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Rule 497(a)
Registration No. 33-21489
File No. 811-5545
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION: DATED MARCH 9, 1998
THE KEYPREMIER EMERGING GROWTH FUND [KEYPREMIER FUNDS LOGO]
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3435 Stelzer Road
Columbus, Ohio 43219
For current yield, purchase,
and redemption information,
call (800) 766-3960.
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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 April , 1998.
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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").
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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%(1)
ESTIMATED ANNUAL FUND OPERATING EXPENSES (as a percentage of
average net assets)
Management Fees After Fee Waiver(2)......................... 0.00%
12b-1 Fees.................................................. None
Other Expenses(3)........................................... 1.29
-----
Estimated Total Fund Operating Expenses After Fee
Waiver(2)................................................. 1.29%
=====
</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>
$58 $84
</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.
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(1) The Distributor has agreed to waive the front-end sales charge for all
investments made through June 30, 1998.
(2) The Adviser has agreed voluntarily to waive all of its investment advisory
fees until on or about October 15, 1998. Absent such voluntary fee waivers,
Management Fees and Estimated Total Fund Operating Expenses would be 1.25%
and 2.54%, respectively.
(3) "Other Expenses" are estimated for the current fiscal year.
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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 will be calculated for
the period since commencement of operations for the Emerging Growth Fund and
will reflect the imposition of the maximum sales charge. Average annual total
return is measured by comparing the value of an investment in the Fund at the
beginning of the relevant period to the redeemable value of the investment at
the end of the period (assuming immediate reinvestment of any dividends or
capital gains distributions), which figure is then annualized. Aggregate total
return is calculated similarly to average annual total return except that the
return figure is aggregated over the relevant period instead of annualized.
Yield will be computed by dividing the 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-ori ented 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-
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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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<PAGE> 11
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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<PAGE> 12
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.
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.
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
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<PAGE> 13
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 Trustees of the
Group have set the initial price of the Emerging Growth Fund's Shares at $10 per
share.
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.
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.
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<PAGE> 14
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 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.
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<PAGE> 15
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 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
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<PAGE> 16
good and marketable title to the securities received by it; that the securities
be in proper form of transfer to the Fund; and that adequate information be
provided concerning the basis and other tax matters relating to the securities.
SALES CHARGES
The public offering price of Shares of the 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. The
Distributor, at its expense, will also provide additional compensation to
dealers in connection with sales of Shares of the Emerging Growth Fund. Such
compensation will include financial assistance to dealers in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising campaigns regarding the Emerging Growth Fund, and/or other
dealer-sponsored special events. In some instances, this compensation will be
made available only to certain dealers whose representatives have sold a
significant amount of such Shares. Compensation will include payment for travel
expenses, including lodging, incurred in connection with trips taken by invited
registered representatives and members of their families to locations within or
outside of the United States for meetings or seminars of a business nature.
Compensation will also include the following types of non-cash compensation
offered through sales contests: (1) vacation trips, including the provision of
travel arrangements and lodging at luxury resorts at an exotic location, (2)
tickets for entertainment events (such as concerts, cruises and sporting events)
and (3) merchandise (such as clothing, trophies, clocks and pens). Dealers may
not use sales of the Emerging Growth Fund's Shares to qualify for this
compensation to the extent such may be prohibited by the laws of any state or
any self-regulatory agency, such as the National Association of Securities
Dealers, Inc. None of the aforementioned compensation is paid for by the
Emerging Growth Fund or its Shareholders.
SALES CHARGE WAIVERS
The Distributor has agreed to waive all sales charges for purchases of Shares
of the Emerging Growth Fund made on or before June 30, 1998. Thereafter, 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
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<PAGE> 17
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 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 applica-
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<PAGE> 18
ble 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 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
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<PAGE> 19
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 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,
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<PAGE> 20
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 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
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<PAGE> 21
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 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 mid-term or net
long-term capital gain, if any, over net short-term capital loss is taxable to
Shareholders as mid-term or long-term
21
<PAGE> 22
capital gain, respectively, in the year in which it is received, regardless of
how long the Shareholder has held the Shares. Such distributions are not
eligible for the dividends received deduction.
If the net asset value of a Share is reduced below the Shareholder's cost of
that Share by the distribution of income or gain realized on the sale of
securities, the distribution, from a practical stand point, is a return of
invested principal, although taxable as described above.
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of Shares prior to the record
date will have the effect of reducing the per share net asset value of the
Shares by the amount of the dividends or distributions. All or a portion of such
dividends or distributions, although in effect a return of capital, is subject
to tax.
Additional information regarding federal taxes is contained in the Statement
of Additional Information under the heading "ADDITIONAL INFORMATION--Additional
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
22
<PAGE> 23
Adviser currently has over $2.6 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 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 financial 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.
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
23
<PAGE> 24
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 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 of the date hereof, no
such servicing agreements have been entered into by the Group on behalf of the
Emerging Growth Fund.
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-Stea
24
<PAGE> 25
gall Act" in the Statement of Additional Information for further discussion of
applicable law and regulations.
GENERAL INFORMATION
DESCRIPTION OF THE GROUP AND ITS SHARES
The Group was organized as an Ohio business trust on April 25, 1988. The Group
consists of seventeen funds, each having its own class of shares. Each share
represents an equal proportionate interest in a fund with other shares of the
same fund, and is entitled to such dividends and distributions out of the income
earned on the assets belonging to the fund as are declared at the discretion of
the Trustees (see "Miscellaneous" below). The other funds of the Group are The
KeyPremier Prime Money Market Fund, The KeyPremier Pennsylvania Municipal Bond
Fund, The KeyPremier Established Growth Fund, The KeyPremier Intermediate Term
Income Fund, The KeyPremier Aggressive Growth Fund, The KeyPremier U.S. Treasury
Obligations Money Market Fund, The KeyPremier Limited Duration Government
Securities Fund, 1st Source Monogram Diversified Equity Fund, 1st Source
Monogram Income Equity Fund, 1st Source Monogram Special Equity Fund, 1st Source
Monogram Income Fund, Riverside Capital Money Market Fund, Riverside Capital
Value Fund, Riverside Capital Fixed Income Fund, Riverside Capital Growth Fund
and Riverside Capital Tennessee Municipal Obligations Fund.
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested, and will
vote in the aggregate and not by fund except as otherwise expressly required by
law. For example, Shareholders of 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.
Immediately prior to the public offering of the Emerging Growth Fund's Shares,
BISYS Fund Services Ohio, Inc. was the sole shareholder of the Fund. It is
expected that immediately after the public offering of the Emerging Growth
Fund's Shares, BISYS Fund Services Ohio, Inc.'s
25
<PAGE> 26
holding of Shares of the Fund will be reduced below 5%.
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 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-an nual 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.
26
<PAGE> 27
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>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................... 2
FEE TABLE............................. 3
PERFORMANCE INFORMATION............... 4
INVESTMENT OBJECTIVE AND POLICIES..... 4
INVESTMENT RESTRICTIONS............... 12
VALUATION OF SHARES................... 12
HOW TO PURCHASE AND REDEEM SHARES..... 13
DIVIDENDS AND TAXES................... 21
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 April , 1998
<PAGE> 28
Rule 497(a)
Registration No. 33-21489
File No. 811-5545
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor any
offers to buy be accepted prior to the time the registration statement becomes
effective. This Statement of Additional Information does not constitute a
prospectus.
SUBJECT TO COMPLETION: DATED MARCH 9, 1998
THE KEYPREMIER EMERGING GROWTH FUND
One Investment Portfolio of
THE SESSIONS GROUP
Statement of Additional Information
April __, 1998
This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the prospectus (the "Prospectus") of The
KeyPremier Emerging Growth Fund (the "Emerging Growth Fund") dated as of the
date hereof. The Emerging Growth Fund is one of seventeen funds of The Sessions
Group, an Ohio business trust (the "Group"). This Statement of Additional
Information is incorporated in its entirety into the Emerging Growth Fund's
Prospectus. Copies of the Emerging Growth Fund's Prospectus may be obtained by
writing the Group at 3435 Stelzer Road, Columbus, Ohio 43219, or by telephoning
toll free (800) 766-3960.
<PAGE> 29
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PAGE
THE SESSIONS GROUP.................................................................................... B-1
INVESTMENT OBJECTIVE AND POLICIES..................................................................... B-1
Additional Information on Portfolio Instruments.............................................. B-1
Investment Restrictions..................................................................... B-10
Portfolio Turnover.......................................................................... B-11
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION....................................................... B-12
MANAGEMENT AND SERVICE PROVIDERS OF THE GROUP........................................................ B-12
Trustees and Officers....................................................................... B-12
Investment Adviser.......................................................................... B-15
Portfolio Transactions...................................................................... B-17
Glass-Steagall Act.......................................................................... B-19
Administrator................................................................................B-20
Distributor................................................................................. B-22
Administrative Services Plan................................................................ B-22
Custodian................................................................................... B-23
Transfer Agency and Fund Accounting Services................................................ B-23
Auditors.................................................................................... B-25
Legal Counsel............................................................................... B-25
ADDITIONAL INFORMATION............................................................................... B-25
Description of Shares....................................................................... B-25
Vote of a Majority of the Outstanding Shares................................................ B-26
Additional General Tax Information.......................................................... B-27
30-Day Yield of the Emerging Growth Fund.................................................... B-30
Calculation of Total Return................................................................. B-31
Distribution Rates.......................................................................... B-31
Performance Comparisons..................................................................... B-31
Miscellaneous............................................................................... B-32
APPENDIX.............................................................................................. A-1
</TABLE>
- i -
<PAGE> 30
STATEMENT OF ADDITIONAL INFORMATION
THE SESSIONS GROUP
The Sessions Group (the "Group") is an open-end management investment
company which currently offers seventeen separate investment portfolios. This
Statement of Additional Information covers one of those portfolios, the Emerging
Growth Fund, which is considered to be a diversified portfolio.
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectus. Capitalized terms
not defined herein are defined in the Prospectus. No investment in Shares of the
Emerging Growth Fund should be made without first reading the Fund's Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
The following policies supplement the investment objective and policies
of the Emerging Growth Fund as set forth in the Prospectus.
BANK OBLIGATIONS. The Emerging Growth 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 Emerging Growth Fund 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.
COMMERCIAL PAPER. Commercial paper consists of unsecured
promissory notes issued by corporations. Issues of commercial
<PAGE> 31
paper normally have maturities of less than nine months and fixed rates of
return.
The Emerging Growth 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. The Emerging
Growth 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.
FOREIGN INVESTMENT. Investments in securities issued by foreign
branches of U.S. banks, foreign banks, or other foreign issuers, including ADRs,
may subject the Emerging Growth Fund to investment risks that differ in some
respects from those related to investment in obligations of U.S. domestic
issuers or in U.S. securities markets. Such risks include future adverse
political and economic developments, possible seizure, nationalization, or
expropriation of foreign investments, less stringent disclosure requirements,
the possible establishment of exchange controls or taxation at the source, or
the adoption of other foreign governmental restrictions. The Emerging Growth
Fund will acquire such securities only when the Adviser believes the risks
associated with such investments are minimal.
U.S. GOVERNMENT OBLIGATIONS. The Emerging Growth Fund may invest in
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government are supported by the full faith and credit of the U.S. Treasury;
others are supported by the right of the issuer to borrow from the Treasury;
others are supported by the discretionary authority of the U.S. Government to
purchase the agency's obligations; and still others are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so by law.
The Emerging Growth 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; Treasury inflation protected securities; 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
B-2
<PAGE> 32
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 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.
VARIABLE AND FLOATING RATE SECURITIES. The Emerging Growth Fund may
acquire variable and floating rate securities, subject to the 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 the Emerging Growth Fund will be determined by the
Adviser to be of comparable quality at the time of purchase to rated instruments
eligible for purchase under the Fund's investment policies. In making such
determinations, the Adviser will consider the earning power, cash flow and other
liquidity ratios of the issuers of such 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 the Emerging Growth 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 Emerging Growth 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
B-3
<PAGE> 33
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 the Emerging Growth 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.
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 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 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 the Emerging Growth 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 Emerging Growth Fund will limit its
investment in Section 4(2) securities which are not considered liquid to not
more than 15% of its net assets.
WHEN-ISSUED SECURITIES. As discussed in the Prospectus, the Emerging
Growth 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 the
Emerging Growth Fund agrees to purchase securities on a "when-issued" basis, the
Fund's custodian will set aside cash or liquid portfolio securities equal to the
amount of the commitment in a separate account. Normally, the Emerging Growth
Fund's custodian will set aside portfolio securities to satisfy the purchase
commitment, and in such a case, the Fund may be required subsequently to place
additional assets in the separate account in order to assure that the value of
the account remains equal to the amount of the Fund's commitment. It may be
expected that the Emerging Growth Fund's net assets will fluctuate to a greater
degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. In addition, because the Emerging
Growth Fund will set aside cash or liquid portfolio securities to satisfy its
purchase commitments in the manner described above, the Fund's liquidity and the
ability of the Adviser to manage it might be affected in the
B-4
<PAGE> 34
event its commitments to purchase "when-issued" securities ever exceeded 25% of
its total assets. Under normal market conditions, however, the Emerging Growth
Fund's commitment to purchase "when- issued" or "delayed-delivery" securities
will not exceed 25% of its total assets.
When the Emerging Growth Fund engages in "when-issued" transactions, it
relies on the seller to consummate the trade. Failure of the seller to do so may
result in the Emerging Growth Fund's incurring a loss or missing the opportunity
to obtain a price considered to be advantageous. The Emerging Growth Fund will
engage in "when-issued" delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies and not for investment leverage.
REAL ESTATE INVESTMENT TRUSTS. The Emerging Growth Fund may invest in
equity REITs. REITs pool investors' funds for investment primarily in commercial
real estate properties. Investment in REITs may subject the 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 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 Emerging Growth Fund bears
directly in connection with its own operations.
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 from banks and registered
broker-dealers which the Adviser deems creditworthy under guidelines approved by
the Group's Board of Trustees, subject to the seller's agreement to repurchase
such securities at a mutually agreed-upon date and price. The repurchase price
would generally equal the price paid by the Emerging Growth 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 Emerging Growth Fund would suffer a loss to the extent
that the proceeds from a sale of the underlying portfolio
B-5
<PAGE> 35
securities were less than the repurchase price under the agreement, or to the
extent that the disposition of such securities by the Fund were delayed pending
court action. Additionally, there is no controlling legal precedent confirming
that the Emerging Growth 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
Emerging Growth Fund's custodian or another qualified custodian or in the
Federal Reserve/Treasury book-entry system.
REVERSE REPURCHASE AGREEMENTS. As discussed in the Prospectus, the
Emerging Growth Fund may borrow funds by entering into reverse repurchase
agreements in accordance with its investment restrictions. 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
the securities 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 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 the Emerging Growth Fund may
decline below the price at which the Fund is obligated to repurchase the
securities. Reverse repurchase agreements are considered to be borrowings by the
Emerging Growth Fund under the 1940 Act and therefore a form of leveraging.
HEDGING TRANSACTIONS. Hedging transactions, including the use of
options and futures, in which the Emerging Growth Fund is authorized to engage
as described in the Prospectus, have risks associated with them including
possible default by the other party to the transaction, illiquidity and, to the
extent the Adviser's view as to certain market movements is incorrect, the risk
that the use of such hedging transactions could result in losses greater than if
they had not been used.
Use of put and call options may result in losses to the Emerging Growth
Fund, force the sale or purchase of portfolio securities at inopportune times or
for prices higher than (in the case of put options) or lower than (in the case
of call options) current market values, limit the amount of appreciation the
Emerging Growth Fund can realize on its investments or cause the Fund to hold a
security it might otherwise sell. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of the Emerging Growth Fund create the
B-6
<PAGE> 36
possibility that losses on the hedging instrument may be greater than gains in
the value of the 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 Emerging Growth Fund might not
be able to close out a transaction without incurring substantial losses, if at
all. Although the use of futures and options transactions for hedging should
tend to minimize the risk of loss due to a decline in the value of the hedged
position, at the same time they tend to limit any potential gain which might
result from an increase in value of such position. Finally, the daily variation
margin requirements for futures contracts would create a greater ongoing
potential financial risk than would purchases of options, where the exposure is
limited to the cost of the initial premium. Losses resulting from the use of
hedging transactions would reduce net asset value, and possible income, and such
losses can be greater than if the hedging transactions had not been utilized.
Transactions that may be considered bona fide "hedging transactions"
under applicable federal securities or commodities laws may not be considered
hedging transactions under generally accepted accounting principles but may be
considered trading activity instead.
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 Prospectus and below. In addition,
many hedging transactions involving options require segregation of the Emerging
Growth 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. The Emerging Growth 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.
B-7
<PAGE> 37
Exchange-listed options generally have standardized terms and
performance mechanics unlike over-the-counter traded options. The Emerging
Growth Fund currently expects to purchase and sell only exchange-traded options.
Exchange-traded options generally are guaranteed by the clearing agency which is
the issuer or counterparty to such options. This guarantee usually is supported
by a daily payment system (i.e., variation margin requirements) operated by the
clearing agency in order to reduce overall credit risk. As a result, unless the
clearing agency defaults, there is relatively little counterparty credit risk
associated with options purchased on an exchange.
All options written by the Emerging Growth Fund must be "covered"
(i.e., the Emerging Growth Fund must own the securities or futures contract
subject to a call option or must meet the asset segregation requirements) as
long as the call is outstanding. Even though the Emerging Growth Fund will
receive the option premium to help protect it against loss, a call option
written by the Emerging Growth Fund exposes the Fund during the term of the
option to possible loss of opportunity to realize appreciation in the market
price of the underlying security or instrument and may require the Fund to hold
a security or instrument which it might otherwise have sold. With respect to put
options written by the Emerging Growth Fund, the 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 Prospectus, the Emerging Growth
Fund may enter into futures contracts. This investment technique is designed
primarily to act as a substitute for a position in the underlying security and
to hedge against anticipated future changes in market conditions or interest
rates which otherwise might adversely affect the value of securities which the
Emerging Growth Fund holds or intends to purchase. For example, when interest
rates are expected to rise or market values of portfolio securities are expected
to fall, the Emerging Growth Fund can seek through the sale of futures contracts
to offset a decline in the value of its portfolio securities. When interest
rates are expected to fall or market values are expected to rise, the Emerging
Growth Fund, through the purchase of such contracts, can attempt to secure
better rates or prices for the Fund than might later be available in the market
when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, gives the Emerging Growth Fund the right (but not the obligation),
for a specified price, to sell or to purchase the underlying futures contract,
upon exercise of the option, at any time during the option period.
B-8
<PAGE> 38
Futures transactions involve brokerage costs and require the Emerging
Growth Fund to segregate liquid assets, such as cash, U.S. Government securities
or other liquid obligations, to cover its performance under such contracts. The
Emerging Growth Fund may lose the expected benefit of futures transactions if
interest rates, securities prices or foreign exchange rates move in an
unanticipated manner. Such unanticipated changes may also result in poorer
overall performance than if the Emerging Growth Fund had not entered into any
futures transactions. In addition, the value of the Emerging Growth Fund's
futures positions may not prove to be perfectly or even highly correlated with
the value of its portfolio securities, limiting the Fund's ability to hedge
effectively against interest rate and/or market risk and giving rise to
additional risks. There is no assurance of liquidity in the secondary market for
purposes of closing out futures positions.
REGULATORY RESTRICTIONS. To the extent required to comply with
Securities and Exchange Commission Release No. IC-10666, when purchasing a
futures contract or writing a put option, the Emerging Growth 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," the Emerging Growth 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 the Fund plus premiums paid by it for
open options on futures would exceed 5% of the liquidation value of the Fund's
total assets after taking into account unrealized profits and unrealized losses
on any contracts entered into. The Emerging Growth Fund will not engage in
transactions in futures contracts or options thereon for speculation, but only
to attempt to hedge against changes in market conditions affecting the values of
securities which the Emerging Growth Fund holds or intends to purchase.
SECURITIES OF OTHER INVESTMENT COMPANIES. The Emerging Growth Fund may
invest in securities issued by other investment companies. In addition, the
Emerging Growth Fund may invest in money market funds advised by the Adviser.
The Emerging Growth 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 the Fund. As a shareholder of another investment
company, the Emerging Growth Fund would bear, along with other shareholders, its
pro rata portion of that company's expenses, including advisory
B-9
<PAGE> 39
fees. These expenses would be in addition to the advisory and other expenses
that the Emerging Growth Fund bears directly in connection with its own
operations. Investment companies in which the Emerging Growth Fund 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 the Emerging Growth Fund and, therefore, will be
borne directly by shareholders of the Fund.
INVESTMENT RESTRICTIONS
The Emerging Growth Fund's investment objective is a non-fundamental
policy and may be changed without a vote of the shareholders of the Fund. In
addition to the fundamental investment policies listed in the Prospectus, the
following investment restrictions may be changed only by a vote of the majority
of the outstanding Shares of the Emerging Growth Fund (as defined under
"ADDITIONAL INFORMATION - Vote of a Majority of the Outstanding Shares").
In addition to the investment restrictions set forth in its Prospectus,
the Emerging Growth Fund may not:
1. Purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases of portfolio securities and except as may
be necessary to make margin payments in connection with derivative securities
transactions;
2. Underwrite the securities issued by other persons, except to the
extent that 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 Emerging Growth Fund.
The Emerging Growth 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;
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<PAGE> 40
2. Mortgage or hypothecate the Fund's assets in excess of one-third of
such Fund's total assets; and
3. Engage in any short sales.
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 the Emerging Growth Fund's
investments in illiquid securities, repurchase agreements with maturities in
excess of seven days and other instruments in the Fund which are not readily
marketable to exceed the limit set forth in the Prospectus for its investment in
illiquid securities, the Fund will act to cause the aggregate amount of such
securities to come within such limit as soon as reasonably practicable. In such
an event, however, the Emerging Growth Fund would not be required to liquidate
any portfolio securities where the Fund would suffer a loss on the sale of such
securities.
PORTFOLIO TURNOVER
The portfolio turnover rate for the Emerging Growth Fund is calculated
by dividing the lesser of the 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. The portfolio
turnover rate for the Emerging Growth Fund for its first fiscal period ending
June 30, 1998, is estimated to be less than 50%.
The portfolio turnover rate for the Emerging Growth Fund may vary
greatly from year to year as well as within a particular year, and may also be
affected by cash requirements for redemptions of Shares. High portfolio turnover
rates will generally result in higher transaction costs, including brokerage
commissions, to the Emerging Growth Fund and may result in additional tax
consequences to the Emerging Growth Fund's Shareholders. Portfolio turnover will
not be a limiting factor in making investment decisions.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Emerging Growth Fund 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
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<PAGE> 41
Shares of the Emerging Growth Fund may include officers, directors, or employees
of the Adviser or the Entities.
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the Exchange is
restricted by applicable rules and regulations of the Commission, (b) the
Exchange is closed for other than customary weekend and holiday closings, (c)
the Commission has by order permitted such suspension, or (d) an emergency
exists as a result of which (i) disposal by the Group of securities owned by it
is not reasonably practical, or (ii) it is not reasonably practical for the
Group to determine the fair value of its net assets.
MANAGEMENT AND SERVICE PROVIDERS OF THE GROUP
TRUSTEES AND OFFICERS
Overall responsibility for management of the Group rests with its Board
of Trustees. The Trustees elect the officers of the Group to supervise actively
its day-to-day operations.
The names of the Trustees and officers of the Group, their addresses,
and principal occupations during the past five years are as follows:
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE WITH THE GROUP DURING PAST 5 YEARS
- --------------------- -------------- -------------------
<S> <C> <C>
Walter B. Grimm* Chairman, From June, 1992 to present,
3435 Stelzer Road President and employee of BISYS Fund
Columbus, Ohio 43219 Trustee Services Limited Partnership.
Age: 52
Maurice G. Stark Trustee Consultant with Battelle
505 King Avenue Memorial Institute; from
Columbus, Ohio 43201 1979 to December, 1994,
Age: 62 Vice President-Finance and
Chief Financial Officer,
Battelle Memorial Institute
(scientific research and
development service corporation).
James H. Woodward, Ph.D. Trustee Since July 1989, Chancellor
The University of North of The University of North
Carolina at Charlotte Carolina at Charlotte.
Charlotte, NC 28223
Age: 57
</TABLE>
B-12
<PAGE> 42
<TABLE>
<S> <C> <C>
Chalmers P. Wylie Trustee From April, 1993 to present,
754 Stonewood Court of Counsel with Kegler, Brown,
Columbus, Ohio 43235 Hill & Ritter (law firm); from
Age: 76 January, 1993 to present, Adjunct
Professor at The Ohio State
University; from January, 1967
to January, 1993, Member of the
United States House of Representatives
for the 15th District.
J. David Huber Vice President Since January, 1996,
3435 Stelzer Road President of BISYS Fund
Columbus, Ohio 43219 Services Limited Partnership;
Age: 51 from June, 1987 to December,
1995, employee of
BISYS Fund Services Limited
Partnership.
William J. Tomko Vice President From April, 1987 to present,
3435 Stelzer Road employee of BISYS Fund
Columbus, Ohio 43219 Services Limited
Age: 39 Partnership.
Paul T. Kane Treasurer From December, 1997 to present,
3435 Stelzer Road Vice President and Treasurer of
Columbus, Ohio 43219 Financial Administration of
Age: 41 BISYS Fund Services Limited
Partnership; prior thereto,
Director of Shareholder
Reporting of Fidelity Service
Company (transfer agent).
George L. Stevens Secretary From September, 1996 to
3435 Stelzer Road present, employee of BISYS
Columbus, Ohio 43219 Fund Services Limited
Age: 46 Partnership; from September,
1995 to August, 1996, consultant
on bank investment products and
activities; from June, 1980 to
September, 1995, employee of
AmSouth Bank.
Alaina V. Metz Assistant From June, 1995 to present,
3435 Stelzer Road Secretary employee of BISYS Fund Services
Columbus, Ohio 43219 Limited Partnership; prior to
Age: 30 June, 1995, supervisor of Blue
Sky Compliance at Alliance Capital
Management, L.P. (investment
management firm).
</TABLE>
- -------------------
*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.
B-13
<PAGE> 43
No officer or employee of BISYS or BISYS Fund Services, Inc. receives
any compensation from the Group for acting as trustee of the Group. The officers
of the Group receive no compensation directly from the Group for performing the
duties of their offices. BISYS receives fees from the Emerging Growth 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 Emerging Growth Fund for acting as transfer agent and for providing certain
fund accounting services. Messrs. Grimm, Huber, Tomko and Stevens, Ms. Dewar and
Ms. Metz are employees of BISYS.
The following table sets forth information regarding all compensation
paid by the Group to its Trustees for their services as trustees during the
fiscal year ended June 30, 1997. The Group has no pension or retirement plans.
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
NAME AND POSITION COMPENSATION FROM THE GROUP
WITH THE GROUP FROM THE GROUP AND THE FUND COMPLEX*
- -------------- -------------- ---------------------
<S> <C> <C>
Walter B. Grimm $ 0 $ 0
Trustee
Nancy E. Converse(1) $ 0 $ 0
Trustee
Maurice G. Stark $14,473 $14,473
Trustee
James H. Woodward, Ph.D $16,162 $16,162
Trustee
Chalmers P. Wylie $14,973 $14,973
Trustee
</TABLE>
- --------------------
*For purposes of this Table, Fund Complex means one or more mutual
funds, including the Emerging Growth Fund, 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.
B-14
<PAGE> 44
INVESTMENT ADVISER
Investment advisory and management services are provided to the
Emerging Growth Fund by Martindale, Andres & Company, Inc. (the "Adviser"),
pursuant to an Investment Advisory Agreement dated as of July 9, 1996, as
amended as of April ___, 1998. Under the Investment Advisory Agreement, the
Adviser has agreed to provide investment advisory services for the Emerging
Growth Fund as described in the Prospectus. For the services provided and
expenses assumed pursuant to the Investment Advisory Agreement, 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.
Pursuant to the Investment Advisory Agreement, the Adviser also serves
as investment adviser to seven other series of the Group: The KeyPremier Prime
Money Market Fund (the "Prime Money Market Fund"), The KeyPremier U.S. Treasury
Obligations Money Market Fund (the "Treasury Money Market Fund"), The KeyPremier
Pennsylvania Municipal Bond Fund (the "Pennsylvania Bond Fund"), The KeyPremier
Intermediate Term Income Fund (the "Income Fund"), The KeyPremier Limited
Duration Government Securities Fund, The KeyPremier Established Growth Fund (the
"Established Growth Fund") and The KeyPremier Aggressive Growth Fund (the
"Aggressive Growth Fund"). The Emerging Growth Fund, the Prime Money Market
Fund, the Treasury Money Market Fund, the Pennsylvania Bond Fund, the Income
Fund, the Government Securities Fund, the Established Growth Fund, and the
Aggressive Growth Fund are hereafter collectively referred to as the "Funds" and
individually as a "Fund." For such services provided and expenses assumed, the
Prime Money Market Fund and the Treasury Money Market Fund each pay the Adviser
a fee, computed daily and paid monthly, at the annual rate of forty
one-hundredths of one percent (.40%) of the average daily net assets of such
Fund; the Pennsylvania Bond Fund, the Income Fund and the Government Securities
Fund each pay the Adviser a fee, computed daily and paid monthly, at the annual
rate of sixty one-hundredths of one percent (.60%) of the average daily net
assets of such Fund; the Established Growth Fund pays the Adviser a fee,
computed daily and paid monthly, at the annual rate of seventy-five
one-hundredths of one percent (.75%) of the average daily net assets of the
Established Growth Fund; and the Aggressive Growth Fund pays the Adviser a fee,
computed daily and paid monthly, at the annual rate of one percent (1.00%) of
the average daily net assets of the Aggressive Growth Fund.
The Adviser may from time to time voluntarily reduce all or a portion
of its advisory fee with respect to the Emerging Growth Fund to increase the net
income of that Fund available for distribution as dividends.
For the year ended June 30, 1997, the Adviser earned and voluntarily waived
the amounts indicated below with respect to its
B-15
<PAGE> 45
investment advisory services to the indicated Funds pursuant to the Investment
Advisory Agreement:
FISCAL PERIOD ENDED
JUNE 30, 1997(1)
--------------------------
FEES EARNED FEES WAIVED
----------- -----------
Prime Money Market Fund $282,882 $236,280
Pennsylvania Bond Fund 506,296 420,686
Established Growth Fund 735,635 558,942
Income Fund 680,552 529,626
Aggressive Growth Fund 385,280 263,486
- -------------------------
(1) Such Funds commenced operations October 7, 1996, October 1, 1996,
December 2, 1996, December 2, 1996, and February 3, 1997, respectively.
For the fiscal year ended June 30, 1997, the Adviser had not received
any compensation under the Investment Advisory Agreement with respect to any of
the Treasury Money Market Fund, the Government Securities Fund or the Emerging
Growth Fund since none of those Funds had yet commenced operations.
Unless sooner terminated, the Investment Advisory Agreement will
continue in effect with respect to a Fund until July 9, 1998, and from year to
year thereafter, for successive annual periods ending on July 9th, if, as to
that Fund, such continuance is approved at least annually by the Group's Board
of Trustees or by vote of a majority of the outstanding Shares of that Fund (as
defined under "GENERAL INFORMATION - Miscellaneous" in such Fund's Prospectus),
and a majority of the Trustees who are not parties to the Investment Advisory
Agreement or interested persons (as defined in the 1940 Act) of any party to the
Investment Advisory Agreement by votes cast in person at a meeting called for
such purpose. The Investment Advisory Agreement is terminable as to a Fund at
any time on at least 60 days' written notice without penalty by the Trustees, by
vote of a majority of the outstanding Shares of that Fund, or by the Adviser.
The Investment Advisory Agreement also terminates automatically in the event of
any assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that the Adviser shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by a Fund in connection with the performance of the Investment Advisory
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith, or gross negligence on the part of the Adviser in the
B-16
<PAGE> 46
performance of its duties, or from reckless disregard by the
Adviser of its duties and obligations thereunder.
The Adviser has agreed that the Emerging Growth Fund 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 Emerging Growth
Fund 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 Emerging Growth Fund's investment objectives and
restrictions, which securities are to be purchased and sold by such Fund, and
which brokers and dealers are to be eligible to execute the Emerging Growth
Fund's portfolio transactions. Purchases and sales of portfolio securities with
respect to the Emerging Growth Fund will usually be 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. To the extent applicable, purchases from underwriters of portfolio
securities generally include a commission or concession paid by the issuer to
the underwriter, and purchases from dealers serving as market makers may include
the spread between the bid and asked price.
Allocation of transactions, including their frequency, to various
brokers and dealers is determined by the Adviser in its best judgment and in a
manner deemed fair and reasonable to Shareholders. The primary consideration is
prompt execution of orders in an effective manner at the most favorable price.
Subject to this consideration, brokers and dealers who provide supplemental
investment research to the Adviser may receive orders for transactions on behalf
of the Emerging Growth Fund. The Adviser is authorized to pay a broker-dealer
who provides such brokerage and research services a commission for executing
such Fund's brokerage transactions which is in excess of the amount of
commission another broker would have charged for effecting that transaction if,
but only if, the Adviser determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker viewed in terms of that particular transaction or in
terms of all of the accounts over which it exercises investment discretion. Any
such research and
B-17
<PAGE> 47
other statistical and factual information provided by brokers to the Emerging
Growth 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 such Fund. The cost, value and specific application of
such information are indeterminable and hence are not practicably allocable
among the Emerging Growth Fund and other clients of the Adviser, including the
other Funds, who may indirectly benefit from the availability of such
information. Similarly, the Emerging Growth Fund 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 Emerging Growth Fund.
The Adviser may direct brokerage transactions on behalf of the Emerging
Growth Fund to Boston Institutional and to other brokerage firms in return for
research services relating to equity securities including market information
from Bloomberg Financial Markets, Zacks Software for equity analysis and other
equity research services.
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 the Emerging Growth Fund.
Such information may be useful to the Adviser in serving both the Emerging
Growth 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 the Emerging Growth Fund.
Except as otherwise disclosed to the Shareholders of the Emerging
Growth Fund and as permitted by applicable laws, rules and regulations, the
Group will not, on behalf of the Emerging Growth 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 the Emerging Growth Fund are made
independently from those for other Funds or any other investment company or
account managed by the Adviser. Any such other Fund,
B-18
<PAGE> 48
investment company or account may also invest in the same securities as the
Group on behalf of the Emerging Growth Fund. When a purchase or sale of the same
security is made at substantially the same time on behalf of the Emerging Growth
Fund and another Fund, 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 the Emerging Growth
Fund or the size of the position obtained by the Emerging Growth Fund. To the
extent permitted by law, the Adviser may aggregate the securities to be sold or
purchased for the Emerging Growth Fund with those to be sold or purchased for
other Funds, investment companies or accounts in order to obtain best execution.
As provided by the Investment Advisory Agreement, in making investment
recommendations for the Emerging Growth Fund, 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 Emerging Growth Fund or any other
Fund.
GLASS-STEAGALL ACT
In 1971, the United States Supreme Court held in INVESTMENT COMPANY
INSTITUTE V. CAMP that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM V.
INVESTMENT COMPANY INSTITUTE that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the BOARD
OF GOVERNORS case, the Supreme Court also stated that if a national bank
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment
B-19
<PAGE> 49
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 Emerging Growth Fund contemplated by the Prospectus, this
Statement of Additional Information and the Investment Advisory Agreement
without violation of applicable statutes and regulations. Future changes in
either Federal or state statutes and regulations relating to the permissible
activities of banks or bank holding companies and the subsidiaries or affiliates
of those entities, as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations, could prevent or
restrict the Adviser from continuing to perform such services for the Group. In
addition, current state securities laws on the issue of the registration of
banks as brokers or dealers may differ from the interpretation of federal law,
and banks and financial institutions may be required to register as dealers
pursuant to the laws of a specific state. Depending upon the nature of any
changes in the services which could be provided by the Adviser, the Board of
Trustees of the Group would review the Group's relationship with the Adviser and
consider taking all action necessary in the circumstances.
Should future legislative, judicial, or administrative action prohibit
or restrict the proposed activities of the Adviser and/or the Adviser's
affiliated and correspondent banks in connection with Customer purchases of
Shares of the Emerging Growth 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 Emerging
Growth Fund pursuant to a Management and Administration Agreement dated July 9,
1996, as amended as of April __, 1998 (the "Administration Agreement"). The
Administrator assists in supervising all operations of the Emerging Growth Fund
(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
B-20
<PAGE> 50
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 Group
on behalf of the Emerging Growth Fund and file all of the Emerging Growth Fund's
federal and state tax returns and required tax filings other than those required
to be made by the Emerging Growth Fund's 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 Emerging Growth Fund, including calculation of daily expense accruals;
and generally assist in all aspects of the Emerging Growth Fund's 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 the Emerging Growth 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 such
Fund's average daily net assets.
For the fiscal year ended June 30, 1997, the Administrator had not
received any compensation under the Administration Agreement with respect to the
Emerging Growth Fund since those Funds had not yet commenced operations.
Unless sooner terminated as provided therein, the Administration
Agreement has an initial term expiring on July 9, 1999, and thereafter shall be
renewed automatically for successive one-year terms, unless written notice not
to renew is given by the non-renewing party to the other party at least 60 days
prior to the expiration of the then-current term. The Administration Agreement
is terminable with respect to the Emerging Growth 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.
B-21
<PAGE> 51
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
the Emerging Growth 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 the Emerging Growth Fund in the distribution
of its Shares pursuant to a Distribution Agreement dated July 9, 1996, as
amended as of April __, 1998 (the "Distribution Agreement"). Unless otherwise
terminated, the Distribution Agreement has an initial term expiring on July 9,
1998, and thereafter shall be renewed automatically for successive annual
periods ending July 9th if approved at least annually (i) by the Group's Board
of Trustees or by the vote of a majority of the outstanding Shares of the Funds,
and (ii) by the vote of a majority of the Trustees of the Group who are not
parties to the Distribution Agreement or interested persons (as defined in the
1940 Act) of any party to the Distribution Agreement, cast in person at a
meeting called for the purpose of voting on such approval. The Distribution
Agreement also terminates automatically in the event of any assignment, as
defined in the 1940 Act.
In its capacity as Distributor, BISYS solicits orders for the sale of
Shares, advertises and pays the costs of advertising, office space and the
personnel involved in such activities. BISYS receives no compensation under the
Distribution Agreement with the Group but retains all or a portion of any sales
charge imposed upon a purchase of the Shares.
ADMINISTRATIVE SERVICES PLAN
As described in the Prospectus, the Group has also adopted an
Administrative Services Plan (the "Services Plan") under which the Emerging
Growth 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 Emerging Growth Fund. Payments to such Service
Organizations are made pursuant to Servicing Agreements between the Group and
the Service Organization. The Services Plan authorizes the Emerging Growth 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 such 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)
B-22
<PAGE> 52
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 the Emerging Growth Fund
by a vote of a majority of the Disinterested Trustees. The Trustees review
quarterly a written report of the amounts expended pursuant to the Services Plan
and the purposes for which such expenditures were made. The Services Plan may be
amended by a vote of the Trustees, provided that any material amendments also
require the vote of a majority of the Disinterested Trustees. For so long as the
Services Plan is in effect, selection and nomination of those Disinterested
Trustees shall be committed to the discretion of the Group's Disinterested
Trustees. All Servicing Agreements may be terminated at any time without the
payment of any penalty by a vote of a majority of the Disinterested Trustees.
The Services Plan will continue in effect for successive one-year periods,
provided that each such continuance is specifically approved by a majority of
the Board of Trustees, including a majority of the Disinterested Trustees.
CUSTODIAN
The Bank of New York, 48 Wall Street, New York, New York, 10286, serves
as custodian (the "Custodian") to the Emerging Growth Fund pursuant to the
Custody Agreement dated as of July 9, 1996, as amended as of April __, 1998. The
Custodian's responsibilities include safeguarding and controlling the Emerging
Growth Fund's cash and securities, handling the receipt and delivery of
securities, and collecting interest and dividends on the Emerging Growth 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 Emerging Growth Fund pursuant to
the Transfer Agency Agreement dated July 9, 1996, as amended as of April __,
1998. Pursuant to such Agreement, the Transfer Agent, among other things,
performs the following services in connection with the Emerging Growth Fund's
Shareholders of record: maintenance of shareholder records for the Emerging
Growth Fund's Shareholders of record; processing Shareholder purchase and
redemption orders; processing transfers and exchanges of Shares of the Emerging
Growth Fund on the Shareholder files and records; processing dividend payments
and reinvestments; and assistance in the mailing of Shareholder reports and
proxy solicitation materials. For such services the Transfer Agent receives a
fee based on the number of shareholders of record.
For the fiscal year ended June 30, 1997, 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.
B-23
<PAGE> 53
In addition, BISYS Fund Services, Inc. provides certain fund accounting
services to the Emerging Growth Fund pursuant to a Fund Accounting Agreement
dated July 9, 1996, as amended as of April __, 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. Under
such Agreement, BISYS Fund Services, Inc. maintains the accounting books and
records for the Emerging Growth Fund, including journals containing an itemized
daily record of all purchases and sales of portfolio securities, all receipts
and disbursements of cash and all other debits and credits, general and
auxiliary ledgers reflecting all asset, liability, reserve, capital, income and
expense accounts, including interest accrued and interest received, and other
required separate ledger accounts; maintains a monthly trial balance of all
ledger accounts; performs certain accounting services for the Emerging Growth
Fund, including calculation of the net asset value per share, calculation of the
dividend and capital gain distributions, if any, and of yield, reconciliation of
cash movements with the Emerging Growth Fund's custodian, and verification and
reconciliation with the Emerging Growth Fund's custodian of all daily trade
activity; provides certain reports; obtains dealer quotations, prices from a
pricing service or matrix prices on all portfolio securities in order to mark
the portfolio to the market; and prepares an interim balance sheet, statement of
income and expense, and statement of changes in net assets for the Emerging
Growth Fund.
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 the Emerging Growth 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 the Emerging Growth 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.
B-24
<PAGE> 54
For the fiscal year ended June 30, 1997, 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
KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio 43215, has
been selected as the independent auditors for the Emerging Growth Fund and as
such will audit the financial statements of such Fund.
LEGAL COUNSEL
Baker & Hostetler LLP, 65 East State Street, Columbus, Ohio 43215 is
counsel to the Group and will pass upon the legality of the Shares offered
hereby.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES
The Group is an Ohio business trust. The Group was organized on April
25, 1988, and the Group's Declaration of Trust was filed with the Secretary of
State of Ohio on April 25, 1988. The Declaration of Trust authorizes the Board
of Trustees to issue an unlimited number of shares, which are shares of
beneficial interest, without par value. The Group presently has seventeen series
of shares, one of which represent interests in the Emerging Growth Fund. The
other sixteen series are the Prime Money Market Fund, the Treasury Money Market
Fund, the Pennsylvania Bond Fund, the Income Fund, the Government Securities
Fund, the Established Growth Fund, the Aggressive Growth Fund, Riverside Capital
Money Market Fund, Riverside Capital Value Equity Fund, Riverside Capital Fixed
Income Fund, Riverside Capital Tennessee Municipal Obligations Fund, Riverside
Capital Growth Fund, 1st Source Monogram Diversified Equity Fund, 1st Source
Monogram Income Equity Fund, 1st Source Monogram Special Equity Fund and 1st
Source Monogram Income Fund. The Group's Declaration of Trust authorizes the
Board of Trustees to divide or redivide any unissued shares of the Group into
one or more additional series by setting or changing in any one or more respects
their respective preferences, conversion or other rights, voting power,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the applicable Prospectus
and this Statement of Additional Information, the Shares will be fully paid and
non-assessable. In the event of
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a liquidation or dissolution of the Group, shareholders of a fund are entitled
to receive the assets available for distribution belonging to that fund, and a
proportionate distribution, based upon the relative asset values of the
respective funds, of any general assets not belonging to any particular fund
which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Group shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each fund affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding shares of a fund will be required in
connection with a matter, a fund will be deemed to be affected by a matter
unless it is clear that the interests of each fund in the matter are identical,
or that the matter does not affect any interest of the fund. Under Rule 18f-2,
the approval of an investment advisory agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to a fund only if
approved by a majority of the outstanding shares of such fund. However, Rule
18f-2 also provides that the election of Trustees may be effectively acted upon
by shareholders of the Group voting without regard to series.
As of the date immediately preceding the public offering of the
Emerging Growth Fund's Shares, BISYS Fund Services Ohio, Inc. owned all of the
issued and outstanding Shares of such Fund. It is anticipated that, upon
commencement of the public offering of the Emerging Growth Fund's Shares, BISYS
Fund Services Ohio, Inc.'s holdings of Shares in such Fund will be reduced below
5%.
VOTE OF A MAJORITY OF THE OUTSTANDING SHARES
As used in the Prospectus and this Statement of Additional Information,
a "vote of a majority of the outstanding Shares" of 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 such Fund present at a
meeting at which the holders of more than 50% of the votes attributable to
Shareholders of record of such Fund are represented in person or by proxy, or
(b) the holders of more than 50% of the outstanding votes of Shareholders of
that Fund.
ADDITIONAL GENERAL TAX INFORMATION
Each of the seventeen funds of the Group is treated as a separate
entity for federal income tax purposes and intends to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"), for so long as such qualification is in the best interest of that
fund's shareholders.
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In order to qualify as a regulated investment company, the Emerging Growth 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, the Emerging Growth Fund must distribute to its
Shareholders at least 90% of its investment company taxable income for the year.
In general, the Emerging Growth Fund's investment company taxable income will be
its taxable income subject to certain adjustments and excluding the excess of
any net mid-term or net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year.
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, the
Emerging Growth Fund would be subject to a non-deductible excise tax equal to 4%
of the deficiency.
Although the Emerging Growth Fund expects to qualify as a "regulated
investment company" and to be relieved of all or substantially all federal
income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located, or in which it is otherwise deemed to be
conducting business, the Emerging Growth Fund may be subject to the tax laws of
such states or localities. In addition, if for any taxable year the Emerging
Growth 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 the Emerging Growth Fund will distribute annually
to 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
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income tax purposes, even if paid in additional Shares of that Fund
and not in cash.
Distribution by the Emerging Growth Fund of the excess of net mid-term
or net long-term capital gain over net short-term capital loss, if any, is
taxable to Shareholders as mid-term or long-term capital gain, respectively, in
the year in which it is received, regardless of how long the Shareholder has
held the Shares. Such distributions are not eligible for the dividends-received
deduction.
Federal taxable income of individuals is subject to graduated tax rates
of 15%, 28%, 31%, 36% and 39.6%. Further, the effective marginal tax rate may be
in excess of 39.6%, because adjustments reduce or eliminate the benefit of the
personal exemption and itemized deductions for individuals with gross income in
excess of certain threshold amounts.
Long-term capital gains of individuals are subject to a maximum tax
rate of 20% (10% for individuals in the 15% ordinary income tax bracket).
Mid-term capital gains of individuals are subject to tax at the same rates
applicable to ordinary income; however, the tax rate on mid-term capital gains
of individuals cannot exceed 28%. Capital losses may be used to offset capital
gains. In addition, individuals may deduct up to $3,000 of net capital loss each
year to offset ordinary income. Excess net capital loss may be carried forward
and deducted in future years. The holding period for mid-term capital gains is
more than one year but not more than eighteen months; the holding period for
long-term capital gains is more than eighteen months.
Federal taxable income of corporations in excess of $75,000 up to $10
million is subject to a 34% tax rate; however, because the benefit of lower tax
rates on a corporation's taxable income of less than $75,000 is phased out for
corporations with income in excess of $100,000 but lower than $335,000, a
maximum marginal tax rate of 39% may result. Federal taxable income of
corporations in excess of $10 million is subject to a tax rate of 35%. Further,
a corporation's federal taxable income in excess of $15 million is subject to an
additional tax equal to 3% of taxable income over $15 million, but not more than
$100,000.
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. The Emerging Growth Fund
will designate the portion of any distributions which qualify for the 70%
dividends received
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deduction. The amount so designated may not exceed the amount received by such
Fund for its taxable year that qualifies for the dividends received deduction.
Foreign taxes may be imposed on the Emerging Growth Fund by foreign
countries with respect to its income from foreign securities. Since less than
50% in value of the Emerging Growth 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 Emerging Growth Fund.
Under Section 1256 of the Code, gain or loss realized by the Emerging
Growth 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 Emerging Growth 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 the Emerging Growth 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 Emerging Growth 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 Emerging
Growth 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 Emerging Growth Fund, losses realized by such Fund will be
deferred to the extent of unrealized gain in any offsetting positions. Moreover,
as a result of the straddle and conversion transaction rules, short-term capital
losses on straddle positions may be recharacterized as long-term capital losses
and long-term capital gains may be recharacterized as short-term capital gain or
ordinary income.
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The Emerging Growth 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 such Fund, if such Shareholder (1) fails to
furnish the Emerging Growth Fund with a correct taxpayer identification number,
(2) under-reports dividend or interest income, or (3) fails to certify to the
Emerging Growth Fund that he or she is not subject to such withholding. An
individual's taxpayer identification number is his or her Social Security
number.
Information set forth in the Prospectus and this Statement of
Additional Information which relates to Federal taxation is only a summary of
some of the important Federal tax considerations generally affecting purchasers
of Shares of the Emerging Growth Fund. No attempt has been made to present a
detailed explanation of the Federal income tax treatment of the Emerging Growth
Fund or its Shareholders and this discussion is not intended as a substitute for
careful tax planning. Accordingly, potential purchasers of Shares of the
Emerging Growth Fund are urged to consult their tax advisers with specific
reference to their own tax situation. In addition, the tax discussion in the
Prospectus and this Statement of Additional Information is based on tax laws and
regulations which are in effect on the date of the Prospectus and this Statement
of Additional Information; such laws and regulations may be changed by
legislative or administrative action.
Information as to the federal income tax status of all distributions
will be mailed annually to each Shareholder.
30-DAY YIELD OF THE EMERGING GROWTH FUND
As summarized in the Prospectus under the heading "PERFORMANCE
INFORMATION," the yield of the Emerging Growth Fund will be computed by
annualizing net investment income per share for a recent 30-day period and
dividing that amount by such Fund Share's maximum offering price (reduced by any
undeclared earned income expected to be paid shortly as a dividend) on the last
trading day of that period. Net investment income will reflect amortization of
any market value premium or discount of fixed income securities (except for
obligations backed by mortgages or other assets) and may include recognition of
a pro rata portion of the stated dividend rate of dividend paying portfolio
securities. The yield of the Emerging Growth 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 the Emerging Growth Fund's yield to yields published
for other investment companies and other investment vehicles. Yield should also
be considered relative to changes in the value of the Emerging Growth Fund's
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Shares and to the relative risks associated with the investment objectives and
policies of that Fund.
CALCULATION OF TOTAL RETURN
As summarized in the Prospectus under the heading "PERFORMANCE
INFORMATION," average annual total return is a measure of the change in value of
an investment in the Emerging Growth 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 the Emerging Growth Fund (less the
maximum sales charge) 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. The Emerging Growth 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 of the change in value of an investment in the Emerging
Growth Fund over the relevant period and is calculated similarly to average
annual total return except that the result is not annualized.
DISTRIBUTION RATES
The Emerging Growth Fund may from time to time advertise current
distribution rates which are calculated in accordance with the method disclosed
in the Prospectus.
PERFORMANCE COMPARISONS
Investors may judge the performance of the Emerging Growth Fund 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.,
The Frank Russell Company 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 Emerging Growth Fund that appears in
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a publication such as those mentioned above may be included in advertisements,
sales literature and reports to shareholders. The Emerging Growth Fund 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 Emerging Growth Fund; (5) descriptions of
investment strategies for the Emerging Growth Fund; (6) descriptions or
comparisons of various investment products, which may or may not include the
Emerging Growth Fund; (7) comparisons of investment products (including the
Emerging Growth Fund) 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 the Emerging Growth 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 the Emerging Growth Fund.
Current yields or total return will fluctuate from time to time and are
not necessarily representative of future results. Accordingly, the Emerging
Growth 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 the Emerging Growth Fund's quality
and composition, 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
the Emerging Growth 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
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the Trustees will call a special meeting for the purpose of considering the
removal of one or more Trustees upon written request therefor from shareholders
owning not less than 10% of the outstanding votes of the Group entitled to vote.
At such a meeting, a quorum of shareholders (constituting a majority of votes
attributable to all outstanding shares of the Group), by majority vote, has the
power to remove one or more Trustees.
The Group is registered with the Commission as a management investment
company. Such registration does not involve supervision by the Commission of the
management or policies of the Group.
The Prospectus and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Commission. Copies of such information may be obtained from the Commission
upon payment of the prescribed fee.
The Prospectus and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized to
give any information or make any representation other than those contained in
the Prospectus and this Statement of Additional Information.
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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 ratings of 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
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supported by good fundamental protection factors. Risk factors are minor. Duff
1- is regarded as having a high certainty of timely payment. Liquidity factors
are strong and supported by good fundamental protection factors. Risk factors
are minor. Duff 2 is regarded as having a good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
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 (+) or minus (-) sign is used after a rating symbol to
designate the relative position of an issuer within the rating category.
DEFINITIONS OF CERTAIN MONEY MARKET INSTRUMENTS
Commercial Paper
Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
Certificates of Deposit
Certificates of Deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return.
Bankers' Acceptances
Bankers' acceptances are negotiable drafts or bills of exchange,
normally drawn by an importer or exporter to pay for specific merchandise, which
are "accepted" by a bank, meaning, in effect, that the bank unconditionally
agrees to pay the face value of the instrument on maturity.
U.S. Treasury Obligations
U.S. Treasury Obligations are obligations issued or guaranteed
as to payment of principal and interest by the full faith and
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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-3
