Rule 497(c)
File Nos. 33-30950
and 811-5900
Prospectus
Expedition Equity Fund
Expedition Bond Fund
Investment Shares-Class A
Investment Shares-Class B
Institutional Shares
March 1, 1999
[logo omitted] Expedition Funds [register mark]
INVESTMENT ADVISER: COMPASS BANK
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY FUND SHARES OR
DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS A CRIME FOR
ANYONE TO TELL YOU OTHERWISE.
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How To Read This Prospectus
[graphic of binoculars omitted]
Expedition Funds is a mutual fund family that offers shares in separate
investment portfolios (Funds). The Funds have individual investment goals and
strategies. This prospectus gives you important information about the Investment
Shares-Class A (Class A Shares), Investment Shares-Class B (Class B Shares) and
Institutional Shares of the Expedition Equity Fund and the Expedition Bond Fund
that you should know before investing. Please read this prospectus and keep it
for future reference.
Expedition Funds also offers shares of the Expedition Money Market Fund and
Expedition Tax-Free Money Market Fund in separate prospectuses which are
available by calling 1-800-992-2085.
THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY
REVIEW THIS IMPORTANT INFORMATION. ON THE NEXT PAGE, THERE IS SOME GENERAL
INFORMATION YOU SHOULD KNOW ABOUT THE FUNDS. FOR MORE DETAILED INFORMATION ABOUT
THE FUNDS, PLEASE SEE:
PAGE
Equity Fund 2
Bond Fund 8
More Information About Risk 14
Each Fund's Other Investments 15
Investment Adviser 16
Purchasing, Selling And Exchanging Fund Shares 17
Distribution of Fund Shares 28
Custodian 29
Financial Highlights 30
How To Obtain More Information About
The Expedition Funds Back Cover
Boxed Copy
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SHARES OF THE EXPEDITION FUNDS ARE NOT DEPOSITS OF OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY COMPASS BANK, COMPASS BANCSHARES, INC. OR ANY OF THEIR
AFFILIATES, OR ANY BANK, AND ARE NOT OBLIGATIONS OF, GUARANTEED BY OR INSURED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
AN INVESTMENT IN SHARES OF THE FUNDS INVOLVES INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF ALL OR A PORTION OF THE PRINCIPAL INVESTED, AND THE INVESTMENT
RETURN AND VALUE OF SHARES OF THE FUNDS WILL FLUCTUATE SO THAT AN INVESTMENT,
WHEN LIQUIDATED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST.
COMPASS BANK SERVES AS INVESTMENT ADVISER AND CUSTODIAN TO THE EXPEDITION FUNDS,
AND COMPASS BANK AND VARIOUS OF ITS AFFILIATES MAY PROVIDE VARIOUS SERVICES TO
THE FUNDS, FOR WHICH INVESTMENT ADVISORY, CUSTODIAN AND OTHER SERVICES COMPASS
BANK AND/OR SUCH OTHER AFFILIATES ARE ENTITLED TO RECEIVE COMPENSATION.
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Introduction--Information Common To Both Funds
Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
Each Fund has an investment goal and strategies for reaching that goal. The
investment managers invest Fund assets in a way that they believe will help a
Fund achieve its goal. Still, investing in a Fund involves risk and there is no
guarantee that a Fund will achieve its goal. An investment manager's judgments
about the markets, the economy, or companies may not anticipate actual market
movements, economic conditions or company performance, and these judgments may
affect the return on your investment. In fact, no matter how good a job an
investment manager does, you could lose money on your investment in a Fund, just
as you could with other investments.
The value of your investment in a Fund is based on the market value of the
securities the Fund holds. These prices change daily due to economic and other
events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities a Fund owns and the markets in which they trade. The
estimated volatility for each Fund is set forth in the fund summaries that
follow. The effect on a Fund of a change in the value of a single security will
depend on how widely the Fund diversifies its holdings.
Risks of Investing in the Funds
An investment in either Fund is not a deposit of Compass Bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
YEAR 2000 RISK -- The Funds depend on the smooth functioning of computer systems
in almost every aspect of its business. Like other mutual funds, businesses and
individuals around the world, the Funds could be adversely affected if the
computer systems used by their service providers do not properly process dates
on and after January 1, 2000, and distinguish between the year 2000 and the year
1900. The Funds have asked their service providers whether they expect to have
their computer systems adjusted for the year 2000 transition, and are seeking
assurances from each service provider that they are devoting significant
resources to prevent material adverse consequences to the Funds. While it is
likely that such assurances will be obtained, the Funds and their shareholders
may experience losses if these assurances prove to be incorrect or as a result
of year 2000 computer difficulties experienced by issuers of portfolio
securities or third parties, such as custodians, banks, broker-dealers or others
with which the Funds do business.
1
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Expedition Equity Fund
[graphic of portfolio omitted]
Fund Summary
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Investment Goal Growth of capital with a secondary objective of income
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Investment Focus Common stocks issued by large and medium sized
U.S. companies
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Share Price Volatility Medium
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Principal Investment Investing in a blended portfolio of both growth
Strategy and value stocks
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Investor Profile Investors who want growth of capital and dividend income,
and are willing to accept the risks of equity investing
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[graphic of binoculars omitted]
Investment Strategy of the Expedition Equity Fund
The Fund invests primarily in common stocks issued by U.S. companies with
medium to large market capitalizations (in excess of $1 billion) that the
Adviser believes are attractively valued and offer favorable long-term growth
potential. The Fund generally seeks to diversify its investments across all
major industry sectors. The Adviser's investment selection process begins with
the use of quantitative screening techniques to evaluate securities based on
both value characteristics (whether a company's value is attractive relative to
historical earnings and its prospects for future earnings and dividend growth)
and momentum characteristics (such as changes in a company's earnings per shares
estimates). The Adviser then analyzes the fundamental characteristics of these
companies to evaluate which companies hold the best prospects for future growth.
These growth characteristics include factors such as above average sales or
earnings growth, pricing flexibility, and superior margins and profitability
trends compared to a company's industry peers. The Adviser monitors the
companies owned by the Fund and may sell a security when there is a fundamental
change in a company's outlook or when better opportunities are available within
that industry sector. By blending these value and growth criteria, the Adviser
attempts to lessen the Fund's volatility and avoid the cycles in performance
associated with "style specific" investment management.
2
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[graphic of life buoy omitted]
Principal Risks of Investing in the Expedition Equity Fund
Since it purchases common stocks, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund.
The medium capitalization companies the Fund invests in may be more
vulnerable to adverse business or economic events than larger, more established
companies. In particular, these medium sized companies may have limited product
lines, markets and financial resources, and may depend upon a relatively small
management group. Therefore, medium capitalization stocks may be more volatile
than those of larger companies.
The Fund is also subject to the risk that its investment approach, which
seeks to identify common stocks with both growth and value characteristics, may
cause it to perform differently than funds that target a specific equity market
segment or that invest in other asset classes.
3
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Expedition Equity Fund
[graphic of target omitted]
Performance Information
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
The periods prior to June 13, 1997, when the Fund began operating, represent
the performance of the Adviser's similarly managed predecessor common trust
fund. This past performance has been adjusted to reflect current expenses for
the Institutional Shares of the Fund. The Adviser's common trust fund was not a
registered mutual fund so it was not subject to the same investment and tax
restrictions as the Fund. If it had been, the common trust fund's performance
may have been lower.
This bar chart shows changes in the performance of the Fund's Institutional
Shares from year to year.*
[bar graph omitted--plot points as follows:]
1994 (1.20%)
1995 25.78%
1996 18.61%
1997 31.33%
1998 28.49%
BEST QUARTER WORST QUARTER
23.47% (12.09%)
(12/31/98) (09/30/98)
* The performance information shown above is based on a calendar year.
4
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Expedition Equity Fund
This table compares the Fund's average annual total returns for the periods
ending December 31, 1998 to those of the S&P 500 Index, the S&P MidCap 400 Index
and the Lipper Growth & Income Average.
Since Inception
Equity Fund 1 Year 5 Years (10/13/93)
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Institutional Shares 28.49% 19.99% 19.10%
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Class A Shares* 23.35% 19.00% 18.17%
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Class B Shares** 23.25% 19.85% 19.06%
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S&P 500 Index 28.60% 24.05% 23.25%***
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S&P MidCap 400 Index 19.12% 18.84% 18.70%***
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Lipper Growth & Income Average 15.61% 18.35% N/A
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* THE PERIODS FROM JUNE 1997 TO NOVEMBER 1997 REPRESENT THE PERFORMANCE OF THE
INSTITUTIONAL SHARES OF THE FUND.
** THE PERIODS FROM JUNE 1997 TO NOVEMBER 1998 REPRESENT THE PERFORMANCE OF THE
INSTITUTIONAL SHARES OF THE FUND.
***THE INCEPTION DATE FOR EACH INDEX IS 10/31/93.
[graphic omitted]
What is an Index?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The S&P 500 Index is a widely-recognized, market
value-weighted (higher market value stocks have more influence than lower market
value stocks) index of 500 stocks designed to mimic the overall equity market's
industry weightings. The S&P MidCap 400 Index is a widely-recognized,
capitalization-weighted (companies with larger market capitalizations have more
influence than those with smaller market capitalizations) index of 400 domestic
mid-cap stocks chosen for market size, liquidity, and industry group
representation.
What is an Average?
An average is a composite of mutual funds with similar investment goals. The
Lipper Growth & Income Average is a widely-recognized average of mutual funds
which invest in equity securities that have growth and income characteristics.
5
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Expedition Equity Fund
[graphic of dollar sign omitted]
Fund Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Class A Class B Institutional
Shares Shares Shares
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on 4.00% None None
Purchases (as a percentage of offering price.)*
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Maximum Deferred Sales Charge (Load) (as a None 5.00% None
percentage of net asset value)**
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Maximum Sales Charge (Load) Imposed on None None None
Reinvested Dividends and other Distributions
(as a percentage of offering price)
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount
redeemed, if applicable) None None None
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Exchange Fee None None None
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Maximum Account Fee None None None
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* THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. SEE "FRONT-END
SALES CHARGES - CLASS A SHARES."
** THIS SALES CHARGE IS IMPOSED IF YOU SELL CLASS B SHARES WITHIN ONE YEAR OF
YOUR PURCHASE. SEE "CONTINGENT DEFERRED SALES CHARGES - CLASS B SHARES."
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
Class A Class B Institutional
Shares Shares Shares
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Management Fees .75% .75% .75%
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Distribution and Service (12b-1) Fees .25% 1.00% None
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Other Expenses .33% .33% .33%
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Total Annual Fund Operating Expenses 1.33% 2.08% 1.08%
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For more information about these fees, see "Investment Adviser" and
"Distribution of Fund Shares."
6
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Expedition Equity Fund
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated.
The Example also assumes that each year your investment has a 5% return and
Fund operating expenses remain the same. Although your actual costs may be
higher or lower, your approximate costs of investing $10,000 in the Fund would
be:
IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD:
1 Year 3 Years 5 Years 10 Years
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Institutional Shares $110 $343 $ 595 $1,317
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Class A Shares $530 $805 $ 1,100 $1,937
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Class B Shares $711 $952 $ 1,219 N/A*
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IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Institutional Shares $110 $343 $ 595 $1,317
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Class A Shares $530 $805 $1,100 $1,937
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Class B Shares $211 $652 $1,119 N/A*
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* CLASS B SHARES AUTOMATICALLY CONVERT TO CLASS A SHARES AFTER EIGHT YEARS.
7
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Expedition Bond Fund
[graphic of portfolio omitted]
Fund Summary
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Investment Goal Current income
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Investment Focus High quality bonds and other fixed income securities
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Share Price Volatility Low to medium
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Principal Investment Investing in U.S. dollar denominated bonds and
Strategy other fixed income securities.
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Investor Profile Investors who want current income, and who are
willing to accept the risks of owning a portfolio
of fixed income securities.
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[graphic of binoculars omitted]
Investment Strategy of the Expedition Bond Fund
The Fund invests primarily in fixed income securities issued by the U.S.
government and its agencies and instrumentalities, including mortgage-backed
securities, as well as in U.S. corporate fixed income securities. All such
instruments must be denominated in U.S. dollars and must be rated "A" or better
by one or more nationally recognized statistical rating organizations at the
time of purchase.
The Adviser's investment selection process begins with a top-down analysis
of general economic conditions to determine how the Fund's investments will be
weighted between the U.S. Treasury, government agency and corporate sectors. The
Adviser maintains a relatively "duration neutral" posture, meaning it does not
attempt to anticipate future interest rate changes and does not significantly
adjust the duration of the Fund. The Fund's average weighted maturity will be
maintained at 3 to 5 years. The individual maturity is limited to 10 years for
all securities, except mortgage backed securities, which have no individual
maturity limit. The Adviser conducts credit analysis of the corporate issues it
buys and diversifies the Fund's investments in corporate debt among the major
industry sectors. The Adviser monitors the sector weighting of the Fund and may
sell a security when there is a fundamental change in a company's or sector's
outlook or when better opportunities become available. If a security's credit
rating is downgraded, the Adviser will promptly review that security and take
appropriate action, including the possible sale of that security.
8
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[graphic of life buoy omitted]
Principal Risks of Investing in the Expedition Bond Fund
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers. Generally, the Fund's fixed
income securities will decrease in value if interest rates rise and vice versa,
and the volatility of lower rated securities is even greater than that of higher
rated securities. Also, longer-term securities are generally more volatile, so
the average maturity or duration of these securities affects risk.
The mortgages underlying mortgage-backed securities may be paid off early,
which makes it difficult to determine their actual maturity and therefore
calculate how they will respond to changes in interest rates. The Fund may have
to reinvest prepaid amounts at lower interest rates. This risk of prepayment is
an additional risk of mortgage-backed securities.
Although the Fund's U.S. government securities are considered to be among
the safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued by some U.S. government agencies are
backed by the U.S. Treasury, while others are backed solely by the ability of
the agency to borrow from the U.S. Treasury or by the agency's own resources.
The Fund is also subject to the risk that its investment approach, which
focuses on a blend of U.S. government and U.S. corporate fixed income
securities, may cause it to perform differently than funds that target other
fixed income market segments or that invest in other asset classes.
9
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Expedition Bond Fund
[graphic of target omitted]
Performance Information
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the performance of the Fund's Class A Shares
from year to year. The chart does not reflect sales charges. If sales charges
had been reflected, returns would be less than those shown below.* [bar graph
omitted--plot points as follows:]
1993 6.73%
1994 (1.51%)
1995 12.52%
1996 2.76%
1997 6.76%
1998 7.44%
BEST QUARTER WORST QUARTER
4.39% (2.42%)
(9/30/98) (10/31/94)
* THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR.
10
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Expedition Bond Fund
This table compares the Fund's average annual total returns for the periods
ending December 31, 1998 to those of the Lehman Brothers Intermediate
Government/ Corporate Bond Index and the Lipper Short/Intermediate Government
Bond Average.
Since Inception
Institutional Shares 1 Year (6/13/97)
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Bond Fund 7.66% 7.93%
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Lehman Brothers Intermediate Government/ 8.42% 8.95%*
Corporate Bond Index
- --------------------------------------------------------------------------------
Lipper Short/Intermediate Government
Bond Average 6.58% N/A
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*THE INCEPTION DATE OF THE INDEX IS 6/30/97
Since Inception
Class A Shares 1 Year 5 Year (4/20/92)
- --------------------------------------------------------------------------------
Bond Fund 3.15% 4.62% 6.49%
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Lehman Brothers Intermediate 8.42% 6.59% 7.35%*
Government/Corporate Bond Index
- --------------------------------------------------------------------------------
Lipper Short/Intermediate Government 6.58% 5.34% N/A
Bond Average
- --------------------------------------------------------------------------------
*THE INCEPTION DATE OF THE INDEX IS 4/30/92
[graphic omitted]
What is an Index?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The Lehman Brothers Intermediate Government/
Corporate Bond Index is a widely-recognized, market value-weighted (higher
market value bonds have more influence than lower market value bonds) index of
U.S. Treasury securities, U.S. government agency obligations, corporate debt
backed by the U.S. government, fixed-rate nonconvertible corporate debt
securities, Yankee bonds and nonconvertible debt securities issued by or
guaranteed by foreign governments and agencies. All securities in the index are
rated investment grade (BBB) or higher, with maturities of 1 to 10 years.
What is an Average?
An average is a composite of mutual funds with similar investment goals. The
Lipper Short/Intermediate Government Bond Average is a widely recognized average
of mutual funds which invest in fixed income obligations of the U.S. Government,
with maturities of one to five years.
11
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Expedition Bond Fund
[graphic of dollar sign omitted]
Fund Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Class A Class B Institutional
Shares Shares Shares
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed 4.00% None None
on Purchases (as a percentage of offering price.)*
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None 5.00% None
(as a percentage of net asset value)**
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on None None None
Reinvested Dividends and other Distributions
(as a percentage of offering price)
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount
redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Maximum Account Fee None None None
- --------------------------------------------------------------------------------
* THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. SEE "FRONT-END
SALES CHARGES - CLASS A SHARES."
** THIS SALES CHARGE IS IMPOSED IF YOU SELL CLASS B SHARES WITHIN ONE YEAR OF
YOUR PURCHASE. SEE "CONTINGENT DEFERRED SALES CHARGES - CLASS B SHARES."
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)*
Class A Class B Institutional
Shares Shares Shares
- --------------------------------------------------------------------------------
Management Fees .75% .75% .75%
- --------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees .25% 1.00% None
- --------------------------------------------------------------------------------
Other Expenses .38% .38% .38%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.38% 2.13% 1.13%
- --------------------------------------------------------------------------------
* THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT
FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER IS
WAIVING A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A
SPECIFIED LEVEL. THE ADVISER MAY DISCONTINUE ALL OR PART OF THESE WAIVERS AT
ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES
ARE AS FOLLOWS:
BOND FUND - CLASS A SHARES 1.19%
BOND FUND - CLASS B SHARES 1.94%
BOND FUND - INSTITUTIONAL SHARES .94%
For more information about these fees, see "Investment Adviser" and
"Distribution of Fund Shares."
12
<PAGE>
Expedition Bond Fund
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated.
The Example also assumes that each year your investment has a 5% return,
and Fund operating expenses remain the same. Although your actual costs may be
higher or lower, your approximate costs of investing $10,000 in the Fund would
be:
IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Institutional Shares $115 $359 $ 622 $1,375
- --------------------------------------------------------------------------------
Class A Shares $535 $819 $1,125 $1,991
- --------------------------------------------------------------------------------
Class B Shares $716 $967 $1,244 N/A*
- --------------------------------------------------------------------------------
IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Institutional Shares $115 $359 $ 622 $1,375
- --------------------------------------------------------------------------------
Class A Shares $535 $819 $1,125 $1,991
- --------------------------------------------------------------------------------
Class B Shares $216 $667 $1,144 N/A*
- --------------------------------------------------------------------------------
* CLASS B SHARES AUTOMATICALLY CONVERT TO CLASS A SHARES AFTER EIGHT YEARS.
13
<PAGE>
[graphic of life buoy omitted]
More Information About Risk
Equity Fund
Equity Risk -- Equity securities include public and privately issued equity
securities, common and preferred stocks, warrants, rights to subscribe to common
stock and convertible securities, as well as instruments that attempt to track
the price movement of equity indices. Investments in equity securities and
equity derivatives in general are subject to market risks that may cause their
prices to fluctuate over time. The value of securities convertible into equity
securities, such as warrants or convertible debt, is also affected by prevailing
interest rates, the credit quality of the issuer and any call provision.
Fluctuations in the value of equity securities in which a mutual fund invests
will cause a fund's net asset value to fluctuate. An investment in a portfolio
of equity securities may be more suitable for long-term investors who can bear
the risk of these share price fluctuations.
Bond Fund
Fixed Income Risk -- The market value of fixed income investments change in
response to interest rate changes and other factors. During periods of falling
interest rates, the values of outstanding fixed income securities generally
rise. Moreover, while securities with longer maturities tend to produce higher
yields, the prices of longer maturity securities are also subject to greater
market fluctuations as a result of changes in interest rates. During periods of
falling interest rates, certain debt obligations with high interest rates may be
prepaid (or "called") by the issuer prior to maturity. This may cause a Fund's
average weighted maturity to fluctuate, and may require a Fund to invest the
resulting proceeds at lower interest rates. In addition to these fundamental
risks, fixed income securities may be subject to credit risk, which is the
possibility that an issuer will be unable to make timely payments of either
principal or interest.
Bond Fund
Mortgage-Backed Securities -- Mortgage-backed securities are fixed income
securities representing an interest in a pool of underlying mortgage loans. They
are sensitive to changes in interest rates, but may respond to these changes
differently from other fixed income securities due to the possibility of
prepayment of the underlying mortgage loans. As a result, it may not be possible
to determine in advance the actual maturity date or average life of a
mortgage-backed security. Rising interest rates tend to discourage refinancings,
with the result that the average life and volatility of the security will
increase exacerbating its decrease in market price. When interest rates fall,
however, mortgage-backed securities may not gain as much in market value because
of the expectation of additional mortgage prepayments that must be reinvested at
lower interest rates. Prepayment risk may make it difficult to calculate the
average maturity of a portfolio of mortgage-backed securities and, therefore, to
assess the volatility risk of that portfolio.
14
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Each Fund's Other Investments
[graphic of a portfolio omitted]
This prospectus describes the Funds' primary strategies, and the Funds will
normally invest in the types of securities described in this prospectus.
However, in addition to the investments and strategies described in this
prospectus, the Funds also may invest in other securities, use other strategies
and engage in other investment practices. These investments and strategies, as
well as those described in this prospectus, are described in detail in our
Statement of Additional Information. Of course, we cannot guarantee that either
Fund will achieve its investment goal.
The investments and strategies described in this prospectus are those that we
use under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, a Fund may invest up to 100% of
its assets in cash, shares of money market mutual funds and short-term
repurchase agreements that would not ordinarily be consistent with a Fund's
objectives. A Fund will do so only if the Adviser believes that the risk of loss
outweighs the opportunity for capital gains or higher income.
15
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Investment Adviser
[graphic of pointing hand omitted]
The Investment Adviser makes investment decisions for the Funds and continuously
reviews, supervises and administers each Fund's respective investment program.
The Board of Trustees of Expedition Funds supervises the Adviser and establishes
policies that the Adviser must follow in its management activities. The Funds
are managed by a team of investment professionals from the Adviser's Portfolio
Management Team. No one person is primarily responsible for making investment
recommendations to the team.
Compass Bank, a wholly-owned subsidiary of Compass Bancshares, Inc. (Compass
Bancshares) serves as the Adviser to the Funds. Compass Bank has served as
investment adviser to mutual funds since 1990. Through the Compass Asset
Management Group, the adviser and its affiliates provide investment advisory
services for the assets of individuals, pension and profit sharing plans,
endowments and foundations. As of December 31, 1998, Compass Bank had
approximately $7.8 billion in assets under administration, with investment
discretion over $2.6 billion. For the fiscal period ended October 31, 1998,
Compass Bank received advisory fees as a percentage of average daily net assets
(after waivers) of:
Equity Fund .71%
Bond Fund .57%
The Adviser has agreed to voluntarily waive a portion of its fees and reimburse
certain expenses of each Fund in order to limit the total operating expenses of
the Bond Fund to 1.10% (not including distribution and service fees) and the
Equity Fund to 1.25% (not including distribution and service fees) of the
average daily net assets of each Fund. The Adviser may discontinue all or part
of these waivers at any time.
16
<PAGE>
Purchasing, Selling and Exchanging Fund Shares
This section tells you how to buy, sell (sometimes called "redeem") or exchange
Class A Shares, Class B Shares and Institutional Shares of the Funds.
Class A Shares and Class B Shares have different expenses and other
characteristics, allowing you to choose the class that best suits your needs.
You should consider the amount you want to invest, how long you plan to have it
invested, and whether you plan to make additional investments.
CLASS A SHARES
[Bullet] Front-end sales charge
[Bullet] Lower annual expenses
[Bullet] $1,000 minimum initial investment for regular accounts
[Bullet] $500 minimum initial investment for IRA accounts
CLASS B SHARES
[Bullet] Contingent deferred sales charge
[Bullet] Higher annual expenses
[Bullet] $1,000 minimum initial investment for regular accounts
[Bullet] $500 minimum initial investment for IRA accounts
[Bullet] Automatically convert to Class A Shares after eight years
For some investors, the minimum initial investment for Class A and Class B
Shares may be lower.
Institutional Shares are available solely to individuals and entities
establishing certain fiduciary, trust, agency, custody or similar relationships
with the Asset Management Group of Compass Bank or trust divisions or trust
companies that are affiliated with Compass Bancshares. Institutional Shares are
also for financial institutions investing for their own or their customers'
accounts. For information on how to open an account and set up procedures for
placing transactions call 1-800-992-2085.
Class A and Class B Shares are for individual and institutional investors.
17
<PAGE>
Purchasing, Selling and Exchanging Fund Shares
[graphic of dollar bill omitted]
How to Purchase Fund Shares
You may purchase shares by:
[Bullet] Mail
[Bullet] Telephone, or
[Bullet] Wire
To purchase Class A or Class B Shares directly from us, please call
1-800-992-2085, or complete and send in an account application. Write your
check, payable in U.S. dollars, to "Expedition Funds" and include the name of
the appropriate Fund(s) on the check. We cannot accept third-party checks,
credit cards, credit card checks or cash.
Institutional Shares are available for eligible investors through the Asset
Management Group of Compass Bank or through trust divisions or trust companies
that are affiliated with Compass Bancshares or through other qualifying
financial institutions. To purchase Institutional Shares, eligible Compass Asset
Management Group customers should contact their authorized Compass Asset
Management Group representative and other eligible customers should contact
their financial institutions.
You may also purchase shares through accounts with brokers and other
institutions that are authorized to place trades in Fund shares for their
customers. If you invest through an authorized institution, you will have to
follow its procedures, which may be different from the procedures for investing
directly. Your institution may charge a fee for its services, in addition to the
fees charged by the Fund. You will also generally have to address your
correspondence or questions regarding the Fund to your institution.
General Information
You may purchase shares on any day that the New York Stock Exchange is open for
business (a Business Day). Shares cannot be purchased by Federal Reserve wire on
days that either the New York Stock Exchange or the Federal Reserve is closed.
A Fund may reject any purchase order if it is determined that accepting the
order would not be in the best interests of the Fund or its shareholders.
The price per share (the offering price) will be the net asset value per
share (NAV) next determined after the Fund receives your purchase order plus, in
the case of Class A Shares, the applicable front-end sales charge.
18
<PAGE>
Purchasing, Selling and Exchanging Fund Shares
Each Fund calculates its NAV once each Business Day at the
regularly-scheduled close of normal trading on the New York Stock Exchange
(normally, 3:00 p.m. Central time). So, for you to receive the current Business
Day's NAV, generally the Fund must receive your purchase order before 3:00 p.m.
Central time.
How We Calculate NAV
NAV for one Fund share is the value of that share's portion of all of the net
assets in the Fund.
In calculating NAV, the Fund generally values its investment portfolio at
market price. If market prices are unavailable or the Fund thinks that they are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees.
Minimum Purchases
To purchase Class A Shares or Class B Shares for the first time, you must invest
at least $1,000 in any Fund. To open an IRA account, you must invest at least
$500 in any Fund. The minimum is $25 in the case of directors, officers and
employees of Compass Bancshares and its affiliates (and members of their
immediate families) participating in the Systematic Investment Plan. Your
subsequent investments in either Fund must be made in amounts of at least $100
($25 for directors, officers and employees of Compass Bancshares and its
affiliates and members of their immediate families). A Fund may accept
investments of smaller amounts for either class of shares at its discretion.
To purchase Institutional Shares, eligible Compass Asset Management Group
customers should contact their Compass Asset Management Group authorized
representative and other eligible customers should contact their financial
institutions.
19
<PAGE>
Purchasing, Selling and Exchanging Fund Shares
Systematic Investment Plan
If you have a checking or savings account with a bank, you may purchase shares
of either Fund automatically through regular deductions from your account. Once
your account has been opened, you may begin regularly scheduled investments of
at least $100 ($25 in the case of directors, officers and employees of Compass
Bancshares and its affiliates and members of their immediate families) for each
Fund. Purchases of Class A Shares made through the Systematic Investment Plan
are subject to the applicable sales charge.
[graphic of dollar sign omitted]
Sales Charges
Front-End Sales Charges - Class A Shares
The offering price of Class A Shares is the NAV next calculated after the Fund
receives your request, plus the front-end sales load.
The amount of any front-end sales charge included in your offering price
varies, depending on the amount of your investment:
Your Sales Charge Your Sales Charge
as a Percentage as a Percentage
If Your Investment is: of Offering Price of Your Net Investment
- --------------------------------------------------------------------------------
Less than $100,000 4.00% 4.17%
- --------------------------------------------------------------------------------
$100,000 but less 3.50% 3.63%
than $250,000
- --------------------------------------------------------------------------------
$250,000 but less 2.75% 2.83%s
than $500,000
- --------------------------------------------------------------------------------
$500,000 but less 1.00% 1.01%
than $1,000,000
- --------------------------------------------------------------------------------
$1,000,000 and over* 0.00% 0.00%
- --------------------------------------------------------------------------------
* EVEN THOUGH YOU DO NOT PAY A SALES CHARGE ON PURCHASES OF $1,000,000 OR MORE,
THE DISTRIBUTOR MAY PAY DEALERS A 1% COMMISSION FOR THESE TRANSACTIONS.
20
<PAGE>
Purchasing, Selling and Exchanging Fund Shares
Waiver of Front-End Sales Charge - Class A Shares
The front-end sales charge will be waived on Class A Shares purchased:
[Bullet] by reinvestment of dividends and distributions;
[Bullet] by persons repurchasing shares they redeemed within the last 30 days
(see "Repurchase of Class A Shares"); n by investors who purchase shares
with redemption proceeds (but only
to the extent of such redemption proceeds) from another investment
company within 90 days of such redemption, provided that, the investors
paid either a front-end or contingent deferred sales charge on the
original shares redeemed;
[Bullet] directors, officers and employees and members of their immediate
family, of Compass Bancshares and its affiliates and dealers that
enter into agreements with the Distributor;
[Bullet] by Trustees and officers of the Expedition Funds;
[Bullet] through wrap fee and asset allocation programs and financial
institutions that, under their dealer agreements with the Distributor
or otherwise, do not receive any or receive a reduced portion of the
front-end sales charge;
[Bullet] by persons purchasing shares of a fund through a payroll deduction plan
or a qualified employee benefit retirement plan which permits purchases
of shares of a Fund; or
[Bullet] by a shareholder purchasing additional Class A Shares of the Bond Fund
who previously purchased any or all of their shares prior to June 9,
1997.
21
<PAGE>
Purchasing, Selling and Exchanging Fund Shares
Repurchase of Class A Shares
You may repurchase any amount of Class A Shares of any Fund at NAV (without the
normal front-end sales charge), up to the limit of the value of any amount of
Class A Shares (other than those which were purchased with reinvested dividends
and distributions) that you redeemed within the past 30 days. In effect, this
allows you to reacquire shares that you may have had to redeem, without
re-paying the front-end sales charge. You may only exercise this privilege once.
To exercise this privilege, we must receive your purchase order within 30 days
of your redemption. IN ADDITION, YOU MUST NOTIFY US IN WRITING AND INDICATE ON
YOUR PURCHASE ORDER THAT YOU ARE REPURCHASING SHARES.
Reduced Sales Charges - Class A Shares
RIGHTS OF ACCUMULATION. In calculating the appropriate sales charge rate, this
right allows you to add the value of the Class A Shares you already own to the
amount that you are currently purchasing. The Fund will combine the value of
your current purchases with the current value of any Class A Shares you
purchased previously for (i) your account, (ii) your spouse's account, (iii) a
joint account with your spouse, or (iv) your minor children's trust or custodial
accounts. A fiduciary purchasing shares for the same fiduciary account, trust or
estate may also use this right of accumulation. The Fund will only consider the
value of Class A Shares purchased previously that were sold subject to a sales
charge. TO BE ENTITLED TO A REDUCED SALES CHARGE BASED ON SHARES ALREADY OWNED,
YOU MUST ASK US FOR THE REDUCTION AT THE TIME OF PURCHASE. You must provide the
Fund with your account number(s) and, if applicable, the account numbers for
your spouse and/or children (and provide the children's ages). The Fund may
amend or terminate this right of accumulation at any time.
LETTER OF INTENT. You may purchase Class A Shares at the sales charge rate
applicable to the total amount of the purchases you intend to make over a
13-month period. In other words, a Letter of Intent allows you to purchase Class
A Shares of a Fund over a 13-month period and receive the same sales charge as
if you had purchased all the shares at the same time. The Fund will only
consider the value of Class A Shares sold subject to a sales charge. As a
result, Class A Shares purchased with dividends or distributions will not be
included in the calculation. To be entitled to a reduced sales charge based on
shares you intend to purchase over the 13-month period, you must
22
<PAGE>
Purchasing, Selling and Exchanging Fund Shares
send the Fund a Letter of Intent. In calculating the total amount of purchases,
you may include in your letter purchases made up to 90 days before the date of
the Letter. The 13-month period begins on the date of the first purchase,
including those purchases made in the 90-day period before the date of the
Letter. Please note that the purchase price of these prior purchases will not be
adjusted.
You are not legally bound by the terms of your Letter of Intent to purchase
the amount of your shares stated in the Letter. The Letter does, however,
authorize the Fund to hold in escrow 4.0% of the total amount you intend to
purchase. If you do not complete the total intended purchase at the end of the
13-month period, the Fund's transfer agent will redeem the necessary portion of
the escrowed shares to make up the difference between the reduced rate sales
charge (based on the amount you intended to purchase) and the sales charge that
would normally apply (based on the actual amount you purchased).
COMBINED PURCHASE/QUANTITY DISCOUNT PRIVILEGE. When calculating the appropriate
sales charge rate, the Fund will combine same day purchases of Class A Shares
(that are subject to a sales charge) made by you, your spouse and your minor
children (under age 21). This combination also applies to Class A Shares you
purchase with a Letter of Intent.
Contingent Deferred Sales Charges -
Class B Shares
You do not pay a sales charge when you purchase Class B Shares. The offering
price of Class B Shares is simply the next calculated NAV. But if you sell your
shares within 5 years after your purchase, you will pay a contingent deferred
sales charge as described in the table below of either (1) the NAV of the shares
at the time of purchase, or (2) NAV of the shares next calculated after we
receive your sale request, whichever is less. The sales charge does not apply to
shares you purchase through reinvestment of dividends or distributions. So, you
never pay a deferred sales charge on any increase in your investment above the
initial offering price. This sales charge does not apply to exchanges of Class B
Shares of one Fund for Class B Shares of another Fund.
23
<PAGE>
Purchasing, Selling and Exchanging Fund Shares
Contingent Deferred
Sales Charge as a
Percentage of Dollar Amount
Year since Purchase Subject to Charge
- -----------------------------------------------------------
First 5.00%
- -----------------------------------------------------------
Second 4.00%
- -----------------------------------------------------------
Third 3.00%
- -----------------------------------------------------------
Fourth 2.00%
- -----------------------------------------------------------
Fifth 1.00%
- -----------------------------------------------------------
Sixth 0.00%
- -----------------------------------------------------------
Seventh 0.00%
- -----------------------------------------------------------
Eighth* 0.00%
- -----------------------------------------------------------
* CLASS B SHARES AUTOMATICALLY CONVERT TO CLASS A SHARES AFTER EIGHT YEARS.
The contingent deferred sales charge will be waived if you sell your Class B
Shares for the following reasons:
[Bullet] to make certain withdrawals from a retirement plan (not
including IRAs);
or
[Bullet] because of death or disability.
In addition, Class B shareholders who automatically reinvest their dividends and
distributions may redeem up to 12% of the value of their shares per year,
determined at the time of each redemption, without payment of a contingent
deferred sales charge.
General Information About Sales Charges
Your securities dealer is paid a commission when you buy your shares and is paid
a servicing fee as long as you hold your shares. Your securities dealer or
servicing agent may receive different levels of compensation depending on which
Class of shares you buy.
From time to time, some financial institutions, including brokerage firms
affiliated with the Adviser, may be reallowed up to the entire sales charge.
Firms that receive a reallowance of the entire sales charge may be considered
underwriters for the purpose of federal securities law.
24
<PAGE>
Purchasing, Selling and Exchanging Fund Shares
The Distributor may, from time to time in its sole discretion, institute one
or more promotional incentive programs for dealers, which will be paid for by
the Distributor from any sales charge it receives or from any other source
available to it. Under any such program, the Distributor may provide incentives,
in the form of cash or other compensation, including merchandise, airline
vouchers, trips and vacation packages, to dealers selling shares of the Funds.
[graphic of dollar bill omitted]
How To Sell Your Fund Shares
Holders of Institutional Shares may sell shares by following procedures
established when they opened their account or accounts. If you have questions,
call Compass Asset Management Group by telephoning Compass Bank.
If you own your shares directly, you may sell your shares on any Business
Day by contacting the Fund directly by mail or telephone at 1-800-992-2085.
You may also sell your shares by contacting your financial institution by
mail or telephone. Compass Asset Management Group customers should contact their
Asset Management Group authorized representative.
If you would like to sell $40,000 or more of your shares, please notify the
Fund in writing and include a signature guarantee by a bank or other financial
institution (a notarized signature is not sufficient).
The sale price of each share will be the next NAV determined after the Fund
receives your request less, in the case of Class B Shares, any applicable
contingent deferred sales charge.
Systematic Withdrawal Plan
Class A shareholders with at least a $10,000 account balance, may use the
systematic withdrawal plan. Under the plan you may arrange monthly, quarterly,
semi-annual or annual automatic withdrawals from any Fund. The proceeds of each
withdrawal will be mailed to you by check or, if you have a checking or savings
account with a bank, electronically transferred to your account.
25
<PAGE>
Purchasing, Selling and Exchanging Fund Shares
Receiving Your Money
Normally, we will send your sale proceeds within one Business Day after we
receive your request, and in any event within seven days. Your proceeds can be
wired to your bank account (amounts less than $5,000 may be subject to a wire
fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK,
REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK HAS CLEARED (WHICH MAY
TAKE UP TO 15 DAYS FROM YOUR DATE OF PURCHASE).
Redemptions in Kind
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Fund's remaining shareholders) we might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). It is highly unlikely that your shares would ever be
redeemed in kind, but if they were you would probably have to pay transaction
costs to sell the securities distributed to you, as well as taxes on any capital
gains from the sale as with any redemption.
Involuntary Redemptions of Your Shares
If your account balance drops below $1,000 because of redemptions for Class A or
Class B Shares, the Fund may redeem your shares. But, the Fund will always give
you at least 30 days' written notice to give you time to add to your account and
avoid the involuntary redemption of your shares.
Suspension of Your Right to Sell Your Shares
A Fund may suspend your right to sell your shares if the NYSE restricts trading,
the SEC declares an emergency or for other reasons. More information about this
is in our Statement of Additional Information.
26
<PAGE>
Purchasing, Selling and Exchanging Fund Shares
[graphic of dollar bill omitted]
How To Exchange Your Shares
You may exchange your shares on any Business Day by contacting us directly by
mail or telephone by calling 1-800-992-2085.
You may also exchange shares through your financial institution by mail or
telephone. Compass Asset Management Group customers should contact their Asset
Management Group authorized representative. Exchange requests for Class A or
Class B shares must be for an amount of at least $1,000 ($25 for directors,
officers and employees of Compass Bancshares, Inc. and members of their
immediate families).
IF YOU RECENTLY PURCHASED SHARES BY CHECK, YOU MAY NOT BE ABLE TO EXCHANGE
YOUR SHARES UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM YOUR
DATE OF PURCHASE). This exchange privilege may be changed or canceled at any
time upon 60 days' written notice.
When you exchange shares, you are really selling your shares and buying
other Fund shares. So, your sale price and purchase price will be based on the
NAV next calculated after the Fund receives your exchange request.
You may exchange Class A Shares of any Fund for Class A Shares of any other
Fund or Investment Service Shares of the Expedition Money Market Fund and
Tax-Free Money Market Fund. You may exchange Class B Shares of any Fund for
Class B Shares of any other Fund. If you exchange shares that you purchased
without a sales charge or with a lower sales charge into a Fund with a sales
charge or with a higher sales charge, the exchange is subject to an incremental
sales charge (e.g., the difference between the lower and higher applicable sales
charges). If you exchange shares into a Fund with the same, lower or no sales
charge, there is no incremental sales charge for the exchange.
27
<PAGE>
Purchasing, Selling and Exchanging Fund Shares
Telephone Transactions
Purchasing, selling and exchanging Fund shares over the telephone is extremely
convenient, but not without risk. Although the Fund has certain safeguards and
procedures to confirm the identity of callers and the authenticity of
instructions, the Fund is not responsible for any losses or costs incurred by
following telephone instructions we reasonably believe to be genuine. If you or
your financial institution transact with the Fund over the telephone, you will
generally bear the risk of any loss.
Distribution of Fund Shares
The Funds have adopted distribution plans for Class A and Class B Shares that
allow the Funds to pay distribution and service fees for the sale and
distribution of their shares, and for services provided to Class A and Class B
shareholders. Because these fees are paid out of a Fund's assets continuously,
over time these fees will increase the cost of your investment and may cost you
more than paying other types of sales charges.
Distribution and service fees, as a percentage of average daily net assets are
as follows:
For Class A Shares: .25%
For Class B Shares: 1.00%
Dividends, Distributions and Taxes
Dividends for the Bond Fund are declared daily and paid monthly to shareholders
of record. Dividends for the Equity Fund are declared and paid quarterly. Each
Fund makes distributions of capital gains, if any, at least annually. If you own
Fund shares on a Fund's record date, you will be entitled to receive the
distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify the Fund in writing prior to the date of the distribution. Your
election will be effective for dividends and distributions paid after the Fund
receives your written notice. To cancel your election, simply send the Fund
written notice.
28
<PAGE>
Distribution of Fund Shares
Taxes
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Funds and its shareholders. This summary is based on current tax
laws, which may change.
The Fund will distribute substantially all of its income and capital gains,
if any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from the Fund may be taxable whether or not you reinvest them. EACH SALE
OR EXCHANGE OF FUND SHARES IS A TAXABLE EVENT.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
Custodian
Compass Bank serves as Custodian for the assets of the Funds. It receives an
annual fee of .02% of each Fund's average daily net assets for this service.
29
<PAGE>
Financial Highlights
The tables that follow present performance information about Class A Shares and
Institutional Shares of each Fund. As of October 31, 1998, Class B Shares were
not available to investors. This information is intended to help you understand
each Fund's financial performance for the past five years, or, if shorter, the
period of the Fund's operations. Some of this information reflects financial
information for a single Fund share. The total returns in the tables represent
the rate that you would have earned (or lost) on an investment in a Fund,
assuming you reinvested all of your dividends and distributions. This
information has been audited by Deloitte & Touche LLP, independent public
accountants. Their report, along with the Funds' financial statements, appears
in the annual report that accompanies our Statement of Additional Information.
You can obtain the annual report, which contains more performance information,
at no charge by calling 1-800-992-2085.
For the periods ended October 31,
For a Share Outstanding Throughout each Period.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED AND DISTRIBUTIONS NET ASSET
ASSET VALUE, NET UNREALIZED FROM NET DISTRIBUTIONS VALUE,
BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT FROM END OF TOTAL
OF PERIOD INCOME ON SECURITIES INCOME CAPITAL GAINS PERIOD RETURN+
------------ ---------- ------------- ------------ ------------- --------- -----------
- -----------
EQUITY FUND
- -----------
Institutional Shares
<S> <C> <C> <C> <C> <C> <C> <C>
1998 $ 9.39 0.06 1.67 (0.06) (0.51) $10.55 19.18%
1997(1) 10.00 0.02 0.25 (0.02) (0.86) 9.39 2.96%
Class A Shares
1998(2) $ 9.65 0.04 1.45 (0.05) (0.51) $10.58 16.16%(4)
- ---------
BOND FUND
- ---------
Institutional Shares
<S> <C> <C> <C> <C> <C> <C>
1998 $ 9.85 0.51 0.30 (0.51) -- $10.15 8.43%
1997(1) 9.69 0.19 0.16 (0.19) -- 9.85 3.49%
Class A Shares
1998 $ 9.85 0.49 0.30 (0.49) -- $10.15 8.25%(4)
1997 9.77 0.53 0.08 (0.53) -- 9.85 6.41%(4)
1996 9.92 0.58 (0.15) (0.58) -- 9.77 4.44%(4)
1995 9.54 0.63 0.38 (0.63) -- 9.92 10.94%(4)
1994 10.40 0.54 (0.86) (0.54) -- 9.54 (3.12%)(4)
1993 10.25 0.63 0.21 (0.63) (0.06) 10.40 8.42%(4)
1992(3) 10.00 0.36 0.25 (0.36) -- 10.25 6.24%(4)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIO RATIO OF NET
OF EXPENSES INVESTMENT INCOME
RATIO OF NET TO AVERAGE TO AVERAGE
RATIO OF INVESTMENT NET ASSETS NET ASSETS
NET ASSETS EXPENSES INCOME (EXCLUDING (EXCLUDING
END OF TO AVERAGE TO AVERAGE WAIVERS AND WAIVERS AND PORTFOLIO
PERIOD (000) NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) TURNOVER RATE
-------------- ----------- ------------ -------------- -------------- -------------
- -----------
EQUITY FUND
- -----------
Institutional Shares
<S> <C> <C> <C> <C> <C> <C>
1998 $283,170 1.08% 0.38% 1.11% 0.35% 54.19%
1997(1) 237,567 1.09%* 0.53%* 1.09%* 0.53%* 64.68%
Class A Shares
1998(2) $ 1,911 1.29%* (0.14%)* 1.37%* (0.22%)* 54.19%
- ---------
BOND FUND
- ---------
Institutional Shares
<S> <C> <C> <C> <C> <C> <C>
1998 $104,953 0.94% 5.11% 1.13% 4.92% 32.93%
1997(1) 101,224 1.10%* 5.05%* 1.11%* 5.04%* 69.09%
Class A Shares
1998 $ 10,346 1.10% 4.95% 1.25% 4.80% 32.93%
1997 23,630 1.13% 5.46% 1.56% 5.03% 69.09%
1996 44,552 1.08% 5.90% 1.58% 5.40% 77.00%
1995 63,521 1.04% 6.51% 1.51% 6.04% 79.00%
1994 58,827 1.20% 5.44% 1.50% 5.14% 91.00%
1993 97,246 1.11% 6.11% 1.40% 5.82% 69.00%
1992(3) 65,984 0.79%* 6.79%* 1.39%* 6.19%* 88.00%
<FN>
(1) Commenced operations on June 13, 1997.
(2) Commenced operations on November 24, 1997.
(3) Commenced operations on April 20, 1992.
* Annualized
+ Returns are for the period indicated.
(4) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.
</FN>
</TABLE>
30 & 31
<PAGE>
Notes
<PAGE>
<PAGE>
Expedition Equity Fund
Expedition Bond Fund
Investment Shares-Class A, Investment Shares-Class B,
Institutional Shares
March 1, 1999
INVESTMENT ADVISER AND CUSTODIAN
COMPASS BANK
15 S. 20TH STREET
BIRMINGHAM, ALABAMA 35233
DISTRIBUTOR
SEI INVESTMENTS DISTRIBUTION CO.
ONE FREEDOM VALLEY DRIVE
OAKS, PENNSYLVANIA 19456
LEGAL COUNSEL
MORGAN, LEWIS & BOCKIUS LLP
1800 M STREET, N.W.
WASHINGTON, DC 20036
MORE INFORMATION ABOUT EXPEDITION FUNDS IS AVAILABLE WITHOUT CHARGE THROUGH THE
FOLLOWING:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
THE SAI DATED MARCH 1, 1999, INCLUDES DETAILED INFORMATION ABOUT EXPEDITION
FUNDS. THE SAI IS ON FILE WITH THE SEC AND IS INCORPORATED BY REFERENCE INTO
THIS PROSPECTUS. THIS MEANS THAT THE SAI, FOR LEGAL PURPOSES, IS A PART OF THIS
PROSPECTUS.
ANNUAL AND SEMI-ANNUAL REPORTS
THESE REPORTS LIST THE FUNDS' HOLDINGS AND CONTAIN INFORMATION FROM THE FUNDS'
MANAGERS ABOUT STRATEGIES, AND RECENT MARKET CONDITIONS AND TRENDS. THE REPORTS
ALSO CONTAIN DETAILED FINANCIAL INFORMATION ABOUT THE FUNDS.
TO OBTAIN MORE INFORMATION:
BY TELEPHONE: CALL 1-800-992-2085
BY MAIL: WRITE TO US
EXPEDITION FUNDS
C/O STATE STREET BANK AND TRUST COMPANY
P.O. BOX 8010
BOSTON, MASSACHUSETTS 02266
FROM THE SEC: YOU CAN ALSO OBTAIN THE SAI OR THE ANNUAL AND SEMI-ANNUAL REPORTS,
AS WELL AS OTHER INFORMATION ABOUT EXPEDITION FUNDS, FROM THE SEC'S WEBSITE
("HTTP://WWW.SEC.GOV"). YOU MAY REVIEW AND COPY DOCUMENTS AT THE SEC PUBLIC
REFERENCE ROOM IN WASHINGTON, DC (FOR INFORMATION CALL 1-800-SEC-0330). YOU MAY
REQUEST DOCUMENTS BY MAIL FROM THE SEC, UPON PAYMENT OF A DUPLICATING FEE, BY
WRITING TO: SECURITIES AND EXCHANGE COMMISSION, PUBLIC REFERENCE SECTION,
WASHINGTON, DC 20549-6009. EXPEDITION FUNDS' INVESTMENT COMPANY ACT REGISTRATION
NUMBER IS 811-5900.
EXP-F-020-01
Prospectus
Expedition Money Market Fund
Expedition Tax-Free Money Market Fund
Investment Service Shares
March 1, 1999
[cover graphic omitted]
[logo omitted]
EXPEDITION FUNDS [register mark omitted]
Investment Adviser: COMPASS BANK
The Securities and Exchange Commission has not approved any Fund shares or
determined whether this prospectus is accurate or complete. It is a crime for
anyone to tell you otherwise.
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How To Read This Prospectus
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Expedition Funds is a mutual fund family that offers
different classes of shares in separate investment portfolios (Funds). The Funds
have individual investment goals and strategies. This prospectus gives you
important information about the Investment Service Shares of the Expedition
Money Market Fund and Expedition Tax-Free Money Market Fund that you should know
before investing. Please read this prospectus and keep it for future reference.
Expedition Funds also offers shares of the Expedition Equity Fund and
Expedition Bond Fund in a separate prospectus which is available by calling
1-800-992-2085.
THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY
REVIEW THIS IMPORTANT INFORMATION. ON THE NEXT PAGE, THERE IS SOME GENERAL
INFORMATION YOU SHOULD KNOW ABOUT THE FUNDS. FOR MORE DETAILED INFORMATION ABOUT
THE FUNDS, PLEASE SEE:
PAGE
Money Market Fund 2
Tax-Free Money Market Fund 6
Each Fund's Other Investments 9
Investment Adviser And Sub-Adviser 9
Purchasing, Selling And Exchanging Fund Shares 10
Shareholder Services 15
Dividends, Distributions And Taxes 16
Custodian 16
Financial Highlights 18
How To Obtain More Information About
The Expedition Funds Back Cover
Boxed copy
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SHARES OF THE EXPEDITION FUNDS ARE NOT DEPOSITS OF OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY COMPASS BANK, COMPASS BANCSHARES, INC. OR ANY OF THEIR
AFFILIATES, OR ANY BANK, AND ARE NOT OBLIGATIONS OF, GUARANTEED BY OR INSURED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
AN INVESTMENT IN SHARES OF THE FUNDS INVOLVES INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF ALL OR A PORTION OF THE PRINCIPAL INVESTED, AND THE INVESTMENT
RETURN AND VALUE OF SHARES OF THE FUNDS WILL FLUCTUATE SO THAT AN INVESTMENT,
WHEN LIQUIDATED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST.
EACH MONEY MARKET FUND TRIES TO MAINTAIN A CONSTANT PRICE PER SHARE OF $1.00,
BUT WE CANNOT GUARANTEE THIS.
COMPASS BANK SERVES AS INVESTMENT ADVISER AND CUSTODIAN TO THE EXPEDITION FUNDS,
AND COMPASS BANK AND VARIOUS OF ITS AFFILIATES MAY PROVIDE VARIOUS SERVICES TO
THE FUNDS, FOR WHICH INVESTMENT ADVISORY, CUSTODIAN AND OTHER SERVICES COMPASS
BANK AND/OR SUCH OTHER AFFILIATES ARE ENTITLED TO RECEIVE COMPENSATION.
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Introduction--Information Common To Both Funds
Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
Each Fund has an investment goal and strategies for reaching that goal. The
investment managers invest Fund assets in a way that they believe will help a
Fund achieve its goal. Still, investing in a Fund involves risk and there is
no guarantee that a Fund will achieve its goal. An investment manager's
judgments about the markets, the economy, or companies may not anticipate actual
market movements, economic conditions or company performance, and these
judgments may affect the return on your investment. In fact, no matter how good
a job an investment manager does, you could lose money on your investment in a
Fund, just as you could with other investments.
Risks of Investing in the Funds
An investment in either Fund is not a deposit of Compass Bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although each Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in
either Fund.
Year 2000 Risk -- The Funds depend on the smooth functioning of computer
systems in almost every aspect of their business. Like other mutual funds,
businesses and individuals around the world, the Funds could be adversely
affected if the computer systems used by its service providers do not properly
process dates on and after January 1, 2000, and distinguish between the year
2000 and the year 1900. The Funds have asked their service providers whether
they expect to have their computer systems adjusted for the year 2000
transition, and is seeking assurances from each service provider that they are
devoting significant resources to prevent material adverse consequences to the
Funds. While it is likely that such assurances will be obtained, the Funds and
their shareholders may experience losses if these assurances prove to be
incorrect or as a result of year 2000 computer difficulties experienced by
issuers of portfolio securities or third parties, such as custodians, banks,
broker-dealers or others with which the Funds do business.
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Expedition Money Market Fund
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Fund Summary
Investment Goal Current income consistent with stability of
principal
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Investment Focus Money market instruments
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Share Price Volatility Very low
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Principal Investment Strategy Investing in a broad range of high quality
short-term U.S. dollar denominated debt
securities
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Investor Profile Conservative investors who want to receive
current income through a liquid investment
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[graphic of binoculars omitted]
Investment Strategy of the
Expedition Money Market Fund
The Fund invests in a broad range of high quality short-term U.S. dollar
denominated money market instruments, such as obligations of the U.S. Treasury,
agencies and instrumentalities of the U.S. government, domestic and foreign
banks, domestic and foreign corporations, supranational entities, and foreign
governments. The Fund may also enter into fully collateralized repurchase
agreements. The Fund's portfolio is comprised only of short-term debt securities
that are rated in the highest category by nationally recognized ratings
organizations or securities that the Adviser determines are of equal quality.
The Fund will maintain an average dollar weighted maturity of 90 days or less,
and will only acquire securities that have a remaining maturity of 397 days or
less.
The Adviser's investment selection process seeks to add value through
security selection, sector rotation and positioning on the yield curve.
Securities are chosen based on the issuer's financial condition, the financial
condition of any person or company which guarantees the credit of the issuer,
liquidity and competitive yield. The Fund attempts to avoid purchasing or
holding securities that are subject to a decline in credit quality through
careful credit screening as well as ongoing monitoring of each issuer and any
person or company providing credit support.
2
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[graphic of life buoy omitted]
Principal Risks of Investing in the Expedition Money Market Fund
An investment in the Fund is subject to income risk, which is the possibility
that the Fund's yield will decline due to falling interest rates.
[graphic of target omitted]
Performance Information
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the performance of the Fund's Investment Service
Shares from year to year.*
[plot points follows:]
1991 5.99%
1992 3.73%
1993 2.77%
1994 3.65%
1995 5.59%
1996 4.86%
1997 5.03%
1998 4.99%
BEST QUARTER WORST QUARTER
1.67% 0.66%
(03/31/91) (03/31/94)
* The performance information shown above is based on a calendar year.
CALL 1-800-992-2085 FOR THE FUND'S MOST CURRENT 7-DAY YIELD.
This table presents the Fund's average annual total returns for the periods
ending December 31, 1998.
Since Inception
Investment Service Shares 1 Year 5 Years (2/5/90)
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Money Market Fund 4.99% 4.82% 4.92%
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3
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Expedition Money Market Fund
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Fund Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Annual Fund Operating Expenses (expenses deducted from Fund assets)*
Investment Service Shares
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Management Fees .40%
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Shareholder Servicing Fees .25%
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Other Expenses .26%
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Total Annual Fund Operating Expenses .91%
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* THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT
FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER IS
WAIVING A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A
SPECIFIED LEVEL. THE ADVISER MAY DISCONTINUE ALL OR PART OF THESE WAIVERS AT
ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES
ARE AS FOLLOWS:
MONEY MARKET FUND -- INVESTMENT SERVICE SHARES .68%
For more information about these fees, see "Investment Adviser and Sub-Adviser"
and "Shareholder Services."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund operating expenses remain the same. Although your actual costs may be
higher or lower, your approximate costs of investing $10,000 in the Fund would
be:
1 Year 3 Years 5 Years 10 Years
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$93 $290 $504 $1,120
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4
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Expedition Tax-Free Money Market Fund
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Fund Summary
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Investment Goal Current income exempt from Federal income taxes
consistent with stability of principal
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Investment Focus Tax-free money market instruments
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Share Price Volatility Very low
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Principal Investment Strategy Investing in a well diversified portfolio
of short-term municipal securities which pay
interest that is exempt from Federal
income taxes
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Investor Profile Taxable investors who want income exempt from
federal income taxes through a liquid investment
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[graphic of binoculars omitted]
Investment Strategy of the Expedition
Tax-Free Money Market Fund
The Fund invests substantially all of its assets in a broad range of high
quality short-term municipal money market instruments that pay interest that is
exempt from Federal income taxes. The issuers of these securities may be state
and local governments and agencies located in any of the fifty states, the
District of Columbia, Puerto Rico and other U.S. territories and possessions.
The Fund's portfolio seeks to be well diversified among these issuers, and will
be comprised only of short-term debt securities that are rated in one of the two
highest categories by nationally recognized ratings organizations, or have been
determined by the Sub-Adviser to be of equal quality. The Fund will maintain an
average dollar weighted maturity of 90 days or less, and will only acquire
securities that have a remaining maturity of 397 days or less.
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The Adviser has engaged Weiss, Peck & Greer, L.L.C. as sub-adviser (Sub-Adviser)
to manage the Fund on a day-to-day basis. The Sub-Adviser's investment selection
process seeks to add value through a strategy that takes advantage of the
inefficient nature of the municipal securities market rather than attempting to
predict interest rate movements. Securities are chosen based on the issuer's
financial condition, the financial condition of any person or company which
guarantees the credit of the issuer, liquidity and competitive yield. The Fund
attempts to avoid purchasing or holding securities that are subject to a decline
in credit quality of the issue through careful credit screening, as well as
ongoing monitoring of each issuer and any person or company providing credit
support.
[graphic of life buoy omitted]
Principal Risks of Investing in the Expedition
Tax-Free Money Market Fund
An investment in the Fund is subject to income risk, which is the possibility
that the Fund's yield will decline due to falling interest rates.
There may be economic or political changes that impact the ability of
municipal issuers to repay principal and to make interest payments on municipal
securities. Changes in the financial condition or credit rating of municipal
issuers also may adversely affect the value of the Fund's securities.
Since the Fund often purchases securities supported by credit enhancements
from banks and other financial institutions, changes in the credit quality of
these institutions could cause losses to the Fund and affect its share price.
[graphic of target omitted]
Performance Information
The Fund commenced operations on May 20, 1998 and did not have a full calendar
year of performance information at the time this prospectus was printed.
7
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Expedition Tax-Free Money Market Fund
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Fund Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)*
Investment Service Shares
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Management Fees .40%
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Shareholder Servicing Fees .25%
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Other Expenses .38%
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Total Annual Fund Operating Expenses 1.03%
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* THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT
FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER IS
WAIVING A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A
SPECIFIED LEVEL. THE ADVISER MAY DISCONTINUE ALL OR PART OF THESE WAIVERS AT
ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES
ARE AS FOLLOWS:
TAX-FREE MONEY MARKET FUND -- INVESTMENT SERVICE SHARES .68%
For more information about these fees, see "Investment Adviser and Sub-Adviser"
and "Shareholder Services."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund operating expenses remain the same. Although your actual costs may be
higher or lower, your approximate costs of investing $10,000 in the Fund would
be:
1 Year 3 Years 5 Years 10 Years
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$105 $328 $569 $1,259
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8
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Each Fund's Other Investments
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In addition to the investments and strategies described in this prospectus, the
Funds also may invest in other securities, use other strategies and engage in
other investment practices. These investments and strategies, as well as those
described in this prospectus, are described in detail in our Statement of
Additional Information. Of course, we cannot guarantee that either Fund will
achieve its investment goal.
[graphic of pointing hand omitted]
Investment Adviser And Sub-Adviser
The Investment Adviser makes investment decisions for the Money Market Fund and
continuously reviews, supervises and administers the Money Market Fund's
investment program. The Adviser oversees the Sub-Adviser to ensure compliance
with the Tax-Free Money Market Fund's investment policies and guidelines, and
monitors the Sub-Adviser's adherence to its investment style. The Adviser pays
the Sub-Adviser out of the investment advisory fees it receives (described
below). The Board of Trustees of Expedition Funds supervises the Adviser and
Sub-Adviser and establishes policies that the Adviser and Sub-Adviser must
follow in their management activities.
Compass Bank, a wholly-owned subsidiary of Compass Bancshares, Inc. (Compass
Bancshares), serves as the Adviser to the Funds. Compass Bank has served as
investment adviser to mutual funds since 1990. Through the Compass Asset
Management Group, the Adviser and its affiliates provide investment advisory and
management services for the assets of individuals, pension and profit sharing
plans, endowments and foundations. As of December 31, 1998, Compass Bank had
approximately $7.8 billion in assets under administration, with investment
discretion over $2.6 billion. For the fiscal period ended October 31, 1998,
Compass Bank received advisory fees as a percentage of average daily net assets
(after waivers) of:
Money Market Fund .17%
Tax-Free Money Market Fund .10%
The Adviser has agreed to voluntarily waive a portion of its fees and
reimburse certain expenses of each Fund in order to limit the total operating
expenses of the Investment Service Shares of the Money Market Fund and the
Tax-Free Money Market Fund to 0.68% of the average daily net assets of each
Fund. The Adviser may discontinue all or part of these waivers at any time.
9
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Investment Adviser And Sub-Adviser
Weiss, Peck & Greer, L.L.C. (WPG), One New York Plaza, New York, NY 10004,
serves as the Sub-Adviser and manages the Tax-Free Money Market Fund on a
day-to-day basis. WPG was founded in 1970, and engages in investment management,
venture capital management and management buyouts. Since its founding, WPG has
been active in managing portfolios of tax exempt securities. WPG selects, buys
and sells securities for the Fund under the supervision of the Adviser and the
Board of Trustees.
Purchasing, Selling And Exchanging Fund Shares
This section tells you how to buy, sell (sometimes called "redeem") or
exchange shares of the Funds.
Investment Service Shares are for individual and institutional investors.
Investment Service Shares are also available to customers of subsidiaries
and other affiliates of Compass Bancshares, including certain customers main-
taining accounts with the Compass Asset Management Group or obtaining brokerage,
investment and similar services through Compass Brokerage, Inc. or other
subsidiaries or affiliates of Compass Bancshares.
[graphic of dollar sign omitted]
How to Purchase Fund Shares
You may purchase shares by:
[Bullet] Mail
[Bullet] Telephone, or
[Bullet] Wire
To purchase shares directly from us, please call 1-800-992-2085, or complete and
send in an account application. To purchase Investment Service Shares through
their Compass Asset Management Group account, customers should contact their
authorized Asset Management Group representative. Compass Brokerage, Inc.
customers should contact their Compass Brokerage, Inc. authorized
representative. Unless you arrange to pay by wire, write your check, payable in
U.S. dollars, to "Expedition Funds" and include the name of the appropriate
Fund(s) on the check. A Fund cannot accept third-party checks, credit cards,
credit card checks or cash.
10
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Purchasing, Selling And Exchanging Fund Shares
You may also purchase shares through accounts with brokers and other
institutions that are authorized to place trades in Fund shares for their
customers. If you invest through an authorized institution, you will have to
follow its procedures, which may be different from the procedures for investing
directly. Your institution may charge a fee for its services, in addition to the
fees charged by the Fund. You will also generally have to address your
correspondence or questions regarding the Fund to your institution.
General Information
You may purchase shares on any day that the New York Stock Exchange and the
Federal Reserve are open for business (a Business Day). Shares cannot be
purchased by Federal Reserve Wire on days when either the New York Stock
Exchange or the Federal Reserve is closed.
A Fund may reject any purchase order if it determines that accepting the
order would not be in the best interests of the Fund or its shareholders.
The price per share (the offering price) will be the net asset value per
share (NAV) next determined after the Fund receives your purchase order. We
expect that the NAV of the Funds will remain constant at $1.00 per share.
The Money Market Fund calculates its NAV each business day at 12 noon and
4:00 p.m. Central time. So, for you to be eligible to receive dividends declared
on the day you submit your purchase order, generally the Fund must receive your
order and Federal funds (readily available funds) before 4:00 p.m. Central time.
The Tax-Free Money Market Fund calculates its NAV each Business Day at 12:00
noon Central time and the close of normal trading on the New York Stock Exchange
(normally 3:00 p.m. Central time). So, for you to be eligible to receive divi-
dends declared on the day you submit your purchase order, generally the Fund
must receive your order before 11:30 a.m. Central time and Federal funds
(readily available funds) before 1:00 p.m. Central time.
11
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Purchasing, Selling And Exchanging Fund Shares
How We Calculate NAV
NAV for one Fund share is the value of that share's portion of all of the net
assets in the Fund.
In calculating NAV for the Funds, we generally value a Fund's investment
portfolio using the amortized cost valuation method, which is described in
detail in our Statement of Additional Information. If this method is determined
to be unreliable during certain market conditions or for other reasons, a Fund
may value its portfolio at market price or fair value prices may be determined
in good faith using methods approved by the Board of Trustees.
Minimum Purchases
To purchase Investment Service Shares for the first time, you must invest at
least $1,000 in either Fund. The minimum purchase amount for IRA accounts is
$500. The minimum is $25 in the case of directors, officers and employees of
Compass Bancshares and its affiliates (and members of their immediate families)
participating in the Systematic Investment Plan. Your subsequent investments in
either Fund must be made in amounts of at least $100 ($25 for directors,
officers and employees of Compass Bancshares and its affiliates and members of
their immediate families).
A Fund may accept investments of smaller amounts at its discretion.
Systematic Investment Plan
If you have a checking or savings account with a bank, you may purchase shares
of either Fund automatically through regular deductions from your account. Once
your account has been opened, you may begin regularly scheduled investments of
at least $100 ($25 in the case of directors, officers and employees of Compass
Bancshares and its affiliates and members of their immediate families) for each
Fund.
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Purchasing, Selling And Exchanging Fund Shares
[graphic of dollar bill omitted]
How to Sell your Fund Shares
If you own your shares through an account with a broker or other institution,
contact that broker or institution to sell your shares. Compass Asset Management
Group customers should contact their Asset Management Group authorized
representative. Customers of Compass Brokerage Inc. should contact their Compass
Brokerage authorized representative.
If you own your shares directly, you may sell your shares on any Business
Day by contacting us directly by mail or telephone by calling 1-800-992-2085.
If you would like to sell $40,000 or more of your shares, please notify the
Fund in writing and include a signature guarantee by a bank or other financial
institution (a notarized signature is not sufficient).
The sale price of each share will be the next NAV determined after we
receive your request. Redemption requests received before 11:30 a.m. Central
time for the Tax-Free Money Market Fund and before 4:00 p.m. Central time for
the Money Market Fund will not be entitled to that day's dividend.
Systematic Withdrawal Plan
If you have at least $10,000 in your account, you may use the systematic
withdrawal plan. Under the plan you may arrange monthly, quarterly, semi-annual
or annual automatic withdrawals from any Fund. The proceeds of each withdrawal
will be mailed to you by check or, if you have an account with a bank,
electronically transferred to your account.
Receiving Your Money
Normally, we will send your sale proceeds within one Business Day after we
receive your request, and in any event within seven days. Your proceeds can be
wired to your bank account (amounts less than $5,000 may be subject to a wire
fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK,
REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK HAS CLEARED (WHICH MAY
TAKE UP TO 15 DAYS FROM YOUR DATE OF PURCHASE).
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Purchasing, Selling And Exchanging Fund Shares
Redemptions in Kind
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Fund's remaining shareholders) we might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). It is highly unlikely that your shares would ever be
redeemed in kind, but if they were you would probably have to pay transaction
costs to sell the securities distributed to you, as well as taxes on any capital
gains from the sale as with any redemption.
Involuntary Redemptions of Your Shares
If your account balance drops below $1,000 because of redemptions, the Fund may
redeem your shares. But, the Fund will always give you at least 30 days' written
notice to give you time to add to your account and avoid the involuntary
redemption of your shares.
Suspension of Your Right to Sell Your Shares
A Fund may suspend your right to sell your shares if the NYSE restricts trading,
the SEC declares an emergency or for other reasons. More information about this
is in our Statement of Additional Information.
[graphic of dollar sign omitted]
How to Exchange Your Shares
You may exchange your shares on any Business Day by contacting us directly by
mail or telephone by calling 1-800-992-2085.
You may also exchange shares through your financial institution by mail or
telephone. Compass Asset Management customers should contact their Asset
Management Group authorized representative. Customers of Compass Brokerage Inc.
should contact their Compass Brokerage authorized representative. Exchange
requests must be for an amount of at least $1,000 ($25 for directors, officers
and employees of Compass Bancshares and members of their immediate families).
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Purchasing, Selling And Exchanging Fund Shares
IF YOU RECENTLY PURCHASED SHARES BY CHECK, YOU MAY NOT BE ABLE TO EXCHANGE
YOUR SHARES UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM YOUR
DATE OF PURCHASE). This exchange privilege may be changed or canceled at any
time upon 60 days' notice.
When you exchange shares, you are really selling your shares and buying
other Fund shares. So, your sale price and purchase price will be based on the
NAV next calculated after the Fund receives your exchange request.
If you exchange shares that you purchased without a sales charge or with a
lower sales charge into a Fund with a sales charge or with a higher sales
charge, the exchange is subject to an incremental sales charge (e.g., the
difference between the lower and higher applicable sales charges). If you
exchange shares into a Fund with the same, lower or no sales charge, there is no
incremental sales charge for the exchange.
Telephone Transactions
Purchasing, selling and exchanging Fund shares over the telephone is extremely
convenient, but not without risk. Although the Fund has certain safeguards and
procedures to confirm the identity of callers and the authenticity of
instructions, the Fund is not responsible for any losses or costs incurred by
following telephone instructions we reasonably believe to be genuine. If you or
your financial institution transact with the Fund over the telephone, you will
generally bear the risk of any loss.
Shareholder Services
Each Fund has adopted a shareholder service plan that allows the Funds to pay
service fees for services provided to Investment Service shareholders. Because
these fees are paid out of a Fund's assets continuously, over time these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges. Shareholder servicing fees under the plan, as a
percentage of average daily net assets, are .25% for Investment Service Shares.
The Distributor may, from time to time in its sole discretion, institute one
or more promotional incentive programs for dealers, which will be paid for by
the Distributor. Under any such program, the Distributor may provide incentives,
in the form of cash or other compensation, including merchandise, airline
vouchers, trips and vacation packages, to dealers selling shares of the Funds.
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Dividends, Distributions And Taxes
Dividends are declared daily and paid monthly. Each Fund makes distributions of
capital gains, if any, at least annually. If you own Fund shares on a Fund's
record date, you will be entitled to receive the distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify the Fund in writing prior to the date of the distribution. Your
election will be effective for dividends and distributions paid after the Fund
receives your written notice. To cancel your election, simply send the Fund
written notice.
Taxes
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Funds and its shareholders. This summary is based on current tax
laws, which may change.
The Funds will distribute substantially all of its income and capital gains,
if any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from the Fund may be taxable whether or not you reinvest them. EACH SALE
OR EXCHANGE OF FUND SHARES IS A TAXABLE EVENT.
The Tax-Free Money Market Fund intends to distribute federally tax-exempt
income. The Tax-Free Money Market Fund may invest a portion of its assets in
securities that generate taxable income for federal or state income taxes.
Income exempt from federal tax may be subject to state and local taxes. Any
capital gains distributed by the Fund may be taxable.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
Custodian
Compass Bank serves as Custodian for the assets of the Funds. It receives an
annual fee of .02% of each Fund's daily average net assets for this service.
16
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Financial Highlights
The tables that follow present performance information about Investment Service
Shares of the Funds. This information is intended to help you understand each
Fund's financial performance for the past five years, or, if shorter, the period
of the Fund's operations. Some of this information reflects financial
information for a single Fund share. The total returns in the tables represent
the rate that you would have earned (or lost) on an investment in a Fund,
assuming you reinvested all of your dividends and distributions. This
information has been audited by Deloitte & Touche LLP, independent public
accountants. Their report, along with each Fund's financial statements, appears
in the annual report that accompanies our Statement of Additional Information.
You can obtain the annual report, which contains more performance information,
at no charge by calling 1-800-992-2085.
For the periods ended October 31, For a Share Outstanding Throughout each
Period.
<TABLE>
<CAPTION>
NET REALIZED AND DISTRIBUTIONS NET ASSET
ASSET VALUE, NET UNREALIZED FROM NET DISTRIBUTIONS VALUE,
BEGINNING INVESTMENT GAINS ON INVESTMENT FROM END OF TOTAL
OF PERIOD INCOME SECURITIES (LOSSES) INCOME CAPITAL GAINS PERIOD RETURN+
------------ ---------- ------------------ ------------ ------------- --------- -----------
- -----------------
Money Market Fund
- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Service Shares (1)
1998 $ 1.00 0.05 -- (0.05) -- $ 1.00 5.07%
1997 1.00 0.08 -- (0.08) -- 1.00 4.97%
1996 1.00 0.04 -- (0.04) -- 1.00 4.95%
1995 1.00 0.05 -- (0.05) -- 1.00 5.51%
1994 1.00 0.03 -- (0.03) -- 1.00 3.29%
1993 1.00 0.03 -- (0.03) -- 1.00 2.84%
1992 1.00 0.04 -- (0.04) -- 1.00 4.07%
1991 1.00 0.06 -- (0.06) -- 1.00 6.44%
1990 (2) 1.00 0.06 -- (0.06) -- 1.00 5.89%
- --------------------------
Tax-Free Money Market Fund
- --------------------------
Investment Service Shares (3)
1998 $ 1.00 0.01 -- (0.01) -- $ 1.00 1.33%
RATIO RATIO OF NET
OF EXPENSES INVESTMENT INCOME
RATIO OF NET TO AVERAGE TO AVERAGE
RATIO OF INVESTMENT NET ASSETS NET ASSETS
NET ASSETS EXPENSES INCOME (EXCLUDING (EXCLUDING
END OF TO AVERAGE TO AVERAGE WAIVERS AND WAIVERS AND PORTFOLIO
PERIOD (000) NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) TURNOVER RATE
-------------- ----------- ------------ -------------- -------------- -------------
- -----------------
Money Market Fund
- -----------------
<S> <C> <C> <C> <C> <C> <C>
Investment Service Shares (1)
1998 $142,910 0.68% 4.95% 0.91% 4.73% --
1997 147,651 0.73% 4.84% 0.85% 4.72% --
1996 136,666 0.71% 4.85% 0.71% 4.85% --
1995 141,434 0.56% 5.38% 0.66% 5.28% --
1994 158,367 0.75% 3.26% 0.79% 3.22% --
1993 131,508 0.70% 2.83% 0.70% 2.83% --
1992 187,394 0.64% 4.01% 0.65% 4.00% --
1991 212,997 0.62% 6.13% 0.67% 6.08% --
1990 (2) 117,716 0.58%* 7.80%* 0.68%* 7.70%* --
- --------------------------
Tax-Free Money Market Fund
- --------------------------
Investment Service Shares (3)
1998 $ 64,542 0.68%* 2.95%* 0.78%* 2.85%* --
<FN>
(1) During 1997, the Starburst Money Market Trust Shares were renamed the
Expedition Money Market Investment Service Shares.
(2) Commenced operations on February 5, 1990.
(3) Commenced operations on May 20, 1998.
* Annualized
+ Returns are for the period indicated and have not been annualized.
</FN>
</TABLE>
18 & 19
<PAGE>
Notes
<PAGE>
<PAGE>
Expedition Money Market Fund
Expedition Tax-Free Money Market Fund
Investment Service Shares
March 1, 1999
INVESTMENT ADVISER AND CUSTODIAN
COMPASS BANK
15 S. 20TH STREET
BIRMINGHAM, ALABAMA 35233
DISTRIBUTOR
SEI INVESTMENTS DISTRIBUTION CO.
ONE FREEDOM VALLEY DRIVE
OAKS, PENNSYLVANIA 19456
LEGAL COUNSEL
MORGAN, LEWIS & BOCKIUS LLP
1800 M STREET, N.W.
WASHINGTON, DC 20036
MORE INFORMATION ABOUT EXPEDITION FUNDS IS AVAILABLE WITHOUT CHARGE THROUGH THE
FOLLOWING:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
THE SAI DATED MARCH 1, 1999, INCLUDES DETAILED INFORMATION ABOUT EXPEDITION
FUNDS. THE SAI IS ON FILE WITH THE SEC AND IS INCORPORATED BY REFERENCE INTO
THIS PROSPECTUS. THIS MEANS THAT THE SAI, FOR LEGAL PURPOSES, IS A PART OF THIS
PROSPECTUS.
ANNUAL AND SEMI-ANNUAL REPORTS
THESE REPORTS LIST THE FUNDS' HOLDINGS AND CONTAIN INFORMATION FROM THE FUNDS'
MANAGERS ABOUT STRATEGIES, AND RECENT MARKET CONDITIONS AND TRENDS. THE REPORTS
ALSO CONTAIN DETAILED FINANCIAL INFORMATION ABOUT THE FUNDS.
TO OBTAIN MORE INFORMATION:
BY TELEPHONE: CALL 1-800-992-2085
BY MAIL: WRITE TO US
EXPEDITION FUNDS
C/O STATE STREET BANK AND TRUST COMPANY
P.O. BOX 8010
BOSTON, MASSACHUSETTS 02266
FROM THE SEC: YOU CAN ALSO OBTAIN THE SAI OR THE ANNUAL AND SEMI-ANNUAL REPORTS,
AS WELL AS OTHER INFORMATION ABOUT EXPEDITION FUNDS, FROM THE SEC'S WEBSITE
("HTTP://WWW.SEC.GOV"). YOU MAY REVIEW AND COPY DOCUMENTS AT THE SEC PUBLIC
REFERENCE ROOM IN WASHINGTON, DC (FOR INFORMATION CALL 1-800-SEC-0330). YOU MAY
REQUEST DOCUMENTS BY MAIL FROM THE SEC, UPON PAYMENT OF A DUPLICATING FEE, BY
WRITING TO: SECURITIES AND EXCHANGE COMMISSION, PUBLIC REFERENCE SECTION,
WASHINGTON, DC 20549-6009. EXPEDITION FUNDS' INVESTMENT COMPANY ACT REGISTRATION
NUMBER IS 811-5900.
EXP-F-021-01
Prospectus
Expedition Money Market Fund
Expedition Tax-Free Money Market Fund
Institutional Shares
March 1, 1999
[Expedition Logo omitted]
INVESTMENT ADVISER: COMPASS BANK
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY FUND SHARES OR
DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS A CRIME FOR
ANYONE TO TELL YOU OTHERWISE.
<PAGE>
How To Read This Prospectus
[graphic of binoculars omitted]
Expedition Funds is a mutual fund family that offers different classes of shares
in separate investment portfolios (Funds). The Funds have individual investment
goals and strategies. This prospectus gives you important information about the
Institutional Shares of the Expedition Money Market Fund and Expedition Tax-Free
Money Market Fund that you should know before investing. Please read this
prospectus and keep it for future reference.
Expedition Funds also offers shares of the Expedition Equity Fund and
Expedition Bond Fund in a separate prospectus which is available by calling
1-800-992-2085.
THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY
REVIEW THIS IMPORTANT INFORMATION. ON THE NEXT PAGE, THERE IS SOME GENERAL
INFORMATION YOU SHOULD KNOW ABOUT THE FUNDS. FOR MORE DETAILED INFORMATION ABOUT
THE FUNDS, PLEASE SEE:
PAGE
Money Market Fund 2
Tax-Free Money Market Fund 6
Each Fund's Other Investments 9
Investment Adviser And Sub-Adviser 9
Purchasing, Selling And Exchanging Fund Shares 10
Dividends, Distributions And Taxes 14
Custodian 15
Financial Highlights 16
How To Obtain More Information About
The Expedition Funds Back Cover
Boxed copy
- --------------------------------------------------------------------------------
SHARES OF THE EXPEDITION FUNDS ARE NOT DEPOSITS OF OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY COMPASS BANK, COMPASS BANCSHARES, INC. OR ANY OF THEIR
AFFILIATES, OR ANY BANK, AND ARE NOT OBLIGATIONS OF, GUARANTEED BY OR INSURED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
AN INVESTMENT IN SHARES OF THE FUNDS INVOLVES INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF ALL OR A PORTION OF THE PRINCIPAL INVESTED, AND THE INVESTMENT
RETURN AND VALUE OF SHARES OF THE FUNDS WILL FLUCTUATE SO THAT AN INVESTMENT,
WHEN LIQUIDATED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST.
EACH MONEY MARKET FUND TRIES TO MAINTAIN A CONSTANT PRICE PER SHARE OF $1.00,
BUT WE CANNOT GUARANTEE THIS.
COMPASS BANK SERVES AS INVESTMENT ADVISER AND CUSTODIAN TO THE EXPEDITION FUNDS,
AND COMPASS BANK AND VARIOUS OF ITS AFFILIATES MAY PROVIDE VARIOUS SERVICES TO
THE FUNDS, FOR WHICH INVESTMENT ADVISORY, CUSTODIAN AND OTHER SERVICES COMPASS
BANK AND/OR SUCH OTHER AFFILIATES ARE ENTITLED TO RECEIVE COMPENSATION.
- --------------------------------------------------------------------------------
<PAGE>
Introduction--Information Common To Both Funds
Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
Each Fund has an investment goal and strategies for reaching that goal.
The investment managers invest Fund assets in a way that they believe will help
a Fund achieve its goal. Still, investing in a Fund involves risks and there is
no guarantee that a Fund will achieve its goal. An investment manager's
judgments about the markets, the economy, or companies may not anticipate actual
market movements, economic conditions or company performance, and these
judgments may affect the return on your investment. In fact, no matter how good
a job the investment manager does, you could lose money on your investment in a
Fund, just as you could with other investments.
Risks of Investing in the Funds
An investment in either Fund is not a deposit of Compass Bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although each Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in
either Fund.
YEAR 2000 RISK -- The Funds depend on the smooth functioning of computer
systems in almost every aspect of their business. Like other mutual funds,
businesses and individuals around the world, the Funds could be adversely
affected if the computer systems used by their service providers do not properly
process dates on and after January 1, 2000, and distinguish between the year
2000 and the year 1900. The Funds have asked their service providers whether
they expect to have their computer systems adjusted for the year 2000
transition, and are seeking assurances from each service provider that they are
devoting significant resources to prevent material adverse consequences to the
Funds. While it is likely that such assurances will be obtained, the Funds and
their shareholders may experience losses if these assurances prove to be
incorrect or as a result of year 2000 computer difficulties experienced by
issuers of portfolio securities or third parties, such as custodians, banks,
broker-dealers or others with which the Funds do business.
1
<PAGE>
Expedition Money Market Fund
[graphic of portfolio omitted]
Fund Summary
Investment Goal Current income consistent with stability of principal
- --------------------------------------------------------------------------------
Investment Focus Money market instruments
- --------------------------------------------------------------------------------
Share Price Volatility Very low
- --------------------------------------------------------------------------------
Principal Investment Investing in a broad range of high quality short-term
Strategy U.S. dollar denominated debt securities
- --------------------------------------------------------------------------------
Investor Profile Conservative investors who want to receive current
income through a liquid investment
- --------------------------------------------------------------------------------
[graphic of binoculars omitted]
Investment Strategy of the
Expedition Money Market Fund
The Fund invests in a broad range of high quality short-term U.S. dollar
denominated money market instruments, such as obligations of the U.S. Treasury
agencies and instrumentalities of the U.S. government, domestic and foreign
banks, domestic and foreign corporations, supranational entities, and foreign
governments. The Fund may also enter into fully collaterized repurchase
agreements. The Fund's portfolio is comprised only of short-term debt securities
that are rated in the highest category by nationally recognized ratings
organizations or securities that the Adviser determines are of equal quality.
The Fund will maintain an average dollar weighted maturity of 90 days or less,
and will only acquire securities that have a remaining maturity of 397 days or
less.
The Adviser's investment selection process seeks to add value through
security selection, sector rotation and positioning on the yield curve.
Securities are chosen based on the issuer's financial condition, the financial
condition of any person or company which guarantees the credit of the issuer,
liquidity and competitive yield. The Fund attempts to avoid purchasing or
holding securities that are subject to a decline in credit quality through
careful credit screening as well as ongoing monitoring of each issuer and any
person or company providing credit support.
2
<PAGE>
[graphic of life buoy omitted]
Principal Risks of Investing in the Expedition Money Market Fund
An investment in the Fund is subject to income risk, which is the possibility
that the Fund's yield will decline due to falling interest rates.
[graphic of target omitted]
Performance Information
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the performance of the Fund's Institutional
Shares from year to year.*
[bar chart omitted]
graphic showing performance of 5.25% for one year 1998
BEST QUARTER WORST QUARTER
1.31% 1.24%
(09/30/98) (12/31/98)
*The performance information shown above is based on a calendar year.
CALL 1-800-992-2085 FOR THE FUND'S MOST CURRENT 7-DAY YIELD.
This table shows the Fund's average annual total returns for the periods ending
December 31, 1998.
Since Inception
Institutional Shares 1 Year (6/9/97)
- --------------------------------------------------------------------------------
Money Market Fund 5.25% 5.31%
- --------------------------------------------------------------------------------
3
<PAGE>
Expedition Money Market Fund
[graphic of dollar sign omitted]
Fund Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)*
Institutional Shares
- --------------------------------------------------------------------------------
Management Fees .40%
- --------------------------------------------------------------------------------
Other Expenses .26%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses .66%
- --------------------------------------------------------------------------------
* THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT
FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER IS
WAIVING A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A
SPECIFIED LEVEL. THE ADVISER MAY DISCONTINUE ALL OR PART OF THESE WAIVERS AT
ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES
ARE AS FOLLOWS:
MONEY MARKET FUND - INSTITUTIONAL SHARES .43%
For more information about these fees, see "Investment Adviser and Sub-Adviser."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund operating expenses remain the same. Although your actual costs may be
higher or lower, your approximate costs of investing $10,000 in the Fund would
be:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$67 $211 $368 $822
- --------------------------------------------------------------------------------
4
<PAGE>
<PAGE>
Expedition Tax-Free Money Market Fund
[graphic of portfolio omitted]
Fund Summary
- --------------------------------------------------------------------------------
Investment Goal Current income exempt from Federal income taxes
consistent with stability of principal
- --------------------------------------------------------------------------------
Investment Focus Tax-free money market instruments
- --------------------------------------------------------------------------------
Share Price Volatility Very low
- --------------------------------------------------------------------------------
Principal Investment Investing in a well diversified portfolio of short-term
Strategy municipal securities which pay interest that is exempt
from Federal income taxes
- --------------------------------------------------------------------------------
Investor Profile Taxable investors who want income exempt from federal
income taxes through a liquid investment
- --------------------------------------------------------------------------------
[graphic of binoculars omitted]
Investment Strategy of the Expedition
Tax-Free Money Market Fund
The Fund invests substantially all of its assets in a broad range of high
quality short-term municipal money market instruments that pay interest that is
exempt from Federal income taxes. The issuers of these securities may be state
and local governments and agencies located in any of the fifty states, the
District of Columbia, Puerto Rico and other U.S. territories and possessions.
The Fund's portfolio seeks to be well diversified among these issuers, and will
be comprised only of short-term debt securities that are rated in one of the two
highest categories by nationally recognized ratings organizations, or have been
determined by the Sub-Adviser to be of equal quality. The Fund will maintain an
average dollar weighted maturity of 90 days or less, and will only acquire
securities that have a remaining maturity of 397 days or less.
6
<PAGE>
The Adviser has engaged Weiss, Peck & Greer, L.L.C. as sub-adviser (Sub-Adviser)
to manage the Fund on a day-to-day basis. The Sub-Adviser's investment selection
process seeks to add value through a strategy that takes advantage of the
inefficient nature of the municipal securities market rather than attempting to
predict interest rate movements. Securities are chosen based on the issuer's
financial condition, the financial condition of any person or company which
guarantees the credit of the issuer, liquidity and competitive yield. The Fund
attempts to avoid purchasing or holding securities that are subject to a decline
in credit quality of the issue through careful credit screening, as well as
ongoing monitoring of each issuer and any person or company providing credit
support.
[graphic of life buoy omitted]
Principal Risks of Investing in the Expedition
Tax-Free Money Market Fund
An investment in the Fund is subject to income risk, which is the possibility
that the Fund's yield will decline due to falling interest rates.
There may be economic or political changes that impact the ability of
municipal issuers to repay principal and to make interest payments on municipal
securities. Changes to the financial condition or credit rating of municipal
issuers also may adversely affect the value of the Fund's municipal securities.
Since the Fund often purchases securities supported by credit enhancements
from banks and other financial institutions, changes in the credit quality of
these institutions could cause losses to the Fund and affect its share price.
[graphic of target omitted]
Performance Information
The Fund commenced operations on May 20, 1998 and did not have a full calendar
year of performance information at the time this prospectus was printed.
7
<PAGE>
- --------------------------------------------------------------------------------
Expedition Tax-Free Money Market Fund
[graphic of dollar sign omitted]
Fund Fees and Expenses
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)*
Institutional Shares
- --------------------------------------------------------------------------------
Management Fees .40%
- --------------------------------------------------------------------------------
Other Expenses .38%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses .78%
- --------------------------------------------------------------------------------
* THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT
FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER IS
WAIVING A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A
SPECIFIED LEVEL. THE ADVISER MAY DISCONTINUE ALL OR PART OF THESE WAIVERS AT
ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES
ARE AS FOLLOWS:
TAX-FREE MONEY MARKET FUND -- INSTITUTIONAL SHARES .43%
For more information about these fees, see "Investment Adviser and Sub-Adviser."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return
and Fund operating expenses remain the same. Although your actual costs may be
higher or lower, your approximate costs of investing $10,000 in the Fund would
be:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$80 $249 $433 $966
- --------------------------------------------------------------------------------
8
<PAGE>
Each Fund's Other Investments
[graphic of life buoy omitted]
In addition to the investments and strategies described in this prospectus, the
Funds also may invest in other securities, use other strategies and engage in
other investment practices. These investments and strategies, as well as those
described in this prospectus, are described in detail in our Statement of
Additional Information. Of course, we cannot guarantee that either Fund will
achieve its investment goal.
Investment Adviser And Sub-Adviser
[graphic omitted]
The Investment Adviser makes investment decisions for the Money Market Fund and
continuously reviews, supervises and administers the Money Market Fund's
investment program. The Adviser oversees the Sub-Adviser to ensure compliance
with the Tax-Free Money Market Fund's investment policies and guidelines, and
monitors the Sub-Adviser's adherence to its investment style. The Adviser pays
the Sub-Adviser out of the investment advisory fees it receives (described
below). The Board of Trustees of Expedition Funds supervises the Adviser and
Sub-Adviser and establishes policies that the Adviser and Sub-Adviser must
follow in their management activities.
Compass Bank, a wholly-owned subsidiary of Compass Bancshares, Inc. (Compass
Bancshares), serves as the Adviser to the Funds. Compass Bank has served as
investment adviser to mutual funds since 1990. Through the Compass Asset
Management Group, the Adviser and its affiliates provide investment advisory and
management services for the assets of individuals, pension and profit sharing
plans, endowments and foundations. As of December 31, 1998, Compass Bank had
approximately $7.8 billion in assets under administration, with investment
discretion over $2.6 billion. For the fiscal period ended October 31, 1998,
Compass Bank received advisory fees as a percentage of average daily net assets
(after waivers) of:
Money Market Fund .17%
Tax-Free Money Market Fund .10%
The Adviser has agreed to voluntarily waive a portion of its fees and
reimburse certain expenses of each Fund in order to limit the total operating
expenses of the Institutional Shares of the Money Market Fund and the Tax-Free
Money Market Fund to 0.43% of the average daily net assets of each Fund. The
Adviser may discontinue all or part of these waivers at any time.
9
<PAGE>
Investment Adviser And Sub-Adviser
Weiss, Peck & Greer, L.L.C. (WPG), One New York Plaza, New York, NY 10004,
serves as the Sub-Adviser and manages the Tax-Free Money Market Fund on a
day-to-day basis. WPG was founded in 1970, and engages in investment management,
venture capital management and management buyouts. Since its founding, WPG has
been active in managing portfolios of tax exempt securities. WPG selects, buys
and sells securities for the Fund under the supervision of the Adviser and the
Board of Trustees.
Purchasing, Selling And Exchanging Fund Shares
This section tells you how to buy, sell (sometimes called "redeem") or exchange
shares of the Funds.
Institutional Shares are for financial institutions investing for their
own or their customers' accounts. Institutional Shares are also available for
purchase by subsidiaries and other affiliates of Compass Bancshares, including
the Compass Asset Management Group, on behalf of certain qualifying fiduciary,
trust, agency, investment advisory, asset allocation, custody or similar
accounts.
[graphic of dollar bill omitted]
How to Purchase Fund Shares
You may purchase shares by:
[Bullet] Mail
[Bullet] Telephone, or
[Bullet] Wire
To purchase Institutional Shares, qualifying customers of the Compass Asset
Management Group should contact their authorized Asset Management Group
representative by calling Compass Bank. Unless you arrange to pay by wire, you
must complete and send in an account application and enclose your check, payable
in U.S. dollars, to "Expedition Funds" and include the name of the appropriate
Fund(s) on the check. A Fund cannot accept third-party checks, credit cards,
credit card checks or cash.
10
<PAGE>
Purchasing, Selling And Exchanging Fund Shares
You may also purchase shares through accounts with brokers and other
institutions that are authorized to place trades in Fund shares for their
customers. If you invest through an authorized institution, you will have to
follow its procedures, which may be different from the procedures for investing
directly. Your institution may charge a fee for its services, in addition to the
fees charged by the Fund. You will also generally have to address your
correspondence or questions regarding the Fund to your institution.
General Information
You may purchase shares on any day that the New York Stock Exchange and the
Federal Reserve are open for business (a Business Day). Shares cannot be
purchased by Federal Reserve Wire on days when either the New York Stock
Exchange or the Federal Reserve is closed.
A Fund may reject any purchase order if it determines that accepting the
order would not be in the best interests of the Fund or its shareholders.
The price per share (the offering price) will be the net asset value per
share (NAV) next determined after the Fund receives your purchase order. We
expect that the NAV of the Funds will remain constant at $1.00 per share.
The Money Market Fund calculates its NAV each business day at 12:00 noon and
4:00 p.m. Central time. So, for you to be eligible to receive dividends declared
on the day you submit your purchase order, generally the Fund must receive your
order and Federal funds (readily available funds) before 4:00 p.m. Central time.
The Tax-Free Money Market Fund calculates its NAV each Business Day at 12:00
noon Central time and the close of normal trading on the New York Stock Exchange
(normally 3:00 p.m. Central time). So, for you to be eligible to receive
dividends declared on the day you submit your purchase order, generally the Fund
must receive your order before 11:30 a.m. Central time and Federal funds
(readily available funds) before 1:00 p.m. Central time.
11
<PAGE>
Purchasing, Selling And Exchanging Fund Shares
How We Calculate NAV
NAV for one Fund share is the value of that share's portion of all of the net
assets in the Fund.
In calculating NAV for the Funds, we generally value a Fund's investment
portfolio using the amortized cost valuation method, which is described in
detail in our Statement of Additional Information. If this method is determined
to be unreliable during certain market conditions or for other reasons, a Fund
may value its portfolio at market price or fair value prices may be determined
in good faith using methods approved by the Board of Trustees.
[graphic of dollar bill omitted]
How to Sell Your Fund Shares
Holders of the Institutional Shares may sell shares by following procedures
established when they opened their account or accounts. If you have questions,
customers of the Compass Asset Management Group should contact their Asset
Management Group authorized representative. Other investors holding shares
through a financial institution or intermediary should contact their financial
institution or intermediary.
If you would like to sell $40,000 or more of your shares, please notify the
Fund in writing and include a signature guarantee by a bank or other financial
institution (a notarized signature is not sufficient).
The sale price of each share will be the next NAV determined after we
receive your request. Redemption requests received before 11:30 a.m. Central
time for the Tax-Free Money Market Fund and before 4:00 p.m. Central time for
the Money Market Fund will not be entitled to that day's dividend.
Receiving Your Money
Normally, we will send your sale proceeds within one Business Day after we
receive your request, and in any event within seven days. Your proceeds can be
wired to your bank account (amounts less than $5,000 may be subject to a wire
fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK,
REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK HAS CLEARED (WHICH MAY
TAKE UP TO 15 DAYS FROM YOUR DATE OF PURCHASE).
12
<PAGE>
Purchasing, Selling And Exchanging Fund Shares
Redemptions in Kind
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Fund's remaining shareholders), we might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). It is highly unlikely that your shares would ever be
redeemed in kind, but if they were you would probably have to pay transaction
costs to sell the securities distributed to you, as well as taxes on any capital
gains from the sale as with any redemption.
Suspension of Your Right to Sell Your Shares
A Fund may suspend your right to sell your shares if the NYSE restricts trading,
the SEC declares an emergency or for other reasons. More information about this
is in our Statement of Additional Information.
[graphic of dollar bill omitted]
How to Exchange Your Shares
You may exchange your shares for any other Institutional Shares of the
Expedition Funds on any Business Day by contacting us directly by mail or
telephone by calling 1-800-992-2085.
You may also exchange shares through your financial institution by mail or
telephone. Customers of the Compass Asset Management Group should contact their
Asset Management Group authorized representative.
IF YOU RECENTLY PURCHASED SHARES BY CHECK, YOU MAY NOT BE ABLE TO EXCHANGE
YOUR SHARES UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM YOUR
DATE OF PURCHASE). This exchange privilege may be changed or canceled at any
time upon 60 days' notice.
When you exchange shares, you are really selling your shares and buying
other Fund shares. So, your sale price and purchase price will be based on the
NAV next calculated after the Fund receives your exchange request.
13
<PAGE>
Purchasing, Selling And Exchanging Fund Shares
Telephone Transactions
Purchasing, selling and exchanging Fund shares over the telephone is extremely
convenient, but not without risk. Although the Fund has certain safeguards and
procedures to confirm the identity of callers and the authenticity of
instructions, the Fund is not responsible for any losses or costs incurred by
following telephone instructions we reasonably believe to be genuine. If you or
your financial institution transact with the Fund over the telephone, you will
generally bear the risk of any loss.
Dividends, Distributions And Taxes
Dividends are declared daily and paid monthly. Each Fund makes distributions of
capital gains, if any, at least annually. If you own Fund shares on a Fund's
record date, you will be entitled to receive the distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify us in writing prior to the date of the distribution. Your election
will be effective for dividends and distributions paid after we receive your
written notice. To cancel your election, simply send us written notice.
Taxes
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Funds and its shareholders. This summary is based on current tax
laws, which may change.
The Funds will distribute substantially all of its income and capital gains,
if any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from the Fund may be taxable whether or not you reinvest them. EACH SALE
OR EXCHANGE OF FUND SHARES IS A TAXABLE EVENT.
The Tax-Free Money Market Fund intends to distribute the federally
tax-exempt income. The Tax-Free Money Market Fund may invest a portion of its
assets in securities that generate taxable income for federal or state income
taxes. Income exempt from federal tax may be subject to state and local taxes.
Any capital gains distributed by the Fund may be taxable.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
14
<PAGE>
Custodian
Compass Bank serves as Custodian for the assets of the Funds. It receives an
annual fee of .02% of each Fund's average daily net assets for this service.
15
<PAGE>
Financial Highlights
The tables that follow present performance information about Institutional
Shares of the Funds. This information is intended to help you understand each
Fund's financial performance for the past five years, or, if shorter, the period
of the Fund's operations. Some of this information reflects financial
information for a single Fund share. The total returns in the tables represent
the rate that you would have earned (or lost) on an investment in a Fund,
assuming you reinvested all of your dividends and distributions. This
information has been audited by Deloitte & Touche LLP, independent public
accountants. Their report, along with each Fund's financial statements, appears
in the annual report that accompanies our Statement of Additional Information.
You can obtain the annual report, which contains more performance information,
at no charge by calling 1-800-992-2085.
<TABLE>
<CAPTION>
For the periods ended October 31,
For a Share Outstanding Throughout each Period.
- ---------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND DISTRIBUTIONS NET ASSET
ASSET VALUE, NET UNREALIZED FROM NET DISTRIBUTIONS VALUE,
BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT FROM END OF TOTAL
OF PERIOD INCOME ON SECURITIES INCOME CAPITAL GAINS PERIOD RETURN+
------------ ---------- ------------- ------------ ------------- --------- -----------
- -----------------
MONEY MARKET FUND
- -----------------
Institutional Shares
<S> <C> <C> <C> <C> <C>
1998 $ 1.00 0.05 -- (0.05) -- $ 1.00 5.33%
1997(1) 1.00 0.02 -- (0.02) -- 1.00 5.26%
RATIO RATIO OF NET
OF EXPENSES INVESTMENT INCOME
RATIO OF NET TO AVERAGE TO AVERAGE
RATIO OF INVESTMENT NET ASSETS NET ASSETS
NET ASSETS EXPENSES INCOME (EXCLUDING (EXCLUDING
END OF TO AVERAGE TO AVERAGE WAIVERS AND WAIVERS AND PORTFOLIO
PERIOD (000) NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) TURNOVER RATE
-------------- ----------- ------------ -------------- -------------- -------------
- -----------------
MONEY MARKET FUND
- -----------------
Institutional Shares
<S> <C> <C> <C> <C> <C> <C>
1998 $102,699 0.43% 5.18% 0.66% 4.95% --
1997(1) 48,006 0.43%* 5.22%* 0.70%* 4.95%* --
<FN>
(1) Commenced operations on June 9, 1997.
* Annualized
+ Returns are for the period indicated and have not been annualized.
</FN>
</TABLE>
16 & 17
<PAGE>
Notes
<PAGE>
Notes
<PAGE>
Notes
<PAGE>
Expedition Money Market Fund
Expedition Tax-Free Money Market Fund
Institutional Shares
March 1, 1999
INVESTMENT ADVISER AND CUSTODIAN
COMPASS BANK
15 S. 20TH STREET
BIRMINGHAM, ALABAMA 35233
DISTRIBUTOR
SEI INVESTMENTS DISTRIBUTION CO.
ONE FREEDOM VALLEY DRIVE
OAKS, PENNSYLVANIA 19456
LEGAL COUNSEL
MORGAN, LEWIS & BOCKIUS LLP
1800 M STREET, N.W.
WASHINGTON, DC 20036
MORE INFORMATION ABOUT EXPEDITION FUNDS IS AVAILABLE WITHOUT CHARGE THROUGH THE
FOLLOWING:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
THE SAI DATED MARCH 1, 1999, INCLUDES DETAILED INFORMATION ABOUT EXPEDITION
FUNDS. THE SAI IS ON FILE WITH THE SEC AND IS INCORPORATED BY REFERENCE INTO
THIS PROSPECTUS. THIS MEANS THAT THE SAI, FOR LEGAL PURPOSES, IS A PART OF THIS
PROSPECTUS.
ANNUAL AND SEMI-ANNUAL REPORTS
THESE REPORTS LIST THE FUNDS'HOLDINGS AND CONTAIN INFORMATION FROM THE FUNDS'
MANAGERS ABOUT STRATEGIES, AND RECENT MARKET CONDITIONS AND TRENDS. THE REPORTS
ALSO CONTAIN DETAILED FINANCIAL INFORMATION ABOUT THE FUNDS.
TO OBTAIN MORE INFORMATION:
BY TELEPHONE: CALL 1-800-992-2085
BY MAIL: WRITE TO US
EXPEDITION FUNDS
C/O STATE STREET BANK AND TRUST COMPANY
P.O. BOX 8010
BOSTON, MASSACHUSETTS 02266
FROM THE SEC: YOU CAN ALSO OBTAIN THE SAI OR THE ANNUAL AND SEMI-ANNUAL REPORTS,
AS WELL AS OTHER INFORMATION ABOUT EXPEDITION FUNDS, FROM THE SEC'S WEBSITE
("HTTP://WWW.SEC.GOV"). YOU MAY REVIEW AND COPY DOCUMENTS AT THE SEC PUBLIC
REFERENCE ROOM IN WASHINGTON, DC (FOR INFORMATION CALL 1-800-SEC-0330). YOU MAY
REQUEST DOCUMENTS BY MAIL FROM THE SEC, UPON PAYMENT OF A DUPLICATING FEE, BY
WRITING TO: SECURITIES AND EXCHANGE COMMISSION, PUBLIC REFERENCE SECTION,
WASHINGTON, DC 20549-6009. EXPEDITION FUNDS' INVESTMENT COMPANY ACT REGISTRATION
NUMBER IS 811-5900.
EXP-F-022-01
EXPEDITION MONEY MARKET FUND
EXPEDITION TAX-FREE MONEY MARKET FUND
EXPEDITION BOND FUND
EXPEDITION EQUITY FUND
(PORTFOLIOS OF THE EXPEDITION FUNDS)
MARCH 1, 1999
INVESTMENT ADVISER: COMPASS BANK
This Statement of Additional Information is not a prospectus. It is intended to
provide additional information regarding the activities and operations of the
Expedition Funds (the "Trust") and should be read in conjunction with the
Trust's prospectuses dated March 1, 1999. Prospectuses may be obtained by
writing to the Trust or calling toll-free 1-800-992-2085.
TABLE OF CONTENTS
THE TRUST.....................................................................1
ADDITIONAL INFORMATION ABOUT THE FUNDS AND
THEIR INVESTMENT OBJECTIVES...................................................1
DESCRIPTION OF PERMITTED INVESTMENTS..........................................4
INVESTMENT LIMITATIONS.......................................................17
REGULATORY COMPLIANCE........................................................24
INVESTMENT ADVISER...........................................................25
THE ADMINISTRATOR............................................................27
THE DISTRIBUTOR..............................................................28
THE TRANSFER AGENT...........................................................29
THE CUSTODIAN................................................................29
INDEPENDENT AUDITORS.........................................................29
LEGAL COUNSEL................................................................29
TRUSTEES AND OFFICERS OF THE TRUST...........................................30
PERFORMANCE INFORMATION......................................................34
COMPUTATION OF YIELD.........................................................35
CALCULATION OF TOTAL RETURN..................................................37
PURCHASING SHARES............................................................38
REDEEMING SHARES.............................................................40
DETERMINATION OF NET ASSET VALUE.............................................41
TAXES........................................................................43
FUND TRANSACTIONS............................................................48
TRADING PRACTICES AND BROKERAGE..............................................49
DESCRIPTION OF SHARES........................................................51
SHAREHOLDER LIABILITY........................................................51
LIMITATION OF TRUSTEES' LIABILITY............................................52
YEAR 2000....................................................................52
5% AND 25% SHAREHOLDERS......................................................53
EXPERTS......................................................................55
<PAGE>
- --------------------------------------------------------------------------------
The Trust
Each Fund is a portfolio in the Expedition Funds (the "Trust"). The Trust,
formerly The Starburst Funds, was established as a Massachusetts business trust
under a Declaration of Trust dated August 7, 1989.
Shares of the Expedition Money Market Fund and the Expedition Tax-Free Money
Market Fund (together the "Money Market Funds") are offered in two classes,
known as Investment Service Shares and Institutional Shares. Shares of the
Expedition Bond Fund (the "Bond Fund") and the Expedition Equity Fund (the
"Equity Fund") are offered in three classes, known as the Investment Shares -
Class A ("Class A Shares") (formerly, Investment Shares), Investment Shares -
Class B ("Class B Shares") and Institutional Shares. Each of the Money Market,
Bond and Equity Funds are referred to herein as a "Fund" and collectively as the
"Funds." Capitalized terms not defined herein are defined in the Prospectuses.
No investment in shares of a Fund should be made without first reading the
Fund's prospectus carefully.
Additional Information About the Funds and their Investment Objectives
- --------------------------------------------------------------------------------
No Fund's investment objective can be changed without approval of shareholders.
Expedition Money Market Fund
The Money Market Fund's investment objective is to provide current income
consistent with stability of principal.
The Fund invests in high quality money market instruments that are either rated
in the highest short-term rating category by one or more nationally recognized
statistical rating organizations or of comparable quality to securities having
such ratings. Examples of these instruments include, but are not limited to:
o debt obligations issued by U.S. and foreign corporations, including
variable rate demand notes;
o commercial paper (including Canadian Commercial Paper ("CCP") and
Europaper);
o certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments of domestic and foreign banks and other deposit
institutions ("Bank Instruments");
o short-term credit facilities, such as demand notes;
o debt obligations issued by Canada and other foreign nations, as well as
by supranational entities such as the World Bank;
<PAGE>
o asset-backed and mortgage-backed securities, including collateralized
mortgage obligations ("CMOs");
o obligations issued or guaranteed as to payment of principal and
interest by the U.S. Government or one of its agencies or
instrumentalities ("Government Securities"); and
o other money market instruments, including shares of other money market
funds.
The Fund invests only in instruments denominated and payable in U.S. dollars.
Expedition Tax-Free Money Market Fund
The Tax-Free Money Market Fund's investment objective is to provide current
income, exempt from Federal income taxes, consistent with stability of
principal.
Under normal market conditions, the Fund will invest at least 80% of its net
assets in eligible securities issued by or on behalf of the states, territories
and possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities (collectively, "Municipal
Securities"), the interest on which is exempt from Federal income tax. The Fund
will invest at least 80% of its assets in Municipal Securities the interest on
which is not treated as a preference item for purposes of the federal
alternative minimum tax. This investment policy is a fundamental policy of the
Fund. The Fund will purchase municipal bonds, municipal notes, municipal lease
obligations, tax-exempt money market mutual funds, and tax-exempt commercial
paper rated in the two highest short-term rating categories by a nationally
recognized statistical rating organization (an "NRSRO") in accordance with
Securities and Exchange Commission ("SEC") regulations at the time of investment
or, if not rated, determined by the Adviser to be or comparable quality.
The Adviser will not invest 25% or more of the Fund's assets in Municipal
Securities (a) whose issuers are located in the same state or (b) the interest
on which is derived from revenues of similar type projects. This restriction
does not apply to Municipal Securities in any of the following categories:
public housing authorities; general obligations of states and localities; state
and local housing finance authorities; or municipal utilities systems.
The Fund may purchase municipal obligations with demand features, including
variable and floating rate obligations. In addition, the Fund may invest in
commitments to purchase securities on a "when issued" basis and purchase
securities subject to a standby commitment.
The Fund may invest up to 20% of the Fund's net assets in the aggregate in
taxable money market instruments, taxable money market mutual funds, and
securities subject to the alternative minimum tax. Taxable money market
instruments in which the Fund may invest consist of (i) Municipal Securities;
(ii) bankers' acceptances, certificates of deposits, notes and time deposits
2
<PAGE>
of highly-rated U.S. banks and U.S. branches of foreign banks; (iii) U.S.
Treasury obligations and obligations issued or guaranteed by the agencies and
instrumentalities of the U.S. Government, including STRIPS; (iv) high quality
commercial paper issued by U.S. and foreign corporations; (v) debt obligations
with a maturity of one year or less issued by corporations with outstanding
high-quality commercial paper; (vi) receipts (including TRs, TIGRs and CATs, as
defined below) and (vii) repurchase agreements involving any of the foregoing
obligations entered into with highly-rated banks and broker-dealers.
The Fund may engage in securities lending and may also borrow money in amounts
up to 33% of its net assets.
With respect to investments in U.S. treasury STRIPS, which are sold with
original issue discount and do not make periodic cash interest payments, the
Fund will be required to include as part of its current income the imputed
interest on such obligations even though the Fund has not received any interest
payments on such obligations during that period. Because the Fund distributes
all of its net investment income to its shareholders, the Fund may have to sell
portfolio securities to distribute such imputed income, which may occur at a
time when the Adviser would not have chosen to sell such securities and which
may result in a taxable gain or loss.
Investment income received directly by the Fund on direct U.S. Government
obligations is exempt from income tax at the state level when received directly
and may be exempt, depending on the state, when received by a shareholder as
income dividends provided certain state specific conditions are satisfied.
Interest received on repurchase agreements collateralized by direct U.S.
Government obligations normally is not exempt from state taxation. The Fund will
inform shareholders annually of the percentage of income and distributions
derived from direct U.S. Government obligations. Shareholders should consult
their tax advisers to determine whether any portion of the income dividends
received from the Fund is considered tax exempt in their particular states.
Opinions relating to the validity of municipal securities and to the exemption
of interest thereon from federal income tax are rendered by bond counsel to the
respective issuers at the time of issuance. Neither the Funds nor the Adviser
will review the proceedings relating to the issuance of municipal securities or
the basis for such opinions.
Expedition Bond Fund
The Bond Fund's investment objective is to provide current income.
The Fund invests primarily in bonds as well as other fixed income securities.
Under normal circumstances, the Fund will invest at least 65% of the value of
its total assets in bonds, which may include debentures and notes, issued by
U.S. and foreign companies as well as by U.S. and foreign governments and
supranational entities. All such instruments must be denominated in U.S. dollars
and must be rated "A" or better by one or more nationally recognized statistical
3
<PAGE>
rating organization ("NRSRO") at the time of purchase. Under normal
circumstances, the Fund's average weighted maturity will be maintained at from 3
to 5 years. In the event that a security owned by the Fund is downgraded below
the stated rating categories, the Adviser will review and take appropriate
action with regard to the security. The Fund may invest any remaining assets in
a variety of fixed income securities, as further described below.
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. The estimated annual rate of portfolio turnover
will not exceed 100%.
Expedition Equity Fund
The Equity Fund's investment objective is to provide growth of capital, with a
secondary objective of income.
The Fund invests primarily (at least 80% of the value of its total assets) in
common stocks issued by mid-and large-capitalization companies. The Fund may
invest any remaining assets in warrants and rights to purchase common stocks,
preferred stocks convertible into common stock, non-convertible preferred
stocks, U.S. dollar denominated equity securities of foreign issuers listed on
national securities exchanges or actively traded in the over-the counter market,
and American Depositary Receipts ("ADRs"). The Fund also may purchase and sell
("write") put and call options (including options on indices) and may purchase
financial futures contracts and options thereon. The Fund also may purchase
bonds convertible into common stock and Standard & Poor's Depositary Receipts
("SPDRs").
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. The estimated annual rate of portfolio turnover
will not exceed 100%.
Description of Permitted Investments
- --------------------------------------------------------------------------------
American Depository Receipts ("ADRs")
ADRs are securities, typically issued by a U.S. financial institution (a
"depositary), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. ADRs
include American Depositary Shares and New York Shares. Generally, ADRs are
designed for trading in the U.S. securities market. ADRs may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the security underlying the receipt and
a depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's's underlying security. The
Equity Fund may invest in ADRs traded on registered exchanges or on NASDAQ and
may also invest in ADRs not traded on an established exchange.
4
<PAGE>
While the Fund typically invests in sponsored ADRs, joint arrangements between
the issuer and the depositary, some ADRs may be unsponsored. Unlike sponsored
ADRs, the holders of unsponsored ADRs bear all expenses and the depositary may
not be obligated to distribute shareholder communications or to pass through the
voting rights on the deposited securities.
Asset-Backed Securities
Asset-backed securities are securities backed by non-mortgage assets such as
company receivables, truck and auto loans, leases and credit card receivables.
Other asset-backed securities may be created in the future. These securities may
be traded over-the-counter and typically have a short-intermediate maturity
structure depending on the paydown characteristics of the underlying financial
assets which are passed through to the security holder. These securities are
generally issued as pass-through certificates, which represent undivided
fractional ownership interests in the underlying pool of assets. Asset-backed
securities may also be debt obligations, which are known as collateralized
obligations and are generally issued as the debt of a special purpose entity,
such as a trust, organized solely for the purpose of owning these assets and
issuing debt obligations.
Asset-backed securities are not issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; however, the payment of principal and interest on
such obligations may be guaranteed up to certain amounts and, for a certain
period, by a letter of credit issued by a financial institution (such as a bank
or insurance company) unaffiliated with the issuers of such securities. The
purchase of asset-backed securities raises risk considerations peculiar to the
financing of the instruments underlying such securities. For example, there is a
risk that another party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. There also is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on those securities.
Asset-backed securities entail prepayment risk, which may vary depending on the
type of asset, but is generally less than the prepayment risk associated with
mortgage-backed securities. In addition, credit card receivables are unsecured
obligations of the card holder.
The market for asset-backed securities is at a relatively early stage of
development. Accordingly, there may be a limited secondary market for such
securities.
Bank Obligations
Bank obligations are short-term obligations issued by U.S. and foreign banks,
including bankers' acceptances, certificates of deposit, custodial receipts, and
time deposits. Eurodollar and Yankee Bank Obligations are U.S. dollar-
denominated certificates of deposit or time deposits issued outside the
U.S. by foreign branches of U.S. banks or by foreign banks.
5
<PAGE>
Common and Preferred Stocks
Common and preferred stocks represent units of ownership in a corporation.
Owners of common stock typically are entitled to vote on important matters.
Owners of preferred stock ordinarily do not have voting rights, but are entitled
to dividends at a specified rate. Preferred stock has a prior claim to common
stockholders with respect to dividends.
Credit Enhanced Securities
Funds typically evaluate the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the party providing
the credit enhancement (the "credit enhancer"), rather than the issuer. However,
credit-enhanced securities will not be treated as having been issued by the
credit enhancer for diversification purposes, unless the Money Market Fund has
invested more than 10% of its assets in securities issued, guaranteed or
otherwise credit enhanced by the credit enhancer, in which case the securities
will be treated as having been issued by both the issuer and the credit
enhancer.
The Money Market Fund may have more than 25% of its total assets invested in
securities credit enhanced by banks.
Debt Securities
Debt securities represent money borrowed that obligates the issuer (e.g., a
corporation, municipality, government, government agency) to repay the borrowed
amount at maturity (when the obligation is due and payable) and usually to pay
the holder interest at specific times (e.g., bonds, notes, debentures).
The Euro
On January 1, 1999, the European Monetary Union (EMU) implemented a new currency
unit, the Euro. The countries initially converting or tieing their currencies to
the Euro include Austria, Belgium, France, Germany, Luxembourg, the Netherlands,
Ireland, Finland, Italy, Portugal, and Spain. Financial transactions and market
information, including share quotations and company accounts, in participating
countries are denominated in Euros. Approximately 46% of the stock exchange
capitalization of the total European market is now reflected in Euros, and
participating governments now issue their bonds in Euros. Monetary policy for
participating countries is now uniformly managed by a new central bank, the
European Central Bank (ECB).
Although it is not possible to predict the impact of the Euro conversion on the
Funds, the transition to the Euro may change the economic environment and
behavior of investors, particularly in European markets. For example, investors
may begin to view those countries participating in the EMU as a single entity,
and the Adviser may need to adapt investment strategies accordingly. The process
of implementing the Euro also may adversely affect financial markets worldwide
and may result in changes in the relative strength and value of the U.S. dollar
6
<PAGE>
or other major currencies, as well as possible adverse tax consequences. The
transition to the Euro is likely to have a significant impact on fiscal and
monetary policy in the participating countries and may produce unpredictable
effects on trade and commerce generally. These resulting uncertainties could
create increased volatility in financial markets world-wide.
Foreign Securities
Foreign securities include equity securities of foreign entities, obligations of
foreign branches of U.S. banks and of foreign banks, including, without
limitation, European Certificates of Deposit, European Time Deposits, European
Bankers' Acceptances, Canadian Time Deposits, Europaper and Yankee Certificates
of Deposit, and investments in Canadian Commercial Paper and foreign securities.
These instruments have investment risks that differ in some respects from those
related to investments in obligations of U.S. domestic issuers. Such risks
include future adverse political and economic developments, the possible
imposition of withholding taxes on interest or other income, possible seizure,
nationalization, or expropriation of foreign deposits, the possible
establishment of exchange controls or taxation at the source, greater
fluctuations in value due to changes in exchange rates, or the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. Such investments may also entail
higher custodial fees and sales commissions than domestic investments. Foreign
issuers of securities or obligations are often subject to accounting treatment
and engage in business practices different from those respecting domestic
issuers of similar securities or obligations. Foreign branches of U.S. banks and
foreign banks may be subject to less stringent reserve requirements than those
applicable to domestic branches of U.S. banks.
Futures Contracts and Options on Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific security at a specified future
time and at a specified price. An option on a futures contract gives the
purchase the right, in exchange for a premium, to assume a position in a futures
contract at a specified exercise price during the term of the option.
A Fund may use futures contracts, and related options for bona fide hedging
purposes, to offset changes in the value of securities held or expected to be
acquired. They may also be used to minimize fluctuations in foreign currencies
or to gain exposure to a particular market or instrument. A Fund will minimize
the risk that it will be unable to close out a futures contract by only entering
into futures contracts which are traded on national futures exchanges and for
which there appears to be a liquid secondary market.
Index futures are futures contracts for various indices that are traded on
registered securities exchanges. An index futures contract obligates the seller
to deliver (and the purchaser to take) an amount of cash equal to a specific
dollar amount times the difference between the value of a specific index at the
close of the last trading day of the contract and the price at which the
agreement is made.
7
<PAGE>
Although futures contracts by their terms call for actual delivery or acceptance
of the underlying securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery. Closing out an
open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold" or "selling" a contract which has
previously been "purchased") in an identical contract to terminate the position.
Brokerage commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with or for the account of a broker or custodian to
initiate and maintain open 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, a Fund would continue
to be required to make daily cash payments to maintain its required margin. In
such situations, if a 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 Funds may be required to make
delivery of the instruments underlying the futures contracts they hold. The
inability to close options and futures positions also could have an adverse
impact on the ability to effectively hedge the underlying securities.
The risk of loss in trading futures contracts 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 (or gain) to a
Fund. 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 if
the contract were closed out. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the contract. However,
because the Funds will be engaged in futures transactions only for hedging
purposes, the Advisers do not believe that the Funds will generally be subject
to the risks of loss frequently associated with futures transactions. The Funds
presumably would have sustained comparable losses if, instead of the futures
contract, they had invested in the underlying financial instrument and sold it
after the decline. The risk of loss from the purchase of options is less as
compared with the purchase or sale of futures contracts because the maximum
amount at risk is the premium paid for the option.
Utilization of futures transactions by the Funds does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the fund securities being hedged. It is also
possible that the Funds could both lose money on futures contracts and
experience a decline in value of its fund securities. There is also the risk of
loss by the Funds of margin deposits in the event of the bankruptcy of a broker
with whom the Funds have 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
8
<PAGE>
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
future positions and subjecting some futures traders to substantial losses.
Investment Company Shares
The Funds may purchase shares of other mutual funds to the extent consistent
with applicable law. Investment companies typically incur fees that are separate
from those fees incurred directly by the Funds. A Fund's purchase of such
investment company securities results in the layering of expenses, such that you
would indirectly bear a proportionate share of investment company operating
expenses, such as advisory fees.
Lending of Portfolio Securities
The collateral received when a Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Funds may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker.
Municipal Securities
MUNICIPAL SECURITIES -- The two principal classifications of Municipal
Securities are "general obligation" and "revenue" issues. General obligation
issues are issues involving the credit of an issuer possessing taxing power and
are payable from the issuer's general unrestricted revenues, although the
characteristics and method of enforcement of general obligation issues may vary
according to the law applicable to the particular issuer. Revenue issues are
payable only from the revenues derived from a particular facility or class of
facilities or other specific revenue source. Municipal Securities include debt
obligations issued by governmental entities to obtain funds for various public
purposes, such as the construction of a wide range of public facilities, the
refunding of outstanding obligations, the payment of general operating expenses,
and the extension of loans to other public institutions and facilities. Certain
private activity bonds that are issued by or on behalf of public authorities to
finance various privately-owned or operated facilities are included within the
term "Municipal Securities." Private activity bonds and industrial development
bonds are generally revenue bonds, the credit and quality of which are directly
related to the credit of the private user of the facilities.
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Municipal Securities may also include general obligation notes, tax anticipation
notes, bond anticipation notes, revenue anticipation notes, project notes,
certificates of indebtedness, demand notes, tax-exempt commercial paper,
construction loan notes and other forms of short-term, tax-exempt loans. Such
instruments are issued with a short-term maturity in anticipation of the receipt
of tax funds, the proceeds of bond placements or other revenues. Project notes
are issued by a state or local housing agency and are sold by the Department of
Housing and Urban Development. While the issuing agency has the primary
obligation with respect to its project notes, they are also secured by the full
faith and credit of the United States through agreements with the issuing
authority which provide that, if required, the Federal government will lend the
issuer an amount equal to the principal of and interest on the project notes.
The quality of Municipal Securities, both within a particular classification and
between classifications, will vary, and the yields on Municipal Securities
depend upon a variety of factors, including general money market conditions, the
financial condition of the issuer (or other entity whose financial resources are
supporting the securities), general conditions of the municipal bond market, the
size of a particular offering, the maturity of the obligation and the rating(s)
of the issue. In this regard, it should be emphasized that the ratings of any
NRSRO are general and are not absolute standards of quality. Municipal
Securities with the same maturity, interest rate and rating(s) may have
different yields, while Municipal Securities of the same maturity and interest
rate with different rating(s) may have the same yield.
An issuer's obligations under its Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
the enforcement of such obligations or upon the ability of municipalities to
levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Municipal Securities may be
materially adversely affected by litigation or other conditions.
MUNICIPAL LEASES -- A Fund may invest in instruments, or participations in
instruments, issued in connection with lease obligations or installment purchase
contract obligations of municipalities ("municipal lease obligations"). Although
municipal lease obligations do not constitute general obligations of the issuing
municipality, a lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate funds for, and make the payments due under
the lease obligation. However, certain lease obligations contain
"non-appropriation" clauses, which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose in the relevant years. Municipal lease
obligations are a relatively new form of financing, and the market for such
obligations is still developing. Municipal leases will be treated as liquid only
if they satisfy criteria set forth in guidelines established by the Board of
Trustees, and there can be no assurance that a market will exist or continue to
exist for any municipal lease obligation. The guidelines indicate that (a) the
Adviser shall consider and evaluate such factors as it deems appropriate to
determine that the securities to be purchased are liquid, including, but not
limited to the following factors: (i) the frequency of trades and market
quotations for the securities; (ii) the
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number of dealers willing and ready to purchase and sell the securities; (iii)
the number of potential purchasers for the securities; (iv) whether any dealers
have agreed to make a market in the securities; (v) the nature of the securities
and the nature of marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of transfer;
(vi) whether the lease can be canceled; (vii) what assurances, if any, exist
that the assets represented by the lease can be sold; (viii) the strength of the
lessee's general credit; (ix) the likelihood that the municipality will
discontinue appropriating funding for the leased property because the property
is no longer deemed essential to the operation of the municipality; and (x) the
legal recourse in the event of failure to appropriate.
PUTS ON MUNICIPAL SECURITIES -- A Fund may acquire "puts" with respect to its
acquisition of Municipal Securities. A put is a right to sell a specified
security (or securities) within a specified period of time at a specified
exercise price. A Fund may sell, transfer, or assign the put only in conjunction
with the sale, transfer, or assignment of the underlying security or securities.
The amount payable upon the exercise of a put is normally (i) a Fund's
acquisition cost of the Municipal Securities (excluding any accrued interest
which the Fund paid on the acquisition), less any amortized market premium or
plus any amortized market or original issue discount during the period the Fund
owned the securities, plus (ii) all interest accrued on the securities since the
last interest payment date during that period.
Puts on Municipal Securities may be acquired to facilitate the liquidity of
portfolio assets and the reinvestment of assets at a rate of return more
favorable than that of the underlying security. A Fund will generally acquire
puts only where the puts are available without the payment of any direct or
indirect consideration. However, if necessary or advisable, the Fund may pay for
puts either separately in cash or by paying a higher price for portfolio
securities which are acquired subject to the puts (thus reducing the yield to
maturity otherwise available for the same securities).
TAXABLE MUNICIPAL SECURITIES -- The Tax-Free Money Market Fund may invest up to
20% of its net assets in taxable securities, including Municipal Securities,
such as certain private activity or industrial revenue bonds, the interest on
which is not tax-exempt for Federal income tax purposes but which otherwise meet
the Fund's investment criteria.
Other Investments
The Funds are not prohibited from investing in bank obligations issued by
clients of SEI Investments Company ("SEI Investments"), the parent company of
the Administrator and the Distributor. The purchase of Fund shares by these
banks or their customers will not be a consideration in deciding which bank
obligations the Funds will purchase. The Funds will not purchase obligations
issued by the Adviser or its affiliates.
Privately Issued Mortgage-Related Securities
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Privately issued mortgage-related securities generally represent an ownership
interest in federal agency mortgage pass through securities such as those issued
by Government National Mortgage Association. The terms and characteristics of
the mortgage instruments may vary among pass through mortgage loan pools.
Ratings
A nationally recognized statistical rating organizations' ("NRSROs") highest
rating category is determined without regard for subcategories and gradations.
For example, securities rated A-1 or A-1+ by Standard & Poor's Ratings Group
("S&P"), Prime-1 by Moody's Investors Service, Inc. ("Moody's"), or F-1 (+ or -)
by Fitch Investors Service, Inc. ("Fitch") are all considered rated in the
highest short-term rating category. The Money Market Funds will follow
applicable regulations in determining whether a security rated by more than one
NRSRO can be treated as being in the highest short-term rating category;
currently, unless a security is rated by only one NRSRO, such securities must be
rated by two NRSROs in their highest rating category. See "Regulatory
Compliance."
Repurchase Agreements
Repurchase agreements are agreements by which a person (e.g., a Fund) obtains a
security and simultaneously commits to return the security to the seller (a
primary securities dealer as recognized by the Federal Reserve Bank of New York
or a national member bank as defined in Section 3(d)(1) of the Federal Deposit
Insurance Act, as amended) at an agreed upon price (including principal and
interest) on an agreed upon date within a number of days (usually not more than
seven) from the date of purchase. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is, in
effect, secured by the value of the underlying security.
Repurchase agreements are considered to be loans by a Fund for purposes of its
investment limitations. The repurchase agreements entered into by a Fund will
provide that the underlying security at all times shall have a value at least
equal to 102% of the resale price stated in the agreement (the Advisers and
Sub-Adviser monitor compliance with this requirement). Under all repurchase
agreements entered into by a Fund, the appropriate Custodian or its agent must
take possession of the underlying collateral. However, if the seller defaults, a
Fund could realize a loss on the sale of the underlying security to the extent
that the proceeds of the sale including accrued interest are less than the
resale price provided in the agreement including interest. In addition, even
though the Bankruptcy Code provides protection for most repurchase agreements,
if the seller should be involved in bankruptcy or insolvency proceedings, a Fund
may incur delay and costs in selling the underlying security or may suffer a
loss of principal and interest if the Fund is treated as an unsecured creditor
and required to return the underlying security to the seller's estate.
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Restricted Securities
Restricted securities are securities that may not be sold to the public without
registration under the Securities Act of 1933 (the "1933 Act") or an exemption
from registration. Permitted investments for the Funds include restricted
securities, and each such Fund may invest up to 15% of its net assets (10% for
the Money Market Funds) in illiquid securities, subject to each Fund's
investment limitations on the purchase of illiquid securities. Restricted
securities, including securities eligible for re-sale under 1933 Act Rule 144A,
that are determined to be liquid are not subject to this limitation. This
determination is to be made by the Funds' Adviser pursuant to guidelines adopted
by the Board of Trustees. Under these guidelines, the Adviser will consider the
frequency of trades and quotes for the security, the number of dealers in, and
potential purchasers for, the securities, dealer undertakings to make a market
in the security, and the nature of the security and of the marketplace trades.
In purchasing such Restricted Securities, the Adviser intends to purchase
securities that are exempt from registration under Rule 144A under the 1933 Act.
Reverse Repurchase Agreements
Reverse repurchase agreements are similar to borrowing cash. In a reverse
repurchase agreement a Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker or dealer, in return for
a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable a Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
a Fund will be able to avoid selling portfolio instruments at a disadvantageous
time.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These assets are marked to market daily and
maintained until the transaction is settled.
During the period any reverse repurchase agreements are outstanding, but only to
the extent necessary to assure completion of the reverse repurchase agreements,
the Money Market Fund will restrict the purchase of portfolio instruments to
money market instruments maturing on or before the expiration date of the
reverse repurchase agreement.
Securities Lending
Each Fund may lend securities pursuant to agreements which require that the
loans be continuously secured by collateral at all times equal to 100% of the
market value of the loaned securities which consists of: cash, securities of the
U.S. Government or its agencies, or any combination of cash and such securities.
Such loans will not be made if, as a result, the
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aggregate amount of all outstanding securities loans for a Fund exceed one-third
of the value of the Fund's total assets taken at fair market value. A Fund will
continue to receive interest on the securities lent while simultaneously earning
interest on the investment of the cash collateral in U.S. Government securities.
However, a Fund will normally pay lending fees to such broker-dealers and
related expenses from the interest earned on invested collateral. There may be
risks of delay in receiving additional collateral or risks of delay in recovery
of the securities or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans are made only to borrowers
deemed by the Adviser to be of good standing and when, in the judgment of the
Adviser, the consideration which can be earned currently from such securities
loans justifies the attendant risk. Any loan may be terminated by either party
upon reasonable notice to the other party. The Funds may use the Distributor or
a broker-dealer affiliate of the Adviser and Sub-Adviser as a broker in these
transactions.
Standard & Poor's Depositary Receipts ("SPDRs")
SPDRs are securities that represent ownership in a unit investment trust (a
"UIT") that holds a portfolio of common stocks designed to track the performance
of the Standard & Poor's 500 Composite Stock Price Index (the "S&P Index").
SPDRs may be obtained from the UIT directly or purchased in the secondary
market. SPDRs are generally listed on the American Stock Exchange.
The UIT will issue SPDRs in aggregations of 50,000 known as "Creation Units" in
exchange for a "Portfolio Deposit" consisting of (a) a portfolio of securities
substantially similar to the component securities ("Index Securities") of the
S&P Index, (b) a cash payment equal to a pro rata portion of the dividends
accrued on the UIT's portfolio securities since the last dividend payment by the
UIT, net of expenses and liabilities, and (c) a cash payment or credit
("Balancing Amount") designed to equalize the net asset value of the S&P Index
and the net asset value of a Portfolio Deposit.
SPDRs are not individually redeemable, except upon termination of the UIT. To
redeem, the Fund must accumulate enough SPDRs to reconstitute a Creation Unit.
The liquidity of small holdings of SPDRs, therefore, will depend upon the
existence of a secondary market. Upon redemption of a Creation Unit, the Fund
will receive Index Securities and cash identical to the Portfolio Deposit
required of an investor wishing to purchase a Creation Unit that day.
The price of SPDRs is derived and based upon the securities held by the UIT.
Accordingly, the level of risk involved in the purchase or sale of a SPDR is
similar to the risk involved in the purchase or sale of traditional common
stock, with the exception that the pricing mechanism for SPDRs is based on a
basket of stocks. Disruptions in the markets for the securities underlying SPDRs
purchased or sold by the Fund could result in losses on SPDRs. Trading in SPDRs
involves risks similar to those risks, described above under "Options," involved
in the writing of options on securities.
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STRIPS
Separately Traded Interest and Principal Securities ("STRIPS") are component
parts of U.S. Treasury Securities traded through the Federal Book-Entry System.
An Advisor will only purchase STRIPS that it determines are liquid or, if
illiquid, do not violate the affected Fund's investment policy concerning
investments in illiquid securities. Consistent with Rule 2a-7 under the
Investment Company Act of 1940, as amended, (the "1940 Act"), the Money Market
Funds' Adviser will only purchase STRIPS for Money Market Funds that have a
remaining maturity of 397 days or less; therefore, the Money Market Funds
currently may only purchase interest component parts of U.S. Treasury
securities. While there is no limitation on the percentage of a Fund's assets
that may be comprised of STRIPS, the Money Market Funds' Adviser will monitor
the level of such holdings to avoid the risk of impairing shareholders'
redemption rights and of deviations in the value of shares of the Money Market
Funds.
U.S. Government Obligations
The types of U.S. Government obligations in which the Funds may invest generally
include direct obligations of the U.S. Treasury (such as U.S. Treasury bills,
notes, and bonds) and obligations issued or guaranteed by U.S. Government
agencies or instrumentalities. These securities are backed by:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
o the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
o Farm Credit Banks;
o National Bank for Cooperatives;
o Federal Home Loan Banks;
o Farmers Home Administration; and
o Fannie Mae.
Variable and Floating Rate Securities
Variable and floating rate instruments involve certain obligations that may
carry variable or floating rates of interest, and may involve a conditional or
unconditional demand feature. Such instruments bear interest at rates which are
not fixed, but which vary with changes in specified market rates or indices. The
interest rates on these securities may be reset daily, weekly,
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quarterly, or some other reset period, and may have a set floor or ceiling on
interest rate changes. There is a risk that the current interest rate on such
obligations may not accurately reflect existing market interest rates. A demand
instrument with a demand notice exceeding seven days may be considered illiquid
if there is no secondary market for such security.
Warrants
Warrants give holders the right, but not the obligation, to buy shares of a
company at a given price, usually higher than the market price, during a
specified period.
When-Issued Securities
The Funds may purchase debt obligations on a when-issued basis, in which case
delivery and payment normally take place on a future date. The Funds will make
commitments to purchase obligations on a when-issued basis only with the
intention of actually acquiring the securities, but may sell them before the
settlement date. During the period prior to the settlement date, the securities
are subject to market fluctuation, and no interest accrues on the securities to
the purchaser. The payment obligation and the interest rate that will be
received on the securities at settlement are each fixed at the time the
purchaser enters into the commitment. Purchasing obligations on a when-issued
basis may be used as a form of leveraging because the purchaser may accept the
market risk prior to payment for the securities. The Funds, however, will not
use such purchases for leveraging; instead, as disclosed in the Prospectus, the
Funds will set aside assets to cover its commitments. If the value of these
assets declines, the Funds will place additional liquid assets aside on a daily
basis so that the value of the assets set aside is equal to the amount of the
commitment.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an advantageous
price or yield for a Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the appropriate Fund
sufficient to make payment for the securities to be purchased are segregated on
the Fund's records at the trade date. These assets are marked to market daily
and are maintained until the transaction has been settled. Each Fund does not
intend to engage in when-issued and delayed delivery transactions to an extent
that would cause the segregation of more than 20% of the total value of its
assets.
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Investment Limitations
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MONEY MARKET FUND
Fundamental Limitations
The Money Market Fund is subject to a number of fundamental investment
restrictions that may be changed only by a vote of a majority of the outstanding
shares of the Fund. A "majority of the outstanding shares" of the Trust or the
Fund means the affirmative vote, at a meeting of shareholders duly called, of
the lesser of (a) 67% or more of the votes of shareholders of the Trust or the
Fund present at a meeting at which the holders of more than 50% of the votes
attributable to shareholders of record of the Trust or the Fund are represented
in person or by proxy, or (b) the holders of more than 50% of the outstanding
votes of shareholders of the Trust or the Fund.
Selling Short and Buying on Margin
The Money Market Fund will not sell any securities short or purchase any
securities on margin but may obtain such short-term credits as may be necessary
for clearance of transactions.
Issuing Senior Securities and Borrowing Money
The Money Market Fund will not issue senior securities except that the Fund may
borrow money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets including the amounts borrowed. The
Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities is deemed
to be inconvenient or disadvantageous. The Fund will not purchase any securities
while borrowings in excess of 5% of the value of its total assets are
outstanding. During the period any reverse repurchase agreements are
outstanding, the Fund will restrict the purchase of portfolio instruments to
money market instruments maturing on or before the expiration date of the
reverse repurchase agreements, but only to the extent necessary to assure
completion of the reverse repurchase agreements.
Pledging Assets
The Money Market Fund will not mortgage, pledge, or hypothecate any assets
except to secure permitted borrowings. In those cases, it may pledge assets
having a value not exceeding the lesser of the dollar amounts borrowed or 15% of
the value of total assets of the Fund at the time of the pledge.
Concentration of Investments
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The Money Market Fund will not invest 25% or more of the value of its total
assets in any one industry except that the Fund will invest 25% of the value of
its total assets in the commercial paper issued by finance companies.
The Fund may invest more than 25% of the value of its total assets in cash or
cash items, securities issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities, or instruments secured by these money market
instruments, such as repurchase agreements.
Investing in Commodities and Real Estate
The Money Market Fund will not purchase or sell commodities, commodity
contracts, or commodity futures contracts. The Fund will not purchase or sell
real estate, although it may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which are secured
by real estate or interests in real estate.
Investing in Restricted Securities
The Money Market Fund will not invest more than 10% of the value of its net
assets in securities which are subject to legal or contractual restrictions on
resale, except for commercial paper issued under Section 4(2) of the Securities
Act of 1933.
Underwriting
The Money Market Fund will not underwrite any issue of securities, except as it
may be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
Lending Cash or Securities
The Money Market Fund will not lend any of its assets, except portfolio
securities. This shall not prevent the Fund from purchasing or holding bonds,
debentures, notes, certificates of indebtedness, or other debt securities,
entering into repurchase agreements or engaging in other transactions where
permitted by the Fund's investment objective, policies, limitations or
Declaration of Trust.
Diversification of Investments
With respect to 75% of the value of its total assets, the Money Market Fund will
not purchase securities issued by any one issuer (other than cash, cash items or
securities issued or guaranteed by the government of the United States or its
agencies or instrumentalities and repurchase agreements collateralized by such
securities) if as a result more than 5% of the value of its total assets would
be invested in the securities of that issuer.
Non-Fundamental Limitations
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The following limitations may be changed by the Trustees without shareholder
approval. Shareholders will be notified before any material change in these
limitations becomes effective.
Investing in Illiquid Securities
The Money Market Fund will not invest more than 10% of the value of its net
assets in illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable time deposits
with maturities over seven days, and certain restricted securities not
determined by the Trustees to be liquid.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Money Market Fund does not expect to borrow money, pledge securities, invest
in illiquid securities, restricted securities or engage in when-issued and
delayed delivery transactions, or reverse repurchase agreements in excess of 5%
of the value of its net assets during the coming fiscal year.
For purposes of its policies and limitations, the Money Market Fund considers
certificates of deposit and demand and time deposits issued by a U.S. branch of
a domestic bank or savings and loan having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of investment to be "cash items."
For purposes of the Money Market Fund's limitation on industry concentration,
"finance companies" are limited to U.S. banks and U.S. branches of foreign
banks.
THE TAX-FREE MONEY MARKET FUND
Fundamental Limitations
The Tax-Free Money Market Fund is subject to a number of fundamental investment
restric tions that may be changed only by a vote of a majority of the
outstanding shares of the Fund. A "majority of the outstanding shares" of the
Trust or the Fund means the affirmative vote, at a meeting of shareholders duly
called, of the lesser of (a) 67% or more of the votes of shareholders of the
Trust or the Fund present at a meeting at which the holders of more than 50% of
the votes attributable to shareholders of record of the Trust or the Fund are
represented in person or by proxy, or (b) the holders of more than 50% of the
outstanding votes of shareholders of the Trust or the Fund.
Pursuant to these investment restrictions, the Tax-Free Money Market Fund will
not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities and
repurchase agreements involving such securities, if, immediately after such
purchase, more than 5% of the
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value of its total assets would be invested in any one issuer, or more than
10% of the outstanding voting securities of such issuer; provided that the
Fund may invest up to 25% of its total assets without regard to this
restriction only as permitted by applicable laws and regulations. For
purposes of this limitation, a security is considered to be issued by the
government entity (or entities) whose assets and revenues back the
security; with respect to a private activity bond that is backed only by
the assets and revenues of a non-governmental user, a security is
considered to be issued by such non-governmental user. For purposes of this
limitation, all debt securities are each considered as one class.
2. Invest in companies for the purpose of exercising control.
3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding one-third of the value of total assets. Any borrowing
will be done from a bank and to the extent that such borrowing exceeds 5%
of the value of the Fund's assets, asset coverage of at least 300% is
required. In the event that such asset coverage shall at any time fall
below 300%, the Fund shall, within three days thereafter or such longer
period as the Securities and Exchange Commission may prescribe by rules and
regulations, reduce the amount of its borrowings to such an extent that the
asset coverage of such borrowings shall be at least 300%. This borrowing
provision is included solely to facilitate the orderly sale of portfolio
securities to accommodate heavy redemption requests if they should occur
and is not for investment purposes. All borrowings will be repaid before
making additional investments and any interest paid on such borrowings will
reduce income.
4. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings permitted by (3) above in aggregate amounts not to exceed 15% of
total assets taken at current value at the time of the incurrence of such
loan, except as permitted with respect to securities lending.
5. Purchase or sell real estate, real estate limited partnership interests,
commodities or commodities contracts and interests in a pool of securities
that are secured by interests in real estate. However, subject to their
permitted investments, the Fund may invest in companies which invest in
real estate commodities or commodities contracts.
6. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Fund may obtain short-term credits as
necessary for the clearance of security transactions; this limitation shall
not prohibit short sales "against the box."
7. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter under Federal securities laws in selling the Fund
security.
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8. Purchase securities of other investment companies except as permitted by
the 1940 Act, and the rules and regulations thereunder.
9. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowings as described above or as permitted by rule,
regulation or order of the Securities and Exchange Commission.
10. Make loans except that the Fund may (i) purchase or hold debt instruments
in accordance with its investment objective and policies; (ii) enter into
repurchase agreements; and (iii) engage in securities lending as described
in the Prospectus and this Statement of Additional Information.
The Fund has no present intention to sell securities short "against the box."
Non-fundamental Policies
The Fund may not invest in illiquid securities in an amount exceeding, in the
aggregate, 10% of its net assets.
The Fund may not invest in interests in oil, gas or other mineral exploration or
development programs or oil, gas or mineral leases.
With the exception of the limitations that apply to illiquid securities, the
foregoing percentages will apply at the time of the purchase of a security and
shall not be considered violated unless an excess occurs or exists immediately
after and as a result of a purchase of such security.
THE NON-MONEY MARKET FUNDS
Fundamental Limitations
The following are fundamental limitations of the Equity and Bond Funds.
Fundamental investment limitations cannot be changed without shareholder
approval.
Diversification of Investments
With respect to 75% of the value of each Fund's total assets, the Fund will not
purchase securities of any one issuer (other than cash, cash items and
securities issued or guaranteed by the government of the United States or its
agencies or instrumentalities) if as a result more than 5% of the value of its
total assets would be invested in the securities of that issuer.
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Under this limitation, as it relates to the Bond Fund, each governmental
subdivision, including states and the District of Columbia, territories,
possessions of the United States, or their political subdivisions, agencies,
authorities, instrumentalities, or similar entities, will be considered a
separate issuer if its assets and revenues are separate from those of the
governmental body creating it and the security is backed only by its own assets
and revenues.
Buying on Margin
A Fund will not purchase any securities on margin, but may obtain such
short-term credits as are necessary for clearance of transactions. The deposit
or payment by a Fund of initial or variation margin in connection with financial
futures contracts or related options transactions is not considered the purchase
of a security on margin.
Issuing Senior Securities and Borrowing Money
A Fund will not issue senior securities except that the Fund may borrow money
and the Bond Fund may engage in reverse repurchase agreements in amounts up to
one-third of the value of its net assets, including the amounts borrowed.
A Fund will not borrow money or, with respect to the Bond Fund, engage in
reverse repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate management of
the portfolio by enabling a Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while borrowings in
excess of 5% of its total assets are outstanding. During the period any reverse
repurchase agreements are outstanding, but only to the extent necessary to
assure completion of the reverse repurchase agreements, the Bond Fund will
restrict the purchase of portfolio instruments to money market instruments
maturing on or before the expiration date of the reverse repurchase agreements.
Pledging Assets
A Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In these cases, it may pledge assets having a market value
not exceeding the lesser of the dollar amounts borrowed or 10% of the value of
total assets at the time of the borrowing. Neither the deposit of underlying
securities and other assets in escrow in connection with the writing of put or
call options on securities nor margin deposits for the purchase and sale of
financial futures contracts and related options are deemed to be a pledge.
Investing in Real Estate
A Fund will not buy or sell real estate including limited partnership interests,
although it may invest in securities of companies whose business involves the
purchase or sale of real estate or in securities which are secured by real
estate or interests in real estate.
22
<PAGE>
Investing in Commodities
A Fund will not purchase or sell commodities, except that the Fund may purchase
and sell financial futures contracts and related options.
Underwriting
A Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933, as amended, in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
Lending Cash or Securities
A Fund will not lend any of its assets except portfolio securities up to
one-third of the value of its total assets. (This shall not prevent the purchase
or holding of U.S. Government securities, repurchase agreements covering U.S.
Government securities, or other transactions which are permitted by the Fund's
investment objective and policies.)
Selling Short
A Fund will not sell securities short.
Non-Fundamental Limitations
The following limitations may be changed by the Trustees without shareholder
approval. Shareholders will be notified before any material change in these
limitations becomes effective.
Investing in Illiquid Securities
A Fund will not invest more than 15% of the value of its net assets in
securities which are not readily marketable or which are otherwise considered
illiquid, including over-the-counter options and also including repurchase
agreements providing for settlement in more than seven days after notice.
Investing in Securities of Other Investment Companies
A Fund will limit its respective investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment company,
invest no more than 5% of total assets in any one investment company, or invest
more than 10% of total assets in investment companies in general. The Fund will
purchase securities of closed-end investment companies only in open market
transactions involving only customary broker's commissions. However, these
limitations are not applicable if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets. It should be noted that
23
<PAGE>
investment companies incur certain expenses such as management fees, and
therefore any investment by a Fund in shares of another investment company would
be subject to such customary expenses.
The Trust and the Adviser have received an exemptive order from the Securities
and Exchange Commission, which allows the Bond and Equity Funds to invest in
shares of the Trust's Money Market Funds. Should a Fund invest in shares of the
Trust's money market funds, the Trust's Board of Trustees will determine to what
extent, if any, that the Adviser's advisory fees should be adjusted to reflect
the impact of such investments.
Writing Covered Put and Call Options and Purchasing Put Options
A Fund will not write call options on securities unless the securities are held
in the Fund's portfolio or unless the Fund is entitled to them in deliverable
form without further payment or after segregating cash in the amount of any
further payment. When writing put options, the Fund will segregate cash or U.S.
Treasury obligations with a value equal to or greater than the exercise price of
the underlying securities. The Fund will not write put or call options or
purchase put or call options in excess of 5% of the value of its total assets.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
For purposes of its policies and limitations, the Bond Fund considers
certificates of deposit and demand and time deposits issued by a U.S. branch of
a domestic bank or savings association having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of investment to be "cash items."
Regulatory Compliance
- --------------------------------------------------------------------------------
The Money Market Fund and the Tax-Free Money Market Fund may follow
non-fundamental operational policies that are more restrictive than their
fundamental investment limitations, as set forth in the prospectus' for each
fund and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Funds will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. For example, with limited exceptions, Rule 2a-7 prohibits the investment
of more than 5% of the Funds' total assets in the securities of any one issuer,
although the Funds' investment limitation only requires such 5% diversification
with respect to 75% of its assets. The Funds will invest more than 5% of its
assets in any one issuer only under the circumstances permitted by Rule 2a-7.
The Funds will also determine the effective maturity of its investments, as well
as its ability to consider a security as having received the requisite
short-term ratings by NRSROs according to Rule 2a-7. The Funds may change
24
<PAGE>
these operational policies to reflect changes in the laws and regulations
without the approval of their shareholders.
Investment Advisor
- --------------------------------------------------------------------------------
The Adviser, an Alabama state banking corporation, is a wholly-owned subsidiary
of Compass Bancshares, Inc. ("Bancshares"), a bank holding company organized
under the laws of Delaware. Through its subsidiaries and affiliates, Bancshares,
the 48th largest bank holding company in the United States in terms of total
assets as of December 31, 1997, offers a full range of financial services to the
public including commercial lending, depository services, cash management,
brokerage services, retain banking, credit card services, investment advisory
services and trust services.
As of December 31, 1998, Compass Bank offered a broad range of commercial
banking services. The Adviser has served as investment adviser to mutual funds
since February 5, 1990. Through the Compass Asset Management Group, the Adviser
provides investment advisory and management services for the assets of
individuals, pension and profit sharing plans, endowments and foundations. As of
December 31, 1998, the Compass Asset Management Group had approximately $7.8
billion under administration ($2.6 billion of which was comprised of assets of
accounts over which the Adviser exercised discretion).
As part of its regular banking operations, the Adviser may make loans to public
companies. Thus, it may be possible, from time to time, for the Fund to hold or
acquire the securities of issuers which are also lending clients of the Adviser.
The lending relationship will not be a factor in the selection of securities.
The Adviser shall not be liable to the Trust, a Fund, or any shareholder of a
Fund for any losses that may be sustained in the purchase, holding, or sale of
any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Because of the internal controls maintained by the Adviser to restrict the flow
of non-public information, Fund investments are typically made without any
knowledge of the Adviser's or its affiliates' lending relationships with an
issuer.
Advisory Fees
For its advisory services, Compass Bank receives an annual investment advisory
fee as described in the prospectuses.
25
<PAGE>
For the fiscal years ended October 31, 1996, 1997 and 1998, the Funds paid the
following advisory fees:
<TABLE>
<CAPTION>
======================================================================================================================
Fund Fee Waivers
Fees Paid
-------------------------------------------------------------------------------------------
1996 1997 1998 1996 1997 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund $646,650 $490,590 $319,769 $0 $166,107 $413,223
- ----------------------------------------------------------------------------------------------------------------------
Tax-Free Money * * $27,940 * * $78,291
Market Fund
- ----------------------------------------------------------------------------------------------------------------------
Bond Fund $411,493 $478,461 $661,196 $137,165 $68,168 $214,248
- ----------------------------------------------------------------------------------------------------------------------
Equity Fund * $691,952 $1,988,195 * $0 $0
======================================================================================================================
</TABLE>
* An asterisk indicates that the Fund had not commenced operations as of the
period indicated.
Sub-Adviser to the Tax-Free Money Market Fund
The Adviser has entered into a sub-advisory agreement (the "Sub-Advisory
Agreement") with Weiss, Peck & Greer, L.L.C. ("WPG") dated April 1, 1998
relating to the Tax-Free Money Market Fund. Under the Sub-Advisory Agreement,
WPG invests the assets of the Fund on a daily basis, and continuously
administers the investment program of the Fund.
WPG is a limited liability company founded as a limited partnership in 1970, and
engages in investment management, venture capital management and management
buyouts. Since its founding, WPG has been active in managing portfolios of tax
exempt securities. As of February 28, 1998, WPG manages over $15.9 billion in
assets, $2.6 billion of which is invested in tax exempt money market funds. The
principal business address of WPG is One New York Plaza, New York, N.Y. 10004.
WPG is entitled to a fee which is paid by the Adviser and which is calculated
daily and paid monthly, at an annual rate of: .075% of the Fund's average daily
net assets up to $150 million; .05% of the next $350 million of the Fund's
average daily net assets, .04% of the next $500 million in average daily net
assets; and .03% of the Fund's average daily net assets over $1 billion.
The continuance of the Sub-Advisory Agreement, after the first year, must be
specifically approved at least annually (i) by the vote of the Trustees, and
(ii) by the vote of a majority of the Trustees who are not parties to the
Agreement or "interested persons" of any party thereto, cast in person at a
meeting called for the purpose of voting on such approval. The
26
<PAGE>
Sub-Advisory Agreement may be terminated by the Adviser, the Trust's Board of
Trustees or by a vote of the majority of the outstanding voting securities of
the Tax-Free Money Market Fund at any time, without the payment or any penalty,
on sixty (60) days' written notice to WPG and may be terminated at any time by
ninety (90) days' written notice to the Adviser. The Sub-Advisory Agreement will
immediately terminate in the event of its assignment or upon termination of the
Advisory agreement between the Adviser and the Trust with regard to the Tax-Free
Money Market Fund (as used herein, the terms "majority of the outstanding voting
securities," "interested persons" and "assignment" have the same meaning of such
terms in the 1940 Act).
====================================================
Fund Fees Paid Fee Waivers
----------------------------------
1998 1998
- ----------------------------------------------------
Tax-Free $18,627.03 $0
Money
Market
Fund
====================================================
The Administrator
- --------------------------------------------------------------------------------
The Trust and SEI Investments Mutual Funds Services (the "Administrator") have
entered into an administration agreement (the "Administration Agreement"). Under
the Administration Agreement, the Administrator provides the Trust with
administrative services, including regulatory reporting and all necessary office
space, equipment, personnel and facilities. For these administrative services,
The Administrator is entitled to a fee from each Fund, which is calculated daily
and paid monthly, at an annual rate of 0.20% of average daily net assets.
The Administration Agreement provides that the Administrator shall not be liable
for any error of judgment or mistake of law or for any loss suffered by a Fund
in connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Administrator in the performance of its duties or from
reckless disregard by it of its duties and obligations thereunder. The
Administration Agreement was entered into on June 9, 1997 and has a stated term
of three years.
The Administrator, a Delaware business trust, has its principal business offices
at Oaks, Pennsylvania 19456. SEI Investments Management Corporation ("SIMC"), a
wholly-owned subsidiary of SEI Investments, is the owner of all beneficial
interests in the Administrator. SEI Investments and its subsidiaries and
affiliates, including the Administrator, are leading providers of funds
evaluation services, trust accounting systems, and brokerage and
27
<PAGE>
information services to financial institutions, institutional investors, and
money managers. The Administrator and its affiliates also serve as administrator
or sub-administrator to the following other mutual funds: The Achievement Funds
Trust, The Advisors' Inner Circle Fund, The Arbor Fund, ARK Funds, Armada Funds,
Bishop Street Funds, Boston 1784 Funds(R), CrestFunds, Inc., CUFUND, First
American Funds, Inc., First American Investment Funds, Inc., First American
Strategy Funds, Inc., HighMark Funds, Huntington Funds, The Nevis Funds, Oak
Associates Funds, The PBHG Funds, Inc., PBHG Advisor Funds, Inc., PBHG Insurance
Series Fund, Inc., The Pillar Funds, SEI Asset Allocation Trust, SEI Daily
Income Trust, SEI Index Funds, SEI Institutional International Trust, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable
Trust, TIP Funds and Alpha Select Funds.
For the fiscal year ended October 31, 1998, the Administrator earned $274,873,
$39,920, $233,455 and $549,966 for the Money Market, Tax-Free Money Market, Bond
Fund and the Equity Fund, respectively. For the fiscal period beginning June 9,
1997 and ended October 31, 1997, the Administrator earned $149,922, $96,779 and
$186,608 for the Money Market Fund, and Bond and Equity Fund, respectively.
Federated Administrative Services, a subsidiary of Federated Investors,
previously provided administrative personnel and services to the Money Market
and Bond Funds. For the fiscal period beginning November 1, 1996 and ended June
9, 1997 and the fiscal year ended October 31, 1996 the Money Market Fund
incurred $162,059, and $230,264, respectively, for administrative services, on
which there were no voluntary fee waivers. For the fiscal period beginning
November 1, 1996 and ended June 9, 1997 and the fiscal years ended October 31,
1996, the Bond Fund incurred $62,443 and $78,143, respectively, for
administrative services, on which there were no voluntary fee waivers.
The Distributor
- --------------------------------------------------------------------------------
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI Investments, and the Trust are parties to a distribution agreement (the
"Distribution Agreement") which applies to each Fund's classes of shares.
The Non-Money Market Funds imposed a front-end sales charge upon their
Investment Shares (now Class A Shares) in the amounts shown for the fiscal years
ended October 31, 1996, 1997 and 1998:
28
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================
Fund Dollar Amount of Loads Dollar Amount of Loads
Retained by SEI Investments
---------------------------------------------------------------------------------
1996 1997 1998 1996 1997 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bond Fund N/A **$1,431 $1,142 N/A $0 $0
- -------------------------------------------------------------------------------------------------------------------
Equity Fund * $0 $19,807 * $0 $0
===================================================================================================================
</TABLE>
* An asterisk indicates that the Fund had not commenced operations as of the
periods indicated.
** Since 6/9/97
The Administrator provides the Funds with certain administrative personnel and
services necessary to operate the Funds. Such services include shareholder
servicing and certain legal and accounting services. For these services, the
Administrator is entitled to a fee which is calculated daily and paid monthly at
an annual rate of .20% of the Fund's average daily net assets payable from the
assets of the Funds. The Administrator may choose to voluntarily waive a portion
of its fee. The Administrator reserves the right, in its sole discretion, to
termination these voluntary waivers at any time.
The Transfer Agent
- --------------------------------------------------------------------------------
State Street Bank and Trust Company (the "Transfer Agent") serves as transfer
agent for the Trust and Boston Financial Data Services, Inc. (the "Servicing
Agent") serves as the Trust's servicing agent. The fee paid to the Transfer
Agent is based upon the size, type and number of accounts and transactions made
by shareholders. The Transfer Agent pays the Servicing Agent's compensation.
The Custodian
- --------------------------------------------------------------------------------
Compass Bank, Birmingham, Alabama, which is also the Adviser, is custodian for
the securities and cash of the Funds for which it receives an annual fee of
0.02% of each Fund's average aggregate daily net assets and is reimbursed for
its out-of-pocket expenses.
Independent Auditors
- --------------------------------------------------------------------------------
The independent auditors for the Trust are Deloitte & Touche LLP, Princeton, New
Jersey.
Legal Counsel
- --------------------------------------------------------------------------------
Morgan, Lewis & Bockius LLP, 1800 M Street, N.W., Washington, D.C. serves as
legal counsel to the Trust.
29
<PAGE>
Trustees and Officers of the Trust
- --------------------------------------------------------------------------------
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trust pays the fees for
unaffiliated Trustees.
The Trustees and Executive Officers of the Trust, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during that
period. Unless otherwise noted, the business address of each Trustee and each
Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456. Certain
officers of the Trust also serve as officers of some or all of the following:
The Achievement Funds Trust, The Advisors' Inner Circle Fund, The Arbor Fund,
ARK Funds, Armada Funds, Bishop Street Funds, Boston 1784 Funds(R), CrestFunds,
Inc., CUFUND, First American Funds, Inc., First American Investment Funds, Inc.,
First American Strategy Funds, Inc., HighMark Funds, Huntington Funds, Oak
Associates Funds, The PBHG Funds, Inc., PBHG Advisor Funds, Inc., PBHG Insurance
Series Fund, Inc., The Pillar Funds, SEI Asset Allocation Trust, SEI Daily
Income Trust, SEI Index Funds, SEI Institutional International Trust, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable
Trust, TIP Funds and Alpha Select Funds, each of which is an open-end management
investment company managed by SEI Investments Mutual Funds Services or its
affiliates and, except for PBHG Advisor Funds, Inc., distributed by SEI
Investments Distribution Co.
ROBERT A. NESHER (DOB 08/17/46) -- Chairman of the Board of Trustees* --
Currently performs various services on behalf of SEI Investments for which
Mr. Nesher is compensated. Executive Vice President of SEI Investments,
1986-1994. Director and Executive Vice President of the Administrator and
the Distributor, 1981-1994. Trustee of The Advisors' Inner Circle Fund, The
Arbor Fund, Boston 1784 Funds(R), Oak Associates Funds, Pillar Funds, SEI
Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax
Exempt Trust.
JOHN T. COONEY (DOB 01/20/27) -- Trustee** -- Vice Chairman of Ameritrust
Texas N.A., 1989-1992, and MTrust Corp., 1985-1989. Trustee of The
Advisors' Inner Circle Fund, The Arbor Fund, and Oak Associates Funds.
WILLIAM M. DORAN (DOB 05/26/40) -- Trustee* -- 1701 Market Street,
Philadelphia, PA 19103-2921. Partner, Morgan, Lewis & Bockius LLP (law
firm), counsel to the Trust, SEI Investments, the Administrator and the
Distributor. Director and Secretary of SEI Investments and Secretary of the
Administrator and the Distributor. Trustee of The Advisors' Inner Circle
Fund, The Arbor Fund, Oak Associates Funds, SEI Asset Allocation Trust, SEI
Daily Income Trust, SEI Index Funds, SEI Institutional
30
<PAGE>
Investments Trust, SEI Institutional Managed Trust, SEI Institutional
International Trust, SEI Liquid Asset Trust and SEI Tax Exempt Trust.
ROBERT A. PATTERSON (DOB 11/05/27) -- Trustee** -- Pennsylvania State
University, Senior Vice President, Treasurer (Emeritus). Financial and
Investment Consultant, Professor of Transportation (1984-present). Vice
President-Investments, Treasurer, Senior Vice President (Emeritus)
(1982-1984). Director, Pennsylvania Research Corp.; Member and Treasurer,
Board of Trustees of Grove City College. Trustee of The Advisors' Inner
Circle Fund, The Arbor Fund, and Oak Associates Funds.
EUGENE B. PETERS (DOB 06/03/29) -- Trustee** -- Private investor from 1987
to present. Vice President and Chief Financial Officer, Western Company of
North America (petroleum service company) (1980-1986). President of Gene
Peters and Associates (import company) (1978-1980). President and Chief
Executive Officer of Jos. Schlitz Brewing Company before 1978. Trustee of
The Advisors' Inner Circle Fund, The Arbor Fund, and Oak Associates Funds.
JAMES M. STOREY (DOB 04/12/31) -- Trustee** -- Partner, Dechert Price &
Rhoads, from September 1987 - December 1993; Trustee of The Advisors' Inner
Circle Fund, The Arbor Fund, Oak Associates Funds, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional
Investments Trust, SEI Institutional Managed Trust, SEI Institutional
International Trust, SEI Liquid Asset Trust and SEI Tax Exempt Trust.
GEORGE J. SULLIVAN, JR. (DOB 11/13/42) -- Trustee** -- Chief Executive
Officer, Newfound Consultants Inc. since April 1997. General Partner, Teton
Partners, L.P., June 1991- December 1996; Chief Financial Officer, Noble
Partners, L.P., March 1991-December 1996; Treasurer and Clerk, Peak Asset
Management, Inc., since 1991; Trustee, Navigator Securities Lending Trust,
since 1995. Trustee of The Arbor Fund, The Oak Associates Funds, The
Advisors' Inner Circle Funds, SEI Asset Allocation Trust, SEI Daily Income
Trust, SEI Index Funds, SEI Liquid Asset Trust, SEI Institutional
Investments Trust, SEI Institutional Managed Trust, SEI Institutional
International Trust, and SEI Tax Exempt Trust.
MARK E. NAGLE (DOB 10/20/59) -- President and Chief Executive Officer
--Vice President of Fund Accounting and Administration for SEI Fund
Resources and Vice President of the Administrator since 1996. Vice
President of the Distributor since December 1997. Vice President, Fund
Accounting, BISYS Fund Services, September 1995 to November 1996. Senior
Vice President and Site Manager, Fidelity Investments 1981 to September
1995.
TODD B. CIPPERMAN (DOB 02/14/66) -- Vice President and Assistant Secretary
-- Vice President and Assistant Secretary of SEI Investments, the
Administrator and the
31
<PAGE>
Distributor since 1995. Associate, Dewey Ballantine (law firm), 1994-1995.
Associate, Winston & Strawn (law firm) 1991-1994.
JAMES R. FOGGO (DOB 06/30/64) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of the Administrator and the
Distributor since 1998. Associate, Paul Weiss, Rifkind, Wharton & Garrison
(law firm), 1998. Associate, Baker & McKenzie (law firm), 1995-1998.
Associate, Battle Fowler L.L.P. (law firm), 1993-1995. Operations Manager,
The Shareholder Services Group, Inc., 1986-1990.
LYDIA A. GAVALIS (DOB 06/05/64) -- Vice President and Assistant Secretary
-- Vice President and Assistant Secretary of the Administrator and the
Distributor since 1998. Assistant General Counsel and Director of
Arbitration, Philadelphia Stock Exchange, 1989-1998.
KATHY HEILIG (DOB 12/21/58) -- Vice President and Assistant Secretary --
Treasurer of SEI Investments since 1997; Assistant Controller of SEI
Investments since 1995; Vice President of SEI Investments since 1991;
Director of Taxes of SEI Investments, 1987 to 1991. Tax Manager, Arthur
Anderson LLP prior to 1987.
JOSEPH M. O'DONNELL (DOB 11/13/54) -- Vice President and Assistant
Secretary -- Vice President and Assistant Secretary of the Administrator
and the Distributor since 1998. Vice President and General Counsel, FPS
Services, Inc., 1993-1997. Staff Counsel and Secretary, Provident Mutual
Family of Funds, 1990-1993.
SANDRA K. ORLOW (DOB 10/18/53) -- Vice President and Assistant Secretary --
Secretary of the Distributor since 1998; Vice President of the Distributor
since 1988. Vice President and Assistant Secretary of the Manager since
1988. Assistant Secretary of the Distributor from 1988 to 1998.
KEVIN P. ROBINS (DOB 04/15/61) -- Vice President and Assistant Secretary --
Senior Vice President and General Counsel of SEI Investments, the
Administrator and the Distributor since 1994. Assistant Secretary of SEI
Investments since 1992; Secretary of the Administrator since 1994. Vice
President, General Counsel and Assistant Secretary of the Administrator and
the Distributor, 1992-1994. Associate, Morgan, Lewis & Bockius LLP (law
firm), 1988-1992.
LYNDA J. STRIEGEL (DOB 10/30/48) -- Vice President and Assistant Secretary
-- Vice President and Assistant Secretary of the Administrator and the
Distributor since 1998. Senior Asset Management Counsel, Barnett Banks,
Inc., 1997-1998. Partner, Groom and Nordberg, Chartered, 1996-1997.
Associate General Counsel, Riggs Bank, N.A., 1991-1995.
32
<PAGE>
ROBERT DELLACROCE (DOB 12/17/63) -- Controller and Chief Financial Officer
-- Director, Funds Administration and Accounting of SEI Investments since
1994. Senior Audit Manager, Arthur Andersen LLP, 1986 - 1994.
JOHN H. GRADY, JR. (DOB 06/01/61) -- Secretary -- 2000 One Logan Square,
Philadelphia, PA 19103-2921, Partner since 1995, Morgan, Lewis & Bockius
LLP (law firm), counsel to the Trust, SEI Investments, the Administrator
and the Distributor.
---------------
*Messrs. Nesher and Doran are Trustees who may be deemed to be "interested"
persons of the Fund as that term is defined in the 1940 Act.
**Messrs. Cooney, Patterson, Peters, Storey and Sullivan serve as members
of the Audit Committee of the Fund.
<TABLE>
<CAPTION>
=========================================================================================================================
Total
Compensation
From
Registrant
and Fund
Aggregate Pension or Complex*
Compensation From Retirement Estimated Paid to
Registrant for the Benefits Annual Trustees for
Name of Person, Fiscal Year Ending Accrued as Part Benefits the Fiscal
Position October 31, 1998 of Fund Upon Year Ending
Expenses Retirement October 31,
1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Cooney $2,687 N/A N/A $29,000 for
services on 1
board
- -------------------------------------------------------------------------------------------------------------------------
Frank E. Morris** $2,666 N/A N/A $29,000 for
services on 1
board
- -------------------------------------------------------------------------------------------------------------------------
Robert Patterson $3,009 N/A N/A $30,000 for
services on 1
board
- -------------------------------------------------------------------------------------------------------------------------
Eugene B. Peters $2,889 N/A N/A $30,000 for
services on 1
board
- -------------------------------------------------------------------------------------------------------------------------
James M. Storey, Esq. $2,812 N/A N/A $30,000 for
services on 1
board
- -------------------------------------------------------------------------------------------------------------------------
George J. Sullivan, Jr. N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
William M. Doran, Esq. N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
Robert A. Nesher N/A N/A N/A N/A
=========================================================================================================================
</TABLE>
* The Trust is the only investment company in the "Fund Complex."
33
<PAGE>
** Mr. Morris retired as of December 30, 1998.
Officers and Trustees own less than 1% of the Trust's outstanding shares.
Trustee Liability
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
Performance Information
- --------------------------------------------------------------------------------
From time to time a Fund may advertise its performance. Performance figures are
based on historical earnings and are not intended to indicate future
performance.
Classes of Shares and Performance
A Fund's performance fluctuates on a daily basis largely because net earnings
and, with respect to the Non-Money Market Funds, because their offering price
per share fluctuate daily. Both net earnings and offering price per share are
factors in the computation of yield and total return.
Performance Comparisons
Each Fund may periodically compare its performance to other mutual funds tracked
by mutual fund rating services, to broad groups of comparable mutual funds, or
to unmanaged indices. These comparisons may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management costs.
Economic and Market Information
Advertising and sales literature for a Fund may include discussions of economic,
financial and political developments and their effect on the securities market.
Such discussions may take the form of commentary on these developments by Fund
portfolio managers and their views and analysis on how such developments could
affect the Fund. In addition, advertising and sales literature may quote
statistics and give general information about the mutual fund industry,
including the growth of the industry, from sources such as the Investment
Company Institute ("ICI").
34
<PAGE>
Computation of Yield
- --------------------------------------------------------------------------------
Yields are one basis upon which investors may compare the Funds with other money
market funds; however, yields of other money market funds and other investment
vehicles may not be comparable because of the factors set forth above and
differences in the methods used in valuing portfolio instruments.
Seven-Day Yield
The current yield of the Money Market Funds will be calculated daily based upon
the seven days ending on the date of calculation (the "base period"). The yield
is computed by determining the net change (exclusive of capital changes) in the
value of a hypothetical pre-existing shareholder account having a balance of one
share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing such net change by
the value of the account at the beginning of the same period to obtain the base
period return and multiplying the result by (365/7). Realized and unrealized
gains and losses are not included in the calculation of the yield. The effective
compound yield of the Money Market Funds is determined by computing the net
change (exclusive of capital changes) in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result, according to the
following formula: Effective Yield = [(Base Period Return + 1)365/7] - 1. The
current and the effective yields reflect the reinvestment of net income earned
daily on portfolio assets.
The Tax-Free Money Market Fund's "tax equivalent yield" and "tax equivalent
effective yield" are calculated by determining the rate of return that would
have to be achieved on a fully taxable investment to produce the after-tax
equivalent of the Fund's yield, assuming certain tax brackets for a Shareholder.
Tax-exempt yield is calculated according to the same formula except that E
equals the interest exempt from federal income tax earned during the period.
This tax-exempt yield is then translated into tax-equivalent yield according to
the following formula:
TAX EQUIVALENT YIELD = E + T
-----
0/00 1-P
E = the portion of the yield which is tax-exempt
P = stated income tax rate
T = the portion of the yield which is taxable
The yield for the Institutional Shares of the Money Market Fund for the
seven-day period ended October 31, 1998 was 4.90%. The yield for the Investment
Services Shares for
35
<PAGE>
the same period was 4.64%. The yield for the Investment Service Shares of the
Tax-Free Money Market Fund for the seven-day period ended October 31, 1998 was
2.82%.
The yields of these Funds fluctuate, and the annualization of a week's dividend
is not a representation by the Trust as to what an investment in the Fund will
actually yield in the future. Actual yields will depend on such variables as
asset quality, average asset maturity, the type of instruments a Fund invests
in, changes in interest rates on money market instruments, changes in the
expenses of the Fund and other factors.
Thirty-Day Yield
The Bond and Equity Funds may advertise a 30-day yield. In particular, yield
will be calculated according to the following formula:
Yield = (2 (a-b/cd + 1)6 - 1) where a = dividends and interest earned during the
period; b = expenses accrued for the period (net of reimbursement); c = the
average daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period. The Bond Fund's yield for the thirty-day period ended October
31, 1998 was as follows: Class A Shares 3.67% and Class B Shares 4.07%.
The Equity Fund's yield for the thirty-day period ended October 31, 1998 was as
follows: Institutional Shares 0.23% and Class A Shares 0.06%.
CALCULATION OF TOTAL RETURN
The Funds may advertise total return. In particular, total return will be
calculated according to the following formula: P (1 + T)n = ERV, where P = a
hypothetical initial payment of $1,000; T = average annual total return; n =
number of years; and ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the designated time period as of the end of
such period.
The average total returns for the Funds from inception through October 31, 1998
were as follows:
36
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================================
Fund Class(1) Average Annual Total Return
======================================================
One Year Five Ten Since
Years Years Inception*
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Money Market Institutional Shares 5.33% N/A N/A 1.81%
Fund
----------------------------------------------------------------------------------------
Investment Service Shares 5.07% 4.75% N/A 1.99%
- ---------------------------------------------------------------------------------------------------------------------
Tax-Free Money Institutional Shares N/A N/A N/A N/A
Market Fund
----------------------------------------------------------------------------------------
Investment Service Shares N/A N/A N/A 1.33%
- ---------------------------------------------------------------------------------------------------------------------
Bond Fund Institutional Shares 8.43% 5.31%*** N/A 8.75%***
----------------------------------------------------------------------------------------
Class A Shares (without load) 8.25% 5.28% N/A 6.29%
----------------------------------------------------------------------------------------
Class A Shares (load) 3.93% 4.43% N/A 5.63%
----------------------------------------------------------------------------------------
Class B Shares (without load) N/A N/A N/A N/A
----------------------------------------------------------------------------------------
Class B Shares (load) N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Equity Fund Institutional Shares 19.18% 16.76%** N/A 15.94%**
----------------------------------------------------------------------------------------
Class A Shares (without load) 19.38% 16.80%** N/A 17.39%**
----------------------------------------------------------------------------------------
Class A Shares (load) 14.62% 15.86%** N/A 12.40%**
----------------------------------------------------------------------------------------
Class B Shares (without load) N/A N/A N/A N/A
----------------------------------------------------------------------------------------
Class B Shares (with load) N/A N/A N/A N/A
=====================================================================================================================
</TABLE>
* Institutional Shares of the Money Market Fund were initially offered to the
public on June 9, 1997. Investment Service Shares (formerly, Trust Shares)
of the Money Market Fund were initially offered to the public on February
5, 1990. Prior to June 9, 1997, Investment Service Shares (Trust Shares) of
the Money Market Fund were not subject to Rule 12b-1 or shareholder
servicing fees. Investment Shares of the Bond Fund were initially offered
to the public on April 20, 1992. Institutional Shares of the Tax-Free Money
Market Fund were not offered as of October 31, 1998. Investment Services
Shares of the Tax-Free Money Market Fund were initially offered to the
public on May 20, 1998. Institutional Shares of the Bond Fund were
initially offered to the public on June 16, 1997. Class B Shares of the
Bond Fund and Class B Shares of the Equity Fund were not offered to the
public during the fiscal year ended October 31, 1998. Institutional Shares
of the Equity Fund were initially offered to the public on June 13, 1997.
Class A Shares (formerly, Investment Shares) of the Equity Fund were
initially offered to the public on November 24, 1997.
** The performance for the period from October 13, 1993 to June 13, 1997
represents the performance on a common trust fund managed by the Adviser.
*** The performance for the period from April 20, 1992 to June 13, 1997
represents the performance of Class A Shares (formerly, Investment Shares)
of the Bond Fund.
The average annual total return for a Fund is the average compounded rate
of return for a given period that would equate a $1,000 initial investment
to the ending redeemable value of that investment. The ending redeemable
value is computed by multiplying the number of shares owned at the end of
the period by the offering price per share at the end of the period. The
number of shares owned at the end of the period is based on the number of
shares purchased at the beginning of the period with $1,000, less any
applicable sales charge, adjusted over the period by any additional shares,
assuming the monthly reinvestment of all dividends and distributions. Total
return may also be shown without giving effect to any sales charge.
37
<PAGE>
Purchasing Shares
- --------------------------------------------------------------------------------
Shares are sold at their net asset value with any applicable sales charge on
days when the New York Stock Exchange (the "NYSE") is open for business and,
with respect to the Money Market Fund, days when both the NYSE and the Federal
Reserve are open for business, except for federal or state holidays restricting
wire transfers. The procedures for purchasing shares of the Funds is explained
in the prospectuses.
The Adviser, Compass Brokerage, Inc. and the other affiliates of Bancshares
which provide shareholder and administrative services to the Fund sometimes are
referred herein as "Compass."
Distribution and Shareholder Services Plans
The Trust has adopted separate Plans for the Class A Shares and Class B Shares
of the Non-Money Market Funds pursuant to Rule 12b-1 (the "12b-1 Plans") which
was promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. The 12b-1 Plans provide for payment of fees to finance any
activity which is principally intended to result in the sale of a Fund's shares
subject to the 12b-1 Plans. Such activities may include the advertising and
marketing of shares; preparing, printing and distributing prospectuses and sales
literature to prospective shareholders, brokers or administrators; and
implementing and operating the 12b-1 Plans. Pursuant to the 12b-1 Plans, the
Distributor may pay fees to brokers for distribution and administrative services
and to administrators for administrative services as to shares.
With respect to the Investment Service Shares of the Money Market Funds, the
Trust has adopted a Shareholder Service Plan (the "Service Plan"). Pursuant to
the Service Plan, the Distributor may pay fees to administrators for
administrative services as to Shares.
The administrative services are provided by a representative who has knowledge
of the shareholder's particular circumstances and goals, and include, but are
not limited to: communicating account openings; communicating account closings;
entering purchase transactions; entering redemption transactions; providing or
arranging to provide accounting support for all transactions; wiring funds and
receiving funds for Share purchases and redemptions; confirming and reconciling
all transactions; reviewing the activity in Fund accounts; and providing
training and supervision of broker personnel; posting and reinvesting dividends
to Fund accounts or arranging for this service to be performed by the Trust's
transfer agent; and maintaining and distributing current copies of prospectuses
and shareholder reports to the beneficial owners of Shares and prospective
shareholders.
The Trustees expect that the adoption of the 12b-1 Plans will result in the sale
of a sufficient number of shares so as to allow the Non-Money Market Funds to
achieve
38
<PAGE>
economic viability. It is also anticipated that an increase in the size of a
Fund will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objective.
Payments Under the Class A Plan
For the fiscal year ended October 31, 1998, the Class A Shares of the Non-Money
Market Funds incurred the following distribution expenses, pursuant to the Class
A Plan:
<TABLE>
<CAPTION>
====================================================================================================================================
Total Total
Distribution Distribution Sales Printing Other
Fund Expenses Expenses Expenses Costs Costs
(as a % of
net assets)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bond Fund $19,857 .14%* N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Fund $1,461 .25% N/A N/A N/A
====================================================================================================================================
</TABLE>
* Reflects voluntary fee waiver in effect for the period indicated.
Payments Under the Class B Plan
As of October 31, 1998, the Trust had not commenced offering of Class B Shares.
Payments Under the Service Plan
For the fiscal year ended October 31, 1998, the Investment Service Shares of the
Money Market Funds were subject to shareholder servicing fees under its Service
Plan for which the Money Market Fund paid $341,000, none of which was
voluntarily waived and the Tax-Free Money Market Fund paid $67,000, none of
which was waived.
Conversion to Federal Funds
It is each Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds.
Redeeming Shares
- --------------------------------------------------------------------------------
Each Fund redeems shares at the next computed net asset value after the Transfer
Agent receives the redemption request. Redemption procedures are explained in
the Fund's prospectuses. Although the Transfer Agent does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
39
<PAGE>
Redemption in Kind
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from each respective Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of a Fund's net
asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
Determination of Net Asset Value
- --------------------------------------------------------------------------------
THE MONEY MARKET FUND AND TAX-FREE MONEY MARKET FUND
The Money Market Fund and Tax-Free Money Market Fund attempt to stabilize the
value of a Share at $1.00. Net asset value is calculated on days on which both
the New York Stock Exchange and the Federal Reserve wire system are open for
business. Currently, the Fund is closed for business when the following holidays
are observed: New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving and Christmas.
Use of the Amortized Cost Method
The Trustees have decided that the best method for determining the value of
portfolio instruments for the Money Market Fund and Tax-Free Money Market Fund
is amortized cost. Under this method, portfolio instruments are valued at the
acquisition cost as adjusted for amortization of premium or accumulation of
discount rather than at current market value.
The Money Market and Tax-Free Money Market Funds' use of the amortized cost
method of valuing portfolio instruments depends on its compliance with certain
40
<PAGE>
conditions in Rule 2a-7 (the "Rule") promulgated by the SEC under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per Share, as computed for
purposes of distribution and redemption, at $1.00 per Share, taking into account
current market conditions and the Funds' investment objective.
Under the Rule, the Money Market and Tax-Free Money Market Funds are permitted
to purchase instruments which are subject to demand features or standby
commitments. As defined by the Rule, a demand feature entitles the Funds to
receive the principal amount of the instrument from the issuer or a third party
on (1) no more than 30 days' notice or (2) at specified intervals not exceeding
one year on no more than 30 days' notice. A standby commitment entitles the
Funds to achieve same day settlement and to receive an exercise price equal to
the amortized cost of the underlying instrument plus accrued interest at the
time of exercise.
Monitoring Procedures
The Trustees' procedures include monitoring the relationship between the
amortized cost value per Share and the net asset value per Share based
upon available indications of market value. The Trustees will decide what,
if any, steps should be taken if there is a difference of more than 0.5%
between the two values. The Trustees will take any steps they consider
appropriate (such as redemption in kind or shortening the average
portfolio maturity) to minimize any material dilution or
other unfair results arising from differences between the two methods of
determining net asset value.
Investment Restrictions
The Rule requires that the Funds limit their investments to instruments
that, in the opinion of the Trustees, present minimal credit risks and
have received the requisite rating from one or more NRSRO. If the
instruments are not rated, the Trustees must determine that they are of
comparable quality. The Rule also requires the Funds to maintain a
dollar-weighted average portfolio maturity (not more than 90 days)
appropriate to the objective of maintaining a stable net asset value of
$1.00 per Share. Except as allowed under the Rule, no instrument with a
remaining maturity of more than thirteen months can be purchased by the
Funds.
Should the disposition of a portfolio security result in a dollar-weighted
average portfolio maturity of more than 90 days, the Money Market and
Tax-Free Money Market Funds will invest their available cash to reduce the
average maturity to 90 days or less as soon as possible.
The Money Market and Tax-Free Money Market Funds may attempt to increase yield
by trading portfolio securities to take advantage of short-term market
variations. Under
41
<PAGE>
the amortized cost method of valuation, neither the amount of daily income nor
the net asset value is affected by any unrealized appreciation or depreciation
of the portfolio.
In periods of declining interest rates, the indicated daily yield on Shares of
the Money Market and Tax-Free Money Market Funds, computed by dividing the
annualized daily income on the Funds' portfolio by the net asset value computed
as above, may tend to be higher than a similar computation made by using a
method of valuation based upon market prices and estimates.
In periods of rising interest rates, the indicated daily yield on Shares of the
Money Market and Tax-Free Money Market Funds computed the same way may tend to
be lower than a similar computation made by using a method of calculation based
upon market prices and estimates.
NON-MONEY MARKET FUNDS
Net asset value generally changes each day for each Non-Money Market Fund. Net
asset value is calculated on days on which the New York Stock Exchange is open
for business. Currently the Funds are closed when the following holidays are
observed: New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
Determining Market Value of Securities
Market values of a Non-Money Market Fund's portfolio securities are determined
as follows:
o as provided by an independent pricing service;
o for short-term obligations, according to the mean between bid and asked
prices, as furnished by an independent pricing service, or for
short-term obligations with remaining maturities of less than 60 days
at the time of purchase, at amortized cost unless the Trustees
determine this is not fair value; or
o at fair value as determined in good faith by the Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices. Pricing services may consider:
o yield;
o quality;
o coupon rate;
o maturity;
o type of issue;
42
<PAGE>
o trading characteristics; and
o other market data.
Over-the-counter put options will be valued at the mean between the bid and the
asked prices. Covered call options will be valued at the last sale price on the
national exchange on which such option is traded. Unlisted call options will be
valued at the latest bid price as provided by brokers.
Taxes
- --------------------------------------------------------------------------------
The following is only a summary of certain additional federal income tax
considerations generally affecting the Funds and its shareholders that are not
described in the Funds' prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Funds or its shareholders, and the
discussion here and in the Funds' prospectus is not intended as a substitute for
careful tax planning. Shareholders are urged to consult their tax advisors with
specific reference to their own tax situations, including their state and local
tax liabilities.
Federal Income Tax Treatment of Dividends and Distributions
The following general discussion of certain federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
Qualification as Regulated Investment Company
Each Fund intends to qualify and elect to be treated as a "regulated investment
company" ("RIC") as defined under Subchapter M of the Code. By following such a
policy, each Fund expects to eliminate or reduce to a nominal amount the federal
taxes to which it may be subject.
In order to qualify as a RIC, a Fund must distribute at least 90% of its net
investment income (generally, includes dividends, taxable interest, and the
excess of net short-term capital gains over net long-term capital losses less
operating expenses) and at least 90% of its net tax exempt interest income, for
each tax year, if any, to its shareholders and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of a
Fund's gross income each taxable year must be derived from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of stock or securities, or certain other income; (ii) at the close
of each quarter of each Fund's taxable year, at least 50% of the value of its
total assets must be
43
<PAGE>
represented by cash and cash items, U.S. Government securities, securities of
other RICs and other securities, with such other securities limited, in respect
to any one issuer, to an amount that does not exceed 5% of the value of the
Fund's assets and that does not represent more than 10% of the outstanding
voting securities of such issuer; and (iii) at the close of each quarter of each
Fund's taxable year, not more than 25% of the value of its assets may be
invested in securities (other than U.S. Government securities or the securities
of other RICs) of any one issuer or of two or more issuers that each Fund
controls or that are engaged in the same, similar or related trades or business.
For purposes of the 90% gross income requirement described above, foreign
currency gains that are not directly related to the Fund's principal business of
investing in stock or securities (or options or futures with respect to stock or
securities) may be excluded from income that qualifies under the 90%
requirement.
Although the Funds intend to distribute substantially all of its net investment
income and may distribute its capital gains for any taxable year, the a Fund
will be subject to federal income taxation to the extent any such income or
gains are not distributed.
If a Fund fails to qualify for any taxable year as a RIC, all of its taxable
income will be subject to tax at regular corporate income tax rates without any
deduction for distributions to shareholders and such distributions generally
will be taxable to shareholders as ordinary dividends to the extent of a Fund's
current and accumulated earnings and profits. In this event, distributions
generally will be eligible for the dividends-received deduction for corporate
shareholders.
Fund Distributions
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional Shares, to the extent of the Fund's
earnings and profits. The Funds anticipate that it will distribute substantially
all of its investment company taxable income for each taxable year.
A Fund may either retain or distribute to shareholders its excess of net
long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders who are individuals at a maximum rate of 20%, regardless
of the length of time the shareholder has held shares. If any such gains are
retained, a Fund will pay federal income tax thereon.
In the case of corporate shareholders, distributions (other than capital gains
distributions) from a RIC generally qualify for the dividends-received deduction
only to the extent of the gross amount of qualifying dividends received by the
Fund for the year. Generally, and subject to certain limitations, a dividend
will be treated as a qualifying dividend if it has been received from a domestic
corporation. Accordingly, it is not expected that any distribution from the
Money Market Fund, Tax-Free Money Market Fund, or Bond
44
<PAGE>
Fund will qualify for the corporate dividends-received deduction. Conversely,
distributions from the Equity Fund will generally qualify for the corporate
dividends-received deduction.
Ordinarily, investors should include all dividends as income in the year of
payment. However, dividends declared payable to shareholders of record in
December of one year, but paid in January of the following year, will be deemed
for tax purposes to have been received by the shareholder and paid by a Fund in
the year in which the dividends were declared.
The Funds will provide a statement annually to shareholders as to the federal
tax status of distributions paid (or deemed to be paid) by a Fund during the
year, including the amount of dividends eligible for the corporate
dividends-received deduction.
Sale or Exchange of Fund Shares
Generally, gain or loss on the sale or exchange of a Share will be capital gain
or loss that will be long-term if the Share has been held for more than twelve
months and otherwise will be short-term. For individuals, long-term capital
gains are currently taxed at a maximum rate of 20% and short-term capital gains
are currently taxed at ordinary income tax rates. However, if a shareholder
realizes a loss on the sale, exchange or redemption of a Share held for six
months or less and has previously received a capital gains distribution with
respect to the Share (or any undistributed net capital gains of a Fund with
respect to such Share are included in determining the shareholder's long-term
capital gains), the shareholder must treat the loss as a long-term capital loss
to the extent of the amount of the prior capital gains distribution (or any
undistributed net capital gains of a Fund that have been included in determining
such shareholder's long-term capital gains). In addition, any loss realized on a
sale or other disposition of Shares will be disallowed to the extent an investor
repurchases (or enters into a contract or option to repurchase) Shares within a
period of 61 days (beginning 30 days before and ending 30 days after the
disposition of the Shares). This loss disallowance rule will apply to Shares
received through the reinvestment of dividends during the 61-day period.
In certain cases, a Fund will be required to withhold, and remit to the United
States Treasury, 31% of any distributions paid to a shareholder who (1) has
failed to provide a correct taxpayer identification number, (2) is subject to
backup withholding by the Internal Revenue Service, or (3) has failed to certify
to that Fund that such shareholder is not subject to backup withholding.
Federal Excise Tax
45
<PAGE>
If a Fund fails to distribute in a calendar year at least 98% of its ordinary
income for the year and 98% of its capital gain net income (the excess of short
and long term capital gains over short and long term capital losses) for the
one-year period ending October 31 of that year (and any retained amount from the
prior calendar year), a Fund will be subject to a nondeductible 4% Federal
excise tax on the undistributed amounts. The Funds intend to make sufficient
distributions to avoid imposition of this tax, or to retain, at most its net
capital gains and pay tax thereon.
Tax-Free Money Market Fund
The Tax-Free Money Market Fund intends to qualify to pay "exempt interest
dividends" to the shareholders by satisfying the Code's requirement that at the
close of each quarter of its taxable year at least 50% of the value of its total
assets consist of obligations, the interest on which is exempt from federal
income tax. As long as this and certain other requirements are met, dividends
derived from the Fund's net tax-exempt interest income will be "exempt interest
dividends" that are excluded from your gross income for federal income tax
purposes. Exempt interest dividends may, however, have collateral federal income
tax consequences, as discussed below. Exempt-interest dividends may be subject
to the alternative minimum tax (the "Alternative Minimum Tax") imposed by
Section 55 of the Code. The Alternative Minimum Tax is imposed at a rate of up
to 28% in the case of non-corporate taxpayers and at the rate of 20% in the case
of corporate taxpayers, to the extent it exceeds the taxpayer's regular tax
liability. The Alternative Minimum Tax may be imposed in two circumstances.
First, exempt-interest dividends derived from certain "private activity bonds"
issued after August 7, 1986, will generally be an item of tax preference (and
therefore potentially subject to the Alternative Minimum Tax) for both corporate
and non-corporate taxpayers. Second, in the case of exempt-interest dividends
received by corporate shareholders, all exempt-interest dividends, regardless of
when the bonds from which they are derived were issued or whether they are
derived from private activity bonds, will be included in the corporation's
"adjusted current earnings," as defined in Section 56(g) of the Code, in
calculating the corporation's alternative minimum taxable income for purposes of
determining the Alternative Minimum Tax.
The Tax-Free Money Market Fund may make investments in securities (such as
STRIPS) that bear "original issue discount" or "acquisition discount"
(collectively, "OID Securities"). The holder of such securities is deemed to
have received interest income even though no cash payments have been received.
Accordingly, OID Securities may not produce sufficient current cash receipts to
match the amount of distributable net investment income the Fund must distribute
to satisfy the Distribution Requirement. In some cases, the Fund may have to
borrow money or dispose of other investments in order to make sufficient cash
distributions to satisfy the Distribution Requirement.
Any loss recognized by a shareholder upon the sale or redemption of shares of
the Fund held for six months or less will be disallowed to the extent of any
exempt-interest
46
<PAGE>
dividends the shareholder has received with respect to such shares. Interest on
indebtedness incurred by shareholders to purchase or carry shares of the Fund
will not be deductible for federal income tax purposes. The deduction otherwise
allowable to property and casualty insurance companies for "losses incurred"
will be reduced by an amount equal to a portion of exempt-interest dividends
received or accrued during any taxable year. Foreign corporations engaged in a
trade or business in the United States will be subject to a "branch profits tax"
on their "dividend equivalent amount" for the taxable year, which will include
exempt-interest dividends. Certain Subchapter S corporations may also be subject
to taxes on their "passive investment income," which could include
exempt-interest dividends. Up to 85% of the Social Security benefits or railroad
retirement benefits received by an individual during any taxable year will be
included in the gross income of such individual if the individual's "modified
adjusted gross income" (which includes exempt-interest dividends) plus one-half
of the Social Security benefits or railroad retirement benefits received by such
individual during that taxable year exceeds the base amount described in Section
86 of the Code.
The Tax-Free Money Market Fund may not be an appropriate investment for persons
(including corporations and other business entities) who are "substantial users"
(or persons related to such users) of facilities financed by industrial
development or private activity bonds. A "substantial user" is defined generally
to include certain persons who regularly use a facility in their trade or
business. Such entities or persons should consult their tax advisers before
purchasing shares of the Tax-Free Money Market Fund.
Issuers of bonds purchased by the Tax-Free Money Market Fund (or the beneficiary
of such bonds) may have made certain representations or covenants in connection
with the issuance of such bonds to satisfy certain requirements of the Code that
must be satisfied subsequent to the issuance of such bonds. Investors should be
aware that exempt-interest dividends derived from such bonds may become subject
to federal income taxation retroactively to the date thereof if such
representations are determined to have been inaccurate or if the issuer of such
bonds (or the beneficiary of such bonds) fails to comply with such covenants.
Capital gains experienced by the Tax-Free Money Market Fund could result in an
increase in dividends. Capital losses could result in a decrease in dividends.
If, for some extraordinary reason, the Fund realizes net long-term capital
gains, it will distribute them at least once every 12 months.
State and Local Taxes
Rules of state and local taxation of dividend and capital gains distributions
from regulated investment companies often differ from the rules for federal
income taxation described above. Shareholders are urged to consult their tax
advisors as to the consequences of these and other state and local tax rules
affecting investment in the Funds.
47
<PAGE>
Fund Transactions
- --------------------------------------------------------------------------------
The Trust has no obligation to deal with any dealer or group of dealers in the
execution of transactions in portfolio securities. Subject to policies
established by the Trustees, the Adviser or Sub-Adviser is responsible for
placing the orders to execute transactions for a Fund. In placing orders, it is
the policy of the Trust to seek to obtain the best net results taking into
account such factors as price (including the applicable dealer spread), the
size, type and difficulty of the transaction involved, the firm's general
execution and operational facilities, and the firm's risk in positioning the
securities involved. While the Adviser or Sub-Adviser generally seeks reasonably
competitive spreads or commissions, the Trust will not necessarily be paying the
lowest spread or commission available.
The money market securities in which the Funds invest are traded primarily in
the over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the Adviser
or Sub-Adviser will deal directly with the dealers who make a market in the
securities involved except in those circumstances where better prices and
execution are available elsewhere. Such dealers usually are acting as principal
for their own account. On occasion, securities may be purchased directly from
the issuer. Money market securities are generally traded on a net basis and do
not normally involve either brokerage commissions or transfer taxes. The cost of
executing portfolio securities transactions of the Trust will primarily consist
of dealer spreads and underwriting commissions.
Although investment decisions for the Funds are made independently from those of
the other accounts managed by the Adviser or Sub-Adviser, investments of the
type the Funds may make may also be made by those other accounts. When a Fund
and one or more other accounts managed by the Adviser or Sub-Adviser are
prepared to invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner believed by
the Adviser or Sub-Adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by a Fund or the size
of the position obtained or disposed of by the Fund. In other cases, however, it
is believed that coordination and the ability to participate in volume
transactions will be to the benefit of the Fund.
Trading Practices and Brokerage
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser or Sub-Adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the Adviser or Sub-Adviser will
generally use those who are recognized dealers in specific portfolio
instruments, except when a better price and execution of the order can be
obtained elsewhere. The Adviser or Sub-Adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to guidelines established
by the Trustees. The Adviser and Sub-Adviser may select brokers
48
<PAGE>
and dealers who offer brokerage and research services. These services may be
furnished directly to the Funds or to the Adviser or Sub-Adviser and may
include: advice as to the advisability of investing in securities; security
analysis and reports; economic studies; industry studies; receipt of quotations
for portfolio evaluations; and similar services. Research services provided by
brokers and dealers may be used by the Adviser, Sub-Adviser or its affiliates in
advising the Funds and other accounts. To the extent that receipt of these
services may supplant services for which the Adviser, Sub-Adviser or its
affiliates might otherwise have paid, it would tend to reduce their expenses.
The Adviser, Sub-Adviser and their affiliates exercise reasonable business
judgment in selecting brokers who offer brokerage and research services to
execute securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of the
brokerage and research services provided. Although investment decisions for the
Funds are made independently from those of the other accounts managed by the
Adviser or Sub-Adviser, investments of the type the Funds may make may also be
made by those other accounts. When a Fund and one or more other accounts managed
by the Adviser or Sub-Adviser are prepared to invest in, or desire to dispose
of, the same security, available investments or opportunities for sales will be
allocated in a manner believed by the Adviser or Sub-Adviser to be equitable to
each. In some cases, this procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained or disposed of by the
Fund. In other cases, however, it is believed that coordination and the ability
to participate in volume transactions will be to the benefit of the Fund.
For the fiscal year ended October 31, 1998, the following commissions were paid
on brokerage transactions, pursuant to an agreement or understanding, to brokers
because of research services provided by the brokers:
<TABLE>
<CAPTION>
========================================================================================================================
Fund Total Dollar Amount of Total Dollar Amount of Transactions
Brokerage Commissions for Involving Directed Brokerage
Research Services Commissions for Research Services
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Money Market Fund $0 $0
- ------------------------------------------------------------------------------------------------------------------------
Tax-Free Money $0 $0
- ------------------------------------------------------------------------------------------------------------------------
Bond Fund $0 $0
- ------------------------------------------------------------------------------------------------------------------------
Equity Fund $0 $0
========================================================================================================================
</TABLE>
For the fiscal years indicated, the Funds paid the following brokerage
commissions:
49
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
% of Total % of Total
Total $ Amount of Brokerage Brokerage Brokerage
Fund Total $ Amount of Brokerage Commissions Paid to Commissio Transactions
Commissions Paid Affiliated Brokers ns Paid to Effected
the Through
Affiliated Affiliated
Brokers Brokers
-------------------------------------------------------------------------------------------------------------
1996 1997 1998 1996 1997 1998 1998 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market N/A N/A $6,468 N/A N/A $6,468 100% 100%
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-Free Money N/A N/A N/A N/A N/A N/A N/A N/A
Market Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Bond Fund N/A N/A $877.67 N/A N/A $878 100% 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Fund * $332,823 $323,867 * $0 $1,058 0.32% 0%
====================================================================================================================================
</TABLE>
* An asterisk indicates that the Fund had not commenced operations as of the
period indicated.
"Regular brokers or dealers" of the Trust are the ten brokers or dealers that,
during the most recent fiscal year, (i) received the greatest dollar amounts of
brokerage commissions from the Trust's portfolio transactions, (ii) engaged as
principal in the largest dollar amounts of portfolio transactions of the Trust,
or (iii) sold the largest dollar amounts of the Trust's shares. On October 31,
1998, the following Funds held securities of the Trust's "regular brokers or
dealers" as follows: the Bond Fund held repurchase agreements valued at
$1,810,818 at the fiscal year end with J.P. Morgan, Inc.; the Equity Fund held
repurchase agreements valued at $1,004,292 at the fiscal year end with Morgan
Stanley and the Money Market Fund held repurchase agreements valued at
$25,650,331 at the fiscal year end with J.P.Morgan, Inc.
Description of Shares
- --------------------------------------------------------------------------------
The Declaration of Trust authorizes the issuance of an unlimited number of
shares and classes of shares of the Funds each of which represents an equal
proportionate interest in that Fund with each other share. Shares are entitled
upon liquidation to a pro rata share in the net assets of the Funds.
Shareholders have no preemptive rights. The Declaration of Trust provides that
the Trustees of the Trust may create additional series of shares or classes of
series. All consideration received by the Trust for shares of any additional
series and all assets in which such consideration is invested would belong to
that series and would be subject to the liabilities related thereto. Share
certificates representing shares will not be issued.
Shareholder Liability
- --------------------------------------------------------------------------------
50
<PAGE>
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Trust were held to be a partnership, the
possibility of the Shareholders' incurring financial loss for that reason
appears remote because the Trust's Declaration of Trust contains an express
disclaimer of Shareholder liability for obligations of the Trust and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by or on behalf of the Trust or the
Trustees, and because the Declaration of Trust provides for indemnification out
of the Trust property for any Shareholder held personally liable for the
obligations of the Trust.
Limitation of Trustees' Liability
- --------------------------------------------------------------------------------
The Declaration of Trust provides that a Trustee shall be liable only for his
own willful defaults and, if reasonable care has been exercised in the selection
of officers, agents, employees or investment advisers, shall not be liable for
any neglect or wrongdoing of any such person. The Declaration of Trust also
provides that the Trust will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with actual or threatened
litigation in which they may be involved because of their offices with the Trust
unless it is determined in the manner provided in the Declaration of Trust that
they have not acted in good faith in the reasonable belief that their actions
were in the best interests of the Trust. However, nothing in the Declaration of
Trust shall protect or indemnify a Trustee against any liability for his willful
misfeasance, bad faith, gross negligence or reckless disregard of his duties.
Year 2000
- --------------------------------------------------------------------------------
The Trust depends on the smooth functioning of computer systems in almost every
aspect of its business. Like other mutual funds, businesses and individuals
around the world, the Trust could be adversely affected if the computer systems
used by its service providers do not properly process dates on and after January
1, 2000 and distinguish between the year 2000 and the year 1900. The Trust has
asked its service providers whether they expect to have their computer systems
adjusted for the year 2000 transition, and received assurances from each from
each that its system is expected to accommodate the year 2000 without material
adverse consequences to the Trust. The Trust and its shareholders may experience
losses if these assurances prove to be incorrect or as a result of year 2000
computer difficulties experienced by issuers of portfolio securities or third
parties, such as custodians, banks, broker-dealers or others with which the
Trust does business.
51
<PAGE>
5% and 25% Shareholders
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expedition Bond Fund - Institutional Shares % of Fund Held
-------------------------------------------- --------------
<S> <C>
Compass Bank 58.10%
Attn Trust Oper 3rd Level S
P.O. Box 10566
Birmingham, AL 35296-0001 (Account 1)
Compass Bank 39.49%
Attn Trust Oper 3rd Level S
P.O. Box 10566
Birmingham, AL 35296-0001 (Account 2)
Expedition Equity Fund - Class A Shares % of Fund Held
---------------------------------------- --------------
Donaldson Lufkin Jenrette 8.25%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, New Jersey 07303-2052 (Account 1)
Donaldson Lufkin Jenrette 5.73%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, New Jersey 07303-2052 (Account 2)
Expedition Equity Fund - Institutional Shares % of Fund Held
---------------------------------------------- --------------
Compass Bank 54.62%
Attn Trust Oper 3rd Level S
P.O. Box 10566
Birmingham, AL 35296-0001 (Account 1)
Compass Bank 35.80%
Attn Trust Oper 3rd Level S
P.O. Box 10566
Birmingham, AL 35296-0001 (Account 2)
</TABLE>
52
<PAGE>
<TABLE>
<S> <C>
Compass Bank Trustee for 6.89%
Compass Bancshares Inc. 401K Plan
c/o/ Benefit Services Corporation
1375 Peachtree Street NE Suite 300
Atlanta, GA 30309-3112
Expedition Tax-Free Money Market Fund - % of Fund Held
---------------------------------------- --------------
Institutional Shares
--------------------
Compass Bank 100.00%
Attn Trust Oper 3rd Level S
P.O. Box 10566
Birmingham, AL 35296-0001 (Account 1)
Expedition Tax-Free Money Market Fund - % of Fund Held
---------------------------------------- --------------
Investment Shares
-----------------
Compass Bank 99.51%
Attn Trust Oper 3rd Level S
P.O. Box 10566
Birmingham, AL 35296-0001 (Account 1)
Expedition Money Market Fund - Investment Shares % of Fund Held
------------------------------------------------- --------------
Compass Bank 75.63%
Attn Trust Oper 3rd Level S
P.O. Box 10566
Birmingham, AL 35296-0001 (Account 1)
Expedition Money Market Fund - Institutional Shares % of Fund Held
---------------------------------------------------- --------------
Compass Bank 92.67%
Attn Trust Oper 3rd Level S
P.O. Box 10566
Birmingham, AL 35296-0001 (Account 1)
</TABLE>
53
<PAGE>
Experts
- --------------------------------------------------------------------------------
The financial statements as of October 31, 1998 have been audited by Deloitte &
Touche LLP, Independent Auditors, as indicated in their report dated October 31,
1998 with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
54
