<PAGE>
As filed with the Securities and Exchange Commission on September 26, 1997
Registration Nos. 33-27491
811-5782
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [_]
Post-Effective Amendment No. 19 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 20 [X]
----------------------------
M.S.D. & T. Funds, Inc.
(Exact Name of Registrant as Specified in Charter)
Two Hopkins Plaza
Baltimore, Maryland 21201
(Address of Principal Executive Offices)
Registrant's Telephone Number:
1-800-551-2145
W. Bruce McConnel, III, Esq.
Drinker Biddle & Reath LLP
1100 Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box):
[X] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
M.S.D. & T. FUNDS, INC.
Prime Money Market Fund
Government Money Market Fund
Tax-Exempt Money Market Fund
CROSS REFERENCE SHEET
---------------------
Pursuant to Rule 495
under the Securities Act of 1933
<TABLE>
<CAPTION>
Form N-1A Item Number Location
- --------------------- --------
Part A Prospectus Caption
- ------ ------------------
<S> <C>
1. Cover Page......................... Cover Page
2. Synopsis........................... Expense Summary
3. Condensed Financial Information.... Financial Highlights; Performance
Reporting
4. General Description of Registrant.. Cover Page; Investment Objectives,
Policies and Risks; Fundamental
Limitations; Other Information
Concerning the Company and Its Shares;
Miscellaneous
5. Management of the Fund............. Management of the Company;
Investing in the Funds; Shareholder
Services
5A. Management's Discussion of Fund
Performance........................ Not Applicable
6. Capital Stock and Investing in the Funds; Dividends
Other Securities................... and Distributions; Tax Information;
Other Information Concerning the
Company and Its Shares; Shareholder
Services; Miscellaneous
7. Purchase of Securities Being Offered Investing in the Funds
8. Redemption or Repurchase........... Investing in the Funds
9. Pending Legal Proceedings.......... Not Applicable
</TABLE>
<PAGE>
M.S.D.&T. Funds, Inc.
..................................................
Prospectus
Prime Money Market Fund
Government Money Market Fund
Tax-Exempt Money Market Fund
SEPTEMBER 26, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY............................................................ 2
FINANCIAL HIGHLIGHTS....................................................... 3
INVESTMENT OBJECTIVES, POLICIES AND RISKS.................................. 5
FUNDAMENTAL LIMITATIONS.................................................... 10
INVESTING IN THE FUNDS..................................................... 10
SHAREHOLDER SERVICES....................................................... 15
DIVIDENDS AND DISTRIBUTIONS................................................ 16
TAX INFORMATION............................................................ 16
MANAGEMENT OF THE COMPANY.................................................. 17
OTHER INFORMATION CONCERNING THE COMPANY AND ITS SHARES.................... 18
PERFORMANCE REPORTING...................................................... 19
MISCELLANEOUS.............................................................. 19
</TABLE>
IF YOU HAVE QUESTIONS
For current yield, purchase and redemption information, call 1-800-551-2145.
<PAGE>
M.S.D. & T. FUNDS, INC.
PROSPECTUS
FOR THE
PRIME MONEY MARKET FUND
GOVERNMENT MONEY MARKET FUND
TAX-EXEMPT MONEY MARKET FUND
SEPTEMBER 26, 1997
<TABLE>
- ------------------------------------------------------------------------------------------
<CAPTION>
M.S.D. & T. FUND GOAL FOR INVESTORS WHO WANT
- ------------------------------------------------------------------------------------------
<S> <C> <C>
PRIME MONEY MARKET High current income, liquidity A flexible and convenient way to
and stability of principal manage cash while earning money
through investments in short- market returns.
term money market instruments.
- ------------------------------------------------------------------------------------------
GOVERNMENT MONEY MARKET High current income, liquidity A way to earn money market
and stability of principal returns with the extra margin of
through investments in U.S. safety associated with U.S.
Government obligations and Government obligations.
related repurchase agreements.
- ------------------------------------------------------------------------------------------
TAX-EXEMPT MONEY MARKET High current income free of A way to earn tax-free money
Federal income tax, with market returns.
liquidity and stability of
principal through investments in
short-term municipal
obligations.
- ------------------------------------------------------------------------------------------
</TABLE>
SHARES OF THE FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED, ENDORSED OR OTHERWISE SUPPORTED BY, MERCANTILE-SAFE DEPOSIT AND
TRUST COMPANY, ITS PARENT COMPANY OR ITS AFFILIATES, AND 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. INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL. WHILE THE FUNDS WILL ATTEMPT TO MAINTAIN THEIR NET ASSET
VALUE AT $1.00 PER SHARE, THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE
ABLE TO DO SO ON A CONTINUOUS BASIS. IN ADDITION, THE DIVIDENDS PAID BY A FUND
WILL GO UP AND DOWN. MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY SERVES AS
INVESTMENT ADVISER AND ADMINISTRATOR TO THE FUNDS, IS PAID FEES FOR ITS
SERVICES, AND IS NOT AFFILIATED WITH BISYS FUND SERVICES, THE FUNDS'
DISTRIBUTOR.
This Prospectus relates to shares of the Prime Money Market, Government
Money Market and Tax-Exempt Money Market Funds (the "Funds") of M.S.D. & T.
Funds, Inc. (the "Company"), a no-load, open-end management investment
company. This Prospectus describes concisely the information about the Funds
that you should know before investing. Please read and keep it for future
reference. More information about the Funds is contained in the Statement of
Additional Information dated September 26, 1997 that has been filed with the
Securities and Exchange Commission (the "SEC"). The Statement of Additional
Information, which can be obtained free of charge upon request by writing to
the Company at Two Hopkins Plaza, Baltimore, Maryland 21201 or by calling 1-
800-551-2145, is incorporated by reference into (considered a part of) this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing in a Fund.
Annual Fund Operating Expenses are paid out of a Fund's assets and include
fees for portfolio management, maintenance of shareholder accounts, general
Fund administration, accounting, custody and other services.
Below is information regarding the operating expenses for the Funds.
Examples based on this information are also provided.
<TABLE>
<CAPTION>
GOVERNMENT TAX-EXEMPT
PRIME MONEY MONEY MARKET MONEY MARKET
MARKET FUND FUND FUND
----------- ------------ ------------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees (after fee waivers)/1/... .24% .23% .23%
Other Expenses (after fee waivers)
(includes administration, custody and
transfer agency, and miscellaneous other
charges)/1/............................. .18% .19% .20%
--- --- ---
Total Fund Operating Expenses (after fee
waivers)/1/............................. .42% .42% .43%
=== === ===
</TABLE>
- -------------------
/1/This expense information is provided to help you understand the various
costs and expenses that you would bear indirectly as a shareholder of one of
the Funds. The expense information for the Prime Money Market Fund and
Government Money Market Fund is based on the expenses the Funds incurred
during the fiscal year ended May 31, 1997, as restated to reflect the expenses
which the Funds expect to incur during the current fiscal year. Without fee
waivers by the investment adviser and administrator, Management Fees, Other
Expenses and Total Fund Operating Expenses, stated as a percentage of average
daily net assets, would be .25%, .23% and .48%, respectively, for the Prime
Money Market Fund; and .25%, .23% and .48%, respectively, for the Government
Money Market Fund. The expense information for the Tax-Exempt Money Market
Fund is based on the expenses the Fund incurred during the fiscal year ended
May 31, 1997. Without fee waivers by the investment adviser and administrator,
Management Fees, Other Expenses and Total Fund Operating Expenses, stated as a
percentage of average daily net assets, would have been .25%, .28% and .53%,
respectively, for the Tax-Exempt Money Market Fund.
The investment adviser and administrator are under no obligation to waive
fees or reimburse expenses, but have informed the Company that they expect to
waive fees and/or reimburse expenses during the current fiscal year as
necessary to maintain the Funds' total operating expenses at the levels set
forth in the above table. You should note that any fees that are charged by
the investment adviser, its affiliates or any other institutions directly to
their customer accounts for services related to an investment in the Funds are
in addition to, and are not reflected in, the fees and expenses described
above.
For more complete descriptions of the Funds' operating expenses, see
"Management of the Company" in this Prospectus.
EXAMPLE:
Assume a Fund's annual return is 5% and its expenses are the same as those
stated above. For every $1,000 you invest, here's how much you would pay in
total expenses if you closed your account after the number of years indicated:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Money Market Fund......................... $ 4 $13 $24 $53
Government Money Market Fund.................... $ 4 $13 $24 $53
Tax-Exempt Money Market Fund.................... $ 4 $14 $24 $54
</TABLE>
THE EXAMPLES SHOWN ABOVE SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR
FUTURE INVESTMENT RETURNS OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURNS AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following Financial Highlights, which have been derived from the Funds'
financial statements, have been audited by Coopers & Lybrand L.L.P., the
Funds' independent accountants, whose unqualified report on the financial
statements containing such information for the five years in the period ended
May 31, 1997 is incorporated by reference into the Statement of Additional
Information. The Financial Highlights should be read along with the financial
statements and related notes, which are also incorporated by reference into
the Statement of Additional Information. Further information about the
performance of the Funds is available in the Company's Annual Report to
Shareholders for the fiscal year ended May 31, 1997. For a free copy of the
Statement of Additional Information or the Annual Report to Shareholders,
contact the Company at the address or telephone number on the first page of
this Prospectus.
PRIME MONEY MARKET FUND
Financial Highlights for a share of the Prime Money Market Fund outstanding
throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR 7/21/89/1/
ENDED ENDED ENDED ENDED ENDED ENDED ENDED TO
5/31/97 5/31/96 5/31/95 5/31/94 5/31/93 5/31/92 5/31/91 5/31/90
-------- -------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net Investment Income.. 0.0498 0.0532 0.0491 0.0296 0.0297 0.0467 0.0712 0.0706
-------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations............ 0.0498 0.0532 0.0491 0.0296 0.0297 0.0467 0.0712 0.0706
-------- -------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends to
Shareholders from Net
Investment Income..... (0.0498) (0.0532) (0.0491) (0.0296) (0.0297) (0.0467) (0.0712) (0.0706)
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions.... (0.0498) (0.0532) (0.0491) (0.0296) (0.0297) (0.0467) (0.0712) (0.0706)
-------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== ========
Total Return............ 5.10% 5.45% 5.02% 3.00% 3.01% 4.77% 7.35% 8.49%/2/
Ratios/Supplemental Data
Net Assets, End of
Period ($000)......... 368,853 326,878 382,059 346,694 432,415 402,745 311,839 178,708
Ratio of Expenses to
Average Net
Assets/3/............. 0.43% 0.43% 0.43% 0.38% 0.37% 0.35% 0.38% 0.38%/2/
Ratio of Net Investment
Income to Average Net
Assets................ 4.98% 5.33% 4.92% 2.95% 2.96% 4.55% 6.96% 8.13%/2/
</TABLE>
- -------------------
/1/ Commencement of operations.
/2/ Annualized.
/3/ Without the waiver of advisory fees and administration fees, the ratio of
expenses to average net assets for the years ended May 31, 1997, May 31, 1996,
May 31, 1995, May 31, 1994, May 31, 1993, May 31, 1992 and May 31, 1991 and
the period ended May 31, 1990 would have been 0.48%, 0.48%, 0.48%, 0.47%,
0.43%, 0.42%, 0.45% and 0.46% (annualized), respectively.
3
<PAGE>
GOVERNMENT MONEY MARKET FUND
Financial Highlights for a share of the Government Money Market Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR 7/21/89/1/
ENDED ENDED ENDED ENDED ENDED ENDED ENDED TO
5/31/97 5/31/96 5/31/95 5/31/94 5/31/93 5/31/92 5/31/91 5/31/90
-------- -------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of Period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net Investment Income.. 0.0495 0.0526 0.0485 0.0294 0.0293 0.0465 0.0700 0.0696
-------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations............ 0.0495 0.0526 0.0485 0.0294 0.0293 0.0465 0.0700 0.0696
-------- -------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends to
Shareholders from Net
Investment Income..... (0.0495) (0.0526) (0.0485) (0.0294) (0.0293) (0.0465) (0.0700) (0.0696)
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions.... (0.0495) (0.0526) (0.0485) (0.0294) (0.0293) (0.0465) (0.0700) (0.0696)
-------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== ========
Total Retun............. 5.06% 5.39% 4.95% 2.98% 2.97% 4.75% 7.23% 8.37%/2/
Ratios/Supplemental Data
Net Assets, End of
Period ($000)......... 340,809 264,725 263,752 273,790 255,637 293,450 333,121 293,422
Ratio of Expenses to
Average Net
Assets/3/............. 0.43% 0.43% 0.43% 0.38% 0.37% 0.34% 0.37% 0.38%/2/
Ratio of Net Investment
Income to Average Net
Assets................ 4.95% 5.27% 4.85% 2.94% 2.93% 4.64% 6.97% 8.04%/2/
</TABLE>
- -------------------
/1/ Commencement of operations.
/2/ Annualized.
/3/ Without the waiver of advisory fees and administration fees, the ratio of
expenses to average net assets for the years ended May 31, 1997, May 31, 1996,
May 31, 1995, May 31, 1994, May 31, 1993, May 31, 1992 and May 31, 1991 and
the period ended May 31, 1990 would have been 0.49%, 0.48%, 0.48%, 0.47%,
0.44%, 0.41%, 0.45% and 0.46% (annualized), respectively.
TAX-EXEMPT MONEY MARKET FUND
Financial Highlights for a share of the Tax-Exempt Money Market Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR 7/21/89/1/
ENDED ENDED ENDED ENDED ENDED ENDED ENDED TO
5/31/97 5/31/96 5/31/95 5/31/94 5/31/93 5/31/92 5/31/91 5/31/90
-------- -------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of Period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net Investment Income.. 0.0304 0.0321 0.0303 0.0202 0.0217 0.0346 0.0494 0.0483
Net Realized Gain on
Investments........... -- -- -- 0.0004 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations............ 0.0304 0.0321 0.0303 0.0206 0.0217 0.0346 0.0494 0.0483
-------- -------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends to
Shareholders from Net
Investment Income..... (0.0304) (0.0321) (0.0303) (0.0202) (0.0217) (0.0346) (0.0494) (0.0483)
Distributions to
Shareholders from Net
Capital Gains......... -- -- -- (0. 0004) -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions.... (0.0304) (0.0321) (0.0303) (0.0206) (0.0217) (0.0346) (0.0494) (0.0483)
-------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== ========
Total Return............ 3.09% 3.26% 3.08% 2.08% 2.19% 3.51% 5.05% 5.74%/2/
Ratios/Supplemental Data
Net Assets, End of
Period ($000)......... 79,492 50,137 69,100 82,222 81,838 76,687 67,328 65,101
Ratio of Expenses to
Average Net
Assets/3/............. 0.43% 0.43% 0.43% 0.38% 0.37% 0.38% 0.38% 0.38%/2/
Ratio of Net Investment
Income to Average Net
Assets................ 3.05% 3.22% 3.01% 2.02% 2.16% 3.42% 4.91% 5.58%/2/
</TABLE>
- -------------------
/1/ Commencement of operations.
/2/ Annualized.
/3/ Without the waiver of advisory fees and administration fees, the ratio of
expenses to average net assets for the years ended May 31, 1997, May 31, 1996,
May 31, 1995, May 31, 1994, May 31, 1993, May 31, 1992 and May 31, 1991 and
the period ending May 31, 1990 would have been 0.53%, 0.51%, 0.52%, 0.50%,
0.44%, 0.46%, 0.47% and 0.48% (annualized), respectively.
4
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The Funds' investment adviser (the "Adviser") uses a range of different
investments and investment techniques in seeking to achieve a Fund's
investment objective. All Funds do not use all of the investments and
investment techniques described below, which involve various risks, and which
are also described in the following sections. You should consider which Funds
best meet your investment goals. The Adviser will use its best efforts to
achieve a Fund's investment objective, although its achievement cannot be
assured. An investor should not consider an investment in any Fund to be a
complete investment program.
PRIME MONEY MARKET FUND
The investment objective of the Prime Money Market Fund is to seek as high
a level of current income as is consistent with liquidity and stability of
principal by investing in a portfolio of high quality money market
instruments. The Fund may invest in a broad range of short-term, high quality,
U.S. dollar-denominated instruments, such as government, bank, commercial and
other obligations of both foreign and domestic issuers, that are available in
the money markets. In particular, the Fund may invest in:
. U.S. dollar-denominated obligations issued or supported by the
credit of U.S. or foreign banks or savings institutions with total
assets in excess of $1 billion (including obligations of foreign
branches of U.S. banks);
. obligations issued or guaranteed as to principal and interest by the
U.S. Government or by its agencies or instrumentalities;
. commercial paper rated at the time of purchase within the highest
rating category assigned by one or more unaffiliated nationally
recognized statistical rating organizations (each a "Rating Agency")
and corporate bonds rated at the time of purchase within one of the
two highest rating categories assigned by one or more Rating
Agencies;
. unrated commercial paper, corporate bonds and other instruments that
are of comparable quality as determined by the Adviser pursuant to
guidelines approved by the Company's Board of Directors;
. asset-backed securities rated at the time of purchase within the
highest rating category assigned by one or more Rating Agencies;
. obligations issued by state and local governmental bodies; and
. repurchase agreements relating to the above instruments.
GOVERNMENT MONEY MARKET FUND
The investment objective of the Government Money Market Fund is to seek as
high a level of current income as is consistent with liquidity and stability
of principal by investing in a portfolio of direct Treasury obligations, other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
TAX-EXEMPT MONEY MARKET FUND
The investment objective of the Tax-Exempt Money Market Fund is to seek as
high a level of current income exempt from Federal income tax as is consistent
with liquidity and stability of principal by investing substantially all of
its assets in a diversified portfolio of short-term obligations issued by or
on behalf of states, territories and possessions of the United States, the
District of Columbia and their political subdivisions, agencies,
instrumentalities and authorities ("municipal obligations") the interest on
which, in the opinion of counsel to the issuer or bond counsel, is exempt from
regular Federal income tax. The Fund seeks to achieve its investment objective
by investing primarily in:
. municipal notes, including variable rate demand notes, rated at the
time of purchase within the highest rating category assigned by one
or more Rating Agencies;
5
<PAGE>
. tax-exempt commercial paper rated at the time of purchase within the
highest rating category assigned by one or more Rating Agencies;
. municipal bonds rated at the time of purchase within one of the two
highest rating categories assigned by one or more Rating Agencies;
and
. unrated municipal notes, tax-exempt commercial paper, municipal
bonds and other instruments that are of comparable quality as
determined by the Adviser pursuant to guidelines approved by the
Company's Board of Directors.
As a matter of fundamental policy, during normal market conditions at
least 80% of the Tax-Exempt Money Market Fund's total assets will be invested
in municipal obligations the interest on which is exempt from regular Federal
income tax and is not treated as a specific tax preference item under the
Federal alternative minimum tax for either individuals or corporations. Up to
20% of the Fund's total assets may be invested in private activity bonds that
are subject to the Federal alternative minimum tax or taxable money market
instruments, although the Fund does not intend to invest in such instruments
on a regular basis. The Fund may hold uninvested cash reserves during
temporary defensive periods or if, in the opinion of the Adviser, suitable
municipal obligations are not available.
QUALITY, MATURITY AND DIVERSIFICATION
All securities acquired by the Funds will be determined at the time of
purchase by the Adviser, pursuant to guidelines approved by the Company's
Board of Directors, to present minimal credit risks and will be "Eligible
Securities" as defined by the SEC. Eligible Securities are (a) securities that
either (i) have short-term debt ratings at the time of purchase in the two
highest rating categories assigned by at least two Rating Agencies (or one
Rating Agency if the security is rated by only one Rating Agency), or (ii) are
comparable in priority and security with an instrument issued by an issuer
which has such ratings, and (b) securities that are unrated (including
securities of issuers that have long-term but not short-term ratings) but are
of comparable quality as determined in accordance with guidelines approved by
the Company's Board of Directors. In accordance with current SEC regulations,
the Prime Money Market Fund intends to invest no more than 5% of its total
assets in securities, other than U.S. Government securities, that are rated at
the time of purchase within the second highest rating category assigned by one
or more Rating Agencies (including securities that are unrated but determined
by the Adviser to be of comparable quality). See the Statement of Additional
Information for a description of the Rating Agencies' various rating
categories.
Each Fund is managed so that the average dollar-weighted maturity of all
instruments held by it will not exceed 90 days. In no event will a Fund
purchase securities which mature more than 397 days from the date of purchase
(except for certain variable and floating rate instruments and securities
collateralizing repurchase agreements). Securities in which the Funds invest
may not earn as high a level of income as longer-term or lower quality
securities, which generally have greater market risk and more fluctuation in
market value.
Each Fund is classified as a diversified portfolio under the Investment
Company Act.
OTHER INVESTMENT POLICIES AND RELATED RISKS
BANK OBLIGATIONS
The Prime Money Market Fund and, to a limited extent, the Tax-Exempt Money
Market Fund may invest in debt obligations of U.S. and foreign banks
(including foreign branches of U.S. banks). Investments in the obligations of
foreign banks and foreign branches of U.S. banks involve different risks than
investments in the obligations of U.S. banks, including less stringent reserve
requirements and different accounting, auditing and recordkeeping
requirements. A Fund will invest in the obligations of foreign banks or
foreign branches of U.S. banks only when the Adviser deems the investment to
present minimal credit risks. The Prime Money Market Fund may also make
interest-bearing savings deposits in commercial and savings banks in amounts
not in excess of 5% of its total assets.
6
<PAGE>
CORPORATE OBLIGATIONS
The Prime Money Market Fund and, to a limited extent, the Tax-Exempt Money
Market Fund may invest in domestic corporate debt obligations, primarily
commercial paper. Commercial paper is a short-term promissory note with a
maturity ranging from 1 to 270 days issued by a corporation. Corporate bonds
purchased by the Funds will have remaining maturities of 397 days or less.
The Prime Money Market Fund may also invest in short-term, high quality,
U.S. dollar-denominated corporate debt obligations of foreign issuers where
the Adviser deems the investments to present minimal credit risks. Investments
in foreign securities involve certain inherent risks, such as future political
and economic developments, the possible imposition of foreign withholding tax
on the interest payable on such instruments, the possible establishment of
foreign controls, the possible seizure or nationalization of foreign deposits
or assets, or the adoption of other foreign governmental restrictions that
might adversely affect payment of interest or principal.
U.S. GOVERNMENT OBLIGATIONS
The Prime Money Market and Government Money Market Funds and, to a limited
extent, the Tax-Exempt Money Market Fund may invest in securities issued or
guaranteed by the U.S. Government, including but not limited to direct U.S.
Treasury obligations, as well as in obligations issued or guaranteed by U.S.
Government agencies and instrumentalities. Obligations of certain agencies and
instrumentalities, 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 Export-Import Bank, are supported by the issuer's
right to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the entity's obligations; still others, such
as those of the Student Loan Marketing Association, are backed solely by the
issuer's credit. There is no assurance that the U.S. Government would provide
support to a U.S. Government-sponsored entity were it not required to do so by
law.
MUNICIPAL OBLIGATIONS
The Tax-Exempt Money Market Fund invests primarily in municipal
obligations. The Prime Money Market Fund may also invest from time to time in
municipal obligations. These securities may be advantageous for the Prime
Money Market Fund when, as a result of prevailing economic, regulatory or
other circumstances, the yield of such securities on a pre-tax basis is
comparable to that of other securities the Fund can purchase. Dividends paid
by the Prime Money Market Fund that come from interest on municipal
obligations will be taxable to shareholders.
The two main types of municipal obligations are "general obligation"
securities (which are secured by the issuer's full faith, credit and taxing
power) and "revenue" securities (which are payable only from revenues received
from the operation of a particular facility or other revenue source). A third
type of municipal obligation, normally issued by special purpose public
authorities, is known as a "moral obligation" security because if the issuer
cannot meet its obligations it draws on a reserve fund, the restoration of
which is not a legal requirement. Private activity bonds (which are a type of
obligation that, although exempt from regular Federal income tax, may be
subject to the Federal alternative minimum tax) are usually revenue securities
issued by or for public authorities to finance a privately operated facility.
In many cases, the Internal Revenue Service has not ruled on whether the
interest received on a municipal obligation is tax-exempt and, accordingly,
the purchase of such securities is based on the opinion of bond counsel or
counsel to the issuers of such instruments. The Company and the Adviser rely
on these opinions and do not intend to review the bases for them.
Municipal obligations purchased by a Fund in some cases may be insured as
to the timely payment of principal and interest. There is no guarantee,
however, that the insurer will meet its obligations in the event of a default
in payment by the issuer. In other cases, municipal obligations may be backed
by letters of credit or guarantees issued by domestic or foreign banks or
other financial institutions which are not subject to federal deposit
insurance. Adverse developments affecting the banking industry generally or a
particular bank or financial institution that has provided its credit or
guarantee with respect to a municipal obligation held by a
7
<PAGE>
Fund, including a change in the credit quality of any such bank or financial
institution, could result in a loss to the Fund and adversely effect the value
of its shares. As described above under "Banking Obligations," foreign letters
of credit and guarantees involve certain risks in addition to those of
domestic obligations.
VARIABLE AND FLOATING RATE INSTRUMENTS
Each Fund may purchase variable and floating rate instruments, which may
have a maturity in excess of 397 days but will, in any event, permit a Fund to
demand payment of the principal of the instrument at least once every 397 days
upon not more than 30 days' notice (unless the instrument is guaranteed by the
U.S. Government or an agency or instrumentality thereof). Such instruments may
include variable rate demand notes that permit the indebtedness thereunder to
vary in addition to providing for periodic adjustments in the interest rate.
There may be no active secondary market with respect to a particular variable
or floating rate instrument. Nevertheless, the periodic readjustments of their
interest rates tend to ensure that their value to a Fund will approximate
their par value. Variable and floating rate obligations that cannot be
disposed of promptly within seven business days and in the usual course of
business without taking a reduced price will be considered illiquid and
subject to the Funds' limitation on illiquid investments described below under
"Managing Liquidity."
ASSET-BACKED SECURITIES
The Prime Money Market Fund may purchase asset-backed securities which
have remaining maturities of 397 days or less. Asset-backed securities are
securities backed by installment sale contracts, credit card receivables or
other assets. The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount
of the obligations may be prepaid at any time because the underlying assets
(i.e., loans) generally may be prepaid at any time. The prepayment rate is
primarily a function of current market rates and conditions. In periods of
rising interest rates, the rate of prepayment tends to increase. During
periods of falling interest rates, the reinvestment of prepayment proceeds by
the Fund will generally be at a lower rate than the rate on the prepaid
obligation. Prepayments may also result in some loss of the Fund's principal
investment if any premiums were paid. As a result of these yield
characteristics, some high-yielding asset-backed securities may have less
potential for growth in value than conventional bonds with comparable
maturities. These characteristics may result in a higher level of price
volatility for these assets under certain market conditions.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn than conventional debt instruments and the holder
frequently has no recourse against the entity that originated the security. In
addition, the secondary market for certain asset-backed securities may not be
as liquid as the market for other types of securities, which could result in
the Fund experiencing difficulty in valuing or liquidating such securities.
For these reasons, under certain circumstances, such instruments may be
considered illiquid securities subject to the Fund's 10% limitation on
illiquid investments.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS
The Prime Money Market and Government Money Market Funds may buy portfolio
securities subject to the seller's agreement to repurchase them at an agreed
upon date and price. These transactions are known as repurchase agreements.
The securities held subject to a repurchase agreement may have stated
maturities in excess of 397 days so long as the repurchase agreement itself
matures in less than 397 days. Repurchase agreements involve the risk that the
seller will fail to repurchase the securities as agreed. In that event, the
Fund will bear the risk of possible loss due to adverse market action or
delays in liquidating the underlying obligations. Repurchase agreements are
considered to be loans under the Investment Company Act.
Each Fund may borrow money for temporary purposes by entering into reverse
repurchase agreements. Under these agreements, a Fund sells portfolio
securities to a financial institution and agrees to buy them back at an agreed
upon date and price. Reverse repurchase agreements may be used to meet
redemption requests without selling portfolio securities. Reverse repurchase
agreements involve the risk of counterparty default and possible loss of
collateral held by the counterparty. Reverse repurchase agreements are
considered to be borrowings under the Investment Company Act.
8
<PAGE>
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS
Each Fund may purchase securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. These
transactions, which involve a commitment by a Fund to purchase or sell
particular securities with payment and delivery taking place at a future date,
permit the Fund to lock in a price or yield on a security it intends to
purchase or sell, regardless of future changes in interest rates. The Fund
will bear the risk, however, that the price or yield obtained in a transaction
may be less favorable than the price or yield available in the market when the
delivery takes place. When-issued and forward commitment transactions are not
expected to exceed 25% of the value of a Fund's total assets under normal
circumstances. Because a Fund is required to set aside cash or liquid
securities to satisfy these purchase commitments, a Fund's liquidity and
ability to manage its portfolio might be affected during periods in which its
commitments exceed 25% of the value of its assets. The Funds do not intend to
engage in when-issued and forward commitment transactions for speculative
purposes.
STAND-BY COMMITMENTS
The Tax-Exempt Money Market Fund may acquire stand-by commitments under
which a dealer agrees to purchase certain municipal obligations at the Fund's
option at a price equal to their amortized cost value plus interest. These
commitments will be used only to assist in maintaining the Fund's liquidity
and not for trading purposes.
SECURITIES LENDING
The Prime Money Market and Government Money Market Funds may lend their
portfolio securities to broker-dealers and other institutions as a means of
earning additional income. Although securities loans will be fully
collateralized, such loans present risks of delay in receiving additional
collateral or in recovering the securities loaned or even a loss of rights in
the collateral if the borrower of the securities fails financially. However,
securities loans will be made only to parties the Adviser deems to be of good
standing and will only be made if the Adviser believes the income to be earned
from the loans justifies the risks.
OTHER INVESTMENT COMPANIES
Each Fund may invest in securities issued by other investment companies
which invest in eligible quality, short-term debt securities and which seek to
maintain a $1.00 net asset value per share, i.e., "money market" funds. Such
investments will be made by a Fund in connection with the management of its
daily cash position and will be subject to the requirements of applicable
securities laws. When a Fund invests in another investment company, it pays a
pro rata portion of the advisory and other expenses of that company as one of
its shareholders. These expenses are in addition to the Fund's own expenses.
MANAGING LIQUIDITY
Disposing of illiquid investments may involve time-consuming negotiations
and legal expenses, and it may be difficult or impossible to dispose of such
investments promptly at an acceptable price. Additionally, the absence of a
trading market can make it difficult to value a security. For these and other
reasons, as a matter of fundamental policy the Funds will not knowingly invest
more than 10% of the value of their respective net assets in illiquid
securities. Illiquid securities include repurchase agreements and time
deposits that do not permit a Fund to terminate them after seven days' notice,
restricted securities and other securities for which market quotations are not
readily available. Certain securities that might otherwise be considered
illiquid, however, such as some issues of commercial paper and variable rate
demand notes with maturities of nine months or less and securities for which
the Adviser has determined pursuant to guidelines adopted by the Company's
Board of Directors that a liquid trading market exists (including certain
securities that may be purchased by institutional investors under SEC Rule
144A) are not subject to this limitation. Investments in Rule 144A securities
could have the effect of increasing the level of illiquidity in a Fund during
any period that qualified institutional buyers were no longer interested in
purchasing these restricted securities.
OTHER RISK CONSIDERATIONS
As with an investment in any mutual fund, an investment in the Funds
entails market and economic risks associated with investments generally.
However, there are certain specific risks of which you should be aware.
9
<PAGE>
Although the Tax-Exempt Money Market Fund does not presently intend to do
so on a regular basis, it may invest 25% or more of its assets in industrial
development bonds issued before August 7, 1986 that are not subject to the
Federal alternative minimum tax, and in municipal obligations the interest on
which is paid solely from revenues of similar projects. When the Fund's assets
are concentrated in obligations payable from revenues on similar projects or
in industrial development bonds, the Fund will be subject to the particular
risks (including legal and economic conditions) presented by such securities
to a greater extent than it would be if its assets were not so concentrated.
Furthermore, payment of municipal obligations held by the Fund relating to
certain projects may be secured by mortgages or deeds of trust. In the event
of a default, enforcement of a mortgage or deed of trust may be delayed and
the amount of the proceeds received may not be enough to pay the principal and
accrued interest on the defaulted municipal obligations.
FUNDAMENTAL LIMITATIONS
Each Fund's investment objective discussed above is "fundamental," which
means that it may not be changed for a Fund without the approval of a majority
of that Fund's outstanding shares. Except as otherwise noted, each Fund's
investment policies discussed above are not fundamental and may be changed by
the Company's Board of Directors without shareholder approval. However, each
Fund also has in place certain "fundamental" limitations that also cannot be
changed for a Fund without the approval of a majority of that Fund's
outstanding shares. Some of these fundamental limitations are summarized
below, and all of the Funds' fundamental limitations are set out in full in
the Statement of Additional Information.
1. A Fund may not purchase securities (with certain exceptions, including
U.S. Government securities) if more than 5% of its total assets will be
invested in the securities of any one issuer, except that up to 25% of the
total assets of each Fund can be invested without regard to this 5%
limitation.
2. A Fund may not invest 25% or more of its total assets in one or more
issuers conducting their principal business activities in the same
industry, subject to certain exceptions.
3. A Fund may not borrow money except for temporary purposes in amounts
up to 10% of its total assets at the time of such borrowing. Whenever
borrowings exceed 5% of a Fund's total assets with respect to the Prime
Money Market and Government Money Market Funds or whenever any borrowings
are outstanding with respect to the Tax-Exempt Money Market Fund, the Fund
will not make any further investments.
4. A Fund may not knowingly invest more than 10% of its net assets in
illiquid securities.
As a matter of non-fundamental policy and in accordance with current
regulations of the SEC, the Prime Money Market Fund intends to subject its
entire investment portfolio, other than U.S. Government securities, to the 5%
limitation described in Fundamental Limitation No. 1 above. However, in
accordance with such regulations, the Fund may invest more than 5% (but no
more than 25%) of its total assets in the securities of a single issuer for a
period of up to three business days, provided the securities are rated at the
time of purchase in the highest rating category assigned by one or more Rating
Agencies or are determined by the Adviser to be of comparable quality. The
Fund may not hold more than one such investment at any one time.
If a percentage limitation is met at the time an investment is made, a
subsequent change in that percentage resulting from a change in value of a
Fund's portfolio securities does not mean that the limitation has been
violated.
INVESTING IN THE FUNDS
GETTING YOUR INVESTMENT STARTED
Investing in the Funds is quick and convenient. Shares of the Funds may be
purchased either through the account you maintain with certain financial
institutions or directly through the Company. Fund shares are distributed by
BISYS Fund Services (called the "Distributor"). The Distributor's principal
offices are located at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
10
<PAGE>
Customers of Mercantile-Safe Deposit and Trust Company and its affiliated
and correspondent banks and customers of affiliates of State Street Bank and
Trust Company (referred to as the "Banks") may purchase Fund shares through
their qualified accounts at such Banks and should contact the Banks directly
for appropriate purchase instructions. Should you wish to establish an account
directly through the Company, please refer to the purchase options described
under "Opening and Adding to Your Fund Account."
Payments for Fund shares must be in U.S. dollars and should be drawn on a
U.S. bank. Please remember that the Company reserves the right to reject any
purchase order, including purchase orders accompanied by third party checks.
HOW TO BUY FUND SHARES
MINIMUM INVESTMENTS
Each Fund generally requires a $25,000 minimum initial investment.
Subsequent investments must be a minimum of $100. The minimum investment
requirements do not apply to purchases by Banks acting on behalf of their
customers and the Banks do not impose a minimum initial or subsequent
investment requirement for shares purchased on behalf of their customers. The
Company reserves the right to waive these minimums in other instances.
OPENING AND ADDING TO YOUR FUND ACCOUNT
Direct investments in the Funds may be made in a number of different ways,
as shown in the following chart. Simply choose the method that is most
convenient for you. Any questions you have may be answered by calling 1-800-
551-2145. As described above under "Getting Your Investment Started," you may
also purchase Fund shares through the Banks.
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
BY MAIL . Make your check payable to
. Complete a Purchase the particular Fund in
Application and mail it which you are investing
along with a check payable and mail it to the address
to the particular Fund you at left.
want to invest in to:
M.S.D. & T. Funds, Inc.,
P.O. Box 8515, Boston, MA
02266-8515.
. Please include your
account number on your
check.
To obtain a Purchase
Application, call 1-800-
551-2145.
- -------------------------------------------------------------------------------
BY WIRE . Before wiring funds, . Instruct your bank to wire
please call 1-800-551-2145 Federal funds to: State
for complete wiring Street Bank and Trust
instructions. Company, Boston,
Massachusetts, Bank
Routing No. 011-0000-28,
M.S.D. & T. Deposit A/C
No. 99046435.
. Promptly complete a
Purchase Application and
forward it to: M.S.D. & T.
Funds, Inc., P.O. Box
8515, Boston, MA 02266-
8515.
. Be sure to include your
name and your Fund account
number.
. The wire should indicate
that you are making a
subsequent purchase as
opposed to opening a new
account.
Consult your bank for information on remitting funds by
wire and associated bank charges.
YOU MAY USE OTHER INVESTMENT OPTIONS, INCLUDING AUTOMATIC
INVESTMENTS, EXCHANGES AND DIRECTED REINVESTMENTS, TO
INVEST IN YOUR FUND ACCOUNT. PLEASE REFER TO THE SECTION
BELOW ENTITLED "SHAREHOLDER SERVICES" FOR MORE
INFORMATION.
- -------------------------------------------------------------------------------
11
<PAGE>
EXPLANATION OF SALES PRICE
The public offering price for shares of a Fund is based upon net asset
value per share. A Fund will calculate its net asset value per share by adding
the value of the Fund's investments, cash and other assets, subtracting the
Fund's liabilities, and then dividing the result by the number of shares of
the Fund that are outstanding. This process is sometimes referred to as
"pricing" a Fund's shares.
The assets of the Funds are valued at amortized cost, which generally
approximates market value. Although each Fund seeks to maintain its net asset
value per share at $1.00, there can be no assurance that the net asset value
per share will not vary. More information about valuation can be found in the
Fund's Statement of Additional Information, which you may request by calling
1-800-551-2145.
Net asset value is computed as of 11:00 a.m. Eastern Time and as of the
close of regular trading hours on the New York Stock Exchange (the "Exchange")
(currently 4:00 p.m. Eastern Time) each weekday, with the exception of those
holidays on which the Federal Reserve Bank of Cleveland, the purchasing Bank
(if applicable), the Funds' Adviser, transfer agent or custodian or the
Exchange is closed. The Funds currently observe the following holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day,
Thanksgiving Day and Christmas Day.
Purchase orders will be accepted by State Street Bank and Trust Company,
the Funds' transfer agent (the "Transfer Agent"), only on a day when the
shares of a Fund are priced ("Business Day"). If you purchase shares of a Fund
through a Bank, the Bank is responsible for transmitting your purchase order
and required funds to the Transfer Agent on a timely basis.
If your purchase order for shares of a Fund is received by the Transfer
Agent on a Business Day before 11:00 a.m. Eastern Time, your Fund shares will
be purchased at the public offering price calculated at 11:00 a.m. provided
that the Fund's custodian receives payment in immediately available funds by
the close of regular trading hours on the Exchange that day. If your purchase
order for shares of a Fund is received by the Transfer Agent on a Business Day
after 11:00 a.m. Eastern Time but before the close of regular trading hours on
the Exchange that day, your Fund shares will be purchased at the public
offering price calculated at 11:00 a.m. Eastern Time on the following Business
Day if the Fund's custodian receives payment in immediately available funds by
the close of regular trading hours on the Exchange on the following Business
Day. If the procedures described above are not followed and if a Bank
submitted the order, the Bank will be notified that the order has not been
accepted. If you purchase shares of a Fund directly through the Company and if
your purchase order is accompanied by payment in any form other than
immediately available funds, your Fund shares will be purchased at the public
offering price calculated at 11:00 a.m. Eastern Time on the next Business Day
after the Business Day on which both the order and payment in immediately
available funds are received by the Transfer Agent. Payments for orders which
are not received or accepted will be returned after prompt inquiry.
On a Business Day when the Exchange closes early due to a partial holiday
or otherwise, the Company reserves the right to advance the times at which
purchase orders must be received in order to be processed on that Business
Day.
12
<PAGE>
HOW TO SELL FUND SHARES
You can arrange to get money out of your Fund account by selling some or
all of your shares. This process is known as "redeeming" your shares. If you
purchased your shares through an account at a Bank, you may redeem shares in
accordance with the instructions pertaining to that account. If you purchased
your shares directly from the Company, you have the ability to redeem shares
by any of the methods described below.
TO REDEEM SHARES
BY MAIL
. Send a written request to: M.S.D. & T. Funds,
Inc., P.O. Box 8515, Boston, MA 02266-8515.
. Your written request must
--be signed by each account holder;
--state the number or dollar amount of shares
to be redeemed and identify the specific
Fund;
--include your account number.
. Signature guarantees are required
--for all redemption requests over $100,000;
--for any redemption request where the
proceeds are to be sent to someone other
than the shareholder of record or to an
address other than the address of record.
- -------------------------------------------------------------------------------
BY WIRE . Call 1-800-551-2145. You will need to provide
(available only the account name, account number, name of
if you checked Fund and amount of redemption ($1,000 minimum
the appropriate per transaction)
box on the
Purchase
Application)
. If you have already opened your account and
would like to have the wire redemption
feature, send a written request to: M.S.D. &
T. Funds, Inc., P.O. Box 8515, Boston, MA
02266-8515. The request must be signed (and
signatures guaranteed) by each account owner.
. To change bank instructions, send a written
request to the above address. The request
must be signed (and signatures guaranteed) by
each account owner.
- -------------------------------------------------------------------------------
BY TELEPHONE . Call 1-800-551-2145. You will need to provide
(available only the account name, account number, name of
if you checked Fund and amount of redemption.
the appropriate
box on the
Purchase
Application)
. If you have already opened your account and
would like to add the telephone redemption
feature, send a written request to: M.S.D. &
T. Funds, Inc., P.O. Box 8515, Boston, MA
02266-8515. The request must be signed (and
signatures guaranteed) by each account owner.
OTHER REDEMPTION OPTIONS, INCLUDING EXCHANGES AND
SYSTEMATIC WITHDRAWALS, ARE ALSO AVAILABLE. PLEASE REFER
TO THE SECTION BELOW ENTITLED "SHAREHOLDER SERVICES" FOR
MORE INFORMATION.
- -------------------------------------------------------------------------------
EXPLANATION OF REDEMPTION PRICE
Redemption orders received in proper form by the Transfer Agent are
processed at their net asset value per share next determined after receipt. On
a Business Day when the Exchange closes early due to a partial holiday or
otherwise, the Company reserves the right to advance the time at which
redemption orders must be received in order to be processed on that Business
Day.
13
<PAGE>
Payment for redemption orders which are received by the Transfer Agent
before 11:00 a.m. Eastern Time normally will be wired or sent to the
shareholder(s) of record on the same Business Day. Payment for redemption
orders which are received between 11:00 a.m. and the close of regular trading
hours on the Exchange (currently 4:00 p.m. Eastern Time) or on a Non-Business
Day normally will be wired or sent to the shareholder(s) of record on the next
Business Day. However, the Company reserves the right to wire or send
redemption proceeds within seven days after receiving the redemption order if
the Adviser believes that earlier payment would adversely affect the Company.
If you purchased your shares directly through the Company, your redemption
proceeds will be sent by check unless you otherwise direct the Company or the
Transfer Agent. The Automated Clearing House ("ACH") system may also be
utilized for payment of redemption proceeds. In unusual circumstances, the
Company may pay redemption proceeds in readily marketable portfolio securities
having a market value equal to the redemption price.
Banks are responsible for transmitting their customers' redemption orders
to the Transfer Agent and crediting their customers' accounts with redemption
proceeds on a timely basis. No charge is imposed by the Company for wiring
redemption proceeds, although the Banks may charge their customers' accounts
directly for redemption and other services. In addition, if a customer has
agreed with a Bank to maintain a minimum cash balance in his or her account
maintained with the Bank and the balance falls below that minimum, the
customer may be obliged to redeem some or all of the Fund shares held in the
account in order to maintain the required minimum balance.
The Company imposes no charge when you redeem shares.
OTHER PURCHASE AND REDEMPTION INFORMATION
Federal regulations require that you provide a certified taxpayer
identification number whenever you open or reopen an account.
Shareholders who purchased Fund shares directly through the Company should
note that if an account balance falls below $500 as a result of redemptions
and is not increased to at least $500 within 60 days after notice, the account
may be closed and the proceeds sent to the shareholder.
If you purchased shares by wire, you must file a Purchase Application with
the Transfer Agent before any of those shares can be redeemed. You should
contact your bank for information about sending and receiving funds by wire,
including any charges by your bank for these services. The Company may decide
at any time to change the minimum amount per transaction for redemption of
shares by wire or to no longer permit wire redemptions.
You may choose to initiate certain transactions by telephone. The Company
and its agents will not be responsible for any losses resulting from
unauthorized transactions when reasonable procedures to verify the identity of
the caller are followed. To the extent that the Company does not follow such
procedures, it and/or its agents may be responsible for any unauthorized
transactions.
The Company reserves the right to refuse a telephone redemption if it
believes it is advisable to do so. Procedures for redeeming shares by
telephone may be modified or terminated by the Company at any time. It may be
difficult to reach the Company by telephone during periods of unusual market
activity. If this happens, you may redeem your shares by mail as described
above.
The Company may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
its shares) for such periods as permitted under the Investment Company Act.
Certain redemption requests and other communications with the Company
require a signature guarantee. Signature guarantees are designed to protect
both you and the Company from fraud. To obtain a signature guarantee you
should visit a financial institution that participates in the Stock Transfer
Agents Medallion Program ("STAMP"). Guarantees must be signed by an authorized
person at one of these institutions and be accompanied by the words "Signature
Guaranteed." A notary public cannot provide a signature guarantee.
14
<PAGE>
SHAREHOLDER SERVICES
The Company provides a variety of ways to make managing your investments
more convenient. Some of these options require you to request them on the
Purchase Application or you may request them after opening an account by
calling 1-800-551-2145. Except for retirement plans, these options are
available only to shareholders who purchase their Fund shares directly through
the Company.
RETIREMENT PLANS
Shares of the Prime Money Market and Government Money Market Funds may be
purchased in connection with certain tax-sheltered retirement plans, including
individual retirement accounts. Shares may also be purchased in connection
with profit-sharing plans, section 401(k) plans, money purchase pension plans
and target benefit plans. Further information about how to participate in
these plans, the fees charged, the limits on contributions and the services
available to participants in such plans can be obtained from the Company. To
invest through any tax-sheltered retirement plan, please call the Company at
1-800-551-2145 for information and the required separate application. You
should consult with a tax adviser to determine whether a tax-sheltered
retirement plan is available and/or appropriate for you.
EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged for shares of another Fund or for shares
of one of the equity and bond portfolios offered by the Company. You may
exchange shares by mail at the address provided above under "How To Buy
Shares--Opening and Adding to Your Fund Account" or by telephone at 1-800-551-
2145. If you are opening a new account in a different Fund or portfolio by
exchange, the exchanged shares must be at least equal in value to the minimum
investment for the Fund or portfolio in which the account is being opened.
You should read the prospectus for the Fund or portfolio into which you
are exchanging. Exchanges will be processed only when the shares being offered
can legally be sold in your state. Exchanges may have tax consequences for
you. Consult your tax adviser for further information.
To elect the exchange privilege after you have opened a Fund account, or
for further information about the exchange privilege, call 1-800-551-2145. The
Company reserves the right to reject any exchange request. The Company may
modify or terminate the exchange privilege, but will not materially modify or
terminate it without giving shareholders 60 days' notice.
AUTOMATIC INVESTMENT PLAN
One easy way to pursue your financial goals is to invest money regularly.
The Company offers an Automatic Investment Plan--a convenient service that
lets you transfer money from your bank account into your Fund account
automatically on a regular basis. At your option, your bank account will be
debited in a particular amount ($100 minimum) that you have specified, and
Fund shares will automatically be purchased on the 15th day of each month or,
if that day is not a Business Day, on the preceding Business Day. Your bank
account must be maintained at a domestic financial institution that is an ACH
member. You will be responsible for any loss or expense to the Funds if an ACH
transfer is rejected. To select this option, or for more information, please
call 1-800-551-2145.
SYSTEMATIC WITHDRAWALS
The Company offers a convenient way of withdrawing money from your Fund
account. You may request regular monthly, quarterly, semi-annual or annual
withdrawals in any amount of $100 or more. The withdrawal will be made on the
last business day of the period you select and distributed in cash or
reinvested in shares of another Fund or portfolio offered by the Company. To
elect this option, or for more information, please call 1-800-551-2145.
15
<PAGE>
DIRECTED REINVESTMENTS
Generally, dividends and capital gain distributions are automatically
reinvested in shares of the Fund from which the dividends and distributions
are paid. You may elect, however, to have your dividends and capital gain
distributions automatically reinvested in shares of another Fund or portfolio
offered by the Company. To elect this option, or for more information, please
call 1-800-551-2145.
DIVIDENDS AND DISTRIBUTIONS
Shareholders receive dividends and net capital gain distributions.
Dividends for each Fund are derived from its net investment income and are
declared daily and paid monthly. A Fund realizes capital gains whenever it
sells securities for a higher price than it paid for them. Capital gain
distributions will be made at least annually.
Shares in each Fund begin earning dividends on the day a purchase order is
processed and continue earning dividends through and including the day before
the shares are redeemed. If you purchased your Fund shares through a Bank,
your dividends and distributions will be paid in cash and wired to your Bank.
If you purchased your shares directly from the Company, your dividends and
distributions will be automatically reinvested in additional shares of the
Fund on which the dividend or distribution was declared unless you notify the
Company in writing that you wish to receive dividends and/or distributions in
cash. If you have elected to receive dividends and/or distributions in cash
and the postal or other delivery service is unable to deliver checks to your
address of record, you will be deemed to have rescinded your election to
receive dividends and/or distributions in cash and your dividends and/or
distributions will be automatically reinvested in additional shares. No
interest will accrue on amounts represented by uncashed dividend and/or
distribution checks.
TAX INFORMATION
As with any investment, you should consider the tax implications of an
investment in the Funds. The following briefly summarizes some of the
important tax considerations generally affecting the Funds and their
shareholders. You should consult your tax adviser with specific reference to
your own tax situation, including the applicability of any state and local
taxes. You will be advised at least annually regarding the Federal tax
treatment of dividends and distributions paid to you.
FEDERAL
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. If a Fund
qualifies, it generally will be relieved of Federal income tax on amounts
distributed to shareholders, but shareholders, unless otherwise exempt, will
pay income or capital gains taxes on distributions (except distributions that
are "exempt interest dividends" or are treated as a return of capital),
regardless of whether the distributions are paid in cash or reinvested in
additional shares.
Distributions paid out of a Fund's "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, will be
taxed to shareholders as long-term capital gain, regardless of the length of
time a shareholder holds the shares. All other distributions, to the extent
taxable, are taxed to shareholders as ordinary income.
The Tax-Exempt Money Market Fund intends to pay substantially all of its
dividends as "exempt interest dividends." However, taxpayers are required to
report the receipt of "exempt interest dividends" on their Federal income tax
returns, and in two circumstances such amounts, while exempt from regular
Federal income tax, are taxable to persons subject to alternative minimum and
environmental taxes. First, "exempt interest dividends" derived from certain
private activity bonds issued after August 7, 1986 generally will constitute
an item of tax preference for corporate and non-corporate taxpayers in
determining alternative minimum and environmental tax liability. Second,
"exempt interest dividends" must be taken into account by corporate taxpayers
in determining certain adjustments for alternative minimum and environmental
tax purposes.
16
<PAGE>
Shareholders who are recipients of Social Security Act or Railroad Retirement
Act benefits should note that "exempt interest dividends" will be taken into
account in determining the taxability of their benefit payments.
The Tax-Exempt Money Market Fund will determine annually the percentages
of its net investment income which are exempt from the regular Federal income
tax, which constitute an item of tax preference for Federal alternative
minimum tax purposes, and which are fully taxable. These percentages will
apply uniformly to all distributions declared from net investment income
during that year and may differ significantly from the actual percentages for
any particular day.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in those months will be deemed to
have been received by the shareholders on December 31 of such year if the
dividends are paid during the following January.
This is not an exhaustive discussion of applicable tax consequences, and
investors may wish to contact their tax advisers concerning investments in the
Funds. Except as discussed below, dividends paid by each Fund may be taxable
to investors under state or local law as dividend income even though all or a
portion of the dividends may be derived from interest on obligations which, if
realized directly, would be exempt from such income taxes. In addition, future
legislative or administrative changes or court decisions may materially affect
the tax consequences of investing in a Fund. Shareholders who are non-resident
alien individuals, foreign trusts or estates, foreign corporations or foreign
partnerships may be subject to different U.S. Federal income tax treatment.
MANAGEMENT OF THE COMPANY
The business of the Company is managed under the general supervision of
the Company's Board of Directors. The Statement of Additional Information
contains information about the Board of Directors.
The Company has also employed a number of professionals to provide
investment management and other important services to the Funds. Mercantile-
Safe Deposit and Trust Company ("Mercantile") serves as the Funds' investment
adviser and administrator and has its principal offices at Two Hopkins Plaza,
Baltimore, Maryland 21201. BISYS Fund Services, a wholly-owned subsidiary of
The BISYS Group, Inc., located at 3435 Stelzer Road, Columbus, Ohio 43219-
3035, is the registered broker-dealer that sells the Funds' shares, and BISYS
Fund Services Ohio, Inc., also a wholly-owned subsidiary of The BISYS Group,
Inc. and located at the same address, provides fund accounting services to the
Funds. The Funds also have a custodian, The Fifth Third Bank, located at 38
Fountain Square Plaza, Cincinnati, Ohio 45263, and a transfer and dividend
disbursing agent, State Street Bank and Trust Company, located at Two Heritage
Drive, North Quincy, Massachusetts 02171.
INVESTMENT ADVISER
Mercantile manages each Fund's investment portfolio, including selecting
portfolio investments and making purchase and sale orders. Mercantile is the
lead bank of Mercantile Bankshares Corporation, a multi-bank holding company
organized in Maryland in 1969. Mercantile has acted as investment adviser to
the Funds since their commencement of operations. In addition, Mercantile and
its predecessors have been in the business of managing the investments of
fiduciary and other accounts in the Baltimore area since 1864. As of June 30,
1997, Mercantile had approximately $11.4 billion in assets under active
management.
ADMINISTRATOR
Mercantile also serves as the Funds' administrator and generally assists
in all aspects of their operation and administration, including maintaining
the Funds' offices, coordinating the preparation of reports to shareholders,
preparing filings with state securities commissions, coordinating federal and
state tax returns, and performing other administrative functions.
17
<PAGE>
EXPENSES
The Funds incur certain expenses in order to support the services
described above, as well as other matters essential to the operation of the
Funds. Expenses are paid out of a Fund's assets and thus are reflected in the
Fund's dividends and net asset value, but they are not billed directly to you
or deducted from your account.
In its capacity as investment adviser, Mercantile is entitled to advisory
fees that are calculated daily and paid monthly at the annual rate of .25% of
the average daily net assets of each Fund. For the fiscal year ended May 31,
1997, Mercantile received advisory fees, after fee waivers, at the effective
annual rates of .24% of the average daily net assets of the Prime Money Market
Fund, .23% of the average daily net assets of the Government Money Market
Fund, and .23% of the average daily net assets of the Tax-Exempt Money Market
Fund.
In its capacity as administrator, Mercantile is also entitled to an
administration fee, computed daily and paid monthly, at the annual rate of
.125% of the average daily net assets of each Fund.
The Funds also bear other operating expenses which are described in more
detail in the Statement of Additional Information.
FEE WAIVERS
Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Mercantile and the Funds' other service providers. The
amount of the fee waivers may be changed at any time at the sole discretion of
Mercantile with respect to advisory and administration fees, and by the Funds'
other service providers, with respect to all other fees. As to any amounts
voluntarily waived or reimbursed, the service providers retain the ability to
be reimbursed by a Fund for such amounts prior to fiscal year-end. Such
waivers and reimbursements would increase the return to investors when made
but would decrease the return if a Fund were required to reimburse a service
provider.
OTHER INFORMATION CONCERNING THE COMPANY AND ITS SHARES
The Company was incorporated in Maryland on March 7, 1989 and is a mutual
fund of the type known as an "open-end management investment company." The
Company's Charter authorizes the Board of Directors to issue up to
10,000,000,000 full and fractional shares of capital stock ($.001 par value
per share) and to classify or reclassify any unissued shares into one or more
classes of shares. Pursuant to this authority, the Board of Directors has
authorized the issuance of one class of shares in each of the Prime Money
Market, Government Money Market and Tax-Exempt Money Market Funds. The Board
of Directors has also authorized the issuance of additional classes of shares
representing interests in other investment portfolios of the Company. For
information regarding these other portfolios, call 1-800-551-2145.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held. Shares of all
portfolios of the Company vote together and not by portfolio or class, unless
otherwise required by law or permitted by the Board of Directors. The Company
does not currently intend to hold annual shareholder meetings unless it is
required to do so by the Investment Company Act or other applicable law.
As of September 15, 1997, Mercantile held of record, in a fiduciary or
other representative capacity for beneficial owners, substantially all of the
shares of each Fund. Mercantile does not, however, have any economic interest
in such shares which are held solely for the benefit of its customers.
Mercantile may be deemed to be a controlling person of the Funds within the
meaning of the Investment Company Act by reason of its record ownership of
such shares.
18
<PAGE>
PERFORMANCE REPORTING
Performance information provides you with a method of measuring and
monitoring your investments. This section will help you to understand the
various terms that are commonly used to describe a Fund's performance. You may
see references to these terms in newsletters, advertisements and shareholder
communications. These publications may also include comparisons of a Fund's
performance to the performance of various indices and investments for which
reliable performance data are available and to averages, performance rankings
or other information compiled by recognized mutual fund statistical services.
. Yield is a measure of net investment income. A Fund's 7-day yield is
an annualized figure--the amount you would earn if you stayed in the
Fund for a year and the Fund continued to earn the same net
investment income throughout that year. To calculate 7-day yield,
net investment income per share over a 7-day period (which period
will be identified in the quotation) is multiplied by 52 weeks, then
divided by net asset value to get a percentage, which is the 7-day
yield.
. Effective Yield is calculated similarly to yield but the income
earned by an investment in a Fund is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of
the compounding effect of this assumed reinvestment.
. Tax-Equivalent Yield of the Tax-Exempt Money Market Fund shows the
level of taxable yield needed to produce an after-tax yield
equivalent to the Fund's tax-free yield. It is calculated by
increasing the Fund's yield by the amount necessary to reflect the
payment of Federal income taxes at a stated tax rate. The Fund's
tax-equivalent yield will always be higher than its yield.
. Monthly yield is also an annualized figure. To calculate monthly
yield, net investment income per share over a calendar month (which
month will be identified in the quotation) is multiplied by 12
months, then divided by net asset value to get a percentage, which
is the monthly yield.
Any fees charged by a Bank directly to your account in connection with an
investment in a Fund will not be included in the Fund's calculations of yield.
Performance quotations of a Fund represent its past performance, and you
should not consider them representative of future results. Since performance
will fluctuate, you cannot necessarily compare an investment in Fund shares
with bank deposits, savings accounts and similar investment alternatives which
often provide an agreed or guaranteed fixed yield for a stated period of time.
MISCELLANEOUS
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Company or a particular Fund, with respect to the
approval of the Fund's investment advisory agreement or a change in the Fund's
investment objective or a fundamental investment policy, means the affirmative
vote of the lesser of (a) 50% or more of the outstanding shares of the Company
or such Fund or (b) 67% or more of the shares of the Company or such Fund
present at a meeting if more than 50% of the outstanding shares of the Company
or such Fund are represented at the meeting in person or by proxy.
The Company or your Bank will send you a statement of your account
quarterly and a confirmation after every transaction that affects your share
balance or your account registration. A statement with tax information will be
mailed to you by January 31 of each year and filed with the Internal Revenue
Service. At least twice a year, you will receive financial statements in the
form of Annual and Semi-Annual Reports of the Funds.
19
<PAGE>
If you have any questions concerning the Company or any of the Funds,
please call 1-800-551-2145.
----------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, 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
COMPANY, THE FUNDS OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING BY THE COMPANY, THE FUNDS OR THEIR DISTRIBUTOR IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
20
<PAGE>
Service Providers:
Management and support services are provided to M.S.D.&T. Funds, Inc. by several
organizations. A complete discussion of service providers and their respective
fees is provided in this Prospectus.
Investment Adviser and Administrator:
[LOGO OF MERCANTILE APPEARS HERE]
MERCANTILE
Mercantile-Safe Deposit and Trust Company
Baltimore, Maryland
Custodian:
The Fifth Third Bank
Cincinnati, Ohio
Transfer Agent:
State Street Bank and Trust Company
Boston, Massachusetts
Distributor:
BISYS Fund Services
Columbus, Ohio
In considering this investment please read this Prospectus carefully.
Shares of the Funds are not bank deposits or obligations of, or guaranteed,
endorsed or otherwise supported by Mercantile-Safe Deposit and Trust Company,
its parent company or its affiliates, and 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. Investment in the
Funds involves investment risks, including possible loss of principal. There can
be no guarantee that the Funds will be able to maintain a stable net asset value
of $1.00 per share.
<PAGE>
M.S.D. & T. FUNDS, INC.
Tax-Exempt Money Market Fund (Trust)
CROSS REFERENCE SHEET
---------------------
Pursuant to Rule 495
under the Securities Act of 1933
<TABLE>
<CAPTION>
Form N-1A Item Number Location
- --------------------- --------
Part A Prospectus Caption
- ------ ------------------
<S> <C>
1. Cover Page......................... Cover Page
2. Synopsis........................... Expense Summary
3. Condensed Financial Information.... Financial Highlights; Performance
Reporting
4. General Description of Registrant.. Cover Page; Investment Objective,
Policies and Risks; Fundamental
Limitations; Other Information
Concerning the Company and Its Shares;
Miscellaneous
5. Management of the Fund............. Management of the Company; How to
Purchase and Redeem Shares
5A. Management's Discussion of Fund
Performance........................ Not Applicable
6. Capital Stock and How to Purchase and Redeem
Other Securities................... Shares; Dividends and Distributions;
Tax Information; Other Information
Concerning the Company and Its Shares;
Miscellaneous
7. Purchase of Securities Being Offered Pricing of Shares; How to Purchase and
Redeem Shares
8. Redemption or Repurchase............ How to Purchase and Redeem Shares
9. Pending Legal Proceedings........... Not Applicable
</TABLE>
<PAGE>
M.S.D.&T. Funds, Inc.
...................................................
Prospectus
Tax-Exempt Money Market Fund (Trust)
SEPTEMBER 26, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY............................................................ 2
FINANCIAL HIGHLIGHTS....................................................... 3
INVESTMENT OBJECTIVE, POLICIES AND RISKS................................... 4
FUNDAMENTAL LIMITATIONS.................................................... 6
HOW TO PURCHASE AND REDEEM SHARES.......................................... 7
PRICING OF SHARES.......................................................... 9
DIVIDENDS AND DISTRIBUTIONS................................................ 9
TAX INFORMATION............................................................ 9
MANAGEMENT OF THE COMPANY.................................................. 10
OTHER INFORMATION CONCERNING THE COMPANY AND ITS SHARES.................... 11
PERFORMANCE REPORTING...................................................... 12
MISCELLANEOUS.............................................................. 12
</TABLE>
<PAGE>
M.S.D. & T. FUNDS, INC.
Two Hopkins Plaza
Baltimore, MD 21201
For current yield, purchase and redemption information, call 1-800-551-2145.
M.S.D. & T. Funds, Inc. (the "Company") is a no-load, open-end,
professionally managed investment company offering in this Prospectus shares
in the TAX-EXEMPT MONEY MARKET FUND (TRUST) (the "Fund"), which is designed to
seek as high a level of current income exempt from Federal income tax as is
consistent with liquidity and stability of principal by investing
substantially all of its assets in high quality municipal obligations, the
interest on which is exempt from regular Federal income tax. The Fund may hold
uninvested cash reserves pending investment, during temporary defensive
periods or when suitable tax-exempt obligations are unavailable.
Mercantile-Safe Deposit and Trust Company is the Fund's investment
adviser. Shares of the Fund are sold without a sales charge by BISYS Fund
Services, the Fund's distributor.
SHARES OF THE FUND ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR OTHERWISE SUPPORTED BY, MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY,
ITS PARENT COMPANY OR ITS AFFILIATES, AND SUCH SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE U.S. GOVERNMENT, THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. THERE CAN BE NO
ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
This Prospectus briefly sets forth information about the Fund that a
prospective investor should consider before investing. Investors are advised
to read this Prospectus and retain it for future reference. Additional
information about the Fund, contained in the Statement of Additional
Information dated September 26, 1997, has been filed with the Securities and
Exchange Commission (the "SEC") and is available upon request without charge
by writing to the Company at the above address or by calling 1-800-551-2145.
The Statement of Additional Information is incorporated by reference into this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
SEPTEMBER 26, 1997
<PAGE>
EXPENSE SUMMARY
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
<TABLE>
<CAPTION>
TAX-EXEMPT
MONEY
MARKET FUND (TRUST)
-------------------
<S> <C>
Management Fees............................................ None
Other Expenses (after fee waivers) (includes
administration, custody and transfer agency, and
miscellaneous other charges).............................. .22%
----
Total Fund Operating Expenses (after fee waivers).......... .22%
====
EXAMPLE:
An investor would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return (a hypothetical return required by SEC regulations for
this calculation) and (2) redemption at the end of the following time periods:
1 Year..................................................... $ 2
3 Years.................................................... $ 7
5 Years.................................................... $12
10 Years................................................... $28
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES OR RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN.
The purpose of this Expense Summary is to assist investors in
understanding the various costs and expenses that investors in the Fund will
bear indirectly as shareholders. The Expense Summary is based on the expenses
the Tax-Exempt Money Market Fund (Trust) incurred during the fiscal year ended
May 31, 1997. Absent fee waivers, Other Expenses and Total Fund Operating
Expenses, stated as a percentage of average daily net assets, would have been
.28% and .28%, respectively.
The investment adviser and administrator are under no obligation to waive
fees or reimburse expenses, but have informed the Company that they expect to
waive fees and/or reimburse expenses during the current fiscal year as
necessary to maintain the Fund's total operating expenses at the level set
forth in the above table. Any fees that are charged by the investment adviser,
its affiliates or other institutions directly to their customer accounts for
services related to an investment in the Fund are in addition to, and are not
reflected in, the fees and expenses described above.
For more complete descriptions of the Fund's operating expenses, see
"Management of the Company" in this Prospectus.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following Financial Highlights, which have been derived from the
Fund's financial statements, have been audited by Coopers & Lybrand L.L.P.,
the Fund's independent accountants, whose unqualified report on the financial
statements containing such information for the five years in the period ended
May 31, 1997 is incorporated by reference into the Statement of Additional
Information. The Financial Highlights should be read in conjunction with the
financial statements and related notes, which are also incorporated by
reference into the Statement of Additional Information. Further information
about the performance of the Fund is available in the Company's Annual Report
to Shareholders for the fiscal year ended May 31, 1997. For a free copy of the
Statement of Additional Information or the Annual Report to Shareholders,
contact the Company at the address or telephone number on the first page of
this Prospectus.
Financial Highlights for a share of the Tax-Exempt Money Market Fund
(Trust) outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR 7/25/89/1/
ENDED ENDED ENDED ENDED ENDED ENDED ENDED TO
5/31/97 5/31/96 5/31/95 5/31/94 5/31/93 5/31/92 5/31/91 5/31/90
------- ------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of Period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- --------
Income From Investment
Operations:
Net Investment Income.. 0.0325 0.0340 0.0320 0.0219 0.0238 0.0362 0.0512 0.0491
Net Realized Gain on
Investments........... -- -- -- 0.0003 -- -- -- --
------- ------- ------- ------- ------- ------- ------- --------
Total From Investment
Operations............ 0.0325 0.0340 0.0320 0.0222 0.0238 0.0362 0.0512 0.0491
------- ------- ------- ------- ------- ------- ------- --------
Less Distributions:
Dividends to
Shareholders from Net
Investment Income..... (0.0325) (0.0340) (0.0320) (0.0219) (0.0238) (0.0362) (0.0512) (0.0491)
Distributions to Share-
holders from Net Capi-
tal Gains............. -- -- -- (0.0003) -- -- -- --
------- ------- ------- ------- ------- ------- ------- --------
Total Distributions.... (0.0325) (0.0340) (0.0320) (0.0222) (0.0238) (0.0362) (0.0512) (0.0491)
------- ------- ------- ------- ------- ------- ------- --------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= ======= ========
Total Return............ 3.30% 3.45% 3.25% 2.24% 2.40% 3.68% 5.24% 5.92%/2/
Ratios/Supplemental Data
Net Assets, End of Pe-
riod ($000)........... 49,544 46,541 55,043 73,230 55,975 62,502 91,315 81,055
Ratio of Expenses to
Average Net As-
sets/3/............... 0.22% 0.22% 0.22% 0.20% 0.20% 0.20% 0.20% 0.20%/2/
Ratio of Net Investment
Income to Average Net
Assets................ 3.24% 3.40% 3.14% 2.19% 2.38% 3.63% 5.08% 5.76%/2/
</TABLE>
- -------------------
/1/ Commencement of operations.
/2/Annualized.
/3/ Without the waiver of administration fees, the ratio of expenses to
average net assets for the years ended May 31, 1997, May 31, 1996, May 31,
1995, May 31, 1994, May 31, 1993, May 31, 1992 and May 31, 1991 and the period
ended May 31, 1990 would have been 0.28%, 0.27%, 0.28%, 0.26%, 0.21%, 0.21%,
0.21% and 0.22% (annualized), respectively.
3
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RISKS
The Fund's investment adviser (the "Adviser") uses a range of different
investments and investment techniques in seeking to achieve the Fund's
investment objective. These investments and investment techniques, which
involve various risks, are described in the following sections. The Adviser
will use its best efforts to achieve the Fund's investment objective, although
its achievement cannot be assured. An investor should not consider an
investment in the Fund to be a complete investment program.
GENERAL
The Fund's investment objective is to seek as high a level of current
income exempt from Federal income tax as is consistent with liquidity and
stability of principal by investing substantially all of its assets in a
diversified portfolio of short-term obligations issued by or on behalf of
states, territories and possessions of the United States, the District of
Columbia and their political subdivisions, agencies, instrumentalities and
authorities the interest on which, in the opinion of counsel to the issuer or
bond counsel, is exempt from regular Federal income tax ("municipal
obligations"). The Fund seeks to achieve its investment objective by investing
primarily in:
. municipal notes, including variable rate demand notes, rated at the time
of purchase within the highest rating category assigned by one or more
unaffiliated nationally recognized statistical rating organizations
(each a "Rating Agency");
. tax-exempt commercial paper rated at the time of purchase within the
highest rating category assigned by one or more Rating Agencies;
. municipal bonds rated at the time of purchase within one of the two
highest rating categories assigned by one or more Rating Agencies; and
. unrated municipal notes, tax-exempt commercial paper, municipal bonds
and other instruments that are of comparable quality as determined by
the Adviser pursuant to guidelines approved by the Company's Board of
Directors.
As a matter of fundamental policy, during normal market conditions at
least 80% of the Fund's total assets will be invested in municipal obligations
the interest on which is exempt from regular Federal income tax and is not
treated as a specific tax preference item under the Federal alternative
minimum tax for either individuals or corporations. Up to 20% of the Fund's
total assets may be invested in private activity bonds that are subject to the
Federal alternative minimum tax or taxable money market instruments, although
the Fund does not intend to invest in such instruments on a regular basis. The
Fund may hold uninvested cash reserves during temporary defensive periods or
if, in the opinion of the Adviser, suitable municipal obligations are not
available.
QUALITY, MATURITY AND DIVERSIFICATION
All securities acquired by the Fund will be determined at the time of
purchase by the Adviser, pursuant to guidelines approved by the Company's
Board of Directors, to present minimal credit risks and will be "Eligible
Securities" as defined by the SEC. Eligible Securities are (a) securities that
either (i) have short-term debt ratings at the time of purchase in the two
highest rating categories assigned by at least two Rating Agencies (or one
Rating Agency if the security is rated by only one Rating Agency), or (ii) are
comparable in priority and security with an instrument issued by an issuer
which has such ratings, and (b) securities that are unrated (including
securities of issuers that have long-term but not short-term ratings) but are
of comparable quality as determined in accordance with guidelines approved by
the Company's Board of Directors. See the Statement of Additional Information
for a description of the Rating Agencies' various rating categories.
The Fund is managed so that the average dollar-weighted maturity of all
instruments held by it will not exceed 90 days. In no event will the Fund
purchase securities which mature more than 397 days from the date of purchase
(except for certain variable and floating rate instruments). Securities in
which the Fund invests may not earn as high a level of income as longer-term
or lower quality securities, which generally have greater market risk and more
fluctuation in market value.
4
<PAGE>
The Fund is classified as a diversified portfolio under the Investment
Company Act.
OTHER INVESTMENT POLICIES AND RELATED RISKS
MUNICIPAL OBLIGATIONS
The Fund invests primarily in municipal obligations. The two main types of
municipal obligations are "general obligation" securities (which are secured
by the issuer's full faith, credit and taxing power) and "revenue" securities
(which are payable only from revenues received from the operation of a
particular facility or other revenue source). A third type of municipal
obligation, normally issued by special purpose public authorities, is known as
a "moral obligation" security because if the issuer cannot meet its
obligations it draws on a reserve fund, the restoration of which is not a
legal requirement. Private activity bonds (which are a type of obligation
that, although exempt from regular Federal income tax, may be subject to the
Federal alternative minimum tax) are usually revenue securities issued by or
for public authorities to finance a privately operated facility.
In many cases, the Internal Revenue Service has not ruled on whether the
interest received on a municipal obligation is tax-exempt and, accordingly,
the purchase of such securities is based on the opinion of bond counsel or
counsel to the issuers of such instruments. The Company and the Adviser rely
on these opinions and do not intend to review the bases for them.
Municipal obligations purchased by the Fund in some cases may be insured
as to the timely payment of principal and interest. There is no guarantee,
however, that the insurer will meet its obligations in the event of a default
in payment by the issuer. In other cases, municipal obligations may be backed
by letters of credit or guarantees issued by domestic or foreign banks or
other financial institutions which are not subject to federal deposit
insurance. Adverse developments affecting the banking industry generally or a
particular bank or financial institution that has provided its credit or
guarantee with respect to a municipal obligation held by the Fund, including a
change in the credit quality of any such bank or financial institution, could
result in a loss to the Fund and adversely affect the value of its shares.
Foreign letters of credit and guarantees involve certain risks in addition to
those of domestic obligations. The institutions issuing such foreign letters
of credit and guarantees may be subject, for example, to less stringent
reserve requirements and to different accounting, auditing and recordkeeping
requirements.
VARIABLE AND FLOATING RATE INSTRUMENTS
The Fund may purchase variable and floating rate instruments, which may
have a maturity in excess of 397 days but will, in any event, permit the Fund
to demand payment of the principal of the instrument at least once every 397
days upon not more than 30 days' notice (unless the instrument is guaranteed
by the U.S. Government or an agency or instrumentality thereof). Such
instruments may include variable rate demand notes that permit the
indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate. There may be no active secondary market with
respect to a particular variable or floating rate instrument. Nevertheless,
the periodic readjustments of their interest rates tend to ensure that their
value to the Fund will approximate their par value. Variable and floating rate
obligations that cannot be disposed of promptly within seven business days and
in the usual course of business without taking a reduced price will be
considered illiquid and subject to the Fund's limitation on illiquid
investments described below under "Managing Liquidity."
REVERSE REPURCHASE AGREEMENTS
The Fund may borrow money for temporary purposes by entering into reverse
repurchase agreements. Under these agreements, the Fund sells portfolio
securities to a financial institution and agrees to buy them back at an agreed
upon date and price. Reverse repurchase agreements may be used to meet
redemption requests without selling portfolio securities. Reverse repurchase
agreements involve the risk of counterparty default and possible loss of
collateral held by the counterparty. Reverse repurchase agreements are
considered to be borrowings under the Investment Company Act.
WHEN-ISSUED PURCHASES
The Fund may purchase securities on a "when-issued" basis. These
transactions, which involve a commitment by the Fund to purchase particular
securities with payment and delivery taking place at a future
5
<PAGE>
date, permit the Fund to lock in a price or yield on a security it intends to
purchase, regardless of future changes in interest rates. The Fund will bear
the risk, however, that the price or yield obtained in a transaction may be
less favorable than the price or yield available in the market when the
delivery takes place. When-issued transactions are not expected to exceed 25%
of the value of the Fund's total assets under normal circumstances. Because
the Fund is required to set aside cash or liquid securities to satisfy these
purchase commitments, the Fund's liquidity and ability to manage its portfolio
might be affected during periods in which its commitments exceed 25% of the
value of its assets. The Fund does not intend to engage in when-issued
transactions for speculative purposes.
STAND-BY COMMITMENTS
The Fund may acquire stand-by commitments under which a dealer agrees to
purchase certain municipal obligations at the Fund's option at a price equal
to their amortized cost value plus interest. These commitments will be used
only to assist in maintaining the Fund's liquidity and not for trading
purposes.
OTHER INVESTMENT COMPANIES
The Fund may invest in securities issued by other investment companies
which invest in eligible quality, short-term debt securities and which seek to
maintain a $1.00 net asset value per share, i.e., "money market" funds. Such
investments will be made by the Fund in connection with the management of its
daily cash position and will be subject to the requirements of applicable
securities laws. When the Fund invests in another investment company, it pays
a pro rata portion of the advisory and other expenses of that company as one
of its shareholders. These expenses are in addition to the Fund's own
expenses.
MANAGING LIQUIDITY
Disposing of illiquid investments may involve time-consuming negotiations
and legal expenses, and it may be difficult or impossible to dispose of such
investments promptly at an acceptable price. Additionally, the absence of a
trading market can make it difficult to value a security. For these and other
reasons, as a matter of fundamental policy the Fund will not knowingly invest
more than 10% of the value of its net assets in illiquid securities. Illiquid
securities include restricted securities and other securities for which market
securities are not readily available.
OTHER RISK CONSIDERATIONS
As with an investment in any mutual fund, an investment in the Fund
entails market and economic risks associated with investments generally.
However, there are certain specific risks of which you should be aware.
Although the Fund does not presently intend to do so on a regular basis,
it may invest 25% or more of its assets in industrial development bonds issued
before August 7, 1986 that are not subject to the Federal alternative minimum
tax, and in municipal obligations the interest on which is paid solely from
revenues of similar projects. When the Fund's assets are concentrated in
obligations payable from revenues on similar projects or in industrial
development bonds, the Fund will be subject to the particular risks (including
legal and economic conditions) presented by such securities to a greater
extent than it would be if its assets were not so concentrated. Furthermore,
payment of municipal obligations held by the Fund relating to certain projects
may be secured by mortgages or deeds of trust. In the event of a default,
enforcement of a mortgage or deed of trust may be delayed and the amount of
the proceeds received may not be enough to pay the principal and accrued
interest on the defaulted municipal obligations.
FUNDAMENTAL LIMITATIONS
The Fund's investment objective discussed above is "fundamental," which
means that it may not be changed without the approval of a majority of the
Fund's outstanding shares. Except as otherwise noted, the Fund's investment
policies discussed above are not fundamental and may be changed by the
Company's Board of Directors without shareholder approval. However, the Fund
also has in place certain "fundamental" limitations that also cannot be
changed without the approval of a majority of the Fund's outstanding shares.
Some of these fundamental limitations are summarized below, and all of the
Fund's fundamental limitations are set out in full in the Statement of
Additional Information.
6
<PAGE>
1. The Fund may not purchase securities (with certain exceptions,
including U.S. Government securities) if more than 5% of its total assets will
be invested in the securities of any one issuer, except that up to 25% of the
total assets of the Fund can be invested without regard to this 5% limitation.
2. The Fund may not invest 25% or more of its total assets in one or more
issuers conducting their principal business activities in the same industry,
subject to certain exceptions.
3. The Fund may not borrow money except for temporary purposes in amounts
up to 10% of its total assets at the time of such borrowing. Whenever any
borrowings are outstanding, the Fund will not make any further investments.
4. The Fund may not knowingly invest more than 10% of its net assets in
illiquid securities.
If a percentage limitation is met at the time an investment is made, a
subsequent change in that percentage resulting from a change in value of the
Fund's portfolio securities does not mean that the limitation has been
violated.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares of the Fund are sold on a continuous basis without a sales load by
the Company's distributor, BISYS Fund Services (the "Distributor"). The
Distributor acts as agent for the Fund in the distribution of its shares and,
in such capacity, has agreed to use appropriate efforts to promote the Fund
and to solicit orders for the purchase of the Fund's shares. The Distributor's
principal offices are located at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
PURCHASE OF SHARES
Shares of the Fund are sold only to qualifying trust accounts maintained
by Mercantile-Safe Deposit and Trust Company and its affiliated and
correspondent banks (referred to herein individually as a "Bank" and
collectively as the "Banks"). The Company's shares will normally be held of
record by the Banks. Shareholders purchasing shares of the Fund may also
include officers, directors, or employees of the Banks. Shares may be
purchased through procedures established by the Banks in connection with their
customer accounts, including specialized procedures for the purchase or
redemption of Fund shares, such as pre-authorized or automatic purchase and
redemption programs. The Company imposes no minimum on initial or subsequent
investments, although the Banks have established a $100 minimum initial and
subsequent investment requirement for shares purchased on behalf of their
customers. The Company will send confirmations of share purchases and
redemptions to the Banks. Beneficial ownership of the Company's shares will be
recorded by the Banks and reflected in the account statements they provide to
their customers. Information relating to specific purchase procedures is
available from the Banks.
Shares are sold at the net asset value per share next determined after
receipt of a purchase order by the Fund's transfer agent, State Street Bank
and Trust Company (the "Transfer Agent"). Purchase orders for shares will be
accepted only on a day on which the Distributor, the Fund's custodian, The
Fifth Third Bank (the "Custodian"), the Transfer Agent and the purchasing Bank
are open for business ("Business Days"), and must be transmitted by telephone
to the Transfer Agent. Orders received before 11:00 A.M. Eastern Time will be
executed at 11:00 A.M. if the Custodian has received payment by the close of
regular trading hours (currently 4:00 P.M. Eastern Time) on the New York Stock
Exchange (the "Exchange"). Orders received after 11:00 A.M. but before the
close of regular trading hours on the Exchange will be executed at 11:00 A.M.
the following Business Day if the Custodian receives payment by the close of
regular trading hours on the Exchange on the following Business Day. Orders
received at other times, and orders for which payment has not been received by
the close of regular trading hours on the Exchange, will not be accepted and
notice thereof will be given promptly to the Bank that submitted the order.
Payments for orders which are not received or accepted will be returned after
prompt inquiry to the sending Bank. If a Bank accepts a purchase order from
its customer on a non-Business
7
<PAGE>
Day, the order will not be executed until it is received and accepted on a
Business Day in accordance with the foregoing procedures.
On a Business Day when the Exchange closes early due to a partial holiday
or otherwise, the Company reserves the right to advance the times at which
purchase orders must be received in order to be processed on that Business
Day.
It is the Banks' responsibility to transmit their customers' orders for
the purchase of shares to the Transfer Agent and to wire the required funds in
payment on a timely basis to the Custodian. The Company reserves the right to
reject any purchase order.
Payment for Fund shares may be made only in Federal funds or other funds
immediately available to the Custodian.
REDEMPTION OF SHARES
A customer may redeem all or part of his or her shares in accordance with
the procedures, instructions and limitations pertaining to his or her account
at a Bank. The Banks are responsible for transmitting redemption orders to the
Transfer Agent and crediting their customers' accounts with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is
imposed by the Company, although the Banks may charge their customers'
accounts directly for redemption and other services. Information relating to
such services and charges, if any, is available from the Banks. Absent
instructions to the contrary, customers for whose accounts automatic purchases
and redemptions are made may receive monthly confirmations of share
transactions from their Bank.
Redemption orders must be transmitted to the Transfer Agent by telephone
in the manner described under "Purchase of Shares." Shares are redeemed at the
net asset value per share next determined after receipt of the redemption
order.
Payment for redemption orders received before 11:00 A.M. Eastern Time on a
day that the Distributor, the Custodian, the Transfer Agent and the redeeming
Bank are open for business is normally made in Federal funds wired the same
Business Day to the Bank. Payment for redemption orders which are received
between 11:00 A.M. Eastern Time and the close of regular trading hours
(currently 4:00 p.m. Eastern Time) on the Exchange or on a non-Business Day is
normally wired to the Bank in Federal funds on the next Business Day. However,
in both cases the Company reserves the right to wire redemption proceeds
within seven days after receiving the redemption order if, in the judgment of
the Adviser, an earlier payment could adversely affect the Company.
On a Business Day when the Exchange closes early due to a partial holiday
or otherwise, the Company reserves the right to advance the times at which
redemption orders must be received in order to be processed on that Business
Day.
If a customer has agreed with a Bank to maintain a minimum cash balance in
the account he or she maintains with the Bank and the balance falls below this
minimum, the customer may be obliged to redeem all or a part of the shares
held in his or her account to the extent necessary to maintain the required
minimum balance.
The Company may also redeem shares involuntarily or pay redemption
proceeds in readily marketable portfolio securities if it appears appropriate
to do so in light of its responsibilities under the Investment Company Act.
See the Statement of Additional Information under "Additional Purchase and
Redemption Information."
8
<PAGE>
PRICING OF SHARES
The net asset value of the Fund is determined and its shares are priced as
of 11:00 A.M. Eastern Time and as of the close of regular trading hours
(currently 4:00 P.M. Eastern Time) each weekday, with the exception of those
holidays on which the Federal Reserve Bank of Cleveland, the Fund's Adviser or
the New York Stock Exchange is closed, which currently include: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and
Christmas Day. Net asset value per share for purposes of pricing sales and
redemptions is calculated by dividing the value of all securities and other
assets belonging to the Fund, less its liabilities, by the number of the
Fund's outstanding shares.
The assets in the Fund are valued based upon the amortized cost method.
Although the Fund seeks to maintain its net asset value per share at $1.00,
there can be no assurance that the net asset value per share will not vary.
Further information about the Company's valuation policies is contained in the
Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
The net investment income of the Fund is declared daily and paid monthly
as a dividend to its shareholders. Shares in the Fund begin earning dividends
on the day the purchase order is executed and continue earning dividends
through and including the day before the redemption order for the shares is
executed. Dividends are paid by wire transfer to the Banks within five
Business Days after the end of each calendar month. Shareholders may elect to
have their dividends reinvested in additional shares of the Fund at the net
asset value of such shares on the last Business Day of the month in which such
dividend is declared. Such election, or any revocation thereof, must be made
in writing to the shareholder's Bank and will become effective with respect to
dividends paid after its receipt. The crediting of any payment of dividends to
customers of the Banks or the reinvestment of such dividends will be in
accordance with the procedures governing their customer accounts. Reinvested
dividends receive the same tax treatment as those paid in cash.
TAX INFORMATION
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"), so long as such
qualification is in the best interest of the Fund's shareholders. Such
qualification relieves the Fund of liability for Federal income taxes to the
extent its earnings are distributed as required by the Code.
Qualification as a regulated investment company under the Code requires,
among other things, that the Fund distribute to its shareholders an amount
equal to at least the sum of 90% of its investment company taxable income and
90% of its exempt-interest income net of certain deductions for a taxable
year. In general, the Fund's investment company taxable income will be its
taxable income, including interest, subject to certain adjustments and
excluding the excess of any net long-term capital gain for the taxable year
over the net short-term capital loss, if any, for such year.
The Fund intends to distribute as exempt-interest dividends substantially
all of its municipal obligations interest income net of certain deductions
each year. Exempt-interest dividends may be treated by shareholders as items
of interest excludable from their gross income under Section 103(a) of the
Code unless, under the circumstances applicable to the particular shareholder,
the exclusion would be disallowed. (See the Statement of Additional
Information under "Additional Information Concerning Taxes.") Exempt-interest
dividends generally will be exempt from state and local taxes as well.
However, in some situations, distributions of net income may be taxable to
investors under state or local law as dividend income even though a
substantial portion of such distributions may be derived from interest on tax-
exempt obligations which, if realized directly, would be exempt from such
income taxes.
9
<PAGE>
If the Fund should hold certain private activity bonds issued after August
7, 1986, shareholders must include, as an item of tax preference, the portion
of dividends paid by the Fund that is attributable to interest on such bonds
in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 26% alternative minimum tax applicable
to individuals (28% for adjusted alternative minimum taxable income in excess
of $175,000) and the 20% alternative minimum tax and the environmental tax
applicable to corporations. In addition, corporate shareholders will need to
take into account all exempt-interest dividends paid by the Fund in
determining certain adjustments for the Federal alternative minimum tax and
the environmental tax. The environmental tax applicable to corporations is
imposed at the rate of 0.12% on the excess of the corporation's modified
Federal alternative minimum taxable income over $2,000,000. Shareholders
receiving Social Security benefits should note that all exempt-interest
dividends will be taken into account in determining the taxability of such
benefits.
To the extent, if any, dividends paid by the Fund are derived from taxable
income (for example, from interest on certificates of deposit, commercial
paper or U.S. Government obligations), such dividends will be subject to
Federal income tax (whether such dividends are paid in cash or additional
shares) and may also be subject to state and local taxes.
Dividends declared in October, November or December of any year which are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by the shareholders and paid by the Fund on
December 31 of such year in the event such dividends are actually paid during
January of the following year.
Shareholders of the Fund will be advised at least annually as to the
Federal income tax consequences of distributions made to them each year.
The Company may be subject to state or local taxes in jurisdictions in
which the Company may be deemed to be doing business. In addition, in those
states or localities which have income tax laws, the treatment of the Company
and its shareholders under such laws may differ from treatment under Federal
income tax laws. Shareholders should consult their own tax advisers concerning
these matters.
The foregoing summarizes some of the important Federal tax considerations
generally affecting the Fund and its shareholders but is not intended as a
substitute for careful tax planning. Potential investors in the Fund should
consult their tax advisers with specific reference to their own tax situation.
In addition, this discussion is based on tax laws and regulations in effect on
the date of this Prospectus and which are subject to change by legislative or
administrative action.
MANAGEMENT OF THE COMPANY
BOARD OF DIRECTORS
The business of the Company is managed under the general supervision of
the Company's Board of Directors. The Statement of Additional Information
contains the name of each Director and other background information.
INVESTMENT ADVISER AND ADMINISTRATOR
Mercantile-Safe Deposit and Trust Company ("Mercantile") serves as the
Fund's investment adviser. Mercantile is the lead bank of Mercantile
Bankshares Corporation, a multi-bank holding company organized in Maryland in
1969. Mercantile manages the Fund's portfolio and is responsible for all
purchases and sales of its portfolio securities. Mercantile is not entitled to
any compensation under its Advisory Agreement with respect to the Fund for the
services provided and expenses assumed thereunder. Mercantile has acted as
investment adviser to the Fund since its commencement of operations. In
addition, Mercantile and its predecessors have been in the business of
managing the investments of fiduciary and other accounts in the Baltimore area
since 1864. As of June 30, 1997, Mercantile had approximately $11.4 billion in
assets under active management. Mercantile's principal business address is Two
Hopkins Plaza, Baltimore, Maryland 21201.
10
<PAGE>
Mercantile also serves as the Fund's administrator and generally assists
in all aspects of its operation and administration. For the services provided
and expenses assumed as administrator, Mercantile is entitled to receive
administration fees, computed daily and paid monthly, at the annual rate of
.125% of the average daily net assets of the Fund.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company (the "Transfer Agent") serves as the
Fund's transfer and dividend disbursing agent. Communications to the Transfer
Agent should be directed to Two Heritage Drive, North Quincy, Massachusetts
02171. The Fifth Third Bank (the "Custodian"), located at 38 Fountain Square
Plaza, Cincinnati, Ohio 45263, serves as custodian of the Fund's assets.
EXPENSES
The Fund incurs expenses in order to support the services described above,
as well as other matters essential to the operation of the Funds. In addition
to the administration fees set forth above, the Fund also bears other
operating expenses which are described in more detail in the Statement of
Additional Information.
FEE WAIVERS
Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Mercantile and the Fund's other service providers. The
amount of the fee waivers may be changed at any time at the sole discretion of
Mercantile with respect to administration fees, and by the Fund's other
service providers, with respect to all other fees. As to any amounts
voluntarily waived or reimbursed, the service providers retain the ability to
be reimbursed by the Fund for such amounts prior to fiscal year-end. Such
waivers and reimbursements would increase the return to investors when made
but would decrease the return if the Fund were required to reimburse a service
provider.
OTHER INFORMATION CONCERNING THE COMPANY AND ITS SHARES
The Company was incorporated in Maryland on March 7, 1989 as an "open-end
management investment company." The Company's Charter authorizes the Board of
Directors to issue up to 10,000,000,000 full and fractional shares of capital
stock ($.001 par value per share) and to classify or reclassify any unissued
shares into one or more classes of shares. Pursuant to such authorization, the
Board of Directors has authorized the issuance of one class of shares in the
Tax-Exempt Money Market Fund (Trust). The Board of Directors has also
authorized the issuance of additional classes of shares representing interests
in other investment portfolios of the Company. For more information regarding
these other portfolios, call 1-800-551-2145.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held. Shares of all
portfolios of the Company vote together and not by portfolio or class, unless
otherwise required by law or permitted by the Board of Directors. The Company
does not currently intend to hold annual shareholder meetings unless it is
required to do so by the Investment Company Act or other applicable law.
As of September 15, 1997, Mercantile held of record, in a fiduciary or
other representative capacity for beneficial owners, substantially all of the
shares of the Fund. Mercantile does not, however, have any economic interest
in such shares which are held solely for the benefit of its customers.
Mercantile may be deemed to be a controlling person of the Fund within the
meaning of the Investment Company Act by reason of its record ownership of
such shares.
11
<PAGE>
PERFORMANCE REPORTING
From time to time the Fund may quote its "yield," "effective yield," "tax-
equivalent yield" and "monthly yield" in advertisements, sales literature or
in reports to shareholders. These yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield"
quoted in advertisements refers to the income generated by an investment in
the Fund over a seven-day period identified in the advertisement. This income
is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-
week period and is shown as a percentage of the investment. The "effective
yield" is calculated similarly but, when annualized, the income earned by an
investment in the Fund is assumed to be reinvested. The effective yield will
be slightly higher than the yield because of the compounding effect of the
assumed reinvestment. The "tax-equivalent yield" shows the level of taxable
yield necessary to produce an after-tax yield equivalent to the Fund's tax-
free yield. This is calculated by increasing the Fund's yield (calculated as
above) by the amount necessary to reflect the payment of Federal income tax at
a stated tax rate. The tax-equivalent yield will always be higher than the
Fund's yield. The "monthly yield" refers to income generated by an investment
in the Fund over the calendar month period identified in the advertisement.
This income is then "annualized." That is, the amount of income generated by
the investment during that month is assumed to be generated each month over a
twelve-month period and is shown as a percentage of the investment. In
addition, the Fund may from time to time quote yields relating to time periods
other than those described above. Such yields will be computed in a manner
which is similar to those computations described above.
IT IS IMPORTANT TO NOTE THAT PERFORMANCE FIGURES ARE BASED ON HISTORICAL
EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The Fund's
yields may not provide a basis for comparison with bank deposits and other
investments which provide a fixed yield for a stated period of time. Yield
will be affected by portfolio quality, composition, maturity, market
conditions and the level of the Fund's operating expenses. From time to time,
the Company's service contractors may voluntarily waive all or a portion of
their compensation in order to assist the Fund in maintaining a competitive
expense ratio. Fees paid by shareholders to Banks for automatic investment or
other cash management services, if any, would reduce the Fund's effective
yield from that stated.
MISCELLANEOUS
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Company or the Fund, with respect to the approval
of the Fund's investment advisory agreement or a change in the Fund's
investment objective or a fundamental investment policy, means the affirmative
vote of the lesser of (a) 50% or more of the outstanding shares of the Company
or the Fund or (b) 67% or more of the shares of the Company or the Fund
present at a meeting if more than 50% of the outstanding shares of the Company
or the Fund are represented at the meeting in person or by proxy.
Investors with inquiries regarding the Company or the Fund should call 1-
800-551-2145.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, 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
COMPANY, THE FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY THE COMPANY, THE FUND OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
12
<PAGE>
Service Providers:
Management and support services are provided to M.S.D.&T. Funds, Inc. by several
organizations. A complete discussion of service providers and their respective
fees is provided in this Prospectus.
Investment Adviser and Administrator:
[LOGO OF MERCANTILE APPEARS HERE]
MERCANTILE
Mercantile-Safe Deposit and Trust Company
Baltimore, Maryland
Custodian:
The Fifth Third Bank
Cincinnati, Ohio
Transfer Agent:
State Street Bank and Trust Company
Boston, Massachusetts
Distributor:
BISYS Fund Services
Columbus, Ohio
In considering this investment please read this Prospectus carefully.
Shares of the Funds are not bank deposits or obligations of, or guaranteed,
endorsed or otherwise supported by Mercantile-Safe Deposit and Trust Company,
its parent company or its affiliates, and 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. Investment in the
Funds involves investment risks, including possible loss of principal. There can
be no guarantee that the Funds will be able to maintain a stable net asset value
of $1.00 per share.
<PAGE>
M.S.D. & T. FUNDS, INC.
Growth & Income (formerly Value
Equity) Fund
International Equity Fund
Limited Maturity Bond (formerly Intermediate
Fixed Income) Fund
Maryland Tax-Exempt Bond Fund
CROSS REFERENCE SHEET
---------------------
Pursuant to Rule 495
under the Securities Act of 1933
<TABLE>
<CAPTION>
Form N-1A Item Number Location
- --------------------- --------
Part A Prospectus Caption
- ------ ------------------
<S> <C>
1. Cover Page......................... Cover Page
2. Synopsis........................... Expense Summary
3. Condensed Financial Information.... Financial Highlights; Performance
Reporting
4. General Description of Registrant.. Cover Page; Investment Objectives,
Policies and Risks; Fundamental
Limitations; Other Information
Concerning the Company and Its Shares;
Miscellaneous
5. Management of the Fund............. Management of the Company;
Investing in the Funds; Shareholder
Services
5A. Management's Discussion of
Fund Performance Not Applicable
6. Capital Stock and Other Securities Investing in the Funds; Dividends and
Distributions; Tax Information; Other
Information Concerning the Company and
Its Shares; Shareholder Services;
Miscellaneous
7. Purchase of Securities Being Offered Investing in the Funds
8. Redemption or Repurchase........... Investing in the Funds
9. Pending Legal Proceedings.......... Not Applicable
</TABLE>
<PAGE>
M.S.D.&T. Funds, Inc.
...................................................
Prospectus
Growth & Income Fund
International Equity Fund
Limited Maturity Bond Fund
Maryland Tax-Exempt Bond Fund
SEPTEMBER 26, 1997
<PAGE>
M.S.D. & T. FUNDS, INC.
PROSPECTUS
FOR THE
GROWTH & INCOME FUND
INTERNATIONAL EQUITY FUND
LIMITED MATURITY BOND FUND
MARYLAND TAX-EXEMPT BOND FUND
SEPTEMBER 26, 1997
<TABLE>
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<CAPTION>
M.S.D. & T.
FUND GOAL FOR INVESTORS WHO WANT
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<S> <C> <C>
GROWTH & IN- Long-term capital appreciation with Long-term capital appreciation
COME income as a secondary objective and are willing to accept the
through investments primarily in risks associated with
common and preferred stock and debt investments in equity
securities convertible into common securities.
stock.
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INTERNATIONAL Long-term growth of income and Long-term growth of capital and
EQUITY capital with reasonable risk through income and are willing to
investments primarily in equity accept the risks associated
securities of foreign issuers. with foreign investments.
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LIMITED MATU- High level of current income and Current income from corporate
RITY BOND protection of capital through and government securities and
investments primarily in corporate can accept fluctuations in
and government debt obligations. The price and yield.
Fund will generally have an average
weighted maturity of from three to
five years.
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MARYLAND TAX- High tax-free income through Current income from an
EXEMPT BOND investments primarily in Maryland investment that is both free
municipal obligations. from Federal and Maryland state
and local income taxes.
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</TABLE>
SHARES OF THE FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR OTHERWISE SUPPORTED BY, MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY,
ITS PARENT COMPANY OR ITS AFFILIATES, AND 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.
INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL. IN ADDITION, THE DIVIDENDS PAID BY A FUND WILL GO UP AND DOWN.
MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY SERVES AS INVESTMENT ADVISER AND
ADMINISTRATOR TO THE FUNDS, IS PAID FEES FOR ITS SERVICES, AND IS NOT
AFFILIATED WITH BISYS FUND SERVICES, THE FUNDS' DISTRIBUTOR.
This Prospectus relates to shares (formerly known as Institutional shares)
of the Growth & Income (formerly known as Value Equity), International Equity,
Limited Maturity Bond (formerly known as Intermediate Fixed Income) and
Maryland Tax-Exempt Bond Funds (the "Funds") of M.S.D. & T. Funds, Inc. (the
"Company"), a no-load, open-end management investment company. This Prospectus
describes concisely the information about the Funds that you should know
before investing. Please read and keep it for future reference. More
information about the Funds is contained in the Statement of Additional
Information dated September 26, 1997 that has been filed with the Securities
and Exchange Commission ("SEC"). The Statement of Additional Information,
which can be obtained free of charge upon request by writing to the Company at
Two Hopkins Plaza, Baltimore, Maryland 21201 or by calling 1-800-551-2145, is
incorporated by reference into (considered a part of) this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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PAGE
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EXPENSE SUMMARY............................................................ 3
FINANCIAL HIGHLIGHTS....................................................... 4
INVESTMENT OBJECTIVES, POLICIES AND RISKS.................................. 7
FUNDAMENTAL LIMITATIONS.................................................... 17
INVESTING IN THE FUNDS..................................................... 17
SHAREHOLDER SERVICES....................................................... 21
DIVIDENDS AND DISTRIBUTIONS................................................ 23
TAX INFORMATION............................................................ 23
MANAGEMENT OF THE COMPANY.................................................. 25
OTHER INFORMATION CONCERNING THE COMPANY AND ITS SHARES.................... 27
PERFORMANCE REPORTING...................................................... 27
MISCELLANEOUS.............................................................. 28
</TABLE>
IF YOU HAVE QUESTIONS
For current yield, purchase and redemption information, call 1-800-551-2145.
2
<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing in a Fund.
Annual Fund Operating Expenses are paid out of a Fund's assets and include
fees for portfolio management, maintenance of shareholder accounts, general
Fund administration, accounting, custody and other services.
Below is information regarding the operating expenses for the Funds.
Examples based on this information are also provided.
<TABLE>
<CAPTION>
GROWTH & INTERNATIONAL LIMITED MARYLAND
INCOME EQUITY MATURITY TAX-EXEMPT
FUND FUND BOND FUND BOND FUND
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<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fees (after fee
waivers)/1/....................... .44% .71% .20% .00%
Other Expenses (after fee waivers)
(includes administration, custody
and transfer agency, and
miscellaneous other charges/1/.... .27% .32% .30% .49%
--- ---- --- ---
Total Fund Operating Expenses
(after fee waivers)/1/............ .71% 1.03% .50% .49%
=== ==== === ===
</TABLE>
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/1/ This expense information is provided to help you understand the various
costs and expenses that you would bear indirectly as a shareholder of one of
the Funds. The expense information is based on the expenses incurred by the
Funds during the fiscal year ended May 31, 1997, as restated to reflect the
expenses which the Funds expect to incur during the current fiscal year.
Without fee waivers by the investment adviser and administrator, Management
Fees, Other Expenses and Total Fund Operating Expenses, stated as a percentage
of average daily net assets, would be .60%, .27% and .87%, respectively, for
the Growth & Income Fund; .80%, .37% and 1.17%, respectively, for the
International Equity Fund; .35%, .36% and .71%, respectively, for the Limited
Maturity Bond Fund; and .50%, .61% and 1.11%, respectively, for the Maryland
Tax-Exempt Bond Fund.
The investment adviser and administrator are under no obligation to waive
fees or reimburse expenses, but have informed the Company that they expect to
waive fees and/or reimburse expenses during the current fiscal year as
necessary to maintain the Funds' total operating expenses at the levels set
forth in the above table. You should note that any fees that are charged by
the investment adviser, its affiliates or any other institutions directly to
their customer accounts for services related to an investment in the Funds are
in addition to, and are not reflected in, the fees and expenses described
above.
For more complete descriptions of the Funds' operating expenses, see
"Management of the Company" in this Prospectus.
EXAMPLE:
Assume a Fund's annual return is 5% and its expenses are the same as those
stated above. For every $1,000 you invest, here's how much you would pay in
total expenses if you closed your account after the number of years indicated:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C>
Growth & Income Fund............................ $ 7 $23 $40 $ 88
International Equity Fund....................... $11 $33 $57 $126
Limited Maturity Bond Fund...................... $ 5 $16 $28 $ 63
Maryland Tax-Exempt Bond Fund................... $ 5 $16 $27 $ 62
</TABLE>
THE EXAMPLES SHOWN ABOVE SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST
OR FUTURE INVESTMENT RETURNS OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURNS
AND OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following Financial Highlights, which have been derived from the Funds'
financial statements, have been audited by Coopers & Lybrand L.L.P., the
Funds' independent accountants, whose unqualified report on the financial
statements containing such information for the five years in the period ended
May 31, 1997 is incorporated by reference into the Statement of Additional
Information. The Financial Highlights should be read along with the financial
statements and related notes, which are also incorporated by reference into
the Statement of Additional Information. Further information about the
performance of the Funds is available in the Company's Annual Report to
Shareholders for the fiscal year ended May 31, 1997. For a free copy of the
Statement of Additional Information or the Annual Report to Shareholders,
contact the Company at the address or telephone number on the first page of
this Prospectus. The shares of the Funds described in this Prospectus and for
which information is provided in the following Financial Highlights were
formerly known as Institutional shares.
GROWTH & INCOME FUND*
Financial Highlights for a share of the Growth & Income Fund outstanding
throughout each of the periods indicated:
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<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR 2/28/91/1/
ENDED ENDED ENDED ENDED ENDED ENDED TO
5/31/97 5/31/96 5/31/95 5/31/94 5/31/93 5/31/92 5/31/91
------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 14.58 $ 13.42 $12.14 $12.39 $11.36 $10.69 $ 10.00
------- ------- ------ ------ ------ ------ --------
Income From Investment
Operations:
Net Investment Income.. 0.74 0.33 0.35 0.29 0.29 0.33 0.09
Net Realized and
Unrealized Gain (Loss)
on Investments........ 3.68 1.89 1.55 (0.18) 1.13 0.66 0.60
------- ------- ------ ------ ------ ------ --------
Total From Investment
Operations............ 4.42 2.22 1.90 0.11 1.42 0.99 0.69
------- ------- ------ ------ ------ ------ --------
Less Distributions:
Dividends to
Shareholders from Net
Investment Income..... (0.25) (0.35) (0.34) (0.28) (0.30) (0.32) --
Distributions to
Shareholders from Net
Capital Gains......... (0.50) (0.71) (0.28) (0.08) (0.09) -- --
------- ------- ------ ------ ------ ------ --------
Total Distributions.... (0.75) (1.06) (0.62) (0.36) (0.39) (0.32) 0.00
------- ------- ------ ------ ------ ------ --------
Net Asset Value, End of
Period................. $ 18.25 $ 14.58 $13.42 $12.14 $12.39 $11.36 $ 10.69
======= ======= ====== ====== ====== ====== ========
Total Return............ 31.26% 17.24% 16.22% 0.87% 12.87% 9.51% 6.90%
Ratios/Supplemental Data
Net Assets, End of
Period ($000)......... 142,452 107,233 91,277 53,240 46,754 17,463 4,801
Ratio of Expenses to
Average Net
Assets/3/............. 0.73% 0.73% 0.73% 0.68% 0.68% 0.68% 0.68%/2/
Ratio of Net Investment
Income to Average Net
Assets................ 1.52% 2.38% 2.99% 2.41% 2.68% 3.05% 4.10%/2/
Portfolio turnover
rate................... 27.10% 45.15% 33.26% 61.16% 11.99% 9.57% 1.98%
Average commission rate
paid/4/................ $0.0625 N/A N/A N/A N/A N/A N/A
</TABLE>
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*The Fund was formerly known as the Value Equity Fund.
/1/Commencement of operations.
/2/Annualized.
/3/Without the waiver of advisory fees and administration fees, the ratio of
expenses to average net assets for the years ended May 31, 1997, May 31, 1996,
May 31, 1995, May 31, 1994, May 31, 1993 and May 31, 1992 and the period ended
May 31, 1991 would have been 0.89%, 0.89%, 0.89%, 0.87%, 0.88%, 0.96% and
1.20% (annualized), respectively.
/4/Average commission rate paid on securities purchased and sold. Disclosure
is required for fiscal years beginning on or after September 1, 1995.
4
<PAGE>
INTERNATIONAL EQUITY FUND
Financial Highlights for a share of the International Equity Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR YEAR YEAR 7/2/93/1/
ENDED ENDED ENDED TO
5/31/97 5/31/96 5/31/95 5/31/94
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<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period....... $12.47 $11.60 $11.81 $10.00
------- ------ ------ ---------
Income From Investment Operations:
Net Investment Income..................... 0.31 0.09 0.03 0.08
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency......... 0.88 1.51 0.08 1.81
------- ------ ------ ---------
Total From Investment Operations.......... 1.19 1.60 0.11 1.89
------- ------ ------ ---------
Less Distributions:
Dividends to Shareholders from Net
Investment Income........................ (0.24) (0.07) (0.04) (0.07)
Distributions to Shareholders from Net
Capital Gains............................ (0.24) (0.66) (0.28) (0.01)
------- ------ ------ ---------
Total Distributions....................... (0.48) (0.73) (0.32) (0.08)
------- ------ ------ ---------
Net Asset Value, End of Period............. $13.18 $12.47 $11.60 $11.81
======= ====== ====== =========
Total Return.............................. 9.81% 14.27% 0.82% 18.98%/2/
Ratios/Supplemental Data
Net Assets, End of Period ($000).......... 83,313 75,676 69,172 47,472
Ratio of Expenses to Average Net
Assets/3/................................ 1.05% 1.05% 1.05% 1.00%/2/
Ratio of Net Investment Income to Average
Net Assets............................... 0.97% 0.78% 0.06% 0.82%/2/
Portfolio turnover rate.................... 74.15% 53.58% 42.15% 39.49%
Average commission rate paid/4/............ $0.0164 N/A N/A N/A
</TABLE>
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/1/ Commencement of operations.
/2/ Annualized.
/3/ Without the waiver of advisory fees and administration fees, the ratio of
expenses to average net assets for the years ended May 31, 1997, May 31, 1996
and May 31, 1995 and for the period ended May 31, 1994 would have been 1.16%,
1.17%, 1.16% and 1.20% (annualized), respectively.
/4/ Average commission rate paid on securities purchased and sold. Disclosure
is required for fiscal years beginning on or after September 1, 1995.
LIMITED MATURITY BOND FUND*
Financial Highlights for a share of the Limited Maturity Bond Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR 3/14/91/1/
ENDED ENDED ENDED ENDED ENDED ENDED TO
5/31/97 5/31/96 5/31/95 5/31/94 5/31/93 5/31/92 5/31/91
------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.19 $10.43 $10.10 $10.55 $10.31 $ 9.97 $ 10.00
------ ------ ------ ------ ------ ------ --------
Income From Investment
Operations:
Net Investment Income.. 0.59 0.59 0.56 0.50 0.56 0.60 0.13
Net Realized and
Unrealized Gain (Loss)
on Investments........ 0.12 (0.24) 0.33 (0.39) 0.24 0.34 (0.03)
------ ------ ------ ------ ------ ------ --------
Total From Investment
Operations............ 0.71 0.35 0.89 0.11 0.80 0.94 0.10
------ ------ ------ ------ ------ ------ --------
Less Distributions:
Dividends to
Shareholders from Net
Investment Income..... (0.59) (0.59) (0.56) (0.50) (0.56) (0.60) (0.13)
Distributions to
Shareholders from Net
Capital Gains......... -- -- -- (0.06) -- -- --
------ ------ ------ ------ ------ ------ --------
Total Distributions.... (0.59) (0.59) (0.56) (0.56) (0.56) (0.60) (0.13)
------ ------ ------ ------ ------ ------ --------
Net Asset Value, End of
Period................. $10.31 $10.19 $10.43 $10.10 $10.55 $10.31 $ 9.97
====== ====== ====== ====== ====== ====== ========
Total Return............ 7.12% 3.38% 9.13% 0.94% 7.94% 9.68% 4.78%/2/
Ratios/Supplemental Data
Net Assets, End of
Period ($000)......... 43,010 44,102 44,652 35,008 28,078 17,549 1,298
Ratio of Expenses to
Average Net Assets/3/ 0.60% 0.60% 0.60% 0.55% 0.55% 0.55% 0.55%/2/
Ratio of Net Investment
Income to Average Net
Assets................ 5.72% 5.66% 5.56% 4.75% 5.32% 5.76% 6.17%/2/
Portfolio turnover
rate................... 20.92% 52.79% 22.01% 48.58% 12.29% 13.76% 34.73%
</TABLE>
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* The Fund was formerly known as the Intermediate Fixed Income Fund.
/1/ Commencement of operations.
/2/ Annualized.
/3/ Without the waiver of advisory fees and administration fees, the ratio of
expenses to average net assets for the years ended May 31, 1997, May 31, 1996,
May 31, 1995, May 31, 1994, May 31, 1993 and May 31, 1992 and the period ended
May 31, 1991 would have been 0.75%, 0.72%, 0.70%, 0.66%, 0.64%, 0.72% and
0.97% (annualized), respectively.
5
<PAGE>
MARYLAND TAX-EXEMPT BOND FUND
Financial Highlights for a share of the Maryland Tax-Exempt Bond Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR 6/2/92/1/
ENDED ENDED ENDED ENDED TO
5/31/97 5/31/96 5/31/95 5/31/94 5/31/93
------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $10.20 $10.40 $10.25 $10.55 $ 10.00
------ ------ ------ ------ ---------
Income From Investment Operations:
Net Investment Income.............. 0.50 0.49 0.49 0.50 0.48
Net Realized and Unrealized Gain
(Loss) on Investments............. 0.18 (0.20) 0.15 (0.28) 0.55
------ ------ ------ ------ ---------
Total From Investment Operations... 0.68 0.29 0.64 0.22 1.03
------ ------ ------ ------ ---------
Less Distributions:
Dividends to Shareholders from Net
Investment Income................. (0.50) (0.49) (0.49) (0.50) (0.48)
Distributions to Shareholders from
Net Capital Gains................. -- -- -- (0.02) --
------ ------ ------ ------ ---------
Total Distributions................ (0.50) (0.49) (0.49) (0.52) (0.48)
------ ------ ------ ------ ---------
Net Asset Value, End of Period...... $10.38 $10.20 $10.40 $10.25 $ 10.55
====== ====== ====== ====== =========
Total Return........................ 6.80% 2.84% 6.48% 1.99% 10.59%/2/
Ratios/Supplemental Data Net Assets,
End of Period ($000)............... 8,298 10,186 12,360 20,008 15,707
Ratio of Expenses to Average Net
Assets/3/......................... 0.55% 0.62% 0.62% 0.55% 0.55%/2/
Ratio of Net Investment Income to
Average Net Assets................ 4.84% 4.74% 4.83% 4.66% 4.78%/2/
Portfolio turnover rate............ 28.11% 20.58% 36.80% 33.89% 17.59%
</TABLE>
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/1/Commencement of operations.
/2/Annualized.
/3/Without the waiver of advisory fees and administration fees, the ratio of
expenses to average net assets for the years ended May 31, 1997, May 31, 1996,
May 31, 1995 and May 31, 1994 and the period ended May 31, 1993 would have
been 1.13%, 1.04%, 0.97%, 0.86% and 0.94% (annualized), respectively.
6
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The Funds' investment adviser (the "Adviser") and, with respect to the
International Equity Fund, the Fund's sub-adviser (the "Sub-Adviser") use a
range of different investments and investment techniques in seeking to achieve
a Fund's investment objective. All Funds do not use all of the investments and
investment techniques described below, which involve various risks, and which
are also described in the following sections. You should consider which Funds
best meet your investment goals. The Adviser and Sub-Adviser will use their
best efforts to achieve a Fund's investment objective, although its
achievement cannot be assured. An investor should not consider an investment
in any Fund to be a complete investment program.
GROWTH & INCOME FUND
The investment objective of the Growth & Income Fund is to seek long-term
capital appreciation, with income being a secondary objective. The Fund
pursues its objective by investing substantially all of its assets in common
stock, preferred stock and debt obligations convertible into common stock that
the Adviser believes to be undervalued. The Fund seeks to purchase individual
stocks that appear to represent good relative values and seem likely to
appreciate in price. The ratios of a stock's price to earnings and book value,
its earnings trend and its dividend growth rate are factors considered in
stock selection. Securities purchased by the Fund may produce higher than
average dividend yields, although income is a secondary objective in the
selection of investments.
Under normal market and economic conditions, the Fund will invest at least
65% of its total assets in common stock, preferred stock and debt obligations
convertible into common stock. Although the Fund will invest primarily in
publicly-traded common stocks of companies incorporated in the United States,
the Fund may also invest up to 25% of its total assets in the securities of
foreign issuers, either directly or through American Depository Receipts
("ADRs"), European Depository Receipts ("EDRs") and Global Depository Receipts
("GDRs") as described below under "Other Investment Policies and Related
Risks."
During normal market and economic conditions, the Fund may hold up to 25%
of its total assets in debt securities. These securities will either be issued
or guaranteed by the U.S. Government, its agencies or instrumentalities or
will be debt obligations, including but not limited to debt obligations
convertible into common stock, that at the time of purchase carry one of the
three highest ratings assigned by an unaffiliated national statistical rating
organization ("Rating Agency"). Investments may also be made in unrated debt
obligations which the Adviser has determined to be of comparable quality. See
the Appendix to the Statement of Additional Information for a description of
applicable debt security ratings.
The Fund may reduce the percentage of its equity investments and
temporarily invest its assets in fixed-income securities, including the types
of securities in which the Limited Maturity Bond Fund may invest and high
quality short-term money market instruments, when, in the opinion of the
Adviser, a defensive position is warranted, or to meet anticipated redemption
requests.
The Fund was formerly known as the Value Equity Fund.
INTERNATIONAL EQUITY FUND
The investment objective of the International Equity Fund is long-term
growth of capital and income consistent with reasonable risk. Current income
from dividends, interest and other sources is a secondary consideration for
the Fund. Under normal market and economic conditions, at least 65% of the
Fund's total assets will be invested in the equity securities of issuers
located in at least three different foreign countries. Currently, the Fund is
authorized to invest in the securities of issuers located in Argentina,
Australia, Austria, Belgium, Brazil, Canada, Chile, China, Colombia, the Czech
Republic, Denmark, Egypt, Finland, France, Germany, Greece, Hong Kong,
Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Jordan, Korea,
Malaysia, Mexico, the Netherlands, New Zealand, Norway, Pakistan, Peru, the
Philippines, Poland, Portugal, Russia, Singapore, Spain, South Africa, Sri
Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Kingdom,
Venezuela and Zimbabwe. There are no limitations on the amount of the Fund's
assets which can be invested in securities of issuers in any one country,
provided, however, that under normal market and economic conditions,
7
<PAGE>
no more than 25% of the Fund's net assets will be invested in the aggregate in
the securities of issuers located in countries with emerging economies or
securities markets. The Fund may also purchase the securities of issuers
located in the United States, although it has no present intention of doing
so.
Foreign securities which the Fund may acquire include common stock,
preferred stock, debt securities convertible into common stock, warrants,
bonds, notes and other debt obligations issued by foreign entities. The Fund
will generally acquire stocks with relatively low ratios of market values to
earnings and to book values. The Fund may also invest in the securities of
foreign issuers in the form of ADRs, EDRs and GDRs as described below under
"Other Investment Policies and Related Risks."
The Fund may hold up to 100% of its assets in cash and short-term money
market instruments (i) when the Adviser believes that the Fund should assume a
temporary defensive position because of unfavorable investment conditions,
(ii) to maintain liquidity to meet shareholder redemption requests, or (iii)
to take advantage of emerging investment opportunities.
LIMITED MATURITY BOND FUND
The investment objective of the Limited Maturity Bond Fund is to seek as
high a level of current income as is consistent with protection of capital.
The Fund invests substantially all of its assets in debt obligations, such as
bonds and debentures, of domestic and foreign corporations; obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities; debt
obligations of foreign, state and local governments and their political
subdivisions; asset-backed securities, including various collateralized
mortgage obligations and other mortgage-related securities with effective
maturities of ten years or less; and money market instruments. The Fund will
purchase only those securities that are rated at the time of purchase within
the three highest rating categories by a Rating Agency or, if unrated, are
determined by the Adviser to be of comparable quality. If a security's rating
is reduced below the minimum rating that is permitted for the Fund, the
Adviser will consider whether the Fund should continue to hold that security.
Under normal market and economic conditions, the Fund will invest at least
65% of its total assets in corporate debt obligations such as bonds and
debentures, obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, and mortgage-backed securities, including
collateralized mortgage obligations. Most obligations acquired by the Fund
will be issued by companies or governmental entities located within the United
States. Up to 25% of the Fund's total assets, however, may be invested in debt
obligations of foreign issuers. The Fund may also invest, without limitation,
in high quality short-term money market instruments for temporary defensive
purposes. The Adviser expects that under normal market conditions the Fund's
portfolio securities will have an average weighted maturity of three to five
years.
The Fund was formerly known as the Intermediate Fixed Income Fund.
MARYLAND TAX-EXEMPT BOND FUND
The investment objective of the Maryland Tax-Exempt Bond Fund is to seek a
high level of interest income that is exempt from Federal and Maryland state
and local income taxes. The Fund invests substantially all of its assets in
tax-exempt debt obligations issued by the State of Maryland and other states,
territories and possessions of the United States, the District of Columbia and
their respective political subdivisions, agencies, instrumentalities and
authorities ("municipal obligations"), that are rated at the time of purchase
within one of the four highest rating categories assigned by a Rating Agency.
The Fund may also acquire short-term municipal obligations such as tax-exempt
commercial paper, municipal notes, and variable rate demand obligations that
are rated at the time of purchase within the two highest rating categories
assigned by a Rating Agency. Obligations purchased by the Fund that have not
been assigned a rating will be determined by the Adviser to be of comparable
quality. Obligations rated within the lowest of the top four rating categories
are considered to have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade bonds. If a security's rating is reduced below the minimum rating that
is permitted for the Fund, the Adviser will consider whether the Fund should
continue to hold that security.
8
<PAGE>
Except during periods of unusual market conditions or during temporary
defensive periods, at least 80% of the Fund's net assets will be invested in
securities the interest on which is exempt from Federal income tax. In
addition, except during temporary defensive periods or when acceptable
securities are unavailable for investment by the Fund, at least 65% of the
Fund's total assets will be invested in securities issued by the State of
Maryland and its municipalities, counties and other taxing districts, as well
as in other securities exempt from Maryland state and local taxes.
The Fund may from time to time invest a portion of its assets on a
temporary basis (for example, when appropriate municipal obligations are
unavailable) or for temporary defensive purposes during periods of unusual
market conditions in short-term taxable money market instruments, securities
issued by other investment companies which invest in taxable or tax-exempt
money market instruments, U.S. Government obligations, and other securities as
described below under "Other Investment Policies." Investments by the Fund in
any such taxable instruments will not exceed 20% of the net assets of the
Fund, except when made for temporary defensive purposes during periods of
unusual market conditions, when up to 100% of the Fund's assets may be
invested in such instruments. The Fund may also hold uninvested cash reserves
pending investment, to meet anticipated redemption requests, or during
temporary defensive periods. There is no percentage limitation on the amount
of assets which may be held uninvested by the Fund.
Although the Fund has the flexibility to invest in municipal obligations
with short, medium or long maturities, the Adviser expects that under normal
conditions the Fund will invest primarily in obligations with medium and long
maturities.
OTHER INVESTMENT POLICIES AND RELATED RISKS
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Growth & Income, Limited Maturity Bond and Maryland Tax-Exempt Bond
Funds may invest in securities issued or guaranteed by the U.S. Government, as
well as in obligations issued or guaranteed by U.S. Government agencies and
instrumentalities. Obligations of certain agencies and instrumentalities, 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
Export-Import Bank, are supported by the issuer's right to borrow from the
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the discretionary authority of the U.S. Government to
purchase the entity's obligations; still others, such as those of the Student
Loan Marketing Association, are backed solely by the issuer's credit. There is
no assurance that the U.S. Government would provide support to a U.S.
Government-sponsored entity were it not required to do so by law.
Each Fund may from time to time invest in money market instruments,
including bank obligations, commercial paper and corporate bonds with
remaining maturities of thirteen months or less. Bank obligations include
bankers' acceptances, negotiable certificates of deposit and non-negotiable
time deposits issued or supported by U.S. or foreign banks that have total
assets of more than $1 billion at the time of purchase. The Growth & Income,
Limited Maturity Bond and Maryland Tax-Exempt Bond Funds may invest in
obligations of foreign banks or foreign branches of U.S. banks when the
Adviser determines that the instrument presents minimal credit risks.
Investments in the obligations of foreign banks and foreign branches of U.S.
banks will not exceed 25% of the particular Fund's total assets at the time of
purchase. Taxable commercial paper purchased by the Growth & Income, Limited
Maturity Bond and Maryland Tax-Exempt Bond Funds will be rated at the time of
purchase within the highest rating category assigned by a Rating Agency. In
addition, each of these Funds may acquire unrated commercial paper and
corporate bonds that are determined by the Adviser at the time of purchase to
be of comparable quality. Commercial paper may include variable and floating
rate instruments.
MUNICIPAL OBLIGATIONS
The Maryland Tax-Exempt Bond Fund invests primarily in municipal
obligations. The Limited Maturity Bond Fund may also invest from time to time
in municipal obligations. These securities may be advantageous for the Limited
Maturity Bond Fund when, as a result of prevailing economic, regulatory or
other circumstances, the yield of such securities on a pre-tax basis is
comparable to that of other securities the Fund can purchase.
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Dividends paid by the Limited Maturity Bond Fund that come from interest on
municipal obligations will be taxable to shareholders.
The two main types of municipal obligations are "general obligation"
securities (which are secured by the issuer's full faith, credit and taxing
power) and "revenue" securities (which are payable only from revenues received
from the operation of a particular facility or other revenue source). A third
type of municipal obligation, normally issued by special purpose public
authorities, is known as a "moral obligation" security because if the issuer
cannot meet its obligations it draws on a reserve fund, the restoration of
which is not a legal requirement. Private activity bonds (which are a type of
obligation that, although exempt from regular Federal income tax, may be
subject to the Federal alternative minimum tax) are usually revenue securities
issued by or for public authorities to finance a privately operated facility.
Within the principal classifications described above there are a variety
of categories, including certificates of participation and custodial receipts
which may be purchased by the Maryland Tax-Exempt Bond Fund. Certificates of
participation represent undivided proportional interests in lease payments by
a governmental or non-profit agency. The lease payments and other rights under
the lease provide for and secure the payments on the certificates. Certain
lease obligations may include "non-appropriation" clauses, which provide that
the entity has no obligation to make lease payments in future years unless
money is appropriated for such purpose on a yearly basis. Participation in
such leases presents the risk that an entity will not appropriate funds for
lease payments. For this and other reasons, certificates of participation are
generally not as liquid or marketable as other types of municipal obligations
and are generally valued at par or less than par in the open market. To the
extent that these securities are illiquid, they will be subject to the Fund's
10% limitation on investments in illiquid securities described below under
"Managing Liquidity."
Custodial receipts evidence the right to receive either specific future
interest payments, principal payments or both on certain municipal
obligations. Such obligations are held in custody by a bank on behalf of
holders of the receipts. These custodial receipts are known by various names,
including "Municipal Receipts," "Municipal Certificates of Accrual on Tax-
Exempt Securities" or "M-CATS", and "Municipal Zero-Coupon Receipts."
The Maryland Tax-Exempt Bond Fund may also make privately arranged loans
to municipal borrowers. Generally such loans are unrated, in which case they
will be determined by the Fund's Adviser to be of comparable quality at the
time of purchase to rated instruments that may be acquired by the Fund. Such
loans may be secured or unsecured and may have limited marketability or may be
marketable only by virtue of a provision requiring repayment following demand
by the lender. To the extent these securities are illiquid, they will be
subject to the Fund's 10% limitation on investments in illiquid securities.
In many cases, the Internal Revenue Service has not ruled on whether the
interest received on a municipal obligation is tax-exempt and, accordingly,
the purchase of such securities is based on the opinion of bond counsel or
counsel to the issuers of such instruments. The Company and the Adviser rely
on these opinions and do not intend to review the bases for them.
Municipal obligations purchased by the Maryland Tax-Exempt Bond and
Limited Maturity Bond Funds in some cases may be insured as to the timely
payment of principal and interest. There is no guarantee, however, that the
insurer will meet its obligations in the event of a default in payment by the
issuer. In other cases, municipal obligations may be backed by letters of
credit or guarantees issued by domestic or foreign banks or other financial
institutions which are not subject to federal deposit insurance. Adverse
developments affecting the banking industry generally or a particular bank or
financial institution that has provided its credit or guarantee with respect
to a municipal obligation held by a Fund could have an adverse effect on a
Fund's portfolio and the value of its shares. As described below under
"Foreign Securities," foreign letters of credit and guarantees involve certain
risks in addition to those of domestic obligations.
VARIABLE AND FLOATING RATE INSTRUMENTS
Each Fund may purchase variable and floating rate instruments. Because of
the absence of a market in which to resell a variable or floating rate
instrument, a Fund might have trouble selling an instrument should the
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issuer default or during periods when the Fund is not permitted by agreement
to demand payment of the instrument, and for this and other reasons a loss
could occur with respect to the instrument.
ASSET-BACKED SECURITIES
The Limited Maturity Bond Fund may purchase asset-backed securities, which
are securities backed by installment sale contracts, credit card receivables
or other assets. The yield characteristics of asset-backed securities differ
from traditional debt securities. A major difference is that the principal
amount of the obligations may be prepaid at any time because the underlying
assets (i.e., loans) generally may be prepaid at any time. The prepayment rate
is primarily a function of current market rates and conditions. In periods of
rising interest rates, the rate of prepayment tends to increase. During
periods of falling interest rates, the reinvestment of prepayment proceeds by
the Fund will generally be at a lower rate than the rate on the prepaid
obligation. Prepayments may also result in some loss of the Fund's principal
investment if any premiums were paid. As a result of these yield
characteristics, some high-yielding asset-backed securities may have less
potential for growth in value than conventional bonds with comparable
maturities. These characteristics may result in a higher level of price
volatility for these assets under certain market conditions.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn than conventional debt instruments and the holder
frequently has no recourse against the entity that originated the security. In
addition, the secondary market for certain asset-backed securities may not be
as liquid as the market for other types of securities, which could result in
the Fund experiencing difficulty in valuing or liquidating such securities.
For these reasons, under certain circumstances, such instruments may be
considered illiquid securities subject to the Fund's 10% limitation on
illiquid investments described below under "Managing Liquidity."
MORTGAGE-RELATED SECURITIES
The Limited Maturity Bond Fund may invest in mortgage-backed securities
issued or guaranteed by U.S. Government agencies and private issuers. They may
include collateralized mortgage obligations ("CMOs") and U.S. Government
stripped mortgage-backed securities ("SMBS").
CMOs are a type of bond issued by non-governmental entities which provide
the holder with a specified interest in the cash flow of a pool of underlying
mortgages or other mortgage-backed securities. Issuers of CMOs frequently
elect to be taxed as a pass-through entity known as a real estate mortgage
investment conduit or REMIC. CMOs are issued in multiple classes, each with a
specified fixed or floating interest rate and a final distribution date.
SMBS represent beneficial ownership interests in either periodic principal
distributions ("principal-only") or interest distributions ("interest-only")
on mortgage-backed certificates issued by a U.S. Government agency and
representing interests in pools of mortgage loans. These principal-only or
interest-only distributions are stripped from the underlying mortgage-backed
security by private entities or by the agency that issued the mortgage-backed
certificate.
Mortgage-related securities involve risks similar to those described above
under "Asset-Backed Securities," including prepayment risks. In addition, SMBS
may exhibit greater price volatility and interest rate risk than other types
of mortgage-related securities because of the manner in which their principal
and interest are returned to investors.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS
Each Fund may buy portfolio securities subject to the seller's agreement
to repurchase them at an agreed upon date and price. These transactions are
known as repurchase agreements. Repurchase agreements involve the risk that
the seller will fail to repurchase the securities as agreed. In that event,
the Fund will bear the risk of possible loss due to adverse market action or
delays in liquidating the underlying obligations. Repurchase agreements are
considered to be loans under the Investment Company Act.
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Each Fund may borrow money for temporary purposes by entering into reverse
repurchase agreements. Under these agreements, a Fund sells portfolio
securities to a financial institution and agrees to buy them back at an agreed
upon date and price. Reverse repurchase agreements may be used to meet
redemption requests without selling portfolio securities. Reverse repurchase
agreements involve the risk of counterparty default and possible loss of
collateral held by the counterparty. Reverse repurchase agreements are
considered to be borrowings under the Investment Company Act.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS
The Limited Maturity Bond and Maryland Tax-Exempt Bond Funds may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions, which involve a commitment by
a Fund to purchase or sell particular securities with payment and delivery
taking place at a future date, permit the Fund to lock in a price or yield on
a security it intends to purchase or sell, regardless of future changes in
interest rates. The Fund will bear the risk, however, that the price or yield
obtained in a transaction may be less favorable than the price or yield
available in the market when the delivery takes place. When-issued and forward
commitment transactions are not expected to exceed 25% of the value of a
Fund's total assets under normal circumstances. Because a Fund is required to
set aside cash or liquid securities to satisfy these purchase commitments, a
Fund's liquidity and ability to manage its portfolio might be affected during
periods in which its commitments exceed 25% of the value of its assets. The
Funds do not intend to engage in when-issued and forward commitment
transactions for speculative purposes.
STAND-BY COMMITMENTS
The Limited Maturity Bond and Maryland Tax-Exempt Bond Funds may acquire
stand-by commitments under which a dealer agrees to purchase certain municipal
obligations at a Fund's option at a price equal to their amortized cost value
plus interest. These commitments will be used only to assist in maintaining a
Fund's liquidity and not for trading purposes.
SECURITIES LENDING
Each Fund may lend its portfolio securities to broker-dealers and other
institutions as a means of earning additional income. Although securities
loans will be fully collateralized, such loans present risks of delay in
receiving additional collateral or in recovering the securities loaned or even
a loss of rights in the collateral if the borrower of the securities fails
financially. However, securities loans will be made only to parties the
Adviser deems to be of good standing and will only be made if the Adviser
believes the income to be earned from the loans justifies the risks.
OTHER INVESTMENT COMPANIES
The Growth & Income, Limited Maturity Bond and Maryland Tax-Exempt Bond
Funds may invest in securities issued by other investment companies which
invest in eligible quality, short-term debt securities, whether taxable or
tax-exempt, and which seek to maintain a $1.00 net asset value per share,
i.e., "money market" funds. Such investments will be made by a Fund in
connection with the management of its daily cash position and will be subject
to the requirements of applicable securities laws. When a Fund invests in
another investment company, it pays a pro rata portion of the advisory and
other expenses of that company as one of its shareholders. These expenses are
in addition to the Fund's own expenses.
FOREIGN SECURITIES
There are risks and costs involved in investing in securities of foreign
issuers (including foreign governments), which are in addition to the usual
risks inherent in U.S. investments. Investments in foreign securities may
involve higher costs than investments in U.S. securities, including higher
transaction costs as well as the imposition of additional taxes by foreign
governments. In addition, foreign investments may involve risks associated
with the level of currency exchange rates, less complete financial information
about the issuer, less market liquidity and political instability. Future
political and economic developments, the possible imposition of withholding
taxes on interest income, the possible seizure or nationalization of foreign
holdings, the possible
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difficulty in taking appropriate legal action in a foreign court, the possible
establishment of exchange controls or the adoption of other governmental
restrictions might adversely affect the payment of principal and interest on
foreign obligations. Additionally, foreign banks and foreign branches of
domestic banks may be subject to less stringent reserve requirements, and to
different accounting, auditing and recordkeeping requirements.
Although the International Equity Fund will invest primarily in securities
denominated in foreign currencies, the Fund values its securities and other
assets in U.S. dollars. As a result, the net asset value of the Fund's shares
will fluctuate with the U.S. dollar exchange rates, as well as with price
changes of the Fund's securities in the various local markets and currencies.
Thus, an increase in the value of the U.S. dollar compared to the currencies
in which the Fund makes its investments could reduce the effect of increases
and magnify the effect of decreases in the prices of the Fund's securities in
their local markets. Conversely, a decrease in the value of the U.S. dollar
will have the opposite effect of magnifying the effect of increases and
reducing the effect of decreases in the prices of the Fund's securities in
their local markets. In addition to favorable and unfavorable currency
exchange-rate developments, the Fund is subject to the possible imposition of
exchange control regulations or freezes on convertibility of currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in developing countries and fledgling
democracies. The risks of expropriation, nationalism and social, political and
economic instability are greater in those countries than in more developed
capital markets.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS
The International Equity Fund may invest up to 100% of its total assets,
and the Growth & Income Fund may invest up to 25% of its total assets, in
ADRs, EDRs, GDRs and similar securities. ADRs typically are issued by a U.S.
bank or trust company and evidence ownership of underlying securities issued
by a foreign issuer. EDRs, which are sometimes referred to as Continental
Depository Receipts, are receipts issued in Europe typically by non-U.S. banks
or trust companies and foreign branches of U.S. banks that evidence ownership
of underlying foreign or U.S. securities. GDRs are depository receipts
structured like global debt issues to facilitate trading on an international
basis. These instruments may not be denominated in the same currency as the
securities they represent. Investments in ADRs, EDRs and GDRs involve risks
similar to those accompanying direct investments in foreign securities.
FOREIGN CURRENCY EXCHANGE CONTRACTS
The Growth & Income, International Equity and Limited Maturity Bond Funds
may from time to time use foreign currency exchange contracts to hedge against
movements in the value of foreign currencies (including the European Currency
Unit) relative to the U.S. dollar in connection with specific portfolio
transactions or with respect to portfolio positions. A forward foreign
currency exchange contract involves an obligation to purchase or sell a
specified currency at a future date at a price set at the time of the
contract. Foreign currency exchange contracts do not eliminate fluctuations in
the values of portfolio securities but rather allow a Fund to establish a rate
of exchange for a future point in time.
FUTURES CONTRACTS
The International Equity Fund may also enter into interest rate futures
contracts, other types of financial futures contracts (such as foreign
currency futures contracts, which are similar to forward foreign currency
contracts described above) and related futures options, as well as any index
or foreign market futures which are available in recognized exchanges or in
other established financial markets.
OTHER INVESTMENT POLICIES AND TECHNIQUES OF THE INTERNATIONAL EQUITY FUND
From time to time the International Equity Fund may use the investment
techniques identified below. It is the International Equity Fund's current
intention that no more than 5% of its net assets will be at risk in the use of
any one of such investment techniques, except that a different limitation
applies to writing foreign currency call options.
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FOREIGN CURRENCY PUT OPTIONS. The International Equity Fund may purchase
foreign currency put options on U.S. exchanges or U.S. over-the-counter
markets. A put option gives the Fund, upon payment of a premium, the right to
sell a currency at the exercise price until the expiration of the option and
serves to insure against adverse currency price movements in the underlying
portfolio assets denominated in that currency.
FOREIGN CURRENCY CALL OPTIONS. A call option written by the International
Equity Fund gives the purchaser, upon payment of a premium, the right to
purchase from the Fund a currency at the exercise price until the expiration
of the option. The Fund may write a call option on a foreign currency only in
conjunction with a purchase of a put option on that currency. Such a strategy
is designed to reduce the cost of downside currency protection by limiting
currency appreciation potential. The face value of such writing may not exceed
90% of the value of the securities denominated in such currency invested in by
the Fund to cover such call writing.
UNLISTED FOREIGN CURRENCY PUT AND CALL OPTIONS. A number of major
investment firms trade unlisted currency options which are more flexible than
exchange listed options with respect to strike price and maturity date. These
unlisted options generally are available on a wider range of currencies.
Unlisted foreign currency options are generally less liquid than listed
options and involve the credit risk associated with the individual issuer.
They will be deemed to be illiquid for purposes of the International Equity
Fund's limitation on investments in illiquid securities.
RIGHTS AND WARRANTS. The International Equity Fund may invest in rights
and warrants to purchase securities.
EMERGENCY BORROWING. As a temporary measure for extraordinary or emergency
purposes, the International Equity Fund may borrow money from banks on an
unsecured basis.
MANAGING LIQUIDITY
Disposing of illiquid investments may involve time-consuming negotiations
and legal expenses, and it may be difficult or impossible to dispose of such
investments promptly at an acceptable price. Additionally, the absence of a
trading market can make it difficult to value a security. For these and other
reasons, the International Equity Fund will not knowingly invest more than
15%, and the Growth & Income, Limited Maturity Bond and Maryland Tax-Exempt
Bond Funds will not knowingly invest more than 10%, of the value of their
respective net assets in illiquid securities. Illiquid securities include
repurchase agreements and time deposits that do not permit a Fund to terminate
them after seven days' notice, restricted securities, unlisted foreign
currency options and other securities for which market quotations are not
readily available. Certain securities that might otherwise be considered
illiquid, however, such as some issues of commercial paper and variable amount
master demand notes with maturities of nine months or less and securities for
which the Adviser (Sub-Adviser in the case of the International Equity Fund)
has determined pursuant to guidelines adopted by the Company's Board of
Directors that a liquid trading market exists (including certain securities
that may be purchased by institutional investors under SEC Rule 144A) are not
subject to this limitation. Investments in Rule 144A securities could have the
effect of increasing the level of illiquidity in a Fund during any period that
qualified institutional buyers were no longer interested in purchasing these
restricted securities.
RISK FACTORS REGARDING INVESTMENT IN MARYLAND MUNICIPAL OBLIGATIONS
The Maryland Tax-Exempt Bond Fund's concentration in securities issued
primarily by the State of Maryland and its political subdivisions, agencies
and instrumentalities involves greater risks than a fund more broadly invested
in securities issued by many different states and municipalities.
Some of the significant financial considerations relating to the
investments of the Maryland Tax-Exempt Bond Fund are summarized below. This
information is derived principally from the Official Statement with respect to
State of Maryland General Obligation Bonds dated July 31, 1997 and does not
purport to be a complete description.
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The State's total expenditures for the fiscal year ending June 30, 1995,
June 30, 1996, and June 30, 1997 were $13.528 billion, $14.169 billion, and
$15.221 billion, respectively. As of July 31, 1997, its was estimated that
total expenditures for fiscal year 1998 would be $15.438 billion. The State's
General Fund had unreserved surpluses on a budgetary basis of $132.5 million,
$13.1 million and $144.5 million (estimated) in fiscal years 1995, 1996 and
1997, respectively.
In April 1996, the General Assembly approved the $14.631 billion 1997
fiscal year Budget. The Budget included $2.9 billion in aid to local
governments (reflecting a $121.5 million increase in funding over 1996 that
provides for increases in education, health and police aid), and $13.2 million
in general fund deficiency appropriations for fiscal year 1996. Legislation
enacted by the 1996 General Assembly reorganized the State's personnel system
and reformed the welfare and Medicaid programs; estimated fiscal year 1997
savings of $29 million ($19.5 million general funds) were incorporated into
the fiscal year 1997 Budget.
When the 1997 Budget was enacted, it was estimated that the general fund
surplus on a budgetary basis at June 30, 1997 would be approximately $22.5
million. As of July 31, 1997, it was estimated to be $144.5 million.
In April 1997, the General Assembly approved the $15.438 billion 1998
fiscal year Budget. The Budget includes $3.1 billion in aid to local
governments (reflecting a $200 million increase over fiscal year 1997), and
$0.3 million in general fund deficiency appropriations for fiscal year 1997.
The Budget incorporates the first of a five-year phase-in of a 10% reduction
in personal income taxes estimated to result in a reduction of revenues of
$38.5 million in fiscal year 1998 (and estimated to reduce revenues by $450
million when fully phased-in). In addition, legislation enacted by the 1997
General Assembly provided for a phased reduction in the sales and use tax on
certain categories of manufacturing equipment. This legislation, scheduled to
take effect in fiscal year 1999, is expected to reduce revenues by $38.6
million when fully implemented in fiscal year 2001. Based on the 1998 Budget,
it is estimated that the general fund surplus on a budgetary basis at June 30,
1998 will be approximately $27.9 million. It is also estimated that the
balance in the Revenue Stabilization Account of the State Reserve Fund at June
30, 1998 will be $554 million.
The public indebtedness of Maryland and its instrumentalities is divided
into three basic types. The State issues general obligation bonds, to the
payment of which State ad valorem taxes are exclusively pledged, for capital
improvements and for various State-sponsored projects. The Department of
Transportation of Maryland issues limited, special obligation bonds for
transportation purposes payable primarily from specific, fixed-rate excise
taxes and other revenues related mainly to highway use. Certain authorities
issue obligations payable solely from specific non-tax enterprise fund
revenues and for which the State has no liability and has given no moral
obligation insurance. The State and certain of its agencies also have entered
into a variety of lease purchase agreements to finance the acquisition of
capital assets. The lease agreements specify that payments thereunder are
subject to annual appropriation by the General Assembly.
While the factors mentioned above indicate that Maryland and its
instrumentalities overall are in satisfactory economic health, there can, of
course, be no assurance that this will continue or that particular Maryland
municipal obligations may not be adversely affected by changes in state or
local economic or political conditions.
RISK FACTORS ASSOCIATED WITH DERIVATIVE INSTRUMENTS
Each Fund may purchase certain "derivative" instruments as described above
under various headings. Derivative instruments are instruments that derive
value from the performance of underlying assets, interest or currency exchange
rates, or indices, and include, but are not limited to, futures contracts,
options, forward foreign currency contracts, participation certificates,
custodial receipts, and structured debt obligations (including collateralized
mortgage obligations and other types of asset-backed securities, "stripped"
securities and various floating rate instruments).
Derivative instruments present, to varying degrees, market risk that the
performance of the underlying assets, exchange rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely,
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the value of the derivative instrument will decline more than the assets,
rates or indices on which it is based; liquidity risk that a Fund will be
unable to sell a derivative instrument when it wants because of lack of market
depth or market disruption; pricing risk that the value of a derivative
instrument will not correlate exactly to the value of the underlying assets,
rates or indices on which it is based; and operations risk that loss will
occur as a result of inadequate systems and controls, human error or
otherwise. Some derivative instruments are more complex than others, and for
those instruments that have been developed recently, data are lacking
regarding their actual performance over complete market cycles.
The Adviser (Sub-Adviser in the case of the International Equity Fund)
will evaluate the risks presented by the derivative instruments purchased by a
Fund, and will determine, in connection with its day-to-day management of the
Fund, how they will be used in furtherance of the Fund's investment objective.
It is possible, however, that the Adviser's or Sub-Adviser's evaluations will
prove to be inaccurate or incomplete and, even when accurate and complete, it
is possible that a Fund will, because of the risks discussed above, incur loss
as a result of its investments in derivative instruments.
OTHER RISK CONSIDERATIONS
As with an investment in any mutual fund, an investment in the Funds
entails market and economic risks associated with investments generally.
However, there are certain specific risks of which you should be aware.
Generally, the market value of fixed income securities in the Funds can be
expected to vary inversely to changes in prevailing interest rates. You should
recognize that in periods of declining interest rates the market value of
investment portfolios comprised primarily of fixed income securities will tend
to increase, and in periods of rising interest rates the market value will
tend to decrease. You should also recognize that in periods of declining
interest rates, the yields of investment portfolios comprised primarily of
fixed income securities will tend to be higher than prevailing market rates
and, in periods of rising interest rates, yields will tend to be somewhat
lower. The Maryland Tax-Exempt Bond Fund may purchase zero-coupon bonds (i.e.,
discount debt obligations that do not make periodic interest payments). Zero-
coupon bonds are subject to greater market fluctuations from changing interest
rates than debt obligations of comparable maturities which make current
distributions of interest. Debt securities with longer maturities, which tend
to produce higher yields, are subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities.
Changes in the financial strength of an issuer or changes in the ratings of
any particular security may also affect the value of these investments.
Fluctuations in the market value of fixed income securities subsequent to
their acquisition will not affect cash income from such securities but will be
reflected in a Fund's net asset value.
The Maryland Tax-Exempt Bond Fund may invest in municipal obligations that
are private activity bonds the interest on which is subject to the Federal
alternative minimum tax. Investments in such securities will be subject to the
Fund's 20% limitation on taxable investments. Although the Maryland Tax-Exempt
Bond Fund does not presently intend to do so on a regular basis, it may invest
25% or more of its assets in industrial development bonds issued before August
7, 1986 that are not subject to the Federal alternative minimum tax, and in
municipal obligations the interest on which is paid solely from revenues of
similar projects. When the Fund's assets are concentrated in obligations
payable from revenues on similar projects or in industrial development bonds,
the Fund will be subject to the particular risks (including legal and economic
conditions) presented by such securities to a greater extent than it would be
if its assets were not so concentrated. Furthermore, payment of municipal
obligations held by the Fund relating to certain projects may be secured by
mortgages or deeds of trust. In the event of a default, enforcement of a
mortgage or deed of trust may be delayed and the amount of the proceeds
received may not be enough to pay the principal and accrued interest on the
defaulted municipal obligations.
While the other Funds are classified as "diversified," the Maryland Tax-
Exempt Bond Fund is classified as a "non-diversified" portfolio. The
investment return on a non-diversified portfolio is typically dependent upon
the performance of a smaller number of securities than a diversified portfolio
and the change in value of any one security may have a greater impact on the
value of a non-diversified portfolio. A non-diversified portfolio may
therefore be subject to greater fluctuations in net asset value. In addition,
a non-diversified portfolio may be more susceptible to economic, political and
regulatory developments than a diversified investment portfolio with a similar
objective.
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PORTFOLIO TURNOVER
A Fund may sell a portfolio security soon after it is purchased if the
Adviser (Sub-Adviser in the case of the International Equity Fund) believes
that a sale is consistent with the Fund's investment objective. A high rate of
portfolio turnover involves correspondingly greater brokerage commission
expenses, tax consequences (including the possible realization of additional
taxable capital gains and income) and other transaction costs, which must be
borne directly by the Fund involved and ultimately by its shareholders.
FUNDAMENTAL LIMITATIONS
Each Fund's investment objective discussed above is "fundamental," which
means that it may not be changed for a Fund without the approval of a majority
of that Fund's outstanding shares. Each Fund's investment policies discussed
above are not fundamental and may be changed by the Company's Board of
Directors without shareholder approval. However, each Fund also has in place
certain "fundamental" limitations that also cannot be changed for a Fund
without the approval of a majority of that Fund's outstanding shares. Some of
these fundamental limitations are summarized below, and all of the Funds'
fundamental limitations are set out in full in the Statement of Additional
Information.
1. A Fund may not purchase securities (with certain exceptions,
including U.S. Government securities) if more than 5% of its total assets
will be invested in the securities of any one issuer, except that up to
50% of the Maryland Tax-Exempt Bond Fund's total assets, and up to 25% of
the total assets of each other Fund, can be invested without regard to
this 5% limitation.
2. A Fund may not invest 25% or more of its total assets in one or
more issuers conducting their principal business activities in the same
industry, subject to certain exceptions.
3. A Fund may not borrow money except for temporary purposes in
amounts up to 10% (5% in the case of the International Equity Fund) of its
total assets at the time of such borrowing. Whenever borrowings exceed 5%
of a Fund's total assets, the Fund will not make any further investments.
If a percentage limitation is met at the time an investment is made, a
subsequent change in that percentage resulting from a change in value of a
Fund's portfolio securities does not mean that the limitation has been
violated.
INVESTING IN THE FUNDS
GETTING YOUR INVESTMENT STARTED
Investing in the Funds is quick and convenient. Shares of the Funds may be
purchased either through the account you maintain with certain financial
institutions or directly through the Company. Fund shares are distributed by
BISYS Fund Services (called the "Distributor"). The Distributor's principal
offices are located at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
Customers of Mercantile-Safe Deposit and Trust Company and its affiliated
and correspondent banks and customers of affiliates of State Street Bank and
Trust Company (referred to as the "Banks") may purchase Fund shares through
their qualified accounts at such Banks and should contact the Banks directly
for appropriate purchase instructions. Should you wish to establish an account
directly through the Company, please refer to the purchase options described
under "Opening and Adding to Your Fund Account."
Payments for Fund shares must be in U.S. dollars and should be drawn on a
U.S. bank. Please remember that the Company reserves the right to reject any
purchase order, including purchase orders accompanied by third party checks.
17
<PAGE>
HOW TO BUY FUND SHARES
MINIMUM INVESTMENTS
Each Fund generally requires a $25,000 minimum initial investment.
Subsequent investments must be a minimum of $100. The minimum investment
requirements do not apply to purchases by Banks acting on behalf of their
customers and the Banks do not impose a minimum initial or subsequent
investment requirement for shares purchased on behalf of their customers. The
Company reserves the right to waive these minimums in other instances.
OPENING AND ADDING TO YOUR FUND ACCOUNT
Direct investments in the Funds may be made in a number of different ways,
as shown in the following chart. Simply choose the method that is most
convenient for you. Any questions you have may be answered by calling 1-800-
551-2145. As described above under "Getting Your Investment Started," you may
also purchase Fund shares through the Banks.
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
BY MAIL . Complete a Purchase . Make your check payable to
Application and mail it the particular Fund in
along with a check payable which you are investing and
to the particular Fund you mail it to the address at
want to invest in to: left.
. Please include your account
M.S.D. & T. Funds, Inc. P.O. number on your check.
Box 8515 Boston, MA 02266-
8515.
To obtain a Purchase
Application, call 1-800-
551-2145
- -------------------------------------------------------------------------------
BY WIRE . Before wiring funds, . Instruct your bank to wire
please call 1-800-551-2145 Federal funds to: State
for complete wiring Street Bank and Trust
instructions. Company, Boston,
Massachusetts, Bank Routing
No. 011-0000-28, M.S.D. &
T. Deposit A/C No.
99046435.
. Promptly complete a
Purchase Application and
forward it to:
. Be sure to include your
M.S.D. & T. Funds, Inc. P.O. name and your Fund account
Box 8515 Boston, MA 02266- number.
8515.
. The wire should indicate
that you are making a
subsequent purchase as
opposed to opening a new
account.
Consult your bank for information on remitting funds by
wire and associated bank charges.
YOU MAY USE OTHER INVESTMENT OPTIONS, INCLUDING AUTOMATIC
INVESTMENTS, EXCHANGES AND DIRECTED REINVESTMENTS, TO
INVEST IN YOUR FUND ACCOUNT. PLEASE REFER TO THE SECTION
BELOW ENTITLED "SHAREHOLDER SERVICES" FOR MORE
INFORMATION.
- -------------------------------------------------------------------------------
18
<PAGE>
EXPLANATION OF SALES PRICE
The public offering price for shares of a Fund is based upon net asset
value per share. A Fund will calculate its net asset value per share by adding
the value of a Fund's investments, cash and other assets, subtracting the
Fund's liabilities, and then dividing the result by the number of shares of
the Fund that are outstanding. This process is sometimes referred to as
"pricing" a Fund's shares.
The assets of the Funds are valued at market value or, if market quotes
cannot be readily obtained, at fair value as determined by the Adviser under
the supervision of the Company's Board of Directors. Debt securities held by
the Funds that have sixty days or less until they mature are valued at
amortized cost, which generally approximates market value. More information
about valuation can be found in the Fund's Statement of Additional
Information, which you may request by calling 1-800-551-2145.
Net asset value is computed as of the close of regular trading hours on
the New York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern
Time) each weekday, with the exception of those holidays on which the Federal
Reserve Bank of Cleveland, the purchasing Bank (if applicable), the Funds'
Adviser, transfer agent or custodian or the Exchange is closed. The Funds
currently observe the following holidays: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day.
Shares of the Funds are sold at the public offering price per share next
computed after receipt of a purchase order by State Street Bank and Trust
Company, the Funds' transfer agent (the "Transfer Agent"). Purchase orders
will be accepted by the Transfer Agent only on a day on which the shares of a
Fund are priced ("Business Day").
If you purchase shares of a Fund through a Bank, the Bank is responsible
for transmitting your purchase order and required funds to the Transfer Agent
on a timely basis. If the Transfer Agent receives your purchase order from a
Bank on a Business Day prior to the close of regular trading hours (currently
4:00 P.M. Eastern Time) on the Exchange, your Fund shares will be purchased at
the public offering price calculated at the close of regular trading hours on
that day provided that the Fund's custodian receives payment on the next
Business Day in immediately available funds. If such payment is not received
on the next Business Day, the Bank which submitted the order will be notified
that the order has not been accepted.
If you purchase shares of a Fund directly through the Company and if your
purchase order, in proper form and accompanied by payment, is received by the
Transfer Agent on a Business Day prior to the close of regular trading hours
on the Exchange, your Fund shares will be purchased at the public offering
price calculated at the close of regular trading hours on that day. Otherwise,
your Fund shares will be purchased at the public offering price next
calculated after the Transfer Agent receives your purchase order in proper
form with the required payment.
On a Business Day when the Exchange closes early due to a partial holiday
or otherwise, the Company reserves the right to advance the times at which
purchase orders must be received in order to be processed on that Business
Day.
HOW TO SELL FUND SHARES
You can arrange to get money out of your Fund account by selling some or
all of your shares. This process is known as "redeeming" your shares. If you
purchased your shares through an account at a Bank, you may redeem shares in
accordance with the instructions pertaining to that account. If you purchased
your shares directly from the Company, you have the ability to redeem shares
by any of the methods described below.
19
<PAGE>
TO REDEEM SHARES
BY MAIL . Send a written request to M.S.D. & T. Funds,
Inc., P.O. Box 8515, Boston, MA 02266-8515.
. Your written request must
--be signed by each account holder;
--state the number or dollar amount of shares
to be redeemed and identify the specific
Fund;
--include your account number.
. Signature guarantees are required
--for any redemption requests over $100,000;
--for any redemption request where the
proceeds are to be sent to someone other
than the shareholder of record or to an
address other than the address of record.
- -------------------------------------------------------------------------------
BY WIRE (available only if you checked the appropriate box on the Purchase
Application)
. Call 1-800-551-2145. You will need to provide
the account name, account number, name of
Fund and amount of redemption ($1,000 minimum
per transaction).
. If you have already opened your account and
would like to have the wire redemption
feature, send a written request to: M.S.D. &
T. Funds, Inc., P.O. Box 8515, Boston, MA
02266-8515. The request must be signed (and
signatures guaranteed) by each account owner.
. To change bank instructions, send a written
request to the above address. The request
must be signed (and signatures guaranteed) by
each account owner.
- -------------------------------------------------------------------------------
BY TELEPHONE (available only if you checked the appropriate box on the
Purchase Application)
. Call 1-800-551-2145. You will need to provide
the account name, account number, name of
Fund and amount of redemption.
.If you have already opened your account and
would like to add the telephone redemption
feature, send a written request to: M.S.D. &
T. Funds, Inc., P.O. Box 8515, Boston, MA
02266-8515. The request must be signed (and
signatures guaranteed) by each account owner.
OTHER REDEMPTION OPTIONS, INCLUDING EXCHANGES AND
SYSTEMATIC WITHDRAWALS, ARE ALSO AVAILABLE. PLEASE REFER
TO THE SECTION BELOW ENTITLED "SHAREHOLDER SERVICES" FOR
MORE INFORMATION.
- -------------------------------------------------------------------------------
EXPLANATION OF REDEMPTION PRICE
Redemption orders received in proper form by the Transfer Agent are
processed at their net asset value per share next determined after receipt. On
a Business Day when the Exchange closes early due to a partial holiday or
otherwise, the Company reserves the right to advance the time at which
redemption orders must be received in order to be processed on that Business
Day.
Redemption proceeds generally will be wired or sent to the shareholder(s)
of record within three Business Days after receipt of the redemption order.
However, the Company reserves the right to wire or send redemption proceeds
within seven days after receiving the redemption order if the Adviser believes
that earlier payment would adversely affect the Company. If you purchased your
shares directly through the Company, your
20
<PAGE>
redemption proceeds will be sent by check unless you otherwise direct the
Company or the Transfer Agent. The Automated Clearing House ("ACH") system may
also be utilized for payment of redemption proceeds. In unusual circumstances,
the Company may pay redemption proceeds in readily marketable portfolio
securities having a market value equal to the redemption price.
Banks are responsible for transmitting their customers' redemption orders
to the Transfer Agent and crediting their customers' accounts with redemption
proceeds on a timely basis. No charge is imposed by the Company for wiring
redemption proceeds, although the Banks may charge their customers' accounts
directly for redemption and other services. In addition, if a customer has
agreed with a Bank to maintain a minimum cash balance in his or her account
maintained with the Bank and the balance falls below that minimum, the
customer may be obliged to redeem some or all of the Fund shares held in the
account in order to maintain the required minimum balance.
The Company imposes no charge when you redeem shares. The value of the
shares you redeem may be more or less than your cost, depending on a Fund's
current net asset value.
OTHER PURCHASE AND REDEMPTION INFORMATION
Federal regulations require that you provide a certified taxpayer
identification number whenever you open or reopen an account.
Shareholders who purchased Fund shares directly through the Company should
note that if an account balance falls below $500 as a result of redemptions
and is not increased to at least $500 within 60 days after notice, the account
may be closed and the proceeds sent to the shareholder.
If you purchased shares by wire, you must file a Purchase Application with
the Transfer Agent before any of those shares can be redeemed. You should
contact your bank for information about sending and receiving funds by wire,
including any charges by your bank for these services. The Company may decide
at any time to change the minimum amount per transaction for redemption of
shares by wire or to no longer permit wire redemptions.
You may choose to initiate certain transactions by telephone. The Company
and its agents will not be responsible for any losses resulting from
unauthorized transactions when reasonable procedures to verify the identity of
the caller are followed. To the extent that the Company does not follow such
procedures, it and/or its agents may be responsible for any unauthorized
transactions.
The Company reserves the right to refuse a telephone redemption if it
believes it is advisable to do so. Procedures for redeeming shares by
telephone may be modified or terminated by the Company at any time. It may be
difficult to reach the Company by telephone during periods of unusual market
activity. If this happens, you may redeem your shares by mail as described
above.
The Company may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
its shares) for such periods as permitted under the Investment Company Act.
Certain redemption requests and other communications with the Company
require a signature guarantee. Signature guarantees are designed to protect
both you and the Company from fraud. To obtain a signature guarantee you
should visit a financial institution that participates in the Stock Transfer
Agents Medallion Program ("STAMP"). Guarantees must be signed by an authorized
person at one of these institutions and be accompanied by the words "Signature
Guaranteed." A notary public cannot provide a signature guarantee.
SHAREHOLDER SERVICES
The Company provides a variety of ways to make managing your investments
more convenient. Some of these options require you to request them on the
Purchase Application or you may request them after opening an
21
<PAGE>
account by calling 1-800-551-2145. Except for retirement plans, these options
are available only to shareholders who purchase their Fund shares directly
through the Company.
RETIREMENT PLANS
Shares of the Growth & Income, International Equity and Limited Maturity
Bond Funds may be purchased in connection with certain tax-sheltered
retirement plans, including individual retirement accounts. Shares may also be
purchased in connection with profit-sharing plans, section 401(k) plans, money
purchase pension plans and target benefit plans. Further information about how
to participate in these plans, the fees charged, the limits on contributions
and the services available to participants in such plans can be obtained from
the Company. To invest through any tax-sheltered retirement plan, please call
the Company at 1-800-551-2145 for information and the required separate
application. You should consult with a tax adviser to determine whether a tax-
sheltered retirement plan is available and/or appropriate for you.
EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged for shares of another Fund or for shares
of one of the money market portfolios offered by the Company. You may exchange
shares by mail at the address provided above under "How To Buy Shares--Opening
and Adding to Your Fund Account" or by telephone at 1-800-551-2145. If you are
opening a new account in a different Fund or portfolio by exchange, the
exchanged shares must be at least equal in value to the minimum investment for
the Fund or portfolio in which the account is being opened.
You should read the prospectus for the Fund or portfolio into which you
are exchanging. Exchanges will be processed only when the shares being offered
can legally be sold in your state. Exchanges may have tax consequences for
you. Consult your tax adviser for further information.
To elect the exchange privilege after you have opened a Fund account, or
for further information about the exchange privilege, call 1-800-551-2145. The
Company reserves the right to reject any exchange request. The Company may
modify or terminate the exchange privilege, but will not materially modify or
terminate it without giving shareholders 60 days' notice.
AUTOMATIC INVESTMENT PLAN
One easy way to pursue your financial goals is to invest money regularly.
The Company offers an Automatic Investment Plan --a convenient service that
lets you transfer money from your bank account into your Fund account
automatically on a regular basis. At your option, your bank account will be
debited in a particular amount ($100 minimum) that you have specified, and
Fund shares will automatically be purchased on the 15th day of each month or,
if that day is not a Business Day, on the preceding Business Day. Your bank
account must be maintained at a domestic financial institution that is an ACH
member. You will be responsible for any loss or expense to the Funds if an ACH
transfer is rejected. To select this option, or for more information, please
call 1-800-551-2145.
The Automatic Investment Plan is one means by which you may use "Dollar
Cost Averaging" in making investments. Dollar Cost Averaging can be useful in
investing in portfolios such as the Funds whose price per share fluctuates.
Instead of trying to time market performance, a fixed dollar amount is
invested in Fund shares at predetermined intervals. This may help you to
reduce your average cost per share because the agreed upon fixed investment
amount allows more shares to be purchased during periods of lower share prices
and fewer shares during periods of higher prices. In order to be effective,
Dollar Cost Averaging should usually be followed on a sustained, consistent
basis. You should be aware, however, that shares bought using Dollar Cost
Averaging are made without regard to their price on the day of investment or
to market trends. In addition, while you may find Dollar Cost Averaging to be
beneficial, it will not prevent a loss if you ultimately redeem your shares at
a price which is lower than their purchase price.
SYSTEMATIC WITHDRAWALS
The Company offers a convenient way of withdrawing money from your Fund
account. You may request regular monthly, quarterly, semi-annual or annual
withdrawals in any amount of $100 or more. The withdrawal
22
<PAGE>
will be made on the last business day of the period you select and distributed
in cash or reinvested in shares of another Fund or portfolio offered by the
Company. To elect this option, or for more information, please call 1-800-551-
2145.
DIRECTED REINVESTMENTS
Generally, dividends and capital gain distributions are automatically
reinvested in shares of the Fund from which the dividends and distributions
are paid. You may elect, however, to have your dividends and capital gain
distributions automatically reinvested in shares of another Fund or portfolio
offered by the Company. To elect this option, or for more information, please
call 1-800-551-2145.
DIVIDENDS AND DISTRIBUTIONS
Shareholders receive dividends and net capital gain distributions.
Dividends for each Fund are derived from its net investment income. A Fund
realizes capital gains whenever it sells securities for a higher price than it
paid for them.
Shares in each Fund begin earning dividends on the day a purchase order is
processed and continue earning dividends through and including the day before
the shares are redeemed. If you purchased your Fund shares through a Bank,
your dividends and distributions will be paid in cash and wired to your Bank.
If you purchased your shares directly from the Company, your dividends and
distributions will be automatically reinvested in additional shares of the
Fund on which the dividend or distribution was declared unless you notify the
Company in writing that you wish to receive dividends and/or distributions in
cash. If you have elected to receive dividends and/or distributions in cash
and the postal or other delivery service is unable to deliver checks to your
address of record, you will be deemed to have rescinded your election to
receive dividends and/or distributions in cash and your dividends and/or
distributions will be automatically reinvested in additional shares. No
interest will accrue on amounts represented by uncashed dividend and/or
distribution checks.
DISTRIBUTION SCHEDULE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND DIVIDENDS CAPITAL GAINS
- ---- --------- -------------
<S> <C> <C>
Growth & Income Declared and paid quarterly. Declared and paid annually.
International Eq- Declared and paid semi-annually. Declared and paid annually.
uity
Limited Maturity Declared daily and paid monthly. Declared and paid annually.
Bond
Maryland Tax-Ex- Declared daily and paid monthly. Declared and paid annually.
empt Bond
</TABLE>
- -------------------------------------------------------------------------------
TAX INFORMATION
As with any investment, you should consider the tax implications of an
investment in the Funds. The following briefly summarizes some of the
important tax considerations generally affecting the Funds and their
shareholders. You should consult your tax adviser with specific reference to
your own tax situation, including the applicability of any state and local
taxes. You will be advised at least annually regarding the Federal tax
treatment of dividends and distributions paid to you.
FEDERAL
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). If
a Fund qualifies, it generally will be relieved of Federal income tax on
amounts distributed to shareholders, but shareholders, unless otherwise
exempt, will pay income or capital gains taxes on distributions (except
distributions that are "exempt interest dividends" or are treated as a return
of capital), regardless of whether the distributions are paid in cash or
reinvested in additional shares.
23
<PAGE>
Distributions paid out of a Fund's "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, will be
taxed to shareholders as long-term capital gain, regardless of the length of
time a shareholder holds the shares. All other distributions, to the extent
taxable, are taxed to shareholders as ordinary income.
Dividends paid by the Growth & Income and International Equity Funds will
be eligible for the dividends received deduction allowed to certain
corporations only to the extent of the total qualifying dividends received by
a Fund from domestic corporations for a taxable year. Corporate shareholders
will have to take into account the entire amount of any dividend received in
making certain adjustments for Federal alternative minimum and environmental
tax purposes. The dividends received deduction is not available for capital
gain dividends.
The Maryland Tax-Exempt Bond Fund intends to pay substantially all of its
dividends as "exempt interest dividends." However, taxpayers are required to
report the receipt of "exempt interest dividends" on their Federal income tax
returns, and in two circumstances such amounts, while exempt from regular
Federal income tax, are taxable to persons subject to alternative minimum and
environmental taxes. First, "exempt interest dividends" derived from certain
private activity bonds issued after August 7, 1986 generally will constitute
an item of tax preference for corporate and non-corporate taxpayers in
determining alternative minimum and environmental tax liability. Second,
"exempt interest dividends" must be taken into account by corporate taxpayers
in determining certain adjustments for alternative minimum and environmental
tax purposes. Shareholders who are recipients of Social Security Act or
Railroad Retirement Act benefits should note that "exempt interest dividends"
will be taken into account in determining the taxability of their benefit
payments.
The Maryland Tax-Exempt Bond Fund will determine annually the percentages
of its net investment income which are exempt from the regular Federal income
tax, which constitute an item of tax preference for Federal alternative
minimum tax purposes, and which are fully taxable. These percentages will
apply uniformly to all distributions declared from net investment income
during that year and may differ significantly from the actual percentages for
any particular day.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in those months will be deemed to
have been received by the shareholders on December 31 of such year, if the
dividends are paid during the following January.
An investor considering buying shares on or just before a dividend record
date should be aware that the amount of the forthcoming dividend payment,
although in effect a return of capital, will be taxable.
A taxable gain or loss may be realized by a shareholder upon the
redemption or transfer of shares depending upon their tax basis and their
price at the time of redemption or transfer.
Any loss upon the sale or exchange of shares held for six months or less
will be disallowed for Federal income tax purposes to the extent of any exempt
interest dividends received by the shareholder.
Dividends and certain interest income earned by a Fund from foreign
securities may be subject to foreign withholding taxes or other taxes. So long
as more than 50% of the value of a Fund's total assets at the close of any
taxable year consists of stock or securities of foreign corporations, the Fund
may elect, for U.S. Federal income tax purposes, to treat certain foreign
taxes paid by it, including generally any withholding taxes and other foreign
income taxes, as paid by its shareholders. The International Equity Fund
intends to make this election. As a result, the amount of such foreign taxes
paid by the Fund will be included in its shareholders' income pro rata (in
addition to taxable distributions actually received by them), and each
shareholder will be entitled either (a) to credit a proportionate amount of
such taxes against a shareholder's U.S. Federal income tax liabilities, or (b)
if a shareholder itemizes deductions, to deduct such proportionate amounts
from U.S. Federal taxable income, should the shareholder so choose.
This is not an exhaustive discussion of applicable tax consequences, and
investors may wish to contact their tax advisers concerning investments in the
Funds. Except as discussed below, dividends paid by each Fund may be taxable
to investors under state or local law as dividend income even though all or a
portion of the
24
<PAGE>
dividends may be derived from interest on obligations which, if realized
directly, would be exempt from such income taxes. In addition, future
legislative or administrative changes or court decisions may materially affect
the tax consequences of investing in a Fund. Shareholders who are non-resident
alien individuals, foreign trusts or estates, foreign corporations or foreign
partnerships may be subject to different U.S. Federal income tax treatment.
MARYLAND STATE TAXES
Shareholders of the Maryland Tax-Exempt Bond Fund who are individuals,
corporations, estates or trusts and subject to Maryland state and local taxes
will not be subject to such taxes on dividends paid by the Fund to the extent
they qualify as exempt-interest dividends of a regulated investment company
under Section 852 (b)(5) of the Code and are attributable to any of the
following:
. interest on tax-exempt obligations issued by the State of Maryland
or its political subdivisions and authorities;
. interest on obligations issued by the U.S. Government and its
agencies, instrumentalities, authorities and possessions or
territories;
. gain realized by the Fund on the sale or exchange of the tax-exempt
obligations issued by the State of Maryland or its political
subdivision, agencies, instrumentalities and authorities;
. gain realized by the Fund on the sale or exchange of obligations
issued by the U.S. Government and its agencies, instrumentalities
and authorities.
Distributions attributable to sources other than those described above
will not be exempt from Maryland State and local taxes.
The State of Maryland presently includes in taxable net income items of
tax preference as defined in the Code. Interest paid on certain private
activity bonds constitutes a tax preference item. Accordingly, subject to a
threshold amount, 50% of any of the distributions of the Maryland Tax-Exempt
Bond Fund attributable to such private activity bonds will not be exempt from
Maryland state and local income taxes.
MANAGEMENT OF THE COMPANY
The business of the Company is managed under the general supervision of
the Company's Board of Directors. The Statement of Additional Information
contains information about the Board of Directors.
The Company has also employed a number of professionals to provide
investment management and other important services to the Funds. Mercantile-
Safe Deposit and Trust Company ("Mercantile") serves as the Funds' investment
adviser and administrator and has its principal offices at Two Hopkins Plaza,
Baltimore, Maryland 21201. CastleInternational Asset Management Limited
("CastleInternational") acts as sub-adviser for the International Equity Fund
and is located at 7 Castle Street, Edinburgh, Scotland EH3 3AM. BISYS Fund
Services, a wholly-owned subsidiary of The BISYS Group, Inc., located at 3435
Stelzer Road, Columbus, Ohio 43219-3035, is the registered broker-dealer that
sells the Funds' shares, and BISYS Fund Services Ohio, Inc., also a wholly-
owned subsidiary of The BISYS Group, Inc. and located at the same address,
provides fund accounting services to the Funds. The Funds also have
custodians, The Fifth Third Bank, located at 38 Fountain Square Plaza,
Cincinnati, Ohio 45263, for the Growth & Income, Limited Maturity Bond and
Maryland Tax-Exempt Bond Funds, and State Street Bank and Trust Company,
located at Two Heritage Drive, North Quincy, Massachusetts 02171, for the
International Equity Fund. State Street Bank and Trust Company also serves as
transfer and dividend disbursing agent for the Funds.
INVESTMENT ADVISER AND SUB-ADVISER
Mercantile manages the investment portfolios of the Growth & Income,
Limited Maturity Bond and Maryland Tax-Exempt Bond Funds, including selecting
portfolio investments and making purchase and sale orders. CastleInternational
manages the investment portfolio of the International Equity Fund in
accordance with the investment requirements and policies established by
Mercantile.
25
<PAGE>
Mercantile is the lead bank of Mercantile Bankshares Corporation, a multi-
bank holding company organized in Maryland in 1969. Mercantile has acted as
investment adviser to the Funds since their commencement of operations. In
addition, Mercantile and its predecessors have been in the business of
managing the investments of fiduciary and other accounts in the Baltimore area
since 1864. As of June 30, 1997, Mercantile had approximately $11.4 billion in
assets under active management.
CastleInternational, which is a wholly-owned subsidiary of PNC Holding
Corp., is an investment advisory firm established in 1996 with approximately
$2.0 billion in internationally-invested assets under management at July 31,
1997.
A Fund's portfolio manager is primarily responsible for the day-to-day
management of a Fund's investments.
. The Growth & Income Fund is managed by Manind V. Govil, CFA, with
the guidance of Brian B. Topping. Mr. Topping, Vice Chairman of
Mercantile, has participated in the management of the Fund since
December, 1995 and has managed endowment, employee benefit and
foundation portfolios at Mercantile since 1976. Mr. Govil, Vice
President of Mercantile, assisted in the management of the Fund
since 1994, and has managed endowment, employee benefit and
foundation portfolios at Mercantile since 1994. Following the
completion of his MBA from the University of Cincinnati in 1992, Mr.
Govil was an analyst with Complete Business Solutions, Inc., a
computer consulting firm, before joining Mercantile in 1993.
. Mark G. McGlone, Vice President of Mercantile, has managed the
Limited Maturity Bond Fund since June 1992. During the past
seventeen years, Mr. McGlone has managed institutional fixed income
portfolios at Mercantile, including pension plans, endowment funds
and self-insurance funds.
. The organizational arrangements of Mercantile require that all
investment decisions with respect to the Maryland Tax-Exempt Bond
Fund be made by a committee, and no one person is primarily
responsible for making recommendations to that committee.
. The organizational arrangements of CastleInternational require that
all investment decisions with respect to the International Equity
Fund be made by the CastleInternational Investment Group, chaired by
its Investment Director, and no one person is primarily responsible
for making recommendations to that Group.
ADMINISTRATOR
Mercantile also serves as the Funds' administrator and generally assists
in all aspects of their operation and administration, including maintaining
the Funds' offices, coordinating the preparation of reports to shareholders,
preparing filings with state securities commissions, coordinating federal and
state tax returns, and performing other administrative functions.
EXPENSES
The Funds incur certain expenses in order to support the services
described above, as well as other matters essential to the operation of the
Funds. Expenses are paid out of a Fund's assets and thus are reflected in the
Fund's dividends and net asset value, but they are not billed directly to you
or deducted from your account.
In its capacity as investment adviser, Mercantile is entitled to advisory
fees that are calculated daily and paid monthly at the annual rates of .60% of
the average daily net assets of the Growth & Income Fund, .80% of the average
daily net assets of the International Equity Fund, .35% of the average daily
net assets of the Limited Maturity Bond Fund and .50% of the average daily net
assets of the Maryland Tax-Exempt Bond Fund. Mercantile has agreed to pay
CastleInternational a sub-advisory fee, computed daily and paid quarterly, at
the annual rate of .45% of the International Equity Fund's average daily net
assets. The fees paid by Mercantile to CastleInternational for the
International Equity Fund come out of Mercantile's advisory fee and are not an
additional expense of the Fund.
26
<PAGE>
For the fiscal year ended May 31, 1997, Mercantile received advisory fees,
after fee waivers, at the effective annual rates of .45% of the average daily
net assets of the Growth & Income Fund, .74% of the average daily net assets
of the International Equity Fund, .21% of the average daily net assets of the
Limited Maturity Bond Fund, and .04% of the average daily net assets of the
Maryland Tax-Exempt Bond Fund. For the same period, Mercantile paid sub-
advisory fees at the effective annual rate of .42% of the International Equity
Fund's average daily net assets to CastleInternational.
In its capacity as administrator, Mercantile is also entitled to an
administration fee, computed daily and paid monthly, at the annual rate of
.125% of the average daily net assets of each Fund.
The Funds also bear other operating expenses which are described in more
detail in the Statement of Additional Information.
FEE WAIVERS
Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Mercantile and the Funds' other service providers. The
amount of the fee waivers may be changed at any time at the sole discretion of
Mercantile with respect to advisory and administration fees, and by the Funds'
other service providers, with respect to all other fees. As to any amounts
voluntarily waived or reimbursed, the service providers retain the ability to
be reimbursed by a Fund for such amounts prior to fiscal year-end. Such
waivers and reimbursements would increase the return to investors when made
but would decrease the return if a Fund were required to reimburse a service
provider.
OTHER INFORMATION CONCERNING THE COMPANY AND ITS SHARES
The Company was incorporated in Maryland on March 7, 1989 and is a mutual
fund of the type known as an "open-end management investment company." The
Company's charter authorizes the Board of Directors to issue up to
10,000,000,000 full and fractional shares of capital stock ($.001 par value
per share) and to classify or reclassify any unissued shares into one or more
classes of shares. Pursuant to this authority, the Board of Directors has
authorized the issuance of one class of shares in each Fund. The Board of
Directors has also authorized the issuance of additional classes of shares
representing interests in other investment portfolios of the Company. For
information regarding these other portfolios, call 1-800-551-2145.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held. Shares of all
portfolios of the Company vote together and not by portfolio or class, unless
otherwise required by law or permitted by the Board of Directors. The Company
does not currently intend to hold annual shareholder meetings unless it is
required to do so by the Investment Company Act or other applicable law.
As of September 15, 1997, Mercantile held of record, in a fiduciary or
other representative capacity for beneficial owners, substantially all of the
shares of the International Equity and Maryland Tax-Exempt Bond Funds.
Mercantile does not, however, have any economic interest in such shares which
are held solely for the benefit of its customers. Mercantile may be deemed to
be a controlling person of the Funds within the meaning of the Investment
Company Act by reason of its record ownership of such shares.
PERFORMANCE REPORTING
Performance information provides you with a method of measuring and
monitoring your investments. This section will help you to understand the
various terms that are commonly used to describe a Fund's performance. You may
see references to these terms in newsletters, advertisements and shareholder
communications. These publications may also include comparisons of a Fund's
performance to the performance of various indices and investments for which
reliable performance data are available and to averages, performance rankings
or other information compiled by recognized mutual fund statistical services.
27
<PAGE>
. Aggregate total return reflects the total percentage change in the
value of an investment in a Fund over a specified measuring period.
. Average annual total return represents the average annual percentage
change in the value of an investment in a Fund over a specified
measuring period. It is calculated by taking the aggregate total
return for the measuring period and determining what constant annual
return would have produced the same aggregate return. Average annual
returns for more than one year tend to smooth out variations in a
Fund's return and are not the same as actual annual results.
Both methods of calculating total return assume that during the
period you have reinvested Fund dividends and distributions in
additional Fund shares.
. Yield shows the rate of income a Fund earns on its investments as a
percentage of its share price. It is calculated by dividing the
Fund's net investment income for a 30-day period by the product of
the average daily number of shares entitled to receive dividends and
the Fund's net asset value per share at the end of the 30-day
period. The result is then annualized. This represents the amount
you would earn if you remained invested in a Fund for a year and the
Fund continued to have the same yield for the year. Yield does not
include changes in net asset value.
. Tax-Equivalent Yield of the Maryland Tax-Exempt Bond Fund shows the
level of taxable yield needed to produce an after-tax yield
equivalent to the Fund's tax-free yield. It is calculated by
increasing the Fund's yield by the amount necessary to reflect the
payment of Federal and Maryland income taxes at a stated tax rate.
The Fund's tax-equivalent yield will always be higher than its
yield.
Any fees charged by a Bank directly to your account in connection with an
investment in a Fund will not be included in the Fund's calculations of yield
and/or total return.
Performance quotations of a Fund represent its past performance, and you
should not consider them representative of future results. The investment
return and principal value of an investment in a Fund will fluctuate so that
your shares, when redeemed, may be worth more or less than their original
cost. Since performance will fluctuate, you cannot necessarily compare an
investment in Fund shares with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed or guaranteed fixed
yield for a stated period of time.
MISCELLANEOUS
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Company or a particular Fund, with respect to the
approval of the Fund's investment advisory agreement or a change in the Fund's
investment objective or a fundamental investment policy, means the affirmative
vote of the lesser of (a) 50% or more of the outstanding shares of the Company
or such Fund or (b) 67% or more of the shares of the Company or such Fund
present at a meeting if more than 50% of the outstanding shares of the Company
or such Fund are represented at the meeting in person or by proxy.
The Company or your Bank will send you a statement of your account
quarterly and a confirmation after every transaction that affects your share
balance or your account registration. A statement with tax information will be
mailed to you by January 31 of each year and filed with the Internal Revenue
Service. At least twice a year, you will receive financial statements in the
form of Annual and Semi-Annual Reports of the Funds.
If you have any questions concerning the Company or any of the Funds,
please call 1-800-551-2145.
----------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, 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
COMPANY, THE FUNDS OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING BY THE COMPANY, THE FUNDS OR THEIR DISTRIBUTOR IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
28
<PAGE>
Service Providers:
Management and support services are provided to M.S.D.&T. Funds, Inc. by several
organizations. A complete discussion of service providers and their respective
fees is provided in this Prospectus.
Investment Adviser and Administrator:
[LOGO OF MERCANTILE APPEARS HERE]
MERCANTILE
Mercantile-Safe Deposit and Trust Company
Baltimore, Maryland
Sub-Adviser for the International Equity Fund:
CastleInternational Asset
Management Limited
Edinburgh, Scotland
Custodian for the Growth & Income, Limited Maturity Bond and Maryland Tax-Exempt
Bond Funds:
The Fifth Third Bank
Cincinnati, Ohio
Custodian for the International Equity Fund and Transfer Agent:
State Street Bank and Trust Company
Boston, Massachusetts
Distributor:
BISYS Fund Services
Columbus, Ohio
In considering this investment please read this Prospectus carefully.
Shares of the Funds are not bank deposits or obligations of, or guaranteed,
endorsed or otherwise supported by Mercantile-Safe Deposit and Trust Company,
its parent company or its affiliates, and 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. Investment in the
Funds involves investment risks, including possible loss of principal.
<PAGE>
M.S.D. & T. FUNDS, INC.
All Funds
CROSS REFERENCE SHEET
Pursuant to Rule 495
under the Securities Act of 1933
<TABLE>
<CAPTION>
Form N-1A Item Number Location
- --------------------- --------
Part B Statement of Additional
- ------ -----------------------
Information Caption
-----------------------
<S> <C>
10. Cover Page........................ Cover Page
11. Table of Contents................. Table of Contents
12. General Information and History... M.S.D. & T Funds, Inc; Management of
the Company; Additional Information
Concerning Shares
13. Investment Objectives and
Policies........................... Investment Objectives and Policies;
Fundamental Limitations
14. Management of the Fund............. Management of the Company
15. Control Persons and Principal
Holders of Securities.............. Additional Information Concerning
Shares; Miscellaneous
16. Investment Advisory and Other
Services........................... Management of the Company
17. Brokerage Allocation and
Other Practices.................... Investment Objectives and Policies;
Management of the Company
18. Capital Stock and Other
Securities......................... Additional Purchase and Redemption
Information; Net Asset Value;
Additional Information Concerning
Shares
19. Purchase, Redemption and Pricing
of Securities Being Offered........ Additional Purchase and Redemption
Information; Net Asset Value
20. Tax Status......................... Additional Information Concerning
Taxes
21. Underwriters....................... Management of the Company
22. Calculation of Performance Data.... Additional Performance Information
23. Financial Statements............... Financial Statements
</TABLE>
<PAGE>
M.S.D. & T. FUNDS, INC.
Statement of Additional Information
for the
Prime Money Market Fund
Government Money Market Fund
Tax-Exempt Money Market Fund
Tax-Exempt Money Market Fund (Trust)
Growth & Income Fund
International Equity Fund
Limited Maturity Bond Fund
Maryland Tax-Exempt Bond Fund
September 26, 1997
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Objectives and Policies........................................ 3
Fundamental Limitations................................................... 21
Additional Purchase and Redemption Information............................ 25
Net Asset Value........................................................... 26
Additional Information Concerning Taxes................................... 28
Management of the Company................................................. 33
Independent Accountants................................................... 41
Counsel................................................................... 41
Additional Information Concerning Shares.................................. 41
Additional Performance Information........................................ 43
Miscellaneous............................................................. 52
Financial Statements...................................................... 53
Appendix.................................................................. A-1
</TABLE>
This Statement of Additional Information is meant to be read in
conjunction with M.S.D. & T. Funds, Inc.'s Prospectuses dated September 26, 1997
for the Prime Money Market Fund, Government Money Market Fund, Tax-Exempt Money
Market Fund, Tax-Exempt Money Market Fund (Trust), Growth & Income Fund,
International Equity Fund, Limited Maturity Bond Fund and Maryland Tax-Exempt
Bond Fund. This Statement of Additional Information is incorporated by
reference in its entirety into the Prospectuses. Because this Statement of
Additional Information is not itself a prospectus, no investment in shares of
any Fund should be made solely upon the information contained herein. Copies of
the Prospectuses may be obtained by calling 1-800-551-2145 or by writing M.S.D.
& T. Funds, Inc., c/o BISYS Fund Services, 3435 Stelzer Road, Columbus, OH
43219-3035. Capitalized terms used but not defined herein have the same
meanings as in the Prospectuses.
<PAGE>
Shares of the Funds are not bank deposits or obligations of, or guaranteed,
endorsed or otherwise supported by, Mercantile-Safe Deposit and Trust Company,
its parent company or its affiliates, and 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. Investment in the
Funds involves investment risks, including possible loss of principal. While
the Prime Money Market, Government Money Market, Tax-Exempt Money Market and
Tax-Exempt Money Market (Trust) Funds will attempt to maintain their net asset
value at $1.00 a share, there can be no assurance that the Funds will be able to
do so on a continuous basis. In addition, the dividends paid by a Fund will go
up and down. Mercantile-Safe Deposit and Trust Company serves as investment
adviser and administrator to the Funds, is paid fees for its services, and is
not affiliated with BISYS Fund Services, the Funds' distributor.
-2-
<PAGE>
M.S.D. & T FUNDS, INC.
M.S.D. & T. Funds, Inc. (the "Company") is a Maryland corporation
which commenced operations on July 21, 1989 as a no-load, open-end,
professionally managed investment company. The Company currently offers shares
in four short-term money market portfolios (the Prime Money Market Fund,
Government Money Market Fund, Tax-Exempt Money Market Fund and Tax-Exempt Money
Market Fund (Trust), also referred to herein as the "Money Market Funds"); two
equity portfolios (the Growth & Income Fund and the International Equity Fund);
and two bond portfolios (the Limited Maturity Bond Fund and the Maryland Tax-
Exempt Bond Fund). These portfolios may also be referred to herein individually
as a "Fund" and collectively as the "Funds." The Growth & Income Fund,
International Equity Fund, Limited Maturity Bond Fund and Maryland Tax-Exempt
Bond Fund may at times be referred to herein as the "Non-Money Market Funds."
The Growth & Income Fund was formerly known as the Value Equity Fund and the
Limited Maturity Bond Fund was formerly known as the Intermediate Fixed Income
Fund.
INVESTMENT OBJECTIVES AND POLICIES
- ----------------------------------
The investment objective of each Fund is described in the Prospectus
for that Fund. The following information supplements the description of the
Funds' investment objectives and policies as set forth in the Prospectuses.
Portfolio Transactions and Turnover
- -----------------------------------
Subject to the general supervision and approval of the Company's Board
of Directors, Mercantile-Safe Deposit and Trust Company (the "Adviser" or
"Mercantile") is responsible for, makes decisions with respect to, and places
orders for all purchases and sales of portfolio securities for each Fund other
than the International Fund. CastleInternational Asset Management Limited
("CastleInternational" or the "Sub-Adviser") is responsible for, makes decisions
with respect to, and places orders for all purchases and sales of portfolio
securities for the International Equity Fund in accordance with the investment
policies and requirements established by the Adviser.
Portfolio securities for the Money Market Funds are generally
purchased and sold either directly from the issuer or from dealers who
specialize in money market instruments. Such purchases are usually effected as
principal transactions and therefore do not involve the payment of brokerage
commissions. No brokerage commissions were paid with respect to the Money
Market Funds during the fiscal years ended May 31, 1995, May 31, 1996 and May
31, 1997.
-3-
<PAGE>
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. Transactions on foreign
stock exchanges involve payment of brokerage commissions which are generally
fixed. During the fiscal years ended May 31, 1995, May 31, 1996 and May 31,
1997, brokerage commissions of $99,041, $131,775 and $95,896, respectively, were
paid by the Growth & Income Fund and brokerage commissions of $183,242, $205,568
and $315,827, respectively, were paid by the International Equity Fund. During
such periods no brokerage commissions were paid to any affiliated person of the
Fund.
Transactions in both foreign and domestic over-the-counter markets are
generally principal transactions with dealers, and the costs of such
transactions involve dealer spreads rather than brokerage commissions. With
respect to over-the-counter transactions, the Adviser (or Sub-Adviser in the
case of the International Equity Fund), where possible, will deal directly with
dealers who make a market in the securities involved except in those
circumstances in which better prices and execution are available elsewhere.
Securities purchased and sold by the Limited Maturity Bond and
Maryland Tax-Exempt Bond Funds are generally traded on a net basis (i.e.,
without commission) through dealers, or otherwise involve transactions directly
with the issuer of an instrument. The cost of securities purchased from
underwriters includes an underwriting commission or concession, and the prices
at which securities are purchased from and sold to dealers include a dealer's
mark-up or mark-down. No brokerage commissions were paid with respect to the
Limited Maturity Bond Fund or Maryland Tax-Exempt Bond Fund during the fiscal
years ended May 31, 1995, May 31, 1996 and May 31, 1997.
The Tax-Exempt Money Market Fund, Tax-Exempt Money Market Fund (Trust)
(the "Tax-Exempt Money Market Funds"), Growth & Income Fund, International
Equity Fund, Limited Maturity Bond Fund and Maryland Tax-Exempt Bond Fund may
participate, if and when practicable, in bidding for the purchase of portfolio
securities directly from an issuer in order to take advantage of the lower
purchase price available to members of a bidding group. A Fund will engage in
this practice, however, only when the Adviser (or Sub-Adviser in the case of the
International Equity Fund), in its sole discretion, believes such practice to be
otherwise in the Fund's interests.
In making portfolio investments, the Adviser (or Sub-Adviser in the
case of the International Equity Fund) seeks to obtain the best net price and
the most favorable execution of orders. The Adviser (or Sub-Adviser) may, in
its discretion, effect transactions in portfolio securities with dealers who
-4-
<PAGE>
provide research advice or other services to the Funds or the Adviser (or Sub-
Adviser). The Adviser (or Sub-Adviser) is authorized to pay a broker or dealer
who provides such brokerage and research services a commission for executing a
portfolio transaction for any Fund which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if the Adviser (or Sub-Adviser) determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Adviser's (or Sub-Adviser's) overall
responsibilities to the particular Fund and to the Company. Such brokerage and
research services might consist of reports and statistics relating to specific
companies or industries, general summaries of groups of stocks or bonds and
their comparative earnings and yields, or broad overviews of the stock, bond and
government securities markets and the economy.
Supplementary research information so received (if any) is in addition
to, and not in lieu of, services required to be performed by the Adviser (or
Sub-Adviser in the case of the International Equity Fund) and does not reduce
the advisory fees payable by the Funds or the sub-advisory fees payable by the
Adviser. The Board of Directors will periodically review the commissions paid
by the Funds to consider whether the commissions paid over representative
periods of time appear to be reasonable in relation to the benefits inuring to
the Funds. It is possible that certain of the supplementary research or other
services received will primarily benefit one or more other investment companies
or other accounts for which investment discretion is exercised. Conversely, a
Fund may be the primary beneficiary of the research or services received as a
result of portfolio transactions effected for such other account or investment
company.
With respect to the Money Market Funds, the Adviser may seek to obtain
an undertaking from issuers of commercial paper or dealers selling commercial
paper to consider the repurchase of such securities from the Money Market Funds
prior to their maturity at their original cost plus interest (interest may
sometimes be adjusted to reflect the actual maturity of the securities) if it
believes that the Funds' anticipated need for liquidity makes such action
desirable. Certain dealers (but not issuers) have charged, and may in the
future charge, a higher price for commercial paper where they undertake to
repurchase it prior to maturity. The payment of a higher price in order to
obtain such an undertaking reduces the yield which might otherwise be received
by the Funds on the commercial paper. The Adviser may pay a higher price for
commercial paper where it secures such an undertaking if the Adviser believes
that the prepayment privilege is desirable to assure the Funds' liquidity and
such an undertaking cannot otherwise be obtained.
-5-
<PAGE>
Investment decisions for the Funds are made independently from those
for other accounts advised or managed by the Adviser (or Sub-Adviser in the case
of the International Equity Fund). Such other accounts may also invest in the
same securities as the Funds. When a purchase or sale of the same security is
made at substantially the same time on behalf of a Fund and such other accounts,
the transaction will be averaged as to price, and available investments
allocated as to amount, in a manner which the Adviser (or Sub-Adviser) believes
to be equitable to the Fund and such other accounts. In some instances, this
investment procedure may adversely affect the price paid or received by a Fund
or the size of the position obtainable or sold for the Fund. To the extent
permitted by law, the Adviser (or Sub-Adviser) may aggregate the securities to
be sold or purchased for the Funds with those to be sold or purchased for such
other accounts in order to obtain the best execution.
The Funds will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase agreements with the Adviser, Sub-Adviser, BISYS Fund Services
("BISYS") or any affiliated person (as such term is defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) of any of them, except to the
extent permitted by the 1940 Act or the Securities and Exchange Commission (the
"SEC"). Under certain circumstances, the Funds may be at a disadvantage because
of these limitations in comparison with other investment companies which have
similar investment objectives but are not subject to such limitations.
The Funds may from time to time purchase securities issued by the
Company's regular broker/dealers. At the close of the Company's most recent
fiscal year, no such securities were held.
The ratings assigned by each unaffiliated nationally recognized
statistical rating agency (each a "Rating Agency") represent their opinions as
to the quality of debt securities. It should be emphasized, however, that
ratings are general and are not absolute standards of quality, and debt
securities with the same maturity, interest rate and rating may have different
yields while debt securities of the same maturity and interest rate with
different ratings may have the same yield. Subsequent to its purchase by a
Fund, a rated security may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by the Fund. The Board of Directors or
the Adviser (or Sub-Adviser in the case of the International Equity Fund), when
authorized, will consider such an event in determining whether the Fund should
continue to hold the security in accordance with the interests of the Fund and
applicable regulations of the SEC.
-6-
<PAGE>
The portfolio turnover rate for each Fund is calculated by dividing
the lesser of purchases or sales of portfolio securities for the reporting
period by the monthly average value of the portfolio securities owned during the
reporting period. The calculation excludes all securities, including options,
whose maturities or expiration dates at the time of acquisition are one year or
less.
The Money Market Funds do not intend to seek profits through short-
term trading. The Money Market Funds' annual portfolio turnover rates will be
relatively high but portfolio turnover is not expected to have a material effect
on their net income. The Money Market Funds' portfolio turnover rates are
expected to be zero for regulatory reporting purposes.
Under certain market conditions, the Non-Money Market Funds may
experience high portfolio turnover rates as a result of their investment
strategies. Portfolio investments may be sold for a variety of reasons, such as
a more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. Higher portfolio turnover
rates can result in corresponding increases in brokerage commissions and other
transaction costs which must be borne by the Fund involved and ultimately by its
shareholders.
Portfolio turnover rates for the Non-Money Market Funds may vary
greatly from year to year as well as within a particular year, and may be
affected by cash requirements for redemption of shares and by requirements which
enable the Funds to receive favorable tax treatment. Portfolio turnover will
not be a limiting factor in making portfolio decisions for the Non-Money Market
Funds, and each of those Funds may engage in short-term trading to achieve its
investment objective.
Additional Information on Investment Policies
- ---------------------------------------------
Government Obligations
----------------------
Examples of the types of U.S. Government obligations that may be
acquired by each Fund (except the International Equity Fund) include, in
addition to U.S. Treasury bonds, notes, and bills, the obligations of the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration, Government National
Mortgage Association, Federal National Mortgage Association, Federal Financing
Bank, General Services Administration, Student Loan Marketing Association,
Central Bank for Cooperatives, Federal Home Loan Banks, Federal Home Loan
Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land Banks,
Federal Farm Credit Banks, Maritime Administration, Tennessee Valley Authority,
Washington D.C. Armory Board, International Bank for
-7-
<PAGE>
Reconstruction and Development (the "World Bank"), and Resolution Trust
Corporation.
Certain U.S. Government obligations held by the Money Market Funds may
have remaining maturities exceeding 397 days if such securities provide for
adjustments in their interest rates not less frequently than every 397 days and
the adjustments are sufficient to cause the securities to have market values,
after adjustment, which approximate their par value.
Variable and Floating Rate Instruments
--------------------------------------
With respect to the variable and floating rate instruments described
in the Prospectuses for each Fund, the Adviser (or Sub-Adviser in the case of
the International Equity Fund) will consider the earning power, cash flows, and
other liquidity ratios of the issuers and guarantors of such obligations and, if
the obligation is subject to a demand feature, will monitor their financial
ability to meet payment on demand. In determining average weighted portfolio
maturity, a variable rate instrument will usually be deemed to have a maturity
equal to the longer of the period remaining to the next interest rate adjustment
or the time the Fund can recover payment of principal as specified in the
instrument. A floating rate instrument will usually be deemed to have a
maturity equal to the date on which the principal amount must be paid, or the
date on which the redemption payment must be made, in the case of an instrument
called for redemption. A floating rate instrument that is subject to a demand
feature will usually be deemed to have a maturity equal to the period remaining
until the principal amount can be recovered through demand. An instrument that
is issued or guaranteed by the U.S. Government or any agency thereof which has a
variable rate of interest readjusted no less frequently than every 397 days will
generally be deemed to have a maturity equal to the period remaining until the
next readjustment of the interest rate or earlier maturity.
Variable and floating rate demand instruments acquired by the Tax-
Exempt Money Market and Maryland Tax-Exempt Bond Funds may include
participations in municipal obligations purchased from and owned by financial
institutions, primarily banks. Participation interests provide the Fund with a
specified undivided interest (up to 100%) in the underlying obligation and the
right to demand payment of the unpaid principal balance plus accrued interest on
the participation interest from the institution upon a specified number of days'
notice, not to exceed thirty days. Each participation interest is backed by an
irrevocable letter of credit or guarantee of a bank that the Adviser has
determined meets the prescribed quality standards for the Fund involved. The
bank typically retains fees out of the interest paid on the obligation for
servicing the obligation,
-8-
<PAGE>
providing the letter of credit, and issuing the repurchase commitment.
Bank Obligations
----------------
With respect to the investment policies of each Fund (other than the
Government Money Market Fund) relating to bank obligations, the assets of a bank
or savings institution will be deemed to include the assets of its domestic and
foreign branches. The Funds' investments in the obligations of foreign banks
and foreign branches of U.S. banks may subject the Funds to investment risks
that are different in some respects from those of investments in obligations of
U.S. domestic issuers. Such risks include future political and economic
developments, the possible seizure or nationalization of foreign deposits, the
possible establishment of exchange controls or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such obligations. In addition, foreign banks and foreign
branches of U.S. banks may be subject to less stringent reserve requirements and
to different accounting, auditing, reporting and recordkeeping standards than
those applicable to U.S. banks. The Funds will acquire securities issued by
foreign banks and foreign branches of U.S. banks only when the Adviser believes
that the risks associated with such instruments are minimal.
Municipal Obligations
---------------------
Municipal obligations which may be acquired by the Prime Money Market,
Tax-Exempt Money Market, Limited Maturity Bond and Maryland Tax-Exempt Bond
Funds include debt obligations issued by governmental entities to obtain funds
for various public purposes, including the construction of a wide range of
public facilities, the refunding of outstanding obligations, the payment of
general operating expenses and the extension of loans to public institutions and
facilities.
The two principal classifications of municipal obligations consist of
"general obligation" and "revenue" issues. The Funds may also hold "moral
obligation" issues, which are typically issued by special purpose authorities.
There are, of course, variations in the quality of municipal obligations, both
within a particular classification and between classifications, and the yields
on municipal obligations depend upon a variety of factors, including market
conditions generally and the municipal bond market in particular, the financial
condition of the issuer, the size of a particular offering, the maturity of the
obligation, and the rating of the issue.
Municipal obligations acquired by the Funds may include general
obligation notes, tax anticipation notes, bond anticipation notes, revenue
anticipation notes, tax-exempt
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commercial paper, construction loan notes, and other forms of short-term tax-
exempt loans. Such instruments are issued in anticipation of the receipt of tax
funds, the proceeds of bond placements, or other revenues. In addition, the
Funds may invest in bonds and other types of longer-term tax-exempt instruments
provided that, in the case of the Prime Money Market and Tax-Exempt Money Market
Funds, they have remaining maturities of 397 days or less at the time of
purchase.
Certain types of municipal obligations (private activity bonds) have
been or are issued to obtain funds to provide privately operated housing
facilities, pollution control facilities, convention or trade show facilities,
mass transit, airport, port or parking facilities and certain local facilities
for water supply, gas, electricity or sewage or solid waste disposal. Private
activity bonds are also issued to privately held or publicly owned corporations
in the financing of commercial or industrial facilities. State and local
governments are authorized in most states to issue private activity bonds for
such purposes in order to encourage corporations to locate within their
communities. The principal and interest on these obligations may be payable
from the general revenues of the users of such facilities. The Tax-Exempt Money
Market Funds will not invest in such bonds where the payment of principal and
interest are the responsibility of a company (including predecessors) with less
than three years of continuous operation.
The payment of principal and interest on most securities purchased by
a Fund will depend upon the ability of the issuers to meet their obligations.
The District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities, and authorities and each multi-state agency of
which a state is a member, as well as the Commonwealth of Puerto Rico, Guam and
the Virgin Islands, is a separate "issuer" as that term is used in the
Prospectuses and this Statement of Additional Information. The non-governmental
user of facilities financed by private activity bonds is also considered to be
an "issuer."
An issuer's obligations under its municipal obligations are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by Federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on, and principal of, its municipal obligations may be
materially adversely affected by litigation or other conditions.
-10-
<PAGE>
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the Federal income tax exemption for
interest on municipal obligations. For example, under Federal tax legislation
enacted in 1986, interest on certain private activity bonds must be included in
an investor's Federal alternative minimum taxable income, and corporate
investors must treat all tax-exempt interest as an item of tax preference (see
"Additional Information Concerning Taxes"). Moreover, with respect to Maryland
municipal obligations, the Maryland Tax-Exempt Bond Fund cannot predict which
legislation, if any, may be proposed in the Maryland legislature concerning the
Maryland income tax status of interest on such obligations, or which proposals,
if any, might be enacted. Such proposals, while pending or if enacted, might
materially and adversely affect the availability of municipal obligations
generally, or Maryland municipal obligations specifically, for investment by a
Fund and the liquidity and value of a Fund's portfolio. In such an event, the
Company would reevaluate the investment objectives and policies of such
Funds.
Stand-By Commitments
--------------------
The Tax-Exempt Money Market, Limited Maturity Bond and Maryland Tax-
Exempt Bond Funds may acquire "stand-by commitments" with respect to municipal
obligations held in their portfolios. Under a stand-by commitment, a dealer or
bank agrees to purchase from a Fund, at the Fund's option, specified municipal
obligations at a specified price. Stand-by commitments may be exercisable by
the Fund involved at any time before the maturity of the underlying municipal
obligations, and may be sold, transferred or assigned only with the instruments
involved.
The Funds expect that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held by the particular Fund will not
exceed 1/2 of 1% of the value of such Fund's total assets calculated immediately
after each stand-by commitment is acquired.
The Funds intend to enter into stand-by commitments only with banks,
brokers or dealers which, in the Adviser's opinion, present minimal credit
risks. In evaluating the creditworthiness of the issuer of a stand-by
commitment, the Adviser will review periodically the issuer's assets,
liabilities, contingent claims and other relevant financial information. Each
Fund's reliance upon the credit of these banks, brokers and dealers will be
secured by the value of the
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<PAGE>
underlying municipal obligations that are subject to the commitment.
The Funds would acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. The acquisition of a stand-by commitment would not affect the
valuation or assumed maturity of the underlying municipal obligations. Stand-by
commitments acquired by a Fund would be valued at zero in determining net asset
value. Where a Fund paid any consideration directly or indirectly for a stand-by
commitment, its cost would be reflected as unrealized depreciation for the
period during which the commitment was held by the Fund.
Convertible Securities
----------------------
Convertible securities which may be purchased by the Growth & Income
and International Equity Funds entitle the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the securities
mature or are redeemed, converted or exchanged. Prior to conversion,
convertible securities have characteristics similar to ordinary debt securities
in that they normally provide a stable stream of income with generally higher
yields than those of common stock of the same or similar issuers. Convertible
securities rank senior to common stock in a corporation's capital structure and
therefore generally entail less risk than the corporation's common stock,
although the extent to which such risk is reduced depends in large measure upon
the degree to which the convertible security sells above its value as a fixed
income security.
In selecting convertible securities, the Adviser (or the Sub-Adviser)
will consider, among other factors, the creditworthiness of the issuers of the
securities; the interest or dividend income generated by the securities; the
potential for capital appreciation of the securities and the underlying common
stocks; the prices of the securities relative to other comparable securities and
to the underlying common stocks; whether the securities are entitled to the
benefits of sinking funds or other protective conditions; diversification of a
Fund's portfolio as to issuers; and the ratings of the securities. Since credit
rating agencies may fail to timely change the credit ratings of securities to
reflect subsequent events, the Adviser (or Sub-Adviser) will consider whether
such issuers will have sufficient cash flow and profits to meet required
principal and interest payments.
Asset-Backed Securities
-----------------------
Asset-backed securities represent a participation in, or are secured
by and payable from, a stream of payments generally consisting of both interest
and principal generated by
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<PAGE>
particular assets, most often a pool of assets similar to one another. Asset-
backed securities are generally issued as pass through certificates, which
represent undivided fractional ownership interests in the underlying pool of
assets, or as debt instruments, which are also known as collateralized
obligations, and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. Payments of principal and interest
may be guaranteed up to certain amounts and for a certain time period by a
letter of credit issued by a financial institution unaffiliated with the
entities issuing the securities.
The estimated life of an asset-backed security varies with the
prepayment experience of the underlying debt instruments. The rate of such
prepayments, and hence the life of the asset-backed security, will be primarily
a function of current market interest rates, although other economic and
demographic factors may be involved.
Non-mortgage asset-backed securities involve certain risks that are
not presented by mortgage-backed securities. Primarily, these securities do not
have the benefit of the same security interest in the underlying collateral.
Credit card receivables are generally unsecured and the debtors are entitled to
the protection of a number of state and federal consumer credit laws, many of
which have given debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the balance due. Most issuers of automobile receivables
permit the servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have an
effective security interest in all of the obligations backing such receivables.
Therefore, there is a possibility that recoveries on repossessed collateral may
not, in some cases, be able to support payments on these securities.
Mortgage-Related Securities
---------------------------
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities
guaranteed by the Government National Mortgage Association ("GNMA") include GNMA
Mortgage Pass-Through Certificates (also known as "Ginnie Maes") which are
guaranteed as to the timely payment of principal and interest by
-13-
<PAGE>
GNMA and such guarantee is backed by the full faith and credit of the United
States. GNMA is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA certificates also are supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make payments under
its guarantee. Mortgage-related securities issued by the Federal National
Mortgage Association ("FNMA") include FNMA guaranteed Mortgage Pass-Through
Certificates (also known as "Fannie Maes") which are solely the obligations of
the FNMA, are not backed by or entitled to the full faith and credit of the
United States and are supported by the right of the issuer to borrow from the
Treasury. FNMA is a government-sponsored organization owned entirely by private
shareholders. Fannie Maes are guaranteed as to timely payment of the principal
and interest by FNMA. Mortgage-related securities issued by the Federal Home
Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage Participation
Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a corporate
instrumentality of the United States, created pursuant to an Act of Congress,
which is owned entirely by Federal Home Loan Banks. Freddie Macs are not
guaranteed by the United States or by any Federal Home Loan Bank and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
Although certain mortgage-related securities are guaranteed by a third
party or are otherwise similarly secured as described above, the market value of
the security, which may fluctuate, is not secured. To the extent that the
Limited Maturity Bond Fund purchases mortgage-related or mortgage-backed
securities at a premium, mortgage foreclosures and prepayments of principal by
mortgagors (which may be made at any time without penalty) may result in some
loss of the Fund's principal investment to the extent of the premium paid. The
yield of the Fund may be affected by reinvestment of prepayments at higher or
lower rates than the original investment. In addition, like other debt
securities, the value of mortgage-related securities, including government and
government-related mortgage pools, will generally fluctuate in response to
market interest rates.
Repurchase Agreements
---------------------
As described in their Prospectuses, each Fund (other than the Tax-
Exempt Money Market Funds) may enter into repurchase agreements. The repurchase
price under repurchase agreements
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<PAGE>
generally is equal to the price paid by a Fund plus interest negotiated on the
basis of current short-term rates (which may be more or less than the rate on
the securities underlying the repurchase agreement). Securities subject to
repurchase agreements will be held by the Funds' Custodian or registered in the
name of the Fund involved on the Federal Reserve/Treasury book-entry system. The
seller under a repurchase agreement will be required to maintain the value of
the securities subject to the agreement at not less than the repurchase price
(including accrued interest). Default by the seller would, however, expose the
Fund to possible loss because of adverse market action or delays in connection
with the disposition of the underlying obligations. The Adviser (or Sub-Adviser
in the case of the International Equity Fund) will enter into repurchase
agreements only with financial institutions it deems creditworthy, pursuant to
guidelines established by the Board of Directors, and during the term of any
repurchase agreement, the Adviser (or Sub-Adviser) will continue to monitor the
creditworthiness of the seller. Repurchase agreements are considered to be loans
by the Funds under the 1940 Act.
Reverse Repurchase Agreements
-----------------------------
Whenever a Fund enters into a reverse repurchase agreement, it will
place in a segregated custodial account cash or liquid portfolio securities
having a value equal to the repurchase price (including accrued interest) and
will subsequently monitor the account to ensure that such value is maintained.
The Funds would consider entering into reverse repurchase agreements to avoid
otherwise selling securities during unfavorable market conditions to meet
redemptions. Reverse repurchase agreements involve the risk that the market
value of the portfolio securities sold by a Fund may decline below the price of
the securities the Fund is obligated to repurchase. Reverse repurchase
agreements are considered to be borrowings by the Fund under the 1940 Act.
When-Issued Purchases and Forward Commitments
---------------------------------------------
As stated in their Prospectuses, each Fund (other than the Growth &
Income and International Equity Funds) may purchase securities on a "when-
issued" basis and each Fund (other than the Tax-Exempt Money Market (Trust),
Growth & Income and International Equity Funds) may enter into a "forward
commitment" to purchase or sell securities. When a Fund agrees to purchase
securities on a when-issued basis or enters into a forward commitment to
purchase securities, the Custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the Custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case a Fund may be required subsequently to
place additional assets in the separate account
-15-
<PAGE>
in order to ensure that the value of the account remains equal to the amount of
the Fund's commitment. It may be expected that a Fund's net assets will
fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash. Because a Fund's
liquidity and ability to manage its portfolio might be affected when it sets
aside cash or portfolio securities to cover such purchase commitments, the Funds
expect that their commitments to purchase securities on a when-issued or forward
commitment basis will not exceed 25% of the value of their assets. In the case
of a forward commitment to sell portfolio securities, the Custodian will hold
the portfolio securities themselves in a segregated account while the commitment
is outstanding.
A Fund will make commitments to purchase securities on a when-issued
basis or to purchase or sell securities on a forward commitment basis only with
the intention of completing the transaction and actually purchasing or selling
securities. If deemed advisable as a matter of investment strategy, however, a
Fund may dispose of or renegotiate a commitment after it is entered into, and
may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases the Fund involved
may realize a capital gain or loss.
When a Fund engages in when-issued or forward commitment transactions,
it relies on the other party to consummate the trade. Failure of such party to
do so may result in the Fund incurring a loss or missing an opportunity to
obtain a price considered to be advantageous.
The value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their value, is taken into account when determining a Fund's net asset value
starting on the day the Fund agrees to purchase the securities. A Fund does not
earn interest on the securities it has committed to purchase until they are paid
for and delivered on the settlement date. When a Fund makes a forward
commitment to sell securities it owns, the proceeds to be received upon
settlement are included in such Fund's assets, and fluctuations in the value of
the underlying securities are not reflected in such Fund's net asset value as
long as the commitment remains in effect.
Other Investment Companies
--------------------------
In accordance with their respective investment objectives and
policies, each Fund (other than the International Equity Fund) may invest in
securities issued by other investment companies within the limits prescribed by
the 1940 Act. Each Fund currently intends to limit its investments so that, as
determined immediately after a securities purchase is
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<PAGE>
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 or by the
Company as a whole. As a shareholder of another investment company, a Fund would
bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would be
in addition to the advisory and other expenses that a Fund bears in connection
with its own operations.
Lending Portfolio Securities
----------------------------
When the Prime Money Market, Government Money Market, Growth & Income,
International Equity, Limited Maturity Bond and Maryland Tax-Exempt Bond Funds
lend their securities, they continue to receive interest or dividends on the
securities loaned and also earn income on the loans. Any cash collateral
received by a Fund in connection with such loans will be invested in short-term
money market obligations. Although voting rights, or rights to consent,
attendant to securities on loan pass to the borrower, such loans may be called
at any time and will be called so that the securities may be voted if a material
event affecting the investment occurs. Loans will be made only to borrowers
deemed by the Adviser (or Sub-Adviser in the case of the International Equity
Fund) to be of good standing and only when, in the Adviser's (or Sub-Adviser's)
judgment, the income to be earned from the loans justifies the attendant risks.
While there is no limit on the amount of securities which the Funds may loan,
fees attributable to securities lending activities are subject to certain limits
under the Internal Revenue Code of 1986, as amended.
Foreign Currency Exchange Contracts
-----------------------------------
The Growth & Income, International Equity and Limited Maturity Bond
Funds are authorized to enter into forward foreign currency exchange contracts.
These contracts involve an obligation to purchase or sell a specified currency
at a future date at a price set at the time of the contract. Forward currency
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow the Fund involved to establish a rate of exchange for a future
point in time. The Growth & Income, International Equity and Limited Maturity
Bond Funds may enter into forward foreign currency exchange contracts when
deemed advisable by the Adviser (or Sub-Adviser in the case of the International
Equity Fund) under two circumstances.
First, when entering into a contract for the purchase or sale of a
security, a Fund may enter into a forward foreign
-17-
<PAGE>
currency exchange contract for the amount of the purchase or sale price to
protect against variations in the value of the foreign currency relative to the
U.S. dollar or other foreign currency between the date the security is purchased
or sold and the date on which payment is made or received. This is sometimes
referred to as "transaction hedging".
Second, when the Adviser (or Sub-Adviser) anticipates that a
particular foreign currency may decline substantially relative to the U.S.
dollar or other leading currencies, in order to reduce risk, a Fund may enter
into a forward contract to sell, for a fixed amount, the amount of foreign
currency approximating the value of some or all of the Fund's securities
denominated in such foreign currency. This is sometimes referred to as "position
hedging". The Funds do not intend to enter into forward contracts for position
hedging purposes on a regular or continuing basis.
None of the Funds will enter into such forward contracts or maintain a
net exposure to such contracts where the consummation of the contracts would
obligate such Fund to deliver an amount of foreign currency in excess of the
value of its portfolio securities or other assets denominated in that currency.
While forward contracts may offer protection from losses resulting from declines
in the value of a particular foreign currency, they also limit potential gains
which might result from increases in the value of such currency. In addition,
the Funds will incur costs in connection with forward foreign currency exchange
contracts and conversions of foreign currencies and U.S. dollars.
A Fund's custodian will place in a separate account cash or liquid
portfolio securities in an amount equal to the value of such Fund's assets that
could be required to consummate forward contracts entered into under the second
circumstance, as set forth above. For the purpose of determining the adequacy
of the securities in the account, the deposited securities will be valued at
market or fair value. If the market or fair value of such securities declines,
additional cash or securities will be placed in the account daily so that the
value of the account will equal the amount of such commitments by the Fund.
At the maturity of a forward contract, a Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency.
It is impossible to forecast with absolute precision the market value
of portfolio securities at the expiration of the
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<PAGE>
contract. Accordingly, it may be necessary for a Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security is less than the amount of foreign currency the
Fund is obligated to deliver and if a decision is made to sell the security and
make delivery of the foreign currency. Conversely, it may be necessary to sell
on the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an offsetting
transaction, it will incur a gain or a loss (as described below) to the extent
that there has been movement in forward contract prices. If the Fund engages in
an offsetting transaction, it may subsequently enter into a new forward contract
to sell the foreign currency. Should forward prices decline between the date
the Fund enters into a forward contract for the sale of a foreign currency and
the date it enters into an offsetting contract for the purchase of the foreign
currency, it will realize a gain to the extent the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, the Fund will suffer a loss to the extent the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell. For a discussion of the Federal tax treatment
of forward contracts, see "Additional Information Concerning Taxes -Growth &
Income, International Equity and Limited Maturity Bond Funds."
Foreign Currency Put and Call Options
-------------------------------------
The International Equity Fund may purchase foreign currency put
options on U.S. exchanges or U.S. over-the-counter markets. A put option gives
the Fund, upon payment of a premium, the right to sell a currency at the
exercise price until the expiration of the option and serves to insure against
adverse currency price movements in the underlying portfolio assets denominated
in that currency. In conjunction with the purchase of a put option, the Fund
may write a call option, which gives the purchaser, upon payment of a premium,
the right to purchase from the Fund a currency at the exercise price until the
expiration of the option. Exchange listed options markets in the United States
include seven major currencies, and trading may be thin and illiquid. The seven
major currencies are Australian dollars, British pounds, Canadian dollars,
German marks, French francs, Japanese yen and Swiss francs.
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<PAGE>
Futures Contracts
-----------------
The International Equity Fund may invest in futures contracts
(interest rate, foreign currency and other types of financial futures
contracts). Futures contracts will not be entered into for speculative purposes,
but to hedge risks associated with the Fund's securities investments. Positions
in futures contracts may be closed out only on an exchange which provides a
secondary market for such futures. However, there can be no assurance that a
liquid secondary market will exist for any particular futures contract at any
specific time. Thus, it may not be possible to close a futures position. In the
event of adverse price movements, the Fund would continue to be required to make
daily cash payments to maintain its required margin. In such situations, if the
Fund has insufficient cash, it may have to sell portfolio securities to meet
daily margin requirements at a time when it may be disadvantageous to do so. In
addition, the Fund may be required to make delivery of the instruments
underlying futures contracts it holds. The inability to close options and
futures positions also could have an adverse impact on the Fund's ability to
effectively hedge.
Successful use of futures by the International Equity Fund is also
subject to the Sub-Adviser's ability to correctly predict movements in the
direction of the market. For example, if the Fund has hedged against the
possibility of a decline in the market adversely affecting securities held by it
and securities prices increase instead, the Fund will lose part or all of the
benefit to the increased value of its securities which it has hedged because it
will have approximately equal offsetting losses in its futures positions. In
addition, in some situations, if the Fund has insufficient cash, it may have to
sell securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. The Fund may have to sell securities at a time when
it may be disadvantageous to do so.
The risk of loss in trading futures contracts in some strategies can
be substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, before any deduction for the
transaction costs, if the contract were closed out. Thus, a purchase or sale of
a futures contract may
-20-
<PAGE>
result in losses in excess of the amount invested in the contract.
Utilization of futures transactions by the International Equity Fund
involves the risk of loss by the Fund of margin deposits in the event of
bankruptcy of a broker with whom the Fund has an open position in a futures
contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Rights and Warrants
-------------------
The International Equity Fund may participate in rights offerings and
may purchase warrants, which are privileges issued by corporations enabling the
owner to subscribe to and purchase a specified number of shares of the
corporation at a specified price during a specified period of time.
Subscription rights normally have a short life to expiration. The purchase of
rights and warrants involves the risk that the purchaser could lose the purchase
value of the right or warrant if the right to subscribe to additional shares is
not exercised prior to the warrant's expiration. Also, the purchase of rights
and warrants involves the risk that the effective price paid for the right or
warrant added to the subscription price of the related security may exceed the
value of the subscribed security's market price, such as when there is no
movement in the level of the underlying security.
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<PAGE>
FUNDAMENTAL LIMITATIONS
- -----------------------
Each Fund is subject to the following fundamental limitations, which
may be changed with respect to a particular Fund only by a vote of the holders
of a majority of such Fund's outstanding shares (as defined under
"Miscellaneous").
No Fund may:
1. Purchase securities of any one issuer (other than securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities)
if, immediately after such purchase, more than 5% of the value of the Fund's
total assets would be invested in the securities of such issuer, or, with
respect to each Fund other than the International Equity Fund, more than 10% of
the issuer's outstanding voting securities would be owned by the Fund, except
that (i) up to 25% of the value of the total assets of each Fund other than the
Maryland Tax-Exempt Bond Fund may be invested without regard to these
limitations, and (ii) up to 50% of the value of the Maryland Tax-Exempt Bond
Fund's total assets may be invested without regard to these limitations,
provided that no more than 25% of the Maryland Tax-Exempt Bond Fund's total
assets are invested in the securities of any one issuer. For purposes of these
limitations, a security is considered to be issued by the entity (or entities)
whose assets and revenues back the security. A guarantee of a security will not
be deemed to be a security issued by the guarantor when the value of all
securities issued and guaranteed by the guarantor, and owned by a Fund, does not
exceed 10% of the value of the Fund's total assets.
2. Purchase any securities which would cause 25% or more of the
value of its total assets at the time of such purchase to be invested in the
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
(i) obligations issued or guaranteed by the United States, any state, territory,
or possession of the United States, the District of Columbia, or any of their
authorities, agencies, instrumentalities, or political subdivisions; (ii) with
respect to the Money Market Funds only, obligations issued by domestic branches
of U.S. banks; and (iii) repurchase agreements secured by any such obligations;
(b) wholly-owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of the parents; and (c) utilities will be classified according to
their services (for example, gas, gas transmission, electric and gas, and
electric and telephone each will be considered a separate industry).
3. Borrow money or, with respect to the Non-Money Market Funds,
issue senior securities, except that each Fund may
-22-
<PAGE>
borrow from banks and enter into reverse repurchase agreements for temporary
purposes and then in amounts not in excess of 10% of the value of its total
assets at the time of such borrowing; or pledge any assets except in connection
with any such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% (5% in the case of the International Equity Fund) of the
value of its total assets at the time of such borrowing. A Fund (other than the
Tax-Exempt Money Market Funds) will not purchase portfolio securities while
borrowings (including reverse repurchase agreements and borrowings from banks)
in excess of 5% of such Fund's total assets are outstanding. The Tax-Exempt
Money Market Funds will not purchase portfolio securities while any borrowings
(including reverse repurchase agreements and borrowings from banks) are
outstanding. Securities held by a Non-Money Market Fund in escrow or separate
accounts in connection with the Fund's investment practices are not deemed to be
pledged for purposes of this limitation.
4. Purchase or sell real estate, except that each Fund may purchase
securities of issuers which deal in real estate, the Tax-Exempt Money Market,
Limited Maturity Bond, and Maryland Tax-Exempt Bond Funds may invest in
municipal obligations secured by real estate or interests therein, the Growth &
Income, International Equity, Limited Maturity Bond and Maryland Tax-Exempt Bond
Funds may purchase securities which are secured by real estate or interests
therein, and the Limited Maturity Bond Fund may invest in mortgage-related
securities, including collateralized mortgage obligations and mortgage-backed
securities which are issued or guaranteed by the United States, its agencies or
its instrumentalities.
5. Act as an underwriter of securities, except to the extent that
the purchase of obligations directly from the issuer thereof in accordance with
the Fund's investment objective, policies, and limitations may be deemed to be
underwriting.
6. Write or sell put options, call options, straddles, spreads, or
any combination thereof, except that the Tax-Exempt Money Market, Limited
Maturity Bond and Maryland Tax-Exempt Bond Funds may purchase put options on
municipal obligations; the Growth & Income, International Equity, Limited
Maturity Bond and Maryland Tax-Exempt Bond Funds may engage in transactions in
options on securities, securities indices, futures contracts and options on
futures contracts; and the International Equity and Maryland Tax-Exempt Bond
Funds may write call and put options and purchase put and call options.
7. Purchase securities of companies for the purpose of exercising
control.
8. Purchase securities on margin, make short sales of securities, or
maintain a short position, except that (a) this
-23-
<PAGE>
investment limitation shall not apply to the Growth & Income, International
Equity, Limited Maturity Bond and Maryland Tax-Exempt Bond Funds' transactions
in options, futures contracts and related options, if any, and (b) the Growth &
Income, International Equity, Limited Maturity Bond and Maryland Tax-Exempt Bond
Funds may obtain short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities.
9. Purchase or sell commodities or commodity contracts, or invest in
oil, gas, or mineral exploration or development programs, except that each Fund
may, to the extent appropriate to its investment objective, purchase publicly
traded securities of companies engaging in whole or in part in such activities,
and the Growth & Income, International Equity, Limited Maturity Bond and
Maryland Tax-Exempt Bond Funds may enter into futures contracts and related
options.
10. Make loans, except that (i) each Fund may purchase and hold debt
instruments in accordance with its investment objective and policies; (ii) the
Prime Money Market, Government Money Market, Growth & Income, International
Equity, Limited Maturity Bond and Maryland Tax-Exempt Bond Funds may enter into
repurchase agreements with respect to portfolio securities; (iii) each Fund may
lend portfolio securities against collateral consisting of cash or securities
which is consistent with the Fund's permitted investments and is equal at all
times to at least 100% of the value of the securities loaned; and (iv) the
Maryland Tax-Exempt Bond Fund may invest in privately arranged loans in
accordance with its investment objective and policies.
In addition, no Money Market Fund may:
11. Knowingly invest more than 10% of the value of its net assets in
securities that are illiquid because of restrictions on transferability or other
reasons.
12. Issue senior securities, except that, subject to the percentage
limitations set forth in Investment Limitation No. 3 above, each Fund may borrow
money from banks and enter into reverse repurchase agreements for temporary
purposes and pledge assets in connection with any such borrowing.
As a matter of non-fundamental policy and in accordance with current
regulations of the SEC, the Prime Money Market Fund intends to subject its
entire investment portfolio, other than U.S. Government securities, to the 5%
limitation described in Fundamental Limitation No. 1 above. However, in
accordance with such regulations, the Fund may invest more than 5% (but no more
than 25%) of its total assets in the securities of a single issuer for a period
of up to three business days, provided the securities are rated at the time of
purchase in the highest
-24-
<PAGE>
rating category assigned by one or more Rating Agencies or are determined by the
Adviser to be of comparable quality. The Fund may not hold more than one such
investment at any one time.
Although the foregoing investment limitations would permit the Growth
& Income, International Equity, Limited Maturity Bond and Maryland Tax-Exempt
Bond Funds to invest in options, futures contracts and related options, as
specified above, the Growth & Income, Limited Maturity Bond and Maryland Tax-
Exempt Bond Funds do not currently intend to engage in such transactions. Prior
to engaging in such transactions, such Funds would add appropriate disclosure
concerning the Funds' investment in such instruments to the relevant Prospectus
and this Statement of Additional Information.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
- ----------------------------------------------
Information on how to purchase and redeem a Fund's shares is included
in the Funds' Prospectuses. Shares of each Fund are sold on a continuous basis
by BISYS, which has agreed to use appropriate efforts to promote the Company and
to solicit orders for the purchase of such shares.
If any portion of the shares to be redeemed represents an investment
made by check, the Funds may delay the payment of the redemption proceeds until
the Transfer Agent is reasonably satisfied that the check has been collected,
which could take up to fifteen days from the purchase date. This procedure does
not apply to shares purchased by money order or wire payment. During the period
prior to the time the shares are redeemed, dividends on such shares will accrue
and be payable.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange is closed, other than customary weekend and holiday
closings, or during which trading on said Exchange is restricted, or during
which (as determined by the SEC by rule or regulation) an emergency exists as a
result of which disposal or valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may permit. (The Funds may
also suspend or postpone the recordation of the transfer of their shares upon
the occurrence of any of the foregoing conditions.)
In addition to the situations described in the Prospectuses, the
Company may redeem shares involuntarily to reimburse the Funds for any loss
sustained by reason of the failure of a shareholder to make full payment for
shares purchased by the shareholder or to collect any charge relating to a
transaction effected for the benefit of a shareholder which is
-25-
<PAGE>
applicable to Fund shares as provided in the Prospectuses from time to time.
The Company reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase of a
Fund's shares by making payment in whole or in part in readily marketable
securities chosen by the Company and valued in the same way as they would be
valued for purposes of computing the Fund's net asset value (a "redemption in-
kind"). If payment is made in securities, a shareholder may incur transaction
costs in converting the securities into cash. The Company has elected, however,
to be governed by Rule 18f-1 under the 1940 Act as a result of which the Company
is obligated to redeem shares, with respect to any one shareholder during any
90-day period, solely in cash up to the lesser of $250,000 or 1% of the net
asset value of the Fund at the beginning of the period.
NET ASSET VALUE
- ---------------
All Funds
- ---------
The net asset value per share of a Fund is calculated by dividing the
total value of the assets belonging to the Fund, less the liabilities of shares
of the Fund, by the number of outstanding shares of the Fund. "Assets belonging
to" a Fund consist of the consideration received upon the issuance of shares of
the particular Fund together with all income, earnings, profits, and proceeds
derived from the investment thereof, including any proceeds from the sale of
such investments, any funds or payments derived from any reinvestment of such
proceeds, and a portion of any general assets of the Company not belonging to a
particular investment portfolio. Assets belonging to a particular Fund are
reduced by the direct liabilities of that Fund and by a share of the general
liabilities of the Company allocated daily in proportion to the relative net
asset values of all of the Funds at the time of allocation. Subject to the
provisions of the Company's Articles of Incorporation, determinations by the
Board of Directors as to the direct and allocable liabilities, and the allocable
portion of any general assets, with respect to a particular Fund are conclusive.
Money Market Funds - Use of Amortized Cost Method
- -------------------------------------------------
The Company uses the amortized cost method of valuation to value each
Money Market Fund's portfolio securities, pursuant to which an instrument is
initially valued at cost and thereafter assumes a constant amortization of any
discount or premium until maturity of the instrument, regardless of the impact
of fluctuating interest rates on the market value of the instrument. This
method may result in periods during which value, as
-26-
<PAGE>
determined by amortized cost, is higher or lower than the price a Money Market
Fund would receive if it sold the instrument. The market value of portfolio
securities held by a Money Market Fund can be expected to vary inversely with
changes in prevailing interest rates.
In connection with its use of amortized cost valuation, the Company
limits the dollar-weighted average maturity of each Money Market Fund's
portfolio to not more than 90 days and does not purchase any instrument with a
remaining maturity of more than 397 days (with certain exceptions). The Board
of Directors has also established procedures that are intended to stabilize the
net asset value per share of each Money Market Fund for purposes of sales and
redemptions at $1.00. These procedures include the determination, at such
intervals as the Directors deem appropriate, of the extent, if any, to which the
net asset value per share of each Money Market Fund, calculated by using
available market quotations, deviates from $1.00 per share. In the event such
deviation exceeds 1/2 of 1%, the Board will promptly consider what action, if
any, should be initiated. If the Board believes that the extent of any
deviation from a $1.00 amortized cost price per share may result in material
dilution or other unfair results to new or existing investors, it will take such
steps as it considers appropriate to eliminate or reduce to the extent
reasonably practicable any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity; shortening the average
portfolio maturity; withholding or reducing dividends; redeeming shares in kind;
reducing the number of outstanding shares without monetary consideration; or
utilizing a net asset value per share determined by using available market
quotations.
Non-Money Market Funds
- ----------------------
As stated in their Prospectuses, the Growth & Income and International
Equity Funds' investments are valued at market value or, in the absence of a
market value with respect to any portfolio securities, at fair value as
determined by or under the direction of the Company's Board of Directors. A
security that is primarily traded on a domestic securities exchange (including
securities traded through the National Market System) is valued at the last sale
price on that exchange or, if there were no sales during the day, at the current
quoted bid price. Portfolio securities that are primarily traded on foreign
exchanges are generally valued at the closing values of such securities on their
respective exchanges, provided that if such securities are not traded on the
valuation date, they will be valued at the preceding closing values and provided
further, that when an occurrence subsequent to the time of valuation is likely
to have changed the value, then the fair value of those securities will be
determined through consideration of other factors by or under the direction of
the Company's Board of
-27-
<PAGE>
Directors. Over-the-counter securities and securities listed or traded on
foreign exchanges with operations similar to the U.S. over-the-counter market
are valued at the mean of the most recent available quoted bid and asked prices
in the over-the-counter market.
As stated in their Prospectus, the Limited Maturity and Maryland Tax-
Exempt Bond Funds' investments are valued at market value or, in the absence of
a market value with respect to any portfolio securities, at fair value as
determined by or under the direction of the Company's Board of Directors.
Portfolio securities for which market quotations are readily available (other
than securities with remaining maturities of 60 days or less) are valued at the
mean of the most recent bid and asked prices.
For each Non-Money Market Fund, market or fair value may be determined
on the basis of valuations provided by one or more recognized pricing services
approved by the Board of Directors, which may rely on matrix pricing systems,
electronic data processing techniques, and/or quoted bid and asked prices
provided by investment dealers. Short-term investments that mature in 60 days
or less are valued at amortized cost unless the Board of Directors determines
that this does not constitute fair value.
ADDITIONAL INFORMATION CONCERNING TAXES
- ---------------------------------------
The following summarizes certain additional considerations generally
affecting the Funds and their shareholders that are not described in the
Prospectuses. No attempt is made to present a detailed explanation of the tax
treatment of the Funds or their shareholders, and the discussions here and in
the Prospectuses are not intended as a substitute for careful tax planning.
Investors are advised to consult their tax advisers with specific reference to
their own tax situations.
Tax-Exempt Money Market Fund, Tax-Exempt Money Market Fund (Trust), and Maryland
- --------------------------------------------------------------------------------
Tax-Exempt Bond Fund
- --------------------
For purposes of this discussion regarding additional information
concerning taxes, the Tax-Exempt Money Market Fund, Tax-Exempt Money Market Fund
(Trust), and Maryland Tax-Exempt Bond Fund may be collectively referred to as
the "Tax-Exempt Funds."
As described above and in their Prospectuses, the Tax-Exempt Money
Market Funds are designed to provide investors with current income exempt from
regular Federal income tax, and the Maryland Tax-Exempt Bond Fund is designed to
provide investors with income exempt from regular Federal income tax and
Maryland
-28-
<PAGE>
state and local income tax. These Funds are not intended to constitute a
balanced investment program and are not designed for investors seeking capital
appreciation. The Tax-Exempt Money Market Funds are not designed for investors
seeking maximum tax-exempt income irrespective of fluctuations in principal.
Shares of the Funds may not be suitable for tax-exempt institutions, or for
retirement plans qualified under Section 401 of the Internal Revenue Code of
1986, as amended (the "Code"), H.R. 10 plans and individual retirement accounts
since such plans and accounts are generally tax-exempt and, therefore, not only
would not gain any additional benefit from the Funds' dividends being tax-
exempt, but such dividends would be ultimately taxable to the beneficiaries when
distributed to them. In addition, the Funds may not be appropriate investments
for entities which are "substantial users" of facilities financed by private
activity bonds or "related persons" thereof. "Substantial user" is defined under
U.S. Treasury Regulations to include a non-exempt person who regularly uses a
part of such facilities in his trade or business and whose gross revenues
derived with respect to the facilities financed by the issuance of bonds are
more than 5% of the total revenues derived by all users of such facilities or
who occupies more than 5% of the usable area of such facilities or for whom such
facilities or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S corporation and its
shareholders.
The percentage of total dividends paid by a Tax-Exempt Fund with
respect to any taxable year which qualify as Federal exempt-interest dividends
will be the same for all shareholders receiving dividends for such year. In
order for a Tax-Exempt Fund to pay exempt-interest dividends for any taxable
year, at the close of each taxable quarter at least 50% of the aggregate value
of such Fund's portfolio must consist of exempt-interest obligations. After the
close of the taxable year, each Tax-Exempt Fund will notify shareholders of the
portion of the dividends paid by the Fund which constitutes an exempt-interest
dividend with respect to such taxable year. However, the aggregate amount of
dividends so designated cannot exceed the excess of the amount of interest
exempt from tax under Section 103 of the Code received by the Fund for the
taxable year over any amounts disallowed as deductions under Sections 265 and
171(a)(2) of the Code.
Interest on indebtedness incurred by a shareholder to purchase or
carry shares of a Tax-Exempt Fund generally is not deductible for Federal income
tax purposes. If a shareholder holds shares of a Tax-Exempt Fund for six months
or less, any loss on the sale of those shares will be disallowed to the extent
of the amount of exempt-interest dividends received with respect to the shares.
The Treasury Department, however, is authorized
-29-
<PAGE>
to issue regulations reducing the six months holding requirement to a period of
not less than the greater of 31 days or the period between regular dividend
distributions where the investment company regularly distributes at least 90% of
its net tax-exempt interest. No such regulations had been issued as of the date
of this Statement of Additional Information.
Income itself exempt from Federal income taxation will be considered
in addition to adjusted gross income when determining whether Social Security
payments received by a shareholder are subject to Federal income taxation.
Each Tax-Exempt Fund intends to distribute to shareholders any taxable
income earned by it, which will be taxable to shareholders as ordinary income
(whether paid in cash or additional shares).
Growth & Income, International Equity and Limited Maturity Bond Funds
- ---------------------------------------------------------------------
With respect to the Growth & Income, International Equity and Limited
Maturity Bond Funds, some investments may be subject to special rules which
govern the Federal income tax treatment of certain transactions denominated in
terms of a currency other than the U.S. dollar or determined by reference to the
value of one or more currencies other than the U.S. dollar. The types of
transactions covered by the special rules include the following: (1) the
acquisition of, or becoming the obligor under, a bond or other debt instrument
(including, to the extent provided in Treasury regulations, preferred stock);
(2) the accruing of certain trade receivables and payables; and (3) the entering
into or acquisition of any forward contract, futures contract, option and
similar financial instrument, if such instrument is not subject to the mark-to-
market rules under the Code. The disposition of a currency other than the U.S.
dollar by a U.S. taxpayer is also treated as a transaction subject to the
special currency rules.
With respect to transactions covered by the special rules, foreign
currency gain or loss is calculated separately from any gain or loss on the
underlying transaction and is normally taxable as ordinary gain or loss. A Fund
may elect to treat as capital gain or loss foreign currency gain or loss arising
from certain identified forward contracts that are capital assets in the hands
of the Fund and which are not part of a straddle ("Capital Asset Election").
The Treasury Department has issued regulations under which certain transactions
with respect to which a Fund has not made the Capital Asset Election and that
are part of a "section 988 hedging transaction" (as defined in the Code and
Treasury regulations) will be integrated and treated as a single transaction or
otherwise treated consistently for purposes of the Code. "Section 988 hedging
-30-
<PAGE>
transactions" are not subject to the mark-to-market or loss deferral rules under
the Code. It is anticipated that some of the non-U.S. dollar-denominated
investments that the Funds may make (such as non-U.S. dollar-denominated debt
securities and obligations and certain preferred stocks) and some of the foreign
currency contracts the Fund may enter into will be subject to the special
currency rules described above. Gain or loss attributable to the foreign
currency component of transactions engaged in by a Fund which are not subject to
the special currency rules (such as foreign equity investments other than
certain preferred stocks) will be treated as capital gain or loss and will not
be segregated from the gain or loss on the underlying transaction.
In addition, certain foreign currency contracts held by the Growth &
Income Fund, International Equity Fund or Limited Maturity Bond Fund at the
close of such Funds' taxable year will be treated for Federal income tax
purposes as sold for their full market value on the last business day of such
year, a process known as "mark-to-market." If a Fund makes the Capital Asset
Election with respect to such contracts, 40% of any gain or loss resulting from
such constructive sale will be treated as short-term capital gain or loss and
60% of such gain or loss will be treated as long-term capital gain or loss
without regard to the length of time the Fund holds the contract (the "40-60
rule"). Otherwise, such gain or loss will be ordinary in nature. The amount of
any gain or loss actually realized by the Fund in a subsequent sale or other
disposition of those contracts will be adjusted to reflect any gain or loss
taken into account by the Fund in a prior year as a result of the constructive
sale of the contracts. To receive such Federal income tax treatment, a foreign
currency contract must meet the following conditions: (1) the contract must
require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under these provisions respecting foreign currency contracts.
As of the date of this Statement of Additional Information, the Treasury has not
issued any such regulations. Forward foreign currency contracts may also result
in the creation of one or more straddles for Federal income tax purposes, in
which case certain loss deferral, short sales, and wash sales rules and
requirements to capitalize interest and carrying charges may apply.
All Funds
- ---------
Net realized long-term capital gains, if any, will be distributed to
shareholders at least annually. (Generally, however, the Money Market Funds do
not expect to realize long-
-31-
<PAGE>
term capital gains.) The Funds will generally have no tax liability with respect
to such gains and the distributions (whether paid in cash or additional shares)
will be taxable to shareholders as long-term capital gains, regardless of how
long a shareholder has held Fund shares. Such distributions will be designated
as capital gain dividends in a written notice mailed by the Company to
shareholders not later than 60 days after the close of the Company's taxable
year. Shareholders should note that, upon the sale of Fund shares, if the
shareholder has not held such shares for more than six months, any loss on the
sale of those shares will be treated as long-term capital loss to the extent of
the capital gain dividends received with respect to the shares.
Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable and
the phase-out of personal exemptions, the maximum effective marginal rate of tax
for some taxpayers may be higher. Under the recently-enacted Taxpayer Relief
Act of 1997, for capital gains on securities recognized after July 28, 1997, the
maximum tax rate for individuals is 20% if the securities were held more than 18
months; for securities held for more than 12 months but no longer than 18
months, the maximum tax rate continues to be 28%. For corporations, long-term
capital gains and ordinary income are both taxable at a maximum nominal rate of
35%.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). Each Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income with respect to each calendar year to avoid liability for this excise
tax.
Each Fund is treated as a separate entity under the Code. During the
most recent taxable year, each Fund qualified as a "regulated investment
company." Although each Fund expects to qualify as a regulated investment
company in subsequent years and to be relieved of all or substantially all
Federal income taxes, and in the case of the Maryland Tax-Exempt Bond Fund,
Maryland state and local income taxes, depending upon the extent of the
Company's 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 Funds may be subject
to the tax laws of such states or localities. In addition, in those states and
localities which have income tax laws, the treatment of the Funds and their
shareholders under such laws may differ from their treatment under Federal
income tax laws. Shareholders are
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<PAGE>
advised to consult their tax advisers concerning the application of state and
local taxes.
If for any taxable year a Fund does not qualify for the special
Federal income tax treatment afforded regulated investment companies, all of its
taxable income will be subject to Federal income tax at regular corporate rates
without any deduction for distributions to its shareholders. In such event,
dividend distributions (whether or not derived from interest on municipal
obligations in the case of the Tax-Exempt Funds) would be taxable as ordinary
income to shareholders to the extent of the Fund's current and accumulated
earnings and profits, and would be eligible for the dividends received deduction
allowed to corporations under the Code.
Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or gross proceeds realized upon sale
paid to shareholders who have failed to provide a correct tax identification
number in the manner required, who are subject to withholding by the Internal
Revenue Service for failure properly to include on their return payments of
taxable interest or dividends, or who have failed to certify to the Fund that
they are not subject to backup withholding when required to do so or that they
are "exempt recipients."
MANAGEMENT OF THE COMPANY
- -------------------------
Directors and Officers
- ----------------------
The Directors and officers of the Company, their addresses, principal
occupations during the past five years, and other affiliations are as follows:
<TABLE>
<CAPTION>
Principal Occupations
Position with During Past 5 Years
Name and Address the Company and Other Affiliations
- ---------------- ------------- ----------------------
<S> <C> <C>
LESLIE B. DISHAROON* Chairman of Retired; Director, Baltimore
2 Chittenden Lane the Board and Gas & Electric Company;
Owings Mills, MD 21117 President Director, Travelers Inc.
Age: 65 (diversified financial
services); Director, GRC
International, Inc.
(technology based services
and products); Director,
Aegon USA, Inc. (holding
company-insurance).
DECATUR H. MILLER* Director and Retired; Partner and former
36 South Charles Street Treasurer Chairman of the law firm of
Suite 1100 Piper & Marbury, Baltimore,
Baltimore, MD 21201 Maryland until 1995.
Age: 65
</TABLE>
-33-
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Position with During Past 5 Years
Name and Address the Company and Other Affiliations
- ---------------- ------------- ----------------------
<S> <C> <C>
JOHN R. MURPHY Director President and Chief Executive
1145 17th Street, N.W. Officer, National Geographic
Washington, D.C. 20036 Society; Chairman, The
Age: 63 Baltimore Sun, 1989-1992,
and Publisher prior thereto;
Director, Monarch Avalon
Inc. (games, graphic arts,
envelope manufacturing)
until 1994.
GEORGE R. PACKARD, III Director Visiting President,
The Johns Hopkins University International University of
1619 Massachusetts Japan, 1994 to date; Former
Avenue, N.W. Dean, School of Advanced
Washington, DC 20036 International Studies at
Age: 65 The Johns Hopkins
University; Director,
Amdahl Corporation (computer
equipment); Director,
Offitbank (private bank);
Director, GRC International,
Inc. (technology based
services and products).
J. STEVENSON PECK Director Retired; Director, Crown
Signet Bank/Maryland Central Petroleum
7 St. Paul Street Corporation until 1993.
P.O. Box 1077
Baltimore, MD 21203
Age: 74
W. BRUCE McCONNEL, III Secretary Partner of the law firm of
PNB Building Drinker Biddle & Reath LLP,
1345 Chestnut Street Philadelphia, Pennsylvania.
Philadelphia, PA 19107-3496
Age: 54
</TABLE>
- -------------------
* Messrs. Disharoon and Miller are considered by the Company to be
"interested persons" of the Company as defined in the Investment Company
Act of 1940.
-------------------------
Each Director receives an annual fee of $3,500 plus $1,625 for each
Board meeting attended and conference call participated in, as well as
reimbursement of expenses incurred as a Director. For the fiscal year ended May
31, 1997, the Company paid or accrued for the account of its directors as a
group, for services in all capacities, a total of $48,375. Drinker Biddle &
Reath LLP, of which Mr. McConnel is a partner, receives legal fees as counsel to
the Company. As of the date of this Statement of Additional Information, the
Directors and
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<PAGE>
officers of the Company, as a group, owned less than 1% of the outstanding
shares of each Fund.
The following chart provides certain information about the fees
received by the Company's Directors for their services as members of the Board
of Directors and committees thereof for the fiscal year ended May 31, 1997:
<TABLE>
<CAPTION>
================================================================================
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM THE
AGGREGATE BENEFITS COMPANY AND
COMPENSATION ACCRUED AS PART FUND COMPLEX/*/
FROM THE OF COMPANY PAID TO
NAME OF PERSON/POSITION COMPANY EXPENSES DIRECTORS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Leslie B. Disharoon $10,000 N/A $10,000
Chairman of the Board
of Directors and
President
- --------------------------------------------------------------------------------
Decatur H. Miller $10,000 N/A $10,000
Director and Treasurer
- --------------------------------------------------------------------------------
John R. Murphy $11,625 N/A $11,625
Director
- --------------------------------------------------------------------------------
George R. Packard, III $ 8,375 N/A $ 8,375
Director
- --------------------------------------------------------------------------------
J. Stevenson Peck $ 8,375 N/A $ 8,375
Director
============================================================================
</TABLE>
* The "Fund Complex" consists solely of the Company.
Advisory and Sub-Advisory Services
- ----------------------------------
Mercantile-Safe Deposit and Trust Company (the "Adviser" or
"Mercantile") serves as investment adviser to the Funds pursuant to five
Advisory Agreements, one with respect to the Tax-Exempt Money Market Fund
(Trust) dated July 21, 1989, one with respect to the other Money Market Funds
dated July 21, 1989, one with respect to the Growth & Income and Limited
Maturity Bond Funds dated November 13, 1990, one with respect to the Maryland
Tax-Exempt Bond Fund dated February 3, 1992 and one with respect to the
International Equity Fund dated June 29, 1993. CastleInternational Asset
Management Limited (the "Sub-Adviser" or "CastleInternational") provides sub-
advisory services with respect to the International Equity Fund pursuant to a
Sub-Advisory Agreement dated March 19, 1996. Each of the Adviser and Sub-
Adviser has agreed to pay all expenses incurred by it in connection with its
activities. For advisory services provided by it, the Adviser is entitled to
receive a fee from the Prime Money Market, Government Money Market, Tax-Exempt
Money Market, Growth & Income, International Equity, Limited Maturity Bond and
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<PAGE>
Maryland Tax-Exempt Bond Funds, computed daily and payable monthly, based on the
average net assets of each of those Funds. For sub-advisory services provided
by it, the Sub-Adviser is entitled to receive a fee from the Adviser based on
the International Equity Fund's average daily net assets. (See "Management of
the Company -- Expenses" or "Management of the Company -- Investment Adviser and
Administrator" in the Prospectuses relating to those Funds for the fee
schedule.) The Adviser does not receive a fee for advisory services provided
with respect to the Tax-Exempt Money Market Fund (Trust).
For the fiscal years ended May 31, 1997, May 31, 1996 and May 31,
1995, the Company paid advisory fees, net of waivers, of $858,617, $861,899 and
$835,935, respectively, with respect to the Prime Money Market Fund; $697,746,
$685,707 and $640,607, respectively, with respect to the Government Money Market
Fund; and $143,084, $155,912 and $176,537, respectively, with respect to the
Tax-Exempt Money Market Fund; and the Adviser voluntarily waived fees of
$35,776, $35,912 and $34,831, respectively, with respect to the Prime Money
Market Fund; $60,674, $59,626 and $55,705, respectively, with respect to the
Government Money Market Fund; and $12,442, $13,558 and $15,351, respectively,
with respect to the Tax-Exempt Money Market Fund. In addition, for the fiscal
years ended May 31, 1997, May 31, 1996 and May 31, 1995, the Company paid
advisory fees, net of waivers, of $541,891, $441,361 and $341,466, respectively,
with respect to the Growth & Income Fund and the Adviser voluntarily waived fees
of $175,151, $159,038 and $125,433, respectively. For the fiscal years ended
May 31, 1997, May 31, 1996 and May 31, 1995, the Company paid advisory fees, net
of waivers, of $571,056, $535,892 and $454,894, respectively, with respect to
the International Equity Fund and the Adviser voluntarily waived fees of
$44,785, $49,092 and $36,622, respectively. For the fiscal years ended May 31,
1997, May 31, 1996 and May 31, 1995, the Company paid advisory fees, net of
waivers, of $93,699, $108,093 and $103,066, respectively, with respect to the
Limited Maturity Bond Fund, and the Adviser voluntarily waived fees of $60,993,
$43,278 and $40,103, respectively. For the fiscal years ended May 31, 1997, May
31, 1996 and May 31, 1995, the Company paid advisory fees, net of waivers, of
$3,693, $17,211 and $33,254, respectively, with respect to the Maryland Tax-
Exempt Bond Fund and the Adviser voluntarily waived fees of $41,084, $40,159 and
$49,927, respectively. For the fiscal years ended May 31, 1997, May 31, 1996
and May 31, 1995, the Adviser paid the Sub-Adviser (including the predecessor
sub-adviser for periods prior to March 19, 1996) sub-advisory fees, net of
waivers, of $321,217, $312,682 and $235,012, respectively, and the Sub-Adviser
(including the predecessor sub-adviser for periods prior to March 19, 1996)
waived sub-advisory fees of $25,193, $16,372 and $15,337, respectively.
-36-
<PAGE>
Under the Advisory Agreements, the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Company in
connection with the performance of such Agreements, and the Company has agreed
to indemnify the Adviser against any claims or other liabilities arising out of
any such error of judgment or mistake or loss. The Adviser shall remain
liable, however, for any loss resulting from willful misfeasance, bad faith, or
gross negligence on the part of the Adviser in the performance of its duties or
from its reckless disregard of its obligations and duties under the Advisory
Agreements.
Unless sooner terminated, the Advisory and Sub-Advisory Agreements
will continue in effect through July 20, 1998. Each Advisory or Sub-Advisory
Agreement will continue from year to year after its anticipated termination date
if such continuance is approved at least annually by the Company's Board of
Directors or by the affirmative vote of a majority of the outstanding shares of
each Fund, provided that in either event such Agreement's continuance also is
approved by a majority of the Company's Directors who are not parties to such
Agreement, or "interested persons" (as defined in the 1940 Act) of any such
party, by votes cast in person at a meeting called for the purpose of voting on
such approval. Each Advisory or Sub-Advisory Agreement may be terminated by the
Company or the Adviser (or the Sub-Adviser in the case of the Sub-Advisory
Agreement) on 60 days written notice, and will terminate immediately in the
event of its assignment. Upon termination of the Advisory Agreements, the
Company would be required, at the request of the Adviser, to change its name to
a name not including "M.S.D. & T." or "Mercantile-Safe Deposit and Trust
Company."
Administrator
- -------------
Mercantile serves as the Company's administrator pursuant to an
Administration Agreement dated as of May 28, 1993 (the "Administration
Agreement"). Mercantile has agreed to maintain office facilities for the
Company, furnish the Company with statistical and research data, clerical and
certain other services required by the Company, and to assist in updating the
Company's Registration Statement for filing with the SEC.
The Administration Agreement provides that Mercantile shall not be
liable for acts or omissions which do not constitute willful misfeasance, bad
faith or gross negligence on the part of Mercantile, or reckless disregard by
Mercantile of its duties under the Administration Agreement.
-37-
<PAGE>
Custodians and Transfer Agent
- -----------------------------
The Fifth Third Bank ("Fifth Third") serves as custodian of the Money
Market, Growth & Income, Limited Maturity Bond and Maryland Tax-Exempt Bond
Funds' assets and State Street Bank and Trust Company ("State Street") serves as
custodian of the International Equity Fund's assets pursuant to separate Custody
Agreements, under which each custodian has agreed, among other things, to (i)
maintain a separate account in the name of each Fund, (ii) hold and disburse
portfolio securities on account of each Fund, (iii) collect and receive all
income and other payments and distributions on account of each Fund's portfolio
investments and (iv) make periodic reports to the Company concerning each Fund's
operations. Each custodian is authorized to select one or more banks or trust
companies to serve as sub-custodian on behalf of the Funds, provided that the
custodian shall remain liable for the performance of all of its duties under its
respective Custody Agreement and will hold the Fund or Funds harmless from
losses caused by the negligence or willful misconduct of any bank or trust
company serving as sub-custodian.
State Street also serves as transfer agent and dividend disbursing
agent for the Funds. Under its Transfer Agency Agreement, State Street has
agreed, among other things, to (i) receive purchase orders and redemption
requests for shares of the Funds; (ii) issue and redeem shares of the Funds;
(iii) effect transfers of shares of the Funds; (iv) prepare and transmit
payments for dividends and distributions declared by the Funds; (v) maintain
records of account for the Funds and shareholders and advise each as to the
foregoing; (vi) record the issuance of shares of each Fund and maintain a record
of and provide the Fund on a regular basis with the total number of shares of
each Fund which are authorized, issued and outstanding; (vii) perform the
customary services of a transfer agent, a dividend disbursing agent and
custodian of certain retirement plans and, as relevant, agent in connection with
accumulation, open account or similar plans; and (viii) provide a system
enabling the Funds to monitor the total number of shares sold in each State.
Distributor and Fund Accountant
- -------------------------------
Shares of the Funds are distributed continuously and without a sales
load by BISYS (the "Distributor"). The Distributor has agreed to use
appropriate efforts to solicit orders for the purchase of shares. No
compensation is payable by the Funds to the Distributor for distribution
services provided.
Unless otherwise terminated, the Distribution Agreement will remain in
effect until July 20, 1998, and thereafter will continue automatically with
respect to each Fund from year to
-38-
<PAGE>
year if approved at least annually by the Company's Board of Directors, or by
the vote of a majority of the outstanding voting securities of the Fund, and by
the vote of a majority of the Directors of the Company who are not parties to
the Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval. The Distribution
Agreement will terminate in the event of its assignment, as defined in the 1940
Act.
BISYS Fund Services Ohio, Inc. ("BISYS Ohio"), an affiliate of the
Distributor, provides full fund accounting services for the Company, including
the computation of each Fund's net asset value, net income and realized capital
gains, if any.
Compensation of Administrator, Custodians, Transfer Agent and Fund Accountant
- -----------------------------------------------------------------------------
Mercantile, the custodians and BISYS Ohio are entitled to receive fees
based on the aggregate average daily net assets per Fund of the Company. As
compensation for transfer agency services provided, State Street is entitled to
receive an annual fee based on the number of Funds of the Company, plus a
transaction charge for certain transactions and out-of-pocket expenses, and
additional fees as compensation for sub-accounting services provided.
For the fiscal years ended May 31, 1997, May 31, 1996 and May 31,
1995, the Company paid fees, net of waivers, of $842,744, $885,838 and $826,819,
respectively, to Mercantile for administrative services provided to the Funds;
during such periods Mercantile voluntarily waived fees of $435,208, $370,441 and
$371,322, respectively.
Banking Laws
- ------------
The Glass-Steagall Act, among other things, prohibits banks from
engaging to any extent in the business of underwriting securities, although
national and state-chartered banks generally are permitted to purchase and sell
securities upon the order and for the account of their customers. In 1971, the
United States Supreme Court held in Investment Company Institute v. Camp that
------------------------------------
the Glass-Steagall Act prohibits a national bank from operating a 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
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 do not prohibit such a
holding
-39-
<PAGE>
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.
The Adviser believes, with respect to its activities as required by
the Advisory and Administration Agreements and as contemplated by the
Prospectuses and this Statement of Additional Information, and the Sub-Adviser
believe, with respect to its activities as required by the Sub-Advisory
Agreement and as contemplated by the Prospectus for the International Equity
Fund and this Statement of Additional Information, that, if the question were
properly presented, a court should hold that the Adviser or Sub-Adviser, as the
case may be, may each perform such activities without violation of the Glass-
Steagall Act or other applicable banking laws or regulations. It should be
noted, however, that there have been no cases deciding whether banks may perform
services comparable to those performed by the Adviser and Sub-Adviser and that
future changes in either federal or state statutes and regulations relating to
permissible activities of banks or trust companies and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations, could prevent
the Adviser and Sub-Adviser from continuing to perform such services for the
Funds. If the Adviser or Sub-Adviser were prohibited from continuing to perform
advisory/administration and sub-advisory services for the Funds, it is expected
that the Board of Directors would recommend that the Funds affected enter into
new agreements or would consider the possible termination of such Funds. Any new
advisory or sub-advisory agreement would be subject to shareholder approval.
If current restrictions under the Glass-Steagall Act preventing a bank
from sponsoring, organizing, controlling, or distributing shares of an
investment company were relaxed, the Funds expect that the Adviser, or an
affiliate of the Adviser, would consider the possibility of offering to perform
additional services for the Funds. Legislation modifying such restrictions has
been introduced in past sessions of Congress. It is not possible, of course, to
predict whether or in what form such legislation might be enacted or the terms
upon which the Adviser or such an affiliate, might offer to provide such
services.
-40-
<PAGE>
Expenses
- --------
Except as noted below, the Adviser bears all expenses in connection
with the performance of its advisory and administrative services and the Sub-
Adviser bears all expenses in connection with the performance of its sub-
advisory services. The Company bears its owns expenses incurred in its
operations, including: organizational costs; taxes; interest; fees (including
fees paid to its directors and officers); SEC fees; state securities
qualification fees; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; advisory fees;
administration fees and expenses; charges of the custodians, transfer agent and
fund accountant; certain insurance premiums; outside auditing and legal
expenses; fees of independent pricing services; costs of shareholders' reports
and shareholder meeting; fees of industry organizations such as the Investment
Company Institute; and any extraordinary expenses. The Company also pays for
brokerage fees and commissions, if any, in connection with the purchase of its
portfolio securities.
INDEPENDENT ACCOUNTANTS
- -----------------------
Coopers & Lybrand L.L.P., 2400 Eleven Penn Center, Philadelphia,
Pennsylvania 19103, serve as independent accountants for the Company. The
financial statements which are incorporated by reference into this Statement of
Additional Information have been audited by Coopers & Lybrand L.L.P., whose
report thereon is also incorporated by reference into this Statement of
Additional Information, and have been incorporated by reference herein in
reliance on the report of such accountants given upon their authority as experts
in accounting and auditing.
COUNSEL
- -------
Drinker Biddle & Reath LLP, Philadelphia National Bank Building, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496, serve as counsel to the
Company and will pass upon certain legal matters on behalf of the Company.
ADDITIONAL INFORMATION CONCERNING SHARES
- ----------------------------------------
The Company was incorporated in Maryland on March 7, 1989. The
Company's Articles of Incorporation authorize the Board of Directors to issue up
to 10,000,000,000 full and fractional shares of capital stock, $.001 par value
per share. The Company's Articles of Incorporation further authorize the Board
of Directors to classify and reclassify any unissued shares into any number of
additional classes of shares. Of these authorized shares, 700,000,000 shares
are classified as Class A Common Stock representing shares of the Prime Money
Market Fund,
-41-
<PAGE>
700,000,000 shares are classified as Class B Common Stock representing shares of
the Government Money Market Fund, 600,000,000 shares are classified as Class C
Common Stock representing shares of the Tax-Exempt Money Market Fund,
600,000,000 shares are classified as Class D Common Stock representing shares of
the Tax-Exempt Money Market Fund (Trust), 500,000,000 shares are classified as
Class E Common Stock representing shares of the Growth & Income Fund,
500,000,000 shares are classified as Class F Common Stock representing shares of
the Limited Maturity Bond Income Fund, 400,000,000 shares are classified as
Class G Common Stock representing shares of the Maryland Tax-Exempt Bond Fund
and 400,000,000 shares are classified as Class H Common Stock representing
shares of the International Equity Fund. The Company has also authorized the
issuance of 400,000,000 shares of Class I Common Stock representing shares of
the International Bond Portfolio and 400,000,000 shares of Class J Common Stock
representing shares of the Diversified Real Estate Fund, which are described in
separate Prospectuses and Statements of Additional Information. As of the date
of this Statement of Additional Information, the International Bond Fund had not
commenced operations.
In the event of a liquidation or dissolution of the Company or an
individual Fund, shareholders of a particular Fund would be entitled to receive
the assets available for distribution belonging to such Fund, and a
proportionate distribution, based upon the relative net asset values of the
Company's respective investment portfolios, of any general assets not belonging
to any particular portfolio which are available for distribution. Shareholders
of a Fund are entitled to participate equally in the net distributable assets of
the particular Fund involved on liquidation, based on the number of shares of
the Fund that are held by each shareholder.
Shareholders of the Funds, as well as those of any other investment
portfolio offered by the Company in the future, will vote in the aggregate and
not by portfolio or class on all matters, except as otherwise required by law or
when the Board of Directors determines that the matter to be voted upon affects
only the interests of the shareholders of a particular portfolio or class. 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 Company 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. A Fund is affected by a matter unless it is clear that
the interests of each Fund in the matter are substantially identical or that the
matter does not affect any interest of the Fund. Under the Rule, the approval
of an investment advisory agreement or any change in a fundamental investment
objective or investment policy would be effectively
-42-
<PAGE>
acted upon with respect to a Fund only if approved by a majority of the
outstanding shares of such Fund. However, the Rule also provides that the
ratification of the appointment of independent public accountants, the approval
of principal underwriting contracts, and the election of directors may be
effectively acted upon by shareholders of all Funds voting together in the
aggregate without regard to particular Funds.
Notwithstanding any provision of Maryland law requiring a greater vote
of shares of the Company's Common Stock (or of any class voting as a class) in
connection with any corporate action, unless otherwise provided by law (for
example by Rule 18f-2 discussed above) or by the Company's Articles of
Incorporation, the Company may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio). The Company's Bylaws enable
shareholders to call for a meeting to vote on the removal of one or more
directors; the affirmative vote of a majority of the Company's outstanding
shares is required to remove a director. Meetings of the Company's shareholders
shall be called by the Board of Directors upon the written request of
shareholders owning at least 10% of the outstanding shares entitled to vote.
The Company's Articles of Incorporation authorize the Board of
Directors, without shareholder approval (unless otherwise required by applicable
law), to: (a) sell and convey a Fund's assets to another management investment
company for consideration which may include securities issued by the purchaser
and, in connection therewith, to cause all outstanding shares of such Fund to be
redeemed at a price equal to their net asset value which may be paid in cash or
by distribution of the securities or other consideration received from the sale
and conveyance; (b) sell and convert a Fund's assets into money and, in
connection therewith, to cause all outstanding shares of such Fund to be
redeemed at their net asset value; or (c) combine a Fund's assets with the
assets belonging to one or more other Funds if the Board of Directors reasonably
determines that such combination will not have a material adverse effect on the
shareholders of any Fund participating in such combination and, in connection
therewith, to cause all outstanding shares of any such Fund to be redeemed or
converted into shares of another Fund at their net asset value. The exercise of
such authority may be subject to certain restrictions under the 1940 Act.
ADDITIONAL PERFORMANCE INFORMATION
- ----------------------------------
Money Market Funds
- ------------------
The "yield" and "effective yield" of each Money Market Fund described
in the Prospectuses relating to those Funds are
-43-
<PAGE>
calculated according to formulas prescribed by the SEC. The standardized seven-
day yield for each Money Market Fund is computed separately by determining the
net change, exclusive of capital changes, in the value of a hypothetical pre-
existing account in the particular Fund involved having a balance of one share
at the beginning of the period, dividing the net change in account value by the
value of the account at the beginning of the base period to obtain the base
period return, and multiplying the base period return by (365/7). The net change
in the value of an account in a Fund includes the value of additional shares
purchased with dividends from the original share, and dividends declared on both
the original share and any such additional shares and all fees, other than
nonrecurring account sales charges, that are charged to all shareholder accounts
in proportion to the length of the base period and the Fund's average account
size. The capital changes to be excluded from the calculation of the net change
in account value are realized gains and losses from the sale of securities and
unrealized appreciation and depreciation. The effective annualized yield for
each Fund is computed by compounding a particular Fund's unannualized base
period return (calculated as above) by adding 1 to the base period return,
raising the sum to a power equal to 365 divided by 7, and subtracting one from
the result. For those shareholders who pay Banks a fee for automatic investment
or other cash management services, the Funds' effective yields will be lower
than for shareholders who do not. For the seven-day period ended May 31, 1997,
the yield for each of the Money Market Funds' portfolios was as follows: Prime
Money Market Fund, 5.19%; Government Money Market Fund, 5.08%; Tax-Exempt Money
Market Fund, 3.39%; Tax-Exempt Money Market Fund (Trust), 3.61%. For the seven-
day period ended May 31, 1997, the effective yield for each of the Money Market
Funds' portfolios was as follows: Prime Money Market Fund, 5.32%; Government
Money Market Fund, 5.21%; Tax-Exempt Money Market Fund, 3.45%; and Tax-Exempt
Money Market Fund (Trust), 3.67%.
In addition, the Tax-Exempt Money Market Funds may quote their
standardized "tax-equivalent yield," which is computed by: (a) dividing the
portion of a Tax-Exempt Money Market Fund's yield (as calculated above) that is
exempt from Federal income tax by one minus a stated Federal income tax rate;
and (b) adding the figure resulting from (a) above to that portion, if any, of
the Fund's yield that is not exempt from Federal income tax. For the seven-day
period ended May 31, 1997, the tax-equivalent yields for the Tax-Exempt Money
Market Fund and the Tax-Exempt Money Market Fund (Trust) were 5.71% and 6.08%,
respectively (assuming a Federal income tax rate of 39.6%).
The "monthly yield" of each Money Market Fund described in the
Prospectuses relating to those Funds is computed by determining the net change,
exclusive of capital changes, in the
-44-
<PAGE>
value of a hypothetical pre-existing account in the particular Fund involved
having a balance of one share at the beginning of the period, dividing the net
change in the account value by the value of the account at the beginning of the
base period to obtain the base period return, and multiplying the base period
return by (365/number of days in the month). The annualized effective monthly
yield for each Fund is computed by compounding a particular Fund's unannualized
monthly base period return (calculated as just described) by adding 1 to the
base period return, raising the sum to a power equal to 365 divided by the
number of days in the month, and subtracting one from the result.
The Money Market Funds may from time to time quote yields relating to
time periods other than those described above and in the Prospectuses relating
to the Money Market Funds. Such yields will be computed in a manner which is
similar to those computations described.
A Money Market Fund's quoted yield is not indicative of future yields
and will depend upon factors such as portfolio maturity, its expenses and the
types of instruments it holds.
Non-Money Market Funds
- ----------------------
Yield Calculations. From time to time the Non-Money Market Funds may
------------------
quote their yields in advertisements, sales literature or in reports to
shareholders. The yield for a Fund is calculated by dividing the net investment
income per share (as described below) earned during a 30-day period by its net
asset value per share on the last day of the period and annualizing the result
on a semi-annual basis by adding one to the quotient, raising the sum to the
power of six, subtracting one from the result and then doubling the difference.
A Fund's net investment income per share earned during the period in the Fund is
based on the average daily number of shares outstanding in the Fund during the
period entitled to receive dividends and includes dividends and interest earned
during the period minus expenses accrued for the period, net of reimbursements.
This calculation can be expressed as follows:
a-b
Yield = 2 [(----- + 1)/6/ - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
-45-
<PAGE>
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = net asset value per share on the last day of the period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the portfolio. Each Fund calculates
interest earned on any debt obligations held in its portfolio by computing the
yield to maturity of each obligation held by it based on the market value of the
obligation (including actual accrued interest) at the close of business on the
last business day of each 30-day period, or, with respect to obligations
purchased during the 30-day period, the purchase price (plus actual accrued
interest) and dividing the result by 360 and multiplying the quotient by the
market value of the obligation (including actual accrued interest) in order to
determine the interest income on the obligation for each day of the subsequent
30-day period that the obligation is in the portfolio. The maturity of an
obligation with a call provision is the next call date on which the obligation
reasonably may be expected to be called or, if none, the maturity date. With
respect to debt obligations purchased at a discount or premium, the formula
generally calls for amortization of the discount or premium. The amortization
schedule will be adjusted monthly to reflect changes in the market values of
such debt obligations. The Maryland Fund calculates interest earned on tax-
exempt obligations issued without original issue discount and having a current
market discount by using the coupon rate of interest instead of the yield to
maturity. In the case of tax-exempt obligations that are issued with original
issue discount, where the discount based on the current market value exceeds the
then-remaining portion of original issue discount, the yield to maturity is the
imputed rate based on the original issue discount calculation. Conversely, where
the discount based on the current market value is less than the remaining
portion of the original issue discount, the yield to maturity is based on the
market value.
With respect to the treatment of discount and premium on mortgage or
other receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("pay downs"), (a) gain or loss attributable
to actual monthly pay downs is accounted for as an increase or decrease to
interest income during the period; and (b) a Fund may elect either (i) to
amortize the discount and premium on the remaining security, based on the cost
of the security, to the weighted average maturity date, if such information is
available, or to the remaining term of the security, if the weighted average
-46-
<PAGE>
maturity date is not available, or (ii) not to amortize discount or premium on
the remaining security.
Undeclared earned income may be subtracted from the net asset value
per share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the 30-day base period, has not been
declared as a dividend, but is reasonably expected to be and is declared as a
dividend shortly thereafter.
The Maryland Tax-Exempt Bond Fund's "tax-equivalent" yield is computed
by: (a) dividing the portion of the Fund's yield that is exempt from both
Federal and Maryland state income taxes by one minus a stated combined Federal
and Maryland state income tax rate; (b) dividing the portion of the Fund's yield
that is exempt from Federal income tax only by one minus a stated Federal income
tax rate, and (c) adding the figures resulting from (a) and (b) above to that
portion, if any, of such yield that is not exempt from Federal income tax.
For the 30-day period ended May 31, 1997, the yield for the Growth &
Income Fund was 1.28%; for the Limited Maturity Bond Fund was 5.84%; and for the
Maryland Tax-Exempt Bond Fund was 4.85% and the tax equivalent yield was
8.03%.
Total Return Calculations. The Non-Money Market Funds compute their
-------------------------
average annual total returns by determining the average annual compounded rates
of return during specified periods that equate the initial amount invested in a
particular Fund to the ending redeemable value of such investment in the Fund.
This is done by dividing the ending redeemable value of a hypothetical $1,000
initial payment by $1,000 and raising the quotient to a power equal to one
divided by the number of years (or fractional portion thereof) covered by the
computation and subtracting one from the result. This calculation can be
expressed as follows:
ERV
T = [(-----)/1/n/ - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period covered by
the computation of a hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
-47-
<PAGE>
n = period covered by the computation, expressed in terms of
years.
The Non-Money Market Funds compute their aggregate total returns by
determining the aggregate rates of return during specified periods that likewise
equate the initial amount invested in a particular Fund to the ending redeemable
value of such investment in the Fund. The formula for calculating aggregate
total return is as follows:
ERV
T = [(-----) - 1]
P
The calculations of average annual total return and aggregate total
return assume the reinvestment of all dividends and capital gain distributions
on the reinvestment dates during the period. The ending redeemable value
(variable "ERV" in each formula) is determined by assuming complete redemption
of the hypothetical investment and the deduction of all nonrecurring charges at
the end of the period covered by the computations.
Based on the foregoing calculations, the average annual total returns
for the Growth & Income Fund and Limited Maturity Bond Fund for the twelve
months ended May 31, 1997 were 31.26% and 7.12%, respectively; for the five
years ended May 31, 1997 were 15.28% and 5.66%, respectively; and for the period
from the commencement of operations through May 31, 1997 were 14.89% and 6.26%,
respectively. The average annual total returns for the Maryland Tax-Exempt Bond
Fund for the twelve months ended May 31, 1997 and for the period from the
commencement of operations through May 31, 1997 were 6.80% and 5.69%,
respectively. The average annual total returns for the International Equity
Fund for the twelve months ended May 31, 1997 and for the period from the
commencement of operations through May 31, 1997 were 9.81% and 11.01%,
respectively. The aggregate total returns for the Growth & Income Fund and
Limited Maturity Bond Fund for the one-year period ended May 31, 1997 were
31.26% and 7.12%, respectively, for the five-year period ended May 31, 1997 were
103.62% and 31.67%, respectively; and for the period from the commencement of
operations to May 31, 1997 were 138.37% and 45.87%, respectively. The aggregate
total return for the Maryland Tax-Exempt Bond Fund for the one-year period ended
May 31, 1997 was 6.80% and for the period from commencement of operations to May
31, 1997 was 31.86%. The aggregate total return for the International Equity
Fund for the one-year period ended May 31, 1997 was 9.81% and for the period
from commencement of operations to May 31, 1997 was 50.52%.
Since performance will fluctuate, performance data for the Funds
cannot necessarily be used to compare an investment in
-48-
<PAGE>
the Funds' shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions.
Hypothetical Performance Information
- ------------------------------------
In addition to providing performance information that demonstrates the
actual yield or return of a particular Fund over a particular period of time,
the Tax-Exempt Money Market Funds or the Maryland Tax-Exempt Bond Fund may
provide certain other information demonstrating hypothetical yields or returns.
For example, the table below illustrates the approximate yield that a taxable
investment must earn at various income brackets to produce after-tax yields
equivalent to those of tax-exempt investments yielding from 4.00% to 6.50%. The
yields below are for illustration purposes only and are not intended to
represent current or future yields for the Tax-Exempt Money Market Funds or the
Maryland Tax-Exempt Bond Fund, which may be higher or lower than those shown. A
Fund's yield will fluctuate as market conditions change. For investors in a low
tax bracket, investing in a tax-exempt investment may not be beneficial if a
higher yield after taxes could be received from a taxable investment. Investors
should be aware that tax brackets may change over time and they should consult
their own tax adviser with specific reference to their own tax situation.
-49-
<PAGE>
<TABLE>
<CAPTION>
For the Tax-Exempt Money Market Funds:
- ----------------------------------------------------------------------------------------------------
Federal
Marginal
Taxable Income Tax Tax-Exempt Yields
Rate 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
- ----------------------------------------------------------------------------------------------------
Single Return Joint Return Equivalent Taxable Yields
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-$ 24,650 $ 0-$ 41,200 15% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 28% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03%
$ 59,751-$124,650 $ 99,601-$151,750 31% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
$124,651-$271,050 $151,751-$271,050 36% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16%
Over $271,050 Over $271,050 39.6% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76%
- ----------------------------------------------------------------------------------------------------
</TABLE>
The tax-exempt yields used here are hypothetical and no assurance can be made
that the Funds will obtain any particular yields. A Fund's yield fluctuates as
market conditions change. The tax brackets and related yield calculations are
based on the 1997 Federal marginal tax rates indicated in the table. The table
does not reflect the phase out of personal exemptions and itemized deductions
which will apply to certain higher income taxpayers.
- --------------------------------------------------------------------------------
-50-
<PAGE>
For the Maryland Tax-Exempt Bond Fund:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Combined
Federal
and
Maryland
Marginal
Taxable Income Tax Tax-Exempt Yields
Rate 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
- --------------------------------------------------------------------------------------------
Single Return Joint Return Equivalent Taxable Yields
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 3,000-$ 24,650 $ 3,000-$ 41,200 21.38% 5.09% 5.72% 6.36% 6.99% 7.63% 8.27%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 33.4% 6.01% 6.76% 7.51% 8.26% 9.01% 9.76%
$ 59,751-$124,650 $ 96,601-$151,750 36.18% 6.27% 7.05% 7.84% 8.62% 9.40% 10.18%
$124,651-$271,050 $151,751-$271,050 40.80% 6.75% 7.60% 8.44% 9.28% 10.13% 10.97%
Over $271,050 Over $271,050 44.13% 7.15% 8.04% 8.95% 9.83% 10.74% 11.62%
- --------------------------------------------------------------------------------------------
</TABLE>
The tax-exempt yields used here are hypothetical and no assurance can the made
that the Fund will obtain any particular yield. A fund's yield fluctuates as
market conditions change. The tax brackets and related yield calculations are
based on the 1997 Federal marginal tax rates, and assume a Federal tax benefit
for state and local taxes. For 1997, the Maryland state tax rate is 5%. The
Maryland county tax is assumed to be at least one-half the state rate which is
applicable in all counties except Worcester County and Maryland and Federal
taxable income are assumed to be the same. The table does not reflect the phase
out of personal exemptions and itemized deductions which will apply to certain
higher income taxpayers.
- --------------------------------------------------------------------------------
Distribution Rates
------------------
The Limited Maturity Bond Fund and Maryland Tax-Exempt Bond Fund may
also quote from time to time distribution rates in reports to shareholders
and in sales literature. The distribution rate for a specified period is
calculated by annualizing the daily distributions of net investment income
and dividing this amount by the daily ending net asset value, and then
adding all the daily numbers and dividing by the number of days in the
specified period. Distribution rates do not reflect realized and unrealized
capital gains and losses. The distribution rate for the Limited Maturity
Bond Fund for the month ended May 31, 1997 was 5.69%. The distribution rate
for the Maryland Tax-Exempt Bond Fund for the month ended May 31, 1997 was
4.96%.
-51-
<PAGE>
Performance Comparisons
- -----------------------
From time to time, in advertisements or in reports to shareholders, a
Fund's yield or total return may be quoted and compared to that of other mutual
funds with similar investment objectives and to stock or other relevant indices.
For example, a Money Market Fund's yield may be compared to the Donoghue's Money
Fund Average, which is an average compiled by Donoghue's MONEY FUND REPORT(R), a
widely recognized independent publication that monitors the performance of money
market funds, or to the average yields reported by the Bank Rate Monitor from
money market deposit accounts offered by the 50 leading banks and thrift
institutions in the top five standard metropolitan statistical areas. The total
return and yield of the Non-Money Market Funds may be compared to the Consumer
Price Index, the Growth & Income Fund may be compared to the Standard & Poor's
500 Index, an index of unmanaged groups of common stocks, or the Dow Jones
Industrial Average, a recognized unmanaged index of common stocks of 30
industrial companies listed on the New York Stock Exchange, the Limited Maturity
Bond and Maryland Tax-Exempt Bond Funds may be compared to the Salomon Brothers
Broad Investment Grade Index or the Shearson Lehman Government Corporate Bond
Index, and the International Equity Fund may be compared to the Morgan Stanley
Capital International ("MSCI") All World ex U.S. Index. In addition, total
return and yield data as reported in national financial publications such as
Money Magazine, Forbes, Barron's, The Wall Street Journal, and The New York
Times, or in publications of a local or regional nature, may be used in
comparing the performance of a Fund. The total return and yield of a Fund may
also be compared to data prepared by Lipper Analytical Services, Inc.
From time to time, the Company may include the following types of
information in advertisements, supplemental sales literature and reports to
shareholders: (1) discussions of general economic or financial principles (such
as the effects of inflation, the power of compounding and the benefits of
dollar-cost averaging); (2) discussions of general economic trends; (3)
presentations of statistical data to supplement such discussions; (4)
descriptions of past or anticipated portfolio holdings for one or more of the
Funds within the Company; (5) descriptions of investment strategies for one or
more of such Funds; (6) descriptions or comparisons of various savings and
investment products (including but not limited to insured bank products,
annuities, qualified retirement plans and individual stocks and bonds) which may
or may not include the Funds; (7) comparisons of investment products (including
the Funds) with relevant market or industry indices or other appropriate
benchmarks; and (8) discussions of Fund rankings or ratings by recognized rating
organizations. The Company may also include calculations, such as hypothetical
compounding examples, which describe hypothetical investment results in such
communications.
-52-
<PAGE>
Such performance examples will be based on an express set of assumptions and are
not indicative of the performance of any of the Funds.
Information concerning the current yield and performance of the Funds
may be obtained by calling 1-800-551-2145.
MISCELLANEOUS
- -------------
As used in this Statement of Additional Information and in the
Prospectuses, a "majority of the outstanding shares" of a Fund means, with
respect to the approval of an investment advisory agreement or change in an
investment objective or fundamental investment policy, the lesser of (1) 67% of
the shares of the particular Fund represented at a meeting at which the holders
of more than 50% of the outstanding shares of such Fund are present in person or
by proxy, or (2) more than 50% of the outstanding shares of such Fund.
As of September 15, 1997, Mercantile-Safe Deposit and Trust Company,
MSDT Funds, Attn: Income Collection Department, P.O. Box 1101, Baltimore,
Maryland 21203, owned of record substantially all of the shares of the Prime
Money Market Fund, Government Money Market Fund, Tax-Exempt Money Market Fund,
Tax-Exempt Money Market Fund (Trust), International Equity Fund and Maryland
Tax-Exempt Bond Fund. Mercantile-Safe Deposit and Trust Company ("Mercantile")
is a wholly-owned subsidiary of Mercantile Bankshares Corporation and is a
Maryland trust company. The Company believes that substantially all of the
shares held of record by Mercantile were beneficially owned by its
customers.
As of September 15, 1997, the name, address and percentage ownership
of each person, in addition to Mercantile, that beneficially owned 5% or more of
the outstanding shares of the Company was as follows: Prime Money Market Fund -
The Johns Hopkins Hospital, 600 North Wolfe Street, Baltimore, MD 21287
(9.42%); Government Money Market Fund - Mr. James G. Robinson, 10 East Lee
Street, Suite 2705, Baltimore, MD 21202 (7.59%); Mr. Martin Grass, Rite Aid
Corporation, P.O. Box 3165, Harrisburg, PA 17105-3165 (10.37%); Tax-Exempt
Money Market Fund - Reliable Liquors, Inc., 2200 Winchester Street, Baltimore,
MD 21216 (10.32%); Fox Asset Management, Inc., c/o Mr. Harry Gudelsky, Suite
3E, 44 Sycamore Avenue, Little Silver, NJ 07739-1242 (6.42%); Tax-Exempt Money
Market Fund (Trust) - Irvin Grief Marital Trust, c/o Mercantile-Safe Deposit and
Trust Company, Two Hopkins Plaza, Baltimore, MD 21201 (5.03%); Robert H. Levi
Marital Trust, c/o Mercantile-Safe Deposit and Trust Company, Two Hopkins Plaza,
Baltimore, MD 21201 (6.09%); Betty Washington White Deed of Trust, c/o
Mercantile-Safe Deposit and Trust Company, Two Hopkins Plaza, Baltimore, MD
21201 (8.89%);
-53-
<PAGE>
Maryland Tax-Exempt Bond Fund - Mr. Kenneth H. Roberts, 6287 Firethorn Drive,
Clarksville, MD 21029 (17.31%); Mr. Charles C. Fenwick, Sr., Belmont Farms,
3302 Belmont Road, Glyndon, MD 21071 (7.27%); Growth & Income Fund - Mr.
Willard Hackerman, 1 Slade Avenue, Baltimore, MD 21208-5240 (6.61%).
FINANCIAL STATEMENTS
- --------------------
The audited financial statements and related report of Coopers &
Lybrand, L.L.P, independent accountants, contained in the Funds' annual report
to shareholders for the fiscal year ended May 31, 1997 (the "Annual Report") are
hereby incorporated herein by reference. No other parts of the Annual Report
are incorporated by reference. Copies of the Annual Report may be obtained by
calling 1-800-551-2145 or by writing M.S.D. & T. Funds, Inc., c/o BISYS Fund
Services, 3435 Stelzer Road, Columbus, Ohio 43219-3035.
-54-
<PAGE>
APPENDIX
--------
Commercial Paper Ratings
- ------------------------
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
"A-3" - Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
"B" - Issues are regarded as having only a speculative capacity for
timely payment.
"C" - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
"D" - Issues are in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers or related supporting institutions have a superior
capacity for repayment of senior short-term promissory obligations. Prime-1
repayment capacity will often be evidenced by the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins in earning 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.
A-1
<PAGE>
"Prime-2" - Issuers or related supporting institutions have a strong
ability for repayment of senior short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is
maintained.
"Prime-3" - Issuers or related supporting institutions have an
acceptable ability for repayment of senior short-term promissory obligations.
The effects of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses 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.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses 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.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issue as investment grade. Risk
A-2
<PAGE>
factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one
A-3
<PAGE>
year or less which are issued by United States commercial banks, thrifts and
non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as non-
investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations which posses a particularly strong credit feature
are supported by the highest capacity for timely repayment.
"A1" - Obligations are supported by the highest capacity for timely
repayment.
"A2" - Obligations are supported by a satisfactory capacity for timely
repayment.
"A3" - Obligations are supported by an adequate capacity for timely
repayment.
"B" - Obligations for which there is an uncertainty as to the capacity
to ensure timely repayment.
"C" - Obligations for which there is a high risk of default or which
are currently in default.
A-4
<PAGE>
Corporate and Municipal Long-Term Debt Ratings
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
A-5
<PAGE>
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating and is currently highly
vulnerable to nonpayment.
"C" - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no interest
is being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest-
only and principal-only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are
A-6
<PAGE>
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" represents a poor standing; "Ca" represents
obligations which are speculative in a high degree; and "C" represents the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates that the
rating is provisional pending delivery of the bonds. The rating may be revised
prior to delivery if changes occur in the legal documents or the underlying
credit quality of the bonds.
A-7
<PAGE>
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch for corporate and
municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong
A-8
<PAGE>
as bonds rated "AAA." Because bonds rated in the "AAA" and "AA" categories are
not significantly vulnerable to foreseeable future developments, short-term debt
of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB" - Bonds considered to be speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified, which
could assist the obligor in satisfying its debt service requirements.
"B" - Bonds are considered highly speculative. While securities in
this class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the instrument.
"CCC" - Bonds have certain identifiable characteristics that, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
"CC" - Bonds are minimally protected. Default in payments of interest
seems probable over time.
"C" - Bonds are in imminent default in payment of interest or
principal.
"DDD," "DD" and "D" - Bonds are in default on interest and/or
principal payments. Such securities are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest potential for
recovery on these securities, and "D" represents the lowest potential for
recovery.
A-9
<PAGE>
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating below
"AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued
A-10
<PAGE>
by United States commercial banks, thrifts and non-bank banks; non-United States
banks; and broker-dealers. The following summarizes the rating categories used
by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
Municipal Note Ratings
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
A-11
<PAGE>
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
---------------------------------
(a) Financial Statements:
(1)(a) Included in Part A: Financial Highlights for the Prime
Money Market Fund, Government Money Market Fund and
Tax-Exempt Money Market Fund for the fiscal years ended
May 31, 1997, 1996, 1995, 1994, 1993, 1992 and 1991 and
for the period from July 21, 1989 (commencement of
operations) to May 31, 1990; for the Tax-Exempt Money
Market Fund (Trust) for the fiscal years ended May 31,
1997, 1996, 1995, 1994, 1993, 1992 and 1991 and for the
period from July 25, 1989 (commencement of operations)
to May 31, 1990; for the Growth & Income (formerly
Value Equity) Fund for the fiscal years ended May 31,
1996, 1995, 1994, 1993 and 1992 and for the period from
February 28, 1991 (commencement of operations) to May
31, 1991; for the Limited Maturity Bond (formerly
Intermediate Fixed Income) Fund for the fiscal years
ended May 31, 1997, 1996, 1995, 1994, 1993 and 1992 and
for the period from March 14, 1991 (commencement of
operations) to May 31, 1991; for the Maryland Tax-
Exempt Bond Fund for the fiscal years ended May 31,
1997, 1996, 1995 and 1994 and for the period from June
2, 1992 (commencement of operations) to May 31, 1993;
and for the International Equity Fund for the fiscal
years ended May 31, 1997, 1996 and 1995 and for the
period from July 2, 1993 (commencement of operations)
to May 31, 1994.
(b) Included in Part B: Financial Statements included in
M.S.D. & T. Funds, Inc.'s Annual Reports to
Shareholders for the fiscal year ended May 31, 1997, as
previously filed with the Commission, are incorporated
herein by reference.
C-1
<PAGE>
(2) All required financial statements are included or
incorporated by reference into Parts A and B hereof.
All other financial statements and schedules are
inapplicable.
(b) Exhibits:
(1) (a) Articles of Incorporation of Registrant dated February
23, 1989 and recorded in the State of Maryland on March
7, 1989.
(b) Notice of Change of Resident Agent and Principal Office
Address, dated May 17, 1989.
(c) Articles Supplementary dated October 15, 1990 and
recorded in the State of Maryland on October 30, 1990.
(d) Articles Supplementary dated January 16, 1992 and
recorded in the State of Maryland on January 28, 1992.
(e) Articles Supplementary dated June 23, 1993 and recorded
in the State of Maryland on June 25, 1993.
(f) Articles Supplementary dated May 31, 1994 and recorded
in the State of Maryland on June 23, 1994.
(g) Articles Supplementary dated November 22, 1995 and
recorded in the State of Maryland on November 27, 1995.
(h) Articles Supplementary dated June 8, 1997 and recorded
in the State of Maryland on June 19, 1997.
(2) (a) Bylaws of Registrant.
(b) Amendment to Bylaws adopted April 23, 1990.
(c) Amendment to Bylaws adopted July 17, 1991.
(d) Amendment to Bylaws adopted January 22, 1996.
C-2
<PAGE>
(3) None.
(4) (a) See Article VI, Section 7.2 of Article VII, Article
VIII and Section 10.2 and 10.4 of Article X of the
Registrant's Articles of Incorporation filed herein as
Exhibit (1)(a).
(b) See Article I, Section 2.1 and 2.11 of Article II,
Article IV and Section 6.1 of Article VI of the
Registrant's Bylaws, as amended, filed herein as
Exhibits (2)(a), (2)(b), (2)(c) and (2)(d).
(5) (a) Advisory Agreement between Registrant and Mercantile-
Safe Deposit and Trust Company with respect to the
Prime, Government and Tax-Exempt Money Market Funds,
dated July 21, 1989.
(b) Advisory Agreement between Registrant and Mercantile-
Safe Deposit and Trust Company with respect to the Tax-
Exempt Money Market Fund (Trust), dated July 21, 1989.
(c) Advisory Agreement between Registrant and Mercantile-
Safe Deposit and Trust Company with respect to the
Growth & Income (formerly Value Equity) and Limited
Maturity Bond (formerly Intermediate Fixed Income)
Funds, dated November 13, 1990.
(d) Advisory Agreement dated February 3, 1992 between
Registrant and Mercantile-Safe Deposit and Trust
Company with respect to the Maryland Tax-Exempt Bond
Fund.
(e) Advisory Agreement dated June 29, 1993 between
Registrant and Mercantile-Safe Deposit and Trust
Company with respect to the International Equity Fund.
(f) Sub-Advisory Agreement dated as of March 19, 1996
between Mercantile-Safe Deposit and Trust Company and
CastleInternational Asset Management Limited with
respect to the International Equity Fund.
C-3
<PAGE>
(g) Form of Advisory Agreement between Registrant and
Mercantile-Safe Deposit and Trust Company with respect
to the Diversified Real Estate Fund dated July __,
1997.
(6) (a) Distribution Agreement between Registrant and The
Winsbury Company, dated October 1, 1993.
(b) Form of Amendment dated July __, 1997 to Schedule A of
Distribution Agreement between Registrant and BISYS
Fund Services (f/k/a The Winsbury Company).
(7) None.
(8) (a) Custody Agreement between Registrant and Fifth Third
Bank, dated May 28, 1993.
(b) Letter Agreement dated July 28, 1997 supplementing the
Custody Agreement between Registrant and Fifth Third
Bank.
(c) Custodian Contract dated June 29, 1993 between
Registrant and State Street Bank and Trust Company with
respect to the International Equity Fund.
(9) (a) Transfer Agency and Service Agreement dated as of
November 1, 1992 between Registrant and State Street
Bank and Trust Company.
(b) Letter Agreement dated June 29, 1993 supplementing the
Transfer Agency and Service Agreement between
Registrant and State Street Bank and Trust Company.
(c) Amendment No. 1 dated as of May 1, 1995 to Transfer
Agency and Service Agreement between Registrant and
State Street Bank and Trust Company.
(d) Form of Letter Agreement dated July __, 1997
supplementing the Transfer Agency and Service Agreement
between Registrant and State Street Bank and Trust
Company.
C-4
<PAGE>
(e) Administration Agreement between Registrant and
Mercantile-Safe Deposit & Trust Company, dated May 28,
1993.
(f) Form of Amendment dated July __, 1997 to Schedule A of
Administration Agreement between Registrant and
Mercantile-Safe Deposit and Trust Company.
(g) Fund Accounting Agreement between Registrant and The
Winsbury Service Corporation, dated October 1, 1993.
(h) Form of Amendment dated July __, 1997 to Schedules A
and B of the Fund Accounting Agreement between
Registrant and BISYS Fund Services Ohio, Inc. (f/k/a
The Winsbury Service Corporation).
(10) Opinion and Consent of counsel.
(11) (a) Consent of Coopers & Lybrand L.L.P.
(b) Consent of Drinker Biddle & Reath LLP
(12) None.
(13) (a) Purchase Agreement between Registrant and The Winsbury
Company dated May 28, 1993.
(b) Purchase Agreement between Registrant and BISYS Fund
Services Ohio, Inc. dated July 31, 1997.
(14) None.
(15) None.
(16) (a) Schedule for Computation of Performance Quotations with
respect to the Prime, Government and Tax-Exempt Money
Market Funds and the Tax-Exempt Money Market Fund
(Trust) is incorporated herein by reference to Exhibit
(16) of Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form N-1A, filed
on November 21, 1990.
(b) Schedule for Computation of Performance Quotations with
respect to the Growth
C-5
<PAGE>
& Income (formerly Value Equity) and Limited Maturity
Bond (formerly Intermediate Fixed Income) Funds is
incorporated herein by reference to Exhibit (16)(b) of
Post-Effective Amendment No. 5 to the Registrant's
Registration Statement on Form N-1A, filed on August
12, 1991.
(c) Schedule for Computation of Performance Quotations with
respect to the Maryland Tax-Exempt Bond Fund and
Limited Maturity Bond (formerly Intermediate Fixed
Income) Fund is incorporated herein by reference to
Exhibit 16(c) of Post-Effective Amendment No. 7 to the
Registrant's Statement on Form N-1A, filed on October
1, 1992.
(d) Schedule for Computation of Performance Quotations with
respect to the International Equity Fund is
incorporated herein by reference to Exhibit 16(d) of
Post-Effective Amendment No. 11 to the Registrant's
Statement on Form N-1A, filed on December 30, 1993.
(18) None.
(27) Financial Data Schedules.
Item 25. Persons Controlled by or under Common Control
with Registrant.
---------------------------------------------
Inapplicable.
C-6
<PAGE>
Item 26. Number of Holders of Securities.
-------------------------------
The following information is as of September 15, 1997.
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Class A Common Stock 3,092
Class B Common Stock 3,468
Class C Common Stock 386
Class D Common Stock 358
Class E Common Stock 4,234
Class F Common Stock 2,636
Class G Common Stock 101
Class H Common Stock 2,808
Class I Common Stock 0
Class J Common Stock 9
</TABLE>
Item 27. Indemnification.
---------------
Indemnification of Registrant's Adviser against certain losses is
provided for in Section 6 of the Advisory Agreement with respect to the Prime,
Government and Tax-Exempt Money Market Funds filed herein as Exhibit (5)(a),
Section 6 of the Advisory Agreement with respect to the Tax-Exempt Money Market
Fund (Trust) filed herein as Exhibit (5)(b), Section 6 of the Advisory Agreement
with respect to the Growth & Income (formerly Value Equity) and Limited Maturity
Bond (formerly Intermediate Fixed Income) Funds filed herein as Exhibit (5)(c),
Section 6 of the Advisory Agreement with respect to the Maryland Tax-Exempt Bond
Fund filed herein as Exhibit 5(d), Section 6 of the Advisory Agreement with
respect to the International Equity Fund filed herein as Exhibit (5)(e), and
Section 6 of the Advisory Agreement with respect to the Diversified Real Estate
Fund filed herein as Exhibit (5)(g). Indemnification of the Registrant's
Administrator is provided for in Section 4 of the Administration Agreement filed
herein as Exhibit (9)(d); and Indemnification of Registrant's principal
underwriter is provided for in Section 1.11 of the Distribution Agreement filed
herein as Exhibit (6). Section 7.3 of the Registrant's Articles of
Incorporation filed herein as Exhibit (1)(a) provides as follows:
(a) To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General
Corporation Law, no director or officer of the Corporation shall have
any liability to the Corporation or its stockholders for damages.
This limitation on liability applies to events occurring at the time a
person serves as a director or officer of the Corporation whether or
not such person is a
C-7
<PAGE>
director or officer at the time of any proceeding in which liability
is asserted.
(b) The Corporation shall indemnify and advance expenses to its
currently acting and its former directors to the fullest extent
permitted by the Maryland General Corporation Law. The Corporation
shall indemnify and advance expenses to its officers to the same
extent as its directors and to such further extent as is consistent
with law. The Board of Directors may by Bylaw, resolution, or
agreement make further provision for indemnification of directors,
officers, employees, and agents to the fullest extent permitted by the
Maryland General Corporation Law.
(c) No provision of this Article shall be effective to protect or
purport to protect any director or officer of the Corporation against
any liability to the Corporation or its security holders to which he
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved
in the conduct of his office.
(d) References to the Maryland General Corporation Law in this
Article are to the law as from time to time amended. No further
amendment to the Articles of Incorporation of the Corporation shall
affect any right of any person under this Article based on any event,
omission, or proceeding prior to such amendment.
Section 6.2 of the Registrant's Bylaws filed herein as Exhibit (2)(a)
provides further as follows:
Indemnification of Directors and Officers.
-----------------------------------------
(a) Indemnification. The Corporation shall indemnify its directors
---------------
to the fullest extent permitted by the Maryland General Corporation
Law. The Corporation shall indemnify its officers to the same extent
as its directors and to such further extent as is consistent with law.
The Corporation shall indemnify its directors and officers who while
serving as directors or officers also serve at the request of the
Corporation as a director, officer, partner, trustee, employee, agent,
or fiduciary of another corporation, partnership, joint venture,
trust, other enterprise, or employee benefit plan to the same extent
as its directors and, in the case of officers, to such further extent
as is consistent with law. This Article shall not protect any such
person against any liability to the Corporation or any stockholder
thereof to which
C-8
<PAGE>
such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office ("disabling conduct").
(b) Advances. Any current or former director or officer of the
--------
Corporation claiming indemnification within the scope of this Section
6.2 shall be entitled to advances from the Corporation for payment of
the reasonable expenses incurred by him in connection with the
proceedings to which he is a party in the manner and to the full
extent permissible under applicable state corporation laws, the
Securities Act of 1933 and the Investment Company Act of 1940, as such
statutes are now or hereafter in force.
(c) Procedures. On the request of any current or former director
----------
or officer requesting indemnification or an advance under this Section
6.2, the Board of Directors shall determine, or cause to be
determined, in a manner consistent with applicable state corporation
law, the Securities Act of 1933 and the Investment Company Act of
1940, as such statutes are now or hereafter in force, whether the
standards required by this Section 6.2 have been met.
(d) Other Rights. The indemnification provided by this Section 6.2
------------
shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such
indemnification may be entitled under any insurance or other
agreement, vote of stockholders or disinterested directors or
otherwise, both as to action by a director or officer of the
Corporation in his official capacity and as to action by such person
in another capacity while holding such office or position, and shall
continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators
of such a person.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers, and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant understands that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the
C-9
<PAGE>
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
Item 28. Business and Other Connections of
Investment Adviser.
---------------------------------
(a) Mercantile-Safe Deposit and Trust Company ("Merc-Safe"), the
Adviser, is a Maryland trust company providing a wide range of banking, trust,
and investment services.
To the knowledge of the Registrant, none of the directors or executive
officers of Merc-Safe, except those described below, are or have been, at any
time during the past two years, engaged in any other business, profession,
vocation, or employment of a substantial nature, except that certain directors
and executive officers of Merc-Safe also hold or have held various positions
with the bank and non-bank affiliates of Merc-Safe, including its parent,
Mercantile Bankshares Corporation. Set forth below are the names and principal
business of each director and officer of Merc-Safe who is, or at any time during
the past two fiscal years has been, engaged in any other business, profession,
vocation, or employment of a substantial nature.
<TABLE>
<CAPTION>
Position
with Other Business
Name Merc-Safe Connections Type of Business
- ------------ -------------- ------------------ ----------------
<S> <C> <C> <C>
H. Furlong Director, Director, Chairman Bank Holding
Baldwin Chairman of of the Board, and Company
the Board, and Chief Executive
Chief Executive Officer
Officer Mercantile Bankshares
Corporation
Two Hopkins Plaza
Baltimore, MD 21201
Director Electricity &
Baltimore Gas & Natural Gas
Electric Company
P.O. Box 1475
Baltimore, MD 21203
</TABLE>
C-10
<PAGE>
<TABLE>
<CAPTION>
Position
with Other Business
Name Merc-Safe Connections Type of Business
- ------------ -------------- ------------------ ----------------
<S> <C> <C> <C>
Director Freight Trans-
Consolidated Rail portation
Corporation
(CONRAIL)
6 Penn Center Plaza
Philadelphia, PA 19103
Director Manufacturing
GRC International, Inc.
1900 Gallows Road
Plaza 1900
Vienna, VA 22182
Director Insurance
U.S.F.& G. Corp., Inc.
P.O. Box 1138
Baltimore, MD 21203
Director Private Bank
OFFITBANK
Manhattan Tower
101 East 52nd Street
New York, NY 10022
Director Holding
Wills Group, Inc. Company
P.O. Box E Wholesale &
LaPlata, MD 20646 Retail
Petroleum
Products &
Convenience
Stores
Thomas M. Director Director Bank Holding
Bancroft, Jr. Mercantile Bankshares Company
Corporation
Two Hopkins Plaza
Baltimore, MD 21201
Former Chairman of the Racecourse
Board and Chief Management
Executive Officer
The New York Racing
Association, Inc.
P.O. Box 90
Jamaica, NY 11417
(prior to January 1990)
Director Manufacturing
VCOA and Distri-
P.O. Box 31 bution
Easton, PA 18042
</TABLE>
C-11
<PAGE>
<TABLE>
<CAPTION>
Position
with Other Business
Name Merc-Safe Connections Type of Business
---- --------- -------------- ----------------
<S> <C> <C> <C>
Richard O. Berndt Director Director Bank Holding
Mercantile Bankshares Company
Corporation
Two Hopkins Plaza
Baltimore, MD 21201
Partner Law Firm
Gallagher, Evelius
& Jones
The Park Charles Building
Suite 400
218 North Charles Street
Baltimore, MD 21201
Director Financing
Municipal Mortgage & Housing
Equity LLC Projects
Suite 500
218 N. Charles St.
Baltimore, MD 21201
James A. Block, Director Director Bank Holding
M.D. Mercantile Bankshares Company
Corporation
Two Hopkins Plaza
Baltimore, MD 21201
Former President Health Services
and Chief
Executive Officer
Johns Hopkins Health
System and The Johns
Hopkins Hospital
600 N. Wolfe Street
Baltimore, MD 21287
Director Insurance
MMI Companies, Inc.
540 Lake Cook Road
Deerfield, IL 60015-5290
William R. Brody, Director Director Bank Holding
M.D. Mercantile Bankshares Company
Corporation
Two Hopkins Plaza
Baltimore, MD 21201
President University
The Johns Hopkins
University
Charles & 34th St.
Baltimore, MD 21218
</TABLE>
C-12
<PAGE>
<TABLE>
<CAPTION>
Position
with Other Business
Name Merc-Safe Connections Type of Business
---- --------- -------------- ----------------
<S> <C> <C> <C>
Director Medical
ALZA Corporation Instruments
950 Page Mill Rd.
Palo Alto, CA
94303-0802
George L. Bunting, Director Director Bank Holding
Jr. Mercantile Bankshares Company
Corporation
Two Hopkins Plaza
Baltimore, MD 21201
President & Chief Private Financial
Executive Officer Management Company
Bunting Management
Group
Suite 350
9690 Deereco Road
Timonium, MD 21093
(Since July 1991)
Director Medical/Drugs
Guilford
Pharmaceaticals, Inc.
6611 Tributary St.
Baltimore, MD 21224
Director Insurance
U.S.F.& G. Corp., Inc.
P.O. Box 1138
Baltimore, MD 21203
Director Business Services
PHH Corporation
11333 McCormick Road
Hunt Valley, MD 21031
Director Oil Industry
Crown Central
Petroleum corp.
1 N. Charles Street
Baltimore, MD 21203
</TABLE>
C-13
<PAGE>
<TABLE>
<CAPTION>
Position
with Other Business
Name Merc-Safe Connections Type of Business
---- --------- -------------- ----------------
<S> <C> <C> <C>
Martin L. Grass Director Director Bank Holding
Mercantile Bankshares Company
Corporation
Two Hopkins Plaza
Baltimore, MD 21201
Chairman & Chief Drug Store
Executive Officer Chain
Rite-Aid Corporation
Camp Hill, PA
Director Wireless
Tessco Technologies, Equipment
Inc.
34 Loveton Circle
Sparks, MD 21152
Freeman A. Director Director Bank Holding
Hrabowski, III Mercantile Bankshares Company
Corporation
Two Hopkins Plaza
Baltimore, MD 21201
President University
University of
Maryland
Baltimore County
1000 Hilltop Circle
Baltimore, MD 21250
Director Electricity &
Baltimore Gas & Natural Gas
Electric Company
P.O. Box 1475
Baltimore, MD 21203
Director Insurance
Baltimore Equitable
Society
21 N. Eutaw St.
Baltimore, MD 21201
Director Specialty Foods/
McCormick & Company Spices
18 Loveton Circle
Sparks, MD 21152-6000
</TABLE>
C-14
<PAGE>
<TABLE>
<CAPTION>
Position
with Other Business
Name Merc-Safe Connections Type of Business
---- --------- -------------- ----------------
<S> <C> <C> <C>
Director Aerospace/Defense
UNC, Inc. Equipment
175 Admiral Cochran Dr.
Annapolis, MD 21401
B. Larry Jenkins Director Director Bank Holding
Mercantile Bankshares Company
Corporation
Two Hopkins Plaza
Baltimore, MD 21201
Director, Chairman Insurance
of the Board,
President and CEO
Monumental Life
Insurance Company
2 East Chase Street
Baltimore, MD 21202
Senior Vice President Insurance
of AEGON USA Inc.
2 East Chase Street
Baltimore, MD 21202
Robert A. Kinsley Director Director Bank Holding
Mercantile Bankshares Company
Corporation
Two Hopkins Plaza
Baltimore, MD 21201
Chief Executive Construction
Officer
Kinsley Construction
2700 Water St.
York, PA 17403-9306
Partner Construction
Various Construction
Ventures
Robert D. Director Director Bank Holding
Kunisch Mercantile Bankshares Company
Corporation
Two Hopkins Plaza
Baltimore, MD 21201
</TABLE>
C-15
<PAGE>
<TABLE>
<CAPTION>
Position
with Other Business
Name Merc-Safe Connections Type of Business
---- --------- -------------- ----------------
<S> <C> <C> <C>
Director, Chairman
of the Board, Business
President and Chief Services
Executive Officer
PHH Corporation
11333 McCormick Road
Hunt Valley, MD 21031
Director Transportation
CSX Corporation
1 James Center
901 East Carey Street
Richmond, VA 23219
Director Manufacturing
GenCorp Inc.
175 Ghent Rd.
Fairlawn, OH 44333
William J. Director Director Bank Holding
McCarthy Mercantile Bankshares Company
Corporation
Two Hopkins Plaza
Baltimore, MD 21201
Principal, William J. Law Firm
McCarthy, P.C., a
Partner, Venable,
Baetjer and Howard
Two Hopkins Plaza
Baltimore, MD 21201
Director, Chairman of Real Estate
the Board Development
Riparius Corporation and Services
375 Padonia Road West
Timonium, MD 21093
Director Distributor of
CRW Parts, Inc. Auto Parts
7601 Pulaski Highway
Baltimore, MD 21237
Morris W. Offit Director Director Bank Holding
Mercantile Bankshares Company
Corporation
Two Hopkins Plaza
Baltimore, MD 21201
</TABLE>
C-16
<PAGE>
<TABLE>
<CAPTION>
Position
with Other Business
Name Merc-Safe Connections Type of Business
---- --------- -------------- ----------------
<S> <C> <C> <C>
Director Medical
Cantel Industries, Products
Inc.
1135 Broad Street
Clifton, NJ 07013
Chairman of the Board Private Bank
and Chief Executive
Officer
OFFITBANK
Manhattan Tower
101 East 52nd Street
New York, NY 10022
Director Toy
Hasbro, Inc. Manufacturer
P.O. Box 1059
1027 Newport Ave.
Pawtucket, RI 02862-1059
Christian H. Director Director Bank Holding
Poindexter Mercantile Bankshares Company
Corporation
Two Hopkins Plaza
Baltimore, MD 21201
Director and Chairman Electricity &
of the Board and Natural Gas
Chief Executive
Officer
Baltimore Gas &
Electric Company
and Subsidiaries
P.O. Box 1475
Baltimore, MD 21203
J. Marshall Reid Director, President & None
Chief Operating Officer
William C. Director Director Bank Holding
Richardson Mercantile Bankshares Company
Corporation
Two Hopkins Plaza
Baltimore, MD 21201
President and Chief Foundation
Executive Officer
W.K. Kellogg Foundation
One Michigan Avenue, East
Battle Creek, MI 49017
</TABLE>
C-17
<PAGE>
<TABLE>
<CAPTION>
Position
with Other Business
Name Merc-Safe Connections Type of Business
---- --------- -------------- ----------------
<S> <C> <C> <C>
Director Transportation
CSX
1 James Center
901 East Carey Street
Richmond, VA 23219
Donald J. Shepard Director Director Bank Holding
Mercantile Bankshares Company
Corporation
Two Hopkins Plaza
Baltimore, MD 21201
Chairman of the Board, Insurance
President and Chief
Executive Officer
AEGON USA Inc.
2 East Chase Street
Baltimore, MD 21202
Member of the Insurance
Executive Board
AEGON, N.V.
2 East Chase Street
Baltimore, MD 21202
Director Business Services
PHH Corporation
11333 McCormick Road
Hunt Valley, MD 21031
Director Insurance
Health Insurance
Association of
America
555 13th Street, N.W.
Washington, DC 20004
Director Insurance
Scottish Equitable PLC
28 St. Andrews Square
Edinborough, Scotland
EH21YF
Brian B. Topping Director Director Insurance
and Vice Fidelity & Deposit Co.
Chairman of Maryland
of the 300 St. Paul Place
Board Baltimore, MD 21202
</TABLE>
C-18
<PAGE>
<TABLE>
<CAPTION>
Position
with Other Business
Name Merc-Safe Connections Type of Business
---- --------- -------------- ----------------
<S> <C> <C> <C>
Calman J. Director Director Bank Holding
Zamoiski, Jr. Mercantile Bankshares Company
Corporation
Two Hopkins Plaza
Baltimore, MD 21201
Chairman of the Board Wholesale
Independent Distribu- Distributor
tors, Incorporated
3000 Waterview Avenue
Baltimore, MD 21230
Kenneth A. Executive Director Bank
Bourne, Jr. Vice Potomac Valley Bank
President 702 Russell Avenue
Gaithersburg, MD 20877
Hugh W. Mohler Executive Director Bank
Vice The Citizens National
President Bank
4th & Main Street
Laurel, MD 20707
Jack K. Steil Chairman None
of Credit
Policy
Terry L. Troupe Executive Executive Bank Holding
Vice Vice President Company
President Mercantile Bankshares
Corporation
Two Hopkins Plaza
Baltimore, MD 21201
Malcolm C. Wilson Executive None
Vice
President
</TABLE>
C-19
<PAGE>
<TABLE>
<CAPTION>
Position
with Other Business
Name Merc-Safe Connections Type of Business
---- --------- -------------- ----------------
<S> <C> <C> <C>
Frederica B. Vice None
Baxter President
and
Treasurer
Alan D. Yarbro General General Counsel Bank Holding
Counsel and Secretary Company
and Mercantile Bankshares
Secretary Corporation
Two Hopkins Plaza
Baltimore, MD 21201
</TABLE>
(b) CastleInternational Asset Management Limited
("CastleInternational") serves as sub-adviser to the International Equity Fund.
CastleInternational is a U.K. Corporation and a member of the Investment
Management Regulatory Organization ("IMRO") and regulated by IMRO in the conduct
of its affairs. The information required by this Item 28 with respect to each
director and officer of CastleInternational is incorporated herein by reference
to Form ADV and Schedules A and D filed by CastleInternational with the
Securities and Exchange Commission (File No. 801-51087).
Item 29. Principal Underwriter.
---------------------
(a) BISYS Fund Services ("BISYS") acts as distributor for Registrant.
BISYS and its affiliates currently serve as distributor of American Performance
Funds, AmSouth Mutual Funds, The ARCH Fund, Inc., The BB&T Mutual Funds Group,
The Coventry Group, Empire Builder Tax Free Bond Fund, First Choice Funds Trust,
Fountain Square Funds, Hirtle Callaghan Trust, HSBC Family of Funds, The
Infinity Mutual Funds, Inc., Intrust Funds, The Kent Funds, Magna Funds,
Marketwatch Funds, Meyers Investment Trust, Minerva Funds, MMA Praxis Mutual
Funds, Pacific Capital Funds, Parkstone Group of Funds, The Parkstone Advantage
Funds, Pegasus Funds, Qualivest Funds, The Republic Funds Trust, The Republic
Advisors Funds Trust, The Riverfront Funds, Inc., SBSF Funds, Inc. dba Key
Mutual Funds, Sefton Funds, The Sessions Group, Summit Investment Trust,
Variable Insurance Funds and The Victory Portfolios, each of which is a
management investment company.
(b) To the best of Registrant's knowledge, the partners of BISYS are
as follows:
C-20
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and
Business Positions and Offices with
Address Offices with BISYS Registrant
- ------------------------- ------------------ -------------
<S> <C> <C>
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, OH 43219-3035
WC Subsidiary Corporation Sole Limited Partner None
3435 Stelzer Road
Columbus, OH 43219-3035
</TABLE>
(c) None.
Item 30. Location of Accounts and Records.
--------------------------------
All accounts, books, and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules thereunder
will be maintained at the offices of:
Mercantile-Safe Deposit and Trust Company
Two Hopkins Plaza
Baltimore, Maryland 21201
(records relating to its functions as investment adviser and as
administrator)
CastleInternational Asset Management Limited
125 S. Wacker Drive, Suite 300
Chicago, IL 60606
and
7 Castle Street
Edinburgh, Scotland EH3 3AM
(records relating to its functions as sub-adviser to
Registrant's International Equity Fund)
Fifth Third Bank
Fifth Third Center
Cincinnati, Ohio 45263
(records relating to its functions as custodian)
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
(records relating to its functions as transfer agent and dividend
disbursing agent)
C-21
<PAGE>
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219-3035
(records relating to its functions as fund accounting agent)
State Street Bank and Trust Company
One Heritage Drive, P4N
North Quincy, MA 02171
(records relating to its functions as custodian with respect to the
International Equity Fund)
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035
(records relating to its functions as distributor)
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Suite 1100
Philadelphia, Pennsylvania 19107-3496
(registrant's Articles of Incorporation, Bylaws and
minute books)
Item 31. Management Services.
-------------------
None.
Item 32. Undertakings.
------------
Registrant hereby undertakes to provide its Annual Report to
Shareholders upon request and without charge to any person to whom a Prospectus
for any of its Funds is delivered.
Registrant hereby undertakes to file a post-effective amendment with
respect to the Diversified Real Estate Fund, using financial statements which
need not be certified, within four to six months from the effective date of
Registrant's Registration Statement pertaining to such Fund.
C-22
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, M.S.D. & T. Funds, Inc. certifies that it meets
all of the requirements for effectiveness for this Post-Effective Amendment No.
19 to its Registration Statement pursuant to Rule 485(b) under the 1933 Act and
has duly caused this Post-Effective Amendment No. 19 to its Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Baltimore and the State of Maryland, on the 26th
day of September, 1997.
M.S.D. & T. FUNDS, INC.
(Registrant)
/s/* Leslie B. Disharoon
------------------------
Leslie B. Disharoon
President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 19 to Registrant's Registration Statement on Form N-1A
has been signed below by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/* Leslie B. Disharoon Chairman of the September 26, 1997
- --------------------------- Board and President
Leslie B. Disharoon
/s/* Decatur H. Miller Director and Treasurer September 26, 1997
- --------------------------- (Principal Financial
Decatur H. Miller and Accounting Officer)
/s/* John R. Murphy Director September 26, 1997
- ---------------------------
John R. Murphy
/s/* George R. Packard, III Director September 26, 1997
- ---------------------------
George R. Packard, III
/s/* J. Stevenson Peck Director September 26, 1997
- ---------------------------
J. Stevenson Peck
</TABLE>
*By: /s/ Linda A. Durkin
--------------------
Linda A. Durkin
Attorney-in-fact
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
(1)(a) Articles of Incorporation of Registrant dated February 23,
1989 and recorded in the State of Maryland on March 7, 1989
(1)(b) Notice of Change of Resident Agent and Principal Office
Address, dated May 17, 1989
(1)(c) Articles Supplementary dated October 15, 1990 and
recorded in the State of Maryland on October 30, 1990
(1)(d) Articles Supplementary dated January 16, 1992 and
recorded in the State of Maryland on January 28, 1992
(1)(e) Articles Supplementary dated June 23, 1993 and
recorded in the State of Maryland on June 25, 1993
(1)(f) Articles Supplementary dated May 31, 1994 and
recorded in the State of Maryland on June 23, 1994
(1)(g) Articles Supplementary dated November 22, 1995 and
recorded in the State of Maryland on November 27,
1995
(1)(h) Articles Supplementary dated June 8, 1997 and
recorded in the State of Maryland on June 19, 1997
(2)(a) Bylaws of Registrant
(2)(b) Amendment to Bylaws adopted on April 23, 1990
(2)(c) Amendment to Bylaws adopted on July 17, 1991
(2)(d) Amendment to Bylaws adopted January 22, 1996
(5)(a) Advisory Agreement between Registrant and Mercantile-Safe
Deposit and Trust Company with respect to the Prime,
Government and Tax-Exempt Money Market Funds, dated July 21,
1989
(5)(b) Advisory Agreement between Registrant and Mercantile-Safe
Deposit and Trust Company with respect to the Tax-Exempt
Money Market Fund (Trust), dated July 21, 1989
(5)(c) Advisory Agreement between Registrant and Mercantile-Safe
Deposit and Trust Company with respect to the Growth &
Income (formerly Value Equity) and Limited Maturity Bond
(formerly Intermediate Fixed Income) Funds, dated
November 13, 1990
(5)(d) Advisory Agreement dated February 3, 1992 between Registrant
and Mercantile-Safe Deposit and Trust Company with respect
to the Maryland Tax-Exempt Bond Fund
(5)(e) Advisory Agreement dated June 29, 1993 between Registrant
and Mercantile-Safe Deposit and Trust Company with respect
to the International Equity Fund
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(5)(f) Sub-Advisory Agreement dated June 29, 1993 between
Registrant and Mercantile-Safe Deposit and Trust Company and
Dunedin Fund Managers Ltd. with respect to the International
Equity Fund
(5)(g) Form of Advisory Agreement between Registrant and
Mercantile-Safe Deposit and Trust Company with respect to
the Diversified Real Estate Fund.
(6)(a) Distribution Agreement between Registrant and The Winsbury
Company, dated October 1, 1993
(6)(b) Form of Amendment to Distribution Agreement between
Registrant and BISYS Fund Services (f/k/a The Winsbury
Company) with Respect to the Diversified Real Estate Fund
(8)(a) Custody Agreement dated June 29, 1993 between
Registrant and Fifth Third Bank, dated May 28, 1993
(8)(b) Letter Agreement supplementing the Custody Agreement between
Registrant and Fifth Third Bank with Respect to the
Diversified Real Estate Fund
(8)(c) Custodian Contract dated June 29, 1993 between Registrant
and State Street Bank and Trust Company with respect to the
International Equity Fund
(9)(a) Transfer Agency and Service Agreement dated as of November
1, 1992 between Registrant and State Street Bank and Trust
Company
(9)(b) Letter Agreement dated June 29, 1993 supplementing the
Transfer Agency and Service Agreement between Registrant and
State Street Bank and Trust Company
(9)(c) Amendment No. 1 dated as of May 1, 1995 to Transfer Agency
and Service Agreement between Registrant and State Street
Bank and Trust Company
(9)(d) Form of Amendment to Transfer Agency and Service Agreement
between Registrant and State Street Bank and Trust Company
with respect to the Diversified Real Estate Fund
(9)(e) Administration Agreement between Registrant and Mercantile-
Safe Deposit and Trust Company dated May 28, 1993
(9)(f) Form of Amendment to Schedule A of the Administration Agreement
between Registrant and Mercantile-Safe Deposit and Trust Company
(9)(g) Fund Accounting Agreement between Registrant and The
Winsbury Service Corporation, dated October 1, 1993
(9)(h) Form of Amendment to Schedule A and B of the Fund Accounting
Agreement between Registrant and BISYS Fund Services Ohio, Inc.
(f/k/a The Winsbury Service Corporation)
(11)(a) Consent of Coopers & Lybrand, L.L.P.
(11)(b) Consent of Drinker Biddle & Reath LLP
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(13)(a) Purchase Agreement between Registrant and The Winsbury
Company dated May 28, 1993
(13)(b) Agreement between Registrant and BISYS Fund Services Ohio, Inc.
dated July 31, 1997 with respect to the Diversified Real Estate Fund
</TABLE>
<PAGE>
ARTICLES OF INCORPORATION
OF
M.S.D. & T. FUNDS, INC.
* * * *
ARTICLE I
SECTION 1.1. THE UNDERSIGNED, Robert J. Schneider, whose post office
address is 1100 Philadelphia National Bank Building, Philadelphia, Pennsylvania
19107, being at least eighteen years of age, does hereby act as an incorporator,
under and by virtue of the General Laws of the State of Maryland authorizing the
formation of corporations and with the intention of forming a corporation.
ARTICLE II
SECTION 2.1. The name of the Corporation is:
M.S.D. & T. FUNDS, INC.
ARTICLE III
SECTION 3.1. The purpose for which the Corporation is formed is to
act as management investment company under the Investment Company Act of 1940.
ARTICLE IV
SECTION 4.1. The Corporation is expressly empowered as follows:
(a) To hold, invest, and reinvest its assets in securities and other
investments or to hold part or all of its assets in cash.
(b) To issue and sell shares of its capital stock in such amounts and
on such terms and conditions and for such purposes and for such amount or kind
of consideration as may now or hereafter be permitted by law.
(c) To redeem, purchase, or otherwise acquire, hold, dispose of,
resell, transfer, reissue, or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its capital stock, in any manner and
to
<PAGE>
the extent now or hereafter permitted by law and by the Charter of the
Corporation.
(d) To enter into a written contract or contracts with any person or
persons providing for a delegation of the management of all or part of the
Corporation's securities portfolios and also for the delegation of the
performance of various administrative or corporate functions, subject to the
direction of the Board of Directors. Any such contract or contracts may be made
with any person even though such person may be an officer, other employee,
director, or stockholder of this Corporation or a corporation, partnership,
trust, or association in which any such officer, other employee, director, or
stockholder may be interested.
(e) To enter into a written contract or contracts appointing one or
more distributors or agents or both for the sale of the shares of the
Corporation on such terms and conditions as the Board of Directors of this
Corporation may deem reasonable and proper, and to allow such person or persons
a commission on the sale of such shares. Any such contract or contracts may be
made with any person even though such person may be an officer, other employee,
director, or stockholder of this Corporation or a corporation, partnership,
trust, or association in which any such officer, other employee, director, or
stockholder may be interested.
(f) To enter into a written contract or contracts employing such
custodian or custodians for the safekeeping of the property of the Corporation
and of its shares, such dividend disbursing agent or agents, and such transfer
agent or agents and registrar or registrars for its shares, on such terms and
conditions as the Board of Directors of the Corporation may deem reasonable and
proper for the conduct of the affairs of the Corporation, and to pay the fees
and disbursements of such custodians, dividend disbursing agents, transfer
agents, and registrars out of the income and/or any other property of the
Corporation. Notwithstanding any other provision of these Articles of
Incorporation or the Bylaws of the Corporation, the Board of Directors may cause
any or all of the property of the Corporation to be transferred to, or to be
acquired and held in the name of, any custodian so appointed or any nominee or
nominees of the Corporation or nominee or nominees of such custodian
satisfactory to the Board of Directors.
(g) To employ the same person in any multiple capacity under Section
4.1 (d), (e), and (f) who may receive compensation from the Corporation in as
many capacities in which such person shall serve the Corporation.
(h) To do any and all such further acts or things and to exercise any
and all such further powers or rights as may
-2-
<PAGE>
be necessary, incidental, relative, conducive, appropriate, or desirable for the
accomplishment, carrying out, or attainment of the purposes stated in Article
III hereof.
The Corporation shall be authorized to exercise and enjoy all of the
powers, rights, and privileges granted to, or conferred upon, corporations by
the General Laws of the State of Maryland now or hereafter in force, and the
enumeration of the foregoing shall not be deemed to exclude any powers, rights,
or privileges so granted or conferred.
ARTICLE V
SECTION 5.1. The post office address of the principal office of the
Corporation in the State of Maryland is c/o Mercantile-Safe Deposit & Trust
Company, Two Hopkins Plaza, Baltimore, Maryland 21201. The name of the resident
agent of the Corporation in this State is Mercantile-Safe Deposit & Trust
Company, a corporation of this State, and the post office address of the
resident agent is Two Hopkins Plaza, Baltimore, Maryland 21201.
ARTICLE VI
SECTION 6.1. The total number of shares of capital stock which the
Corporation shall have authority to issue is Four Billion (4,000,000,000)
shares, of the par value of One Mill ($0.001) per share and of the aggregate par
value of Four Million Dollars ($4,000,000.00).
SECTION 6.2. The Corporation may issue fractional shares. Any
fractional share shall carry proportionately all the rights of a whole share,
excepting any right to receive a certificate evidencing such fractional share,
but including, without limitation, the right to vote and the right to receive
dividends.
SECTION 6.3. All persons who shall acquire stock in the Corporation
shall acquire the same subject to the provisions of the Charter and the Bylaws
of the Corporation.
SECTION 6.4. Except to the extent otherwise provided by applicable
law, the Board of Directors shall have authority by resolution to classify and
reclassify any authorized but unissued shares of capital stock from time to time
by setting or changing in any one or more respects the preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of the capital stock. The
power of the Board of Directors to classify or reclassify any of the shares of
capital stock shall include,
-3-
<PAGE>
without limitation, authority to classify or reclassify any such stock into one
or more classes and to divide and classify shares of any class into one or more
series of such class.
Subject to the Board of Directors' authority to classify and
reclassify any authorized but unissued shares as hereinabove provided, Seven
Hundred Million (700,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Seven Hundred Thousand Dollars ($700,000.00)) are
classified and designated as Class A Common Stock, Seven Hundred Million
(700,000,000) shares of capital stock of the Corporation (of the aggregate par
value of Seven Hundred Thousand Dollars ($700,000.00)) are classified and
designated as Class B Common Stock, Seven Hundred Million (700,000,000) shares
of capital stock of the Corporation (of the aggregate par value of Seven Hundred
Thousand Dollars ($700,000.00)) are classified and designated as Class C Common
Stock, and Seven Hundred Million (700,000,000) shares of capital stock of the
Corporation (of the aggregate par value of Seven Hundred Thousand Dollars
($700,000,000)) are classified and designated as Class D Common Stock.
SECTION 6.5. Subject to the power of the Board of Directors to
classify and reclassify any authorized but unissued shares of capital stock
pursuant to Section 6.4, shares of capital stock of the Corporation shall have
the following preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption:
(a) Assets Belonging to a Class. All consideration received by the
---------------------------
Corporation for the issue or sale of stock of any class of capital stock,
together with all income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange, or liquidation thereof, any funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be, and any general assets of the Corporation not belonging to any
particular class which the Board of Directors may, in its sole discretion,
allocate to a class, shall irrevocably belong to the class of shares of capital
stock with respect to which such assets, payments or funds were received or
allocated for all purposes, subject only to the rights of creditors, and shall
be so handled upon the books of account of the Corporation. Such assets,
income, earnings, profits, and proceeds thereof, including any proceeds derived
from the sale, exchange, or liquidation thereof, and any assets derived from any
reinvestment of such proceeds in whatever form, are herein referred to as
"assets belonging to" such class.
(b) Liabilities Belonging to a Class. The assets belonging to any
--------------------------------
class of capital stock shall be charged with the liabilities in respect to such
class, and shall also be charged
-4-
<PAGE>
with such class's proportionate share of the general liabilities of the
Corporation as determined by comparing, before the allocation of the general
liabilities of the Corporation, the net asset value of such class with the
aggregate net asset value of all of the several classes of capital stock of the
Corporation. The liabilities so allocated to a class are herein referred to as
"liabilities belonging to" such class.
(c) Dividends and Distributions. Shares of each class of capital
---------------------------
stock shall be entitled to such dividends and distributions, in stock or in cash
or both, as may be declared from time to time by the Board of Directors, acting
in its sole discretion, with respect to such class; provided, however, that
dividends and distributions on shares of a class of capital stock shall be paid
only out of the lawfully available assets belonging to such class as such phrase
is defined in Section 6.5(a).
(d) Liquidating Dividends and Distributions. In the event of the
---------------------------------------
liquidation or dissolution of the Corporation, stockholders of each class of
capital stock shall be entitled to receive, as a class, out of the assets of the
Corporation available for distribution to stockholders, but other than general
assets not belonging to any particular class of stock, the assets belonging to
such class; and the assets so distributable to the stockholders of any class of
capital stock shall be distributed among such stockholders in proportion to the
number of shares of such class held by them and recorded on the books of the
Corporation. In the event that there are any general assets of the Corporation
not belonging to any particular class of stock and available for distribution,
the stockholders of each class of the Corporation's capital stock shall receive
a proportionate share of such general assets as determined by comparing, before
the allocation of such general assets, the net asset value of such class with
the aggregate net asset value of all of the several classes of capital stock of
the Corporation.
(e) Voting. Each stockholder of each class of capital stock shall be
------
entitled to one vote for each share of capital stock, irrespective of the class,
then standing in his name on the books of the Corporation, and on any matter
submitted to a vote of stockholders, all shares of capital stock then issued and
outstanding and entitled to vote shall be voted in the aggregate and not by
class except that: (i) when expressly required by law, shares of capital stock
shall be voted by individual class; and (ii) only shares of capital stock of the
respective class or classes affected by a matter shall be entitled to vote on
such matter.
(f) Redemption. To the extent the Corporation has funds or other
----------
property legally available therefor, each holder of shares of capital stock of
the Corporation shall be entitled to require the Corporation to redeem all or
any part of the
-5-
<PAGE>
shares of capital stock of the Corporation standing in the name of such holder
on the books of the Corporation, and all shares of capital stock issued by the
Corporation shall be subject to redemption by the Corporation, at the redemption
price of such shares as in effect from time to time and in the manner determined
by the Bylaws or the Board of Directors of the Corporation in accordance with
the provisions hereof, subject to the right of the Board of Directors of the
Corporation to suspend the right of redemption of shares of capital stock of the
Corporation or postpone the date of payment of such redemption price in
accordance with provisions of applicable law. Without limiting the generality
of the foregoing, the Corporation shall, to the extent permitted by applicable
law, have the right at any time to redeem the shares owned by any holder of
capital stock of the Corporation (i) if such redemption is, in the opinion of
the Board of Directors of the Corporation, desirable in order to prevent the
Corporation from being deemed a "personal holding company" within the meaning of
the Internal Revenue Code of 1954, as amended, (ii) if the value of such shares
in the account maintained by the Corporation or its transfer agent for any class
of capital stock is less than Five Hundred Dollars ($500.00); provided, however,
that each stockholder shall be notified that the value of his account is less
than Five Hundred Dollars ($500.00) and allowed thirty (30) days to make
additional purchases of shares before such redemption is processed by the
Corporation, or (iii) if it should be appropriate to carry out the Corporation's
responsibilities under the investment Company Act of 1940, as amended, subject
to such further terms and conditions as the Board of Directors of the
Corporation may from time to time adopt. The redemption price of shares of any
class of capital stock of the Corporation shall, except as otherwise provided in
this Section 6.5(f), be the net asset value thereof as determined by the Board
of Directors of the Corporation from time to time in accordance with the
provisions of applicable law, less such redemption fee or other charge, if any,
as may be fixed by resolution of the Board of Directors of the Corporation.
Payment of the redemption price shall be made in cash by the Corporation at such
time and in such manner as may be determined from time to time by the Board of
Directors of the Corporation unless, in the opinion of the Board of Directors,
which shall be conclusive, conditions exist which make payment wholly in cash
unwise or undesirable; in such event the Corporation may make payment wholly or
partly by securities or other property included in the assets belonging or
allocable to the class of the shares redemption of which is being sought, the
value of which shall be determined as provided herein. When the net income with
respect to any particular class of capital stock is negative or whenever deemed
appropriate by the Board of Directors in order to carry out the Corporation's
responsibilities under the Investment, Company Act of 1940, as amended, the
Corporation may, without payment of monetary compensation but in consideration
of the interest of the Corporation and the stockholders in maintaining a
-6-
<PAGE>
constant net asset value per share of such class, redeem pro rata from each
stockholder of record on such day, such number of full and fractional shares of
the Corporation's capital stock of such class, as may be necessary to reduce the
aggregate number of outstanding shares in order to permit the net asset value
thereof to remain constant.
(g) Conversion. Each holder of any class of capital stock of the
----------
Corporation, who surrenders his share certificate in good delivery form to the
Corporation or, if the shares in question are not represented by certificates,
who delivers to the Corporation a written request in good order signed by the
stockholder, shall, to the extent permitted by the Bylaws or by resolution of
the Board of Directors, be entitled to convert the shares in question on the
basis hereinafter set forth, into shares of any other class of capital stock of
the Corporation with respect to which conversion is permitted by applicable law.
The Corporation shall determine the net asset value, as provided herein, of the
shares to be converted and may deduct therefrom a conversion cost, in an amount
determined within the discretion of the Board of Directors. Within five (5)
business days after such surrender and payment of any conversion cost, the
Corporation shall issue to the stockholder such number of shares of stock of the
class desired as, taken at the net asset value thereof determined as provided
herein in the same manner and at the same time as that of the shares
surrendered, shall equal the net asset value of the shares surrendered, less any
conversion cost as aforesaid. Any amount representing a fraction of a share may
be paid in cash at the option of the Corporation. Any conversion cost may be
paid and/or assigned by the Corporation to the underwriter and/or to any other
agency, as it may elect.
(h) Restrictions on Transferability. If, in the opinion of the Board
-------------------------------
of Directors of the Corporation, concentration in the ownership of shares of
capital stock might cause the Corporation to be deemed a personal holding
company within the meaning of the Internal Revenue Code, as now or hereafter in
force, the Corporation may at any time and from time to time refuse to give
effect on the books of the Corporation to any transfer or transfers of any share
or shares of capital stock in an effort to prevent such personal holding company
status.
(i) Termination of a Class. To the full extent permitted by
----------------------
applicable law, the Corporation may, without the vote of the shares of any class
of capital stock of the Corporation then outstanding and if so determined by the
Board of Directors:
(1) Sell and convey the assets belonging to a class of capital
stock to another trust or corporation that is a management investment
company (as defined in the Investment Company Act of 1940) and is organized
under the
-7-
<PAGE>
laws of any state of the United States for consideration which may include
the assumption of all outstanding obligations, taxes and other liabilities,
accrued or contingent, belonging to such class and which may include
securities issued by such trust or corporation. Following such sale and
conveyance, and after making provision for the payment of any liabilities
belonging to such class that are not assumed by the purchaser of the assets
belonging to such class, the Corporation may, at its option, redeem all
outstanding shares of such class at the net asset value thereof as
determined by the Board of Directors in accordance with the provisions of
applicable law, less such redemption fee or other charge, if any, as may be
fixed by resolution of the Board of Directors. Notwithstanding any other
provision of the Charter of the Corporation to the contrary, the redemption
price may be paid in any combination of cash or other assets belonging to
the class, including but not limited to the distribution of the securities
or other consideration received by the Corporation for the assets belonging
to such class upon such conditions as the Board of Directors deems, in its
sole discretion, to be appropriate consistent with applicable law and the
Charter of the Corporation;
(2) Sell and convert the assets belonging to a class of capital
stock into money and, after making provision for the payment of all
obligations, taxes and other liabilities, accrued or contingent, belonging
to such class, the Corporation may, at its option, (i) redeem all
outstanding shares of such class at the net asset value thereof as
determined by the Board of Directors in accordance with the provisions of
applicable law, less such redemption fee or other charge, if any, as may be
fixed by resolution of the Board of Directors upon such conditions as the
Board of Directors deems, in its sole discretion, to be appropriate
consistent with applicable law and the Charter of the Corporation, or (ii)
combine the assets belonging to such class following such sale and
conversion with the assets belonging to any one or more other classes of
capital stock of the Corporation pursuant to and in accordance with Section
6.5(i)(3); or
(3) Combine the assets belonging to a class of capital stock with
the assets belonging to any one or more other classes of capital stock of
the Corporation if the Board of Directors reasonably determines that such
combination will not have a material adverse effect on the stockholders of
any class of capital stock of the Corporation participating in such
combination. In connection with any such combination of assets the shares
of any class of capital stock of the Corporation then outstanding may, if
so determined by the Board of Directors,
-8-
<PAGE>
be converted into shares of any other class or classes of capital stock of
the Corporation with respect to which conversion is permitted by applicable
law, or may be redeemed, at the option of the Corporation, at the net asset
value thereof as determined by the Board of Directors in accordance with
the provisions of applicable law, less such redemption fee or other charge,
or conversion cost, if any, as may be fixed by resolution of the Board of
Directors upon such conditions as the Board of Directors deems, in its sole
discretion, to be appropriate consistent with applicable law and the
Charter of the Corporation. Notwithstanding any other provision of these
Articles of Incorporation to the contrary, any redemption price, or part
thereof, paid pursuant to this Section 6.5(i)(3) may be paid in shares of
any other existing or future class or classes of capital stock of the
Corporation.
ARTICLE VII
SECTION 7.1. The number of initial directors of the Corporation shall
be one (1) provided that: (a) the number of directors of the Corporation may be
increased or decreased pursuant to the Bylaws of the Corporation but shall never
be less than three (3), except as provided in this Article VII; (b) if there is
no capital stock of the Corporation outstanding the number of directors may be
less than three (3) but not less than one (1); and (c) if there is capital stock
of the Corporation outstanding and so long as there are less than three (3)
stockholders of the Corporation, the number of directors may be less than three
(3) but not less than the number of stockholders. The name of the director who
shall act until the first annual meeting of stockholders or until his successor
is duly elected and qualified is:
Stephen Cavan
SECTION 7.2. No holder of stock of the Corporation shall, as such
holder, have any right to purchase or subscribe for any shares of the capital
stock of the Corporation or any other security of the Corporation which it may
issue or sell (whether out of the number of shares authorized by the Charter, or
out of any shares of the capital stock of the Corporation acquired by it after
the issue thereof, or otherwise) other than such right, if any, as the Board of
Directors, in its discretion, may determine.
SECTION 7.3. (a) To the fullest extent that limitations on the
liability of directors and officers are permitted by the Maryland General
Corporation Law, no director or officer of the Corporation shall have any
liability to the Corporation or its stockholders for damages. This limitation
on
-9-
<PAGE>
liability applies to events occurring at the time a person serves as a director
or officer of the Corporation whether or not such person is a director or
officer at the time of any proceeding in which liability is asserted.
(b) The Corporation shall indemnify and advance expenses to its
currently acting and its former directors to the fullest extent permitted by the
Maryland General Corporation Law. The Corporation shall indemnify and advance
expenses to its officers to the same extent as its directors and to such further
extent as is consistent with law. The Board of Directors may by Bylaw,
resolution, or agreement make further provision for indemnification of
directors, officers, employees, and agents to the fullest extent permitted by
the Maryland General Corporation Law.
(c) No provision of this Article shall be effective to protect or
purport to protect any director or officer of the Corporation against any
liability to the Corporation or its security holders to which he would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
(d) References to the Maryland General Corporation Law in this Article
are to the law as from time to time amended. No further amendment to the
Articles of Incorporation of the Corporation shall affect any right of any
person under this Article based on any event, omission, or proceeding prior to
such amendment.
ARTICLE VIII
SECTION 8.1. Any determination made in good faith by or pursuant to
the direction of the Board of Directors as to the amount and value of assets,
obligations, or liabilities of the Corporation, as to the amount of net income
of the Corporation for any period or amounts at any time legally available for
the payment of dividends, as to the amount of any reserves or charges set up and
the propriety thereof, as to the time of or purpose for creating reserves or as
to the use, alteration or cancellation of any reserves or charges (whether or
not any obligation or liability for which such reserves or charges shall have
been created, shall have been paid or discharged or shall be then or thereafter
required to be paid or discharged), as to the value of any security owned by the
Corporation, as to the allocation of any assets or liabilities to a class or
classes of capital stock, as to the times at which shares of any class of
capital stock shall be deemed to be outstanding or no longer outstanding, or as
to any other matters relating to the issuance, sale, redemption or other
acquisition or disposition of securities or shares of capital stock of the
Corporation, and any
-10-
<PAGE>
reasonable determination made in good faith by the Board of Directors as to
whether any transaction constitutes a purchase of securities on "margin," a sale
of securities "short," or an underwriting of the sale of, or a participation in
any underwriting or selling group in connection with the public distribution of,
any securities, shall be final and conclusive, and shall be binding upon the
Corporation and all holders of its capital stock, past, present and future, and
shares of the capital stock of the Corporation are issued and sold on the
condition and understanding, evidenced by the purchase of shares of capital
stock or acceptance of share certificates, that any and all such determinations
shall be binding as aforesaid. No provision of the Charter of the Corporation
shall be effective to (i) require a waiver of compliance with any provision of
the Securities Act of 1933, as amended, or the Investment Company Act of 1940,
as amended, or of any valid rule, regulation or order of the Securities and
Exchange Commission thereunder, or (ii) protect or purport to protect any
director or officer of the Corporation against any liability to the Corporation
or its security holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
ARTICLE IX
SECTION 9.1. The duration of the Corporation shall be perpetual.
ARTICLE X
SECTION 10.1. The Corporation reserves the right from time to time to
make any amendments to its Charter which may now or hereafter be authorized by
law, including any amendments changing the terms or contract rights, as
expressly set forth in its Charter, of any of its outstanding stock by
classification, reclassification or otherwise, but no such amendment which
changes such terms or contract rights of any of its outstanding stock shall be
valid unless such amendment shall have been authorized by not less than a
majority of the aggregate number of the votes entitled to be cast thereon by a
vote at a meeting.
SECTION 10.2. Notwithstanding any provision of the Maryland General
Corporation Law requiring any action to be taken or authorized by the
affirmative vote of the holders of a proportion of the votes of all classes or
of any class of stock of the Corporation greater than a majority, such action
shall be effective and valid if taken or authorized by the affirmative vote of
the holders of a majority of the total number of shares outstanding and entitled
to vote thereon, except as otherwise required by applicable law or otherwise
provided herein.
-11-
<PAGE>
SECTION 10.3. So long as permitted by Maryland law, the books of the
Corporation may be kept outside of the State of Maryland at such place or places
as may be designated from time to time by the Board of Directors or in the
Bylaws of the Corporation.
SECTION 10.4. In furtherance, and not in limitation, of the powers
conferred by the laws of the State of Maryland, the Board of Directors is
expressly authorized:
(a) To make, alter or repeal the Bylaws of the Corporation, except
where such power is reserved by the Bylaws to the stockholders, and except as
otherwise required by the Investment Company Act of 1940, as amended.
(b) From time to time to determine whether and to what extent and at
what times and places and under what conditions and regulations the books and
accounts of the Corporation, or any of them, shall be open to the inspection of
the stockholders, and no stockholder shall have any right to inspect any account
or book or document of the Corporation, except as conferred by law or authorized
by resolution of the Board of Directors or of the stockholders.
(c) Without the assent or vote of the stockholders, to authorize the
issuance from time to time of shares of the stock of any class of the
Corporation, whether now or hereafter authorized, and securities convertible
into shares of its stock of any class or classes, whether now or hereafter
authorized, for such consideration as the Board of Directors may deem advisable.
(d) Without the assent or vote of the stockholders, to authorize and
issue obligations of the Corporation, secured and unsecured, as the Board of
Directors may determine, and to authorize and cause to be executed mortgages and
liens upon the property of the Corporation, real or personal.
(e) Notwithstanding anything in these Articles of Incorporation to the
contrary, to establish in its absolute discretion in accordance with the
provisions of applicable law the basis or method for determining the value of
the assets belonging to any class, the amount of the liabilities belonging to
any class, the allocation of any assets or liabilities to any class, the net
asset value of any class, the times at which shares of any class shall be deemed
to be outstanding or no longer outstanding and the net asset value of each share
of any class of capital stock of the Corporation for purposes of sales,
redemptions, repurchases of shares or otherwise.
(f) To determine what constitutes net profits, earnings, surplus or
net assets in excess of capital, and to
-12-
<PAGE>
determine what accounting periods shall be used by the Corporation for any
purpose, whether annual or any other period, including daily; to set apart out
of any funds of the Corporation such reserves for such purposes as it shall
determine and to abolish the same; to declare and pay any dividends and
distributions in cash, securities or other property from surplus or any funds
legally available therefor, at such intervals (which may be as frequently as
daily) or on such other periodic basis, as it shall determine; to declare such
dividends or distributions by means of a formula or other method of
determination, at meetings held less frequently than the frequency of the
effectiveness of such declarations; to establish payment dates for dividends or
any other distributions on any basis, including dates occurring less frequently
than the effectiveness of declarations thereof; and to provide for the payment
of declared dividends on a date earlier or later than the specified payment date
in the case of stockholders of the Corporation redeeming their entire ownership
of shares of any class of the Corporation.
(g) In addition to the powers and authorities granted herein and by
statute expressly conferred upon it, the Board of Directors is authorized to
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, subject, nevertheless, to the provisions of Maryland
law, these Articles of Incorporation, and the Bylaws of the Corporation.
IN WITNESS WHEREOF, the undersigned incorporator of M.S.D. & T. FUNDS,
INC. hereby executes the foregoing Articles of Incorporation and acknowledges
the same to be his act.
Dated as of the 23rd day of February 1989.
/s/ Robert J. Schneider
-----------------------
Robert J. Schneider
-13-
<PAGE>
STATE OF MARYLAND
STATE DEPARTMENT OF ASSESSMENTS AND TAXATION
GENE L. BURNET, DIRECTOR
DOCUMENT CODE 02 BUSINESS CODE 03 COUNTY 74
-- -- --
_________________ ____P.A. ____Religious ____Close X Stock ____Nonstock
-----
<TABLE>
<CAPTION>
CODE AMOUNT FEE REMITTED
- ----- -------- -----------------------------------
<C> <S> <C> <C>
20 360 Organ. & Capitalization Name Change
61 ------- Rec. Fee (Arts. of Inc.) -----------
62 Rec. Fee (Amendment) (New Name) _________________________
63 20 Rec. Fee (Merger or Consolidation) ____________________________________
64 ------- Rec. Fee (Transfer) ____________________________________
_______ ____________________________________
_______
_______
65 _______ Rec. Fee (Dissolution)
66 _______ Rec. Fee (Revival)
52 _______ Foreign Qualification ____ Change of Name
50 _______ Cert. of Qual. or Reg.
51 _______ Foreign Name Registration ____ Change of Principal Office
13 19 1 Certified Copy 13
56 ------- Penalty ____ Change of Resident Agent
_______
54 _______ For. Supplemental Cert.
53 _______ Foreign Resolution ____ Change of Resident Agent Address
73 _______ Certificate of Conveyance
_______________________________ ____ Resignation of Resident Agent
_______________________________
76 _______ Certificate of Merger/Transfer
_______________________________
_______________________________ 063
75 _______ Special Fee Code ______
80 _______ For. Limited Partnership
83 _______ Cert. Limited Partnership
84 _______ Amendment to Limited Partnership ATTENTION Leah Schuman
85 _______ Termination of Limited Partnership ____________________________________
21 _______ Recordation Tax ____________________________________
22 _______ State Transfer Tax
23 _______ Local Transfer Tax
31 _______ ______ Corp. Good Standing MAIL TO ADDRESS:_____________________
NA _______ Foreign Corporation Registration ____________________________________
87 _______ ____ Limited Part. Good Standing ____________________________________
71 _______ Financial ____________________________________
600 _______ _________________ Personal Property ____________________________________
Reports and ________________ late
filing penalties
70 _______ Change of P.O., R.A. or R.A.A. NOTE:
91 _______ Amend/Cancellation, For. Limited -------------------------------------
___ _______ Part.
_______ Other _____________________________
Other _____________________________
TOTAL
FEES 399
--------
X Check ______Cash
-----
</TABLE>
______ Documents on ______ checks
APPROVED BY: /s/ J.M.T.
-------------------------
<PAGE>
ARTICLES OF INCORPORATION
OF
M.S.D.& T. FUNDS, INC.
APPROVED AND RECEIVED FOR RECORD BY THE STATE DEPARTMENT OF ASSESSMENTS AND
TAXATION OF MARYLAND MARCH 7, 1989 AT 10:24 O'CLOCK A.M. AS IN CONFORMITY WITH
LAW AND ORDERED RECORDED.
------------------------------------------------
<TABLE>
<CAPTION>
ORGANIZATION AND RECORDING SPECIAL
CAPITALIZATION FEE PAID FEE PAID FEE PAID
<S> <C> <C>
$ 360.00 $ 20.00 $
----------- --------- -------
</TABLE>
----------------
D2746360
TO THE CLERK OF THE COURT OF BALTIMORE CITY
IT IS HEREBY CERTIFIED THAT THE WITHIN INSTRUMENT, TOGETHER WITH ALL
INDORSEMENTS THEREON, HAS BEEN RECEIVED, APPROVED AND RECORDED BY THE STATE
DEPARTMENT OF ASSESSMENTS AND TAXATION OF MARYLAND.
<TABLE>
<S> <C>
RECEIVED FOR RECORD JUL 20 1989 9:00 RETURN TO:
O'CLOCK A.M. SAME DAY RECORDED IN VENABLE, BAETJER & HOWARD
LIBER S.E.B. NO. 251 FOLIO 192 & C., LEAH SCHUMAN
ONE OF THE CHARTER RECORDS OF 2 HOPKINS PLAZA
BALTIMORE CITY AND EXAMINED. 1800 MERCANTILE BANK & TRUST BLDG.
BALTIMORE, MD 21201
PER
170C3020724
SAUNDRA E. BANKS, CLERK
- ---------------------- A289239
</TABLE>
RECORDED IN THE RECORDS OF THE STATE DEPARTMENT OF
ASSESSMENTS AND TAXATION OF MARYLAND IN LIBER. FOLIO.
<PAGE>
NOTICE OF CHANGE OF RESIDENT AGENT
AND PRINCIPAL OFFICE ADDRESS
M.S.D. & T. FUNDS, INC.
I, W. Bruce McConnel, III, Secretary of M.S.D.& T. FUNDS, INC., a
corporation of the State of Maryland (the "Corporation"), hereby certify that
the Board of Directors of said Corporation, at a meeting held on May 17, 1989 at
which a quorum was present throughout duly adopted the following resolutions
which are currently in full force and effect and appear as follows in the
minutes of the Corporation:
RESOLVED: That the Resident Agent of the Corporation in the State of
Maryland is changed to The Corporation Trust Incorporated, a Maryland
corporation, and the post office address of such Resident Agent is 32 South
Street, Baltimore, Maryland 21202.
RESOLVED: That the address of the principal office of the Corporation
in the State of Maryland is changed to c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202.
The undersigned hereby certifies that this document has been executed
by the Secretary of the Corporation on behalf of the Corporation and that, to
the best of the undersigned's knowledge, information and belief, the matters and
facts stated herein are true in all material respects, and that this statement
is made under the penalties for perjury.
Dated: May 17, 1989 /s/ W. Bruce McConnel, III
---------------------------
W. Bruce McConnel, III, Secretary
29310/20
<PAGE>
STATE OF MARYLAND
STATE DEPARTMENT OF ASSESSMENTS AND TAXATION
GENE L. BURNET, DIRECTOR
DOCUMENT CODE ___ BUSINESS CODE _____ COUNTY 74
--
D2746360 ____P.A. ____Religious ____Close
- ---------------
______Stock ____Nonstock
Merging Surviving____________________
(Transferor) ___________________ (Transferee)_________________
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
CODE AMOUNT FEE REMITTED
- ------------------ ------------ -----------------------------------
<C> <S> <C> <C>
20 ________ Organ. & Capitalization Name Change
61 ________ Rec. Fee (Arts. of Inc.) -----------
62 ________ Rec. Fee (Amendment) (New Name) _________________________
63 ________ Rec. Fee (Merger or Consolidation) ____________________________________
64 ________ Rec. Fee (Transfer) ____________________________________
________ ____________________________________
65 ________ Rec. Fee (Dissolution)
66 ________ Rec. Fee (Revival)
52 ________ Foreign Qualification ____ Change of Name
50 ________ Cert. of Qual. or Reg.
51 ________ Foreign Name Registration X Change of Principal Office
13 7.00 1 Certified Copy 1 --
56 -------- Penalty
________ X Change of Resident Agent
--
54 ________ For. Supplemental Cert.
53 ________ Foreign Resolution X Change of Resident Agent Address
73 ________ Certificate of Conveyance --
_______________________________
_______________________________ ____ Resignation of Resident Agent
76 ________ Certificate of Merger/Transfer
_______________________________
_______________________________
75 ________ Special Fee Code 063
80 ________ For. Limited Partnership --------------
83 ________ Cert. Limited Partnership
84 ________ Amendment to Limited Partnership ATTENTION /s/ Leah Schuman
85 ________ Termination of Limited Partnership ____________________________________
21 ________ Recordation Tax ____________________________________
22 ________ State Transfer Tax
23 ________ Local Transfer Tax
31 ________ ______ Corp. Good Standing MAIL TO ADDRESS:_____________________
NA ________ Foreign Corporation Registration ____________________________________
87 ________ ____ Limited Part. Good Standing ____________________________________
71 ________ Financial ____________________________________
600 ________ _________________ Personal Property ____________________________________
Reports and ________________ late
filing penalties
70 10.00 Change of P.O., R.A. or R.A.A. NOTE:
91 -------- Amend/Cancellation, For. Limited -------------------------------------
__ ________ Part.
________ Other _____________________________
________ Other _____________________________
TOTAL
FEES 17.00
--------
1 Check ______Cash
------
2 Documents on 1 checks
- ------ ------
</TABLE>
APPROVED BY: /s/ R.M.
-------------------
<PAGE>
ARTICLES SUPPLEMENTARY
OF
M.S.D. & T. FUNDS, INC.
M.S.D. & T. FUNDS, INC., a Maryland corporation having its principal
office in the City of Baltimore, Maryland and registered as an open-end
investment company under the Investment Company Act of 1940, as amended
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland that:
FIRST: Pursuant to Section 2-208 of the Maryland General Corporation
Law, the Board of Directors of the Corporation, pursuant to its authority in the
Articles of Incorporation, has classified Six Hundred Million (600,000,000)
shares of the Corporation's authorized but unissued and unclassified shares of
capital stock, of the par value of One Mill ($.001) per share, as Class E Common
Stock of the par value of One Mill ($.001) per share and has classified Six
Hundred Million (600,000,000) shares of the Corporation's authorized but
unissued and unclassified shares of capital stock, of the par value of One Mill
($.001) per share, as Class F Common Stock of the par value of One Mill ($.001)
per share, pursuant to the following resolutions adopted at a regular meeting of
the Board of Directors of the Corporation held on July 16, 1990:
RESOLVED, that pursuant to Article VI, Section 6.4 of the Company's
Articles of Incorporation (the "Articles"), 600,000,000 of the Company's
authorized but unissued and
<PAGE>
unclassified shares of capital stock, $.001 par value per share, be, and hereby
are, classified and designated as Class E Common Stock and shall represent
interests in the Value Equity Fund;
FURTHER RESOLVED, that pursuant to Article VI, Section 6.4 of the
Articles, 600,000,000 of the Company's authorized but unissued and unclassified
shares of capital stock, $.001 par value per share, be, and hereby are,
classified and designated Class F Common Stock and shall represent interests in
the Intermediate Fixed Income Fund;
FURTHER RESOLVED, that each share of Class E and F Common Stock shall
have the preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption as set forth in the Articles; and
FURTHER RESOLVED, that the officers of the Company be, and each of
them hereby is, authorized and empowered to execute, seal, deliver and file any
and all documents, instruments, papers and writings, including but not limited
to filing Articles Supplementary with the State Department of Assessments and
Taxation of Maryland, and to do any and all other acts, including but not
limited to changing the foregoing resolutions upon advice of the Company's
counsel prior to filing said Articles Supplementary, in the name of the Company
and on its behalf, as may be necessary or desirable in connection with or in
furtherance of the foregoing resolutions, such determination to be conclusively
evidenced by said officer taking any such actions.
SECOND: The shares of Common Stock of the Corporation classified
pursuant to the resolutions set forth herein have been classified by the Board
of Directors under the authority contained in the Corporation's Articles of
Incorporation.
IN WITNESS WHEREOF, M.S.D. & T. FUNDS, INC. has caused these presents
to be signed in its name and on its behalf by its
2
<PAGE>
President and its corporate seal to be hereunto affixed and attested by its
Secretary on this 15th day of October, 1990.
[CORPORATE SEAL] M.S.D. & T. FUNDS, INC.
By: /s/ Leslie B. Disharoon
-----------------------
Leslie B. Disharoon
President
Attest:
/s/ W. Bruce McConnel, III
- --------------------------
W. Bruce McConnel, III
Secretary
3
<PAGE>
CERTIFICATE
-----------
THE UNDERSIGNED, President of M.S.D. & T. FUNDS, INC., who executed on
behalf of said Corporation the attached Articles Supplementary of said
Corporation of which this certificate is made a part, hereby acknowledges, in
the name and on behalf of said Corporation, the attached Articles Supplementary
to be the corporate act of said Corporation, and certifies that to the best of
his knowledge, information and belief the matters and facts set forth in the
attached Articles Supplementary with respect to authorization and approval are
true in all material respects, under the penalties for perjury.
/s/ Leslie B. Disharoon
-----------------------
Leslie B. Disharoon
President
Dated: October 15, 1990
4
<PAGE>
ARTICLES SUPPLEMENTARY
OF
M.S.D. & T. FUNDS, INC.
M.S.D. & T. FUNDS, INC., a Maryland corporation having its principal
office in the City of Baltimore, Maryland and registered as an open-end
investment company under the Investment Company Act of 1940, as amended
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland that:
FIRST: The total number of shares of Capital Stock which the
Corporation was heretofore authorized to issue was Four Billion (4,000,000,000)
shares, of which Seven Hundred Million (700,000,000) shares of the par value of
One Mill ($.001) per share each were Class A Common Stock; Seven Hundred Million
(700,000,000) shares of the par value of One Mill ($.001) per share each were
Class B Common Stock; Seven Hundred Million (700,000,000) shares of the par
value of One Mill ($.001) per share each were Class C Common Stock; Seven
Hundred Million (700,000,000) shares of the par value of One Mill ($.001) per
share each were Class D Common Stock; Six Hundred Million (600,000,000) shares
of the par value of One Mill ($.001) per share each were Class E Common Stock;
and Six Hundred Million (600,000,000) shares of the par value of One Mill
($.001) per share each were Class F Common Stock. The aggregate par value of
all Common Stock was Four Million Dollars ($4,000,000).
<PAGE>
SECOND: Pursuant to Article VI, Section 6.4 of the Corporation's
Articles of Incorporation, the Board of Directors has reclassified One Hundred
Million (100,000,000) shares of the par value of One Mill ($.001) per share of
authorized and unissued Class C Common Stock of the Corporation's capital stock;
One Hundred Million (100,000,000) shares of the par value of One Mill ($.001)
per share of authorized and unissued Class D Common Stock of the Corporation's
capital stock; One Hundred Million (100,000,000) shares of the par value of One
Mill ($.001) per share of authorized and unissued Class E Common Stock of the
Corporation's capital stock; and One Hundred Million (100,000,000) shares of the
par value of One Mill ($.001) per share of authorized and unissued Class F
Common Stock of the Corporation's capital stock as shares of Class G Common
Stock in accordance with Section 2-105(c) of the Maryland General Corporation
Law. The Board of Directors of the Corporation has reclassified such Class C,
Class D, Class E and Class F shares of Common Stock pursuant to the following
resolutions adopted at a regular meeting of the Board of Directors of the
Corporation held on October 28, 1991:
RESOLVED, that pursuant to Article VI, Section 6.4 of the Company's
Articles of Incorporation (the "Articles"), One Hundred Million
(100,000,000) of the Company's authorized, unissued Class C shares of
capital stock (of the par value One Mill ($0.001) per share and of the
aggregate par value of One Hundred Thousand Dollars ($100,000)), be, and
hereby are, reclassified as Class G Common Stock (of the par value One Mill
($0.001) and of the aggregate par value of One Hundred Thousand Dollars
($100,000)); and
-2-
<PAGE>
FURTHER RESOLVED, that pursuant to Article VI, Section 6.4 of the
Articles, One Hundred Million (100,000,000) of the Company's authorized,
unissued Class D shares of capital stock (of the par value One Mill
($0.001) and of the aggregate par value of One Hundred Thousand Dollars
($100,000)), be, and hereby are, reclassified as Class G Common Stock (of
the par value One Mill ($0.001) and of the aggregate par value of One
Hundred Thousand Dollars ($100,000)); and
FURTHER RESOLVED, that pursuant to Article VI, Section 6.4 of the
Articles, One Hundred Million (100,000,000) of the Company's authorized,
unissued Class E shares of capital stock (of the par value One Mill
($0.001) per share and the aggregate par value of One Hundred Thousand
Dollars ($100,000)) be, and hereby are, reclassified as Class G Common
Stock (of the par value of One Mill ($0.001) and of the aggregate par value
of One Hundred Thousand Dollars ($100,000)); and
FURTHER RESOLVED, that pursuant to Article VI, Section 6.4 of the
Articles, One Hundred Million (100,000,000) of the Company's authorized,
unissued Class F shares of capital stock (of the par value One Mill
($0.001) per share and the aggregate par value of One Hundred Thousand
Dollars ($100,000)) be, and hereby are, reclassified as Class G Common
Stock (of the par value of One Mill ($0.001) and of the aggregate par value
of One Hundred Thousand Dollars ($100,000)); and
FURTHER RESOLVED, that shares of Class G Common Stock shall represent
interests in the Maryland Tax-Exempt Bond Fund; and
FURTHER RESOLVED, that each share of Class G Common Stock shall have
the preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption as set forth in the Articles.
THIRD: The total number of shares of stock which the Corporation is
presently authorized to issue remains Four Billion (4,000,000,000) shares of
Common Stock, of which Seven Hundred Million (700,000,000) shares of the par
value of One Mill ($.001) per share each are Class A Common Stock; Seven Hundred
Million (700,000,000) shares of the par value of One Mill ($.001) per
-3-
<PAGE>
share each are Class B Common Stock; Six Hundred Million (600,000,000) shares of
the par value of One Mill ($.001) per share each are Class C Common Stock; Six
Hundred Million (600,000,000) shares of the par value of One Mill ($.001) per
share each are Class D Common Stock; Five Hundred Million (500,000,000) shares
of the par value of One Mill ($.001) per share each are Class E Common Stock;
Five Hundred Million (500,000,000) shares of the par value of One Mill ($.001)
per share each are Class F Common Stock; and Four Hundred Million (400,000,000)
shares of the par value of One Mill ($.001) per share each are Class G Common
Stock. The aggregate par value of all Common Stock having par value is
unchanged at Four Million Dollars ($4,000,000).
FOURTH: The shares of Common Stock of the Corporation classified
pursuant to the resolutions set forth herein have been classified by the
Corporation's Board of Directors under the authority contained in the
Corporation's Articles of Incorporation.
IN WITNESS WHEREOF, M.S.D. & T. FUNDS, INC. has caused these presents
to be signed in its name and on its behalf by its
-4-
<PAGE>
President and its corporate seal to be hereunto affixed and attested by its
Secretary as of this 16th day of January 1992.
[CORPORATE SEAL] M.S.D. & T. FUNDS, INC.
By: /s/ Leslie B. Disharoon
-----------------------
Leslie B. Disharoon
President
Attest:
/s/ W. Bruce McConnel, III
- --------------------------
W. Bruce McConnel, III
Secretary
-5-
<PAGE>
CERTIFICATE
-----------
THE UNDERSIGNED, President of M.S.D. & T. FUNDS, INC., who executed on
behalf of said Corporation the attached Articles Supplementary of said
Corporation, of which this certificate is made a part, hereby acknowledges, in
the name and on behalf of said Corporation, the attached Articles Supplementary
to be the corporate act of said Corporation, and certifies that to the best of
his knowledge, information and belief the matters and facts set forth in the
attached Articles Supplementary with respect to authorization and approval are
true in all material respects, under the penalties for perjury.
/s/ Leslie B. Disharoon
-----------------------
Dated as of January 16, 1992 Leslie B. Disharoon
President
-6-
<PAGE>
ARTICLES SUPPLEMENTARY
OF
M.S.D.& T. FUNDS, INC.
M.S.D.& T. FUNDS, INC., a Maryland corporation having its principal office
in the City of Baltimore, Maryland and registered as an open-end investment
company under the Investment Company Act of 1940, as amended (hereinafter called
the "Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Pursuant to Sections 2-105(c) and 2-208 of the Maryland General
Corporation Law, the Board of Directors of the Corporation has increased the
total number of shares of capital stock which the Company shall have authority
to issue from Four Billion (4,000,000,000) to Ten Billion (10,000,000,000)
shares of Common Stock of the par value of One Mil ($0.001) per share, and of
the aggregate par value of Ten Million Dollars ($10,000,000):
RESOLVED, that the total number of shares of capital stock which the
Corporation shall have authority to issue be increased from Four Billion
(4,000,000,000) to Ten Billion (10,000,000,000) shares of Common Stock of
the par value of One Mil ($0.001) per share ("Shares"), with a resulting
aggregate par value of Ten Million Dollars ($10,000,000).
SECOND: The Board of Directors of the Corporation has classified the
unissued and unclassified capital stock of the Corporation, authorized under the
immediately preceding resolution, pursuant to the following resolutions:
RESOLVED, that pursuant to the authority expressly given to the Board
of Directors in Article VI, Section 6.4 of the Corporation's Articles of
Incorporation, Four Hundred Million (400,000,000) of the Six Billion
unclassified shares of capital stock (of the par value One Mill ($0.001))
be classified as Class H Common Stock (with an aggregate par value of Four
Hundred Thousand Dollars ($400,000)); and
FURTHER RESOLVED, that shares of Class H Common Stock shall represent
interests in the International Equity Fund; and
FURTHER RESOLVED, that each share of Class H Common Stock shall have
the preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption as set forth in the Articles of Incorporation.
THIRD: The shares of Common Stock of the Corporation classified
pursuant to the resolutions set forth herein have been classified by the
Corporation's Board of Directors under the authority contained in the
Corporation's Articles of Incorporation.
FOURTH: The total number of shares of capital stock which the
Corporation was heretofore authorized to issue was Four Billion (4,000,000,000)
shares, of which Seven Hundred Million (700,000,000) shares of the par value of
One Mill ($.001) per share each were Class A Common Stock; Seven Hundred Million
(700,000,000) shares of the par value of One Mill ($.001) per share each were
Class B Common Stock; Six Hundred Million (600,000,000) shares of the par value
of One Mill ($.001) per share each were Class C Common Stock; Six Hundred
Million (600,000,000) shares of the par value of One mill ($.001) per share each
were Class D Common Stock; Five Hundred Million (500,000,000) shares of the par
value of One Mill ($.001) per share each were Class E Common Stock; Five Hundred
Million (500,000,000)
<PAGE>
shares of the par value of One Mill ($.001) per share each were Class F Common
Stock; and Four Hundred Million (400,000,000) shares of the par value of One
Mill ($.001) per share each were Class G Common Stock. The aggregate par value
of all Common Stock was Four Million Dollars ($4,000,000).
FIFTH: The total number of shares of capital stock which the
Corporation is presently authorized to issue is Ten Billion (10,000,000,000)
shares of Common Stock, of which Seven Hundred Million (700,000,000) shares of
the par value of One Mill ($.001) per share each are Class A Common Stock; Seven
Hundred Million (700,000,000) shares of the par value of One Mill ($.001) per
share each are Class B Common Stock; Six Hundred Million (600,000,000) shares of
the par value of One Mill ($.001) per share each are Class C Common Stock; Six
Hundred Million (600,000,000) shares of the par value of One Mill ($.001) per
share each are Class D Common Stock; Five Hundred Million (500,000,000) shares
of the par value of One Mill ($.001) per share each are Class E Common Stock;
Five Hundred Million (500,000,000) shares of the par value of One Mill ($.001)
per share each are Class F Common Stock; Four Hundred Million (400,000,000)
shares of the par value of One Mill ($.001) per share each are Class G Common
Stock; and Four Hundred Million (400,000,000) shares of the par value of One
Mill ($.001) per share are each Class H Common Stock. The aggregate par value
of all Common Stock having par value is Ten Million Dollars ($10,000,000).
The total number of authorized and unclassified shares of capital
stock of the Company remaining after the actions described above is Five Billion
Six Hundred Million (5,600,000,000) shares of capital stock of the par value of
One Mill ($0.001) and of the aggregate par value of Five Million Two Hundred
Thousand Dollars ($5,200,000).
IN WITNESS WHEREOF, M.S.D.& T. FUNDS, INC. has caused these presents
to be signed in its name and on its behalf by its President and its corporate
seal to be hereunto affixed and attested by its Secretary as of this 23rd day of
June, 1993.
[CORPORATE SEAL] M.S.D.& T. FUNDS, INC.
By: /s/ Leslie B. Disharoon
------------------------
Leslie B. Disharoon
President
Attest:
/s/ W. Bruce McConnel, III
- --------------------------
W. Bruce McConnel, III
Secretary
-2-
<PAGE>
CERTIFICATE
-----------
THE UNDERSIGNED, President of M.S.D.& T. FUNDS, INC., who executed on
behalf of said Corporation the attached Articles Supplementary of said
Corporation, of which this Certificate is made a part, hereby acknowledges, in
the name and on behalf of said Corporation, the attached Articles Supplementary
to be the corporate act of said Corporation, and certifies that to the best of
his knowledge, information and belief the matters and facts set forth in the
attached Articles Supplementary with respect to authorization and approval are
true in all material respects, under the penalties for perjury.
/s/ Leslie B. Disharoon
-----------------------
Dated as of June 23, 1993 Leslie B. Disharoon
President
<PAGE>
ARTICLES SUPPLEMENTARY
OF
M.S.D. & T. FUNDS, INC.
M.S.D. & T. FUNDS, INC., a Maryland corporation having its principal
office in the City of Baltimore, Maryland and registered as an open-end
investment company under the Investment Company Act of 1940, as amended
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assesments and Taxation of Maryland that:
FIRST: Pursuant to Section 2-208 of the Maryland General Corporation
Law, the Board of Directors of the Corporation has classified Four Hundred
Million (400,000,000) shares of the Corporation's authorized but unissued and
unclassified shares of capital stock, of the par value of One Mill ($.001) per
share, as Class I Common Stock, of the par value of One Mill ($.001) per share,
pursuant to the following resolutions adopted at a regular meeting of the Board
of Directors of the Corporation held on April 29, 1994:
RESOLVED, that pursuant to the authority expressly given to the Board
of Directors in Article VI, Section 6.4 of the Company's Articles of
Incorporation, the Board hereby classifies Four Hundred Million
(400,000,000) of the Company's unclassified authorized shares as Class I
Common Stock (with an aggregate par value of Four Hundred Thousand Dollars
($400,000));
FURTHER RESOLVED, that shares of Class I Common Stock shall represent
interests in the International Bond Fund;
FURTHER RESOLVED, that each share of Class I Common Stock shall have
the preferences, conversation and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption as set forth in the Articles; and
FURTHER RESOLVED, that the officers of the Company be, and each of
them hereby is, authorized and empowered to execute, seal, deliver and file
any and all documents, instruments, papers and writings, including but not
limited to filing Articles Supplementary with the State Department of
Assessments and Taxation of Maryland, and to do any and all other acts,
including but not limited to changing the foregoing resolutions upon advice
of the Company's counsel prior to filing said Articles Supplementary, in
the name of the Company and on its behalf, as may be necessary or desirable
in connection with or in furtherance of the foregoing resolutions, such
determination to be conclusively evidenced by said officer taking any such
actions.
<PAGE>
SECOND: The shares of Common Stock of the Corporation classified
pursuant to the resolutions set forth herein have been classified by the
Corporation's Board of Directors under the authority contained in the
Corporation's Articles of Incorporation.
THIRD: The total number of shares of capital stock which the
Corporation is presently authorized to issue remains Ten Billion
(10,000,000,000) shares of Common Stock, of which Seven Hundred Million
(700,000,000) shares of the par value of One Mill ($.001) per share each are
Class A Common Stock; Seven Hundred Million (700,000,000) shares of the par
value of One Mill ($.001) per share each are Class B Common Stock; Six Hundred
Million (600,000,000) shares of the par value of One Mill ($.001) per share each
are Class C Common Stock; Six Hundred Million (600,000,000) shares of the par
value of One Mill ($.001) per share each are Class D Common Stock; Five Hundred
Million (500,000,000) shares of the par value of One Mill ($.001) per share each
are Class E Common Stock; Five Hundred Million (500,000,000) shares of the par
value of One Mill ($.001) per share each are Class F Common Stock; Four Hundred
Million (400,000,000) shares of the par value of One Mill ($.001) per share each
are Class G Common Stock; Four Hundred Million (400,000,000) shares of the par
value of One Mill ($.001) per share each are Class H Common Stock; and Four
Hundred Million (400,000,000) shares of the par value of One Mill ($.001) per
share each are Class I Common Stock. The aggregate par value of all Common
Stock having par value is unchanged at Ten Million Dollars ($10,000,000).
The total number of authorized and unclassified shares of capital
stock of the Company remaining after the actions described above is Five Billion
Two Hundred Million (5,200,000,000) shares of capital stock of the par value of
One Mill ($0.001) and of the aggregate par value of Five Million Two Hundred
Thousand Dollars ($5,200,000).
<PAGE>
IN WITNESS WHEREOF, M.S.D.& T. FUNDS, INC. has caused these presents
to be signed in its name and on its behalf by its President and its corporate
seal to be hereunto affixed and attested by its Secretary as of this 31st day of
May, 1994.
M.S.D. & T. FUNDS, INC.
[CORPORATE SEAL] By: /s/ Leslie B. Disharoon
-----------------------
Leslie B. Disharoon
President
Attest:
/s/ W. Bruce McConnel, III
- --------------------------
W. Bruce McConnel, III
Secretary
<PAGE>
Exhibit 1(g)
ARTICLES SUPPLEMENTARY
OF
M.S.D. & T. FUNDS, INC.
M.S.D. & T. FUNDS, INC., a Maryland corporation having its principal
office in the City of Baltimore, Maryland and registered as an open-end
investment company under the Investment Company Act of 1940, as amended
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland that:
FIRST: Pursuant to Section 2-208 of the Maryland General Corporation
Law, the Board of Directors of the Corporation has classified Five Hundred
Million (500,000,000) shares of the Corporation's authorized but unissued and
unclassified shares of capital stock, of the par value of One Mill ($.001) per
share, as Class E - Special Series 1 Common Stock, of the par value of One Mill
($.001) per share, and Five Hundred Million (500,000,000) shares of the
Corporation's authorized but unissued and unclassified shares of capital stock,
of the par value of One Mill ($.001) per share, as Class F -Special Series 1
Common Stock, of the par value of One Mill ($.001) per share, pursuant to the
following resolutions adopted at a regular meeting of the Board of Directors of
the Corporation held on April 24, 1995:
RESOLVED, that pursuant to the authority expressly given to the Board
of Directors in Article VI, Section 6.4 of the Corporation's Articles of
Incorporation, the Board hereby classifies 1,000,000,000 of the
Corporation's unclassified authorized shares as follows: 500,000,000 as
Class E - Special Series 1, and 500,000,000 as Class F -Special Series 1
Common Stock (with an aggregate par value of One Million Dollars
($1,000,000));
FURTHER RESOLVED, that shares of Class E - Special Series 1 and Class
F - Special Series 1 Common Stock shall represent interests in the AFBA
retail series of the Value Equity and Intermediate Fixed Income Funds,
respectively;
FURTHER RESOLVED, that each share of Class E - Special Series 1 and
Class F - Special Series 1 Common Stock shall have the following
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption:
1. Assets Belonging to a Class. All consideration received by the
---------------------------
Corporation for the issue and sale of shares of such Class E - Special
Series 1 and Class F - Special
<PAGE>
Series 1 Common Stock shall be invested and reinvested with the
consideration received by the Corporation for the issue and sale of all
other shares now or hereafter classified as shares of Class E or Class F,
respectively, Common Stock (irrespective of whether said shares have been
classified as a part of a series of said Class and, if so classified as a
part of a series, irrespective of the particular series classification),
together with all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange, or liquidation
thereof, any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, and any general assets of the
Corporation allocated to Class E and Class E -Special Series 1 shares or
Class F and Class F - Special Series 1 shares, respectively, or such other
shares by the Board of Directors in accordance with the Corporation's
Charter. All income, earnings, profits, and proceeds, including any
proceeds derived from the sale, exchange or liquidation of such shares, and
any assets derived from any reinvestment of such proceeds in whatever form
shall be allocated among shares of Class E and Class E - Special Series 1
or Class F and Class F - Special Series 1, respectively, and all other
shares now or hereafter designated as Class E or F Common Stock,
respectively (irrespective of whether said shares have been classified as a
part of a series of said Class and, if so classified as a part of a series,
irrespective of the particular series classification), in proportion to
their respective net asset values.
2. Liabilities Belonging to a Class. All the liabilities (including
--------------------------------
expenses) of the Corporation in respect of shares of Class E and Class E -
Special Series 1 or Class F and Class F - Special Series 1, respectively,
and all other shares now or hereafter designated as Class E or F Common
Stock, respectively, and in respect of any general liabilities (including
expenses) of the Corporation allocated to shares of Class E and Class E -
Special Series 1 or Class F and Class F - Special Series 1 or such other
shares by the Board of Directors in accordance with the Corporation's
Charter shall be allocated among shares of Class E and Class E - Special
Series 1 or Class F and Class F - Special Series 1, respectively, and such
other shares, respectively (irrespective of whether said shares have been
classified as a part of a series of said Class and, if so classified as a
part of a series, irrespective of the particular series classification), in
proportion to their respective net asset values:
a. If in the future the Board of Directors determines to enter into
agreements which provide for services
-2-
<PAGE>
only for shares of Class E or Class E - Special Series 1, or Class F
or Class F - Special Series 1, and to allocate any related expenses to
the extent that may be from time to time determined by the Board of
Directors:
(1) only the shares of Class E or F Common Stock,
respectively, shall bear: (i) the expenses and liabilities of
payments to institutions under any agreements entered into by or
on behalf of the Corporation which provide for services by the
institutions exclusively for their customers who own of record or
beneficially such shares, and (ii) such other expenses and
liabilities as the Board of Directors may from time to time
determine are directly attributable to such shares and which
therefore should be borne solely by shares of Class E or F Common
Stock, respectively;
(2) only the shares of Class E - Special Series 1 and Class
F - Special Series 1, respectively, Common Stock shall bear: (i)
the expenses and liabilities of payments to institutions under
any agreements entered into by or on behalf of the Corporation
which provide for services by the institutions exclusively for
their customers who own of record or beneficially such shares;
and (ii) such other expenses and liabilities as the Board of
Directors may from time to time determine are directly
attributable to such shares and which therefore should be borne
solely by shares of Class E - Special Series 1 or Class F -
Special Series 1, respectively;
(3) No shares of Class E or F Common Stock shall bear the
expenses and liabilities described in subparagraph (2) above; and
(4) No shares of Class E - Special Series 1 and Class F -
Special Series 1 Common Stock shall bear the expenses and
liabilities described in subparagraph (1) above.
3. Preferences, Conversion and Other Rights, Voting Powers, Restrictions,
----------------------------------------------------------------------
Limitations as to Dividends, Qualifications, and Terms and Conditions of
------------------------------------------------------------------------
Redemption. Except as provided hereby, each share of Class E - Special
----------
Series 1 and Class F - Special Series 1 shall have the same preferences,
conversion, and other rights, voting powers, restrictions, limitations as
to dividends, qualifications, and terms and conditions of redemption
applicable to all
-3-
<PAGE>
other shares of Common Stock as set forth in the Charter and shall also
have the same preferences, conversion, and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption as each other share formerly, now or hereafter
classified as a share of Class E or F Common Stock, respectively
(irrespective of whether said share has been classified as a part of a
series of said Class and, if so classified as a part of a series,
irrespective of the particular series classification) except that:
a. (i) on any matter that pertains to the agreements or expenses and
liabilities described under Section 2, clause a. (1) above (or to any
plan or other document adopted by the Corporation relating to said
agreements, expenses, or liabilities) and is submitted to a vote of
shareholders of the Corporation, only the shares of Class E or F
Common Stock (excluding the other shares classified as a series of
such Class other than Class E or F Common Stock, respectively) shall
be entitled to vote, except that if said matter affects shares of
capital stock in the Corporation other than shares of Class E or F
Common Stock, such other affected shares of capital stock in the
Corporation shall also be entitled to vote, and in such case, shares
of Class E or F Common Stock shall be voted in the aggregate together
with such other affected shares and not by class or series except
where otherwise required by law or permitted by the Board of Directors
of the Corporation; and (ii) if any matter submitted to a vote of
shareholders does not affect the shares of Class E or F Common Stock,
such shares shall not be entitled to vote (except where required by
law or permitted by the Board of Directors) even though the matter is
submitted to a vote of the holders of shares of capital stock in the
Corporation other than said shares of Class E or F Common Stock; and
b. (i) on any matter that pertains to the agreements or expenses and
liabilities described in Section 2, clause a. (2) above (or to any
plan or other document adopted by the Corporation relating to said
agreements, expenses, or liabilities) and is submitted to a vote of
shareholders of the Corporation, only shares of Class E - Special
Series 1 or Class F - Special Series 1, respectively (excluding shares
designated as a series of such Class other than Class E - Special
Series 1 or Class F - Special Series 1, respectively) shall be
entitled to vote, except that if said matter affects shares of capital
stock of the Corporation other than shares of Class E - Special Series
1 or Class F -Special Series 1, respectively, such other affected
shares of capital stock of the Corporation shall also be entitled to
vote, and in such case shares of Class E
-4-
<PAGE>
- Special Series 1 or Class F - Special Series 1, respectively shall
be voted in the aggregate together with such other affected shares and
not by class or series except where otherwise required by law or
permitted by the Board of Directors of the Corporation; and (ii) if
any matter submitted to a vote of shareholders does not affect shares
of Class E -Special Series 1 or Class F - Special Series 1,
respectively, said shares shall not be entitled to vote (except where
required by law or permitted by the Board of Directors) even though
the matter is submitted to a vote of holders of shares of capital
stock of the Corporation other than said shares of Class E - Special
Series 1 or Class F - Special Series 1, respectively.
SECOND: The shares of Common Stock of the Corporation classified
pursuant to the resolutions set forth herein have been classified by the
Corporation's Board of Directors under the authority contained in the
Corporation's Articles of Incorporation.
THIRD: The total number of shares of capital stock which the
Corporation is presently authorized to issue remains Ten Billion
(10,000,000,000) shares of Common Stock, of which Seven Hundred Million
(700,000,000) shares of the par value of One Mill ($.001) per share each are
Class A Common Stock; Seven Hundred Million (700,000,000) shares of the par
value of One Mill ($.001) per share each are Class B Common Stock; Six Hundred
Million (600,000,000) shares of the par value of One Mill ($.001) per share each
are Class C Common Stock; Six Hundred Million (600,000,000) shares of the par
value of One Mill ($.001) per share each are Class D Common Stock; Five Hundred
Million (500,000,000) shares of the par value of One Mill ($.001) per share each
are Class E Common Stock; Five Hundred Million (500,000,000) shares of the par
value of One Mill ($.001) per share each are Class E - Special Series 1 Common
Stock; Five Hundred Million (500,000,000) shares of the par value of One Mill
($.001) per share each are Class F Common Stock; Five Hundred Million
(500,000,000) shares of the par value of One Mill ($.001) per share each are
Class F - Special Series 1 Common Stock; Four Hundred Million (400,000,000)
shares of the par value of One Mill ($.001) per share each are Class G Common
Stock; Four Hundred Million (400,000,000) shares of the par value of One Mill
($.001) per share each are Class H Common Stock; and Four Hundred Million
(400,000,000) shares of the par value of One Mill ($.001) per share each are
Class I Common Stock. The aggregate par value of all Common Stock having par
value is unchanged at Ten Million Dollars ($10,000,000).
-5-
<PAGE>
The total number of authorized and unclassified shares of capital
stock of the Company remaining after the actions described above is Four Billion
Two Hundred Million (4,200,000,000) shares of capital stock of the par value of
One Mill ($0.001) and of the aggregate par value of Four Million Two Hundred
Thousand Dollars ($4,200,000).
IN WITNESS WHEREOF, M.S.D. & T. FUNDS, INC. has caused these presents
to be signed in its name and on its behalf by its President and its corporate
seal to be hereunto affixed and attested by its Secretary as of this 22nd day of
November, 1995
[CORPORATE SEAL] M.S.D. & T. FUNDS, INC.
By:/s/ Leslie B. Disharoon
----------------------------
Leslie B. Disharoon
President
Attest:
/s/ W. Bruce McConnel, III
- ---------------------------
W. Bruce McConnel, III
Secretary
-6-
<PAGE>
CERTIFICATE
-----------
THE UNDERSIGNED, President of M.S.D. & T. FUNDS, INC., who executed on
behalf of said Corporation the attached Articles Supplementary of said
Corporation, of which this certificate is made a part, hereby acknowledges, in
the name and on behalf of said Corporation, the attached Articles Supplementary
to be the corporate act of said Corporation, and certifies that to the best of
his knowledge, information and belief the matters and facts set forth in the
attached Articles Supplementary with respect to authorization and approval are
true in all material respects, under the penalties for perjury.
/s/ Leslie B. Disharoon
---------------------------
Dated as of November 22, 1995 Leslie B. Disharoon
President
-7-
<PAGE>
EXHIBIT (1) (h)
ARTICLES SUPPLEMENTARY
OF
M.S.D. & T. FUNDS, INC.
M.S.D. & T. FUNDS, INC., a Maryland corporation having its principal office
in the City of Baltimore, Maryland and registered as an open-end investment
company under the Investment Company Act of 1940, as amended (hereinafter called
the "Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Pursuant to Section 2-208 of the Maryland General Corporation
Law, the Board of Directors of the Corporation has classified Four Hundred
Million (400,000,000) shares of the Corporation's authorized but unissued and
unclassified shares of capital stock, of the par value of One Mill ($.001) per
share, as Class J Common Stock, of the par value of One Mill ($.001) per share,
pursuant to the following resolutions adopted at a regular meeting of the Board
of Directors of the Corporation held on January 24, 1997:
RESOLVED, that pursuant to the authority expressly given to the Board of
Directors in Article VI, Section 6.4 of the Company's Articles of
Incorporation, the Board hereby classifies Four Hundred Million (400,000,000)
of the Company's authorized but unissued and unclassified shares as Class J
Common Stock (with an aggregate par value of Four Hundred Thousand Dollars
($400,000));
FURTHER RESOLVED, that shares of Class J Common Stock shall represent
interests in the Diversified Real Estate Fund;
FURTHER RESOLVED, that each share of Class J Common Stock shall have the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption as set forth in the Articles; and
FURTHER RESOLVED, that the officers of the Company be, and each of them
hereby is, authorized and empowered to execute, seal, deliver and file any
and all documents, instruments, papers and writings, including but not
limited to filing Articles Supplementary with the State Department of
Assessments and Taxation of Maryland, and to do any and all other acts,
including but not limited to changing the foregoing resolutions upon advice
of the Company's counsel
<PAGE>
prior to filing said Articles Supplementary, in the name of the Company
and on its behalf, as may be necessary or desirable in connection with
or in furtherance of the foregoing resolutions, such determination to be
conclusively evidenced by said officer taking any such actions.
SECOND: The shares of Common Stock of the Corporation classified
pursuant to the resolutions set forth herein have been classified by the
Corporation's Board of Directors under the authority contained in the
Corporation's Articles of Incorporation.
THIRD: The total number of shares of capital stock which the Corporation
is presently authorized to issue remains Ten Billion (10,000,000,000) shares of
Common Stock, of which Seven Hundred Million (700,000,000) shares of the par
value of One Mill ($.001) per share each are Class A Common Stock; Seven Hundred
Million (700,000,000) shares of the par value of One Mill ($.001) per share each
are Class B Common Stock; Six Hundred Million (600,000,000) shares of the par
value of One Mill ($.001) per share each are Class C Common Stock; Six Hundred
Million (600,000,000) shares of the par value of One Mill ($.001) per share each
are Class D Common Stock; Five Hundred Million (500,000,000) shares of the par
value of One Mill ($.001) per share each are Class E Common Stock; Five Hundred
Million (500,000,000) shares of the par value of One Mill ($.001) per share each
are Class E - Special Series 1 Common Stock; Five Hundred Million (500,000,000)
shares of the par value of One Mill ($.001) per share each are Class F Common
Stock; Five Hundred Million (500,000,000) shares of the par value of One Mill
($.001) per share each are Class F - Special Series 1 Common Stock; Four Hundred
Million (400,000,000) shares of the par value of One Mill ($.001) per share each
are Class G Common Stock; Four Hundred Million (400,000,000) shares of the par
value of One Mill ($.001) per share each are Class H Common Stock; Four Hundred
Million (400,000,000) shares of the par value of One Mill ($.001) per share each
are Class I Common Stock; and Four Hundred Million (400,000,000) shares of the
par value of One Mill ($.001) per share each are Class J Common Stock. The
aggregate par value of all Common Stock having par value is unchanged at Ten
Million Dollars ($10,000,000).
The total number of authorized and unclassified shares of capital stock
of the Company remaining after the actions described above is Three Billion
Eight Hundred Million (3,800,000,000) shares of capital stock of the par value
of One Mill ($0.001) and of the aggregate par value of Three Million Eight
Hundred Thousand Dollars ($3,800,000).
-2-
<PAGE>
IN WITNESS WHEREOF, M.S.D. & T. FUNDS, INC. has caused these presents to
be signed in its name and on its behalf by its President and its corporate seal
to be hereunto affixed and attested by its Secretary as of this 8th day of June.
1997
[CORPORATE SEAL] M.S.D. & T. FUNDS, INC.
By: /s/ Leslie B. Disharoon
----------------------------
Leslie B. Disharoon
President
Attest:
/s/ W. Bruce McConnel, III
- --------------------------------
W. Bruce McConnel, III
Secretary
-3-
<PAGE>
CERTIFICATE
-----------
THE UNDERSIGNED, President of M.S.D. & T. FUNDS, INC., who executed on
behalf of said Corporation the attached Articles Supplementary of said
Corporation, of which this certificate is made a part, hereby acknowledges, in
the name and on behalf of said Corporation, the attached Articles Supplementary
to be the corporate act of said Corporation, and certifies that to the best of
his knowledge, information and belief the matters and facts set forth in the
attached Articles Supplementary with respect to authorization and approval are
true in all material respects, under the penalties for perjury.
/s/ Leslie B. Disharoon
----------------------------------
Dated as of June 8, 1997 Leslie B. Disharoon
President
<PAGE>
M.S.D.& T. FUNDS, INC.
BYLAWS
ARTICLE I
---------
STOCKHOLDERS
------------
SECTION 1.1. Annual Meetings. Any annual meeting of the stockholders
---------------
of the Corporation for the purpose of electing directors and for the transaction
of such other business as may properly be brought before the meeting, shall be
held on such date within the month of May and at such place, within or without
the State of Maryland, as may be determined by the Board of Directors and as
shall be designated in the notice of said meeting. No annual meeting of
stockholders of the Corporation shall be held unless required by applicable law
or otherwise determined by the Board of Directors.
SECTION 1.2. Special Meetings. Special meetings of the stockholders
----------------
for any purpose or purposes, unless otherwise prescribed by statute or by the
charter, may be held at any place, within or without the State of Maryland, and
may be called at any time by the Board of Directors or by the President, and
shall be called at the request in writing of stockholders entitled to cast at
least twenty-five (25) percent of all the votes entitled to be cast at such
meeting. Such request shall state the purpose or purposes of the proposed
meeting and the matters proposed to be acted on at it; provided, however, that
unless requested by stockholders entitled to cast a majority of all the votes
entitled to be cast at the meeting, a special meeting need not be called to
consider any matter which is substantially the same as a matter voted on at any
special meeting of the stockholders held during the preceding twelve (12)
months. The Secretary shall inform such stockholders of the reasonably
estimated costs of preparing and mailing the notice of the meeting and on
payment of these costs to the Corporation shall notify each stockholder entitled
to notice of the meeting.
SECTION 1.3. Notice of Meetings. Written or printed notice of the
------------------
purpose or purposes and of the time and place of every meeting of the
stockholders shall be given by the Secretary of the Corporation to each
stockholder of record entitled to vote at the meeting and each other stockholder
entitled to notice of the meeting, by placing such notice in the mail at least
ten (10) days, but not more than ninety (90) days, and in any event within the
period prescribed by law, prior to the date named for the meeting addressed to
each stockholder at his address appearing on the books of the Corporation or
supplied by him to the Corporation for the purposes of notice. The notice of
every meeting of stockholders may be accompanied by a form of proxy
<PAGE>
approved by the Board of Directors in favor of such actions or persons as the
Board of Directors may select.
SECTION 1.4. Record Date. The Board of Directors may fix a date not
-----------
more than ninety (90) days preceding the date of any meeting of stockholders, or
the date fixed for the payment of any dividend, or the date of the allotment of
rights, as a record date for the determination of stockholders entitled to
notice of, or to vote at, any such meeting (or any adjournment thereof) or
entitled to receive payment of any dividend, or to receive such allotment of
rights. In such case, only stockholders of record at the time so fixed shall be
entitled to vote, to receive notice, or receive dividends or rights,
notwithstanding any subsequent transfer on the books of the Corporation. The
Board of Directors shall not close the books of the Corporation against
transfers of shares during the whole or any part of such period. In the case of
a meeting of stockholders, the record date shall be fixed not less than ten (10)
days prior to the date of the meeting.
SECTION 1.5. Quorum and Shareholder Action. Except as otherwise
-----------------------------
provided by statute or by the Charter, the presence in person or by proxy of
stockholders of the Corporation entitled to cast at least a majority of all the
votes entitled to be cast at the meeting shall constitute a quorum and a
majority of all the votes cast at a meeting at which a quorum is present shall
be sufficient to approve any matter which properly comes before the meeting. In
the absence of a quorum, the stockholders present in person or by proxy, by
majority vote and without notice other than by announcement at the meeting, may
adjourn the meeting from time to time as provided in Section 1.7 until a quorum
shall attend. The stockholders present at any duly organized meeting may
continue to do business until adjournment, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum.
SECTION 1.6. Organization. At every meeting of the stockholders, the
------------
Chairman of the Board, if one has been selected and is present or, if not, the
President, or in the absence of the Chairman of the Board and the President, a
Vice President, or in the absence of the Chairman of the Board, the President
and all the Vice Presidents, a chairman chosen by the Board of Directors of the
Corporation or, in the absence of the Chairman, the President, all the Vice
Presidents and a Chairman chosen by the Board of Directors, a Chairman chosen by
the stockholders, shall act as Chairman; and the Secretary, or in his absence,
an Assistant Secretary, or in the absence of the Secretary and all the Assistant
Secretaries, a person appointed by the Chairman, shall act as Secretary of the
meeting.
SECTION 1.7. Adjournment. Any meeting of the stockholders may be
-----------
adjourned from time to time, without notice
-2-
<PAGE>
other than by announcement at the meeting at which such adjournment is taken,
and at any such adjourned meeting at which a quorum shall be present any action
may be taken that could have been taken at the meeting originally called;
provided, that the meeting may not be adjourned to a date more than the number
of days after the original record date for the meeting permitted by law, and if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the adjourned meeting.
ARTICLE II
----------
BOARD OF DIRECTORS
------------------
SECTION 2.1. Election and Powers. The number of directors shall be
-------------------
fixed from time to time by resolution adopted by a majority of the entire Board
of Directors; provided, however, that the number of directors shall in no event
be less than three (3) nor more than fifteen (15). The business, affairs and
property of the Corporation shall be managed by or under the direction of the
Board of Directors, which may exercise all such powers of the Corporation and do
all such lawful acts and things as are not by statute, the Charter or these
Bylaws required to be exercised or done by the stockholders. The members of the
Board of Directors shall be elected by the stockholders at their annual meeting
and each Director shall hold office until the annual meeting next after his
election and until his successor shall have been duly elected and qualified,
until he shall have resigned, or until he shall have been removed as provided in
Section 2.11.
SECTION 2.2. Regular Meetings. Regular meetings of the Board of
----------------
Directors may be held without notice on such dates as the Board may from time to
time determine.
SECTION 2.3. Special Meetings. Special meetings of the Board of
----------------
Directors shall be held whenever called by the Chairman of the Board, the
President or by a majority of the directors either in writing or by vote at a
meeting.
SECTION 2.4. Notice of Special Meetings. Notice of the place, day
--------------------------
and hour of every special meeting shall be delivered personally to each director
or mailed, telegraphed or cabled to his address on the books of the Corporation
at least one (1) day before the meeting. It shall not be requisite to the
validity of any meeting of the Board of Directors that notice thereof shall have
been given to any director who is present thereat, or, if absent, waives notice
thereof in writing filed with the records of the meeting either before or after
the holding thereof.
-3-
<PAGE>
SECTION 2.5. Place of Meetings. The Board of Directors may hold its
-----------------
regular and special meetings at such place or places within or without the State
of Maryland as the Board may from time to time determine.
SECTION 2.6. Quorum and Board Action. Except as otherwise provided
-----------------------
by statute or by the Charter: (a) one-third (1/3) of the entire Board of
Directors, but in no case less than two (2) directors, shall be necessary to
constitute a quorum for the transaction of business at each meeting of the
Board; (b) the action of a majority of the directors present at a meeting at
which a quorum is present shall be the action of the Board; and (c) if at any
meeting there be less than a quorum present, a majority of those directors
present may adjourn the meeting from time to time, but not for a period greater
than thirty (30) days at any one time, without notice other than by announcement
at the meeting until a quorum shall attend. At any such adjourned meeting at
which a quorum shall be present, any business may be transacted which might have
been transacted at the meeting as originally scheduled.
SECTION 2.7. Action without Meeting. Except with respect to the
----------------------
approval of any investment advisory agreement, any action required or permitted
to be taken at a meeting of the Board of Directors or a committee of the Board
may be taken without a meeting if an unanimous consent which sets forth the
action is signed by each member of the Board or committee and is filed with the
minutes of proceedings of the Board or committee.
SECTION 2.8. Chairman. The Board of Directors may at any time
--------
appoint one of its members as Chairman of the Board, who shall serve at the
pleasure of the Board and who shall perform and execute such duties and powers
as may be conferred upon or assigned to him by the Board or these Bylaws, but
who shall not by reason of performing and executing these duties and powers be
deemed an officer or employee of the Corporation.
SECTION 2.9. Organization. At every meeting of the Board of
------------
Directors, the Chairman of the Board, if one has been selected and is present,
and, if not, or in the absence of the Chairman of the Board, a chairman chosen
by a majority of the directors present, shall preside; and the Secretary, or in
his absence, an Assistant Secretary, or in the absence of the Secretary and all
the Assistant Secretaries, a person appointed by the Chairman, shall act as
Secretary.
SECTION 2.10. Vacancies. Any vacancy on the Board of Directors
---------
occurring by reason of any increase in the number of directors may be filled by
a majority of the entire Board of Directors. Any vacancy on the Board of
Directors occurring for any other cause may be filled by a majority of the
remaining members of the Board of Directors, whether or not these members
-4-
<PAGE>
constitute a quorum under this Section 2.6. Any director so chosen to fill a
vacancy shall hold office until the next annual meeting of stockholders and
until his successor shall have been duly elected and qualified.
SECTION 2.11. Removal. At any meeting of the stockholders called for
-------
that purpose, the stockholders of the Corporation may remove from office any
director, with or without cause, by the affirmative vote of a majority of the
votes entitled to be cast for the election of directors, and another director
may be elected in the place of the director so removed to serve for the
remainder of the term of the removed director.
SECTION 2.12. Resignations. Any director may resign at any time by
------------
giving written notice to the Board of Directors, the President or the Secretary.
Any such resignation shall take effect at the time of the receipt of such notice
or at any later time specified therein; and unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
SECTION 2.13. Committees. The Board of Directors may appoint from
----------
among its members an executive and other committees of the Board composed of two
(2) or more directors. To the extent permitted by law, the Board of Directors
may delegate to any such committee or committees any of the powers of the Board
of Directors in the management of the business, affairs and property of the
Corporation. Such committee or committees shall have such name or names as may
be determined from time to time by resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings and report the same to
the Board of Directors when required. The members of a committee present at any
meeting, whether or not they constitute a quorum, may appoint a director to act
in the place of an absent member.
SECTION 2.14. Telephone Conference. Except with respect to the
--------------------
approval of any investment advisory agreement, members of the Board of Directors
or any committee thereof may participate in a meeting of the Board or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other
at the same time and participation by such means shall constitute presence in
person at the meeting.
SECTION 2.15. Compensation of Directors. Any director, whether or
-------------------------
not he is a salaried officer, employee, or agent of the Corporation, may be
compensated for his services as director or as a member of a committee, or as
Chairman of the Board or chairman of a committee, and in addition may be
reimbursed for transportation and other expenses, all in such manner and amounts
as the directors may from time to time determine.
-5-
<PAGE>
ARTICLE III
-----------
OFFICERS
--------
SECTION 3.1. Number. The officers of the Corporation shall be a
------
President, a Secretary, and a Treasurer, and may include a Chairman of the
Board, one or more Vice Presidents, one or more Assistant Secretaries, one or
more Assistant Treasurers, and such other officers as the Board of Directors may
from time to time determine. Any officer may hold more than one office in the
Corporation, except that an officer may not serve concurrently as both the
President and a Vice President.
SECTION 3.2. Election and Term of Office. The officers of the
---------------------------
Corporation shall be elected by the Board of Directors and, subject to earlier
termination of office, each officer shall hold office for one year and until his
successor shall have been elected and qualified.
SECTION 3.3. Resignations. Any officer may resign at any time by
------------
giving written notice to the Board of Directors or to the President, or the
Secretary of the Corporation. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 3.4. Removal. If the Board of Directors in its judgment
-------
finds that the best interests of the Corporation will be served, the Board may
remove any officer of the Corporation at any time.
SECTION 3.5. Chairman of the Board. The Chairman of the Board, if
---------------------
one is elected, shall have the responsibility for the implementation of the
policies determined by the Board of Directors and for the administration of the
business affairs of the Corporation. He shall preside over the meetings of the
Board and of the stockholders at which he is present.
SECTION 3.6. President. The President shall be the chief executive
---------
officer of the Corporation and shall have general supervision over the business
and operations of the Corporation, subject, however, to the control of the Board
of Directors. He, or such persons as he shall designate, shall sign, execute,
acknowledge, verify, deliver and accept, in the name of the Corporation, deeds,
mortgages, bonds, contracts and other instruments authorized by the Board of
Directors, except in the case where the signing, execution, acknowledgement,
verification, delivery or acceptance thereof shall be delegated by the Board to
some other officer or agent of the Corporation; and, in general, he shall have
general executive powers as well as other powers
-6-
<PAGE>
and duties as from time to time may be conferred upon or assigned to him by the
Board.
SECTION 3.7. The Vice Presidents. In the absence or disability of
-------------------
the President, or when so directed by the President, any Vice President
designated by the Board of Directors may perform any or all of the duties of the
President, and, when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the President; provided, however, that no Vice
President shall act as a member of or as chairman of any committee of which the
President is a member or chairman by designation or ex officio, except when
designated by the Board. Each Vice President shall perform such other duties as
from time to time may be conferred upon or assigned to him by the Board or the
President.
SECTION 3.8. The Secretary. The Secretary shall record all the votes
-------------
of the stockholders and of the directors and the minutes of the meetings of the
stockholders and of the Board of Directors in a book or books to be kept for
that purpose; he shall see that notices of meetings of the stockholders and the
Board of Directors are given and that all records and reports are properly kept
and filed by the Corporation as required by law; he shall be the custodian of
the seal of the Corporation and shall see that it is affixed to all documents to
be executed on behalf of the Corporation under its seal, provided that in lieu
of affixing the corporate seal to any document, it shall be sufficient to meet
the requirements of any law, rule or regulation relating to a corporate seal to
affix the word ("SEAL") adjacent to the signature of the authorized officer of
the Corporation; and, in general, he shall perform all duties incident to the
office of Secretary, and such other duties as from time to time may be conferred
upon or assigned to him by the Board or the President.
SECTION 3.9. Assistant Secretaries. In the absence or disability of
---------------------
the Secretary, or when so directed by the Secretary, any Assistant Secretary may
perform any or all of the duties of the Secretary, and, when so acting, shall
have all the powers of, and be subject to all restrictions upon, the Secretary.
Each Assistant Secretary shall perform such other duties as from time to time
may be conferred upon or assigned to him by the Board of Directors, the
President or the Secretary.
SECTION 3.10. The Treasurer. Subject to the provisions of any
-------------
contract which may be entered into with any custodian pursuant to authority
granted by the Board of Directors, the Treasurer shall have charge of all
receipts and disbursements of the Corporation and shall have or provide for the
custody of its funds and securities; he shall have full authority to receive and
give receipts for all money due and payable to the Corporation, and to endorse
checks, drafts and
-7-
<PAGE>
warrants, in its name and on its behalf, and to give full discharge for the
same; he shall deposit all funds of the Corporation, except such as may be
required for current use, in such banks or other places of deposit as the Board
of Directors may from time to time designate; and, in general, he shall perform
all duties incident to the office of Treasurer and such other duties as from
time to time may be conferred upon or assigned to him by the Board or the
President.
SECTION 3.11. Assistant Treasurers. In the absence or disability of
--------------------
the Treasurer, or when so directed by the Treasurer, any Assistant Treasurer may
perform any or all of the duties of the Treasurer and, when so acting, shall
have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform all such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Treasurer.
SECTION 3.12. Compensation of Officers. The compensation of all
------------------------
officers shall be fixed from time to time by the Board of Directors, or any
committee or officer authorized by the Board so to do. No officer shall be
precluded, from receiving such compensation by reason of the fact that he is
also a director of the Corporation.
ARTICLE IV
----------
STOCK
-----
SECTION 4.1. Certificates. The Board of Directors may authorize the
------------
issuance of stock either in certificated or in uncertificated form. If shares
are issued in uncertificated form, each stockholder of a certificated security
shall be entitled upon written request to a stock certificate or certificates,
representing and certifying the number and kind of full shares held by him,
signed by the President, a Vice President or the Chairman of the Board and
countersigned by the Secretary, an Assistant Secretary, the Treasurer or an
Assistant Treasurer, which signatures may be either manual or facsimile
signatures, and sealed with the seal of the Corporation, which seal may be
either facsimile or any other form of seal. Stock certificates shall be in such
form not inconsistent with law or with the Charter, as shall be approved by the
Board of Directors.
SECTION 4.2. Transfer of Shares. Transfers of shares shall be made
------------------
on the books of the Corporation at the direction of the person named on the
Corporation's books or named in the certificate or certificates for such shares
(if issued), or by his attorney lawfully constituted in writing, upon surrender
of such certificate or certificates (if issued) properly endorsed, to the
Corporation's Transfer Agent, with such evidence of the authenticity of such
transfer, authorization and such other
-8-
<PAGE>
matters as the Corporation or its agents may reasonably require, and subject to
such other reasonable terms and conditions as may be required by the Corporation
or its agents; or, if the Board of Directors shall by resolution so provide,
transfer of shares may be made in any other manner provided by law.
SECTION 4.3. Transfer Agents and Registrars. The Corporation may
------------------------------
have one or more Transfer Agents and one or more Registrars of its stock, whose
respective duties the Board of Directors may, from time to time, define. No
certificate of stock shall be valid until countersigned by a Transfer Agent, if
the Corporation shall have a Transfer Agent, or until registered by a Registrar,
if the Corporation shall have a Registrar. The duties of Transfer Agent and
Registrar may be combined.
SECTION 4.4. Mutilated, Lost, Stolen, or Destroyed Certificates. The
--------------------------------------------------
Board of Directors, by standing resolution or by resolutions with respect to
particular cases, may authorize the issuance of a new stock certificate in lieu
of any stock certificate lost, stolen, destroyed, or mutilated, upon such terms
and conditions as the Board may direct. The Board may in its discretion refuse
to issue such a new certificate, unless ordered to do so by a court of competent
jurisdiction.
SECTION 4.5. Stock Ledgers. The Corporation shall not be required to
-------------
keep original or duplicate stock ledgers at its principal office in the City of
Baltimore, Maryland, but stock ledgers shall be kept at the respective offices
of the Transfer Agent of the Corporation's capital stock.
ARTICLE V
---------
SEAL
----
SECTION 5.1. The seal of the Corporation shall be in such form as the
Board of Directors shall prescribe.
ARTICLE VI
----------
SUNDRY PROVISIONS
-----------------
SECTION 6.1. Amendments. (a) By Stockholders. Bylaws may be
---------- ---------------
adopted, altered, amended or repealed in the manner provided in Section 1.5
hereof at any annual or special meeting of the stockholders.
(b) By Directors. Bylaws may be adopted, altered, amended or repealed
------------
in the manner provided in Section 2.6 hereof by the Board of Directors at any
regular or special meeting of the Board.
-9-
<PAGE>
SECTION 6.2. Indemnification of Directors and Officers. (a)
-----------------------------------------
Indemnification. The Corporation shall indemnify its directors to the fullest
- ---------------
extent permitted by the Maryland General Corporation Law. The Corporation shall
indemnify its officers to the same extent as its directors and to such further
extent as is consistent with law. The Corporation shall indemnify its directors
and officers who while serving as directors or officers also serve at the
request of the Corporation as a director, officer, partner, trustee, employee,
agent, or fiduciary of another corporation, partnership, joint venture, trust,
other enterprise, or employee benefit plan to the same extent as its directors
and, in the case of officers, to such further extent as is consistent with law.
This Article shall not protect any such person against any liability to the
Corporation or any stockholder thereof to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office
("disabling conduct").
(b) Advances. Any current or former director or officer of the
--------
Corporation claiming indemnification within the scope of this Section 6.2 shall
be entitled to advances from the Corporation for payment of the reasonable
expenses incurred by him in connection with the proceedings to which he is a
party in the manner and to the full extent permissible under applicable state
corporation laws, the Securities Act of 1933 and the Investment Company Act of
1940, as such statutes are now or hereafter in force.
(c) Procedures. On the request of any current or former director or
----------
officer requesting indemnification or an advance under this Section 6.2, the
Board of Directors shall determine, or cause to be determined, in a manner
consistent with applicable state corporation law, the Securities Act of 1933 and
the Investment Company Act of 1940, as such statutes are now or hereafter in
force, whether the standards required by this Section 6.2 have been met.
(d) Other Rights. The indemnification provided by this Section 6.2
------------
shall not be deemed exclusive of any other right, in respect of indemnification
or otherwise, to which those seeking such indemnification may be entitled under
any insurance or other agreement, vote of stockholders or disinterested
directors or otherwise, both as to action by a director or officer of the
Corporation in his official capacity and as to action by such person in another
capacity while holding such office or position, and shall continue as to a
person who has ceased to be a director or officer and shall inure to the benefit
of the heirs, executors and administrators of such a person.
-10-
<PAGE>
M.S.D. & T. FUNDS, INC.
Amendment to By-Laws
Adopted by the Board of Directors
On April 23, 1990
--------------------------------------------
RESOLVED, that Section 1.1 of Article I of the Fund's By-Laws be, and
hereby is, amended and restated in its entirety to read as follows:
SECTION 1.1 Annual Meetings. Any annual meeting of the
---------------
stockholders of the Corporation for the purpose of electing directors
and for the transaction of such other business as may properly be
brought before the meeting, shall be held on such date within the
month of July and at such place, within or without the State of
Maryland, as may be determined by the Board of Directors and as shall
be designated in the notice of said meeting. No annual meeting of
stockholders of the Corporation shall be held unless required by
applicable law or otherwise determined by the Board of Directors.
<PAGE>
M.S.D. & T. FUNDS, INC.
Amendment to By-Laws
Adopted by the Board of Directors
on July 17, 1991
RESOLVED, that Article I, Section 1.5 of the Company's By-Laws be, and
it hereby is, amended and restated in its entirety to read as follows:
SECTION 1.5. Quorum and Shareholder Action. Except as otherwise
-----------------------------
provided by statue or by the Charter, the presence in person or by proxy of
stockholders of the Company entitled to cast at least a majority of all the
votes entitled to be cast at the meeting (without regard to class) shall
constitute a quorum at any meeting of the stockholders, except with respect to
any matter that, under the Charter or applicable law, requires approval by a
separate vote of one or more classes of stock, in which case the presence in
person or by proxy of stockholders of the Company entitled to cast at least a
majority of all of the votes of the separate class or classes, as the case may
be, entitled to be cast on such matter shall constitute a quorum; and, at a
meeting at which a quorum is present, a majority of all the votes cast and
entitled to vote on a matter at the meeting shall be sufficient to approve any
such matter which properly comes before the meeting. In the absence of a
quorum, the stockholders present in person or by proxy, by majority vote and
without notice other than by announcement at the meeting, may adjourn the
meeting from time to time as provided in Section 1.7 until a quorum shall
attend. The stockholders present at any duly organized meeting may continue to
do business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
<PAGE>
Exhibit 2(d)
M.S.D. & T. FUNDS, INC.
Amendment to Bylaws
Adopted by the Board of Directors
On January 22, 1996
RESOLVED, that Article I, Section 1.2 of the Company's Bylaws be, and
it hereby is, amended and restated in its entirety to read as follows:
SECTION 1.2. Special Meetings. Special meetings of the stockholders
----------------
for any purpose or purposes, unless otherwise prescribed by statute or by
the charter, may be held at any place, within or without the State of
Maryland, and may be called at any time by the Board of Directors or by the
President, and shall be called at the request in writing of stockholders
entitled to cast at least ten (10) percent of all the votes entitled to be
cast at such meeting. Such request shall state the purpose or purposes of
the proposed meeting and the matters proposed to be acted on at it;
provided, however, that unless requested by stockholders entitled to cast a
majority of all the votes entitled to be cast at the meeting, a special
meeting need not be called to consider any matter which is substantially
the same as a matter voted on at any special meeting of the stockholders
held during the preceding twelve (12) months. The Secretary shall inform
such stockholders of the reasonably estimated costs of preparing and
mailing the notice of the meeting and on payment of these costs to the
Corporation shall notify each stockholder entitled to notice of the
meeting.
<PAGE>
ADVISORY AGREEMENT
M.S.D.& T. FUNDS, INC.
Two Hopkins Plaza
Baltimore, Maryland 21201
July 21 , 1989
---------------
Mercantile-Safe Deposit
& Trust Company
Two Hopkins Plaza
Baltimore, Maryland 21201
Dear Sirs:
This will confirm the agreement, entered into in consideration of the
premises and mutual covenants herein contained, and for other good and valuable
consideration, between the undersigned (the "Company") and you as follows:
1. General. The Company is an open-end investment company.
-------
This Agreement relates to three of the Company's short-term money market
portfolios -- the Prime Money Market Fund, the Government Money Market Fund, and
the Tax-Exempt Money Market Fund (individually, a "Fund" and collectively, the
"Funds"). The Company proposes to engage in the business of investing and
reinvesting the assets of each Fund in the manner and in accordance with the
investment objective, policies and limitations specified with respect to each
Fund in the Company's Prospectuses and Statement of Additional Information, (the
"Prospectus") included in the Company's Registration Statement, as amended from
time to time (the "Registration Statement"), filed under the Investment Company
Act of 1940, as amended (the "1940 Act"), and the Securities Act of 1933, as
amended. Copies of the Prospectus have been furnished to you. Any amendments to
the Prospectus shall be furnished to you promptly.
2. Advisory Services. Subject to the supervision
-----------------
and approval of the Company's Board of Directors, you will provide investment
management of each Fund's portfolio in accordance with such Fund's investment
objective, policies and limitations as stated in the Prospectus as from time to
time in effect, and resolutions of the Company's Board of Directors of which you
will be advised. In connection therewith, you will obtain and provide investment
research and will supervise each Fund's investments and conduct a continuous
program of investment, evaluation and, if appropriate, sale and reinvestment of
such Fund's assets. You will place orders for the purchase and sale of portfolio
securities and will solicit broker-dealers to execute transactions in accordance
with the Funds' policies and restrictions regarding brokerage allocations.
In the event that the Company establishes one or more portfolios other
than the Funds with respect to which it desires to retain you as investment
adviser hereunder, it shall notify you in writing. If you are willing to render
such services under this Agreement you shall notify the Company in writing,
whereupon such portfolio shall become a Fund hereunder and shall be subject to
the provisions of this Agreement to the same extent as the other Funds except to
the extent that said provisions (including those relating to compensation
payable by such additional Fund to you as investment adviser) are modified with
respect to such additional Fund in writing by you and the Company at the time.
<PAGE>
You will comply with all Rules and Regulations of the Securities and
Exchange Commission applicable to you in connection with your performance of
this Agreement, and will in addition conduct your activities under this
Agreement in accordance with other law, including banking law, applicable to
you.
You will not make loans for the purpose of purchasing or carrying Fund
shares, or make interest-bearing loans to the Company.
You will place orders pursuant to your investment determination for
the Funds either directly with the issuer or with any broker or dealer selected
by you. In executing portfolio transactions and selecting brokers or dealers,
you will use your reasonable best efforts to seek the most favorable execution
of orders, after taking into account all factors you deem relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. Consistent with this obligation, you may, to the extent
permitted by law, purchase and sell portfolio securities to and from brokers and
dealers who provide brokerage and research services (within the meaning of
Section 28(e) of the Securities Exchange Act of 1934) to or for the benefit of
the Funds and/or other accounts over which you or any of your affiliates
exercises investment discretion. You are authorized to pay to a broker or
dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for any Fund which is in excess of the amount
of commission another broker or dealer would have charged for effecting that
transaction if you determine in good faith that such commission was reasonable
in relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or your
overall responsibilities to the particular Fund and to the Company. In no
instance will portfolio securities be purchased from or sold to you, or the
Funds' principal underwriter, or any affiliated person thereof except as
permitted by the Securities and Exchange Commission.
3. Assistance. You may, employ or contract with other persons
----------
to assist you in the performance of this Agreement. Such persons may include
other investment advisory or management firms and officers or employees who are
employed by both you and the Company. The fees or other compensation of such
persons shall be paid by you and no obligation may be incurred on the Company's
behalf to any such person.
4. Fees. In consideration of the advisory services rendered
----
pursuant to this Agreement, each Fund will pay you on the first business day of
each month a fee at the annual rate of .25 of 1% of the value of such Fund's
average daily net assets during the preceding month. Net asset value shall be
computed in the manner, on such days and at such time or times as described in
the Funds' Prospectus from time to time. The fee for the period from the
effective date of the Registration Statement to the end of the first month
thereafter shall be pro-rated according to the proportion which such period
bears to the full monthly period, and upon any termination of this Agreement
before the end of any month, the fee for such part of a month shall be pro-rated
according to the proportion which such period bears to the full monthly period
and shall be payable upon the date of termination of this Agreement.
5. Expenses. You will bear all your own expenses in connection
--------
with the performance of your services under this Agreement, provided that such
expenses will not include the expenses to be borne by the Funds, as set forth
below. The expenses to be borne by the Funds include, without limitation, the
following: organizational costs; taxes; interest; brokerage fees and commissions
and other expenses in any way related to the execution, recording
-2-
<PAGE>
and settlement of portfolio security transactions; fees of Directors who are not
also your officers; Securities and Exchange Commission fees; state Blue Sky
qualification fees; charges of custodians and transfer and dividend paying
agents; premiums for directors and officers liability insurance; costs of
fidelity bonds; industry association fees; outside auditing and legal expenses;
costs of maintaining corporate existence; costs of maintaining required books
and accounts; cost of office facilities and supplies; data processing, clerical,
accounting and bookkeeping services and other administrative expenses; costs
attributable to investor services (including, without limitation, telephone and
personnel expenses); costs of shareholders' reports and meetings; costs of
preparing, printing and mailing share certificates, proxy statements and
prospectuses; and any extraordinary expenses.
6. Liability. You shall exercise your best judgment in
---------
rendering the services to be provided to each Fund. Each Fund agrees as an
inducement to you and to others who may assist you in providing services to the
Funds that you and such other persons shall not be liable for any alleged or
actual error of judgment or mistake of law or for any alleged or actual loss
suffered by such Fund or the Company and each Fund and the Company agree to
indemnify and hold harmless you and such other persons against and from any
claims, liabilities, actions, suits, proceedings, judgments or damages (and
expenses as and when incurred in connection therewith, including the reasonable
cost of investigating or defending same, including, but not limited to
attorneys' fees) arising out of any such alleged or actual error of judgment or
mistake of law or loss; provided that nothing herein shall be deemed to protect
or purport to protect you or any other such person against any liability to the
Company or to its security holders to which you or they would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties hereunder, or by reason of reckless disregard of the
obligations and duties hereunder.
7. Other Accounts. The Company understands that you and other
--------------
persons with whom you contract to provide the services hereunder may from time
to time act as investment adviser to one or more other investment companies and
fiduciary or other managed accounts, and the Company has no objection to your or
their so acting. When purchase or sale of securities of the same issuer is
suitable for the investment objectives of two or more companies or accounts
managed by you or such other persons which have available funds for investment,
the available securities may be allocated in a manner believed by you and such
other persons to be equitable to each company or account. It is recognized that
in some cases this procedure may adversely affect the price paid or received by
a Fund or the size of the position obtainable for or disposed of by a Fund.
In addition, it is understood that you and the persons with whom you
contract to assist in the performance of your duties hereunder will not devote
their full time to such service and nothing contained herein shall be deemed to
limit or restrict your or their right to engage in and devote time and attention
to similar or other businesses.
8. Books and Records. In compliance with the requirements of
-----------------
Rule 31a-3 under the 1940 Act, you agree that all records which you maintain for
the Company are the property of the Company and you further agree to surrender
promptly to the Company any of such records upon the Company's request. You
further agree to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act such records that you, as investment adviser, are required to maintain
by Rule 31a-1 under the 1940 Act.
9. Term. This Agreement shall continue with respect to each
----
Fund until the expiration of two years from the date of this Agreement and
thereafter shall continue automatically for successive annual periods ending
-3-
<PAGE>
on the anniversary of the date of this Agreement, provided such continuance with
respect to each Fund is specifically approved at least annually by the Company's
Board of Directors or vote of the lesser of (a) 67% of the shares of such Fund
represented at a meeting if holders of more than 50% of the outstanding shares
of the Fund are present in person or by proxy or (b) more than 50% of the
outstanding shares of such Fund, provided that in either event its continuance
also is approved by a majority of the Company's Directors who are not
"interested persons" (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. This Agreement is terminable with respect to any Fund or all
Funds without penalty, on 60 days' notice, by you or by the Company's Board of
Directors or by vote of the lesser of (a) 67% of the shares of such Fund
represented at a meeting if holders of more than 50% of the outstanding shares
of the Fund are present in person or by proxy or (b) more than 50% of the
outstanding shares of such Fund. This Agreement will terminate automatically in
the event of its assignment (as defined in the 1940 Act).
10. Amendment. This Agreement may be amended only by an
---------
instrument in writing signed by the party against which enforcement of the
amendment is sought. No amendment of this Agreement shall be effective with
respect to a particular Fund until approved by vote of a majority of that Fund's
outstanding voting securities.
11. M.S.D.& T. or Mercantile-Safe Deposit & Trust Company.
-----------------------------------------------------
The Company recognizes that from time to time your directors, officers and
employees may serve as directors, trustees, partners, officers and employees of
other corporations, business trusts, partnerships or other entities (including
other investment companies) and that such other entities may include the name
"M.S.D.& T." or "Mercantile-Safe Deposit & Trust Company" as part of their name.
You or your affiliates may enter into investment advisory or other agreements
with such other entities. If you cease to act as the Company's investment
adviser, the Company agrees that, at your request, the Company will take all
necessary action to change the name of the Company and its Funds to a name not
including "M.S.D.& T." or "Mercantile-Safe Deposit & Trust Company" in any form
or combination of words.
12. Miscellaneous. The captions in this Agreement are included
-------------
for convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule, or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by Maryland law; provided, that nothing herein shall be construed in a
manner inconsistent with the 1940 Act, the Investment Advisers Act of 1940, or
any rule or regulation of the Securities and Exchange Commission thereunder.
-4-
<PAGE>
If the foregoing is in accordance with your understanding, will you
kindly so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
M.S.D.& T. FUNDS, INC.
By: /s/ Leslie B. Disharoon
-----------------------
Accepted:
MERCANTILE-SAFE DEPOSIT & TRUST COMPANY
By: [signature illegible]
---------------------
-5-
<PAGE>
APPENDIX A
----------
The following persons are authorized to give Oral and Written
instructions on behalf of M.S.D.& T. FUNDS, INC.
Stephen M. Wynne
Vice President /s/ Stephen M. Wynner
- ----------------------------------- ------------------------------------
Barbara G. Berg
Vice President /s/ Barbara G. Berg
- ----------------------------------- ------------------------------------
Charles D. Curtis
Assistant Vice President /s/ Charles D. Curtis
- ----------------------------------- ------------------------------------
Norman D. Van Horn
Assistant Vice President /s/ Norman D. Van Horn
- ----------------------------------- ------------------------------------
Linda A. Durkin
Investment Accounting Officer /s/ Linda A. Durkin
- ----------------------------------- ------------------------------------
George C. Earle, Jr.
Assistant Vice President /s/ George C. Earle, Jr.
- ----------------------------------- ------------------------------------
Mark Palim
Assistant Portfolio Manager /s/ Mark Palim
- ----------------------------------- ------------------------------------
Christopher Nee
Account Administrator /s/ Christopher Nee
- ----------------------------------- ------------------------------------
John F. Greenberg
Investment Officer /s/ John F. Greenberg
- ----------------------------------- ------------------------------------
Joseph Seth Hamed
Assistant Portfolio Manager /s/ Joseph Seth Hamed
- ----------------------------------- ------------------------------------
Charles E. Merrick, III
Vice President /s/ Charles E. Merrick, III
- ----------------------------------- ------------------------------------
Brian J. Phelan
Investment Accounting Officer /s/ Brian J. Phelan
- ----------------------------------- ------------------------------------
Martin S. Siekierski
Sr. Investment Accounting Officer /s/ Martin S. Siekierski
- ----------------------------------- ------------------------------------
Susan A. Bruggeman
Investment Accounting Officer /s/ Susan A. Bruggeman
- ----------------------------------- ------------------------------------
John J. McCullough
Investment Accounting Office /s/ John J. McCullough
- ----------------------------------- ------------------------------------
-6-
<PAGE>
ADVISORY AGREEMENT
M.S.D.& T. FUNDS, INC.
Two Hopkins Plaza
Baltimore, Maryland 21201
July 21, 1989
Mercantile-Safe Deposit
& Trust Company
Two Hopkins Plaza
Baltimore, Maryland 21201
Dear Sirs:
This will confirm the agreement, entered into in consideration of the
premises and mutual covenants herein contained, and for other good and valuable
consideration, between the undersigned (the "Company") and you as follows:
1. General. The Company is an open-end investment company. This
-------
Agreement relates to one of the Company's short-term money market portfolios --
the Tax-Exempt Money Market Fund (Trust) (the "Fund"). The Company proposes to
engage in the business of investing and reinvesting the assets of the Fund in
the manner and in accordance with the investment objective, policies and
limitations specified with respect to the Fund in the Company's Prospectuses and
Statement of Additional Information, (the "Prospectus") included in the
Company's Registration Statement, as amended from time to time (the
"Registration Statement"), filed under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the Securities Act of 1933, as amended. Copies of
the Prospectus have been furnished to you. Any amendments to the Prospectus
shall be furnished to you promptly.
2. Advisory Services. Subject to the supervision and approval of
-----------------
the Company's Board of Directors, you will provide investment management of the
Fund's portfolio in accordance with the Fund's investment objective, policies
and limitations as stated in the Prospectus as from time to time in effect, and
resolutions of the Company's Board of Directors of which you will be advised.
In connection therewith, you will obtain and provide investment research and
will supervise the Fund's investments and conduct a continuous program of
investment, evaluation and, if appropriate, sale and reinvestment of the Fund's
assets. You will place orders for the purchase and sale of portfolio securities
and will solicit broker-dealers to execute
<PAGE>
transactions in accordance with the Fund's policies and restrictions regarding
brokerage allocations.
You will comply with all Rules and Regulations of the Securities and
Exchange Commission applicable to you in connection with your performance of
this Agreement, and will in addition conduct your activities under this
Agreement in accordance with other law, including banking law, applicable to
you.
You will not make loans for the purpose of purchasing or carrying Fund
shares, or make interest-bearing loans to the Company.
You will place orders pursuant to your investment determination for
the Fund either directly with the issuer or with any broker or dealer selected
by you. In executing portfolio transactions and selecting brokers or dealers,
you will use your reasonable best efforts to seek the most favorable execution
of orders, after taking into account all factors you deem relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. Consistent with this obligation, you may, to the extent
permitted by law, purchase and sell portfolio securities to and from brokers and
dealers who provide brokerage and research services (within the meaning of
Section 28(e) of the Securities Exchange Act of 1934) to or for the benefit of
the Fund and/or other accounts over which you or any of your affiliates
exercisers investment discretion. You are authorized to pay to a broker or
dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Fund which is in excess of the amount
of commission another broker or dealer would have charged for effecting that
transaction if you determine in good faith that such commission was reasonable
in relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or your
overall responsibilities to the Fund and to the Company. In no instance will
portfolio securities be purchased from or sold to you, or the Fund's principal
underwriter, or any affiliated person thereof except as permitted by the
Securities and Exchange Commission.
3. Assistance. You may employ or contract with other persons to
----------
assist you in the performance of this Agreement. Such persons may include other
investment advisory or management firms and officers or employees who are
employed by both you and the Company. The fees or other compensation of such
persons shall be paid by you and no obligation may be incurred on the Company's
behalf to any such person.
-2-
<PAGE>
4. Fees. In consideration of other arrangements between you and the
----
Company, no fee will be payable to you under this Agreement.
5. Expenses. You will bear all your own expenses in connection with
--------
the performance of your services under this Agreement, provided that such
expenses will not include the expenses to be borne by the Fund, as set forth
below. The expenses to be borne by the Fund include, without limitation, the
following: organizational costs; taxes; interest; brokerage fees and
commissions and other expenses in any way related to the execution, recording
and settlement of portfolio security transactions; fees of Directors who are not
also your officers; Securities and Exchange Commission fees; state Blue Sky
qualification fees; charges of custodians and transfer and dividend paying
agents; premiums for directors and officers liability insurance; costs of
fidelity bonds; industry association fees, outside auditing and legal expenses;
costs of maintaining corporate existence; costs of maintaining required books
and accounts; cost of office facilities and supplies; data processing, clerical,
accounting and bookkeeping services and other administrative expenses; costs
attributable to investor services (including, without limitation, telephone and
personnel expenses); costs of shareholders' reports and meetings, costs of
preparing, printing and mailing share certificates, proxy statements and
prospectuses; and any extraordinary expenses.
6. Liability. You shall exercise your best judgment in rendering
---------
the services to be provided to the Fund. The Fund agrees as an inducement to
you and to others who may assist you in providing services to the Fund that you
and such other persons shall not be liable for any alleged or actual error of
judgment or mistake of law or for any alleged or actual loss suffered by the
Fund or the Company and the Fund and the Company agree to indemnify and hold
harmless you and such other persons against and from any claims, liabilities,
actions, suits, proceedings, judgments or damages (and expenses as and when
incurred in connection therewith, including the reasonable cost of investigating
or defending same, including, but not limited to attorneys' fees) arising out of
any such alleged or actual error of judgment or mistake of law or loss; provided
that nothing herein shall be deemed to protect or purport to protect you or any
other such person against any liability to the Company or to its security
holders to which you or they would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties
hereunder, or by reason of reckless disregard of the obligations and duties
hereunder.
7. Other Accounts. The Company understands that you and other
--------------
persons with whom you contract to provide the services hereunder may from time
to time act as investment adviser to one or more other investment companies and
fiduciary or other managed
-3-
<PAGE>
accounts, and the Company has no objection to your or their so acting. When
purchase or sale of securities of the same issuer is suitable for the investment
objectives of two or more companies or accounts managed by you or such other
persons which have available funds for investment, the available securities may
be allocated in a manner believed by you and such other persons to be equitable
to each company or account. It is recognized that in some cases this procedure
may adversely affect the price paid or received by the Fund or the size of the
position obtainable for or disposed of by the Fund.
In addition, it is understood that you and the persons with whom you
contract to assist in the performance of your duties hereunder will not devote
their full time to such service and nothing contained herein shall be deemed to
limit or restrict your or their right to engage in and devote time and attention
to similar or other businesses.
8. Books and Records. In compliance with the requirements of Rule
-----------------
31a-3 under the 1940 Act, you agree that all records which you maintain for the
Company are the property of the Company and you further agree to surrender
promptly to the Company any of such records upon the Company's request. You
further agree to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act such records that you, as investment adviser, are required to maintain
by Rule 31a-1 under the 1940 Act.
9. Term. This Agreement shall continue with respect to the Fund
----
until the expiration of two years from the date of this Agreement and thereafter
shall continue automatically for successive annual periods ending on the
anniversary of the date of this Agreement, provided such continuance, with
respect to the Fund is specifically approved at least annually by the Company's
Board of Directors or vote of the lesser of (a) 67% of the shares of the Fund
represented at a meeting if holders of more than 50% of the outstanding shares
of the Fund are present in person or by proxy or (b) more than 50% of the
outstanding shares of the Fund, provided that in either event its continuance
also is approved by a majority of the Company's Directors who are not
"interested persons" (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. This Agreement is terminable with respect to the Fund without
penalty, on 60 days' notice, by you or by the Company's Board of Directors or by
vote of the lesser of (a) 67% of the shares of the Fund represented at a meeting
if holders of more than 50% of the outstanding shares of the Fund are present in
person or by proxy or (b) more than 50% of the outstanding shares of the Fund.
This Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act).
-4-
<PAGE>
10. Amendment. This Agreement may be amended only by an instrument
---------
in writing signed by the party against which enforcement of the amendment is
sought. No amendment of this Agreement shall be effective with respect to the
Fund until approved by vote of a majority of the Fund's outstanding voting
securities.
11. M.S.D.& T. or Mercantile-Safe Deposit & Trust Company. The
-----------------------------------------------------
Company recognizes that from time to time your directors, officers and employees
may serve as directors, trustees, partners, officers and employees of other
corporations, business trusts, partnerships or other entities (including other
investment companies) and that such other entities may include the name "M.S.D.&
T." or "Mercantile-Safe Deposit & Trust Company" as part of their name. You or
your affiliates may enter into investment advisory or other agreements with such
other entities. If you cease to act as the Company's investment adviser, the
Company agrees that, at you request, the Company will take all necessary action
to change the name of the Company and its Funds to a name not including "M.S.D.&
T." or "Mercantile-Safe Deposit & Trust Company" in any form or combination of
words.
12. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule, or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by Maryland law; provided, that nothing herein shall be construed in a
manner inconsistent with the 1940 Act, the Investment Advisers Act of 1940, or
any rule or regulation of the Securities and Exchange Commission thereunder.
-5-
<PAGE>
If the foregoing is in accordance with your understanding, will you
kindly so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
M.S.D.& T. FUNDS, INC.
By: /s/ Leslie B. Disharoon
-----------------------
Accepted:
MERCANTILE-SAFE DEPOSIT & TRUST COMPANY
By: /s/ [signature illegible]
-------------------------
-6-
<PAGE>
ADVISORY AGREEMENT
M.S.D. & T. FUNDS, INC.
Two Hopkins Plaza
Baltimore, Maryland 21201
November 13, 1990
Mercantile-Safe Deposit
& Trust Company
Two Hopkins Plaza
Baltimore, Maryland 21201
Dear Sirs:
This will confirm the agreement, entered into in consideration of the
premises and mutual covenants herein contained, and for other good and valuable
consideration, between the undersigned (the "Company") and you as follows:
1. General. The Company is an open-end investment company. This
-------
Agreement relates to two of the Company's portfolios -- the Value Equity Fund
and the Intermediate Fixed Income Fund (individually, a "Fund" and collectively,
the "Funds"). The Company proposes to engage in the business of investing and
reinvesting the assets of each Fund in the manner and in accordance with the
investment objective, policies and limitations specified with respect to each
Fund in the Company's Prospectuses and Statement of Additional Information, (the
"Prospectus") included in the Company's Registration Statement, as amended from
time to time (the "Registration Statement"), filed under the Investment Company
Act of 1940, as amended (the "1940 Act"), and the Securities Act of 1933, as
amended. Copies of the Prospectus have been furnished to you. Any amendments to
the Prospectus shall be furnished to you promptly.
2. Advisory Services. Subject to the supervision and approval of the
-----------------
Company's Board of Directors, you will provide investment management of each
Fund's portfolio in accordance with such Fund's investment objective, policies
and limitations as stated in the Prospectus as from time to time in effect, and
resolutions of the Company's Board of Directors of which you will be advised.
In connection therewith, you will obtain and provide investment research and
will supervise each Fund's investments and conduct a continuous program of
investment, evaluation and, if appropriate, sale and reinvestment of such Fund's
assets. You will place orders for the purchase and sale of portfolio securities
and will solicit broker-dealers to execute transactions in accordance with the
Funds' policies and restrictions regarding brokerage allocations.
<PAGE>
In the event that the Company establishes one or more portfolios other
than the Funds with respect to which it desires to retain you as investment
adviser hereunder, it shall notify you in writing. If you are willing to render
such services under this Agreement you shall notify the Company in writing,
whereupon such portfolio shall become a Fund hereunder and shall be subject to
the provisions of this Agreement to the same extent as the other Funds except to
the extent that said provisions (including those relating to compensation
payable by such additional Fund to you as investment adviser) are modified with
respect to such additional Fund in writing by you and the Company at the time.
You will comply with all Rules and Regulations of the Securities and
Exchange Commission applicable to you in connection with your performance of
this Agreement, and will in addition conduct your activities under this
Agreement in accordance with other law, including banking law, applicable to
you.
You will not make loans for the purpose of purchasing or carrying Fund
shares, or make interest-bearing loans to the Company.
You will place orders pursuant to your investment determination for
the Funds either directly with the issuer or with any broker or dealer selected
by you. In executing portfolio transactions and selecting brokers or dealers,
you will use your reasonable best efforts to seek the most favorable execution
of orders, after taking into account all factors you deem relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. Consistent with this obligation, you may, to the extent
permitted by law, purchase and sell portfolio securities to and from brokers and
dealers who provide brokerage and research services (within the meaning of
Section 28(e) of the Securities Exchange Act of 1934) to or for the benefit of
the Funds and/or other accounts over which you or any of your affiliates
exercises investment discretion. You are authorized to pay to a broker or
dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for any Fund which is in excess of the amount
of commission another broker or dealer would have charged for effecting that
transaction if you determine in good faith that such commission was reasonable
in relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or your
overall responsibilities to the particular Fund and to the Company. In no
instance will portfolio securities be purchased from or sold to you, or the
Funds' principal underwriter, or any
-2-
<PAGE>
affiliated person thereof except as permitted by the Securities and Exchange
Commission.
3. Assistance. You may employ or contract with other persons to
----------
assist you in the performance of this Agreement. Such persons may include other
investment advisory or management firms and officers or employees who are
employed by both you and the Company. The fees or other compensation of such
persons shall be paid by you and no obligation may be incurred on the Company's
behalf to any such person.
4. Fees. In consideration of the advisory services rendered pursuant
----
to this Agreement, the Value Equity Fund will pay you on the first business day
of each month a fee at the annual rate of .60 of 1% of the value of such Fund's
average daily net assets during the preceding month, and the Intermediate Fixed
Income Fund will pay you on the first business day of each month a fee at the
annual rate of .35 of 1% of such Fund's average daily net assets during the
preceding month. Net asset value shall be computed in the manner, on such days
and at such time or times as described in the Funds' Prospectus from time to
time. The fee for the period from the effective date of the Registration
Statement to the end of the first month thereafter shall be pro-rated according
to the proportion which such period bears to the full monthly period, and upon
any termination of this Agreement before the end of any month, the fee for such
part of a month shall be pro-rated according to the proportion which such period
bears to the full monthly period and shall be payable upon the date of
termination of this Agreement.
5. Expenses. You will bear all your own expenses in connection with
--------
the performance of your services under this Agreement, provided that such
expenses will not include the expenses to be borne by the Funds, as set forth
below. The expenses to be borne by the Funds include, without limitation, the
following: organizational costs; taxes; interest; brokerage fees and
commissions and other expenses in any way related to the execution, recording
and settlement of portfolio security transactions; fees of Directors who are not
also your officers; Securities and Exchange Commission fees; state Blue Sky
qualification fees; charges of custodians and transfer and dividend paying
agents; premiums for directors and officers liability insurance; costs of
fidelity bonds; industry association fees; outside auditing and legal expenses;
costs of maintaining corporate existence; costs of maintaining requited books
and accounts; cost of office facilities and supplies; data processing, clerical,
accounting and bookkeeping services and other administrative expenses; costs
attributable to investor services (including, without limitation, telephone and
personnel expenses); costs of Securities and Exchange Commission regulatory
reports; costs of shareholders' reports and meetings; costs of
-3-
<PAGE>
preparing, printing and mailing share certificates, proxy statements and
prospectuses; and any extraordinary expenses.
6. Liability. You shall exercise your best judgment in rendering the
---------
services to be provided to each Fund. Each Fund agrees as an inducement to you
and to others who may assist you in providing services to the Funds that you and
such other persons shall not be liable for any alleged or actual error of
judgment or mistake of law or for any alleged or actual loss suffered by such
Fund or the Company and each Fund and the Company agree to indemnify and hold
harmless you and such other persons against and from any claims, liabilities,
actions, suits, proceedings, judgments or damages (and expenses as and when
incurred in connection therewith, including the reasonable cost of investigating
or defending same, including, but not limited to attorneys' fees) arising out of
any such alleged or actual error of judgment or mistake of law or loss; provided
that nothing herein shall be deemed to protect or purport to protect you or any
other such person against any liability to the Company or to its security
holders to which you or they would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties
hereunder, or by reason of reckless disregard of the obligations and duties
hereunder.
7. Other Accounts. The Company understands that you and other
--------------
persons with whom you contract to provide the services hereunder may from time
to time act as investment adviser to one or more other investment companies and
fiduciary or other managed accounts, and the Company has no objection to your or
their so acting. When purchase or sale of securities of the same issuer is
suitable for the investment objectives of two or more companies or accounts
managed by you or such other persons which have available funds for investment,
the available securities may be allocated in a manner believed by you and such
other persons to be equitable to each company or account. It is recognized that
in some cases this procedure may adversely affect the price paid or received by
a Fund or the size of the position obtainable for or disposed of by a Fund.
In addition, it is understood that you and the persons with whom you
contract to assist in the performance of your duties hereunder will not devote
their full time to such service and nothing contained herein shall be deemed to
limit or restrict your or their right to engage in and devote time and attention
to similar or other businesses.
8. Books and Records. In compliance with the requirements of Rule
-----------------
31a-3 under the 1940 Act, you agree that all records which you maintain for the
Company are the property of the Company and you further agree to surrender
promptly to the Company any of such records upon the Company's request. You
further agree to preserve for the periods prescribed by Rule
-4-
<PAGE>
31a-2 under the 1940 Act such records that you, as investment adviser, are
required to maintain by Rule 31a-1 under the 1940 Act.
9. Term. This Agreement shall continue with respect to each Fund
----
until July 20, 1992 and thereafter shall continue automatically for successive
12-month periods, provided such continuance with respect to each Fund is
specifically approved at least annually by the Company's Board of Directors or
vote of the lesser of (a) 67% of the shares of such Fund represented at a
meeting if holders of more than 50% of the outstanding shares of the Fund are
present in person or by proxy or (b) more than 50% of the outstanding shares of
such Fund, provided that in either event its continuance also is approved by a
majority of the Company's Directors who are not "interested persons" (as defined
in the 1940 Act) of any party to this Agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval. This Agreement is
terminable with respect to either Fund or both Funds without penalty, on 60
days' notice, by you or by the Company's Board of Directors or by vote of the
lesser of (a) 67% of the shares of such Fund represented at a meeting if holders
of more than 50% of the outstanding shares of the Fund are present in person or
by proxy or (b) more than 50% of the outstanding shares of such Fund. This
Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act).
10. Amendment. This Agreement may be amended only by an instrument
---------
in writing signed by the party against which enforcement of the amendment is
sought. No amendment of this Agreement shall be effective with respect to a
particular Fund until approved by vote of a majority of that Fund's outstanding
voting securities.
11. M.S.D. & T. or Mercantile-Safe Deposit & Trust Company. The
------------------------------------------------------
Company recognizes that from time to time your directors, officers and employees
may serve as directors, trustees, partners, officers and employees of other
corporations, business trusts, partnerships or other entities (including other
investment companies) and that such other entities may include the name "M.S.D.
& T." or "Mercantile-Safe Deposit & Trust Company" as part of their name. You
or your affiliates may enter into investment advisory or other agreements with
such other entities. If you cease to act as the Company's investment adviser,
the Company agrees that, at your request, the Company will take all necessary
action to change the name of the Company and its Funds to a name not including
"M.S.D. & T." or "Mercantile-Safe Deposit & Trust Company" in any form or
combination of words.
12. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define
-5-
<PAGE>
or limit any of the provisions hereof or otherwise affect their construction or
effect. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule, or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
shall be governed by Maryland law; provided, that nothing herein shall be
construed in a manner inconsistent with the 1940 Act, the Investment Advisers
Act of 1940, or any rule or regulation of the Securities and Exchange Commission
thereunder.
If the foregoing is in accordance with your understanding, will you
kindly so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
M.S.D. & T. FUNDS, INC.
By: /s/ Leslie B. Disharoon
-----------------------
Accepted:
MERCANTILE-SAFE DEPOSIT & TRUST COMPANY
By: /s/ James D. Hardesteg
----------------------
-6-
<PAGE>
ADVISORY AGREEMENT
M.S.D. & T. FUNDS, INC.
Two Hopkins Plaza
Baltimore, Maryland 21201
February 3, 1992
Mercantile-Safe Deposit and Trust Company
Two Hopkins Plaza
Baltimore, Maryland 21201
Dear Sirs:
This will confirm the agreement, entered into in consideration of the
premises and mutual covenants herein contained, and for other good and valuable
consideration, between the undersigned (the "Company") and you as follows:
1. General. The Company is an open-end investment company. This
-------
Agreement relates to one of the Company's portfolios -- the Maryland Tax-Exempt
Bond Fund (the "Fund" and collectively with other Company portfolios, the
"Funds"). The Company proposes to engage in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objective, policies and limitations specified with respect to the
Fund in the Company's Prospectuses and Statement of Additional Information (the
"Prospectus"), included in the Company's Registration Statement, as amended from
time to time (the "Registration Statement"), filed under the Investment Company
Act of 1940, as amended (the "1940 Act"), and the Securities Act of 1933, as
amended. Copies of the Prospectus have been furnished to you. Any amendments to
the Prospectus shall be furnished to you promptly.
2. Advisory Services. Subject to the supervision and approval of the
-----------------
Company's Board of Directors, you will provide investment management of the
Fund's portfolio in accordance with the Fund's investment objective, policies
and limitations as stated in the Prospectus as from time to time in effect, and
resolutions of the Company's Board of Directors of which you will be advised.
In connection therewith, you will obtain and provide investment research and
will supervise the Fund's investments and conduct a continuous program of
investment, evaluation and, if appropriate, sale and reinvestment of the Fund's
assets. You will place orders for the purchase and sale of portfolio securities
and will solicit broker-dealers to execute transactions in accordance with the
Fund's policies and restrictions regarding brokerage allocations.
<PAGE>
In the event that the Company establishes one or more portfolios other
than the Fund with respect to which it desires to retain you as investment
adviser hereunder, it shall notify you in writing. If you are willing to render
such services under this Agreement you shall notify the Company in writing,
whereupon such portfolio shall become a Fund hereunder and shall be subject to
the provisions of this Agreement to the same extent as the other Fund except to
the extent that said provisions (including those relating to compensation
payable by such additional Fund to you as investment adviser) are modified with
respect to such additional Fund in writing by you and the Company at the time.
You will comply with all Rules and Regulations of the Securities and
Exchange Commission applicable to you in connection with your performance of
this Agreement, and will in addition conduct your activities under this
Agreement in accordance with other law, including banking law, applicable to
you.
You will not make loans for the purpose of purchasing or carrying Fund
shares, or make interest-bearing loans to the Company.
You will place orders pursuant to your investment determination for
the Fund either directly with the issuer or with any broker or dealer selected
by you. In executing portfolio transactions and selecting brokers or dealers,
you will use your reasonable best efforts to seek the most favorable execution
of orders, after taking into account all factors you deem relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. Consistent with this obligation, you may, to the extent
permitted by law, purchase and sell portfolio securities to and from brokers and
dealers who provide brokerage and research services (within the meaning of
Section 28(e) of the Securities Exchange Act of 1934) to or for the benefit of
the Fund and/or other accounts over which you or any of your affiliates
exercises investment discretion. You are authorized to pay to a broker or
dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Fund which is in excess of the amount
of commission another broker or dealer would have charged for effecting that
transaction if you determine in good faith that such commission was reasonable
in relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or your
overall responsibilities to the Fund and to the Company. In no instance will
portfolio securities be purchased from or sold to you, or the Fund's principal
underwriter, or any affiliated
-2-
<PAGE>
person thereof except as permitted by the Securities and Exchange Commission.
3. Assistance. You may employ or contract with other persons to
----------
assist you in the performance of this Agreement. Such persons may include other
investment advisory or management firms and officers or employees who are
employed by both you and the Company. The fees or other compensation of such
persons shall be paid by you and no obligation may be incurred on the Company's
behalf to any such person.
4. Fees. In consideration of the advisory services rendered pursuant
----
to this Agreement, the Fund will pay you on the first business day of each month
a fee at the annual rate of .50 of 1% of the value of such Fund's average daily
net assets during the preceding month. Net asset value shall be computed in the
manner, on such days and at such time or times as described in the Funds'
Prospectus from time to time. The fee for the period from the effective date of
the Registration Statement to the end of the first month thereafter shall be
pro-rated according to the proportion which such period bears to the full
monthly period, and upon any termination of this Agreement before the end of any
month, the fee for such part of a month shall be pro-rated according to the
proportion which such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement.
5. Expenses. You will bear all your own expenses in connection with
--------
the performance of your services under this Agreement, provided that such
expenses will not include the expenses to be borne by the Fund, as set forth
below. The expenses to be borne by the Fund include, without limitation, the
following: organizational costs; taxes; interest; brokerage fees and
commissions and other expenses in any way related to the execution, recording
and settlement of portfolio security transactions; fees of Directors who are not
also your officers; Securities and Exchange Commission fees; state Blue Sky
qualification fees; charges of custodians and transfer and dividend paying
agents; premiums for directors and officers liability insurance; costs of
fidelity bonds; industry association fees; outside auditing and legal expenses;
costs of maintaining corporate existence; costs of maintaining required books
and accounts; cost of office facilities and supplies; data processing, clerical,
accounting and bookkeeping services and other administrative expenses; costs
attributable to investor services (including, without limitation, telephone and
personnel expenses); costs of Securities and Exchange Commission regulatory
reports; costs of shareholders' reports and meetings; costs of preparing,
printing and mailing share certificates, proxy statements and prospectuses; and
any extraordinary expenses.
-3-
<PAGE>
6. Liability. You shall exercise your best judgment in rendering the
---------
services to be provided to the Fund. The Fund agrees as an inducement to you
and to others who may assist you in providing services to the Fund that you and
such other persons shall not be liable for any alleged or actual error of
judgment or mistake of law or for any alleged or actual loss suffered by such
Fund or the Company and the Fund and the Company agree to indemnify and hold
harmless you and such other persons against and from any claims, liabilities,
actions, suits, proceedings, judgments or damages (and expenses as and when
incurred in connection therewith, including the reasonable cost of investigating
or defending same, including, but not limited to attorneys' fees) arising out of
any such alleged or actual error of judgment or mistake of law or loss; provided
that nothing herein shall be deemed to protect or purport to protect you or any
other such person against any liability to the Company or to its security
holders to which you or they would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties
hereunder, or by reason of reckless disregard of the obligations and duties
hereunder.
7. Other Accounts. The Company understands that you and other
--------------
persons with whom you contract to provide the services hereunder may from time
to time act as investment adviser to one or more other investment companies and
fiduciary or other managed accounts, and the Company has no objection to your or
their so acting. When purchase or sale of securities of the same issuer is
suitable for the investment objectives of two or more companies or accounts
managed by you or such other persons which have available funds for investment,
the available securities may be allocated in a manner believed by you and such
other persons to be equitable to each company or account. It is recognized that
in some cases this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtainable for or disposed of by the Fund.
In addition, it is understood that you and the persons with whom you
contract to assist in the performance of your duties hereunder will not devote
their full time to such service and nothing contained herein shall be deemed to
limit or restrict your or their right to engage in and devote time and attention
to similar or other businesses.
8. Books and Records. In compliance with the requirements of Rule
-----------------
31a-3 under the 1940 Act, you agree that all records which you maintain for the
Company are the property of the Company and you further agree to surrender
promptly to the Company any of such records upon the Company's request. You
further agree to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act such records that you, as investment adviser, are required to maintain
by Rule 31a-1 under the 1940 Act.
-4-
<PAGE>
9. Term. This Agreement shall continue with respect to the Fund
----
until July 20, 1993 and thereafter shall continue automatically for successive
12-month periods, provided such continuance with respect to the Fund is
specifically approved at least annually by the Company's Board of Directors or
vote of the lesser of (a) 67% of the shares of the Fund represented at a meeting
if holders of more than 50% of the outstanding shares of the Fund are present in
person or by proxy or (b) more than 50% of the outstanding shares of the Fund,
provided that in either event its continuance also is approved by a majority of
the Company's Directors who are not "interested persons" (as defined in the 1940
Act) of any party to this Agreement, by vote cast in person at a meeting called
for the purpose of voting on such approval. This Agreement is terminable with
respect to the Fund without penalty, on 60 days' notice, by you or by the
Company's Board of Directors or by vote of the lesser of (a) 67% of the shares
of the Fund represented at a meeting if holders of more than 50% of the
outstanding shares of the Fund are present in person or by proxy or (b) more
than 50% of the outstanding shares of the Fund. This Agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
10. Amendment. This Agreement may be amended only by an instrument
---------
in writing signed by the party against which enforcement of the amendment is
sought. No amendment of this Agreement shall be effective with respect to the
Fund until approved by vote of a majority of the Fund's outstanding voting
securities.
11. M.S.D. & T. or Mercantile-Safe Deposit & Trust Company. The
------------------------------------------------------
Company recognizes that from time to time your directors, officers and employees
may serve as directors, trustees, partners, officers and employees of other
corporations, business trusts, partnerships or other entities (including other
investment companies) and that such other entities may include the name "M.S.D.
& T." or "Mercantile-Safe Deposit & Trust Company" as part of their name. You
or your affiliates may enter into investment advisory or other agreements with
such other entities. if you cease to act as the Company's investment adviser,
the Company agrees that, at your request, the Company will take all necessary
action to change the name of the Company and its Funds to a name not including
"M.S.D. & T." or "Mercantile-Safe Deposit & Trust Company" in any form or
combination of words.
12. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule, or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to
-5-
<PAGE>
the benefit of the parties hereto and their respective successors and shall be
governed by Maryland law; provided, that nothing herein shall be construed in a
manner inconsistent with the 1940 Act, the Investment Advisers Act of 1940, or
any rule or regulation of the Securities and Exchange Commission thereunder.
If the foregoing is in accordance with your understanding, will you
kindly so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
M.S.D. & T. FUNDS, INC.
By: /s/ Leslie B. Disharoon
-----------------------
Accepted:
MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY
By: [signature illegible]
---------------------
-6-
<PAGE>
ADVISORY AGREEMENT
INTERNATIONAL EQUITY FUND
M.S.D.& T. FUNDS, INC.
Two Hopkins Plaza
Baltimore, Maryland 21201
June 29, 1993
Mercantile-Safe Deposit and Trust Company
Two Hopkins Plaza
Baltimore, Maryland 21201
Dear Sirs:
This will confirm the agreement, entered into in consideration of the
premises and mutual covenants herein contained, and for other good and valuable
consideration, between the undersigned (the "Company") and you as follows:
1. General. The Company is an open-end investment company. This
--------
Agreement relates to one of the Company's portfolios --the International Equity
Fund (the "Fund" and collectively with other Company portfolios, the "Funds").
The Company proposes to engage in the business of investing and reinvesting the
assets of the Fund in the manner and in accordance with the investment
objective, policies and limitations specified with respect to the Fund in the
Company's Prospectuses and Statement of Additional Information, (the
"Prospectus") included in the Company's Registration Statement, as amended from
time to time (the "Registration Statement"), filed under the Investment Company
Act of 1940, as amended (the "1940 Act"), and the Securities Act of 1933, as
amended. Copies of the Prospectus have been furnished to you. Any amendments to
the Prospectus shall be furnished to you promptly.
2. Advisory Services. Subject to the supervision and approval of the
------------------
Company's Board of Directors, you will provide investment management of the
Fund's portfolio in accordance with the Fund's investment objective, policies
and limitations as stated in the Prospectus as from time to time in effect, and
resolutions of the Company's Board of Directors of which you will be advised. In
connection therewith, you will obtain and provide investment research and will
supervise the Fund's investments and conduct a continuous program of investment,
evaluation and, if appropriate, sale and reinvestment of the Fund's assets.
<PAGE>
In the event that the Company establishes one or more portfolios other
than the Fund with respect to which it desires to retain you as investment
adviser hereunder, it shall notify you in writing. If you are willing to render
such services under this Agreement you shall notify the Company in writing,
whereupon such portfolio shall become a Fund hereunder and shall be subject to
the provisions of this Agreement to the same extent as the other Fund except to
the extent that said provisions (including those relating to compensation
payable by such additional Fund to you as investment adviser) are modified with
respect to such additional Fund in writing by you and the Company at the time.
You will comply with all Rules and Regulations of the Securities and
Exchange Commission applicable to you in connection with your performance of
this Agreement, and will in addition conduct your activities under this
Agreement in accordance with other law, including banking law, applicable to
you.
You will not make loans for the purpose of purchasing or carrying Fund
shares, or make interest-bearing loans to the Company.
You will place orders for the purchase and sale of portfolio
securities and will solicit broker-dealers to execute transactions in accordance
with the Fund's policies and restrictions regarding brokerage allocations. You
will place orders pursuant to your investment determination for the Fund either
directly with the issuer or with any broker or dealer selected by you. In
executing portfolio transactions and selecting brokers or dealers, you will use
your reasonable best efforts to seek the most favorable execution of orders,
after taking into account all factors you deem relevant, including the breadth
of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. Consistent with this obligation, you may, to the extent
permitted by law, purchase and sell portfolio securities to and from brokers and
dealers who provide brokerage and research services (within the meaning of
Section 28(e) of the Securities Exchange Act of 1934) to or for the benefit of
the Fund and/or other accounts over which you or any of your affiliates
exercises investment discretion. You are authorized to pay to a broker or
dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Fund which is in excess of the amount
of commission another broker or dealer would have charged for effecting that
transaction if you determine in good faith that such commission was reasonable
in relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or your
overall responsibilities to the
-2-
<PAGE>
Fund and to the Company. In no instance will portfolio securities be purchased
from or sold to you, or the Fund's principal underwriter, or any affiliated
person thereof except as permitted by the Securities and Exchange Commission.
3. Assistance. You may employ or contract with other persons to assist
-----------
you in the performance of this Agreement (herein, a "Sub-Adviser"); provided,
however, that the retention of any Sub-Adviser shall be approved as may be
required by the 1940 Act. A Sub-Adviser may perform under your supervision any
or all services described under Section 2. Sub-Advisers may include other
investment advisory or management firms and officers or employees who are
employed by both you and the Company. The fees or other compensation of any Sub-
Adviser shall be paid by you and no obligation may be incurred on the Company's
behalf to any such person.
In the event that you appoint a Sub-Adviser, you will review, monitor,
and report to the Company's Board of Directors on the performance and investment
procedures of any such Sub Adviser; assist and consult with any Sub-Adviser in
connection with the Fund's continuous investment program; and approve lists of
foreign countries which may be recommended by any Sub-Adviser for investment by
the Fund.
4. Fees. In consideration of the advisory services rendered pursuant
----
to this Agreement, the Fund will pay you on the first business day of each month
a fee at the annual rate of .80 of 1% of the value of such Fund's average daily
net assets during the preceding month. Net asset value shall be computed in the
manner, on such days and at such time or times as described in the Funds'
Prospectus from time to time. The fee for the period from the effective date of
the Registration Statement to the end of the first month thereafter shall be
prorated according to the proportion which such period bears to the full monthly
period, and upon any termination of this Agreement before the end of any month,
the fee for such part of a month shall be prorated according to the proportion
which such period bears to the full monthly period and shall be payable upon the
date of termination of this Agreement.
5. Expenses. You will bear all your own expenses in connection with
--------
the performance of your services under this Agreement, provided that such
expenses will not include the expenses to be borne by the Fund, as set forth
below. The expenses to be borne by the Fund include, without limitation, the
following: organizational costs; taxes; interest; brokerage fees and commissions
and other expenses in any way related to the execution, recording and settlement
of portfolio security transactions; fees of Directors who are not also your
officers; Securities and Exchange Commission fees; state Blue Sky qualification
fees; charges of custodians and transfer and
-3-
<PAGE>
dividend paying agents; premiums for directors and officers liability insurance;
costs of fidelity bonds; industry association fees; outside auditing and legal
expenses; costs of maintaining corporate existence; costs of maintaining
required books and accounts; cost of office facilities and supplies; data
processing, clerical, accounting and bookkeeping services and other
administrative expenses; costs attributable to investor services (including,
without limitation, telephone and personnel expenses); costs of Securities and
Exchange Commission regulatory reports; costs of shareholders' reports and
meetings; costs of preparing, printing and mailing share certificates, proxy
statements and prospectuses; and any extraordinary expenses.
6. Liability. You shall exercise your best judgment in rendering the
---------
services to be provided to the Fund. You shall remit to the Fund the amount of
any recovery you obtain for the benefit of the Fund from any Sub-Adviser for the
acts and omissions of such Sub-Adviser. Subject to the foregoing, the Fund
agrees as an inducement to you and others who may assist you in providing
services to the Fund that you and such other persons shall not be liable for any
alleged or actual error of judgment or mistake of law or for any alleged or
actual loss suffered by such Fund and the Fund and the Company agree to
indemnify and hold harmless you and such other persons against and from any
claims, liabilities, actions, suits, proceedings, judgments or damages (and
expenses as and when incurred in connection therewith, including the reasonable
cost of investigating or defending same, including, but not limited to
attorneys' fees) arising out of any such alleged or actual error of judgment or
mistake of law or loss; provided, however, that nothing herein shall be deemed
-----------------
to protect or purport to protect you or any such other persons against any
liability to the Fund or to its security holders to which you or they would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties hereunder, or by reason of reckless
disregard of the obligations and duties hereunder; and provided further, that
----------------
this sentence shall not inure to the benefit of any Sub-Adviser or others who
may assist any Sub-Adviser.
7. Other Accounts. The Company understands that you and other persons
--------------
with whom you contract to provide the services hereunder may from time to time
act as investment adviser to one or more other investment companies and
fiduciary or other managed accounts, and the Company has no objection to your or
their so acting. When purchase or sale of securities of the same issuer is
suitable for the investment objectives of two or more companies or accounts
managed by you or such other persons which have available funds for investment,
the available securities may be allocated in a manner believed by you and such
other persons to be equitable to each company or account. It is recognized that
in some cases this procedure may adversely affect the price
-4-
<PAGE>
paid or received by the Fund or the size of the position obtainable for or
disposed of by the Fund.
In addition, it is understood that you and the persons with whom you
contract to assist in the performance of your duties hereunder will not devote
their full time to such service and nothing contained herein shall be deemed to
limit or restrict your or their right to engage in and devote time and attention
to similar or other businesses.
8. Books and Records. In compliance with the requirements of Rule 31a-
-----------------
3 under the 1940 Act, you agree that all records which you maintain for the
Company are the property of the Company and you further agree to surrender
promptly to the Company any of such records upon the Company's request. You
further agree to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act such records that you, as investment adviser, are required to maintain
by Rule 31a-1 under the 1940 Act.
9. Term. This Agreement shall continue with respect to the Fund until
----
July 20, 1994 and thereafter shall continue automatically for successive 12-
month periods, provided such continuance with respect to the Fund is
specifically approved at least annually by the Company's Board of Directors or
vote of the lesser of (a) 67% of the shares of the Fund represented at a meeting
if holders of more than 50% of the outstanding shares of the Fund are present in
person or by proxy or (b) more than 50% of the outstanding shares of the Fund,
provided that in either event its continuance also is approved by a majority of
the Company's Directors who are not "interested persons" (as defined in the 1940
Act) of any party to this Agreement, by vote cast in person at a meeting called
for the purpose of voting on such approval. This Agreement is terminable with
respect to the Fund without penalty, on 60 days' notice, by you or by the
Company's Board of Directors or by vote of the lesser of (a) 67% of the shares
of the Fund represented at a meeting if holders of more than 50% of the
outstanding shares of the Fund are present in person or by proxy or (b) more
than 50% of the outstanding shares of the Fund. This Agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
10. Amendment. This Agreement may be amended only by an instrument in
---------
writing signed by the party against which enforcement of the amendment is
sought. No amendment of this Agreement shall be effective with respect to the
Fund until approved by vote of a majority of the Fund's outstanding voting
securities.
11. M.S.D.& T. or Mercantile-Safe Deposit & Trust Company. The Company
-----------------------------------------------------
recognizes that from time to time your directors, officers and employees may
serve as directors,
-5-
<PAGE>
trustees, partners, officers and employees of other corporations, business
trusts, partnerships or other entities (including other investment companies)
and that such other entities may include the name "M.S.D.& T." or "Mercantile-
Safe Deposit & Trust Company" as part of their name. You or your affiliates may
enter into investment advisory or other agreements with such other entities. If
you cease to act as the Company's investment adviser, the Company agrees that,
at your request, the Company will take all necessary action to change the name
of the Company and its Funds to a name not including "M.S.D.& T." or
"Mercantile-Safe Deposit & Trust Company" in any form or combination of words.
12. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule, or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by Maryland law; provided, that nothing herein shall be construed in a
manner inconsistent with the 1940 Act, the Investment Advisers Act of 1940, or
any rule or regulation of the Securities and Exchange Commission thereunder.
If the foregoing is in accordance with your understanding, will you
kindly so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
M.S.D.& T. INC.
By: /s/ Leslie B. Disharoon
-----------------------
Accepted:
MERCANTILE-SAFE DEPOSIT AND
TRUST COMPANY
By: /s/ [signature illegible]
-------------------------
-6-
<PAGE>
Exhibit 5(f)
SUB-ADVISORY AGREEMENT
(International Equity Fund)
AGREEMENT made as of March 19, 1996 between MERCANTILE-SAFE DEPOSIT &
TRUST COMPANY, a Maryland trust company (the "Adviser"), and CASTLEINTERNATIONAL
ASSET MANAGEMENT LIMITED, a U.K. corporation registered under the U.S.
Investment Advisers Act of 1940, as amended, and a member of the Investment
Management Regulatory Organization ("IMRO") and regulated by IMRO in the conduct
of its affairs ("Sub-Adviser").
WHEREAS, M.S.D. & T. Funds, Inc. ("M.S.D. & T.") is registered as an
open-end, management investment company under the Investment Company Act of
1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser has been appointed investment adviser to M.S.D. &
T.'s International Equity Fund (the "Fund"); and
WHEREAS, the Adviser desires to retain Sub-Adviser to assist it in the
provision of a continuous investment program for the Fund and Sub-Adviser is
willing to do so; and
WHEREAS, the Board of Directors of the Fund has approved this
Agreement, subject to approval by the shareholders of the Fund, and Sub-Adviser
is willing to furnish such services upon the terms and conditions herein set
forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. Effective March 19, 1996, the Adviser hereby
-----------
appoints Sub-Adviser to act as sub-adviser to the Fund as permitted by the
Adviser's Advisory Agreement with M.S.D. & T. pertaining to the Fund. Intending
to be legally bound, Sub-Adviser accepts such appointment and agrees to render
the services herein set forth for the compensation herein provided.
2. Sub-Advisory Services. Subject to the supervision of M.S.D. &
---------------------
T.'s Board of Directors, Sub-Adviser will assist the Adviser in providing a
continuous investment program for the Fund, including research and management
with respect to all securities and investments and cash equivalents in the Fund.
Sub-Adviser will provide services under this Agreement in accordance with the
Fund's investment objective, policies and restrictions as stated in the Fund's
prospectuses and resolutions of M.S.D. & T.'s Board of Directors applicable to
the Fund.
<PAGE>
Adviser hereby undertakes to provide Sub-Adviser with copies of such
prospectuses and resolutions as the same became available from time to time.
Without limiting the generality of the foregoing, Sub-Adviser further
agrees that it will:
(a) prepare, subject to the Adviser's approval, lists of foreign
countries for investment by the Fund and determine from time to time what
securities and other investments will be purchased, retained or sold for
the Fund, including, with the assistance of the Adviser, the Fund's
investments in futures and forward currency contracts; provided, however,
-------- -------
that Sub-Adviser shall not be responsible for taking action with respect to
any proxies, notices, reports or other communications relating to any of
the Fund's portfolio securities;
(b) manage in consultation with the Adviser the Fund's temporary
investments in securities;
(c) place orders for the Fund either directly with the issuer or
with any broker or dealer;
(d) provide, at Sub-Adviser's expense, using one or more pricing
services believed by Sub-Adviser to be reliable, the value of the portfolio
securities and other assets of the Fund in accordance with the 1940 Act,
the Fund's current prospectuses and applicable resolutions of the Board of
Directors of M.S.D. & T. on each day that the Fund's assets are required to
be valued, such information to be transmitted by telephone, telecopy or
other transmission as soon as possible and in any event within 24 hours of
the time of valuation to BISYS Fund Services Ohio, Inc., as fund
accountant, or to such other person(s) as the Adviser may direct for the
benefit of the Fund;
(e) manage the Fund's overall cash position, and determine from
time to time what portion of the Fund's assets will be held in different
currencies;
(f) provide the Adviser with foreign broker research, a
quarterly review of international economic and investment developments, and
occasional "White Papers" on international investment issues;
(g) attend regular business and investment-related meetings with
M.S.D. & T.'s Board of Directors and the Adviser if requested to do so by
M.S.D. & T. and/or the Adviser; and
-2-
<PAGE>
(h) maintain books and records with respect to the securities
transactions for the Fund, furnish to the Adviser and M.S.D. & T.'s Board
of Directors such periodic and special reports as they may request with
respect to the Fund, and provide in advance to the Adviser all reports to
the Board of Directors for examination and review within a reasonable time
prior to M.S.D. & T. Board meetings. Adviser hereby undertakes to provide
Sub-Adviser with at least fourteen days prior written notice of the date,
time and location of all M.S.D. & T. Board meetings pertaining to the Fund.
3. Subcontractors. It is understood that Sub-Adviser may from time
--------------
to time engage or associate itself with such person or persons as Sub-Adviser
may believe to be particularly fitted to assist Sub-Adviser in the performance
of certain ministerial or administrative services required by this Agreement;
provided, however, that such person or persons shall have been approved by the
- -------- -------
Board of Directors of M.S.D. & T., that the compensation of such person or
persons shall be paid by Sub-Adviser and that Sub-Adviser shall be as fully
responsible to the Adviser and M.S.D. & T. for the acts and omissions of any
subcontractor as it is for its own acts and omissions.
4. Covenants by Sub-Adviser. Sub-Adviser agrees with respect to the
------------------------
services provided to the Fund that it:
(a) will conform with all Rules and Regulations of the
Securities and Exchange Commission ("SEC") applicable to it and will also
conform with all Rules and Regulations of IMRO;
(b) will telecopy trade information to the Adviser on the first
business day following the day of the trade and cause broker confirmations
to be sent directly to the Adviser; and
(c) will treat confidentially and as proprietary information of
M.S.D. & T. all records and other information relative to the Fund and
prior, present or potential shareholders, and will not use such records and
information for any purpose other than performance of its responsibilities
and duties hereunder (except after prior notification to and approval in
writing by M.S.D. & T., which approval shall not be unreasonably withheld
and may not be withheld and will be deemed granted where Sub-Adviser may be
exposed to civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted authorities,
or when so requested by M.S.D. & T.).
-3-
<PAGE>
5. Services Not Exclusive.
----------------------
(a) The services furnished by Sub-Adviser hereunder are deemed
not to be exclusive, and nothing in this Agreement shall (i) prevent Sub-Adviser
or any affiliated person (as defined in the 1940 Act) of Sub-Adviser from acting
as investment adviser or manager for any other person or persons, including
other management investment companies with investment objectives and policies
the same as or similar to those of the Fund or (ii) limit or restrict Sub-
Adviser or any such affiliated person from buying, selling or trading any
securities or other investments (including any securities or other investments
which the Fund is eligible to buy) for its or their own accounts or for the
accounts of others for whom it or they may be acting; provided, however, that
-------- -------
Sub-Adviser agrees that it will not undertake any activities which, in its
reasonable judgment, will adversely affect the performance of its obligations to
the Fund under this Agreement.
(b) Nothing contained herein, however, shall prohibit Sub-
Adviser from advertising or soliciting the public generally with respect to
products or services, regardless of whether such advertisement or solicitation
may include prior, present or potential shareholders of M.S.D. & T.
6. Portfolio Transactions. Investment decisions for the Fund shall
----------------------
be made by Sub-Adviser independently from those for any other investment
companies and accounts advised or managed by Sub-Adviser. The Fund and such
investment companies and accounts may, however, invest in the same securities.
When a purchase or sale of the same security is made at substantially the same
time on behalf of the Fund and/or another investment company or account, the
transaction will be averaged as to price, and available investments allocated as
to amount, in a manner which Sub-Adviser believes to be equitable to the Fund
and such other investment company or account. In some instances, this
investment procedure may adversely affect the price paid or received by the Fund
or the size of the position obtained or sold by the Fund. To the extent
permitted by law, Sub-Adviser may aggregate the securities to be sold or
purchased for the Fund with those to be sold or purchased for other investment
companies or accounts in order to obtain best execution.
Sub-Adviser shall place orders for the purchase and sale of portfolio
securities and will solicit broker-dealers to execute transactions in accordance
with the Fund's policies and restrictions regarding brokerage allocations. Sub-
Adviser shall place orders pursuant to its investment determination for the Fund
either directly with the issuer or with any broker or dealer selected by Sub-
Adviser. In executing portfolio transactions and selecting brokers or dealers,
Sub-Adviser shall use its reasonable best efforts to seek the most favorable
execution of
-4-
<PAGE>
orders, after taking into account all factors Sub-Adviser deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker or dealer, and
the reasonableness of the commission, if any, both for the specific transaction
and on a continuing basis. Consistent with this obligation, Sub-Adviser may, to
the extent permitted by law, purchase and sell portfolio securities to and from
brokers and dealers who provide brokerage and research services (within the
meaning of Section 28(e) of the Securities Exchange Act of 1934) to or for the
benefit of the Fund and/or other accounts over which Sub-Adviser or any of its
affiliates exercises investment discretion. Sub-Adviser is authorized to pay to
a broker or dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Fund which is in excess
of the amount of commission another broker or dealer would have charged for
effecting that transaction if Sub-Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or Sub-Adviser's overall responsibilities to the Fund and
to M.S.D. & T. In no instance will portfolio securities be purchased from or
sold to Sub-Adviser, or the Fund's principal underwriter, or any affiliated
person thereof except as permitted by the Securities and Exchange Commission.
7. Books and Records. In compliance with the requirements of Rule
-----------------
31a-3 under the 1940 Act, Sub-Adviser hereby agrees that all records which it
maintains for M.S.D. & T. are the property of M.S.D. & T. and further agrees to
surrender promptly to M.S.D. & T. any of such records upon M.S.D. & T.'s
request; provided, however, that the Sub-Adviser may make and retain photocopies
-------- -------
of such records in order to comply with applicable regulatory requirements.
Sub-Adviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-1 under the
1940 Act.
8. Expenses. During the term of this Agreement, Sub-Adviser will
--------
pay all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities, commodities and other investments
(including brokerage commissions and other transaction charges, if any)
purchased for the Fund.
-5-
<PAGE>
9. Compensation. For the services provided and the expenses assumed
------------
with respect to the Fund pursuant to this Agreement, Sub-Adviser will be
entitled to a fee, computed daily and payable quarterly, from the Adviser,
calculated at the annual rate of .45% of the Fund's average daily net assets.
Notwithstanding any other provision of the Agreement, all fees payable to Sub-
Adviser pursuant to this Agreement shall be withheld by Adviser until such time
as this Agreement shall have been approved by vote of the lesser (1) 67% of the
shares of the Fund represented at a meeting if holders of more than 50% of the
outstanding shares of the Fund are present in-person or by proxy or (b) more
than 50% of the outstanding shares of the Fund. Upon such approval, the Adviser
shall forthwith remit to the Sub-Adviser all withheld fees, with interest at a
rate to be agreed upon by the Adviser and Sub-Adviser. If such approval is not
obtained within 120 days after the effective date of this Agreement, this
Agreement shall terminate and all withheld fees shall be retained by the
Adviser, but all other provisions of this Agreement shall be effective in
accordance with their terms.
10. Standard of Care; Limitation of Liability. Sub-Adviser shall
-----------------------------------------
exercise due care and diligence and use the same skill and care in providing its
services hereunder as it uses in providing services to other investment
companies, but shall not be liable for any action taken or omitted by Sub-
Adviser in the absence of bad faith, willful misconduct, negligence or reckless
disregard of its duties. Notwithstanding the foregoing it is agreed that the
relative investment performance of the Fund shall not constitute a breach by the
Sub-Adviser of these obligations.
11. Reference to Sub-Adviser. Neither the Adviser nor any affiliate
------------------------
or agent of it shall make reference to or use the name of Sub-Adviser or any of
its affiliates, or any of their clients, except references concerning the
identity of and services provided by Sub-Adviser to the Fund, which references
shall not differ in substance from those included in the current registration
statement pertaining to the Fund, this Agreement and the Advisory Agreement
between the Adviser and M.S.D. & T. with respect to the Fund, in any advertising
or promotional materials without the prior approval of Sub-Adviser, which
approval shall not be unreasonably withheld or delayed. The Adviser hereby
agrees to make all reasonable efforts to cause M.S.D. & T. and any affiliate
thereof to satisfy the foregoing obligation.
12. Duration and Termination. Unless sooner terminated, this
------------------------
Agreement shall continue until July 20, 1997 and thereafter shall continue
automatically for successive annual periods, provided such continuance is
specifically approved at least annually by M.S.D. & T.'s Board of Directors or
vote of the lesser of (a) 67% of the shares of the Fund represented at a meeting
if holders of more than 50% of the outstanding shares of the Fund are present in
person or by proxy or (b) more than 50%
-6-
<PAGE>
of the outstanding shares of the Fund, provided that in either event its
continuance also is approved by a majority of M.S.D. & T.'s Directors who are
not "interested persons" (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. This Agreement is terminable at any time without penalty, on
60 days' notice, by Adviser, Sub-Adviser or by M.S.D. & T.'s Board of Directors
or by vote of the lesser of (a) 67% of the shares of the Fund represented at a
meeting if holders of more than 50% of the outstanding shares of the Fund are
present in person or by proxy or (b) more than 50% of the outstanding shares of
the Fund. This Agreement will terminate automatically in the event of its
assignment (as defined in the 1940 Act).
13. Amendment of this Agreement. No provision of this Agreement may
---------------------------
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement shall be
effective with respect to the Fund until approved by the vote of a majority of
the outstanding voting securities of the Fund.
14. Notice. Any notice, advice or report to be given pursuant to
------
this Agreement shall be delivered or mailed:
To Sub-Adviser at:
-----------------
125 S. Wacker Drive
Suite 300
Chicago, IL 60606
To the Adviser at:
-----------------
Two Hopkins Plaza
Baltimore, MD 21201
To M.S.D. & T. at:
-----------------
Two Hopkins Plaza
Baltimore, MD 21201
15. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby.
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and shall be governed by
Maryland law.
-7-
<PAGE>
16. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
MERCANTILE-SAFE DEPOSIT & TRUST
COMPANY
Attest:
/s/ Kevin J. Dachille By: /s/ David L. Donabedian
- --------------------- ----------------------------
CASTLEINTERNATIONAL ASSET
MANAGEMENT LIMITED
Attest:
- --------------------- By: /s/ Douglas B. Waggoner
----------------------------
Douglas B. Waggoner
Managing Director
-8-
<PAGE>
EXHIBIT (5)(G)
ADVISORY AGREEMENT
DIVERSIFIED REAL ESTATE FUND
M.S.D.& T. FUNDS, INC.
Two Hopkins Plaza
Baltimore, Maryland 21201
______ __, 1997
Mercantile-Safe Deposit and Trust Company
Two Hopkins Plaza
Baltimore, Maryland 21201
Dear Sirs:
This will confirm the agreement, entered into in consideration of the
premises and mutual covenants herein contained, and for other good and valuable
consideration, between the undersigned (the "Company") and you as follows:
1. General. The Company is an open-end investment company. This
-------
Agreement relates to one of the Company's portfolios -- the Diversified Real
Estate Fund (the "Fund" and collectively with other Company portfolios, the
"Funds"). The Company proposes to engage in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objective, policies and limitations specified in the Fund's
Prospectus and Statement of Additional Information (the "Prospectus") included
in the Company's Registration Statement on Form N-1A, as amended from time to
time (the "Registration Statement"), filed under the Investment Company Act of
1940, as amended (the "1940 Act"), and the Securities Act of 1933, as amended.
Copies of the Prospectus have been furnished to you. Any amendments to the
Prospectus shall be furnished to you promptly.
2. Advisory Services. Subject to the supervision and approval of
-----------------
the Company's Board of Directors, you will provide investment management of the
Fund's portfolio in accordance with the Fund's investment objective, policies
and limitations as stated in the Prospectus as from time to time in effect, and
resolutions of the Company's Board of Directors of which you will be advised.
In connection therewith, you will obtain and provide investment research and
will supervise the Fund's investments and conduct a continuous program of
investment, evaluation and, if appropriate, sale and reinvestment of the Fund's
assets.
<PAGE>
In the event that the Company establishes one or more portfolios other
than the Fund with respect to which it desires to retain you as investment
adviser hereunder, it shall notify you in writing. If you are willing to render
such services under this Agreement you shall notify the Company in writing,
whereupon such portfolio shall become a Fund hereunder and shall be subject to
the provisions of this Agreement to the same extent as the Fund except to the
extent that said provisions (including those relating to compensation payable by
such additional Fund to you as investment adviser) are modified with respect to
such additional Fund in writing by you and the Company at the time.
You will comply with all rules and regulations of the Securities and
Exchange Commission applicable to you in connection with your performance of
this Agreement, and will in addition conduct your activities under this
Agreement in accordance with other law, including banking law, applicable to
you.
You will not make loans for the purpose of purchasing or carrying Fund
shares, or make interest-bearing loans to the Company.
You will place orders for the purchase and sale of portfolio
securities and will solicit broker-dealers to execute transactions in accordance
with the Fund's policies and restrictions regarding brokerage allocations. You
will place orders pursuant to your investment determination for the Fund either
directly with the issuer or with any broker or dealer selected by you. In
executing portfolio transactions and selecting brokers or dealers, you will use
your reasonable best efforts to seek the most favorable execution of orders,
after taking into account all factors you deem relevant, including the breadth
of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. Consistent with this obligation, you may, to the extent
permitted by law, purchase and sell portfolio securities to and from brokers and
dealers who provide brokerage and research services (within the meaning of
Section 28(e) of the Securities Exchange Act of 1934, as amended) to or for the
benefit of the Fund and/or other accounts over which you or any of your
affiliates exercises investment discretion. You are authorized to pay to a
broker or dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for the Fund which is in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction if you determine in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of either that particular
transaction or your overall responsibilities to the
-2-
<PAGE>
Fund and to the Company. In no instance will portfolio securities be purchased
from or sold to you, or the Fund's principal underwriter, or any affiliated
person thereof except as permitted by the Securities and Exchange Commission.
3. Assistance. You may employ or contract with other persons to
----------
assist you in the performance of this Agreement including, without limitation,
one or more sub-advisers who may perform under your supervision any or all
services described under Section 2; provided, however, that the retention of any
sub-adviser shall be approved as may be required by the 1940 Act. Such other
persons and/or sub-advisers may include other investment advisory or management
firms and officers or employees who are employed by both you and the Company.
The fees or other compensation of any such other persons or sub-advisers shall
be paid by you and no obligation may be incurred on the Company's behalf to any
such person or sub-adviser.
In the event that you appoint a sub-adviser, you will review, monitor,
and report to the Company's Board of Directors on the performance and investment
procedures of any such sub adviser; assist and consult with any sub-adviser in
connection with the Fund's continuous investment program; and approve lists of
foreign countries which may be recommended by any sub-adviser for investment by
the Fund.
4. Fees. In consideration of the advisory services rendered
----
pursuant to this Agreement, the Fund will pay you on the first business day of
each month a fee at the annual rate of .80 of 1% of the value of such Fund's
average daily net assets during the preceding month. Net asset value shall be
computed in the manner, on such days and at such time or times as described in
the Fund's Prospectus from time to time. The fee for the period from the
effective date of the Registration Statement to the end of the first month
thereafter shall be prorated according to the proportion which such period bears
to the full monthly period, and upon any termination of this Agreement before
the end of any month, the fee for such part of a month shall be prorated
according to the proportion which such period bears to the full monthly period
and shall be payable upon the date of termination of this Agreement.
5. Expenses. You will bear all your own expenses in connection with
--------
the performance of your services under this Agreement, provided that such
expenses will not include the expenses to be borne by the Fund, as set forth
below. The expenses to be borne by the Fund include, without limitation, the
following: organizational costs; taxes; interest; brokerage fees and
commissions and other expenses in any way related to the execution, recording
and settlement of portfolio security transactions; fees of Directors who are not
also your officers; Securities and Exchange Commission fees; state Blue Sky
-3-
<PAGE>
qualification fees; charges of custodians and transfer and dividend paying
agents; premiums for directors and officers liability insurance; costs of
fidelity bonds; industry association fees; outside auditing and legal expenses;
costs of maintaining corporate existence; costs of maintaining required books
and accounts; cost of office facilities and supplies; data processing, clerical,
accounting and bookkeeping services and other administrative expenses; costs
attributable to investor services (including, without limitation, telephone and
personnel expenses); costs of Securities and Exchange Commission regulatory
reports; costs of shareholders' reports and meetings; costs of preparing,
printing and mailing prospectuses for regulatory purposes and for distribution
to existing shareholders; and any extraordinary expenses.
6. Liability. You shall exercise your best judgment in rendering
---------
the services to be provided to the Fund. You shall remit to the Fund the amount
of any recovery you obtain for the benefit of the Fund from any person or sub-
adviser whom you have employed or with whom you have contracted pursuant to
Section 3 of this Agreement, for the acts and omissions of such person or sub-
adviser. Subject to the foregoing, the Fund agrees as an inducement to you and
others who may assist you in providing services to the Fund that you and such
other persons shall not be liable for any alleged or actual error of judgment or
mistake of law or for any alleged or actual loss suffered by such Fund and the
Fund and the Company agree to indemnify and hold harmless you and such other
persons against and from any claims, liabilities, actions, suits, proceedings,
judgments or damages (and expenses as and when incurred in connection therewith,
including the reasonable cost of investigating or defending same, including, but
not limited to attorneys' fees) arising out of any such alleged or actual error
of judgment or mistake of law or loss; provided, however, that nothing herein
-------- -------
shall be deemed to protect or purport to protect you or any such other persons
against any liability to the Fund or to its shareholders to which you or they
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties hereunder, or by reason of reckless
disregard of the obligations and duties hereunder; and provided further, that
-------- -------
this sentence shall not inure to the benefit of any person or sub-adviser (or
others who may assist any such person or sub-adviser) whom you have employed or
with whom you have contracted pursuant to Section 3 of this Agreement.
7. Other Accounts. The Company understands that you and other
--------------
persons with whom you contract to provide the services hereunder may from time
to time act as investment adviser to one or more other investment companies and
fiduciary or other managed accounts, and the Company has no objection to your or
their so acting. When purchase or sale of securities of the same issuer is
suitable for the investment objectives of two or more
-4-
<PAGE>
companies or accounts managed by you or such other persons which have available
funds for investment, the available securities may be allocated in a manner
believed by you and such other persons to be equitable to each company or
account. It is recognized that in some cases this procedure may adversely
affect the price paid or received by the Fund or the size of the position
obtainable for or disposed of by the Fund.
In addition, it is understood that you and the persons with whom you
contract to assist in the performance of your duties hereunder will not devote
their full time to such service and nothing contained herein shall be deemed to
limit or restrict your or their right to engage in and devote time and attention
to similar or other businesses.
8. Books and Records. In compliance with the requirements of Rule
-----------------
31a-3 under the 1940 Act, you agree that all records which you maintain for the
Company are the property of the Company and you further agree to surrender
promptly to the Company any of such records upon the Company's request. You
further agree to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act such records that you, as investment adviser, are required to maintain
by Rule 31a-1 under the 1940 Act.
9. Term. This Agreement shall continue with respect to the Fund
----
until July 20, 1998 and thereafter shall continue automatically for successive
12-month periods, provided such continuance with respect to the Fund is
specifically approved at least annually by the Company's Board of Directors or
vote of the lesser of (a) 67% of the shares of the Fund represented at a meeting
if holders of more than 50% of the outstanding shares of the Fund are present in
person or by proxy or (b) more than 50% of the outstanding shares of the Fund,
provided that in either event its continuance also is approved by a majority of
the Company's Directors who are not "interested persons" (as defined in the 1940
Act) of any party to this Agreement, by vote cast in person at a meeting called
for the purpose of voting on such approval. This Agreement is terminable with
respect to the Fund without penalty, on 60 days' notice, by you or by the
Company's Board of Directors or by vote of the lesser of (a) 67% of the shares
of the Fund represented at a meeting if holders of more than 50% of the
outstanding shares of the Fund are present in person or by proxy or (b) more
than 50% of the outstanding shares of the Fund. This Agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
10. Amendment. This Agreement may be amended only by an instrument
---------
in writing signed by the party against which enforcement of the amendment is
sought. No amendment of this Agreement shall be effective with respect to the
Fund until
-5-
<PAGE>
approved by vote of a majority of the Fund's outstanding voting securities.
11. M.S.D.& T. or Mercantile-Safe Deposit & Trust Company. The
-----------------------------------------------------
Company recognizes that from time to time your directors, officers and employees
may serve as directors, trustees, partners, officers and employees of other
corporations, business trusts, partnerships or other entities (including other
investment companies) and that such other entities may include the name "M.S.D.&
T." or "Mercantile-Safe Deposit & Trust Company" as part of their name. You or
your affiliates may enter into investment advisory or other agreements with such
other entities. If you cease to act as the Company's investment adviser, the
Company agrees that, at your request, the Company will take all necessary action
to change the name of the Company and its Funds to a name not including "M.S.D.&
T." or "Mercantile-Safe Deposit & Trust Company" in any form or combination of
words.
12. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule, or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by Maryland law; provided, that nothing herein shall be construed in a
manner inconsistent with the 1940 Act, the Investment Advisers Act of 1940, as
amended, or any rule or regulation of the Securities and Exchange Commission
thereunder.
If the foregoing is in accordance with your understanding, will you
kindly so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
M.S.D.& T. INC.
By: ________________________
Accepted:
MERCANTILE-SAFE DEPOSIT AND
TRUST COMPANY
By: _______________________
-6-
<PAGE>
DISTRIBUTION AGREEMENT
The Winsbury Company Limited Partnership
d/b/a The Winsbury Company
1900 East Dublin-Granville Road
Columbus, Ohio 43229
Gentlemen:
This is to confirm that, in consideration of the agreements hereinafter
contained, the undersigned, M.S.D. & T. Funds, Inc., a Maryland corporation (the
"Company"), has agreed that The Winsbury Company Limited Partnership d/b/a The
Winsbury Company (the "Distributor") shall be, for the period of this Agreement,
the distributor of each class and subclass of shares ("Shares") in each of the
investment portfolios of the Company identified on Schedule A hereto (the
"Funds"). Additional Funds may be added to those covered by this Agreement from
time to time by the parties executing a new Schedule A which shall become
effective upon its execution and shall supersede any Schedule A having an
earlier date.
1. SERVICES AS DISTRIBUTOR.
-----------------------
1.1 Distributor will act as agent for the distribution of the Shares
covered by the registration statement and each prospectus of the Company then in
effect under the Securities Act of 1933.
1.2 Distributor agrees to use appropriate efforts to solicit orders
for the sale of the Shares and will undertake such advertising and promotion as
it believes appropriate in connection with such solicitation. The Company
understands that Distributor may, in the future, be the distributor of the
shares of several investment companies or series (together, "Competitors")
including Competitors having investment objectives similar to those of the
Company. The Company further understands that investors and potential investors
in the Company may invest in shares of such Competitors. The Company agrees that
Distributor's duties to such Competitors shall not be deemed in conflict with
its duties to the Company under this paragraph 1.2.
Distributor shall, at its own expense, finance appropriate activities which
it deems reasonable which are primarily intended to result in the sale of the
Shares, including, but not limited to, advertising, compensation of
underwriters, dealers and sales personnel, the printing and mailing of
prospectuses to other than current Shareholders, and the printing and mailing of
sales literature.
<PAGE>
1.3 As distributor of the Shares all activities by Distributor and its
partners, agents, and employees shall comply with all applicable laws, rules and
regulations, including, without limitation, all rules and regulations made or
adopted pursuant to the Securities Act of 1933 and the Investment Company Act of
1940 by the Securities and Exchange Commission (the "Commission") or any
securities association registered under the Securities Exchange Act of 1934.
1.4 Distributor will provide one or more persons, during normal
business hours, to respond to telephone questions with respect to the Company.
1.5 Distributor will transmit any orders received by it for purchase
or redemption of the Shares to the transfer agent and custodian for the Funds.
1.6 Whenever in their judgment such action is warranted by unusual
market, economic or political conditions, or by abnormal circumstances of any
kind, the Company's officers may decline to accept any orders for or make any
sales of the Shares until such time as those officers deem it advisable to
accept such orders and to make such sales.
1.7 Distributor will act only on its own behalf as principal if it
chooses to enter into selling agreements with selected dealers or others.
1.8 The Company agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the registration or
qualification of the Company or its Shares for sale in such states as
Distributor may designate.
1.9 Each of the Company and the Distributor shall furnish from time
to time, in connection with the sale of the Shares, such information with
respect to the Funds and the Shares as the other may reasonably request; and
each warrants that the statements contained in any such information shall fairly
show or represent what they purport to show or represent. The Company shall also
furnish Distributor upon request with: (a) unaudited semi-annual statements of
the Funds' books and accounts, (b) a monthly itemized list of the securities in
the Funds, (c) monthly balance sheets as soon as practicable after the end of
each month, and (d) from time to time such additional information regarding the
financial condition of the Funds as Distributor may reasonably request.
1.10 The Company represents to Distributor that all registration
statements and prospectuses filed by the Company with the Commission under the
Securities Act of 1933 with respect
-2-
<PAGE>
to the Shares have been carefully prepared in conformity with the requirements
of said Act and rules and regulations of the Commission thereunder. As used in
this agreement the terms "registration statement" and "prospectus" shall mean
any registration statement and any prospectus and Statement of Additional
Information relating to the Funds filed with the Commission and any amendments
and supplements thereto which at any time shall have been filed with the
Commission. The Company represents and warrants to Distributor that any
registration statement and prospectus, when such registration statement becomes
effective, will contain all statements required to be stated therein in
conformity with said Act and the rules and regulations of the Commission; that
all statements of fact contained in any such registration statement and
prospectus will be true and correct when such registration statement becomes
effective; and that neither any registration statement nor any prospectus when
such registration statement becomes effective will include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading to a
purchaser of the Shares. The Company may but shall not be obligated to propose
from time to time such amendment or amendments to any registration statement and
such supplement or supplements to any prospectus as, in the light of future
developments, may, in the opinion of the Company's counsel, be necessary or
advisable. The Company shall not file any amendment to any registration
statement or supplement to any prospectus without giving Distributor reasonable
notice thereof in advance; provided, however, that nothing contained in this
Agreement shall in any way limit the Company's right to file at any time such
amendments to any registration statement and/or supplements to any prospectus,
of whatever character, as the Company may deem advisable, such right being in
all respects absolute and unconditional.
1.11 The Company authorizes Distributor and dealers to use any
prospectus in the form furnished from time to time in connection with the sale
of the Shares. The Company agrees to indemnify, defend and hold Distributor, its
several partners and employees, and any person who controls Distributor within
the meaning of Section 15 of the Securities Act of 1933, free and harmless from
and against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which Distributor, its
partners and employees, or any such controlling person, may incur under the
Securities Act of 1933, or under common law or otherwise arising out of or based
upon any untrue statement, or alleged untrue statement, of a material fact
contained in any registration statement or any prospectus or arising out of or
based upon any omission, or alleged omission, to state a material fact required
to be stated in either any registration statement
-3-
<PAGE>
or any prospectus or necessary to make the statements in either thereof not
misleading; provided, however, that the Company's agreement to indemnify
Distributor, its partners or employees, and any such controlling person shall
not be deemed to cover any claims, demands, liabilities or expenses arising out
of any statements or representations as are contained in any prospectus and in
such financial and other statements as are provided to the Company by
Distributor and used in the responses to any of the items of the registration
statement or in the corresponding statements made in the prospectus, or arising
out of or based upon any omission, or alleged omission, to state a material fact
in connection with the giving of such information required to be stated in such
responses or necessary to make the responses not misleading; and further
provided that the Company's agreement to indemnify Distributor and the Company's
representations and warranties hereinbefore set forth in paragraph 1.10 shall
not be deemed to cover any liability to the Company or its Shareholders to which
Distributor would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of
Distributor's reckless disregard of its obligations and duties under this
Agreement. The Company's agreement to indemnify Distributor, its partners and
employees, and any such controlling person, as aforesaid, is expressly
conditioned upon the Company's being notified of any action brought against
Distributor, its partners or employees, or any such controlling person, such
notification to be given by letter or by telegram addressed to the Company at
its principal office in Baltimore, Maryland, and sent to the Company by the
person against whom such action is brought, within ten days after the summons or
other first legal process shall have been served. The failure to so notify the
Company of any such action shall not relieve the Company from any liability
which the Company may have to the person against whom such action is brought by
reason of any such untrue, or allegedly untrue, statement or omission, or
alleged omission, otherwise than on account of the Company's indemnity agreement
contained in this paragraph 1.11. The Company will be entitled to assume the
defense of any suit brought to enforce any such claim, demand or liability, but,
in such case, such defense shall be conducted by counsel of good standing chosen
by the Company and approved by Distributor, which approval shall not be
unreasonably withheld. In the event the Company elects to assume the defense of
any such suit and retain counsel of good standing approved by Distributor, the
defendant or defendants in such suit shall bear the fees and expenses of any
additional counsel retained by any of them; but in case the Company does not
elect to assume the defense of any such suit, or in case Distributor reasonably
does not approve of counsel chosen by the Company, the Company will reimburse
Distributor, its partners and employees, or the controlling person or persons
named as defendant or defendants in such suit, for the fees and expenses of any
counsel retained by Distributor or them. The Company's indemnification agreement
contained in this paragraph
-4-
<PAGE>
1.11 and the Company's representations and warranties in this Agreement shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of Distributor, its partners and employees, or any
controlling person, and shall survive the delivery of any Shares. This Agreement
of indemnity will inure exclusively to Distributor's benefit, to the benefit of
its several partners and employees, and their respective estates, and to the
benefit of the controlling persons and their successors. The Company agrees
promptly to notify Distributor of the commencement of any litigation or
proceedings against the Company or any of its officers or Directors in
connection with the issue and sale of any Shares.
1.12 Distributor agrees to indemnify, defend and hold the Company, its
several officers and Directors and any person who controls the Company within
the meaning of Section 15 of the Securities Act of 1933, free and harmless from
and against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Company, its officers
or Directors or any such controlling person, may incur under the Securities Act
of 1933, or under common law or otherwise, but only to the extent that such
liability or expense incurred by the Company, its officers or Directors or such
controlling person resulting from such claims or demands, shall arise out of or
be based upon any untrue statement, or alleged untrue statement, of a material
fact contained in information provided by Distributor to the Company and used in
the responses to any of the items of the registration statement or in the
corresponding statements made in the prospectus, or shall arise out of or be
based upon any omission, or alleged omission, to state a material fact in
connection with such information provided by Distributor to the Company required
to be stated in such responses or necessary to make the responses not
misleading. Distributor's agreement to indemnify the Company, its officers and
Directors, and any such controlling person, as aforesaid, is expressly
conditioned upon Distributor's being notified of any action brought against the
Company, its officers or Directors, or any such controlling person, such
notification to be given by letter or by telegram addressed to Distributor at
its principal office in Columbus, Ohio, and sent to Distributor by the person
against whom such action is brought, within ten days after the summons or other
first legal process shall have been served. Distributor shall have the right of
first control of the defense of such action, with counsel of its own choosing,
satisfactory to the Company, if such action is based solely upon such alleged
misstatement or omission on Distributor's part, and in any event the Company,
its officers or Directors or such controlling person shall each have the right
to participate in the defense or preparation of the defense of any such action.
The failure to so notify Distributor of any such
-5-
<PAGE>
action shall not relieve Distributor from any liability which Distributor may
have to the Company, its officers or Directors, or to such controlling person by
reason of any such untrue or alleged untrue statement, or omission or alleged
omission, otherwise than on account of Distributor's indemnity agreement
contained in this paragraph 1.12.
1.13 No Shares shall be offered by either Distributor or the Company
under any of the provisions of this Agreement and no orders for the purchase or
sale of Shares hereunder shall be accepted by the Company if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
Securities Act of 1933, or if and so long as a current prospectus as required by
Section 10(b)(2) of said Act is not on file with the Commission; provided,
--------
however, that nothing contained in this paragraph 1.13 shall in any way restrict
or have an application to or bearing upon the Company's obligation to repurchase
Shares from any Shareholder in accordance with the provisions of the Company's
prospectus, Articles of Incorporation or By-laws.
1.14 The Company agrees to advise Distributor as soon as reasonably
practical by a notice in writing delivered to Distributor or its counsel:
(a) of any request by the Commission for amendments to the
registration statement or any prospectus then in effect or for additional
information;
(b) in the event of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement or any
prospectus then in effect or the initiation by service of process on the Company
of any proceeding for that purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration statement or any
prospectus then in effect or which requires the making of a change in such
registration statement or any such prospectus in order to make the statements
therein not misleading; and
(d) of all action of the Commission with respect to any
amendment to any registration statement or prospectus which may from time to
time be filed with the Commission.
For purposes of this paragraph 1.14, informal requests by or acts of the
Staff of the Commission shall not be deemed actions of or requests by the
Commission.
-6-
<PAGE>
1.15 Distributor agrees on behalf of itself and its partners and
employees to treat confidentially and as proprietary information of the Company
all records and other information relative to the Company and its prior, present
or potential Shareholders, and not to use such records and information for any
purpose other than performance of Distributor's responsibilities and duties
hereunder, except after prior notification to and approval in writing by the
Company, which approval shall not be unreasonably withheld and may not be
withheld where Distributor may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Company.
1.16 This Agreement shall be governed by the laws of the State of
Maryland.
2. SALE AND PAYMENT.
----------------
Under this Agreement, the following provisions shall apply with
respect to the sale of and payment for Shares:
(a) The Distributor shall have the right, as principal, to
purchase Shares from the Company at their net asset value and to sell such
Shares to the public against orders therefor at the applicable public offering
price, as defined in Section 3 hereof. The Distributor shall also have the
right, as principal, to sell Shares to dealers against orders therefor at the
public offering price less a concession determined by the Distributor, which
concession shall not exceed the amount of the sales charge or underwriting
discount, if any, referred to below.
(b) Prior to the time of delivery of any Shares by the Company
to, or on the order of, the Distributor, the Distributor shall pay or cause to
be paid to the Company or to its order an amount in New York Federal Funds equal
to the applicable net asset value of such Shares. The Distributor shall retain
so much of any sales charge or underwriting discount as is not allowed by it as
a concession to dealers.
3. PUBLIC OFFERING PRICE.
---------------------
The public offering price for each Fund's Shares shall be the net asset
value of such Shares, plus any applicable sales charge, all as set forth in the
current prospectus of that Fund. The net asset value of each Fund's Shares
shall be determined in accordance with the provisions of the Articles of
Incorporation of the Company and the then current prospectus of that Fund.
-7-
<PAGE>
4. COMPANY ISSUANCE OF SERIES SHARES.
---------------------------------
The Company reserves the right to issue, transfer or sell Shares at net
asset value (a) in connection with the merger or consolidation of the Company or
any Fund with any other investment company or the acquisition by the Company or
any Fund of all or substantially all of the assets or of the outstanding shares
of any other investment company; (b) in connection with a pro rata distribution
directly to the holders of Shares in the nature of a stock dividend or split;
(c) upon the exercise of subscription rights granted to the holders of Shares on
a pro rata basis; (d) in connection with the issuance of Shares pursuant to any
exchange and reinvestment privileges described in any then current prospectus of
a Fund; and (e) otherwise in accordance with any then current prospectus of a
Fund.
5. TERM.
----
Unless sooner terminated, this Agreement shall continue with respect to
each Fund until July 20, 1994 and thereafter shall continue automatically for
successive 12-month periods, provided such continuance with respect to each Fund
is specifically approved at least annually by the Company's Board of Directors
or vote of the lesser of (a) 67% of the shares of such Fund represented at a
meeting if holders of more than 50% of the outstanding shares of the Fund are
present in person or by proxy or (b) more than 50% of the outstanding shares of
such Fund, provided that in either event its continuance also is approved by a
majority of the Company's Directors who are not "interested persons" (as defined
in the 1940 Act) of any party to this Agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval. This Agreement is
terminable at any time with respect to any Fund or all Funds without penalty, on
60 days' notice, by Distributor or by the Company's Board of Directors or by
vote of the lesser of (a) 67% of the shares of such Fund represented at a
meeting if holders of more than 50% of the outstanding shares of the Fund are
present in person or by proxy or (b) more than 50% of the outstanding shares of
such Fund. This Agreement will terminate automatically in the event of its
assignment (as defined in the 1940 Act).
Please confirm that the foregoing is in accordance with your understanding
by indicating your acceptance hereof at the
-8-
<PAGE>
place below indicated, whereupon it shall become a binding agreement between us
effective on this 1st day of October, 1993.
Yours very truly,
M.S.D. & T. FUNDS, INC.
By: /s/ Leslie B. Disharoon
---------------------------
Leslie B. Disharoon
Title: President
Accepted:
THE WINSBURY COMPANY
LIMITED PARTNERSHIP
By The Winsbury Corporation,
as General Partner
By: /s/ Ronald. Henderson
---------------------
Ronald G. Henderson
Title: Senior Vice President
-9-
<PAGE>
EXHIBIT (6)(b)
SCHEDULE A
TO THE
DISTRIBUTION AGREEMENT
BETWEEN M.S.D. & T. FUNDS, INC. AND BISYS FUND SERVICES
(FORMERLY KNOWN AS THE WINSBURY COMPANY LIMITED PARTNERSHIP)
DATED OCTOBER 1, 1993
NAMES OF FUNDS
- --------------
Prime Money Market Fund
Government Money Market Fund
Tax-Exempt Money Market Fund
Tax-Exempt Money Market Fund (Trust)
Value Equity Fund
Intermediate Fixed Income Fund
Maryland Tax-Exempt Bond Fund
International Equity Fund
Diversified Real Estate Fund
M.S.D. & T. FUNDS, INC.
By:____________________________
Title:_________________________
Date:__________________________
BISYS FUND SERVICES
By:____________________________
Title: ________________________
Date:__________________________
<PAGE>
CUSTODY AGREEMENT
-----------------
THIS AGREEMENT, is made as of May 28, 1993, by and between M.S.D. & T.
FUNDS, INC., a Maryland corporation (the "Fund"), and THE FIFTH THIRD BANK, a
banking company organized under the laws of the State of Ohio (the "Custodian").
WITNESSETH:
WHEREAS, the Fund desires that the Fund's Securities and cash be held and
administered by the Custodian pursuant to this Agreement; and
WHEREAS, the Fund is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Custodian represents that it is a bank having the
qualifications prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Fund and the Custodian hereby agree as follows:
ARTICLE I
---------
DEFINITIONS
-----------
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
1.1 "Authorized Person" means any Officer or other person duly authorized
-----------------
by resolution of the Board of Directors to give Oral Instructions and Written
Instructions on behalf of the Fund and named in Exhibit A hereto or in such
resolutions of the Board of Directors, certified by an Officer, as may be
received by the Custodian from time to time.
1.2 "Board of Directors" shall mean the Directors from time to time
------------------
serving under the Fund's Articles of Incorporation and Bylaws as from time to
time amended.
1.3 "Book-Entry System" shall mean a federal book-entry system as provided
-----------------
in Subpart O of Treasury Circular No. 300,31 CFR 306, in Subpart B of 31 CFR
Part 350, or in such book-entry regulations of federal agencies as are
substantially in the form of such Subpart O.
<PAGE>
1.4 "Business Day" shall mean any day recognized as a settlement day by
------------
The New York Stock Exchange, Inc. and any other day for which the Fund computes
the net asset value of the Fund.
1.5 "NASD" shall mean The National Association of Securities Dealers, Inc.
----
1.6 "Officer" shall mean the President, any Vice President, the Secretary,
-------
any Assistant Secretary, the Treasurer, or any Assistant Treasurer of the Fund.
1.7 "Oral Instructions" shall mean Instructions orally transmitted to and
-----------------
accepted by the Custodian because such instructions are: (i) reasonably believed
by the Custodian to have been given by an Authorized Person, (ii) recorded and
kept among the records of the Custodian made in the ordinary course of business
and (iii) orally confirmed by the Custodian. The Fund shall cause all Oral
Instructions to be confirmed by Written Instructions. If such Written
Instructions confirming Oral Instructions are not received by the Custodian
prior to a transaction, it shall in no way affect the validity of the
transaction or the authorization thereof by the Fund. If Oral Instructions vary
from the Written Instructions which purport to confirm them, the Custodian shall
notify the Fund of such variance but such Oral Instructions will govern unless
the Custodian has not yet acted.
1.8 "Fund Custody Account" shall mean the accounts in the name of the
--------------------
Fund, which is provided for in Section 3.2 below.
1.9 "Proper Instructions" shall mean Oral Instructions or Written
-------------------
Instructions. Proper Instructions may be continuing Written Instructions when
deemed appropriate by both parties.
1.10 "Securities Depository" shall mean The Depository Fund Company and
---------------------
(provided that Custodian shall have received a copy of a resolution of the Board
of Directors, certified by an Officer, specifically approving the use of such
clearing agency as a depository for the Funds) any other clearing agency
registered with the Securities and Exchange Commission under Section 17A of the
Securities and Exchange Act of 1934 (the "1934 Act"), which acts as a system for
the central handling of Securities where all Securities of any particular class
or series of an issuer deposited within the system are treated as fungible and
may be transferred or pledged by bookkeeping entry without physical delivery of
the Securities.
1.11 "Securities" shall include, without limitation, common and preferred
----------
stocks, bonds, call options, put options, debentures, notes, bank certificates
of deposit, bankers' acceptances, mortgage-backed securities, other money market
instruments or other obligations, and any certificates, receipts,
-2-
<PAGE>
warrants or other instruments or documents representing rights to receive,
purchase or subscribe for the same, or evidencing or representing any other
rights or interests therein, or any similar property or assets that the
Custodian has the facilities to clear and to service.
1.12 "Shares" shall mean the shares of common stock without par value
------
issued by the Fund.
1.13 "Written Instructions" shall mean (i) written communications actually
--------------------
received by the Custodian and signed by one or more persons as the Board of
Directors shall have from time to time authorized, or (ii) communications by
telex or any other such system from a person or persons reasonably believed by
the Custodian to be Authorized, or (iii) communications transmitted
electronically through the Institutional Delivery System (IDS), or any other
similar electronic instruction system acceptable to Custodian and approved by
resolutions of the Board of Directors, a copy of which, certified by an Officer,
shall have been delivered to the Custodian.
1.14 "Fund" hereinafter shall be deemed to refer to each separate series of
----
the Fund where said Fund is registered as a series company for the purposes of
Rule 18f-2 under the 1940 Act unless the context otherwise requires.
ARTICLE II
----------
APPOINTMENT OF CUSTODIAN
------------------------
2.1 Appointment. The Fund hereby constitutes and appoints the Custodian as
-----------
custodian of all Securities and cash owned by or in the possession of the
portfolios of the Fund listed on Exhibit B hereto (as such Exhibit may be
amended or modified) at any time during the period of this Agreement, provided
that such Securities or cash at all times shall be and remain the property of
the Fund.
2.2 Acceptance. The Custodian hereby accepts appointment as such custodian
----------
and agrees to perform the duties thereof as hereinafter set forth.
-3-
<PAGE>
ARTICLE III
-----------
CUSTODY OF CASH AND SECURITIES
------------------------------
3.1 Segregation. All Securities and non-cash property held by the
-----------
Custodian for the account of the Fund, except Securities maintained in a
Securities Depository or Book-Entry System, shall be physically segregated from
other Securities and non-cash property in the possession of the Custodian and
shall be identified as subject to this Agreement.
3.2 Fund Custody Accounts. The Custodian shall open and maintain in its
---------------------
trust department a custody account in the name of the Fund coupled with the name
of such Fund, subject only to draft or order of the Custodian, in which the
Custodian shall enter and carry all Securities, cash and other assets of the
Fund which are delivered to it.
3.3 Appointment of Agents. In its discretion, the Custodian may appoint,
---------------------
and at any time remove, any domestic bank or trust company, which has been
approved by the Board of Directors and is qualified to act as a custodian under
the 1940 Act, as subcustodian to hold Securities and cash of the Funds and to
carry out such other provisions of this Agreement as it may determine, and may
also open and maintain one or more banking accounts with such a bank or trust
company (any such accounts to be in the name of the Custodian and subject only
to its draft or order), provided, however, that the appointment of any such
agent shall not relieve the Custodian of any of its obligations or liabilities
under this Agreement.
3.4 Delivery of Assets to Custodian. The Fund shall deliver, or cause to
-------------------------------
be delivered, to the Custodian all of the Fund's Securities, cash and other
assets, including (a) all payments of income, payments of principal and capital
distributions received by the Fund with respect to such Securities, cash or
other assets owned by the Fund at any time during the period of this Agreement,
and (b) all cash received by the Fund for the issuance, at any time during such
period, of Shares. The Custodian shall not be responsible for such Securities,
cash or other assets until actually received by it.
3.5 Securities Depositories and Book-Entry Systems. The Custodian may
----------------------------------------------
deposit and/or maintain Securities of the Funds in a Securities Depository or in
a Book-Entry System, subject to the following provisions:
(a) Prior to a deposit of Securities of the Funds in any Securities
Depository or Book-Entry System, the Fund shall deliver to the
Custodian a resolution of the Board of Directors, certified by an
Officer,
-4-
<PAGE>
authorizing and instructing the Custodian on an on-going basis to
deposit in such Securities Depository or Book-Entry System all
Securities eligible for deposit therein and to make use of such
Securities Depository or Book-Entry System to the extent possible and
practical in connection with its performance hereunder, including,
without limitation, in connection with settlements of purchases and
sales of Securities, loans of Securities, and deliveries and returns
of collateral consisting of Securities. So long as such Securities
Depository or Book-Entry System shall continue to be employed for the
deposit of Securities of the Funds, the Fund shall annually re-adopt
such resolution and deliver a copy thereof, certified by an Officer,
to the Custodian.
(b) Securities of the Fund kept in a Book-Entry System or Securities
Depository shall be kept in an account ("Depository Account") of the
Custodian in such Book-Entry System or Securities Depository which
includes only assets held by the Custodian as a fiduciary, custodian
or otherwise for customers.
(c) The records of the Custodian and the Custodian's account on the books
of the Book-Entry System and Securities Depository as the case may be,
with respect to Securities of a Fund maintained in a Book-Entry System
or Securities Depository shall, by book-entry, or otherwise identify
such Securities as belonging to the Fund.
(d) If Securities purchases by the Fund are to be held in a Book-Entry
System or Securities Depository, the Custodian shall pay for such
Securities upon (i) receipt of advice from the Book-Entry System or
Securities Depository that such Securities have been transferred to
the Depository Account, and (ii) the making of an entry on the records
of the Custodian to reflect such payment and transfer for the account
of the Fund. If Securities sold by the Fund are held in a Book-Entry
System or Securities Depository, the Custodian shall transfer such
Securities upon (i) receipt of advice from the Book-Entry System or
Securities depository that payment for such Securities has been
transferred to the Depository Account, and (ii) the making of an entry
on the records of the Custodian to reflect such transfer and payment
for the account of the Fund.
(e) Upon request, the Custodian shall provide the Fund with copies of any
report (obtained by the Custodian from a Book-Entry System or
Securities Depository in which
-5-
<PAGE>
Securities of the Fund is kept) on the internal accounting controls
and procedures for safeguarding Securities deposited in such Book-
Entry System or Securities Depository.
(f) Anything to the contrary in this Agreement notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to a Fund
resulting (i) from the use of a Book-Entry System or Securities
Depository by reason of any negligence or willful misconduct on the
part of Custodian or any sub-custodian appointed pursuant to Section
3.3 above or any of its or their employees, or (ii) from failure of
Custodian or any such sub-custodian to enforce effectively such rights
as it may have against a Book-Entry System or Securities Depository.
At its election, the Fund shall be subrogated to the rights of the
Custodian with respect to any claim against a Book-Entry System or
Securities Depository or any other person for any loss or damage to
the Fund arising from the use of such Book-Entry System or Securities
Depository, if and to the extent that the Fund has been made whole for
any such loss or damage.
3.6 Disbursement of Moneys from Fund Custody Accounts. Upon receipt of
-------------------------------------------------
Proper Instructions, the Custodian shall disburse moneys from a Fund Custody
Account but only in the following cases:
(a) For the purchase of Securities for the Fund but only upon compliance
with Section 4.1 of this Agreement and only (i) in the case of
Securities (other than options on Securities, futures contracts and
options on futures contracts), against the delivery to the Custodian
(or any sub-custodian appointed pursuant to Section 3.3 above) of such
Securities registered as provided in Section 3.9 below in proper form
for transfer, or if the purchase of such Securities is effected
through a Book-Entry System or Securities Depository, in accordance
with the conditions set forth in Section 3.5 above; (ii) in the case
of options on Securities, against delivery to the Custodian (or such
sub-custodian) of such receipts as are required by the customs
prevailing among dealers in such options; (iii) in the case of futures
contracts and options on futures contracts, against delivery to the
Custodian (or such sub-custodian) of evidence of title thereto in
favor of the Fund or any nominee referred to in Section 3.9 below; and
(iv) in the case of repurchase or reverse repurchase agreements
entered into between the Fund and a bank which is a member of the
Federal Reserve System or between the Fund and a primary dealer in
U.S.
-6-
<PAGE>
Government securities, against delivery of the purchased Securities
either in certificate form or through an entry crediting the
Custodian's account at a Book-Entry System or Securities Depository
for the account of the Fund with such Securities;
(b) In connection with the conversion, exchange or surrender, as set forth
in Section 3.7(f) below, of Securities owned by the Fund;
(c) For the payment of any dividends or capital gain distributions
declared by the Fund;
(d) In payment of the redemption price of Shares as provided in Section
5.1 below;
(e) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account of
the Fund: interest; taxes; administration, investment management,
investment advisory, accounting, auditing, transfer agent, custodian,
trustee and legal fees; and other operating expenses of the Fund; in
all cases, whether or not such expenses are to be in whole or in part
capitalized or treated as deferred expenses;
(f) For transfer in accordance with the provisions of any agreement among
the Fund, the Custodian and a broker-dealer registered under the 1934
Act and a member of the NASD, relating to compliance with rules of The
Options Clearing Corporation and of any registered national securities
exchange (or of any similar organization or organizations) regarding
escrow or other arrangements in connection with transactions by the
Fund;
(g) For transfer in accordance with the provisions of any agreement among
the Fund, the Custodian, and a futures commission merchant registered
under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any contract
market (or any similar organization or organizations) regarding
account deposits in connection with transactions by the Fund;
(h) For the funding of any uncertificated time deposit or other interest-
bearing account with any banking institution (including the
Custodian), which deposit or account has a term of one year or less;
and
(i) For any other proper purposes, but only upon receipt, in addition to
Proper Instructions, of a copy of a
-7-
<PAGE>
resolution of the Board of Directors, certified by an Officer,
specifying the amount and purpose of such payment, declaring such
purpose to be a proper corporate purpose, and naming the person or
persons to whom such payment is to be made.
3.7 Delivery of Securities from Fund Custody Accounts. Upon receipt of
-------------------------------------------------
Proper Instructions, the Custodian shall release and deliver Securities from a
Fund Custody Account but only in the following cases:
(a) Upon the sale of Securities for the account of the Fund but only
against receipt of payment therefor in cash, by certified or cashiers
check or bank credit;
(b) In the case of a sale effected through a Book-Entry System or
Securities Depository, in accordance with the provisions of Section
3.5 above;
(c) To an Offeror's depository agent in connection with tender or other
similar offers for Securities of the Fund; provided that, in any such
case, the cash or other consideration is to be delivered to the
Custodian;
(d) To the issuer thereof or its agent (i) for transfer into the name of
the Fund, the Custodian or any sub-custodian appointed pursuant to
Section 3.3 above, or of any nominee or nominees of any of the
foregoing, or (ii) for exchange for a different number of certificates
or other evidence representing the same aggregate face amount or
number of units; provided that, in any such case, the new Securities
are to be delivered to the Custodian;
(e) To the broker selling Securities, for examination in accordance with
the "street delivery" custom;
(f) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
issuer of such Securities, or pursuant to provisions for conversion
contained in such Securities, or pursuant to any deposit agreement,
including surrender or receipt of underlying Securities in connection
with the issuance or cancellation of depository receipts; provided
that, in any such case, the new Securities and cash, if any, are to be
delivered to the Custodian;
(g) Upon receipt of payment therefor pursuant to any repurchase or reverse
repurchase agreement entered into by the Fund;
-8-
<PAGE>
(h) In the case of warrants, rights or similar Securities, upon the
exercise thereof, provided that, in any such case, the new Securities
and cash, if any, are to be delivered to the Custodian;
(i) For delivery in connection with any loans of Securities of the Fund,
buy only against receipt of such collateral as the Fund shall have
specified to the Custodian in Proper Instructions;
(j) For delivery as security in connection with any borrowings by the Fund
requiring a pledge of assets by the Fund, but only against receipt by
the Custodian of the amounts borrowed;
(k) Pursuant to any authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Fund;
(l) For delivery in accordance with the provisions of any agreement among
the Fund, the Custodian and a broker-dealer registered under the 1934
Act and a member of the NASD, relating to compliance with the rules of
The Options Clearing Corporation and of any registered national
securities exchange (or of any similar organization or organizations)
regarding escrow or other arrangements in connection with transactions
by the Fund;
(m) For delivery in accordance with the provisions of any agreement among
the Fund, the Custodian, and a futures commission merchant registered
under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any contract
market (or any similar organization or organizations) regarding
account deposits in connection with transactions by the Fund; or
(n) For any other proper corporate purposes, but only upon receipt, in
addition to Proper Instructions, of a copy of a resolution of the
Board of Directors, certified by an Officer, specifying the Securities
to be delivered, setting forth the purpose for which such delivery is
to be made, declaring such purpose to be a proper corporate purpose,
and naming the person or persons to whom delivery of such Securities
shall be made.
3.8 Actions Not Requiring Proper Instructions. Unless otherwise instructed
-----------------------------------------
by the Fund, the Custodian shall with respect to all Securities held for a Fund;
-9-
<PAGE>
(a) Subject to Section 7.4 below, collect on a timely basis all income and
other payments to which the Fund is entitled either by law or pursuant
to custom in the securities business;
(b) Present for payment and, subject to Section 7.4 below, collect on a
timely basis the amount payable upon all Securities which may mature
or be called, redeemed, or retired, or otherwise become payable;
(c) Endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments;
(d) Surrender interim receipts or Securities in temporary form for
Securities in definitive form;
(e) Execute, as custodian, any necessary declarations or certificates of
ownership under the federal income tax laws or the laws or regulations
of any other taxing authority now or hereafter in effect, and prepare
and submit reports to the Internal Revenue Service ("IRS") and to the
Fund at such time, in such manner and containing such information as
is prescribed by the IRS;
(f) Hold for the Fund, either directly or, with respect to Securities held
therein, through a Book-Entry System or Securities Depository, all
rights and similar securities issued with respect to Securities of the
Fund; and
(g) In general, and except as otherwise directed in Proper Instructions,
attend to all non-discretionary details in connection with sale,
exchange, substitution, purchase, transfer and other dealings with
Securities and assets of the Fund.
3.9 Registration and Transfer of Securities. All Securities held for the
---------------------------------------
Fund that are issued or issuable only in bearer form shall be held by
the Custodian in that form, provided that any such Securities shall be
held in a Book-Entry System if eligible therefor. All other
Securities held for the Fund may be registered in the name of the
Fund, the Custodian, or any sub-custodian appointed pursuant to
Section 3.3 above, or in the name of any nominee of any of them, or in
the name of a Book-Entry System, Securities Depository or any nominee
of either thereof; provided, however, that such Securities are held
specifically for the account of the Fund. The Fund shall furnish to
the Custodian appropriate instruments to enable the Custodian to hold
or deliver in proper form for transfer, or to register
-10-
<PAGE>
in the name of any of the nominees hereinabove referred to or in the
name of a Book-Entry System or Securities Depository, any Securities
registered in the name of the Fund.
3.10 Records. (a) The Custodian shall maintain, by Fund, complete and
-------
accurate records with respect to Securities, cash or other property held for the
Fund, including (i) journals or other records of original entry containing an
itemized daily record in detail of all receipts and deliveries of Securities and
all receipts and disbursements of cash; (ii) ledgers (or other records)
reflecting (A) Securities in transfer, (B) Securities in physical possession,
(C) monies and Securities borrowed and monies and Securities loaned (together
with a record of the collateral therefor and substitutions of such collateral),
(D) dividends and interest received, and (E) dividends receivable and interest
accrued; and (iii) cancelled checks and bank records related thereto. The
Custodian shall keep such other books and records of the Fund as the Fund shall
reasonably request, or as may be refused by the 1940 Act, including, but not
limited to Section 3.1 and Rule 31a-2 promulgated thereunder.
(b) All such books and records maintained by the Custodian shall (i) be
maintained in a form acceptable to the Fund and in compliance with rules and
regulations of the Securities and Exchange Commission, (ii) be the property of
the Fund and at all times during the regular business hours of the Custodian be
made available upon request for inspection by duly authorized officers,
employees or agents of the Fund and employees or agents of the Securities and
Exchange Commission, and (iii) if required to be maintained by Rule 31a-1 under
the 1940 Act, be preserved for the periods prescribed in Rule 31a-2 under the
1940 Act.
3.11 Fund Reports by Custodian. The Custodian shall furnish the Fund with a
-------------------------
daily activity statement by Fund and a summary of all transfers to or from each
Fund Custody Account on the day following such transfers. At least monthly and
from time to time, the Custodian shall furnish the Fund with a detailed
statement, by Fund, of the Securities and moneys held for the Fund under this
Agreement.
3.12 Other Reports by Custodian. The Custodian shall provide the Fund with
--------------------------
such reports, as the Fund may reasonably request from time to time, on the
internal accounting controls and procedures for safeguarding Securities, which
are employed by the Custodian or any subcustodian appointed pursuant to Section
3.3 above.
3.13 Proxies and Other Materials. The Custodian shall cause all proxies
---------------------------
relating to Securities which are not registered in the name of the Fund, to be
promptly executed by the registered holder of such Securities, without
indication of the manner in
-11-
<PAGE>
which such proxies are to be voted, and shall include all other proxy materials,
if any, promptly deliver to the Fund such proxies, all proxy soliciting
materials and all notices to such Securities.
3.14 Information on Corporate Actions. Custodian will promptly notify Fund
--------------------------------
of corporate actions, limited to those Securities registered in nominee name and
to those Securities held at a Depository or sub-Custodian acting as agent for
Custodian. Custodian will be responsible only if the notice of such corporate
actions is published by the Financial Daily Card Service, J.J. Kenny Called Bond
Service, DTC, or received by first class mail from the agent. For market
announcements not yet received and distributed by Custodian's services, Fund
will inform its custody representative with appropriate instructions. Custodian
will, upon receipt of Fund's response within the required deadline, affect such
action for receipt or payment for the Fund. For those responses received after
the deadline, Custodian will affect such action for receipt or payment, subject
to the limitations of the agent(s) affecting such actions. Custodian will
promptly notify Fund for put options only if the notice is received by first
class mail from the agent. The Fund will provide or cause to be provided to
Custodian with all relevant information contained in the prospectus for any
security which has unique put/option provisions and provide Custodian with
specific tender instructions at least ten business days prior to the beginning
date of the tender period.
ARTICLE IV
----------
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
--------------------------------------------
4.1 Purchase of Securities. Promptly upon each purchase of Securities for
----------------------
the Fund, Written Instructions shall be delivered to the Custodian, specifying
(a) the name of the issuer or writer of such Securities, and the title or other
description thereof, (b) the number of shares, principal amount (and accrued
interest, if any) or other units purchased, (c) the date of purchase and
settlement, (d) the purchase price per unit, (e) the total amount payable upon
such purchase, and (f) the name of the person to whom such amount is payable.
The Custodian shall upon receipt of such Securities purchased by the Fund pay
out of the moneys held for the account of the Fund the total amount specified in
such Written Instructions to the person named therein. The Custodian shall not
be under any obligation to pay out moneys to cover the cost of a purchase of
Securities for a Fund, if in the relevant Fund Custody Account there is
insufficient cash available to the Fund for which such purchase was made.
4.2 Liability for Payment in Advance of Receipt of Securities Purchased.
-------------------------------------------------------------------
In any and every case where payment for
-12-
<PAGE>
the purchase of Securities for a Fund is made by the Custodian in advance of
receipt for the account of the Fund of the Securities purchased but in the
absence of specific Written or Oral Instructions to so pay in advance, the
Custodian shall be liable to the Fund for such Securities to the same extent as
if the Securities had been received by the Custodian.
4.3 Sale of Securities. Promptly upon each sale of Securities by the
------------------
Fund, Written Instructions shall be delivered to the Custodian, specifying (a)
the name of the issuer or writer of such Securities, and the title or other
description thereof, (b) the number of shares, principal amount (and accrued
interest, if any), or other units sold, (c) the date of sale and settlement, (d)
the sale price per unit, (e) the total amount payable upon such sale, and (f)
the person to whom such Securities are to be delivered. Upon receipt of the
total amount payable to the Fund as specified in such Written Instructions, the
Custodian shall deliver such Securities to the person specified in such Written
Instructions. Subject to the foregoing, the Custodian may accept payment in
such form as shall be satisfactory to it, and may deliver Securities and arrange
for payment in accordance with the customs prevailing among dealers in
Securities.
4.4 Delivery of Securities Sold. Notwithstanding Section 4.3 above or any
---------------------------
other provision of this Agreement, the Custodian, when instructed to deliver
Securities against payment, shall be entitled,if in accordance with generally
accepted market practice, to deliver such Securities prior to actual receipt of
final payment therefor. In any such case, the Fund shall bear the risk that
final payment for such Securities may not be made or that such Securities may be
returned or otherwise held or disposed of by or through the person to whom they
were delivered, and the Custodian shall have no liability for any of the
foregoing.
4.5 Payment for Securities Sold, etc. In its sole discretion and from
--------------------------------
time to time, the Custodian may credit the relevant Fund Custody Account, prior
to actual receipt of final payment thereof, with (i) proceeds from the sale of
Securities which it has been instructed to deliver against payment, (ii)
proceeds from the redemption of Securities or other assets of the Fund, and
(iii) income from cash, Securities or other assets of the Fund. Any such credit
shall be conditional upon actual receipt by Custodian of final payment and may
be reversed if final payment is not actually received in full. The Custodian
may, in its sole discretion and from time to time, permit a Fund to use funds so
credited to its Fund Custody Account in anticipation of actual receipt of final
payment. Any such funds shall be repayable immediately upon demand made by the
Custodian at any time prior to the actual receipt of all final payments in
-13-
<PAGE>
anticipation of which funds were credited to the Fund Custody Account.
4.6 Advances by Custodian for Settlement. The Custodian may, in its sole
------------------------------------
discretion and from time to time, advance funds to the Fund to facilitate the
settlement of a Fund's transactions in its Fund Custody Account. Any such
advance shall be repayable immediately upon demand made by Custodian. The Fund
will monitor its cash position to minimize the need for such advances. In light
of the Custodian's having custody of Fund Securities, Custodian shall not
require the Fund to pledge any of its Securities as collateral for any such
funds which it may, from time to time, advance to the Fund.
ARTICLE V
---------
REDEMPTION OF FUND SHARES
-------------------------
5.1 Transfer of Funds. From such funds as may be available for the
-----------------
purpose in the relevant Fund Custody Account, and upon receipt of Proper
Instructions specifying that the funds are required to redeem Shares of a Fund,
the Custodian shall wire each amount specified in such Proper Instructions to or
through such bank as the Fund may designate with respect to such amount in such
Proper Instructions.
5.2 No Duty Regarding Paying Banks. The Custodian shall not be under any
------------------------------
obligation to effect payment or distribution by any bank designated in Proper
Instructions given pursuant to Section 5.1 above of any amount paid by the
Custodian to such bank in accordance with such Proper Instructions.
ARTICLE VI
----------
SEGREGATED ACCOUNTS
-------------------
Upon receipt of Proper Instructions, the Custodian shall establish and
maintain a segregated account or accounts for and on behalf of a Fund, into
which account or accounts may be transferred cash and/or Securities, including
Securities maintained in a Depository Account,
(a) in accordance with the provisions of any agreement among the Fund, the
Custodian and a broker-dealer registered under the 1934 Act and a
member of the NASD (or any futures commission merchant registered
under the Commodity Exchange Act), relating to compliance with the
rules of The Options Clearing Corporation and of any registered
national securities exchange (or the Commodity Futures Trading
commission or any registered
-14-
<PAGE>
contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions
by the Fund,
(b) for purposes of segregating cash or Securities in connection with
securities options purchased or written by the Fund or in connection
with financial futures contracts (or options thereon) purchased or
sold by the Fund,
(c) which constitute collateral for loans of Securities made by the Fund,
(d) for purposes of compliance by the Fund with requirements under the
1940 Act for the maintenance of segregated accounts by registered
investment companies in connection with reverse repurchase agreements
and when issued, delayed delivery and firm commitment transactions,
and
(e) for other proper corporate purposes, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of
the Board of Directors, certified by an Officer, setting forth the
purpose or purposes of such segregated account and declaring such
purposes to be proper corporate purposes.
ARTICLE VII
-----------
CONCERNING THE CUSTODIAN
------------------------
7.1 Standard of Care. The Custodian shall be held to the exercise of
----------------
reasonable care in carrying out its obligations under this Agreement, and shall
be without liability to the Fund for any loss, damage, cost, expense (including
attorneys' fees and disbursements), liability or claim unless such loss,
damages, cost, expense, liability or claim arises from negligence, bad faith or
willful misconduct on its part or on the part of any sub-custodian appointed
pursuant to Section 3.3 above. The Custodian shall be entitled to rely on and
may act upon advice of counsel on all matters, and shall be without liability
for any action reasonably taken or omitted pursuant to such advice. The
Custodian shall promptly notify the Fund of any action taken or omitted by the
Custodian pursuant to advice of counsel. The Custodian shall not be under any
obligation at any time to ascertain whether the Fund is in compliance with the
1940 Act, the regulations thereunder, the provisions of the Fund's Articles of
Incorporation or Bylaws, or its investment objectives and policies as then in
effect.
-15-
<PAGE>
7.2 Actual Collection Required. The Custodian shall not be liable for, or
--------------------------
considered to be the custodian of, any cash belonging to the Fund or any money
represented by a check, draft or other instrument for the payment of money,
until the Custodian or its agents actually receive such cash or collect on such
instrument.
7.3 No Responsibility for Title, etc. So long as and to the extent that
--------------------------------
it is in the exercise of reasonable care, the Custodian shall not be responsible
for the title, validity or genuineness of any property or evidence of title
thereto received or delivered by it pursuant to this Agreement.
7.4 Limitation on Duty to Collect. Custodian shall not be required to
-----------------------------
enforce collection, by legal means or otherwise, of any money or property due
and payable with respect to Securities held for the Fund if such Securities are
in default or payment is not made after due demand or presentation.
7.5 Reliance Upon Documents and Instructions. The Custodian shall be
----------------------------------------
entitled to rely upon any certificate, notice or other instrument in writing
received by it and reasonably believed by it to be genuine. The Custodian shall
be entitled to rely upon any Oral Instructions and/or any Written Instructions
actually received by it pursuant to this Agreement.
7.6 Express Duties Only. The Custodian shall have no duties or
-------------------
obligations whatsoever except such duties and obligations as are specifically
set forth in this Agreement, and no covenant or obligation shall be implied in
this Agreement against the Custodian.
7.7 Cooperation. The Custodian shall cooperate with and supply necessary
-----------
information, by Fund, to the entity or entities appointed by the Fund to keep
the books of account of the Funds and/or compute the value of the assets of the
Fund. The Custodian shall take all such reasonable actions as the Fund may from
time to time request to enable the Fund to obtain, from year to year, favorable
opinions from the Fund's independent accountants with respect to the Custodian's
activities hereunder in connection with (a) the preparation of the Fund's report
on Form N-1A and Form N-SAR and any other reports required by the Securities and
Exchange Commission, and (b) the fulfillment by the Fund of any other
requirements of the Securities and Exchange Commission.
-16-
<PAGE>
ARTICLE VIII
------------
INDEMNIFICATION
---------------
8.1 Indemnification. The Fund shall indemnify and hold harmless the
---------------
Custodian and any sub-custodian appointed pursuant to Section 3.3 above, and any
nominee of the Custodian or of such sub-custodian from and against any loss,
damage, cost, expense (including attorneys' fees and disbursements), liability
(including, without limitation, liability arising under the Securities Act of
1933, the 1934 Act, the 1940 Act, and any state or foreign securities and/or
banking laws) or claim arising directly or indirectly (a) from the fact that
Securities are registered in the name of any such nominee, or (b) from any
action or inaction by the Custodian or such sub-custodian (i) at the request or
direction of or in reliance on the advice of the Fund, or (ii) upon Proper
Instructions, or (c) generally, from the performance of its obligations under
this Agreement or any sub-custody agreement with a sub-custodian appointed
pursuant to Section 3.3 above or, in the case of any such sub-custodian, from
the performance of its obligations under such sub-custody agreement, provided
that neither the Custodian nor any such sub-custodian shall be indemnified and
held harmless from and against any such loss, damage, cost, expense, liability
or claim arising from the Custodian's or such sub-custodian's negligence, bad
faith or willful misconduct.
8.2 Indemnity to be Provided. If the Fund requests the Custodian to take
------------------------
any action with respect to Securities, which may, in the opinion of the
custodian, result in the Custodian or its nominee becoming liable for the
payment of money or incurring liability of some other form, the Custodian shall
not be required to take such action until the Fund shall have provided indemnity
therefor to the Custodian in an amount and form satisfactory to the Custodian.
ARTICLE IX
----------
FORCE MAJEURE
-------------
Neither the Custodian nor the Fund shall be liable for any failure or delay
in performance of its obligations under this Agreement arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control,
including, without limitation, acts of God; earthquakes; fires; floods; wars;
civil or military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its reasonable
control as may cause interruption, loss or malfunction of utility,
transportation, computer (hardware or software) or telephone communication
service; accidents; labor disputes, acts of civil or military authority;
governmental
-17-
<PAGE>
actions; or inability to obtain labor, material, equipment or transportation;
provided, however, that the Custodian in the event of a failure or delay shall
use its best efforts to ameliorate the effects of any such failure or delay.
ARTICLE X
---------
EFFECTIVE PERIOD; TERMINATION
-----------------------------
10.1 Effective Period. This Agreement shall become effective as of the
----------------
date first set forth above and shall continue in full force and effect until
terminated as hereinafter provided.
10.2 Termination. Either party hereto may terminate this Agreement by
-----------
giving to the other party a notice in writing specifying the date of such
termination, which shall be not less than ninety (90) days after the date of the
giving of such notice. If a successor custodian shall have been appointed by
the Board of Directors, the Custodian shall, upon receipt of a notice of
acceptance by the successor custodian, on such specified date of termination (a)
deliver directly to the successor custodian all Securities (other than
Securities held in a Book-Entry System or Securities Depository) and cash then
owned by the Fund and held by the Custodian as custodian, and (b) transfer any
Securities held in a Book-Entry System or Securities Depository to an account of
or for the benefit of the Funds at the successor custodian, provided that the
Fund shall have paid to the Custodian all fees, expenses and other amounts to
the payment or reimbursement of which it shall then be entitled. Upon such
delivery and transfer, the Custodian shall be relieved of all obligations under
this Agreement. The Fund may at any time immediately terminate this Agreement
in the event of the appointment of a conservator or receiver for the Custodian
by regulatory authorities in the State of Ohio or upon the happening of a like
event at the direction of an appropriate regulatory agency or court of competent
jurisdiction.
10.3 Failure to Appoint Successor Custodian. If a successor custodian is
--------------------------------------
not designated by the trust on or before the date of termination specified
pursuant to Section 10.1 above, then the Custodian shall have the right to
deliver to a bank or trust company of its own selection, which is (a) a "Bank"
as defined in the 1940 Act, (b) has aggregate capital, surplus and undivided
profits as shown on its then most recent published report of not less than $25
million, and (c) is doing business in New York, New York, all Securities, cash
and other property held by Custodian under this Agreement and to transfer to an
account of or for the Funds at such bank or trust company all Securities of the
Fund held in a Book-Entry System or Securities Depository. Upon such delivery
and transfer, such bank or trust company shall be the
-18-
<PAGE>
successor custodian under this Agreement and the Custodian shall be relieved of
all obligations under this Agreement. If, after reasonable inquiry, Custodian
cannot find a successor custodian as contemplated in this Section 103, then
Custodian shall have the right to deliver to the Fund all Securities and cash
then owned by the Fund and to transfer any Securities held in a Book-Entry
System or Securities Depository to an account of or for the Fund. Thereafter,
the Fund shall be deemed to be its own custodian with respect to the Funds and
the Custodian shall be relieved of all obligations under this Agreement.
ARTICLE XI
----------
COMPENSATION OF CUSTODIAN
-------------------------
The Custodian shall be entitled to compensation as agreed upon from time to
time by the Fund and the Custodian. The fees and other charges in effect on the
date hereof and applicable to the Funds are set forth in Exhibit C attached
hereto.
ARTICLE XII
-----------
LIMITATION OF LIABILITY
-----------------------
It is expressly agreed that the obligations of the Fund hereunder shall not
be binding upon any of the directors, shareholders, nominees, officers, agents
or employees of the Fund personally, but shall bind only the trust property of
the Fund. The execution and delivery of this Agreement have been authorized by
the Directors, and this Agreement has been signed and delivered by an authorized
officer of the Fund, acting as such, and neither such authorization by the
Directors nor such execution and delivery by such officer shall be deemed to
have been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the trust property of the Fund as provided
in the above-mentioned Agreement and Declaration of Fund.
ARTICLE XIII
------------
NOTICES
-------
Unless otherwise specified herein, all demands, notices, instructions, and
other communications to be given hereunder shall be in writing and shall be sent
or delivered to The receipt at the address set forth after its name herein
below:
-19-
<PAGE>
To the Fund:
-----------
M.S.D. & T. Funds, Inc.
Two Hopkins Plaza
Baltimore, Maryland 21201
Attn:
Telephone:
Facsimile:
To the Custodian:
----------------
The Fifth Third Bank
Department __________________
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Attn: Area Manager - Fund Operations
Telephone: (513)579-5300
Facsimile: (513)579-4312
or at such other address as either party shall have provided to the other by
notice given in accordance with this Article XIV. Writing shall include
transmission by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
ARTICLE XIV
-----------
MISCELLANEOUS
-------------
14.1 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Ohio.
14.2 References to Custodian. The Fund shall not circulate any printed
-----------------------
matter which contains any reference to Custodian without the prior written
approval of Custodian, excepting printed matter contained in the prospectus or
statement of additional information or its registration statement for a Fund and
such other printed matter as merely identifies Custodian as custodian for one or
both Funds. The Fund shall submit printed matter requiring approval to
Custodian in draft form, allowing sufficient time for review by Custodian and
its counsel prior to any deadline for printing.
14.3 No Waiver. No failure by either party hereto to exercise and no delay
---------
by such party in exercising, any right hereunder shall operate as a waiver
thereof. The exercise by either party hereto of any right hereunder shall not
preclude the exercise of any other right, and the remedies provided herein are
-20-
<PAGE>
cumulative and not exclusive of any remedies provided at law or in equity.
14.4 Amendments. This Agreement cannot be changed orally and no amendment
----------
to this Agreement shall be effective unless evidenced by an instrument in
writing executed by the parties hereto.
14.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts, and by the parties hereto on separate counterparts, each of which
shall be deemed an original but all of which together shall constitute but one
and the same instrument.
14.6 Severability. If any provision of this Agreement shall be invalid,
------------
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions shall not be affected or
impaired thereby.
14.7 Successors and Assigns. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that this Agreement shall not be assignable by
either party hereto without the written consent of the other party hereto.
14.8 Headings. The headings of sections in this Agreement are for
--------
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed and delivered in its name and on its behalf by its representatives
thereunto duly authorized, all as of the day and year first above written.
ATTEST: M.S.D. & T. FUNDS, INC.
/s/ W. Bruce McConnel, III By: /s/ Leslie B. Disharoon
- -------------------------- -----------------------
Secretary Authorized Officer
ATTEST: THE FIFTH THIRD BANK
/s/ Paul L. Reynolds By: /s/ Tracie D. Hoffman
- -------------------- ---------------------
Assistant Secretary Tracie D. Hoffman
Assistant Vice President
& Senior Trust Officer
-21-
<PAGE>
EXHIBIT A
---------
AUTHORIZED PERSONS
Set forth below are the names and specimen signatures of the persons
authorized by the Fund to administer each Fund Custody Account.
Name Signature
---- ---------
William Conrad /s/ William Conrad
------------------
Kevin J. Dachille /s/ Kevin J. Dachille
---------------------
David L. Dickson /s/ David L. Dickson
--------------------
David Donabedian /s/ David Donabedian
--------------------
Linda A. Durkin /s/ Linda A. Durkin
-------------------
George C. Earle, Jr. /s/ George C. Earle, Jr.
------------------------
Kurt Funderburg /s/ Kurt Funderburg
-------------------
Mani Govil /s/ Mani Govil
--------------
Joseph Seth Hamed /s/ Joseph Seth Hamed
---------------------
Stanley Martinez /s/ Stanley Martinez
--------------------
Mark McGlone /s/ Mark McGlone
----------------
Charles E. Merrick, III /s/ Charles E. Merrick, III
---------------------------
John Norris /s/ John Morris
---------------
Dan Sottek /s/ Dan Sottek
--------------
Gordon VanVranken /s/ Gordon VanVranken
---------------------
Clarence Woods /s/ Clarence Woods
------------------
-22-
<PAGE>
EXHIBIT B
---------
Portfolios of M.S.D. & T. Funds, Inc. for which Fifth Third Bank shall act
as Custodian:
Prime Money Market Fund
Government Money Market Fund
Tax-Exempt Money Market Fund
Value Equity Fund
Intermediate Fixed Income Fund
Maryland Tax-Exempt Bond Fund
Tax-Exempt Money Market Fund (Trust)
-23-
<PAGE>
EXHIBIT C
---------
COMPENSATION
Asset Based Charges .5 basis points per fund
<TABLE>
<CAPTION>
<S> <C>
Annual Minimum $1500.00
Annual Maximum $5000.00
Transaction Based Charges
DTC $ 10.00
Fed Wire $ 10.00
Physical $ 22.00
Futures/Options $ 35.00
Euro TBD
Principal Reductions No Charge
Coupons No Charge
Global Custody TBD
Holding Charges No Charge
Deposits $ .35
Exchanges from fund to fund $ 10.00
Transfer In/Out of Segregated Accounts $ 7.00
</TABLE>
ACCESS No Charge currently
-24-
<PAGE>
EXHIBIT (8)(b)
CUSTODY AGREEMENT
(Diversified Real Estate Fund)
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, OH 45265
Gentlemen:
Pursuant to Article XIV, Paragraph 14.4, of the Custody Agreement
dated May 28, 1993 that you and we have entered into, we are writing to request
that you render custody services under the terms of said agreement with respect
to the Diversified Real Estate Fund, an additional portfolio which we are
establishing. Your compensation for the services provided under said agreement
for said additional portfolio shall be determined in accordance with the Exhibit
C attached to said agreement. Please execute a copy of this letter where
indicated to signify your agreement to provide said services.
Sincerely,
Dated: July 28, 1997 M.S.D. & T. FUNDS, INC.
By: /s/ Leslie B. Disharoon
----------------------------
Title: President
-------------------------
ACKNOWLEDGED AND AGREED:
THE FIFTH THIRD BANK
By: /s/ Kenneth D. Bane Dated: September 15, 1997
---------------------------
Title: Vice President
------------------------
<PAGE>
EXHIBIT (8)(C)
CUSTODIAN CONTRACT
Between
M.S.D.& T. FUNDS, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. Employment of Custodian and Property to be Held by It................................................... 1
2. Duties of the Custodian with Respect to Property of the Fund Held By the Custodian in the United States 2
2.1 Holding Securities............................................................................ 2
2.2 Delivery of Securities........................................................................ 3
2.3 Registration of Securities.................................................................... 8
2.4 Bank Accounts................................................................................. 9
2.5 Availability of Federal Funds................................................................. 10
2.6 Collection of Income.......................................................................... 10
2.7 Payment of Fund Monies........................................................................ 11
2.8 Liability for Payment in Advance of Receipt of Securities Purchased........................... 14
2.9 Appointment of Agents......................................................................... 14
2.10 Deposit of Securities in Securities Systems................................................... 15
2.10A Fund Assets Held in the Custodian's Direct Paper System....................................... 18
2.11 Segregated Account............................................................................ 20
2.12 Ownership Certificates for Tax purposes....................................................... 21
2.13 Proxies....................................................................................... 21
2.14 Communications Relating to Fund Portfolio Securities.......................................... 22
2.15 Reports to Fund by Independent Public Accountants............................................. 22
3. Duties of the Custodian with Respect to Property of the Fund Held Outside of the United States.......... 23
3.1 Appointment of Foreign Sub-Custodians......................................................... 23
3.2 Assets to be Held............................................................................. 24
3.3 Foreign Securities Depositories............................................................... 24
3.4 Segregation of Securities..................................................................... 24
3.5 Agreements with Foreign Banking Institutions.................................................. 25
3.6 Access of Independent Accountants of the Fund................................................. 26
3.7 Reports by Custodian.......................................................................... 26
3.8 Transactions in Foreign Custody Account....................................................... 27
3.9 Liability of Foreign Sub-Custodians........................................................... 28
3.10 Liability of Custodian........................................................................ 28
3.11 Reimbursement for Advances.................................................................... 29
3.12 Monitoring Responsibilities................................................................... 30
3.13 Branches of U.S. Banks........................................................................ 31
3.14 Tax Law....................................................................................... 31
4. Payments for Repurchases or Redemptions and Sales of Shares of the Fund................................. 32
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
5. Proper Instructions............................................................................................... 33
6. Actions Permitted without Express Authority....................................................................... 34
7. Evidence of Authority............................................................................................. 34
8. Duties of Custodian with Respect to the Books of Account
and Calculation of Net Asset Value and Net Income................................................................. 35
9. Records........................................................................................................... 35
10. Opinion of Fund's Independent Accountant.......................................................................... 36
11. Compensation of Custodian......................................................................................... 36
12. Responsibility of Custodian....................................................................................... 37
13. Effective Period, Termination and Amendment....................................................................... 39
14. Successor Custodian............................................................................................... 40
15. Massachusetts Law to Apply........................................................................................ 42
16. Prior Contracts................................................................................................... 42
</TABLE>
-ii-
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between M.S.D.& T. Funds, Inc., a corporation organized and
existing under the laws of Maryland, having its principal place of business at
Two Hopkins Plaza, Baltimore, Maryland, 21201, hereinafter called the "Company,"
and State Street Bank and Trust Company, a Massachusetts trust company, having
its principal place of business at 225 Franklin Street, Boston, Massachusetts,
02110, hereinafter called the "Custodian,"
WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
-----------------------------------------------------
The Company hereby employs the Custodian as the custodian of the assets of
its International Equity Fund (the "Fund"), including securities the Fund
desires to be held in places within the United States ("domestic securities")
and securities the Fund desires to be held outside the United States ("foreign
securities") pursuant to the provisions of the Articles of Incorporation. The
Company agrees to deliver to the Custodian all securities and cash owned by the
Fund, and all payments of income, payments of principal or capital distributions
received by it with respect to all securities owned by the Fund from time to
time, and the cash consideration received by it for such new or treasury shares
of capital stock, $ par value, ("Shares")
<PAGE>
of the Fund as may be issued or sold from time to time. The Custodian shall not
be responsible for any property of the Fund held or received by the Fund and not
delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall from time to time employ one or more sub-custodians located
in the United States, but only in accordance with an applicable vote by the
Board of Directors of the Company and provided that the Custodian shall have no
more or less responsibility or liability to the Fund on account of any actions
or omissions of any subcustodian so employed than any such sub-custodian has to
the Custodian. The Custodian may employ as sub-custodians for the Fund's
securities and other assets the foreign banking institutions and foreign
securities depositories designated in Schedule "A" hereto but only in accordance
with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
------------------------------------------------------------------------
Custodian in the United States
- ------------------------------
2.1 Holding Securities. The Custodian shall hold and physically segregate
------------------
for the account of the Fund all non-cash property, to be held by it in
the United States, including all domestic securities owned by the
Fund, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities
depository or in a book-entry system authorized by the U.S. Department
of the Treasury, collectively referred to herein as
-2-
<PAGE>
"Securities System" and (b) commercial paper of an issuer for which
State Street Bank and Trust Company acts as issuing and paying agent
("Direct Paper") which is deposited and/or maintained in the Direct
Paper System of the Custodian pursuant to Section 2.10A.
2.2 Delivery of Securities . The Custodian shall release and deliver
-----------------------
domestic securities owned by the Fund held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's
Direct Paper book-entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, and only in the
following cases:
1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered into
by the Fund;
3) In the case of a sale effected through a Securities System,
in accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or
-3-
<PAGE>
otherwise become payable; provided that, in any such case,
the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee or nominees
of the Custodian or into the name or nominee name of any
agent appointed pursuant to Section 2.9 or into the name or
nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in
--------
any such case, the new securities are to be delivered to the
Custodian;
7) Upon the sale of such securities for the account of the
Fund, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street
delivery" custom; provided that in any such case, the
Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to
receiving payment for such
-4-
<PAGE>
securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights
or similar securities or the surrender of interim receipts
or temporary securities for definitive securities; provided
that, in any such case, the new securities and cash, if any,
are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities
made by the Fund, but only against receipt of adequate
--- ----
collateral as agreed upon from time to time by the Custodian
and the Fund, which may be in the form of cash or
-5-
<PAGE>
obligations issued by the United States government, its
agencies or instrumentalities, except that in connection
with any loans for which collateral is to be credited to the
Custodian's account in the book-entry system authorized by
the U.S. Department of the Treasury, the Custodian will not
be held liable or responsible for the delivery of securities
owned by the Fund prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowings
by the Fund requiring a pledge of assets by the Fund, but
---
only against receipt of amounts borrowed;
----
12) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the
"Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance
with the rules of The Options Clearing Corporation and of
any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or
other
-6-
<PAGE>
arrangements in connection with transactions by the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or
any similar organization or organizations, regarding account
deposits in connection with transactions by the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such
Transfer Agent or to the holders of shares in connection
with distributions in kind, as may be described from time to
time in the Fund's currently effective prospectus and
statement of additional information ("prospectus"), in
satisfaction of requests by holders of Shares for repurchase
or redemption; and
15) For any other proper corporate purpose, but only upon
--- ----
receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board of Directors or of
-7-
<PAGE>
the Executive Committee signed by an officer of the Company
and certified by the Secretary or an Assistant Secretary,
specifying the securities to be delivered, setting forth the
purpose for which such delivery is to be made, declaring
such purpose to be a proper corporate purpose, and naming
the person or persons to whom delivery of such securities
shall be made.
2.3 Registration of Securities . Domestic securities held by
---------------------------
the Custodian (other than bearer securities) shall be registered in
the name of the Fund or in the name of any nominee of the Fund or of
any nominee of the Custodian which nominee shall be assigned
exclusively to the Fund, unless the Fund has authorized in writing
the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Fund, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any sub-
custodian appointed pursuant to Article 1. All securities accepted by
the Custodian on behalf of the Fund under the terms of this Contract
shall be in "street name" or other good delivery form. If, however,
the Fund directs the Custodian to maintain securities in "street
name," the Custodian shall utilize its best efforts
-8-
<PAGE>
only to timely collect income due the Fund on such securities and to
notify the Fund on a best efforts basis only of relevant corporate
actions including, without limitation, pendency of calls, maturities,
tender or exchange offers.
2.4 Bank Accounts . The Custodian shall open and maintain a separate
--------------
bank account or accounts in the United States in the name of the Fund,
subject only to draft or order by the Custodian acting pursuant to the
terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for
the account of the Fund, other than cash maintained by the Fund in a
bank account established and used in accordance with Rule 17f-3 under
the Investment Company Act of 1940. Funds held by the Custodian for
the Fund may be deposited by it to its credit as Custodian in the
Banking Department of the Custodian or in such other banks or trust
companies as it may in its discretion deem necessary or desirable;
provided, however, that every such bank or trust company shall be
--------
qualified to act as a custodian under the Investment Company Act of
1940 and that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall be approved by
vote of a majority of the Board of Directors of the Company. Such
funds shall be deposited by the
-9-
<PAGE>
Custodian in its capacity as Custodian and shall be withdrawable by
the Custodian only in that capacity.
2.5 Availability of Federal Funds . Upon mutual agreement between the
------------------------------
Fund and the Custodian, the Custodian shall, upon the receipt of
Proper Instructions, make federal funds available to the Fund as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of
the Fund which are deposited into the Fund's account.
2.6 Collection of Income . Subject to the provisions of Section 2.3, the
---------------------
Custodian shall collect on a timely basis all income and other
payments with respect to United States registered securities held
hereunder to which the Fund shall be entitled either by law or
pursuant to custom in the securities business, and shall collect on a
timely basis all income and other payments with respect to United
States bearer securities if, on the date of payment by the issuer,
such securities are held by the Custodian or its agent thereof and
shall credit such income, as collected, to the Fund's custodian
account. Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and other
income items requiring presentation as and when they become due and
shall collect interest when due on securities
-10-
<PAGE>
held hereunder. Income due the Fund on United States securities loaned
pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund
in arranging for the timely delivery to the Custodian of the income to
which the Fund is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions, which
----------------------
may be continuing instructions when deemed appropriate by the parties,
the Custodian shall pay out monies of the Fund in the following cases
only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Fund but only (a) against the delivery of such
securities, or evidence of title to such options, futures
contracts or options on futures contracts, to the Custodian
(or any bank, banking firm or trust company doing business
in the United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
agent for this purpose) registered in the
-11-
<PAGE>
name of the Fund or in the name of a nominee of the
Custodian referred to in Section 2.3 hereof or in proper
form for transfer; (b) in the case of a purchase effected
through a Securities System, in accordance with the
conditions set forth in Section 2.10 hereof; (c) in the case
of a purchase involving the Direct Paper System, in
accordance with the conditions set forth in Section 2.10A;
(d) in the case of repurchase agreements entered into
between the Fund and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against
delivery of the securities either in certificate form or
through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by the Fund of
securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase
such securities from the Fund or (e) for transfer to a time
deposit account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the
-12-
<PAGE>
applicable bank pursuant to Proper Instructions from the
Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Fund as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments
for the account of the Fund: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be
in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends declared pursuant to the
governing documents of the Fund;
6) For payment of the amount of dividends received in respect
of securities sold short;
7) For any other proper purpose, but only upon receipt of, in
--- ----
addition to Proper Instructions, a certified copy of a
-13-
<PAGE>
resolution of the Board of Directors or of the Executive
Committee of the Company signed by an officer of the Company
and certified by its Secretary or an Assistant Secretary,
specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such
purpose to be a proper purpose, and naming the person or
persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
-------------------------------------------------------------------
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of the Fund is made by the Custodian in advance of receipt of
the securities purchased in the absence of specific written
instructions from the Fund to so pay in advance, the Custodian shall
be absolutely liable to the Fund for such securities to the same
extent as if the securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in
----------------------
its discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the Investment Company
Act of 1940, as amended, to act as a custodian, as its agent to carry
-14-
<PAGE>
out such of the provisions of this Article 2 as the Custodian may
from time to time direct; provided, however, that the appointment of
--------
any agent shall not relieve the Custodian of its responsibilities
or liabilities hereunder.
2.10 Deposit of Securities in Securities Systems. The Custodian may
--------------------------------------------
deposit and/or maintain domestic securities owned by the Fund in a
clearing agency registered with the Securities and Exchange Commission
under Section 17A of the Securities Exchange Act of 1934, which acts
as a securities depository, or in the book-entry system authorized by
the U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities System" in accordance
with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep domestic securities of the Fund in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in
the Securities System which shall not include any assets of
the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
-15-
<PAGE>
2) The records of the Custodian with respect to domestic
securities of the Fund which are maintained in a Securities
System shall identify by book-entry those securities
belonging to the Fund;
3) The Custodian shall pay for domestic securities purchased
for the account of the Fund upon (i) receipt of advice from
the Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry
on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall
transfer domestic securities sold for the account of the
Fund upon (i) receipt of advice from the Securities System
that payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of
the Custodian to reflect such transfer and payment for the
account of the Fund. Copies of all advices from the
Securities System of transfers of domestic securities for
the account of the Fund shall identify the Fund, be
maintained for the Fund by the Custodian and be provided to
the Fund at its request.
-16-
<PAGE>
Upon request, the Custodian shall furnish the Fund
confirmation of each transfer to or from the account of the
Fund in the form of a written advice or notice and shall
furnish to the Fund copies of daily transaction sheets
reflecting each day's transactions in the Securities System
for the account of the Fund.
4) The Custodian shall provide the Fund with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and
procedures for safeguarding domestic securities deposited in
the Securities System;
5) The Custodian shall have received the initial or annual
certificate, as the case may be, required by Article 13
hereof;
6) Anything to the contrary in this Contract notwithstanding,
the Custodian shall be liable to the Fund for any loss or
damage to the Fund resulting from use of the Securities
System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any
of its or their employees or from failure of the Custodian
or any such agent to enforce effectively such
-17-
<PAGE>
rights as it may have against the Securities System; at the
election of the Fund, it shall be entitled to be subrogated
to the rights of the Custodian with respect to any claim
against the Securities System or any other person which the
Custodian may have as a consequence of any such loss or
damage if and to the extent that the Fund has not been made
whole for any such loss or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System
--------------------------------------------------------
The Custodian may deposit and/or maintain securities owned by the
Fund in the Direct Paper System of the Custodian subject to the
following provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper
Instructions;
2) The Custodian may keep securities of the Fund in the Direct
Paper System only if such securities are represented in an
account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or
otherwise for customers;
3) The records of the Custodian with respect to securities of
the Fund which are maintained
-18-
<PAGE>
in the Direct Paper System shall identify by book-entry
those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for the
account of the Fund upon the making of an entry on the
records of the Custodian to reflect such payment and
transfer of securities to the account of the Fund. The
Custodian shall transfer securities sold for the account of
the Fund upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment
for the account of the Fund;
5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form of
a written advice or notice, of Direct paper on the next
business day following such transfer and shall furnish to
the Fund copies of daily transaction sheets reflecting each
day's transaction in the Securities System for the account
of the Fund;
6) The Custodian shall provide the Fund with any report on its
system of internal accounting
-19-
<PAGE>
control as the Fund may reasonably request from time to
time;
2.11 Segregated Account. The Custodian shall upon receipt of Proper
-------------------
Instructions establish and maintain a segregated account or accounts
for and on behalf of the Fund, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered
under the Commodity Exchange Act), relating to compliance with the
rules of The Options Clearing Corporation and of any registered
national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements
in connection with transactions by the Fund, (ii) for purposes of
segregating cash or government securities in connection with options
purchased, sold or written by the Fund or commodity futures contracts
or options thereon purchased or sold by the Fund, (iii) for the
purposes of compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent
-20-
<PAGE>
release or releases of the Securities and Exchange Commission relating
to the maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but only, in
--- ----
the case of clause (iv), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the Board of
Directors or of the Executive Committee signed by an officer of the
Company and certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such segregated account and
declaring such purposes to be proper corporate purposes.
2.12 Ownership Certificates for Tax purposes. The Custodian shall execute
---------------------------------------
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of the Fund held by it
and in connection with transfers of such securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities
-------
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Company or a nominee of the Company, all proxies,
without indication of the manner in which such proxies are to be
voted, and shall promptly deliver to the Fund such proxies, all proxy
-21-
<PAGE>
soliciting materials and all notices relating to such securities.
2.14 Communications Relating to Fund Portfolio Securities. Subject to the
----------------------------------------------------
provisions of Section 2.3, the Custodian shall transmit promptly to
the Fund all written information (including, without limitation,
pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund and the maturity of
futures contracts purchased or sold by the Fund) received by the
Custodian from issuers of the domestic securities being held for the
Fund. With respect to tender or exchange offers, the Custodian shall
transmit promptly to the Fund all written information received by the
Custodian from issuers of the domestic securities whose tender or
exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Fund desires to take action with
respect to any tender offer, exchange offer or any other similar
transaction, the Fund shall notify the Custodian at least three
business days prior to the date on which the Custodian is to take such
action.
2.15 Reports to Fund by Independent Public Accountants. The Custodian
-------------------------------------------------
shall provide the Fund, at such times as the Fund may reasonably
require, with reports by
-22-
<PAGE>
independent public accountants on the accounting system, internal
accounting control and procedures for safeguarding securities, futures
contracts and options on futures contracts, including domestic
securities deposited and/or maintained in a Securities System,
relating to the services provided by the Custodian under this
Contract; such reports shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide
reasonable assurance that any material inadequacies would be disclosed
by such examination, and, if there are no such inadequacies, the
reports shall so state.
3. Duties of the Custodian with Respect to Property of the Fund
------------------------------------------------------------
Held Outside of the United States
---------------------------------
3.1 Appointment of Foreign Sub-Custodians.
-------------------------------------
The Fund hereby authorizes and instructs the Custodian to employ as
sub-custodians for the Fund's securities and other assets maintained
outside the United States the foreign banking institutions and foreign
securities depositories which may be specifically required by the
Board of Directors of the Company ("foreign sub-custodians"). Upon
receipt of "Proper Instructions," as defined in Section 5 of this
Contract, together with a certified resolution of the Company's Board
of Directors, the Custodian and the Company may agree to designate
additional foreign banking institutions and
-23-
<PAGE>
foreign securities depositories to act as sub-custodian. Upon receipt
of Proper Instructions, the Fund may instruct the Custodian to cease
the employment of any one or more such sub-custodians for maintaining
custody of the Fund's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
-----------------
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities," as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Fund's foreign securities
transactions.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed
-------------------------------
upon in writing by the Custodian and the Fund, assets of the Fund
shall be maintained in foreign securities depositories only through
arrangements implemented by the foreign banking institutions serving
as sub-custodians pursuant to the terms hereof. Where possible, such
arrangements shall include entry into agreements containing the
provisions set forth in Section 3.5 hereof.
3.4 Segregation of Securities. The Custodian shall identify on its books
-------------------------
as belonging to the Fund, the foreign securities of the Fund held by
each foreign
-24-
<PAGE>
sub-custodian. Each agreement pursuant to which the Custodian employs
a foreign banking institution shall require that such institution
establish a custody account for the Custodian on behalf of the Fund
and physically segregate in that account, securities and other assets
of the Fund, and, in the event that such institution deposits the
Fund's securities in a foreign securities depository, that it shall
identify on its books as belonging to the Custodian, as agent for the
Fund, the securities so deposited.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
--------------------------------------------
foreign banking institution shall be approved by the Company in
writing and shall provide that: (a) the Fund's assets will not be
subject to any right, charge, security interest, lien or claim of any
kind in favor of the foreign banking institution or its creditors or
agent, except a claim of payment for their safe custody or
administration; (b) beneficial ownership of the Fund's assets will be
freely transferable without the payment of money or value other than
for custody or administration; (c) adequate records will be maintained
identifying the assets as belonging to the Fund; (d) officers of or
auditors employed by, or other representatives of the Custodian,
including to the extent permitted under applicable law the independent
public accountants for the Fund, will
-25-
<PAGE>
be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Fund held by the foreign sub-
custodian will be subject only to the instructions of the Custodian or
its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
---------------------------------------------
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from
--------------------
time to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Fund held by foreign sub-
custodians, including but not limited to an identification of entities
having possession of the Fund's securities and other assets and
advices or notifications of any transfers of securities to or from
each custodial account maintained by a foreign banking institution for
the Custodian on behalf of the Fund indicating, as to securities
acquired for the Fund, the identity of the entity having physical
possession of such securities.
-26-
<PAGE>
3.8 Transactions in Foreign Custody Account.
---------------------------------------
(a) Except as otherwise provided in paragraph (b) of this Section
3.8, the provision of Sections 2.2 and 2.7 of this Contract shall
apply, mutatis mutandis to the foreign securities of the Fund held
------- --------
outside the United States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the
contrary, settlement and payment for securities received for the
account of the Fund and delivery of securities maintained for the
account of the Fund may be effected in accordance with the
customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from
such purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the same
extent as set forth in Section 2.3 of this Contract, and the Fund
agrees to hold any such nominee harmless
-27-
<PAGE>
from any liability as a holder of record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to
-----------------------------------
which the Custodian employs a foreign banking institution as a
foreign sub-custodian shall require the institution to exercise
reasonable care in the performance of its duties and to indemnify,
and hold harmless, the Custodian and the Fund from and against any
loss, damage, cost, expense, liability or claim arising out of or in
connection with the institution's performance of such obligations. At
the election of the Fund, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claims against a
foreign banking institution as a consequence of any such loss,
damage, cost, expense, liability or claim if and to the extent that
the Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
----------------------
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a
foreign banking institution, a foreign securities depository or a
branch of a U.S. bank as contemplated by paragraph 3.13 hereof, the
Custodian
-28-
<PAGE>
shall not be liable for any loss, damage, cost, expense, liability or
claim resulting from nationalization, expropriation, currency
restrictions, or acts of war or terrorism or any loss where the sub-
custodian has otherwise exercised reasonable care. Notwithstanding the
foregoing provisions of this paragraph 3.10, in delegating custody
duties to State Street London Ltd., the Custodian shall not be
relieved of any responsibility to the Fund for any loss due to such
delegation, except such loss as may result from (a) political risk
(including, but not limited to, exchange control restrictions,
confiscation, expropriation, nationalization, insurrection, civil
strife or armed hostilities) or (b) other losses (excluding a
bankruptcy or insolvency of State Street London Ltd. not caused by
political risk) due to Acts of God, nuclear incident or other losses
under circumstances where the Custodian and State Street London Ltd.
have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
--------------------------
advance cash or securities for any purpose including the purchase or
sale of foreign exchange or of contracts for foreign exchange, or in
the event that the Custodian or its nominee shall incur or be assessed
any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this
-29-
<PAGE>
Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any
property at any time held for the account of the Fund shall be
security therefor and should the Fund fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize available cash
and to dispose of the Fund assets to the extent necessary to obtain
reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
---------------------------
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns
of a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive
order from the Securities and Exchange Commission is notified by such
foreign sub-custodian that there appears to be a substantial
likelihood that its shareholders' equity will decline below $200
million (U.S. dollars or the equivalent thereof) or that its
shareholders' equity has declined below $200 million (in each case
computed
-30-
<PAGE>
in accordance with generally accepted U.S. accounting principles).
3.13 Branches of U.S. Banks.
----------------------
Cash held for the Fund in the United Kingdom shall be maintained in an
interest bearing account established for the Fund with the Custodian's
London branch, which account shall be subject to the direction of the
Custodian, State Street London Ltd. or both.
3.14 Tax Law.
-------
The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on the Fund or the Custodian as
custodian of the Fund by the tax law of the United States of America
or any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of the Fund by the
tax law of jurisdictions other than those mentioned in the above
sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable0 efforts to assist
the Fund with respect to any claim for exemption or refund under the
tax law of jurisdictions for which the Fund has provided such
information.
-31-
<PAGE>
4. Payments for Repurchases or Redemptions and Sales of Shares of the Fund
-----------------------------------------------------------------------
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes of the
Board of Directors of the Company pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer Agent a request
for redemption or repurchase of their Shares. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the
redemption or repurchase of Shares of the Fund, the Custodian shall honor checks
drawn on the Custodian by a holder of Shares, which checks have been furnished
by the Fund to the holder of Shares, when presented to the Custodian in
accordance with such procedures and controls as are mutually agreed upon from
time to time between the Fund and the Custodian.
The Custodian shall receive from the distributor for the Fund's Shares or
from the Transfer Agent of the Fund and deposit into the Fund's account such
payments as are received for Shares of the Fund issued or sold from time to time
by the Fund. The Custodian will provide timely notification to the Fund and the
Transfer Agent of any receipt by it of payments for Shares of the Fund.
-32-
<PAGE>
5. Proper Instructions
-------------------
Proper Instructions as used herein means a writing signed or initialled by
one or more person or persons as the Board of Directors shall have from time to
time authorized. Each such writing shall set forth the specific transaction or
type of transaction involved, including a specific statement of the purpose for
which such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in
writing. Upon receipt of a certificate of the Secretary or an Assistant
Secretary as to the authorization by the Board of Directors of the Company
accompanied by a detailed description of procedures approved by the Board of
Directors, Proper Instructions may include communications effected directly
between electromechanical or electronic devices provided that the Board of
Directors and the Custodian are satisfied that such procedures afford adequate
safeguards for the Fund's assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three-party agreement which requires a segregated asset account in
accordance with Section 2.11.
-33-
<PAGE>
6. Actions Permitted without Express Authority
-------------------------------------------
The Custodian may in its discretion, without express authority from the
Fund:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
provided that all such payments shall be accounted for to the Fund;
- --------
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other dealings with the
securities and property of the Fund except as otherwise directed by the Board of
Directors of the Company.
7. Evidence of Authority
---------------------
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Directors of the Company as conclusive evidence (a) of the authority of any
person to act in accordance with such vote or (b) of any determination or of any
action by the Board of Directors pursuant to the Articles of Incorporation as
described
-34-
<PAGE>
in such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation
------------------------------------------------------------------------
of Net Asset Value and Net Income
- ---------------------------------
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors of the Company to keep
the books of account of the Fund and/or compute the net asset value per share of
the outstanding shares of the Fund or, if directed in writing to do so by the
Fund, shall itself keep such books of account and/or compute such net asset
value per share. If so directed, the Custodian shall also calculate daily the
net income of the Fund as described in the Fund's currently effective prospectus
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset value per
share and the daily income of the Fund shall be made at the time or times
described from time to time in the Fund's currently effective prospectus.
9. Records
-------
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to
-35-
<PAGE>
Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall
be the property of the Fund and shall at all times during the regular business
hours of the Custodian be open for inspection by duly authorized officers,
employees or agents of the Fund and employees and agents of the Securities and
Exchange Commission. The Custodian shall, at the Fund's request, supply the Fund
with a tabulation of securities owned by the Fund and held by the Custodian and
shall, when requested to do so by the Fund and for such compensation as shall be
agreed upon between the Fund and the Custodian, include certificate numbers in
such tabulations.
10. Opinion of Fund's Independent Accountant
----------------------------------------
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Fund's Form N-1A, and Form N-SAR or other annual
reports to the Securities and Exchange Commission and with respect to any other
requirements of such Commission.
11. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon in writing from time to time between
the Fund and the Custodian.
-36-
<PAGE>
12. Responsibility of Custodian
---------------------------
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract, but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. It shall be entitled to
rely on and may act upon written advice of counsel (who may be counsel for the
Fund) on all matters, and shall be without liability for any action reasonably
taken or omitted pursuant to such advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States and, regardless of whether assets are maintained in
the custody of a foreign banking institution, a foreign securities depository or
a branch of a U.S. bank as contemplated by paragraph 3.11 hereof, the Custodian
shall not be liable for
-37-
<PAGE>
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriations currency restrictions,
or acts of war or terrorism.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or agents,
to advance cash or securities for any purpose (including but not limited to
securities settlements, foreign exchange contracts and assumed settlement) or in
the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the Fund shall be security
therefor and should the Fund fail to repay the Custodian promptly, the Custodian
shall be entitled to utilize available
-38-
<PAGE>
cash and to dispose of the Fund assets to the extent necessary to obtain
reimbursement.
13. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by written agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; provided, however that the
---------
Custodian shall not act under Section 2.10 hereof in the absence of receipt of
an initial certificate of the Secretary or an Assistant Secretary that the Board
of Directors of the Company has approved the initial use of a particular
Securities System and the receipt of an annual certificate of the Secretary or
an Assistant Secretary that the Board of Directors has reviewed the use by the
Fund of such Securities System, as required in each case by Rule 17f-4 under the
Investment Company Act of 1940, as amended and that the Custodian shall not act
under Section 2.10A hereof in the absence of receipt of an initial certificate
of the Secretary or an Assistant Secretary that the Board of Directors has
approved the initial use of the Direct Paper System and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of
Directors has reviewed the use by the Fund of the Direct Paper System; provided
--------
further, however, that the Fund
- --------
-39-
<PAGE>
shall not amend or terminate this Contract in contravention of any applicable
federal or state regulations, or any provision of the Articles of Incorporation,
and further provided, that the Fund may at any time by action of its Board of
Directors (i) substitute another bank or trust company for the Custodian by
giving notice as described above to the Custodian, or (ii) immediately terminate
this Contract in the event of the appointment of a conservator or receiver for
the Custodian by the Comptroller of the Currency or upon the happening of a like
event at the direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
14. Successor Custodian
-------------------
If a successor custodian shall be appointed by the Board of Directors of
the Company, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer, all securities then held by it hereunder and shall transfer to an
account of the successor custodian all of the Fund's securities held in a
Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Company, deliver at
-40-
<PAGE>
the office of the Custodian and transfer such securities, funds and other
properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract
-41-
<PAGE>
relating to the duties and obligations of the Custodian shall remain in full
force and effect.
15. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the Commonwealth of Massachusetts.
16. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 29th day of June, 1993.
ATTEST M.S.D. & T. FUNDS, INC.
/s/ W. Bruce McConnel, III By: /s/ Leslie B. Disharoon
- -------------------------- -----------------------
Secretary President
ATTEST STATE STREET BANK AND TRUST COMPANY
[signature illegible] By: [signature illegible]
- ---------------------- ----------------------
Assistant Secretary Executive Vice President
-42-
<PAGE>
MERCANTILE-SAFE DEPOSIT & TRUST COMPANY
TO: Mike D'Ambrisi
BFDS
FROM: Linda Durkin
Mercantile
DATE: July 1, 1993
1) The starting NAV for the MSD&T International Equity Fund is $10.00.
2) Please set up an omnibus account for the MSD&T International Equity Fund
using the same information in the other seven Funds omnibus accounts.
3) Please set up a second account for the $10.00 seed money that Winsbury has
sent you. This should be like the second account in the other seven Funds
under TBC Distributor or Shearson. Winsbury should be providing their
information.
/s/ Linda A. Durkin
-------------------
Linda A. Durkin
Funds Administrator
cc: Lori Andrews
Brian Hurley
-43-
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
between
M.S.D. & T. FUNDS, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Article 1 Terms of Appointment; Duties of the Bank.... 2
Article 2 Fees and Expenses........................... 6
Article 3 Representations and Warranties of the Bank.. 7
Article 4 Representations and Warranties of the Fund.. 8
Article 5 Data Access and Proprietary Information..... 9
Article 6 Indemnification............................. 11
Article 7 Standard of Care............................ 14
Article 8 Covenants of the Fund and the Bank.......... 14
Article 9 Termination of Agreement.................... 16
Article 10 Additional Funds............................ 16
Article 11 Assignment.................................. 17
Article 12 Amendment................................... 17
Article 13 Massachusetts Law to Apply.................. 18
Article 14 Force Majeure............................... 18
Article 15 Consequential Damages....................... 18
Article 16 Merger of Agreement......................... 18
Article 17 Counterparts................................ 19
</TABLE>
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
-------------------------------------
AGREEMENT made as of the 1st day of November, 1992, by and between M.S.D. &
T. FUNDS, INC., a Maryland corporation, having its principal office and place of
business at 103 Bellevue Parkway, Wilmington, Delaware 19309 (the "Fund"), and
STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company having its
principal office and place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund offers shares in seven series, the Prime Money Market
Fund, the Government Money Market Fund, the Tax-Exempt Money Market Fund, the
Tax-Exempt Money Market Fund (Trust), the Value Equity Fund, the Intermediate
Fixed Income Fund and the Maryland Tax-Exempt Bond Fund (each such series,
together with all other series subsequently established by the Fund and made
subject to this Agreement in accordance with Article 10, being herein referred
to as a "Portfolio," and collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank
as its transfer agent, dividend disbursing agent, and agent in connection with
certain other activities, and the Bank desires to accept such appointment;
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of the Bank
----------------------------------------
1.1 Subject to the terms and conditions set forth in this Agreement,
the Fund, on behalf of the Portfolios, hereby employs and appoints the Bank to
act as, and the Bank agrees to act as its transfer agent for the authorized and
issued shares of beneficial interest of the Fund representing interests in each
of the respective Portfolios ("Shares"), dividend disbursing agent, and agent in
connection with any accumulation, open-account or similar plans provided to the
shareholders of each of the respective Portfolios of the Fund ("Shareholders")
and set out in the currently effective prospectus and statement of additional
information ("prospectus") of the Fund on behalf of the applicable Portfolio,
including without limitation any periodic investment plan or periodic withdrawal
program.
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund on behalf of each of the Portfolios, as applicable
and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation thereof
to the Custodian of the Fund authorized pursuant to
-2-
<PAGE>
the Articles of Incorporation of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof
to the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with
broker-dealers authorized by the Fund who shall thereby be
deemed to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any redemption, pay
over or cause to be paid over in the appropriate manner such
monies as instructed by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio;
-3-
<PAGE>
(viii) Issue replacement certificates for those certificates alleged
to have been lost, stolen or destroyed upon receipt by the
Bank of indemnification satisfactory to the Bank and
protecting the Bank and the Fund, and the Bank at its option,
may issue replacement certificates in place of mutilated
stock certificates upon presentation thereof and without such
indemnity;
(ix) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(x) Record the issuance of Shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total number
of Shares which are authorized, based upon data provided to
it by the Fund, and issued and outstanding. The Bank shall
also provide the Fund on a regular basis with the total
number of Shares which are authorized and issued and
outstanding and shall have no obligation, when recording the
issuance of Shares, to monitor the issuance of such Shares or
to take cognizance of any laws relating to the issue or sale
of such Shares, which functions shall be the sole
responsibility of the Fund.
-4-
<PAGE>
(b) In addition to and neither in lieu nor in contravention of
the services set forth in the above paragraph (a), the Bank shall: (i) perform
the customary services of a transfer agent, dividend disbursing agent, and, as
relevant, agent in connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to: maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, mailing
Shareholder reports and prospectuses to current Shareholders, withholding taxes
on U.S. resident and non-resident alien accounts, preparing and filing U.S.
Treasury Department Forms 1099 and other appropriate forms required with respect
to dividends and distributions by federal authorities for all Shareholders,
preparing and mailing confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and mailing activity statements
for Shareholders, and providing Shareholder account information and (ii) provide
a system which will enable the Fund to monitor the total number of Shares sold
in each State.
(c) In addition, the Fund shall (i) identify to the Bank in
writing those transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of transactions for
each State on the system prior to activation and thereafter monitor the daily
activity for
-5-
<PAGE>
each State. The responsibility of the Bank for the Fund's blue sky
State registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Fund and the reporting of
such transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services
in Article 1 may be established from time to time by agreement between the Fund
on behalf of each Portfolio and the Bank per the attached service responsibility
schedule. The Bank may at times perform only a portion of these services and
the Fund or its agent may perform these services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the
Fund (i.e., escheatment services) which may be agreed upon in writing between
the Fund and the Bank.
(f) The Bank shall provide certain recordkeeping services, more
fully described in the TRAC-2000 Procedures Manual provided to the Fund, on
behalf of the Fund and the Fund's Shareholders that establish money purchase
pension plans or profit sharing plans or profit sharing plans with a cash or
deferred arrangement under Internal Revenue Code Section 401(k) offered by the
Fund.
Article 2 Fees and Expenses
-----------------
2.1 For performance by the Bank pursuant to this Agreement, the
Fund agrees on behalf of each of the Portfolios to pay the Bank such fees as set
out in the initial fee schedule
-6-
<PAGE>
attached hereto. Such fees and out-of-pocket expenses and advances identified
under Section 2.02 below may be changed from time to time subject to mutual
written agreement between the Fund and the Bank.
2.2 In addition to the fee paid under Section 2.01 above, the
Fund agrees on behalf of each of the Portfolios to reimburse the Bank for out-
of-pocket expenses, including but not limited to confirmation production,
postage, forms, telephone, microfilm, microfiche, tabulating proxies, records
storage or advances incurred by the Bank for the items set out in the fee
schedule attached hereto. In addition, any other expenses incurred by the Bank
at the request or with the written consent of the Fund, will be reimbursed by
the Fund on behalf of the applicable Portfolio.
2.3 The Fund agrees on behalf of each of the Portfolios to pay all
fees and reimbursable expenses within thirty days following the mailing of the
respective billing notice. Postage for mailing of dividends, proxies, Fund
reports and other mailings to all Shareholder accounts shall be advanced to the
Bank by the Fund at least seven (7) days prior to the mailing date of such
materials.
Article 3 Representations and Warranties of the Bank
------------------------------------------
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
-7-
<PAGE>
3.2 It is duly qualified to carry on its business in the
Commonwealth of Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Article 4 Representations and Warranties of the Fund
------------------------------------------
The Fund represents and warrants to the Bank that:
4.1 It is a corporation duly organized and existing and in good
standing under the laws of Maryland.
4.2 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings required by said Articles of
Incorporation and By-Laws have been taken to authorize it to enter into and
perform this Agreement.
4.4 It is an open-end and diversified management investment
company registered under the Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as
amended on behalf of each of the Portfolios is currently effective and will
remain effective, and appropriate state securities law filings have been made
and will continue to
-8-
<PAGE>
be made, with respect to all Shares of the Fund being offered for sale.
Article 5 Data Access and Proprietary Information
---------------------------------------
5.1 The Fund acknowledges that the data bases, computer programs,
screen format, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Bank as part of the Fund's ability to
access certain Fund-related data ("Customer Data") maintained by the Bank on
data bases under the control and ownership of the Bank ("Data Access Services")
constitute copyrighted, trade secret, or other proprietary information
(collectively, "Proprietary Information") of substantial value to the Bank. The
parties agree that in no event shall Customer Data be deemed to be Proprietary
Information. The Fund agrees to treat all Proprietary Information (other than
any Proprietary Information which are or become part of the public domain or are
legally required to be made available to the public) as the exclusive and
confidential property of the Bank. The Fund shall keep the Proprietary
Information confidential by using the same care and discretion that the Fund
uses with respect to its own confidential property and trade secrets. Without
limiting and subject to the foregoing, the Fund agrees for itself and its
employees and agents:
(a) to access Customer Data solely from locations as may be
designated in writing by the Bank and solely in accordance with the Bank's
applicable user documentation;
-9-
<PAGE>
(b) to refrain from copying or duplicating in any way the
Proprietary Information;
(c) to refrain from obtaining unauthorized access to any portion
of the Proprietary Information, and if such access is inadvertently obtained, to
inform in a timely manner of such fact and dispose of such information in
accordance with the Bank's instructions;
(d) to refrain from causing or allowing third-party data required
hereunder from being retransmitted to any other computer facility or other
location, except with the prior written consent of the Bank;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in Proprietary Information
at common law, under federal copyright law and under other federal or state law.
Each party shall take reasonable efforts to advise its employees of
their obligations pursuant to this Article 5. The obligations of this Article
shall survive any earlier termination of this Agreement.
5.2 If the Fund notifies the Bank that any of the Data Access
Services do not operate in material compliance with the most recently issued
user documentation for such services, the Bank shall endeavor in a timely manner
to correct such failure. Organizations from which the Bank may obtain certain
-10-
<PAGE>
data included in the Data Access Services are solely responsible for the
contents of such data and the Fund agrees to make no claim against the Bank
arising out of the contents of such third-party data, including, but not limited
to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND
SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS,
AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE
EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.3 If the transactions available to the Fund include the ability
to originate electronic instructions to the Bank in order to (i) effect the
transfer or movement of cash of Shares or (ii) transmit Shareholder information
or other information (such transactions constituting a "COEFI"), then in such
event the Bank shall be entitled to rely on the validity and authenticity of
such instruction without undertaking any further inquiry as long as such
instruction is undertaken in conformity with security procedures established by
the Bank from time to time.
Article 6 Indemnification
---------------
6.1 The Bank shall not be responsible for, and the Fund shall on
behalf of the applicable Portfolio indemnify and hold the Bank harmless from and
against, any and all losses, damages, costs, charges, reasonable counsel fees,
payments, expenses and liability arising out of or attributable to:
-11-
<PAGE>
(a) All actions of the Bank or its agent or subcontractors
required to be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful
misconduct which arise out of the breach of any representation or warranty of
the Fund hereunder.
(c) The reasonable reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or services which (i) are
received by the Bank or its agents or subcontractors, and (ii) have been
prepared, maintained or performed by the Fund or any other person or firm on
behalf of the Fund including but not limited to any previous transfer agent
or registrar.
(d) The reasonable reliance on, or the carrying out by the Bank or
its agents or subcontractors of any instructions or requests of the Fund on
behalf of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state or in
violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in such
state.
6.2 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the
-12-
<PAGE>
services to be performed by the Bank under this Agreement, and the Bank and its
agents or subcontractors shall not be liable and shall be indemnified by the
Fund on behalf of the applicable Portfolio for any action taken or omitted by it
in reasonable reliance upon such instructions or upon the written opinion of
such counsel. The Bank, its agents and subcontractors shall be protected and
indemnified in acting upon any paper or document furnished by or on behalf of
the Fund, reasonably believed to be genuine and to have been signed by the
proper person or persons, or upon any instruction, information, data, records or
documents provided the Bank or its agents or subcontractors by machine readable
input, telex, CRT data entry or other similar means authorized by the Fund and
reasonably believed to be genuine, and shall not be held to have notice of any
change of authority of any person, until receipt of written notice thereof from
the Fund. The Bank, its agents and subcontractors shall also be protected and
indemnified in recognizing stock certificates which are reasonably believed to
bear the proper manual or facsimile signatures of the officers of the Fund, and
the proper countersignature of any former transfer agent or former registrar, or
of a co-transfer agent or co-registrar.
6.3 In order that the indemnification provisions contained in this
Article 6 shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the Fund of such
assertion, and shall keep the Fund advised with respect to all developments
-13-
<PAGE>
concerning such claim. The Fund shall have the option to participate with the
Bank in the defense of such claim or to defend against said claim in its own
name or in the name of the Bank. The Bank shall in no case confess any claim or
make any compromise in any case in which the Fund may be required to indemnify
the Bank except with the Fund's prior written consent.
Article 7 Standard of Care
----------------
7.1 The Bank shall at all times act in good faith and agrees to
use its best efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement, but assumes no responsibility and shall
not be liable for loss or damage due to errors unless said errors are caused by
its negligence, bad faith, or willful misconduct of that of its employees.
Article 8 Covenants of the Fund and the Bank
----------------------------------
8.1 The Fund shall on behalf of each of the Portfolios promptly
furnish to the Bank the following:
(a) A certified copy of the resolution of the Trustees of the Fund
authorizing the appointment of the Bank and the execution and delivery of this
Agreement.
(b) A copy of the Articles of Incorporation and By-Laws of the
Fund and all amendments thereto.
8.2 The Bank hereby agrees to establish and maintain facilities
and procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the
-14-
<PAGE>
preparation or use, and for keeping account of, such certificates, forms and
devices.
8.3 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
8.4 The Bank and the Fund agree that all books, records, information
and data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement
shall remain confidential, and shall not be voluntarily disclosed to any other
person, except as may be required by law.
8.5 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person,
provided, however, that in connection with any
-15-
<PAGE>
such disclosure, the Bank shall promptly notify the Fund that such disclosure
has been made or is to be made.
Article 9 Termination of Agreement
------------------------
9.1 This Agreement may be terminated by either party upon one
hundred twenty (120) days written notice to the other.
9.2 Should the Fund exercise its right to terminate, all out-of-
pocket expenses associated with the movement of records and material will be
borne by the Fund on behalf of the applicable Portfolio(s), and, the Bank also
reserves the right to charge for any other reasonable expenses associated with
such termination. Additionally, if the Fund should exercise its right to
terminate within twelve (12) months of the execution of this Agreement, the Bank
may impose upon the Fund a charge equivalent to the average of three (3) months'
fees.
Article 10 Additional Funds
----------------
10.1 In the event that the Fund establishes one or more series of
Shares in addition to the Prime Money Market Fund, the Government Money Market
Fund, the Tax-Exempt Money Market Fund, the Tax-Exempt Money Market Fund
(Trust), the Value Equity Fund, the Intermediate Fixed Income Fund and the
Maryland Tax-Exempt Bond Fund with respect to which it desires to have the Bank
render services as transfer agent under the terms hereof, it shall so notify the
Bank in writing, and if the Bank agrees in
-16-
<PAGE>
writing to provide such services, such series of Shares shall become a Portfolio
hereunder.
Article 11 Assignment
----------
11.1 Except as provided in Section 11.3 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
11.2 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
11.3 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data Services,
Inc., a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended ("Section 17A(c)(1)"), (ii) a BFDS subsidiary duly registered
as a transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS affiliate;
provided, however, that the Bank shall be as fully responsible to the Fund for
the acts and omissions of any subcontractor as it is for its own acts and
omissions.
Article 12 Amendment
---------
12.1 This Agreement may only be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Trustees of the Fund.
-17-
<PAGE>
Article 13 Massachusetts Law to Apply
--------------------------
13.1 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
Article 14 Force Majeure
-------------
14.1 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes, but such party shall take reasonable care to minimize the
likelihood of loss resulting from such causes, and if loss occurs, shall take
reasonable care to mitigate the effects of such loss.
Article 15 Consequential Damages
---------------------
15.1 Neither party to this Agreement shall be liable to the other
party for consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
Article 16 Merger of Agreement
-------------------
16.1 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
-18-
<PAGE>
Article 17 Counterparts
------------
17.1 This Agreement may be executed by the parties hereto on any
number of counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf by and through their duly
authorized officers, as of the day and year first above written.
M.S.D. & T. FUNDS, INC.
BY: /s/ Leslie B. Disharoon
-----------------------
ATTEST:
/s/ Linda A. Meck
- -----------------
STATE STREET BANK AND TRUST COMPANY
BY: [signature illegible]
---------------------
Senior Vice President
ATTEST:
/s/ Claire E. Rodowicz
- ----------------------
Assistant Secretary
-19-
<PAGE>
BOSTON FINANCIAL DATA SERVICES
TRANSFER AGENT SERVICES
MSD&T FUNDS
FEE SCHEDULE
<TABLE>
<CAPTION>
ANNUAL ACCOUNT SERVICE FEES
- -------------------------------------
<S> <C>
OPEN ACCOUNT FEE
Money Market $ 16.00
Daily Dividend $ 14.00
Non-Daily Dividend $ 11.00
Fund Minimum (per fund)
Institutional Funds $ 5,000.00
Retail Funds $18,000.00
Investor Record $ 1.80
Closed Account Fee $ 1.50
</TABLE>
Fees are billable on a monthly basis at the rate of 1/12th of the annual fee. A
charge is made for an account in the month that an account opens or closes.
Account service fees are the higher of: open account charges plus closed
account charges or the fund minimum.
<TABLE>
<CAPTION>
ACTIVITY BASED FEES
- ----------------------------
<S> <C>
New Account Set-up $3.00
Telephone Calls $1.50
Checkwriting $1.00
ACH $ .35
</TABLE>
OUT-OF-POCKET EXPENSES
- ----------------------------
Out-of-pocket expenses include but are not limited to: confirmation statements,
checks, certificates, postage, forms, telephone, microfilm, microfiche, year end
forms and expenses incurred at the specific direction of the fund.
-20-
<PAGE>
FEE SCHEDULE
TRAC-2000 401K PLAN PARTICIPANT RECORDKEEPING SERVICES
Participant Investment Account $10/Year
Per Fund or mercantile GIC
Base Fee Year 1 $1,000 Per Month
Year 2 $1,500 Per Month
Year 3 $3,000 Per Month
Year 4 $4,500 Per Month
Base Fee is offset by an annual credit of $7
for each Eligible Employee. Year 1 starts in
the month the first plan is established on
the TRAC-2000 system
-21-
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
(International Equity Fund)
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Gentlemen:
Pursuant to Article 10, Paragraph 10.01, of the Transfer Agency and Service
Agreement dated November 1, 1992 that you and we have entered into, we are
writing to request that you render transfer agency services under the terms of
said agreement with respect to the International Equity Fund, an additional
portfolio which we are establishing. Your compensation for the services
provided under said agreement for said additional portfolio shall be determined
in accordance with the Fee Schedules attached to said agreement. Please execute
a copy of this letter where indicated to signify your agreement to provide said
services.
Sincerely,
Dated: June 29, 1993 M.S.D. & T. FUNDS, INC.
By: /s/ Leslie B. Disharoon
-----------------------
Title: President
---------
ACKNOWLEDGED AND AGREED:
STATE STREET BANK AND TRUST COMPANY
By: [signature illegible] Dated: June 21, 1993
Title: Vice President
--------------
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AMENDMENT NO. 1
AMENDMENT NO. 1 dated as of May 1, 1995 (the "Amendment") to that certain
Transfer Agency and Service Agreement dated as of November 1, 1992 (the
"Agreement") by and between M.S.D. & T. Funds, Inc. (the "Fund") and State
Street Bank and Trust Company (the "Bank").
WHEREAS, pursuant to the Agreement the Bank currently acts as transfer
agent, dividend disbursing agent, and agent in connection with certain other
activities for the authorized and issued shares of the Fund representing
interests in each of the Prime Money Market Fund, Government Money Market Fund,
Tax-Exempt Money Market Fund, Tax-Exempt Money Market Fund (Trust), Value Equity
Fund, Intermediate Fixed Income Fund, Maryland Tax-Exempt Bond Fund,
International Equity Fund and International Bond Fund; and
WHEREAS, the Fund is currently authorized to offer one class of shares in
each of the Prime Money Market Fund, Government Money Market Fund, Tax-Exempt
Money Market Fund, Tax-Exempt Money Market Fund (Trust), Maryland Tax-Exempt
Bond Fund, International Equity Fund and International Bond Fund (collectively,
the "Single Class Portfolios); and
WHEREAS, the Fund is currently authorized to offer two classes of shares,
i.e. Institutional shares and AFBA Five Star shares, in each of the Value Equity
Fund and Intermediate Fixed Income Fund (collectively, the "Dual Class
Portfolios"); and
WHEREAS, the parties hereto with to amend the Agreement to provide that the
Bank shall act as transfer agent, dividend disbursing agent, and agent in
connection with certain other activities for (i) the authorized and issued
shares of the Fund representing interests in each of the Single Class
Portfolios, and (ii) the authorized and issued Institutional shares of the Fund
representing interests in each of the Dual Class Portfolios;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and intending to be legally bound hereby, the parties hereto do hereby agree as
follows:
1. The preamble to the Agreement is hereby amended and restated in its
entirety to read as follows:
"WHEREAS, the Fund is authorized to issue shares of common stock in
separate series and classes representing interests in separate portfolios
of securities and other assets; and
<PAGE>
WHEREAS, the Fund is currently authorized to issue one class of shares
in each of seven series, i.e., the Prime Money Market Fund, Government
Money Market Fund, Tax-Exempt Money Market Fund, Tax-Exempt Money Fund
(Trust), Maryland Tax-Exempt Bond Fund, International Equity Fund and
International Bond Fund (collectively, the "Single Class Portfolios"); and
WHEREAS, the Fund is currently authorized to issue two classes of
shares, i.e. Institutional shares and AFBA Five Star shares, in each of two
series, i.e., the Value Equity Fund and Intermediate Fixed Income Fund
(collectively, the "Dual Class Portfolios"; the Single Class Portfolios and
the Dual Class Portfolios, together with all other series subsequently
established by the Fund and made subject to this Agreement in accordance
with Article 10, being sometimes referred to herein individually as a
"Portfolio," and collectively as the "Portfolios"); and
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the
Bank as transfer agent, dividend disbursing agent, and agent in connection
with certain other activities, with respect to the Single Class Portfolios
and Institutional shares of the Dual Class Portfolios and the Bank desires
to accept such appointment;".
2. Section 1.01 of Article 1 of the Agreement is hereby amended and
restated in its entirety to read as follows:
"1.01 Subject to the terms and conditions set forth in this Agreement,
the Fund, on behalf of the Portfolios, hereby employs and appoints the Bank
to act as, and the Bank agrees to act as, its transfer agent for (a) the
authorized and issued shares of common stock of the Fund representing
interests in each of the Single Class Portfolios, and (b) the authorized
and issued Institutional shares of common stock of the Fund representing
interests in each of the Dual Class Portfolios (shares of the Single Class
Portfolios and Institutional shares of the Dual Class Portfolios being
referred to herein collectively as "Shares"), dividend disbursing agent,
and agent in connection with any accumulation, open-account or similar
plans provided to the holders of Shares of each of the respective
Portfolios of the Fund ("Shareholders") and set out in the currently
effective prospectus and statement of additional information ("prospectus")
of the Fund on behalf of the applicable Portfolio, including, without
limitation, any periodic investment plan or periodic withdrawal program."
-2-
<PAGE>
3. Section 1.02(vii) and (viii) of Article 1 of the Agreement is hereby
amended and restated in its entirety to read as follows:
". . . (vii) Prepare and transmit payments for dividends and distributions
on Shares declared by the Fund on behalf of the
applicable Portfolio;
(viii) Issue replacement Share certificates for those Share
certificates alleged to have been lost, stolen or destroyed
upon receipt by the Bank of indemnification satisfactory to
the Bank and protecting the Bank and the Fund, and the Bank,
at its option, may issue replacement Share certificates in
place of mutilated Share certificates upon presentation
thereof and without such indemnity;".
4. Article 10 of the Agreement is hereby amended and restated in its
entirety to read as follows:
"Article 10. Additional Portfolios
---------------------
10.01 In the event that the Fund establishes one or more series in
addition to the Single Class Portfolios and Dual Class Portfolios with
respect to all or any class of shares of which it desires to have the Bank
render services as transfer agent under the terms hereof, it shall so
notify the Bank in writing, and if the Bank agrees in writing to provide
such services, such series shall become a Portfolio hereunder."
5. Except as hereby modified, the Agreement is hereby
-3-
<PAGE>
confirmed and shall remain in full force and effect as therein provided.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed on their respective behalf as of the day and year first above written.
M.S.D. & T. FUNDS, INC.
By:___________________________
ATTEST:
____________________________
STATE STREET BANK AND TRUST COMPANY
By:___________________________
ATTEST:
____________________________
-4-
<PAGE>
EXHIBIT (9)(d)
TRANSFER AGENCY AND SERVICE AGREEMENT
(Diversified Real Estate Fund)
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Gentlemen:
Pursuant to Article 10, Paragraph 10.01, of the Transfer Agency and
Service Agreement dated November 1, 1992 that you and we have entered into, we
are writing to request that you render transfer agency services under the terms
of said agreement with respect to the Diversified Real Estate Fund, an
additional portfolio which we are establishing. Your compensation for the
services provided under said agreement for said additional portfolio shall be
determined in accordance with the Fee Schedules attached to said agreement.
Please execute a copy of this letter where indicated to signify your agreement
to provide said services.
Sincerely,
Dated: _____ __, 1997 M.S.D. & T. FUNDS, INC.
By:____________________
Title:_________________
ACKNOWLEDGED AND AGREED:
STATE STREET BANK AND TRUST COMPANY
By: _________________ Dated: _______ __, 1997
Title: ______________
<PAGE>
ADMINISTRATION AGREEMENT
Mercantile-Safe Deposit & Trust Company
Two Hopkins Plaza
Baltimore, MD 21201
Dear Sirs:
M.S.D. & T. Funds, Inc., a Maryland corporation (the "Company"), herewith
confirms its agreement with Mercantile-Safe Deposit & Trust Company
("Administrator") as follows:
The Company desires to employ its capital by investing and reinvesting the
same in investments of the type and in accordance with the limitations specified
in its Articles of Incorporation and in its Prospectuses and Statement of
Additional Information as from time to time in effect, copies of which have been
or will be submitted to Administrator, and in resolutions of the Company's Board
of Directors. The Company desires to employ Administrator as the administrator
for each of the investment portfolios of the Company identified on Schedule A
hereto (the "Funds"). Additional Funds may be added to those covered by this
Agreement from time to time by the parties executing a new Schedule A which
shall become effective upon its execution and shall supersede any Schedule A
having an earlier date. Each class and subclass of shares in each of the Funds
are hereinafter called "Shares."
1. SERVICES AS ADMINISTRATOR
-------------------------
Subject to the direction and control of the Board of Directors of the
Company, Administrator will assist in supervising all aspects of the operations
of the Funds except those performed by it in its capacity as investment adviser
for the Funds under the Investment Advisory Agreement, by the accountant for the
Funds under the Fund Accounting Agreement, by the distributor for the Funds
under the Distribution Agreement, by the custodian for the Funds under the
Custodian Agreement, and by the transfer agent for the Funds under the Transfer
Agency Agreement.
Administrator will maintain office facilities (which may be in the offices
of Administrator or a corporate affiliate but shall be in such location as the
Company shall reasonably determine); furnish statistical and research data,
clerical and bookkeeping services and stationery and office supplies; compile
data for, prepare for execution by the Company and file all the Company's
federal and state tax returns and required tax filings other than those required
to be made by the Company's custodian and transfer agent; assist to the extent
requested by the
<PAGE>
Company's counsel with the preparation of its Registration Statements (on
Form N-1A or any replacement therefor), notices of annual or special meetings of
Shareholders and proxy materials relating to such meetings; compile data for,
and, subject to approval by the Company's Treasurer, prepare and file timely
reports to the Company's Shareholders of record and the Securities and Exchange
Commission ("SEC") including, but not necessarily limited to, Annual and Semi-
Annual Reports to Shareholders, Semi-Annual Reports on Form N-SAR (or any
replacement form therefor) and Notices to the SEC required pursuant to Rule 24f-
2 under the Investment Company Act of 1940 (the "1940 Act"); keep and maintain
pursuant to Rule 31a-1 under the Investment Company Act of 1940 the financial
accounts and records of the Funds not maintained pursuant to the Fund Accounting
Agreement between the Company and The Winsbury Service Corporation; provide such
information to the Company as the parties shall agree upon with respect to
regulatory matters, including monitoring regulatory and legislative developments
which may affect the Company and assisting in the strategic response to such
developments, counseling and assisting the Company in routine regulatory
examinations or investigations of the Company, and working closely with outside
counsel to the Company in response to any litigation or non-routine regulatory
matters; and generally assist in all aspects of the operations of the Funds. In
compliance with the requirements of Rule 31a-3 under the 1940 Act, Administrator
hereby agrees that all records which it maintains for the Company are the
property of the Company and further agrees to surrender promptly to the Company
any of such records upon the Company's request. Administrator further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any records
it maintains which are required to be maintained by Rule 31a-1 under the 1940
Act. Administrator may delegate some or all of its obligations under this
Agreement, but shall remain liable to the Company for the performance thereof.
2. FEES AND EXPENSES
-----------------
In consideration of services rendered and expenses assumed pursuant to this
Agreement, the Administration will be entitled to a fee, computed daily and
payable monthly, from each Fund calculated at the annual rate of .125% of the
Company's aggregate average daily net assets. The fee allocable to and payable
by each Fund shall be the several (and not joint or joint and several)
obligation of such Fund.
For the purpose of determining fee payable to Administrator, the value of
the net assets of the Funds shall be computed with the frequency and in the
manner described in the Prospectuses for the Funds or Statement of Additional
Information as from time to time in effect for the computation of the value of
such net
-2-
<PAGE>
assets in connection with the determination of the redemption value of the
Shares of the Funds.
Administrator will from time to time employ or associate with itself such
person or persons as Administrator may believe to be particularly fitted to
assist it in the performance of this Agreement. If deemed appropriate by
Administrator, such person or persons may be officers and employees who are
employed by both Administrator and the Company. The compensation of such person
or persons shall be paid by Administrator and no obligation may be incurred on
behalf of the Company in such respect. Other expenses to be incurred in the
operation of the Funds -- including taxes, interest, brokerage fees and
commissions, if any, fees of Directors who are not officers, directors,
partners, shareholders or employees of Administrator or the investment adviser
(if other than the Administrator) or distributor for the Funds, Securities and
Exchange Commission fees and state blue sky registration and qualification
expenses, advisory and administration fees, costs of performing the pricing of
portfolio securities, transfer and dividend disbursing agents' fees, insurance
premiums, outside auditing and legal expenses, costs of maintenance of trust
existence, typesetting and printing prospectuses for regulatory purposes and for
distribution to current Shareholders of the Funds, costs of Shareholders' and
Directors' reports and meetings and any extraordinary expenses -- will be borne
by the Funds; provided, however, that the Funds will not bear the cost of any
-------- -------
activity which is primarily intended to result in the distribution of Shares of
the Funds.
3. PROPRIETARY AND CONFIDENTIAL INFORMATION
----------------------------------------
Administrator agrees on behalf of itself and its employees to treat
confidentially and as proprietary information of the Company all records and
other information relative to the Company and prior, present, or potential
Shareholders, and not to use such records and information for any purpose other
than performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Company, which approval
shall not be unreasonably withheld and may not be withheld where Administrator
may be exposed to civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted authorities, or
when so requested by the Company.
4. LIABILITY
---------
Administrator shall exercise its best judgment in rendering the services to
be provided to each Fund. Each Fund agrees as an inducement to Administrator
and to others who may assist it in providing services to the Funds that
Administrator and such other persons shall not be liable for any alleged or
actual error of judgment, act or omission, or mistake of law or for any alleged
-3-
<PAGE>
or actual loss suffered by such Fund or the Company, and each Fund and the
Company agree to indemnify and hold harmless Administrator and such other
persons against and from any claims, liabilities, actions, suits, proceedings,
judgments or damages (and expenses as and when incurred in connection therewith,
including the reasonable cost of investigating or defending same, including, but
not limited to attorneys' fees) arising out of any such alleged or actual error
of judgment, act or omission, or mistake of law or loss; provided that nothing
herein shall be deemed to protect or purport to protect Administrator or any
other such person against any liability to the Company or to its security
holders to which Administrator or they would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of duties
hereunder, or by reason of reckless disregard of the obligations and duties
hereunder.
5. TERM
----
Unless sooner terminated, this Agreement shall continue with respect to
each Fund until July 20, 1994 and thereafter shall continue automatically for
successive 12-month periods, provided such continuance with respect to each Fund
is specifically approved at least annually by the Company's Board of Directors
or vote of the lesser of (a) 67% of the shares of such Fund represented at a
meeting if holders of more than 50% of the outstanding shares of the Fund are
present in person or by proxy or (b) more than 50% of the outstanding shares of
such Fund, provided that in either event its continuance also is approved by a
majority of the Company's Directors who are not "interested persons" (as defined
in the 1940 Act) of any party to this Agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval. This Agreement is
terminable at any time with respect to any Fund or all Funds without penalty, on
60 days' notice, by Administrator or by the Company's Board of Directors or by
vote of the lesser of (a) 67% of the shares of such Fund represented at a
meeting if holders of more than 50% of the outstanding shares of the Fund are
present in person or by proxy or (b) more than 50% of the outstanding shares of
such Fund. This Agreement will terminate automatically in the event of its
assignment (as defined in the 1940 Act).
6. HEADINGS
--------
Paragraph headings in this Agreement are included for convenience only and
are not to be used to construe or interpret this Agreement.
-4-
<PAGE>
7. ASSIGNMENT
----------
This Agreement and the rights and duties hereunder shall not be assignable
with respect to a Fund by either of the parties hereto except by the specific
written consent of the other party.
8. GOVERNING LAW
-------------
This Agreement shall be governed by and provisions shall be construed in
accordance with the laws of the State of Maryland.
9. COUNTERPARTS
------------
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
If the foregoing is in accordance with your understanding, kindly so
indicate by signing and returning to us the enclosed copy hereof, whereupon it
shall become a binding agreement between us on this 28th day of May, 1993.
Very truly yours,
M.S.D. & T. FUNDS, INC.
By: /s/ Leslie B. Disharoon
-----------------------
Title: President
---------
Accepted:
MERCANTILE-SAFE DEPOSIT & TRUST COMPANY
By: [signature illegible]
---------------------
Title: _____________________
-5-
<PAGE>
SCHEDULE A
TO THE ADMINISTRATION AGREEMENT
BETWEEN MERCANTILE-SAFE DEPOSIT & TRUST COMPANY
AND M.S.D. & T. FUNDS, INC.
DATED MAY 28, 1993
NAME OF FUND
- ------------
Prime Money Market Fund
Government Money Market Fund
Tax-Exempt Money Market Fund
Value Equity Fund
Intermediate Fixed Income Fund
Maryland Tax-Exempt Bond Fund
Tax-Exempt Money Market Fund (Trust)
International Equity Fund
M.S.D. & T. FUNDS, INC.
By: /s/ Leslie B. Disharoon
-----------------------
Title: President
--------------------
Date: 5/28/93
---------------------
MERCANTILE-SAFE DEPOSIT & TRUST COMPANY
By: [signature illegible]
Title:_____________________________
Date:______________________________
-6-
<PAGE>
EXHIBIT (9)(f)
SCHEDULE A
TO THE ADMINISTRATION AGREEMENT
BETWEEN MERCANTILE-SAFE DEPOSIT & TRUST COMPANY
AND M.S.D. & T. FUNDS, INC.
DATED MAY 28, 1993
NAME OF FUND
- ------------
Prime Money Market Fund
Government Money Market Fund
Tax-Exempt Money Market Fund
Tax-Exempt Money Market Fund (Trust)
Value Equity Fund
Intermediate Fixed Income Fund
Maryland Tax-Exempt Bond Fund
International Equity Fund
Diversified Real Estate Fund
M.S.D. & T. FUNDS, INC.
By:______________________________
Title:___________________________
Date:____________________________
MERCANTILE-SAFE DEPOSIT & TRUST COMPANY
By: _______________________________
Title:_____________________________
Date:______________________________
<PAGE>
FUND ACCOUNTING AGREEMENT
AGREEMENT made this 1st day of October 1993, between M.S.D. & T. FUNDS,
INC. (the "Company"), a Maryland corporation having its principal place of
business at Two Hopkins Plaza, Baltimore, Maryland 21201, and THE WINSBURY
SERVICE CORPORATION ("Winsbury"), a corporation organized under the laws of the
State of Ohio and having its principal place of business at 1900 East Dublin-
Granville Road, Columbus, Ohio 43229.
WHEREAS, the Company desires that Winsbury perform certain fund accounting
services for each investment portfolio of the Company identified on Schedule A
hereto, as such Schedule may, from time to time, be supplemented or amended
(individually referred to herein as a "Fund" and collectively as the "Funds");
and
WHEREAS, Winsbury is willing to perform such services on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. SERVICES AS FUND ACCOUNTANT. Winsbury will keep, maintain and preserve
---------------------------
the books and records of each Fund in accordance with Rules 31a-1 and 31a-2
under the Investment Company Act of 1940 (the "Rules") and will perform the
following functions on an ongoing basis in accordance with applicable laws and
resolutions adopted from time to time by the Company's Board of Directors:
a. Journalize the Company's investment, capital share and income
and expense activities to individual Funds;
b. Process investment buy/sell trade tickets when received from the
investment adviser for the Funds under the Investment Advisory
Agreement (the "Advisor"); Categorize securities by SEC prescribed
industry classifications as instructed by the Advisor;
c. Maintain individual ledgers for investment securities;
d. Maintain historical tax lots for each security;
e. Reconcile cash of the Company with the Custodian, and provide
the Advisor with the beginning cash balance available for
investment purposes;
<PAGE>
f. Update the cash availability throughout the day as required by the
Advisor;
g. Post to and produce information for the Fund Accounting
System's Statement of Assets and Liabilities and the Statement of
Operations for each Fund;
h. Calculate various contractual expenses (e.g., advisory and
custody fees);
i. Post expense disbursements upon proper written instructions
from the Company's administrator under the Administration
Agreement (the "Administrator");
j. Provide reports to identify the nature of capital gains and losses
incurred as a result of security sales;
k. Determine each Fund's net income;
l. Obtain security market quotes from independent pricing
services, or if such quotes are unavailable, then obtain such
prices from the Advisor, and in either case calculate the market
value of the Company's investments and identify changes from
previous quotes;
m. Transmit a copy of the daily portfolio valuation to the Advisor;
n. Compute the net asset value of each Fund daily, using best
efforts to do so prior to NASDAQ deadline;
o. Compute each Fund's income and capital gains dividends payables,
dividend factors, 7-day, 7-day effective and 30-day yields,
expense ratios (on a monthly basis), portfolio turnover rate, and
portfolio average dollar-weighted maturity;
p. Review daily the calculation of the net asset value and
dividend factors of each portfolio prior to release to
shareholders, check and confirm the net asset values and dividend
factors for reasonableness and deviations and distribute net asset
values and yields to NASDAQ;
q. Provide reports identifying settlement status of trades,
including open and/or failed trades upon
-2-
<PAGE>
receipt of such information from the Company's Custodian;
r. Determine monthly outstanding receivables and payables for
security trades;
s. Determine monthly outstanding receivables and payables for Fund
share transactions;
t. Report to the Company the daily market pricing of securities in
money market portfolios, with the comparison to the amortized cost
basis;
u. Determine unrealized appreciation on securities held in variable
net asset value Funds;
v. Process accruals to account for income receivable for securities
held in Funds;
w. Amortize premiums and accrete discounts on securities purchased
at a price other than 100, if applicable;
x. Update system to reflect rate changes on variable interest rate
instruments;
y. Record income collected as reported by the Custodian;
z. Post Fund income and expense transactions to appropriate
categories;
aa. Accrue for expenses of each Fund per the instructions of the
Company management;
ab. Provide daily listing of balances in general ledger categories;
ac. Determine monthly the outstanding receivables and payables for
all income and expense accounts;
ad. Provide daily reports to the parties identified by the Company
summarizing Fund and general ledger activity;
ae. Provide monthly summaries of the daily activity reports listed
on Schedule C, as directed by the Company;
af. Provide accounting reports in connection with the Company's
regular annual audit and other audits and examinations by
regulatory agencies;
-3-
<PAGE>
ag. Provide special reports upon request of the Company, which may
result in an additional charge;
-4-
<PAGE>
((AH) THROUGH (AR) APPLY TO FOREIGN SECURITIES)
ah. Process all security trades in respective foreign currencies and
convert into U.S. dollars;
ai. Provide reports identifying the status of unsettled trades due
to widely varying standards in each country upon receipt of such
information from the Company's Custodian;
aj. Account for all gains and losses on securities on a daily basis in
accordance with Statement of Financial Accounting Standards #52 -
Foreign Currency Translation;
ak. Balance, on a daily basis, foreign currency positions in the
various countries in which the Fund does business;
al. Price each security every day in respective foreign currency and
then translate values into U.S. dollars;
am. Convert all foreign currency holdings into U.S. dollars on a
daily basis;
an. Accrue income, on a daily basis, on bonds in their respective
foreign currencies and translate total income accrued into U.S.
dollars for each bond held;
ao. Record security dividend income net of taxes withheld at the
source;
ap. Provide daily reports in both local currencies and in U.S.
dollars where available;
aq. Maintain records as required by federal tax regulations;
ar. Provide reports in accordance with appropriate accounting
standards (primarily Statement of Financial Accounting Standards
#52 - Foreign Currency Translation); and
as. Perform other similar services as may reasonably be requested by
the Company.
In addition to the accounting services described above, Winsbury will:
-5-
<PAGE>
a. Provide a download (and hard copy thereof) of the Financial
Statement Package, upon request of the Company or the
Administrator. For such download there will be an additional
charge. The download will include the following items:
(i) Schedule of Investments
(ii) Statement of Assets and Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Condensed Financial Information
b. Provide monthly broker security transaction reports;
c. Provide monthly security transaction reports;
d. Provide accounting information for the following:
(i) federal and state income tax returns and federal
excise tax returns;
(ii) the Company's Semi-Annual Reports with the Securities
and Exchange Commission on Form N-SAR;
(iii) the Company's annual, semi-annual, and quarterly
shareholder reports;
(iv) registration statements on Form N-1A and other
filings relating to the registration of shares;
(v) the Company's Administrator's monitoring of the
Company's status as a regulated investment company
under Subchapter M of the Internal Revenue Code of
1986, as amended;
(vi) annual audit by the Company's auditors; and
(vii) examinations performed by the SEC.
e. Keep the following records:
(i) all books and records with respect to the Company's
books of account; and
(ii) records of the Company's securities transactions.
Winsbury is not responsible for calculating or monitoring expense accruals
for the Funds. In addition, in the event that the Company has Funds which have
two or more classes of shares each having different net asset values or paying
different daily dividends, Winsbury will not be responsible for creating the
accounting methodology for the multiple classes of shares, but
-6-
<PAGE>
will, in accordance with section 8 hereto, follow such methodology in performing
the services under this Agreement.
In compliance with the requirements of Rule 31a-3 under the Investment
Company Act of 1940, Winsbury hereto agrees that all books and records which it
maintains for the Company are the property of the Company and further agrees to
surrender promptly to the Company any such records upon the Company's request.
Such books and records shall be prepared, maintained and preserved as required
by the Rules, the Investment Company Act of 1940 generally and other applicable
securities laws and rules and regulations. The Company, or the Company's
authorized representatives, shall have access to such books and records at all
times during Winsbury's normal business hours. Upon the reasonable request of
the Company, copies of any such books and records shall be provided by Winsbury
to the Company or the Company's authorized representative at the Company's
expense.
2. SUBCONTRACTING. Winsbury may, at its expense, upon forty-five (45)
--------------
days written notice to the Company, subcontract with any entity or person
concerning the provision of the services contemplated hereunder; provided,
however, that Winsbury shall not be relieved of any of its obligations under
this Agreement by the appointment of such subcontractor and provided further,
that Winsbury shall be responsible, to the extent provided in Section 7 hereof,
for all acts of such subcontractor as if such acts were its own.
3. COMPENSATION. For its accounting services and assumption of related
------------
expenses, Winsbury shall be entitled to receive a fee, computed daily and
payable monthly, in accordance with, and in the manner set forth in Schedule B,
as amended from time to time. The fee allocable to and payable by each Fund
shall be the several (and not joint or joint and several) obligation of such
Fund.
4. REIMBURSEMENT OF EXPENSES. In addition to paying Winsbury the fees
-------------------------
described in Section 3 hereof, the Company agrees to reimburse Winsbury for the
following out-of-pocket expenses:
a. Costs of pricing the portfolio securities of each Fund; and
b. Any expenses Winsbury shall incur at the written direction of
an officer of the Company thereunto duly authorized.
5. EFFECTIVE DATE. This Agreement shall become effective with respect
--------------
to a Fund as of the date first above written (the "Effective Date").
-7-
<PAGE>
6. PROPRIETARY AND CONFIDENTIAL INFORMATION. Administrator agrees on
----------------------------------------
behalf of itself and its employees to treat confidentially and as proprietary
information of the Company all records and other information relative to the
Company and prior, present, or potential Shareholders, and not to use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification to and
approval in writing by the Company, which approval shall not be unreasonably
withheld and may not be withheld where Administrator may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities, or when so requested by the
Company.
7. TERM. Unless sooner terminated, this Agreement shall continue with
----
respect to each Fund until July 20, 1994 and thereafter shall continue
automatically for successive 12-month periods, provided such continuance with
respect to each Fund is specifically approved at least annually by the Company's
Board of Directors or vote of the lesser of (a) 67% of the shares of such Fund
represented at a meeting if holders of more than 50% of the outstanding shares
of the Fund are present in person or by proxy or (b) more than 50% of the
outstanding shares of such Fund, provided that in either event its continuance
also is approved by a majority of the Company's Directors who are not
"interested persons" (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. This Agreement is terminable at any time with respect to any
Fund or all Funds without penalty, on 60 days' notice, by Winsbury or by the
Company's Board of Directors or by vote of the lesser of (a) 67% of the shares
of such Fund represented at a meeting if holders of more than 50% of the
outstanding shares of the Fund are present in person or by proxy or (b) more
than 50% of the outstanding shares of such Fund. This Agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
8. STANDARD OF CARE; LIMITATION OF LIABILITY. Winsbury shall exercise
-----------------------------------------
due care and diligence to ensure the accuracy of all services performed under
this Agreement, but shall not be liable to the Company for any action taken or
omitted by Winsbury in the absence of bad faith, willful misconduct, negligence
or reckless disregard of its duties. Each Fund agrees to indemnify and hold
harmless Winsbury, its employees, agents, directors, officers and nominees from
and against any and all claims, demands, actions and suits, whether groundless
or otherwise, and from and against any and all judgments, liabilities, losses,
damages, costs, charges, counsel fees and other expenses of every nature and
character arising out of or in any way relating to Winsbury's actions taken or
nonactions with respect to the performance of services under this Agreement with
respect to such Fund or based, if applicable, upon reasonable reliance on
-8-
<PAGE>
information, records, instructions or requests with respect to such Fund given
or made to Winsbury by a duly authorized representative of the Company; provided
that this indemnification shall not apply to actions or omissions of Winsbury in
cases of its own bad faith, willful misfeasance, negligence or from reckless
disregard by it of its obligations and duties, and further provided that prior
to confessing any claim against it which may be the subject of this
indemnification, Winsbury shall give the Company written notice of and
reasonable opportunity to defend against said claim in its own name or in the
name of Winsbury. Winsbury assumes no responsibility hereunder, and shall not be
liable, for any damage, loss of data, delay or any other loss whatsoever caused
by events beyond its reasonable control.
9. REPORTS. Winsbury will furnish to the Company and to its properly
-------
authorized auditors, investment advisers, examiners, administrators,
distributors, dealers, underwriters, salesmen, insurance companies and others
designated by the Company in writing, such reports from Schedule C as are
requested from Winsbury by the Company at such times as are prescribed pursuant
to the terms and the conditions of this Agreement or as subsequently agreed upon
by parties pursuant to an amendment hereto. The Adviser has agreed to review
the reports listed below within a reasonable time not to exceed five (5)
business days and to report any errors or discrepancies therein to the Company
or its designee:
(a) a current security position report;
(b) a summary report of transactions and pending maturities
(including the principal, cost and accrued interest on each
portfolio security in maturity date order); and
(c) a current cash position report (including cash available
from portfolio sales and maturities and sales of a Fund's
shares less cash needed for redemptions and settlement of
portfolios purchases).
Winsbury will perform reasonable corrections of any errors or discrepancies
that are identified by the Adviser within a reasonable time not to exceed five
(5) business days following its receipt of such information from the Adviser or
the Company.
10. RIGHTS OF OWNERSHIP. All computer programs and procedures developed
-------------------
by Winsbury at Winsbury's expense to perform services required to be provided by
Winsbury under this Agreement are the property of Winsbury. All records and
other data except such computer programs and procedures are the exclusive
property of the Company and all such other records and data will be
-9-
<PAGE>
furnished to the Company in appropriate form as soon as practicable after
termination of this Agreement for any reason.
11. INFORMATION TO BE FURNISHED BY THE COMPANY AND FUNDS. The Company has
----------------------------------------------------
furnished to Winsbury the following:
(a) Copies of the Articles of Incorporation of the Company and of
any amendments thereto, certified by the proper official of the
state in which such Articles have been filed.
(b) Copies of the following documents:
(i) The Company's By-Laws and any amendments thereto;
(ii) Certified copies of resolutions of the Board of
Directors covering the approval of this Agreement,
authorization of a specified officer of the Company to
execute and deliver this Agreement and authorization for
specified officers of the Company to instruct Winsbury
thereunder.
(c) A list of all the officers of the Company, together with
specimen signatures of those officers who are authorized to
instruct Winsbury in all matters.
(d) Two copies of the Prospectuses and Statements of Additional
Information for each Fund.
12. INFORMATION FURNISHED BY WINSBURY. Winsbury has furnished to the
---------------------------------
Company the following:
(a) Winsbury's Articles of Incorporation.
(b) Winsbury's Bylaws and any amendments thereto.
(c) Certified copies of actions of Winsbury covering the following
matters:
(i) Approval of this Agreement, and authorization of a
specified officer of Winsbury to execute and deliver this
Agreement;
(ii) Authorization of Winsbury to act as fund accountant for
the Company and to provide accounting services for the
Company.
13. AMENDMENTS TO DOCUMENTS. The Company shall furnish Winsbury written
-----------------------
copies of any amendments to, or changes in, any
-10-
<PAGE>
of the items referred to in Section 8 hereof forthwith upon such amendments or
changes becoming effective. In addition, the Company agrees that no amendments
will be made to the Prospectuses or Statements of Additional Information of the
Company which might have the effect of changing the procedures employed by
Winsbury in providing the services agreed to hereunder or which amendment might
affect the duties of Winsbury hereunder unless the Company first obtains
Winsbury's approval of such amendments or changes.
14. HEADINGS. Paragraph headings in this Agreement are included for
--------
convenience only and are not to be used to construe or interpret this Agreement.
15. ASSIGNMENT. This Agreement and the rights and duties hereunder shall
----------
not be assignable with respect to a Fund by either of the parties hereto except
by the specific written consent of the other party.
16. GOVERNING LAW. This Agreement shall be governed by and provisions
shall be construed in accordance with the laws of the State of
Maryland.
17. COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers designated below all as of the day
and year first above written.
[SEAL] M.S.D. & T. FUNDS, INC.
By: /s/ Leslie B. Disharoon
-----------------------
Title: President
[SEAL] THE WINSBURY SERVICE CORPORATION
By: [signature illegible]
Title: Senior Vice President
-12-
<PAGE>
SCHEDULE A
TO THE FUND ACCOUNTING AGREEMENT
BETWEEN THE WINSBURY SERVICE CORPORATION
AND M.S.D. & T. FUNDS, INC.
DATED OCTOBER 1, 1993
NAME OF FUND
- ------------
Prime Money Market Fund
Government Money Market Fund
Tax-Exempt Money Market Fund
Value Equity Fund
Intermediate Fixed Income Fund
Maryland Tax-Exempt Bond Fund
Tax-Exempt Money Market Fund (Trust)
International Equity Fund
[SEAL] M.S.D. & T. FUNDS, INC.
By: /s/ Leslie B. Disharoon
-----------------------
Title: President
Date: October 1, 1993
[SEAL] THE WINSBURY SERVICE CORPORATION
By: [signature illegible]
---------------------
Title: Senior Vice President
Date: October 1, 1993
A-1
<PAGE>
SCHEDULE B
TO THE FUND ACCOUNTING AGREEMENT
BETWEEN THE WINSBURY SERVICE CORPORATION
AND M.S.D. & T. FUNDS, INC.
DATED OCTOBER 1, 1993
Name of Fund Compensation
- ------------ ------------
Prime Money Market Fund Annual rate of three one-hundredths of
one percent (.03%) of the Prime Money
Market Fund's average daily net assets
Government Money Market Fund Annual rate of three one-hundredths of
one percent (.03%) of the Government
Money Market Fund's average daily net
assets
Tax-Exempt Money Market Fund Annual rate of four one-hundredths of
one percent (.04%) of the Tax-Exempt
Money Market Fund's average daily net
assets
Value Equity Fund Annual rate of four one-hundredths of
one percent (.04%) of the Value Equity
Fund's average daily net assets
Intermediate Fixed Income Fund Annual rate of four one-hundredths of
one percent (.04%) of the Intermediate
Fixed Income Fund's average daily net
assets
Maryland Tax-Exempt Bond Fund Annual rate of five one-hundredths of
one percent (.05%) of the Maryland Tax
Exempt Bond Fund's average daily net
assets
Tax-Exempt Money Market Fund (Trust) Annual rate of four one-hundredths of
one percent (.04%) of the Tax-Exempt
Money Market Fund's (Trust) average
daily net assets
B-1
<PAGE>
International Equity Fund Annual rate of five one-hundredths of
one percent (.05%) of the International
Equity Fund's average daily net assets,
with a minimum fee of $2000 per month
Multiple Classes of Shares:
- --------------------------
Each class of shares within a Fund that maintains multiple classes of shares
having different net asset values or paying different daily dividends are
subject to a minimum annual fee of $10,000 per additional class.
M.S.D.& T. FUNDS, INC.
By: /s/ Leslie B. Disharoon
-------------------------
Title: President
Date: October 1, 1993
THE WINSBURY SERVICE CORPORATION
By: [signature illegible]
-----------------------
Title: Senior Vice President
Date: October 1, 1993
B-2
<PAGE>
SCHEDULE C
TO THE FUND ACCOUNTING AGREEMENT
BETWEEN THE WINSBURY SERVICE CORPORATION
AND M.S.D. & T. FUNDS, INC.
DATED OCTOBER 1, 1993
Account Valuation Balances - MF
Amortization/Accretion by State
Analysis of Cash Flow
Broker Commissions Paid on Portfolio Transactions
Broker Volumes
Cash Balances
Cash Disbursements Journal
Cash Receipts Journal
Detail Unsettled Fund Transactions at Quarter End
Earned Amortization/Accretion
Earned Income
Earned Income Audit
Equity Balances
Expense Summary
Form 13F
General Ledger Detail Transaction Listing
General Ledger Summary of Adjusting Entries
General Ledger Summary Listing
General Ledger Transaction Inquiry
General Ledger Trial Balance
Income Transaction Ledger
Intercompany Transaction Report
Investment Income Detail
Investment Income Summary
Investment Restriction Reports - Asset Group Exceptions
Investment Restriction Reports - Quality Exceptions
Investment Restriction Reports - Category Exceptions
Investment Restriction Reports - Industry Exceptions
Investment Restriction Reports - Issuer Exceptions
Investment Restriction Reports - Outstanding Shares/Par
Exceptions
Maturity Range Cross Tabulation - By Asset Group
Maturity Range Cross Tabulation - By Category
Maturity Range Cross Tabulation - By State
Maturity Schedule
Municipal Interest by State
Net Asset Value Reconciliation
Options - Closed Positions
Options - Open Positions
Per-Share Income and Capital Changes
Pricing Exception Report
Portfolio Transactions with Entities Acting as Principals
Portfolio Turnover
Purchase Journal
Rate Exchange Exception Report
Report to the Board of Directors - Weekly Fund Activity
Summary
Report to the Board of Directors - Summary of Realized
Gains/Losses
Report to the Board of Directors - Summary of Purchases and
Sales
Sales Journal
Schedule of Investments
Schedule of Investments - Tax Lot Level
Schedule of Investments Purchased, Sold, or Matured by
Issuer
Schedule of Investments Purchased, Sold or Matured by
Security
SEC Advertising Yield
SEC Advertising Yield Security Income Detail Report
Security Exposure
Statement of Assets and Liabilities
Statement of Changes in Net Assets
Statement of Cash Flows
Statement of Operations
Summary of Broker Commissions
Summary of Receivables/Payables
Total Contracts Outstanding
Unrealized Gain/Loss Report
Unsettled Fund Transactions at Quarter End
Valuation Comparison Report
Wash Sales Report
INTERNATIONAL FUNDS:
Aged Reclaim Receivable
Currency Balances
Earned Amortization/Accretion
Earned Income
Equity Holdings
Foreign Security Holdings
Income Journal
Net Asset Value Reconciliation
Purchases Journal
Sales Journal
Schedule of Investments - Position Level
Schedule of Investments - Tax Lot Level
Statement of Assets and Liabilities
Statement of Changes in Net Assets
Statement of Operations
Statement of Realized Capital Gains and Losses
Statement of 988 Gains and Losses
Summary of Investments
Summary of Receivables and Payables
C-1
<PAGE>
EXHIBIT (9)(h)
SCHEDULE A
TO THE FUND ACCOUNTING AGREEMENT
BETWEEN BISYS FUND SERVICES OHIO, INC.
(FORMERLY KNOWN AS THE WINSBURY SERVICE CORPORATION)
AND M.S.D. & T. FUNDS, INC.
DATED OCTOBER 1, 1993
NAME OF FUND
- ------------
Prime Money Market Fund
Government Money Market Fund
Tax-Exempt Money Market Fund
Tax-Exempt Money Market Fund (Trust)
Value Equity Fund
Intermediate Fixed Income Fund
Maryland Tax-Exempt Bond Fund
International Equity Fund
Diversified Real Estate Fund
[SEAL] M.S.D. & T. FUNDS, INC.
By:____________________________
Title:_________________________
Date:__________________________
[SEAL] BISYS FUND SERVICES OHIO, INC.
By:____________________________
Title:_________________________
Date: __________________________
<PAGE>
SCHEDULE B
TO THE FUND ACCOUNTING AGREEMENT
BETWEEN BISYS FUND SERVICES OHIO, INC.
(FORMERLY KNOWN AS THE WINSBURY SERVICE CORPORATION)
AND M.S.D. & T. FUNDS, INC.
DATED OCTOBER 1, 1993
Name of Fund Compensation
- ------------ ------------
Prime Money Market Fund Annual rate of three one-hundredths
of one percent (.03%) of the Prime
Money Market Fund's average daily
net assets
Government Money Market Fund Annual rate of three one-hundredths
of one percent (.03%) of the
Government Money Market Fund's
average daily net assets
Tax-Exempt Money Market Fund Annual rate of four one-hundredths
of one percent (.04%) of the Tax-
Exempt Money Market Fund's average
daily net assets
Tax-Exempt Money Market Fund (Trust) Annual rate of four one-hundredths
of one percent (.04%) of the Tax-
Exempt Money Market Fund's (Trust)
average daily net assets
Value Equity Fund Annual rate of four one-hundredths
of one percent (.04%) of the Value
Equity Fund's average daily net
assets
Intermediate Fixed Income Fund Annual rate of four one-hundredths
of one percent (.04%) of the
Intermediate Fixed Income Fund's
average daily net assets
B-1
<PAGE>
Maryland Tax-Exempt Bond Fund Annual rate of five one-hundredths
of one percent (.05%) of the
Maryland Tax Exempt Bond Fund's
average daily net assets
International Equity Fund Annual rate of five one-hundredths
of one percent (.05%) of the
International Equity Fund's average
daily net assets, with a minimum fee
of $2000 per month
Diversified Real Estate Fund Annual rate of __________ of one
percent(.__%) of the Diversified
Real Estate Fund's average daily net
assets
Multiple Classes of Shares:
- --------------------------
Each class of shares within a Fund that maintains multiple classes of shares
having different net asset values or paying different daily dividends are
subject to a minimum annual fee of $10,000 per additional class.
M.S.D.& T. FUNDS, INC.
By:______________________________
Title: __________________________
Date: ___________________________
BISYS FUND SERVICES OHIO, INC.
By:______________________________
Title: __________________________
Date: ___________________________
B-2
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the following with respect to Post-Effective Amendment No. 19
pursuant to the Securities Act of 1933 and Amendment No. 20 to the Investment
Company Act of 1940, as amended, to the Registration Statement on Form N-1A of
M.S.D.&T. Funds, Inc. (File Nos. 33-27491 and 811-5782):
1. The incorporation by reference of our report dated July 18, 1997 into
the prospectuses relating to the Tax-Exempt Money Market Fund (Trust),
Prime Money Market Fund, Government Money Market Fund, Tax-Exempt Money
Market Fund, Growth & Income Fund (formerly the Value Equity Fund),
International Equity Fund, Limited Maturity Bond Fund (formerly
Intermediate Fixed Income Fund, and Maryland Tax-Exempt Bond Fund.
2. The reference to our Firm under the heading "Financial Highlights" in
the applicable Prospectuses.
3. The reference to our Firm under the heading "Independent Accountants"
in the Statement of Additional Information.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
September 26, 1997
<PAGE>
Exhibit 11(b)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to our
firm under the captions "Management of the Company" and "Counsel" in the
Statement of Additional Information included in Post-Effective Amendment No. 19
to the Registration Statement (File Nos. 33-27491 and 811-5782) on Form N-1A of
M.S.D. & T. Funds, Inc. under the Securities Act of 1933 and the Investment
Company Act of 1940. This consent does not constitute a consent under Section 7
of the Securities Act of 1933, and in consenting to the use of our name and the
references to our firm under such captions we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under Section 7 or the rules and regulations
of the Securities and Exchange Commission thereunder.
/s/ Drinker Biddle & Reath
---------------------------
DRINKER BIDDLE & REATH
Philadelphia, Pennsylvania
September 26, 1997
<PAGE>
PURCHASE AGREEMENT
------------------
M.S.D. & T. Funds, Inc. (the "Company"), a Maryland corporation, and
Winsbury Associates ("Winsbury"), an Ohio partnership, hereby agree as follows:
1. The Company hereby offers Winsbury and Winsbury hereby purchases one
(1) share of Class H Common Stock at $10.00 per share (such share of Common
Stock in the Company being hereinafter known as the "Share".) Winsbury hereby
acknowledges purchase of the Share and the Company hereby acknowledges receipt
from Winsbury of funds in the amount of $10.00 in full payment for the Share.
2. Winsbury represents and warrants to the Company that the Share is being
acquired for investment purposes and not for the purpose of distribution.
3. Winsbury agrees that if it or any direct or indirect transferee of the
Share redeems the Share prior to the fifth anniversary of the date the Share
begins investment activities, Winsbury will pay to the Company an amount equal
to the number resulting from multiplying the Share total unamortized
organizational expenses by a fraction, the numerator of which is equal to the
number of shares redeemed by Winsbury or such transferee and the denominator of
which is equal to the number of shares outstanding as of the date of such
redemption, as long as the administrative position of the staff of the
Securities and Exchange Commission requires such reimbursement.
4. All persons dealing with any class of Shares of the Company must look
solely to the net assets belonging to such class for enforcement of any claims
against the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the 29th day of June, 1993.
Attest: M.S.D. & T. FUNDS, INC.
/s/ W. Bruce McConnel, III By: /s/ Leslie B. Disharoon
- ----------------------------- -----------------------
President
Attest: WINSBURY ASSOCIATES
/s/ Elizabeth A. Davin By: Signature illegible
- ----------------------------- -----------------------
Partner
<PAGE>
EXHIBIT (13)(b)
PURCHASE AGREEMENT
------------------
M.S.D. & T. Funds, Inc. (the "Company"), a Maryland corporation, and BISYS
Fund Services Ohio, Inc. ("BISYS"), an Ohio corporation, hereby agree as
follows:
1. The Company hereby offers BISYS and BISYS hereby purchases one (1)
share of Class J Common Stock at $10.00 per share (such share of Common Stock in
the Company representing an interest in the Company's Diversified Real Estate
Fund (the "Fund") and being hereinafter known as the "Share"). BISYS hereby
acknowledges purchase of the Share and the Company hereby acknowledges receipt
from BISYS of funds in the amount of $10.00 in full payment for the Share.
2. BISYS represents and warrants to the Company that the Share is being
acquired for investment purposes and not for the purpose of distribution.
3. BISYS agrees that if it or any direct or indirect transferee of the
Share redeems the Share prior to the fifth anniversary of the date the Fund
begins investment activities, BISYS will pay to the Company an amount equal to
the number resulting from multiplying the Fund's total unamortized
organizational expenses by a fraction, the numerator of which is equal to the
number of shares redeemed by BISYS or such transferee and the denominator of
which is equal to the number of shares outstanding as of the date of such
redemption, as long as the administrative position of the staff of the
Securities and Exchange Commission requires such reimbursement.
4. All persons dealing with any class of shares of the Company must look
solely to the net assets belonging to such class for enforcement of any claims
against the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the 31st day of July, 1997.
Attest: M.S.D. & T. FUNDS, INC.
/s/ W. Bruce McConnel, III By: /s/ Leslie B. Disharoon
_____________________________ ________________________________
President
Attest: BISYS FUND SERVICES OHIO, INC.
By: /s/ George O. Martinez
_____________________________ ________________________________
Title: Senior Vice President
<PAGE>
M.S.D. & T. FUNDS, INC.
POWER OF ATTORNEY
-----------------
Leslie B. Disharoon, whose signature appears below, does hereby
constitute and appoint W. Bruce McConnel, III, George C. Earle, Jr. and Linda A.
Durkin, jointly and severally, his true and lawful attorneys and agents, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which each said attorney and agent may deem
necessary or advisable or which may be required to enable M.S.D. & T. Funds,
Inc. (the "Company") to comply with the Investment Company Act of 1940, as
amended, the Securities Act of 1933, as amended ("Acts"), or the Internal
Revenue Code of 1986, as amended, and any rules, regulations, or requirements of
the Securities and Exchange Commission with respect to the Acts, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
and/or officer of the Company any and all amendments (including post-effective
amendments) to the Company's Registration Statement(s) pursuant to the Acts
filed with the Securities and Exchange Commission, and any other instruments or
documents related thereto; and each said attorney and agent shall have full
power and authority to do and perform in the name and on behalf of the
undersigned director and/or officer of the Company, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as fully
and to all intents and purposes as the undersigned director and/or officer of
the Company might or could do in person; and the undersigned does hereby ratify
and confirm all that each said attorney and agent shall do or cause to be done
by virtue hereof.
/s/Leslie B. Disharoon
------------------------------
Leslie B. Disharoon
Date: April 29, 1994
<PAGE>
M.S.D. & T. FUNDS, INC.
POWER OF ATTORNEY
-----------------
George R. Packard, III, whose signature appears below, does hereby
constitute and appoint W. Bruce McConnel, III, George C. Earle, Jr. and Linda A.
Durkin, jointly and severally, his true and lawful attorneys and agents, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which each said attorney and agent may deem
necessary or advisable or which may be required to enable M.S.D. & T. Funds,
Inc. (the "Company") to comply with the Investment Company Act of 1940, as
amended, the Securities Act of 1933, as amended ("Acts"), or the Internal
Revenue Code of 1986, as amended, and any rules, regulations, or requirements of
the Securities and Exchange Commission with respect to the Acts, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
and/or officer of the Company any and all amendments (including post-effective
amendments) to the Company's Registration Statement(s) pursuant to the Acts
filed with the Securities and Exchange Commission, and any other instruments or
documents related thereto; and each said attorney and agent shall have full
power and authority to do and perform in the name and on behalf of the
undersigned director and/or officer of the Company, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as fully
and to all intents and purposes as the undersigned director and/or officer of
the Company might or could do in person; and the undersigned does hereby ratify
and confirm all that each said attorney and agent shall do or cause to be done
by virtue hereof.
/s/George R. Packard, III
------------------------------
George R. Packard, III
Date: April 29, 1994
<PAGE>
M.S.D. & T. FUNDS, INC.
POWER OF ATTORNEY
-----------------
John R. Murphy, whose signature appears below, does hereby constitute
and appoint W. Bruce McConnel, III, George C. Earle, Jr. and Linda A. Durkin,
jointly and severally, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which each said attorney and agent may deem necessary or
advisable or which may be required to enable M.S.D. & T. Funds, Inc. (the
"Company") to comply with the Investment Company Act of 1940, as amended, the
Securities Act of 1933, as amended ("Acts"), or the Internal Revenue Code of
1986, as amended, and any rules, regulations, or requirements of the Securities
and Exchange Commission with respect to the Acts, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director and/or officer
of the Company any and all amendments (including post-effective amendments) to
the Company's Registration Statement(s) pursuant to the Acts filed with the
Securities and Exchange Commission, and any other instruments or documents
related thereto; and each said attorney and agent shall have full power and
authority to do and perform in the name and on behalf of the undersigned
director and/or officer of the Company, in any and all capacities, every act
whatsoever requisite or necessary to be done in the premises, as fully and to
all intents and purposes as the undersigned director and/or officer of the
Company might or could do in person; and the undersigned does hereby ratify and
confirm all that each said attorney and agent shall do or cause to be done by
virtue hereof.
/s/John R. Murphy
------------------------------
John R. Murphy
Date: April 29, 1994
<PAGE>
M.S.D. & T. FUNDS, INC.
POWER OF ATTORNEY
-----------------
J. Stevenson Peck, whose signature appears below, does hereby
constitute and appoint W. Bruce McConnel, III, George C. Earle, Jr. and Linda A.
Durkin, jointly and severally, his true and lawful attorneys and agents, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which each said attorney and agent may deem
necessary or advisable or which may be required to enable M.S.D. & T. Funds,
Inc. (the "Company") to comply with the Investment Company Act of 1940, as
amended, the Securities Act of 1933, as amended ("Acts"), or the Internal
Revenue Code of 1986, as amended, and any rules, regulations, or requirements of
the Securities and Exchange Commission with respect to the Acts, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
and/or officer of the Company any and all amendments (including post-effective
amendments) to the Company's Registration Statement(s) pursuant to the Acts
filed with the Securities and Exchange Commission, and any other instruments or
documents related thereto; and each said attorney and agent shall have full
power and authority to do and perform in the name and on behalf of the
undersigned director and/or officer of the Company, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as fully
and to all intents and purposes as the undersigned director and/or officer of
the Company might or could do in person; and the undersigned does hereby ratify
and confirm all that each said attorney and agent shall do or cause to be done
by virtue hereof.
/s/J. Stevenson Peck
------------------------------
J. Stevenson Peck
Date: April 29, 1994
<PAGE>
M.S.D. & T. FUNDS, INC.
POWER OF ATTORNEY
-----------------
Decatur H. Miller, whose signature appears below, does hereby
constitute and appoint W. Bruce McConnel, III, George C. Earle, Jr. and Linda A.
Durkin, jointly and severally, his true and lawful attorneys and agents, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which each said attorney and agent may deem
necessary or advisable or which may be required to enable M.S.D. & T. Funds,
Inc. (the "Company") to comply with the Investment Company Act of 1940, as
amended, the Securities Act of 1933, as amended ("Acts"), or the Internal
Revenue Code of 1986, as amended, and any rules, regulations, or requirements of
the Securities and Exchange Commission with respect to the Acts, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
and/or officer of the Company any and all amendments (including post-effective
amendments) to the Company's Registration Statement(s) pursuant to the Acts
filed with the Securities and Exchange Commission, and any other instruments or
documents related thereto; and each said attorney and agent shall have full
power and authority to do and perform in the name and on behalf of the
undersigned director and/or officer of the Company, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as fully
and to all intents and purposes as the undersigned director and/or officer of
the Company might or could do in person; and the undersigned does hereby ratify
and confirm all that each said attorney and agent shall do or cause to be done
by virtue hereof.
/s/Decatur H. Miller
------------------------------
Decatur H. Miller
Date: April 29, 1994
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> PRIME MONEY MARKET FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 369,430
<INVESTMENTS-AT-VALUE> 369,430
<RECEIVABLES> 1,279
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 370,710
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,857
<TOTAL-LIABILITIES> 1,857
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 368,932
<SHARES-COMMON-STOCK> 368,932
<SHARES-COMMON-PRIOR> 326,960
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (79)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 368,853
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 19,364
<OTHER-INCOME> 0
<EXPENSES-NET> 1,538
<NET-INVESTMENT-INCOME> 17,826
<REALIZED-GAINS-CURRENT> 3
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 17,829
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 17,826
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,174,068
<NUMBER-OF-SHARES-REDEEMED> (1,132,965)
<SHARES-REINVESTED> 869
<NET-CHANGE-IN-ASSETS> 41,975
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (82)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 894
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,734
<AVERAGE-NET-ASSETS> 357,757
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> GOVERNMENT MONEY MARKET FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 342,122
<INVESTMENTS-AT-VALUE> 342,122
<RECEIVABLES> 683
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 342,806
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,997
<TOTAL-LIABILITIES> 1,997
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 340,935
<SHARES-COMMON-STOCK> 340,935
<SHARES-COMMON-PRIOR> 264,875
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (126)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 340,809
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,325
<OTHER-INCOME> 0
<EXPENSES-NET> 1,304
<NET-INVESTMENT-INCOME> 15,021
<REALIZED-GAINS-CURRENT> 23
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 15,044
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 15,021
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,219,474
<NUMBER-OF-SHARES-REDEEMED> (1,143,858)
<SHARES-REINVESTED> 443
<NET-CHANGE-IN-ASSETS> 76,084
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (150)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 758
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,487
<AVERAGE-NET-ASSETS> 303,368
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> TAX-EXEMPT MONEY MARKET FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 76,082
<INVESTMENTS-AT-VALUE> 76,082
<RECEIVABLES> 3,690
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 79,772
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 280
<TOTAL-LIABILITIES> 280
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79,498
<SHARES-COMMON-STOCK> 79,498
<SHARES-COMMON-PRIOR> 50,143
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 79,492
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,168
<OTHER-INCOME> 0
<EXPENSES-NET> 268
<NET-INVESTMENT-INCOME> 1,900
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,900
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,900
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 290,334
<NUMBER-OF-SHARES-REDEEMED> (260,982)
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 29,355
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (7)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 156
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 329
<AVERAGE-NET-ASSETS> 62,211
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> TAX-EXEMPT MONEY MARKET FD (TRUST)
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 49,239
<INVESTMENTS-AT-VALUE> 49,239
<RECEIVABLES> 470
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 49,709
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 165
<TOTAL-LIABILITIES> 165
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 49,544
<SHARES-COMMON-STOCK> 49,544
<SHARES-COMMON-PRIOR> 46,539
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 49,544
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,710
<OTHER-INCOME> 0
<EXPENSES-NET> 108
<NET-INVESTMENT-INCOME> 1,602
<REALIZED-GAINS-CURRENT> (1)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,601
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,602
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 174,864
<NUMBER-OF-SHARES-REDEEMED> (171,859)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,002
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 2
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 141
<AVERAGE-NET-ASSETS> 49,385
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 051
<NAME> VALUE EQUITY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 99,416
<INVESTMENTS-AT-VALUE> 145,784
<RECEIVABLES> 358
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 146,142
<PAYABLE-FOR-SECURITIES> 1,729
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 168
<TOTAL-LIABILITIES> 1,897
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 95,665
<SHARES-COMMON-STOCK> 7,904
<SHARES-COMMON-PRIOR> 7,379
<ACCUMULATED-NII-CURRENT> 323
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,889
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 46,368
<NET-ASSETS> 144,245
<DIVIDEND-INCOME> 2,497
<INTEREST-INCOME> 195
<OTHER-INCOME> 0
<EXPENSES-NET> 875
<NET-INVESTMENT-INCOME> 1,817
<REALIZED-GAINS-CURRENT> 4,814
<APPREC-INCREASE-CURRENT> 27,165
<NET-CHANGE-FROM-OPS> 33,796
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,878
<DISTRIBUTIONS-OF-GAINS> 3,723
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,762
<NUMBER-OF-SHARES-REDEEMED> (1,467)
<SHARES-REINVESTED> 230
<NET-CHANGE-IN-ASSETS> 36,682
<ACCUMULATED-NII-PRIOR> 384
<ACCUMULATED-GAINS-PRIOR> 799
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 717
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,071
<AVERAGE-NET-ASSETS> 119,626
<PER-SHARE-NAV-BEGIN> 14.58
<PER-SHARE-NII> .74
<PER-SHARE-GAIN-APPREC> 3.68
<PER-SHARE-DIVIDEND> (.25)
<PER-SHARE-DISTRIBUTIONS> (.50)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.25
<EXPENSE-RATIO> .73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 061
<NAME> INTERMEDIATE FIXED INCOME
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 43,481
<INVESTMENTS-AT-VALUE> 43,424
<RECEIVABLES> 675
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 44,099
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 250
<TOTAL-LIABILITIES> 250
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,981
<SHARES-COMMON-STOCK> 4,253
<SHARES-COMMON-PRIOR> 4,361
<ACCUMULATED-NII-CURRENT> 5
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (80)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (57)
<NET-ASSETS> 43,849
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,795
<OTHER-INCOME> 0
<EXPENSES-NET> 267
<NET-INVESTMENT-INCOME> 2,528
<REALIZED-GAINS-CURRENT> 93
<APPREC-INCREASE-CURRENT> 418
<NET-CHANGE-FROM-OPS> 3,039
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,528
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 889
<NUMBER-OF-SHARES-REDEEMED> (1,123)
<SHARES-REINVESTED> 125
<NET-CHANGE-IN-ASSETS> (599)
<ACCUMULATED-NII-PRIOR> 3
<ACCUMULATED-GAINS-PRIOR> (171)
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