<PAGE>
PROSPECTUS
EXPEDITION MONEY MARKET FUND
EXPEDITION TAX-FREE MONEY
MARKET FUND
[GRAPHIC]
Investment Service Shares
Institutional Shares
Sweep Class Shares
March 1, 2000
as supplemented August 1, 2000
[LOGO] EXPEDITION FUNDS-Registered Trademark-
Investment Adviser: COMPASS BANK
Investment Sub-Adviser: WEISS, PECK & GREER, L.L.C.
(EXPEDITION TAX-FREE MONEY MARKET FUND)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COM'MISSION NOR HAS THE COMMISSION PASSED UPON THE ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
ABOUT THIS PROSPECTUS
[GRAPHIC]
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, Institutional Shares and Sweep Class 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,
Expedition Equity Income Fund, Expedition Investment Grade Bond Fund and
Expedition Tax-Free Investment Grade 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 RISK AND RETURN THAT IS COMMON TO EACH OF THE
FUNDS. FOR MORE DETAILED INFORMATION ABOUT THE FUNDS, PLEASE SEE:
<TABLE>
<CAPTION>
PAGE
<S> <C>
Money Market Fund 2
Tax-Free Money Market Fund 7
More Information About Fund Investments 11
Investment Adviser and Sub-Adviser 11
Purchasing, Selling and Exchanging Fund Shares 13
Dividends and Distributions 20
Taxes 20
Financial Highlights 22
How To Obtain More Information About
The Expedition Funds Back Cover
</TABLE>
-------------------------------------------------------------------------------
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>
RISK/RETURN INFORMATION COMMON TO THE 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.
1
<PAGE>
EXPEDITION MONEY MARKET FUND
[GRAPHIC]
FUND SUMMARY
<TABLE>
<S> <C>
------------------------------------------------------------------------------------------
Investment Goal Current income consistent with stability of principal
------------------------------------------------------------------------------------------
Investment Focus Money market instruments
------------------------------------------------------------------------------------------
Share Price Volatility Very low
------------------------------------------------------------------------------------------
Principal Investment Strategy Investing in a broad range of short-term U.S. dollar
denominated debt securities
------------------------------------------------------------------------------------------
Investor Profile Conservative investors who want to receive current
income through a liquid investment
------------------------------------------------------------------------------------------
</TABLE>
[GRAPHIC]
INVESTMENT STRATEGY OF THE EXPEDITION MONEY MARKET FUND
The Fund invests in a broad range of 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 securities that are rated in the highest rating
category or unrated securities that the Adviser determines are of comparable
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 vulnerable 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]
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. An investment
in the 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 the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
[GRAPHIC]
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.*
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5.99% 3.73% 2.77% 3.65% 5.59% 4.86% 5.03% 4.99% 4.64%
</TABLE>
<TABLE>
<CAPTION>
BEST QUARTER WORST QUARTER
<S> <C>
1.67% 0.66%
(03/31/91) (03/31/94)
</TABLE>
The Investment Service Shares' performance from the period January 1, 2000 to
June 30, 2000 was 2.71%.
* THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR.
CALL 1-800-992-2085 FOR THE FUND'S CURRENT 7-DAY YIELD.
3
<PAGE>
EXPEDITION MONEY MARKET FUND
This table presents the Fund's average annual total returns for the periods
ended December 31, 1999.
<TABLE>
<CAPTION>
Money Market Fund 1 Year 5 Years Since Inception
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Service Shares 4.64% 5.02% 4.89%*
--------------------------------------------------------------------------------
Institutional Shares 4.90% 5.15%** 4.96%**
--------------------------------------------------------------------------------
Sweep Class Shares 4.52%** 4.90%** 4.80%**
--------------------------------------------------------------------------------
</TABLE>
* SINCE FEBRUARY 5, 1990.
** INSTITUTIONAL SHARES OF THE FUND WERE OFFERED BEGINNING JUNE 9, 1997. SWEEP
CLASS SHARES WERE OFFERED BEGINNING AUGUST 1, 2000. THE PERFORMANCE
INFORMATION SHOWN PRIOR TO THOSE DATES REPRESENTS PERFORMANCE OF THE FUND'S
INVESTMENT SERVICE SHARES, WHICH WERE OFFERED BEGINNING FEBRUARY 5, 1990.
THE PERFORMANCE OF THE INVESTMENT SERVICE SHARES HAS NOT BEEN ADJUSTED TO
REFLECT THE LOWER EXPENSES OF THE INSTITUTIONAL SHARES, BUT HAS BEEN
ADJUSTED TO REFLECT THE HIGHER EXPENSES OF THE SWEEP CLASS SHARES.
[GRAPHIC] FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)*
<TABLE>
<CAPTION>
Investment Service Shares Institutional Shares Sweep Class Shares
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees .40% .40% .40%
--------------------------------------------------------------------------------------------------------------
Other Expenses .62%** .37% .74%**
--------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.02% .77% 1.14%
--------------------------------------------------------------------------------------------------------------
</TABLE>
* THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE INVESTMENT
SERVICE SHARES AND THE INSTITUTIONAL SHARES FOR THE MOST RECENT FISCAL YEAR
WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION
OF ITS FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL.
IN ADDITION, THE ADVISER INTENDS TO WAIVE A PORTION OF ITS FEES TO KEEP
SWEEP CLASS SHARES' TOTAL OPERATING EXPENSES FROM EXCEEDING .80%. THESE FEE
WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER
MAY DISCONTINUE ALL OR PART OF ITS WAIVER AT ANY TIME. WITH THESE FEE
WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES FOR THE MOST RECENT
FISCAL YEAR WERE AS FOLLOWS:
INVESTMENT SERVICE SHARES .68%
INSTITUTIONAL SHARES .43%
** INCLUDES SHAREHOLDER SERVICING FEES OF .25%.
4
<PAGE>
For more information about these fees, see "Investment Adviser and Sub-Adviser"
and "Additional Compensation."
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,
Fund operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Service Shares $104 $325 $563 $1,248
--------------------------------------------------------------------------------
Institutional Shares $ 79 $246 $428 $ 954
--------------------------------------------------------------------------------
Sweep Class Shares $116 $362 $628 $1,386
--------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
(This page left blank)
6
<PAGE>
EXPEDITION TAX-FREE MONEY MARKET FUND
[GRAPHIC] FUND SUMMARY
--------------------------------------------------------------------------------
Investment Goal Current income exempt from Federal income
tax, consistent with stability of principal
--------------------------------------------------------------------------------
Investment Focus Tax-free money market instruments
--------------------------------------------------------------------------------
Share Price Volatility Very low
--------------------------------------------------------------------------------
Principal Investment Strategy Investing in a diversified portfolio of
short-term municipal securities which pay
interest that is exempt from Federal income
tax
--------------------------------------------------------------------------------
Investor Profile Conservative investors who want to receive
current income exempt from Federal income tax
through a liquid investment
--------------------------------------------------------------------------------
[GRAPHIC] INVESTMENT STRATEGY OF THE EXPEDITION
TAX-FREE MONEY MARKET FUND
The Fund invests substantially all of its assets in a broad range of short-term
municipal money market instruments that pay interest that is exempt from Federal
income tax. 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
securities that are rated in one of the two highest rating categories or unrated
securities that have been determined by the Sub-Adviser to be of comparable
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 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.
7
<PAGE>
EXPEDITION TAX-FREE MONEY MARKET FUND
[GRAPHIC] 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. An investment
in the 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 the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
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 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] 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 the performance of the Fund's Investment Service
Shares for one year.*
[CHART]
<TABLE>
<S> <C>
1999 2.84%
</TABLE>
<TABLE>
<CAPTION>
BEST QUARTER WORST QUARTER
<S> <C>
0.79% 0.63%
(12/31/99) (03/31/99)
</TABLE>
The Investment Service Shares' performance from the period January 1, 2000 to
June 30, 2000 was 1.71%.
* THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR.
CALL 1-800-992-2085 FOR THE FUND'S CURRENT 7-DAY YIELD.
8
<PAGE>
This table shows the Fund's average annual total returns for the periods ended
December 31, 1999.
<TABLE>
<CAPTION>
Tax-Free Money Market Fund 1 Year Since Inception
--------------------------------------------------------------------------------
<S> <C> <C>
Investment Service Shares 2.84% 2.88%*
--------------------------------------------------------------------------------
Institutional Shares 3.02%** 2.99%**
--------------------------------------------------------------------------------
Sweep Class Shares 2.71%** 2.75%**
--------------------------------------------------------------------------------
</TABLE>
* SINCE MAY 20, 1998.
** INSTITUTIONAL SHARES OF THE FUND WERE OFFERED BEGINNING APRIL 14, 1999.
SWEEP CLASS SHARES WERE OFFERED BEGINNING AUGUST 1, 2000. THE PERFORMANCE
INFORMATION SHOWN PRIOR TO THOSE DATES REPRESENTS PERFORMANCE OF THE FUND'S
INVESTMENT SERVICE SHARES, WHICH WERE OFFERED BEGINNING MAY 20, 1998. THE
PERFORMANCE OF THE INVESTMENT SERVICE SHARES HAS NOT BEEN ADJUSTED TO
REFLECT THE LOWER EXPENSES OF THE INSTITUTIONAL SHARES, BUT HAS BEEN
ADJUSTED TO REFLECT THE HIGHER EXPENSES OF THE SWEEP CLASS SHARES.
[GRAPHIC] FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)*
<TABLE>
<CAPTION>
Investment Service Shares Institutional Shares Sweep Class Shares
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees .40% .40% .40%
--------------------------------------------------------------------------------------------------------------
Other Expenses .55%** .49% .67%**
--------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses .95% .89% 1.07%
--------------------------------------------------------------------------------------------------------------
</TABLE>
* THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE INVESTMENT
SERVICE SHARES AND THE INSTITUTIONAL SHARES FOR THE MOST RECENT FISCAL YEAR
WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION
OF ITS FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL.
IN ADDITION, THE ADVISER INTENDS TO WAIVE A PORTION OF ITS FEES TO KEEP
SWEEP CLASS SHARES' TOTAL OPERATING EXPENSES FROM EXCEEDING .80%. THESE FEE
WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER
MAY DISCONTINUE ALL OR PART OF ITS WAIVER AT ANY TIME. WITH THESE FEE
WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES FOR THE MOST RECENT
FISCAL YEAR WERE AS FOLLOWS:
INVESTMENT SERVICE SHARES .68%
INSTITUTIONAL SHARES .43%
** INCLUDES SHAREHOLDER SERVICING FEES OF .25%.
9
<PAGE>
EXPEDITION TAX-FREE MONEY MARKET FUND
For more information about these fees, see "Investment Adviser and Sub-Adviser"
and "Additional Compensation."
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,
Fund operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Service Shares $ 97 $303 $525 $1,166
--------------------------------------------------------------------------------
Institutional Shares $ 91 $284 $493 $1,096
--------------------------------------------------------------------------------
Sweep Class Shares $109 $340 $590 $1,306
--------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
MORE INFORMATION ABOUT FUND INVESTMENTS
[GRAPHIC] 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] 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 an 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 June 30, 2000 Compass
Bank had approximately $9.2 billion in assets under administration, with
investment discretion over $3.3 billion in assets. For the fiscal period ended
October 31, 1999, Compass Bank received advisory fees as a percentage of average
daily net assets (after waivers) of:
Money Market Fund .18%
Tax-Free Money Market Fund .12%
11
<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 of the Tax-Free Money Market Fund and manages the
portfolio of the 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.
ADDITIONAL COMPENSATION
Compass Bank and its affiliates may impose fees and charges for services in
conjunction with accounts of its customers that invest in the Funds, including
in conjunction with plans subject to the Employee Retirement Income Security Act
of 1974 (ERISA) and other trust and agency accounts that invest to which Compass
Bank or its affiliates provide fiduciary or non-fiduciary services. In addition
to the compensation payable directly by such accounts for fiduciary and
non-fiduciary services, Compass Bank receives compensation for acting as the
Funds' investment adviser and Compass Bank and its affiliates also receive
compensation in connection with the following:
CUSTODY SERVICES. Compass Bank serves as custodian to the Funds, and for
such services is paid an annual fee payable from the Funds' assets of .02% of
each Fund's average daily net assets.
SHAREHOLDER SERVICING FEES. To the extent that investors buy Investment
Service Shares or Sweep Class Shares through Compass Bank or any of its
affiliates, including Compass Brokerage, Inc., those entities may receive
shareholding servicing fees, payable from the Funds' assets, of up to .25% of
each Fund's average daily net assets attributable to such classes.
ADMINISTRATIVE SERVICING FEES. To the extent that investors buy Sweep Class
Shares through Compass Bank or any of its affiliates providing sub-accounting,
sub-transfer agency services or other administrative services, including Compass
Brokerage, Inc., those entities may receive administrative servicing fees,
payable from the Funds' assets, of up to .12% of each Fund's average daily net
assets attributable to Sweep Class Shares.
12
<PAGE>
INVESTMENT ADVISER AND SUB-ADVISER
SUB-ADMINISTRATION SERVICES. Compass Bank provides sub-administrative
services to the Funds. For providing these services, Compass Bank is compensated
by the Funds' administrator (not by the Funds) at an annual rate of up to .02%
of each Fund's average daily net assets.
BROKERAGE TRANSACTIONS. When purchasing and selling portfolio securities
for the Funds, Compass Bank, as the Funds' investment adviser, may place trades
through its affiliates providing brokerage services, including Compass
Brokerage, Inc., which brokerage affiliates will earn commissions on these
transactions.
PURCHASING, SELLING AND EXCHANGING FUND SHARES
This section tells you how to purchase, sell (sometimes called "redeem") and
exchange shares of the Funds.
Investment Service Shares are available for all individual and
institutional investors except that, as noted below, Compass Star Account
customers and customers establishing an account with a clearing broker through
Compass Brokerage, Inc. will invest in Sweep Class Shares. Certain customers of
the Compass Asset Management Group and certain other divisions and departments
of Compass Bank and its affiliates, including treasury management sweep
customers, maintaining specified minimum account or fund balances or satisfying
certain other criteria may be eligible to purchase Institutional Shares of the
Fund. For information concerning whether you may be eligible to purchase
Institutional Shares, Compass customers may contact their Compass account
representative.
Institutional Shares are primarily offered to subsidiaries and other
affiliates of Compass Bancshares and their divisions and departments, including
the Compass Asset Management Group, on behalf of certain eligible fiduciary,
trust, agency, investment advisory, asset allocation (MAP Account), treasury
management sweep, custody and similar accounts. Institutional Shares are also
available for purchase by other qualifying financial institutions investing for
their own or their customers' accounts.
Sweep Class Shares are designed for retail banking customers of Compass
Bank and certain of its banking affiliates receiving cash sweep services through
the Compass Star Account Program (the Compass Star Account Automated Sweep
Program) and for customers establishing an account with a clearing broker
through Compass Brokerage, Inc. (Compass Brokerage Accounts).
13
<PAGE>
PURCHASING, SELLING AND EXCHANGING FUND SHARES
[GRAPHIC]
HOW TO PURCHASE FUND SHARES
INVESTMENT SERVICES SHARES AND INSTITUTIONAL SHARES
You may purchase Investment Service and Institutional Shares by:
- Mail
- Telephone, or
- Wire
To purchase Investment Service Shares directly from us, complete and send in an
account application. If you need an application or have questions, please call
1-800-992-2085. 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.
To purchase Institutional Shares through the Compass Asset Management
Group, qualifying customers should contact their authorized representative by
calling Compass Bank. If you purchase Institutional Shares through the Compass
Asset Management Group, or certain other subsidiaries, affiliates, departments
or divisions of Compass Bank, you will have to follow the procedures and
requirements established by the Asset Management Group or such other affiliates,
departments or divisions, which are specified in or pursuant to your asset
management, treasury management sweep, MAP Account, or other agreement or in
other guidelines.
You may also buy Investment Service and Institutional 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 broker or 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.
SWEEP CLASS SHARES
Sweep Class Shares may only be purchased, redeemed and exchanged through a
Compass Brokerage Account or the Compass Star Automated Sweep Program, and Sweep
Class Shares may not be purchased directly from the Funds.
14
<PAGE>
PURCHASING, SELLING AND EXCHANGING FUND SHARES
Subject to the terms, conditions and procedures established in the
documentation relating to Compass Brokerage Accounts and the Compass Star
Account Automated Sweep Program, as the case may be, Sweep Class Shares will be
automatically purchased, redeemed and exchanged for investors participating in
those programs. For information concerning Compass Brokerage Accounts and the
Compass Star Account Automated Sweep Program, respectively, including
information regarding eligibility requirements and the procedures for
purchasing, redeeming and exchanging Sweep Class Shares through such programs,
Compass Brokerage customers may contact their Compass Brokerage authorized
representatives and banking customers of Compass Bank may contact their
authorized Compass Bank representative. In addition to the fees charged by the
Funds, other banking fees and charges may apply to Compass Brokerage Accounts
and to participation in the Compass Star Account Automated Sweep Program and are
detailed in such program's customer account documents.
GENERAL INFORMATION
You may purchase shares on any day that the New York Stock Exchange (NYSE) and
the Federal Reserve are open for business (a Business Day). Cash balances in
your designated accounts are automatically invested in Sweep Class Shares each
Business Day.
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 NYSE (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.
15
<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 the net assets of
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.
The Compass Asset Management Group and certain other subsidiaries,
affiliates, departments or divisions of Compass Bank may require that customers
maintain a minimum account or fund balance or meet certain other criteria to
participate in its various asset management and similar programs and/or qualify
to purchase Institutional Shares. Please refer to your asset management,
treasury management sweep, MAP Account, or other account agreement or contact
your Compass Asset Management Group or other account representative for
information concerning minimum account or fund balance requirements and other
criteria applicable to eligibility to invest in the Institutional Shares.
If your account or fund balance falls below any applicable minimum account
balance or your account no longer satisfies other criteria established for
investment in the Institutional Shares, the Compass Asset Management Group or
other Compass Bank subsidiary, affiliate, department or division may exchange
your Institutional Shares of a Fund for Investment Service Shares of that Fund
without prior notice. If you have questions regarding your account's minimum
balance requirements or Investment Service Shares of the Funds, please contact
your Compass Asset Management Group or other Compass authorized representative.
Compass Bank may impose minimum account levels to invest in Sweep Class
Shares through the Compass Star Automated Sweep Program. If you have questions
regarding your account's minimum balance requirements, please contact your
16
<PAGE>
PURCHASING, SELLING AND EXCHANGING FUND SHARES
Compass Asset Management Group or other Compass authorized representative. In
addition, Compass Brokerage, Inc. may require a minimum account balance to open
a brokerage account. Subject to this account minimum, all Compass Brokerage,
Inc. customers are eligible to invest in Sweep Class Shares through its sweep
program.
SYSTEMATIC INVESTMENT PLAN
If you have a checking or savings account with a bank, you may purchase
Investment Service 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.
[GRAPHIC]
HOW TO SELL YOUR FUND SHARES
If you own Investment Service 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.
Holders of the Institutional Shares may sell shares by following the
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
institutional or intermediary.
Sweep Class Shares are sold automatically as determined by the terms of
your Compass Brokerage Account or the Compass Star Account Automated Sweep
Program.
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.
17
<PAGE>
PURCHASING, SELLING AND EXCHANGING FUND SHARES
SYSTEMATIC WITHDRAWAL PLAN (INVESTMENT SERVICE CLASS AND SWEEP CLASS ONLY)
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, if you sell Investment Service or Institutional Shares, 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.
Sale proceeds of Sweep Class Shares will be deposited and processed in
accordance with the procedures applicable to Compass Brokerage Accounts or the
Compass Star Account Automated Sweep Program, as the case may be. 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.
18
<PAGE>
PURCHASING, SELLING AND EXCHANGING FUND SHARES
INVOLUNTARY REDEMPTIONS OF YOUR SHARES
(INVESTMENT SERVICE CLASS ONLY)
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 during times when the NYSE
restricts or halts trading, or as otherwise permitted by the Securities and
Exchange Commission (SEC). More information about this is in our Statement of
Additional Information.
[GRAPHIC] HOW TO EXCHANGE YOUR SHARES
Investment Service Shares, Institutional Shares and Sweep Class Shares,
respectively, may be exchanged for shares of the same class of any other money
market fund portfolio of the Expedition Funds.
You may also exchange shares through your financial institution by mail
or telephone. You may exchange your Investment Service Shares or Institutional
Shares on any Business Day by contacting us directly by mail or telephone by
calling 1-800-992-2085. 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 its affiliates 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' 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.
19
<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 AND DISTRIBUTIONS
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 their shareholders. This summary is based on current
tax laws, which may change.
Each 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 a Fund may be taxable whether or not you reinvest
them. Income distributions are generally taxable at ordinary income tax rates.
Capital gains distributions are generally taxable at the rates applicable to
long-term capital gains. 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 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.
20
<PAGE>
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21
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about Investment Service
Shares and the 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 table 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, except for the six months ended April 30, 2000,
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 six months ended April 30, 2000 (unaudited) and 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
OF PERIOD INCOME ON INVESTMENTS INCOME CAPITAL GAINS PERIOD
------------ ---------- -------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
-----------------
MONEY MARKET FUND
-----------------
Investment Service Shares(1)
2000** $1.00 0.03 -- (0.03) -- $1.00
1999 1.00 0.05 -- (0.05) -- 1.00
1998 1.00 0.05 -- (0.05) -- 1.00
1997 1.00 0.08 -- (0.08) -- 1.00
1996 1.00 0.04 -- (0.04) -- 1.00
1995 1.00 0.05 -- (0.05) -- 1.00
Institutional Shares
2000** $1.00 0.03 -- (0.03) -- $1.00
1999 1.00 0.05 -- (0.05) -- 1.00
1998 1.00 0.05 -- (0.05) -- 1.00
1997(2) 1.00 0.02 -- (0.02) -- 1.00
--------------------------
TAX-FREE MONEY MARKET FUND
--------------------------
Investment Service Shares
2000** $1.00 0.02 -- (0.02) -- $1.00
1999 1.00 0.03 -- (0.03) -- 1.00
1998(3) 1.00 0.01 -- (0.01) -- 1.00
Institutional Shares
2000** $1.00 0.02 -- (0.02) -- $1.00
1999(4) 1.00 0.02 -- (0.02) -- 1.00
</TABLE>
* Annualized
** For the six months ended April 30, 2000 (unaudited).
+ Returns are for the period indicated and have not been annualized.
22
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO RATIO NET
OF EXPENSES INVESTMENT INCOME
RATIO OF NET TO AVERAGE (LOSS) TO AVERAGE
RATIO OF INVESTMENT NET ASSETS NET ASSETS
NET ASSETS EXPENSES INCOME (LOSS) (EXCLUDING (EXCLUDING
TOTAL END OF TO AVERAGE TO AVERAGE WAIVERS AND WAIVERS AND PORTFOLIO
RETURN+ PERIOD (000) NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) TURNOVER RATE
------- ------------ ---------- ------------- --------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
-----------------
MONEY MARKET FUND
-----------------
Investment Service Shares(1)
2000** 2.60% $217,030 0.68%* 5.20%* 0.90%* 4.98%* --
1999 4.56 186,431 0.68 4.47 1.02 4.13 --
1998 5.07 142,910 0.68 4.95 0.91 4.73 --
1997 4.97 147,651 0.73 4.84 0.85 4.72 --
1996 4.95 136,666 0.71 4.85 0.71 4.85 --
1995 5.51 141,434 0.56 5.38 0.66 5.28 --
Institutional Shares
2000** 2.72% $147,478 0.43%* 5.45%* 0.65%* 5.23%* --
1999 4.83 130,798 0.43 4.73 0.77 4.39 --
1998 5.33 102,699 0.43 5.18 0.66 4.95 --
1997(2) 5.26 48,006 0.43* 5.22* 0.70* 4.95* --
--------------------------
TAX-FREE MONEY MARKET FUND
--------------------------
Investment Service Shares
2000** 1.60% $ 69,944 0.68%* 3.22%* 0.70%* 3.20%* --
1999 2.77 59,889 0.68 2.73 0.95 2.46 --
1998(3) 1.33 64,542 0.68* 2.95* 0.78* 2.85* --
Institutional Shares
2000** 1.73% $ 13,600 0.43%* 3.44%* 0.46%* 3.41%* --
1999(4) 1.69 28,874 0.43* 3.06* 0.89* 2.60* --
</TABLE>
(1) During 1997, the Starburst Money Market Trust Shares were renamed the
Expedition Money Market Investment Service Shares.
(2) Commenced operations on June 9, 1997.
(3) Commenced operations on May 20, 1998.
(4) Commenced operations on April 14, 1999.
23
<PAGE>
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24
<PAGE>
EXPEDITION MONEY MARKET FUND
EXPEDITION TAX-FREE MONEY MARKET FUND
Investment Service Shares
Institutional Shares
Sweep Class Shares
MARCH 1, 2000, AS SUPPLEMENTED AUGUST 1, 2000
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
More information about Expedition Funds is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated March 1, 2000, as supplemented August 1, 2000, 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 and their
impact on Fund performance. The reports also contain detailed financial
information about the Funds.
TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR 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 EDGAR Database on
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 on the
operation of the Public Reference Room, call 202-942-8090). 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
20549-0102. You may also obtain this information, upon payment of a duplicating
fee, by e-mailing the SEC at the following address: [email protected].
Expedition Funds' Investment Company Act registration number is 811-5900.
EXP-F-034-01000
<PAGE>
EXPEDITION FUNDS
EXPEDITION MONEY MARKET FUND
EXPEDITION TAX-FREE MONEY MARKET FUND
EXPEDITION EQUITY FUND
EXPEDITION EQUITY INCOME FUND
EXPEDITION INVESTMENT GRADE BOND FUND
EXPEDITION TAX-FREE INVESTMENT GRADE BOND FUND
(PORTFOLIOS OF THE EXPEDITION FUNDS)
MARCH 1, 2000, AS SUPPLEMENTED AUGUST 1, 2000.
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 July 31, 2000, AS SUPPLEMENTED August 1, 2000.
Prospectuses may be obtained by writing to the Trust or calling toll-free
1-800-992-2085. The financial statements, with respect to the Money Market
Fund, Tax-Free Money Market Fund, Equity Fund, and Investment Grade Bond
Fund, for the fiscal year ended October 31, 1999, including notes thereto and
the report of Deloitte & Touche LLP thereon, are herein incorporated by
reference.
TABLE OF CONTENTS
THE TRUST......................................................................x
ADDITIONAL INFORMATION ABOUT THE FUNDS AND THEIR INVESTMENT OBJECTIVES.........x
DESCRIPTION OF PERMITTED INVESTMENTS...........................................x
INVESTMENT LIMITATIONS.........................................................x
REGULATORY COMPLIANCE..........................................................x
INVESTMENT ADVISER.............................................................x
THE ADMINISTRATOR..............................................................x
THE DISTRIBUTOR................................................................x
THE TRANSFER AGENT.............................................................x
THE CUSTODIAN..................................................................x
INDEPENDENT AUDITORS...........................................................x
LEGAL COUNSEL..................................................................x
TRUSTEES AND OFFICERS OF THE TRUST.............................................x
PERFORMANCE INFORMATION........................................................x
COMPUTATION OF YIELD...........................................................x
CALCULATION OF TOTAL RETURN....................................................x
PURCHASING SHARES..............................................................x
REDEEMING SHARES...............................................................x
DETERMINATION OF NET ASSET VALUE...............................................x
TAXES..........................................................................x
FUND TRANSACTIONS..............................................................x
TRADING PRACTICES AND BROKERAGE................................................x
DESCRIPTION OF SHARES..........................................................x
SHAREHOLDER LIABILITY..........................................................x
LIMITATION OF TRUSTEES' LIABILITY..............................................x
5% AND 25% SHAREHOLDERS........................................................x
EXPERTS........................................................................x
FINANCIAL STATEMENTS...........................................................x
APPENDIX.....................................................................A-1
<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 three classes,
known as Sweep Class Shares, Investment Service Shares and Institutional Shares.
Shares of the Expedition Equity Fund, Expedition Equity Income Fund (together
the "Equity Funds"), Expedition Investment Grade Bond Fund (formerly the
Expedition Bond Fund) and Expedition Tax-Free Investment Grade Bond Fund
(together the "Bond Funds") 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, Equity and Bond 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. There can be no assurance that the Fund
will achieve its objective.
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:
- debt obligations issued by U.S. and foreign corporations, including
variable rate demand notes;
- commercial paper (including Canadian Commercial Paper ("CCP") and
Europaper);
- certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments of domestic and foreign banks and other deposit
institutions ("Bank Instruments");
- short-term credit facilities, such as demand notes;
- debt obligations issued by Canada and other foreign nations, as well as by
supranational entities such as the World Bank;
- asset-backed and mortgage-backed securities, including collateralized
mortgage obligations ("CMOs");
- 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
- other money market instruments, including shares of other money market
funds.
The Fund invests only in instruments denominated and payable in U.S. dollars.
2
<PAGE>
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. There can be no assurance that the Fund will achieve its objective.
Under normal market conditions, the Fund will invest at least 80% of its total
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 total 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 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
3
<PAGE>
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 EQUITY FUND
The Equity Fund's investment objective is to provide growth of capital, with a
secondary objective of income. There can be no assurance that the Fund will
achieve its objective.
The Fund invests primarily (at least 80% 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 specific portfolio turnover rate
since any turnover would be incidental to transactions undertaken in an attempt
to achieve the Fund's investment objective. However, the Fund does not expect
its annual rate of portfolio turnover to exceed 100% under normal market
conditions. The portfolio turnover rates for the fiscal year ending October 31,
1998 and 1999 were 54.19% and 90.76%, respectively.
EXPEDITION EQUITY INCOME FUND
The investment objective of the Equity Income Fund is long-term growth of
capital with an emphasis on current income. There can be no assurance that the
Fund will achieve its investment objectives.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in a diversified portfolio of common stocks and other equity
securities. The investment approach employed by the Adviser emphasizes
income-producing common stocks which, in general, have above-average dividend
yields relative to the stock market as measured by the Standard & Poor's 500
Index. Any remaining assets may be invested in warrants and rights to purchase
common stocks, preferred stocks convertible into common stock, non-convertible
preferred stocks, investment grade bonds convertible into common stocks and
investment grade fixed income securities. The Fund may also borrow money, invest
in illiquid securities, when-issued, and delayed-delivery securities, shares of
REITs, invest in master exchange traded limited partnerships, and shares of
other investment companies, and lend its securities to qualified buyers.
The Fund will not attempt to set or meet a specific portfolio turnover rate
since any turnover would be incidental to transactions undertaken in an attempt
to achieve the Fund's investment objective. However, the Fund does not expect
its annual rate of portfolio turnover to exceed 100% under normal market
conditions. Additionally, the Adviser expects portfolio turnover for the Equity
Income Fund will be lower than that of the Equity Fund.
EXPEDITION INVESTMENT GRADE BOND FUND
The Investment Grade Bond Fund's investment objective is to provide current
income. There can be no assurance that the Fund will achieve its investment
objectives.
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The Fund invests primarily in bonds as well as other fixed income securities.
Under normal circumstances, the Fund will invest at least 65% of its total
assets in bonds, which may include debentures and notes, issued by U.S.
companies as well as by the U.S. Treasury and government agencies, including
mortgage-backed securities. The Fund may also invest to a lesser extent in
debt and notes issued by foreign companies and governments. 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 organization
(an "NRSRO") at the time of purchase. Under normal circumstances, the Fund's
average weighted maturity will be maintained at from 3 to 7 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; some of which are further described below.
The Fund will not attempt to set or meet a specific portfolio turnover rate
since any turnover would be incidental to transactions undertaken in an attempt
to achieve the Fund's investment objective. However, the Fund does not expect
its annual rate of portfolio turnover to exceed 100% under normal market
conditions. The portfolio turnover rates for the fiscal years ending October 31,
1998 and 1999 were 32.93% and 39.57%, respectively.
EXPEDITION TAX-FREE INVESTMENT GRADE BOND FUND
The Fund's investment objective is to seek current income exempt from Federal
income tax. There can be no assurance that the Fund will achieve its objective.
The Fund invests at least 80% of its net assets in municipal securities the
interest of which is exempt from federal income taxes based on opinions from
bond counsel for the issuers. This investment policy is a fundamental policy of
the Fund. The issuers of these securities can be located in all fifty states,
the District of Columbia, Puerto Rico, and other U.S. territories and
possessions. Although the Fund has no present intention of doing so, up to 20%
of its assets can be invested in taxable debt securities.
The Fund may purchase municipal obligations rated A or better by Standard &
Poor's Corporation ("S&P") or by Moody's Investors Service, Inc. ("Moody's") or
of comparable quality as determined by the Adviser and tax-exempt commercial
paper rated at least A-1 by S&P or Prime-1 by Moody's. Municipal obligations
owned by the Fund which become less than the prescribed investment quality shall
be sold at a time when, in the judgment of the Adviser, it does not
substantially impact the market value of the Fund.
There could be economic, business, or political developments which might affect
all municipal securities of a similar type or whose issuers are located in the
same state. To the extent that a significant portion of the Fund's assets are
invested in municipal securities payable from revenues on similar projects or
whose issuers are located in the same state, the Fund will be subject to the
risks presented by such types of securities, projects or issuers to a greater
extent than it would be if the Fund's assets were not invested in such a manner.
The Fund will typically maintain a dollar-weighted average portfolio maturity of
less than 15 years. However, when the Adviser determines that market conditions
so warrant, the Fund may maintain an average weighted maturity of greater than
15 years.
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. However, the Fund does not expect its annual
rate of portfolio turnover to exceed 100% under normal market conditions.
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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 underlying security. The
Equity Funds may invest in ADRs traded on registered exchanges or on NASDAQ and
may also invest in ADRs not traded on an established exchange. 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.
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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 a 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).
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
purchaser 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.
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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.
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 future positions. There can be no assurance that a
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 Adviser 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 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.
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INVESTMENT COMPANY SHARES
The Funds may purchase shares of other investment companies 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.
The Trust and the Adviser have received an exemptive order from the SEC, 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.
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.
MASTER EXCHANGE TRADED LIMITED PARTNERSHIPS
A master exchange traded limited partnership interest entitles a Portfolio to
participate in the investment return of the partnership's assets as defined by
the agreement among the partners. As a limited partner, a Portfolio generally is
not permitted to participate in the management of the partnership. However,
unlike a general partner whose liability is not limited, a limited partner's
liability generally is limited to the amount of its commitment to the
partnership.
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.
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.
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
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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 the
Adviser or Sub-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 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).
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TAXABLE MUNICIPAL SECURITIES - The Tax-Free Money Market Fund and the Tax-Free
Investment Grade Bond Fund may invest up to 20% of their 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 Funds' respective 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 Sub-Advisers or their affiliates.
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES
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 IBCA 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" and "Appendix."
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 Adviser 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 Funds 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 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.
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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.
STRIPS
Separately Traded Interest and Principal Securities ("STRIPS") are component
parts of U.S. Treasury Securities traded through the Federal Book-Entry System.
The Adviser 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 or Sub-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 or Sub-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 the full faith and
credit of the U.S. Treasury; the issuer's right to borrow from the U.S.
Treasury; the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or 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: Farm Credit Banks; National Bank
for Cooperatives; Federal Home Loan Banks; Farmers Home Administration; and
Fannie Mae.
13
<PAGE>
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, 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.
INVESTMENT LIMITATIONS
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.
14
<PAGE>
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
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 may 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.
15
<PAGE>
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
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.
TAX-FREE MONEY MARKET FUND
FUNDAMENTAL LIMITATIONS
The Tax-Free 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.
16
<PAGE>
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 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 SEC 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. Purchase securities which would cause 25% or more of the total assets of
the Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry.
This limitation does not apply to investments in obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities,
repurchase agreements involving such securities, or tax-exempt
securities issued by governments or political subdivisions of
governments.
5. 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.
6. 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.
7. 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."
8. 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.
9. Purchase securities of other investment companies except as permitted by
the 1940 Act, and the rules and regulations thereunder.
17
<PAGE>
10. 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 SEC.
11. 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.
EQUITY AND BOND 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.
Under this limitation, as it relates to the Bond Funds, 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 Funds may borrow money
and the Bond Funds may engage in reverse repurchase agreements in amounts up to
one-third of the value of its net assets, including the amounts borrowed.
18
<PAGE>
A Fund will not borrow money or, with respect to the Bond Funds, 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 Funds 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.
CONCENTRATION OF INVESTMENTS
A Fund will not purchase securities which would cause 25% or more of the total
assets of a Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry.
This limitation does not apply to investments in obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities, repurchase
agreements involving such securities or, for the Fixed Income Funds only,
tax-exempt securities issued by governments or political subdivisions of
governments.
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.
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.)
19
<PAGE>
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
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 SEC, 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 their policies and limitations, the Bond Funds consider
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."
20
<PAGE>
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 these
operational policies to reflect changes in the laws and regulations without the
approval of their shareholders.
INVESTMENT ADVISER
The Adviser, Compass Bank, an Alabama state banking corporation, is a
wholly-owned subsidiary of Compass Bancshares, Inc. ("Compass Bancshares"), a
bank holding company organized under the laws of Delaware. Through its
subsidiaries and affiliates, Compass Bancshares, the 38th largest bank holding
company in the United States in terms of total assets as of September 30, 1999,
offers a full range of financial services to the public including commercial
lending, depository services, cash management, brokerage services, retail
banking, credit card services, investment advisory services and trust services.
Compass Bank offers 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, and endowments and foundations. As of June 30, 2000,
the Compass Asset Management Group had approximately $9.2 billion under
administration ($3.3 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.
The continuance of the 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 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 Funds at any
time, without the payment of any penalty, on sixty (60) days' written notice to
Compass Bank and may be terminated at any time by ninety (90) days' written
notice to the Adviser. The Advisory Agreement will immediately terminate in the
event of its assignment or upon termination of the Advisory agreement between
the Adviser
21
<PAGE>
and the Trust with regard to the Funds (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).
ADVISORY FEES
For its advisory services, Compass Bank receives an annual investment advisory
fee as described in the prospectuses. For the fiscal years ended October 31,
1997, 1998 and 1999, the Funds paid the following advisory fees:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Fund Fees Paid Fee Waived
------------------------------------------------------------------------------------------
1997 1998 1999 1997 1998 1999
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund $490,590 $319,769 $533,969 $166,107 $413,213 $678,252
--------------------------------------------------------------------------------------------------------------------------------
Tax-Free Money Market Fund * $27,940 $102,343 * $78,291 $192,232
--------------------------------------------------------------------------------------------------------------------------------
Equity Fund $691,952 $1,988,195 $2,570,771 $0 $0 $0
--------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund * * * * * *
--------------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Fund** $478,461 $661,196 $547,695 $68,168 $214,248 $273,847
--------------------------------------------------------------------------------------------------------------------------------
Tax-Free Investment Grade Bond Fund * * * * * *
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* An asterisk indicates that the Fund had not commenced operations as of the
period indicated.
** Formerly Expedition Bond Fund
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 June 30, 2000, WPG manages over $18.8 billion in
assets, [ ] 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 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 of 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
22
<PAGE>
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).
<TABLE>
<CAPTION>
------------------------------------------------------------
Fund Fees Paid Fee Waived
-----------------------------------------
1998 1999 1998 1999
------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax-Free Money $18,627 $52,562 $0 $0
Market Fund
------------------------------------------------------------
</TABLE>
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 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 0.20% 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 terminate these voluntary waivers at any
time.
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 extends for a term of five years, commencing on July
27, 1999, and is renewable for additional two year terms thereafter.
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 Company ("SEI Investments"), is the
owner of all beneficial interest 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
information services to financial institutions, institutional investors, and
money managers. The Administrator and its affiliates also serve as administrator
or sub-administrator to the other mutual funds including, but without
limitation: The Achievement Funds Trust, The Advisors' Inner Circle Fund, Alpha
Select Funds, Amerindo Funds Inc., The Arbor Fund, ARK Funds, Armada Funds, The
Armada Advantage Fund, Bishop Street Funds, CNI Charter Funds, CUFUND, The
Expedition Funds, First American Funds, Inc., First American Investment Funds,
Inc., First American Strategy Funds, Inc., Friends Ivory Funds, HighMark Funds,
Huntington Funds, Huntington VA Funds, The Nevis Fund, Inc., Oak Associates
Funds, The PBHG 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 Insurance Products Trust, SEI Liquid Asset
Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable Trust, TIP
Funds, UAM Funds Trust, UAM Funds, Inc. and UAM Funds, Inc. II.
Since June 9, 1997, SEI Investments Mutual Funds Services has served as
administrator to the Funds. Prior to June 9, 1997, Federated Administrative
Services served as administrator to the Funds.
23
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
Fund Fees Paid Fees Waived
-----------------------------------------------------------------------------------------------
Fiscal Period Fiscal Year Fiscal Period Fiscal Year
-----------------------------------------------------------------------------------------------
1996(1) 1997(2) 1998 1999 1996(1) 1997(2) 1998 1999
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Fund $162,059 $149,922 $274,873 $454,849 $0 $49,974 $91,624 $152,405
---------------------------------------------------------------------------------------------------------------------------------
Tax-Free Money Market Fund * * $39,920 $110,259 * * $13,306 $37,106
---------------------------------------------------------------------------------------------------------------------------------
Equity Fund * $186,608 $549,966 $689,189 * $0 $0 $0
---------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund * * * * * * * *
---------------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Fund** $62,443 $96,779 $233,455 $217,645 $0 $0 $0 $0
---------------------------------------------------------------------------------------------------------------------------------
Tax-Free Investment Grade Bond * * * * * * * *
Fund
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not in operation
** Formerly Expedition Bond Fund
(1) Fiscal period beginning November 1, 1996 and ended June 8, 1997.
(2) Fiscal period beginning June 9, 1997 and ended October 31, 1997.
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 Equity and Bond 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, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Fund Dollar Amount of Loads Dollar Amounts of Loads Retained by SEI
Investments
-------------------------------------------------------------------------------------
1997 1998 1999 1997 1998 1999
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Equity Fund $0 $19,807 $51,728 $0 $0 $0
------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund * * * * * *
------------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Fund*** **$1,431 $1,142 $2,297 $0 $0 $0
------------------------------------------------------------------------------------------------------------------------------
Tax-Free Investment Grade Bond Fund * * * * * *
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*An asterisk indicates that the Fund had not commenced operations as of the
periods indicated.
** Since 6/9/97
***Formerly Expedition Bond Fund
24
<PAGE>
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.
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 to one or more mutual funds for
which SEI Investments Company or its affiliates act as investment manager,
administrator or distributor.
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, Bishop
Street Funds, Boston 1784 Funds-Registered Trademark-, The Expedition Funds, Oak
Associates Funds, 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 Insurance Products
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, The Expedition Funds and Oak Associates Funds.
WILLIAM M. DORAN (DOB 05/26/40) -- Trustee* -- 1701 Market Street, Philadelphia,
PA 19103. Partner, Morgan,
25
<PAGE>
Lewis & Bockius LLP (law firm), counsel to the Trust, SEI Investments, the
Administrator and the Distributor. Director of SEI Investments since 1974;
Secretary of SEI Investments since 1978. Trustee of The Advisors' Inner Circle
Fund, The Arbor Fund, The Expedition Funds, Oak Associates 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 Insurance Products 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 since 1984; 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, The Expedition Funds 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, The Expedition Funds and Oak Associates Funds.
JAMES M. STOREY (DOB 04/12/31) -- Trustee** -- Partner, Dechert Price & Rhoads,
September 1987 - December 1993; Trustee of The Advisors' Inner Circle Fund, The
Arbor Fund, The Expedition Funds, Oak Associates 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
Insurance Products 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 Advisors' Inner Circle Fund, The Arbor Fund, The Expedition Funds, Oak
Associates 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 Insurance Products Trust, SEI Liquid
Asset Trust and SEI Tax Exempt Trust.
MARK E. NAGLE (DOB 10/20/59) -- President and Chief Executive Officer--
President of the Administrator and Senior Vice President of SEI Investments
Mutual Funds Services Operations Group since 1998. Vice President of the
Administrator and Vice President of Fund Accounting and Administration of SEI
Investments Mutual Funds Services, 1996-1998. Vice President of the Distributor
since December 1997. Senior Vice President, Fund Administration, BISYS Fund
Services, September 1995 - November 1996. Senior Vice President and Site
Manager, Fidelity Investments 1981- September 1995.
TIMOTHY D. BARTO (DOB 03/28/68) -- Vice President and Assistant Secretary
--Employed by SEI Investments since October 1999. Vice President and Assistant
Secretary of the Administrator and Distributor since December 1999. Associate at
Dechert Price & Rhoads, 1997-1999. Associate, at Richter, Miller & Finn,
1994-1997.
TODD B. CIPPERMAN (DOB 02/14/66) -- Vice President and Assistant Secretary --
Senior Vice President and General Counsel of SEI Investments; Senior Vice
President, General Counsel and Secretary of the Administrator and the
Distributor since 2000. Vice President and Assistant Secretary of SEI
Investments, the Administrator and the Distributor, 1995-2000. 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
26
<PAGE>
of SEI Investments since 1998. Vice President and Assistant Secretary of the
Administrator and the Distributor since May 1999. 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 SEI Investments, t he 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; Vice President of SEI Investments since
1991. Vice President and Treasurer of the Administrator since 1997. Assistant
Controller of SEI Investments and Vice President of the Distributor since 1995;
Director of Taxes of SEI Investments, 1987 to 1991. Tax Manager, Arthur Andersen
LLP prior to 1987.
CHRISTINE M. MCCULLOUGH (DOB 12/02/60) -- Vice President and Assistant Secretary
-- Employed by SEI Investments since November 1, 1999. Vice President and
Assistant Secretary of the Administrator and the Distributor since December
1999. Associate at White and Williams LLP, 1991-1999. Associate at Montgomery,
McCracken, Walker & Rhoads, 1990-1991.
ROBERT J. DELLACROCE (DOB 12/17/63) -- Controller and Chief Financial Officer --
Director, Funds Administration and Accounting of the Administrator since 1994.
Senior Audit Manager, Arthur Andersen LLP, 1986 - 1994.
JOHN H. GRADY, JR. (DOB 06/01/61) -- Secretary -- 1701 Market Street,
Philadelphia, PA 19103, 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 and Storey serve as members of the Audit
Committee of the Fund.
The Trustees and officers of the Trust own less than 1% of the outstanding
shares of the Trust. The Trust pays the fees for unaffiliated Trustees.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
TOTAL COMPENSATION FROM
AGGREGATE REGISTRANT AND FUND
COMPENSATION FROM PENSION OR COMPLEX* PAID TO TRUSTEES
REGISTRANT FOR THE RETIREMENT ESTIMATED ANNUAL FOR THE FISCAL YEAR ENDING
FISCAL YEAR ENDING BENEFITS ACCRUED AS BENEFITS UPON OCTOBER 31, 1999
NAME OF PERSON, OCTOBER 31, 1999 PART OF FUND RETIREMENT
POSITION EXPENSES
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Cooney $4,255 N/A N/A $4,255 for services on 1 board
----------------------------------------------------------------------------------------------------------------------------------
Frank E. Morris ** $0 N/A N/A $ 0 for services on 1 board
----------------------------------------------------------------------------------------------------------------------------------
Robert Patterson $2,989 N/A N/A $2,989 for services on 1 board
----------------------------------------------------------------------------------------------------------------------------------
Eugene B. Peters $3,643 N/A N/A $3,643 for services on 1 board
----------------------------------------------------------------------------------------------------------------------------------
James M. Storey, Esq. $3,506 N/A N/A $3,506 for services on 1 board
----------------------------------------------------------------------------------------------------------------------------------
George J. Sullivan, Jr. $2,615 N/A N/A $2,615 for services on 1 board
----------------------------------------------------------------------------------------------------------------------------------
27
<PAGE>
<CAPTION>
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------------
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."
** 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 Equity and Bond 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").
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
28
<PAGE>
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) to the power of
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:
E + T
TAX EQUIVALENT YIELD = -----
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, 1999 was 5.15% and the effective yield for
the same seven-day period was 5.28%. The yield for the Investment Services
Shares of the Money Market Fund for the same period was 4.90% and the effective
yield for the same seven-day period was 5.01%. The yield for the Institutional
Shares of the Tax-Free Money Market Fund for the seven-day period ended October
31, 1999 was 3.21% and the effective yield for the same seven-day period was
3.27%. The Investment Service Shares of the Tax-Free Money Market Fund for the
same period was 2.96% and the effective yield for the same seven-day period was
3.01%.
The tax-equivalent yield of the Tax Free Money Market Fund Institutional Shares
for the seven-day period ended October 31, 1999 was 5.26% and the tax-equivalent
effective yield for the same period was 5.36%. The tax-equivalent yield of the
Tax Free Money Market Fund Investment Shares for the seven-day period ended
October 31, 1999 was 9.85% and the tax-equivalent effective yield for the same
period was 4.93%.
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 Equity and Bond Funds may advertise a thirty-day yield. In particular, yield
will be calculated according to the following formula:
29
<PAGE>
Yield = (2 (a-b/cd + 1) TO THE POWER OF 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 Investment Grade Bond Fund yield for the thirty-day period ended October 31,
1999 was as follows: Class A Shares 4.94%, Class B Shares 4.40% and
Institutional Shares 5.40%. As of October 31, 1999, the Tax-Free Investment
Grade Bond Fund had not commenced operations.
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) TO THE POWER
OF 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 Sweep Class Shares of the Funds were not offered prior to July 31, 2000. The
average total returns for the Funds from inception through October 31, 1999 were
as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Fund Class Average Annual Total Return
--------------------------------------------------------------
One Year Five Years Ten Years Since Inception*
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Money Market Fund Institutional Shares 4.83% 5.14% N/A 4.95%
-------------------------------------------------------------------------------------------------
Investment Service Shares 4.56% 5.01% N/A 4.88%
-------------------------------------------------------------------------------------------------------------------------
Tax-Free Money Market Institutional Shares 2.91% N/A N/A 2.93%
Fund -------------------------------------------------------------------------------------------------
Investment Service Shares 2.77% N/A N/A 2.83%
-------------------------------------------------------------------------------------------------------------------------
Equity Fund Institutional Shares 30.87% 23.14% N/A 18.84%
-------------------------------------------------------------------------------------------------
Class A Shares (without load) 30.16% 23.04% N/A 18.77%
-------------------------------------------------------------------------------------------------
Class A Shares (load) 24.96% 22.06% N/A 17.97%
-------------------------------------------------------------------------------------------------
Class B Shares (without load) 29.54% 22.88% N/A 18.64%
-------------------------------------------------------------------------------------------------
Class B Shares (load) 24.54% 22.80% N/A 18.64%
-------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Institutional Shares -0.06% 5.97% N/A 5.45%
Fund # -------------------------------------------------------------------------------------------------
Class A Shares (without load) -0.41% 5.86% N/A 5.37%
-------------------------------------------------------------------------------------------------
Class A Shares (load) -4.37% 4.99% N/A 4.80%
-------------------------------------------------------------------------------------------------
Class B Shares (without load) 1.30% 6.22% N/A 5.61%
-------------------------------------------------------------------------------------------------
Class B Shares (load) -3.44% 6.06% N/A 5.61%
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Institutional Shares of the Money Market Fund were initially offered to the
public on June 9, 1997. Investment Service Shares of the Money Market Fund were
initially offered to the public on February 5, 1990. Prior to June 9, 1997,
Investment Service Shares of the Money Market Fund were not subject to Rule
12b-1 or shareholder servicing fees. Class A Shares of the Investment Grade 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
Investment Grade Bond Fund (formerly, Expedition Bond Fund) were initially
offered to the public on June 16, 1997. Class B Shares of the Investment Grade
Bond Fund and Class B Shares of the Equity Fund were not offered to the public
during the fiscal year ended
30
<PAGE>
October 31, 1998. Institutional Shares of the Equity Fund were initially offered
to the public on June 13, 1997. Class A 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 of the Bond Fund.
# Formerly Expedition Bond Fund.
Due to higher fees and expenses applicable to Sweep Class Shares, the total
return of the Sweep Class Shares will be lower than the total return of the
Institutional Shares and Investment Service Shares. 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.
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 Trust sometimes are
referred herein as "Compass."
DISTRIBUTION, ADMINISTRATIVE AND SHAREHOLDER SERVICES PLANS
The Trust has adopted separate Plans for the Class A Shares and Class B Shares
of the Equity and Bond Funds pursuant to Rule 12b-1 (the "12b-1 Plans") which
was promulgated by the SEC 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.
31
<PAGE>
With respect to Sweep Class Shares of the Money Market Funds, the Trust has
adopted a Shareholder Service Plan (the "Shareholder Service Plan") and an
Administrative Services Plan (the "Administrative Services Plan"). Pursuant to
the Shareholder Service Plan, the Distributor many pay fees to service providers
that may provide, one or more of the following services to Sweep Class
shareholders; maintaining accounts; arranging for bank wires; responding to
shareholder inquiries relating to the services performed by the Distributor or
any service provider; responding to inquiries from shareholders concerning their
investments in Sweep Class Shares; assisting shareholders in changing dividend
options, account designations, and addresses; and other similar personal
services. Pursuant to the Administrative Services Plan, the Distributor may pay
fees to service providers that may provide, one or more of the following
administrative services to Sweep Class Shares shareholders; providing
sub-accounting services; providing account information periodically to
shareholders; forwarding shareholder communications from the Fund (such as
proxies, prospectuses, shareholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to shareholders;
processing purchase, exchange and redemption requests from shareholders, either
directly or through cash "sweep" or similar cash management programs
administered on behalf of shareholders, and placing such orders with the Fund or
its service providers; processing dividend payments from the Fund on behalf of
the shareholders; and providing such other similar administrative services to
the extent the services do not constitute "personal services" within the meaning
of NASD Conduct Rule 2830.
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 Equity and Bond Funds to
achieve 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, 1999, the Class A Shares of the Equity and
Bond Funds incurred the following distribution expenses, pursuant to the Class A
Plan:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Fund Total Distribution Total Distribution Expenses (as a % Sales Expenses Printing Costs Other Costs
Expenses of net assets)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Equity Fund $8,803 2.49% N/A N/A N/A
------------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund * * * * *
------------------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond $21,961 2.50% N/A N/A N/A
Fund ***
------------------------------------------------------------------------------------------------------------------------------------
Tax-Free Investment * * * * *
Grade Bond Fund
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
* An asterisk indicates that the Fund had not commenced operations as of
the period indicated.
**Reflects voluntary fee waiver in effect for the period indicated.
*** Formerly the Expedition Bond Fund
PAYMENTS UNDER THE CLASS B PLAN
For the fiscal year ended October 31, 1999, the Class B Shares of the Equity and
Bond Funds incurred the following distribution expenses, pursuant to the Class B
Plan:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Fund Total Distribution Total Distribution Expenses (as a % Sales Expenses Printing Costs Other Costs
Expenses of net assets)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Equity Fund $25,467 9.51% N/A N/A N/A
------------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund * * * * *
------------------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond $926 9.52%** N/A N/A N/A
Fund ***
------------------------------------------------------------------------------------------------------------------------------------
Tax-Free Investment * * * * *
Grade Bond Fund
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*An asterisk that the Fund had not commenced operations as of the period
indicated.
**Reflects voluntary fee waiver in effect for the period indicated.
*** Formerly the Expedition Bond Fund
PAYMENTS UNDER THE SERVICE PLAN
For the fiscal year ended October 31, 1999, 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 $449,956, and the Tax-Free Money
Market Fund paid $146,238, 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.
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.
33
<PAGE>
Redemption in kind will be made in conformity with applicable SEC 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 FUNDS
The Money Market Funds attempt to stabilize the value of a share at $1.00. Net
asset value is calculated on days on which both the NYSE 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 Funds are 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 Funds' use of the amortized cost method of valuing portfolio
instruments depends on its compliance with certain 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 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.
34
<PAGE>
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 Funds
will invest their available cash to reduce the average maturity to 90 days
or less as soon as possible.
The Money Market Funds may attempt to increase yield by trading portfolio
securities to take advantage of short-term market variations. Under 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 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 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.
EQUITY AND BOND FUNDS
Net asset value generally changes each day for the Equity and Bond Funds. 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 the Equity and Bond Funds' portfolio securities are determined
as follows: as provided by an independent pricing service; 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 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: yield,
quality, coupon rate, maturity, type of issue, trading characteristics, and
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.
35
<PAGE>
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.
Each Fund intends to qualify under Subchapter M of the Code for tax treatment as
a RIC. In order to qualify as a RIC, a Fund must satisfy certain requirements.
First, a Fund must derive at least 90% of its annual gross income (including
tax-exempt interest) from dividends, interest, payments with respect to
securities loans, gains from the sale of or other disposition of stock or
securities, foreign currencies or other income (including but not limited to
gains from options and futures) derived with respect to its business of
investing in such stock or securities (the "90% gross income test"). Second, a
Fund must diversify its holdings so that, at the close of each quarter of its
taxable year, (i) at least 50% of the value of its total assets is comprised of
cash, cash items, United States Government securities, securities of other
regulated investment companies and other securities limited in respect of any
one issuer to an amount not greater in value than 5% of the value of a Fund's
total assets and to not more than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of the total assets is
invested in the securities of any one issuer (other than United States
Government securities and securities of other regulated investment companies) or
two or more issuers controlled by a Fund and engaged in the same, similar or
related trades or businesses.
A Fund will not be taxable as a RIC for a taxable year unless it distributes
at least 90% of the sum of (i) its "investment company taxable income"
(which includes dividends, taxable interest, taxable original issue discount
and market discount income, income from securities lending, net short-term
capital gain in excess of long-term capital loss, and any other taxable
income other than "net capital gain" (as defined below) and is reduced by
deductible expenses) and (ii) its net tax-exempt interest (the excess of its
gross tax-exempt interest income over certain disallowed deductions). A Fund
may retain for investment its net capital gain (which consists of the excess
of its net long-term capital gain over its net short-term capital loss).
However, if a Fund retains any net capital gain or any investment company
taxable income, it will be subject to tax at regular corporate rates on the
amount retained. Each fund intends to distribute at least annually to its
shareholders all or substantially all of its net tax-exempt interest and any
investment company taxable income and net capital gain.
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
36
<PAGE>
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 Funds or Bond Funds will qualify for the corporate
dividends-received deduction. Conversely, distributions from the Equity Funds
may 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
October, November or 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 that have been 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
37
<PAGE>
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
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 AND TAX-FREE INVESTMENT GRADE BOND
The Tax-Free Money Market Fund and the Tax-Free Investment Grade Bond 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. The Tax-Free Money Market Fund and the Tax-Free Investment
Grade Bond 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 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 and the Tax-Free Investment Grade Bond 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 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.
38
<PAGE>
Issuers of bonds purchased by the Tax-Free Money Market Fund and the Tax-Free
Investment Grade Bond 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 and the Tax-Free
Investment Grade Bond 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.
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.
39
<PAGE>
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 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. Additionally, the Adviser (or
Sub-Adviser) may use the Distributor as a broker-dealer. The Distributor is not
an affiliate of the Fund, but falls under the definition of "affiliated broker"
of the Fund for purposes of Item 16 of Form N-1A under the 1933 Act. Such
commissions and other remuneration to the Distributor will be fair and
reasonable in comparison to other broker-dealers for comparable transactions
involving similar securities purchased and sold during a comparable time period.
For the fiscal year ended October 31, 1999, 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 Brokerage Total Dollar Amount of Transactions
Commissions for Research Services Involving Directed Brokerage
Commissions for Research Services
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Money Market Fund $0 $0
------------------------------------------------------------------------------------------------------------------
Tax-Free Money Market Fund $0 $0
------------------------------------------------------------------------------------------------------------------
Equity Fund $0 $0
------------------------------------------------------------------------------------------------------------------
Equity Income Fund * *
------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Fund $0 $0
------------------------------------------------------------------------------------------------------------------
Tax-Free Investment Grade Bond Fund * *
------------------------------------------------------------------------------------------------------------------
</TABLE>
* An asterisk that the Fund had not commenced operations as of the period
indicated.
** Formerly the Expedition Bond Fund.
40
<PAGE>
For the fiscal years indicated, the Funds paid the following brokerage
commissions:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Fund Total $ Amount of Brokerage Total $ Amount of Brokerage % of Total % of Total
Commissions Paid Commissions Paid to Affiliate Brokerage Brokerage
Brokers Commissions Transactions
Paid to Effected
Affiliated Through
Brokers Affiliated
Brokers
----------------------------------------------------------------------------------------------------------------------------
1997 1998 1999 1997 1998 1999 1999 1999
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Fund * $6,468 $13,536 * $6,468 $13,536 100% 0%
----------------------------------------------------------------------------------------------------------------------------
Tax-Free Money * * $0 * * $0 $0 $0
Market Fund
----------------------------------------------------------------------------------------------------------------------------
Equity Fund $332,823 $323,867 $646,853 $0 $1,058 $2,228 .003% .001%
----------------------------------------------------------------------------------------------------------------------------
Equity Income Fund * * * * * * * *
----------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond * $877.67 $909 * $878 $909 100% 0%
Fund **
----------------------------------------------------------------------------------------------------------------------------
Tax-Free Investment * * * * * * * *
Grade Bond Fund
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*An asterisk indicates that the Fund had not commenced operations as of the
period indicated.
** Formerly the Expedition Bond Fund.
"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,
1999, the following Funds held securities of the Trust's "regular brokers or
dealers" as follows: the Investment Grade Bond Fund held repurchase agreements
valued at $4,654,000.00 at the fiscal year end with J.P. Morgan and held asset
backed securities valued at $953,750.00 at the fiscal year end issued by Morgan
Stanley Dean Witter and held corporate bonds valued at $985,000.00 at the fiscal
year end issued by Lehman Brothers Holdings Inc.; the Equity Fund held
repurchase agreements valued at $10,201,000.00 at the fiscal year end with J.P.
Morgan and held common stock valued at $10,470,000.00 at the fiscal year end
issued by J.P. Morgan and the Money Market Fund held repurchase agreements
valued at $11,157,000.00 at the fiscal year end with J.P. Morgan and held
discounted notes valued at $9,857,778.89 at the fiscal year end issued by Morgan
Stanley Dean Witter and held discounted notes valued at $13,766.228.06 at the
fiscal year end issued by Goldman Sachs and held notes valued at $8,519,219.78
at the fiscal year end issued by Merrill Lynch.
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
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
41
<PAGE>
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.
5% AND 25% SHAREHOLDERS
<TABLE>
<CAPTION>
EXPEDITION MONEY MARKET FUND % OF FUND HELD
INVESTMENT SHARES --------------
<S> <C>
Compass Bank 58.06
Attn Trust Oper 3rd Level S
P.O. Box 10566
Birmingham, AL 35296-0001
Compass Bank Treasury Management 26.86
Attn Steven Cornelison
P.O. Box 10566
Birmingham, AL 35296-0001
EXPEDITION MONEY MARKET FUND
INSTITUTIONAL SHARES
Compass Bank 69.40
Attn Trust Oper 3rd Level S
P.O. Box 10566
Birmingham, AL 35296-0001
Compass Bank Treasury Management 25.97
P.O. Box 10566
Birmingham, AL 35296-0001
EXPEDITION TAX-FREE MONEY MARKET FUND
42
<PAGE>
<CAPTION>
<S> <C>
INSTITUTIONAL SHARES
Compass Bank 100.00
Attn Trust Oper 3rd Level S
P.O. Box 10566
Birmingham, AL 35296-0001
EXPEDITION TAX-FREE MONEY MARKET FUND
INVESTMENT SHARES
Compass Bank 91.01
Attn Trust Oper 3rd Level S
P.O. Box 10566
Birmingham, AL 35296-0001
Compass Bank Treasury Management 7.77
Harry Brock Banking Center
Attn Steven Cornelison
701 32nd Street S
Birmingham, AL 35233-3515
EXPEDITION EQUITY FUND - INVESTMENT SHARES
Donaldson Lufkin Jenrette 6.14
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
EXPEDITION EQUITY FUND - INSTITUTIONAL SHARES
Compass Bank 49.93
Attn Trust Oper 3rd Level S
P.O. Box 10566
Birmingham, AL 35296-0001 (Account 1)
Compass Bank 39.94
Attn Trust Oper 3rd Level S
P.O. Box 10566
Birmingham, AL 35296-0001 (Account 2)
Compass Bank Trustee for 6.32
Compass Bancshares Inc. 401K Plan
c/o/ Benefit Services Corporation
1375 Peachtree Street NE Suite 300
Atlanta, GA 30309-3112
EXPEDITION INVESTMENT GRADE BOND FUND
43
<PAGE>
<CAPTION>
<S> <C>
CLASS B SHARES
Donaldson Lufkin Jenrette 21.46
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette 21.30
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette 13.22
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
Wendy M. Zivin 12.68
3941 Legacy Dr. #204-303
Plano, TX 75023-8320
Donaldson Lufkin Jenrette 6.29
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
EXPEDITION INVESTMENT GRADE BOND FUND
INSTITUTIONAL SHARES
Compass Bank 63.60
Attn Trust Oper 3rd Level S
P.O. Box 10566
Birmingham, AL 35296-0001
Compass Bank 34.30
Attn Trust Oper 3rd Level S
P.O. Box 10566
Birmingham, AL 35296-0001
</TABLE>
EXPERTS
The financial statements as of October 31, 1999 have been audited by Deloitte &
Touche LLP, Independent Auditors, as indicated in their report dated October 31,
1999 with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
44
<PAGE>
FINANCIAL STATEMENTS
Unaudited financial statements for the six-months ended April 30, 2000 are also
herein incorporated by reference. A copy of the Expedition Funds 1999 Annual
Report to Shareholders, with respect to the Money Market Fund, Tax-Free Money
Market Fund, Equity Fund, and Investment Grade Bond Fund, must accompany the
delivery of this Statement of Additional Information.
45
<PAGE>
APPENDIX
The following descriptions are summaries of published ratings.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated A by Standard & Poor's Corporation ("S&P") is regarded by
S&P as having the greatest capacity for timely payment. Issues rated A are
further refined by use of the numbers 1, 1 +, and 2 to indicate the relative
degree of safety. Issues rated A-1+ are those with an "overwhelming degree" of
credit protection. Those rated A-1, the highest rating category, reflect a "very
strong" degree of safety regarding timely payment. Those rated A-2, the second
highest rating category, reflect a satisfactory degree of safety regarding
timely payment but not as high as A-1.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's Investors Service,
Inc. ("Moody's") are judged by Moody's to be of "superior" quality and "strong"
quality respectively on the basis of relative repayment capacity.
F-1+ (Exceptionally Strong) is the highest commercial paper rating Fitch IBCA
assigns; paper rated F-1+ is regarded as having the strongest degree of
assurance for timely payment. Paper rated F-1 (Very Strong) reflects an
assurance of timely payment only slightly less in degree than paper rated F-1+.
The rating F-2 (Good) reflects a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as for issues rated F-1+ or
F-1.
The designation A1, the highest rating by Fitch IBCA, indicates that the
obligation is supported by a strong capacity for timely repayment. Those
obligations rated A1+ are supported by the highest capacity for timely
repayment. Obligations rated A2, the second highest rating, are supported by a
satisfactory capacity for timely repayment, although such capacity may be
susceptible to adverse changes in business, economic or financial conditions.
The rating Duff-1 is the highest commercial paper rating assigned by Duff. Paper
rated Duff-1 is regarded as having very high certainty of timely payment with
excellent liquidity factors which are supported by good fundamental protection
factors. Risk factors are minor. Duff has incorporated gradations of 1+ and 1-
to assist investors in recognizing quality differences within this highest tier.
Paper rated Duff-1+ has the highest certainty of timely payment, with
outstanding short-term liquidity and safety just below risk-free U.S. Treasury
short-term obligations. Paper rated Duff-1- has high certainty of timely payment
with strong liquidity factors which are supported by good fundamental protection
factors. Risk factors are very small. Paper rated Duff-2 is regarded as having
good certainty of timely payment, good access to capital markets (although
ongoing funding may enlarge total financing requirements) and sound liquidity
factors and company fundamentals. Risk factors are small.
A-1
<PAGE>
DESCRIPTION OF BOND RATINGS
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA by S&P also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and differs from AAA issues only in
small degree. Debt rated A by S&P has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories.
Bonds rated BBB by S&P are considered as medium-grade obligations (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds rated Aaa by Moody's are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged". Interest payments are protected by a large, or an exceptionally stable,
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Bonds rated Aa by Moody's are
judged by Moody's to be of high quality by all standards. Together with bonds
rated Aaa, they comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than in Aaa securities.
Bonds rated A by Moody's possess many favorable investment attributes and are to
be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future. Debt rated
Baa by Moody's is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Fitch IBCA uses plus and minus signs with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA category. Bonds rated AAA by Fitch are
considered to be investment grade and of the highest credit quality. The obligor
has an exceptionally strong ability to pay interest and repay principal, which
is unlikely to be affected by reasonably foreseeable events. Bonds rated AA by
Fitch ICBA are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds rated in
the AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F-1+. Bonds
rated A by Fitch ICBA are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings. Bonds rated BBB by
Fitch ICBA are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
A-2
<PAGE>
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
Bonds rated AAA by Duff are judged by Duff to be of the highest credit quality,
with negligible risk factors being only slightly more than for risk-free U.S.
Treasury debt. Bonds rated AA by Duff are judged by Duff to be of high credit
quality with strong protection factors and risk that is modest but that may vary
slightly from time to time because of economic conditions. Bonds rated A by Duff
are judged by Duff to have average but adequate protection factors. However,
risk factors are more variable and greater in periods of economic stress. Bonds
rated BBB by Duff are judged by Duff as having below average protection factors
but still considered sufficient for prudent investment, with considerable
variability in risk during economic cycles.
Obligations rated AAA by Fitch IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly. Obligations for which there
is a very low expectation of investment risk are rated AA by Fitch IBCA.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic or financial conditions may increase investment
risk albeit not very significantly. Obligations for which there is a low
expectation on investment risk are rated A by Fitch IBCA. Capacity for timely
repayment of principal and interest is strong, although adverse changes in
business, economic or financial conditions may lead to increased investment
risk. Obligations for which there is currently a low expectation of investment
risk are rated BBB by Fitch IBCA. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in higher categories.
A-3
