<PAGE> 1
As filed with the Securities and Exchange Commission October 29, 1998
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
Pre-Effective Amendment No. | |
Post-Effective Amendment No. 46 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 48 |X|
THE SESSIONS GROUP
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road
Columbus, Ohio 43219
(Address of Principal Executive Offices)
Registrant's Telephone Number:
(800) 752-1823
CHARLES H. HIRE, ESQ.
Baker & Hostetler LLP
65 East State Street, Suite 2100
Columbus, Ohio 43215
(Name and Address of Agent for Service)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: Immediately, upon effectiveness.
It is proposed that this filing will become effective (check
appropriate box):
| | immediately upon filing pursuant to paragraph (b);
|X| on October 30, 1998, 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); or
| | 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
---------------------
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> 3
THE KEYPREMIER PRIME MONEY MARKET FUND
THE KEYPREMIER U.S. TREASURY OBLIGATIONS MONEY MARKET FUND
KEYPREMIER FUNDS LOGO
- --------------------------------------------------------------------------------
3435 Stelzer Road
Columbus, Ohio 43219
For current yield, purchase,
and redemption information,
call (800) 766-3960.
- --------------------------------------------------------------------------------
The Sessions Group (the "Group") is an open-end management investment company.
The Group includes The KeyPremier Prime Money Market Fund (the "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 30, 1998.
<PAGE> 4
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").
PROPOSED REORGANIZATION: The Group has entered into an Agreement and Plan of
Reorganization (the "Plan"), with Governor Funds, a Delaware business trust
("Governor"). Pursuant to the Plan, the Governor Prime Money Market Fund and the
Governor U.S. Treasury Obligations Money Market Fund, each a separate series of
Governor (collectively, the "Acquiring Funds") would acquire all of the assets
of the Prime Money Market Fund and the Treasury Money Market Fund, respectively
(collectively, the "Acquired Funds"), in exchange for the assumption of all of
the corresponding Acquired Fund's liabilities and a number of full and
fractional shares of the corresponding Acquiring
2
<PAGE> 5
Fund having an aggregate net asset value equal to the Acquired Fund's net assets
(the "Reorganization").
The Reorganization is subject to certain regulatory approvals and to approval
by the Shareholders of the Acquired Funds at a Special Shareholders Meeting
currently expected to be held in January, 1999. If the Shareholders approve the
Reorganization, it is expected that the Reorganization will be effected on or
about January 30, 1999; however, the Reorganization may be effected on such
earlier or later date as the Group and Governor may determine. There can be no
assurance that the Reorganization will take place when or as currently proposed.
3
<PAGE> 6
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
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees After Voluntary Fee Waivers(1).............. 0.20% 0.20%
12b-1 Fees.................................................. None None
Other Expenses.............................................. 0.34 0.53
---- ----
Total Fund Operating Expenses After Voluntary Fee
Waivers(1)................................................ 0.54% 0.73%
==== ====
</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>
Prime Money Market Fund..................... $ 6 $17 $30 $68
Treasury Money Market Fund.................. $ 7 $23 $41 $91
</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 example and expenses reflect current fees.
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 each of the Funds until further written notice to Shareholders.
Absent such voluntary fee waiver, for the fiscal year ending June 30, 1999,
Management Fees and Total Fund Operating Expenses for the Prime Money Market
Fund would be 0.40% and 0.74%, respectively, and for the Treasury Money Market
Fund would be 0.40% and 0.93%, respectively.
4
<PAGE> 7
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 have been audited by KPMG Peat Marwick LLP, independent certified public
accountants for the Funds, whose report on the period ended June 30, 1998, is
included in the Statement of Additional Information which may be obtained by
Shareholders.
<TABLE>
<CAPTION>
PRIME MONEY TREASURY MONEY
MARKET FUND MARKET FUND
----------------------------------- ----------------
PERIOD FROM PERIOD FROM
COMMENCEMENT OF COMMENCEMENT OF
OPERATIONS OPERATIONS
YEAR ENDED THROUGH THROUGH
JUNE 30, 1998 JUNE 30, 1997(a) June 30, 1998(a)
---------------- ---------------- ----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $1.00 $1.00 $1.00
Investment Activities:
Net investment income...................... 0.05 0.04 0.05
Net realized and unrealized gain on
investments............................. -- -- --
------- ------- -------
Total from Investment Activities............. 0.05 0.04 0.05
------- ------- -------
Distributions from:
Net investment income...................... (0.05) (0.04) (0.05)
Net realized gains......................... -- -- --
------- ------- -------
Total Distributions........................ (0.05) (0.04) (0.05)
------- ------- -------
Net change in net asset value per share...... -- -- --
------- ------- -------
NET ASSET VALUE, END OF PERIOD............... $1.00 $1.00 $1.00
======= ======= =======
TOTAL RETURN................................. 5.19% 3.73%(b) 4.78%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (000)........... $217,861 $95,850 $23,520
Ratio of expenses to average net assets...... 0.48% 0.36%(c) 0.71%
Ratio of net investment income to average net
assets..................................... 5.14% 5.02%(c) 4.64%
Ratio of expenses to average net assets*..... 0.76% 0.70%(c) 1.07%
Ratio of net investment income to average net
assets*.................................... 4.86% 4.68(c) 4.28%
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
(a)The Prime Money Market and Treasury Money Market Funds commenced operations
on October 7, 1996, and July 1, 1997, respectively.
(b) Not annualized.
(c) Annualized.
5
<PAGE> 8
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 is
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 Funds is contained in the
Funds' 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-
6
<PAGE> 9
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).
7
<PAGE> 10
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-
8
<PAGE> 11
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
9
<PAGE> 12
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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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> 14
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> 15
Year 2000. Like other investment companies, financial and business
organizations and individuals around the world, the Funds could be affected
adversely if the computer systems used by the Adviser, the Funds' other service
providers, and others do not properly process and calculate date-related
information and data on and after January 1, 2000. This is commonly known as the
"Year 2000 Problem." The Adviser and the Funds' other service providers have
informed the Group that they are taking steps to address the Year 2000 Problem
with respect to the computer systems that they use. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Funds as a result of the Year 2000 Problem.
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.
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<PAGE> 16
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 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
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<PAGE> 17
order) in at least the minimum initial purchase amount, payable to the
appropriate Fund, to The KeyPremier Funds, P.O. Box 182707, Columbus, Ohio
43218-2707. Subsequent purchases of Shares of that Fund may be made at any time
by mailing a check (or other negotiable bank draft or money order) payable to
the Group, to the above address.
If an Account Registration Form has been previously received by the Group,
investors may also purchase Shares by wiring funds to the Funds' custodian.
Prior to wiring any such funds and in order to ensure that wire orders are
invested promptly, investors must call the Group at (800) 766-3960 to obtain
instructions regarding the bank account number into which the funds should be
wired and other pertinent information.
Shares of each Fund are purchased at the net asset value per share (see
"VALUATION OF SHARES") next determined after receipt by the Distributor, its
agents or broker-dealers with whom it has an agreement of an order in good form
to purchase Shares. 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
certifi-
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<PAGE> 18
cates. 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 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.
An in-kind securities payment may result in a taxable event for the purchaser of
Shares.
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
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<PAGE> 19
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 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 proceeds sent electronically directly
to a domestic commercial bank account
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<PAGE> 20
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 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
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<PAGE> 21
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 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
19
<PAGE> 22
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 long-term capital gain, if any,
over net short-term capital loss is taxable to Shareholders as long-term capital
gain in the year in which it is received, regardless of how long the Shareholder
has held the Shares. Such distributions are not eligible for the dividends
received deduction.
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.
20
<PAGE> 23
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 $2.55 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 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
21
<PAGE> 24
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.
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.
As authorized by the Services Plan, the Group has entered into a Servicing
Agreement with Keystone effective April 1, 1998, pursuant to which Keystone has
agreed to provide certain adminis-
22
<PAGE> 25
trative 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, those services described above. In
consideration of such services, the Group, on behalf of each Fund, has agreed to
pay Keystone a monthly fee, computed at the annual rate of up to 0.25% of the
average aggregate net asset value of Shares of that Fund held during the period
by customers for whom Keystone 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, 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 eight 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, and The
KeyPremier Emerging Growth Fund.
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested, and will
vote in the aggregate and not by fund except as otherwise expressly required by
law. For example, Shareholders of the 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
23
<PAGE> 26
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 20, 1998, 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 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> 27
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<PAGE> 28
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 29
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 30
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............................. 4
FINANCIAL HIGHLIGHTS.................. 5
PERFORMANCE INFORMATION............... 6
INVESTMENT OBJECTIVES AND POLICIES.... 6
INVESTMENT RESTRICTIONS............... 13
VALUATION OF SHARES................... 14
HOW TO PURCHASE AND REDEEM SHARES..... 14
DIVIDENDS AND TAXES................... 19
MANAGEMENT OF THE GROUP............... 21
GENERAL INFORMATION................... 23
</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 30, 1998
<PAGE> 31
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> 32
THE KEYPREMIER ESTABLISHED GROWTH FUND
THE KEYPREMIER AGGRESSIVE GROWTH FUND
KEYPREMIER FUNDS 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 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 30, 1998.
<PAGE> 33
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").
PROPOSED REORGANIZATION: The Group has entered into an Agreement and Plan
of Reorganization (the "Plan"), with Governor Funds, a Delaware business trust
("Governor").
2
<PAGE> 34
Pursuant to the Plan, the Governor Established Growth Fund and the Governor
Aggressive Growth Fund, each a separate series of Governor (collectively, the
"Acquiring Funds") would acquire all of the assets of the Established Growth
Fund and the Aggressive Growth Fund, respectively (collectively, the "Acquired
Funds"), in exchange for the assumption of all of the corresponding Acquired
Fund's liabilities and a number of full and fractional shares of the
corresponding Acquiring Fund having an aggregate net asset value equal to the
Acquired Fund's net assets (the "Reorganization").
The Reorganization is subject to certain regulatory approvals and to
approval by the Shareholders of the Acquired Funds at a Special Shareholders
Meeting currently expected to be held in January, 1999. If the Shareholders
approve the Reorganization, it is expected that the Reorganization will be
effected on or about January 30, 1999; however, the Reorganization may be
effected on such earlier or later date as the Group and Governor may determine.
There can be no assurance that the Reorganization will take place when or as
currently proposed.
3
<PAGE> 35
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%
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............................................ 0.37 0.39
---- ----
Total Fund Operating Expenses After Fee Waiver(1)......... 0.87% 0.99%
==== ====
</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>
The Established Growth Fund.............. $53 $72 $91 $147
The Aggressive Growth Fund............... $55 $75 $97 $161
</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 example and expenses reflect current fees. 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 to 0.50% until further written
notice to Shareholders. The Adviser has agreed voluntarily to reduce its
investment advisory fees with respect to the Aggressive Growth Fund to 0.60%
until on or about January 31, 1999, and then to 0.70% until further written
notice to Shareholders. Absent such voluntary fee waivers, for the fiscal
year ending June 30, 1999, Management Fees and Total Fund Operating Expenses
for the Established Growth Fund would be 0.75% and 1.12%, respectively, and,
for the Aggressive Growth Fund, would be 1.00% and 1.39%, respectively.
4
<PAGE> 36
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, 1998, is
included in the Statement of Additional Information, which may be obtained by
Shareholders.
<TABLE>
<CAPTION>
ESTABLISHED GROWTH FUND AGGRESSIVE GROWTH FUND
--------------------------------- ---------------------------------
PERIOD FROM PERIOD FROM
COMMENCEMENT COMMENCEMENT
FOR THE OF OPERATIONS FOR THE OF OPERATIONS
YEAR ENDED THROUGH YEAR ENDED THROUGH
JUNE 30, 1998 JUNE 30, 1997 (a) JUNE 30, 1998 June 30, 1997 (a)
------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 11.13 $ 10.00 $ 10.24 $ 10.00
Investment Activities:
Net investment income................. 0.10 0.08 (0.01) 0.01
Net realized and unrealized
gains (losses) on investments....... 2.99 1.13 1.30 0.24
-------- -------- -------- --------
Total from Investment Activities........ 3.09 1.21 1.29 0.25
-------- -------- -------- --------
Distributions:
Net investment income................. (0.10) (0.08) -- (0.01)
Net realized gains.................... (0.06) -- (0.12) --
-------- -------- -------- --------
Total Distributions................... (0.16) (0.08) (0.12) (0.01)
-------- -------- -------- --------
Net change in net asset value per
share................................. 2.93 1.13 1.17 0.24
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.......... $ 14.06 $ 11.13 $ 11.41 $ 10.24
======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Total Return (excludes sales charge).... 27.92% 12.20%(b) 12.72% 2.52%(b)
Net Assets, at end of period (000)...... $258,812 $190,914 $135,612 $105,258
Ratio of expenses to average net
asset................................. 0.71% 0.44%(c) 0.83% 0.66%(c)
Ratio of net investment income to
average net assets.................... 0.77% 1.39%(c) (0.09%) 0.28%(c)
Ratio of expenses to average net
assets*............................... 1.06% 1.01%(c) 1.33% 1.35%(c)
Ratio of net investment income to
average net assets*................... 0.42% 0.82%(c) (0.59%) (0.41%)(c)
Portfolio turnover...................... 6% 1% 8% 2%
</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.
5
<PAGE> 37
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 is calculated for the period since commencement of
operations for a Fund (or its respective collective investment fund) and
reflects 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 is 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 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.
6
<PAGE> 38
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
7
<PAGE> 39
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.
8
<PAGE> 40
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-
9
<PAGE> 41
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.
10
<PAGE> 42
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-
11
<PAGE> 43
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-
12
<PAGE> 44
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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<PAGE> 45
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.
Year 2000. Like other investment companies, financial and business
organizations and individuals around the world, the Funds could be affected
adversely if the computer systems used by the Adviser, the Funds' other service
providers, and others do not properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known as
the "Year 2000 Problem." The Adviser and the Funds' other service providers have
informed the Group that they are taking steps to address the Year 2000 Problem
with respect to the computer systems that they use. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Funds as a result of the Year 2000 Problem.
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 in-
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<PAGE> 46
strumentalities, if, immediately after such purchase, more than 5% of the
Fund's total assets would be invested in such issuer or the Fund would hold
more than 10% of the outstanding voting securities of the issuer, except that
25% or less of the Fund's total assets may be invested without regard to such
limitations. There is no limit to the percentage of assets that may be
invested in U.S. Treasury bills, notes, or other obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
2. Purchase any securities which would cause more than 25% of the Fund's
total assets at the time of purchase to be invested in securities of one or
more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements secured by obligations of the
U.S. Government, its agencies or instrumentalities; (b) wholly owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents;
(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 Aggressive 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
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<PAGE> 47
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 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
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<PAGE> 48
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 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.
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<PAGE> 49
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 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. An
in-kind securities payment may result in a taxable event for the purchaser of
Shares.
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.
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
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<PAGE> 50
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 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
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<PAGE> 51
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 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.
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<PAGE> 52
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
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 tele-
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<PAGE> 53
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 conditions 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
22
<PAGE> 54
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. 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).
23
<PAGE> 55
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 long-term capital gain, if any,
over net short-term capital loss is taxable to Shareholders as long-term capital
gain in the year in which it is received, regardless of how long the Shareholder
has held the Shares. Such distributions are not eligible for the dividends
received deduction.
If the net asset value of a Share is reduced below the Shareholder's cost of
that Share by the distribution of income or gain realized on the sale of
securities, the distribution, from a practical stand point, is a return of
invested principal, although taxable as described above.
Prior to purchasing Shares, 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 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
24
<PAGE> 56
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 $2.55 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.
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
25
<PAGE> 57
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.
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 a Fund pursuant to specific or
pre-authorized instructions.
As authorized by the Services Plan, the Group has entered into a Servicing
Agreement with Keystone effective April 1, 1998, pursuant to which Keystone 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
26
<PAGE> 58
not limited to, those services described above. In consideration of such
services, the Group, on behalf of each Fund, has agreed to pay Keystone a
monthly fee, computed at the annual rate of up to 0.25% of the average aggregate
net asset value of Shares of that Fund held during the period by customers for
whom Keystone 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, 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 eight 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, and The KeyPremier Emerging Growth 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"
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
27
<PAGE> 59
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 20, 1998, 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.
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
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<PAGE> 61
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<PAGE> 62
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 63
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............................ 4
FINANCIAL HIGHLIGHTS................. 5
PERFORMANCE INFORMATION.............. 6
INVESTMENT OBJECTIVES AND POLICIES... 7
INVESTMENT RESTRICTIONS.............. 14
VALUATION OF SHARES.................. 15
HOW TO PURCHASE AND REDEEM SHARES.... 16
REDEMPTION OF SHARES................. 21
DIVIDENDS AND TAXES.................. 23
MANAGEMENT OF THE GROUP.............. 24
GENERAL INFORMATION.................. 27
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR THEIR DISTRIBUTOR, BISYS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUNDS OR BY BISYS IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
KEYPREMIER FUNDS LOGO
THE
KEYPREMIER
ESTABLISHED
GROWTH FUND
THE
KEYPREMIER
AGGRESSIVE
GROWTH FUND
MARTINDALE
ANDRES & COMPANY, INC.
INVESTMENT ADVISER
Prospectus
dated October 30, 1998
<PAGE> 64
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> 65
LOGO
THE KEYPREMIER INTERMEDIATE TERM INCOME FUND
THE KEYPREMIER LIMITED DURATION GOVERNMENT SECURITIES FUND
THE KEYPREMIER PENNSYLVANIA MUNICIPAL BOND 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 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 30, 1998.
<PAGE> 66
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).
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<PAGE> 67
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").
PROPOSED REORGANIZATION: The Group has entered into an Agreement and Plan
of Reorganization (the "Plan"), with Governor Funds, a Delaware business trust
("Governor"). Pursuant to the Plan, the Governor Intermediate Term Income Fund,
the Governor Limited Duration Government Securities Fund and the Governor
Pennsylvania Municipal Bond Fund, each a separate series of Governor
(collectively, the "Acquiring Funds") would acquire all of the assets of the
Income Fund, the Government Securities Fund and the Pennsylvania Bond Fund,
respectively (collectively, the "Acquired Funds"), in exchange for the
assumption of all of the corresponding Acquired Fund's liabilities and a number
of full and fractional shares of the corresponding Acquired Fund having an
aggregate net asset value equal to the Acquired Fund's net assets (the
"Reorganization").
The Reorganization is subject to certain regulatory approvals and to
approval by the Shareholders of the Acquired Funds at a Special Shareholders
Meeting currently expected to be held in January, 1999. If the Shareholders
approve the Reorganization, it is expected that the Reorganization will be
effected on or about January 30, 1999; however, the Reorganization may be
effected on such earlier or later date as the Group and Governor may determine.
There can be no assurance that the Reorganization will take place when or as
currently proposed.
3
<PAGE> 68
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%
ANNUAL FUND OPERATING EXPENSES (as a percentage of
average net assets)
Management Fees After Fee Waiver(1)................. 0.30% 0.30% 0.30%
12b-1 Fees.......................................... None None None
Other Expenses...................................... 0.27 0.35 0.28
---- ---- ----
Total Fund Operating Expenses After Fee Waiver(1)... 0.57% 0.65% 0.58%
==== ==== ====
</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>
Income Fund.............................. $51 $62 $75 $113
Government Securities Fund............... $36 $50 $65 $109
Pennsylvania Bond Fund................... $51 $63 $76 $114
</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 example and expenses reflect current fees. 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 Funds to 0.30% until further written notice to
Shareholders. Absent such voluntary fee waivers, Management Fees and Total
Fund Operating Expenses, for the fiscal year ending June 30, 1999, for the
Income Fund would be 0.60% and 0.87%, respectively, for the Pennsylvania
Bond Fund, would be 0.60% and 0.88%, respectively, and for the Government
Securities Fund, would be 0.60% and 0.95%, respectively.
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<PAGE> 69
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 have been audited by KPMG Peat Marwick LLP, independent certified public
accountants for the Funds, whose report on the period ended June 30, 1998, is
included in the Statement of Additional Information, which may be obtained by
Shareholders.
<TABLE>
<CAPTION>
GOVERNMENT
INCOME FUND PENNSYLVANIA BOND FUND SECURITIES FUND
-------------------------------- -------------------------------- ----------------
PERIOD FROM PERIOD FROM PERIOD FROM
COMMENCEMENT COMMENCEMENT COMMENCEMENT
FOR THE OF OPERATIONS FOR THE OF OPERATIONS OF OPERATIONS
YEAR ENDED THROUGH YEAR ENDED THROUGH THROUGH
JUNE 30, 1998 JUNE 30, 1997(a) JUNE 30, 1998 JUNE 30, 1997(a) JUNE 30, 1998(a)
------------- ---------------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................ $ 9.77 $ 10.00 $ 10.29 $ 10.21 $ 10.00
Investment Activities:
Net investment income......... 0.62 0.36 0.49 0.34 0.56
Net realized and unrealized
gains (losses) on
investments................. 0.33 (0.23) 0.11 0.06 (0.04)
-------- -------- -------- -------- -------
Total from Investment
Activities.................... 0.95 0.13 0.60 0.40 0.52
-------- -------- -------- -------- -------
Distributions:
Net investment income......... (0.62) (0.36) (0.50) (0.32) (0.56)
Net realized goals............ -- -- -- -- --
-------- -------- -------- -------- -------
Total Distributions........... (0.62) (0.36) (0.50) (0.32) (0.56)
-------- -------- -------- -------- -------
Net change in net asset value
per share..................... 0.33 (0.23) 0.10 0.08 (0.04)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF
PERIOD........................ $ 10.10 $ 9.77 $ 10.39 $ 10.29 $ 9.96
======== ======== ======== ======== =======
RATIOS/SUPPLEMENTAL DATA:
Total Return (excludes sales
charge)....................... 9.95% 1.40%(b) 5.89% 3.98%(b) 5.39%
Net Assets, at end of period
(000)......................... $275,565 $207,859 $118,685 $123,194 $29,360
Ratio of expenses to average net
asset......................... 0.57% 0.37%(c) 0.58% 0.37%(c) 0.65%
Ratio of net investment income
to average net assets......... 6.27% 6.45%(c) 4.65% 4.46%(c) 5.58%
Ratio of expenses to average net
assets*....................... 0.92% 0.84%(c) 0.92% 0.86%(c) 1.18%
Ratio of net investment income
to average net assets*........ 5.92% 5.98%(c) 4.31% 3.97%(c) 5.05%
Portfolio turnover.............. 218% 329% 62% 98% 482%
</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.
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<PAGE> 70
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing the Funds'
average annual 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 is calculated for the period
since commencement of operations for a Fund (or its respective predecessor
collective investment or common trust funds) and reflects 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. Yield is 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,
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. 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
6
<PAGE> 71
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.
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
7
<PAGE> 72
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
8
<PAGE> 73
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
9
<PAGE> 74
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
10
<PAGE> 75
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 10% 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 and 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 Baa2 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, 1997 was a surplus of $128.8 million up from a surplus of approximately
$118.5 million as of June 30, 1996.
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. Its ability to refund existing outstanding debt is unrestricted. PICA has
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$1.1 billion in special revenue bonds outstanding as of June 30, 1998.
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
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of the security and perceived credit quality of the issuer. Zero coupon
securities also may take the form of debt securities that have been stripped of
their unmatured interest coupons, the coupons themselves and receipts or
certificates representing interests in such stripped debt obligations and
coupons. The market prices of zero coupon securities generally are more volatile
than the market prices of interest-bearing securities and are likely to respond
to a greater degree to changes in interest rates than interest-bearing
securities having similar maturities and credit qualities. 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
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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.
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
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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 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
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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. 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
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would be in a position to realize a gain if, during the option period, the price
of the security, index or futures contract declined by an amount in excess of
the premium paid. It would realize a loss if the price of the security, index or
futures contract increased or remained the same or did not decrease during that
period by more than the amount of the premium. If a put or call option purchased
by the Fund were permitted to expire without being sold or exercised, its
premium would represent a realized loss to the Fund.
The 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
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lesser dollar amount than the dollar amount of the securities being hedged if
the historical volatility of the future contract has been less or greater than
that of the securities. Such "over hedging" or "under hedging" may adversely
affect 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 in-
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terest rate futures contracts to hedge against a decline in interest rates and
may purchase put options on interest rate futures contracts to hedge its
portfolio securities against the risk of rising interest rates.
If 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
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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 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.
Year 2000. Like other investment companies, financial and business
organizations and individuals around the world, the Funds could be affected
adversely if the computer systems used by the Adviser, the Funds' other service
providers, and others do not properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known as
the "Year 2000 Problem." The Adviser and the Funds' other service providers have
informed the Group that they are taking steps to address the Year 2000 Problem
with respect to the computer systems that they use. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Funds as a result of the Year 2000 Problem.
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:
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1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the Fund's total assets would
be invested in such issuer or the Fund would hold more than 10% of the
outstanding voting securities of the issuer, except that 25% or less of the
Fund's total assets may be invested without regard to such limitations. There is
no limit to the percentage of assets that may be invested in U.S. Treasury
bills, notes, or other obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities.
2. Purchase any securities which would cause more than 25% of the Fund's
total assets at the time of purchase to be invested in securities of one or more
issuers conducting their principal business activities in the same industry,
provided that (a) there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
repurchase agreements secured by obligations of the U.S. Government, its
agencies or instrumentalities; (b) wholly owned finance companies will be
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of their parents; and (c)
utilities will be divided according to their services. For example, gas, gas
transmission, electric and gas, electric, and telephone will each be considered
a separate industry.
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
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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 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'
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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 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, Share-
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<PAGE> 94
holders 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 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. An
in-kind securities payment may result in a taxable event for the purchaser of
Shares.
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>
30
<PAGE> 95
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.
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.
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
31
<PAGE> 96
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 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 suffi-
32
<PAGE> 97
cient 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 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 trans-
33
<PAGE> 98
mitted 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 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.
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<PAGE> 99
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 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
35
<PAGE> 100
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 long-term capital gain, if any,
over net short-term capital loss is taxable to Shareholders as long-term capital
gain in the year in which it is received, regardless of how long the Shareholder
has held the Shares. Such distributions are not eligible for the dividends
received deduction.
If the net asset value of a Share is reduced below the Shareholder's cost of
that Share by the distribution of income or gain realized on the sale of
securities, the distribution, from a practical stand point, is a return of
invested principal, although taxable as described above.
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 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 Pennsylvania Bond Fund anticipates that substantially all of its
dividends will be excluded from gross income for federal income tax pur-
36
<PAGE> 101
poses. 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, for Philadelphia
residents, 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 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 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
37
<PAGE> 102
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 $2.55 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
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
38
<PAGE> 103
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.
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
39
<PAGE> 104
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 authorized by the Services Plan, the Group has entered into a Servicing
Agreement with Keystone effective April 1, 1998, pursuant to which Keystone 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, those
services described above. In consideration of such services, the Group, on
behalf of each Fund, has agreed to pay Keystone a monthly fee, computed at the
annual rate of up to 0.25% of the average aggregate net asset value of Shares of
that Fund held during the period by customers for whom Keystone 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, 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 eight 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, and The KeyPremier Emerging Growth 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 amend-
40
<PAGE> 105
ment 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 20, 1998, 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.
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
41
<PAGE> 106
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.
42
<PAGE> 107
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 108
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............................. 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 30, 1998
<PAGE> 109
CROSS REFERENCE SHEET
THE KEYPREMIER EMERGING GROWTH FUND
One Fund
of
The Sessions Group
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
<S> <C> <C>
1. Cover page.................. Cover Page
2. Synopsis.................... Fee Table
3. Condensed Financial
Information............... Performance Information
4. General Description of
Registrant................ Investment Objective and Policies;
Investment Restrictions; General
Information - Description of the Group
and Its Shares; Cover Page
5. Management of the Fund...... Management of the Group; General
Information - Custodian; General
Information - Transfer Agency and Fund
Accounting Services
5A. Management Discussion
of Fund Performance....... Inapplicable
6. Capital Stock and Other
Securities................ How to Purchase and Redeem Shares;
Dividends and Taxes; General 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> 110
THE KEYPREMIER EMERGING GROWTH FUND [KEYPREMIER FUNDS 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 Emerging Growth Fund (the "Emerging Growth
Fund") which is a diversified portfolio of the Group. The Trustees of the Group
have divided the Emerging Growth Fund's beneficial ownership into an unlimited
number of transferable units called shares (the "Shares").
Martindale Andres & Company, Inc., West Conshohocken, Pennsylvania (the
"Adviser"), which is a wholly owned subsidiary of Keystone Financial, Inc.
("Keystone"), acts as the investment adviser to the Emerging Growth Fund.
Prospective investors should be aware that management may consider closing the
Emerging Growth Fund to new Shareholders after the Fund reaches $300 million in
total assets.
Additional information about the Emerging Growth Fund and the Group, contained
in a Statement of Additional Information, has been filed with the Securities and
Exchange Commission and is available upon request without charge by writing to
the 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 Emerging Growth
Fund and the Group that a prospective investor ought to know before investing.
Investors should read this Prospectus and retain it for future reference.
The Emerging 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 Emerging Growth Fund's administrator and
distributor. BISYS Fund Services, Inc., Columbus, Ohio, the general partner of
BISYS, acts as the Emerging Growth Fund's transfer agent (the "Transfer Agent")
and performs certain fund accounting services for the Fund.
THE SHARES OF THE EMERGING GROWTH FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, THE ADVISER, KEYSTONE OR ANY OF THEIR AFFILIATES.
SUCH SHARES ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENTAL AGENCY, AND AN INVESTMENT IN THE EMERGING GROWTH 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") NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is October 30, 1998.
<PAGE> 111
PROSPECTUS SUMMARY
SHARES OFFERED: Units of beneficial interest ("Shares") of the Emerging
Growth Fund, one separate investment fund of The Sessions Group, an Ohio
business trust (the "Group").
OFFERING PRICE: The public offering price of the Emerging Growth 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 (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 Emerging Growth Fund is a diversified series of an
open-end, management investment company.
INVESTMENT OBJECTIVES: Long-term growth of capital.
INVESTMENT POLICIES: Under normal market conditions, the Emerging 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 growth-oriented micro-cap companies. For purposes of this
policy, the Emerging Growth Fund considers companies with equity market
capitalizations, at the time of purchase, of between $30 million and $350
million to be micro-cap companies.
RISK FACTORS AND SPECIAL CONSIDERATIONS: An investment in the Emerging
Growth Fund is subject to certain risks, including market risk, as set forth in
detail under "INVESTMENT OBJECTIVE AND POLICIES--Risk Factors and Investment
Techniques." As with other mutual funds, there can be no assurance that the
Emerging Growth Fund will achieve its investment objective. Investing in smaller
companies may offer greater capital appreciation potential but involves more
risk than investing in larger companies. The Emerging Growth Fund, to the extent
set forth under "INVESTMENT OBJECTIVE 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
semi-annually. Net realized capital gains, if any, are distributed at least
annually.
DISTRIBUTOR: BISYS Fund Services Limited Partnership d/b/a BISYS Fund
Services ("BISYS").
PROPOSED REORGANIZATION: The Group has entered into an Agreement and Plan
of Reorganization (the "Plan"), with Governor Funds, a Delaware business trust
("Governor"). Pursuant to the Plan, the Governor Emerging Growth Fund, a
separate series of Governor (the "Acquiring Fund") would acquire all of the
assets of the Emerging Growth Fund, in exchange for the assumption of all of the
Emerging Growth Fund's liabilities and a number of full and fractional shares of
the Acquiring Fund having an aggregate net asset value equal to the Emerging
Growth Fund's net assets (the "Reorganization").
The Reorganization is subject to certain regulatory approvals and to
approval by the Shareholders of the Emerging Growth Fund at a Special
Shareholders Meeting currently expected to be held in January, 1999. If the
Shareholders approve the Reorganization, it is expected that the Reorganization
will be effected on or about January 30, 1999; however, the Reorganization may
be effected on such earlier or later date as the Group and Governor may
determine. There can be no assurance that the Reorganization will take place
when or as currently proposed.
2
<PAGE> 112
FEE TABLE
<TABLE>
<CAPTION>
EMERGING
GROWTH FUND
-----------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price)........................................... 4.50%
ESTIMATED ANNUAL FUND OPERATING EXPENSES (as a percentage of
average net assets)
Management Fees After Fee Waiver(1)......................... 0.50%
12b-1 Fees.................................................. None
Other Expenses(2)........................................... 1.09
-----
Estimated Total Fund Operating Expenses After Fee
Waiver(1)................................................. 1.59%
=====
</TABLE>
Example. You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C>
$60 $93
</TABLE>
The purpose of the above table is to assist a potential purchaser of Shares of
the Emerging Growth 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 Emerging Growth Fund. See
"MANAGEMENT AND SERVICE PROVIDERS OF THE GROUP" and "GENERAL INFORMATION" for a
more complete discussion of the annual operating expenses of the Emerging Growth
Fund. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ---------------
(1) The Adviser has agreed voluntarily to reduce its investment advisory fee to
0.50% for the Emerging Growth Fund until January 31, 1999, and then to 0.60%
until further written notice to Shareholders. Absent such voluntary fee
waivers, Management Fees and Estimated Total Fund Operating Expenses would
be 1.25% and 2.34%, respectively.
(2) "Other Expenses" are estimated for the current fiscal year.
3
<PAGE> 113
PERFORMANCE INFORMATION
From time to time performance information for the Emerging Growth Fund showing
its aggregate total return, 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 is calculated for the
period since commencement of operations for the Emerging Growth Fund and
reflects the imposition of the maximum sales charge. Average annual total return
is measured by comparing the value of an investment in the Fund at the beginning
of the relevant period to the redeemable value of the investment at the end of
the period (assuming immediate reinvestment of any dividends or capital gains
distributions), which figure is then annualized. Aggregate total return is
calculated similarly to average annual total return except that the return
figure is aggregated over the relevant period instead of annualized. Yield is
computed by dividing the Emerging Growth Fund's net investment income per share
earned during a recent one-month period by that Fund's per share maximum
offering price (reduced by any undeclared earned income expected to be paid
shortly as a dividend) on the last day of the period and annualizing the result.
The Emerging Growth Fund may also present its aggregate total return, average
annual total return and yield excluding the effect of a sales charge.
Investors may also judge the performance of the Emerging Growth 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 Emerging
Growth Fund that appears in such publications may be included in advertisements,
sales literature and reports to Shareholders.
Yield and total return are generally functions of market conditions, 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 Emerging
Growth Fund will not be included in performance calculations; such fees, if
charged, will reduce the actual performance from that quoted. In addition, if
the Adviser or BISYS voluntarily reduces all or part of its fees for the
Emerging Growth Fund, as discussed below, the yield and total return for the
Fund will be higher than they would otherwise be in the absence of such
voluntary fee reductions.
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The investment objective for the Emerging Growth Fund is long-term growth of
capital. Any income earned by the Emerging Growth Fund will be incidental to its
overall objective of long-term growth of capital. The investment objective of
the Emerging Growth Fund is a non-fundamental policy and as such may be changed
by the Group's Trustees without the vote of the Shareholders of the Fund. There
can be no assurance that the investment objective of the Emerging Growth Fund
will be achieved.
Under normal market conditions, the Emerging 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
growth-oriented micro-cap companies. For purposes of this policy, the Emerging
Growth Fund considers companies with equity market capitalizations, at the time
of purchase, of between $30 million and $350 million to be micro-cap companies,
and securities convertible into common stocks include convertible bonds,
convertible preferred stock, options and rights. Under normal market condi-
4
<PAGE> 114
tions, up to 35% of the Emerging Growth Fund's total assets may be invested in
common stocks and securities convertible into common stock of companies not
meeting the foregoing micro-cap company equity market parameters.
The Adviser's investment style with respect to the Emerging Growth Fund may be
characterized as "buy-and-hold." When making individual security selections, the
Adviser's investment horizon is expected to be a three to five year period. The
Adviser will purchase and maintain positions in securities of companies that the
Adviser believes have demonstrated one or more of the following characteristics:
(1) strong entrepreneurial management team with an ownership interest in the
business; (2) solid long-term revenue and earnings outlook; (3) unique position
in the company's targeted market; (4) sustainable competitive advantage in the
company's targeted market; 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 projected three to five year earnings
growth rate. This growth at a discount management style relies on a combination
of quantitative and fundamental analysis of historical and projected data to
determine a stock's expected return.
Under normal market conditions, the Emerging Growth Fund may also invest up to
25% of its total assets in warrants, foreign securities, directly or through
sponsored American Depositary Receipts ("ADRs"), securities of other investment
companies and REITs (real estate investment trusts), cash and Short-Term
Obligations and may purchase the other investments and 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 Emerging Growth 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 Emerging
Growth Fund is so invested, it may not achieve its investment objective.
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in the Emerging Growth Fund entails
certain risks. Equity securities of micro-cap companies, such as those in which
the Emerging Growth Fund may invest, may offer a greater capital appreciation
potential but are more volatile and carry more risk than some other forms of
investment, including investments in equity securities of larger, more
established companies or high grade fixed income securities. Investments in
micro-cap companies represent some of the smaller and least liquid equity
securities in the U.S. markets. In addition, the Emerging Growth Fund is subject
to general stock market risk, i.e., the possibility that stock prices in general
will decline over short or even extended periods of time. The Emerging Growth
Fund is intended for investors who can accept the risks associated with its
investments and may not be suitable for all investors.
Depending upon the performance of the Emerging Growth Fund's investments, its
net asset value per share may decrease instead of increase.
The Emerging Growth Fund, as described below, may invest in put and call
options and futures. Such instruments are considered to be
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"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. The Emerging Growth Fund
will not invest more than 20% of its total assets in any such derivatives at any
one time.
Growth-Oriented Companies. The Emerging 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 Emerging 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 Emerging 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 Emerging 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.
Other risks of investing in smaller capitalization companies include the
probability that some companies may never realize the value discount potential
that appeared to be inherent in them at the time of investment or may even fail
as a business for several reasons. For example, a new product or innovation may
not take hold, an anticipated takeover or turnaround may not occur, a trademark
may lose its value to other generic products. Also, smaller companies may lack
the resources, financial or otherwise, to take advantage of a valuable product
or favorable market position or may be unable to withstand the competitive
pressures of larger, more established rivals. The Adviser will seek to minimize
the risks described above by broad diversification of the Emerging Growth Fund's
portfolio. However, there can be no assurance that such diversification will
prevent loss in value of certain portfolio securities or in the Emerging Growth
Fund's net asset value.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. Convertible
securities rank senior to common stocks in a corporation's capital structure
and, therefore, entail less risk than the corporation's common stock. The value
of a convertible security is a function of its "investment value" (its value as
if it did not have a conversion privilege), and its "conversion value" (the
security's worth if it were to be exchanged for the underlying security, at
market value, pursuant to its conversion privilege).
Repurchase Agreements. Securities held by the Emerging Growth Fund may be
subject to repurchase agreements. Under the terms of a repurchase agreement, the
Emerging Growth 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 Emerging
Growth Fund may invest directly. Repurchase agreements are considered to be
loans by the Emerging Growth Fund under the 1940 Act. For further
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information about repurchase agreements and the related risks, see "INVESTMENT
OBJECTIVE AND POLICIES--Additional Information on Portfolio
Instruments--Repurchase Agreements" in the Statement of Additional Information.
Reverse Repurchase Agreements. The Emerging Growth Fund may borrow funds by
entering into reverse repurchase agreements in accordance with the investment
restrictions described below. Pursuant to such agreements, the Emerging Growth
Fund would sell portfolio securities to financial institutions such as banks and
broker-dealers, and agree to repurchase them at a mutually agreed-upon date and
price. At the time the Emerging Growth 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 the Emerging
Growth 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 the Emerging Growth Fund under the 1940 Act and therefore a form
of leverage. The Emerging Growth Fund may experience a negative impact on its
net asset value if interest rates rise during the term of a reverse repurchase
agreement. The Emerging Growth 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 Emerging Growth Fund,
the Group will not execute portfolio transactions through, acquire portfolio
securities issued by, make savings deposits in, or enter into repurchase or
reverse repurchase agreements with the Adviser, BISYS, or their affiliates, and
will not give preference to the Adviser's correspondents with respect to such
transactions, securities, savings deposits, repurchase agreements, and reverse
repurchase agreements.
Foreign Investments. 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 ADRs) may subject the Emerging Growth 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 Emerging 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
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to disposition under the Federal securities laws, and generally are sold to
institutional investors such as the Emerging 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 Emerging 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 Emerging Growth 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, the Emerging
Growth Fund may, from time to time, lend its portfolio securities to
broker-dealers, banks, or institutional borrowers of securities. The Emerging
Growth 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 Emerging Growth Fund. During the time portfolio
securities are on loan, the borrower pays the Emerging Growth Fund any dividends
or interest received on such securities. Loans are subject to termination by the
Emerging Growth Fund or the borrower at any time. While the Emerging Growth Fund
does not have the right to vote securities on loan, it 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 Emerging Growth Fund bears the risk of delay in recovery of the portfolio
securities and the loss of rights in the collateral. The Emerging Growth 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 Emerging Growth Fund will not
lend more than 33% of the total value of its portfolio securities at any one
time.
Writing Covered Call and Put Options. The Emerging Growth 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. The Emerging
Growth 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
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are not likely to increase in value above the exercise price. The Emerging
Growth Fund also may seek to earn additional income through the receipt of
premiums by writing put options. By writing a call option, the Emerging Growth
Fund limits its opportunity to profit from any increase in the market value of
the underlying security above the exercise price of the option; by writing a put
option, the Emerging Growth Fund assumes the risk that it may be required to
purchase the underlying security at a price in excess of its then current market
value.
The Emerging Growth Fund, as part of its option transactions, also may write
index put and call options. Through the writing of index options the Emerging
Growth Fund can achieve many of the same objectives as through the use of
options on individual securities. Options on securities indices are similar to
options on a security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the securities index upon which the option is based
is greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option.
When the Emerging Growth Fund writes an option, an amount equal to the net
premium (the premium less the commission) received by the Fund is included in
the liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The current
value of the traded option is the last sale price or, in the absence of a sale,
the mean between bid and asked price. If an option expires on the stipulated
expiration date or if the Emerging Growth 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 Emerging Growth 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 Emerging Growth Fund will realize a gain
or loss. The Emerging Growth 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, the Emerging Growth 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 the Emerging Growth Fund's holdings in a falling market
while the purchase of a call option is intended to protect the value of the
Emerging Growth Fund's positions in a rising market. Put and call options
purchased by the Emerging Growth Fund will be valued at the last sale price, or
in the absence of such a price, at the mean between the bid and asked price.
Such options will be listed on national securities or futures exchanges.
In purchasing a call option, the Emerging Growth 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 Emerging Growth 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 Emerging Growth
Fund were
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permitted to expire without being sold or exercised, its premium would represent
a realized loss to the Fund.
Futures Contracts. The Emerging Growth Fund may purchase or sell contracts
for the future delivery of the specific financial instruments or securities in
which the Fund may invest, and indices based upon the types of securities in
which the Fund may invest (collectively, "Futures Contracts"). The Emerging
Growth 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 the Fund's securities or the prices of securities which the Fund
intends to purchase at a later date.
To the extent the Emerging Growth Fund is engaging in a futures transaction as
a hedging device, because of the risk of an imperfect correlation between
securities in the Fund's portfolio that are the subject of a hedging transaction
and the futures contract used as a hedging device, it is possible that the hedge
will not be fully effective if, for example, losses on the portfolio securities
exceed gains on the futures contract or losses on the futures contract exceed
gains on the portfolio securities. For futures contracts based on indices, the
risk of imperfect correlation increases as the composition of the Emerging
Growth Fund's portfolio varies from the composition of the index. In an effort
to compensate for the imperfect correlation of movements in the price of the
securities being hedged and movements in the price of futures contracts, the
Emerging Growth Fund may buy or sell futures contracts in a greater or lesser
dollar amount than the dollar amount of the securities being hedged if the
historical volatility of the future contract has been less or greater than that
of the securities. Such "over hedging" or "under hedging" may adversely affect
the Emerging Growth Fund's net investment results if the market does not move as
anticipated when the hedge is established.
Successful use of futures by the Emerging Growth Fund also is subject to the
Adviser's ability to predict correctly movements in the direction of the market.
For example, if the Emerging Growth 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 Emerging Growth Fund has insufficient cash, it may have to
sell securities to meet daily variation margin requirements. The Emerging Growth
Fund may have to sell such securities at a time when it may be disadvantageous
to do so.
An option on a futures contract gives the purchaser the right, in return for
the premium paid, to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of the
option is required upon exercise to assume an offsetting futures position (a
short position if the option is a call and a long position if the option is a
put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by delivery
of the accumulated cash balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract.
Call options sold by the Emerging Growth Fund with respect to futures
contracts will be covered by, among other things, entering into a long position
in the same contract at a price no higher than the strike price of the call
option, or by ownership of the instruments underlying, or instruments the prices
of which are expected to move relatively consistently with the instruments
underlying, the futures contract. Put options sold by the Emerging Growth Fund
with respect to futures contracts will be covered when, among other things, cash
or liquid securities are placed
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in a segregated account to fulfill the obligation undertaken.
The Emerging Growth 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 the Emerging Growth 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 the Emerging Growth Fund to
offset declines in its portfolio securities will not exceed the total market
value of the portfolio securities to be hedged, and futures contracts purchased
by the Emerging Growth Fund will be covered by a segregated account consisting
of cash or liquid securities in an amount equal to the total market value of
such futures contracts, less the initial margin deposited therefor.
When buying futures contracts and when writing put options, the Emerging
Growth 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, the Emerging Growth 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. The Emerging Growth Fund may
purchase securities on a when-issued or delayed-delivery basis. These
transactions are arrangements in which the Emerging Growth Fund purchases
securities with payment and delivery scheduled for a future time. The Emerging
Growth 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
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. The Emerging Growth Fund will generally
not pay for such securities or start earning dividends on them until they are
received on the settlement date. When the Emerging Growth 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, the Emerging Growth Fund relies
on the seller to complete the transaction; the seller's failure to do so may
cause the Fund to miss a price considered to be advantageous.
Investment Company Securities. The Emerging Growth 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. The Emerging
Growth Fund intends to invest in other investment companies which, in the
opinion of the Adviser will assist the Fund in achieving its investment
objective and in money market mutual funds for purposes of short-term cash
management. The Emerging Growth Fund will incur additional expenses due to the
duplication of fees
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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 Emerging Growth Fund'
administrator, and their affiliates will reduce their fees charged to the
Emerging Growth Fund by an amount equal to the fees charged by such service
providers based on a percentage of the Fund's assets attributable to the Fund's
investment in the KeyPremier money market fund. Additional restrictions on the
Emerging Growth Fund's investments in the securities of other mutual funds are
contained in the Statement of Additional Information.
Year 2000. Like other investment companies, financial and business
organizations and individuals around the world, the Emerging Growth Fund could
be affected adversely if the computer systems used by the Adviser, the Emerging
Growth Fund's other service providers, and others do not properly process and
calculate date-related information and data from and after January 1, 2000. This
is commonly known as the "Year 2000 Problem." The Adviser and the Emerging
Growth Fund's other service providers have informed the Group that they are
taking steps to address the Year 2000 Problem with respect to the computer
systems that they use. At this time, however, there can be no assurance that
these steps will be sufficient to avoid any adverse impact on the Emerging
Growth Fund as a result of the Year 2000 Problem.
INVESTMENT RESTRICTIONS
The Emerging Growth Fund is subject to a number of investment restrictions
that may be changed only by a vote of a majority of the outstanding Shares of
the Fund (as defined under "GENERAL INFORMATION--Miscellaneous" herein). The
Emerging 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 Fund's total assets would
be invested in such issuer or the Fund would hold more than 10% of the
outstanding voting securities of the issuer, except that 25% or less of the
Fund's total assets may be invested without regard to such limitations. There is
no limit to the percentage of assets that may be invested in U.S. Treasury
bills, notes, or other obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities.
2. Purchase any securities which would cause more than 25% of the Fund's total
assets at the time of purchase to be invested in securities of one or more
issuers conducting their principal business activities in the same industry,
provided that (a) there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
repurchase agreements secured by obligations of the U.S. Government, its
agencies or instrumentalities; (b) wholly owned finance companies will be
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of their parents; (c) utilities
will be divided according to their services; and (d) technology companies 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 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.
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The following additional investment restriction may be changed without the
vote of a majority of the outstanding Shares of the Emerging Growth Fund: the
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 the Emerging Growth Fund is determined and its Shares
are priced as of the close of regular trading on the New York Stock Exchange
(the "Exchange") (generally 4:00 p.m. Eastern time) on each Business Day of the
Fund. The time at which the Shares of the Emerging Growth Fund are priced is
hereinafter referred to as the "Valuation Time." A "Business Day" of the
Emerging Growth 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.'s Day, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas. Net asset value per share for purposes of
pricing purchases and redemptions is calculated by dividing the value of all
securities and other assets belonging to the Emerging Growth Fund, less the
liabilities charged to the Fund, by the number of the Fund's outstanding Shares.
The net asset value per share for the Emerging Growth Fund will fluctuate as
the value of the investment portfolio of the 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 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 Emerging Growth Fund are sold on a continuous basis by the
Group's distributor, BISYS (the "Distributor"). The principal office of the
Distributor is 3435 Stelzer Road, Columbus, Ohio 43219. If you wish to purchase
Shares, telephone the Group at (800) 766-3960.
SPECIAL RESTRICTIONS
Prospective investors should be aware that management may consider closing the
Emerging Growth Fund to new Shareholders at the end of the 90th calendar day
after the Emerging Growth Fund reaches $300 million in total assets. No
investments by new Shareholders will be accepted after such closure. Depending
upon market conditions and the availability of suitable investments for the
Emerging Growth Fund, investments from new Shareholders may be accepted. The
time period for any such investments by new Shareholders will be determined by
the Adviser based primarily on its ability to effectively invest the Emerging
Growth Fund's available cash. There is no limitation on purchases of the
Emerging Growth Fund's Shares through the reinvestment of dividends and capital
gains distributions paid by the Emerging Growth Fund.
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The Emerging Growth Fund reserves the right to modify or eliminate
restrictions on the sale of its Shares if such action is in the interest of the
Emerging Growth Fund's Shareholders.
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
Emerging Growth Fund 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 Emerging Growth Fund sold to the Entities acting in a fiduciary,
advisory, custodial, agency, or other similar capacity on behalf of Customers
will normally be held of record by the Entities. With respect to Shares of the
Emerging Growth 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 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 Emerging Growth Fund, to The KeyPremier Funds, P.O. Box 182707,
Columbus, Ohio 43218-2707. Subsequent purchases of Shares of the Emerging Growth
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 Emerging Growth Fund's
custodian. Prior to wiring any such funds and in order to ensure that wire
orders are invested promptly, investors must call the Group at (800) 766-3960 to
obtain instructions regarding the bank account number into which the funds
should be wired and other pertinent information.
Shares of the Emerging Growth Fund are purchased at the net asset value per
share (see "VALUATION OF SHARES") next determined after receipt by the
Distributor, its agents or broker-dealers with whom it has an agreement of an
order in good form to purchase Shares plus any applicable sales charge as
described below. Purchases of Shares of the Emerging Growth Fund will be
effected only on a Business Day (as defined in "VALUATION OF SHARES") of the
Fund.
For an order for the purchase of Shares of the Emerging Growth Fund that is
placed through a broker-dealer, the applicable public offering price will be the
net asset value as so determined (plus any applicable sales charge), but only if
the broker-dealer receives the order and transmits it to the Distributor prior
to the Valuation Time for that day. The broker-dealer is responsible for
transmitting such orders by the Valuation Time. If the broker-dealer fails to do
so, the investor's right to that day's closing price must be settled between the
investor and the broker-dealer. If the broker-dealer receives the order after
the Valuation Time for that day, the price will be based on the net asset value
determined as of the Valuation Time for the next Business Day.
MINIMUM INVESTMENT
Except as otherwise discussed below under "Auto Invest Plan," the minimum
investment is $1,000 for the initial purchase of Shares of the Emerging Growth
Fund by an investor and $25
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for subsequent purchases of Shares of the 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
Emerging Growth Fund. Information concerning these services and any charges will
be provided by the Entities. This Prospectus should be read in conjunction with
any such information received from the Entities or their affiliates.
The Emerging Growth 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 Emerging Growth 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 Emerging Growth
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
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KeyPremier IRA contribution and withdrawal requirements and restrictions.
IN-KIND PURCHASES
Payment of Shares of the Emerging Growth Fund may, in the discretion of the
Adviser, be made in the form of securities that are permissible investments for
the Fund as described in this Prospectus. For further information about this
form of payment, contact the Adviser. In connection with an in-kind securities
payment, the Emerging Growth 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. An in-kind securities payment may result in a taxable event for
the purchaser of Shares.
SALES CHARGES
The public offering price of Shares of the Emerging Growth Fund equals net
asset value plus a sales charge in accordance with the table below. BISYS
receives this sales charge as Distributor and reallows a portion of it as dealer
discounts and brokerage commissions. However, the Distributor, in its sole
discretion may pay certain dealers all or part of the portion of the sales
charge it receives. The broker or dealer who receives a reallowance in excess of
90% of the sales charge may be deemed to be an "underwriter" for purposes of the
Securities Act of 1933.
<TABLE>
<CAPTION>
DEALER
DISCOUNTS
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>
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.
SALES CHARGE WAIVERS
The Distributor will waive sales charges for the purchase of Shares of the
Emerging Growth Fund by or on behalf of (1) purchasers for whom Keystone, the
Adviser, one of their affiliates or another financial institution acts in a
fiduciary, advisory, agency, custodial (other than individual retirement
accounts), or similar capacity, (2) officers, trustees, directors, advisory
board members, employees and retired employees (including spouses, children and
parents of the foregoing) of Keystone, the Adviser, the Group, BISYS and any
affiliated company thereof, (3) investors who purchase Shares with the proceeds
from a distribution from the Adviser, Keystone or an affiliate trust or agency
account, (4) brokers, dealers and agents who have a sales agreement with the
Distributor, and their employees (and their spouses and children under 21), and
(5) investment advisers or financial planners regulated by a federal or state
governmental authority who are purchasing Shares for their own account or for an
account for which they are authorized to make investment decisions (i.e., a
discretionary account) and who charge a management, consulting or other fee for
their services, and clients of such investment advisers or financial planners
who place trades for their own accounts if the accounts are linked to the master
account of such investment adviser or financial planner on the books and records
of a broker or agent. The Distributor may change or eliminate the foregoing
waivers at any time or from time to time without notice thereof. The Distributor
may also periodically waive all or a portion of the sales charge for all
investors with respect to the Emerging Growth Fund.
In addition, the Distributor may waive sales charges for the purchase of the
Emerging Growth Fund's Shares with the proceeds from the recent
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<PAGE> 126
redemption of shares of a non-money market fund that imposes a sales charge. The
purchase must be made within 60 days of the redemption, and the Distributor must
be notified in writing by the investor, or by his financial institution, at the
time the purchase is made. A copy of the investor's account statement showing
such redemption must accompany such notice.
CONCURRENT PURCHASES
For purposes of qualifying for a lower sales charge, investors have the
privilege of combining concurrent purchases of the Emerging Growth 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 Emerging 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
Emerging 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 the
Emerging Growth Fund at a designated total public offering price within a
designated 13-month period. Each purchase of Shares under a Letter of Intent
will be made at the net asset value plus the sales charge applicable at the time
of such purchase to a single transaction of the total dollar amount indicated in
the Letter of Intent. A Letter of Intent may include purchases of Shares made
not more than 90 days prior to the date such investor signs a Letter of Intent;
however, the 13-month period during which the Letter of Intent is in effect will
begin on the date of the earliest purchase to be included. This program may be
modified or eliminated at any time or from time to time by the Group without
notice. For further information about letters of intent, interested investors
should contact the Group at (800) 766-3960.
A Letter of Intent is not a binding obligation upon the investor to purchase
the full amount indicated. The minimum initial investment under a Letter of
Intent is 5% of such amount. Shares purchased with the first 5% of such amount
will be held in escrow (while remaining registered in the name of the investor)
to secure payment of the higher sales charge applicable to the Shares actually
purchased if the full amount indicated is not purchased, and such escrowed
Shares will be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed Shares, whether paid in cash or reinvested in
additional Shares, are not subject to escrow. The escrowed Shares will not be
available for disposal by the investor until all purchases pursuant to the
Letter of Intent have been made or the higher sales charge has been paid. When
the full amount indicated has been purchased, the escrow will be released. An
adjustment will be made to reflect any reduced sales charge applicable to Shares
purchased during the 90-day period prior to the date the Letter of Intent was
entered into at the conclusion of the 13-month period and in the form of
additional Shares credited to the Shareholder's account at the then current
public offering price applicable to a single purchase of the total amount of the
total purchases. Additionally, if the total purchases within the 13-month period
exceed the amount specified, a similar adjustment will be made to reflect
further reduced sales charges applicable to such purchases, if any.
RIGHT OF ACCUMULATION
Pursuant to the right of accumulation, investors are permitted to purchase
Shares of the Emerging Growth 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
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<PAGE> 127
combined holdings of the Shares of all KeyPremier Load Funds. The "purchaser's
combined holdings" described in the preceding sentence shall include the
combined holdings of the purchaser, the purchaser's spouse and children under
the age of 21 and the purchaser's retirement plan accounts. To receive the
applicable public offering price pursuant to the right of accumulation,
Shareholders must, at the time of purchase, give the Transfer Agent sufficient
information to permit confirmation of qualification. This right of accumulation,
however, may be modified or eliminated at any time or from time to time by the
Group without notice.
EXCHANGE PRIVILEGE
Shares of the Emerging Growth 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 Shareholder may not include any sales charge on Shares of the
Emerging Growth Fund as a part of the cost of those Shares for purposes of
calculating the gain or loss realized on an exchange of those Shares within 90
days of their purchase.
The Group may at any time modify or terminate the foregoing exchange
privileges. The Group, however, will give Shareholders 60 days' advance written
notice of any such modification.
A Shareholder wishing to exchange his or her Shares may do so by contacting
the Group at (800) 766-3960 or by providing written instructions to the Group.
Any Shareholder who wishes to make an exchange should obtain and review the
current prospectus of the fund in which he or she wishes to invest before making
the exchange. For a discussion of risks associated with unauthorized telephone
exchanges, see "Redemption by Telephone" below.
REDEMPTION OF SHARES
Shares may ordinarily be redeemed by mail or by telephone. However, all or
part of a Customer's Shares may be redeemed in accordance with instructions and
limitations pertaining to his or her account at an Entity. For example, if a
Customer has agreed with an Entity to maintain a minimum balance in his or her
account with the Entity, and the balance in that account falls below that
minimum, the Customer may be obliged to redeem, or the Entity may redeem on
behalf of the Customer, all or part of the Customer's Shares of the Emerging
Growth 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
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<PAGE> 128
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
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 Emerging Growth Fund's custodian. There is currently no
charge for having payment of redemption requests mailed or sent electronically
to a designated bank account. For telephone redemptions, call the Group at (800)
766-3960.
Neither the Group, the Emerging Growth Fund 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 Emerging Growth Fund 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 the Emerging Growth Fund,
with an account balance in the Fund of $5,000 or more, to make regular monthly
or quarterly redemptions of Shares. With Shareholder authorization, the Transfer
Agent will automatically redeem Shares at the net asset value on the dates of
the withdrawal and have a check in the amount specified mailed to the
Shareholder. The required minimum withdrawal is $50 monthly. To participate in
the Auto Withdrawal Plan, Shareholders should call (800) 766-3960 for more
information. Purchases of additional Shares, including use of the Auto Invest
Plan described above, concurrent with withdrawals may be disadvantageous to
certain Shareholders because of tax liabilities and
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<PAGE> 129
sales charges. For a Shareholder to change the Auto Withdrawal instructions, the
request must be made in writing to the Group.
PAYMENTS TO SHAREHOLDERS
Redemption orders are effected at the net asset value per share next
determined after the Shares are properly tendered for redemption, as described
above. Payment to Shareholders for Shares redeemed will be made within seven
days after receipt by the Distributor of the request for redemption. However, to
the greatest extent possible, the Emerging Growth Fund will attempt to honor
requests from Shareholders for next day payments upon redemption of Shares if
the request for redemption is received by the Distributor before the Valuation
Time on a Business Day or, if the request for redemption is received after the
Valuation Time, to honor requests for payment on the second Business Day. The
Emerging Growth Fund will attempt to so honor redemption requests unless it
would be disadvantageous to the Emerging Growth Fund or the Shareholders of the
Fund to sell or liquidate portfolio securities in an amount sufficient to
satisfy requests for payments in that manner.
At various times, the Group may be requested to redeem Shares for which it has
not yet received good payment. In such circumstances, the Group may delay the
forwarding of proceeds for up to 15 days or more until payment has been
collected for the purchase of such Shares. The Group intends to pay cash for all
Shares redeemed, but under abnormal conditions which make payment in cash
unwise, the Group may make payment wholly or partly in 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 the Emerging
Growth Fund of any Shareholder if, because of redemptions of Shares by or on
behalf of the Shareholder (but not as a result of a decrease in the market price
of such Shares, the deduction of any sales charge or the establishment of an
account with less than $1,000 using the Auto Invest Plan), the account of such
Shareholder has a value of less than $1,000 ($250 if the Shareholder is an
employee of the Adviser or one of its affiliates). Accordingly, an investor
purchasing Shares of the Emerging Growth Fund in only the minimum investment
amount may be subject to such involuntary redemption if he or she thereafter
redeems some of his or her Shares. Before the Group exercises its right to
redeem such Shares and to send the proceeds to the Shareholder, the Shareholder
will be given notice that the value of the Shares in his or her account is less
than the minimum amount and will be allowed at least 60 days to make an
additional investment in an amount which will increase the value of the account
to at least $1,000 ($250 if the Shareholder is an employee of the Adviser or one
of its affiliates).
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the Statement of
Additional Information for examples of when the Group may suspend the right of
redemption.
DIVIDENDS AND TAXES
DIVIDENDS
A dividend for the Emerging Growth Fund is declared semi-annually at the close
of business on the day of declaration consisting of an amount of accumulated
undistributed net income of the Fund as determined necessary or appropriate by
the appropriate officers of the Group. Such dividend is generally paid
semi-annually. Shareholders will automatically receive all income dividends and
capital gains distributions in additional full and fractional Shares of the
Emerging Growth 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
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<PAGE> 130
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 Emerging Growth Fund
are distributed at least annually. Dividends are paid in cash not later than
seven Business Days after a Shareholder's complete redemption of his or her
Shares in the Emerging Growth 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 Emerging
Growth Fund at the per share net asset value determined as of the date of
payment of the distribution. In addition, any undeliverable checks or checks
that remain uncashed for six months will be canceled and will be reinvested in
the Fund at the per share net asset value determined as of the date of
cancellation.
FEDERAL TAXES
The Emerging Growth 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 the Fund's Shareholders. Qualification as a regulated
investment company under the Code requires, among other things, that the
regulated investment company distribute to its shareholders at least 90% of its
investment company taxable income. The Emerging Growth Fund contemplates
declaring as dividends all or substantially all of its investment company
taxable income (before deduction of dividends paid).
A non-deductible 4% excise tax is imposed on regulated investment companies
that do not distribute in each calendar year (regardless of having a
non-calendar taxable year) an amount equal to 98% of their ordinary income for
the calendar year plus 98% of their capital gain net income for the one-year
period ending on October 31 of such calendar year. If distributions during a
calendar year were less than the required amount, the Emerging Growth Fund would
be subject to a nondeductible 4% excise tax on the deficiency.
It is expected that the Emerging Growth Fund will distribute annually to its
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. 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 Emerging Growth Fund bear to its gross income.
Distribution by the Emerging Growth Fund of the excess of net long-term
capital gain, if any, over net short-term capital loss is taxable to
Shareholders as long-term capital gain in the year in which it is received,
regardless of how long the Shareholder has held the Shares. Such distributions
are not eligible for the dividends received deduction.
If the net asset value of a Share is reduced below the Shareholder's cost of
that Share by the distribution of income or gain realized on the sale of
securities, the distribution, from a practical stand point, is a return of
invested principal, although taxable as described above.
Prior to purchasing Shares, 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.
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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 Emerging Growth Fund and its Shareholders. Accordingly, potential investors
are urged to consult their own tax advisers concerning the application of
federal, state and local taxes as such laws and regulations affect their own tax
situation.
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made to them during the year.
MANAGEMENT AND SERVICE
PROVIDERS 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
the Emerging Growth Fund for acting as Administrator, may receive fees under the
Administrative Services Plan discussed below and may retain all or a portion of
any sales load imposed upon purchases of Shares. BISYS Fund Services, Inc.
receives fees from the Emerging Growth Fund for acting as Transfer Agent and for
providing certain fund accounting services.
INVESTMENT ADVISER
Martindale Andres & Company, Inc., Four Falls Corporate Center, Suite 200,
West Conshohocken, Pennsylvania 19428, is the investment adviser of the Emerging
Growth Fund and has served as such since the Emerging Growth 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 $2.55 billion under management.
Subject to the general supervision of the Board of Trustees of the Group and
in accordance with the investment objective and restrictions of the Emerging
Growth Fund, the Adviser manages the Fund, makes decisions with respect to and
places orders for all purchases and sales of its portfolio securities, and
maintains the Fund's records relating to such purchases and sales.
Robert M. Mitchell and Gregory S. Travers, CFA will be responsible for the
day-to-day management of the Emerging Growth Fund's portfolio. Mr. Mitchell and
Mr. Travers report to and are supervised by William C. Martindale, Jr. Mr.
Mitchell is a portfolio manager/research analyst specializing in small and
emerging growth companies. Mr. Mitchell joined the Adviser in July, 1995 after
attaining his MBA degree from Indiana University's Kelley School of Business.
Prior to graduate school, Mr. Mitchell worked at the U.S. Department of Justice,
Antitrust Division, where he analyzed the economic and finan-
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cial characteristics of various industries and businesses.
Mr. Travers is a portfolio manager with the Adviser specializing in small cap
growth companies and has over eight years of equity research experience. Mr.
Travers joined the Adviser in March, 1993, after working at Provident Mutual
Management Company where he was in charge of quantitative research and the
development of proprietary evaluation models.
Mr. Martindale, who has over 25 years of equity investment experience,
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 Emerging Growth Fund, computed daily and paid monthly, at the annual rate of
one hundred twenty five one-hundredths of one percent (1.25%) 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 the Emerging Growth Fund to increase the net income
of the Fund available for distribution as dividends. The Adviser may not seek
reimbursement of such voluntarily reduced fees after the end of the fiscal year
in which the fees were reduced. The reduction of such fee will cause the yield
and total return of the Emerging Growth Fund to be higher than they would
otherwise be in the absence of such a reduction.
ADMINISTRATOR AND DISTRIBUTOR
BISYS is the administrator for the Emerging Growth Fund and also acts as its
principal underwriter and distributor (the "Administrator" or the "Distributor,"
as the context indicates). BISYS and its affiliated companies, including BISYS
Fund Services, Inc., are wholly owned by The BISYS Group, Inc., a publicly-held
company which is a provider of information processing, loan servicing and 401(k)
administration and recordkeeping services to and through banking and other
financial organizations.
The Administrator generally assists in all aspects of the Emerging Growth
Fund's administration and operation. For expenses assumed and services provided
as administrator pursuant to its management and administration agreement with
the Group, the Administrator receives a fee from the Emerging Growth Fund,
computed daily and paid periodically, calculated at an annual rate of eleven and
one-half one-hundredths of one percent (.115%) of the Fund's average daily net
assets. The Administrator may periodically voluntarily reduce all or a portion
of its administration fee to increase the net income of the Emerging Growth Fund
available for distribution as dividends. The Administrator may not seek
reimbursement of such reduced fees after the end of the fiscal year in which the
fees were reduced. The voluntary reduction of such fee will cause the yield and
total return of the Emerging Growth Fund to be higher than they would otherwise
be in the absence of such a fee reduction.
The Distributor acts as agent for the Emerging Growth Fund in the distribution
of its Shares and, in such capacity, solicits orders for the sale of Shares,
advertises, and pays the costs of advertising, office space and its personnel
involved in such activities. The Distributor receives no compensation under its
Distribution Agreement with the Group, but may retain all or a portion of any
sales charge imposed upon the purchase of Shares. See "HOW TO PURCHASE AND
REDEEM SHARES--Sales Charges."
EXPENSES
The Adviser and the Administrator each bear all expenses in connection with
the performance of their services as investment adviser and administrator,
respectively, other than the cost of securities (including brokerage
commissions, if any) purchased for the Emerging Growth Fund. The Emerging Growth
Fund will bear the following
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<PAGE> 133
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 the Emerging Growth 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 the Fund. In consideration for such services, a
Service Organization receives a fee from the Emerging Growth Fund, computed
daily and paid monthly, at an annual rate of up to .25% of the average daily net
asset value of Shares of the Fund owned beneficially or of record by such
Service Organization's customers for whom the Service Organization provides such
services.
The servicing agreements adopted under the Services Plan (the "Servicing
Agreements") require the Service Organizations receiving such compensation to
perform certain ministerial, record keeping and/or administrative support
services with respect to the beneficial or record owners of Shares of the
Emerging Growth Fund, such as processing dividend and distribution payments from
the Fund on behalf of customers, providing periodic statements to customers
showing their positions in the Shares of the Fund, providing sub-accounting with
respect to Shares beneficially owned by such customers and providing customers
with a service that invests the assets of their accounts in Shares of the Fund
pursuant to specific or pre-authorized instructions.
As authorized by the Services Plan, the Group has entered into a Servicing
Agreement with Keystone pursuant to which Keystone has agreed to provide certain
administrative support services in connection with Shares of the Fund owned of
record or beneficially by its customers. Such administrative support services
may include, but are not limited to, those services described above. In
consideration of such services, the Group, on behalf of the Fund, has agreed to
pay Keystone a monthly fee, computed at the annual rate of up to 0.25% of the
average aggregate net asset value of Shares of the Fund held during the period
by customers for whom Keystone 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 the Emerging Growth 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 Emerging Growth Fund. 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.
24
<PAGE> 134
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 eight funds, each having its own class of shares. Each share
represents an equal proportionate interest in a fund with other shares of the
same fund, and is entitled to such dividends and distributions out of the income
earned on the assets belonging to the fund as are declared at the discretion of
the Trustees (see "Miscellaneous" below). The other funds of the Group are The
KeyPremier Prime Money Market Fund, The KeyPremier Pennsylvania Municipal Bond
Fund, The KeyPremier Established Growth Fund, The KeyPremier Intermediate Term
Income Fund, The KeyPremier Aggressive Growth Fund, The KeyPremier U.S. Treasury
Obligations Money Market Fund, and The KeyPremier Limited Duration Government
Securities Fund.
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested, and will
vote in the aggregate and not by fund except as otherwise expressly required by
law. For example, Shareholders of the Emerging Growth Fund will vote in the
aggregate with other shareholders of the Group with respect to the election of
Trustees. However, Shareholders of the Emerging Growth Fund will vote as a fund,
and not in the aggregate with other shareholders of the Group, for purposes of
approval or amendment of the Fund's investment advisory agreement.
Overall responsibility for the management of the Emerging Growth Fund is
vested in the Board of Trustees of the Group. See "MANAGEMENT AND SERVICE
PROVIDERS 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 the Emerging Growth 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 20, 1998, Keystone possessed, on behalf of its or its
affiliates' underlying accounts, voting or investment power with respect to more
than 25% of the outstanding Shares of the Emerging Growth Fund.
CUSTODIAN
The Bank of New York serves as the custodian for the Emerging Growth Fund.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219, serves as
the Emerging Growth Fund's transfer agent pursuant to a Transfer Agency
Agreement with the Group and receives a fee for such services. BISYS Fund
Services, Inc. also provides certain accounting services for the Emerging Growth
Fund pursuant to
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<PAGE> 135
a Fund Accounting Agreement and receives a fee from the Fund for such services
equal to the greater of (a) a fee computed at an annual rate of 0.03% of the
Fund's average daily net assets or (b) the annual fee of $30,000. See
"MANAGEMENT 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 Emerging Growth Fund
are conclusive.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of the Emerging Growth Fund means
the affirmative vote, at a meeting of Shareholders duly called, of the lesser of
(a) 67% or more of the votes of Shareholders of the Fund present at a meeting at
which the holders of more than 50% of the votes attributable to Shareholders of
record of the Fund are represented in person or by proxy, or (b) the holders of
more than 50% of the outstanding votes of Shareholders of the Fund.
Inquiries regarding the Emerging Growth Fund 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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<PAGE> 137
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
Suite 2100
65 East State Street
Columbus, Ohio 43215
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
TABLE OF CONTENTS
<TABLE>
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PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................... 2
FEE TABLE............................. 3
PERFORMANCE INFORMATION............... 4
INVESTMENT OBJECTIVE AND POLICIES..... 4
INVESTMENT RESTRICTIONS............... 12
VALUATION OF SHARES................... 13
HOW TO PURCHASE AND REDEEM SHARES..... 13
DIVIDENDS AND TAXES................... 20
MANAGEMENT AND SERVICE PROVIDERS OF
THE GROUP........................... 22
GENERAL INFORMATION................... 25
</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
EMERGING GROWTH FUND OR ITS DISTRIBUTOR, BISYS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE EMERGING GROWTH FUND OR BY BISYS IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
[KEYPREMIER FUNDS LOGO]
THE
KEYPREMIER
EMERGING
GROWTH FUND
MARTINDALE
ANDRES & COMPANY, INC.
INVESTMENT ADVISER
Prospectus
dated October 30, 1998
<PAGE> 138
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
THE KEYPREMIER EMERGING GROWTH FUND
Eight Investment Portfolios of
THE SESSIONS GROUP
Statement of Additional Information
October 30, 1998
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"), The
KeyPremier Limited Duration Government Securities Fund (the "Government
Securities Fund"), and The KeyPremier Emerging Growth Fund (the "Emerging Growth
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, the Government
Securities Fund and the Emerging Growth Fund are hereafter collectively referred
to as the "Funds" and individually as a "Fund." The Funds constitute all of the
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> 139
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
THE SESSIONS GROUP.............................................................................................B-1
INVESTMENT OBJECTIVES AND POLICIES.............................................................................B-1
Additional Information on Portfolio
Instruments ..........................................................................................B-1
Investment Restrictions...............................................................................B-16
Portfolio Turnover....................................................................................B-17
NET ASSET VALUE................................................................................................B-18
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.................................................................B-19
MANAGEMENT AND SERVICE PROVIDERS OF THE GROUP..................................................................B-19
Trustees and Officers.................................................................................B-19
Investment Adviser....................................................................................B-22
Portfolio Transactions................................................................................B-23
Glass-Steagall Act....................................................................................B-26
Administrator.........................................................................................B-27
Distributor...........................................................................................B-28
Administrative Services Plan..........................................................................B-29
Custodian.............................................................................................B-30
Transfer Agency and Fund Accounting Services..........................................................B-30
Auditors .............................................................................................B-33
Legal Counsel.........................................................................................B-33
ADDITIONAL INFORMATION.........................................................................................B-33
Description of Shares.................................................................................B-33
Vote of a Majority of the Outstanding Shares..........................................................B-34
Additional General Tax Information....................................................................B-34
Additional Tax Information With Respect to the Pennsylvania Bond Fund.................................B-37
Seven-Day and 30-Day Yields of the Prime Money Market Fund and the Treasury Money Market Fund.........B-41
30-Day Yield of the Funds.............................................................................B-41
Calculation of Total Return...........................................................................B-42
Distribution Rates....................................................................................B-43
Performance Comparisons...............................................................................B-44
Miscellaneous.........................................................................................B-45
FINANCIAL STATEMENTS...........................................................................................B-46
APPENDIX.......................................................................................................A-1
</TABLE>
<PAGE> 140
STATEMENT OF ADDITIONAL INFORMATION
THE SESSIONS GROUP
The Sessions Group (the "Group") is an open-end management investment
company which currently offers eight separate investment portfolios, each of
which is further described in this Statement of Additional Information. Seven of
these portfolios, the Prime Money Market Fund, the Established Growth Fund, the
Income Fund, the Aggressive Growth Fund, the Treasury Money Market Fund, the
Government Securities Fund, and the Emerging Growth Fund, are each considered to
be diversified portfolios, and the Pennsylvania Bond Fund 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 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
B-1
<PAGE> 141
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 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
B-2
<PAGE> 142
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, "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
B-3
<PAGE> 143
within the term Exempt Securities, ONLY if the interest paid thereon is exempt
from both Pennsylvania income taxes and federal taxes, although such interest
may be treated as a preference item for purposes of the federal alternative
minimum tax.
Among other types of Exempt Securities, the Pennsylvania Bond Fund may
purchase short-term General Obligation Notes, Tax Anticipation Notes, Bond
Anticipation Notes, Revenue Anticipation Notes, Project Notes, Tax-Exempt
Commercial Paper, Construction Loan Notes and other forms of short-term
tax-exempt loans. Such instruments are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues. In addition, the Pennsylvania Bond Fund may invest in other
types of tax-exempt instruments, such as municipal bonds, private activity
bonds, and pollution control bonds.
Project Notes are issued by a state or local housing agency and are
sold by the Department of Housing and Urban Development. While the issuing
agency has the primary obligation with respect to its Project Notes, they are
also secured by the full faith and credit of the United States through
agreements with the issuing authority which provide that, if required, the
federal government will lend the issuer an amount equal to the principal of and
interest on the Project Notes.
As described in the Prospectus of the Pennsylvania Bond Fund, the two
principal classifications of Exempt Securities consist of "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.
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VARIABLE AND FLOATING RATE SECURITIES. Each Fund may acquire variable
and floating rate securities, subject to such Fund's investment objectives,
policies and restrictions. A variable rate security is one whose terms provide
for the adjustment of its interest rate on set dates and which, upon such
adjustment, can reasonably be expected to have a market value that approximates
its par value or amortized cost, as the case may be. A floating rate security is
one whose terms provide for the adjustment of its interest rate whenever a
specified interest rate changes and which, at any time, can reasonably be
expected to have a market value that approximates its par value or amortized
cost, as the case may be. 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. Such an instrument which has a floating rate of interest is
deemed by the Fund to have a remaining maturity of one day.
2. A variable rate security, the principal amount of which, in
accordance with the terms of the security, must unconditionally 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 security, the principal amount of which is scheduled
to be paid in more than 397 calendar days, 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 security 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
security 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 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, the
Aggressive Growth Fund and the Emerging 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
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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, the
Aggressive Growth Fund and the Emerging Growth Fund will each limit its
investment in Section 4(2) securities to not more than 10%, 5% and 15%,
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 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
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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 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.
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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 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 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
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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 and the
Emerging 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 the Aggressive Growth Fund and the Emerging 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 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 and the Emerging 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 and the Emerging Growth Fund bear directly in connection with their
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
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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. 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
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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.
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
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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 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.
A transaction that may be considered a bona fide "hedging transaction"
under applicable federal securities or commodities laws may not be considered a
hedging transaction under generally accepted accounting principles but may be
considered trading activity instead.
B-13
<PAGE> 153
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 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, the Aggressive Growth
Fund and the Emerging 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
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<PAGE> 154
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.
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
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<PAGE> 155
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:
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, the Treasury Money Market Fund or the
Emerging Growth 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,
B-16
<PAGE> 156
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 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 each of the other Funds, other than the
Emerging Growth Fund, for the fiscal year ended June 30, 1998, and for fiscal
period ended June 30, 1997, are as follows:
<TABLE>
<CAPTION>
Year Ended Period Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Established Growth Fund 6% 1%
Income Fund 218% 329%
Aggressive Growth Fund 8% 2%
Government Securities Fund 482% N/A(1)
</TABLE>
- ---------------
(1) Commenced operations July, 1, 1997.
B-17
<PAGE> 157
The portfolio turnover rate for the Emerging Growth Fund for its first
fiscal period ending June 30, 1999, is estimated to be less than 50%.
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. The substantial decrease in the portfolio turnover rate
for the Income Fund from its first fiscal period ended June 30, 1997 to the
fiscal year ended June 30, 1998 was as a result of such Fund's transition from
its first short fiscal period into its first full year of operations and,
because of the volatility in the market, the Adviser, on behalf of the Income
Fund, did not trade as frequently.
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 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.
B-18
<PAGE> 158
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by BISYS, and BISYS
has agreed to use appropriate efforts to solicit all purchase orders. In
addition to purchasing Shares directly from BISYS, Shares may be purchased
through procedures established by BISYS in connection with the requirements of
accounts at the Adviser or the Adviser's affiliated entities or correspondents
(collectively, "Entities"). Customers purchasing Shares of the Funds may include
officers, directors, or employees of the Adviser or the Entities.
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the Exchange is
restricted by applicable rules and regulations of the Commission, (b) the
Exchange is closed for other than customary weekend and holiday closings, (c)
the Commission has by order permitted such suspension, or (d) an emergency
exists as a result of which (i) disposal by the Group of securities owned by it
is not 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 With Principal Occupation
Name, Address and Age The Group During Past 5 Years
- --------------------- ---------------------- -------------------
<S> <C> <C>
Walter B. Grimm* Chairman, From June, 1992 to present, employee of
3435 Stelzer Road President and BISYS Fund Services Limited Partnership.
Columbus, Ohio 43219 Trustee
Age: 53
James H. Woodward, Ph.D. Trustee Since July 1989, Chancellor of The
The University of North University of North Carolina at Charlotte.
Carolina at Charlotte
Charlotte, NC 28223
Age: 58
</TABLE>
B-19
<PAGE> 159
<TABLE>
<S> <C> <C>
John H. Ferring, IV Trustee Since 1979, President and owner of Plaze
105 Bolte Incorporated.
St. Louis, Missouri 63077
Age: 45
J. David Huber Vice President Since January, 1996, President of BISYS Fund
3435 Stelzer Road Services Limited Partnership; from June,
Columbus, Ohio 43219 1987 to December, 1995, employee of BISYS
Age: 52 Fund Services Limited Partnership.
William J. Tomko Vice President From April, 1987 to present, employee of
3435 Stelzer Road BISYS Fund Services Limited Partnership.
Columbus, Ohio 43219
Age: 40
Paul T. Kane Treasurer From December, 1997 to present, Vice
3435 Stelzer Road President and Treasurer of Financial
Columbus, Ohio 43219 Administration of BISYS Fund Services
Age: 41 Limited Partnership; prior thereto, Director
of Shareholder Reporting for Fidelity
Service Company (transfer agent).
George L. Stevens Secretary From September, 1996 to present, employee of
3435 Stelzer Road BISYS Fund Services Limited Partnership;
Columbus, Ohio 43219 from September, 1995 to August, 1996,
Age: 47 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, employee of
3435 Stelzer Road Secretary BISYS Fund Services Limited Partnership;
Columbus, Ohio 43219 prior to June, 1995, supervisor of Blue Sky
Age: 31 Compliance at Alliance Capital Management,
L.P. (investment management firm).
</TABLE>
B-20
<PAGE> 160
- -----------------
*Mr. Grimm is considered to be an "interested person" of the Group as
defined in the 1940 Act.
As of the date of this Statement of Additional Information, the Group's
officers and trustees, as a group, own less than 1% of any Fund's Shares.
No officer or employee of BISYS or BISYS Fund Services, Inc. receives
any compensation from the Group for acting as trustee of the Group. The officers
of the Group receive no compensation directly from the Group for performing the
duties of their offices. BISYS receives fees from 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, Kane and Stevens 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, 1998. 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(1) $ 0 $ 0
Trustee
John H. Ferring IV(2) $ 2,500 $ 2,500
Trustee
Maurice G. Stark $10,000 $10,000
Trustee
James H. Woodward, Ph.D $10,000 $10,000
Trustee
Chalmers P. Wylie(3) $10,000 $10,000
Trustee
</TABLE>
B-21
<PAGE> 161
- --------------
*For purposes of this Table, Fund Complex means one or more mutual
funds, including the Funds, which have a common investment adviser or affiliated
investment advisers or which hold themselves out to the public as being related.
(1) Ms. Converse resigned as a Trustee of the Group effective February
2, 1998.
(2) Mr. Ferring was appointed as a Trustee of the Group effective May
14, 1998.
(3) Mr. Wylie resigned as a Trustee of the Group effective May 14,
1998.
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 April 6, 1998.
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; 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; and the Emerging
Growth Fund pays the Adviser a fee, computed daily and paid monthly, at the
annual rate of one hundred twenty-five one-hundredths of one percent (1.25%) of
the average daily net assets of the Emerging 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 fiscal year ended June 30, 1998 and the fiscal period 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 Year Ended Fiscal Period Ended
June 30, 1998 June 30, 1997((1))
-------------------------- -------------------------
Fees Earned Fees Waived Fees Earned Fees Waived
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Prime Money Market Fund $623,575 $311,790 $282,882 $236,280
Pennsylvania Bond Fund 715,423 357,712 506,296 420,686
</TABLE>
B-22
<PAGE> 162
<TABLE>
<S> <C> <C> <C> <C>
Established Growth Fund 1,680,122 720,420 735,635 558,942
Income Fund 1,431,762 715,881 680,552 529,626
Aggressive Growth Fund 1,254,636 593,310 385,280 263,486
Treasury Money Market Fund 98,397 74,397 N/A N/A
Government Security Fund 198,771 153,207 N/A N/A
</TABLE>
- --------------
(1) Such Funds commenced operations October 7, 1996, October 1, 1996,
December 2, 1996, December 2, 1996, February 3, 1997, July 1, 1997, and
July 1, 1997, respectively.
For the fiscal year ended June 30, 1998, the Adviser had not received
any compensation under the Investment Advisory Agreement with respect to the
Emerging Growth Fund since such Fund had not yet commenced operations.
Unless sooner terminated, the Investment Advisory Agreement will
continues in effect with respect to a Fund 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
B-23
<PAGE> 163
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, the Aggressive
Growth Fund and the Emerging 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
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, the Aggressive Growth Fund and the Emerging 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, the Aggressive Growth Fund and the Emerging Growth Fund
to Boston Institutional in return for research services relating to equity
securities, including market information and equity analysis from Bloomberg
Financial Markets, Zacks Software for equity analysis and other equity research
services. For the fiscal year ended June 30, 1998, the amount of such
transactions and related commissions paid on behalf of the Established Growth
Fund were $9,446,185 and
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<PAGE> 164
$15,267, respectively, and on behalf of the Aggressive Growth Fund were
$5,083,071 and $13,815, respectively. There were no trades directed on behalf of
the Emerging Growth Fund for the fiscal year ended June 30, 1998.
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 year ended June 30, 1998, and 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 Year Ended Fiscal Period Ended
June 30, 1998 June 30, 1997
----------------- -------------------
<S> <C> <C>
Established Growth Fund $37,783 $19,776
Aggressive Growth Fund 27,365 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,
the Income Fund, the Treasury Money Market Fund or the Government Securities
Fund. The Emerging Growth Fund did not commence operations until July 1, 1998.
Except as otherwise disclosed to the Shareholders of the Funds and as
permitted by applicable laws, rules and regulations, the Group will not, on
behalf of a Fund, execute portfolio transactions through, acquire portfolio
securities issued by, make savings deposits in, or enter into repurchase or
reverse repurchase agreements with the Adviser, Keystone, BISYS, or their
affiliates, and will not give preference to the Adviser's or Keystone's
correspondents with respect to such transactions, securities, savings deposits,
repurchase agreements, and reverse repurchase agreements.
Investment decisions for each Fund are made independently from those
for other funds of the Group or any other investment company or account managed
by the Adviser. Any such other fund, investment company or account may also
invest in the same securities as the Group on behalf of a Fund. When a purchase
or sale of the same security is made at substantially the same time on behalf of
a Fund and another fund of the Group, investment company or account, the
transaction will be averaged as to price and available investments will be
allocated as to amount in a manner which the Adviser believes to be equitable to
the Fund and such other fund, investment company or account. In some instances,
this investment procedure may adversely affect the price paid or received by a
Fund or the size of the position obtained by a Fund. To the extent permitted by
law, the Adviser may aggregate the securities to be sold or purchased for a Fund
with those to be sold or purchased for other funds of the Group, investment
companies or
B-25
<PAGE> 165
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 year ended June 30, 1998, the Established Growth Fund
and the Income Fund each held securities of their regular brokers or dealers, as
defined in Rule 10b-1 under the 1940 Act, or their parent companies. As of June
30, 1998, the Established Growth Fund held $11,879,000 of equity securities of
Morgan Stanley, Dean Witter, Discover & Co., and the Income Fund held $8,070,000
of debt securities of Lehman Brothers Holding Company.
GLASS-STEAGALL ACT
In 1971, the United States Supreme Court held in INVESTMENT COMPANY
INSTITUTE V. CAMP that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM V.
INVESTMENT COMPANY INSTITUTE that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the BOARD
OF GOVERNORS case, the Supreme Court also stated that if a national bank
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
The Adviser believes that it possesses the legal authority to perform
the services for the Funds contemplated by the 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
B-26
<PAGE> 166
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 April 6, 1998 (the "Administration Agreement"). The Administrator
assists in supervising all operations of the Funds (other than those performed
by the Adviser under the Investment Advisory Agreement, by The Bank of New York
under the Custody Agreement and by BISYS Fund Services, Inc. under the Transfer
Agency Agreement and Fund Accounting Agreement). The Administrator is a
broker-dealer registered with the Commission, and is a member of the National
Association of Securities Dealers, Inc. The Administrator provides financial
services to institutional clients.
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities; furnish statistical and research data, clerical,
certain bookkeeping services and stationery and office supplies; prepare the
periodic reports to the Commission on Form N-SAR or any replacement forms
therefor; compile data for, prepare for execution by the Funds and file all of
the Funds' federal and state tax returns and required tax filings other than
those required to be made by the Funds' custodian and Transfer Agent; prepare
compliance filings pursuant to state securities laws with the advice of the
Group's counsel; assist to the extent requested by the Group with the Group's
preparation of its Annual and Semi-Annual Reports to Shareholders and its
Registration Statement (on Form N-1A or any replacement therefor); compile data
for, prepare and file timely Notices to the Commission required pursuant to Rule
24f-2 under the 1940 Act; keep and maintain the financial accounts and records
of the Funds, including calculation of daily expense accruals; determine the
actual variance from $1.00 of the 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.
B-27
<PAGE> 167
For the fiscal year ended June 30, 1998, and 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 Year Ended Fiscal Period Ended
June 30, 1998 June 30, 1979((1))
----------------- -------------------
<S> <C> <C>
Prime Money Market Fund $ 179,279 $ 81,328
Pennsylvania Bond Fund 137,123 97,040
Established Growth Fund 257,620 112,311
Income Fund 274,422 129,863
Aggressive Growth Fund 144,284 44,692
Treasury Money Market Fund 28,247 N/A
Government Securities Fund 38,098 N/A
</TABLE>
- ------------------
(1) Such Funds commenced operations October 7, 1996, October 1, 1996,
December 2, 1996, December 2, 1996, February 3, 1997, July 1, 1997, and
July 1, 1997, respectively.
For the fiscal year ended June 30, 1998, the Administrator had not
received any compensation under the Administration Agreement with respect to the
Emerging Growth Fund since that Fund 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 April
6, 1998 (the "Distribution Agreement"). Unless otherwise terminated, the
Distribution Agreement renews automatically for successive annual periods ending
July 9th if approved at least annually (i) by the Group's
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<PAGE> 168
Board of Trustees or by the vote of a majority of the outstanding Shares of the
Funds, and (ii) by the vote of a majority of the Trustees of the Group who are
not parties to the Distribution Agreement or interested persons (as defined in
the 1940 Act) of any party to the Distribution Agreement, cast in person at a
meeting called for the purpose of voting on such approval. The Distribution
Agreement also terminates automatically in the event of any assignment, as
defined in the 1940 Act.
In its capacity as Distributor, BISYS solicits orders for the sale of
Shares, advertises and pays the costs of advertising, office space and the
personnel involved in such activities. BISYS receives no compensation under the
Distribution Agreement with the Group but retains all or a portion of any sales
charge imposed upon a purchase of the Shares. For the fiscal year ended June 30,
1998, commissions paid to BISYS as Distributor with respect to the sale of
shares of the Funds were $56,594, of which $2,114 were reallowed to brokers
affiliated with Keystone.
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.
As authorized by the Services Plan, the Group has entered into a
Servicing Agreement with Keystone pursuant to which Keystone 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 Keystone; (v) providing sub-accounting with
respect to the Shares beneficially owned by Keystone's customers
B-29
<PAGE> 169
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 Keystone a monthly fee,
computed at the annual rate of up to .25% of the average aggregate net asset
value of Shares of that Fund held during the period by customers for whom
Keystone has provided services under the Servicing Agreement. For the fiscal
year ended June 30, 1998, Keystone received the following amounts from the
respective Funds pursuant to the Servicing Agreement:
Prime Money Market Fund $23,031
Pennsylvania Bond Fund 14,496
Established Growth Fund 94,082
Income Fund 33,220
Aggressive Growth Fund 49,831
Treasury Money Market Fund 0
Government Securities Fund 0
For the fiscal year ended June 30, 1998, Keystone had not received any
compensation under the Servicing Agreement with respect to the Emerging Growth
Fund since that Fund had not yet commenced operations.
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 April 6, 1998. The Custodian's
responsibilities include safeguarding and controlling each Fund's cash and
securities, handling the receipt and delivery of securities, and collecting
interest and dividends on each Fund's investments.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services, Inc. serves as transfer agent and dividend
disbursing agent (the "Transfer Agent") for the Funds pursuant to the Transfer
Agency Agreement dated July 9, 1996, as amended as of April 6, 1998. 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.
B-30
<PAGE> 170
For the fiscal year ended June 30, 1998, and 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 Year Ended Fiscal Period Ended
June 30, 1998 June 30, 1997(1)
----------------- -------------------
<S> <C> <C>
Prime Money Market Fund $26,793 $19,648
Pennsylvania Bond Fund 22,799 21,322
Established Growth Fund 38,056 20,282
Income Fund 27,809 19,824
Aggressive Growth Fund 36,487 11,099
Treasury Money Market Fund 21,952 N/A
Government Securities Fund 22,498 N/A
</TABLE>
- ---------------
(1) Such Funds commenced operations October 7, 1996, October 1, 1996,
December 2, 1996, December 2, 1996, February 3, 1997, July 1, 1997, and
July 1, 1997, respectively.
For the fiscal year ended June 30, 1998, the Transfer Agent received no
compensation from the Group for services as transfer agent for the Emerging
Growth Fund since such Fund 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 April 6, 1998. 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
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
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<PAGE> 171
in order to mark the portfolio to the market; and prepares an interim balance
sheet, statement of income and expense, and statement of changes in net assets
for the Funds.
Unless sooner terminated as provided therein, the Fund Accounting
Agreement has an initial term expiring on July 9, 1999, and thereafter shall be
renewed automatically for successive one-year terms, unless written notice not
to renew is given by the non-renewing party to the other party at least 60 days
prior to the expiration of the then-current term. The Fund Accounting Agreement
is terminable with respect to a Fund upon mutual agreement of the parties to the
Fund Accounting Agreement; upon 180 days' written notice by the Group after the
initial term but only in connection with the reorganization of the Funds into
another registered management investment company; and for cause (as defined in
the Fund Accounting Agreement) by the party alleging cause, on not less than 60
days' notice by the Group's Board of Trustees or by BISYS Fund Services, Inc.
The Fund Accounting Agreement provides that BISYS Fund Services, Inc.
shall not be liable for any error of judgment or mistake of law or any loss
suffered by a Fund in connection with the matters to which the Fund Accounting
Agreement relates, except a loss resulting from willful misfeasance, bad faith,
or negligence in the performance of its duties, or from the reckless disregard
by BISYS Fund Services, Inc. of its obligations and duties thereunder.
For the fiscal year ended June 30, 1998, and 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 Year Ended Fiscal Period Ended
June 30, 1998 June 30, 1997((1))
--------------- -------------------
<S> <C> <C>
Prime Money Market Fund $47,847 $21,776
Pennsylvania Bond Fund 43,737 30,096
Established Growth Fund 41,513 31,176
Income Fund 75,419 35,604
Aggressive Growth Fund 41,513 13,033
Treasury Money Market Fund 30,875 N/A
Government Securities Fund 32,239 N/A
</TABLE>
- -----------
(1) Such Funds commenced operations October 7, 1996, October 1, 1996,
December 2, 1996, December 2, 1996, February 3, 1997, July 1, 1997, and
July 1, 1997, respectively.
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<PAGE> 172
For the fiscal year ended June 30, 1998, BISYS Fund Services, Inc.
earned no fees with respect to its fund accounting services to the Emerging
Growth Fund since such Fund had not yet commenced operations.
AUDITORS
The financial statements for the Prime Money Market, Pennsylvania Bond,
Established Growth, Income, Aggressive Growth, Treasury Money Market and
Government Securities Funds as of June 30, 1998, 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 eight series of
shares that represent interests in the Funds. The Group's Declaration of Trust
authorizes the Board of Trustees to divide or redivide any unissued shares of
the Group into one or more additional series by setting or changing in any one
or more respects their respective preferences, conversion or other rights,
voting power, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the 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
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<PAGE> 173
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 20, 1998, the following are the only entities 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 86.25%
of the issued and outstanding Shares of the Prime Money Market Fund, 97.25% of
the issued and outstanding Shares of Pennsylvania Bond Fund, 97.81% of the
issued and outstanding Shares of the Established Growth Fund, 94.87% of the
issued and outstanding Shares of Income Fund, 95.75% of the issued and
outstanding Shares of the Aggressive Growth Fund, 75.56% of the issued and
outstanding Shares of the Treasury Money Market Fund, 98.74% of the issued and
outstanding Shares of the Government Securities Fund and 88.38% of the issued
and outstanding shares of the Emerging Growth Fund; and National Financial
Services Corp., One World Financial Center, 200 Liberty Street, New York, New
York 10281, owned of record 8.94% of the issued and outstanding Shares of the
Prime Money Market Fund and 18.54% of the issued and outstanding Shares of the
Treasury Money Market Fund.
VOTE OF A MAJORITY OF THE OUTSTANDING SHARES
As used in the Prospectuses and this Statement of Additional
Information, a "vote of a majority of the outstanding Shares" of a Fund means
the affirmative vote, at a meeting of Shareholders duly called, of the lesser of
(a) 67% or more of the votes of Shareholders of that Fund present at a meeting
at which the holders of more than 50% of the votes attributable to Shareholders
of record of such Fund are represented in person or by proxy, or (b) the holders
of more than 50% of the outstanding votes of Shareholders of that Fund.
ADDITIONAL GENERAL TAX INFORMATION
Each of the 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, a Fund must, among other things:
diversify its investments within certain prescribed limits; and 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. 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
B-34
<PAGE> 174
income subject to certain adjustments and excluding the excess of any net
long-term capital gain for the taxable year over the net short-term capital
loss, if any, for such year.
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, the
Fund would be subject to a non-deductible excise tax equal to 4% of the
deficiency.
Although each Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located, or in which it is otherwise deemed to be conducting business, a Fund
may be subject to the tax laws of such states or localities. In addition, if for
any taxable year a Fund does not qualify for the special tax treatment afforded
regulated investment companies, all of its taxable income will be subject to
federal tax at regular corporate rates (without any deduction for distributions
to its Shareholders). In such event, dividend distributions would be taxable to
Shareholders to the extent of earnings and profits, and would be eligible for
the dividends received deduction for corporations.
It is expected that each Fund will distribute annually to Shareholders
all or substantially all of that Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to Shareholders for federal income
tax purposes, even if paid in additional Shares of that Fund and not in cash.
Distribution by a Fund of the excess of net long-term capital gain over
net short-term capital loss, if any, is taxable to Shareholders as long-term
capital gain in the year in which it is received, regardless of how long the
Shareholder has held the Shares. Such distributions are not eligible for the
dividends-received deduction.
Federal taxable income of individuals is subject to graduated tax rates
of 15%, 28%, 31%, 36% and 39.6%. Further, the 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).
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 long-term capital gains is more than one year.
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
B-35
<PAGE> 175
but lower than $335,000, a maximum marginal tax rate of 39% may result. Federal
taxable income of corporations in excess of $10 million is subject to a tax rate
of 35%. Further, a corporation's federal taxable income in excess of $15 million
is subject to an additional tax equal to 3% of taxable income over $15 million,
but not more than $100,000.
Capital gains of corporations are subject to tax at the same rates
applicable to ordinary income. Capital losses may be used only to offset capital
gains and excess net capital loss may be carried back three years and forward
five years.
Certain corporations are entitled to a 70% dividends received deduction
for distributions from certain domestic corporations. Each Fund will designate
the portion of any distributions which qualify for the 70% dividends received
deduction. The amount so designated may not exceed the amount received by that
Fund for its taxable year that qualifies for the dividends received deduction.
Because all of the 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 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
B-36
<PAGE> 176
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.
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
B-37
<PAGE> 177
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.
In general, interest on indebtedness incurred or continued by a
Shareholder to purchase or carry Shares is not deductible for federal income tax
purposes if the Pennsylvania Bond Fund distributes exempt-interest dividends
during the Shareholder's taxable year. A Shareholder of the Pennsylvania Bond
Fund that is a financial institution may not deduct interest expense
attributable to indebtedness incurred or continued to purchase or carry Shares
of the Pennsylvania Bond Fund if the Pennsylvania Bond Fund distributes
exempt-interest dividends during the Shareholder's taxable year. Certain federal
income tax deductions of property and casualty insurance companies holding
Shares of the Pennsylvania Bond Fund and receiving exempt-interest dividends may
also be adversely affected. In certain limited instances, the portion of Social
Security benefits received by a Shareholder which may be subject to federal
income tax may be affected by the amount of tax-exempt interest income,
including exempt-interest dividends received by Shareholders of the Pennsylvania
Bond Fund.
In the event the Pennsylvania Bond Fund realizes long-term capital
gains, the Pennsylvania Bond Fund intends to distribute any realized net
long-term capital gains annually. If the Pennsylvania Bond Fund distributes such
gains, the Pennsylvania Bond Fund will have no tax liability with respect to
such gains, and the distributions will be taxable to Shareholders as long-term
capital gains regardless of how long the Shareholders have held their Shares.
Any such distributions will be designated as a capital gain dividend in a
written notice mailed by the
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<PAGE> 178
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). 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 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 its 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
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<PAGE> 179
Exempt Securities acquired subject to the put and the interest on the Exempt
Securities will be tax-exempt to it. Although the Internal Revenue Service has
issued a published ruling that provides some guidance regarding the tax
consequences of the purchase of puts, there is currently no guidance available
from the Internal Revenue Service that definitively establishes the tax
consequences of many of the types of puts that the Pennsylvania Bond Fund could
acquire under the 1940 Act. Therefore, although the Pennsylvania Bond Fund will
only acquire a put after concluding that it will have the tax consequences
described above, the Internal Revenue Service could reach a different
conclusion.
Under Section 1256 of the Code, gain or loss realized by the
Pennsylvania Bond Fund from certain financial futures and options transactions
will be treated as 60% long-term capital gain or loss and 40% short-term capital
gain or loss. Gain or loss will arise upon exercise or lapse of such futures and
options as well as from closing transactions. In addition, any such futures and
options remaining unexercised at the end of the Pennsylvania Bond Fund's taxable
year will be treated as sold for their then fair market value, resulting in
additional gain or loss to the Pennsylvania Bond Fund characterized in the
manner described above.
Offsetting positions held by the Pennsylvania Bond Fund involving
certain futures contracts or options transactions may be considered, for tax
purposes, to constitute "straddles." Straddles are defined to include
"offsetting positions" in actively traded personal property. The tax treatment
of straddles is governed by Sections 1092 and 1258 of the Code, which, in
certain circumstances, overrides or modifies the provisions of Section 1256. As
such, all or a portion of any short or long-term capital gain from certain
straddle and/or conversion transactions may be recharacterized as ordinary
income.
If the Pennsylvania Bond Fund were treated as entering into straddles
by reason of its engaging in futures or options transactions, such straddles
would be characterized as "mixed straddles" if the futures or options comprising
a part of such straddles were governed by Section 1256 of the Code. The
Pennsylvania Bond Fund may make one or more elections with respect to mixed
straddles. If no election is made, to the extent the straddle rules apply to
positions established by the Pennsylvania Bond Fund, losses realized by the
Pennsylvania Bond Fund will be deferred to the extent of unrealized gain in any
offsetting positions. Moreover, as a result of the straddle and conversion
transaction rules, short-term capital losses on straddle positions may be
recharacterized as long-term capital losses and long-term capital gains may be
recharacterized as short-term capital gain or ordinary income.
Investment by the Pennsylvania Bond Fund in securities issued at a
discount or providing for deferred interest or for payment of interest in the
form of additional obligations could, under special tax rules, affect the
amount, timing and character of distributions to Shareholders. For example, the
Pennsylvania Bond Fund could be required to take into account annually a portion
of the discount (or deemed discount) at which such securities were issued and to
distribute such portion in order to maintain its qualification as a regulated
investment company. In that case, the Pennsylvania Bond Fund may have to dispose
of securities which it might otherwise have continued to hold in order to
generate cash to satisfy these distribution requirements.
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<PAGE> 180
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, 1998, 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, 1998, the yield and effective
yield for the Prime Money Market Fund were 5.06% and 5.18%, respectively.
For the seven-day period ended June 30, 1998, the Treasury Money Market
Fund's seven-day yield and seven-day effective yield were 4.78% and 4.90%,
respectively. For the 30-day period ended June 30, 1998, the yield and effective
yield for the Treasury Money Market Fund were 4.73% and 4.84%, respectively.
30-DAY YIELD OF THE OTHER 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
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<PAGE> 181
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, 1998, the yields for the
Pennsylvania Bond Fund, the Income Fund and the Government Securities Fund were
as follows:
<TABLE>
<CAPTION>
With Maximum Without Maximum
Sales Load Sales Load
------------ ---------------
<S> <C> <C>
Pennsylvania Bond Fund 3.98% 4.17%
Income Fund 5.48% 5.75%
Government Securities Fund 4.99% 5.15%
</TABLE>
For the same period, the tax equivalent yields for the Pennsylvania
Bond Fund, assuming a 39.6% federal tax rate, were 6.59%, assuming the
imposition of the maximum sales charge, and 6.90%, excluding the effect of a
sales charge.
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 is a measure
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<PAGE> 182
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, 1998, and the period from
commencement of operations to June 30, 1998, the average annual total returns
for the Funds, including the performance of any Fund's predecessor CIFs (which
performance had been restated to reflect the estimated fees for such Fund for
its first 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)
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Prime Money Market 5.19% 5.17% 5.19% 5.17%
Pennsylvania Bond 1.17% 2.93% 5.89% 5.67%
Established Growth 22.21% 28.49% 27.92% 30.20%
Income 5.01% 4.07% 9.95% 7.14%
Aggressive Growth 7.68% 17.24% 12.72% 18.62%
Treasury Money Market 4.78% 4.78% 4.78% 4.78%
Government Securities 2.22% 3.89% 5.39% 5.10%
</TABLE>
- ------------
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%.
The maximum sales load for the Government Securities Fund is 3.00%. The
Prime Money Market Fund and the Treasury Money Market Fund have no
sales load.
2 Commenced operations October 7, 1996, October 1, 1996, January 1, 1995
(the Established Growth Fund's predecessor CIF), December 2, 1996, July
1, 1994 (the Aggressive Growth Fund's predecessor CIF), July 1, 1997,
and October 31, 1995 (the Government Securities Fund's predecessor
CIF), respectively.
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.
DISTRIBUTION RATES
The Funds may from time to time advertise current distribution rates
which are calculated in accordance with the method disclosed in the
Prospectuses. The distribution rates for the Pennsylvania Bond, Established
Growth, Income, Aggressive Growth and Government Securities Funds for the fiscal
year ended June 30, 1998, are set forth in the following table.
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<PAGE> 183
<TABLE>
<CAPTION>
With Front-end Sales Loads Without Front-end Sales Loads
-------------------------- -----------------------------
Fund Includes Capital Excludes Capital Includes Capital Excludes Capital
- ---- ---------------- ---------------- ---------------- ----------------
Gains Gains Gains Gains
----- ----- ----- -----
<S> <C> <C> <C> <C>
Pennsylvania Bond 4.55% 4.55% 4.77% 4.77%
Established Growth 1.07% 0.66% 1.12% 0.69%
Income 5.84% 5.84% 6.12% 6.12%
Aggressive Growth 1.02% 0.01% 1.07% 0.01%
Government Securities 5.51% 5.47% 5.68% 5.64%
</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 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
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.
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<PAGE> 184
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-45
<PAGE> 185
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
B-46
<PAGE> 186
THE SESSIONS GROUP
KEYPREMIER FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1998
<TABLE>
<CAPTION>
AGGRESSIVE ESTABLISHED INTERMEDIATE PENNSYLVANIA
GROWTH GROWTH TERM INCOME MUNICIPAL
FUND FUND FUND BOND FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (cost $90,392,302;
$122,248,153; $268,695,937;
$115,435,199, respectively)............. $135,624,827 $258,207,494 $273,103,381 $117,400,450
Cash...................................... -- 3,754 -- --
Interest and dividends receivable......... 106,673 247,877 4,120,267 1,858,538
Receivable for capital shares issued...... 5,557 868,595 -- --
Unamortized organization costs............ 3,157 22,495 32,379 15,505
------------ ------------ ------------ ------------
Total Assets............................ 135,740,214 259,350,215 277,256,027 119,274,493
------------ ------------ ------------ ------------
LIABILITIES:
Dividends payable......................... -- 338,347 1,452,389 528,450
Payable for capital shares redeemed....... 2,893 5,630 103,378 --
Accrued expenses and other payables:
Investment advisory fees payables....... 65,610 104,675 67,566 29,318
Administration fees payables............ 2,103 4,079 4,355 1,877
Administrative services fees payables... 16,610 31,962 11,549 4,955
Other Liabilities....................... 41,403 53,245 52,051 24,743
------------ ------------ ------------ ------------
Total Liabilities....................... 128,619 537,938 1,691,288 589,343
------------ ------------ ------------ ------------
NET ASSETS:
Capital................................... 87,150,821 117,103,473 270,605,349 116,233,895
Accumulated undistributed net investment
income (loss)........................... (1,834) 1,232 1,734 134,109
Accumulated undistributed net realized
gains on investments.................... 3,230,083 5,748,231 550,212 351,895
Net unrealized appreciation of
investments............................. 45,232,525 135,959,341 4,407,444 1,965,251
------------ ------------ ------------ ------------
Net Assets.............................. $135,611,595 $258,812,277 $275,564,739 $118,685,150
============ ============ ============ ============
Outstanding units of beneficial interest
(shares).............................. 11,883,402 18,408,485 27,287,489 11,422,485
============ ============ ============ ============
Net asset value -- redemption price per
share................................. $ 11.41 $ 14.06 $ 10.10 $ 10.39
============ ============ ============ ============
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................................. $ 11.95 $ 14.72 $ 10.58 $ 10.88
============ ============ ============ ============
</TABLE>
See notes to financial statements.
B-47
<PAGE> 187
THE SESSIONS GROUP
KEYPREMIER FUNDS
STATEMENTS OF ASSETS AND LIABILITIES, CONTINUED
JUNE 30, 1998
<TABLE>
<CAPTION>
LIMITED DURATION U.S. TREASURY
GOVERNMENT OBLIGATIONS PRIME
SECURITIES MONEY MARKET MONEY MARKET
FUND FUND FUND
---------------- ------------- ------------
<S> <C> <C> <C>
ASSETS:
Investments, at value (cost $25,773,907; $14,995,044;
$174,824,021, respectively).......................... $25,696,381 $14,995,044 $174,824,021
Repurchase agreements (cost $3,501,056; $8,381,612;
$43,737,727, respectively)........................... 3,501,056 8,381,612 43,737,727
----------- ----------- ------------
Total Investments.................................. 29,197,437 23,376,656 218,561,748
Interest and dividends receivable...................... 361,516 260,470 277,412
Receivable for capital shares issued................... -- -- 1,409
Unamortized organization costs......................... 7,064 7,093 16,347
----------- ----------- ------------
Total Assets....................................... 29,566,017 23,644,219 218,856,916
----------- ----------- ------------
LIABILITIES:
Dividends payable...................................... 150,968 90,126 900,714
Accrued expenses and other payables:
Investment advisory fees payables.................... 7,241 3,807 35,624
Administration fees payables......................... 465 375 3,436
Administrative services fees payables................ -- -- 7,463
Other Liabilities.................................... 47,354 30,250 48,855
----------- ----------- ------------
Total Liabilities.................................. 206,028 124,558 996,092
----------- ----------- ------------
NET ASSETS:
Capital................................................ 29,418,844 23,518,365 217,857,293
Accumulated undistributed net investment income........ 4,809 1,890 3,531
Accumulated undistributed net realized gains (loss) on
investments.......................................... 13,862 (594) --
Net unrealized depreciation of investments............. (77,526) -- --
=========== =========== ============
Net Assets......................................... $29,359,989 $23,519,661 $217,860,824
=========== =========== ============
Outstanding units of beneficial interest (shares)...... 2,946,468 23,520,255 217,860,282
=========== =========== ============
Net asset value--redemption price per share............ $ 9.96 $ 1.00 $ 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.......................................... $ 10.27 $ 1.00(a) $ 1.00(a)
=========== =========== ============
</TABLE>
- ---------------
(a) Maximum offering price and redemption price are the same for the Prime Money
Market Fund and the U.S. Treasury Obligations Money Market Fund.
See notes to financial statements.
B-48
<PAGE> 188
THE SESSIONS GROUP
KEYPREMIER FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
AGGRESSIVE ESTABLISHED INTERMEDIATE PENNSYLVANIA
GROWTH GROWTH TERM INCOME MUNICIPAL
FUND FUND FUND BOND FUND
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income............................ $ -- $ -- $15,878,364 $6,171,986
Dividend income............................ 929,835 3,325,302 450,764 53,709
----------- ----------- ----------- ----------
Total Income............................ 929,835 3,325,302 16,329,128 6,225,695
----------- ----------- ----------- ----------
EXPENSES:
Investment advisory fees................... 1,254,636 1,680,122 1,431,762 715,423
Administration fees........................ 144,284 257,620 274,422 137,123
Administrative services fees............... 85,108 159,450 158,641 70,068
Accounting fees............................ 41,513 70,172 75,419 43,737
Transfer agent fees........................ 36,487 38,056 27,809 22,799
Custodian fees............................. 23,981 35,279 67,978 9,868
Printing costs............................. 22,000 34,008 39,843 19,808
Registration and filing fees............... 32,294 65,301 78,629 34,019
Other expenses............................. 34,431 44,740 44,283 46,965
----------- ----------- ----------- ----------
Total Expenses............................. 1,674,734 2,384,748 2,198,786 1,099,810
Less: Expenses voluntarily reduced...... (627,977) (784,764) (840,882) (413,125)
Expenses paid by third parties.... (1,447) -- -- --
----------- ----------- ----------- ----------
Net Expenses............................... 1,045,310 1,599,984 1,357,904 686,685
----------- ----------- ----------- ----------
Net Investment Income (Loss)............... (115,475) 1,725,318 14,971,224 5,539,010
----------- ----------- ----------- ----------
REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment
transactions............................ 3,491,283 6,257,171 3,610,376 859,782
Net change in unrealized appreciation of
investments............................. 10,372,778 47,023,379 3,699,969 465,494
----------- ----------- ----------- ----------
Net realized/unrealized gains on
investments............................. 13,864,061 53,280,550 7,310,345 1,325,276
----------- ----------- ----------- ----------
Change in net assets resulting from
operations.............................. $13,748,586 $55,005,868 $22,281,569 $6,864,286
=========== =========== =========== ==========
</TABLE>
See notes to financial statements.
B-49
<PAGE> 189
THE SESSIONS GROUP
KEYPREMIER FUNDS
STATEMENTS OF OPERATIONS, CONTINUED
FOR THE YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
LIMITED DURATION U.S. TREASURY
GOVERNMENT OBLIGATIONS PRIME
SECURITIES MONEY MARKET MONEY MARKET
FUND* FUND* FUND
---------------- ------------- ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income.................................... $2,032,660 $1,308,222 $8,761,265
Dividend income.................................... 31,043 5,353 10,650
---------- ---------- ----------
Total Income.................................... 2,063,703 1,313,575 8,771,915
---------- ---------- ----------
EXPENSES:
Investment advisory fees........................... 198,771 98,397 623,575
Administration fees................................ 38,098 28,247 179,279
Administrative services fees....................... 18,070 15,500 131,318
Accounting fees.................................... 32,239 30,875 47,847
Transfer agent fees................................ 22,498 21,952 26,793
Custodian fees..................................... 17,063 14,499 44,259
Printing costs..................................... 18,590 15,564 36,948
Registration and filing fees....................... 16,048 13,204 47,546
Other expenses..................................... 30,646 23,670 42,759
---------- ---------- ----------
Total Expenses..................................... 392,023 261,908 1,180,324
Less: Expenses voluntarily reduced.............. (171,276) (87,881) (407,377)
Expenses paid by third parties............ (4,319) (352) (18,017)
---------- ---------- ----------
Net Expenses....................................... 216,428 173,675 754,930
---------- ---------- ----------
Net Investment Income.............................. 1,847,275 1,139,900 8,016,985
---------- ---------- ----------
REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions...... 30,849 (594) 447
Net change in unrealized depreciation of
investments..................................... (113,342) -- --
---------- ---------- ----------
Net realized/unrealized gains (losses) on
investments..................................... (82,493) (594) 447
---------- ---------- ----------
Change in net assets resulting from operations..... $1,764,782 $1,139,306 $8,017,432
========== ========== ==========
</TABLE>
- ---------------
* Commencement of operations of the Funds was July 1, 1997.
See notes to financial statements.
B-50
<PAGE> 190
THE SESSIONS GROUP
KEYPREMIER FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AGGRESSIVE ESTABLISHED
GROWTH FUND GROWTH FUND
--------------------------- ---------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997* 1998 1997*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income (loss).................... $ (115,475) $ 108,559 $ 1,725,318 $ 1,367,711
Net realized gains on investment transactions... 3,491,283 1,071,938 6,257,171 551,283
Net change in unrealized appreciation of
investments................................... 10,372,778 2,060,746 47,023,379 19,134,379
------------ ------------ ------------ ------------
Net increase in net assets resulting from
operations.................................... 13,748,586 3,241,243 55,005,868 21,053,373
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income...................... -- (108,559) (1,728,426) (1,367,711)
In excess of net investment income.............. (9,326) -- -- --
From net realized gains on investments.......... (1,333,135) -- (1,060,223) --
------------ ------------ ------------ ------------
Change in net assets from shareholder
distributions................................. (1,342,461) (108,559) (2,788,649) (1,367,711)
CAPITAL TRANSACTIONS:
Proceeds from shares issued..................... 35,793,962 107,127,261 50,547,690 184,221,521
Dividends reinvested............................ 58,474 1,009 90,582 6,152
Cost of shares redeemed......................... (17,904,786) (5,003,134) (34,957,454) (12,999,095)
------------ ------------ ------------ ------------
Change in net assets from capital
transactions.................................. 17,947,650 102,125,136 15,680,818 171,228,578
------------ ------------ ------------ ------------
Change in net assets............................ 30,353,775 105,257,820 67,898,037 190,914,240
NET ASSETS:
Beginning of period............................. 105,257,820 -- 190,914,240 --
------------ ------------ ------------ ------------
End of period................................... $135,611,595 $105,257,820 $258,812,277 $190,914,240
============ ============ ============ ============
SHARE TRANSACTIONS:
Issued.......................................... 3,165,205 10,794,978 4,017,497 18,435,219
Reinvested...................................... 5,580 113 7,397 628
Redeemed........................................ (1,567,686) (514,788) (2,769,238) (1,283,018)
------------ ------------ ------------ ------------
Change in shares.................................. 1,603,099 10,280,303 1,255,656 17,152,829
============ ============ ============ ============
</TABLE>
- ---------------
* Commencement of operations of the Funds were February 3, 1997 and December 2,
1996 respectively.
See notes to financial statements.
B-51
<PAGE> 191
THE SESSIONS GROUP
KEYPREMIER FUNDS
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
INTERMEDIATE TERM PENNSYLVANIA MUNICIPAL
INCOME FUND BOND FUND
--------------------------- ---------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997* 1998 1997*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income........................... $ 14,971,224 $ 7,316,278 $ 5,539,010 $ 3,780,631
Net realized gains (loss) on investment
transactions.................................. 3,610,376 (3,180,967) 859,782 (500,308)
Net change in unrealized appreciation
(depreciation) of investments................. 3,699,969 (1,083,860) 465,494 1,013,284
------------ ------------ ------------ ------------
Net increase in net assets resulting from
operations.................................... 22,281,569 3,051,451 6,864,286 4,293,607
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income...................... (14,851,779) (7,316,278) (5,661,569) (3,525,784)
From net realized gains on investments.......... -- -- -- (7,490)
------------ ------------ ------------ ------------
Change in net assets from shareholder
distributions................................. (14,851,779) (7,316,278) (5,661,569) (3,533,274)
CAPITAL TRANSACTIONS:
Proceeds from shares issued..................... 90,900,761 233,118,215 15,598,673 138,218,349
Dividends reinvested............................ 214,237 47,928 98,698 22,466
Cost of shares redeemed......................... (30,838,931) (21,042,434) (21,409,397) (15,806,689)
------------ ------------ ------------ ------------
Change in net assets from capital
transactions.................................. 60,276,067 212,123,709 (5,712,026) 122,434,126
------------ ------------ ------------ ------------
Change in net assets............................ 67,705,857 207,858,882 (4,509,309) 123,194,459
NET ASSETS:
Beginning of period............................. 207,858,882 -- 123,194,459 --
------------ ------------ ------------ ------------
End of period................................... $275,564,739 $207,858,882 $118,685,150 $123,194,459
============ ============ ============ ============
SHARE TRANSACTIONS:
Issued.......................................... 9,078,840 23,412,762 1,499,902 13,502,154
Reinvested...................................... 21,445 4,916 9,497 2,191
Redeemed........................................ (3,082,354) (2,148,120) (2,061,340) (1,529,919)
------------ ------------ ------------ ------------
Change in shares.................................. 6,017,931 21,269,558 (551,941) 11,974,426
============ ============ ============ ============
</TABLE>
- ---------------
* Commencement of operations of the Funds were December 2, 1996 and October 1,
1996, respectively.
See notes to financial statements.
B-52
<PAGE> 192
THE SESSIONS GROUP
KEYPREMIER FUNDS
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
U.S. TREASURY
LIMITED DURATION OBLIGATIONS
GOVERNMENT MONEY PRIME
SECURITIES FUND MARKET FUND MONEY MARKET FUND
---------------- ---------------- -----------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998* 1998* 1998 1997*
---------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.................... $ 1,847,275 $ 1,139,900 $ 8,016,985 $ 3,548,971
Net realized gains (loss) on investment
transactions........................... 30,849 (594) 447 151
Net change in unrealized depreciation of
investments............................ (113,342) -- -- --
----------- ------------ ------------- -------------
Net increase in net assets resulting from
operations............................. 1,764,782 1,139,306 8,017,432 3,549,122
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income............... (1,846,910) (1,139,900) (8,016,985) (3,548,971)
From net realized gains on investments... (14,793) -- -- --
----------- ------------ ------------- -------------
Change in net assets from shareholder
distributions.......................... (1,861,703) (1,139,900) (8,016,985) (3,548,971)
CAPITAL TRANSACTIONS:
Proceeds from shares issued.............. 46,256,425 67,930,284 394,707,150 277,292,433
Dividends reinvested..................... 8,280 226,366 919,724 97,461
Cost of shares redeemed.................. (16,807,795) (44,636,395) (273,616,855) (181,539,687)
----------- ------------ ------------- -------------
Change in net assets from capital
transactions........................... 29,456,910 23,520,255 122,010,019 95,850,207
----------- ------------ ------------- -------------
Change in net assets..................... 29,359,989 23,519,661 122,010,466 95,850,358
NET ASSETS:
Beginning of period...................... -- -- 95,850,358 --
----------- ------------ ------------- -------------
End of period............................ $29,359,989 $ 23,519,661 $ 217,860,824 $ 95,850,358
=========== ============ ============= =============
SHARE TRANSACTIONS:
Issued................................... 4,624,486 67,930,284 394,707,185 277,292,433
Reinvested............................... 829 226,366 919,745 97,461
Redeemed................................. (1,678,847) (44,636,395) (273,616,855) (181,539,687)
----------- ------------ ------------- -------------
Change in shares........................... 2,946,468 23,520,255 122,010,075 95,850,207
=========== ============ ============= =============
</TABLE>
- ---------------
* Commencement of operations of the Funds were July 1, 1997, July 1, 1997 and
October 7, 1996 respectively.
See notes to financial statements.
B-53
<PAGE> 193
THE SESSIONS GROUP
KEYPREMIER AGGRESSIVE GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (93.1%):
Aerospace/Defense--Equipment (5.6%):
74,000 Cordant Technologies, Inc..... $ 3,413,250
40,000 Northrop Grumman Corp......... 4,125,000
------------
7,538,250
------------
Automotive Parts (3.7%):
144,000 Gentex Corp.(b)............... 2,610,000
100,000 Mascotech, Inc................ 2,400,000
------------
5,010,000
------------
Banks (2.3%):
66,000 First American
Corp.--Tennessee............ 3,176,250
------------
Biotechnology (0.3%):
100,000 Interneuron Pharmaceuticals,
Inc.(b)..................... 362,500
------------
Chemicals (4.2%):
130,000 Airgas, Inc.(b)............... 1,868,750
80,000 Lesco, Inc.................... 1,500,000
60,000 Valspar Corp.................. 2,377,500
------------
5,746,250
------------
Communication--Equipment (0.1%):
50,000 Transcrypt International,
Inc.(b)..................... 168,500
------------
Computer Networks (2.1%):
250,000 Computer Network Tech
Corp.(b).................... 1,156,250
70,000 Seagate Technology, Inc.(b)... 1,666,875
------------
2,823,125
------------
Computer Software (12.7%):
120,000 Affiliated Computer Services,
Inc.(b)..................... 4,620,000
50,000 Ansys, Inc.(b)................ 493,750
32,400 Applied Graphics
Technologies(b)............. 1,482,300
170,000 Compuware Corp.(b)............ 8,691,249
35,000 Dialogic Corp.(b)............. 1,041,250
100,000 Mosaix, Inc.(b)............... 981,250
------------
17,309,799
------------
Computers (3.2%):
160,000 Hutchinson Technology,
Inc.(b)..................... 4,360,000
------------
Construction Materials (1.5%):
50,000 Fleetwood Enterprises, Inc.... 2,000,000
------------
Educational Services (3.9%):
240,000 Devry, Inc.(b)................ 5,265,000
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Electrical Equipment (1.4%):
60,000 C-Cube Microsystems,
Inc.(b)..................... $ 1,113,750
70,000 Cirrus Logic, Inc.(b)......... 778,750
------------
1,892,500
------------
Financial Services (1.0%):
60,000 Willis Lease Finance
Corp.(b).................... 1,372,500
------------
Financial--Securities Brokers (3.8%):
64,000 Legg Mason, Inc............... 3,684,000
55,000 United Asset Management
Corp........................ 1,440,313
------------
5,124,313
------------
Food & Related (3.4%):
50,000 U.S. Foodservice(b)........... 1,753,125
48,000 Whole Foods Market, Inc.(b)... 2,904,000
------------
4,657,125
------------
Furniture & Furnishings (3.0%):
80,000 Bush Industries, Inc.......... 1,740,000
92,000 Leggett & Platt, Inc.......... 2,300,000
------------
4,040,000
------------
Homebuilders--Mobile Homes (0.8%):
85,000 Winnebago Industries, Inc..... 1,062,500
------------
Hotel Management & Related Services (1.1%):
70,000 La Quinta Inns, Inc........... 1,478,750
------------
Household Products (1.5%):
35,000 Premark International, Inc.... 1,128,750
30,000 Tupperware Corp............... 843,750
------------
1,972,500
------------
Insurance (1.1%):
32,000 Arthur J. Gallagher &
Company..................... 1,432,000
------------
Leisure (0.5%):
40,000 K2, Inc....................... 705,000
------------
Machinery & Equipment (2.1%):
110,000 Flow International Corp.(b)... 1,278,750
175,000 PSC, Inc.(b).................. 1,585,938
------------
2,864,688
------------
Medical--Biotechnology (0.8%):
164,000 Integra Lifesciences
Corp.(b).................... 1,148,000
------------
Medical--Hospital Management Services (3.3%):
50,000 Cerner Corp.(b)............... 1,415,625
125,000 Genesis Health Ventures,
Inc.(b)..................... 3,125,000
------------
4,540,625
------------
</TABLE>
Continued
B-54
<PAGE> 194
THE SESSIONS GROUP
KEYPREMIER AGGRESSIVE GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JUNE 30, 1998
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Medical Equipment & Supplies (7.6%):
100,000 Mentor Corp. Minnesota........ $ 2,424,999
120,000 Respironics, Inc.(b).......... 1,867,500
60,000 St Jude Medical, Inc.(b)...... 2,208,750
135,000 Syncor International
Corp.(b).................... 2,328,750
25,000 Visx, Inc.(b)................. 1,487,500
------------
10,317,499
------------
Medical--Health Management Organization (1.4%):
30,000 United Health Care Corp....... 1,905,000
------------
Oil & Gas (3.3%):
50,000 Forest Oil Corp.(b)........... 715,625
100,000 Lomak Petroleum, Inc.......... 1,043,750
100,000 Patina Oil & Gas.............. 700,000
55,000 Triton Energy Ltd.(b)......... 1,962,813
------------
4,422,188
------------
Retail--General Merchandise (1.7%):
70,000 Fingerhut Companies, Inc...... 2,310,000
------------
Technology Equipment (4.3%):
80,000 CFM Technologies, Inc.(b)..... 1,160,000
100,000 Credence Systems Corp.(b)..... 1,900,000
120,000 Integrated Circuit Systems,
Inc.(b)..................... 1,995,000
40,000 Lam Research Corp.(b)......... 765,000
------------
5,820,000
------------
Telecommunication--Equipment (3.5%):
120,000 Digi International, Inc.(b)... 2,430,000
60,000 ECI Telecommunications,
Ltd......................... 2,272,500
------------
4,702,500
------------
Telecommunications (0.6%):
80,000 Glenayre Technologies,
Inc.(b)..................... 860,000
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Telecommunications--Services and Equipment (1.8%):
100,000 Picturetel Corp.(b)........... $ 925,000
70,000 Transaction Network Services,
Inc.(b)..................... 1,474,375
------------
2,399,375
------------
Textile (3.4%):
80,000 Lydall, Inc.(b)............... 1,165,000
100,000 Unifi, Inc.................... 3,425,000
------------
4,590,000
------------
Utilities--Electric (1.1%):
113,000 Trigen Energy Corp............ 1,518,438
------------
Wholesale--Food Products (1.0%):
65,000 Worthington Foods, Inc........ 1,360,938
------------
Total Common Stocks................. 126,256,113
------------
INVESTMENT COMPANIES (6.9%):
672,021 Federated Government
Obligation Fund............. 672,021
5,072,523 Federated Prime Obligation
Fund........................ 5,072,523
2,885,788 KeyPremier Prime Money Market
Fund........................ 2,885,788
738,382 KeyPremier U.S. Treasury
Obligations Money Market.... 738,382
------------
Total Investment Companies.......... 9,368,714
------------
Total Investments
(Cost $90,392,302)(a)--100.0%..... 135,624,827
Liabilities in excess of other
assets--0.0%.......................... (13,232)
------------
TOTAL NET ASSETS--100.0%............ $135,611,595
============
</TABLE>
- ---------
(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......................... $55,073,942
Unrealized depreciation......................... (9,841,417)
-----------
Net unrealized appreciation..................... $45,232,525
===========
</TABLE>
(b) Represents non-income producing securities
See notes to financial statements.
B-55
<PAGE> 195
THE SESSIONS GROUP
KEYPREMIER ESTABLISHED GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (96.8%):
Aerospace/Defense--Equipment (1.9%):
7,000 Boeing Co..................... $ 311,938
60,000 Textron, Inc.................. 4,301,250
4,600 United Technologies Corp...... 425,500
------------
5,038,688
------------
Agriculture (0.2%):
10,000 Monsanto Corp................. 558,750
------------
Automotive Parts (2.1%):
34,000 Autoliv, Inc.................. 1,079,500
24,000 Eaton Corp.................... 1,866,000
50,000 Echlin, Inc................... 2,453,125
------------
5,398,625
------------
Banks (4.8%):
7,000 Allied Irish Banks PLC, ADR... 600,688
74,480 First Union Corp.............. 4,338,460
72,000 Fleet Financial Group, Inc.... 6,011,999
40,000 Norwest Corp.................. 1,495,000
------------
12,446,147
------------
Beverages (3.3%):
101,000 Coca-Cola Co.................. 8,635,500
------------
Biotechnology (0.7%):
50,000 Centocor, Inc.(b)............. 1,812,500
------------
Chemicals (2.0%):
65,000 Hercules, Inc................. 2,673,125
100,000 Morton International, Inc..... 2,500,000
------------
5,173,125
------------
Computer Networks (1.7%):
40,000 Seagate Technology, Inc.(b)... 952,500
100,000 Silicon Graphics, Inc.(b)..... 1,212,500
50,000 Sun Microsystems, Inc.(b)..... 2,171,875
------------
4,336,875
------------
Computer Software (7.6%):
90,000 Automatic Data Processing,
Inc......................... 6,558,750
165,000 Computer Associates
International, Inc.......... 9,167,812
150,000 Netscape Communications Corp.
(b)......................... 4,059,375
------------
19,785,937
------------
Computers--Main & Mini (1.1%):
100,000 Compaq Computer Corp.......... 2,837,500
------------
Cosmetics/Personal Care (3.2%):
90,000 Procter & Gamble Co........... 8,195,625
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Diversified/Conglomerate (4.6%):
7,000 Du Pont E.I. de Nemours &
Co.......................... $ 522,375
107,000 General Electric Co........... 9,736,999
70,000 Republic Industries, Inc.
(b)......................... 1,750,000
------------
12,009,374
------------
Electronic Components (0.8%):
85,000 Micron Technology, Inc........ 2,109,063
------------
Financial Services (10.5%):
62,000 Capital One Financial Corp.... 7,699,625
120,000 Fannie Mae.................... 7,290,000
130,000 Morgan Stanley Dean Witter
Discover & Co............... 11,878,749
------------
26,868,374
------------
Food Processing & Packaging (2.0%):
6,000 Bestfoods..................... 348,375
152,000 ConAgra, Inc.................. 4,816,500
------------
5,164,875
------------
Furniture & Furnishings (2.9%):
50,000 Armstrong World Industries,
Inc......................... 3,368,750
112,500 Lancaster Colony Corp......... 4,260,938
------------
7,629,688
------------
Insurance (0.4%):
13,000 Aetna, Inc.................... 989,625
------------
Manufacturing (1.3%):
4,000 Minnesota Mining and
Manufacturing Co............ 328,750
7,000 PPG Industries, Inc........... 486,938
46,000 Tecumseh Products Co., Class
B........................... 2,633,500
------------
3,449,188
------------
Medical--Hospital Management Services (1.9%):
200,000 Genesis Health Ventures, Inc.
(b)......................... 5,000,000
------------
Medical Instruments (3.9%):
160,000 Medtronic, Inc................ 10,200,000
------------
Medical--Health Management Organization (2.0%):
80,000 United Health Care Corp....... 5,080,000
------------
Mining (2.2%):
75,000 Potash Corp. of Saskatchewan,
Inc......................... 5,667,188
------------
Motor Vehicles (2.2%):
100,000 Chrysler Corp................. 5,637,500
------------
</TABLE>
Continued
B-56
<PAGE> 196
THE SESSIONS GROUP
KEYPREMIER ESTABLISHED GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JUNE 30, 1998
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Oil & Gas (4.1%):
74,000 Coastal Corp.................. $ 5,166,125
5,000 Exxon Corp.................... 356,563
65,000 Mobil Corp.................... 4,980,625
------------
10,503,313
------------
Pharmaceuticals (9.0%):
56,000 American Home Products
Corp........................ 2,898,000
60,000 Astra AB, Class A............. 1,230,000
36,000 Johnson & Johnson............. 2,655,000
8,000 Merck & Co., Inc.............. 1,070,000
150,000 Schering-Plough Corp.......... 13,743,749
21,000 Warner Lambert Co............. 1,456,875
------------
23,053,624
------------
Restaurants (1.4%):
155,000 Wendy's International, Inc.... 3,642,500
------------
Retail--Apparel (1.8%):
75,000 Gap, Inc...................... 4,621,875
------------
Telecommunications (4.5%):
10,000 Alltel Corporation............ 465,000
6,500 General Telephone Electric
Corp........................ 361,563
110,000 Loral Space & Communications
Ltd. (b).................... 3,107,500
50,000 Motorola, Inc................. 2,628,125
71,000 Sprint Corp................... 5,005,500
------------
11,567,688
------------
Textile (2.8%):
210,000 Unifi, Inc.................... 7,192,500
------------
Tools (3.1%):
220,000 Danaher Corp.................. 8,071,250
------------
Transportation (0.2%):
5,000 Burlington Northern Santa Fe
Corp........................ 490,938
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Utilities--Electric (2.9%):
109,000 Baltimore Gas & Electric
Co.......................... $ 3,385,813
88,000 Consolidated Edison Co. of New
York........................ 4,053,500
------------
7,439,313
------------
Utilities--Gas & Pipeline (3.7%):
75,000 Sonat, Inc.................... 2,896,875
200,000 Williams Cos., Inc............ 6,750,000
------------
9,646,875
------------
Total Common Stocks.................. 250,254,023
------------
PREFERRED STOCKS (0.1%):
Insurance (0.1%):
4,419 Aetna Services, Inc........... 331,977
------------
Total Preferred Stocks............... 331,977
------------
INVESTMENT COMPANIES (2.9%):
336,825 Federated Government
Obligation Fund............. 336,825
2,054,106 Federated Prime Obligation
Fund........................ 2,054,106
4,677,316 KeyPremier Prime Money Market
Fund........................ 4,677,316
553,247 KeyPremier U.S. Treasury
Obligations Money Market
Fund........................ 553,247
------------
Total Investment Companies........... 7,621,494
------------
Total Investments
(Cost $122,248,153)(a)--99.8%...... 258,207,494
Other assets in excess of
liabilities--0.2%...................... 604,783
------------
TOTAL NET ASSETS--100.0%............. $258,812,277
============
</TABLE>
- ---------
(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......................... $139,689,256
Unrealized depreciation......................... (3,729,915)
------------
Net unrealized appreciation..................... $135,959,341
============
</TABLE>
(b) Represents non-income producing securities
ADR -- American Depository Receipt
See notes to financial statements.
B-57
<PAGE> 197
THE SESSIONS GROUP
KEYPREMIER INTERMEDIATE TERM INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ ------------
<C> <S> <C>
ASSET BACKED SECURITIES (1.7%):
4,500,000 IMC Home Equity Loan Trust,
Series 97-1, Class A-3,
6.82% 10/25/11.............. $ 4,592,160
------------
Total Asset Backed Securities........ 4,592,160
------------
CORPORATE BONDS (52.6%):
Automotive (1.8%):
5,000,000 General Motors Corp., 6.25%,
5/1/05...................... 5,018,750
------------
Banks (10.0%):
2,500,000 Amsouth Bank of Alabama,
6.45%, 2/1/18............... 2,515,625
6,000,000 First of America Bank, 7.75%,
7/15/04..................... 6,510,000
6,000,000 First Union Corp., 6.55%,
10/15/35.................... 6,225,000
6,000,000 Key Bank N.A., 6.50%,
4/15/08..................... 6,097,500
6,000,000 Wachovia Corp., 6.61%,
10/1/25..................... 6,262,500
------------
27,610,625
------------
Clothing (2.2%):
6,000,000 Tommy Hilfiger USA, Inc.,
6.50%, 6/1/03............... 5,970,000
------------
Entertainment (2.6%):
6,000,000 Time Warner Entertainment,
8.375%, 3/15/23............. 7,102,500
------------
Financial Services (21.9%):
5,000,000 Abbey National First Capital,
8.20%, 10/15/04............. 5,506,250
10,050,000 American Express Master Trust,
Series 1994-3, Class A,
7.85%....................... 11,054,196
5,000,000 8/15/05 Associates Corp N.A.,
6.375%, 7/15/02............. 5,050,000
5,000,000 Associates Corp N.A., 6.5%,
7/15/02..................... 5,068,750
2,000,000 Cincinnati Financial Corp.,
6.90%, 5/15/28.............. 2,045,000
4,000,000 Commercial Credit Co., 7.75%,
3/1/05...................... 4,330,000
6,000,000 Dow Capital BV, 9.20%,
6/1/10...................... 7,402,500
6,000,000 International Lease Financial
Corp., 5.90%, 4/15/02....... 5,970,000
8,000,000 Lehman Brothers Holdings,
6.50%, 7/18/00.............. 8,070,000
6,000,000 Spieker Properties LP, 7.35%,
12/01/17.................... 6,187,500
------------
60,684,196
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ ------------
<C> <S> <C>
CORPORATE BONDS, CONTINUED:
Industrials (5.6%):
2,000,000 Beckman Instruments, Inc.,
7.05%, 6/1/26............... $ 2,120,000
6,000,000 Coca-Cola Put Asset Trust,
6.00%, 3/15/01(b)........... 5,992,500
7,000,000 Lowe's Companies, Inc.,
6.875%, 2/15/28............. 7,262,500
------------
15,375,000
------------
Pharmaceuticals (3.0%):
8,000,000 Eli Lilly & Co., 6.57%,
01/01/16.................... 8,250,000
------------
Telecommunications (2.5%):
6,000,000 Motorola, Inc., 7.5%,
5/15/25..................... 6,862,500
------------
Utilities--Electric (3.0%):
6,000,000 Public Service--Electric &
Gas, 6.50%, 5/1/04.......... 6,150,000
1,900,000 Toledo Edison, 9.50%,
4/1/01...................... 2,033,000
------------
8,183,000
------------
Total Corporate Bonds................ 145,056,571
------------
U.S. GOVERNMENT AGENCIES/
MORTGAGE BACKED SECURITIES (26.0%):
Freddie Mac (5.7%):
7,758,221 6.00%, 12/1/12, Pool #
E00526...................... 7,686,923
4,219,882 6.50%, 3/1/18, Pool #
C90209...................... 4,205,408
3,892,684 6.50%, 11/1/27, Gold Pool #
D84133...................... 3,879,527
------------
15,771,858
------------
Fannie Mae (6.1%):
7,000,000 Medium Term Note, 6.0%,
1/14/05..................... 7,017,290
10,000,000 Zero Coupon, 2/1/19........... 2,967,400
6,837,658 7.00%, 11/1/27, Pool #
395783...................... 6,933,795
------------
16,918,485
------------
Government National Mortgage Association (14.2%):
7,928,858 6.25%, 3/20/22................ 7,919,422
4,520,436 7.00%, 10/15/24, Pool #
780385...................... 4,607,907
13,912,888 7.50%, 7/15/27, Pool #
439599...................... 14,292,849
4,245,912 6.75%, 5/15/28, Pool #
474256...................... 4,275,081
8,080,000 6.0%, 6/15/28, Pool #
462800...................... 7,893,110
------------
38,988,369
------------
Total U.S. Government Agencies/
Mortgage Backed Securities......... 71,678,712
------------
</TABLE>
Continued
B-58
<PAGE> 198
THE SESSIONS GROUP
KEYPREMIER INTERMEDIATE TERM INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JUNE 30, 1998
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ ------------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS (16.5%):
10,000,000 8.875%, 2/15/99............... $ 10,204,400
11,000,000 7.75%, 2/15/01................ 11,584,540
2,000,000 6.25%, 4/30/01................ 2,036,540
6,000,000 11.625%, 11/15/02............. 7,393,320
11,000,000 8.125%, 5/15/21............... 14,309,570
------------
Total U.S. Treasury Obligations...... 45,528,370
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ ------------
<C> <S> <C>
INVESTMENT COMPANIES (2.3%):
1,092,559 Federated Government
Obligation Fund............. $ 1,092,559
2,283,669 Federated Prime Obligation
Fund........................ 2,283,669
2,795,172 KeyPremier Prime Money Market
Fund........................ 2,795,172
76,168 KeyPremier U.S. Treasury
Obligations Money Market
Fund........................ 76,168
------------
Total Investment Companies........... 6,247,568
------------
Total Investments
(Cost $268,695,937)(a)--99.1%...... 273,103,381
Other assets in excess of
liabilities--0.9%...................... 2,461,358
------------
TOTAL NET ASSETS--100.0%............. $275,564,739
============
</TABLE>
- ---------
(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......................... $5,038,081
Unrealized depreciation......................... (630,637)
----------
Net unrealized appreciation..................... $4,407,444
==========
</TABLE>
(b) Represents a restricted security, purchased under Rule 144A, which is exempt
from registration under the Securities Act of 1933, as amended.
See notes to financial statements.
B-59
<PAGE> 199
THE SESSIONS GROUP
KEYPREMIER PENNSYLVANIA MUNICIPAL BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------------------------------------ ------------
<C> <S> <C>
MUNICIPAL BONDS (86.6%):
Pennsylvania (86.6%):
$1,525,000 Allegheny Hospital, Pennsylvania, 5.00%, 7/1/09, Callable
7/1/07 @ 102, MBIA........................................ $ 1,565,031
1,000,000 Altoona, Pennsylvania City Authority Water Revenue, 5.10%,
11/1/12, Callable 11/1/07 @ 100, FGIC..................... 1,013,750
1,330,000 Berks County, Pennsylvania Municipal Authority, 7.10%,
5/15/22, Prerefunded 5/15/04 @ 100, FGIC.................. 1,527,838
1,000,000 Bethel Park, Pennsylvania School District, 5.40%, 8/1/00,
Callable 8/1/99 @ 100, FGIC............................... 1,014,790
1,000,000 Bethlehem, Pennsylvania Area School District, 4.85%, 9/1/10,
Callable 9/1/07 @ 100, FGIC............................... 1,010,000
1,000,000 Bethlehem, Pennsylvania Area School District, Series A,
6.50%, 9/1/00, AMBAC...................................... 1,052,500
2,065,000 Bethlehem, Pennsylvania Water Authority, Series A, 6.30%,
11/15/15, Prerefunded 11/15/02
@ 100, MBIA............................................... 2,243,106
2,080,000 Blair County, Pennsylvania Hospital Health Care Bond,
Secured, 5.30%, 8/15/17, Callable 8/15/07
@ 102, MBIA............................................... 2,108,600
1,000,000 Bucks County, Pennsylvania Technical School Authority,
5.38%, 8/15/15, Callable 2/15/06
@ 100, AMBAC.............................................. 1,021,250
1,000,000 Bucks County, Pennsylvania, Series A, 6.00%, 3/1/01......... 1,048,750
1,900,000 Central Dauphin, Pennsylvania School District, 6.00%,
6/1/01.................................................... 1,997,375
250,000 Dauphin County, Pennsylvania General Authority Health
Center, 5.90%, 1/1/00..................................... 255,313
3,000,000 Ephrata, Pennsylvania Area School District, Series A, 6.80%,
4/15/11, Prerefunded 4/15/01
@ 100, FGIC............................................... 3,213,750
1,000,000 Hempfield, Pennsylvania School District, Lancaster County,
6.40%, 8/15/05, Prerefunded 8/15/02 @ 100, FGIC........... 1,083,750
500,000 Lycoming County, Pennsylvania Hospital Authority, Series B,
7.40%, 7/1/99............................................. 517,745
1,000,000 Northampton County, Pennsylvania Higher Education Authority,
Lehigh University, 6.00%, 9/1/01.......................... 1,052,500
2,155,000 Northampton County, Pennsylvania Higher Education Authority,
Lehigh University, 6.90%, 10/15/06, Callable 10/15/01 @
102, MBIA................................................. 2,359,725
2,000,000 Pennsylvania Housing Finance Agency, Rental Housing, 5.40%,
1/1/00, FNMA.............................................. 2,040,000
500,000 Pennsylvania Housing Financial Agency, Single Family
Mortgage, Series 36, 5.45%, 10/1/14, Callable 10/1/03 @
102....................................................... 508,750
2,000,000 Pennsylvania Infrastructure Investment Authority, 6.00%,
9/1/03, MBIA.............................................. 2,160,000
2,000,000 Pennsylvania Intergovernmental Cooperation Authority, 7.00%,
6/15/14, Prerefunded 6/15/05
@ 100, FGIC............................................... 2,327,500
4,000,000 Pennsylvania Manor School District Pennsylvania, 5.20%,
6/1/16, Callable 6/01/06 @ 100, FGIC...................... 4,030,000
2,075,000 Pennsylvania Second Service-Referendum & Projects, 5.60%,
6/15/14, Callable 6/15/04
@ 101.5, MBIA............................................. 2,176,156
1,375,000 Pennsylvania State Higher Education Assistance Agency,
Student Loan Revenue, Series A, 6.80%,
12/1/00, FGIC............................................. 1,455,781
575,000 Pennsylvania State Higher Education Facilities Authority,
5.90%, 8/15/00............................................ 597,281
1,000,000 Pennsylvania State Higher Education Facilities Authority,
Drexel University, 7.00%, 5/1/02, Prerefunded 5/1/00 @
100, MBIA................................................. 1,053,750
3,925,000 Pennsylvania State Higher Education Facilities Authority,
Series A, 5.35%, 1/1/08,
Callable 1/1/06 @ 101..................................... 4,145,781
1,750,000 Pennsylvania State Higher Education Facilities Authority,
Series D, 7.15%, 6/15/15, Prerefunded 6/15/00 @ 100,
MBIA...................................................... 1,852,813
260,000 Pennsylvania State Higher Education Facilities Authority,
Thomas Jefferson University, Series A,
6.88%, 7/1/99............................................. 266,773
</TABLE>
Continued
B-60
<PAGE> 200
THE SESSIONS GROUP
KEYPREMIER PENNSYLVANIA MUNICIPAL BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JUNE 30, 1998
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------------------------------------ ------------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Pennsylvania, Continued:
$1,425,000 Pennsylvania State Higher Education Facilities Authority,
Thomas Jefferson University, Series A,
5.90%, 8/15/00............................................ $ 1,478,438
3,560,000 Pennsylvania State Higher Education Facilities Authority,
University of Pennsylvania, 4.50%, 7/15/15, Callable
7/15/08 @ 100............................................. 3,333,050
3,740,000 Pennsylvania State Higher Education Facilities Authority,
University of Pennsylvania, 4.50%, 7/15/16, Callable
7/15/08 @ 100............................................. 3,473,525
2,000,000 Pennsylvania State Higher Education, Duquesne University,
Series A, 7.00%, 4/1/10, Callable 4/1/01 @ 100, MBIA...... 2,135,000
1,500,000 Pennsylvania State Industrial Development Authority,
Economic Development, 5.00%,
7/1/00, AMBAC............................................. 1,528,125
1,655,000 Pennsylvania State Public School Building Authority Revenue,
School District of York, Series A, 4.75%, 2/15/14,
Callable 2/15/08 @ 100, FGIC.............................. 1,609,488
1,735,000 Pennsylvania State Public School Building Authority Revenue,
School District of York, Series A, 4.80%, 2/15/15,
Callable 2/15/08 @ 100, FGIC.............................. 1,689,456
1,820,000 Pennsylvania State Public School Building Authority Revenue,
School District of York, Series A, 4.85%, 2/15/16,
Callable 2/15/08 @ 100, FGIC.............................. 1,776,775
1,000,000 Pennsylvania State Turnpike, Series J, 6.40%, 12/1/00,...... 1,055,000
2,000,000 Pennsylvania State, Series A, 6.70%, 1/1/02, Prerefunded
1/1/01 @ 101.5, MBIA...................................... 2,152,500
1,000,000 Philadelphia, Pennsylvania Gas Works, 14th Series, 5.50%,
7/1/04, FSA............................................... 1,061,250
7,160,000 Philadelphia, Pennsylvania Hospitals & Higher Education
Facilities Authority Revenue, 5.00%, 5/15/11, Callable
5/15/08 @ 101............................................. 7,186,850
1,000,000 Philadelphia, Pennsylvania Hospitals & Higher Education
Facilities Authority, Children's Hospital Series A, 6.50%,
2/15/21, Prerefunded 2/15/02 @ 102........................ 1,096,250
7,000,000 Philadelphia, Pennsylvania School District Series B, 5.50%,
9/1/15, Callable 9/01/05 @ 102, AMBAC..................... 7,306,249
5,000,000 Philadelphia, Pennsylvania Water & Waste Revenue, 5.00%,
8/1/13, Callable 8/01/07 @ 102............................ 5,012,500
1,000,000 Philadelphia, Pennsylvania Water & Wastewater, 6.25%,
8/1/02, MBIA.............................................. 1,077,500
1,000,000 Pittsburgh, Pennsylvania Water & Sewer Authority, Series A,
6.00%, 9/1/16, Prerefunded 9/1/01
@ 100, FGIC............................................... 1,057,500
1,265,000 Pottsville Hospital & Warne Clinic, 5.25%, 7/1/10........... 1,263,419
500,000 Pottsville Hospital & Warne Clinic, 5.50%, 7/1/18, Callable
7/1/08 @ 100.............................................. 494,375
1,700,000 Sayre, Pennsylvania Health Care Facilities Authority, Series
A, 6.60%, 3/1/01, AMBAC................................... 1,802,000
3,800,000 Tredyffrin Township, Pennsylvania, 5.25%, 11/15/17, Callable
11/15/06 @ 100............................................ 3,847,500
1,500,000 Washington County, Pennsylvania Hospital Authority, 5.88%,
12/15/13, Callable 12/15/02
@ 102, AMBAC.............................................. 1,586,250
1,000,000 West Shore, Pennsylvania School District, 6.40%, 9/1/01,
Partially Prerefunded 9/1/98 @ 100, FGIC.................. 1,004,210
1,850,000 York County, Pennsylvania Industrial Development Authority,
6.25%, 7/1/02............................................. 1,981,812
------------
102,709,380
------------
Total Municipal Bonds....................................... 102,709,380
============
U.S. TREASURY OBLIGATIONS (11.0%):
U.S. Treasury Notes (11.0%):
10,000,000 15.75%, 11/15/01............................................ 13,113,900
------------
Total U.S. Treasury Obligations............................. 13,113,900
============
</TABLE>
Continued
B-61
<PAGE> 201
THE SESSIONS GROUP
KEYPREMIER PENNSYLVANIA MUNICIPAL BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JUNE 30, 1998
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------------------------------------ ------------
<C> <S> <C>
INVESTMENT COMPANIES (1.3%):
$ 874,273 Federated Pennsylvania Municipal Cash Fund.................. $ 874,273
702,897 Federated Pennsylvania Municipal Cash Trust Service......... 702,897
------------
Total Investment Companies........................................... 1,577,170
------------
Total Investments (Cost $115,435,199)(a)--98.9%...................... 117,400,450
Other assets in excess of liabilities--1.1%.............................. 1,284,700
------------
TOTAL NET ASSETS--100.0%.................................... $118,685,150
============
</TABLE>
- ---------
(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......................... $2,509,808
Unrealized depreciation......................... (544,557)
----------
Net unrealized appreciation..................... $1,965,251
==========
</TABLE>
<TABLE>
<S> <C>
AMBAC -- AMBAC Indemnity Corp.
FGIC -- Insured by the Financial Guaranty Insurance Corp.
MBIA -- Insured by the Municipal Bond Insurance Assoc.
FSA -- Financial Security Assurance Corp.
</TABLE>
See notes to financial statements.
B-62
<PAGE> 202
THE SESSIONS GROUP
KEYPREMIER LIMITED DURATION GOVERNMENT SECURITIES FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCIES (16.2%):
Freddie Mac (10.4%):
$2,858,285 9.00%, 4/1/16................. $ 3,047,646
-----------
Fannie Mae (0.0%):
48 10.00%, 10/1/00............... 51
-----------
Government National Mortgage Association (5.8%):
154,734 8.50%, 2/15/17, Pool
#203632..................... 165,614
67,384 8.50%, 4/15/17, Pool
#189291..................... 72,122
382,461 8.50%, 7/15/21, Pool
#306066..................... 409,234
556,619 8.50%, 7/15/21, Pool
#307983..................... 595,232
446,238 8.50%, 1/15/23, Pool
#341948..................... 474,543
-----------
1,716,745
-----------
Total U.S. Government Agencies....... 4,764,442
-----------
U.S. TREASURY OBLIGATIONS (47.9%):
U.S. Treasury Bonds (3.6%):
1,000,000 6.125%, 11/15/27.............. 1,071,510
-----------
U.S. Treasury Notes (44.3%):
3,000,000 5.75%, 12/31/98............... 3,006,240
1,000,000 5.88%, 3/31/99................ 1,002,980
9,000,000 5.38%, 1/31/00................ 8,978,490
-----------
12,987,710
-----------
Total U.S. Treasury Obligations...... 14,059,220
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ -----------
<C> <S> <C>
U.S. GOVERNMENT GUARANTEED SECURITIES (23.4%):
Israel Aid (6.2%)
$1,825,000 4.88%, 9/15/98................ $ 1,822,719
-----------
Private Export Funding Company (17.2%):
5,000,000 9.10%, 10/30/98............... 5,050,000
-----------
Total U.S. Government Guaranteed
Securities............................. 6,872,719
-----------
REPURCHASE AGREEMENTS (11.9%):
3,501,056 Lehman Brothers, dated
6/30/98, 5.70%, matures
7/1/98, Proceeds at maturity
$3,501,610 (Collateralized
by $9,225,000 FICO Strip,
3/7/14, Market Value =
$3,572,289)................. 3,501,056
-----------
Total Repurchase Agreements.......... 3,501,056
-----------
Total Investments
(Cost $29,274,963)(a)--99.4%....... 29,197,437
Other assets in excess of liabilities
0.6%................................... 162,552
-----------
TOTAL NET ASSETS--100.0%............. $29,359,989
===========
</TABLE>
- ---------
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................... $ 22,368
Unrealized depreciation......................... (99,894)
--------
Net unrealized depreciation..................... $(77,526)
========
</TABLE>
See notes to financial statements.
B-63
<PAGE> 203
THE SESSIONS GROUP
KEYPREMIER U.S. TREASURY OBLIGATIONS MONEY MARKET FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- ---------- ------------------------------ -----------
<C> <S> <C>
U.S. TREASURY SECURITIES (33.8%):
U.S. Treasury Bills (16.7%):
$4,000,000 5.04%, 10/22/98............... $ 3,936,783
-----------
U.S. Treasury Notes (17.1%):
4,000,000 9.25%, 8/15/98................ 4,018,442
-----------
Total U.S. Treasury Securities....... 7,955,225
-----------
U.S. GOVERNMENT GUARANTEED SECURITIES (29.9%):
Israel Aid (12.7%):
3,000,000 4.88%, 9/15/98................ 2,994,946
-----------
Private Export Funding Company (17.2%):
4,000,000 9.10%, 10/30/98............... 4,044,873
-----------
Total U.S. Government Guaranteed
Securities....................... 7,039,819
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- ---------- ------------------------------ -----------
<C> <S> <C>
U.S. TREASURY COLLATERALIZED REPURCHASE AGREEMENTS
(35.7%):
$4,535,612 Lehman Brothers, dated
6/30/98, 5.50%, matures
7/1/98, Proceeds at maturity
$4,536,305 (Collateralized
by $8,380,000
U.S. Treasury STRIPS,
2/15/08-8/15/13, Market
Value = $4,627,281)......... $ 4,535,612
3,846,000 Merrill Lynch Securities Inc.,
dated 6/30/98, 5.60%,
matures 7/1/98, Proceeds at
maturity $3,862,255
(Collateralized by
$3,900,000 U.S. Treasury
Notes, 10/31/99, Market
Value = $3,937,569)......... 3,846,000
-----------
Total U.S. Treasury Collateralized
Repurchase Agreements.............. 8,381,612
-----------
Total Investments
(Amortized Cost
$23,376,656)(a)--99.4%................... 23,376,656
Other assets in excess of
liabilities--0.6%...................... 143,005
-----------
TOTAL NET ASSETS--100.0%............. $23,519,661
===========
</TABLE>
- ---------
(a) Cost for federal income tax and financial reporting purposes are the same.
See notes to financial statements.
B-64
<PAGE> 204
THE SESSIONS GROUP
KEYPREMIER PRIME MONEY MARKET FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- ----------- ------------------------------ ------------
<C> <S> <C>
CERTIFICATE OF DEPOSIT (8.3%):
Financial Services (8.3%):
$ 5,000,000 Bankers Trust Corp.,* 5.82%,
7/14/98..................... $ 5,000,000
3,000,000 Bankers Trust,** 5.58%,
2/19/99..................... 2,998,705
10,000,000 Wilmington Trust, 5.6%,
9/18/98..................... 10,000,000
------------
Total Certificate of Deposit.......... 17,998,705
------------
COMMERCIAL PAPER (54.0%):
Agriculture (4.6%):
10,000,000 Cargill, 6.10%, 7/1/98........ 10,000,000
------------
Automotive (3.0%):
6,600,000 Daimler-Benz, 5.55%,
7/13/98..................... 6,587,790
------------
Entertainment (4.6%):
10,000,000 Walt Disney Co., 6.05%,
7/1/98...................... 10,000,000
------------
Financial Services (13.7%):
10,000,000 Budget Funding, 5.58%,
7/29/98..................... 9,956,600
10,000,000 IBM Credit Corp., 5.53%,
7/8/98...................... 9,988,681
10,000,000 MetLife Funding, 5.58%,
7/6/98...................... 9,992,251
------------
29,937,532
------------
Food Processing & Packaging (4.6%):
10,000,000 General Mills, 6.0%, 7/1/98... 10,000,000
------------
Insurance (4.5%):
10,000,000 General Re-Insurance, 5.5%,
9/18/98..................... 9,879,306
------------
Natural Resources (4.5%):
10,000,000 Natural Rural, 5.50%,
9/11/98..................... 9,890,000
------------
Telecommunications (4.6%):
10,000,000 Bell Atlantic, 5.54%,
7/30/98..................... 9,955,372
------------
Utilities (9.9%):
5,467,000 Dayton Power and Light, 5.53%,
8/3/98...................... 5,439,287
10,750,000 General Electric, 5.53%,
9/18/98..................... 10,619,546
5,500,000 Idaho Power Co, 5.55%,
7/14/98..................... 5,488,977
------------
21,547,810
------------
Total Commercial Paper................ 117,797,810
------------
ASSET BACKED SECURITIES (0.7%):
Financial Services (0.7%):
1,444,342 Capital Equipment Receivable
Trust, 5.79%, 12/15/98...... 1,445,013
------------
Total Asset Backed Securities......... 1,445,013
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- ----------- ------------------------------ ------------
<C> <S> <C>
CORPORATE BONDS (9.4%):
Financial Services (5.7%):
$ 2,500,000 Chrysler Financial Corp.,**
5.63%, 3/12/99.............. $ 2,500,342
10,000,000 PNC Bank N.A.,** 5.54%,
6/11/99..................... 9,993,384
------------
12,493,726
------------
Retail (3.7%):
8,000,000 Southland Corp., 5.50%,
7/15/98..................... 7,982,889
------------
Total Corporate Bonds................. 20,476,615
------------
U.S. GOVERNMENT AGENCIES (7.9%):
Federal Agricultural Mortgage Corporation--Discount
(4.2%):
9,023,000 5.47%, 7/13/98................ 9,006,548
------------
Federal Home Loan Bank (2.3%):
5,000,000 5.63%, 3/2/99................. 5,000,000
------------
Fannie Mae (0.5%):
1,100,000 5.32%, 7/1/98................. 1,100,000
------------
Student Loan Marketing Association (0.9%):
2,000,000 Sallie Mae,* 5.32%, 8/20/98... 1,999,330
------------
Total U.S. Government Agencies........ 17,105,878
------------
REPURCHASE AGREEMENTS (20.0%):
36,821,727 Lehman Brothers, dated
6/30/98, 5.75%, matures
7/1/98, Proceeds at maturity
$36,827,609 (Collateralized
by $72,699,000 Tennessee
Valley Authority, 0.00%,
10/5/03-5/1/24, market value
= $37,559,085).............. 36,821,727
6,916,000 Merrill Lynch Securities Inc.,
dated 6/30/98, 5.65%,
matures 7/1/98, Proceed at
maturity $6,917,085
(Collateralized by
$6,695,000 Federal National
Mortgage Association,
6.35%-6.89%,
6/10/05-4/25/06, market
value = $7,057,256)......... 6,916,000
------------
Total Repurchase Agreements........... 43,737,727
------------
Total Investments (Amortized Cost
$218,561,748)(a)--100.3%............ 218,561,748
Liabilities in excess of other
assets--(0.3)%.......................... (700,924)
------------
TOTAL NET ASSETS--100.0%.............. $217,860,824
============
</TABLE>
Continued
B-65
<PAGE> 205
THE SESSIONS GROUP
KEYPREMIER PRIME MONEY MARKET FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JUNE 30, 1998
- ---------
(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, 1998.
The date presented represents the next rate change date.
** 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, 1998. The date
presented represents the next rate change date.
See notes to financial statements.
B-66
<PAGE> 206
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
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 that 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: the KeyPremier
Aggressive Growth Fund, the KeyPremier Established Growth Fund, the
KeyPremier Intermediate Term Income Fund, the KeyPremier Pennsylvania
Municipal Bond Fund, the KeyPremier Limited Duration Government Securities
Fund, the KeyPremier U.S. Treasury Obligations Money Market Fund, and the
KeyPremier Prime Money Market Fund (collectively, the "Funds" and
individually, a "Fund").
The Funds' investment objectives are as follows:
<TABLE>
<CAPTION>
COMMENCEMENT
FUND OF OPERATIONS OBJECTIVE
---- ------------- ---------
<S> <C> <C>
Aggressive Growth Fund February 3, 1997 Growth of capital
Established Growth Fund December 2, 1996 Growth of capital with some current
income as a secondary objective
Intermediate Term Income Fund December 2, 1996 Current income with long-term growth of
capital as a secondary objective
Pennsylvania Municipal Bond October 1, 1996 Income which is exempt from federal
Fund income tax and Pennsylvania state
income tax and preservation of capital
Limited Duration Government July 1, 1997 Current income with preservation of
Securities Fund capital as a secondary objective
U.S. Treasury Obligations Money July 1, 1997 Current income with liquidity and
Market Fund stability of principal
Prime Money Market Fund October 7, 1996 Current income with liquidity and
stability of principal
</TABLE>
Shares of the Funds may be sold to customers of Martindale Andres & Company
Inc. by the Group's distributor, BISYS Fund Services Limited Partnership
d/b/a BISYS Fund Services (the "Distributor") and its affiliates, and all
accounts of correspondent banks of Keystone Financial, Inc. and to the
general public.
Continued
B-67
<PAGE> 207
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1998
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 and Prime
Money Market Fund (collectively, "the money market funds"), are valued,
in accordance with Rule 2a-7, 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.
Investments in common and preferred stocks, corporate bonds, commercial
paper, municipal securities and U.S. Government securities of the
Aggressive Growth Fund, Established Growth Fund, Intermediate Term
Income Fund, Pennsylvania Municipal Bond Fund, and Limited Duration
Government Securities Fund (collectively, "the variable net asset value
funds"), are valued based upon the current available prices in the
principal 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 Trustee, including the use of
approved independent pricing services. 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
Continued
B-68
<PAGE> 208
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1998
accrued interest). Securities subject to repurchase agreements are held
by the Funds' custodian or another qualified custodian.
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 funds. 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 Intermediate Term Income, Pennsylvania Municipal Bond,
and Limited Duration Government Securities 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 Aggressive Growth and Established Growth Funds.
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 operating losses,
expiring capital loss carry forwards, and deferral of certain losses.
As of June 30, 1998, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to
paid-in-capital:
<TABLE>
<CAPTION>
ACCUMULATED
ACCUMULATED NET REALIZED
UNDISTRIBUTED NET GAIN/(LOSS) ON
INVESTMENT INCOME INVESTMENTS
----------------- --------------
<S> <C> <C>
Aggressive Growth........... $ 115,134 $ (3)
Intermediate Income......... $ (60,619) $ 60,620
Limited Duration Government
Securities................ $ 4,444 $ (2,194)
U.S. Treasury Obligation
Money Market.............. $ 1,890 $ --
Prime Money Market.......... $ 447 $ (447)
</TABLE>
FEDERAL INCOME TAXES:
It is the policy of each Fund 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-69
<PAGE> 209
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1998
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 following Fund had deferred losses, which will be
treated as arising on the first day of the fiscal year ending June 30,
1999:
<TABLE>
<CAPTION>
CAPITAL LOSS
FUND DEFERRED
- ---- ------------
<S> <C>
U.S. Treasury Obligation Money Market.......... $594
</TABLE>
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 that Fund. Such expenses are amortized over a period of five years
commencing with the date of the initial public offering.
OTHER:
The Funds may maintain a cash balance with their custodian and receive a
reduction of their custody fees and expenses for the amount of interest
earned on such uninvested cash balances. For financial reporting
purposes for the year ended June 30, 1998, custodian fees and expenses
and expenses paid by third parties were increased by the following
amount for the following funds:
<TABLE>
<S> <C>
Aggressive Growth Fund........................... $ 1,447
Limited Duration Government Fund................. $ 4,319
U.S. Treasury Obligation Money Market Fund....... $ 352
Prime Money Market Fund.......................... $18,017
</TABLE>
There was no effect on net investment income. The Funds could have
invested such cash amounts in an income-producing asset if they had not
agreed to a reduction of fees or expenses under the expense offset
arrangement with their custodian.
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 year ended June
30, 1998, are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Aggressive Growth Fund...... $ 21,553,728 $ 9,013,893
Established Growth Fund..... $ 16,692,678 $ 12,192,974
Intermediate Term Income
Fund...................... $561,965,509 $494,012,764
Pennsylvania Municipal Bond
Fund...................... $ 73,543,901 $ 80,518,644
Limited Duration Bond
Fund...................... $115,586,713 $114,376,256
</TABLE>
Continued
B-70
<PAGE> 210
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1998
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.
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. Pursuant to the administration agreement, the Funds
pay BISYS a monthly fee for its services at an annual rate of 0.115% of the
aggregate average daily net assets of the Funds. 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 (each a "Service Organization"), which may include Martindale
Andres & Company, 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 is paid monthly, 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, 1998, BISYS
received $56,594 from commissions earned on sales of shares of the variable
net asset value funds, of which $2,114 was reallowed to broker-dealers
affiliated with Keystone Financial, Inc.
Fees may be voluntarily reduced to assist the Funds in maintaining
competitive expense ratios.
The variable net asset value funds can and do invest a portion of their
assets in the money market funds.
Continued
B-71
<PAGE> 211
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1998
Information regarding these transactions is as follows for the year ended
June 30, 1998:
<TABLE>
<CAPTION>
INTERMEDIATE PENNSYLVANIA
AGGRESSIVE ESTABLISHED TERM MUNICIPAL
GROWTH GROWTH INCOME BOND
FUND FUND FUND FUND
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)........ 1.00% .75% .60% .60%
Voluntary fee reductions.................... $593,310 $720,420 $715,881 $357,712
ADMINISTRATIVE SERVICES FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)........ .25% .25% .25% .25%
Voluntary fee reductions.................... $ 34,667 $ 64,344 $125,001 $ 55,413
FUND ACCOUNTANT FEES........................ $ 41,513 $ 70,172 $ 75,419 $ 43,737
TRANSFER AGENT FEES......................... $ 36,487 $ 38,056 $ 27,809 $ 22,799
</TABLE>
<TABLE>
<CAPTION>
LIMITED DURATION U.S. TREASURY
GOVERNMENT OBLIGATIONS
SECURITIES MONEY MARKET PRIME MONEY
FUND FUND MARKET FUND
---------------- ------------- ------------
<S> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets).......... .60% .40% .40%
Voluntary fee reductions...................... $153,207 $74,397 $311,790
ADMINISTRATIVE SERVICES FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets).......... .25% .25% .25%
Voluntary fee reductions...................... $ 18,069 $13,484 $ 95,587
FUND ACCOUNTANT FEES.......................... $ 32,239 $30,875 $ 47,847
TRANSFER AGENT FEES........................... $ 22,498 $21,952 $ 26,793
</TABLE>
Continued
B-72
<PAGE> 212
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1998
5. ACQUISITION OF COMMON COLLECTIVE TRUST FUNDS:
On July 1, 1997, March 1, 1998 and March 1, 1998, respectively, the Limited
Duration Government Securities, the Established Growth and Intermediate
Term Income Funds 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 share and unrealized appreciation as of the dates of
conversion:
<TABLE>
<CAPTION>
LIMITED INTERMEDIATE
DURATION ESTABLISHED TERM
GOVERNMENT GROWTH INCOME
SECURITIES FUND FUND FUND
--------------- ----------- ------------
<S> <C> <C> <C>
Shares..................... 3,467,684 937,007 312,665
Net Assets................. $34,676,843 $12,237,310 $3,132,904
Net Asset Value............ $ 10.00 $ 13.06 $ 13.06
Unrealized Appreciation.... $ 35,816 $ 9,410,676 $ 29,381
</TABLE>
6. FEDERAL INCOME TAX INFORMATION (UNAUDITED):
During the year ended June 30, 1998, the following Portfolios declared
long-term capital gain distributions in the following amounts:
<TABLE>
<CAPTION>
FUND AMOUNT
- ---- ----------
<S> <C>
Aggressive Growth.................................. $1,181,987
Established Growth................................. $1,060,223
</TABLE>
For corporate shareholders 100.00% of the total ordinary income
distributions paid during the fiscal year ended June 30, 1998 for the
Aggressive Growth Fund and the Established Growth Fund qualifies for the
corporate dividends received deduction.
B-73
<PAGE> 213
THE SESSIONS GROUP
KEYPREMIER FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND ESTABLISHED GROWTH FUND
-------------------------- --------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997(a) 1998 1997(a)
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 10.24 $ 10.00 $ 11.13 $ 10.00
-------- -------- -------- --------
INVESTMENT ACTIVITIES:
Net investment income (loss).......... (0.01) 0.01 0.10 0.08
Net realized and unrealized gain on
investments........................ 1.30 0.24 2.99 1.13
-------- -------- -------- --------
Total from Investment Activities... 1.29 0.25 3.09 1.21
-------- -------- -------- --------
DISTRIBUTIONS FROM:
Net investment income................. -- (0.01) (0.10) (0.08)
Net realized gains.................... (0.12) -- (0.06) --
-------- -------- -------- --------
Total Distributions................ (0.12) (0.01) (0.16) (0.08)
-------- -------- -------- --------
Net change in net asset value per
share.............................. 1.17 0.24 2.93 1.13
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.......... $ 11.41 $ 10.24 $ 14.06 $ 11.13
======== ======== ======== ========
Total Return (excluding sales charge)... 12.72% 2.52%(b) 27.92% 12.20%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (in
thousands)............................ $135,612 $105,258 $258,812 $190,914
Ratio of expenses to average net
assets................................ 0.83% 0.66%(c) 0.71% 0.44%(c)
Ratio of net investment income (loss) to
average net assets.................... (0.09%) 0.28%(c) 0.77% 1.39%(c)
Ratio of expenses to average net
assets*............................... 1.33% 1.35%(c) 1.06% 1.01%(c)
Ratio of net investment income (loss) to
average net assets*................... (0.59%) (0.41%)(c) 0.42% 0.82%(c)
Portfolio Turnover...................... 8% 2% 6% 1%
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Commencement of operations of the Funds were February 3, 1997 and December
2, 1996, respectively.
(b) Not Annualized
(c) Annualized
B-74
<PAGE> 214
THE SESSIONS GROUP
KEYPREMIER FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERMEDIATE TERM INCOME PENNSYLVANIA MUNICIPAL
FUND BOND FUND
------------------------- -------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997(a) 1998 1997(a)
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 9.77 $ 10.00 $ 10.29 $ 10.21
-------- -------- -------- --------
INVESTMENT ACTIVITIES:
Net investment income.................... 0.62 0.36 0.49 0.34
Net realized and unrealized gain (loss)
on investments........................ 0.33 (0.23) 0.11 0.06
-------- -------- -------- --------
Total from Investment Activities...... 0.95 0.13 0.60 0.40
-------- -------- -------- --------
DISTRIBUTIONS FROM:
Net investment income.................... (0.62) (0.36) (0.50) (0.32)
Net realized gains....................... -- -- -- --
-------- -------- -------- --------
Total Distributions................... (0.62) (0.36) (0.50) (0.32)
-------- -------- -------- --------
Net change in net asset value per
share................................. 0.33 (0.23) 0.10 0.08
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD............. $ 10.10 $ 9.77 $ 10.39 $ 10.29
======== ======== ======== ========
Total Return (excluding sales charge)...... 9.95% 1.40%(b) 5.89% 3.98%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (in
thousands)............................... $275,565 $207,859 $118,685 $123,194
Ratio of expenses to average net assets.... 0.57% 0.37%(c) 0.58% 0.37%(c)
Ratio of net investment income to average
net assets............................... 6.27% 6.45%(c) 4.65% 4.46%(c)
Ratio of expenses to average net assets*... 0.92% 0.84%(c) 0.92% 0.86%(c)
Ratio of net investment income to average
net assets*.............................. 5.92% 5.98%(c) 4.31% 3.97%(c)
Portfolio Turnover......................... 218% 329% 62% 98%
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Commencement of operations of the Funds were December 2, 1996 and October 1,
1996, respectively.
(b) Not Annualized
(c) Annualized
B-75
<PAGE> 215
THE SESSIONS GROUP
KEYPREMIER FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LIMITED
DURATION U.S. TREASURY
GOVERNMENT OBLIGATIONS
SECURITIES MONEY
FUND MARKET FUND PRIME MONEY MARKET FUND
------------ ------------- --------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998(a) 1998(a) 1998 1997(a)
------------ ------------- ---------- ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD... $ 10.00 $ 1.00 $ 1.00 $ 1.00
------- ------- -------- -------
INVESTMENT ACTIVITIES:
Net investment income................ 0.56 0.05 0.05 0.04
Net realized and unrealized gain on
investments....................... (0.04) -- -- --
------- ------- -------- -------
Total from Investment
Activities...................... 0.52 0.05 0.05 0.04
------- ------- -------- -------
DISTRIBUTIONS FROM:
Net investment income................ (0.56) (0.05) (0.05) (0.04)
Net realized gains................... -- -- -- --
------- ------- -------- -------
Total Distributions............... (0.56) (0.05) (0.05) (0.04)
------- ------- -------- -------
Net change in net asset value per
share............................. (0.04) -- -- --
------- ------- -------- -------
NET ASSET VALUE, END OF PERIOD......... $ 9.96 $ 1.00 $ 1.00 $ 1.00
======= ======= ======== =======
Total Return (excluding sales
charge).............................. 5.39% 4.78% 5.19% 3.73%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (in
thousands)........................... $29,360 $23,520 $217,861 $95,850
Ratio of expenses to average net
assets............................... 0.65% 0.71% 0.48% 0.36%(c)
Ratio of net investment income to
average net assets................... 5.58% 4.64% 5.14% 5.02%(c)
Ratio of expenses to average net
assets*.............................. 1.18% 1.07% 0.76% 0.70%(c)
Ratio of net investment income to
average net assets*.................. 5.05% 4.28% 4.86% 4.68%(c)
Portfolio Turnover..................... 482% NA NA NA
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Commencement of operations of the Funds were July 1, 1997, July 1, 1997, and
October 7, 1996, respectively.
(b) Not Annualized
(c) Annualized
B-76
<PAGE> 216
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 Aggressive
Growth Fund, KeyPremier Established Growth Fund, KeyPremier Intermediate Term
Income Fund, KeyPremier Pennsylvania Municipal Bond Fund, KeyPremier Limited
Duration Government Securities Fund, KeyPremier U.S. Treasury Obligations Money
Market Fund, and KeyPremier Prime Money Market Fund, collectively the Funds),
including the schedules of portfolio investments as of June 30, 1998, 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, 1998 by confirmation with the custodian and brokers 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, 1998, 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 14, 1998
B-77
<PAGE> 217
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 F1+ by Fitch IBCA Information Services, Inc.
("Fitch") is regarded as having the strongest capacity for timely payment of
financial commitments; an added "+" denotes any exceptionally strong credit
feature. Commercial paper rated F1 by Fitch is regarded as having a capacity for
timely payment only slightly less than the highest rating, I.E., F1+. Commercial
paper rated F2 by Fitch is regarded as having a satisfactory capacity for timely
payment of financial commitments, but the margin of safety is not as great as it
is for issues assigned F1+ or F1.
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 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
A-1
<PAGE> 218
ongoing funding needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small.
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 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
A-2
<PAGE> 219
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. 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 (plus or minus signs are used with a rating symbol to indicate the
relative position of the credit within the rating category). For bonds rates AAA
(highest credit quality), this rating denotes the lowest expectation of credit
risk. This rating is assigned only in case of exceptionally strong capacity
A-3
<PAGE> 220
for timely payment of financial commitments, a capacity that is highly unlikely
to be adversely affected by foreseeable events. For bonds rated AA (very high
credit quality), this rating denotes a very low expectation of credit risk. This
rating indicates very strong capacity for timely payment of financial
commitments, a capacity that is not significantly vulnerable to foreseeable
events. For bonds rated A (high credit quality), this rating denotes a low
expectation of credit risk. This rating indicates a strong capacity for timely
payment of financial commitments. This capacity may, nevertheless, be more
vulnerable to changes in circumstances or in economic conditions than is the
case for long-term debt rate "AAA" or "AA." For bonds rated BBB (good credit
quality), this rating indicates that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. The "BBB" category is the
lowest investment-grade category. For bonds rated BB (speculative), this rating
indicates that there is a possibility of credit risk developing, particularly as
the result of adverse economic change over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in the "BB" category are not investment grade. For bonds rated
B (highly speculative), this rating indicates that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
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 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
A-4
<PAGE> 221
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
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
A-5
<PAGE> 222
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 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.
A-6
<PAGE> 223
"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 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.
A-7
<PAGE> 224
"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.
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,
A-8
<PAGE> 225
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 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> 226
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) KeyPremier Prime Money Market Fund
Financial Highlights
(ii) KeyPremier Pennsylvania Municipal Bond Fund
Financial Highlights
(iii) KeyPremier Established Growth Fund
Financial Highlights
(iv) KeyPremier Intermediate Term Income Fund
Financial Highlights
(v) KeyPremier Aggressive Growth Fund
Financial Highlights
(vi) KeyPremier U.S. Treasury Obligations Money Market Fund
Financial Highlights
(vii) KeyPremier Limited Duration Government Securities Fund
Financial Highlights
(viii) KeyPremier Emerging Growth Fund
None
Included in Part B:
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(i) KeyPremier Prime Money Market Fund
Statements of Assets and Liabilities at June 30, 1998.
Statements of Operations for the year ended June 30, 1998.
Statements of Changes in Net Assets for the years ended June
30, 1998, and for the period ended June 30, 1998.
Schedule of Portfolio Investments as of June 30, 1998.
Notes to Financial Statements.
Financial Highlights for the year ended June 30, 1998, and for
the period from commencement of operations (October 7, 1996)
to June 30, 1997.
Independent Auditors' Report dated August 14, 1998.
(ii) KeyPremier Pennsylvania Municipal Bond Fund
Statements of Assets and Liabilities at June 30, 1998.
Statements of Operations for the year ended June 30, 1998.
Statements of Changes in Net Assets for the years ended June
30, 1998, and for the period ended June 30, 1997.
Schedule of Portfolio Investments as of June 30, 1998.
Notes to Financial Statements.
Financial Highlights for the year ended June 30, 1998, and for
the period from commencement of operations (October 1, 1996)
to June 30, 1997.
Independent Auditors' Report dated August 14, 1998.
(iii) KeyPremier Established Growth Fund
Statements of Assets and Liabilities at June 30, 1998.
Statements of Operations for the year ended June 30, 1998.
Statements of Changes in Net Assets for the years ended June
30, 1998, and for the period ended June 30, 1997.
Schedule of Portfolio Investments as of June 30, 1998.
Notes to Financial Statements.
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<PAGE> 228
Financial Highlights for the year ended June 30,1998, and for
the period from commencement of operations (December 2, 1996)
to June 30, 1997.
Independent Auditors' Report dated August 14, 1998.
(iv) KeyPremier Intermediate Term Income Fund
Statements of Assets and Liabilities at June 30, 1998.
Statements of Operations for the year ended June 30, 1998.
Statements of Changes in Net Assets for the year ended June
30, 1998, and for the period ended June 30, 1997.
Schedule of Portfolio Investments as of June 30, 1998.
Notes to Financial Statements.
Financial Highlights for the year ended June 30, 1998, and for
the period from commencement of operations (December 2, 1996)
to June 30, 1997.
Independent Auditor's Report dated August 14, 1998.
(v) KeyPremier Aggressive Growth Fund
Statements of Assets and Liabilities at June 30, 1998.
Statements of Operations for the year ended June 30, 1998.
Statements of Changes in Net Assets for the years ended June
30, 1998 and for the period ended June 30, 1997.
Schedule of Portfolio Investments as of June 30, 1998.
Notes to Financial Statements.
Financial Highlights for the year ended June 30, 1998 and for
the period from commencement of operations (December 2, 1996)
to June 30, 1997.
Independent Auditors' Report dated August 14, 1998.
(vi) KeyPremier U.S. Treasury Obligations Money Market Fund
Statements of Assets and Liabilities at June 30, 1998.
Statement of Operations for the year ended June 30, 1998.
Statements of Changes in Net Assets for the years ended June
30, 1998 and for the period ended June 30, 1997.
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<PAGE> 229
Schedule of Portfolio Investments as of June 30, 1998.
Notes to Financial Statements.
Financial Highlights for the years ended June 30, 1998, and
for the period from commencement of operations (February 3,
1997) to June 30, 1997.
Independent Auditors' Report dated August 14, 1998.
(vii) KeyPremier Limited Duration Government Securities Fund
Statements of Assets and Liabilities at June 30, 1998.
Statement of Operations for the year ended June 30, 1998.
Statement of Changes in Net Assets for the year ended June 30,
1998, and for the period ended June 30, 1997.
Schedule of Portfolio Investments as of June 30, 1998.
Notes to Financial Statements.
Financial Highlights for the year ended June 30, 1998, and for
the period from commencement of operations (February 3, 1997)
to June 30, 1997.
(viii) KeyPremier Emerging Growth Fund
To be added by amendment.
(ix) All required financial statements are included in Part B
hereof. All other financial statements and schedules are
inapplicable.
(b) Exhibits:
(1)(a) Declaration of Trust, dated as of April 25,
1988, is incorporated by reference to
Exhibit (1)(a) of Post-Effective Amendment
No. 34 to Registrant's Registration
Statement (No. 33-21489) filed on April 25,
1996.
(b) Amendment of Article IV, Section 4.2 of
Declaration of Trust adopted August 15,
1989, is incorporated by reference to
Exhibit (1)(b) of Post-Effective Amendment
No. 34 to Registrant's Registration
Statement (No. 33-21489) filed on April 25,
1996.
(c) Amendment of Article V, Section 5.3 of
Declaration of Trust adopted October 23,
1989, is incorporated by reference to
Exhibit (1)(c) of Post-Effective Amendment
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<PAGE> 230
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.
(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
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<PAGE> 231
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.
(n) Amendment to Article IV, Section 4.2 of
Declaration of Trust as adopted as of
January 15, 1998, is incorporated by
reference to Exhibit (1)(n) of
Post-Effective Amendment No. 45 to
Registrant's Registration Statement (No.
33-21489) filed on January 20, 1998.
(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)(e) Investment Advisory Agreement dated July 9,
1996, as amended as of April 6, 1998,
between Registrant and Martindale Andres &
Company, Inc (with respect to the KeyPremier
Funds).
(6)(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 April 6, 1998,
between Registrant and BISYS Fund Services
Limited Partnership (with respect to the Key
Premier Funds).
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<PAGE> 232
(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.
(7) None.
(8)(b) Custody Agreement dated July 9, 1996, as
amended as of April 6, 1998, between
Registrant and The Bank of New York (with
respect to the KeyPremier Funds).
(d) Cash Management and Related Services
Agreement dated September 24, 1996, as
amended as of April 6, 1998, between
Registrant and The Bank of New York (with
respect to the KeyPremier Funds).
(9)(d) Administrative Services Plan (with respect
to the KeyPremier Funds) is incorporated by
reference to Exhibit (9)(d) of
Post-Effective Amendment No. 43 to
Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
(j) Servicing Agreement to Administrative
Services Plan between Registrant and
National Financial Services Corporation
(with respect to KeyPremier Prime Money
Market Fund and KeyPremier U.S. Treasury
Obligations Money Market Fund) is
incorporated by reference to Exhibit (9)(j)
of Post-Effective Amendment No. 45 to
Registrant's Registration Statement (No.
33-21489) filed on January 20, 1998.
(x) Management and Administration Agreement
dated July 9, 1996, as amended as of April
6, 1998, between Registrant and BISYS Fund
Services Limited Partnership (with respect
to the KeyPremier Funds).
(y) Fund Accounting Agreement dated July 9,
1996, as amended as of April 6, 1998,
between Registrant and BISYS Fund Services,
Inc. (with respect to the KeyPremier Funds).
(z) Transfer Agency Agreement dated July 9,
1996, as amended as of April 6, 1998,
between Registrant and BISYS Fund Services,
Inc. (with respect to the KeyPremier Funds).
(ad) Form of Servicing Agreement to
Administrative Services Plan is incorporated
by reference to Exhibit (9)(ad) of Post-
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<PAGE> 233
Effective Amendment No. 35 to Registrant's
Registration Statement (No. 33-21489) filed
on June 6, 1996.
(10) Opinion of Counsel with respect to shares of
Key-Premier Emerging Growth Fund is
incorporated by reference to Exhibit (10(a)
of Post-Effective Amendment No. 45 to
Registrant's Registration Statement (No.
33-21489) filed on January 20, 1998. 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
KeyPremier Prime Money Market Fund,
KeyPremier Pennsylvania Municipal Bond Fund,
KeyPremier Aggressive Growth Fund,
KeyPremier Established Growth Fund, and
KeyPremier Intermediate Term Income Fund was
filed with Registrant's 24f-2 Notice filed
on August 27, 1997, pursuant to Rule 24f-2.
(11) Consent of KPMG Peat Marwick LLP.
(12) None
(13) Purchase Agreement dated as of July 19,
1988, between Registrant and Winsbury
Associates is incorporated by reference to
Exhibit (13) of Post-Effective Amendment No.
43 to Registrant's Registration Statement
(No. 33-21489) filed on October 31, 1997.
(14) None.
(15) None.
(16) Computations of Performance Quotations for
the KeyPremier Funds are incorporated by
reference to Exhibit (16)(b) of
PostEffective Amendment No. 43 to
Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
(17) Financial Data Schedules of the KeyPremier
Funds.
(18) None.
C-8
<PAGE> 234
(19)(a) Powers of Attorney of Walter B. Grimm and
Maurice G. Stark are incorporated by
reference to Exhibit (19)(a) of
Post-Effective Amendment No. 43 to
Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
(b) Consent of Baker & Hostetler LLP.
(c) Power of Attorney of Paul T. Kane.
(d) Power of Attorney of James H. Woodward is
incorporated by reference to Exhibit (19)(d)
of Post-Effective Amendment No. 37 to
Registrant's Registration Statement (No.
33-21489) filed on October 21, 1996.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
Item 26. NUMBER OF HOLDERS OF SECURITIES
As of October 26, 1998, 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>
KeyPremier Prime Prime Money Market Fund 34
KeyPremier Pennsylvania Municipal Bond Fund 24
KeyPremier Established Growth Fund 389
KeyPremier Intermediate Term Income Fund 58
KeyPremier Aggressive Growth Fund 386
KeyPremier U.S. Treasury Obligations 7
Money Market Fund
KeyPremier Limited Duration Government 9
Securities Fund
KeyPremier Emerging Growth Fund 71
</TABLE>
Item 27. INDEMNIFICATION
Article VI, Section 6.4 of the Registrant's Declaration of
Trust, filed as Exhibit I 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
C-9
<PAGE> 235
and fund accountant is provided for, respectively, in Section
1. 11 of the Distribution Agreement filed as Exhibit 6(c)
hereto, Article XVII, Section 14 of the Custody Agreement
filed as Exhibit 8(b) hereto, Section 8 of the Investment
Advisory Agreement filed as Exhibit 5(e) hereto, Section 4 of
the Management and Administration Agreement filed as Exhibit
9(x) hereto, Section 9 of the Transfer Agency Agreement filed
as Exhibit 9(z) hereto, and Section 6 of the Fund Accounting
Agreement filed as Exhibit 9(y) hereto. As of the effective
date of this Registration Statement, the Group will have
obtained from a major insurance carrier a trustees' and
officers' liability policy covering certain types of errors
and omissions. In no event will Registrant indemnify any of
its trustees, officers, employees or agents against any
liability to which such person would otherwise be subject by
reason of his willful misfeasance, bad faith, or gross
negligence in the performance of his duties, or by reason of
his reckless disregard of the duties involved in the conduct
of his office or under his agreement with Registrant.
Registrant will comply with Rule 484 under the Securities Act
of 1933 and Release 11330 under the Investment Company Act of
1940 in connection with any indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers,
and controlling persons of Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses
incurred or paid by a trustee, officer, or controlling person
of Registrant in the successful defense of any action, suit,
or proceeding) is asserted by such trustee, officer, or
controlling person in connection with the securities being
registered, Registrant will, unless in e 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
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,
KeyPremier Limited Duration Government Securities Fund and KeyPremier Emerging
Growth Fund. Martindale Andres is a wholly-owned subsidiary of Keystone
Financial, Inc. In addition
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<PAGE> 236
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 $2.55 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.
Item 29. PRINCIPAL UNDERWRITER
(a) BISYS Fund Services Limited Partnership (degree)b/a BISYS Fund
Services ("BISYS") acts as distributor and administrator for
Registrant. BISYS also distributes the securities of The Victory
Portfolios, The Victory Variable Funds, the Parkstone Group of Funds,
Alpine Equity Trust, 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,
Fountain Square Funds, Hirtle Callaghan Trust, HSBC Family of Funds,
INTRUST Funds Trust, The Infinity Mutual Funds, Inc., The Kent Funds,
Magna Funds, Meyers Investment Trust, Minerva Funds, The Parkstone
Advantage Funds, Pegasus Funds, Puget Sound Alternative Investment
Series Trust, The Republic Funds Trust, The Republic Advisors Funds
Trust, SBSF Funds, Inc. dba Key Mutual Funds, Sefton Funds, Vintage
Funds, Inc. 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>
SISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, Ohio 43219
WC Subsidiary Corporation Limited Partner None
3435 Stelzer Rd.
Columbus, Ohio 43229
</TABLE>
(c) None.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
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<PAGE> 237
(1) 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).
(2) BISYS Fund Services Limited Partnership, 3435 Stelzer Road,
Columbus, Ohio 43219 (records relating to its functions as manager,
administrator and distributor).
(3) BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219
(records relating to its functions as transfer agent and as fund
accountant).
(4) Baker & Hostetler LLP, 65 East State Street, Columbus, Ohio 43215
(Declaration of Trust, By-Laws, and Minute Books).
(5) The Bank of New York, 48 Wall Street, New York, New York 10286
(records relating to its function as custodian for the KeyPremier
Funds).
Item 31. MANAGEMENT SERVICES
None
Item 32. UNDERTAKINGS
None.
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<PAGE> 238
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 28th day of October, 1998.
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> <S>
/s/ Walter B. Grimm President (Principal Executive Officer October 28, 1998
- ---------------------------- and Trustee
Walter B. Grimm
/s/*Paul T. Kane Treasurer (Principal Financial Officer and October 28, 1998
- ---------------------------- Principal Accounting Officer)
Paul T. Kane
/s/ John H. Ferring, IV Trustee October 28, 1998
- ----------------------------
John H. Ferring, IV
/s/*Maurice G. Stark Trustee October 28, 1998
- ----------------------------
Maurice G. Stark
/s/*James H. Woodward Trustee October 28, 1998
- ----------------------------
James H. Woodward
*By /s/ Walter B. Grimm October 28, 1998
---------------------
Walter B. Grimm
Attorney-In-Fact
</TABLE>
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<PAGE> 239
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
l(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.
(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 n 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
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<PAGE> 240
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 L6, 1996, was filed as
Exhibit (1)0) 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)(1) to 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, was filed
as Exhibit (1)(m) to Post-Effective Amendment No. 39
to Registrant's Registration Statement (No. 33-21489)
filed on March 18, 1997.
(n) Amendment to Article IV, Section 4.2 of Declaration
of Trust as adopted as of January 15, 1998, was filed
as Exhibit (1)(n) to Post-Effective Amendment No. 45
to Registrant's Registration Statement (No. 33-21489)
filed on January 20, 1998.
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(e) Investment Advisory Agreement dated July 9, 1996, as
amended as of April 6, 1998, between Registrant and
Martindale Andres & Company, Inc. (with respect to
the KeyPremier Funds).
6(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 April 6, 1998, between Registrant
and BISYS Fund Services Limited Partnership (with
respect to the KeyPremier Funds).
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<PAGE> 241
(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.
8(b) Custody Agreement dated July 9, 1996, as amended as
of April 6, 1998, between Registrant and The Bank of
New York (with respect to the KeyPremier Funds).
(d) Cash Management and Related Services Agreement dated
September 24, 1996, as amended as of April 6, 1998,
between Registrant and The Bank of New York (with
respect to the KeyPremier Funds).
9(d) Administrative Services Plan (with respect to the
KeyPremier Funds) was filed as Exhibit (9)(d) to
PostEffective Amendment No. 43 to Registrant's
Registration Statement (No. 33-21489) filed on
October 31, 1997.
(j) Servicing Agreement to Administrative Services Plan
between Registrant and National Financial Services
Corporation (with respect to KeyPremier Prime Money
Market Fund and KeyPremier U.S. Treasury Obligations
Money Market Fund) was filed as Exhibit (9)0) to
PostEffective Amendment No. 45 (No. 33-21489) filed
on January 20, 1998.
(x) Management and Administration Agreement dated July 9,
1996, as amended as of April 6, 1998, between
Registrant and BISYS Fund Services Limited
Partnership (with respect to the KeyPremier Funds).
(y) Fund Accounting Agreement dated July 9, 1996, as
amended as of April 6, 1998, between Registrant and
BISYS Fund Services, Inc. (with respect to the
KeyPremier Funds).
(z) Transfer Agency Agreement dated July 9, 1996, as
amended as of April 6, 1998, between Registrant and
BISYS Fund Services, Inc. (with respect to the
KeyPremier Funds).
(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 Opinion of Counsel with respect to shares of
KeyPremier Emerging Growth Fund was filed as Exhibit
(10)(a) to Post-Effective Amendment No. 45 (No.
33-21489) filed on
C-16
<PAGE> 242
January 20, 1998. Opinion of Counsel with respect to
shares of KeyPremier U.S. Treasury Obligations Money
Market Fund and KeyPremier Limited Duration
Government Securities Fund was filed as Exhibit
(10)(a) to Post-Effective Amendment No. 40 to
Registrant's Registration Statement (No. 33-21489)
filed on April 16,1997. An Opinion of Counsel was
filed by Notice on August 27, 1997, pursuant to Rule
24-2 (with respect to KeyPremier Prime Money Market
Fund, KeyPremier Pennsylvania Municipal Bond Fund,
KeyPremier established Growth Fund, KeyPremier
Intermediate Term Income Fund and KeyPremier
Aggressive Growth Fund).
11 Consent of KPMG Peat Marwick LLP .
13 Purchase Agreement dated as of July 19, 1988, between
Registrant and Winsbury Associates was filed as
Exhibit (13) to Post-Effective Amendment No. 43 to
Registrant's Registration Statement (No. 33-21489)
filed on October 31, 1997.
16 Computations of Performance Quotations for the
KeyPremier Funds were filed as Exhibit (16)(b) to
PostEffective Amendment No. 43 to Registrant's
Registration Statement (No. 33-21489) filed on
October 31, 1997.
17 Financial Data Schedules of the KeyPremier Funds.
19(a) Powers of Attorney of Maurice G. Stark and Walter B.
Grimm were filed as Exhibit (19)(a) to Post-Effective
Amendment No. 43 to Registrant's Registration
Statement (No. 33-21489) filed on October 31, 1997.
(b) Consent of Baker & Hostetler LLP
(c) Power of Attorney of Paul T. Kane.
(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-17
<PAGE> 243
As filed with the Securities and Exchange Commission October 29, 1998
1933 Act Registration No. 33-21489
1940 Act File No. 811-5545
EXHIBITS TO
FORM N-lA
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Post-Effective Amendment No. 46 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT |X|
COMPANY ACT OF 1940
Amendment No. 48 |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
C-18
<PAGE> 1
Exhibit (5)(e)
INVESTMENT ADVISORY AGREEMENT
This Agreement is made as of July 9, 1996, between THE SESSIONS GROUP,
an Ohio business trust (the "Trust"), and Martindale Andres & Company, Inc., a
Pennsylvania corporation (the "Investment Adviser").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Trust desires to retain the Investment Adviser to provide,
or to arrange for the provision of, investment advisory services to two newly
created investment portfolios of the Trust and may retain the Investment Adviser
to serve in such capacity to certain additional investment portfolios of the
Trust, all as now or hereafter may be identified in Schedule A hereto (such new
investment portfolios and any such additional investment portfolios together
called the "Funds") and the Investment Adviser represents that it is willing and
possesses legal authority to so furnish such services without violation of
applicable laws (including the Glass- Steagall Act) and regulations;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
SECTION 1. APPOINTMENT. The Trust hereby appoints the Investment
Adviser to act as investment adviser to the Funds for the period and on the
terms set forth in this Agreement. The Investment Adviser accepts such
appointment and agrees to furnish the services herein set forth for the
compensation herein provided. Additional investment portfolios may from time to
time be added to those covered by this Agreement by the parties executing a new
Schedule A which shall become effective upon its execution and shall supersede
any Schedule A having an earlier date.
SECTION 2. DELIVERY OF DOCUMENTS. The Trust has furnished the
Investment Adviser with copies properly certified or authenticated of each of
the following:
(a) the Trust's Declaration of Trust, executed as of April 25,
1988, and as filed with the Secretary of State of Ohio on April 25,
1988, as amended or restated to the date hereof (such Declaration, as
presently in effect and as it shall from time to time be amended or
restated, is herein called the "Declaration of Trust");
(b) the Trust's By-Laws and any amendments thereto;
<PAGE> 2
(c) resolutions of the Trust's Board of Trustees authorizing
the appointment of the Investment Adviser and approving this Agreement;
(d) the Trust's Notification of Registration on Form N-8A
under the 1940 Act as filed with the Securities and Exchange Commission
on April 27, 1988 and all amendments thereto;
(e) all of the Trust's procedures and guidelines and all
resolutions of the Trust's Board relevant to the services to be
provided by the Investment Adviser hereunder;
(f) the Trust's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended ("1933 Act"), (File No. 33-21489),
and under the 1940 Act as filed with the Securities and Exchange
Commission and the most recent amendment thereto; and
(g) the most recent Prospectus and Statement of Additional
Information of each of the Funds (such Prospectus and Statement of
Additional Information, as presently in effect, and all amendments and
supplements thereto, are herein collectively called the "Prospectus").
The Trust will furnish the Investment Adviser from time to
time with copies of all amendments of or supplements to the foregoing.
SECTION 3. MANAGEMENT. Subject to the supervision of the Trust's Board
of Trustees, the Investment Adviser will provide a continuous investment program
for each of the Funds, including investment research and management with respect
to all securities and investments and cash equivalents in the Funds. The
Investment Adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by the Trust with respect to the
Funds and will implement such determinations through the placement, in the name
of the Funds, of orders for the execution of portfolio transactions with or
through such brokers or dealers as it may select. The Investment Adviser will
provide the services under this Agreement in accordance with each of the Fund's
investment objectives, policies, and restrictions as stated in the Prospectus,
as the same may be amended, supplemented or restated from time to time, and
resolutions of the Trust's Board of Trustees.
In fulfilling its responsibilities hereunder, the Investment Adviser
further agrees that it will:
- 2 -
<PAGE> 3
(a) use the same skill and care in providing such services as
it uses in providing services to fiduciary accounts for which it has
investment responsibilities;
(b) conform with all applicable Rules and Regulations of the
Securities and Exchange Commission and in addition will conduct its
activities under this Agreement in accordance with any applicable
regulations of any governmental authority pertaining to the investment
advisory activities of the Investment Adviser;
(c) not make loans to any person to purchase or carry shares
of beneficial interest in the Trust or make loans to the Trust;
(d) place orders pursuant to its investment determinations for
the Funds either directly with the issuer or with any broker or dealer.
In placing orders with brokers and dealers, the Investment Adviser will
attempt to obtain prompt execution of orders in an effective manner at
the most favorable price. In assessing the best execution available for
any transaction, the Investment Adviser shall consider all factors it
deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution
capability of the broker-dealer and the reasonableness of the
commission, if any (for the specific transaction and on a continuing
basis). Consistent with this obligation, the Investment Adviser may, in
its discretion and to the extent permitted by law, purchase and sell
portfolio securities to and from brokers and dealers who provide
brokerage and research services (within the meaning of Section 28(e) of
the Securities Exchange Act of 1934) to or for the benefit of the Funds
and/or other accounts over which the Investment Adviser exercises
investment discretion. Subject to the review of the Trust's Board of
Trustees from time to time with respect to the extent and continuation
of the policy, the Investment Adviser is authorized to pay a broker or
dealer who provides such brokerage and research services a commission
for effecting a securities transaction for any of the Funds which is in
excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if, but only if, the Investment
Adviser determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided
by such broker or dealer, viewed in terms of either that particular
transaction or the overall responsibilities of the Investment Adviser
with respect to the accounts as to which it exercises investment
discretion. In placing orders with brokers and dealers, consistent with
applicable laws, rules and regulations, the Investment Adviser may
consider the sale
- 3 -
<PAGE> 4
of shares of the Trust. Except as otherwise permitted by applicable
laws, rules and regulations, in no instance will portfolio securities
be purchased from or sold to BISYS Fund Services Limited Partnership,
the Investment Adviser or any affiliated person of the Trust, BISYS
Fund Services Limited Partnership or the Investment Adviser;
(e) will maintain all books and records with respect to the
securities transactions of the Funds and will furnish the Trust's Board
of Trustees such periodic and special reports as the Board may request;
(f) will treat confidentially and as proprietary information
of the Trust all records and other information relative to the Trust
and the Funds and prior, present, or potential shareholders, and will
not use such records and information for any purpose other than
performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be withheld
where the Investment Adviser may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities, or when so requested
by the Trust; and
(g) will maintain its policy and practice of conducting its
fiduciary functions independently. In making investment recommendations
for the Funds, the Investment Adviser's personnel will not inquire or
take into consideration whether the issuers of securities proposed for
purchase or sale for the Trust's account are customers of the
Investment Adviser or of its parents, subsidiaries or affiliates. In
dealing with such customers, the Investment Adviser and its parents,
subsidiaries, and affiliates will not inquire or take into
consideration whether securities of those customers are held by the
Trust.
SECTION 4. SERVICES NOT EXCLUSIVE. The investment management services
furnished by the Investment Adviser hereunder are not to be deemed exclusive,
and the Investment Adviser shall be free to furnish similar services to others
so long as its services under this Agreement are not impaired thereby.
SECTION 5. BOOKS AND RECORDS. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, the Investment Adviser hereby agrees that all
records which it maintains for the Funds are the property of the Trust and
further agrees to surrender promptly to the Trust any of such records upon the
Trust's request. The Investment Adviser further agrees to preserve for the
periods
- 4 -
<PAGE> 5
prescribed by Rule 31a-2 under the 1940 Act, the records required to be
maintained by Rule 31a-1 under the 1940 Act.
SECTION 6. EXPENSES. During the term of this Agreement, the Investment
Adviser will pay all expenses incurred by it in connection with its activities
under this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Funds.
SECTION 7. COMPENSATION. For the services provided and the expenses
assumed pursuant to this Agreement, each of the Funds will pay the Investment
Adviser and the Investment Adviser will accept as full compensation therefor a
fee as set forth on Schedule A hereto. The obligations of the Funds to pay the
above-described fee to the Investment Adviser will begin as of the respective
dates of the initial public sale of shares in the Funds; provided, however, that
the Investment Adviser shall waive all such fees until such time as it notifies
the Trust that it has terminated such waiver. Thereafter, the Investment Adviser
may from time to time waive some or all of such fees until such time as it
notifies the Trust that it has terminated such waiver. Upon any termination of
this Agreement before the end of any month, the fee for such part of a month
shall be prorated according to the proportion which such period bears to the
full monthly period and shall be payable upon the date of termination of this
Agreement.
For the purpose of determining fees payable to the Investment Adviser,
the value of the net assets of a particular Fund shall be computed in the manner
described in the Trust's Declaration of Trust or in the Prospectus or Statement
of Additional Information respecting that Fund as from time to time is in effect
for the computation of the value of such net assets in connection with the
determination of the liquidating value of the shares of such Fund.
If in any fiscal year the aggregate expenses of any of the Funds (as
defined under the securities regulations of any state having jurisdiction over
the Trust) exceed the expense limitations of any such state, the Investment
Adviser will reimburse the Fund for a portion of such excess expenses equal to
such excess times the ratio of the fees otherwise payable by the Fund to the
Investment Adviser hereunder to the aggregate fees otherwise payable by the Fund
to the Investment Adviser hereunder and to BISYS Fund Services Limited
Partnership under the Administration Agreement between BISYS Fund Services
Limited Partnership and the Trust and to BISYS Fund Services, Inc. under the
Fund Accounting Agreement between BISYS Fund Services, Inc. and the Trust. The
obligation of the Investment Adviser to reimburse the Funds hereunder is limited
in any fiscal year to the amount of its fee hereunder for such fiscal year,
provided, however, that notwithstanding the foregoing, the Investment Adviser
shall
- 5 -
<PAGE> 6
reimburse the Funds for such proportion of such excess expenses regardless of
the amount of fees paid to it during such fiscal year to the extent that the
securities regulations of any state having jurisdiction over the Trust so
require. Such expense reimbursement, if any, will be estimated daily and
reconciled and paid on a monthly basis.
SECTION 8. LIMITATION OF LIABILITY. Notwithstanding anything herein to
the contrary, the Investment Adviser shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Funds in connection
with the performance of this Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Investment Adviser in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
SECTION 9. DURATION AND TERMINATION. This Agreement will become
effective as of the date first written above (or, if a particular Fund is not in
existence on that date, on the date a registration statement relating to that
Fund becomes effective with the Securities and Exchange Commission and Schedule
A hereto is amended to add such Fund), provided that it shall have been approved
by vote of a majority of the outstanding voting securities of such Fund, in
accordance with the requirements under the 1940 Act, and, unless sooner
terminated as provided herein, shall continue in effect until July 9, 1998.
Thereafter, if not terminated, this Agreement shall continue
in effect as to a particular Fund for successive periods of twelve months each
ending on July 9 of each year, provided such continuance is specifically
approved at least annually (a) by the vote of a majority of those members of the
Trust's Board of Trustees who are not parties to this Agreement or interested
persons of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the vote of a majority of the
Trust's Board of Trustees or by the vote of a majority of all votes attributable
to the outstanding Shares of such Fund. Notwithstanding the foregoing, this
Agreement may be terminated as to a particular Fund at any time on sixty days'
written notice, without the payment of any penalty, by the Trust (by vote of the
Trust's Board of Trustees or by vote of a majority of the outstanding voting
securities of such Fund) or by the Investment Adviser. This Agreement will
immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the same meanings as ascribed
to such terms in the 1940 Act.)
- 6 -
<PAGE> 7
SECTION 10. INVESTMENT ADVISER'S REPRESENTATIONS. The Investment
Adviser hereby represents that it is willing and possesses all requisite legal
authority to provide the services contemplated by this Agreement without
violation of applicable laws and regulations, including but not limited to the
Glass-Steagall Act and the regulations promulgated thereunder.
SECTION 11. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
SECTION 12. NAME. The Trust hereby acknowledges that the name
"KeyPremier" is a property right of the Investment Adviser. The Investment
Adviser agrees that the Trust and the Funds may, so long as this Agreement
remains in effect, use "KeyPremier" as part of its name. The Investment Adviser
may permit other persons, firms or corporations, including other investment
companies, to use such name and may, upon termination of this Agreement, require
the Trust and the Funds to refrain from using the name "KeyPremier" in any form
or combination in its name or in its business or in the name of any of its
Funds, and the Trust shall, as soon as practicable following its receipt of any
such request from the Investment Adviser, so refrain from using such name.
SECTION 13. MISCELLANEOUS. The captions in this Agreement are included
for convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by the law of the State of Ohio.
The Sessions Group is a business trust organized under Chapter
1746, Ohio Revised Code and under a Declaration of Trust, to which reference is
hereby made and a copy of which is on file at the office of the Secretary of
State of Ohio as required by law, and to any and all amendments thereto so filed
or hereafter filed. The obligations of "The Sessions Group" entered into in the
name or on behalf thereof by any of the Trustees, officers, employees or agents
are made not individually, but in such capacities, and are not binding upon any
of the Trustees, officers, employees, agents or shareholders of the Trust
personally, but bind only the assets of the Trust, as set forth in Section
1746.13(A), Ohio Revised Code, and all persons dealing with any of the Funds of
the Trust must look solely to the assets of the Trust belonging to such Fund for
the enforcement of any claims against the Trust.
- 7 -
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
THE SESSIONS GROUP
By /s/ Walter B. Grimm
---------------------------
Name Walter B. Grimm
-------------------------
Title President
------------------------
MARTINDALE ANDRES & COMPANY,
INC.
By /s/ Robert P. Andres
---------------------------
Name Robert P. Andres
-------------------------
Title Chief Operating Officer
------------------------
- 8 -
<PAGE> 9
Dated: April 6, 1998
Schedule A
to the
Investment Advisory Agreement
between The Sessions Group and
Martindale Andres & Company, Inc.
dated as of July 9, 1996
NAME OF FUND COMPENSATION* DATE
- ------------ ------------- ----
The KeyPremier Annual Rate of forty one- July 9, 1996
Prime Money Market hundredth of one percent
Fund (0.40%) of such Fund's
average net assets
The KeyPremier Annual rate of sixty one- July 9, 1996
Pennsylvania hundredth of one percent
Municipal Bond (.60%) of such Fund's
Fund average daily net assets
The KeyPremier Annual rate of seventy-five October 30, 1996
Established Growth one-hundredth of one
Fund percent (.75%) of such
Fund's average daily net
assets
The KeyPremier Annual rate of sixty one- October 30, 1996
Intermediate Term hundredth of one percent
Income Fund (.60%) of such Fund's
average daily net assets
The KeyPremier Annual rate of one percent January 29, 1997
Aggressive Growth (1.00%) of such Fund's
Fund average daily net assets
The KeyPremier Annual rate of forty one- June 30, 1997
U.S. Treasury hundredth of one percent
Obligations Money (.40%) of such Fund's
Market Fund average daily net assets
The KeyPremier Annual rate of sixty one- June 30, 1997
Limited Duration hundredth of one percent
Government (.60%) of such Fund's
Securities Fund average daily net assets
- --------
*All Fees are computed daily and paid monthly.
A-1
<PAGE> 10
The KeyPremier Annual rate of one hundred April 6, 1998
Emerging Growth twenty five one-hundredths of
Fund one percent (1.25%) of such
Fund's average daily net assets
MARTINDALE ANDRES & COMPANY, INC. THE SESSIONS GROUP
By /s/ ROBERT P. ANDRES By /s/ WALTER B. GRIMM
------------------------------ ----------------------------------
Name Robert P. Andres Name Walter B. Grimm
--------------------------- --------------------------------
Title Chief Operating Officer Title President
-------------------------- -------------------------------
A-2
<PAGE> 1
EXHIBIT (6)(c)
DISTRIBUTION AGREEMENT
This Agreement is made this 9th day of July, 1996, between The Sessions
Group, an Ohio business trust (the "Trust"), 3435 Stelzer Road, Columbus, Ohio
43219, and BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services, an
Ohio limited partnership ("Distributor"), 3435 Stelzer Road, Columbus, Ohio
43219.
WHEREAS, the Trust is an open-end management investment company,
organized as an Ohio business trust and registered with the Securities and
Exchange Commission (the "Commission") under the Investment Company Act of 1940,
as amended (the "1940 Act"); and
WHEREAS, it is intended that Distributor act as the distributor of the
units of beneficial interest ("Shares") of each of the investment portfolios of
the Trust identified on Schedule A hereto as such Schedule may be amended from
time to time (such portfolios being referred to individually as a "Fund" and
collectively as the "Funds").
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. SERVICES AS DISTRIBUTOR.
1.1 Distributor will act as agent for the distribution of the Shares
covered by the registration statement and prospectus of the Trust then in effect
under the Securities Act of 1933, as amended ("1933 Act"). As used in this
Agreement, the term "registration statement" shall mean Parts A (the
prospectus), B (the Statement of Additional Information) and C of each
registration statement that is filed on Form N-1A, or any successor thereto,
with the Commission, together with any amendments thereto. The term "prospectus"
shall mean each form of prospectus and Statement of Additional Information used
by the Funds for delivery to shareholders and prospective shareholders after the
effective dates of the above referenced registration statements, together with
any amendments and supplements thereto.
1.2 Distributor agrees to use appropriate efforts to solicit orders for
the sale of the Shares and will undertake such advertising and promotion as it
believes reasonable in connection with such solicitation. The Trust understands
that Distributor is now and, in the future, may be the distributor of the shares
of several investment companies or series (together, "Companies") including
Companies having investment objectives similar to those of the Trust. The Trust
further understands that investors and potential investors in the Trust may
invest in shares of such other Companies. The Trust agrees that Distributor's
duties to such Companies shall not be deemed in conflict with its duties to the
Trust under this paragraph 1.2.
<PAGE> 2
Distributor shall, at its own expense, finance appropriate activities
which it deems reasonable which are primarily intended to result in the sale of
the Shares, including, but not limited to, advertising, compensation of
underwriters, dealers and sales personnel, the printing and mailing of
prospectuses to other than current Shareholders, and the printing and mailing of
sales literature.
1.3 In its capacity as distributor of the Shares, all activities of
Distributor and its partners, agents, and employees shall comply with all
applicable laws, rules and regulations, including, without limitation, the 1940
Act, all rules and regulations promulgated by the Commission thereunder and all
rules and regulations adopted by any securities association registered under the
Securities Exchange Act of 1934.
1.4 Distributor will provide one or more persons, during normal
business hours, to respond to telephone questions with respect to the Trust.
1.5 Distributor will transmit any orders received by it for purchase or
redemption of the Shares to the transfer agent and custodian for the Funds.
1.6 Whenever in their judgment such action is warranted by unusual
market, economic or political conditions, or by abnormal circumstances of any
kind, the Trust's officers may decline to accept any orders for, or make any
sales of, the Shares until such time as those officers deem it advisable to
accept such orders and to make such sales.
1.7 Distributor will act only on its own behalf as principal if it
chooses to enter into selling agreements with selected dealers or others.
1.8 The Trust agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the qualification of
the Shares for sale in such states as Distributor may designate.
1.9 The Trust shall furnish from time to time, for use in connection
with the sale of the Shares, such information with respect to the Funds and the
Shares as Distributor may reasonably request; and the Trust warrants that the
statements contained in any such information shall fairly show or represent what
they purport to show or represent. The Trust shall also furnish Distributor upon
request with: (a) unaudited semi-annual statements of the Funds' books and
accounts prepared by the Trust, (b) a monthly itemized list of the securities in
the Funds, (c) monthly
- 2 -
<PAGE> 3
balance sheets as soon as practicable after the end of each month, and (d) from
time to time such additional information regarding the financial condition of
the Funds as Distributor may reasonably request.
1.10 The Trust represents to Distributor that, with respect to the
Shares, all registration statements and prospectuses filed by the Trust with the
Commission under the 1933 Act have been carefully prepared in conformity with
the requirements of said Act and rules and regulations of the Commission
thereunder and all statements of fact contained in any such registration
statement and prospectus will be true and correct when such registration
statement becomes effective. Furthermore, neither any registration statement nor
any prospectus when such registration statement becomes effective includes an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
to a purchaser of the Shares. The Trust may, but shall not be obligated to,
propose from time to time such amendment or amendments to any registration
statement and such supplement or supplements to any prospectus as, in the light
of future developments, may, in the opinion of the Trust's counsel, be necessary
or advisable. If the Trust shall not propose such amendment or amendments and/or
supplement or supplements within fifteen days after receipt by the Trust of a
written request from Distributor to do so, Distributor may, at its option,
terminate this Agreement. The Trust shall not file any amendment to any
registration statement or supplement to any prospectus without giving
Distributor reasonable notice thereof in advance; provided, however, that
nothing contained in this Agreement shall in any way limit the Trust's right to
file at any time such amendments to any registration statement and/or
supplements to any prospectus, of whatever character, as the Trust may deem
advisable, such right being in all respects absolute and unconditional.
1.11 The Trust authorizes Distributor and dealers to use any prospectus
in the form furnished from time to time in connection with the sale of the
Shares. The Trust agrees to indemnify, defend and hold Distributor, its several
partners and employees, and any person who controls Distributor within the
meaning of Section 15 of the 1933 Act free and harmless from and against any and
all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Distributor, its partners and
employees, or any such controlling person, may incur under the 1933 Act or under
common law or otherwise, arising out of or based upon any untrue statement, or
alleged untrue statement, of a material fact contained in any registration
statement or any prospectus or arising out of or based upon any omission, or
alleged omission, to state a material fact
- 3 -
<PAGE> 4
required to be stated in either any registration statement or any prospectus or
necessary to make the statements in either thereof not misleading; provided,
however, that the Trust's agreement to indemnify Distributor, its partners or
employees, and any such controlling person shall not be deemed to cover any
claims, demands, liabilities or expenses arising out of any statements or
representations as are contained in any prospectus and in such financial and
other statements as are furnished in writing to the Trust by Distributor and
used in the answers to the registration statement or in the corresponding
statements made in the prospectus, or arising out of or based upon any omission
or alleged omission to state a material fact in connection with the giving of
such information required to be stated in such answers or necessary to make the
answers not misleading; and further provided that the Trust's agreement to
indemnify Distributor and the Trust's representations and warranties
hereinbefore set forth in paragraph 1.10 shall not be deemed to cover any
liability to the Trust or its Shareholders to which Distributor would otherwise
be subject by reason of willful misfeasance, bad faith or negligence in the
performance of its duties, or by reason of Distributor's reckless disregard of
its obligations and duties under this Agreement. The Trust's agreement to
indemnify Distributor, its partners and employees, and any such controlling
person, as aforesaid, is expressly conditioned upon the Trust's being notified
of any action brought against Distributor, its partners or employees, or any
such controlling person, such notification to be given by letter or by telegram
addressed to the Trust at its principal office in Columbus, Ohio and sent to the
Trust by the person against whom such action is brought, within 10 days after
the summons or other first legal process shall have been served. The failure to
so notify the Trust of any such action shall not relieve the Trust from any
liability which the Trust may have to the person against whom such action is
brought by reason of any such untrue, or allegedly untrue, statement or
omission, or alleged omission, otherwise than on account of the Trust's
indemnity agreement contained in this paragraph 1.11. The Trust will be entitled
to assume the defense of any suit brought to enforce any such claim, demand or
liability, but, in such case, such defense shall be conducted by counsel of good
standing chosen by the Trust and approved by Distributor, which approval shall
not be unreasonably withheld. In the event the Trust elects to assume the
defense of any such suit and retain counsel of good standing approved by
Distributor, the defendant or defendants in such suit shall bear the fees and
expenses of any additional counsel retained by any of them; but in case the
Trust does not elect to assume the defense of any such suit, or in case
Distributor reasonably does not approve of counsel chosen by the Trust, the
Trust will reimburse Distributor, its partners and employees, or the controlling
person or persons named as defendant or defendants in such suit, for the fees
and expenses of any counsel retained by Distributor or them.
- 4 -
<PAGE> 5
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> 6
of any such action. The failure to so notify Distributor of any such action
shall not relieve Distributor from any liability which Distributor may have to
the Trust, its officers or Trustees, or to such controlling person by reason of
any such untrue or alleged untrue statement, or omission or alleged omission,
otherwise than on account of Distributor's indemnity agreement contained in this
paragraph 1.12.
1.13 No Shares shall be offered by either Distributor or the Trust
under any of the provisions of this Agreement and no orders for the purchase or
sale of Shares hereunder shall be accepted by the Trust if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the 1933
Act or if and so long as a current prospectus as required by Section 10(a) of
said Act is not on file with the Commission; provided, however, that nothing
contained in this paragraph 1.13 shall in any way restrict or have an
application to or bearing upon the Trust's obligation to repurchase Shares from
any Shareholder in accordance with the provisions of the Trust's prospectus,
Declaration of Trust, or By-Laws.
1.14 The Trust agrees to advise Distributor as soon as reasonably
practical by a notice in writing delivered to Distributor or its counsel:
(a) of any request by the Commission for amendments to the
registration statement or prospectus then in effect or for additional
information;
(b) in the event of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement or
prospectus then in effect or the initiation by service of process on
the Trust of any proceeding for that purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration statement or
prospectus then in effect or which requires the making of a change in
such registration statement or prospectus in order to make the
statements therein not misleading; and
(d) of all action of the Commission with respect to any
amendment to any registration statement or prospectus which may from
time to time be filed with the Commission.
- 6 -
<PAGE> 7
For purposes of this section, informal requests by or acts of the Staff
of the Commission shall not be deemed actions of or requests by the Commission.
1.15 Distributor agrees on behalf of itself and its partners and
employees to treat confidentially and as proprietary information of the Trust
all records and other information relative to the Trust and its prior, present
or potential Shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be withheld where
Distributor may be exposed to civil or criminal contempt proceedings for failure
to comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Trust.
1.16 This Agreement shall be governed by the laws of the State
of Ohio.
2. SALE AND PAYMENT.
Under this Agreement, the following provisions shall apply with respect
to the sale of and payment of Shares of a Fund sold at an offering price which
includes a sales load (collectively, the "Load Shares;" individually, a "Load
Share") as described in the prospectuses of any Funds identified on Schedule B
hereto (collectively, the "Load Funds"; individually, a "Load Fund"):
(a) Distributor shall have the right, as principal, to
purchase Load Shares at their net asset value and to sell such Load
Shares to the public against orders therefor at the applicable public
offering price, as defined in Section 4 hereof. Distributor shall also
have the right, as principal, to sell Load Shares to dealers against
orders therefor at the public offering price less a concession
determined by Distributor, which concession shall not exceed the amount
of the sales charge or underwriting discount, if any, referred to in
Section 3 below.
(b) Prior to the time of delivery of any Load Shares by a Load
Fund to, or on the order of, Distributor, Distributor shall pay or
cause to be paid to the Load Fund or to its order an amount in Boston
or New York clearing house funds equal to the applicable net asset
value of such Shares. Distributor may retain so much of any sales
charge or underwriting discount as is not allowed by Distributor as a
concession to dealers.
- 7 -
<PAGE> 8
3. PUBLIC OFFERING PRICE.
The public offering price of a Load Share shall be the net asset value
of such Load Shares, plus any applicable sales charge, all as set forth in the
current prospectus of the Load Fund. The net asset value of Shares shall be
determined in accordance with the provisions of the Declaration of Trust and
By-Laws of the Trust and the then current prospectus of the Load Fund.
4. ISSUANCE OF SHARES.
The Trust reserves the right to issue, transfer or sell Load Shares at
net asset value (a) in connection with the merger or consolidation of the Trust
or the Load Fund(s) with any other investment company or the acquisition by the
Trust or the Load Fund(s) of all or substantially all of the assets or of the
outstanding Shares of any other investment company; (b) in connection with a pro
rata distribution directly to the holders of Shares in the nature of a stock
dividend or split; (c) upon the exercise of subscription rights granted to the
holders of Shares on a pro rata basis; (d) in connection with the issuance of
Load Shares pursuant to any exchange and reinvestment privileges described in
any then current prospectus of the Load Fund; and (e) otherwise in accordance
with any then current prospectus of the Load Fund.
5. TERM, DURATION AND MATTERS RELATING TO THE TRUST AS AN OHIO BUSINESS
TRUST.
This Agreement shall become effective with respect to each Fund listed
on Schedule A hereof as of the date first set forth above (or, if a particular
Fund is not in existence on such date, on the date an amendment to Schedule A to
this Agreement relating to that Fund is executed), and, unless sooner terminated
as provided herein, shall continue in effect until July 9, 1998. Thereafter, if
not terminated as provided herein, this Agreement shall continue with respect to
a particular Fund in effect automatically for successive one-year periods ending
on July 9 of each year with respect to each of the Funds, provided such
continuance is specifically approved at least annually by (a) the Trust's Board
of Trustees or (b) by "vote of a majority of the outstanding voting securities"
(as defined below) of the Trust, provided, however, that in either event the
continuance is also approved by a majority of the Trust's Trustees who are not
parties to the Agreement or interested persons (as defined in the 1940 Act) of
any such party, by vote cast in person at a meeting called for the purpose of
voting on such approval. This Agreement is terminable without penalty, on not
less than sixty days' prior written notice, by the Trust's Board of Trustees, by
vote of a majority of the outstanding voting securities (as defined in the
- 8 -
<PAGE> 9
1940 Act) of the Trust or by Distributor. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).
The Sessions Group is a business trust organized under Chapter 1746,
Ohio Revised Code and under a Declaration of Trust, to which reference is hereby
made and a copy of which is on file at the office of the Secretary of State of
Ohio as required by law, and to any and all amendments thereto so filed or
hereafter filed. The obligations of "The Sessions Group" entered into in the
name or on behalf thereof by any of the Trustees, officers, employees or agents
are made not individually, but in such capacities, and are not binding upon any
of the Trustees, officers, employees, agents or shareholders of the Trust
personally, but bind only the assets of the Trust, as set forth in Section
1746.13(A), Ohio Revised Code, and all persons dealing with any of the Funds of
the Trust must look solely to the assets of the Trust belonging to such Fund for
the enforcement of any claims against the Trust.
BISYS FUND SERVICES THE SESSIONS GROUP
LIMITED PARTNERSHIP
By BISYS Fund Services, Inc., By /s/ Walter B. Grimm
General Partner -----------------------------
Name Walter B. Grimm
----------------------------
By /s/ J. David Huber Title President
----------------------------- ---------------------------
Name J. David Huber
---------------------------
Title President
--------------------------
- 9 -
<PAGE> 10
Dated: April 6, 1998
Schedule A
to the
Distribution Agreement
between The Sessions Group and
BISYS Fund Services Limited Partnership
July 9, 1996
Name of Fund Date
- ------------ ----
The KeyPremier Prime Money July 9, 1996
Market Fund
The KeyPremier Pennsylvania
Municipal Bond Fund July 9, 1996
The KeyPremier Established
Growth Fund October 30, 1996
The KeyPremier Intermediate
Term Income Fund October 30, 1996
The KeyPremier Aggressive
Growth Fund January 29, 1997
The KeyPremier U.S. Treasury
Obligations Money Market Fund June 30, 1997
The KeyPremier Limited Duration
Government Securities Fund June 30, 1997
The KeyPremier Emerging Growth
Fund April 6, 1998
BISYS FUND SERVICES LIMITED THE SESSIONS GROUP
PARTNERSHIP
By BISYS Fund Services, Inc.,
General Partner
By /s/ J. DAVID HUBER By /s/ WALTER B. GRIMM
--------------------------- -----------------------------
Name J. David Huber Name Walter B. Grimm
------------------------- ---------------------------
Title President Title President
------------------------ --------------------------
A-1
<PAGE> 11
Dated: April 6, 1998
Schedule B
to the
Distribution Agreement
between The Sessions Group and
BISYS Fund Services Limited Partnership
July 9, 1996
Name of Load Fund Date
- ----------------- ----
The KeyPremier Pennsylvania
Municipal Bond Fund July 9, 1996
The KeyPremier Established
Growth Fund October 30, 1996
The KeyPremier Intermediate
Term Income Fund October 30, 1996
The KeyPremier Aggressive
Growth Fund January 29, 1997
The KeyPremier Limited Duration
Government Securities Fund June 30, 1997
The KeyPremier Emerging Growth
Fund April 6, 1998
BISYS FUND SERVICES LIMITED THE SESSIONS GROUP
PARTNERSHIP
By BISYS Fund Services, Inc.,
General Partner
By /s/ J. DAVID HUBER By /s/ WALTER B. GRIMM
----------------------------- -------------------------------
Name J. David Huber Name Walter B. Grimm
--------------------------- -----------------------------
Title President Title President
-------------------------- ----------------------------
B-1
<PAGE> 1
EXHIBIT (8)(b)
CUSTODY AGREEMENT
Agreement made as of this 9th day of July, 1996, between The Sessions
Group, an Ohio business trust organized and existing under the laws of the State
of Ohio, having its principal office and place of business at 3435 Stelzer Road,
Columbus, Ohio 43219 (hereinafter called the "Fund"), and THE BANK OF NEW YORK,
a New York corporation authorized to do a banking business, having its principal
office and place of business at 48 Wall Street, New York, New York 10286
(hereinafter called the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth, the
Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1. "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its successor
or successors and its nominee or nominees.
2. "Call Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and payment of the
exercise price, as specified therein, to purchase from the writer thereof the
specified underlying Securities.
3. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Custodian which is actually received by the Custodian and signed on behalf
of the Fund by any two Officers, and the term Certificate shall also include
instructions by the Fund to the Custodian communicated by a Terminal Link.
4. "Clearing Member" shall mean a registered broker-dealer which is a
clearing member under the rules of O.C.C. and a member of a national securities
exchange qualified to act as a custodian for an investment company, or any
broker-dealer reasonably believed by the Custodian to be such a clearing member.
<PAGE> 2
5. "Collateral Account" shall mean a segregated account so denominated
which is specifically allocated to a Series and pledged to the Custodian as
security for, and in consideration of, the Custodian's issuance of (a) any Put
Option guarantee letter or similar document described in paragraph 8 of Article
V herein, or (b) any receipt described in Article V or VIII herein.
6. "Covered Call Option" shall mean an exchange traded option entitling
the holder, upon timely exercise and payment of the exercise price, as specified
therein, to purchase from the writer thereof the specified underlying Securities
(excluding Futures Contracts) which are owned by the writer thereof and subject
to appropriate restrictions.
7. "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission, its
successor or successors and its nominee or nominees. The term "Depository" shall
further mean and include any other person authorized to act as a depository
under the Investment Company Act of 1940, its successor or successors and its
nominee or nominees, specifically identified in a certified copy of a resolution
of the Fund's Board of Trustees specifically approving deposits therein by the
Custodian.
8. "Financial Futures Contract" shall mean the firm commitment to buy
or sell fixed income securities including, without limitation, U.S. Treasury
Bills, U.S. Treasury Notes, U.S. Treasury Bonds, domestic bank certificates of
deposit, and Eurodollar certificates of deposit, during a specified month at an
agreed upon price.
9. "Futures Contract" shall mean a Financial Futures Contract and/or
Stock Index Futures Contracts.
10. "Futures Contract Option" shall mean an option with respect to a Futures
Contract.
11. "Margin Account" shall mean a segregated account in the name of a
broker, dealer, futures commission merchant, or a Clearing Member, or in the
name of the Fund for the benefit of a broker, dealer, futures commission
merchant, or Clearing Member, or otherwise, in accordance with an agreement
between the Fund, the Custodian and a broker, dealer, futures commission
merchant or a Clearing Member (a "Margin Account Agreement"), separate and
distinct from the custody account, in which certain Securities and/or money of
the Fund shall be deposited and withdrawn from time to time in connection with
such transactions as the Fund may from time to time determine. Securities held
in the Book-Entry System or the Depository shall be deemed to have been
deposited in, or withdrawn from, a Margin Account upon the Custodian's effecting
an appropriate entry in its books and records.
-2-
<PAGE> 3
12. "Money Market Security" shall be deemed to include, without
limitation, certain Reverse Repurchase Agreements, debt obligations issued or
guaranteed as to interest and principal by the government of the United States
or agencies or instrumentalities thereof, any tax, bond or revenue anticipation
note issued by any state or municipal government or public authority, commercial
paper, certificates of deposit and bankers' acceptances, repurchase agreements
with respect to the same and bank time deposits, where the purchase and sale of
such securities normally requires settlement in federal funds on the same day as
such purchase or sale.
13. "O.C.C." shall mean the Options Clearing Corporation, a clearing
agency registered under Section 17A of the Securities Exchange Act of 1934, its
successor or successors, and its nominee or nominees.
14. "Officers" shall be deemed to include the President, any Vice
President, the Secretary, the Treasurer, any Assistant Secretary, any Assistant
Treasurer, and any other person or persons, whether or not any such other person
is an officer of the Fund, duly authorized by the Board of Trustees of the Fund
to execute any Certificate, instruction, notice or other instrument on behalf of
the Fund and listed in the Certificate annexed hereto as Appendix A or such
other Certificate as may be received by the Custodian from time to time.
15. "Option" shall mean a Call Option, Covered Call Option, Stock Index
Option and/or a Put Option.
16. "Oral Instructions" shall mean verbal instructions actually
received by the Custodian from an Officer or from a person reasonably believed
by the Custodian to be an Officer.
17. "Put Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and tender of the
specified underlying Securities, to sell such Securities to the writer thereof
for the exercise price.
18. "Reverse Repurchase Agreement" shall mean an agreement pursuant to
which the Fund sells Securities and agrees to repurchase such Securities at a
described or specified date and price.
19. "Security" shall be deemed to include, without limitation, Money
Market Securities, Call Options, Put Options, Stock Index Options, Stock Index
Futures Contracts, Stock Index Futures Contract Options, Financial Futures
Contracts, Financial Futures Contract Options, Reverse Repurchase Agreements,
common stocks and other securities having characteristics similar to
-3-
<PAGE> 4
common stocks, preferred stocks, debt obligations issued by state or municipal
governments and by public authorities, (including, without limitation, general
obligation bonds, revenue bonds, industrial bonds and industrial development
bonds), bonds, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments representing rights to
receive, purchase, sell or subscribe for the same, or evidencing or representing
any other rights or interest therein, or any property or assets.
20. "Senior Security Account" shall mean an account maintained and
specifically allocated to a Series under the terms of this Agreement as a
segregated account, by recordation or otherwise, within the custody account in
which certain Securities and/or other assets of the Fund specifically allocated
to such Series shall be deposited and withdrawn from time to time in accordance
with Certificates received by the Custodian in connection with such transactions
as the Fund may from time to time determine.
21. "Series" shall mean the various portfolios, if any, of the Fund as
described from time to time in the current and effective prospectus for the Fund
and listed on Appendix B hereto as amended from time to time.
22. "Shares" shall mean the shares of beneficial interest of the Fund,
each of which is, in the case of a Fund having Series, allocated to a particular
Series.
23. "Stock Index Futures Contract" shall mean a bilateral agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to a specified dollar amount times the difference between the value
of a particular stock index at the close of the last business day of the
contract and the price at which the futures contract is originally struck.
24. "Stock Index Option" shall mean an exchange traded option entitling
the holder, upon timely exercise, to receive an amount of cash determined by
reference to the difference between the exercise price and the value of the
index on the date of exercise.
25. "Terminal Link" shall mean an electronic data transmission link
between the Fund, an Intermediary (as hereinafter defined), and the Custodian
requiring in connection with each use of the Terminal Link by or on behalf of
the Fund use of an authorization code provided by the Custodian and at least two
access codes established by the Fund. As used herein the term "Intermediary"
shall mean a third party that maintains a transmission line to the Custodian and
has been selected by the Fund to receive electronic data transmissions from the
Custodian or the Fund and forward the same to the Fund or the Custodian,
respectively.
-4-
<PAGE> 5
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as custodian
of the Securities and moneys at any time owned by a Series during the period of
this Agreement.
2. The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, the Fund will deliver or cause to be delivered to the Custodian
all Securities and all moneys owned by a Series, at any time during the period
of this Agreement, and shall specify with respect to such Securities and money
the Series to which the same are specifically allocated. The Custodian shall
segregate, keep and maintain the assets of the Series separate and apart. The
Custodian will not be responsible for any Securities and moneys not actually
received by it. The Custodian will be entitled to reverse any credits made on
the Fund's behalf where such credits have been previously made and moneys are
not finally collected. The Fund shall deliver to the Custodian a certified
resolution of the Board of Trustees of the Fund, substantially in the form of
Exhibit A hereto, approving, authorizing and instructing the Custodian on a
continuous and ongoing basis to deposit in the Book-Entry System all Securities
eligible for deposit therein, regardless of the Series to which the same are
specifically allocated and to utilize the Book-Entry System to the extent
possible in connection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and sales of Securities,
loans of Securities and deliveries and returns of Securities collateral. Prior
to a deposit of Securities specifically allocated to a Series in the Depository,
the Fund shall deliver to the Custodian a certified resolution of the Board of
Trustees of the Fund, substantially in the form of Exhibit B hereto, approving,
authorizing and instructing the Custodian on a continuous and ongoing basis
until instructed to the contrary by a Certificate actually received by the
Custodian to deposit in the Depository all Securities specifically allocated to
such Series eligible for deposit therein, and to utilize the Depository to the
extent possible with respect to such Securities in connection with its
performance hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of Securities, and
deliveries and returns of Securities collateral. Securities and moneys deposited
in either the Book-Entry System or the Depository
-5-
<PAGE> 6
will be represented in accounts which include only assets held by the Custodian
for customers, including, but not limited to, accounts in which the Custodian
acts in a fiduciary or representative capacity and will be specifically
allocated on the Custodian's books to the separate account for the applicable
Series. Prior to the Custodian's accepting, utilizing and acting with respect to
Clearing Member confirmations for Options and transactions in Options for a
Series as provided in this Agreement, the Custodian shall have received a
certified resolution of the Fund's Board of Trustees, substantially in the form
of Exhibit C hereto, approving, authorizing and instructing the Custodian on a
continuous and ongoing basis, until instructed to the contrary by a Certificate
actually received by the Custodian, to accept, utilize and act in accordance
with such confirmations as provided in this Agreement with respect to such
Series.
2. The Custodian shall establish and maintain separate accounts, in the
name of each Series, and shall credit to the separate account for each Series
all moneys received by it for the account of the Fund with respect to such
Series. Money credited to a separate account for a Series shall be disbursed by
the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the name and
address of the person to whom the payment is to be made, the Series account from
which payment is to be made and the purpose for which payment is to be made; or
(c) In payment of the fees and in reimbursement of the
expenses and liabilities of the Custodian attributable to such Series.
3. Promptly after the close of business on each day, the Custodian
shall furnish the Fund with confirmations and a summary, on a per Series basis,
of all transfers to or from the account of the Fund for a Series, either
hereunder or with any co-custodian or sub-custodian appointed in accordance with
this Agreement during said day. Where Securities are transferred to the account
of the Fund for a Series, the Custodian shall also by book-entry or otherwise
identify as belonging to such Series a quantity of Securities in a fungible bulk
of Securities registered in the name of the Custodian (or its nominee) or shown
on the Custodian's account on the books of the Book-Entry System or the
Depository. At least monthly and from time to time, the Custodian shall furnish
the Fund with a detailed statement, on a per Series basis, of the Securities and
moneys held by the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, all Securities held by the Custodian hereunder, which are issued
or issuable only in bearer form, except
-6-
<PAGE> 7
such Securities as are held in the Book-Entry System, shall be held by the
Custodian in that form; all other Securities held hereunder may be registered in
the name of the Fund, in the name of any duly appointed registered nominee of
the Custodian as the Custodian may from time to time determine, or in the name
of the Book-Entry System or the Depository or their successor or successors, or
their nominee or nominees. The Fund agrees to furnish to the Custodian
appropriate instruments to enable the Custodian to hold or deliver in proper
form for transfer, or to register in the name of its registered nominee or in
the name of the Book-Entry System or the Depository any Securities which it may
hold hereunder and which may from time to time be registered in the name of the
Fund. The Custodian shall hold all such Securities specifically allocated to a
Series which are not held in the Book-Entry System or in the Depository in a
separate account in the name of such Series physically segregated at all times
from those of any other person or persons.
5. Except as otherwise provided in this Agreement and unless otherwise
instructed to the contrary by a Certificate, the Custodian by itself, or through
the use of the Book-Entry System or the Depository with respect to Securities
held hereunder and therein deposited, shall promptly and diligently with respect
to all Securities held for the Fund hereunder in accordance with preceding
paragraph 4:
(a) Collect all income due or payable;
(b) Present for payment and collect the amount payable upon
such Securities which are called, but only if either (i) the Custodian receives
a written notice of such call, or (ii) notice of such call appears in one or
more of the publications listed in Appendix C annexed hereto, which may be
amended at any time by the Custodian without the prior notification or consent
of the Fund;
(c) Present for payment and collect the amount payable upon
all Securities which mature;
(d) Surrender Securities in temporary form for definitive
Securities;
(e) Execute, as custodian, any necessary declarations or
certificates of ownership under the Federal Income Tax Laws or the laws or
regulations of any other taxing authority now or hereafter in effect; and
(f) Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for the account of a
Series, all rights and similar securities issued with respect to any Securities
held by the Custodian for such Series hereunder.
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6. Upon receipt of a Certificate and not otherwise, the Custodian,
directly or through the use of the Book-Entry System or the Depository, shall:
(a) Execute and deliver to such persons as may be designated
in such Certificate proxies, consents, authorizations, and any other instruments
whereby the authority of the Fund as owner of any Securities held by the
Custodian hereunder for the Series specified in such Certificate may be
exercised;
(b) Deliver any Securities held by the Custodian hereunder for
the Series specified in such Certificate in exchange for other Securities or
cash issued or paid in connection with the liquidation, reorganization,
refinancing, merger, consolidation or recapitalization of any corporation, or
the exercise of any conversion privilege and receive and hold hereunder
specifically allocated to such Series any cash or other Securities received in
exchange;
(c) Deliver any Securities held by the Custodian hereunder for
the Series specified in such Certificate to any protective committee,
reorganization committee or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale of assets of any
corporation, and receive and hold hereunder specifically allocated to such
Series such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
(d) Make such transfers or exchanges of the assets of the
Series specified in such Certificate, and take such other steps as shall be
stated in such Certificate to be for the purpose of effectuating any duly
authorized plan of liquidation, reorganization, merger, consolidation or
recapitalization of the Fund; and
(e) Present for payment and collect the amount payable upon
Securities not described in preceding paragraph 5(b) of this Article which may
be called as specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein, the
Custodian shall not be required to obtain possession of any instrument or
certificate representing any Futures Contract, any Option, or any Futures
Contract Option until after it shall have determined, or shall have received a
Certificate from the Fund stating, that any such instruments or certificates are
available. The Fund shall deliver to the Custodian such a Certificate no later
than the business day preceding the availability of any such instrument or
certificate. Prior to such availability, the Custodian shall comply with Section
17(f) of the Investment Company Act of 1940, as amended, in connection with the
purchase, sale, settlement, closing out or writing of Futures Contracts,
Options,
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or Futures Contract Options by making payments or deliveries specified in
Certificates received by the Custodian in connection with any such purchase,
sale, writing, settlement or closing out upon its receipt from a broker, dealer,
or futures commission merchant of a statement or confirmation reasonably
believed by the Custodian to be in the form customarily used by brokers,
dealers, or future commission merchants with respect to such Futures Contracts,
Options, or Futures Contract Options, as the case may be, confirming that such
Security is held by such broker, dealer or futures commission merchant, in
book-entry form or otherwise, in the name of the Custodian (or any nominee of
the Custodian) as custodian for the Fund, provided, however, that
notwithstanding the foregoing, payments to or deliveries from the Margin Account
and payments with respect to Securities to which a Margin Account relates, shall
be made in accordance with the terms and conditions of the Margin Account
Agreement. Whenever any such instruments or certificates are available, the
Custodian shall, notwithstanding any provision in this Agreement to the
contrary, make payment for any Futures Contract, Option, or Futures Contract
Option for which such instruments or such certificates are available only
against the delivery to the Custodian of such instrument or such certificate,
and deliver any Futures Contract, Option or Futures Contract Option for which
such instruments or such certificates are available only against receipt by the
Custodian of payment therefor. Any such instrument or certificate delivered to
the Custodian shall be held by the Custodian hereunder in accordance with, and
subject to, the provisions of this Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the Fund, other than a
purchase of an Option, a Futures Contract, or a Futures Contract Option, the
Fund shall deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, a Certificate, and (ii) with
respect to each purchase of Money Market Securities, a Certificate or Oral
Instructions, specifying with respect to each such purchase: (a) the Series to
which such Securities are to be specifically allocated; (b) the name of the
issuer and the title of the Securities; (c) the number of shares or the
principal amount purchased and accrued interest, if any; (d) the date of
purchase and settlement; (e) the purchase price per unit; (f) the total amount
payable upon such purchase; (g) the name of the person from whom or the broker
through whom the purchase was made, and the name of the clearing broker, if any;
and (h) the name of the broker to whom payment is to be made. The Custodian
shall, upon receipt of Securities purchased by or for the Fund, pay to the
broker
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specified in the Certificate out of the moneys held for the account of such
Series the total amount payable upon such purchase, provided that the same
conforms to the total amount payable as set forth in such Certificate or Oral
Instructions.
2. Promptly after each sale of Securities by the Fund, other than a
sale of any Option, Futures Contract, Futures Contract Option, or any Reverse
Repurchase Agreement, the Fund shall deliver to the Custodian (i) with respect
to each sale of Securities which are not Money Market Securities, a Certificate,
and (ii) with respect to each sale of Money Market Securities, a Certificate or
Oral Instructions, specifying with respect to each such sale: (a) the Series to
which such Securities were specifically allocated; (b) the name of the issuer
and the title of the Security; (c) the number of shares or principal amount
sold, and accrued interest, if any; (d) the date of sale; (e) the sale price per
unit; (f) the total amount payable to the Fund upon such sale; (g) the name of
the broker through whom or the person to whom the sale was made, and the name of
the clearing broker, if any; and (h) the name of the broker to whom the
Securities are to be delivered. The Custodian shall deliver the Securities
specifically allocated to such Series to the broker specified in the Certificate
against payment upon receipt of the total amount payable to the Fund upon such
sale, provided that the same conforms to the total amount payable as set forth
in such Certificate or Oral Instructions.
ARTICLE V
OPTIONS
1. Promptly after the purchase of any Option by the Fund, the Fund
shall deliver to the Custodian a Certificate specifying with respect to each
Option purchased: (a) the Series to which such Option is specifically allocated;
(b) the type of Option (put or call); (c) the name of the issuer and the title
and number of shares subject to such Option or, in the case of a Stock Index
Option, the stock index to which such Option relates and the number of Stock
Index Options purchased; (d) the expiration date; (e) the exercise price; (f)
the dates of purchase and settlement; (g) the total amount payable by the Fund
in connection with such purchase; (h) the name of the Clearing Member through
whom such Option was purchased; and (i) the name of the broker to whom payment
is to be made. The Custodian shall pay, upon receipt of a Clearing Member's
statement confirming the purchase of such Option held by such Clearing Member
for the account of the Custodian (or any duly appointed and registered nominee
of the Custodian) as custodian for the Fund, out of moneys held for the account
of the Series to which such Option is to be specifically allocated, the total
amount payable upon such purchase to the Clearing Member through whom the
purchase was made, provided that the same conforms to the total amount payable
as set forth in such Certificate.
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2. Promptly after the sale of any Option purchased by the Fund pursuant
to paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate
specifying with respect to each such sale: (a) the Series to which such Option
was specifically allocated; (b) the type of Option (put or call); (c) the name
of the issuer and the title and number of shares subject to such Option or, in
the case of a Stock Index Option, the stock index to which such Option relates
and the number of Stock Index Options sold; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the Clearing Member through whom the sale was
made. The Custodian shall consent to the delivery of the Option sold by the
Clearing Member which previously supplied the confirmation described in
preceding paragraph 1 of this Article with respect to such Option against
payment to the Custodian of the total amount payable to the Fund, provided that
the same conforms to the total amount payable as set forth in such Certificate.
3. Promptly after the exercise by the Fund of any Call Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Call Option: (a) the
Series to which such Call Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Call Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid by the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Call Option was exercised.
The Custodian shall, upon receipt of the Securities underlying the Call Option
which was exercised, pay out of the moneys held for the account of the Series to
which such Call Option was specifically allocated the total amount payable to
the Clearing Member through whom the Call Option was exercised, provided that
the same conforms to the total amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Put Option: (a) the
Series to which such Put Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Put Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid to the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Put Option was exercised.
The Custodian shall, upon receipt of the amount payable upon the exercise of the
Put Option, deliver or direct the Depository to deliver the Securities
specifically allocated to such Series, provided the same conforms to the amount
payable to the Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock Index Option
purchased by the Fund pursuant to paragraph 1 hereof, the
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<PAGE> 12
Fund shall deliver to the Custodian a Certificate specifying with respect to
such Stock Index Option: (a) the Series to which such Stock Index Option was
specifically allocated; (b) the type of Stock Index Option (put or call); (c)
the number of Options being exercised; (d) the stock index to which such Option
relates; (e) the expiration date; (f) the exercise price; (g) the total amount
to be received by the Fund in connection with such exercise; and (h) the
Clearing Member from whom such payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Covered Call Option: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares for which
the Covered Call Option was written and which underlie the same; (c) the
expiration date; (d) the exercise price; (e) the premium to be received by the
Fund; (f) the date such Covered Call Option was written; and (g) the name of the
Clearing Member through whom the premium is to be received. The Custodian shall
deliver or cause to be delivered, in exchange for receipt of the premium
specified in the Certificate with respect to such Covered Call Option, such
receipts as are required in accordance with the customs prevailing among
Clearing Members dealing in Covered Call Options and shall impose, or direct the
Depository to impose, upon the underlying Securities specified in the
Certificate specifically allocated to such Series such restrictions as may be
required by such receipts. Notwithstanding the foregoing, the Custodian has the
right, upon prior written notification to the Fund, at any time to refuse to
issue any receipts for Securities in the possession of the Custodian and not
deposited with the Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described in
the preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate instructing the Custodian to deliver, or
to direct the Depository to deliver, the Securities subject to such Covered Call
Option and specifying: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares subject
to the Covered Call Option; (c) the Clearing Member to whom the underlying
Securities are to be delivered; and (d) the total amount payable to the Fund
upon such delivery. Upon the return and/or cancellation of any receipts
delivered pursuant to paragraph 6 of this Article, the Custodian shall deliver,
or direct the Depository to deliver, the underlying Securities as specified in
the Certificate against payment of the amount to be received as set forth in
such Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Put
Option: (a) the Series for which such Put Option was written; (b) the name of
the issuer and the title and number of shares for which the Put Option is
written and which
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<PAGE> 13
underlie the same; (c) the expiration date; (d) the exercise price; (e) the
premium to be received by the Fund; (f) the date such Put Option is written; (g)
the name of the Clearing Member through whom the premium is to be received and
to whom a Put Option guarantee letter is to be delivered; (h) the amount of
cash, and/or the amount and kind of Securities, if any, specifically allocated
to such Series to be deposited in the Senior Security Account for such Series;
and (i) the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be deposited into the Collateral Account for such
Series. The Custodian shall, after making the deposits into the Collateral
Account specified in the Certificate, issue a Put Option guarantee letter
substantially in the form utilized by the Custodian on the date hereof, and
deliver the same to the Clearing Member specified in the Certificate against
receipt of the premium specified in said Certificate. Notwithstanding the
foregoing, the Custodian shall be under no obligation to issue any Put Option
guarantee letter or similar document if it is unable to make any of the
representations contained therein.
9. Whenever a Put Option written by the Fund and described in the
preceding paragraph is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Put Option was
written; (b) the name of the issuer and title and number of shares subject to
the Put Option; (c) the Clearing Member from whom the underlying Securities are
to be received; (d) the total amount payable by the Fund upon such delivery; (e)
the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be withdrawn from the Collateral Account for such
Series and (f) the amount of cash and/or the amount and kind of Securities,
specifically allocated to such Series, if any, to be withdrawn from the Senior
Security Account. Upon the return and/or cancellation of any Put Option
guarantee letter or similar document issued by the Custodian in connection with
such Put Option, the Custodian shall pay out of the moneys held for the account
of the Series to which such Put Option was specifically allocated the total
amount payable to the Clearing Member specified in the Certificate as set forth
in such Certificate against delivery of such Securities, and shall make the
withdrawals specified in such Certificate.
10. Whenever the Fund writes a Stock Index Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Stock Index Option: (a) the Series for which such Stock Index Option was
written; (b) whether such Stock Index Option is a put or a call; (c) the number
of options written; (d) the stock index to which such Option relates; (e) the
expiration date; (f) the exercise price; (g) the Clearing Member through whom
such Option was written; (h) the premium to be received by the Fund; (i) the
amount of cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in the Senior Security Account for such
Series; (j) the
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<PAGE> 14
amount of cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in the Collateral Account for such
Series; and (k) the amount of cash and/or the amount and kind of Securities, if
any, specifically allocated to such Series to be deposited in a Margin Account,
and the name in which such account is to be or has been established. The
Custodian shall, upon receipt of the premium specified in the Certificate, make
the deposits, if any, into the Senior Security Account specified in the
Certificate, and either (1) deliver such receipts, if any, which the Custodian
has specifically agreed to issue, which are in accordance with the customs
prevailing among Clearing Members in Stock Index Options and make the deposits
into the Collateral Account specified in the Certificate, or (2) make the
deposits into the Margin Account specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund and described in
the preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Stock
Index Option: (a) the Series for which such Stock Index Option was written; (b)
such information as may be necessary to identify the Stock Index Option being
exercised; (c) the Clearing Member through whom such Stock Index Option is being
exercised; (d) the total amount payable upon such exercise, and whether such
amount is to be paid by or to the Fund; (e) the amount of cash and/or amount and
kind of Securities, if any, to be withdrawn from the Margin Account; and (f) the
amount of cash and/or amount and kind of Securities, if any, to be withdrawn
from the Senior Security Account for such Series; and the amount of cash and/or
the amount and kind of Securities, if any, to be withdrawn from the Collateral
Account for such Series. Upon the return and/or cancellation of the receipt, if
any, delivered pursuant to the preceding paragraph of this Article, the
Custodian shall pay out of the moneys held for the account of the Series to
which such Stock Index Option was specifically allocated to the Clearing Member
specified in the Certificate the total amount payable, if any, as specified
therein.
12. Whenever the Fund purchases any Option identical to a previously
written Option described in paragraphs 6, 8 or 10 of this Article in a
transaction expressly designated as a "Closing Purchase Transaction" in order to
liquidate its position as a writer of an Option, the Fund shall promptly deliver
to the Custodian a Certificate specifying with respect to the Option being
purchased: (a) that the transaction is a Closing Purchase Transaction; (b) the
Series for which the Option was written; (c) the name of the issuer and the
title and number of shares subject to the Option, or, in the case of a Stock
Index Option, the stock index to which such Option relates and the number of
Options held; (d) the exercise price; (e) the premium to be paid by the Fund;
(f) the expiration date; (g) the type of Option (put or call); (h) the date of
such purchase; (i) the name of the Clearing Member to whom the premium is to be
paid; and (j) the amount of cash and/or the
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<PAGE> 15
amount and kind of Securities, if any, to be withdrawn from the Collateral
Account, a specified Margin Account, or the Senior Security Account for such
Series. Upon the Custodian's payment of the premium and the return and/or
cancellation of any receipt issued pursuant to paragraphs 6, 8 or 10 of this
Article with respect to the Option being liquidated through the Closing Purchase
Transaction, the Custodian shall remove, or direct the Depository to remove, the
previously imposed restrictions on the Securities underlying the Call Option.
13. Upon the expiration, exercise or consummation of a Closing Purchase
Transaction with respect to any Option purchased or written by the Fund and
described in this Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3 of Article III herein,
and upon the return and/or cancellation of any receipts issued by the Custodian,
shall make such withdrawals from the Collateral Account, and the Margin Account
and/or the Senior Security Account as may be specified in a Certificate received
in connection with such expiration, exercise, or consummation.
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the Fund
shall deliver to the Custodian a Certificate specifying with respect to such
Futures Contract, (or with respect to any number of identical Futures
Contract(s)): (a) the Series for which the Futures Contract is being entered;
(b) the category of Futures Contract (the name of the underlying stock index or
financial instrument); (c) the number of identical Futures Contracts entered
into; (d) the delivery or settlement date of the Futures Contract(s); (e) the
date the Futures Contract(s) was (were) entered into and the maturity date; (f)
whether the Fund is buying (going long) or selling (going short) on such Futures
Contract(s); (g) the amount of cash and/or the amount and kind of Securities, if
any, to be deposited in the Senior Security Account for such Series; (h) the
name of the broker, dealer, or futures commission merchant through whom the
Futures Contract was entered into; and (i) the amount of fee or commission, if
any, to be paid and the name of the broker, dealer, or futures commission
merchant to whom such amount is to be paid. The Custodian shall make the
deposits, if any, to the Margin Account in accordance with the terms and
conditions of the Margin Account Agreement. The Custodian shall make payment out
of the moneys specifically allocated to such Series of the fee or commission, if
any, specified in the Certificate and deposit in the Senior Security Account for
such Series the amount of cash and/or the amount and kind of Securities
specified in said Certificate.
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<PAGE> 16
2. (a) Any variation margin payment or similar payment required to be
made by the Fund to a broker, dealer, or futures commission merchant with
respect to an outstanding Futures Contract, shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a broker,
dealer, or futures commission merchant to the Fund with respect to an
outstanding Futures Contract, shall be received and dealt with by the Custodian
in accordance with the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is
retained by the Fund until delivery or settlement is made on such Futures
Contract, the Fund shall deliver to the Custodian a Certificate specifying: (a)
the Futures Contract and the Series to which the same relates; (b) with respect
to a Stock Index Futures Contract, the total cash settlement amount to be paid
or received, and with respect to a Financial Futures Contract, the Securities
and/or amount of cash to be delivered or received; (c) the broker, dealer, or
futures commission merchant to or from whom payment or delivery is to be made or
received; and (d) the amount of cash and/or Securities to be withdrawn from the
Senior Security Account for such Series. The custodian shall make the payment or
delivery specified in the Certificate, and delete such Futures Contract from the
statements delivered to the Fund pursuant to paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to offset a
Futures Contract held by the Custodian hereunder, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the items of information required in a
Certificate described in paragraph 1 of this Article, and (b) the Futures
Contract being offset. The Custodian shall make payment out of the money
specifically allocated to such Series of the fee or commission, if any,
specified in the Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3 of Article III
herein, and make such withdrawals from the Senior Security Account for such
Series as may be specified in such Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract Option by the
Fund, the Fund shall promptly deliver to the Custodian a Certificate specifying
with respect to such Futures Contract Option: (a) the Series to which such
Option is specifically
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<PAGE> 17
allocated; (b) the type of Futures Contract Option (put or call); (c) the type
of Futures Contract and such other information as may be necessary to identify
the Futures Contract underlying the Futures Contract Option purchased; (d) the
expiration date; (e) the exercise price; (f) the dates of purchase and
settlement; (g) the amount of premium to be paid by the Fund upon such purchase;
(h) the name of the broker or futures commission merchant through whom such
option was purchased; and (i) the name of the broker, or futures commission
merchant, to whom payment is to be made. The Custodian shall pay out of the
moneys specifically allocated to such Series, the total amount to be paid upon
such purchase to the broker or futures commissions merchant through whom the
purchase was made, provided that the same conforms to the amount set forth in
such Certificate.
2. Promptly after the sale of any Futures Contract Option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to each such sale: (a) Series to
which such Futures Contract Option was specifically allocated; (b) the type of
Futures Contract Option (put or call); (c) the type of Futures Contract and such
other information as may be necessary to identify the Futures Contract
underlying the Futures Contract Option; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the broker or futures commission merchant through
whom the sale was made. The Custodian shall consent to the cancellation of the
Futures Contract Option being closed against payment to the Custodian of the
total amount payable to the Fund, provided the same conforms to the total amount
payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund pursuant to
paragraph 1 is exercised by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Futures
Contract Option was specifically allocated; (b) the particular Futures Contract
Option (put or call) being exercised; (c) the type of Futures Contract
underlying the Futures Contract Option; (d) the date of exercise; (e) the name
of the broker or futures commission merchant through whom the Futures Contract
Option is exercised; (f) the net total amount, if any, payable by the Fund; (g)
the amount, if any, to be received by the Fund; and (h) the amount of cash
and/or the amount and kind of Securities to be deposited in the Senior Security
Account for such Series. The Custodian shall make, out of the moneys and
Securities specifically allocated to such Series, the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
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4. Whenever the Fund writes a Futures Contract Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Futures Contract Option: (a) the Series for which such Futures Contract Option
was written; (b) the type of Futures Contract Option (put or call); (c) the type
of Futures Contract and such other information as may be necessary to identify
the Futures Contract underlying the Futures Contract Option; (d) the expiration
date; (e) the exercise price; (f) the premium to be received by the Fund; (g)
the name of the broker or futures commission merchant through whom the premium
is to be received; and (h) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Senior Security Account for such
Series. The Custodian shall, upon receipt of the premium specified in the
Certificate, make out of the moneys and Securities specifically allocated to
such Series the deposits into the Senior Security Account, if any, as specified
in the Certificate. The deposits, if any, to be made to the Margin Account shall
be made by the Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
5. Whenever a Futures Contract Option written by the Fund which is a
call is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Futures Contract Option was
specifically allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying the Futures Contract Option; (d) the
name of the broker or futures commission merchant through whom such Futures
Contract Option was exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any, payable by the Fund
upon such exercise; and (g) the amount of cash and/or the amount and kind of
Securities to be deposited in the Senior Security Account for such Series. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in such Certificate make the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
6. Whenever a Futures Contract Option which is written by the Fund and
which is a put is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Option was specifically
allocated; (b) the particular Futures Contract Option exercised; (c) the type of
Futures Contract underlying such Futures Contract Option; (d) the name of the
broker or futures commission merchant through whom such Futures Contract Option
is exercised; (e) the net total amount, if any, payable to the Fund upon such
exercise; (f) the net total amount, if any, payable by the Fund upon such
exercise; and (g) the amount and kind of Securities and/or cash to be withdrawn
from or deposited in, the Senior Security Account for such Series, if any. The
Custodian
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shall, upon its receipt of the net total amount payable to the Fund, if any,
specified in the Certificate, make out of the moneys and Securities specifically
allocated to such Series, the payments, if any, and the deposits, if any, into
the Senior Security Account as specified in the Certificate. The deposits to
and/or withdrawals from the Margin Account, if any, shall be made by the
Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
7. Whenever the Fund purchases any Futures Contract Option identical to
a previously written Futures Contract Option described in this Article in order
to liquidate its position as a writer of such Futures Contract Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying with respect to
the Futures Contract Option being purchased: (a) the Series to which such Option
is specifically allocated; (b) that the transaction is a closing transaction;
(c) the type of Futures Contract and such other information as may be necessary
to identify the Futures Contract underlying the Futures Option Contract; (d) the
exercise price; (e) the premium to be paid by the Fund; (f) the expiration date;
(g) the name of the broker or futures commission merchant to whom the premium is
to be paid; and (h) the amount of cash and/or the amount and kind of Securities,
if any, to be withdrawn from the Senior Security Account for such Series. The
Custodian shall effect the withdrawals from the Senior Security Account
specified in the Certificate. The withdrawals, if any, to be made from the
Margin Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a closing
transaction with respect to, any Futures Contract Option written or purchased by
the Fund and described in this Article, the Custodian shall (a) delete such
Futures Contract Option from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein and, (b) make such withdrawals from and/or in
the case of an exercise such deposits into the Senior Security Account as may be
specified in a Certificate. The deposits to and/or withdrawals from the Margin
Account, if any, shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise of a
Futures Contract Option described in this Article shall be subject to Article VI
hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after any short sales by any Series of the Fund,
the Fund shall promptly deliver to the Custodian a Certificate
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specifying: (a) the Series for which such short sale was made; (b) the name of
the issuer and the title of the Security; (c) the number of shares or principal
amount sold, and accrued interest or dividends, if any; (d) the dates of the
sale and settlement; (e) the sale price per unit; (f) the total amount credited
to the Fund upon such sale, if any, (g) the amount of cash and/or the amount and
kind of Securities, if any, which are to be deposited in a Margin Account and
the name in which such Margin Account has been or is to be established; (h) the
amount of cash and/or the amount and kind of Securities, if any, to be deposited
in a Senior Security Account, and (i) the name of the broker through whom such
short sale was made. The Custodian shall upon its receipt of a statement from
such broker confirming such sale and that the total amount credited to the Fund
upon such sale, if any, as specified in the Certificate is held by such broker
for the account of the Custodian (or any nominee of the Custodian) as custodian
of the Fund, issue a receipt or make the deposits into the Margin Account and
the Senior Security Account specified in the Certificate.
2. In connection with the closing-out of any short sale, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to each
such closing out: (a) the Series for which such transaction is being made; (b)
the name of the issuer and the title of the Security; (c) the number of shares
or the principal amount, and accrued interest or dividends, if any, required to
effect such closing-out to be delivered to the broker; (d) the dates of
closing-out and settlement; (e) the purchase price per unit; (f) the net total
amount payable to the Fund upon such closing-out; (g) the net total amount
payable to the broker upon such closing-out; (h) the amount of cash and the
amount and kind of Securities to be withdrawn, if any, from the Margin Account;
(i) the amount of cash and/or the amount and kind of Securities, if any, to be
withdrawn from the Senior Security Account; and (j) the name of the broker
through whom the Fund is effecting such closing-out. The Custodian shall, upon
receipt of the net total amount payable to the Fund upon such closing-out, and
the return and/or cancellation of the receipts, if any, issued by the Custodian
with respect to the short sale being closed-out, pay out of the moneys held for
the account of the Fund to the broker the net total amount payable to the
broker, and make the withdrawals from the Margin Account and the Senior Security
Account, as the same are specified in the Certificate.
ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase Agreement with
respect to Securities and money held by the Custodian hereunder, the Fund shall
deliver to the Custodian a Certificate, or in the event such Reverse Repurchase
Agreement is
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a Money Market Security, a Certificate or Oral Instructions specifying: (a) the
Series for which the Reverse Repurchase Agreement is entered; (b) the total
amount payable to the Fund in connection with such Reverse Repurchase Agreement
and specifically allocated to such Series; (c) the broker or dealer through or
with whom the Reverse Repurchase Agreement is entered; (d) the amount and kind
of Securities to be delivered by the Fund to such broker or dealer; (e) the date
of such Reverse Repurchase Agreement; and (f) the amount of cash and/or the
amount and kind of Securities, if any, specifically allocated to such Series to
be deposited in a Senior Security Account for such Series in connection with
such Reverse Repurchase Agreement. The Custodian shall, upon receipt of the
total amount payable to the Fund specified in the Certificate or Oral
Instructions make the delivery to the broker or dealer, and the deposits, if
any, to the Senior Security Account, specified in such Certificate or Oral
Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described in
preceding paragraph 1 of this Article, the Fund shall promptly deliver a
Certificate or, in the event such Reverse Repurchase Agreement is a Money Market
Security, a Certificate or Oral Instructions to the Custodian specifying: (a)
the Reverse Repurchase Agreement being terminated and the Series for which same
was entered; (b) the total amount payable by the Fund in connection with such
termination; (c) the amount and kind of Securities to be received by the Fund
and specifically allocated to such Series in connection with such termination;
(d) the date of termination; (e) the name of the broker or dealer with or
through whom the Reverse Repurchase Agreement is to be terminated; and (f) the
amount of cash and/or the amount and kind of Securities to be withdrawn from the
Senior Securities Account for such Series. The Custodian shall, upon receipt of
the amount and kind of Securities to be received by the Fund specified in the
Certificate or Oral Instructions, make the payment to the broker or dealer, and
the withdrawals, if any, from the Senior Security Account, specified in such
Certificate or Oral Instructions.
ARTICLE X
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically
allocated to a Series held by the Custodian hereunder, the Fund shall deliver or
cause to be delivered to the Custodian a Certificate specifying with respect to
each such loan: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities, (c) the
number of shares or the principal amount loaned, (d) the date of loan and
delivery, (e) the total amount to be delivered to the Custodian against the loan
of the Securities, including the amount of cash collateral and the premium, if
any, separately identified,
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and (f) the name of the broker, dealer, or financial institution to which the
loan was made. The Custodian shall deliver the Securities thus designated to the
broker, dealer or financial institution to which the loan was made upon receipt
of the total amount designated as to be delivered against the loan of
Securities. The Custodian may accept payment in connection with a delivery
otherwise than through the Book-Entry System or Depository only in the form of a
certified or bank cashier's check payable to the order of the Fund or the
Custodian drawn on New York Clearing House funds and may deliver Securities in
accordance with the customs prevailing among dealers in securities.
2. Promptly after each termination of the loan of Securities by the
Fund, the Fund shall deliver or cause to be delivered to the Custodian a
Certificate specifying with respect to each such loan termination and return of
Securities: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities to be
returned, (c) the number of shares or the principal amount to be returned, (d)
the date of termination, (e) the total amount to be delivered by the Custodian
(including the cash collateral for such Securities minus any offsetting credits
as described in said Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will be returned. The Custodian
shall receive all Securities returned from the broker, dealer, or financial
institution to which such Securities were loaned and upon receipt thereof shall
pay, out of the moneys held for the account of the Fund, the total amount
payable upon such return of Securities as set forth in the Certificate.
ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits to, or
withdrawals from, a Senior Security Account as specified in a Certificate
received by the Custodian. Such Certificate shall specify the Series for which
such deposit or withdrawal is to be made and the amount of cash and/or the
amount and kind of Securities specifically allocated to such Series to be
deposited in, or withdrawn from, such Senior Security Account for such Series.
In the event that the Fund fails to specify in a Certificate the Series, the
name of the issuer, the title and the number of shares or the principal amount
of any particular Securities to be deposited by the Custodian into, or withdrawn
from, a Senior Securities Account, the Custodian shall be under no obligation to
make any such deposit or withdrawal and shall so notify the Fund.
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<PAGE> 23
2. The Custodian shall make deliveries or payments from a Margin
Account to the broker, dealer, futures commission merchant or Clearing Member in
whose name, or for whose benefit, the account was established as specified in
the Margin Account Agreement.
3. Amounts received by the Custodian as payments or distributions with
respect to Securities deposited in any Margin Account shall be dealt with in
accordance with the terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and security interest in
and to any property at any time held by the Custodian in any Collateral Account
described herein. In accordance with applicable law the Custodian may enforce
its lien and realize on any such property whenever the Custodian has made
payment or delivery pursuant to any Put Option guarantee letter or similar
document or any receipt issued hereunder by the Custodian. In the event the
Custodian should realize on any such property net proceeds which are less than
the Custodian's obligations under any Put Option guarantee letter or similar
document or any receipt, such deficiency shall be a debt owed the Custodian by
the Fund within the scope of Article XIV herein.
5. On each business day the Custodian shall furnish the Fund with a
statement with respect to each Margin Account in which money or Securities are
held specifying as of the close of business on the previous business day: (a)
the name of the Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The Custodian shall make
available upon request to any broker, dealer, or futures commission merchant
specified in the name of a Margin Account a copy of the statement furnished the
Fund with respect to such Margin Account.
6. Promptly after the close of business on each business day in which
cash and/or Securities are maintained in a Collateral Account for any Series,
the Custodian shall furnish the Fund with a statement with respect to such
Collateral Account specifying the amount of cash and/or the amount and kind of
Securities held therein. No later than the close of business next succeeding the
delivery to the Fund of such statement, the Fund shall furnish to the Custodian
a Certificate specifying the then market value of the Securities described in
such statement. In the event such then market value is indicated to be less than
the Custodian's obligation with respect to any outstanding Put Option guarantee
letter or similar document, the Fund shall promptly specify in a Certificate the
additional cash and/or Securities to be deposited in such Collateral Account to
eliminate such deficiency.
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<PAGE> 24
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the resolution of
the Board of Trustees of the Fund, certified by the Secretary, the Clerk, any
Assistant Secretary or any Assistant Clerk, either (i) setting forth with
respect to the Series specified therein the date of the declaration of a
dividend or distribution, the date of payment thereof, the record date as of
which shareholders entitled to payment shall be determined, the amount payable
per Share of such Series to the shareholders of record as of that date and the
total amount payable to the Dividend Agent and any sub-dividend agent or
co-dividend agent of the Fund on the payment date, or (ii) authorizing with
respect to the Series specified therein the declaration of dividends and
distributions on a daily basis and authorizing the Custodian to rely on Oral
Instructions or a Certificate setting forth the date of the declaration of such
dividend or distribution, the date of payment thereof, the record date as of
which shareholders entitled to payment shall be determined, the amount payable
per Share of such Series to the shareholders of record as of that date and the
total amount payable to the Dividend Agent on the payment date.
2. Upon the payment date specified in such resolution, Oral
Instructions or Certificate, as the case may be, the Custodian shall pay out-of
the moneys held for the account of each Series the total amount payable to the
Dividend Agent and any sub-dividend agent or co-dividend agent of the Fund with
respect to such Series.
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver to the
Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade date,
and price; and
(b) The amount of money to be received by the Custodian for
the sale of such Shares and specifically allocated to the separate account in
the name of such Series.
2. Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the separate account in the name of the Series for
which such money was received.
3. Upon issuance of any Shares of any Series described in the foregoing
provisions of this Article, the Custodian shall pay, out
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of the money held for the account of such Series, all original issue or other
taxes required to be paid by the Fund in connection with such issuance upon the
receipt of a Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund desires the
Custodian to make payment out of the money held by the Custodian hereunder in
connection with a redemption of any Shares, it shall furnish to the Custodian a
Certificate specifying:
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice setting forth the
Series and number of Shares received by the Transfer Agent for redemption and
that such Shares are in good form for redemption, the Custodian shall make
payment to the Transfer Agent out of the moneys held in the separate account in
the name of the Series the total amount specified in the Certificate issued
pursuant to the foregoing paragraph 4 of this Article.
6. Notwithstanding the above provisions regarding the redemption of any
Shares, whenever any Shares are redeemed pursuant to any check redemption
privilege which may from time to time be offered by the Fund, the Custodian,
unless otherwise instructed by a Certificate, shall, upon receipt of an advice
from the Fund or its agent setting forth that the redemption is in good form for
redemption in accordance with the check redemption procedure, honor the check
presented as part of such check redemption privilege out of the moneys held in
the separate account of the Series of the Shares being redeemed.
ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion advance funds on
behalf of any Series which results in an overdraft because the moneys held by
the Custodian in the separate account for such Series shall be insufficient to
pay the total amount payable upon a purchase of Securities specifically
allocated to such Series, as set forth in a Certificate or Oral Instructions, or
which results in an overdraft in the separate account of such Series for some
other reason, or if the Fund is indebted to The Bank of New York under the
Fund's Cash Management and Related Services Agreement (except a borrowing for
investment or for temporary or emergency purposes using Securities as collateral
pursuant to a separate agreement and subject to the provisions of paragraph 2 of
this Article), such overdraft or indebtedness shall be deemed to be a loan made
by the Custodian to the Fund for such Series payable on
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demand and shall bear interest from the date incurred at a rate per annum (based
on a 360-day year for the actual number of days involved) equal to 1/2% over
Custodian's prime commercial lending rate in effect from time to time, such rate
to be adjusted on the effective date of any change in such prime commercial
lending rate but in no event to be less than 6% per annum. In addition, the Fund
hereby agrees that the Custodian shall have a continuing and enforceable lien
and security interest in and to any property specifically allocated to such
Series at any time held by it for the benefit of such Series or in which the
Series may have an interest which is then in the Custodian's possession or
control or in possession or control of any third party acting in the Custodian's
behalf, having at the time such overdraft or indebtedness is incurred a fair
market value equal to 150% of such overdraft or indebtedness. The Fund
authorizes the Custodian, in its sole discretion, at any time to charge any such
overdraft or indebtedness together with interest due thereon against any balance
of account standing to such Series' credit on the Custodian's books. In
addition, the Fund hereby covenants that on each Business Day on which either it
intends to enter a Reverse Repurchase Agreement and/or otherwise borrow from a
third party, or which next succeeds a Business Day on which at the close of
business the Fund had outstanding a Reverse Repurchase Agreement or such a
borrowing, it shall prior to 9 a.m., New York City time, advise the Custodian,
in writing, of each such borrowing, shall specify the Series to which the same
relates, and shall not incur any indebtedness not so specified other than from
the Custodian.
2. The Fund will cause to be delivered to the Custodian by any bank
(including, if the borrowing is pursuant to a separate agreement, the Custodian)
from which it borrows money for investment or for temporary or emergency
purposes using Securities held by the Custodian hereunder as collateral for such
borrowings, a notice or undertaking in the form currently employed by any such
bank setting forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. The Fund shall promptly deliver to
the Custodian a Certificate specifying with respect to each such borrowing: (a)
the Series to which such borrowing relates; (b) the name of the bank, (c) the
amount and terms of the borrowing, which may be set forth by incorporating by
reference an attached promissory note, duly endorsed by the Fund, or other loan
agreement, (d) the time and date, if known, on which the loan is to be entered
into, (e) the date on which the loan becomes due and payable, (f) the total
amount payable to the Fund on the borrowing date, (g) the market value of
Securities to be delivered as collateral for such loan, including the name of
the issuer, the title and the number of shares or the principal amount of any
particular Securities, and (h) a statement specifying whether such loan is for
investment purposes or for temporary or emergency purposes and that such loan is
in conformance with the Investment Company Act of 1940 and the Fund's
prospectus. The Custodian shall deliver on the borrowing date specified in a
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Certificate the specified collateral and the executed promissory note, if any,
against delivery by the lending bank of the total amount of the loan payable,
provided that the same conforms to the total amount payable as set forth in the
Certificate. The Custodian may, at the option of the lending bank, keep such
collateral in its possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory note or loan
agreement. The Custodian shall deliver such Securities as additional collateral
as may be specified in a Certificate to collateralize further any transaction
described in this paragraph. The Fund shall cause all Securities released from
collateral status to be returned directly to the Custodian, and the Custodian
shall receive from time to time such return of collateral as may be tendered to
it. In the event that the Fund fails to specify in a Certificate the Series, the
name of the issuer, the title and number of shares or the principal amount of
any particular Securities to be delivered as collateral by the Custodian, the
Custodian shall not be under any obligation to deliver any Securities.
ARTICLE XV
TERMINAL LINK
1. At no time and under no circumstances shall the Fund be obligated to
have or utilize the Terminal Link, and the provisions of this Article shall
apply if, but only if, the Fund in its sole and absolute discretion elects to
utilize the Terminal Link to transmit Certificates to the Custodian.
2. The Terminal Link shall be utilized by the Fund only for the purpose
of the Fund providing Certificates to the Custodian with respect to transactions
involving Securities or for the transfer of money to be applied to the payment
of dividends, distributions or redemptions of Fund Shares, and shall be utilized
by the Custodian only for the purpose of providing notices to the Fund. Such use
shall commence only after the Fund shall have delivered to the Custodian a
Certificate substantially in the form of Exhibit D and shall have established
access codes and safekeeping procedures to safeguard and protect the
confidentiality and availability of such access codes and shall have reviewed
the safekeeping procedures established by the Intermediary to assure that
transmissions inputted by the Fund, and only such transmissions, are forwarded
by the Intermediary to the Custodian without any alteration or omission. Each
use of the Terminal Link by the Fund shall constitute a representation and
warranty that the Terminal Link is being used only for the purposes permitted
hereby, that at least two Officers have each utilized an access code, that such
safekeeping procedures have been established by the Fund, that the Intermediary
has safekeeping procedures reviewed by the Fund to assure that all transmissions
inputted by the Fund, and only such
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transmissions, are forwarded by the Intermediary to the Custodian without any
alteration or omission by the Intermediary, and that such use does not
contravene the Investment Company Act of 1940, as amended, or the rules or
regulations thereunder.
3. The Fund shall obtain and maintain at its own cost and expense all
equipment and services, including, but not limited to communications services,
necessary for it to utilize the Terminal Link, and the Custodian shall not be
responsible for the reliability or availability of any such equipment or
services.
4. The Fund acknowledges that any data bases made available as part of,
or through the Terminal Link and any proprietary data, software, processes,
information and documentation (other than any such which are or become part of
the public domain or are legally required to be made available to the public)
(collectively, the "Information"), are the exclusive and confidential property
of the Custodian. The Fund shall, and shall cause others to which it discloses
the Information, including, without limitation the Intermediary, to keep the
Information confidential by using the same care and discretion it uses with
respect to its own confidential property and trade secrets, and shall neither
make nor permit any disclosure without the express prior written consent of the
Custodian.
5. Upon termination of this Agreement for any reason, the Fund shall
return to the Custodian any and all copies of the Information which are in the
Fund's possession or under its control, or which the Fund distributed to third
parties, including, without limitation, the Intermediary. The provisions of this
Article shall not affect the copyright status of any of the Information which
may be copyrighted and shall apply to all Information whether or not
copyrighted.
6. The Custodian reserves the right to modify the Terminal Link from
time to time without notice to the Fund or the Intermediary except that the
Custodian shall give the Fund notice not less than 75 days in advance of any
modification which would materially adversely affect the Fund's operation, and
the Fund agrees that neither the Fund nor the Intermediary shall modify or
attempt to modify the Terminal Link without the Custodian's prior written
consent. The Fund acknowledges that any software or procedures provided the Fund
or the Intermediary as part of the Terminal Link are the property of the
Custodian and, accordingly, the Fund agrees that any modifications to the
Terminal Link, whether by the Fund, the Intermediary or by the Custodian and
whether with or without the Custodian's consent, shall become the property of
the Custodian.
7. Neither the Custodian nor any manufacturers and suppliers it
utilizes or the Fund or the Intermediary utilizes in connection
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with the Terminal Link makes any warranties or representations, express or
implied, in fact or in law, including but not limited to warranties of
merchantability and fitness for a particular purpose.
8. The Fund will cause its Officers and employees to treat the
authorization codes and the access codes applicable to Terminal Link with
extreme care, and irrevocably authorizes the Custodian to act in accordance with
and rely on Certificates received by it through the Terminal Link. The Fund
acknowledges that it is its responsibility to assure that only its Officers and
authorized persons of the Intermediary use the Terminal Link on its behalf, and
that a Custodian shall not be responsible nor liable for use of the Terminal
Link on the Fund's behalf by persons other than such persons or Officers, or by
only a single Officer, nor for any alteration, omission, or failure to promptly
forward by the Intermediary.
9. The Custodian shall have no liability for any losses, damages,
injuries, claims, costs or expenses arising out of or in connection with any
hardware or software failure or malfunction of the Terminal Link, unless first,
such failure or malfunction is the direct result of the negligence of the
Custodian, and, second the Fund has both (a) complied with the provisions of
Section 11 of this Article, and (b) mitigated its damages by using either
Certificates delivered otherwise than through the Terminal Link or, where
appropriate, Oral Instructions. If the Custodian is liable for any such failure
or malfunction incident, its liability shall be limited to direct money damages
not exceeding $25,000.
10. Without limiting the generality of the foregoing, in no event shall
the Custodian or any manufacturer or supplier of its computer equipment,
software or services relating to the Terminal Link be responsible for any
special, indirect, incidental or consequential damages which the Fund or the
Intermediary may incur or experience by reason of its use of the Terminal Link
even if the Custodian or any manufacturer or supplier has been advised of the
possibility of such damages, nor with respect to the use of the Terminal Link
shall the Custodian or any such manufacturer or supplier be liable for acts of
God, or with respect to the following to the extent beyond such person's
reasonable control: machine or computer breakdown or malfunction, interruption
or malfunction of communication facilities, labor difficulties or any other
similar or dissimilar cause.
11. The Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, the Terminal Link as promptly
as practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, (ii) the Business Day on which discovery should have occurred
through the exercise of reasonable care and (iii) in the case of any error, the
date of actual receipt of the earliest notice which reflects such error, it
being agreed that discovery and receipt of notice may only occur on a business
day. The Custodian shall promptly advise
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the Fund or the Intermediary whenever the Custodian learns of any errors,
omissions or interruption in, or delay or unavailability of, the Terminal Link.
12. The Custodian shall acknowledge to the Fund or to the Intermediary,
by use of the Terminal Link, receipt of each Certificate the Custodian receives
through the Terminal Link, and in the absence of such acknowledgment, the
Custodian shall not be liable for any failure to act in accordance with such
Certificate and the Fund may not claim that such Certificate was received by the
Custodian. Such verification, which may occur after the Custodian has acted upon
such Certificate, shall be accomplished on the same day on which such
Certificate is received.
ARTICLE XVI
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY
OF ANY SERIES HELD OUTSIDE OF THE UNITED STATES
1. The Custodian is authorized and instructed to employ, as
sub-custodian for each Series' Foreign Securities (as such term is defined in
paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of 1940, as
amended) and other assets, the foreign banking institutions and foreign
securities depositories and clearing agencies designated on Schedule I hereto
("Foreign Sub-Custodians") to carry out their respective responsibilities in
accordance with the terms of the sub-custodian agreement between each such
Foreign Sub-Custodian and the Custodian, copies of which have been previously
delivered to the Fund and receipt of which is hereby acknowledged (each such
agreement, a "Foreign Sub-Custodian Agreement"). Upon receipt of a Certificate,
together with a certified resolution substantially in the form attached as
Exhibit E of the Fund's Board of Trustees, the Fund may designate any additional
foreign sub-custodian with which the Custodian has an agreement for such entity
to act as the Custodian's agent, as its sub-custodian and any such additional
foreign sub-custodian shall be deemed added to Schedule I. Upon receipt of a
Certificate from the Fund, the Custodian shall cease the employment of any one
or more Foreign Sub-Custodians for maintaining custody of the Fund's assets and
such Foreign Sub-Custodian shall be deemed deleted from Schedule I.
2. Each Foreign Sub-Custodian Agreement shall be substantially in the
form previously delivered to the Fund and will not be amended in a way that
materially adversely affects the Fund without the Fund's prior written consent.
3. The Custodian shall identify on its books as belonging to each
Series of the Fund the Foreign Securities of such Series held by each Foreign
Sub-Custodian. At the election of the Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claims by the Fund
or any Series against a
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<PAGE> 31
Foreign Sub-Custodian as a consequence of any loss, damage, cost, expense,
liability or claim sustained or incurred by the Fund or any Series if and to the
extent that the Fund or such Series has not been made whole for any such loss,
damage, cost, expense, liability or claim.
4. Upon request of the Fund, the Custodian will, consistent with the
terms of the applicable Foreign Sub-Custodian Agreement, use reasonable efforts
to arrange for the independent accountants of the Fund to be afforded access to
the books and records of any Foreign Sub-Custodian insofar as such books and
records relate to the performance of such Foreign Sub-Custodian under its
agreement with the Custodian on behalf of the Fund.
5. The Custodian will supply to the Fund from time to time, as mutually
agreed upon, statements in respect of the securities and other assets of each
Series held by Foreign Sub-Custodians, including but not limited to, an
identification of entities having possession of each Series' Foreign Securities
and other assets, and advices or notifications of any transfers of Foreign
Securities to or from each custodial account maintained by a Foreign
Sub-Custodian for the Custodian on behalf of the Series.
6. The Custodian shall furnish annually to the Fund, as mutually agreed
upon, information concerning the Foreign Sub-Custodians employed by the
Custodian. Such information shall be similar in kind and scope to that furnished
to the Fund in connection with the Fund's initial approval of such Foreign
Sub-Custodians and, in any event, shall include information pertaining to (i)
the Foreign Custodians' financial strength, general reputation and standing in
the countries in which they are located and their ability to provide the
custodial services required, and (ii) whether the Foreign Sub-Custodians would
provide a level of safeguards for safekeeping and custody of securities not
materially different from those prevailing in the United States. The Custodian
shall monitor the general operating performance of each Foreign Sub-Custodian.
The Custodian agrees that it will use reasonable care in monitoring compliance
by each Foreign Sub-Custodian with the terms of the relevant Foreign
Sub-Custodian Agreement and that if it learns of any breach of such Foreign
Sub-Custodian Agreement believed by the Custodian to have a material adverse
effect on the Fund or any Series it will promptly notify the Fund of such
breach. The Custodian also agrees to use reasonable and diligent efforts to
enforce its rights under the relevant Foreign Sub-Custodian Agreement.
7. The Custodian shall transmit promptly to the Fund all notices,
reports or other written information received pertaining to the Fund's Foreign
Securities, including without limitation, notices of corporate action, proxies
and proxy solicitation materials.
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<PAGE> 32
8. Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for securities received for the account of any Series and
delivery of securities maintained for the account of such Series may be effected
in accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer.
9. Notwithstanding any other provision in this Agreement to the
contrary, with respect to any losses or damages arising out of or relating to
any actions or omissions of any Foreign Sub-Custodian the sole responsibility
and liability of the Custodian shall be to take appropriate action at the Fund's
expense to recover such loss or damage from the Foreign Sub-Custodian. It is
expressly understood and agreed that the Custodian's sole responsibility and
liability shall be limited to amounts so recovered from the Foreign
Sub-Custodian.
ARTICLE XVII
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, or as provided in Article XVI
neither the Custodian nor its nominee shall be liable for any loss or damage,
including counsel fees, resulting from its action or omission to act or
otherwise, either hereunder or under any Margin Account Agreement, except for
any such loss or damage arising out of its own negligence or willful misconduct.
In no event shall the Custodian be liable to the Fund or any third party for
special, indirect or consequential damages or lost profits or loss of business,
arising under or in connection with this Agreement, even if previously informed
of the possibility of such damages and regardless of the form of action. The
Custodian may, with respect to questions of law arising hereunder or under any
Margin Account Agreement, apply for and obtain the advice and opinion of counsel
to the Fund or of its own counsel, at the expense of the Fund, and shall be
fully protected with respect to anything done or omitted by it in good faith in
conformity with such advice or opinion. The Custodian shall be liable to the
Fund for any loss or damage resulting from the use of the Book-Entry System or
any Depository arising by reason of any negligence or willful misconduct on the
part of the Custodian or any of its employees or agents.
2. Without limiting the generality of the foregoing, the Custodian
shall be under no obligation to inquire into, and shall not be liable for:
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<PAGE> 33
(a) The validity of the issue of any Securities purchased,
sold, or written by or for the Fund, the legality of the purchase, sale or
writing thereof, or the propriety of the amount paid or received therefor;
(b) The legality of the sale or redemption of any Shares, or
the propriety of the amount to be received or paid therefor;
(c) The legality of the declaration or payment of any dividend
by the Fund;
(d) The legality of any borrowing by the Fund using Securities
as collateral;
(e) The legality of any loan of portfolio Securities, nor
shall the Custodian be under any duty or obligation to see to it that any cash
collateral delivered to it by a broker, dealer, or financial institution or held
by it at any time as a result of such loan of portfolio Securities of the Fund
is adequate collateral for the Fund against any loss it might sustain as a
result of such loan. The Custodian specifically, but not by way of limitation,
shall not be under any duty or obligation periodically to check or notify the
Fund that the amount of such cash collateral held by it for the Fund is
sufficient collateral for the Fund, but such duty or obligation shall be the
sole responsibility of the Fund. In addition, the Custodian shall be under no
duty or obligation to see that any broker, dealer or financial institution to
which portfolio Securities of the Fund are lent pursuant to Article XIV of this
Agreement makes payment to it of any dividends or interest which are payable to
or for the account of the Fund during the period of such loan or at the
termination of such loan, provided, however, that the Custodian shall promptly
notify the Fund in the event that such dividends or interest are not paid and
received when due; or
(f) The sufficiency or value of any amounts of money and/or
Securities held in any Margin Account, Senior Security Account or Collateral
Account in connection with transactions by the Fund. In addition, the Custodian
shall be under no duty or obligation to see that any broker, dealer, futures
commission merchant or Clearing Member makes payment to the Fund of any
variation margin payment or similar payment which the Fund may be entitled to
receive from such broker, dealer, futures commission merchant or Clearing
Member, to see that any payment received by the Custodian from any broker,
dealer, futures commission merchant or Clearing Member is the amount the Fund is
entitled to receive, or to notify the Fund of the Custodian's receipt or
non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be the
Custodian of, any money, whether or not represented by any check, draft, or
other instrument for the payment of money, received by it on behalf of the Fund
until the Custodian actually
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<PAGE> 34
receives and collects such money directly or by the final crediting of the
account representing the Fund's interest at the Book-Entry System or the
Depository.
4. The Custodian shall have no responsibility and shall not be liable
for ascertaining or acting upon any calls, conversions, exchange offers,
tenders, interest rate changes or similar matters relating to Securities held in
the Depository, unless the Custodian shall have actually received timely notice
from the Depository. In no event shall the Custodian have any responsibility or
liability for the failure of the Depository to collect, or for the late
collection or late crediting by the Depository of any amount payable upon
Securities deposited in the Depository which may mature or be redeemed, retired,
called or otherwise become payable. However, upon receipt of a Certificate from
the Fund of an overdue amount on Securities held in the Depository the Custodian
shall make a claim against the Depository on behalf of the Fund, except that the
Custodian shall not be under any obligation to appear in, prosecute or defend
any action, suit or proceeding in respect to any Securities held by the
Depository which in its opinion may involve it in expense or liability, unless
indemnity satisfactory to it against all expense and liability be furnished as
often as may be required.
5. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due to the Fund from the Transfer
Agent of the Fund nor to take any action to effect payment or distribution by
the Transfer Agent of the Fund of any amount paid by the Custodian to the
Transfer Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount if the Securities upon which such
amount is payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action.
7. The Custodian may in addition to the employment of Foreign
Sub-Custodians pursuant to Article XVI appoint one or more banking institutions
as Depository or Depositories, as Sub-Custodian or Sub-Custodians, or as
Co-Custodian or Co-Custodians including, but not limited to, banking
institutions located in foreign countries, of Securities and moneys at any time
owned by a Series, upon such terms and conditions as may be approved in a
Certificate or contained in an agreement executed by the Custodian, the Fund and
the appointed institution.
8. The Custodian shall not be under any duty or obligation (a) to
ascertain whether any Securities at any time delivered to, or held by it or by
any Foreign Sub-Custodian, for the account of the Fund and specifically
allocated to a Series are such as
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<PAGE> 35
properly may be held by the Fund or such Series under the provisions of its then
current prospectus, or (b) to ascertain whether any transactions by the Fund,
whether or not involving the Custodian, are such transactions as may properly be
engaged in by the Fund.
9. The Custodian shall be entitled to receive and the Fund agrees to
pay to the Custodian all out-of-pocket expenses and such compensation as may be
agreed upon from time to time between the Custodian and the Fund. The Custodian
may charge such compensation and any expenses with respect to a Series incurred
by the Custodian in the performance of its duties pursuant to such agreement
against any money specifically allocated to such Series. Unless and until the
Fund instructs the Custodian by a Certificate to apportion any loss, damage,
liability or expense among the Series in a specified manner, the Custodian shall
also be entitled to charge against any money held by it for the account of a
Series such Series' pro rata share (based on such Series net asset value at the
time of the charge to the aggregate net asset value of all Series at that time)
of the amount of any loss, damage, liability or expense, including counsel fees,
for which it shall be entitled to reimbursement under the provisions of this
Agreement. The expenses for which the Custodian shall be entitled to
reimbursement hereunder shall include, but are not limited to, the expenses of
sub-custodians and foreign branches of the Custodian incurred in settling
outside of New York City transactions involving the purchase and sale of
Securities of the Fund.
10. The Custodian shall be entitled to rely upon any Certificate,
notice or other instrument in writing received by the Custodian and reasonably
believed by the Custodian to be a Certificate. The Custodian shall be entitled
to rely upon any Oral Instructions actually received by the Custodian
hereinabove provided for. The Fund agrees to forward to the Custodian a
Certificate or facsimile thereof confirming such Oral Instructions in such
manner so that such Certificate or facsimile thereof is received by the
Custodian, whether by hand delivery, telecopier or other similar device, or
otherwise, by the close of business of the same day that such Oral Instructions
are given to the Custodian. The Fund agrees that the fact that such confirming
instructions are not received, or that contrary instructions are received, by
the Custodian shall in no way affect the validity of the transactions or
enforceability of the transactions hereby authorized by the Fund. The Fund
agrees that the Custodian shall incur no liability to the Fund in acting upon
Oral Instructions given to the Custodian hereunder concerning such transactions
provided such instructions reasonably appear to have been received from an
Officer.
11. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably believed by the
Custodian to be given in accordance with the terms and conditions of any Margin
Account Agreement. Without limiting the generality of the foregoing, the
Custodian shall be
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<PAGE> 36
under no duty to inquire into, and shall not be liable for, the accuracy of any
statements or representations contained in any such instrument or other notice
including, without limitation, any specification of any amount to be paid to a
broker, dealer, futures commission merchant or Clearing Member.
12. The books and records pertaining to the Fund which are in the
possession of the Custodian shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the Investment Company
Act of 1940, as amended, and other applicable securities laws and rules and
regulations. The Fund, or the Fund's authorized representatives, shall have
access to such books and records during the Custodian's normal business hours.
Upon the reasonable request of the Fund, copies of any such books and records
shall be provided by the Custodian to the Fund or the Fund's authorized
representative, and the Fund shall reimburse the Custodian its expenses of
providing such copies. Upon reasonable request of the Fund, the Custodian shall
provide in hard copy or on micro-film, whichever the Custodian elects, any
records included in any such delivery which are maintained by the Custodian on a
computer disc, or are similarly maintained, and the Fund shall reimburse the
Custodian for its expenses of providing such hard copy or micro-film.
13. The Custodian shall provide the Fund with any report obtained by
the Custodian on the system of internal accounting control of the Book-Entry
System, the Depository or O.C.C., and with such reports on its own systems of
internal accounting control as the Fund may reasonably request from time to
time.
14. The Fund agrees to indemnify the Custodian against and save the
Custodian harmless from all liability, claims, losses and demands whatsoever,
including attorney's fees, howsoever arising or incurred because of or in
connection with this Agreement, including the Custodian's payment or non-payment
of checks pursuant to paragraph 6 of Article XIII as part of any check
redemption privilege program of the Fund, except for any such liability, claim,
loss and demand arising out of the Custodian's own negligence or willful
misconduct.
15. Subject to the foregoing provisions of this Agreement, including,
without limitation, those contained in Article XVI the Custodian may deliver and
receive Securities, and receipts with respect to such Securities, and arrange
for payments to be made and received by the Custodian in accordance with the
customs prevailing from time to time among brokers or dealers in such
Securities. When the Custodian is instructed to deliver Securities against
payment, delivery of such Securities and receipt of payment therefor may not be
completed simultaneously. The Fund assumes all responsibility and liability for
all credit risks involved in connection with the Custodian's delivery of
Securities pursuant to instructions of the Fund, which responsibility and
liability shall
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<PAGE> 37
continue until final payment in full has been received by the
Custodian.
16. The Custodian shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied in this Agreement
against the Custodian.
ARTICLE XVIII
TERMINATION
1. Either of the parties hereto may terminate this Agreement by giving
to the other party a notice in writing specifying the date of such termination,
which shall be not less than ninety (90) days after the date of giving of such
notice. In the event such notice is given by the Fund, it shall be accompanied
by a copy of a resolution of the Board of Trustees of the Fund, certified by the
Secretary, the Clerk, any Assistant Secretary or any Assistant Clerk, electing
to terminate this Agreement and designating a successor custodian or custodians,
each of which shall be a bank or trust company having not less than $2,000,000
aggregate capital, surplus and undivided profits. In the event such notice is
given by the Custodian, the Fund shall, on or before the termination date,
deliver to the Custodian a copy of a resolution of the Board of Trustees of the
Fund, certified by the Secretary, the Clerk, any Assistant Secretary or any
Assistant Clerk, designating a successor custodian or custodians. In the absence
of such designation by the Fund, the Custodian may designate a successor
custodian which shall be a bank or trust company having not less than $2,000,000
aggregate capital, surplus and undivided profits. Upon the date set forth in
such notice this Agreement shall terminate, and the Custodian shall upon receipt
of a notice of acceptance by the successor custodian on that date deliver
directly to the successor custodian all Securities and moneys then owned by the
Series and held by it as Custodian, after deducting all fees, expenses and other
amounts for the payment or reimbursement of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or the
Custodian in accordance with the preceding paragraph, the Fund shall upon the
date specified in the notice of termination of this Agreement and upon the
delivery by the Custodian of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and moneys then owned
by the Series be deemed to be its own custodian and the Custodian shall thereby
be relieved of all duties and responsibilities pursuant to this Agreement, other
than the duty with respect to Securities held in the Book Entry System which
cannot be delivered to the Fund to hold such Securities hereunder in accordance
with this Agreement.
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<PAGE> 38
ARTICLE XIX
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of the
present Officers of the Fund under its corporate seal, setting forth the names
and the signatures of the present Officers of the Fund. The Fund agrees to
furnish to the Custodian a new Certificate in similar form in the event that any
such present Officer ceases to be an Officer of the Fund, or in the event that
other or additional Officers are elected or appointed. Until such new
Certificate shall be received, the Custodian shall be fully protected in acting
under the provisions of this Agreement upon Oral Instructions or signatures of
the present Officers as set forth in the last delivered Certificate.
2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its offices at 90
Washington Street, New York, New York 10286, or at such other place as the
Custodian may from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its office at the address for the
Fund first above written, or at such other place as the Fund may from time to
time designate in writing.
4. This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality as this
Agreement and approved by a resolution of the Board of Trustees of the Fund.
5. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the Custodian, or by the Custodian without the written consent of the Fund,
authorized or approved by a resolution of the Fund's Board of Trustees.
6. This Agreement shall be construed in accordance with the laws of the
State of New York without giving effect to conflict of laws principles thereof.
Each party hereby consents to the jurisdiction of a state or federal court
situated in New York City, New York in connection with any dispute arising
hereunder and hereby waives its right to trial by jury.
7. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
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<PAGE> 39
The Sessions Group is a business trust organized under Chapter 1746,
Ohio Revised Code and under a Declaration of Trust, to which reference is hereby
made and a copy of which is on file at the office of the Secretary of State of
Ohio as required by law, and to any and all amendments thereto so filed or
hereafter filed. The obligations of "The Sessions Group" entered into in the
name or on behalf thereof by any of the Trustees, officers, employees or agents
are made not individually, but in such capacities, and are not binding upon any
of the Trustees, officers, employees, agents or shareholders of the Fund
personally, but bind only the assets of the Fund, as set forth in Section
1746.13(A), Ohio Revised Code, and all persons dealing with any of the Series of
the Fund must look solely to the assets of the Fund belonging to such Series for
the enforcement of any claims against the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
THE SESSIONS GROUP
By: /s/ Walter B. Grimm
------------------------------
[SEAL]
Attest:
/s/ Nancy E. Converse
- ------------------------------
THE BANK OF NEW YORK
By: /s/ Stephen E. Grunston
------------------------------
Name: Stephen E. Grunston
Title: Vice President
[SEAL]
Attest:
/s/ Ira Rosner
- ------------------------------
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<PAGE> 40
APPENDIX A
I, Walter B. Grimm, President and I, Nancy E. Converse, Secretary,of
The Sessions Group, an Ohio business trust (the "Fund"), do hereby certify that:
The following individuals serve in the following positions with the
Fund and each has been duly elected or appointed by the Board of Trustees of the
Fund to each such position and qualified therefor in conformity with the Fund's
Declaration of Trust and By-Laws, and the signatures set forth opposite their
respective names are their true and correct signatures:
Name Position Signature
Walter B. Grimm President /s/ Walter B. Grimm
Nancy E. Converse Secretary /s/ Nancy E. Converse
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<PAGE> 41
April 6, 1998
APPENDIX B
To Custody Agreement dated October 9, 1996
Between The Sessions Group and
The Bank of New York
SERIES
NAME OF FUND DATE
The KeyPremier Prime Money Market Fund July 9, 1996
and The KeyPremier Pennsylvania Municipal
Bond Fund
The KeyPremier Established Growth Fund October 30, 1996
and The KeyPremier Intermediate Term
Income Fund
The KeyPremier Aggressive Growth Fund January 29, 1997
The KeyPremier U.S. Treasury Obligations June 30, 1997
Money Market Fund and The KeyPremier
Limited Duration Government Securities
Fund
The KeyPremier Emerging Growth Fund April 6, 1998
THE SESSIONS GROUP
By /s/ WALTER B. GRIMM
-------------------------------------
Walter B. Grimm, President
THE BANK OF NEW YORK
By /s/ STEPHEN E. GRUNSTON
-------------------------------------
Stephen E. Grunston, Vice President
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<PAGE> 42
APPENDIX C
I, Ira Rosner, a Vice President with THE BANK OF NEW YORK do hereby
designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
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<PAGE> 43
EXHIBIT A
CERTIFICATION
The undersigned, Walter B. Grimm, hereby certifies that he or she is
the duly elected and acting President of The Session Group, an Ohio business
trust (the "Fund"), and further certifies that the following resolution was
adopted by the Board of Trustees of the Fund at a meeting duly held on May 16,
1996, at which a quorum was at all times present and that such resolution has
not been modified or rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of July 9, 1996, (the "Custody Agreement") is authorized and instructed
on a continuous and ongoing basis to deposit in the Book-Entry System,
as defined in the Custody Agreement, all securities eligible for
deposit therein, regardless of the Series to which the same are
specifically allocated, and to utilize the Book-Entry System to the
extent possible in connection with its performance thereunder,
including, without limitation, in connection with settlements of
purchases and sales of securities, loans of securities, and deliveries
and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of The
Sessions Group, as of the 9th day of July, 1996.
/s/ Walter B. Grimm
------------------------------------
[SEAL]
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<PAGE> 44
EXHIBIT B
CERTIFICATION
The undersigned, Walter B. Grimm, hereby certifies that he or she is
the duly elected and acting President of The Sessions Group, an Ohio business
trust (the "Fund"), and further certifies that the following resolution was
adopted by the Board of Trustees of the Fund at a meeting duly held on May 16,
1996, at which a quorum was at all times present and that such resolution has
not been modified or rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of July 9, 1996 (the "Custody Agreement") is authorized and instructed
on a continuous and ongoing basis until such time as it receives a
Certificate, as defined in the Custody Agreement, to the contrary to
deposit in the Depository, as defined in the Custody Agreement, all
securities eligible for deposit therein, regardless of the Series to
which the same are specifically allocated, and to utilize the
Depository to the extent possible in connection with its performance
thereunder, including, without limitation, in connection with
settlements of purchases and sales of securities, loans of securities,
and deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of The
Sessions Group, as of the 9th day of July, 1996.
/s/ Walter B. Grimm
------------------------------------
[SEAL]
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<PAGE> 45
EXHIBIT B-1
CERTIFICATION
The undersigned, Walter B. Grimm, hereby certifies that he or she is
the duly elected and acting President of The Sessions Group, an Ohio business
trust (the "Fund"), and further certifies that the following resolution was
adopted by the Board of Trustees of the Fund at a meeting duly held on May 16,
1996, at which a quorum was at all times present and that such resolution has
not been modified or rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of July 9, 1996 (the "Custody Agreement") is authorized and instructed
on a continuous and ongoing basis until such time as it receives a
Certificate, as defined in the Custody Agreement, to the contrary to
deposit in the Participants Trust Company as Depository, as defined in
the Custody Agreement, all securities eligible for deposit therein,
regardless of the Series to which the same are specifically allocated,
and to utilize the Participants Trust Company to the extent possible in
connection with its performance thereunder, including, without
limitation, in connection with settlements of purchases and sales of
securities, loans of securities, and deliveries and returns of
securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of The
Sessions Group, as of the 9th day of July, 1996.
/s/ Walter B. Grimm
------------------------------------
[SEAL]
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<PAGE> 46
EXHIBIT C
CERTIFICATION
The undersigned, Walter B. Grimm, hereby certifies that he or she is
the duly elected and acting of The Sessions Group, an Ohio business trust (the
"Fund"), and further certifies that the following resolution was adopted by the
Board of Trustees of the Fund at a meeting duly held on May 16, 1996, at which a
quorum was at all times present and that such resolution has not been modified
or rescinded and is in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of July 9, 1996, (the "Custody Agreement") is authorized and instructed
on a continuous and ongoing basis until such time as it receives a
Certificate, as defined in the Custody Agreement, to the contrary, to
accept, utilize and act with respect to Clearing Member confirmations
for Options and transaction in options, regardless of the Series to
which the same are specifically allocated, as such terms are defined in
the Custody Agreement, as provided in the Custody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of The
Sessions Group, as of the 9th day of July, 1996.
/s/ Walter B. Grimm
------------------------------------
[SEAL]
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<PAGE> 47
EXHIBIT D
The undersigned, Walter B. Grimm, hereby certifies that he or she is
the duly elected and acting President of The Sessions Group, an Ohio business
trust (the "Fund"), further certifies that the following resolutions were
adopted by the Board of Trustees of the Fund at a meeting duly held on May 16,
1996, at which a quorum was at all times present and that such resolutions have
not been modified or rescinded and are in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
the Custody Agreement between The Bank of New York and the Fund dated
as of July 9, 1996 (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis to act in accordance with,
and to rely on Certificates (as defined in the Custody Agreement) given
by the Fund to the Custodian by a Terminal Link (as defined in the
Custody Agreement).
RESOLVED, that the Fund shall establish access codes and grant
use of such access codes only to Officers of the Fund as defined in the
Custody Agreement, shall establish internal safekeeping procedures to
safeguard and protect the confidentiality and availability of such
access codes, shall limit its use of the Terminal Link to those
purposes permitted by the Custody Agreement, shall require at least two
such officers to utilize their respective access codes in connection
with each such Certificate, shall review the safekeeping procedures of
the Intermediary to assure that all transmissions inputted by the Fund,
and only such transmissions, are forwarded by the omission by the
Intermediary, and shall use the Terminal Link only in a manner that
does not contravene the Investment Company Act of 1940, as amended, or
the rules and regulations thereunder.
RESOLVED, that Officers of the Fund shall, following the
establishment of such access codes and such internal safekeeping
procedures, advise the Custodian that the same have been established by
delivering a Certificate, as defined in the Custody Agreement, and the
Custodian shall be entitled to rely upon such advice.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of The
Sessions Group, as of the 9th day of July, 1996.
/s/ Walter B. Grimm
------------------------------------
[SEAL]
-47-
<PAGE> 48
EXHIBIT E
The undersigned, Walter B. Grimm, hereby certifies that he or she is
the duly elected and acting President of The Sessions Group, an Ohio business
trust (the "Fund"), further certifies that the following resolutions were
adopted by the Board of Trustees of the Fund at a meeting duly held on May 16,
1996, at which a quorum was at all times present and that such resolutions have
not been modified or rescinded and are in full force and effect as of the date
hereof.
RESOLVED, that the maintenance of the Fund's assets in each
country listed in Schedule I hereto be, and hereby is, approved by the
Board of Trustees as consistent with the best interests of the Fund and
its shareholders; and further
RESOLVED, that the maintenance of the Fund's assets with the
foreign branches of The Bank of New York (the "Bank") listed in
Schedule I located in the countries specified therein, and with the
foreign sub-custodians and depositories listed in Schedule I located in
the countries specified therein be, and hereby is, approved by the
Board of Trustees as consistent with the best interest of the Fund and
its shareholders; and further
RESOLVED, that the Sub-Custodian Agreements presented to this
meeting between the Bank and each of the foreign sub-custodians and
depositories listed in Schedule I providing for the maintenance of the
Fund's assets with the applicable entity, be and hereby are, approved
by the Board of Trustees as consistent with the best interests of the
Fund and its shareholders; and further
RESOLVED, that the appropriate officers of the Fund are hereby
authorized to place assets of the Fund with the aforementioned foreign
branches and foreign sub-custodians and depositories as hereinabove
provided; and further
RESOLVED, that the appropriate officers of the Fund, or any of
them, are authorized to do any and all other acts, in the name of the
Fund and on its behalf, as they, or any of them, may determine to be
necessary or desirable and proper in connection with or in furtherance
of the foregoing resolutions.
IN WITNESS WHEREOF, I hereunto set my hand and the seal of The Sessions
Group, as of the 9th day of July, 1996.
/s/ Walter B. Grimm
------------------------------------
[SEAL]
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<PAGE> 49
Dated: April 6, 1998
EXHIBIT F
TO THE CUSTODY AGREEMENT BETWEEN
THE SESSIONS GROUP AND THE BANK OF NEW YORK
JULY 9, 1996, AS AMENDED APRIL 6, 1998
AUTHORIZED PERSONS
for the following portfolios:
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
The KeyPremier Emerging Growth Fund
Cash Movement of Shareholder Activity
(excluding Fund shareholder checks)
Officers of The Group
---------------------
Walter B. Grimm President
J. David Huber Vice President
William J. Tomko Vice President
George L. Stevens Secretary
Alaina V. Metz Assistant Secretary
Employees of BISYS Services
---------------------------
Mary A. Madick
H. Carl Juckett
Theresa L. Bailey
Cozette Robinson
Payment of Fund Expenses
Officers of the Group
---------------------
Walter B. Grimm President
J. David Huber Vice President
William J. Tomko Vice President
Paul T. Kane Treasurer
George L. Stevens Secretary
Alaina V. Metz Assistant Secretary
Employees of BISYS Services
---------------------------
Martin R. Dean
Bryan Haft
Nicole Fisher
Penni Rutkowski
Lisa Tomich
Two of the individuals named above or any two or more of the
individuals listed immediately below are authorized to give a
"Certificate" to the Custodian for the purposes specified for the
particular list of names, provided however, that no person shall be
authorized or permitted to withdraw Group investments upon his mere
receipt:
Writing of Fund Shareholder Checks
For Redemption of Dividends
Officers of the Group
---------------------
Walter B. Grimm President
J. David Huber Vice President
William J. Tomko Vice President
Paul T. Kane Treasurer
George L. Stevens Secretary
Alaina V. Metz Assistant Secretary
Persons listed below are authorized to give Oral Instructions or a
"Certificate" to the Custodian under the Custody Agreement in
connection with the purchase and sale of portfolio securities,
provided that no one or more persons is authorized or permitted to
withdraw investments of such Fund upon his or their mere receipt:
Robert P. Andres
William C. Martindale, Jr.
Colleen M. Marsh
James H. Somers
Lisa Crew-Stauffer
Sandy Moul
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<PAGE> 1
EXHIBIT 8(d)
CASH MANAGEMENT AND RELATED SERVICES AGREEMENT, dated as
September 24, 1996 between The Sessions Group, an Ohio business trust (the
"Group"), on behalf of each portfolio series of the Group listed on Schedule A
hereto (each a "Fund", collectively the "Funds"), and The Bank of New York (the
"Bank").
WITNESSETH:
That in consideration of the mutual agreements and covenants herein
contained, the Bank and each Fund hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever used in this Agreement, unless the context otherwise requires,
the following words shall have the meanings set forth below:
1. "ACCOUNT" shall mean an account registered in the name of a Fund or
such Fund's transfer agent for receiving and disbursing money as provided in
this Agreement.
2. "ACCOUNT AVAILABLE BALANCE" shall mean with respect to an Account
for any given day during a calendar month a positive or negative dollar amount
equal to (A) if such day is a Business Day, the Account Available Balance as of
the close of the last preceding Business Day plus a positive or negative dollar
amount equal to the difference, if any, between the Chargeable Credits with
respect to such day and such Account and the Chargeable Debits with respect to
such day and such Account, and (B) if such day is not a Business Day, the
Account Available Balance as of close of the last preceding Business Day, except
that both (A) and (B) shall be reduced by the United States Federal Reserve
reserve requirements then applicable to the Bank with respect to such Account.
The Account Available Balance of an Account shall be zero on the date
immediately preceding the first date on which an entry, consisting of either a
Chargeable Credit or Chargeable Debit, is first made to such Account hereunder.
3. "ACCESS" shall mean any on-line communication system provided by the
Bank hereunder whereby either the receiver of such communication is able to
verify by codes or otherwise with a reasonable degree of certainty the identity
of the sender of such communication, or the sender is required to provide a
password or other identification code.
4. "AUTHORIZED PERSON" shall mean either (A) any person duly authorized
by corporate resolutions of the board of directors or board of trustees of the
Group (the "Board") to give Oral and/or Written Instructions on behalf of the
Funds, such persons to be designated in a certificate, substantially in the form
of Exhibit A, which contains a specimen signature of such person, or (B) any
person sending or transmitting any instruction or direction through ACCESS.
<PAGE> 2
5. "BUSINESS DAY" shall mean any day on which the Federal Reserve Bank
of New York is open for business, except for any such day on which the Bank is
required by law or regulation to be closed, or elects to be closed.
6. "CALENDAR MONTH EARNINGS CREDIT" shall mean with respect to an
Account for any calendar month the dollar amount, whether positive or negative,
equal to the sum of the Gross Calendar Month Earnings Credit with respect to
such Account for such calendar month and the Monthly Overdraft Charges with
respect to such Account for such calendar month.
7. "CHARGEABLE CREDITS" shall mean with respect to an Account for any
given day during a calendar month a positive amount of dollars equal to the sum,
if any, of (A) the aggregate dollar amount of Federal Funds credited to such
Account by the Bank in accordance with the then applicable availability schedule
of the Federal Reserve Bank of New York, and (B) the aggregate dollar amount of
Bank internal transfers of Federal Funds to such Account.
8. "CHARGEABLE DEBITS" shall mean with respect to an Account for any
given day during a calendar month a negative dollar amount equal to the sum, if
any, of (A) the aggregate dollar amount of Federal Funds relating to such
Account charged against the Bank by the Federal Reserve Bank of New York on or
as of such day, and (B) the aggregate dollar amount of drafts drawn on such
Account which are deposited in the Bank by customers of the Bank on such day, or
Bank internal transfers from, or charges to, such Account.
9. "DAILY EARNINGS" shall mean with respect to an Account for any day
during a calendar month a positive dollar amount equal to the product of (A) the
positive Account Available Balance, if any, of such Account for such day,
multiplied by (B) the Daily Earnings Rate for such day. The Daily Earnings with
respect to an Account for any day during a calendar month on which the Account
Available Balance of such Account is negative shall be zero.
10. "DAILY EARNINGS RATE" shall mean for any day during a calendar
month one three hundred and sixty-fifth of the 91 day U.S. Treasury Bill
discount rate of the Monday auction first preceding such day (whether or not
such day is a Monday, and whether or not such Monday auction was in the
immediately prior month), as such Monday auction 91 day U.S. Treasury Bill
discount rate is reported in The Wall Street Journal.
11. "DAILY OVERDRAFT CHARGES" shall mean with respect to an Account for
any day during any calendar month a negative dollar amount equal to the product,
if any, of (A) the negative Account Available Balances, if any, with respect to
such Account for such day during such calendar month, multiplied by (B) the
Overdraft Rate.
12. "FEDERAL FUNDS" shall mean immediately available same day funds.
2
<PAGE> 3
13. "GROSS CALENDAR MONTH EARNINGS CREDIT" shall mean with respect to
an Account for any calendar month a positive dollar amount equal to the
aggregate sum of the Daily Earnings of such Account for such calendar month.
14. "MONTHLY OVERDRAFT CHARGES" shall mean with respect to an Account
for any calendar month a negative dollar amount equal to the aggregate sum of
the Daily Overdraft Charges with respect to such Account for such calendar month
which have not been previously paid to the Bank by the Fund to which such
Account relates.
15. "OMNIBUS ACCOUNT" shall mean an account at the Bank for the benefit
of the Funds into which money (A) to be deposited into an Account is initially
credited pending its transfer to such Account, or (B) transferred from an
Account is deposited pending its disbursement.
16. "ORAL INSTRUCTIONS" shall mean verbal instructions actually
received by the Bank from an Authorized Person or from a person reasonably
believed by the Bank to be an Authorized Person.
17. "OVERDRAFT RATE" shall mean with respect to an Account for any
calendar day during any calendar month a rate equal to one three hundred and
sixtieth of the sum of (A) one-half percent, and (B) the greater of (i) the
prime commercial lending rate of The Bank of New York, as publicly announced to
be in effect from time to time, in effect on such calendar day, and (ii) 6 %.
18. "SHAREHOLDER" shall mean any record holder of any Shares, as
identified to the Bank from time to time pursuant to this Agreement.
19. "SHARES" shall mean all or any part of each class of the shares of
capital stock, beneficial interest, or limited partnership interest of a Fund,
as the case may be, which are authorized and/or issued from time to time.
20. "WRITTEN INSTRUCTIONS" shall mean written instructions actually
received by the Bank from an Authorized Person or from a person reasonably
believed by the Bank to be an Authorized Person by letter, memorandum, telegram,
cable, telex, telecopy facsimile or through ACCESS.
ARTICLE II
APPOINTMENT OF BANK: REPRESENTATIONS AND WARRANTIES
---------------------------------------------------
1. APPOINTMENT; ESTABLISHMENT OF ACCOUNTS. The Group hereby appoints
the Bank as its agent for the term of this Agreement to perform on behalf of
each Fund the cash management services set forth herein and in Schedules I and
II attached hereto and made a part
3
<PAGE> 4
hereof (as such Schedules may be amended or supplemented from time to time by
mutual agreement) which are selected by the Group from time to time. The Bank
hereby accepts appointment as such agent and agrees to establish and maintain
one or more Accounts and/or Omnibus Accounts as the parties shall determine are
necessary to receive and disburse money as provided in this Agreement.
2. REPRESENTATIONS AND WARRANTIES. The Group, for itself and each Fund,
hereby represents and warrants to the Bank, which representations and warranties
shall be deemed to be continuing and to be reaffirmed upon delivery to the Bank
of any Oral or Written Instructions, that:
(a) It is duly organized and existing under the laws of the
jurisdiction of its organization, with full power to carry on its business as
now conducted, to enter into this Agreement and to perform its obligations
hereunder;
(b) This Agreement has been duly authorized, executed and delivered by
the Group in accordance with all requisite corporate action and constitutes a
valid and legally binding obligation of the Group and each Fund enforceable in
accordance with its terms, except to the extent such enforcement may be limited
by general equity principles or bankruptcy principles; and
(c) It is conducting its business in compliance with all applicable
laws and regulations, both state and federal, and has obtained all regulatory
licenses, approvals and consents necessary to carry on its business as now
conducted; there is no statute, regulation, rule, order or judgment binding on
it and no provision of its charter or by-laws, nor of any mortgage, indenture,
credit agreement or other contract binding on it or affecting its property which
would prohibit its execution or performance of this Agreement.
3. BOARD RESOLUTIONS. The Group shall provide the Bank with a certified
copy of a resolution of its Board appointing the Bank as its agent to act
hereunder and providing for the creation of each Fund's Account(s), the
utilization by the Funds of one or more Omnibus Accounts and the execution by
the Group of this Agreement, it being understood that receipt of the same by the
Bank shall be a condition precedent to the Bank's establishing an Account for
each Fund and such Fund's utilization of an Omnibus Account.
ARTICLE III
CASH MANAGEMENT SERVICES
------------------------
1. RECEIPT OF MONEY. The Bank shall receive money for credit to
an Account only:
(i) by personal presentment of drafts by a Fund, but not by a
Shareholder of such Fund, at the branch or branches in
Manhattan identified from time to time by the
4
<PAGE> 5
Bank to such Fund, provided such presentment is in accordance
with the time frames specified by the Bank to such Fund;
(ii) by mailing of drafts to a post office box designated by the
Bank for such purpose, provided such drafts are accompanied by
a properly completed investment stub;
(iii) by wire transfer to an account maintained at the Federal
Reserve Bank of New York as identified in writing by the Bank
to a Fund;
(iv) by transfer to an account identified in writing by the Bank to
a Fund through the New York Automated Clearing House;
(v) by transfer from another Account maintained by such Fund with
the Bank under this Agreement;
(vi) by transfer from another account maintained by such Fund with
the Bank, including such Fund's custodian account under its
Custody Agreement with the Bank as Custodian; or
(vii) by transfer from any other account maintained with the Bank.
All money received by the Bank shall be credited upon receipt, but subject to
final payment and receipt by the Bank of immediately available funds, and
receipt by the Bank of such forms, documents and information as are required by
the Bank from time to time and received in the appropriate time frames. If an
Omnibus Account has been established for the Funds, such money shall be
initially credited to the Omnibus Account pending its allocation to, and deposit
in, an Account. The Bank shall be entitled to reverse any credits previously
made to a Fund's Account or an Omnibus Account where money is not finally
collected or where a credit to such account was in error.
2. DISBURSEMENT OF MONEY. The Bank shall disburse money credited to an
Account or an Omnibus Account only:
(i) pursuant to Written Instructions of such Fund transmitted
through ACCESS (except as otherwise provided in Article V,
Section 7 hereof), to transfer funds as directed by such Fund
(including transfers through the Federal Reserve Bank of New
York transfer wire and the New York Automated Clearing House);
(ii) in payment of drafts drawn by an Authorized Person or
Shareholder (as appropriate for the particular Account),
subject to the terms hereof; or
(iii) in payment of charges to such Account representing amounts
payable to the Bank, and chargeable against such Account, as
provided in this Agreement.
5
<PAGE> 6
The Bank shall be required to disburse money in accordance with the foregoing
only insofar as such money is immediately available and on deposit with the
Bank. If an Omnibus Account has been established for the Funds, such money shall
be credited to the Omnibus Account pending such disbursement. All instructions
directing the disbursement of money credited to an Account or Omnibus Account
under this Agreement (whether through ACCESS or by Oral Instructions pursuant to
Article V hereof) must identify an account to which such money shall be
transferred, and include all other information reasonably required by the Bank
from time to time. It is understood and agreed that with respect to any such
instructions, when instructed to credit or pay a party by both name and a unique
numeric or alpha-numeric identifier (E.G., ABA number or account number), the
Bank and any other financial institution participating in the funds transfer may
rely solely on the unique identifier, even if it identifies a party different
than the party named. Such reliance on a unique identifier shall apply to
beneficiaries named in such instructions as well as any financial institution
which is designated in such instruction to act as an intermediary in a funds
transfer.
3. REDEMPTION DRAFTS; SHAREHOLDER INFORMATION. (a) Where a Fund offers
its Shareholders draft redemption privileges, each such Fund shall be entitled
to supply its Shareholders with redemption drafts, but only in a form and
substance agreed to by the Bank. The Bank agrees to give each Fund sixty (60)
days prior notice of any changes to the form or substance of redemption drafts
required by the Bank, provided that if such change is required by applicable
rules or procedures of the Federal Reserve or any clearinghouse through which
such drafts may be presented, the Bank may give less than sixty (60) days prior
notice of such change.
(b) Each Fund which offers its Shareholders draft redemption
privileges will promptly furnish to the Bank (i) the name, mailing address and
telephone number of each Shareholder of such Fund, and (ii) specimen signatures
for all individuals authorized to draw redemption drafts (whether on their own
behalf or on behalf of third parties). Each Fund will promptly advise the Bank
of individuals no longer authorized to draw redemption drafts, and those
individuals newly authorized. Such information shall be provided to the Bank in
a mutually agreed upon format.
4. REDEMPTION DRAFT RETURNS. The Group, on behalf of a Fund, may give
the Bank Oral or Written Instructions from time to time to return unpaid
redemption drafts of the Fund to the presenting financial institution for any
reason, and the Bank shall use reasonable efforts to comply with such Oral or
Written Instructions provided that such compliance would not prejudice or impair
any rights or privileges of the Bank under prevailing draft return procedures
and would not be contrary to prevailing industry rules, procedures, customs or
practices. Notwithstanding the foregoing, or any other provision in this
Agreement or the Schedules hereto, the Bank (i) may return redemption drafts
with unauthorized or missing signatures to the presenting financial institution
in accordance with prevailing banking industry draft return procedures, and (ii)
shall have no obligation to request Oral or Written Instructions with respect to
any redemption drafts.
6
<PAGE> 7
ARTICLE IV
ADVANCES, OVERDRAFTS OR INDEBTEDNESS
------------------------------------
1. If the Bank in its sole discretion advances funds, or if there shall
arise for whatever reason an overdraft or other indebtedness (except fee
indebtedness, the payment of which shall be governed solely by Article VI,
paragraph 10(b) hereof) in connection with any Account or Omnibus Account, such
advance, overdraft or indebtedness shall be deemed a loan made by the Bank to
the Group on behalf of the Fund to which the Account relates, or in the case of
an Omnibus Account, to which such advance, overdraft or indebtedness relates,
payable on demand and bearing interest from the date incurred at the Overdraft
Rate, such Overdraft Rate to be adjusted on the effective date of any change in
the prime commercial lending rate constituting a part thereof. In the event of
any advance, overdraft or other indebtedness in connection with an Omnibus
Account, the Bank shall be furnished promptly (and in any event by 12:00 p.m. on
the next Business Day after such advance, overdraft or indebtedness) with
Written Instructions identifying each Fund to which such advance, overdraft or
indebtedness relates. and the amount allocable to such Fund(s).
2. The Group, on behalf of each Fund, hereby agrees with respect to
such Fund's Account(s), any Omnibus Account(s) and any advances, overdrafts or
other indebtedness that the Bank shall have a continuing lien and security
interest in and to any property at any time held by it for the benefit of such
Fund either hereunder or under the Group's Custody Agreement with the Bank with
respect to such Fund, or in which the Fund may have an interest which is then in
the Bank's possession or control or in possession or control of any third party
acting in the Bank's behalf, including in its behalf as Custodian under the
Group's Custody Agreement with the Bank, having at the time such overdraft or
indebtedness is incurred a fair market value equal to 150% of such overdraft or
indebtedness. Subject to the provisions of Article VI, paragraph 10(b) hereof,
the Group, on behalf of each Fund, authorizes the Bank, in its sole discretion,
at any time to charge any advance, overdraft or indebtedness together with
interest due thereon at the Overdraft Rate against any balance of accounts
standing to the Fund's credit on the books of the Bank, including those books
maintained by the Bank in its capacity as Custodian for the Fund under its
Custody Agreement with the Group. Nothing contained herein shall be construed as
a waiver by any Fund of any right to contest in appropriate proceedings any
charge by the Bank pursuant hereto.
3. The Group, on behalf of each Fund, agrees that upon allocation of
all advances, overdrafts or indebtedness to its account pursuant to paragraph 1
above, its total borrowings from all sources (including the Bank) shall be in
conformity with the requirements and limitations set forth in the Investment
Company Act of 1940, as amended, and the Fund's Prospectus and Statement of
Additional Information. The Group, on behalf of each Fund, shall promptly (and
in any event within one Business Day) notify the Bank in writing whenever it
fails to comply with any of the foregoing requirements.
7
<PAGE> 8
ARTICLE V
ACCESS; CALL-BACK SECURITY PROCEDURE
------------------------------------
1. SERVICES GENERALLY. The Group, on behalf of each Fund, shall be
permitted to utilize ACCESS to obtain direct on-line access to its Accounts and
Omnibus Accounts. ACCESS shall permit the Group at the times mutually agreed
upon by the Bank and the Group to receive reports, make inquiries, instruct the
Bank to disburse money in accordance with Article III, and perform such other
functions as are more fully set forth in Schedule I hereto.
2. PERMITTED USE; PROPRIETARY INFORMATION. (a) The Group, on behalf of
each Fund, shall use ACCESS and the services available thereby only for its own
internal and proper business purposes and shall not sell, lease or otherwise
provide, directly or indirectly, ACCESS or any of such services or any portion
thereof to any other person or entity. The Group shall obtain and maintain at
its own cost and expense all equipment and services, including but not limited
to communications services, necessary for it to utilize ACCESS and receive the
services thereby, and the Bank shall not be responsible for the reliability or
availability of any such equipment or any services used in connection with
ACCESS.
(b) The Group, on behalf of each Fund, acknowledges that all data bases
made available as part of, or through ACCESS, and any proprietary data,
processes, information and documentation (other than any such which are or
become part of the public domain or are legally required to be made available to
the public) (collectively, the "Information"), are the exclusive and
confidential property of the Bank. The Group, on behalf of each Fund, shall keep
the Information confidential by using the same care and discretion that it uses
with respect to its own confidential property and trade secrets, and shall
neither make nor permit any disclosure without the express prior written consent
of the Bank.
(c) Upon termination of this Agreement for any reason, the Group, on
behalf of each Fund, shall return to the Bank any and all copies of the
Information which are in the Group's possession or under its control, or
distributed to third parties. The provisions of this Article shall not affect
the copyright status of any of the Information which may be copyrighted and
shall apply to all Information whether or not copyrighted.
3. MODIFICATIONS. The Bank reserves the right to modify ACCESS from
time to time without notice to any Fund. The Group, on behalf of each Fund,
agrees not to modify or attempt to modify ACCESS without the Bank's prior
written consent. The Group acknowledges that ACCESS is the property of the Bank
and, accordingly, agrees that any modifications to ACCESS, whether by the Group
or the Bank and whether with or without the Bank's consent, shall become the
property of the Bank.
4. NO REPRESENTATIONS OR WARRANTIES. Neither the Bank nor any
manufacturers or suppliers it utilizes or the Group utilizes in obtaining ACCESS
makes any warranties or
8
<PAGE> 9
representations, express or implied, in fact or in law, including but not
limited to warranties of merchantability and fitness for a particular purpose.
5. SECURITY; RELIANCE; UNAUTHORIZED USE. The Group, on behalf of each
Fund, will, and will cause all persons utilizing ACCESS to, treat the user and
authorization codes, passwords and authentication keys applicable to ACCESS with
extreme care. The Bank is hereby irrevocably authorized to act in accordance
with and rely on Written Instructions received by it through ACCESS. The Group
acknowledges that it is its sole responsibility to assure that only authorized
persons use ACCESS and that the Bank shall not be responsible nor liable for any
unauthorized use thereof.
6. LIMITATIONS OF LIABILITY. (a) Except as otherwise specifically
provided in Section 6(b) below, the Bank shall have no liability for any losses,
damages, injuries, claims, costs or expenses of a Fund arising out of or in
connection with any failure, malfunction or other problem relating to the
Group's use of ACCESS, except for money damages suffered as the direct result of
the negligence of the Bank in an amount not exceeding, in the aggregate for all
such losses, damages, injuries, claims, costs and expenses of a Fund arising
during any month, the total charges paid by the Group on behalf of such Fund to
the Bank for ACCESS and services hereunder which caused such loss, damage,
injury, claim, cost or expense during the 12 months preceding the month in
question, or such lesser number of months as the Group has used ACCESS if the
Group, on behalf of such Fund, has not received 12 months use of ACCESS;
provided however, that the Bank shall have no liability under this Section 6(a)
if the Group fails to comply with the provisions of Section 6(c).
(b) Without limiting the generality of the foregoing, it is hereby
agreed that in no event shall the Bank or any manufacturer or supplier of its
computer equipment, software or services be responsible for any special,
indirect, incidental or consequential damages which the Group or a Fund may
incur arising out of or in connection with ACCESS or the services provided
thereby, even if the Bank or such manufacturer or supplier has been advised of
the possibility of such damages and regardless of the form of action.
(c) The Group, on behalf of each Fund, shall notify the Bank of any
errors, omissions or interruptions in, or delay or unavailability of, ACCESS as
promptly as practicable, and in any event within one Business Day after the
earliest of (i) discovery thereof, (ii) the date discovery should have occurred
through the exercise of reasonable care, and (iii) in the case of any error, the
date of the earliest notice to such Fund which reflects such error.
(d) The Bank shall acknowledge through ACCESS its receipt of each
Written Instruction communicated through ACCESS, and in the absence of such
acknowledgement the Bank shall not be liable for any failure to act in
accordance with such Written Instruction and the Group may not claim that such
Written Instruction was received by the Bank.
9
<PAGE> 10
(e) In no event shall the Bank have any liability for failing to
execute Written Instructions for the transfer of funds which are received by it
through ACCESS other than through the applicable transfer module for the
particular instructions.
7. FUNDS TRANSFER BACK-UP PROCEDURE. (a) In the event ACCESS is
inoperable and the Group is unable to utilize ACCESS for the transmission of
Written Instructions to the Bank to transfer funds, the Group may give Oral
Instructions regarding funds transfers, it being expressly understood and agreed
that the Bank's acting pursuant to such Oral Instructions shall be contingent
upon the Bank's verification of the authenticity thereof pursuant to the
Call-Back Security Procedure set forth on Schedule III hereto (the "Procedure").
In this regard, the Group, on behalf of each Fund shall deliver to the Bank a
Funds Transfer Telephone Instruction Authorization in the form of Schedule 111-A
hereto, identifying the individuals authorized to deliver and/or confirm all
such Oral Instructions. The Group understands and agrees that the Procedure is
intended to determine whether Oral Instructions received pursuant to this
Section are authorized but is not intended to detect any errors contained in
such instructions. The Group, on behalf of each Fund, hereby accepts the
Procedure and confirms its belief that the Procedure is commercially reasonable.
(b) The Bank shall have no liability whatsoever for any funds transfer
executed in accordance with Oral Instructions delivered and confirmed pursuant
to this Section 7 and Schedule III hereto. The Bank's liability for its
negligence in executing or failing to execute any such Oral Instructions shall
be determined by reference to Section 6(b) of this Article.
(c) The Bank reserves the right to suspend acceptance of Oral
Instructions pursuant to this Section 7 if conditions exist which the Bank, in
its sole discretion, believes have created an unacceptable security risk.
ARTICLE VI
CONCERNING THE BANK
1. STANDARD OF CARE; PRESENTMENT OF CLAIMS. Except as otherwise
provided herein, the Bank shall not be liable for any costs, expenses, damages,
liabilities or claims (including attorney's fees) incurred by the Group or a
Fund, except those costs, expenses, damages, liabilities or claims arising out
of the Bank's own negligence, bad faith or willful misconduct. Notwithstanding
the foregoing or anything contained in the Schedules hereto, the Bank shall not
be liable for any loss or damage, including attorney's fees, resulting from the
Bank paying any redemption draft containing a forged drawer signature, unless
such loss or damage arises out of the Bank's gross negligence, bad faith or
willful misconduct. All claims against the Bank hereunder shall be made by the
Group on behalf of the affected Fund as promptly as practicable, and in any
event within 6 months from the date of the action or inaction on which such
claim is based, and shall include reasonable documentation evidencing such claim
and loss.
10
<PAGE> 11
2. NO LIABILITY. The Bank shall have no obligation hereunder for costs,
expenses, damages, liabilities or claims, including attorney's fees, which are
sustained or incurred by reason of any action or inaction by the Federal Reserve
wire transfer system or the New York Automated Clearing House. Notwithstanding
any other provision elsewhere contained in this Agreement, in no event shall the
Bank be liable to the Group or any Fund or any third party for special, indirect
or consequential damages, or lost profits or loss of business, arising under or
in connection with this Agreement, even if previously informed of the
possibility of such damages and regardless of the form of action.
3. INDEMNIFICATION. The Group, on behalf of each Fund, shall indemnify
and exonerate, save and hold harmless the Bank from and against any and all
costs, expenses, damages, liabilities or claims, including reasonable attorney's
fees and expenses, which the Bank may sustain or incur or which may be asserted
against the Bank by reason of or as a result of any action taken or omitted by
the Bank in connection with its performance under this Agreement, except those
costs, expenses, damages, liabilities or claims arising out of the Bank's own
negligence, bad faith or wilful misconduct. This indemnity shall be a continuing
obligation of the Group on behalf of each Fund notwithstanding the termination
of this Agreement, any Account or Omnibus Account with respect to a Fund.
4. NO OBLIGATION TO INQUIRE. Without limiting the generality of the
foregoing, the Bank shall in no event be under any obligation to inquire into,
and shall not be liable for:
(a) the due authority of any Authorized Person acting on behalf of the
Group or a Fund in connection with this Agreement;
(b) the genuineness of any drawer signature on any draft deposited in
any Account or Omnibus Account, or whether such signature is a forgery, other
than the signature of the drawer of any draft drawn on the Bank;
(c) the existence or genuineness of any endorsement or any marking
purporting to be an endorsement on any draft deposited in any Account or Omnibus
Account, or whether such endorsement or marking is a forgery, is being expressly
understood that all risks associated with the acceptance by the Bank of any
draft payable to a payee other than a Fund for deposit in any Account or Omnibus
Account pursuant to Oral or Written Instructions by the Group shall be borne by
the Group on behalf of such Fund;
(d) any discrepancy between the pre-printed investment stub (other than
a substitute stub created by the Bank) and the payee either named on a draft or
written on the face thereof, provided the Bank has acted in accordance with the
investment stub;
(e) any discrepancy between the written amount for which any draft is
drawn and the Magnetic Inscription Character Recognition ("MICR") code inscribed
thereon by any bank other than the Bank on any draft presented, provided the
Bank has acted in accordance with the MICR code;
11
<PAGE> 12
(f) any disbursement directed by the Group on behalf of a Fund,
regardless of the purpose therefor;
(g) any determination of the Share balance of any Shareholder whose
name is signed on any redemption draft,
(h) any determination of length of time any Shares have been owned by
any Shareholder or the method of payment utilized to purchase such Shares by
such Shareholder;
(i) any claims, liens, attachments, stays or stop payment orders with
respect to any Shares, proceeds, or money, other than a stop payment order
placed by the Group on a draft drawn by it on behalf of a Fund on its Account or
an Omnibus Account;
(j) the propriety and/or legality of any transaction in any Account or
Omnibus Account;
(k) the lack of authority of any person signing as a drawer of a draft,
provided such person and his specimen signature is specified in the certificate
of authorized signatures last received by the Bank; or
(l) whether any redemption draft equals or exceeds any minimum amount.
5. RELIANCE UPON INSTRUCTIONS. The Bank shall be entitled to rely upon
any Written or Oral Instructions received by the Bank. The Group agrees to
forward to the Bank Written Instructions confiding Oral Instructions in such
manner so that such Written Instructions are received by the Bank by the close
of business of the same day that such Oral Instructions are given to the Bank.
The Group, on behalf of each Fund, agrees that the fact that such confirming
Written Instructions are not timely received or that contrary Written
Instructions are received by the Bank shall in no way affect the validity or
enforceability of transactions previously authorized.
6. FORCE MAJEURE. The Bank shall not be responsible or liable for any
failure or delay in the performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by circumstances beyond its
control, including acts of God; earthquakes; fires; floods; wars; civil or
military disturbances; sabotage; epidemics; riots; interruptions, loss or
malfunctions of utilities, computers (hardware or software), transportation, or
communications service; mechanical breakdowns; interruption or loss of ACCESS
(except as otherwise provided in Section 7 of Article V); accidents; acts of
civil or military authority; governmental actions; labor disputes; or inability
to obtain labor, material, equipment or transportation.
7. NO IMPLIED DUTIES; PERFORMANCE ACCORDING TO APPLICABLE LAW. The Bank
shall have no duties or responsibilities except such duties and responsibilities
as are specifically set forth in this Agreement and Schedules I and II hereto,
and no covenant or obligation shall be implied against the Bank. The Bank's
duties and responsibilities hereunder shall be performed
12
<PAGE> 13
in accordance with applicable laws, regulations and rules, including but not
limited to Federal Reserve Regulation CC and the Operating Rules of the New York
Automated Clearing House, and the Bank shall have no obligation to take actions
which in the reasonable opinion of the Bank are either inconsistent with, or
prejudice or impair the Bank's rights under, any such laws, regulations and
rules.
8. REQUESTS FOR INSTRUCTIONS. At any time the Bank may apply to an
officer of the Group for Oral or Written Instructions with respect to any matter
arising in connection with the Bank's duties and obligations hereunder, and the
Bank shall not be liable for any action taken or permitted by it in good faith
in accordance with such Oral or Written Instructions. Such application for Oral
or Written Instructions may, at the option of the Bank, set forth in writing any
action proposed to be taken or omitted by the Bank with respect to its duties or
obligations hereunder and the date on or after which such action shall be taken,
and the Bank shall not be liable for any action taken or omitted in accordance
with a proposal included in any such application on or after the date specified
therein (which shall be at least 5 days after the date of the Group's receipt of
such application) unless, prior to taking or omitting any such action, the Bank
has received Oral or Written Instructions in response to such application
specifying the action to be taken or omitted. The Bank may apply for and obtain
the advice and opinion of counsel to the Group or of its own counsel, at the
expense of the Group, and shall be fully protected with respect to anything done
or omitted by it in good faith in conformity with such advice or opinion.
9. DELEGATION OF DUTIES. The Bank may delegate any of its duties and
obligations hereunder to any delegee and may employ agents or attorneys-in-fact;
provided however, that no such delegation or employment by the Bank shall
discharge the Bank from its obligations hereunder. The Bank shall have no
liability or responsibility whatsoever if any delegee, agent or attorney-in-fact
shall have been selected or approved by the Group. Notwithstanding the
foregoing, nothing contained in this paragraph shall obligate the Bank to effect
any delegation or to employ any agent or attorney-in-fact.
10. FEES; INVOICES. (a) For its services hereunder, the Group, on
behalf of each Fund, agrees to pay the Bank (i) its out-of-pocket expenses, (ii)
the monthly fees and compensation set forth on Schedules I and II attached
hereto, and (iii) any negative Calendar Month Earnings Credits, and such other
amounts as may be mutually agreed upon from time to time. The Bank shall provide
the Group with a monthly activity analysis for each Fund detailing service
volumes, and including average Account Available Balances and average ledger
balances, and all fees owing for such month.
(b) The Bank shall submit periodic invoices specifying the amount of
all out-of-pocket expenses, fees, compensation and negative Calendar Month
Earnings Credits then due hereunder. The Bank may, and is hereby authorized by
the Group on behalf of each Fund, to charge such amounts to an Omnibus Account
or the appropriate Fund's Account(s), but only if such amounts remain unpaid for
ninety (90) days after the date an invoice for such amounts is sent to the
13
<PAGE> 14
Group and the Group has not contested such amounts in good faith by delivery of
written notice thereof to the Bank within such 90 days.
11. APPLICATION OF CALENDAR MONTH EARNINGS CREDITS. (a) Any positive
Calendar Month Earnings Credit for a calendar month shall be applied only as
follows and only in the specified order:
(i) First, applied against such compensation, fees, but not
out-of-pocket expenses, payable by the Group on behalf of such
Fund to the Bank under this Agreement for such month; and
(ii) Second, applied against such compensation, fees, and negative
Calendar Month Earnings Credits, but not out-of-pocket
expenses, payable by the Group on behalf of such Fund to the
Bank under this Agreement for any subsequent month in the same
calendar year.
(b) Except as provided above, in no event may any Calendar Month
Earnings Credit be applied to any month other than the month in which it was
earned. Calendar Month Earnings Credits may not be transferred to, or utilized
by, any other Fund, person or entity. The portion, if any, of any Calendar Month
Earnings Credit not used by a Fund may be carried, but only forward; provided,
however, that in no event may any Calendar Month Earnings Credit, including
those earned during the fourth calendar quarter, be carried beyond the end of
the calendar year in which earned.
12. ALLOCATION OF CALENDAR MONTH EARNINGS CREDITS. The Group agrees
that the Bank may pay Calendar Month Earnings Credits with respect to any
Omnibus Account as mutually agreed, and that it is the Group's responsibility to
allocate such Calendar Month Earnings Credits among and between the Funds.
ARTICLE VII
TERMINATION
1. NOTICE. This Agreement may be terminated by either the Bank giving
to the Group, or the Group giving to the Bank, a notice in writing specifying
the date of such termination and the affected Fund(s), which date shall be not
less than 90 days after the date of the giving of such notice. Notwithstanding
the foregoing, the Bank reserves the right to terminate this Agreement (a) at
any time upon 30 days prior written notice if the condition precedent set forth
in Article II, paragraph 3 is unfulfilled, and (b) upon notice if the Group, on
behalf of a Fund, either (i) fails to comply with Article IV, Section 3, or (ii)
borrows funds from the Bank in an amount exceeding the Bank's legal lending
limit.
14
<PAGE> 15
2. OBLIGATIONS UPON TERMINATION. Upon termination, the Bank's sole
obligations, which shall arise only after, and not before, each Fund which is
the subject of such termination has paid to the Bank all out-of-pocket expenses,
fees, compensation, negative Calendar Month Earnings Credits and other amounts
owed by the Group on behalf of such Fund to the Bank, shall be (i) to deliver to
the Group such records, if any, as may be owned by the Group on behalf of such
Fund(s), in the form and manner kept by the Bank on such date of termination,
and (ii) to pay to the Group any monies held for the account of the affected
Fund(s) hereunder.
ARTICLE VIII
MISCELLANEOUS
1. CERTIFICATES OF AUTHORIZED PERSONS. The Group agrees to furnish to
the Bank a new certificate of Authorized Persons in the event that any present
Authorized Person ceases to be an Authorized Person or in the event that any
other Authorized Persons are appointed and authorized. Until such new
certificate is received, the Bank shall be fully protected in acting under the
provisions of this Agreement upon Oral or Written Instructions or signatures of
the present Authorized Persons as set forth in the last delivered certificate.
2. NOTICES. (a) Any notice or other instrument in writing, authorized
or required by this Agreement to be given to the Bank, shall be sufficiently
given if addressed to the Bank and received by it at its offices at 90
Washington Street, 22nd Floor, New York, New York 10286, Attention: Division
Manager - Mutual Funds, or at such other place as the Bank may from time to time
designate in writing.
(b) Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Group shall be sufficiently given if
addressed to the Group and received by it at 3435 Stelzer Road, Columbus, Ohio,
or at such other place as the Group may from time to time designate in writing.
3. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted to the
Bank hereunder or under any other document delivered hereunder or in connection
herewith, or allowed it by law or equity, shall be cumulative and may be
exercised from time to time. No failure on the part of the Bank to exercise, and
no delay in exercising, any right will operate as a waiver thereof, nor will any
single or partial exercise by the Bank of any right preclude any other or future
exercise thereof or the exercise of any other right.
4. SEVERABILITY. In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or obligations
shall not in any way be affected or impaired thereby, and if any provision is
inapplicable to any person or circumstances, it shall nevertheless remain
applicable to all other persons and circumstances.
15
<PAGE> 16
5. AMENDMENTS. This Agreement may not be amended or modified in any
manner except by a written agreement executed by the Bank and the Group on
behalf of each Fund to be bound thereby, and, except in the case of an amendment
to Schedules I and II hereto, authorized or approved by a resolution of the
Group's Board.
6. HEADINGS. The headings in this Agreement are inserted for
convenience and identification only and are in no way intended to describe,
interpret, define or limit the scope, extent or intent of this Agreement or any
provisions hereof.
7. APPLICABLE LAW; CONSENT TO JURISDICTION: JURY TRIAL WAIVER. This
Agreement shall be construed in accordance with the laws of the State of New
York without giving effect to conflict of laws principles thereof. Each party
hereby consents to the jurisdiction of a state or federal court situated in New
York City, New York in connection with any dispute arising hereunder and hereby
waives its right to trial by jury.
8. NO THIRD PARTY BENEFICIARIES. The provisions of this Agreement are
intended to benefit only the Bank and the Group, on behalf of each Fund, and
their respective permitted successors and assigns. and no right shall be granted
to any other person by virtue of this Agreement.
9. SUCCESSORS AND ASSIGNS. This Agreement shall extend to and shall be
binding upon the parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable by the Group
without the written consent of the Bank and authorized or approved by a
resolution of the Group's Board.
10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
11. SEVERAL OBLIGATIONS. The parties acknowledge that the obligations
of the Group, on behalf of each Fund, are several and not joint, that no Fund
shall be liable for any amount owing by another Fund and that the Group has
executed one instrument on behalf of the Funds for convenience only.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate officers, thereunto duly authorized, as
of the day and year first above written.
THE SESSIONS GROUP
By: /s/ Walter B. Grimm
---------------------------------
Walter B. Grimm
Title: President
-------------------------------
THE BANK OF NEW YORK
By: /s/ Stephen E. Grunston
--------------------------------
Stephen E. Grunston
Title: Vice President
-------------------------------
17
<PAGE> 18
April 6, 1998
SCHEDULE A
To Cash Management and Related Services Agreement
dated September 24, 1996
Between The Sessions Group and
The Bank of New York
SERIES
Name of Fund Date
------------ ----
The KeyPremier Prime Money Market Fund September 24, 1996
and The KeyPremier Pennsylvania Municipal
Bond Fund
The KeyPremier Established Growth Fund October 30, 1996
and The KeyPremier Intermediate Term
Income Fund
The KeyPremier Aggressive Growth Fund January 29, 1997
The KeyPremier U.S. Treasury Obligations June 30, 1997
Money Market Fund and The KeyPremier
Limited Duration Government Securities
Fund
The KeyPremier Emerging Growth Fund April 6, 1998
THE SESSIONS GROUP
By /s/ WALTER B. GRIMM
-----------------------------------
Walter B. Grimm, President
THE BANK OF NEW YORK
By /s/ STEPHEN E. GRUNSTON, VP
-----------------------------------
(name) (title)
Stephen E. Grunston, Vice President
18
<PAGE> 1
EXHIBIT (9)(x)
MANAGEMENT AND ADMINISTRATION AGREEMENT
This Agreement is made this 9th day of July, 1996, between The Sessions
Group, an Ohio business trust (the "Trust"), 3435 Stelzer Road, Columbus, Ohio
43219, and BISYS Fund Services Limited Partnership dba BISYS Fund Services, an
Ohio limited partnership ("Administrator"), 3435 Stelzer Road, Columbus, Ohio
43219.
WHEREAS, the Trust is an open-end management investment company,
organized as an Ohio business trust and registered with the Securities and
Exchange Commission (the "Commission") under the Investment Company Act of 1940,
as amended (the "1940 Act"); and
WHEREAS, the Trust desires to retain Administrator to furnish
management and administration services to certain investment portfolios of the
Trust and may retain Administrator to serve in such capacity with respect to
additional investment portfolios of the Trust, all as now or hereafter may be
identified in Schedule A hereto as such Schedule may be amended from time to
time (individually referred to herein as a "Fund" and collectively referred to
herein as the "Funds"); and
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. SERVICES AS MANAGER AND ADMINISTRATOR
Subject to the direction and control of the Board of Trustees of the
Trust, Administrator will assist in supervising all aspects of the operations of
the Funds except those performed by the investment adviser for the Funds under
its Investment Advisory Agreement, the custodian for the Funds under its Custody
Agreement, the transfer agent for the Funds under its Transfer Agency Agreement
and the fund accountant for the Funds under its Fund Accounting Agreement.
Administrator will maintain office facilities (which may be in the
offices of Administrator or an affiliate but shall be in such location as the
Trust shall reasonably determine); furnish statistical and research data,
clerical, certain bookkeeping services and stationery and office supplies;
prepare the periodic reports to the Commission on Form N-SAR or any replacement
forms therefor; compile data for, assist the Trust or its designee in the
preparation of, and file, all the Funds' federal and state tax returns and
required tax filings other than those required to be made by the Funds'
custodian and transfer agent; prepare compliance filings pursuant to state
securities laws with the advice of the Trust's counsel; assist to the extent
requested by the Trust with the Trust's preparation of its Annual and
Semi-Annual Reports to Shareholders and its Registration Statements (on Form
N-1A or any replacement therefor); compile data for, prepare and file timely
Notices to the Commission required pursuant to Rule 24f-2 under the 1940 Act;
keep and maintain the financial accounts and records of the Funds, including
calculation of daily expense accruals; in the case of money market funds,
periodic review of the amount of the
<PAGE> 2
deviation, if any, of the current net asset value per share (calculated using
available market quotations or an appropriate substitute that reflects current
market conditions) from each money market fund's amortized cost price per share;
and generally assist in all aspects of the operations of the Funds. In
compliance with the requirements of Rule 31a-3 under the 1940 Act, Administrator
hereby agrees that all records which it maintains for the Trust are the property
of the Trust and further agrees to surrender promptly to the Trust any of such
records upon the Trust's request. Administrator further agrees to preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act the records required to
be maintained by Rule 31a-1 under the 1940 Act. Administrator may delegate some
or all of its responsibilities under this Agreement.
Administrator may, at its expense, subcontract with any entity or
person concerning the provision of the services contemplated hereunder;
provided, however, that Administrator shall not be relieved of any of its
obligations under this Agreement by the appointment of such subcontractor and
provided further, that Administrator shall be responsible, to the extent
provided in Section 4 hereof, for all acts of such subcontractor as if such acts
were its own.
2. FEES; EXPENSES; EXPENSE REIMBURSEMENT
In consideration of services rendered and expenses assumed pursuant to
this Agreement, each of the Funds will pay Administrator on the first business
day of each month, or at such time(s) as Administrator shall request and the
parties hereto shall agree, a fee computed daily and paid as specified below
calculated at the applicable annual rate set forth on Schedule A hereto. The fee
for the period from the day of the month this Agreement is entered into until
the end of that month shall be prorated according to the proportion which such
period bears to the full monthly period. Upon any termination of this Agreement
before the end of any month, the fee for such part of a month shall be prorated
according to the proportion which such period bears to the full monthly period
and shall be payable upon the date of termination of this Agreement.
For the purpose of determining fees payable to Administrator, the value
of the net assets of a particular Fund shall be computed in the manner described
in the Trust's Declaration of Trust or in the Prospectus or Statement of
Additional Information respecting that Fund as from time to time is in effect
for the computation of the value of such net assets in connection with the
determination of the liquidating value of the shares of such Fund.
Administrator will from time to time employ or associate with itself
such person or persons as Administrator may believe to be particularly fitted to
assist it in the performance of this Agreement. Such person or persons may be
partners, officers, or employees who are employed by both Administrator and the
Trust.
- 2 -
<PAGE> 3
The compensation of such person or persons shall be paid by Administrator and no
obligation may be incurred on behalf of the Funds in such respect. Other
expenses to be incurred in the operation of the Funds including taxes, interest,
brokerage fees and commissions, if any, fees of Trustees who are not partners,
officers, directors, shareholders or employees of Administrator or the
investment adviser or distributor for the Funds, Commission fees and state Blue
Sky qualification and renewal fees and expenses, advisory fees, pricing service
fees, custodian fees, transfer and dividend disbursing agents' fees, fund
accounting fees, certain insurance premiums, outside and, to the extent
authorized by the Trust, inside auditing and legal fees and expenses, costs of
maintenance of the Trust's existence, typesetting and printing prospectuses
for regulatory purposes and for distribution to current shareholders of the
Funds, costs of shareholders' and Trustees' reports and meetings, fees incurred
under the Trust's Distribution and Shareholder Service Plan and Administrative
Services Plan and any extraordinary expenses will be borne by the Funds.
If in any fiscal year the aggregate expenses of a particular Fund (as
defined under the securities regulations of any state having jurisdiction over
the Trust) exceed the expense limitations of any such state, Administrator will
reimburse such Fund for a portion of such excess expenses equal to such excess
times the ratio of the fees respecting such Fund otherwise payable to
Administrator hereunder to the aggregate fees respecting such Fund otherwise
payable to Administrator hereunder, to Martindale Andres & Company, Inc. under
the Investment Advisory Agreement between Martindale Andres & Company, Inc. and
the Trust and to BISYS Fund Services, Inc. under the Fund Accounting Agreement
between BISYS Fund Services, Inc. and the Trust. The expense reimbursement
obligation of Administrator is limited to the amount of its fees hereunder for
such fiscal year, provided, however, that notwithstanding the foregoing,
Administrator shall reimburse a particular Fund for such proportion of such
excess expenses regardless of the amount of fees paid to it during such fiscal
year to the extent that the securities regulations of any state having
jurisdiction over the Trust so require. Such expense reimbursement, if any, will
be estimated daily and reconciled and paid on a monthly basis.
3. PROPRIETARY AND CONFIDENTIAL INFORMATION
Administrator agrees on behalf of itself and its partners and employees
to treat confidentially and as proprietary information of the Trust all records
and other information relative to the Trust and prior, present, or potential
shareholders, and not to use such records and information for any purpose other
than performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Trust, which approval shall
not be unreasonably withheld and may not be withheld
- 3 -
<PAGE> 4
where Administrator may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust.
4. LIMITATION OF LIABILITY
Administrator shall not be liable for any loss suffered by the Funds in
connection with the matters to which this Agreement relates, except for a loss
resulting from willful misfeasance, bad faith or negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement. Any person, even though also a partner,
employee, or agent of Administrator, who may be or become an officer, Trustee,
employee, or agent of the Trust or the Funds shall be deemed, when rendering
services to the Trust or the Funds, or acting on any business of that party, to
be rendering such services to or acting solely for that party and not as a
partner, employee, or agent or one under the control or direction of
Administrator even though paid by it.
5. TERM
This Agreement shall become effective as of the date first written
above (or, if a particular Fund is not in existence on that date, on the date an
amendment to Schedule A to this Agreement relating to that Fund is executed)
and, unless sooner terminated as provided herein, shall continue until July 9,
1999, and thereafter shall be renewed automatically for successive one-year
terms, unless written notice not to renew is given by the non-renewing party to
the other party at least 60 days prior to the expiration of the then-current
term; provided that the performance of Administrator is specifically reviewed at
least annually by the Trust's Board of Trustees. Such review shall include the
review of acts of negligence, if any, by Administrator, and if such acts of
negligence are determined to be material by the Trustees, such acts shall be an
event of "cause" as used below. This Agreement is terminable with respect to a
particular Fund through a failure to renew at the end of a one-year term; upon
mutual agreement of the parties hereto; upon 180 days' written notice by the
Trust after the initial term hereof but only in connection with the
reorganization of the Funds into another registered management investment
company; or for "cause" (as defined below) by the party alleging "cause," on not
less than 60 days' notice by the Trust's Board of Trustees or by Administrator.
Written notice not to renew may be given for any reason, with or without
"cause."
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence, acts of negligence by Administrator
determined by the Trustees to be material, or reckless disregard on the part of
the party to be terminated with respect to its obligations and duties set forth
herein; (b) a
- 4 -
<PAGE> 5
final, unappealable judicial, regulatory or administrative ruling or order in
which the party to be terminated has been found guilty of criminal or unethical
behavior in the conduct of its business; (c) the dissolution or liquidation of
either party or other cessation of business other than a reorganization or
recapitalization of such party as an ongoing business; (d) financial
difficulties on the part of the party to be terminated which is evidenced by the
authorization or commencement of, or involvement by way of pleading, answer,
consent, or acquiescence in, a voluntary or involuntary case under Title 11 of
the United States Code, as from time to time in effect, or any applicable law,
other than said Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the rights of
creditors; or (e) any circumstance which substantially impairs the performance
of the obligations and duties of the party to be terminated, or the ability to
perform those obligations and duties as contemplated herein. Notwithstanding the
foregoing, the absence of an annual review of this Agreement by the Board of
Trustees shall not, in and of itself, constitute "cause" as used herein.
6. GOVERNING LAW AND MATTERS RELATING TO THE TRUST AS AN
OHIO BUSINESS TRUST
This Agreement shall be governed by the law of the State of Ohio. The
Sessions Group is a business trust organized under Chapter 1746, Ohio Revised
Code and under a Declaration of Trust, to which reference is hereby made and a
copy of which is on file at the office of the Secretary of State of Ohio as
required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "The Sessions Group" entered into in the name or on
behalf thereof by any of the Trustees, officers, employees or agents are made
not individually, but in such capacities, and are not binding upon any of the
Trustees, officers, employees, agents or shareholders of the Trust personally,
but bind only the assets of the Trust, as set forth in Section 1746.13(A), Ohio
Revised Code, and all persons dealing with any of the Funds of the Trust must
look solely to the assets of the Trust belonging to such Fund for the
enforcement of any claims against the Trust.
BISYS FUND SERVICES LIMITED THE SESSIONS GROUP
PARTNERSHIP
By BISYS Fund Services, Inc.,
General Partner By /S/ WALTER B. GRIMM
--------------------------
Walter B. Grimm, President
By /S/ J. DAVID HUBER
----------------------
(name) (title)
- 5 -
<PAGE> 6
Dated: April 6, 1998
Schedule A to the
Management and Administration Agreement
between The Sessions Group and
BISYS Fund Services Limited Partnership
dated July 9, 1996
NAME OF FUND COMPENSATION* DATE
- ------------ ------------- -----
The KeyPremier Annual rate of eleven July 9, 1996
Prime Money and one-half
Market Fund one-hundredths of
one percent (.115%)
of such Fund's average
daily net assets
The KeyPremier Annual rate of eleven July 9, 1996
Pennsylvania and one-half
Municipal Bond one-hundredths of
Fund one percent (.115%)
of such Fund's average
daily net assets
The KeyPremier Annual rate of eleven October 30, 1996
Established and one-half
Growth Fund one-hundredths of
one percent (.115%)
of such Fund's average
daily net assets
The KeyPremier Annual rate of eleven October 30, 1996
Intermediate and one-half
Term Income Fund one-hundredths of
one percent (.115%)
of such Fund's average
daily net assets
- --------
*All fees are computed daily and paid periodically.
A-1
<PAGE> 7
The KeyPremier Annual rate of eleven January 29, 1997
Aggressive Growth and one-half
Fund one-hundredths of
one percent (.115%)
of such Fund's average
daily net assets
The KeyPremier Annual rate of eleven June 30, 1997
U.S. Treasury and one-half
Obligations Money one-hundredths of
Market Fund one percent (.115%)
of such Fund's average
daily net assets
The KeyPremier Annual rate of eleven June 30, 1997
Limited Duration and one-half
Government Securities one-hundredths of
Fund one percent (.115%)
of such Fund's average
daily net assets
The KeyPremier Annual rate of eleven April 6, 1998
Emerging Growth Fund and one-half
one-hundredths of
one percent (.115%)
of such Fund's average
daily net assets
BISYS FUND SERVICES LIMITED THE SESSIONS GROUP
PARTNERSHIP
By BISYS Fund Services, Inc. By /s/ WALTER B. GRIMM
General Partner ---------------------------
Walter B. Grimm, President
By /s/ J. DAVID HUBER
---------------------------
J. David Huber, President
A-2
<PAGE> 1
EXHIBIT (9)(y)
FUND ACCOUNTING AGREEMENT
This Agreement is made as of July 9, 1996 between The Sessions Group
(the "Trust"), an Ohio business trust having its principal place of business at
3435 Stelzer Road, Columbus, Ohio 43219, and BISYS Fund Services, Inc.
("BISYS"), a Delaware corporation having its principal place of business at 3435
Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust desires that BISYS perform certain fund accounting
services for each of The KeyPremier Prime Money Market Fund and The KeyPremier
Pennsylvania Municipal Bond Fund and such other investment portfolios of the
Trust identified on Schedule A hereto, as such Schedule may be amended from time
to time (individually referred to herein as a "Fund" and collectively as the
"Funds"); and
WHEREAS, BISYS is willing to perform such services on the
terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
Section 1. SERVICES AS FUND ACCOUNTANT.
(a) MAINTENANCE OF BOOKS AND RECORDS. BISYS will keep and
maintain the following books and records of each Fund pursuant to Rule
31a-1 under the Investment Company Act of 1940 (the "Rule"):
(i) Journals containing an itemized daily record in
detail of all purchases and sales of securities, all receipts
and disbursements of cash and all other debits and credits, as
required by subsection (b)(1) of the Rule;
(ii) General and auxiliary ledgers reflecting all
asset, liability, reserve, capital, income and expense
accounts, including interest accrued and interest received, as
required by subsection (b)(2)(i) of the Rule;
(iii) Separate ledger accounts required by subsection
(b)(2)(ii) and (iii) of the Rule; and
(iv) A monthly trial balance of all ledger accounts
(except shareholder accounts) as required by subsection (b)(8)
of the Rule.
(b) PERFORMANCE OF DAILY ACCOUNTING SERVICES. In addition to
the maintenance of the books and records specified above, BISYS shall
perform the following accounting services daily for each Fund:
<PAGE> 2
(i) Calculate the net asset value per share utilizing
prices obtained from the sources described in subsection
1(b)(ii) below;
(ii) Obtain security prices from independent pricing
services, or if such quotes are unavailable, then obtain such
prices from each Fund's investment adviser or its designee, as
approved by the Trust's Board of Trustees;
(iii) Verify and reconcile with the Funds' custodian
all daily trade activity;
(iv) Compute, as appropriate, each Fund's net income
and capital gains, dividend payables, dividend factors, 7-day
yields, 7-day effective yields, 30-day yields, and weighted
average portfolio maturity;
(v) Review daily the net asset value calculation and
dividend factor (if any) for each Fund prior to release to
shareholders, check and confirm the net asset values and
dividend factors for reasonableness and deviations, and
distribute net asset values and yields to NASDAQ;
(vi) Report to the Trust the daily market pricing of
securities in any money market Funds, with the comparison to
the amortized cost basis;
(vii) Determine unrealized appreciation and
depreciation on securities held in variable net asset value
Funds;
(viii) Amortize premiums and accrete discounts on
securities purchased at a price other than face value, if
requested by the Trust;
(ix) Update fund accounting system to reflect rate
changes, as received from a Fund's investment adviser, on
variable interest rate instruments;
(x) Post Fund transactions to appropriate categories;
(xi) Accrue expenses of each Fund according to
instructions received from the Trust's Administrator;
(xii) Determine the outstanding receivables and
payables for all (1) security trades, (2) Fund share
transactions and (3) income and expense accounts;
-2-
<PAGE> 3
(xiii) Provide accounting reports in connection with
the Trust's regular annual audit and other audits and
examinations by regulatory agencies; and
(xiv) Provide such periodic reports as the parties
shall agree upon, as set forth in a separate schedule.
(c) SPECIAL REPORTS AND SERVICES
(i) BISYS may provide additional special reports upon
the request of the Trust or a Fund's investment adviser, which
may result in an additional charge, the amount of which shall
be agreed upon between the parties.
(ii) BISYS may provide such other similar services
with respect to a Fund as may be reasonably requested by the
Trust, which may result in an additional charge, the amount of
which shall be agreed upon between the parties.
(d) ADDITIONAL ACCOUNTING SERVICES. BISYS shall also perform
the following additional accounting services for each Fund:
(i) Provide monthly a download (and hard copy
thereof) of the financial statements described below, upon
request of the Trust. The download will include the following
items:
Statement of Assets and Liabilities,
Statement of Operations, Statement of
Changes in Net Assets, and Condensed
Financial Information;
(ii) Provide accounting information for the
following:
(A) federal and state income tax returns and
federal excise tax returns;
(B) the Trust's semi-annual reports with the
Securities and Exchange Commission ("SEC") on Form
N-SAR;
(C) the Trust's annual, semi-annual and
quarterly (if any) shareholder reports;
(D) registration statements on Form N-1A and
other filings relating to the registration of shares;
(E) the Administrator's monitoring of the
Trust's status as a regulated investment company
-3-
<PAGE> 4
under Subchapter M of the Internal Revenue Code, as
amended;
(F) annual audit by the Trust's auditors;
and
(G) examinations performed by the SEC.
Section 2. SUBCONTRACTING.
BISYS may, at its expense, subcontract with any entity or person
concerning the provision of the services contemplated hereunder; provided,
however, that BISYS shall not be relieved of any of its obligations under this
Agreement by the appointment of such subcontractor and provided further, that
BISYS shall be responsible, to the extent provided in Section 7 hereof, for all
acts of such subcontractor as if such acts were its own.
Section 3. COMPENSATION.
The Trust shall pay BISYS for the services to be provided by BISYS
under this Agreement in accordance with, and in the manner set forth in,
Schedule A hereto, as such Schedule may be amended from time to time.
If in any fiscal year the aggregate expenses of a particular Fund (as
defined under the securities regulations of any state having jurisdiction over
the Trust) exceed the expense limitations of any such state, BISYS will
reimburse such Fund for a portion of such excess expenses equal to such excess
times the ratio of the fees respecting such Fund otherwise payable to BISYS
hereunder to the aggregate fees respecting such Fund otherwise payable to BISYS
hereunder, to Martindale Andres & Company, Inc. under the Investment Advisory
Agreement between Martindale Andres & Company, Inc. and the Trust and to BISYS
Fund Services Limited Partnership under the Management and Administration
Agreement between BISYS Fund Services Limited Partnership and the Trust. The
expense reimbursement obligation of BISYS is limited to the amount of its fees
hereunder for such fiscal year, provided, however, that notwithstanding the
foregoing, BISYS shall reimburse a particular Fund for such proportion of such
excess expenses regardless of the amount of fees paid to it during such fiscal
year to the extent that the securities regulations of any state having
jurisdiction over the Trust so require. Such expense reimbursement, if any, will
be estimated daily and reconciled and paid on a monthly basis.
Section 4. REIMBURSEMENT OF EXPENSES.
In addition to paying BISYS the fees described in Section 3 hereof, the
Trust agrees to reimburse BISYS for BISYS's out-of-pocket expenses in providing
services hereunder, including without limitation the following:
-4-
<PAGE> 5
(1) All freight and other delivery and bonding charges incurred by
BISYS in delivering materials to and from the Trust;
(2) All direct telephone, telephone transmission and telecopy or
other electronic transmission expenses incurred by BISYS in
communication with the Trust, the Trust's investment adviser
or custodian, dealers or others as required for BISYS to
perform the services to be provided hereunder;
(3) The cost of obtaining security market quotes pursuant to
Section 1(b)(ii) above;
(4) The cost of microfilm or microfiche of records or other
materials;
(5) Any expenses BISYS shall incur at the written direction of an
officer of the Trust thereunto duly authorized by the Trust's
Board of Trustees; and
(6) Any additional out-of-pocket expenses reasonably incurred by
BISYS in the performance of its duties and obligations under
this Agreement.
Section 5. EFFECTIVE DATE. This Agreement shall become effective with
respect to a Fund as of the date first written above (or, if a particular Fund
is not in existence on that date, on the date an amendment to Schedule A to this
Agreement relating to that Fund is executed) (the "Effective Date").
Section 6. TERM. This Agreement shall continue in effect with respect
to a Fund, unless earlier terminated by either party hereto as provided
hereunder, until July 9, 1999, and thereafter shall be renewed automatically for
successive one-year terms unless written notice not to renew is given by the
non-renewing party to the other party at least 60 days prior to the expiration
of the then-current term; provided, however, that after such termination, for so
long as BISYS, with the written consent of the Trust, in fact continues to
perform any one or more of the services contemplated by this Agreement or any
schedule or exhibit hereto, the provisions of this Agreement, including without
limitation the provisions dealing with indemnification, shall continue in full
force and effect. Compensation due BISYS and unpaid by the Trust upon such
termination shall be immediately due and payable upon and notwithstanding such
termination. BISYS shall be entitled to collect from the Trust, in addition to
the compensation described under Section 3 hereof, the amount of all of BISYS'
reasonable cash disbursements for services in connection with BISYS' activities
in effecting such termination, including without limitation, the delivery to the
Trust and/or its designees of the Trust's property, records, instruments and
documents, or any copies thereof. To the extent
-5-
<PAGE> 6
that BISYS may retain in its possession copies of any Trust documents or records
subsequent to such termination, which copies had not been requested by or on
behalf of the Trust in connection with the termination process described above,
for a reasonable fee, BISYS will provide the Trust with reasonable access to
such copies. The performance of BISYS under this Agreement shall be reviewed at
least annually by the Trust's Board of Trustees. Such review shall include the
review of acts of negligence, if any, by BISYS, and if such acts of negligence
are determined to be material by the Trustees, such acts shall be an event of
"cause" as used below. This Agreement is terminable with respect to a particular
Fund only upon mutual agreement of the parties hereto; upon 180 days' written
notice by the Trust after the initial term hereof but only in connection with
the reorganization of the Funds into another registered management investment
company; or for "cause" (as defined below) by the party alleging "cause," on not
less than 60 days' notice by the Trust's Board of Trustees or by BISYS.
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence, acts of negligence by BISYS as
determined by the Trustees to be material or reckless disregard on the part of
either party with respect to its obligations and duties set forth herein; (b) a
final, unappealable judicial, regulatory or administrative ruling or order in
which either party has been found guilty of criminal or unethical behavior in
the conduct of its business; (c) the dissolution or liquidation of either party
or other cessation of business other than a reorganization or recapitalization
of such party as an ongoing business; (d) financial difficulties on the part of
either party which is evidenced by the authorization or commencement of, or
involvement by way of pleading, answer, consent, or acquiescence in, a voluntary
or involuntary case under Title 11 of the United States Code, as from time to
time is in effect, or any applicable law, other than said Title 11, of any
jurisdiction relating to the liquidation or reorganization of debtors or to the
modification or alteration of the rights of creditors; or (e) any circumstance
which substantially impairs the performance of either party's obligations and
duties as contemplated herein.
Section 7. STANDARD OF CARE; RELIANCE ON RECORDS AND INSTRUCTIONS;
INDEMNIFICATION. BISYS shall use its best efforts to ensure the accuracy of all
services performed under this Agreement, but shall not be liable to the Trust
for any action taken or omitted by BISYS in the absence of bad faith, willful
misfeasance, negligence or from reckless disregard by it of its obligations and
duties. A Fund agrees to indemnify and hold harmless BISYS, its employees,
agents, directors, officers and nominees from and against any and all claims,
demands, actions and suits, whether groundless or otherwise, and from and
against any and all judgments, liabilities, losses, damages, costs, charges,
counsel fees and other expenses of every nature and character arising out of or
in any way relating to BISYS' actions taken or nonactions with respect to the
performance
-6-
<PAGE> 7
of services under this Agreement with respect to such Fund or based, if
applicable, upon reasonable reliance on information, records, instructions or
requests with respect to such Fund given or made to BISYS by a duly authorized
representative of the Trust; provided that this indemnification shall not apply
to actions or omissions of BISYS in cases of its own bad faith, willful
misfeasance, negligence or from reckless disregard by it of its obligations and
duties, and further provided that prior to confessing any claim against it which
may be the subject of this indemnification, BISYS shall give the Trust written
notice of and reasonable opportunity to defend against said claim in its own
name or in the name of BISYS.
Section 8. RECORD RETENTION AND CONFIDENTIALITY. BISYS shall keeP and
maintain on behalf of the Trust all books and records which the Trust or BISYS
is, or may be, required to keep and maintain pursuant to any applicable
statutes, rules and regulations, including without limitation Rules 31a-1 and
31a-2 under the Investment Company Act of 1940, as amended (the "1940 Act")
relating to the maintenance of books and records in connection with the services
to be provided hereunder. BISYS further agrees that all such books and records
shall be the property of the Trust and to make such books and records available
for inspection by the Trust or by the Securities and Exchange Commission at
reasonable times and otherwise to keep confidential all books and records and
other information relative to the Trust and its shareholders; except when
requested to divulge such information by duly- constituted authorities or court
process.
Section 9. UNCONTROLLABLE EVENTS. BISYS assumes no responsibility
hereunder, and shall not be liable, for any damage, loss of data,
delay or any other loss whatsoever caused by events beyond its
reasonable control.
Section 10. REPORTS. BISYS will furnish to the Trust and to its properly
authorized auditors, investment advisers, examiners, distributors, dealers,
underwriters, salesmen, insurance companies and others designated by the Trust
in writing, such reports and at such times as are prescribed pursuant to the
terms and the conditions of this Agreement to be provided or completed by BISYS,
or as subsequently agreed upon by the parties pursuant to an amendment hereto.
The Trust agrees to examine each such report or copy promptly and will report or
cause to be reported any errors or discrepancies therein no later than three
business days from the receipt thereof. In the event that errors or
discrepancies, except such errors and discrepancies as may not reasonably be
expected to be discovered by the recipient within ten days after conducting a
diligent examination, are not so reported within the aforesaid period of time, a
report will for all purposes be accepted by and binding upon the Trust and any
other recipient, and except as provided in Section 7 hereof, BISYS shall have no
liability for errors or discrepancies therein and shall have no further
-7-
<PAGE> 8
responsibility with respect to such report except to perform reasonable
corrections of such errors and discrepancies within a reasonable time after
requested to do so by the Trust.
Section 11. RIGHTS OF OWNERSHIP. All computer programs and procedures
developed to perform services required to be provided by BISYS under this
Agreement are the property of BISYS. All records and other data except such
computer programs and procedures are the exclusive property of the Trust and all
such other records and data will be furnished to the Trust in appropriate form
as soon as practicable after termination of this Agreement for any reason.
Section 12. RETURN OF RECORDS. BISYS may at its option at any time, and
shall promptly upon the Trust's demand, turn over to the Trust and cease to
retain BISYS' files, records and documents created and maintained by BISYS
pursuant to this Agreement; provided, however, that to the extent needed by
BISYS in the performance of its services or for its legal protection, BISYS may
retain copies of such files, records and documents at BISYS' own expense. If not
so turned over to the Trust, such documents and records will be retained by
BISYS for six years from the year of creation. At the end of such six-year
period, such records and documents will be turned over to the Trust unless the
Trust authorizes in writing the destruction of such records and documents.
Section 13. REPRESENTATIONS OF THE TRUST. The Trust certifies to BISYS
that: (1) as of the close of business on the Effective Date, each Fund which is
in existence as of the Effective Date has authorized unlimited shares, and (2)
this Agreement has been duly authorized by the Trust and, when executed and
delivered by the Trust, will constitute a legal, valid and binding obligation of
the Trust, enforceable against the Trust in accordance with its terms, subject
to bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
Section 14. REPRESENTATIONS OF BISYS. BISYS represents and warrants
that: (1) the various procedures and systems which BISYS has implemented with
regard to safeguarding from loss or damage attributable to fire, theft, or any
other cause of the blank checks, records, and other data of the Trust and
BISYS' records, data, equipment facilities and other property used in the
performance of its obligations hereunder are adequate and that it will make
such changes therein from time to time as are required for the secure
performance of its obligations hereunder, and (2) this Agreement has been duly
authorized by BISYS and, when executed and delivered by BISYS, will
constitute a legal, valid and binding obligation of BISYS, enforceable against
BISYS in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and secured parties.
-8-
<PAGE> 9
Section 15. INSURANCE. BISYS shall notify the Trust should any of its
insurance coverage be cancelled or reduced. Such notification shall include the
date of change and the reasons therefor. BISYS shall notify the Trust of any
material claims against it with respect to services performed under this
Agreement, whether or not they may be covered by insurance, and shall notify the
Trust from time to time as may be appropriate of the total outstanding claims
made by BISYS under its insurance coverage.
Section 16. INFORMATION TO BE FURNISHED BY THE TRUST AND FUNDS. The
Trust has furnished to BISYS the following:
(a) Copies of the Declaration of Trust of the Trust and of any
amendments thereto, certified by the proper official of the
state in which such Declaration has been filed.
(b) Copies of the following documents:
(i) The Trust's By-Laws and any amendments thereto; and
(ii) Certified copies of resolutions of the Board of Trustees
covering the approval of this Agreement, authorization of
a specified officer of the Trust to execute and deliver
this Agreement and authorization for specified officers
of the Trust to instruct BISYS thereunder.
(c) A list of all the officers of the Trust, together with
specimen signatures of those officers who are authorized to
instruct BISYS in all matters.
(d) Two copies of the Prospectus and Statement of Additional
Information for each Fund.
Section 17. INFORMATION FURNISHED BY BISYS.
(a) BISYS has furnished to the Trust the following:
(i) BISYS's Articles of Incorporation; and
(ii) BISYS's Bylaws and any amendments thereto.
(b) BISYS shall, upon request, furnish certified copies of actions
of BISYS covering the following matters:
(i) Approval of this Agreement, and authorization of a
specified officer of BISYS to execute and deliver
this Agreement; and
(ii) Authorization of BISYS to act as fund accountant for
the Trust and to provide accounting services for the
Trust.
-9-
<PAGE> 10
Section 18. AMENDMENTS TO DOCUMENTS. The Trust shall furnish BISYS
written copies of any amendments to, or changes in, any of the items referred to
in Section 16 hereof forthwith upon such amendments or changes becoming
effective. In addition, the Trust agrees that no amendments will be made to the
Prospectuses or Statements of Additional Information of the Trust which might
have the effect of changing the procedures employed by BISYS in providing the
services agreed to hereunder or which amendment might affect the duties of BISYS
hereunder unless the Trust first obtains BISYS' approval of such amendments or
changes.
Section 19. COMPLIANCE WITH LAW. Except for the obligations of BISYS set
forth in Section 8 hereof, the Trust assumes full responsibility for the
preparation, contents and distribution of each prospectus of the Trust as to
compliance with all applicable requirements of the Securities Act of 1933, as
amended, the 1940 Act and any other laws, rules and regulations of governmental
authorities having jurisdiction. BISYS shall have no obligation to take
cognizance of any laws relating to the sale of the Trust's shares. The Trust
represents and warrants that no shares of the Trust will be offered to the
public until the Trust's registration statement under the Securities Act of 1933
and the 1940 Act has been declared or becomes effective.
Section 20. NOTICES. Any notice provided hereunder shall be sufficiently
given when sent by registered or certified mail to the party required to be
served with such notice, at the following address: 3435 Stelzer Road, Columbus,
Ohio 43219, or at such other address as such party may from time to time specify
in writing to the other party pursuant to this Section.
Section 21. HEADINGS. Paragraph headings in this Agreement are included
for convenience only and are not to be used to construe or interpret this
Agreement.
Section 22. ASSIGNMENT. This Agreement and the rights and duties
hereunder shall not be assignable with respect to a Fund by either of the
parties hereto except by the specific written consent of the other party.
Section 23. GOVERNING LAW. This Agreement shall be governed by and
provisions shall be construed in accordance with the laws of the State of Ohio.
Section 24. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
The Sessions Group is a business trust organized under Chapter 1746, Ohio
Revised Code and under a Declaration of Trust, to which reference is hereby made
and a copy of which is on file at the office of the Secretary of State of Ohio
as required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "The Sessions Group" entered into in the name or on
behalf thereof by any of the Trustees, officers, employees or
-10-
<PAGE> 11
agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, officers, employees, agents or shareholders of the
Trust personally, but bind only the assets of the Trust, as set forth in Section
1746.13(A), Ohio Revised Code, and all persons dealing with any of the Funds of
the Trust must look solely to the assets of the Trust belonging to such Fund for
the enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
THE SESSIONS GROUP
By /S/ WALTER B. GRIMM
---------------------------------------
Walter B. Grimm, President
BISYS FUND SERVICES, INC.
By /S/ J. DAVID HUBER
---------------------------------------
(name) (title)
-11-
<PAGE> 12
Dated: April 6, 1998
SCHEDULE A
TO THE
FUND ACCOUNTING AGREEMENT
BETWEEN
THE SESSIONS GROUP
AND
BISYS FUND SERVICES, INC.
JULY 9, 1996
NAME OF FUND COMPENSATION* DATE
- ------------ ------------- -----
The KeyPremier Prime The greater of (i) the July 9, 1996
Money Market Fund annual rate of .03% of
and The KeyPremier such Fund's average
Pennsylvania daily net assets or (ii)
Municipal Bond Fund the applicable annual
minimum fee of $30,000 per fund
($35,000 for a municipal or
tax-exempt fund).
The KeyPremier The greater of (i) the October 30, 1996
Established Equity annual rate of .03% of
Fund and The such Fund's average
KeyPremier daily net assets or (ii)
Intermediate Term the applicable annual
Income Fund minimum fee of $30,000
per fund ($35,000 for a
municipal or tax-exempt
fund).
The KeyPremier The greater of (i) the January 29, 1997
Aggressive Growth annual rate of .03% of
Fund such Fund's average
daily net assets or (ii)
the applicable annual
minimum fee of $30,000
per fund ($35,000 for a
municipal or tax-exempt
fund).
The KeyPremier The greater of (i) the June 30, 1997
U.S. Treasury annual rate of .03% of
Obligations Money such Fund's average
Market Fund and daily net assets or (ii)
The KeyPremier the applicable annual
Limited Duration minimum fee of $30,000
Government per fund ($35,000 for a
Securities Fund municipal or tax-exempt
fund).
<PAGE> 13
The KeyPremier The greater of (i) the April 6, 1998
Emerging Growth annual rate of .03% of
Fund such Fund's average
daily net assets or (ii)
the applicable annual
minimum fee of $30,000
per fund ($35,000 for a
municipal or tax-exempt
fund).
BISYS FUND SERVICES, INC. THE SESSIONS GROUP
By /s/ J. DAVID HUBER By /s/ WALTER B. GRIMM
------------------------------- ----------------------------
J. David Huber, President Walter B. Grimm, President
- ------------------------------
* All fees are computed daily and paid periodically.
<PAGE> 1
EXHIBIT (9)(z)
TRANSFER AGENCY AGREEMENT
-------------------------
This Agreement is made as of July 9, 1996, between The Sessions Group
(the "Trust"), an Ohio business trust having its principal place of business at
3435 Stelzer Road, Columbus, Ohio 43219, and BISYS Fund Services, Inc.
("BISYS"), a Delaware corporation having its principal place of business at 3435
Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust desires that BISYS perform certain services for
those series of the Trust set forth in the Schedule A attached hereto, as such
Schedule may be amended from time to time (individually referred to herein as a
"Fund" and collectively as the "Funds"); and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
Section 1. SERVICES. BISYS shall perform for the Trust the transfer
agent services set forth in Schedule B hereto.
BISYS also agrees to perform for the Trust such special services
incidental to the performance of the services enumerated herein as agreed to by
the parties from time to time. BISYS shall perform such additional services as
are provided on an amendment to Schedule B hereof, in consideration of such fees
as the parties hereto may agree.
BISYS may, in its discretion, appoint in writing other parties
qualified to perform transfer agency services reasonably acceptable to the Trust
(individually, a "Subtransfer Agent") to carry out some or all of its
responsibilities under this Agreement with respect to a Fund; provided, however,
that the Sub-transfer Agent shall be the agent of BISYS and not the agent of the
Trust or such Fund, and that BISYS shall be fully responsible for the acts of
such Sub-transfer Agent and shall not be relieved of any of its responsibilities
hereunder by the appointment of such Sub-transfer Agent.
Section 2. FEES. The Trust shall pay BISYS for the services to be
provided by BISYS under this Agreement in accordance with, and in the manner set
forth in, Schedule C hereto. Fees for any additional services to be provided by
BISYS pursuant to an amendment to Schedule B hereto shall be subject to mutual
agreement at the time such amendment to Schedule C is proposed.
Section 3. REIMBURSEMENT OF EXPENSES. In addition to paying BISYS the
fees described in Section 2 hereof, the Trust agrees to reimburse BISYS for
BISYS' out-of-pocket expenses in providing services hereunder, including without
limitation the following:
<PAGE> 2
A. All freight and other delivery and bonding charges incurred by
BISYS in delivering materials to and from the Trust and in
delivering all materials to shareholders;
B. All direct telephone, telephone transmission and telecopy or
other electronic transmission expenses incurred by BISYS in
communication with the Trust, the Trust's investment adviser or
custodian, dealers, shareholders or others as required for BISYS to
perform the services to be provided hereunder;
C. Costs of postage, couriers, stock computer paper, statements,
labels, envelopes, checks, reports, letters, tax forms, proxies,
notices or other form of printed material which shall be required by
BISYS for the performance of the services to be provided hereunder;
D. The cost of microfilm or microfiche of records or other
materials; and
E. Any expenses BISYS shall incur at the written direction of an
officer of the Trust thereunto duly authorized by the Trust's
Board of Trustees.
Section 4. EFFECTIVE DATE. This Agreement shall become effective as
of the date first written above (the "Effective Date").
Section 5. TERM. This Agreement shall continue in effect, unless earlier
terminated by either party hereto as provided hereunder, until July 9, 1999.
Thereafter, this Agreement shall be renewed automatically for successive
one-year terms unless written notice not to renew is given by the non-renewing
party to the other party at least 60 days prior to the expiration of the
then-current term; provided, however, that after such termination, for so long
as BISYS, with the written consent of the Trust, in fact continues to perform
any one or more of the services contemplated by this Agreement or any Schedule
or exhibit hereto, the provisions of this Agreement, including without
limitation the provisions dealing with indemnification, shall continue in full
force and effect. Compensation due BISYS and unpaid by the Trust upon such
termination shall be immediately due and payable upon and notwithstanding such
termination. BISYS shall be entitled to collect from the Trust, in addition to
the fees and disbursements provided by Sections 2 and 3 hereof, the amount of
all of BISYS' reasonable cash disbursements for services in connection with
BISYS' activities in effecting such termination, including without limitation,
the delivery to the Trust and/or its distributor or investment advisers and/or
other parties, of the Trust's property, records, instruments and documents, or
any copies thereof. To the extent that BISYS may retain in its possession copies
of any Trust documents or records subsequent to such termination which copies
had not been requested by or on behalf of the Trust in connection
- 2 -
<PAGE> 3
with the termination process described above, BISYS, for a reasonable fee, will
provide the Trust with reasonable access to such copies. The performance of
BISYS under this Agreement shall be reviewed at least annually by the Trust's
Board of Trustees. Such review shall include the review of acts of negligence,
if any, by BISYS, and if such acts of negligence are determined to be material
by the Trustees, such acts shall be an event of "cause" as used below. Further,
this Agreement is terminable with respect to a particular Fund only upon mutual
agreement of the parties hereto; upon 180 days' written notice by the Trust
after the initial term hereof but only in connection with the reorganization of
the Funds into another registered management investment company; or for "cause"
(as defined below) by the party alleging "cause," on not less than 60 days'
notice by the Trust's Board of Trustees or by BISYS.
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence, acts of negligence by BISYS determined
by the Trustees to be material, or reckless disregard on the part of the party
to be terminated with respect to its obligations and duties set forth herein;
(b) a final, unappealable judicial, regulatory or administrative ruling or order
in which the party to be terminated has been found guilty of criminal or
unethical behavior in the conduct of its business; (c) financial difficulties on
the part of the party to be terminated which are evidenced by the authorization
or commencement of, or involvement by way of pleading, answer, consent, or
acquiescence in, a voluntary or involuntary case under Title 11 of the United
States Code, as from time to time is in effect, or any applicable law, other
than said Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the rights of
creditors; or (d) any circumstance which substantially impairs the performance
of the obligations and duties as contemplated herein of the party to be
terminated.
Section 6. UNCONTROLLABLE EVENTS. BISYS assumes no responsibility
hereunder, and shall not be liable, for any damage, loss of data, delay or any
other loss whatsoever caused by events beyond its reasonable control.
Section 7. LEGAL ADVICE. BISYS shall notify the Trust at any time BISYS
believes that it is in need of the advice of counsel (other than counsel in the
regular employ of BISYS or any affiliated companies) with regard to BISYS'
responsibilities and duties pursuant to this Agreement; and after so notifying
the Trust, BISYS, at its discretion, shall be entitled to seek, receive and act
upon advice of legal counsel of its choosing, such advice to be at the expense
of the Trust or Funds unless relating to a matter involving BISYS' willful
misfeasance, bad faith, negligence or reckless disregard with respect to BISYS'
responsibilities and duties hereunder and BISYS shall in no event be liable to
the Trust
- 3 -
<PAGE> 4
or any Fund or any shareholder or beneficial owner of the Trust for any action
reasonably taken pursuant to such advice.
Section 8. INSTRUCTIONS. Whenever BISYS is requested or authorized to
take action hereunder pursuant to instructions from a shareholder or a properly
authorized agent of a shareholder ("shareholder's agent"), concerning an account
in a Fund, BISYS shall be entitled to rely upon any certificate, letter or other
instrument or communication, whether in writing, by electronic or telephone
transmission, believed by BISYS to be genuine and to have been properly made,
signed or authorized by an officer or other authorized agent of the Trust or by
the shareholder or shareholder's agent, as the case may be, and shall be
entitled to receive as conclusive proof of any fact or matter required to be
ascertained by it hereunder a certificate signed by an officer of the Trust or
any other person authorized by the Trust's Board of Trustees or by the
shareholder or shareholder's agent, as the case may be.
As to the services to be provided hereunder, BISYS may rely
conclusively upon the terms of the Prospectuses and Statements of Additional
Information of the Trust relating to the Funds to the extent that such services
are described therein unless BISYS receives written instructions to the contrary
in a timely manner from the Trust.
Section 9. STANDARD OF CARE; RELIANCE ON RECORDS AND INSTRUCTIONS;
INDEMNIFICATION. BISYS shall use its best efforts to ensure the accuracy of all
services performed under this Agreement, but shall not be liable to the Trust
for any action taken or omitted by BISYS in the absence of bad faith, willful
misfeasance, negligence or from reckless disregard by it of its obligations and
duties. The Trust agrees to indemnify and hold harmless BISYS, its employees,
agents, directors, officers and nominees from and against any and all claims,
demands, actions and suits, whether groundless or otherwise, and from and
against any and all judgments, liabilities, losses, damages, costs, charges,
counsel fees and other expenses of every nature and character arising out of or
in any way relating to BISYS' actions taken or nonactions with respect to the
performance of services under this Agreement or based, if applicable, upon
reasonable reliance on information, records, instructions or requests given or
made to BISYS by the Trust, the investment adviser and on any records provided
by any fund accountant or custodian thereof; provided that this indemnification
shall not apply to actions or omissions of BISYS in cases of its own bad faith,
willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties; and further provided that prior to confessing any claim
against it which may be the subject of this indemnification, BISYS shall give
the Trust written notice of and reasonable opportunity to defend against said
claim in its own name or in the name of BISYS.
- 4 -
<PAGE> 5
Section 10. RECORD RETENTION AND CONFIDENTIALITY. BISYS shall keeP and
maintain on behalf of the Trust all books and records which the Trust or BISYS
is, or may be, required to keep and maintain pursuant to any applicable
statutes, rules and regulations, including without limitation Rules 31a-1 and
31a-2 under the Investment Company Act of 1940, as amended (the "1940 Act"),
relating to the maintenance of books and records in connection with the services
to be provided hereunder. BISYS further agrees that all such books and records
shall be the property of the Trust and to make such books and records available
for inspection by the Trust or by the Securities and Exchange Commission (the
"Commission") at reasonable times and otherwise to keep confidential all books
and records and other information relative to the Trust and its shareholders;
except when requested to divulge such information by duly-constituted
authorities or court process, or requested by a shareholder, or shareholder's
agent, with respect to information concerning an account as to which such
shareholder has either a legal or beneficial interest or when requested by the
Trust, the shareholder, or shareholder's agent, or the dealer of record as to
such account.
Section 11. REPORTS. BISYS will furnish to the Trust and to its
properly authorized auditors, investment advisers, examiners, distributors,
dealers, underwriters, salesmen, insurance companies and others designated by
the Trust in writing, such reports at such times as are prescribed in Schedule D
attached hereto, or as subsequently agreed upon by the parties pursuant to an
amendment to Schedule D. The Trust agrees to examine each such report or copy
promptly and will report or cause to be reported any errors or discrepancies
therein no later than three business days from the receipt thereof. In the event
that errors or discrepancies, except such errors and discrepancies as may not
reasonably be expected to be discovered by the recipient within ten days after
conducting a diligent examination, are not so reported within the aforesaid
period of time, a report will for all purposes be accepted by and binding upon
the Trust and any other recipient, and, except as provided in Section 9 hereof,
BISYS shall have no liability for errors or discrepancies therein and shall have
no further responsibility with respect to such report except to perform
reasonable corrections of such errors and discrepancies within a reasonable time
after requested to do so by the Trust.
Section 12. RIGHTS OF OWNERSHIP. All computer programs and procedures
developed to perform services required to be provided by BISYS under this
Agreement are the property of BISYS. All records and other data except such
computer programs and procedures are the exclusive property of the Trust and all
such other records and data will be furnished to the Trust in appropriate form
as soon as practicable after termination of this Agreement for any reason.
Section 13. RETURN OF RECORDS. BISYS may at its option at any time, and
shall promptly upon the Trust's demand, turn over to the Trust
- 5 -
<PAGE> 6
and cease to retain BISYS' files, records and documents created and maintained
by BISYS pursuant to this Agreement; provided, however, that to the extent
needed by BISYS in the performance of its services or for its legal protection,
BISYS may retain copies of such files, records and documents at BISYS' own
expense. If not so turned over to the Trust, such documents and records will be
retained by BISYS for six years from the year of creation. At the end of such
six-year period, such records and documents will be turned over to the Trust
unless the Trust authorizes in writing the destruction of such records and
documents.
Section 14. BANK ACCOUNTS. The Trust and the Funds shall establish and
maintain such bank accounts with such bank or banks as are selected by the
Trust, as are necessary in order that BISYS may perform the services required to
be performed hereunder. To the extent that the performance of such services
shall require BISYS directly to disburse amounts for payment of dividends,
redemption proceeds or other purposes, the Trust and Funds shall provide such
bank or banks with all instructions and authorizations necessary for BISYS to
effect such disbursements.
Section 15. REPRESENTATIONS OF THE TRUST. The Trust certifies to BISYS
that: (a) as of the close of business on the Effective Date, each Fund which is
in existence as of the Effective Date has authorized unlimited shares, and (b)
by virtue of its Declaration of Trust, shares of each Fund which are redeemed by
the Trust may be sold by the Trust from its treasury, and (c) this Agreement has
been duly authorized by the Trust and, when executed and delivered by the Trust,
will constitute a legal, valid and binding obligation of the Trust, enforceable
against the Trust in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
Section 16. REPRESENTATIONS OF BISYS. BISYS represents and warrants
that: (a) BISYS has been in, and shall continue to be in, substantial compliance
with all provisions of law, including Section 17A(c) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), required in connection with the
performance of its duties under this Agreement; and (b) the various procedures
and systems which BISYS has implemented with regard to safekeeping from loss or
damage attributable to fire, theft, or any other cause of the blank checks,
records, and other data of the Trust and BISYS' records, data, equipment,
facilities and other property used in the performance of its obligations
hereunder are adequate and that it will make such changes therein from time to
time as are required for the secure performance of its obligations hereunder.
Section 17. INSURANCE. BISYS shall notify the Trust should its
insurance coverage with respect to professional liability or errors and
omissions coverage be cancelled or reduced. Such notification shall include the
date of change and the reasons therefor. BISYS shall notify the Trust of any
material claims against it with
- 6 -
<PAGE> 7
respect to services performed under this Agreement, whether or not they may be
covered by insurance, and shall notify the Trust from time to time as may be
appropriate of the total outstanding claims made by BISYS under its insurance
coverage.
Section 18. INFORMATION TO BE FURNISHED BY THE TRUST AND FUNDS. The
Trust has furnished to BISYS the following:
(a) Copies of the Declaration of Trust of the Trust and of any
amendments thereto, certified by the proper official of the
state in which such Declaration has been filed.
(b) Copies of the following documents:
1. The Trust's By-Laws and any amendments thereto;
2. Certified copies of resolutions of the Board of Trustees
covering the following matters:
a. Approval of this Agreement and authorization
of a specified officer of the Trust to execute and deliver
this Agreement and authorization of specified officers of
the Trust to instruct BISYS hereunder; and
b. Authorization of BISYS to act as Transfer Agent for the Trust
on behalf of the Funds.
(c) A list of all officers of the Trust, together with specimen
signatures of those officers, who are authorized to instruct
BISYS in all matters.
(d) Two copies of the following (if such documents are employed by
the Trust):
1. Prospectuses and Statements of Additional Information;
2. Distribution Agreement; and
3. All other forms commonly used by the Trust or its Distributor
with regard to their relationships and transactions with
shareholders of the Funds.
(e) A certificate as to shares of beneficial interest of the Trust
authorized, issued, and outstanding as of the Effective Date of
BISYS' appointment as Transfer Agent (or as of the date on which
BISYS' services are commenced, whichever is the later date) and as
to receipt of full consideration by the Trust for all shares
outstanding, such statement to be certified by the Treasurer of the
Trust.
- 7 -
<PAGE> 8
Section 19. INFORMATION FURNISHED BY BISYS. BISYS has furnished to the
Trust the following:
(a) BISYS' Articles of Incorporation.
(b) BISYS' Bylaws and any amendments thereto.
(c) Certified copies of actions of BISYS covering the following
matters:
1. Approval of this Agreement, and authorization of a specified
officer of BISYS to execute and deliver this Agreement;
2. Authorization of BISYS to act as Transfer Agent for the Trust.
(d) A copy of the most recent independent accountants' report
relating to internal accounting control systems as filed with
the Commission pursuant to Rule 17Ad-13 of the Exchange Act.
Section 20. AMENDMENTS TO DOCUMENTS. The Trust shall furnish BISYS
written copies of any amendments to, or changes in, any of the items referred to
in Section 18 hereof forthwith upon such amendments or changes becoming
effective. In addition, the Trust agrees that no amendments will be made to the
Prospectuses or Statement of Additional Information of the Trust which might
have the effect of changing the procedures employed by BISYS in providing the
services agreed to hereunder or which amendment might affect the duties of BISYS
hereunder unless the Trust first obtains BISYS' approval of such amendments or
changes.
Section 21. RELIANCE ON AMENDMENTS. BISYS may rely on any amendments to
or changes in any of the documents and other items to be provided by the Trust
pursuant to Sections 18 and 20 of this Agreement and the Trust hereby
indemnifies and holds harmless BISYS from and against any and all claims,
demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, counsel fees and other expenses of every nature and character which may
result from actions or omissions on the part of BISYS in reasonable reliance
upon such amendments and/or changes. Although BISYS is authorized to rely on the
above-mentioned amendments to and changes in the documents and other items to be
provided pursuant to Sections 18 and 20 hereof, BISYS shall be under no duty to
comply with or take any action as a result of any of such amendments or changes
unless the Trust first obtains BISYS' written consent to and approval of such
amendments or changes.
Section 22. COMPLIANCE WITH LAW. Except for the obligations of BISYS
set forth in Section 10 hereof, the Trust assumes full responsibility for the
preparation, contents and distribution of each prospectus of the Trust as to
compliance with all applicable requirements of the Securities Act of 1933, as
amended (the "1933 Act"), the 1940 Act and any other laws, rules and regulations
of
- 8 -
<PAGE> 9
governmental authorities having jurisdiction. BISYS shall have no obligation to
take cognizance of any laws relating to the sale of the Trust's shares. The
Trust represents and warrants that no shares of the Trust will be offered to the
public until the Trust's registration statement under the 1933 Act and the 1940
Act has been declared or becomes effective.
Section 23. NOTICES. Any notice provided hereunder shall be
sufficiently given when sent by registered or certified mail to the party
required to be served with such notice, at the following address: 3435 Stelzer
Road, Columbus, Ohio 43219, or at such other address as such party may from time
to time specify in writing to the other party pursuant to this Section.
Section 24. HEADINGS. Paragraph headings in this Agreement are included
for convenience only and are not to be used to construe or interpret this
Agreement.
Section 25. ASSIGNMENT. This Agreement and the rights and duties
hereunder shall not be assignable by either of the parties hereto except by the
specific written consent of the other party. This Section 25 shall not limit or
in any way affect BISYS' right to appoint a Sub-transfer Agent pursuant to
Section 1 hereof.
Section 26. GOVERNING LAW. This Agreement shall be governed by and
provisions shall be construed in accordance with the laws of the State of Ohio.
Section 27. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
The Sessions Group is a business trust organized under Chapter 1746, Ohio
Revised Code and under a Declaration of Trust, to which reference is hereby made
and a copy of which is on file at the Office of the Secretary of State of Ohio
as required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "The Sessions Group" entered into in the name or on
behalf thereof by any of the Trustees, officers, employees or agents are made
not individually, but in such capacities, and are not binding upon any of the
Trustees, officers, employees, agents or shareholders of the Trust personally,
but bind only the assets of the Trust, as set forth in Section 1746.13(A), Ohio
Revised Code, and all persons dealing with any of the Funds of the Trust must
look solely to the assets of the Trust belonging to such Fund for the
enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
BISYS FUND SERVICES, INC. THE SESSIONS GROUP
By /S/ J. DAVID HUBER By /S/ WALTER B. GRIMM
------------------------------- --------------------------------
(name) (title) Walter B. Grimm, President
- 9 -
<PAGE> 10
Dated: April 6, 1998
SCHEDULE A
TO THE
TRANSFER AGENCY AGREEMENT
BETWEEN
THE SESSIONS GROUP
AND
BISYS FUND SERVICES, INC.
JULY 9, 1996
NAME OF FUND DATE
------------ -----
The KeyPremier Prime Money Market Fund July 9, 1996
and The KeyPremier Pennsylvania Municipal
Bond Fund
The KeyPremier Established Growth Fund October 30, 1996
and The KeyPremier Intermediate Term
Income Fund
The KeyPremier Aggressive Growth Fund January 29, 1997
The KeyPremier U.S. Treasury Obligations
Money Market Fund and The KeyPremier
Limited Duration Government Securities Fund June 30, 1997
The KeyPremier Emerging Growth Fund April 6, 1998
THE SESSIONS GROUP
By /s/ WALTER B. GRIMM
--------------------------------------
Walter B. Grimm, President
BISYS FUND SERVICES, INC.
By /s/ J. DAVID HUBER
--------------------------------------
J. David Huber, President
- 10 -
<PAGE> 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 numbers and wire instructions.
c. Issue confirmations in compliance with Rule 10 under the
Exchange Act.
d. Issue periodic statements for shareholders.
e. Process transfers and exchanges.
f. Process dividend payments, including the purchase of new shares
through dividend reinvestment.
2. SHAREHOLDER INFORMATION SERVICES
- -----------------------------------
a. Make information available to shareholder servicing unit and other remote
access units regarding trade date, share price, current holdings, yields,
and dividend information.
b. Produce detailed history of transactions through duplicate or special
order statements upon request.
c. Provide mailing labels for distribution of financial reports, prospectuses
proxy statements, or marketing material to current shareholders.
3. COMPLIANCE REPORTING
- -----------------------
a. Provide reports to the Securities and Exchange Commission, the National
Association of Securities Dealers and the States in which the Fund is
registered.
b. Prepare and distribute appropriate Internal Revenue Service forms for
corresponding Fund and shareholder income and capital gains.
c. Issue tax withholding reports to the Internal Revenue Service.
- 11 -
<PAGE> 12
4. DEALER/LOAD PROCESSING (IF APPLICABLE)
- -----------------------------------------
a. Provide reports for tracking rights of accumulation and purchases
made under a Letter of Intent.
b. Account for separation of shareholder investments from transaction
sale charges for purchases of Fund shares.
c. Calculate fees due under 12b-1 plans for distribution and
marketing expenses.
d. Track sales and commission statistics by dealer and provide for
payment of commissions on direct shareholder purchases in a load
Fund.
5. SHAREHOLDER ACCOUNT MAINTENANCE
- ----------------------------------
a. Maintain all shareholder records for each account in the Trust.
b. Issue customer statements on scheduled cycle, providing duplicate
second and third party copies if required.
c. Record shareholder account information changes.
d. Maintain account documentation files for each shareholder.
- 12 -
<PAGE> 13
Date: July 9, 1996
SCHEDULE C
----------
FEES
----
TRANSFER AGENT:
---------------
ANNUAL FEES PER FUND:
Daily dividend fund base fee $ 25 per shareholder
Variable NAV fund fee $ 23 per shareholder
Annual Minimums per fund: $20,000
MULTIPLE CLASSES OF SHARES:
Classes of shares which have different net asset values or pay different daily
dividends will be treated as separate classes, and the fee schedule above,
including the appropriate minimums, will be charged for each separate class.
ADDITIONAL SERVICES:
- --------------------
Additional services such as IRA processing are subject to additional fees which
will be quoted upon request. Programming costs or data base management fees for
special reports or specialized processing will be quoted upon request.
OUT OF POCKET CHARGES:
- ----------------------
Out-of-pocket costs, including postage, Tymnet charges, statement/confirm paper
and forms, and microfiche, will be added to the transfer agent fees.
THE SESSIONS GROUP
By /S/ WALTER B. GRIMM
-----------------------------------
Walter B. Grimm, President
BISYS FUND SERVICES, INC.
By /S/ J. DAVID HUBER
-----------------------------------
J. David Huber, President
- 13 -
<PAGE> 14
SCHEDULE D
----------
REPORTS
-------
I. Daily Shareholder Activity Journal
II. Daily Fund Activity Summary Report
A. Beginning Balance
B. Dealer Transactions
C. Shareholder Transactions
D. Reinvested Dividends
E. Exchanges
F. Adjustments
G. Ending Balance
III. Daily Wire and Check Registers
IV. Monthly Dealer Processing Reports
V. Monthly Dividend Reports
VI. Sales Data Reports for Blue Sky Registration
VII. Annual report by independent public accountants concerning BISYS'
shareholder system and internal accounting control systems to be filed
with the Securities and Exchange Commission pursuant to Rule 17Ad-13 of
the Exchange Act.
-14-
<PAGE> 1
Exhibit (11)
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees of
The Sessions Group--
KeyPremier Funds:
We consent to the reference to our firm under the headings "Financial
Highlights" in the Prospectuses and "Auditors" in the Statement of Additional
Information, all of which are included herein. We also consent to the use of our
report dated August 14, 1998 included herein.
Columbus, Ohio
October 28, 1998
<PAGE> 1
Exhibit (19)(b)
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 28, 1998
<PAGE> 1
Exhibit (19)(c)
POWER OF ATTORNEY
-----------------
Paul T. Kane, 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: October 23, 1998 /s/ PAUL T. KANE
---------------------------
Paul T. Kane
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832403
<NAME> THE SESSIONS GROUP
<SERIES>
<NUMBER> 11
<NAME> THE KEYPREMIER PRIME MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 218561748
<INVESTMENTS-AT-VALUE> 218561748
<RECEIVABLES> 278821
<ASSETS-OTHER> 16347
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 218856916
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 996092
<TOTAL-LIABILITIES> 996092
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 217857293
<SHARES-COMMON-STOCK> 217860282
<SHARES-COMMON-PRIOR> 95850207
<ACCUMULATED-NII-CURRENT> 3531
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 217860824
<DIVIDEND-INCOME> 10650
<INTEREST-INCOME> 8761265
<OTHER-INCOME> 0
<EXPENSES-NET> 754930
<NET-INVESTMENT-INCOME> 8016985
<REALIZED-GAINS-CURRENT> 447
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8017432
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8016985
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
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