations.
2. Purchase any securities which would cause more than 25% of such Fund's
total assets at the time of purchase to be invested in securities of one or
more issuers conducting their principal business activities in the same
industry; provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
and repurchase agreements secured by such obligations; (b) wholly owned
finance companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities of their
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parents; and (c) utilities will be divided according to their services. For
example, gas, gas transmission, electric and gas, electric, and telephone will
each be considered a separate industry.
3. Borrow money or issue senior securities except as and to the extent
permitted by the 1940 Act or any rule, order or interpretation thereunder. So
long as the Money Market Fund's borrowings, including reverse repurchase
agreements and dollar roll agreements, exceed 5% of such Fund's total assets,
the Money Market Fund will not acquire any portfolio securities.
4. Make loans, except that each Fund may purchase or hold debt instruments
and lend portfolio securities in accordance with its investment objective and
policies, make time deposits with financial institutions, and enter into
repurchase agreements.
The following additional investment restriction may be changed without the
vote of a majority of the outstanding Shares of a Fund: Each of the Funds will
not purchase or otherwise acquire any security, if, as a result, more than 15%
of its net assets would be invested in securities that are illiquid.
For purposes of this investment restriction, illiquid securities include
securities which are not readily marketable and repurchase agreements with
maturities in excess of seven days.
In addition to the above investment restrictions, each Fund is subject to
certain other investment restrictions set forth under "INVESTMENT OBJECTIVES AND
POLICIES--Investment Restrictions" in the Funds' Statement of Additional
Information.
VALUATION OF SHARES
The net asset value of each Fund is determined and its Shares are priced as of
the close of regular trading on the New York Stock Exchange (the "Exchange")
(generally 4:00 p.m. Eastern time) on each Business Day of such Fund. The time
at which the Shares of a Fund is priced is hereinafter referred to as the
"Valuation Time." A "Business Day" of a Fund is a day on which the Exchange is
open for trading and any other day (other than a day on which no Shares of that
Fund are tendered for redemption and no order to purchase any Shares of that
Fund is received) during which there is sufficient trading in portfolio
instruments such that such Fund's net asset value per share might be materially
affected. The Exchange will not be open in observance of the following holidays:
New Year's Day, Martin Luther King, Jr. Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. Net asset
value per share for purposes of pricing purchases and redemptions is calculated
by dividing the value of all securities and other assets belonging to a Fund,
less the liabilities charged to that Fund, by the number of that Fund's
outstanding Shares.
The net asset value per share for each of the Funds, will fluctuate as the
value of the investment portfolio of a Fund changes.
The portfolio securities in each of the Funds for which market quotations are
readily available are valued based upon their current available prices in the
principal market in which such securities normally are traded. Unlisted
securities for which market quotations are readily available are valued at such
market values. Other securities, including restricted securities and other
securities for which market quotations are not readily available, and other
assets are valued at fair value by the Adviser under procedures established by,
and under the supervision of the Group's Board of Trustees. Securities may be
valued by an independent pricing service approved by the Group's Board of
Trustees. Investments in debt securities with remaining maturities of 60 days or
less may be valued based upon the amortized cost method. For further information
about valuation of investments, see "NET ASSET VALUE" in the Statement of
Additional Information.
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HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Fund are sold on a continuous basis by the Group's distributor,
BISYS (the "Distributor"). The principal office of the Distributor is 3435
Stelzer Road, Columbus, Ohio 43219. If you wish to purchase Shares, telephone
the Group at (800) 766-8938.
PURCHASES OF SHARES
Shares may be purchased through procedures established by the Distributor in
connection with the requirements of qualified accounts maintained by or on
behalf of certain persons ("Customers") by the Adviser or its correspondent or
affiliated banks (collectively, the "Banks").
Shares of the Funds sold to the Banks acting in a fiduciary, advisory,
custodial, agency, or other similar capacity on behalf of Customers will
normally be held of record by the Banks. With respect to Shares of the Funds so
sold, it is the responsibility of the particular Bank to transmit purchase or
redemption orders to the Distributor and to deliver federal funds for purchase
on a timely basis. Beneficial ownership of Shares will be recorded by the Banks
and reflected in the account statements provided by the Banks to Customers. A
Bank will exercise voting authority for those Shares for which it is granted
authority by the Customer.
Investors may also purchase Shares of a Fund by completing and signing an
Account Registration Form and mailing it, together with a check (or other
negotiable bank draft or money order) in at least the minimum initial purchase
amount, payable to the appropriate Fund, to the 1st Source Monogram Funds, P.O.
Box 182084, Columbus, Ohio 43218-2084. Subsequent purchases of Shares of that
Fund may be made at any time by mailing a check (or other negotiable bank draft
or money order) payable to the Group, to the above address.
If an Account Registration Form has been previously received by the Group,
investors may also purchase Shares by wiring funds to the Funds' custodian.
Prior to wiring any such funds and in order to ensure that wire orders are
invested promptly, investors must call the Group at (800) 766-8938 to obtain
instructions regarding the bank account number into which the funds should be
wired and other pertinent information.
Shares of each Fund are purchased at the net asset value per share (see
"VALUATION OF SHARES") next determined after receipt by the Distributor, its
agents or broker-dealers with whom it has an agreement of an order in good form
to purchase Shares plus any applicable sales charge as described below.
Purchases of Shares of a Fund will be effected only on a Business Day (as
defined in "VALUATION OF SHARES") of that Fund.
For orders for the purchase of Shares of any of the Funds placed through a
broker-dealer, the applicable public offering price will be the net asset value
as so determined (plus any applicable sales charge), but only if the broker-
dealer receives the order and transmits it to the Distributor prior to the
Valuation Time for that day. The broker-dealer is responsible for transmitting
such orders by the Valuation Time. If the broker-dealer fails to do so, the
investor's right to that day's closing price must be settled between the
investor and the broker-dealer. If the broker-dealer receives the order after
the Valuation Time for that day, the price will be based on the net asset value
determined as of the Valuation Time for the next Business Day.
Depending upon the terms of a particular Customer's account, the Banks or
their affiliates may charge a Customer account fees for automatic investment and
other cash management services provided in connection with an investment in a
Fund. Information concerning
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these services and any charges will be provided by the Banks. This Prospectus
should be read in conjunction with any such information received from the Banks
or their affiliates.
Each Fund reserves the right to reject any order for the purchase of its
Shares in whole or in part, including purchases made with foreign checks and
third party checks not originally made payable to the order of the investor.
Every Shareholder will receive a confirmation of each new transaction in his
or her account, which will also show the total number of Shares owned by the
Shareholder and the number of Shares being held in safekeeping by the Transfer
Agent for the account of the Shareholder. Reports of purchases and redemptions
of Shares by Banks on behalf of their Customers will be sent by the Banks to
their Customers. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Shares will not be issued.
1ST SOURCE MONOGRAM INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A 1st Source Monogram IRA enables individuals, even if they participate in an
employer-sponsored retirement plan, to establish their own retirement program.
1st Source Monogram IRA contributions may be tax-deductible and earnings are tax
deferred. Under the Tax Reform Act of 1986, the tax deductibility of IRA
contributions is restricted or eliminated for individuals who participate in
certain employer pension plans and whose annual income exceeds certain limits.
Existing IRAs and future contributions up to the IRA maximums, whether
deductible or not, still earn income on a tax-deferred basis.
All 1st Source Monogram IRA distribution requests must be made in writing to
the Distributor. Any deposits to a 1st Source Monogram IRA must distinguish the
type and year of the contributions.
For more information on the 1st Source Monogram IRAs call the Group at (800)
766-8938. The rules relating to IRA eligibility, contributions and distributions
are complex and change from time to time. Therefore, shareholders are advised to
consult a tax adviser on 1st Source Monogram IRA contribution and withdrawal
requirements and restrictions.
AUTO INVEST PLAN
The 1st Source Monogram Funds Auto Invest Plan enables Shareholders to make
regular semi-monthly, monthly or quarterly purchases of Shares of a Fund through
automatic deduction from their bank accounts, provided that the Shareholder's
bank is a member of the Federal Reserve and the Automated Clearing House (ACH)
system. With Shareholder authorization, the Transfer Agent will deduct the
amount specified (subject to the applicable minimums described below) from the
Shareholder's bank account which will automatically be invested in Shares of the
designated Fund at the public offering price next determined after receipt of
payment by the Transfer Agent. To participate in the Auto Invest Plan,
Shareholders should complete the appropriate section of the Account Registration
Form or a supplemental sign-up form which can be acquired by calling the Group
at (800) 766-8938. For a Shareholder to change the Auto Invest instructions, the
request must be made in writing to the Group at: 3435 Stelzer Road, Columbus,
Ohio 43219.
The Group may eliminate or change the Auto Invest Plan at any time or from
time to time without notice thereof.
MINIMUM INVESTMENT
The following table sets forth the minimum requirements for initial purchases
of a Fund's Shares and any subsequent purchases made thereafter. As the table
shows, these requirements may vary depending upon the method or
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methods used by the purchaser to invest in the Funds.
<TABLE>
<CAPTION>
MINIMUM MINIMUM
REQUIREMENTS REQUIREMENTS
FOR FOR
METHOD OF INITIAL SUBSEQUENT
PURCHASE PURCHASES PURCHASES
- ---------------- --------------- ------------
<S> <C> <C>
For purchases
other than
through the Auto
Invest Plan:
Non-IRA....... $1,000 per Fund $25 per Fund
IRAs.......... $1,000 per Fund $25 per Fund
For purchases
made through the
Auto Invest
Plan:
Non-IRA....... $ 25 per Fund $25 per Fund
IRAs.......... $ 250 per Fund $25 per Fund
</TABLE>
SPECIAL PURCHASE PROGRAMS
For Employees of the Adviser or one of its Affiliates. The Adviser has
arranged for lower minimum requirements for its employees and the employees of
its affiliates (collectively, "Employees") to invest in the Funds. Regardless of
the method chosen by an Employee to purchase Shares (e.g., whether or not for an
IRA and whether or not through the Auto Invest Plan), all initial purchases of
Shares in a Fund must be for a dollar amount of not less than $10 and all
subsequent purchases of Shares in that Fund must be for a dollar amount of not
less than $10.
Employees should note that regardless of the amount that they use to open a
1st Source Monogram IRA, the annual fee of $10 will be deducted from their IRA
account each December. Therefore, if an Employee opens a 1st Source Monogram IRA
account with only the minimum investment and does not add to it during that
year, the annual fee may reduce the Employee's IRA account balance to $0.
For Payroll Deduction Plans. Lower minimum requirements are also available for
people investing in the Funds through a payroll deduction plan offered by their
employer. For purchases of Shares of a Fund through such a plan all initial
purchases must be for a dollar amount of not less than (1) $10 and all
subsequent purchases of Shares in that Fund must be for a dollar amount of not
less than $10 per payroll deduction if you are paid at least twice a month or
(2) $25 and all subsequent purchases of Shares in that Fund must be for a dollar
amount of not less than $25 per payroll deductions if you are paid less than
twice a month.
IN-KIND PURCHASES
Payment for Shares of a Fund may, in the discretion of the Adviser, be made in
the form of securities that are permissible investments for that Fund as
described in this Prospectus. For further information about this form of
payment, contact the Adviser. In connection with an in-kind securities payment,
a Fund will require, among other things, that the securities be valued on the
date of purchase in accordance with the pricing methods used by the Fund and
that the Fund receive satisfactory assurances that it will have good and
marketable title to the securities received by it; that the securities be in
proper form of transfer to the Fund; and that adequate information be provided
concerning the basis and other tax matters relating to the securities.
SALES CHARGES
The public offering price of Shares of each of the Funds equals net asset
value plus a sales charge calculated in accordance with the tables below. BISYS
receives this sales charge as Distributor and reallows a portion of it as dealer
discounts and brokerage commissions. However, the Distributor, in its sole
discretion, may pay certain dealers all or part of the portion of the sales
charge it receives. The broker or dealer who receives a reallowance in excess of
90% of the sales charge may be deemed to be an "underwriter" for purposes of the
1933 Act.
23
<PAGE> 72
INCOME EQUITY, DIVERSIFIED EQUITY
AND SPECIAL EQUITY FUNDS
<TABLE>
<CAPTION>
DEALER
DISCOUNTS
SALES SALES CHARGE AND BROKERAGE
AMOUNT OF CHARGE AS % OF COMMISSIONS
TRANSACTION AS % OF PUBLIC AS % OF
AT PUBLIC NET AMOUNT OFFERING PUBLIC
OFFERING PRICE INVESTED PRICE OFFERING PRICE
- --------------- ----------- ------------- ---------------
<S> <C> <C> <C>
Less than
$50,000....... 5.26% 5.00% 4.50%
$50,000 but
less than
$100,000...... 4.17 4.00 3.60
$100,000 but
less than
$250,000...... 3.09 3.00 2.70
$250,000 but
less than
$500,000...... 2.04 2.00 1.80
$500,000 but
less than
$1,000,000.... 1.52 1.50 1.35
$1,000,000 or
more.......... 0 0 0
</TABLE>
INCOME FUND
<TABLE>
<CAPTION>
DEALER
DISCOUNTS
SALES SALES CHARGE AND BROKERAGE
AMOUNT OF CHARGE AS % OF COMMISSIONS
TRANSACTION AS % OF PUBLIC AS % OF
AT PUBLIC NET AMOUNT OFFERING PUBLIC
OFFERING PRICE INVESTED PRICE OFFERING PRICE
- --------------- ----------- ------------- ---------------
<S> <C> <C> <C>
Less than
$50,000....... 4.17% 4.00% 3.60%
$50,000 but
less than
$100,000...... 3.63 3.50 3.15
$100,000 but
less than
$250,000...... 3.09 3.00 2.70
$250,000 but
less than
$500,000...... 2.04 2.00 1.80
$500,000 but
less than
$1,000,000.... 1.52 1.50 1.35
$1,000,000 or
more.......... 0 0 0
</TABLE>
From time to time dealers who receive dealer discounts and brokerage
commissions from the Distributor may reallow all or a portion of such dealer
discounts and brokerage commissions to other dealers or brokers. The
Distributor, at its own expense, will also provide additional compensation to
dealers in connection with sales of Shares of the Funds. Such compensation will
include financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising
campaigns regarding one of more funds of the Group, and/or other dealer-
sponsored special events. In some instances, this compensation will be made
available only to certain dealers whose representatives have sold a significant
amount of such Shares. Compensation will include payment for travel expenses,
including lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. Compensation
will also include the following types of non-cash compensation offered through
sales contests: (1) vacation trips, including the provision of travel
arrangements and lodging at luxury resorts at an exotic location, (2) tickets
for entertainment events (such as concerts, cruises and sporting events) and (3)
merchandise (such as clothing, trophies, clocks and pens). Dealers may not use
sales of a Fund's Shares to qualify for this compensation to the extent such may
be prohibited by the laws of any state or any self-regulatory agency, such as
the NASD. None of the aforementioned compensation is paid for by any Fund or its
Shareholders.
SALES CHARGE WAIVERS
The Distributor may waive sales charges for the purchase of Shares of a Fund
by or on behalf of:
(1) Accounts for which FSC, the Adviser, banks and trust companies or one of
their affiliates acts in a fiduciary, advisory, agency, custodial (other than
for individual retirement accounts), or similar capacity;
(2) Officers, trustees, directors, employees and retired employees (including
spouses and children under the age of 21 of the foregoing) of FSC, the Adviser,
the Group, BISYS and any affiliates thereof;
24
<PAGE> 73
(3) Purchasers pursuant to the terms of a payroll deduction plan, a 401(k)
plan or a 403(b) plan which by its terms permits purchases of Shares of the
Funds;
(4) Purchasers using solely the proceeds from a distribution from an account
for which the Adviser or an affiliate serves in a trust, fiduciary or agency
capacity (this waiver only applies to the initial purchase of Shares with such
proceeds);
(5) Brokers, dealers and agents for their own account, who have a sales
agreement with the Distributor, and their employees (and their spouses and
children under the age of 21);
(6) Orders placed on behalf of other investment companies distributed by The
BISYS Group, Inc. or its affiliated companies, including the Distributor;
(7) Investment advisers or financial planners regulated by a federal or state
governmental authority who are purchasing Shares for their own account or for an
account for which they are authorized to make investment decisions (i.e., a
discretionary account) and who charge a management, consulting or other fee for
their services, and clients of such investment advisers or financial planners
who place trades for their own accounts if the accounts are linked to the master
account of such investment adviser or financial planner on the books and records
of a broker or agent; and
(8) Investors purchasing Shares with proceeds from a redemption of shares of
another open-end investment company (other than the Group) on which a sales
charge was paid if (i) such redemption occurred with sixty (60) days prior to
the date of the purchase order and (ii) satisfactory evidence of the purchaser's
eligibility is provided to the Distributor at the time of purchase (e.g., a
confirmation of the redemption).
The Distributor may change or eliminate the foregoing waivers at any time or
from time to time without notice thereof. The Distributor may also periodically
waive all or a portion of the sales charge for all investors with respect to a
Fund.
CONCURRENT PURCHASES
For purposes of qualifying for a lower sales charge, investors have the
privilege of combining concurrent purchases of a Fund and one or more of the
other Funds. For example, if a Shareholder concurrently purchases Shares in the
Diversified Equity Fund at the total public offering price of $25,000 and Shares
in the Income Fund at the total public offering price of $30,000, the sales
charge on the Shares of the Funds so sold would be that applicable to a $55,000
purchase as shown in the tables above, i.e., 4.00% for the Shares of the
Diversified Equity Fund and 3.50% for Shares of the Income Fund. This privilege,
however, may be modified or eliminated at any time or from time to time by the
Group without notice thereof.
LETTER OF INTENT
An investor may obtain a reduced sales charge by means of a written Letter of
Intent which expresses the intention of such investor to purchase Shares of a
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) 766-8938.
25
<PAGE> 74
A Letter of Intent is not a binding obligation upon the investor to purchase
the full amount indicated. The minimum initial investment under a Letter of
Intent is 5% of such amount. Shares purchased with the first 5% of such amount
will be held in escrow (while remaining registered in the name of the investor)
to secure payment of the higher sales charge applicable to the Shares actually
purchased if the full amount indicated is not purchased, and such escrowed
Shares will be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed Shares, whether paid in cash or reinvested in
additional Shares, are not subject to escrow. The escrowed Shares will not be
available for disposal by the investor until all purchases pursuant to the
Letter of Intent have been made or the higher sales charge has been paid. When
the full amount indicated has been purchased, the escrow will be released. An
adjustment will be made to reflect any reduced sales charge applicable to Shares
purchased during the 90-day period prior to the date the Letter of Intent was
entered into at the conclusion of the 13-month period and in the form of
additional Shares credited to the Shareholder's account at the then current
public offering price applicable to a single purchase of the total amount of the
total purchases. Additionally, if the total purchases within the 13-month period
exceed the amount specified, a similar adjustment will be made to reflect
further reduced sales charges applicable to such purchases.
RIGHT OF ACCUMULATION
Pursuant to the right of accumulation, investors are permitted to purchase
Shares of a Fund at the public offering price applicable to the total of (a) the
total public offering price of the Shares of the Fund then being purchased plus
(b) an amount equal to the then current net asset value of the purchaser's
combined holdings of the Shares of all of the Funds. For example, if a
Shareholder held Shares of the Special Equity Fund and the Income Fund with a
total net asset value of $200,000 and wanted to invest $60,000 in the Income
Equity Fund, the sales charge applicable to such $60,000 investment in the
Income Equity Fund would be 2.00%. The "purchaser's combined holdings" described
in the preceding sentence shall include the combined holdings of the purchaser,
the purchaser's spouse and children under the age of 21 and the purchaser's
retirement plan accounts. To receive the applicable public offering price
pursuant to the right of accumulation, Shareholders must, at the time of
purchase, give the Transfer Agent sufficient information to permit confirmation
of qualification. This right of accumulation, however, may be modified or
eliminated at any time or from time to time by the Group without notice.
EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged for Shares of any of the other Funds at
respective net asset values upon the payment of a sales charge equal to the
difference, if any, between the sales charge payable upon purchase of Shares of
such Fund and the sales charge previously paid on the Fund Shares to be
exchanged. With respect to every exchange, the amount to be exchanged must meet
the applicable minimum investment requirements and the exchange is made in
states where it is legally authorized.
An exchange is considered a sale of Shares for federal income tax purposes.
However, a Shareholder may not include any sales charge on Shares of a Fund as a
part of the cost of those Shares for purposes of calculating the gain or loss
realized on an exchange of those Shares within 90 days of their purchase.
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
26
<PAGE> 75
at (800) 766-8938 or by providing written instructions to the Group. Any
Shareholder who wishes to make an exchange should obtain and review the current
prospectus of the Fund in which he or she wishes to invest before making the
exchange. For a discussion of risks associated with unauthorized telephone
exchanges, see "Redemption by Telephone" below.
REDEMPTION OF SHARES
Shares may ordinarily be redeemed by mail or by telephone. However, all or
part of a Customer's Shares may be redeemed in accordance with instructions and
limitations pertaining to his or her account at a Bank. For example, if a
Customer has agreed with a Bank to maintain a minimum balance in his or her
account with the Bank, and the balance in that account falls below that minimum,
the Customer may be obliged to redeem, or the Bank may redeem on behalf of the
Customer, all or part of the Customer's Shares of a Fund to the extent necessary
to maintain the required minimum balance.
Redemption by Mail
A written request for redemption must be received by the Group, at the address
shown on the front page of this Prospectus, in order to honor the request. The
Transfer Agent will require a signature guarantee by an eligible guarantor
institution. The signature guarantee requirement will be waived if the following
conditions apply: (1) the redemption check is payable to the Shareholder(s) of
record, and (2) the redemption check is mailed to the Shareholder(s) at the
address of record or mailed or wired to a commercial bank account previously
designated on the Account Registration Form. There is no charge for having
redemption proceeds mailed to a designated bank account. To change the address
to which a redemption check is to be mailed, a written request therefor must be
received by the Transfer Agent. In connection with such request, the Transfer
Agent will require a signature guarantee by an eligible guarantor institution.
For purposes of this policy, the term "eligible guarantor institution" shall
include banks, brokers, dealers, credit unions, securities exchanges and
associations, clearing agencies and savings associations as those terms are
defined in the Securities Exchange Act of 1934. The Transfer Agent reserves the
right to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000.
Redemption by Telephone
If a Shareholder has so designated on the Account Registration Form, a
Shareholder may request a redemption of his or her Shares by telephoning the
Group and having the payment of redemption requests sent electronically directly
to a domestic commercial bank account previously designated by the Shareholder
on the Account Registration Form or mailed directly to the Shareholder at the
Shareholder's address as recorded by the Transfer Agent. Under most
circumstances, such payments will be transmitted on the next Business Day
following receipt of a valid request for redemption. The Group may reduce the
amount of a wire redemption payment by the then-current wire redemption charge
of the Funds' custodian. There is currently no charge for having payment of
redemption requests mailed or sent electronically to a designated bank account.
For telephone redemptions, call the Group at (800) 766-8938.
Neither the Group, the Funds nor their service providers will be liable for
any loss, damages, expense or cost arising out of any telephone redemption
effected in accordance with a Fund's telephone redemption procedures, acting
upon instructions reasonably believed to be genuine. Each Fund will employ
27
<PAGE> 76
procedures designed to provide reasonable assurance that instructions by
telephone are genuine; if these procedures are not followed, such Fund or its
service providers may be liable for any losses due to unauthorized or fraudulent
instructions. These procedures include recording all phone conversations,
sending confirmations to Shareholders within 72 hours of the telephone
transaction, verification of account name and account number or tax
identification number, and sending redemption proceeds only to the address of
record or to a previously authorized bank account. If, due to temporary adverse
conditions, Shareholders are unable to effect telephone transactions,
Shareholders may also mail the redemption request to the Group at the address
shown on the front page of this Prospectus.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables Shareholders of a Fund, with an account
balance in such Fund of $5,000 or more, to make regular monthly or quarterly
redemptions of Shares. With Shareholder authorization, the Transfer Agent will
automatically redeem Shares at the net asset value on the dates of the
withdrawal and have a check in the amount specified mailed to the Shareholder.
The required minimum withdrawal is $25 monthly. To participate in the Auto
Withdrawal Plan, Shareholders should call (800) 766-8938 for more information.
Purchases of additional Shares concurrent with withdrawals may be
disadvantageous to certain Shareholders because of tax liabilities and sales
charges. For a Shareholder to change the Auto Withdrawal instructions, the
request must be made in writing to the Group.
PAYMENTS TO SHAREHOLDERS
Redemption orders are effected at the net asset value per share next
determined after the Shares are properly tendered for redemption, as described
above. Payment to Shareholders for Shares redeemed will be made within seven
days after receipt by the Distributor of the request for redemption. However, to
the greatest extent possible, each 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. Each Fund will
attempt to so honor redemption requests unless it would be disadvantageous to
that Fund or the Shareholders of that Fund to sell or liquidate portfolio
securities in an amount sufficient to satisfy requests for payments in that
manner.
At various times, the Group may be requested to redeem Shares for which it has
not yet received good payment. In such circumstances, the Group may delay the
forwarding of proceeds for up to 10 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, each Fund
reserves the right to redeem, at net asset value, the Shares of that Fund of any
Shareholder if, because of redemptions of Shares by or on behalf of the
Shareholder (but not as a result of a decrease in the market price of such
Shares, the deduction of any sales charge or the establishment of an account by
an employee of the Adviser or one of its affiliates, by using the Auto Invest
Plan or by participating in a payroll deduction plan), the account of such
Shareholder has a value of less than $1,000. Accordingly, an investor purchasing
Shares of a Fund in only the minimum investment amount may be subject to such
involuntary redemption if he or she there-
28
<PAGE> 77
after redeems some of his or her Shares. In addition, a former employee of the
Adviser or a person who established an account by payroll deduction but stops
making investments in that Fund under that plan may be subject to such
involuntary redemption if the value of his or her account is below $1,000.
Before a Fund exercises its right to redeem such Shares and to send the proceeds
to the Shareholder, the Shareholder will be given notice that the value of the
Shares in his or her account is less than the minimum amount and will be allowed
not less than 60 days to make an additional investment in an amount which will
increase the value of the account to at least $1,000.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" and "NET ASSET VALUE" in
the Statement of Additional Information for examples of when the Group may
suspend the right of redemption.
DIVIDENDS AND TAXES
DIVIDENDS
A dividend for each of the Funds, other than the Special Equity Fund, is
declared monthly at the close of business on the day of declaration and is
generally paid monthly. A dividend for the Special Equity Fund is declared
quarterly at the close of business on the day of declaration and is generally
paid quarterly. Each such dividend consists of an amount of accumulated
undistributed net income of that Fund as determined necessary or appropriate by
the appropriate officers of the Group.
Shareholders will automatically receive all income dividends and capital gains
distributions in additional full and fractional Shares of that particular Fund
at the net asset value as of the date of payment, unless the Shareholder elects
to receive dividends or distributions in cash. Such election, or any revocation
thereof, must be made in writing to the Transfer Agent at 3435 Stelzer Road,
Columbus, Ohio 43219, and will become effective with respect to dividends and
distributions having record dates after its receipt by the Transfer Agent.
Distributable net realized capital gains for each Fund are distributed at
least annually. Dividends are paid in cash not later than seven Business Days
after a Shareholder's complete redemption of his or her Shares in a Fund.
If a Shareholder elects to receive distributions in cash, and checks (1) are
returned and marked as "undeliverable" or (2) remain uncashed for six months,
the Shareholder's cash election will be changed automatically and future
dividend and capital gains distributions will be reinvested in that Fund at the
per share net asset value determined as of the date of payment of the
distribution. In addition, any undeliverable checks or checks that remain
uncashed for six months will be canceled and will be reinvested in that Fund at
the per share net asset value determined as of the date of cancellation.
FEDERAL TAXES
General. Each of the Funds is treated as a separate entity for federal income
tax purposes and intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986 (the "Code") for so long as such qualification
is in the best interest of that Fund's Shareholders. Qualification as a
regulated investment company under the Code requires, among other things, that
the regulated investment company distribute to its shareholders at least 90% of
its investment company taxable income. Each Fund contemplates declaring as
dividends all or substantially all of that Fund's investment company taxable
income (before deduction of dividends paid).
A non-deductible 4% excise tax is imposed on regulated investment companies
that do not distribute in each calendar year (regardless of whether they
otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-
29
<PAGE> 78
year period ending on October 31 of such calendar year. If distributions during
a calendar year were less than the required amount, that Fund would be subject
to a nondeductible 4% excise tax on the deficiency.
It is expected that each Fund will distribute annually to Shareholders all or
substantially all of that Fund's net ordinary income and net realized capital
gains and that such distributed net ordinary income and distributed net realized
capital gains will be taxable income to Shareholders for federal income tax
purposes, even if paid in additional Shares of the Fund and not in cash. The
dividends-received deduction for corporations will apply to the aggregate of
such ordinary income distributions in the same proportion as the aggregate
dividends eligible for the dividends deduction, if any, received by the Fund
bear to its gross income. Since all of the Income Fund's net investment income
is expected to be derived from earned interest and short-term capital gains, it
is anticipated that no part of any distribution from such Fund will be eligible
for the dividends received deduction for corporation.
Distribution by a Fund of the excess of net mid-term or net long-term capital
gain over net short-term capital loss is taxable to Shareholders as mid-term or
long-term capital gain, respectively, in the year in which it is received,
regardless of how long the Shareholder has held the Shares. Such distributions
are not eligible for the dividends received deduction.
If the net asset value of a Share is reduced below the Shareholder's cost of
that Share by the distribution of income or gain realized on the sale of
securities, the distribution, from a practical stand point, is a return of
invested principal, although taxable as described above.
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of Shares prior to the record
date will have the effect of reducing the per share net asset value of the
Shares by the amount of the dividends or distributions. All or a portion of such
dividends or distributions, although in effect a return of capital, is subject
to tax.
Additional information regarding federal taxes is contained in the Statement
of Additional Information under the heading "ADDITIONAL INFORMATION--Addi-
tional Tax Information." However, the information contained in this Prospectus
and the additional material in the Statement of Additional Information are only
brief summaries of some of the important tax considerations generally affecting
the Funds and their Shareholders. Accordingly, potential investors are urged to
consult their tax advisers concerning the application of federal, state and
local taxes as such laws and regulations affect their own tax situation.
Shareholders will be advised at least annually as to the federal and state
income tax consequences of distributions made to them during the year.
MANAGEMENT OF THE GROUP
TRUSTEES OF THE GROUP
Overall responsibility for management of the Group rests with its Board of
Trustees. At any given time all Trustees of the Group may not have been elected
by shareholders of the Group. The Group will be managed by the Trustees in
accordance with the laws of Ohio governing business trusts. The Trustees, in
turn, elect the officers of the Group to supervise its day-to-day operations.
The Trustees of the Group receive fees and are reimbursed for their expenses
in connection with each meeting of the Board of Trustees they attend. However,
no officer or employee of BISYS or BISYS Fund Services Inc., the sole general
partner of BISYS, re-
30
<PAGE> 79
ceives any compensation from the Group for acting as a Trustee of the Group. The
officers of the Group receive no compensation directly from the Group for
performing the duties of their offices. BISYS receives fees from the Group for
acting as Administrator and under the Distribution Plan discussed below, may
receive fees under the Administrative Services Plan discussed below, and may
retain all or a portion of any sales load imposed upon purchases of Shares.
BISYS Fund Services, Inc. receives fees from each of the Funds for acting as
Transfer Agent and for providing certain fund accounting services.
INVESTMENT ADVISER
1st Source Bank, 100 North Michigan Street, South Bend, Indiana 46601, is the
investment adviser of each Fund. The Adviser is a wholly owned subsidiary of 1st
Source Corporation, a publicly held bank holding company ("FSC"). The Adviser
was founded in 1936, and while it has not previously served as an investment
adviser to an open-end management investment company, the Adviser and its
affiliates administer and manage, on behalf of their clients, trust assets which
as of September 30, 1997, totalled approximately $1.47 billion. Of such amount,
approximately $851 million are managed on behalf of personal trust customers and
approximately $616 million are managed on behalf of employee benefit plans. The
Adviser has over 60 years of banking experience and as of September 30, 1997,
had, on a consolidated basis with FSC, over $2.32 billion in assets.
Subject to the general supervision of the Board of Trustees of the Group and
in accordance with the investment objectives and restrictions of the Funds, the
Adviser manages, makes decisions with respect to and places orders for all
purchases and sales of portfolio securities for the Income Equity Fund, the
Special Equity Fund and the Income Fund, and, through the Sub-Advisers, the
Diversified Equity Fund.
For the services provided and expenses assumed pursuant to its investment
advisory agreement with the Group, the Adviser receives a fee from each of the
Funds, computed daily and paid monthly, at the following rates: with respect to
the Income Equity Fund, the annual rate of eighty one-hundredths of one percent
(0.80%) of such Fund's average daily net assets; with respect to the Diversified
Equity Fund, the annual rate of one hundred ten one-hundredths of one percent
(1.10%) of such Fund's average daily net assets; with respect to the Special
Equity Fund, the annual rate of eighty one-hundredths of one percent (0.80%) of
such Fund's average daily net assets; and with respect to the Income Fund, the
annual rate of fifty-five one-hundredths of one percent (0.55%) of such Fund's
average daily net assets.
The Adviser may periodically voluntarily reduce all or a portion of its
advisory fee with respect to a Fund to increase the net income of that Fund
available for distribution as dividends. The Adviser may not seek reimbursement
of such voluntarily reduced fees 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. While the fees of the Adviser with respect to the Income
Equity, Special Equity and Diversified Equity Funds are higher than similar fees
paid by most mutual funds, the Board of Trustees believes such fees to be fair
and reasonable.
Ralph Shive is the portfolio manager of the Income Equity Fund. Mr. Shive has
served as Vice President and an investment officer of the Adviser since
September, 1989. Generally, Mr. Shive has worked as an analyst and portfolio
manager for 20 years after receiving his BBA from Southern Methodist University.
Prior to joining the Adviser, he was employed by a brokerage firm and a private
investment partnership in Dallas, Texas. He is a Chartered Financial Analyst and
manages the Income
31
<PAGE> 80
Equity Fund as well as individual portfolios with a focus on "value" investing.
J. Gregory Turner is the portfolio manager of the Special Equity Fund. Mr.
Turner has served as an investment officer of the Adviser since 1994. Prior
thereto and since October, 1986 he worked for IAA Trust Company, Bloomington,
Illinois, as a portfolio manager. Generally, Mr. Turner has worked as an analyst
and portfolio manager for 10 years after receiving his BS from Illinois State
University and a masters degree in management from Purdue University. As a
Chartered Financial Analyst, Mr. Turner manages individual portfolios, the
Special Equity Fund, and other growth equity accounts.
Since March 17, 1997, John S. Seidl has served as the portfolio manager of the
Income Fund. Mr. Seidl has served as Vice President and a Senior Investment
Officer of the Adviser since 1985. He has worked more than 21 years as an
Analyst and Senior Portfolio Manager after receiving his BBA from the University
of Notre Dame. Mr. Seidl is a Chartered Financial Analyst who focuses his
efforts on the fixed income market, along with being responsible for the overall
investment strategy of the department.
THE SUB-ADVISERS
Pursuant to the terms of its Investment Advisory Agreement with the Group, the
Adviser has entered into Sub-Investment Advisory Agreements with each of: Miller
Anderson, One Tower Bridge, Suite 1100, West Conshohocken, Pennsylvania 19428;
Loomis, 3 First National Plaza, Suite 5450, Chicago, Illinois 60600; and
Columbus, One Station Place, Stamford, Connecticut 06902. Pursuant to the terms
of such Sub-Investment Advisory Agreements, each of the Sub-Advisers has been
retained by the Adviser to manage the day-to-day investment and reinvestment of
a designated portion of the assets of the Diversified Equity Fund, subject to
the direction and control of the Group's Board of Trustees, and the Adviser is
responsible for selecting and monitoring each Sub-Adviser and reporting the
activities of each Sub-Adviser to the Company's Board of Trustees.
Miller Anderson was founded in 1969 and is a wholly owned subsidiary of Morgan
Stanley, Dean Witter, Discover & Co. Miller, Anderson provides advice primarily
to institutions, including other investment companies, and currently has
approximately $47.2 billion in assets under management, of which approximately
$6.7 billion is managed using Miller Anderson's value style as described above.
Robert J. Marcin, CFA, is primarily responsible for the day-to-day management of
that portion of the Diversified Equity Fund's portfolio managed by Miller
Anderson. Mr. Marcin has been a Partner with Miller Anderson since 1994, and has
had more than 14 years of investment experience.
Loomis is a limited partnership, the sole general partner of which is Loomis,
Sayles & Company, Incorporated, One Financial Center, Boston, Massachusetts
02111. All of the outstanding shares of Loomis, Sayles & Company, Incorporated
are owned by New England Investment Companies, L.P., a publicly-traded limited
partnership ("NEIC"). As a result of the merger of New England Mutual Life
Insurance Company with and into Metropolitan Life Insurance Company ("MET") on
August 30, 1996, MET holds approximately 55% of the outstanding limited
partnership units of NEIC. Loomis was founded in 1926 and has approximately $51
billion in assets under management. The Chicago office of Loomis was founded in
1952, and has currently approximately 62 clients and $4 billion in assets under
management. Jerry Castellini is primarily responsible for the day-to-day
management of that portion of the Diversified Equity Fund's portfolio managed by
Loomis. Mr. Castellini has been Managing Partner of Loomis since January, 1994,
a Director since February, 1995 and has had more than 16 years of investment
experience.
32
<PAGE> 81
Columbus, a general partnership formed on September 9, 1994, is registered as
an investment adviser under the Investment Advisers Act of 1940 and acquired the
business operated by Columbus' predecessor since 1975. PIMCO Advisors L.P.
("PIMCO") and Columbus Circle Investors Management Inc. ("CCI"), a wholly owned
subsidiary of PIMCO, are the general partners of Columbus. Columbus serves as
sub-adviser to other mutual funds and also advises and manages individual
accounts, profit sharing and pension funds and institutional accounts. PIMCO's
general partner is a general partnership with two partners: (i) an indirect
wholly owned subsidiary of Pacific Mutual Life Insurance Company; and (ii) PIMCO
Partners, L.L.C., a limited liability company, all of the interests of which are
held directly by the 11 managing directors of Pacific Investment Management
Company, a subsidiary of PIMCO.
Columbus currently has approximately $13 billion in assets under management,
of which approximately $8 billion is managed using the sector rotation style of
management. Although Columbus operates on a team style management basis, since
October, 1997, Irwin D. Smith, CFA and Anthony Rizza, CFA have been primarily
responsible for the day-to-day management of that portion of the Diversified
Equity Fund's portfolio managed by Columbus. Mr. Smith is Chairman, Chief
Executive Officer and a founder of Columbus and has been with Columbus since
1975. He is a Chartered Financial Analyst and is a member of the New York
Society of Security Analysts. Mr. Rizza has been with Columbus as a portfolio
manager since June, 1991. He is a Chartered Financial Analyst and a member of
the Hartford Society of Security Analysts.
For its services provided and expenses assumed pursuant to its Sub-Investment
Advisory Agreement with the Adviser, each of Miller, Anderson, Loomis and
Columbus receives from the Adviser a fee (computed daily and paid monthly as a
percentage of that portion of the Diversified Equity Fund's average daily net
assets managed by that Sub-Adviser) at the following annual rates: for Miller
Anderson, 0.625% up to $25,000,000 and 0.375% of the excess over $25,000,000;
for Loomis, 0.65% up to $5,000,000 and 0.50% of the excess over $5,000,000; and
for Columbus, 1.00% up to $10,000,000 and 0.50% of the excess over $10,000,000.
ADMINISTRATOR AND DISTRIBUTOR
BISYS is the administrator for each Fund and also acts as each Fund's
principal underwriter and distributor (the "Administrator" or the "Distributor,"
as the context indicates). BISYS and its affiliated companies, including BISYS
Fund Services, Inc., are wholly owned by The BISYS Group, Inc., a publicly-held
company which is a provider of information processing, loan servicing and 401(k)
administration and recordkeeping services to and through banking and other
financial organizations.
The Administrator generally assists in all aspects of a Fund's administration
and operation. For expenses assumed and services provided as administrator
pursuant to its management and administration agreement with the Group, the
Administrator receives a fee from each Fund equal to the lesser of a fee
computed daily and paid periodically, calculated at an annual rate of twenty
one-hundredths of one percent (0.20%) of that Fund's average daily net assets or
such other fee as may be agreed upon in writing by the Group and the
Administrator. The Administrator may periodically voluntarily reduce all or a
portion of its administration fee with respect to a Fund to increase the net
income of such Fund available for distribution as dividends. The Administrator
may not seek reimbursement of such reduced fees at a later date. The voluntary
reduction of such fee will cause the yield and total return of that Fund to be
higher than they would otherwise be in the absence of such fee reduction.
33
<PAGE> 82
The Distributor acts as agent for each of the Funds in the distribution of
their Shares and, in such capacity, solicits orders for the sale of Shares,
advertises, and pays the costs of advertising, office space and its personnel
involved in such activities. The Distributor receives no compensation under its
Distribution Agreement with the Group, but receives compensation under the
Distribution and Shareholder Service Plan described below and may retain all or
a portion of any sales charge imposed upon the purchase of Shares. See "HOW TO
PURCHASE AND REDEEM SHARES--Sales Charges."
EXPENSES
The Adviser and the Administrator each bear all expenses in connection with
the performance of their services as investment adviser and administrator,
respectively, other than the cost of securities (including brokerage
commissions, if any) purchased for a Fund. Each Fund will bear the following
expenses relating to its operations: organizational expenses, taxes, interest,
any brokerage fees and commissions, fees and expenses of the Trustees of the
Group, Commission fees, state securities notification fees, costs of preparing
and printing prospectuses for regulatory purposes and for distribution to the
Fund's current shareholders, outside auditing and legal expenses, advisory fees,
fund accounting fees, fees and out-of-pocket expenses of the custodian and
Transfer Agent, costs for independent pricing services, certain insurance
premiums, costs of maintenance of the Group's existence, costs of shareholders'
reports and meetings, distribution expenses incurred pursuant to the
Distribution and Shareholder Service Plan described below, administrative
services expenses incurred pursuant to the Administrative Services Plan
described below and any extraordinary expenses incurred in the Fund's operation.
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Group has adopted a
Distribution and Shareholder Service Plan (the "Plan"), under which each Fund is
authorized to pay BISYS, as Distributor, a fee in an amount not to exceed on an
annual basis 0.25% of the average daily net asset value of that Fund (the "12b-1
Fee"). Payments of the 12b-1 Fee to BISYS pursuant to the Plan will be used (i)
to compensate Participating Organizations (as defined below) for providing
distribution assistance relating to Shares of a Fund, (ii) for promotional
activities intended to result in the sale of Shares of the Funds such as to pay
for the preparation, printing and distribution of prospectuses to other than
current shareholders, and (iii) to compensate Participating Organizations for
providing shareholder services with respect to their customers who are, from
time to time, beneficial and record holders of Shares of the Fund.
Participating Organizations include banks, broker-dealers and other financial
institutions (including BISYS, FSC, the Adviser and their affiliates). Such fee
paid to BISYS may exceed the actual costs incurred by BISYS in providing such
services and/or compensating such Participating Organizations. In addition, from
time to time, BISYS may periodically voluntarily reduce all or a portion of its
fee under the Plan with respect to a Fund to increase the net income of that
Fund available for distribution as dividends. BISYS may not seek reimbursement
of such reduced fees after the end of the fiscal year in which the fees were
reduced. The voluntary reduction of such fee will cause the yield and total
return of that Fund to be higher than they would otherwise be in the absence of
such a fee reduction.
BISYS may enter into, from time to time, other Rule 12b-1 Agreements with
selected dealers pursuant to which such dealers will provide certain services in
connection with the distribution of a Fund's Shares such as those described
above.
34
<PAGE> 83
ADMINISTRATIVE SERVICES PLAN
The Group has adopted an Administrative Services Plan (the "Services Plan")
pursuant to which each Fund is authorized to pay compensation to banks and other
financial institutions (each a "Service Organization"), which may include the
Adviser, its correspondent and affiliated banks, and BISYS, which agree to
provide certain ministerial, record keeping and/or administrative support
services for their customers or account holders (collectively, "customers") who
are the beneficial or record owner of Shares of that Fund. In consideration for
such services, a Service Organization receives a fee from a Fund, computed daily
and paid monthly, at an annual rate of up to .25% of the average daily net asset
value of Shares of that Fund owned beneficially or of record by such Service
Organization's customers for whom the Service Organization provides such
services.
The servicing agreements adopted under the Services Plan (the "Servicing
Agreements") require the Service Organizations receiving such compensation to
perform certain ministerial, record keeping and/or administrative support
services with respect to the beneficial or record owners of Shares of the Funds,
such as processing dividend and distribution payments from the Fund on behalf of
customers, providing periodic statements to customers showing their positions in
the Shares of the Fund, providing sub-accounting with respect to Shares
beneficially owned by such customers and providing customers with a service that
invests the assets of their accounts in Shares of the Fund pursuant to specific
or pre-authorized instructions. As of the date hereof, no such servicing
agreements have been entered into by the Group with respect to the Funds.
BANKING LAWS
The Adviser believes that it possesses the legal authority to perform the
investment advisory services for each Fund contemplated by its investment
advisory agreement with the Group, as described in this Prospectus, without
violation of applicable banking laws and regulations, and has so represented in
its investment advisory agreement with the Group. Future changes in Federal or
state statutes and regulations relating to permissible activities of banks or
bank holding companies and their subsidiaries and affiliates as well as further
judicial or administrative decisions or interpretations of present and future
statutes and regulations could change the manner in which the Adviser could
continue to perform such services for the Funds. See "MANAGEMENT OF THE
GROUP--Glass-Steagall Act" in the Statement of Additional Information for
further discussion of applicable law and regulations.
GENERAL INFORMATION
DESCRIPTION OF THE GROUP AND ITS SHARES
The Group was organized as an Ohio business trust on April 25, 1988. The Group
consists of seventeen funds, each having its own class of shares. In addition to
the Funds, the Group consists of the following funds: Riverside Capital Money
Market Fund, Riverside Capital Value Equity Fund, Riverside Capital Fixed Income
Fund, Riverside Capital Low Duration Government Securities Fund, Riverside
Capital Growth Fund, Riverside Capital Tennessee Municipal Obligations Fund, The
KeyPremier Prime Money Market Fund, The KeyPremier Pennsylvania Municipal Bond
Fund, The KeyPremier Established Growth Fund, The KeyPremier Intermediate Term
Income Fund, The KeyPremier Aggressive Growth Fund, The KeyPremier U.S. Treasury
Obligations Money Market Fund and The KeyPremier Limited Duration Government
Securities Fund. Each share represents an equal proportionate interest in a fund
with other shares of the same fund, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the fund as
35
<PAGE> 84
are declared at the discretion of the Trustees (see "Miscellaneous" below).
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested, and will
vote in the aggregate and not by series except as otherwise expressly required
by law. For example, Shareholders of each Fund will vote in the aggregate with
other shareholders of the Group with respect to the election of Trustees.
However, Shareholders of a Fund will vote as a fund, and not in the aggregate
with other shareholders of the Group, for purposes of approval of the Group's
investment advisory agreement with respect to that Fund and the Plan.
Overall responsibility for the management of the Funds is vested in the Board
of Trustees of the Group. See "MANAGEMENT OF THE GROUP--Trustees of the Group."
Individual Trustees are elected by the shareholders of the Group, although
Trustees may, under certain circumstances, fill vacancies, including vacancies
created by expanding the size of the Board. Trustees may be removed by the Board
of Trustees or shareholders in accordance with the provisions of the Declaration
of Trust and By-Laws of the Group and Ohio law. See "ADDITIONAL
INFORMATION--Miscellaneous" in the Statement of Additional Information for
further information.
An annual or special meeting of shareholders to conduct necessary business is
not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, the investment advisory agreement, the Plan or a Fund's fundamental
policies and to satisfy certain other requirements. To the extent that such a
meeting is not required, the Group does not intend to have an annual or special
meeting.
The Group has represented to the Commission that the Trustees will call a
special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request therefor from shareholders holding not
less than 10% of the outstanding votes of the Group. At such a meeting, a quorum
of shareholders (constituting a majority of votes attributable to all
outstanding shares of the Group), by majority vote, has the power to remove one
or more Trustees.
As of October 16, 1997, the Adviser possessed, on behalf of its underlying
accounts, voting or investment power with respect to more than 25% of the
outstanding Shares of each Fund.
CUSTODIAN
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio 45263, serves
as the custodian for each of the Funds.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219-3035,
serves as the Funds' transfer agent pursuant to a Transfer Agency Agreement with
the Group and receives a fee for such services. BISYS Fund Services, Inc. also
provides certain accounting services for each Fund pursuant to a Fund Accounting
Agreement and receives a fee for such services equal to the greater of (a) a fee
computed at an annual rate of 0.03% of the Fund's average daily net assets or
(b) $50,000 minus the fee paid by such Fund under its Management and
Administration Agreement with BISYS. See "Management of the Group--Transfer
Agency and Fund Accounting Services" in the Statement of Additional Information
for further information.
While BISYS Fund Services, Inc. is a distinct legal entity from BISYS (the
Group's administrator and distributor), BISYS Fund Services, Inc. is considered
to be an affiliated person of BISYS under the 1940 Act due to, among
36
<PAGE> 85
other things, the fact that BISYS Fund Services, Inc. is the general partner of
BISYS.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent accountants.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to the fund" means the consideration received by the fund upon
the issuance or sale of shares in that fund, together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale, exchange, or liquidation of such investments, and any
funds or amounts derived from any reinvestment of such proceeds, and any general
assets of the Group not readily identified as belonging to a particular fund
that are allocated to the fund by the Group's Board of Trustees. The Board of
Trustees may allocate such general assets in any manner it deems fair and
equitable. Determinations by the Board of Trustees of the Group as to the timing
of the allocation of general liabilities and expenses and as to the timing and
allocable portion of any general assets with respect to a Fund are conclusive.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of a Fund means the affirmative
vote, at a meeting of Shareholders duly called, of the lesser of (a) 67% or more
of the votes of Shareholders of that Fund present at a meeting at which the
holders of more than 50% of the votes attributable to Shareholders of record of
that Fund are represented in person or by proxy, or (b) the holders of more than
50% of the outstanding votes of Shareholders of that Fund.
Inquiries regarding any of the Funds may be directed in writing to the Group
at 3435 Stelzer Road, Columbus, Ohio 43219, or by calling toll free (800)
766-8938.
37
<PAGE> 86
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 87
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 88
INVESTMENT ADVISER
1st Source Bank
100 North Michigan Street
South Bend, Indiana 46634
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Baker & Hostetler LLP
65 East State Street
Columbus, Ohio 43215
AUDITORS
Coopers & Lybrand L.L.P.
100 East Broad Street
Columbus, Ohio 43215
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY................... 2
FEE TABLE............................ 4
FINANCIAL HIGHLIGHTS................. 5
PERFORMANCE INFORMATION.............. 7
INVESTMENT OBJECTIVES AND POLICIES... 8
INVESTMENT RESTRICTIONS.............. 19
VALUATION OF SHARES.................. 20
HOW TO PURCHASE AND REDEEM SHARES.... 21
DIVIDENDS AND TAXES.................. 29
MANAGEMENT OF THE GROUP.............. 30
GENERAL INFORMATION.................. 35
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR THEIR DISTRIBUTOR, BISYS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY ANY FUND OR BY BISYS IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
LOGO
INCOME EQUITY FUND
DIVERSIFIED EQUITY FUND
SPECIAL EQUITY FUND
INCOME FUND
1ST SOURCE BANK
Investment Adviser
Prospectus dated
October 31, 1997
<PAGE> 89
CROSS REFERENCE SHEET
---------------------
THE KEYPREMIER PRIME MONEY MARKET FUND
THE KEYPREMIER U.S. TREASURY OBLIGATIONS MONEY MARKET FUND
Two Funds
of
The Sessions Group
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C> <C>
1. Cover page.................. Cover Page
2. Synopsis.................... Fee Table
3. Condensed Financial
Information............... Financial Highlights; Performance
Information
4. General Description of
Registrant................ Investment Objectives and Policies;
Investment Restrictions; General
Information - Description of the Group
and Its Shares; Cover Page
5. Management of the Fund...... Management of the Group; General
Information - Custodian; General
Information - Transfer Agent and Fund
Accounting Services
5A. Management's Discussion
of Fund Performance....... Inapplicable
6. Capital Stock and Other
Securities................ How to Purchase and Redeem Shares;
Dividends and Taxes; General Informa-
tion - Description of the Group and Its
Shares; General Information - Miscel-
laneous
7. Purchase of Securities
Being Offered............. Valuation of Shares; How to Purchase
and Redeem Shares; Management of the
Group
8. Redemption or Repurchase.... How to Purchase and Redeem Shares
9. Pending Legal Proceedings... Inapplicable
</TABLE>
<PAGE> 90
KEYPREMIER FUNDS LOGO
THE KEYPREMIER PRIME MONEY MARKET FUND
THE KEYPREMIER U.S. TREASURY OBLIGATIONS MONEY MARKET FUND
- --------------------------------------------------------------------------------
3435 Stelzer Road
Columbus, Ohio 43219
For current yield, purchase,
and redemption information,
call (800) 766-3960.
- --------------------------------------------------------------------------------
The Sessions Group (the "Group") is an open-end management investment company.
The Group includes The KeyPremier Prime Money Market Fund (the "Prime Money
Market Fund") and The KeyPremier U.S. Treasury Obligations Money Market Fund
(the "Treasury Money Market Fund"), each of which is a diversified portfolio of
the Group. (The Prime Money Market Fund and the Treasury Money Market 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.
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. EACH 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 October 31, 1997.
<PAGE> 91
PROSPECTUS SUMMARY
SHARES OFFERED: Units of beneficial interest ("Shares") of the Prime Money
Market Fund and the Treasury Money Market Fund, two separate investment funds of
The Sessions Group, an Ohio business trust (the "Group").
OFFERING PRICE: The public offering price of each Fund is equal to the net
asset value per share which the Funds will seek to maintain at $1.00 per Share.
(See "HOW TO PURCHASE AND REDEEM SHARES.")
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 each Fund, current income with liquidity and
stability of principal.
INVESTMENT POLICIES: The PRIME MONEY MARKET FUND invests in high-quality money
market instruments and other instruments of high quality.
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 each 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.
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 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").
DIVIDENDS: Dividends from net income are declared daily 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").
2
<PAGE> 92
FEE TABLE
<TABLE>
<CAPTION>
PRIME MONEY TREASURY MONEY
MARKET FUND MARKET FUND
----------- --------------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............................. None None
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees After Voluntary Fee Waivers....................... 0.20%1 0.20%2
12b-1 Fees........................................................ None None
Other Expenses3................................................... 0.30 0.75
----------- -------
Estimated Total Fund Operating Expenses After Voluntary Fee
Waivers......................................................... 0.50%1 0.95%1
========== ============
</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>
Prime Money Market Fund................................... $ 5 $ 16
Treasury Money Market Fund................................ $10 $ 30
</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 reduce its investment advisory fee to
0.20% for the Prime Money Market Fund until further written notice to
Shareholders. Absent such voluntary fee waiver, Management Fees and Estimated
Total Fund Operating Expenses for the Prime Money Market Fund would be 0.40%
and 0.70%, respectively.
2 The Adviser has agreed voluntarily to waive all of its investment advisory fee
for the Treasury Money Market Fund until January 1, 1998, and thereafter to
reduce such fee to 0.20% until further written notice to Shareholders. Absent
any such waiver or reductions, Management Fees and Estimated Total Fund
Operating Expenses for the Treasury Money Market Fund would be 0.40% and
1.15%, respectively.
3 "Other Expenses" are estimated for the current fiscal year.
3
<PAGE> 93
FINANCIAL HIGHLIGHTS
The Funds are two separate funds of the Group. The table below sets forth
certain information concerning the investment results of the Funds since their
inception. Further financial information is included in the Statement of
Additional Information. The Financial Highlights contained in the following
table for the Prime Money Market Fund have been audited by KPMG Peat Marwick
LLP, independent certified public accountants for the Funds, whose report on the
period ended June 30, 1997, is included in the Statement of Additional
Information which may be obtained by Shareholders.
The Financial Highlights contained in the table below for the Treasury Money
Market Fund have not been audited.
<TABLE>
<CAPTION>
TREASURY MONEY
PRIME MONEY MARKET FUND
MARKET FUND ---------------------
---------------- PERIOD FROM
PERIOD FROM JULY 1, 1997
OCTOBER 7, 1996 THROUGH
THROUGH SEPTEMBER 30, 1997(A)
JUNE 30, 1997(A) (UNAUDITED)
---------------- ---------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................... $1.00 $1.00
Investment Activities:
Net investment income................................... 0.037 0.012
Net realized and unrealized gains (losses) on
investments.......................................... -- --
------- -----
Total from Investment Activities.......................... 0.037 0.012
------- -----
Distributions:
Net investment income................................... (0.037) (0.012)
Net realized gains...................................... -- --
------- -----
Total Distributions..................................... (0.037) (0.012)
------- -----
NET ASSET VALUE, END OF PERIOD............................ $1.00 $1.00
======= =====
TOTAL RETURN.............................................. 3.73%(b) 1.20%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (000)........................ $95,850 $23,785
Ratio of expenses to average net assets................... 0.36%(c) 0.75%(c)
Ratio of net investment income to average net assets...... 5.02%(c) 4.57%(c)
Ratio of expenses to average net assets*.................. 0.70%(c) 1.15%(c)
Ratio of net investment income to average net assets*..... 4.68%(c) 4.17%(c)
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Commencement of operations.
(b) Not annualized.
(c) Annualized.
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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. 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 a 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 a 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 Funds may also present
a 30-day yield which is calculated similarly to the seven-day yield but instead
refers to a 30-day period rather than a seven-day period.
Investors may also judge the performance of the 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.
Further information about the performance of the Prime Money Market Fund is
contained in that Fund's Annual Report to Shareholders which may be obtained
without charge by contacting the Group at (800) 766-3960.
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
The investment objective of each of the Funds is to seek current income with
liquidity and stability of principal. 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.
As money market funds, each Fund invests exclusively in United States
dollar-denominated instruments which the Trustees of the Group and the Adviser
determine present minimal credit risks. In addition, such investments, at the
time of acquisition, must be rated by one or more appropriate nationally
recognized statistical rating organizations ("NRSROs") (e.g., Standard & Poor's
Corporation and Moody's Investors Ser-
5
<PAGE> 95
vice, Inc.) in one of the two highest rating categories for short-term debt
obligations or, if unrated, are determined by the Adviser to be of comparable
quality. Each Fund is also required to diversify its investments so that, with
minor exceptions and except for United States Government securities, not more
than five percent of its total assets is invested in the securities of any one
issuer, not more than five percent of its total assets is invested in securities
of issuers rated by the NRSROs at the time of investment in the second highest
rating category for short-term debt obligations or, if unrated, deemed by the
Adviser to be of comparable quality ("Second Tier Securities") and not more than
the greater of one percent of total assets or one million dollars is invested in
the securities of one issuer that are Second Tier Securities. All securities or
instruments in which the Funds invest have or are deemed to have remaining
maturities of 397 calendar days or less. The dollar-weighted average maturity of
the securities in each Fund will not exceed 90 days.
THE PRIME MONEY MARKET FUND
Subject to the foregoing general limitations, the Prime Money Market Fund
invests in the following types of securities.
The Prime Money Market Fund may invest in a variety of U.S. Treasury
obligations, differing in their interest rates, maturities, and times of
issuance, and other obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities (collectively, "Government Obligations").
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as the Government National Mortgage Association and the Export-Import Bank
of the United States, are supported by the full faith and credit of the U.S.
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the right of the issuer to borrow from the Treasury; others,
such as those of the Student Loan Marketing Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law. The Prime Money Market
Fund will invest in the obligations of such agencies or instrumentalities only
when the Adviser believes that the credit risk with respect thereto is minimal.
The Prime Money Market Fund may invest in bankers' acceptances guaranteed by
domestic and foreign banks if at the time of investment the guarantor bank has
capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most recently published financial statements). The Prime Money
Market Fund may also invest in certificates of deposit and time deposits of
domestic and foreign banks and savings and loan associations if (a) at the time
of investment the depositor institution has capital, surplus, and undivided
profits in excess of $100,000,000 (as of the date of their most recently
published financial statements) or (b) the principal amount of the instrument is
insured in full by the Federal Deposit Insurance Corporation.
The Prime Money Market Fund may also invest in Eurodollar Certificates of
Deposit ("ECDs") which are U.S. dollar denominated certificates of deposit
issued by offices of foreign and domestic banks located outside the United
States; Eurodollar Time Deposits ("ETDs") which are U.S. dollar denominated
deposits in a foreign branch of a U.S. bank or a foreign bank; Canadian Time
Deposits ("CTDs") which are essentially the same as ETDs except they are issued
by Canadian offices of major Canadian banks; and Yankee Certificates of Deposit
("Yankee CDs") which are certificates of deposit issued by the U.S. branch of a
foreign bank denominated in U.S. dollars and held in the United States. Under
normal market conditions, the Prime Money Market Fund will not invest more than
20% of its total assets in such foreign securities (including CCP and Europaper
as defined below).
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<PAGE> 96
The Prime Money Market Fund will not invest in time deposits with maturities
in excess of seven days which are subject to penalties upon early withdrawal if,
in the aggregate with other illiquid securities held by the Prime Money Market
Fund, such deposits exceed 10% of such Fund's net assets. Such time deposits
include ETDs and CTDs but do not include certificates of deposit.
The Prime Money Market Fund may invest in short-term promissory notes issued
by corporations (including variable amount master demand notes) and in municipal
obligations rated at the time of purchase by one or more appropriate NRSROs in
one of the two highest rating categories for short-term debt obligations or, if
not rated, determined by the Adviser to be of comparable quality to instruments
that are so rated. Instruments may be purchased in reliance upon a rating only
when the rating organization is not affiliated with the issuer or guarantor of
the instrument. For a description of the rating symbols of the NRSROs, see the
Appendix to the Statement of Additional Information. The Prime Money Market Fund
may also invest in Canadian Commercial Paper ("CCP"), which is U.S. dollar
denominated commercial paper issued by a Canadian corporation or a Canadian
subsidiary of a U.S. corporation, and in Europaper, which is U.S. dollar
denominated commercial paper of a foreign issuer which, in each case, is rated
at the time of purchase by one or more appropriate NRSROs in one of the two
highest rating categories for short-term debt obligations or, if not rated,
determined by the Adviser to be of comparable quality to instruments that are so
rated.
The Prime Money Market Fund may also invest in corporate debt securities with
remaining maturities of 397 days or less although at the time of issuance such
securities had maturities exceeding 397 days. The Prime Money Market Fund may
invest in such securities so long as comparable securities of such issuer have
been rated in the highest rating category for short-term debt obligations by the
appropriate NRSROs or are otherwise deemed to be eligible for purchase by the
Prime Money Market Fund in accordance with the guidelines adopted by the Group's
Board of Trustees.
Variable amount master demand notes in which the Prime Money Market Fund may
invest are unsecured demand notes that permit the indebtedness thereunder to
vary and that provide for periodic adjustments in the interest rate according to
the terms of the instrument. Because master demand notes are direct lending
arrangements between the Prime Money Market Fund and the issuer, they are not
normally traded. Although there is no secondary market in the notes, the Prime
Money Market Fund may demand payment of principal and accrued interest at any
time. While the notes are not typically rated by NRSROs, issuers of variable
amount master demand notes (which are normally manufacturing, retail, financial,
and other business concerns) must satisfy the same criteria as set forth above
for commercial paper. The Adviser will consider the earning power, cash flow,
and other liquidity ratios of the issuers of such notes and will continuously
monitor their financial status and ability to meet payment on demand. In
determining dollar-weighted average portfolio maturity, a variable amount master
demand note will be deemed to have a maturity equal to the period of time
remaining until the principal amount can be recovered from the issuer through
demand. The Prime Money Market Fund may purchase variable amount master demand
notes with face maturities in excess of 397 days only so long as the Prime Money
Market Fund may demand payment at any time on no more than 30 days' notice or at
specified intervals not exceeding 397 days and upon no more than 30 days'
notice.
The Prime Money Market Fund may purchase asset-backed securities, which are
securities issued by special purpose entities whose primary assets consist of a
pool of mortgages, loans, receivables or other assets, primarily automobile and
credit card receivables and home equity loans. Payment of principal and interest
may depend largely on cash flows generated by the assets backing the securities
and, in certain cases, supported by let-
7
<PAGE> 97
ters of credit, surety bonds or other forms of credit or liquidity enhancements.
The value of asset-backed securities also may be affected by the
creditworthiness of the servicing agent for the pool of assets, the originator
of the loans or receivables or the financial institution providing the credit
support.
The Prime Money Market Fund may also acquire variable and floating rate notes
issued by both governmental and nongovernmental issuers, subject to the Prime
Money Market Fund's investment objective, policies and restrictions.
THE TREASURY MONEY MARKET FUND
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 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 Government Obligations 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.
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in either Fund entails certain
risks. Since each Fund invests in debt securities, investors are exposed to
interest rate risk, i.e., fluctuations in the market value of debt securities.
Debt securities' prices are influenced primarily by changes in the level of
interest rates. When interest rates rise, the prices of debt securities
generally fall; conversely, when interest rates fall, debt securities' prices
generally rise. There have been in the recent past extended periods of cyclical
increases in interest rates that have caused significant declines in the prices
of certain debt securities.
The Group will attempt to maintain the net asset value per share of each of
the Funds at $1.00, but there can be no assurance that either Fund will be able
to do so.
Each Fund may invest in certain variable or floating rate 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
8
<PAGE> 98
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 amortized cost. 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 amortized cost.
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 amortized cost which could adversely affect such Fund's ability
to maintain a stable net asset value. In such an instance, the Adviser will seek
to sell such security to the extent it can do so in an orderly fashion given
current market conditions.
Such securities which are not Government Obligations are frequently not rated
by NRSROs; however, unrated variable and floating rate notes purchased by a Fund
will be determined by the Adviser to be of comparable quality at the time of
purchase to rated instruments eligible for purchase under such Fund's investment
policies. In making such determinations, the Adviser will consider the earning
power, cash flow and other liquidity ratios of the issuers of such notes (such
issuers include financial, merchandising, bank holding and other companies) and
will continuously monitor their financial condition. Although there may be no
active secondary market with respect to a particular variable or floating rate
security purchased by a Fund, such Fund may resell the security at any time to a
third party. The absence of an active secondary market, however, could make it
difficult for a Fund to dispose of a variable or floating rate security in the
event the issuer of the note defaulted on its payment obligations and the Fund
could, as a result or for other reasons, suffer a loss to the extent of the
default. Variable or floating rate securities may be secured by bank letters of
credit.
To the extent that a Fund holds a security for which it is not entitled to
receive the principal amount within seven days of demand and for which no
readily available market exists, such a security will be treated as an illiquid
security for purposes of calculation of the 10% limitation on such securities as
set forth below.
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 Investment
Company Act of 1940, as amended (the "1940 Act"). For further information about
repurchase agreements and the related risks, see "INVESTMENT OBJECTIVES AND
POLICIES--Additional Information on Portfolio Instruments--Repurchase
Agreements" in the Statement of Additional Information.
Reverse Repurchase Agreements. 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
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<PAGE> 99
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.
Foreign Investments. Investments in foreign securities (including ECDs, ETDs,
CTDs, Yankee CDs, CCP and Europaper) may subject the Fund to investment risks
that differ in some respects from those related to investments in securities of
U.S. domestic issuers. Such risks include future adverse political and economic
developments, the possible imposition of withholding taxes on interest or other
investment income, possible seizure, nationalization, or expropriation of
foreign deposits or investments, the possible establishment of exchange controls
or taxation at the source, less stringent disclosure requirements, less liquid
or developed securities markets or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal or interest
on such securities or the purchase or sale thereof. In addition, foreign
branches of U.S. banks and foreign banks may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting, and
recordkeeping standards than those applicable to domestic branches of U.S.
banks. The Prime Money Market Fund will acquire securities issued by foreign
branches of U.S. banks, foreign banks, or other foreign issuers only when the
Adviser believes that the risks associated with such instruments are minimal.
Restricted Securities. Securities in which the Prime Money Market Fund may
invest include securities issued by corporations without registration under the
Securities Act of 1933, as amended (the "1933 Act"), such as securities issued
in reliance on the so-called "private placement" exemption from registration
which is afforded by Section 4(2) of the 1933 Act ("Section 4(2) securities").
Section 4(2) securities are restricted as to disposition under the Federal
securities laws, and generally are sold to institutional investors such as the
Prime Money Market Fund who agree that they are purchasing the securities for
investment and not with a view to public distribution. Any resale must also
generally be made in an exempt transaction. Section 4(2) securities are normally
resold, if at all, to other institutional investors through or with the
assistance of the issuer or investment dealers who facilitate the resale of such
Section 4(2) securities, thus providing some liquidity.
Pursuant to procedures adopted by the Board of Trustees of the Group, the
Adviser may determine Section 4(2) securities to be liquid if such securities
are eligible for resale under Rule 144A under the 1933 Act and are readily
saleable. Rule 144A permits the Prime Money Market Fund to purchase securities
which have been pri-
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<PAGE> 100
vately placed and resell such securities to certain qualified institutional
buyers without restriction. For purposes of determining whether a Rule 144A
security is readily saleable, and therefore liquid, the Adviser must consider,
among other things, the frequency of trades and quotes for the security, the
number of dealers willing to purchase or sell the security, the number of
potential purchasers and dealer undertakings to make a market in the security,
and the nature of the security and marketplace trades of such security. However,
investing in Rule 144A securities, even if such securities are initially
determined to be liquid, could have the effect of increasing the level of the
Prime Money Market Fund's illiquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these securities.
Securities Lending. In order to generate additional income, each Fund may,
from time to time, lend its portfolio securities to broker-dealers, banks, or
institutional borrowers of securities. A Fund must receive 100% collateral in
the form of cash or U.S. Government securities. This collateral will be valued
daily by the Adviser. 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. Each Fund may also invest in the securities of
other investment companies in accordance with the limitations of the 1940 Act
and any exemptions therefrom. Each Fund intends to invest, for purposes of
short-term cash management, in money market mutual funds which invest in the
same securities in which such Fund may invest. A Fund will incur additional
expenses due to the duplication of fees and expenses as a result of investing in
mutual funds. Additional restrictions on the Funds' investments in the
securities of other mutual funds are contained in the Statement of Additional
Information.
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<PAGE> 101
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding Shares of that Fund (as
defined under "GENERAL INFORMATION--Miscellaneous" herein). Each 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) with respect to the
Prime Money Market Fund there is no limitation with respect to domestic bank
certificates of deposit or bankers' acceptances, and repurchase agreements
secured by bank instruments; (c) wholly owned finance companies will be
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of their parents; and (d)
utilities will be divided according to their services. For example, gas, gas
transmission, electric and gas, electric, and telephone will each be
considered a separate industry.
3. Borrow money or issue senior securities except that each Fund may
enter into reverse repurchase agreements and may otherwise borrow money or
issue senior securities as and to the extent permitted by the 1940 Act or any
rule, order or interpretation thereunder. So long as the 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 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 each 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 that Fund. The times at which the Shares of a Fund are priced are
hereinafter referred to as the "Valuation Times." A "Business Day" of a Fund is
a day on which the Exchange is open for trading and any other day (other than a
day on which no Shares of that Fund are tendered for redemption and no order to
purchase any Shares of that Fund is received) during which
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<PAGE> 102
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, Martin Luther
King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas. Net asset value per share for purposes of
pricing purchases and redemptions is calculated by dividing the value of all
securities and other assets belonging to a Fund, less the liabilities charged to
that Fund, by the number of that Fund's outstanding Shares.
The assets in each of the Funds 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, each Fund maintains a
dollar-weighted average portfolio maturity of 90 days or less. Although the
Group seeks to maintain each Fund's net asset value per share at $1.00, there
can be no assurance that net asset value will not vary.
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 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
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(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. Purchases of Shares of a Fund will be effected only on a
Business Day (as defined in "VALUATION OF SHARES") of that Fund.
There is no sales charge imposed by either Fund in connection with the
purchase of its Shares.
An order to purchase Shares of a Fund will be deemed to have been received by
the Distributor only when federal funds with respect thereto are available to
the Fund's custodian for investment. Federal funds are monies credited to a
bank's account with a Federal Reserve Bank. Payment for an order to purchase
Shares of a Fund which is transmitted by federal funds wire will be available
the same day for investment by that 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 Funds purchased before 12:00 noon,
Eastern Time, begin earning dividends on the same Business Day. Shares of the
Funds purchased after 12:00 noon, Eastern Time, begin earning dividends on the
next Business Day. All Shares of the Funds continue to earn dividends through
the day before their redemption.
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
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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 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 the Fund receive satisfactory assurances that it will have
good and marketable title to the securities received by it; that the securities
be in proper form of transfer to the Fund; and that adequate information be
provided concerning the basis and other tax matters relating to the securities.
GENERAL
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 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 con-
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certs, cruises and sporting events) and (3) merchandise (such as clothing,
trophies, clocks and pens). Dealers may not use sales of a Fund's Shares to
qualify for this compensation to the extent such may be prohibited by the laws
of any state or any self-regulatory agency, such as the National Association of
Securities Dealers, Inc. None of the aforementioned compensation is paid for by
the Funds or their Shareholders.
EXCHANGE PRIVILEGE
Shares of the Funds may be exchanged for Shares of any other KeyPremier 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, 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.
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. Also, Shares may be
redeemed using the check writing feature described below.
Redemption by Mail
A written request for redemption must be received by the Group, at the address
shown on the front page of this Prospectus, in order to honor the request. The
Transfer Agent will require a signature guarantee by an eligible guarantor
institution. The signature guarantee requirement will be waived if the following
conditions apply: (1) the redemption check is payable to the Shareholder(s) of
record, and (2) the redemption check is mailed to the Shareholder(s) at the
address of record or mailed or wired to a commercial bank account previously
designated on the Account Registration Form. There is no charge for having
redemption proceeds mailed to a designated bank account. To change the address
to which a redemption check is to be mailed, a written request therefor must be
received by the Transfer Agent. In connection with such request, the Transfer
Agent will require a signature guarantee by an eligible guarantor institution.
For purposes of this policy, the term "eligible guarantor institution" shall
include banks, brokers, dealers, credit unions, securities exchanges and
associations, clearing agencies and savings as-
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sociations as those terms are defined in the Securities Exchange Act of 1934.
The Transfer Agent reserves the right to reject any signature guarantee if (1)
it has reason to believe that the signature is not genuine, (2) it has reason to
believe that the transaction would otherwise be improper, or (3) the guarantor
institution is a broker or dealer that is neither a member of a clearing
corporation nor maintains net capital of at least $100,000.
Redemption by Telephone
If a Shareholder has so designated on the Account Registration Form, a
Shareholder may request a redemption of his or her Shares by telephoning the
Group and having the payment of redemption 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.
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, each Fund will attempt to honor requests from
Shareholders for same day payments upon redemption of Shares if the request for
redemption is received by the Distributor before 12:00 noon, Eastern Time, on a
Business Day or, if the request for redemption is received after 12:00 noon,
Eastern Time, to honor requests for
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payment on the next 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 10 days or more until payment has been
collected for the purchase of such Shares. During the period of any such delay,
Shares to be redeemed would continue to receive daily dividends as declared
until execution of the redemption. The Group intends to pay cash for all Shares
redeemed, but under abnormal conditions which make payment in cash unwise, the
Group may make payment wholly or partly in portfolio securities at their 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 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 a Fund who so requests with
a supply of checks, imprinted with the Shareholder's name, which may be drawn
against that 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 applicable Fund to redeem
sufficient Shares in the Shareholder's account to cover the amount of the check.
Shares continue earning daily dividends until the day on which the check is
presented to the Bank for payment. Cancelled checks will be returned to the
Shareholder. Due to the delay caused by the requirement that redemptions be
priced at the next computed net asset value, the Bank will only accept for
payment checks presented through normal bank clearing channels. Shareholders
should not attempt to withdraw the full amount of an account or to close out an
account by using this procedure.
No charge will be made to a Shareholder for participation in the check-writing
redemption procedure or for the clearance of any checks. However, a
Shareholder's account may be subject to charges for copies, returned checks
and/or returned items of deposit.
In order to stop payment on a check, the Shareholder must notify the Group in
writing before the check has been presented to the Bank
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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 each Fund is declared daily and such dividends are 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 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. The Funds also do not expect to realize any long
term capital gains and, therefore, do not foresee paying any "capital gains
dividends" as described in the Code.
Distribution by a Fund of the excess of net mid-term or net long-term capital
gain, if any, over net short-term capital loss is taxable to Shareholders as
mid-term or long-term capital gain, respectively, in the year in which it is
received, regardless of how long the Shareholder has held
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the Shares. Such distributions are not eligible for the dividends received
deduction.
STATE TAXES
Even though a significant 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 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. 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 $2.5 billion under management.
Subject to the general supervision of the Board of Trustees of the Group and
in accordance with
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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.
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
each 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.
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
underwriter and distributor (the "Administrator" or the "Distributor," as the
context indicates). BISYS and its affiliated companies, including BISYS Fund
Services, Inc., are wholly owned by The BISYS Group, Inc., a publicly-held
company which is a provider of information processing, loan servicing and 401(k)
administration and recordkeeping services to and through banking and other
financial organizations.
The Administrator generally assists in all aspects of 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.
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.
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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.
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.
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 AND SERVICE
PROVIDERS OF THE GROUP--Glass-Steagall Act" in the Statement of Additional
Information for further discussion of applicable law and regulations.
GENERAL INFORMATION
DESCRIPTION OF THE GROUP AND ITS SHARES
The Group was organized as an Ohio business trust on April 25, 1988. The Group
consists of seventeen funds, each having its own class of shares. Each share
represents an equal proportionate interest in a fund with other shares of the
same fund, and is entitled to such dividends and distributions out of the income
earned on the assets belonging to the fund as are declared at the discretion of
the Trustees (see "Miscellaneous" below). The other funds of the Group are The
KeyPremier Pennsylvania Municipal Bond Fund, The KeyPremier Established Growth
Fund, The KeyPremier Intermediate Term Income Fund, The KeyPremier Aggressive
Growth Fund, The KeyPremier Limited Duration Government Securities Fund, 1st
Source Monogram Diversified Equity Fund, 1st Source Monogram Income Equity Fund,
1st Source Monogram Special Equity Fund, 1st Source Monogram Income Fund,
Riverside Capital Money Market Fund, Riverside Capital Value Fund, Riverside
Capital Fixed Income Fund, Riverside Capital Low Duration Government Securities
Fund, Riverside Capital Growth Fund and Riverside Capital Tennessee Municipal
Obligations 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
22
<PAGE> 112
example, Shareholders of the Prime Money Market 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 Prime Money Market Fund's investment advisory agreement.
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.
As of October 16, 1997, Keystone possessed, on behalf of its or its
affiliates' underlying accounts, voting or investment power with respect to more
than 25% of the outstanding Shares of each of the Funds.
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 AND SERVICE
PROVIDERS 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
23
<PAGE> 113
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 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.
24
<PAGE> 114
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<PAGE> 115
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<PAGE> 116
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 117
INVESTMENT ADVISER
Martindale Andres & Company, Inc.
Four Falls Corporate Center, Suite 200
West Conshohocken, Pennsylvania 19428
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Baker & Hostetler LLP
65 East State Street
Columbus, Ohio 43215
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................... 2
FEE TABLE............................. 3
FINANCIAL HIGHLIGHTS.................. 4
PERFORMANCE INFORMATION............... 5
INVESTMENT OBJECTIVES AND POLICIES.... 5
INVESTMENT RESTRICTIONS............... 12
VALUATION OF SHARES................... 12
HOW TO PURCHASE AND REDEEM SHARES..... 13
DIVIDENDS AND TAXES................... 19
MANAGEMENT OF THE GROUP............... 20
GENERAL INFORMATION................... 22
</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.
KEYPREMIER FUNDS LOGO
THE
KEYPREMIER
PRIME
MONEY
MARKET FUND
THE
KEYPREMIER
U.S. TREASURY
OBLIGATIONS MONEY
MARKET FUND
MARTINDALE
ANDRES & COMPANY, INC.
INVESTMENT ADVISER
Prospectus
dated October 31, 1997
<PAGE> 118
CROSS REFERENCE SHEET
---------------------
THE KEYPREMIER ESTABLISHED GROWTH FUND
THE KEYPREMIER AGGRESSIVE GROWTH FUND
Two Funds
of
The Sessions Group
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C> <C>
1. Cover page.................. Cover Page
2. Synopsis.................... Fee Table
3. Condensed Financial
Information............... Financial Highlights; Performance
Information
4. General Description of
Registrant................ Investment Objectives and Policies;
Investment Restrictions; General
Information - Description of the Group
and Its Shares; Cover Page
5. Management of the Fund...... Management of the Group; General
Information - Custodian; General
Information - Transfer Agent and Fund
Accounting Services
5A. Management's Discussion
of Fund Performance....... Inapplicable
6. Capital Stock and Other
Securities................ How to Purchase and Redeem Shares;
Dividends and Taxes; General Informa-
tion - Description of the Group and Its
Shares; General Information - Miscel-
laneous
7. Purchase of Securities
Being Offered............. Valuation of Shares; How to Purchase
and Redeem Shares; Management of the
Group
8. Redemption or Repurchase.... How to Purchase and Redeem Shares
9. Pending Legal Proceedings... Inapplicable
</TABLE>
<PAGE> 119
LOGO
THE KEYPREMIER ESTABLISHED GROWTH FUND
THE KEYPREMIER AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
3435 Stelzer Road
Columbus, Ohio 43219
For current yield, purchase,
and redemption information,
call (800) 766-3960.
- --------------------------------------------------------------------------------
The Sessions Group (the "Group") is an open-end management investment company.
The Group includes The KeyPremier Established Growth Fund (the "Established
Growth Fund") and The KeyPremier Aggressive Growth Fund (the "Aggressive Growth
Fund"), each of which is a diversified portfolio of the Group (the Established
Growth and Aggressive Growth Funds are hereinafter collectively referred to as
the "Funds" and individually as a "Fund"). The Trustees of the Group have
divided each Fund's beneficial ownership into an unlimited number of
transferable units called shares (the "Shares").
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 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.
Each of the Established Growth Fund's and the Aggressive Growth Fund's net
asset value per share will fluctuate as the value of its portfolio changes in
response to changing market prices 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 A FUND INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is October 31, 1997.
<PAGE> 120
PROSPECTUS SUMMARY
SHARES OFFERED: Units of beneficial interest ("Shares") of the Established
Growth Fund and the Aggressive Growth Fund, two separate investment funds of The
Sessions Group, an Ohio business trust (the "Group").
OFFERING PRICE: The public offering price of each of the Funds is equal to
the net asset value per share plus a sales charge of 4.50% 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 ESTABLISHED GROWTH FUND, growth of capital
with some current income as a secondary objective.
For the AGGRESSIVE GROWTH FUND, growth of capital.
INVESTMENT POLICIES: Under normal market conditions, the ESTABLISHED
GROWTH FUND will invest substantially all, but under such conditions in no event
less than 65%, of its total assets in common stocks and securities convertible
into common stocks.
Under normal market conditions, the AGGRESSIVE GROWTH FUND will invest
substantially all, but under such conditions in no event less than 65%, of its
total assets in common stocks and securities convertible into common stocks of
companies with market capitalizations ranging between $100 million and $5
billion.
RISK FACTORS AND SPECIAL CONSIDERATIONS: An investment in either of the
Funds is subject to certain risks, including market 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
of the Funds will achieve its investment objectives. The Funds, to the extent
set forth under "INVESTMENT OBJECTIVES AND POLICIES," may engage in the
following practices: the use of repurchase agreements and reverse repurchase
agreements, entering into options and futures transactions, the purchase of
securities on a when-issued or delayed-delivery basis and the purchase of
foreign securities, both directly and through American Depository Receipts, and
derivatives.
INVESTMENT ADVISER: Martindale Andres & Company, Inc. (the "Adviser").
DIVIDENDS: Dividends from net income are declared and generally paid
quarterly. Net realized capital gains, if any, are distributed at least
annually.
DISTRIBUTOR: BISYS Fund Services Limited Partnership d/b/a BISYS Fund
Services ("BISYS").
2
<PAGE> 121
FEE TABLE
<TABLE>
<CAPTION>
ESTABLISHED AGGRESSIVE
GROWTH FUND GROWTH FUND
----------- -----------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..................... 4.50% 4.50%
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees After Fee Waiver(1)....................... 0.50% 0.60%
12b-1 Fees................................................ None None
Other Expenses(2)......................................... 0.26 0.35
---- ----
Estimated Total Fund Operating Expenses After Fee
Waiver(1)............................................... 0.76% 0.95%
==== ====
</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 Established Growth Fund....................... $52 $68
The Aggressive Growth Fund........................ $54 $74
</TABLE>
The purpose of the above table is to assist a potential purchaser of Shares of
a Fund in understanding the various costs and expenses that an investor in such
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 voluntarily to reduce its investment advisory fees
with respect to the Established Growth Fund and the Aggressive Growth Fund
to 0.40% and 0.50%, respectively, until on or about March 31, 1998 and
thereafter to reduce such fees to 0.50% and 0.60%, respectively, until
further written notice to Shareholders. Absent such voluntary fee waivers,
Management Fees and Estimated Total Fund Operating Expenses for the
Established Growth Fund would be 0.75% and 1.01%, respectively, and, for the
Aggressive Growth Fund, would be 1.00% and 1.35%, respectively.
(2) "Other Expenses" are estimated for the current fiscal year.
3
<PAGE> 122
FINANCIAL HIGHLIGHTS
The Funds are two separate funds of the Group. The table below sets forth
certain information concerning the investment results of each Fund since its
inception. Further financial information is included in the Statement of
Additional Information. The Financial Highlights contained in the following
table have been audited by KPMG Peat Marwick LLP, independent certified public
accountants for the Funds, whose report on the period ended June 30, 1997, is
included in the Statement of Additional Information, which may be obtained by
Shareholders.
<TABLE>
<CAPTION>
PERIOD FROM COMMENCEMENT OF
OPERATIONS THROUGH JUNE 30, 1997
(A)
--------------------------------
ESTABLISHED AGGRESSIVE
GROWTH FUND GROWTH FUND
----------- -----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................... $ 10.00 $ 10.00
Investment Activities:
Net investment income................................ 0.08 0.01
Net realized and unrealized
gains (losses) on investments..................... 1.13 0.24
-------- --------
Total from Investment Activities....................... 1.21 0.25
-------- --------
Distributions:
Net investment income................................ (0.08) (0.01)
Net realized gains................................... -- --
-------- --------
Total Distributions.................................. (0.08) (0.01)
-------- --------
NET ASSET VALUE, END OF PERIOD......................... $ 11.13 $ 10.24
======== ========
RATIOS/SUPPLEMENTAL DATA:
Total Return (excludes sales charge)................... 12.20%(b) 2.52%(b)
Net Assets, at end of period (000)..................... $ 190,914 $ 105,258
Ratio of expenses to average net asset................. 0.44%(c) 0.66%(c)
Ratio of net investment income to average net assets... 1.39%(c) 0.28%(c)
Ratio of expenses to average net assets*............... 1.01%(c) 1.35%(c)
Ratio of net investment income to average net
assets*.............................................. 0.82%(c) (0.41%)(c)
Portfolio turnover..................................... 1% 2%
Average commission rate paid (d)....................... $ 0.0748 $ 0.0708
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Commencement of operations of the Established Growth Fund was December 2,
1996, and commencement of operations of the Aggressive Growth Fund was
February 3, 1997.
(b) Not annualized.
(c) Annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by the total number of shares purchased and sold by the
Fund for which commissions were charged.
4
<PAGE> 123
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing the Funds'
average annual total return and yield may be presented in advertisements, sales
literature and shareholder reports. SUCH PERFORMANCE FIGURES ARE BASED ON
HISTORICAL PERFORMANCE AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE.
Average annual total return will be calculated for the period since commencement
of operations for a Fund (or its respective collective investment fund) and will
reflect the imposition of the maximum sales charge, if any. Average annual total
return is measured by comparing the value of an investment in 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. Yield will be
computed by dividing a Fund's net investment income per share earned during a
recent one-month period by that Fund's per share maximum offering price (reduced
by any undeclared earned income expected to be paid shortly as a dividend) on
the last day of the period and annualizing the result. Each of the Funds may
also present its average annual total return and yield, as the case may be,
excluding the effect of a sales charge.
Each of the Funds has been initially funded by the transfer of all of the
assets of a corresponding collective investment fund and common trust fund
managed by the Adviser (collectively, the "CIFs"). Because the management of
each Fund is substantially the same as its corresponding CIFs, the quoted
performance of that Fund will include the performance of its CIFs for the
periods prior to the effectiveness of the Group's registration statement as it
relates to such Fund. Such performance will be restated to reflect the estimated
current fees of that 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.
Investors may also judge the performance of a Fund by comparing or referencing
it to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices and to
data prepared by various services, which indices or data may be published by
such services or by other services or publications. In addition to performance
information, general information about the 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, 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 a Fund will not be
included in performance calculations; such fees, if charged, will reduce the
actual performance from that quoted. In addition, if the Adviser or BISYS
voluntarily reduces all or part of its fees for a Fund, as discussed below, the
yield and total return for that Fund will be higher than they would otherwise be
in the absence of such voluntary fee reductions.
Further information about the performance of the Funds is contained in the
Funds' Annual Report to Shareholders which may be obtained without charge by
contacting the Group at (800) 766-3960.
5
<PAGE> 124
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
The investment objectives for the Established Growth Fund are growth of
capital with some current income as a secondary objective. The investment
objective for the Aggressive Growth Fund is growth of capital. Any income earned
by the Aggressive Growth Fund will be incidental to its overall objective of
growth of capital. 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 ESTABLISHED GROWTH FUND
Under normal market conditions, the Established Growth Fund will invest
substantially all, but under such conditions in no event less than 65%, of its
total assets in common stocks and securities convertible into common stocks of
companies with market capitalizations of at least $1 billion. For purposes of
the foregoing, securities convertible into common stocks include convertible
bonds, convertible preferred stock, options and rights. The securities purchased
by the Established Growth Fund are generally traded on established U.S. markets
and exchanges.
Under normal market conditions, the Established Growth Fund intends to operate
with a fully invested philosophy, i.e., the Established Growth Fund will
generally invest 90% or more of its total assets in common stocks. The
Established Growth Fund's equity investments will be based on two principles:
(1) a solid long-term fundamental business outlook and (2) an attractively
valued stock price. The Established Growth Fund's investment decisions are based
upon a company's expected performance through a business and market cycle which
normally translates into a three to five year investment horizon. In an effort
to mitigate some volatility, the Established Growth Fund does seek to maintain
representation in all major economic sectors. Subject to those guidelines, the
Established Growth Fund intends to invest in the securities of companies the
Adviser believes to be of high quality and which satisfy one or more of the
following criteria: (1) have a well recognized domestic and/or global franchise;
(2) have a long-term revenue and earnings growth track record which the Adviser
believes to be superior; (3) have a solid balance sheet, which includes a low
debt-to-equity ratio, and the ability to generate sufficient free cash flow; (4)
have a long-term sustainable competitive advantage; and (5) have demonstrated a
history of increasing shareholder value.
Under normal market conditions, the Established Growth Fund may also invest up
to 35% of its total assets in warrants, foreign securities through sponsored
American Depositary Receipts ("ADRs"), securities of other investment companies
and REITs (real estate investment trusts), cash and Short-Term Obligations and
may engage in other investment techniques described below.
"Short-Term Obligations" consist of obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities (including U.S. Treasury
securities stripped of the unmatured interest coupons and such stripped interest
coupons), with maturities of 12 months or less, certificates of deposit,
bankers' acceptances and demand and time deposits of selected banks, securities
of money market mutual funds, and commercial paper rated in one of the two
highest rating categories by appropriate nationally recognized statistical
rating organizations ("NRSROs," e.g., Standard & Poor's Corporation and Moody's
Investors Service) and repurchase agreements collateralized by such obligations.
These obligations are described further in the Statement of Additional
Information. The Established Growth Fund may also invest up to 100% of its total
assets in Short-Term Obligations and cash
6
<PAGE> 125
when deemed appropriate for temporary defensive purposes as determined by the
Adviser to be warranted due to current or anticipated market conditions.
However, to the extent that the Established Growth Fund is so invested, it may
not achieve its investment objectives.
THE AGGRESSIVE GROWTH FUND
Under normal market conditions, the Aggressive Growth Fund will invest
substantially all, but under such conditions in no event less than 65%, of its
total assets in common stocks and securities convertible into common stocks of
companies with market capitalizations ranging between $100 million and $5
billion. Under normal market conditions, the Aggressive Growth Fund intends to
operate with a fully invested philosophy, i.e., the Aggressive Growth Fund will
generally invest 90% or more of its total assets in common stocks and securities
convertible into common stocks.
The Aggressive Growth Fund attempts to invest in high quality small to mid
capitalization companies that the Adviser believes have demonstrated one or more
of the following characteristics: (1) strong management team with an ownership
stake in the business; (2) solid revenue and earnings history; (3) unique
position in the company's targeted market; (4) innovative products and solid new
product distribution channels; and (5) solid balance sheet. In addition, the
Adviser attempts to invest in companies that are selling at earnings multiples
which the Adviser believes to be less than their expected long-term growth rate.
The Adviser employs a "bottom-up" approach in its security selection process.
A "bottom-up" approach emphasizes company specific factors rather than industry
factors when making its buy/sell decisions. As a result of this approach, the
Adviser does not utilize a sector neutral strategy. The Adviser does not seek to
have the Aggressive Growth Fund have representation in all economic sectors;
therefore, the Aggressive Growth Fund's sector weightings may be overweighted
and/or underweighted relative to its appropriate peers and/or benchmarks.
For purposes of the foregoing, securities convertible into common stocks
include convertible bonds, convertible preferred stock, options and rights. The
securities purchased by the Aggressive Growth Fund are generally traded on
established U.S. markets and exchanges, although as discussed below, the
Aggressive Growth Fund may invest in restricted or privately placed securities.
Under normal market conditions, the Aggressive Growth Fund may also invest up to
35% of its total assets in warrants, foreign securities through sponsored ADRs,
securities of other investment companies and equity REITs, cash and Short-Term
Obligations (as described above) and may engage in other investment techniques
described below.
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in either of the Funds entails
certain risks. Equity securities such as those in which the Funds may invest are
more volatile and carry more risk than some other forms of investment, including
investments in high grade fixed income securities. Therefore, each Fund is
subject to stock market risk, i.e., the possibility that stock prices in general
will decline over short or even extended periods of time.
Depending upon the performance of each Funds' investments, the net asset value
per share of a Fund may decrease instead of increase.
Each Fund, as described below, may invest in put and call options and futures.
Such instruments are 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. No Fund will invest more than 20% of its total assets in any such
derivatives at any one time.
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Growth-Oriented Companies. The Aggressive Growth Fund is intended for
investors who have a long-term investment time horizon and who can accept the
higher risks involved in seeking potentially higher capital appreciation through
investments in growth oriented companies. A growth oriented company typically
invests most of its net income in its enterprise and does not pay out much, if
any, in dividends. Accordingly, the Aggressive Growth Fund does not anticipate
any significant distributions to Shareholders from net investment income, and
potential investors should be in a financial position to forego current income
from their investment in the Aggressive Growth Fund. In addition, smaller
capitalized companies generally have limited product lines, markets and
financial resources and are dependent upon a limited management group. The
securities of less seasoned companies and/or smaller capitalized companies may
have limited marketability, which may affect or limit their liquidity and
therefore the ability of the Aggressive Growth Fund to sell such securities at
the time and price it deems advisable. In addition, such securities may be
subject to more abrupt or erratic market movements over time than securities of
more seasoned and/or larger capitalized companies or the market as a whole.
Repurchase Agreements. Securities held by each of the Funds may be subject to
repurchase agreements. Under the terms of a repurchase agreement, a Fund would
acquire securities, in exchange for cash, from banks and/or registered
broker-dealers which the Adviser deems creditworthy under guidelines approved by
the Group's Board of Trustees. The seller agrees to repurchase such securities
at a mutually agreed date and price. The repurchase price generally equals the
price paid by the Fund plus interest negotiated on the basis of current
short-term rates, which may be more or less than the rate on the underlying
portfolio securities. Securities subject to repurchase agreements must be of the
same type and quality as those in which the Fund may invest directly. Repurchase
agreements are considered to be loans by a Fund under the 1940 Act. For further
information about repurchase agreements and the related risks, see "INVESTMENT
OBJECTIVES AND POLICIES--Additional Information on Portfolio Instruments--
Repurchase Agreements" in the Statement of Additional Information.
Reverse Repurchase Agreements. Each Fund may borrow funds by entering into
reverse repurchase agreements in accordance with the investment restrictions
described below. Pursuant to such agreements, a Fund would sell portfolio
securities to financial institutions such as banks and broker-dealers, and agree
to repurchase them at a mutually agreed-upon date and price. At the time a Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account assets such as U.S. Government securities or other liquid
securities consistent with the Fund's investment restrictions having a value
equal to the repurchase price (including accrued interest), and will continually
monitor the account to ensure that such equivalent value is maintained at all
times. Reverse repurchase agreements involve the risk that the market value of
the securities sold by 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. A Fund
generally will invest the proceeds of such borrowings only when such borrowings
will enhance the Fund's liquidity or when the Fund reasonably expects that the
interest income to be earned from the investment of the proceeds is greater than
the interest expense of the transaction. For further information about reverse
repurchase agreements, see "INVESTMENT OBJECTIVE AND POLICIES--
Additional Information on Portfolio Instru-
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ments--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.
Foreign Investments. ADRs are receipts typically issued by a United States
bank or trust company evidencing ownership of the underlying foreign securities
and are denominated in U.S. dollars. Investments in foreign securities
(including Yankee Bonds, Eurodollar Bonds, Supranational Bonds and ADRs) may
subject a Fund to investment risks that differ in some respects from those
related to investments in securities of U.S. domestic issuers. Such risks
include future adverse political and economic developments, the possible
imposition of withholding taxes on interest or other investment income, possible
seizure, nationalization, or expropriation of foreign deposits or investments,
the possible establishment of exchange controls or taxation at the source, less
stringent disclosure requirements, less liquid or developed securities markets
or the adoption of other foreign governmental restrictions which might adversely
affect the payment of principal, interest or dividends on such securities or the
purchase or sale thereof. In addition, foreign branches of U.S. banks and
foreign banks may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting, and recordkeeping standards than
those applicable to domestic branches of U.S. banks.
Restricted Securities. Securities in which the Aggressive Growth Fund may
invest include securities issued by corporations without registration under the
Securities Act of 1933, as amended (the "1933 Act"), such as securities issued
in reliance on the so-called "private placement" exemption from registration
which is afforded by Section 4(2) of the 1933 Act ("Section 4(2) securities").
Section 4(2) securities are restricted as to disposition under the Federal
securities laws, and generally are sold to institutional investors such as the
Aggressive Growth Fund who agree that they are purchasing the securities for
investment and not with a view to public distribution. Any resale must also
generally be made in an exempt transaction. Section 4(2) securities are normally
resold, if at all, to other institutional investors through or with the
assistance of the issuer or investment dealers who facilitate the resale of such
Section 4(2) securities, thus providing some liquidity.
Pursuant to procedures adopted by the Board of Trustees of the Group, the
Adviser may determine Section 4(2) securities to be liquid if such securities
are eligible for resale under Rule 144A under the 1933 Act and are readily
saleable. Rule 144A permits the Aggressive Growth Fund to purchase securities
which have been privately placed and resell such securities to certain qualified
institutional buyers without restriction. For purposes of determining whether a
Rule 144A security is readily saleable, and therefore liquid, the Adviser must
consider, among other things, the frequency of trades and quotes for the
security, the number of dealers willing to purchase or sell the security and the
number of potential purchasers, dealer undertakings to make a market in the
security, and the nature of the security and marketplace trades of such
security. However, investing in Rule 144A securities, even if such securities
are initially determined to be liquid, could have the effect of increasing the
level of the Aggressive Growth Fund's illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities.
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Securities Lending. In order to generate additional income, each Fund may,
from time to time, lend its portfolio securities to broker-dealers, banks, or
institutional borrowers of securities. A Fund must receive 100% collateral in
the form of cash or U.S. Government securities. This collateral will be valued
daily by the Adviser. 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 the
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.
Writing Covered Call and Put Options. Each Fund may write covered call and put
options on securities, or futures contracts regarding securities, in which such
Fund may invest, in an effort to realize additional income. A put option gives
the purchaser the right to sell, and a writer has the obligation to purchase,
the underlying security at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price of the security. A
call option gives the purchaser of the option the right to buy, and a writer has
the obligation to sell, the underlying security at the stated exercise price at
any time prior to the expiration of the option, regardless of the market price
of the security. The premium paid to the writer is consideration for undertaking
the obligations under the option contract. Such options will be listed on
national securities or futures exchanges. Each Fund may write covered call
options as a means of seeking to enhance its income through the receipt of
premiums in instances in which the Adviser determines that the underlying
securities or futures contracts are not likely to increase in value above the
exercise price. Each Fund also may seek to earn additional income through the
receipt of premiums by writing put options. By writing a call option, a Fund
limits its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option; by writing a put
option, a Fund assumes the risk that it may be required to purchase the
underlying security at a price in excess of its then current market value.
Each of the Funds, as part of its option transactions, also may write index
put and call options. Through the writing of index options a Fund can achieve
many of the same objectives as through the use of options on individual
securities. Options on securities indices are similar to options on a security
except that, rather than the right to take or make delivery of a security at a
specified price, an option on a securities index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the securities index upon which the option is based is greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
When a Fund writes an option, an amount equal to the net premium (the premium
less the commission) received by that Fund is included in the liability section
of the Fund's statement of assets and liabilities as a deferred credit. The
amount of the deferred credit will be subsequently marked-to-market to reflect
the current value of the option written. The current value of the traded option
is the last sale price or, in the absence of a sale, the mean between bid and
asked price. If an option expires on the stipulated expiration date or if the
Fund enters into a closing purchase transac-
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tion, it will realize a gain (or a loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. If a call option is
exercised, the Fund may deliver the underlying security in the open market. In
either event, the proceeds of the sale will be increased by the net premium
originally received and the Fund will realize a gain or loss. Each Fund will
limit its writing of options such that at no time will more than 25% of the
Fund's total assets be subject to such options transactions.
Purchasing Options. In addition, each Fund may purchase put and call options
written by third parties covering indices and those types of financial
instruments or securities in which the Fund may invest to attempt to provide
protection against adverse price effects from anticipated changes in prevailing
prices for such instruments. The purchase of a put option is intended to protect
the value of a Fund's holdings in a falling market while the purchase of a call
option is intended to protect the value of a Fund's positions in a rising
market. Put and call options purchased by a Fund will be valued at the last sale
price, or in the absence of such a price, at the mean between bid and asked
price. Such options will be listed on national securities or futures exchanges.
In purchasing a call option, a Fund would be in a position to realize a gain
if, during the option period, the price of the underlying security, index or
futures contract increased by an amount in excess of the premium paid for the
call option. It would realize a loss if the price of the underlying security,
index or futures contract declined or remained the same or did not increase
during the period by more than the amount of the premium. By purchasing a put
option, the Fund would be in a position to realize a gain if, during the option
period, the price of the security, index or futures contract declined by an
amount in excess of the premium paid. It would realize a loss if the price of
the security, index or futures contract increased or remained the same or did
not decrease during that period by more than the amount of the premium. If a put
or call option purchased by the Fund were permitted to expire without being sold
or exercised, its premium would represent a realized loss to the Fund.
Futures Contracts. Each Fund may purchase or sell contracts for the future
delivery of the specific financial instruments or securities in which that Fund
may invest, and indices based upon the types of securities in which that Fund
may invest (collectively, "Futures Contracts"). Each Fund may use this
investment technique as a substitute for a comparable market position in the
underlying securities or to hedge against anticipated future changes in market
prices, which otherwise might adversely affect either the value of such Fund's
securities or the prices of securities which such Fund intends to purchase at a
later date.
To the extent a Fund is engaging in a futures transaction as a hedging device,
because of the risk of an imperfect correlation between securities in the Fund's
portfolio that are the subject of a hedging transaction and the futures contract
used as a hedging device, it is possible that the hedge will not be fully
effective if, for example, losses on the portfolio securities exceed gains on
the futures contract or losses on the futures contract exceed gains on the
portfolio securities. For futures contracts based on indices, the risk of
imperfect correlation increases as the composition of a Fund's portfolio varies
from the composition of the index. In an effort to compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of futures contracts, a Fund may buy or sell futures
contracts in a greater or lesser dollar amount than the dollar amount of the
securities being hedged if the historical volatility of the future contract has
been less or greater than that of the securities. Such "over hedg-
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ing" or "under hedging" may adversely affect a Fund's net investment results if
the market does not move as anticipated when the hedge is established.
Successful use of futures by a Fund also is subject to the Adviser's ability
to predict correctly movements in the direction of the market. For example, if a
Fund has hedged against the possibility of a decline in the market adversely
affecting the value of securities held in its portfolio and prices increase
instead, the Fund will lose part or all of the benefit of the increased value of
securities which it has hedged because it will have offsetting losses in its
futures positions. Furthermore, if in such circumstances the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. The Fund may have to sell such securities at a time when it may be
disadvantageous to do so.
An option on a futures contract gives the purchaser the right, in return for
the premium paid, to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of the
option is required upon exercise to assume an offsetting futures position (a
short position if the option is a call and a long position if the option is a
put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by delivery
of the accumulated cash balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract.
Call options sold by a Fund with respect to futures contracts will be covered
by, among other things, entering into a long position in the same contract at a
price no higher than the strike price of the call option, or by ownership of the
instruments underlying, or instruments the prices of which are expected to move
relatively consistently with the instruments underlying, the futures contract.
Put options sold by a Fund with respect to futures contracts will be covered
when, among other things, cash or liquid securities are placed in a segregated
account to fulfill the obligation undertaken.
Each Fund may utilize various index futures to protect against changes in the
market value of the securities in its portfolio or which it intends to acquire.
Securities index futures contracts are based on an index of various types of
securities, e.g., stocks or long-term corporate bonds. The index assigns
relative values to the securities included in an index, and fluctuates with
changes in the market value of such securities. The contract is an agreement
pursuant to which two parties agree to take or make delivery of an amount of
cash based upon the difference between the value of the index at the close of
the last trading day of the contract and the price at which the index contract
was originally written. The acquisition or sale of an index futures contract
enables a Fund to protect its assets from fluctuations in prices of certain
securities without actually buying or selling such securities.
In general, the value of futures contracts sold by a Fund to offset declines
in its portfolio securities will not exceed the total market value of the
portfolio securities to be hedged, and futures contracts purchased by a Fund
will be covered by a segregated account consisting of cash or liquid securities
in an amount equal to the total market value of such futures contracts, less the
initial margin deposited therefor.
When buying futures contracts and when writing put options, a Fund will be
required to segregate in a separate account cash and/or liquid securities in an
amount sufficient to meet its obligations. When writing call options, a Fund
will be required to own the financial instrument or futures contract underlying
the
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option or segregate cash and/or liquid securities in an amount sufficient to
meet its obligations under written calls.
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 price obtained in the transaction will be greater than
those available in the market when delivery takes place. A Fund will generally
not pay for such securities or start earning 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 market factors. 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 considered to
be advantageous.
Investment Company Securities. Each Fund may also invest in the securities of
other investment companies, including shares of a money market fund advised by
the Adviser ("KeyPremier money market funds") in accordance with the limitations
of the 1940 Act and any exemptions therefrom. Each Fund intends to invest in
other investment companies which, in the opinion of the Adviser will assist such
Fund in achieving its investment objectives and in money market mutual funds for
purposes of short-term cash management. A Fund will incur additional expenses
due to the duplication of fees and expenses as a result of investing in mutual
funds. 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 Funds' administrator, and their affiliates will reduce their fees charged to
a Fund by an amount equal to the fees charged by such service providers based on
a percentage of that Fund's assets attributable to such Fund's investment in the
KeyPremier money market fund. Additional restrictions on the Funds' 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 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
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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;
(c) with respect to the Established Growth Fund, 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); and
(d) with respect to the Aggresive Growth Fund, technology companies will be
divided according to their services (for example, medical devices,
biotechnology, semi-conductor, software and communications 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.
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 a Fund: each Fund may not
purchase or otherwise acquire any security if, as a result, more than 15% of its
net assets would be invested in securities that are illiquid. For purposes of
this investment restriction, illiquid securities include securities which are
not readily marketable and repurchase agreements with maturities in excess of
seven days.
VALUATION OF SHARES
The net asset value of each Fund is determined and its Shares are priced as of
the close of regular trading on the New York Stock Exchange (the "Exchange")
(generally 4:00 p.m. Eastern time) on each Business Day of that Fund. The time
at which the Shares of the Funds are priced is hereinafter referred to as the
"Valuation Time." A "Business Day" of a Fund is a day on which the Exchange is
open for trading and any other day (other than a day on which no Shares of the
Fund are tendered for redemption and no order to purchase any Shares of the Fund
is received) during which there is sufficient trading in portfolio instruments
such that the Fund's net asset value per share might be materially affected. The
Exchange will not be open in observance of the following holidays: New Year's
Day, Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value per
share for purposes of pricing purchases and redemptions is calculated by
dividing the value of all securities and other assets belonging to a Fund, less
the liabilities charged to that Fund, by the number of that Fund's outstanding
Shares.
The net asset value per share for each Fund will fluctuate as the value of the
investment portfolio of that Fund changes.
The portfolio securities 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 ap-
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proved by the Group's Board of Trustees. Investments in debt securities with
remaining maturities of 60 days or less may be valued based upon the amortized
cost method.
HOW TO PURCHASE
AND REDEEM SHARES
DISTRIBUTOR
Shares in the 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").
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 a Fund so
sold, it is the responsibility of the particular Entity to transmit purchase or
redemption orders to the Distributor and to deliver federal funds for purchase
on a timely basis. Beneficial ownership of Shares will be recorded by the
Entities and reflected in the account statements provided by the Entities to
Customers.
Investors may also purchase Shares of the Funds 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 applicable Fund, to The KeyPremier Funds, P.O. Box
182707, Columbus, Ohio 43218-2707. Subsequent purchases of Shares of a 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 the Funds 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.
For an order for the purchase of Shares of a 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
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be settled between the investor and the broker-dealer. If the broker-dealer
receives the order after the Valuation Time for that day, the price will be
based on the net asset value determined as of the Valuation Time for the next
Business Day.
MINIMUM INVESTMENT
Except as otherwise discussed below under "Auto Invest Plan," the minimum
investment is $1,000 for the initial purchase of Shares of a 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 a
Fund. Information concerning these services and any charges will be provided by
the Entities. This Prospectus should be read in conjunction with any such
information received from the Entities or their affiliates.
Each Fund reserves the right to reject any order for the purchase of its
Shares in whole or in part, including purchases made with foreign checks and
third party checks not originally made payable to the order of the investor.
Every Shareholder will receive a confirmation of each new transaction in his
or her account, which will also show the total number of Shares owned by the
Shareholder and the number of Shares being held in safekeeping by the Transfer
Agent for the account of the Shareholder. Reports of purchases and redemptions
of Shares by 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
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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 a Fund may, in the discretion of the Adviser, be made in
the form of securities that are permissible investments for that Fund as
described in this Prospectus. For further information about this form of
payment, contact the Adviser. In connection with an in-kind securities payment,
a Fund will require, among other things, that the securities be valued on the
date of purchase in accordance with the pricing methods used by the Fund and
that the Fund receive satisfactory assurances that it will have good and
marketable title to the securities received by it; that the securities be in
proper form of transfer to the Fund; and that adequate information be provided
concerning the basis and other tax matters relating to the securities.
SALES CHARGES
The public offering price of Shares of each Fund equals net asset value plus a
sales charge in accordance with the table below. BISYS receives this sales
charge as Distributor and reallows a portion of it as dealer discounts and
brokerage commissions. However, the Distributor, in its sole discretion may pay
certain dealers all or part of the portion of the sales charge it receives. The
broker or dealer who receives a reallowance in excess of 90% of the sales charge
may be deemed to be an "underwriter" for purposes of the Securities Act of 1933.
<TABLE>
<CAPTION>
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... 4.71% 4.50% 4.05%
$100,000 but less
than $250,000...... 3.63 3.50 3.15
$250,000 but less
than $500,000...... 2.56 2.50 2.25
$500,000 but less
than $1,000,000.... 1.52 1.50 1.35
$1,000,000 or more... 0 0 0
</TABLE>
From time to time dealers who receive dealer discounts and brokerage
commissions from the Distributor may reallow all or a portion of such dealer
discounts and brokerage commissions to other dealers or brokers. The
Distributor, at its expense, will also provide additional compensation to
dealers in connection with sales of Shares of the 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 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).
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Dealers may not use sales of the Funds' 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 any Fund or its
Shareholders.
SALES CHARGE WAIVERS
The Distributor will waive sales charges for the purchase of Shares of a 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 a Fund.
In addition, the Distributor may waive sales charges for the purchase of a
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 a 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 Established Growth Fund at the total public offering price of
$50,000 and Shares in another KeyPremier Load Fund at the total public offering
price of $50,000, the sales charge for such shares of the Established Growth
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.
LETTER OF INTENT
An investor may obtain a reduced sales charge by means of a written Letter of
Intent which expresses the intention of such investor to purchase Shares of a
Fund at a designated total public offering price within a designated 13-month
period. Each purchase of Shares under a Letter of Intent will be made at the net
asset value plus the sales charge applicable at the time of such purchase to a
single transaction of the total dollar amount indicated in the Letter of Intent.
A Letter of Intent may include purchases of Shares made not more than 90 days
prior to the date such investor signs a Letter of Intent; however, the 13-month
period
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<PAGE> 137
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 a Fund at the public offering price applicable to the total of (a) the
total public offering price of the Shares of the Fund then being purchased plus
(b) an amount equal to the then current net asset value of the purchaser's
combined holdings of the Shares of all KeyPremier Load Funds. The "purchaser's
combined holdings" described in the preceding sentence shall include the
combined holdings of the purchaser, the purchaser's spouse and children under
the age of 21 and the purchaser's retirement plan accounts. To receive the
applicable public offering price pursuant to the right of accumulation,
Shareholders must, at the time of purchase, give the Transfer Agent sufficient
information to permit confirmation of qualification. This right of accumulation,
however, may be modified or eliminated at any time or from time to time by the
Group without notice.
EXCHANGE PRIVILEGE
Shares of a 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, 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
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<PAGE> 138
Shareholder may not include any sales charge on Shares of a Fund as a part of
the cost of those Shares for purposes of calculating the gain or loss realized
on an exchange of those Shares within 90 days of their purchase.
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 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
Transfer Agent and having the payment of redemption requests sent electronically
directly to a domestic commercial bank account previously designated by the
Shareholder on the Account Registration Form. A shareholder may also have such
payment mailed directly to the Shareholder at the Shareholder's address as
recorded by the Transfer Agent. However, this option may be suspended for a
period of 30 days following a telephonic address change. Under most cir-
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<PAGE> 139
cumstances, such payments will be transmitted on the next Business Day following
receipt of a valid request for redemption. Such wire redemption requests may be
made by the Shareholder by telephone to the Group. 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 tele-
phone 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, each 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. Each Fund will
attempt to so honor redemption requests unless it would be disadvantageous to a
Fund or the Shareholders of that Fund to sell or liquidate portfolio securities
in an amount sufficient to satisfy requests for payments in that manner.
At various times, the Group may be requested to redeem Shares for which it has
not yet received good payment. In such circumstances, the Group may delay the
forwarding of proceeds for up to 10 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 con-
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<PAGE> 140
ditions which make payment in cash unwise, the Group may make payment wholly or
partly in readily marketable 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.
DIVIDENDS AND TAXES
DIVIDENDS
A dividend for each Fund is declared quarterly at the close of business on the
day of declaration consisting of an amount of accumulated undistributed net
income of that Fund as determined necessary or appropriate by the appropriate
officers of the Group. Such dividend is generally paid quarterly. Shareholders
will automatically receive all income dividends and capital gains distributions
in additional full and fractional Shares of that 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 a Fund are distributed
at least annually. Dividends are paid in cash not later than seven Business Days
after a Shareholder's complete redemption of his or her Shares in that Fund.
If a Shareholder elects to receive distributions in cash, and checks (1) are
returned and marked as "undeliverable" or (2) remain uncashed for six months,
the Shareholder's cash election will be changed automatically and future
dividend and capital gains distributions will be reinvested in that Fund at the
per share net asset value determined as of the date of payment of the
distribution. In addition, any undeliverable checks or checks that remain
uncashed for six months will be canceled and will be reinvested in that Fund at
the per share net asset value determined as of the date of cancellation.
FEDERAL TAXES
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 that Fund's Shareholders.
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<PAGE> 141
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 during a
calendar year were less than the required amount, a 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 that Fund's net ordinary income and net realized capital
gains and that such distributed net ordinary income and distributed net realized
capital gains will be taxable income to Shareholders for federal income tax
purposes, even if paid in additional Shares of the Fund and not in cash. The
dividends received deduction for corporations will apply to the aggregate of
such ordinary income distributions in the same proportion as the aggregate
dividends eligible for the dividends deduction, if any, received by a Fund bear
to its gross income.
Distribution by a Fund of the excess of net mid-term or net long-term capital
gain, if any, over net short-term capital loss is taxable to Shareholders as
mid-term or long-term capital gain, respectively, in the year in which it is
received, regardless of how long the Shareholder has held the Shares. Such
distributions are not eligible for the dividends received deduction.
If the net asset value of a Share is reduced below the Shareholder's cost of
that Share by the distribution of income or gain realized on the sale of
securities, the distribution, from a practical stand point, is a return of
invested principal, although taxable as described above.
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of Shares prior to the record
date will have the effect of reducing the per share net asset value of the
Shares by the amount of the dividends or distributions. All or a portion of such
dividends or distributions, although in effect a return of capital, is subject
to tax.
Additional information regarding federal taxes is contained in the Statement
of Additional Information under the heading
"ADDITIONAL INFORMATION--Addi-
tional 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 elected by
the shareholders of the Group. The
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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 the Funds' 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 $2.5 billion 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 the Funds, 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.
William C. Martindale, Jr. is responsible for the day-to-day management of
each Fund's portfolio and has over 25 years of equity investment experience. Mr.
Martindale also managed the corresponding CIF of the Aggressive Growth Fund
since July 1, 1994. Mr. Martindale co-founded the Adviser in 1989 and serves as
its Chief Investment Officer. Prior to 1989, Mr. Martindale served in various
investment-related capacities with Dean Witter Reynolds.
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 Established Growth Fund, computed daily and paid monthly, at the annual rate
of seventy-five one-hundredths of one percent (.75%) of such Fund's average
daily net assets. With respect to the Aggressive Growth Fund, the Adviser is
entitled to receive a fee from such Fund, computed daily and paid monthly, at
the annual rate of one percent (1.00%) of such Fund's average daily net assets.
The Adviser may periodically voluntarily reduce all or a portion of its
advisory fee with respect to a Fund to increase the net income of that Fund
available for distribution as dividends. The Adviser may not seek reimbursement
of such voluntarily reduced fees 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.
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ADMINISTRATOR AND DISTRIBUTOR
BISYS is the administrator for each Fund and also acts as the Funds' principal
underwriter and distributor (the "Administrator" or the "Distributor," as the
context indicates). BISYS and its affiliated companies, including BISYS Fund
Services, Inc., are wholly owned by The BISYS Group, Inc., a publicly-held
company which is a provider of information processing, loan servicing and 401(k)
administration and recordkeeping services to and through banking and other
financial organizations.
The Administrator generally assists in all aspects of a Fund's administration
and operation. For expenses assumed and services provided as administrator
pursuant to its management and administration agreement with the Group, the
Administrator receives a fee from each Fund, 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 a Fund 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.
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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 a Fund 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 AND SERVICE
PROVIDERS OF THE GROUP--Glass-Steagall Act" in the Statement of Additional
Information for further discussion of applicable law and regulations.
GENERAL INFORMATION
DESCRIPTION OF THE GROUP AND ITS SHARES
The Group was organized as an Ohio business trust on April 25, 1988. The Group
consists of seventeen funds, each having its own class of shares. Each share
represents an equal proportionate interest in a fund with other shares of the
same fund, and is entitled to such dividends and distributions out of the income
earned on the assets belonging to 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 Intermediate Term Income Fund, The KeyPremier U.S. Treasury
Obligations Money Market Fund, The KeyPremier Limited Duration Government
Securities Fund, 1st Source Monogram Diversified Equity Fund, 1st Source
Monogram Income Equity Fund, 1st Source Monogram Special Equity Fund, 1st Source
Monogram Income Fund, Riverside Capital Money Market Fund, Riverside Capital
Value Fund, Riverside Capital Fixed Income Fund, Riverside Capital Low Duration
Government Securities Fund, Riverside Capital Growth Fund and Riverside Capital
Tennessee Municipal Obligations 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 a 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
Fund's investment advisory agreement.
Overall responsibility for the management of each Fund is vested in the Board
of Trustees of
26
<PAGE> 145
the Group. See "MANAGEMENT OF THE GROUP--Trustees of the Group" above.
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 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.
As of October 16, 1997, Keystone possessed, on behalf of its or its
affiliates' underlying accounts, voting or investment power with respect to more
than 25% of the outstanding Shares of each Fund.
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 AND SERVICE
PROVIDERS 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 and expenses and as to the timing and
allocable portion of any general assets with respect to the Funds are
conclusive.
27
<PAGE> 146
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.
28
<PAGE> 147
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 148
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 149
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 150
INVESTMENT ADVISER
Martindale Andres & Company, Inc.
Four Falls Corporate Center, Suite 200
West Conshohocken, Pennsylvania 19428
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Baker & Hostetler LLP
65 East State Street
Columbus, Ohio 43215
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY................... 2
FEE TABLE............................ 3
FINANCIAL HIGHLIGHTS................. 4
PERFORMANCE INFORMATION.............. 5
INVESTMENT OBJECTIVES AND POLICIES... 6
INVESTMENT RESTRICTIONS.............. 13
VALUATION OF SHARES.................. 14
HOW TO PURCHASE AND REDEEM SHARES.... 15
REDEMPTION OF SHARES................. 20
DIVIDENDS AND TAXES.................. 22
MANAGEMENT OF THE GROUP.............. 23
GENERAL INFORMATION.................. 26
</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.
LOGO
THE
KEYPREMIER
ESTABLISHED
GROWTH FUND
THE
KEYPREMIER
AGGRESSIVE
GROWTH FUND
MARTINDALE
ANDRES & COMPANY, INC.
INVESTMENT ADVISER
Prospectus
dated October 31, 1997
<PAGE> 151
CROSS REFERENCE SHEET
---------------------
THE KEYPREMIER INTERMEDIATE TERM INCOME FUND
THE KEYPREMIER LIMITED DURATION GOVERNMENT SECURITIES FUND
THE KEYPREMIER PENNSYLVANIA MUNICIPAL BOND FUND
Three Funds
of
The Sessions Group
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C> <C>
1. Cover page.................. Cover Page
2. Synopsis.................... Fee Table
3. Condensed Financial
Information............... Financial Highlights; Performance
Information
4. General Description of
Registrant................ Investment Objectives and Policies;
Investment Restrictions; General
Information - Description of the Group
and Its Shares; Cover Page
5. Management of the Fund...... Management of the Group; General
Information - Custodian; General
Information - Transfer Agent and Fund
Accounting Services
5A. Management's Discussion
of Fund Performance....... Inapplicable
6. Capital Stock and Other
Securities................ How to Purchase and Redeem Shares;
Dividends and Taxes; General Informa-
tion - Description of the Group and Its
Shares; General Information - Miscel-
laneous
7. Purchase of Securities
Being Offered............. Valuation of Shares; How to Purchase
and Redeem Shares; Management of the
Group
8. Redemption or Repurchase.... How to Purchase and Redeem Shares
9. Pending Legal Proceedings... Inapplicable
</TABLE>
<PAGE> 152
THE KEYPREMIER INTERMEDIATE TERM INCOME FUND
THE KEYPREMIER LIMITED DURATION GOVERNMENT SECURITIES FUND
THE KEYPREMIER PENNSYLVANIA MUNICIPAL BOND FUND LOGO
- --------------------------------------------------------------------------------
3435 Stelzer Road
Columbus, Ohio 43219
For current yield, purchase,
and redemption information,
call (800) 766-3960.
- --------------------------------------------------------------------------------
The Sessions Group (the "Group") is an open-end management investment company.
The Group includes The KeyPremier Intermediate Term Income Fund (the "Income
Fund"), The KeyPremier Limited Duration Government Securities Fund (the
"Government Securities Fund") and The KeyPremier Pennsylvania Municipal Bond
Fund (the "Pennsylvania Bond Fund"). The Income Fund and the Government
Securities Fund are each a diversified portfolio of the Group. The Pennsylvania
Bond Fund is a non-diversified portfolio of the Group. (The Income, Government
Securities and Pennsylvania Bond Funds are hereinafter collectively referred to
as the "Funds" and individually as a "Fund"). The Trustees of the Group have
divided each Fund's beneficial ownership into an unlimited number of
transferable units called shares (the "Shares").
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 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.
Each Fund's net asset value per share will fluctuate as the value of its
portfolio changes in response to changing market prices, market rates of
interest and/or other factors.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"),
Columbus, Ohio, acts as the Funds' administrator and distributor. BISYS Fund
Services, Inc., Columbus, Ohio, 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 A FUND INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is October 31, 1997.
<PAGE> 153
PROSPECTUS SUMMARY
SHARES OFFERED: Units of beneficial interest ("Shares") of the Income Fund,
the Government Securities Fund and the Pennsylvania Municipal Bond Fund, three
separate investment funds of The Sessions Group, an Ohio business trust (the
"Group").
OFFERING PRICE: The public offering price of each of the INCOME FUND and
the PENNSYLVANIA BOND FUND is equal to the net asset value per share plus a
sales charge of 4.50% of the public offering price, reduced on investments of
$100,000 or more. 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: The Income Fund and the Government Securities Fund are
each a diversified series of the Group. The Pennsylvania Bond Fund is a
non-diversified series of the Group. The Group is an open-end, management
investment company.
INVESTMENT OBJECTIVES: For the INCOME FUND, current income with long-term
growth of capital as a secondary objective.
For the GOVERNMENT SECURITIES FUND, current income with preservation of
capital as a secondary objective.
For the PENNSYLVANIA BOND FUND, (1) income which is exempt from federal
income tax and Pennsylvania state income tax, although such income may be
subject to the federal alternative minimum tax when received by certain
Shareholders, and (2) preservation of capital.
INVESTMENT POLICIES: Under normal market conditions, the INCOME FUND will
invest substantially all, but under such conditions in no event less than 65%,
of its total assets in fixed income securities of all types, including high and
medium grade corporate bonds, U.S. Government bonds and mortgage-backed
securities. The Income Fund intends that, under normal market conditions, its
portfolio will maintain a dollar weighted average maturity of three to ten
years.
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.
Under normal market conditions, the PENNSYLVANIA BOND FUND will invest at
least 80% of its net assets in municipal securities issued by or on behalf of
the Commonwealth of Pennsylvania or any county, political subdivision or
municipality thereof, including any agency, board, authority or commission of
any of the foregoing, and debt obligations issued by the Government of Puerto
Rico and other governmental entities, which generate interest income which is
exempt from federal and Pennsylvania state income taxes (but may be subject to
the federal alternative minimum tax when received by certain Shareholders).
2
<PAGE> 154
RISK FACTORS AND SPECIAL CONSIDERATIONS: An investment in any 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 any of
the Funds will achieve its investment objectives. The Funds, to the extent set
forth under "INVESTMENT OBJECTIVES AND POLICIES," may engage in the following
practices: the use of repurchase agreements and reverse repurchase agreements,
entering into options and futures transactions, the short selling of securities,
the purchase of securities from primarily one state, the purchase of securities
on a when-issued or delayed-delivery basis, the lending of portfolio securities
and the purchase of foreign securities and derivatives.
INVESTMENT ADVISER: Martindale Andres & Company, Inc. (the "Adviser").
DIVIDENDS: Dividends from net income are declared and generally paid
monthly. Net realized capital gains, if any, are distributed at least annually.
DISTRIBUTOR: BISYS Fund Services Limited Partnership d/b/a BISYS Fund
Services ("BISYS").
3
<PAGE> 155
FEE TABLE
<TABLE>
<CAPTION>
GOVERNMENT PENNSYLVANIA
INCOME FUND SECURITIES FUND BOND FUND
----------- --------------- ------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price).................... 4.50% 3.00% 4.50%
ESTIMATED ANNUAL FUND OPERATING EXPENSES (as a
percentage of average net assets)
Management Fees After Fee Waiver................... 0.30%(1) 0.30%(2) 0.30%(1)
12b-1 Fees......................................... None None None
Other Expenses(3).................................. 0.24 0.56 0.26
---- ---- ----
Estimated Total Fund Operating Expenses After Fee
Waiver........................................... 0.54%(1) 0.86%(2) 0.56%(1)
==== ==== ====
</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>
Income Fund................................................ $ 50 $62
Government Securities Fund................................. $ 39 $57
Pennsylvania Bond Fund..................................... $ 50 $62
</TABLE>
The purpose of the above table is to assist a potential purchaser of Shares of
a Fund in understanding the various costs and expenses that an investor in such
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 voluntarily to reduce its investment advisory fees with
respect to each of the Income Fund and the Pennsylvania Bond Fund to 0.30%
until further written notice to Shareholders. Absent such voluntary fee
waivers, Management Fees and Estimated Total Fund Operating Expenses for the
Income Fund would be 0.60% and 0.84%, respectively, and for the Pennsylvania
Bond Fund, would be 0.60% and 0.86%, respectively.
2 For the Government Securities Fund, the Adviser has agreed voluntarily to
waive all of its investment advisory fee until January 1, 1998, and thereafter
to reduce such fee to 0.30% until further written notice to Shareholders.
Absent any such waiver or reductions, Management Fees and Estimated Total Fund
Operating Expenses for the Government Securities Fund would be 0.60% and
1.16%, respectively.
3 "Other Expenses" are estimated for the current fiscal year.
4
<PAGE> 156
FINANCIAL HIGHLIGHTS
The Funds are three separate funds of the Group. The table below sets forth
certain information concerning the investment results of each Fund since its
inception. Further financial information is included in the Statement of
Additional Information. The Financial Highlights contained in the following
table for the Income Fund and the Pennsylvania Bond Fund have been audited by
KPMG Peat Marwick LLP, independent certified public accountants for the Funds,
whose report on the period ended June 30, 1997, is included in the Statement of
Additional Information, which may be obtained by Shareholders.
The Financial Highlights contained in the table below for the Government
Securities Fund have not been audited.
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM COMMENCEMENT COMMENCEMENT
OF OPERATIONS THROUGH OF OPERATIONS THROUGH
JUNE 30, 1997(a) SEPTEMBER 30, 1997(a)
------------------------------ ----------------------
PENNSYLVANIA GOVERNMENT
INCOME FUND BOND FUND SECURITIES FUND
----------- ------------ ----------------------
(UNAUDITED)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...... $ 10.00 $ 10.21 $ 10.00
Investment Activities:
Net investment income................... 0.36 0.34 0.15
Net realized and unrealized gains
(losses) on investments.............. (0.23) 0.06 (0.01)
--------- -------- --------
Total from Investment Activities.......... 0.13 0.40 0.14
--------- -------- --------
Distributions:
Net investment income................... (0.36) (0.32) (0.15)
Net realized goals...................... -- -- --
--------- -------- --------
Total Distributions..................... (0.36) (0.32) (0.15)
--------- -------- --------
NET ASSET VALUE, END OF PERIOD............ $ 9.77 $ 10.29 $ 9.99
========= ======== ========
RATIOS/SUPPLEMENTAL DATA:
Total Return (excludes sales charge) 1.40%(b) 3.98%(b) 1.36%(b)
Net Assets, at end of period (000)........ $ 207,859 $123,194 $ 35,867
Ratio of expenses to average net asset 0.37%(c) 0.37%(c) 0.56%(c)
Ratio of net investment income to average
net assets.............................. 6.45%(c) 4.46%(c) 5.83%(c)
Ratio of expenses to average net
assets*................................. 0.84%(c) 0.86%(c) 1.16%(c)
Ratio of net investment income to average
net assets*............................. 5.98%(c) 3.97%(c) 5.23%(c)
Portfolio turnover........................ 329% 98% 316%
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Commencement of operations of the Income Fund was December 2, 1996. The
commencement of operations of the Pennsylvania Bond Fund was October 1,
1996. The commencement of operations of the Government Securities Fund was
July 1, 1997.
(b) Not annualized.
(c) Annualized.
5
<PAGE> 157
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing the Funds'
average annual total return, aggregate total return, yield and/or tax equivalent
yield may be presented in advertisements, sales literature and shareholder
reports. SUCH PERFORMANCE FIGURES ARE BASED ON HISTORICAL PERFORMANCE AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. Average annual total return will be
calculated for the period since commencement of operations for a Fund (or its
respective predecessor collective investment or common trust funds) and will
reflect the imposition of the maximum sales charge. 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. Aggregate total return is
calculated similarly to average annual total return except that the return
figure is aggregated over the relevant period instead of annualized. Yield will
be computed by dividing a Fund's net investment income per share earned during a
recent one-month period by that Fund's per share maximum offering price (reduced
by any undeclared earned income expected to be paid shortly as a dividend) on
the last day of the period and annualizing the result. Tax equivalent yield of
the Pennsylvania Bond Fund demonstrates the taxable yield necessary to produce
an after-tax yield equivalent to the yield of that Fund. Each of the Funds may
also present its average annual total return, aggregate total return, yield and
tax equivalent yield, as the case may be, excluding the effect of a sales
charge.
Each of the Income Fund and the Government Securities Fund was initially
funded by the transfer of all of the assets of certain corresponding collective
investment and common trust funds managed by the Adviser (collectively, the
"CIFs"). Because the management of such Funds is substantially the same as their
respective corresponding CIFs, the quoted performance of those Funds will
include the performance of their respective CIFs for the periods prior to the
effectiveness of the Group's registration statement as it relates to these
Funds. Such performance will be restated to reflect the estimated current fees
of the applicable 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 each 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 a Fund over a
twelve-month period by the maximum offering price per share at the end of that
period. The calculation of income in the distribution rate includes both income
and capital gain dividends and does not reflect unrealized gains or losses,
although a Fund may also present a distribution rate excluding the effect of
capital gains and/or a sales charge. The distribution rate differs from the
yield because it includes capital gain dividends which are often non-recurring
in nature, whereas yield does not include such items.
Investors may also judge the performance of a Fund by comparing or referencing
it to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices and to
data prepared by various services, which indices or data may be published by
such services or by other services or publications. In addition to performance
information, general information about the 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. Conse-
6
<PAGE> 158
quently, 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 a Fund will not be included in performance calculations;
such fees, if charged, will reduce the actual performance from that quoted. In
addition, if the Adviser or BISYS voluntarily reduces all or part of its fees
for a Fund, as discussed below, the yield and total return for that Fund will be
higher than they would otherwise be in the absence of such voluntary fee
reductions.
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
The investment objectives for the Income Fund are current income with
long-term growth of capital as a secondary objective. The investment objectives
for the Government Securities Fund are current income with preservation of
capital as a secondary objective. The investment objectives of the Pennsylvania
Bond Fund are (1) income which is exempt from federal income tax and
Pennsylvania state income tax, although such income may be subject to the
federal alternative minimum tax when received by certain Shareholders, and (2)
preservation of capital.
The 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 any
Fund will be achieved.
THE INCOME FUND
Generally. Under normal market conditions, the Income Fund will invest
substantially all, but under such conditions in no event less than 65%, of its
total assets in fixed income securities of all types, including variable and
floating rate securities and variable amount master demand notes. A portion of
the Income Fund (but under normal market conditions no more than 35% of its
total assets) may be invested in securities of other investment companies,
preferred stocks and, for cash management purposes, Short-Term Obligations, and
the Income Fund may engage in other investment techniques described below. Fixed
income securities include bonds, debentures, notes, mortgage-backed and
asset-backed securities, state, municipal or industrial revenue bonds,
obligations issued or supported as to principal and interest by the U.S.
Government or its agencies or instrumentalities ("Government Obligations") and
debt securities convertible into, or exchangeable for, common stocks. In
addition, a portion of the Income Fund may from time to time be invested in
participation certificates in pools of mortgages issued or guaranteed by the
U.S. Government or its agencies or instrumentalities.
"Short-Term Obligations" consist of obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities (including U.S. Treasury
securities stripped of the unmatured interest coupons and such stripped interest
coupons), with maturities of 12 months or less, certificates of deposit,
bankers' acceptances and demand and time deposits of selected banks, securities
of money market mutual funds, and commercial paper rated in one of the two
highest rating categories by appropriate nationally recognized statistical
rating organizations ("NRSROs," e.g., Standard & Poor's Corporation and Moody's
Investors Services, Inc.) and repurchase agreements collateralized by such
obligations. These obligations are described further in the Statement of
Additional Information. The Income Fund may also invest up to 100% of its total
assets in Short-Term Obligations and cash when deemed appropriate for temporary
defensive purposes as determined by the Adviser to be warranted due to current
or anticipated market conditions. However, to the extent that the Income Fund is
so invested, it may not achieve its investment objectives.
Under normal market conditions, the Income Fund expects to invest primarily in
Government Obligations, mortgage-backed securities and in
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debt obligations of United States corporations. The Income Fund also intends
that, under normal market conditions, its portfolio will maintain a
dollar-weighted average maturity of three to ten years.
The Income Fund expects to invest in a variety of U.S. Treasury obligations,
differing in their interest rates, maturities, and times of issuance, and other
Government Obligations. Obligations of certain agencies and instrumentalities of
the U.S. Government, such as the Government National Mortgage Association
("GNMA") and the Export-Import Bank of the United States, are supported by the
full faith and credit of the U.S. Treasury; others, such as those of the Federal
National Mortgage Association ("FNMA"), are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Student Loan Marketing
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Federal
Farm Credit Banks or the Federal Home Loan Mortgage Corporation ("FHLMC"), are
supported only by the credit of the instrumentality. No assurance can be given
that the U.S. Government would provide financial support to U.S.
Government-sponsored agencies or instrumentalities if it is not obligated to do
so by law. The Income Fund will invest in the obligations of such agencies or
instrumentalities only when the Adviser believes that the credit risk with
respect thereto is minimal.
The Income Fund also expects to invest in bonds, notes and debentures of a
wide range of U.S. corporate issuers. Such obligations may be secured or
unsecured promises to pay and will in most cases differ in their interest rates,
maturities and times of issuance.
Except as noted in the next paragraph, the Income Fund invests only in debt
securities which are rated at the time of purchase within the four highest
rating groups assigned by one or more appropriate NRSROs or, if unrated, which
the Adviser deems to be of comparable quality to securities so rated. For a
description of the rating symbols of the NRSROs, see the Appendix to the
Statement of Additional Information. For a discussion of debt securities rated
within the fourth highest rating group assigned by an NRSRO, see "Risk Factors
and Investment Techniques--Medium Grade Securities" below.
The Income Fund may also invest up to 20% of the value of its net assets in
debt securities which, in the case of bonds, are rated lower than the fourth
highest rating group by an appropriate NRSRO and as low as "B" by an appropriate
NRSRO. Investments rated Ba or lower by Moody's Investors Services, Inc.
("Moody's") and BB or lower by Standard & Poor's Corporation ("S&P") ordinarily
provide higher yields but involve greater risk because of their speculative
characteristics. Debt rated B by S&P is regarded, on balance, as predominately
speculative with respect to the capacity to pay interest and repay principal in
accordance with the terms of the obligation.
The Income Fund may also invest in U.S. dollar denominated international bonds
for which the primary trading market is in the United States ("Yankee Bonds"),
or for which the primary trading market is abroad ("Eurodollar Bonds"), and in
Canadian Bonds and bonds issued by institutions organized for a specific
purpose, such as the World Bank and the European Economic Community, by two or
more sovereign governments ("Supranational Agency Bonds").
Mortgage-Backed Securities. The Income Fund also invests in mortgage-backed
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or by nongovernmental entities which are rated, at the time of
purchase, within the four highest bond rating categories assigned by one or more
appropriate NRSROs, or, if unrated, which the Adviser deems to be of comparable
quality to securities so rated. There are currently three basic types of
mortgage-backed securities: (1) those issued or guaranteed by the U.S.
Government or one of its agencies or instrumentalities, such as GNMA, FNMA and
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FHLMC; (2) those issued by private issuers that represent an interest in or are
collateralized by mortgage-backed securities issued or guaranteed by the U.S.
Government or one of its agencies or instrumentalities; and (3) those issued by
private issuers that represent an interest in or are collateralized by whole
mortgage loans or mortgage-backed securities without a government guarantee but
usually having some form of private credit enhancement.
Such mortgage-backed securities may have mortgage obligations directly backing
such securities, including among others, conventional thirty year fixed rate
mortgage obligations, graduated payment mortgage obligations, fifteen year
mortgage obligations and adjustable rate mortgage obligations. All of these
mortgage obligations can be used to create pass-through securities. A
pass-through security is created when mortgage obligations are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgage obligations is passed through to the holders of the securities in the
form of periodic payments of interest, principal and prepayments (net of a
service fee). Prepayments occur when the holder of an individual mortgage
obligation prepays the remaining principal before the mortgage obligation's
scheduled maturity date.
As a result of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed securities are often subject to more rapid
prepayment of principal than their stated maturity would indicate. Because the
prepayment characteristics of the underlying mortgage obligations vary, it is
not possible to predict accurately the realized yield or average life of a
particular issue of pass-through certificates. Prepayment rates are important
because of their effect on the yield and price of the securities. In addition,
prepayment rates will be used to determine a security's estimated average life
and the Income Fund's dollar-weighted average portfolio maturity. Accelerated
prepayments have an adverse impact on yields for pass-through securities
purchased at a premium (i.e., a price in excess of principal amount) and may
involve additional risk of loss of principal because the premium may not have
been fully amortized at the time the obligations are repaid. The opposite is
true for pass-through securities purchased at a discount. The Income Fund may
purchase mortgage-related securities at a premium or a discount. Reinvestment of
principal payments may occur at higher or lower rates than the original yield on
such securities. Due to the prepayment feature and the need to reinvest payments
and prepayments of principal at current rates, mortgage-related securities can
be less effective than typical bonds of similar maturities at maintaining yields
during periods of declining interest rates.
Collateralized Mortgage Obligations. The Income Fund may also acquire
collateralized mortgage obligations or "CMOs" and stripped mortgage-backed
securities. CMOs are debt obligations collateralized by mortgage loans or
mortgage pass-through securities. Typically, CMOs are collateralized by GNMA,
FNMA or FHLMC certificates, but also may be collateralized by whole loans or
private mortgage pass-through securities (such collateral collectively referred
to as "Mortgage Assets"). Payments of principal or interest on the Mortgage
Assets, and any reinvestment income thereon, provide the funds to pay debt
service on the CMOs. CMOs may be issued by agencies or instrumentalities of the
U.S. Government or by private originators of, or investors in, mortgage loans.
IOs and POs. Stripped mortgage-backed securities are securities representing
interests in a pool of mortgages the cash flow from which has been separated
into interest and principal components. "IOs" (interest only securities) receive
the interest portion of the cash flow while "POs" (principal only securities)
receive the principal portion. Stripped mortgage-backed securities may be issued
by U.S. Government agencies or by private issuers, such as mortgage banks,
commercial banks, investment banks, savings and loan associations and special
purpose subsidiaries of the foregoing. As interest rates rise and fall, the
value of IOs tends to move in the same direction
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as interest rates. The value of other mortgage-backed securities described
herein, like other debt instruments, will tend to move in the opposite direction
compared to interest rates. POs perform best when prepayments on the underlying
mortgages rise since this increases the rate at which the investment is returned
and the yield to maturity on the PO. When payments on mortgages underlying a PO
are slow, the life of the PO is lengthened and the yield to maturity is reduced.
The Income Fund may purchase stripped mortgage-backed securities for hedging
purposes to protect the Income Fund against interest rate fluctuations. For
example, since an IO will tend to increase in value as interest rates rise, it
may be utilized to hedge against a decrease in value of other fixed-income
securities in a rising interest rate environment. If the Income Fund purchases a
mortgage-related security at a premium, all or part of the premium 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. Moreover, with respect to stripped mortgage-backed securities, if
the underlying mortgage securities experience greater than anticipated
prepayments of principal, the Income Fund may fail to recoup fully its initial
investment in these securities even if the securities are rated in the highest
rating category by an NRSRO. Stripped mortgage-backed securities may exhibit
greater price volatility than ordinary debt securities because of the manner in
which their principal and interest are returned to investors. The market value
of the class consisting entirely of principal payments can be extremely volatile
in response to changes in interest rates. The yields on stripped mortgage-backed
securities that receive all or most of the interest are generally higher than
prevailing market yields on other mortgage-backed obligations because their cash
flow patterns are also volatile and there is a greater risk that the initial
investment will not be fully recouped. No more than 10% of the Income Fund's
total assets will be invested in IOs and in POs.
Asset-Backed Securities. Asset-backed securities are similar to
mortgage-backed securities except that instead of using mortgages to
collateralize the obligations, a broad range of other assets may be used as
collateral, primarily automobile and credit card receivables and home equity
loans. Such receivables and loans are securitized in pass-through structures
similar to the mortgage pass-through or pay-through structures described above.
Certain debt securities such as, but not limited to, mortgage-backed
securities, CMOs and asset-backed securities, as well as other securities
subject to prepayment of principal prior to the stated maturity date, are
expected to be repaid prior to their stated maturity dates. As a result, the
effective maturity of these securities is expected to be shorter than the stated
maturity. For purposes of compliance with stated maturity policies and
calculation of the Income Fund's dollar-weighted average maturity, the effective
maturity of such securities will be used.
Variable Amount Master Demand Notes. Variable amount master demand notes in
which the Income Fund may invest are unsecured demand notes that permit the
indebtedness thereunder to vary and that provide for periodic adjustments in the
interest rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between the Income Fund and the issuer,
they are not normally traded. Although there is no secondary market in the
notes, the Income Fund may demand payment of principal and accrued interest at
any time. While the notes are not typically rated by NRSROs, the Adviser must
determine them to be of comparable credit quality to commercial paper in which
the Income Fund could invest. The Adviser will consider the earning power, cash
flow, and other liquidity ratios of the issuers of such notes and will
continuously monitor their financial status and ability to meet payment on
demand. In determining dollar-weighted average
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portfolio maturity, a variable amount master demand note will be deemed to have
a maturity equal to the period of time remaining until the principal amount can
be recovered from the issuer through demand.
THE 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 Government Obligations and in repurchase agreements
backed by such securities. Government Obligations which the Government
Securities Fund may purchase also include mortgage-backed securities, variable
and floating rate securities and zero coupon securities, as described more fully
above under "The Income Fund." Under current 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.
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.
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
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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 one to three years under normal market conditions, there is no limit
as the maturity of any one security which the Government Securities Fund may
purchase.
THE PENNSYLVANIA BOND FUND
Generally. Under normal market conditions, at least 80% of the net assets of
the Pennsylvania Bond Fund are invested in a portfolio of debt obligations
consisting of bonds, notes, commercial paper and certificates of indebtedness,
issued by or on behalf of the Commonwealth of Pennsylvania, or any county,
political subdivision or municipality thereof (including any agency, board,
authority or commission of any of the foregoing), the interest on which, in the
opinion of bond counsel to the issuer, is exempt from federal and Pennsylvania
income taxes (but may be treated as a preference item for individuals for
purposes of the federal alternative minimum tax) ("Pennsylvania Exempt
Securities") and in debt obligations issued by the Government of Puerto Rico and
such other governmental entities whose debt obligations, either by law or
treaty, generate interest income which is exempt from federal and Pennsylvania
state income taxes (but may be treated as a preference item for individuals for
purposes of the federal alternative minimum tax) (together, with Pennsylvania
Exempt Securities, called "Exempt Securities"). In addition, under normal market
conditions, at least 65% of the Pennsylvania Bond Fund's net assets are invested
in Pennsylvania Exempt Securities. As a matter of fundamental policy, under
normal market conditions, at least 80% of the net assets of the Pennsylvania
Bond Fund are invested in securities, the interest on which is exempt from
federal income tax but may be subject to the federal alternative minimum tax
when received by certain Shareholders. To the extent such securities are not
Pennsylvania Exempt Securities, the income therefrom may be subject to
Pennsylvania income taxes. With respect to the Pennsylvania Bond Fund's
objective of preserving capital, the Adviser will attempt to protect principal
value in a rising interest rate environment and enhance principal value in a
declining interest rate environment. Of course, there can be no assurance that
the Pennsylvania Bond Fund will achieve its investment objectives.
The two principal classifications of Exempt Securities which may be held by
the Pennsylvania Bond Fund are "general obligation" securities and "revenue"
securities. General obligation securities are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from proceeds of a
special excise tax or other specific revenue source such as the user of
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the facility being financed. Private activity bonds held by the Pennsylvania
Bond Fund are in most cases revenue securities and are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
The Pennsylvania Bond Fund may also invest in "moral obligation" securities,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment but not a legal obligation of the state or municipality
which created the issuer.
The Pennsylvania Bond Fund invests in Exempt Securities which are rated at the
time of purchase within the four highest rating groups assigned by one or more
NRSROs for bonds and within the two highest rating groups for notes, tax-exempt
commercial paper, or variable rate demand obligations, as the case may be. The
Pennsylvania Bond Fund may also purchase Exempt Securities which are unrated at
the time of purchase but are determined to be of comparable quality by the
Adviser. The applicable Exempt Securities ratings are described in the Appendix
to the Statement of Additional Information. For a discussion of debt securities
rated within the fourth highest rating group assigned by an NRSRO, see "Risk
Factors and Investment Techniques--Medium Grade Securities" below.
The Pennsylvania Bond Fund may invest up to 20% of the value of its net assets
in Exempt Securities which, in the case of bonds, are rated lower than the
fourth highest rating group by an appropriate NRSRO and as low as "B" by an
appropriate NRSRO. Investments rated Ba or lower by Moody's and BB or lower by
S&P ordinarily provide higher yields but involve greater risk because of their
speculative characteristics. Debt rated B by S&P is regarded, on balance, as
predominately speculative with respect to the capacity to pay interest and repay
principal in accordance with the terms of the obligation.
The Pennsylvania Bond Fund expects to maintain a dollar-weighted average
portfolio maturity of three to ten years. Within this range, the Adviser may
vary the average maturity substantially in anticipation of a change in the
interest rate environment. There is no limit as to the maturity of any
individual security.
The Pennsylvania Bond Fund may hold uninvested cash reserves pending
investment during temporary defensive periods or if, in the opinion of the
Adviser, suitable Exempt Securities are unavailable. There is no percentage
limitation on the amount of assets which may be held uninvested. Uninvested cash
reserves will not earn income.
Other Investments. Under normal market conditions, at least 80% of the net
assets of the Pennsylvania Bond Fund will be invested in Exempt Securities.
However, up to 20% of the net assets of the Pennsylvania Bond Fund may be
invested in municipal obligations of other states, and any political
subdivision, county or municipality thereof, which are not Exempt Securities and
in taxable obligations if, for example, suitable Exempt Securities are
unavailable or for cash management purposes. In addition, the Pennsylvania Bond
Fund may invest up to 100% of its assets in such securities when deemed
appropriate for temporary defensive purposes as determined by the Adviser to be
warranted due to market conditions. Such taxable obligations consist of
Government Obligations and Short-Term Obligations. These obligations are
described further above and in the Statement of Additional Information. Under
such circumstances and during the period of such investment, the Pennsylvania
Bond Fund may not achieve its stated investment objectives.
The Pennsylvania Bond Fund has no limit to the extent that it may invest its
net assets in Exempt Securities, the interest income from which may be treated
as a preference item for purposes of the federal alternative minimum tax. To the
extent the Pennsylvania Bond Fund invests in
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these securities, individual Shareholders, depending on their own tax status,
may be subject to alternative minimum tax on that part of the Pennsylvania Bond
Fund's distributions derived from these bonds. For further information relating
to the types of Exempt Securities which will be included in income subject to
alternative minimum tax, see "ADDITIONAL INFORMATION-- Additional Tax
Information With Respect to the Pennsylvania Bond Fund" in the Statement of
Additional Information.
Opinions relating to the validity of Exempt Securities and to the exemption of
interest thereon from federal and Pennsylvania state income taxes are normally
rendered by bond counsel to the respective issuers at the time of issuance.
Neither the Pennsylvania Bond Fund nor the Adviser will review the proceedings
relating to the issuance of Exempt Securities or the basis for such opinions.
Floating and Variable Rate Securities and Zero Coupon Securities. Exempt
Securities purchased by the Pennsylvania Bond Fund may include rated and unrated
variable and floating rate obligations the interest on which is tax-exempt. The
Pennsylvania Bond Fund may also invest in zero coupon securities. Such
securities are more fully described below under "Risk Factors and Investment
Techniques."
The Pennsylvania Bond Fund may also purchase floating and variable rate demand
notes and bonds, which are tax exempt obligations ordinarily having stated
maturities in excess of one year, but which permit the holder to demand payment
of principal at any time, or at specified intervals. Variable rate demand notes
include master demand notes which are obligations that permit the Pennsylvania
Bond Fund to invest fluctuating amounts, at varying rates of interest, pursuant
to direct arrangements between the Pennsylvania Bond Fund, as lender, and the
borrower. These obligations permit daily changes in the amount borrowed.
Frequently, such obligations are secured by letters of credit or other credit
support arrangements provided by banks. Use of letters of credit or other credit
support arrangements will not adversely affect the tax-exempt status of these
obligations. Because these obligations are direct lending arrangements between
the lender and borrower, it is not contemplated that such instruments generally
will be traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value, plus accrued interest.
Accordingly, where these obligations are not secured by letters of credit or
other credit support arrangements, the Pennsylvania Bond Fund's right to redeem
is dependent on the ability of the borrower to pay principal and interest on
demand. Each obligation purchased by the Pennsylvania Bond Fund will meet the
quality criteria established for the purchase of Exempt Securities. The Adviser
will consider on an ongoing basis the creditworthiness of the issuers of the
floating and variable rate demand obligations in the Pennsylvania Bond Fund's
portfolio.
Participation Interests. The Pennsylvania Bond Fund may purchase from
financial institutions participation interests in Exempt Securities (such as
industrial development bonds and municipal lease/purchase agreements). A
participation interest gives the Pennsylvania Bond Fund an undivided interest in
the Exempt Security in the proportion that the Pennsylvania Bond Fund's
participation interest bears to the total principal amount of the Exempt
Security. These instruments may have fixed, floating or variable rates of
interest. If the participation interest is unrated, it will be backed by an
irrevocable letter of credit or guarantee of a bank that the Board of Trustees
has determined meets the prescribed quality standards for banks in whose
securities the Pennsylvania Bond Fund may invest, or the payment obligation
otherwise will be collateralized by Government Obligations. For certain
participation interests, the Pennsylvania Bond Fund will have the right to
demand payment, on not more than seven days' notice, for all or any part of the
Pennsylvania Bond Fund's participation interest in the Exempt Security, plus
accrued interest. As to these instruments, the Pennsylvania Bond Fund intends to
exercise its right to demand payment
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only upon a default under the terms of the Exempt Security, as needed to provide
liquidity to meet redemptions, or to maintain or improve the quality of its
investment portfolio.
Custodial Receipts. The Pennsylvania Bond Fund may purchase custodial
receipts representing the right to receive certain future principal and interest
payments on Exempt Securities which underlie the custodial receipts. A number of
different arrangements are possible. In a typical custodial receipt arrangement,
an issuer or a third party owner of Exempt Securities deposits such obligations
with a custodian in exchange for two classes of custodial receipts. The two
classes have different characteristics, but, in each case, payments on the two
classes are based on payments received on the underlying Exempt Securities. One
class has the characteristics of a typical auction rate security, where at
specified intervals its interest rate is adjusted, and ownership changes, based
on an auction mechanism. This class' interest rate generally is expected to be
below the coupon rate of the underlying Exempt Securities and generally is at a
level comparable to that of an Exempt Security of similar quality and having a
maturity equal to the period between interest rate adjustments. The second class
bears interest at a rate that exceeds the interest rate typically borne by a
security of comparable quality and maturity; this rate also is adjusted, but in
this case inversely to changes in the rate of interest of the first class. If
the interest rate on the first class exceeds the coupon rate of the underlying
Exempt Securities, its interest rate will exceed the rate paid on the second
class. In no event will the aggregate interest paid with respect to the two
classes exceed the interest paid by the underlying Exempt Securities. The value
of the second class and similar securities should be expected to fluctuate more
than the value of an Exempt Security of comparable quality and maturity and
their purchase by the Pennsylvania Bond Fund should increase the volatility of
its net asset value and, thus, its price per share. These custodial receipts are
sold in private placements. The Pennsylvania Bond Fund also may purchase
directly from issuers, and not in a private placement, Exempt Securities having
characteristics similar to custodial receipts. These securities may be issued as
part of a multi-class offering and the interest rate on certain classes may be
subject to a cap or a floor.
The Pennsylvania Bond Fund may use one or more of the investment techniques
described below. Use of such techniques may cause the Pennsylvania Bond Fund to
earn income which would be taxable to its Shareholders.
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in any of the Funds entails certain
risks. Since each Fund invests in bonds, investors in such a 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. The values of debt securities also may be affected by change in the credit
rating or financial condition of the issuing entities. While bonds normally
fluctuate less in price than stocks, there have been in the recent past extended
periods of cyclical increases in interest rates that have caused significant
declines in bond prices and have caused the effective maturity of securities
with prepayment features to be extended, thus effectively converting short or
intermediate term securities (which generally have less market risk and less
fluctuation in market value) into longer term securities (the prices of which
generally are more volatile).
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
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Adviser will consider many factors other than current yield, including the
preservation of capital, maturity, and yield to maturity.
Each Fund's net asset value generally will not be stable and should fluctuate
based upon changes in the value of such Fund's portfolio securities. Depending
upon the performance of each Funds' investments, the net asset value per share
of a Fund may decrease instead of increase.
The Adviser manages the Funds generally without regard to restrictions on
portfolio turnover, except those imposed by provisions of the federal tax laws
regarding short-term trading. Especially with respect to the Income Fund and the
Government Securities Fund, the Adviser intends to manage actively those Funds'
portfolios, which may result in high portfolio turnover rates. For more
information regarding the effects of high portfolio turnover see "Portfolio
Turnover" below.
Each Fund may invest in any one or more of the following securities: certain
variable or floating rate securities, and, as described below, the Income Fund
and the Government Securities Fund may invest in mortgage-backed securities, and
the Income Fund and the Pennsylvania Bond Fund may invest in put and call
options and futures. Such instruments are 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. Certain derivatives that may be purchased by
a Fund, such as those with interest rates that fluctuate directly or indirectly
based on multiples of a stated index, are designed to be highly sensitive to
changes in interest rates and can subject the holders thereof to extreme
reductions of yield and possibly loss of principal. Neither the Income Fund nor
the Government Securities Fund will invest more than 20% of its total assets in
any such derivatives at any one time, except that there is no limitation on the
amount of a Fund's total assets which may be invested in variable or floating
rate obligations. There is no limit on the amount of the Pennsylvania Bond
Fund's assets that may be invested in derivatives.
Risks of Non-Diversification. Potential Shareholders should consider the fact
that the Pennsylvania Bond Fund's portfolio consists primarily of securities
issued by the Commonwealth of Pennsylvania (the "Commonwealth"), its
municipalities and authorities and should realize that the Pennsylvania Bond
Fund's performance is closely tied to general economic conditions within the
Commonwealth as a whole and to economic conditions within particular industries
and geographic areas located within the Commonwealth.
Although the General Fund of the Commonwealth (the principal operating fund of
the Commonwealth) experienced deficits in fiscal 1990 and 1991, tax increases
and spending decreases have resulted in surpluses the last four years; as of
June 30, 1996, the General Fund had a surplus of $635.2 million. The deficit in
the Commonwealth's unreserved/undesignated funds also has been eliminated.
Pennsylvania's economy historically has been dependent upon heavy industry,
but has diversified recently into various services, particularly into medical
and health services, education and financial services. Agricultural industries
continue to be an important part of the economy, including not only the
production of diversified food and livestock products, but substantial economic
activity in agribusiness and food-related industries. Service industries
currently employ the greatest share of nonagricultural workers, followed by the
categories of trade and manufacturing. Future economic difficulties in any of
these industries could have an adverse impact on the finances of the
Commonwealth or its municipalities, and could adversely affect the market value
of the Pennsylvania Exempt Securities in the Pennsylvania Bond Fund or the
ability of the respective obligors to make payments of interest and principal
due on such Securities.
Certain litigation is pending against the Commonwealth that could adversely
affect the ability
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of the Commonwealth to pay debt service on its obligations including suits
relating to the following matters: (i) the ACLU has filed suit in federal court
demanding additional funding for child welfare services; the Commonwealth
settled a similar suit in the Commonwealth Court of Pennsylvania and is seeking
the dismissal of the federal suit, inter alia because of that settlement. After
its earlier denial of class certification was reversed by the Third Circuit
Court of Appeals, the district court granted class certification to the ACLU and
the parties are proceeding with discovery. (No available estimate of potential
liability); (ii) in 1987, the Supreme Court of Pennsylvania held the statutory
scheme for county funding of the judicial system to be in conflict with the
constitution of the Commonwealth, but stayed judgment pending enactment by the
legislature of funding consistent with the opinion, and the legislature has yet
to consider legislation implementing the judgment. In 1997, the Court
established a tripartite committee to develop an implementation plan; (iii)
litigation has been filed in both state and federal court by an association of
rural and small schools and several individual school districts and parents
challenging the constitutionality of the Commonwealth's system for funding local
school districts--the federal case has been stayed pending the resolution of the
state case; in the state case, the trial, briefing and argument have been
completed as of September, 1997, and the presiding judge has taken the case
under advisement (no available estimates of potential liability); (iv)
Envirotest/Synterra Partners ("Envirotest") has filed suit against the
Commonwealth asserting that it sustained damages in excess of $350 million, as a
result of investments it made in reliance on a contract to conduct emissions
testing before the emission testing program was suspended. Envirotest has
entered into a Standstill Agreement with the Commonwealth pursuant to which
Envirotest will receive $145 million over four years through 1998; (v) the
Commonwealth of Pennsylvania, its governor, the City of Philadelphia and its
mayor were joined in an enforcement action commenced in 1973 against the School
District of Philadelphia pursuant to the Pennsylvania Human Relations Act. The
enforcement action was pursued to remedy unintentional segregation in the public
schools in Philadelphia. The Supreme Court of Pennsylvania has outlined a
briefing schedule to resolve this matter (no available estimates of potential
liability); and (vi) in 1997, a group including residents, non-profit groups,
the City of Philadelphia and the School District of Philadelphia brought an
action seeking a declaratory judgment against the Commonwealth for failing to
fulfill its obligation to provide an adequate educational system for the City of
Philadelphia (no available estimates of potential liability).
Although there can be no assurance that such conditions will continue, the
Commonwealth's general obligation bonds are currently rated AA- by S&P and A1 by
Moody's, and Philadelphia's and Pittsburgh's general obligation bonds are
currently rated BBB- and BBB+ respectively by S&P and Baa and Baa1 respectively
by Moody's.
The City of Philadelphia (the "City") experienced a series of General Fund
deficits for Fiscal Years 1988 through 1992 and, while its general financial
situation has improved, the City is still seeking a long-term solution for its
economic difficulties. The audited balance of the City's General Fund as of June
30, 1996 was a surplus of $118.5 million up from a surplus of approximately
$80.5 million as of June 30, 1995.
In recent years an authority of the Commonwealth, the Pennsylvania
Intergovernmental Cooperation Authority ("PICA"), has issued approximately $1.76
billion of Special Revenue Bonds on behalf of the City to cover budget
shortfalls, to eliminate projected deficits and to fund capital spending. PICA
provides assistance regarding the City's finances. The City is currently
operating under a five year plan approved by PICA in 1996. PICA's power to issue
further bonds to finance capital projects expired on December 31, 1994. PICA's
authority to issue bonds to finance cash flow deficits expired December 31,
1996, and its authority to refund existing debt will not expire.
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The Pennsylvania Bond Fund's classification as "non-diversified" means that
the proportion of the Pennsylvania Bond Fund's assets that may be invested in
the securities of a single issuer is not limited by the 1940 Act. However, the
Pennsylvania Bond Fund intends to conduct its operations so as to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"), which requires the Pennsylvania Bond Fund
generally to invest as of the end of each fiscal quarter, with respect to 50% of
its total assets, not more than 5% of such assets in the obligations of a single
issuer; as to the remaining 50% of its total assets, the Pennsylvania Bond Fund
is not so restricted. In no event, however, may the Pennsylvania Bond Fund
invest more than 25% of its total assets in the obligations of any one issuer as
of the end of each fiscal quarter. Since a relatively high percentage of the
Pennsylvania Bond Fund's assets may be invested in the obligations of a limited
number of issuers, some of which may be within the same economic sector, the
Pennsylvania Bond Fund's portfolio securities may be more susceptible to any
single economic, political or regulatory occurrence than the portfolio
securities of a diversified investment company.
Variable and Floating Rate Obligations. Securities purchased by the Funds may
include rated and unrated 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.
A floating rate obligation is one whose terms provide for the adjustment of
its interest rate whenever a specified interest rate changes and which, at any
time, can reasonably be expected to have a market value that approximates its
par value. Such obligations are frequently not rated by credit rating agencies;
however, unrated variable and floating rate obligations purchased by a Fund will
be determined by the Adviser to be of comparable quality at the time of purchase
to rated instruments eligible for purchase under such Fund's investment
policies. In making such determinations, the Adviser will consider the earning
power, cash flow and other liquidity ratios of the issuers of such obligations
and will continuously monitor their financial condition.
Although there may be no active secondary market with respect to a particular
variable or floating rate obligation purchased by a Fund, the Fund may attempt
to resell the obligation at any time to a third party. The absence of an active
secondary market, however, could make it difficult for a Fund to dispose of a
variable or floating rate obligation in the event the issuer of the obligation
defaulted on its payment obligations and the Fund could, as a result or for
other reasons, suffer a loss to the extent of the default. Variable or floating
rate obligations may be secured by bank letters of credit.
In the event the interest rate of a variable or floating rate obligation is
established by reference to an index or an interest rate that may from time to
time lag behind other market interest rates, there is the risk that the market
value of such obligation, on readjustment of its interest rate, will not
approximate its par value.
Variable and floating rate obligations for which no readily available market
exists and which are not subject to a demand feature that will permit the Fund
to receive payment of the principal within seven days after demand by that Fund,
will be considered illiquid and therefore, together with other illiquid
securities held by such Fund, will not exceed 15% of such Fund's net assets.
Zero Coupon Securities. Each Fund may each invest in zero coupon securities
which are debt securities issued or sold at a discount from their face value
which do not entitle the holder to any periodic payment of interest prior to
maturity or a specified redemption date (or cash payment date). The amount of
the discount varies depending on the time remaining until maturity or cash
payment date, prevailing interest rates, liquidity of the security and perceived
credit quality of the issuer. Zero coupon securities also may take the form of
debt securities that have been stripped of
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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. Federal income tax
law requires the holder of a zero coupon security or of certain pay-in-kind
bonds to accrue income with respect to these securities prior to the receipt of
cash payments. To maintain its qualification as a regulated investment company
and avoid liability for federal income taxes, a Fund may be required to
distribute such income accrued with respect to these securities and may have to
dispose of portfolio securities under disadvantageous circumstances in order to
generate cash to satisfy these distribution requirements. For further
information regarding zero coupon securities, see "Additional General Tax
Information" in the Statement of Additional Information.
Repurchase Agreements. Securities held by each of the Funds may be subject to
repurchase agreements. Under the terms of a repurchase agreement, a Fund would
acquire securities, in exchange for cash, from banks and/or registered
broker-dealers which the Adviser deems creditworthy under guidelines approved by
the Group's Board of Trustees. The seller agrees to repurchase such securities
at a mutually agreed date and price. The repurchase price generally equals the
price paid by the Fund plus interest negotiated on the basis of current
short-term rates, which may be more or less than the rate on the underlying
portfolio securities. Securities subject to repurchase agreements must be of the
same type and quality as those in which the Fund may invest directly. Repurchase
agreements are considered to be loans by a Fund under the 1940 Act. For further
information about repurchase agreements and the related risks, see "INVESTMENT
OBJECTIVES AND POLICIES--Additional Information on Portfolio Instruments--
Repurchase Agreements" in the Statement of Additional Information.
Reverse Repurchase Agreements. Each Fund may borrow funds by entering into
reverse repurchase agreements in accordance with the investment restrictions
described below. Pursuant to such agreements, a Fund would sell portfolio
securities to financial institutions such as banks and broker-dealers, and agree
to repurchase them at a mutually agreed-upon date and price. At the time a Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account assets such as U.S. Government Obligations or other liquid
securities consistent with the Fund's investment restrictions having a value
equal to the repurchase price (including accrued interest), and will continually
monitor the account to ensure that such equivalent value is maintained at all
times. Reverse repurchase agreements involve the risk that the market value of
the securities sold by 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. A Fund
generally will invest the proceeds of such borrowings only when such borrowings
will enhance the Fund's liquidity or when the Fund reasonably expects that the
interest income to be earned from the investment of the proceeds is greater than
the interest expense of the transaction. For further information about reverse
repurchase agreements, see "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
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correspondents with respect to such transactions, securities, savings deposits,
repurchase agreements, and reverse repurchase agreements.
Medium-Grade Securities. As described above, the Income Fund and the
Pennsylvania Bond Fund may each invest in debt securities within any of the six
highest rating groups assigned by an NRSRO, including debt securities within the
fourth highest rating group (e.g., BBB or Baa by S&P and Moody's, respectively)
and comparable unrated securities. Securities within the fourth highest rating
group are considered by Moody's to have some speculative characteristics, and
while interest payments and principal security appears adequate for the present,
such securities lack certain protective elements or may be characteristically
unreliable over any great period of time.
Should subsequent events cause the rating of a debt security purchased by a
Fund to fall below BBB or Baa, as the case may be, the Adviser will consider
such an event in determining whether that Fund should continue to hold that
security. In no event, however, would a Fund be required to liquidate any such
portfolio security where the Fund would suffer a loss on the sale of such
security.
Foreign Investments. Investments in foreign securities (including Yankee
Bonds, Eurodollar Bonds and Supranational Bonds) may subject the Income Fund to
investment risks that differ in some respects from those related to investments
in securities of U.S. domestic issuers. Such risks include future adverse
political and economic developments, the possible imposition of withholding
taxes on interest or other investment income, possible seizure, nationalization,
or expropriation of foreign deposits or investments, the possible establishment
of exchange controls or taxation at the source, less stringent disclosure
requirements, less liquid or developed securities markets or the adoption of
other foreign governmental restrictions which might adversely affect the payment
of principal, interest or dividends on such securities or the purchase or sale
thereof. In addition, foreign branches of U.S. banks and foreign banks may be
subject to less stringent reserve requirements and to different accounting,
auditing, reporting, and recordkeeping standards than those applicable to
domestic branches of U.S. banks. The Income Fund will acquire securities issued
by foreign branches of U.S. banks, foreign banks, or other foreign issuers only
when the Adviser believes that the risks associated with such instruments are
minimal.
Restricted Securities. Securities in which the Income Fund may invest include
securities issued by corporations without registration under the Securities Act
of 1933, as amended (the "1933 Act"), such as securities issued in reliance on
the so-called "private placement" exemption from registration which is afforded
by Section 4(2) of the 1933 Act ("Section 4(2) securities"). Section 4(2)
securities are restricted as to disposition under the Federal securities laws,
and generally are sold to institutional investors such as the Income Fund who
agree that they are purchasing the securities for investment and not with a view
to public distribution. Any resale must also generally be made in an exempt
transaction. Section 4(2) securities are normally resold, if at all, to other
institutional investors through or with the assistance of the issuer or
investment dealers who facilitate the resale of such Section 4(2) securities,
thus providing some liquidity.
Pursuant to procedures adopted by the Board of Trustees of the Group, the
Adviser may determine Section 4(2) securities to be liquid if such securities
are eligible for resale under Rule 144A under the 1933 Act and are readily
saleable. Rule 144A permits the Income Fund to purchase securities which have
been privately placed and resell such securities to certain qualified
institutional buyers without restriction. For purposes of determining whether a
Rule 144A security is readily saleable, and therefore liquid, the Adviser must
consider, among other things, the frequency of trades and quotes for the
security, the number of dealers willing to purchase or sell the security, the
number of potential purchasers and dealer undertakings to make a market in the
security, and the nature of the security and market-
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place trades of such security. However, investing in Rule 144A securities, even
if such securities are initially determined to be liquid, could have the effect
of increasing the level of the Income Fund's illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
these securities.
Short Sales. Each Fund may from time to time sell securities short. Short
sales are effected when the Adviser believes that the price of a particular
security will decline, and involve the sale of a security which a Fund does not
own in the hope of purchasing the same security at a later date at a lower
price. When a Fund sells a security short, it will borrow the same security from
a broker or other institution to complete the sale. A Fund may make a profit or
incur a loss depending upon whether the market price of the security sold short
decreases or increases between the date of the short sale and the date on which
the Fund must replace the borrowed security. An increase in the value of a
security sold short by a Fund over the price at which it was sold short will
result in a loss to that Fund, and there can be no assurance that a 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 a Fund will not sell
securities short if, immediately after and as a result of the sale, the value of
all securities sold short by that Fund exceeds 25% of its total assets.
Municipal Lease Obligations. Certain municipal lease/purchase obligations in
which the Pennsylvania Bond Fund may invest may contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease
payments in future years unless money is appropriated for such purpose on a
yearly basis. Although "non-appropriation" lease/purchase obligations are
secured by the leased property, disposition of the leased property in the event
of foreclosure might prove difficult. In evaluating the credit quality of a
municipal lease/purchase obligation that is unrated, the Adviser will consider,
on an ongoing basis, a number of factors including the likelihood that the
issuing municipality will discontinue appropriating funding for the leased
property.
Securities Lending. In order to generate additional income, each Fund may,
from time to time, lend its portfolio securities to broker-dealers, banks, or
institutional borrowers of securities. A Fund must receive 100% collateral in
the form of cash or U.S. Government Obligations. 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 the
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. No Fund will lend
more than 33% of the total value of its portfolio securities at any one time.
Writing Covered Call and Put Options. The Income Fund and the Pennsylvania
Bond Fund may each write covered call and put options on securities, or futures
contracts regarding securities, in which such Fund may invest, in an effort to
realize additional income. A put option gives the purchaser the right to sell,
and a writer has the obligation to purchase, the underlying security at the
stated exercise price at any time prior to the expiration date of the option,
regardless of the market price of the security. A call option gives the
purchaser of the option the right to buy, and a writer has the obligation to
sell, the underlying security at the stated exercise price at any time
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prior to the expiration of the option, regardless of the market price of the
security. The premium paid to the writer is consideration for undertaking the
obligations under the option contract. Such options will be listed on national
securities or futures exchanges. A Fund may write covered call options as a
means of seeking to enhance its income through the receipt of premiums in
instances in which the Adviser determines that the underlying securities or
futures contracts are not likely to increase in value above the exercise price.
A Fund also may seek to earn additional income through the receipt of premiums
by writing put options. By writing a call option, a Fund limits its opportunity
to profit from any increase in the market value of the underlying security above
the exercise price of the option; by writing a put option, a Fund assumes the
risk that it may be required to purchase the underlying security at a price in
excess of its then current market value.
Each of the Income Fund and the Pennsylvania Bond Fund, as part of its option
transactions, also may write index put and call options. Through the writing of
index options a Fund can achieve many of the same objectives as through the use
of options on individual securities. Options on securities indices are similar
to options on a security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the securities index upon which the option is based
is greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option.
When a Fund writes an option, an amount equal to the net premium (the premium
less the commission) received by that Fund is included in the liability section
of the Fund's statement of assets and liabilities as a deferred credit. The
amount of the deferred credit will be subsequently marked-to-market to reflect
the current value of the option written. The current value of the traded option
is the last sale price or, in the absence of a sale, the mean between bid and
asked price. If an option expires on the stipulated expiration date or if the
Fund enters into a closing purchase transaction, it will realize a gain (or a
loss if the cost of a closing purchase transaction exceeds the net premium
received when the option is sold) and the deferred credit related to such option
will be eliminated. If a call option is exercised, the Fund may deliver the
underlying security in the open market. In either event, the proceeds of the
sale will be increased by the net premium originally received and the Fund will
realize a gain or loss. The Income Fund and the Pennsylvania Bond Fund will each
limit its writing of options such that at no time will more than 25% of the
Fund's total assets be subject to options transactions.
Purchasing Options. In addition, the Income Fund and the Pennsylvania Bond
Fund may each purchase put and call options written by third parties covering
indices and those types of financial instruments or securities in which such
Fund may invest to attempt to provide protection against adverse price effects
from anticipated changes in prevailing prices for such instruments. The purchase
of a put option is intended to protect the value of a Fund's holdings in a
falling market while the purchase of a call option is intended to protect the
value of a Fund's positions in a rising market. Put and call options purchased
by a Fund will be valued at the last sale price, or in the absence of such a
price, at the mean between bid and asked price. Such options will be listed on
national securities or futures exchanges.
In purchasing a call option, a Fund would be in a position to realize a gain
if, during the option period, the price of the underlying security, index or
futures contract increased by an amount in excess of the premium paid for the
call option. It would realize a loss if the price of the underlying security,
index or futures contract declined or remained the same or did not increase
during the period by more than the amount of the premium. By purchasing a put
option, the Fund would be in a position to realize a gain if, during the option
period, the price of the security, index or futures contract declined by an
amount in ex-
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cess of the premium paid. It would realize a loss if the price of the security,
index or futures contract increased or remained the same or did not decrease
during that period by more than the amount of the premium. If a put or call
option purchased by the Fund were permitted to expire without being sold or
exercised, its premium would represent a realized loss to the Fund.
The Pennsylvania Bond Fund also may acquire "puts" with respect to Exempt
Securities held in its portfolio. The Pennsylvania Bond Fund may sell, transfer,
or assign a put in conjunction with the sale, transfer, or assignment of the
underlying security or securities.
The amount payable to the Pennsylvania Bond Fund upon its exercise of a "put"
is normally (i) the Pennsylvania Bond Fund's acquisition cost of the Exempt
Securities (excluding any accrued interest which the Pennsylvania Bond Fund paid
on the acquisition), less any amortized market premium or plus any amortized
market or original issue discount during the period the Pennsylvania Bond Fund
owned the securities, plus (ii) all interest accrued on the securities since the
last interest payment date during that period.
Puts may be acquired by the Pennsylvania Bond Fund to facilitate the liquidity
of its portfolio assets. Puts may also be used to facilitate the reinvestment of
the Pennsylvania Bond Fund's assets at a rate of return more favorable than that
of the underlying security. Puts may, under certain circumstances, also be used
to shorten the maturity of underlying variable rate or floating rate securities
for purposes of calculating the remaining maturity of those securities.
The Pennsylvania Bond Fund expects that it will generally acquire this type of
put only where the put is available without the payment of any direct or
indirect consideration. However, if necessary or advisable, the Pennsylvania
Bond Fund may pay for such puts either separately in cash or by paying a higher
price for portfolio securities which are acquired subject to the puts (thus
reducing the yield to maturity otherwise available for the same securities).
The Pennsylvania Bond Fund intends to enter into such puts only with dealers,
banks, and broker-dealers which, in the Adviser's opinion, present minimal
credit risks.
Futures Contracts. The Income Fund and the Pennsylvania Bond Fund may each
purchase or sell contracts for the future delivery of the specific financial
instruments or securities in which that Fund may invest, and indices based upon
the types of securities in which that Fund may invest (collectively, "Futures
Contracts"). Such Funds may use this investment technique as a substitute for a
comparable market position in the underlying securities or to hedge against
anticipated future changes in market interest rates, which otherwise might
adversely affect either the value of such Fund's securities or the prices of
securities which such Fund intends to purchase at a later date. In addition, the
Income Fund and the Pennsylvania Bond Fund may purchase or sell futures
contracts to hedge against changes in market interest rates which may result in
the premature call at par value of certain securities which that Fund has
purchased at a premium.
To the extent a Fund is engaging in a futures transaction as a hedging device,
because of the risk of an imperfect correlation between securities in the Fund's
portfolio that are the subject of a hedging transaction and the futures contract
used as a hedging device, it is possible that the hedge will not be fully
effective if, for example, losses on the portfolio securities exceed gains on
the futures contract or losses on the futures contract exceed gains on the
portfolio securities. For futures contracts based on indices, the risk of
imperfect correlation increases as the composition of a Fund's portfolio varies
from the composition of the index. In an effort to compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of futures contracts, a Fund may buy or sell futures
contracts in a greater or lesser dollar amount than the dollar amount of the
securities being hedged if the historical volatility of the future contract has
been less or greater than that of the securities. Such "over
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hedging" or "under hedging" may adversely affect a Fund's net investment results
if the market does not move as anticipated when the hedge is established.
Successful use of futures by a Fund also is subject to the Adviser's ability
to predict correctly movements in the direction of interest rates. For example,
if a Fund has hedged against the possibility of an increase in the interest
rates adversely affecting the value of securities held in its portfolio and
interest rates decrease instead, the Fund will lose part or all of the benefit
of the increased value of securities which it has hedged because it will have
offsetting losses in its futures positions. Furthermore, if in such
circumstances the Fund has insufficient cash, it may have to sell securities to
meet daily variation margin requirements. A Fund may have to sell such
securities at a time when it may be disadvantageous to do so.
An option on a futures contract gives the purchaser the right, in return for
the premium paid, to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of the
option is required upon exercise to assume an offsetting futures position (a
short position if the option is a call and a long position if the option is a
put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by delivery
of the accumulated cash balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract.
Call options sold by a Fund with respect to futures contracts will be covered
by, among other things, entering into a long position in the same contract at a
price no higher than the strike price of the call option, or by ownership of the
instruments underlying, or instruments the prices of which are expected to move
relatively consistently with the instruments underlying, the futures contract.
Put options sold by a Fund with respect to futures contracts will be covered
when, among other things, cash or liquid securities are placed in a segregated
account to fulfill the obligation undertaken.
The Income Fund and the Pennsylvania Bond Fund may also utilize various index
futures to protect against changes in the market value of the securities in its
portfolio or which it intends to acquire. Securities index futures contracts are
based on an index of various types of securities, e.g., municipal or long-term
corporate bonds. The index assigns relative values to the securities included in
an index, and fluctuates with changes in the market value of such securities.
The contract is an agreement pursuant to which two parties agree to take or make
delivery of an amount of cash based upon the difference between the value of the
index at the close of the last trading day of the contract and the price at
which the index contract was originally written. The acquisition or sale of an
index futures contract enables a Fund to protect its assets from fluctuations in
rates or prices of certain securities without actually buying or selling such
securities.
Interest Rate Futures Contracts and Options on Interest Rate Futures
Contracts. The Income Fund and the Pennsylvania Bond Fund may purchase and sell
interest rate futures contracts and options on interest rate futures contracts
as a substitute for a comparable market position or to hedge against adverse
movements in interest rates.
To the extent such Fund has invested in interest rate futures contracts or
options on interest rate futures contracts as a substitute for a comparable
market position, the Fund will be subject to the investment risks of having
purchased the securities underlying the contract.
The Income Fund and the Pennsylvania Bond Fund may each also purchase call
options on interest rate futures contracts to hedge against a decline in
interest rates and may purchase put options on interest rate futures contracts
to
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hedge its portfolio securities against the risk of rising interest rates.
If a Fund has hedged against the possibility of an increase in interest rates
adversely affecting the value of securities held in that Fund's portfolio and
rates decrease instead, such Fund will lose part or all of the benefit of the
increased value of the securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements at a time when it may be disadvantageous to do so.
These sales of securities may, but will not necessarily, be at increased prices
which reflect the decline in interest rates.
Each such Fund may sell call options on interest rate futures contracts to
partially hedge against declining prices of its portfolio securities. If the
futures price at expiration of the option is below the exercise price, the Fund
will retain the full amount of the option premium which provides a partial hedge
against any decline that may have occurred in that Fund's portfolio holdings. A
Fund may sell put options on interest rate futures contracts to hedge against
increasing prices of the securities which are deliverable upon exercise of the
futures contracts. If the futures price at expiration of the option is higher
than the exercise price, the Fund will retain the full amount of the option
premium which provides a partial hedge against any increase in the price of
securities which the Fund intends to purchase. If a put or call option sold by a
Fund is exercised, the Fund will incur a loss which will be reduced by the
amount of the premium it receives. Depending on the degree of correlation
between changes in the value of its portfolio securities and changes in the
value of its futures positions, a Fund's losses from existing options on futures
may to some extent be reduced or increased by changes in the value of its
portfolio securities.
The Income Fund and the Pennsylvania Bond Fund also may each sell options on
interest rate futures contracts as part of closing purchase transactions to
terminate its options positions. No assurance can be given that such closing
transactions can be effected or that there will be a correlation between price
movements in the options on interest rate futures and price movements in that
Fund's portfolio securities which are the subject of the hedge. In addition, a
Fund's purchase of such options will be based upon predictions as to anticipated
interest rate trends, which could prove to be inaccurate.
In general, the value of futures contracts sold by a Fund to offset declines
in its portfolio securities will not exceed the total market value of the
portfolio securities to be hedged, and futures contracts purchased by a Fund
will be covered by a segregated account consisting of cash or liquid securities
in an amount equal to the total market value of such futures contracts, less the
initial margin deposited therefor.
When buying futures contracts and when writing put options, a Fund will be
required to segregate in a separate account cash and/or liquid securities in an
amount sufficient to meet its obligations. When writing call options, a Fund
will be required to own the financial instrument or futures contract underlying
the option or segregate cash and/or liquid securities in an amount sufficient to
meet its obligations under written calls.
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.
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A Fund will generally not pay for such securities or start earning interest on
them until they are received on the settlement date. When a Fund agrees to
purchase such securities, however, its custodian will set aside cash or liquid
securities equal to the amount of the commitment in a separate account.
Securities purchased on a when-issued 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. Each Fund may also invest in the securities of
other investment companies, including shares of a money market fund advised by
the Adviser ("KeyPremier money market funds") in accordance with the limitations
of the 1940 Act and any exemptions therefrom. Each Fund intends to invest in
other investment companies which, in the opinion of the Adviser, will assist
such Fund in achieving its investment objectives and in money market mutual
funds for purposes of short-term cash management. A Fund will incur additional
expenses due to the duplication of fees and expenses as a result of investing in
mutual funds. 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 Funds' administrator, and their affiliates will reduce their fees charged to
a Fund by an amount equal to the fees charged by such service providers based on
a percentage of that Fund's assets attributable to such Fund's investment in the
KeyPremier money market fund. Additional restrictions on the Funds' investments
in the securities of other mutual funds are contained in the Statement of
Additional Information.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is calculated by dividing the lesser
of a Fund's purchases or sales of portfolio securities for the year by the
monthly average value of the portfolio securities. The Commission requires that
the calculation exclude all securities whose remaining maturities at the time of
acquisition are one year or less. The portfolio turnover rate for each of the
Funds may vary greatly from year to year, as well as within a particular year,
and may also be affected by cash requirements for redemptions of Shares. High
portfolio turnover rates will generally result in higher transaction costs,
including brokerage commissions, to a Fund and may result in additional tax
consequences to a Fund's Shareholders. Portfolio turnover will not be a limiting
factor in making investment decisions. Portfolio turnover information is set
forth above under "FINANCIAL HIGHLIGHTS."
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding Shares of that Fund (as
defined under "GENERAL INFORMATION--Miscellaneous" herein). Each of the Income
Fund and the Government Securities 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
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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.
The Pennsylvania Bond Fund will not purchase securities of any one issuer,
other than obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, if at the end of each fiscal quarter, (a) more than 5% of
the Fund's total assets (taken at current value) would be invested in such
issuer (except that up to 50% of the Fund's total assets may be invested without
regard to such 5% limitation), and (b) more than 25% of its total assets (taken
at current value) would be invested in securities of a single issuer. There is
no limit to the percentage of assets that may be invested in U.S. Treasury
bills, notes, or other obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities. For purposes of this limitation, a security
is considered to be issued by the governmental entity (or entities) whose assets
and revenues back the security, or, with respect to a private activity bond that
is backed only by the assets and revenues of a non-governmental user, such
non-governmental user.
In addition each Fund will not:
1. Borrow money or issue senior securities except that each Fund may enter
into reverse repurchase agreements and may otherwise borrow money or issue
senior securities as and to the extent permitted by the 1940 Act or any rule,
order or interpretation thereunder.
2. Make loans, except that each Fund may purchase or hold debt instruments
and lend portfolio securities in accordance with its investment objective and
policies, make time deposits with financial institutions and enter into
repurchase agreements.
The following additional investment restriction may be changed by the Group's
Trustees without the vote of a majority of the outstanding Shares of a Fund:
each Fund may not purchase or otherwise acquire any security if, as a result,
more than 15% of its net assets would be invested in securities that are
illiquid. For purposes of this investment restriction, illiquid securities
include securities which are not readily marketable and repurchase agreements
with maturities in excess of seven days.
VALUATION OF SHARES
The net asset value of each Fund is determined and its Shares are priced as of
the close of regular trading on the New York Stock Exchange (the "Exchange")
(generally 4:00 p.m. Eastern time) on each Business Day of that Fund. The time
at which the Shares of the Funds are priced is hereinafter referred to as the
"Valuation Time." A "Business Day" of a Fund is a day on which the Exchange is
open for trading and any other day (other than a day on which no Shares of the
Fund are tendered for redemption and no order to purchase any Shares of the Fund
is received) during which there is sufficient trading in portfolio instruments
such that the Fund's net asset value per share might be materially affected. The
Exchange will not be open in observance of the following holidays: New Year's
Day, Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value per
share for purposes of pricing purchases and redemptions is calculated by
dividing the value of all securities and other assets belonging to a Fund, less
the liabilities charged to that Fund, by the number of that Fund's outstanding
Shares.
The net asset value per share for each Fund will fluctuate as the value of the
investment portfolio of that Fund changes.
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The portfolio securities for which market quotations are readily available are
valued based upon their current available prices in the principal market in
which such securities normally are traded. Unlisted securities for which market
quotations are readily available are valued at such market values. Other
securities, including restricted securities and other securities for which
market quotations are not readily available, and other assets are valued at fair
value by the Adviser under procedures established by, and under the supervision
of the Group's Board of Trustees. Securities may be valued by an independent
pricing service approved by the Group's Board of Trustees. Investments in debt
securities with remaining maturities of 60 days or less may be valued based upon
the amortized cost method.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the 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").
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 a Fund so
sold, it is the responsibility of the particular Entity to transmit purchase or
redemption orders to the Distributor and to deliver federal funds for purchase
on a timely basis. Beneficial ownership of Shares will be recorded by the
Entities and reflected in the account statements provided by the Entities to
Customers.
Investors may also purchase Shares of the Funds 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 applicable Fund, to The KeyPremier Funds, P.O. Box
182707, Columbus, Ohio 43218-2707. Subsequent purchases of Shares of a 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 the Funds 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.
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For an order for the purchase of Shares of a Fund that is placed through a
broker-dealer, the applicable public offering price will be the net asset value
as so determined (plus any applicable sales charge), but only if the
broker-dealer receives the order and transmits it to the Distributor prior to
the Valuation Time for that day. The broker-dealer is responsible for
transmitting such orders by the Valuation Time. If the broker-dealer fails to do
so, the investor's right to that day's closing price must be settled between the
investor and the broker-dealer. If the broker-dealer receives the order after
the Valuation Time for that day, the price will be based on the net asset value
determined as of the Valuation Time for the next Business Day.
MINIMUM INVESTMENT
Except as otherwise discussed below under "Auto Invest Plan," the minimum
investment is $1,000 for the initial purchase of Shares of a 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 a
Fund. Information concerning these services and any charges will be provided by
the Entities. This Prospectus should be read in conjunction with any such
information received from the Entities or their affiliates.
Each Fund reserves the right to reject any order for the purchase of its
Shares in whole or in part, including purchases made with foreign checks and
third party checks not originally made payable to the order of the investor.
Every Shareholder will receive a confirmation of each new transaction in his
or her account, which will also show the total number of Shares owned by the
Shareholder and the number of Shares being held in safekeeping by the Transfer
Agent for the account of the Shareholder. Reports of purchases and redemptions
of Shares by 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-
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deductible and earnings are tax deferred. Under the Tax Reform Act of 1986, the
tax deductibility of IRA contributions is restricted or eliminated for
individuals who participate in certain employer pension plans and whose annual
income exceeds certain limits. Existing IRAs and future contributions up to the
IRA maximums, whether deductible or not, still earn income on a tax-deferred
basis.
All KeyPremier IRA distribution requests must be made in writing to the
Distributor. Any deposits to a KeyPremier IRA must distinguish the type and year
of the contributions.
For more information on the KeyPremier IRAs call the Group at (800) 766-3960.
Investment in Shares of the Pennsylvania 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 a Fund may, in the discretion of the Adviser, be made in
the form of securities that are permissible investments for that Fund as
described in this Prospectus. For further information about this form of
payment, contact the Adviser. In connection with an in-kind securities payment,
a Fund will require, among other things, that the securities be valued on the
date of purchase in accordance with the pricing methods used by the Fund and
that the Fund receive satisfactory assurances that it will have good and
marketable title to the securities received by it; that the securities be in
proper form of transfer to the Fund; and that adequate information be provided
concerning the basis and other tax matters relating to the securities.
SALES CHARGES
The public offering price of Shares of each Fund equals net asset value plus a
sales charge in accordance with the applicable 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 1933 Act.
THE INCOME FUND AND THE PENNSYLVANIA BOND FUND
<TABLE>
<CAPTION>
DEALER
DISCOUNTS
AMOUNT OF SALES CHARGE AND BROKERAGE
TRANSACTION AT AS % OF NET SALES CHARGE AS COMMISSIONS AS
PUBLIC OFFERING AMOUNT % OF PUBLIC % OF PUBLIC
PRICE INVESTED OFFERING PRICE OFFERING PRICE
- ---------------------- ------------ --------------- --------------
<S> <C> <C> <C>
Less than $100,000.... 4.71% 4.50% 4.05%
$100,000 but less than
$250,000............ 3.63 3.50 3.15
$250,000 but less than
$500,000............ 2.56 2.50 2.25
$500,000 but less than
$1,000,000.......... 1.52 1.50 1.35
$1,000,000 or more.... 0 0 0
</TABLE>
THE GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
DEALER
DISCOUNTS
AMOUNT OF SALES CHARGE AND BROKERAGE
TRANSACTION AT AS % OF NET SALES CHARGE AS COMMISSIONS AS
PUBLIC OFFERING AMOUNT % OF PUBLIC % OF PUBLIC
PRICE INVESTED OFFERING PRICE OFFERING PRICE
- ---------------------- ------------ --------------- --------------
<S> <C> <C> <C>
Less than $100,000.... 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
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only to certain dealers whose representatives have sold a significant amount of
such Shares. Compensation will include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. Compensation
will also include the following types of non-cash compensation offered through
sales contests: (1) vacation trips, including the provision of travel
arrangements and lodging at luxury resorts at an exotic location, (2) tickets
for entertainment events (such as concerts, cruises and sporting events) and (3)
merchandise (such as clothing, trophies, clocks and pens). Dealers may not use
sales of the Funds' 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 any Fund or its Shareholders.
SALES CHARGE WAIVERS
The Distributor will waive sales charges for the purchase of Shares of a 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 a Fund.
In addition, the Distributor may waive sales charges for the purchase of a
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 a 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 Income Fund at the total public offering price of $50,000 and
Shares in another KeyPremier Load Fund at the total public offering price of
$50,000, the sales charge for such Shares of the Income Fund would be that
applicable to a $100,000 purchase as shown in the applicable table above. This
privilege, however, may be modified or eliminated at any time or from time to
time by the Group without notice thereof.
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LETTER OF INTENT
An investor may obtain a reduced sales charge by means of a written Letter of
Intent which expresses the intention of such investor to purchase Shares of a
Fund at a designated total public offering price within a designated 13-month
period. Each purchase of Shares under a Letter of Intent will be made at the net
asset value plus the sales charge applicable at the time of such purchase to a
single transaction of the total dollar amount indicated in the Letter of Intent.
A Letter of Intent may include purchases of Shares made not more than 90 days
prior to the date such investor signs a Letter of Intent; however, the 13-month
period during which the Letter of Intent is in effect will begin on the date of
the earliest purchase to be included. This program may be modified or eliminated
at any time or from time to time by the Group without notice. For further
information about letters of intent, interested investors should contact the
Group at (800) 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 a Fund at the public offering price applicable to the total of (a) the
total public offering price of the Shares of the Fund then being purchased plus
(b) an amount equal to the then current net asset value of the purchaser's
combined holdings of the Shares of all KeyPremier Load Funds. The "purchaser's
combined holdings" described in the preceding sentence shall include the
combined holdings of the purchaser, the purchaser's spouse and children under
the age of 21 and the purchaser's retirement plan accounts. To receive the
applicable public offering price pursuant to the right of accumulation,
Shareholders must, at the time of purchase, give the Transfer Agent sufficient
information to permit confirmation of qualification. This right of accumulation,
however, may be modified or eliminated at any time or from time to time by the
Group without notice.
EXCHANGE PRIVILEGE
Shares of a 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, 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
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<PAGE> 184
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 a Fund as a
part of the cost of those Shares for purposes of calculating the gain or loss
realized on an exchange of those Shares within 90 days of their purchase.
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 is neither a member of a clearing corporation nor maintains net
capital of at least $100,000.
Redemption by Telephone
If a Shareholder has so designated on the Account Registration Form, a
Shareholder may request a redemption of his or her Shares by telephoning the
Group and having the payment of redemption requests sent electronically directly
to a domestic commercial bank account previously designated by the Shareholder
on the Account Registration Form. A shareholder may also have such payment
mailed directly to the
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Shareholder at the Shareholder's address as recorded by the Transfer Agent.
However, this option may be suspended for a period of 30 days following a
telephonic address change. Under most circumstances, such payments will be
transmitted on the next Business Day following receipt of a valid request for
redemption. Such wire redemption requests may be made by the Shareholder by
telephone to the Group. 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, each 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. Each Fund will
attempt to so honor redemption requests unless it would be disadvantageous to a
Fund or the Shareholders of that Fund to sell or liquidate portfolio securities
in an amount sufficient to satisfy requests for payments in that manner.
At various times, the Group may be requested to redeem Shares for which it has
not yet received good payment. In such circumstances, the Group may delay the
forwarding of proceeds for up to 10 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
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wholly or partly in readily marketable 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.
DIVIDENDS AND TAXES
DIVIDENDS
A dividend for each Fund is declared monthly at the close of business on the
day of declaration consisting of an amount of accumulated undistributed net
income of that Fund as determined necessary or appropriate by the appropriate
officers of the Group. Such dividend is generally paid monthly. Shareholders
will automatically receive all income dividends and capital gains distributions
in additional full and fractional Shares of that 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 a Fund are distributed
at least annually. Dividends are paid in cash not later than seven Business Days
after a Shareholder's complete redemption of his or her Shares in that Fund.
If a Shareholder elects to receive distributions in cash, and checks (1) are
returned and marked as "undeliverable" or (2) remain uncashed for six months,
the Shareholder's cash election will be changed automatically and future
dividend and capital gains distributions will be reinvested in that Fund at the
per share net asset value determined as of the date of payment of the
distribution. In addition, any undeliverable checks or checks that remain
uncashed for six months will be canceled and will be reinvested in that Fund at
the per share net asset value determined as of the date of cancellation.
FEDERAL TAXES
Generally. 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 that Fund's Shareholders. Qualification as a regulated
investment company under the Code requires, among other things, that the
regulated investment company distribute to its shareholders at least 90% of its
investment company taxable income. Each Fund contemplates declaring as dividends
all or substantially
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<PAGE> 187
all of its investment company taxable income (before deduction of dividends
paid).
A non-deductible 4% excise tax is imposed on regulated investment companies
that do not distribute in each calendar year (regardless of having a
non-calendar taxable year) an amount equal to 98% of their ordinary income for
the calendar year plus 98% of their capital gain net income for the one-year
period ending on October 31 of such calendar year. If distributions during a
calendar year were less than the required amount, a Fund would be subject to a
nondeductible 4% excise tax on the deficiency.
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of Shares prior to the record
date will have the effect of 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.
The Income Fund and the Government Securities Fund. It is expected that each
of the Income Fund and the Government Securities Fund will distribute annually
to its Shareholders all or substantially all of that Fund's net investment
income and net realized capital gains and that such distributed net investment
income and distributed net realized capital gains will be taxable income to
Shareholders for federal income tax purposes, even if paid in additional Shares
of the Fund and not in cash. The dividends received deduction for corporations
will apply to the aggregate of such ordinary income distributions in the same
proportion as the aggregate dividends eligible for the dividends deduction, if
any, received by a Fund bear to its gross income. Since the net investment
income from each such Fund is expected to be derived from earned interest and
short-term capital gains, it is anticipated that no part of any distribution
from those Funds will be eligible for the dividends received deduction for
corporations.
Distribution by a Fund of the excess of net mid-term or long-term capital
gain, if any, over net short-term capital loss is taxable to Shareholders as
mid-term or long-term capital gain, respectively, in the year in which it is
received, regardless of how long the Shareholder has held the Shares. Such
distributions are not eligible for the dividends received deduction.
If the net asset value of a Share is reduced below the Shareholder's cost of
that Share by the distribution of income or gain realized on the sale of
securities, the distribution, from a practical stand point, is a return of
invested principal, although taxable as described above.
The Pennsylvania Bond Fund. It is expected that the Pennsylvania Bond Fund
will distribute annually substantially all of its net investment income and net
capital gains to its Shareholders. Dividends derived from interest earned on
Exempt Securities constitute "exempt-interest dividends" when designated as such
by the Pennsylvania Bond Fund and will be excludable from gross income for
federal income tax purposes. However, exempt-interest dividends attributable to
certain municipal obligations issued on or after August 8, 1986, to finance
certain private activities will be treated as a tax preference item in computing
the alternative minimum tax. Also, a portion of all other interest excluded from
gross income for federal income tax purposes earned by a corporation may be
subject to the alternative minimum tax as a result of the inclusion in
alternative minimum taxable income of 75% of the excess of adjusted current
earnings over alternative minimum taxable income.
Distributions, if any, derived from capital gains will generally be taxable to
Shareholders as capital gains for federal income tax purposes to the extent so
designated by the Pennsylvania Bond Fund. Dividends, if any, derived from
sources other than interest excluded from gross income for federal income tax
purposes and capital gains will be taxable to Shareholders as ordinary in-
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<PAGE> 188
come for federal income tax purposes whether or not reinvested in additional
Shares. Shareholders not subject to federal income tax on their income will not,
of course, be required to pay federal income tax on any amounts distributed to
them. The Pennsylvania Bond Fund anticipates that substantially all of its
dividends will be excluded from gross income for federal income tax purposes.
The Pennsylvania Bond Fund will notify each Shareholder annually of the tax
status of all distributions.
If a Shareholder receives an exempt-interest dividend with respect to any
Share and such Share is held by the Shareholder for six months or less, any loss
on the sale or exchange of such Share will be disallowed to the extent of the
amount of such exempt-interest dividend. In certain limited instances, the
portion of Social Security benefits that may be subject to federal income
taxation, may be affected by the amount of tax-exempt interest income, including
exempt-interest dividends, received by a Shareholder.
Interest on indebtedness incurred or continued by a Shareholder to purchase or
carry Shares of the Pennsylvania Bond Fund is not deductible for federal income
taxes assuming the Pennsylvania Bond Fund distributes exempt-interest dividends
during the Shareholder's taxable year. It is anticipated that distributions from
the Pennsylvania Bond Fund will not be eligible for the dividends received
deduction for corporations.
Proposals that may restrict or eliminate the income tax exemption for interest
on Exempt Securities may be introduced in the future. If any such proposal were
enacted that would reduce the availability of Exempt Securities for investment
by the Pennsylvania Bond Fund so as to adversely affect such Fund's
Shareholders, the Pennsylvania Bond Fund would reevaluate its investment
objective and policies and submit possible changes in the Pennsylvania Bond
Fund's structure to Shareholders for their consideration. If legislation were
enacted that would treat a type of Exempt Securities as taxable, the
Pennsylvania Bond Fund would treat such security as a permissible taxable
investment within the applicable limits set forth herein.
PENNSYLVANIA TAXES
Under current Pennsylvania law, Shareholders will not be subject to
Pennsylvania Personal Income Tax on distributions from the Pennsylvania Bond
Fund attributable to interest income from Pennsylvania Exempt Securities or from
obligations of the United States, its territories and certain of its agencies
and instrumentalities ("Federal Exempt Securities"). However, Pennsylvania
Personal Income Tax will apply to distributions from the Pennsylvania Bond Fund
attributable to gain realized on the disposition of any investment, including
Exempt Securities, or to interest income from investments other than Exempt
Securities. Shareholders also will be subject to the Pennsylvania Personal
Income tax on any gain they realize on the disposition of Shares in the
Pennsylvania Bond Fund.
Distributions attributable to interest from Exempt Securities are not subject
to the Philadelphia School District Net Income Tax. However, distributions
attributable to gain from the disposition of Exempt Securities are subject to
the Philadelphia School District Net Income Tax, except that distributions
attributable to gain on any investment held for more than six months are exempt.
A shareholder's gain on the disposition of Shares in the Pennsylvania Bond Fund
that he or she has held for more than six months will not be subject to the
Philadelphia School District Net Income Tax.
Shareholders are not subject to the county personal property tax imposed on
residents of Pennsylvania by the Act of June 17, 1913, P.L. 507, as amended to
the extent that the Pennsylvania Bond Fund is comprised of Exempt Securities.
GENERAL
Additional information regarding federal taxes is contained in the Statement
of Additional Information under the heading "ADDITIONAL INFORMATION--Additional
General Tax Infor-
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<PAGE> 189
mation." 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 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 the Funds' 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 $2.5 billion 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 the Funds, 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.
Colleen M. Marsh is primarily responsible for the day-to-day management of the
Income Fund's portfolio. Ms. Marsh is a senior portfolio manager in the fixed
income division of the Adviser. She has over 12 years of experience managing
fixed income portfolios and funds for clients. She spent the first 10 years of
her investment management career with Keystone, and has managed the Intermediate
Term Income Fund (a predecessor CIF to the Income Fund) for Keystone over this
time period.
Mr. James H. Somers is primarily responsible for the day-to-day management of
the Government Securities 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
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<PAGE> 190
five years he was a Vice President of Kidder Peabody & Company in New York.
Mr. Robert Andres is primarily responsible for the day-to-day management of
the Fund's portfolio. Mr. Andres co-founded the Adviser in 1989 and serves as
its President and Chief Operating Officer. Prior thereto, he served as President
of Merrill Lynch Mortgage Capital Corporation and manager of Merrill Lynch's
secondary corporate bond trading division. He has had more than 30 years of
broad based experience with respect to fixed-income securities, including more
than 20 years in trading, sales and investment management of municipal
securities.
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Group, the Adviser is entitled to receive a fee from
each 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 a Fund to increase the net income of that Fund
available for distribution as dividends. The Adviser may not seek reimbursement
of such voluntarily reduced fees after the end of the fiscal year in which the
fees were reduced. The reduction of such fee will cause the yield and total
return of that Fund to be higher than they would otherwise be in the absence of
such a reduction.
ADMINISTRATOR AND DISTRIBUTOR
BISYS is the administrator for each Fund and also acts as the Funds' principal
underwriter and distributor (the "Administrator" or the "Distributor," as the
context indicates). BISYS and its affiliated companies, including BISYS Fund
Services, Inc., are wholly owned by The BISYS Group, Inc., a publicly-held
company which is a provider of information processing, loan servicing and 401(k)
administration and recordkeeping services to and through banking and other
financial organizations.
The Administrator generally assists in all aspects of a Fund's administration
and operation. For expenses assumed and services provided as administrator
pursuant to its management and administration agreement with the Group, the
Administrator receives a fee from each Fund, 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 a Fund 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 pur-
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poses 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.
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/or providing customers with a service
that invests the assets of their accounts in Shares of a Fund 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 any of the
Funds.
BANKING LAWS
The Adviser believes that it possesses the legal authority to perform the
investment advisory services for each Fund contemplated by its investment
advisory agreement with the Group, as described in this Prospectus, without
violation of applicable banking laws and regulations, and has so represented in
its investment advisory agreement with the Group. Future changes in Federal or
state statutes and regulations relating to permissible activities of banks or
bank holding companies and their subsidiaries and affiliates as well as further
judicial or administrative decisions or interpretations of 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 AND SERVICE
PROVIDERS OF THE GROUP--Glass-Steagall Act" in the Statement of Additional
Information for further discussion of applicable law and regulations.
GENERAL INFORMATION
DESCRIPTION OF THE GROUP AND ITS SHARES
The Group was organized as an Ohio business trust on April 25, 1988. The Group
consists of seventeen funds, each having its own class of shares. Each share
represents an equal proportionate interest in a fund with other shares of the
same fund, and is entitled to such dividends and distributions out of the income
earned on the assets belonging to 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 Established Growth Fund, The
KeyPremier Aggressive Growth Fund, The KeyPremier U.S. Treasury Securities Money
Market Fund, 1st Source Monogram Diversified Equity Fund, 1st Source Monogram
Income Equity
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Fund, 1st Source Monogram Special Equity Fund, 1st Source Monogram Income Fund,
Riverside Capital Money Market Fund, Riverside Capital Value Fund, Riverside
Capital Fixed Income Fund, Riverside Capital Low Duration Government Securities
Fund, Riverside Capital Growth Fund and Riverside Capital Tennessee Municipal
Obligations 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 a 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
Fund's investment advisory agreement.
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.
As of October 16, 1997, Keystone possessed, on behalf of its or its
affiliates' underlying accounts, voting or investment power with respect to more
than 25% of the outstanding Shares of each Fund.
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 ($35,000 for the Pennsylvania
Bond Fund). See "MANAGEMENT AND SERVICE PROVIDERS OF THE GROUP--Transfer Agency
and Fund Accounting Services" in the Statement of Additional Information for
further information.
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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 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.
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INVESTMENT ADVISER
Martindale Andres & Company, Inc.
Four Falls Corporate Center, Suite 200
West Conshohocken, Pennsylvania 19428
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Baker & Hostetler LLP
65 East State Street
Columbus, Ohio 43215
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
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PROSPECTUS SUMMARY.................... 2
FEE TABLE............................. 4
FINANCIAL HIGHLIGHTS.................. 5
PERFORMANCE INFORMATION............... 6
INVESTMENT OBJECTIVES AND POLICIES.... 7
INVESTMENT RESTRICTIONS............... 26
VALUATION OF SHARES................... 27
HOW TO PURCHASE AND REDEEM SHARES..... 28
DIVIDENDS AND TAXES................... 35
MANAGEMENT OF THE GROUP............... 38
GENERAL INFORMATION................... 40
</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 ITS DISTRIBUTOR, BISYS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY BISYS IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
LOGO
THE
KEYPREMIER
INTERMEDIATE TERM
INCOME FUND
THE
KEYPREMIER
LIMITED DURATION
GOVERNMENT SECURITIES FUND
THE
KEYPREMIER
PENNSYLVANIA MUNICIPAL
BOND FUND
MARTINDALE
ANDRES & COMPANY, INC.
INVESTMENT ADVISER
Prospectus
dated October 31, 1997
<PAGE> 196
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
Each an Investment Portfolio of
THE SESSIONS GROUP
Statement of Additional Information
October 31, 1997
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the prospectus (the "Prospectus") of Riverside Capital Money
Market Fund (the "Money Market Fund"), Riverside Capital Value Equity Fund (the
"Value Fund"), Riverside Capital Fixed Income Fund (the "Fixed Income Fund"),
Riverside Capital Tennessee Municipal Obligations Fund (the "Tennessee Fund"),
Riverside Capital Low Duration Government Securities Fund (the "Government
Securities Fund") and Riverside Capital Growth Fund (the "Growth Fund") (the
Money Market Fund, the Value Fund, the Fixed Income Fund, the Tennessee Fund,
the Government Securities Fund and the Growth Fund are hereinafter collectively
referred to as the "Funds" and individually as a "Fund"), dated the date hereof.
The Funds are six funds of The Sessions Group (the "Group"). This Statement of
Additional Information is incorporated in its entirety into the Prospectus.
Copies of the Prospectus may be obtained by writing the Group at 3435 Stelzer
Road, Columbus, Ohio 43219, or by telephoning toll free (800) 874-8376.
<PAGE> 197
TABLE OF CONTENTS
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Page
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<S> <C>
THE SESSIONS GROUP............................................................................................ B-1
INVESTMENT OBJECTIVES AND POLICIES............................................................................ B-1
Additional Information on Portfolio Instruments...................................................... B-1
Investment Restrictions.............................................................................. B-13
Portfolio Turnover................................................................................... B-16
NET ASSET VALUE............................................................................................... B-17
Valuation of the Money Market Fund................................................................... B-17
Valuation of the Other Funds......................................................................... B-18
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................................................ B-18
MANAGEMENT AND SERVICE PROVIDERS OF THE GROUP................................................................. B-19
Trustees and Officers................................................................................ B-19
Investment Adviser................................................................................... B-22
Portfolio Transactions............................................................................... B-24
Glass-Steagall Act................................................................................... B-27
Administrator........................................................................................ B-28
Distributor.......................................................................................... B-30
Administrative Services Plan......................................................................... B-33
Custodian............................................................................................ B-34
Transfer Agency and Fund Accounting Services......................................................... B-34
Auditors ............................................................................................ B-36
Legal Counsel........................................................................................ B-36
ADDITIONAL INFORMATION........................................................................................ B-36
Description of Shares................................................................................ B-36
Vote of a Majority of the Outstanding Shares......................................................... B-38
Additional Tax Information........................................................................... B-38
Seven-Day Yield of the Money Market Fund............................................................. B-44
Yields of the Other Funds............................................................................ B-45
Calculation of Total Return.......................................................................... B-47
Distribution Rates................................................................................... B-48
Performance Comparisons.............................................................................. B-48
Miscellaneous........................................................................................ B-49
FINANCIAL STATEMENTS.......................................................................................... B-51
APPENDIX ..................................................................................................... A-1
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STATEMENT OF ADDITIONAL INFORMATION
THE SESSIONS GROUP
The Sessions Group (the "Group") is an open-end management investment
company which currently offers seventeen separate investment portfolios, six of
which are described in this Statement of Additional Information. Five of the
portfolios described herein are diversified portfolios and the one other is a
non-diversified portfolio. The five diversified portfolios are Riverside Capital
Money Market Fund (the "Money Market Fund"), Riverside Capital Value Equity Fund
(the "Value Fund"), Riverside Capital Fixed Income Fund (the "Fixed Income
Fund"), Riverside Capital Low Duration Government Securities Fund (the
"Government Securities Fund") and Riverside Capital Growth Fund (the "Growth
Fund"), and the one non-diversified portfolio is Riverside Capital Tennessee
Municipal Obligations Fund (the "Tennessee Fund") (the Money Market Fund, the
Value Fund, the Fixed Income Fund, the Government Securities Fund, the Growth
Fund and the Tennessee Fund are hereinafter collectively referred to as the
"Funds" and individually as a "Fund").
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectus of the Funds.
Capitalized terms not defined herein are defined in such Prospectus. No
investment in Shares of a Fund should be made without first reading the
Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
Additional Information On Portfolio Instruments
- -----------------------------------------------
The following policies supplement the investment objective and policies
of each Fund as set forth in the Prospectus for such Fund.
BANK OBLIGATIONS. Each of the Funds may invest in bank obligations such
as bankers' acceptances, certificates of deposit, and demand and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Bankers' acceptances invested in by the Funds will be those guaranteed by
domestic and foreign banks having, at the time of investment, capital, surplus,
and undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements).
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Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return. Certificates of deposit
and demand and time deposits will be those of domestic and foreign banks and
savings and loan associations, if (a) at the time of investment the depository
institution has capital, surplus, and undivided profits in excess of
$100,000,000 (as of the date of its most recently published financial
statements), or (b) the principal amount of the instrument is insured in full by
the Federal Deposit Insurance Corporation.
The Money Market Fund, the Value Fund, the Fixed Income Fund, the
Government Securities Fund and the Growth Fund may each also invest in
Eurodollar Certificates of Deposit, which are U.S. dollar denominated
certificates of deposit issued by offices of foreign and domestic banks located
outside the United States; Yankee Certificates of Deposit, which are
certificates of deposit issued by a U.S. branch of a foreign bank denominated in
U.S. dollars and held in the United States; Eurodollar Time Deposits ("ETDs"),
which are U.S. dollar denominated deposits in a foreign branch of a U.S. bank or
a foreign bank; and Canadian Time Deposits, which are basically the same as ETDs
except they are issued by Canadian offices of major Canadian banks.
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory
notes issued by corporations. Except as noted below with respect to variable
amount master demand notes, issues of commercial paper normally have maturities
of less than nine months and fixed rates of return.
The Money Market Fund will purchase commercial paper consisting of
issues rated at the time of purchase by one or more appropriate nationally
recognized statistical rating organizations ("NRSRO") (e.g., Standard & Poor's
Corporation and Moody's Investors Service, Inc.) in one of the two highest
rating categories for short-term debt obligations. The Money Market Fund may
also invest in commercial paper that is not rated but that is determined by the
Adviser, under guidelines established by the Group's Board of Trustees, to be of
comparable quality to instruments that are rated high quality by an NRSRO that
is neither controlling, controlled by, or under common control with the issuer
of, or any issuer, guarantor, or provider of credit support for, the
instruments. For a description of the rating symbols of the NRSROs, see the
Appendix. The Money Market Fund may also invest, subject to the foregoing
quality criteria, in Canadian Commercial Paper, which is commercial paper issued
by a Canadian corporation or a Canadian counterpart of a U.S. corporation
("CCP"), and in Europaper, which is U.S. dollar denominated commercial paper of
a foreign issuer.
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The Value Fund, the Fixed Income Fund and the Tennessee Fund may invest
in commercial paper which need not be rated by any NRSRO or, if rated, may be
rated in any rating category. The Government Securities Fund and the Growth Fund
may invest in commercial paper which need not be rated by an NRSRO or, if rated,
is rated in any of the highest three rating categories assigned by NRSROs. In
general, investment in lower-rated instruments is more risky than investment in
instruments in higher-rated categories. The Value Fund, the Fixed Income Fund,
the Tennessee Fund and the Growth Fund may also invest in CCP and in Europaper,
subject to their respective quality criteria for commercial paper as described
above.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes, in which the Money Market Fund, the Value Fund, the Fixed Income Fund,
the Government Securities Fund and the Growth Fund may invest, are unsecured
demand notes that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate according to the terms of the
instrument. Because master demand notes are direct lending arrangements between
a Fund and the issuer, they are not normally traded. Although there is no
secondary market in the notes, a Fund may demand payment of principal and
accrued interest at any time within 30 days. While such notes are not typically
rated by credit rating agencies, variable amount master demand notes (the
issuers of which are normally manufacturing, retail, financial and other
business concerns) must be determined by the Adviser to be of comparable quality
to commercial paper in which such Fund may invest. The Adviser will consider the
earning power, cash flow, and other liquidity ratios of the issuers of such
notes and will continuously monitor their financial status and ability to meet
payment on demand. In determining average weighted portfolio maturity, a
variable amount master demand note will be deemed to have a maturity equal to
the earlier of the period of time remaining until the next interest rate
adjustment or the period of time remaining until the principal amount can be
recovered from the issuer through demand.
FOREIGN INVESTMENT. Investments in securities issued by foreign
branches of U.S. banks, foreign banks, or other foreign issuers, including ADRs
and securities purchased on foreign securities exchanges, may subject the Funds
to investment risks that differ in some respects from those related to
investment in obligations of U.S. domestic issuers or in U.S. securities
markets. Such risks include future adverse political and economic developments,
possible seizure, nationalization, or expropriation of foreign investments, less
stringent disclosure requirements, the possible establishment of exchange
controls or taxation at the source, or the adoption of other foreign
governmental restrictions. A Fund will acquire such securities only when the
Adviser believes the risks associated with such investments are minimal.
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U.S. GOVERNMENT OBLIGATIONS. Each Fund may invest in obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government are
supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law.
EXEMPT SECURITIES. As stated in the Prospectus, the assets of the
Tennessee Fund will be primarily invested in Exempt Securities. Under normal
market conditions, at least 80% of the net assets of the Tennessee Fund will be
invested in Exempt Securities and 65% of such Fund's total assets will be
invested in Tennessee Exempt Securities. To the extent that suitable Exempt
Securities may not be available and the Tennessee Fund is unable to comply with
such 80% test, for temporary purposes the Tennessee Fund may invest in municipal
securities from other states that are otherwise eligible for investment by the
Tennessee Fund. Such other municipal securities therefore will be comparable to
Exempt Securities except that the interest thereon will not be exempt from
Tennessee state income taxes.
Exempt Securities include debt obligations issued by governmental
entities to obtain funds for various public purposes, such as the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to other
public institutions and facilities. Private activity bonds that are issued by or
on behalf of public authorities to finance various privately-operated facilities
are included within the term Exempt Securities if the interest paid thereon is
exempt from both Tennessee income taxes and federal taxes, although such
interest may be treated as a preference item for purposes of the federal
alternative minimum tax.
Among other types of Exempt Securities, the Tennessee Fund may purchase
short-term General Obligation Notes, Tax Anticipation Notes, Bond Anticipation
Notes, Revenue Anticipation Notes, Project Notes, Tax-Exempt Commercial Paper,
Construction Loan Notes and other forms of short-term tax-exempt loans. Such
instruments are issued with a short-term maturity in anticipation of the receipt
of tax funds, the proceeds of bond placements or other revenues. In addition,
the Tennessee Fund may invest in other types of tax-exempt instruments, such as
municipal bonds, private activity bonds, and pollution control bonds.
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Project Notes are issued by a state or local housing agency and are
sold by the Department of Housing and Urban Development. While the issuing
agency has the primary obligation with respect to its Project Notes, they are
also secured by the full faith and credit of the United States through
agreements with the issuing authority which provide that, if required, the
federal government will lend the issuer an amount equal to the principal of and
interest on the Project Notes.
As described in the Prospectus, the two principal classifications of
Exempt Securities consist of "general obligation" and "revenue" issues. The
Tennessee Fund may also acquire "moral obligation" issues, which are normally
issued by special purpose authorities. There are, of course, variations in the
quality of Exempt Securities, both within a particular classification and
between classifications, and the yields on Exempt Securities depend upon a
variety of factors, including the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. Ratings represent the
opinions of an NRSRO as to the quality of Exempt Securities. It should be
emphasized, however, that ratings are general and are not absolute standards of
quality, and Exempt Securities with the same maturity, interest rate and rating
may have different yields, while Exempt Securities of the same maturity and
interest rate with different ratings may have the same yield. Subsequent to
purchase, an issue of Exempt Securities may cease to be rated or its rating may
be reduced below the minimum rating required for purchase. The Adviser will
consider such an event in determining whether the Tennessee Fund should continue
to hold the obligation.
An issuer's obligations under its Exempt Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the federal bankruptcy code, and laws, if any,
which may be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
the enforcement of such obligations or upon the ability of municipalities to
levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Exempt Securities may be materially
adversely affected by litigation or other conditions.
VARIABLE AND FLOATING RATE NOTES. The Money Market Fund, the Tennessee
Fund, the Government Securities Fund and the Growth Fund may acquire variable
and floating rate notes, subject to such Fund's investment objectives, policies
and restrictions. A variable rate note is one whose terms provide for the
adjustment of its interest rate on set dates and which, upon such adjustment,
can reasonably be expected to have a market value that approximates its
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amortized cost. A floating rate note is one whose terms provide for the
adjustment of its interest rate whenever a specified interest rate changes and
which, at any time, can reasonably be expected to have a market value that
approximates its amortized cost. Such notes are frequently not rated by credit
rating agencies; however, unrated variable and floating rate notes purchased by
such Funds will be determined by the Adviser under guidelines established by the
Group's Board of Trustees to be of comparable quality at the time of purchase to
rated instruments eligible for purchase under that particular Fund's investment
policies. In making such determinations, the Adviser will consider the earning
power, cash flow and other liquidity ratios of the issuers of such notes (such
issuers include financial, merchandising, bank holding and other companies) and
will continuously monitor their financial condition. Although there may be no
active secondary market with respect to a particular variable or floating rate
note purchased by a Fund, the Fund may attempt to resell the note at any time to
a third party. The absence of an active secondary market, however, could make it
difficult for a Fund to dispose of a variable or floating rate note in the event
the issuer of the note defaulted on its payment obligations and the Fund could,
as a result or for other reasons, suffer a loss to the extent of the default. To
the extent that there exists no readily available market for such note and a
Fund is not entitled to receive the principal amount of a note within seven
days, such a note will be treated as an illiquid security for purposes of
calculation of such Fund's limitation on investments in illiquid securities, as
set forth in the respective Fund's investment restrictions. Variable or floating
rate notes may be secured by bank letters of credit.
Variable or floating rate notes invested in by the Money Market Fund
may have maturities of more than 397 days, as follows:
1. An instrument that is issued or guaranteed as to principal or
interest by the United States Government or any instrumentality thereof which
has a variable rate of interest readjusted no less frequently than every 762
days will be deemed by the Money Market Fund to have a maturity equal to the
period remaining until the next readjustment of the interest rate.
2. A variable rate note, the principal amount of which is scheduled in
accordance with the terms of the instrument to be paid unconditionally in 397
calendar days or less, will be deemed by the Money Market Fund to have a
maturity equal to the period remaining until the next readjustment of the
interest rate.
3. A variable rate note that is subject to a demand feature will be
deemed by the Money Market Fund to have a maturity equal to the longer of the
period remaining until the next readjustment of
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the interest rate or the period remaining until the principal amount can be
recovered through demand.
4. A floating rate note that is subject to a demand feature will be
deemed by the Money Market Fund to have a maturity equal to the period remaining
until the principal amount can be recovered through demand.
As used above, a note is "subject to a demand feature" where the Money
Market Fund is entitled to receive the principal amount of the note either at
any time on no more than thirty days' notice or at specific intervals not
exceeding 397 days and upon no more than 30 days' notice.
RESTRICTED SECURITIES. Securities in which the Fixed Income and
Tennessee Funds may invest include securities issued by corporations without
registration under the Securities Act of 1933, as amended (the "1933 Act"), such
as securities issued in reliance on the so-called "private placement" exemption
from registration which is afforded by Section 4(2) of the 1933 Act ("Section
4(2) securities"). Section 4(2) securities are restricted as to disposition
under the Federal securities laws, and generally are sold to institutional
investors such as the Funds who agree that they are purchasing the securities
for investment and not with a view to public distribution. Any resale must also
generally be made in an exempt transaction. Section 4(2) securities are normally
resold to other institutional investors through or with the assistance of the
issuer or investment dealers. Any such restricted securities will be considered
to be illiquid for purposes of a Fund's limitations on investments in illiquid
securities unless, pursuant to procedures adopted by the Board of Trustees of
the Group, the Adviser has determined such securities to be liquid because such
securities are eligible for resale under Rule 144A under the 1933 Act and are
readily saleable. The Fixed Income Fund and the Tennessee Fund will each limit
its investment in Section 4(2) securities to not more than 10% and 5%,
respectively, of its total net assets. Compliance with such limitation will be
measured as of the time of purchase.
OPTIONS TRADING. Each of the Funds, other than the Money Market Fund,
may purchase put and call options. A put option gives the purchaser the right to
sell the underlying security at the stated exercise price at any time prior to
the expiration date of the option, regardless of the market price of the
security. A call option gives the purchaser of the option the right to buy, and
a writer has the obligation to sell, the underlying security at the stated
exercise price at any time prior to the expiration of the option, regardless of
the market price of the security. The premium paid to the writer is
consideration for undertaking the obligations under the option contract. Put and
call options purchased by the Funds will be valued at the last sale price, or in
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the absence of such a price, at the mean between bid and asked price.
When a Fund writes a call option, an amount equal to the net premium
(the premium less the commission) received by the Fund is included in the
liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The current
value of the traded option is the last sale price or, in the absence of a sale,
the mean between bid and asked price. If an option expires on the stipulated
expiration date or if the Fund enters into a closing purchase transaction, it
will realize a gain (or a loss if the cost of a closing purchase transaction
exceeds the net premium received when the option is sold) and the deferred
credit related to such option will be eliminated. If an option is exercised, the
Fund may deliver the underlying security in the open market. In either event,
the proceeds of the sale will be increased by the net premium originally
received and the Fund will realize a gain or loss.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreements with the Counterparty. In contrast to exchange-listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium guarantees and security, are set by negotiation of the parties.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, such Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. A Fund will engage in OTC option transactions only with
Counterparties that the Adviser considers to present minimal credit risks under
guidelines to be established by the Group's Board of Trustees. To the extent
that there is no readily available market for any such OTC options, such options
and portfolio securities "covering" the amount of such Fund's obligation
pursuant to an OTC option sold by it (the cost of the sell-back plus the
in-the-money amount, if any) are deemed to be illiquid, and are subject to such
Fund's limitation on investing in illiquid securities.
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PUTS. The Tennessee Fund may also acquire "puts" with respect to Exempt
Securities held in its portfolio. A put is a right to sell a specified security
(or securities) within a specified period of time at a specified exercise price.
The Tennessee Fund may sell, transfer, or assign a put only in conjunction with
the sale, transfer, or assignment of the underlying security or securities.
The amount payable to the Tennessee Fund upon its exercise of a "put"
is normally (i) the Tennessee Fund's acquisition cost of the Exempt Securities
(excluding any accrued interest which the Tennessee Fund paid on the
acquisition), less any amortized market premium or plus any amortized market or
original issue discount during the period the Tennessee Fund owned the
securities, plus (ii) all interest accrued on the securities since the last
interest payment date during that period.
Puts may be acquired by the Tennessee Fund to facilitate the liquidity
of its portfolio assets. Puts may also be used to facilitate the reinvestment of
the Tennessee Fund's assets at a rate of return more favorable than that of the
underlying security. Puts may, under certain circumstances, also be used to
shorten the maturity of underlying variable rate or floating rate securities for
purposes of calculating the remaining maturity of those securities.
The Tennessee Fund expects that it will generally acquire puts only
where the puts are available without the payment of any direct or indirect
consideration. However, if necessary or advisable, the Tennessee Fund may pay
for puts either separately in cash or by paying a higher price for portfolio
securities which are acquired subject to the puts (thus reducing the yield to
maturity otherwise available for the same securities).
The Tennessee Fund intends to enter into puts only with dealers, banks,
and broker-dealers which, in the Adviser's opinion, present minimal credit
risks.
WHEN-ISSUED SECURITIES. As discussed in the Prospectus, each of the
Funds, other than the Money Market 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 such a Fund agrees to purchase securities on a
"when-issued" basis, the Fund's custodian will set aside cash or liquid
portfolio securities equal to the amount of the commitment in a separate
account. Normally, the Fund's custodian will set aside portfolio securities to
satisfy the purchase commitment, and in such a case, the Fund may be required
subsequently to place additional assets in the separate account in order to
assure that the value of the account remains equal to the amount of the Fund's
commitment. It may be expected that the Fund's net assets will fluctuate to a
greater
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degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. In addition, because a Fund will set
aside cash or liquid portfolio securities to satisfy its purchase commitments in
the manner described above, such Fund's liquidity and the ability of the Adviser
to manage it might be affected in the event its commitments to purchase "when-
issued" securities ever exceeded 25% of the value of its total assets. Under
normal market conditions, however, a Fund's commitment to purchase "when-issued"
or "delayed-delivery" securities will not exceed 25% of the value of its total
assets.
When a Fund engages in "when-issued" transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in
such Fund's incurring a loss or missing the opportunity to obtain a price
considered to be advantageous. Such Funds will engage in "when-issued" or
"delayed delivery" transactions only for the purpose of acquiring portfolio
securities consistent with the Funds' investment objectives and policies and not
for investment leverage. If the Tennessee Fund sells a "when- issued" or
"delayed-delivery" security before delivery, any gain would not be tax-exempt.
MORTGAGE-RELATED SECURITIES. Each of the Value Fund, the Fixed Income
Fund, the Government Securities Fund and the Growth 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-related securities, for purposes of the Prospectus and this
Statement of Additional Information, represent pools of mortgage loans assembled
for sale to investors by various governmental agencies such as the Government
National Mortgage Association and government-related organizations such as the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation, as well as by nongovernmental issuers such as commercial banks,
savings and loan institutions, mortgage bankers and private mortgage insurance
companies. Although certain mortgage-related securities are guaranteed by a
third party or otherwise similarly secured, the market value of the security,
which may fluctuate, is not so secured. If a Fund purchases a mortgage-related
security at a premium, that portion may be lost if there is a decline in the
market value of the security whether resulting from changes in interest rates or
prepayments in the underlying mortgage collateral. As with other
interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true, since in periods of declining interest rates the mortgages
underlying the securities are prone to prepayment, thereby shortening the
average life of the security and shortening the period of time over which income
at the higher rate
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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
such Funds. 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 Funds will receive when these amounts are
reinvested.
The Fixed Income Fund may invest up to 10% of its net assets in
mortgage-related securities which are collateralized mortgage obligations
structured on pools of mortgage pass-through certificates or mortgage loans.
Mortgage-related securities will be purchased only if rated in the three highest
bond rating categories assigned by one or more appropriate NRSROs, or, if
unrated, which the Adviser deems to be of comparable quality.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities issued by
the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by the Federal National Mortgage Association
("FNMA") include FNMA Guaranteed Mortgage Pass-Through Certificates (also known
as "Fannie Maes") which are solely the obligations of the FNMA and are not
backed by or entitled to the full faith and credit of the United States. 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-related securities issued by the Federal Home
Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage Participation
Certificates (also known as "Freddie Macs" or "PCs"). The FHLMC is a corporate
instrumentality of the United States, created pursuant to an Act of Congress,
which is owned entirely by Federal Home Loan Banks. Freddie Macs are not
guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. The FHLMC guarantees either ultimate collection or
timely payment of all principal payments on the underlying mortgage loans. When
the
B-11
<PAGE> 209
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.
REPURCHASE AGREEMENTS. Securities held by each of the Funds may be
subject to repurchase agreements. Under the terms of a repurchase agreement, a
Fund would acquire securities from banks and registered broker-dealers which the
Adviser deems creditworthy under guidelines approved by the Group's Board of
Trustees, subject to the seller's agreement to repurchase such securities at a
mutually agreed-upon date and price. The repurchase price would generally equal
the price paid by the Fund plus interest negotiated on the basis of current
short-term rates, which may be more or less than the rate on the underlying
portfolio securities. The seller under a repurchase agreement will be required
to maintain continually the value of collateral held pursuant to the agreement
at not less than the repurchase price (including accrued interest). This
requirement will be continually monitored by the Adviser. If the seller were to
default on its repurchase obligation or become insolvent, the Fund holding such
obligation would suffer a loss to the extent that the proceeds from a sale of
the underlying portfolio securities were less than the repurchase price under
the agreement, or to the extent that the disposition of such securities by the
Fund were delayed pending court action. Additionally, there is no controlling
legal precedent confirming that a Fund would be entitled, as against a claim by
such seller or its receiver or trustee in bankruptcy, to retain the underlying
securities, although the Group believes that, under the regular procedures
normally in effect for custody of a Fund's securities subject to repurchase
agreements and under federal laws, a court of competent jurisdiction would rule
in favor of the Group if presented with the question. Securities subject to
repurchase agreements will be held by that Fund's custodian or another qualified
custodian or in the Federal Reserve/Treasury book-entry system. Repurchase
agreements are considered to be loans by a Fund under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS. As discussed in the Prospectus, each of
the Funds may borrow funds for temporary purposes by entering into reverse
repurchase agreements in accordance with that Fund's investment restrictions.
Pursuant to such agreements, a Fund would sell portfolio securities to financial
institutions such as banks and broker-dealers, and agree to repurchase the
securities at a mutually agreed-upon date and price. Each Fund intends to enter
into reverse repurchase agreements only to avoid otherwise selling securities
during unfavorable market conditions to meet redemptions. At the time a Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account assets such as U.S. Government securities or other liquid
securities consistent with the Fund's
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<PAGE> 210
investment restrictions having a value equal to the repurchase price (including
accrued interest), and will subsequently continually monitor the account to
ensure that such equivalent value is maintained at all times. Reverse repurchase
agreements involve the risk that the market value of the securities sold by a
Fund may decline below the price at which a Fund is obligated to repurchase the
securities. Reverse repurchase agreements are considered to be borrowings by a
Fund under the 1940 Act.
GUARANTEED INVESTMENT CONTRACTS. The Money Market Fund and the Fixed
Income Fund may each invest in guaranteed investment contracts ("GICs") issued
by insurance companies. Pursuant to such contracts, a Fund makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the deposit fund on a monthly basis guaranteed
interest which is based on an index. The GICs provide that this guaranteed
interest will not be less than a certain minimum rate. The insurance company may
assess periodic charges against a GIC for expense and service costs allocable to
it, and the charges will be deducted from the value of the deposit fund. The
Money Market Fund and the Fixed Income Fund will only purchase a GIC when the
Adviser has determined that the GIC presents minimal credit risks to that Fund
and is of comparable quality to instruments that are rated high quality by a
nationally recognized statistical rating organization having the characteristics
described above. Because such Funds may not receive the principal amount of a
GIC from the insurance company on seven days' notice or less, the GIC is
considered an illiquid investment, and, together with other instruments in the
Fund which are not readily marketable, will not exceed such Fund's limitation on
its investments in illiquid securities. The Money Market Fund will not purchase
a GIC with a term of more than one year. In determining average weighted
portfolio maturity, a GIC will be deemed to have a maturity equal to the earlier
of the period of time remaining until the next readjustment of the guaranteed
interest rate or the period of time before the Fund can receive the principal
upon demand.
Investment Restrictions
- -----------------------
Each Fund's investment objective is a fundamental policy and may not be
changed without a vote of the holders of a majority of such Fund's outstanding
Shares. In addition, the following investment restrictions may be changed with
respect to a particular Fund only by a vote of the majority of the outstanding
Shares of that Fund (as defined under "ADDITIONAL INFORMATION - Vote of a
Majority of the Outstanding Shares").
In addition to the investment restrictions set forth in the Prospectus,
each of the Money Market Fund, the Value Fund, the Fixed Income Fund and the
Tennessee Fund may not:
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<PAGE> 211
1. Purchase securities on margin, except, with respect to the Value
Fund, the Fixed Income Fund and the Tennessee Fund, for use of short-term credit
necessary for clearance of purchases of portfolio securities;
2. Engage in any short sales;
3. Underwrite the securities issued by other persons, except to the
extent that a Fund may be deemed to be an underwriter under certain securities
laws in the disposition of "restricted securities" acquired in accordance with
such Fund's investment objectives and policies; and
4. Purchase or sell real estate (although investments in marketable
securities of companies engaged in such activities are not prohibited by this
restriction).
In addition, the Money Market Fund may not:
1. Purchase or sell commodities, commodity contracts (including futures
contracts), or oil, gas or mineral exploration or development programs (although
investments in marketable securities of companies engaged in such activities are
not prohibited by this restriction);
2. Write or purchase put or call options;
3. Invest in any issuer for purposes of exercising control or
management;
4. Purchase or retain securities of any issuer if the officers or
Trustees of the Group or the officers or directors of its investment adviser
owning beneficially more than one-half of 1% of the securities of such issuer
together own beneficially more than 5% of such securities;
5. Invest more than 10% of total assets in the securities of issuers
which together with any predecessors have a record of less than three years of
continuous operation.
Each of the Value Fund and the Fixed Income Fund may not:
1. Purchase or sell commodities or commodities contracts, except to the
extent disclosed in the current Prospectus of the Funds;
2. Purchase participations or direct interests in oil, gas or other
mineral exploration or development programs (although investments by such Funds
in marketable securities of companies engaged in such activities are not
prohibited in this restriction);
B-14
<PAGE> 212
3. Purchase or retain the securities of an issuer if, to the knowledge
of the Fund's management, the officers or trustees of the Group, and the
officers or directors of the investment adviser, who each owns beneficially more
than .5% of the outstanding securities of such issuer, together own beneficially
more than 5% of such securities;
4. Invest more than 5% of total assets in puts, calls, straddles,
spreads or any combination thereof; and
5. Invest more than 5% of net assets in warrants valued at the lower of
cost or market; provided that included within that amount, but not to exceed 2%
of net assets, may be warrants which are not listed on the New York or American
Stock Exchange. For the purposes of this restriction, warrants acquired in units
or attached to securities are deemed to be without value.
The Tennessee Fund may not:
1. Purchase or sell commodities or commodities contracts, except to the
extent disclosed in the current Prospectus of such Fund.
Each of the Government Securities Fund and the Growth 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 a Fund may be deemed to be an underwriter under certain securities
laws in the disposition of "restricted securities";
3. Purchase or sell commodities or commodity contracts, except to the
extent disclosed in the current Prospectus of the Fund; and
4. Purchase or sell real estate (although investments in marketable
securities of companies engaged in such activities and securities secured by
real estate or interests therein are not prohibited by this restriction).
The following additional investment restrictions may be changed without
the vote of a majority of the outstanding Shares of a Fund.
No Fund may purchase securities of other investment companies, except
(a) in connection with a merger, consolidation, acquisition
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<PAGE> 213
or reorganization, and (b) to the extent permitted by the 1940 Act, or pursuant
to any exemptions therefrom.
Finally, each of the Government Securities Fund and the Growth Fund may
not:
1. Engage in any short sales; and
2. Mortgage or hypothecate the Fund's assets in excess of one third of
the Fund's total assets.
If any percentage restriction or requirement described above is
satisfied at the time of investment, a later increase or decrease in such
percentage resulting from a change in asset value will not constitute a
violation of such restriction or requirement. However, should a change in net
asset value or other external events cause a Fund's investments in illiquid
securities, repurchase agreements with maturities in excess of seven days and
other instruments in such Fund which are not readily marketable to exceed the
limit set forth in such Fund's Prospectus for its investment in illiquid
securities, the Fund will act to cause the aggregate amount of such securities
to come within such limit as soon as reasonably practicable. In such an event,
however, such Fund would not be required to liquidate any portfolio securities
where the Fund would suffer a loss on the sale of such securities.
Portfolio Turnover
- ------------------
The portfolio turnover rate for each of the Funds is calculated by
dividing the lesser of a Fund's purchases or sales of portfolio securities for
the year by the monthly average value of the portfolio securities. The
calculation excludes all securities whose remaining maturities at the time of
acquisition were one year or less.
Because the Money Market Fund intends to invest entirely in securities
with maturities of less than one year and because the Commission requires such
securities to be excluded from the calculation of portfolio turnover rate, the
portfolio turnover with respect to the Money Market Fund is expected to be zero
percent for regulatory purposes. The portfolio turnover rates for each of the
other Funds for the fiscal years ended June 30, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Value Fund 11.47% 27.89%
Fixed Income Fund 196.97 363.84
Tennessee Fund 38.66 60.76
Government Securities Fund 104.79 20.87
Growth Fund 24.07 31.22
</TABLE>
B-16
<PAGE> 214
The portfolio turnover rate may vary greatly from year to year as well
as within a particular year, and may also be affected by cash requirements for
redemptions of Shares. High portfolio turnover rates will generally result in
higher transaction costs, including brokerage commissions, to a Fund and may
result in additional tax consequences to a Fund's Shareholders. Portfolio
turnover will not be a limiting factor in making investment decisions.
The portfolio turnover rate for the Fixed Income Fund decreased during
the fiscal year ended June 30, 1997, from the prior fiscal year due to steady
interest rates, which decreased the Fixed Income Fund's need to find competitive
securities compared to going interest rates. The portfolio turnover rate for the
Government Securities Fund increased during the fiscal year ended June 30, 1997,
from the prior fiscal year due to the Government Securities Fund's repositioning
of its portfolio.
NET ASSET VALUE
As indicated in the Prospectus, the net asset value of each Fund is
determined and the Shares of each Fund are priced as of the Valuation Time or
Times (in the case of the Money Market Fund) on each Business Day of that Fund.
A "Business Day" of a Fund is a day on which the New York Stock Exchange is open
for trading and any other day (other than a day on which no Shares of that Fund
are tendered for redemption and no order to purchase any Shares of that Fund is
received) during which there is sufficient trading in portfolio instruments that
such Fund's net asset value per share might be materially affected. The New York
Stock Exchange will not open in observance of the following holidays: New Year's
Day, Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving, and Christmas.
Valuation Of The Money Market Fund
- ----------------------------------
The Money Market Fund has elected to use the amortized cost method of
valuation pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an
instrument at its cost initially and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. This method may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price the Money Market Fund would receive if it sold the instrument.
The value of securities in the Money Market Fund can be expected to vary
inversely with changes in prevailing interest rates.
Pursuant to Rule 2a-7, the Money Market Fund will maintain a
dollar-weighted average portfolio maturity appropriate to the Money Market
Fund's objective of maintaining a stable net asset value per
B-17
<PAGE> 215
share, provided that the Money Market Fund will not purchase any security with a
remaining maturity of more than 397 days (thirteen months) (securities subject
to repurchase agreements may bear longer maturities) nor maintain a
dollar-weighted average portfolio maturity which exceeds 90 days. The Group's
Board of Trustees has also undertaken to establish procedures reasonably
designed, taking into account current market conditions and the investment
objective of the Money Market Fund, to stabilize the net asset value per share
of the Money Market Fund for purposes of sales and redemptions at $1.00. These
procedures include review by the Trustees, at such intervals as they deem
appropriate, to determine the extent, if any, to which the net asset value per
share of the Money Market Fund calculated by using available market quotations
deviates from $1.00 per Share. In the event such deviation exceeds one-half of
one percent, Rule 2a-7 requires that the Board of Trustees promptly consider
what action, if any, should be initiated. If the Trustees believe that the
extent of any deviation from the Money Market Fund's $1.00 amortized cost price
per Share may result in material dilution or other unfair results to new or
existing investors, they will take such steps as they consider appropriate to
eliminate or reduce, to the extent reasonably practicable, any such dilution or
unfair results. These steps may include selling portfolio instruments prior to
maturity, shortening the average portfolio maturity, withholding or reducing
dividends, reducing the number of the Money Market Fund's outstanding Shares
without monetary consideration, or utilizing a net asset value per share
determined by using available market quotations.
Valuation Of the Other Funds
- ----------------------------
Investments in securities for which market quotations are readily
available are valued based upon their current available prices in the principal
market in which such securities are normally traded. Unlisted securities for
which market quotations are readily available are valued at such market value.
Securities and other assets for which quotations are not readily available are
valued at their fair value as determined in good faith under consistently
applied procedures established by and under the general supervision of the
Trustees of the Group. Short-term securities (I.E., with maturities of 60 days
or less) are valued at either amortized cost or original cost plus accrued
interest, which approximates current value.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of each of the Funds are sold on a continuous basis by BISYS,
and BISYS has agreed to use appropriate efforts to solicit 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
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<PAGE> 216
Adviser or the Adviser's affiliated entities (collectively, "Entities").
Customers purchasing Shares of the Funds may include officers, directors, or
employees of the Adviser or the Entities.
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Commission, (b) the Exchange is closed for other than customary weekend and
holiday closings, (c) the Commission has by order permitted such suspension, or
(d) an emergency exists as a result of which (i) disposal by the Group of
securities owned by it is not reasonably practical, or (ii) it is not reasonably
practical for the Group to determine the fair value of its net assets.
MANAGEMENT AND SERVICE PROVIDERS OF THE GROUP
Trustees and Officers
- ---------------------
Overall responsibility for management of the Group rests with its Board
of Trustees. The Trustees elect the officers of the Group to supervise actively
its day-to-day operations.
The names of the Trustees and officers of the Group, their addresses,
and principal occupations during the past five years are as follows:
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name And Address With the Group During Past 5 Years
- ---------------- -------------- -------------------
<S> <C> <C>
Walter B. Grimm* Chairman, From June, 1992 to present,
3435 Stelzer Road President and employee of BISYS Fund
Columbus, Ohio 43219 Trustee Services Limited
Age: 52 Partnership.
Nancy E. Converse* Trustee and Since July, 1990, employee
3435 Stelzer Road Assistant of BISYS Fund Services
Columbus, Ohio 43219 Secretary Limited Partnership.
Age: 48
Maurice G. Stark Trustee Consultant with Battelle
505 King Avenue Memorial Institute; from 1979
Columbus, Ohio 43201 to December, 1994, Vice
Age: 62 President-Finance and Chief
Financial Officer, Battelle
Memorial Institute
(scientific research and
development service
corporation).
James H. Woodward, Ph.D. Trustee Since July 1989, Chancellor
The University of North of The University of North
Carolina at Charlotte Carolina at Charlotte.
Charlotte, NC 28223
Age: 57
</TABLE>
B-19
<PAGE> 217
<TABLE>
<S> <C> <C>
Chalmers P. Wylie Trustee From April, 1993 to present,
754 Stonewood Court of Counsel with Kegler,
Columbus, Ohio 43235 Brown, Hill & Ritter (law
Age: 76 firm); from January, 1993 to
present, Adjunct Professor
at The Ohio State
University; from January,
1967 to January, 1993,
Member of the United States
House of Representatives for
the 15th District.
J. David Huber Vice President Since January, 1996,
3435 Stelzer Road President of BISYS Fund
Columbus, Ohio 43219 Services Limited
Age: 51 Partnership; from June, 1987
to December, 1995, employee
of BISYS Fund Services
Limited Partnership.
William J. Tomko Vice President From April, 1987 to present,
3435 Stelzer Road employee of BISYS Fund
Columbus, Ohio 43219 Services Limited
Age: 39 Partnership.
Thresa B. Dewar Treasurer From March, 1997 to present,
3435 Stelzer Road employee of BISYS Fund
Columbus, Ohio 43219 Services Limited
Age: 43 Partnership; prior thereto,
Vice President and
Controller of Federated
Administrative Services, Inc.
(investment management firm).
George L. Stevens Secretary From September, 1996 to
3435 Stelzer Road present, employee of BISYS
Columbus, Ohio 43219 Fund Services Limited
Age: 46 Partnership; from September,
1995 to August, 1996,
consultant on bank
investment products and
activities; from June, 1980
to September, 1995, employee
of AmSouth Bank.
Alaina V. Metz Assistant From June, 1995 to present,
3435 Stelzer Road Secretary employee of BISYS Fund
Columbus, Ohio 43219 Services Limited
Age: 30 Partnership; prior to June,
1995, supervisor of Blue
Sky Compliance at Alliance
Capital Management, L.P.
(investment management
firm).
- -------------------
<FN>
*Mr. Grimm and Ms. Converse are each considered to be an "interested
person" of the Group as defined in the 1940 Act.
</TABLE>
B-20
<PAGE> 218
As of the date of this Statement of Additional Information, the Group's
officers and trustees, as a group, own less than 1% of any Fund's Shares.
No officer or employee of BISYS, BISYS Fund Services Ohio,
Inc. or BISYS Fund Services, Inc. receives any compensation from
the Group for acting as trustee of the Group. The officers of the
Group receive no compensation directly from the Group for
performing the duties of their offices. BISYS receives fees from
the Funds for acting as Administrator and pursuant to the
Distribution and Shareholder Service Plan described below, may
receive fees pursuant to the Administrative Services Plan described
below, and may retain all or a portion of any sales charge imposed
upon the purchase of Shares of the Riverside Load Funds. BISYS
Fund Services Ohio, Inc. receives fees from the Funds for acting as
transfer agent. BISYS Fund Services, Inc. receives fees from the
Funds for providing certain fund accounting services. Messrs.
Grimm, Huber, Tomko and Stevens, Ms. Converse, Ms. Dewar and Ms.
Metz are employees of BISYS.
The following table sets forth information regarding all
compensation paid by the Group to its Trustees for their services
as trustees during the fiscal year ended June 30, 1997. The Group
has no pension or retirement plans.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Aggregate Total Compensation
Name and Position Compensation From the Group
With the Group From the Group and the Fund Complex*
- -------------- -------------- ---------------------
<S> <C> <C>
Walter B. Grimm $0 $0
Trustee
Nancy E. Converse $0 $0
Trustee
Maurice G. Stark $14,473 $14,473
Trustee
James H. Woodward, Ph.D. $16,162 $16,162
Trustee
Chalmers P. Wylie $14,973 $14,973
Trustee
- -----------------
<FN>
*For purposes of this Table, Fund Complex means one or more mutual
funds, including the Funds, which have a common investment
</TABLE>
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<PAGE> 219
adviser or affiliated investment advisers or which hold themselves out to the
public as being related.
Investment Adviser
- ------------------
Investment advisory and management services are provided to the Funds
of the Group by National Bank of Commerce (the "Adviser"), pursuant to an
Investment Advisory Agreement dated as of July 19, 1988 (with respect to the
Money Market Fund), an Investment Advisory Agreement dated as of September 20,
1991 (with respect to the Equity Fund and the Fixed Income Fund), an Investment
Advisory Agreement dated as of October 27, 1992 (with respect to the Tennessee
Fund), and an Investment Advisory Agreement dated as of April 5, 1994, as
amended as of June 3, 1994 (with respect to the Government Securities Fund and
the Growth Fund) (collectively, the "Investment Advisory Agreement").
Under the Investment Advisory Agreement, the Adviser has agreed to
provide investment advisory services as described in the Prospectus of the
Funds. For the services provided and expenses assumed pursuant to the Investment
Advisory Agreement, (1) the Money Market Fund pays the Adviser a fee computed
daily and paid monthly, at the annual rate of thirty-five one-hundredths of one
percent (.35%) of the average daily net assets of the Money Market Fund; (2) the
Value Fund pays the Adviser a fee equal to the lesser of (a) a fee computed
daily and paid monthly, at an annual rate of one percent (1.00%) of the first
$50 million of the Value Fund's average daily net assets and seventy-five
one-hundredths of one percent (.75%) of the Value Fund's remaining average daily
net assets or (b) such other fee as may be agreed upon in writing by the Adviser
and the Group; (3) each of the Fixed Income Fund and the Tennessee Fund pays the
Adviser a fee equal to the lesser of (a) a fee computed daily and paid monthly,
at an annual rate, calculated as a percentage of the average daily net-assets of
that Fund of sixty-five one-hundredths of one percent (.65%) or (b) such other
fee as may be agreed upon in writing by the Adviser and the Group; (4) the
Government Securities Fund pays the Adviser a fee, computed daily and paid
monthly, at the annual rate of fifty one-hundredths of one percent (.50%) of the
average daily net assets of the Government Securities Fund; and (5) the Growth
Fund pays the Adviser a fee, computed daily and paid monthly, at an annual rate
of one percent (1.00%) of the first $50 million of the Growth Fund's average
daily net assets and seventy-five one-hundredths of one percent (.75%) of the
Growth Fund's remaining average daily net assets. The Adviser has in the past
and may in the future periodically voluntarily reduce all or a portion of its
advisory fee with respect to a Fund to increase the net income of that Fund
available for distribution as dividends.
For the fiscal years ended June 30, 1997, 1996 and 1995, the Adviser
earned and voluntarily waived the amounts indicated below
B-22
<PAGE> 220
with respect to its investment advisory services to the indicated Funds pursuant
to the Investment Advisory Agreement:
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
1997 1996 1995
---- ---- ----
Fees Fees Fees Fees Fees Fees
Earned Waived Earned Waived Earned Waived
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund $480,718 -- $524,476 -- $549,669 --
Value Fund 694,259 -- 747,594 -- 719,870 --
Fixed Income
Fund 156,128 -- 223,976 -- 268,630 --
Tennessee Fund 122,007 $112,622 129,939 $127,577 127,967 $127,967
Government Securities 35,860 35,860 38,565 38,565 41,005 41,005
Fund
Growth Fund 332,857 216,357 284,790 188,588 118,392 118,392
</TABLE>
Unless sooner terminated, the Investment Advisory Agreement continues
in effect from year to year, for successive annual periods ending on March 31,
if, as to each Fund, such continuance is approved at least annually by the
Group's Board of Trustees or by vote of a majority of the outstanding Shares of
the relevant Fund (as defined under "GENERAL INFORMATION - Miscellaneous" in the
Funds' Prospectus), and a majority of the Trustees who are not parties to the
Investment Advisory Agreement or interested persons (as defined in the 1940 Act)
of any party to the Investment Advisory Agreement by votes cast in person at a
meeting called for such purpose. The Investment Advisory Agreement is terminable
as to a Fund at any time on at least 60 days' written notice without penalty by
the Trustees, by vote of a majority of the outstanding Shares of that Fund, or
by the Adviser. The Investment Advisory Agreement also terminates automatically
in the event of any assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that the Adviser shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by a Fund in connection with the performance of the Investment Advisory
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith, or gross negligence on the part of the Adviser in the
performance of its duties, or from reckless disregard by the Adviser of its
duties and obligations thereunder.
To offset capital losses incurred by the Money Market Fund during the
fiscal year ended June 30, 1995, during the fiscal year ended June 30, 1997, the
Adviser voluntarily contributed $134,389
B-23
<PAGE> 221
of its investment advisory fees to the Money Market Fund. In addition, during
the fiscal years ended June 30, 1996 and 1995, the Adviser contributed $134,389
and $628,737, respectively, to the Money Market Fund. Such contribution for the
fiscal year ended June 30, 1995, consisted of $97,370 of investment advisory
fees and $531,367 representing the difference between the carrying value and the
market value of certain securities purchased by the Adviser's parent, National
Commerce Bancorporation from the Money Market Fund.
To offset, in part, capital losses incurred by the Fixed Income Fund
during the fiscal year ended June 30, 1997, the Adviser or its parent
voluntarily contributed $150,000 to the Fixed Income Fund. In addition, the
Adviser or its parent voluntarily established an Irrevocable Letter of Credit
("LOC") with The Bank of New York on June 4, 1997, with the Fixed Income Fund as
the beneficiary of the LOC, in order to support the value of two defaulted fixed
income securities issued by Voyager Lines Private Placement and Ray & Ross
Transport. Prior to receipt of the LOC, NBC unconditionally and irrevocably
committed to support the value of these fixed income securities. These fixed
income securities were holdings of the Fixed Income Fund as of June 30, 1997.
The stated amount of the LOC exceeded the fair value of the two
defaulted securities by $2,725,000 on the date the LOC was established. This
amount, including accrued interest and contributed capital for the realized
capital loss described above is accounted for as a capital contribution to the
Fixed Income Fund. For further information regarding the Adviser's capital
contribution and the LOC, see the notes to the financial statements which are a
part of this Statement of Additional Information.
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 each Fund's investment objective and restrictions, which
securities are to be purchased and sold by a Fund, and which brokers are to be
eligible to execute such Fund's portfolio transactions. Purchases and sales of
portfolio securities with respect to the Money Market Fund, the Fixed Income
Fund, the Government Securities Fund and the Tennessee Fund usually are
principal transactions in which portfolio securities are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. Purchases from underwriters of portfolio securities generally
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers may include the spread between
the bid and asked price. Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. Transactions in the over-the-counter market
are generally principal
B-24
<PAGE> 222
transactions with dealers. With respect to the over-the-counter market, the
Group, where possible, will deal directly with dealers who make a market in the
securities involved except in those circumstances where better price and
execution are available elsewhere.
Allocation of transactions, including their frequency, to various
brokers and dealers is determined by the Adviser in its best judgment and in a
manner deemed fair and reasonable to Shareholders. The primary consideration is
prompt execution of orders in an effective manner at the most favorable price.
Subject to this consideration, brokers and dealers who provide supplemental
investment research to the Adviser may receive orders for transactions on behalf
of the Funds. 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 the Funds. Such information may be
useful to the Adviser in serving both the Funds and other clients and,
conversely, supplemental information obtained by the placement of business of
other clients may be useful to the Adviser in carrying out its obligations to
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. For the fiscal years ended June 30,
1997, 1996 and 1995, the Group paid the following brokerage commissions on
behalf of the Value Fund, the Growth Fund and the Fixed Income Fund.
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Value Fund $66,887 $133,509 $171,045
Growth Fund 31,092 43,315 32,075
Fixed Income Fund 6,250 -0- 2,500
</TABLE>
During the past three fiscal years, no brokerage commissions were paid
by the Group on behalf of the Money Market Fund, the Tennessee Fund or the
Government Securities Fund. In addition, the Adviser, on behalf of the Value
and/or Growth Funds, may direct brokerage transactions to (1) Interstate Johnson
Lane in return for the provision of portfolio management software and various
news service subscriptions, including Barron's, Bloomburg, Morningstar, Baseline
Financial Services and Value Line Institutional; and (2) Frank Russell in return
for chart and graph services. For the fiscal year ended June 30, 1997, the
amount of such transactions and related commissions on behalf of the Value Fund
were $10,023,901 and $25,408, respectively, and on behalf of the Growth Fund,
were $7,518,418 and $20,037, respectively. Such brokerage transactions are
subject to the requirements as to price and execution as described above.
B-25
<PAGE> 223
Except as otherwise disclosed to the Shareholders of the Funds and as
permitted by applicable laws, rules and regulations, the Group will not, on
behalf of the Funds, execute portfolio transactions through, acquire portfolio
securities issued by, make savings deposits in, or enter into repurchase or
reverse repurchase agreements with the Adviser, BISYS, or their affiliates, and
will not give preference to the Adviser's correspondents with respect to such
transactions, securities, savings deposits, repurchase agreements, and reverse
repurchase agreements.
It is expected that some of the Funds may execute brokerage
transactions through NBC Capital Markets Group, Inc., which is a registered
broker/dealer and a wholly owned subsidiary of the Adviser (the "Capital Markets
Group"), for a commission in conformity with the 1940 Act, the Securities
Exchange Act of 1934 and rules promulgated by the Commission.
Under these provisions, the Capital Markets Group is permitted to
receive and retain compensation for effecting portfolio transactions for a Fund
on an exchange if written procedures approved by the Trust's Board of Trustees
are in effect expressly permitting the Capital Markets Group to receive and
retain such compensation. The rules of the Commission and such procedures
further require that commissions paid to the Capital Markets Group by a Fund for
exchange transactions not exceed "usual and customary" brokerage commissions.
"Usual and customary" commissions are defined to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." In addition, a Fund may
direct commission business to the Capital Markets Group for portfolio
transactions other than on an exchange so long as the commissions charged are
(1) not more than 2% of the sales price for sales effected in connection with a
secondary distribution of securities or (2) not more than 1% of the purchase or
sale price of such securities if the sale is otherwise effected. The Trustees,
including those who are not "interested persons" of the Trust, have adopted
procedures for evaluating the reasonableness of commissions paid to the Capital
Markets Group and will review these procedures periodically.
Investment decisions for each Fund are made independently from those
for the other funds of the Group or any other investment company or account
managed by the Adviser. Any such other fund, investment company or account may
also invest in the same securities as the Group on behalf of the Funds. When a
purchase or sale of the same security is made at substantially the same time on
behalf of a Fund and another fund of the Group, investment company or account,
the transaction will be averaged as to price and avail-
B-26
<PAGE> 224
able investments will be allocated as to amount in a manner which the Adviser
believes to be equitable to the Fund(s) and such other investment company or
account. In some instances, this investment procedure may adversely affect the
price paid or received by a Fund or the size of the position obtained by a Fund.
To the extent permitted by law, the Adviser may aggregate the securities to be
sold or purchased for a Fund with those to be sold or purchased for the other
Funds or for other investment companies or accounts in order to obtain best
execution. As provided by the Investment Advisory Agreement, in making
investment recommendations for the Funds, the Adviser will not inquire or take
into consideration whether an issuer of securities proposed for purchase or sale
by the Group is a customer of the Adviser, its parent or its subsidiaries or
affiliates and, in dealing with its customers, the Adviser, its parent,
subsidiaries, and affiliates will not inquire or take into consideration whether
securities of such customers are held by the Funds or any other fund of the
Group.
During the fiscal year ended June 30, 1997, the Money Market Fund from
time to time held securities of its regular brokers or dealers, as defined in
Rule 10b-1 under the 1940 Act, or their parent companies. As of June 30, 1997,
the Money Market Fund held $1,488,000 of Zion Securities' commerical paper.
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.
B-27
<PAGE> 225
The Adviser believes that it possesses the legal authority to perform
the services for the Funds contemplated by the Prospectus, this Statement of
Additional Information, the Investment Advisory Agreement and the Servicing
Agreement without violation of applicable statutes and regulations. The Capital
Markets Group believes that it possesses the legal authority to perform the
services for the Funds as set forth in the Rule 12b-1 Agreement with BISYS, as
described below, without violation of applicable statutes and regulations.
Future changes in either Federal or state statutes and regulations relating to
the permissible activities of banks or bank holding companies and the
subsidiaries or affiliates of those entities, as well as further judicial or
administrative decisions or interpretations of present and future statutes and
regulations, could prevent or restrict the Adviser or the Capital Markets Group
from continuing to perform such services for the Group. In addition, current
state securities laws on the issue of the registration of banks as brokers or
dealers may differ from the interpretation of federal law, and banks and
financial institutions may be required to register as dealers pursuant to the
laws of a specific state. Depending upon the nature of any changes in the
services which could be provided by the Adviser or the Capital Markets Group,
the Board of Trustees of the Group would review the Group's relationship with
the Adviser or the Capital Markets Group, as the case may be, and consider
taking all action necessary in the circumstances.
Should future legislative, judicial, or administrative action prohibit
or restrict the proposed activities of the Adviser, the Capital Markets Group
and/or the Adviser's affiliated and correspondent banks in connection with
Customer purchases of Shares of any of the Funds, those banks might be required
to alter materially or discontinue the services offered by them to Customers. It
is not anticipated, however, that any change in the Group's method of operations
would affect its net asset value per share or result in financial losses to any
Customer.
Administrator
- -------------
BISYS serves as administrator (the "Administrator") to the Funds
pursuant to an Administration Agreement dated as of November 1, 1997 (the
"Administration Agreement"). The Administrator assists in supervising all
operations of each Fund (other than those performed by the Adviser under the
Investment Advisory Agreement, by National City Bank under the Custodial
Services Agreement and by BISYS Fund Services Ohio, Inc. or BISYS Fund Services,
Inc. (hereinafter jointly referred to as "BISYS Services") under the Transfer
Agency Agreement and Fund Accounting Agreement). The Administrator is a
broker-dealer registered with the Commission, and is a member of the National
Association of Securities Dealers, Inc. The Administrator provides financial
services to institutional clients.
B-28
<PAGE> 226
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities; furnish statistical and research data, clerical, and
certain bookkeeping services; prepare the periodic reports to the Commission on
Form N-SAR or any replacement forms therefor; compile data for, coordinate and
supervise the preparation and filing all of the Funds' federal and state tax
returns and required tax filings; prepare compliance filings pursuant to state
securities laws; assist with the Group's preparation of its Annual and
Semi-Annual Reports to Shareholders and its Registration Statement (on Form N-1A
or any replacement therefor); compile data for, prepare and file timely Notices
to the Commission required pursuant to Rule 24f-2 under the 1940 Act; keep and
maintain the financial accounts and records of each Fund, including calculation
of daily expense accruals; and generally assist in all aspects of the Funds'
operations other than those performed by the Adviser under the Investment
Advisory Agreement, by National City Bank under the Custodial Services Agreement
and by BISYS Services under the Transfer Agency Agreement and Fund Accounting
Agreement. Under the Administration Agreement, the Administrator may delegate
all or any part of its responsibilities thereunder.
The Administrator receives a fee from each Fund for its services as
Administrator and for the fund accounting services described below, plus certain
out-of-pocket expenses, equal a fee calculated daily and paid periodically, at
the annual rate equal to twenty one-hundredths of one percent (.20%) of that
Fund's average daily net assets.
For the fiscal years ended June 30, 1997, 1996 and 1995, the
Administrator earned and voluntarily waived the amounts indicated below with
respect to its administrative services to the indicated Funds:
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
1997 1996 1995
---- ---- ----
Fees Fees Fees Fees Fees Fees
Earned Waived Earned Waived Earned Waived
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund $274,696 -- $299,701 -- $314,096 --
Value Fund 151,803 -- 166,025 -- 158,632 --
Fixed Income
Fund 48,039 -- 68,916 -- 82,655 --
Tennessee Fund 37,541 -- 39,991 -- 39,375 --
Government Secur-
ities Fund 14,344 $ 3,586 15,426 $ 3,856 16,402 $5,393
Growth Fund 66,572 16,643 56,958 14,290 23,678 7,277
</TABLE>
B-29
<PAGE> 227
Unless sooner terminated as provided therein, the Administration
Agreement has an initial term expiring on October 31, 2003. The Administration
Agreement thereafter shall be renewed automatically for successive one-year
terms, unless written notice not to renew is given by the non-renewing party to
the other party at least 60 days prior to the expiration of the then-current
term. The Administration Agreement is terminable with respect to a particular
Fund upon mutual agreement of the parties to the Administration Agreement and
for cause (as defined in the Administration Agreement) by the party alleging
cause, on not less than 60 days' notice by the Group's Board of Trustees or by
the Administrator.
The Administration Agreement provides that the Administrator shall not
be liable for any error of judgment or mistake of law or any loss suffered by
any Fund in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or
negligence in the performance of its duties, or from the reckless disregard by
the Administrator of its obligations and duties thereunder.
Distributor
- -----------
BISYS serves as agent for each of the Funds in the distribution of its
Shares pursuant to a Distribution Agreement dated October 1, 1993, as amended as
of June 3, 1994 (the "Distribution Agreement"). Unless otherwise terminated, the
Distribution Agreement remains in effect from year to year for successive annual
periods ending March 31 if approved at least annually (i) by the Group's Board
of Trustees or by the vote of a majority of the outstanding shares of the Group,
and (ii) by the vote of a majority of the Trustees of the Group who are not
parties to the Distribution Agreement or interested persons (as defined in the
1940 Act) of any party to the Distribution Agreement, cast in person at a
meeting called for the purpose of voting on such approval. The Distribution
Agreement may be terminated in the event of any assignment, as defined in the
1940 Act.
In its capacity as Distributor, BISYS solicits orders for the sale of
Shares, advertises and pays the costs of advertising, office space and the
personnel involved in such activities. BISYS receives no compensation under the
Distribution Agreement with the Group, but may retain all or a portion of the
sales charge imposed upon sales of Shares of each of the Funds, other than the
Money Market Fund. For the three fiscal years ended June 30, 1997, 1996 and
1995, commissions paid to BISYS under the Distribution Agreement with respect to
the sale of Shares of such Funds, after discounts to dealers, were $2,240,
$5,030 and $27,404, respectively. For such years $246, $4,090 and $10,212,
respectively, were reallowed by BISYS to the Capital Markets Group.
B-30
<PAGE> 228
As described in the Prospectus, the Group has adopted a Distribution
and Shareholder Service Plan (the "Plan") pursuant to Rule 12b-1 under the 1940
Act under which each Fund is authorized to pay BISYS for payments it makes to
banks, including the Adviser, other institutions and broker-dealers, and for
expenses BISYS and any of its affiliates or subsidiaries incur (with all of the
foregoing organizations being referred to as "Participating Organizations") for
providing distribution or shareholder service assistance. Payments to such
Participating Organizations may be made pursuant to agreements entered into with
BISYS. The Plan authorizes each Fund to make payments to BISYS in an amount not
in excess, on an annual basis, of 0.25% of the average daily net asset value of
that Fund. As required by Rule 12b-1, the Plan was approved by the Shareholders
of each of the Funds and by the Board of Trustees, including a majority of the
Trustees who are not interested persons of any of the Funds and who have no
direct or indirect financial interest in the operation of the Plan (the
"Independent Trustees"). The Plan may be terminated as to a Fund by vote of a
majority of the Independent Trustees, or by vote of majority of the outstanding
Shares of that Fund. Any change in the Plan that would materially increase the
distribution cost to a Fund requires Shareholder approval. The Trustees review
quarterly a written report of such costs and the purposes for which such costs
have been incurred. The Plan may be amended by vote of the Trustees including a
majority of the Independent Trustees, cast in person at a meeting called for
that purpose. For so long as the Plan is in effect, selection and nomination of
those Trustees who are not interested persons of the Group shall be committed to
the discretion of such disinterested persons. All agreements with any person
relating to the implementation of the Plan may be terminated at any time on 60
days' written notice without payment of any penalty, by vote of a majority of
the Independent Trustees or by a vote of the majority of the outstanding Shares
of the Fund. The Plan will continue in effect for successive one-year periods,
provided that each such continuance is specifically approved (i) by the vote of
a majority of the Independent Trustees, and (ii) by a vote of a majority of the
entire Board of Trustees cast in person at a meeting called for that purpose.
The Board of Trustees has a duty to request and evaluate such information as may
be reasonably necessary for them to make an informed determination of whether
the Plan should be implemented or continued. In addition the Trustees in
approving the Plan must determine that there is a reasonable likelihood that the
Plan will benefit each Fund and its Shareholders.
The Board of Trustees of the Group believes that the Plan is in the
best interests of each Fund since it encourages Fund growth and maintenance of
Fund assets. As a Fund grows in size, certain expenses, and therefore total
expenses per Share, may be reduced and overall performance per Share may be
improved.
B-31
<PAGE> 229
As authorized by the Plan, BISYS has entered into Rule 12b-1 Agreements
with the Capital Markets Group to provide certain distribution and shareholder
services in connection with the distribution of the Shares of each of the Funds
including, but not limited to, maintaining Shareholder relations, answering
questions about the Funds and distributing prospectuses to persons other than
Shareholders of the Funds. In consideration of such services BISYS has agreed to
pay the Capital Markets Group a monthly fee, computed at the annual rate of up
to .25% of the average aggregate net asset value of Shares held during the
period in accounts for which the Capital Markets Group provided services under
such agreement. BISYS will be compensated by each Fund in an amount equal to its
payments to the Capital Markets Group under the Rule 12b-1 Agreement with
respect to that Fund.
The Group has also entered into Rule 12b-1 Agreements with BISYS
pursuant to which BISYS has agreed to provide certain distribution and
shareholder support services to each of the Funds and their Shareholders,
including, but not limited to, advertising and marketing the Shares of the
Funds, maintaining Shareholder relations, answering questions about the Funds,
distributing prospectuses to persons other than Shareholders of the Funds, and
providing such other services as a Fund may reasonably request. In consideration
of such services, the Group has agreed to pay BISYS a monthly fee, computed at
the annual rate of .25% of the average aggregate net asset value of Shares held
during the period in client accounts for which BISYS has provided services under
this Rule 12b-1 Agreement. Such fee may exceed the actual costs incurred by
BISYS in providing such services.
In addition, BISYS has entered into and may enter into, from time to
time, other Rule 12b-1 Agreements with selected dealers pursuant to which such
dealers will provide certain services in connection with the distribution of a
Fund's Shares including, but not limited to, those discussed above.
For the fiscal year ended June 30, 1997, the Group, on behalf of the
Funds, incurred the following amounts pursuant to the Plan for payments made by
the Group to BISYS and for payments made by BISYS to the Capital Markets Group
for certain administrative and shareholder support services as more fully
described above:
<TABLE>
<CAPTION>
Payments Made
-------------
Payments Made to the Capital
------------- --------------
Fund to BISYS Markets Group
---- -------- -------------
<S> <C> <C>
Money Market Fund $203,634 $ 43
Value Fund 71,767 4,111
Fixed Income Fund 12,914 394
Tennessee Fund 28,126 168
</TABLE>
B-32
<PAGE> 230
<TABLE>
<S> <C> <C>
Government Securities Fund 7,895 14
Growth Fund 26,795 984
</TABLE>
Administrative Services Plan
- ----------------------------
As described in the Prospectus, the Group has also adopted an
Administrative Services Plan (the "Services Plan") under which each Fund is
authorized to pay certain financial institutions, including the Adviser, its
correspondent and affiliated banks, and BISYS (a "Service Organization"), to
provide certain ministerial, record keeping, and administrative support services
to their customers who own of record or beneficially Shares in a Fund. Payments
to such Service Organizations are made pursuant to Servicing Agreements between
the Group and the Service Organization. The Services Plan authorizes each Fund
to make payments to Service Organizations in an amount, on an annual basis, of
up to 0.25% of the average daily net asset value of that Fund. The Services Plan
has been approved by the Board of Trustees of the Group, including a majority of
the Trustees who are not interested persons of the Group (as defined in the 1940
Act) and who have no direct or indirect financial interest in the operation of
the Services Plan or in any Servicing Agreements thereunder (the "Disinterested
Trustees"). The Services Plan may be terminated as to a Fund by a vote of a
majority of the Disinterested Trustees. The Trustees review quarterly a written
report of the amounts expended pursuant to the Services Plan and the purposes
for which such expenditures were made. The Services Plan may be amended by a
vote of the Trustees, provided that any material amendments also require the
vote of a majority of the Disinterested Trustees. For so long as the Services
Plan is in effect, selection and nomination of those Disinterested Trustees
shall be committed to the discretion of the Group's Disinterested Trustees. All
Servicing Agreements may be terminated at any time without the payment of any
penalty by a vote of a majority of the Disinterested Trustees. The Services Plan
will continue in effect for successive one-year periods, provided that each such
continuance is specifically approved by a majority of the Board of Trustees,
including a majority of the Disinterested Trustees.
As authorized by the Services Plan, the Group has entered into a
Servicing Agreement with the Adviser pursuant to which the Adviser has agreed to
provide certain administrative support services in connection with Shares of the
Funds owned of record or beneficially by its customers. Such administrative
support services may include, but are not limited to, (i) processing dividend
and distribution payments from a Fund on behalf of customers; (ii) providing
periodic statements to its customers showing their positions in the Shares;
(iii) arranging for bank wires; (iv) responding to routine customer inquiries
relating to services performed by the Adviser; (v) providing sub-accounting with
respect
B-33
<PAGE> 231
to the Shares beneficially owned by the Adviser's customers or the information
necessary for sub-accounting; (vi) if required by law, forwarding shareholder
communications from a Fund (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
its customers; (vii) aggregating and processing purchase, exchange, and
redemption requests from customers and placing net purchase, exchange, and
redemption orders for customers; and (viii) providing customers with a service
that invests the assets of their account in the Shares pursuant to specific or
pre-authorized instructions. In consideration of such services, the Group, on
behalf of each Fund, has agreed to pay the Adviser a monthly fee, computed at
the annual rate of .25% of the average aggregate net asset value of Shares of
that Fund held during the period by customers for whom the Adviser has provided
services under the Servicing Agreement.
For the fiscal year ended June 30, 1997, the Group incurred the
following amounts on behalf of the designated Fund for payments made to the
Adviser pursuant to the Services Plan: the Money Market Fund -- $194,676; the
Value Fund -- $148,346; the Fixed Income Fund -- $56,742; the Tennessee Fund --
$26,308; the Government Securities Fund -- $12,993; and the Growth Fund --
$69,733. Such fees reflect the voluntary fee reductions made by the Adviser with
respect to each of the Funds.
Custodian
- ---------
National City Bank, 1900 East 9th Street, Cleveland, Ohio 44114 serves
as custodian (the "Custodian") to the Funds pursuant to the Custodial Services
Agreement dated as of March 1, 1995. The Custodian's responsibilities include
safeguarding and controlling the Funds' cash and securities, handling the
receipt and delivery of securities, and collecting interest and dividends on the
Funds' investments.
Transfer Agency and Fund Accounting Services
- --------------------------------------------
BISYS Services serves as transfer agent and dividend disbursing agent
(the "Transfer Agent") for all of the Funds pursuant to the Transfer Agency
Agreement dated September 1, 1992, as amended as of May 1, 1994. Pursuant to
such Agreement, the Transfer Agent, among other things, performs the following
services in connection with each Fund's shareholders of record: maintenance of
shareholder records for each of the Group's shareholders of record; processing
shareholder purchase and redemption orders; processing transfers and exchanges
of shares of the Group on the shareholder files and records; processing dividend
payments and reinvestments; and assistance in the mailing of shareholder reports
and proxy solicitation materials. For such services the Transfer Agent receives
a fee based on the number of shareholders of record. For the three fiscal years
ended June 30, 1997, 1996 and 1995, the
B-34
<PAGE> 232
Transfer Agent received the following fees from the Group for services as
transfer agent for the Funds:
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
1997 1996 1995
---- ---- ----
Fees Fees Fees
Received Received Received
-------- -------- --------
<S> <C> <C> <C>
Money Market Fund $28,413 $30,704 $24,708
Value Fund 44,781 39,661 36,068
Fixed Income
Fund 22,665 23,980 23,115
Tennessee Fund 23,580 21,959 21,103
Government Securities
Fund 20,556 20,039 19,676
Growth Fund 27,836 23,662 20,339
</TABLE>
In addition, BISYS Services provides certain fund accounting services
to the Funds pursuant to a Fund Accounting Agreement dated as of November 1,
1997. BISYS Services receives a fee from each Fund for such services as
described above under "Administrator." Under such Agreement, BISYS Services
maintains the accounting books and records for each Fund, including journals
containing an itemized daily record of all purchases and sales of portfolio
securities, all receipts and disbursements of cash and all other debits and
credits, general and auxiliary ledgers reflecting all asset, liability, reserve,
capital, income and expense accounts, including interest accrued and interest
received, and other required separate ledger accounts; maintains a monthly trial
balance of all ledger accounts; performs certain accounting services for the
Fund, including calculation of the net asset value per share, calculation of the
dividend and capital gain distributions, if any, and of yield, reconciliation of
cash movements with the Fund's custodian, affirmation to the Fund's custodian of
all portfolio trades and cash settlements, verification and reconciliation with
the Fund's custodian of all daily trade activity; provides certain reports;
obtains dealer quotations, prices from a pricing service or matrix prices on all
portfolio securities in order to mark the portfolio to the market; and prepares
an interim balance sheet, statement of income and expense, and statement of
changes in net assets for each Fund.
For the fiscal years ended June 30, 1997, 1996 and 1995, BISYS Services
received the fees indicated below with respect to its fund accounting services
to the indicated Funds:
Fiscal Years Ended June 30,
B-35
<PAGE> 233
<TABLE>
<CAPTION>
Fund 1997 1996 1995
- ---- ---- ---- ----
<S> <C> <C> <C>
Money Market Fund $42,510 $45,640 $47,114
Value Fund 31,306 31,181 30,902
Fixed Income
Fund 31,777 34,256 35,829
Tennessee Fund 47,917 49,248 48,522
Government Securities Fund 31,418 31,276 30,000
Growth Fund 31,709 31,461 30,695
</TABLE>
Auditors
- --------
The financial statements of each of the Funds as of June 30, 1997, and
for periods indicated therein, appearing in this Statement of Additional
Information have been audited by KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, as set forth in their report appearing elsewhere herein,
and are included in reliance upon such report and on the authority of such firm
as experts in auditing and accounting.
Legal Counsel
- -------------
Baker & Hostetler LLP, 65 East State Street, Columbus, Ohio 43215 is
counsel to the Group and will pass upon the legality of the Shares offered
hereby.
ADDITIONAL INFORMATION
Description of Shares
- ---------------------
The Group is an Ohio business trust. The Group was organized on April
25, 1988, and the Group's Declaration of Trust was filed with the Secretary of
State of Ohio on April 25, 1988. The Declaration of Trust authorizes the Board
of Trustees to issue an unlimited number of shares, which are shares of
beneficial interest, without par value. The Group presently has seventeen series
of shares, one of which represents interests in the Money Market Fund, one of
which represents interests in the Value Fund, one of which represents interests
in the Fixed Income Fund, one of which represents interests in the Tennessee
Fund, one of which represents interests in the Government Securities Fund and
one of which represents interests in the Growth Fund. The other eleven series
are The KeyPremier Prime Obligations Money Market Fund, The KeyPremier
Pennsylvania Municipal Bond Fund, The KeyPremier Established Growth Fund, The
KeyPremier Intermediate Term Income Fund, The KeyPremier Aggressive Growth Fund,
The KeyPremier U.S. Treasury Obligations Money Market Fund, The KeyPremier
Limited Duration Government Securities Fund, 1st Source Monogram Diversified
Equity Fund, 1st Source Monogram Income Equity Fund, 1st Source Monogram Special
Equity Fund and 1st Source Monogram Income Fund. The Group's Declaration of
Trust authorizes the Board
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<PAGE> 234
of Trustees to divide or redivide any unissued shares of the Group into one or
more additional series by setting or changing in any one or more respects their
respective preferences, conversion or other rights, voting power, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Prospectus and this
Statement of Additional Information, the Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Group,
shareholders of a fund are entitled to receive the assets available for
distribution belonging to that fund, and a proportionate distribution, based
upon the relative asset values of the respective funds, of any general assets
not belonging to any particular fund which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Group shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each fund affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding shares of a fund will be required in
connection with a matter, a fund will be deemed to be affected by a matter
unless it is clear that the interests of each fund in the matter are identical,
or that the matter does not affect any interest of the fund. Under Rule 18f-2,
the approval of an investment advisory agreement or any change in investment
policy would be effectively acted upon with respect to a fund only if approved
by a majority of the outstanding shares of such fund. However, Rule 18f-2 also
provides that the election of Trustees may be effectively acted upon by
shareholders of the Group voting without regard to series.
As of October 16, 1997, the Adviser, either directly or through the
Capital Markets Group, owned of record and beneficially 60.05% and 47.02%,
respectively, of the outstanding Shares of the Money Market Fund; 90.88% and
90.88%, respectively, of the outstanding Shares of the Value Fund; 92.14 and
92.14%, respectively, of the outstanding Shares of the Fixed Income Fund; 80.10%
and 80.10%, respectively, of the outstanding Shares of the Tennessee Fund;
99.92% and 99.92%, respectively, of the outstanding Shares of the Government
Securities Fund; and 94.12% and 94.12%, respectively, of the outstanding Shares
of the Growth Fund. Therefore, as of such date the Adviser may be presumed to
control each of the Funds, and as a result of such control, the Adviser may have
the power to approve the Investment Advisory Agreement for each of the Funds and
to control any other matters submitted to the Shareholders of the Funds.
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<PAGE> 235
As of October 16, 1997, Northern Trust Company, FBO Metropolitan
Employee Benefit Board, P.O. Box 92956, Chicago, Illinois 60675, owned
beneficially 34.89% of the outstanding Shares of the Money Market Fund; Mary
Walker, 2724 Lombardy, Memphis, Tennessee 38111, owned beneficially 6.32% of the
outstanding Shares of the Tennessee Fund; and National Financial Services Corp.
For the Benefit of Our Clients, Church Street Station, P.O. Box 3908, New York,
New York 10008-3908 owned of record 9.42% of the Tennessee Fund. To the
knowledge of the Group, there are no other beneficial owners of 5% or more of
the outstanding Shares of any of the Funds as of such date.
Vote of a Majority of the Outstanding Shares
- --------------------------------------------
As used in the Prospectus and this Statement of Additional Information,
a "vote of a majority of the outstanding Shares" of a Fund means the affirmative
vote, at a meeting of Shareholders duly called, of the lesser of (a) 67% or more
of the votes of Shareholders of that Fund present at a meeting at which the
holders of more than 50% of the votes attributable to Shareholders of record of
that Fund are represented in person or by proxy, or (b) the holders of more than
50% of the outstanding votes of Shareholders of that Fund.
Additional Tax Information
- --------------------------
Each of the Funds is treated as a separate entity for federal income
tax purposes and intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Code") for so long as such
qualification is in the best interest of that Fund's shareholders. In order to
qualify as a regulated investment company, each Fund must, among other things:
diversify its investments within certain prescribed limits; derive at least 90%
of its gross income from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of securities or
foreign currencies, or other income derived with respect to its business of
investing in such stock, securities, or currencies; and, in taxable years
beginning on or before August 5, 1997, derive less than 30% of its gross income
from the sale or other disposition of stock, securities, options, future
contracts or foreign currencies held less than three months. In addition, to
utilize the tax provisions specially applicable to regulated investment
companies, each Fund must distribute to its Shareholders at least 90% of its
investment company taxable income for the year. In general, a Fund's investment
company taxable income will be its taxable income subject to certain adjustments
and excluding the excess of any net mid-term or long-term capital gain for the
taxable year over the net short-term capital loss, if any, for such year.
B-38
<PAGE> 236
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, a Fund
would be subject to a non-deductible excise tax equal to 4% of the deficiency.
Although each Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located, or in which it is otherwise deemed to be conducting business, a Fund
may be subject to the tax laws of such states or localities. In addition, if for
any taxable year a Fund does not qualify for the special tax treatment afforded
regulated investment companies, all of its taxable income will be subject to
federal tax at regular corporate rates (without any deduction for distributions
to its Shareholders). In such event, dividend distributions would be taxable to
Shareholders to the extent of earnings and profits, and would be eligible for
the dividends received deduction for corporations.
It is expected that each Fund will distribute annually to Shareholders
all or substantially all of the Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to Shareholders for federal income
tax purposes, even if paid in additional Shares of the Fund and not in cash.
Distribution by a Fund of the excess of net mid-term or long-term
capital gain over net short-term capital loss is taxable to Shareholders as
mid-term or long-term capital gain, respectively, in the year in which it is
received, regardless of how long the Shareholder has held the Shares. Such
distributions are not eligible for the dividends-received deduction.
Federal taxable income of individuals is subject to graduated tax rates
of 15%, 28%, 31%, 36% and 39.6%. Further, the marginal tax rate may be in excess
of 39.6%, because adjustments reduce or eliminate the benefit of the personal
exemption and itemized deductions for individuals with gross income in excess of
certain threshold amounts.
Long-term capital gains of individuals are subject to a maximum tax
rate of 20% (or 10% for individuals in the 15% ordinary income tax bracket).
Mid-term capital gains of individuals are
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<PAGE> 237
subject to tax at the same rates applicable to ordinary income; however, the tax
rate on mid-term capital gains of individuals cannot exceed 28%. Capital losses
may be used to offset capital gains. In addition, individuals may deduct up to
$3,000 of net capital loss each year to offset ordinary income. Excess net
capital loss may be carried forward and deducted in future years. The holding
period for mid-term capital gains is more than one year but not more than
eighteen months; the holding period for long-term capital gains is more than
eighteen months.
Federal taxable income of corporations in excess of $75,000 up to $10
million is subject to a 34% tax rate; however, because the benefit of lower tax
rates on a corporation's taxable income of less than $75,000 is phased out for
corporations with income in excess of $100,000 but lower than $335,000, a
maximum marginal tax rate of 39% may result. Federal taxable income of
corporations in excess of $10 million is subject to a tax rate of 35%. Further,
a corporation's federal taxable income in excess of $15 million is subject to an
additional tax equal to 3% of taxable income over $15 million, but not more than
$100,000.
Capital gains of corporations are subject to tax at the same rates
applicable to ordinary income. Capital losses may be used only to offset capital
gains and excess net capital loss may be carried back three years and forward
five years.
Certain corporations are entitled to a 70% dividends received deduction
for distributions from certain domestic corporations. Each Fund will designate
the portion of any distributions which qualify for the 70% dividends received
deduction. The amount so designated may not exceed the amount received by the
Fund for its taxable year that qualifies for the dividends received deduction.
Because all of the Government Obligations Fund's net investment income is
expected to be derived from earned interest, it is anticipated that no
distributions from that Fund will qualify for the 70% dividends received
deduction.
Foreign taxes may be imposed on a Fund by foreign countries with
respect to its income from foreign securities. Since less than 50% in value of
any one Fund's total assets at the end of its fiscal year are expected to be
invested in stocks or securities of foreign corporations, such Fund will not be
entitled under the Code to pass through to its Shareholders their pro rata share
of the foreign taxes paid by the Fund. These taxes will be taken as a deduction
by such Fund.
THE TENNESSEE FUND. The Tennessee Fund is not intended to constitute a
balanced investment program and is not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Tennessee Fund would not be suitable for tax-exempt
institutions and may not
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<PAGE> 238
be suitable for retirement plans qualified under Section 401 of the Code, H.R.
10 plans, and individual retirement accounts, since such plans and accounts are
generally tax-exempt and, therefore, would not gain any additional benefit from
all or a portion of the Tennessee Fund's dividends being tax-exempt and such
dividends would be ultimately taxable to the beneficiaries when distributed to
them. In addition, the Tennessee Fund may not be appropriate investments for
entities which are "substantial users," or "related persons" thereof, of
facilities financed by private activity bonds held by the Tennessee Fund.
The Code permits a regulated investment company which invests in Exempt
Securities to pay to its Shareholders "exempt-interest dividends," which are
excluded from gross income for federal income tax purposes, if at the close of
each quarter of its taxable year at least 50% of its total assets consist of
Exempt Securities.
An exempt-interest dividend is any dividend or part thereof (other than
a capital gain dividend) paid by the Tennessee Fund that is derived from
interest received by the Tennessee Fund that is excluded from gross income for
federal income tax purposes, net of certain deductions, provided the dividend is
designated as an exempt-interest dividend in a written notice mailed to
Shareholders not later than sixty days after the close of the Tennessee Fund's
taxable year. The percentage of the total dividends paid by the Tennessee Fund
during any taxable year that qualifies as exempt- interest dividends will be the
same for all Shareholders of the Tennessee Fund receiving dividends during such
year. Exempt- interest dividends shall be treated by the Tennessee Fund's
Shareholders as items of interest excludable from their gross income for Federal
income tax purposes under Section 103(a) of the Code. However, a Shareholder is
advised to consult his tax adviser with respect to whether exempt-interest
dividends retain the exclusion under Section 103(a) of the Code if such
Shareholder is a "substantial user" or a "related person" to such user under
Section 147(a) of the Code with respect to any of the Exempt Securities held by
the Tennessee Fund. If a Shareholder receives an exempt-interest dividend with
respect to any Share and such Share is held by the Shareholder for six months or
less, any loss on the sale or exchange of such Share shall be disallowed to the
extent of the amount of such exempt-interest dividend.
In general, interest on indebtedness incurred or continued by a
Shareholder to purchase or carry Shares is not deductible for federal income tax
purposes if the Tennessee Fund distributes exempt-interest dividends during the
Shareholder's taxable year. A Shareholder of the Tennessee Fund that is a
financial institution may not deduct interest expense attributable to
indebtedness incurred or continued to purchase or carry Shares of the Tennessee
Fund if the Tennessee Fund distributes exempt-interest dividends during the
Shareholder's taxable year. Certain federal income tax
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<PAGE> 239
deductions of property and casualty insurance companies holding Shares of the
Tennessee Fund and receiving exempt-interest dividends may also be adversely
affected. In certain limited instances, the portion of Social Security benefits
received by a Shareholder which may be subject to federal income tax may be
affected by the amount of tax-exempt interest income, including exempt-interest
dividends received by Shareholders of the Tennessee Fund.
In the event the Tennessee Fund realizes mid-term or long-term capital
gains, such Fund intends to distribute any realized net mid-term or long-term
capital gains annually. If the Tennessee Fund distributes such gains, such Fund
will have no tax liability with respect to such gains, and the distributions
will be taxable to Shareholders as mid-term or long-term capital gains,
respectively, regardless of how long the Shareholders have held their Shares.
Any such distributions will be designated as a capital gain dividend in a
written notice mailed by the Tennessee Fund to the Shareholders not later than
sixty days after the close of the Tennessee Fund's taxable year. It should be
noted, however, that long-term capital gains of individuals are subject to a
maximum tax rate of 20% (10% for individuals in the 15% ordinary income tax
bracket) and mid-term capital gains of individuals are taxed like ordinary
income except that net mid-term capital gains of individuals are subject to a
maximum federal income tax rate of 28%. Any net short-term capital gains are
taxed at ordinary income tax rates. If a Shareholder receives a capital gain
dividend with respect to any Share and then sells the Share before he has held
it for more than six months, any loss on the sale of the Share is treated as
long-term capital loss to the extent of the capital gain dividend received.
Interest earned on certain municipal obligations issued on or after
August 8, 1986, to finance certain private activities will be treated as a tax
preference item in computing the alternative minimum tax. It is likely that
exempt-interest dividends received by Shareholders from the Tennessee Fund will
also be treated as tax preference items in computing the alternative minimum tax
to the extent that distributions by the Tennessee Fund are attributable to such
obligations. Also, a portion of all other interest excluded from gross income
for federal income tax purposes earned by a corporation may be subject to the
alternative minimum tax as a result of the inclusion in alternative minimum
taxable income of 75% of the excess of adjusted current earnings and profits
over pre-book alternative minimum taxable income. Adjusted current earnings and
profits would include exempt-interest dividends distributed by the Tennessee
Fund to corporate Shareholders. For individuals the alternative minimum tax rate
is 26% on alternative minimum taxable income up to $175,000 and 28% on the
excess of $175,000; for corporations the alternative minimum tax rate is 20%.
B-42
<PAGE> 240
For taxable years of corporations beginning before 1996, the Superfund
Revenue Act of 1986 imposes an additional tax (which is deductible for federal
income tax purposes) on a corporation at a rate of 0.12 of one percent on the
excess over $2,000,000 of such corporation's "modified alternative minimum
taxable income", which would include a portion of the exempt-interest dividends
distributed by the Tennessee Fund to such corporation. In addition,
exempt-interest dividends distributed to certain foreign corporations doing
business in the United States could be subject to a branch profits tax imposed
by Section 884 of the Code.
Distributions of exempt-interest dividends by the Tennessee Fund may be
subject to state and local taxes even though a substantial portion of such
distributions may be derived from interest on obligations which, if received
directly, would be exempt from such taxes. The Tennessee Fund will report to its
Shareholders annually after the close of its taxable year the percentage and
source, on a state-by-state basis, of interest income earned on municipal
obligations held by the Tennessee Fund during the preceding year. Shareholders
are advised to consult their tax advisers concerning the application of state
and local taxes.
As indicated in the Prospectus, the Tennessee Fund may acquire rights
regarding specified portfolio securities under puts. See "INVESTMENT OBJECTIVES
AND POLICIES -- Additional Information on Portfolio Instruments - Puts" in this
Statement of Additional Information. The policy of the Tennessee Fund is to
limit its acquisition of puts to those under which it will be treated for
federal income tax purposes as the owner of the Exempt Securities acquired
subject to the put and the interest on the Exempt Securities will be tax-exempt
to it. Although the Internal Revenue Service has issued a published ruling that
provides some guidance regarding the tax consequences of the purchase of puts,
there is currently no guidance available from the Internal Revenue Service that
definitively establishes the tax consequences of many of the types of puts that
the Tennessee Fund could acquire under the 1940 Act. Therefore, although the
Tennessee Fund will only acquire a put after concluding that it will have the
tax consequences described above, the Internal Revenue Service could reach a
different conclusion.
Although the Tennessee Fund expects to qualify as a "regulated
investment company" and to be relieved of all or substantially all federal
income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located, or in which it is otherwise deemed to be
conducting business, the Tennessee Fund may be subject to the tax laws of such
states or localities. In addition, if for any taxable year the Tennessee Fund
does not qualify for the special tax treatment afforded
B-43
<PAGE> 241
regulated investment companies, all of its taxable income will be subject to
federal tax at regular corporate rates (without any deduction for distributions
to its Shareholders). In such event, dividend distributions would be taxable to
Shareholders to the extent of earnings and profits, and would be eligible for
the dividends received deduction for corporations.
Income itself exempt from Federal income taxation may be considered in
addition to taxable income when determining whether Social Security payments
received by a Shareholder are subject to federal income taxation.
GENERAL. Each Fund may be required by federal law to withhold and remit
to the U.S. Treasury 31% of taxable dividends, if any, and capital gain
distributions to any Shareholder, and the proceeds of redemption or the values
of any exchanges of Shares of a Fund, if such Shareholder (1) fails to furnish
the Fund with a correct taxpayer identification number, (2) under-reports
dividend or interest income, or (3) fails to certify to the Fund that he or she
is not subject to such withholding. An individual's taxpayer identification
number is his or her Social Security number.
Information set forth in the Prospectus and this Statement of
Additional Information which relates to Federal taxation is only a summary of
some of the important Federal tax considerations generally affecting purchasers
of Shares of a Fund. No attempt has been made to present a detailed explanation
of the Federal income tax treatment of a Fund or its Shareholders and this
discussion is not intended as a substitute for careful tax planning.
Accordingly, potential purchasers of Shares of a Fund are urged to consult their
tax advisers with specific reference to their own tax situation. In addition,
the tax discussion in the Prospectus and this Statement of Additional
Information is based on tax laws and regulations which are in effect on the date
of the Prospectus and this Statement of Additional Information; such laws and
regulations may be changed by legislative or administrative action.
Information as to the federal income tax status of all distributions
will be mailed annually to each Shareholder.
Seven-Day Yield of the Money Market Fund
- ----------------------------------------
For the seven-day period ended June 30, 1997, the Money Market Fund's
seven-day yield and seven-day effective yield were 4.28% and 4.37%,
respectively. For the 30-day period ended June 30, 1997, the yield and effective
yield for the Money Market Fund were 4.27% and 4.35%, respectively. The
standardized seven-day yield for the Money Market Fund is computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical preexisting account in the Money Market Fund having a balance of
one Share at the beginning of the period, subtracting a
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<PAGE> 242
hypothetical charge reflecting deductions from Shareholder accounts, and
dividing the difference by the value of the account at the beginning of the base
period to obtain the base period return, and then multiplying the base period
return by (365/7). The net change in the account value of the Money Market Fund
includes the value of additional Shares purchased with dividends from the
original Share, dividends declared on both the original Share and any such
additional Shares, and all fees, other than nonrecurring account or sales
charges, that are charged to all Shareholder accounts in proportion to the
length of the base period and assuming the Money Market Fund's average account
size. The capital changes to be excluded from the calculation of the net change
in account value are realized gains and losses from the sale of securities and
unrealized appreciation and depreciation. The 30-day yield is calculated as
described above except that the base period is 30 days rather than seven days.
The effective yield for the Money Market Fund is computed by
compounding the base period return, as calculated above, by adding 1 to the base
period return raising the sum to a power equal to 365 divided by seven and
subtracting 1 from the result.
Yields of the Other Funds
- -------------------------
As summarized in the Prospectus under the heading "PERFORMANCE
INFORMATION," yields of the Funds will be computed by annualizing net investment
income per share for a recent 30-day period and dividing that amount by a Fund
Share's maximum offering price (reduced by any undeclared earned income expected
to be paid shortly as a dividend) on the last trading day of that period. Net
investment income will reflect amortization of any market value premium or
discount of fixed income securities (except for obligations backed by mortgages
or other assets) and may include recognition of a pro rata portion of the stated
dividend rate of dividend paying portfolio securities. The yield of each of
these Funds will vary from time to time depending upon market conditions, the
composition of the particular Fund's portfolio and operating expenses of the
Group allocated to each Fund. These factors and possible differences in the
methods used in calculating yield should be considered when comparing a Fund's
yield to yields published for other investment companies and other investment
vehicles. Yield should also be considered relative to changes in the value of a
Fund's Shares and to the relative risks associated with the investment
objectives and policies of each of the Funds.
In addition, with respect to the Tennessee Fund, tax equivalent yields
will be computed by dividing that portion of such Fund's yield (as computed
above) which is tax-exempt by one minus a stated income tax rate and adding that
result to that portion, if any, of the yield of that Fund which is not
tax-exempt.
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<PAGE> 243
For the 30-day period ended June 30, 1997, the yields for the Fixed
Income Fund, the Government Securities Fund and the Tennessee Fund were 5.95%,
4.96% and 4.76%, respectively, assuming the imposition of the maximum sales
charge, and 6.14%, 5.06% and 4.91%, respectively, excluding the effect of a
sales charge. If the fee waivers and/or expense reimbursements described above
and in the Prospectus had not been in place, the yields for the Fixed Income
Fund, the Government Securities Fund and the Tennessee Fund, assuming the
imposition of the maximum sales charge, would have been 5.74%, 4.21% and 3.97%,
respectively, and 5.92%, 4.29% and 4.10%, respectively, excluding the effect of
a sales charge. For the same period, the tax equivalent yields for the Tennessee
Fund, assuming a 39.6% federal tax rate, were 7.88%, assuming the imposition of
the maximum sales charge, and 8.13%, excluding the effect of a sales charge, and
without the fee waivers and/or expense reimbursements, such tax equivalent
yields would have been 6.57% and 6.77%, respectively.
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<PAGE> 244
Calculation of Total Return
- ---------------------------
As summarized in the Prospectus under the heading "PERFORMANCE
INFORMATION," average annual total return is a measure of the change in value of
an investment in a Fund over the period covered, which assumes any dividends or
capital gains distributions are reinvested in the Fund immediately rather than
paid to the investor in cash. Average annual total return will be calculated by:
(1) adding to the total number of Shares purchased by a hypothetical $1,000
investment in that Fund (less the maximum sales charge, if any) all additional
Shares which would have been purchased if all dividends and distributions paid
or distributed during the period had been immediately reinvested; (2)
calculating the value of the hypothetical initial investment of $1,000 as of the
end of the period by multiplying the total number of Shares owned at the end of
the period by the net asset value per share on the last trading day of the
period; (3) assuming redemption at the end of the period; and (4) dividing this
account value for the hypothetical investor by the initial $1,000 investment and
annualizing the result for periods of less than one year. Each Fund, however,
may also advertise aggregate total return in addition to average annual total
return. Aggregate total return is a measure of the change in value of an
investment in a Fund over the relevant period and is calculated similarly to
average annual total return except that the result is not annualized.
For the one year and five year periods ended June 30, 1997, and the
respective periods from commencement of operations to June 30, 1997, the average
annual returns with the maximum sales charge and without the maximum sales
charges for the Funds were as follows:
<TABLE>
<CAPTION>
With Maximum Without Maximum
------------ ---------------
Sales Charge Sales Charge
------------ ------------
Since Since
Fund 1 Year 5 Year Inception 1 Year 5 Year Inception
---- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund(1) 4.44% 3.89% 5.44% 4.44% 3.89% 5.44%
Value Fund(2) 18.05% 13.77% 14.32% 23.66% 14.82% 15.25%
Fixed Income Fund(2) 2.39% 3.06% 3.85% 5.55% 3.69% 4.41%
Tennessee Fund(3) 4.17% -- 4.43% 7.38% -- 6.12%
Government Securities 4.13% -- 4.72% 6.23% -- 5.36%
Fund(4)
Growth Fund(4) 23.97% -- 20.52% 29.81% -- 22.25%
</TABLE>
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<PAGE> 245
- ---------------------
(1) Commenced operations July 25, 1988.
(2) Commenced operations October 31, 1991.
(3) Commenced operations November 4, 1992.
(4) Commenced operations April 15, 1994.
Distribution Rates
- ------------------
Each of the Funds, other than the Money Market Fund, may from time to
time advertise current distribution rates which are calculated in accordance
with the method disclosed in the Prospectus. For the fiscal year ended June 30,
1997, the distribution rates, including the maximum sales load and capital
gains; the distribution rates, excluding the effect of capital gains but
including a sales load; and the distribution rates, excluding the effect of both
capital gains and a sales load, for the Value Fund, the Fixed Income Fund, the
Tennessee Fund, the Government Securities Fund and the Growth Fund,
respectively, were as follows:
<TABLE>
<CAPTION>
Excluding Capital
-----------------
Including Maximum Gains But Excluding Both
----------------- --------- --------------
Sales Load and Including Maximum Capital Gains and
-------------- ----------------- -----------------
Fund Capital Gains Sales Load Maximum Sales Load
---- ------------- ---------- ------------------
<S> <C> <C> <C>
Value Fund 13.28% 0.59% 0.61%
Fixed Income Fund 6.29% 6.29% 6.49%
Tennessee Fund 4.99% 4.99% 5.14%
Government
Securities Fund 5.33% 5.33% 5.44%
Growth Fund 3.18% 0.88% 0.92%
</TABLE>
Performance Comparisons
- -----------------------
Investors may judge the performance of the Funds by comparing them to
the performance of other mutual funds or mutual fund portfolios with comparable
investment objectives and policies through various mutual fund or market indices
such as those prepared by Dow Jones & Co., Inc. and Standard & Poor's
Corporation and to data prepared by Lipper Analytical Services, Inc., a widely
recognized independent service which monitors the performance of mutual funds.
Comparisons may also be made to indices or data published in Money Magazine,
Forbes, Barron's, The Wall Street Journal, Morningstar, Inc., Ibbotson
Associates, CDA/Wiesenberger, The New York Times, Business Week, U.S.A. Today
and local periodicals. In addition to performance information, general
information about these Funds that appears in a publication such as those
mentioned above may be included in advertisements, sales literature and reports
to shareholders. The Funds may also include in advertisements and reports to
shareholders information
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<PAGE> 246
discussing the performance of the Adviser in comparison to other investment
advisers and to other banking institutions.
From time to time, the Group may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of inflation, the power of compounding and the benefits of dollar
cost averaging); (2) discussions of general economic trends; (3) presentations
of statistical data to supplement such discussions; (4) descriptions of past or
anticipated portfolio holdings for one or more of the Funds within the Group;
(5) descriptions of investment strategies for one or more of such Funds; (6)
descriptions or comparisons of various investment products, which may or may not
include the Funds; (7) comparisons of investment products (including the Funds)
with relevant market or industry indices or other appropriate benchmarks; (8)
discussions of fund rankings or ratings by recognized rating organizations; and
(9) testimonials describing the experience of persons that have invested in one
or more of the Funds. The Group may also include calculations, such as
hypothetical compounding examples, which describe hypothetical investment
results in such communications. Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of any
Fund. In addition, the Tennessee Fund may include in its advertisements charts
comparing various tax-free yields to taxable yield equivalents at different
income levels.
Current yields or total return will fluctuate from time to time and are
not necessarily representative of future results. Accordingly, a Fund's yield or
total return may not provide for comparison with bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and total
return are functions of a Fund's quality, composition and maturity, as well as
expenses allocated to such Fund. Fees imposed upon Customer accounts by the
Adviser or its affiliated or correspondent banks for cash management services
will reduce a Fund's effective yield and total return to Customers.
Miscellaneous
- -------------
Individual Trustees are generally elected by the Shareholders and,
subject to removal by the vote of two-thirds of the Board of Trustees, serve for
a term lasting until the next meeting of shareholders at which Trustees are
elected. Such meetings are not required to be held at any specific intervals.
Generally, shareholders owning not less than 20% of the outstanding shares of
the Group entitled to vote may cause the Trustees to call a special meeting.
However, the Group has represented to the Commission that the Trustees will call
a special meeting for the purpose of considering the removal of one or more
Trustees upon written
B-49
<PAGE> 247
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-50
<PAGE> 248
FINANCIAL STATEMENTS
B-51
<PAGE> 249
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees
The Sessions Group--
The Riverside Capital Funds:
We have audited the accompanying statements of assets and liabilities of The
Sessions Group--The Riverside Capital Funds (comprised of the Riverside
Capital Money Market Fund, Riverside Capital Value Equity Fund, Riverside
Capital Growth Fund, Riverside Capital Fixed Income Fund, Riverside Capital
Low Duration Government Securities Fund and Riverside Capital Tennessee
Municipal Obligations Fund, collectively the Funds), including the schedules
of portfolio investments as of June 30, 1997, and the related statements of
operations, statements of changes in net assets and the financial highlights
for each of the periods indicated herein. These financial statements and the
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included verification of securities
owned as of June 30, 1997 by confirmation with the custodian and other
appropriate audit procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned funds comprising The Sessions Group--The Riverside
Capital Funds at June 30, 1997, and the results of their operations, the
changes in their net assets and the financial highlights for each of the
periods indicated herein, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Columbus, Ohio
August 22, 1997
B-52
<PAGE> 250
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1997
<TABLE>
<CAPTION>
MONEY VALUE
MARKET EQUITY GROWTH
FUND FUND FUND
------------ ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investments, at value (cost
$137,756,527; $57,793,710; and
$24,543,367, respectively).......... $137,756,527 $78,030,312 $37,369,819
Repurchase agreements (cost
$1,488,296; $1,456,177; and $0, re-
spectively)......................... 1,488,296 1,456,177 --
------------ ----------- -----------
Total investments.................... 139,244,823 79,486,489 37,369,819
Cash................................. 611 1,900 320
Interest and dividends receivable.... 1,513,902 150,604 70,344
Prepaid expenses..................... 3,117 30 801
------------ ----------- -----------
Total Assets....................... 140,762,453 79,639,023 37,441,284
------------ ----------- -----------
LIABILITIES:
Dividends payable.................... 491,130 -- --
Accrued expenses and other payables:
Investment advisory fees........... 4,035 5,942 1,075
Administration fees................ 3,065 1,745 614
Administrative services fees....... 19,505 7,557 4,318
12b-1 fees......................... 13,823 11,178 4,520
Custodian fees..................... 3,013 2,737 2,653
Accounting fees.................... 616 380 373
Trustees' fees..................... -- 1,270 --
Legal fees......................... 7,606 10,308 5,528
Audit fees......................... 26,722 16,257 6,912
Printing fees...................... 15,785 7,027 3,058
Transfer agent fees................ -- 7,321 2,946
Registration and filing fees....... 2,789 1,104 --
Other.............................. 16 1,815 3,873
------------ ----------- -----------
Total Liabilities.................. 588,105 74,641 35,870
------------ ----------- -----------
NET ASSETS:
Capital.............................. 140,217,042 53,750,542 23,198,904
Undistributed net investment income.. 1,035 68,203 9,950
Net unrealized appreciation on in-
vestments........................... -- 20,236,602 12,826,452
Accumulated undistributed net
realized gains (losses) on
investment transactions............. (43,729) 5,509,035 1,370,108
------------ ----------- -----------
Net Assets......................... $140,174,348 $79,564,382 $37,405,414
============ =========== ===========
Outstanding units of beneficial in-
terest (shares)..................... 140,207,056 5,123,020 2,136,152
============ =========== ===========
Net asset value--redemption price per
share............................... $ 1.00 $ 15.53 $ 17.51
============ =========== ===========
Maximum Sales Charge................. 4.50% 4.50%
=========== ===========
Maximum Offering Price (100%/(100%--
Maximum Sales Charge) of net asset
value adjusted to nearest cent) per
share............................... $ 1.00(a) $ 16.26 $ 18.34
============ =========== ===========
</TABLE>
- ------
(a) Offering price and redemption price are the same for the Money Market Fund.
See notes to financial statements.
B-53
<PAGE> 251
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1997
<TABLE>
<CAPTION>
LOW DURATION TENNESSEE
GOVERNMENT MUNICIPAL
FIXED INCOME SECURITIES OBLIGATIONS
FUND FUND FUND
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS:
Investments, at value (cost $18,051,043;
$6,814,208; and $16,930,150, respec-
tively)................................ $18,148,196 $6,860,099 $17,403,966
Interest and dividends receivable....... 295,217 111,784 403,412
Receivable from brokers for investments
sold................................... -- -- 563,640
Unamortized organization costs.......... -- -- 3,133
Prepaid expenses........................ 3,609 193 959
----------- ---------- -----------
Total Assets.......................... 18,447,022 6,972,076 18,375,110
----------- ---------- -----------
LIABILITIES:
Cash overdraft.......................... 199,161 -- --
Payable for capital shares redeemed..... 252 -- --
Accrued expenses and other payables:
Investment advisory fees.............. 976 -- 75
Administration fees................... 400 114 402
Administrative services fees.......... 3,375 1,391 1,266
12b-1 fees............................ 1,034 266 3,165
Custodian fees........................ 329 8,618 438
Accounting fees....................... 697 474 1,429
Legal fees............................ 1,770 7,201 6,533
Audit fees............................ 5,477 2,783 3,829
Transfer agent fees................... 1,937 1,461 3,067
Printing fees......................... 2,771 1,809 2,034
Registration and filing fees.......... 1,281 861 90
Other................................. 783 2,106 422
----------- ---------- -----------
Total Liabilities..................... 220,243 27,084 22,750
----------- ---------- -----------
NET ASSETS:
Capital................................. 24,704,152 6,933,266 18,944,032
Undistributed net investment income..... 35,281 14,939 41,771
Net unrealized appreciation on invest-
ments.................................. 97,153 45,891 473,816
Accumulated undistributed net realized
losses on investment transactions...... (6,609,807) (49,104) (1,107,259)
----------- ---------- -----------
Net Assets............................ $18,226,779 $6,944,992 $18,352,360
=========== ========== ===========
Outstanding units of beneficial interest
(shares)............................... 2,099,019 694,680 1,843,918
=========== ========== ===========
Net asset value--redemption price per
share.................................. $ 8.68 $ 10.00 $ 9.95
=========== ========== ===========
Maximum Sales Charge.................... 3.00% 2.00% 3.00%
=========== ========== ===========
Maximum Offering Price (100%/(100%--Max-
imum Sales Charge) of net asset value
adjusted to nearest cent) per share.... $ 8.95 $ 10.20 $ 10.26
=========== ========== ===========
</TABLE>
See notes to financial statements.
B-54
<PAGE> 252
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
MONEY VALUE
MARKET EQUITY GROWTH
FUND FUND FUND
---------- ----------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income......................... $7,473,132 $ 25,268 $ 5,539
Dividend income......................... -- 1,671,207 707,799
---------- ----------- ----------
Total Income............................ 7,473,132 1,696,475 713,338
---------- ----------- ----------
EXPENSES:
Investment advisory fees................ 480,718 694,259 332,857
Administration fees..................... 274,696 151,803 66,572
Administrative services fees............ 343,051 189,753 83,214
12b-1 fees.............................. 343,051 189,753 83,214
Custodian fees.......................... 35,910 15,139 6,767
Accounting fees......................... 42,510 31,306 31,709
Legal fees.............................. 91,131 14,387 4,367
Audit fees.............................. 30,377 18,414 7,505
Trustees' fees and expenses............. 16,040 9,064 3,265
Transfer agent fees..................... 28,413 44,781 27,836
Interest expense........................ 34,819 -- --
Registration and filing fees............ 7,229 7,066 1,989
Printing costs.......................... 33,841 15,612 8,078
Other................................... 17,458 8,787 5,871
---------- ----------- ----------
Total Expenses.......................... 1,779,244 1,390,124 663,244
Less: Fee waivers....................... (287,792) (159,393) (302,900)
---------- ----------- ----------
Net Expenses............................ 1,491,452 1,230,731 360,344
---------- ----------- ----------
Net Investment Income................... 5,981,680 465,744 352,994
---------- ----------- ----------
REALIZED/UNREALIZED GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains (losses) on
investment transactions............ (4,905) 8,840,538 1,370,108
Change in unrealized appreciation on
investments........................ -- 6,722,105 7,020,864
---------- ----------- ----------
Net realized/unrealized gains (losses)
on investments.......................... (4,905) 15,562,643 8,390,972
---------- ----------- ----------
Change in net assets resulting from
operations.............................. $5,976,775 $16,028,387 $8,743,966
========== =========== ==========
</TABLE>
See notes to financial statements.
B-55
<PAGE> 253
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
LOW DURATION TENNESSEE
FIXED GOVERNMENT MUNICIPAL
INCOME SECURITIES OBLIGATIONS
FUND FUND FUND
----------- ------------ -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income........................ $ 1,877,178 $472,604 $1,195,725
Dividend income........................ 27,571 8,356 9,855
----------- -------- ----------
Total Income........................... 1,904,749 480,960 1,205,580
----------- -------- ----------
EXPENSES:
Investment advisory fees............... 156,128 35,860 122,007
Administration fees.................... 48,039 14,344 37,541
Administrative services fees........... 60,049 17,930 46,926
12b-1 fees............................. 60,049 17,930 46,926
Custodian fees......................... 8,157 2,030 10,067
Accounting fees........................ 31,777 31,418 47,917
Legal fees............................. 1,833 812 928
Audit fees............................. 6,273 3,281 4,374
Organization costs..................... -- -- 8,819
Trustees' fees and expenses............ 2,061 559 1,634
Transfer agent fees.................... 22,665 20,566 23,580
Registration and filing fees........... 3,110 1,540 1,627
Printing costs......................... 4,544 542 3,622
Other.................................. 3,377 1,961 1,882
----------- -------- ----------
Total Expenses......................... 408,062 148,773 357,850
Less: Fee waivers...................... (50,442) (54,508) (152,040)
----------- -------- ----------
Net Expenses........................... 357,620 94,265 205,810
----------- -------- ----------
Net Investment Income.................. 1,547,129 386,695 999,770
----------- -------- ----------
REALIZED/UNREALIZED GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains (losses) on
investment transactions................ (434,866) (12,845) 101,371
Change in unrealized
appreciation/depreciation on
investments....................... (2,855,544) 54,148 231,707
----------- -------- ----------
Net realized/unrealized gains (losses)
on investments......................... (3,290,410) 41,303 333,078
----------- -------- ----------
Change in net assets resulting from
operations............................. $(1,743,281) $427,998 $1,332,848
=========== ======== ==========
</TABLE>
See notes to financial statements.
B-56
<PAGE> 254
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MONEY MARKET FUND VALUE EQUITY FUND GROWTH FUND
---------------------------- -------------------------- ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996 1997 1996
------------- ------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES:
OPERATIONS:
Net investment income... $ 5,981,680 $ 6,961,437 $ 465,744 $ 837,145 $ 352,994 $ 389,143
Net realized gains
(losses) on
investments
transactions.......... (4,905) 141,785 8,840,538 9,340,011 1,370,108 1,167,209
Net change in unrealized
appreciation/depreciation
on investments........ -- -- 6,722,105 5,384,702 7,020,864 3,513,955
------------- ------------- ------------ ------------ ----------- -----------
Change in net assets
resulting from
operations............ 5,976,775 7,103,222 16,028,387 15,561,858 8,743,966 5,070,307
------------- ------------- ------------ ------------ ----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income................ (5,981,680) (6,961,437) (504,356) (827,973) (354,568) (389,143)
In excess of net
investment income..... -- -- -- -- -- (19,825)
From net realized gains
on investments........ -- -- (10,634,101) (2,982,043) (934,819) (505,659)
In excess of net
realized gains on
investments........... -- -- -- -- -- --
------------- ------------- ------------ ------------ ----------- -----------
Change in net assets
from shareholder
distributions......... (5,981,680) (6,961,437) (11,138,457) (3,810,016) (1,289,387) (914,627)
------------- ------------- ------------ ------------ ----------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares
issued................ 364,918,577 426,124,612 4,195,632 5,108,660 2,745,588 10,696,082
Dividends reinvested.... 336,522 512,232 5,098,769 1,808,516 568,918 383,839
Cost of shares redeemed. (359,396,813) (450,674,926) (15,675,083) (17,877,680) (7,131,040) (2,953,582)
------------- ------------- ------------ ------------ ----------- -----------
Change in net assets
from
capital transactions.. 5,858,286 (24,038,082) (6,380,682) (10,960,504) (3,816,534) (8,126,339)
------------- ------------- ------------ ------------ ----------- -----------
Capital contributions... 175,344 138,311 -- -- -- --
------------- ------------- ------------ ------------ ----------- -----------
Change in net assets.... 6,028,725 (23,757,986) (1,490,752) 791,338 3,638,045 12,282,019
NET ASSETS:
Beginning of period..... 134,145,623 157,903,609 81,055,134 80,263,796 33,767,369 21,485,350
------------- ------------- ------------ ------------ ----------- -----------
End of period........... $ 140,174,348 $ 134,145,623 $ 79,564,382 $ 81,055,134 $37,405,414 $33,767,369
============= ============= ============ ============ =========== ===========
SHARE TRANSACTIONS:
Issued.................. 364,918,578 426,124,613 290,948 373,123 182,434 832,694
Reinvested.............. 336,522 512,232 370,120 133,595 38,111 29,644
Redeemed................ (359,396,813) (450,674,926) (1,111,533) (1,209,025) (493,776) (222,427)
------------- ------------- ------------ ------------ ----------- -----------
Change in shares........ 5,858,287 (24,038,081) (450,465) (783,307) (273,231) 639,911
============= ============= ============ ============ =========== ===========
</TABLE>
See notes to financial statements.
B-57
<PAGE> 255
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
LOW DURATION
GOVERNMENT TENNESSEE MUNICIPAL
FIXED INCOME FUND SECURITIES FUND OBLIGATIONS FUND
-------------------------- ----------------------- ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996 1997 1996
------------ ------------ ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES:
OPERATIONS:
Net investment income... $ 1,547,129 $ 2,177,545 $ 386,695 $ 399,991 $ 999,770 $ 1,080,311
Net realized gains
(losses) on
investments
transactions.......... (434,866) (1,646,585) (12,845) (1,813) 101,371 (37,429)
Net change in unrealized
appreciation/depreciation
on investments........ (2,855,544) 29,430 54,148 (149,458) 231,707 (106,825)
------------ ------------ ---------- ----------- ----------- -----------
Change in net assets
resulting from
operations............ (1,743,281) 560,390 427,998 248,720 1,332,848 936,057
------------ ------------ ---------- ----------- ----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income................ (1,546,955) (2,163,561) (389,508) (399,991) (974,115) (1,077,559)
In excess of net
investment income..... -- -- -- (3,182) -- --
In excess of net
realized gains on
investments........... -- (104,990) -- (2,537) -- (906)
------------ ------------ ---------- ----------- ----------- -----------
Change in net assets
from shareholder
distributions......... (1,546,955) (2,268,551) (389,508) (405,710) (974,115) (1,078,465)
------------ ------------ ---------- ----------- ----------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares
issued................ 789,954 2,751,575 110,306 688,187 893,164 3,937,416
Dividends reinvested.... 725,558 971,603 313,527 339,394 298,374 294,830
Cost of shares redeemed. (11,930,394) (12,664,268) (978,322) (1,062,808) (2,234,999) (5,879,537)
------------ ------------ ---------- ----------- ----------- -----------
Change in net assets
from
capital transactions.. (10,414,882) (8,941,090) (554,489) (35,227) (1,043,461) (1,647,291)
------------ ------------ ---------- ----------- ----------- -----------
Capital contribution.... 3,084,688 -- -- -- -- --
------------ ------------ ---------- ----------- ----------- -----------
Change in net assets.... (10,620,430) (10,649,251) (515,999) (192,217) (684,728) (1,789,699)
NET ASSETS:
Beginning of period..... 28,847,209 39,496,460 7,460,991 7,653,208 19,037,088 20,826,787
------------ ------------ ---------- ----------- ----------- -----------
End of period........... $ 18,226,779 $ 28,847,209 $6,944,992 $ 7,460,991 $18,352,360 $19,037,088
============ ============ ========== =========== =========== ===========
SHARE TRANSACTIONS:
Issued.................. 90,153 300,179 11,000 67,717 90,725 402,934
Reinvested.............. 82,987 106,183 31,418 33,512 30,318 30,243
Redeemed................ (1,364,087) (1,377,873) (97,847) (105,303) (226,674) (600,866)
------------ ------------ ---------- ----------- ----------- -----------
Change in shares........ (1,190,947) (971,511) (55,429) (4,074) (105,631) (167,689)
============ ============ ========== =========== =========== ===========
</TABLE>
See notes to financial statements.
B-58
<PAGE> 256
THE SESSIONS GROUP
RIVERSIDE CAPITAL MONEY MARKET FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
----------- ---------------------------------------------------- ------------
<C> <S> <C>
U.S. GOVERNMENT AGENCIES (98.3%):
Federal Farm Credit Bank (11.1%):
$15,500,000 5.46%, 9/1/98*...................................... $ 15,500,000
------------
Federal Home Loan Bank (12.1%):
3,000,000 5.25%, 8/14/97*..................................... 2,999,737
5,000,000 5.77%, 11/5/97...................................... 5,000,000
2,000,000 5.88%, 2/26/98...................................... 2,000,000
2,000,000 5.70%, 3/4/98....................................... 2,000,000
5,000,000 5.89%, 3/30/98...................................... 5,000,000
------------
16,999,737
------------
Federal National Mortgage Assoc. (14.6%):
3,000,000 5.25%, 7/28/97**.................................... 2,999,327
5,000,000 5.44%, 9/2/97**..................................... 4,999,267
10,000,000 5.53%, 12/3/97*..................................... 9,997,898
2,500,000 5.25%, 7/14/99*..................................... 2,492,002
------------
20,488,494
------------
Student Loan Marketing Assoc. (60.5%):
10,000,000 5.24%, 10/14/97**................................... 9,997,925
500,000 5.42%, 10/30/97**................................... 500,151
4,830,000 5.24%, 11/24/97*.................................... 4,827,330
5,000,000 5.65%, 3/17/98...................................... 5,000,000
8,000,000 5.26%, 8/20/98**.................................... 7,994,641
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
----------- --------------------------------------------------- ------------
<C> <S> <C>
U.S. GOVERNMENT AGENCIES, CONTINUED:
Student Loan Marketing Assoc., continued:
$ 2,000,000 5.26%, 9/28/98**................................... $ 1,998,532
5,000,000 5.31%, 11/6/98*.................................... 5,000,000
20,000,000 5.26%, 11/10/98**.................................. 19,987,702
5,000,000 5.28%, 2/8/99**.................................... 4,992,537
7,000,000 5.27%, 2/22/99*.................................... 6,990,017
3,500,000 5.25%, 7/12/99*.................................... 3,489,730
14,000,000 5.29%, 8/2/99*..................................... 13,989,731
------------
84,768,296
------------
Total U.S. Government Agencies 137,756,527
------------
REPURCHASE AGREEMENTS (1.1%):
1,488,296 Zions Securities, 5.75%, 7/1/97, (Collateralized by
$1,510,000 U.S. Treasury Notes, 6.25%, 5/31/99,
Market Value = $1,513,775)........................ 1,488,296
------------
Total Repurchase Agreements 1,488,296
------------
Total (Amortized Cost--
$139,244,823)(a) $139,244,823
============
</TABLE>
- ------
Percentages indicated are based on net assets of $140,174,348.
(a)Cost for federal income tax and financial reporting purposes are the same.
* Floating Rate Certificates are securities with interest rates that change
whenever a specific interest rate changes. The interest rate is based on an
index of market interest rates or other index. The rate reflected on the
Schedule of Portfolio Investments is the rate in effect on June 30, 1997.
** Variable Rate Certificates are securities with interest rates that change
periodically and are payable on different dates ranging from daily, weekly,
monthly, quarterly, or semi-annually. The rate reflected on the Schedule of
Portfolio Investments is the rate in effect on June 30, 1997.
See notes to financial statements.
B-59
<PAGE> 257
THE SESSIONS GROUP
RIVERSIDE CAPITAL VALUE EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
------- --------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS (96.9%):
Automotive Parts (3.5%):
76,650 Echlin, Inc.............................................. $ 2,759,400
-----------
Computers & Peripherals (5.6%):
188,650 Amdahl Corp. (b)......................................... 1,650,688
30,900 International Business
Machines Corp........................................... 2,786,793
-----------
4,437,481
-----------
Containers--Metal, Glass, Paper, Plastic (3.5%):
94,050 Rubbermaid, Inc.......................................... 2,797,988
-----------
Electrical Equipment (3.4%):
51,835 Thomas & Betts Corp...................................... 2,724,577
-----------
Entertainment (3.6%):
100,000 Hasbro, Inc.............................................. 2,837,500
-----------
Financial Services (2.0%):
33,200 SunAmerica, Inc.......................................... 1,618,500
-----------
Food Processing & Packaging (6.1%):
144,100 J&J Snack Foods Corp. (b)................................ 2,215,538
105,800 McCormick & Company, Inc................................. 2,671,450
-----------
4,886,988
-----------
Insurance (13.6%):
100,652 PXRE Corp................................................ 3,095,049
66,133 Travelers Group, Inc..................................... 4,170,511
83,200 UNUM Corp................................................ 3,494,400
-----------
10,759,960
-----------
Manufactured Housing (1.3%):
42,600 Skyline Corp............................................. 1,049,025
-----------
Medical Services (3.4%):
133,700 Value Health, Inc. (b)................................... 2,707,425
-----------
Metal & Mineral Production (2.3%):
44,900 Cleveland Cliffs, Inc.................................... 1,829,675
-----------
Oil & Gas (8.3%):
121,000 Pride International Inc. (b)............................. 2,904,000
101,180 Valero Energy Corp....................................... 3,667,775
-----------
6,571,775
-----------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
------- --------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Oilfield Equipment & Services (2.7%):
40,750 BJ Services Co.(b)....................................... $ 2,185,219
-----------
Pollution Control Services & Equipment (3.2%):
148,700 Safety-Kleen Corp........................................ 2,509,313
-----------
Real Estate Investment Trusts (8.5%):
177,500 Equity Inns, Inc......................................... 2,374,063
67,700 Mid-America Apartment Communities, Inc................... 1,899,831
65,710 Storage USA, Inc......................................... 2,513,407
-----------
6,787,301
-----------
Restaurants (2.8%):
241,750 Darden Restaurants, Inc.................................. 2,190,859
-----------
Retail (4.5%):
259,100 Hancock Fabrics, Inc..................................... 3,562,625
-----------
Savings & Loan Companies (3.0%):
55,350 H. F. Ahmanson & Co...................................... 2,380,050
-----------
Steel (3.1%):
160,000 Birmingham Steel Corp.................................... 2,480,000
-----------
Technology (3.3%):
130,000 Global Industries Technology, Inc. (b)................... 2,665,000
-----------
Telecommunications (3.3%):
77,000 Century Telephone Enterprise............................. 2,593,938
-----------
Tobacco & Tobacco Products (2.2%):
64,500 UST, Inc................................................. 1,789,875
-----------
Trucking (3.7%):
150,650 Werner Enterprises, Inc.................................. 2,918,844
-----------
Total Common Stocks 77,043,318
-----------
INVESTMENT COMPANIES (1.2%):
1 Dreyfus Treasury Prime Fund.............................. 1
986,993 Riverside Capital Money Market Fund...................... 986,993
-----------
Total Investment Companies 986,994
-----------
</TABLE>
Continued
B-60
<PAGE> 258
THE SESSIONS GROUP
RIVERSIDE CAPITAL VALUE EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ---------------------------------------------------- -----------
<C> <S> <C>
REPURCHASE AGREEMENTS (1.8%):
$1,456,177 Zions Securities, 5.75%, 7/1/97, (Collateralized by
$1,480,000 U.S. Treasury Notes, 6.25%, 5/31/99,
Market Value = $1,483,700)......................... $ 1,456,177
-----------
Total Repurchase Agreements 1,456,177
-----------
Total (Cost--$59,249,887)(a) $79,486,489
===========
</TABLE>
- ------
Percentages indicated are based on net assets of $79,564,382.
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation...................................... $22,299,584
Unrealized depreciation...................................... (2,062,982)
-----------
Net unrealized appreciation.................................. $20,236,602
===========
</TABLE>
(b)Represents non-income producing securities.
See notes to financial statements.
B-61
<PAGE> 259
THE SESSIONS GROUP
RIVERSIDE CAPITAL GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
--------- -------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS (94.7%):
Amusement & Recreation (2.1%):
18,000 Cedar Fair L.P.......................................... $ 787,500
-----------
Automotive Parts (1.9%):
30,000 AutoZone Inc. (b)....................................... 706,875
-----------
Banking (7.1%):
19,000 NationsBank Corp........................................ 1,225,500
34,200 SouthTrust Corp......................................... 1,415,024
-----------
2,640,524
-----------
Beverages (3.5%):
18,800 Coca-Cola Co............................................ 1,311,300
-----------
Computers (1.0%):
40,000 Checkmate Electronics,
Inc. (b)............................................... 360,000
-----------
Computers & Peripherals (2.2%):
15,000 Hewlett Packard Co...................................... 840,000
-----------
Construction (2.7%):
69,695 Clayton Homes, Inc...................................... 993,154
-----------
Electrical Component (3.3%):
60,000 World Access, Inc. (b).................................. 1,230,000
-----------
Electrical Equipment (4.2%):
24,000 General Electric Co..................................... 1,569,000
-----------
Electronic & Electrical (2.3%):
21,000 AMP, Inc................................................ 876,750
-----------
Food Processing & Packaging (5.1%):
25,000 Nabisco Holdings Corp................................... 996,875
22,000 Sara Lee Corp........................................... 915,750
-----------
1,912,625
-----------
Furniture (2.2%):
41,500 Heilig Myers Co......................................... 814,438
-----------
Household Products/Wares (2.6%):
7,000 Procter & Gamble Co..................................... 988,750
-----------
Insurance (3.8%):
9,500 American International Group, Inc....................... 1,419,063
-----------
Measuring & Controlling Devices (1.8%):
20,100 Thermo Electron Corp. (b)............................... 683,400
-----------
Motels & Hotels (1.5%):
37,100 Winston Hotels, Inc..................................... 558,819
-----------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
--------- -------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Office Equipment & Supplies (1.6%):
8,400 Pitney Bowes, Inc....................................... $ 598,500
-----------
Oil--Integrated Companies (5.3%):
14,800 Atlantic Richfield Co................................... 1,043,400
8,500 Texaco, Inc. ........................................... 924,375
-----------
1,967,775
-----------
Pharmaceuticals (6.5%):
17,500 Abbott Laboratories..................................... 1,168,125
26,200 Schering-Plough Corp.................................... 1,254,325
-----------
2,422,450
-----------
Real Estate Investment Trusts (5.3%):
44,000 Merry Land & Investment Co., Inc........................ 954,250
27,300 Storage USA, Inc........................................ 1,044,225
-----------
1,998,475
-----------
Restaurants (2.6%):
37,000 Cracker Barrel Old Country
Store, Inc............................................. 980,500
-----------
Retail (8.1%):
31,200 Claire's Stores, Inc.................................... 546,000
21,700 Home Depot, Inc......................................... 1,495,943
29,000 Wal-Mart Stores, Inc.................................... 980,562
-----------
3,022,505
-----------
Semiconductors (3.6%):
9,400 Intel Corp.............................................. 1,333,038
-----------
Telecommunications (3.1%):
15,500 Motorola, Inc........................................... 1,178,000
-----------
Tobacco (4.7%):
39,600 Philip Morris Cos., Inc................................. 1,757,250
-----------
Toys & Bicycles--Manufacturing (3.2%):
35,675 Mattel, Inc............................................. 1,208,491
-----------
Utilities--Telecommunications (3.4%):
33,000 MCI Telecommunications Corp............................. 1,263,281
-----------
Total Common Stocks 35,422,463
-----------
</TABLE>
Continued
B-62
<PAGE> 260
THE SESSIONS GROUP
RIVERSIDE CAPITAL GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JUNE 30, 1997
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
--------- -------------------------------------------------------- -----------
<C> <S> <C>
INVESTMENT COMPANIES (5.2%):
1,103,675 Dreyfus Treasury Prime Fund............................. $ 1,103,675
843,681 Riverside Capital Money
Market Fund............................................ 843,681
-----------
Total Investment Companies 1,947,356
-----------
Total (Cost--$24,543,367)(a) $37,369,819
===========
</TABLE>
- ------
Percentages indicated are based on net assets of $37,405,414.
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation...................................... $13,092,101
Unrealized depreciation...................................... (265,649)
-----------
Net unrealized appreciation.................................. $12,826,452
===========
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements.
B-63
<PAGE> 261
THE SESSION GROUP
RIVERSIDE CAPITAL FIXED INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- ----------
<C> <S> <C>
CORPORATE BONDS (15.0%):
Industrial Goods & Services (8.8%):
1,600,000 Voyager Lines Private Placement, 9.50%, 11/1/99 (b),
secured by Bank of New York letter of credit,
see note 5 (c)........................................ $1,600,000
Transportation & Shipping (6.2%):
1,125,000 Ray & Ross Transport, Inc., 10.00%, 2/1/06 secured by
Bank of New York letter of credit, see note 5 (c)..... 1,125,000
----------
Total Corporate Bonds 2,725,000
----------
TAXABLE MUNICIPAL BONDS (24.0%):
Arkansas (7.0%):
1,300,000 Union County Arkansas Revenue, Hillsboro Manor Project,
9.50%, 9/1/17......................................... 1,269,125
----------
Illinois (0.6%):
111,718 Belleville, St. Clair County, CMO, 7.35%, 11/15/09..... 114,667
----------
Oklahoma (5.6%):
1,000,000 Oklahoma County Financial Authority, 8.05%, 10/1/09.... 1,023,870
----------
Tennessee (4.1%):
745,000 Hamilton County, Tennessee Industrial Development
Board, Multifamily Housing Revenue, Waterford
Apartments, Project A, 8.50%, 8/1/10.................. 740,560
----------
West Virginia (6.7%):
260,000 Summers County, West Virginia First Mortgage Gross
Revenue Refunding, Limited Partnership, 8.00%,
10/1/03............................................... 255,954
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------ -----------
<C> <S> <C>
TAXABLE MUNICIPAL BONDS, CONTINUED:
West Virginia, continued:
980,000 West Virginia State Hospital Financial Authority,
Hospital Revenue, Nellas Income Project, 9.50%,
8/1/15............................................... $ 970,269
-----------
1,226,223
-----------
Total Taxable Municipal Bonds 4,374,445
-----------
U.S. TREASURY BONDS (0.3%):
49,000 9.13%, 5/15/09........................................ 55,708
-----------
Total U.S. Treasury Bonds 55,708
-----------
U.S. TREASURY NOTES (16.5%):
3,000,000 6.38%, 4/30/99........................................ 3,015,720
-----------
Total U.S. Treasury Notes 3,015,720
-----------
U.S. GOVERNMENT AGENCIES (43.8%):
Federal Home Loan Bank (12.4%):
2,230,000 7.25%, 5/14/04........................................ 2,260,908
-----------
Federal Home Loan Mortgage Corp. (14.6%):
2,580,000 8.06%, 8/9/11, Callable 8/9/99 @ 100.................. 2,667,694
-----------
Federal National Mortgage Assoc. (16.8%):
1,000,000 7.30%, 5/13/04, Callable 5/13/99 @ 100................ 1,001,590
2,000,000 8.08%, 7/14/06, Callable 7/17/98 @ 100................ 2,046,120
-----------
3,047,710
-----------
Total U.S. Government Agencies 7,976,312
-----------
</TABLE>
Continued
B-64
<PAGE> 262
THE SESSION GROUP
RIVERSIDE CAPITAL FIXED INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
INVESTMENT COMPANIES (0.0%):
1 Dreyfus Treasury Prime Fund............................ $ 1
1,010 Riverside Capital Money Market Fund.................... 1,010
-----------
Total Investment Companies 1,011
-----------
Total (Cost--$18,051,043)(a) $18,148,196
===========
</TABLE>
- ------
Percentages indicated are based on net assets of $18,226,779.
(a) Represents cost for federal income tax and financial reporting purposes
and differs from value by net unrealized appreciation of securities as
follows:
<TABLE>
<S> <C>
Unrealized appreciation......................................... $115,978
Unrealized depreciation......................................... (18,825)
--------
Net unrealized appreciation..................................... $ 97,153
========
</TABLE>
(b) Represents a restricted security, purchased under Rule 144A, which is
exempt from registration under the Securities Act of 1933, as amended.
(c) Absent the letter of credit the management of the Fund has deemed these
fixed income securities to have no value based on the Fund's established
securities valuation procedures.
CMO--Collateralized Mortgage Obligations
See notes to financial statements.
B-65
<PAGE> 263
THE SESSION GROUP
RIVERSIDE CAPITAL LOW DURATION GOVERNMENT SECURITIES FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ------------------------------------------------------- ----------
<C> <S> <C>
U.S. GOVERNMENT AGENCIES (94.6%):
Federal Home Loan Bank (20.1%):
$ 700,000 3.83%, 7/15/98*........................................ $ 682,465
700,000 7.38%, 4/17/02......................................... 710,843
----------
1,393,308
----------
Federal Home Loan Mortgage Corp. (8.6%):
600,000 6.75%, 11/27/01........................................ 599,910
----------
Federal National Mortgage Assoc. (28.6%):
1,000,000 7.00%, 2/6/02.......................................... 1,000,360
1,000,000 6.83%, 3/10/06......................................... 985,090
----------
1,985,450
----------
Shipco 668 Series A-Title XI (3.9%):
273,000 8.50%, 5/11/02**....................................... 269,479
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ------------------------------------------------------- ----------
<C> <S> <C>
U.S. Treasury Notes (33.4%):
$2,300,000 6.63%, 3/31/02......................................... $2,320,562
----------
Total U.S. Government Agencies 6,568,709
----------
INVESTMENT COMPANIES (4.2%):
8 Dreyfus Treasury Prime Fund............................ 8
291,382 Riverside Capital Money Market Fund.................... 291,382
----------
Total Investment Companies 291,390
----------
Total (Cost--$6,814,208)(a) $6,860,099
==========
</TABLE>
- ------
Percentages indicated are based on net assets of $6,944,992.
(a) Represents cost for federal income tax and financial reporting purposes
and differs from value by net unrealized appreciation of securities as
follows:
<TABLE>
<S> <C>
Unrealized appreciation.......................................... $54,872
Unrealized depreciation.......................................... (8,981)
-------
Net unrealized appreciation...................................... $45,891
=======
</TABLE>
* Variable Rate Certificates are securities with interest rates that change
periodically and are payable on different dates ranging from daily, weekly,
monthly, quarterly, or semi-annually. The rate reflected on the Schedule of
Portfolio Investments is the rate in effect on June 30, 1997.
** This security is guaranteed by U.S. Government Agency collateral.
See notes to financial statements.
B-66
<PAGE> 264
THE SESSIONS GROUP
RIVERSIDE CAPITAL TENNESSEE MUNICIPAL OBLIGATIONS FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ----------------------------------------------------- -----------
<C> <S> <C>
MUNICIPAL BONDS (75.0%):
Georgia (2.3%):
$ 400,000 Atlanta, Georgia Housing Development Corp., Mortgage
Revenue, 7.00%, 12/1/20, Callable 12/1/05 @ 102..... $ 427,432
-----------
Kentucky (0.6%):
100,000 Pike County Public Corp., 6.00%, 9/1/18, Callable
3/1/07 @ 102........................................ 102,653
-----------
Louisianna (4.5%):
750,000 New Orleans, Louisiana Audubon Park Revenue, 8.00%,
4/1/12.............................................. 822,615
-----------
Pennsylvania (1.4%):
250,000 Schuylkill County, Pennsylvania Industrial
Development Authority Revenue, Beverly Enterprises
Project, 6.63%, 5/1/03.............................. 253,998
-----------
Puerto Rico (1.4%):
250,000 Puerto Rico CommonWealth GO, 6.00%, 7/1/14........... 259,460
-----------
Tennessee (64.1%):
5,000 Blount County, Tennessee Health & Educational
Facilities Board Revenue, Multifamily Mortgage,
Maryville Towers Project, 6.20%, 7/20/28, GNMA...... 5,111
100,000 Bruceton, Tennessee Water & Sewer Development, GO,
6.70%, 3/1/13....................................... 105,276
105,000 Bruceton, Tennessee Water & Sewer Development, GO,
6.70%, 3/1/14....................................... 110,361
115,000 Bruceton, Tennessee Water & Sewer Development, GO,
6.75%, 3/1/15....................................... 121,057
125,000 Bruceton, Tennessee Water & Sewer Development, GO,
6.75%, 3/1/16....................................... 131,301
500,000 Hamilton County, Tennessee Industrial Development
Board Revenue, Multifamily Housing, Park at 58
Project, 6.70%, 3/1/21, Callable 3/1/06 @ 101....... 516,090
250,000 Hamilton County, Tennessee Industrial Development
Board Revenue, Multifamily Housing, Patten Towers,
6.38%, 8/1/26, Callable 8/1/05 @ 102................ 253,415
890,000 Hamilton County, Tennessee Industrial Development
Board Revenue, Multifamily Housing, Waterford Place
Apartments Project, Series B, 6.60%, 2/1/24, FGIC... 895,580
850,000 Hardeman County Correctional Facility, 7.00%, 8/1/04. 874,735
300,000 Jackson, Tennessee Health, Educational & Housing,
Posthouse Apartments, 7.00%, 5/1/17................. 316,182
350,000 Knoxville, Tennessee Community Development Corp.,
Clinton Towers Housing Revenue, Multifamily, 6.60%,
10/15/07............................................ 365,362
250,000 Knoxville, Tennessee Community Development Corp.,
Clinton Towers Housing Revenue, Multifamily, 6.65%,
10/15/10............................................ 259,603
115,000 Manchester, Tennessee Water & Sewer Revenue, Series
1992, GO, 6.00%, 7/1/06, AMBAC...................... 119,155
900,000 Maury County Industrial Development Board, PCR,
6.50%, 9/1/24, Callable 9/1/04 @ 102................ 959,913
245,000 Memphis, Tennessee Health, Educational, & Housing
Facilities Board, Mortgage Revenue, Edgewater
Terrace Project, 7.38%, 1/20/27, FHA, LOC: First
Alabama Birmingham.................................. 261,322
</TABLE>
Continued
B-67
<PAGE> 265
THE SESSIONS GROUP
RIVERSIDE CAPITAL TENNESSEE MUNICIPAL OBLIGATIONS FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ----------------------------------------------------- -----------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Tennessee, continued:
$ 250,000 Memphis, Tennessee Health, Educational, & Housing
Facilities Board, Multifamily Refunding, River Trace
II, 6.45%, 4/1/26................................... $ 260,210
340,000 Memphis, Tennessee Referendum GO, 5.60%, 8/1/10...... 348,551
250,000 Metropolitan Government, Nashville & Davidson County,
Tennessee Health & Educational Facilities Board
Revenue, 1st Mortgage, Blakeford Project, 7.50%,
7/1/99.............................................. 252,525
45,000 Metropolitan Government, Nashville & Davidson County,
Tennessee Water & Sewer Revenue, 7.00%, 1/1/14...... 45,561
150,000 Morristown, Tennessee Housing Development Corp.,
Multifamily Revenue, 6.25%, 5/1/18.................. 155,561
130,000 Poplar Grove, Tennesse Utility District, Waterworks
Revenue Refunding & Improvement, 6.05%, 4/1/05...... 138,724
250,000 Shelby County, Tennessee Health, Educational &
Housing Facilities Board Revenue, Beverly
Enterprises Project, 6.50%, 3/1/09.................. 253,470
725,000 Shelby County, Tennessee Health, Educational &
Housing Facilities Board Revenue, Heritage Place
Project, 7.13%, 7/1/25, MBIA, FHA................... 807,940
125,000 Shelby County, Tennessee Health, Educational &
Housing Facilities Board Revenue, Industrial
Development, 1st Healthcare Project, 6.50%, 4/1/02.. 125,850
1,150,000 Shelby County, Tennessee Health, Educational &
Housing Facilities Board Revenue, Multifamily
Housing, Windsor Apartments, 6.75%, 10/1/17......... 1,201,358
500,000 Shelby County, Tennessee Health, Educational &
Housing Facilities Board Revenue, Trezevant Manor
Project, 6.00%, 8/1/16.............................. 491,885
500,000 Shelby County, Tennessee, 6.00%, 4/15/24............. 501,595
300,000 Shelby County, Tennessee, 6.63%, 7/1/17, Callable
12/1/06 @ 102....................................... 307,344
500,000 Shelby County, Tennessee, 6.75%, 1/1/28, Callable
12/1/06 @ 102....................................... 513,580
500,000 South Fulton, Tennessee Industrial Development
Revenue, 6.35%, 10/1/15, Callable 10/1/05 @102...... 518,745
310,000 South Fulton, Tennessee Industrial Revenue Authority,
6.00%, 10/1/10, Callable 10/1/05 @102............... 319,542
235,000 Tennessee Housing Development, 5.90%, 7/1/18......... 236,936
-----------
11,773,840
-----------
West Virginia (0.7%):
125,000 Summers County, West Virginia, First Mortgage Gross
Revenue Refunding, 7.25%, 10/1/09................... 128,885
-----------
Total Municipal Bonds 13,768,883
-----------
INVESTMENT COMPANIES (2.0%):
372,984 Dreyfus Municipal Cash Management Plus............... 372,984
-----------
Total Investment Companies 372,984
-----------
</TABLE>
Continued
B-68
<PAGE> 266
THE SESSIONS GROUP
RIVERSIDE CAPITAL TENNESSEE MUNICIPAL OBLIGATIONS FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ----------------------------------------------------- -----------
<C> <S> <C>
ALTERNATIVE MINIMUM TAX PAPER (17.8%):
Oklahoma (1.7%):
$ 300,000 Oklahoma Development Finance Authority Revenue, First
Mortgage, Bake Rite Income Project, 8.38%, 8/1/11... $ 306,384
-----------
Tennessee (16.1%):
920,000 Loudon County, Tennessee Industrial Development
Board, Solid Waste Disposal Revenue, Kimberly-Clark
Corp. Project, 6.20%, 2/1/23........................ 947,554
100,000 Memphis Shelby County, Tennessee Airport Revenue,
8.13%, 2/15/12, MBIA................................ 104,200
145,000 Tennessee Housing Development Agency Mortgage, Series
A, 6.90%, 7/1/25.................................... 152,637
500,000 Tennessee Housing Development Agency Mortgage, Series
C, 6.10%, 7/1/15.................................... 510,885
740,000 Tennessee Housing Development Agency, 7.05%, 7/1/20.. 783,024
440,000 Tennessee Housing Development, 6.45%, 7/1/21......... 457,415
-----------
2,955,715
-----------
Total Alternative Minimum Tax Paper 3,262,099
-----------
Total (Cost--$16,930,150)(a) $17,403,966
===========
</TABLE>
- --------
Percentages indicated are based on net assets of $18,352,360.
(a) Represents cost for federal income tax and financial reporting purposes
and differs from value by net unrealized appreciation of securities as
follows:
<TABLE>
<S> <C>
Unrealized appreciation......................................... $489,617
Unrealized depreciation......................................... (15,801)
--------
Net unrealized appreciation..................................... $473,816
========
</TABLE>
AMBAC--Insured by American Municipal Bond Assurance Corp.
FGIC--Insured by Financial Guaranty Insurance Corp.
FHA--Insured by Federal Housing Administration
GNMA--Insured by Government National Mortgage Assoc.
GO--General Obligation
LOC--Letter of Credit
MBIA--Insured by Municipal Bond Insurance Assoc.
PCR--Pollution Control Revenue
See notes to financial statements.
B-69
<PAGE> 267
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
1. ORGANIZATION:
The Sessions Group (the "Group") was organized on April 25, 1988 as an Ohio
business trust, and is registered under the Investment Company Act of 1940
as amended (the "1940 Act"), as an open-end management investment company.
Between the date of organization and the dates of commencement of operations
of the Riverside Capital Money Market Fund, the Riverside Capital Value
Equity Fund, the Riverside Capital Growth Fund, the Riverside Capital Fixed
Income Fund, the Riverside Capital Low Duration Government Securities Fund
and the Riverside Capital Tennessee Municipal Obligations Fund
(individually, a "Fund" and collectively, the "Funds"), each a series of the
Group, the Funds earned no investment income and had no operations other
than incurring organizational expenses and the sale of initial units of
beneficial interest ("shares") of the Funds.
The investment objective of the Money Market Fund is to seek current income
with liquidity and stability of principal. The investment objective of the
Value Equity Fund is to seek growth of capital by investing primarily in a
diversified portfolio of common stocks and securities convertible into
common stocks. The investment objective of the Growth Fund is to seek growth
of capital by investing primarily in a diversified portfolio of common
stocks and securities convertible into common stocks. The investment
objective of the Fixed Income Fund is to seek current income as well as
preservation of capital by investing in a portfolio of high grade fixed
income securities. The investment objective of the Low Duration Government
Securities Fund is to seek current income consistent with preservation of
capital. The investment objectives of the Tennessee Municipal Obligations
Fund are to seek (1) income which is exempt from federal income tax and
Tennessee state income tax, and (2) preservation of capital.
The Group is authorized to issue an unlimited number of shares without par
value. Sales of shares of the Funds may be made to customers of National
Bank of Commerce ("NBC") and its affiliates, to all accounts of
correspondent banks of NBC and to the general public. NBC serves as
investment adviser to the Funds.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Group in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles. The preparation
of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses for the period. Actual results could differ from those estimates.
SECURITIES VALUATION:
Investments of the Money Market Fund are valued at either amortized cost,
which approximates market value, or at original cost, which combined with
accrued interest, approximates market value. Under the amortized cost
method, discount or premium is amortized on a constant basis to the maturity
of the security.
Investments in common and preferred stocks of the Value Equity Fund, the
Growth Fund, the Fixed Income Fund, the Low Duration Government Securities
Fund, and the Tennessee Municipal Obligations Fund (collectively, "the
variable net asset value funds"), are valued at their market values
determined on the basis of the latest available bid quotation in the
principal market (closing sales prices if the principal market is an
exchange) in which such securities are normally traded. Investments in
corporate bonds, municipal securities
Continued
B-70
<PAGE> 268
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
and U.S. Government securities of the variable net asset value funds are
valued at their market values determined on the basis of the mean of the
latest bid and asked quotations in the principal market (closing sales
prices if the principal market is an exchange) in which such securities are
normally traded. The variable net asset value funds may also use an
independent pricing service approved by the Board of Trustees to value
certain other securities. Such prices reflect market values which may be
established through the use of electronic and matrix techniques. Investments
in investment companies are valued at their net asset values as reported by
such companies. Other securities for which quotations are not readily
available are valued at their fair value under procedures established by the
Group's Board of Trustees. The differences between the cost and market
values of investments held by the variable net asset value funds are
reflected as either unrealized appreciation or depreciation.
SECURITY TRANSACTIONS AND RELATED INCOME:
Security transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the accrual
basis and includes, where applicable, the amortization of premium or
discount. Dividend income is recorded on the ex-dividend date. Gains or
losses realized on sales of securities are determined by comparing the
identified cost of the security lot sold with the net sales proceeds.
REPURCHASE AGREEMENTS:
The Funds may acquire repurchase agreements from financial institutions such
as banks and broker dealers which NBC deems creditworthy under guidelines
approved by the Board of Trustees, subject to the seller's agreement to
repurchase such securities at a mutually agreed-upon date and price. The
repurchase price generally equals the price paid by each Fund plus interest
negotiated on the basis of current short-term rates, which may be more or
less than the rate on the underlying portfolio securities. The seller, under
a repurchase agreement, is required to maintain the value of collateral held
pursuant to the agreement at not less than the repurchase price (including
accrued interest). Securities subject to repurchase agreements are held by
the Funds' custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system.
REVERSE REPURCHASE AGREEMENTS:
The Funds may borrow for temporary purposes by entering into reverse
repurchase agreements. Pursuant to such agreements, a Fund would sell
portfolio securities to financial institutions such as banks and broker-
dealers, and agree to repurchase them at a mutually agreed-upon date and
price. At the time a Fund enters into a reverse repurchase agreement, it
places in a segregated custodial account assets having a value equal to the
repurchase price (including accrued interest), and will continually monitor
the account to ensure such equivalent value is maintained at all times. The
Funds did not have significant holdings in reverse repurchase agreements
during the fiscal year.
DERIVATIVES:
A derivative is defined as a financial instrument whose value is derived
from the performance of underlying assets, interest rates and currency
exchange rates, or indices, and include (but are not limited to) structured
debt obligations, interest rate and currency swaps, future contracts,
options, and forward currency contracts. The variable net asset value funds
may invest in structured debt obligations for the purpose of mitigating
interest rate risk in that fund. Such structured debt obligations may have
floating interest rates that reset to various indices, which may include
swap rates or floors, and which reset at periodic intervals, as disclosed in
the accompanying Schedules of Portfolio Investments. Risks of entering into
such transactions include the potential inability of the dealer to meet
their obligations and unanticipated movements in the value of the
Continued
B-71
<PAGE> 269
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
security or the underlying assets or indices. It is possible that the Funds
may incur a loss as a result of their investments in derivative instruments.
It is each Fund's policy to the extent that there exists no readily
available market for such securities, that the investment will be treated as
an illiquid security for purposes of calculating the Funds limitation on
investments in illiquid securities as set forth in that Funds investment
restrictions. The Funds did not have significant holdings in derivative
investments during the fiscal year, as described above.
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income are declared daily and paid monthly and
distributable net realized capital gains, if any, are declared and
distributed at least annually for the Money Market Fund. Dividends from net
investment income are declared and paid monthly and distributable net
realized capital gains, if any, are declared and distributed annually for
the variable net asset value funds.
Dividends from net investment income and net realized capital gains are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily
due to differing treatments for net operating losses, expiring capital loss
carry forwards, and deferral of certain losses. The following
reclassification has been made to the components of net assets of the Money
Market Fund and Fixed Income Fund as of June 30, 1997, to more clearly
reflect the differences between financial statement amounts available for
distribution and the amounts available for distribution to comply with
income tax regulations: a decrease in capital and a corresponding decrease
in accumulated undistributed net realized losses on investment transactions
in the amount of $175,344 and $150,000, respectively.
FEDERAL INCOME TAXES:
It is the policy of each of the Funds to qualify or continue to qualify as a
regulated investment company by complying with the provisions available to
certain investment companies, as defined in applicable sections of the
Internal Revenue Code, and to make distributions of net investment income
and net realized capital gains sufficient to relieve it from all, or
substantially all, Federal income taxes.
ORGANIZATION COSTS:
All expenses in connection with each Fund's organization and registration
under the 1940 Act and the Securities Act of 1933 were paid by the Funds.
Such expenses are amortized over a period of two years commencing with the
date of the initial public offering (five years for the Tennessee Municipal
Obligations Fund).
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding short-term securities) for the
year ended June 30, 1997 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Value Equity Fund..................................... $ 8,486,414 $26,983,657
Growth Fund........................................... $ 7,537,463 $11,785,774
Fixed Income Fund..................................... $46,649,671 $58,896,701
Low Duration Government Securities Fund............... $ 7,346,080 $ 8,794,449
Tennessee Municipal Obligations Fund.................. $ 7,099,444 $ 9,085,627
</TABLE>
Continued
B-72
<PAGE> 270
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
4. RELATED PARTY TRANSACTIONS:
Investment advisory services are provided to the Funds by NBC. Under the
terms of the investment advisory agreement, NBC's fees are computed daily as
a percentage of the average net assets of each Fund. NBC has agreed that if
the aggregate expenses of the Funds, as defined, for any fiscal year exceed
limitations of any state having jurisdiction over the Funds, NBC will refund
to the Funds, or otherwise bear, such excess. Such limitation did not affect
the calculation of the investment advisory fees during the year ended June
30, 1997.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"),
an Ohio limited partnership, and BISYS Fund Services Ohio, Inc. ("BISYS
Ohio") are subsidiaries of The BISYS Group, Inc.
BISYS, with whom certain officers and trustees of the Group are affiliated,
serves the Funds as administrator and distributor. Such officers and
trustees are paid no fees directly by the Funds for serving as officers and
trustees of the Group. Under the terms of the administration agreement,
BISYS's fees are computed daily as a percentage of the average net assets of
each Fund. BISYS Ohio serves the Funds as transfer agent and fund
accountant.
The Group has adopted a Distribution and Shareholder Service Plan in
accordance with Rule 12b-1 under the 1940 Act, pursuant to which each Fund
is authorized to pay or reimburse BISYS, as distributor, a periodic amount,
calculated at an annual rate not to exceed 0.25% of the average daily net
asset value of each Fund. These fees are used by BISYS to pay banks,
including NBC, broker dealers and other institutions, or to reimburse BISYS
or its affiliates, for distribution and shareholder services in connection
with the distribution of Fund shares.
The Group has adopted an Administrative Services Plan, pursuant to which
each Fund is authorized to pay compensation to banks and other financial
institutions, which may include NBC, its correspondent and affiliated banks
and BISYS, for providing ministerial, recordkeeping and/or administrative
support services to their customers who are the beneficial or record owners
of a Fund. The compensation which may be paid under the Administrative
Services Plan is a fee computed daily at an annual rate of up to 0.25% of
the average daily net asset value of a Fund.
BISYS is also entitled to receive commissions on sales of shares of the
variable net asset value funds. For the year ended June 30, 1997, BISYS
received $2,486 from commissions earned on sales of shares of the variable
net asset value funds, of which $246 was reallowed to affiliated
broker/dealers.
The Funds may and do invest available cash balances in the Group's Money
Market Fund.
Fees may be voluntarily reduced to assist the Funds in maintaining more
competitive expense ratios.
Continued
B-73
<PAGE> 271
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
Information regarding these transactions is as follows for the year ended
June 30, 1997:
<TABLE>
<CAPTION>
MONEY VALUE
MARKET EQUITY GROWTH
FUND FUND FUND
-------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee reductions .35% 1.00% of 1.00% of
(percentage of average net assets)....... first first
$50 million $50 million
.75% of .75% of
remaining remaining
Voluntary fee reductions.................. -- -- $216,357
ADMINISTRATION FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)....... .20% .20% .20%
Voluntary fee reductions.................. -- -- $16,643
12B-1 FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)....... .25% .25% .25%
Voluntary fee reductions.................. $139,417 $117,986 $56,419
ADMINISTRATIVE SERVICES FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)....... .25% .25% .25%
Voluntary fee reductions.................. $148,375 $41,407 $13,481
FUND ACCOUNTANT AND TRANSFER AGENT FEES... $70,923 $76,087 $59,545
</TABLE>
<TABLE>
<CAPTION>
LOW DURATION TENNESSEE
FIXED GOVERNMENT MUNICIPAL
INCOME SECURITIES OBLIGATIONS
FUND FUND FUND
------- ------------ -----------
<S> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets).......... .65% .50% .65%
Voluntary fee reductions..................... -- $35,860 $112,622
ADMINISTRATION FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets).......... .20% .20% .20%
Voluntary fee reductions..................... -- $3,586 --
12B-1 FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets).......... .25% .25% .25%
Voluntary fee reductions..................... $47,135 $10,065 $18,800
ADMINISTRATIVE SERVICES FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets).......... .25% .25% .25%
Voluntary fee reductions..................... $3,307 $4,997 $20,618
FUND ACCOUNTANT AND TRANSFER AGENT FEES...... $54,442 $51,984 $71,497
</TABLE>
Continued
B-74
<PAGE> 272
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
5. CAPITAL CONTRIBUTIONS
During the year ended June 30, 1995, NBC purchased securities from the Fund
for their carrying value of $14,199,150 plus accrued interest. The market
value of these securities at the date of the sale to NBC was $13,667,783.
During the year ended, June 30, 1997, NBC voluntarily contributed $134,389
of its investment advisory fees and BISYS voluntarily contributed $40,955 of
its administrative fees to the Money Market Fund. During the years ended
June 30, 1996 and June 30, 1995, NBC voluntarily contributed $124,984 and
$97,370, respectively, of its investment advisory fees to the Money Market
Fund. In addition, during the year June 30, 1996 BISYS contributed $13,327
of its administrative fees to the Money Market Fund. The voluntary
contribution of investment advisory and administrative fees, and the
difference between the market value and the carrying value of the securities
on the transaction date are reflected in the accompanying financial
statements as a capital contribution to the Fund.
During the year ended June 30, 1997, NBC voluntarily contributed $150,000 to
reimburse the Fixed Income Fund for a loss realized on the disposition of a
bond issued by Montalbano Builders. In addition, NBC voluntarily established
an Irrevocable Letter of Credit (LOC) with The Bank of New York on June 4,
1997, with the Fixed Income Fund as the beneficiary of the LOC, in order to
support the value of two defaulted fixed income securities issued by Voyager
Lines Private Placement and Ray & Ross Transport. Prior to the Letter of
Credit NBC unconditionally and irrevocably committed to support the value of
these fixed income securities. These fixed income securities are holdings of
the Fixed Income Fund as of June 30, 1997.
The stated amount of the LOC is the lesser of $4,500,000 or the aggregate
amount of the unpaid par value and accrued interest on these defaulted fixed
income securities ($2,934,688 on the date the Letter of Credit was
established June 4, 1997). The Letter of Credit is payable to the Fixed
Income Fund upon certain payment events which include: (1) the issuer of one
or both of these fixed income securities has failed to repay the beneficiary
the par value and accrued interest due under the securities on the original
maturity date of the respective securities or such later date agreed to by
the Fixed Income Fund; (2) the Fixed Income Fund sells one or both of these
fixed income securities; or (3) one or both of these fixed income securities
have been disposed of and the Fixed Income Fund has either not assented to
such disposition or has revoked assent to such disposition.
The stated amount of the LOC exceeded the fair value of these securities by
$2,725,000 on the date the LOC was established. This amount, including
accrued interest and contributed capital for the realized loss on the
Montalbano Security, is accounted for in the accompanying financial
statements as a capital contribution to the Fixed Income Fund.
6. FEDERAL INCOME TAXES:
For federal income tax purposes, the following Funds have capital loss
carryforwards as of June 30, 1997, which are available to offset future
capital gains, if any:
<TABLE>
<CAPTION>
AMOUNT EXPIRES
---------- -------
<S> <C> <C>
Money Market Fund........................................... $ 41,870 2004
Fixed Income Fund........................................... 2,812,097 2003
2,114,706 2004
1,586,579 2005
</TABLE>
Continued
B-75
<PAGE> 273
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
<TABLE>
<CAPTION>
AMOUNT EXPIRES
------- -------
<S> <C> <C>
Low Duration Government Securities............................. 8,905 2003
23,561 2004
1,840 2005
Tennessee Municipal Obligations Fund........................... 138,752 2003
968,507 2004
</TABLE>
7. ELIGIBLE DISTRIBUTIONS (UNAUDITED):
The Group designates the following eligible distributions for the dividends
received deduction for corporations:
<TABLE>
<CAPTION>
VALUE
EQUITY GROWTH
FUND FUND
---------- --------
<S> <C> <C>
Dividend Income........................................... $1,556,172 $581,028
Dividend Income Per Share................................. $ 0.093 $ 0.131
</TABLE>
8. EXEMPT-INTEREST INCOME DESIGNATIONS (UNAUDITED):
The Sessions Group designates the following exempt-interest income for the
Tennessee Municipal Obligations Fund's taxable year ended June 30, 1997:
<TABLE>
<S> <C>
Exempt-Interest Distributions................................... $973,731
Exempt-Interest Distributions Per Share......................... $ 0.42
</TABLE>
The percentage break-down of the exempt-interest income by state for the
Tennessee Municipal Obligations Fund's taxable year ended June 30, 1997 was
as follows:
<TABLE>
<S> <C>
Alabama.......................................................... 0.26%
Arkansas......................................................... 0.04%
Georgia.......................................................... 2.28%
Kansas........................................................... 0.63%
Kentucky......................................................... 0.18%
Louisiana........................................................ 4.51%
Oklahoma......................................................... 2.10%
Pennsylvania..................................................... 2.48%
Puerto Rico...................................................... 0.81%
South Carolina................................................... 1.19%
Tennessee........................................................ 83.39%
West Virginia.................................................... 1.82%
Wyoming.......................................................... 0.31%
------
100.00%
</TABLE>
For the year ended June 30, 1997, 14.50% of the income earned by the
Tennessee Municipal Obligations may be subject to the alternative minimum
tax.
B-76
<PAGE> 274
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MONEY MARKET FUND
---------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF PERIOD......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Investment Activities
Net investment income. 0.044 0.046 0.044 0.026 0.032
Net realized losses... -- -- (0.004) -- --
-------- -------- -------- -------- --------
Total from Invest-
ment
Activities......... 0.044 0.046 0.040 0.026 0.032
-------- -------- -------- -------- --------
Distributions
Net investment income. (0.044) (0.046) (0.044) (0.026) (0.032)
-------- -------- -------- -------- --------
Total Distributions. (0.044) (0.046) (0.044) (0.026) (0.032)
-------- -------- -------- -------- --------
Capital transactions.... -- -- 0.004 -- --
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return............ 4.44%(a) 4.75%(a) 4.44%(a) 2.65% 3.20%
RATIOS/SUPPLEMENTAL DA-
TA:
Net Assets, at end of
period (000)........... $140,174 $134,146 $157,904 $128,001 $141,840
Ratio of expenses to av-
erage net assets....... 1.09% 0.99% 0.97% 0.95% 0.85%
Ratio of net investment
income to average net
assets................. 4.36% 4.65% 4.41% 2.62% 3.17%
Ratio of expenses to av-
erage net assets*...... 1.30% 1.20% 1.18% 1.09% 0.94%
Ratio of net investment
income to average net
assets*................ 4.15% 4.44% 4.20% 2.48% 3.08%
</TABLE>
- ------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) The capital contribution had no impact on the total return for the years
ended June 30, 1995, June 30, 1996, and June 30, 1997.
See notes to financial statements.
B-77
<PAGE> 275
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
VALUE EQUITY FUND
-------------------------------------------
YEAR ENDED JUNE 30,
-------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $ 14.54 $ 12.63 $ 12.67 $ 11.57 $ 11.04
------- ------- ------- ------- -------
Investment Activities
Net investment income........... 0.09 0.14 0.14 0.07 0.21
Net realized and unrealized
gains on investments........... 3.06 2.40 0.76 1.28 0.96
------- ------- ------- ------- -------
Total from Investment
Activities................... 3.15 2.54 0.90 1.35 1.17
------- ------- ------- ------- -------
Distributions
Net investment income........... (0.10) (0.14) (0.13) (0.06) (0.22)
In excess of net investment
income......................... -- -- -- -- --
Net realized gains.............. (2.06) (0.49) (0.15) (0.19) (0.42)
In excess of net realized gains. -- (0.66) -- --
------- ------- ------- ------- -------
Total Distributions........... (2.16) (0.63) (0.94) (0.25) (0.64)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.... $ 15.53 $ 14.54 $ 12.63 $ 12.67 $ 11.57
======= ======= ======= ======= =======
Total Return (excludes sales
charges)......................... 23.66% 20.50% 8.03% 11.76% 10.94%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period
(000)............................ $79,564 $81,055 $80,264 $79,232 $52,629
Ratio of expenses to average net
assets........................... 1.62% 1.58% 1.58% 1.36% 0.73%
Ratio of net investment income to
average
net assets....................... 0.61% 1.01% 1.13% 0.52% 1.84%
Ratio of expenses to average net
assets*.......................... 1.83% 1.79% 1.79% 1.74% 1.69%
Ratio of net investment income to
average
net assets*...................... 0.40% 0.80% 0.92% 0.14% 0.88%
Portfolio turnover................ 11.47% 27.89% 35.64% 62.17% 16.13%
Average commission rate paid (a).. $0.0604 $0.0605 -- -- --
</TABLE>
- ------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Represents the total dollar amount of commissions paid on portfolio equity
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged. Disclosure of these rates were
not required until fiscal year 1996.
See notes to financial statements.
B-78
<PAGE> 276
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GROWTH FUND
------------------------------------
APRIL 15,
YEAR ENDED JUNE 30, 1994 TO
------------------------- JUNE 30,
1997 1996 1995 1994 (B)
------- ------- ------- ---------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD... $14.01 $ 12.14 $ 9.82 $10.00
------- ------- ------- ------
Investment Activities
Net investment income................ 0.16 0.18 0.16 --
Net realized and unrealized gains
(losses) on investments............. 3.92 2.13 2.30 (0.18)
------- ------- ------- ------
Total from Investment Activities... 4.08 2.31 2.46 (0.18)
------- ------- ------- ------
Distributions
Net investment income................ (0.16) (0.18) (0.14) --
In excess of net investment income... -- (0.01) -- --
Net realized gains................... (0.42) (0.25) -- --
------- ------- ------- ------
Total Distributions................ (0.58) (0.44) (0.14) --
------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD......... $17.51 $ 14.01 $ 12.14 $ 9.82
======= ======= ======= ======
Total Return (excludes sales charges).. 29.91% 19.35% 25.27% (1.80)%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (000)..... $37,405 $33,767 $21,485 $6,345
Ratio of expenses to average net
assets................................ 1.08% 1.05% 1.24% 2.59%(d)
Ratio of net investment income to
average net assets.................... 1.06% 1.37% 1.64% 0.25%(d)
Ratio of expenses to average net
assets*............................... 1.99% 1.97% 2.51% 3.90%(d)
Ratio of net investment income (loss)
to average net assets*................ 0.15% 0.45% 0.37% (1.07)%(d)
Portfolio turnover..................... 24.07% 31.22% 29.36% 0.00%
Average commissions rate paid (a)...... $0.0696 $0.0686 -- --
</TABLE>
- ------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Represents the total dollar amount of commissions paid on portfolio equity
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged. Disclosure of these rates were
not required until fiscal year 1996.
(b)Period from commencement of operations.
(c)Not annualized.
(d)Annualized.
See notes to financial statements.
B-79
<PAGE> 277
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FIXED INCOME FUND
-----------------------------------------------
YEAR ENDED JUNE 30,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 8.77 $ 9.27 $ 9.43 $ 10.44 $ 10.26
------- ------- ------- ------- -------
Investment Activities
Net investment income....... 0.57 0.59 0.58 0.57 0.68
Net realized and unrealized
gains (losses) on
investments................ (1.39) (0.48) (0.15) (0.76) 0.27
------- ------- ------- ------- -------
Total from Investment
Activities............... (.82) 0.11 0.43 (0.19) 0.95
------- ------- ------- ------- -------
Distributions
Net investment income....... (0.56) (0.58) (0.58) (0.57) (0.69)
In excess of net investment
income..................... -- -- (0.01) -- --
Net realized gains.......... -- -- -- -- (0.08)
In excess of net realized
gains...................... -- (0.03) -- (0.25) --
------- ------- ------- ------- -------
Total Distributions....... (0.56) (0.61) (0.59) (0.82) (0.77)
------- ------- ------- ------- -------
Capital Transactions.......... $ 1.29 -- -- -- --
------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD....................... $ 8.68 $ 8.77 $ 9.27 $ 9.43 $ 10.44
======= ======= ======= ======= =======
Total Return (excludes sales
charges)..................... 5.55%(a) 1.05% 4.82% (2.20)% 9.64%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period
(000)........................ $18,227 $28,847 $39,496 $42,309 $35,951
Ratio of expenses to average
net assets................... 1.49% 1.48% 1.43% 1.37% 0.74%
Ratio of net investment income
to average
net assets................... 6.44% 6.32% 6.33% 5.61% 6.65%
Ratio of expenses to average
net assets*.................. 1.70% 1.69% 1.64% 1.70% 1.42%
Ratio of net investment income
to average
net assets*.................. 6.23% 6.11% 6.12% 5.28% 5.97%
Portfolio turnover............ 196.97% 363.84% 223.29% 328.44% 234.71%
</TABLE>
- ------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) The total return for 1997 includes the effect of a capital contribution
from the Investment Advisor. Without the capital contribution the total
return would have been (12.33%).
See notes to financial statements.
B-80
<PAGE> 278
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LOW DURATION GOVERNMENT
SECURITIES FUND
---------------------------------
APRIL 15,
YEAR ENDED JUNE 30, 1994 TO
---------------------- JUNE 30,
1997 1996 1995 1994 (A)
------ ------ ------ ---------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...... $ 9.95 $10.15 $ 9.93 $10.00
------ ------ ------ ------
Investment Activities
Net investment income................... 0.54 0.53 0.56 0.07
Net realized and unrealized gains
(losses) on investments................ 0.05 (0.20) 0.21 (0.08)
------ ------ ------ ------
Total from Investment Activities...... 0.59 0.33 0.77 (0.01)
------ ------ ------ ------
Distributions
Net investment income................... (0.54) (0.53) (0.55) (0.06)
------ ------ ------ ------
Total Distributions................... (0.54) (0.53) (0.55) (0.06)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD............ $10.00 $ 9.95 $10.15 $ 9.93
====== ====== ====== ======
Total Return (excludes sales charges)..... 6.12% 3.31% 8.03% (0.13)%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (000)........ $6,945 $7,461 $7,653 $7,692
Ratio of expenses to average net assets... 1.31% 1.44% 1.33% 2.85%(b)
Ratio of net investment income to average
net assets............................... 5.39% 5.19% 5.67% 3.63%(b)
Ratio of expenses to average net assets*.. 2.07% 2.20% 2.10% 3.67%(b)
Ratio of net investment income to average
net assets*.............................. 4.63% 4.43% 4.89% 2.81%(b)
Portfolio turnover........................ 104.79% 20.87% 34.47% 21.20%
</TABLE>
- ------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Annualized.
(c) Not annualized.
See notes to financial statements.
B-81
<PAGE> 279
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
TENNESSEE MUNICIPAL OBLIGATIONS FUND
------------------------------------------------
NOVEMBER 4,
YEAR ENDED JUNE 30, 1992 TO
---------------------------------- JUNE 30,
1997 1996 1995 1994 1993 (A)
------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD.................. $ 9.76 $ 9.84 $ 9.81 $ 10.44 $ 10.00
------- ------- ------- ------- -------
Investment Activities
Net investment income..... 0.53 0.53 0.50 0.48 0.30
Net realized and
unrealized gains
(losses) on investments.. 0.17 (0.08) 0.03 (0.57) 0.43
------- ------- ------- ------- -------
Total from Investment
Activities............. 0.70 0.45 0.53 (0.09) 0.73
------- ------- ------- ------- -------
Distributions
Net investment income..... (0.51) (0.53) (0.50) (0.48) (0.29)
In excess of net realized
gains.................... -- -- -- (0.06) --
------- ------- ------- ------- -------
Total Distributions..... (0.51) (0.53) (0.50) (0.54) (0.29)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD..................... $ 9.95 $ 9.76 $ 9.84 $ 9.81 $ 10.44
======= ======= ======= ======= =======
Total Return (excludes sales
charges)................... 7.38% 4.67% 5.61% (1.00)% 7.39%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period
(000)...................... $18,352 $19,037 $20,827 $19,965 $17,425
Ratio of expenses to average
net assets................. 1.10% 0.98% 1.12% 1.19% 0.82%(b)
Ratio of net investment
income to average
net assets................. 5.33% 5.40% 5.24% 4.67% 4.76%(b)
Ratio of expenses to average
net assets*................ 1.91% 1.83% 1.98% 1.99% 1.62%(b)
Ratio of net investment
income to average
net assets*................ 4.52% 4.55% 4.38% 3.87% 3.96%(b)
Portfolio turnover.......... 38.66% 60.76% 62.59% 86.57% 52.52%
</TABLE>
- ------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Annualized.
(c) Not annualized.
See notes to financial statements.
B-82
<PAGE> 280
APPENDIX
COMMERCIAL PAPER RATINGS. Commercial paper ratings of Standard & Poor's
Corporation ("S&P") are current assessments of the likelihood of timely payment
of debt considered short term in the relevant market. Commercial paper rated A-1
by S&P indicates that the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted A-1+. Commercial paper rated A-2 by S&P indicates that capacity for
timely payment on issues is satisfactory. However, the relative degree of safety
is not as high as for issues designated A-1. Commercial paper rated A-3 by S&P
indicates adequate capacity for timely payment. Such paper is, however, more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying the higher designations. Commercial paper rated B by S&P is regarded as
having only speculative capacity for timely payment. Commercial paper rated C by
S&P is regarded as short-term obligations with a doubtful capacity for payment.
Commercial paper rated D by S&P is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period.
Moody's Investors Service, Inc.'s ("Moody's") commercial paper rating
are opinions of the ability of issuers to repay punctually senior debt
obligations which have an original maturity not exceeding one year. The rating
Prime-1 is the highest commercial paper rating assigned by Moody's. Issuers
rated Prime-1 (or supporting institutions) are considered to have a superior
capacity for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics of Prime-1 rated issuers, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variations. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. The effects of industry
characteristics and market composition may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and the requirement for relatively high financial leverage.
Adequate
A-1
<PAGE> 281
alternate liquidity is maintained. Issuers rated Not Prime do not fall within
any of the Prime rating categories.
Commercial paper rated F-1+ by Fitch Investors Service ("Fitch") is
regarded as having the strongest degree of assurance for timely payments.
Commercial paper rated F-1 by Fitch is regarded as having an assurance of timely
payment only slightly less than the strongest rating, i.e., F-1+. Commercial
paper rated F-2 by Fitch is regarded as having a satisfactory degree of
assurance of timely payment, but the margin of safety is not as great as for
issues assigned F-1+ or F-1 ratings. Commercial paper rated F-3 by Fitch is
regarded as having characteristics suggesting that the degree of assurance for
timely payment is adequate, however, near-term adverse changes could cause these
securities to be rated below investment grade. Commercial paper rated F-S by
Fitch is regarded as having characteristics suggesting a minimal degree of
assurance for timely payment and is vulnerable to near term adverse changes in
financial and economic conditions. Commercial paper rated D by Fitch is in
actual or imminent payment default.
The description of the three highest short-term debt ratings by Duff &
Phelps, Inc. ("Duff") (Duff incorporates gradations of "1+" (one plus) and "1-"
(one minus) to assist investors in recognizing quality differences within the
highest rating category) are as follows. Duff 1+ is regarded as having the
highest certainty of timely payment. Short-term liquidity, including internal
operating factors and/or access to alternative sources of funds, is outstanding,
and safety is just below risk-free U.S. Treasury short-term obligations. Duff 1
is regarded as having a very high certainty of timely payment. Liquidity factors
are excellent and supported by good fundamental protection factors. Risk factors
are minor. Duff 1- is regarded as having a high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are minor. Duff 2 is regarded as having a good certainty
of timely payment. Liquidity factors and company fundamentals are sound.
Although ongoing funding needs may enlarge total financing requirements, access
to capital markets is good. Risk factors are small. Duff 3 is regarded as having
a satisfactory liquidity and other protection factors qualify issue as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected. Duff 4 is considered as having
speculative investment characteristics. Liquidity is not sufficient to insure
against disruption in debt service. Operating factors and market access may be
subject to a high degree of variation. Duff 5 indicates that the issuer has
failed to meet scheduled principal and/or interest payments.
Commercial paper rated A1 by IBCA Limited and its affiliate, IBCA Inc.
(collectively "IBCA") is regarded by IBCA as obligations supported by the
highest capacity for timely repayment. Where
A-2
<PAGE> 282
issues possess a particularly strong credit feature, a rating of A1+ is
assigned. Obligations rated A2 are supported by a good capacity for timely
repayment. Obligations rated A3 are supported by a satisfactory capacity for
timely repayment. Obligations rated B are those for which there is an
uncertainty as to the capacity to ensure timely repayment. Obligations rated C
are those for which there is a high risk of default or which are currently in
default.
The following summarizes the description of the three highest
short-term ratings of Thomson BankWatch, Inc. ("Thomson"). TBW-1 is the highest
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis. TBW-2 is the second highest category indicating that
while the degree of safety regarding timely repayment of principal and interest
is strong, the relative degree of safety is not as high as for issues rated
"TBW-1." TBW-3 is the lowest investment grade category and indicates that while
more susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest in a
timely fashion is considered adequate. TBW-4 is the lowest rating category and
is regarded as non-investment grade and therefore speculative.
The plus (+) sign is used after a rating symbol to designate the
relative position of an issuer within the rating category.
CORPORATE DEBT RATINGS. A S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong. Debt rated AA has a very
strong capacity to pay interest and to repay principal and differs from the
highest rated issues only in small degree. Debt rated A has a strong capacity to
pay interest and repay principal although it is somewhat more susceptible to
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.
The following summarizes the four highest ratings used by Moody's for
corporate debt. Bonds that are rated Aaa by Moody's are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Bonds
that are rated Aa are judged to be of high quality by all standards. Together
with the Aaa
A-3
<PAGE> 283
group, they comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities. Bonds that are
rated A by Moody's possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future. Bonds that
are rated Baa by Moody's are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Moody's applies numerical modifiers (1, 2, and 3) with respect to bonds
rated Aa through Baa. The modifier 1 indicates that the bond being rated ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category.
The following summarizes the four highest long-term debt ratings by
Duff. Debt rated AAA has the highest credit quality. The risk factors are
negligible being only slightly more than for risk-free U.S. Treasury debt. Debt
rated AA has a high credit quality and protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
Debt rated A has protection factors that are average but adequate. However, risk
factors are more variable and greater in periods of economic stress. Debt rated
BBB has below average protection factors but is still considered sufficient for
prudent investment. However, there is considerable variability in risk during
economic cycles.
To provide more detailed indications of credit quality, the ratings
from AA to BBB may be modified by the addition of a plus or minus sign to show
relative standing within this major rating category.
The following summarizes the four highest long-term debt ratings by
Fitch (except for AAA ratings, plus or minus signs are used with a rating symbol
to indicate the relative position of the credit within the rating category).
Bonds rated AAA are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events. Bonds rated AA are considered to be investment
A-4
<PAGE> 284
grade and of very high credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong as bonds rated
"AAA." Because bonds rated in the "AAA" and "AA" categories are not
significantly vulnerable to foreseeable future developments, short-term debt of
these issues is generally rated "F-1+." Bonds rated as A are considered to be
investment grade and of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances than
bonds with higher ratings. Bonds rated BBB are considered to be investment grade
and of satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse impact on
these bonds, and therefore, impair timely payment. The likelihood that the
ratings for these bonds will fall below investment grade is higher than for
bonds with higher ratings.
The following summarizes IBCA's four highest long-term debt ratings.
Obligations rated AAA are those for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly. Obligations
rated AA are those for which there is a very low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic, or financial conditions may increase investment
risk albeit not very significantly. Obligations rated A are those for which
there is a low expectation of investment risk. Capacity for timely repayment of
principal and interest is strong, although adverse changes in business, economic
or financial conditions may lead to increased investment risk. Obligations rated
BBB are those for which there is currently a low expectation of investment risk.
Capacity for timely repayment of principal and interest is adequate, although
adverse changes in business, economic, or financial conditions are more likely
to lead to increased investment risk than for obligations in other categories.
The following summarizes Thomson's description of its four highest
long-term debt ratings (Thomson may include a plus (+) or minus (-) designation
to indicate where within the respective category the issue is placed). AAA is
the highest category and indicates that the ability to repay principal and
interest on a timely basis is very high. AA is the second highest category and
indicates a superior ability to repay principal and interest on a timely basis
with limited incremental risk versus issues rated in the highest category. A is
the third highest category and indicates the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
A-5
<PAGE> 285
BBB is the lowest investment grade category and indicates an acceptable capacity
to repay principal and interest. Issues rated "BBB" are, however, more
vulnerable to adverse developments (both internal and external) than obligations
with higher ratings.
Municipal Obligations Ratings
- -----------------------------
The following summarizes the three highest ratings used by Moody's for
state and municipal short-term obligations. Obligations bearing MIG-1 or VMIG-1
designations are of the best quality, enjoying strong protection by established
cash flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing. Obligations rated MIG-2 or VMIG-2 denote high quality
with ample margins of protection although not so large as in the preceding
rating group. Obligations bearing MIG-3 or VMIG-3 denote favorable quality. All
security elements are accounted for but there is lacking the undeniable strength
of the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
S&P SP-1, SP-2, and SP-3 municipal note ratings (the three highest
ratings assigned) are described as follows:
"SP-1": Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming
safety characteristics will be given a plus (+) designation.
"SP-2": Satisfactory capacity to pay principal and
interest.
"SP-3": Speculative capacity to pay principal and
interest.
The following summarizes the four highest ratings used by Moody's for
state and municipal bonds:
"Aaa": Bonds judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Aa": Bonds judged to be of high quality by all
standards. Together with the Aaa group they comprise
what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or
A-6
<PAGE> 286
fluctuation of protective elements may be of greater amplitude
or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
"A": Bonds which possess many favorable investment
attributes and are to be considered as upper medium-grade
obligations. Factors giving security to principal and
interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment
sometime in the future.
"Baa": Bonds which are considered as medium grade obligations,
i.e, they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
The following summarizes the four highest ratings used by S&P for state
and municipal bonds:
"AAA": Debt which has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
"AA": Debt which has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues
only in small degree.
"A": Debt which has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
"BBB": Debt which has adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for debt in this category
then in higher rated categories.
A-7
<PAGE> 287
Definitions of Certain Money Market Instruments
- -----------------------------------------------
Commercial Paper
Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
Certificates of Deposit
Certificates of Deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return.
Bankers' Acceptances
Bankers' acceptances are negotiable drafts or bills of exchange,
normally drawn by an importer or exporter to pay for specific merchandise, which
are "accepted" by a bank, meaning, in effect, that the bank unconditionally
agrees to pay the face value of the instrument on maturity.
U.S. Treasury Obligations
U.S. Treasury Obligations are obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Government. These obligations may include Treasury bills, notes and bonds, and
issues of agencies and instrumentalities of the U.S. Government, provided such
obligations are guaranteed as to payment of principal and interest by the full
faith and credit of the U.S. Government.
U.S. Government Agency and Instrumentality Obligations
Obligations of the U.S. Government include Treasury bills, certificates
of indebtedness, notes and bonds, and issues of agencies and instrumentalities
of the U.S. Government, such as the Government National Mortgage Association,
the Tennessee Valley Authority, the Farmers Home Administration, the Federal
Home Loan Banks, the Federal Intermediate Credit Banks, the Federal Farm Credit
Banks, the Federal Land Banks, the Federal Housing Administration, the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation, and
the Student Loan Marketing Association. Some of these obligations, such as those
of the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Student Loan Marketing Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others, such as those of the Federal
A-8
<PAGE> 288
Farm Credit Banks, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government- sponsored instrumentalities if it is not obligated to do so
by law.
A-9
<PAGE> 289
1st Source Monogram Diversified Equity Fund
1st Source Monogram Income Equity Fund
1st Source Monogram Special Equity Fund
1st Source Monogram Income Fund
Each an Investment Portfolio of
THE SESSIONS GROUP
Statement of Additional Information
October 31, 1997
This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the prospectus (the "Prospectus") of 1st
Source Monogram Diversified Equity Fund (the "Diversified Equity Fund"), 1st
Source Monogram Income Equity Fund (the "Income Equity Fund"), 1st Source
Monogram Special Equity Fund (the "Special Equity Fund") and 1st Source Monogram
Income Fund (the "Income Fund") (the Diversified Equity Fund, the Income Equity
Fund, the Special Equity Fund and the Income Fund are hereinafter collectively
referred to as the "Funds" and individually as a "Fund"), dated the date hereof.
The Funds are four funds of The Sessions Group (the "Group"). This Statement of
Additional Information is incorporated in its entirety into the Prospectus.
Copies of the Prospectus may be obtained by writing the Group at 3435 Stelzer
Road, Columbus, Ohio 43219, or by telephoning toll free (800) 766-8938.
<PAGE> 290
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE SESSIONS GROUP............................................................................................ B-1
INVESTMENT OBJECTIVES AND POLICIES............................................................................ B-1
Additional Information on Portfolio Instruments...................................................... B-1
Investment Restrictions.............................................................................. B-1
Portfolio Turnover................................................................................... B-10
NET ASSET VALUE............................................................................................... B-11
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................................................ B-12
MANAGEMENT OF THE GROUP....................................................................................... B-12
Trustees and Officers................................................................................ B-13
Investment Adviser................................................................................... B-13
Portfolio Transactions............................................................................... B-15
Glass-Steagall Act................................................................................... B-19
Administrator........................................................................................ B-21
Distributor.......................................................................................... B-22
Administrative Services Plan......................................................................... B-24
Custodian............................................................................................ B-26
Transfer Agency and Fund Accounting Services......................................................... B-27
Auditors ............................................................................................ B-27
Legal Counsel........................................................................................ B-29
ADDITIONAL INFORMATION........................................................................................ B-29
Description of Shares................................................................................ B-29
Additional Tax Information........................................................................... B-31
Yield................................................................................................ B-34
Calculation of Total Return.......................................................................... B-34
Distribution Rates................................................................................... B-35
Performance Comparisons.............................................................................. B-35
Miscellaneous........................................................................................ B-36
FINANCIAL STATEMENTS.......................................................................................... B-38
APPENDIX ..................................................................................................... A-1
</TABLE>
- i -
<PAGE> 291
STATEMENT OF ADDITIONAL INFORMATION
THE SESSIONS GROUP
The Sessions Group (the "Group") is an open-end management investment
company which currently offers 17 separate investment portfolios. This Statement
of Additional Information deals with four of such portfolios, 1st Source
Monogram Diversified Equity Fund (the "Diversified Equity Fund"), 1st Source
Monogram Income Equity Fund (the "Income Equity Fund"), 1st Source Monogram
Special Equity Fund (the "Special Equity Fund") and 1st Source Monogram Income
Fund (the "Income Fund"), each a diversified portfolio of the Group (the
Diversified Equity Fund, the Income Equity Fund, the Special Equity Fund and the
Income Fund are hereinafter collectively referred to as the "Funds" and
individually as a "Fund").
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectus. Capitalized terms
not defined herein are defined in the Prospectus. No investment in Shares of a
Fund should be made without first reading the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
Additional Information on Portfolio Instruments
- -----------------------------------------------
The following policies supplement the investment objectives and
policies of each Fund as set forth in the Prospectus.
BANK OBLIGATIONS. Each of the Funds may invest in bank obligations such
as bankers' acceptances, certificates of deposit, and demand and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Bankers' acceptances invested in by the Funds will be those guaranteed by
domestic and foreign banks having, at the time of investment, capital, surplus,
and undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements).
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return. Certificates of deposit
and demand and time deposits will be those of domestic banks and savings and
loan associations, if (a) at the time of investment the depository institution
has capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most recently published financial
<PAGE> 292
statements), or (b) the principal amount of the instrument is insured in full by
the Federal Deposit Insurance Corporation.
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory
notes issued by corporations. Issues of commercial paper normally have
maturities of less than nine months and fixed rates of return.
The Funds will purchase commercial paper consisting of issues rated at
the time of purchase by one or more appropriate nationally recognized
statistical rating organizations ("NRSRO") (e.g., Standard & Poor's Corporation
and Moody's Investors Service, Inc.) in one of the two highest rating categories
for short-term debt obligations. The Funds may also invest in commercial paper
that is not rated but that is determined by the Adviser or the applicable
Sub-Adviser, as the case may be, to be of comparable quality to instruments that
are so rated by an NRSRO that is neither controlling, controlled by, or under
common control with the issuer of, or any issuer, guarantor, or provider of
credit support for, the instruments. For a description of the rating symbols of
the NRSROs, see the Appendix.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes, in which the Income Fund may invest, are unsecured demand notes that
permit the indebtedness thereunder to vary and provide for periodic adjustments
in the interest rate according to the terms of the instrument. Because master
demand notes are direct lending arrangements between a Fund and the issuer, they
are not normally traded. Although there is no secondary market in the notes, a
Fund may demand payment of principal and accrued interest at any time within 30
days. While such notes are not typically rated by credit rating agencies,
issuers of variable amount master demand notes (which are normally
manufacturing, retail, financial and other business concerns), must satisfy, for
purchase by the Income Fund, the same criteria as set forth above for commercial
paper for such Fund. The Adviser will consider the earning power, cash flow, and
other liquidity ratios of the issuers of such notes and will continuously
monitor their financial status and ability to meet payment on demand. In
determining average weighted portfolio maturity, a variable amount master demand
note will be deemed to have a maturity equal to the longer of the period of time
remaining until the next interest rate adjustment or the period of time
remaining until the principal amount can be recovered from the issuer through
demand.
FOREIGN INVESTMENT. Investments in securities issued by foreign
issuers, including ADRs, may subject the Funds to investment risks that differ
in some respects from those related to investment in obligations of U.S.
domestic issuers or in U.S. securities markets. Such risks include future
adverse political and economic developments, possible seizure, nationalization,
or
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expropriation of foreign investments, less stringent disclosure requirements,
the possible establishment of exchange controls or taxation at the source, or
the adoption of other foreign governmental restrictions. A Fund will acquire
such securities only when the Adviser or the applicable Sub-Adviser, as the case
may be, believes the risks associated with such investments are minimal.
U.S. GOVERNMENT OBLIGATIONS. Each Fund may invest in obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government are
supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law.
VARIABLE AND FLOATING RATE SECURITIES. The Income Fund may acquire
variable and floating rate securities, subject to such Fund's investment
objectives, policies and restrictions. A variable rate security is one whose
terms provide for the adjustment of its interest rate on set dates and which,
upon such adjustment, can reasonably be expected to have a market value that
approximates its par value. 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. Such securities are frequently not rated
by credit rating agencies; however, unrated variable and floating rate
securities purchased by the Income Fund will be determined by the Adviser to be
of comparable quality at the time of purchase to rated instruments eligible for
purchase under such Fund's investment policies. In making such determinations,
the Adviser will consider the earning power, cash flow and other liquidity
ratios of the issuers of such notes (such issuers include financial,
merchandising, bank holding and other companies) and will continuously monitor
their financial condition. Although there may be no active secondary market with
respect to a particular variable or floating rate security purchased by the
Income Fund, the Income Fund may resell the security at any time to a third
party. The absence of an active secondary market, however, could make it
difficult for the Income Fund to dispose of a variable or floating rate security
in the event the issuer of the security defaulted on its payment obligations and
the Income Fund could, as a result or for other reasons, suffer a loss to the
extent of the default. To the extent that there exists no readily available
market for such security and the Income Fund is not
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entitled to receive the principal amount of a note within seven days, such a
security will be treated as an illiquid security for purposes of calculation of
such Fund's limitation on investments in illiquid securities, as set forth in
the Income Fund's investment restrictions. Variable or floating rate securities
may be secured by bank letters of credit.
RESTRICTED SECURITIES. Securities in which the Funds may invest include
securities issued by corporations without registration under the Securities Act
of 1933, as amended (the "1933 Act"), such as securities issued in reliance on
the so-called "private placement" exemption from registration which is afforded
by Section 4(2) of the 1933 Act ("Section 4(2) securities"). Section 4(2)
securities are restricted as to disposition under the Federal securities laws,
and generally are sold to institutional investors such as the Funds who agree
that they are purchasing the securities for investment and not with a view to
public distribution. Any resale must also generally be made in an exempt
transaction. Section 4(2) securities are normally resold to other institutional
investors through or with the assistance of the issuer or investment dealers who
make a market in such Section 4(2) securities, thus providing liquidity. Any
such restricted securities will be considered to be illiquid for purposes of a
Fund's limitations on investments in illiquid securities unless, pursuant to
procedures adopted by the Board of Trustees of the Group, the Adviser or
Subadviser, as the case may be, has determined such securities to be liquid
because such securities are eligible for resale under Rule 144A under the 1933
Act and are readily saleable. Each Fund will limit its investment in Section
4(2) securities to not more than 10% of its net assets.
OPTIONS TRADING. Each Fund may purchase and write (sell) put and call
options. A put option gives the purchaser the right to sell the underlying
security at the stated exercise price at any time prior to the expiration date
of the option, regardless of the market price of the security. A call option
gives the purchaser of the option the right to buy, and a writer has the
obligation to sell, the underlying security at the stated exercise price at any
time prior to the expiration of the option, regardless of the market price of
the security. The premium paid to the writer is consideration for undertaking
the obligations under the option contract. Put and call options purchased by the
Funds will be valued at the last sale price, or in the absence of such a price,
at the mean between bid and asked price.
When a Fund writes a call option, an amount equal to the net premium
(the premium less the commission) received by the Fund is included in the
liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The current
value of the traded
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option is the last sale price or, in the absence of a sale, the mean between bid
and asked price. If an option expires on the stipulated expiration date or if
the Fund enters into a closing purchase transaction, it will realize a gain (or
a loss if the cost of a closing purchase transaction exceeds the net premium
received when the option is sold) and the deferred credit related to such option
will be eliminated. If a call option is exercised, the Fund may deliver the
underlying security in the open market. In either event, the proceeds of the
sale will be increased by the net premium originally received and the Fund will
realize a gain or loss.
Each Fund may also purchase or sell (write) index options. Index
options (or options on securities indices) are similar in many respects to
options on securities except that an index option gives the holder the right to
receive, upon exercise, cash instead of securities, if the closing level of the
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
FUTURE CONTRACTS. As discussed in the Prospectus, each of the Funds may
enter into futures contracts. This investment technique is designed primarily to
hedge against anticipated future changes in market conditions which otherwise
might adversely affect the value of securities which a Fund holds or intends to
purchase. For example, when interest rates are expected to rise or market values
of portfolio securities are expected to fall, a Fund can seek through the sale
of futures contracts to offset a decline in the value of its portfolio
securities. When interest rates are expected to fall or market values are
expected to rise, a Fund, through the purchase of such contracts, can attempt to
secure better rates or prices for the Fund than might later be available in the
market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period.
Futures transactions involve brokerage costs and require a Fund to
segregate liquid assets, such as cash, U.S. Government securities or other
liquid securities, to cover its performance under such contracts. A Fund may
lose the expected benefit of futures transactions if interest rates, securities
prices or foreign exchange rates move in an unanticipated manner. Such
unanticipated changes may also result in poorer overall performance than if the
Fund had not entered into any futures transactions. In addition, the value of a
Fund's futures positions may not prove to be perfectly or even highly correlated
with the value of its
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portfolio securities, limiting the Fund's ability to hedge effectively against
interest rate and/or market risk and giving rise to additional risks. There is
no assurance of liquidity in the secondary market for purposes of closing out
futures positions.
REGULATORY RESTRICTIONS. To the extent required to comply with
Securities and Exchange Commission Release No. IC-10666, when purchasing a
futures contract or writing a put option, a Fund will maintain in a segregated
account cash or liquid securities equal to the value of such contracts.
To the extent required to comply with Commodity Futures Trading
Commission Regulation 4.5 and thereby avoid being classified as a "commodity
pool operator," a Fund will not enter into a futures contract or purchase an
option thereon if immediately thereafter the initial margin deposits for futures
contracts held by such Fund plus premiums paid by it for open options on futures
would exceed 5% of such Fund's total assets. A Fund will not engage in
transactions in financial futures contracts or options thereon for speculation,
but only to attempt to hedge against changes in market conditions affecting the
values of securities which such Fund holds or intends to purchase.
WHEN-ISSUED SECURITIES. As discussed in the Prospectus, the Income Fund
may purchase securities on a "when-issued" basis (i.e., for delivery beyond the
normal settlement date at a stated price and yield). When such Fund agrees to
purchase securities on a "when-issued" basis, the Fund's custodian will set
aside cash or liquid portfolio securities equal to the amount of the commitment
in a separate account. Normally, the Income Fund's custodian will set aside
portfolio securities to satisfy the purchase commitment, and in such a case,
such Fund may be required subsequently to place additional assets in the
separate account in order to assure that the value of the account remains equal
to the amount of the Income Fund's commitment. It may be expected that the
Income 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 the Income Fund will set aside cash or liquid
portfolio securities to satisfy its purchase commitments in the manner described
above, such Fund's liquidity and the ability of the Adviser to manage it might
be affected in the event its commitments to purchase "when-issued" securities
ever exceeded 25% of the value of its total assets. Under normal market
conditions, however, the Income Fund's commitment to purchase "when-issued" or
"delayed-delivery" securities will not exceed 25% of the value of its total
assets.
When the Income Fund engages in "when-issued" transactions, it relies
on the seller to consummate the trade. Failure of the seller to do so may result
in the Income Fund's incurring a loss or missing the opportunity to obtain a
price considered to be
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advantageous. The Income 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.
MORTGAGE-RELATED SECURITIES. The Income Fund may, consistent with its
investment objective and policies, invest in mortgage-related securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities or
issued by nongovernmental entities.
Mortgage-related securities, for purposes of the Prospectus and this
Statement of Additional Information, represent pools of mortgage loans assembled
for sale to investors by various governmental agencies such as the Government
National Mortgage Association and government-related organizations such as the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation, as well as by nongovernmental issuers such as commercial banks,
savings and loan institutions, mortgage bankers and private mortgage insurance
companies. Although certain mortgage-related securities are guaranteed by a
third party or otherwise similarly secured, the market value of the security,
which may fluctuate, is not so secured. If the Income Fund purchases a
mortgage-related security at a premium, that portion may be lost if there is a
decline in the market value of the security whether resulting from changes in
interest rates or prepayments in the underlying mortgage collateral. As with
other interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true, since in periods of declining interest rates the mortgages
underlying the securities are prone to prepayment, thereby shortening the
average life of the security and shortening the period of time over which income
at the higher rate is received. Conversely, when interest rates are rising, the
rate of prepayment tends to decrease, thereby lengthening the average life of
the security and lengthening the period of time over which income at the lower
rate is received. For these and other reasons, a mortgage-related security's
average maturity may be shortened or lengthened as a result of interest rate
fluctuations and, therefore, it is not possible to predict accurately the
security's return to the Income Fund. In addition, regular payments received in
respect of mortgage-related securities include both interest and principal. No
assurance can be given as to the return the Income Fund will receive when these
amounts are reinvested.
The Income Fund may also invest in mortgage-related securities which
are collateralized mortgage obligations structured on pools of mortgage
pass-through certificates or mortgage loans. Mortgage- related securities will
be purchased only if rated in the three
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highest bond rating categories assigned by one or more appropriate NRSROs, or,
if unrated, which the Adviser deems to be of comparable quality.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities issued by
the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
Mortgage- related securities issued by the Federal National Mortgage Association
("FNMA") include FNMA Guaranteed Mortgage Pass-Through Certificates (also known
as "Fannie Maes") which are solely the obligations of the FNMA and are not
backed by or entitled to the full faith and credit of the United States. FNMA is
a government- sponsored organization owned entirely by private stockholders.
Fannie Maes are guaranteed as to timely payment of the principal and interest by
FNMA. Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates (also
known as "Freddie Macs" or "PCs"). FHLMC is a corporate instrumentality of the
United States, created pursuant to an Act of Congress, which is owned entirely
by Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States
or by any Federal Home Loan Banks and do not constitute a debt or obligation of
the United States or of any Federal Home Loan Bank. Freddie Macs entitle the
holder to timely payment of interest, which is guaranteed by FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account of its guarantee
of ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
REPURCHASE AGREEMENTS. Securities held by each of the Funds may be
subject to repurchase agreements. Under the terms of a repurchase agreement, a
Fund would acquire securities from banks and registered broker-dealers which the
Adviser or the applicable Sub-Adviser, as the case may be, deems creditworthy
under guidelines approved by the Group's Board of Trustees, subject to the
seller's agreement to repurchase such securities at a mutually agreed-upon date
and price. The repurchase price would generally equal the price paid by the Fund
plus interest negotiated on the basis of current short-term rates, which may be
more or less than the rate on the underlying portfolio securities. The seller
under
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a repurchase agreement will be required to maintain continually the value of
collateral held pursuant to the agreement at not less than the repurchase price
(including accrued interest). This requirement will be continually monitored by
the Adviser. If the seller were to default on its repurchase obligation or
become insolvent, the Fund holding such obligation would suffer a loss to the
extent that the proceeds from a sale of the underlying portfolio securities were
less than the repurchase price under the agreement, or to the extent that the
disposition of such securities by the Fund were delayed pending court action.
Additionally, there is no controlling legal precedent confirming that a Fund
would be entitled, as against a claim by such seller or its receiver or trustee
in bankruptcy, to retain the underlying securities, although the Board of
Trustees of the Group believes that, under the regular procedures normally in
effect for custody of a Fund's securities subject to repurchase agreements and
under federal laws, a court of competent jurisdiction would rule in favor of the
Group if presented with the question. Securities subject to repurchase
agreements will be held by that Fund's custodian or another qualified custodian
or in the Federal Reserve/Treasury book-entry system. Repurchase agreements are
considered to be loans by a Fund under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS. As discussed in the Prospectus, each of
the Funds may borrow funds by entering into reverse repurchase agreements in
accordance with that Fund's investment restrictions. Pursuant to such
agreements, a Fund would sell portfolio securities to financial institutions
such as banks and broker-dealers, and agree to repurchase the securities at a
mutually agreed-upon date and price. Each Fund intends to enter into reverse
repurchase agreements only to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions. At the time a Fund enters
into a reverse repurchase agreement, it will place in a segregated custodial
account assets such as U.S. Government securities or other liquid securities
consistent with the Fund's investment restrictions having a value equal to the
repurchase price (including accrued interest), and will subsequently continually
monitor the account to ensure that such equivalent value is maintained at all
times. Reverse repurchase agreements involve the risk that the market value of
the securities sold by a Fund may decline below the price at which a Fund is
obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings by a Fund under the 1940 Act.
SECURITIES OF OTHER INVESTMENT COMPANIES. Each Fund may invest in
securities issued by other investment companies. Each Fund currently intends to
limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will be
invested in the securities of any one investment company; (b) not more than
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10% of the value of its total assets will be invested in the aggregate in
securities of investment companies as a group; and (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by such
Fund. As a shareholder of another investment company, a Fund would bear, along
with other shareholders, its pro rata portion of that company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that such Fund bears directly in connection with its own
operations. Investment companies in which the Funds may investment may also
impose a sales or distribution charge in connection with the purchase or
redemption of their shares and other types of commissions or charges. Such
charges will be payable by such Fund and, therefore, will be borne directly by
shareholders.
Investment Restrictions
- -----------------------
Each Fund's investment objective is a non-fundamental policy and may be
changed without a vote of the holders of a majority of such Fund's outstanding
Shares. In addition to the fundamental investment policies listed in the
Prospectus, the following investment restrictions may be changed with respect to
a particular Fund only by a vote of the majority of the outstanding Shares of
that Fund (as defined under "ADDITIONAL INFORMATION - Vote of a Majority of the
Outstanding Shares").
In addition to the investment restrictions set forth in the Prospectus,
each of the Funds may not:
1. Purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases of portfolio securities and except as may
be necessary to make margin payments in connection with derivative securities
transactions;
2. Underwrite the securities issued by other persons, except to the
extent that the Fund may be deemed to be an underwriter under certain securities
laws in the disposition of "restricted securities;"
3. Purchase or sell real estate (although investments in marketable
securities of companies engaged in such activities and securities secured by
real estate or interests therein are not prohibited by this restriction); and
4. Purchase or sell commodities or commodities contracts, except to the
extent disclosed in the current Prospectus of the Fund.
The following additional investment restrictions may be changed without
the vote of a majority of the outstanding Shares of a Fund. Each Fund may not:
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1. Purchase securities of other investment companies, except (a) in
connection with a merger, consolidation, acquisition or reorganization, and (b)
to the extent permitted by the 1940 Act, or pursuant to any exemptions
therefrom;
2. Engage in any short sales; and
3. Mortgage or hypothecate the Fund's assets in excess of one-third of
the Fund's total assets.
If any percentage restriction or requirement described above is
satisfied at the time of investment, a later increase or decrease in such
percentage resulting from a change in asset value will not constitute a
violation of such restriction or requirement. However, should a change in net
asset value or other external events cause a Fund's investments in illiquid
securities, repurchase agreements with maturities in excess of seven days and
other instruments in such Fund which are not readily marketable to exceed the
limit set forth in such Fund's Prospectus for its investment in illiquid
securities, the Fund will act to cause the aggregate amount of such securities
to come within such limit as soon as reasonably practicable. In such an event,
however, such Fund would not be required to liquidate any portfolio securities
where the Fund would suffer a loss on the sale of such securities.
Portfolio Turnover
- ------------------
The portfolio turnover rate for each of the Funds is calculated by
dividing the lesser of a Fund's purchases or sales of portfolio securities for
the year by the monthly average value of the portfolio securities. The
calculation excludes all securities whose remaining maturities at the time of
acquisition were one year or less.
The portfolio turnover rates for each of the Diversified Equity Fund,
the Income Equity Fund, the Special Equity Fund, and the Income Fund for the
fiscal period ended June 30, 1997, were 76.54%, 38.49%, 152.81% and 118.33%,
respectively.
The portfolio turnover rate may vary greatly from year to year as well
as within a particular year, and may also be affected by cash requirements for
redemptions of Shares. High portfolio turnover rates will generally result in
higher transaction costs, including brokerage commissions, to a Fund and may
result in additional tax consequences to a Fund's Shareholders. Portfolio
turnover will not be a limiting factor in making investment decisions.
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NET ASSET VALUE
As indicated in the Prospectus, the net asset value of each Fund is
determined and the Shares of each Fund are priced as of the Valuation Time on
each Business Day of that Fund. A "Business Day" of a Fund is a day on which the
New York Stock Exchange is open for trading and any other day (other than a day
on which no Shares of that Fund are tendered for redemption and no order to
purchase any Shares of that Fund is received) during which there is sufficient
trading in portfolio instruments that such Fund's net asset value per share
might be materially affected. The New York Stock Exchange will not open in
observance of the following holidays: New Year's Day, Martin Luther King, Jr.'s
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving, and Christmas.
Investments in securities for which market quotations are readily
available are valued based upon their current available prices in the principal
market in which such securities are normally traded. Unlisted securities for
which market quotations are readily available are valued at such market value.
Securities and other assets for which quotations are not readily available are
valued at their fair value as determined in good faith under consistently
applied procedures established by and under the general supervision of the
Trustees of the Group. Short-term securities (i.e., with maturities of 60 days
or less) are valued at either amortized cost or original cost plus accrued
interest, which approximates current value.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of each of the Funds are sold on a continuous basis by BISYS,
and BISYS has agreed to use appropriate efforts to solicit all purchase orders.
In addition to purchasing Shares directly from BISYS, Shares may be purchased
through procedures established by BISYS in connection with the requirements of
accounts at the Adviser or the Adviser's affiliated entities (collectively,
"Entities"). Customers purchasing Shares of the Funds may include officers,
directors, or employees of the Adviser or the Entities.
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Commission, (b) the Exchange is closed for other than customary weekend and
holiday closings, (c) the Commission has by order permitted such suspension, or
(d) an emergency exists as a result of which (i) disposal by the Group of
securities owned by it is not reasonably practical, or (ii) it is not reasonably
practical for the Group to determine the fair value of its net assets.
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MANAGEMENT OF THE GROUP
Trustees and Officers
- ---------------------
Overall responsibility for management of the Group rests with its Board
of Trustees. The Trustees elect the officers of the Group to supervise actively
its day-to-day operations.
The names of the Trustees and officers of the Group, their addresses,
and principal occupations during the past five years are as follows:
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name and Address With the Group During Past 5 Years
- ---------------- -------------- -------------------
<S> <C> <C>
Walter B. Grimm* Chairman, From June, 1992 to present,
3435 Stelzer Road President and employee of BISYS Fund
Columbus, Ohio 43219 Trustee Services Limited
Age: 52 Partnership.
Nancy E. Converse* Trustee and Since July, 1990, employee
3435 Stelzer Road Assistant of BISYS Fund Services
Columbus, Ohio 43219 Secretary Limited Partnership.
Age: 48
Maurice G. Stark Trustee Consultant with Battelle
505 King Avenue Memorial Institute; from 1979
Columbus, Ohio 43201 to December, 1994, Vice
Age: 62 President-Finance and Chief
Financial Officer, Battelle
Memorial Institute
(scientific research and
development service
corporation).
James H. Woodward, Ph.D. Trustee Since July 1989, Chancellor
The University of North of The University of North
Carolina at Charlotte Carolina at Charlotte.
Charlotte, NC 28223
Age: 57
Chalmers P. Wylie Trustee From April, 1993 to present,
754 Stonewood Court of Counsel with Kegler,
Columbus, Ohio 43235 Brown, Hill & Ritter (law
Age: 76 firm); from January, 1993 to
present, Adjunct Professor
at The Ohio State
University; from January,
1967 to January, 1993,
Member of the United States
House of Representatives for
the 15th District.
</TABLE>
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<TABLE>
<S> <C> <C>
J. David Huber Vice President Since January, 1996,
3435 Stelzer Road President of BISYS Fund
Columbus, Ohio 43219 Services Limited
Age: 51 Partnership; from June, 1987
to December, 1995, employee
of BISYS Fund Services
Limited Partnership.
William J. Tomko Vice President From April, 1987 to present,
3435 Stelzer Road employee of BISYS Fund
Columbus, Ohio 43219 Services Limited
Age: 39 Partnership.
Thresa B. Dewar Treasurer From March, 1997 to present,
3435 Stelzer Road employee of BISYS Fund
Columbus, Ohio 43219 Services Limited
Age: 43 Partnership; prior thereto,
Vice President and
Controller of Federated
Administrative Services, Inc.
(investment management firm).
George L. Stevens Secretary From September, 1996 to
3435 Stelzer Road present, employee of BISYS
Columbus, Ohio 43219 Fund Services Limited
Age: 46 Partnership; from September,
1995 to August, 1996,
consultant on bank
investment products and
activities; from June, 1980
to September, 1995, employee
of AmSouth Bank.
Alaina V. Metz Assistant From June, 1995 to present,
3435 Stelzer Road Secretary employee of BISYS Fund
Columbus, Ohio 43219 Services Limited
Age: 30 Partnership; prior to June,
1995, supervisor of Blue
Sky Compliance at Alliance
Capital Management, L.P.
(investment management
firm).
- -------------------
<FN>
*Mr. Grimm and Ms. Converse are each considered to be an "interested
person" of the Group as defined in the 1940 Act.
</TABLE>
As of the date of this Statement of Additional Information, the Group's
officers and trustees, as a group, own less than 1% of any Fund's Shares.
No officer or employee of BISYS or BISYS Fund Services, Inc. receives
any compensation from the Group for acting as trustee of the Group. The officers
of the Group receive no compensation directly from the Group for performing the
duties of their offices. BISYS receives fees from the Funds for acting as
Administrator and pursuant to the Distribution and Shareholder Service Plan
described below, and may receive fees pursuant to the Administrative Services
Plan described below. BISYS Fund Services, Inc. receives fees from
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the Funds for acting as transfer agent and for providing certain fund accounting
services. Ms. Converse, Ms. Dewar and Ms. Metz and Messrs. Grimm, Huber, Tomko
and Stevens are employees of BISYS.
The following table sets forth information regarding all compensation
paid by the Group to its Trustees for their services as trustees during the
fiscal year ended June 30, 1997. The Group has no pension or retirement plans.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Aggregate Total Compensation
Name and Position Compensation From the Group
With the Group From the Group and the Fund Complex*
- -------------- -------------- ---------------------
<S> <C> <C>
Walter B. Grimm $0 $0
Trustee
Nancy E. Converse $0 $0
Trustee
Maurice G. Stark $14,473 $14,473
Trustee
James H. Woodward, Ph.D. $16,162 $16,162
Trustee
Chalmers P. Wylie $14,973 $14,973
Trustee
- ----------------
<FN>
*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.
</TABLE>
Investment Adviser
- ------------------
Investment advisory and management services are provided to the Funds
of the Group by 1st Source Bank (the "Adviser"), pursuant to an Investment
Advisory Agreement dated as of August 20, 1996. Under the terms of the
Investment Advisory Agreement, the Adviser has agreed to provide, either
directly or through one or more subadvisers, investment advisory services as
described in the Prospectus of the Funds. For the services provided and expenses
assumed pursuant to the Investment Advisory Agreement, each Fund pays the
Adviser a fee, computed daily and paid monthly, at the following annual rates:
(1) for the Diversified Equity Fund, one hundred ten one-hundredths of one
percent (1.10%) of such Fund's average daily net assets; (2) for both the Income
Equity Fund and the Special Equity Fund, eighty one-hundredths of one percent
B-15
<PAGE> 306
(0.80%) of such Fund's average daily net assets; and (3) for the Income Fund,
fifty-five one-hundredths of one percent (0.55%) of such Fund's average daily
net assets. The Adviser may from time to time voluntarily reduce all or a
portion of its advisory fee with respect to a Fund to increase the net income of
that Fund available for distribution as dividends.
For the fiscal period ended June 30, 1997, the Adviser earned the
amounts indicated below with respect to its investment advisory services to the
indicated Funds pursuant to the Investment Advisory Agreement.
<TABLE>
<CAPTION>
Fiscal Period Ended
June 30, 1997(1)
-------------------
<S> <C>
Diversified Equity Fund $579,272
Income Equity Fund 207,742
Special Equity Fund 166,740
Income Fund 210,181
- ----------------------
<FN>
1 Commenced operations September 23, 1996, September 25, 1996, September
20, 1996 and September 24, 1996, respectively.
</TABLE>
Unless sooner terminated, the Investment Advisory Agreement will
continue in effect until August 20, 1998, and year to year thereafter for
successive annual periods ending on August 20, if, as to each Fund, such
continuance is approved at least annually by the Group's Board of Trustees or by
vote of a majority of the outstanding Shares of the relevant Fund (as defined
under "GENERAL INFORMATION - Miscellaneous" in the Funds' Prospectus), and a
majority of the Trustees who are not parties to the Investment Advisory
Agreement or interested persons (as defined in the 1940 Act) of any party to the
Investment Advisory Agreement by votes cast in person at a meeting called for
such purpose. The Investment Advisory Agreement is terminable as to a Fund at
any time on 60 days' written notice without penalty by the Trustees, by vote of
a majority of the outstanding Shares of that Fund, or by the Adviser. The
Investment Advisory Agreement also terminates automatically in the event of any
assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that the Adviser shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by a Fund in connection with the performance of the Investment Advisory
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad
B-16
<PAGE> 307
faith, or gross negligence on the part of the Adviser in the performance of its
duties, or from reckless disregard by the Adviser of its duties and obligations
thereunder.
The Adviser has licensed the name "1st Source Monogram" to the Funds on
a royalty-free basis, and the Adviser has reserved to itself the right to grant
the non-exclusive right to use the name "1st Source Monogram" to any other
person. At such time as the Investment Advisory Agreement is no longer in
effect, the Adviser may require the Funds to cease using the name "1st Source
Monogram."
Subadvisers
- -----------
Pursuant to the terms of the Investment Advisory Agreement, the Adviser
has entered into three separate Sub-Investment Advisory Agreements each dated as
of August 20, 1996 (collectively, the "Sub-Advisory Agreements"). The first
Sub-Advisory Agreement is with Miller Anderson & Sherrerd LLP, One Tower Bridge,
Suite 1100, West Conshohocken, Pennsylvania 19428 ("Miller Anderson"). The
second Sub-Advisory Agreement is with Loomis, Sayles & Company, L.P., 3 First
National Plaza, Suite 5450, Chicago, Illinois 60600 ("Loomis"). The third
Sub-Advisory Agreement is with Columbus Circle Investors, One Station Place,
Stamford, Connecticut 06902 ("Columbus"). Pursuant to the terms of such
Sub-Investment Advisory Agreements, Miller Anderson, Loomis and Columbus have
each been retained by the Adviser to manage the investment and reinvestment of a
portion the assets of the Diversified Equity Fund, subject to the direction and
control of the Adviser and the Group's Board of Trustees.
Under this arrangement, the Sub-Advisers are responsible for the
day-to-day management of the Diversified Equity Fund's assets, investment
performance, policies and guidelines, and maintaining certain books and records,
and the Adviser is responsible for selecting and monitoring the performance of
each of the Sub- Advisers, and for reporting the activities of the Sub-Advisers
in managing the Diversified Equity Fund to the Group's Board of Trustees.
For their services provided and expenses assumed pursuant to their
respective Sub-Investment Advisory Agreement with the Adviser, the Sub-Advisers
receive from the Adviser a fee (computed daily and paid monthly as a percentage
of the Diversified Equity Fund's average daily net assets managed by that
Sub-Adviser) at the following annual rates: for Miller Anderson, 0.625% up to
$25,000,000 and 0.375% of the excess over $25,000,000; for Loomis, 0.65% up to
$5,000,000 and 0.50% of the excess over $5,000,000; and for Columbus, 1.00% up
to $10,000,000 and 0.50% of the excess over $10,000,000.
B-17
<PAGE> 308
Miller Anderson was founded in 1969 and is wholly owned by Morgan
Stanley, Dean Witter, Discover & Co.
Loomis was founded in 1926 and established its Chicago office in 1952.
Loomis' sole general partner is Loomis, Sayles & Company, Incorporated.
Columbus was founded in 1975 and is a sub-partnership of PIMCO Advisors
L.P., a publicly held limited partnership whose general partner is owned by
Pacific Mutual Life Insurance Company and the managing directors of one of the
subpartnerships of PIMCO Advisors L.P.
For the fiscal period ended June 30, 1997, the Subadvisers earned the
amounts indicated below with respect to their subinvestment advisory services to
the Diversified Equity Fund pursuant to the Sub-Investment Advisory Agreements:
<TABLE>
<CAPTION>
Fiscal Period Ended
Sub-Adviser June 30, 1997(1)
- ----------- ----------------
<S> <C>
Miller Anderson $109,119
Loomis 89,219
Columbus 121,527
- ----------------------
<FN>
1 Commenced operations September 23, 1996.
</TABLE>
Unless sooner terminated, each of the Sub-Investment Advisory
Agreements continue in effect as to the Diversified Equity Fund until August 20,
1998, and thereafter for successive one-year periods ending August 20 of each
year if such continuance is approved at least annually by the Group's Board of
Trustees or by vote of a majority of the outstanding shares of such Fund (as
defined under "GENERAL INFORMATION - Miscellaneous" in the Funds' Prospectus),
and a majority of the Trustees who are not parties to the Sub-Investment
Advisory Agreements or interested persons (as defined in the 1940 Act) of any
party to the Sub-Investment Advisory Agreements by votes cast in person at a
meeting called for such purpose. Each of the Sub-Investment Advisory Agreements
are terminable as to the Diversified Equity Fund at any time on 60 days' written
notice without penalty by the Fund, by vote of a majority of the outstanding
shares of that Fund, or on 60 days' prior written notice from the Subadviser.
Such Agreements also terminate automatically in the event of any assignment, as
defined in the 1940 Act.
Each of the Sub-Investment Advisory Agreements provide that the
respective Sub-Advisers shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Group in
B-18
<PAGE> 309
connection with the performance of their duties, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith, or gross
negligence on the part of the respective Sub-Advisers in the performance of
their duties, or from reckless disregard of their duties and obligations
thereunder.
Portfolio Transactions
- ----------------------
Pursuant to the Investment Advisory Agreement with respect to each
Fund, other than the Diversified Equity Fund, the Adviser determines, subject to
the general supervision of the Board of Trustees of the Group and in accordance
with each such Fund's investment objective and restrictions, which securities
are to be purchased and sold by a Fund, and which brokers are to be eligible to
execute such Fund's portfolio transactions. Pursuant to the Sub-Investment
Advisory Agreements, the Sub-Advisers determine, subject to the supervision of
the Adviser and the overall general supervision of the Group's Board of Trustees
and in accordance with the Diversified Equity Fund's investment objectives and
policies, which securities are to be purchases and sold by such Fund, and which
brokers are to be eligible to execute such Fund's portfolio transactions.
Purchases and sales of portfolio securities with respect to the Income
Fund usually are principal transactions in which portfolio securities are
normally purchased directly from the issuer or from an underwriter or market
maker for the securities. Purchases from underwriters of portfolio securities
generally include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers serving as market makers may include the
spread between the bid and asked price.
Transactions on stock exchanges involve the payment of negotiated
brokerage commissions. Transactions in the over-the-counter market are generally
principal transactions with dealers. With respect to the over-the-counter
market, the Group, where possible, will deal directly with dealers who make a
market in the securities involved except in those circumstances where better
price and execution are available elsewhere.
Allocation of transactions, including their frequency, to various
brokers and dealers is determined by the Adviser or the applicable Sub-Adviser,
as the case may be, in its best judgment and in a manner deemed fair and
reasonable to Shareholders. The primary consideration is prompt execution of
orders in an effective manner at the most favorable price. Subject to this
consideration, brokers and dealers who provide supplemental investment research
to the Adviser or the applicable Sub-Adviser, as the case may be, may receive
orders for transactions on behalf of the Funds. The Adviser and each Sub-Adviser
are authorized to pay a broker-dealer
B-19
<PAGE> 310
who provides such brokerage and research services a commission for executing
each such Fund's brokerage transactions which is in excess of the amount of
commission another broker would have charged for effecting that transaction if,
but only if, the Adviser or Sub-Adviser, as the case may be, determines in good
faith that such commission was reasonable in relation to the value of the
brokerage and research services provided by such broker viewed in terms of that
particular transaction or in terms of all of the accounts over which it
exercises investment discretion. Any such research and other statistical and
factual information provided by brokers to a Fund or to the Adviser or
Sub-Adviser, as the case may be, is considered to be in addition to and not in
lieu of services required to be performed by such Adviser or Sub-Adviser under
its respective agreement regarding management of the Fund. The cost, value and
specific application of such information are indeterminable and hence are not
practicably allocable among the Funds and other clients of the Adviser or
Sub-Adviser, as the case may be, who may indirectly benefit from the
availability of such information. Similarly, the Funds may indirectly benefit
from information made available as a result of transactions effected for such
other clients. Under the Investment Advisory Agreement and Sub-Advisory
Agreements, the Adviser and Sub-Advisers are permitted to pay higher brokerage
commissions for brokerage and research services in accordance with Section 28(e)
of the Securities Exchange Act of 1934. In the event the Adviser and/or the Sub-
Advisers do follow such a practice, they will do so on a basis which is fair and
equitable to the Group and the Funds.
While the Adviser and the Sub-Advisers generally seek competitive
commissions, the Group may not necessarily pay the lowest commission available
on each brokerage transaction, for reasons discussed above. For the fiscal
period ended June 30, 1997, the Funds paid the following brokerage commissions
in connection with their respective portfolio transactions:
<TABLE>
<CAPTION>
Fund Brokerage Commissions
---- ---------------------
<S> <C>
Diversified Equity Fund $88,731
Income Equity Fund 81,914
Special Equity Fund 61,590
Income Fund 0
</TABLE>
Except as otherwise disclosed to the Shareholders of the Funds and as
permitted by applicable laws, rules and regulations, the Group will not, on
behalf of the Funds, execute portfolio transactions through, acquire portfolio
securities issued by, make savings deposits in, or enter into repurchase or
reverse repurchase agreements with the Adviser, the Sub-Advisers, BISYS, or
their affiliates, and will not give preference to the Adviser's correspondents
with respect to such transactions, securities,
B-20
<PAGE> 311
savings deposits, repurchase agreements, and reverse repurchase agreements.
Investment decisions for each Fund are made independently from those
for the other Funds, other funds of the Group or any other investment company or
account managed by the Adviser or any of the Sub-Advisers. Any such other fund,
investment company or account may also invest in the same securities as the
Group on behalf of the Funds. When a purchase or sale of the same security is
made at substantially the same time on behalf of a Fund and another fund of the
Group, investment company or account, the transaction will be averaged as to
price and available investments will be allocated as to amount in a manner which
the Adviser or the Sub-Adviser, as the case may be, believes to be equitable to
the Fund and such other fund, investment company or account. In some instances,
this investment procedure may adversely affect the price paid or received by a
Fund or the size of the position obtained by a Fund. To the extent permitted by
law, the Adviser and the Sub-Advisers may aggregate the securities to be sold or
purchased for a Fund with those to be sold or purchased for the other Funds or
for other investment companies or accounts in order to obtain best execution. As
provided by the Investment Advisory Agreement and the Sub- Advisory Agreements,
in making investment recommendations for the Funds, neither the Adviser nor any
Sub-Adviser will inquire or take into consideration whether an issuer of
securities proposed for purchase or sale by the Group is a customer of the
Adviser, any Sub-Adviser, any of their parents or subsidiaries or affiliates
and, in dealing with its customers, the Adviser, the Sub-Advisers, their
respective parents, subsidiaries, and affiliates will not inquire or take into
consideration whether securities of such customers are held by the Funds or any
other fund of the Group.
For the fiscal period ended June 30, 1997, the Diversified Equity Fund
held securities of its regular brokers or dealers, as defined in Rule 10b-1
under the 1940 Act, or their parent companies. As of June 30, 1997, such Fund
held $406,000 of common stock of Merrill, Lynch, Pierce, Fenner & Smith.
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
B-21
<PAGE> 312
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 entities,
as well as further judicial or administrative decisions or interpretations of
present and future statutes and regulations, could prevent or restrict the
Adviser from continuing to perform such services for the Group. In addition,
current state securities laws on the issue of the registration of banks as
brokers or dealers may differ from the interpretation of federal law, and banks
and financial institutions may be required to register as dealers pursuant to
the laws of a specific state. Depending upon the nature of any changes in the
services which could be provided by the Adviser, the Board of Trustees of the
Group would review the Group's relationship with the Adviser and consider taking
all action necessary in the circumstances.
Should future legislative, judicial, or administrative action prohibit
or restrict the proposed activities of the Adviser and/or the Adviser's
affiliated and correspondent banks in connection with Customer purchases of
Shares of any of the Funds, those banks might be required to alter materially or
discontinue the services offered by them to Customers. It is not anticipated,
however, that any change in the Group's method of operations would affect its
net asset value per share or result in financial losses to any Customer.
Administrator
- -------------
BISYS serves as administrator (the "Administrator") to the Funds
pursuant to a Management and Administration Agreement dated
B-22
<PAGE> 313
as of August 20, 1996 (the "Administration Agreement"). The Administrator
assists in supervising all operations of each Fund (other than those performed
by the Adviser under the Investment Advisory Agreement, by the Sub-Advisers
under the Sub-Advisory Agreements, by The Fifth Third Bank under the Custody
Agreement and by BISYS Fund Services, Inc. under the Transfer Agency Agreement
and Fund Accounting Agreement). The Administrator is a broker-dealer registered
with the Commission, and is a member of the National Association of Securities
Dealers, Inc. The Administrator provides financial services to institutional
clients.
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities; furnish statistical and research data, clerical,
certain bookkeeping services and stationery and office supplies; prepare the
periodic reports to the Commission on Form N-SAR or any replacement forms
therefor; compile data for, assist the Group or its designee in the preparation
of, and file all of the Funds' federal and state tax returns and required tax
filings other than those required to be made by the Funds' custodian and
Transfer Agent; prepare compliance filings pursuant to state securities laws
with the advice of the Group's counsel; assist to the extent requested by the
Group with the Group's preparation of its Annual and Semi-Annual Reports to
Shareholders and its Registration Statement (on Form N-1A or any replacement
therefor); compile data for, prepare and file timely Notices to the Commission
required pursuant to Rule 24f-2 under the 1940 Act; keep and maintain the
financial accounts and records of each Fund, including calculation of daily
expense accruals; and generally assist in all aspects of the Funds' operations
other than those performed by the Adviser under the Investment Advisory
Agreement, by the Sub-Advisers under the Sub-Investment Advisory Agreements, by
The Fifth Third Bank under the Custody Agreement and by BISYS Fund Services,
Inc. under the Transfer Agency and Fund Accounting Agreements. Under the
Administration Agreement, the Administrator may delegate all or any part of its
responsibilities thereunder.
The Administrator receives a fee from each Fund for its services as
Administrator and expenses assumed pursuant to the Administration Agreement,
equal to a fee calculated daily and paid periodically, at the annual rate equal
to twenty one-hundredths of one percent (.20%) of that Fund's average daily net
assets.
For the fiscal period ended June 30, 1997, the Administrator earned and
voluntarily waived the amounts indicated below with respect to its services to
the indicated Funds pursuant to the Administration Agreement:
B-23
<PAGE> 314
<TABLE>
<CAPTION>
Fiscal Period Ended
June 30, 1997(1)
-------------------
Fees Fees
Earned Waived
<S> <C> <C>
Diversified Equity Fund $105,323 --
Income Equity Fund 51,936 --
Special Equity Fund 41,685 $2,171
Income Fund 76,430 --
- ----------------------
<FN>
1 Commenced operations September 23, 1996, September 25, 1996, September
20, 1996 and September 24, 1996, respectively.
</TABLE>
Unless sooner terminated as provided therein, the Administration
Agreement has an initial term expiring on August 20, 1999. The Administration
Agreement thereafter shall be renewed automatically for successive one-year
terms, unless written notice not to renew is given by the non-renewing party to
the other party at least 60 days prior to the expiration of the then-current
term. The Administration Agreement is terminable with respect to a particular
Fund only upon mutual agreement of the parties to the Administration Agreement
and for cause (as defined in the Administration Agreement) by the party alleging
cause, on not less than 60 days' notice by the Group's Board of Trustees or by
the Administrator.
The Administration Agreement provides that the Administrator shall not
be liable for any error of judgment or mistake of law or any loss suffered by
any Fund in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or
negligence in the performance of its duties, or from the reckless disregard by
the Administrator of its obligations and duties thereunder.
Distributor
- -----------
BISYS serves as agent for each of the Funds in the distribution of its
Shares pursuant to a Distribution Agreement dated as of August 20, 1996 (the
"Distribution Agreement"). Unless otherwise terminated, the Distribution
Agreement will continue in effect until August 20, 1998, and year to year
thereafter for successive annual periods ending on August 20, if, as to each
Fund, such continuance is approved at least annually by (i) by the Group's Board
of Trustees or by the vote of a majority of the outstanding shares of that Fund,
and (ii) by the vote of a majority of the Trustees of the Group who are not
parties to the Distribution Agreement or interested persons (as defined in the
1940 Act) of any party to the Distribution Agreement, cast in person at a
meeting called for the purpose of voting on such
B-24
<PAGE> 315
approval. The Distribution Agreement may be terminated in the event of any
assignment, as defined in the 1940 Act.
In its capacity as Distributor, BISYS solicits orders for the sale of
Shares, advertises and pays the costs of advertising, office space and the
personnel involved in such activities. BISYS receives no compensation under the
Distribution Agreement with the Group, but may retain all or a portion of the
sales charge imposed upon sales of Shares of each of the Funds.
As described in the Prospectus, the Group has adopted a Distribution
and Shareholder Service Plan (the "Plan") with respect to the Funds pursuant to
Rule 12b-1 under the 1940 Act under which each Fund is authorized to pay BISYS
in an amount not in excess, on an annual basis, of 0.25% of the average daily
net asset value of the Shares of that Fund (the "12b-1 Fee"). Payments of the
12b-1 Fee to BISYS will be used (i) to compensate Participating Organizations
(as defined below) for providing distribution assistance relating to a Fund's
Shares, (ii) for promotional activities intended to result in the sale of Shares
and distribution of prospectuses to other than current shareholders, and (iii)
to compensate Participating Organizations for providing shareholder services
with respect to their customers who are, from time to time, beneficial and
record holders of Shares. Participating Organizations include banks (including
affiliates of the Adviser), broker-dealers, the Adviser, BISYS and other
institutions. Payments to such Participating Organizations may be made pursuant
to agreements entered into with BISYS.
As required by Rule 12b-1, the Plan was approved by the initial
Shareholder of each of the Funds and by the Board of Trustees, including a
majority of the Trustees who are not interested persons of any of the Funds and
who have no direct or indirect financial interest in the operation of the Plan
(the "Independent Trustees"). The Plan may be terminated as to a Fund by vote of
a majority of the Independent Trustees, or by vote of majority of the
outstanding Shares of that Fund. Any change in the Plan that would materially
increase the distribution cost to a Fund requires Shareholder approval. The
Trustees review quarterly a written report of such costs and the purposes for
which such costs have been incurred. The Plan may be amended by vote of the
Trustees including a majority of the Independent Trustees, cast in person at a
meeting called for that purpose. For so long as the Plan is in effect, selection
and nomination of those Trustees who are not interested persons of the Group
shall be committed to the discretion of such disinterested persons. All
agreements with any person relating to the implementation of the Plan may be
terminated at any time on 60 days' written notice without payment of any
penalty, by vote of a majority of the Independent Trustees or by a vote of the
majority of the outstanding Shares of the Fund. The Plan will continue in effect
for successive one-year periods, provided that each such continuance is
specifically approved (i) by
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<PAGE> 316
the vote of a majority of the Independent Trustees, and (ii) by a vote of a
majority of the entire Board of Trustees cast in person at a meeting called for
that purpose. The Board of Trustees has a duty to request and evaluate such
information as may be reasonably necessary for them to make an informed
determination of whether the Plan should be implemented or continued. In
addition the Trustees in approving the Plan must determine that there is a
reasonable likelihood that the Plan will benefit each Fund and its Shareholders.
The Board of Trustees of the Group believes that the Plan is in the
best interests of each Fund since it encourages Fund growth and maintenance of
Fund assets. As a Fund grows in size, certain expenses, and therefore total
expenses per Share, may be reduced and overall performance per Share may be
improved.
BISYS may enter into, from time to time, Rule 12b-1 Agreements with
selected dealers pursuant to which such dealers will provide certain services in
connection with the distribution of a Fund's Shares including, but not limited
to, those discussed above.
For the fiscal period ended June 30, 1997, the Funds incurred the
following amounts pursuant to the Plan for payments to have been made to BISYS
for certain distribution and shareholder services described above, all of which
were voluntarily waived by BISYS:
<TABLE>
<CAPTION>
Fiscal Period Ended
June 30, 1997(1)
-------------------
Fees Incurred
<S> <C>
Diversified Equity Fund $131,653
Income Equity Fund 64,713
Special Equity Fund 52,106
Income Fund 95,550
- ----------------------
<FN>
1 Commenced operations September 23, 1996, September 25, 1996, September
20, 1996 and September 24, 1996, respectively.
</TABLE>
Administrative Services Plan
- ----------------------------
As described in the Prospectus, the Group has also adopted an
Administrative Services Plan (the "Services Plan") under which each Fund is
authorized to pay certain financial institutions, including the Adviser, its
correspondent and affiliated banks, and BISYS (a "Service Organization"), to
provide certain ministerial, record keeping, and administrative support services
to their customers who own of record or beneficially Shares in a Fund. Payments
to such Service Organizations are made pursuant to Servicing Agreements
B-26
<PAGE> 317
between the Group and the Service Organization. The Services Plan authorizes
each Fund to make payments to Service Organizations in an amount, on an annual
basis, of up to 0.25% of the average daily net asset value of that Fund. The
Services Plan has been approved by the Board of Trustees of the Group, including
a majority of the Trustees who are not interested persons of the Group (as
defined in the 1940 Act) and who have no direct or indirect financial interest
in the operation of the Services Plan or in any Servicing Agreements thereunder
(the "Disinterested Trustees"). The Services Plan may be terminated as to a Fund
by a vote of a majority of the Disinterested Trustees. The Trustees review
quarterly a written report of the amounts expended pursuant to the Services Plan
and the purposes for which such expenditures were made. The Services Plan may be
amended by a vote of the Trustees, provided that any material amendments also
require the vote of a majority of the Disinterested Trustees. For so long as the
Services Plan is in effect, selection and nomination of those Disinterested
Trustees shall be committed to the discretion of the Group's Disinterested
Trustees. All Servicing Agreements may be terminated at any time without the
payment of any penalty by a vote of a majority of the Disinterested Trustees.
The Services Plan will continue in effect for successive one-year periods,
provided that each such continuance is specifically approved by a majority of
the Board of Trustees, including a majority of the Disinterested Trustees. As of
the date hereof, the Group has not entered into any such servicing agreements.
Custodian
- ---------
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio 45263
(the "Custodian"), has been selected to serve as the Funds' custodian pursuant
to the Custody Agreement dated as of August 20, 1996. The Custodian's
responsibilities include safeguarding and controlling the Funds' cash and
securities, handling the receipt and delivery of securities, and collecting
interest and dividends on the Funds' investments.
Transfer Agency and Fund Accounting Services
- --------------------------------------------
BISYS Fund Services, Inc. serves as transfer agent and dividend
disbursing agent (the "Transfer Agent") for all of the Funds pursuant to the
Transfer Agency Agreement dated as of August 20, 1996. Pursuant to such
Agreement, the Transfer Agent, among other things, performs the following
services in connection with each Fund's shareholders of record: maintenance of
shareholder records for each of the Fund's shareholders of record; processing
shareholder purchase and redemption orders; processing transfers and exchanges
of shares of the Funds on the shareholder files and records; processing dividend
payments and reinvestments; and assistance in the mailing of shareholder reports
and proxy
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<PAGE> 318
solicitation materials. For such services the Transfer Agent receives a fee
based on the number of shareholders of record.
For the fiscal period ended June 30, 1997, the Transfer Agent received
the following fees for services as transfer agent for the Funds:
<TABLE>
<CAPTION>
Fiscal Period Ended
June 30, 1997(1)
-------------------
<S> <C>
Diversified Equity Fund $28,892
Income Equity Fund 23,797
Special Equity Fund 22,347
Income Fund 26,460
- ----------------------
<FN>
1 Commenced operations September 23, 1996, September 25, 1996, September
20, 1996 and September 24, 1996, respectively.
</TABLE>
In addition, BISYS Fund Services, Inc. provides certain fund accounting
services to the Funds pursuant to a Fund Accounting Agreement dated as of August
20, 1996. BISYS Fund Services, Inc. receives a fee from each Fund for such
services equal to the greater of (a) a fee computed at an annual rate of three
one-hundredths of one percent (.03%) of that Fund's average daily net assets, or
(b) $50,000 minus the fee paid by such Fund under its Management and
Administration Agreement with BISYS of the same date. Under such Agreement,
BISYS Fund Services, Inc. maintains the accounting books and records for each
Fund, including journals containing an itemized daily record of all purchases
and sales of portfolio securities, all receipts and disbursements of cash and
all other debits and credits, general and auxiliary ledgers reflecting all
asset, liability, reserve, capital, income and expense accounts, including
interest accrued and interest received, and other required separate ledger
accounts; maintains a monthly trial balance of all ledger accounts; performs
certain accounting services for the Fund, including calculation of the net asset
value per share, calculation of the dividend and capital gain distributions, if
any, and of yield, reconciliation of cash movements with the Fund's custodian,
affirmation to the Fund's custodian of all portfolio trades and cash
settlements, verification and reconciliation with the Fund's custodian of all
daily trade activity; provides certain reports; obtains dealer quotations,
prices from a pricing service or matrix prices on all portfolio securities in
order to mark the portfolio to the market; and prepares an interim balance
sheet, statement of income and expense, and statement of changes in net assets
for each Fund.
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<PAGE> 319
For the fiscal period ended June 30, 1997, BISYS Fund Services, Inc.
received the fees indicated below with respect to its fund accounting services
to the indicated Funds:
<TABLE>
<CAPTION>
Fiscal Period Ended
June 30, 1997(1)
-------------------
<S> <C>
Diversified Equity Fund $15,798
Income Equity Fund 7,790
Special Equity Fund 6,757
Income Fund 11,464
- ----------------------
<FN>
1 Commenced operations September 23, 1996, September 25, 1996, September
20, 1996 and September 24, 1996, respectively.
</TABLE>
Auditors
- --------
The financial statements for each of the Funds as of June 30, 1997, and
for the periods indicated therein, appearing in this Statement of Additional
Information have been audited by Coopers & Lybrand L.L.P., 100 East Broad
Street, Columbus, Ohio 43215, as set forth in their report appearing elsewhere
herein, and are included in reliance upon such report and on the authority of
such firm as experts in auditing and accounting.
Legal Counsel
- -------------
Baker & Hostetler LLP, 65 East State Street, Columbus, Ohio 43215 is
counsel to the Group and will pass upon the legality of the Shares offered
hereby.
ADDITIONAL INFORMATION
Description of Shares
- ---------------------
The Group is an Ohio business trust. The Group was organized on April
25, 1988, and the Group's Declaration of Trust was filed with the Secretary of
State of Ohio on April 25, 1988. The Declaration of Trust authorizes the Board
of Trustees to issue an unlimited number of shares, which are shares of
beneficial interest, without par value. The Group presently has 17 series of
shares, one of which represents interests in the Diversified Equity Fund, one of
which represents interests in the Income Equity Fund, one of which represents
interests in the Special Equity Fund and one of which represents interests in
the Income Fund. The Group's Declaration of Trust authorizes the Board of
Trustees to divide or redivide any unissued shares of the Group into one or more
additional series by setting or changing in any one or more
B-29
<PAGE> 320
respects their respective preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Prospectus and this
Statement of Additional Information, the Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Group,
shareholders of a fund are entitled to receive the assets available for
distribution belonging to that fund, and a proportionate distribution, based
upon the relative asset values of the respective funds, of any general assets
not belonging to any particular fund which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Group shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each fund affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding shares of a fund will be required in
connection with a matter, a fund will be deemed to be affected by a matter
unless it is clear that the interests of each fund in the matter are identical,
or that the matter does not affect any interest of the fund. Under Rule 18f-2,
the approval of an investment advisory agreement or any change in investment
policy would be effectively acted upon with respect to a fund only if approved
by a majority of the outstanding shares of such fund. However, Rule 18f-2 also
provides that the approval of principal underwriting contracts and the election
of Trustees may be effectively acted upon by shareholders of the Group voting
without regard to series.
As of October 16, 1997, the following is the only entity known to the
Group who owns of record or beneficially 5% or more of the outstanding Shares of
any Fund: 1st Source Bank, P. O. Box 1602, South Bend, Indiana 46634 owned of
record and beneficially 97.26% of the issued and outstanding Shares of the
Income Fund, 96.47% of the issued and outstanding Shares of the Income Equity
Fund, 98.00% of the issued and outstanding Shares of the Diversified Equity Fund
and 95.53% of the issued and outstanding Shares of the Special Equity Fund.
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 Share-
B-30
<PAGE> 321
holders of that Fund present at a meeting at which the holders of more than 50%
of the votes attributable to Shareholders of record of that Fund are represented
in person or by proxy, or (b) the holders of more than 50% of the outstanding
votes of Shareholders of that Fund.
Additional Tax Information
- --------------------------
Each of the Funds is treated as a separate entity for federal income
tax purposes and intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Code"), for so long as such
qualification is in the best interest of that Fund's shareholders. In order to
qualify as a regulated investment company, each Fund must, among other things:
diversify its investments within certain prescribed limits; derive at least 90%
of its gross income from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of securities or
foreign currencies, or other income derived with respect to its business of
investing in such stock, securities, or currencies; and, in taxable years
beginning on or before August 5, 1997, derive less than 30% of its gross income
from the sale or other disposition of stock, securities, options, future
contracts or foreign currencies held less than three months. In addition, to
utilize the tax provisions specially applicable to regulated investment
companies, each Fund must distribute to its Shareholders at least 90% of its
investment company taxable income for the year. In general, a Fund's investment
company taxable income will be its taxable income subject to certain adjustments
and excluding the excess of any net mid-term or net long-term capital gain for
the taxable year over the net short-term capital loss, if any, for such year.
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, a Fund
would be subject to a non-deductible excise tax equal to 4% of the deficiency.
Although each Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all 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
B-31
<PAGE> 322
special tax treatment afforded regulated investment companies, all of its
taxable income will be subject to federal tax at regular corporate rates
(without any deduction for distributions to its Shareholders). In such event,
dividend distributions would be taxable to Shareholders to the extent of
earnings and profits, and would be eligible for the dividends received deduction
for corporations.
It is expected that each Fund will distribute annually to Shareholders
all or substantially all of the Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to Shareholders for federal income
tax purposes, even if paid in additional Shares of the Fund and not in cash.
Distribution by a Fund of the excess of net mid-term or net long-term
capital gain over net short-term capital loss is taxable to Shareholders as
mid-term or long-term capital gain, respectively, in the year in which it is
received, regardless of how long the Shareholder has held the Shares. Such
distributions are not eligible for the dividends-received deduction.
Federal taxable income of individuals is subject to graduated tax rates
of 15%, 28%, 31%, 36% and 39.6%. Further, the marginal tax rate may be in excess
of 39.6%, because adjustments reduce or eliminate the benefit of the personal
exemption and itemized deductions for individuals with gross income in excess of
certain threshold amounts.
Long-term capital gains of individuals are subject to a maximum tax
rate of 20% (or 10% for individuals in the 15% ordinary income tax bracket).
Mid-term capital gains of individuals are subject to tax at the same rates
applicable to ordinary income; however, the tax rate on 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. The holding period for mid-term capital gains is
more than one year but not more than eighteen months; the holding period for
long-term capital gains is more than eighteen months.
Federal taxable income of corporations in excess of $75,000 up to $10
million is subject to a 34% tax rate; however, because the benefit of lower tax
rates on a corporation's taxable income of less than $75,000 is phased out for
corporations with income in excess of $100,000 but lower than $335,000, a
maximum marginal tax rate of 39% may result. Federal taxable income of
corporations in excess of $10 million is subject to a tax rate of 35%. Further,
a corporation's federal taxable income in excess of $15 million is
B-32
<PAGE> 323
subject to an additional tax equal to 3% of taxable income over $15 million, but
not more than $100,000.
Capital gains of corporations are subject to tax at the same rates
applicable to ordinary income. Capital losses may be used only to offset capital
gains and excess net capital loss may be carried back three years and forward
five years.
Certain corporations are entitled to a 70% dividends received deduction
for distributions from certain domestic corporations. Each Fund will designate
the portion of any distributions which qualify for the 70% dividends received
deduction. The amount so designated may not exceed the amount received by the
Fund for its taxable year that qualifies for the dividends received deduction.
Because all of the Income Fund's net investment income is expected to be derived
from earned interest, it is anticipated that no distributions from those Funds
will qualify for the 70% dividends received deduction.
Foreign taxes may be imposed on a Fund by foreign countries with
respect to its income from foreign securities, if any. Since less than 50% in
value of any one Fund's total assets at the end of its fiscal year are expected
to be invested in stocks or securities of foreign corporations, such Fund will
not be entitled under the Code to pass through to its Shareholders their pro
rata share of the foreign taxes paid by the Fund. These taxes will be taken as a
deduction by such Fund.
Each Fund may be required by federal law to withhold and remit to the
U.S. Treasury 31% of taxable dividends, if any, and capital gain distributions
to any Shareholder, and the proceeds of redemption or the values of any
exchanges of Shares of a Fund, if such Shareholder (1) fails to furnish the
Group with a correct taxpayer identification number, (2) under-reports dividend
or interest income, or (3) fails to certify to the Group that he or she is not
subject to such withholding. An individual's taxpayer identification number is
his or her Social Security number.
GENERAL. Information set forth in the Prospectus and this Statement of
Additional Information which relates to Federal taxation is only a summary of
some of the important Federal tax considerations generally affecting purchasers
of Shares of a Fund. No attempt has been made to present a detailed explanation
of the Federal income tax treatment of a Fund or its Shareholders and this
discussion is not intended as a substitute for careful tax planning.
Accordingly, potential purchasers of Shares of a Fund are urged to consult their
tax advisers with specific reference to their own tax situation.
In addition, the tax discussion in the Prospectus and this Statement of
Additional Information is based on tax laws and
B-33
<PAGE> 324
regulations which are in effect on the date of the Prospectus and this Statement
of Additional Information; such laws and regulations may be changed by
legislative or administrative action.
Information as to the Federal income tax status of all distributions
will be mailed annually to each Shareholder.
Yield
- -----
As summarized in the Prospectus under the heading "PERFORMANCE
INFORMATION," yields of the Funds will be computed by annualizing net investment
income per share for a recent 30-day period and dividing that amount by a Fund
Share's maximum offering price (reduced by any undeclared earned income expected
to be paid shortly as a dividend) on the last trading day of that period. Net
investment income will reflect amortization of any market value premium or
discount of fixed income securities (except for obligations backed by mortgages
or other assets) and may include recognition of a pro rata portion of the stated
dividend rate of dividend paying portfolio securities. The yield will vary from
time to time depending upon market conditions, the composition of the particular
Fund's portfolio and operating expenses of the Group allocated to each Fund.
These factors and possible differences in the methods used in calculating yield
should be considered when comparing a Fund's yield to yields published for other
investment companies and other investment vehicles. Yield should also be
considered relative to changes in the value of a Fund's Shares and to the
relative risks associated with the investment objectives and policies of each of
the Funds.
For the 30-day period ended June 30, 1997, the yields for the Income
Equity Fund and the Income Fund were 1.78% and 5.38%, respectively, assuming the
imposition of the maximum sales charge, and 1.88% and 5.60%, respectively,
excluding the effect of any sales charge.
Calculation of Total Return
- ---------------------------
As summarized in the Prospectus under the heading "PERFORMANCE
INFORMATION," average annual total return is a measure of the change in value of
an investment in a Fund over the period covered, which assumes any dividends or
capital gains distributions are reinvested in the Fund immediately rather than
paid to the investor in cash. Average annual total return will be calculated by:
(1) adding to the total number of Shares purchased by a hypothetical $1,000
investment in that Fund all additional Shares which would have been purchased if
all dividends and distributions paid or distributed during the period had been
immediately reinvested; (2) calculating the value of the hypothetical initial
investment of $1,000 as of the end of the period by multiplying the total number
of Shares owned at the end of the period by the net asset value per
B-34
<PAGE> 325
share on the last trading day of the period; (3) assuming redemption at the end
of the period; and (4) dividing this account value for the hypothetical investor
by the initial $1,000 investment and annualizing the result for periods of less
than one year.
For the one year, five year and ten year periods ended June 30, 1997,
and the respective periods from commencement of operations to June 30, 1997, the
average annual total returns for the Diversified Equity Fund, the Income Equity
Fund, the Special Equity Fund and the Income Fund are set forth in the following
table. Such performance information includes the prior performance of the
respective CIFs for such Funds during those periods which had been restated to
reflect the estimated fees for those Funds.
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
With Maximum Sales Load(1) Without Sales Load
-------------------------- ------------------
Since Since
Fund 1 Year 5 Year 10 Year Inception 1 Year 5 Year 10 Year Inception
---- ------ ------ ------- --------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Diversified 16.23% 15.06% 11.40% 11.78% 22.52% 16.26% 11.96% 12.27%
Equity2
Income 20.98% 17.07% 11.52% 13.38% 27.42% 18.32% 12.09% 13.91%
Equity3
Special -8.10% 16.11% 12.49% 12.88% -3.27% 17.27% 13.04% 13.37%
Equity3
Income2 2.63% 5.08% 6.77% 7.11% 6.84% 5.96% 7.21% 7.56%
<FN>
1 The maximum sales load for the Diversified Equity, Income Equity and
Special Equity Funds is 5.00%. For the Income Fund, the maximum sales
load is 4.00%.
2 Commenced operations June 30, 1985.
3 Commenced operations November 30, 1985.
</TABLE>
Of course, past performance is no guarantee as to future performance.
Distribution Rates
- ------------------
Each of the Funds 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
B-35
<PAGE> 326
and to data prepared by Lipper Analytical Services, Inc., a widely recognized
independent service which monitors the performance of mutual funds. Comparisons
may also be made to indices or data published in Money Magazine, Forbes,
Barron's, The Wall Street Journal, Morningstar, Inc., Ibbotson Associates,
CDA/Wiesenberger, The New York Times, Business Week, U.S.A. Today and local
periodicals. In addition to performance information, general information about
these Funds that appears in a publication such as those mentioned above may be
included in advertisements, sales literature and reports to shareholders. The
Funds may also include in advertisements and reports to shareholders information
discussing the performance of the Adviser in comparison to other investment
advisers and to other banking institutions.
From time to time, the Group may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of inflation, the power of compounding and the benefits of dollar
cost averaging); (2) discussions of general economic trends; (3) presentations
of statistical data to supplement such discussions; (4) descriptions of past or
anticipated portfolio holdings for one or more of the Funds within the Group;
(5) descriptions of investment strategies for one or more of such Funds; (6)
descriptions or comparisons of various investment products, which may or may not
include the Funds; (7) comparisons of investment products (including the Funds)
with relevant market or industry indices or other appropriate benchmarks; (8)
discussions of fund rankings or ratings by recognized rating organizations; and
(9) testimonials describing the experience of persons that have invested in one
or more of the Funds. The Group may also include calculations, such as
hypothetical compounding examples, which describe hypothetical investment
results in such communications. Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of any
Fund.
Current yields or total return will fluctuate from time to time and are
not necessarily representative of future results. Accordingly, a Fund's yield or
total return may not provide for comparison with bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and total
return are functions of a Fund's quality, composition and maturity, as well as
expenses allocated to such Fund. Fees imposed upon Customer accounts by the
Adviser or its affiliated or correspondent banks for cash management services
will reduce a Fund's effective yield and total return to Customers.
Miscellaneous
- -------------
Individual Trustees are generally elected by the Shareholders and,
subject to removal by the vote of two-thirds of the Board of
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<PAGE> 327
Trustees, serve for a term lasting until the next meeting of shareholders at
which Trustees are elected. Such meetings are not required to be held at any
specific intervals. Generally, shareholders owning not less than 20% of the
outstanding shares of the Group entitled to vote may cause the Trustees to call
a special meeting. However, the Group has represented to the Commission that the
Trustees will call a special meeting for the purpose of considering the removal
of one or more Trustees upon written request therefor from shareholders owning
not less than 10% of the outstanding votes of the Group entitled to vote. At
such a meeting, a quorum of shareholders (constituting a majority of votes
attributable to all outstanding shares of the Group), by majority vote, has the
power to remove one or more Trustees.
The Group is registered with the Commission as a management investment
company. Such registration does not involve supervision by the Commission of the
management or policies of the Group.
The 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-37
<PAGE> 328
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
B-38
<PAGE> 329
THE SESSIONS GROUP
1ST SOURCE MONOGRAM FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1997
<TABLE>
<CAPTION>
DIVERSIFIED SPECIAL INCOME
EQUITY EQUITY INCOME EQUITY
FUND FUND FUND FUND
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (cost $56,066,526; $22,355,918;
$52,284,186; and $29,485,277, respectively)................. $70,087,039 $24,881,284 $52,174,044 $37,599,831
Repurchase agreements (cost $5,116,881; 5,954,715; $1,942,995;
and $1,560,619, respectively)............................... 5,116,881 5,954,715 1,942,995 1,560,619
----------- ----------- ----------- -----------
Total Investments....................................... 75,203,920 30,835,999 54,117,039 39,160,450
Interest and dividends receivable............................. 47,851 4,560 735,682 123,871
Receivable from brokers for investments sold.................. 567,808 -- -- --
Unamortized organization costs................................ 11,757 4,099 9,274 5,889
Prepaid expenses and other assets............................. 300 16 203 419
----------- ----------- ----------- -----------
Total Assets............................................ 75,831,636 30,844,674 54,862,198 39,290,629
----------- ----------- ----------- -----------
LIABILITIES:
Payable to brokers for investments purchased.................. 709,206 271,755 -- --
Options written, at value (premiums received $11,193)......... -- -- -- 33,000
Accrued expenses and other payables:
Investment advisory fees.................................. 66,831 19,612 24,030 25,192
Administration fees....................................... 1,640 657 1,199 856
Custodian fees............................................ 2,156 1,084 1,312 1,058
Accounting fees........................................... 817 513 236 128
Trustees' fees............................................ 989 385 2,120 2,180
Legal fees................................................ 4,247 688 1,064 2,288
Audit fees................................................ 7,481 6,028 6,102 4,781
Printing fees............................................. 25,824 8,793 15,855 13,786
Transfer agent fees....................................... 2,445 252 2,325 1,529
Registration and filing fees.............................. 20,479 10,547 19,427 10,248
Other..................................................... 12 119 -- 34
----------- ----------- ----------- -----------
Total Liabilities....................................... 842,127 320,433 73,670 95,080
----------- ----------- ----------- -----------
NET ASSETS:
Capital....................................................... 54,626,028 29,049,845 55,066,773 28,373,212
Undistributed (distribution in excess of) net investment
income...................................................... (1,421) 3,400 47,620 29,381
Net unrealized appreciation (depreciation) on investments..... 14,020,513 2,525,366 (110,142) 8,092,747
Accumulated undistributed net realized gains (losses) on
investment transactions..................................... 6,344,389 (1,054,370) (215,723) 2,700,209
----------- ----------- ----------- -----------
Net Assets................................................ $74,989,509 $30,524,241 $54,788,528 $39,195,549
=========== =========== =========== ===========
Outstanding units of beneficial interest (shares)............. 6,355,147 3,181,817 5,408,293 3,190,928
=========== =========== =========== ===========
Net asset value -- redemption price per share................. $ 11.80 $ 9.59 $ 10.13 $ 12.28
=========== =========== =========== ===========
Maximum Sales Charge.......................................... 5.00% 5.00% 4.00% 5.00%
=========== =========== =========== ===========
Maximum Offering Price (100%/(100%-Maximum Sales Charge) of
net asset value adjusted to nearest cent) per share......... $ 12.42 $ 10.09 $ 10.55 $ 12.93
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
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<PAGE> 330
THE SESSIONS GROUP
1ST SOURCE MONOGRAM FUNDS
STATEMENTS OF OPERATIONS
FOR PERIOD ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
DIVERSIFIED SPECIAL INCOME
EQUITY EQUITY INCOME EQUITY
FUND(a) FUND(a) FUND(a) FUND(a)
----------- --------- ---------- ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income............................. $ 52,441 $ 178,759 $2,434,665 $ 164,121
Dividend income............................. 744,988 120,869 149,797 807,825
----------- --------- ---------- ----------
Total Income.............................. 797,429 299,628 2,584,462 971,946
----------- --------- ---------- ----------
EXPENSES:
Investment advisory fees.................... 579,272 166,740 210,181 207,742
Administration fees......................... 105,323 41,685 76,430 51,936
12b-1 fees.................................. 131,653 52,106 95,550 64,713
Custodian fees.............................. 21,575 6,885 4,686 4,169
Accounting fees............................. 23,318 8,178 15,380 9,424
Trustees' fees and expenses................. 5,703 2,070 5,368 5,145
Legal fees.................................. 13,914 6,510 6,433 9,287
Audit fees.................................. 13,101 11,648 11,722 10,401
Printing costs.............................. 32,579 11,501 21,039 18,852
Organization costs.......................... 3,818 1,410 2,895 1,848
Transfer agent fees......................... 28,892 22,347 26,460 23,797
Registration and filing fees................ 22,037 11,794 20,815 11,396
Other....................................... 1,987 804 919 1,529
----------- --------- ---------- ----------
Total expenses.............................. 983,172 343,678 497,878 420,239
Less: expenses voluntarily reduced..... (131,653) (54,277) (95,550) (64,714)
----------- --------- ---------- ----------
Net expenses................................ 851,519 289,401 402,328 355,525
----------- --------- ---------- ----------
Net investment income (loss)................ (54,090) 10,227 2,182,134 616,421
----------- --------- ---------- ----------
REALIZED/UNREALIZED GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains (losses) on investment
transactions.............................. 7,722,828 (253,355) (215,572) 2,858,798
Change in unrealized
appreciation/depreciation on
investments............................... 5,132,388 304,921 790,234 4,364,604
----------- --------- ---------- ----------
Net realized/unrealized gains (losses) on
investments............................... 12,855,216 51,566 574,662 7,223,402
----------- --------- ---------- ----------
Change in net assets resulting from
operations................................ $12,801,126 $ 61,793 $2,756,796 $7,839,823
=========== ========= ========== ==========
</TABLE>
- ---------
(a) Commencement of operations of the Funds began September 23, 1996, September
20, 1996, September 24, 1996, and September 25, 1996, respectively.
See notes to financial statements.
B-40
<PAGE> 331
THE SESSIONS GROUP
1ST SOURCE MONOGRAM FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
DIVERSIFIED SPECIAL INCOME
EQUITY FUND EQUITY FUND INCOME FUND EQUITY FUND
------------ ------------ ------------ ------------
FOR PERIOD FOR PERIOD FOR PERIOD FOR PERIOD
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997(a) 1997(a) 1997(a) 1997(a)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income(loss)............................. $ (54,090) $ 10,227 $ 2,182,134 $ 616,421
Net realized gains (losses) on investment
transactions.......................................... 7,722,828 (253,355) (215,572) 2,858,798
Net change in unrealized appreciation/depreciation on
investments........................................... 5,132,388 304,921 790,234 4,364,604
------------ ------------ ------------ ------------
Change in net assets resulting from operations............ 12,801,126 61,793 2,756,796 7,839,823
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income.............................. -- (10,227) (2,141,355) (590,716)
In excess of net investment income...................... -- (337) -- --
From net realized gains on investments.................. (1,332,828) -- (158,589)
In excess of net realized gains on investments.......... -- (801,015) --
------------ ------------ ------------ ------------
Change in net assets from shareholder distributions....... (1,332,828) (811,579) (2,141,355) (749,305)
------------ ------------ ------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued............................. 84,469,233 38,050,281 66,488,773 42,293,659
Dividends reinvested.................................... 1,332,616 811,083 2,132,592 746,329
Cost of shares redeemed................................. (22,280,638) (7,587,337) (14,448,278) (10,934,957)
------------ ------------ ------------ ------------
Change in net assets from capital transactions............ 63,521,211 31,274,027 54,173,087 32,105,031
------------ ------------ ------------ ------------
Change in net assets...................................... 74,989,509 30,524,241 54,788,528 39,195,549
NET ASSETS:
Beginning of period..................................... 0 0 0 0
------------ ------------ ------------ ------------
End of period........................................... $ 74,989,509 $ 30,524,241 $54,788,528 $ 39,195,549
============ ============ ============ ============
SHARE TRANSACTIONS:
Issued.................................................. 8,361,129 3,865,762 6,626,551 4,149,432
Reinvested.............................................. 125,956 83,724 210,754 68,376
Redeemed................................................ (2,131,938) (767,669) (1,429,012) (1,026,880)
------------ ------------ ------------ ------------
Change in shares.......................................... 6,355,147 3,181,817 5,408,293 3,190,928
============ ============ ============ ============
</TABLE>
- ---------
(a) Commencement of operations of the Funds began September 23, 1996, September
20, 1996, September 24, 1996, and September 25, 1996, respectively.
See notes to financial statements.
B-41
<PAGE> 332
THE SESSIONS GROUP
1ST SOURCE MONOGRAM DIVERSIFIED EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<S> <C> <C>
COMMON STOCKS (92.4%):
Aerospace/Defense--Equipment (1.9%)
22,100 Boeing Co..................... $ 1,172,681
3,500 Raytheon Co................... 178,500
800 Textron, Inc.................. 53,100
------------
1,404,281
------------
Apparel (1.1%)
5,300 Russell Corp.................. 157,013
7,100 Talbots, Inc.................. 241,400
5,300 VF Corp....................... 449,175
------------
847,588
------------
Automotive Parts (1.0%)
4,500 Dana Corp..................... 171,000
3,600 Eaton Corp.................... 314,325
5,000 TRW, Inc...................... 284,063
------------
769,388
------------
Banking (3.2%)
5,500 Bank of New York, Inc......... 239,250
3,900 Chase Manhattan Corp.......... 378,544
2,600 Crestar Financial Corp........ 101,075
6,400 First Union Corp.............. 592,000
4,800 Mellon Bank Corp.............. 216,600
7,400 NationsBank Corp.............. 477,300
2,200 Republic New York Corp........ 236,500
5,100 Signet Banking Corp........... 183,600
------------
2,424,869
------------
Beverages (0.6%)
11,900 Pepsico Inc................... 446,994
------------
Building Materials (0.3%)
5,700 Owens Corning................. 245,813
------------
Chemicals (3.5%)
5,700 Cabot Corp.................... 161,738
1,900 Dow Chemical Co............... 165,538
3,700 E. I. du Pont de Nemours &
Co.......................... 232,638
3,500 FMC Corp.(b).................. 278,031
7,500 Great Lakes Chemical Corp..... 392,813
3,400 IMC Global, Inc............... 119,000
22,500 Monsanto Corp................. 968,905
3,200 Rohm & Haas Co................ 288,200
------------
2,606,863
------------
Commercial Goods & Services (2.0%)
58,950 CUC International, Inc.(b).... 1,521,647
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Computer Software (3.7%)
4,500 3COM Corp.(b)................. $ 202,500
7,100 Cisco Systems, Inc.(b)........ 476,588
8,300 Computer Associates
International, Inc.......... 462,206
8,800 McAfee Associates(b).......... 555,500
8,600 Microsoft Corp.(b)............ 1,086,825
------------
2,783,619
------------
Computers (8.3%)
5,500 Compaq Computer Corp.(b)...... 545,875
6,300 Dell Computer Corp.(b)........ 739,856
15,000 EMC Corp(b)................... 585,000
22,900 HBO & Co...................... 1,577,237
6,500 Honeywell, Inc................ 493,188
6,200 Intel Corp.................... 879,237
7,200 International Business
Machines Corp............... 649,350
9,500 Seagate Technology, Inc.(b)... 334,281
1,200 Stratus Computer, Inc.(b)..... 60,000
8,600 Western Digital(b)............ 271,975
------------
6,135,999
------------
Consumer Goods & Services (0.3%)
5,600 Newell........................ 221,900
------------
Diversified Products (1.9%)
12,400 Aeroquip-Vickers Inc.......... 585,900
9,600 General Electric.............. 627,600
8,600 Westinghouse Electric Corp.... 198,875
------------
1,412,375
------------
Electrical Equipment (0.1%)
1,600 Arrow Electronics, Inc.(b).... 85,000
0 Molex Inc.(c)................. 9
------------
85,009
------------
Electronic Components (2.0%)
7,800 LSI Logic Corp.(b)............ 249,600
7,600 Solectron Corp.(b)............ 532,475
4,100 Tektronix, Inc................ 246,000
2,300 Texas Instruments............. 193,344
6,100 Xilinx Incorporated(b)........ 299,281
------------
1,520,700
------------
Engines--Internal Combustion (1.0%)
10,800 Cummins Engine Co., Inc....... 762,075
------------
</TABLE>
Continued
B-42
<PAGE> 333
THE SESSIONS GROUP
1ST SOURCE MONOGRAM DIVERSIFIED EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Environmental Services (1.0%)
12,900 Browning-Ferris Industries,
Inc......................... $ 428,925
10,300 Waste Management Inc.......... 330,888
------------
759,813
------------
Financial Services (4.5%)
6,600 Associates First Capital
Corp........................ 366,300
6,100 Capital One Financial Corp.... 230,275
2,300 Citicorp...................... 277,294
4,200 Federal National Mortgage
Assoc....................... 183,225
6,800 Merrill Lynch & Co., Inc...... 405,450
15,900 MGIC Investment Corp.......... 762,205
17,000 Schwab, Charles Corp.......... 691,688
7,400 Washington Mutual, Inc........ 442,150
------------
3,358,587
------------
Food & Related (0.8%)
6,200 Archer-Daniels-Midland Co..... 145,700
8,100 IBP, Inc...................... 188,325
6,000 Universal Foods Corp.......... 228,750
------------
562,775
------------
Forest & Paper Products (0.3%)
2,500 Georgia Pacific Corp.......... 213,438
------------
Funeral Services (0.6%)
14,400 Service Corp. International... 473,400
------------
Hospital Supply & Management (0.5%)
4,700 Columbia/HCA Healthcare
Corp........................ 184,769
3,100 Oxford Health Plans,
Inc.(b)..................... 222,425
------------
407,194
------------
Household--General Products (0.4%)
4,800 Premark International, Inc.... 128,400
5,000 Tupperware Corp............... 182,500
------------
310,900
------------
Human Resources (0.5%)
4,800 Manpower Inc.................. 213,600
6,700 Olsten Corp................... 130,231
------------
343,831
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Insurance (6.3%)
1,650 AEGON N.V..................... $ 115,603
2,200 Aetna Services, Inc........... 225,225
14,600 Allstate Corp................. 1,065,799
4,800 American General Corp......... 229,200
4,200 American International Group,
Inc......................... 627,375
3,200 Chubb Corp.................... 214,000
4,900 Conseco Inc................... 181,300
7,300 Everest Reinsurance Holdings,
Inc......................... 289,263
11,700 Exel Ltd...................... 617,175
2,200 Hartford Financial Services
Group....................... 182,050
6,500 Old Republic International
Corp........................ 197,031
3,800 Providian Corp................ 122,075
3,400 ReliaStar Financial Corp...... 248,625
4,500 TIG Holdings Inc.............. 140,625
900 Torchmark Corp................ 64,125
2,100 Transatlantic Holdings,
Inc......................... 208,425
------------
4,727,896
------------
Linen Supply & Related Items (0.2%)
2,600 Cintas Corp................... 178,750
------------
Machine Tools & Related Products (0.5%)
9,200 Kennametal, Inc............... 395,600
------------
Machinery & Equipment (2.9%)
9,000 Case Corp..................... 619,875
1,800 Caterpillar, Inc.............. 193,275
7,000 Deere & Co.................... 384,125
8,000 Harnischfeger Industries,
Inc......................... 332,000
4,600 Tecumseh Products Co.,........ 275,425
11,500 Thermo Electron Corp.(b)...... 395,313
------------
2,200,013
------------
Manufacturing (0.4%)
4,500 Parker-Hannifin Corp.......... 273,094
------------
Medical Services & Supplies (1.0%)
28,700 HEALTHSOUTH Corp.(b).......... 715,706
------------
Medical--HMO (0.5%)
8,840 Foundation HealthCorp. A(b)... 267,962
4,900 Maxicare Health Plans,
Inc.(b)..................... 109,638
------------
377,600
------------
</TABLE>
Continued
B-43
<PAGE> 334
THE SESSIONS GROUP
1ST SOURCE MONOGRAM DIVERSIFIED EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Medical--Instruments/Products (2.9%)
7,300 Beckman Instruments Inc....... $ 352,225
7,700 Boston Scientific Corp.(b).... 473,069
7,600 Guidant Corp.................. 646,000
6,100 Mallinckrodt, Inc............. 231,800
3,600 Medtronic, Inc................ 291,600
9,600 Nellcor Puritan Bennett,
Inc.(b)..................... 174,000
------------
2,168,694
------------
Medical--Wholesale Drug Distribution (0.3%)
3,950 Cardinal Health, Inc.......... 226,138
------------
Motor Vehicles (1.5%)
18,300 Ford Motor Co................. 690,825
7,300 General Motors Corp........... 406,519
------------
1,097,344
------------
Office Supplies & Forms (0.1%)
3,400 Standard Register Co.......... 104,125
------------
Oil & Gas--Domestic (0.4%)
3,300 Amoco Corp.................... 286,894
------------
Oil & Gas--Exploration/Production (2.3%)
16,400 Anadarko Petroleum Corp....... 984,000
15,400 Cross Timbers Oil Co.......... 296,450
5,800 Repsol SA..................... 246,138
5,400 Ultramar Diamond Shamrock
Corp........................ 176,175
------------
1,702,763
------------
Oil--Gas Services (5.4%)
21,200 Baker Hughes, Inc............. 820,175
2,700 El Paso Natural Gas Co........ 148,500
7,900 Halliburton Co................ 626,075
29,100 Rowan Cos., Inc.(b)........... 820,256
9,800 Schlumberger Ltd.............. 1,224,999
14,000 Tosco Corp.................... 419,125
------------
4,059,130
------------
Oil--Integrated Companies (1.7%)
3,800 Atlantic Richfield Co......... 267,900
4,600 British Petroleum Co., Plc.... 344,425
4,500 Phillips Petroleum Co......... 196,875
15,200 USX -- Marathon Group......... 438,900
------------
1,248,100
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Pharmaceuticals (6.3%)
4,100 Amgen, Inc.(b)................ 238,313
9,625 Bergen Brunswig Corp. Class
A........................... 268,297
2,700 Bristol-Myers Squibb Co....... 218,700
13,200 Lilly, Eli & Co............... 1,442,924
9,300 Pfizer Inc.................... 1,111,350
11,200 Somatogen, Inc.(b)............ 51,800
11,400 Warner Lambert................ 1,416,449
------------
4,747,833
------------
Pipelines (0.3%)
7,600 MAPCO, Inc.................... 239,400
------------
Railroad (0.4%)
1,800 Burlington Northern Santa
Fe.......................... 161,775
3,100 CSX Corp...................... 172,050
------------
333,825
------------
Restaurants (1.6%)
24,800 Starbucks Corp.(b)............ 965,650
9,200 Wendy's International, Inc.... 238,625
------------
1,204,275
------------
Retail (5.6%)
20,500 Borders Group(b).............. 494,562
5,700 CVS Corporation............... 292,125
5,700 Dillards Inc., Class A........ 197,363
12,600 Home Depot, Inc............... 868,612
6,400 Kohls Corporation(b).......... 338,800
47,200 PETsMART, Inc.(b)............. 542,799
11,500 Price/Costco Inc.(b).......... 378,063
5,800 Safeway, Inc.(b).............. 267,525
17,600 Staples, Inc.(b).............. 409,200
16,400 TJX Cos., Inc................. 432,550
------------
4,221,599
------------
Telecommunications (6.5%)
8,900 America Online(b)............. 495,063
14,750 Andrew Corp.(b)............... 414,844
9,700 Ascend Communications,
Inc.(b)..................... 381,938
7,050 Glenayre Technologies,
Inc.(b)..................... 115,444
6,500 Lucent Technologies, Inc...... 468,406
7,600 Motorola, Inc................. 577,600
17,100 NEXTEL Communications(b)...... 323,831
6,400 QUALCOMM, Inc.(b)............. 325,600
18,100 Tele-Communications,
Inc.(b)..................... 269,238
14,200 Tellabs, Inc.(b).............. 793,424
22,700 WorldCom, Inc.(b)............. 726,399
------------
4,891,787
------------
</TABLE>
Continued
B-44
<PAGE> 335
THE SESSIONS GROUP
1ST SOURCE MONOGRAM DIVERSIFIED EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Textile (0.2%)
3,100 Springs Industries, Inc....... $ 163,525
------------
Tires & Rubber Products (0.8%)
9,300 Goodyear Tire & Rubber Co..... 588,806
------------
Tobacco (2.3%)
30,600 Philip Morris Cos., Inc....... 1,357,875
11,300 RJR Nabisco Holdings Corp..... 372,900
------------
1,730,775
------------
Toys (0.4%)
8,000 Toys "R" Us, Inc.(b).......... 280,000
------------
Transportation--Air (0.6%)
2,300 AMR Corp. Del(b).............. 212,750
2,800 UAL Corp.(b).................. 200,375
------------
413,125
------------
Utilities--Electric (1.0%)
4,400 Central Maine Power Co........ 54,450
3,100 CINergy Corp.................. 107,919
4,800 DTE Energy Co................. 132,600
2,611 Duke Energy Corp.............. 125,165
5,600 Entergy Corp.................. 153,300
4,600 GPU, Inc...................... 165,025
------------
738,459
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Utilities--Gas & Pipeline (0.5%)
6,700 Sonat, Inc.................... 343,375
------------
Total Common Stocks........... 69,277,689
------------
PREFERRED STOCKS (1.1%)
Forest & Paper Products (0.2%)
4,000 Westvaco Corp................. 125,750
------------
Oil & Gas (0.4%)
8,800 YPF Sociedad Anonima-Spondored
ADR......................... 270,600
------------
Utilities-Telephone (0.5%)
5,600 Nokia Corp-Sponsored ADR...... 413,000
------------
Total Preferred Stocks........ 809,350
------------
REPURCHASE AGREEMENTS (6.8%)
$ 5,116,881 Fifth Third Bank Repurchase
Agreement, 5.07%, 7/1/97
(Collateralized by
$5,220,000 FHLMC Pool
#G10452, 7.00%, 2/1/11,
market value--$5,221,632)... 5,116,881
------------
Total Repurchase Agreements... 5,116,881
------------
Total (Cost--$61,183,407)
(a)......................... $ 75,203,920
============
</TABLE>
- ---------
Percentages indicated are based on net assets of $74,989,509.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income tax reporting of $36,096.
Cost for federal income tax purposes differs from market value by net
unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.......................... $15,081,166
Unrealized depreciation.......................... (1,096,749)
-----------
Net unrealized appreciation...................... $13,984,417
===========
</TABLE>
(b) Represents non-income producing securities
(c) Amount owned is a fractional share.
See notes to financial statements.
B-45
<PAGE> 336
THE SESSIONS GROUP
1ST SOURCE MONOGRAM SPECIAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<S> <C> <C>
COMMON STOCKS (80.4%)
Aerospace/Defense--Equipment (0.8%)
7,500 AAR Corp...................... $ 242,344
-----------
Air Transportation (3.0%)
11,000 Atlas Air, Inc.(b)............ 379,500
21,000 Southwest Airlines Co......... 543,375
-----------
922,875
-----------
Apparel Manufacturers (1.7%)
16,650 Wolverine World Wide.......... 505,744
-----------
Automotive Parts (1.5%)
11,000 Tower Automotive(b)........... 473,000
-----------
Banking (2.9%)
11,000 Bank United Corp., Class A.... 418,000
29,000 Commonwealth Bancorp, Inc..... 474,875
-----------
892,875
-----------
Beer, Wine & Distilled Beverages (0.6%)
20,000 Boston Beer Co., Inc.(b)...... 197,500
-----------
Commercial Goods & Services (3.3%)
22,000 ABR Information Services,
Inc.,(b).................... 638,000
36,000 Warrentec Corp.(b)............ 373,500
-----------
1,011,500
-----------
Communications Equipment (3.7%)
37,000 CCC Information Services
Group(b).................... 721,500
12,500 Sawtek, Inc.(b)............... 421,875
-----------
1,143,375
-----------
Computer Software (11.4%)
24,800 Citrix Systems, Inc.(b)....... 1,088,099
55,000 Dataware Technologies
Inc.(b)..................... 165,000
11,000 Great Plains Software,
Inc.(b)..................... 297,000
15,100 I2 Technologies Inc(b)........ 468,100
17,000 JDA Software Group Inc,(b).... 580,125
36,000 Microware Systems Corp.(b).... 319,500
17,000 Netscape Communications
Corp.(b).................... 545,063
-----------
3,462,887
-----------
Electronic Components (5.9%)
36,000 S 3, Inc.(b).................. 396,000
60,200 Sonic Solutions, Inc.(b)...... 308,525
21,000 Triquint Semiconductor,
Inc.(b)..................... 721,875
11,750 Vitesse Semiconductor(b)...... 384,078
-----------
1,810,478
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Emerging Technology (0.4%)
19,000 Electric Fuel Corp.(b)........ $ 125,875
-----------
Financial Services (6.6%)
23,000 Aames Financial Corp.......... 425,500
18,000 ITLA Capital Corp(b).......... 292,500
30,000 Long Beach Financial
Corp(b)..................... 262,500
15,000 Mego Mortgage Corp.(b)........ 150,000
22,500 Ocwen Asset Investment
Corp.(b).................... 455,625
7,000 Washington Mutual, Inc........ 418,250
-----------
2,004,375
-----------
Human Resources (1.1%)
21,900 SOS Staffing Services,
Inc.(b)..................... 339,450
-----------
Leisure & Recreational Products (2.1%)
17,600 Cannondale Corp.(b)........... 312,400
18,200 North Face, Inc.(b)........... 332,150
-----------
644,550
-----------
Medical Services & Supplies (10.3%)
9,400 Agouron Pharmaceuticals,
Inc.(b)..................... 760,225
24,000 Columbia Laboratories
Inc.(b)..................... 393,000
28,000 HEALTHSOUTH Corp.(b).......... 698,250
29,000 ICOS Corp.(b)................. 239,250
21,000 Martek Bioscience Corp.(b).... 246,750
33,000 Vivus, Inc.(b)................ 785,812
-----------
3,123,287
-----------
Medical--Biotechnology (0.9%)
18,000 Alkermes(b)................... 261,000
-----------
Medical--Hosp Management Services (2.0%)
34,000 Orthodontic Centers Of
America, Inc.,(b)........... 618,375
-----------
Medical--Hospitals (0.3%)
49,000 Integrated Medical
Resources(b)................ 101,063
-----------
Oil--Field Services (0.8%)
9,700 Pride International,
Inc.(b)..................... 232,800
-----------
Oil--Gas Services (2.4%)
21,600 Newpark Resources(b).......... 729,000
-----------
Pharmaceuticals (1.3%)
18,300 Zonagen(b).................... 400,313
-----------
Publishing (0.7%)
18,500 UOL Publishing(b)............. 226,625
-----------
Real Estate Investment Trust (1.0%)
22,000 Prime Retail.................. 295,625
-----------
</TABLE>
Continued
B-46
<PAGE> 337
THE SESSIONS GROUP
1ST SOURCE MONOGRAM SPECIAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
-----------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Retail (2.6%)
11,500 Casey's General Stores........ $ 247,609
30,000 Oakley, Inc.(b)............... 421,875
5,000 Regis Corp.................... 118,125
-----------
787,609
-----------
Savings & Loans (7.6%)
18,000 Dime Community Bancorp,
Inc......................... 360,000
13,300 First Bell Bancorp, Inc....... 222,775
14,000 Home Bancorp of Elgin, Inc.... 231,000
15,000 Life Bancorp Inc.............. 388,125
6,000 Mercantile Bankshares......... 240,000
10,000 Peoples Heritage Bancorp...... 378,750
14,625 St. Paul Bancorp, Inc......... 484,452
-----------
2,305,102
-----------
Telecommunications (2.0%)
7,500 Echostar Communications(b).... 117,188
30,000 Glenayre Technologies,
Inc.(b)..................... 491,250
-----------
608,438
-----------
Textile (1.6%)
30,000 Sport-Haley, Inc.(b).......... 502,500
-----------
Tobacco (1.9%)
20,000 General Cigar Holdings(b)..... 588,750
-----------
Total Common Stocks........... 24,557,315
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<S> <C> <C>
OPTIONS (1.1%)
Multi-Industry (1.1%)
80 Amex Computer Technology
Index....................... $ 201,000
85 Amex Computer Technology
Index....................... 122,188
-----------
Total Options................. 323,188
-----------
WARRANTS (0.0%)
5,000 Alza Corp. (b)................ 781
-----------
Total Warrants................ 781
-----------
REPURCHASE AGREEMENTS (19.5%)
$ 5,954,715 Fifth Third Bank Repurchase
Agreement, 5.07%, 7/1/97
(Collateralized by
$6,072,000 FHLMC Pool
#G10452, 7.00%, 2/1/11,
market value--$6,073,900)... 5,954,715
-----------
Total Repurchase Agreements... 5,954,715
-----------
Total (Cost--$28,310,633)
(a)......................... $30,835,999
===========
</TABLE>
- ---------
Percentages indicated are based on net assets of $30,524,241.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income tax reporting of $56,091.
Cost for federal income tax purposes differs from market value by net
unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.......................... $ 4,419,447
Unrealized depreciation.......................... (1,950,172)
-----------
Net unrealized appreciation...................... $ 2,469,275
===========
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements.
B-47
<PAGE> 338
THE SESSIONS GROUP
1ST SOURCE MONOGRAM INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<S> <C> <C>
COLLATERALLIZED MORTGAGE OBLIGATIONS (3.6%)
2,000,000 First Union Residential
Securitization.............. $ 1,983,740
------------
Total Collaterallized Mortgage
Obligations................. 1,983,740
------------
CORPORATE BONDS (31.0%)
Banking (1.8%)
1,000,000 Firstar Corp., 7.15%, 9/1/00,
Callable 9/1/98 @ 100....... 1,004,729
------------
Financial Services (10.0%)
1,000,000 Associates Corp., 6.75%,
7/15/01..................... 1,001,418
1,000,000 Bear Stearns Co.,Inc., 7.63%,
4/15/00..................... 1,024,494
1,250,000 General Electric Capital
Corp., 8.65%, 5/15/09,
Callable 5/15/97 @ 100...... 1,420,187
1,000,000 Salomon, Inc., 7.00%,
1/20/98..................... 1,004,830
1,000,000 Smith Barney Holdings, Inc.,
7.88%, 10/1/99.............. 1,027,239
------------
5,478,168
------------
Industrial Goods & Services (10.1%)
1,000,000 Honeywell, 7.13%, 4/15/08..... 1,006,052
1,500,000 Smithkline Beecham Corp.,
7.50%, 5/1/02............... 1,515,357
2,000,000 Texas Instruments, Inc.,
6.88%, 7/15/00.............. 2,020,187
1,000,000 Union Pacific Resources,
7.00%, 10/15/06............. 999,318
------------
5,540,914
------------
Motor Vehicles (3.7%)
2,000,000 Ford Motor Co., 7.25%,
10/1/08..................... 2,011,120
------------
Paper Products (1.8%)
1,000,000 International Paper Co.,
7.00%, 6/1/01............... 1,006,299
------------
Tobacco (3.6%)
2,000,000 Philip Morris Cos., Inc.,
6.80%, 12/1/03.............. 1,966,470
------------
Total Corporate Bonds 17,007,700
------------
PREFERRED STOCKS (5.5%)
Banking (0.9%)
20,000 Banker's Trust, 8.125%,
2/1/37...................... 506,250
------------
Electrical & Electronic (1.9%)
40,000 Southwestern Public Services,
Series A, 7.85%, 10/21/01,
Callable 10/21/01 @ 25.00... 1,010,000
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<S> <C> <C>
PREFERRED STOCKS, CONTINUED:
Financial Services (0.9%)
20,000 Ml Capital Trust, 8.00%,
3/30/07..................... $ 507,500
------------
Food & Related (1.8%)
40,000 McDonald's Corp., 7.50%,
9/30/36, Callable 12/31/01 @
25.00....................... 995,000
------------
Total Preferred Stocks........ 3,018,750
------------
U.S. TREASURY OBLIGATIONS (22.1%)
3,000,000 5.63%, 11/30/98............... 2,985,939
2,000,000 5.88%, 11/15/99............... 1,986,876
2,000,000 6.25%, 5/31/00................ 2,001,250
3,000,000 7.75%, 2/15/01................ 3,138,750
2,000,000 6.50%, 10/15/06............... 1,991,250
------------
Total U.S. Treasury
Obligations................. 12,104,065
------------
U.S. GOVERNMENT AGENCIES (33.0%)
Federal Home Loan Bank (3.7%)
2,000,000 5.88%, 2/26/98................ 2,000,310
------------
Federal Home Loan Mortgage Corporation (12.8%)
1,000,000 8.41%, 12/7/01................ 1,021,960
1,000,000 8.63%, 11/29/04, Callable
11/29/99 @100............... 1,037,552
3,000,000 6.89%, 9/26/05................ 2,979,266
1,000,000 7.00%, 8/15/07................ 996,870
1,000,000 6.50%, 2/15/08................ 973,865
------------
7,009,513
------------
Federal National Mortgage Association (16.5%)
3,000,000 6.25%, 8/12/03................ 2,923,938
2,000,000 6.97%, 4/8/04................. 2,033,282
3,000,000 8.63%, 11/10/04............... 3,103,362
1,000,000 7.02%, 4/10/06................ 989,384
------------
9,049,966
------------
Total U.S. Government
Agencies.................... 18,059,789
------------
REPURCHASE AGREEMENTS (3.5%)
$ 1,942,995 Fifth Third Bank Repurchase
Agreement, 5.07%, 7/1/97
(Collateralized by
$1,982,000 FHLMC Pool
#G10452, 7.00%, 2/1/11,
market value--$1,982,620)... 1,942,995
------------
Total Repurchase Agreements... 1,942,995
------------
Total (Cost--$54,227,181)
(a)......................... $ 54,117,039
============
</TABLE>
Continued
B-48
<PAGE> 339
THE SESSIONS GROUP
1ST SOURCE MONOGRAM INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
- ---------
Percentages indicated are based on net assets of $54,788,528.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized from
financial reporting in excess of federal income tax reporting of $46,563.
Cost for federal income tax purposes differs from market value by net
unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.......................... $ 261,212
Unrealized depreciation.......................... (417,917)
---------
Net unrealized depreciation...................... $(156,705)
=========
</TABLE>
See notes to financial statements.
B-49
<PAGE> 340
THE SESSIONS GROUP
1ST SOURCE MONOGRAM INCOME EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<S> <C> <C>
COMMON STOCKS (82.2%)
Aerospace/Defense -- Equipment (4.4%)
11,000 General Motors Corp. -- Class
H........................... $ 635,250
8,000 Raytheon Co................... 408,000
12,500 Sundstrand Corp............... 675,000
------------
1,718,250
------------
Automotive Parts (1.4%)
28,000 Excel Industries, Inc......... 546,000
------------
Banking (1.6%)
18,000 Magna Group, Inc.............. 625,500
------------
Chemicals (4.4%)
10,000 Great Lakes Chemical Corp..... 523,750
25,000 Hanna (M. A.) Co.............. 720,312
11,000 Lubrizol Corp................. 461,313
------------
1,705,375
------------
Communications Equipment (1.3%)
6,000 Harris Corp................... 504,000
------------
Computer Services (1.2%)
11,000 Electronic Data Systems
Corp........................ 451,000
------------
Computers (1.2%)
10,000 Amdahl Corp.(b)............... 87,500
10,000 Sun Microsystems, Inc.(b)..... 372,188
------------
459,688
Construction -- Engineering (2.4%)
10,000 Fluor Corporation............. 551,875
10,000 Foster Wheeler Corp........... 405,000
------------
956,875
------------
Cosmetics & Toiletries (1.4%)
8,000 Avon Products, Inc............ 564,500
------------
Electrical Equipment (4.9%)
12,000 AMP, Inc...................... 501,000
12,400 Emerson Electric Co........... 682,775
21,000 Esterline Technologies,
Corp.(b).................... 748,125
------------
1,931,900
------------
Environmental Services (1.8%)
21,100 Browning-Ferris Industries,
Inc......................... 701,575
------------
Financial Services (2.4%)
20,000 Alliance Capital
Management-LP............... 585,000
10,000 Green Tree Financial Corp..... 356,250
------------
941,250
------------
Food & Related (2.4%)
20,000 Archer-Daniels-Midland Co..... 470,000
10,600 Quaker Oats Co................ 475,675
------------
945,675
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Furniture & Furnishings (0.7%)
20,000 Shelby Williams Industries.... $ 272,500
------------
Hospital Supply & Management (0.8%)
18,000 Angelica Corp................. 315,000
------------
Hotels & Motels (0.6%)
12,000 Signature Inns................ 222,000
------------
Insurance (6.5%)
20,000 La Salle RE Holdings.......... 589,999
9,000 Lincoln National Corp......... 579,375
20,000 Sotheby's Holdings Services... 337,500
13,000 Travelers/Aetna Property
Casualty-Class A............ 518,375
22,000 USF&G Corp.................... 528,000
------------
2,553,249
------------
Medical Equipment & Supplies (0.9%)
10,000 Bard (C. R.), Inc............. 363,125
------------
Mining (3.0%)
10,000 Cleveland Cliffs, Inc......... 407,500
11,000 IMC Global Strypes............ 412,500
5,000 Potash Corp. of Saskatchewan,
Inc......................... 375,313
------------
1,195,313
------------
Motor Vehicles (1.4%)
15,000 Ford Motor Co................. 566,250
------------
Office Equipment & Services (0.9%)
10,000 Donnelley R R & Sons Co....... 366,250
------------
Oil -- Integrated Companies (4.5%)
8,000 Atlantic Richfield Co......... 564,000
15,000 Phillips Petroleum Co......... 656,250
19,000 USX -- Marathon Group......... 548,625
------------
1,768,875
------------
Pharmaceuticals (6.3%)
9,000 Abbott Laboratories........... 600,750
8,750 Bergen Brunswig Corp. Class
A........................... 243,906
10,000 Bristol-Myers Squibb Co....... 810,000
8,000 Merck & Co., Inc.............. 828,000
------------
2,482,656
------------
Pipelines (1.2%)
15,000 MAPCO, Inc.................... 472,500
------------
Publishing (3.3%)
17,000 American Greetings Corp....... 631,125
14,000 Tribune Co.................... 672,875
------------
1,304,000
------------
</TABLE>
Continued
B-50
<PAGE> 341
THE SESSIONS GROUP
1ST SOURCE MONOGRAM INCOME EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Railroad (2.4%)
14,500 Kansas City Southern
Industries, Inc............. $ 935,250
------------
Real Estate Investment Trust (6.4%)
22,000 Burnham Pacific Properties,
Inc......................... 302,500
14,875 Equity Residential Property... 706,562
12,000 Hospitality Properties
Trust....................... 367,500
21,000 Prentiss Properties Trust..... 538,125
24,000 Thornburg Mortgage Asset
Corp........................ 516,000
5,950 Wellsford Real Properties
Trust(b).................... 65,450
------------
2,496,137
------------
Retail (1.3%)
20,000 Long's Drug Stores, Inc....... 523,750
------------
Steel (1.2%)
10,000 Carpenter Technology Corp..... 457,500
------------
Telecommunications (2.8%)
16,500 Andrew Corp.(b)............... 464,063
17,000 US West Communications,
Inc......................... 640,687
------------
1,104,750
------------
Tires & Rubber Products (1.4%)
25,000 Cooper Tire & Rubber Co....... 550,000
------------
Transportation-Misc. (1.3%)
22,200 Sea Containers Class A........ 502,275
------------
Utilities-Electric (3.6%)
13,000 American Electric Power,
Co.......................... 546,000
16,000 Houston Industries, Inc....... 343,000
22,000 Montana Power Co.............. 510,125
------------
1,399,125
------------
Utilities-Telephone (0.9%)
10,000 AT & T Corp................... 350,625
------------
Total Common Stocks........... 32,252,718
------------
PREFERRED STOCKS (3.1%)
Industrials (1.6%)
8,000 Airtouch Communications,
Series B, 6.00%, 8/16/99.... $ 228,000
14,000 Snyder Oil Corp., Callable
3/31/97 @ 25.90............. 353,500
------------
581,500
------------
Merchandising (0.8%)
6,000 K Mart Preferred, 7.75%,
6/15/16, Callable 6/17/99 @
52.71....................... 329,250
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<S> <C> <C>
PREFERRED STOCKS, CONTINUED:
Performance Equity-Linked Quarterly (0.7%)
8,000 Morgan Stanley -- Advanced
Micro Devices, 10% PERQS.... 293,000
------------
Total Preferred Stocks........ 1,203,750
------------
CONVERTIBLE BONDS (10.6%)
Electrical & Electronic (1.6%)
500,000 Itron Inc., 6.75%, 3/31/04.... 638,125
------------
Industrial Goods & Services (7.0%)
600,000 General Instrument Corp.,
5.00%, 6/15/00, Callable
6/15/97 @ 102.14............ 684,749
450,000 Integrated Device Technology
5.50%, 6/1/02, Callable
6/2/98 @ 102.75............. 381,938
150,000 IVAX Corp. 6.50%, 11/15/01,
Callable 11/15/97 @
100.93...................... 133,313
450,000 Mascotech 4.50%, 12/15/03,
Callable 12/15/97, @
102.50...................... 408,938
285,000 Oryx Energy Co. 7.50%,
5/15/14, Callable 5/15/98 @
101.50...................... 279,300
400,000 Park Electrochem 5.50%,
3/1/06, Callable 3/1/99 @
102.75...................... 357,000
500,000 Telxon Cvt. 5.75%, 1/1/03,
Callable 1/5/99 @ 103.29.... 455,000
------------
2,700,238
------------
Metals & Mining (0.9%)
400,000 Coeur D'Alene Mines Corp.
6.38%, 1/31/04, Callable
1/31/97 @ 103.64............ 365,000
------------
Restaurants (1.1%)
500,000 Boston Chicken, 7.75%,
5/1/04...................... 440,000
------------
Total Convertible Bonds....... 4,143,363
------------
REPURCHASE AGREEMENTS (4.0%)
1,560,619 Fifth Third Bank Repurchase
Agreement, 5.07%, 7/1/97
(Collateralized by
$1,592,000 FHLMC Pool
#G10452, 7.00%, 2/1/11,
market value --
$1,592,498)................. 1,560,619
------------
Total Repurchase Agreements... 1,560,619
------------
Total (Cost -- $31,045,896)
(a)......................... $ 39,160,450
============
</TABLE>
- ---------
Percentages indicated are based on net assets of $39,195,549.
Continued
B-51
<PAGE> 342
THE SESSIONS GROUP
1ST SOURCE MONOGRAM INCOME EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.......................... $ 8,532,909
Unrealized depreciation.......................... (440,162)
-----------
Net unrealized appreciation...................... $ 8,092,747(c)
===========
</TABLE>
(b) Represents non-income producing securities.
Footnote to Schedule of Investments
(c) The unrealized depreciation was increased $21,807 due to a decrease in
market value of the written covered call option on Electronic Data Services
Corp.
See notes to financial statements.
B-52
<PAGE> 343
THE SESSIONS GROUP
1ST SOURCE MONOGRAM FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
1. ORGANIZATION:
The Sessions Group (the "Group") was organized on April 25, 1988 as an Ohio
business trust, and is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end management investment company.
The Group is authorized to issue an unlimited number of shares which are
units of beneficial interest without par value. The Group offers shares of
a number of different series or portfolios including the following series
for which 1st Source Bank serves as investment adviser: the 1st Source
Monogram Diversified Equity Fund, 1st Source Monogram Special Equity Fund,
1st Source Monogram Income Fund, and 1st Source Monogram Income Equity Fund
(collectively, the "Funds" and individually, a "Fund").
The investment objective for each of the Diversified Equity Fund and the
Special Equity Fund is capital appreciation. The investment objectives of
the Income Equity Fund are capital appreciation with current income as a
secondary objective. The investment objectives of the Income Fund are
current income consistent with preservation of capital.
Sales of shares of the Funds may be made by the Groups distributor BISYS
Fund Services Limited Partnership d/b/a BISYS Fund Services to customers of
1st Source Bank and its affiliates, to all accounts of correspondent banks
of 1st Source Bank and to the general public.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Group in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles. The
preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of income
and expenses for the period. Actual results could differ from those
estimates.
Securities Valuation:
Investments in common and preferred stocks, corporate bonds, commercial
paper, municipal securities and U.S. Government securities of the
Diversified Equity Fund, the Special Equity Fund, the Income Fund, and the
Income Equity Fund are valued at their market values determined on the
basis of the latest available bid quotation in the principal market
(closing sales prices if the principal market is an exchange or NASDAQ
National Market) in which such securities are normally traded. Investments
in investment companies are valued at their net asset values as reported by
such companies. Other securities for which quotations are not readily
available are valued at their fair value under procedures established by
the Group's Board of Trustees. The differences between the cost and market
values of investments held by the Funds are reflected as either unrealized
appreciation or depreciation.
Continued
B-53
<PAGE> 344
THE SESSIONS GROUP
1ST SOURCE MONOGRAM FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
SECURITY TRANSACTIONS AND RELATED INCOME:
Security transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the
accrual basis and includes, where applicable, the amortization of
premium or discount. Dividend income is recorded on the ex-dividend
date. Gains or losses realized on sales of securities are determined by
comparing the identified cost of the security lot sold with the net
sales proceeds.
REPURCHASE AGREEMENTS:
The Funds may acquire repurchase agreements from financial institutions
such as banks and broker dealers which 1st Source Bank deems
creditworthy under guidelines approved by the Board of Trustees, subject
to the seller's agreement to repurchase such securities at a mutually
agreed-upon date and price. The repurchase price generally equals the
price paid by each Fund plus interest negotiated on the basis of current
short-term rates, which may be more or less than the rate on the
underlying portfolio securities. The seller, under a repurchase
agreement, is required to maintain the value of collateral held pursuant
to the agreement at not less than the repurchase price (including
accrued interest). Securities subject to repurchase agreements are held
by the Funds' custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered
to be loans by the Funds under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS:
The Funds may borrow for temporary purposes by entering into reverse
repurchase agreements. Pursuant to such agreements, a Fund would sell
portfolio securities to financial institutions such as banks and
broker-dealers, and agree to repurchase them at a mutually agreed-upon
date and price. At the time a Fund enters into a reverse repurchase
agreement, it places in a segregated custodial account assets having a
value equal to the repurchase price (including accrued interest), and
will continually monitor the account to ensure such equivalent value is
maintained at all times. Reverse repurchase agreements are considered to
be borrowing by the Funds under the 1940 Act.
DERIVATIVES:
A derivative is defined as a financial instrument whose value is derived
from the performance of underlying assets, interest rate and currency
exchange rates, or indices, and include (but are not limited to)
structured debt obligations, interest rate and currency swaps, futures
contracts, options, and forward currency contracts. The Funds may invest
in structured debt obligations for the purpose of mitigating interest
rate risk in the portfolio. Such structured debt obligations have
floating interest rates that reset to various indices, and which reset
at periodic intervals, as disclosed in the accompanying Schedules of
Portfolio Investments. Risks of entering into such transactions include
the potential inability of the dealer to meet their obligations and
unanticipated movements in the value of the security or the underlying
assets or indices. It is possible that the Funds will incur a loss
Continued
B-54
<PAGE> 345
THE SESSIONS GROUP
1ST SOURCE MONOGRAM FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
as a result of their investments in derivative instruments. It is the
Funds' policy, to the extent that there exists no readily available
market for such securities, that the investment will be treated as an
illiquid security for purposes of calculating the Funds' limitation on
investments in illiquid securities as set forth in the Funds' investment
restrictions.
DIVIDENDS TO SHAREHOLDERS:
A dividend for each of the Funds, other than the Special Equity Fund, is
declared monthly at the close of business on the day of declaration and
is paid monthly. A dividend for the Special Equity Fund is declared
quarterly at the close of business on the day of declaration and is paid
quarterly. Distributable net realized capital gains for each fund, if
any, are distributed at least annually. Each such dividend consists of
an amount of accumulated undistributed net investment income of that
Fund as determined necessary or appropriate by the officers of the
Group.
Dividends from net investment income and net realized capital gains are
determined in accordance with Federal income tax regulations which may
differ from generally accepted accounting principles. These differences
are primarily due to differing treatments for net investment losses,
expiring capital loss carry forwards, and deferral of certain losses.
FEDERAL INCOME TAXES:
It is the policy of each of the Funds to qualify as a regulated
investment company by complying with the provisions available to certain
investment companies, as defined in applicable sections of the Internal
Revenue Code, and to make distributions of net investment income and net
realized capital gains sufficient to relieve it from all, or
substantially all, Federal income taxes.
ORGANIZATION COSTS:
All expenses in connection with each Fund's organization and
registration under the 1940 Act and the Securities Act of 1933 were paid
by the Funds. Such expenses are amortized over a period of five years
commencing with the date of the initial public offering.
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding short-term securities) for the
period ended June 30, 1997 are as follows (commencement of operations for
the Funds are September 23, 1996, September 20, 1996, September 24, 1996,
and September 25, 1996 respectively):
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Diversified Equity Fund........................................ $50,518,479 $48,070,875
Special Equity Fund............................................ 46,947,681 32,849,196
Income Fund.................................................... 61,544,273 53,965,465
Income Equity Fund............................................. 17,433,402 12,475,125
</TABLE>
Continued
B-55
<PAGE> 346
THE SESSIONS GROUP
1ST SOURCE MONOGRAM FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
4. RELATED PARTY TRANSACTIONS:
Investment advisory services are provided to the Funds by 1st Source Bank.
Under the terms of the investment advisory agreement, 1st Source Bank is
entitled to receive fees based on a percentage of the average net assets of
each Fund. 1st Source Bank has agreed that if the aggregate expenses of the
Funds, as defined, for any fiscal year exceed limitations of any state
having jurisdiction over the Funds, 1st Source Bank will reimburse to the
Funds, or otherwise bear, such excess. Such limitation did not affect the
calculation of the investment advisory fees during the period ended June
30, 1997.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS"), an Ohio limited partnership, and BISYS Fund Services, Inc.
("BISYS Services") are subsidiaries of The BISYS Group, Inc.
BISYS, with whom certain officers and trustees of the Group are affiliated,
serves the Funds as administrator and distributor. Such officers and
trustees are paid no fees directly by the Funds for serving as officers and
trustees of the Group. Under the terms of the administration agreement,
BISYS's fees are computed daily as a percentage of the average net assets
of each Fund. BISYS Fund Services, Inc. serves the Funds as transfer agent
and mutual fund accountant.
The Group has adopted a Distribution and Shareholder Service Plan in
accordance with Rule 12b-1 under the 1940 Act, pursuant to which each Fund
is authorized to pay or reimburse BISYS, as distributor, a periodic amount,
calculated at an annual rate not to exceed 0.25% of the average net assets
of each Fund. These fees are used by BISYS to pay banks, including 1st
Source Bank, broker dealers and other institutions, or to reimburse BISYS
or its affiliates, for distribution and shareholder services in connection
with the distribution of Fund shares.
The Group has adopted an Administrative Services Plan, pursuant to which
each Fund is authorized to pay compensation to banks and other financial
institutions, which may include 1st Source Bank, its correspondent and
affiliated banks and BISYS, for providing ministerial, record keeping
and/or administrative support services to their customers who are the
beneficial or record owners of a Fund. The compensation which may be paid
under the Administrative Services Plan is a fee computed daily at an annual
rate of up to 0.25% of the average net asset, of each Fund. The Funds have
not implemented such a plan as of June 30, 1997.
BISYS is also entitled to receive commissions on sales of shares of the
Funds. For the period ended June 30, 1997, BISYS received $8,879 from
commissions earned on sales of shares of the Funds, of which $989 was
reallowed to broker/dealers, affiliated with 1st Source Bank.
Continued
B-56
<PAGE> 347
THE SESSIONS GROUP
1ST SOURCE MONOGRAM FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
Fees may be voluntarily reduced to assist the Funds in maintaining
competitive expense ratios. Information regarding these transactions is as
follows for the period ended June 30, 1997:
<TABLE>
<CAPTION>
DIVERSIFIED SPECIAL INCOME
EQUITY EQUITY INCOME EQUITY
FUND FUND FUND FUND
----------- ------- ------- -------
<S> <C> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)........ 1.10% .80% .55% .80%
ADMINISTRATION FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)........ .20% .20% .20% .20%
Voluntary fee reductions.................... -- $ 2,171 -- --
12B-1 FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)........ .25% .25% .25% .25%
Voluntary fee reductions.................... $ 131,653 $52,106 $95,550 $64,714
FUND ACCOUNTING FEES........................ $ 15,798 $ 6,757 $11,464 $ 7,790
TRANSFER AGENT FEES......................... $ 28,892 $22,347 $26,460 $23,797
</TABLE>
5. FEDERAL INCOME TAX INFORMATION (UNAUDITED):
Under current tax law, capital losses realized after October 31 may be
deferred and treated as occuring on the first day of the following fiscal
year. As of June 30, 1997 the Special Equity and Income Funds had deferred
losses of $1,131,589 and $75,294, respectively, which will be treated as
arising on the first day of the fiscal year ending June 30, 1998. At June
30, 1997 the Income Fund has a capital loss carryforward of $93,866 which
is available to offset future capital gains until June 30, 2005.
During the period ended June 30, 1997, the following Funds declared
long-term capital gain distributions in the following amounts:
<TABLE>
<CAPTION>
FUND AMOUNT
---- --------
<S> <C>
Diversified Equity............................................................ $742,374
--------
Special Equity................................................................ $146,202
--------
</TABLE>
Continued
B-57
<PAGE> 348
THE SESSIONS GROUP
1ST SOURCE MONOGRAM FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
The Trust designates the following percentage of distributions eligible for
the dividends received deductions for corporations.
<TABLE>
<CAPTION>
FUND PERCENTAGE
---- ----------
<S> <C>
Diversified Equity......................................... 18.37%
Special Equity............................................. 6.49%
Income Equity.............................................. 28.52%
Income Fund................................................ 3.83%
</TABLE>
6. FINANCIAL INSTRUMENTS:
Investing in financial instruments such as written options involves risk in
excess of the amounts reflected in the Statements of Assets and
Liabilities. The face or contract amounts reflect the extent of the
involvement the Fund have in the particular class of instruments. Risks
associated with these instruments include an imperfect correlation between
the movements in the price of the instruments and the price of the
underlying securities. The Fund enter into these contracts primarily as a
means to hedge against adverse fluctuation in the value of securities.
The following is a summary of written option activity for the period ended
June 30, 1997 by the Income Equity Fund (amounts in thousands):
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNTS
OF CONTRACTS PREMIUMS
------------ ----------
<S> <C> <C>
Balance at beginning of period................................. -- $ --
Option written................................................. 110 11,193
Options closed................................................. -- --
Options exercised.............................................. -- --
--- ----------
Options outstanding at end of period........................... 110 $ 11,193
=== ==========
</TABLE>
<TABLE>
<CAPTION>
SHARES
SUBJECT
TO CONTRACT VALUE
------------ ----------
<S> <C> <C>
Covered Call Options
Options outstanding at end of period consist of:
Electronic Data Systems, $40, August 1997................... 110 $ 33,000
=== ==========
</TABLE>
Continued
B-58
<PAGE> 349
THE SESSIONS GROUP
1ST SOURCE MONOGRAM FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
7. ACQUISITION OF COMMON TRUST FUNDS:
On September 23, 1996, September 20, 1996, September 24, 1996, and
September 25, 1996, the Diversified Equity, Special Equity, Income, and
Income Equity Funds, respectively, acquired all of the assets of the Common
Trust Funds of 1st Source Bank, in a tax-free conversion. The following is
a summary of shares issued, net assets acquired, net asset value per share
and unrealized appreciation (depreciation) as of the respective acquisition
dates:
<TABLE>
<CAPTION>
DIVERSIFIED SPECIAL INCOME
EQUITY EQUITY INCOME EQUITY
FUND FUND FUND FUND
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Shares................................ 6,620,301 2,687,767 4,788,285 3,096,895
Net assets............................ $66,203,008 $26,877,666 $47,882,850 $30,968,953
Net asset value....................... 10.00 10.00 10.00 10.00
Unrealized appreciation
(depreciation)...................... 8,888,125 2,220,445 (900,376) 3,728,143
</TABLE>
Continued
B-59
<PAGE> 350
THE SESSIONS GROUP
1ST SOURCE MONOGRAM FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
DIVERSIFIED
EQUITY SPECIAL EQUITY INCOME INCOME EQUITY
---------------- ---------------- ---------------- ----------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
ENDED ENDED ENDED ENDED
JUNE 30, 1997(a) JUNE 30, 1997(a) JUNE 30, 1997(a) JUNE 30, 1997(a)
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- -------- -------- --------
INVESTMENT ACTIVITIES
Net investment income.................... (0.01) -- 0.44 0.20
Net realized and unrealized
gains(losses) on investments........... 2.03 (0.10)(d) 0.12 2.32
-------- -------- -------- --------
Total from Investment Activities....... 2.02 (0.10) 0.56 2.52
-------- -------- -------- --------
DISTRIBUTIONS
Net investment income.................... -- -- (0.43) (0.19)
Net realized gains....................... (0.22) -- -- (0.05)
In excess of realized gains.............. -- (0.31) -- --
-------- -------- -------- --------
Total Distributions.................... (0.22) (0.31) (0.43) (0.24)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD............. $ 11.80 $ 9.59 $ 10.13 $ 12.28
-------- -------- -------- --------
Total Return (excludes sales charge)....... 20.42%(b) -1.03%(b) 5.71%(b) 25.58%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (000)....... $ 74,990 $ 30,524 $ 54,789 $ 39,196
Ratio of expenses to average net
assets................................. 1.62%(c) 1.39%(c) 1.05%(c) 1.37%(c)
Ratio of net investment income
to average net assets.................. -0.10%(c) 0.05%(c) 5.71%(c) 2.38%(c)
Ratio of expenses to average net
assets*................................ 1.87%(c) 1.65%(c) 1.30%(c) 1.62%(c)
Ratio of net investment income
to average net assets*................. -0.35%(c) -0.21%(c) 5.46%(c) 2.13%(c)
Portfolio Turnover Rate.................. 76.54% 152.81% 118.33% 38.49%
Average Broker Commission Paid........... $ 0.0572(e) $ 0.0941(e) -- $ 0.0988(e)
</TABLE>
- ---------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occured, the ratios would have been as indicated.
(a) Commencement of operations of the Funds began September 23, 1996, September
20, 1996, September 24, 1996, and September 25, 1996 respectively.
(b) Not annualized
(c) Annualized
(d) The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the portfolio of
securities during the period because of the timing of sales and purchases of
Fund shares in relation to fluctuating market values during the period.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged. Pertains to fund with greater than
10% investments in equity.
See notes to financial statements.
B-60
<PAGE> 351
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of
1st Source Monogram Funds
We have audited the accompanying statements of assets and liabilities of the 1st
Source Monogram Funds (comprising, respectively, the Diversified Equity Fund,
Special Equity Fund, Income Fund and Income Equity Fund), including the
schedules of portfolio investments, as of June 30, 1997, and the related
statements of operations, statements of changes in net assets, and financial
highlights for the period then ended. These financial statements and financial
highlights are the responsibility of 1st Source Monogram Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1997, by correspondence with the custodian and brokers or other auditing
procedures where confirmations from brokers were not received. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds comprising the 1st Source Monogram Funds as of June 30,
1997, and the results of their operations, the changes in their net assets and
the financial highlights for the period then ended in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Columbus, Ohio
August 22, 1997
B-61
<PAGE> 352
APPENDIX
COMMERCIAL PAPER RATINGS. Commercial paper ratings of Standard & Poor's
Corporation ("S&P") are current assessments of the likelihood of timely payment
of debt considered short term in the relevant market. Commercial paper rated A-1
by S&P indicates that the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted A-1+. Commercial paper rated A-2 by S&P indicates that capacity for
timely payment on issues is satisfactory. However, the relative degree of safety
is not as high as for issues designated A-1. Commercial paper rated A-3 by S&P
indicates adequate capacity for timely payment. Such paper is, however, more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying the higher designations. Commercial paper rated B by S&P is regarded as
having only speculative capacity for timely payment. Commercial paper rated C by
S&P is regarded as short-term obligations with a doubtful capacity for payment.
Commercial paper rated D by S&P is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period.
Moody's Investors Service, Inc.'s ("Moody's") commercial paper rating
are opinions of the ability of issuers to repay punctually senior debt
obligations which have an original maturity not exceeding one year. The rating
Prime-1 is the highest commercial paper rating assigned by Moody's. Issuers
rated Prime-1 (or supporting institutions) are considered to have a superior
capacity for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics of Prime-1 rated issuers, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variations. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. The effects of industry
characteristics and market composition may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and the requirement for relatively high financial leverage.
Adequate
A-1
<PAGE> 353
alternate liquidity is maintained. Issuers rated Not Prime do not fall within
any of the Prime rating categories.
Commercial paper rated F-1+ by Fitch Investors Service ("Fitch") is
regarded as having the strongest degree of assurance for timely payments.
Commercial paper rated F-1 by Fitch is regarded as having an assurance of timely
payment only slightly less than the strongest rating, I.E., F-1+. Commercial
paper rated F-2 by Fitch is regarded as having a satisfactory degree of
assurance of timely payment, but the margin of safety is not as great as for
issues assigned F-1+ or F-1 ratings. Commercial paper rated F-3 by Fitch is
regarded as having characteristics suggesting that the degree of assurance for
timely payment is adequate, however, near-term adverse changes could cause these
securities to be rated below investment grade. Commercial paper rated F-S by
Fitch is regarded as having characteristics suggesting a minimal degree of
assurance for timely payment and is vulnerable to near term adverse changes in
financial and economic conditions. Commercial paper rated D by Fitch is in
actual or imminent payment default.
The description of the three highest short-term debt ratings by Duff &
Phelps, Inc. ("Duff") (Duff incorporates gradations of "1+" (one plus) and "1-"
(one minus) to assist investors in recognizing quality differences within the
highest rating category) are as follows. Duff 1+ is regarded as having the
highest certainty of timely payment. Short-term liquidity, including internal
operating factors and/or access to alternative sources of funds, is outstanding,
and safety is just below risk-free U.S. Treasury short-term obligations. Duff 1
is regarded as having a very high certainty of timely payment. Liquidity factors
are excellent and supported by good fundamental protection factors. Risk factors
are minor. Duff 1- is regarded as having a high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are minor. Duff 2 is regarded as having a good certainty
of timely payment. Liquidity factors and company fundamentals are sound.
Although ongoing funding needs may enlarge total financing requirements, access
to capital markets is good. Risk factors are small. Duff 3 is regarded as having
a satisfactory liquidity and other protection factors qualify issue as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected. Duff 4 is considered as having
speculative investment characteristics. Liquidity is not sufficient to insure
against disruption in debt service. Operating factors and market access may be
subject to a high degree of variation. Duff 5 indicates that the issuer has
failed to meet scheduled principal and/or interest payments.
Commercial paper rated A1 by IBCA Limited and its affiliate, IBCA Inc.
(collectively "IBCA") is regarded by IBCA as obligations supported by the
highest capacity for timely repayment. Where
A-2
<PAGE> 354
issues possess a particularly strong credit feature, a rating of A1+ is
assigned. Obligations rated A2 are supported by a good capacity for timely
repayment. Obligations rated A3 are supported by a satisfactory capacity for
timely repayment. Obligations rated B are those for which there is an
uncertainty as to the capacity to ensure timely repayment. Obligations rated C
are those for which there is a high risk of default or which are currently in
default.
The following summarizes the description of the three highest
short-term ratings of Thomson BankWatch, Inc. ("Thomson"). TBW-1 is the highest
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis. TBW-2 is the second highest category indicating that
while the degree of safety regarding timely repayment of principal and interest
is strong, the relative degree of safety is not as high as for issues rated
"TBW-1." TBW-3 is the lowest investment grade category and indicates that while
more susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest in a
timely fashion is considered adequate. TBW-4 is the lowest rating category and
is regarded as non-investment grade and therefore speculative.
The plus (+) sign is used after a rating symbol to designate the
relative position of an issuer within the rating category.
CORPORATE DEBT RATINGS. A S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong. Debt rated AA has a very
strong capacity to pay interest and to repay principal and differs from the
highest rated issues only in small degree. Debt rated A has a strong capacity to
pay interest and repay principal although it is somewhat more susceptible to
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories.
The following summarizes the three highest ratings used by Moody's for
corporate debt. Bonds that are rated Aaa by Moody's are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Bonds
that are rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear
A-3
<PAGE> 355
somewhat larger than in Aaa securities. Bonds that are rated A by Moody's
possess many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment some time in the future.
Moody's applies numerical modifiers (1, 2, and 3) with respect to bonds
rated Aa through A. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category.
The following summarizes the three highest long-term debt ratings by
Duff. Debt rated AAA has the highest credit quality. The risk factors are
negligible being only slightly more than for risk-free U.S. Treasury debt. Debt
rated AA has a high credit quality and protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
Debt rated A has protection factors that are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
To provide more detailed indications of credit quality, the ratings
from AA to A may be modified by the addition of a plus or minus sign to show
relative standing within this major rating category.
The following summarizes the three highest long-term debt ratings by
Fitch (except for AAA ratings, plus or minus signs are used with a rating symbol
to indicate the relative position of the credit within the rating category).
Bonds rated AAA are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events. Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issues is generally
rated "F-1+." Bonds rated as A are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
The following summarizes IBCA's three highest long-term debt ratings.
Obligations rated AAA are those for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that
A-4
<PAGE> 356
adverse changes in business, economic or financial conditions are unlikely to
increase investment risk significantly. Obligations rated AA are those for which
there is a very low expectation of investment risk. Capacity for timely
repayment of principal and interest is substantial. Adverse changes in business,
economic, or financial conditions may increase investment risk albeit not very
significantly. Obligations rated A are those for which there is a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk.
The following summarizes Thomson's description of its three highest
long-term debt ratings (Thomson may include a plus (+) or minus (-) designation
to indicate where within the respective category the issue is placed). AAA is
the highest category and indicates that the ability to repay principal and
interest on a timely basis is very high. AA is the second highest category and
indicates a superior ability to repay principal and interest on a timely basis
with limited incremental risk versus issues rated in the highest category. A is
the third highest category and indicates the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
Municipal Obligations Ratings
- -----------------------------
The following summarizes the three highest ratings used by Moody's for
state and municipal short-term obligations. Obligations bearing MIG-1 or VMIG-1
designations are of the best quality, enjoying strong protection by established
cash flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing. Obligations rated MIG-2 or VMIG-2 denote high quality
with ample margins of protection although not so large as in the preceding
rating group. Obligations bearing MIG-3 or VMIG-3 denote favorable quality. All
security elements are accounted for but there is lacking the undeniable strength
of the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
S&P SP-1, SP-2, and SP-3 municipal note ratings (the three highest
ratings assigned) are described as follows:
"SP-1": Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming
safety characteristics will be given a plus (+) designation.
"SP-2": Satisfactory capacity to pay principal and interest.
A-5
<PAGE> 357
"SP-3": Speculative capacity to pay principal and interest.
The following summarizes the three highest ratings used by Moody's for
state and municipal bonds:
"Aaa": Bonds judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Aa": Bonds judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa
securities.
"A": Bonds which possess many favorable investment attributes
and are to be considered as upper medium-grade obligations.
Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the future.
The following summarizes the three highest ratings used by S&P for
state and municipal bonds:
"AAA": Debt which has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
"AA": Debt which has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues
only in small degree.
"A": Debt which has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
A-6
<PAGE> 358
Definitions of Certain Money Market Instruments
Commercial Paper
Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
Certificates of Deposit
Certificates of Deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return.
Bankers' Acceptances
Bankers' acceptances are negotiable drafts or bills of exchange,
normally drawn by an importer or exporter to pay for specific merchandise, which
are "accepted" by a bank, meaning, in effect, that the bank unconditionally
agrees to pay the face value of the instrument on maturity.
U.S. Treasury Obligations
U.S. Treasury Obligations are obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Government. These obligations may include Treasury bills, notes and bonds, and
issues of agencies and instrumentalities of the U.S. Government, provided such
obligations are guaranteed as to payment of principal and interest by the full
faith and credit of the U.S. Government.
U.S. Government Agency and Instrumentality Obligations
Obligations of the U.S. Government include Treasury bills, certificates
of indebtedness, notes and bonds, and issues of agencies and instrumentalities
of the U.S. Government, such as the Government National Mortgage Association,
the Tennessee Valley Authority, the Farmers Home Administration, the Federal
Home Loan Banks, the Federal Intermediate Credit Banks, the Federal Farm Credit
Banks, the Federal Land Banks, the Federal Housing Administration, the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation, and
the Student Loan Marketing Association. Some of these obligations, such as those
of the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Student Loan Marketing Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others, such as those of the Federal
A-7
<PAGE> 359
Farm Credit Banks, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government- sponsored instrumentalities if it is not obligated to do so
by law.
A-8
<PAGE> 360
THE KEYPREMIER PRIME MONEY MARKET FUND
THE KEYPREMIER PENNSYLVANIA MUNICIPAL BOND FUND
THE KEYPREMIER ESTABLISHED GROWTH FUND
THE KEYPREMIER INTERMEDIATE TERM INCOME FUND
THE KEYPREMIER AGGRESSIVE GROWTH FUND
THE KEYPREMIER U.S. TREASURY OBLIGATIONS MONEY MARKET FUND
THE KEYPREMIER LIMITED DURATION GOVERNMENT SECURITIES FUND
Seven Investment Portfolios of
THE SESSIONS GROUP
Statement of Additional Information
October 31, 1997
This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the prospectuses (the "Prospectuses") of The
KeyPremier Prime Money Market Fund (the "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"), The KeyPremier
Aggressive Growth Fund (the "Aggressive Growth Fund"), 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 Prime Money Market
Fund, the Pennsylvania Bond Fund, the Established Growth Fund, the Income Fund,
the Aggressive Growth Fund, 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 seven of seventeen funds of The Sessions
Group, an Ohio business trust (the "Group"). This Statement of Additional
Information is incorporated in its entirety into each Fund's Prospectus. Copies
of the Funds' Prospectuses may be obtained by writing the Group at 3435 Stelzer
Road, Columbus, Ohio 43219, or by telephoning toll free (800) 766-3960.
<PAGE> 361
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
----
<S> <C>
THE SESSIONS GROUP................................................................................... B-1
INVESTMENT OBJECTIVES AND POLICIES................................................................... B-1
Additional Information on Portfolio Instruments............................................. B-1
Investment Restrictions..................................................................... B-19
Portfolio Turnover.......................................................................... B-21
NET ASSET VALUE...................................................................................... B-21
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION....................................................... B-22
MANAGEMENT AND SERVICE PROVIDERS OF THE GROUP........................................................ B-23
Trustees and Officers....................................................................... B-23
Investment Adviser.......................................................................... B-26
Portfolio Transactions...................................................................... B-27
Glass-Steagall Act.......................................................................... B-30
Administrator............................................................................... B-31
Distributor................................................................................. B-33
Administrative Services Plan................................................................ B-34
Custodian................................................................................... B-34
Transfer Agency and Fund Accounting Services................................................ B-34
Auditors.................................................................................... B-37
Legal Counsel............................................................................... B-37
ADDITIONAL INFORMATION............................................................................... B-37
Description of Shares....................................................................... B-37
Vote of a Majority of the Outstanding Shares................................................ B-38
Additional General Tax Information.......................................................... B-39
Additional Tax Information With Respect to
the Pennsylvania Bond Fund.................................................................. B-42
Seven-Day and 30-Day Yields of the Prime Money Market
Fund and the Treasury Money Market Fund..................................................... B-47
30-Day Yield of the Funds................................................................... B-47
Calculation of Total Return................................................................. B-49
Distribution Rates.......................................................................... B-51
Performance Comparisons..................................................................... B-51
Miscellaneous............................................................................... B-52
FINANCIAL STATEMENTS................................................................................. B-53
APPENDIX............................................................................................. A-1
</TABLE>
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STATEMENT OF ADDITIONAL INFORMATION
THE SESSIONS GROUP
The Sessions Group (the "Group") is an open-end management investment
company which currently offers seventeen separate investment portfolios. This
Statement of Additional Information covers seven of those portfolios, the Prime
Money Market Fund, the Established Growth Fund, the Income Fund, the Aggressive
Growth Fund, the Treasury Money Market Fund and the Government Securities Fund,
each of which is considered to be a diversified portfolio, and the Pennsylvania
Bond Fund, which is considered to be a non-diversified portfolio.
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectuses. Capitalized
terms not defined herein are defined in the relevant Prospectus. No investment
in Shares of any Fund should be made without first reading such Fund's
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 their respective Prospectuses.
BANK OBLIGATIONS. Each Fund, other than the Treasury Money Market Fund
and the Government Securities Fund, may invest in bank obligations such as
bankers' acceptances, certificates of deposit, and demand and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Bankers' acceptances invested in by the Funds will be those guaranteed by
domestic and foreign banks having, at the time of investment, capital, surplus,
and undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements).
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return. Certificates of deposit
and demand and time deposits will be those of domestic and foreign banks and
savings and loan associations, if (a) at the time of investment the depository
institution has capital, surplus, and undivided profits in excess of
$100,000,000 (as of the date of its most recently published financial
statements), or (b) the principal amount of the
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instrument is insured in full by the Federal Deposit Insurance Corporation.
The Prime Money Market Fund may also invest in Eurodollar Certificates
of Deposit, which are U.S. dollar denominated certificates of deposit issued by
offices of foreign and domestic banks located outside the United States; Yankee
Certificates of Deposit, which are certificates of deposit issued by a U.S.
branch of a foreign bank denominated in U.S. dollars and held in the United
States; Eurodollar Time Deposits ("ETDs"), which are U.S. dollar denominated
deposits in a foreign branch of a U.S. bank or a foreign bank; and Canadian Time
Deposits, which are basically the same as ETDs except they are issued by
Canadian offices of major Canadian banks.
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory
notes issued by corporations. Except as noted below with respect to variable
amount master demand notes, issues of commercial paper normally have maturities
of less than nine months and fixed rates of return.
The Funds, other than the Treasury Money Market Fund and the Government
Securities Fund, will purchase commercial paper consisting of issues rated at
the time of purchase by one or more appropriate nationally recognized
statistical rating organizations ("NRSRO") (e.g., Standard & Poor's Corporation
("S&P") and Moody's Investors Service, Inc. ("Moody's")) in one of the two
highest rating categories for short-term debt obligations. Each such Fund may
also invest in commercial paper that is not rated but that is determined by the
Adviser to be of comparable quality to instruments that are so rated by an NRSRO
that is neither controlling, controlled by, or under common control with the
issuer of, or any issuer, guarantor, or provider of credit support for, the
instruments. For a description of the rating symbols of the NRSROs, see the
Appendix. The Prime Money Market Fund may also invest, subject to the foregoing
quality criteria, in Canadian Commercial Paper, which is commercial paper issued
by a Canadian corporation or a Canadian counterpart of a U.S. corporation
("CCP"), and in Europaper, which is U.S. dollar denominated commercial paper of
a foreign issuer.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes in which the Prime Money Market Fund, the Pennsylvania Bond Fund and the
Income Fund may invest are unsecured demand notes that permit the indebtedness
thereunder to vary and provide for periodic adjustments in the interest rate
according to the terms of the instrument. Because master demand notes are direct
lending arrangements between a Fund and the issuer, they are not normally
traded. Although there is no secondary market in the notes, the Fund may demand
payment of principal and accrued interest at any time within 30 days. While such
notes are not typically rated by
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credit rating agencies, issuers of variable amount master demand notes (which
are normally manufacturing, retail, financial and other business concerns), must
satisfy, for purchase by a Fund, the same criteria as set forth above for
commercial paper. The Adviser will consider the earning power, cash flow, and
other liquidity ratios of the issuers of such notes and will continuously
monitor their financial status and ability to meet payment on demand. In
determining average weighted portfolio maturity, a variable amount master demand
note will be deemed to have a maturity equal to the longer of the period of time
remaining until the next interest rate adjustment or the period of time
remaining until the principal amount can be recovered from the issuer through
demand.
FOREIGN INVESTMENT. Investments in securities issued by foreign
branches of U.S. banks, foreign banks, or other foreign issuers, including ADRs,
may subject a Fund to investment risks that differ in some respects from those
related to investment in obligations of U.S. domestic issuers or in U.S.
securities markets. Such risks include future adverse political and economic
developments, possible seizure, nationalization, or expropriation of foreign
investments, less stringent disclosure requirements, the possible establishment
of exchange controls or taxation at the source, or the adoption of other foreign
governmental restrictions. A Fund will acquire such securities only when the
Adviser believes the risks associated with such investments are minimal.
U.S. GOVERNMENT OBLIGATIONS. Each Fund may invest in obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
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,
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"Stripped Treasury Securities"); and in repurchase agreements collateralized by
such securities. Stripped Treasury Securities will include (1) coupons that have
been stripped from U.S. Treasury bonds, which may be held through the Federal
Reserve Bank's book-entry system called "Separate Trading of Registered Interest
and Principal of Securities" ("STRIPS") or through a program entitled "Coupon
Under Book-Entry Safekeeping" ("CUBES").
Treasury bills have maturities of one year or less; Treasury notes have
maturities of one to ten years and Treasury bonds generally have maturities of
greater than ten years. Stripped Treasury Securities are sold at a deep discount
because the buyer of those securities receives only the right to receive a
future fixed payment (representing principal or interest) on the security and
does not receive any rights to periodic interest payments on the security.
EXEMPT SECURITIES. As stated in its Prospectus, the assets of the
Pennsylvania Bond Fund will be primarily invested in Exempt Securities. Under
normal market conditions, at least 80% of the net assets of the Pennsylvania
Bond Fund will be invested in Exempt Securities and 65% of the Pennsylvania Bond
Fund's net assets will be invested in Pennsylvania Exempt Securities.
Exempt Securities include debt obligations issued by governmental
entities to obtain funds for various public purposes, such as the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to other
public institutions and facilities. Private activity bonds that are issued by or
on behalf of public authorities to finance various privately-operated facilities
are included within the term Exempt Securities, ONLY if the interest paid
thereon is exempt from both Pennsylvania income taxes and federal taxes,
although such interest may be treated as a preference item for purposes of the
federal alternative minimum tax.
Among other types of Exempt Securities, the Pennsylvania Bond Fund may
purchase short-term General Obligation Notes, Tax Anticipation Notes, Bond
Anticipation Notes, Revenue Anticipation Notes, Project Notes, Tax-Exempt
Commercial Paper, Construction Loan Notes and other forms of short-term
tax-exempt loans. Such instruments are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues. In addition, the Pennsylvania Bond Fund may invest in other
types of tax-exempt instruments, such as municipal bonds, private activity
bonds, and pollution control bonds.
Project Notes are issued by a state or local housing agency and are
sold by the Department of Housing and Urban Development. While the issuing
agency has the primary obligation with respect to
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its Project Notes, they are also secured by the full faith and credit of the
United States through agreements with the issuing authority which provide that,
if required, the federal government will lend the issuer an amount equal to the
principal of and interest on the Project Notes.
As described in the Prospectus of the Pennsylvania Bond Fund, the two
principal classifications of Exempt Securities consist of "general obligation"
and "revenue" issues. The Pennsylvania Bond Fund may also acquire "moral
obligation" issues, which are normally issued by special purpose authorities.
There are, of course, variations in the quality of Exempt Securities, both
within a particular classification and between classifications, and the yields
on Exempt Securities depend upon a variety of factors, including the financial
condition of the issuer, general conditions of the municipal bond market, the
size of a particular offering, the maturity of the obligation and the rating of
the issue. Ratings represent the opinions of an NRSRO as to the quality of
Exempt Securities. It should be emphasized, however, that ratings are general
and are not absolute standards of quality, and Exempt Securities with the same
maturity, interest rate and rating may have different yields, while Exempt
Securities of the same maturity and interest rate with different ratings may
have the same yield. Subsequent to purchase, an issue of Exempt Securities may
cease to be rated or its rating may be reduced below the minimum rating required
for purchase. The Adviser will consider such an event in determining whether the
Pennsylvania Bond Fund should continue to hold the obligation.
An issuer's obligations under its Exempt Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the federal bankruptcy code, and laws, if any,
which may be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
the enforcement of such obligations or upon the ability of municipalities to
levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Exempt Securities may be materially
adversely affected by litigation or other conditions.
VARIABLE AND FLOATING RATE 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
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approximates its par value or amortized cost, as the case may be. Such
securities, that are not obligations of the U.S. Government or its agencies or
instrumentalities, are frequently not rated by credit rating agencies; however,
unrated variable and floating rate securities purchased by a Fund will be
determined by the Adviser to be of comparable quality at the time of purchase to
rated instruments eligible for purchase under that Fund's investment policies.
In making such determinations, the Adviser will consider the earning power, cash
flow and other liquidity ratios of the issuers of such securities (such issuers
include financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. Although there may be no active
secondary market with respect to a particular variable or floating rate security
purchased by a Fund, the Fund may resell the security at any time to a third
party. The absence of an active secondary market, however, could make it
difficult for the Fund to dispose of a variable or floating rate security in the
event the issuer of the security defaulted on its payment obligations and the
Fund could, as a result or for other reasons, suffer a loss to the extent of the
default. To the extent that there exists no readily available market for such
security and the Fund is not entitled to receive the principal amount of a
security within seven days, such a security will be treated as an illiquid
security for purposes of calculation of that Fund's limitation on investments in
illiquid securities, as set forth in its investment restrictions. Variable or
floating rate securities may be secured by bank letters of credit.
Variable or floating rate securities invested in by the Prime Money
Market Fund and the Treasury Money Market Fund may have maturities of more than
397 days, as follows:
1. An instrument that is issued or guaranteed by the United States
Government or any agency thereof which has a variable rate of interest
readjusted no less frequently than every 762 days is deemed by the Fund to have
a maturity equal to the period remaining until the next readjustment of the
interest rate.
2. A variable rate note, the principal amount of which is scheduled on
the face of the instrument to be paid in 397 calendar days or less, is deemed by
the Fund to have a maturity equal to the earlier of the period remaining until
the next readjustment of the interest rate or the period remaining until the
principal amount can be recovered through demand.
3. A variable rate note that is subject to a demand feature is deemed
by the Fund to have a maturity equal to the longer of the period remaining until
the next readjustment of the interest rate or the period remaining until the
principal amount can be recovered through demand.
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4. A floating rate note which has a remaining maturity of 397 days or
less is deemed by the Fund to have a maturity of one day. A floating rate note
that has a remaining maturity of more than 397 days and is subject to a demand
feature is deemed by the Fund to have a maturity equal to the period remaining
until the principal amount can be recovered through demand.
As used above, a note is "subject to a demand feature" where the Fund
is entitled to receive the principal amount of the security either at any time
on no more than thirty days' notice or at specific intervals not exceeding 397
days and upon no more than 30 days' notice.
MUNICIPAL LEASE OBLIGATIONS. Municipal lease obligations or installment
purchase contract obligations (collectively, "lease obligations") have special
risks not ordinarily associated with Exempt Securities. Although lease
obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a lease obligation ordinarily is
based by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
The staff of the Commission currently considers certain lease obligations to be
illiquid. Determination as to the liquidity of such securities is made in
accordance with guidelines established by the Group's Board of Trustees.
Pursuant to such guidelines, the Board of Trustees has directed the Adviser to
monitor carefully the Pennsylvania Bond Fund's investment in such securities
with particular regard to (1) the frequency of trades and quotes for the lease
obligation; (2) the number of dealers willing to purchase or sell the lease
obligations and the number of other potential buyers; (3) the willingness of
dealers to undertake to make a market in the lease obligation; (4) the nature of
the marketplace trades including the time needed to dispose of the lease
obligation, the method of soliciting offers and the mechanics of transfer; and
(5) such other factors concerning the trading market for the lease obligation as
the Adviser may deem relevant. In addition, in evaluating the liquidity and
credit quality of a lease obligation that is unrated, the Group's Board of
Trustees has directed the Adviser to consider (a) whether the lease can be
cancelled; (b) what assurance there is that the assets represented by the lease
can be sold; (c) the strength of the lessee's general credit (e.g., its debt,
administrative, economic and financial characteristics); (d) the likelihood that
the municipality will discontinue appropriating funding for the leased property
because the property is no longer deemed essential to the
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operations of the municipality (e.g., the potential for an event of
"non-appropriation"); (e) the legal recourse in the event of failure to
appropriate; and (f) such other factors concerning credit quality as the Adviser
may deem relevant. The Pennsylvania Bond Fund will not invest more than 15% of
the value of its net assets in lease obligations that are illiquid and in other
illiquid securities.
RESTRICTED SECURITIES. Securities in which the Income Fund and the
Aggressive Growth Fund may invest include securities issued by corporations
without registration under the Securities Act of 1933, as amended (the "1933
Act"), such as securities issued in reliance on the so-called "private
placement" exemption from registration which is afforded by Section 4(2) of the
1933 Act ("Section 4(2) securities"). Section 4(2) securities are restricted as
to disposition under the Federal securities laws, and generally are sold to
institutional investors such as a Fund who agree that they are purchasing the
securities for investment and not with a view to public distribution. Any resale
must also generally be made in an exempt transaction. Section 4(2) securities
are normally resold to other institutional investors through or with the
assistance of the issuer or investment dealers who make a market in such Section
4(2) securities, thus providing liquidity. Any such restricted securities will
be considered to be illiquid for purposes of a Fund's limitations on investments
in illiquid securities unless, pursuant to procedures adopted by the Board of
Trustees of the Group, the Adviser has determined such securities to be liquid
because such securities are eligible for resale under Rule 144A under the 1933
Act and are readily saleable. The Income Fund and the Aggressive Growth Fund
will each limit its investment in Section 4(2) securities to not more than 10%
and 5%, respectively, of its net assets.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The Income Fund and 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. In addition, the Income Fund
may also invest in mortgage-related securities issued by non-governmental
entities.
Mortgage-backed securities, for purposes of the Income Fund's and the
Government Securities Fund's Prospectus and this Statement of Additional
Information, represent pools of mortgage loans assembled for sale to investors
by various governmental agencies such as the Government National Mortgage
Association and government-related organizations such as the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation, as well as
by nongovernmental issuers such as commercial banks, savings and loan
institutions, mortgage bankers and private mortgage insurance companies in the
case of the Income
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Fund. Although certain mortgage-related securities are guaranteed by a third
party or otherwise similarly secured, the market value of the security, which
may fluctuate, is not so secured. If a Fund purchases a mortgage-related
security at a premium, that portion may be lost if there is a decline in the
market value of the security whether resulting from changes in interest rates or
prepayments in the underlying mortgage collateral. As with other
interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true, since in periods of declining interest rates the mortgages
underlying the securities are prone to prepayment, thereby shortening the
average life of the security and shortening the period of time over which income
at the higher rate is received. Conversely, when interest rates are rising, the
rate of prepayment tends to decrease, thereby lengthening the average life of
the security and lengthening the period of time over which income at the lower
rate is received. For these and other reasons, a mortgage-related security's
average 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 a 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 a Fund will receive when these amounts are
reinvested.
The Income Fund may invest in mortgage-backed securities which are
collateralized mortgage obligations ("CMOs") structured on pools of mortgage
pass-through certificates or mortgage loans. Mortgage-backed securities will be
purchased only if rated in the four highest bond rating categories assigned by
one or more appropriate NRSROs, or, if unrated, which the Adviser deems to be of
comparable quality to securities so rated.
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
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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.
Mortgage-backed and asset-based 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 a 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 a Fund purchases these securities at a
discount, faster than expected prepayments will increase, while slower than
expected prepayments will reduce, yield to maturity. The Income Fund may invest
a portion of its assets in derivative mortgage-backed securities such as
stripped mortgage-backed securities which are highly sensitive to changes in
prepayment and interest rates. The Adviser will seek to manage these risks (and
potential benefits) by investing in a variety of such securities and through
hedging techniques.
Mortgage-backed securities and asset-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 and asset-backed securities.
Although the extent of prepayments on a pool of mortgage loans depends
on various economic and other factors, as a general rule
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prepayments on fixed rate mortgage loans will increase during a period of
declining interest rates. Accordingly, amounts available for reinvestment by a
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. Asset-backed securities, although less likely
to experience the same prepayment rates as mortgage-backed securities, may
respond to certain of the same factors influencing prepayments, while at other
times different factors, such as changes in credit use and payment patterns
resulting from social, legal and economic factors, will predominate.
Mortgage-backed securities and asset-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.
There are certain risks associated specifically with CMOs. CMOs issued
by private entities are not U.S. government securities and are not guaranteed by
any government agency, although the securities underlying a CMO may be subject
to a guarantee. Therefore, if the collateral securing the CMO, as well as any
third party credit support or guarantees, is insufficient to make payment, the
holder could sustain a loss. However, as stated above, the Income Fund will
invest only in CMOs which are rated in one of the four highest rating categories
by an NRSRO or, if unrated, are determined to be of comparable quality. Also, a
number of different factors, including the extent of prepayment of principal of
the underlying obligations, affect the availability of cash for principal
payments by the CMO issuer on any payment date and, accordingly, affect the
timing of principal payments on each CMO class.
Asset-backed securities involve certain risks that are not posed by
mortgage-backed securities, resulting mainly from the fact that asset-backed
securities do not usually contain the complete benefit of a security interest in
the related collateral. For example, credit card receivables generally are
unsecured, and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, some of which may reduce the ability to obtain
full payment. In case of automobile receivables, due to various legal and
economic factors, proceeds from repossessed collateral may not always be
sufficient to support payments on these securities.
The cash flows and yields on IOs and POs are extremely sensitive to the
rate of principal payments (including prepayments) on the related underlying
obligations. For example, a rapid or slow rate of principal payments may have a
material adverse effect on the yield of IOs or POs, respectively. If the
underlying obligations experience greater than anticipated prepayments of
principal, an investor may fail to recoup fully its initial
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investment in an IO. Furthermore, if the underlying obligations experience
slower than anticipated prepayments of principal, the yield of a PO will be
affected more severely than would be the case with a traditional mortgage-backed
security. IOs and POs have exhibited large price changes in response to changes
in interest rates and are considered to be volatile in nature.
WHEN-ISSUED SECURITIES. As discussed in the Prospectuses, each Fund may
purchase securities on a "when-issued" basis (I.E., for delivery beyond the
normal settlement date at a stated price and yield). When a Fund agrees to
purchase securities on a "when- issued" basis, the Fund's custodian will set
aside cash or liquid 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 the manner described above, such Fund's liquidity and the ability
of the Adviser to manage it might be affected in the event its commitments to
purchase "when-issued" securities ever exceeded 25% of its total assets. Under
normal market conditions, however, each Fund's commitment to purchase
"when-issued" or "delayed-delivery" securities will not exceed 25% of its total
assets.
When a Fund engages in "when-issued" transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in
that Fund's incurring a loss or missing the opportunity to obtain a price
considered to be advantageous. Each Fund will engage in "when-issued" delivery
transactions only for the purpose of acquiring portfolio securities consistent
with such Fund's investment objectives and policies and not for investment
leverage. If the Pennsylvania Bond Fund sells a "when-issued" or
"delayed-delivery" security before delivery, any gain would not be tax-exempt.
REAL ESTATE INVESTMENT TRUSTS. The Aggressive Growth Fund may invest in
equity REITs. REITs pool investors' funds for investment primarily in commercial
real estate properties. Investment in REITs may subject the Aggressive Growth
Fund to certain risks. REITs may be affected by changes in the value of the
underlying property owned by the trust. REITs are dependent upon specialized
management skill, may not be diversified and are subject to the risks of
financing projects. REITs are also subject to heavy cash flow dependency,
defaults by borrowers, self liquidation and the possibility of failing to
qualify for the beneficial tax treatment
B-12
<PAGE> 374
available to REITs under the Internal Revenue Code and to maintain its exemption
from the 1940 Act. As a shareholder in a REIT, the Aggressive Growth Fund would
bear, along with other shareholders, its pro rata portion of the REIT's
operating expenses. These expenses would be in addition to the advisory and
other expenses the Aggressive Growth Fund bears directly in connection with its
own operations.
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 Prospectuses, each
Fund may borrow funds by entering into reverse repurchase agreements in
accordance with its investment restrictions. Pursuant to such agreements, a Fund
would sell portfolio securities to financial institutions such as banks and
broker-dealers, and agree to repurchase the securities at a mutually agreed-upon
date and price. At the time a Fund enters into a reverse repurchase agreement,
it will place in a segregated custodial account assets such as U.S. Government
securities or other liquid 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.
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<PAGE> 375
Reverse repurchase agreements are considered to be borrowings by a Fund under
the 1940 Act and therefore a form of leveraging.
LOWER RATED BONDS. The Pennsylvania Bond Fund and the Income Fund are
each permitted to invest in securities rated Ba and B by Moody's or BB and B by
another appropriate NRSRO. Such bonds, though higher yielding, are characterized
by risk. See the Appendix hereto for a general description of NRSRO ratings of
debt obligations. Although ratings may be useful in evaluating the safety of
interest and principal payments, they do not evaluate the market value risk of
these bonds. A Fund will rely on the Adviser's judgment, analysis and experience
in evaluating the creditworthiness of an issuer.
Investors should be aware that the market values of many of these bonds
tend to be more sensitive to economic conditions than are higher rated
securities. These bonds generally are considered by S&P and Moody's to be, on
balance, predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation and generally
will involve more credit risk than securities in the higher rating categories.
Because there is no established retail secondary market for many of
these securities, such Funds anticipate that such securities could be sold only
to a limited number of dealers or institutional investors. To the extent a
secondary trading market for these bonds does exist, it generally is not as
liquid as the secondary market for higher rated securities. The lack of a liquid
secondary market may have an adverse impact on market price and yield and that
Fund's ability to dispose of particular issues when necessary to meet its
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for such
a Fund to obtain accurate market quotations for purposes of valuing that Fund's
portfolio and calculating its net asset value. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of these securities. In such cases, judgment may play a
greater role in valuation because less reliable objective data may be available.
These bonds may be particularly susceptible to economic downturns. It
is likely that any economic recession could severely disrupt the market for such
securities and may have an adverse impact on the value of such securities. In
addition, it is likely that any such economic downturn could adversely affect
the ability of the issuers of such securities to repay principal and pay
interest thereon and increase the incidence of default of such securities.
B-14
<PAGE> 376
The Income and Pennsylvania Funds may acquire these bonds during an
initial offering. Such securities may involve special risks because they are new
issues. Such Funds have no arrangement with any persons concerning the
acquisition of such securities, and the Adviser will review carefully the credit
and other characteristics pertinent to such new issues.
The credit risk factors pertaining to lower rated securities also apply
to lower rated zero coupon securities in which such Funds may invest. Zero
coupon bonds carry an additional risk in that, unlike bonds which pay interest
through the period to maturity, a Fund will realize no cash until the cash
payment date unless a portion of such securities are sold and, if the issuer
defaults, the Fund may obtain no return at all on its investment.
SHORT SALES. Each of the Pennsylvania Bond Fund, the Income Fund and
the Government Securities Fund may 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 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 Fund must borrow the security, and the
Fund is obligated to return the security to the lender, which is accomplished by
a later purchase of the security by that Fund. The frequency of short sales will
vary substantially in different periods, and it is not intended that any
specified portion of a Fund's assets will as a matter of practice be invested in
short sales.
At any time that a Fund has an open short sale position, such Fund is
required to segregate with its custodian (and to maintain such amount until the
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
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, a Fund will not gain any leverage merely by selling short, except
to the extent that it earns interest on the immobilized cash or 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 Fund with
such Fund's custodian may not at any time be more than 25% of that Fund's net
assets. These deposits do not have the effect of limiting the amount of money
the Fund may lose on a short sale -- a Fund's possible losses may exceed the
total amount of deposits.
A 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
B-15
<PAGE> 377
and the date on which the Fund purchases the security to replace the borrowed
security. A 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 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 Fund's investment in the security. For example, if a Fund
purchases a $10 security short, the most that can be lost is $10. However, if a
Fund sells a $10 security short, it may have to purchase the security for return
to the lender when the market value is $50, thereby incurring a loss of $40.
HEDGING TRANSACTIONS. Hedging transactions, including the use of
options and futures, in which certain of the Funds are authorized to engage as
described in their respective Prospectuses, have risks associated with them
including possible default by the other party to the transaction, illiquidity
and, to the extent the Adviser's view as to certain market movements is
incorrect, the risk that the use of such hedging transactions could result in
losses greater than if they had not been used.
Use of put and call options may result in losses to a Fund, force the
sale or purchase of portfolio securities at inopportune times or for prices
higher than (in the case of put options) or lower than (in the case of call
options) current market values, limit the amount of appreciation a Fund can
realize on its investments or cause a Fund to hold a security it might otherwise
sell. The use of options and futures transactions entails certain other risks.
In particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of a
Fund create the possibility that losses on the hedging instrument may be greater
than gains in the value of such Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Funds might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of hedging transactions would reduce net asset
value, and possible income, and such losses can be greater than if the hedging
transactions had not been utilized.
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<PAGE> 378
GENERAL CHARACTERISTICS OF OPTIONS. Put options and call options
typically have similar structural characteristics and operational mechanics
regardless of the underlying instrument on which they are purchased or sold.
Thus, the following general discussion relates to each of the particular types
of options discussed in greater detail in the applicable Prospectuses and below.
In addition, many hedging transactions involving options require segregation of
a Fund's assets in special accounts, as described further below.
With certain exceptions, exchange-listed options generally settle by
physical delivery of the underlying security or currency, although in the future
cash settlement may become available. Index options are cash settled for the net
amount, if any, by which the option is "in-the-money" (i.e., where the value of
the underlying instrument exceeds, in the case of a call option, or is less
than, in the case of a put option, the exercise price of the option) at the time
the option is exercised. Frequently, rather than taking or making delivery of
the underlying instrument through the process of exercising the option, listed
options are closed by entering into offsetting purchase or sale transactions
that do not result in ownership of the new option. A Fund's ability to close out
its position as a purchaser or seller of a put or call option is dependent in
part, upon the liquidity of the option market. In addition, the hours of trading
for listed options may not coincide with the hours during which the underlying
financial instruments are traded. To the extent that the options markets close
before the markets for the underlying financial instruments, significant price
and rate movements can take place in the underlying markets that cannot be
reflected in the option markets.
Exchange-listed options generally have standardized terms and
performance mechanics unlike over-the-counter traded options. The Funds
currently expect to purchase and sell only exchange-traded options.
Exchange-traded options generally are guaranteed by the clearing agency which is
the issuer or counterparty to such options. This guarantee usually is supported
by a daily payment system (i.e., variation margin requirements) operated by the
clearing agency in order to reduce overall credit risk. As a result, unless the
clearing agency defaults, there is relatively little counterparty credit risk
associated with options purchased on an exchange.
All options written by a Fund must be "covered" (i.e., a Fund must own
the securities or futures contract subject to a call option or must meet the
asset segregation requirements) as long as the call is outstanding. Even though
a Fund will receive the option premium to help protect it against loss, a call
option written by a Fund exposes such Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may
B-17
<PAGE> 379
require such Fund to hold a security or instrument which it might otherwise have
sold. With respect to put options written by a Fund, such Fund will place liquid
securities in a segregated account to cover its obligations under such put
option and will monitor the value of the assets in such account and its
obligations under the put option daily.
FUTURES CONTRACTS. As discussed in the Prospectuses, the Pennsylvania
Bond Fund, the Established Growth Fund, the Income Fund and the Aggressive
Growth Fund may each enter into futures contracts. This investment technique is
designed primarily to act as a substitute for a position in the underlying
security and to hedge against anticipated future changes in market conditions or
interest rates which otherwise might adversely affect the value of securities
which such Fund holds or intends to purchase. For example, when interest rates
are expected to rise or market values of portfolio securities are expected to
fall, a Fund can seek through the sale of futures contracts to offset a decline
in the value of its portfolio securities. When interest rates are expected to
fall or market values are expected to rise, a Fund, through the purchase of such
contracts, can attempt to secure better rates or prices for such Fund than might
later be available in the market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period.
Futures transactions involve brokerage costs and require a Fund to
segregate liquid assets, such as cash, U.S. Government securities or other
liquid obligations, to cover its performance under such contracts. A Fund may
lose the expected benefit of futures transactions if interest rates, securities
prices or foreign exchange rates move in an unanticipated manner. Such
unanticipated changes may also result in poorer overall performance than if such
Fund had not entered into any futures transactions. In addition, the value of a
Fund's futures positions may not prove to be perfectly or even highly correlated
with the value of its portfolio securities, limiting the Fund's ability to hedge
effectively against interest rate and/or market risk and giving rise to
additional risks. There is no assurance of liquidity in the secondary market for
purposes of closing out futures positions.
REGULATORY RESTRICTIONS. To the extent required to comply with
Securities and Exchange Commission Release No. IC-10666, when purchasing a
futures contract or writing a put option, each Fund will maintain in a
segregated account cash or liquid securities equal to the value of such
contracts.
B-18
<PAGE> 380
To the extent required to comply with Commodity Futures Trading
Commission Regulation 4.5 and thereby avoid being classified as a "commodity
pool operator," a Fund will not enter into a futures contract or purchase an
option thereon if immediately thereafter the initial margin deposits for futures
contracts held by such Fund plus premiums paid by it for open options on futures
would exceed 5% of the liquidation value of such Fund's total assets after
taking into account unrealized profits and unrealized losses on any contracts
entered into. The Funds will not engage in transactions in futures contracts or
options thereon for speculation, but only to attempt to hedge against changes in
market conditions affecting the values of securities which such Fund holds or
intends to purchase.
SECURITIES OF OTHER INVESTMENT COMPANIES. Each Fund may invest in
securities issued by other investment companies. In addition, each Fund, other
than the Prime Money Market Fund and the Treasury Money Market Fund, may invest
in money market funds advised by the Adviser. Each Fund currently intends to
limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will be
invested in the securities of any one investment company; (b) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of investment companies as a group; and (c) not more than 3% of the outstanding
voting stock of any one investment company will be owned by such Fund. As a
shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of that company's expenses, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that such Fund bears directly in connection with its own operations.
Investment companies in which the Funds may invest may also impose a sales or
distribution charge in connection with the purchase or redemption of their
shares and other types of commissions or charges. Such charges will be payable
by such Fund and, therefore, will be borne directly by shareholders of such
Fund.
Investment Restrictions
- -----------------------
The Funds' investment objectives are non-fundamental policies and may
be changed without a vote of the shareholders of the applicable Fund. In
addition to the fundamental investment policies listed in the Prospectuses, the
following investment restrictions may be changed only by a vote of the majority
of the outstanding Shares of a Fund (as defined under "ADDITIONAL INFORMATION -
Vote of a Majority of the Outstanding Shares").
In addition to the investment restrictions set forth in its respective
Prospectus, each Fund may not:
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<PAGE> 381
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, none of the Prime Money Market Fund, the Established
Growth Fund, the Aggressive Growth Fund or the Treasury Money Market Fund may
engage in any short sales. However, each of the Pennsylvania Bond Fund, the
Income Fund and 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 such Fund would exceed 25% of
the value of that Fund's total assets.
If any percentage restriction or requirement described above is
satisfied at the time of investment, a later increase or decrease in such
percentage resulting from a change in asset value will not constitute a
violation of such restriction or requirement. However, should a change in net
asset value or other external events cause a Fund's investments in illiquid
securities, repurchase agreements with maturities in excess of seven days and
other instruments in such Fund which are not readily marketable to exceed the
limit set forth in that Fund's Prospectus for its investment in illiquid
securities, such Fund will act to cause the aggregate amount of such securities
to come within such limit as
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<PAGE> 382
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 Prime Money Market Fund and the Treasury Money Market Fund
each intend 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 such Funds is expected to be no greater than
10%. The portfolio turnover rates for the Pennsylvania Bond Fund, the
Established Growth Fund, the Income Fund and the Aggressive Growth Fund for
their first fiscal period ended June 30, 1997, are as follows:
<TABLE>
<CAPTION>
Period Ended
June 30, 1997
-------------
<S> <C>
Pennsylvania Bond Fund 98%
Established Growth Fund 1%
Income Fund 329%
Aggressive Growth Fund 2%
</TABLE>
The portfolio turnover rate 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 a 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.
NET ASSET VALUE
The Prime Money Market Fund and the Treasury Money Market Fund
(collectively, the "Money Market Funds" and individually, a "Money Market Fund")
have each elected to use the amortized cost method of
B-21
<PAGE> 383
valuation pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an
instrument at its cost initially and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. This method may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price the Money Market Fund would receive if it sold the instrument.
The value of securities in a Money Market Fund can be expected to vary inversely
with changes in prevailing interest rates.
Pursuant to Rule 2a-7, each Money Market Fund will maintain a
dollar-weighted average portfolio maturity appropriate to the Money Market
Fund's objective of maintaining a stable net asset value per share, provided
that neither Money Market Fund will purchase any security with a remaining
maturity of more than 397 days (thirteen months) (securities subject to
repurchase agreements may bear longer maturities) nor maintain a dollar-weighted
average portfolio maturity which exceeds 90 days. The Group's Board of Trustees
has also undertaken to establish procedures reasonably designed, taking into
account current market conditions and the investment objective of the Money
Market Funds, to stabilize the net asset value per share of each Money Market
Fund for purposes of sales and redemptions at $1.00. These procedures include
review by the Trustees, at such intervals as they deem appropriate, to determine
the extent, if any, to which the net asset value per share of the Money Market
Fund calculated by using available market quotations deviates from $1.00 per
Share. In the event such deviation exceeds one-half of one percent, Rule 2a-7
requires that the Board of Trustees promptly consider what action, if any,
should be initiated. If the Trustees believe that the extent of any deviation
from a Money Market Fund's $1.00 amortized cost price per Share may result in
material dilution or other unfair results to new or existing investors, they
will take such steps as they consider appropriate to eliminate or reduce, to the
extent reasonably practicable, any such dilution or unfair results. These steps
may include selling portfolio instruments prior to maturity, shortening the
average portfolio maturity, withholding or reducing dividends, reducing the
number of the Money Market Fund's outstanding Shares without monetary
consideration, or utilizing a net asset value per share determined by using
available market quotations.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by BISYS, and BISYS
has agreed to use appropriate efforts to solicit all purchase orders. In
addition to purchasing Shares directly from BISYS, Shares may be purchased
through procedures established by BISYS in connection with the requirements of
accounts at the Adviser or the Adviser's affiliated entities or correspondents
B-22
<PAGE> 384
(collectively, "Entities"). Customers purchasing Shares of the Funds may include
officers, directors, or employees of the Adviser or the Entities.
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the Exchange is
restricted by applicable rules and regulations of the Commission, (b) the
Exchange is closed for other than customary weekend and holiday closings, (c)
the Commission has by order permitted such suspension, or (d) an emergency
exists as a result of which (i) disposal by the Group of securities owned by it
is not reasonably practical, or (ii) it is not reasonably practical for the
Group to determine the fair value of its net assets.
MANAGEMENT AND SERVICE PROVIDERS OF THE GROUP
Trustees and Officers
- ---------------------
Overall responsibility for management of the Group rests with its Board
of Trustees. The Trustees elect the officers of the Group to supervise actively
its day-to-day operations.
The names of the Trustees and officers of the Group, their addresses,
and principal occupations during the past five years are as follows:
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name, Address and Age With the Group During Past 5 Years
- --------------------- -------------- -------------------
<S> <C> <C>
Walter B. Grimm* Chairman, From June, 1992 to present,
3435 Stelzer Road President and employee of BISYS Fund
Columbus, Ohio 43219 Trustee Services Limited
Age: 52 Partnership.
Nancy E. Converse* Trustee and Since July, 1990, employee
3435 Stelzer Road Assistant of BISYS Fund Services
Columbus, Ohio 43219 Secretary Limited Partnership.
Age: 48
Maurice G. Stark Trustee Consultant with Battelle
505 King Avenue Memorial Institute; from 1979
Columbus, Ohio 43201 to December, 1994, Vice
Age: 62 President-Finance and Chief
Financial Officer, Battelle
Memorial Institute
(scientific research and
development service
corporation).
James H. Woodward, Ph.D. Trustee Since July 1989, Chancellor
The University of North of The University of North
Carolina at Charlotte Carolina at Charlotte.
Charlotte, NC 28223
Age: 57
</TABLE>
B-23
<PAGE> 385
<TABLE>
<S> <C> <C>
Chalmers P. Wylie Trustee From April, 1993 to present,
754 Stonewood Court of Counsel with Kegler,
Columbus, Ohio 43235 Brown, Hill & Ritter (law
Age: 76 firm); from January, 1993 to
present, Adjunct Professor
at The Ohio State
University; from January,
1967 to January, 1993,
Member of the United States
House of Representatives for
the 15th District.
J. David Huber Vice President Since January, 1996,
3435 Stelzer Road President of BISYS Fund
Columbus, Ohio 43219 Services Limited
Age: 51 Partnership; from June, 1987
to December, 1995, employee
of BISYS Fund Services
Limited Partnership.
William J. Tomko Vice President From April, 1987 to present,
3435 Stelzer Road employee of BISYS Fund
Columbus, Ohio 43219 Services Limited
Age: 39 Partnership.
Thresa B. Dewar Treasurer From March, 1997 to present,
3435 Stelzer Road employee of BISYS Fund
Columbus, Ohio 43219 Services Limited
Age: 43 Partnership; prior thereto,
Vice President and
Controller of Federated
Administrative Services, Inc.
(investment management firm).
George L. Stevens Secretary From September, 1996 to
3435 Stelzer Road present, employee of BISYS
Columbus, Ohio 43219 Fund Services Limited
Age: 46 Partnership; from September,
1995 to August, 1996,
consultant on bank
investment products and
activities; from June, 1980
to September, 1995, employee
of AmSouth Bank.
Alaina V. Metz Assistant From June, 1995 to present,
3435 Stelzer Road Secretary employee of BISYS Fund
Columbus, Ohio 43219 Services Limited
Age: 30 Partnership; prior to June,
1995, supervisor of Blue
Sky Compliance at Alliance
Capital Management, L.P.
(investment management
firm).
<FN>
- -------------------
*Mr. Grimm and Ms. Converse are each considered to be an "interested
person" of the Group as defined in the 1940 Act.
</TABLE>
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<PAGE> 386
As of the date of this Statement of Additional Information, the Group's
officers and trustees, as a group, own less than 1% of any Fund's Shares.
No officer or employee of BISYS or BISYS Fund Services, Inc.
receives any compensation from the Group for acting as trustee of
the Group. The officers of the Group receive no compensation
directly from the Group for performing the duties of their offices.
BISYS receives fees from each Fund for acting as Administrator, may
receive fees pursuant to the Administrative Services Plan described
below and may retain all or a portion of any sales load imposed
upon purchases of Shares. BISYS Fund Services, Inc. receives fees
from the Funds for acting as transfer agent and for providing
certain fund accounting services. Messrs. Grimm, Huber, Tomko and
Stevens, Ms. Converse, Ms. Dewar and Ms. Metz are employees of
BISYS.
The following table sets forth information regarding all
compensation paid by the Group to its Trustees for their services
as trustees during the fiscal year ended June 30, 1997. The Group
has no pension or retirement plans.
<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 $14,473 $14,473
Trustee
James H. Woodward, Ph.D. $16,162 $16,162
Trustee
Chalmers P. Wylie $14,973 $14,973
Trustee
<FN>
- -----------------
*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.
</TABLE>
B-25
<PAGE> 387
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 Prospectuses. For the services
provided and expenses assumed pursuant to the Investment Advisory Agreement, the
Prime Money Market Fund and the Treasury Money Market Fund each pay 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 such
Fund; the Pennsylvania Bond Fund, the Income Fund and the Government Securities
Fund each pay 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 such 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, 1997, the Adviser earned and voluntarily waived
the amounts indicated below with respect to its investment advisory services to
the indicated Funds pursuant to the Investment Advisory Agreement:
<TABLE>
<CAPTION>
Fiscal Period Ended
June 30, 1997(1)
----------------
Fees Earned Fees Waived
----------- -----------
<S> <C> <C>
Prime Money Market Fund $282,882 $236,280
Pennsylvania Bond Fund 506,296 420,686
Established Growth Fund 735,635 558,942
Income Fund 680,552 529,626
Aggressive Growth Fund 385,280 263,486
<FN>
- -------------------------
(1) Such Funds commenced operations October 7, 1996, October 1, 1996,
December 2, 1996, December 2, 1996, and February 3, 1997, respectively.
</TABLE>
For the fiscal year ended June 30, 1997, the Adviser had not received
any compensation under the Investment Advisory Agreement
B-26
<PAGE> 388
with respect to either the Treasury Money Market Fund or the Government
Securities Fund since neither of those 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 at least 60 days' written notice without penalty by the Trustees, by
vote of a majority of the outstanding Shares of that Fund, or by the Adviser.
The Investment Advisory Agreement also terminates automatically in the event of
any assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that the Adviser shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by a Fund in connection with the performance of the Investment Advisory
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith, or gross negligence on the part of the Adviser in the
performance of its duties, or from reckless disregard by the Adviser of its
duties and obligations thereunder.
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 of the Funds,
other than the Established Growth Fund and the Aggressive Growth 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
B-27
<PAGE> 389
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.
Purchases and sales of portfolio securities with respect to the Established
Growth Fund and the Aggressive Growth Fund usually are effected on a national
securities exchange or in the over-the-counter market. Transactions on stock
exchanges involve the payment of negotiated brokerage commissions. Transactions
in the over-the-counter market are generally principal transactions with
dealers. With respect to the over-the-counter market, the Group, where possible,
will deal directly with dealers who make a market in the securities involved
except in those circumstances where better price and execution are available
elsewhere.
Allocation of transactions, including their frequency, to various
brokers and dealers is determined by the Adviser in its best judgment and in a
manner deemed fair and reasonable to Shareholders. The primary consideration is
prompt execution of orders in an effective manner at the most favorable price.
Subject to this consideration, brokers and dealers who provide supplemental
investment research to the Adviser may receive orders for transactions on behalf
of the Funds. The Adviser is authorized to pay a broker-dealer who provides such
brokerage and research services a commission for executing each such Fund's
brokerage transactions which is in excess of the amount of commission another
broker would have charged for effecting that transaction if, but only if, the
Adviser determines in good faith that such commission was reasonable in relation
to the value of the brokerage and research services provided by such broker
viewed in terms of that particular transaction or in terms of all of the
accounts over which it exercises investment discretion. Any such research and
other statistical and factual information provided by brokers to a Fund or to
the Adviser is considered to be in addition to and not 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.
The Adviser may direct brokerage transactions on behalf of the
Established Growth Fund and the Aggressive Growth Fund to Boston
B-28
<PAGE> 390
Institutional in return for research services relating to equity securities
including equity universe analysis from Chicago Investment Analytics, market
information from Bloomberg Financial Markets, equity analysis from Financial
Statement Alert Service and Zacks Software for equity analysis.
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.
For the fiscal period ended June 30, 1997, the Group paid the following
brokerage commissions on behalf of the Established Growth Fund and the
Aggressive Growth Fund:
<TABLE>
<CAPTION>
Fiscal Period Ended June 30, 1997
<S> <C>
Established Growth Fund $19,776
Aggressive Growth Fund 6,878
</TABLE>
During the past fiscal period, no brokerage commissions were paid by
the Group on behalf of the Prime Money Market Fund, the Pennsylvania Bond Fund
or the Income 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
B-29
<PAGE> 391
believes to be equitable to the Fund and such other fund, investment company or
account. In some instances, this investment procedure may adversely affect the
price paid or received by a Fund or the size of the position obtained by a Fund.
To the extent permitted by law, the Adviser may aggregate the securities to be
sold or purchased for a Fund with those to be sold or purchased for other funds
of the Group, investment companies or accounts in order to obtain best
execution. As provided by the Investment Advisory Agreement, in making
investment recommendations for the Funds, the Adviser will not inquire or take
into consideration whether an issuer of securities proposed for purchase or sale
by the Group is a customer of the Adviser, its parent or its subsidiaries or
affiliates and, in dealing with its customers, the Adviser, its parent,
subsidiaries, and affiliates will not inquire or take into consideration whether
securities of such customers are held by the Funds or any other fund of the
Group.
For the fiscal period ended June 30, 1997, the Established Growth Fund
held securities of its regular brokers or dealers, as defined in Rule 10b-1
under the 1940 Act, or their parent companies. As of June 30, 1997, such Fund
held $130,000 of common stock of Morgan Stanley, Dean Witter, Discover & Co.
Glass-Steagall Act
- ------------------
In 1971, the United States Supreme Court held in INVESTMENT COMPANY
INSTITUTE V. CAMP that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM V.
INVESTMENT COMPANY INSTITUTE that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the BOARD
OF GOVERNORS case, the Supreme Court also stated that if a national bank
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment
B-30
<PAGE> 392
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 relevant Prospectuses, this
Statement of Additional Information and the Investment Advisory Agreement
without violation of applicable statutes and regulations. Future changes in
either Federal or state statutes and regulations relating to the permissible
activities of banks or bank holding companies and the subsidiaries or affiliates
of those entities, as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations, could prevent or
restrict the Adviser from continuing to perform such services for the Group. In
addition, current state securities laws on the issue of the registration of
banks as brokers or dealers may differ from the interpretation of federal law,
and banks and financial institutions may be required to register as dealers
pursuant to the laws of a specific state. Depending upon the nature of any
changes in the services which could be provided by the Adviser, the Board of
Trustees of the Group would review the 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
B-31
<PAGE> 393
stationery and office supplies; prepare the periodic reports to the Commission
on Form N-SAR or any replacement forms therefor; compile data for, prepare for
execution by the Funds and file all of the Funds' federal and state tax returns
and required tax filings other than those required to be made by the Funds'
custodian and Transfer Agent; prepare compliance filings pursuant to state
securities laws with the advice of the Group's counsel; assist to the extent
requested by the Group with the Group's preparation of its Annual and
Semi-Annual Reports to Shareholders and its Registration Statement (on Form N-1A
or any replacement therefor); compile data for, prepare and file timely Notices
to the Commission required pursuant to Rule 24f-2 under the 1940 Act; keep and
maintain the financial accounts and records of the Funds, including calculation
of daily expense accruals; determine the actual variance from $1.00 of the Prime
Money Market Fund's and 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 period ended June 30, 1997, the Administrator earned the
following amounts with respect to its administrative services to the Funds
indicated below pursuant to the Administration Agreement:
<TABLE>
<CAPTION>
Fiscal Period Ended
June 30, 1997(1)
----------------
<S> <C>
Prime Money Market Fund $ 81,328
Pennsylvania Bond Fund 97,040
Established Growth Fund 112,311
Income Fund 129,863
Aggressive Growth Fund 44,692
<FN>
- -------------------------
(1) Such Funds commenced operations October 7, 1996, October 1, 1996,
December 2, 1996, December 2, 1996, and February 3, 1997, respectively.
</TABLE>
B-32
<PAGE> 394
For the fiscal year ended June 30, 1997, the Administrator had not
received any compensation under the Administration Agreement with respect to the
Treasury Money Market Fund or the Government Securities Fund since those Funds
had not 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 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
B-33
<PAGE> 395
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 Prospectuses, the Group has also adopted an
Administrative Services Plan (the "Services Plan") under which each Fund is
authorized to pay certain financial institutions, including the Adviser, its
affiliates and their affiliated and 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 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.
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.
B-34
<PAGE> 396
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 period ended June 30, 1997, the Transfer Agent earned
the amounts indicated below with respect to its transfer agency services to the
indicated Funds.
<TABLE>
<CAPTION>
Fiscal Period Ended
June 30, 1997(1)
----------------
<S> <C>
Prime Money Market Fund $ 19,648
Pennsylvania Bond Fund 21,322
Established Growth Fund 20,282
Income Fund 19,824
Aggressive Growth Fund 11,099
<FN>
- -------------------------
(1) Such Funds commenced operations October 7, 1996, October 1, 1996,
December 2, 1996, December 2, 1996, and February 3, 1997, respectively.
</TABLE>
For the fiscal year ended June 30, 1997, the Transfer Agent received no
compensation from the Group for services as transfer agent for the Treasury
Money Market Fund or the Government Securities Fund since such 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 ($35,000 for the
Pennsylvania Bond Fund). Under such Agreement, BISYS Fund Services, Inc.
maintains the accounting books and records for the Funds, including journals
containing an itemized daily record of all purchases and sales of portfolio
securities, all receipts and disbursements of cash and all other debits and
B-35
<PAGE> 397
credits, general and auxiliary ledgers reflecting all asset, liability, reserve,
capital, income and expense accounts, including interest accrued and interest
received, and other required separate ledger accounts; maintains a monthly trial
balance of all ledger accounts; performs certain accounting services for the
Funds, including calculation of the net asset value per share, calculation of
the dividend and capital gain distributions, if any, and of yield,
reconciliation of cash movements with the Funds' custodian, 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 period ended June 30, 1997, BISYS Fund Services, Inc.
earned the amounts indicated below with respect to its fund accounting services
to the indicated Funds.
<TABLE>
<CAPTION>
Fiscal Period Ended
June 30, 1997(1)
----------------
<S> <C>
Prime Money Market Fund $ 21,776
Pennsylvania Bond Fund 30,096
Established Growth Fund 31,176
Income Fund 35,604
Aggressive Growth Fund 13,033
</TABLE>
B-36
<PAGE> 398
- -------------------------
(1) Such Funds commenced operations October 7, 1996, October 1, 1996,
December 2, 1996, December 2, 1996, and February 3, 1997, respectively.
For the fiscal year ended June 30, 1997, BISYS Fund Services, Inc.
earned no fees with respect to its fund accounting services to the Treasury
Money Market Fund and the Government Securities Fund since such Funds had not
yet commenced operations.
Auditors
- --------
The financial statements for the Prime Money Market, Pennsylvania Bond,
Established Growth, Income and Aggressive Growth Funds as of June 30, 1997, and
for the periods indicated therein, appearing in the Statement of Additional
Information have been audited by KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, as set forth in their report appearing with the
aforementioned financial statements included herein, and are included in
reliance upon such report and on the authority of such firm as experts in
auditing and accounting.
Legal Counsel
- -------------
Baker & Hostetler LLP, 65 East State Street, Columbus, Ohio 43215 is
counsel to the Group and will pass upon the legality of the Shares offered
hereby.
ADDITIONAL INFORMATION
Description of Shares
- ---------------------
The Group is an Ohio business trust. The Group was organized on April
25, 1988, and the Group's Declaration of Trust was filed with the Secretary of
State of Ohio on April 25, 1988. The Declaration of Trust authorizes the Board
of Trustees to issue an unlimited number of shares, which are shares of
beneficial interest, without par value. The Group presently has seventeen series
of shares, seven of which represent interests in the Funds. The other ten 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, 1st Source Monogram Diversified Equity Fund, 1st
Source Monogram Income Equity Fund, 1st Source Monogram Special Equity Fund and
1st Source Monogram Income Fund. The Group's Declaration of Trust authorizes the
Board of Trustees to divide or redivide any unissued shares of the Group into
one or more additional series by setting or changing in any one or more respects
their respective preferences, conversion or other rights, voting power,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in
B-37
<PAGE> 399
its discretion. When issued for payment as described in the applicable
Prospectus and this Statement of Additional Information, the Shares will be
fully paid and non-assessable. In the event of a liquidation or dissolution of
the Group, shareholders of a fund are entitled to receive the assets available
for distribution belonging to that fund, and a proportionate distribution, based
upon the relative asset values of the respective funds, of any general assets
not belonging to any particular fund which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Group shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each fund affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding shares of a fund will be required in
connection with a matter, a fund will be deemed to be affected by a matter
unless it is clear that the interests of each fund in the matter are identical,
or that the matter does not affect any interest of the fund. Under Rule 18f-2,
the approval of an investment advisory agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to a fund only if
approved by a majority of the outstanding shares of such fund. However, Rule
18f-2 also provides that the election of Trustees may be effectively acted upon
by shareholders of the Group voting without regard to series.
As of October 16, 1997, the following is the only entity known to the
Group who owns of record or beneficially 5% or more of the outstanding Shares of
any of the Funds: Keystone Financial, Inc., 1315 Eleventh Avenue, P. O. Box
2450, Altoona, Pennsylvania 16601 owned beneficially and of record 71.99% of the
issued and outstanding Shares of the Prime Money Market Fund, 97.49% of the
issued and outstanding Shares of Pennsylvania Bond Fund, 96.57% of the issued
and outstanding Shares of the Established Growth Fund, 98.33% of the issued and
outstanding Shares of Income Fund, 95.51% of the issued and outstanding Shares
of the Aggressive Growth Fund, 66.83% of the issued and outstanding Shares of
the Treasury Money Market Fund, and 99.39% of the issued and outstanding Shares
of the Government Securities Fund.
Vote of a Majority of the Outstanding Shares
- --------------------------------------------
As used in the Prospectuses and this Statement of Additional
Information, a "vote of a majority of the outstanding Shares" of a Fund means
the affirmative vote, at a meeting of Shareholders duly called, of the lesser of
(a) 67% or more of the votes of Shareholders of that Fund present at a meeting
at which the holders of more than 50% of the votes attributable to Shareholders
of record of such Fund are represented in person or by proxy, or (b) the
B-38
<PAGE> 400
holders of more than 50% of the outstanding votes of Shareholders
of that Fund.
Additional General Tax Information
- ----------------------------------
Each of the seventeen funds of the Group is treated as a separate
entity for federal income tax purposes and intends to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"), for so long as such qualification is in the best interest of that
fund's shareholders. In order to qualify as a regulated investment company, a
Fund must, among other things: diversify its investments within certain
prescribed limits; derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the sale or
other disposition of securities or foreign currencies, or other income derived
with respect to its business of investing in such stock, securities, or
currencies; and, in taxable years beginning on or before August 5, 1997, derive
less than 30% of its gross income from the sale or other disposition of stock,
securities, options, future contracts or foreign currencies held less than three
months. 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 mid-term or net
long-term capital gain for the taxable year over the net short-term capital
loss, if any, for such year.
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, 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
B-39
<PAGE> 401
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 mid-term or net long-term
capital gain over net short-term capital loss, if any, is taxable to
Shareholders as mid-term or long-term capital gain, respectively, in the year in
which it is received, regardless of how long the Shareholder has held the
Shares. Such distributions are not eligible for the dividends-received
deduction.
Federal taxable income of individuals is subject to graduated tax rates
of 15%, 28%, 31%, 36% and 39.6%. Further, the effective marginal tax rate may be
in excess of 39.6%, because adjustments reduce or eliminate the benefit of the
personal exemption and itemized deductions for individuals with gross income in
excess of certain threshold amounts.
Long-term capital gains of individuals are subject to a maximum tax
rate of 20% (10% for individuals in the 15% ordinary income tax bracket).
Mid-term capital gains of individuals are subject to tax at the same rates
applicable to ordinary income; however, the tax rate on mid-term capital gains
of individuals cannot exceed 28%. Capital losses may be used to offset capital
gains. In addition, individuals may deduct up to $3,000 of net capital loss each
year to offset ordinary income. Excess net capital loss may be carried forward
and deducted in future years. The holding period for mid-term capital gains is
more than one year but not more than eighteen months; the holding period for
long-term capital gains is more than eighteen months.
Federal taxable income of corporations in excess of $75,000 up to $10
million is subject to a 34% tax rate; however, because the benefit of lower tax
rates on a corporation's taxable income of less than $75,000 is phased out for
corporations with income in excess of $100,000 but lower than $335,000, a
maximum marginal tax rate of 39% may result. Federal taxable income of
corporations in excess of $10 million is subject to a tax rate of 35%. Further,
a corporation's federal taxable income in excess of $15 million is subject to an
additional tax equal to 3% of taxable income over $15 million, but not more than
$100,000.
B-40
<PAGE> 402
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 Prime Money Market Fund's, the Pennsylvania Bond Fund's, the
Income Fund's, the Treasury Money Market Fund's and the Government Securities
Fund's net investment income is expected to be derived from earned interest and
short term capital gains, it is anticipated that no distributions from such
Funds will qualify for the 70% dividends received deduction.
Foreign taxes may be imposed on a Fund by foreign countries with
respect to its income from foreign securities. Since less than 50% in value of
any Fund's total assets at the end of its fiscal year are expected to be
invested in stocks or securities of foreign corporations, such Fund will not be
entitled under the Code to pass through to its Shareholders their pro rata share
of the foreign taxes paid by that Fund. These taxes will be taken as a deduction
by the Fund.
Under Section 1256 of the Code, gain or loss realized by a Fund from
certain financial futures and options transactions will be treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss. Gain or
loss will arise upon exercise or lapse of such futures and options as well as
from closing transactions. In addition, any such futures and options remaining
unexercised at the end of a Fund's taxable year will be treated as sold for
their then fair market value, resulting in additional gain or loss to such Fund
characterized in the manner described above.
Offsetting positions held by a Fund involving certain futures contracts
or options transactions may be considered, for tax purposes, to constitute
"straddles." Straddles are defined to include "offsetting positions" in actively
traded personal property. The tax treatment of straddles is governed by Sections
1092 and 1258 of the Code, which, in certain circumstances, overrides or
modifies the provisions of Section 1256. As such, all or a portion of any short
or long-term capital gain from certain straddle and/or conversion transactions
may be recharacterized as ordinary income.
If a Fund were treated as entering into straddles by reason of its
engaging in futures or options transactions, such straddles would be
characterized as "mixed straddles" if the futures or
B-41
<PAGE> 403
options comprising a part of such straddles were governed by Section 1256 of the
Code. A Fund may make one or more elections with respect to mixed straddles. If
no election is made, to the extent the straddle rules apply to positions
established by a Fund, losses realized by such Fund will be deferred to the
extent of unrealized gain in any offsetting positions. Moreover, as a result of
the straddle and conversion transaction rules, short-term capital losses on
straddle positions may be recharacterized as long-term capital losses and
long-term capital gains may be recharacterized as short-term capital gain or
ordinary income.
Investment by 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 such Shareholder (1) fails to furnish the
Fund with a correct taxpayer identification number, (2) under-reports dividend
or interest income, or (3) fails to certify to the Fund that he or she is not
subject to such withholding. An individual's taxpayer identification number is
his or her Social Security number.
Information set forth in the Prospectuses and this Statement of
Additional Information which relates to Federal taxation is only a summary of
some of the important Federal tax considerations generally affecting purchasers
of Shares of the Funds. No attempt has been made to present a detailed
explanation of the Federal income tax treatment of the Funds or their
Shareholders and this discussion is not intended as a substitute for careful tax
planning. Accordingly, potential purchasers of Shares of a Fund are urged to
consult their tax advisers with specific reference to their own tax situation.
In addition, the tax discussion in the Prospectuses and this Statement of
Additional Information is based on tax laws and regulations which are in effect
on the date of the Prospectuses and this Statement of Additional Information;
such laws and regulations may be changed by legislative or administrative
action.
Information as to the federal income tax status of all distributions
will be mailed annually to each Shareholder.
B-42
<PAGE> 404
Additional Tax Information With Respect to the Pennsylvania Bond Fund
- ---------------------------------------------------------------------
The Pennsylvania Bond Fund is not intended to constitute a balanced
investment program and is not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Pennsylvania Bond Fund would not be suitable for
tax-exempt institutions and may not be suitable for retirement plans qualified
under Section 401 of the Code, H.R. 10 plans, and individual retirement
accounts, since such plans and accounts are generally tax-exempt and, therefore,
would not gain any additional benefit from all or a portion of the Pennsylvania
Bond Fund's dividends being tax-exempt and such dividends would be ultimately
taxable to the beneficiaries when distributed to them. In addition, the
Pennsylvania Bond Fund may not be an appropriate investment for entities which
are "substantial users," or "related persons" thereof, of facilities financed by
private activity bonds held by the Pennsylvania Bond Fund.
The Code permits a regulated investment company which invests in Exempt
Securities to pay to its Shareholders "exempt-interest dividends," which are
excluded from gross income for federal income tax purposes, if at the close of
each quarter of its taxable year at least 50% of its total assets consist of
Exempt Securities.
An exempt-interest dividend is any dividend or part thereof (other than
a capital gain dividend) paid by the Pennsylvania Bond Fund that is derived from
interest received by the Pennsylvania Bond Fund that is excluded from gross
income for federal income tax purposes, net of certain deductions, provided the
dividend is designated as an exempt-interest dividend in a written notice mailed
to Shareholders not later than sixty days after the close of the Pennsylvania
Bond Fund's taxable year. The percentage of the total dividends paid by the
Pennsylvania Bond Fund during any taxable year that qualifies as exempt-interest
dividends will be the same for all Shareholders of the Pennsylvania Bond Fund
receiving dividends during such year. Exempt-interest dividends shall be treated
by the Pennsylvania Bond Fund's Shareholders as items of interest excludable
from their gross income for Federal income tax purposes under Section 103(a) of
the Code. However, a Shareholder is advised to consult his tax adviser with
respect to whether exempt-interest dividends retain the exclusion under Section
103(a) of the Code if such Shareholder is a "substantial user" or a "related
person" to such user under Section 147(a) of the Code with respect to any of the
Exempt Securities held by the Pennsylvania Bond Fund. If a Shareholder receives
an exempt- interest dividend with respect to any Share and such Share is held by
the Shareholder for six months or less, any loss on the sale or exchange of such
Share shall be disallowed to the extent of the amount of such exempt-interest
dividend.
B-43
<PAGE> 405
In general, interest on indebtedness incurred or continued by a
Shareholder to purchase or carry Shares is not deductible for federal income tax
purposes if the Pennsylvania Bond Fund distributes exempt-interest dividends
during the Shareholder's taxable year. A Shareholder of the Pennsylvania Bond
Fund that is a financial institution may not deduct interest expense
attributable to indebtedness incurred or continued to purchase or carry Shares
of the Pennsylvania Bond Fund if the Pennsylvania Bond Fund distributes
exempt-interest dividends during the Shareholder's taxable year. Certain federal
income tax deductions of property and casualty insurance companies holding
Shares of the Pennsylvania Bond Fund and receiving exempt-interest dividends may
also be adversely affected. In certain limited instances, the portion of Social
Security benefits received by a Shareholder which may be subject to federal
income tax may be affected by the amount of tax-exempt interest income,
including exempt-interest dividends received by Shareholders of the Pennsylvania
Bond Fund.
In the event the Pennsylvania Bond Fund realizes mid-term or long-term
capital gains, the Pennsylvania Bond Fund intends to distribute any realized net
mid-term or net long-term capital gains annually. If the Pennsylvania Bond Fund
distributes such gains, the Pennsylvania Bond Fund will have no tax liability
with respect to such gains, and the distributions will be taxable to
Shareholders as mid-term or long-term capital gains, respectively, regardless of
how long the Shareholders have held their Shares. Any such distributions will be
designated as a capital gain dividend in a written notice mailed by the
Pennsylvania Bond Fund to the Shareholders not later than sixty days after the
close of the Pennsylvania Bond Fund's taxable year. It should be noted, however,
that long-term capital gains of individuals are subject to a maximum tax rate of
20% (or 10% for individuals in the 15% ordinary income tax bracket) and mid-term
capital gains are taxed like ordinary income except that net capital gains of
individuals are subject to a maximum federal income tax rate of 28%. Any net
short-term capital gains are taxed at ordinary income tax rates. If a
Shareholder receives a capital gain dividend with respect to any Share and then
sells the Share before he has held it for more than six months, any loss on the
sale of the Share is treated as long-term capital loss to the extent of the
capital gain dividend received.
Interest earned on certain municipal obligations issued on or after
August 8, 1986, to finance certain private activities will be treated as a tax
preference item in computing the alternative minimum tax. Since the Pennsylvania
Bond Fund may invest up to 20% of its net assets in municipal securities the
interest on which may be treated as a tax preference item, a portion of the
exempt- interest dividends received by Shareholders from the Pennsylvania Bond
Fund may be treated as tax preference items in computing the alternative minimum
tax to the extent that distributions by the
B-44
<PAGE> 406
Pennsylvania Bond Fund are attributable to such obligations. Also, a portion of
all other interest excluded from gross income for federal income tax purposes
earned by a corporation may be subject to the alternative minimum tax as a
result of the inclusion in alternative minimum taxable income of 75% of the
excess of adjusted current earnings and profits over pre-book alternative
minimum taxable income. Adjusted current earnings and profits would include
exempt-interest dividends distributed by the Pennsylvania Bond Fund to corporate
Shareholders. For individuals the alternative minimum tax rate is 26% on
alternative minimum taxable income up to $175,000 and 28% on the excess of
$175,000; for corporations the alternative minimum tax rate is 20%.
For taxable years of corporations beginning before 1996, the Superfund
Revenue Act of 1986 imposes an additional tax (which is deductible for federal
income tax purposes) on a corporation at a rate of 0.12 of one percent on the
excess over $2,000,000 of such corporation's "modified alternative minimum
taxable income", which would include a portion of the exempt-interest dividends
distributed by the Pennsylvania Bond Fund to such corporation. In addition,
exempt-interest dividends distributed to certain foreign corporations doing
business in the United States could be subject to a branch profits tax imposed
by Section 884 of the Code.
Distributions of exempt-interest dividends by the Pennsylvania Bond
Fund may be subject to state and local taxes even though a substantial portion
of such distributions may be derived from interest on obligations which, if
received directly, would be exempt from such taxes. The Pennsylvania Bond Fund
will report to its Shareholders annually after the close of its taxable year the
percentage and source, on a state-by-state basis, of interest income earned on
municipal obligations held by the Pennsylvania Bond Fund during the preceding
year. Shareholders are advised to consult their tax advisers concerning the
application of state and local taxes.
As indicated in the Prospectus, the Pennsylvania Bond Fund may acquire
rights regarding specified portfolio securities under puts. See "INVESTMENT
OBJECTIVES AND POLICIES -- Additional Information on Portfolio Instruments -
Puts" in this Statement of Additional Information. The policy of the
Pennsylvania Bond Fund is to limit its acquisition of puts to those under which
it will be treated for federal income tax purposes as the owner of the Exempt
Securities acquired subject to the put and the interest on the Exempt Securities
will be tax-exempt to it. Although the Internal Revenue Service has issued a
published ruling that provides some guidance regarding the tax consequences of
the purchase of puts, there is currently no guidance available from the Internal
Revenue Service that definitively establishes the tax consequences of many of
the types of puts that the Pennsylvania Bond Fund could acquire under the 1940
Act. Therefore, although the Pennsylvania Bond Fund
B-45
<PAGE> 407
will only acquire a put after concluding that it will have the tax consequences
described above, the Internal Revenue Service could reach a different
conclusion.
Under Section 1256 of the Code, gain or loss realized by the
Pennsylvania Bond Fund from certain financial futures and options transactions
will be treated as 60% long-term capital gain or loss and 40% short-term capital
gain or loss. Gain or loss will arise upon exercise or lapse of such futures and
options as well as from closing transactions. In addition, any such futures and
options remaining unexercised at the end of the Pennsylvania Bond Fund's taxable
year will be treated as sold for their then fair market value, resulting in
additional gain or loss to the Pennsylvania Bond Fund characterized in the
manner described above.
Offsetting positions held by the Pennsylvania Bond Fund involving
certain futures contracts or options transactions may be considered, for tax
purposes, to constitute "straddles." Straddles are defined to include
"offsetting positions" in actively traded personal property. The tax treatment
of straddles is governed by Sections 1092 and 1258 of the Code, which, in
certain circumstances, overrides or modifies the provisions of Section 1256. As
such, all or a portion of any short or long-term capital gain from certain
straddle and/or conversion transactions may be recharacterized as ordinary
income.
If the Pennsylvania Bond Fund were treated as entering into straddles
by reason of its engaging in futures or options transactions, such straddles
would be characterized as "mixed straddles" if the futures or options comprising
a part of such straddles were governed by Section 1256 of the Code. The
Pennsylvania Bond Fund may make one or more elections with respect to mixed
straddles. If no election is made, to the extent the straddle rules apply to
positions established by the Pennsylvania Bond Fund, losses realized by the
Pennsylvania Bond Fund will be deferred to the extent of unrealized gain in any
offsetting positions. Moreover, as a result of the straddle and conversion
transaction rules, short-term capital losses on straddle positions may be
recharacterized as long-term capital losses and long-term capital gains may be
recharacterized as short-term capital gain or ordinary income.
Investment by the Pennsylvania Bond Fund in securities issued at a
discount or providing for deferred interest or for payment of interest in the
form of additional obligations could, under special tax rules, affect the
amount, timing and character of distributions to Shareholders. For example, the
Pennsylvania Bond Fund could be required to take into account annually a portion
of the discount (or deemed discount) at which such securities were issued and to
distribute such portion in order to maintain its qualification as a regulated
investment company. In that case, the Pennsylvania
B-46
<PAGE> 408
Bond Fund may have to dispose of securities which it might otherwise have
continued to hold in order to generate cash to satisfy these distribution
requirements.
Income itself exempt from Federal income taxation may be considered in
addition to taxable income when determining whether Social Security payments
received by a Shareholder are subject to federal income taxation.
Seven-Day and 30-Day Yields of the Prime Money Market Fund and the Treasury
- ---------------------------------------------------------------------------
Money Market Fund
- -----------------
The standardized seven-day yield for the Prime Money Market Fund and
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 that 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 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 such Fund's average account size. The
capital changes to be excluded from the calculation of the net change in account
value are realized gains and losses from the sale of securities and unrealized
appreciation and depreciation. The 30-day yield is calculated as described above
except that the base period is 30 days rather than seven days.
The effective yield for the Prime Money Market Fund and 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.
For the seven-day period ended June 30, 1997, the Prime Money Market
Fund's seven-day yield and seven-day effective yield were 5.09% and 5.22%,
respectively. For the 30-day period ended June 30, 1997, the yield and effective
yield for the Prime Money Market Fund were 5.11% and 5.23%, respectively.
For the seven-day period ended September 30, 1997, the Treasury Money
Market Fund's seven-day yield and seven-day effective yield were 4.65% and
4.75%, respectively. For the 30-day period ended September 30, 1997, the yield
and effective yield for the Treasury Money Market Fund were 4.62% and 4.72%,
respectively.
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<PAGE> 409
30-Day Yield of the Funds
- -------------------------
As summarized in the Prospectuses under the heading "PERFORMANCE
INFORMATION," the yield of the Funds will be computed by annualizing net
investment income per share for a recent 30-day period and dividing that amount
by the Fund Share's maximum offering price (reduced by any undeclared earned
income expected to be paid shortly as a dividend) on the last trading day of
that period. Net investment income will reflect amortization of any market value
premium or discount of fixed income securities (except for obligations backed by
mortgages or other assets) and may include recognition of a pro rata portion of
the stated dividend rate of dividend paying portfolio securities. The yield of a
Fund will vary from time to time depending upon market conditions, the
composition of the 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 a Fund's yield to
yields published for other investment companies and other investment vehicles.
Yield should also be considered relative to changes in the value of a Fund's
Shares and to the relative risks associated with the investment objectives and
policies of that Fund.
In addition, tax equivalent yields are computed by dividing that
portion of the Pennsylvania Bond Fund's yield (as computed above) which is
tax-exempt by one minus a stated income tax rate and adding that result to that
portion, if any, of the yield of the Pennsylvania Bond Fund which is not
tax-exempt.
For the 30-day period ended June 30, 1997, the yields for the
Pennsylvania Bond Fund and the Income Fund were 3.91% and 6.12%, respectively,
assuming the imposition of the maximum sales charge, and 4.10% and 6.41%,
respectively, excluding the effect of a sales charge. For the same period, the
tax equivalent yields for the Pennsylvania Bond Fund, assuming a 39.6% federal
tax rate, were 6.47%, assuming the imposition of the maximum sales charge, and
6.79%, excluding the effect of a sales charge.
For the 30-day period ended September 30, 1997, the yields for the
Government Securities Fund were 5.23% assuming the imposition of the maximum
sales charge, and 5.39% excluding the effect of a sales charge.
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<PAGE> 410
Calculation of Total Return
- ---------------------------
As summarized in the Prospectuses under the heading "PERFORMANCE
INFORMATION," average annual total return is a measure of the change in value of
an investment in a Fund over the period covered, which assumes any dividends or
capital gains distributions are reinvested in that Fund immediately rather than
paid to the investor in cash. Average annual total return will be calculated by:
(1) adding to the total number of Shares purchased by a hypothetical $1,000
investment in a Fund (less the maximum sales charge, if any) all additional
Shares which would have been purchased if all dividends and distributions paid
or distributed during the period had been immediately reinvested; (2)
calculating the value of the hypothetical initial investment of $1,000 as of the
end of the period by multiplying the total number of Shares owned at the end of
the period by the net asset value per share on the last trading day of the
period; (3) assuming redemption at the end of the period; and (4) dividing this
account value for the hypothetical investor by the initial $1,000 investment and
annualizing the result for periods of less than one year. A Fund, however, may
also advertise aggregate total return in addition to or in lieu of average
annual total return. Aggregate total return
B-49
<PAGE> 411
is a measure of the change in value of an investment in a Fund over the relevant
period and is calculated similarly to average annual total return except that
the result is not annualized.
For the one year period ended June 30, 1997, and the period from
commencement of operations to June 30, 1997, the average annual total returns
for the Funds (other than the Treasury Money Market Fund and the Government
Securities Fund), including the performance of any Fund's predecessor CIFs
(which performance has been restated to reflect the estimated fees for such Fund
for the current fiscal year), are as follows:
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
Fund With Maximum Sales Load(1) Without Sales Load
---- -------------------------- ------------------
Since Since
1 Year Inception(2) 1 Year Inception(2)
------ --------- ------ ---------
<CAPTION>
<S> <C> <C> <C> <C>
Prime Money Market -- 3.73% -- 3.73%
Pennsylvania Bond -- -0.69% -- 3.98%
Established Growth 21.96% 28.64% 27.60% 31.05%
Income -- -3.16% -- 1.40%
Aggressive Growth 10.36% 18.81% 15.52% 20.63%
<FN>
- -----------------------
1 The maximum sales load for the Pennsylvania Bond Fund, the Established
Growth Fund, the Income Fund, and the Aggressive Growth Fund is 4.50%.
2 Commenced operations October 7, 1996, October 1, 1996, January 1, 1995
(the Established Growth Fund's predecessor CIF), December 2, 1996, and
July 1, 1994 (the Aggressive Growth Fund's predecessor CIF),
respectively.
The Prime Money Market Fund has no sales load.
</TABLE>
For the one year period ended September 30, 1997, and the period from
commencement of operations to September 30, 1997, the average annual returns for
the Treasury Money Market Fund and the Government Securities Fund (including the
performance of the Government Securities Fund's predecessor CFS, which
performance has been restated to reflect the estimated fees for such Fund for
the current fiscal year), are as follows:
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
Fund With Maximum Sales Load(3) Without Sales Load
---- -------------------------- ------------------
Since Since
1 Year Inception(4) 1 Year Inception(4)
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Treasury Money Market -- 1.20% -- 1.20%
Government Securities 1.97% 3.31% 5.17% 4.97%
<FN>
- -----------------------
3 The maximum sales load for the Government Securities Fund is 3.00%. The
Treasury Money Market Fund has no sales load.
4 The Treasury Money Market Fund commenced operations July 1, 1997. The
Government Securities Fund's predecessor CF commenced operations
October 31, 1995.
</TABLE>
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<PAGE> 412
Performance figures for periods prior to a Fund's commencement of
operations are for such Fund's predecessor CIFs and not those of the Fund. And,
of course, past performance is no guarantee as to future performance.
For the period from commencement of operations (October 1, 1996 and
December 2, 1996, respectively) to June 30, 1997, the aggregate total returns
for the Pennsylvania Bond Fund and the Income Fund were -0.69% and -3.16%,
respectively, reflecting the imposition of the maximum sales load, and 3.98% and
1.40%, respectively, assuming no sales load.
Distribution Rates
- ------------------
The Funds 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 S&P and to data prepared by
Lipper Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds. Comparisons may also be made to
indices or data published in Money Magazine, Forbes, Barron's, The Wall Street
Journal, Morningstar, Inc., Ibbotson Associates, CDA/Wiesenberger, The New York
Times, Business Week, U.S.A. Today and local periodicals. In addition to
performance information, general information about the Funds that appears in a
publication such as those mentioned above may be included in advertisements,
sales literature and reports to shareholders. The Funds may also include in
advertisements and reports to shareholders information discussing the
performance of the Adviser in comparison to other investment advisers and to
other institutions.
From time to time, the Group may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of inflation, the power of compounding and the benefits of dollar
cost averaging); (2) discussions of general economic trends; (3) presentations
of statistical data to supplement such discussions; (4) descriptions of past or
anticipated portfolio holdings for the Funds; (5) descriptions of investment
strategies for the Funds; (6) descriptions or comparisons of various investment
products, which may or may not include the Funds; (7) comparisons of investment
B-51
<PAGE> 413
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 request therefor from shareholders owning not less than
10% of the outstanding votes of the Group entitled to vote. At such a meeting, a
quorum of shareholders (constituting a majority of votes attributable to all
outstanding shares of the Group), by majority vote, has the power to remove one
or more Trustees.
The Group is registered with the Commission as a management investment
company. Such registration does not involve supervision by the Commission of the
management or policies of the Group.
The Prospectuses and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Commission. Copies of such information may be obtained from the Commission
upon payment of the prescribed fee.
The Prospectuses and this Statement of Additional Information are not
an offering of the securities herein described in any state in which such
offering may not lawfully be made. No salesman, dealer, or other person is
authorized to give any information or make any representation other than those
contained in the Prospectuses and this Statement of Additional Information.
B-52
<PAGE> 414
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following unaudited financial statements for the period ended
September 30, 1997, for the Treasury Money Market Fund and the Government
Securities Fund reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim periods presented.
Of course, there can be no guarantee that such results will be reflected in the
financial statements as of June 30, 1998.
B-53
<PAGE> 415
THE SESSIONS GROUP
KeyPremier Funds
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
September 30, 1997
(Unaudited)
Limited Duration U.S. Treasury
Government Obligations
Securities Money Market
Fund Fund
------------------------- -------------------------
<S> <C> <C>
ASSETS:
Investments, at value (cost $36,093,647 and $14,006,019) $ 36,092,457 $ 14,006,019
Repurchase agreements (cost $3,136,000 and $9,539,000) 3,136,000 9,539,000
------------------------- -------------------------
Total Investments 39,228,457 23,545,019
Cash 419 918
Interest and dividends receivable 308,958 338,476
Unamortized organization costs 2,255 7,223
Prepaid expenses and other assets 1,012 789
------------------------- -------------------------
Total Assets 39,541,101 23,892,425
------------------------- -------------------------
LIABILITIES:
Dividends payable 167,575 86,239
Payable to brokers for investments purchased 3,474,267 ---
Accrued expenses and other payables:
Investment advisory fees --- ---
Administration fees 452 305
Accounting fees 863 513
Custodian fees 1,288 2,116
Trustees' fees 136 82
Audit fees 2,852 2,760
Legal fees 6,999 7,057
Printing 2,760 2,668
Transfer agent fees 2,936 2,587
Registration and filing fees 3,588 3,220
Other 10,559 118
------------------------- -------------------------
Total Liabilities 3,674,275 107,665
------------------------- -------------------------
NET ASSETS:
Capital 35,862,102 23,784,760
Net unrealized appreciation on investments (1,190) ---
Accumulated undistributed net
realized gains on investment transactions 5,914 ---
------------------------- -------------------------
Net Assets $ 35,866,826 $ 23,784,760
========================= =========================
Outstanding units of beneficial interest (shares) 3,588,962 23,784,760
========================= =========================
Net asset value - redemption price per share $ 9.99 $ 1.00
========================= =========================
Maximum Sales Charge 3.00% -
========================= =========================
Maximum Offering Price (100%/(100%-Maximum Sales
Charge) of net asset value adjusted to nearest
cent) per share $ 10.30 $ 1.00
========================= =========================
</TABLE>
See notes to financial statements.
B-54
<PAGE> 416
THE SESSIONS GROUP
KeyPremier Funds
<TABLE>
<CAPTION>
Statements of Operations
For Period Ended September 30, 1997
(Unaudited)
Limited Duration U.S. Treasury
Government Obligations
Securities Money Market
Fund (a) Fund (a)
------------------------- -------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest income $ 570,391 $ 285,612
Dividend income 5,531 2,647
------------------------- -------------------------
Total Income 575,922 288,259
------------------------- -------------------------
EXPENSES:
Investment advisory fees 54,138 21,704
Administration fees 10,376 6,240
Accounting fees 8,205 7,745
Custodian fees 1,288 2,116
Audit fees 2,852 2,760
Legal fees 7,452 7,452
Organization costs 6,256 1,288
Trustees' fees and expenses 368 276
Transfer agent fees 6,532 6,164
Registration and filing fees 3,588 3,220
Printing costs 3,036 3,036
Other 277 184
------------------------- -------------------------
Total Expenses 104,368 62,185
Less: Expenses voluntarily reduced (54,138) (21,704)
------------------------- -------------------------
Net Investment Income 525,692 247,778
------------------------- -------------------------
REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gains (losses) on investment
transactions 5,914 ---
Change in unrealized appreciation/depreciation
on investments (37,006) ---
------------------------- -------------------------
Net realized/unrealized gains (losses) on investments (31,092) ---
------------------------- -------------------------
Change in net assets resulting from
operations $ 494,600 $ 247,778
========================= =========================
</TABLE>
(a) Commencement of the Funds began July 1, 1997.
See notes to financial statements.
B-55
<PAGE> 417
THE SESSIONS GROUP
KeyPremier Funds
<TABLE>
<CAPTION>
Statement of Change in Net Assets
(Unaudited)
Limited Duration U.S. Treasury
Government Obligations
Securities Money Market
Fund Fund
--------------------- -------------------
For Period For Period
Ended Ended
September 30, September 30,
1997 (a) 1997 (a)
--------------------- -------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income $ 525,692 $ 247,778
Net realized gains
on investments transactions 5,914 ---
Increase in unrealized depreciation
on investments (37,006) ---
--------------------- -------------------
Net increase in net assets resulting
from operations 494,600 247,778
--------------------- -------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (525,692) (247,778)
--------------------- -------------------
Change in net assets from
shareholder distributions (525,692) (247,778)
--------------------- -------------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued 40,002,831 32,648,568
Dividends reinvested 435 0
Cost of shares redeemed (4,105,348) (8,863,808)
--------------------- -------------------
Change in net assets
from capital transactions 35,897,918 23,784,760
--------------------- -------------------
Change in net assets 35,866,826 23,784,760
NET ASSETS:
Beginning of period --- ---
--------------------- -------------------
End of period $ 35,866,826 $ 23,784,760
===================== ===================
SHARE TRANSACTIONS:
Issued 3,999,290 32,648,568
Reinvested 44 ---
Redeemed (410,372) (8,863,808)
--------------------- -------------------
Change in shares 3,588,962 23,784,760
===================== ===================
</TABLE>
(a) Commencement of the Funds began July 1, 1997.
See notes to financial statements.
B-56
<PAGE> 418
THE SESSIONS GROUP
KeyPremier Funds
<TABLE>
<CAPTION>
Financial Highlights
U.S. Treasury
Limited Duration Obligations
Government Securities Money Market
--------------------- ------------
For Period For Period
Ended Ended
September 30, September 30,
1997 (a) 1997 (a)
------------------ ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net Asset Value, Beginning of Period $ 10.00 $ 1.00
------------------ ----------------
Investment Activities
Net investment income 0.15 0.01
Net realized and unrealized
gains (losses) on investments (0.01) ---
------------------ ----------------
Total from Investment Activities 0.14 0.01
------------------ ----------------
Distributions
Net investment income (0.15) (0.01)
------------------ ----------------
Total Distributions (0.15) (0.01)
------------------ ----------------
------------------ ----------------
Net Asset Value, End of Period $ 9.99 $ 1.00
================== ================
Total Return (excludes sales charge) 1.36%(b) 1.20%(b)
Ratios/Supplemental Data:
Net Assets, at end of period (000) $ 35,867 $ 23,785
Ratio of expenses to
average net assets 0.56%(c) 0.75%(c)
Ratio of net investment income
to average net assets 5.83%(c) 4.57%(c)
Ratio of expenses to
average net assets* 1.16%(c) 1.15%(c)
Ratio of net investment income
to average net assets* 5.23%(c) 4.17%(c)
Portfolio Turnover 315.89% ---
Average Commission Rate Paid --- ---
----------
</TABLE>
* During the period certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) Commencement of the Funds began July 1, 1997.
(b) Not Annualized
(c) Annualized
See notes to financial statements.
B-57
<PAGE> 419
KEYPREMIER LIMITED DURATION GOVERNMENT SECURITIES FUND
Schedule of Investments
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
<S> <C>
U.S. TREASURY OBLIGATIONS (72.3%)
1,000,000 6.00%, 12/31/97 $ 1,001,950
1,500,000 5.63%, 1/31/98 1,501,200
9,400,000 5.75%, 12/31/98 9,404,606
1,000,000 5.88%, 3/31/99 1,001,620
12,000,000 5.75%, 9/30/99 11,986,440
1,000,000 6.63%, 2/15/27 1,023,520
---------
TOTAL U.S. TREASURY OBLIGATIONS 25,919,336
----------
U.S. GOVERNMENT AGENCIES (28.4%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (4.8%)
1,500,000 5.24%, 7/15/98 1,497,586
94 10.00%, 10/1/00 99
218,410 7.95%, 3/25/20 218,888
-------
1,716,573
---------
U.S. GOVERNMENT AGENCY - DISCOUNT (23.6%)
Student Loan Mortgage Assoc.
5,000,000 6.00%, 11/27/98 5,001,400
Federal Home Loan Mortgage Corp.
3,248,876 9.00%, 4/1/16 3,455,147
---------
8,456,547
---------
TOTAL U.S. GOVERNMENT AGENCIES 10,173,120
----------
INVESTMENT COMPANIES (0.0%)
1 Federated Government Obligation 1
TOTAL INVESTMENT COMPANIES 1
REPURCHASE AGREEMENTS (8.7%)
3,136,000 Merrill Tri-Party Agreement, 6.10%, 10/1/97 3,136,000
(Collateralized by GMNA's ranging from 7.00% ---------
to 9.00%) 32 issues included in the collateral
report, par value equal to $15,276,429.
TOTAL REPURCHASE AGREEMENTS 3,136,000
---------
</TABLE>
See notes to financial statements.
B-58
<PAGE> 420
KEYPREMIER LIMITED DURATION GOVERNMENT SECURITIES FUND
Schedule of Investments
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Shares
or
Principal Security Market
Amount Description Value
<S> <C>
TOTAL (COST-$39,229,647)(a) $ 39,228,457
============
</TABLE>
Percentages indicated are based on net assets of $35,866,829.
(a) Represents cost for federal income tax purposes and differs from value
by net unrealized depreciation of securities as follows:
Unrealized appreciation.............. $ 28,395
Unrealized depreciation.............. (29,585)
Net Unrealized depreciation.......... $ (1,190)
See notes to financial statements.
B-59
<PAGE> 421
KEYPREMIER U.S. TREASURY OBLIGATIONS MONEY MARKET FUND
Schedule of Investments
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Shares
or
Principal Security Market
Amount Description Value
<S> <C>
REPURCHASE AGREEMENTS (40.1%)
4,539,000 Merrill Tri-Party Repurchase Agreement, $ 4,539,000
6.10%, 10/1/97 (Collateralized by GMNA's
ranging from 6.50% to 9.50%.) 28 issues
included in the collateral report, market
value equal to $5,493,350.
5,000,000 Yamachi Repurchase Agreement, 5.95%, 10/1/97 5,000,000
(Collateralized by 4,680,000 U.S. Treasury ---------
Note 7.25%, 5/15/04 Market Value equal to
$5,103,962)
TOTAL REPURCHASE AGREEMENTS 9,539,000
---------
U.S. TREASURY OBLIGATIONS (58.9%)
14,000,000 5.75%, 10/31/97 14,006,019
----------
TOTAL U.S. TREASURY OBLIGATIONS 14,006,019
----------
TOTAL (COST-$23,545,019)(a) $ 23,545,019
===========
</TABLE>
Percentages indicated are based on net assets of $23,784,760.
(a) Cost for federal income tax and financial reporting purposes
are the same.
See notes to financial statements.
B-60
<PAGE> 422
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. ORGANIZATION:
The Sessions Group (the "Group") was organized on April 25, 1988 as
an Ohio business trust, and is registered under the Investment Company
Act of 1940 as amended, (the "1940 Act"), as an open-end
management investment company. The Group is authorized to issue
an unlimited number of shares which are units of beneficial
interest, without par value. The Group offers shares of a number
of different series or portfolios, including the following series
for which Martindale Andres & Company, Inc., a wholly owned
subsidiary of Keystone Financial Inc., serves as investment adviser:
shares of the KeyPremier Limited Duration Government Securities Fund
and KeyPremier U.S. Treasury Obligations Money Market Fund and
(individually, a "Fund" and collectively, the "Funds").
The investment objectives of the Limited Duration Government Securities
Fund is to seek current income with preservation of capital as a
secondary objective. The investment objectives of the U.S. Treasury
Obligations Money Market Fund are to seek current income with liquidity
and stability of principal.
Shares of the Funds may be sold to customers by the Group's
distributor, BISYS Fund Services Limited Partnership d/b/a BISYS Fund
Services (the "Distributor") and its affiliates, to all accounts of
correspondent banks of Keystone Financial, Inc. and to the general
public.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed
by the Group in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting
principles. The preparation of financial statements requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the
reported amounts of income and expenses for the period. Actual results
could differ from those estimates.
SECURITIES VALUATION:
Investments of the U.S. Treasury Obligations Money Market Fund are
valued at either amortized cost, which approximates market value, or at
original cost, which combined with accrued interest, approximates
market value. Under the amortized cost method, discount or premium is
amortized on a constant basis to the maturity of the security. In
addition, the Fund may not a) purchase any instrument with a remaining
maturity greater than 397 calendar days unless such investment is
subject to a demand feature, or b) maintain a dollar-weighted average
portfolio maturity which exceeds 90 days.
Investments in corporate bonds, commercial paper, municipal securities
and U.S. Government securities of the Limited Duration Government
Securities Fund, (collectively, "the variable net asset value fund"),
are valued at their market values determined on the basis of the latest
available bid quotation in the principal market (closing sales prices
if the principal market is an exchange or NASDAQ National Market) in
which such securities are normally traded. The variable net asset value
funds may also use an independent pricing service approved by the
Board of Trustees to value certain other securities. Such prices
reflect market values which may be established through the use of
electronic and matrix techniques. Investments in investment companies
are valued at their net asset values as reported by such companies.
Other securities for which quotations are not readily available are
valued at their fair value under procedures established by the Group's
Board of Trustees. The differences between the cost and market values
of investments held by the variable net asset value fund are reflected
as either
(Continued)
B-61
<PAGE> 423
unrealized appreciation or depreciation.
SECURITY TRANSACTIONS AND RELATED INCOME:
Security transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the
accrual basis and includes, where applicable, the amortization of
premium or discount. Dividend income is recorded on the ex-dividend
date. Gains or losses realized on sales of securities are determined by
comparing the identified cost of the security lot sold with the net
sales proceeds.
REPURCHASE AGREEMENTS:
The Funds may acquire repurchase agreements from financial institutions
such as banks and broker dealers which Martindale Andres & Company,
Inc. deems creditworthy under guidelines approved by the Board of
Trustees, subject to the seller's agreement to repurchase such
securities at a mutually agreed-upon date and price. The repurchase
price generally equals the price paid by each Fund plus interest
negotiated on the basis of current short-term rates, which may be more
or less than the rate on the underlying portfolio securities. The
seller, under a repurchase agreement, is required to maintain the value
of collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest). Securities subject to
repurchase agreements are held by the Funds' custodian or another
qualified custodian or in the Federal Reserve/Treasury book-entry
system. Repurchase agreements are considered to be loans by the Funds
under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS:
The Funds may borrow for temporary purposes by entering into reverse
repurchase agreements. Pursuant to such agreements, a Fund would sell
portfolio securities to financial institutions such as banks and
broker-dealers, and agree to repurchase them at a mutually agreed-upon
date and price. At the time a Fund enters into a reverse repurchase
agreement, it places in a segregated custodial account assets having a
value equal to the repurchase price (including accrued interest), and
will continually monitor the account to ensure such equivalent value is
maintained at all times. Reverse repurchase agreements are considered
to be borrowing by the Funds under the 1940 Act.
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income are declared daily and paid
monthly and distributable net realized capital gains, if any, are
declared and distributed at least annually for the U.S. Treasury
Obligations Money Market Fund. Dividends from net investment income are
declared and paid monthly and distributable net realized capital gains,
if any, are declared and distributed annually for the Limited Duration
Government Securities Fund.
Dividends from net investment income and net realized capital gains are
determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These differences are
primarily due to differing treatments for net operating losses,
expiring capital loss carry forwards, and deferral of certain losses.
FEDERAL INCOME TAXES:
It is the policy of each of the Funds to qualify or continue to qualify
as a regulated investment company by complying with the provisions
available to certain investment companies, as defined in applicable
sections of the Internal Revenue Code, and to make distributions of net
investment income and net realized capital gains sufficient to relieve
it from all, or substantially all, Federal income taxes.
(Continued)
B-62
<PAGE> 424
ORGANIZATION COSTS:
All expenses in connection with each Fund's organization and
registration under the 1940 Act and the Securities Act of 1933 were
paid by the Fund. Such expenses are amortized over a period of five
years commencing with the date of the initial public offering.
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of portfolio securities (excluding short-term
securities) for the variable net asset value fund for the period ended
September 30, 1997, are as follows (commencement of operations of such
fund was July 1, 1997):
<TABLE>
<CAPTION>
Purchases Sales
--------- -----
<S> <C> <C>
Limited Duration Government Securities Fund $91,511,375 $70,022,507
</TABLE>
4. RELATED PARTY TRANSACTIONS:
Investment advisory services are provided to the Funds by Martindale
Andres & Company, Inc. Under the terms of the investment advisory
agreement, Martindale Andres & Company, Inc. is entitled to receive
fees based on a percentage of the average net assets of each Fund.
Martindale Andres & Company, Inc. has agreed that if the aggregate
expenses of the Funds, as defined, for any fiscal year exceed
limitations of any state having jurisdiction over the Funds, Martindale
Andres & Company, Inc. will refund to the Funds, or otherwise bear,
such excess. Such limitation did not affect the calculation of the
investment advisory fees during the period ended September 30, 1997.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS"), an Ohio limited partnership, and BISYS Fund Services Ohio,
Inc. ("BISYS Services") are subsidiaries of The BISYS Group, Inc.
BISYS, with whom certain officers and trustees of the Group are
affiliated, serves the Funds as administrator and distributor. Such
officers and trustees are paid no fees directly by the Funds for
serving as officers and trustees of the Group. Under the terms of the
administration agreement, BISYS's fees are computed daily as a
percentage of the average net assets of each Fund. BISYS Services, Inc.
serves the Funds as transfer agent and mutual fund accountant.
The Group has adopted an Administrative Services Plan, pursuant to
which each Fund is authorized to pay compensation to banks and other
financial institutions, which may include Martindale Andres & Company,
Inc., and Keystone Financial, Inc., and its correspondent and
affiliated banks and BISYS, for providing ministerial, record keeping
and/or administrative support services to their customers who are the
beneficial or record owners of a Fund. The compensation which may be
paid under the Administrative Services Plan is a fee computed daily at
an annual rate of up to 0.25% of the average daily net asset value of a
Fund. The Group has not implemented such a plan as of September 30,
1997.
BISYS is also entitled to receive commissions on sales of shares of
the variable net asset value funds. For the period ended September 30,
1997, BISYS received no commissions earned on sales of shares of the
variable net asset value funds.
Fees may be voluntarily reduced to assist the Funds in maintaining
competitive expense ratios.
(Continued)
B-63
<PAGE> 425
Information regarding these transactions is as follows for the period
ended September 30, 1997:
<TABLE>
<CAPTION>
Limited U.S. Treasury
Duration Obligations
Government Money
Securities Market
Fund Fund
---- ----
<S> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary
fee reductions (percentage
of average net assets) .60% .40%
Voluntary fee reductions $54,138 $21,704
ADMINISTRATION FEES:
Annual fee before voluntary
fee reductions (percentage
of average net assets) .115% .115%
Voluntary fee reductions --- ---
FUND ACCOUNTANT FEES $8,205 $7,745
TRANSFER AGENT FEES $6,532 $6,164
</TABLE>
5. ACQUISITION OF COMMON/COLLECTIVE TRUST FUNDS:
On July 1, 1997, the Limited Duration Government Securities Fund acquired
all of the assets of various common and collective trust funds maintained by
affiliates of Martindale Andres & Co., Inc. The following is a summary of shares
issued, net assets acquired, net asset value per shares and unrealized
appreciation as of the dates acquired:
<TABLE>
<CAPTION>
Limited Duration
Government
Securities
Fund
----
<S> <C>
Shares 3,467,684
Net Assets $ 34,676,843
Net Asset Value $ 10.00
Unrealized Appreciation/Depreciation $ 35,816
</TABLE>
(Continued)
B-64
<PAGE> 426
THE SESSIONS GROUP
KEYPREMIER FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1997
<TABLE>
<CAPTION>
PRIME PENNSYLVANIA ESTABLISHED INTERMEDIATE AGGRESSIVE
MONEY MARKET MUNICIPAL GROWTH TERM INCOME GROWTH
FUND BOND FUND FUND FUND FUND
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value (cost $96,191,524;
$118,836,308; $111,896,923;
$205,828,614; and $70,402,857,
respectively)......................... $96,191,524 $120,336,065 $191,422,209 $206,506,708 $105,262,604
----------- ------------ ------------ ------------ ------------
Cash.................................... 42,694 -- -- -- --
Interest and dividends receivable....... 45,133 1,931,885 232,429 2,519,582 98,324
Receivable from brokers for investments
sold.................................. -- 3,372,810 -- -- 12,879
Receivable for capital shares issued.... -- 9,548 7,533 2,837 --
Unamortized organization costs.......... 18,659 20,321 25,290 32,856 4,895
Prepaid expenses and other assets....... 567 -- 3,098 7,693 245
----------- ------------ ------------ ------------ ------------
Total Assets.......................... 96,298,577 125,670,629 191,690,559 209,069,676 105,378,947
----------- ------------ ------------ ------------ ------------
LIABILITIES:
Dividends payable....................... 399,942 407,216 479,221 1,113,477 29,005
Payable for capital shares redeemed..... -- -- -- -- 8,413
Payable to brokers for investments
purchased............................. -- 2,000,000 187,475 -- --
Accrued expenses and other payables:
Investment advisory fees.............. 15,665 30,215 62,532 51,334 43,048
Administration fees................... 1,204 1,559 2,412 2,634 1,312
Custodian fees........................ 1,612 1,072 1,367 1,105 329
Accounting fees....................... 645 2,019 4,017 3,970 4,688
Trustees' fees........................ -- 28 3,903 1,716 920
Legal fees............................ 4,645 7,989 7,865 7,389 6,171
Audit fees............................ 7,031 8,416 8,979 11,737 7,409
Printing.............................. 11,978 11,947 10,482 11,467 7,641
Transfer agent fees................... 937 1,196 -- -- 353
Registration and filing fees.......... 3,769 3,591 6,700 4,654 10,306
Other................................. 791 922 1,366 1,311 1,532
----------- ------------ ------------ ------------ ------------
Total Liabilities..................... 448,219 2,476,170 776,319 1,210,794 121,127
----------- ------------ ------------ ------------ ------------
NET ASSETS:
Capital................................. 95,847,274 121,945,921 110,833,331 210,358,664 69,318,302
Undistributed net investment income..... 3,084 256,668 4,340 (57,092) 7,833
Net unrealized appreciation
(depreciation) on investments......... -- 1,499,757 79,525,286 678,094 34,859,747
Accumulated undistributed net realized
gains (losses) on investment
transactions.......................... -- (507,887) 551,283 (3,120,784) 1,071,938
----------- ------------ ------------ ------------ ------------
Net Assets............................ $95,850,358 $123,194,459 $190,914,240 $207,858,882 $105,257,820
=========== ============ ============ ============ ============
Outstanding units of beneficial interest
(shares).............................. 95,850,207 11,974,426 17,152,829 21,269,558 10,280,303
=========== ============ ============ ============ ============
Net asset value -- redemption price per
share................................. $ 1.00 $ 10.29 $ 11.13 $ 9.77 $ 10.24
=========== ============ ============ ============ ============
Maximum Sales Charge.................... -- 4.50% 4.50% 4.50% 4.50%
=========== ============ ============ ============ ============
Maximum Offering Price (100%/(100%-
Maximum Sales Charge) of net asset
value adjusted to nearest cent) per
share................................. $ 1.00 (a) 10.77 $ 11.65 $ 10.23 $ 10.72
=========== ============ ============ ============ ============
</TABLE>
- ---------------
(a) Offering price and redemption price are the same for the Money Market Fund.
See notes to financial statements.
B-65
<PAGE> 427
THE SESSIONS GROUP
KEYPREMIER FUNDS
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PRIME PENNSYLVANIA ESTABLISHED INTERMEDIATE AGGRESSIVE
MONEY MARKET MUNICIPAL BOND GROWTH TERM INCOME GROWTH
FUND(A) FUND(A) FUND(A) FUND(A) FUND(A)
------------ -------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income................ $3,806,220 $4,040,237 $ -- $7,412,243 $ --
Dividend income................ -- 50,652 1,795,211 325,799 363,444
---------- ---------- ----------- ---------- ----------
Total Income................. 3,806,220 4,090,889 1,795,211 7,738,042 363,444
---------- ---------- ----------- ---------- ----------
EXPENSES:
Investment advisory fees....... 282,882 506,296 735,635 680,552 385,280
Administration fees............ 81,328 97,040 112,311 129,863 44,692
Custodian fees................. 17,048 4,425 14,130 13,071 8,212
Accounting fees................ 21,776 30,096 31,176 35,604 13,033
Legal fees..................... 17,269 21,690 15,838 16,874 10,048
Audit fees..................... 9,018 10,508 11,061 13,943 7,409
Organization costs............. 4,255 3,682 1,946 2,058 2,070
Trustees' fees and expenses.... 5,331 5,461 8,346 6,823 2,417
Transfer agent fees............ 19,648 21,322 20,282 19,824 11,099
Registration and filing fees... 8,702 5,264 10,273 7,352 13,143
Printing costs................. 22,413 21,721 20,622 20,042 19,397
Other.......................... 3,859 3,439 4,822 5,384 1,571
---------- ---------- ----------- ---------- ----------
Total Expenses................. 493,529 730,944 986,442 951,390 518,371
Less: Expenses voluntarily
reduced................... (236,280) (420,686) (558,942) (529,626) (263,486)
---------- ---------- ----------- ---------- ----------
Net Expenses................... 257,249 310,258 427,500 421,764 254,885
---------- ---------- ----------- ---------- ----------
Net Investment Income.......... 3,548,971 3,780,631 1,367,711 7,316,278 108,559
---------- ---------- ----------- ---------- ----------
REALIZED/UNREALIZED GAINS ON
INVESTMENTS:
Net realized gains (losses) on
investment transactions...... 151 (500,308) 551,283 (3,180,967) 1,071,938
Change in unrealized
appreciation/depreciation on
investments.................. -- 1,013,284 19,134,379 (1,083,860) 2,060,746
---------- ---------- ----------- ---------- ----------
Net realized/unrealized gains
(losses) on investments...... 151 512,976 19,685,662 (4,264,827) 3,132,684
---------- ---------- ----------- ---------- ----------
Change in net assets resulting
from operations.............. $3,549,122 $4,293,607 $21,053,373 $3,051,451 $3,241,243
========== ========== =========== ========== ==========
</TABLE>
- ---------------
(a) Commencement of the Funds began October 7, 1996, October 1, 1996, December
2, 1996, December 2, 1996, and February 3, 1997, respectively.
See notes to financial statements.
B-66
<PAGE> 428
THE SESSIONS GROUP
KEYPREMIER FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PRIME PENNSYLVANIA ESTABLISHED INTERMEDIATE
MONEY MARKET MUNICIPAL GROWTH TERM AGGRESSIVE
FUND BOND FUND FUND INCOME FUND GROWTH FUND
------------- ------------ ------------ ------------ ------------
FOR THE FOR THE FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD PERIOD PERIOD
ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997(A) 1997(A) 1997(A) 1997(A) 1997(A)
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............. $ 3,548,971 $ 3,780,631 $ 1,367,711 $ 7,316,278 $ 108,559
Net realized gains (losses) on
investments transactions........ 151 (500,308) 551,283 (3,180,967) 1,071,938
Net change in unrealized
appreciation/ depreciation on
investments..................... -- 1,013,284 19,134,379 (1,083,860) 2,060,746
------------- ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from
operations........................ 3,549,122 4,293,607 21,053,373 3,051,451 3,241,243
------------- ------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income........ (3,548,971) (3,525,784) (1,367,711) (7,316,278) (108,559)
In excess of net realized gains on
investments..................... -- (7,490) -- -- --
------------- ------------ ------------ ------------ ------------
Change in net assets from
shareholder distributions......... (3,548,971) (3,533,274) (1,367,711) (7,316,278) (108,559)
------------- ------------ ------------ ------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued....... 277,292,433 138,218,349 184,221,521 233,118,215 107,127,261
Dividends reinvested.............. 97,461 22,466 6,152 47,928 1,009
Cost of shares redeemed........... (181,539,687) (15,806,689) (12,999,095) (21,042,434) (5,003,134)
------------- ------------ ------------ ------------ ------------
Change in net assets from capital
transactions...................... 95,850,207 122,434,126 171,228,578 212,123,709 102,125,136
------------- ------------ ------------ ------------ ------------
Change in net assets................ 95,850,358 123,194,459 190,914,240 207,858,882 105,257,820
NET ASSETS:
Beginning of period............... -- -- -- -- --
------------- ------------ ------------ ------------ ------------
End of period..................... $ 95,850,358 $123,194,459 $190,914,240 $207,858,882 $105,257,820
============= ============ ============ ============ ============
SHARE TRANSACTIONS:
Issued............................ 277,292,433 13,502,154 18,435,219 23,412,762 10,794,978
Reinvested........................ 97,461 2,191 628 4,916 113
Redeemed.......................... (181,539,687) (1,529,919) (1,283,018) (2,148,120) (514,788)
------------- ------------ ------------ ------------ ------------
Change in shares.................... 95,850,207 11,974,426 17,152,829 21,269,558 10,280,303
============= ============ ============ ============ ============
</TABLE>
- ---------------
(a) Commencement of the Funds began October 7, 1996, October 1, 1996, December
2, 1996, December 2, 1996, and February 3, 1997, respectively.
See notes to financial statements.
B-67
<PAGE> 429
THE SESSIONS GROUP
KEYPREMIER PRIME MONEY MARKET FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- ----------- ------------------------------ -------------
<C> <S> <C>
COMMERCIAL PAPER (52.4%):
Automotive (4.7%):
$ 4,500,000 Ford Motor Company, 5.50%,
7/17/97..................... $ 4,489,000
-------------
Beverages (4.2%):
4,000,000 Pepsico, Inc., 5.50%,
7/16/97..................... 3,990,833
-------------
Energy (12.9%):
4,500,000 Consolidated Natural Gas,
5.55%, 7/7/97............... 4,495,838
1,783,000 National Power, 5.60%,
7/9/97...................... 1,780,781
4,500,000 Potomac Electric Power, 5.53%,
7/11/97..................... 4,493,088
1,000,000 Virginia Electric Power
Company, 5.58%, 7/8/97...... 998,915
700,000 West Penn Power, 6.25%,
7/1/97...................... 700,000
-------------
12,468,622
-------------
Entertainment (4.7%):
4,500,000 Walt Disney Company, 6.10%,
7/1/97...................... 4,500,000
-------------
Financial Services (7.8%):
4,500,000 GTE Funding, 5.54%, 7/21/97... 4,486,150
3,000,000 IBM Credit, 5.52%, 7/25/97.... 2,988,960
-------------
7,475,110
-------------
Industrials (4.7%):
4,500,000 Dresser Industries, 5.53%,
7/14/97..................... 4,491,014
-------------
Insurance (4.0%):
3,810,000 Southland, 5.58%, 7/8/97...... 3,805,866
-------------
COMMERCIAL PAPER, CONTINUED:
Machinery & Equipment(4.4%):
4,200,000 WW Grainger, 5.57%, 7/7/97.... $ 4,196,101
-------------
Telecommunications (5.0%):
4,800,000 NYNEX Corporation, 5.52%,
7/2/97...................... 4,799,264
-------------
Total Commercial Paper 50,215,810
-------------
CORPORATE BONDS (4.2%):
Private Placement-Variable (4.2%):
4,000,000 Asset Backed Securities
Investment Trust 1997 C,
5.69%, 6/15/98** (b)........ 4,000,000
-------------
Total Corporate Bonds 4,000,000
-------------
U.S. GOVERNMENT AGENCIES (40.7%):
Federal Agricultural Mortgage Corporation (31.3%):
20,000,000 5.40%, 7/1/97................. 20,000,000
5,000,000 5.44%, 7/14/97................ 4,990,178
5,000,000 5.44%, 7/15/97................ 4,989,422
-------------
29,979,600
-------------
Federal Home Loan Bank (9.4%):
9,000,000 5.34%, 7/3/97................. 8,997,330
-------------
Total U.S. Government Agencies 38,976,930
-------------
OTHER DEMAND INSTRUMENTS (3.1%):
3,000,000 Bank of America Floater,
5.69%, 4/16/98*............. 2,998,784
-------------
Total Other Demand Instruments 2,998,784
-------------
Total (Amortized Cost -- $96,191,524)(a) $96,191,524
=============
</TABLE>
- ---------
Percentages indicated are based on net assets of $95,850,358.
(a) Cost for federal income tax and financial reporting purposes are the same.
(b) Represents a restricted security, purchased under Rule 144A, which is exempt
from registration under the Securities Act of 1933, as amended. This
security is considered illiquid.
* Floating Rate Certificates are securities with interest rates that change
whenever a specific interest rate changes. The interest rate is based on an
index of market interest rates or other index. The rate reflected on the
Schedule of Portfolio Investments is the rate in effect on June 30, 1997.
** Variable Rate Certificates are securities with interest rates that change
periodically and are payable on different dates ranging from daily, weekly,
monthly, quarterly, or semi-annually. The rate reflected on the Schedule of
Portfolio Investments is the rate in effect on June 30, 1997.
See notes to financial statements.
B-68
<PAGE> 430
THE SESSIONS GROUP
KEYPREMIER PENNSYLVANIA MUNICIPAL BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ----------------------------------------------------------------------------------------- ------------
<C> <S> <C>
MUNICIPAL BONDS (97.4%):
Pennsylvania (91.9%):
$1,330,000 Berks County, Pennsylvania Municipal Authority, 7.10%, 5/15/22, Callable 5/15/04 @ 100... $ 1,514,538
1,000,000 Berks County, Pennsylvania Municipal Authority, Hospital Revenue, 5.00%, 10/1/02......... 1,018,750
1,000,000 Bethel Park, Pennsylvania School District, 5.40%, 8/1/00, Callable 8/1/99 @ 100.......... 1,021,250
1,000,000 Bethlehem, Pennsylvania Area School District, Series A, 6.50%, 9/1/00.................... 1,061,250
2,065,000 Bethlehem, Pennsylvania Water Authority, Series A, 6.30%, 11/15/15, Callable 11/15/02 @
100.................................................................................... 2,235,363
1,000,000 Bucks County, Pennsylvania Water & Sewer Authority, Series B, 6.50%, 12/1/12, Callable
12/1/02 @ 100.......................................................................... 1,092,500
5,000,000 Bucks County, Pennsylvania, 7.00%, 5/1/05................................................ 5,737,499
1,000,000 Bucks County, Pennsylvania, Series A, 6.00%, 3/1/01...................................... 1,051,250
1,900,000 Central Dauphin, Pennsylvania School District, 6.00%, 6/1/01............................. 2,004,500
1,875,000 Chester County, Pennsylvania, 5.60%, 12/15/08, Callable 12/15/03 @ 100................... 1,933,594
3,955,000 Delaware County, Pennsylvania, 6.00%, 11/15/22, Callable 11/15/02 @ 100.................. 4,212,075
9,000,000 Emmaus Pennsylvania General Authority, 4.45%, 12/1/28*................................... 8,999,999
4,000,000 Ephrata Pennsylvania Area School District, Series A, 6.80%, 4/15/11, Callable 4/15/01 @
100.................................................................................... 4,320,000
2,000,000 Geisinger, Pennsylvania Health Systems Authority, Series B, 7.38%, 7/1/02, Callable
7/1/99 @ 102........................................................................... 2,140,000
1,000,000 Hempfield, Pennsylvania School District, Lancaster County, 6.40%, 8/15/05, Callable
8/15/02 @ 100.......................................................................... 1,078,750
500,000 Lycoming County, Pennsylvania Hospital Authority, Series B, 7.40%, 7/1/99................ 530,000
600,000 Montgomery County, Pennsylvania Higher Education & Health Authority Revenue 4.45%,
8/1/21*................................................................................ 600,000
1,030,000 Northampton County, Pennsylvania Higher Education Authority, Lehigh University, 5.50%,
9/1/98................................................................................. 1,048,025
1,000,000 Northampton County, Pennsylvania Higher Education Authority, Lehigh University, 6.00%,
9/1/01................................................................................. 1,050,000
2,155,000 Northampton County, Pennsylvania Higher Education Authority, Lehigh University, 6.90%,
10/15/06, Callable 10/15/01 @ 102...................................................... 2,375,888
2,000,000 Pennsylvania Housing Finance Agency, 5.40%, 1/1/00....................................... 2,040,000
2,000,000 Pennsylvania Infrastructure Investment Authority, 6.00%, 9/1/03.......................... 2,145,000
3,325,000 Pennsylvania Infrastructure Investment Authority, 6.00%, 9/1/05.......................... 3,586,844
4,425,000 Pennsylvania Intergovernmental Cooperation Authority, 7.00%, 6/15/14, Callable 6/15/05 @
100.................................................................................... 5,072,156
2,000,000 Pennsylvania State First Service, 6.00%, 9/15/98......................................... 2,050,000
1,375,000 Pennsylvania State Higher Education Assistance Agency, Series A, 6.80%, 12/1/00.......... 1,462,656
1,000,000 Pennsylvania State Higher Education Facilities Authority, 7.00%, 5/1/02, Callable 5/1/00
@ 100.................................................................................. 1,070,000
375,000 Pennsylvania State Higher Education Facilities Authority, Series A, 6.88%, 7/1/99........ 393,281
2,000,000 Pennsylvania State Higher Education Facilities Authority, Series A, 5.90%, 8/15/00....... 2,090,000
3,925,000 Pennsylvania State Higher Education Facilities Authority, Series A, 5.35%, 1/1/08,
Callable 1/1/06 @ 101.................................................................. 4,008,406
1,750,000 Pennsylvania State Higher Education Facilities Authority, Series D, 7.15%, 6/15/15,
Callable 6/15/00 @ 100................................................................. 1,883,438
2,000,000 Pennsylvania State Higher Education, Duquesne University, Series A, 7.00%, 4/1/10........ 2,155,000
1,500,000 Pennsylvania State Industrial Development Authority, 5.00%, 7/1/00....................... 1,524,375
5,000,000 Pennsylvania State Referendum, 5.25%, 11/15/01........................................... 5,150,000
3,515,000 Pennsylvania State Referendum, 5.38%, 11/15/03........................................... 3,651,206
1,000,000 Pennsylvania State Turnpike, Series J, 6.40%, 12/1/00.................................... 1,062,500
1,000,000 Pennsylvania State Turnpike, Series P, 5.20%, 12/1/00.................................... 1,022,500
1,000,000 Pennsylvania State, Series A, 6.75%, 5/1/98.............................................. 1,023,490
3,500,000 Pennsylvania State, Series A, 6.70%, 1/1/02, Callable 1/1/01 @ 101.5..................... 3,797,500
2,000,000 Philadelphia, Pennsylvania Airport Revenue, Philadelphia Airport System, Series B, 5.00%,
6/15/05................................................................................ 2,000,000
</TABLE>
Continued
B-69
<PAGE> 431
THE SESSIONS GROUP
KEYPREMIER PENNSYLVANIA MUNICIPAL BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ----------------------------------------------------------------------------------------- ------------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Pennsylvania, Continued:
$1,000,000 Philadelphia, Pennsylvania Gas Works, 5.50%, 7/1/04...................................... $ 1,043,750
1,000,000 Philadelphia, Pennsylvania Hospitals & Higher Education Facilities Authority, Series A,
6.50%, 2/15/21, Callable 2/15/02 @ 102................................................. 1,096,250
300,000 Philadelphia, Pennsylvania Municipal Authority Revenue, Justice Lease Series B, 7.10%,
11/15/06 Callable 11/15/01 @ 102....................................................... 336,000
2,800,000 Philadelphia, Pennsylvania Packaging Authority Airport, 5.75%, 9/1/07.................... 2,982,000
3,000,000 Philadelphia, Pennsylvania Series B, 8.13%, 8/1/97 @ 102................................. 3,069,660
1,000,000 Philadelphia, Pennsylvania Water & Wastewater, 6.25%, 8/1/02............................. 1,076,250
1,000,000 Pittsburgh, Pennsylvania Water & Sewer Authority, Series A, 6.00%, 9/1/16, Callable
9/1/01 @ 100........................................................................... 1,057,500
1,700,000 Sayre, Pennsylvania Health Care Facilities Authority, Series A, 6.60%, 3/1/01............ 1,814,750
2,200,000 Union County, Pennsylvania Higher Education Facilities Financing Authority, 5.75%,
4/1/00................................................................................. 2,274,250
1,000,000 West Shore, Pennsylvania School District, 6.40%, 9/1/01, Callable 9/1/98 @ 100........... 1,022,500
3,000,000 Westmoreland County, Pennsylvania, 6.70%, 8/1/09, Callable 8/1/01 @ 100.................. 3,247,500
1,850,000 York County, Pennsylvania Industrial Development Authority, 6.25%, 7/1/02................ 1,981,813
------------
113,215,806
------------
PUERTO RICO (5.5%):
1,445,000 Puerto Rico Electric Power Authority, Power Referendum Series K, 9.38%, 7/1/17, Callable
7/1/97 @ 102........................................................................... 1,473,900
5,000,000 Puerto Rico Public Building Authority, Series M, 5.70%, 7/1/09........................... 5,318,750
------------
6,792,650
------------
Total Municipal Bonds.................................................................... 120,008,456
===========
INVESTMENT COMPANIES (0.3%):
214,557 Federated Pennsylvania Municipal Cash Fund............................................... 214,557
113,052 Federated Pennsylvania Municipal Cash Trust Service Shares............................... 113,052
------------
Total Investment Companies............................................................... 327,609
------------
Total (Cost -- $118,836,308)(a).......................................................... $120,336,065
============
</TABLE>
- ---------
Percentages indicated are based on net assets of $123,194,459.
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.......................... $1,743,029
Unrealized depreciation.......................... 243,272
----------
Net unrealized appreciation...................... $1,499,757
==========
</TABLE>
* Variable Rate Certificates are securities with interest rates that change
periodically and are payable on different dates ranging from daily, weekly,
monthly, or semi-annually. The rate reflected on the Schedule of Portfolio
Investments is the rate in effect on June 30, 1997.
See notes to financial statements.
B-70
<PAGE> 432
THE SESSIONS GROUP
KEYPREMIER ESTABLISHED GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- ---------- ------------------------------ -------------
<C> <S> <C>
COMMON STOCKS (95.9%):
Aerospace/Defense--Equipment (2.1%):
60,000 Textron, Inc.................. $ 3,982,500
-------------
Automotive Parts (3.5%):
34,100 AutoLiv, Inc.................. 1,334,163
24,000 Eaton Corp.................... 2,095,500
90,000 Echlin, Inc................... 3,240,000
-------------
6,669,663
-------------
Banks (3.8%):
72,000 Fleet Financial Group, Inc.... 4,554,000
10,000 Norwest Corp.................. 562,500
62,000 Signet Banking Corp........... 2,232,000
-------------
7,348,500
-------------
Beverages (3.4%):
94,000 Coca-Cola Co.................. 6,556,500
-------------
Chemicals (3.2%):
65,000 Hercules, Inc................. 3,111,875
100,000 Morton International, Inc..... 3,018,750
-------------
6,130,625
-------------
Computer Networks (3.0%):
30,000 Seagate Technology(b)......... 1,055,625
80,000 Silicon Graphics, Inc.(b)..... 1,200,000
40,000 Sun Microsystems, Inc.(b)..... 1,488,750
100,000 Tandem Computers, Inc.(b)..... 2,025,000
-------------
5,769,375
-------------
Computer Software (5.9%):
90,000 Automatic Data Processing,
Inc......................... 4,230,000
115,000 Computer Associates
International, Inc.......... 6,404,063
20,000 Netscape Communications
Corp.(b).................... 641,250
-------------
11,275,313
-------------
Diversified/Conglomerate (3.2%):
94,000 General Electric Co........... 6,145,250
-------------
Electronic Components (1.8%):
85,000 Micron Technology, Inc........ 3,394,688
-------------
Environmental Services (0.4%):
30,000 Republic Industries,
Inc.(b)..................... 727,500
-------------
Financial Services (10.0%):
62,000 Capital One Financial Corp.... 2,340,500
120,000 Federal National Mortgage
Assoc....................... 5,235,000
160,000 Green Tree Financial Corp..... 5,699,999
130,000 Morgan Stanley Dean Witter
Discover & Co............... 5,598,125
-------------
18,873,624
-------------
COMMON STOCKS, CONTINUED:
Food Processing & Packaging (2.6%):
76,000 ConAgra, Inc.................. $ 4,873,500
-------------
Furniture & Furnishings (3.8%):
50,000 Armstrong World Industries,
Inc......................... 3,668,750
75,000 Lancaster Colony Corp......... 3,628,125
-------------
7,296,875
-------------
Heating & Air Conditioning Equipment (1.3%):
45,000 Tecumseh Products Co., Class
B........................... 2,536,875
-------------
Household Products/Wares (3.3%):
45,000 Procter & Gamble Co........... 6,356,250
-------------
Insurance (2.9%):
13,000 Aetna, Inc.................... 1,330,875
80,000 United Health Care Corp....... 4,160,000
-------------
5,490,875
-------------
Medical & Hospital Management Services (0.9%):
50,000 Genesis Health Ventures(b).... 1,687,500
-------------
Medical Instruments (3.6%):
84,000 Medtronic, Inc................ 6,804,000
-------------
Mining (2.9%):
75,000 Potash Corp. of Saskatchewan,
Inc......................... 5,629,688
-------------
Motor Vehicles (1.7%):
100,000 Chrysler Corp................. 3,281,250
-------------
Oil & Gas (4.1%):
74,000 Coastal Corp.................. 3,935,875
55,000 Mobil Corp.................... 3,843,125
-------------
7,779,000
-------------
Pharmaceuticals (6.5%):
28,000 American Home Products
Corp........................ 2,142,000
30,000 Astra AB, Class A............. 570,000
36,000 Johnson & Johnson............. 2,317,500
154,000 Schering-Plough Corp.......... 7,372,749
-------------
12,402,249
-------------
Restaurants (2.1%):
155,000 Wendy's International, Inc.... 4,020,313
-------------
Retail -- Apparel (1.0%):
50,000 Gap, Inc...................... 1,943,750
-------------
Telecommunications (2.5%):
110,000 Loral Space &
Communications(b)........... 1,650,000
40,000 Motorola, Inc................. 3,040,000
-------------
4,690,000
-------------
</TABLE>
Continued
B-71
<PAGE> 433
THE SESSIONS GROUP
KEYPREMIER ESTABLISHED GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JUNE 30, 1997
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- ---------- ------------------------------ -------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Textile (3.9%):
200,000 Unifi, Inc.................... $ 7,475,000
-------------
Tools (2.9%):
110,000 Danaher Corporation........... 5,589,375
-------------
Utilities -- Electric (2.8%):
100,000 Baltimore Gas & Electric
Co.......................... 2,668,750
88,000 Consolidated Edison Co. of New
York........................ 2,590,500
-------------
5,259,250
-------------
Utilities--Gas & Pipeline (4.3%):
75,000 Sonat, Inc.................... 3,843,750
100,000 Williams Cos., Inc............ 4,375,000
-------------
8,218,750
-------------
Utilities--Telecommunications (1.8%):
67,000 Sprint Corp................... 3,525,875
-------------
COMMON STOCKS, CONTINUED:
Wholesale (0.7%):
50,000 Ikon Office Solutions......... $ 1,246,875
-------------
Total Common Stocks 182,980,788
-------------
PREFERRED STOCKS (0.2%):
Insurance (0.2%):
4,419 Aetna Services, Inc........... 414,281
-------------
Total Preferred Stocks 414,281
-------------
INVESTMENT COMPANIES (4.2%):
6,396,669 Federated Government
Obligation Fund............. 6,396,669
1,630,471 Federated Prime Obligation
Fund........................ 1,630,471
-------------
Total Investment Companies 8,027,140
-------------
Total (Cost -- $111,896,923)(a) $191,422,209
=============
</TABLE>
- ---------
Percentages indicated are based on net assets of $190,914,240.
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.......................... $81,517,250
Unrealized depreciation.......................... 1,991,964
-----------
Net unrealized appreciation...................... $79,525,286
===========
</TABLE>
(b) Non-income producing
See notes to financial statements.
B-72
<PAGE> 434
THE SESSIONS GROUP
KEYPREMIER INTERMEDIATE TERM INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------ ------------------------------ -------------
<C> <S> <C>
CORPORATE BONDS (34.4%):
Banks (9.5%):
$ 7,500,000 Bank of Montreal, 7.80%,
4/1/07...................... $ 7,818,750
6,000,000 Mercantile Bancorp, 7.30%,
6/15/07..................... 6,000,000
6,000,000 Wachovia, 6.61%, 10/1/25...... 5,880,000
------------
19,698,750
------------
Chemicals (3.0%):
6,000,000 Service Corp. International,
7.70%, 4/15/09.............. 6,165,000
------------
Consumer Goods and Services (2.8%):
6,000,000 Associates Corp., 6.88%,
11/15/08.................... 5,887,500
------------
Financial Services (10.1%):
2,000,000 American Express Global Bond,
6.75%, 6/23/04.............. 1,987,500
6,000,000 Dow Capital, 9.20%, 6/1/10.... 6,990,000
6,000,000 General Motors Acceptance
Corp., 6.63%, 10/1/02....... 5,925,000
6,000,000 Goldman Sachs, 7.25%,
10/1/05(b).................. 6,037,500
------------
20,940,000
------------
Pharmaceuticals (2.8%):
6,000,000 Eli Lilly, 7.13%, 6/1/25...... 5,850,000
------------
Telecommunications (3.0%):
6,000,000 Motorola, 7.50%, 5/15/25...... 6,135,000
------------
Transportation & Shipping (3.2%):
6,000,000 United Parcel Services, 8.38%,
4/1/20...................... 6,742,500
------------
Total Corporate Bonds 71,418,750
------------
U.S. TREASURY OBLIGATIONS (32.4%):
18,000,000 6.88%, 3/31/00................ 18,286,200
11,000,000 7.75%, 2/15/01................ 11,496,540
10,000,000 6.25%, 4/30/01................ 9,968,700
15,000,000 6.50%, 5/15/05................ 14,961,450
13,000,000 6.63%, 2/15/27................ 12,718,420
------------
Total U.S. Treasury Obligations 67,431,310
------------
U.S. GOVERNMENT AGENCIES (21.1%):
Federal Home Loan Mortgage Corporation (8.3%):
$ 5,000,000 6.87%, 3/3/03................. $ 5,050,200
5,000,000 6.80%, 12/1/03................ 5,041,050
7,000,000 8.00%, 6/1/17................. 7,205,450
------------
17,296,700
------------
Federal National Mortgage Association (8.1%):
3,911,622 7.50%, 1/1/27................. 3,920,149
6,052,914 7.50%, 1/1/27................. 6,066,109
6,578,975 9.00%, 5/1/27................. 6,935,884
------------
16,922,142
------------
Government National Mortgage Association (4.7%):
5,035,738 7.00%, 10/15/24, Pool
#780385..................... 4,968,511
4,526,841 8.50%, 7/20/26, Pool #2250.... 4,710,405
------------
9,678,916
------------
Total U.S. Government Agencies 43,897,758
------------
INVESTMENT COMPANIES (7.0%):
8,000,001 Federated Government
Obligation Fund............. 8,000,001
6,607,275 Federated Prime Obligation
Fund........................ 6,607,275
1 Federated Treasury Fund....... 1
------------
Total Investment Companies 14,607,277
------------
ASSET BACKED SECURITIES (4.4%):
$ 4,500,000 IMC Home Equity Loan Trust,
Series 97-1, Class A-3,
6.82%, 10/25/11............. 4,508,010
4,627,314 Toyota Auto Receivables
Grantor Trust, Series
1997-A, 6.45%, 4/15/02...... 4,643,603
------------
Total Asset Backed Securities 9,151,613
------------
Total (Cost -- $205,828,614)(a) $206,506,708
============
</TABLE>
- ---------
Percentages indicated are based on net assets of $207,858,882.
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.......................... $1,252,525
Unrealized depreciation.......................... 574,431
----------
Net unrealized appreciation...................... $ 678,094
==========
</TABLE>
(b) Represents a restricted security, purchased under Rule 144A, which is exempt
from registration under the Securities Act of 1933, as amended. This
security is considered illiquid.
See notes to financial statements.
B-73
<PAGE> 435
THE SESSIONS GROUP
KEYPREMIER AGGRESSIVE GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- ------------ ------------------------------ -------------
<C> <S> <C>
COMMON STOCKS (95.0%):
Aerospace/Defense -- Equipment (0.5%):
60,000 Liposome Co., Inc.(b)......... $ 536,250
-------------
Automotive Parts (2.5%):
72,000 Gentex Corp.(b)............... 1,422,000
60,000 Mascotech, Inc................ 1,252,500
-------------
2,674,500
-------------
Banks (2.4%):
66,000 First American Corp. --
Tennessee................... 2,532,750
-------------
Chemicals (5.3%):
128,000 Airgas, Inc.(b)............... 2,536,000
70,000 Lesco, Inc.................... 1,295,000
60,000 Valspar, Corp................. 1,777,500
-------------
5,608,500
-------------
Coal (0.6%):
55,000 Pittston Mineral Group........ 642,813
-------------
Communication -- Equipment (0.3%):
27,000 Transcrypt International(b)... 300,375
-------------
Computer Networks (2.9%):
130,000 Computer Network Tech
Corp.(b).................... 585,000
70,000 Seagate Technology(b)......... 2,463,125
-------------
3,048,125
-------------
Computer Software (9.3%):
71,000 Computer Data Systems, Inc.... 2,076,750
120,000 Compuware Corp.(b)............ 5,729,999
35,000 Dialogic Corp.(b)............. 931,875
150,000 PSC Inc.(b)................... 1,012,500
-------------
9,751,124
-------------
Computers (3.7%):
160,000 Hutchinson Tech(b)............ 3,920,000
-------------
Construction Materials (1.4%):
50,000 Fleetwood Enterprises......... 1,490,625
-------------
Defense (2.5%):
37,000 Thiokol Corp.................. 2,590,000
-------------
Diversified Products (0.5%):
60,000 Quixote Corp.................. 480,000
-------------
Educational Services (3.3%:)
130,000 Devry, Inc.(b)................ 3,510,000
-------------
Electrical Equipment (0.5%):
30,000 C-Cube Microsystems, Inc.(b).. 526,875
-------------
COMMON STOCKS, CONTINUED:
Electronic Instruments (4.2%):
45,000 CFM Technologies, Inc.(b)..... $ 1,473,750
100,000 Credence Systems Corp.(b)..... 2,993,750
-------------
4,467,500
-------------
Financial Services (3.9%):
48,000 Legg Mason, Inc............... 2,583,000
55,000 United Asset Management(b).... 1,557,188
-------------
4,140,188
-------------
Furniture & Furnishings (4.1%):
100,000 Bush Industries, Inc.......... 2,375,000
46,000 Leggett & Platt, Inc.......... 1,978,000
-------------
4,353,000
-------------
Homebuilders -- Mobile Homes (0.6%):
85,000 Winnebago Industries.......... 605,625
-------------
Hotel Management & Related Services (1.8%):
85,000 La Quinta Inns, Inc........... 1,859,375
-------------
Household Products (1.8%):
30,000 Premark International, Inc.... 802,500
30,000 Tupperware Corp............... 1,095,000
-------------
1,897,500
-------------
Insurance (2.6%):
30,000 Arthur J. Gallagher &
Company..................... 1,132,500
30,000 United Health Care Corp....... 1,560,000
-------------
2,692,500
-------------
Machinery & Equipment (0.9%):
100,000 Flow International Corp.(b)... 975,000
-------------
Medical & Hospital Management Services (3.6%):
45,000 Cerner Corp.(b)............... 945,000
85,000 Genesis Health Ventures(b).... 2,868,750
-------------
3,813,750
-------------
Medical Equipment & Supplies (6.2%):
20,000 Arrow International, Inc.,.... 585,000
90,000 Mentor Corp. Minnesota........ 2,666,250
34,000 Respironics, Inc.(b).......... 718,250
50,000 St Jude Medical, Inc.......... 1,950,000
60,000 Syncor International
Corp.(b).................... 630,000
-------------
6,549,500
-------------
Medical-Biotechnology (0.7%):
250,000 Integra Lifesciences
Corp.(b).................... 781,250
-------------
Oil & Gas (4.1%):
50,000 Forest Oil Corp.(b)........... 734,375
70,000 Lomak Petroleum, Inc.......... 1,246,875
50,000 Triton Energy Ltd............. 2,290,625
-------------
4,271,875
-------------
</TABLE>
Continued
B-74
<PAGE> 436
THE SESSIONS GROUP
KEYPREMIER AGGRESSIVE GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JUNE 30, 1997
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- ------------ ------------------------------ -------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Pharmaceuticals (1.0%):
50,000 Interneuron
Pharmaceuticals(b).......... $ 1,006,250
-------------
Retail-General Merchandise (1.2%):
70,000 Fingerhut Companies, Inc...... 1,220,625
-------------
Services (5.4%):
54,000 Devon Group, Inc.(b).......... 1,930,500
70,000 Logicon, Inc.................. 3,710,000
-------------
5,640,500
-------------
Special Industry -- Equipment (3.2%):
100,000 Integrated Circuit
Systems(b).................. 2,268,750
30,000 Lam Research Corp.(b)......... 1,111,875
-------------
3,380,625
-------------
Telecommunication -- Equipment (2.7%):
100,000 Digi International, Inc.(b)... 1,012,500
60,000 ECI Telecommunications........ 1,785,000
-------------
2,797,500
-------------
Telecommunications (1.6%):
70,000 Glenayre Technologies,
Inc.(b)..................... 1,146,250
40,000 Mosaix, Inc.(b)............... 545,000
-------------
1,691,250
-------------
COMMON STOCKS, CONTINUED:
Textile (5.1%):
76,000 Lydall, Inc.(b)............... $ 1,605,500
100,000 Unifi, Inc.................... 3,737,500
-------------
5,343,000
-------------
Utilities -- Electric (1.4%):
60,000 Trigen Energy Corp............ 1,500,000
-------------
Utilities -- Telephone (0.9%):
100,000 Picturetel Corp.(b)........... 950,000
-------------
Wholesale -- Food Products (2.3%):
55,000 Amrion, Inc.(b)............... 1,540,000
30,000 JP Foodservice, Inc.(b)....... 860,625
-------------
2,400,625
-------------
Total Common Stocks 99,949,375
-------------
INVESTMENT COMPANIES (5.0%):
3,539,901 Federated Government
Obligation Fund............. 3,539,901
1,773,328 Federated Prime Obligation
Fund........................ 1,773,328
-------------
Total Investment Companies 5,313,229
-------------
Total (Cost -- $70,402,857)(a) $105,262,604
=============
</TABLE>
- ---------
Percentages indicated are based on net assets of $105,257,820.
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.......................... $41,080,697
Unrealized depreciation.......................... 6,220,950
-----------
Net unrealized appreciation...................... $34,859,747
===========
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements.
B-75
<PAGE> 437
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
1. ORGANIZATION:
The Sessions Group (the "Group") was organized on April 25, 1988 as an Ohio
business trust, and is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end management investment company.
The Group is authorized to issue an unlimited number of shares which are
units of beneficial interest, without par value. The Group offers shares of
a number of different series or portfolios, including the following series
for which Martindale Andres & Company, Inc., a wholly owned subsidiary of
Keystone Financial Inc., serves as investment adviser: shares of the
KeyPremier Prime Money Market Fund, KeyPremier Pennsylvania Municipal Bond
Fund, KeyPremier Established Growth Fund, KeyPremier Intermediate Term
Income Fund, and KeyPremier Aggressive Growth Fund (individually, a "Fund"
and collectively, the "Funds").
The investment objective of the Prime Money Market Fund is to seek current
income with liquidity and stability of principal. The investment objectives
of the Pennsylvania Municipal Bond Fund are to seek income which is exempt
from federal income tax and Pennsylvania state income tax, although such
income may be subject to the federal alternative minimum tax when received
by certain shareholders, and preservation of capital. The investment
objective for the Established Growth Fund is growth of capital with some
current income as a secondary objective. The investment objective of the
Intermediate Term Income Fund is current income with long-term growth of
capital as a secondary objective. The investment objective of the
Aggressive Growth Fund is growth of capital.
Shares of the Funds may be sold by the Group's distributor, BISYS Fund
Services Limited Partnership d/b/a BISYS Fund Services (the "Distributor")
and its affiliates, to customers and to all accounts of correspondent banks
of Keystone Financial, Inc. and to the general public.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Group in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles. The
preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of income
and expenses for the period. Actual results could differ from those
estimates.
SECURITIES VALUATION:
Investments of the Prime Money Market Fund are valued at amortized cost,
which approximates market value. Under the amortized cost method, discount
or premium is amortized on a constant basis to the maturity of the
security. In addition, the Fund may not a) purchase any instrument with a
remaining maturity greater than 397 calendar days unless such investment is
subject to a demand feature, or b) maintain a dollar-weighted average
portfolio maturity which exceeds 90 days.
Continued
B-76
<PAGE> 438
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
Investments in common and preferred stocks, corporate bonds, municipal
securities and U.S. Government securities of the Pennsylvania Municipal
Bond Fund, Established Growth Fund, Intermediate Term Income Fund, and the
Aggressive Growth Fund, (collectively, "the variable net asset value
funds"), are valued at their market values determined on the basis of the
latest available bid quotation in the principal market (closing sales
prices if the principal market is an exchange or NASDAQ National Market) in
which such securities are normally traded. The variable net asset value
funds may also use an independent pricing service approved by the Board of
Trustees to value certain other securities. Such prices reflect market
values which may be established through the use of electronic and matrix
techniques. Investments in investment companies are valued at their net
asset values as reported by such companies. Other securities for which
quotations are not readily available are valued at their fair value under
procedures established by the Group's Board of Trustees. The differences
between the cost and market values of investments held by the variable net
asset value funds are reflected as either unrealized appreciation or
depreciation.
SECURITY TRANSACTIONS AND RELATED INCOME:
Security transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the
accrual basis and includes, where applicable, the amortization of premium
or discount. Dividend income is recorded on the ex-dividend date. Gains or
losses realized on sales of securities are determined by comparing the
identified cost of the security lot sold with the net sales proceeds.
REPURCHASE AGREEMENTS:
The Funds may acquire repurchase agreements from financial institutions
such as banks and broker dealers which Martindale Andres & Company, Inc.
deems creditworthy under guidelines approved by the Board of Trustees,
subject to the seller's agreement to repurchase such securities at a
mutually agreed-upon date and price. The repurchase price generally equals
the price paid by each Fund plus interest negotiated on the basis of
current short-term rates, which may be more or less than the rate on the
underlying portfolio securities. The seller, under a repurchase agreement,
is required to maintain the value of collateral held pursuant to the
agreement at not less than the repurchase price (including accrued
interest). Securities subject to repurchase agreements are held by the
Funds' custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system.
REVERSE REPURCHASE AGREEMENTS:
The Funds may borrow for temporary purposes by entering into reverse
repurchase agreements. Pursuant to such agreements, a Fund would sell
portfolio securities to financial institutions such as banks and
broker-dealers, and agree to repurchase them at a mutually agreed-upon date
and price. At the time a Fund enters into a reverse repurchase agreement,
it places in a segregated custodial account assets having a value equal to
the repurchase price (including accrued interest), and will continually
monitor the
Continued
B-77
<PAGE> 439
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
account to ensure such equivalent value is maintained at all times. The
Funds had no significant holdings in reverse repurchase agreements during
the periods ended June 30, 1997.
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income are declared daily and paid monthly
and distributable net realized capital gains, if any, are declared and
distributed at least annually for the Prime Money Market Fund. Dividends
from net investment income are declared and paid monthly and distributable
net realized capital gains, if any, are declared and distributed annually
for the Pennsylvania Municipal Bond and Intermediate Term Income Funds.
Dividends from net investment income are declared and paid quarterly and
distributable net realized capital gains, if any, are declared and
distributed annually for the Established Growth and Aggressive Growth
Funds.
Dividends from net investment income and net realized capital gains are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily
due to differing treatments for net operating losses, expiring capital loss
carry forwards, and deferral of certain losses.
FEDERAL INCOME TAXES:
It is the policy of each of the Funds to qualify or continue to qualify as
a regulated investment company by complying with the provisions available
to certain investment companies, as defined in applicable sections of the
Internal Revenue Code, and to make distributions of net investment income
and net realized capital gains sufficient to relieve it from all, or
substantially all, Federal income taxes.
ORGANIZATION COSTS:
All expenses in connection with each Fund's organization and registration
under the 1940 Act and the Securities Act of 1933 were paid by the Fund.
Such expenses are amortized over a period of five years commencing with the
date of the initial public offering.
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of portfolio securities (excluding short-term
securities) for the variable net asset value funds for the period ended
June 30, 1997, are as follows (commencement of operations of such funds was
October 1, 1996, December 2, 1996, December 2, 1996, and February 3, 1997,
respectively):
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Pennsylvania Municipal Bond Fund............................. $115,550,685 $101,834,935
Established Growth Fund...................................... $ 11,590,972 $ 2,016,892
Intermediate Term Income Fund................................ $776,906,116 $582,925,224
Aggressive Growth Fund....................................... $ 6,375,297 $ 1,960,691
</TABLE>
Continued
B-78
<PAGE> 440
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
4. RELATED PARTY TRANSACTIONS:
Investment advisory services are provided to the Funds by Martindale Andres
& Company, Inc. Under the terms of the investment advisory agreement,
Martindale Andres & Company, Inc. is entitled to receive fees based on a
percentage of the average net assets of each Fund. Martindale Andres &
Company, Inc. has agreed that if the aggregate expenses of the Funds, as
defined, for any fiscal year exceed limitations of any state having
jurisdiction over the Funds, Martindale Andres & Company, Inc. will refund
to the Funds, or otherwise bear, such excess. Such limitation did not
affect the calculation of the investment advisory fees during the period
ended June 30, 1997.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS"), an Ohio limited partnership, and BISYS Fund Services Inc.
("BISYS Services") are subsidiaries of The BISYS Group, Inc.
BISYS, with whom certain officers and trustees of the Group are affiliated,
serves the Funds as administrator and distributor. Such officers and
trustees are paid no fees directly by the Funds for serving as officers and
trustees of the Group. Under the terms of the administration agreement,
BISYS's fees are computed daily as a percentage of the average net assets
of each Fund. BISYS Services serves the Funds as transfer agent and mutual
fund accountant.
The Group has adopted an Administrative Services Plan, pursuant to which
each Fund is authorized to pay compensation to banks and other financial
institutions, which may include Martindale Andres & Company, Inc., Keystone
Financial, Inc., and its correspondent and affiliated banks and BISYS, for
providing ministerial, recordkeeping and/or administrative support services
to their customers who are the beneficial or record owners of a Fund. The
compensation which may be paid under the Administrative Services Plan is a
fee computed daily at an annual rate of up to 0.25% of the average daily
net asset value of a Fund. The Group has not implemented such a plan as of
June 30, 1997.
BISYS is also entitled to receive commissions on sales of shares of the
variable net asset value funds. For the year ended June 30, 1997, BISYS
received $17,553 from commissions earned on sales of shares of the variable
net asset value funds, of which $1,943 was allowed to affiliated
broker/dealers with Martindale Andres & Company.
Fees may be voluntarily reduced to assist the Funds in maintaining more
competitive expense ratios.
Continued
B-79
<PAGE> 441
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
Information regarding these transactions is as follows for the year ended
June 30, 1997:
<TABLE>
<CAPTION>
PRIME PENNSYLVANIA INTERMEDIATE
MONEY MUNICIPAL ESTABLISHED TERM AGGRESSIVE
MARKET BOND GROWTH INCOME GROWTH
FUND FUND FUND FUND FUND
-------- ------------ ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee
reductions (percentage of average net
assets)............................... .40% .60% .75% .60% 1.00%
Voluntary fee reductions................ $236,280 $420,686 $ 558,942 $529,626 $ 263,486
ADMINISTRATION FEES:
Annual fee before voluntary fee
reductions (percentage of average net
assets)............................... .115% .115% .115% .115% .115%
FUND ACCOUNTANT FEES.................... $ 21,776 $ 30,096 $ 31,176 $ 35,604 $ 13,033
TRANSFER AGENT FEES..................... $ 19,648 $ 21,322 $ 20,282 $ 19,824 $ 11,099
</TABLE>
5. FEDERAL INCOME TAXES:
Under current tax law, capital losses realized after October 31 may be
deferred and treated as occurring on the first day of the following fiscal
year. The Pennsylvania Municipal Bond Fund and Intermediate Term Income
Fund, had deferred losses of $507,887 and $3,155,784 respectively, which
will be treated as arising on the first day of the fiscal year ending June
30, 1998.
During the period ended June 30, 1997, the following Fund declared
long-term capital gain distributions in the following amounts:
<TABLE>
<S> <C>
FUND AMOUNT
---- ------
Pennsylvania Municipal Bond Fund $7,579
</TABLE>
6. EXEMPT INTEREST INCOME DESIGNATIONS (UNAUDITED):
For the taxable period ended June 30, 1997, 100% of income dividends paid
by the Established Growth Fund and 100% of income dividends paid by the
Aggressive Growth Fund qualify for the dividends received deduction
available to corporations.
Continued
B-80
<PAGE> 442
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
7. CONVERSION OF COMMON/COLLECTIVE TRUST FUNDS:
On September 30, 1996, November 30, 1996, November 30, 1996, and February
3, 1997 respectively, the Pennsylvania Municipal Bond, Established Growth,
Intermediate Term Income, and Aggressive Growth Funds converted all of the
net assets of various common and collective trust funds of Keystone
Financial, Inc. The following is a summary of shares issued, net assets
converted, net asset value per share, and unrealized appreciation as of the
dates of conversion:
<TABLE>
<CAPTION>
PENNSYLVANIA INTERMEDIATE
MUNICIPAL ESTABLISHED TERM AGGRESSIVE
BOND GROWTH INCOME GROWTH
FUND FUND FUND FUND
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Shares............................. 10,288,691 16,173,916 18,918,934 9,409,050
Net Assets......................... $105,086,408 $161,793,160 $189,189,347 $94,090,501
Net Asset Value.................... $ 10.21 $ 10.00 $ 10.00 $ 10.00
Unrealized Appreciation............ $ 486,473 $ 60,390,907 $ 1,761,954 $32,799,001
</TABLE>
Continued
B-81
<PAGE> 443
THE SESSIONS GROUP
KEYPREMIER FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PRIME PENNSYLVANIA INTERMEDIATE
MONEY MARKET MUNICIPAL ESTABLISHED TERM AGGRESSIVE
FUND BOND FUND GROWTH FUND INCOME FUND GROWTH FUND
---------------- ---------------- ---------------- ---------------- ----------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
ENDING ENDING ENDING ENDING ENDING
JUNE 30, 1997(A) JUNE 30, 1997(A) JUNE 30, 1997(A) JUNE 30, 1997(A) JUNE 30, 1997(A)
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period............... $ 1.00 $ 10.21 $ 10.00 $ 10.00 $ 10.00
------- -------- -------- -------- --------
Investment Activities
Net investment income... 0.037 0.34 0.08 0.36 0.01
Net realized and
unrealized gains
(losses) on
investments........... -- 0.06 1.13 (0.23) 0.24
------- -------- -------- -------- --------
Total from Investment
Activities.......... 0.037 0.40 1.21 0.13 0.25
------- -------- -------- -------- --------
Distributions
Net investment income... (0.037) (0.32) (0.08) (0.36) (0.01)
------- -------- -------- -------- --------
Total Distributions... (0.037) (0.32) (0.08) (0.36) (0.01)
------- -------- -------- -------- --------
Net Asset Value, End of
Period.................. $ 1.00 $ 10.29 $ 11.13 $ 9.77 $ 10.24
------- -------- -------- -------- --------
Total Return (excludes
sales charge)........... 3.73%(b) 3.98%(b) 12.20%(b) 1.40%(b) 2.52%(b)
Ratios/Supplemental Data:
Net Assets, at end of
period (000)............ $ 95,850 $123,194 $190,914 $207,859 $105,258
Ratio of expenses to
average net assets...... 0.36%(c) 0.37%(c) 0.44%(c) 0.37%(c) 0.66%(c)
Ratio of net investment
income to average net
assets.................. 5.02%(c) 4.46%(c) 1.39%(c) 6.45%(c) 0.28%(c)
Ratio of expenses to
average net assets*..... 0.70%(c) 0.86%(c) 1.01%(c) 0.84%(c) 1.35%(c)
Ratio of net investment
income to average net
assets*................. 4.68%(c) 3.97%(c) 0.82%(c) 5.98%(c) (0.41%)(c)
Portfolio Turnover........ -- 98% 1% 329% 2%
Average Broker Commission
Paid.................... -- -- $ 0.0748(d) -- $ 0.0708(d)
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the period certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios
would have been as indicated.
(a) Commencement of the Funds began October 7, 1996, October 1, 1996, December 2, 1996, December 2, 1996, and February 3, 1997,
respectively.
(b) Not Annualized
(c) Annualized
(d) Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of shares
purchased and sold by the Fund for which commissions were charged.
</TABLE>
See notes to financial statements.
B-82
<PAGE> 444
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees
The Sessions Group --
KeyPremier Funds:
We have audited the accompanying statements of assets and liabilities of The
Sessions Group -- KeyPremier Funds (comprised of the KeyPremier Prime Money
Market Fund, KeyPremier Pennsylvania Municipal Bond Fund, KeyPremier Established
Growth Fund, KeyPremier Intermediate Term Income Fund, and KeyPremier Aggressive
Growth Fund, collectively the Funds), including the schedules of portfolio
investments as of June 30, 1997, and the related statements of operations,
statements of changes in net assets and the financial highlights for each of the
periods indicated herein. These financial statements and the financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of June
30, 1997 by confirmation with the custodian and other appropriate audit
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned funds comprising The Sessions Group -- KeyPremier Funds at
June 30, 1997, the results of their operations, the changes in their net assets
and the financial highlights for each of the periods indicated herein, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
August 22, 1997
B-83
<PAGE> 445
APPENDIX
COMMERCIAL PAPER RATINGS. Commercial paper ratings of Standard & Poor's
Corporation ("S&P") are current assessments of the likelihood of timely payment
of debt considered short term in the relevant market. Commercial paper rated A-1
by S&P indicates that the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted A-1+. Commercial paper rated A-2 by S&P indicates that capacity for
timely payment on issues is satisfactory. However, the relative degree of safety
is not as high as for issues designated A-1.
Moody's Investors Service, Inc.'s ("Moody's") commercial paper rating
are opinions of the ability of issuers to repay punctually senior debt
obligations which have an original maturity not exceeding one year. The rating
Prime-1 is the highest commercial paper rating assigned by Moody's. Issuers
rated Prime-1 (or supporting institutions) are considered to have a superior
capacity for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics of Prime-1 rated issuers, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variations. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Commercial paper rated F-1+ by Fitch Investors Service ("Fitch") is
regarded as having the strongest degree of assurance for timely payments.
Commercial paper rated F-1 by Fitch is regarded as having an assurance of timely
payment only slightly less than the strongest rating, I.E., F-1+. Commercial
paper rated F-2 by Fitch is regarded as having a satisfactory degree of
assurance of timely payment, but the margin of safety is not as great as for
issues assigned F-1+ or F-1 ratings.
The description of the two highest short-term debt ratings by Duff &
Phelps, Inc. ("Duff") (Duff incorporates gradations of "1+" (one plus) and "1-"
(one minus) to assist investors in recognizing quality differences within the
highest rating category) are as follows. Duff 1+ is regarded as having the
highest certainty of timely payment. Short-term liquidity, including internal
operating factors and/or access to alternative sources of funds, is outstanding,
and safety is just below risk-free U.S. Treasury short-term obligations. Duff 1
is regarded as having a very high certainty of timely payment. Liquidity factors
are excellent and
A-1
<PAGE> 446
supported by good fundamental protection factors. Risk factors are minor. Duff
1- is regarded as having a high certainty of timely payment. Liquidity factors
are strong and supported by good fundamental protection factors. Risk factors
are minor. Duff 2 is regarded as having a good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
Commercial paper rated A1 by IBCA Limited and its affiliate, IBCA Inc.
(collectively "IBCA") is regarded by IBCA as obligations supported by the
highest capacity for timely repayment. Where issues possess a particularly
strong credit feature, a rating of A1+ is assigned. Obligations rated A2 are
supported by a good capacity for timely repayment.
The following summarizes the description of the two highest short-term
ratings of Thomson BankWatch, Inc. ("Thomson"). TBW-1 is the highest category
and indicates a very high likelihood that principal and interest will be paid on
a timely basis. TBW-2 is the second highest category indicating that while the
degree of safety regarding timely repayment of principal and interest is strong,
the relative degree of safety is not as high as for issues rated "TBW-1."
The plus (+) sign is used after a rating symbol to designate the
relative position of an issuer within the rating category.
CORPORATE DEBT RATINGS. A S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong. Debt rated AA has a very
strong capacity to pay interest and to repay principal and differs from the
highest rated issues only in small degree. Debt rated A has a strong capacity to
pay interest and repay principal although it is somewhat more susceptible to
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories. Debt
rated BB and B is regard as having predominantly speculative characteristics
with respect to capacity to pay interest and repay principal. BB indicates the
lease degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
exposures to adverse conditions. Debt rated BB has less near-term vulnerability
to default than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic conditions
which could lead to inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt subordinated to senior
debt that is
A-2
<PAGE> 447
assigned an actual or implied BBB rating. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
The following summarizes the six highest ratings used by Moody's for
corporate debt. Bonds that are rated Aaa by Moody's are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Bonds
that are rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities. Bonds that are
rated A by Moody's possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future. Bonds that
are rated Baa by Moody's are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. Bonds that are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class. Bond which are rated
B generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Moody's applies numerical modifiers (1, 2, and 3) with respect to bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category.
The following summarizes the six highest long-term debt ratings by
Duff. Debt rated AAA has the highest credit quality.
A-3
<PAGE> 448
The risk factors are negligible being only slightly more than for risk-free U.S.
Treasury debt. Debt rated AA has a high credit quality and protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions. Debt rated A has protection factors that are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress. Debt rated BBB has below average protection factors but is
still considered sufficient for prudent investment. However, there is
considerable variability in risk during economic cycles. Debt rated BB is below
investment grade but deemed likely to meet obligations when due. Present or
prospective financial protection factors fluctuate according to industry
conditions or company fortunes. Overall quality may move up or down frequently
within this category. Debt rated B is below investment grade and possesses risk
that obligations will not be met when due. Financial protection factors will
fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
To provide more detailed indications of credit quality, the ratings AA
to B may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
The following summarizes the six highest long-term debt ratings by
Fitch (except for AAA ratings, plus or minus signs are used with a rating symbol
to indicate the relative position of the credit within the rating category).
Bonds rated AAA are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events. Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issues is generally
rated "F-1+." Bonds rated as A are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings. Bonds
rated BBB are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore,
impair timely payment. The likelihood that the ratings for these bonds will fall
below investment grade is higher than for bonds with higher ratings. Bonds rated
BB are considered speculative. The obligor's ability to pay interest and repay
principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements. Bonds rated B are
considered highly speculative. While bonds in this class are
A-4
<PAGE> 449
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
The following summarizes IBCA's six highest long-term debt ratings.
Obligations rated AAA are those for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly. Obligations
rated AA are those for which there is a very low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic, or financial conditions may increase investment
risk albeit not very significantly. Obligations rated A are those for which
there is a low expectation of investment risk. Capacity for timely repayment of
principal and interest is strong, although adverse changes in business, economic
or financial conditions may lead to increased investment risk. Obligations rated
BBB are those for which there is currently a low expectation of investment risk.
Capacity for timely repayment of principal and interest is adequate, although
adverse changes in business, economic, or financial conditions are more likely
to lead to increased investment risk than for obligations in other categories.
Obligations rated BB are those for which there is a possibility of investment
risk developing. Capacity for timely repayment of principal and interest exists,
but is susceptible over time to adverse changes in business, economic or
financial conditions. Obligations rated B are those for which investment risk
exists. Timely repayment of principal and interest is not sufficiently protected
against adverse changes in business, economic or financial conditions.
The following summarizes Thomson's description of its six highest
long-term debt ratings (Thomson may include a plus (+) or minus (-) designation
to indicate where within the respective category the issue is placed). AAA is
the highest category and indicates that the ability to repay principal and
interest on a timely basis is very high. AA is the second highest category and
indicates a superior ability to repay principal and interest on a timely basis
with limited incremental risk versus issues rated in the highest category. A is
the third highest category and indicates the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
BBB is the lowest investment grade category and indicates an acceptable capacity
to repay principal and interest. Issues rated "BBB" are, however, more
vulnerable to adverse developments (both internal and external) than obligations
with higher ratings. While not investment grade, the BB rating suggests that the
likelihood of default is considerably less than for lower-rated issues. However,
there are significant uncertainties that could affect the ability to adequately
service debt obligations. Issuer rated B show a higher degree of uncertainty and
therefore greater likelihood of default that higher-rated issuers. Adverse
developments could well
A-5
<PAGE> 450
negatively affect the payment of interest and principal on a timely basis.
Municipal Obligations Ratings
- -----------------------------
The following summarizes the three highest ratings used by Moody's for
state and municipal short-term obligations. Obligations bearing MIG-1 or VMIG-1
designations are of the best quality, enjoying strong protection by established
cash flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing. Obligations rated MIG-2 or VMIG-2 denote high quality
with ample margins of protection although not so large as in the preceding
rating group. Obligations bearing MIG-3 or VMIG-3 denote favorable quality. All
security elements are accounted for but there is lacking the undeniable strength
of the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
S&P SP-1, SP-2, and SP-3 municipal note ratings (the three highest
ratings assigned) are described as follows:
"SP-1": Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming
safety characteristics will be given a plus (+) designation.
"SP-2": Satisfactory capacity to pay principal and interest.
"SP-3": Speculative capacity to pay principal and interest.
The following summarizes the six highest ratings used by Moody's for
state and municipal bonds:
"Aaa": Bonds judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Aa": Bonds judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
A-6
<PAGE> 451
make the long-term risks appear somewhat larger than in Aaa
securities.
"A": Bonds which possess many favorable investment attributes
and are to be considered as upper medium-grade obligations.
Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the future.
"Baa": Bonds which are considered as medium grade obligations,
i.e, they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
"Ba": Bonds which are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate, and therefore not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
"B": Bonds which generally lack characteristics of the
desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
The following summarizes the six highest ratings used by S&P for state
and municipal bonds:
"AAA": Debt which has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
"AA": Debt which has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues
only in small degree.
"A": Debt which has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. It differs
from the two higher ratings because:
General Obligations Bonds -- There is some weakness
in the local economic base, in debt burden, in the balance
between revenues and expenditures, or in quality
A-7
<PAGE> 452
of management. Under certain adverse circumstances, any one
such weakness might impair the ability of the issuer to meet
debt obligations at some future date.
Revenue Bonds -- Debt service coverage is good, but
not exceptional. Stability of the pledged revenues could show
some variations because of increased competition or economic
influences on revenues. Basic security provisions, while
satisfactory, are less stringent. Management performance
appears adequate.
"BBB": Of the investment grade, this is the lowest.
General Obligation Bonds -- Under certain adverse
conditions, several of the above factors could contribute to a
lesser capacity for payment of debt service. The difference
between "A" and "BBB" rating is that the latter shows more
than one fundamental weakness, or one very substantial
fundamental weakness, whereas the former shows only one
deficiency among the factors considered.
Revenue Bonds -- Debt coverage is only fair.
Stability of the pledged revenues could show substantial
variations, with the revenue flow possibly being subject to
erosion over time. Basic security provisions are no more than
adequate. Management performance could be stronger.
"BB" and "B": Debt which is regarded as having predominantly
speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of
speculation of the two. While such debt will likely have some
quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse
conditions.
"BB": Debt which has less near-term vulnerability to default
than other speculative grade debt. However, it faces major
ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal
payment.
"B": Debt which has a greater vulnerability to default but
presently has the capacity to meet interest payments and
principal repayments. Adverse business, financial or economic
conditions would likely impair capacity or willingness to pay
interest and repay principal.
The following summarizes the six highest ratings used by Fitch for
state and municipal bonds. The ratings represent Fitch's assessment of the
issuer's ability to meet the obligations of a
A-8
<PAGE> 453
specific debt issue or class of debt. The ratings take into consideration
special features of the issue, its relationship to other obligations of the
issuer, the current financial condition and operative performance of the issuer
and of any guarantor, as well as the political and economic environment that
might affect the issuer's future financial strength and credit quality.
"AAA": Bonds which are considered to be investment grade
and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA": Bonds which are considered to be investment grade and of
very high credit quality. The obligor's ability to pay
interest and repay principal is very strong, although not
quite as strong as bonds rated AAA. Because bonds rated in the
AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these
issuers is generally rated F-1+.
"A": Bonds which are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
"BBB": Bonds which are considered to be investment grade and
of satisfactory credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have an adverse impact on these
bonds and, therefore, impair timely payment. The likelihood
that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
"BB": Bonds which are considered speculative. The obligor's
ability to pay interest and repay principal may be affected
over time by adverse economic changes. However, business and
financial alternatives can be identified which could assist
the obligor in satisfying its debt service requirements.
"B": Bonds which are considered highly speculative. While
bonds in this class are currently meeting debt service
requirements, the probability of continued timely payment of
principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic
activity throughout the life of the issue.
A-9
<PAGE> 454
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
"F-1+": Exceptionally Strong Credit Quality. Issues assigned
this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1": Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degrees than issues rated F-1+.
"F-2": Good Credit Quality. Issues carrying this rating have a
satisfactory degree of assurance for timely payments, but the
margin of safety is not as great as the F-1+ and F-1
categories.
Definitions of Certain Money Market Instruments
- -----------------------------------------------
Commercial Paper
Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
Certificates of Deposit
Certificates of Deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return.
Bankers' Acceptances
Bankers' acceptances are negotiable drafts or bills of exchange,
normally drawn by an importer or exporter to pay for specific merchandise, which
are "accepted" by a bank, meaning, in effect, that the bank unconditionally
agrees to pay the face value of the instrument on maturity.
U.S. Treasury Obligations
U.S. Treasury Obligations are obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Government. These obligations may include Treasury bills, notes and bonds, and
issues of agencies and instrumentalities of the U.S. Government, provided such
obligations
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<PAGE> 455
are guaranteed as to payment of principal and interest by the full faith and
credit of the U.S. Government.
U.S. Government Agency and Instrumentality Obligations
Obligations of the U.S. Government include Treasury bills, certificates
of indebtedness, notes and bonds, and issues of agencies and instrumentalities
of the U.S. Government, such as the Government National Mortgage Association,
the Tennessee Valley Authority, the Farmers Home Administration, the Federal
Home Loan Banks, the Federal Intermediate Credit Banks, the Federal Farm Credit
Banks, the Federal Land Banks, the Federal Housing Administration, the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation, and
the Student Loan Marketing Association. Some of these obligations, such as those
of the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Student Loan Marketing Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others, such as those of the Federal Farm Credit
Banks, are supported only by the credit of the instrumentality. No assurance can
be given that the U.S. Government would provide financial support to U.S.
Government- sponsored instrumentalities if it is not obligated to do so by law.
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Registration Statement
of
THE SESSIONS GROUP
on
Form N-1A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
(i) Riverside Capital Money Market Fund
Financial Highlights
(ii) Riverside Capital Value Equity Fund
Financial Highlights
(iii) Riverside Capital Fixed Income Fund
Financial Highlights
(iv) Riverside Capital Tennessee Municipal Obligations
Fund
Financial Highlights
(v) Riverside Capital Low Duration Government
Securities Fund
Financial Highlights
(vi) Riverside Capital Growth Fund
Financial Highlights
(vii) KeyPremier Prime Money Market Fund
Financial Highlights
(viii) KeyPremier Pennsylvania Municipal Bond Fund
Financial Highlights
(ix) 1st Source Monogram Diversified Equity Fund
Financial Highlights
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(x) 1st Source Monogram Income Equity Fund
Financial Highlights
(xi) 1st Source Monogram Special Equity Fund
Financial Highlights
(xii) 1st Source Monogram Income Fund
Financial Highlights
(xiii) KeyPremier Established Growth Fund
Financial Highlights
(xiv) KeyPremier Intermediate Term Income Fund
Financial Highlights
(xv) KeyPremier Aggressive Growth Fund
Financial Highlights
(xvi) KeyPremier U.S. Treasury Obligations Money Market
Fund
Financial Highlights
(xvii) KeyPremier Limited Duration Government Securities
Fund
Financial Highlights
Included in Part B:
(i) Riverside Capital Money Market Fund
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities dated June 30,
1997.
Statements of Operations for the year ended June 30,
1997.
Statements of Changes in Net Assets for the years
ended June 30, 1997 and 1996.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
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Financial Highlights for the years ended June 30,
1997, 1996, 1995, 1994 and 1993.
(ii) Riverside Capital Value Equity Fund
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities dated June 30,
1997.
Statements of Operations for the year ended June 30,
1997.
Statements of Changes in Net Assets for the years
ended June 30, 1997 and 1996.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the years ended June 30,
1997, 1996, 1995, 1994 and 1993.
(iii) Riverside Capital Fixed Income Fund
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities dated June 30,
1997.
Statements of Operations for the year ended June 30,
1997.
Statements of Changes in Net Assets for the years
ended June 30, 1997 and 1996.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the years ended June 30,
1997, 1996, 1995, 1994 and 1993.
(iv) Riverside Capital Tennessee Municipal Obligations
Fund
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities at June 30,
1997.
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Statements of Operations for the year ended June 30,
1997.
Statements of Changes in Net Assets for the years
ended June 30, 1997 and 1996.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the years ended June 30,
1997, 1996, 1995 and 1994, and for the period from
commencement of operations (November 4, 1992) to June
30, 1993.
(v) Riverside Capital Low Duration Government
Securities Fund
Independent Auditor's Report dated August 22, 1997.
Statements of Assets and Liabilities at June 30,
1997.
Statements of Operations for the year ended June 30,
1997.
Statements of Changes in Net Assets for the years
ended June 30, 1997 and 1996.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the years ended June 30,
1997, 1996 and 1995, and for the period from
commencement of operations (April 15, 1994) to June
30, 1994.
(vi) Riverside Capital Growth Fund
Independent Auditor's Report dated August 22, 1997.
Statements of Assets and Liabilities at June 30,
1997.
Statements of Operations for the year ended June 30,
1997.
Statements of Changes in Net Assets for the years
ended June 30, 1997 and 1996.
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Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the years ended June 30,
1997, 1996 and 1995, and for the period from
commencement of operations (April 18, 1994) to June
30, 1994.
(vii) KeyPremier Prime Money Market Fund
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities at June 30,
1997.
Statements of Operations for the period ended June
30, 1997.
Statements of Change in Net Assets for the period
ended June 30, 1997.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the period from commencement
of operations (October 7, 1996) to June 30, 1997.
(viii) KeyPremier Pennsylvania Municipal Bond Fund
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities at June 30,
1997.
Statements of Operations for the period ended June
30, 1997.
Statements of Changes in Net Assets for the period
ended June 30, 1997.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the period from commencement
of operations (October 1, 1996) to June 30, 1997.
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(ix) 1st Source Monogram Diversified Equity Fund
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities at June 30,
1997.
Statements of Operations for the period ended June
30, 1997.
Statements of Changes in Net Assets for the period
ended June 30, 1997.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the period from commencement
of operations (September 20, 1996) to June 30, 1997.
(x) 1st Source Monogram Income Equity Fund
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities at June 30,
1997.
Statements of Operations for the period ended June
30, 1997.
Statements of Changes in Net Assets for the period
ended June 30, 1997.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the period from commencement
of operations (September 24, 1996) to June 30, 1997.
(xi) 1st Source Monogram Special Equity Fund
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities at June 30,
1997.
Statements of Operations for the period ended June
30, 1997.
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Statements of Changes in Net Assets for the period
ended June 30, 1997.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the period from commencement
of operations (September 19, 1996) to June 30, 1997.
(xii) 1st Source Monogram Income Fund
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities at June 30,
1997.
Statements of Operations for the period ended June
30, 1997.
Statements of Changes in Net Assets for the period
ended June 30, 1997.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the period from commencement
of operations (September 23, 1996) to June 30, 1997.
(xiii) KeyPremier Established Growth Fund
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities at June 30,
1997.
Statements of Operations for the period ended June
30, 1997.
Statements of Changes in Net Assets for the period
ended June 30, 1997.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
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Financial Highlights for the period from commencement
of operations (December 2, 1996) to June 30, 1997.
(xiv) KeyPremier Intermediate Term Income Fund
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities at June 30,
1997.
Statements of Operations for the period ended June
30, 1997.
Statements of Changes in Net Assets for the period
ended June 30, 1997.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the period from commencement
of operations (December 2, 1996) to June 30, 1997.
(xv) KeyPremier Aggressive Growth Fund
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities at June 30,
1997.
Statement of Operations for the period ended June 30,
1997.
Statement of Changes in Net Assets for the period
ended June 30, 1997.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the period from commencement
of operations (February 3, 1997) to June 30, 1997.
(xvi) KeyPremier U.S. Treasury Obligations Money Market
Fund
Statement of Assets and Liabilities at September 30,
1997 (unaudited).
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Statements of Operations for the period ended
September 30, 1997 (unaudited).
Statements of Changes in Net Assets for the period
ended September 30, 1997 (unaudited).
Schedule of Portfolio Investments as of September 30,
1997 (unaudited).
Notes to Financial Statements as of September 30,
1997 (unaudited).
Financial Highlights for the period from commencement
of operations (July 1, 1997) to September 30, 1997
(unaudited).
(xvii) KeyPremier Limited Duration Government Securities
Fund
Statement of Assets and Liabilities at September 30,
1997 (unaudited).
Statements of Operations for the period ended
September 30, 1997 (unaudited).
Statements of Changes in Net Assets for the period
ended September 30, 1997 (unaudited).
Schedule of Portfolio Investments as of September 30,
1997 (unaudited).
Notes to Financial Statements as of September 30,
1997 (unaudited).
Financial Highlights for the period from commencement
of operations (July 1, 1997) to September 30, 1997
(unaudited).
(xviii) All required financial statements are included in
Part B hereof. All other financial statements and
schedules are inapplicable.
(b) Exhibits:
(1) (a) Declaration of Trust, dated as of April 25,
1988, is incorporated by reference to Exhibit
(1)(a) of Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
(b) Amendment of Article IV, Section 4.2 of
Declaration of Trust adopted August 15, 1989,
is incorporated by reference to Exhibit (1)(b)
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of Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
(c) Amendment of Article V, Section 5.3 of
Declaration of Trust adopted October 23, 1989,
is incorporated by reference to Exhibit (1)(c)
of Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
(d) Amendment of Article IV, Section 4.2 of
Declaration of Trust adopted July 23, 1991, is
incorporated by reference to Exhibit (1)(d) of
Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
(e) Amendment of Article IV, Section 4.2 of
Declaration of Trust as adopted August 13,
1992, is incorporated by reference to Exhibit
(1)(e) of Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
(f) Amendment to Article IV, Section 4.2 of
Declaration of Trust as adopted October 28,
1992, is incorporated by reference to Exhibit
(1)(f) of Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
(g) Amendment to Article IV, Section 4.2 of
Declaration of Trust as adopted February 18,
1994, is incorporated by reference to Exhibit
(1)(g) of Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
(h) Amendment to Article IV, Section 4.2 of
Declaration of Trust as adopted May 16, 1994,
is incorporated by reference to Exhibit (1)(h)
of Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
(i) Amendment to Article IV, Section 4.2 of
Declaration of Trust as adopted April 10,
1996, is incorporated by reference to Exhibit
(1)(i) of Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
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(j) Amendment to Article IV, Section 4.2 of
Declaration of Trust as adopted May 16, 1996,
is incorporated by reference to Exhibit (1)(j)
of Post-Effective Amendment No. 35 to
Registrant's Registration Statement (No.
33-21489) filed on June 6, 1996.
(k) Amendment to Article IV, Section 4.2 of
Declaration of Trust as adopted August 15,
1996, is incorporated by reference to Exhibit
(1)(k) of Post-Effective Amendment No. 36 to
Registrant's Registration Statement (No.
33-21489) filed on August 16, 1996.
(l) Amendment to Article IV, Section 4.2 of
Declaration of Trust as adopted September 27,
1996 is incorporated by reference to Exhibit
(1)(l) of Post-Effective Amendment No. 38 to
Registrant's Registration Statement (No. 33-
21489) filed on November 15, 1996.
(m) Amendment to Article IV, Section 4.2 of
Declaration of Trust as adopted as of
January 14, 1997, is incorporated by reference
to Exhibit (l)(m) of Post-Effective Amendment
No. 39 to Registrant's Registration Statement
(No. 33-21489) filed on March 18, 1997.
(2) By-Laws are incorporated by reference to Exhibit
(2) of Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No. 33-21489)
filed on April 25, 1996.
(3) None.
(4) Certificates for Shares are not issued. Articles IV,
V, VI and VII of the Declaration of Trust, filed as
Exhibit 1 hereto, define rights of holders of Shares.
(5) (a) Investment Advisory Agreement dated as of
July 19, 1988, between Registrant and National
Bank of Commerce (with respect to Riverside
Capital Money Market Fund) is incorporated by
reference to Exhibit (5)(a) of Post-Effective
Amendment No. 34 to Registrant's Registration
Statement (No. 33-21489) filed on April 25,
1996.
(b) Investment Advisory Agreement dated as of
September 20, 1991, between Registrant and
National Bank of Commerce (with respect to
Riverside Capital Value Equity Fund and
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Riverside Capital Fixed Income Fund) is
incorporated by reference to Exhibit (5)(b) of
Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
(c) Investment Advisory Agreement dated as of
October 27, 1992, between Registrant and
National Bank of Commerce (with respect to
Riverside Capital Tennessee Municipal
Obligations Fund) is incorporated by reference
to Exhibit (5)(c) of Post-Effective Amendment
No. 34 to Registrant's Registration Statement
(No. 33-21489) filed on April 25, 1996.
(d) Investment Advisory Agreement dated April 5,
1994, as amended June 3, 1994, between
Registrant and National Bank of Commerce (with
respect to Riverside Capital Growth Fund) is
incorporated by reference to Exhibit (5)(d) of
Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
(e) Investment Advisory Agreement dated July 9,
1996, as amended as of June 30, 1997, between
Registrant and Martindale Andres & Company,
Inc. (with respect to the KeyPremier Funds) is
incorporated by reference to Exhibit (5)(e) of
Post-Effective Amendment No. 42 to
Registrant's Registration Statement (No. 33-
21489) filed on July 30, 1997.
(f) Investment Advisory Agreement dated August 20,
1996, between Registrant and 1st Source Bank
(with respect to the 1st Source Monogram
Funds) is incorporated by reference to Exhibit
(5)(f) of Post-Effective Amendment No. 37 to
Registrant's Registration Statement (No.
33-21489) filed on October 21, 1996.
(g) Sub-Investment Advisory Agreement dated
August 20, 1996, between 1st Source Bank and
Miller, Anderson and Sherrerd, LLP (with
respect to 1st Source Monogram Diversified
Equity Fund) is incorporated by reference to
Exhibit (5)(g) of Post-Effective Amendment No.
37 to Registrant's Registration Statement (No.
33-21489) filed on October 21, 1996.
(h) Sub-Investment Advisory Agreement dated
August 20, 1996, between 1st Source Bank and
Loomis Sayles & Company, L.P. (with respect to
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1st Source Monogram Diversified Equity Fund)
is incorporated by reference to Exhibit (5)(h)
of Post-Effective Amendment No. 37 to
Registrant's Registration Statement (No.
33-21489) filed on October 21, 1996.
(i) Sub-Investment Advisory Agreement dated
August 20, 1996, between 1st Source Bank and
Columbus Circle Investors (with respect to 1st
Source Monogram Diversified Equity Fund) is
incorporated by reference to Exhibit (5)(i) of
Post-Effective Amendment No. 37 to
Registrant's Registration Statement (No.
33-21489) filed on October 21, 1996.
(6) (a) Distribution Agreement dated October 1, 1993,
as amended as of June 3, 1994, between
Registrant and The Winsbury Company Limited
Partnership (with respect to the Riverside
Capital Funds).
(b) Form of Selected Dealer Agreement is
incorporated by reference to Exhibit (6)(b) of
Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
(c) Distribution Agreement dated as of July 9,
1996, as amended as of June 30, 1997, between
Registrant and BISYS Fund Services Limited
Partnership (with respect to the KeyPremier
Funds) is incorporated by reference to Exhibit
(6)(c) of Post-Effective Amendment No. 42 to
Registrant's Registration Statement (No. 33-
21489) filed on July 30, 1997.
(d) Form of Shareholder Services Agreement is
incorporated by reference to Exhibit (6)(d) of
Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
(e) Distribution Agreement dated as of August 20,
1996, between Registrant and BISYS Fund
Services Limited Partnership (with respect to
the 1st Source Monogram Funds) is incorporated
by reference to Exhibit (6)(e) of
Post-Effective Amendment No. 37 to
Registrant's Registration Statement (No.
33-21489) filed on October 21, 1996.
(7) None.
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(8) (a) Custodial Services Agreement dated as of
March 1, 1995, between Registrant and
National City Bank (with respect to the
Riverside Capital Funds).
(b) Custody Agreement dated July 9, 1996, as
amended as of June 30, 1997, between
Registrant and The Bank of New York (with
respect to the KeyPremier Funds) is
incorporated by reference to Exhibit (8)(b) of
Post-Effective Amendment No. 42 to
Registrant's Registration Statement (No. 33-
21489) filed on July 30, 1997.
(c) Custody Agreement dated August 20, 1996,
between Registrant and The Fifth Third Bank
(with respect to the 1st Source Monogram
Funds) is incorporated by reference to Exhibit
(8)(c) of Post-Effective Amendment No. 37 to
Registrant's Registration Statement (No.
33-21489) filed on October 21, 1996.
(d) Cash Management and Related Services Agreement
dated September 24, 1996, as amended as of
June 30, 1997, between Registrant and The Bank
of New York (with respect to the KeyPremier
Funds) is incorporated by reference to Exhibit
(8)(d) of Post-Effective Amendment No. 42 to
Registrant's Registration Statement (No. 33-
21489) filed on July 30, 1997.
(9) (a) Administration Agreement dated as of
November 1, 1997, between Registrant and
BISYS Fund Services Limited Partnership
(with respect to the Riverside Capital
Funds).
(b) Amended Transfer Agency Agreement dated as
of September 1, 1992, as amended as of May
1, 1994, between Registrant and BISYS Fund
Services Ohio, Inc. (with respect to the
Riverside Capital Funds).
(c) Fund Accounting Agreement dated as of November
1, 1997, between Registrant and BISYS Fund
Services, Inc. (with respect to the Riverside
Capital Funds).
(d) Form of Administrative Services Plan.
(e) Servicing Agreement to Administrative Services
Plan dated as of October 19, 1993, between
Registrant and National Bank of Commerce
(with respect to Riverside Capital Money
Market
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Fund, Riverside Capital Equity Fund,
Riverside Capital Fixed Income Fund and
Riverside Capital Tennessee Municipal
Obligations Fund).
(f) Omnibus Fee Agreement dated as of November 1,
1997, among Registrant, BISYS Fund Services
Limited Partnership and BISYS Fund Services,
Inc. (with respect to the Riverside Capital
Funds).
(g) Servicing Agreement to Administrative
Services Plan dated April 5, 1994, between
Registrant and National Bank of Commerce
(with respect to Riverside Capital Growth
Fund).
(x) Management and Administration Agreement dated
July 9, 1996, as amended as of June 30, 1997,
between Registrant and BISYS Fund Services
Limited Partnership (with respect to the
KeyPremier Funds) is incorporated by reference
to Exhibit (9)(x) of Post-Effective Amendment
No. 42 to Registrant's Registration Statement
(No. 33-21489) filed on July 30, 1997.
(y) Fund Accounting Agreement dated July 9, 1996,
as amended as of June 30, 1997, between
Registrant and BISYS Fund Services, Inc. (with
respect to the KeyPremier Funds) is
incorporated by reference to Exhibit (9)(y) of
Post-Effective Amendment No. 42 to
Registrant's Registration Statement (No. 33-
21489) filed on July 30, 1997.
(z) Transfer Agency Agreement dated July 9, 1996,
as amended as of June 30, 1997, between
Registrant and BISYS Fund Services, Inc. (with
respect to the KeyPremier Funds) is
incorporated by reference to Exhibit (9)(z) of
Post-Effective Amendment No. 42 to
Registrant's Registration Statement (No. 33-
21489) filed on July 30, 1997.
(aa) Management and Administration Agreement dated
August 20, 1996, between Registrant and BISYS
Fund Services Limited Partnership (with
respect to the 1st Source Monogram Funds) is
incorporated by reference to Exhibit (9)(aa)
of Post-Effective Amendment No. 37 to
Registrant's Registration Statement (No.
33-21489) filed on October 21, 1996.
(ab) Fund Accounting Agreement dated August 20,
1996, between Registrant and BISYS Fund
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Services, Inc. (with respect to the 1st Source
Monogram Funds) is incorporated by reference
to Exhibit (9)(ab) of Post-Effective Amendment
No. 37 to Registrant's Registration Statement
(No. 33-21489) filed on October 21, 1996.
(ac) Transfer Agency Agreement dated August 20,
1996, between Registrant and BISYS Fund
Services, Inc. (with respect to the 1st Source
Monogram Funds) is incorporated by reference
to Exhibit (9)(ac) of Post-Effective Amendment
No. 37 to Registrant's Registration Statement
(No. 33-21489) filed on October 21, 1996.
(ad) Form of Servicing Agreement to Administrative
Services Plan is incorporated by reference to
Exhibit (9)(ad) of Post-Effective Amendment
No. 35 to Registrant's Registration Statement
(No. 33-21489) filed on June 6, 1996.
(10) (a) Opinion of Counsel with respect to shares of
the Riverside Capital Funds registered
pursuant to Rule 24e-2 is incorporated by
reference to Exhibit (10)(a) of Post-Effective
Amendment No. 41 to Registrant's Registration
Statement (No. 33-21489) filed on May 21,
1997. Opinion of Counsel with respect to
shares of KeyPremier U.S. Treasury Obligations
Money Market Fund and KeyPremier Limited
Duration Government Securities Fund is
incorporated by reference to Exhibit (10)(a)
of Post-Effective Amendment No. 40 to
Registrant's Registration Statement (No. 33-
21489) filed on April 16, 1997. An Opinion of
Counsel with respect to Shares of Riverside
Capital Money Market Fund, Riverside Capital
Value Equity Fund, Riverside Capital Fixed
Income Fund, Riverside Capital Tennessee
Municipal Obligations Fund, Riverside Capital
Growth Fund, KeyPremier Prime Money Market
Fund, KeyPremier Pennsylvania Municipal Bond
Fund, KeyPremier Aggressive Growth Fund,
KeyPremier Established Growth Fund, KeyPremier
Intermediate Term Income Fund, 1st Source
Monogram Diversified Equity Fund, 1st Source
Monogram Income Equity Fund, 1st Source
Monogram Special Equity Fund and 1st Source
Monogram Income Fund was filed with
Registrant's 24f-2 Notice filed on August 27,
1997, pursuant to Rule 24f-2.
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(b) Opinion of Special Counsel with respect to
Riverside Capital Tennessee Municipal
Obligations Fund.
(11) (a) Consents of KPMG Peat Marwick LLP.
(b) Consent of Burch, Porter & Johnson.
(c) Consent of Coopers & Lybrand L.L.P.
(12) None.
(13) Purchase Agreement dated as of July 19, 1988,
between Registrant and Winsbury Associates.
(14) None.
(15) (a) Rule 12b-1 Plan (with respect to the Riverside
Capital Funds).
(c) Rule 12b-1 Plan (with respect to the 1st
Source Monogram Funds) is incorporated by
reference to Exhibit (15)(c) of Post-Effective
Amendment No. 35 to Registrant's Registration
Statement (No. 33-21489) filed on June 6,
1996.
(d) Rule 12b-1 Agreement dated October 1, 1993,
between The Winsbury Company Limited
Partnership and National Bank of Commerce
(with respect to Riverside Capital Money
Market Fund, Riverside Capital Equity Fund,
Riverside Capital Fixed Income Fund and
Riverside Capital Tennessee Municipal
Obligations Fund).
(e) Rule 12b-1 Agreement dated October 19, 1993,
between The Winsbury Company Limited Partner-
ship and Commerce Investment Corporation (with
respect to Riverside Capital Money Market
Fund, Riverside Capital Value Equity Fund,
Riverside Capital Fixed Income Fund and River-
side Capital Tennessee Municipal Obligations
Fund).
(f) Rule 12b-1 Agreement dated October 19, 1993,
between Registrant and The Winsbury Company
Limited Partnership (with respect to
Riverside Capital Money Market Fund,
Riverside Capital Equity Fund, Riverside
Capital Fixed Income Fund and Riverside
Capital Tennessee Municipal Obligations Fund).
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(g) Rule 12b-1 Agreement dated as of April 5,
1994, between The Winsbury Company Limited
Partnership and Commerce Investment
Corporation (with respect to Riverside
Capital Low Duration Government Securities
Fund and Riverside Capital Growth Fund).
(h) Rule 12b-1 Agreement dated as of April 5,
1994, between Registrant and The Winsbury
Company Limited Partnership (with respect to
Riverside Capital Low Duration Government
Securities Fund and Riverside Capital Growth
Fund).
(i) Rule 12b-1 Agreement dated as of May 16, 1994,
between J.C. Bradford & Co. and The Winsbury
Company Limited Partnership (with respect to
the Riverside Capital Funds).
(j) Rule 12b-1 Agreement dated as of May 16, 1994,
between Morgan, Keegan & Co. and The Winsbury
Company Limited Partnership (with respect to
the Riverside Capital Funds).
(k) Rule 12b-1 Agreement dated as of August 1,
1994, between J.J.B. Hilliard, W.L. Lyons,
Inc. and The Winsbury Company Limited
Partnership (with respect to the Riverside
Capital Funds).
(l) Rule 12b-1 Agreement dated as of August 31,
1994, between TrustMark Investments, Inc. and
The Winsbury Company Limited Partnership (with
respect to the Riverside Capital Funds).
(16) (a) Computations of Performance Quotations for the
Riverside Capital Funds.
(b) Computations of Performance Quotations for the
KeyPremier Funds.
(c) Computations of Performance Quotations for the
1st Source Monogram Funds.
(17) Financial Data Schedules of the Riverside
Capital Funds, the KeyPremier Funds and the
1st Source Monogram Funds.
(18) None.
(19) (a) Powers of Attorney of Chalmers P. Wylie,
Walter B. Grimm and Maurice G. Stark.
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(b) Consent of Baker & Hostetler LLP.
(c) Power of Attorney of Nancy E. Converse is
incorporated by reference to Exhibit (19)(c)
of Post-Effective Amendment No. 36 to
Registrant's Registration Statement (No.
33-21489) filed on August 16, 1996.
(d) Power of Attorney of James H. Woodward is
incorporated by reference to Exhibit (19)(d)
of Post-Effective Amendment No. 37 to
Registrant's Registration Statement (No.
33-21489) filed on October 21, 1996.
(e) Power of Attorney of Thresa Dewar is
incorporated by reference to Exhibit (19)(e)
of Post-Effective Amendment No. 41 to
Registrant's Registration Statement (No. 33-
21489) filed on May 21, 1997.
Item 25. Persons Controlled By or Under Common Control with
Registrant
None.
Item 26. Number of Holders of Securities
As of October 20, 1997, the number of record holders of each
series of shares of the Registrant were as follows:
<TABLE>
<CAPTION>
Title of Series Number of Record Holders
--------------- ------------------------
<S> <C>
Riverside Capital Money
Market Fund 25
Riverside Capital
Value Equity Fund 146
Riverside Capital
Fixed Income Fund 22
Riverside Capital Tennessee Municipal
Obligations Fund 19
Riverside Capital Low Duration
Government Securities Fund 6
Riverside Capital Growth Fund 56
KeyPremier Prime
Money Market Fund 28
KeyPremier Pennsylvania
Municipal Bond Fund 20
1st Source Monogram Diversified
Equity Fund 53
1st Source Monogram Income Equity Fund 42
1st Source Monogram Special Equity Fund 55
1st Source Monogram Income Fund 13
KeyPremier Established Growth Fund 183
</TABLE>
C-19
<PAGE> 475
<TABLE>
<S> <C>
KeyPremier Intermediate Term
Income Fund 35
KeyPremier Aggressive Growth Fund 206
KeyPremier U.S. Treasury Obligations
Money Market Fund 11
KeyPremier Limited Duration Government
Securities Fund 9
</TABLE>
Item 27. Indemnification
Article VI, Section 6.4 of the Registrant's Declaration of
Trust, filed as Exhibit 1 hereto, provides for the
indemnification of Registrant's Trustees and officers.
Indemnification of the Group's principal underwriter,
custodians, investment advisers, manager and administrator,
transfer agent and fund accountant is provided for,
respectively, in Section 1.11 of the Distribution Agreements
filed as Exhibits 6(a), 6(c) and 6(e) hereto, Section 8 of the
Custodial Services Agreement filed as Exhibit 8(a) hereto,
Article XVII, Section 14 of the Custody Agreement filed as
Exhibit 8(b) hereto, Article VIII, Section 8.1 of the Custody
Agreement filed as Exhibit 8(c) hereto, Section 8 of the
Investment Advisory Agreements filed as Exhibits 5(a), 5(b),
5(c), 5(d), 5(e) and 5(f) hereto, Article V of the
Administration Agreement filed as Exhibit 9(a) hereto, Section
4 of the Management and Administration Agreements filed as
Exhibits 9(x) and 9(aa) hereto, Section 9 of the Transfer
Agency Agreements filed as Exhibits 9(b), 9(z) and 9(ac)
hereto, Section 7 of the Fund Accounting Agreement filed as
Exhibit 9(c) hereto, and Section 6 of the Fund Accounting
Agreements filed as Exhibits 9(y) and 9(ab) hereto. As of the
effective date of this Registration Statement, the Group will
have obtained from a major insurance carrier a trustees' and
officers' liability policy covering certain types of errors and
omissions. In no event will Registrant indemnify any of its
trustees, officers, employees or agents against any liability
to which such person would otherwise be subject by reason of
his willful misfeasance, bad faith, or gross negligence in the
performance of his duties, or by reason of his reckless
disregard of the duties involved in the conduct of his office
or under his agreement with Registrant. Registrant will comply
with Rule 484 under the Securities Act of 1933 and Release
11330 under the Investment Company Act of 1940 in connection
with any indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers,
and controlling persons of Registrant pursuant to the foregoing
provisions, or otherwise, Registrant has been advised that in
the opinion of the Securities and
C-20
<PAGE> 476
Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a trustee, officer, or
controlling person of Registrant in the successful defense of
any action, suit, or proceeding) is asserted by such trustee,
officer, or controlling person in connection with the
securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Securities Act of
1933 and will be governed by the final adjudication of such
issue.
Item 28. Business and Other Connections of Investment Adviser
(a) National Bank of Commerce, Memphis, Tennessee ("NBC"), is
the investment adviser for Riverside Capital Money Market
Fund, Riverside Capital Value Equity Fund, Riverside
Capital Fixed Income Fund, Riverside Capital Tennessee
Municipal Obligations Fund, Riverside Capital Low
Duration Government Securities Fund and Riverside Capital
Growth Fund. NBC is a wholly owned subsidiary of
National Commerce Bancorporation. In addition to serving
as investment adviser of such Funds, NBC and its affili-
ates hold and manage, on behalf of their clients, assets
which as of September 30, 1997, totalled $4.6 billion,
and of which approximately $1.6 billion are managed in a
variety of balanced, equity and fixed income portfolios.
To the knowledge of Registrant, none of the directors or
officers of NBC, except those set forth below, is or has been
at any time during the past two fiscal years engaged in any
other business, profession, vocation or employment of a
substantial nature, except that certain officers and directors
of NBC also hold positions with NBC's parent, National Commerce
Bancorporation. Set forth below are the names and principal
businesses of the directors of NBC who are engaged in any other
business, profession, vocation, or employment of a substantial
nature.
<TABLE>
<CAPTION>
Position
Name with NBC Principal Occupation
---- -------- --------------------
<S> <C> <C>
Frank G. Barton, Jr. Director Chairman of the Board
Barton Group, Inc.
2620 Thousand Oaks Blvd., Suite 1200
Memphis, Tennessee 38118
(Retail Equipment Sales)
</TABLE>
C-21
<PAGE> 477
<TABLE>
<S> <C> <C>
Jack R. Blair Director Smith & Nephew North America
1450 East Brooks Road
Memphis, Tennessee 38116
(Medical Devices)
R. Grattan Brown, Jr. Director Partner, law firm of
Glankler, Brown, Gilliland, Chase,
Robinson & Raines
One Commerce Square
Memphis, Tennessee 38103
Bruce E. Campbell, Jr. Director Former Chairman
National Bank of Commerce
and National Commerce
Bancorporation
One Commerce Square
Memphis, Tennessee 38150
Christopher W. Canale Director President
D. Canale Beverages, Inc.
45 E.H. Crumps Blvd.
Memphis, Tennessee 38106
(Distribution)
John D. Canale III Director President
D. Canale Food Services, Inc.
7 West Georgia
Memphis, Tennessee 38103
(Distribution)
Edmond D. Cicala Director President
Edmond Enterprises, Inc.
1213 Park Place Center
Suite 200
Memphis, Tennessee 38119
(Consulting)
John S. Evans Director Former President
National Bank of Commerce
One Commerce Square
Memphis, Tennessee 38150
Thomas C. Farnsworth, Jr. Director Farnsworth Investment Co.
2175 Business Center Drive
Suite 11
Memphis, Tennessee 38134-5621
(Real Estate)
Thomas M. Garrott Chairman Chairman of the Board and
Chief Executive Officer
National Commerce Bancorporation
One Commerce Square
Memphis, Tennessee 38150
Mackie H. Gober President/ President
Director National Bank of Commerce
One Commerce Square
Memphis, Tennessee 38150
</TABLE>
C-22
<PAGE> 478
<TABLE>
<S> <C> <C>
Lewis E. Holland Director Executive Vice President and
Chief Financial Officer
National Commerce Bancorporation
One Commerce Square
Memphis, Tennessee 38150
prior thereto -
Partner
Ernst & Young
One Commerce Square
Memphis, Tennessee 38103
(Accounting)
R. Lee Jenkins Director Retired
6075 Poplar, Suite 721
Memphis, Tennessee 38119
James E. McGehee, Jr. Director President
McGehee Realty & Development Company
675 Oakleaf Office Lane, Suite 102
Memphis, Tennessee 38117
(Real Estate)
W. Neely Mallory, Jr. Director President
Memphis Compress & Storage Company
P.O. Box 9436
Memphis, Tennessee 38109
(Cotton Warehousing)
Harry J. Phillips, Sr. Director Chairman of the Executive Committee
Browning-Ferris Industries
2750 One Commerce Square
Memphis, Tennessee 38103
(Waste Disposal Services)
William R. Reed, Jr. Director Executive Vice President
National Commerce Bancorporation
One Commerce Square
Memphis, Tennessee 38150
Rudi E. Scheidt Director Retired
54 South White Station
Memphis, Tennessee 38117
Lucy Y. Shaw Director President
Common Denominator, Inc.
2195 Poplar Avenue, Suite 505
East Memphis, Tennessee 38104
prior thereto -
Chief Executive Officer
Regional Medical Center at Memphis
877 Jefferson Avenue
Memphis, Tennessee 38103
(Hospital)
Robert M. Solmson Director President
RFS Hotel Investors, Inc.
1213 Park Place Center, Suite 200
Memphis, Tennessee 38119
(Real Estate)
Sidney A. Stewart, Jr. Director Retired
5350 Poplar Avenue
Memphis, Tennessee 38119
</TABLE>
C-23
<PAGE> 479
<TABLE>
<S> <C> <C>
R. Lee Taylor Director Private Investor
1755-A Lynnfield Drive
Suite 232
Memphis, Tennessee 38119
Henry M. Turley, Jr. Director President
Henry Turley Company
65 Union Avenue, Suite 1200
Memphis, Tennessee 38103
(Real Estate Management and Investment)
</TABLE>
(b) Martindale Andres & Company, Inc., West Conshohocken,
Pennsylvania ("Martindale Andres"), is the investment
adviser for KeyPremier Prime Money Market Fund,
KeyPremier Pennsylvania Municipal Bond Fund, KeyPremier
Established Growth Fund, KeyPremier Intermediate Term
Income Fund, KeyPremier Aggressive Growth Fund,
KeyPremier U.S. Treasury Obligations Money Market Fund
and KeyPremier Limited Duration Government Securities
Fund. Martindale Andres is a wholly-owned subsidiary of
Keystone Financial, Inc. In addition to serving as
investment adviser of such Funds, Martindale Andres has
managed since its founding the investment portfolios of
high net worth individuals, endowments and pension and
common trust funds. Martindale Andres currently has over
$2.5 billion under management.
To the knowledge of Registrant, none of the directors or
officers of Martindale Andres is or has been at any time
during the past two fiscal years engaged in any other
business, profession, vocation or employment of a substantial
nature, except that certain officers and directors of
Martindale Andres also hold positions with Martindale Andres'
parent, Keystone Financial, Inc.
(c) 1st Source Bank, South Bend, Indiana ("FSB"), is the
investment adviser for 1st Source Monogram Diversified
Equity Fund, 1st Source Monogram Income Equity Fund, 1st
Source Monogram Special Equity Fund and 1st Source
Monogram Income Fund. FSB is a wholly-owned subsidiary
of 1st Source Corporation. In addition to serving as
investment adviser of such Funds, FSB and its affiliates
administer and manage, on behalf of their clients, trust
assets which as of September 30, 1997, totalled
approximately $1.47 billion. Of such amount,
approximately $851 million are managed on behalf of
personal trust customers and approximately $616 million
are managed on behalf of employee benefit plans. The
Adviser has over 60 years of banking experience and as of
September 30, 1997, on a consolidated basis with 1st
Source Corporation, had over $2.32 billion in assets.
To the knowledge of Registrant, none of the directors or
officers of FSB, except those set forth below, is or has been
at any time during the past two fiscal years engaged
C-24
<PAGE> 480
in any other business, profession, vocation or employment of a
substantial nature, except that certain officers and directors
of FSB also hold positions with FSB's parent, First Source
Corporation. Set forth below are the names and principal
businesses of the directors of FSB who are engaged in any
other business, profession, vocation, or employment of a
substantial nature.
<TABLE>
<CAPTION>
Position
Name with FSB Principal Occupation
- ---- -------- --------------------
<S> <C> <C>
Rev. E. William Beauchamp Director Executive Vice President
University of Notre Dame
South Bend, IN 46556
Paul R. Bowles Director Former Senior Vice
President
Clark Equipment Company
1202 East Jefferson
South Bend, IN 46617
(off-highway components
and construction machinery
manufacturing)
Philip J. Faccenda Director President
Bear Financial, Inc.
1222 E. Erskine
Manor Hill
South Bend, IN 46617
(venture capital)
Vice President and
General Counsel Emeritus
University of Notre Dame
South Bend, IN 46556
Daniel B. Fitzpatrick Director Chairman, President,
Chief Executive
Officer and Director
Quality Dining, Inc.
P. O. Box 416
South Band, IN 46624
(quick service and
casual dining
restaurant operator)
</TABLE>
C-25
<PAGE> 481
<TABLE>
<S> <C> <C>
Terry L. Gerber Director President and Chief
Executive Officer
Gerber Manufacturing
Company, Inc.
1417 Olivia Circle
South Bend, IN 46614
(manufacturer of police
and emergency outerwear)
Lawrence E. Hiler Director President
Hiler Industries
P.O. Box 639
La Porte, IN 46350
(metal casting)
Anne M. Hillman Director Civic Leader
3904 Nall Court
South Bend, IN 46614
Hollis E. Hughes, Jr. Director Executive Director
United Way of
St. Joseph County
3517 E. Jefferson
P.O. Box 6396
South Bend, IN 46660
H. Thomas Jackson Director Chairman
Bornemann Coated Fabrics
Bornemann Products
P. O. Box 208
Bremen, IN 46506
(vinyl sales)
William P. Johnson Director Chairman & CEO
Goshen Rubber Co., Inc.
1525 S. 10th
Goshen, IN 46527
(manufacturer of
automotive rubber parts)
Craig A. Kapson Director President
Jordan Ford, Toyota, Volvo,
Lincoln Mercury
609 E. Jefferson
Mishawaka, IN 46545
(automobile sales)
David L. Lerman Director President
Steel Warehouse Company,
Inc.
2722 West Tucker Drive
South Bend, IN 46624
(warehouse storage)
</TABLE>
C-26
<PAGE> 482
<TABLE>
<S> <C> <C>
Richard J. Pfeil Director Chairman and President
Koontz-Wagner Electric Co.
3801 Voorde Drive
South Bend, IN 46628
(electrical equipment
repair, construction and
installation)
John T. Phair Director Vice President
The Holladay Corporation
220 Colfax, Suite 200
South Bend, IN 46601
(property management)
Mark D. Schwabero Director Executive Vice President
Bosch Braking Systems Corp.
401 N. Bendix Drive
South Bend, IN 46634
(manufacturers of
automotive brakes and
brake components)
Elmer H. Tepe Director President
E.H. Tepe Co.
c/o 1st Source Corporation
100 North Michigan Street
South Bend, IN 46634
(holding company)
</TABLE>
(d) Miller Anderson and Sherrerd LLP, West Conshohocken,
Pennsylvania ("Miller Anderson") is a sub-investment
adviser for 1st Source Monogram Diversified Equity Fund.
Miller Anderson is wholly owned by Morgan Stanley, Dean
Witter, Discover & Co., 1585 Broadway, New York, New York
10036. In addition to serving as sub-investment adviser
of such Fund, Miller Anderson provides advice primarily
to institutions, including other investment companies,
and currently has approximately $47.2 billion in assets
under management, of which approximately $5.5 billion is
managed using Miller Anderson's value style.
To the knowledge of Registrant, none of the directors or
officers of Miller Anderson, except those set forth below, is
or has been at any time during the past two fiscal years
engaged in any other business, profession, vocation or
employment of a substantial nature, except that certain
officers and directors of Miller Anderson also hold positions
with Miller Anderson's parent, Morgan Stanley, Dean Witter,
Discover & Co. or one of its affiliates. Set forth below are
the names and principal businesses of the members of the
Executive Committee of Miller Anderson who are engaged in any
other business,
C-27
<PAGE> 483
profession, vocation, or employment of a substantial
nature.
<TABLE>
<CAPTION>
Executive Committee Name and Address Nature of
Member of Miller Anderson of Business Connection
- ------------------------- ----------- ----------
<S> <C> <C>
Marna C. Whittington Rohm & Haas Company Director
Independence Mall West
Philadelphia, PA 19105
Federated Department Director
Stores
7 West 7th Street
Cincinnati, Ohio 45202
Ellen D. Harvey, CFA Owosso Corporation Director
One Tower Bridge
14th Floor
W. Conshohocken, PA 19428
</TABLE>
(e) Loomis Sayles & Company, L.P., Chicago, Illinois
("Loomis") is a sub-investment adviser for 1st Source
Monogram Diversified Equity Fund. The sole general
partner of Loomis is Loomis Sayles & Company,
Incorporated, One Financial Center, Boston, Massachusetts
02111. In addition to serving as sub-investment adviser
of such Fund, Loomis provides investment advice to the
nine series of the Loomis Sayles Funds, nine series of
Loomis Sayles Investment Trust, six series of New England
Funds Trust I, one series of New England Funds Trust III,
and three series of New England Zenith Funds, all of
which are registered investment companies, and to other
organizations and individuals.
To the knowledge of Registrant, none of the directors or
officers of Loomis is or has been at any time during the past
two fiscal years engaged in any other business, profession,
vocation or employment of a substantial nature.
(f) Columbus Circle Investors ("Columbus") is a general
partnership formed on September 9, 1994, which is
registered as an investment adviser under the Investment
Advisers Act of 1940. PIMCO Advisors L.P. and Columbus
Circle Investors Management Inc. ("CCI, Inc."), a
wholly-owned subsidiary of PIMCO Advisors L.P., are the
general partners of Columbus. Columbus consists of the
personnel of the former Columbus Circle Investors
Division of Thomson Advisory Group L.P. ("TAGLP") and the
investment personnel of the former Mutual Funds Division
of TAGLP. Columbus acts as sub-adviser to other mutual
funds and also advises and manages individual accounts,
C-28
<PAGE> 484
profit sharing and pension funds and institutional
accounts.
To the knowledge of Registrant, set forth below are the
substantial business engagements during at least the two past
fiscal years of each director or senior executive officer of
Columbus:
NAME AND POSITION BUSINESS AND
WITH COLUMBUS OTHER CONNECTIONS
- ------------- -----------------
Irwin F. Smith Member of Equity and Operating Boards and
Chairman, Managing Operating Committee, PIMCO Advisors L.P.;
Director, Chief Director and Chairman, Columbus Circle
Executive Officer and Investors Management, Inc.; Director,
Chief Investment Columbus Circle Trust Company
Officer
Donald A. Chiboucas Member of Operating Board, PIMCO Advisors
President and L.P.; Director and President, Columbus
Managing Director Circle Investors Management, Inc.
Louis P. Celentano Director and Vice President, Columbus
Managing Director Circle Investors Management, Inc.;
Director and Chairman, Columbus
Circle Trust Company; Director and
Chairman, Columbus Circle Asset
Management, Ltd.
Daniel S. Pickett Member of Operating Board, PIMCO Advisors
Managing Director L.P. (1995); Director, Columbus Circle
Investors Management, Inc.
Amy M. Hogan Member of Operating Board, PIMCO Advisors
Managing Director L.P. (1996); Director, Columbus Circle
Investors Management, Inc.
Robert W. Fehrmann Director, Columbus Circle Investors
Managing Director Management Inc.
C. Paul Tyborowski President, Columbus Circle Trust Company;
Managing Director President, Columbus Circle Asset
Management, Ltd.
The address of Columbus, Columbus Circle Trust Company
and Columbus Circle Investors management Inc. is One
Station Place, Stamford, CT 06902.
PIMCO Advisors L.P. was organized as a limited
partnership under Delaware law in 1987 and is registered
as an investment adviser under the Investment Advisers
Act of 1940. In November 1994, PIMCO Advisors L.P. (then
known as Thomson Advisory Group, L.P. ("TAGLP")) combined
its investment advisory business with the investment
C-29
<PAGE> 485
advisory business of several subsidiaries of Pacific
Mutual Life Insurance Company and changed its name to
PIMCO Advisors L.P. PIMCO Advisors L.P. manages three
mutual fund complexes. PIMCO Advisors L.P. also has
various subsidiary partnerships, including Columbus,
which advise and manage mutual funds, individual
accounts, profit-sharing and pension funds and
institutional accounts and act as sub-advisers to certain
mutual funds.
PIMCO Partners, G.P. ("PIMCO GP"), PIMCO Advisors L.P.'s
general partner, is a general partnership with two partners:
(i) an indirect wholly-owned subsidiary of Pacific Mutual Life
Insurance Company; and (ii) PIMCO Partners, L.L.C. ("LLC"), a
limited liability company, all of the interests of which are
held directly by the Managing Directors of Pacific Investment
Management Company who are William H. Gross, Dean S. Meiling,
James F. Muzzy, William F. Podlich, III, Frank B. Rabinovitch,
Brent R. Harris, John L. Hague, William S. Thompson, Jr.,
William C. Powers, David H. Edington and Benjamin L. Trosky
(collectively, the "Managing Directors"). PIMCO Partners, G.P.
has substantially delegated its management and control of
PIMCO Advisors L.P. to an Equity Board and an Operating board
of PIMCO Advisors L.P. The activities of PIMCO Advisors L.P.
are controlled by its Operating Board except that certain
non-routine or extraordinary actions may not be effected by
the Operating Board without the approval of PIMCO Advisors
L.P.'s Equity Board. The Operating Board has in turn delegated
the authority to manage day-to-day operations and policies to
an Operating Committee. The Operating Board is composed of
twelve members, of which seven (including the chairman) are
designated by Pacific Investment Management Company, a
subsidiary general partnership of PIMCO Advisors L.P. and a
sub-adviser to several mutual funds. The Equity Board is
composed of twelve members including the chief executive
officer of PIMCO Advisors L.P., three members designated by
Pacific Financial Asset Management Company, the chairman of
the Operating Board, two members designated by LLC, two
members designated by holders of Series B Preferred Stock of
Thomson Advisory Group Inc., the former general partner of
PIMCO Advisors L.P., and three independent members. Because of
the ability to designate a majority of the Members of the
Operating Board, Pacific Investment Management Company and the
Managing Directors could be said to control PIMCO Advisors
L.P., although the Managing Directors disclaim such authority.
C-30
<PAGE> 486
Item 29. Principal Underwriter
(a) BISYS Fund Services Limited Partnership d/b/a BISYS Fund
Services ("BISYS") acts as distributor and administrator
for Registrant. BISYS also distributes the securities of
The Victory Portfolios, the Parkstone Group of Funds, the
AmSouth Mutual Funds, the American Performance Funds, The
Coventry Group, The BB&T Mutual Funds Group, The ARCH
Fund, Inc., the M.S.D.& T. Funds, the Pacific Capital
Funds, the MMA Praxis Mutual Funds, The Riverfront Funds,
Inc., the Summit Investment Trust, the Qualivest Funds,
Empire Builder Tax Free Bond Fund, First Choice Funds
Trust, Fountain Square Funds, Hirtle Callaghan Trust,
HSBC Family of Funds, The Infinity Mutual Funds, Inc.,
Intrust Funds, The Kent Funds, Magna Funds, Marketwatch
Funds, Meyers Sheppard Investment Trust, Minerva Funds,
The Parkstone Advantage Funds, Pegasus Funds, The
Republic Funds Trust, The Republic Advisors Funds Trust,
SBSF Funds, Inc. dba Key Mutual Funds, Sefton Funds, The
Time Horizon Funds, and Variable Insurance Funds, each of
which is a management investment company.
(b) To the best of Registrant's knowledge, the partners of
BISYS are as follows:
<TABLE>
<CAPTION>
Positions and
Name and Principal Positions and Offices Offices with
Business Address with BISYS Fund Services Registrant
---------------- ------------------------ -------------
<S> <C> <C>
BISYS Fund Services, Sole General Partner None
Inc.
3435 Stelzer Road
Columbus, Ohio 43219
WC Subsidiary Limited Partner None
Corporation
3435 Stelzer Rd.
Columbus, Ohio 43229
</TABLE>
(c) None.
Item 30. Location of Accounts and Records
(1) National Bank of Commerce, One Commerce Square, Memphis,
Tennessee 38150 (records relating to its functions as
investment adviser for the Riverside Capital Funds).
(2) Martindale Andres & Company, Inc., 200 Four Falls Corporate
Center, West Conshohocken, Pennsylvania 19428 (records
relating to its functions as investment adviser for the
KeyPremier Funds).
(3) 1st Source Bank, 100 North Michigan Street, South Bend,
Indiana 46634 (records relating to its functions as investment
adviser for the 1st Source Monogram Funds).
C-31
<PAGE> 487
(4) Miller Anderson and Sherrerd LLP, One Tower Bridge, Suite
1100, West Conshohocken, Pennsylvania 19428 (records relating
to its functions as sub-investment adviser for 1st Source
Monogram Diversified Equity Fund).
(5) Loomis Sayles & Company, L.P., 3 First National Plaza, Suite
5450, Chicago, Illinois 60600 (records relating to its
functions as sub-investment adviser for 1st Source Monogram
Diversified Equity Fund).
(6) Columbus Circle Investors, #1 Metro Place, Stamford,
Connecticut 06902 (records relating to its functions as
sub-investment adviser for 1st Source Monogram Diversified
Equity Fund).
(7) BISYS Fund Services Limited Partnership, 3435 Stelzer Road,
Columbus, Ohio 43219 (records relating to its functions as
manager, administrator and distributor).
(8) BISYS Fund Services Ohio, Inc. and BISYS Fund Services,
Inc., 3435 Stelzer Road, Columbus, Ohio 43219 (records
relating to its functions as transfer agent and as fund
accountant).
(9) Baker & Hostetler LLP, 65 East State Street, Columbus,
Ohio 43215 (Declaration of Trust, By-Laws, and Minute
Books).
(10) National City Bank, 1900 East 9th Street, Cleveland, Ohio
44114 (records relating to its function as custodian for the
Riverside Capital Funds).
(11) The Bank of New York, 48 Wall Street, New York, New York 10286
(records relating to its function as custodian for the
KeyPremier Funds).
(12) The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati,
Ohio 45263 (records relating to its function as custodian for
the 1st Source Monogram Funds).
Item 31. Management Services
None
Item 32. Undertakings
None
C-32
<PAGE> 488
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Columbus, Ohio, on the 31st day of October, 1997.
Registrant hereby certifies that this Post-Effective Amendment to Registration
Statement meets all of the requirements for effectiveness pursuant to paragraph
(b) of Rule 485 under the Securities Act of 1933.
THE SESSIONS GROUP
Registrant
/s/ Walter B. Grimm
--------------------------------
Walter B. Grimm, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Walter B. Grimm President (Principal October 31, 1997
- --------------------------
Walter B. Grimm Executive Officer) and
Trustee
/s/*Thresa Dewar Treasurer (Principal October 31, 1997
- --------------------------
Thresa Dewar Financial Officer and
Principal Accounting
Officer)
/s/*Nancy E. Converse Trustee October 31, 1997
- --------------------------
Nancy E. Converse
/s/*Maurice G. Stark Trustee October 31, 1997
- --------------------------
Maurice G. Stark
/s/*James H. Woodward Trustee October 31, 1997
- --------------------------
James H. Woodward
/s/*Chalmers P. Wylie Trustee October 31, 1997
- --------------------------
Chalmers P. Wylie
*By /s/ Walter B. Grimm October 31, 1997
-----------------------
Walter B. Grimm
Attorney-In-Fact
</TABLE>
C-33
<PAGE> 489
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
1(a) Declaration of Trust dated as of
April 25, 1988, was filed as Exhibit
(1)(a) to Post-Effective Amendment No.
34 to Registrant's Registration
Statement (No. 33-21489) filed on
April 25, 1996.
(b) Amendment of Article IV, Section 4.2 of
Declaration of Trust adopted August 15,
1989, was filed as Exhibit (1)(b) to
Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
(c) Amendment of Article V, Section 5.3 of
Declaration of Trust adopted October 23,
1989, was filed as Exhibit (1)(c) to
Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
(d) Amendment of Article IV, Section 4.2 of
Declaration of Trust adopted July 23,
1991, was filed as Exhibit (1)(d) to
Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
(e) Amendment of Article IV, Section 4.2
of Declaration of Trust adopted
August 13, 1992, was filed as Exhibit
(1)(e) to Post-Effective Amendment No.
34 to Registrant's Registration
Statement (No. 33-21489) filed on
April 25, 1996.
(f) Amendment of Article IV, Section 4.2 of
Declaration of Trust as adopted
October 28, 1992, was filed as Exhibit
(1)(f) to Post-Effective Amendment No.
34 to Registrant's Registration
Statement (No. 33-21489) filed on
April 25, 1996.
C-34
<PAGE> 490
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
(g) Amendment of Article IV, Section 4.2 of
Declaration of Trust as adopted
February 18, 1994, was filed as Exhibit
(1)(g) to Post-Effective Amendment No.
34 to Registrant's Registration
Statement (No. 33-21489) filed on
April 25, 1996.
(h) Amendment of Article IV, Section 4.2 of
Declaration of Trust as adopted May 16,
1994, was filed as Exhibit (1)(h) to
Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
(i) Amendment to Article IV, Section 4.2 of
Declaration of Trust as adopted
April 10, 1996, was filed as Exhibit
(1)(i) to Post-Effective Amendment No.
34 to Registrant's Registration
Statement (No. 33-21489) filed on
April 25, 1996.
(j) Amendment to Article IV, Section 4.2 of
Declaration of Trust as adopted May 16,
1996, was filed as Exhibit (1)(j) to
Post-Effective Amendment No. 35 to
Registrant's Registration Statement (No.
33-21489) filed on June 6, 1996.
(k) Amendment to Article IV, Section 4.2 of
Declaration of Trust as adopted
August 15, 1996, was filed as Exhibit
(1)(k) to Post-Effective Amendment No.
36 to Registrant's Registration
Statement (No. 33-21489) filed on
August 16, 1996.
(l) Amendment to Article IV, Section 4.2 of
Declaration of Trust as adopted
September 27, 1996 was filed as Exhibit
(1)(l) to Post-Effective Amendment No.
38 to Registrant's Registration
Statement (No. 33-21489) filed on
November 15, 1996.
C-35
<PAGE> 491
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
(m) Amendment to Article IV, Section 4.2 of
Declaration of Trust as adopted as of
January 14, 1997, was filed as Exhibit
(l)(m) to Post-Effective Amendment No.
39 to Registrant's Registration
Statement (No. 33-21489) filed on
March 18, 1997.
2 By-Laws were filed as Exhibit (2) to
Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
5(a) Investment Advisory Agreement dated as
of July 19, 1988, between Registrant and
National Bank of Commerce (with respect
to Riverside Capital Money Market Fund)
was filed as Exhibit (5)(a) to
Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
(b) Investment Advisory Agreement dated as of
September 20, 1991, between Registrant and
National Bank of Commerce (with respect
to Riverside Capital Value Equity Fund and
Riverside Capital Fixed Income Fund) was filed
as Exhibit (5)(b) to Post-Effective Amendment
No. 34 to Registrant's Registration Statement
(No. 33-21489) filed on April 25, 1996.
(c) Investment Advisory Agreement dated as of
October 27, 1992, between Registrant and
National Bank of Commerce (with respect to
Riverside Capital Tennessee Municipal
Obligations Fund) was filed as Exhibit (5)(c)
to Post-Effective Amendment No. 34 to Registrant's
Registration Statement (No. 33-21489) filed on
April 25, 1996.
(d) Investment Advisory Agreement dated April 5,
1994, as amended June 3, 1994, between Registrant
and National Bank of Commerce (with respect to
Riverside
C-36
<PAGE> 492
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
Capital Growth Fund) was filed as Exhibit (5)(d) to
Post-Effective Amendment No. 34 to Registrant's
Registration Statement (No. 33-21489) filed on
April 25, 1996.
(e) Investment Advisory Agreement dated July 9,
1996, as amended as of June 30, 1997, between
Registrant and Martindale Andres & Company, Inc.
(with respect to the KeyPremier Funds) was filed
as Exhibit (5)(e) to Post-Effective Amendment
No. 42 to Registrant's Registration Statement
(No. 33-21489) filed on July 30, 1997.
(f) Investment Advisory Agreement dated August
20, 1996, between Registrant and 1st Source Bank
(with respect to 1st Source Monogram Funds) was
filed as Exhibit (5)(f) to Post-Effective Amendment
No. 37 to Registrant's Registration Statement (No.
33-21489) filed on October 21, 1996.
(g) Sub-Investment Advisory Agreement dated
August 20, 1996, between 1st Source Bank and
Miller Anderson & Sherrerd LLP (with respect to
1st Source Monogram Diversified Equity Fund)
was filed as Exhibit (5)(g) to Post-Effective
Amendment No. 37 to Registrant's Registration
Statement (No. 33-21489) filed on October 21, 1996.
(h) Sub-Investment Advisory Agreement dated
August 20, 1996, between 1st Source Bank and
Loomis Sayles & Company, L.P. (with respect to
1st Source Monogram Diversified Equity Fund)
was filed as Exhibit (5)(h) to Post-Effective
Amendment No. 37 to Registrant's Registration
Statement (No. 33-21489) filed on October 21, 1996.
(i) Sub-Investment Advisory Agreement dated
August 20, 1996, between 1st Source Bank and
Columbus Circle Investors (with respect to 1st
Source Monogram
C-37
<PAGE> 493
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
Diversified Equity Fund) was
filed as Exhibit (5)(i) to Post-Effective
Amendment No. 37 to Registrant's Registration
Statement (No. 33-21489) filed on October 21, 1996.
6(a) Distribution Agreement dated October 1, 1993,
as amended as of June 3, 1994, between Registrant
and The Winsbury Company Limited Partnership
(with respect to the Riverside Capital Funds).
(b) Form of Selected Dealer Agreement was filed as
Exhibit (6)(b) to Post-Effective Amendment No. 34
to Registrant's Registration Statement (No. 33-21489)
filed on April 25, 1996.
(c) Distribution Agreement dated as of July 9, 1996,
as amended as of June 30, 1997, between Registrant
and BISYS Fund Services Limited Partnership (with
respect to the KeyPremier Funds) was filed as
Exhibit (6)(c) to Post-Effective Amendment No. 42
to Registrant's Registration Statement (No. 33-21489)
filed on July 30, 1997.
(d) Form of Shareholder Services Agreement
was filed as Exhibit (6)(d) to
Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
(e) Distribution Agreement dated as of
August 20, 1996, between Registrant and BISYS
Fund Services Limited Partnership (with respect to
the 1st Source Monogram Funds) was filed as Exhibit
(6)(e) to Post-Effective Amendment No. 37 to
Registrant's Registration Statement (No. 33-21489)
filed on October 21, 1996.
8(a) Custodial Services Agreement dated as of
March 1, 1995, between Registrant and National
City Bank (with respect to the Riverside Capital
Funds).
C-38
<PAGE> 494
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
(b) Custody Agreement dated July 9, 1996, as
amended as of June 30, 1997, between
Registrant and The Bank of New York (with
respect to the KeyPremier Funds) was filed
as Exhibit (8)(b) to Post-Effective
Amendment No. 42 to Registrant's
Registration Statement (No. 33-21489)
filed on July 30, 1997.
(c) Custody Agreement dated August 20, 1996,
between Registrant and The Fifth Third
Bank (with respect to the 1st Source
Monogram Funds) was filed as Exhibit
(8)(c) to Post-Effective Amendment No. 37
to Registrant's Registration Statement
(No. 33-21489) filed on October 21, 1996.
(d) Cash Management and Related Services
Agreement dated September 24, 1996, as
amended as of June 30, 1997, between
Registrant and The Bank of New York (with
respect to the KeyPremier Funds) was filed
as Exhibit (8)(d) to Post-Effective
Amendment No. 42 to Registrant's
Registration Statement (No. 33-21489)
filed on July 30, 1997.
9(a) Administration Agreement dated as of
November 1, 1997, between Registrant and
BISYS Fund Services Limited Partnership
(with respect to the Riverside Capital
Funds).
(b) Amended Transfer Agency Agreement dated as
of September 1, 1992, as amended as of May
1, 1994, between Registrant and BISYS Fund
Services Ohio, Inc. (with respect to the
Riverside Capital Funds).
(c) Fund Accounting Agreement dated as of
November 1, 1997, between Registrant and
BISYS Fund Services, Inc. (with respect to
the Riverside Capital Funds).
(d) Form of Administrative Services Plan.
C-39
<PAGE> 495
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
(e) Servicing Agreement to Administrative
Services Plan dated as of October 19,
1993, between Registrant and National Bank
of Commerce (with respect to Riverside
Capital Money Market Fund, Riverside
Capital Equity Fund, Riverside Capital
Fixed Income Fund and Riverside Capital
Tennessee Municipal Obligations Fund).
(f) Omnibus Fee Agreement dated as of November
1, 1997, among Registrant, BISYS Fund
Services Limited Partnership and BISYS
Fund Services, Inc. (with respect to the
Riverside Capital Funds).
(g) Servicing Agreement to Administrative
Services Plan dated April 5, 1994, between
Registrant and National Bank of Commerce
(with respect to Riverside Capital Growth
Fund).
(x) Management and Administration Agreement
dated July 9, 1996, as amended as of June
30, 1997, between Registrant and BISYS
Fund Services Limited Partnership (with
respect to the KeyPremier Funds) was filed
as Exhibit (9)(x) to Post-Effective
Amendment No. 42 to Registrant's
Registration Statement (No. 33-21489)
filed on July 30, 1997.
(y) Fund Accounting Agreement dated July 9,
1996, as amended as of June 30, 1997,
between Registrant and BISYS Fund
Services, Inc. (with respect to the
KeyPremier Funds) was filed as Exhibit
(9)(y) to Post-Effective Amendment No. 42
to Registrant's Registration Statement
(No. 33-21489) filed on July 30, 1997.
(z) Transfer Agency Agreement dated July 9,
1996, as amended as of June 30, 1997,
between Registrant and BISYS Fund
Services, Inc. (with respect to the
KeyPremier Funds) was filed as Exhibit
(9)(z) to Post-Effective Amendment No. 42
to Registrant's Registration
C-40
<PAGE> 496
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
Statement (No. 33-21489) filed on
July 30, 1997.
(aa) Management and Administration Agreement
dated August 20, 1996, between Registrant
and BISYS Fund Services Limited
Partnership (with respect to the 1st
Source Funds) was filed as Exhibit (9)(aa)
to Post-Effective Amendment No. 37 to
Registrant's Registration Statement (No.
33-21489) filed on October 21, 1996.
(ab) Fund Accounting Agreement dated August 20,
1996, between Registrant and BISYS Fund
Services, Inc. (with respect to the 1st
Source Monogram Funds) was filed as
Exhibit (9)(ab) to Post-Effective
Amendment No. 37 to Registrant's
Registration Statement (No. 33-21489)
filed on October 21, 1996.
(ac) Transfer Agency Agreement dated August 20,
1996, between Registrant and BISYS Fund
Services, Inc. (with respect to the 1st
Source Monogram Funds) was filed as
Exhibit (9)(ac) to Post-Effective
Amendment No. 37 to Registrant's
Registration Statement (No. 33-21489)
filed on October 21, 1996.
(ad) Form of Servicing Agreement to
Administrative Services Plan was filed as
Exhibit (9)(ad) to Post-Effective
Amendment No. 35 to Registrant's
Registration Statement (No. 33-21489)
filed on June 6, 1996.
10(a) Opinion of Counsel with respect to shares
of the Riverside Capital Funds registered
pursuant to Rule 24e-2 was filed as
Exhibit (10)(a) to Post-Effective
Amendment No. 41 to Registrant's
Registration Statement (No. 33-21489)
filed on May 21, 1997. Opinion of Counsel
with respect to shares of KeyPremier U.S.
Treasury Obligations Money Market Fund and
KeyPremier Limited Duration Government
C-41
<PAGE> 497
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
Securities Fund was filed as Exhibit
(10)(a) to Post-Effective Amendment No. 40
to Registrant's Registration Statement
(No. 33-21489) filed on April 16, 1997. An
Opinion of Counsel was filed by Notice on
August 27, 1997, pursuant to Rule 24f-2
(with respect to Riverside Capital Money
Market Fund, Riverside Capital Value
Equity Fund, Riverside Capital Fixed
Income Fund, Riverside Capital Tennessee
Municipal Obligations Fund, Riverside
Capital Growth Fund, KeyPremier Prime
Money Market Fund, KeyPremier Pennsylvania
Municipal Bond Fund, KeyPremier
Established Growth Fund, KeyPremier
Intermediate Term Income Fund, KeyPremier
Aggressive Growth Fund, 1st Source
Monogram Diversified Equity Fund, 1st
Source Monogram Income Equity Fund, 1st
Source Monogram Special Equity Fund and
1st Source Monogram Income Fund).
(b) Opinion of Special Counsel with respect to
Riverside Capital Tennessee Municipal
Obligations Fund.
11(a) Consents of KPMG Peat Marwick LLP.
(b) Consent of Burch, Porter & Johnson PLLC.
(c) Consent of Coopers & Lybrand L.L.P.
13 Purchase Agreement dated as of July 19,
1988, between Registrant and Winsbury
Associates.
15(a) Rule 12b-1 Plan (with respect to the
Riverside Capital Funds).
(c) Rule 12b-1 Plan (with respect to the 1st
Source Monogram Funds) was filed as
Exhibit (15)(c) to Post-Effective
Amendment No. 35 to Registrant's
Registration Statement (No. 33-21489)
filed on June 6, 1996.
(d) Rule 12b-1 Agreement dated October 1,
1993, between The Winsbury Company
C-42
<PAGE> 498
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
Limited Partnership and National Bank of
Commerce (with respect to Riverside
Capital Money Market Fund, Riverside
Capital Equity Fund, Riverside Capital
Fixed Income Fund and Riverside Capital
Tennessee Municipal Obligations Fund).
(e) Rule 12b-1 Agreement dated October 19,
1993, between The Winsbury Company Limited
Partnership and Commerce Investment
Corporation (with respect to Riverside
Capital Money Market Fund, Riverside
Capital Value Equity Fund, Riverside
Capital Fixed Income Fund and Riverside
Capital Tennessee Municipal Obligations
Fund).
(f) Rule 12b-1 Agreement dated October 19,
1993, between Registrant and The Winsbury
Company Limited Partnership (with respect
to Riverside Capital Money Market Fund,
Riverside Capital Value Equity Fund,
Riverside Capital Fixed Income Fund and
Riverside Capital Tennessee Municipal
Obligations Fund).
(g) Rule 12b-1 Agreement dated as of April 5,
1994, between The Winsbury Company Limited
Partnership and Commerce Investment
Corporation (with respect to Riverside
Capital Low Duration Government Securities
Fund and Riverside Capital Growth Fund).
(h) Rule 12b-1 Agreement dated as of April 5,
1994, between Registrant and The Winsbury
Company Limited Partnership (with respect
to Riverside Capital Low Duration
Government Securities Fund and Riverside
Capital Growth Fund).
(i) Rule 12b-1 Agreement dated as of May 16,
1994, between J.C. Bradford & Co. and The
Winsbury Company Limited Partnership (with
respect to the Riverside Capital Funds).
(j) Rule 12b-1 Agreement dated as of May 16,
1994, between Morgan, Keegan & Co. and
C-43
<PAGE> 499
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
The Winsbury Company Limited Partnership (with
respect to the Riverside Capital Funds).
(k) Rule 12b-1 Agreement dated as of August 1,
1994, between J.J.B. Hilliard, W.L. Lyons,
Inc. and The Winsbury Company Limited
Partnership (with respect to the Riverside
Capital Funds).
(l) Rule 12b-1 Agreement dated as of August
31, 1994, between TrustMark Investments,
Inc. and The Winsbury Company Limited
Partnership Agreement (with respect to the
Riverside Capital Funds).
16(a) Computations of Performance Quotations for
the Riverside Capital Funds.
(b) Computations of Performance Quotations for
the KeyPremier Funds.
(c) Computations of Performance Quotations for
the 1st Source Monogram Funds.
17 Financial Data Schedules for the Riverside
Capital Funds, the KeyPremier Funds and
the 1st Source Monogram Funds.
18 None.
19(a) Powers of Attorney of Maurice G. Stark,
Chalmers P. Wylie and Walter B. Grimm.
(b) Consent of Baker & Hostetler LLP
(c) Power of Attorney of Nancy E. Converse was
filed as Exhibit (19)(c) to Post-Effective
Amendment No. 36 to Registrant's
Registration Statement (No. 33-21489)
filed on August 16, 1996.
(d) Power of Attorney of James H. Woodward was
filed as Exhibit (19)(d) to Post-Effective
Amendment No. 37 to Registrant's
Registration Statement (No. 33-21489)
filed on October 21, 1996.
C-44
<PAGE> 500
(e) Power of Attorney of Thresa Dewar was
filed as Exhibit (19)(e) to Post-
Effective Amendment No. 41 to Registrant's
Registration Statement (No. 33-21489)
filed on May 21, 1997.
<PAGE> 501
As filed with the Securities and Exchange Commission October 31, 1997
1933 Act Registration No. 33-21489
1940 Act File No. 811-5545
EXHIBITS TO
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / x /
Post-Effective Amendment No. 43 / x /
and
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 / x /
Amendment No. 45 / x /
The Sessions Group
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road
Columbus, Ohio 43219
(Address of Principal Executive Offices)
Registrant's Telephone Number:
(800) 752-1823
<PAGE> 1
EXHIBIT (6)(a)
<PAGE> 2
DISTRIBUTION AGREEMENT
October 1, 1993
The Winsbury Company Limited Partnership
1900 East Dublin-Granville Road
Columbus, Ohio 43229
Gentlemen:
This is to confirm that, in consideration of the agreements hereinafter
contained, the undersigned, The Sessions Group (the "Trust"), an Ohio business
trust, has agreed that The Winsbury Company Limited Partnership (the
"Distributor") shall be, for the period of this Distribution Agreement (the
"Agreement"), the distributor of the shares of beneficial interest of the
initial investment portfolio and any additional investment portfolios of the
Trust, as each are or will be identified on Schedule A hereto (such initial
investment portfolio and any additional investment portfolios together called
the "Funds"). Such shares of beneficial interest are hereinafter called
"Shares."
1. Services as Distributor.
1.1 Distributor will act as agent for the distribution of the Shares
covered by the registration statement and prospectus of the Trust then in effect
under the Securities Act of 1933, as amended ("1933 Act").
1.2 Distributor agrees to use appropriate efforts to solicit orders for
the sale of the Shares and will undertake such advertising and promotion as it
believes reasonable in connection with such solicitation. The Trust understands
that Distributor is now and, in the future, may be the distributor of the shares
of several investment companies or series (together, "Companies") including
Companies having investment objectives similar to those of the Trust. The Trust
further understands that investors and potential investors in the Trust may
invest in shares of such other Companies. The Trust agrees that Distributor's
duties to such Companies shall not be deemed in conflict with its duties to the
Trust under this paragraph 1.2.
Except as provided in Section 2 herein, Distributor shall, at its own
expense, finance appropriate activities which it deems reasonable which are
primarily intended to result in the sale of the Shares, including, but not
limited to, advertising, compensation of underwriters, dealers and sales
personnel, the printing and mailing of prospectuses to other than current
Shareholders, and the printing and mailing of sales literature.
1.3 All activities by Distributor and its partners, agents, and
employees as distributor of the Shares shall comply with all applicable laws,
rules and regulations, including, without
<PAGE> 3
limitation, all rules and regulations made or adopted pursuant to the Investment
Company Act of 1940 ("1940 Act") by the Securities and Exchange Commission or
any securities association registered under the Securities Exchange Act of 1934.
1.4 Distributor will provide one or more persons, during normal
business hours, to respond to telephone questions with respect to the Trust.
1.5 Distributor will transmit any orders received by it for purchase or
redemption of the Shares to the transfer agent and custodian for the Funds.
1.6 Whenever in their judgment such action is warranted by unusual
market, economic or political conditions, or by abnormal circumstances of any
kind, the Trust's officers may decline to accept any orders for, or make any
sales of the Shares until such time as those officers deem it advisable to
accept such orders and to make such sales.
1.7 Distributor will act only on its own behalf as principal if it
chooses to enter into selling agreements with selected dealers or others.
1.8 The Trust agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the qualification of
the Shares for sale in such states as Distributor may designate.
1.9 The Trust shall furnish from time to time, for use in connection
with the sale of the Shares, such information with respect to the Funds and the
Shares as Distributor may reasonably request; and the Trust warrants that the
statements contained in any such information shall fairly show or represent what
they purport to show or represent. The Trust shall also furnish Distributor upon
request with: (a) unaudited semi-annual statements of the Funds' books and
accounts prepared by the Trust, (b) quarterly earnings statements prepared by
the Trust, (c) a monthly itemized list of the securities in the Funds, (d)
monthly balance sheets as soon as practicable after the end of each month, and
(e) from time to time such additional information regarding the financial
condition of the Funds as Distributor may reasonably request.
1.10 The Trust represents to Distributor that all registration
statements and prospectuses filed by the Trust with the Securities and Exchange
Commission under the 1933 Act with respect to the Shares have been carefully
prepared in conformity with the requirements of said Act and rules and
regulations of the
- 2 -
<PAGE> 4
Securities and Exchange Commission thereunder. As used in this agreement the
terms "registration statement" and "prospectus" shall mean any registration
statement and any prospectus and Statement of Additional Information relating to
the Funds filed with the Securities and Exchange Commission and any amendments
and supplements thereto which at any time shall have been filed with the same
Commission. The Trust represents and warrants to Distributor that any
registration statement and prospectus, when such registration statement becomes
effective, will contain all statements required to be stated therein in
conformity with said Act and the rules and regulations of said Commission; that
all statements of fact contained in any such registration statement and
prospectus will be true and correct when such registration statement becomes
effective; and that neither any registration statement nor any prospectus when
such registration statement becomes effective will include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading to a
purchaser of the Shares. The Trust may but shall not be obligated to propose
from time to time such amendment or amendments to any registration statement and
such supplement or supplements to any prospectus as, in the light of future
developments, may, in the opinion of the Trust's counsel, be necessary or
advisable. If the Trust shall not propose such amendment or amendments and/or
supplement or supplements within fifteen days after receipt by the Trust of a
written request from Distributor to do so, Distributor may, at its option,
terminate this agreement. The Trust shall not file any amendment to any
registration statement or supplement to any prospectus without giving
Distributor reasonable notice thereof in advance; provided, however, that
nothing contained in this agreement shall in any way limit the Trust's right to
file at any time such amendments to any registration statement and/or
supplements to any prospectus, of whatever character, as the Trust may deem
advisable, such right being in all respects absolute and unconditional.
1.11 The Trust authorizes Distributor and dealers to use any prospectus
in the form furnished from time to time in connection with the sale of the
Shares. The Trust agrees to indemnify, defend and hold Distributor, its several
partners and employees, and any person who controls Distributor within the
meaning of Section 15 of the 1933 Act free and harmless from and against any and
all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Distributor, its partners and
employees, or any such controlling person, may incur under the 1933 Act or under
common law or otherwise, arising out of or based upon any untrue statement, or
alleged untrue statement, of a material fact contained in any registration
statement or any prospectus or arising out of or based
- 3 -
<PAGE> 5
upon any omission, or alleged omission, to state a material fact required to be
stated in either any registration statement or any prospectus or necessary to
make the statements in either thereof not misleading; provided, however, that
the Trust's agreement to indemnify Distributor, its partners or employees, and
any such controlling person shall not be deemed to cover any claims, demands,
liabilities or expenses arising out of any statements or representations as are
contained in any prospectus and in such financial and other statements as are
furnished in writing to the Trust by Distributor and used in the answers to the
registration statement or in the corresponding statements made in the
prospectus, or arising out of or based upon any omission or alleged omission to
state a material fact in connection with the giving of such information required
to be stated in such answers or necessary to make the answers not misleading;
and further provided that the Trust's agreement to indemnify Distributor and the
Trust's representations and warranties hereinbefore set forth in paragraph 1.10
shall not be deemed to cover any liability to the Trust or its Shareholders to
which Distributor would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of its duties, or by reason of
Distributor's reckless disregard of its obligations and duties under this
agreement. The Trust's agreement to indemnify Distributor, its partners and
employees, and any such controlling person, as aforesaid, is expressly
conditioned upon the Trust's being notified of any action brought against
Distributor, its partners or employees, or any such controlling person, such
notification to be given by letter or by telegram addressed to the Trust at its
principal office in Columbus, Ohio and sent to the Trust by the person against
whom such action is brought, within 10 days after the summons or other first
legal process shall have been served. The failure to so notify the Trust of any
such action shall not relieve the Trust from any liability which the Trust may
have to the person against whom such action is brought by reason of any such
untrue, or allegedly untrue, statement or omission, or alleged omission,
otherwise than on account of the Trust's indemnity agreement contained in this
paragraph 1.11. The Trust will be entitled to assume the defense of any suit
brought to enforce any such claim, demand or liability, but, in such case, such
defense shall be conducted by counsel of good standing chosen by the Trust and
approved by Distributor, which approval shall not be unreasonably withheld. In
the event the Trust elects to assume the defense of any such suit and retain
counsel of good standing approved by Distributor, the defendant or defendants in
such suit shall bear the fees and expenses of any additional counsel retained by
any of them; but in case the Trust does not elect to assume the defense of any
such suit, or in case Distributor reasonably does not approve of counsel chosen
by the Trust, the Trust will reimburse Distributor, its partners and employees,
or the controlling person or persons named as defendant or defendants in such
suit, for the
- 4 -
<PAGE> 6
fees and expenses of any counsel retained by Distributor or them. The Trust's
indemnification agreement contained in this paragraph 1.11 and the Trust's
representations and warranties in this agreement shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
Distributor, its partners and employees, or any controlling person, and shall
survive the delivery of any Shares. This agreement of indemnity will inure
exclusively to Distributor's benefit, to the benefit of its several partners and
employees, and their respective estates, and to the benefit of the controlling
persons and their successors. The Trust agrees promptly to notify Distributor of
the commencement of any litigation or proceedings against the Trust or any of
its officers or Trustees in connection with the issue and sale of any Shares.
1.12 Distributor agrees to indemnify, defend and hold the Trust, its
several officers and Trustees and any person who controls the Trust within the
meaning of Section 15 of the 1933 Act free and harmless from and against any and
all claims, demands, liabilities and expenses (including the costs of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Trust, its officers or Trustees
or any such controlling person, may incur under the 1933 Act or under common law
or otherwise, but only to the extent that such liability or expense incurred by
the Trust, its officers or Trustees or such controlling person resulting from
such claims or demands, shall arise out of or be based upon any untrue, or
alleged untrue, statement of a material fact contained in information furnished
in writing by Distributor to the Trust and used in the answers to any of the
items of the registration statement or in the corresponding statements made in
the prospectus, or shall arise out of or be based upon any omission, or alleged
omission, to state a material fact in connection with such information furnished
in writing by Distributor to the Trust required to be stated in such answers or
necessary to make such information not misleading. Distributor's agreement to
indemnify the Trust, its officers and Trustees, and any such controlling person,
as aforesaid, is expressly conditioned upon Distributor's being notified of any
action brought against the Trust, its officers or Trustees, or any such
controlling person, such notification to be given by letter or telegram
addressed to Distributor at its principal office in Columbus, Ohio, and sent to
Distributor by the person against whom such action is brought, within 10 days
after the summons or other first legal process shall have been served.
Distributor shall have the right of first control of the defense of such action,
with counsel of its own choosing, satisfactory to the Trust, if such action is
based solely upon such alleged misstatement or omission on Distributor's part,
and in any other event the Trust, its officers or Trustees or such controlling
person shall each have the right to participate in the defense or preparation of
the defense
- 5 -
<PAGE> 7
of any such action. The failure to so notify Distributor of any such action
shall not relieve Distributor from any liability which Distributor may have to
the Trust, its officers or Trustees, or to such controlling person by reason of
any such untrue or alleged untrue statement, or omission or alleged omission,
otherwise than on account of Distributor's indemnity agreement contained in this
paragraph 1.12.
1.13 No Shares shall be offered by either Distributor or the Trust
under any of the provisions of this agreement and no orders for the purchase or
sale of Shares hereunder shall be accepted by the Trust if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the 1933
Act or if and so long as a current prospectus as required by Section 10(a) of
said Act, as amended, is not on file with the Securities and Exchange
Commission; provided, however, that nothing contained in this paragraph 1.13
shall in any way restrict or have an application to or bearing upon the Trust's
obligation to repurchase Shares from any Shareholder in accordance with the
provisions of the Trust's prospectus, Declaration of Trust, or By-Laws.
1.14 The Trust agrees to advise Distributor as soon as reasonably
practical by a notice in writing delivered to Distributor or its counsel:
(a) of any request by the Securities and Exchange Commission
for amendments to the registration statement or prospectus then in
effect or for additional information;
(b) in the event of the issuance by the Securities and
Exchange Commission of any stop order suspending the effectiveness of
the registration statement or prospectus then in effect or the
initiation by service of process on the Trust of any proceeding for
that purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration statement or
prospectus then in effect or which requires the making of a change in
such registration statement or prospectus in order to make the
statements therein not misleading; and
(d) of all action of the Securities and Exchange Commission
with respect to any amendment to any registration statement or
prospectus which may from time to time be filed with the Securities and
Exchange Commission.
- 6 -
<PAGE> 8
For purposes of this section, informal requests by or acts of the Staff
of the Securities and Exchange Commission shall not be deemed actions of or
requests by the Securities and Exchange Commission.
1.15 Distributor agrees on behalf of itself and its partners and
employees to treat confidentially and as proprietary information of the Trust
all records and other information relative to the Trust and its prior, present
or potential Shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be withheld where
Distributor may be exposed to civil or criminal contempt proceedings for failure
to comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Trust.
1.16 This Agreement shall be governed by the laws of the State of Ohio.
2. Fee.
The Distributor shall receive from the Funds identified on Schedule B
hereto (the "Distribution Plan Funds") a distribution fee at the rate and upon
the terms and conditions set forth in the Distribution and Shareholder Service
Plan attached as Schedule C hereto, and as amended from time to time. The
distribution fee shall be accrued daily and shall be paid on the first business
day of each month, or at such time(s) as the Distributor shall reasonably
request.
3. Sale and Payment.
Under this Agreement, the following provisions shall apply with respect
to the sale of and payment of Shares sold at an offering price which includes a
sales load as described in the prospectuses of any Funds identified on Schedule
D hereto (collectively, the "Load Funds"; individually, a "Load Fund"):
(a) The Distributor shall have the right, as principal, to
purchase Shares from the Load Funds at their net asset value and to
sell such Shares to the public against orders therefor at the
applicable public offering price, as defined in Section 3 hereof. The
Distributor shall also have the right, as principal, to sell Shares to
dealers against orders therefor at the public offering price less a
concession determined by the Distributor, which concession shall not
exceed the amount of the sales charge or underwriting discount, if any,
referred to in Section 4 below.
- 7 -
<PAGE> 9
(b) Prior to the time of delivery of any Shares by a Load Fund
to, or on the order of, the Distributor, the Distributor shall pay or
cause to be paid to the Load Fund or to its order an amount in Boston
or New York clearing house funds equal to the applicable net asset
value of such Shares. The Distributor may retain so much of any sales
charge or underwriting discount as is not allowed by the Distributor as
a concession to dealers.
4. Public Offering Price.
The public offering price shall be the net asset value of Shares, plus
any applicable sales charge, all as set forth in the current prospectus of the
Load Fund. The net asset value of Shares shall be determined in accordance with
the provisions of the Declaration of Trust and By-Laws of the Trust and the then
current prospectus of the Load Fund.
5. Issuance of Shares.
The Load Funds reserve the right to issue, transfer or sell Shares at
net asset value (a) in connection with the merger or consolidation of the Trust
or the Load Fund(s) with any other investment company or the acquisition by the
Trust or the Load Fund(s) of all or substantially all of the assets or of the
outstanding Shares of any other investment company; (b) in connection with a pro
rata distribution directly to the holders of Shares in the nature of a stock
dividend or split; (c) upon the exercise of subscription rights granted to the
holders of Shares on a pro rata basis; (d) in connection with the issuance of
Shares pursuant to any exchange and reinvestment privileges described in any
then current prospectus of the Load Fund; and (e) otherwise in accordance with
any then current prospectus of the Load Fund.
6. Term and Matters Relating to the Trust as an Ohio Business Trust.
This Agreement shall become effective as of the date first set forth
above, and, unless sooner terminated as provided herein, shall continue
automatically for successive annual periods ending on March 31st of each year
with respect to each of the Funds, provided such continuance is specifically
approved at least annually by (i) the Trust's Board of Trustees or (ii) by "vote
of a majority of the outstanding voting securities" (as defined below) of the
Trust, provided, however, that in either event the continuance is also approved
by the majority of the Trust's Trustees who are not parties to the agreement or
interested persons (as defined in the 1940 Act) of any party to this agreement,
by vote cast in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable without penalty, on not less than sixty
days' notice, by the Trust's Board of Trustees,
- 8 -
<PAGE> 10
by vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of the Trust or by Distributor. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).
The Sessions Group is a business trust organized under Chapter 1746,
Ohio Revised Code and under a Declaration of Trust, to which reference is hereby
made and a copy of which is on file at the office of the Secretary of State of
Ohio as required by law, and to any and all amendments thereto so filed or
hereafter filed. The obligations of "The Sessions Group" entered into in the
name or on behalf thereof by any of the Trustees, officers, employees or agents
are made not individually, but in such capacities, and are not binding upon any
of the Trustees, officers, employees, agents or shareholders of the Trust
personally, but bind only the assets of the Trust, as set forth in Section
1746.13(A), Ohio Revised Code, and all persons dealing with any of the Funds of
the Trust must look solely to the assets of the Trust belonging to such Fund for
the enforcement of any claims against the Trust.
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Yours very truly,
THE SESSIONS GROUP
By /s/Roy E. Rogers
---------------------
Name Roy E. Rogers
--------------------
Title President
-------------------
Accepted:
THE WINSBURY COMPANY LIMITED PARTNERSHIP
By The Winsbury Corporation,
General Partner
By /s/G. Ronald Henderson
----------------------------
Name G. Ronald Henderson
--------------------------
Title Vice President
-------------------------
- 9 -
<PAGE> 11
Dated: June 3, 1994
Schedule A
to the
Distribution Agreement
between The Sessions Group and
The Winsbury Company Limited Partnership
October 1, 1993
Name of Fund Date
- ------------ ----
Riverside Capital Money Market Fund October 1, 1993
Riverside Capital Equity Fund October 1, 1993
(Riverside Capital Value Equity Fund)
Riverside Capital Fixed Income Fund October 1, 1993
First Omaha U.S. Government October 1, 1993
Obligations Fund
Riverside Capital Tennessee Municipal October 1, 1993
Obligations Fund
First Omaha Equity Fund October 1, 1993
First Omaha Short/Intermediate October 1, 1993
Fixed Income Fund
First Omaha Fixed Income Fund October 1, 1993
Riverside Capital Low Duration April 5, 1994
Government Securities Fund
Riverside Capital Sunbelt Municipal April 5, 1994
Obligations Fund
Riverside Capital Growth Fund April 5, 1994
Riverside Capital Equity and June 3, 1994
Municipal Income Fund
THE WINSBURY COMPANY LIMITED THE SESSIONS GROUP
PARTNERSHIP
By The Winsbury Corporation,
General Partner
By /s/ Stephen G. Mintos By /s/ Roy E. Rogers
---------------------------- ------------------------
Name Stephen G. Mintos Name Roy E. Rogers
---------------------------- -----------------------
Title Executive Vice President Title President
--------------------------- ----------------------
A-1
<PAGE> 12
Dated: June 3, 1994
Schedule B
to the
Distribution Agreement
between The Sessions Group and
The Winsbury Company Limited Partnership
October 1, 1993
Name of Distribution Plan Fund Date
- ------------------------------ ----
Riverside Capital Money Market Fund October 1, 1993
Riverside Capital Equity Fund October 1, 1993
(Riverside Capital Value Equity Fund)
Riverside Capital Fixed Income Fund October 1, 1993
First Omaha U.S. Government October 1, 1993
Obligations Fund
Riverside Capital Tennessee Municipal October 1, 1993
Obligations Fund
First Omaha Equity Fund October 1, 1993
First Omaha Short/Intermediate October 1, 1993
Fixed Income Fund
First Omaha Fixed Income Fund October 1, 1993
Riverside Capital Low Duration April 5, 1994
Government Securities Fund
Riverside Capital Sunbelt Municipal April 5, 1994
Obligations Fund
Riverside Capital Growth Fund April 5, 1994
Riverside Capital Equity and June 3, 1994
Municipal Income Fund
THE WINSBURY COMPANY LIMITED THE SESSIONS GROUP
PARTNERSHIP
By The Winsbury Corporation,
General Partner
By /s/ Stephen G. Mintos By /s/ Roy E. Rogers
------------------------------ -----------------------------
Name Stephen G. Mintos Name Roy E. Rogers
---------------------------- ---------------------------
Title Executive Vice President Title President
--------------------------- --------------------------
B-1
<PAGE> 13
Schedule C
to the
Distribution Agreement
between The Sessions Group and
The Winsbury Company Limited Partnership
October 1, 1993
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
This Plan (the "Plan") constitutes the distribution and shareholder
service plan of The Sessions Group, an Ohio business trust (the "Trust"),
adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act"). The Plan relates to those investment portfolios ("Funds")
identified on Schedule B to the Trust's Distribution Agreement and as amended
from time to time (the "Distribution Plan Funds").
Section 1. Each Distribution Plan Fund shall pay to The Winsbury
Company, the distributor (the "Distributor") of the Trust's shares of beneficial
interest (the "Shares"), a fee in an amount not to exceed on an annual basis
.25% of the average daily net asset value of such Fund (the "Distribution Fee")
for: (a) payments the Distributor makes to banks and other institutions and
broker/dealers (a "Participating Organization") for distribution assistance
and/or Shareholder service pursuant to an agreement between the Distributor and
the Participating Organization; or (b) reimbursement of expenses incurred by a
Participating Organization pursuant to an agreement in connection with
distribution assistance and/or Shareholder service including, but not limited
to, the reimbursement of expenses relating to printing and distributing
prospectuses to persons other than Shareholders of a Distribution Plan Fund,
printing and distributing advertising and sales literature and reports to
Shareholders used in connection with the sale of Shares, and personnel and
communication equipment used in servicing Shareholder accounts and prospective
shareholder inquiries. For purposes of the Plan, a Participating Organization
may include the Distributor or any of its affiliates or subsidiaries.
Section 2. The Distribution Fee shall be paid by the Distribution Plan
Funds to the Distributor only to compensate or to reimburse the Distributor for
payments or expenses incurred pursuant to Section 1.
Section 3. The plan shall not take effect with respect to a
Distribution Plan Fund until it has been approved by a vote of at least a
majority of the outstanding voting securities of such Fund.
C-1
<PAGE> 14
Section 4. The Plan shall not take effect until it has been approved,
together with any related agreements, by votes of the majority (or whatever
greater percentage may, from time to time, be required by Section 12(b) of the
1940 Act or the rules and regulations thereunder) of both (a) the Trustees of
the Trust, and (b) the Independent Trustees of the Trust cast in person at a
meeting called for the purpose of voting on the Plan or such agreement.
Section 5. The Plan shall continue in effect for a period of more than
one year after it takes effect only so long as such continuance is specifically
approved at least annually in the manner provided for approval of the Plan in
Section 4.
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Distribution Plan Funds pursuant to the Plan or any
related agreement shall provide to the Trustees of the Trust, and the Trustees
shall review, at least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made.
Section 7. The Plan may be terminated at any time by vote of a majority
of the Independent Trustees, or by vote of a majority of a Distribution Plan
Fund's outstanding voting securities.
Section 8. All agreements with any person relating to implementation of
the Plan shall be in writing, and any agreement related to the Plan shall
provide:
(a) That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Independent
Trustees or by vote of a majority of the outstanding voting securities
of the Distribution Plan Fund, on not more than 60 days' written notice
to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the
event of its assignment.
Section 9. The Plan may not be amended to increase materially the
amount of distribution expenses permitted pursuant to Section 1 hereof without
approval in the manner provided in Section 3 hereof, and all material amendments
to the Plan shall be approved in the manner provided for approval of the Plan in
Section 4.
Section 10. As used in the Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of the
Plan or any agreements related to it, and (b) the terms "assignment",
"interested person" and "majority of the outstanding voting securities" shall
have the respective meanings specified in the 1940 Act and the rules and
regulations thereunder, subject to such exemptions as may be granted by the
Securities and Exchange Commission.
C-2
<PAGE> 15
Schedule D Dated: June 3, 1994
to the
Distribution Agreement
between The Sessions Group and
The Winsbury Company Limited Partnership
October 1, 1993
Name of Load Fund Date
- ----------------- ----
Riverside Capital Equity Fund October 1, 1993
(Riverside Capital Value Equity Fund)
Riverside Capital Fixed Income Fund October 1, 1993
Riverside Capital Tennessee Municipal October 1, 1993
Obligations Fund
Riverside Capital Low Duration April 5, 1994
Government Securities Fund
Riverside Capital Sunbelt Municipal April 5, 1994
Obligations Fund
Riverside Capital Growth Fund April 5, 1994
Riverside Capital Equity and June 3, 1994
Municipal Income Fund
THE WINSBURY COMPANY LIMITED THE SESSIONS GROUP
PARTNERSHIP
By The Winsbury Corporation,
General Partner
By /s/ Stephen G. Mintos By /s/ Roy E. Rogers
---------------------------- -------------------------
Name Stephen G. Mintos Name Roy E. Rogers
---------------------------- ------------------------
Title Executive Vice President Title President
--------------------------- -----------------------
D-1
<PAGE> 1
Exhibit (8)(a)
CUSTODIAL SERVICES AGREEMENT
AGREEMENT dated as of March 1, 1995, between NATIONAL CITY
BANK, a national banking association having an office at 4100 West 150th Street,
Cleveland, Ohio 44135 (the "Bank"), and THE SESSIONS GROUP, a business trust
organized under the laws of the State of Ohio, having an office at 1900 East
Dublin-Granville Road, Columbus, Ohio 43229 (the "Trust").
WITNESSETH:
THAT WHEREAS, the Trust represents that it is authorized to
open and maintain a custody account (the "Custody Account") with the Bank to
hold certain property ("Property") including but not limited to stocks, bonds,
or other securities ("Securities"), funds and similar other investment property
owned or held by the Trust for its Riverside "Family" of funds as listed on
Exhibit A, and for such other portfolio series of the Trust as the parties
hereto subsequently shall agree to in writing (which agreement may be reflected
by executing an amended Exhibit A) and is authorized to enter into this
agreement.
NOW, THEREFORE, in consideration of the premises and of the
agreements hereinafter set forth, the parties hereby agree as follows:
1. APPOINTMENT AND ACCEPTANCE
The Trust hereby appoints the Bank as custodian of the
Property, and the Bank agrees to act as such upon the terms and conditions
hereinafter provided.
2. DELIVERY; SAFEKEEPING
The Trust has heretofore delivered or will deliver Property to
the Bank, and will deliver or cause to be delivered to the Bank Property
hereafter acquired which Property the Bank agrees to keep safely as custodian
for the Trust. The Bank shall not surrender possession of Property except upon
properly authorized instructions of the Trust.
3. IDENTIFICATION AND SEGREGATION OF ASSETS
With respect to Property in the Custody Account:
(a) The Bank will segregate and identify on its books as
belonging to the Trust all Property held by the Bank or by any other entity
authorized to hold Property in accordance with Section 6 or 7 hereof.
-1-
<PAGE> 2
(b) The Bank shall supply to the Trust from time to time as
mutually agreed upon a written statement with respect to all of the Property in
the Custody Account. In the event that the Trust does not inform the Bank in
writing of any exceptions or objections within a reasonable time after receipt
of such statement, the Trust shall be deemed to have approved such statement.
4. STANDARD OF CARE
The Bank assumes full responsibility to exercise the same
standard of care that it exercises over its own assets in the safekeeping,
handling, servicing and disposition of the Property, in accordance with this
Agreement. The Bank will exercise the due care expected of a professional
custodian for hire with respect to the property in its possession or control and
shall assume the burden of proving that it exercised such care in the event of
any loss of such Property.
The Bank is not under any duty to supervise the investments of
the Trust, or to advise or make any recommendation to the Trust with respect to
the purchase or sale of any of the Securities or the investment of any funds.
5. PERFORMANCE BY THE BANK
(a) Receipt, Delivery and Disposal of Securities. The Bank
shall, or shall instruct any other entity authorized to hold Property in
accordance with Section 6 or 7 hereof to, receive or deliver Securities and
credit or debit the Trust's account, in accordance with properly authorized
instructions from the Trust. The Bank or such entity shall also receive in
custody all stock dividends, rights and similar securities issued in connection
with Securities held hereunder, shall surrender for payment, in a timely manner,
all items maturing or called for redemption and shall take such other action as
the Trust may direct in properly authorized instructions.
(b) Trade Execution. The Trust may from time to time place
orders with the Bank to buy or sell Securities. The Bank or any entity
authorized to hold Property in accordance with Section 7 hereof may refer each
such order to any broker or sub-agent of its choice, including an affiliate of
the Bank, unless otherwise specified, and shall have no liability or
responsibility whatsoever for any error, neglect or default of any such broker
or sub-agent or for mutilations, interruptions, omissions, errors or delays
occurring in the mails, or on the part of any telegraph, cable or wireless
company, or any employee of such company, or by reason of any cause beyond its
control. In placing such orders, the Trust may from time to time place special
orders with the Bank which will, as agent, undertake the purchase or sale of the
Securities as set out above; provided that if the order is for the purchase or
sale of obligations of the United States Government or its agencies, or
municipal bonds, the Bank may act as principal. The Trust hereby agrees, with
respect to all purchases, that good funds for settlement will be on deposit by
settlement date. Further, the Trust agrees to provide specific instructions
regarding the deposit or delivery of all such Securities to the Custody Account.
-2-
<PAGE> 3
(c) Registration. Securities held hereunder may be registered
in the name of the Bank, any entity authorized to hold property in accordance
with Section 6 or 7 hereof, or a nominee of the Bank or any such authorized
entity, and the Trust shall be informed upon request of all such registrations.
The Securities in registered form will be transferred upon request of the Trust
into such names or registrations as it may specify in properly authorized
instructions.
(d) Cash Accounts. All cash received or held by the Bank or by
any entity authorized to hold Property in accordance with Section 7 hereof as
interest, dividends, proceeds from transfer, and other payments for or with
respect to the Securities shall be (i) held in a cash account in accordance with
properly authorized instructions received by the Bank, or (ii) converted and
remitted to the Trust at the Trust's risk. In effecting any currency conversions
hereunder the Bank or such entity may use such methods or agencies as it may see
fit including the Bank's facilities at customary rates.
(e) Reports, Records, Affidavits and Access. If the Bank has
in place a system for providing telecommunication access or other means of
direct access by customers to the Bank's reporting system for Property in the
Custody Account, then, at the Trust's election, the Bank shall provide the Trust
with such instructions and passwords as may be necessary in order for the Trust
to have such direct access through the Trust's terminal device. Such direct
access shall be restricted to information relating to the Custody Account. Where
direct access to such reporting system is requested by the Trust, the Trust
agrees to assume full responsibility for the consequences of the use, including
any misuse or unauthorized use of the terminal device, instructions or passwords
referred to above and agrees to defend and indemnify the Bank and hold the Bank
harmless from and against any and all liabilities, losses, damages, costs,
counsel fees and other expenses of every nature suffered or incurred by the Bank
by reason of or in connection with such use by the Trust or others of such
terminal device, unless such liabilities, losses, damages, costs, counsel fees
and other expenses can be shown to be the result of negligent or wrongful acts
of the Bank, the Bank's employees or the Bank's agents. Further, where the trust
elects to have direct access, the Bank shall provide the Trust on each business
day a report of the preceding business day's transactions relating to such
accounts and of the closing or net balances of each business day. If the Trust
should not choose to have direct access, the Bank shall provide the Trust with
such reports of transactions in the Custody Account by such means as may be
mutually agreed upon.
During the Bank's regular banking hours and upon receipt of
reasonable notice from the Trust, any officer or employee of the Trust, any
independent accountant(s) selected by the Trust and any person designated by any
regulatory authority having jurisdiction over the Trust shall be entitled to
examine on the Bank's premises, Property held by the Bank on its premises and
the Bank's records regarding Property held hereunder deposited with entities
authorized to hold Property in accordance with Section 6 or 7 hereof, but only
upon the Trust's furnishing the Bank with properly authorized instructions to
that effect, provided, such examination shall be consistent with the Bank's
obligations of confidentiality to other parties. The Bank's costs and expenses
in facilitating such examinations, including but not limited to the cost to the
Bank of
-3-
<PAGE> 4
providing personnel in connection with examinations shall be borne by the
persons or agencies making such examinations, provided that such costs and
expenses shall not be deemed to include the Bank's costs in providing to the
Trust (i) the "single audit report" of the independent certified public
accountants engaged by the Bank and (ii) such reports and documents as the
Agreement contemplates that the Bank shall furnish routinely to the Trust.
The Bank shall also, subject to restrictions under applicable
law, seek to obtain from any entity with which the Bank maintains the physical
possession of any of the Property in the Custody Account such records of such
entity relating to the Custody Account as may be required by the Trust or its
agents in connection with an internal examination by the Trust of its own
affairs. Upon a reasonable request from the Trust, the Bank shall use its best
efforts to furnish to the Trust such reports (or portions thereof) of the
external auditors of each such entity as related directly to such entity's
system of internal accounting controls applicable to its duties under its
agreement with the Bank.
The Bank shall supply to the Trust from time to time, written
operational procedures which shall govern the day to day operations of the
account. Such operating procedures are hereby incorporated herein by reference.
(f) Voting and Other Action. The Bank will transmit to the
Trust upon receipt, and will instruct any entities authorized to hold Property
in accordance with Section 6 or 7 hereof to transmit to the Trust upon receipt,
all financial reports, stockholder communications, notices, proxies and proxy
soliciting materials received from issuers of the Securities, and all
information relating to exchange or tender offers received from offerors with
respect to the Securities. Proxies will be executed by the registered holder if
the registered holder is other than the Trust, but the manner in which the
Securities are to be voted will not be indicated. Specific instructions
regarding proxies will be provided when necessary. Neither the Bank nor any such
entity agrees to vote any of the Securities or authorize the voting of any
Securities or give any consent or take any other action with respect thereto,
except as otherwise provided herein.
In the event of tender offers, the Trust shall mail
instructions to the Bank as to the action to be taken with respect thereto or
telephone such instructions to its National City Bank account administrator at
the Bank, designating such instruction as being related to a tender offer. The
Trust shall deliver to the Bank, by 5:00 p.m., Cleveland time on the following
calendar day, written confirmation, including telefax, provided such telefax is
on the letterhead of the Trust and signed by an authorized person, of telephonic
instructions. The Trust agrees to hold the Bank harmless from any adverse
consequences of the Trust's use of any other method of transmitting instructions
relating to a tender offer.
The Trust agrees that if it gives an instruction for the
performance of an act on the last permissible date of a period established by
the tender offer or for the performance of such act or that if it fails to
provide next day written confirmation of an oral instruction, the Trust shall
hold the Bank harmless from any adverse consequences of failing to follow said
instructions.
-4-
<PAGE> 5
The Bank is authorized to accept and open in the Trust's
behalf all mail or communications received by it or directed in its care.
6. AUTHORIZED USE OF U.S. DEPOSITORIES
The Trust authorizes the Bank, for any Securities held
hereunder, to use the services of any United States central securities
depository it deems appropriate, including, but not limited to, the Depository
Trust Company and the Federal Reserve Book Entry System.
7. AUTHORIZED USE OF FOREIGN CUSTODIANS
(a) Authorization. The Bank may cause Securities which are
issued by foreign governments or foreign companies of which principal trading
market is located outside the United States ("Foreign Securities") and other
Property in the Custody Account to be held in such country or other jurisdiction
as the Trust shall direct in properly authorized instructions. In carrying out
its duties with respect to Foreign Securities, the Bank may use the services of
(i) a Global Custodian, or (ii) foreign banks or trust companies ("Foreign
Custodians"), and foreign securities depositories or clearing agencies ("Foreign
Securities Depositories") as the Bank deems prudent and appropriate.
(b) Segregation and Identification of Assets. The Bank will
deposit Property of the Trust with a Foreign Custodian or Foreign Securities
Depository only in an account which holds exclusively the assets of the Bank as
custodian for its customers. In the event that the Bank authorizes a Foreign
Custodian to hold any of the Foreign Securities placed in its care in a Foreign
Securities Depository, the Bank will direct such Foreign Custodian to identify
on its books such Foreign Securities as being held for the account of the Bank
as custodian for its customers.
(c) Instructions to Foreign Custodians and Foreign Securities
Depositories. Any Property in the Custody Account deposited by the Bank with a
Foreign Custodian or Foreign Securities Depository will be subject only to the
instructions of the Bank or its agents; and any Foreign Securities held in a
Foreign Securities Depository for the account of a Foreign Custodian will be
subject only to the instructions of such Foreign Custodian as custodian for the
Bank.
8. AUTHORIZATIONS
The Bank is authorized to rely and act upon written, signed
instructions of those persons as are named in a list provided to the Bank from
time to time and certified by the Trust's Secretary or Assistant Secretary. Such
list shall separately designate those persons who may authorize the withdrawal
of the Securities free of payment. The Trust will provide the Bank with
authenticated specimen signatures of the persons so authorized.
-5-
<PAGE> 6
The Bank is further authorized to rely upon any instructions
received by any other means and identified as having been given or authorized by
any person named to the Bank as authorized to give written instructions,
regardless of whether such instructions shall in fact have been authorized or
given by any of such persons, provided that the Bank and the Trust shall have
agreed upon the means of transmission and the method of identification for such
instructions. Instructions received by any other means shall include verbal
instructions, provided that any verbal instruction shall be promptly confirmed
in writing. In the event verbal instructions are not subsequently confirmed in
writing, as provided above, the Trust agrees to hold the Bank harmless and
without liability for any claims or losses in connection with such verbal
instructions. Notwithstanding the above, instructions for the withdrawal of
securities "free of payment" shall be sent to the Bank in writing, manually
signed by any two such authorized persons.
The Trust may appoint one or more investment managers
("Investment Managers") with respect to the Custody Account. The Bank is
authorized to act upon instructions received from any Investment Manager to the
same extent that the Bank would act upon the instructions of persons named in
the above mentioned certificate or separate list, provided that the Bank has
received copies of the instruments appointing the Investment Manager and written
confirmation from the Investment Manager evidencing his acceptance of such
appointment.
If the Trust should choose to have telecommunication or other
means of direct access to the Bank's reporting system for Property in the
Custody Account, pursuant to paragraph (e) of Section 5, the Bank is also
authorized to rely and act upon any instructions received by it through a
terminal device, provided that such instructions are accompanied by code words
which the Bank has furnished to the Trust, or its delegated personnel by any
method mutually agreed to by the Bank and the Trust, and which the Bank shall
not have then been notified by the Trust or any such delegate to cease to
recognize regardless whether such instructions shall in fact have been given or
authorized by the Trust or any such person. The Trust's delegates shall be named
by a certificate provided to the Bank from time to time by the Trust's Secretary
or an Assistant Secretary.
9. FEES AND EXPENSES
Fees and expenses for the services rendered under this
Agreement shall be as set forth in Exhibit B attached hereto, as such may be
amended from time to time. In addition, if the Bank advances cash or securities
to the Trust for any purpose or in the event that the Bank or its nominee shall
incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of its duties hereunder, except
such as may rise from its or its nominee's negligent action, negligent failure
to act, or willful misconduct, any Property at any time held for the Custody
Account shall be security thereof and should the Trust fail to reimburse the
Bank promptly after request for payment, the Bank shall be entitled to dispose
of such Property to the extent necessary to obtain reimbursement.
-6-
<PAGE> 7
10. TERMINATION
Either party may terminate this Agreement upon sixty (60) days
written notice to the other.
11. CONFIDENTIALITY
Subject to the foregoing provisions of this Agreement and
subject to any applicable law, the Trust and the Bank shall each use best
efforts to maintain the confidentiality of matters concerning Property in the
Custody Account.
12. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS
The Sessions Group is a business trust organized under Chapter
1746, Ohio Revised Code and under a Declaration of Trust, to which reference is
hereby made and a copy of which is on file at the office of the Secretary of
State of Ohio as required by law, and to any and all amendments thereto so filed
or hereafter filed. The obligations of "The Sessions Group" entered into in the
name or on behalf thereof by any of the Trustees, officers, employees or agents
are made not individually, but in such capacities, and are not binding upon any
of the Trustees, officers, employees, agents or shareholders of the Trust
personally, but bind only the assets of the Trust, as set forth in Section
1746.13(A), Ohio Revised Code, and all persons dealing with any of the Funds of
the Trust must look solely to the assets of the Trust belonging to such Fund for
the enforcement of any claims against the Trust.
13. NOTICES AND MISCELLANEOUS
All notices and other communications hereunder, except for
instructions and reports relating to the Property which are transmitted through
the Bank's reporting system for Property in the Custody Account, shall be in
writing, telex or telecopy or, if verbal, shall be promptly confirmed in
writing, and shall be hand-delivered, telexed, telecopied or mailed by prepaid
first class mail (except that notice of termination, if mailed, shall be by
prepaid registered or certified mail) to each party at its address set forth
above, if to the Trust, marked "Attention Riverside Funds", and if to the Bank,
marked "National City Bank as Custodian for The Sessions Group," or at such
other address as each party may give notice of to the other. This Agreement may
not be amended except by writing signed by the party against whom enforcement is
sought. This Agreement shall not be assignable by either party without the
written consent of the other. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which shall
constitute one and the same instrument. This Agreement contains the entire
agreement between the Trust and the Bank relating to custody of Property and
supersedes all prior agreements on this subject.
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<PAGE> 8
The captions of the various sections and subsections of this
Agreement have been inserted only for the purposes of convenience and shall not
be deemed in any manner to modify, explain, enlarge or restrict any of the
provisions of this Agreement.
This Agreement shall be governed by and construed according to
the laws of the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized.
NATIONAL CITY BANK THE SESSIONS GROUP
By /s/Stephen D. McCreary By /s/Roy E. Rogers
------------------------------- -----------------------------------
Stephen D. McCreary Roy E. Rogers
Title Senior Vice President Title President
---------------------------- --------------------------------
-8-
<PAGE> 9
EXHIBIT A
PORTFOLIOS
This EXHIBIT A, dated March 1, 1995, is that certain Exhibit A to a
Custodial Services Agreement dated as of March 1, 1995 between the undersigned
parties. This Exhibit A supersedes all previously dated Exhibits A.
Riverside Capital Value Equity Fund
Riverside Capital Equity & Municipal Income Fund
Riverside Capital Sunbelt Municipal Obligations Fund
Riverside Capital Low Duration Government Securities Fund
Riverside Capital Growth Fund
Riverside Capital Fixed Income Fund
Riverside Capital Tennessee Municipal Obligations Fund
Riverside Capital Money Market Fund
NATIONAL CITY BANK THE SESSIONS GROUP
By /s/Stephen D. McCreary By /s/Roy E. Rogers
------------------------------- -----------------------------------
Stephen D. McCreary Roy E. Rogers
Title Senior Vice President Title President
---------------------------- --------------------------------
-9-
<PAGE> 10
EXHIBIT B
The following fee schedule shall be billed at a rate of 1/12 per month at the
end of each month and shall be in effect for the period March 1, 1995 through
February 29, 1996. The fee schedule shall be evaluated by the parties to this
agreement at the end of that period to determine the appropriateness for the
proceeding twelve months. Adjustments shall be made if necessary and this
Exhibit B shall be updated to reflect those changes. Otherwise, this Exhibit B
will continue for Successive twelve month periods until an adjustment is agreed
upon by both parties.
ANNUAL FEE - $55,644.00
As an adjustment to the above fee, the Bank shall credit an amount equal to the
average positive monthly balance of all accounts less a 10% reserve factor times
the month-ending 91 day Treasury Bill rate divided by 12 or shall charge an
amount equal to the average overdraft balance times the national prime rate
found in The Wall Street Journal divided by 12.
NATIONAL CITY BANK THE SESSIONS GROUP
By /s/Stephen D. McCreary By /s/Roy E. Rogers
------------------------------- -----------------------------------
Stephen D. McCreary Roy E. Rogers
Title Senior Vice President Title President
---------------------------- --------------------------------
-10-
<PAGE> 1
Exhibit (9)(a)
ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of this 1st day of November, 1997, by and between
THE SESSIONS GROUP, an Ohio business trust (the "Company"), and BISYS FUND
SERVICES LIMITED PARTNERSHIP, d/b/a BISYS FUND SERVICES (the "Administrator"),
an Ohio limited partnership.
WHEREAS, the Company is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), consisting of several series of shares of beneficial interest ("Shares");
and
WHEREAS, the Company desires the Administrator to provide, and the
Administrator is willing to provide, management and administrative services for
each currently existing Riverside Capital series of the Company advised by
National Bank of Commerce ("NBC"), as set forth in Schedule A hereto, and such
additional Riverside Capital series advised by NBC that are hereafter created
and identified in such Schedule A (individually referred to herein as the
"Portfolio" and collectively as the "Portfolios").
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Company and the Administrator hereby agree as
follows:
ARTICLE 1. Retention of the Administrator. The Company hereby retains the
Administrator to act as the administrator of the Portfolios and to furnish the
Portfolios with the management and administrative services as set forth in
Article 2 below. The Administrator hereby accepts such employment to perform the
duties set forth below.
The Administrator shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Company in any way and shall
not be deemed an agent of the Company.
ARTICLE 2. Administrative Services. The Administrator shall perform or
supervise the performance by others of administrative services in connection
with the operations of the Portfolios, and, on behalf of the Company, will
investigate, assist in the selection of and conduct relations with custodians,
depositories, accountants, legal counsel, underwriters, brokers and dealers,
corporate fiduciaries, insurers, banks and persons in any other capacity deemed
to be necessary or desirable for the Portfolios' operations. The Administrator
shall provide the Trustees of the Company with such reports regarding investment
performance as they may reasonably request but shall have no responsibility for
supervising the performance by any investment adviser or sub-adviser of its
responsibilities.
The Administrator shall provide the Company with regulatory reporting, all
necessary office space, equipment, personnel, compensation and facilities
(including facilities for Shareholders' and
<PAGE> 2
Trustees' meetings) for handling the affairs of the Portfolios and such other
services as the Administrator shall, from time to time, determine to be
necessary to perform its obligations under this Agreement. In addition, the
Administrator shall make quarterly reports to the Company's Trustees concerning
the performance of its obligations hereunder.
Without limiting the generality of the foregoing, the Administrator shall:
(a) calculate contractual Portfolio expenses and accruals and control all
disbursements for the Portfolios, and as appropriate compute the
Portfolios' yields, total return, expense ratios, portfolio, turnover
rate and, if required, Portfolio average dollar-weighted maturity;
(b) assist Company counsel with the preparation of prospectuses,
statements of additional information, registration statements and
proxy materials;
(c) prepare such reports, applications and documents (including reports
regarding the sale and redemption of Shares as may be required in
order to comply with Federal and state securities law) as may be
necessary or desirable to qualify the Portfolios' Shares with state
securities authorities, monitor the sale of Portfolios' Shares for
compliance with state securities laws, and file with the appropriate
state securities authorities the registration statements, reports and
notices for the Company and the Portfolios' Shares and all amendments
thereto, as may be necessary or convenient to qualify and keep
effective the Company and the Portfolios' Shares with state securities
authorities to enable the Company to make a continuous offering of the
Portfolios' Shares;
(d) develop and prepare, with the assistance of the Portfolios' investment
adviser, communications to Shareholders, including the annual report
to Shareholders, coordinate the mailing of prospectuses, notices,
proxy statements, proxies and other reports to Portfolio Shareholders,
and supervise and facilitate the proxy solicitation process for all
shareholder meetings, including the tabulation of shareholder votes;
(e) administer contracts on behalf of the Company with, among others, the
Company's investment adviser, distributor, custodian, transfer agent
and fund accountant;
(f) supervise the Company's transfer agent with respect to the payment of
dividends and other distributions to Portfolio Shareholders;
(g) calculate performance data of the Portfolios for dissemination to
information services covering the investment company industry;
2
<PAGE> 3
(h) coordinate and supervise the preparation and filing of the Company's
and/or Portfolios' tax returns and related filings;
(i) examine and review the operations and performance of the various
organizations providing services to any Portfolio, including, without
limitation, the investment adviser, distributor, custodian, fund
accountant, transfer agent, outside legal counsel and independent
public accountants, and at the request of the Board of Trustees,
report to the Board on the performance of organizations;
(j) assist with the layout and printing of publicly disseminated
prospectuses and assist with and coordinate layout and printing of the
Company's semi-annual and annual reports to Portfolio Shareholders;
(k) assist with the design, development, and operation of the Portfolios,
including new classes, investment objectives, policies and structure;
(l) provide individuals reasonably acceptable to the Company's Board of
Trustees to serve as officers of the Company, who will be responsible
for the management of certain of the Company's affairs as determined
by the Company's Board of Trustees;
(m) advise the Company and its Board of Trustees on matters concerning the
Company and its affairs;
(n) obtain and keep in effect fidelity bonds and directors and
officers/errors and omissions insurance policies for the Company in
accordance with the requirements of Rules 17g-1 and 17d-1(d)(7) under
the 1940 Act as such bonds and policies are approved by the Company's
Board of Trustees;
(o) monitor and advise the Company and the Portfolios on their registered
investment company status under the Internal Revenue Code of 1986, as
amended;
(p) perform all administrative services and functions of the Company and
each Portfolio to the extent administrative services and functions are
not provided to the Company or such Portfolio pursuant to the
Company's or such Portfolio's investment advisory agreement,
distribution agreement, custodian agreement, transfer agent agreement
and fund accounting agreement;
(q) furnish advice and recommendations with respect to other aspects of
the business and affairs of the Portfolios as the Company and the
Administrator shall determine desirable; and
(r) prepare and file with the SEC the semi-annual report for the Company
on Form N-SAR and all required notices pursuant to Rule 24f-2.
3
<PAGE> 4
The Administrator shall perform such other services for the Company that
are mutually agreed upon by the parties from time to time. Such services may
include performing internal audit examinations; mailing the annual reports of
the Portfolios; preparing an annual list of Shareholders; and mailing notices of
Shareholders' meetings, proxies and proxy statements, for all of which the
Company will pay the Administrator's out-of-pocket expenses.
ARTICLE 3. Allocation of Charges and Expenses.
(A) The Administrator. The Administrator shall furnish at its own expense
the executive, supervisory and clerical personnel necessary to perform its
obligations under this Agreement. The Administrator shall also provide the items
which it is obligated to provide under this Agreement, and shall pay all
compensation, if any, of officers of the Company as well as all Trustees of the
Company who are affiliated persons of the Administrator or any affiliated
corporation of the Administrator; provided, however, that unless otherwise
specifically provided, the Administrator shall not be obligated to pay the
compensation of any employee of the Company retained by the Trustees of the
Company to perform services on behalf of the Company.
(B) The Company. The Company assumes and shall pay or cause to be paid all
other expenses of the Company not otherwise allocated herein, including, without
limitation, organization costs, taxes, expenses for legal and auditing services,
the expenses of preparing (including typesetting), printing and mailing reports,
prospectuses, statements of additional information, proxy solicitation material
and notices to existing Shareholders, all expenses incurred in connection with
issuing and redeeming Shares, the costs of custodial services, the cost of
initial and ongoing registration or qualification of the Shares under Federal
and state securities laws, fees and out-of-pocket expenses of Trustees of the
Company who are not affiliated persons of the Administrator or the Investment
Adviser to the Company or any affiliated corporation or partnership of the
Administrator or the Investment Adviser, insurance, interest, brokerage costs,
litigation and other extraordinary or nonrecurring expenses, and all fees and
charges of investment advisers to the Company.
ARTICLE 4. Compensation of the Administrator.
(A) Administration Fee. For the services to be rendered, the facilities
furnished and the expenses assumed by the Administrator pursuant to this
Agreement, the Company shall pay to the Administrator compensation that is more
particularly described in the Omnibus Fee Agreement among the Administrator,
BISYS Fund Services, Inc. and the Company dated November 1, 1997. The Company
shall also reimburse the Administrator for its reasonable out-of-pocket
expenses, including the travel and lodging expenses incurred by officers and
employees of the Administrator in connection with attendance at Board meetings.
If this Agreement becomes effective subsequent to the first day of a month
or terminates before the last day of a month, the Administrator's compensation
for that part of the month in which this Agreement is in effect shall be
prorated in a manner consistent with the
4
<PAGE> 5
calculation of the fees as set forth above. Payment of the Administrator's
compensation for the preceding month shall be made promptly.
(B) Survival of Compensation Rights. All rights of compensation under this
Agreement for services performed as of the termination date shall survive the
termination of this Agreement.
ARTICLE 5. Limitation of Liability of the Administrator. The duties of the
Administrator shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the Administrator
hereunder. The Administrator shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any act or omission in carrying
out its duties hereunder, except a loss resulting from willful misfeasance, bad
faith or negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder, except as may otherwise be
provided under provisions of applicable law which cannot be waived or modified
hereby. (As used in this Article 5, the term "Administrator" shall include
partners, officers, employees and other agents of the Administrator as well as
the Administrator itself.)
So long as the Administrator acts in good faith and with due diligence and
without negligence, and, except as may be limited by the 1940 Act, the Company
assumes full responsibility and shall indemnify the Administrator and hold it
harmless from and against any and all actions, suits and claims, whether
groundless or otherwise, and from and against any and all losses, damages,
costs, charges, reasonable counsel fees and disbursements, payments, expenses
and liabilities (including reasonable investigation expenses) arising directly
or indirectly out of the Administrator's actions taken or nonactions with
respect to the performance of services hereunder. The indemnity and defense
provisions set forth herein shall indefinitely survive the termination of this
Agreement.
Except as may be limited by the 1940 Act, the rights hereunder shall
include the right to reasonable advances of defense expenses in the event of any
pending or threatened litigation with respect to which indemnification hereunder
may ultimately be merited. In order that the indemnification provision contained
herein shall apply, however, it is understood that if in any case the Company
may be asked to indemnify or hold the Administrator harmless, the Company shall
be fully and promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the Administrator will use all
reasonable care to identify and notify the Company promptly concerning any
situation which presents or appears likely to present the probability of such a
claim for indemnification against the Company, but failure to do so in good
faith shall not affect the rights hereunder.
The Company shall be entitled to participate at its own expense or, if it
so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity provision. If the Company elects to assume the defense
of any such claim, the defense shall be conducted by counsel chosen by the
Company and satisfactory to the Administrator, whose approval shall not be
unreasonably withheld. In the event that the Company elects to assume the
defense of any suit and retain counsel, the Administrator shall bear the fees
and expenses of any additional counsel retained
5
<PAGE> 6
by it. If the Company does not elect to assume the defense of a suit, it will
reimburse the Administrator for the reasonable fees and expenses of any counsel
retained by the Administrator.
The Administrator may apply to the Company at any time for instructions and
may consult counsel for the Company or its own counsel and with accountants and
other experts with respect to any matter arising in connection with the
Administrator's duties, and the Administrator shall not be liable or accountable
for any action taken or omitted by it in good faith in accordance with such
instruction or with the opinion of such counsel, accountants or other experts.
Also, the Administrator shall be protected in acting upon any document
which it reasonably believes to be genuine and to have been signed or presented
by the proper person or persons.
ARTICLE 6. Activities of the Administrator. The services of the
Administrator rendered to the Company are not to be deemed to be exclusive. The
Administrator is free to render such services to others and to have other
businesses and interests. It is understood that Trustees, officers, employees
and Shareholders of the Company are or may be or become interested in the
Administrator, as officers, employees or otherwise and that partners, officers
and employees of the Administrator and its counsel are or may be or become
similarly interested in the Company, and that the Administrator may be or become
interested in the Company as a Shareholder or otherwise.
ARTICLE 7. Duration of this Agreement. The Term of this Agreement shall be
as specified in Schedule A hereto.
ARTICLE 8. Assignment. This Agreement shall not be assignable by either
party without the written consent of the other party; provided, however, that
the Administrator may, at its sole expense, subcontract with any entity or
person concerning the provision of the services contemplated hereunder. The
Administrator shall not, however, be relieved of any of its obligations under
this Agreement by the appointment of such subcontractor and provided further,
that the Administrator shall be responsible, to the extent provided in Article 5
hereof, for all acts of such subcontractor as if such acts were its own. This
Agreement shall be binding upon, and shall inure to the benefit of, the parties
hereto and their respective successors and permitted assigns.
ARTICLE 9. Amendments. This Agreement may be amended by the parties hereto
only if such amendment is specifically approved (i) by the vote of a majority of
the Trustees of the Company, and (ii) by the vote of a majority of the Trustees
of the Company who are not parties to this Agreement or interested persons of
any such party, cast in person at a Board of Trustees meeting called for the
purpose of voting on such approval.
For special cases, the parties hereto may amend such procedures set forth
herein as may be appropriate or practical under the circumstances, and the
Administrator may conclusively assume that any special procedure which has been
approved by the Company does not conflict with or violate any requirements of
its Declaration of Trust or then current prospectuses, or any rule, regulation
or requirement of any regulatory body.
6
<PAGE> 7
ARTICLE 10. Certain Records. The Administrator shall maintain customary
records in connection with its duties as specified in this Agreement. Any
records required to be maintained and preserved pursuant to Rules 31a-1 and
31a-2 under the 1940 Act which are prepared or maintained by the Administrator
on behalf of the Company shall be prepared and maintained at the expense of the
Administrator in accordance with such Rules, but shall be the property of the
Company and will be made available to or surrendered promptly to the Company on
request.
In case of any request or demand for the inspection of such records by
another party, the Administrator shall notify the Company and follow the
Company's instructions as to permitting or refusing such inspection; provided
that the Administrator may exhibit such records to any person in any case where
it is advised by its counsel that it may be held liable for failure to do so,
unless (in cases involving potential exposure only to civil liability) the
Company has agreed to indemnify the Administrator against such liability.
ARTICLE 11. Definitions of Certain Terms. The terms "interested person" and
"affiliated person," when used in this Agreement, shall have the respective
meanings specified in the 1940 Act and the rules and regulations thereunder,
subject to such exemptions as may be granted by the Securities and Exchange
Commission.
ARTICLE 12. Notice. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if personally delivered, or sent
by registered or certified mail, postage prepaid, addressed by the party giving
notice to the other party at 3435 Stelzer Road, Columbus, Ohio 43219, or at such
other address as such party may from time to time specify in writing to the
other party pursuant to this Article.
ARTICLE 13. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Ohio and the applicable provisions of the 1940
Act. To the extent that the applicable laws of the State of Ohio, or any of the
provisions herein, conflict with the applicable provisions of the 1940 Act, the
latter shall control.
ARTICLE 14. Multiple Originals. This Agreement may be executed in two or
more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
ARTICLE 15. Limitation of Liability of the Trustees and Shareholders. The
Sessions Group is a business trust organized under Chapter 1746, Ohio Revised
Code and under the Declaration of Trust, to which reference is hereby made and a
copy of which is on file at the Office of the Secretary of State of Ohio as
required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "The Sessions Group" entered into in the name or on
behalf thereof by any of the Trustees, officers, employees or agents are made
not individually, but in such capacities, and are not binding upon any of the
Trustees, officers, employees, agents or shareholders of the Trust personally,
but bind only the assets of the Trust, as set forth in Section 1746.13 (A), Ohio
Revised Code, and all persons dealing with any of the Portfolios of the Trust
must look solely
7
<PAGE> 8
to the assets of the Trust belonging to such Portfolio for the enforcement of
any claim against the Trust.
ARTICLE 16. Proprietary and Confidential Information. The Administrator
agrees on behalf of itself and its partners and employees to treat
confidentially and as proprietary information of the Company all records and
other information relative to the Company and prior, present, or potential
shareholders, and not to use such records and information for any purpose other
than performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Company, which approval
shall not be unreasonably withheld and may not be withheld where the
Administrator may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Company.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
THE SESSIONS GROUP
By:
---------------------------
Title:
------------------------
BISYS FUND SERVICES LIMITED
PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By:
---------------------------
Title:
------------------------
8
<PAGE> 9
Dated as of: November 1, 1997
SCHEDULE A
TO THE ADMINISTRATION AGREEMENT
DATED AS OF NOVEMBER 1, 1997
BETWEEN THE SESSIONS GROUP
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
Portfolios: This Agreement shall apply to all Portfolios of the
Company that are advised by NBC, either currently existing or
hereafter created. The current Portfolios of the Company that are
advised by NBC are set forth below:
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
Term: Pursuant to Article 7, the term of this Agreement shall commence
on November 1, 1997 and shall remain in effect through October
31, 2003 ("Initial Term"). Thereafter, unless otherwise
terminated as provided herein, this Agreement shall be renewed
automatically for successive one-year periods ("Rollover
Periods"). This Agreement may be terminated without penalty (i)
by provision of a notice of nonrenewal in the manner set forth
below, (ii) by mutual agreement of the parties or (iii) for
"cause," as defined below, upon the provision of 60 days advance
written notice by the party alleging cause. Written notice of
nonrenewal must be provided at least 60 days prior to the end of
the Initial Term or any Rollover Period, as the case may be.
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence, or reckless disregard
on the part of the party to be terminated with respect to its
obligations and duties set forth herein; (b) a final,
unappealable judicial, regulatory or administrative ruling or
order in which the party to be terminated has been found guilty
of criminal or unethical behavior in the conduct of its business;
(c) the dissolution or liquidation of either party or other
cessation of business other than a reorganization or
recapitalization of such party as an ongoing business; (d)
financial difficulties on the part of the party to be terminated
which are evidenced by the authorization or commencement of, or
involvement by way of
A-1
<PAGE> 10
pleading, answer, consent or acquiescence in, a voluntary or
involuntary case under Title 11 of the United States Code, as
from time to time is in effect, or any applicable law, other than
said Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of
the rights of creditors; or (e) any circumstance which
substantially impairs the performance of the obligations and
duties of the party to be terminated, or the ability to perform
those obligations and duties as contemplated herein.
Notwithstanding the foregoing, the absence of an annual review of
this Agreement by the Board of Trustees shall not, in and of
itself, constitute "cause" as used herein.
Notwithstanding the foregoing, after such termination for so long
as the Administrator, with the written consent of the Company, in
fact continues to perform any one or more of the services
contemplated by this Agreement or any schedule or exhibit hereto,
the provisions of this Agreement, including without limitation
the provisions dealing with indemnification, shall continue in
full force and effect. Compensation due the Administrator and
unpaid by the Company upon such termination shall be immediately
due and payable upon and notwithstanding such termination. The
Administrator shall be entitled to collect from the Company, in
addition to the compensation described in this Schedule A, the
amount of all of the Administrator's reasonable cash
disbursements for services in connection with the Administrator's
activities in effecting such termination, including without
limitation, the delivery to the Company and/or its designees of
the Company's property, records, instruments and documents, or
any copies thereof. Subsequent to such termination, for a
reasonable fee, the Administrator will provide the Company with
reasonable access to any Company documents or records remaining
in its possession.
If, for any reason other than "cause", as defined herein, the
Administrator is replaced as fund manager and administrator, or
if a third party is added to perform all or a part of the
services provided by the Administrator under this Agreement
(excluding any sub-administrator appointed by the Administrator
as provided in Article 7 hereof), then the Company shall make a
one-time cash payment, as liquidated damages, to the
Administrator equal to the fees payable to the Administrator
hereunder for the lesser of (i) the two-year period commencing on
the date upon which the Administrator is replaced or such third
party is added or (ii) the remainder of the then-current contract
term, assuming for purposes of calculation of the payment that
the asset level of the Company on the date the Administrator is
replaced, or a third party is added, will remain constant for the
balance of the contract term.
In the event the Portfolios are merged into another legal entity
in part or in whole or are otherwise liquidated in part or in
whole pursuant to a business reorganization prior to the
expiration of the then-current term of this Agreement, the
parties acknowledge and agree that (i) the liquidated damages
provision set forth above shall
A-2
<PAGE> 11
be applicable in those instances in which the Administrator is
not retained by the surviving entity to provide administration
services and (ii) for purposes of calculating the payment amount
representing liquidated damages, the appropriate asset level of
the Portfolios shall be the greater of: (i) the asset level
calculated for the Portfolios at the time the Company's Board of
Trustees receives notification of an intention on the part of
Company management to effect such a business reorganization; (ii)
the asset level calculated for the Portfolios at the time the
Company's Board of Trustees formally approves such a business
reorganization; or (iii) the asset level calculated for the
Portfolios on the day prior to the first day during which assets
are transferred by the Company to the surviving entity pursuant
to the plan of reorganization. The one-time cash payment
referenced above shall be due and payable on the day prior to the
first day during which assets are transferred to the surviving
entity pursuant to the plan of reorganization.
The parties further acknowledge and agree that, in the event the
Administrator is replaced, or a third party is added, as set
forth above, (i) determination of actual damages incurred by the
Administrator would be extremely difficult, and (ii) the
liquidated damages provision contained herein is intended to
adequately compensate the Administrator for damages incurred and
is not intended to constitute any form of penalty.
THE SESSIONS GROUP
By:
---------------------------
Title:
------------------------
BISYS FUND SERVICES LIMITED
PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By:
---------------------------
Title:
------------------------
A-3
<PAGE> 1
EXHIBIT (9)(b)
AMENDED TRANSFER AGENCY AGREEMENT
AGREEMENT made as of the 1st day of September, 1992, as amended as of
May 1, 1994, between THE SESSIONS GROUP (the "Trust"), an Ohio business trust
having its principal place of business at 1900 East Dublin-Granville Road,
Columbus, Ohio 43229, and THE WINSBURY SERVICE CORPORATION ("Winsbury"), a Ohio
corporation having its principal place of business at 1900 East Dublin-Granville
Road, Columbus, Ohio 43229.
WHEREAS, the Trust desires that Winsbury perform certain services for
the Trust, and for each of its series denominated as funds which are identified
on the attached Schedule A hereto, as may be amended from time to time, and
whose shares of beneficial interest comprise from time to time certain shares of
the Trust (individually referred to herein as a "Fund" and collectively as the
"Funds");
WHEREAS, Winsbury has previously performed such services for the Trust
pursuant to a Transfer Agency Agreement dated August 23, 1990, which Agreement
the Trust and Winsbury now desire to amend and restate in its entirety; and
WHEREAS, Winsbury is willing to perform such services on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. SERVICES. Winsbury shall perform for the Trust the services
set forth in Schedule B hereto, including services as Transfer Agent.
Winsbury also agrees to perform for the Trust such special
services incidental to the performance of the services enumerated herein as
agreed to by the parties from time to time. Winsbury shall perform such
additional services as are provided on an amendment to Schedule B hereof, in
consideration of such fees as the parties hereto may agree.
Winsbury may, in its discretion, appoint in writing other
parties qualified to perform transfer agency and shareholder services reasonably
acceptable to the Trust (individually, a "Sub-transfer Agent") to carry out some
or all of its responsibilities under this Agreement with respect to a Fund;
provided, however, that the Sub-transfer Agent shall be the agent of Winsbury
and not the agent of the Trust or such Fund, and that Winsbury shall be fully
responsible for the acts of such Sub-transfer Agent and shall not be relieved of
any of its responsibilities hereunder by the appointment of such Sub-transfer
Agent.
2. FEES. The Trust shall pay Winsbury for the services to be
provided by Winsbury under this Agreement in accordance with,
<PAGE> 2
and in the manner set forth, in Schedule C hereto. Fees for any additional
services to be provided by Winsbury pursuant to an amendment to Schedule C
hereto shall be subject to mutual agreement at the time such amendment to
Schedule C is proposed.
3. REIMBURSEMENT OF EXPENSES. In addition to paying Winsbury the
fees described in Section 2 hereof, the Trust agrees to reimburse Winsbury for
Winsbury's out-of-pocket expenses in providing services hereunder, including
without limitation the following:
A. All freight and other delivery and bonding charges
incurred by Winsbury in delivering materials to and from
the Trust and in delivering all materials to share-
holders;
B. All direct telephone, telephone transmission and telecopy or
other electronic transmission expenses incurred by Winsbury in
communication with the Trust, the Trust's investment adviser
or custodian, dealers, shareholders or others as required for
Winsbury to perform the services to be provided hereunder;
C. Costs of postage, couriers, stock computer paper,
statements, labels, envelopes, checks, reports, letters,
tax forms, proxies, notices or other form of printed
material which shall be required by Winsbury for the
performance of the services to be provided hereunder;
D. The cost of microfilm or microfiche of records or other
materials; and
E. Any expenses Winsbury shall incur at the written
direction of an officer of the Trust thereunto duly
authorized.
4. EFFECTIVE DATE. This Agreement shall become effective as
of the date first written above (the "Effective Date").
5. TERM. This Agreement shall continue in effect, unless earlier
terminated by either party hereto as provided hereunder, for an initial term of
one year from the Effective Date (the "Initial Term"). Thereafter, this
Agreement shall continue in effect unless either party hereto terminates this
Agreement by giving 60 days' written notice to the other party, whereupon this
Agreement shall terminate automatically upon the expiration of said 60 days;
provided, however, that after such termination, for so long as Winsbury, with
the written consent of the Trust, in fact continues to perform any one or more
of the services contemplated by this Agreement or any Schedule or exhibit
hereto, the provisions of this Agreement, including without limitation the
provisions dealing with indemnification, shall continue in full force and
- 2 -
<PAGE> 3
effect. Fees and out-of-pocket expenses incurred by Winsbury but unpaid by the
Trust upon such termination shall be immediately due and payable upon and
notwithstanding such termination. Winsbury shall be entitled to collect from the
Trust, in addition to the fees and disbursements provided by Sections 2 and 3
hereof, the amount of all of Winsbury's cash disbursements and a reasonable fee
(which fee shall be not less than one hundred two percent (102%) of the sum of
the actual costs incurred by Winsbury in performing such service) for services
in connection with Winsbury's activities in effecting such termination,
including without limitation, the delivery to the Trust and/or its distributors
or investment advisers and/or other parties, of the Trust's property, records,
instruments and documents, or any copies thereof. Subsequent to such
termination, Winsbury, for a reasonable fee, will provide the Trust with
reasonable access to any Trust documents or records remaining in its possession.
Further, this Agreement is terminable with respect to a particular Fund only
upon mutual agreement of the parties hereto or for "cause" (as defined below) by
the party alleging "cause," in either case on not less than 60 days' notice by
the Trust's Board of Trustees or by Winsbury.
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence, or reckless disregard on the part of
the party to be terminated with respect to its obligations and duties set forth
herein; (b) a final, unappealable judicial, regulatory or administrative ruling
or order in which the party to be terminated has been found guilty of criminal
or unethical behavior in the conduct of its business; (c) financial difficulties
on the part of the party to be terminated which are evidenced by the
authorization or commencement of, or involvement by way of pleading, answer,
consent, or acquiescence in, a voluntary or involuntary case under Title 11 of
the United States Code, as from time to time is in effect, or any applicable
law, other than said Title 11, of any jurisdiction relating to the liquidation
or reorganization of debtors or to the modification or alteration of the rights
of creditors; or (d) any circumstance which substantially impairs the
performance of the obligations and duties as contemplated herein of the party to
be terminated.
6. UNCONTROLLABLE EVENTS. Winsbury assumes no responsibility
hereunder, and shall not be liable, for any damage, loss of data, delay or any
other loss whatsoever caused by events beyond its reasonable control.
7. LEGAL ADVICE. Winsbury shall notify the Trust at any time
Winsbury believes that it is in need of the advice of counsel (other than
counsel in the regular employ of Winsbury or any affiliated companies) with
regard to Winsbury's responsibilities and duties pursuant to this Agreement; and
after so notifying the Trust, Winsbury, at its discretion, shall be entitled to
seek, receive and act upon advice of legal counsel of its choosing, such advice
to be at the expense of the Trust or Funds unless relating
- 3 -
<PAGE> 4
to a matter involving Winsbury's willful misfeasance or gross negligence with
respect to Winsbury's responsibilities and duties hereunder and shall in no
event be liable to the Trust or any Fund or any shareholder or beneficial owner
of the Trust for any action reasonably taken pursuant to such advice.
8. INSTRUCTIONS. Whenever Winsbury is requested or authorized to
take action hereunder pursuant to instructions from a shareholder or a properly
authorized agent of a shareholder ("shareholder's agent") concerning an account
in a Fund, Winsbury shall be entitled to rely upon any certificate, letter or
other instrument or communication, whether in writing, by electronic or
telephone transmission, believed by Winsbury to be genuine and to have been
properly made, signed or authorized by an officer or other authorized agent of
the Trust or by the shareholder or shareholder's agent, as the case may be, and
shall be entitled to receive as conclusive proof of any fact or matter required
to be ascertained by it hereunder a certificate signed by an officer of the
Trust or any other person authorized by the Trust's Board of Trustees or by the
shareholder or shareholder's agent, as the case may be.
As to the services to be provided hereunder, Winsbury may rely
conclusively upon the terms of the Prospectuses and Statements of Additional
Information of the Trust relating to the Funds to the extent that such services
are described therein unless Winsbury receives written instructions to the
contrary in a timely manner from the Trust.
9. STANDARD OF CARE; RELIANCE ON RECORDS AND INSTRUCTIONS;
INDEMNIFICATION. Winsbury shall use its best efforts to ensure the accuracy of
all services performed under this Agreement, but shall not be liable to the
Trust for any action taken or omitted by Winsbury in the absence of bad faith,
willful misfeasance or gross negligence. The Trust agrees to indemnify and hold
harmless Winsbury, its employees, agents, directors, officers and nominees from
and against any and all claims, demands, actions and suits, whether groundless
or otherwise, and from and against any and all judgments, liabilities, losses,
damages, costs, charges, counsel fees and other expenses of every nature and
character arising out of or in any way relating to Winsbury's actions taken or
nonactions with respect to the performance of services under this Agreement or
based, if applicable, upon reasonable reliance on information, records,
instructions or requests given or made to Winsbury by the Trust, the investment
adviser and on any records provided by any fund accountant or custodian thereof;
provided that this indemnification shall not apply to actions or omissions of
Winsbury in cases of its own willful misfeasance or gross negligence, and
further provided that prior to confessing any claim against it which may be the
subject of this indemnification, Winsbury shall give the Trust written notice of
and reasonable opportunity to
- 4 -
<PAGE> 5
defend against said claim in its own name or in the name of Winsbury.
10. RECORD RETENTION AND CONFIDENTIALITY. Winsbury shall keep and
maintain on behalf of the Trust all books and records which the Trust or
Winsbury is, or may be, required to keep and maintain pursuant to any applicable
statutes, rules and regulations, including without limitation Rules 31a-1 and
31a-2 under the Investment Company Act of 1940, relating to the maintenance of
books and records in connection with the services to be provided hereunder.
Winsbury further agrees that all such books and records shall be the property of
the Trust and to make such records available for inspection by the Trust or by
the Securities and Exchange Commission at reasonable times and otherwise to keep
confidential all books and records and other information relative to the Trust
and its shareholders; except when requested to divulge such information by
duly-constituted authorities or court process, or requested by a shareholder
with respect to information concerning an account as to which such shareholder
has either a legal or beneficial interest or when requested by the Trust, the
shareholder, or the dealer of record as to such account.
11. REPORTS. Winsbury will furnish to the Trust and to its
properly-authorized auditors, investment advisers, examiners, distributors,
dealers, underwriters, salesmen, insurance companies and others designated by
the Trust in writing, such reports at such times as are prescribed in Schedule D
attached hereto, or as subsequently agreed upon by the parties pursuant to an
amendment to Schedule D. The Trust agrees to examine each such report or copy
promptly and will report or cause to be reported any errors or discrepancies
therein no later than three business days from the receipt thereof. In the event
that errors or discrepancies, except such errors and discrepancies as may not
reasonably be expected to be discovered by the recipient within three days after
conducting a diligent examination, are not so reported within the aforesaid
period of time, a report will for all purposes be accepted by and binding upon
the Trust and any other recipient, and Winsbury shall have no liability for
errors or discrepancies therein and shall have no further responsibility with
respect to such report except to perform reasonable corrections of such errors
and discrepancies within a reasonable time after requested to do so by the
Trust.
12. RIGHTS OF OWNERSHIP. All computer programs and procedures
developed to perform services required to be provided by Winsbury under this
Agreement are the property of Winsbury. All records and other data except such
computer programs and procedures are the exclusive property of the Trust and all
such other records and data will be furnished to the Trust in appropriate form
as soon as practicable after termination of this Agreement for any reason.
13. RETURN OF RECORDS. Winsbury may at its option at any time,
and shall promptly upon the Trust's demand, turn over to the
- 5 -
<PAGE> 6
Trust and cease to retain Winsbury's files, records and documents created and
maintained by Winsbury pursuant to this Agreement which are no longer needed by
Winsbury in the performance of its services or for its legal protection. If not
so turned over to the Trust, such documents and records will be retained by
Winsbury for six years from the year of creation. At the end of such six-year
period, such records and documents will be turned over to the Trust unless the
Trust authorizes in writing the destruction of such records and documents.
14. BANK ACCOUNTS. The Trust and the Funds shall establish and
maintain such bank accounts with such bank or banks as are selected by the
Trust, as are necessary in order that Winsbury may perform the services required
to be performed hereunder. To the extent that the performance of such services
shall require Winsbury directly to disburse amounts for payment of dividends,
redemption proceeds or other purposes, the Trust and Funds shall provide such
bank or banks with all instructions and authorizations necessary for Winsbury to
effect such disbursements.
15. REPRESENTATIONS OF THE TRUST. The Trust certifies to Winsbury
that: (A) as of the close of business on the Effective Date, each Fund which is
in existence as of the Effective Date has authorized unlimited shares, and (B)
by virtue of its Declaration of Trust, shares of each Fund which are redeemed by
the Trust may be sold by the Trust from its treasury, and (C) this agreement has
been duly authorized by the Trust and, when executed and delivered by the Trust,
will constitute a legal, valid and binding obligation of the Trust, enforceable
against the Trust in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
16. REPRESENTATIONS OF WINSBURY. Winsbury represents and warrants
that: (A) Winsbury has been in, and shall continue to be in, substantial
compliance with all provisions of law, including Section 17A(c) of the
Securities Exchange Act of 1934, as amended, required in connection with the
performance of its duties under this Agreement; and (B) the various procedures
and systems which Winsbury has implemented with regard to safeguarding from loss
or damage attributable to fire, theft, or any other cause of the blank checks,
records, and other data of the Trust and Winsbury's records, data, equipment
facilities and other property used in the performance of its obligations
hereunder are adequate and that it will make such changes therein from time to
time as are required for the secure performance of its obligations hereunder.
17. INSURANCE. Winsbury shall notify the Trust should its
insurance coverage with respect to professional liability or errors and
omissions coverage be changed for any reason. Such notification shall include
the date of change and the reasons therefor. Winsbury shall notify the Trust of
any material claims
- 6 -
<PAGE> 7
against it with respect to services performed under this Agreement, whether or
not they may be covered by insurance, and shall notify the Trust from time to
time as may be appropriate of the total outstanding claims made by Winsbury
under its insurance coverage.
18. INFORMATION TO BE FURNISHED BY THE TRUST AND FUNDS. The Trust
has furnished to Winsbury the following:
A. Copies of the Declaration of Trust of the Trust and of
any amendments thereto, certified by the proper official
of the state in which such Declaration has been filed.
B. Copies of the following documents:
1. The Trust's By-Laws and any amendments thereto;
2. Certified copies of resolutions of the Board of
Trustees covering the following matters:
a. Approval of this Agreement and authorization
of a specified officer of the Trust to
execute and deliver this Agreement; and
b. Authorization of Winsbury to act as Transfer
Agent for the Trust on behalf of the Funds.
C. Two copies of the following (if such documents are
employed by the Trust):
1. Prospectuses and Statements of Additional
Information for each Fund;
2. Distribution Agreements; and
3. All other forms commonly used by the Trust or its
Distributor with regard to their relationships and
transactions with shareholders of the Funds.
19. INFORMATION FURNISHED BY WINSBURY. Winsbury has
furnished to the Trust the following:
A. Winsbury's Articles of Incorporation.
B. Winsbury's Code of Regulations and any amendments
thereto.
C. Certified copies of actions of Winsbury covering the
following matters:
1. Approval of this Agreement, and authorization of a
specified officer of Winsbury to execute and
deliver this Agreement;
- 7 -
<PAGE> 8
2. Authorization of Winsbury to act as Transfer Agent
for the Trust.
D. A copy of the most recent independent accountants' report
relating to internal accounting control systems as filed with
the Securities and Exchange Commission pursuant to Rule
17Ad-13 of the Securities Exchange Act of 1934, as amended.
20. AMENDMENTS TO DOCUMENTS. The Trust shall furnish Winsbury
written copies of any amendments to, or changes in, any of the items referred to
in Section 18 hereof forthwith upon such amendments or changes becoming
effective. In addition, the Trust agrees that no amendments will be made to the
Prospectuses or Statement of Additional Information of the Trust which might
have the effect of changing the procedures employed by Winsbury in providing the
services agreed to hereunder or which amendment might affect the duties of
Winsbury hereunder unless the Trust first obtains Winsbury's approval of such
amendments or changes.
21. RELIANCE ON AMENDMENTS. Winsbury may rely on any amendments to
or changes in any of the documents and other items to be provided by the Trust
pursuant to Sections 18 and 20 of this Agreement and the Trust hereby
indemnifies and holds harmless Winsbury from and against any and all claims,
demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, counsel fees and other expenses of every nature and character which may
result from actions or omissions on the part of Winsbury in reasonable reliance
upon such amendments and/or changes. Although Winsbury is authorized to rely on
the above-mentioned amendments to and changes in the documents and other items
to be provided pursuant to Sections 18 and 20 hereof, Winsbury shall be under no
duty to comply with or take any action as a result of any of such amendments or
changes unless the Trust first obtains Winsbury's written consent to and
approval of such amendments or changes.
22. COMPLIANCE WITH LAW. Except for the obligations of Winsbury
set forth in Section 10 hereof, the Trust assumes full responsibility for the
preparation, contents and distribution of each prospectus of the Trust, as to
compliance with all applicable requirements of the Securities Act of 1933, as
amended, the Investment Company Act of 1940, as amended, and any other laws,
rules and regulations of governmental authorities having jurisdiction. Winsbury
shall have no obligation to take cognizance of any laws relating to the sale of
the Trust's shares. The Trust represents and warrants that no shares of the
Trust will be offered to the public until the Trust's registration statement
under the Securities Act of 1933 and the Investment Company Act of 1940 has been
declared or becomes effective.
- 8 -
<PAGE> 9
23. NOTICES. Any notice provided hereunder shall be sufficiently
given when sent by registered or certified mail to the party required to be
served with such notice, at the following address: 1900 East Dublin-Granville
Road, Columbus, Ohio 43229, or at such other address as such party may from time
to time specify in writing to the other party pursuant to this Section.
24. HEADINGS. Paragraph headings in this Agreement are
included for convenience only and are not to be used to construe or interpret
this Agreement.
25. ASSIGNMENT. This Agreement and the rights and duties
hereunder shall not be assignable by either of the parties hereto except by the
specific written consent of the other party. This Section 25 shall not limit or
in any way affect Winsbury's right to appoint a Sub-transfer Agent pursuant to
Section 1 hereof.
26. GOVERNING LAW. This Agreement shall be governed by and
provisions shall be construed in accordance with the laws of the State of Ohio.
27. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS. The
Sessions Group is a business trust organized under Chapter 1746, Ohio Revised
Code and under a Declaration of Trust, to which reference is hereby made and a
copy of which is on file at the Office of the Secretary of State of Ohio as
required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "The Sessions Group" entered into in the name or on
behalf thereof by any of the Trustees, officers, employees or agents are made
not individually, but in such capacities, and are not binding upon any of the
Trustees, officers, employees, agents or shareholders of the Trust personally,
but bind only the assets of the Trust, as set forth in Section 1746.13(A), Ohio
Revised Code, and all persons dealing with any of the Funds of the Trust must
look solely to the assets of the Trust belonging to such Fund for the
enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
THE WINSBURY SERVICE CORPORATION THE SESSIONS GROUP
By /s/ Stephen G. Mintos By /s/ Roy E. Rogers
---------------------------- -----------------------
Stephen G. Mintos, Exec. V.P. Roy E. Rogers, President
- 9 -
<PAGE> 10
Dated: June 3, 1994
SCHEDULE A
TO THE
TRANSFER AGENCY AGREEMENT
BETWEEN
THE SESSIONS GROUP
AND
THE WINSBURY SERVICE CORPORATION
JUNE 3, 1994
<TABLE>
<CAPTION>
Name of Fund Date
------------ ----
<S> <C>
Riverside Capital Money Market Fund, June 3, 1994
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,
Riverside Capital Sunbelt Municipal Obligations
Fund and Riverside Capital Equity and Municipal Income Fund
</TABLE>
THE SESSIONS GROUP
By /s/ Roy E. Rogers
-----------------------------
Roy E. Rogers, President
THE WINSBURY SERVICE CORPORATION
By /s/ Stephen G. Mintos
-----------------------------
Stephen G. Mintos, E. V. Pres.
- 10 -
<PAGE> 11
SCHEDULE B
TRANSFER AGENCY SERVICES
1. Shareholder Transactions
a. Process shareholder purchase and redemption orders.
b. Set up account information, including address, dividend
option, taxpayer identifications number and wire
instructions.
c. Issue confirmation for every transaction.
d. Issue periodic statements for shareholders.
e. Process transfers and exchanges.
f. Process dividend payments, including the purchasing of
new shares through dividend reinvestment.
2. Shareholder Information Services
a. Make information available to shareholder servicing unit and
other remote access units regarding trade date, share price,
current holdings, yields, and dividend information.
b. Produce detail history of transactions through duplicate
or special order statements upon request.
c. Provide mailing labels for distribution of financial
reports, prospectuses, proxy statements, or marketing
material to current shareholders.
3. Compliance Reporting
a. Provide reports to the Securities and Exchange
Commission, the NASD and the States in which the Fund is
registered.
b. Prepare and distribute appropriate Internal Revenue
Service forms for corresponding Fund and shareholder
income and capital gains.
c. Issue tax withholding reports to the Internal Revenue
Service.
4. Dealer/Load Processing (if applicable)
a. Provide reports for tracking rights of accumulation and
purchases made under a Letter of Intent.
- 11 -
<PAGE> 12
b. Account for separation of shareholder investments from
transaction sale charges for purchases of Fund shares.
c. Calculate fees due under 12b-1 plans for distribution and
marketing expenses.
d. Track sales and commission statistics by dealer and
provide for payment of commissions on direct shareholder
purchases in a load Fund.
5. Shareholder Account Maintenance
a. Maintain all shareholder records for each account in the
Trust.
b. Issue customer statements on scheduled cycle, providing
duplicate second and third party copies if required.
c. Record shareholder account information changes.
d. Maintain account documentation files for each
shareholder.
- 12 -
<PAGE> 13
Date: May 1, 1994
SCHEDULE C
Fees
Transfer Agent:
<TABLE>
<CAPTION>
Annual fees per fund:
<S> <C>
Daily dividend fund base fee $ 16 per shareholder
Variable NAV fund fee $ 14 per shareholder
</TABLE>
Annual Minimums:
<TABLE>
<CAPTION>
Institutional transfer agent services:
<S> <C>
Per class for less than 100 shareholders: $ 10,000
Per class for 100 to 499 shareholders: 18,000
Per class for 500 or more shareholders: 24,000
</TABLE>
Retail transfer agent services:
This schedule applies to any portfolio or class with any of the following
features; combined statementing, 12B-1 fees, load features, checkwriting,
auto-invest or auto-withdrawal processing or special data-base reports.
<TABLE>
<S> <C>
Per class for less than 100 shareholders: $ 18,000
Per class for 100 to 499 shareholders: 24,000
Per class for 500 or more shareholders: 36,000
</TABLE>
Multiple classes of shares:
Classes of shares which have different net asset values or pay different daily
dividends will be treated as separate classes, and the fee schedule above,
including the appropriate minimums, will be charged for each separate class.
Additional services:
Additional services such as IRA processing are subject to additional fees which
will be quoted upon request. Programming costs or data base management fees for
special reports or specialized processing will be quoted upon request.
- 13 -
<PAGE> 14
Date: May 1, 1994
Out of pocket charges:
Out-of-pocket costs, including postage, Tymnet charges, statement/confirm paper
and forms, and microfiche, will be added to the transfer agent fees.
THE SESSIONS GROUP
By /s/ Roy E. Rogers
----------------------------
Roy E. Rogers, President
THE WINSBURY SERVICE CORPORATION
By /s/ Stephen G. Mintos
----------------------------
Stephen G. Mintos, E.V.P.
- 14 -
<PAGE> 15
Date: May 1, 1994
SCHEDULE D
REPORTS
I. Daily Shareholder Activity Journal
II. Daily Fund Activity Summary Report
A. Beginning Balance
B. Dealer Transactions
C. Shareholder Transactions
D. Reinvested Dividends
E. Exchanges
F. Adjustments
G. Ending Balance
III. Daily Wire and Check Registers
IV. Monthly Dealer Processing Reports
V. Monthly Dividend Reports
VI. Sales Data Reports for Blue Sky Registration
VII. Annual report by independent public accountants concerning Winsbury's
shareholder system and internal accounting control systems to be filed
with the Securities and Exchange Commission pursuant to Rule 17Ad-13 of
the Securities Exchange Act of 1934, as amended.
- 15 -
<PAGE> 1
Exhibit 9(c)
FUND ACCOUNTING AGREEMENT
AGREEMENT made this 1st day of November, 1997, between THE SESSIONS GROUP
(the "Trust"), an Ohio business trust having its principal place of business at
3435 Stelzer Road, Columbus, Ohio 43219, and BISYS FUND SERVICES, INC. ("Fund
Accountant"), a corporation organized under the laws of the State of Delaware
and having its principal place of business at 3435 Stelzer Road, Columbus, Ohio
43219.
WHEREAS, the Trust desires that Fund Accountant perform certain fund
accounting services for each currently existing Riverside Capital series of the
Company advised by National Bank of Commerce ("NBC"), as set forth in Schedule A
hereto, and such additional Riverside Capital series advised by NBC that are
hereafter created and identified in Schedule A (individually referred to herein
as the "Fund" and collectively as the "Funds"); and
WHEREAS, Fund Accountant is willing to perform such services on the terms
and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Fund Accountant.
(a) Maintenance of Books and Records. Fund Accountant will keep and
maintain the following books and records of each Fund pursuant to
Rule 31a-1 under the Investment Company Act of 1940, as amended
(the "Rule"):
(i) Journals containing an itemized daily record in detail of
all purchases and sales of securities, all receipts and
disbursements of cash and all other debits and credits, as
required by subsection (b)(1) of the Rule;
(ii) General and auxiliary ledgers reflecting all asset,
liability, reserve, capital, income and expense accounts,
including interest accrued and interest received, as
required by subsection (b)(2)(i) of the Rule;
(iii)Separate ledger accounts required by subsection (b)(2)(ii)
and (iii) of the Rule; and
(iv) A monthly trial balance of all ledger accounts (except
shareholder accounts) as required by subsection (b)(8) of
the Rule.
<PAGE> 2
(b) Performance of Daily Accounting Services. In addition to the
maintenance of the books and records specified above, Fund
Accountant shall perform the following accounting services daily
for each Fund:
(i) Calculate the net asset value per share utilizing prices
obtained from the sources described in subsection 1(b)(ii)
below;
(ii) Obtain security prices from independent pricing services, or
if such quotes are unavailable, then obtain such prices from
each Fund's investment adviser or its designee, as approved
by the Trust's Board of Trustees;
(iii)Verify and reconcile with the Funds' custodian all daily
trade activity;
(iv) Compute, as appropriate, each Fund's net income and capital
gains, dividend payables, dividend factors, 7-day yields,
7-day effective yields, 30-day yields, total returns, and
weighted average portfolio maturity;
(v) Review daily the net asset value calculation and dividend
factor (if any) for each Fund prior to release to
shareholders, check and confirm the net asset values and
dividend factors for reasonableness and deviations, and
distribute net asset values and yields to NASDAQ;
(vi) Report to the Trust the daily market pricing of securities
in any money market Funds, with the comparison to the
amortized cost basis;
(vii)Determine unrealized appreciation and depreciation on
securities held in variable net asset value Funds;
(viii)Amortize premiums and accrete discounts on securities
purchased at a price other than face value;
(ix) Update fund accounting system to reflect rate changes, as
received from a Fund's investment adviser, on variable
interest rate instruments;
(x) Post Fund transactions to appropriate categories;
(xi) Accrue expenses of each Fund according to instructions
received from the Trust's Administrator;
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<PAGE> 3
(xii) Determine the outstanding receivables and payables for all
(1) security trades, (2) Fund share transactions and (3)
income and expense accounts;
(xiii) Provide accounting reports in connection with the Trust's
regular annual audit and other audits and examinations by
regulatory agencies; and
(xiv) Provide such periodic reports as the parties shall agree
upon, as set forth in a separate schedule.
(c) Special Reports and Services.
(i) Fund Accountant may provide additional special reports upon
the request of the Trust or a Fund's investment adviser,
which may result in an additional charge, the amount of
which shall be agreed upon between the parties.
(ii) Fund Accountant may provide such other similar services with
respect to a Fund as may be reasonably requested by the
Trust, which may result in an additional charge, the amount
of which shall be agreed upon between the parties.
(d) Additional Accounting Services. Fund Accountant shall also
perform the following additional accounting services for each
Fund:
(i) Provide monthly a download (and hard copy thereof) of the
financial statements described below, upon request of the
Trust. The download will include the following items:
Statement of Assets and Liabilities,
Statement of Operations,
Statement of Changes in Net Assets, and
Condensed Financial Information;
(ii) Provide accounting information for the following:
(A) federal and state income tax returns and federal excise
tax returns;
(B) the Trust's semi-annual reports with the Securities and
Exchange Commission ("SEC") on Form N-SAR;
(C) the Trust's annual, semi-annual and quarterly (if any)
shareholder reports;
3
<PAGE> 4
(D) registration statements on Form N-1A and other filings
relating to the registration of shares;
(E) the Administrator's monitoring of each Fund's status as
a regulated investment company under Subchapter M of
the Internal Revenue Code, as amended;
(F) annual audit by the Trust's auditors; and
(G) examinations performed by the SEC.
2. Subcontracting.
Fund Accountant may, at its sole expense, subcontract with any entity or
person concerning the provision of the services contemplated hereunder;
provided, however, that Fund Accountant shall not be relieved of any of its
obligations under this Agreement by the appointment of such subcontractor and
provided further, that Fund Accountant shall be responsible, to the extent
provided in Section 7 hereof, for all acts of such subcontractor as if such acts
were its own.
3. Compensation.
The Trust shall pay Fund Accountant for the services to be provided by Fund
Accountant under this Agreement in accordance with, and in the manner set forth
in, the Omnibus Fee Agreement among Fund Accountant, BISYS Fund Services Limited
Partnership and the Trust dated November 1, 1997, as such Omnibus Fee Agreement
may be amended from time to time.
4. Reimbursement of Expenses.
In addition to paying Fund Accountant the fees described in Section 3
hereof, the Trust agrees to reimburse Fund Accountant for its out-of-pocket
expenses in providing services hereunder, including without limitation the
following:
(a) All freight and other delivery and bonding charges incurred by Fund
Accountant in delivering materials to and from the Trust;
(b) All direct telephone, telephone transmission and telecopy or other
electronic transmission expenses incurred by Fund Accountant in
communication with the Trust, the Funds' investment adviser or
custodian, dealers or others as required for Fund Accountant to
perform the services to be provided hereunder;
(c) The cost of obtaining security market quotes pursuant to Section
l(b)(ii) above;
(d) The cost of microfilm or microfiche of records or other materials;
(e) Any expenses Fund Accountant shall incur at the written direction of
an officer of the Trust thereunto duly authorized; and
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<PAGE> 5
(f) Any additional expenses reasonably incurred by Fund Accountant in the
performance of its duties and obligations under this Agreement.
5. Effective Date.
This Agreement shall become effective with respect to a Fund as of the date
first written above (or, if a particular Fund is not in existence on that date,
on the date such Fund commences operation) (the "Effective Date").
6. Term.
This Agreement shall continue in effect with respect to a Fund, unless
earlier terminated by either party hereto as provided hereunder, until October
31, 2003 (the "Initial Term"). Thereafter, unless otherwise terminated as
provided herein, this Agreement shall be renewed automatically for successive
one-year periods ("Rollover Periods"). This Agreement may be terminated without
penalty (i) by provision of a notice of nonrenewal in the manner set forth
below, (ii) by mutual agreement of the parties or (iii) for "cause," as defined
below, upon the provision of 60 days advance written notice by the party
alleging cause. Written notice of nonrenewal must be provided at least 60 days
prior to the end of the Initial Term or any Rollover Period, as the case may be.
For purposes of this Agreement, "cause" shall mean (a) willful misfeasance,
bad faith, gross negligence, or reckless disregard on the part of the party to
be terminated with respect to its obligations and duties set forth herein; (b) a
final, unappealable judicial, regulatory or administrative ruling or order in
which the party to be terminated has been found guilty of criminal or unethical
behavior in the conduct of its business; (c) the dissolution or liquidation of
either party or other cessation of business other than a reorganization or
recapitalization of such party as an ongoing business; (d) financial
difficulties on the part of the party to be terminated which are evidenced by
the authorization or commencement of, or involvement by way of pleading, answer,
consent or acquiescence in, a voluntary or involuntary case under Title 11 of
the United States Code, as from time to time is in effect, or any applicable
law, other than said Title 11, of any jurisdiction relating to the liquidation
or reorganization of debtors or to the modification or alteration of the rights
of creditors, or (e) any circumstance which substantially impairs the
performance of the obligations and duties of the party to be terminated, or the
ability to perform those obligations and duties as contemplated herein.
Notwithstanding the foregoing, the absence of an annual review of this Agreement
by the Board of Trustees shall not, in and of itself, constitute "cause" as used
herein.
After such termination for so long as Fund Accountant, with the written
consent of the Trust, in fact continues to perform any one or more of the
services contemplated by this Agreement or any schedule or exhibit hereto, the
provisions of this Agreement, including without limitation the provisions
dealing with indemnification, shall continue in full force and effect.
Compensation due Fund Accountant and unpaid by the Trust upon such termination
shall be immediately due and payable upon and notwithstanding such termination.
Fund Accountant shall
5
<PAGE> 6
be entitled to collect from the Trust, in addition to the compensation described
under Section 3 hereof, the amount of all of Fund Accountant's reasonable cash
disbursements for services in connection with Fund Accountant's activities in
effecting such termination, including without limitation, the delivery to the
Trust and/or its designees of the Trust's property, records, instruments and
documents, or any copies thereof. Subsequent to such termination, for a
reasonable fee, Fund Accountant will provide the Trust with reasonable access to
any Trust documents or records remaining in its possession.
If, for any reason other than "cause", as defined herein, Fund Accountant
is replaced as Fund Accountant, or if a third party is added to perform all or a
part of the services provided by Fund Accountant under this Agreement (excluding
any sub-accountant appointed by Fund Accountant as provided in Section 2
hereof), then the Trust shall make a one-time cash payment, as liquidated
damages, to Fund Accountant equal to the fees payable to Fund Accountant
hereunder for the lesser of (i) the two-year period commencing on the date upon
which Fund Accountant is replaced or such third party is added or (ii) the
remainder of the then-current contract term, assuming for purposes of
calculation of the payment that the asset level of the Trust on the date Fund
Accountant is replaced, or a third party is added, will remain constant for the
balance of the contract term.
In the event the Funds are merged into another legal entity in part or in
whole or are otherwise liquidated in part or in whole pursuant to a business
reorganization prior to the expiration of the then-current term of this
Agreement, the parties acknowledge and agree that (i) the liquidated damages
provision set forth above shall be applicable in those instances in which the
Administrator is not retained by the surviving entity to provide administration
services and (ii) for purposes of calculating the payment amount representing
liquidated damages, the appropriate asset level of the Funds shall be the
greater of: (i) the asset level calculated for the Funds at the time the
Company's Board of Trustees receives notification of an intention on the part of
Fund management to effect such a business reorganization; (ii) the asset level
calculated for the Funds at the time the Company's Board of Trustees formally
approves such a business reorganization; or (iii) the asset level calculated for
the Funds on the day prior to the first day during which assets are transferred
by the Company to the surviving entity pursuant to the plan of reorganization.
The one-time cash payment referenced above shall be due and payable on the day
prior to the first day during which assets are transferred to the surviving
entity pursuant to the plan of reorganization.
The parties further acknowledge and agree that, in the event Fund
Accountant is replaced, or a third party is added, as set forth above, (i) a
determination of actual damages incurred by Fund Accountant would be extremely
difficult, and (ii) the liquidated damages provision contained herein is
intended to adequately compensate Fund Accountant for damages incurred and is
not intended to constitute any form of penalty.
6
<PAGE> 7
7. Standard of Care; Reliance on Records and Instructions; Indemnification.
Fund Accountant shall use its best efforts to ensure the accuracy of all
services performed under this Agreement, but shall not be liable to the Trust
for any action taken or omitted by Fund Accountant in the absence of bad faith,
willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties. A Fund agrees to indemnify and hold harmless Fund
Accountant, its employees, agents, directors, officers and nominees from and
against any and all claims, demands, actions and suits, whether groundless or
otherwise, and from and against any and all judgments, liabilities, losses,
damages, costs, charges, counsel fees and other expenses of every nature and
character arising out of or in any way relating to Fund Accountant's actions
taken or nonactions with respect to the performance of services under this
Agreement with respect to such Fund or based, if applicable, upon reasonable
reliance on information, records, instructions or requests with respect to such
Fund given or made to Fund Accountant by a duly authorized representative of the
Trust; provided that this indemnification shall not apply to actions or
omissions of Fund Accountant in cases of its own bad faith, willful misfeasance,
negligence or from reckless disregard by it of its obligations and duties, and
further provided that prior to confessing any claim against it which may be the
subject of this indemnification, Fund Accountant shall give the Trust written
notice of and reasonable opportunity to defend against said claim in its own
name or in the name of Fund Accountant.
8. Record Retention and Confidentiality.
Fund Accountant shall keep and maintain on behalf of the Trust all books
and records of the Funds which the Trust or Fund Accountant is, or may be,
required to keep and maintain pursuant to any applicable statutes, rules and
regulations, including without limitation Rules 31a-1 and 31a-2 under the
Investment Company Act of 1940, as amended (the "1940 Act"), relating to the
maintenance of books and records in connection with the services to be provided
hereunder. Fund Accountant further agrees that all such books and records shall
be the property of the Trust and to make such books and records available for
inspection by the Trust or by the Securities and Exchange Commission at
reasonable times and otherwise to keep confidential all books and records and
other information relative to the Trust and its shareholders; except when
requested to divulge such information by duly-constituted authorities or court
process.
9. Uncontrollable Events.
Fund Accountant assumes no responsibility hereunder, and shall not be
liable, for any damage, loss of data, delay or any other loss whatsoever caused
by events beyond its reasonable control.
10. Reports.
Fund Accountant will furnish to the Trust and to its properly authorized
auditors, investment advisers, examiners, distributors, dealers, underwriters,
salesmen, insurance companies
7
<PAGE> 8
and others designated by the Trust in writing, such reports and at such times as
are prescribed pursuant to the terms and the conditions of this Agreement to be
provided or completed by Fund Accountant, or as subsequently agreed upon by the
parties pursuant to an amendment hereto. The Trust agrees to examine each such
report or copy promptly and will report or cause to be reported any errors or
discrepancies therein no later than ten business days from the receipt thereof.
In the event that errors or discrepancies, except such errors and discrepancies
as may not reasonably be expected to be discovered by the recipient within ten
days after conducting a diligent examination, are not so reported within the
aforesaid period of time, a report will for all purposes be accepted by and
binding upon the Trust and any other recipient, and, except as provided in
Section 7 hereof, Fund Accountant shall have no liability for errors or
discrepancies therein and shall have no further responsibility with respect to
such report except to perform reasonable corrections of such errors and
discrepancies within a reasonable time after requested to do so by the Trust.
11. Rights of Ownership.
All computer programs and procedures developed to perform services required
to be provided by Fund Accountant under this Agreement are the property of Fund
Accountant. All records and other data except such computer programs and
procedures are the exclusive property of the Trust and all such other records
and data will be furnished to the Trust in appropriate form as soon as
practicable after termination of this Agreement for any reason.
12. Return of Records.
Fund Accountant may at its option at any time, and shall promptly upon the
Trust's demand, turn over to the Trust and cease to retain Fund Accountant's
files, records and documents created and maintained by Fund Accountant pursuant
to this Agreement which are no longer needed by Fund Accountant in the
performance of its services or for its legal protection. If not so turned over
to the Trust, such documents and records will be retained by Fund Accountant for
six years from the year of creation. At the end of such six-year period, such
records and documents will be turned over to the Trust unless the Trust
authorizes in writing the destruction of such records and documents.
13. Representations of the Trust.
The Trust certifies to Fund Accountant that: (1) as of the close of
business on the Effective Date, each Fund that is in existence as of the
Effective Date has authorized unlimited shares, and (2) this Agreement has been
duly authorized by the Trust and, when executed and delivered by the Trust, will
constitute a legal, valid and binding obligation of the Trust, enforceable
against the Trust in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
8
<PAGE> 9
14. Representations of Fund Accountant.
Fund Accountant represents and warrants that: (1) the various procedures
and systems which Fund Accountant has implemented with regard to safeguarding
from loss or damage attributable to fire, theft, or any other cause the blank
checks, the records, and other data of the Trust and Fund Accountant's records,
data, equipment facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as are required for the secure performance of its obligations
hereunder, and (2) this Agreement has been duly authorized by Fund Accountant
and, when executed and delivered by Fund Accountant, will constitute a legal,
valid and binding obligation of Fund Accountant, enforceable against Fund
Accountant in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and secured parties.
15. Insurance.
Fund Accountant shall notify the Trust should any of its insurance coverage
be canceled or reduced. Such notification shall include the date of change and
the reasons therefor. Fund Accountant shall notify the Trust of any material
claims against it with respect to services performed under this Agreement,
whether or not they may be covered by insurance, and shall notify the Trust from
time to time as may be appropriate of the total outstanding claims made by Fund
Accountant under its insurance coverage.
16. Information to be Furnished by the Trust and Funds.
The Trust has furnished to Fund Accountant the following:
(a) Copies of the Declaration of Trust of the Trust and of any amendments
thereto, certified by the proper official of the state in which such
document has been filed.
(b) Copies of the following documents:
(i) The Trust's Bylaws and any amendments thereto; and
(ii) Certified copies of resolutions of the Board of Trustees covering
the approval of this Agreement, authorization of a specified
officer of the Trust to execute and deliver this Agreement and
authorization for specified officers of the Trust to instruct
Fund Accountant thereunder.
(c) A list of all the officers of the Trust, together with specimen
signatures of those officers who are authorized to instruct Fund
Accountant in all matters.
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<PAGE> 10
(d) Two copies of the Prospectus and Statement of Additional
Information for each Fund.
17. Information Furnished by Fund Accountant.
(a) Fund Accountant has furnished to the Trust the following:
(i) Fund Accountant's Articles of Incorporation; and
(ii) Fund Accountant's Bylaws and any amendments thereto.
(b) Fund Accountant shall, upon request, furnish certified copies of
corporate actions covering the following matters:
(i) Approval of this Agreement, and authorization of a specified
officer of Fund Accountant to execute and deliver this
Agreement; and
(ii) Authorization of Fund Accountant to act as fund accountant
for the Trust and to provide accounting services for the
Trust.
18. Amendments to Documents.
The Trust shall furnish Fund Accountant written copies of any amendments
to, or changes in, any of the items referred to in Section 16 hereof forthwith
upon such amendments or changes becoming effective. In addition, the Trust
agrees that no amendments will be made to the Prospectuses or Statements of
Additional Information of the Funds which might have the effect of changing the
procedures employed by Fund Accountant in providing the services agreed to
hereunder or which amendment might affect the duties of Fund Accountant
hereunder unless the Trust first obtains Fund Accountant's approval of such
amendments or changes.
19. Compliance with Law.
Except for the obligations of Fund Accountant set forth in Section 8
hereof, the Trust assumes full responsibility for the preparation, contents and
distribution of each prospectus of the Trust as to compliance with all
applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), the 1940 Act and any other laws, rules and regulations of
governmental authorities having jurisdiction. Fund Accountant shall have no
obligation to take cognizance of any laws relating to the sale of the Funds'
shares. The Trust represents and warrants that no shares of the Funds will be
offered to the public until the Trust's registration statement under the
Securities Act and the 1940 Act has been declared or becomes effective.
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<PAGE> 11
20. Notices.
Any notice provided hereunder shall be sufficiently given when personally
delivered, or sent by registered or certified mail to the party required to be
served with such notice, at the following address: 3435 Stelzer Road, Columbus,
Ohio 43219, or at such other address as such party may from time to time specify
in writing to the other party pursuant to this Section.
21. Headings.
Paragraph headings in this Agreement are included for convenience only and
are not to be used to construe or interpret this Agreement.
22. Assignment.
This Agreement and the rights and duties hereunder shall not be assignable
with respect to a Fund by either of the parties hereto except by the specific
written consent of the other party. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns.
23. Governing Law.
This Agreement shall be governed by and provisions shall be construed in
accordance with the laws of the State of Ohio.
24. Limitation of Liability of the Trustees and Shareholders.
The Sessions Group is a business trust organized under Chapter 1746, Ohio
Revised Code and under a Declaration of Trust, to which reference is hereby made
and a copy of which is on file at the Office of the Secretary of State of Ohio
as required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of the "The Sessions Group" entered into in the name or
on behalf thereof by any of the Trustees, officers, employees or agents are made
not individually, but in such capacities, and are not binding upon any of the
Trustees, officers, employees, agents or shareholders of the Trust personally,
but bind only the assets of the Trust, as set forth in Section 1746.13(A), Ohio
Revised Code, and all persons dealing with any of the Funds of the Trust must
look solely to the assets of the Trust belonging to such Fund for the
enforcement of any claims against the Trust.
25. Proprietary and Confidential Information.
Fund Accountant agrees on behalf of itself and its officers and employees
to treat confidentially and as proprietary information of the Trust all records
and other information relative to the Trust and prior, present, or potential
shareholders, and not to use such records and information for any purpose other
than performance of its responsibilities and duties hereunder, except after
prior
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<PAGE> 12
notification to and approval in writing by the Trust, which approval shall not
be unreasonably withheld and may not be withheld where Fund Accountant may be
exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
THE SESSIONS GROUP
By:
-------------------------
BISYS FUND SERVICES, INC.
By:
-------------------------
12
<PAGE> 13
Dated as of: November 1, 1997
SCHEDULE A
TO THE FUND ACCOUNTING AGREEMENT
BETWEEN
THE SESSIONS GROUP
AND
BISYS FUND SERVICES, INC..
FUNDS CURRENTLY ADVISED BY
NATIONAL BANK OF COMMERCE
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 SESSIONS GROUP
By:
-------------------------
BISYS FUND SERVICES, INC.
By:
-------------------------
A-1
<PAGE> 1
Exhibit (9)(d)
THE SESSIONS GROUP
ADMINISTRATIVE SERVICES PLAN
SECTION 1. Upon the recommendation of the administrator of The Sessions
Group (the "Group"), any officer of the Group is authorized to execute and
deliver, in the name and on behalf of the Group, written agreements in
substantially the form attached hereto as Appendix A or in any other form duly
approved by the Board of Trustees ("Servicing Agreements") with financial
institutions which are shareholders of record or which have a servicing
relationship ("Service Organizations") with the beneficial owners of a class of
the Group's shares of beneficial interest ("Shares") of one or more of the
Group's investment portfolios advised by Martindale Andres & Company, Inc. (such
portfolios hereinafter individually called a "Fund" and collectively the
"Funds"). Such Servicing Agreements shall require the Service Organizations to
provide administrative support services as set forth therein and as described in
the Group's applicable Prospectuses to their customers who own of record or
beneficially Shares in consideration for a fee, computed daily and paid monthly
in the manner set forth in the Servicing Agreements, at the annual rate of up to
.25% of the average daily net asset value of Shares owned of record or
beneficially by such customers. Any bank, trust company, thrift institution,
broker-dealer (including BISYS Fund Services Limited Partnership dba BISYS Fund
Services) or other financial institution is eligible to become a Service
Organization and to receive fees under this Plan. All expenses incurred by the
Group with respect to Shares of a particular Fund in connection with the
Servicing Agreements and the implementation of this Plan shall be borne entirely
by the holders of Shares of the Fund.
SECTION 2. So long as this Plan is in effect, the administrator shall
provide to the Group's Board of Trustees, and the Trustees shall review, at
least quarterly, a written report of the amounts expended pursuant to this Plan
and the purposes for which such expenditures were made.
SECTION 3. The Plan shall not take effect with respect to the Shares of
a Fund until it has been approved, together with the form of the Servicing
Agreements, by a vote of a majority of the Trustees who are not "interested
persons" of the Group (as defined in the Investment Company Act of 1940) and who
have no direct or indirect financial interest in the operation of this Plan or
in any agreements related to this Plan (the "Disinterested Trustees"), cast in
person at a meeting called for the purpose of voting on the Plan or such
Servicing Agreement, PROVIDED, however that the Plan shall not be implemented
for a particular Fund prior to the effective date of the post-effective
amendment to the Group's registration statement describing the Plan and its
implementation with respect to that Fund.
<PAGE> 2
SECTION 4. Unless sooner terminated, this Plan shall continue until
July 9, 1997, and thereafter, shall continue automatically for successive annual
periods provided such continuance is approved at least annually by a majority of
the Board of Trustees, including a majority of the Disinterested Trustees.
SECTION 5. This Plan may be amended at any time with respect to any
Fund by the Board of Trustees, provided that any material amendments of the
terms of this Plan shall become effective only upon the approvals set forth in
Section 4.
SECTION 6. This Plan is terminable at any time with respect to any Fund
by vote of a majority of the Disinterested Trustees.
SECTION 7. While this Plan is in effect, the selection and nomination
of those Disinterested Trustees shall be committed to the discretion of the
Group's Disinterested Trustees.
SECTION 8. This Plan has been adopted as of August 13, 1993 and was
effective October 19, 1993.
SECTION 9. The Sessions Group is a business trust organized under
Chapter 1746, Ohio Revised Code and under a Declaration of Trust, to which
reference is hereby made and a copy of which is on file at the office of the
Secretary of State of Ohio as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of "The Sessions Group"
entered into in the name or on behalf thereof by any of the Trustees, officers,
employees or agents are made not individually, but in such capacities, and are
not binding upon any of the Trustees, officers, employees, agents or shareholder
of the Group personally, but bind only the assets of the Group, as set forth in
Section 1746.13(A), Ohio Revised Code, and all persons dealing with any of the
Funds of the Group must look solely to the assets of the Group belonging to such
Fund for the enforcement of any claims against the Group.
2
<PAGE> 1
Exhibit (9)(e)
THE SESSIONS GROUP
(the "Group")
1900 East Dublin-Granville Road
Columbus, Ohio 43229
SERVICING AGREEMENT
to
ADMINISTRATIVE SERVICES PLAN
Ladies and Gentlemen:
We wish to enter into this Servicing Agreement with you concerning the
provision of administrative support services to your customers who may from time
to time be the record or beneficial owners of shares (such shares referred to
herein as the "Shares") of one or more of the Group's investment portfolios
(individually, a "Fund" and collectively, the "Funds"), which are listed on
Appendix A.
The terms and conditions of this Servicing Agreement are as follows:
Section 1. You agree to provide administrative support services to your
customers who may from time to time own of record or beneficially a Fund's
Shares. Services provided may include some or all of the following: (i)
processing dividend and distribution payments from a Fund on behalf of
customers; (ii) providing periodic statements to your customers showing their
positions in the Shares; (iii) arranging for bank wires; (iv) responding to
routine customer inquiries relating to services performed by you; (v) providing
sub-accounting with respect to the Shares beneficially owned by your customers
or the information necessary for sub-accounting; (vi) if required by law,
forwarding shareholder communications from a Fund (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend, distribution
and tax notices) to your customers; (vii) forwarding to customers proxy
statements and proxies containing any proposals regarding this Agreement or the
Administrative Services Plan related hereto; (viii) aggregating and processing
purchase, exchange, and redemption requests from customers and placing net
purchase, exchange, and redemption orders for your customers; (ix) providing
customers with a service that invests the assets of their accounts in the Shares
pursuant to specific or pre-authorized instructions; (x) establishing and
maintaining accounts and records relating to transactions in the Shares; (xi)
assisting customers in changing dividend or
<PAGE> 2
distribution options, account designations and addresses; or (xii) other similar
services if requested by the Group.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services to customers.
Section 3. Neither you nor any of your officers, employees or agents
are authorized to make any representations concerning the Group, a Fund or its
Shares except those contained in our then current prospectus for such shares,
copies of which will be supplied by The Winsbury Company ("Winsbury"), the
Group's distributor and administrator, to you, or in such supplemental
literature or advertising as may be authorized by the Group in writing.
Section 4. For all purposes of this Agreement you will be deemed to be
an independent contractor, and will have no authority to act as agent for the
Group in any matter or in any respect. By your written acceptance of this
Agreement, you agree to and do release, indemnify and hold us harmless from and
against any and all direct or indirect liabilities or losses resulting from
requests, directions, actions or inactions of or by you or your officers,
employees or agents regarding your responsibilities hereunder or the purchase,
redemption, transfer or registration of the Shares by or on behalf of customers.
You and your employees will, upon request, be available during normal business
hours to consult with the Group or its designees concerning the performance of
your responsibilities under this Agreement.
Section 5. In consideration for the services and facilities provided by
you hereunder, the Group will pay to you, and you will accept as full payment
therefore, a fee at the annual rate of up to .25% of the average daily net
assets of a Fund's Shares owned of record or beneficially by your customers from
time to time for which you provide services hereunder, which fee will be
computed daily and payable monthly. The fee rate stated above may be
prospectively increased or decreased by the Group, in its sole discretion, at
any time upon notice to you. Further, the Group may, in its discretion and
without notice, suspend or withdraw the sale of such Shares, including the sale
of such Shares to you for the account of any customer(s).
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Group pursuant to this Agreement will provide to the
Group's Board of Trustees, and the Trustees will review, at least quarterly, a
written report of the amounts so
2
<PAGE> 3
expended and the entities to whom such expenditures were made. In addition, you
will furnish the Group or its designees with such information as the Group or
its designees may reasonably request (including, without limitation, periodic
certifications confirming the provision to customers of some or all of the
services described herein), and will otherwise cooperate with the Group and its
designees (including, without limitation, any auditors designated by the Group),
in connection with the preparation of reports to the Group's Board of Trustees
concerning this Agreement and the monies paid or payable by the Group pursuant
hereto, as well as any other reports or filings that may be required by law.
Section 7. We may enter into other similar Servicing Agreements with
any other person or persons without your consent.
Section 8. By your written acceptance of this Agreement, you represent,
warrant and agree that: (i) in no event will any of the services provided by you
hereunder be primarily intended to result in the sale of any shares issued by
the Group; (ii) the compensation payable to you hereunder, together with any
other compensation you receive from customers for services contemplated by this
Agreement, will be fully disclosed to your customers, and will not be excessive
or unreasonable under the laws and instruments governing your relationships with
your customers; and (iii) if you are subject to the provisions of the
Glass-Steagall Act and other laws governing, among other things, the conduct of
activities by federally chartered and supervised banks and other affiliated
banking organizations, you will perform only those activities which are
consistent with your statutory and regulatory obligations and will act solely as
agent for, upon the order of, and for the account of, your customers.
Section 9. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by the Group or its designee. This
Agreement may be terminated at any time, without the payment of any penalty by
the vote of a majority of the members of the Board of Trustees of the Group and
who have no direct or indirect financial interest in the operation of the
Administrative Servicing Plan or in any related agreements to the Administrative
Servicing Plan ("Disinterested Trustees") or by a majority of the outstanding
voting securities of the Group on not more than sixty (60) days written notice
to the parties to this Agreement.
Section 10. All notices and other communications to either you or the
Group will be duly given if mailed, telegraphed, telexed or transmitted by
similar telecommunications device to the appropriate address shown given in this
Agreement.
3
<PAGE> 4
Section 11. This Agreement will be construed in accordance with the
laws of the State of Ohio and is non-assignable by the parties hereto.
Section 12. This Agreement has been approved by vote of a majority of
(i) the Group's Board of Trustees and (ii) the Disinterested Trustees, cast in
person at a meeting called for the purpose of voting on such approval.
Section 13. The Sessions Group is a business trust organized under
Chapter 1746, Ohio Revised Code and under a Declaration of Trust, to which
reference is hereby made and a copy of which is on file at the office of the
Secretary of State of Ohio as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of "The Sessions Group"
entered into in the name or on behalf thereof by any of the Trustees, officers,
employees or agents are made not individually, but in such capacities, and are
not binding upon any of the Trustees, officers, employees, agents or shareholder
of the Group personally, but bind only the assets of the Group, as set forth in
Section 1746.13(A), Ohio Revised Code, and all persons dealing with any of the
Funds of the Group must look solely to the assets of the Group belonging to such
Fund for the enforcement of any claims against the Group.
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to the Group's designee, The Winsbury Company, c/o Melissa M. Bernard at 1900
East Dublin-Granville Road, Columbus, Ohio 43229.
The Winsbury Company, as The Group's designee, will notify the Senior
Trust Officer of the National Bank of Commerce concerning any future operational
changes pertaining to this Agreement.
Very truly yours,
THE SESSIONS GROUP
By: /s/ Roy E. Rogers
-----------------------------------
Authorized Officer
Date: October 19, 1993
Accepted and Agreed to:
NATIONAL BANK OF COMMERCE
By: /s/ John F. Ray
-----------------------------------
Authorized Officer, Title
Date: October 19, 1993
- ----------------------------------------
Taxpayer Identification Number
4
<PAGE> 5
APPENDIX A
----------
TO SERVICING AGREEMENT FOR ADMINISTRATIVE SERVICING PLAN
FOR THE SESSIONS GROUP
Riverside Capital Money Market Fund
Riverside Capital Equity Fund
Riverside Capital Fixed Income Fund
Riverside capital Tennessee Municipal Obligations Fund
Signed: /s/ John F. Ray National Bank of Commerce
-------------------------
(Title)
Dated: October 19, 1993
5
<PAGE> 1
Exhibit (9)(f)
OMNIBUS FEE AGREEMENT
THIS AGREEMENT is made as of this 1st day of November, 1997, by and among
THE SESSIONS GROUP (the "Company"), an Ohio business trust, BISYS FUND SERVICES
LIMITED PARTNERSHIP, d/b/a BISYS FUND SERVICES ("BISYS LP"), an Ohio limited
partnership, and BISYS FUND SERVICES, INC. ("BISYS"), a Delaware corporation.
WHEREAS, the Company is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940 Act")
consisting of several series of shares of beneficial interest ("Shares");
WHEREAS, the Company and BISYS LP have entered into an Administration
Agreement, dated November 1, 1997, concerning the provision of management and
administrative services for the Riverside Capital series of the Company
(individually referred to herein as a "Fund" and collectively as the "Funds");
WHEREAS, the Company and BISYS have entered into a Fund Accounting
Agreement, dated November 1, 1997, concerning the provision of fund accounting
services for the Funds; and
WHEREAS, the parties desire to set forth the compensation payable by the
Company under the foregoing agreements in a separate written document.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. The Administration Agreement and Fund Accounting Agreement referred to
herein shall be referred to collectively as the "Service Agreements."
2. The Company shall pay to BISYS LP all of the compensation set forth
herein on the dates set forth herein.
3. The amount of the compensation due and payable to BISYS LP shall be
the aggregate fee amount due and payable for Administration and Fund
Accounting services set forth in Schedule A hereto during the term of
the Service Agreements.
4. This Agreement shall be governed by, and its provisions shall be
construed in accordance with, the laws of the State of Ohio.
5. The Sessions Group is a business trust organized under Chapter 1746,
Ohio Revised Code and under a Declaration of Trust, to which reference
is hereby made and a copy of which is on file at the Office of the
Secretary of State of Ohio as required by law, and to any and all
amendments thereto so filed or hereafter filed. The obligations of
<PAGE> 2
the "The Sessions Group" entered into in the name or on behalf thereof
by any of the Trustees, officers, employees or agents are made not
individually, but in such capacities, and are not binding upon any of
the Trustees, officers, employees, agents or shareholders of the
Company personally, but bind only the assets of the Company, as set
forth in Section 1746.13(A), Ohio Revised Code, and all persons
dealing with any of the Funds of the Company must look solely to the
assets of the Company belonging to such Fund for the enforcement of
any claims against the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
fully executed as of the day and year first written above.
THE SESSIONS GROUP
By:
----------------------------
BISYS FUND SERVICES LIMITED
PARTNERSHIP
By: BISYS FUND SERVICES, INC.,
General Partner
By:
----------------------------
BISYS FUND SERVICES, INC.
By:
----------------------------
<PAGE> 3
SCHEDULE A
FEE SCHEDULE
FOR ADMINISTRATION AND FUND
ACCOUNTING SERVICES
The Company will pay to BISYS LP on the first business day of each month,
or at such time(s) as BISYS LP shall request and the parties hereto shall agree,
a fee computed daily at the annual rate set forth below:
Twenty one-hundredths of one percent (.20%) of the Company's average
daily net assets attributable to the Funds, as calculated in
accordance with the Funds' current Prospectus and Statement of
Additional Information.
The fee payable by the Company hereunder shall be allocated to each Fund
based upon its pro rata share of the total fee payable hereunder. Such fee as is
attributable to each Fund shall be a separate (and not joint or joint and
several) obligation of each such Fund. The fees set forth above shall be in
addition to the payment of out-of-pocket expenses, as provided for in the
Service Agreements.
<PAGE> 1
Exhibit (9)(g)
THE SESSIONS GROUP
(the "Group")
1900 East Dublin-Granville Road
Columbus, Ohio 43229
SERVICING AGREEMENT
to
ADMINISTRATIVE SERVICES PLAN
Ladies and Gentlemen:
We wish to enter into this Servicing Agreement with you concerning the
provision of administrative support services to your customers who may from time
to time be the record or beneficial owners of shares (such shares referred to
herein as the "Shares") of one or more of the Group's investment portfolios
(individually, a "Fund" and collectively, the "Funds"), which are listed on
Appendix A.
The terms and conditions of this Servicing Agreement are as follows:
Section 1. You agree to provide administrative support services to your
customers who may from time to time own of record or beneficially a Fund's
Shares. Services provided may include some or all of the following: (i)
processing dividend and distribution payments from a Fund on behalf of
customers; (ii) providing periodic statements to your customers showing their
positions in the Shares; (iii) arranging for bank wires; (iv) responding to
routine customer inquiries relating to services performed by you; (v) providing
sub-accounting with respect to the Shares beneficially owned by your customers
or the information necessary for sub-accounting; (vi) if required by law,
forwarding shareholder communications from a Fund (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend, distribution
and tax notices) to your customers; (vii) forwarding to customers proxy
statements and proxies containing any proposals regarding this Agreement or the
Administrative Services Plan related hereto; (viii) aggregating and processing
purchase, exchange, and redemption requests from customers and placing net
purchase, exchange, and redemption orders for your customers; (ix) providing
customers with a service that invests the assets of their accounts in the Shares
pursuant to specific or pre-authorized instructions; (x) establishing and
maintaining accounts and records relating to transactions in the Shares; (xi)
assisting customers in changing dividend or
<PAGE> 2
distribution options, account designations and addresses; or (xii) other similar
services if requested by the Group.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services to customers.
Section 3. Neither you nor any of your officers, employees or agents
are authorized to make any representations concerning the Group, a Fund or its
Shares except those contained in our then current prospectus for such shares,
copies of which will be supplied by The Winsbury Company ("Winsbury"), the
Group's distributor and administrator, to you, or in such supplemental
literature or advertising as may be authorized by the Group in writing.
Section 4. For all purposes of this Agreement you will be deemed to be
an independent contractor, and will have no authority to act as agent for the
Group in any matter or in any respect. By your written acceptance of this
Agreement, you agree to and do release, indemnify and hold us harmless from and
against any and all direct or indirect liabilities or losses resulting from
requests, directions, actions or inactions of or by you or your officers,
employees or agents regarding your responsibilities hereunder or the purchase,
redemption, transfer or registration of the Shares by or on behalf of customers.
You and your employees will, upon request, be available during normal business
hours to consult with the Group or its designees concerning the performance of
your responsibilities under this Agreement.
Section 5. In consideration for the services and facilities provided by
you hereunder, the Group will pay to you, and you will accept as full payment
therefore, a fee at the annual rate of up to .25% of the average daily net
assets of a Fund's Shares owned of record or beneficially by your customers from
time to time for which you provide services hereunder, which fee will be
computed daily and payable monthly. The fee rate stated above may be
prospectively increased or decreased by the Group, in its sole discretion, at
any time upon notice to you. Further, the Group may, in its discretion and
without notice, suspend or withdraw the sale of such Shares, including the sale
of such Shares to you for the account of any customer(s).
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Group pursuant to this Agreement will provide to the
Group's Board of Trustees, and the Trustees will review, at least quarterly, a
written report of the amounts so
2
<PAGE> 3
expended and the entities to whom such expenditures were made. In addition, you
will furnish the Group or its designees with such information as the Group or
its designees may reasonably request (including, without limitation, periodic
certifications confirming the provision to customers of some or all of the
services described herein), and will otherwise cooperate with the Group and its
designees (including, without limitation, any auditors designated by the Group),
in connection with the preparation of reports to the Group's Board of Trustees
concerning this Agreement and the monies paid or payable by the Group pursuant
hereto, as well as any other reports or filings that may be required by law.
Section 7. We may enter into other similar Servicing Agreements with
any other person or persons without your consent.
Section 8. By your written acceptance of this Agreement, you represent,
warrant and agree that: (i) in no event will any of the services provided by you
hereunder be primarily intended to result in the sale of any shares issued by
the Group; (ii) the compensation payable to you hereunder, together with any
other compensation you receive from customers for services contemplated by this
Agreement, will be fully disclosed to your customers, and will not be excessive
or unreasonable under the laws and instruments governing your relationships with
your customers; and (iii) if you are subject to the provisions of the
Glass-Steagall Act and other laws governing, among other things, the conduct of
activities by federally chartered and supervised banks and other affiliated
banking organizations, you will perform only those activities which are
consistent with your statutory and regulatory obligations and will act solely as
agent for, upon the order of, and for the account of, your customers.
Section 9. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by the Group or its designee. This
Agreement may be terminated at any time, without the payment of any penalty by
the vote of a majority of the members of the Board of Trustees of the Group and
who have no direct or indirect financial interest in the operation of the
Administrative Servicing Plan or in any related agreements to the Administrative
Servicing Plan ("Disinterested Trustees") or by a majority of the outstanding
voting securities of the Group on not more than sixty (60) days written notice
to the parties to this Agreement.
Section 10. All notices and other communications to either you or the
Group will be duly given if mailed, telegraphed, telexed or transmitted by
similar telecommunications device to the appropriate address shown given in this
Agreement.
3
<PAGE> 4
Section 11. This Agreement will be construed in accordance with the
laws of the State of Ohio and is non-assignable by the parties hereto.
Section 12. This Agreement has been approved by vote of a majority of
(i) the Group's Board of Trustees and (ii) the Disinterested Trustees, cast in
person at a meeting called for the purpose of voting on such approval.
Section 13. The Sessions Group is a business trust organized under
Chapter 1746, Ohio Revised Code and under a Declaration of Trust, to which
reference is hereby made and a copy of which is on file at the office of the
Secretary of State of Ohio as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of "The Sessions Group"
entered into in the name or on behalf thereof by any of the Trustees, officers,
employees or agents are made not individually, but in such capacities, and are
not binding upon any of the Trustees, officers, employees, agents or shareholder
of the Group personally, but bind only the assets of the Group, as set forth in
Section 1746.13(A), Ohio Revised Code, and all persons dealing with any of the
Funds of the Group must look solely to the assets of the Group belonging to such
Fund for the enforcement of any claims against the Group.
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to the Group's designee, The Winsbury Company, c/o Melissa M. Bernard at 1900
East Dublin-Granville Road, Columbus, Ohio 43229.
The Winsbury Company, as The Group's designee, will notify the Senior
Trust Officer of the National Bank of Commerce concerning any future operational
changes pertaining to this Agreement.
Very truly yours,
THE SESSIONS GROUP
By: /s/ Roy E. Rogers
--------------------------
Authorized Officer
Date: April 5, 1994
Accepted and Agreed to:
NATIONAL BANK OF COMMERCE
By: /s/ John F. Ray
--------------------------
Authorized Officer, Title
Date: April 5, 1994
- ----------------------------------------
Taxpayer Identification Number
4
<PAGE> 5
APPENDIX A
----------
TO SERVICING AGREEMENT FOR ADMINISTRATIVE SERVICING PLAN
FOR THE SESSIONS GROUP
Riverside Capital Low Duration Government Securities Fund
Riverside capital Growth Fund
Riverside Capital Sunbelt Municipal Obligations Fund
Signed: /s/ John F. Ray National Bank of Commerce
----------------------------
(Title)
Dated: April 5, 1994
5
<PAGE> 1
Exhibit (10)(b)
BURCH, PORTER & JOHNSON
50 North Front Street
Suite 800
Memphis, Tennessee 38103
Telephone 901-524-5000
Telecopier 901-524-5026
October 31, 1997
The Sessions Group
3435 Stelzer Road
Columbus, OH 43219
Re: Riverside Capital Tennessee Municipal Obligations Fund
Gentlemen:
You have requested our opinion with respect to certain tax consequences
under the laws of the state of Tennessee ("Tennessee") of investment in the
Riverside Capital Tennessee Municipal Obligations Fund (the "Tennessee Fund") by
investors domiciled in Tennessee. The Tennessee Fund is one of seventeen (17)
separate investment portfolios of The Sessions Group (the "Group"), an Ohio
business trust registered as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act").
In rendering our opinion, we have examined: (a) the prospectus of the
Tennessee Fund dated October 31, 1997 (the "Prospectus"), to be filed with the
Securities and Exchange Commission on October 31, 1997, as part of
Post-Effective Amendment No. 43 to the Group's Registration Statement on Form
N-1A; (b) such provisions of the Tennessee Code Annotated, regulations, reported
judicial opinions and administrative rulings, bulletins and procedures as are in
full force and effect as of the date hereof; and (c) such further documents,
opinions, instruments, and certificates as we have considered necessary for
purposes of this opinion. To the extent that we have examined and relied on
original documents or copies thereof or excerpts therefrom, we have assumed in
every case the authenticity of all documents submitted to us as originals, the
conformity with the originals of all documents submitted to us as copies and as
excerpts and the authenticity of the originals of such documents.
We have assumed that the Tennessee Fund and its business will be
operated and conducted in substantially the manner described in the Prospectus,
and in substantial compliance with the 1940 Act and the rules promulgated
thereunder, and that the Tennessee Fund will elect and qualify
<PAGE> 2
The Sessions Group
October 31, 1997
Page 2
for treatment as a regulated investment company as defined in Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"), and will be operated
in substantial compliance with the applicable provisions of Subchapter M of the
Code and the Treasury Regulations promulgated thereunder.
The following opinions are limited to the effect of the existing laws
of the state of Tennessee, and the laws of the United States to the extent made
applicable by Tennessee law. The following opinions are based upon the law and
facts which exist as of the date of this letter. We assume no responsibility to
advise you of any subsequent changes in the existing law or facts. This opinion
does not extend to, and may not be relied upon by, anyone other than you and
your counsel. This opinion is limited to the matters expressly set forth herein,
and no opinion is implied or may be inferred beyond the matters expressly stated
herein. The capitalized terms used in this opinion, unless defined herein, shall
have the same meanings as set forth in the Prospectus.
Tennessee imposes a limited income tax on dividends from stocks and
interest on bonds known as the Hall Income Tax. T.C.A. Section 67-2-101 through
Section 67-2-122. The tax is imposed upon every person domiciled in the state of
Tennessee who is in receipt of dividends from stocks and/or interest on bonds.
T.C.A. Section 67-2-101(5). Generally, dividends from mutual funds and regulated
investment companies are subject to taxation under the Hall Income Tax, as
dividends from stocks, without regard to the nature or amount of the income or
profits of the fund. LAWRENCE V. MCFARLAND, 209 Tenn. 376, 354 S.W.2d 78 (Tenn.
1962).
Effective January 1, 1992, the Hall Income Tax was amended (the
"Amendment") to exempt from the Hall Income Tax dividends from a regulated
investment company qualified as such under Subchapter M of the Code, which
invests in bonds or securities of the United States government or any agency or
instrumentality thereof or in "bonds of the state of Tennessee," or any county
or any municipality or political subdivision thereof, including any agency,
board, authority or commission thereof. T.C.A. Section 67-2-104(f). Pursuant to
the Amendment, dividends paid to Tennessee residents will be exempt from the
Hall Income Tax in proportion to the interest received by the Tennessee Fund
from such exempt securities or bonds.
In the Amendment, the phrase "bond of the state of Tennessee" is not
specifically defined. However, "bond" is defined in the Hall Income Tax for
purposes of identifying interest income subject to the tax. T.C.A. Section
67-2-101(1)(B). That definition specifically excludes "ordinary commercial
paper, trade acceptance, etc., maturing in six (6) months or less from the date
of issuance" or "certificates of deposit, repurchase agreements, or similar
evidences of indebtedness." Accordingly, the term "bond," as so defined, would
appear not to include indebtedness with a maturity of six months or less.
However, the Attorney General of the state of Tennessee has opined that the term
"bonds" as used in the Amendment includes all obligations issued by the state of
Tennessee or its political subdivisions without regard to maturity (Opinion No.
92-52, September 16, 1992). In his opinion, the Attorney General noted that the
Amendment
<PAGE> 3
The Sessions Group
October 31, 1997
Page 3
exempts federal obligations without regard to maturity because the Amendment
provides an exemption for bonds AND SECURITIES of the United States government
or any agency or instrumentality thereof. He then stated that it was clearly the
design of the legislature to create the pass-through exemption for all Tennessee
obligations without regard to maturity. Therefore, he concluded that the
definition of bond in T.C.A. Section 67-2-101(1) should not be applied to the
pass-through exemption in the Amendment.
Accordingly, based solely upon the foregoing analysis and subject to
the foregoing qualifications, we are of the opinion that:
1. Dividends, whether paid as distributions of cash, other property or
additional Shares, by the Tennessee Fund to a resident of Tennessee,
will be exempt from the Tennessee Hall Income Tax, as amended by the
Amendment, in proportion to the income received by the Tennessee Fund
attributable to interest on Exempt Securities, as defined in the
Prospectus.
2. The discussion under the caption "State Taxes - The Tennessee Fund" in
the Prospectus does not contain any untrue statements of material fact
or omit any statement of material fact necessary in order to make the
statements of act made therein not misleading.
Very truly yours,
BURCH, PORTER & JOHNSON, PLLC
/s/ Burch, Porter & Johnson, PLLC
<PAGE> 1
Exhibit (11)(a)
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees of
The Sessions Group--KeyPremier Funds:
We consent to the use of report dated August 22, 1997 included in
post-effective amendment No. 43 to the Registration Statement on Form N-1A of
The Sessions Group--KeyPremier Funds and to the references to our
firm under the headings "Auditors" in the Statement of Additional Information
and "Financial Highlights" in the prospectuses to the aforementioned
Registration Statement.
KPMG PEAT MARWICK, LLP
Columbus, Ohio
October 30, 1997
<PAGE> 2
Exhibit (11)(a)
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees of
The Sessions Group--The Riverside Capital Funds:
We consent to the use of report dated August 22, 1997 included in
post-effective amendment No. 43 to the Registration Statement on Form N-1A of
The Sessions Group--The Riverside Capital Funds and to the references to our
firm under the headings "Auditors" in the Statement of Additional Information
and "Financial Highlights" in the prospectus to the aforementioned Registration
Statement.
KPMG PEAT MARWICK, LLP
Columbus, Ohio
October 30, 1997
<PAGE> 1
Exhibit (11)(b)
CONSENT OF SPECIAL COUNSEL
We hereby consent to the use of our name and to the references to our
firm under the caption "State Taxes - The Tennessee Fund" in the prospectus of
Riverside Capital Tennessee Municipal Obligations Fund included in or made a
part of Post-Effective Amendment No. 43 to the Registration Statement on Form
N-1A, File No. 33-21489, filed under the Securities Act of 1933, as amended, of
The Sessions Group, and to the filing of our opinion as an exhibit to such
Registration Statement.
BURCH, PORTER & JOHNSON, PLLC
/s/ Burch, Porter & Johnson, PLLC
MEMPHIS, TENNESSEE
OCTOBER 31, 1997
<PAGE> 1
Exhibit (11)(c)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment No. 43 to the
Registration Statement on Form N-1A (File No. 33-21489) of The Sessions Group
of our report dated August 22, 1997 on our audits of the financial statements
and financial highlights of the 1st Source Monogram Funds (comprising the
Diversified Equity Fund, Special Equity Fund, Income Fund and Income Equity
Fund, respectively), as of June 30, 1997 and for the period then ended. We also
consent to the reference to our Firm under the caption "Auditors" in the
Prospectus and Statement of Additional Information relating to the 1st Source
Monogram Funds in this Post-Effective Amendment No. 43 to the Registration
Statement on Form N-1A (File No. 33-21489) of The Sessions Group.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
October 31, 1997
<PAGE> 1
EXHIBIT (13)
PURCHASE AGREEMENT
The Sessions Group (the "Group"), an Ohio business trust, and Winsbury
Associates ("Winsbury"), an Ohio partnership, hereby agree with each other as
follows:
1. The Group hereby offers Winsbury and Winsbury hereby purchases 100,000
Series A units of beneficial interest in the Group (such units of beneficial
interest being hereinafter known as "Shares") at a price of $1.00 per Share.
Winsbury hereby acknowledges purchase of the Shares and the Group hereby
acknowledges receipt from Winsbury of funds in the amount of $100,000 in full
payment for the Shares.
2. Winsbury represents and warrants to the Group that the Shares are being
acquired for investment purposes and not with a view to the distribution
thereof.
3. Winsbury agrees that if it or any direct or indirect transferee of any
of the Shares redeems any of the Shares prior to the second anniversary of the
date the Group begins its investment activities, Winsbury will pay to the Group
an amount equal to the number resulting from multiplying the Group's total
unamortized organizational expenses by a fraction, the numerator of which is
equal to the number of Shares redeemed by Winsbury or such transferee and the
denominator of which is equal to the number of Shares outstanding as of the date
of such redemption, as long as the administrative position of the staff of the
Securities and Exchange commission requires such reimbursement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the 19th day of July, 1988.
Attest: THE SESSIONS GROUP
/s/ Melenie L. Nicholson By /s/ J. David Huber
- ----------------------------------- -----------------------------------
Melenie L. Nicholson J. David Huber
President
WINSBURY ASSOCIATES
By /s/ G. Ronald Henderson
-----------------------------------
G. Ronald Henderson
a partner
<PAGE> 1
EXHIBIT (15)(a)
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
This Plan (the "Plan") constitutes the distribution and shareholder
service plan of The Sessions Group, an Ohio business trust (the "Trust"),
adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act"). The Plan relates to those investment portfolios ("Funds")
identified on Schedule B to the Trust's Distribution Agreement and as amended
from time to time (the "Distribution Plan Funds").
Section 1. Each Distribution Plan Fund shall pay to The Winsbury
Company, the distributor (the "Distributor") of the Trust's shares of beneficial
interest (the "Shares") a fee in an amount not to exceed on an annual basis .25%
of the average daily net asset value of such Fund (the "Distribution Fee") for:
(a) payments the Distributor makes to banks and other institutions and
broker/dealers (a "Participating Organization") for distribution assistance
and/or Shareholder service pursuant to an agreement between the Distributor and
the Participating Organization; or (b) incurred by a Participating Organization
pursuant to an agreement in connection with distribution assistance and/or
Shareholder service including, but not limited to, the reimbursement of expenses
relating to printing and distributing prospectuses to persons other than
Shareholders of a Distribution Plan Fund, printing and distributing advertising
and sales literature and reports to Shareholders used in connection with the
sale of Shares, and personnel and communication equipment used in servicing
Shareholder accounts and prospective shareholder inquiries.
For purposes of the Plan, a Participating Organization may
include the Distributor or any of its affiliates or subsidiaries.
Section 2. The Distribution Fee shall be paid by the Distribution Plan
Funds to the Distributor only to compensate or to reimburse the Distributor for
payments or expenses incurred pursuant to Section 1.
Section 3. The Plan shall not take effect with respect to a
Distribution Plan Fund until it has been approved by a vote of at least a
majority of the outstanding voting securities of such Fund.
Section 4. The Plan shall not take effect until it has been approved,
together with any related agreements, by votes of the majority (or whatever
greater percentage may, from time to time, be required by Section 12(b) of the
1940 Act or the rules and
<PAGE> 2
regulations thereunder) of both (a) the Trustees of the Trust, and (b) the
Independent Trustees of the Trust cast in person at a meeting called for the
purpose of voting on the Plan or such agreement.
Section 5. The Plan shall continue in effect for a period of more than
one year after it takes effect only so long as such continuance is specifically
approved at least annually in the manner provided for approval of the Plan in
Section 4.
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Distribution Plan Funds pursuant to the Plan or any
related agreement shall provide to the Trustees of the Trust, and the Trustees
shall review, at least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made.
Section 7. The Plan may be terminated at any time by vote of a majority
of the Independent Trustees, or by vote of a majority of a Distribution Plan
Fund's outstanding voting securities.
Section 8. All agreements with any person relating to implementation of
the Plan shall be in writing, and any agreement related to the Plan shall
provide:
(a) That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Independent
Trustees or by vote of a majority of the outstanding voting securities
of the Distribution Plan Fund, on not more than 60 days' written notice
to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the
event of its assignment.
Section 9. The Plan may not be amended to increase materially the
amount of distribution expenses permitted pursuant to Section 1 hereof without
approval in the manner provided in Section 3 hereof, and all material amendments
to the Plan shall be approved in the manner provided for approval of the Plan in
Section 4.
Section 10. As used in the Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of the
Plan or any agreements related to it, and (b) the terms "assignment",
"interested person" and "majority of the outstanding voting securities" shall
have the respective meanings specified in the 1940 Act and the
<PAGE> 3
rules and regulations thereunder, subject to such exemptions as may be granted
by the Securities and Exchange Commission.
THE SESSIONS GROUP
By: /s/ J. David Huber
----------------------------
Name: J. David Huber
-------------------------
Title: President
-------------------------
THE WINSBURY COMPANY LIMITED
PARTNERSHIP
By: The Winsbury Corporation,
General Partner
By: /s/ G. Ronald Henderson
----------------------------
Name: G. Ronald Henderson
-------------------------
Title: President
-------------------------
<PAGE> 1
EXHIBIT (15)(d)
RULE 12b-1 AGREEMENT
RIVERSIDE CAPITAL MONEY MARKET FUND
RIVERSIDE CAPITAL EQUITY FUND
RIVERSIDE CAPITAL FIXED INCOME FUND AND
RIVERSIDE CAPITAL TENNESSEE MUNICIPAL OBLIGATIONS FUND
This Agreement is made as of this 1st day of October, 1993, between
National Bank of Commerce (the "Bank"), and The Winsbury Company Limited
Partnership ("Winsbury"), the Distributor of shares of beneficial interest
("Shares") of Riverside Capital Money Market Fund, Riverside Capital Equity
Fund, Riverside Capital Fixed Income Fund and Riverside Capital Tennessee
Municipal Obligations Fund (the "Funds"), four series of The Sessions Group (the
"Group"). In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. Winsbury hereby appoints the Bank to render administrative and
shareholder support services to each Fund and its shareholders. Administrative
and shareholder support services may include, but are not limited to, providing
office space, equipment, telephone facilities and various personnel including
clerical, supervisory and computer, as is necessary or beneficial to establish
and maintain shareholder accounts and records; process purchase and redemption
transactions; process automatic investments of client account cash balances;
answer routine client inquiries regarding each Fund; assist clients in changing
dividend option, account designations and addresses; and providing such other
services as the Group, on behalf of any of the Funds, or Winsbury may reasonably
request. The Bank represents that it is willing and possesses legal authority to
provide the services contemplated by this Agreement without violation of
applicable laws (including the Glass-Steagall Act) and regulations.
2. The Bank shall provide such security as is necessary to prevent
unauthorized use of computer facilities. The Bank agrees to release, indemnify
and hold harmless each Fund, Winsbury and the Funds' custodian from any and all
direct or indirect liabilities or losses resulting from requests, directions,
actions or inactions of or by the Bank, its officers, employees or agents
regarding the purchase, redemption, transfer or registration of Shares for
accounts of the Bank, its clients and shareholders. Principals of the Bank will
be available to consult from time to time with Winsbury concerning
administration and performance of the services contemplated by this Agreement.
3. Winsbury will pay such fees as are set forth in Exhibit A hereto.
The Bank represents and acknowledges (i) that the Department of Labor views the
Employee Retirement Income Security Act of 1974 ("ERISA") as prohibiting
fiduciaries of discretionary ERISA assets from receiving and retaining
administrative service fees or other compensation with respect to such
discretionary ERISA assets from funds in which the fiduciary's discretionary
ERISA assets are invested, (ii) to date, the Department of Labor has not
<PAGE> 2
issued any exemptive order or advisory opinion that would exempt fiduciaries
from this interpretation, (iii) without specific authorization from the
Department of Labor, fiduciaries should carefully avoid investing discretionary
ERISA assets in any fund pursuant to an arrangement where the fiduciary is to be
compensated by the fund for such investment of discretionary ERISA assets, (iv)
receipt and retention of such compensation could violate ERISA provisions
against fiduciary self-dealing and conflict of interest and could subject the
fiduciary to substantial penalties, and (v) discretionary ERISA assets are
employee benefit plan assets with respect to which a person directly or
indirectly renders investment advice, or has the authority or responsibility to
do so, or with respect to the management of such assets, the person has
discretionary authority or responsibility. The Bank represents and agrees with
Winsbury and the Funds that its investments in each Fund's Shares will be made
in accordance with ERISA, and any similar laws or regulations, including, but
not limited to, Prohibited Transaction Class Exemption 77-4, as may be modified,
supplemented or superseded from time to time.
4. The Bank and Winsbury each acknowledge that either party may enter
into similar agreements with others without the consent of the other party.
5. The Bank shall prepare such quarterly reports for Winsbury as shall
reasonably be requested by Winsbury.
6. In no transaction shall the Bank have any authority whatever to act
as Winsbury's agent or as agent for any of the Funds.
7. No person is authorized to make any representations concerning the
Funds or their Shares except those contained in the current prospectus of the
Funds and any such information as may be officially designated as information
supplemental to the prospectus.
8. This Agreement is a related agreement under the Group's Distribution
and Shareholder Service Plan (the "Plan").
9. This Agreement may be terminated at any time as to a Fund, without
the payment of any penalty by the vote of a majority of the members of the Board
of Trustees of the Group who are not interested persons of the Group and have no
direct or indirect financial interest in the operation of the Plan or in any
related agreements to the Plan ("Disinterested Trustees") or by a majority of
the outstanding voting securities of the Group on not more than sixty (60) days
written notice to the parties to this Agreement.
- 2 -
<PAGE> 3
10. This Agreement will terminate automatically in the event of its
assignment as defined in the Investment Company Act of 1940, or upon the
termination of the Distribution Agreement between the Group and Winsbury.
NATIONAL BANK OF COMMERCE
One Commerce Square
Memphis, Tennessee 38150
Dated: October 1, 1993 By /s/ Paul Calame
----------------------------
Authorized Signature
Senior Vice President
----------------------------
Title
THE WINSBURY COMPANY LIMITED
PARTNERSHIP
1900 East Dublin-Granville Road
Columbus, Ohio 43229
Dated: October 1, 1993 By The Winsbury Corporation,
General Partner
By /s/ Kenneth B. Quintenz
-------------------------
Authorized Signature
Senior Vice President
-------------------------
Title
- 3 -
<PAGE> 4
RIVERSIDE CAPITAL MONEY MARKET FUND
RIVERSIDE CAPITAL EQUITY FUND
RIVERSIDE CAPITAL FIXED INCOME FUND AND
RIVERSIDE CAPITAL TENNESSEE MUNICIPAL OBLIGATIONS FUND
EXHIBIT A TO RULE 12b-1 AGREEMENT WITH
THE WINSBURY COMPANY LIMITED PARTNERSHIP ("WINSBURY")
With respect to each Fund, Winsbury will pay the Bank, a monthly fee
computed at the annual rate of 0.25% of the average aggregate net asset value of
shares of that Fund held during the period in the accounts for which the Bank
provides services under the Rule 12b-1 Agreement.
For the monthly period in which the Rule 12b-1 Agreement becomes
effective or terminates, there shall be an appropriate proration on the basis of
the number of days that the Rule 12b-1 Agreement is in effect during the period.
<PAGE> 1
EXHIBIT (15)(e)
<PAGE> 2
RULE 12b-1 AGREEMENT
RIVERSIDE CAPITAL MONEY MARKET FUND
RIVERSIDE CAPITAL EQUITY FUND
RIVERSIDE CAPITAL FIXED INCOME FUND
RIVERSIDE CAPITAL TENNESSEE MUNICIPAL OBLIGATIONS FUND
This Agreement is made as of this 19th day of October, 1993, between
Commerce Investment Corporation, a Tennessee corporation ("C.I.C."), and The
Winsbury Company Limited Partnership ("Winsbury"), the Distributor of shares of
beneficial interest ("Shares") of Riverside Capital Money Market Fund, Riverside
Capital Equity Fund, Riverside Capital Fixed Income Fund and Riverside Capital
Tennessee Municipal Obligations Fund (the "Funds"), four series of The Sessions
Group (the "Group"). In consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties hereto as follows:
1. Winsbury hereby appoints C.I.C. to render distribution and shareholder
services to the Funds and their shareholders. Distribution and shareholder
services may include, but are not limited to, distributing prospectuses to
persons other than Shareholders of the Funds; maintaining Shareholder relations;
answering inquiries regarding the Funds; providing personnel and communication
equipment used in connection therewith; and providing such other services as the
Group, on behalf of the Funds, or Winsbury may reasonably request. C.I.C.
represents that it is willing and possesses legal authority to provide the
services contemplated by this Agreement without violation of applicable laws
(including the Glass-Steagall Act, the Securities Exchange Act of 1934 and
applicable state securities laws) and regulations. Any advertising and sales
literature to be printed or distributed by C.I.C. in connection with the sale of
Shares may not be distributed or otherwise used except upon prior written
approval by Winsbury unless such literature was provided to C.I.C. by Winsbury
in its final form.
2. C.I.C. shall provide such security as is necessary to prevent
unauthorized use of computer facilities. C.I.C. agrees to release, indemnify and
hold harmless the Funds, Winsbury and the Funds' custodian from any and all
direct or indirect liabilities or losses resulting from requests, directions,
actions or inactions of or by C.I.C., its officers, employees or agents
regarding the purchase, redemption, transfer or registration of Shares for
accounts of C.I.C., its clients and shareholders. Principals of C.I.C. will be
available to consult from time to time with Winsbury concerning administration
and performance of the services contemplated by this Agreement.
3. Winsbury will pay such fees as are set forth in Exhibit A hereto to
C.I.C. or to any duly appointed agent of C.I.C., including, at least initially,
but not limited to, National Financial Clearing Corporation.
- 1 -
<PAGE> 3
4. C.I.C. and Winsbury each acknowledge that either party may enter into
similar agreements with others without the consent of the other party.
5. C.I.C. shall prepare such quarterly reports for Winsbury as shall
reasonably be requested by Winsbury.
6. In no transaction shall C.I.C. have any authority whatever to act as
Winsbury's agent or as agent for any of the Funds.
7. No person is authorized to make any representations concerning the
Funds or their Shares except those contained in the current prospectus of the
Funds and any such information as may be officially designated as information
supplemental to the prospectus.
8. This Agreement is a related agreement under the Group's Distribution
and Shareholder Service Plan (the "Plan").
9. This Agreement may be terminated at any time as to a Fund, without the
payment of any penalty by the vote of a majority of the members of the Board of
Trustees of the Group who are not interested persons of the Group and have no
direct or indirect financial interest in the operation of the Plan or in any
related agreements to the Plan ("Disinterested Trustees") or by a majority of
the outstanding voting securities of the Group on not more than sixty (60) days
written notice to the parties to this Agreement.
- 2 -
<PAGE> 4
10. This Agreement will terminate automatically in the event of its
assignment as defined in the Investment Company Act of 1940, or upon the
termination of the Distribution Agreement between the Group and Winsbury.
COMMERCE INVESTMENT CORPORATION
One Commerce Square
Memphis, Tennessee 38150
Dated: October 19, 1993 By
-----------------------------------
Authorized Signature
-----------------------------------
Title
THE WINSBURY COMPANY LIMITED
PARTNERSHIP
1900 East Dublin-Granville Road
Columbus, Ohio 43229
Dated: October 19, 1993 By The Winsbury Corporation,
General Partner
By
-------------------------------
Authorized Signature
-------------------------------
Title
- 3 -
<PAGE> 5
RIVERSIDE CAPITAL MONEY MARKET FUND
RIVERSIDE CAPITAL EQUITY FUND
RIVERSIDE CAPITAL FIXED INCOME FUND
RIVERSIDE CAPITAL TENNESSEE MUNICIPAL OBLIGATIONS FUND
EXHIBIT A TO RULE 12b-1 AGREEMENT WITH
THE WINSBURY COMPANY LIMITED PARTNERSHIP ("WINSBURY")
With respect to each Fund, Winsbury will pay to C.I.C. or to any duly
appointed agent of C.I.C., including, at least initially, but not limited to,
National Financial Clearing Corporation, a monthly fee computed at the annual
rate of 0.25% of the average aggregate net asset value of Shares of that Fund
held during the period in the accounts for which C.I.C. provides services under
the Rule 12b-1 Agreement; provided, however, that in no event shall C.I.C. or
any agent of C.I.C. be paid any fees under this Rule 12b-1 Agreement for
services to an account for which National Bank of Commerce is receiving any fees
under its Rule 12b-1 Agreement, with respect to such Fund, with Winsbury.
For the monthly period in which the Rule 12b-1 Agreement becomes effective
or terminates, there shall be an appropriate proration on the basis of the
number of days that the Rule 12b-1 Agreement is in effect during the period.
<PAGE> 1
EXHIBIT (15)(f)
RULE 12b-1 AGREEMENT
RIVERSIDE CAPITAL MONEY MARKET FUND
RIVERSIDE CAPITAL EQUITY FUND
RIVERSIDE CAPITAL FIXED INCOME FUND
RIVERSIDE CAPITAL TENNESSEE MUNICIPAL OBLIGATIONS FUND
SUN EAGLE U.S. TREASURY OBLIGATIONS FUND
This agreement is made this 19 day of October, 1993, between The
Sessions Group, an Ohio business trust (the "Group"), and The Winsbury Company
Limited Partnership, an Ohio limited partnership ("Winsbury"), the Distributor
of shares of beneficial interest ("Shares") of Riverside Capital Money Market
Fund, Riverside Capital Equity Fund, Riverside Capital Fixed Income Fund,
Riverside Capital Tennessee Municipal Obligations Fund and Sun Eagle U.S.
Treasury Obligations Fund (collectively, the "Funds" and individually, a
"Fund"), five series of the Group. In consideration of the mutual covenants
hereinafter contained, it is hereby agreed by and between the parties hereto as
follows:
1. The Group hereby appoints Winsbury to render administrative and
shareholder support services to each of the Funds and their shareholders.
Administrative and shareholder support services may include, but are not limited
to, processing purchase and redemption transactions; maintaining shareholder
relations; answering routine client inquiries regarding the Funds; assisting
clients in changing dividend option, account designations and addresses; and
providing such other services as the Funds may reasonably request. Winsbury
represents that it is willing and possesses legal authority to provide the
services contemplated by this Agreement without violation of any applicable
laws.
2. Winsbury agrees to release, indemnify and hold harmless the Funds
and the Group from any and all direct or indirect liabilities or losses
resulting from requests, directions, actions or inactions of or by Winsbury, its
officers, employees or agents regarding the purchase, redemption, transfer or
registration of Shares for accounts of Winsbury, its clients and shareholders of
the Funds, or from any breach or default by Winsbury of any of its duties and
obligations under this Agreement.
3. The Group will pay Winsbury such fees as are set forth in Exhibit A
hereto.
4. Winsbury shall prepare such quarterly reports for the Group as shall
reasonably be requested by the Group.
5. No person is authorized to make any representations concerning a
Fund or its Shares except those contained in the current prospectus of the Fund
and any such information as may be officially designated as information
supplemental to the prospectus.
<PAGE> 2
6. This Agreement is a related agreement under the Group's Distribution
and Shareholder Service Plan (the "Plan").
7. This Agreement may be terminated at any time, without the payment of
any penalty by the vote of a majority of the members of the Board of Trustees of
the Group who are not interested persons of the Group and have no direct or
indirect financial interest in the operation of the Plan or in any related
agreements to the Plan or by a majority of the outstanding voting securities of
the Group on not more than sixty (60) days written notice to the parties to this
Agreement.
8. This Agreement will terminate automatically in the event of its
assignment as defined in the Investment Company Act of 1940, as amended, or upon
the termination of the Distribution Agreement between the Group and Winsbury.
9. The Group is a business trust organized under Chapter 1746, Ohio
Revised Code and under a Declaration of Trust, to which reference is hereby made
and a copy of which is on file at the office of the Secretary of State of Ohio
as required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "The Sessions Group" entered into in the name or on
behalf thereof by any of the Trustees, officers, employees or agents are made
not individually, but in such capacities, and are not binding upon any of the
Trustees, officers, employees, agents or shareholders of the Group personally,
but bind only the assets of the Group, as set forth in Section 1746.13(A), Ohio
Revised Code, and all persons dealing with the Fund must look solely to the
assets of the Group belonging to the Fund for the enforcement of any claims
against the Group.
THE SESSIONS GROUP
1900 East Dublin-Granville Road
Columbus, Ohio 43229
Dated: October __, 1993 By
-----------------------------
Title
--------------------------
THE WINSBURY COMPANY LIMITED
PARTNERSHIP
1900 East Dublin-Granville Road
Columbus, Ohio 43229
Dated: October __, 1993 By The Winsbury Corporation,
General Partner
By
------------------------
-2-
<PAGE> 3
Title
---------------------
-3-
<PAGE> 4
RIVERSIDE CAPITAL MONEY MARKET FUND
RIVERSIDE CAPITAL EQUITY FUND
RIVERSIDE CAPITAL FIXED INCOME FUND
RIVERSIDE CAPITAL TENNESSEE MUNICIPAL OBLIGATIONS FUND
SUN EAGLE U.S. TREASURY OBLIGATIONS FUND
EXHIBIT A TO RULE 12b-1 AGREEMENT WITH
THE WINSBURY COMPANY LIMITED PARTNERSHIP ("WINSBURY")
The Group will pay Winsbury a monthly fee computed at the annual rate
of 0.25% of the average aggregate net asset value of Shares of a Fund held
during the period in accounts for which Winsbury provides services under the
Rule 12b-1 Agreement.
For the monthly period in which the Rule 12b-1 Agreement becomes
effective or terminates, there shall be an appropriate proration on the basis of
the number of days that the Rule 12b-1 Agreement is in effect during the period.
<PAGE> 1
EXHIBIT (15)(g)
<PAGE> 2
RULE 12b-1 AGREEMENT
RIVERSIDE CAPITAL LOW DURATION
GOVERNMENT SECURITIES FUND
RIVERSIDE CAPITAL GROWTH FUND
RIVERSIDE CAPITAL SUNBELT MUNICIPAL OBLIGATIONS FUND
This Agreement is made as of this 5th day of April, 1994, between
Commerce Investment Corporation, a Tennessee corporation ("C.I.C."), and The
Winsbury Company Limited Partnership ("Winsbury"), the Distributor of shares of
beneficial interest ("Shares") of Riverside Capital Low Duration Government
Securities Fund, Riverside Capital Growth Fund, and Riverside Capital Sunbelt
Municipal Obligations Fund (the "Funds"), three series of The Sessions Group
(the "Group"). In consideration of the mutual covenants hereinafter contained,
it is hereby agreed by and between the parties hereto as follows:
1. Winsbury hereby appoints C.I.C. to render distribution and
shareholder services to the Funds and their shareholders. Distribution and
shareholder services may include, but are not limited to, distributing
prospectuses to persons other than Shareholders of the Funds; maintaining
Shareholder relations; answering inquiries regarding the Funds; providing
personnel and communication equipment used in connection therewith; and
providing such other services as the Group, on behalf of the Funds, or Winsbury
may reasonably request. C.I.C. represents that it is willing and possesses legal
authority to provide the services contemplated by this Agreement without
violation of applicable laws (including the Glass-Steagall Act, the Securities
Exchange Act of 1934 and applicable state securities laws) and regulations. Any
advertising and sales literature to be printed or distributed by C.I.C. in
connection with the sale of Shares may not be distributed or otherwise used
except upon prior written approval by Winsbury unless such literature was
provided to C.I.C. by Winsbury in its final form.
2. C.I.C. shall provide such security as is necessary to prevent
unauthorized use of computer facilities. C.I.C. agrees to release, indemnify and
hold harmless the Funds, Winsbury and the Funds' custodian from any and all
direct or indirect liabilities or losses resulting from requests, directions,
actions or inactions of or by C.I.C., its officers, employees or agents
regarding the purchase, redemption, transfer or registration of Shares for
accounts of C.I.C., its clients and shareholders. Principals of C.I.C. will be
available to consult from time to time with Winsbury concerning administration
and performance of the services contemplated by this Agreement.
3. Winsbury will pay such fees as are set forth in Exhibit A hereto to
C.I.C. or to any duly appointed agent of C.I.C., including, at least initially,
but not limited to, National Financial Clearing Corporation.
- 1 -
<PAGE> 3
4. C.I.C. and Winsbury each acknowledge that either party may enter
into similar agreements with others without the consent of the other party.
5. C.I.C. shall prepare such quarterly reports for Winsbury as shall
reasonably be requested by Winsbury.
6. In no transaction shall C.I.C. have any authority whatever to act as
Winsbury's agent or as agent for any of the Funds.
7. No person is authorized to make any representations concerning the
Funds or their Shares except those contained in the current prospectus of the
Funds and any such information as may be officially designated as information
supplemental to the prospectus.
8. This Agreement is a related agreement under the Group's Distribution
and Shareholder Service Plan (the "Plan").
9. This Agreement may be terminated at any time as to a Fund, without
the payment of any penalty by the vote of a majority of the members of the Board
of Trustees of the Group who are not interested persons of the Group and have no
direct or indirect financial interest in the operation of the Plan or in any
related agreements to the Plan ("Disinterested Trustees") or by a majority of
the outstanding voting securities of the Group on not more than sixty (60) days
written notice to the parties to this Agreement.
- 2 -
<PAGE> 4
10. This Agreement will terminate automatically in the event of its
assignment as defined in the Investment Company Act of 1940, or upon the
termination of the Distribution Agreement between the Group and Winsbury.
COMMERCE INVESTMENT CORPORATION
One Commerce Square
Memphis, Tennessee 38150
Dated: April 5, 1994 By /s/ Thomas R. Conroy
----------------------------
Authorized Signature
First Vice President
----------------------------
Title
THE WINSBURY COMPANY LIMITED
PARTNERSHIP
1900 East Dublin-Granville Road
Columbus, Ohio 43229
Dated: April 5, 1994 By The Winsbury Corporation,
General Partner
By /s/Kenneth B. Quintenz
----------------------------
Authorized Signature
Senior Vice President
----------------------------
Title
- 3 -
<PAGE> 5
RIVERSIDE CAPITAL LOW DURATION
GOVERNMENT SECURITIES FUND
RIVERSIDE CAPITAL GROWTH FUND
RIVERSIDE CAPITAL SUNBELT MUNICIPAL OBLIGATIONS FUND
EXHIBIT A TO RULE 12b-1 AGREEMENT WITH
THE WINSBURY COMPANY LIMITED PARTNERSHIP ("WINSBURY")
With respect to each Fund, Winsbury will pay to C.I.C. or to any duly
appointed agent of C.I.C., including, at least initially, but not limited to,
National Financial Clearing Corporation, a monthly fee computed at the annual
rate of 0.25% of the average aggregate net asset value of Shares of that Fund
held during the period in the accounts for which C.I.C. provides services under
the Rule 12b-1 Agreement.
For the monthly period in which the Rule 12b-1 Agreement becomes
effective or terminates, there shall be an appropriate proration on the basis of
the number of days that the Rule 12b-1 Agreement is in effect during the period.
<PAGE> 1
EXHIBIT (15)(h)
RULE 12b-1 AGREEMENT
RIVERSIDE CAPITAL LOW DURATION
GOVERNMENT SECURITIES FUND
RIVERSIDE CAPITAL GROWTH FUND
RIVERSIDE CAPITAL SUNBELT MUNICIPAL OBLIGATIONS FUND
This agreement is made this 5th day of April, 1994, between The Sessions
Group, an Ohio business trust (the "Group"), and The Winsbury Company Limited
Partnership, an Ohio limited partnership ("Winsbury"), the Distributor of shares
of beneficial interest ("Shares") of Riverside Capital Low Duration Government
Securities Fund, Riverside Capital Growth Fund and Riverside Capital Sunbelt
Municipal Obligations Fund (collectively, the "Funds" and individually, a
"Fund"), three series of the Group. In consideration of the mutual covenants
hereinafter contained, it is hereby agreed by and between the parties hereto as
follows:
1. The Group hereby appoints Winsbury to render distribution and
shareholder support services to each of the Funds and their shareholders.
Distribution and shareholder support services may include, but are not limited
to, distributing prospectuses to persons other than Shareholders of the Funds;
marketing and advertising the Shares of the Funds; maintaining Shareholder
relations; answering inquiries regarding the Funds; providing personnel and
communication equipment used in connection therewith; and providing such other
services as the Funds may reasonably request. Winsbury represents that it is
willing and possesses legal authority to provide the services contemplated by
this Agreement without violation of any applicable laws.
2. Winsbury agrees to release, indemnify and hold harmless the Funds and
the Group from any and all direct or indirect liabilities or losses resulting
from requests, directions, actions or inactions of or by Winsbury, its officers,
employees or agents regarding the purchase, redemption, transfer or registration
of Shares for accounts of Winsbury, its clients and shareholders of the Funds,
or from any breach or default by Winsbury of any of its duties and obligations
under this Agreement.
3. The Group will pay Winsbury such fees as are set forth in Exhibit A
hereto.
4. Winsbury shall prepare such quarterly reports for the Group as shall
reasonably be requested by the Group.
5. No person is authorized to make any representations concerning a Fund
or its Shares except those contained in the current prospectus of the Fund and
any such information as may be officially designated as information supplemental
to the prospectus.
6. This Agreement is a related agreement under the Group's Distribution
and Shareholder Service Plan (the "Plan").
<PAGE> 2
7. This Agreement may be terminated at any time, without the payment of
any penalty by the vote of a majority of the members of the Board of Trustees of
the Group who are not interested persons of the Group and have no direct or
indirect financial interest in the operation of the Plan or in any related
agreements to the Plan or by a majority of the outstanding voting securities of
the Group on not more than sixty (60) days written notice to the parties to this
Agreement.
8. This Agreement will terminate automatically in the event of its
assignment as defined in the Investment Company Act of 1940, as amended, or upon
the termination of the Distribution Agreement between the Group and Winsbury.
9. The Group is a business trust organized under Chapter 1746, Ohio
Revised Code and under a Declaration of Trust, to which reference is hereby made
and a copy of which is on file at the office of the Secretary of State of Ohio
as required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "The Sessions Group" entered into in the name or on
behalf thereof by any of the Trustees, officers, employees or agents are made
not individually, but in such capacities, and are not binding upon any of the
Trustees, officers, employees, agents or shareholders of the Group personally,
but bind only the assets of the Group, as set forth in Section 1746.13(A), Ohio
Revised Code, and all persons dealing with the Fund must look solely to the
assets of the Group belonging to the Fund for the enforcement of any claims
against the Group.
THE SESSIONS GROUP
1900 East Dublin-Granville Road
Columbus, Ohio 43229
Dated: April 5, 1994 By /s/ Roy E. Rogers
-----------------------------------
Roy E. Rogers, President
THE WINSBURY COMPANY LIMITED
PARTNERSHIP
1900 East Dublin-Granville Road
Columbus, Ohio 43229
Dated: April 5, 1994 By The Winsbury Corporation,
General Partner
By /s/Kenneth B. Quintenz
-----------------------------
Senior Vice President
-2-
<PAGE> 3
RIVERSIDE CAPITAL LOW DURATION
GOVERNMENT SECURITIES FUND
RIVERSIDE CAPITAL GROWTH FUND
RIVERSIDE CAPITAL SUNBELT MUNICIPAL OBLIGATIONS FUND
EXHIBIT A TO RULE 12b-1 AGREEMENT WITH
THE WINSBURY COMPANY LIMITED PARTNERSHIP ("WINSBURY")
The Group will pay Winsbury a monthly fee computed at the annual rate of
0.25% of the average aggregate net asset value of Shares of a Fund held during
the period in accounts for which Winsbury provides services under the Rule 12b-1
Agreement.
For the monthly period in which the Rule 12b-1 Agreement becomes effective
or terminates, there shall be an appropriate proration on the basis of the
number of days that the Rule 12b-1 Agreement is in effect during the period.
<PAGE> 1
EXHIBIT 15(i)
RULE 12b-1 AGREEMENT
THE RIVERSIDE CAPITAL FUNDS
This Agreement is made as of this 16th day of May, 1994, between J. C.
Bradford & Co., a Tennessee limited partnership ("Bradford"), and The Winsbury
Company Limited Partnership, an Ohio limited partnership ("Winsbury"), the
Distributor of shares of beneficial interest ("Shares") of each of Riverside
Capital Money Market Fund, Riverside Capital Value Equity Fund, Riverside
Capital Fixed Income Fund, Riverside Capital Tennessee Municipal Obligations
Fund, Riverside Capital Low Duration Government Securities Fund, Riverside
Capital Sunbelt Municipal Obligations Fund, Riverside Capital Growth Fund and
Riverside Capital Equity and Municipal Income Fund (the "Funds"), each a series
of The Sessions Group, an Ohio business trust (the "Group"). In consideration of
the mutual covenants hereinafter contained, it is hereby agreed by and between
the parties hereto as follows:
1. Winsbury hereby appoints Bradford to render distribution and
shareholder services to the Funds and their shareholders. Distribution and
shareholder services may include, but are not limited to, distributing
prospectuses to persons other than Shareholders of the Funds; maintaining
Shareholder relations; answering inquiries regarding the Funds; providing
personnel and communication equipment used in connection therewith; and
providing such other services as the Group, on behalf of the Funds, or Winsbury
may reasonably request. Bradford represents that it is willing and possesses
legal authority to provide the services contemplated by this Agreement without
violation of applicable laws (including the Securities Exchange Act of 1934 and
applicable state securities laws) and regulations. Any advertising and sales
literature to be printed or distributed by Bradford in connection with the sale
of Shares may not be distributed or otherwise used except upon prior written
approval by Winsbury unless such literature was provided to Bradford by Winsbury
in its final form.
2. Bradford shall provide such security as is necessary to prevent
unauthorized use of computer facilities. Bradford agrees to release, indemnify
and hold harmless the Group, the Funds, Winsbury and the Funds' custodian from
any and all direct or indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by Bradford, its officers, employees or
agents regarding the purchase, redemption, transfer or registration of Shares
for accounts of Bradford, its clients and shareholders. Principals of Bradford
will be available to consult from time to time with Winsbury concerning
administration and performance of the services contemplated by this Agreement.
3. Winsbury will pay such fees as are set forth in Exhibit A hereto to
Bradford.
<PAGE> 2
4. Bradford and Winsbury each acknowledge that either party may enter
into similar agreements with others without the consent of the other party.
5. Bradford shall prepare such quarterly reports for Winsbury as shall
reasonably be requested by Winsbury.
6. In no transaction shall Bradford have any authority whatever to act
as Winsbury's agent or as agent for any of the Funds.
7. No person is authorized to make any representations concerning the
Funds or their Shares except those contained in the current prospectuses of the
Funds and any such information as may be officially designated as information
supplemental to the prospectuses.
8. This Agreement is a related agreement under the Group's Distribution
and Shareholder Service Plan (the "Plan") and is effective as of the date first
written above; provided, however, that with respect to Riverside Capital Equity
and Municipal Income Fund, this Agreement shall not take effect until the Plan
has been approved by such Fund's initial Shareholder and the Post-Effective
Amendment to the Group's Registration Statement on Form N-1A with respect to
such Fund's Shares has become effective.
9. This Agreement may be terminated at any time as to a Fund, without
the payment of any penalty by the vote of a majority of the members of the Board
of Trustees of the Group who are not interested persons of the Group and have no
direct or indirect financial interest in the operation of the Plan or in any
related agreements to the Plan ("Disinterested Trustees") or by a majority of
the outstanding voting securities of the Group on not more than sixty (60) days
written notice to the parties to this Agreement.
- 2 -
<PAGE> 3
10. This Agreement will terminate automatically in the event of its
assignment as defined in the Investment Company Act of 1940, or upon the
termination of the Distribution Agreement between the Group and Winsbury.
J. C. BRADFORD & CO.
330 Commerce Street
Nashville, Tennessee 37201
Dated: May 16, 1994 By /s/ Allan L. Erb
-----------------------------
Authorized Signature
Partner
-----------------------------
Title
THE WINSBURY COMPANY LIMITED
PARTNERSHIP
1900 East Dublin-Granville Road
Columbus, Ohio 43229
Dated: May 16, 1994 By The Winsbury Corporation,
General Partner
By /s/ Kenneth B. Qunintenz
-------------------------
Authorized Signature
Senior Vice President
-------------------------
Title
- 3 -
<PAGE> 4
THE RIVERSIDE CAPITAL FUNDS
EXHIBIT A TO RULE 12b-1 AGREEMENT WITH
THE WINSBURY COMPANY LIMITED PARTNERSHIP ("WINSBURY")
With respect to each Fund, Winsbury will pay to Bradford a monthly fee
computed at the annual rate of 0.25% of the average aggregate net asset value of
Shares of that Fund held during the period in the accounts for which Bradford
provides services under the Rule 12b-1 Agreement.
For the monthly period in which the Rule 12b-1 Agreement becomes
effective or terminates, there shall be an appropriate proration on the basis of
the number of days that the Rule 12b-1 Agreement is in effect during the period.
<PAGE> 1
EXHIBIT 15j
RULE 12b-1 AGREEMENT
THE RIVERSIDE CAPITAL FUNDS
This Agreement is made as of this 16th day of May, 1994, between
Morgan, Keegan & Co., a Tennessee corporation ("M-K"), and The Winsbury Company
Limited Partnership, an Ohio limited partnership ("Winsbury"), the Distributor
of shares of beneficial interest ("Shares") of each of Riverside Capital Money
Market Fund, Riverside Capital Value Equity Fund, Riverside Capital Fixed Income
Fund, Riverside Capital Tennessee Municipal Obligations Fund, Riverside Capital
Low Duration Government Securities Fund, Riverside Capital Sunbelt Municipal
Obligations Fund, Riverside Capital Growth Fund and Riverside Capital Equity and
Municipal Income Fund (the "Funds"), each a series of The Sessions Group, an
Ohio business trust (the "Group"). In consideration of the mutual covenants
hereinafter contained, it is hereby agreed by and between the parties hereto as
follows:
1. Winsbury hereby appoints M-K to render distribution and shareholder
services to the Funds and their shareholders. Distribution and shareholder
services may include, but are not limited to, distributing prospectuses to
persons other than Shareholders of the Funds; maintaining Shareholder relations;
answering inquiries regarding the Funds; providing personnel and communication
equipment used in connection therewith; and providing such other services as the
Group, on behalf of the Funds, or Winsbury may reasonably request. M-K
represents that it is willing and possesses legal authority to provide the
services contemplated by this Agreement without violation of applicable laws
(including the Securities Exchange Act of 1934 and applicable state securities
laws) and regulations. Any advertising and sales literature to be printed or
distributed by M-K in connection with the sale of Shares may not be distributed
or otherwise used except upon prior written approval by Winsbury unless such
literature was provided to M-K by Winsbury in its final form.
2. M-K shall provide such security as is necessary to prevent
unauthorized use of computer facilities. M-K agrees to release, indemnify and
hold harmless the Group, the Funds, Winsbury and the Funds' custodian from any
and all direct or indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by M-K, its officers, employees or agents
regarding the purchase, redemption, transfer or registration of Shares for
accounts of M-K, its clients and shareholders. Principals of M-K will be
available to consult from time to time with Winsbury concerning administration
and performance of the services contemplated by this Agreement.
3. Winsbury will pay such fees as are set forth in Exhibit A hereto to
M-K.
<PAGE> 2
4. M-K and Winsbury each acknowledge that either party may enter into
similar agreements with others without the consent of the other party.
5. M-K shall prepare such quarterly reports for Winsbury as shall
reasonably be requested by Winsbury.
6. In no transaction shall M-K have any authority whatever to act as
Winsbury's agent or as agent for any of the Funds.
7. No person is authorized to make any representations concerning the
Funds or their Shares except those contained in the current prospectuses of the
Funds and any such information as may be officially designated as information
supplemental to the prospectuses.
8. This Agreement is a related agreement under the Group's Distribution
and Shareholder Service Plan (the "Plan") and is effective as of the date first
written above; provided, however, that with respect to Riverside Capital Equity
and Municipal Income Fund, this Agreement shall not take effect until the Plan
has been approved by such Fund's initial Shareholder and the Post-Effective
Amendment to the Group's Registration Statement on Form N-1A with respect to
such Fund's Shares has become effective.
9. This Agreement may be terminated at any time as to a Fund, without
the payment of any penalty by the vote of a majority of the members of the Board
of Trustees of the Group who are not interested persons of the Group and have no
direct or indirect financial interest in the operation of the Plan or in any
related agreements to the Plan ("Disinterested Trustees") or by a majority of
the outstanding voting securities of the Group on not more than sixty (60) days
written notice to the parties to this Agreement.
- 2 -
<PAGE> 3
10. This Agreement will terminate automatically in the event of its
assignment as defined in the Investment Company Act of 1940, or upon the
termination of the Distribution Agreement between the Group and Winsbury.
MORGAN KEEGAN & CO.
50 North Front
Memphis, Tennessee 38103
Dated: May 16, 1994 By /s/ Reginald Barnes
-------------------------------
Authorized Signature
Managing Director
-------------------------------
Title
THE WINSBURY COMPANY LIMITED
PARTNERSHIP
1900 East Dublin-Granville Road
Columbus, Ohio 43229
Dated: May 16, 1994 By The Winsbury Corporation,
General Partner
By /s/ Kenneth B. Quintenz
---------------------------
Authorized Signature
Senior Vice President
---------------------------
Title
- 3 -
<PAGE> 4
THE RIVERSIDE CAPITAL FUNDS
EXHIBIT A TO RULE 12b-1 AGREEMENT WITH
THE WINSBURY COMPANY LIMITED PARTNERSHIP ("WINSBURY")
With respect to each Fund, Winsbury will pay to M-K a monthly fee
computed at the annual rate of 0.25% of the average aggregate net asset value of
Shares of that Fund held during the period in the accounts for which M-K
provides services under the Rule 12b-1 Agreement.
For the monthly period in which the Rule 12b-1 Agreement becomes
effective or terminates, there shall be an appropriate proration on the basis of
the number of days that the Rule 12b-1 Agreement is in effect during the period.
<PAGE> 1
EXHIBIT (15)(k)
RULE 12b-1 AGREEMENT
THE RIVERSIDE CAPITAL FUNDS
This Agreement is made as of this 1st day of August, 1994, between
J.J.B. Hilliard, W.L. Lyons, Inc., a Kentucky Corporation ("Hilliard"), and The
Winsbury Company Limited Partnership, an Ohio limited partnership ("Winsbury"),
the Distributor of shares of beneficial interest ("Shares") of each of Riverside
Capital Money Market Fund, Riverside Capital Value Equity Fund, Riverside
Capital Fixed Income Fund, Riverside Capital Tennessee Municipal Obligations
Fund, Riverside Capital Low Duration Government Securities Fund, Riverside
Capital Sunbelt Municipal Obligations Fund, Riverside Capital Growth Fund and
Riverside Capital Equity and Municipal Income Fund (the "Funds"), each a series
of The Sessions Group, an Ohio business trust (the "Group"). In consideration of
the mutual covenants hereinafter contained, it is hereby agreed by and between
the parties hereto as follows:
1. Winsbury hereby appoints Hilliard to render distribution and
shareholder services to the Funds and their shareholders. Distribution and
shareholder services may include, but are not limited to, distributing
prospectuses to persons other than Shareholders of the Funds; maintaining
Shareholder relations; answering inquiries regarding the Funds; providing
personnel and communication equipment used in connection therewith; and
providing such other services as the Group, on behalf of the Funds, or Winsbury
may reasonably request. Hilliard represents that it is willing and possesses
legal authority to provide the services contemplated by this Agreement without
violation of applicable laws (including the Securities Exchange Act of 1934 and
applicable state securities laws) and regulations. Any advertising and sales
literature to be printed or distributed by Hilliard in connection with the sale
of Shares may not be distributed or otherwise used except upon prior written
approval by Winsbury unless such literature was provided to Hilliard by Winsbury
in its final form.
2. Hilliard shall provide such security as is necessary to prevent
unauthorized use of computer facilities. Hilliard agrees to release, indemnify
and hold harmless the Group, the Funds, Winsbury and the Funds' custodian from
any and all direct or indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by Hilliard, its officers, employees or
agents regarding the purchase, redemption, transfer or registration of Shares
for accounts of Hilliard, its clients and shareholders. Principals of Hilliard
will be available to consult from time to time with Winsbury concerning
administration and performance of the services contemplated by this Agreement.
3. Winsbury will pay such fees as are set forth in Exhibit A hereto to
Hilliard.
<PAGE> 2
4. Hilliard and Winsbury each acknowledge that either party may enter
into similar agreements with others without the consent of the other party.
5. Hilliard shall prepare such quarterly reports for Winsbury as shall
reasonably be requested by Winsbury.
6. In no transaction shall Hilliard have any authority whatever to act
as Winsbury's agent or as agent for any of the Funds.
7. No person is authorized to make any representations concerning the
Funds or their Shares except those contained in the current prospectuses of the
Funds and any such information as may be officially designated as information
supplemental to the prospectuses.
8. This Agreement is a related agreement under the Group's Distribution
and Shareholder Service Plan (the "Plan") and is effective as of the date first
written above; provided, however, that no payments shall be made under this
Agreement until this Agreement has been approved by the vote of a majority of
the members of the Board of Trustees of the Group, including a majority of those
Trustees who are not interested persons of the Group and have no direct or
indirect financial interest in the operation of the Plan or in any related
agreements to the Plan ("Disinterested Trustees").
9. This Agreement may be terminated at any time as to a Fund, without
the payment of any penalty by the vote of a majority of the Disinterested
Trustees of the Group or by a majority of the outstanding voting securities of
the Group on not more than sixty (60) days written notice to the parties to this
Agreement.
- 2 -
<PAGE> 3
10. This Agreement will terminate automatically in the event of its
assignment as defined in the Investment Company Act of 1940, or upon the
termination of the Distribution Agreement between the Group and Winsbury.
J.J.B. HILLIARD, W.L.
LYONS, INC.
Hilliard Lyons Center
Louisville, Kentucky 40202-2517
Dated: August 1, 1994 By /s/ F. James Walker
---------------------------------
Authorized Signature
Senior Vice President
---------------------------------
Title
THE WINSBURY COMPANY LIMITED
PARTNERSHIP
1900 East Dublin-Granville Road
Columbus, Ohio 43229
Dated: August 1, 1994 By The Winsbury Corporation,
General Partner
By /s/ Stephen G. Mintos
-----------------------------
Authorized Signature
Executive Vice President
-----------------------------
Title
- 3 -
<PAGE> 4
THE RIVERSIDE CAPITAL FUNDS
EXHIBIT A TO RULE 12b-1 AGREEMENT WITH
THE WINSBURY COMPANY LIMITED PARTNERSHIP ("WINSBURY")
With respect to each Fund, Winsbury will pay to Hilliard a monthly fee
computed at the annual rate of 0.25% of the average aggregate net asset value of
Shares of that Fund held during the period in the accounts for which Hilliard
provides services under the Rule 12b-1 Agreement.
For the monthly period in which the Rule 12b-1 Agreement becomes
effective or terminates, there shall be an appropriate proration on the basis of
the number of days that the Rule 12b-1 Agreement is in effect during the period.
<PAGE> 1
EXHIBIT (15)(l)
RULE 12b-1 AGREEMENT
THE RIVERSIDE CAPITAL FUNDS
This Agreement is made as of this 31st day of August, 1994, between
TrustMark Investments, Inc., a Tennessee corporation ("TrustMark"), and The
Winsbury Company Limited Partnership, an Ohio limited partnership ("Winsbury"),
the Distributor of shares of beneficial interest ("Shares") of each of Riverside
Capital Money Market Fund, Riverside Capital Value Equity Fund, Riverside
Capital Fixed Income Fund, Riverside Capital Tennessee Municipal Obligations
Fund, Riverside Capital Low Duration Government Securities Fund, Riverside
Capital Sunbelt Municipal Obligations Fund, Riverside Capital Growth Fund and
Riverside Capital Equity and Municipal Income Fund (the "Funds"), each a series
of The Sessions Group, an Ohio business trust (the "Group"). In consideration of
the mutual covenants hereinafter contained, it is hereby agreed by and between
the parties hereto as follows:
1. Winsbury hereby appoints TrustMark to render distribution and
shareholder services to the Funds and their shareholders. Distribution and
shareholder services may include, but are not limited to, distributing
prospectuses to persons other than Shareholders of the Funds; maintaining
Shareholder relations; answering inquiries regarding the Funds; providing
personnel and communication equipment used in connection therewith; and
providing such other services as the Group, on behalf of the Funds, or Winsbury
may reasonably request. TrustMark represents that it is willing and possesses
legal authority to provide the services contemplated by this Agreement without
violation of applicable laws (including the Securities Exchange Act of 1934 and
applicable state securities laws) and regulations. Any advertising and sales
literature to be printed or distributed by TrustMark in connection with the sale
of Shares may not be distributed or otherwise used except upon prior written
approval by Winsbury unless such literature was provided to TrustMark by
Winsbury in its final form.
2. TrustMark shall provide such security as is necessary to prevent
unauthorized use of computer facilities. TrustMark agrees to release, indemnify
and hold harmless the Group, the Funds, Winsbury and the Funds' custodian from
any and all direct or indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by TrustMark, its officers, employees or
agents regarding the purchase, redemption, transfer or registration of Shares
for accounts of TrustMark, its clients and shareholders. Principals of TrustMark
will be available to consult from time to time with Winsbury concerning
administration and performance of the services contemplated by this Agreement.
3. Winsbury will pay such fees as are set forth in Exhibit A hereto to
TrustMark.
<PAGE> 2
4. TrustMark and Winsbury each acknowledge that either party may enter
into similar agreements with others without the consent of the other party.
5. TrustMark shall prepare such quarterly reports for Winsbury as shall
reasonably be requested by Winsbury.
6. In no transaction shall TrustMark have any authority whatever to act as
Winsbury's agent or as agent for any of the Funds.
7. No person is authorized to make any representations concerning the
Funds or their Shares except those contained in the current prospectuses of the
Funds and any such information as may be officially designated as information
supplemental to the prospectuses.
8. This Agreement is a related agreement under the Group's Distribution
and Shareholder Service Plan (the "Plan") and is effective as of the date first
written above.
9. This Agreement may be terminated at any time as to a Fund, without the
payment of any penalty by the vote of a majority of the members of the Board of
Trustees of the Group who are not interested persons of the Group and have no
direct or indirect financial interest in the operation of the Plan or in any
related agreements to the Plan ("Disinterested Trustees") or by a majority of
the outstanding voting securities of the Group on not more than sixty (60) days
written notice to the parties to this Agreement.
10. This Agreement will terminate automatically in the event of its
assignment as defined in the Investment Company Act of 1940, or upon the
termination of the Distribution Agreement between the Group and Winsbury.
TRUSTMARK INVESTMENTS, INC.
229 Ward Circle, Suite C-22
Brentwood, Tennessee 37027-7518
Dated: August 31, 1994 By /s/ Michael W. Jacobs
-----------------------------------
Authorized Signature
President
-----------------------------------
Title
THE WINSBURY COMPANY LIMITED
PARTNERSHIP
1900 East Dublin-Granville Road
Columbus, Ohio 43229
Dated: August 31, 1994 By The Winsbury Corporation,
General Partner
By /s/ Stephen G. Mintos
------------------------------
Authorized Signature
Exec. Vice President
------------------------------
Title
- 2 -
<PAGE> 3
THE RIVERSIDE CAPITAL FUNDS
EXHIBIT A TO RULE 12b-1 AGREEMENT WITH
THE WINSBURY COMPANY LIMITED PARTNERSHIP ("WINSBURY")
With respect to each Fund, Winsbury will pay to TrustMark a monthly fee
computed at the annual rate of 0.25% of the average aggregate net asset value of
Shares of that Fund held during the period in the accounts for which TrustMark
provides services under the Rule 12b-1 Agreement.
For the monthly period in which the Rule 12b-1 Agreement becomes effective
or terminates, there shall be an appropriate proration on the basis of the
number of days that the Rule 12b-1 Agreement is in effect during the period.
<PAGE> 1
RIVERSIDE FUNDS
EXHIBIT 16(a)
TOTAL RETURN
VALUE EQUITY
AVERAGE ANNUAL TOTAL RETURN
---------------------------
WITH SALES CHARGE OF: 0.00%
T = (ERV/P)<1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 10/31/91 TO 06/30/97 ):
( 2,236.16 /1,000<(1/( 2070 /365))-1) = 15.25%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,236.60 /1,000) - 1 = 23.66%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,490.00 /1,000<(1/( 730 /365))-1) = 22.07%
THREE YEAR: ( 07/01/94 TO 06/30/97 ):
( 1,610.00 /1,000<(1/( 1095 /365))-1) = 17.20%
FIVE YEAR: ( 07/01/92 TO 06/30/97 ):
( 1,995.00 /1,000<(1/( 1826 /365))-1) = 14.82%
----------------------------------------------------------------------
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,103.90 /1,000) - 1 = 10.39%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,116.80 /1,000) - 1 = 11.68%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
1,042.30 /1,000) - 1 = 4.23%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,103.90 /1,000) - 1 = 10.39%
SINCE INCEPTION: ( 10/31/91 TO 06/30/97 ):
2236.16 /1,000) - 1 = 123.62%
<PAGE> 2
RIVERSIDE FUNDS
EXHIBIT 16(a)
TOTAL RETURN
FIXED INCOME
AVERAGE ANNUAL TOTAL RETURN
---------------------------
WITH SALES CHARGE OF: 0.00%
T = (ERV/P)<1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 10/31/91 TO 06/30/97 ):
( 1,277.55 /1,000<(1/( 2070 /365))-1) = 4.41%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,055.50 /1,000) - 1 = 5.55%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,066.50 /1,000<(1/( 730 /365))-1) = 3.27%
THREE YEAR: ( 07/01/94 TO 06/30/97 ):
( 1,118.00 /1,000<(1/( 1095 /365))-1) = 3.79%
FIVE YEAR: ( 07/01/92 TO 06/30/97 ):
( 1,198.50 /1,000<(1/( 1824 /365))-1) = 3.69%
----------------------------------------------------------------------
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,017.30 /1,000) - 1 = 1.73%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,026.90 /1,000) - 1 = 2.69%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
1,010.70 /1,000) - 1 = 1.07%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,017.30 /1,000) - 1 = 1.73%
SINCE INCEPTION: ( 10/31/91 TO 06/30/97 ):
1,277.55 /1,000) - 1 = 27.76%
<PAGE> 3
RIVERSIDE FUNDS
EXHIBIT 16(a)
TOTAL RETURN
TENN. MUNICIPAL OBLIGATIONS
AVERAGE ANNUAL TOTAL RETURN
---------------------------
WITH SALES CHARGE OF: 0.00%
T = (ERV/P)<1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 11/04/92 TO 06/30/97 ):
( 1,261.84 /1,000<(1/( 1700 /365))-1) = 5.12%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,073.80 /1,000) - 1 = 7.38%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,123.75 /1,000<(1/( 730 /365))-1) = 6.01%
THREE YEAR: ( 07/01/94 TO 06/30/97 ):
( 1,187.00 /1,000<(1/( 1095 /365))-1) = 5.88%
----------------------------------------------------------------------
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,031.90 /1,000) - 1 = 3.19%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,025.30 /1,000) - 1 = 2.53%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
1,009.90 /1,000) - 1 = 0.99%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,031.90 /1,000) - 1 = 3.19%
SINCE INCEPTION: ( 11/04/92 TO 06/30/97 ):
1,261.84 /1,000) - 1 = 26.18%
<PAGE> 4
RIVERSIDE FUNDS
EXHIBIT 16(a)
TOTAL RETURN
GROWTH
AVERAGE ANNUAL TOTAL RETURN
---------------------------
WITH SALES CHARGE OF: 0.00%
T = (ERV/P)<1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 04/15/94 TO 06/30/97 ):
( 1,907.40 /1,000<(1/( 1173 /365))-1) = 22.25%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,298.10 /1,000) - 1 = 29.81%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,550.50 /1,000<(1/( 730 /365))-1) = 24.52%
THREE YEAR: ( 07/01/94 TO 06/30/97 ):
( 1,942.50 /1,000<(1/( 1095 /365))-1) = 24.77%
----------------------------------------------------------------------
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,191.30 /1,000) - 1 = 19.13%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,163.90 /1,000) - 1 = 16.39%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
1,039.90 /1,000) - 1 = 3.99%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,191.30 /1,000) - 1 = 19.13%
SINCE INCEPTION: ( 04/15/94 TO 06/30/97 ):
1,907.4 /1,000) - 1 = 90.74%
<PAGE> 5
RIVERSIDE FUNDS
EXHIBIT 16(a)
TOTAL RETURN
LOW DURATION GOVERNMENT SECURITIES
AVERAGE ANNUAL TOTAL RETURN
---------------------------
WITH SALES CHARGE OF: 0.00%
T = (ERV/P)<1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 04/15/94 TO 06/30/97 ):
( 1,182.79 /1,000<(1/( 1173 /365))-1) = 5.36%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,062.30 /1,000) - 1 = 6.23%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,096.50 /1,000<(1/( 730 /365))-1) = 4.71%
THREE YEAR: ( 07/01/94 TO 06/30/97 ):
( 1,184.25 /1,000<(1/( 1095 /365))-1) = 5.80%
----------------------------------------------------------------------
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,020.10 /1,000) - 1 = 2.01%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,021.50 /1,000) - 1 = 2.15%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
1,009.00 /1,000) - 1 = 0.90%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,020.10 /1,000) - 1 = 2.01%
SINCE INCEPTION: ( 04/15/94 TO 06/30/97 ):
1,182.79 /1,000) - 1 = 18.28%
<PAGE> 6
RIVERSIDE FUNDS
EXHIBIT 16(a)
TOTAL RETURN
MONEY MARKET FUND
AVERAGE ANNUAL TOTAL RETURN
---------------------------
WITH SALES CHARGE OF: 0.00%
T = (ERV/P)<1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 7/25/88 TO 06/30/97 ):
( 1,605.48 /1,000<(1/( 3263 /365))-1) = 5.44%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,044.40 /1,000) - 1 = 4.44%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,094.10 /1,000<(1/( 730 /365))-1) = 4.60%
THREE YEAR: ( 07/01/94 TO 06/30/97 ):
( 1,142.50 /1,000<(1/( 1095 /365))-1) = 4.54%
FIVE YEAR: ( 07/01/92 TO 06/30/97 ):
( 1,210.00 /1,000<(1/( 1824 /365))-1) = 3.89%
----------------------------------------------------------------------
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,021.90 /1,000) - 1 = 2.19%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,010.90 /1,000) - 1 = 1.09%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
1,003.50 /1,000) - 1 = 0.35%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,021.90 /1,000) - 1 = 2.19%
SINCE INCEPTION: ( 07/25/88 TO 06/30/97 ):
1,605.48 /1,000) - 1 = 60.55%
<PAGE> 7
RIVERSIDE FUNDS
EXHIBIT 16(a)
TOTAL RETURN
VALUE EQUITY
AVERAGE ANNUAL TOTAL RETURN
---------------------------
WITH SALES CHARGE OF: 4.50%
T = (ERV/P)<1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 10/31/91 TO 06/30/97 ):
( 2,135.69 /1,000<(1/( 2070 /365))-1) = 14.32%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,180.50 /1,000) - 1 = 18.05%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,422.50 /1,000<(1/( 730 /365))-1) = 19.27%
THREE YEAR: ( 07/01/94 TO 06/30/97 ):
( 1,537.25 /1,000<(1/( 1095 /365))-1) = 15.41%
FIVE YEAR: ( 07/01/92 TO 06/30/97 ):
( 1,905.00 /1,000<(1/( 1824 /365))-1) = 13.77%
----------------------------------------------------------------------
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 4.50%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,054.50 /1,000) - 1 = 5.45%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,066.30 /1,000) - 1 = 6.63%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
995.50 /1,000) - 1 = -0.45%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,054.50 /1,000) - 1 = 5.45%
SINCE INCEPTION: ( 10/31/91 TO 06/30/97 ):
2,135.69 /1,000) - 1 = 113.57%
<PAGE> 8
RIVERSIDE FUNDS
EXHIBIT 16(a)
TOTAL RETURN
FIXED INCOME
AVERAGE ANNUAL TOTAL RETURN
---------------------------
WITH SALES CHARGE OF: 3.00%
T = (ERV/P)<1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 10/31/91 TO 06/30/97 ):
( 1,239.18 /1,000<(1/( 2070 /365))-1) = 3.85%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,023.90 /1,000) - 1 = 2.39%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,034.25 /1,000<(1/( 730 /365))-1) = 1.70%
THREE YEAR: ( 07/01/94 TO 06/30/97 ):
( 1,084.75 /1,000<(1/( 1095 /365))-1) = 2.75%
FIVE YEAR: ( 07/01/92 TO 06/30/97 ):
( 1,162.50 /1,000<(1/( 1824 /365))-1) = 3.06%
----------------------------------------------------------------------
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 3.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
987.00 /1,000) - 1 = -1.30%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
995.70 /1,000) - 1 = -0.43%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
980.10 /1,000) - 1 = -1.99%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
987.00 /1,000) - 1 = -1.30%
SINCE INCEPTION: ( 10/31/91 TO 06/30/97 ):
1,239.16 /1,000) - 1 = 23.92%
<PAGE> 9
RIVERSIDE FUNDS
EXHIBIT 16(a)
TOTAL RETURN
TENN. MUNICIPAL OBLIGATIONS
AVERAGE ANNUAL TOTAL RETURN
---------------------------
WITH SALES CHARGE OF: 3.00%
T = (ERV/P)<1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 11/04/92 TO 06/30/97 ):
( 1,223.87 /1,000<(1/( 1700 /365))-1) = 4.43%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,041.70 /1,000) - 1 = 4.17%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,090.50 /1,000<(1/( 730 /365))-1) = 4.43%
THREE YEAR: ( 07/01/94 TO 06/30/97 ):
( 1,151.75 /1,000<(1/( 1095 /365))-1) = 4.82%
----------------------------------------------------------------------
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 3.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,001.40 /1,000) - 1 = 0.14%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
995.00 /1,000) - 1 = -0.50%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
979.25 /1,000) - 1 = -2.08%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,001.40 /1,000) - 1 = 0.14%
SINCE INCEPTION: ( 11/04/92 TO 06/30/97 ):
1,223.87 /1,000) - 1 = 22.39%
<PAGE> 10
RIVERSIDE FUNDS
EXHIBIT 16(a)
TOTAL RETURN
GROWTH
AVERAGE ANNUAL TOTAL RETURN
---------------------------
WITH SALES CHARGE OF: 4.50%
T = (ERV/P)<1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 04/15/94 TO 06/30/97 ):
( 1,821.74 /1,000<(1/( 1173 /365))-1) = 20.52%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,239.70 /1,000) - 1 = 23.97%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,480.75 /1,000<(1/( 730 /365))-1) = 21.69%
THREE YEAR: ( 07/01/94 TO 06/30/97 ):
( 1,855.25 /1,000<(1/( 1095 /365))-1) = 22.88%
----------------------------------------------------------------------
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 4.50%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,137.40 /1,000) - 1 = 13.74%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,111.60 /1,000) - 1 = 11.16%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
993.40 /1,000) - 1 = -0.66%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,137.40 /1,000) - 1 = 13.74%
SINCE INCEPTION: ( 04/15/94 TO 06/30/97 ):
1,821.74 /1,000) - 1 = 82.17%
<PAGE> 11
RIVERSIDE FUNDS
EXHIBIT 16(a)
TOTAL RETURN
LOW DURATION GOVERNMENT SECURITIES
AVERAGE ANNUAL TOTAL RETURN
---------------------------
WITH SALES CHARGE OF: 2.00%
T = (ERV/P)<1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 04/15/94 TO 06/30/97 ):
( 1,159.64 /1,000<(1/( 1173 /365))-1) = 4.72%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,041.30 /1,000) - 1 = 4.13%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,074.20 /1,000<(1/( 730 /365))-1) = 3.64%
THREE YEAR: ( 07/01/94 TO 06/30/97 ):
( 1,161.00 /1,000<(1/( 1095 /365))-1) = 5.10%
----------------------------------------------------------------------
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 2.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,000.10 /1,000) - 1 = 0.01%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,001.30 /1,000) - 1 = 0.13%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
989.25 /1,000) - 1 = -1.08%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,000.10 /1,000) - 1 = 0.01%
SINCE INCEPTION: ( 04/15/94 TO 06/30/97 ):
1,159.64 /1,000) - 1 = 15.96%
<PAGE> 1
THE SESSIONS
KEY PREMIER FUNDS
EXHIBIT 16(b)
TOTAL RETURN
U.S. TREASURY OBLIGATIONS MONEY MARKET
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
---------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 07/01/97 TO 09/30/97 ):
1,011.96 /1,000) - 1 = 1.20%
QUARTERLY: ( 07/01/97 TO 09/30/97 ):
1,012.00 /1,000) - 1 = 1.20%
MONTHLY: ( 09/01/97 TO 09/30/97 ):
1,004.20 /1,000) - 1 = 0.42%
SINCE INCEPTION: ( 07/01/97 TO 09/30/97 ):
1,011.96 /1,000) - 1 = 1.20%
<PAGE> 2
THE SESSIONS
KEY PREMIER FUNDS
EXHIBIT 16(b)
TOTAL RETURN
***LIMITED DURATION GOVERNMENT SECURITIES FUND***
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
---------------------------
T = (ERV/P)<1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 10/31/95 TO 09/30/97 ):
( 1,097.70 /1,000<(1/( 701 /365))-1) = 4.97%
ONE YEAR: ( 10/01/96 TO 09/30/97 ):
( 1,051.70 /1,000) - 1 = 5.17%
----------------------------------------------------------------------
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 09/30/97 ):
1,038.50 /1,000) - 1 = 3.85%
QUARTERLY: ( 07/01/97 TO 09/30/97 ):
1,013.60 /1,000) - 1 = 1.36%
MONTHLY: ( 09/01/97 TO 09/30/97 ):
1,005.70 /1,000) - 1 = 0.57%
SIX MONTH: ( 04/01/97 TO 09/30/97 ):
1,029.80 /1,000) - 1 = 2.98%
SINCE INCEPTION: ( 10/31/95 TO 09/30/97 ):
1,098.00 /1,000) - 1 = 9.80%
***Based on trust fund data***
<PAGE> 3
THE SESSIONS
KEY PREMIER FUNDS
EXHIBIT 16(b)
TOTAL RETURN
***LIMITED DURATION GOVERNMENT SECURITIES FUND***
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 3.00%
---------------------------
T = (ERV/P)<1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 10/31/95 TO 09/30/97 ):
( 1,064.89 /1,000<(1/( 702 /365))-1) = 3.31%
ONE YEAR: ( 10/01/96 TO 09/30/97 ):
( 1,019.70 /1,000) - 1 = 1.97%
----------------------------------------------------------------------
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 3.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 09/30/97 ):
1,003.50 /1,000) - 1 = 0.35%
QUARTERLY: ( 07/01/97 TO 09/30/97 ):
983.10 /1,000) - 1 = -1.69%
MONTHLY: ( 09/01/97 TO 09/30/97 ):
975.40 /1,000) - 1 = -2.46%
SIX MONTH: ( 04/01/97 TO 09/30/97 ):
999.60 /1,000) - 1 = -0.04%
SINCE INCEPTION: ( 10/31/95 TO 09/30/97 ):
1,064.69 /1,000) - 1 = 6.47%
***Based on trust fund data***
<PAGE> 4
THE SESSIONS
Key Premier Funds
EXHIBIT 16(b)
TOTAL RETURN
AGGRESSIVE GROWTH FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 4.50%
- ----------------------------
T = (ERV/P)<1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
<TABLE>
<S> <C>
SINCE INCEPTION: ( 07/01/94 TO 06/30/97 ):
( 1,678.03 /1,000 <(1/( 1096 /365))-1) = 18.81%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,103.60 /1,000) - 1 = 10.36%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,389.00 /1,000 <(1/( 730 /365))-1) = 17.86%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 4.50%
- ----------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,039.80 /1,000) - 1 = 3.98%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,090.80 /1,000) - 1 = 9.08%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
978.30 /1,000) - 1 = -2.17%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,039.80 /1,000) - 1 = 3.98%
SINCE INCEPTION: ( 07/01/94 TO 06/30/97 ):
1,678.03 /1,000) - 1 = 67.80%
<PAGE> 5
THE SESSIONS
KEY PREMIER FUNDS
EXHIBIT 16(b)
TOTAL RETURN
PA MUNICIPAL BOND FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 4.50%
- -----------------------------
T = (ERV/P) <1/N = 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 10/01/96 TO 06/30/97 ):
( 993.13/1,000)-1 -0.69%
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 4.50%
- -----------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
970.10/1,000) - 1 = -2.99%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
973.30/1,000) - 1 = -2.67%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
961.30/1,000) - 1 = -3.87%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
970.10/1,000) - 1 = -2.99%
SINCE INCEPTION: ( 10/01/96 TO 06/30/97 ):
993.13/1,000) - 1 = -0.69%
<PAGE> 6
THE SESSIONS
KEY PREMIER FUNDS
EXHIBIT 16(b)
TOTAL RETURN
ESTABLISHED GROWTH FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 4.50%
- ------------------------------
T = (ERV/P) <1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 01/01/95 TO 06/30/97 ):
( 1,875.00/1,000 <(1/( 911 /365))-1) = 28.64%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,219.60/1,000) - 1 = 21.96%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,543.25/1,000 <(1/( 730 /365))-1) = 24.23%
- -------------------------
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 4.50%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,090.70/1,000) - 1 = 9.07%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,087.50/1,000) - 1 = 8.75%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
986.60/1,000) - 1 = -1.34%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,090.70/1,000) - 1 = 9.07%
SINCE INCEPTION: ( 01/01/95 TO 06/30/97 ):
1875 /1,000) - 1 = 87.50%
<PAGE> 7
THE SESSIONS
KEY PREMIER FUNDS
EXHIBIT 16(b)
TOTAL RETURN
INTERMEDIATE TERM INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 4.50%
- ------------------------------
T = (ERV/P) <1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 11/30/96 TO 06/30/97 ):
( 968.44/1,000)-1 -3.16%
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 4.50%
- ----------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
975.20/1,000) - 1 = -2.48%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
981.30/1,000) - 1 = -1.87%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
963.90/1,000) - 1 = -3.61%
SINCE INCEPTION: ( 11/30/96 TO 06/30/97 ):
968.44/1,000) - 1 = -3.16%
<PAGE> 8
THE SESSIONS
KEY PREMIER FUNDS
EXHIBIT 16(b)
TOTAL RETURN
PRIME MONEY MARKET FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- ------------------------------------
T = (ERV/P)<1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 10/07/96 TO 06/30/97):
( 1,037.29/1,000)-1 3.73%
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- -----------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97):
1,025.30/1,000) - 1 = 2.53%
QUARTERLY: ( 04/01/97 TO 06/30/97):
1,012.70/1,000) - 1 = 1.27%
MONTHLY: ( 06/01/97 TO 06/30/97):
1,004.20/1,000) - 1 = 0.42%
SIX MONTH: ( 01/01/97 TO 06/30/97):
1,025.30/1,000) - 1 = 2.53%
SINCE INCEPTION: ( 10/07/96 TO 06/30/97):
1,037.29/1,000) - 1 = 3.73%
<PAGE> 9
THE SESSIONS
KEY PREMIER FUNDS
EXHIBIT 16(b)
TOTAL RETURN
PA MUNI
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- -----------------------------------
T = (ERV/P) <1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 10/01/96 TO 06/30/97 ):
( 1,039./1,000)-1 3.98%
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- ---------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,016.10/1,000) - 1 = 1.61%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,019.10/1,000) - 1 = 1.91%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
1,006.20/1,000) - 1 = 0.62%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,016.10/1,000) - 1 = 1.61%
SINCE INCEPTION: ( 10/01/96 TO 06/30/97 ):
1,039.83/1,000) - 1 = 3.98%
<PAGE> 10
THE SESSIONS
KEY PREMIER FUNDS
EXHIBIT 16(b)
TOTAL RETURN
ESTABLISHED GROWTH FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- -------------------------------
T = (ERV/P) RAISED <1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C>
SINCE INCEPTION: ( 01/01/95 TO 06/30/97):
( 1,965.14 /1,000 <(1/(912 /365))-1)= 31.05%
ONE YEAR: ( 07/01/96 TO 06/30/97):
( 1,276.00 /1,000) - 1 = 27.60%
TWO YEAR: ( 07/01/95 TO 06/30/97):
( 1,617.00 /1,000 <(1/(730 /365))-1)= 27.16%
</TABLE>
- --------------------------------
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,141.80 /1,000) - 1 = 14.18%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,138.60 /1,000) - 1 = 13.86%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
1,033.10 /1,000) - 1 = 3.31%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,141.80 /1,000) - 1 = 14.18%
SINCE INCEPTION: ( 01/01/95 TO 06/30/97 ):
1965.14 /1,000) - 1 = 96.51%
<PAGE> 11
THE SESSIONS
KEYPREMIER FUNDS
EXHIBIT 16(b)
TOTAL RETURN
INTERMEDIATE TERM INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- --------------------------------
T = (ERV/P) <1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
[S] [C]
SINCE INCEPTION: ( 11/30/96 TO 06/30/97 ):
( 1,013.95 /1,000)-1 1.40%
- --------------------------------
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,021.60 /1,000) - 1 = 2.16%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,027.90 /1,000) - 1 = 2.79%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
1,009.50 /1,000) - 1 = 0.95%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,021.60 /1,000) - 1 = 2.16%
SINCE INCEPTION: ( 11/30/96 TO 06/30/97 ):
1,013.95 /1,000) - 1 = 1.40%
<PAGE> 12
THE SESSIONS
KEY PREMIER FUNDS
EXHIBIT 16(b)
TOTAL RETURN
AGGRESSIVE GROWTH FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- --------------------------------
T = (ERV/P) <1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C>
SINCE INCEPTION: ( 07/01/94 TO 06/30/97 ):
( 1,756.23 /1,000 <(1/( 1096 /365))-1) = 20.63%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,155.20 /1,000) - 1 = 15.52%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,453.75 /1,000 < (1/( 730 /365))-1) = 20.57%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- -------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,088.90 /1,000) - 1 = 8.89%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,141.90 /1,000) - 1 = 14.19%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
1,024.30 /1,000) - 1 = 2.43%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,088.90 /1,000) - 1 = 8.89%
SINCE INCEPTION: ( 07/01/94 TO 06/30/97 ):
1,756.23 /1,000) - 1 = 75.62%
<PAGE> 1
THE SESSIONS
1ST SOURCE FUNDS
EXHIBIT 16(c)
TOTAL RETURN
DIVERSIFIED EQUITY FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- --------------------------------
T = (ERV/P) <1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C>
SINCE INCEPTION: ( 06/30/85 TO 06/30/97 ):
( 4,013.37 /1,000 <(1/( 4384 /365))-1) = 12.27%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,225.20 /1,000) - 1 = 22.52%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,490.25 /1,000 <(1/( 730 /365))-1) = 22.08%
THREE YEAR: ( 07/01/94 TO 06/30/97 ):
( 1,834.00 /1,000 <(1/( 1095 /365))-1) = 22.41%
FIVE YEAR: ( 07/01/92 TO 06/30/97 ):
( 2,124.00 /1,000 <(1/( 1825 /365))-1) = 16.26%
TEN YEAR: ( 07/01/87 TO 06/30/97 ):
( 3,095.75 /1,000 <(1/( 3650 /365))-1) = 11.96%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- --------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,128.10 /1,000) - 1 = 12.81%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,144.50 /1,000) - 1 = 14.45%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
1,038.70 /1,000) - 1 = 3.87%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,128.10 /1,000) - 1 = 12.81%
SINCE INCEPTION: ( 06/30/85 TO 06/30/97 ):
4,013.37 /1,000) - 1 = 301.34%
<PAGE> 2
THE SESSIONS
1ST SOURCE FUNDS
EXHIBIT 16(c)
TOTAL RETURN
SPECIAL EQUITY FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- --------------------------------
T = (ERV/P) <1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C>
SINCE INCEPTION: ( 11/30/85 TO 06/30/97 ):
( 4,281.6 /1,000 <(1/( 4231 /365))-1) = 13.37%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 967.30 /1,000) - 1 = -3.27%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,399.75 /1,000 <(1/( 730 /365))-1) = 18.31%
THREE YEAR: ( 07/01/94 TO 06/30/97 ):
( 1,686.00 /1,000 <(1/( 1095 /365))-1) = 19.02%
FIVE YEAR: ( 07/01/92 TO 06/30/97 ):
( 2,217.00 /1,000 <(1/( 1824 /365))-1) = 17.27%
TEN YEAR: ( 07/01/87 TO 06/30/97 ):
( 3,408.00 /1,000 <(1/( 3650 /365))-1) = 13.04%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- --------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
990.00 /1,000) - 1 = -1.00%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,130.00 /1,000) - 1 = 13.00%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
1,021.70 /1,000) - 1 = 2.17%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
990.00 /1,000) - 1 = -1.00%
SINCE INCEPTION: ( 11/30/85 TO 06/30/97 ):
4,281.58 /1,000) - 1 = 328.16%
<PAGE> 3
THE SESSIONS
1ST SOURCE FUNDS
EXHIBIT 16(c)
TOTAL RETURN
INCOME EQUITY FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- --------------------------------
T = (ERV/P) <1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
<TABLE>
<CAPTION>
<S> <C>
SINCE INCEPTION: ( 11/30/85 TO 06/30/97 ):
( 4,524.9 /1,000 <(1/( 4230 /365))-1) = 13.91%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,274.20 /1,000) - 1 = 27.42%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,594.00 /1,000 <(1/( 730 /365))-1) = 26.25%
THREE YEAR: ( 07/01/94 TO 06/30/97 ):
( 1,733.75 /1,000 <(1/( 1095 /365))-1) = 20.13%
FIVE YEAR: ( 07/01/92 TO 06/30/97 ):
( 2,318.00 /1,000 <(1/( 1824 /365))-1) = 18.32%
TEN YEAR: ( 07/01/87 TO 06/30/97 ):
( 3,130.00 /1,000 <(1/( 3650 /365))-1) = 12.09%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- --------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,155.70 /1,000) - 1 = 15.57%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,138.90 /1,000) - 1 = 13.89%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
1,047.90 /1,000) - 1 = 4.79%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,155.70 /1,000) - 1 = 15.57%
SINCE INCEPTION: ( 11/30/85 TO 06/30/97 ):
4,524.92 /1,000) - 1 = 352.49%
<PAGE> 4
THE SESSIONS
1ST SOURCE FUNDS
EXHIBIT 16(c)
TOTAL RETURN
INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- --------------------------------
T = (ERV/P) <1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
<TABLE>
<CAPTION>
<S> <C>
SINCE INCEPTION: ( 06/30/85 TO 06/30/97 ):
( 2,400.27 /1,000 <(1/( 4384 /365))-1) = 7.56%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,068.40 /1,000) - 1 = 6.84%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,107.40 /1,000 <(1/( 730 /365))-1) = 5.23%
THREE YEAR: ( 07/01/94 TO 06/30/97 ):
( 1,218.25 /1,000 <(1/( 1095 /365))-1) = 6.80%
FIVE YEAR: ( 07/01/92 TO 06/30/97 ):
( 1,335.75 /1,000 <(1/( 1824 /365))-1) = 5.96%
TEN YEAR: ( 07/01/87 TO 06/30/97 ):
( 2,006.00 /1,000 <(1/( 3650 /365))-1) = 7.21%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- --------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,023.60 /1,000) - 1 = 2.36%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,028.30 /1,000) - 1 = 2.83%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
1,010.00 /1,000) - 1 = 1.00%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,023.60 /1,000) - 1 = 2.36%
SINCE INCEPTION: ( 11/30/85 TO 06/30/97 ):
2,400.27 /1,000) - 1 = 140.03%
<PAGE> 5
THE SESSIONS
1ST SOURCE FUNDS
EXHIBIT 16(c)
TOTAL RETURN
DIVERSIFIED EQUITY FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 5.00%
- --------------------------------
T = (ERV/P) <1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
<TABLE>
<CAPTION>
<S> <C>
SINCE INCEPTION: ( 06/30/85 TO 06/30/97 ):
( 3,810.67 /1,000 <(1/( 4384 /365))-1) = 11.78%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,162.30 /1,000) - 1 = 16.23%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,413.25 /1,000 <(1/( 730 /365))-1) = 18.88%
THREE YEAR: ( 07/01/94 TO 06/30/97 ):
( 1,740.02 /1,000 <(1/( 1095 /365))-1) = 20.28%
FIVE YEAR: ( 07/01/92 TO 06/30/97 ):
( 2,017.00 /1,000 <(1/( 1825 /365))-1) = 15.06%
TEN YEAR: ( 07/01/87 TO 06/30/97 ):
( 2,943.50 /1,000 <(1/( 3650 /365))-1) = 11.40%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 5.00%
- --------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,071.80 /1,000) - 1 = 7.18%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,087.60 /1,000) - 1 = 8.76%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
986.60 /1,000) - 1 = -1.34%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,071.80 /1,000) - 1 = 7.18%
SINCE INCEPTION: ( 06/30/85 TO 06/30/97 ):
3,810.67 /1,000) - 1 = 281.07%
<PAGE> 6
THE SESSIONS
1ST SOURCE FUNDS
EXHIBIT 16(c)
TOTAL RETURN
SPECIAL EQUITY FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 5.00%
- --------------------------------
T = (ERV/P) <1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
<TABLE>
<CAPTION>
<S> <C>
SINCE INCEPTION: ( 11/30/85 TO 06/30/97 ):
( 4,073.24 /1,000 <(1/( 4231 /365))-1) = 12.88%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 919.00 /1,000) - 1 = -8.10%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,330.25 /1,000 <(1/( 730 /365))-1) = 15.34%
THREE YEAR: ( 07/01/94 TO 06/30/97 ):
( 1,601.50 /1,000 <(1/( 1095 /365))-1) = 17.00%
FIVE YEAR: ( 07/01/92 TO 06/30/97 ):
( 2,109.50 /1,000 <(1/( 1824 /365))-1) = 16.11%
TEN YEAR: ( 07/01/87 TO 06/30/97 ):
( 3,245.00 /1,000 <(1/( 3650 /365))-1) = 12.49%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 5.00%
- --------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
940.50 /1,000) - 1 = -5.95%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,073.10 /1,000) - 1 = 7.31%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
971.00 /1,000) - 1 = -2.90%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
940.50 /1,000) - 1 = -5.95%
SINCE INCEPTION: ( 11/30/85 TO 06/30/97 ):
4,073.24 /1,000) - 1 = 307.32%
<PAGE> 7
THE SESSIONS
1ST SOURCE FUNDS
EXHIBIT 16(c)
TOTAL RETURN
INCOME EQUITY FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 5.00%
- -------------------------------
T = (ERV/P) <1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
<TABLE>
<S> <C>
SINCE INCEPTION: ( 11/30/85 TO 06/30/97 ):
( 4,285.70 /1,000 <(1/( 4230 /365))-1) = 13.38%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,209.80 /1,000) - 1 = 20.98%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,514.90 /1,000 <(1/( 730 /365))-1) = 23.08%
THREE YEAR: ( 07/01/94 TO 06/30/97 ):
( 1,648.00 /1,000 <(1/( 1095 /365))-1) = 18.12%
FIVE YEAR: ( 07/01/92 TO 06/30/97 ):
( 2,198.50 /1,000 <(1/( 1824 /365))-1) = 17.07%
TEN YEAR: ( 07/01/87 TO 06/30/97 ):
( 2,974.00 /1,000 <(1/( 3650 /365))-1) = 11.52%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 5.00%
- -----------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,098.40 /1,000) - 1 = 9.84%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,082.00 /1,000) - 1 = 8.20%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
995.30 /1,000) - 1 = -0.47%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,098.40 /1,000) - 1 = 9.84%
SINCE INCEPTION: ( 11/30/85 TO 06/30/97 ):
4,285.70 /1,000) - 1 = 328.57%
<PAGE> 8
THE SESSIONS
1ST SOURCE FUNDS
EXHIBIT 16(c)
TOTAL RETURN
INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 4.00%
- -----------------------------
T = (ERV/P) <1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
<TABLE>
<S> <C>
SINCE INCEPTION: ( 06/30/85 TO 06/30/97 ):
( 2,283.09/1,000 <(1/( 4384 /365))-1) = 7.11%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,026.30/1,000) - 1 = 2.63%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,062.25/1,000 <(1/( 730 /365))-1) = 3.07%
THREE YEAR: ( 07/01/94 TO 06/30/97 ):
( 1,169.25/1,000 <(1/( 1095 /365))-1) = 5.35%
FIVE YEAR: ( 07/01/92 TO 06/30/97 ):
( 1,281.00/1,000 <(1/( 1824 /365))-1) = 5.08%
TEN YEAR: ( 07/01/87 TO 06/30/97 ):
( 1,925.00/1,000 <(1/( 3650 /365))-1) = 6.77%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 4.00%
- ------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
983.00/1,000) - 1 = -1.70%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
986.80/1,000) - 1 = -1.32%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
969.60/1,000) - 1 = -3.04%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
983.00/1,000) - 1 = -1.70%
SINCE INCEPTION: ( 06/30/85 TO 06/30/97 ):
2,283.09/1,000) - 1 = 128.31%
<PAGE> 1
EXHIBIT 19(a)
POWER OF ATTORNEY
Walter B. Grimm, whose signature appears below, does hereby constitute
and appoint J. David Huber and Stephen G. Mintos, each individually, his true
and lawful attorneys and agents, with power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments which
said attorneys and agents, each individually, may deem necessary or advisable or
which may be required to enable The Sessions Group (the "Group") to comply with
the Investment Company Act of 1940, as amended, and the Securities Act of 1933,
as amended (the "Acts"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of the Group's Registration Statement on Form N-1A
pursuant to said Acts and any and all amendments thereto (including
post-effective amendments), including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as trustee and/or officer of the Group such
Registration Statement and any and all such amendments filed with the Securities
and Exchange Commission under any Acts and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or any of them, shall do or cause to be done by
virtue thereof.
Dated: August 18, 1994 /s/ Walter B. Grimm
------------------------
Walter B. Grimm
<PAGE> 2
POWER OF ATTORNEY
Maurice G. Stark, whose signature appears below, does hereby constitute
and appoint J. David Huber, Stephen G. Mintos and Walter B. Grimm, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable The Sessions
Group (the "Group") to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended (the "Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of the Group's
Registration Statement on Form N-1A pursuant to said Acts and any and all
amendments thereto (including post-effective amendments), including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as trustee
and/or officer of the Group such Registration Statement and any and all such
amendments filed with the Securities and Exchange Commission under any Acts and
any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorneys and agents, or any of them,
shall do or cause to be done by virtue thereof.
Dated: August 18, 1994 /s/ Maurice G. Stark
------------------------
Maurice G. Stark
<PAGE> 3
POWER OF ATTORNEY
Chalmers P. Wylie, whose signature appears below, does hereby
constitute and appoint J. David Huber, Stephen G. Mintos and Walter B. Grimm,
each individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable The Sessions
Group (the "Group") to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended (the "Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of the Group's
Registration Statement on Form N-1A pursuant to said Acts and any and all
amendments thereto (including post-effective amendments), including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as trustee
and/or officer of the Group such Registration Statement and any and all such
amendments filed with the Securities and Exchange Commission under any Acts and
any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorneys and agents, or any of them,
shall do or cause to be done by virtue thereof.
Dated: August 18, 1994 /s/ Chalmers P. Wylie
------------------------
Chalmers P. Wylie
<PAGE> 1
EXHIBIT (19)(b)
<PAGE> 2
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our
firm under the caption of "Legal Counsel" included in or made a part of the
Registration Statement on Form N-1A, File No. 33-21489, filed under the
Securities Act of 1933, as amended, of The Sessions Group.
BAKER & HOSTETLER LLP
Columbus, Ohio
October 31, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832403
<NAME> THE SESSIONS GROUP
<SERIES>
<NUMBER> 1
<NAME> THE RIVERSIDE CAPITAL MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 139,244,823
<INVESTMENTS-AT-VALUE> 139,244,823
<RECEIVABLES> 1,513,902
<ASSETS-OTHER> 3,728
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 140,762,453
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 588,105
<TOTAL-LIABILITIES> 588,105
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 140,217,042
<SHARES-COMMON-STOCK> 140,207,056
<SHARES-COMMON-PRIOR> 134,348,769
<ACCUMULATED-NII-CURRENT> 1,035
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 43,729
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 140,174,348
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,473,132
<OTHER-INCOME> 0
<EXPENSES-NET> 1,491,452
<NET-INVESTMENT-INCOME> 5,981,680
<REALIZED-GAINS-CURRENT> (4,905)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,976,775
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,981,680
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 364,918,578
<NUMBER-OF-SHARES-REDEEMED> 359,396,813
<SHARES-REINVESTED> 336,522
<NET-CHANGE-IN-ASSETS> 6,028,725
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 203,145
<GROSS-ADVISORY-FEES> 480,718
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,779,244
<AVERAGE-NET-ASSETS> 137,220,349
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .044
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .044
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832403
<NAME> THE SESSIONS GROUP
<SERIES>
<NUMBER> 2
<NAME> THE RIVERSIDE VALUE EQUITY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 59,249,887
<INVESTMENTS-AT-VALUE> 79,486,489
<RECEIVABLES> 150,604
<ASSETS-OTHER> 1,930
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 79,639,023
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 74,641
<TOTAL-LIABILITIES> 74,641
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53,750,542
<SHARES-COMMON-STOCK> 5,123,020
<SHARES-COMMON-PRIOR> 5,573,485
<ACCUMULATED-NII-CURRENT> 68,203
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,509,035
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20,236,602
<NET-ASSETS> 79,564,382
<DIVIDEND-INCOME> 1,671,207
<INTEREST-INCOME> 25,268
<OTHER-INCOME> 0
<EXPENSES-NET> 1,230,731
<NET-INVESTMENT-INCOME> 465,744
<REALIZED-GAINS-CURRENT> 8,840,538
<APPREC-INCREASE-CURRENT> 6,722,105
<NET-CHANGE-FROM-OPS> 16,028,387
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 504,356
<DISTRIBUTIONS-OF-GAINS> 10,634,101
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 290,948
<NUMBER-OF-SHARES-REDEEMED> 1,111,533
<SHARES-REINVESTED> 370,120
<NET-CHANGE-IN-ASSETS> (1,490,752)
<ACCUMULATED-NII-PRIOR> 106,815
<ACCUMULATED-GAINS-PRIOR> 7,302,598
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 694,259
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,390,124
<AVERAGE-NET-ASSETS> 75,901,249
<PER-SHARE-NAV-BEGIN> 14.54
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> 3.06
<PER-SHARE-DIVIDEND> .10
<PER-SHARE-DISTRIBUTIONS> 2.06
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.53
<EXPENSE-RATIO> 1.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832403
<NAME> THE SESSIONS GROUP
<SERIES>
<NUMBER> 3
<NAME> THE RIVERSIDE FIXED INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 18,051,043
<INVESTMENTS-AT-VALUE> 18,148,196
<RECEIVABLES> 295,217
<ASSETS-OTHER> 3,609
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18,447,022
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 220,243
<TOTAL-LIABILITIES> 220,243
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,704,152
<SHARES-COMMON-STOCK> 2,099,019
<SHARES-COMMON-PRIOR> 3,289,966
<ACCUMULATED-NII-CURRENT> 35,281
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 6,609,807
<ACCUM-APPREC-OR-DEPREC> 97,153
<NET-ASSETS> 18,226,779
<DIVIDEND-INCOME> 27,571
<INTEREST-INCOME> 1,877,178
<OTHER-INCOME> 0
<EXPENSES-NET> 357,620
<NET-INVESTMENT-INCOME> 1,547,129
<REALIZED-GAINS-CURRENT> (434,866)
<APPREC-INCREASE-CURRENT> (2,855,544)
<NET-CHANGE-FROM-OPS> (1,743,281)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,546,955
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 90,153
<NUMBER-OF-SHARES-REDEEMED> 1,364,087
<SHARES-REINVESTED> 82,987
<NET-CHANGE-IN-ASSETS> (10,620,430)
<ACCUMULATED-NII-PRIOR> 72,377
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 6,354,913
<GROSS-ADVISORY-FEES> 156,128
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 408,062
<AVERAGE-NET-ASSETS> 24,019,740
<PER-SHARE-NAV-BEGIN> 8.77
<PER-SHARE-NII> .57
<PER-SHARE-GAIN-APPREC> (1.39)
<PER-SHARE-DIVIDEND> .56
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 1.29
<PER-SHARE-NAV-END> 8.68
<EXPENSE-RATIO> 1.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832403
<NAME> THE SESSIONS GROUP
<SERIES>
<NUMBER> 5
<NAME> THE RIVERSIDE TENNESSEE MUNICIPAL OBLIGATIONS FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 16,930,150
<INVESTMENTS-AT-VALUE> 17,403,966
<RECEIVABLES> 967,052
<ASSETS-OTHER> 4,092
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18,375,110
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22,750
<TOTAL-LIABILITIES> 22,750
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,944,032
<SHARES-COMMON-STOCK> 1,843,918
<SHARES-COMMON-PRIOR> 1,949,549
<ACCUMULATED-NII-CURRENT> 41,771
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,107,259
<ACCUM-APPREC-OR-DEPREC> 473,816
<NET-ASSETS> 18,352,360
<DIVIDEND-INCOME> 9,855
<INTEREST-INCOME> 1,195,725
<OTHER-INCOME> 0
<EXPENSES-NET> 205,810
<NET-INVESTMENT-INCOME> 999,770
<REALIZED-GAINS-CURRENT> 101,371
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<CIK> 0000832403
<NAME> THE SESSIONS GROUP
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<NAME> THE RIVERSIDE GROWTH FUND
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<CIK> 0000832403
<NAME> THE SESSIONS GROUP
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<NAME> THE RIVERSIDE LOW DURATION GOVERNMENT SECURITIES
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<TABLE> <S> <C>
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<CIK> 0000832403
<NAME> THE SESSIONS GROUP
<SERIES>
<NUMBER> 11
<NAME> THE KEYPREMIER PRIME MONEY MARKET FUND
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<FN>
<F1>DATE OF INCEPTION
</TABLE>
<TABLE> <S> <C>
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<CIK> 0000832403
<NAME> THE SESSIONS GROUP
<SERIES>
<NUMBER> 12
<NAME> THE KEYPREMIER PENNSYLVANIA MUNICIPAL FUND
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<FN>
<F1>DATE OF INCEPTION
</TABLE>
<TABLE> <S> <C>
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<CIK> 0000832403
<NAME> THE SESSIONS GROUP
<SERIES>
<NUMBER> 13
<NAME> THE KEYPREMIER ESTABLISHED GROWTH FUND
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<F1>DATE OF INCEPTION
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832403
<NAME> THE SESSIONS GROUP
<SERIES>
<NUMBER> 14
<NAME> THE KEYPREMIER INTERMEDIATE TERM INCOME FUND
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<CIK> 0000832403
<NAME> THE SESSIONS GROUP
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<NAME> THE KEYPREMIER AGGRESSIVE GROWTH FUND
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<CIK> 0000832403
<NAME> THE SESSIONS GROUP
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<NAME> THE 1ST SOURCE MONOGRAM DIVERSIFIED EQUITY FUND
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</TABLE>
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<CIK> 0000832403
<NAME> THE SESSIONS GROUP
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<NAME> THE 1ST SOURCE MONOGRAM SPECIAL EQUITY FUND
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