<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 1997
FILE NO. 33-50718
FILE NO. 811-7102
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 17 /X/
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 19 /X/
------------------------
THE ARBOR FUND
(Exact Name of Registrant as Specified in Charter)
2 Oliver Street
Boston, Massachusetts 02109
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, including Area Code (800) 342-5734
DAVID G. LEE
c/o SEI Corporation
Oaks, Pennsylvania 19456
(Name and Address of Agent for Service)
COPIES TO:
John H. Grady, Jr., Esquire
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036-5869
------------------------
It is proposed that this filing become effective (check appropriate box)
<TABLE>
<C> <S>
/ / immediately upon filing pursuant to paragraph (b)
/ / on [date] pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)
/ / 75 days after filing pursuant to paragraph (a)
/ / on [date] pursuant to paragraph (a) of Rule 485.
</TABLE>
Registrant commenced operations on February 1, 1993. Registrant's 24f-2
Notice for the fiscal year ended January 31, 1997 will be filed on or before
March 31, 1997.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE ARBOR FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- -------------------------------------------------------------- -------------------------------------------------
<S> <C> <C>
PART A--GOLDEN OAK GROWTH PORTFOLIO, GOLDEN OAK VALUE PORTFOLIO, GOLDEN OAK INTERMEDIATE-TERM INCOME PORTFOLIO,
GOLDEN OAK MICHIGAN TAX FREE BOND PORTFOLIO AND GOLDEN OAK PRIME OBLIGATION MONEY MARKET PORTFOLIO
Item 1. Cover Page....................................... Cover Page
Item 2. Synopsis......................................... Summary; Annual Operating Expenses
Item 3. Condensed Financial Information.................. Financial Highlights
Item 4. General Description of Registrant................ The Funds and the Trust; Investment Objective and
Policies; General Information
Item 5. Management of the Fund........................... General Information; The Adviser; The
Sub-Adviser; The Administrator; The Shareholder
Servicing Agent
Item 5A. Management's Discussion of Fund Performance...... **
Item 6. Capital Stock and Other Securities............... General Information; Taxes
Item 7. Purchase of Securities Being Offered............. Purchase of Shares
Item 8. Redemption or Repurchase......................... Redemption of Shares
Item 9. Pending Legal Proceedings........................ *
PART B--GOLDEN OAK GROWTH PORTFOLIO, GOLDEN OAK VALUE PORTFOLIO, GOLDEN OAK INTERMEDIATE-TERM INCOME PORTFOLIO,
GOLDEN OAK MICHIGAN TAX FREE BOND PORTFOLIO AND GOLDEN OAK PRIME OBLIGATION MONEY MARKET PORTFOLIO
Item 10. Cover Page....................................... Cover Page
Item 11. Table of Contents................................ Table of Contents
Item 12. General Information and History.................. The Funds and The Trust
Item 13. Investment Objectives and Policies............... Investment Objective and Policies; Investment
Limitations; Non-Fundamental Policies
Item 14. Management of the Registrant..................... The Funds and the Trust; Trustees and Officers of
the Trust; The Administrator; The Adviser; The
Sub-Adviser
Item 15. Control Persons and Principal Holders of
Securities..................................... Trustees and Officers of the Trust; The
Administrator
Item 16. Investment Advisory and Other Services........... The Adviser; The Sub-Adviser; The Administrator;
The Distributor; Experts
Item 17. Brokerage Allocation............................. Portfolio Transactions; Trading Practices and
Brokerage
Item 18. Capital Stock and Other Securities............... Description of Shares
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- -------------------------------------------------------------- -------------------------------------------------
<S> <C> <C>
Item 19. Purchase, Redemption, and Pricing of Securities
Being Offered.................................. Purchase and Redemption of Shares; Determination
of Net Asset Value; Letter of Intent
Item 20. Tax Status....................................... Taxes
Item 21. Underwriters..................................... The Distributor
Item 22. Calculation of Yield Quotations.................. Computation of Yield; Calculation of Total Return
Item 23. Financial Statements............................. Financial Information
PART A--CALIFORNIA TAX EXEMPT PORTFOLIO AND INSTITUTIONAL TAX FREE PORTFOLIO
Item 1. Cover Page....................................... Cover Page
Item 2. Synopsis......................................... Summary; Shareholder Transaction Expenses; Annual
Operating Expenses
Item 3. Condensed Financial Information.................. Financial Highlights
Item 4. General Description of Registrant................ The Portfolios and the Trust; Investment
Objective; Investment Policies; General
Investment Policies and Information; Investment
Limitations
Item 5. Management of the Fund........................... General Information; The Adviser; The
Administrator; The Shareholder Servicing Agent
Item 5A. Management's Discussion of Fund Performance...... **
Item 6. Capital Stock and Other Securities............... General Information; Taxes
Item 7. Purchase of Securities Being Offered............. Purchase and Redemption of Shares
Item 8. Redemption or Repurchase......................... Purchase and Redemption of Shares
Item 9. Pending Legal Proceedings........................ *
PART B--CALIFORNIA TAX EXEMPT PORTFOLIO AND INSTITUTIONAL TAX FREE PORTFOLIO
Item 10. Cover Page....................................... Cover Page
Item 11. Table of Contents................................ Table of Contents
Item 12. General Information and History.................. The Trust
Item 13. Investment Objectives and Policies............... Investment Limitations; Non-Fundamental Policies
Item 14. Management of the Registrant..................... Trustees and Officers of the Trust; The
Administrator; The Adviser; The Trust
Item 15. Control Persons and Principal Holders of
Securities..................................... Trustees and Officers of the Trust; The
Administrator
Item 16. Investment Advisory and Other Services........... The Adviser; The Administrator;The Distributor
Item 17. Brokerage Allocation............................. Portfolio Transactions; Trading Practices and
Brokerage
Item 18. Capital Stock and Other Securities............... Description of Shares
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- -------------------------------------------------------------- -------------------------------------------------
<S> <C> <C>
Item 19. Purchase, Redemption, and Pricing of Securities
Being Offered.................................. Purchase and Redemption of Shares; Determination
of Net Asset Value
Item 20. Tax Status....................................... Taxes
Item 21. Underwriters..................................... The Distributor
Item 22. Calculation of Yield Quotations.................. Computation of Yield; Calculation of Total Return
Item 23. Financial Statements............................. Financial Information
PART A--OVB EQUITY INCOME PORTFOLIO, OVB CAPITAL APPRECIATION PORTFOLIO, OVB EMERGING GROWTH PORTFOLIO, OVB
GOVERNMENT SECURITIES PORTFOLIO, OVB WEST VIRGINIA TAX-EXEMPT INCOME PORTFOLIO AND OVB PRIME OBLIGATIONS
PORTFOLIO
Item 1. Cover Page....................................... Cover Page
Item 2. Synopsis......................................... Summary; Expense Summary
Item 3. Condensed Financial Information.................. Financial Highlights (Prospectus Supplement)
Item 4. General Description of Registrant................ The Funds and the Trust; Investment Objectives;
Investment Policies and Information; General
Investment Policies and Information; Risk
Factors; Investment Limitations and Fundamental
Policies; Description of Permitted Investments
Item 5. Management of the Fund........................... The Adviser; The Sub-Adviser; The Administrator;
Transfer Agent; General Information
Item 5A. Management's Discussion of Fund Performance...... **
Item 6. Capital Stock and Other Securities............... General Information; Taxes
Item 7. Purchase of Securities Being Offered............. How to Purchase Shares; How to Exchange Shares
Item 8. Redemption or Repurchase......................... How to Redeem Shares; How to Exchange Shares
Item 9. Pending Legal Proceedings........................ *
PART B--OVB PRIME OBLIGATIONS PORTFOLIO, OVB EQUITY INCOME PORTFOLIO, OVB CAPITAL APPRECIATION PORTFOLIO, OVB
EMERGING GROWTH PORTFOLIO, OVB GOVERNMENT SECURITIES PORTFOLIO AND OVB WEST VIRGINIA TAX-EXEMPT INCOME PORTFOLIO
Item 10. Cover Page....................................... Cover Page
Item 11. Table of Contents................................ Table of Contents
Item 12. General Information and History.................. The Funds and the Trust
Item 13. Investment Objectives and Policies............... Additional Description of Permitted Investments;
Investment Limitations; Non-Fundamental
Policies
Item 14. Management of the Fund........................... The Funds and the Trust; Trustees and Officers of
the Trust; The Adviser; The Sub-Adviser; The
Administrator
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- -------------------------------------------------------------- -------------------------------------------------
<S> <C> <C>
Item 15. Control Persons and Principal Holders of
Securities..................................... Trustees and Officers of the Trust; The
Administrator
Item 16. Investment Advisory and Other Services........... The Adviser; The Administrator; The Distributor
Item 17. Brokerage Allocation............................. Fund Transactions; Trading Practices and
Brokerage
Item 18. Capital Stock and Other Securities............... Description of Shares; Shareholder Liability
Item 19. Purchase, Redemption, and Pricing of Securities
Being Offered.................................. Purchase and Redemption of Shares; Determination
of Net Asset Value
Item 20. Tax Status....................................... Taxes
Item 21. Underwriters..................................... The Distributor
Item 22. Calculation of Yield Quotations.................. Computation of Yield; Calculation of Total Return
Item 23. Financial Statements............................. Financial Information
PART A--U.S. GOVERNMENT SECURITIES MONEY FUND AND PRIME OBLIGATIONS FUND
Item 1. Cover Page....................................... Cover Page
Item 2. Synopsis......................................... Expense Summary
Item 3. Condensed Financial Information.................. Financial Highlights
Item 4. General Description of Registrant................ The Fund and the Trust; Investment Objective and
Policies; Investment Limitations and
Fundamental Policies; Description of Permitted
Investments and Risk Factors; General
Information
Item 5. Management of the Fund........................... The Adviser; The Administrator and Distributor;
The Transfer Agent and Custodian; General
Information
Item 5A. Management's Discussion of Fund Performance...... **
Item 6. Capital Stock and Other Securities General Information; Taxes
Item 7. Purchase of Securities Being Offered............. How to Purchase Shares
Item 8. Redemption or Repurchase......................... How to Redeem Shares
Item 9. Pending Legal Proceedings........................ *
PART B--U.S. GOVERNMENT SECURITIES MONEY FUND AND PRIME OBLIGATIONS FUND
Item 10. Cover Page....................................... Cover Page
Item 11. Table of Contents................................ Table of Contents
Item 12. General Information and History.................. The Fund and The Trust
Item 13. Investment Objectives and Policies............... Additional Description of Permitted Investments;
Investment Limitations; Non-Fundamental
Policies
Item 14. Management of the Fund........................... The Fund and the Trust; Trustees and Officers of
the Trust; The Adviser; The Administrator; The
Distributor
</TABLE>
(iv)
<PAGE>
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- -------------------------------------------------------------- -------------------------------------------------
<S> <C> <C>
Item 15. Control Persons and Principal Holders of
Securities..................................... Trustees and Officers of the Trust; The
Administrator
Item 16. Investment Advisory and Other Services........... The Adviser; The Administrator; The Distributor
Item 17. Brokerage Allocation............................. Fund Transactions; Trading Practices and
Brokerage
Item 18. Capital Stock and Other Securities............... Description of Shares; Shareholder Liability
Item 19. Purchase, Redemption, and Pricing of Securities
Being Offered.................................. Purchase and Redemption of Shares; Determination
of Net Asset Value
Item 20. Tax Status....................................... Taxes
Item 21. Underwriters..................................... The Distributor
Item 22. Calculation of Yield Quotations.................. Computation of Yield
Item 23. Financial Statements............................. Financial Information
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
- ------------------------
* Not Applicable
** Information required by Item 5A is included in the 1996 Annual Report to
Shareholders
(v)
<PAGE>
GOLDEN OAK FAMILY OF FUNDS
Investment Adviser:
CITIZENS BANK
- GOLDEN OAK GROWTH PORTFOLIO
- GOLDEN OAK VALUE PORTFOLIO
- GOLDEN OAK INTERMEDIATE-TERM INCOME PORTFOLIO
- GOLDEN OAK MICHIGAN TAX FREE BOND PORTFOLIO
- GOLDEN OAK PRIME OBLIGATION MONEY MARKET PORTFOLIO
THE GOLDEN OAK FAMILY OF FUNDS is a group of professionally managed mutual funds
that offers a convenient and economical means of investing in one or more
portfolios of securities. This Prospectus offers Class A and Class B shares of
the Golden Oak Growth Portfolio, Golden Oak Value Portfolio, Golden Oak
Intermediate-Term Income Portfolio, Golden Oak Michigan Tax Free Bond Portfolio
and Golden Oak Prime Obligation Money Market Portfolio (the "Portfolios"), an
assortment of equity, fixed income and money market portfolios.
Each Portfolio offers its Class A shares to institutional investors, including
CITIZENS BANK, its affiliates and correspondents for the investment of their own
funds or funds for which they act in a fiduciary, agency or custodial capacity.
Each Portfolio offers its Class B shares to individuals and institutional
accounts, including accounts for which Citizens Bank, its affiliates and
correspondents, act in an agency or custodial capacity.
AN INVESTMENT IN A PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE UNITED
STATES GOVERNMENT, AND THERE IS NO ASSURANCE THAT THE GOLDEN OAK PRIME
OBLIGATION MONEY MARKET PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
MUTUAL FUND SHARES
- ARE NOT INSURED BY THE FDIC, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENTAL AGENCY
- ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, INCLUDING CITIZENS BANK, ANY OF
ITS AFFILIATES OR CORRESPONDENTS, OR OTHER FINANCIAL INSTITUTION
- ARE NOT GUARANTEED OR ENDORSED BY ANY BANK, INCLUDING CITIZENS BANK, ANY OF
ITS AFFILIATES OR CORRESPONDENTS, OR OTHER FINANCIAL INSTITUTION
- INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL
This Prospectus sets forth concisely the information about the Portfolios that a
prospective investor should know before investing. Each Portfolio is a separate
series of The Arbor Fund. Investors are advised to read this Prospectus and
retain it for future reference. A Statement of Additional Information dated June
1, 1997 has been filed with the Securities and Exchange Commission and is
available without charge by calling 1-800-545-6331. The Statement of Additional
Information is incorporated into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
June 1, 1997
CIT-F-006-06
<PAGE>
2
SUMMARY
THE GOLDEN OAK FAMILY OF FUNDS IS A GROUP OF OPEN-END MANAGEMENT
INVESTMENT COMPANIES PROVIDING A CONVENIENT WAY TO INVEST IN PROFESSIONALLY
MANAGED PORTFOLIOS OF SECURITIES. THE FOLLOWING SUMMARY PROVIDES BASIC
INFORMATION ABOUT THE CLASS A AND CLASS B SHARES OF THE GOLDEN OAK GROWTH
PORTFOLIO, GOLDEN OAK VALUE PORTFOLIO, GOLDEN OAK INTERMEDIATE-TERM INCOME
PORTFOLIO, GOLDEN OAK MICHIGAN TAX FREE BOND PORTFOLIO AND GOLDEN OAK PRIME
OBLIGATION MONEY MARKET PORTFOLIO (EACH, A "PORTFOLIO"). THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION
INCLUDED ELSEWHERE IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL
INFORMATION.
WHAT ARE THE INVESTMENT OBJECTIVES? The GOLDEN OAK GROWTH PORTFOLIO
(the "Growth Portfolio") seeks total return. The GOLDEN OAK VALUE PORTFOLIO
(the "Value Portfolio") seeks long-term capital appreciation. The GOLDEN OAK
INTERMEDIATE-TERM INCOME PORTFOLIO (the "Intermediate-Term Income
Portfolio") seeks current income consistent with limited price volatility.
The GOLDEN OAK MICHIGAN TAX FREE BOND PORTFOLIO (the "Michigan Portfolio")
seeks current income exempt from federal and Michigan income taxes
consistent with preservation of capital. The GOLDEN OAK PRIME OBLIGATION
MONEY MARKET PORTFOLIO (the "Prime Obligation Portfolio") seeks to preserve
principal value and maintain a high degree of liquidity while providing
current income. See "Investment Objectives and Policies."
WHAT ARE THE PERMITTED INVESTMENTS? Under normal market conditions, the
GROWTH PORTFOLIO will invest at least 75% of its assets in common stocks
traded in United States markets. The VALUE PORTFOLIO will invest primarily
in common stocks, preferred stocks and securities convertible into common
stocks of domestic or foreign issuers. Under normal market conditions, the
INTERMEDIATE-TERM INCOME PORTFOLIO will invest at least 80% of its assets in
the following United States dollar denominated obligations: (i) corporate
bonds and debentures; (ii) obligations issued or guaranteed as to principal
and interest by the United States Government, its agencies or
instrumentalities; (iii) commercial paper; (iv) short-term bank obligations;
and (v) repurchase agreements involving any of the above securities. The
MICHIGAN PORTFOLIO will invest (i) primarily in obligations 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, the interest of which, in the opinion of counsel for the
issuer, is exempt from federal income tax (collectively, "Municipal
Securities"), (ii) under normal circumstances, at least 65% of its assets in
municipal bonds and (iii) except where acceptable securities are unavailable
as determined by the Adviser, at least 80% of the Portfolio's assets in
Municipal Securities, the interest of which, in the opinion of counsel for
the issuer, is exempt from Michigan Income Tax ("Michigan Municipal
Securities"). The PRIME OBLIGATION PORTFOLIO intends to invest exclusively
in short-term, U.S. dollar denominated money market instruments that satisfy
certain quality, maturity and diversification criteria, including criteria
set by applicable laws and regulations. The Portfolio may invest in
obligations of U.S. issuers, obligations of foreign issuers sold in the U.S.
market, obligations of U.S. and London branches of foreign banks and
obligations of supranational entities. See "Investment Objectives and
Policies" and "Description of Permitted Investments."
WHAT ARE THE RISKS? Because securities fluctuate in value, the shares
of the Portfolios, like shares of any mutual fund, will fluctuate in value.
The Growth and Value Portfolios may invest in equity securities that are
affected by market and economic factors. The Portfolios may invest in fixed
income securities that tend to vary inversely with interest rates and may be
affected by other market and economic factors as well, which may cause these
securities to fluctuate in value. Investing in securities of foreign issuers
involves special risks and considerations not typically associated with
investing in securities of domestic issuers. The Michigan Portfolio is a
non-diversified mutual fund that concentrates in Michigan Municipal
Securities, which subjects the Portfolio to special investment risks. There
is no assurance that the Portfolios will achieve their investment
objectives, or that the Prime Obligation Portfolio will be able to maintain
a net asset value of $1.00 per share on a continuous basis. See "Investment
Objectives and Policies," "Taxes--Additional Considerations for the Michigan
Portfolio" and "Description of Permitted Investments."
<PAGE>
3
WHO ARE THE ADVISER AND SUB-ADVISERS? Citizens Bank serves as the
investment adviser to the Portfolios. Wellington Management Company, LLP
serves as the investment sub-adviser to the Prime Obligation Portfolio.
Systematic Financial Management, L.P. serves as the investment sub-adviser
to the Value Portfolio. Nicholas-Applegate Capital Management serves as the
investment sub-adviser to the Growth Portfolio. See "Expense Summary," "The
Adviser" and "The Sub-Advisers."
WHO IS THE ADMINISTRATOR? SEI Fund Resources serves as the
administrator and shareholder servicing agent of the Portfolios. See
"Expense Summary" and "The Administrator."
WHO IS THE TRANSFER AGENT? DST Systems, Inc. serves as transfer agent
and dividend disbursing agent for the Portfolios. See "Expense Summary" and
"The Transfer Agent."
WHO IS THE DISTRIBUTOR? SEI Financial Services Company serves as
distributor of the Portfolios' shares. See "The Distributor."
HOW DO I PURCHASE SHARES? You may purchase CLASS A SHARES of each
Portfolio through the Transfer Agent on days on which the New York Stock
Exchange and the Federal Reserve wire system are open for business
("Business Days"). The minimum initial investment in the Class A shares is
$1,000,000. Class A shares of each Portfolio are offered at net asset value
per share.
You may purchase CLASS B SHARES of each Portfolio through the Transfer
Agent on any Business Day. The minimum initial investment in the Class B
shares is $1,000. Class B shares of each Portfolio are offered at net asset
value per share plus a maximum sales charge of 5.75% for both the Growth and
Value Portfolios or a maximum sales charge of 4.50% for both the
Intermediate-Term Income and Michigan Portfolios. There is no sales charge
imposed on Class B shares of the Prime Obligation Portfolio. See "How To
Purchase Shares."
HOW DO I REDEEM CLASS A AND CLASS B SHARES? You may redeem shares
through the Transfer Agent on any Business Day. Redemptions are made at the
net asset value per share next determined after the order is effective. See
"How To Redeem Shares."
HOW ARE DIVIDENDS PAID? Substantially all of the net investment income
(exclusive of capital gains) of the Intermediate-Term Income, Michigan and
Prime Obligation Portfolios is distributed in the form of dividends declared
daily and distributed monthly to shareholders of record. The net investment
income (exclusive of capital gains) of the Growth and Value Portfolios is
declared monthly and distributed monthly to shareholders of record. Any
realized net capital gain is distributed at least annually. Distributions
are paid in additional shares unless the shareholder elects to take the
payment in cash. See "General Information -- Dividends."
<PAGE>
4
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION FEES CLASS A
(as a percentage of offering price)(1)
<TABLE>
<CAPTION>
GROWTH VALUE INTERMEDIATE-TERM MICHIGAN PRIME OBLIGATION
PORTFOLIO (4) PORTFOLIO INCOME PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum Sales
Charge Imposed on
Purchases................ None None None None None
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) There is a wire charge (currently $10.00) if redemption proceeds are wired
except that certain financial institutions may be exempt from this wire
charge.
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
GROWTH VALUE INTERMEDIATE-TERM MICHIGAN PRIME OBLIGATION
PORTFOLIO (4) PORTFOLIO INCOME PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Advisory Fees (after
fee waiver) (2).......... .73% .48% .35% .30% .02%
12b-1 Fees................. None None None None None
Other Expenses (2)......... .37% .62% .30% .35% .38%
- -----------------------------------------------------------------------------------------------------------------
Total Operating
Expenses (after
fee waiver) (3).......... 1.10% 1.10% .65% .65% .40%
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(2) The Adviser has agreed to waive, on a voluntary basis, a portion of its fee
for an indefinite period of time in an amount that operates to limit Total
Operating Expenses to not more than 1.10%, 1.10%, .65%, .65% and .40% of the
average daily net assets of the Class A shares of the Growth, Value,
Intermediate-Term Income, Michigan and Prime Obligation Portfolios,
respectively. The advisory fee shown reflects this voluntary waiver. The
Adviser reserves the right to terminate its waiver at any time in its sole
discretion. Absent such waivers, the advisory fees for the Growth, Value,
Intermediate-Term Income, Michigan and Prime Obligation Portfolios would be
.74%, .74%, .50%, .50% and .30%, respectively. Other Expenses for the Value
Portfolio and Michigan Portfolio are based on estimated amounts for the
current fiscal year.
(3) Absent the voluntary fee waivers described above, Total Operating Expenses
for the Class A shares of the Growth, Value, Intermediate-Term Income,
Michigan and Prime Obligation Portfolios would be 1.11%, 1.36%, .80%, .85%
and .68%, respectively.
(4) Formerly the Diversified Growth Portfolio.
<PAGE>
5
EXAMPLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on
a $1,000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period:
Growth Portfolio............................ $11 $35 $61 $134
Value Portfolio............................. $11 $35 N/A N/A
Intermediate-Term Income Portfolio.......... $ 7 $21 $36 $ 81
Michigan Portfolio.......................... $ 7 $21 N/A N/A
Prime Obligation Portfolio.................. $ 4 $13 $22 $ 51
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Because the Value
and Michigan Portfolios had not commenced operations as of the date of this
Prospectus, expenses have not been projected beyond three years. The purpose of
the expense table and example is to assist the investor in understanding the
various costs and expenses that may be directly or indirectly borne by investors
in each Portfolio. A person who purchases shares through an account with a
financial institution may be charged separate fees by that financial
institution. Additional information may be found under "The Adviser," "The
Sub-Advisers" and "The Administrator."
<PAGE>
6
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION FEES CLASS B
(as a percentage of offering price)(1)
<TABLE>
<CAPTION>
GROWTH VALUE INTERMEDIATE-TERM MICHIGAN PRIME OBLIGATION
PORTFOLIO (4) PORTFOLIO INCOME PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum Sales
Charge Imposed on
Purchases................ 5.75% 5.75% 4.50% 4.50% None
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) There is a wire charge (currently $10.00) if redemption proceeds are wired
except that certain financial institutions may be exempt from this wire
charge.
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
GROWTH VALUE INTERMEDIATE-TERM MICHIGAN PRIME OBLIGATION
PORTFOLIO (4) PORTFOLIO INCOME PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Advisory Fees (after
fee waiver) (2).......... .73% .48% .35% .30% .02%
12b-1 Fees................. .25% .25% .25% .25% .25%
Other Expenses (2)......... .37% .62% .30% .35% .38%
- ------------------------------------------------------------------------------------------------------------------------------
Total Operating
Expenses (after
fee waiver) (3).......... 1.35% 1.35% .90% .90% .65%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(2) The Adviser has agreed to waive, on a voluntary basis, a portion of its fee
for an indefinite period of time in an amount that operates to limit Total
Operating Expenses (exclusive of distribution expenses) to not more than
1.35%, 1.35%, .90%, .90% and .65% of the average daily net assets of the
Class B shares of the Growth, Value, Intermediate-Term Income, Michigan and
Prime Obligation Portfolios, respectively. The advisory fee shown reflects
this voluntary waiver. The Adviser reserves the right to terminate its
waiver at any time in its sole discretion. Absent such waiver, the advisory
fees for the Growth, Value, Intermediate-Term Income, Michigan and Prime
Obligation Portfolios would be .74%, .74%, .50%, .50% and .30%,
respectively. Other Expenses for the Value Portfolio and the Michigan
Portfolio are based on estimated amounts for the current fiscal year.
(3) Absent the voluntary fee waivers described above, Total Operating Expenses
for the Class B shares of the Growth, Value, Intermediate-Term Income,
Michigan and Prime Obligation Portfolios would be 1.36%, 1.61%, 1.05%, 1.10%
and .93%, respectively.
(4) Formerly the Diversified Growth Portfolio.
<PAGE>
7
EXAMPLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on
a $1,000 investment assuming (1) imposition of
the maximum sales load, (2) 5% annual return
and (3) redemption at the end of each time
period:
Growth Portfolio............................ $70 $98 $127 $211
Value Portfolio............................. $70 $98 N/A N/A
Intermediate-Term Income Portfolio.......... $54 $72 $ 93 $151
Michigan Portfolio.......................... $54 $72 N/A N/A
Prime Obligation Portfolio.................. $ 7 $21 $ 36 $ 81
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Because the Value
and Michigan Portfolios had not commenced operations as of the date of this
Prospectus, expenses have not been projected beyond three years. The purpose of
the expense table and example is to assist the investor in understanding the
various costs and expenses that may be directly or indirectly borne by investors
in each Portfolio. A person who purchases shares through an account with a
financial institution may be charged separate fees by that financial
institution. Additional information may be found under "The Adviser," "The
Sub-Advisers" and "The Administrator."
Long-term Class B shareholders may eventually pay more than the economic
equivalent of the maximum front-end sales charges otherwise permitted by the
Conduct Rules (the "Rules") of the National Association of Securities Dealers,
Inc. ("NASD").
<PAGE>
8
FINANCIAL HIGHLIGHTS GOLDEN OAK FAMILY OF FUNDS
The following information has been audited by Price Waterhouse LLP, the
independent accountants for the Arbor Fund (the "Trust"), as indicated in their
report dated March 14, 1997 on the Trust's financial statements as of January
31, 1997 included in the Trust's Statement of Additional Information under
"Financial Statements." Additional performance information is in the 1997 Annual
Report to Shareholders and is available upon request without charge by calling
1-800-545-6331. This table should be read in conjunction with the Trust's
financial statements and notes thereto.
For a Share Outstanding Throughout
the Periods Ended January 31,
<TABLE>
<CAPTION>
REALIZED
AND
UNREALIZED DISTRIBUTIONS
NET ASSET GAINS ----------------------
VALUE NET (LOSSES) NET NET NET ASSET
BEGINNING INVESTMENT ON INVESTMENT REALIZED VALUE END TOTAL
OF PERIOD INCOME INVESTMENTS INCOME GAIN OF PERIOD RETURN
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIME OBLIGATION MONEY MARKET PORTFOLIO CLASS A
- --------------------------------------------------------------------------------------------------------------------------------
1997............................................. $ 1.00 0.05 -- (0.05) -- $ 1.00 5.21%
1996............................................. 1.00 0.06 -- (0.06) -- 1.00 5.74
1995............................................. 1.00 0.04 -- (0.04) -- 1.00 4.21
1994(1).......................................... 1.00 0.03 -- (0.03) -- 1.00 2.87
- --------------------------------------------------------------------------------------------------------------------------------
PRIME OBLIGATION MONEY MARKET PORTFOLIO CLASS B+
- --------------------------------------------------------------------------------------------------------------------------------
1997............................................. $ 1.00 0.05 -- (0.05) -- $ 1.00 4.95%
1996............................................. 1.00 0.05 -- (0.05) -- 1.00 5.47
1995............................................. 1.00 0.04 -- (0.04) -- 1.00 3.95
1994(2).......................................... 1.00 -- -- -- -- 1.00 2.90*
- --------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM INCOME PORTFOLIO CLASS A
- --------------------------------------------------------------------------------------------------------------------------------
1997............................................. $10.15 0.54 (0.32) (0.54) -- $ 9.83 2.31%
1996............................................. 9.52 0.56 0.63 (0.56) -- 10.15 12.83
1995............................................. 10.19 0.50 (0.67) (0.50) -- 9.52 (1.61)
1994(1).......................................... 10.00 0.46 0.23 (0.46) (0.04) 10.19 6.99
- --------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM INCOME PORTFOLIO CLASS B+
- --------------------------------------------------------------------------------------------------------------------------------
1997............................................. $10.15 0.52 (0.32) (0.52) -- $ 9.83 2.05%
1996............................................. 9.52 0.54 0.63 (0.54) -- 10.15 12.54
1995............................................. 10.19 0.48 (0.67) (0.48) -- 9.52 (1.85)
1994(3).......................................... 10.12 0.31 0.11 (0.31) (0.04) 10.19 6.72*
- --------------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO CLASS A**
- --------------------------------------------------------------------------------------------------------------------------------
1997............................................. $10.26 -- 2.44 (0.01) (0.03) $12.66 23.79%
1996............................................. 10.00 0.07 1.74 (0.07) (1.48) 10.26 18.81
1995............................................. 10.82 0.08 (0.64) (0.08) (0.18) 10.00 (5.24)
1994(1).......................................... 10.00 0.08 0.82 (0.08) -- 10.82 9.08
- --------------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO CLASS B+**
- --------------------------------------------------------------------------------------------------------------------------------
1997............................................. $10.20 (0.03) 2.43 -- $(0.03) $12.57 23.56%
1996............................................. 9.96 0.04 1.72 (0.04) (1.48) 10.20 18.43
1995............................................. 10.81 0.05 (0.67) (0.05) (0.18) 9.96 (5.76)
1994(3).......................................... 9.54 0.02 1.27 (0.02) -- 10.81 22.00*
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIO OF RATIO OF RATIO OF RATIO OF
NET EXPENSES NET EXPENSES NET INCOME
ASSETS TO INCOME TO AVERAGE TO AVERAGE
END OF AVERAGE TO NET ASSETS NET ASSETS PORTFOLIO AVERAGE
PERIOD NET AVERAGE (EXCLUDING (EXCLUDING TURNOVER COMMISSION
(000) ASSETS NET ASSETS WAIVERS) WAIVERS) RATE RATE ++
- ------------------------------------------------- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PRIME OBLIGATION MONEY MARKET PORTFOLIO CLASS A
- ------------------------------------------------- ---------------------------------------------------------------------------------
1997............................................. $ 94,508 0.40% 5.08% 0.68% 4.80% N/A N/A
1996............................................. 107,409 0.40 5.60 0.70 5.30 N/A N/A
1995............................................. 109,076 0.40 4.20 0.68 3.92 N/A N/A
1994(1).......................................... 117,188 0.40 2.83 0.67 2.56 N/A N/A
- ------------------------------------------------- ---------------------------------------------------------------------------------
PRIME OBLIGATION MONEY MARKET PORTFOLIO CLASS B+
- ------------------------------------------------- ---------------------------------------------------------------------------------
1997............................................. $ 71,686 0.65% 4.83% 0.93% 4.55% N/A N/A
1996............................................. 75,293 0.65 5.31 0.95 5.01 N/A N/A
1995............................................. 21,018 0.65 3.95 0.93 3.67 N/A N/A
1994(2).......................................... 104 0.65* 2.68* 0.93* 2.40* N/A N/A
- ------------------------------------------------- ---------------------------------------------------------------------------------
INTERMEDIATE-TERM INCOME PORTFOLIO CLASS A
- ------------------------------------------------- ---------------------------------------------------------------------------------
1997............................................. $116,689 0.65% 5.48% 0.80% 5.33% 34.67% N/A
1996............................................. 104,270 0.65 5.68 0.84 5.49 121.47 N/A
1995............................................. 80,064 0.65 5.21 0.86 5.00 141.51 N/A
1994(1).......................................... 64.329 0.65 4.47 0.83 4.29 71.73 N/A
- ------------------------------------------------- ---------------------------------------------------------------------------------
INTERMEDIATE-TERM INCOME PORTFOLIO CLASS B+
- ------------------------------------------------- ---------------------------------------------------------------------------------
1997............................................. 84 0.90% 5.20% 1.05% 5.05% 34.67% N/A
1996............................................. 210 0.90 5.49 1.09 5.30 121.47 N/A
1995............................................. 314 0.90 4.96 1.11 4.75 141.51 N/A
1994(3).......................................... 365 0.90* 4.27* 1.08* 4.09* 71.73 N/A
- ------------------------------------------------- ---------------------------------------------------------------------------------
GROWTH PORTFOLIO CLASS A**
- ------------------------------------------------- ---------------------------------------------------------------------------------
1997............................................. $ 32,973 1.10% 0.04% 1.11% 0.03% 130.69% $ 0.0600
1996............................................. 24,775 1.10 0.62 1.17 0.55 189.48 N/A
1995............................................. 32,931 1.10 0.74 1.24 0.60 84.00 N/A
1994(1).......................................... 24,955 1.10 0.77 1.21 0.66 68.91 N/A
- ------------------------------------------------- ---------------------------------------------------------------------------------
GROWTH PORTFOLIO CLASS B+**
- ------------------------------------------------- ---------------------------------------------------------------------------------
1997............................................. $ 226 1.35% (0.20)% 1.36% (0.21)% 130.69% $ 0.0600
1996............................................. 193 1.35 0.30 1.42 0.23 189.48 N/A
1995............................................. 125 1.35 0.49 1.49 0.35 84.00 N/A
1994(3).......................................... 173 1.35* 0.33* 1.45* 0.23* 68.91 N/A
- ------------------------------------------------- ---------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Formerly the Diversified Growth Portfolio.
+ Total return does not reflect the sales charge.
++ Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is only required for fiscal
years beginning after September 1, 1995.
(1) Commenced operations February 1, 1993.
(2) Commenced operations January 20, 1994.
(3) Commenced operations June 18, 1993.
<PAGE>
9
THE PORTFOLIO AND THE TRUST
The Golden Oak Family of Funds (the "Golden Oak Family") is a group of open-end
management investment companies (each a "portfolio") that are offered together
in order to provide investors with a number of investment alternatives. Each of
the portfolios is a separate series of shares of The Arbor Fund (the "Trust"),
an open-end management investment company. Shareholders may purchase units of
beneficial interest ("shares") in the portfolios through two separate classes,
Class A and Class B, which provide for variations in distribution costs and
dividends. Except for these differences between classes, each share of each
portfolio represents an undivided, proportionate interest in that portfolio.
This Prospectus offers only the Class A and Class B shares of the Golden Oak
Growth Portfolio (formerly the Golden Oak Diversified Growth Portfolio), Golden
Oak Value Portfolio, Golden Oak Intermediate-Term Income Portfolio, Golden Oak
Michigan Tax Free Bond Portfolio and Golden Oak Prime Obligation Money Market
Portfolio (each, a "Portfolio"; collectively, the "Portfolios"). For ease of
reference, the words "Golden Oak" are omitted from the Portfolios' names
throughout this Prospectus. Each of the Portfolios is a diversified mutual fund
except for the Michigan Portfolio, which is a non-diversified mutual fund.
Information regarding the Trust's other portfolios is contained in separate
prospectuses that may be obtained by calling 1-800-545-6331.
INVESTMENT OBJECTIVES AND POLICIES
THE GROWTH PORTFOLIO -- The investment objective of the Growth Portfolio is to
provide total return. There is no assurance that the Portfolio will achieve its
investment objective.
Under normal conditions, the Portfolio expects to be fully invested in common
stocks (and will be at least 75% invested in common stocks) listed on registered
exchanges in the United States or actively traded in the over-the-counter market
as further described below. In addition to investing in common stocks, the
Portfolio may invest in warrants and rights to purchase common stocks, United
States dollar denominated securities of foreign issuers traded in the United
States (including sponsored American Depositary Receipts traded on registered
exchanges or listed on NASDAQ), repurchase agreements, covered call options and
money market instruments of the type described below. The Portfolio may invest
up to 10% of its net assets in American Depositary Receipts, including American
Depositary Shares and New York Shares. The Portfolio may also write covered call
options and engage in related closing purchase transactions provided that the
aggregate value of such options does not exceed 10% of the Portfolio's net
assets as of the time such options are entered into by the Portfolio.
Nicholas-Applegate Capital Management (the "Sub-Adviser") will engage in such
transactions only as hedging transactions and not for speculative purposes.
The common stocks and other equity securities purchased by the Portfolio will be
those of companies which, in the Sub-Adviser's opinion, are well managed, have
an above average rate of return on equity, above average projected five year
earnings and dividend growth rates, a consistent record of dividend and earnings
increases and below average financial leverage. However, there is no assurance
that the Sub-Adviser will be able to accurately predict the stages of a business
cycle. In addition, the Portfolio invests primarily in equity securities that
fluctuate in value; therefore, the Portfolio's shares will fluctuate in value.
For temporary defensive purposes during periods when the Portfolio's Sub-Adviser
determines that market conditions warrant, the Portfolio may invest up to 100%
of its assets in money market instruments (consisting of securities issued or
guaranteed as to principal and interest by the United States government, its
agencies or instrumentalities, repurchase agreements collateralized by United
States Government securities and entered into with financial institutions the
Sub-Adviser deems creditworthy, certificates of deposit, time deposits and
bankers' acceptances issued by banks or savings and loan associations having net
assets of at least $1.0 billion as shown on their most recent public financial
statements, and deemed by the Sub-Adviser to present minimal credit risk, and
commercial paper rated in the two highest short-term rating categories), and may
hold a portion of its assets in cash. To the extent the Portfolio is engaged in
temporary defensive investment, the Portfolio will not be pursuing its
investment objective.
<PAGE>
10
The Portfolio reserves the right to engage in securities lending but has no
present intention to do so.
For the fiscal year ended January 31, 1997, the Portfolio's annual turnover rate
was approximately 131%. Such a turnover rate may result in higher transaction
costs and may result in additional taxes for shareholders.
THE VALUE PORTFOLIO -- The investment objective of the Value Portfolio is to
seek long-term capital appreciation. There is no assurance that the Portfolio
will achieve its investment objective.
The Portfolio attempts to achieve its investment objective by investing
primarily in common stocks, warrants, rights to purchase common stocks,
preferred stocks and securities convertible into common stocks (together,
"equity securities"). The Portfolio will be as fully invested as practicable in
equity securities and will focus on equity securities which are undervalued
relative to a company's earnings. Systematic Financial Management, L.P. (the
"Sub-Adviser") will invest in equity securities of companies based on an
analysis of various fundamental characteristics, including balance sheet items,
underlying sales and expense trends, earnings estimates, market position of the
company and industry outlook. The Portfolio may also invest in American
Depositary Receipts and enter into repurchase agreements. Although it has no
present intention to do so, the Portfolio reserves the ability to write and
purchase options for hedging purposes. Although the Portfolio intends to be as
fully invested as practicable in equity securities, the Portfolio may invest in
up to 15% of its assets in the money market instruments described below.
The Portfolio may invest up to 15% of its net assets in illiquid securities,
including restricted securities other than Section 4(2) commercial paper.
Restricted securities, including Rule 144A securities and Section 4(2)
commercial paper, that meet the criteria established by the Board of Trustees of
the Trust will be considered liquid.
For temporary defensive purposes during periods when the Portfolio's Sub-Adviser
determines that market conditions warrant, the Portfolio may invest up to 100%
of its assets in money market instruments (consisting of securities issued or
guaranteed by the United States Government, its agencies or instrumentalities,
repurchase agreements collateralized by United States Government securities and
entered into with financial institutions the Sub-Adviser deems creditworthy,
certificates of deposit, time deposits and bankers' acceptances issued by banks
or savings and loan associations having net assets of at least $1.0 billion as
shown on their most recent financial statements, and commercial paper rated in
one of the two highest short-term rating categories), and may hold a portion of
its assets in cash for liquidity purposes. To the extent the Portfolio is
engaged in temporary defensive investing, the Portfolio will not be pursuing its
investment objective.
THE INTERMEDIATE-TERM INCOME PORTFOLIO -- The investment objective of the
Intermediate-Term Income Portfolio is current income consistent with limited
price volatility. The Portfolio will seek to limit price volatility by
maintaining an average weighted maturity of three to ten years. There is no
assurance that the Portfolio will achieve its investment objective.
Under normal circumstances, at least 80% of the Portfolio's assets will be
invested in the following United States dollar denominated obligations: (i)
corporate bonds and debentures rated A or better by Standard & Poor's
Corporation ("S&P") or A or better by Moody's Investors Service ("Moody's") or
of comparable quality at the time of purchase as determined by the Adviser; (ii)
obligations issued or guaranteed as to principal and interest by the United
States Government, its agencies or instrumentalities; (iii) commercial paper
rated A-1 or better by Moody's or P-1 or better by S&P or of comparable quality
at the time of purchase as determined by the Adviser; (iv) short-term bank
obligations consisting of certificates of deposit, time deposits, and bankers'
acceptances of U.S. commercial banks or savings and loan institutions with
assets of at least $1.0 billion as shown on their most recent public financial
statements, that the Adviser deems to be comparable in quality to corporate
obligations in which the Portfolio may invest; and (v) repurchase agreements
involving any of the above securities.
The remaining 20% of the Portfolio's assets may be invested in (i) debt
securities issued or guaranteed by the government of Canada or its provincial or
local governments; (ii) debt securities issued or guaranteed by foreign
governments, their political
<PAGE>
11
subdivisions, agencies or instrumentalities and debt securities of supranational
entities; (iii) mortgage-backed securities and asset-backed securities rated in
one of the top two categories by S&P or Moody's; (iv) receipts evidencing
separately traded interest and principal component parts of United States
Government obligations ("STRIPS"); (v) taxable municipal securities; and (vi)
repurchase agreements involving such securities. The Portfolio may invest in
futures and options for hedging purposes, and will limit the outstanding
obligations to purchase securities under futures contracts to not more than 20%
of the Portfolio's total assets.
In the event a security owned by the Portfolio is downgraded below these ratings
categories, the Adviser will review the quality and credit-worthiness of such
security and take action, if any, that it deems appropriate.
The Portfolio expects to maintain an average weighted remaining maturity of
three to ten years and does not expect to purchase any single security with a
maturity of more than twenty years.
For temporary defensive purposes when the Adviser determines that market
conditions warrant, the Portfolio may invest up to 100% of its assets in the
money market instruments listed above, may hold a portion of its assets in cash
for liquidity purposes and may shorten the average maturity substantially. To
the extent the Portfolio is engaged in temporary defensive investing, the
Portfolio will not be pursuing its investment objective.
The Portfolio may enter into forward commitments or purchase securities on a
when-issued basis where such purchases are for investment and not for
speculative purposes. In addition, the Portfolio may engage in securities
lending.
THE MICHIGAN PORTFOLIO -- The investment objective of the Michigan Portfolio is
current income exempt from federal and Michigan income taxes consistent with
preservation of capital. There is no assurance that the Portfolio will achieve
its investment objective.
The Portfolio will invest primarily in obligations issued by or on behalf of the
states, territories or possessions of the United States or the District of
Columbia or their political subdivisions, agencies or instrumentalities, the
interest of which, in the opinion of counsel for the issuer, is exempt from
federal income tax (collectively, "Municipal Securities"). It is a fundamental
policy of the Portfolio that at least 80% of its net assets will be invested in
municipal securities the interest on which is exempt from federal income tax and
not subject to taxation as a preference item for purposes of the alternative
minimum tax. Under normal circumstances, at least 65% of the Portfolio will be
invested in municipal bonds and, except where acceptable securities are
unavailable as determined by the Adviser, at least 80% of the Portfolio's assets
will be invested in Municipal Securities, the interest of which, in the opinion
of bond counsel to the issuer, is exempt from Michigan income tax ("Michigan
Municipal Securities"). The Adviser expects to be fully invested in Municipal
Securities. The Portfolio will purchase Municipal Securities which are comprised
of (i) municipal bonds rated in one of the three highest rating categories; (ii)
municipal notes rated in one of the two highest rating categories; (iii)
commercial paper rated in one of the two highest short term rating categories;
or (iv) any of the foregoing that are not rated but are determined by the
Adviser to be of comparable quality at the time of investment. The Portfolio may
also invest up to 5% of its net assets in securities of closed-end investment
companies traded on a national securities exchange.
The Portfolio expects to maintain an average weighted remaining maturity of
three to ten years. The maximum maturity for any individual security is thirty
years.
The Portfolio is a non-diversified investment company which means that more than
5% of its assets may be invested in one or more issuers, although the Adviser
does not intend to invest more than 10% of the Portfolio's assets in any one
issuer. Since a relatively high percentage of assets of the Portfolio may be
invested in the obligations of a limited number of issuers, the value of shares
of the Portfolio may be more susceptible to any single economic, political or
regulatory occurrence than the shares of a diversified investment company would
be. The Portfolio intends to satisfy the diversification requirements necessary
to qualify as a regulated investment company under the Internal Revenue Code of
1986, as amended (the "Code").
For temporary defensive purposes, when the Adviser determines that market
conditions warrant, the Portfolio may invest up to 100% of its assets in
<PAGE>
12
taxable money market instruments (including repurchase agreements) and
securities subject to the alternative minimum tax and it may hold a portion of
its assets in cash for liquidity purposes. To the extent the Portfolio is
engaged in temporary defensive investing, the Portfolio will not be pursuing its
investment objective.
The Portfolio may enter into forward commitments or purchase securities on a
when-issued basis where such purchases are for investment and not for
speculative purposes. In addition, the Portfolio may also engage in securities
lending.
THE PRIME OBLIGATION PORTFOLIO -- The investment objective of the Prime
Obligation Portfolio is to preserve principal value and maintain a high degree
of liquidity while providing current income. It is also a fundamental policy of
the Portfolio to use its best efforts to maintain a constant net asset value of
$1.00 per share. There is no assurance that the Portfolio will achieve its
investment objective or that it will be able to maintain a constant net asset
value of $1.00 per share on a continuous basis.
The Portfolio intends to comply with regulations of the Securities and Exchange
Commission applicable to money market funds using the amortized cost method for
calculating net asset value. These regulations impose certain quality, maturity
and diversification restraints on Portfolio investments. Under these
regulations, the Portfolio will invest in only United States dollar denominated
securities, will maintain an average maturity on a dollar-weighted basis of 90
days or less, and will acquire only "eligible securities" that present minimal
credit risks and have a maturity of 397 days or less. For a further discussion
of these rules, see "Description of Permitted Investments."
The Portfolio intends to invest exclusively in (i) bills, notes, receipts and
bonds issued by the United States Treasury and STRIPs of such obligations that
are transferable through the Federal Book-Entry System ("U.S. Treasury
Obligations"); (ii) obligations issued or guaranteed as to principal and
interest by the agencies or instrumentalities of the United States Government;
(iii) commercial paper of United States or foreign issuers rated in the two
highest short-term rating categories at the time of investment or, if not rated,
as determined by Wellington Management Company, LLP (the "Sub-Adviser") to be of
comparable quality; (iv) obligations (certificates of deposit, bank notes, time
deposits, bankers' acceptances, European certificates of deposit, European time
deposits, Canadian time deposits, Eurodollar obligations and Yankee Bank
obligations) of U.S. commercial banks, U.S. savings and loan institutions and
U.S. and London branches of foreign banks that have total assets of $1 billion
or more as shown on their most recently published financial statements (the
Portfolio may not invest more than 25% of its total assets in obligations issued
by foreign branches of U.S. banks and London branches of foreign banks); (v)
U.S. dollar denominated obligations of foreign governments including Canadian
and Provincial Government and Crown Agency obligations; (vi) short-term
corporate obligations of United States and foreign issuers with commercial paper
of comparable quality and security that meet the above ratings or, if not rated,
determined by the Sub-Adviser to be of comparable quality; (vii) repurchase
agreements involving any of the foregoing obligations; (viii) short-term
obligations issued by state and local governmental issuers, which are rated, at
the time of investment, by at least two nationally recognized statistical
ratings organizations ("NRSROs") in one of the two highest municipal bond rating
categories, and carry yields that are competitive with those of other types of
money market instruments of comparable quality and security that meet the above
ratings or, if not rated, determined by the Sub-Adviser to be of comparable
quality; (ix) obligations of supranational entities satisfying the credit
standards described above or, if not rated, determined by the Portfolio's
Sub-Adviser to be of comparable quality; and (x) to the extent permitted by
applicable law, shares of other investment companies.
The Portfolio may invest up to 10% of its net assets in illiquid securities,
including restricted securities other than Section 4(2) commercial paper.
Restricted securities, including Rule 144A securities and Section 4(2)
commercial paper, that meet the criteria established by the Board of Trustees of
the Trust will be considered liquid.
The Portfolio reserves the right to engage in securities lending but has no
present intention to do so. The Portfolio may also engage in forward commitments
or purchase securities on a when-issued basis.
<PAGE>
13
For additional information regarding the permitted investments of the Portfolios
see "Investment Objectives and Policies -- Risk Factors" and "Description of
Permitted Investments" in the Prospectus and "Description of Permitted
Investments" in the Statement of Additional Information.
RISK FACTORS
The market value of the Intermediate-Term Income and Michigan Portfolios' fixed
income investments will change in response to interest rate changes and other
factors and the impact of such changes will depend, in part, upon the ratings
and maturities of a Portfolio's investments. During periods of falling interest
rates, the values of outstanding fixed income securities generally rise.
Conversely, during periods of rising interest rates, the values of such
securities generally decline. Moreover, while securities with longer maturity
tend to produce higher yields, the price of longer maturity securities are also
subject to greater market fluctuations as a result of changes in interest rates.
Bonds rated A by S&P or Moody's possess many favorable investment attributes and
are to be considered as upper-medium grade obligations. Such debt rated A 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.
Changes by recognized agencies in the rating of any fixed income security and in
the ability of an issuer to make payments of interest and principal also affect
the value of these investments. Changes in the value of portfolio securities
will not affect cash income derived from these securities but will affect a
Portfolio's net asset value. Zero coupon securities may be more subject to price
volatility than securities that pay coupon interest.
In general, mortgage-backed securities are subject to prepayment of the
underlying mortgages. During periods of a decline in interest rates, prepayment
of mortgages underlying these securities can be expected to accelerate. When the
mortgage-backed securities held by a Portfolio are prepaid, the Portfolio may
reinvest the proceeds in securities, the yield of which reflects prevailing
interest rates. Thus, mortgage-backed securities may not be an effective means
of locking in long-term interest rates for a Portfolio.
Investments in securities of foreign issuers may subject a Portfolio to
different risks than those attendant to investments in securities of United
States issuers, such as differences in accounting, auditing and financial
reporting standards, the possibility of expropriation or confiscatory taxation,
and political instability. There may be less publicly available information with
regard to foreign issuers, than domestic issuers.
The Michigan Portfolio currently contemplates that it will not invest more than
25% of its total assets (at market value at the time of purchase) in Municipal
Securities, the interest of which is paid from venues or projects with similar
characteristics. See also "Description of Permitted Investments -- Special
Factors Relating to Michigan Municipal Securities" in the Statement of
Additional Information.
INVESTMENT LIMITATIONS AND
FUNDAMENTAL POLICIES
The investment objective and the following investment limitations are
fundamental policies of the Portfolios. Fundamental policies cannot be changed
with respect to a Portfolio without the consent of the holders of a majority of
the Portfolio's outstanding shares.
A Portfolio may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States Government, its agencies or instrumentalities and repurchase
agreements involving such securities) if, as a result, more than 5% of the total
assets of the Portfolio would be invested in the securities of such issuer. This
restriction applies to 75% of a Portfolio's assets. This limitation does not
apply to the Michigan Portfolio. As a money market fund, the Prime Obligation
Portfolio is subject to additional diversification requirements. See
"Description of Permitted Investments -- Restraints on Investments by Money
Market Funds."
2. Purchase any securities which would cause more than 25% of the total assets
of the Portfolio to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply to (a) investments in the obligations issued
or
<PAGE>
14
guaranteed by the United States Government, its agencies or instrumentalities
and repurchase agreements involving such securities, (b) investments in
tax-exempt securities issued by governments or political subdivisions of
government or (c) obligations issued by domestic branches of United States banks
or United States branches of foreign banks subject to the same regulations as
United States banks. For purposes of this limitation (i) utility companies will
be divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (ii)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and diversified
finance will each be considered a separate industry; (iii) supranational
entities will be considered to be a separate industry; and (iv) loan
participations are considered to be issued by both the issuing bank and the
underlying corporate borrower.
3. Make loans, except that a Portfolio 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 this Prospectus and in the Statement of Additional Information.
The foregoing percentages will apply at the time of the purchase of a security.
Additional investment limitations are set forth in the Statement of Additional
Information.
THE ADVISER
Citizens Bank (the "Adviser") serves as investment adviser to the Portfolios
pursuant to an investment advisory agreement (the "Advisory Agreement") with the
Trust. Under the Advisory Agreement, the Adviser is responsible for the
investment decisions for each Portfolio, and continuously reviews, supervises
and administers each Portfolio's investment program. The Trust and the Adviser
have employed Wellington Management Company, LLP as the investment sub-adviser
to manage the Prime Obligation Portfolio, Systematic Financial Management, L.P.
as the investment sub-adviser to the Value Portfolio and Nicholas-Applegate
Capital Management as the investment sub-adviser to the Growth Portfolio, in
each case subject to the supervision of the Adviser and the Trustees, on a
day-to-day basis. In conjunction with the Adviser, each investment sub-adviser
makes the investment decisions for the assets of the Portfolio and continuously
reviews, supervises and administers the Portfolio's investment program. See "The
Sub-Advisers."
The Adviser is independent of SEI Fund Resources (the "Administrator") and
discharges its responsibilities subject to the supervision of, and policies
established by, the Trustees of the Trust.
The Adviser, 328 S. Saginaw Street, Flint, Michigan 48502, was incorporated in
1871 in the state of Michigan. Citizens Bank is a wholly-owned subsidiary of
Citizens Banking Corporation. Citizens Banking Corporation is an interstate bank
holding company with over $3.5 billion in assets and 92 banking offices in
Michigan and Illinois. As of January 31, 1997, the Adviser's total assets under
management were $1.7 billion. The Adviser has managed bank common funds, pension
plan assets and personal trust assets since 1927. The Adviser's sole experience
as an investment adviser to investment companies is as investment adviser to the
Trust.
Pascal M. Romano, Assistant Vice-President and Trust Officer of the Adviser
began managing the Michigan Portfolio in July, 1996. He has managed fixed income
portfolios since 1983.
Christopher W. Wheeler, Assistant Vice-President and Trust Officer of the
Adviser, has managed the Intermediate-Term Income Portfolio since February,
1996. He has managed the Adviser's fixed income portfolios and trust accounts
since 1993.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate based on the average daily net assets of
each Portfolio as follows: Growth Portfolio, .74%; Value Portfolio, .74%;
Intermediate-Term Income Portfolio, .50%; Michigan Portfolio, .50%; and Prime
Obligation Portfolio, .30%. From this fee, the Adviser pays the fees of certain
of the Sub-Advisers. See "The Sub-Advisers" below. The Adviser has voluntarily
agreed to waive a portion of its fees in order to limit the total operating
expenses of Class A and Class B shares of the Growth, Value, Intermediate-Term
Income, Michigan and Prime Obligation Portfolios (exclusive of distribution
expenses charged to Class B shares) to not more than 1.10%, 1.10%, .65%, .65%
and .40%, respectively, of each Portfolio's average daily net
<PAGE>
15
assets. The Adviser reserves the right, in its sole discretion, to terminate
this voluntary fee waiver at any time. For the fiscal year ended January 31,
1997, the Growth, Intermediate-Term Income and Prime Obligation Portfolios paid
the Adviser an advisory fee of .73%, .35% and .02% respectively, of each
Portfolio's average daily net assets. The Michigan and Value Portfolios were not
in operation during the fiscal year ended January 31, 1997. The Portfolios may
also execute brokerage or other agency transactions through an affiliate of the
Adviser. See "The Distributor" below regarding such transactions.
The Glass-Steagall Act restricts the securities activities of banks such as the
Adviser, but federal regulatory authorities permit such banks to provide
investment advisory and other services to mutual funds. Should this position be
challenged successfully in court or reversed by legislation, the Trust might
have to make other investment advisory arrangements.
THE SUB-ADVISERS
Wellington Management Company, LLP (a "Sub-Adviser" or "WMC") serves as the
investment sub-adviser for the Prime Obligation Portfolio, Systematic Financial
Management, L.P. (a "Sub-Adviser" or "Systematic Financial") serves as
investment sub-adviser for the Value Portfolio and Nicholas-Applegate Capital
Management (a "Sub-Adviser" or "Nicholas-Applegate") serves as investment sub-
adviser for the Growth Portfolio pursuant to sub-advisory agreements (each, a
"Sub-Advisory Agreement") with the Trust and/or the Adviser. Under each
Sub-Advisory Agreement, the Sub-Adviser manages the investments of the
appropriate Portfolio, selects investments, and places all orders for purchases
and sales of the Portfolio's securities, subject to the general supervision of
the Trustees of the Trust and the Adviser.
WMC is a professional investment counseling firm which provides investment
services to investment companies, employee benefit plans, endowments,
foundations, and other institutions and individuals. As of January 31, 1997, WMC
had discretionary management authority with respect to approximately $133
billion of assets. WMC and its predecessor organizations have provided
investment advisory services to investment companies since 1933 and to
investment counseling clients since 1960. Wellington Management Company, LLP, 75
State Street, Boston, MA 02109, is a Massachusetts limited liability
partnership, of which the following persons are managing partners: Robert W.
Doran, Duncan M. McFarland and John R. Ryan.
For the services provided and expenses incurred pursuant to the Sub-Advisory
Agreement, WMC is entitled to receive from the Portfolio a fee, computed daily
and paid monthly, at the annual rate of .075% of the average daily net assets of
the Portfolio. For the fiscal year ended January 31, 1997, the Portfolio paid
the Sub-Adviser an advisory fee of .075% of its average daily net assets.
Systematic Financial serves as the investment sub-adviser for the Value
Portfolio. Systematic was established in 1982 and has managed portfolios on a
discretionary basis since inception. Systematic's clients include foundations,
pension funds, public retirement systems and Taft-Hartley plans as well as other
institutional investors and individuals. Systematic Financial's value strategy,
which was originally developed by our Chief Investment Officer, has been
employed since the early 1980's. Systematic is a Delaware limited partnership.
The principal business address of Systematic Financial Management, L.P. is Two
Executive Drive, Fort Lee, NJ 07024.
For the services provided and the expenses incurred pursuant to the Sub-Advisory
Agreement, Systematic Financial is entitled to receive from the Adviser a fee,
calculated daily and paid quarterly, at an annual rate of .45% of the first $50
million, .35% of the next $50 million and .40% of any amount above $100 million
of the average daily net assets of the Portfolio.
[Portfolio Manager information to be provided.]
Nicholas-Applegate serves as the investment sub-adviser for the Growth
Portfolio. Nicholas-Applegate has operated as a registered investment adviser
providing investment advisory services for a wide variety of clients including
employee benefit plans, university endowments, foundations, public retirement
systems and unions, other institutional investors and individuals since 1984
and, since April 20, 1987, investment companies. As of January 31, 1997,
Nicholas-Applegate had
<PAGE>
16
discretionary management authority with respect to approximately $31.4 billion
of assets. Nicholas-Applegate, pursuant to a partnership agreement, is
controlled by its general partner Nicholas-Applegate Capital Management
Holdings, L.P., a California limited partnership controlled by Arthur E.
Nicholas. The principal business address of Nicholas-Applegate is 600 West
Broadway, 29th Floor, San Diego, California 92101.
The Growth Portfolio is managed by Nicholas-Applegate's systems-driven portfolio
management team headed by Catherine Somhegyi, Chief Investment Officer--Global
Investments and Lawrence J. Speidell, CFA, since March, 1996. Mr. Speidell had
been sole manager since August 31, 1995. Ms. Somhegyi has managed similar
institutional accounts for Nicholas-Applegate since 1992.
Mr. Speidell joined Nicholas-Applegate in 1994. Prior to that time, Mr. Speidell
was an institutional portfolio manager with Batterymarch Financial Management
where he was involved in the development of domestic and international portfolio
strategies and portfolio optimization. Mr. Speidell has been involved in the
investment industry for over 25 years.
For the services provided and the expenses incurred pursuant to the Sub-Advisory
Agreement, Nicholas-Applegate is entitled to receive from the Adviser a fee,
calculated daily and paid quarterly, at an annual rate of .40% of the average
daily net assets of the Portfolio. For the fiscal year ended January 31, 1997,
the Portfolio paid the Sub-Adviser an advisory fee of .40% of its average daily
net assets.
THE ADMINISTRATOR
SEI Fund Resources (the "Administrator"), Oaks, Pennsylvania 19456, provides the
Portfolios with administrative services, other than investment advisory
services, including all regulatory reporting, necessary office space, equipment,
personnel and facilities, pursuant to an administration agreement (the
"Administration Agreement") with the Trust. The Administrator also serves as the
shareholder servicing agent of the Trust under the terms of the Administration
Agreement.
For its services, the Administrator is entitled to a fee, which is calculated
daily and paid monthly, at an annual rate of .20% of the average daily net
assets of the Growth, Value, Intermediate-Term Income, Michigan and Prime
Obligation Portfolios. The Value Portfolio and the Michigan Portfolio are also
subject to a minimum fee of $100,000.
For the fiscal year ended January 31, 1997, the Portfolios paid the
Administrator the following administration fees (shown as a percentage of
average daily net assets): Growth, .20%; Intermediate-Term Income, .20%; and
Prime Obligation, .20%. The Value and Michigan Portfolios had not commenced
operations as of January 31, 1997.
THE TRANSFER AGENT
DST Systems, Inc., 1004 Baltimore Street, Kansas City, Missouri 64105 (the
"Transfer Agent"), serves as the transfer agent and dividend disbursing agent
for the Portfolios under a transfer agency agreement with the Trust.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), Oaks, Pennsylvania 19456, a
wholly-owned subsidiary of SEI Investments Company and an affiliate of the
administrator, serves as the Portfolios' distributor pursuant to a distribution
agreement ("Distribution Agreement") with the Trust which applies to Class A and
Class B shares of the Portfolio.
The Class B shares of the Portfolio have a distribution plan (the "Class B
Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"). As provided in the Distribution Agreement and the
Class B Plan, the Trust will pay an annual fee of .25% of the Class B
Portfolios' average daily net assets to the Distributor as compensation for its
services. From this amount the Distributor may make payments to financial
institutions and intermediaries such as banks (including Citizens Bank), savings
and loan associations, insurance companies, investment counselors,
broker-dealers, and the Distributor's affiliates and subsidiaries as
compensation for services, reimbursement of expenses incurred in connection with
distribution assistance or provision of shareholder services. The Class B Plan
is characterized as a compensation plan since the distribution fee will be paid
to the Distributor without regard to the distribution or shareholder service
<PAGE>
17
expenses incurred by the Distributor or the amount of payments made to financial
institutions and intermediaries. The Trust intends to operate the Class B Plan
in accordance with its terms and with the NASD rules concerning sales charges.
The Portfolio may also execute brokerage or other agency transactions through an
affiliate of the Adviser or through the Distributor for which the affiliate or
the Distributor may receive "usual and customary" compensation. The Adviser will
use its best efforts to obtain the best available price and most favorable
execution with respect to all transactions for the Portfolios.
The Class A shares of each Portfolio are offered without distribution fees to
institutional investors, including Citizens Bank, its affiliates and
correspondent banks, for the investment of funds for which they act in a
fiduciary, agency or custodial capacity. It is possible that an institution may
offer different classes of shares to its customers and thus receive different
compensation with respect to different classes of shares. These financial
institutions may also charge separate fees to their customers.
Certain financial institutions offering shares to their customers may be
required to register as dealers pursuant to state laws.
The Distributor may, from time to time and at its own expense, provide
promotional incentives in the form of cash or other compensation to certain
financial institutions and intermediaries whose registered representatives have
sold or are expected to sell significant amounts of the shares of each
Portfolio. Such other compensation may take the form of payments for travel
expenses, including lodging, incurred in connection with trips taken by
qualifying registered representatives to places within or outside of the United
States.
HOW TO PURCHASE SHARES
Shares of each Portfolio are sold on a continuous basis and may be purchased
directly from the Transfer Agent, by mail or by wire transfer. Shares may also
be purchased through a broker-dealer which has established a dealer agreement
with the Distributor or through a financial institution.
Shares of each Portfolio are offered only to residents of states in which the
shares are eligible for purchase.
Purchases of shares of a Portfolio may be made on days on which the New York
Stock Exchange and the Federal Reserve wire system are open for business
("Business Days"). However, shares of the Portfolios cannot be purchased by
Federal Reserve wire on federal holidays restricting wire transfers. The minimum
initial investment in the Class A shares is $1,000,000 and the minimum initial
investment in the Class B Shares is $1,000 ($500 minimum for an IRA account);
however, the minimum investment may be waived at the Distributor's discretion.
All subsequent purchases of Class B shares must be at least $50.
A purchase order for Class A or Class B shares will be effective as of the
Business Day received by the Transfer Agent if the Transfer Agent receives an
order and payment for the shares (by wire transfer or check) prior to 4:00 p.m.,
Eastern time, or at the close of business of the New York Stock Exchange, except
that for the Prime Obligation Portfolio an order and payment for the shares must
be received by the Transfer Agent prior to 12:00 noon, Eastern time.
The Trust reserves the right to reject a purchase order when the Distributor or
Transfer Agent determines that it is not in the best interest of the Trust
and/or its shareholders to accept such order.
BY MAIL (CLASS B ONLY)
Investors in the Class B shares may purchase shares of a Portfolio by completing
and signing an Account Application form and mailing it, along with a check (or
other negotiable bank instrument or money order) payable to "The Arbor
Fund-Golden Oak (Name of Portfolio)," to the Transfer Agent. Third party checks,
credit cards, credit card checks and cash will not be accepted. When purchases
are made by check, redemption proceeds will not be forwarded until the
investment being redeemed has been in the account for 10 business days.
Subsequent purchases of shares may be made at any time by mailing a check (or
other negotiable bank draft or money order) to the Transfer Agent. An investor
in Class A shares of a Portfolio may not purchase shares by check. If a check
received does not clear, the purchase will be cancelled and the investor could
be liable for any losses or fees incurred.
<PAGE>
18
Account Application forms can be obtained by calling 1-800-545-6331.
BY WIRE TRANSFER
Shareholders having an account with a commercial bank that is a member of the
Federal Reserve System may purchase shares of the Portfolio by requesting their
bank to transmit funds by wire to: United Missouri Bank, N.A.; ABA #10-10-00695;
for Account Number 98-7052-398-1; Further Credit: Golden Oak (Name of
Portfolio). The Shareholder's name and account number must be specified in the
wire.
INITIAL PURCHASES: Before making an initial investment by wire, an investor
must first telephone 1-800-808-4920 to be assigned an account number. The
investor's name, account number, taxpayer identification number or Social
Security number, and address must be specified in the wire. In addition, an
Account Application should be promptly forwarded to: Golden Oak Family of Funds,
c/o The Arbor Fund, P.O. Box 419947, Kansas City, MO 64141-6947.
SUBSEQUENT PURCHASES: Additional investments may be made at any time through
the wire procedures described above, which must include a shareholders name and
account number. The investor's bank may impose a fee for investments by wire.
SYSTEMATIC INVESTMENT PLAN
("SIP") (CLASS B ONLY)
Class B Shareholders may also arrange for periodic additional investments in any
Portfolio through automatic deductions by Automated Clearing House ("ACH") from
a checking account by completing the appropriate section of the Account
Application form. The SIP is subject to account minimum initial purchase amounts
and minimum maintained balance requirements. The minimum pre-authorized
investment amount is $50 per month. An Account Application form may be obtained
by calling 1-800-545-6331.
OTHER INFORMATION REGARDING PURCHASES
Class A and Class B Shares may also be purchased through financial institutions,
including Citizens Bank or its affiliates, that provide distribution assistance
or shareholder services to a Portfolio. Shares purchased by persons
("Customers") through financial institutions may be held of record by the
financial institution. Financial institutions may impose an earlier cut-off time
for receipt of purchase orders directed through them to allow for processing and
transmittal of these orders to the Transfer Agent for effectiveness the same
day. Customers should contact their financial institution for information as to
the institution's procedures for transmitting purchase, exchange or redemption
orders to the Trust.
Customers who desire to transfer the registration of shares beneficially owned
by them but held of record by a financial institution should contact the
institution to accomplish such change. Other shareholders who desire to transfer
the registration of their shares should contact the Transfer Agent to accomplish
such change.
Purchases may be made by direct deposit or ACH transactions.
Depending upon the terms of a particular Customer account, a financial
institution may charge Customer account fees, that is, fees in addition to the
fees described herein. Information concerning these services and any charges
will be provided to the Customer by the financial institution.
A purchase order for shares will be executed at a per share price equal to the
net asset value next determined after the purchase order is effective plus any
applicable sales charge (the "offering price"). Net asset value per share of
each Portfolio is determined as of the close of business of the New York Stock
Exchange (currently 4:00 p.m., Eastern time) other than the Prime Obligation
Portfolio. The Prime Obligation Portfolio determines its net asset value as of
12:00 noon, Eastern time. No certificates representing shares will be issued.
For each Portfolio except the Prime Obligation Portfolio, the net asset value
per share is determined by dividing the total market value of the Portfolio's
investments and other assets, less any liabilities, by the total number of
outstanding shares of the Portfolio. For the Prime Obligation Portfolio the net
asset value per share is determined using amortized cost method described in the
Statement of Additional Information. Pursuant to guidelines adopted and
monitored by the Trustees, a Portfolio may use a pricing service to provide
market quotations or fair
<PAGE>
19
market valuations. A pricing service may derive such valuations through the use
of a matrix system to value fixed income securities which considers factors such
as securities prices, yield features, ratings, and developments related to a
specific security. Purchases will be made in full and fractional shares of a
Portfolio calculated to three decimal places. Although the methodology and
procedures are identical, the net asset value per share of classes within a
Portfolio may differ because of the distribution expenses paid by Class B
shares.
The following table shows the regular sales charge on Class B shares of the
Growth and Value Portfolios to a "single purchaser" (defined below) together
with the sales load reallowed to certain financial institutions (the
"commission"):
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE DEALER AND
AS A AS A BROKERAGE
PERCENTAGE OF PERCENTAGE OF COMMISSION AS A
OFFERING NET AMOUNT PERCENTAGE OF
AMOUNT OF PURCHASE PRICE INVESTED OFFERING PRICE
- ----------------------- ------------- ------------- ---------------
<S> <C> <C> <C>
Less than $50,000...... 5.75% 6.10% 5.15%
$50,000-$99,999........ 4.50% 4.71% 4.00%
$100,000-$249,999...... 3.50% 3.63% 3.10%
$250,000-$499,999...... 2.60% 2.67% 2.30%
$500,000-$999,999...... 2.00% 2.04% 1.80%
$1,000,000 and above... NAV 0 0
</TABLE>
The following table shows the regular sales charge on Class B shares of the
Intermediate-Term Income and Michigan Portfolios to a "single purchaser"
together with the commission:
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE DEALER AND
AS A AS A BROKERAGE
PERCENTAGE OF PERCENTAGE OF COMMISSION AS A
OFFERING NET AMOUNT PERCENTAGE OF
AMOUNT OF PURCHASE PRICE INVESTED OFFERING PRICE
- ----------------------- ------------- ------------- ---------------
<S> <C> <C> <C>
Less than $100,000..... 4.50% 4.71% 4.00%
$100,000-$249,999...... 3.50% 3.63% 3.10%
$250,000-$499,999...... 2.60% 2.67% 2.30%
$500,000-$999,999...... 2.00% 2.04% 1.80%
$1,000,000 and above... NAV 0 0
</TABLE>
There is no sales charge imposed on Class B shares of the Prime Obligation
Portfolio.
The commissions shown in the tables apply to sales made through financial
institutions. Under certain circumstances, commissions up to the amount of the
entire sales charge may be reallowed to certain financial institutions, who
might then be deemed to be "underwriters" under the Securities Act of 1933.
RIGHT OF ACCUMULATION
In calculating the sales charge rates applicable to current purchases of Class B
shares of the Portfolio, a "single purchaser" is entitled to cumulate current
purchases with the current market value of previously purchased Class B shares
of (i) the Growth and Value Portfolios, and (ii) the Intermediate-Term Income
and Michigan Portfolios (the "Eligible Portfolios") which were purchased subject
to a comparable sales charge.
The term "single purchaser" refers to (i) an individual, (ii) an individual and
spouse purchasing shares of a Portfolio for their own account or for trust or
custodial accounts for their minor children, or (iii) a fiduciary purchasing for
any one trust, estate or fiduciary account, including employee benefit plans
created under Sections 401 or 457 of the Internal Revenue Code of 1986, as
amended (the "Code"), including related plans of the same employer. To be
entitled to a reduced sales charge based upon shares already owned, the investor
must ask the Transfer Agent for such reduction at the time of purchase and
provide the account number(s) of the investor, the investor and spouse, and
their minor children. A Portfolio may amend or terminate this right of
accumulation at any time as to subsequent purchases.
LETTER OF INTENT
By submitting a Letter of Intent (the "Letter") to the Transfer Agent, a single
purchaser may purchase shares of a Portfolio and the other Eligible Portfolios
during a 13-month period at the reduced sales charge rates applying to the
aggregate amount of the intended purchases stated in the Letter. The Letter may
apply retroactively to purchases made up to 90 days before the date of the
Letter. It is the responsibility of the shareholder to notify the Transfer Agent
at the time the Letter is submitted that there are prior purchases that may
apply.
OTHER CIRCUMSTANCES
No sales charge is imposed on shares of a Portfolio: (i) issued in plans of
reorganization, such as mergers, asset acquisitions and exchange offers, to
which the Trust is a party; (ii) sold to dealers or
<PAGE>
20
brokers that have a sales agreement with the Distributor, for their own account
or for retirement plans for their employees or sold to employees (and their
spouses) of dealers or brokers that certify to the Distributor at the time of
purchase that such purchase is for their own account (or for the benefit of such
employees' minor children); (iii) purchased in aggregate amounts of $1 million
or more by tax exempt organizations enumerated in Section 501(c) of the Code or
employee benefit plans created under Sections 401 or 457 of the Code; (iv) sold
to Trustees and officers of the Trust and employees of the Adviser and its
affiliates; or (v) sold to agency, custody and fiduciary accounts of the Adviser
and its affiliates.
A description of the above and other plans and privileges by which a sales
charge may be reduced is set forth in the "Purchase and Redemption of Shares"
section of the Statement of Additional Information.
HOW TO EXCHANGE SHARES
Some or all of the shares of a Portfolio for which payment has been received
(i.e., an established account) may be exchanged for shares, at their net asset
value, of other Eligible Portfolios with similar or lower sales loads or for
shares of the Prime Obligation Portfolio which does not have a sales load.
Exchanges will be made only after instructions in writing or by telephone (an
"Exchange Request") are received for an established account by the Transfer
Agent. Exchange instructions by telephone may only be accepted if previously
elected on the account application.
In the case of shares held of record by Citizens Bank or another financial
institution but beneficially owned by a Customer, to exchange such shares the
Customer should contact Citizens Bank or the financial institution who will
contact the Transfer Agent and effect the exchange on behalf of the Customer. If
an exchange request in good order is received by the Transfer Agent by 4:00
p.m., Eastern time, on any Business Day, the exchange usually will occur on that
day. Any shareholder or Customer who wishes to make an exchange must have
received a current prospectus of the Portfolio in which he or she wishes to
invest before the exchange will be effected.
An exchange from the Class A shares to the Class B shares of a Portfolio will
occur automatically when a Class A shareholder's account falls below the
$1,000,000 minimum balance. The Trust will provide thirty days' notice of any
such exchange. The exchange will take place at net asset value, without the
imposition of a sales load, fee or other charge. After the exchange, the
exchanged shares will be subject to all fees applicable to Class B shares. In
the event that a shareholder declines to accept an automatic exchange, and if
the shareholder does not meet the requirements for investing in Class A shares,
the Trust reserves the right to redeem the shares upon expiration of the
thirty-day period. Each Portfolio reserves the right to require shareholders to
complete an application or other documentation in connection with the exchange.
HOW TO REDEEM SHARES
Shareholders may redeem their shares without charge on any Business Day and
shares may ordinarily be redeemed by mail, by telephone or by wire transfer. A
wire redemption fee (currently $10.00) is charged for wire redemptions except
that certain financial institutions may be exempt from this wire charge.
BY MAIL
A written request for redemption must be received by the Transfer Agent in good
form in order to constitute a valid request for redemption. Valid written
redemption requests will be effective on receipt. All shareholders of record
must sign the redemption request. The Transfer Agent may require that the
signature on the written request be guaranteed. The signature guarantee
requirement will be waived if all of the following conditions apply: (1) the
redemption is for $50,000 worth of shares or less, (2) the redemption check is
payable to the shareholder(s) of record, and (3) the redemption check is mailed
to the shareholder(s) at the address of record. The Trust and the Transfer Agent
reserve the right to amend these requirements without notice.
A signature guarantee is a widely accepted way to protect shareholders by
verifying the signature on certain redemption requests. The Trust requires
signature guarantees to be provided in the following circumstances: (1) written
requests for redemptions
<PAGE>
21
in excess of $50,000; (2) all written requests to wire redemption proceeds to a
bank other than the bank previously designated on the Account Application; and
(3) redemption requests that provide that the redemption proceeds should be sent
to an address other than the address of record or to a person other than the
registered shareholder(s) for the account. Signature guarantees can be obtained
from any of the following institutions: a national or state bank, a trust
company, a federal savings and loan association, or a broker-dealer that is a
member of a national securities exchange. The Trust does not accept guarantees
from notaries public or from organizations that do not provide reimbursement in
the case of fraud.
For information about the proper form of redemption requests, call
1-800-808-4920. The shareholder may also have the proceeds mailed to a
commercial bank account previously designated on the Account Application or by
written instruction to the Transfer Agent. There is no charge for having
redemption requests mailed to a designated bank account.
BY TELEPHONE
Shares may be redeemed by telephone if the shareholder elects that option on the
Account Application. Telephone redemption orders may be made by the shareholder
by calling the Transfer Agent at 1-800-808-4920. Wire redemption requests may be
made to the Transfer Agent, who will add a wire redemption charge (presently
$10.00, except that certain financial institutions may be exempt from this wire
charge) to the amount of the redemption. Telephone redemption orders must be
placed with the Transfer Agent prior to 4:00 p.m., Eastern time for each
Portfolio except the Prime Obligation Portfolio and as of 12:00 noon, Eastern
time for the Prime Obligation Portfolio on any Business Day in order to be
effective on such day. The shareholder may have the proceeds mailed to his or
her address or mailed or wired to a commercial bank account previously
designated on the Account Application. Under most circumstances, payments will
be transmitted on the next Business Day following receipt of a valid request for
redemption. Shareholders may not close their accounts by telephone.
Neither the Trust nor the Transfer Agent will be responsible for any loss,
liability, cost or expense for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The Trust and the
Transfer Agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form
of personal identification prior to acting upon instructions received by
telephone and recording telephone instructions. If market conditions are
extraordinarily active, or other extraordinary circumstances exist, and a
shareholder experiences difficulties placing redemption orders by telephone, the
shareholder may wish to consider placing the order by other means, such as mail
or overnight delivery.
CHECK WRITING SERVICE
Class B shareholders of the Prime Obligation Portfolio may redeem shares by
writing checks on his or her account for $500 or more. Once a shareholder has
signed and returned a signature card, he or she will receive a supply of checks.
The check may be made payable to any person, and the shareholder's account will
continue to earn dividends until the check clears. These checks are free, but
the shareholder's account will be charged a fee (currently $15) for stopping
payment of a check upon the shareholder's request, or if the check cannot be
honored because of insufficient funds or other valid reasons.
Because of the difficulty of determining in advance the exact value of a
Portfolio account, a shareholder may not use a check to close his or her
account.
OTHER INFORMATION REGARDING REDEMPTIONS
The redemption price for the Class A and Class B shares is the net asset value
per share next determined after the request for redemption is effective. Payment
to shareholders for shares redeemed will generally be made within seven days
after receipt by the Transfer Agent of the redemption request in good order.
At various times, a Portfolio may be requested to redeem shares for which it has
not yet received good payment. In such circumstances, redemption proceeds will
not be forwarded until the investment being redeemed has been in the account for
10 business days. A Portfolio intends to pay cash for all shares redeemed, but
under abnormal conditions that make payment in cash unwise, payment may be made
wholly or partly in portfolio securities with
<PAGE>
22
a market value equal to the redemption price. In such cases, an investor may
incur brokerage costs in converting such securities to cash.
Due to the relatively high costs of handling small investments, a Portfolio
reserves the right to redeem, at net asset value, the shares of any shareholder
if, because of redemptions of shares by or on behalf of the shareholder, the
account of such shareholder decreases in value below the minimum initial
purchase amount for the applicable class of shares. Accordingly, an investor
purchasing shares of a Portfolio in only the minimum investment amount may be
subject to such involuntary redemption if he or she thereafter redeems any of
these shares. Before the Portfolio exercises its right to redeem such shares and
to send the proceeds to the shareholder, the shareholder will be given notice
that the value of the shares in his or her account is less than the minimum
amount and will be allowed 60 days to make an additional investment in the
Portfolio in an amount that will increase the value of the account to at least
the minimum initial purchase amount.
See "Purchase and Redemption of Shares" in the Statement of Additional
Information for examples of when the right of redemption may be suspended.
SYSTEMATIC WITHDRAWAL PLAN
(SWP) (CLASS B SHARES ONLY)
The Portfolios offer a Systematic Withdrawal Plan which may be utilized by Class
B shareholders who wish to receive regular distributions from their account.
Upon commencement of the SWP, the account must have a current value of $10,000
or more. Class B shareholders may elect to receive automatic payments via check
or ACH of $50 or more on a monthly, quarterly, semi-annual or annual basis. An
Account Application Form may be obtained by calling 1-800-545-6331.
Shareholders should realize that if withdrawals exceed income dividends, their
invested principal in the account will be depleted. Thus, depending on the
frequency and amounts of the withdrawal payments and/or any fluctuations in the
net asset value per share, their original investment could be exhausted
entirely. To participate in the SWP, shareholders must have their dividends
automatically reinvested. Shareholders may change or cancel the SWP at any time,
upon written notice to the Transfer Agent. It is generally not in the best
interest of shareholders in the SWP to acquire additional shares if they would
have to pay a sales load in connection with such purchases.
PERFORMANCE
From time to time the Prime Obligation Portfolio may advertise its "current
yield" and "effective compound yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. No
representation can be made concerning actual future yields. The "current yield"
of the Portfolio refers to the income generated by an investment in a Portfolio
over a stated seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" (also called "effective compound yield") is calculated
similarly but, when annualized, the income earned by an investment in a
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "current yield" because of the compounding effect of this
assumed reinvestment.
From time to time, the Growth, Intermediate-Term Income, Michigan and Value
Portfolios may also advertise yield and total return. These figures will be
based on historical earnings and are not intended to indicate future
performance. No representation can be made concerning actual future yields or
returns. The yield of a Portfolio refers to the income generated by a
hypothetical investment, net of any sales charge in the case of some of the
Class B shares, in a Portfolio over a specified thirty day period. This income
is then "annualized," i.e., the income over thirty days is assumed to be
generated over one year and is shown as a percentage of the investment.
The total return of a Portfolio refers to the average compounded rate of return
on a hypothetical investment, net of any sales charge, for designated time
periods, assuming that the entire investment is redeemed at the end of each
period and assuming the reinvestment of all dividend and capital gain
distributions.
<PAGE>
23
The performance on Class A shares will normally be higher than that on Class B
shares because of the distribution expenses charged to the Class B shares.
A Portfolio may periodically compare its performance to other mutual funds
tracked by mutual fund rating services (such as Lipper Analytical) or financial
and business publications and periodicals, broad groups of comparable mutual
funds, unmanaged indices which may assume investment of dividends but generally
do not reflect deductions for administrative and management costs or other
investment alternatives. A Portfolio may quote Morningstar, Inc., a service that
ranks mutual funds on the basis of risk-adjusted performance. A Portfolio may
quote Ibbotson Associates of Chicago, Illinois, which provides historical
returns of the capital markets in the U.S. A Portfolio may use long-term
performance of these capital markets to demonstrate general long-term risk
versus reward scenarios and could include the value of a hypothetical investment
in any of the capital markets. A Portfolio may also quote financial and business
publications and periodicals as they relate to portfolio management, investment
philosophy and investment techniques.
A Portfolio may quote various measures of volatility and benchmark correlation
in advertising and may compare these measures to those of other funds. Measures
of volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
PERFORMANCE INFORMATION FOR PREDECESSOR COMMON TRUST FUNDS
The Michigan Portfolio is a successor to the [ ] (the "Michigan
Fund") managed by [ ]. The Value Portfolio is a successor to the
[ ] (the " Value Fund") managed by [Systematic]. A substantial
portion of the assets of the Michigan Fund and the Value Fund (together, the
"Funds") was transferred to the Michigan Portfolio and the Value Portfolio,
respectively, in connection with each Portfolio's commencement of operations.
Set forth below is certain performance data for the Funds, which is deemed
relevant because each respective Fund was managed using virtually the same
investment objective, policies and restrictions as those used by the Michigan
Portfolio and the Value Portfolio. The performance data, however, is not
necessarily indicative of the future performance of the Michigan Portfolio or
the Value Portfolio. Further, the predecessor Funds were not subject to certain
investment limitations and restrictions imposed by the 1940 Act and the Code,
which, if applicable, may have adversely affected the performance results of the
Fund.
The predecessor Funds did not incur expenses that correspond to the advisory,
administrative, and other fees to which the Michigan Portfolio and the Value
Portfolio are subject. Accordingly, the following performance information has
been adjusted by applying the total expense ratio and sales charges for each
class of the Michigan Portfolio and the Value Portfolio, as disclosed under
"Expense Summary" above, which reduced the actual performance of the Funds.
The data set forth below under the heading "Return With Sales Charge" is
adjusted to reflect the total operating expenses applicable to each class, and,
with respect to Class B shares, to take into account a maximum 4.50% sales
charge applicable to purchases of the Michigan Portfolio and a 5.75% sales
charge applicable to purchases of the Value Portfolio. The data set forth below
under the heading "Return Without Sales Charge" is not adjusted to take into
account such sales charge.
<PAGE>
24
TOTAL RETURNS FOR THE
COMMON TRUST FUNDS
AND
THE INDEX
FOR THE PERIOD ENDING
<TABLE>
<CAPTION>
RETURN WITH SALES SINCE
CHARGE 1 YEAR 5 YEARS 10 YEARS INCEPTION(1)
- -------------------- --------- --------- --------- -----------
<S> <C> <C> <C> <C>
[ ]
Common Trust Fund
Class A (0.00%)
Class B (4.50%)
[ ]
Common Trust Fund
Class A (0.00%)
Class B (5.75%)
Index
<CAPTION>
RETURN WITHOUT SALES
CHARGE
- --------------------
<S> <C> <C> <C> <C>
[ ]
Common Trust Fund
Class A
Class B
[ ]
Common Trust Fund
Class A
Class B
</TABLE>
- ------------------------------
(1) Commenced Operations on [date].
The past performance of the Funds is no guarantee of the future performance of
the Portfolios. Additional performance information regarding the Michigan
Portfolio and the Value Portfolio will be set forth in the Trust's Annual Report
to Shareholders, which, when available, may be obtained on request and without
charge by calling [number].
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of a Portfolio
or its shareholders. Accordingly, shareholders are urged to consult their tax
advisers regarding specific questions as to federal, state and local income
taxes.
TAX STATUS OF THE PORTFOLIO
Each Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Trust's other Portfolios. Each Portfolio intends to
qualify for the special tax treatment afforded regulated investment companies as
defined under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code") so as to be relieved of federal income tax on that part of its net
investment income and net capital gain (the excess of net long-term capital gain
over net short-term capital loss) that it distributes to shareholders.
TAX STATUS OF DISTRIBUTIONS
Each Portfolio will distribute all of its net investment income (including, for
this purpose, net short-term capital gain) to shareholders. Dividends from net
investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Any net capital gain will be
distributed at least annually and will be taxed to shareholders as long-term
capital gain, regardless of how long the shareholders have held their shares.
Corporate shareholders should note that distributions of the Intermediate-Term,
Michigan Tax Free and Prime Obligation Portfolios are not expected to qualify
for the dividends-received deduction that is generally available to corporate
taxpayers. Dividends paid by the Growth and Value Portfolios to corporate
shareholders are expected to qualify for this deduction to the extent these
Portfolios' dividends derive from dividends the Portfolios received from
domestic corporations. The full amount of these dividends, however, may be
subject to the federal alternative minimum tax. Distributions of net capital
gain will not qualify for this deduction. Each Portfolio will make annual
reports to shareholders of the federal income tax status of all distributions.
Interest received on U.S. Treasury 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 from a Portfolio provided certain conditions are
satisfied. Interest received on repurchase agreements collateralized by U.S.
Treasury obligations normally is not exempt from state taxation. Each Portfolio
will inform shareholders annually of the percentage of income and distributions
derived from U.S. Treasury obligations. Shareholders should consult their tax
<PAGE>
25
advisers to determine whether any portion of the income dividends received from
a Portfolio is considered tax exempt in their particular states.
Certain securities each Portfolio may purchase (such as STRIPS defined under
"Description of Permitted Investments") are sold with original issue discount
and generally do not make periodic cash interest payments. A Portfolio will be
required to include as part of its current income the accrued discount on such
obligations even though the Portfolio has not received any interest payments on
such obligation during that period. Because each Portfolio distributes all of
its net investment income to its shareholders, a Portfolio may have to sell
portfolio securities to distribute such accrued 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.
Dividends declared by a Portfolio in October, November or December of any year
and payable to shareholders of record on a date in that month will be deemed to
have been paid by the Portfolio and received by the shareholders on December 31
of that year, if paid by the Portfolio at any time during the following January.
Each Portfolio intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
A sale, exchange or redemption of Portfolio shares is a taxable event to the
shareholder.
Income derived by a Portfolio from obligations of foreign issuers may be subject
to foreign withholding taxes. No Portfolio will be able to elect to treat
shareholders as having paid their proportionate share of such foreign taxes.
ADDITIONAL CONSIDERATIONS FOR THE MICHIGAN
PORTFOLIO
The Michigan Portfolio will distribute all of its net investment income
(including net short-term capital gain) to its shareholders. If, at the close of
each quarter of its taxable year, at least 50% of the value of the Portfolio's
assets consist of obligations the interest on which is excludable from gross
income, the Portfolio may pay "exempt-interest dividends" to its shareholders.
Those dividends constitute the portion of the aggregate dividends as designated
by the Portfolio, equal to the excess of the excludable interest over certain
amounts disallowed as deductions. Exempt-interest dividends are excludable from
a shareholder's gross income for federal income tax purposes, but may have
alternative minimum tax and other collateral consequences. See the Statement of
Additional Information.
Current Federal law limits the types and volume of bonds qualifying for the
federal income tax exemption of interest, which may have an effect on the
ability of the Portfolio to purchase sufficient amounts of tax-exempt securities
to satisfy the Code's requirements for the payment of "exempt-interest
dividends."
Interest on indebtedness incurred or continued by a shareholder in order to
purchase or carry shares of the Michigan Portfolio is not deductible for federal
income tax purposes. Furthermore, the Portfolio may not be an appropriate
investment for persons (including corporations and other business entities) who
are "substantial users" (or persons related to "substantial users") of
facilities financed by industrial development private activity bonds. Such
persons should consult their tax advisers before purchasing shares. A
"substantial user" is defined generally to include "certain persons" who
regularly use in their trade or business a part of a facility financed from the
proceeds of such bonds.
MICHIGAN TAX CONSIDERATIONS
Under the laws of the State of Michigan, dividends paid by the Michigan
Portfolio representing interest payments on municipal obligations issued by the
State of Michigan or a political subdivision thereof (or interest on obligations
of United States territories or possessions to the extent exempt from taxation
by the states pursuant to federal law) will be exempt from Michigan income tax
(as will be the case with respect to such dividends from the Portfolio). Also,
that portion of a shareholder's shares in the Portfolio representing Municipal
Obligations issued by the State of Michigan or a political subdivision thereof
(or obligations of the United States territories or possessions to the extent
exempt from taxation by the states pursuant to federal law) and dividends paid
by the Portfolio representing interest payments on such obligations will be
exempt from Michigan intangibles tax. Accordingly, shareholders of the Portfolio
who are residents of the State of Michigan will not be subject to Michigan
income tax or
<PAGE>
26
intangibles tax on dividends paid by the Portfolio to the extent such dividends
are derived from interest on municipal obligations which would be tax-exempt if
directly received by such shareholder, whether such dividends are taken in cash
or reinvested in additional shares of the Portfolio. Also, shareholders of the
Portfolio who are residents of the State of Michigan will not be subject to
Michigan intangibles tax on that portion of their shares in the Portfolio
attributable to municipal obligations which would be tax-exempt if directly
owned by such shareholder. The Intangible Tax is being phased out, with
reductions of twenty-five percent (25%) in 1994 and 1995, fifty percent (50%) in
1996, and seventy-five percent (75%) in 1997, with total repeal effective
January 1, 1998. Under the laws of the State of Michigan, corporations,
partnerships and other entities doing business in Michigan pay the Single
Business Tax. All dividend and interest income, other than interest from
municipal obligations issued other than by the State of Michigan or its
political subdivisions, is excluded from the Single Business Tax base. Thus,
dividends from the Portfolio derived from interest on municipal obligations
issued by the State of Michigan or a political subdivision thereof (or
obligations of the United States territories or possessions to the extent exempt
from taxation by the states pursuant to federal law) will be exempt from the
Michigan Single Business Tax.
Certain municipalities in Michigan also impose an income tax on individuals and
corporations. However, to the extent that the dividends from the Portfolio are
exempt from federal income taxes or relate to certain U.S. obligations, such
dividends also will be exempt from Michigan municipal income taxes.
OTHER STATE AND LOCAL TAXES
Income from the Michigan Portfolio is not necessarily free from state income
taxes in states other than Michigan or from personal property taxes. State laws
differ on this issue, and shareholders are urged to consult their own tax
advisers regarding the status of their accounts under state and local tax laws.
Additional information concerning taxes is set forth in the Statement of
Additional Information.
GENERAL INFORMATION
THE TRUST
The Trust is an open-end management investment company that has diversified and
non-diversified portfolios. The Trust is organized as a Massachusetts business
trust under a Declaration of Trust dated July 24, 1992. The Declaration of Trust
permits the Trust to offer separate portfolios of shares and different classes
of shares within each portfolio.
All consideration received by the Trust for shares of a Portfolio and all assets
of such Portfolio belong to the Portfolio and are subject to liabilities related
thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to shareholders, costs of custodial services and registering the
shares under federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
Please refer to "Financial Highlights" in this Prospectus for more information
regarding the Trust's expenses.
TRUSTEES OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust.
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote. Each portfolio
or class will vote separately on matters relating solely to that portfolio or
class. As a Massachusetts business trust, the Trust is not required to hold
annual meetings of shareholders but approval will be sought for certain changes
in the operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by shareholders at a special meeting called upon written request of
shareholders
<PAGE>
27
owning at least 10% of the outstanding shares of the Trust. In the event that
such a meeting is requested, the Trust will provide appropriate assistance and
information to the shareholders requesting the meeting.
REPORTING
The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to The Golden Oak Family of Funds, c/o
The Arbor Trust, P.O. Box 419947, Kansas City, Missouri 64141-6947 or by calling
1-800-545-6331. Purchase, redemption and exchange transactions should be made
through the Transfer Agent by calling 1-800-808-4920.
DIVIDENDS
Substantially all of the net investment income (exclusive of capital gains) of
the Intermediate-Term Income, Michigan and Prime Obligation Portfolios is
declared daily and distributed monthly to shareholders in the form of periodic
dividends on the first Business Day of each month to shareholders of record for
such dividend. The net investment income (exclusive of capital gains) of the
Growth Portfolio is declared monthly and distributed monthly to shareholders in
the form of dividends on the first Business Day of each month to shareholders of
record for such dividend. The net investment income (exclusive of capital gains)
of the Value Portfolio is declared and distributed annually. Currently, capital
gains of a Portfolio, if any, will be distributed at least annually.
Shareholders are eligible to begin earning dividends that are declared on the
day after the purchase order is effective and continue to be eligible for
dividends through and including the day before the redemption order is
effective.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares at the net asset value next determined
following the record date, unless the shareholder has elected to take such
payment in cash. Shareholders may change their election by providing written
notice to the Transfer Agent at least 15 days prior to the distribution.
Dividends and distributions of the Growth, Intermediate-Term Income, Michigan
and Value Portfolios are paid on a per-share basis. The value of each share will
be reduced by the amount of the payment. If shares are purchased shortly before
the record date for a dividend or the distribution of capital gains, a
shareholder will pay the full price for the shares and receive some portion of
the price back as a taxable dividend or distribution. The amount of dividends
payable on Class A shares will be more than the dividends payable on the Class B
shares because of the distribution expenses charged to Class B shares.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Miller, Canfield,
Paddock and Stone, P.L.C. serves as counsel to the Trust with respect to
Michigan state issues. Price Waterhouse LLP serves as the independent
accountants of the Trust.
CUSTODIAN
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 (the "Custodian"), acts as custodian of the Trust. The
Custodian holds cash, securities and other assets of the Trust as required by
the 1940 Act.
DESCRIPTION OF PERMITTED INVESTMENTS
The following is a description of certain of the permitted investments for the
Portfolios:
AMERICAN DEPOSITARY 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 may be available 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 underlying security. Holders of unsponsored depositary
receipts generally bear all the costs of the unsponsored facility. The
depositary of an unsponsored facility frequently is under no
<PAGE>
28
obligation to distribute shareholder communications received from the issuer of
the deposited security or to pass through, to the holders of the receipts,
voting rights with respect to the deposited securities.
ASSET-BACKED SECURITIES -- Asset-backed securities are secured by non-mortgage
assets such as company receivables, truck and auto loans, leases and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also 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 such
assets and issuing such debt.
Asset-backed securities are not issued or guaranteed by the United States
Government or 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.
BANKERS' ACCEPTANCES -- Bankers' acceptances are bills of exchange or time
drafts drawn on and accepted by a commercial bank. Bankers' acceptances are used
by corporations to finance the shipment and storage of goods. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT -- Certificates of deposit are interest bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER -- Commercial paper is a term used to describe unsecured
short-term promissory notes issued by banks, municipalities, corporations and
other entities. Maturities on these issues vary from a few to 270 days.
CONVERTIBLE SECURITIES -- Convertible securities are corporate securities that
are exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics similar to both fixed
income and equity securities. Because of the conversion feature, the market
value of a convertible security tends to move with the market value of the
underlying stock. The value of a convertible security is also affected by
prevailing interest rates, the credit quality of the issuer, and any call
provisions.
EQUITY SECURITIES -- Investments in common stocks are subject to market risks
which may cause their prices to fluctuate over time. Changes in the value of
portfolio securities will not necessarily affect cash income derived from these
securities but will affect a Portfolio's net asset value.
FIXED INCOME SECURITIES -- Fixed income securities are debt obligations issued
by corporations, municipalities and other borrowers. The market value of fixed
income investments will change in response to interest rate changes and other
factors. During periods of falling interest rates, the values of outstanding
fixed income securities generally rise. Conversely, during periods of rising
interest rates, the values of such securities generally decline. Moreover, while
securities with longer maturities tend to produce higher yields, the prices of
longer maturity securities are also subject to greater market fluctuations as a
result of changes in interest rates. Changes by recognized agencies in the
rating of any fixed income security and in the ability of an issuer to make
payments of interest and principal will also affect the value of these
<PAGE>
29
investments. Changes in the value of portfolio securities will not affect cash
income derived from these securities but will affect a Portfolio's net asset
value.
FORWARD FOREIGN CURRENCY CONTRACTS -- A forward contract involves an obligation
to purchase or sell a specific currency amount at a future date, agreed upon by
the parties, at a price set at the time of the contract. A Portfolio may also
enter into a contract to sell, for a fixed amount of U.S. dollars or other
appropriate currency, the amount of foreign currency approximating the value of
some or all of a Portfolio's securities denominated in such foreign currency.
At the maturity of a forward contract, a Portfolio may either sell a portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader,
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. A Portfolio may realize a gain or loss from currency
transactions.
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 Portfolio may use
futures contracts and related options for BONA FIDE hedging purposes, to offset
unfavorable changes in the value of securities held or expected to be acquired
or be disposed of, to minimize fluctuations in foreign currencies, or to gain
exposure to a particular market or instrument. A Portfolio 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.
Stock index futures are futures contracts for various stock indices that are
traded on registered securities exchanges. A stock 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 stock index at the close of the last trading day of the contract and
the price at which the agreement is made.
There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to predict movements
in the prices of individual securities, fluctuations in markets and movements in
interest rates, (2) there may be an imperfect or no correlation between the
changes in market value of the securities held by a Portfolio and the prices of
futures and options on futures, (3) there may not be a liquid secondary market
for a futures contract or option, (4) trading restrictions or limitations may be
imposed by an exchange, and (5) government regulations may restrict trading in
futures contracts and futures options.
ILLIQUID SECURITIES -- Illiquid securities are securities that cannot be
disposed of within seven business days at approximately the value at which they
are being carried on a Portfolio's books. An illiquid security includes a demand
instrument with a demand notice period exceeding seven days, where there is no
secondary market for such security, and repurchase agreements with durations
over seven days in length.
MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional thirty-year fixed-rate mortgages, graduated payment
mortgages and adjustable rate mortgages. During periods of declining interest
rates, prepayment of mortgages underlying mortgage-backed securities can be
expected to accelerate. Prepayment of mortgages which underlie securities
purchased at a premium often results in capital losses, while prepayment of
mortgages purchased at a discount often results in capital gains. Because of
these unpredictable prepayment characteristics, it is often not possible to
predict accurately the average life or realized yield of a particular issue.
GOVERNMENT PASS-THROUGH SECURITIES: These are securities that are issued or
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are the Government National Mortgage Association
<PAGE>
30
("GNMA"), the Federal National Mortgage Association ("FNMA") and the Federal
Home Loan Mortgage Corporation ("FHLMC"). FNMA and FHLMC obligations are not
backed by the full faith and credit of the U.S. Government as GNMA certificates
are, but FNMA and FHLMC securities are supported by the instrumentalities' right
to borrow from the U.S. Treasury. GNMA, FNMA and FHLMC each guarantees timely
distributions of interest to certificate holders. GNMA and FNMA also each
guarantees timely distributions of scheduled principal. FHLMC has in the past
guaranteed only the ultimate collection of principal of the underlying mortgage
loan; however, FHLMC now issues mortgage-backed securities (FHLMC Gold PCs)
which also guarantee timely payment of monthly principal reductions. Government
and private guarantees do not extend to the securities' value, which is likely
to vary inversely with fluctuations in interest rates.
PRIVATE PASS-THROUGH SECURITIES: These are mortgage-backed securities issued by
a non-governmental entity, such as a trust. These securities include
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs") that are rated in one of the top two rating categories.
While they are generally structured with one or more types of credit
enhancement, private pass-through securities typically lack a guarantee by an
entity having the credit status of a governmental agency or instrumentality.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"): CMOs are debt obligations or
multiclass pass-through certificates issued by agencies or instrumentalities of
the U.S. Government or by private originators or investors in mortgage loans. In
a CMO, series of bonds or certificates are usually issued in multiple classes.
Principal and interest paid on the underlying mortgage assets may be allocated
among the several classes of a series of a CMO in a variety of ways. Each class
of a CMO, often referred to as a "tranche," is issued with a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal payments on the underlying mortgage assets may cause CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of any premium paid.
REMICS: A REMIC is a CMO that qualifies for special tax treatment under the
Internal Revenue Code and invests in certain mortgages principally secured by
interests in real property. Investors may purchase beneficial interests in
REMICs, which are known as "regular" interests, or "residual" interests.
Guaranteed REMIC pass-through certificates ("REMIC Certificates") issued by FNMA
or FHLMC represent beneficial ownership interests in a REMIC trust consisting
principally of mortgage loans or FNMA, FHLMC or GNMA-guaranteed mortgage
pass-through certificates. For FHLMC REMIC Certificates, FHLMC guarantees the
timely payment of interest, and also guarantees the payment of principal as
payments are required to be made on the underlying mortgage participation
certificates. FNMA REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by FNMA.
PARALLEL PAY SECURITIES; PAC BONDS: Parallel pay CMOs and REMICS are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which must be retired by
its stated maturity date or final distribution date, but may be retired earlier.
Planned Amortization Class CMOs ("PAC Bonds") generally require payments of a
specified amount of principal on each payment date. PAC Bonds are always
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.
REITS: REITs are trusts that invest primarily in commercial real estate or real
estate-related loans. The value of interests in REITs may be affected by the
value of the property owned or the quality of the mortgages held by the trust.
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"): SMBs are usually structured with
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive all
of the interest payments and is thus termed an interest-only class ("IO"), while
the other class may receive all of the principal payments and is thus termed the
principal-only class ("PO"). The value of IOs tends to increase as rates rise
and decrease as rates fall; the opposite is true of POs. SMBs are extremely
sensitive to changes in interest rates because of the
<PAGE>
31
impact thereon of prepayment of principal on the underlying mortgage securities.
The market for SMBs is not as fully developed as other markets; SMBs therefore
may be illiquid.
RISK FACTORS: Due to the possibility of prepayments of the underlying mortgage
instruments, mortgage-backed securities generally do not have a known maturity.
In the absence of a known maturity, market participants generally refer to an
estimated average life. An average life estimate is a function of an assumption
regarding anticipated prepayment patterns, based upon current interest rates,
current conditions in the relevant housing markets and other factors. The
assumption is necessarily subjective, and thus different market participants can
produce different average life estimates with regard to the same security. There
can be no assurance that estimated average life will be a security's actual
average life.
MUNICIPAL SECURITIES -- Municipal securities consist of (i) debt obligations
issued by or on behalf of public authorities to obtain funds to be used for
various public facilities, for refunding outstanding obligations, for general
operating expenses and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated facilities.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility
(tolls from a bridge, for example). Certificates of participation represent an
interest in an underlying obligation or commitment, such as an obligation issued
in connection with a leasing arrangement. The payment of principal and interest
on private activity and industrial development bonds generally is dependent
solely on the ability of a facility's user to meet its financial obligations and
the pledge, if any, of real and personal property as security for such payment.
Municipal securities include both municipal notes and municipal bonds. Municipal
notes include general obligation notes, tax anticipation notes, revenue
anticipation notes, bond anticipation notes, certificates of indebtedness,
demand notes and construction loan notes and participation interests in
municipal notes. Municipal bonds include general obligation bonds, revenue or
special obligation bonds, private activity and industrial development bonds and
participation interests in municipal bonds.
OPTIONS -- A put option gives the purchaser of the option the right to sell, and
the writer of the option the obligation to buy, the underlying security at the
exercise price at any time during the option period. A call option gives the
purchaser of the option the right to buy, and the writer of the option the
obligation to sell, the underlying security at the exercise price at any time
during the option period. The premium paid to the writer is the consideration
for undertaking the obligations under the option contract. The initial purchase
(sale) of an option contract is an "opening transaction." In order to close out
an option position, a Portfolio may enter into a "closing transaction," which is
simply the sale (purchase) of an option contract on the same security with the
same exercise price and expiration date as the option contract originally
opened.
A Portfolio may purchase put and call options to protect against a decline in
the market value of the securities in its portfolio or to protect against an
anticipated increase in the cost of securities that a Portfolio may seek to
purchase in the future. A Portfolio purchasing put and call options pays a
premium therefor. If price movements in the underlying securities are such that
exercise of the options would not be profitable for a Portfolio, loss of the
premium paid may be offset by an increase in the value of a Portfolio's
securities or by a decrease in the cost of acquisition of securities by a
Portfolio.
A Portfolio may write covered call options as a means of increasing the yield on
its portfolio and as a means of providing limited protection against decreases
in its market value. When a Portfolio sells an option, if the underlying
securities do not increase or decrease to a price level that would make the
exercise of the option profitable to the holder thereof, the option generally
will expire without being exercised and a Portfolio will realize as profit the
premium received for such option. When a call option of which a Portfolio is the
writer is exercised, a Portfolio will be required to sell the underlying
securities to the option holder at the strike price, and will not participate in
any increase in the price of such securities above the strike price. When a put
option of which a Portfolio is the writer
<PAGE>
32
is exercised, a Portfolio will be required to purchase the underlying securities
at the strike price, which may be in excess of the market value of such
securities.
A Portfolio may purchase and write options on an exchange or over-the-counter.
Over-the-counter options ("OTC options") differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and therefore entail the risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than are available for
exchange-traded options. Because OTC options are not traded on an exchange,
pricing is done normally by reference to information from a market maker. It is
the position of the Securities and Exchange Commission that OTC options are
illiquid.
A Portfolio may purchase and write put and call options on foreign currencies
(traded on U.S. and foreign exchanges or over-the-counter markets) to manage its
exposure to exchange rates. Call options on foreign currency written by a
Portfolio will be "covered," which means that a Portfolio will own an equal
amount of the underlying foreign currency. With respect to put options on
foreign currency written by a Portfolio, a Portfolio will establish a segregated
account with its custodian bank consisting of liquid assets in an amount equal
to the amount a Portfolio would be required to pay upon exercise of the put.
A Portfolio may purchase and write put and call options on indices and enter
into related closing transactions. Put and call options on indices are similar
to options on securities except that options on an index give the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of the underlying index is greater than (or less than, in the case of
puts) the exercise price of the option. This amount of cash is equal to the
difference between the closing price of the index and the exercise price of the
option, expressed in dollars multiplied by a specified number. Thus, unlike
options on individual securities, all settlements are in cash, and gain or loss
depends on price movements in the particular market represented by the index
generally, rather than the price movements in individual securities. A Portfolio
may choose to terminate an option position by entering into a closing
transaction. The ability of a Portfolio to enter into closing transactions
depends upon the existence of a liquid secondary market for such transactions.
All options written on indices must be covered. When a Portfolio writes an
option on an index, it will establish a segregated account containing liquid
assets with its custodian in an amount at least equal to the market value of the
option and will maintain the account while the option is open or will otherwise
cover the transaction.
RISK FACTORS. Risks associated with options transactions include: (1) the
success of a hedging strategy may depend on an ability to accurately predict
movements in the prices of individual securities, fluctuations in markets and
movements in interest rates; (2) there may be an imperfect correlation between
the movement in prices of options and the securities underlying them; (3) there
may not be a liquid secondary market for options; and (4) while a Portfolio will
receive a premium when it writes covered call options, it may not participate
fully in a rise in the market value of the underlying security.
RECEIPTS -- Receipts are sold as zero coupon securities which means that they
are sold at a substantial discount and redeemed at face value at their maturity
date without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, such securities may be subject to greater interest rate
volatility than interest paying investments.
REPURCHASE AGREEMENTS -- Repurchase agreements are arrangements by which a
Portfolio obtains a security and simultaneously commits to return the security
to the seller at an agreed upon price on an agreed upon date within a number of
days from the date of purchase. A Portfolio will have actual or constructive
possession of the security as collateral for the repurchase agreement.
Collateral must be maintained at a value at least equal to 102% of the purchase
price. A Portfolio bears a risk of loss in the event the other party defaults on
its obligations and a Portfolio is delayed or prevented from exercising its
right to dispose of the collateral securities or if a Portfolio realizes a loss
on the sale
<PAGE>
33
of the collateral. A Portfolio will enter into repurchase agreements on behalf
of a Portfolio only with financial institutions deemed to present minimal risk
of bankruptcy during the term of the agreement based on established guidelines.
Repurchase agreements are considered loans under the 1940 Act.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS -- Investments by a money market
fund are subject to limitations imposed under regulations adopted by the SEC.
Under these regulations, money market funds may only acquire obligations that
present minimal credit risks and that are "eligible securities," which means
they are (i) rated, at the time of investment, by at least two NRSROs (one if it
is the only organization rating such obligation) in the highest short-term
rating category or, if unrated, determined to be of comparable quality (a "first
tier security"), or (ii) rated according to the foregoing criteria in the second
highest rating category or, if unrated, determined to be of comparable quality
("second tier security"). In the case of taxable money market funds, investments
in second tier securities are subject to the further constraints in that (i) no
more than 5% of a Portfolio's assets may be invested in second tier securities
and (ii) any investment in securities of any one such issuer is limited to the
greater of 1% of the Portfolio's total assets or $1 million. A taxable money
market portfolio may hold more than 5% of its assets in first tier securities of
a single issuer for three Business Days.
RESTRICTED SECURITIES -- Restricted securities are securities that may not be
sold freely to the public absent registration under the Securities Act of 1933,
as amended, or an exemption from registration.
SECURITIES LENDING -- In order to generate additional income, a Portfolio may
lend securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash, securities of the U.S.
Government or its agencies equal to at least 102% of the market value of the
securities lent. A Portfolio continues to receive interest on the securities
lent while simultaneously earning interest on the investment of cash collateral.
Collateral is marked to market daily. There may be risks of delay in recovery of
the securities or even loss of rights in the collateral should the borrower of
the securities fail financially or become insolvent.
SECURITIES OF FOREIGN ISSUERS -- There are certain risks connected with
investing in foreign securities. These include risks of adverse political and
economic developments (including possible governmental seizure or
nationalization of assets), the possible imposition of exchange controls or
other governmental restrictions, less uniformity in accounting and reporting
requirements, the possibility that there will be less information on such
securities and their issuers available to the public, the difficulty of
obtaining or enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in effecting repatriation of
capital invested abroad, and difficulties in transaction settlements and the
effect of delay on shareholder equity. Foreign securities may be subject to
foreign taxes, and may be less marketable than comparable U.S. securities. The
value of a Portfolio's investments denominated in foreign currencies will depend
on the relative strengths of those currencies and the U.S. dollars, and a
Portfolio may be affected favorably or unfavorably by changes in the exchange
rates or exchange control regulations between foreign currencies and the U.S.
dollar. Changes in foreign currency exchange rates also may affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains if any, to be distributed to
shareholders by a Portfolio.
SWAPS, CAPS, FLOORS AND COLLARS -- Interest rate swaps, mortgage swaps, currency
swaps and other types of swap agreements such as caps, floors and collars are
designed to permit the purchaser to preserve a return or spread on a particular
investment or portion of its portfolio, and to protect against any increase in
the price of securities a Portfolio anticipates purchasing at a later date. In a
typical interest rate swap, one party agrees to make regular payments equal to a
floating interest rate times a "notional principal amount," in return for
payments equal to a fixed rate times the same amount, for a specific period of
time. If a swap agreement provides for payment in different currencies, the
parties might agree to exchange the notional principal amount as well. Swaps may
also depend on other prices or rates, such as the value of an index or mortgage
prepayment rates.
<PAGE>
34
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specific interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risk assumed. As a result,
swaps can be highly volatile and have a considerable impact on a Portfolio's
performance. Swap agreements are subject to risks related to the counterparty's
ability to perform, and may decline in value if the counterparty's
creditworthiness deteriorates. A Portfolio may also suffer losses if it is
unable to terminate outstanding swap agreements or reduce its exposure through
offsetting transactions. Any obligation a Portfolio may have under these types
of arrangements will be covered by setting aside liquid high grade securities in
a segregated account. A Portfolio will enter into swaps only with counterparties
believed to be creditworthy.
TIME DEPOSITS -- Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, they earn a
specified rate of interest over a definite period of time; however, they cannot
be traded in the secondary market. Time deposits are considered to be illiquid
securities.
U.S. GOVERNMENT AGENCIES -- Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing Administration and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, the FHLMC, the Federal Land Banks and the U.S. Postal
Service. Some of these securities are supported by the full faith and credit of
the U.S. Treasury (e.g., GNMA), others are supported by the right of the issuer
to borrow from the Treasury (e.g., Federal Farm Credit Bank), while still others
are supported only by the credit of the instrumentality (e.g., FNMA). Guarantees
of principal by agencies or instrumentalities of the U.S. Government may be a
guarantee of payment at the maturity of the obligation so that in the event of a
default prior to maturity there might not be a market and thus no means of
realizing on the obligation prior to maturity. Guarantees as to the timely
payment of principal and interest do not extend to the value or yield of these
securities nor to the value of a Portfolio's shares.
U.S. TREASURY OBLIGATIONS -- U.S. Treasury obligations consist of bills, notes
and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
Federal book-entry Principal Securities ("STRIPS"). The Prime Obligation
Portfolio may not actively trade STRIPs and may not invest more than 20% of its
assets in STRIPs.
VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations 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 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 are instruments giving holders the right, but not the
obligation, to buy equity or fixed income securities of a company at a given
price during a specified period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- When-issued or delayed delivery
basis transactions involve the purchase of an instrument with payment and
delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase commitment.
A Portfolio will maintain with the Custodian a separate account with liquid
assets in an amount at least equal to these commitments. The interest rate
realized on these securities is fixed as of the purchase date and no interest
accrues to a Portfolio before settlement.
<PAGE>
35
These securities are subject to market fluctuation due to changes in market
interest rates and it is possible that the market value at the time of
settlement could be higher or lower than the purchase price if the general level
of interest rates has changed. Although a Portfolio generally purchases
securities on a when-issued or forward commitment basis with the intention of
actually acquiring securities for its portfolio, a Portfolio may dispose of a
when-issued security or forward commitment prior to settlement if it deems
appropriate.
ZERO COUPON, PAY-IN-KIND AND DEFERRED PAYMENT SECURITIES -- Zero coupon
securities are securities that are sold at a discount to par value and
securities on which interest payments are not made during the life of the
security. Upon maturity, the holder is entitled to receive the par value of the
security. While interest payments are not made on such securities, holders of
such securities are deemed to have received "phantom income" annually. Because a
Portfolio will distribute its "phantom income" to shareholders, to the extent
that shareholders elect to receive dividends in cash rather than reinvesting
such dividends in additional shares, a Portfolio will have fewer assets with
which to purchase income producing securities. Alternatively, shareholders may
have to redeem shares to pay tax on this "phantom income." In either case, a
Portfolio may have to dispose of its fund securities under disadvantageous
circumstances to generate cash, or may have to leverage itself by borrowing cash
to satisfy distribution requirements. A Portfolio accrues income with respect to
the securities prior to the receipt of cash payments. Pay-in-kind securities are
securities that have interest payable by delivery of additional securities. Upon
maturity, the holder is entitled to receive the aggregate par value of the
securities. Deferred payment securities are securities that remain zero coupon
securities until a predetermined date, at which time the stated coupon rate
becomes effective and interest becomes payable at regular intervals. Zero
coupon, pay-in-kind and deferred payment securities may be subject to greater
fluctuation in value and lesser liquidity in the event of adverse market
conditions than comparably rated securities paying cash interest at regular
interest payment periods.
<PAGE>
36
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SUMMARY...................................... 2
EXPENSE SUMMARY.............................. 4
FINANCIAL HIGHLIGHTS......................... 8
THE PORTFOLIO AND THE TRUST.................. 9
INVESTMENT OBJECTIVES AND POLICIES........... 9
INVESTMENT LIMITATIONS AND FUNDAMENTAL
POLICIES................................... 13
THE ADVISER.................................. 14
THE SUB-ADVISERS............................. 15
THE ADMINISTRATOR............................ 16
THE TRANSFER AGENT........................... 16
THE DISTRIBUTOR.............................. 16
HOW TO PURCHASE SHARES....................... 17
HOW TO EXCHANGE SHARES....................... 20
HOW TO REDEEM SHARES......................... 20
PERFORMANCE.................................. 22
TAXES........................................ 24
GENERAL INFORMATION.......................... 26
DESCRIPTION OF PERMITTED INVESTMENTS......... 27
</TABLE>
<PAGE>
GOLDEN OAK FAMILY OF FUNDS
TRUST:
THE ARBOR FUND
PORTFOLIOS:
GOLDEN OAK GROWTH PORTFOLIO
GOLDEN OAK VALUE PORTFOLIO
GOLDEN OAK INTERMEDIATE-TERM INCOME PORTFOLIO
GOLDEN OAK MICHIGAN TAX FREE BOND PORTFOLIO
GOLDEN OAK PRIME OBLIGATION MONEY MARKET PORTFOLIO
INVESTMENT ADVISER:
CITIZENS BANK
This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus. It is intended to
provide additional information regarding the activities and operations of the
following Portfolios of the Trust: Golden Oak Growth, Golden Oak Value, Golden
Oak Intermediate-Term Income, Golden Oak Michigan Tax Free Bond and Golden Oak
Prime Obligation Money Market Portfolios. This Statement of Additional
Information should be read in conjunction with the Prospectus dated June 1,
1997. A Prospectus may be obtained by calling 1-800-545-6331.
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE PORTFOLIOS AND THE TRUST.......................................................... S-2
DESCRIPTION OF PERMITTED INVESTMENTS.................................................. S-2
INVESTMENT LIMITATIONS................................................................ S-14
NON-FUNDAMENTAL POLICIES.............................................................. S-15
THE ADVISER........................................................................... S-15
THE SUB-ADVISERS...................................................................... S-16
THE ADMINISTRATOR..................................................................... S-16
THE DISTRIBUTOR....................................................................... S-17
TRUSTEES AND OFFICERS OF THE TRUST.................................................... S-18
COMPUTATION OF YIELD.................................................................. S-21
CALCULATION OF TOTAL RETURN........................................................... S-22
PURCHASE AND REDEMPTION OF SHARES..................................................... S-23
LETTER OF INTENT...................................................................... S-23
DETERMINATION OF NET ASSET VALUE...................................................... S-24
TAXES................................................................................. S-24
PORTFOLIO TRANSACTIONS................................................................ S-27
TRADING PRACTICES AND BROKERAGE....................................................... S-28
DESCRIPTION OF SHARES................................................................. S-30
SHAREHOLDER LIABILITY................................................................. S-31
LIMITATION OF TRUSTEES' LIABILITY..................................................... S-31
5% SHAREHOLDERS....................................................................... S-31
EXPERTS............................................................................... S-32
FINANCIAL STATEMENTS.................................................................. S-32
APPENDIX.............................................................................. A-1
</TABLE>
June 1, 1997
CIT-F-005-04
<PAGE>
THE PORTFOLIOS AND THE TRUST
The "Golden Oak Family of Funds" is a name under which a number of mutual fund
investment portfolios with differing objectives and policies are offered to
investors. Five of these portfolios were established by The Arbor Fund, an
open-end management investment company established under Massachusetts law as a
Massachusetts business trust under a Declaration of Trust dated July 24, 1992.
The Declaration of Trust permits the Trust to offer separate series of shares of
beneficial interest ("shares") and different classes of shares of each
portfolio. Shareholders may purchase shares through two separate classes (Class
A and Class B) which provide for variations in distribution costs, voting rights
and dividends. Except for differences between Class A and Class B shares
pertaining to distribution fees, each share of each portfolio represents an
equal proportionate interest in that portfolio. See "Description of Shares."
This Statement of Additional Information relates to the Class A and Class B
shares of the Golden Oak Growth (formerly, the Golden Oak Diversified Growth
Portfolio), Golden Oak Value, Golden Oak Intermediate-Term Income, Golden Oak
Michigan Tax Free Bond and Golden Oak Prime Obligation Money Market Portfolios
(collectively, the "Portfolios") of the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS
CONVERTIBLE SECURITIES
While convertible securities generally offer lower yields than nonconvertible
debt securities of similar quality, their prices may reflect changes in the
value of the underlying common stock. Convertible securities entail less credit
risk than the issuer's common stock.
CURRENCY TRANSACTIONS
A Portfolio may, to the extent permitted by the Prospectus, engage in currency
transactions with counterparties in order to hedge the value of portfolio
holdings denominated in particular currencies against fluctuations in relative
value. Currency transactions would include forward currency contracts, exchange
listed currency futures, exchange listed and OTC options on currencies, and
currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. A Portfolio may enter into
currency transactions with counterparties which have received (or the guarantors
of the obligations which have received) a credit rating of A-1 or P-1 by
Standard & Poor's Rating Corporation ("S&P") or Moody's Investors Service, Inc.
("Moody's"), respectively, or that have an equivalent rating from a Nationally
Recognized Statistical Rating Organization (an "NRSRO") or are determined to be
of equivalent credit quality by the Adviser or Sub-Adviser.
A Portfolio's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of a Portfolio, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
A Portfolio will not enter into a transaction to hedge currency exposure to an
extent greater, after netting all transactions intended wholly or partially to
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging or cross hedging as described below.
S-2
<PAGE>
A Portfolio may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Portfolio has or in which it expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings or portfolio securities, a Portfolio may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the
Portfolio is exposed to is difficult to hedge or to hedge against the dollar.
Proxy hedging entails entering into a commitment or option to sell a currency
whose changes in value are generally considered to be correlated to a currency
or currencies in which some or all of the Portfolio's securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Portfolio's securities
denominated in correlated currencies.
FOREIGN SECURITIES
The Golden Oak Growth, Golden Oak Value, Golden Oak Intermediate-Term Income and
Golden Oak Prime Obligation Money Market Portfolios may invest in U.S. dollar
denominated obligations or securities of foreign issuers. Permissible
investments may consist of obligations of foreign branches of U.S. banks and of
foreign banks, including European Certificates of Deposit, European Time
Deposits, Canadian Time Deposits and Yankee Certificates of Deposits, and
investments in Canadian Commercial Paper and other short-term corporate
obligations, foreign securities and Europaper. In addition, the Golden Oak
Growth, Golden Oak Intermediate-Term Income and Golden Oak Value Portfolios may
invest in American Depositary Receipts. These instruments may subject the
Portfolio to 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. 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.
Investments in foreign securities usually will involve currencies of foreign
countries. Moreover, a Portfolio may temporarily hold funds in bank deposits in
foreign currencies during the completion of investment programs and the value of
these assets for the Portfolio as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations and the Portfolio may incur costs in connection
with conversions between various currencies. Although a Portfolio values its
assets daily in terms of U.S. dollars, it does not intend to convert its
holdings of foreign currencies, if any, into U.S. dollars on a daily basis. It
may do so from time to time and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to a Portfolio at one rate
while offering a lesser rate of exchange should the Portfolio desire to resell
that currency to the dealer. Each Portfolio will conduct its foreign currency
exchange transactions, if any, either on a spot (I.E., cash) basis at the spot
rate prevailing in the foreign currency exchange market or through forward
foreign currency exchange contracts.
FUTURES CONTRACTS AND OPTIONS
The Golden Oak Intermediate-Term Income and Golden Oak Michigan Tax-Free Bond
Portfolios may invest in futures contracts and options. 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
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opposite position ("buying a contract which has previously been "sold" or
"selling" a contract previously "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 positions in futures contracts. A margin deposit is
intended to assure completion of the contract (delivery or acceptance of the
underlying security) if it is not terminated prior to the specified delivery
date. Minimal initial margin requirements are established by the futures
exchange and may be changed. Brokers may establish deposit requirements which
are higher than the exchange minimums. Deposit requirements on futures contracts
customarily range upward from less than 5% of the value of the contract being
traded.
After a futures contract position is opened, the value of the contract is marked
to market daily. If the futures contract price changes to the extent that the
margin on deposit does not satisfy the required margin, payment of additional
"variation" margin will be required. Conversely, change in the contract value
may reduce the required margin, resulting in a repayment of excess margin to the
contract holder. Variation margin payments are made to and from the futures
broker for as long as the contract remains open. The Portfolios expect to earn
interest income on their margin deposits.
Traders in futures contracts and related options may be broadly classified as
either "hedgers" or "speculators." Hedgers use the futures markets primarily to
offset unfavorable changes in the value of securities otherwise held or expected
to be acquired for investment purposes. Speculators are less inclined to own the
securities underlying the futures contracts which they trade, and use futures
contracts with the expectation of realizing profits from fluctuations in the
prices of underlying securities. The Portfolios intend to use futures contracts
and related options only for bona fide hedging purposes.
A Portfolio may enter into futures contracts and options on futures contracts
traded on an exchange regulated by the Commodities Futures Trading Commission
("CFTC"), so long as, to the extent that such transactions are not for "bona
fide hedging purposes," the aggregate initial margin and premiums on such
positions (excluding the amount by which such options are in the money) do not
exceed 5% of a Portfolio's net assets. A Portfolio will only sell futures
contracts to protect securities it owns against price declines or purchase
contracts to protect against an increase in the price of securities it intends
to purchase. As evidence of this hedging interest, the Portfolios expect that
approximately 75% of their futures contract purchases will be "completed," that
is, equivalent amounts of related securities will have been purchased or are
being purchased by the Portfolios upon sale of open futures contracts.
Although techniques other than the sale and purchase of futures contracts and
options on futures contracts could be used to control the Portfolios' exposure
to market fluctuations, the use of futures contracts may be a more effective
means of hedging this exposure. While the Portfolios will incur commission
expenses in both opening and closing out futures positions, these costs are
lower than transaction costs incurred in the purchase and sale of the underlying
securities. A Portfolio's obligations under any futures contract or related
option will be "covered" by high quality, liquid securities or cash held in a
segregated account or by holding, or having the right to acquire without
additional cost, the underlying asset.
RISK FACTORS IN FUTURES TRANSACTIONS
Positions in futures contracts may be closed out only on an exchange which
provides a secondary market for such futures. However, there can be no assurance
that a liquid secondary market will exist for any particular futures contract at
any specific time. Thus, it may not be possible to close a futures position. In
the event of adverse price movements, the Portfolios would continue to be
required to make daily cash payments to maintain the required margin. In such
situations, if the Portfolio 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 Portfolio may be required to make
delivery of the instruments underlying
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futures contracts it holds. The inability to close options and futures positions
also could have an adverse impact on the ability to effectively hedge it.
The Portfolios will minimize the risk that they will be unable to close out a
futures contract by only entering into futures which are traded on national
futures exchanges and for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to a Portfolio. 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 futures
strategies of the Portfolio are engaged in only for hedging purposes, the
Adviser or Sub-Adviser does not believe that the Portfolios would be subject to
the risks of loss frequently associated with futures transactions. The
Portfolios presumably would have sustained comparable losses if, instead of the
futures contract, it 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 Portfolios does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the securities being hedged. It is also possible
that a Portfolio could both lose money on futures contracts and experience a
decline in value of its securities. There is also the risk of loss by the
Portfolio of margin deposits in the event of the bankruptcy of a broker with
whom the Portfolio has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.
INVESTMENT COMPANIES
The Portfolios may invest in securities of other investment companies as
permitted by the Investment Company Act of 1940, as amended (the "1940 Act"),
and the rules and regulations thereunder. As discussed in the Prospectus, the
Golden Oak Michigan Tax Free Bond Portfolio may invest up to 5% of its net
assets in securities of closed-end investment companies traded on national
securities exchanges. These investment companies typically incur fees that are
separate from those fees incurred directly by the Portfolios. A Portfolio's
purchase of such investment company securities results in a layering of
expenses, such that shareholders would indirectly bear a proportionate share of
the operating expenses of such investment companies, including advisory fees.
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MORTGAGE-BACKED SECURITIES
The Golden Oak Prime Obligation Money Market and Golden Oak Intermediate-Term
Income Portfolios may invest in securities issued by U.S. Government agencies or
instrumentalities such as the Government National Mortgage Association ("GNMA"),
a wholly-owned U.S. Government corporation which guarantees the timely payment
of principal and interest. Other governmental issuers of mortgage-backed
securities include the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"). Obligations of FNMA and FHLMC
are not backed by the full faith and credit of the United States Government. The
market value and interest yield of these instruments can vary due to market
interest rate fluctuations and early prepayments of underlying mortgages. These
securities represent ownership in a pool of federally insured mortgage loans.
Mortgage-backed certificates consist of underlying mortgages with a maximum
maturity of 30 years. However, due to scheduled and unscheduled principal
payments, mortgage-backed certificates have a shorter average maturity and,
therefore, less principal volatility than a comparable 30-year bond. Since
prepayment rates vary widely, it is not possible to accurately predict the
average maturity of a particular mortgage-backed security. The scheduled monthly
interest and principal payments relating to mortgages in the pool will be
"passed through" to investors. Mortgage-backed securities differ from
conventional bonds in that principal is paid back to the certificate holders
over the life of the loan rather than at maturity. As a result, there will be
monthly scheduled payments of principal and interest. In addition, there may be
unscheduled principal payments representing prepayments on the underlying
mortgages. Although mortgage-backed certificates may offer yields higher than
those available from other types of U.S. Government securities, mortgage-backed
certificates may be less effective than other types of securities as a means of
"locking in" attractive long-term rates because of the prepayment feature. For
instance, when interest rates decline, the value of a mortgage-backed
certificate likely will not rise as much as comparable debt securities due to
the prepayment feature. In addition, these prepayments can cause the price of a
mortgage-backed certificate originally purchased at a premium to decline in
price to its par value, which may result in a loss.
The Golden Oak Intermediate-Term Income Portfolio may invest in mortgage-backed
securities and asset-backed securities. The principal types of mortgage-backed
securities are collateralized mortgage obligations ("CMOs"), real estate
mortgage investment conduits ("REMICs"), and interest only and principal only
stripped securities ("IOs" and "POs") which are rated in one of the two top
categories by S&P or Moody's. The mortgages backing these securities include
conventional thirty-year fixed rate mortgages, graduated payment mortgages and
adjustable rate mortgages. These mortgages may be supported by various types of
insurance, may be backed by GNMA certificates or other mortgage pass-throughs
issued or guaranteed by the United States Government, its agencies or
instrumentalities. However, the guarantees do not extend to the mortgage-backed
securities' yield or value, which are likely to vary inversely with fluctuations
in interest rates. These certificates are in most cases "pass through"
instruments, through which, except for IOs and POs, the holder receives a share
of all interest and principal payments from the mortgages underlying the
certificate; in the case of IOs, the holder receives a share only of interest
payments, and for POs, a share only of principal payments. Because the
prepayment characteristics of the underlying mortgages vary, it is not possible
to predict accurately the average life or realized yield of a particular issue
of pass-through certificates. When the mortgage obligations are prepaid, the
Portfolio reinvests the prepaid amounts in securities, the yield of which
reflect interest rates prevailing at the time. Moreover, prepayments that
underlie securities purchased at a premium could result in capital losses.
During periods of declining interest rates, prepayment of mortgages underlying
mortgage-backed securities can be expected to accelerate. Such acceleration can
be expected to reduce the final yield realized by holders of IO securities,
perhaps to a negative value. Deceleration of prepayments will reduce somewhat
the final yield realized by holders of PO securities.
Investors purchasing such CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until
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that portion of such CMO obligation is repaid, investors in the longer
maturities receive interest only. Accordingly, the CMOs in the longer maturity
series are less likely than other mortgage pass-throughs to be prepaid prior to
their stated maturity. Although some of the mortgages underlying CMOs may be
supported by various types of insurance, and some CMOs may be backed by GNMA
certificates or other mortgage pass-throughs issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, the CMOs themselves are not
generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
In addition to mortgage-backed securities, the Golden Oak Intermediate-Term
Income Portfolio may invest in securities secured by asset backed securities
including company receivables, truck and auto loans, leases, and credit card
receivables. These issues 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.
MUNICIPAL SECURITIES
Municipal notes in which the Golden Oak Michigan Tax Free Bond Portfolio may
invest, include, but are not limited to, general obligation notes, tax
anticipation notes (notes sold to finance working capital needs of the issuer in
anticipation of receiving taxes on a future date), revenue anticipation notes
(notes sold to provide needed cash prior to receipt of expected non-tax revenues
from a specific source), bond anticipation notes, certificates of indebtedness,
demand notes and construction loan notes.
The Adviser may purchase industrial development and pollution control bonds if
the interest paid is exempt from federal income tax. These bonds are issued by
or on behalf of public authorities to raise money to finance various
privately-operated facilities for business and manufacturing, housing, sports,
and pollution control. These bonds are also used to finance public facilities
such as airports, mass transit systems, ports, and parking. The payment of the
principal and interest on such bonds is dependent solely on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of
real and personal property so financed as security for such payment.
Tax-exempt commercial paper in which the Golden Oak Michigan Tax Free Bond
Portfolio may invest will be limited to investments in obligations which are
rated at least A-2 by S&P or Prime-2 by Moody's at the time of investment or
which are of equivalent quality as determined by the Adviser.
Other types of tax-exempt instruments which are permissible investments for the
Golden Oak Michigan Tax Free Bond Portfolio include floating rate notes.
Investments in such floating rate instruments will normally involve industrial
development or revenue bonds which provide that the rate of interest is set as a
specific percentage of a designated base rate (such as the prime rate) at a
major commercial bank, and that the Portfolio can demand payment of the
obligation at all times or at stipulated dates on short notice (not to exceed 30
days) at par plus accrued interest. The Portfolio may use the longer of the
period required before the Portfolio is entitled to prepayment under such
obligations or the period remaining until the next interest rate adjustment date
for purposes of determining the maturity. Such obligations are frequently
secured by letters of credit or other credit support arrangements provided by
banks. The quality of the underlying credit or of the bank, as the case may be,
must in the Adviser's opinion be equivalent to the long-term bond or commercial
paper ratings stated above. The Adviser will monitor the earning power, cash
flow and liquidity ratios of the issuers of such instruments and the ability of
an issuer of a demand instrument to pay principal and interest on demand. The
Adviser may purchase other types of tax-exempt instruments as long as they are
of a quality equivalent to the bond or commercial paper ratings stated above.
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The Adviser has the authority to purchase securities at a price which would
result in a yield to maturity lower than that generally offered by the seller at
the time of purchase when they can simultaneously acquire the right to sell the
securities back to the seller, the issuer, or a third party (the "writer") at an
agreed-upon price at any time during a stated period or on a certain date. Such
a right is generally denoted as a "standby commitment" or a "put." The purpose
of engaging in transactions involving puts is to maintain flexibility and
liquidity to permit the Golden Oak Michigan Tax Free Bond Portfolio to meet
redemptions and remain as fully invested as possible in municipal securities.
The Portfolio reserves the right to engage in put transactions. The right to put
the securities depends on the writer's ability to pay for the securities at the
time the put is exercised. The Portfolio would limit its put transactions to
institutions which the Adviser believes present minimum credit risks, and the
Adviser would use its best efforts to initially determine and continue to
monitor the financial strength of the sellers of the options by evaluating their
financial statements and such other information as is available in the
marketplace. It may, however be difficult to monitor the financial strength of
the writers because adequate current financial information may not be available.
In the event that any writer is unable to honor a put for financial reasons, the
Portfolio would be general creditor (I.E., on a parity with all other unsecured
creditors) of the writer. Furthermore, particular provisions of the contract
between the Portfolio and the writer may excuse the writer from repurchasing the
securities; for example, a change in the published rating of the underlying
municipal securities or any similar event that has an adverse effect on the
issuer's credit or a provision in the contract that the put will not be
exercised except in certain special cases, for example, to maintain portfolio
liquidity. The Portfolio could, however, at any time sell the underlying
portfolio security in the open market or wait until the portfolio security
matures, at which time it should realize the full par value of the security.
The municipal securities purchased subject to a put, may be sold to third
persons at any time, even though the put is outstanding, but the put itself,
unless it is an integral part of the security as originally issued, may not be
marketable or otherwise assignable. Therefore, the put would have value only to
the Portfolio. Sale of the securities to third parties or lapse of time with the
put unexercised may terminate the right to put the securities. Prior to the
expiration of any put option, the Portfolio could seek to negotiate terms for
the extension of such an option. If such a renewal cannot be negotiated on terms
satisfactory to the Portfolio, the Portfolio could, of course, sell the
portfolio security. The maturity of the underlying security will generally be
different from that of the put. There will be no limit to the percentage of
portfolio securities that the Portfolio may purchase subject to a put but the
amount paid directly or indirectly for puts which are not integral parts of the
security as originally issued held in the Portfolio will not exceed 1/2 of 1% of
the value of the total assets of such Portfolio calculated immediately after any
such put is acquired. For the purpose of determining the "maturity" of
securities purchased subject to an option to put, and for the purpose of
determining the dollar-weighted average maturity of the Portfolio including such
securities the Trust will consider "maturity" to be the first date on which it
has the right to demand payment from the writer of the put although the final
maturity of the security is later than such date.
SPECIAL FACTORS RELATING TO MICHIGAN MUNICIPAL SECURITIES--Because the Michigan
Portfolio invests primarily in Michigan Municipal Securities, the Portfolio is
more susceptible to factors adversely affecting issuers of Michigan Municipal
Securities than a mutual fund that does not invest as heavily in such
securities. Investors should consider carefully the special risks inherent in
the Portfolio's investment in Michigan Municipal Securities.
Investors should be aware that the economy of the State of Michigan has, in the
past, proven to be cyclical, due primarily to the fact that the leading sector
of the State's economy is the manufacturing of durable goods. Financial
difficulties in the late 1980's, largely related to the automotive industry,
have been followed by a robust recovery, with Michigan's employment level
reaching an all-time high in 1996 (4.9% unemployment rate). While the State's
efforts to diversify its economy have proven successful, as reflected by the
fact that the share of employment in the State in the durable goods sector has
fallen from 33.1 percent in 1960 to 17.9 percent in 1990, durable goods
manufacturing still represents a sizable portion of
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the State's economy. As a result, any substantial national economic downturn is
likely to have an adverse effect on the economy of the State and on the revenues
of the State and some of its local governmental units.
In July 1995, Moody's raised the State's general obligation bond rating to "Aa."
In October 1989, S&P's raised its rating on the State's general obligation bonds
to "AA." Fitch Investor Services, Inc. ("Fitch") rates the State's general
obligation Bonds "AA."
The State's economy could continue to be affected by changes in the auto
industry, notably consolidation and plant closings resulting from competitive
pressures and over-capacity. Such actions could adversely affect State revenues
and the financial impact on the local units of government in the areas in which
plants are closed could be more severe.
As of February 1997, the ratings on the State's general obligation bonds were
"Aa" by Moody's, "AA" by S&P and "AA" by Fitch Investor Services, Inc.
("Fitch"). Because all or most of the Michigan Municipal Securities are revenue
or general obligations of local governments or authorities, rather than general
obligations of the State of Michigan itself, ratings on such Michigan Municipal
Securities may be different from those given for the State.
The principal revenues sources for the State's General Fund are taxes from
sales, personal income, single business, and excise taxes. Under the State
Constitution, expenditures from the General Fund are not permitted to exceed
available revenues. The principal expenditures from the General Fund are
directed towards education, public protection, mental and public health, and
social services. The State's fiscal year ended September 30, 1993, marked a
turning point in the financial condition of the State budget. Improvements in
the Michigan economy have resulted in increased revenue collections, which,
together with restraint on the expenditure side of the budget, produced General
Fund surpluses of $280.1 million in fiscal year 1992-93 and $602.9 million in
fiscal year 1993-94. General Fund revenue fell by 2.5% to $7,995.2 million in
fiscal year 1994-1995, principally due to the earmarking of $882 million in
income tax revenue to Michigan's School Aid Fund. Fiscal year 1995-1996 General
Fund revenues are estimated at $8,325.1 million, an increase of 4.1% over the
previous year. Fiscal year 1996-1997 revenues are projected at $8,153.2 million,
a decrease over fiscal 1995-1996 of 2.1%. Projected 1996-97 revenues reflect the
following: effective in fiscal year 1997 (a) an additional 8.6% of personal
income tax collections are earmarked to the School Aid Fund; and (b) revenue
sharing distributions to local units previously earmarked from personal income
tax and single business tax are all earmarked from sales tax collections.
In the 1991 through 1993 fiscal years, the State experienced deteriorating cash
balances which necessitated short-term borrowing and the deferral of certain
scheduled cash payments. The State did not borrow for cash flow purposes in
1994, but borrowed $500 million in 1995, $900 million in 1996, and has borrowed
$900 million in 1997.
At the end of fiscal 1994, the State's Budget Stabilization Fund, a cash reserve
created to mitigate cyclical economic downturns, had increased to $780 million.
The fiscal year 1997 budget does not call for an additional formula pay-in to
the Budget Stabilization Fund. Current projections are that the Stabilization
Fund will be $1.2 billion at the end of fiscal year 1997.
The Michigan Constitution of 1963 limits the amount of total revenues of the
State raised from taxes and certain other sources to a level for each fiscal
year equal to a percentage of the State's personal income for the prior calendar
year or average of the prior three calendar years, whichever is greater, and
this fixed percentage equals the percentage of the 1978-79 fiscal year state
government revenues to total calendar 1977 State personal income (which was
9.49%). In the event that the State's total revenues exceed the limit by 1
percent or more, the Michigan Constitution of 1963 requires that the excess be
refunded to taxpayers. Any excess of less than 1% may be transferred to the
Budget Stabilization Fund.
On March 15, 1994, Michigan voters approved a school finance reform amendment to
the State's Constitution which, among other things, increased the State sales
tax rate from 4% to 6% and placed a cap
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on property assessment increases for all property taxes. Concurrent legislation
cut the State's income tax rate from 4.6% to 4.4%, reduced some property taxes
and altered local school funding sources to a combination of property taxes and
state revenues, some of which is provided from other new or increased State
taxes. The legislation also contained other provisions that alter (and, in some
cases, may reduce) the revenues of local units of government, and tax increment
bonds could be particularly affected. While the ultimate impact of the
constitutional amendment and related legislation cannot yet be accurately
predicted, investors should be alert to the potential effect of such measures
upon the operations and revenues of Michigan local units of government.
There can be no assurance that any financial difficulties the State may
experience will not adversely affect the market value or marketability of the
Michigan Municipal Securities in the Portfolio or the ability of the respective
obligors to pay interest on or principal of the Michigan Municipal Securities in
the Portfolio, particularly in view of the dependency of local governments and
other authorities upon State aid and reimbursement programs and, in the case of
bonds issued by the State Building Authority, the dependency of the State
Building Authority on the receipt of rental payments from the State to meet debt
service requirements upon such bonds.
The Michigan Portfolio may contain general obligation bonds of local units of
government pledging the full faith and credit of the local unit which are
payable from the levy of ad valorem taxes on taxable property within the
jurisdiction of the local unit. Such bonds issued prior to December 22, 1978, or
issued after December 22, 1978 with the approval of the electors of the local
unit, are payable from property taxes levied without limitation as to rate or
amount. With respect to bonds issued after December 22, 1978, and which were not
approved by the electors of the local unit, the tax levy of the local unit of
debt service purposes is subject to constitutional, statutory and charter tax
rate limitations. In addition, several major industrial corporations have
instituted challenges of their ad valorem property tax assessments in a number
of local municipal units in the State. If successful, such challenges could have
an adverse impact on the ad valorem tax bases of such units which could
adversely affect their ability to raise funds for operation and debt service
requirements.
SHORT-TERM OBLIGATIONS OF STATE AND LOCAL GOVERNMENTAL ISSUERS
The Golden Oak Prime Obligation Money Market Portfolio may, when deemed
appropriate by its Sub-Adviser in light of the Portfolio's investment objective,
invest in high quality, short-term obligations issued by state and local
governmental issuers which, as a result of the Tax Reform Act of 1986, carry
yields that are competitive with those of other types of money market
instruments of comparable quality.
OPTIONS
The Golden Oak Growth, Golden Oak Michigan Tax Free Bond and Golden Oak
Intermediate-Term Income Portfolios may write call options on a covered basis
only. The Golden Oak Michigan Tax Free Bond and the Golden Oak Intermediate-Term
Income Portfolios may also enter into bond futures contracts and options on such
contracts. Neither Portfolio will engage in option writing strategies for
speculative purposes. The Golden Oak Value Portfolio may write and sell both
call options and put options, provided that the aggregate value of such options
does not exceed 15% of the Portfolio's net assets as of the time such options
are entered into by the Portfolio.
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, currency or other instrument at the exercise price. For
instance, a Portfolio's purchase of a put option on a security might be designed
to protect its holdings in the underlying instrument (or, in some cases, a
similar instrument) against a substantial decline in the market value by giving
the Portfolio the right to sell such instrument at the option exercise price. A
call option, upon payment of a premium, gives the purchaser of the option the
right to buy, and the seller the obligation to sell, the underlying instrument
at the exercise price. A Portfolio's
S-10
<PAGE>
purchase of a call option on a security, financial future, index, currency or
other instrument might be intended to protect the Portfolio against an increase
in the price of the underlying instrument that it intends to purchase in the
future by fixing the price at which it may purchase such instrument. An American
style put or call option may be exercised at any time during the option period
while a European style put or call option may be exercised only upon expiration
or during a fixed period prior thereto. A Portfolio is authorized to purchase
and sell exchange listed options and over-the-counter options ("OTC options").
Exchange listed options are issued by a regulated intermediary such as the
Options Clearing Corporation ("OCC"), which guarantees the performance of the
obligations of the parties to such options. The discussion below uses the OCC as
an example, but is also applicable to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally settle
by physical delivery of the underlying security or currency, although in the
future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (I.E., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
A Portfolio's ability to close out its position as a purchaser or seller of an
OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. A
Portfolio will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Portfolio to require the
Counterparty to sell the option back to the Portfolio at a formula price within
seven days. Each Portfolio expects generally to enter into OTC options that have
cash settlement provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
option it has entered into with a Portfolio or fails to make a cash settlement
payment due in accordance with the terms of that option, a Portfolio will lose
any premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser or Sub-Adviser must assess the
creditworthiness of each such Counterparty or any guarantor or credit
enhancement of the Counterparty's credit to determine the likelihood that the
terms of the OTC option will be satisfied.
S-11
<PAGE>
COVERED CALL WRITING--The Golden Oak Growth Portfolio may write covered call
options on its securities provided the aggregate value of such options does not
exceed 10% of the Portfolio's net assets as of the time such options are entered
into by the Portfolio. The advantage to the Portfolio of writing covered calls
is that the Portfolio receives a premium which is additional income. However, if
the security rises in value, the Portfolio may not fully participate in the
market appreciation.
In covered call options written by a Portfolio, the Portfolio will own the
underlying security subject to a call option at all times during the option
period. Unless a closing purchase transaction is effected, the Portfolio would
be required to continue to hold a security which it might otherwise wish to
sell, or deliver a security it would want to hold. Options written by the
Portfolio will normally have expiration dates between one and nine months from
the date written. The exercise price of a call option may be below, equal to or
above the current market value of the underlying security at the time the option
is written.
REPURCHASE AGREEMENTS
The Portfolios may invest in repurchase agreements which are agreements by which
a person (E.G., a Portfolio) obtains a security and simultaneously commits to
return the security to the seller (a financial institution deemed to present
minimal risk of bankruptcy during the term of the agreement based on established
guidelines) 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 the Portfolio for purposes
of its investment limitations. The repurchase agreements entered into by the
Portfolios 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 monitors compliance with this requirement). Under all repurchase
agreements entered into by the Portfolios, the portfolio must take actual or
constructive possession of the underlying collateral. However, if the seller
defaults, the Portfolios could realize a loss on the sale of the underlying
security to the extent that the proceeds of 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, the Portfolios may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if the
Portfolios are treated as an unsecured creditor and required to return the
underlying security to the seller's estate.
RESTRICTED SECURITIES
The Golden Oak Prime Obligation Money Market Portfolio and the Golden Oak Value
Portfolio may invest in restricted securities that are securities in which the
Trust may otherwise invest as provided in the Prospectus and this Statement of
Additional Information. Restricted securities are securities that may not be
sold freely to the public absent registration under the Securities Act of 1933,
as amended (the "Act"), or an exemption from registration. The Golden Oak Prime
Obligation Money Market Portfolio and the Golden Oak Value Portfolio may invest
up to 10% and 15%, respectively, of their net assets in illiquid securities,
including restricted securities. Each Portfolio may invest in Section 4(2)
commercial paper. Section 4(2) commercial paper is issued in reliance on an
exemption from registration under Section 4(2) of the Act and is generally sold
to institutional investors who purchase for investment. Any resale of such
commercial paper must be in an exempt transaction, usually to an institutional
investor through the issuer or investment dealers who make a market in such
commercial paper. The Trust believes that Section 4(2) commercial paper is
liquid to the extent it meets the criteria established by the Board of Trustees
of the Trust. The Trust intends to treat such commercial paper as liquid and not
subject to the investment limitations applicable to illiquid securities or
restricted securities.
S-12
<PAGE>
SECURITIES LENDING
The Golden Oak Prime Obligation Money Market, Golden Oak Growth, Golden Oak
Intermediate-Term Income, Golden Oak Michigan Tax Free Bond and Golden Oak Value
Portfolios may lend securities pursuant to agreements requiring that the loans
be continuously secured by cash, securities of the United States Government or
its agencies, or any combination of cash and such securities, as collateral
equal to 102% of the market value at all times of the securities lent. Such
loans will not be made if, as a result, the aggregate amount of all outstanding
securities loans for the Portfolio exceed one-third of the value of a
Portfolio's total assets taken at fair market value. A Portfolio 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 Portfolio 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 or Sub-Adviser to be of good standing and when, in the judgment of
the Adviser or Sub-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 Portfolios may
use the Distributor or a broker/dealer affiliate of the Adviser or Sub-Adviser
as a broker in these transactions.
BANK OBLIGATIONS
The Trust is not prohibited from investing in obligations of banks which are
clients of SEI Investments Company ("SEI"). However, the purchase of shares of
the Trust by them or by their customers will not be a consideration in
determining which bank obligations the Trust will purchase. The Trust will not
purchase obligations of the Adviser or Sub-Adviser.
STRIPS
The Golden Oak Prime Obligation Money Market, Golden Oak Intermediate-Term
Income and Golden Oak Value Portfolios may invest in Separately Traded Interest
and Principal Securities ("STRIPS"), which 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 a
Portfolio's investment policy concerning investments in illiquid securities.
Consistent with Rule 2a-7 adopted under the 1940 Act, the or Sub-Adviser Adviser
will only purchase STRIPS for the Golden Oak Prime Obligation Money Market
Portfolio that have a remaining maturity of 397 days or less; therefore, the
Portfolio currently may only purchase interest component parts of U.S. Treasury
Securities. The Adviser or Sub-Adviser of a Portfolio 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 Golden Oak Prime Obligation Money
Market Portfolio.
U.S. GOVERNMENT AGENCY SECURITIES
Certain of the investments of all of the Portfolios may include U.S. Government
Agency Securities. Agencies of the United States Government which issue
obligations consist of, among others, the Export Import Bank of the United
States, Farmers Home Administration, Federal Farm Credit Bank, Federal Housing
Administration, Government National Mortgage Association, Maritime
Administration, Small Business Administration, and the Tennessee Valley
Authority. Obligations of instrumentalities of the United States Government
include securities issued by, among others, Federal Home Loan Banks, Federal
Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land
Banks, Federal National Mortgage Association and the United States Postal
Service. Some of these securities are supported by the full faith and credit of
the United States Treasury (E.G., Government National Mortgage Association).
Others are supported by the right of the issuer to borrow from the Treasury and
still others are supported only by the credit of the instrumentality (E.G.,
Federal National Mortgage Association).
S-13
<PAGE>
Guarantees of principal by agencies or instrumentalities of the United States
Government may be a guarantee of payment at the maturity of the obligation so
that in the event of a default prior to maturity there might not be a market and
thus no means of realizing the value of the obligation prior to maturity.
VARIABLE AMOUNT MASTER DEMAND NOTES
The Golden Oak Prime Obligation Money Market, Golden Oak Intermediate-Term
Income and Golden Oak Michigan Tax Free Bond Portfolios may invest in variable
amount master demand notes which may or may not be backed by bank letters of
credit. These notes permit the investment of fluctuating amounts at varying
market rates of interest pursuant to direct arrangements between the Trust, as
lender, and the borrower. Such notes provide that the interest rate on the
amount outstanding varies on a daily, weekly or monthly basis depending upon a
stated short-term interest rate index. Both the lender and the borrower have the
right to reduce the amount of outstanding indebtedness at any time. There is no
secondary market for the notes. It is not generally contemplated that such
instruments will be traded. The Adviser or Sub-Adviser will monitor on an
ongoing basis the earning power, cash flow and liquidity ratio of the issuers of
such instruments and will similarly monitor the ability of an issuer of a demand
instrument to pay principal and interest on demand.
WHEN-ISSUED SECURITIES
The Golden Oak Prime Obligation Money Market, Golden Oak Intermediate-Term
Income and Golden Oak Michigan Tax Free Bond Portfolios may invest in
when-issued securities.
These securities involve the purchase of debt obligations on a when-issued
basis, in which case delivery and payment normally take place within 45 days
after the date of commitment to purchase. The Portfolios will only make
commitments to purchase obligations on a when-issued basis with the intention of
actually acquiring the securities, but may sell them before the settlement date.
The when-issued securities are subject to market fluctuation, and no interest
accrues on the security to the purchaser during this period. The payment
obligation and the interest rate that will be received on the securities are
each fixed at the time the purchaser enters into the commitment. Purchasing
obligations on a when-issued basis is a form of leveraging and can involve a
risk that the yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself. In that case
there could be an unrealized loss at the time of delivery.
Segregated accounts will be established with the Custodian, and the Portfolios
will maintain liquid assets in an amount at least equal in value to the
Portfolios' commitments to purchase when-issued securities. If the value of
these assets declines, the Portfolios will place additional liquid assets in the
account on a daily basis so that the value of the assets in the account is equal
to the amount of such commitments.
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
In addition to those identified in the Prospectus, the following policies are
fundamental and may not be changed without the consent of a majority of a
Portfolio's outstanding shares, except for the limitations provided in
paragraphs 6 and 8 below, which are non-fundamental policies only for the Golden
Oak Value Portfolio. The term "a majority of a Portfolio's outstanding shares"
means the vote of (i) 67% or more of the Portfolio's shares present at a meeting
if more than 50% of the outstanding shares of the Portfolio are present or
represented by proxy, or (ii) more than 50% of the Portfolio's shares, whichever
is less.
A Portfolio may not:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
S-14
<PAGE>
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 Portfolio'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 Portfolio shall, within three days thereafter or such longer
period as the Securities and Exchange Commission (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 in excess of
5% of a Portfolio's total assets will be repaid before making additional
investments and any interest paid on such borrowings will reduce income.
4. Pledge, mortgage or hypothecate assets except to secure temporary borrowings
permitted by (3) above in aggregate amounts not to exceed 10% of total
assets taken at current value at the time of the incurrence of such loan,
except as permitted with respect to securities lending.
5. Purchase or sell real estate, real estate limited partnership interests,
commodities or commodities contracts. However, subject to their permitted
investments, any Portfolio may invest in companies which invest in real
estate commodities or commodities contracts and may invest in financial
futures contracts and related options.
6. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Trust may obtain short-term credits as
necessary for the clearance of security transactions.
7. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter under federal securities laws in selling a portfolio
security.
8. Purchase securities of other investment companies except as permitted by the
1940 Act and the rules and regulations thereunder. The Golden Oak Prime
Obligation Money Market Portfolio will invest in the shares of another money
market fund only if (i) such other money market fund is subject to Rule 2a-7
under the 1940 Act; (ii) such other money market fund has investment
criteria equal to or higher than those of such Portfolio; and (iii) the
Trust's Board of Trustees monitors the activities of such other money market
fund. The Portfolios are prohibited from acquiring the securities of other
investment companies if, as a result of such acquisition, any such Portfolio
owns more than 3% of the total voting stock of the company; securities
issued by any one investment company represent more than 5% of the total
Portfolios assets; or securities (other than treasury stock) issued by all
investment companies represent more than 10% of the total assets of the
Portfolios.
9. Issue senior securities (as defined in the 1940 Act), except in connection
with permitted borrowings as described above or as permitted by rule,
regulation or order of the SEC.
NON-FUNDAMENTAL POLICIES
The following investment limitations of the Portfolios are non-fundamental and
may be changed by the Trust's Board of Trustees without shareholder approval.
No Portfolio may invest in illiquid securities in an amount exceeding, in the
aggregate, 15% of a portfolio's net assets (10% for the Golden Oak Prime
Obligation Money Market Portfolio).
No Portfolio may invest in interests in oil, gas or other mineral exploration or
development programs and oil, gas or mineral leases.
The foregoing percentages, except with respect to borrowings and illiquid
securities, 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.
S-15
<PAGE>
THE ADVISER
The Trust and Citizens Bank (the "Adviser") have entered into an advisory
agreement (the "Advisory Agreement"). The Advisory Agreement provides that the
Adviser shall not be protected against any liability to the Trust or its
shareholders by reason of willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or from reckless disregard of its
obligations or duties thereunder.
The Adviser will not be required to bear expenses of any Portfolio of the Trust
to an extent which would result in a Portfolio's inability to qualify as a
regulated investment company under provisions of the Internal Revenue Code of
1986, as amended (the "Code").
The continuance of the Advisory Agreement, after the first two years, 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 will terminate automatically in the event of its assignment, and is
terminable at any time without penalty by the Trustees of the Trust or, with
respect to the Portfolios by a majority of the outstanding shares of the
Portfolios, on not less than 30 days nor more than 60 days written notice to the
Adviser, or by the Adviser on 90 days written notice to the Trust.
For the fiscal years ended January 31, 1995, January 31, 1996 and January 31,
1997, the Portfolios paid the following advisory fees:
<TABLE>
<CAPTION>
FEES PAID (000) FEES WAIVED (000)
------------------------------- -------------------------------
PORTFOLIO 1995 1996 1997 1995 1996 1997
- ------------------------------------------------------------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Golden Oak Growth Portfolio....................................... $ 171 $ 241 $ 207 $ 39 $ 26 $ 3
Golden Oak Value Portfolio........................................ * * * * * *
Golden Oak Intermediate-Term Income Portfolio..................... $ 208 $ 295 $ 372 $ 154 $ 177 $ 167
Golden Oak Michigan Tax Free Bond Portfolio....................... * * * * * *
Golden Oak Prime Obligation Money Market Portfolio................ $ 28 $ 18 $ 40 $ 287 $ 477 $ 468
</TABLE>
- ------------------------
* Not in operation during such period.
THE SUB-ADVISERS
WELLINGTON MANAGEMENT COMPANY, LLP
Wellington Management Company, LLP ("Wellington Management") serves as
sub-adviser to the Golden Oak Prime Obligation Money Market Portfolio. The
Trust, the Adviser and Wellington Management have entered into a sub-advisory
agreement. Pursuant to the sub-advisory agreement, Wellington Management is
entitled to receive a fee at the annual rate of .75% of the Portfolio's first
$500 million of average daily net assets and .20% of the Portfolio's average
daily net assets over $500 million.
For the fiscal years ended January 31, 1995, January 31, 1996 and January 31,
1997, Wellington Management received the following sub-advisory fees from the
Adviser:
<TABLE>
<CAPTION>
FEES PAID (000) FEES WAIVED (000)
----------------- ------------------
PORTFOLIO 1995 1996 1997 1995 1996 1997
- -------------------------------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Golden Oak Prime Obligation Money Market
Portfolio................................. $27 $124 $127 $0 $0 $0
</TABLE>
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
Nicholas-Applegate Capital Management ("Nicholas-Applegate") serves as
sub-adviser to the Golden Oak Growth Portfolio. The Adviser and
Nicholas-Applegate have entered into a sub-advisory agreement.
S-16
<PAGE>
For the fiscal years ended January 31, 1996 and January 31, 1997,
Nicholas-Applegate received the following sub-advisory fees from the Adviser:
<TABLE>
<CAPTION>
FEES PAID (000) FEES WAIVED (000)
------------------------ ----------------------------
PORTFOLIO 1996 1997 1996 1997
- ------------------------------------------------------------------------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Golden Oak Growth Portfolio.............................................. $ 54 * $ 0 *
</TABLE>
SYSTEMATIC FINANCIAL MANAGEMENT, L.P.
Systematic Financial Management, L.P. ("Systematic Financial") serves as
sub-adviser to the Golden Oak Value Portfolio. The Adviser and Systematic
Financial have entered into a sub-advisory agreement. For the fiscal year ended
January 31, 1996, the Portfolio had not commenced operations, and, therefore,
Systematic Financial received no sub-advisory fees from the Adviser.
THE ADMINISTRATOR
SEI Fund Resources (the "Administrator") serves as administrator to the Funds
pursuant to an administration agreement (the "Administration Agreement") with
the Trust. 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 the Trust 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 shall remain in effect with respect to the Golden
Oak Family of Funds until January 31, 1998, and thereafter shall continue in
effect for successive two-year periods subject to annual review by the Trustees.
The Administrator, a Delaware business trust, has its principal business offices
at Oaks, Pennsylvania 19456. SEI Financial Management Corporation, a
wholly-owned subsidiary of SEI Investments Company ("SEI"), is the owner of all
beneficial interest in the Administrator. SEI 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 to the
following other mutual funds: The Achievement Funds Trust, The Advisors' Inner
Circle Fund, ARK Funds, Bishop Street Funds, CoreFunds, Inc., CrestFunds, Inc.,
CUFUND, FMB Funds, Inc., First American Funds, Inc., First American Investment
Funds, Inc., First American Strategy Funds, Inc., HighMark Funds, Marquis
Funds-Registered Trademark-, Monitor Funds, Morgan Grenfell Investment Trust,
The PBHG Funds, Inc., The Pillar Funds, Profit Funds Investment Trust, Rembrandt
Funds-Registered Trademark-, Santa Barbara Group of Mutual Funds, Inc., 1784
Funds-Registered Trademark-, SEI Asset Allocation Trust, SEI Daily Income Trust,
SEI Index Funds, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI International Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust,
Stepstone Funds, STI Classic Funds, STI Classic Variable Trust, and Turner
Funds.
For the fiscal years ended January 31, 1995, January 31, 1996 and January 31,
1997, the Administrator received the following fees:
<TABLE>
<CAPTION>
FEES PAID (000) FEES WAIVED (000)
------------------------------- -------------------------------
PORTFOLIO 1995 1996 1997 1995 1996 1997
- ------------------------------------------------------------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Golden Oak Growth Portfolio....................................... $ 57 $ 72 $ 57 $ 0 $ 0 $ 0
Golden Oak Value Portfolio........................................ * * * * * *
Golden Oak Intermediate-Term Income Portfolio..................... $ 145 $ 189 $ 215 $ 0 $ 0 $ 0
Golden Oak Michigan Tax Free Bond Portfolio....................... * * * * * *
Golden Oak Prime Obligation Money Market Portfolio................ $ 209 $ 325 $ 339 $ 0 $ 6 $ 0
</TABLE>
- ------------------------
* Not in operation during such period.
S-17
<PAGE>
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI, and the Trust are parties to a distribution agreement (the "Distribution
Agreement"), which applies to both Class A and Class B shares of the Portfolios.
The Distribution Agreement shall be reviewed and ratified at least annually (i)
by the Trust's Trustees or by the vote of a majority of the outstanding shares
of the Trust, and (ii) by the vote of a majority of the Trustees of the Trust
who are not parties to the Distribution Agreement or interested persons (as
defined in the 1940 Act) of any party to the Distribution Agreement, cast in
person at a meeting called for the purpose of voting on such approval. The
Distribution Agreement will terminate in the event of any assignment, as defined
in the 1940 Act, and is terminable with respect to a particular Portfolio on not
less than 60 days' notice by the Trust's Trustees, by vote of a majority of the
outstanding shares of such Portfolio or by the Distributor. The Distributor will
receive no compensation for distribution of Class A shares. Class B has a
distribution plan (the "Class B Distribution Plan").
CLASS B DISTRIBUTION PLAN
The Distribution Agreement and the Class B Distribution Plan adopted by the
Class B shareholders provides that the Class B shares of each Portfolio will pay
the Distributor a fee of .25% of the average daily net assets which the
Distributor can use to compensate/broker dealers and service providers,
including the Adviser and its affiliates which provide administrative and/or
distribution services to the Class B shareholders or their customers who
beneficially own Class B shares.
The Distribution Agreement is renewable annually and may be terminated by the
Distributor, the Qualified Trustees (defined below), or by a majority vote of
the outstanding securities of the Trust upon not more than 60 days' written
notice by either party.
The Trust has adopted the Class B Distribution Plan in accordance with the
provisions of Rule 12b-1 under the 1940 Act which regulates circumstances under
which an investment company may directly or indirectly bear expenses relating to
the distribution of its shares. Continuance of the Class B Distribution Plan
must be approved annually by a majority of the Trustees of the Trust and by a
majority of the Trustees who are not interested persons of the Trust, and have
no direct or indirect financial interest in the operation of such Class B
Distribution Plan or any agreements related to it ("Qualified Trustees"). The
Class B Distribution Plan requires that quarterly written reports of amounts
spent under the Class B Distribution Plan and the purposes of such expenditures
be furnished to and reviewed by the Trustees. The Class B Distribution Plan may
not be amended to increase materially the amount which may be spent thereunder
without approval by a majority of the outstanding shares of the Trust. All
material amendments of the Plan will require approval by a majority of the
Trustees of the Trust and of the Qualified Trustees.
For the fiscal years ended January 31, 1995, January 31, 1996 and January 31,
1997, the Portfolios paid the following distribution fees:
<TABLE>
<CAPTION>
DISTRIBUTION FEES PAID
---------------------------------
PORTFOLIO 1995 1996 1997
- ------------------------------------------------------------------------------- --------- ---------- ----------
<S> <C> <C> <C>
Golden Oak Growth Portfolio.................................................... $ 388 $ 382 $ 512
Golden Oak Value Portfolio..................................................... * * *
Golden Oak Intermediate-Term Income Portfolio.................................. $ 876 $ 596 $ 310
Golden Oak Michigan Tax Free Bond Portfolio.................................... * * *
Golden Oak Prime Obligation Money Market Portfolio............................. $ 22,430 $ 137,930 $ 168,512
</TABLE>
- ------------------------
* Not in operation during such period.
S-18
<PAGE>
TRUSTEES AND OFFICERS OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees and Executive Officers
of the Trust, their respective dates of birth, and their principal occupations
for the last five years are set forth below. Each may have held other positions
with the named companies during that period. Unless otherwise noted, the
business address of each Trustee and each Executive Officer is SEI Investments
Company, Oaks, Pennsylvania 19456. Certain officers of the Trust also serve as
officers of some or all of the following: The Achievement Funds Trust, The
Advisors' Inner Circle Fund, ARK Funds, Bishop Street Funds, CoreFunds, Inc.,
CrestFunds, Inc., CUFUND, FMB Funds, Inc., First American Funds, Inc., First
American Investment Funds, Inc., First American Strategy Funds, Inc., HighMark
Funds, Marquis Funds-Registered Trademark-, Monitor Funds, Morgan Grenfell
Investment Trust, The PBHG Funds, Inc., The Pillar Funds, Profit Funds
Investment Trust, Rembrandt Funds-Registered Trademark-, Santa Barbara Group of
Mutual Funds, Inc., 1784 Funds-Registered Trademark-, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI International Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, Stepstone Funds, STI Classic Funds, STI
Classic Variable Trust and Turner Funds, each of which is an open-end management
investment company managed by SEI Fund Resources or its affiliates and, except
for Profit Funds Investment Trust, Rembrandt Funds-Registered Trademark-, and
Santa Barbara Group of Mutual Funds, Inc., are distributed by SEI Financial
Services Company.
ROBERT A. NESHER (DOB 08/17/46)--Chairman of the Board of Trustees*--Retired
since 1994. Executive Vice President of SEI, 1986-1994. Director and Executive
Vice President of the Administrator and the Distributor, 1981-1994. Trustee of
the Arbor Fund, Marquis Funds-Registered Trademark-, Advisors' Inner Circle
Fund, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Managed Trust, SEI International Trust, SEI Institutional
Investments Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, Insurance
Investment Products Trust, 1784 Funds-Registered Trademark-, Pillar Funds,
Rembrandt Funds, and Stepstone Funds.
JOHN T. COONEY (DOB 01/20/27)--Trustee**--569 N. Post Oak Lane, Houston, TX
77024. Retired since 1992. Formerly Vice Chairman of Ameritrust Texas N.A.,
1989-1992, and MTrust Corp., 1985-1989. Trustee of the Arbor Fund, Marquis
Funds-Registered Trademark-, and Advisors' Inner Circle Fund.
WILLIAM M. DORAN (DOB 05/26/40)--Trustee*--2000 One Logan Square, Philadelphia,
PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the Trust,
Administrator and Distributor, Director and Secretary of SEI. Trustee of the
Arbor Fund, SEI Liquid Asset Trust, SEI Tax Exempt Trust, SEI Daily Income
Trust, SEI Index Funds, SEI Institutional Managed Trust, SEI International
Trust, SEI Asset Allocation Trust, SEI Institutional Investments Trust,
Insurance Investment Products Trust, The Advisors' Inner Circle Fund, and
Marquis Funds-Registered Trademark-.
FRANK E. MORRIS (DOB 12/30/23)--Trustee**--105 Walpole Street, Dover, MA 02030.
Retired since 1990. Peter Drucker Professor of Management, Boston College,
1989-1990. President, Federal Reserve Bank of Boston, 1968-1988. Trustee of The
Arbor Fund, Marquis Funds-Registered Trademark-, Advisors' Inner Circle Fund,
SEI Liquid Asset Trust, SEI Tax Exempt Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Managed Trust, SEI International Trust, Insurance
Investment Products Trust, SEI Asset Allocation Trust and SEI Institutional
Investments Trust.
ROBERT A. PATTERSON (DOB 11/05/27)--Trustee**--208 Old Main, University Park, PA
16802. Pennsylvania State University, Senior Vice President, Treasurer
(Emeritus). Financial and Investment Consultant, Professor of Transportation
(1984-present). Vice President-Investments, Treasurer, Senior Vice President
(Emeritus) (1982-1984). Director, Pennsylvania Research Corp.; Member and
Treasurer, Board of Trustees of Grove City College. Trustee of the Arbor Fund,
Marquis Funds-Registered Trademark-, and Advisors' Inner Circle Fund.
GENE PETERS (DOB 06/03/29)--Trustee**--943 Oblong Road, Williamstown, MA 01267.
Private investor from 1987 to present. Vice President and Chief Financial
Officer, Western Company of North America
S-19
<PAGE>
(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 Arbor Fund, Marquis
Funds-Registered Trademark- and Advisors' Inner Circle Fund.
JAMES M. STOREY (DOB 04/12/31)--Trustee**--Partner, Dechert Price & Rhoads, from
September 1987 - December 1993; Trustee of the Arbor Fund, Marquis
Funds-Registered Trademark-, Advisors' Inner Circle Fund, SEI Liquid Asset
Trust, SEI Tax Exempt Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Managed Trust, SEI International Trust, Insurance Investment
Products Trust, SEI Asset Allocation Trust, and SEI Institutional Investments
Trust.
DAVID G. LEE (DOB 04/16/52)--President and Chief Executive Officer--Senior Vice
President of the Administrator and Distributor since 1993. Vice President of the
Administrator and Distributor, 1991-1993. President, GW Sierra Trust Funds
before 1991.
SANDRA K. ORLOW (DOB 10/18/53)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of the Administrator and Distributor since
1988.
KEVIN P. ROBINS (DOB 04/15/61)--Vice President and Assistant Secretary--Senior
Vice President, General Counsel and Assistant Secretary of SEI, Senior Vice
President, General Counsel and Secretary of the Administrator and Distributor
since 1994. Vice President and Assistant Secretary of SEI, the Administrator and
Distributor, 1992-1994. Associate, Morgan, Lewis & Bockius LLP (law firm),
1988-1992.
RICHARD W. GRANT (DOB 10/25/45)--Secretary--2000 One Logan Square, Philadelphia,
PA 19103, Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the Trust,
Administrator and Distributor.
KATHRYN L. STANTON (DOB 11/19/58)--Vice President and Assistant Secretary,
Deputy General Counsel of SEI, Vice President and Assistant Secretary of the
Administrator and Distributor since 1994. Associate, Morgan, Lewis & Bockius LLP
(law firm), 1989-1994.
JOSEPH P. LYDON (DOB 09/27/59)--Vice President and Assistant
Secretary--Director, Business Administration of Fund Resources, April 1995. Vice
President, Fund Group, Dremen Value Management, LP, President Dremen Financial
Services, Inc. prior to 1995.
STEPHEN G. MEYER (DOB 07/12/65)--Controller, Chief Financial Officer--Vice
President and Controller of SEI Fund Resources since 1995. Director, Internal
Audit and Risk Management, SEI Corporation, 1992-1995. Senior Associate, Coopers
and Lybrand, 1990-1992.
TODD B. CIPPERMAN (DOB 01/14/66)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of SEI, the Administrator and the Distributor
since 1995. Associate, Dewey Ballantine (law firm) (1994-1995). Associate,
Winston & Strawn (law firm) (1991-1994).
BARBARA A. NUGENT (DOB 06/18/56)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1996. Associate, Drinker Biddle & Reath (law firm) (1994-1996). Assistant
Vice President/Administration, Delaware Service Company, Inc. (1992-1993);
Assistant Vice President--Operations of Delaware Service Company, Inc.
(1988-1992).
MARC H. CAHN (DOB 06/19/57)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1996. Associate General Counsel, Barclays Bank PLC (1995-1996). ERISA
counsel, First Fidelity Bancorporation (1994-1995), Associate, Morgan, Lewis &
Bockius LLP (1989-1994).
- ------------------------
* Messrs. Nesher and Doran are Trustees who may be deemed to be "interested"
persons of the Trust as the term is defined in the 1940 Act.
** Messrs. Cooney, Morris, Patterson, Peters and Storey serve on the Audit
Committee of the Trust.
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. For the
fiscal year ended January 31, 1997, the Trust paid the unaffiliated Trustees
aggregate fees of $63,860.
S-20
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL COMPENSATION
PENSION OR FROM REGISTRANT AND
RETIREMENT FUND COMPLEX PAID TO
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL TRUSTEES FOR THE
COMPENSATION FROM AS PART OF FUND BENEFITS UPON FISCAL YEAR ENDED
NAME OF PERSON, POSITION REGISTRANT EXPENSES RETIREMENT JANUARY 31, 1997 (1)
- ---------------------------------------- ----------------- ------------------ ---------------- ---------------------
<S> <C> <C> <C> <C>
John T. Cooney, Trustee................. $ 12,772 N/A N/A $ 12,772
Frank E. Morris, Trustee................ $ 12,772 N/A N/A $ 12,772
Gene Peters, Trustee.................... $ 12,772 N/A N/A $ 12,772
Robert A. Patterson, Trustee............ $ 12,772 N/A N/A $ 12,772
James A. Storey, Trustee................ $ 12,772 N/A N/A $ 12,772
William M. Doran, Trustee *............. $ 0 N/A N/A $ 0
Robert A. Nesher, Trustee *............. $ 0 N/A N/A $ 0
</TABLE>
- ------------------------
(1) Total Compensation for service on one board.
* A Trustee who is an "interested person" as defined in the 1940 Act.
COMPUTATION OF YIELD
From time to time, each Portfolio may advertise yield and/or total return. These
figures will be based on historical earnings and are not intended to indicate
future performance.
The "yield" of the Portfolios refers to the income generated by an investment in
a Portfolio over a seven-day or 30-day period (which period will be stated in
the advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that seven-day or 30-day period is
assumed to be generated each seven-day or 30-day period over a year and is shown
as a percentage of the investment. The "effective yield" is calculated similarly
but, when annualized, the income earned by an investment in a Portfolio is
assumed to be reinvested. The "effective yield" will be slightly higher than the
"yield" because of the compounding effect of this assumed reinvestment.
The current yield of the Golden Oak Prime Obligation Money Market Portfolio will
be calculated daily based upon the seven days ending on the date of calculation
("base period"). The yield is computed by determining the net change (exclusive
of capital changes) in the value of a hypothetical pre-existing shareholder
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing such net change by the value of the account at the
beginning of the same period to obtain the base period return and multiplying
the result by (365/7). Realized and unrealized gains and losses are not included
in the calculation of the yield. The effective compound yield of the Portfolio
is determined by computing the net change, exclusive of capital changes, in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return, and then compounding the base period return by adding 1, raising the sum
to a power equal to 365 divided by 7, and subtracting 1 from the result,
according to the following formula: Effective Yield = (Base Period Return + 1)
365/7) - 1. The current and the effective yields reflect the reinvestment of net
income earned daily on portfolio assets.
The yield of the Portfolio fluctuates, and the annualization of a week's
dividend is not a representation by the Trust as to what an investment in the
Portfolio will actually yield in the future. Actual yields will depend on such
variables as asset quality, average asset maturity, the type of instruments the
Portfolio invests in, changes in interest rates on money market instruments,
changes in the expenses of the Portfolio and other factors.
S-21
<PAGE>
For the 7-day period ended January 31, 1997, the Golden Oak Prime Obligation
Money Market Portfolio's yield was 5.13% for Class A and 4.88% for Class B and
the effective yield was 5.26% for Class A and 5.00% for Class B.
The yield of a non-Money Market Portfolio refers to the annualized income
generated by an investment in the Portfolio over a specified 30-day period. The
yield is calculated by assuming that the income generated by the investment
during that period generated each period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated according
to the following formula: Yield = 2[((a-b)/cd) + 1)(6)-1], where a = dividends
and interest earned during the period; b = expenses accrued for the period (net
of reimbursement); c = the current 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 Golden Oak Michigan Tax Free Bond Portfolio may also advertise a
"tax-equivalent yield," which is a calculated by determining the rate of return
that would have to be achieved on a fully taxable instrument to produce the
after-tax equivalent of the Portfolio's yield, assuming certain tax brackets for
a shareholder. The tax-equivalent yield of the Portfolio will be calculated by
adding (a) the portion of the Portfolio's yield that is non-tax-exempt and (b)
the result obtained by dividing the portion of the Portfolio's yield that is
tax-exempt by the difference of one minus a stated income tax rate.
For the 30-day period ended January 31, 1997, the Portfolios' yields and
tax-equivalent yields were as follows:
<TABLE>
<CAPTION>
TAX-EQUIVALENT
YIELDS YIELDS
-------------------- --------------------
PORTFOLIO CLASS A CLASS B CLASS A CLASS B
- ------------------------------------------------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Golden Oak Growth Portfolio............................................. (0.12)% (0.34)% N/A N/A
Golden Oak Intermediate Term Income Portfolio........................... 5.73% 5.22% N/A N/A
Golden Oak Michigan Tax Free Bond Portfolio............................. N/A N/A N/A N/A
</TABLE>
The Portfolios may, from time to time, compare their performance to other mutual
funds tracked by mutual fund rating services, to broad groups of comparable
mutual funds or to unmanaged indices which may assume investment of dividends
but generally do not reflect deductions for administrative and management costs.
CALCULATION OF TOTAL RETURN
From time to time, each Portfolio may advertise total return. The total return
of a Portfolio refers to the average compounded rate of return to a hypothetical
investment for designated time periods (including but not limited to, the period
from which the Portfolio commenced operations through the specified date),
assuming that the entire investment is redeemed at the end of each period. In
particular, total return will be calculated according to the following formula:
P (1 + T)(n) = ERV, where P = a hypothetical initial payment of $1,000; T =
average annual total return; n = number of years; and ERV = ending redeemable
value of a hypothetical $1,000 payment made at the beginning of the designated
time period as of the end of such period.
S-22
<PAGE>
Based on the foregoing, the average annual total return for the Portfolios from
inception through January 31, 1997 and for the one, five and ten year periods
ended January 31, 1997 were as follows:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
--------------------------------
ONE FIVE TEN SINCE
PORTFOLIO CLASS YEAR YEAR YEAR INCEPTION**
- -------------------------------------------------- ---------------------------- ------ ----- ----- ---------
<S> <C> <C> <C> <C> <C>
Golden Oak Growth Portfolio Class A..................... 23.79% N/A N/A 11.04%
Class B (without load)...... 23.56% N/A N/A 13.18%
Class B (with load)......... 16.48% N/A N/A 11.36%
Golden Oak Value Portfolio Class A..................... * * * *
Class B (without load)...... * * * *
Class B (with load)......... * * * *
Golden Oak Intermediate-Term Income Portfolio Class A..................... 2.31% N/A N/A 4.99%
Class B (without load)...... 2.05% N/A N/A 4.53%
Class B (with load)......... (2.56)% N/A N/A 3.20%
Golden Oak Michigan Tax Free Bond Portfolio Class A..................... * * * *
Class B (without load)...... * * * *
Class B (with load)......... * * * *
Golden Oak Prime Obligation Money Market Portfolio Class A..................... 5.21% N/A N/A 4.50%
Class B (without load)...... 4.95% N/A N/A 4.77%
</TABLE>
- ------------------------
* Not in operation during such period.
** Golden Oak Prime Obligation Money Market, Intermediate-Term Income, and
Growth Portfolios Class A commenced operations February 1, 1993. Golden Oak
Prime Obligation Money Market Portfolio Class B commenced operations January
20, 1994. Golden Oak Intermediate-Term Income and Growth Portfolios Class B
commenced operations June 18, 1993.
PURCHASE AND REDEMPTION OF SHARES
It is currently the Trust's policy to pay for the redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the Portfolios
in lieu of cash. Shareholders may incur brokerage charges on the sale of any
such securities so received in payment of redemptions. However, a shareholder
will at all times be entitled to aggregate cash redemptions from all Portfolios
of the Trust during any 90-day period of up to the lesser of $250,000 or 1% of
the Trust's net assets.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of
disposal or valuation of a Portfolio's securities is not reasonably practicable,
or for such other periods as the SEC has by order permitted. The Trust also
reserves the right to suspend sales of shares of a Portfolio for any period
during which the New York Stock Exchange, the Adviser, the applicable
Sub-Adviser, the Administrator and/or the Custodian are not open for business.
LETTER OF INTENT
Reduced sales charges are also applicable to the aggregate amount of purchases
made by any such purchaser previously enumerated within a 13-month period
pursuant to a written Letter of Intent provided to the Trust's transfer agent,
that does not legally bind the signer to purchase any set number of shares and
provides for the holding in escrow by the Administrator of 5% of the amount
purchased until such purchase is completed within the 13-month period. A Letter
of Intent may be dated to include shares purchased up to 90 days prior to the
date the Letter of Intent is signed. The 13-month period begins on the
S-23
<PAGE>
date of the earliest purchase. If the intended investment is not completed, the
Administrator will surrender an appropriate number of the escrowed shares for
redemption in order to recover the difference between the sales charge on the
shares purchased at the reduced rate and the sales charge otherwise applicable
to the total shares purchased.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Golden Oak Prime Obligation Money Market
Portfolio is calculated separately for each class of the Portfolio by adding the
value of securities and other assets, subtracting liabilities attributable to
that class and dividing by the number of outstanding shares of that class.
Securities will be valued by the amortized cost method, which involves valuing a
security at its cost on the date of purchase and thereafter (absent unusual
circumstances) assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuations in general market rates of
interest on the value of the instrument. While this method provides certainty in
valuation, it may result in periods during which a security's value, as
determined by this method, is higher or lower than the price the Portfolio would
receive if it sold the instrument. During periods of declining interest rates,
the daily yield of the Portfolio may tend to be higher than a like computation
made by a company with identical investments utilizing a method of valuation
based upon market prices and estimates of market prices for all of its portfolio
securities. Thus, if the use of amortized cost by the Portfolio resulted in a
lower aggregate portfolio value on a particular day, a prospective investor in
the Portfolio would be able to obtain a somewhat higher yield than would result
from investment in a company utilizing solely market values, and existing
investors in the Portfolio would experience a lower yield. The converse would
apply in a period of rising interest rates.
The Portfolio's use of amortized cost and the maintenance of the Portfolio's net
asset value at $1.00 are permitted by Rule 2a-7 promulgated under the 1940 Act,
provided that certain conditions are met. The regulations also require the
Trustees to establish procedures that are reasonably designed to stabilize the
net asset value per share at $1.00 for the Portfolio. Such procedures include
the determination of the extent of deviation, if any, of the Portfolio's current
net asset value per share calculated using available market quotations from the
Portfolio's amortized cost price per share at such intervals as the Trustees
deem appropriate and reasonable in light of market conditions and periodic
reviews of the amount of the deviation and the methods used to calculate such
deviation. In the event that such deviation exceeds 1/2 of 1%, the Trustees are
required to consider promptly what action, if any, should be initiated, and, if
the Trustees believe that the extent of any deviation may result in material
dilution or other unfair results to shareholders, the Trustees are required to
take such corrective action as they deem appropriate to eliminate or reduce such
dilution or unfair results to the extent reasonably practicable. Such actions
may include the sale of portfolio instruments prior to maturity to realize
capital gains or losses or to shorten average portfolio maturity; withholding
dividends; redeeming shares in kind; or establishing a net asset value per share
by using available market quotations. In addition, if the Portfolio incurs a
significant loss or liability, the Trustees have the authority to reduce pro
rata the number of shares of the Portfolio in each shareholder's account and to
offset each shareholder's pro rata portion of such loss or liability from the
shareholder's accrued but unpaid dividends or from future dividends while each
other Portfolio must annually distribute at least 90% of its investment company
taxable income.
The securities of the Golden Oak Intermediate-Term Income, Golden Oak Michigan
Tax Free Bond, Golden Oak Growth and Golden Oak Value Portfolios are valued by
the Administrator pursuant to valuations provided by an independent pricing
service. The pricing service relies primarily on prices of actual market
transactions as well as trader quotations. However, the service may also use a
matrix system to determine valuations of fixed income securities, which system
considers such factors as security prices, yields, maturities, call features,
ratings and developments relating to specific securities in arriving at
valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Trust under the general supervision of the
Trustees.
S-24
<PAGE>
TAXES
The following is only a summary of certain additional tax considerations
generally affecting the Portfolios and their shareholders that are not described
in the Portfolios' Prospectuses. No attempt is made to present a detailed
explanation of the tax treatment of the Portfolios or their shareholders, and
the discussion here and in the Portfolios' Prospectus is not intended as a
substitute for careful tax planning.
FEDERAL INCOME TAXES
The following discussion of federal income tax consequences is based on 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.
ALL PORTFOLIOS
In order to qualify for treatment as a regulated investment company ("RIC")
under the Internal Revenue Code of 1986, as amended (the "Code"), each Portfolio
must distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) (the "Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of a
Portfolio's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans, and gains from the sale or
other disposition of stock or securities, or certain other income, (ii) a
Portfolio must derive less than 30% of its gross income each taxable year from
the sale or other disposition of stock or securities held for less than three
months; (iii) at the close of each quarter of a Portfolio's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, United States Government securities, securities of other RICs and other
securities, with such other securities limited, in respect to any one issuer, to
an amount that does not exceed 5% of the value of the Portfolio's assets and
that does not represent more than 10% of the outstanding voting securities of
such issuer; and (iv) at the close of each quarter of a Portfolio's taxable
year, not more than 25% of the value of its assets may be invested in securities
(other than United States Government securities or the securities of other RICs)
of any one issuer or of two or more issuers which the Portfolio controls and
which are engaged in the same, similar or related trades or businesses.
Any net realized long-term capital gains of the Portfolios will be distributed
at least annually. The Portfolios will have no tax liability with respect to
such gains and the distributions will be taxable to shareholders as long-term
capital gains, regardless of how long a shareholder has held shares in a
Portfolio. Such distributions will be designated as a capital gains dividend in
a written notice mailed to shareholders after the close of the Portfolio's
taxable year.
Any gain or loss recognized on a sale or redemption of shares in a Portfolio by
a shareholder who is not a dealer in securities generally will be treated as a
long-term capital gain or loss if the shares have been held for more than twelve
months and otherwise generally will be treated as a short-term gain or loss. If
a shareholder disposes of shares in a Portfolio at a loss before having held
those shares for more than six months, however, such loss will be treated as a
long-term capital loss to the extent the shareholder has received a long-term
capital gain distribution on the shares.
A dividends received deduction generally is available to corporations that
receive dividends from domestic corporations. Dividends paid by the equity
Portfolios will likely be eligible for the dividends received deduction for
corporate shareholders to the extent they are derived by the Portfolio from
dividends from domestic corporations. Equity Portfolios shareholders will be
advised each year of the portion of ordinary income dividends eligible for the
dividends received deduction.
S-25
<PAGE>
Dividends received from other portfolios, e.g., money market or fixed income
portfolios, will not be eligible for the dividends received deduction.
Individual shareholders are not entitled to the dividends received deduction
regardless of which portfolio paid the dividend.
Notwithstanding the distribution requirement described above, which only
requires a Portfolio to distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), a
Portfolio will be subject to a nondeductible 4% federal excise tax to the extent
it fails to distribute by the end of any calendar year at least 98% of its
ordinary income for that year and at least 98% of its capital gain net income
for the one-year period ending on October 31 of that year, plus certain other
amounts.
Although the Portfolios expect to qualify as regulated investment companies and
to be relieved of all or substantially all federal income taxes, depending upon
the extent of its activities in states and localities in which its offices are
maintained, in which its agents or independent contractors are located, or in
which it is otherwise deemed to be conducting business, a Portfolio may be
subject to the tax laws of such states or localities. In addition, in those
states and localities which have income tax laws, the treatment of a Portfolio
and its shareholders under such laws may differ from its treatment under federal
income tax laws.
If for any taxable year a Portfolio does not qualify for the special tax
treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). Moreover, upon distribution to
shareholders, the Portfolio's income, including, in the case of the Michigan Tax
Free Bond Portfolio, Municipal Securities interest income, will be taxable to
shareholders to the extent of the Portfolio's current and/or accumulated
earnings and profits. However, in the case of corporate shareholders, such
distributions generally will be eligible for the dividends received deduction.
A Portfolio will be required in certain cases to withhold and remit to the
United States Treasury 31% of distributions payable to any shareholder who (1)
has provided the Portfolio either an incorrect tax identification number or no
number at all, (2) who is subject to backup withholding by the Internal Revenue
Service for failure to properly report payments of interest or dividends, or (3)
who has failed to certify to the Portfolio that such shareholder is not subject
to backup withholding.
STATE TAXES
A Portfolio is not liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by the
Portfolios to shareholders and the ownership of shares may be subject to state
and local taxes.
ADDITIONAL TAX INFORMATION CONCERNING THE MICHIGAN TAX FREE BOND PORTFOLIO
As indicated in the Prospectus, the Michigan Tax Free Bond Portfolio is designed
to provide shareholders with current tax-exempt interest income and is not
intended to constitute a balanced investment program. Certain recipients of
Social Security and railroad retirement benefits may be required to take into
account income from the Michigan Tax Free Bond Portfolio in determining the
taxability of their benefits. In addition, the Michigan Tax Free Bond Portfolio
may not be an appropriate investment for shareholders that are "substantial
users" or persons related to such users of facilities financed by private
activity bonds or industrial revenue bonds. A "substantial user" is defined
generally to include certain persons who regularly use a facility in their trade
or business. All shareholders should consult their tax advisors to determine the
potential effect of investing in the Michigan Tax Free Bond Portfolio, if any,
on their liability for federal, state, and local taxes.
If, at the close of each quarter of its taxable year, at least 50% of the value
of a Portfolio's total assets consists of securities the interest on which is
excludable from gross income, the Portfolio may pay "exempt-interest dividends"
to its shareholders. The policy of the Michigan Tax Free Bond Portfolio is to
pay each
S-26
<PAGE>
year as dividends substantially all of its interest income, net of certain
deductions. An exempt-interest dividend is any dividend or part thereof (other
than a capital gain dividend) paid by the Michigan Tax Free Bond Portfolio, and
designated by the Portfolio as an exempt-interest dividend in a written notice
mailed to shareholders within 60 days after the close of such Portfolio's
taxable year. However, aggregate exempt-interest dividends for the taxable year
may not exceed the net interest from Municipal Securities and other securities
exempt from the regular federal income tax received by the Portfolio during the
taxable year. The percentage of the total dividends paid for any taxable year
which qualifies as federal exempt-interest dividends will be the same for all
shareholders receiving dividends from the Michigan Tax Free Bond Portfolio
during such year, regardless of the period for which the shares were held.
Exempt-interest dividends may nevertheless be subject to the alternative minimum
tax (the "Alternative Minimum Tax") imposed by section 55 of the Code or the
environmental tax (the "Environmental Tax") imposed by Section 59A of the Code.
The Environmental Tax is imposed at the rate of 0.12% and applies only to
corporate taxpayers. The Alternative Minimum Tax and the Environmental Tax may
be imposed in two circumstances. First, exempt-interest dividends derived from
certain "private activity bonds" issued after August 7, 1986, will generally be
an item of tax preference (and therefore potentially subject to the Alternative
Minimum Tax and the Environmental Tax) for both corporate and non-corporate
taxpayers. Second, in the case of exempt-interest dividends received by
corporate shareholders, all exempt-interest dividends, regardless of when the
bonds from which they are derived were issued or whether they were derived from
private activity bonds, will be included in the corporation's "adjusted current
earnings," as defined in section 56(g) of the Code, in calculating the
corporation's alternative minimum taxable income for purposes of determining the
Alternative Minimum Tax and the Environmental Tax.
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 the 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.
Issuers of bonds purchased by the Michigan Tax Free Bond Portfolio (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 the
covenants.
Under the Code, if a shareholder receives an exempt-interest dividend with
respect to any share and such share is held for six months or less, any loss on
the sale or exchange of such share will be disallowed to the extent of the
amount of such exempt-interest dividend.
Although the Michigan Tax Free Bond Portfolio does not expect to earn any
investment company taxable income (as defined by the Code), any income earned on
taxable investments will be distributed and will be taxable to shareholders as
ordinary income. In general, "investment company taxable income" comprises
taxable net investment income and net short-term capital gain. The Michigan Tax
Free Bond Portfolio would be taxed on any undistributed investment company
taxable income. Since any such income will be distributed, it is anticipated
that no such tax will be paid by the Portfolio.
As indicated in the Prospectus, the Michigan Tax Free Bond Portfolio may acquire
puts with respect to Municipal Securities held in its portfolio. See "Additional
Description Of Permitted Investments -- Puts on Municipal Securities" in this
Statement of Additional Information. The policy of the Portfolio is to limit
acquisitions of puts to those under which an acquiring Portfolio will be treated
for federal income tax purposes as the owner of the Municipal Securities
acquired subject to the put and the interest on the
S-27
<PAGE>
Municipal Securities will be tax-exempt to such Portfolio. Although the Internal
Revenue Service has issued a published ruling that provides some guidance
regarding the tax consequences of the purchase of puts, there is currently no
guidance available from the Internal Revenue Service that definitively
establishes the tax consequences of many of the types of puts that this
Portfolio could acquire under the 1940 Act. Therefore, although the Michigan Tax
Free Bond Portfolio will only acquire a put after concluding that it will have
the tax consequences described above, the Internal Revenue Service could reach a
different conclusion. If the Michigan Tax Free Bond Portfolio were not treated
as the owner of the Municipal Securities, income from such securities would
probably not be tax-exempt.
PORTFOLIO 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 and/or Sub-Adviser(s) is responsible
for placing the orders to execute transactions for the Portfolios. 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 and/or Sub-Adviser(s) generally seek
reasonably competitive spreads or commissions, the Trust will not necessarily be
paying the lowest spread or commission available if the difference is reasonably
justified by other aspects of the portfolio execution securities offered.
The money market securities in which the Portfolios 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
and/or Sub-Adviser(s) 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.
<TABLE>
<CAPTION>
DOLLAR AMOUNT OF LOAD
DOLLAR AMOUNT OF LOAD RETAINED BY SFS
------------------------------- -----------------------------
PORTFOLIO/CLASS 1995 1996 1997 1995 1996 1997
- --------------------------------------------- ---------- ----- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Golden Oak Growth Portfolio--Class B......... -- $ 0 116 -- $ 0 0
Golden Oak Value Portfolio--Class B.......... * * * * * *
Golden Oak Intermediate-Term Income
Portfolio--Class B......................... -- $ 0 191 -- $ 0 0
Golden Oak Michigan Tax Free Bond
Portfolio--Class B......................... * * * * * *
Golden Oak Prime Obligation Money Market
Portfolio-- Class B........................ N/A N/A N/A N/A N/A N/A
</TABLE>
- ------------------------
* Not in operation during such period.
TRADING PRACTICES AND BROKERAGE
The Adviser and/or Sub-Adviser(s) select brokers or dealers to execute
transactions for the purchase or sale of portfolio securities on the basis of
its judgment of their professional capability to provide the service. The
primary consideration is to have brokers or dealers execute transactions at best
price and execution. Best price and execution refers to many factors, including
the price paid or received for a security, the commission charged, the
promptness and reliability of execution, the confidentiality and placement
accorded the order and other factors affecting the overall benefit obtained by
the account on the transaction. The Adviser's and/or a Sub-Adviser's
determination of what are reasonably competitive rates is based upon the
professional knowledge of its trading department as to rates paid and charged
for
S-28
<PAGE>
similar transactions throughout the securities industry. In some instances, the
Adviser and/or a Sub-Adviser pays a minimal share transaction cost when the
transaction presents no difficulty. Some trades are made on a net basis where
the Adviser and/or a Sub-Adviser either buys securities directly from the dealer
or sells them to the dealer. In these instances, there is no direct commission
charged but there is a spread (the difference between the buy and sell price)
which is the equivalent of a commission.
The Adviser and/or Sub-Adviser(s) may allocate out of all commission business
generated by all of the funds and accounts under management by the Adviser
and/or Sub-Adviser(s), brokerage business to brokers or dealers who provide
brokerage and research services. These research services include advice, either
directly or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; furnishing of
analyses and reports concerning issuers, securities or industries; providing
information on economic factors and trends, assisting in determining portfolio
strategy, providing computer software used in security analyses, and providing
portfolio performance evaluation and technical market analyses. Such services
are used by the Adviser and/or Sub-Adviser(s) in connection with its investment
decision-making process with respect to one or more funds and accounts managed
by it, and may not be used exclusively with respect to the fund or account
generating the brokerage.
As provided in the Securities Exchange Act of 1934, as amended (the "1934 Act"),
higher commissions may be paid to broker/dealers who provide brokerage and
research services than to broker/dealers who do not provide such services if
such higher commissions are deemed reasonable in relation to the value of the
brokerage and research services provided. Although transactions are directed to
broker/dealers who provide such brokerage and research services, the Adviser
and/or Sub-Adivser(s) believes that the commissions paid to such broker/dealers
are not, in general, higher than commissions that would be paid to
broker/dealers not providing such services and that such commissions are
reasonable in relation to the value of the brokerage and research services
provided. In addition, portfolio transactions which generate commissions or
their equivalent are directed to broker/dealers who provide daily portfolio
pricing services to the Adviser and/or Sub-Adviser(s). Subject to best price and
execution, commissions used for pricing may or may not be generated by the funds
receiving the pricing service.
For the fiscal years ended January 31, 1996 and January 31, 1997, the Portfolios
paid the following brokerage commissions with respect to portfolio transactions:
<TABLE>
<CAPTION>
% OF TOTAL TOTAL BROKERAGE TOTAL $
TOTAL $ AMOUNT % OF TOTAL BROKERAGE COMMISSIONS AMOUNT
BROKERAGE TRANSACTIONS PAID TO SFS IN OF
OF BROKERAGE COMMISSIONS EFFECTED CONNECTION WITH BROKERAGE
TOTAL $ AMOUNT OF COMMISSIONS PAID TO THROUGH REPURCHASE COMMISSIONS
BROKERAGE PAID TO AFFILIATED AFFILIATED AGREEMENT PAID FOR
COMMISSIONS PAID AFFILIATES BROKERS BROKERS TRANSACTIONS RESEARCH
----------------- -------------- ----------- ----------- --------------- --------
PORTFOLIO 1996 1997 1996 1997 1996 1997 1996 1997 1996 1997 1996
- ---------------------------------- ------- -------- -------- ---- ---- ---- ---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Portfolio.................. $131,064 $ 81,924 $ 0 0 0% 0% 0% 0% $ 0 $ 858.39 $ 84,600
Intermediate-Term Income
Portfolio....................... 0 0 0 0 0% 0% 0% 0% 0 2726.30 0
Michigan Tax Free Bond
Portfolio....................... * * * * * * * * * * *
Prime Obligation Money Market
Portfolio....................... 0 0 0 0 0% 0% 0% 0% 0 0% 0
Value Portfolio................... * * * * * * * * * * *
<CAPTION>
PORTFOLIO 1997
- ---------------------------------- --------
<S> <C>
Growth Portfolio.................. $ 79,788
Intermediate-Term Income
Portfolio....................... 0
Michigan Tax Free Bond
Portfolio....................... *
Prime Obligation Money Market
Portfolio....................... 0
Value Portfolio................... *
</TABLE>
- --------------------------
* Had not commenced operations as of the end of the fiscal year.
S-29
<PAGE>
For the fiscal year ended January 31, 1995, the Portfolios paid the following
brokerage commissions with respect to portfolio transactions:
<TABLE>
<CAPTION>
TOTAL $ AMOUNT OF TOTAL $ AMOUNT OF BROKERAGE
BROKERAGE COMMISSIONS COMMISSIONS PAID TO
PAID AFFILIATES
PORTFOLIO 1995 1995
- ------------------------------------------------------------------ ---------------------- ---------------------------
<S> <C> <C>
Growth Portfolio.................................................. $ 85,419 $ 0
Intermediate-Term Income Portfolio................................ 0 0
Michigan Tax Free Bond Portfolio.................................. * *
Prime Obligation Money Market Portfolio........................... 0 0
Value Portfolio................................................... * *
</TABLE>
- ------------------------
* Had not commenced operations as of the end of the fiscal year.
For the fiscal year ended January 31, 1997, the Golden Oak Michigan Tax Free
Bond Portfolio and Golden Oak Value Portfolio had not commenced operations.
The Adviser and/or Sub-Adviser(s) may place a combined order for two or more
accounts or funds engaged in the purchase or sale of the same security if, in
its judgment, joint execution is in the best interest of each participant and
will result in best price and execution. Transactions involving commingled
orders are allocated in a manner deemed equitable to each account or fund. It is
believed that the ability of the accounts to participate in volume transactions
will generally be beneficial to the accounts and funds. Although it is
recognized that, in some cases, the joint execution of orders could adversely
affect the price or volume of the security that a particular account or trust
may obtain, it is the opinion of the Adviser and/ or Sub-Adviser(s) and the
Trust's Board of Directors that the advantages of combined orders outweigh the
possible disadvantages of separate transactions.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, the Adviser
and/or Sub-Adviser(s) may place orders with broker/dealers that have agreed to
defray certain Portfolio expenses such as custodian fees, and may, at the
request of the Distributor, give consideration to sales of shares of the Adviser
and/or Sub-Adviser(s) as a factor in the selection of brokers and dealers to
execute portfolio transactions for such Portfolio.
It is expected that the Adviser and/or Sub-Adviser(s) may execute brokerage or
other agency transactions through the Distributor or an affiliate of the
Adviser, both of which are registered broker-dealers, for a commission in
conformity with the 1940 Act, the 1934 Act and the rules promulgated thereunder
by the SEC. Under these provisions, the Distributor or an affiliate of the
Adviser is permitted to receive and retain compensation for effecting portfolio
transactions for a Portfolio on an exchange if a written contract is in effect
between the Distributor and the Trust expressly permitting the Distributor or an
affiliate of the Adviser to receive and retain such compensation. These rules
further require that commissions paid to the Distributor by a Portfolio for
exchange transactions not exceed "usual and customary" brokerage commissions.
The rules define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." In addition, the
Adviser and/or Sub-Adviser(s) may direct commission business to one or more
designated broker/dealers in connection with such broker/ dealer's provision of
services to a Portfolio or payment of certain Portfolio expenses (e.g., custody,
pricing and professional fees). The Trustees, including those who are not
"interested persons" of the Trust, have adopted procedures for evaluating the
reasonableness of commissions paid to the Distributor and will review these
procedures periodically.
The Trust is required to identify any securities of its "regular brokers or
dealers" (as such term is defined in the 1940 Act) which the Trust has acquired
during its most recent fiscal year. As of January 31, 1997, the
S-30
<PAGE>
following Portfolios held securities of the Trust's "regular brokers or dealers"
as follows: the Golden Oak Growth Portfolio held $2,346,000 in repurchase
agreements issued by Morgan Stanley; the Golden Oak Intermediate-Term Income
Portfolio held $4,535,000 in repurchase agreements issued by Lehman Brothers;
and the Golden Oak Prime Obligation Money Market Portfolio held $5,000,000 in
bank notes issued by First National Bank of Boston.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of the Portfolios each of which represents an equal proportionate
interest in that Portfolio with each other share. Shares are entitled upon
liquidation to a pro rata share in the net assets of the Portfolios.
Shareholders have no preemptive rights. The Declaration of Trust provides that
the Trustees of the Trust may create additional series of shares. 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
of the trust. Even if, however, the Trust were held to be a partnership, the
possibility of its 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 or
her 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% SHAREHOLDERS
As of March 10, 1997, the following persons were the only persons who were
record owners (or to the knowledge of the Trust, beneficial owners) of 5% or
more of the shares of the Portfolios. The Trust believes that most of the shares
referred to below were held by the below persons in account for their fiduciary,
agency or custodial customers.
Golden Oak Prime Obligation Money Market Portfolio--Class-A: Washavco, Attn:
Trust Operations, 101 N. Washington Ave, Saginaw, MI 48607-1206, 99.87%.
Golden Oak Prime Obligation Money Market Portfolio--Class-B: Citizens
Bank-Michigan, Attn: Kay Adams-Sweep, 328 S. Saginaw St., Flint, MI 48502-1943,
82.52%; Citizens Bank-Illinois, Attn: Kay Adams-Sweep, 328 S. Saginaw St.,
Flint, MI 48502-1943, 8.85%.
S-31
<PAGE>
Golden Oak Intermediate-Term Income Portfolio--Class-A: Washavco, Attn: Trust
Operations, 101 N. Washington Ave, Saginaw, MI 48607-1206, 100.00%.
Golden Oak Intermediate-Term Income Portfolio--Class-B: Reggie L. Hockin & Lucy
D. Hockin, 1151 Westwood Dr., Flint, MI 48532-2676, 27.11%; John W. Ennest TTEE,
The John W. Ennest Trust, 5412 Pepper Mill, Grand Blanc, MI 48439, 25.50%; Bruce
H. & Elizabeth A. Schwartz TTEE, FBO Bruce & Elizabeth Schwartz Rev. Living
Trust, 16053 Pretty Lake Dr., Mecosta, MI 49332-9617, 20.56%; Everen Clearing
Corp. Cust, FBO Barbara L. Isetts SD IRA, 4705 North Mackinaw, Pinconning, MI
48650-8431, 17.34%; Kathleen Kool & Neil K. Kool JTWROS, 606 Garrard St.,
Covington, KY 41011-2547, 5.90%.
Golden Oak Growth Portfolio--Class-A: Washavco, Attn: Trust Operations, 101 N.
Washington Ave, Saginaw, MI 48607-1206, 100%.
Golden Oak Growth Portfolio--Class-B: Kemper Clearing Corp. Cust., FBO William
C. Crick Sep. IRA, 603 Greenwich Lane, Grand Blanc, MI 48439-1078, 5.38%; John
W. Ennest TTEE, The John W. Ennest Trust, 5412 Pepper Mill, Grand Blanc, MI
48439, 18.88%; Nicholas J. Cilfone & Elizabeth A. Cilfone JTWROS, 4810
Arboretum, Saginaw, MI 48603, 9.66%; James N. Johnson CONS, Lindsay S. Johnson,
5410 Stoney Hill CT., Grand Blanc, MI 48439-1912, 9.36%; SEI Trust Company,
Cust. for IRA of David H. Buick, 3008 Gehring Dr., Flint, MI 48506-2262, 9.54%,
Everen Clearing Corp Cust. FBO Barbara L. Isetts, 4705 North Mackinaw,
Pinconning, MI 48650-8431, 8.77%; Everen Clearing Corp Cust. FBO Elaine H.
Schultz, 5302 Holland, Saginaw, MI 48601-9409, 5.70%.
EXPERTS
The financial statements incorporated by reference into this Statement of
Additional Information have been incorporated by reference in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
FINANCIAL STATEMENTS
The audited financial statements of the Portfolios for the fiscal year ended
January 31, 1997, and the Report of Independent Accountants of Price Waterhouse
LLP dated March 14, 1997, relating to the financial statements, including the
financial highlights of the Portfolios are incorporated herein by reference.
S-32
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
The following descriptions are summaries of published ratings.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated A by 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
reflect a "very strong" degree of safety regarding timely payment.
Commercial paper issues rated Prime-1 by Moody's are judged by Moody's to be of
the "highest" quality on the basis of relative repayment capacity.
The rating Fitch-1 (Highest Grade) is the highest commercial rating assigned by
Fitch. Paper rated Fitch-1 is regarded as having the strongest degree of
assurance for timely payment. The rating Fitch-2 (Very Good Grade) is the second
highest commercial paper rating assigned by Fitch which reflects an assurance of
timely payment only slightly less in degree than the strongest issues.
The rating Duff-1 is the highest commercial paper rating assigned by Duff and
Phelps, Inc. ("Duff"). Paper rated Duff-1 is regarded as having very high
certainty of timely payment with excellent liquidity factors which are supported
by ample asset protection. Risk factors are minor. Paper rated Duff-2 is
regarded as having good certainty of timely payment, good access to capital
markets and sound liquidity factors and company fundamentals. Risk factors are
small.
The designation A1 by IBCA Limited ("IBCA") indicates that the obligation is
supported by a very strong capacity for timely repayment. Those obligations
rated A1+ are supported by the highest capacity for timely repayment are
supported by a strong capacity for timely repayment, although such capacity may
be susceptible to adverse changes in business, economic or financial conditions.
The rating TBW-1 by Thomson BankWatch ("Thomson") indicates a very high
likelihood that principal and interest will be paid on a timely basis.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
Moody's highest rating for state and municipal and other short-term notes is
MIG-1 and VMIG-1. Short-term municipal securities rated MIG-1 or VMIG-1 are of
the best quality. They have strong protection from established cash flows of
funds for their servicing or from established and broad-based access to the
market for refinancing or both. Short-term municipal securities rated MIG-2 or
VMIG-2 are of high quality. Margins of protection are ample although not so
large as in the preceding group.
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt rating.
The following criteria will be used in making that assessment:
- Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
- Source of Payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
S&P note rating symbols are as follows:
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics
will be given a plus(+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
A-1
<PAGE>
DESCRIPTION OF CORPORATE 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 also qualify as high-quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree. Debt rated A has a strong capacity
to pay interest and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
debt in higher rated categories. Debt rated BBB is regarded as having an
adequate capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories. Debt
rated BB and B is regarded as having predominantly speculative characteristics
with respect to capacity to pay interest and repay principal. BB indicates the
least degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other speculative
grade debt. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions that could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rate B has greater vulnerability to default but
presently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions would likely impair capacity
or willingness to pay interest and repay principal. The B rating category also
is used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
Bonds which are rated Aaa by Moody's are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." 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 risks appear somewhat larger than in Aaa securities. Bonds which
are rated A 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.
Bonds which are rated Baa 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 which are rated Ba are
judged to have speculative elements; their future cannot be considered as well-
assured. Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class. Bonds
which are rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Moody's bond ratings, where specified, are applied to senior bank obligations
and insurance company senior policyholder and claims obligations with an
original maturity in excess of one year. Obligations relying upon support
mechanisms such as letters-of-credit and bonds of indemnity are excluded unless
explicitly rated.
A-2
<PAGE>
Obligations of a branch of a bank are considered to be domiciled in the country
in which the branch is located. Unless noted as an exception, Moody's rating on
a bank's ability to repay senior obligations extends only to branches located in
countries which carry a Moody's sovereign rating. Such branch obligations are
rated at the lower of the bank's rating or Moody's sovereign rating for the bank
deposits for the country in which the branch is located.
When the currency in which an obligation is denominated is not the same as the
currency of the country in which the obligation is domiciled, Moody's ratings do
not incorporate an opinion as to whether payment of the obligation will be
affected by the actions of the government controlling the currency of
denomination. In addition, risk associated with bilateral conflicts between an
investor's home country and either the issuer's home country or the country
where an issuer branch is located are not incorporated into Moody's ratings.
Moody's makes no representation that rated bank obligations or insurance company
obligations are exempt from registration under the U.S. Securities Act of 1933
or issued in conformity with any other applicable law or regulation. Nor does
Moody's represent that any specific bank or insurance company obligation is
legally enforceable or is a valid senior obligation of a rated issuer.
Moody's ratings are opinions, not recommendations to buy or sell, and their
accuracy is not guaranteed. A rating should be weighed solely as one factor in
an investment decision and you should make your own study and evaluation of any
issuer whose securities or debt obligations you consider buying or selling.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions
liable to but slight market fluctuation other than through changes in the money
rate. The prime feature of an AAA bond is a showing of earnings several times or
many times interest requirements, with such stability of applicable earnings
that safety is beyond reasonable question whatever changes occur in conditions.
Bonds rated AA by Fitch are judged by Fitch to be of safety virtually beyond
question and are readily salable, whose merits are not unlike those of the AAA
class, but whose margin of safety is less strikingly broad. The issue may be the
obligation of a small company, strongly secured but influenced as to rating by
the lesser financial power of the enterprise and more local type market.
Bonds rated A 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 are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have 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
BB are considered speculative. The obligor's ability to pay interest and repay
principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements. Bonds rated B are
considered highly speculative. While bonds in this class are currently meeting
debt service requirements, the probability of continued timely payment of
principal and interest reflects the obligor's limited margin of safety and the
need for reasonable business and economic activity throughout the life of the
issue.
Bonds rated Duff-1 are judged by Duff to be of the highest credit qualify with
negligible risk factors; only slightly more than U.S. Treasury debt. Bonds rated
Duff-2, 3 and 4 are judged by Duff to be of high credit quality with strong
protection factors. Risk is modest but may vary slightly from time to time
because of economic conditions.
Bonds rated BBB+, BBB, or BBB- are considered below average protection factors
but still considered sufficient for prudent investment. Considerable BBB
variability in risk during economic cycles. Bonds
A-3
<PAGE>
rated BB+, BB or BB- are considered below investment grade but deemed likely to
meet obligations when due. Present or prospective financial protection factors
fluctuate according to industry conditions or company fortunes. Overall quality
may move up or down frequently within this category.
Bonds rated B+, B or B- are considered below investment grade and possessing
risk that obligations will not be met when due. Financial protection factors
will fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
Obligations rated AAA by 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 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. Bonds rated A are obligations for which there is a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk.
Bonds rated BBB are obligations for which there is currently a low expectation
of investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
other categories. Bonds rated BB are obligations for which there is a
possibility of investment risk developing. Capacity for timely repayment of
principal and interest exists, but is susceptible over time to adverse changes
in business, economic or financial conditions. Bonds rated B are obligations for
which investment risk exists. Timely repayment of principal and interest is not
sufficiently protected against adverse changes in business, economic or
financial conditions.
Bonds rated AAA by Thomson BankWatch indicate that the ability to repay
principal and interest on a timely basis is very high. Bonds rated AA indicate a
superior ability to repay principal and interest on a timely basis, with limited
incremental risk compared to issues rated in the highest category. Bonds rated A
indicate the ability to repay principal and interest is strong. Issues rated A
could be more vulnerable to adverse developments (both internal and external)
than obligations with higher ratings.
Bonds rated BBB indicate an acceptable capacity to repay principal and interest.
Issues rated "BBB" are, however, more vulnerable to adverse developments (both
internal and external) than obligations with higher ratings.
While not investment grade, the BB rating suggests that the likelihood of
default is considerably less than for lower-rated issues. However, there are
significant uncertainties that could affect the ability to adequately service
debt obligations. Issues rated B show a higher degree of uncertainty and
therefore greater likelihood of default than higher-rated issues. Adverse
developments could well negatively affect the payment of interest and principal
on a timely basis.
A-4
<PAGE>
THE ARBOR FUND
Investment Adviser:
PNC INSTITUTIONAL MANAGEMENT CORPORATION
THE ARBOR FUND (the "Trust") is an open-end management investment company that
offers financial institutions ("Shareholders") a convenient means of investing
their own funds, or funds for which they act in a fiduciary, agency or custodial
capacity, in one or more professionally managed diversified or non-diversified
portfolios of securities. This Prospectus relates to the following portfolios of
the Trust (the "Portfolios"), each a money market portfolio:
- CALIFORNIA TAX EXEMPT PORTFOLIO
- INSTITUTIONAL TAX FREE PORTFOLIO
AN INVESTMENT IN THE PORTFOLIOS IS NEITHER INSURED NOR GUARANTEED BY THE UNITED
STATES GOVERNMENT. THERE IS NO ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. THE CALIFORNIA TAX EXEMPT
PORTFOLIO MAY INVEST A SIGNIFICANT PERCENTAGE OF ITS ASSETS IN A SINGLE ISSUER,
AND INVESTING IN THE PORTFOLIO MAY BE RISKIER THAN INVESTING IN OTHER TYPES OF
MONEY MARKET FUNDS.
SHARES IN THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
This Prospectus sets forth concisely the information about the Portfolios that a
prospective investor should know before investing. Investors are advised to read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated June 1, 1997, has been filed with the Securities and Exchange
Commission and is available without charge by calling 1-800-545-6331. The
Statement of Additional Information is incorporated into this Prospectus by
reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
JUNE 1, 1997
PIC-F-001-05
<PAGE>
2
SUMMARY
THE PORTFOLIOS ARE OPEN-END MANAGEMENT INVESTMENT COMPANIES WHICH PROVIDE A
CONVENIENT AND ECONOMICAL WAY TO INVEST IN PROFESSIONALLY MANAGED
DIVERSIFIED AND NON-DIVERSIFIED PORTFOLIOS OF SECURITIES. THE FOLLOWING
SUMMARY PROVIDES BASIC INFORMATION ABOUT THE SHARES OF THE CALIFORNIA TAX
EXEMPT PORTFOLIO, A NON-DIVERSIFIED PORTFOLIO, AND THE INSTITUTIONAL TAX
FREE PORTFOLIO, A DIVERSIFIED PORTFOLIO (THE "PORTFOLIOS"). THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION
INCLUDED ELSEWHERE IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL
INFORMATION.
WHAT IS THE INVESTMENT OBJECTIVE? Each of the Portfolios seeks to preserve
principal value and maintain a high degree of liquidity while providing
current income exempt from federal income taxes and, for the California Tax
Exempt Portfolio, to the extent possible, California state personal income
taxes. There can be no assurance that either Portfolio will achieve its
investment objective or be able to maintain a net asset value of $1.00 per
share on a continuous basis. THE CALIFORNIA TAX EXEMPT PORTFOLIO
CONCENTRATES ITS INVESTMENTS IN CALIFORNIA MUNICIPAL SECURITIES AND AN
INVESTMENT IN THE PORTFOLIO THEREFORE MAY BE RISKIER THAN AN INVESTMENT IN
OTHER TYPES OF MONEY MARKET FUNDS. See "Investment Objective."
WHAT ARE THE PERMITTED INVESTMENTS? Under normal market conditions, each of
the Portfolios will invest at least 80% of its assets in municipal
securities which produce interest that, in the opinion of bond counsel, is
exempt from federal income tax and not included as a preference item under
the alternative minimum tax. In addition, the California Tax Exempt
Portfolio will invest at least 65% of its assets in municipal obligations
the interest income from which, in the opinion of bond counsel, is exempt
from California state personal income tax. These instruments will satisfy
quality, maturity and other standards set by the Trust and applicable law.
See "Investment Policies," "General Investment Policies and Information" and
"Description of Permitted Investments."
WHO IS THE ADVISER? PNC Institutional Management Corporation serves as the
investment adviser of the Portfolios. See "The Adviser."
WHO IS THE ADMINISTRATOR? SEI Fund Resources serves as the administrator
and shareholder servicing agent of the Portfolios. See "The Administrator."
WHO IS THE TRANSFER AGENT? DST Systems, Inc. serves as the transfer agent
and dividend disbursing agent for the Portfolios. See "The Transfer Agent."
WHO IS THE DISTRIBUTOR? SEI Financial Services Company serves as
distributor of the Portfolios' shares. See "The Distributor."
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Transfer Agent on days when the New York Stock Exchange and the
Federal Reserve wire system are open for business ("Business Days"). A
purchase order will be effective as of the Business Day received by the
Distributor if the Distributor receives the order and payment prior to 12:00
noon, Eastern time, on such Business Day. A redemption order must be placed
prior to 12:00 noon, Eastern time, on any Business Day for the order to be
effective that day. See "Purchase and Redemption of Shares."
HOW ARE DIVIDENDS PAID? Substantially all of the net investment income
(exclusive of capital gain) of each Portfolio is determined and declared
daily as a dividend for Shareholders of record as of the close of business
on that day. Any realized net capital gain will be distributed at least
annually. Dividends are paid monthly in additional shares unless the
Shareholder elects to take the payment in cash. See "General Information--
Dividends."
<PAGE>
3
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION FEES
<TABLE>
<CAPTION>
CALIFORNIA INSTITUTIONAL
TAX EXEMPT TAX FREE
PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------
<S> <C> <C>
Shareholder Transaction Fees......................... None None
- ---------------------------------------------------------------------------------
<CAPTION>
CALIFORNIA INSTITUTIONAL
ANNUAL OPERATING EXPENSES TAX EXEMPT TAX FREE
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------
<S> <C> <C>
Advisory Fees(1)..................................... .10% .10%
12b-1 Fees........................................... None None
Other Expenses (after fee waivers)(2)................ .23% .10%
- ---------------------------------------------------------------------------------
Total Operating Expenses (after fee waivers)(2)...... .33% .20%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
(1) Advisory fees have been restated to reflect current fee levels.
(2) The Administrator has agreed to waive a portion of its fee in an amount that
operates to limit Total Operating Expenses to not more than .33% of the
California Tax Exempt Portfolio's average daily net assets and .20% of the
Institutional Tax Free Portfolio's average daily net assets. Absent
voluntary waivers of fees, Other Expenses (which includes administration
fees), as a percentage of average daily net assets, would be .28% for the
California Tax Exempt Portfolio and .38% for the Institutional Tax Free
Portfolio and Total Operating Expenses would be .38% for the California Tax
Exempt Portfolio and .48% for the Institutional Tax Free Portfolio. Fee
waivers by the Administrator are voluntary and may be terminated at any time
in its sole discretion. Additional information may be found under "The
Administrator" and "The Distributor."
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
EXAMPLE 1 YR. 3 YRS. 5 YRS.
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
An investor would pay the following expenses on a $1,000 investment assuming (1)
5% annual return and (2) redemption at the end of each time period:
California Tax Exempt Portfolio.................................................. $ 3 $ 11 $ 19
Institutional Tax Free Portfolio................................................. $ 2 $ 6 $ 11
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------
EXAMPLE 10 YRS.
- ---------------------------------------------------------------------------------
<S> <C>
An investor would pay the following expenses on a $1,000 investment assuming (1)
5% annual return and (2) redemption at the end of each time period:
California Tax Exempt Portfolio.................................................. $ 42
Institutional Tax Free Portfolio................................................. $ 26
- ---------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this
table is to assist the investor in understanding the various costs and expenses
that may be directly or indirectly borne by investors in the Portfolios. A
person who purchases shares through a financial institution may be charged
separate fees by that institution. Additional information may be found under
"The Adviser," "The Administrator" and "The Distributor."
<PAGE>
4
FINANCIAL HIGHLIGHTS THE ARBOR FUND
The following information has been audited by Price Waterhouse LLP, the Trust's
independent accountants, as indicated in their report dated March 14, 1997 on
the Trust's financial statements as of January 31, 1997 included in the Trust's
Statement of Additional Information under "Financial Statements." Additional
performance information is set forth in the 1997 Annual Report to Shareholders
and is available upon request and without charge by calling 1-800-545-6331. This
table should be read in conjunction with the Trust's financial statements and
notes thereto.
For a Share Outstanding Throughout
the Periods Ended January 31,
<TABLE>
<CAPTION>
REALIZED NET
NET ASSET AND DISTRIBUTIONS ASSET
VALUE NET UNREALIZED FROM NET VALUE
BEGINNING INVESTMENT LOSSES ON INVESTMENT CONTRIBUTION END OF
OF PERIOD INCOME SECURITIES INCOME OF CAPITAL PERIOD
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CALIFORNIA TAX EXEMPT PORTFOLIO
1997................................ $1.00 0.03 -- (0.03) -- $1.00
1996................................ 1.00 0.03 -- (0.03) -- 1.00
1995................................ 1.00 0.03 (.008) (0.03) .008 1.00
1994(1)............................. 1.00 0.01 -- (0.01) -- 1.00
INSTITUTIONAL TAX FREE PORTFOLIO
1997................................ $1.00 0.03 -- (0.03) -- $1.00
1996................................ 1.00 0.04 -- (0.04) -- 1.00
1995................................ 1.00 0.03 -- (0.03) -- 1.00
1994(1)............................. 1.00 0.01 -- (0.01) -- 1.00
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIO OF RATIO OF RATIO OF RATIO OF
EXPENSES NET EXPENSES NET INCOME
NET ASSETS TO INCOME TO AVERAGE TO AVERAGE
END OF AVERAGE TO NET ASSETS NET ASSETS
TOTAL PERIOD NET AVERAGE NET (EXCLUDING (EXCLUDING
RETURN (000) ASSETS ASSETS WAIVERS) WAIVERS)
- -------------------------------------- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CALIFORNIA TAX EXEMPT PORTFOLIO
1997................................ 3.09% $488,738 0.33% 3.04% 0.38% 2.99%
1996................................ 3.42++ 391,682 0.42 3.36 0.42 3.36
1995................................ 2.79+ 396,004 0.28 2.72 0.34 2.66
1994(1)............................. 2.17* 402,814 0.28* 2.14* 0.34* 2.08*
INSTITUTIONAL TAX FREE PORTFOLIO
1997................................ 3.37% $ 57,574 0.22% 3.29% 0.48% 3.03%
1996................................ 3.69 116,736 0.30 3.60 0.48 3.42
1995................................ 2.80 113,724 0.30 2.73 0.46 2.57
1994(1)............................. 2.20* 130,768 0.30* 2.17* 0.47* 2.00*
- -------------------------------------- ----------------------------------------------------------------------
- -------------------------------------- ----------------------------------------------------------------------
</TABLE>
* Annualized.
+ The total return for the period ended January 31, 1995 includes the effect of
a capital contribution from an affiliate of the former Adviser. Without the
capital contribution, the total return would have been .74%.
++ The total return for the period ended January 31, 1996 includes the effect
of a capital contribution from an affiliate of the former Adviser. Without
the capital contribution, the total return would have been 2.42%.
(1) Commenced operations on October 6, 1993.
<PAGE>
5
THE PORTFOLIOS AND THE TRUST
This Prospectus offers shares of the California Tax Exempt Portfolio and the
Institutional Tax Free Portfolio (each a "Portfolio"). The Portfolios are two
separate investment portfolios of The Arbor Fund (the "Trust"), an open-end
management investment company. The California Tax Exempt Portfolio (the
"California Portfolio") is a non-diversified portfolio and the Institutional Tax
Free Portfolio (the "Institutional Portfolio") is a diversified portfolio, as
described below. The Portfolios are offered together in order to provide
investors with an investment alternative.
INVESTMENT OBJECTIVE
The investment objective of each Portfolio is to preserve principal value and
maintain a high degree of liquidity while providing current income exempt from
federal income taxes, and for the California Portfolio to the extent possible,
California state personal income taxes. There is no assurance that a Portfolio's
investment objective will be met.
Each Portfolio intends to comply with regulations of the Securities and Exchange
Commission ("SEC") applicable to money market funds using the amortized cost
method for calculating net asset value. These regulations impose certain
quality, maturity and diversification restraints on investments by each
Portfolio. Under these regulations, each Portfolio will invest only in U.S.
dollar denominated securities, will maintain an average maturity on a
dollar-weighted basis of 90 days or less, and will acquire only "eligible
securities" that present minimal credit risks and have a maturity of 397 days or
less. For a further discussion of these rules, see the "Description of Permitted
Investments."
INVESTMENT POLICIES
THE CALIFORNIA PORTFOLIO invests, under normal market conditions, at least 80%
of its assets in municipal securities which produce interest that, in the
opinion of bond counsel, is exempt from federal income tax and not included as a
preference item under the federal alternative minimum tax (the "AMT"). This
investment policy is a fundamental policy of the Portfolio. At least 65% of the
Portfolio's assets will be invested in municipal obligations the interest income
from which, in the opinion of bond counsel, is exempt from California state
personal income tax. These constitute municipal obligations of the State of
California and its political subdivisions or municipal authorities and municipal
obligations issued by territories or possessions of the United States.
Municipal securities that the Portfolio may purchase consist of municipal bonds,
municipal notes, tax exempt commercial paper and participations in instruments
issued in connection with lease obligations or installment purchase contract
obligations of municipalities ("municipal lease obligations") that are rated, at
the time of investment, by at least two nationally recognized statistical rating
organizations (each, an "NRSRO") (one if it is the only organization rating such
obligation) in the highest short-term rating category or, if unrated, determined
to be of comparable quality by the Adviser (a "first tier security"), or rated
according to the foregoing criteria in the second highest short-term rating
category or, if unrated, determined to be of comparable quality by the Adviser
(a "second tier security").
Some municipal obligations produce interest which, while exempt from ordinary
federal income tax, is subject to the AMT.
Certain risks are inherent in the Portfolio's concentrated investment in
California municipal securities, which may make an investment in the Portfolio
riskier than an investment in other types of money market funds. These risks
result from (1) provisions in the California Constitution and other statutes
that limit the taxing and spending authority of California government entities,
(2) the general financial condition of the State of California, and (3) a
variety of California laws and regulations that may affect, directly or
indirectly, California municipal securities. The ability of issuers of municipal
securities to pay interest on, or repay principal of, municipal securities may
be impaired as a result. A more complete description of these risks is contained
in the Statement of Additional Information.
The Portfolio will invest in short-term securities, or in commitments to
purchase such securities on a when-issued or delayed delivery basis. Under
normal market conditions, the Adviser has discretion to invest up to 20% of the
Portfolio's assets in taxable money market instruments (including
<PAGE>
6
repurchase agreements) and securities subject to the AMT.
Taxable money market instruments in which the Portfolio may invest consist of
U.S. Treasury bills, other marketable obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, whether or not backed by the
full faith and credit of the United States Treasury; commercial paper;
instruments of U.S. commercial banks or savings and loan institutions (not
including foreign branches of U.S. banks or U.S. branches of foreign banks)
which are members of the Federal Reserve System, the Bank Insurance Fund and
Savings Association Insurance Fund of the Federal Deposit Insurance Corporation
and which have total assets of $1 billion or more as shown on their last
published financial statements at the time of investment; and repurchase
agreements involving any of such obligations.
For temporary defensive purposes when the Adviser determines that market
conditions warrant, the Portfolio may invest up to 100% of its assets in
municipal obligations of other states or taxable money market instruments
(including repurchase agreements, U.S. Treasury securities and instruments of
certain U.S. commercial banks or savings and loan institutions).
The Portfolio is a non-diversified investment company, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), which means that
more than 5% of its assets may be invested in one or more issuers, although the
Adviser does not intend to invest more than 10% of the Portfolio's assets in any
single issuer with the exception of securities which are issued or guaranteed by
the U.S. Government. Since a relatively high percentage of assets of the
Portfolio may be invested in the obligations of a limited number of issuers, the
value of shares of the Portfolio may be more susceptible to any single economic,
political or regulatory occurrence than the shares of a diversified investment
company.
For additional information regarding risks and permitted investments, see
"Description of Permitted Investments" in this Prospectus and the Statement of
Additional Information.
THE INSTITUTIONAL PORTFOLIO invests in U.S. dollar denominated municipal
securities of issuers located in all fifty states, the District of Columbia,
Puerto Rico and other U.S. territories and possessions. At least 80% of the
Portfolio's total assets will be invested in securities the interest on which is
exempt from federal income taxes and not included as a preference item under the
AMT, based on opinions from bond counsel for the issuers. This investment policy
is a fundamental policy of the Portfolio.
Municipal securities that the Portfolio may purchase consist of municipal bonds,
municipal notes, tax-exempt commercial paper and municipal lease obligations
that are rated, at the time of investment, by at least two NRSROs (one if it is
the only organization rating such obligation) in the highest short-term rating
category or, if unrated, determined to be of comparable quality by the Adviser
(a "first tier security"), or rated according to the foregoing criteria in the
second highest short-term rating category or, if unrated, determined to be of
comparable quality by the Adviser (a "second tier security").
The Portfolio will invest in short-term securities, in commitments to purchase
such securities on a when-issued or delayed delivery basis. Under normal market
conditions, the Adviser has discretion to invest up to 20% of the Portfolio's
assets in taxable money market instruments (including repurchase agreements) and
securities subject to the AMT. Taxable money market instruments in which the
Portfolio may invest are the same as those described above under the California
Portfolio.
The Portfolio is a diversified investment company, as defined in the 1940 Act
and, accordingly, is subject to the first limitation set forth in "Investment
Limitations" below.
For additional information regarding risks and permitted investments, see
"Description of Permitted Investments" in this Prospectus and the Statement of
Additional Information.
GENERAL INVESTMENT POLICIES AND INFORMATION
The Portfolios may invest in when-issued or delayed delivery securities and
variable and floating rate obligations. When investing in when-issued
securities, the Portfolios will not accrue income until delivery of the
securities and will invest in such securities only for purposes of actually
acquiring the
<PAGE>
7
securities and not for the purpose of leveraging. In addition, the Portfolios
reserve the right to engage in securities lending.
Each Portfolio also reserves the right to purchase securities on a standby
commitment or put basis. There will be no limit to the percentage of portfolio
securities that a Portfolio may purchase subject to a standby commitment or put
but the amount paid directly or indirectly for a standby commitment held by a
Portfolio will not exceed 1/2 of 1% of the value of the total assets of the
Portfolio. Furthermore, each Portfolio will not invest more than 10% of its net
assets in securities which are considered to be illiquid.
The Portfolios intend to satisfy the diversification requirements necessary to
qualify as regulated investment companies under the Internal Revenue Code of
1986, as amended (the "Code"). Each Portfolio will limit its investments so
that, at the close of each quarter of the taxable year, (a) not more than 25% of
the market value of the Portfolio's total assets is invested in the securities
(other than U.S. Government securities) of a single issuer and (b) at least 50%
of the market value of the Portfolio's total assets is represented by (i) cash
and cash items, (ii) U.S. Government securities and (iii) other securities
limited in respect to any one issuer to an amount not greater in value than 5%
of the market value of the Portfolio's total assets and to not more than 10% of
the outstanding voting securities of such issuer.
State, municipal and other short-term notes having the highest rating are of the
best quality. They have strong protection from established cash flows of funds
for their servicing or from established and broad-based access to the market for
refinancing or both. Short-term municipal securities rated in the second highest
short-term rating category are of high quality. Margins of protection are ample
although not so large as in the preceding group. Bonds rated AA, the second
highest rating category, qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from the highest rated issues only in small degree. They are rated lower
than the best bonds because margins of protection may not be as large or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear somewhat larger
than in the highest rated bonds.
In the event a security owned by a Portfolio is downgraded below the rating
categories described in the section "Investment Policies," the Adviser will
review and take appropriate action with regard to such security.
INVESTMENT LIMITATIONS
The following investment limitations and the investment objective of each
Portfolio are fundamental policies and cannot be changed with respect to a
Portfolio without the consent of the holders of a majority of that Portfolio's
outstanding shares.
A Portfolio may not:
1. Purchase any securities which would cause more than 25% of the total assets
of the Portfolio to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply to investments in obligations issued or
guaranteed by the U.S. Government or its agencies, instrumentalities and
repurchase agreements involving such securities or, for the California
Portfolio, to investments in tax-exempt securities issued by governments or
political subdivisions of governments.
2. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of the total assets of the Portfolio.
All borrowings will be repaid before making additional investments and any
interest paid on such borrowings will reduce the income of the Portfolio.
In addition, the Institutional Portfolio may not purchase securities of any
issuer (except securities issued or guaranteed by the United States, its
agencies or instrumentalities and repurchase agreements involving such
securities) if as a result more than 5% of the total assets of the Portfolio
would be invested in the securities of such issuer; provided that the Portfolio
may invest up to 25% of its total assets without regard to this restriction as
permitted by applicable law.
The foregoing percentages will apply at the time of the purchase of a security.
Additional investment
<PAGE>
8
limitations, identified as either fundamental or not, are set forth in the
Statement of Additional Information.
THE ADVISER
PNC Institutional Management Corporation ("PIMC" or the "Adviser") serves as
investment adviser to the Portfolios pursuant to investment advisory agreements
(the "Advisory Agreements") with the Trust. Under the Advisory Agreements, the
Adviser makes the investment decisions for the assets of the Portfolios and
continuously reviews, supervises and manages each Portfolio's investment
program. The Adviser is independent of SEI Fund Resources (the "Administrator")
and discharges its responsibilities subject to the supervision of, and policies
established by, the Trustees of the Trust.
PIMC is a wholly-owned subsidiary of PNC Asset Management Group, Inc., which is
a wholly-owned subsidiary of PNC Bank, National Association ("PNC Bank"). PIMC
was organized in 1977 by PNC Bank to perform advisory services for investment
companies and is one of the largest bank managers of mutual funds in the
country, with assets currently under management in excess of $30 billion as of
January 31, 1997 (including approximately $5 billion in tax-exempt money market
funds). PIMC has its principal offices at 400 Bellevue Parkway, Wilmington,
Delaware 19809. The principal business address of both PNC Asset Management
Group, Inc. and PNC Bank is 1600 Market Street, Philadelphia, Pennsylvania
19103. PNC Bank and its predecessors have been in the business of managing the
investments of fiduciary and other accounts in the Philadelphia area since 1847.
In 1973, Provident National Bank (the predecessor to PNC Bank) commenced
advising the first institutional money market mutual fund offered in the United
States. PNC Bank is a wholly-owned indirect subsidiary of PNC Bank Corp.
PNC Bank Corp., a multi-bank holding company headquartered in Pittsburgh,
Pennsylvania, is one of the largest financial services organizations in the
United States, with banking subsidiaries in Pennsylvania, New Jersey, Delaware,
Ohio, Kentucky, Indiana, Massachusetts and Florida. Its major businesses include
corporate banking, consumer banking, real estate banking, mortgage banking and
asset management.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of .095% of the average daily net assets of
each of the California Portfolio and the Institutional Portfolio. For the fiscal
year ended January 31, 1997, the California Portfolio and the Institutional
Portfolio paid the Adviser advisory fees, as a percentage of average daily net
assets of .09% and .09%, respectively.
THE ADMINISTRATOR
SEI Fund Resources (the "Administrator"), Oaks, PA 19456, provides the
Portfolios with administrative services, other than investment advisory
services, regulatory reporting, all necessary office space, equipment, personnel
and facilities, pursuant to an administration agreement with the Trust (the
"Administration Agreement"). The Administrator also serves as the shareholder
servicing agent of the Trust under the terms of the Administration Agreement.
For its services, the Administrator is entitled to a fee which is calculated
daily and paid monthly at an annual rate of .23% of the average daily net assets
of the California Portfolio and .30% of the average daily net assets of the
Institutional Portfolio. The Administrator has voluntarily agreed to waive a
portion of its fee in order to limit annual operating expenses (as a percentage
of average daily net assets) to .33% of the California Tax Exempt Portfolio and
.20% of the Institutional Portfolio. The Administrator reserves the right, in
its sole discretion, to terminate this voluntary fee waiver at any time. For the
fiscal year ended January 31, 1997, the Portfolio paid the Administrator
administration fees, as a percentage of average daily net assets, of .18% of the
California Portfolio and .04% of the Institutional Portfolio.
THE TRANSFER AGENT
DST Systems, Inc., 1004 Baltimore Street, Kansas City, Missouri 64105 (the
"Transfer Agent") serves as the transfer agent and dividend disbursing agent for
the Portfolios under a transfer agency agreement with the Trust.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), Oaks, Pennsylvania, 19456, a
wholly-owned
<PAGE>
9
subsidiary of SEI Investments Company ("SEI") and an affiliate of the
Administrator, serves as the distributor of the Portfolios' shares pursuant to a
distribution agreement with the Trust (the "Distribution Agreement"). The
Distributor receives no fee for its services. Financial institutions that are
the record owner of shares for the account of their customers may impose
separate fees for account services to their customers.
The Distributor may, from time to time and at its own expense, provide
promotional incentives in the form of cash or other compensation to certain
financial institutions and intermediaries whose registered representatives have
sold or are expected to sell significant amounts of the shares of a Portfolio.
Such other compensation may take the form of payments for travel expenses,
including lodging, incurred in connection with trips taken by qualifying
registered representatives to places within or outside of the United States.
PURCHASE AND REDEMPTION OF SHARES
Shares are sold primarily to financial institutions, for the investment of funds
for which they act in a fiduciary, agency or custodial capacity. Shares are sold
without distribution fees, although financial institutions may charge their
customer accounts for services provided in connection with the purchase of
shares. Information concerning these services and any charges will be provided
to customers by the financial institution. Shares will be held of record by the
financial institutions, although customers may have the right to vote the shares
depending upon the terms of their relationship with the financial institution.
Confirmations of share purchases and redemptions will be sent to the financial
institution as the shareholder of record.
Purchases and redemptions of shares of a Portfolio may be made on days when the
New York Stock Exchange and the Federal Reserve wire system are open for
business ("Business Days").
There are no minimum initial investment or subsequent investment amounts
applicable to the purchase of shares of the Portfolios. Third party checks,
credit cards, credit card checks and cash will not be accepted. If purchases are
made by check, redemption proceeds will not be forwarded until the investment
being redeemed has been in the account for 15 business days.
A purchase order will be effective as of the day received by the Transfer Agent
and eligible to receive dividends declared the same day if the Transfer Agent
receives the order before 12:00 noon, Eastern time, and the Custodian receives
Federal funds before the close of business on such day. Otherwise, the purchase
order will be effective the next Business Day assuming Federal funds are
received by the close of business on such day. The purchase price is the net
asset value per share next computed after the order is received and accepted by
the Trust. The net asset value per share of a Portfolio is determined by
dividing the total value of its investments and other assets, less any
liabilities, by its total outstanding shares. The net asset value per share is
calculated as of 12:00 noon, Eastern time, each Business Day based on the
amortized cost method described in the Statement of Additional Information.
The Trust reserves the right to reject a purchase order when the Distributor and
Transfer Agent determines that it is not in the best interest of the Trust or
Shareholder(s). Shares of a Portfolio are offered only to residents of states in
which the shares are eligible for purchase.
Redemption orders may be made any time before 12:00 noon, Eastern time, in order
to receive that day's redemption price. For redemption orders received before
12:00 noon, Eastern time, payment will be made the same day by transfer of
Federal Funds. Otherwise, payment will be made on the next Business Day. The
redemption price is the net asset value per share of the Portfolio next
determined after receipt by the Transfer Agent of the redemption order.
Financial institutions may impose an earlier cut-off time for receipt of
purchase orders directed through them to allow for processing and transmittal of
these orders to the Transfer Agent for effectiveness the same day. Customers
should contact their financial institution for information as to the
institution's procedures for transmitting purchase, exchange or redemption of
shares to the Fund. Customers who desire to transfer the registration of shares
beneficially owned by them but held of record by a financial institution should
contact the institution to accomplish such change. Other Shareholders who desire
to transfer the registration of their shares should contact the Transfer Agent
to accomplish such change.
<PAGE>
10
The purchase price and the redemption price are expected to remain constant at
$1.00 per share.
COMPUTATION OF YIELD
From time to time a Portfolio advertises its "current yield," "effective yield"
and "tax equivalent yield." These yield figures are based on historical earnings
and are not intended to indicate future performance. No representation can be
made concerning actual future yields. The "current yield" of a Portfolio refers
to the income generated by an investment in the Portfolio over a stated
seven-day period (which period will be stated in the advertisement). This income
is then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" (also called
the effective compound yield) is calculated similarly but, when annualized, the
income earned by an investment in the Portfolio is assumed to be reinvested. The
"effective yield" will be slightly higher than the "current yield" because of
the compounding effect of this assumed reinvestment. The "tax equivalent yield"
is calculated by determining the rate of return that would have been achieved on
a fully taxable investment to produce the after-tax equivalent of the
Portfolio's yield, assuming certain tax brackets for a Shareholder.
Each Portfolio may periodically compare performance to other mutual funds
tracked by mutual fund rating services, to broad groups of comparable mutual
funds or to unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of each
Portfolio or its Shareholders. Accordingly, Shareholders are urged to consult
their tax advisors regarding specific questions as to federal, state and local
income taxes.
State and local tax consequences of an investment in the Portfolios may differ
from the federal income tax consequences described below. Additional information
concerning taxes is set forth in the Statement of Additional Information.
TAX STATUS OF A PORTFOLIO:
Each Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Trust's other portfolios. Each Portfolio intends to
qualify for the special tax treatment afforded regulated investment companies as
defined under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code") so as to be relieved of federal income tax on that part of its net
investment income and net capital gain (the excess of net long-term capital gain
over net short-term capital loss) that it distributes to Shareholders.
TAX STATUS OF DISTRIBUTIONS:
Each Portfolio will distribute all of its net investment income (including, for
this purpose, net short-term capital gains) to Shareholders. Dividends from net
investment income will be taxable to Shareholders as ordinary income whether
received in cash or in additional shares. Dividends from net capital gains (the
excess of net long-term capital gain over net short-term capital loss) will be
treated as long-term capital gains, regardless of how long the Shareholder has
held shares. Corporate shareholders should note that Portfolio distributions
will not qualify for the dividends-received deduction that is generally
available to corporate taxpayers.
If, at the close of each quarter of its taxable year, at least 50% of the value
of a Portfolio's total assets consists of obligations the interest on which is
excludable from gross income, the Portfolio may pay "exempt-interest dividends"
to its Shareholders. Those dividends constitute the portion of the aggregate
dividends designated by the Portfolio equal to the excess of the excludable
interest over certain amounts disallowed as deductions. Exempt-interest
dividends are excludable from a Shareholder's gross income for federal income
tax purposes but may have certain collateral federal tax consequences as
described in the Statement of Additional Information.
Current federal tax law limits the types and volume of bonds qualifying for the
federal income tax
<PAGE>
11
exemption of interest, which may have an effect on the ability of a Portfolio to
purchase sufficient amounts of tax-exempt securities to satisfy the Code's
requirements for the payment of "exempt-interest" dividends.
Interest on indebtedness incurred or continued by a Shareholder in order to
purchase or carry shares of the Portfolios is not deductible for federal income
tax purposes. Furthermore, the Portfolios may not be an appropriate investment
for persons (including corporations and other business entities) who are
"substantial users" (or persons related to "substantial users") of facilities
financed by industrial development private activity bonds. Such persons should
consult their advisers before purchasing shares. A "substantial user" is defined
generally to include "certain persons" who regularly use in their trade or
business a part of a facility financed from the proceeds of such bonds.
Interest received on direct U.S. Treasury obligations is exempt from tax at the
state level when received directly and may be exempt, depending on the state,
when received by a Shareholder from a Portfolio provided certain conditions are
satisfied. Interest received on repurchase agreements collateralized by U.S.
Government obligations normally is not exempt from state taxation. Each
Portfolio will inform Shareholders annually of the percentage of income and
distributions derived from direct U.S. Treasury obligations. Shareholders should
consult their tax advisors to determine whether any portion of the income
dividends received from a Portfolio is considered tax exempt in their particular
states.
Each Portfolio intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
Dividends declared by a Portfolio in October, November or December of any year
and payable to Shareholders of record on a date in such a month will be deemed
to have been paid by the Portfolio and received by the Shareholders on December
31 of the year declared if paid by the Portfolio during the following January.
The Portfolios make annual reports to Shareholders of the Federal income tax
status of dividends and distributions, and with respect to the California
Portfolio, the annual report provides the tax status of such dividends and
distributions with respect to California state personal income tax.
The sale, exchange or redemption of a Portfolio's shares will be a taxable event
for the shareholder.
CALIFORNIA TAXES
The California Portfolio intends to qualify to pay dividends to Shareholders
that are exempt from California personal income tax ("California exempt-interest
dividends"). The Portfolio will qualify to pay California exempt-interest
dividends if (1) at the close of each quarter of the Portfolio's taxable year,
at least 50 percent of the value of the Portfolio's total assets consists of
obligations the interest on which would be exempt from California personal
income tax if the obligations were held by an individual ("California Tax Exempt
Obligations") and (2) the Portfolio continues to qualify as a regulated
investment company.
If the Portfolio qualifies to pay California exempt-interest dividends,
dividends distributed to Shareholders will be considered California exempt-
interest dividends if they meet certain requirements. See the Statement of
Additional Information. The Portfolio will notify Shareholders of the amount of
exempt-interest dividends each year.
Corporations subject to California franchise tax that invest in the Portfolio
may not be entitled to exclude California exempt-interest dividends from income.
Dividend distributions that do not qualify for treatment as California
exempt-interest dividends will be taxable to Shareholders at ordinary income tax
rates for California personal income tax purposes to the extent of the
Portfolio's earnings and profits.
Interest on indebtedness incurred or continued by a Shareholder in connection
with the purchase of shares of the Portfolio will not be deductible for
California personal income tax purposes if the Portfolio distributes California
exempt-interest dividends.
The foregoing is a general, abbreviated summary of certain of the provisions of
the California Revenue and Taxation Code presently in effect as they directly
govern the taxation of Shareholders subject to California personal income tax.
These provisions are subject to change by legislative or administrative action,
and any such change may be retroactive
<PAGE>
12
with respect to Portfolio transactions. Shareholders are advised to consult with
their own tax advisors for more detailed information concerning California tax
matters.
GENERAL INFORMATION
THE TRUST
The Trust is an open-end management investment company that has diversified and
non-diversified portfolios. The Trust is organized as a Massachusetts Business
Trust under a Declaration of Trust dated July 24, 1992. The Declaration of Trust
permits the Trust to offer separate portfolios of shares and different classes
of shares within each portfolio. All consideration received by the Trust for
shares of any portfolio and all assets of such portfolio belong to that
portfolio and are subject to liabilities related thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to Shareholders, costs of custodial services and registering the
shares under federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
Please refer to "Financial Highlights" in this Prospectus for more information
regarding the Portfolios' expenses.
TRUSTEES OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust.
VOTING RIGHTS
Each share held entitles the Shareholder of record to one vote. Each portfolio
or class will vote separately on matters relating solely to that portfolio or
class. As a Massachusetts business trust, the Trust is not required to hold
annual meetings of Shareholders but approval will be sought for certain changes
in the operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by Shareholders at a special meeting called upon written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting.
REPORTING
The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to The Arbor Fund, P.O. Box 419947,
Kansas City, MO 64141-6947.
DIVIDENDS
Substantially all of the net investment income (exclusive of capital gains) of
each Portfolio is determined and declared on each Business Day as a dividend for
Shareholders of record as of the close of business on that day. Dividends are
paid by the Portfolios in additional shares, unless the Shareholder has elected
to take such payment in cash, on the first business day of each month.
Shareholders may change their election by providing written notice to the
Administrator at least 15 days prior to the distribution. Currently, capital
gains of the Portfolios, if any, are distributed at least annually.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Price Waterhouse LLP
serves as the independent accountants of the Trust.
CUSTODIAN
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
PA 19101 (the "Custodian"), acts as custodian of the Trust. The Custodian holds
cash, securities and other assets of the Trust as required by the 1940 Act.
<PAGE>
13
DESCRIPTION OF PERMITTED INVESTMENTS
The following is a description of certain of the permitted investments for each
Portfolio:
COMMERCIAL PAPER--Commercial paper is a term used to designate unsecured
short-term promissory notes issued by banks, municipalities, corporations and
other entities. Maturities on these issues vary from a few to 270 days.
MUNICIPAL SECURITIES--Municipal securities consist of (i) debt obligations
issued by or on behalf of public authorities to obtain funds to be used for
various public facilities, for refunding outstanding obligations, for general
operating expenses and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated facilities.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility
(tolls from a toll bridge, for example). Certificates of participation represent
an interest in an underlying obligation or commitment, such as an obligation
issued in connection with a leasing arrangement. The payment of principal and
interest on private activity and industrial development bonds generally is
dependent solely on the ability of the facility's user to meet its financial
obligations and the pledge, if any, of real and personal property so financed as
security for such payment. Municipal securities include both municipal notes and
municipal bonds. Municipal notes include general obligation notes, tax
anticipation notes, revenue anticipation notes, bond anticipation notes,
certificates of indebtedness, demand notes and construction loan notes and
participation interests in municipal notes. Municipal bonds include general
obligation bonds, revenue or special obligation bonds, private activity and
industrial development bonds and participation interests in municipal bonds.
The Portfolios may purchase municipal lease obligations, including certificates
of participation in municipal leases. The Portfolios may acquire municipal lease
obligations that may be assigned by the lessee to another party provided the
obligation continues to provide tax-exempt interest. The Portfolios will not
purchase municipal lease obligations to the extent they hold municipal lease
obligations and illiquid securities in an amount exceeding 10% of their
respective total assets unless the Adviser determines that the municipal lease
obligations are liquid pursuant to guidelines established by the Board of
Trustees of the Trust. Pursuant to these guidelines, the Advisor, in making this
liquidity determination, will consider, among other factors, the strength and
nature of the secondary market for such obligations, the prospect for its future
marketability and whether such obligations are rated. The Board of Trustees of
the Trust will be responsible for determining the credit quality of unrated
municipal leases, on an ongoing basis, including an assessment of the likelihood
that the lease will not be cancelled. In addition, the Portfolios may purchase
participation interests in other municipal securities (such as industrial
development bonds).
RESTRICTIONS ON INVESTMENTS IN MUNICIPAL SECURITIES. The Adviser may not invest
more than 25% of a Portfolio's assets in municipal securities 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. Moreover, in
seeking to attain its investment objective a Portfolio may invest all or any
part of its assets in municipal securities that are industrial development
bonds.
Economic, business, or political developments might affect all municipal
securities of a similar type. To the extent that a significant portion of a
Portfolio's assets are invested in municipal securities payable from revenues on
similar projects, the Portfolio will be subject to the peculiar risks presented
by such projects to a greater extent than it would be if the Portfolio's assets
were not so invested. For example, certain municipal securities may be
obligations of issuers who rely in whole or in part on ad valorem real property
taxes as a source of revenue and legislation may have the effect of limiting ad
valorem taxes on real property or restricting the ability of taxing entities to
increase real property tax revenues. Municipal securities that are payable only
from the revenues derived from a particular facility, such as a utility or
housing project, may be adversely affected by laws or regulations that make
<PAGE>
14
it more difficult for the particular facility to generate revenues sufficient to
pay such interest and principal, including, among others, laws and regulations
that limit the amount of fees, rates or other charges that may be imposed for
use of the facility or that increase competition among facilities of that type
or that limit or otherwise have the effect of reducing the use of such
facilities generally, thereby reducing the revenues generated by the particular
facility. If the payment of interest and principal on municipal securities are
insured in whole or in part by a government created fund, the municipal
securities may be adversely affected by laws or regulations that restrict the
aggregate insurance proceeds available for payment of principal and interest in
the event of a default on such securities. State and local tax revenues
generally mirror economic conditions and may be adversely affected by regional
or national recessions.
REPURCHASE AGREEMENTS--Repurchase agreements are agreements by which a Portfolio
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price on an agreed upon date within a number of days
from the date of purchase. The Portfolio will have actual or constructive
possession of the security as collateral for the repurchase agreement.
Collateral must be maintained at a value at least equal to 102% of the
repurchase price. A Portfolio bears a risk of loss in the event the other party
defaults on its obligations and the Portfolio is delayed in or prevented from
disposing of the collateral securities or if the Portfolio realizes a loss in
the sale of the collateral securities. A Portfolio will enter into repurchase
agreements only with financial institutions deemed to present minimal risk of
bankruptcy during the term of the agreement based on established guidelines.
Repurchase agreements are considered loans under the 1940 Act.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS--Investments by money market
funds are subject to limitations imposed under regulations adopted by the SEC.
Under these regulations, money market funds may only acquire obligations that
present minimal credit risks and that are "eligible securities," which means
they are (i) rated, at the time of investment, by at least two NRSROs (one if it
is the only organization rating such obligation) in the highest short-term
rating category or, if unrated, determined to be of comparable quality (a "first
tier security"), or (ii) rated according to the foregoing criteria in the second
highest short-term rating category or, if unrated determined to be of comparable
quality (a "second tier security"). A security is not considered to be unrated
if its issuer has outstanding obligations of comparable priority and security
that have a short-term rating.
STANDBY COMMITMENTS AND PUTS--Securities subject to standby commitments or puts
permit the holder thereof to sell the securities at a fixed price prior to
maturity. Securities subject to a standby commitment or put may be sold at any
time at the current market price. However, unless the standby commitment or put
was an integral part of the security as originally issued, it may not be
marketable or assignable; therefore, the standby commitment or put would only
have value to the Portfolio owning the security to which it relates. In certain
cases, a premium may be paid for a standby commitment or put, which premium will
have the effect of reducing the yield otherwise payable on the underlying
security. The Portfolio will limit standby commitment or put transactions to
institutions believed to present minimal credit risk.
VARIABLE AND FLOATING RATE INSTRUMENTS-- Certain obligations 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 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
period exceeding seven days may be considered illiquid if there is no secondary
market or remarketing agent making a market for such security.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES--When-issued or delayed delivery
basis transactions involve the purchase of an instrument with payment and
delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase commitment.
A Portfolio will maintain with the Custodian a separate account with
<PAGE>
15
liquid assets in an amount at least equal to these commitments. The interest
rate realized on these securities is fixed as of the purchase date and no
interest accrues to a Portfolio before settlement. These securities are subject
to market fluctuations due to changes in market interest rates and it is
possible that the market value at the time of settlement could be higher or
lower than the purchase price if the general level of interest rates has
changed. Although a Portfolio generally purchases securities on a when-issued or
forward commitment basis with the intention of actually acquiring securities, a
Portfolio may dispose of a when-issued security or forward commitment prior to
settlement if it deems appropriate.
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Summary...................................... 2
Expense Summary.............................. 3
Financial Highlights......................... 4
The Portfolios and The Trust................. 5
Investment Objective......................... 5
Investment Policies.......................... 5
General Investment Policies and
Information.................................. 6
Investment Limitations....................... 7
The Adviser.................................. 8
The Administrator............................ 8
The Transfer Agent........................... 8
The Distributor.............................. 8
Purchase and Redemption of Shares............ 9
Computation of Yield......................... 10
Taxes........................................ 10
General Information.......................... 12
Description of Permitted Investments......... 13
</TABLE>
<PAGE>
TRUST:
THE ARBOR FUND
PORTFOLIOS:
CALIFORNIA TAX EXEMPT PORTFOLIO
INSTITUTIONAL TAX FREE PORTFOLIO
INVESTMENT ADVISER:
PNC INSTITUTIONAL MANAGEMENT CORPORATION
This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus and relates only to
the Trust's California Tax Exempt Portfolio and Institutional Tax Free Portfolio
(the "Portfolios"). It is intended to provide additional information regarding
the activities and operations of the Trust and should be read in conjunction
with the Portfolios' Prospectus dated June 1, 1997. A Prospectus may be obtained
by calling 1-800-545-6331.
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE TRUST............................................................................. S-2
DESCRIPTION OF PERMITTED INVESTMENTS.................................................. S-2
PROPOSITION 218....................................................................... S-7
INVESTMENT LIMITATIONS................................................................ S-15
THE ADVISER........................................................................... S-16
THE ADMINISTRATOR..................................................................... S-17
THE DISTRIBUTOR....................................................................... S-18
TRUSTEES AND OFFICERS OF THE TRUST.................................................... S-18
COMPUTATION OF YIELD.................................................................. S-21
CALCULATION OF TOTAL RETURN........................................................... S-21
PURCHASE AND REDEMPTION OF SHARES..................................................... S-22
DETERMINATION OF NET ASSET VALUE...................................................... S-22
TAXES................................................................................. S-23
PORTFOLIO TRANSACTIONS................................................................ S-26
TRADING PRACTICES AND BROKERAGE....................................................... S-26
DESCRIPTION OF SHARES................................................................. S-27
SHAREHOLDER LIABILITY................................................................. S-27
LIMITATION OF TRUSTEES' LIABILITY..................................................... S-28
5% SHAREHOLDERS....................................................................... S-28
EXPERTS............................................................................... S-28
FINANCIAL STATEMENTS.................................................................. S-28
</TABLE>
June 1, 1997
PIC-F-002-04
<PAGE>
THE TRUST
The Portfolios are open-end management investment company portfolios that are a
part of The Arbor Fund (the "Trust"). The Trust was established under
Massachusetts law as a Massachusetts business trust under an Agreement and
Declaration of Trust dated July 24, 1992. The Declaration of Trust permits the
Trust to offer separate series of shares of beneficial interest ("shares") and
different classes of shares of each Portfolio. Each share of each Portfolio
represents an equal proportionate interest in that Portfolio. See "Description
of Shares." This Statement of Additional Information relates only to the Trust's
California Tax Exempt Portfolio and Institutional Tax Free Portfolio. PNC
Institutional Management Corporation (the "Adviser") serves as investment
adviser to the Portfolios. CoreStates Bank, N.A. (the "Custodian") acts as
custodian of the Portfolios' assets.
DESCRIPTION OF PERMITTED INVESTMENTS
MUNICIPAL NOTES include, among others, general obligation notes, tax
anticipation notes (notes sold to finance working capital needs of the issuer in
anticipation of receiving taxes on a future date), revenue anticipation notes
(notes sold to provide needed cash prior to receipt of expected non-tax revenues
from a specific source), bond anticipation notes, state aid anticipation notes,
tax and revenue anticipation notes, certificates of indebtedness, demand notes,
and construction loan notes. The maturities of the instruments at the time of
issue will generally range from one month to 13 months.
MUNICIPAL BONDS are debt obligations issued to obtain funds for various public
purposes. Municipal bonds include, among others, general obligation bonds,
revenue or special obligation bonds, private activity and industrial development
bonds and participation interests in municipal bonds. General obligation bonds
are backed by the taxing power of the issuing municipality. A Portfolio may
purchase private activity or industrial development bonds if the interest paid
is exempt from federal income tax. These bonds are issued by or on behalf of
public authorities to raise money to finance various privately-owned or
- -operated facilities for business and manufacturing, housing, sports, and
pollution control. These bonds are also used to finance public facilities such
as airports, mass transit systems, ports, parking or sewage or solid waste
disposal facilities, as well as certain other categories. The payment of the
principal and interest on such bonds is dependent solely on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of
real and personal property so financed as security for such payment.
REPURCHASE AGREEMENTS are agreements under which securities are acquired from a
securities dealer or bank subject to resale on an agreed upon date and at an
agreed upon price which includes principal and interest. The Portfolio involved
bears a risk of loss in the event that the other party to a repurchase agreement
defaults on its obligations and the Portfolio is delayed or prevented from
exercising its rights to dispose of the collateral securities. The Adviser
enters into repurchase agreements only with financial institutions which it
deems to present minimal risk of bankruptcy during the term of the agreement
based on guidelines that are periodically reviewed by the Board of Trustees.
These guidelines currently permit the Portfolios to enter into repurchase
agreements only with approved banks and primary securities dealers, as
recognized by the Federal Reserve Bank of New York, which have minimum net
capital of $100 million, or with a member bank of the Federal Reserve System.
Repurchase agreements are considered to be loans collateralized by the
underlying security. Repurchase agreements entered into by the Portfolios will
provide that the underlying security at all times shall have a value at least
equal to 102% of the price stated in the agreement. This underlying security
will be marked to market daily. The Adviser monitors compliance with this
requirement. Under all repurchase agreements entered into by the Portfolios, the
Custodian or its agent must take possession of the underlying collateral.
However, if the seller defaults, the Portfolios could realize a loss on the sale
of the underlying security to the extent the proceeds of the sale are less than
the resale price. In addition, even though the Bankruptcy Code provides
protection for most repurchase agreements, if the seller should be involved in
bankruptcy or insolvency proceedings, the Portfolios may incur delay and costs
in selling the security and may suffer a loss of principal and interest if the
Portfolios are treated as an unsecured creditor.
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STANDBY COMMITMENTS-PUT TRANSACTIONS--The Portfolios reserve the right to engage
in put transactions. The Adviser has the authority to purchase securities at a
price which would result in a yield to maturity lower than that generally
offered by the seller at the time of purchase when the Portfolios can
simultaneously acquire the right to sell the securities back to the seller, the
issuer, or a third party (the "writer") at an agreed-upon price at any time
during a stated period or on a certain date. Such a right is generally denoted
as a "standby commitment" or a "put." The purpose of engaging in transactions
involving puts is to maintain flexibility and liquidity to permit the Portfolios
to meet redemptions and remain as fully invested as possible in municipal
securities. The right to put the securities depends on the writer's ability to
pay for the securities at the time the put is exercised. The Portfolios would
limit their put transactions to institutions which the Adviser believes present
minimal credit risks, and the Adviser would use its best efforts to initially
determine and continue to monitor the financial strength of the sellers of the
options in accordance with credit guidelines adopted by the Trust's Board of
Trustees. In the event that any writer is unable to honor a put for financial
reasons, a Portfolio would be a general creditor (i.e., on a parity with all
other unsecured creditors) of the writer. Furthermore, particular provisions of
the contract between a Portfolio and the writer may excuse the writer from
repurchasing the securities; for example, a change in the published rating of
the underlying securities or any similar event that has an adverse effect on the
issuer's credit or a provision in the contract that the put will not be
exercised except in certain special cases, for example, to maintain portfolio
liquidity. A Portfolio could, however, at any time sell the underlying portfolio
security in the open market or wait until the portfolio security matures, at
which time it should realize the full par value of the security.
The securities purchased subject to a put may be sold to third persons at any
time, even though the put is outstanding, but the put itself, unless it is an
integral part of the security as originally issued, may not be marketable or
otherwise assignable. Therefore, the put would have value only to the Portfolio.
Sale of the securities to third parties or lapse of time with the put
unexercised may terminate the right to put the securities. Prior to the
expiration of any put option, a Portfolio could seek to negotiate terms for the
extension of such an option. If such a renewal cannot be negotiated on terms
satisfactory to the Portfolio, the Portfolio could, of course, sell the
security. The maturity of the underlying security will generally be different
from that of the put. There will be no limit to the percentage of portfolio
securities that the Portfolios may purchase subject to a put or a standby
commitment but the amount paid directly or indirectly for premiums on all puts
and standby commitments outstanding will not exceed of 1% of the value of the
total assets of such Portfolio calculated immediately after any such put is
acquired.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES--In such transactions, instruments
are bought with payment and delivery taking place in the future in order to
secure what is considered to be an advantageous yield or price at the time of
the transaction. Delivery of payment for these securities may take as long as a
month or more after the date of the purchase commitment but will take place no
more than 120 days after the trade date. Delivery and payment normally take
place within 45 days after the date of commitment to purchase. The Portfolios
will only make commitments to purchase obligations on a when-issued or delayed
delivery basis with the intention of actually acquiring the securities, but may
sell them before the settlement date. The when-issued or delayed delivery
securities are subject to market fluctuation, and no interest accrues to the
purchaser during the period prior to settlement. The payment obligation and the
interest rate that will be received on the securities are each fixed at the time
the purchaser enters into the commitment. Purchasing obligations on a
when-issued or delayed delivery basis could be a form of leveraging and can
involve a risk that the yields available in the market when the delivery takes
place may actually be higher than those obtained in the transaction itself. In
that case there could be an unrealized loss at the time of delivery.
Segregated accounts will be established with the Custodian and will maintain
liquid assets in an amount at least equal in value to the Portfolios'
commitments to purchase when-issued and delayed delivery securities. If the
value of these assets declines, the Portfolios will place additional liquid
assets in the
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account on a daily basis so that the value of the assets in the account is equal
to the amount of such commitments.
U.S. GOVERNMENT AGENCY SECURITIES--agencies of the United States Government
which issue obligations consist of, among others, Farmers Home Administration,
Federal Farm Credit System, Federal Housing Administration, Government National
Mortgage Association, Maritime Administration, Small Business Administration,
and The Tennessee Valley Authority. The Portfolios may purchase securities
issued or guaranteed by the Government National Mortgage Association which
represent participation in Veterans Administration- and Federal Housing
Administration-backed mortgage pools. Obligations of instrumentalities of the
United States Government include securities issued by, among others, Federal
Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal Land Banks,
Federal National Mortgage Association and the United States Postal Service. Some
of these securities are supported by the full faith and credit of the United
States Treasury (e.g., Government National Mortgage Association), others are
supported by the right of the issuer to borrow from the Treasury and still
others are supported only by the credit of the instrumentality (e.g., Federal
National Mortgage Association). Guarantees of principal by agencies or
instrumentalities of the U.S. Government may be a guarantee of payment at the
maturity of the obligation so that in the event of a default prior to maturity
there might not be a market and thus no means of realizing the value of the
obligation prior to maturity.
CERTIFICATES OF DEPOSIT--a negotiable interest bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market, prior to maturity.
TIME DEPOSITS--a non-negotiable receipt issued by a bank in exchange for the
deposit of funds. Like a certificate of deposit, it earns a specified rate of
interest over a definite period of time; however, it cannot be traded in the
secondary market.
SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL SECURITIES
The ability of issuers to pay interest on, and repay principal of, California
municipal securities ("California Municipal Securities") may be affected by (1)
amendments to the California Constitution and related statutes that limit the
taxing and spending authority of California government entities, (2) voter
initiatives, (3) a wide variety of California laws and regulations, including
laws related to the operation of health care institutions and laws related to
secured interests in real property and (4) the general financial condition of
the State of California. The following information constitutes only a brief
summary, and is not intended as a complete description. The information has been
drawn, in some cases by excerpt, from official statements relating to securities
offerings of the State of California available as of the date of this Statement
of Additional Information. While the information has not been independently
verified by the California Tax Exempt Portfolio, the Portfolio has no reason to
believe that such information is not correct in all material respects.
AMENDMENTS TO THE CALIFORNIA CONSTITUTION AND RELATED STATUTES. Certain of the
California Municipal Securities may be obligations of issuers who rely in whole
or in part on ad valorem real property taxes as a source of revenue. On June 6,
1978, California voters approved an amendment to the California Constitution
known as Proposition 13, which added Article XIIIA to the California
Constitution. The effect of Article XIIIA is to limit ad valorem taxes on real
property, and to restrict the ability of taxing entities to increase real
property tax revenues. On November 7, 1978, California voters approved
Proposition 8, and on June 3, 1986, California voters approved Proposition 46,
both of which amended Article XIIIA.
Section 1 of Article XIIIA limits the maximum ad valorem tax on real property to
1% of full cash value (as defined in Section 2), to be collected by the counties
and apportioned according to law; provided that the 1% limitation does not apply
to ad valorem taxes or special assessments to pay the interest and redemption
charges on (i) any indebtedness approved by the voters prior to July 1, 1978, or
(ii) any bonded
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indebtedness for the acquisition or improvement of real property approved on or
after July 1, 1978, by two-thirds of the votes cast by the voters voting on the
proposition. Section 2 of Article XIIIA defines "full cash value" to mean "the
County Assessor's valuation of real property as shown on the 1975/76 tax bill
under 'full cash value' or, thereafter, the appraised value of real property
when purchased, newly constructed, or a change in ownership has occurred after
the 1975 assessment." The "full cash value" may be adjusted annually to reflect
inflation at a rate not to exceed 2% per year, or reduction in the consumer
price index or comparable local data, or may be reduced in the event of
declining property value caused by damage, destruction or other factors. The
California State Board of Equalization has adopted regulations, binding on
county assessors, interpreting the meanings of "change in ownership" and "new
construction" for purposes of determining full cash value of property under
Article XIIIA.
Legislation enacted by the California Legislature to implement Article XIIIA
(Statutes of 1978, Chapter 292, as amended) provides that notwithstanding any
other law, local agencies may not levy any ad valorem property tax except to pay
debt service on indebtedness approved by the voters prior to July 1, 1978, and
that each county will levy the maximum tax permitted by Article XIIIA of $4.00
per $100 assessed valuation (based on the former practice of using 25%, instead
of 100%, of full cash value as the assessed value for tax purposes). The
legislation further provided that, for the 1978/79 fiscal year only, the tax
levied by each county was to be apportioned among all taxing agencies within the
county in proportion to their average share of taxes levied in certain previous
years. The apportionment of property taxes in fiscal years after 1978/79 has
been revised pursuant to Statutes of 1979, Chapter 282, which provides relief
funds from State moneys beginning in fiscal year 1979/80 and is designed to
provide a permanent system for sharing State taxes and budget funds with local
agencies. Under Chapter 282, cities and counties receive more of the remaining
property tax revenues collected under Proposition 13 instead of direct State
aid. School districts receive a correspondingly reduced amount of property
taxes, but receive compensation directly from the State and are given additional
relief. Chapter 282 does not affect the derivation of the base levy ($4.00 per
$100 of assessed valuation) and the bonded debt tax rate.
On November 6, 1979, an initiative known as "Proposition 4" or the "Gann
Initiative" was approved by the California voters, which added Article XIIIB to
the California Constitution. Under Article XIIIB, State and local governmental
entities have an annual "appropriations limit" and are not allowed to spend
certain moneys called "appropriations subject to limitation" in an amount higher
than the "appropriations limit." Article XIIIB does not affect the appropriation
of moneys which are excluded from the definition of "appropriations subject to
limitation," including debt service on indebtedness existing or authorized as of
January 1, 1979, or bonded indebtedness subsequently approved by the voters. In
general terms, the "appropriations limit" is required to be based on certain
1978/79 expenditures, and is to be adjusted annually to reflect changes in
consumer prices, population and certain services provided by these entities.
Article XIIIB also provides that if these entities' revenues in any year exceed
the amounts permitted to be spent, the excess is to be returned by revising the
tax rates or fee schedules over the subsequent two years.
Article XIIIB, like XIIIA, may require further interpretation by both the
Legislature and the courts to determine its applicability to specific situations
involving the State and local taxing authorities. Depending upon the
interpretation, Article XIIIB may limit significantly a governmental entity's
ability to budget sufficient funds to meet debt service on bonds and other
obligations.
VOTER INITIATIVES. On November 8, 1988, voters of the State approved Proposition
98, a combined initiative constitutional amendment and statute called the
"Classroom Instructional Improvement and Accountability Act." Proposition 98
changed State funding of public education below the university level and the
operation of the State Appropriations Limit, primarily by guaranteeing K-14
schools a minimum share of General Fund revenues. Under Proposition 98 (as
modified by Proposition 111, which was enacted on June 5, 1990), K-14 schools
are guaranteed the greater of (a) in general, a fixed percent of General Fund
revenues ("Test 1"), (b) the amount appropriated to K-14 schools in the prior
year, adjusted for changes in the cost of living (measured as in Article XIII B
by reference to State per capita personal income) and enrollment ("Test 2"), or
(c) a third test, which would replace "Test 2" in any year when the percentage
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growth in per capita General Fund revenues from the prior year plus one half of
one percent is less than the percentage growth in State per capita personal
income ("Test 3"). Under "Test 3," schools would receive the amount appropriated
in the prior year adjusted for changes in enrollment and per capita General Fund
revenues, plus an additional small adjustment factor. If "Test 3" is used in any
year, the difference between "Test 3" and "Test 2" would become a "credit" to
schools which would be the basis of payments in future years when per capita
General Fund revenue growth exceeds per capita personal income growth.
Legislation adopted prior to the end of the 1988-89 Fiscal Year, implementing
Proposition 98, determined the K-14 schools' funding guarantee under Test 1 to
be 40.3 percent of the General Fund Tax revenues, based on 1986-87
appropriations. However, that percent would be adjusted to account for
redirection of local property taxes, since such a subsequent redirection
directly affects the share of General Fund revenues to schools.
Proposition 98 permits the Legislature by two-thirds vote of both houses, with
the Governor's concurrence, to suspend the K-14 schools' minimum funding formula
for a one-year period. Proposition 98 also contains provisions transferring
certain State tax revenues in excess of the Article XIII B limit to K-14
schools.
During the recent recession, General Fund revenues for several years were less
than originally projected, so that the original Proposition 98 appropriations
turned out to be higher than the minimum percentage provided in the law. The
Legislature responded to these developments by designating the "extra"
Proposition 98 payments in one year as a "loan" from future years' Proposition
98 entitlements, and also intended that the "extra" payments would not be
included in the Proposition 98 "base" for calculating future years'
entitlements. By implementing these actions, per-pupil funding from Proposition
98 sources stayed almost constant at approximately $4,220 from Fiscal Year
1991-92 to Fiscal Year 1993-94.
In 1992, a lawsuit was filed, called CALIFORNIA TEACHERS' ASSOCIATION V. GOULD,
which challenged the validity of these off-budget loans. The settlement of this
case, finalized in July 1996, provides, among other things that both the State
and K-14 schools share in the repayment of prior years' emergency loans to
schools. Of the total $1.76 billion in loans, the State will repay $935 million
by forgiveness of the amount owed, while schools will repay $825 million. The
State share of the repayment will be reflected as an appropriation above the
current Proposition 98 base calculation. The schools' share of the repayment
will count as appropriations that count toward satisfying the Proposition 98
guarantee, or from "below" the current base. Repayments are spread over the
eight-year period of 1994-95 through 2001-02 to mitigate any adverse fiscal
impact. Substantially increased General Fund revenues, above initial budget
projections, in the 1994-95, 1995-96 and 1996-97 fiscal years have resulted or
will result in retroactive increases in Proposition 98 appropriations from
subsequent fiscal years' budgets.
On November 4, 1986, California voters approved an initiative statute known as
Proposition 62. This initiative (i) requires that any tax for general
governmental purposes imposed by local governments be approved by resolution or
ordinance adopted by a two-thirds vote of the governmental entity's legislative
body and by a majority vote of the electorate of the governmental entity, (ii)
requires that any special tax (defined as taxes levied for other than general
governmental purposes) imposed by a local governmental entity be approved by a
two-thirds vote of the voters within that jurisdiction, (iii) restricts the use
of revenues from a special tax to the purposes or for the service for which the
special tax was imposed, (iv) prohibits the imposition of ad valorem taxes on
real property by local governmental entities except as permitted by Article
XIIIA, (v) prohibits the imposition of transaction taxes and sales taxes on the
sale of real property by local governments, (vi) requires that any tax imposed
by a local government on or after August 1, 1985 be ratified by a majority vote
of the electorate within two years of the adoption of the initiative or be
terminated by November 15, 1988, (vii) requires that, in the event a local
government fails to comply with the provisions of this measure, a reduction in
the amount of property tax revenue allocated to such local government occurs in
an amount equal to the revenues received by such entity attributable to the tax
levied in violation of the initiative, and (viii) permits these provisions to be
amended exclusively by the voters of the State of California.
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In September 1988, the California Court of Appeal in CITY OF WESTMINSTER V.
COUNTY OF ORANGE 204 Cal. App. 3d 623, 215 Cal. Rptr. 511 (Cal. Ct. App. 1988),
held that Proposition 62 is unconstitutional to the extent that it requires a
general tax by a general law city, enacted on or after August 1, 1985 and prior
to the effective date of Proposition 62, to be subject to approval by a majority
of voters. The Court held that the California Constitution prohibits the
imposition of a requirement that local tax measures be submitted to the
electorate by either referendum or initiative. It is not possible to predict the
impact of this decision on charter cities, on special taxes, or on new taxes
imposed after the effective date of Proposition 62.
On November 8, 1988, California voters approved Proposition 87. Proposition 87
amended Article XVI, Section 16, of the California Constitution by authorizing
the California Legislature to prohibit redevelopment agencies from receiving any
of the property tax revenue raised by increased property tax rates levied to
repay bonded indebtedness of local governments which is approved by voters on or
after January 1, 1989. It is not possible to predict whether the California
Legislature will enact such a prohibition nor is it possible to predict the
impact of Proposition 87 on redevelopment agencies and their ability to make
payments on outstanding debt obligations.
On November 5, 1996, the voters of the State approved Proposition 218, the
so-called "Right to Vote on Taxes Act." Proposition 218 added Articles XIIIC and
XIIID to the State Constitution, which contain a number of provisions affecting
the ability of the local governments to levy and collect both existing and
future taxes, assessments, fees and charges.
Article XIIID conditions the imposition or increase of any "fee" or "charge"
upon there being no written majority protest after a required public hearing ad,
for fees and charges other than for sewer, water or refuse collection services,
voter approval. Article XIIID defines "fee" or "charge" to mean levies (other
than ad valorem or special taxes or assessments) imposed by a local government
upon a parcel or upon a person as a incident of the ownership or tenancy of real
property, including a user fee or charge for a "property-related service."
In addition, by July 1, 1997, under Article XIIID, all property related fees and
charges, including those which have been in existence since prior to the passage
of Proposition 218 in November 1996, must meet the following substantive
standards:
(1) Revenues derived from the fee or charge cannot exceed the funds required
to provide the property related service.
(2) Revenues derived from the fee or charge must not be used for any purpose
other than that for which the fee or charge was imposed.
(3) The amount of a fee or charge imposed upon any parcel or person as an
incident of property ownership must not exceed the proportional cost of
the service attributable to the parcel.
(4) No fee or charge may be imposed for a service unless that service is
actually used by, or immediately available to, the owner of the property
in question. Fees or charges based on potential or future use of a
service are not permitted. Standby charges, whether characterized as
charges or assessments, must be classified as assessments and cannot be
imposed without compliance with Section 4 of Article XIIID (relating to
assessments).
(5) No fee or charge may be imposed for general governmental services
including, but not limited to, police, fire, ambulance or library
services where the service is available to the public at large in
substantially the same manner as it is to property owners.
In addition to the foregoing, the general financial condition of California
issuers may be affected by other provisions of Article XIIIC and Article XIIID,
including (A) provisions of Article XIIIC (i) requiring taxes for general
governmental purposes to be approved by a majority vote and taxes for specific
purposes, even if deposited into the general fund, to be approved by a
two-thirds vote, (ii) requiring any general purpose tax which an issuer imposed,
extended or increased, without voter approval, after December 31, 1994 to be
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approved by majority vote by November 5, 1998, (iii) subjecting all taxes,
assessments, fees and charges to reduction or repeal at any time through the
initiative process (as mentioned above), and (B) provisions of Article XIIID
that could reduce the ability of a California issuer to fund certain services or
programs that it may be required or choose to fund from its general fund, such
as provisions (1) adding requirements making it generally more difficult to levy
and maintain "assessments," defined to mean a levy or charge upon real property
for a particular and distinct benefit to the property over and above general
benefits conveyed to property located in the district or to the public at large,
(2) requiring any imposition or increase of property related fees or charges
other than for sewer, water and refuse collection services or fees for
electrical or gas service (which are not treated as property related for
purposes of Article XIIID) to be approved by "majority of the property owners"
subject to the fee or charge or, at the option of the local government,
two-thirds voter of the electorate residing in the affected area.
The interpretation and application of Proposition 218 will ultimately be
determined by the courts or through implementing legislation with respect to a
number of the matters discussed above, and it is not possible at this time to
predict with certainly the outcome of such determination or the nature or scope
of any such legislation or the impact of Proposition 218 on the ability of
California issuers to make payments on outstanding debt obligations.
OTHER RELEVANT CALIFORNIA LAWS. A wide variety of California laws and
regulations may affect, directly or indirectly, the payment of interest on, or
the repayment of the principal of, California Municipal Securities in which the
California Tax Exempt Portfolio may invest. The impact of such laws and
regulations on particular California Municipal Securities may vary depending
upon numerous factors including, among others, the particular type of Municipal
Security involved, the public purpose funded by the Municipal Security and the
nature and extent of insurance or other security for payment of principal and
interest on the Municipal Security. For example, California Municipal Securities
which are payable only from the revenues derived from a particular facility may
be adversely affected by California laws or regulations which make it more
difficult for the particular facility to generate revenues sufficient to pay
such interest and principal, including, among others, laws and regulations which
limit the amount of fees, rates or other charges which may be imposed for use of
the facility or which increase competition among facilities of that type or
which limit or otherwise have the effect of reducing the use of such facilities
generally, thereby reducing the revenues generated by the particular facility.
California Municipal Securities, the payment of interest and principal on which
is insured in whole or in part by a California governmentally created fund, may
be adversely affected by California laws or regulations which restrict the
aggregate insurance proceeds available for payment of principal and interest in
the event of a default on such Municipal Securities.
Certain California Municipal Securities in which the Portfolio may invest may be
obligations that are payable solely from the revenues of health care
institutions. Certain provisions under California law may adversely affect such
revenues and, consequently, payment on those California Municipal Securities.
The Federally sponsored Medicaid program for health care services to eligible
welfare beneficiaries in California is known as the Medi-Cal program.
Historically, the Medi-Cal program has provided for a cost-based system of
reimbursement for inpatient care furnished to Medi-Cal beneficiaries by any
hospital wanting to participate in the Medi-Cal program, provided such hospital
met applicable requirements for participation. California law now provides that
the State of California shall selectively contract with hospitals to provide
acute inpatient services to Medi-Cal patients. Medi-Cal contracts currently
apply only to acute inpatient services. Generally, such selective contracting is
made on a flat per diem payment basis for all services to Medi-Cal
beneficiaries, and generally such payment has not increased in relation to
inflation, costs or other factors. Other reductions or limitations may be
imposed in payment for services rendered to Medi-Cal beneficiaries in the
future.
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Under this approach, in most geographical areas of California, only those
hospitals which enter into a Medi-Cal contract with the State of California will
be paid for non-emergency acute inpatient services rendered to Medi-Cal
beneficiaries. The State may also terminate these contracts without notice under
certain circumstances and is obligated to make contractual payments only to the
extent the California legislature appropriates adequate funding therefor.
In February 1987, the Governor of the State of California announced that
payments to Medi-Cal providers for certain services (not including hospital
acute inpatient services) would be decreased by ten percent through June 1987.
However, a federal district court issued a preliminary injunction preventing
application of any cuts until a trial on the merits can be held. If the
injunction is deemed to have been granted improperly, the State of California
would be entitled to recapture the payment differential for the intended
reduction period. It is not possible to predict at this time whether any
decreases will ultimately be implemented.
California enacted legislation in 1982 that authorizes private health plans and
insurers to contract directly with hospitals for services to beneficiaries on
negotiated terms. Some insurers have introduced plans known as "preferred
provider organizations" ("PPOs"), which offer financial incentives for
subscribers who use only the hospitals which contract with the plan. Under an
exclusive provider plan, which includes most health maintenance organizations
("HMOs"), private payors limit coverage to those services provided by selected
hospitals. Discounts offered to HMOs and PPOs may result in payment to the
contracting hospital of less than actual cost and the volume of patients
directed to a hospital under an HMO or PPO contract may vary significantly from
projections. Often, HMO or PPO contracts are enforceable for a stated term,
regardless of provider losses or of bankruptcy of the respective HMO or PPO. It
is expected that failure to execute and maintain such PPO and HMO contracts
would reduce a hospital's patient base or gross revenues. Conversely,
participation may maintain or increase the patient base, but may result in
reduced payment and lower net income to the contracting hospitals.
These Debt Obligations may also be insured by the State of California pursuant
to an insurance program implemented by the Office of Statewide Health Planning
and Development for health facility construction loans. If a default occurs on
insured Debt Obligations, the State Treasurer will issue debentures payable out
of a reserve fund established under the insurance program or will pay principal
and interest on an unaccelerated basis from unappropriated State funds. At the
request of the Office of Statewide Health Planning and Development, Arthur D.
Little, Inc. prepared a study in December, 1983, to evaluate the adequacy of the
reserve fund established under the insurance program and based on certain
formulations and assumptions found the reserve fund substantially underfunded.
In September of 1986, Arthur D. Little, Inc. prepared an update of the study and
concluded that an additional 10% reserve be established for "multi-level"
facilities. For the balance of the reserve fund, the update recommended
maintaining the current reserve calculation method. In March of 1990, Arthur D.
Little, Inc. prepared a further review of the study and recommended that
separate reserves continue to be established for "multi-level" facilities at a
reserve level consistent with those that would be required by an insurance
company.
Certain California Municipal Securities in which the Portfolio may invest may be
obligations which are secured in whole or in part by a mortgage or deed of trust
on real property. California has five principal statutory provisions which limit
the remedies of a creditor secured by a mortgage or deed of trust, two of which
limit the creditor's right to obtain a deficiency judgment. One of the
limitations is based on the method of foreclosure and the other on the type of
debt secured. Under the former, a deficiency judgment is barred when the
foreclosure is accomplished by means of a nonjudicial trustee's sale. Under the
latter, a deficiency judgment is barred when the foreclosed mortgage or deed of
trust secures certain purchase money obligations. Another California statute,
commonly known as the "one form of action" rule, requires the creditors secured
by real property to exhaust their real property security by foreclosure before
bringing a personal action against the debtor. The fourth statutory provision
limits any deficiency judgment obtained by a creditor secured by real property
following a judicial sale of such property to the excess of the outstanding debt
over the fair value of the property at the time of the sale, thus preventing the
creditor
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from obtaining a large deficiency judgment against the debtor as the result of
low bids at a judicial sale. The fifth statutory provision gives the debtor the
right to redeem the real property from any judicial foreclosure sale as to which
a deficiency judgment may be ordered against the debtor.
Upon the default of a mortgage or deed of trust with respect to California real
property, the creditor's nonjudicial foreclosure rights under the power of sale
contained in the mortgage or deed of trust are subject to the constraints
imposed by California law upon transfers of title to real property by private
power of sale. During the three-month period beginning with the filing of a
formal notice of default, the debtor is entitled to reinstate the mortgage by
making any overdue payments. Under standard loan servicing procedures, the
filing of the formal notice of default does not occur unless at least three full
monthly payments have become due and remain unpaid. The power of sale is
exercised by posting and publishing a notice of sale for at least 20 days after
expiration of the three-month reinstatement period. Therefore, the effective
minimum period for foreclosing on a home mortgage could be in excess of seven
months after the initial default. Such time delays in collections could disrupt
the flow of revenues available to an issuer for the payment of debt service on
the outstanding obligations if such defaults occur with respect to a substantial
number of mortgages or deeds of trust securing an issuer's obligations.
In addition, a court could find that there is sufficient involvement of the
issuer in the nonjudicial sale of property securing a mortgage for such private
sale to constitute "state action," and could hold that the private-right-of-sale
proceedings violate the due process requirements of the Federal or State
Constitutions, consequently preventing an issuer from using the nonjudicial
foreclosure remedy described above.
Certain California Municipal Securities in which the Portfolio may invest may be
obligations which finance the acquisition of single family home mortgages for
low and moderate income mortgagors. These obligations may be payable solely from
revenues derived from the home mortgages, and are subject to the California
statutory limitations described above applicable to obligations secured by real
property. Under California anti-deficiency legislation, there is no personal
recourse against a mortgagor of a single family residence purchased with the
loan secured by the mortgage, regardless of whether the creditor chooses
judicial or nonjudicial foreclosure.
Under California law, mortgage loans secured by single family owner-occupied
dwellings may be prepaid at any time. Prepayment charges on such mortgage loans
may be imposed only with respect to voluntary prepayments made during the first
five years during the term of the mortgage loan, and cannot in any event exceed
six months' advance interest on the amount prepaid in excess of 20% of the
original amount of the mortgage loan. This limitation could affect the flow of
revenues available to an issuer for debt service on the outstanding debt
obligations which financed such home mortgages.
Because of the diverse nature of such laws and regulations and the impossibility
of either predicting in which specific California Municipal Securities the
California Tax Exempt Portfolio will invest from time to time or predicting the
nature or extent of future changes in existing laws or regulations or the future
enactment or adoption of additional laws or regulations, it is not presently
possible to determine the impact of such laws and regulations on the Municipal
Securities in which the California Tax Exempt Portfolio may invest and,
therefore, on the units of the California Tax Exempt Portfolio.
THE GENERAL FINANCIAL CONDITION OF THE STATE OF CALIFORNIA. The 1989-90 Fiscal
Year ended with revenues below estimates, so that the State's budget reserve
(the Special Fund for Economic Uncertainties or "SFEU") was fully depleted by
June 30, 1990. A recession began in mid-1990, which severely affected State
General Fund revenues, and increased expenditures above initial budget
appropriations due to greater health and welfare costs. The State's budget
problems in recent years have also been caused by a structural imbalance in that
the largest General Fund Programs--K-14 education, health, welfare and
corrections-- were increasing faster than the revenue base, driven by the
State's rapid population growth. These pressures are expected to continue as
population trends maintain strong demand for health and welfare services, as the
school age population continues to grow, and as the State's corrections program
responds
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to a "Three Strikes" law enacted in 1994, which requires mandatory life prison
terms for certain third-time felony offenders.
As a result of these factors and others, from the late 1980's until 1992-93, the
State had a period of budget imbalance. During this period, expenditures
exceeded revenues in four out of six years, and the State accumulated and
sustained a budget deficit in the SFEU approaching $2.8 billion at its peak at
June 30, 1993. Starting in the 1990-91 Fiscal Year and for each fiscal year
thereafter, each budget required multibillion dollar actions to bring projected
revenues and expenditures into balance. The Legislature and Governor agreed on
the following principal steps to produce Budget Acts in the years 1991-92 to
1994-95, including:
- significant cuts in health and welfare program expenditures;
- transfers of program responsibilities and funding from the State to local
governments referred to as "realignment"), coupled with some reduction in
mandates on local government;
- transfer of about $3.6 billion in local property tax revenues from cities,
counties, redevelopment agencies and some other districts to local school
districts, thereby reducing State funding for schools under Proposition
98;
- reduction in growth of support for higher education programs, coupled with
increases in student fees throughout the 1994-95 fiscal year;
- maintenance of the minimum Proposition 98 funding guarantee for K-14
schools, and the disbursement of additional funds to keep a constant level
of funding per K-12 pupil through the 1994-95 fiscal year;
- revenue increases (particularly in the 1991-92 Fiscal Year budget), most
of which were of a short duration;
- increased reliance on aid from the federal government to offset the costs
of incarcerating, educating and providing health and welfare services to
illegal immigrants; and
- various one-time adjustments and accounting changes.
Despite these budget actions, as noted, the effects of the recession led to
large, unanticipated deficits in the budget reserve, the SFEU, as compared to
projected positive balances. By the 1993-94 Fiscal Year, the accumulated deficit
was so large that it was impractical to budget to retire it in one year, so a
two-year program was implemented, using the issuance of revenue anticipation
warrants to carry a portion of the deficit over the end of the fiscal year. When
the economy failed to recover sufficiently in 1993-94, a second two-year plan
was implemented in 1994-95.
Another consequence of the accumulated budget deficits, together with other
factors such as disbursement of funds to local school districts "borrowed" from
future fiscal years and hence not shown in the annual budget, was to
significantly reduce the State's cash resources available to pay its ongoing
obligations. When the Legislature and the Governor failed to adopt a budget for
the 1992-93 Fiscal Year by July 1, 1992, which would have allowed the state to
carry out its normal annual cash flow borrowing to replenish its cash reserves,
the State Controller issued registered warrants to pay a variety of obligations
representing prior years' or continuing appropriations, and mandates from court
orders. Available funds were used to make constitutionally-mandated payments,
such as debt service on bonds and warrants. Between July 1 and September 4, 1992
the State Controller issued a total of approximately $3.8 billion of registered
warrants. After that date, all remaining outstanding registered warrants (about
$2.9 billion) were called for redemption from proceeds of the issuance of 1992
Interim Notes after the budget was adopted.
In late spring of 1992, the State Controller issued revenue anticipation
warrants maturing in the following fiscal year in order to pay the State's
continuing obligations. The State was forced to rely increasingly on external
debt markets to meet its cash needs, as a succession of notes and warrants were
issued in the
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period from June 1992 to July 1994, often needed to pay previously maturing
notes or warrants. These borrowings were used also in part to spread out the
repayment of the accumulated budget deficit over the end of a fiscal year, as
noted earlier.
The Governor's Budget Proposal for the 1994-95 Fiscal Year, as updated in May
and June 1994, recognized that the accumulated deficit could not be repaid in
one year, and proposed a two-year solution designed to eliminate the accumulated
budget deficit, estimated at about $1.8 billion at June 30, 1994, by June 30,
1996.
The 1995-96 Budget Act, signed by the Governor on August 3, 1995 projected
General Fund revenues and transfers of $44.1 billion, a 3.5 percent increase
from the prior year. Expenditures were budgeted at $43.4 billion, a 4 percent
increase. The Budget Act also projected Special Fund revenues of $12.7 billion
and appropriated Special Fund expenditures of $13.0 billion.
Final data for the 1995-96 Fiscal Year showed revenues and transfers of $46.1
billion, some $2 billion over the original fiscal year estimate, which was
attributed to the strong economic recovery. Expenditures also increased, to an
estimated $45.4 billion, as a result of the requirement to expend revenues for
schools under Proposition 98, and, among other things, failure of the federal
government to enact welfare reform during the fiscal year and to budget new aid
for illegal immigrant costs, both of which had been counted on to allow
reductions in State costs. The SFEU had a small negative balance of about $87
million at June 30, 1996, all but eliminating the accumulated budget deficit
from the early 1990's. Available internal borrowable resources (available cash,
after payment of all obligations due) on June 30, 1996 was about $3.8 billion,
representing a significant improvement in the State's cash position, and ending
the need for deficit borrowing over the end of the fiscal year. The State's
improved cash position allowed it to repay the $4.0 billion Revenue Anticipation
Warrant issue on April 25, 1996, and to issue only $2.0 billion of revenue
anticipation notes during the fiscal year, which matured on June 28, 1996.
The discussion below of the 1996-97 Fiscal Year budget is based on estimates and
projections of revenues and expenditures for the current fiscal year and must
not be construed as statements of fact. These estimates and projections are
based upon various assumptions which may be affected by numerous factors,
including future economic conditions in the State and the nation, and there can
be no assurance that the estimates will be achieved.
Periodic reports on revenues and expenditures during the fiscal year are issued
by the Administration, the State Controller's Office and the Legislative
Analyst's Office. The Department of Finance issues a monthly Bulletin which
reports the most recent revenue receipts, comparing them to Budget projections,
and reports on other current developments affecting the Budget. The
Administration also formally updates its budget projections twice during each
fiscal year, generally in January and May.
The 1995-96 Budget Act included substantial additional funding under Proposition
98 for schools and community colleges (about $1.0 billion General Fund and $1.2
billion total above 1994-95 levels). Because of higher than projected revenues
in 1994-95, an additional $561 million was appropriated to the 1994-95
Proposition 98 entitlement. A large part of this was a block grant of about $50
per pupil for any one-time purpose. For the first time in several years, a full
2.7 percent cost of living allowance was funded. The budget was based on the
settlement of the CTA V. GOULD litigation. Cuts in health and welfare costs
totaled about $220 million, almost $700 million less than had been anticipated
because of shortfalls in anticipated federal funds. In addition, only $31
million of an anticipated $500 million in new federal aid for incarceration and
health care costs of illegal immigrants was received by the State. Funding from
the General Fund for the University of California was increased by $106 million
and for the California State University system by $97 million, with no increases
in student fees.
The discussion below of the 1996-97 Fiscal Year budget is based on estimates and
projections of revenues and expenditures for the current fiscal year and must
not be construed as statements of fact. These estimates and projections are
based upon various assumptions which may be affected by numerous factors,
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including future economic conditions in the State and the nation, and there can
be no assurance that the estimates will be achieved.
Periodic reports on revenues and expenditures during the fiscal year are issued
by the Administration, the State Controller's Office and the Legislative
Analyst's Office. The Department of Finance issues a monthly Bulletin which
reports the most recent revenue receipts, comparing them to Budget projections,
and reports on other current developments affecting the Budget. The
Administration also formally updates its budget projections twice during each
fiscal year, generally in January and May.
The 1996-97 Budget Act was signed by the Governor on July 15, 1996, along with
various implementing bills. The Governor vetoed about $82 million of
appropriations (both General Fund and Special Fund). With the signing of the
Budget Act, the State implemented its regular cash flow borrowing program with
the issuance of $3.0 billion of Revenue Anticipation Notes to mature on June 30,
1997. The Budget Act appropriated a modest budget reserve in the SFEU of $305
million, as of June 30, 1997. The Department of Finance projected that, on June
30, 1997, the State's available internal borrowable (cash) resources will be
$2.9 billion, after payment of all obligations due by that date, so that no
cross-fiscal year borrowing will be needed.
REVENUES--The Legislature rejected the Governor's proposed 15% cut in personal
income taxes (to be phased over three years), but did approve a 5% cut in bank
and corporation taxes, to be effective for income years starting on January 1,
1997. As a result, revenues for the Fiscal Year were estimated to total $47.643
billion, a 3.3 percent increase over the final estimated 1995-96 revenues.
Special Fund revenues were estimated to be $13.3 billion.
EXPENDITURES--The Budget Act contained General Fund appropriations totaling
$47.251 billion, a 4.0 percent increase over the final estimated 1995-96
expenditures. Special Fund expenditures were budgeted at $12.6 billion.
The following are principal features of the 1996-97 Budget Act:
1. Proposition 98 funding for schools and community college districts increased
by almost $1.6 billion (General Fund) and $1.65 billion total above revised
1995-96 levels. Almost half of this money was budgeted to fund class-size
reductions in kindergarten and grades 1-3. Also, for the second year in a
row, the full cost of living allowance (3.2 percent) was funded. The
Proposition 98 increases have brought K-12 expenditures to almost $4,800 per
pupil (also called per ADA, or Average Daily Attendance), an almost 15%
increase over the level prevailing during the recession years. Community
colleges will receive an increase in funding of $157 million for 1996-97 out
of this $1.6 billion total.
Because of the higher than projected revenues in 1995-96, an additional $1.1
billion ($190 per K-12 ADA and $145 million for community colleges) was
appropriated and retroactively applied towards the 1995-96 Proposition 98
guarantee, bringing K-12 expenditures in that year to over $4,600 per ADA.
These new funds were appropriated for a variety of purposes, including block
grants, allocations for each school site, facilities for class size
reduction, and a reading initiative. Similar retroactive increases totaling
$230 million, based on final figures on revenues and State population
growth, were made to the 1991-92 and the 1994-95 Proposition 98 guarantees,
most of which was allocated to each school site.
2. The Budget Act assumed savings of approximately $660 million in health and
welfare costs which required changes in federal law, including federal
welfare reform. The Budget Act further assumed federal law changes in August
1996 which would allow welfare cash grant levels to be reduced by October 1,
1996. These cuts totaled approximately $163 million of the anticipated $660
million savings.
3. A 4.9 percent increase in funding for the University of California ($130
million General Fund) and the California State University system ($101
million General Fund), with no increases in student fees.
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4. The Budget Act assumed the federal government will provide approximately
$700 million in new aid for incarceration and health care costs of illegal
immigrants. These funds reduce appropriations in these categories that would
otherwise have to be paid from the General Fund. (For purposes of cash flow
projections, the Department of Finance expects $540 million of this amount
to be received during the 1996-97 fiscal year.)
5. General Fund support for the Department of Corrections was increased by
about 7 percent over the prior year, reflecting estimates of increased
prison population.
6. With respect to aid to local governments, the principal new programs
included in the Budget Act are $100 million in grants to cities and counties
for law enforcement purposes, and budgeted $50 million for competitive
grants to local governments for programs to combat juvenile crime.
The Budget Act did not contain any tax increases. As noted, there was a
reduction in corporate taxes. In addition, the Legislature approved another
one-year suspension of the Renters Tax Credit, saving $520 million in
expenditures.
FEDERAL WELFARE REFORM--Following enactment of the 1996-97 Budget Act, Congress
passed and the President signed (on August 22, 1996) the Personal Responsibility
and Work Opportunity Act of 1996 (P.L. 104-193, the "Law") making fundamental
reform of the current welfare system. Among many provisions, the Law includes:
(i) conversion of Aid to Families with Dependent Children from an entitlement
program to a block grant titled Temporary Assistance for Needy Families (TANF),
with lifetime time limits on TANF recipients, work requirements and other
changes; (ii) provisions denying certain federal welfare and public benefits to
legal noncitizens, allowing states to elect to deny additional benefits
(including TANF) to legal noncitizens, and generally denying almost all benefits
to illegal immigrants; and (iii) changes in the Food Stamp program, including
reducing maximum benefits and imposing work requirements.
The Law requires states to implement the new TANF program not later than July 1,
1997 and provides California approximately $3.7 billion in block grant funds for
FY 1996-97 for the provisions of the Law. States are allowed to implement TANF
as soon as possible and will receive a prorated block grant effective the date
of application. The California State Plan was approved November 27, 1996 to
allow grant reductions to be implemented effective January 1, 1997 and to allow
the State to capture approximately $267 million in additional federal block
grant funds over the currently budgeted level. None of the other federal changes
needed to achieve the balance of $660 million cost savings were enacted. Thus,
in lieu of the $660 million savings initially assumed, it is now projected that
savings will total approximately $320 million.
A preliminary analysis of the Law by the Legislative Analyst's Office indicates
that an overall assessment of how these changes will affect the State's General
Fund will not be known for some time, and will depend on how the State
implements the Law. There are many choices including how quickly the State
implements the Law, the degree to which the State elects to make up for cuts in
federal aid, provide more aid to counties, or cut some of its own existing
programs for noncitizens; and the State's ability to avoid certain penalties
written into the Law.
OTHER SUBSEQUENT DEVELOPMENTS--With the continued strong economic recovery in
the State, the Department of Finance has estimated, in connection with the
release of the Governor's 1997-98 Budget Proposal, that revenues for the 1996-97
Fiscal Year will exceed initial projections by about $760 million. This increase
will be offset by higher expenditures for K-14 school aid (pursuant to
Proposition 98) and for health and welfare costs, because federal law changes
and other federal actions did not provide as much assistance to the State as was
initially planned in the Budget Act. The Department's updated projections show a
balance in the SFEU of $197 million, slightly lower than projected in July,
1996. The Department also projects the State's cash position will be stronger
than originally estimated, with unused internal borrowable resources at June 30,
1997 of about $4.3 billion.
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On January 9, 1997, the Governor released his proposed budget for the 1997-98
Fiscal Year (the "Governor's Budget"). The Governor's Budget projects General
Fund revenues and transfers in 1997-98 of $50.7 billion, a 4.6% increase from
revised 1996-97 figures. The Governor proposes expenditures of $50.3 billion, a
3.9% increase from 1996-97. The Governor's Budget projects a balance in the SFEU
of $553 million on June 30, 1998. The Governor's Budget also anticipates about
$3 billion of external borrowing for cash flow purposes during the year, with no
requirement for cross-fiscal year borrowing.
Among the major initiatives and features of the Governor's Budget are (i) a
proposed 10% cut in the Bank and Corporation Tax rate, to be phased in over two
years; (ii) increased Proposition 98 funding for K-14 schools; and (iii)
increased funding for higher education without any increase in student fees at
any of the three levels of the State higher education system. The 1997-98
proposed Governor's Budget assumes approximately $500 million in savings
contingent upon federal action. The Budget assumes that federal law will be
enacted to remove the maintenance-of-effort requirement for Supplemental
Security Income (SSI) payments, thereby enabling the state to reduce grant
levels pursuant to previously enacted state law ($279 million). The Budget also
assumes the federal government will fund $216 million in costs of health care
for illegal immigrants.
ADDITIONAL CONSIDERATIONS. With respect to Municipal Securities issued by the
State of California and its political subdivisions, as well as certain other
governmental issuers such as the Commonwealth of Puerto Rico, the Trust cannot
predict what legislation, if any, may be proposed in the California State
Legislature as regards the California State personal income tax status of
interest on such obligations, or which proposals, if any, might be enacted. Such
proposals, if enacted, might materially adversely affect the availability of
California Municipal Securities for investment by the California Tax Exempt
Portfolio and the value of the Fund's investments. In such event, the Trustees
would reevaluate the investment objective and policies of the California Tax
Exempt Portfolio and consider changes in its investments structure or possible
dissolution.
INVESTMENT LIMITATIONS
In addition to those listed in the Prospectus, the following are fundamental
policies and may not be changed without the consent of a majority of a
Portfolio's outstanding shares. The term "a majority of a Portfolio's
outstanding shares" means the vote of (i) 67% or more of the Portfolio's shares
present at a meeting if more than 50% of the outstanding shares of the Portfolio
are present or represented by proxy, or (ii) more than 50% of the Portfolio's
shares, whichever is less.
A Portfolio may not:
1. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of total assets. The California Tax
Exempt Portfolio has a fundamental policy that to the extent such borrowing
exceeds 5% of the value of the Portfolio's total assets, borrowing will be
done from a bank and in accordance with the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"). 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 of the Portfolios will be repaid before
making additional investments and any interest paid on such borrowings will
reduce income.
2. Purchase securities of other investment companies.
3. Make loans, except that any Portfolio may purchase or hold debt instruments
in accordance with its investment objective and policies and may enter into
repurchase agreements.
4. Pledge, mortgage or hypothecate assets except to secure temporary borrowings
permitted by (1) above in aggregate amounts not to exceed 10% of the net
assets of such Portfolio taken at current value at the time of the
incurrence of such loan.
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5. Invest in companies for the purpose of exercising control.
6. Acquire more than 10% of the voting securities of any one issuer.
7. Purchase or sell real estate, real estate limited partnership interests,
commodities or commodities contracts including futures contracts. However,
subject to its permitted investments, any Portfolio may invest in municipal
securities or other obligations secured by real estate or other interests
therein.
8. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Portfolio may obtain short-term
credits as necessary for the clearance of security transactions.
9. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
10. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowings as described in the Prospectuses and this
Statement of Additional Information or as permitted by rule, regulation or
order of the Securities and Exchange Commission (the "SEC").
11. Invest more than 25% of total assets in issues within the same state or
similar type projects (except in specified categories). This investment
limitation applies only to the Institutional Tax Free Portfolio.
12. With the exception of the California Tax Exempt Portfolio, purchase
securities of any issuer (except securities issued or guaranteed by the
United States, its agencies or instrumentalities) and any security
guaranteed thereby if as a result more than 5% of the total assets of the
Portfolio would be invested in the securities of such issuer; provided that
the Portfolio may invest up to 25% of its total assets without regard to
this restriction as permitted by applicable law.
13. Purchase any securities which would cause more than 25% of the total assets
of the Portfolio to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry,
provided that this limitation does not apply to investments in obligations
issued or guaranteed by the U.S. Government or its agencies,
instrumentalities or, for the California Tax Exempt Portfolio, to
investments in tax-exempt securities issued by governments or political
subdivisions of governments.
In addition, it is a fundamental policy of the Portfolios to invest only in high
quality, U.S. dollar denominated obligations maturing in 397 days or less
(although obligations subject to repurchase agreements may have a maturity in
excess thereof), and to maintain an average maturity (on a dollar weighted
basis) of 90 days or less.
NON-FUNDAMENTAL POLICY
The following investment limitation of the Portfolios is non-fundamental and may
be changed by the Trust's Board of Trustees without shareholder approval.
No Portfolio may invest in interests in oil, gas or other mineral exploration or
development programs and oil, gas or mineral leases.
Additionally, it is each Portfolio's current operating policy to limit
investments in restricted securities to 10% of its net assets and limit
investments in illiquid securities to 10% of its net assets.
THE ADVISER
The Trust and PNC Institutional Management Corporation ("PIMC" or the "Adviser")
have entered into advisory agreements relating to each Portfolio (the "Advisory
Agreements"). Each Advisory Agreement provides that the Adviser shall not be
protected against any liability to the Trust or its Shareholders by reason of
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard of its obligations or
duties thereunder.
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Each Advisory Agreement provides that if in any fiscal year the aggregate
expenses of a Portfolio (as defined under the securities regulations of any
state having the jurisdiction over the Portfolio) exceeds the expense
limitations of any such state, the Adviser will bear its share of the amount of
such excess in proportion to the aggregate fees otherwise payable to it under
the agreement and to the Trust's administrator, under its administration
agreement with the Trust. The obligation of the Adviser to reimburse the Trust
under this provision is limited in any fiscal year to the amount of its fees
otherwise payable under the agreement attributable to the Portfolio for such
fiscal year, provided, however, that notwithstanding the foregoing, the Adviser
shall reimburse the Trust of the full amount of its share of any such excess
expenses regardless of the amount of fees otherwise payable to it during such
fiscal year to the extent that the securities regulations of any state having
jurisdiction over the Portfolio so require. Such expense reimbursement, if any,
will be estimated, reconciled and paid on a monthly basis.
The continuance of each Advisory Agreement, after the initial two years, 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 will terminate automatically in the event of its assignment, and is
terminable at any time without penalty by the Trustees of the Trust or, with
respect to a Portfolio, by a majority of the outstanding shares of that
Portfolio, on 60 days' written notice to the Adviser, or by the Adviser on 60
days' written notice to the Trust.
For the fiscal years ended January 31, 1995, January 31, 1996 and January 31,
1997, the Portfolios paid the following advisory fees:
<TABLE>
<CAPTION>
FEES PAID (000) FEES WAIVED (000)
------------------------------- -------------------------------
PORTFOLIO 1995 1996 1997 1995 1996 1997
- ------------------------------------------------------------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
California Tax Exempt Portfolio
Prudential...................................................... $ 31 $ 236 N/A $ 0 $ 0 N/A
PIMC............................................................ N/A $ 50 $ 423 N/A $ 0 $ 0
Institutional Tax Free Portfolio
Prudential...................................................... $ 94 $ 75 N/A $ 0 $ 0 N/A
PIMC............................................................ N/A $ 13 $ 61 N/A $ 0 $ 0
</TABLE>
Prior to November 30, 1995 Prudential Investment Corporation served as the
investment advisor to each Portfolio and was paid the advisory fees during that
period.
THE ADMINISTRATOR
SEI Fund Resources (the "Administrator") serves as administrator pursuant to an
administration agreement (the "Administration Agreement") with the Trust. 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 the Trust 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 shall remain in effect for five years and
thereafter shall continue in effect for successive two-year periods subject to
annual review by the Trustees.
The Administrator, a Delaware business trust, has its principal business offices
at Oaks, Pennsylvania 19456. SEI Financial Management Corporation ("SFM"), a
wholly-owned subsidiary of SEI Investments Company ("SEI"), is the owner of all
beneficial interest in the Administrator. SEI 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 to the
following other mutual
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funds: The Achievement Funds Trust, The Advisors' Inner Circle Fund, ARK Funds,
Bishop Street Funds, CoreFunds, Inc., CrestFunds, Inc., CUFUND, FMB Funds, Inc.,
First American Funds, Inc., First American Investment Funds, Inc., First
American Strategy Funds, Inc., HighMark Funds, Marquis
Funds-Registered Trademark-, Monitor Funds, Morgan Grenfell Investment Trust,
The PBHG Funds, Inc., The Pillar Funds, Profit Funds Investment Trust, Rembrandt
Funds-Registered Trademark-, Santa Barbara Group of Mutual Funds, Inc., 1784
Funds-Registered Trademark-, SEI Asset Allocation Trust, SEI Daily Income Trust,
SEI Index Funds, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI International Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust,
Stepstone Funds, STI Classic Funds, STI Classic Variable Trust, and Turner
Funds.
For the fiscal years ended January 31, 1995, January 31, 1996 and January 31,
1997, the Portfolios paid the following administrative fees:
<TABLE>
<CAPTION>
FEES PAID (000) FEES WAIVED (000)
------------------------------- -------------------------------
PORTFOLIO 1995 1996 1997 1995 1996 1997
- ------------------------------------------------------------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
California Tax Exempt Portfolio................................... $ 718 $ 908 $ 807 $ 218 $ 0 $ 226
Institutional Tax Free Portfolio.................................. $ 186 $ 349 $ 29 $ 192 $ 203 $ 186
</TABLE>
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI, and the Trust are parties to a distribution agreement ("Distribution
Agreement"). The Distribution Agreement shall be reviewed and ratified at least
annually (i) by the Trust's Trustees or by the vote of a majority of the
outstanding shares of the Trust, and (ii) by the vote of a majority of the
Trustees of the Trust who are not parties to the Distribution Agreement or
interested persons (as defined in the 1940 Act) of any party to the Distribution
Agreement, cast in person at a meeting called for the purpose of voting on such
approval. The Distribution Agreement will terminate in the event of any
assignment, as defined in the 1940 Act, and is terminable with respect to a
particular Portfolio on not less than sixty days' notice by the Trust's
Trustees, by vote of a majority of the outstanding shares of such Portfolio or
by the Distributor. The Distributor does not receive compensation for the
distribution of Portfolio shares.
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 Trustees and Executive Officers
of the Trust, their respective dates of birth, and their principal occupations
for the last five years are set forth below. Each may have held other positions
with the named companies during that period. Unless otherwise noted, the
business address of each Trustee and each Executive Officer is SEI Investments
Company, Oaks, Pennsylvania 19456. Certain officers of the Trust also serve as
officers of some or all of the following: The Achievement Funds Trust, The
Advisors' Inner Circle Fund, ARK Funds, Bishop Street Funds, CoreFunds, Inc.,
CrestFunds, Inc., CUFUND, FMB Funds, Inc., First American Funds, Inc., First
American Investment Funds, Inc., First American Strategy Funds, Inc, HighMark
Funds, Marquis Funds-Registered Trademark-, Monitor Funds, Morgan Grenfell
Investment Trust, The PBHG Funds, Inc., The Pillar Funds, Profit Funds
Investment Trust, Rembrandt Funds-Registered Trademark-, Santa Barbara Group of
Mutual Funds, Inc., 1784 Funds-Registered Trademark-, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI International Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, Stepstone Funds, STI Classic Funds, STI
Classic Variable Trust and Turner Funds, each of which is an open-end management
investment company managed by SEI Fund Resources or its affiliates and, except
for Profit Funds Investment Trust, Rembrandt Funds-Registered Trademark-, and
Santa Barbara Group of Mutual Funds, Inc., are distributed by SEI Financial
Services Company.
ROBERT A. NESHER (DOB 08/17/46)--Chairman of the Board of Trustees*--Retired
since 1994. Executive Vice President of SEI, 1986-1994. Director and Executive
Vice President of the Administrator and the Distributor, 1981-1994. Trustee of
the Arbor Fund, Marquis Funds-Registered Trademark-, Advisors' Inner Circle
Fund, SEI
S-18
<PAGE>
Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Managed Trust, SEI International Trust, SEI Institutional
Investments Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, Insurance
Investment Products Trust, 1784 Funds-Registered Trademark-, Pillar Funds,
Rembrandt Funds, and Stepstone Funds.
JOHN T. COONEY (DOB 01/20/27)--Trustee**--569 N. Post Oak Lane, Houston, TX
77024. Retired since 1992. Formerly Vice Chairman of Ameritrust Texas N.A.,
1989-1992, and MTrust Corp., 1985-1989. Trustee of the Arbor Fund, Marquis
Funds-Registered Trademark-, and Advisors' Inner Circle Fund.
WILLIAM M. DORAN (DOB 05/26/40)--Trustee*--2000 One Logan Square, Philadelphia,
PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the Trust,
Administrator and Distributor, Director and Secretary of SEI. Trustee of the
Arbor Fund, SEI Liquid Asset Trust, SEI Tax Exempt Trust, SEI Daily Income
Trust, SEI Index Funds, SEI Institutional Managed Trust, SEI International
Trust, SEI Asset Allocation Trust, SEI Institutional Investments Trust,
Insurance Investment Products Trust, The Advisors' Inner Circle Fund, and
Marquis Funds-Registered Trademark-.
FRANK E. MORRIS (DOB 12/30/23)--Trustee**--105 Walpole Street, Dover, MA 02030.
Retired since 1990. Peter Drucker Professor of Management, Boston College,
1989-1990. President, Federal Reserve Bank of Boston, 1968-1988. Trustee of The
Arbor Fund, Marquis Funds-Registered Trademark-, Advisors' Inner Circle Fund,
SEI Liquid Asset Trust, SEI Tax Exempt Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Managed Trust, SEI International Trust, Insurance
Investment Products Trust, SEI Asset Allocation Trust and SEI Institutional
Investments Trust.
ROBERT A. PATTERSON (DOB 11/05/27)--Trustee**--208 Old Main, University Park, PA
16802. Pennsylvania State University, Senior Vice President, Treasurer
(Emeritus). Financial and Investment Consultant, Professor of Transportation
(1984-present). Vice President-Investments, Treasurer, Senior Vice President
(Emeritus) (1982-1984). Director, Pennsylvania Research Corp.; Member and
Treasurer, Board of Trustees of Grove City College. Trustee of the Arbor Fund,
Marquis Funds-Registered Trademark-, and Advisors' Inner Circle Fund.
GENE PETERS (DOB 06/03/29)--Trustee**--943 Oblong Road, Williamstown, MA 01267.
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 Arbor Fund, Marquis
Funds-Registered Trademark- and Advisors' Inner Circle Fund.
JAMES M. STOREY (DOB 04/12/31)--Trustee**--Partner, Dechert Price & Rhoads, from
September 1987 - December 1993; Trustee of the Arbor Fund, Marquis
Funds-Registered Trademark-, Advisors' Inner Circle Fund, SEI Liquid Asset
Trust, SEI Tax Exempt Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Managed Trust, SEI International Trust, Insurance Investment
Products Trust, SEI Asset Allocation Trust, and SEI Institutional Investments
Trust.
DAVID G. LEE (DOB 04/16/52)--President and Chief Executive Officer--Senior Vice
President of the Administrator and Distributor since 1993. Vice President of the
Administrator and Distributor, 1991-1993. President, GW Sierra Trust Funds
before 1991.
SANDRA K. ORLOW (DOB 10/18/53)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of the Administrator and Distributor since
1988.
KEVIN P. ROBINS (DOB 04/15/61)--Vice President and Assistant Secretary--Senior
Vice President, General Counsel and Assistant Secretary of SEI, Senior Vice
President, General Counsel and Secretary of the Administrator and Distributor
since 1994. Vice President and Assistant Secretary of SEI, the Administrator and
Distributor, 1992-1994. Associate, Morgan, Lewis & Bockius LLP (law firm),
1988-1992.
RICHARD W. GRANT (DOB 10/25/45)--Secretary--2000 One Logan Square, Philadelphia,
PA 19103, Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the Trust,
Administrator and Distributor.
S-19
<PAGE>
KATHRYN L. STANTON (DOB 11/19/58)--Vice President and Assistant Secretary,
Deputy General Counsel of SEI, Vice President and Assistant Secretary of the
Administrator and Distributor since 1994. Associate, Morgan, Lewis & Bockius LLP
(law firm), 1989-1994.
JOSEPH P. LYDON (DOB 09/27/59)--Vice President and Assistant
Secretary--Director, Business Administration of Fund Resources, April 1995. Vice
President, Fund Group, Dremen Value Management, LP, President Dremen Financial
Services, Inc. prior to 1995.
STEPHEN G. MEYER (DOB 07/12/65)--Controller, Chief Financial Officer-Vice
President and Controller of SEI Fund Resources since 1995. Director, Internal
Audit and Risk Management, SEI Corporation, 1992-1995. Senior Associate, Coopers
and Lybrand, 1990-1992.
TODD B. CIPPERMAN (DOB 01/14/66)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of SEI, the Administrator and the Distributor
since 1995. Associate, Dewey Ballantine (law firm) (1994-1995). Associate,
Winston & Strawn (law firm) (1991-1994).
BARBARA A. NUGENT (DOB 06/18/56)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1996. Associate, Drinker Biddle & Reath (law firm) (1994-1996). Assistant
Vice President/Administration, Delaware Service Company, Inc. (1992-1993);
Assistant Vice President-Operations of Delaware Service Company, Inc.
(1988-1992).
MARC H. CAHN (DOB 06/19/57)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1996. Associate General Counsel, Barclays Bank PLC (1995-1996). ERISA
counsel, First Fidelity Bancorporation (1994-1995), Associate, Morgan, Lewis &
Bockius LLP (1989-1994).
- ------------------------
* Messrs. Nesher and Doran are Trustees who may be deemed to be "interested"
persons of the Trust as the term is defined in the 1940 Act.
** Messrs. Cooney, Morris, Patterson, Peters and Storey serve on the Audit
Committee of the Trust.
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. For the
fiscal period ended January 31, 1997, the Trust paid the unaffiliated Trustees
aggregate fees of approximately $63,860.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL COMPENSATION
FROM REGISTRANT AND
PENSION OR FUND COMPLEX PAID TO
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL TRUSTEES FOR THE
COMPENSATION FROM ACCRUED AS PART OF BENEFITS UPON FISCAL YEAR ENDED
NAME OF PERSON, POSITION REGISTRANT FUND EXPENSES RETIREMENT JANUARY 31, 1997 (1)
- --------------------------------------------- ----------------- -------------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
John T. Cooney, Trustee...................... $ 12,772 N/A N/A $ 12,772
Frank E. Morris, Trustee..................... $ 12,772 N/A N/A $ 12,772
Robert E. Patterson, Trustee................. $ 12,772 N/A N/A $ 12,772
Gene Peters, Trustee......................... $ 12,772 N/A N/A $ 12,772
James M. Storey, Trustee..................... $ 12,772 N/A N/A $ 12,772
William M. Doran, Trustee*................... $ 0 N/A N/A $ 0
Robert A. Nesher, Trustee*................... $ 0 N/A N/A $ 0
</TABLE>
- ------------------------
(1) Total compensation for service on one board.
* A Trustee who is an "interested person" as defined by the 1940 Act.
S-20
<PAGE>
COMPUTATION OF YIELD
From time to time the Portfolios may advertise their "current yield," "effective
yield" and "tax equivalent yield." These yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of the
Portfolios refers to the income generated by an investment in a Portfolio over a
seven-day or 30-day period (which period will be stated in the advertisement).
This income is then "annualized." That is, the amount of income generated by the
investment during that seven-day or 30-day period is assumed to be generated
each seven-day or 30-day period over a year and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in a Portfolio is assumed to be reinvested.
The "effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
The current yield of each Portfolio will be calculated daily based upon the
seven days ending on the date of calculation ("base period"). The yield is
computed by determining the net change (exclusive of capital changes) in the
value of a hypothetical pre-existing shareholder account having a balance of one
share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing such net change by
the value of the account at the beginning of the same period to obtain the base
period return and multiplying the result by (365/7). Realized and unrealized
gains and losses are not included in the calculation of the yield. The effective
compound yield of the Portfolios is determined by computing the net change,
exclusive of capital changes, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result, according to the
following formula: Effective Yield = (Base Period Return + 1) 365/7) - 1. The
current and the effective yields reflect the reinvestment of net income earned
daily on portfolio assets.
The yield of these Portfolios fluctuates, and the annualization of a week's
dividend is not a representation by the Trust as to what an investment in the
Portfolio will actually yield in the future. Actual yields will depend on such
variables as asset quality, average asset maturity, the type of instruments the
Portfolio invests in, changes in interest rates on money market instruments,
changes in the expenses of the Portfolio and other factors.
Yields are one basis upon which investors may compare the Portfolios 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.
For the seven-day period ended January 31, 1997, the Portfolios' yields were
3.07% for the California Tax Exempt Portfolio and 3.34% for the Institutional
Tax Free Portfolio.
For the seven-day period ended January 31, 1997, the Portfolios' tax-equivalent
yields were 6.00% for the California Tax Exempt Portfolio and 5.53% for the
Institutional Tax Free Portfolio.
The tax-equivalent yield for the California Tax Exempt Portfolio was calculated
assuming a 9.3% California state tax rate and a 39.6% federal tax rate. The
yield for the Institutional Tax Free Portfolio was calculated assuming a 39.6%
federal tax rate.
CALCULATION OF TOTAL RETURN
From time to time, each Portfolio may advertise total return. The total return
of a Portfolio refers to the average compounded rate of return to a hypothetical
investment for designated time periods (including but not limited to, the period
from which the Portfolios commenced operations through the specified date),
assuming that the entire investment is redeemed at the end of each period. In
particular, total return will be calculated according to the following formula:
P (1 + T)n = ERV, where P = a hypothetical initial payment of $1,000; T =
average annual total return; n = number of years; and ERV = ending redeemable
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<PAGE>
value of a hypothetical $1,000 payment made at the beginning of the designated
time period as of the end of such period.
Based on the foregoing, the average annual total return for the Portfolios from
inception through January 31, 1997 and for the one, five and ten year periods
ended January 31, 1997 were as follows:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
--------------------------------------------
SINCE
PORTFOLIO CLASS ONE YEAR FIVE YEAR TEN YEAR INCEPTION
- ---------------------------------------------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
California Tax Exempt Portfolio Class A 3.09 N/A N/A 3.01
Institutional Tax Free Portfolio Class A 3.37 N/A N/A 3.18
</TABLE>
PURCHASE AND REDEMPTION OF SHARES
It is currently the Trust's policy to pay for the redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the Portfolios
in lieu of cash. Shareholders may incur brokerage charges on the sale of any
such securities so received in payment of redemptions. However, a Shareholder
will at all times be entitled to aggregate cash redemptions from all Portfolios
of the Trust during any 90-day period of up to the lesser of $250,000 or 1% of
the Trust's net assets.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of
disposal or valuation of the Portfolio's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Trust also reserves the right to suspend sales of shares of the Portfolio for
any period during which the New York Stock Exchange, the Adviser, the
Administrator and/or the Custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of a Portfolio is calculated by adding the value
of securities and other assets, subtracting liabilities and dividing by the
number of outstanding shares. Securities will be valued by the amortized cost
method which involves valuing a security at its cost on the date of purchase and
thereafter (absent unusual circumstances) assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuations in
general market rates of interest on the value of the instrument. While this
method provides certainty in valuation, it may result in periods during which a
security's value, as determined by this method, is higher or lower than the
price the Portfolio would receive if it sold the instrument. During periods of
declining interest rates, the daily yield of the Portfolio may tend to be higher
than a like computation made by a company with identical investments utilizing a
method of valuation based upon market prices and estimates of market prices for
all of its portfolio securities. Thus, if the use of amortized cost by the
Portfolio resulted in a lower aggregate portfolio value on a particular day, a
prospective investor in the Portfolio would be able to obtain a somewhat higher
yield than would result from investment in a company utilizing solely market
values, and existing investors in the Portfolio would experience a lower yield.
The converse would apply in a period of rising interest rates.
A Portfolio's use of amortized cost and the maintenance of the Portfolio's net
asset value at $1.00 are permitted by regulations promulgated by Rule 2a-7 under
the 1940 Act provided that certain conditions are met. The regulations also
require the Trustees to establish procedures which are reasonably designed to
stabilize the net asset value per share at $1.00 for the Portfolios. Such
procedures include the determination of the extent of deviation, if any, of the
Portfolio's current net asset value per share calculated using available market
quotations from the Portfolio's amortized cost price per share at such intervals
as the Trustees deem appropriate and reasonable in light of market conditions
and periodic reviews of the amount of the deviation and the methods used to
calculate such deviation. In the event that
S-22
<PAGE>
such deviation exceeds 1/2 of 1%, the Trustees are required to consider promptly
what action, if any, should be initiated, and, if the Trustees believe that the
extent of any deviation may result in material dilution or other unfair results
to Shareholders, the Trustees are required to take such corrective action as
they deem appropriate to eliminate or reduce such dilution or unfair results to
the extent reasonably practicable. Such actions may include the sale of
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity; withholding dividends; redeeming shares in
kind; or establishing a net asset value per share by using available market
quotations. In addition, if the Portfolios incur a significant loss or
liability, the Trustees have the authority to reduce pro rata the number of
shares of the Portfolios in each Shareholder's account and to offset each
Shareholder's pro rata portion of such loss or liability from the Shareholder's
accrued but unpaid dividends or from future dividends while each other Portfolio
must annually distribute at least 90% of its investment company taxable income.
The securities of the Portfolios are valued by the Administrator pursuant to
valuations provided by an independent pricing service. The pricing service
relies primarily on prices of actual market transactions as well as trader
quotations. However, the service may also use a matrix system to determine
valuations of fixed income securities, which system considers such factors as
security prices, yields, maturities, call features, ratings and developments
relating to specific securities in arriving at valuations. The procedures of the
pricing service and its valuations are reviewed by the officers of the Trust
under the general supervision of the Trustees.
TAXES
FEDERAL INCOME TAX
In order to qualify for treatment as a regulated investment company ("RIC")
under the Internal Revenue Code of 1986, as amended (the "Code"), each Portfolio
must distribute annually to its Shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) and also must meet several additional requirements. Among these
requirements are the following: (i) at least 90% of the Portfolio's gross income
each taxable year must be derived from dividends, interest, payments with
respect to securities loans, and gains from the sale or other disposition of
stock or securities, or certain other income, (ii) the Portfolio must derive
less than 30% of its gross income each taxable year from the sale or other
disposition of stocks or securities held for less than three months; (iii) at
the close of each quarter of the Portfolio's taxable year, at least 50% of the
value of its total assets must be represented by cash and cash items, U.S.
Government securities, securities of other RICs and other securities, with such
other securities limited, in respect to any one issuer, to an amount that does
not exceed 5% of the value of the Portfolio's assets and that does not represent
more than 10% of the outstanding voting securities of such issuer; and (iv) at
the close of each quarter of the Portfolio's taxable year, not more than 25% of
the value of its assets may be invested in securities (other than U.S.
Government securities or the securities of other RICs) of any one issuer or of
two or more issuers which the Portfolio controls and which are engaged in the
same, similar or related trades or businesses.
Dividends received from the Portfolios will not be eligible for a dividends
received deduction. Notwithstanding the distribution requirement described
above, which only requires a Portfolio to distribute at least 90% of its annual
investment company taxable income and does not require any minimum distribution
of net capital gain (the excess of net long-term capital gain over net
short-term capital loss), a Portfolio will be subject to a nondeductible 4%
federal excise tax to the extent it fails to distribute by the end of any
calendar year 98% of its ordinary income for that year and 98% of its capital
gain net income for the one-year period ending on October 31 of that year, plus
certain other amounts. Each Portfolio intends to make sufficient distributions
prior to the end of each calendar year to avoid the imposition of federal excise
tax.
S-23
<PAGE>
ADDITIONAL TAX INFORMATION CONCERNING THE PORTFOLIOS
As indicated in the Prospectus, the Portfolios are designed to provide
shareholders with current tax-exempt interest income and are not intended to
constitute a balanced investment program. Certain recipients of Social Security
and railroad retirement benefits may be required to take into account income
from the Portfolios in determining the taxability of their benefits. In
addition, the Portfolios may not be an appropriate investment for shareholders
that are "substantial users" or persons related to such users of facilities
financed by private activity bonds or industrial revenue bonds. A "substantial
user" is defined generally to include certain persons who regularly use a
facility in their trade or business. All shareholders should consult their tax
advisors to determine the potential effect of investing in the Portfolios, if
any, on their liability for federal, state, and local taxes.
If, at the close of each quarter of its taxable year, at least 50% of the value
of a Portfolio's total assets consists of securities the interest on which is
excludable from gross income, the Portfolio may pay "exempt-interest dividends"
to its shareholders. The policy of each Portfolio is to pay each year as
dividends substantially all of its interest income, net of certain deductions.
An exempt-interest dividend is any dividend or part thereof (other than a
capital gain dividend) paid by a Portfolio, and designated by the Portfolio as
an exempt-interest dividend in a written notice mailed to shareholders within 60
days after the close of such Portfolio's taxable year. However, aggregate
exempt-interest dividends for the taxable year may not exceed the net interest
from Municipal Securities and other securities exempt from the regular federal
income tax received by the Portfolio during the taxable year. The percentage of
the total dividends paid for any taxable year which qualifies as federal
exempt-interest dividends will be the same for all shareholders receiving
dividends from a Portfolio during such year, regardless of the period for which
the shares were held.
Exempt-interest dividends may nevertheless be subject to the alternative minimum
tax (the "Alternative Minimum Tax") imposed by section 55 of the Code or the
environmental tax (the "Environmental Tax") imposed by Section 59A of the Code.
The Environmental Tax is imposed at the rate of 0.12% and applies only to
corporate taxpayers. The Alternative Minimum Tax and the Environmental Tax may
be imposed in two circumstances. First, exempt-interest dividends derived from
certain "private activity bonds" issued after August 7, 1986, will generally be
an item of tax preference (and therefore potentially subject to the Alternative
Minimum Tax and the Environmental Tax) for both corporate and non-corporate
taxpayers. Second, in the case of exempt-interest dividends received by
corporate shareholders, all exempt-interest dividends, regardless of when the
bonds from which they are derived were issued or whether they were derived from
private activity bonds, will be included in the corporation's "adjusted current
earnings," as defined in section 56(g) of the Code, in calculating the
corporation's alternative minimum taxable income for purposes of determining the
Alternative Minimum Tax and the Environmental Tax.
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 the 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.
Issuers of bonds purchased by the Portfolios (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 the covenants.
S-24
<PAGE>
Under the Code, if a shareholder receives an exempt-interest dividend with
respect to any share and such share is held for six months or less, any loss on
the sale or exchange of such share will be disallowed to the extent of the
amount of such exempt-interest dividend.
Any net realized long-term capital gains of each of the Portfolios will be
distributed at least annually. The Portfolios will have no tax liability with
respect to such gains and the distributions will be taxable to shareholders as
long-term capital gains, regardless of how long a shareholder has held shares in
a Portfolio. Such distributions will be designated as a capital gains dividend
in a written notice mailed to shareholders after the close of a Portfolio's
taxable year. If a shareholder disposes of shares in a Portfolio at a loss
before having held those shares for more than six months, such loss will be
treated as a long-term capital loss to the extent the shareholder has received a
long-term capital gain distribution on the shares.
Although neither Portfolio expects to earn any investment company taxable income
(as defined by the Code), any income earned on taxable investments will be
distributed and will be taxable to shareholders as ordinary income. In general,
"investment company taxable income" comprises taxable net investment income and
net short-term capital gains. A Portfolio would be taxed on any undistributed
investment company taxable income. Since any such income will be distributed, it
is anticipated that no such tax will be paid by either Portfolio.
As indicated in the Prospectus, the Portfolios may acquire puts with respect to
Municipal Securities held in its portfolio. See "Additional Description Of
Permitted Investments --Puts on Municipal Securities" in this Statement of
Additional Information. The policy of the Portfolios is to limit acquisitions of
puts to those under which an acquiring Portfolio will be treated for federal
income tax purposes as the owner of the Municipal Securities acquired subject to
the put and the interest on the Municipal Securities will be tax-exempt to such
Portfolio. Although the Internal Revenue Service has issued a published ruling
that provides some guidance regarding the tax consequences of the purchase of
puts, there is currently no guidance available from the Internal Revenue Service
that definitively establishes the tax consequences of many of the types of puts
that a Portfolio could acquire under the 1940 Act. Therefore, although the
Portfolios will only acquire a put after concluding that it will have the tax
consequences described above, the Internal Revenue Service could reach a
different conclusion. If a Portfolio were not treated as the owner of the
Municipal Securities, income from such securities would probably not be
tax-exempt.
Although both Portfolios expect to qualify as a regulated investment companies
and to be relieved of all or substantially all federal income taxes, depending
upon the extent of its activities in states and localities in which its offices
are maintained, in which its agents or independent contractors are located, or
in which it is otherwise deemed to be conducting business, a Portfolio may be
subject to the tax laws of such states or localities. In addition, in those
states and localities which have income tax laws, the treatment of a Portfolio
and its shareholders under such laws may differ from its treatment under federal
income tax laws.
If for any taxable year a Portfolio does not qualify for the special tax
treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). Moreover, upon distribution to
shareholders, the Portfolio's income, including Municipal Securities interest
income, will be taxable to shareholders to the extent of the Portfolio's current
and/or accumulated earnings and profits.
STATE TAXES
A Portfolio is not liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by the
Portfolios to Shareholders and the ownership of shares may be subject to state
and local taxes. Depending upon applicable state and local law, Shareholders of
a Portfolio may be exempt from state and local taxes on distributions of
tax-exempt interest income derived from obligations of the state and/or
municipalities in which they reside, but Shareholders may be subject to tax on
income derived from obligations of other jurisdictions. Each Portfolio will make
periodic reports to Shareholders of the source of distributions on a
state-by-state basis. Shareholders should consult their tax
S-25
<PAGE>
advisors concerning the state and local tax consequences of investments in the
Trust, which may differ from the federal income tax consequences described
above.
CALIFORNIA STATE TAXES. If the California Tax Exempt Portfolio qualifies to pay
California exempt-interest dividends, dividends distributed to Shareholders will
be considered California exempt-interest dividends (1) if they are designated as
exempt-interest dividends by the Portfolio in a written notice to Shareholders
mailed within 60 days of the close of the Portfolio's taxable year and (2) to
the extent the interest received by the Portfolio during the year on California
Tax Exempt Obligations exceeds expenses of the Portfolio that would be
disallowed under California personal income tax law as allocable to tax exempt
interest if the Portfolio were an individual. If the aggregate dividends so
designated exceed the amount that may be treated as California exempt-interest
dividends, only that percentage of each dividend distribution equal to the
ratios of aggregate California exempt-interest dividends to aggregate dividends
so designated will be treated as a California exempt-interest dividend.
Corporations subject to California franchise tax that invest in the Portfolio
may not be entitled to exclude California exempt-interest dividends from income.
The foregoing discussion, as well as the discussion in the Prospectus, provides
only a general, abbreviated summary of certain of the provisions of the
California Revenue and Taxation Code presently in effect as they directly govern
the taxation of Shareholders subject to California personal income tax. These
provisions are subject to change by legislative or administrative action, and
any such change may be retroactive with respect to Portfolio transactions.
Shareholders are advised to consult with their own tax advisors for more
detailed information concerning California tax matters.
PORTFOLIO 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 is responsible for placing the orders
to execute transactions for the Portfolio. The Adviser selects brokers or
dealers to execute transactions for the purchase or sale of portfolio securities
on the basis of its judgment of their professional capability to provide the
service. The primary consideration is to have brokers or dealers execute
transactions at best price and most favorable execution. Best price and most
favorable execution refers to many factors, including the price paid or received
for a security, the commission charged, the promptness and reliability of
execution, the confidentiality and placement accorded the order and other
factors affecting the overall benefit obtained by the account on the
transaction. The Adviser's determination of what are reasonably competitive
rates is based upon the professional knowledge of its trading department as to
rates paid and charged for similar transactions throughout the securities
industry. In some instances, the Trust pays a minimal share transaction cost
when the transaction presents no difficulty. Some trades are made on a net basis
where the Trust either buys securities directly from the dealer or sells them to
the dealer. In these instances, there is no direct commission charged but there
is a spread (the difference between the buy and sell price) which is the
equivalent of a commission. While the 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 Portfolios 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. The Adviser will at times
deal directly with the dealers who make a market in the securities involved,
although the Adviser may deal with other entities in those circumstances where
better prices and execution are available elsewhere. Such dealers usually are
acting as principal for their own account. At other times, 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.
S-26
<PAGE>
For the fiscal years ended January 31, 1995, January 31, 1996 and January 31,
1997, the Portfolios did not pay any brokerage commissions.
TRADING PRACTICES AND BROKERAGE
The Adviser may place a combined order for two or more accounts or funds engaged
in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and most favorable execution. Transactions involving commingled orders are
allocated in a manner deemed equitable to each account or fund. It is believed
that the ability of the accounts to participate in volume transactions will
generally be beneficial to the accounts and funds. Although it is recognized
that, in some cases, the joint execution of orders could adversely affect the
price or volume of the security that a particular account or fund may obtain, it
is the opinion of the Adviser and the Trust's Board of Trustees that the
advantages of combined orders outweigh the possible disadvantages of separate
transactions.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and most favorable execution,
the Trust may place orders with broker-dealers which have agreed to defray
certain Trust expenses such as custodian fees.
It is expected that the Trust may execute brokerage or other agency transactions
through the Distributor which is a registered broker-dealer, for a commission in
conformity with the 1940 Act, the Securities Exchange Act of 1934, as amended,
and rules promulgated by the SEC. Under these provisions, the Distributor is
permitted to receive and retain compensation for effecting portfolio
transactions for the Trust on an exchange if a written contract is in effect
between the Distributor and the Trust expressly permitting the Distributor to
receive and retain such compensation. These rules further require that
commissions paid to the Distributor by the Trust for exchange transactions not
exceed "usual and customary" brokerage commissions. The rules define "usual and
customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other renumeration received or to be received
by other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time." The Trustees, including those who are not "interested persons"
of the Trust, have adopted procedures for evaluating the reasonableness of
commissions paid to the Distributor and will review these procedures
periodically. For the fiscal years ended January 31, 1995, January 31, 1996 and
January 31, 1997, the Portfolios paid no brokerage commissions to the
Distributor or to any unaffiliated brokers or dealers.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of the Portfolios each of which represents an equal proportionate
interest in that Portfolio with each other share. Shares are entitled upon
liquidation to a pro rata share in the net assets of the Portfolios,
Shareholders have no preemptive rights. The Declaration of Trust provides that
the Trustees of the Trust may create additional series of shares. 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
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
S-27
<PAGE>
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 or
her 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 or her willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
5% SHAREHOLDERS
As of March 10, 1997, the following persons were the only persons who were
record owners (or to the knowledge of the Trust, beneficial owners) of 5% or
more of the shares of the Portfolios. The Trust believes that most of the shares
referred to below were held by the below persons in account for their fiduciary,
agency or custodial customers.
CALIFORNIA TAX EXEMPT PORTFOLIO: Wells Fargo Bank, NA, C/O Quality Control
Department, MAC 0103-174, Attn: ACM Desk, 22610 W. Agoura Rd., Calabascas, CA
91302-1921, 98.81%.
INSTITUTIONAL TAX FREE PORTFOLIO: Wells Fargo Bank, NA, C/O Quality Control
Department, MAC 0103-174, Attn: ACM Desk, 22610 W. Agoura Rd., Calabascas, CA
91302-1921, 97.98%.
EXPERTS
The financial statements incorporated by reference into this Statement of
Additional Information have been incorporated by reference in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
FINANCIAL STATEMENTS
The audited financial statements of the Portfolios for the fiscal year ended
January 31, 1997 and the Report of Independent Accountants of Price Waterhouse
LLP dated March 14, 1997, relating to the financial statements, including
financial highlights of the Portfolios are incorporated herein by reference.
S-28
<PAGE>
THE OVB FAMILY OF FUNDS
Investment Adviser:
ONE VALLEY BANK, NATIONAL ASSOCIATION
- OVB EQUITY INCOME PORTFOLIO
- OVB CAPITAL APPRECIATION PORTFOLIO
- OVB EMERGING GROWTH PORTFOLIO
- OVB GOVERNMENT SECURITIES PORTFOLIO
- OVB WEST VIRGINIA TAX-EXEMPT INCOME PORTFOLIO
- OVB PRIME OBLIGATIONS PORTFOLIO
THE OVB FAMILY OF FUNDS IS A GROUP OF PROFESSIONALLY MANAGED MUTUAL FUNDS THAT
OFFERS A CONVENIENT AND ECONOMICAL MEANS OF INVESTING IN ONE OR MORE PORTFOLIOS
OF SECURITIES. THIS PROSPECTUS OFFERS CLASS A AND CLASS B SHARES OF THE OVB
EQUITY INCOME PORTFOLIO, OVB CAPITAL APPRECIATION PORTFOLIO, OVB EMERGING GROWTH
PORTFOLIO, OVB GOVERNMENT SECURITIES PORTFOLIO, OVB WEST VIRGINIA TAX-EXEMPT
INCOME PORTFOLIO AND OVB PRIME OBLIGATIONS PORTFOLIO (THE "PORTFOLIOS"), AN
ASSORTMENT OF EQUITY, FIXED INCOME AND MONEY MARKET PORTFOLIOS.
Each Portfolio offers its Class A shares to institutional investors, including
One Valley Bank, National Association ("One Valley"), its affiliates and
correspondents, for the investment of their own funds or funds for which they
act in a fiduciary, agency or custodial capacity. Each Portfolio offers its
Class B shares to individuals and institutional accounts, including accounts for
which One Valley, its affiliates and correspondents, act in an agency or
custodial capacity.
AN INVESTMENT IN THE OVB PRIME OBLIGATIONS PORTFOLIO IS NEITHER INSURED NOR
GUARANTEED BY THE UNITED STATES GOVERNMENT, AND THERE IS NO ASSURANCE THAT THE
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THE SHARES OFFERED HEREBY ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING ONE VALLEY OR ANY OF ITS AFFILIATES OR
CORRESPONDENTS. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
This Prospectus sets forth concisely the information about the Portfolios that a
prospective investor should know before investing. Each Portfolio is a separate
series of The Arbor Fund. Investors are advised to read this Prospectus and
retain it for future reference. A Statement of Additional Information dated June
1, 1997 has been filed with the Securities and Exchange Commission and is
available without charge by calling 1-800-545-6331. The Statement of Additional
Information is incorporated into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
JUNE 1, 1997
OVB-F-009-03
<PAGE>
2
SUMMARY
THE OVB FAMILY OF FUNDS IS A GROUP OF OPEN-END MANAGEMENT INVESTMENT
COMPANIES PROVIDING A CONVENIENT WAY TO INVEST IN PROFESSIONALLY MANAGED
PORTFOLIOS OF SECURITIES. THE FOLLOWING SUMMARY PROVIDES BASIC INFORMATION
ABOUT THE CLASS A AND CLASS B SHARES OF THE OVB EQUITY INCOME PORTFOLIO, OVB
CAPITAL APPRECIATION PORTFOLIO, OVB EMERGING GROWTH PORTFOLIO, OVB
GOVERNMENT SECURITIES PORTFOLIO, OVB WEST VIRGINIA TAX-EXEMPT INCOME
PORTFOLIO AND OVB PRIME OBLIGATIONS PORTFOLIO (EACH, A "PORTFOLIO"). THIS
SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED
INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS AND IN THE STATEMENT OF
ADDITIONAL INFORMATION.
WHAT ARE THE INVESTMENT OBJECTIVES? The OVB EQUITY INCOME PORTFOLIO
(the "Equity Income Portfolio") seeks current income, with a secondary goal
of moderate capital appreciation. The OVB CAPITAL APPRECIATION PORTFOLIO
(the "Capital Appreciation Portfolio") and the OVB EMERGING GROWTH PORTFOLIO
(the "Emerging Growth Portfolio") seek long-term growth of capital. The OVB
GOVERNMENT SECURITIES PORTFOLIO (the "Government Portfolio") seeks current
income consistent with the preservation of capital. The OVB WEST VIRGINIA
TAX-EXEMPT INCOME PORTFOLIO (the "West Virginia Portfolio") seeks current
income exempt from both federal income taxes and West Virginia personal
income taxes consistent with the preservation of capital. The OVB PRIME
OBLIGATIONS PORTFOLIO (the "Prime Obligations Portfolio") seeks to preserve
principal value and maintain a high degree of liquidity while providing
current income. There can be no assurance that any Portfolio will achieve
its investment objective. See "Investment Objectives."
WHAT ARE THE PERMITTED INVESTMENTS? The Equity Income Portfolio invests
primarily in dividend-paying common stocks, preferred stocks and preferred
stocks and debt securities convertible into common stocks of large- and
medium-sized U.S. and foreign companies that provide a level of income which
is greater than the average income provided by the Standard & Poor's 500
Composite Index. The Capital Appreciation Portfolio invests primarily in
equity securities of large- and medium-sized companies that have exhibited
an established record of growth and that, in the Adviser's opinion, continue
to present significant growth potential. The Emerging Growth Portfolio
invests primarily in equity securities of smaller, emerging growth companies
that, in the Adviser's opinion, have the potential, over time, to produce
above-average long-term rates of return proportionate to their above-average
risk. The Government Portfolio invests primarily in U.S. Government
securities. The West Virginia Portfolio invests primarily in fixed income
securities the interest on which is exempt from federal income taxes and
exempt from West Virginia personal income taxes, and is not included as a
preference item for purposes of the federal alternative minimum tax. The
Prime Obligations Portfolio will invest exclusively in short-term, U.S.
dollar denominated money market instruments that satisfy certain quality,
maturity and diversification criteria, including criteria set by applicable
laws and regulations. The Portfolio may invest in obligations of U.S.
issuers, obligations of foreign issuers sold in the U.S. market, obligations
of U.S. and London branches of foreign banks and obligations of
supranational entities. See "Investment Objectives," "Investment Policies
and Information," "General Investment Policies and Risk Factors" and
"Description of Permitted Investments."
WHO IS THE ADVISER? One Valley Bank, National Association, serves as
the investment adviser for each Portfolio. Wellington Management Company,
LLP serves as the investment sub-adviser for the Prime Obligations
Portfolio. See "Expense Summary," "The Adviser" and "The Sub-Adviser."
WHO IS THE ADMINISTRATOR? SEI Fund Resources serves as the
administrator and shareholder servicing agent for each Portfolio. See
"Expense Summary" and "The Administrator."
WHO IS THE TRANSFER AGENT? DST Systems, Inc. serves as the transfer
agent and dividend disbursing agent for each Portfolio. See "The Transfer
Agent."
WHO IS THE DISTRIBUTOR? SEI Financial Services Company serves as
distributor of each Portfolio's shares. See "The Distributor."
IS THERE A SALES CHARGE? No. Shares of each Portfolio are offered on a
no-load basis.
<PAGE>
3
HOW DO I PURCHASE AND REDEEM SHARES? Each Portfolio offers two classes
of shares, Class A and Class B. The minimum initial investment in Class A
shares is $100,000. The minimum initial investment in Class B shares is
$1,000, and subsequent investments must be at least $50; minimum investment
requirements are lower for accounts established under tax-deferred programs
(such as IRAs). Purchases and redemptions of either class may be made
through representatives of One Valley or directly through the Transfer Agent
on days when the New York Stock Exchange and Federal Reserve wire system are
open for business ("Business Days"). Class B shares may be purchased through
a systematic investment plan. The purchase price and redemption price for
Class A and Class B shares is their net asset value next determined after
the purchase or redemption order is effective. See "How to Purchase Shares"
and "How to Redeem Shares."
HOW ARE DISTRIBUTIONS PAID? Substantially all of the net investment
income (exclusive of capital gain) for each of the Equity Income, Capital
Appreciation and Emerging Growth Portfolios is distributed in the form of
periodic dividends and for the Prime Obligations, Government and West
Virginia Portfolios is distributed in the form of dividends declared daily
and distributed monthly to shareholders of record. Any realized net capital
gain is distributed at least annually. Distributions are paid in additional
shares unless the shareholder elects to take the payment in cash. See
"General Information--Dividends."
<PAGE>
4
EXPENSE SUMMARY
<TABLE>
<CAPTION>
ALL PORTFOLIOS
SHAREHOLDER TRANSACTION FEES CLASS A CLASS B
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases None None
Sales Charge Imposed on Reinvested Dividends None None
Deferred Sales Charge None None
Redemption Fees None None(1)
Exchange Fee None None
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) There is a wire charge (currently $10.00) for wiring Class B redemption
proceeds.
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES: CLASS A SHARES
(as a percentage of average net EQUITY CAPITAL EMERGING WEST PRIME
assets) INCOME APPRECIATION GROWTH GOVERNMENT VIRGINIA OBLIGATIONS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees (after fee
waiver)(2) .73% .69% .77% .42% .35% .08%
12b-1 Fees none none none none none none
Other Expenses .47% .33% .38% .41% .40% .41%
- ----------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (after
fee waiver)(3) 1.20% 1.02% 1.15% .83% .75% .49%
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(2) The Adviser has agreed to waive, on a voluntary basis, a portion of its fee,
and the advisory fees shown reflect this voluntary waiver. The Adviser
reserves the right to terminate its waiver at any time in its sole
discretion. Absent such waiver, Advisory Fees for the Equity Income
Portfolio, the Capital Appreciation Portfolio, the Emerging Growth
Portfolio, the Government Portfolio, the West Virginia Portfolio and the
Prime Obligations Portfolio would be .74%, .95%, .95%, .75%, .45% and .25%,
respectively. Advisory fees for the Equity Income, Emerging Growth,
Government, West Virginia and Prime Obligations Portfolios have been
restated to reflect current fee levels.
(3) Absent the Adviser's voluntary fee waiver, Total Operating Expenses for
Class A shares of the Equity Income Portfolio, the Capital Appreciation
Portfolio, the Emerging Growth Portfolio, the Government Portfolio and Prime
Obligations Portfolio would be 1.21%, 1.28%, 1.33%, 1.16% and .66%,
respectively. Absent the Adviser's and the Administrator's voluntary fee
waivers, Total Operating Expenses for Class A shares of the West Virginia
Portfolio would be .85%.
<PAGE>
5
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES: CLASS B SHARES
(as a percentage of average net EQUITY CAPITAL EMERGING WEST PRIME
assets) INCOME APPRECIATION GROWTH GOVERNMENT VIRGINIA OBLIGATIONS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees (after fee waiver
and reimbursement)(5) .73% .69% .77% .42% .35% .08%
12b-1 Fees .25% .25% .25% .25% .25% .25%
Other Expenses .47% .33% .38% .41% .40% .41%
- ----------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (after
fee waiver)(6) 1.45% 1.27% 1.40% 1.08% 1.00% .74%
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(5) The Adviser has agreed to waive, on a voluntary basis, a portion of its fee,
and the advisory fees shown reflect this voluntary waiver. The Adviser
reserves the right to terminate its waiver at any time in its sole
discretion. Absent such waiver, advisory fees for the Equity Income
Portfolio, the Capital Appreciation Portfolio, the Emerging Growth
Portfolio, the Government Portfolio, the West Virginia Portfolio and Prime
Obligations Portfolio would be .74%, .95%, .95%, .75%, .45% and .25%,
respectively. Advisory fees for the Equity Income Portfolio, Emerging Growth
Portfolio, Government Portfolio, West Virginia Portfolio and Prime
Obligations Portfolio have been restated to reflect current fee levels.
(6) Absent the Adviser's voluntary fee waiver, Total Operating Expenses for
Class B shares of the Equity Income Portfolio, the Capital Appreciation
Portfolio, the Emerging Growth Portfolio, the Government Portfolio and Prime
Obligations Portfolio would be 1.46%, 1.53%, 1.58%, 1.41% and .91%,
respectively. Absent the Adviser's and the Administrator's voluntary fee
waivers, Total Operating Expenses for Class B shares of the West Virginia
Portfolio would be 1.10%.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period: 1 YR. 3 YRS. 5 YRS. 10 YRS.
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Equity Income Portfolio Class A $ 12 $ 38 -- --
Class B $ 15 $ 46 -- --
Capital Appreciation Portfolio Class A $ 10 $ 32 $ 56 $ 125
Class B $ 13 $ 40 $ 70 $ 153
Emerging Growth Portfolio Class A $ 12 $ 37 $ 63 $ 140
Class B $ 14 $ 44 $ 77 $ 168
Government Portfolio Class A $ 8 $ 26 $ 46 $ 103
Class B $ 11 $ 34 $ 60 $ 132
West Virginia Portfolio Class A $ 8 $ 24 $ 42 $ 93
Class B $ 10 $ 32 $ 55 $ 122
Prime Obligations Portfolio Class A $ 5 $ 16 $ 27 $ 62
Class B $ 8 $ 24 $ 41 $ 92
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Because the Equity
Income Portfolio just became operational within the last year, the Portfolio has
not projected expenses beyond the three-year period shown. The purpose of the
expense table and example is to assist investors in understanding the various
costs and expenses that may be directly or indirectly borne by shareholders of
the Portfolios. A person who purchases shares through a financial institution
may be charged separate fees by that institution.
Long-term Class B shareholders may eventually pay more than the economic
equivalent of the maximum front-end sales charges otherwise permitted by the
Conduct Rules of the National Association of Securities Dealers, Inc.
<PAGE>
6
FINANCIAL HIGHLIGHTS THE OVB FAMILY OF FUNDS
The following information has been audited by Price Waterhouse LLP, the Trust's
independent accountants for the Arbor Fund (the "Trust"), as indicated in their
report dated March 14, 1997 on the Trust's financial statements as of January
31, 1997 included in the Trust's Statement of Additional Information under
"Financial Statements." Additional performance information is set forth in the
1997 Annual Report to Shareholders and is available upon request and without
charge by calling 1-800-545-6331. This table should be read in conjunction with
the Trust's financial statements and notes thereto.
For a Share Outstanding Throughout the Periods ended January 31,
<TABLE>
<CAPTION>
NET ASSET NET REALIZED DISTRIBUTIONS
VALUE, NET AND UNREALIZED FROM NET NET ASSET NET ASSETS,
BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT VALUE END TOTAL END OF
OF PERIOD INCOME ON INVESTMENTS INCOME OF PERIOD RETURN PERIOD (000)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Prime Obligations Portfolio
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS A
1997...................................... $ 1.00 $0.05 $ 0.00 $(0.05) $ 1.00 5.11% $90,301
1996...................................... 1.00 0.06 0.00 (0.06) 1.00 5.65 84,660
1995...................................... 1.00 0.04 0.00 (0.04) 1.00 4.15 77,295
1994(1)................................... 1.00 0.00 0.00 0.00 1.00 2.95 82,477
CLASS B
1997...................................... $ 1.00 $0.05 $ 0.00 $(0.05) $ 1.00 4.85% $ 7,501
1996...................................... 1.00 0.05 0.00 (0.05) 1.00 5.39 6,154
1995(2)................................... 1.00 0.04 0.00 (0.04) 1.00 3.95 669
- ---------------------------------------------------------------------------------------------------------------------------------
West Virginia Tax-Exempt Income Portfolio
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS A
1997...................................... $10.12 $0.49 $(0.17) $(0.49) $ 9.95 3.35% $92,619
1996...................................... 9.36 0.49 0.76 (0.49) 10.12 13.66 36,611
1995...................................... 10.17 0.46 (0.81) (0.46) 9.36 (3.38) 26,096
1994(3)................................... 10.00 0.07 0.17 (0.07) 10.17 2.43 20,477
CLASS B
1997...................................... $10.11 $0.47 $(0.16) $(0.47) $ 9.95 3.19% $ 6,191
1996...................................... 9.36 0.47 0.75 (0.47) 10.11 13.26 4,312
1995...................................... 10.17 0.43 (0.81) (0.43) 9.36 (3.62) 2,263
1994(4)................................... 10.07 0.05 0.10 (0.05) 10.17 1.48 935
- ---------------------------------------------------------------------------------------------------------------------------------
Government Securities Portfolio
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS A
1997...................................... $10.15 $0.56 $(0.39) $(0.56) $ 9.76 1.83% $59,014
1996...................................... 9.09 0.55 1.06 (0.55) 10.15 18.14 60,228
1995...................................... 10.06 0.51 (0.97) (0.51) 9.09 (4.48) 61,067
1994(5)................................... 10.00 0.08 0.06 (0.08) 10.06 1.39 34,654
CLASS B
1997...................................... $10.15 $0.53 $(0.38) $(0.53) $ 9.77 1.69% $ 1,830
1996...................................... 9.10 0.53 1.05 (0.53) 10.15 17.72 1,167
1995...................................... 10.06 0.49 (0.96) (0.49) 9.10 (4.62) 457
1994(6)................................... 10.01 0.04 0.05 (0.04) 10.06 0.89 141
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIO OF
NET
RATIO OF RATIO OF INVESTMENT
NET EXPENSES TO INCOME TO
RATIO OF INVESTMENT AVERAGE NET AVERAGE
EXPENSES INCOME TO ASSETS NET ASSETS PORTFOLIO
TO AVERAGE AVERAGE (EXCLUDING (EXCLUDING TURNOVER
NET ASSETS NET ASSETS WAIVERS) WAIVERS) RATE
- ------------------------------------------ -------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Prime Obligations Portfolio
- ------------------------------------------ -------------------------------------------------------------
CLASS A
1997...................................... 0.49% 5.00% 0.66% 4.83% N/A
1996...................................... 0.49 5.50 0.64 5.35 N/A
1995...................................... 0.49 4.08 0.69 3.88 N/A
1994(1)................................... 0.49 2.89 0.80 2.58 N/A
CLASS B
1997...................................... 0.74% 4.75% 0.91% 4.58% N/A
1996...................................... 0.74 5.15 0.89 5.00 N/A
1995(2)................................... 0.74 4.33 0.93 4.14 N/A
- ------------------------------------------ -------------------------------------------------------------
West Virginia Tax-Exempt Income Portfolio
- ------------------------------------------ -------------------------------------------------------------
CLASS A
1997...................................... 0.75% 5.01% 0.85% 4.91% 26%
1996...................................... 0.75 5.02 0.89 4.88 43
1995...................................... 0.75 4.88 1.09 4.54 28
1994(3)................................... 0.75 4.18 1.62 3.31 17
CLASS B
1997...................................... 1.00% 4.76% 1.10% 4.66% 26%
1996...................................... 1.00 4.78 1.14 4.64 43
1995...................................... 1.00 4.68 1.34 4.34 28
1994(4)................................... 1.00 3.87 2.14 2.73 17
- ------------------------------------------ -------------------------------------------------------------
Government Securities Portfolio
- ------------------------------------------ -------------------------------------------------------------
CLASS A
1997...................................... 0.83% 5.75% 1.16% 5.42% 46%
1996...................................... 0.83 5.68 1.11 5.40 28
1995...................................... 0.83 5.61 1.17 5.27 13
1994(5)................................... 0.83 4.64 1.49 3.98 5
CLASS B
1997...................................... 1.08% 5.50% 1.41% 5.17% 46%
1996...................................... 1.08 5.39 1.36 5.11 28
1995...................................... 1.08 5.34 1.42 5.00 13
1994(6)................................... 1.08 4.47 2.00 3.35 5
- ------------------------------------------ -------------------------------------------------------------
- ------------------------------------------ -------------------------------------------------------------
</TABLE>
(1) Prime Obligations Portfolio (Class A) commenced operations on December 1,
1993. All ratios for the period have been annualized.
(2) Prime Obligations Portfolio (Class B) commenced operations on February 7,
1994. All ratios for the period have been annualized.
(3) West Virginia Tax-Exempt Portfolio (Class A) commenced operations on
December 1, 1993. All ratios for the period have been annualized.
(4) West Virginia Tax-Exempt Portfolio (Class B) commenced operations on
December 17, 1993. All ratios for the period have been annualized.
(5) Government Securities Portfolio (Class A) commenced operations on December
1, 1993. All ratios for the period have been annualized.
(6) Government Securities Portfolio (Class B) commenced operations on December
31, 1993. All ratios for the period have been annualized.
<PAGE>
7
FINANCIAL HIGHLIGHTS (CONTINUED) THE OVB FAMILY OF FUNDS
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
NET ASSET NET NET REALIZED DISTRIBUTIONS
VALUE, INVESTMENT AND UNREALIZED FROM NET DISTRIBUTIONS NET ASSET
BEGINNING INCOME GAINS (LOSSES) INVESTMENT FROM CAPITAL VALUE END TOTAL
OF PERIOD (LOSS) ON INVESTMENTS INCOME GAINS OF PERIOD RETURN
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Emerging Growth Portfolio
- -------------------------------------------------------------------------------------------------------------------------------
CLASS A
1997............................ $11.43 $(0.10) $ 1.16 $ 0.00 $(0.15) $12.34 9.30%
1996............................ 7.86 (0.10) 3.67 0.00 0.00 11.43 45.42
1995............................ 10.48 (0.06) (2.56) 0.00 0.00 7.86 (25.00)
1994(7)......................... 10.00 0.00 0.48 0.00 0.00 10.48 (4.80)
CLASS B
1997............................ $11.36 $(0.12) $ 1.15 $ 0.00 $(0.15) $12.24 9.09%
1996............................ 7.83 (0.12) 3.65 0.00 0.00 11.36 45.08
1995............................ 10.48 (0.06) (2.59) 0.00 0.00 7.83 (25.29)
1994(8)......................... 9.77 0.00 0.71 0.00 0.00 10.48 7.27
- -------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Portfolio
- -------------------------------------------------------------------------------------------------------------------------------
CLASS A
1997............................ $13.31 $ 0.00 $ 2.86 $(0.01) $(0.78) $15.38 22.06%
1996............................ 9.57 0.01 3.93 (0.01) (0.19) 13.31 41.31
1995............................ 10.53 0.03 (0.96) (0.03) 0.00 9.57 (8.84)
1994(9)......................... 10.00 0.00 0.53 0.00 0.00 10.53 5.30
CLASS B
1997............................ $13.25 $(0.03) $ 2.84 $ 0.00 $(0.78) $15.28 21.81%
1996............................ 9.55 (0.01) 3.90 0.00 (0.19) 13.25 40.88
1995............................ 10.52 0.01 (0.97) (0.01) 0.00 9.55 (9.11)
1994(10)........................ 10.33 0.00 0.19 0.00 0.00 10.52 1.84
- -------------------------------------------------------------------------------------------------------------------------------
Equity Income Portfolio
- -------------------------------------------------------------------------------------------------------------------------------
Class A
1997(11)........................ $10.00 $ 0.16 $ 1.23 $(0.16) $ 0.00 $11.23 13.98%
Class B
1997(11)........................ $10.00 $ 0.15 $ 1.24 $(0.15) $ 0.00 $11.24 13.98%
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIO OF
NET
RATIO OF INVESTMENT
NET RATIO OF INCOME
INVESTMENT EXPENSES TO (LOSS) TO
RATIO OF INCOME AVERAGE NET AVERAGE
NET ASSETS, EXPENSES (LOSS) TO ASSETS NET ASSETS PORTFOLIO AVERAGE
END OF TO AVERAGE AVERAGE (EXCLUDING (EXCLUDING TURNOVER COMMISSION
PERIOD (000) NET ASSETS NET ASSETS WAIVERS) WAIVERS) RATE RATE(12)
- -------------------------------- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Emerging Growth Portfolio
- -------------------------------- -----------------------------------------------------------------------------------------
CLASS A
1997............................ $55,924 1.15% (0.91)% 1.33% (1.09)% 119% $0.0574
1996............................ 48,090 1.15 (0.92) 1.32 (1.09) 117 N/A
1995............................ 34,772 1.15 (0.75) 1.42 (1.02) 126 N/A
1994(7)......................... 36,670 1.15 (0.83) 1.70 (1.38) 7 N/A
CLASS B
1997............................ $ 3,759 1.40% (1.15)% 1.58% (1.33)% 119% $0.0574
1996............................ 2,320 1.40 (1.19) 1.57 (1.36) 117 N/A
1995............................ 730 1.40 (0.98) 1.67 (1.25) 126 N/A
1994(8)......................... 330 1.40 (1.08) 2.15 (1.83) 7 N/A
- -------------------------------- -----------------------------------------------------------------------------------------
Capital Appreciation Portfolio
- -------------------------------- -----------------------------------------------------------------------------------------
CLASS A
1997............................ $118,873 1.02% (0.01)% 1.28% (0.27)% 90% $0.0739
1996............................ 99,612 1.02 0.08 1.27 (0.17) 119 N/A
1995............................ 70,502 1.02 0.28 1.33 (0.03) 107 N/A
1994(9)......................... 54,022 1.02 0.12 1.51 (0.37) 7 N/A
CLASS B
1997............................ $ 4,482 1.27% (0.27)% 1.53% (0.53)% 90% $0.0739
1996............................ 2,233 1.27 (0.16) 1.52 (0.41) 119 N/A
1995............................ 505 1.27 0.02 1.58 (0.29) 107 N/A
1994(10)........................ 171 1.27 0.19 2.01 (0.55) 7 N/A
- -------------------------------- -----------------------------------------------------------------------------------------
Equity Income Portfolio
- -------------------------------- -----------------------------------------------------------------------------------------
Class A
1997(11)........................ $41,580 1.20% 3.27% 1.25% 3.22% 10% $0.0787
Class B
1997(11)........................ $ 1,504 1.45% 3.02% 1.50% 2.97% 10% $0.0787
- -------------------------------- -----------------------------------------------------------------------------------------
- -------------------------------- -----------------------------------------------------------------------------------------
</TABLE>
(7) Emerging Growth Portfolio (Class A) commenced operations on December 1,
1993. All ratios for the period have been annualized.
(8) Emerging Growth Portfolio (Class B) commenced operations on December 29,
1993. All ratios for the period have been annualized.
(9) Capital Appreciation Portfolio (Class A) commenced operations on December
1, 1993. All ratios for the period have been annualized.
(10) Capital Appreciation Portfolio (Class B) commenced operations on December
31, 1993. All ratios for the period have been annualized.
(11) Equity Income Portfolio (Class A and Class B) commenced operations on
August 2, 1996. All ratios for the period have been annualized.
(12) Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is only required for fiscal
years beginning after September 1, 1995.
<PAGE>
8
THE FUNDS AND THE TRUST
The OVB Family of Funds (the "OVB Family") is a group of open-end management
investment companies that are offered together to provide investors with a
number of investment alternatives. Each of the portfolios is a separate series
("portfolio") of shares of The Arbor Fund (the "Trust"), an open-end management
investment company. Shareholders may purchase units of beneficial interest
("shares") in a portfolio through two separate classes, Class A and Class B,
which provide for variations in distribution costs, related voting rights and
dividends. Except for these differences between classes, each share of each Fund
represents an undivided, proportionate interest in that Fund. This Prospectus
offers only the Class A and Class B shares of the OVB Equity Income Portfolio,
OVB Capital Appreciation Portfolio, OVB Emerging Growth Portfolio, OVB
Government Securities Portfolio, OVB West Virginia Tax-Exempt Income Portfolio
and OVB Prime Obligations Portfolio. For ease of reference, the letters "OVB"
are omitted from the Portfolios' names throughout this Prospectus. The Equity
Income, Capital Appreciation and the Emerging Growth Portfolios may be referred
to as the "Equity Portfolios," the Government and the West Virginia Portfolios
may be referred to as the "Fixed Income Portfolios," the Prime Obligations
Portfolio may be referred to as the "Money Market Portfolio," and any one of the
six may be referred to as a "Portfolio." Each of the Portfolios is a diversified
portfolio, except the West Virginia Portfolio, which is non-diversified.
INVESTMENT OBJECTIVES
The EQUITY INCOME PORTFOLIO--The investment objective of the Equity Income
Portfolio is current income, with the secondary goal of moderate capital
appreciation.
The CAPITAL APPRECIATION PORTFOLIO and the EMERGING GROWTH PORTFOLIO--The
investment objective of each of the Capital Appreciation Portfolio and the
Emerging Growth Portfolio is long-term growth of capital.
The GOVERNMENT PORTFOLIO--The investment objective of the Government Portfolio
is current income consistent with the preservation of capital.
The WEST VIRGINIA PORTFOLIO--The investment objective of the West Virginia
Portfolio is current income, exempt from both federal income taxes and West
Virginia personal income taxes, consistent with the preservation of capital.
The PRIME OBLIGATIONS PORTFOLIO--The investment objective of the Prime
Obligations Portfolio is to preserve principal value and maintain a high degree
of liquidity while providing current income. The Portfolio also expects to
maintain a constant net asset value of $1.00 per share on a continuous basis.
There can be no assurance that any Portfolio will be able to achieve its
investment objective.
INVESTMENT POLICIES AND INFORMATION
OVB EQUITY INCOME PORTFOLIO
The EQUITY INCOME PORTFOLIO will, under normal market conditions, invest at
least 65% of its total assets in dividend-paying common stocks, preferred
stocks, and preferred stocks and debt securities convertible into common stock
of U.S. and foreign issuers. These equity securities may include American
Depositary Receipts ("ADRs").
Any remaining assets may be invested in the following securities, but only if,
at the time of purchase, the security either has the requisite rating from a
nationally recognized statistical rating organization ("NRSRO") or is of
comparable quality as determined by the Adviser: (i) U.S. Government securities
(ii) mortgage-backed securities rated in one of the four highest rating
categories, (iii) asset-backed securities rated in one of the four highest
rating categories, (iv) corporate bonds and notes and bank obligations rated in
one of the four highest rating categories, (v) Money Market Instruments (as
defined under "General Investment Policies and Risk Factors"), (vi) warrants and
rights to purchase common stocks and (vii) shares of other investment companies.
The Portfolio may purchase securities that do not pay current dividends but
which offer prospects for growth of capital and future income. The Portfolio is
not subject to any maturity restrictions on its investment in non-money market
instruments.
The Adviser will generally select for the Portfolio, securities of companies
with market capitalizations
<PAGE>
9
in excess of $1 billion that provide a level of income which is greater than the
average income provided by the Standard & Poor's 500 Composite Index (the "S&P
500 Index"). The Adviser also intends to maintain for the Portfolio an aggregate
beta (a measure of a stock's volatility in relation to the S&P 500 Index) and
price/earnings ratio less than the S&P 500 Index average.
All of the equity securities in which the Portfolio invests (including foreign
securities) are traded in the United States or Canada either on registered
exchanges or actively in the over-the-counter market.
OVB CAPITAL APPRECIATION PORTFOLIO
The CAPITAL APPRECIATION PORTFOLIO will, under normal market conditions, invest
at least 65% of its total assets in common stocks, warrants to purchase common
stocks, debt securities convertible to common stocks and preferred stocks
convertible to common stocks (together, "equity securities") of U.S. and foreign
issuers. Equity securities of foreign issuers may include ADRs. Any assets not
invested in equity securities may be invested in Money Market Instruments.
The Adviser will generally select for the Capital Appreciation Portfolio
securities of large- and medium-sized companies that have exhibited an
established record of growth and that, in the Adviser's opinion, will continue
to present significant growth potential. Such companies generally have market
capitalizations in excess of $1 billion, and annual revenues in excess of $500
million. The Adviser may also seek to increase potential returns by identifying
"niche" companies in diverse industries and by identifying demographic,
economic, and political trends that will provide future investment
opportunities. The Adviser may consider factors such as an issuer's development
(or potential for development) of new products, any new management, or any
business restructuring, and may also consider the potential for increased
institutional ownership. The Adviser may, but will not necessarily, consider
dividend income when selecting equity securities for the Portfolio.
All of the equity securities in which the Capital Appreciation Portfolio invests
(including foreign securities) are traded in the United States or Canada either
on registered exchanges or actively in the over-the-counter market.
OVB EMERGING GROWTH PORTFOLIO
The EMERGING GROWTH PORTFOLIO will, under normal market conditions, invest at
least 65% of its total assets in the securities of smaller, emerging growth
companies that in the Adviser's opinion have the potential, over time, to
produce above-average long-term rates of return proportionate to their above-
average risk. The Emerging Growth Portfolio may invest in the types of equity
securities available for purchase by the Capital Appreciation Portfolio. Any
assets not invested in equity securities may be invested in Money Market
Instruments. The Adviser generally considers "smaller, emerging growth
companies" to be those with market capitalizations under $1 billion, and annual
revenues under $250 million. The Adviser may seek to increase potential returns
by identifying "niche" companies in diverse industries, particularly those
having a technological or lead-time advantage over their peers. The Adviser will
also seek to identify demographic, economic, and political trends that will
provide future investment opportunities. The Adviser may consider factors such
as an issuer's development (or potential for development) of new products, any
new management, and may also consider the potential for increased institutional
ownership. The Adviser may, but does not expect to, consider dividend income
when selecting equity securities for the Portfolio.
All of the equity securities in which the Emerging Growth Portfolio invests
(including foreign securities) are traded in the United States or Canada either
on registered exchanges or in the over-the-counter market.
For the fiscal year ended January 31, 1997, the Portfolio's annual turnover rate
was 119%. Such a turnover rate may result in higher transaction costs and may
result in additional taxes for shareholders. See "Taxes."
OVB GOVERNMENT SECURITIES PORTFOLIO
The GOVERNMENT PORTFOLIO will, under normal market conditions, invest at least
65% of its total assets in obligations issued or guaranteed as to principal and
interest by the United States Government, its agencies or instrumentalities
("U.S.
<PAGE>
10
Government securities"), including U.S. Treasury obligations, U.S. Government
agency obligations and repurchase agreements involving such securities. For a
more detailed description, see "Description of Permitted Investments." The
remainder of the Portfolio's assets may be invested in the following securities
but only if, at the time of purchase, the security either has the requisite
rating from an NRSRO or is of comparable quality as determined by the Adviser:
(i) corporate fixed income obligations rated in one of the four highest rating
categories by an NRSRO; (ii) privately issued mortgage-backed securities rated
in one of the two highest rating categories by an NRSRO; (iii) asset-backed
securities rated in one of the two highest rating categories by an NRSRO; (iv)
receipts evidencing separately traded interest and principal component parts of
U.S. Government securities ("Receipts"); (v) repurchase agreements involving any
of the foregoing securities; (vi) guaranteed investment contracts determined by
the Adviser to be of investment quality at the time of purchase; (vii) common
stocks of utility companies; (viii) preferred stocks; (ix) taxable municipal
securities rated in one of the two highest rating categories by an NRSRO; and
(x) Money Market Instruments.
The Government Portfolio will not invest more than 20% of its total assets in
common and preferred stocks of utility companies. In addition the Government
Portfolio may invest up to 5% of its total assets in preferred stocks of issuers
in other industries.
Normally, the Portfolio will maintain a dollar-weighted average portfolio
maturity of three to ten years, and the Adviser generally expects this maturity
to range from five to ten years; however, under certain circumstances this
weighted average maturity may fall below three years or rise above ten years. In
determining the maturity of mortgage-backed securities, the Adviser will use the
estimated average life of such securities. There are no restrictions on the
maturity of any single instrument.
OVB WEST VIRGINIA TAX-EXEMPT INCOME PORTFOLIO
The WEST VIRGINIA PORTFOLIO will, under normal market conditions, invest at
least 80% of its net assets in fixed income securities the interest on which, in
the opinion of bond counsel for the issuer, is exempt from federal income tax
("Municipal Securities") and is not a preference item for purposes of the
federal alternative minimum tax ("AMT"). Under normal conditions, the Portfolio
will invest at least 65% of its total assets in Municipal Securities the
interest on which is also exempt from West Virginia personal income tax ("West
Virginia Municipal Securities"). The Portfolio reserves the right to invest up
to 20% of its net assets in (i) Municipal Securities the interest on which is an
AMT preference item and (ii) taxable investments consisting of the types of
securities in which the Government Portfolio may invest. For temporary defensive
purposes when, in the opinion of the Adviser, West Virginia Municipal Securities
are not readily available or of sufficient quality, the Portfolio may invest up
to 100% of its assets in securities the interest on which is exempt only from
federal income taxes; other permissible temporary defensive investments, which
are taxable, are discussed in "Description of Permitted Investments -- Special
Factors Relating to West Virginia Municipal Securities" in the Statement of
Additional Information.
The West Virginia Portfolio may purchase the following types of Municipal
Securities (including West Virginia Municipal Securities) only if such
securities, at the time of purchase, either have the requisite rating from an
NRSRO or are of comparable quality as determined by the Adviser: (i) municipal
bonds in one of the four highest rating categories; (ii) municipal notes and
certificates of participation in one of the two highest rating categories; and
(iii) tax-exempt commercial paper in one of the two highest rating categories.
The Portfolio may also purchase other types of tax-exempt instruments provided
that, at the time of their purchase, the Adviser determines that they are of
quality comparable to the ratings stated above.
The Portfolio reserves the right to engage in transactions involving "puts" or
standby commitments. There will be no limit to the percentage of portfolio
securities that the West Virginia Portfolio may purchase subject to a put but
the amount paid directly or indirectly for puts which are not integral parts of
the security as originally held in the Portfolio will not exceed 0.5% of the
value of the total assets of the Portfolio calculated immediately after such put
is acquired. When entering into standby commitments, the Portfolio will set
aside sufficient assets invested in cash
<PAGE>
11
equivalent securities to pay for all standby commitments on their scheduled
delivery dates.
NON-DIVERSIFICATION--Investment in the West Virginia Portfolio, a
non-diversified investment company, may entail greater risk than would
investment in a diversified investment company because the concentration in
securities of relatively few issuers could result in greater fluctuation in the
total market value of the Portfolio's holdings. Any economic, political, or
regulatory developments affecting the value of the securities the Portfolio
holds could have a greater impact on the total value of the Portfolio's holdings
than would be the case if the portfolio securities were diversified among more
issuers.
The Portfolio intends to comply with the diversification requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
OVB PRIME OBLIGATIONS PORTFOLIO
The PRIME OBLIGATIONS PORTFOLIO intends to comply with regulations of the
Securities and Exchange Commission applicable to money market funds. These
regulations impose certain quality, maturity and diversification restraints on
investments by the Portfolio. Under these regulations, the Portfolio will invest
in only United States dollar denominated securities, will maintain a
dollar-weighted average portfolio maturity of 90 days or less, and will acquire
only "eligible securities" having a maturity of 397 days or less. As a money
market fund, the Portfolio is subject to additional diversification
requirements. See "Description of Permitted Investments-- Restraints on
Investments by Money Market Funds."
The Prime Obligations Portfolio intends to invest exclusively in (i) bills,
notes, and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
Federal Book-Entry System ("U.S. Treasury Obligations"); (ii) obligations issued
or guaranteed as to principal and interest by the agencies or instrumentalities
of the United States Government; (iii) receipts evidencing separately traded
interest and principal component parts of the U.S. Government obligations; (iv)
commercial paper of United States or foreign issuers rated in the two highest
short-term rating categories at the time of investment or, if not rated, as
determined by the sub-adviser to be of comparable quality; (v) obligations
(certificates of deposit, bank notes, time deposits, bankers' acceptances,
European certificates of deposit, European time deposits, Canadian time
deposits, Eurodollar obligations and Yankee Bank obligations) of U.S. commercial
banks, U.S. savings and loan institutions and U.S. and London branches of
foreign banks that have total assets of $1 billion or more as shown on their
most recently published financial statements (the Portfolio may not invest more
than 25% of its total assets in obligations issued by foreign branches of U.S.
banks and London branches of foreign banks); (vi) U.S. dollar denominated
obligations of foreign governments including Canadian and Provincial Government
and Crown Agency obligations; (vii) short-term corporate obligations of United
States and foreign issuers with commercial paper of comparable quality and
security that meet the above ratings or, if not rated, determined by the
sub-adviser to be of comparable quality; (viii) repurchase agreements involving
any of the foregoing obligations; (ix) short-term obligations issued by state
and local governmental issuers, which are rated, at the time of investment, by
at least two NRSROs in one of the two highest municipal bond rating categories,
and carry yields that are competitive with those of other types of money market
instruments of comparable quality and security that meet the above ratings or,
if not rated, determined by the sub-adviser to be of comparable quality; (x)
obligations of supranational entities satisfying the credit standards described
above or, if not rated, determined by the Adviser to be of comparable quality;
and (xi) shares of other investment companies. Under applicable law, the
Portfolio may not invest more than 10% of its total assets in shares of other
investment companies, and investment in such shares may result in layering of
expenses.
The Portfolio may invest up to 10% of its net assets in illiquid securities,
including restricted securities. Restricted securities, including Rule 144A
Securities and Section 4(2) commercial paper, that meet the criteria established
by the Board of Trustees of the Trust will be considered liquid.
The Portfolio may also engage in forward commitments or purchase securities on a
when-issued basis.
<PAGE>
12
For additional information regarding risks and permitted investments of the
Portfolios, see "General Investment Policies and Risk Factors" and "Description
of Permitted Investments."
GENERAL INVESTMENT POLICIES AND RISK FACTORS
The Equity Income Portfolio and the Fixed Income Portfolios may purchase
mortgage-backed securities ("MBSs"). These Portfolios may purchase MBSs that are
U.S. Government securities, and the Government Portfolio may also invest in
privately issued collateralized mortgage obligations ("CMOs"), a type of MBS,
and real estate mortgage investment conduits ("REMICs"), a type of CMO, that are
rated by an NRSRO in one of its two highest rating categories. The Equity Income
Portfolio may also invest in privately issued CMOs and REMICs that are rated by
an NRSRO in one of the four highest rating categories. The principal
governmental issuers or guarantors of MBSs are the Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA"), and
Federal Home Loan Mortgage Corporation ("FHLMC"). Obligations of GNMA are backed
by the full faith and credit of the United States Government while obligations
of FNMA or FHLMC are supported by the respective issuer only. The Portfolios may
purchase MBSs that are backed or collateralized by fixed, adjustable or floating
rate mortgages. For a further description of mortgage-backed securities and the
risks associated with investing in them, see "Description of Permitted
Investments" and the Statement of Additional Information.
The Fixed Income Portfolios may, in acquiring fixed income securities, seek
opportunities for capital gain as well as income in light of such Portfolios'
investment objectives. Investors in the West Virginia Portfolio should note that
capital gains are taxable income. Appreciation in the value of these securities
could arise from a number of market and economic factors, such as changes in
interest rates generally or in the yield curve, improvement in an issuer's
financial situation or perceptions in the market about the impact of economic
developments on particular issuers or industries. There is no assurance that any
Portfolio will, in fact, realize capital gains.
The Equity Income, Fixed Income and Money Market Portfolios may invest in
variable and floating rate obligations and may purchase securities on a
when-issued basis. The Equity Income Portfolio may also engage in forward
commitments. The Equity Portfolios and the Government Portfolio may engage in
options transactions, and the Equity Income and Government Portfolios may also
engage in futures transactions (including options on futures), in either case
for hedging purposes. The aggregate value of option positions may not exceed 10%
of a Portfolio's net assets as of the time the Portfolio enters into such
options. Each Portfolio except for the Money Market Portfolio may use short
sales "against the box" for hedging purposes.
Each Portfolio reserves the right to engage in securities lending, although no
Portfolio has the present intent of doing so.
Each Portfolio other than the Money Market Portfolio may invest a portion of its
assets in the following money market instruments ("Money Market Instruments"):
short-term U.S. Government securities; Receipts; time deposits, certificates of
deposit and bankers' acceptances issued by U.S. commercial banks or savings and
loan institutions having assets of at least $500 million as shown on their most
recently available audited financial statements; commercial paper that, at the
time of purchase, is either rated in one of the two highest rating categories by
an NRSRO or of comparable quality as determined by the Adviser; and repurchase
agreements involving the foregoing securities. In addition, each Portfolio may
invest in shares of other investment companies. Under applicable law, no
Portfolio may invest more than 10% of its total assets in shares of other
investment companies, and investments in such shares may result in layering of
expenses. Further discussion of a Portfolio's ability to invest in such shares
is set out in the Statement of Additional Information. In addition, for
temporary defensive purposes when the Adviser determines that market conditions
warrant, each Portfolio except the Money Market Portfolio may invest up to 100%
of its assets in Money Market Instruments and cash. To the extent a Portfolio is
investing for temporary defensive purposes, the Portfolio will not be pursuing
its investment objective.
For a further description of these types of obligations or transactions, see
"Description of Permitted Investments" and the Statement of Additional
Information.
<PAGE>
13
Debt rated in the fourth highest category by an NRSRO 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. Such
debt lacks outstanding investment characteristics and in fact has speculative
characteristics as well.
In the event that a security owned by a Portfolio is downgraded below the rating
categories discussed above, the Adviser will review the circumstances and take
action it deems appropriate with respect to such security.
RISK FACTORS
EQUITY SECURITIES--Investments in equity securities in general are subject to
market risks that may cause their prices to fluctuate over time. The value of
convertible equity securities is also affected by prevailing interest rates, the
credit quality of the issuer and any call provision. Fluctuations in the value
of equity securities in which the Equity Portfolios invest will cause the net
asset value of these Portfolios to fluctuate. An investment in any of these
Portfolios may be more suitable for long-term investors who can bear the risk of
short-term principal fluctuations.
The Capital Appreciation Portfolio will invest primarily in securities of large-
and medium-sized companies, and the Emerging Growth Portfolio will invest
primarily in securities of smaller companies. While the Adviser intends to
invest each Portfolio's assets in companies that the Adviser's research
indicates should, over the long term, provide significant growth potential, any
investment in smaller or medium capitalization companies involves greater risk
than that customarily associated with investments in larger, more established
companies. This increased risk may be due to the greater business risks of
smaller size, limited markets and financial resources, narrow product lines and
lack of depth of management. The securities of smaller or medium-sized companies
are often traded in the over-the-counter market and if listed on a national
securities exchange may not be traded in volumes typical for that exchange.
Thus, the securities of smaller or medium-sized companies are likely to be less
liquid, and subject to more abrupt or erratic market movements, than securities
of larger, more established growth companies. As a result, the value of the
shares of either of these Portfolios can be expected to fluctuate more than the
value of shares of an investment company investing solely in larger, more
established companies.
FIXED INCOME SECURITIES--The market value of the fixed income investments in
which the Fixed Income and Money Market Portfolios invest will change in
response to interest rate changes and other factors. During periods of falling
interest rates, the values of outstanding fixed income securities generally
rise. Conversely, during periods of rising interest rates, the values of such
securities generally decline. Moreover, while securities with longer maturities
tend to produce higher yields, the prices of longer maturity securities are also
subject to greater market fluctuations as a result of changes in interest rates.
Changes by recognized agencies in the rating of any fixed income security and in
the ability of an issuer to make payments of interest and principal also affect
the value of these investments. Changes in the value of these securities will
not necessarily affect cash income derived from these securities but will affect
a Portfolio's net asset value. Each of the Fixed Income Portfolios may invest in
securities rated in the fourth highest category by an NRSRO; such securities,
while still investment grade, are considered to have speculative
characteristics. See the Appendix.
SECURITIES OF FOREIGN ISSUERS--Investments in the securities of foreign issuers
may subject an Equity or Money Market Portfolio to investment risks that differ
in some respects from those related to investments in securities of U.S.
issuers. Such risks include future adverse political and economic developments,
possible imposition of withholding taxes on income, possible seizure,
nationalization or expropriation of foreign deposits, possible establishment of
exchange controls or taxation at the source or greater fluctuation in value due
to changes in exchange rates. Foreign issuers of securities often engage in
business practices different from those of domestic issuers of similar
securities, and there may be less information publicly available about foreign
issuers. In addition, foreign issuers are, generally speaking, subject to less
government supervision and regulation and
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14
different accounting treatment than are those in the United States. ADRs,
typically issued by a U.S. financial institution, evidence ownership of
underlying securities of a foreign issuer.
MORTGAGE-BACKED SECURITIES--The MBSs in which the Equity Income Portfolio and
the Fixed Income Portfolios may invest are subject to prepayment of the
underlying mortgages. During periods of declining interest rates, prepayment of
mortgages underlying MBSs can be expected to accelerate. When the MBSs held by a
Portfolio are prepaid, the Portfolio must reinvest the proceeds in securities
the yield of which reflects prevailing interest rates, which may be lower than
the yield on the prepaid MBSs.
GOVERNMENT SECURITIES--Any guarantee by the U.S. Government or its agencies or
instrumentalities of the securities in which any Portfolio invests guarantees
only the payment of principal and interest on the guaranteed security and does
not guarantee the yield or value of that security or the yield or value of
shares of that Portfolio.
INVESTMENT LIMITATIONS AND FUNDAMENTAL POLICIES
The following investment limitations are fundamental policies of each Portfolio.
In addition, each Portfolio's investment objective is a fundamental policy of
that Portfolio, and it is a fundamental policy of the West Virginia Portfolio to
invest at least 80% of its net assets in Municipal Securities the interest on
which is not an AMT preference item. Fundamental policies of a Portfolio cannot
be changed with respect to that Portfolio without the consent of the holders of
a majority of the Portfolio's outstanding shares.
A Portfolio may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States Government, its agencies or instrumentalities and repurchase
agreements involving such securities) if, as a result, more than 5% of the total
assets of the Portfolio would be invested in the securities of such issuer or
the Portfolio would own more than 10% of the outstanding voting securities of
such issuer. This restriction applies to 75% of the assets of the Equity Income,
Capital Appreciation, Emerging Growth, Government and Prime Obligations
Portfolios, and does not apply to the West Virginia Portfolio. 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 of
an issuer are each considered as one class.
2. Purchase any securities that would cause more than 25% of the total assets of
the Portfolio to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the United States Government or its agencies and instrumentalities, repurchase
agreements involving such securities, and obligations issued by domestic
branches of U.S. banks or U.S. branches of foreign banks subject to the same
regulations as U.S. banks. For purposes of this limitation, (a) utility
companies will be divided according to their services, for example, gas, gas
transmission, electric and telephone will each be considered a separate
industry; (b) financial service companies will be classified according to the
end users of their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry; (c)
supranational entities will be considered to be a separate industry; and (d)
asset-backed securities secured by distinct types of assets, such as truck and
auto loan leases, credit card receivables and home equity loans, will each be
considered a separate industry.
3. Make loans, except that each Portfolio may (a) purchase or hold debt
instruments to the extent in accordance with its investment objective and
policies; (b) enter into repurchase agreements, and (c) engage in securities
lending as described in this Prospectus and in the Statement of Additional
Information.
The foregoing percentages will apply at the time of the purchase of a security.
Additional investment limitations are set forth in the Statement of Additional
Information.
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15
THE ADVISER
One Valley Bank, National Association ("One Valley," or the "Adviser"), serves
as investment adviser to each Portfolio pursuant to an investment advisory
agreement (the "Advisory Agreement") with the Trust. Under the Advisory
Agreement, the Adviser is responsible for the investment decisions for each
Portfolio, and the Adviser continuously reviews, supervises and administers each
Portfolio's investment program. The Adviser is independent of SEI Fund Resources
(the "Administrator") and discharges its responsibilities subject to the
supervision of, and policies established by, the Trustees of the Trust. In
addition, the Trust has employed Wellington Management Company, LLP as an
investment sub-adviser to manage the Prime Obligations Portfolio on a day-to-day
basis, subject to the supervision of the Adviser and the Trustees. See "The
Sub-Adviser."
One Valley, a national banking association, is the successor to Kanawha Valley
Bank, N.A., organized in 1867. One Valley has its principal offices at One
Valley Square, Charleston, West Virginia 25301. One Valley is a wholly-owned
subsidiary of One Valley Bancorp, Inc., a multi-bank holding company. One Valley
is the largest single bank headquartered in West Virginia, and provides a wide
variety of financial services in multiple locations throughout the state. The
Adviser has provided investment advisory services to investment companies since
1993.
One Valley, together with its predecessor institutions, has provided trust and
asset management services since the early 1920s and has managed common and
collective investment funds since 1968. One Valley's portfolio managers serve
bank common funds, employee benefit funds and personal trust accounts, managing
assets in money market, equity, and fixed income portfolios. As of December 31,
1996, One Valley's Investment Asset Management Group had assets under management
of approximately $1.6 billion, and currently manages $473.2 million of assets in
common trust and mutual funds with diverse investment objectives ranging from
stability of capital to aggressive growth.
J. Randy Valentine, Senior Vice President of the Adviser, has oversight
responsibilities of the portfolio managers of the Equity Income, Capital
Appreciation, Emerging Growth, Government and West Virginia Portfolios. Mr.
Valentine has managed various common trust and collective investment funds since
1976 prior to assuming his supervisory duties. He has extensive investment
management experience.
David P. Nolan, Vice President of the Adviser, has been the portfolio manager
for the Capital Appreciation Portfolio since December 1, 1993 and the Emerging
Growth Portfolio since December 1, 1993. Since 1984, Mr. Nolan has managed
various equity portfolios and growth-oriented common and collective funds. Prior
to joining the Adviser, Mr. Nolan was an account executive with Alex. Brown &
Sons Incorporated.
James R. Thomas, III, CPA and Vice President of the Adviser, has been the
portfolio manager for the Government Portfolio since December 1, 1993 and the
West Virginia Portfolio since December 1, 1993. Mr. Thomas was the portfolio
manager for the Equity Income Portfolio from August 1, 1996 through May 31,
1997. Since 1988, Mr. Thomas has managed various taxable income portfolios, a
current income common trust fund and a tax free common trust fund. Prior to
joining the Adviser, Mr. Thomas served as a financial analyst for RepublicBank,
Dallas, Texas.
Buel S. Sears, CFA and Investment Officer of the Adviser, will become the
portfolio manager of the Equity Income Portfolio on June 1, 1997. Mr. Sears
joined the Adviser in September, 1996. Previously he was a Vice President and
Trust Investment Officer for Huntington Banks where he managed the Huntington's
West Virginia Trust Investment Group for the past twelve years.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate based on the average daily net assets of
each Portfolio as follows: Equity Income Portfolio-- .74%, Capital Appreciation
Portfolio--.95%, Emerging Growth Portfolio--.95%, Government Portfolio--.75%,
West Virginia Portfolio--.45% and Prime Obligations Portfolio-- .25%. The
Adviser has voluntarily agreed to waive a portion of its fees in order to limit
the total operating expenses of Class A and Class B shares of each Portfolio
(exclusive of distribution expenses charged to Class B shares) to not more than
the following (as a percentage of average daily net assets on an annualized
basis): Equity Income Portfolio--1.20%,
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16
Capital Appreciation Portfolio--1.02%, Emerging Growth Portfolio--1.15%,
Government Portfolio-- 0.83%, West Virginia Portfolio--0.75% and Prime
Obligations Portfolio--.49%. The Adviser reserves the right, in its sole
discretion, to terminate its voluntary fee waiver and reimbursement at any time.
For the fiscal year ended January 31, 1997, the Portfolio paid the Adviser an
advisory fee as a percentage of average daily net assets of each Portfolio as
follows: Equity Income Portfolio--.69%, Capital Appreciation Portfolio--.69%,
Emerging Growth Portfolio--.78%, Government Portfolio-- .43%, West Virginia
Portfolio-- .36% and Prime Obligations Portfolio--.09%.
The Glass-Steagall Act restricts the securities activities of banks such as the
Adviser, but federal regulatory authorities permit such banks to provide
investment advisory and other services to mutual funds. Should this position be
challenged successfully in court or reversed by legislation, the Trust might
have to make other investment advisory arrangements.
THE SUB-ADVISER
Wellington Management Company, LLP ("Wellington Management" or the
"Sub-Adviser") serves as the investment sub-adviser to the Prime Obligations
Portfolio pursuant to a sub-advisory agreement (the "Sub-Advisory Agreement")
with the Adviser and the Trust. Under the Sub-Advisory Agreement, the Sub-
Adviser manages the investments of the Portfolio, selects investments, and
places all orders for purchases and sales of the Portfolio's securities, subject
to the general supervision of the Trustees of the Trust and the Adviser.
Wellington Management is a professional investment counseling firm that provides
investment services to investment companies, employee benefit plans, endowments,
foundations, and other institutions and individuals. As of January 31, 1997,
Wellington Management had discretionary management authority with respect to
approximately $133 billion of assets. Wellington Management's predecessor
organizations have provided investment advisory services to investment companies
since 1933 and to investment counseling clients since 1960. Wellington
Management, 75 State Street, Boston, MA 02109, is a Massachusetts general
partnership, of which the following persons are managing partners: Robert W.
Doran, Duncan M. McFarland and John R. Ryan.
For the services provided and expenses incurred pursuant to the Sub-Advisory
Agreement, the Sub-Adviser is entitled to receive a fee, computed daily and paid
monthly, at the annual rate of .075% of the first $500 million of "managed
assets" (defined below) and .02% of "managed assets" in excess of $500 million.
"Managed assets" are all of the money market fund assets that Wellington
Management manages for the Trust, including assets of funds other than the
Portfolio. The fee paid by the Portfolio is based on its proportionate share of
"managed assets." For the fiscal year ended January 31, 1997, the Portfolio paid
the Sub-Adviser an advisory fee, as a percentage of average daily net assets, of
.075%.
THE ADMINISTRATOR
SEI Fund Resources (the "Administrator"), Oaks, Pennsylvania 19456, provides
each Portfolio with administrative services, other than investment advisory
services, including all regulatory reporting, necessary office space, equipment,
personnel, and facilities pursuant to an administration agreement with the Trust
(the "Administration Agreement"). The Administrator also serves as the
shareholder servicing agent of the Trust under the terms of the Administration
Agreement.
For its services, the Administrator is entitled to a fee, which is calculated
daily and paid monthly, at an annual rate of .20% of the average daily net
assets of the Portfolios. There is a minimum annual fee of $100,000 payable to
the Administrator by each Portfolio. For the fiscal year ended January 31, 1997,
the Portfolios paid the Administrator the following administration fees (shown
as a percentage of average daily net assets): Equity Income Portfolio--.20%;
Capital Appreciation Portfolio, .20%; Emerging Growth Portfolio, .20%;
Government Portfolio, .20%; West Virginia Portfolio, .20%; and Prime Obligations
Portfolio, .20%.
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17
THE TRANSFER AGENT
DST Systems, Inc., 1004 Baltimore Street, Kansas City, Missouri 64105 (the
"Transfer Agent") serves as the transfer agent and dividend disbursing agent for
the Portfolios under a transfer agency agreement with the Trust.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), Oaks, Pennsylvania 19456, a
wholly-owned subsidiary of SEI Investments Company and an affiliate of the
Administrator, serves as the distributor of each Portfolio's shares pursuant to
a distribution agreement with the Trust (the "Distribution Agreement"), which
applies to Class A and Class B shares of the Portfolios.
The Class B shares of each Portfolio have a distribution plan (the "Class B
Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"). As provided in the Distribution Agreement and the
Class B Plan, the Trust will pay a fee, at an annual rate of .25% of each Class
B Portfolio's average daily net assets to the Distributor as compensation for
its services. From this amount the Distributor may make payments to financial
institutions and intermediaries such as banks (including One Valley), savings
and loan associations, insurance companies, investment counselors,
broker-dealers and the Distributor's affiliates and subsidiaries as compensation
for services, reimbursement of expenses incurred in connection with distribution
assistance or provision of shareholder services. The Class B Plan is
characterized as a compensation plan since the distribution fee will be paid to
the Distributor without regard to the distribution or shareholder service
expenses incurred by the Distributor or the amount of payments made to financial
institutions and intermediaries.
Each Portfolio may also execute brokerage or other agency transactions through
an affiliate of the Adviser or through the Distributor for which the affiliate
or the Distributor may receive "usual and customary" compensation. For further
information, see the Statement of Additional Information.
The Class A shares of each Portfolio are offered without distribution fees to
institutional investors, including One Valley, its affiliates and correspondent
banks, for the investment of funds for which they act in a fiduciary, agency or
custodial capacity. It is possible that an institution may offer different
classes of shares to its customers and thus receive different compensation with
respect to different classes of shares. These financial institutions may also
charge separate fees to their customers.
Certain financial institutions offering shares to their customers may be
required to register as dealers pursuant to state laws.
The Distributor may, from time to time and at its own expense, provide
promotional incentives in the form of cash or other compensation to certain
financial institutions and intermediaries whose registered representatives have
sold or are expected to sell significant amounts of the shares of a Portfolio.
Such other compensation may take the form of payments for travel expenses,
including lodging, incurred in connection with trips taken by qualifying
registered representatives to places within or outside of the United States.
HOW TO PURCHASE SHARES
You may purchase shares of any Portfolio through representatives of One Valley
and other financial institutions and through broker-dealers that have
established a dealer agreement with the Distributor. You may also purchase
shares of any Portfolio directly, by contacting the Transfer Agent. Class A
shares may be purchased only by wire transfer. Class B shares may be purchased
by mail, by wire transfer or through an automatic investment plan. Shares of the
Portfolios are sold on a continuous basis.
BY MAIL (CLASS B SHARES ONLY)
You may purchase Class B shares of any Portfolio by completing and signing an
Account Application form and mailing it, along with a check (or other negotiable
bank instrument or money order) payable to "The Arbor Fund--OVB (Name of
Portfolio)," to the Transfer Agent. Third party checks, credit cards, credit
card checks and cash will not be accepted. When purchases are made by check,
redemption proceeds will not be forwarded until the investment being redeemed
has been in the account for 15 business days. You may purchase additional shares
at any time by mailing a check (or other negotiable bank draft or money order)
to the Transfer Agent. Orders placed by mail will be
<PAGE>
18
executed on receipt of your check or other negotiable bank draft or money order.
You may obtain Account Application forms by calling 1-800-545-6331.
BY WIRE TRANSFER (CLASS A AND CLASS B SHARES)
If your Account Application has been previously received by the Transfer Agent,
you may purchase shares by wire transfer. To buy shares by wire transfer, call
the Transfer Agent toll-free at 1-800-808-4920.
The liability of the Trust or the Transfer Agent for fraudulent or unauthorized
telephone or wire instructions may be limited, as described below under "How to
Redeem Shares--By Telephone."
AUTOMATIC INVESTMENT PLAN ("AIP") (CLASS B SHARES ONLY)
You may arrange for periodic additional investments in Class B shares of a
Portfolio through automatic deductions by Automated Clearing House ("ACH") from
a checking account by completing an AIP Application Form. The minimum
pre-authorized investment amount is $100 per month. An AIP Application Form may
be obtained by contacting the Transfer Agent at 1-800-808-4920. The AIP is
available only for additional investments for an existing account.
GENERAL INFORMATION REGARDING PURCHASES
You may purchase shares of any Portfolio on any day the New York Stock Exchange
and the Federal Reserve wire system are open for business ("Business Days").
However, shares of the Portfolios cannot be purchased by Federal Reserve wire on
federal holidays restricting wire transfers. The minimum initial investment in
Class A shares of any Portfolio is $100,000 and the minimum initial investment
in Class B shares is $1,000 ($500 minimum for tax-deferred retirement programs
and employees of One Valley or its affiliates). Subsequent purchases of shares
must be at least $50 except for purchases through the AIP, which must be at
least $100. The Trust may waive these minimum investment requirements at its
discretion.
A purchase order for Class A or Class B shares will be effective as of the
Business Day received if the Transfer Agent receives the order and payment in
federal funds before 4:00 p.m., Eastern time or before 12:00 noon Eastern time,
for the Prime Obligations Portfolio. An order to purchase shares by federal
funds wire will be deemed to have been received on the Business Day of the wire,
provided that the shareholder notifies the Transfer Agent prior to 4:00 p.m.,
Eastern time or before 12:00 noon Eastern time, for the Prime Obligations
Portfolio. If the Transfer Agent does not receive notice by 4:00 p.m., Eastern
time or before 12:00 noon Eastern time, for the Prime Obligations Portfolio, on
the Business Day of the wire, the order will be executed on the next Business
Day. The purchase price of shares of any Portfolio is the net asset value per
share next computed after the order is effective. The net asset value per share
of each Portfolio is determined as of the close of business of the New York
Stock Exchange (currently, 4:00 p.m., Eastern time) other than the Prime
Obligations Portfolio. The net asset value of the Prime Obligations Portfolio is
determined as of 12:00 noon, Eastern time, using amortized cost valuations. The
Prime Obligations Portfolio expects to maintain its net asset value at $1.00 per
share, although there can be no assurance that it will be able to do so.
Pursuant to guidelines adopted and maintained by the Trustees of the Trust, each
Portfolio may use pricing services to provide market quotations or fair market
valuations. A pricing service may derive such valuations through the use of a
matrix system to value fixed income securities that considers factors such as
securities prices, yield features, ratings and developments related to a
specific security. No certificates representing shares will be issued. Purchases
will be made in full and fractional shares of a Portfolio calculated to three
decimal places. Although the methodology and procedures for determining net
asset value are identical for both classes of a Portfolio, the net asset value
per share of Class A shares may differ from that of Class B shares because of
the distribution expenses paid by Class B shares.
The Trust reserves the right to reject a purchase order for shares of any
Portfolio when the Distributor or Transfer Agent determines that it is not in
the best interest of the Trust or its shareholders to accept such order. Shares
of each Portfolio are offered only to residents of states in which the shares
are eligible for purchase.
If a check received for a purchase of Class B shares does not clear, the
purchase will be canceled and
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19
the investor could be liable for any losses or fees incurred.
Purchases may be made by direct deposit or ACH transactions.
Shareholders of record who desire to transfer registration of their shares
should contact the Transfer Agent at 1-800-808-4920.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
Shares of any Portfolio may also be purchased through financial institutions,
including the Adviser, that provide distribution assistance or shareholder
services to the Portfolios. Shares purchased by persons ("Customers") through
financial institutions may be held of record by the financial institution.
Financial institutions may impose an earlier cut-off time for receipt of
purchase orders directed through them to allow for processing and transmittal of
these orders to the Transfer Agent for effectiveness the same day. Customers
should contact their financial institution for information as to that
institution's procedures for transmitting purchase, exchange or redemption
orders to the Trust.
Customers who desire to transfer the registration of shares beneficially owned
by them but held of record by a financial institution should contact the
institution to accomplish such change.
Depending upon the terms of a particular Customer account, a financial
institution may charge a Customer account fees. The financial institution will
provide Customers with information concerning these services and any charges.
TAX-DEFERRED RETIREMENT PROGRAMS
The Equity Income, Capital Appreciation, Emerging Growth, Government and Prime
Obligations Portfolios are eligible for investment by tax-deferred retirement
programs such as IRAs, KEOGHs and 401(k) plans. For accounts established under
such programs the minimum initial investment in Class B shares of these
Portfolios is $500. One Valley offers a variety of tax-deferred programs through
which investors may purchase shares of these Portfolios. Accounts established
under tax-deferred retirement programs must have all dividends reinvested in the
Portfolios.
HOW TO EXCHANGE SHARES
Once your account has been established, you may exchange your Class A or Class B
shares for the same class of shares of the other Portfolios. Exchanges are made
at net asset value. You must have received a current prospectus of the Portfolio
into which you wish to move your investment (the "new" fund) before the exchange
will be effected. Exchanges will be made only after the Transfer Agent receives
exchange instructions in writing or by telephone (an "Exchange Request").
Exchange instructions by telephone may only be accepted if previously elected on
the account application. If the Transfer Agent receives an Exchange Request in
good order by 4:00 p.m., Eastern time or by 12:00 noon, Eastern time, for the
Prime Obligations Portfolio, on any Business Day, the exchange will occur on
that day. The exchange privilege may be exercised only in those states where the
class or shares of the new fund may legally be sold.
If your shares are held of record by a financial institution, you should contact
that institution if you wish to exchange shares. The institution will contact
the Transfer Agent and effect the exchange on your behalf.
The Trust reserves the right to change the terms or conditions of the exchange
privilege discussed herein upon 60 days' notice.
An exchange is considered a sale of shares and will result in a capital gain or
loss for federal income tax purposes.
HOW TO REDEEM SHARES
You may redeem your shares without charge on any Business Day. There is,
however, a charge (currently $10) for wiring redemption proceeds of Class B
shares; this amount will be deducted from your redemption proceeds. Class A
shares may be redeemed by calling the Transfer Agent at 1-800-808-4920. Class B
shares may ordinarily be redeemed by mail, by telephone or through a systematic
withdrawal plan. If your shares are held of record by a financial institution,
you should contact that financial institution for information on how to redeem
shares.
BY MAIL (CLASS B SHARES ONLY)
A written request for redemption must be received by the Transfer Agent in good
form in order to
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20
constitute a valid redemption request. Valid written redemption requests will be
effective on receipt. All shareholders of record must sign the redemption
request.
The Transfer Agent may require that the signatures on the written redemption
request be guaranteed. The signature guarantee requirement will be waived if all
of the following conditions apply: (1) the redemption is for not more than
$50,000 worth of shares, (2) the redemption check is payable to the
shareholder(s) of record, and (3) the redemption check is mailed to the
shareholder(s) at his or her address of record. The Trust and the Transfer Agent
reserve the right to amend these requirements without notice. For information
about the proper form of redemption requests, call 1-800-808-4920.
A signature guarantee is a widely accepted way to protect shareholders by
verifying the signature on certain redemption requests. The Trust requires
signature guarantees to be provided in the following circumstances: (1) written
requests for redemptions in excess of $50,000; (2) all written requests to wire
redemption proceeds to a bank other than the bank previously designated on the
Account Application; and (3) redemption requests that provide that the
redemption proceeds should be sent to an address other than the address of
record or to a person other than the registered shareholder(s) for the account.
Signature guarantees can be obtained from any of the following institutions: a
national or state bank, a trust company, a federal savings and loan association,
or a broker-dealer that is a member of a national securities exchange. The Trust
does not accept guarantees from notaries public or from organizations that do
not provide reimbursement in the case of fraud.
You may have redemption proceeds mailed to a commercial bank account previously
designated on your Account Application or by written instruction to the Transfer
Agent. There is no charge for having redemption proceeds mailed to a designated
bank account.
BY TELEPHONE (CLASS A SHARES AND PRIME
OBLIGATIONS PORTFOLIO CLASS B SHARES)
You may redeem your shares by telephone if you have elected that option on your
Account Application. You must place your telephone redemption order with the
Transfer Agent at 1-800-808-4920 prior to 4:00 p.m., Eastern time or prior to
12:00 noon, Eastern time, for the Prime Obligations Portfolio, on any Business
Day for your order to be effective that day. You may not close your account by
telephone.
You may have the proceeds mailed to your address of record or mailed or wired to
a commercial bank account previously designated on your Account Application.
There is no charge for having redemption proceeds mailed to you or to a
designated bank account.
You may request a wire redemption for redemptions in excess of $500 by calling
the Transfer Agent at 1-800-808-4920, who will deduct a wire charge (currently
$10) from the amount of any wire redemption of Class B shares. There is no
charge for wire redemptions of Class A shares. Shares cannot be redeemed by
Federal Reserve wire on federal holidays restricting wire transfers.
Neither the Trust nor the Transfer Agent will be responsible for any loss,
liability, cost or expense for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The Trust and the
Transfer Agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form
of personal identification prior to acting upon instructions received by
telephone and recording telephone instructions. If market conditions are
extraordinarily active, or severe weather or other emergencies exist, and you
experience difficulties placing redemption orders by telephone, you may wish to
consider placing your order by other means, such as mail or overnight delivery.
SYSTEMATIC WITHDRAWAL PLAN ("SWP") (CLASS B SHARES ONLY)
You may use this option to receive regular distributions from your account. Upon
commencement of the SWP, your account must have a current value of $10,000 or
more. You may elect to receive automatic payments (via check or ACH) of $50 or
more on a monthly, quarterly, semi-annual or annual basis. You may obtain a SWP
Application form by contacting the Transfer Agent at 1-800-808-4920.
To participate in the SWP, you must have your dividends automatically
reinvested. You should
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21
realize that if your automatic withdrawals exceed income dividends, your
invested principal in the account will be depleted. Thus, depending on the
frequency and amounts of the withdrawal payments and/or any fluctuations in the
net asset value per share, your original investment could be exhausted entirely.
If the amount in your account with a Portfolio falls below the minimum initial
purchase amount, the Portfolio has the right to redeem your shares. See "How to
Redeem Shares--Other Information Regarding Redemptions."
You may change or cancel the SWP at any time on written notice to the Transfer
Agent.
CHECKWRITING SERVICE (PRIME OBLIGATIONS
PORTFOLIO--CLASS B SHARES ONLY)
You may redeem your Class B shares of the Prime Obligations Portfolio by writing
checks on your account for $500 or more. Once you have signed and returned a
signature card, you will receive a supply of checks. Checks may be made payable
to any person. When you write a check, your account will continue to earn
dividends until the check clears. These checks are free, but your account will
be charged a fee (currently $15) on stopping payment of a check upon your
request, or if the check cannot be honored because of insufficient funds or
other valid reasons.
Because of the difficulty of determining in advance the exact value of a
Portfolio account, you may not use a check to close your account.
You may obtain signature cards by calling the Transfer Agent at 1-800-808-4920.
OTHER INFORMATION REGARDING REDEMPTIONS
All redemption orders are effected at the net asset value per share next
determined after a valid request for redemption is effective, as described
above. Net asset value per share is determined for all Portfolios other than the
Prime Obligations Portfolio as of the close of business of the New York Stock
Exchange (currently, 4:00 p.m., Eastern time) on each Business Day. Net asset
value for the Prime Obligations Portfolio is determined as of 12:00 noon,
Eastern time, on each Business Day. Because shares of each Portfolio except for
the Prime Obligations Portfolio fluctuate in value, when you redeem your shares,
they may be worth more or less than the amount of your original investment. The
Prime Obligations Portfolio expects to maintain its net asset value at $1.00 per
share.
Payment to shareholders for shares redeemed will be made within seven days after
the Transfer Agent receives the valid redemption request. Under most
circumstances, proceeds of telephone redemptions will be transmitted on the next
Business Day following receipt of a valid request for redemption. At various
times, however, a Portfolio may be requested to redeem Class B shares for which
it has not yet received good payment. In such circumstances, redemption proceeds
will not be forwarded until the investment being redeemed has been in the
account for 15 business days.
Each Portfolio intends to pay cash for all shares redeemed, but under abnormal
conditions which make payment in cash unwise, payment may be made wholly or
partly in portfolio securities with a market value equal to the redemption
price. In such cases, you may incur brokerage costs in converting such
securities to cash.
Due to the relatively high costs of handling small investments, each Portfolio
reserves the right to redeem your shares at their net asset value if, because of
redemptions, your account in that Portfolio has a value of less than the
applicable minimum initial purchase amount. Accordingly, if you purchase shares
of a Portfolio in only the minimum investment amount, you may be subject to
involuntary redemption if you redeem any shares. Before a Portfolio exercises
its right to redeem your shares, you will be given notice that the value of the
shares in your account is less than the minimum amount and will be allowed 60
days to make an additional investment in that Portfolio in an amount that will
increase the value of your account to at least the minimum amount.
See "Purchase and Redemption of Shares" in the Statement of Additional
Information for examples of when the right of redemption may be suspended.
PERFORMANCE
From time to time the Prime Obligations Portfolio advertises its "current yield"
and "effective yield." Both yield figures are based on historical earnings and
are not intended to indicate future performance. No representation can be made
concerning actual future yields. The "current yield" of the Prime
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22
Obligations Portfolio refers to the income generated by an investment in the
Portfolio over a stated seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" (also called "effective compound yield") is calculated
similarly but, when annualized, the income earned by an investment in the
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "current yield" because of the compounding effect of this
assumed reinvestment.
From time to time, the Equity and Fixed Income Portfolios may advertise yield
and total return. These figures will be based on historical earnings and are not
intended to indicate future performance. No representation can be made
concerning actual future yields or returns. The yield of a Portfolio refers to
the annualized income generated by an investment in the Portfolio over a
specified 30-day period. The yield is calculated by assuming that the same
amount of income generated by the investment during that period is generated in
each 30-day period over one year and is shown as a percentage of the investment.
The West Virginia Portfolio may also advertise a "tax-equivalent yield," which
is 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 this
Portfolio's yield, assuming certain tax brackets for the shareholder.
The total return of a Portfolio refers to the average compounded rate of return
to a hypothetical investment for designated time periods (including but not
limited to, the period from which the Portfolio commenced operations through the
specified date), assuming that the entire investment is redeemed at the end of
each period and assuming the reinvestment of all dividend and capital gain
distributions.
The performance of Class A shares of each Portfolio will normally be higher than
that of Class B shares because Class A shares are not subject to distribution
expenses charged to Class B shares.
Each Portfolio may periodically compare its performance to the performance of
other mutual funds tracked by mutual fund rating services, broad groups of
comparable mutual funds, or unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs. Certain Portfolios may advertise performance that includes
results from periods in which a Portfolio's assets were managed in a
non-registered predecessor vehicle.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income, property and other tax
treatment of any Portfolio or its shareholders. Accordingly, shareholders are
urged to consult their tax advisors regarding specific questions as to federal,
state and local income, property and other taxes.
TAX STATUS OF THE PORTFOLIO
Each Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Trust's other series. Each Portfolio intends to
qualify for the special tax treatment afforded regulated investment companies as
defined under the Internal Revenue Code of 1986, as amended (the "Code"). So
long as a Portfolio qualifies for this special tax treatment, it will be
relieved of federal income tax on that part of its net investment income
(including, for this purpose, net short-term capital gain) and net capital gain
(the excess of net long-term capital gain over net short-term capital loss) that
it distributes to shareholders.
TAX STATUS OF DISTRIBUTIONS
Each Portfolio will distribute all of its net investment income (including, for
this purpose, net short-term capital gain) to shareholders. Dividends from net
investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Any net capital gain will be
distributed at least annually and will be taxed to a shareholder as long-term
capital gain, regardless of how long the shareholder has held shares. Each
Portfolio will make annual reports to shareholders of the federal income tax
status of all distributions.
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23
Corporate shareholders should note that distributions of the Government, West
Virginia and Prime Obligations Portfolios are not expected to qualify for the
dividends-received deduction that is generally available to corporate taxpayers.
Dividends paid by the Equity Income, Capital Appreciation and Emerging Growth
Portfolios to corporate shareholders are expected to qualify for this deduction
to the extent these Portfolios' dividends derive from dividends the Portfolios
received from domestic corporations. The full amount of these dividends,
however, may be subject to the federal alternative minimum tax. Distributions of
net capital gain will not qualify for this deduction.
Ordinarily, shareholders will include in income all dividends declared by a
Portfolio in the year those dividends are paid. However, dividends declared by a
Portfolio in October, November or December of any year and payable to
shareholders of record on a date in one of those months will be deemed to have
been paid by the Portfolio and received by the shareholders on December 31 of
that year if paid by the Portfolio any time during the following January.
Interest received on U.S. Treasury 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 from a Portfolio provided certain conditions are
satisfied. Interest received on repurchase agreements collateralized by U.S.
Treasury obligations normally is not exempt from state taxation. Each Portfolio
will inform shareholders annually of the percentage of income and distributions
derived from U.S. Treasury obligations. Shareholders should consult their tax
advisers to determine whether any portion of the income dividends received from
a Portfolio is considered tax exempt in their particular states.
Certain securities each Portfolio may purchase (such as STRIPS, TRs, TIGRs and
CATS, defined under "Description of Permitted Investments") are sold with
original issue discount and do not generally make periodic cash interest
payments. A Portfolio will be required to include as part of its current income
the accrued discount on such obligations even though the Portfolio has not
received any interest payments on such obligations during that period. Because
each Portfolio distributes all of its net investment income to its shareholders,
a Portfolio may have to sell portfolio securities to distribute such accrued
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.
Each Portfolio intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
Income that a Portfolio derives from obligations of foreign issuers may be
subject to foreign withholding taxes. No Portfolio will be able to elect to
treat shareholders as having paid their proportionate share of such foreign
taxes.
A sale, exchange or redemption of any Portfolio's shares is a taxable event to
the shareholder.
ADDITIONAL CONSIDERATIONS FOR THE WEST VIRGINIA PORTFOLIO
The West Virginia Portfolio will distribute all of its net investment income
(including net short-term capital gain) to its shareholders. If, at the close of
each quarter of its taxable year, at least 50% of the value of the Portfolio's
assets consist of obligations the interest on which is excludable from gross
income, the Portfolio may pay "exempt-interest dividends" to its shareholders.
Those dividends constitute the portion of the aggregate dividends as designated
by the Portfolio, equal to the excess of the excludable interest over certain
amounts disallowed as deductions. Exempt-interest dividends are excludable from
a shareholder's gross income for federal income tax purposes, but may have
alternative minimum tax and other collateral consequences. See the Statement of
Additional Information.
Current Federal law limits the types and volume of bonds qualifying for the
federal income tax exemption of interest, which may have an effect on the
ability of the Portfolio to purchase sufficient amounts of tax-exempt securities
to satisfy the Code's requirements for the payment of "exempt-interest
dividends."
Interest on indebtedness incurred or continued by a shareholder in order to
purchase or carry shares of the West Virginia Portfolio is not deductible for
federal income tax purposes. Furthermore, the Portfolio may not be an
appropriate investment for persons (including corporations and other business
entities) who are "substantial users" (or persons related to "substantial
users") of facilities financed
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24
by industrial development private activity bonds. Such persons should consult
their tax advisers before purchasing shares. A "substantial user" is defined
generally to include "certain persons" who regularly use in their trade or
business a part of a facility financed from the proceeds of such bonds.
WEST VIRGINIA INCOME TAXES
The determination of liability for West Virginia Personal Income Tax (the "West
Virginia income tax") begins with a taxpayer's federal adjusted gross income.
Unlike the federal income tax, the West Virginia income tax does not allow
reduction of a taxpayer's adjusted gross income for itemized deductions.
Calculation of a taxpayer's West Virginia taxable income, however, is subject to
various modifications which either increase or reduce federal adjusted gross
income.
In 1993, the West Virginia Department of Tax and Revenue issued Technical
Assistance Advisory 93-002 (the "Advisory"). The Advisory addresses the
modifications which affect the determination of West Virginia income tax
liability for interest or dividend income received by a shareholder from a
"regulated investment company," such as the Portfolio intends to be. The
Department has declared that the Advisory is of precedential value to taxpayers.
As long as the Portfolio qualifies as a "regulated investment company" under the
Code, a modification reducing adjusted gross income is allowed for that portion
of the interest or dividends received by shareholders which represents interest
or dividends of the Portfolio on obligations or securities of any authority,
commission or instrumentality of West Virginia that is exempt from the West
Virginia income tax by federal or West Virginia law. No such reduction is
allowed for any portion of interest income on obligations of any state, or
political subdivision thereof, other than West Virginia, regardless of any
exemption provided under federal law, such as that accorded "exempt-interest
dividends"; and such portion must be added back as a modification increasing
adjusted gross income.
The Advisory also addresses the taxability of interest on federal obligations
under the West Virginia income tax. Again, as long as the Portfolio qualifies as
a "regulated investment company," a modification reducing adjusted gross income
is allowed for interest or dividends received by shareholders from the Portfolio
which it derived from obligations of the United States and from obligations or
securities of some authorities, commissions or instrumentalities thereof. The
Advisory contains a nonexclusive list showing the taxability for West Virginia
income tax purposes of income derived from various obligations or securities of
the United States and its authorities, commissions or instrumentalities.
The Advisory also confirms that interest on indebtedness incurred (directly or
indirectly) by a shareholder of the Portfolio to purchase or hold shares of the
Portfolio must be added back to adjusted gross income as an increasing
modification to the extent such interest was deductible in determining the
taxpayer's federal adjusted gross income.
In the event the Portfolio fails to qualify as a "regulated investment company"
under federal income tax law, the modifications reducing West Virginia income
tax liability set forth in the Advisory may be unavailable or substantially
limited, even though a shareholder would be entitled to such modifications if
the shareholder directly owned the obligations and securities held by the
Portfolio.
The sale, exchange, or redemption of Portfolio shares is subject to the West
Virginia income tax to the extent the gain or loss therefrom affects the
determination of the shareholder's federal adjusted gross income.
GENERAL INFORMATION
THE TRUST
The Trust is an open-end management investment company that has diversified and
non-diversified portfolios. The Trust is organized as a Massachusetts business
trust under a Declaration of Trust dated July 24, 1992. The Declaration of Trust
permits the Trust to offer separate portfolios of shares and different classes
of shares within each portfolio.
All consideration received by the Trust for shares of any portfolio and all
assets of such portfolio belong to that portfolio and are subject to liabilities
related thereto. The Trust reserves the right to create and issue shares of
additional portfolios.
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25
The Trust pays its operating expenses, including fees of its service providers,
audit and legal expenses, expenses of preparing prospectuses, proxy solicitation
material and reports to shareholders, costs of custodial services and
registering the shares under federal and state securities laws, pricing and
insurance expenses, and pays additional expenses including litigation and other
extraordinary expenses, brokerage costs, interest charges, taxes and
organization expenses.
Please refer to "Financial Highlights" in this Prospectus for more information
regarding the Portfolios' expenses.
TRUSTEES OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust.
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote. Each portfolio
or class will vote separately on matters relating solely to that portfolio or
class. As a Massachusetts business trust, the Trust is not required to hold
annual meetings of shareholders but shareholders' approval will be sought for
certain changes in the operation of the Trust and for the election of Trustees
under certain circumstances. In addition, a Trustee may be removed by the
remaining Trustees or by shareholders at a special meeting called upon written
request of shareholders owning at least 10% of the outstanding shares of the
Trust. In the event that such a meeting is requested, the Trust will provide
appropriate assistance and information to the shareholders requesting the
meeting.
REPORTING
The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to The OVB Family of Funds, c/o The
Arbor Trust, P.O. Box 419947, Kansas City, MO 64141-6947.
DIVIDENDS
The net investment income (not including capital gain) of each Fixed Income
Portfolio is declared daily and paid monthly. The net investment income (not
including capital gain) of each Equity Portfolio is declared quarterly and paid
quarterly. The net investment income (not including capital gain) of the Money
Market Portfolio is determined and declared on each Business Day as a dividend
for shareholders of record as of the close of business on that day. Shareholders
of record on the date each dividend is declared will be entitled to receive the
dividend. Currently, capital gains of each Portfolio, if any, will be
distributed at least annually. Shares of the Equity and Fixed Income Portfolios
are eligible to begin earning dividends that are declared on the Business Day
after the purchase order is effective and continue to be eligible for dividends
through and including the day the redemption order is effective.
Dividends and distributions of the Portfolios are paid on a per share basis. The
value of each share will be reduced by the amount of the payment. If you
purchase shares shortly before the record date for a dividend or distribution of
capital gain, you will pay the full price for the shares and receive some
portion of the price back as a taxable dividend or capital gain distribution.
You will automatically receive all income dividends and capital gain
distributions in additional shares at the net asset value next determined
following the record date, unless you have elected to take such payment in cash.
You may change your election by providing written notice to the Transfer Agent
at least 15 days prior to the distribution.
The amount of dividends payable on Class A shares will be more than those
payable on Class B shares because of the distribution fees paid by Class B
shares.
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26
COUNSEL AND INDEPENDENT ACCOUNTANTS
Morgan, Lewis & Bockius LLP serve as counsel to the Trust. Price Waterhouse LLP
serve as the independent accountants of the Trust.
CUSTODIAN
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
PA 19101 (the "Custodian"), acts as custodian of the Trust. The Custodian holds
cash, securities and other assets of the Trust as required by the 1940 Act.
DESCRIPTION OF PERMITTED INVESTMENTS
The following is a description of permitted investments for one or more of the
Portfolios:
AMERICAN DEPOSITARY 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 may be available 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. Holders of an unsponsored depositary
receipt generally bear all the costs of the unsponsored facility. The depositary
of an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security or
to pass through, to the holders of the receipts, voting rights with respect to
the deposited securities.
ASSET-BACKED SECURITIES--Asset-backed securities are securities secured by
non-mortgage assets such as company receivables, truck and auto loans, leases
and credit card receivables. Such securities are generally issued as passthrough
certificates, which represent undivided fractional ownership interests in the
underlying pools of assets. Such securities also may be debt instruments, which
are also 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 such assets and issuing such debt.
Asset-backed securities are not issued or guaranteed by the United States
Government or 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.
BANKERS' ACCEPTANCE--Bankers' acceptances are bills of exchange or time drafts
drawn on and accepted by a commercial bank. Bankers' acceptances are used by
corporations to finance the shipment and storage of goods and to furnish dollar
exchange. Maturities are generally six months or less.
CERTIFICATE OF DEPOSIT--Certificates of deposit are interest-bearing instruments
with a specific maturity. They are issued by banks and savings and loan
institutions in exchange for the deposit of funds and normally can be traded in
the secondary market prior to maturity. Certificates of deposit with penalties
for early withdrawal will be considered illiquid.
COMMERCIAL PAPER--Commercial paper is a term used to describe unsecured
short-term promissory notes issued by corporations and other entities.
Maturities on these issues vary from a few to 270 days.
CONVERTIBLE SECURITIES--Convertible securities are corporate securities that are
exchangeable for a
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set number of another security at a prestated price. Convertible securities
typically have characteristics of both fixed-income and equity securities.
Because of the conversion feature, the market value of a convertible security
tends to move with the market value of the underlying stock. The value of a
convertible security is also affected by prevailing interest rates, the credit
quality of the issuer, and any call provisions.
DERIVATIVES--Derivatives are securities that derive their value from other
securities. The following are considered derivative securities: options on
futures, futures, options (E.G., puts and calls), swap agreements,
mortgage-backed securities (CMOs, REMICs, IOs and POs), when-issued securities
and forward commitments, floating and variable rate securities, convertible
securities, "stripped" U.S. Treasury securities (E.G., Receipts and STRIPs),
privately issued stripped securities (E.G., TGRs, TRs and CATS). See elsewhere
in this "Description of Permitted Investments" and "General Investment Policies
and Risk Factors" for discussions of these various instruments, and see
"Investment Policies and Information" and "General Investment Policies and Risk
Factors" for more information about any investment policies and limitations
applicable to their use.
FUTURES AND OPTIONS ON FUTURES--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 Portfolio 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 or be disposed of, to minimize fluctuations in
foreign currencies, or to gain exposure to a particular market or instrument. A
Portfolio 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.
Stock index futures are futures contracts for various stock indices that are
traded on registered securities exchanges. A stock 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 stock index at the close of the last trading day of the contract and
the price at which the agreement is made.
There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to accurately predict
movements in the prices of individual securities, fluctuations in markets and
movements in interest rates, (2) there may be an imperfect or no correlation
between the changes in market value of the securities held by the Portfolio and
the prices of futures and options on futures, (3) there may not be a liquid
secondary market for a futures contract or option, (4) trading restrictions or
limitations may be imposed by an exchange, and (5) government regulations may
restrict trading in futures contracts and futures options.
A Portfolio may enter into futures contracts and options on futures contracts
traded on an exchange regulated by the Commodities Futures Trading Commission so
long as, to the extent that such transactions are not for "bona fide hedging
purposes," the aggregate initial margin and premiums on such positions
(excluding the amount by which such options are in the money) do not exceed 5%
of the Portfolio's net assets. A Portfolio may buy and sell futures contracts
and related options to manage its exposure to changing interest rates and
securities prices. Some strategies reduce a Portfolio's exposure to price
fluctuations, while others tend to increase its market exposure. Futures and
options on futures can be volatile instruments and involve certain risks that
could negatively impact a Portfolio's return.
GUARANTEED INVESTMENT CONTRACTS ("GICs")--GICs are contracts issued by U.S.
insurance companies. Pursuant to such contracts, a Portfolio makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the Portfolio on a monthly basis guaranteed
interest at either a fixed, variable or floating rate. A GIC provides that this
guaranteed interest will not be less than a certain minimum rate. A GIC is a
general obligation of the issuing insurance company and not a separate account.
The purchase price paid for a GIC becomes part of the general assets of the
issuer, and the contract is paid at maturity from the general assets of the
issuer.
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Generally, GICs are not assignable or transferable without the permission of the
issuing insurance companies. For this reason, an active secondary market in GICs
does not currently exist and GICs are considered to be illiquid investments.
ILLIQUID SECURITIES--Illiquid securities are securities that a Portfolio cannot
dispose of within 7 days at approximately the price at which they are being
carried on the Portfolio's books. An illiquid security includes a demand
instrument with a demand notice period exceeding seven days, where there is no
secondary market for such security, and repurchase agreements with maturities
over seven days in length.
INVESTMENT COMPANIES--Because of restrictions on direct investment by U.S.
entities in certain countries, investment in other investment companies may be
the most practical or only manner in which a portfolio can invest in the
securities markets of those countries. A Portfolio does not intend to invest in
other investment companies unless, in the judgment of its advisers, the
potential benefits of such investments exceed the associated costs relative to
the benefits and costs associated with direct investments in the underlying
securities.
Investments in closed-end investment companies may involve the payment of
substantial premiums above the net asset value of such issuer's portfolio
securities, and are subject to limitations under the 1940 Act. As a shareholder
in an investment company, a Portfolio would bear its ratable share of that
investment company's expenses, including its advisory and administration fees. A
Portfolio may also incur tax liability to the extent it invests in the stock of
a foreign issuer that constitutes a "passive foreign investment company."
MORTGAGE-BACKED SECURITIES--Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional thirty-year fixed-rate mortgages, graduated payment
mortgages and adjustable rate mortgages. During periods of declining interest
rates, prepayment of mortgages underlying mortgage-backed securities can be
expected to accelerate. Prepayment of mortgages which underlie securities
purchased at a premium often results in capital losses, while prepayment of
mortgages purchased at a discount often results in capital gains. Because of
these unpredictable prepayment characteristics, it is often not possible to
predict accurately the average life or realized yield of a particular issue.
Government Pass-Through Securities: These securities that are issued or
guaranteed by a U.S. Government agency represent an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are GNMA, FNMA and FHLMC. FNMA and FHLMC obligations are not backed
by the full faith and credit of the U.S. Government as GNMA certificates are,
but FNMA and FHLMC securities are supported by the instrumentalities' right to
borrow from the U.S. Treasury. GNMA, FNMA and FHLMC each guarantees timely
distributions of interest to certificate holders. GNMA and FNMA also each
guarantees timely distributions of scheduled principal. FHLMC has in the past
guaranteed only the ultimate collection of principal of the underlying mortgage
loan; however, FHLMC now issues mortgage-backed securities (FHLMC Gold PCs)
which also guarantee timely payment of monthly principal reductions. Government
and private guarantees do not extend to the securities' value, which is likely
to vary inversely with fluctuations in interest rates.
Private Pass-Through Securities: These are mortgage-backed securities issued by
a nongovernmental entity, such as a trust. These securities include
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs"). While they are generally structured with one or more types
of credit enhancement, private pass-through securities typically lack a
guarantee by an entity having the credit status of a governmental agency or
instrumentality.
Collateralized Mortgage Obligations ("CMOs"): CMOs are debt obligations or
multiclass pass-through certificates issued by agencies or instrumentalities of
the U.S. Government or by private originators or investors in mortgage loans. In
a CMO, series of bonds or certificates are usually issued in multiple classes.
Principal and interest paid on the underlying mortgage assets may be allocated
among the several classes of a series of a CMO in a variety of ways. Each class
of a CMO, often referred to as a "tranche," is issued with a
<PAGE>
29
specific fixed or floating coupon rate and has a stated maturity or final
distribution date. Principal payments on the underlying mortgage assets may
cause CMOs to be retired substantially earlier than their stated maturities or
final distribution dates, resulting in a loss of all or part of any premium
paid.
REMICs: A REMIC is a CMO that qualifies for special tax treatment under the
Internal Revenue Code and invests in certain mortgages principally secured by
interests in real property. Investors may purchase beneficial interests in
REMICs, which are known as "regular" interests, or "residual" interests.
Guaranteed REMIC pass-through certificates ("REMIC Certificates") issued by FNMA
or FHLMC represent beneficial ownership interests in a REMIC trust consisting
principally of mortgage loans or FNMA, FHLMC or GNMA-guaranteed mortgage
pass-through certificates. For FHLMC REMIC Certificates, FHLMC guarantees the
timely payment of interest, and also guarantees the payment of principal as
payments are required to be made on the underlying mortgage participation
certificates. FNMA REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by FNMA.
Parallel Pay Securities; PAC Bonds: Parallel pay CMOs and REMICs are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which must be retired by
its stated maturity date or final distribution date, but may be retired earlier.
Planned Amortization Class CMOs ("PAC Bonds") generally require payments of a
specified amount of principal on each payment date. PAC Bonds are always
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.
REITs: REITs are trusts that invest primarily in commercial real estate or real
estate-related loans. The value of interests in REITs may be affected by the
value of the property owned or the quality of the mortgages held by the trust.
Stripped Mortgage-Backed Securities ("SMBs"): SMBs are usually structured with
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive all
of the interest payments and is thus termed an interest-only class ("IO"), while
the other class may receive all of the principal payments and is thus termed the
principal-only class ("PO"). The value of IOs tends to increase as rates rise
and decrease as rates fall; the opposite is true of POs. SMBs are extremely
sensitive to changes in interest rates because of the impact thereon of
prepayment of principal on the underlying mortgage securities can experience
wide swings in value in response to changes in interest rates and associated
mortgage prepayment rates. During times when interest rates are experiencing
fluctuations, such securities can be difficult to price on a consistent basis.
The market for SMBs is not as fully developed as other markets; SMBs therefore
may be illiquid.
Risk Factors: Due to the possibility of prepayments of the underlying mortgage
instruments, mortgage-backed securities generally do not have a known maturity.
In the absence of a known maturity, market participants generally refer to an
estimated average life. An average life estimate is a function of an assumption
regarding anticipated prepayment patterns, based upon current interest rates,
current conditions in the relevant housing markets and other factors. The
assumption is necessarily subjective, and thus different market participants can
produce different average life estimates with regard to the same security. There
can be no assurance that estimated average life will be a security's actual
average life.
MUNICIPAL SECURITIES--Municipal securities consists of (i) debt obligations
issued by or on behalf of public authorities to obtain funds to be used for
various public facilities, for refunding outstanding obligations, for general
operating expenses, and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair, or improvement of privately operated
facilities.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility
(tolls from a toll bridge, for example). Certificates of participation represent
an interest in an underlying obligation or commitment such as an obligation
<PAGE>
30
issued in connection with a leasing arrangement. The payment of principal and
interest on private activity and industrial development bonds generally is
dependent solely on the ability of the facility's user to meet its financial
obligations and the pledge, if any, of real and personal property so financed as
security for such payment.
Municipal securities include both municipal notes and municipal bonds. Municipal
notes include general obligation notes, tax anticipation notes, revenue
anticipation notes, bond anticipation notes, certificates of indebtedness,
demand notes and construction loan notes. Municipal bonds include general
obligation bonds, revenue or special obligation bonds, private activity and
industrial development bonds, and participation interests in municipal bonds.
OPTIONS--A put option gives the purchaser of the option the right to sell, and
the writer the obligation to buy, the underlying security at the exercise price
at any time during the option period. A call option gives the purchaser of the
option the right to buy, and the writer of the option the obligation to sell,
the underlying security at the exercise price at any time during the option
period. The premium paid to the writer is the consideration for undertaking the
obligations under the option contract. The initial purchase (sale) of an option
contract is an "opening transaction." In order to close out an option position,
a Portfolio may enter into a "closing transaction"--the sale (purchase) of an
option contract on the same security with the same exercise price and expiration
date as the option contract originally opened.
A Portfolio may purchase put and call options to protect against a decline in
the market value of the securities in its portfolio or to anticipate an increase
in the market value of securities that the Portfolio may seek to purchase in the
future. A Portfolio purchasing put and call options pays a premium therefor. If
price movements in the underlying securities are such that exercise of the
options would not be profitable for the Portfolio, loss of the premium paid may
be offset by an increase in the value of the Portfolio's securities or by a
decrease in the cost of acquisition of securities by the Portfolio.
A Portfolio may write covered call options as a means of increasing the yield on
its portfolio and as a means of providing limited protection against decreases
in its market value. When a Portfolio sells an option, if the underlying
securities do not increase or decrease to a price level that would make the
exercise of the option profitable to the holder thereof, the option generally
will expire without being exercised and the Portfolio will realize as profit the
premium received for such option. When a call option of which a Portfolio is the
writer is exercised, the Portfolio will be required to sell the underlying
securities to the option holder at the strike price, and will not participate in
any increase in the price of such securities above the strike price. When a put
option of which a Portfolio is the writer is exercised, the Portfolio will be
required to purchase the underlying securities at the strike price, which may be
in excess of the market value of such securities.
Options purchased by a Portfolio will be listed on a national securities
exchange. In order to close out an option position, the Portfolio may enter into
a "closing purchase transaction," which involves the purchase of an option on
the same security at the same exercise price and expiration date. If the
Portfolio is unable to effect a closing purchase transaction with respect to an
option it has written, it will not be able to sell the underlying security until
the option expires or the Portfolio delivers the security upon exercise.
A Portfolio may purchase and write options on an exchange or over-the-counter.
Over-the-counter options ("OTC options") differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and therefore entail the risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than are available for
exchange-traded options. Because OTC options are not traded on an exchange,
pricing is done normally by reference to information from a market maker. It is
the position of the Securities and Exchange Commission that OTC options are
generally illiquid.
A Portfolio may purchase and write put and call options on foreign currencies
(traded on U.S. and foreign exchanges or over-the-counter markets) to manage its
exposure to exchange rates. Call options on foreign currency written by a
Portfolio will be "covered," which means that the Portfolio will own an equal
amount of the underlying foreign currency. With respect to put options on
foreign currency written by a Portfolio, the Portfolio will establish a
<PAGE>
31
segregated account with its custodian bank consisting of liquid assets in an
amount equal to the amount the Portfolio would be required to pay upon exercise
of the put.
A Portfolio may purchase and write put and call options on indices and enter
into related closing transactions. Put and call options on indices are similar
to options on securities except that options on an index give the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of the underlying index is greater than (or less than, in the case of
puts) the exercise price of the option. This amount of cash is equal to the
difference between the closing price of the index and the exercise price of the
option, expressed in dollars multiplied by a specified number. Thus, unlike
options on individual securities, all settlements are in cash, and gain or loss
depends on price movements in the particular market represented by the index
generally, rather than the price movements in individual securities. A Portfolio
may choose to terminate an option position by entering into a closing
transaction. The ability of a Portfolio to enter into closing transactions
depends upon the existence of a liquid secondary market for such transactions.
All options written on indices must be covered. When a Portfolio writes an
option on an index, it will establish a segregated account containing liquid
assets with its Custodian in an amount at least equal to the market value of the
option and will maintain the account while the option is open or will otherwise
cover the transaction.
RISK FACTORS--Risks associated with options transactions include: (1) the
success of a hedging strategy may depend on an ability to accurately predict
movements in the prices of individual securities, fluctuations in markets and
movements in interest rates; (2) there may be an imperfect correlation between
the movement in prices of options and the securities underlying them; (3) there
may not be a liquid secondary market for options; and (4) while a Portfolio will
receive a premium when it writes covered call options, it may not participate
fully in a rise in the market value of the underlying security.
RECEIPTS--Receipts are sold as zero coupon securities which means that they are
sold at a substantial discount and redeemed at face value at 34 their maturity
date without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, such securities may be subject to greater interest rate
volatility than interest paying investments.
REPURCHASE AGREEMENTS--Repurchase agreements are agreements by which a Portfolio
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price on an agreed upon date within a number of days
from the date of purchase. A Portfolio will have actual or constructive
possession of the security as collateral for the repurchase agreement. A
Portfolio bears a risk of loss in the event the other party defaults on its
obligations and the Portfolio is delayed or prevented from its right to dispose
of the collateral securities or if the Portfolio realizes a loss on the sale of
the collateral securities. A Portfolio will enter into repurchase agreements
only with financial institutions deemed to present minimal risk of bankruptcy
during the term of the agreement based on established guidelines. Repurchase
agreements are considered loans under the 1940 Act.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS--Investments by a money market
fund are subject to limitations imposed under regulations adopted by the
Securities and Exchange Commission. Under these regulations, money market funds
may only acquire obligations that present minimal credit risks and that are
"eligible securities," which means they are (i) rated, at the time of
investment, by at least two NRSROs (one if it is the only organization rating
such obligation) in the highest short-term rating category or, if unrated,
determined to be of comparable quality (a "first tier security"), or (ii) rated
according to the foregoing criteria in the second highest short-term rating
category or, if unrated, determined to be of comparable quality (a "second tier
security"). In the case of taxable money market funds, investments in second
tier securities are subject to the further constraints that (i) no more than 5%
of the Portfolio's assets may be invested in such securities in the aggregate,
and (ii) any investment in such securities of one issuer is limited to the
greater of 1% of the Portfolio's total assets or $1 million. A taxable money
market fund may hold more than 5%
<PAGE>
32
of its assets in the first tier securities of a single issuer for three Business
Days.
RESTRICTED SECURITIES--Restricted securities are securities that may not be sold
freely to the public absent registration under the Securities Act of 1933, as
amended, or an exemption from registration.
SECURITIES LENDING--In order to generate additional income, a Portfolio may lend
the securities in which it owns, pursuant to agreements requiring that the loan
be continuously secured by collateral consisting of cash, securities of the U.S.
Government or its agencies equal to at least 100% of the market value of the
securities lent. A Portfolio continues to receive interest on the securities
lent while simultaneously earning interest on the investment of cash collateral.
Collateral is marked to market daily. There may be risks of delay in recovery of
the securities or even loss of rights in the collateral should the borrower of
the securities fail financially or become insolvent.
SECURITIES OF FOREIGN ISSUERS--There are certain risks connected with investing
in foreign securities. These include risks of adverse political and economic
developments (including possible governmental seizure or nationalization of
assets), the possible imposition of exchange controls or other governmental
restrictions, less uniformity in accounting and reporting requirements, the
possibility that there will be less information on such securities and their
issuers available to the public, the difficulty of obtaining or enforcing court
judgments abroad, restrictions on foreign investments in other jurisdictions,
difficulties in effecting repatriation of capital invested abroad, and
difficulties in transaction settlements and the effect of delay on shareholder
equity. Foreign securities may be subject to foreign taxes, and may be less
marketable than comparable U.S. securities. The value of a Portfolio's
investments denominated in foreign currencies will depend on the relative
strengths of those currencies and the U.S. dollar, and a Portfolio may be
affected favorably or unfavorably by changes in the exchange rates or exchange
control regulations between foreign currencies and the U.S. dollar. Changes in
foreign currency exchange rates also may affect the value of dividends and
interest earned, gains and losses realized on the sale of securities and net
investment income and gains if any, to be distributed to shareholders by a
Portfolio.
SHORT SALES--Selling securities short involves selling securities the seller
does not own (but has borrowed) in anticipation of a decline in the market price
of such securities. To deliver the securities to the buyer, the seller must
arrange through a broker to borrow the securities and, in so doing, the seller
becomes obligated to replace the securities borrowed at their market price at
the time of replacement. In a short sale, the proceeds the seller receives from
the sale are retained by a broker until the seller replaces the borrowed
securities. The seller may have to pay a premium to borrow the securities and
must pay any dividends or interest payable on securities until they are
replaced.
A Portfolio may only sell securities short "against the box." A short sale is
"against the box" if, at all times during which the short position is open, the
Portfolio owns at least an equal amount of the securities or securities
convertible into, or exchangeable without further consideration for, securities
of the same issuer as the securities that are sold short.
A Portfolio may also maintain short positions in forward currency exchange
transactions, which involve the Portfolio's agreement to exchange currency that
it does not own at that time for another currency at a future date and specified
price in anticipation of a decline in the value of the currency sold short
relative to the currency that the Fund.
STANDBY COMMITMENTS AND PUTS--Securities subject to standby commitments or puts
permit the holder thereof to sell the securities at a fixed price prior to
maturity. Securities subject to a standby commitment or put may be sold at any
time at the current market price. However, unless the standby commitment or put
was an integral part of the security as originally issued, it may not be
marketable or assignable; therefore, the standby commitment or put would only
have value to the Portfolio owning the security to which it relates. In certain
cases, a premium may be paid for a standby commitment or put, which premium will
have the effect of reducing the yield otherwise payable on the underlying
security. A Portfolio will limit standby commitment or put transactions to
institutions believed to present minimal credit risk.
TIME DEPOSITS--Time deposits are non-negotiable receipt issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it
<PAGE>
33
earns a specified rate of interest over a definite period of time; however, it
cannot be traded in the secondary market. Time deposits with a withdrawal
penalty are considered to be illiquid securities.
U.S. GOVERNMENT AGENCIES--Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing Administration and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, FHLMC, the Federal Land Banks and the U.S. Postal
Service. Some of these securities are supported by the full faith and credit of
the U.S. Treasury (e.g., GNMA), others are supported by the right of the issuer
to borrow from the Treasury (e.g., Federal Farm Credit Bank), while still others
are supported only by the credit of the instrumentality (e.g., FNMA). Guarantees
of principal by agencies or instrumentalities of the U.S. Government may be a
guarantee of payment at the maturity of the obligation so that in the event of a
default prior to maturity there might not be a market and thus no means of
realizing on the obligation prior to maturity.
Guarantees as to the timely payment of principal and interest do not extend to
the value or yield of these securities nor to the value of a Portfolio's shares.
U.S. TREASURY OBLIGATIONS--U.S. Treasury obligations consist of bills, notes and
bonds issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the Federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities ("STRIPS").
VARIABLE AND FLOATING RATE INSTRUMENTS-- Certain obligations 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 rate
on these securities may be reset daily, weekly, quarterly or by some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not actually 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 are instruments giving holders the right, but not the
obligation, to buy shares of a company at a given price during a specified
period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES--When-issued or delayed delivery
basis transactions involve the purchase of an instrument with payment and
delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase commitment.
A Portfolio will maintain with the Custodian a separate account with liquid
assets in an amount at least equal to these commitments. The interest rate
realized on these securities is fixed as of the purchase date and no interest
accrues to a Portfolio before settlement. These securities are subject to market
fluctuation due to changes in market interest rates and it is possible that the
market value at the time of settlement could be higher or lower than the
purchase price if the general level of interest rates has changed. Although a
Portfolio generally purchases securities on a when-issued or forward commitment
basis with the intention of actually acquiring securities, a Fund may dispose of
a when-issued security or forward commitment prior to settlement if it deems
appropriate.
ZERO COUPON SECURITIES--STRIPS and Receipts (TRs, TIGRs and CATS) are sold as
zero coupon securities, that is, fixed income securities that have been stripped
of their unmatured interest coupons. Zero coupon securities are sold at a
(usually substantial) discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. The amount of this
discount is accredited over the life of the security, and the accretion
constitutes the income earned on the security for both accounting and tax
purposes. Because of these features, these market prices of zero coupon
securities are generally more volatile than the market prices of securities that
have similar maturity but that pay interest periodically. Zero coupon securities
are likely to respond to a greater degree to interest rate changes than are
non-zero coupon securities with similar maturity and credit qualities. See also
"Taxes."
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Summary...................................... 2
Expense Summary.............................. 4
Financial Highlights......................... 6
The Funds and the Trust...................... 8
Investment Objectives........................ 8
Investment Policies and Information.......... 8
General Investment Policies and Risk
Factors..................................... 12
Investment Limitations and Fundamental
Policies.................................... 14
The Adviser.................................. 15
The Sub-Adviser.............................. 16
The Administrator............................ 16
The Transfer Agent........................... 17
The Distributor.............................. 17
How to Purchase Shares....................... 17
How to Exchange Shares....................... 19
How to Redeem Shares......................... 19
Performance.................................. 21
Taxes........................................ 22
General Information.......................... 24
Description of Permitted Investments......... 26
</TABLE>
<PAGE>
OVB FAMILY OF FUNDS
<TABLE>
<CAPTION>
Trust: THE ARBOR FUND
<S> <C>
Portfolios: OVB EQUITY INCOME PORTFOLIO
OVB CAPITAL APPRECIATION PORTFOLIO
OVB EMERGING GROWTH PORTFOLIO
OVB GOVERNMENT SECURITIES PORTFOLIO
OVB WEST VIRGINIA TAX-EXEMPT INCOME
PORTFOLIO
OVB PRIME OBLIGATIONS PORTFOLIO
Investment Adviser: ONE VALLEY BANK, NATIONAL ASSOCIATION
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION
This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus; it provides
information about the activities and operations of the OVB Family of Funds (the
"Funds"), a group of mutual funds consisting of separate series of The Arbor
Fund (the "Trust"). This Statement of Additional Information should be read in
conjunction with the Funds' Prospectus dated June 1, 1997. A Prospectus may be
obtained by calling 1-800-545-6331.
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE FUNDS AND THE TRUST............................................................... S-2
DESCRIPTION OF PERMITTED INVESTMENTS.................................................. S-2
INVESTMENT LIMITATIONS................................................................ S-12
THE ADVISER........................................................................... S-14
THE SUB-ADVISER....................................................................... S-14
THE ADMINISTRATOR..................................................................... S-14
THE DISTRIBUTOR....................................................................... S-15
TRUSTEES AND OFFICERS OF THE TRUST.................................................... S-16
COMPUTATION OF YIELD.................................................................. S-19
CALCULATION OF TOTAL RETURN........................................................... S-20
PURCHASE AND REDEMPTION OF SHARES..................................................... S-21
DETERMINATION OF NET ASSET VALUE...................................................... S-21
TAXES................................................................................. S-22
PORTFOLIO TRANSACTIONS................................................................ S-26
TRADING PRACTICES AND BROKERAGE....................................................... S-27
DESCRIPTION OF SHARES................................................................. S-29
SHAREHOLDER LIABILITY................................................................. S-29
LIMITATION OF TRUSTEES' LIABILITY..................................................... S-30
5% SHAREHOLDERS....................................................................... S-30
EXPERTS............................................................................... S-31
FINANCIAL STATEMENTS.................................................................. S-31
DESCRIPTION OF RATINGS.................................................................. Appendix
</TABLE>
June 1, 1997
OVB-F-003-04
<PAGE>
THE FUNDS AND THE TRUST
This Statement of Additional Information relates to the OVB Family of Funds (the
"Funds"), a group of mutual funds. The Funds consist of: the OVB Equity Income
Portfolio, the OVB Capital Appreciation Portfolio, the OVB Emerging Growth
Portfolio, the OVB Government Securities Portfolio, the OVB West Virginia
Tax-Exempt Income Portfolio and the OVB Prime Obligations Portfolio (each, a
"Portfolio"). For ease of reference, the letters "OVB" have been omitted from
the Portfolios' names throughout this Statement of Additional Information. Each
Portfolio is a separate series of The Arbor Fund (the "Trust"). The Trust is an
open-end management investment company established under Massachusetts law as a
"Massachusetts business trust" under an Agreement and Declaration of Trust dated
as of July 24, 1992 (the "Declaration of Trust"). The Declaration of Trust
permits the Trust to offer separate series of units of beneficial interest
("shares") and different classes of shares of each series. Each series is a
separate mutual fund. Except for differences between the Class A and Class B
shares of the Portfolios pertaining to dividends, voting rights and distribution
plans, each share of each Portfolio represents an equal proportionate interest
in that Portfolio. See "Description of Shares." Capitalized terms not defined
herein are defined in the Prospectus. No investment in shares of a Portfolio
should be made without first reading the Prospectus.
DESCRIPTION OF PERMITTED INVESTMENTS
ASSET-BACKED SECURITIES
The Equity Income and Fixed Income Portfolios may invest in non-mortgage
asset-backed securities including company receivables, truck and auto loans,
leases, and credit card receivables. These securities, like mortgage-backed
securities, represent ownership of a pool of obligations. The payment of
principal and interest on non-mortgage asset-backed securities may be guaranteed
up to certain amounts and for a certain time 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. In addition, these issues typically have a
short-intermediate maturity structure depending on the paydown characteristics
of the underlying financial assets that are passed through to the security
holder. The purchase of non-mortgage asset-backed securities raises risk
considerations peculiar to the financing of the instruments underlying such
securities. For example, due to the manner in which the issuing organizations
may perfect their interests in their respective obligations, 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. Also, in most states the security
interest in a motor vehicle must be noted on the certificate of title to perfect
a security interest against competing claims of other parties. Due to the large
number of vehicles involved, however, the certificate of title to each vehicle
financed, pursuant to the obligations underlying the asset-backed securities,
usually is not amended to reflect the assignment of the seller's security
interest for the benefit of the holders of the asset-backed securities.
Therefore, the possibility exists that recoveries on repossessed collateral may
not, in some cases, be available to support payments on those securities. In
addition, various state and federal laws give the motor vehicle owner the right
to assert against the holder of the owner's obligation certain defenses such
owner would have against the seller of the motor vehicle. The assertion of such
defenses could reduce payments on the related asset-backed securities. Insofar
as credit card receivables are concerned, credit card holders are entitled to
the protection of a number of state and federal consumer credit laws, many of
which give such holders the right to set off certain amounts against balances
owed on the credit card, thereby reducing the amounts paid on such receivables.
In addition, unlike most other asset-backed securities, credit card receivables
are unsecured obligations of the card holder. 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.
The development of non-mortgage asset-backed securities is at an earlier stage
than that of mortgage-backed securities. While the market for asset-backed
securities is becoming increasingly liquid, the market for non-mortgage
asset-backed securities is not as well developed as that for mortgage-backed
securities
S-2
<PAGE>
guaranteed by government agencies or instrumentalities. The Adviser intends to
limit purchases of non-mortgage asset-backed securities to securities that are
readily marketable at the time of purchase.
BANK OBLIGATIONS
The Portfolios are not prohibited from investing in obligations of banks that
are clients of SEI Corporation ("SEI"). However, the purchase of shares of the
Portfolios by such banks or by their customers will not be a consideration in
determining which bank obligations the Portfolios will purchase. The Portfolios
will not purchase obligations of the Adviser.
FOREIGN SECURITIES
The Equity Income, Capital Appreciation, Emerging Growth and Money Market
Portfolios may invest in certain U.S. dollar denominated obligations or
securities of foreign issuers. Permissible investments for the Money Market
Portfolio may consist of obligations of foreign branches of U.S. banks and U.S.
and London branches of foreign banks, including European certificates of
deposit, European time deposits, Canadian time deposits and Yankee certificates
of deposit, and investments in foreign commercial paper and other short-term
corporate obligations, foreign securities and Europaper.
Foreign securities may subject a Portfolio to 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.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA") CERTIFICATES
All Portfolios may invest in securities issued by GNMA, a wholly-owned U.S.
Government corporation that guarantees the timely payment of principal and
interest. The market value and interest yield of these instruments can vary due
to market interest rate fluctuations and early prepayments of underlying
mortgages. These securities represent ownership in a pool of federally insured
mortgage loans. GNMA certificates consist of underlying mortgages with a maximum
maturity of 30 years. However, due to scheduled and unscheduled principal
payments, GNMA certificates have a shorter average maturity and, therefore, less
principal volatility than a comparable 30-year bond. Since prepayment rates vary
widely, it is not possible to predict accurately the average maturity of a
particular GNMA pool. The scheduled monthly interest and principal payments
relating to mortgages in the pool will be "passed through" to investors. GNMA
securities differ from conventional bonds in that principal is paid back to the
certificate holders over the life of the loan rather than at maturity. As a
result, there will be monthly scheduled payments of principal and interest. In
addition, there may be unscheduled principal payments representing prepayments
on the underlying mortgages. Although GNMA certificates may offer yields higher
than those available from other types of U.S. Government securities, GNMA
certificates may be less effective than other types of securities as a means of
"locking in" attractive long-term rates because of the prepayment feature. For
instance, when interest rates decline, the value of a GNMA certificate likely
will not rise as much as comparable debt securities due to the prepayment
feature. In addition, these prepayments can cause the price of a GNMA
certificate originally purchased at a premium to decline in price to its par
value, which may result in a loss.
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INVESTMENT COMPANY SHARES
Each Portfolio may invest in shares of other investment companies, to the extent
permitted by applicable law and subject to certain restrictions. These
investment companies typically incur fees that are separate from those fees
incurred directly by the Portfolio. A Portfolio's purchase of such investment
company securities results in a layering of expenses, such that shareholders
would indirectly bear a proportionate share of the operating expenses of such
investment companies, including advisory fees, in addition to paying Portfolio
expenses. Under applicable regulations, a Portfolio is prohibited from acquiring
the securities of another investment company if, as a result of such
acquisition: (1) the Portfolio owns more than 3% of the total voting stock of
the other company; (2) securities issued by any one investment company represent
more than 5% of the Portfolio's total assets; or (3) securities (other than
treasury stock) issued by all investment companies represent more than 10% of
the total assets of the Portfolio. See also "Investment Limitations."
MORTGAGE-BACKED SECURITIES
The Equity Income and Government Portfolios may, in addition to investing in
GNMA securities, invest in other mortgage-backed securities, principally
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs"). CMOs are securities collateralized by mortgages, mortgage
pass-throughs, mortgage pay-through bonds (bonds representing an interest in a
pool of mortgages where the cash flow generated from the mortgage collateral
pool is dedicated to bond repayment), and mortgage-backed bonds (general
obligations of the issuers payable out of the issuers' general funds and
additionally secured by a first lien on a pool of single-family detached
properties).
Many CMOs are issued with a number of classes or series that have different
maturities and are retired in sequence. Investors purchasing such CMOs in the
shortest maturities receive or are credited with their pro rata portion of the
scheduled payments of interest and principal on the underlying mortgages plus
all unscheduled prepayments of principal up to a predetermined portion of the
total CMO obligation. Until that portion of such CMO obligation is repaid,
investors in the longer maturities receive interest only. Accordingly, the CMOs
in the longer maturity series are less likely than other mortgage pass-throughs
to be prepaid prior to their stated maturity. Although some of the mortgages
underlying CMOs may be supported by various types of insurance, and some CMOs
may be backed by GNMA certificates or other mortgage pass-throughs issued or
guaranteed by U.S. Government agencies or instrumentalities, the CMOs themselves
generally are not guaranteed.
REMICs, which were authorized under the Internal Revenue Code of 1986, as
amended (the "Code"), are private entities formed for the purpose of holding a
fixed pool of mortgages secured by an interest in real property. REMICs are a
form of CMO, and issue multiple classes of securities.
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. The West Virginia Portfolio may also invest in "moral
obligation" issues, which are normally issued by special purpose authorities.
Moral obligation issues are not backed by the full faith and credit of the state
and are generally backed by the agreement of the issuing authority to request
appropriations from the state legislative body. 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
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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. Project notes
are issued by a state or local housing agency and are sold by the Department of
Housing and Urban Development. While the issuing agency has the primary
obligation with respect to its project notes, they are also secured by the full
faith and credit of the United States through agreements with the issuing
authority which provide that, if required, the federal government will lend the
issuer an amount equal to the principal of and interest on the project notes.
The quality of Municipal Securities, both within a particular classification and
between classifications, will vary, and the yields on Municipal Securities
depend upon a variety of factors, including general money market conditions, the
financial condition of the issuer (or other entity whose financial resources are
supporting the securities), general conditions of the municipal bond market, the
size of a particular offering, the maturity of the obligation and the rating(s)
of the issue. In this regard, it should be emphasized that the ratings of any
NRSRO are general and are not absolute standards of quality. Municipal
Securities with the same maturity, interest rate and rating(s) may have
different yields, while Municipal Securities of the same maturity and interest
rate with different rating(s) may have the same yield.
An issuer's obligations under its Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
the enforcement of such obligations or upon the ability of municipalities to
levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Municipal Securities may be
materially adversely affected by litigation or other conditions.
Under certain circumstances, the West Virginia Portfolio may invest in 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 Portfolio's investment criteria.
SPECIAL FACTORS RELATING TO WEST VIRGINIA MUNICIPAL SECURITIES--Because the West
Virginia Portfolio invests primarily in West Virginia Municipal Securities, the
Portfolio is more susceptible to factors adversely affecting issuers of West
Virginia Municipal Securities than a mutual fund that does not invest as heavily
in such securities. Investors should consider carefully the special risks
inherent in the Portfolio's investment in West Virginia Municipal Securities
including the risks of the West Virginia economy.
Coal mining and related industries remain important parts of the West Virginia
economy, but increasing governmental regulation affecting production and usage
of coal and reduction in demand for certain types of coals have had an adverse
impact on the industry. State and local governments have made and continue to
make efforts to encourage diversification of the state's industries and to
attract new industries to locate in the state. While these efforts have had some
success, such as the tourism industry and the location of a new Toyota plant in
the state, not all parts of the state have shared in these results.
West Virginia continues to have unemployment problems. While the unemployment
rate in January, 1997, was the lowest for any January since 1979, West
Virginia's unemployment continues to exceed the national average. For January,
1997, West Virginia's seasonally adjusted unemployment rate was 7.1% as compared
to the national rate of 5.4%.
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As a result of increased taxes since 1989, the State's current financial
position is relatively stable, and there have been State budget surpluses in
recent years. In addition, the completion of implementation of a reappraisal of
property subject to ad valorem taxation in 1994, increased the funding available
to local governments and school boards. However, with little or no population
growth, high unemployment, declining school enrollments and an aging population,
among other factors, the State, local governments and school boards continue to
struggle to find sufficient revenues to fund operations and support public
education.
MUNICIPAL LEASES--The West Virginia Portfolio 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.
PUT TRANSACTIONS (STANDBY COMMITMENTS)--The West Virginia Portfolio reserves the
right to engage in put transactions. The Adviser has the authority to purchase
securities at a price that would result in a yield to maturity lower than that
generally offered by the seller at the time of purchase when the Portfolio can
simultaneously acquire the right to sell the securities back to the seller, the
issuer, or a third party (the "writer") at an agreed-upon price at any time
during a stated period or on a certain date. Such a right is generally denoted
as a "put" or "standby commitment." The purpose of engaging in transactions
involving puts is to maintain flexibility and liquidity so as to permit the
Portfolio to meet redemptions and remain as fully invested as possible in
Municipal Securities. The Portfolio's ability to put the securities depends on
the writer's ability to pay for the securities at the time the Portfolio
exercises the put. The Portfolio will engage in put transactions only with
institutions that the Adviser believes present minimal credit risks, and the
Adviser will use its best efforts to determine initially and continue to monitor
the financial strength of the sellers of the options in accordance with credit
guidelines adopted by the Trust's Board of Trustees. In the event that any
writer is unable to honor a put for financial reasons, the Portfolio would be a
general creditor (i.e., on a parity with all other unsecured creditors) of the
writer. Furthermore, particular provisions of the contract between the Portfolio
and the writer may excuse the writer from repurchasing the securities; for
example, a change in the published rating of the underlying securities or any
similar event that has an adverse effect on the issuer's credit or a provision
in the contract that the put will not be exercised except in certain special
cases, for example, to maintain portfolio liquidity. The Portfolio could,
however, at any time sell the underlying portfolio security in the open market
or wait until the portfolio security matures, at which time it should realize
the full par value of the security.
The securities purchased subject to a put may be sold to third persons at any
time, even though the put is outstanding, but the put itself, unless it is an
integral part of the security as originally issued, may not be marketable or
otherwise assignable. Therefore, the put would have value only to the Portfolio.
Sale of the securities to third parties or lapse of time with the put
unexercised may terminate the right to put the securities. Prior to the
expiration of any put option, the Portfolio could seek to negotiate terms for
the extension of such an option. If such a renewal cannot be negotiated on terms
satisfactory to the Portfolio, the Portfolio could, of course, sell the
security. The maturity of the underlying security will generally be different
from that of the put. There will be no limit to the percentage of portfolio
securities that the Portfolio may purchase subject to a put or a standby
commitment but the amount paid directly or indirectly for premiums on all puts
and standby commitments outstanding will not exceed 0.5% of the Portfolio's
total assets calculated immediately after any such put is acquired.
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The Portfolio will consider the maturity of a security subject to a put to be
the first date on which the Portfolio has the right to demand payment from the
writer, even though the final maturity of the security will ordinarily be later
than such date.
OPTIONS AND FUTURES
OPTIONS ON SECURITIES AND INDICES--The Equity and Government Portfolios may
trade put and call options on permitted investments and related indices to a
limited extent. Among the strategies the Adviser may use for these Portfolios
are: buying protective puts on securities owned by the Portfolio, buying
fiduciary calls on securities the Portfolio is attempting to buy, and writing
covered calls on securities the Portfolio owns. These Portfolios may also buy
puts and calls, and write covered calls, on securities indices.
These Portfolios may buy protective put options. A Portfolio may benefit from
buying the protective put if the price of the security already held by the
Portfolio falls during the option period, because the Portfolio may exercise the
put and receive the higher exercise price for its security. However, if the
security rises in value, the Portfolio will have paid a premium for the put
which will expire unexercised.
Each of these Portfolios may buy fiduciary call options on securities that the
Portfolio is trying to buy. The Portfolio may benefit from buying the fiduciary
call if the price of the underlying security rises during the option period,
because the Portfolio may exercise the call and buy the security for the lower
exercise price. If, however, the security falls in value, the Portfolio will
have paid a premium for the call which will expire worthless, but will be able
to buy the security at a lower price.
These Portfolios may write covered call options. The advantage to a Portfolio of
writing covered call options is that the Portfolio receives additional income in
the form of the premium. However, if the optioned security rises in value, the
Portfolio may not fully participate in that market appreciation. To "cover" a
call option it writes on a securities index (or indices), the Portfolio must
hold securities whose price changes are expected by the Adviser to replicate the
price changes of that index or indices.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker/ dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing
transaction. A closing transaction cannot be effected with respect to an option
once the option writer has received an exercise notice for such option.
The market value of an option generally reflects the market price of an
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the pricing volatility of the underlying
security and the time remaining until the expiration date.
RISKS OF TRANSACTIONS IN OPTIONS ON SECURITIES AND INDICES--The successful use
of a Portfolio's options strategies depends on, among other things, the
Adviser's ability to forecast interest rate and market movements correctly.
When it purchases an option, a Portfolio runs the risk that it will lose its
entire investment in the option in a relatively short period of time, unless the
Portfolio exercises the option or enters into a closing transaction with respect
to the option during the life of the option. If the price of the underlying
security or index does not rise (in the case of a call) or fall (in the case of
a put) to an extent sufficient to cover the option premium and transaction
costs, the Portfolio will lose part or all of its investment in the option. This
risk differs from the risk involved with an investment by the Portfolio in the
underlying securities, since the Portfolio may continue to hold its investment
in those securities notwithstanding the lack of a change in price of those
securities. In addition, the Portfolio incurs the risk in writing covered calls
on indices that changes in the prices of the securities being used to "cover"
will not duplicate precisely the movements of the indices.
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The effective use of options also depends on a Portfolio's ability to terminate
option positions at times when the Adviser deems it desirable to do so. Although
a Portfolio will take an option position only if the Adviser believes a liquid
secondary market exists for the option, there is no assurance that such a market
does or will continue to exist. If a secondary trading market in options were to
become unavailable, a Portfolio could no longer engage in closing transactions;
even when a liquid secondary market does generally exist, there can be no
assurance that the Portfolio will be able to effect a closing transaction on a
given option at any particular time or at an acceptable price. Lack of investor
interest might adversely affect the liquidity of the market for particular
options or series of options. A marketplace may discontinue trading of a
particular option or options generally. In addition, a market could become
temporarily unavailable if unusual events, such as volume in excess of trading
or clearing capability, were to interrupt normal market operations. A
marketplace may at times find it necessary to impose restrictions on particular
types of options transactions, which may limit a Portfolio's ability to realize
its profits or limit its losses.
Disruptions in the markets for the securities underlying options (or underlying
indices on which options are based) purchased or sold by a Portfolio could
result in losses on the options. If trading is interrupted in an underlying
security, the trading of options on that security is normally halted as well. As
a result, the Portfolio as purchaser or writer of an option will be unable to
close out its position until options trading resumes, and it may be faced with
losses if trading in the security reopens at a substantially different price. In
addition, the Options Clearing Corporation (OCC) or other options markets may
impose exercise restrictions. If a prohibition on exercise is imposed at the
time when trading in the option has also been halted, a Portfolio as purchaser
or writer of an option will be locked into its position until one of the two
restrictions has been lifted. If a prohibition on exercise remains in effect
until an option owned by the Portfolio has expired, the Portfolio could lose the
entire value of its option.
Special risks are presented by internationally-traded options. Because of time
differences between the United States and the various foreign countries, and
because different holidays are observed in different countries, foreign options
markets may be open for trading during hours or on days when U.S. markets are
closed. As a result, option premiums may not reflect the current prices of the
underlying interest in the United States.
SECURITIES FUTURES CONTRACTS--The Government Portfolio may enter into futures
contracts on securities. A futures contract sale creates an obligation by the
seller to deliver the type of instrument called for in the contract in a
specified delivery month for a stated price. A futures contract purchase creates
an obligation by the purchaser to take delivery of the type of instrument called
for in the contract in a specified delivery month at a stated price. Futures
contracts are traded in the United States only on commodities exchanges or
boards of trade, known as "contract markets," approved for such trading by the
CFTC, and must be executed through a futures commission merchant, or brokerage
firm, that is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or acceptance
of securities, the contracts usually are closed out before the settlement date
without the making or taking of delivery. The Portfolio may elect to close some
or all of its futures positions at any time prior to their expiration. The
purpose of making such a move would be to reduce or eliminate the hedge position
then currently held by the Portfolio. Closing out a futures contract sale
(purchase) is effected by purchasing (selling) a futures contract for the same
aggregate amount of the specific type of financial instrument with the same
delivery date. If the price of the initial sale of the futures contract exceeds
the price of the offsetting purchase, the seller is paid the difference and
realizes a gain; if the offsetting purchase price exceeds the initial sale
price, the seller realizes a loss. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain; if the purchase price exceeds the
offsetting sale price, the purchaser realizes a loss.
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When the Portfolio purchases or sells a futures contract, it does not pay or
receive the purchase price; instead, the Portfolio is required to deposit an
"initial margin" in the form of cash and/or U.S. Government securities with its
custodian in a segregated account in the name of the futures broker. The nature
of initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of funds by the Portfolio to finance the transactions. Rather, initial
margin is in the nature of a performance bond or good faith deposit on the
contract that is returned to the Portfolio upon termination of the futures
contract, assuming all contractual obligations have been satisfied. Futures
contracts also involve brokerage costs, and closing transactions involve
additional commission costs.
Subsequent payments, called "variation margin," to and from the broker are made
on a daily basis as the price of the underlying security fluctuates, making the
long and short positions in the futures contract more or less valuable, a
process known as "marking to market." Final determinations of variation margin
are made when the Portfolio enters into a closing transaction.
OPTIONS ON SECURITIES FUTURES CONTRACTS--The Government Portfolio may enter into
written options on securities futures contracts. The Portfolio may purchase and
write call and put options on the futures contracts it may buy or sell, and may
enter into closing transactions with respect to such options to terminate
existing positions. The Portfolio may use such options on futures contracts in
lieu of writing options directly on the underlying securities or purchasing and
selling the underlying futures contracts. Such options generally operate in the
same manner as options purchased or written directly on the underlying
investments. See the section titled "Options on Securities and Indices" above.
The Portfolio holding or writing an option on futures may terminate its position
by selling or purchasing an offsetting option. There can be no guarantee that
such closing transactions will be available.
The Portfolio will be required to deposit initial margin and maintenance margin
with respect to put and call options on futures contracts pursuant to brokers'
requirements similar to those described above.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND FUTURES OPTIONS--Successful use
of securities futures contracts by the Government Portfolio is subject to the
Adviser's ability to predict correctly movements in the direction of interest
rates and other factors affecting securities markets.
The purchase of options on futures contracts involves less risk to the Portfolio
than does the purchase or sale of futures contracts, because the maximum amount
at risk is the premium paid for the options (plus transaction costs). However,
there may be circumstances when the purchase of an option on a futures contract
would result in a loss to the Portfolio when the purchase or sale of the futures
contract would not, such as when there is no movement in the price of the hedged
investments. The writing of an option on a futures contract involves risks
similar to those risks, described above under "Options on Securities," involved
in the writing of options on securities.
There can be no assurance that higher-than-anticipated trading activity or other
unforeseen events will not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution by exchanges of special
procedures which may interfere with the timely execution of customer orders.
Under certain circumstances, futures exchanges may establish daily limits on the
amount that the price of a future contract or option thereon can vary from the
previous day's settlement price; once that limit is reached, no trades may be
made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing the liquidation
of unfavorable positions.
If the Portfolio was unable to liquidate a futures contract or option thereon
due to the absence of a liquid secondary market or the imposition of price
limits, it could incur substantial losses. The Portfolio would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Portfolio would be required to make daily
variation margin payments and might be
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required to maintain the position being hedged by the futures contract or option
or to maintain cash or securities in a segregated account.
To reduce or eliminate a hedge position it holds, the Portfolio may seek to
close out that position. The ability to establish and close out positions will
be subject to the development and maintenance of a liquid secondary market.
There can be no assurance that such a market does or will continue to exist for
a particular futures contract or option. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain contracts or options; (ii) restrictions
may be imposed by an exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of contracts or options, or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of contracts or options
(or a particular class or series of contracts or options), in which event the
secondary market on that exchange (or in the class or series of contracts or
options) would cease to exist, although outstanding contracts or options on the
exchange that had been issued by a clearing corporation as a result of trades on
that exchange would continue to be exercisable in accordance with their terms.
COVER FOR OPTIONS AND FUTURES CONTRACT POSITIONS--Transactions using futures
contracts and options (other than options that the Portfolio has purchased)
expose the Government Portfolio to an obligation to another party. The Portfolio
will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities or other options or futures
contracts or (2) cash, receivables and short-term debt securities with a value
sufficient at all times to cover its potential obligations not covered as
provided in (1) above. To "cover" a call option it writes on a securities index
(or indices), the Capital Appreciation, Emerging Growth or Government Portfolio
must hold securities whose price changes are expected by the Adviser to
replicate the price changes of that index or indices. These Portfolios will
comply with Securities and Exchange Commission guidelines regarding cover for
these instruments and, if the guidelines so require, set aside liquid assets in
a segregated account with the Custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding futures contract or option is open, unless they
are replaced with similar assets. As a result, the commitment of a large portion
of a Portfolio's assets to cover or to segregated accounts could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
REPURCHASE AGREEMENTS
Each Portfolio may enter into repurchase agreements with financial institutions
deemed to present minimal risk of bankruptcy during the term of the agreement
based on established guidelines. The repurchase agreement will have an
agreed-upon price (including principal and interest) and an agreed-upon
repurchase 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.
The repurchase agreements entered into by the Portfolios 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 or the Sub-Adviser
monitors compliance with this requirement. Under all repurchase agreements
entered into by a Portfolio, the Portfolio must take actual or constructive
possession of the underlying collateral. However, if the seller defaults, the
Portfolio could realize a loss on the sale of the underlying security to the
extent that the proceeds of sale including accrued interest are less than the
resale price provided in the
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agreement including interest. In addition, even though the Bankruptcy Code
provides protection for proceedings, the Portfolio may incur delay and costs in
selling the underlying security or may suffer a loss of principal and interest
if the Portfolio is treated as an unsecured creditor and required to return the
underlying security to the seller's estate.
RESTRICTED SECURITIES
The Money Market Portfolio may invest in restricted securities. Restricted
securities are securities that may not be sold freely to the public absent
registration under the Securities Act of 1933, as amended (the "Act"), or an
exemption from registration. The Portfolio may invest up to 10% of its net
assets in illiquid securities, including restricted securities other than
Section 4(2) commercial paper. The Portfolio may invest in Section 4(2)
commercial paper. Section 4(2) commercial paper is issued in reliance on an
exemption from registration under Section 4(2) of the Act and is generally sold
to institutional investors who purchase for investment. Any resale of such
commercial paper must be in an exempt transaction, usually to an institutional
investor through the issuer or investment dealers who make a market in such
commercial paper. The Trust believes that Section 4(2) commercial paper is
liquid to the extent it meets the criteria established by the Board of Trustees
of the Trust. The Trust intends to treat such commercial paper as liquid and not
subject to the investment limitations applicable to illiquid securities or
restricted securities.
SECURITIES LENDING
A Portfolio will normally pay lending fees to broker/dealers in connection with
securities loans, and related expenses from the interest earned on invested
collateral. Investments made with this collateral are considered to be assets of
the Portfolio and must comply with the Portfolio's investment limitations. Any
securities loan may be terminated by either party upon reasonable notice to the
other party. The Portfolios may use the Distributor or a broker/dealer affiliate
of the Adviser as a broker in these transactions.
SEPARATELY TRADED INTEREST AND PRINCIPAL SECURITIES ("STRIPS")
Each Portfolio may invest in STRIPS, which are component parts of U.S. Treasury
Securities traded through the Federal Book-Entry System. The Adviser or the
Sub-Adviser will purchase only STRIPS that it determines are liquid or, if
illiquid, do not violate the Portfolio's investment policy concerning
investments in illiquid securities. Consistent with Rule 2a-7, the Adviser or
the Sub-Adviser will purchase for the Money Market Portfolio only those STRIPS
that have a remaining maturity of 397 days or less; therefore, the Money Market
Portfolio currently may purchase only interest component parts of U.S. Treasury
Securities. While there is no limitation on the percentage of a Portfolio's
assets that may be comprised of STRIPS, the Adviser or the 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
Portfolio.
SHORT-TERM OBLIGATIONS OF STATE AND LOCAL GOVERNMENTAL ISSUERS
In addition, the Money Market Portfolio may, when deemed appropriate by the
Adviser or the Sub-Adviser in light of the Portfolio's investment objective,
invest in high quality, short-term obligations issued by state and local
governmental issuers which, as a result of the Tax Reform Act of 1986, carry
yields that are competitive with those of other types of money market
instruments of comparable quality.
VARIABLE AND FLOATING RATE OBLIGATIONS
All Portfolios investing in debt obligations may invest in variable rate
obligations and floating rate obligations (together, "adjustable interest rate
obligations"). Adjustable interest rate obligations issued by or on behalf of
states (including the District of Columbia), territories and possessions of the
United States
S-11
<PAGE>
and their respective authorities, agencies, instrumentalities and political
subdivisions constitute a form of Municipal Security. A VARIABLE RATE OBLIGATION
is one whose terms provide for the adjustment of its interest rate on set dates
and which, upon such adjustment, can reasonably be expected to have a market
value that approximates its par value; the degree to which a variable rate
obligation's market value approximates its par value will depend on the
frequency of the readjustment of the obligation's interest rate and the length
of time that must elapse before the next readjustment. A FLOATING RATE
OBLIGATION is one whose terms provide for the adjustment of its interest rate
whenever a specified interest rate changes and which, at any time, can
reasonably be expected to have a market value that approximates its par value.
Although there may be no active secondary market with respect to a particular
variable or floating rate obligation purchased by a Portfolio, the Portfolio may
seek to resell the obligation at any time to a third party. The absence of an
active secondary market, however, could make it difficult for the Portfolio to
dispose of a variable or floating rate obligation in the event the issuer of the
obligation defaulted on its payment obligations, and the Portfolio could, as a
result or for other reasons, suffer a loss to the extent of the default. In
addition, a variable or floating rate demand obligation with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such securities. Variable or floating rate obligations may be secured by
bank letters of credit.
For the Money Market Portfolio only, variable and floating rate obligations will
be deemed to have maturities as follows:
1. A variable rate obligation, the principal amount of which is scheduled on
the face of the instrument to be paid in thirteen months or less, will be deemed
by the Portfolio to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
2. A variable rate obligation that is subject to a demand feature will be
deemed by the Portfolio to have a maturity equal to the longer of the period
remaining until the next readjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand.
3. A floating rate obligation that is subject to a demand feature will be
deemed by the Portfolio to have a maturity equal to the period remaining until
the principal amount can be recovered through demand.
As used above, an obligation is "subject to a demand feature" where the
Portfolio is entitled to receive the principal amount of the obligation either
at any time on no more than thirty days' notice or at specified intervals not
exceeding thirteen months and upon no more than thirty days' notice.
The Government Portfolio, West Virginia Portfolio and Money Market Portfolio may
invest in variable amount master demand notes, which may or may not be backed by
bank letters of credit. These variable rate obligations permit the investment of
fluctuating amounts at varying market rates of interest pursuant to direct
arrangements between the Trust, as lender, and the borrower. Such notes provide
that the interest rate on the amount outstanding varies on a daily, weekly or
monthly basis depending upon a stated short-term interest rate index. Both the
lender and the borrower have the right to reduce the amount of outstanding
indebtedness at any time. There is no secondary market for the notes. It is not
generally contemplated that such instruments will be traded.
INVESTMENT LIMITATIONS
Each Portfolio 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
that Portfolio. A "majority of the outstanding shares" of the Trust or a
particular Portfolio 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 such Portfolio present at a meeting at which the holders of more
than 50% of the votes attributable to shareholders of record of the Trust or
such Portfolio 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 such
Portfolio. The following investment limitations are in addition to those set
forth in the Funds' Prospectus.
S-12
<PAGE>
Pursuant to these investment restrictions, no Portfolio will:
1. Invest in companies for the purpose of exercising control.
2. 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 Portfolio'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 Portfolio shall, within three days thereafter or such longer
period as the Securities and Exchange Commission ("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.
3. Pledge, mortgage or hypothecate assets except to secure temporary borrowings
permitted by (2) above in aggregate amounts not to exceed 10% of total
assets taken at current value at the time of the incurrence of such loan,
except as permitted with respect to securities lending.
4. Purchase or sell real estate, real estate limited partnership interests,
commodities or commodities contracts (except that the Fixed Income
Portfolios may invest in futures contracts and options on futures contracts
as disclosed in their Prospectus and this Statement of Additional
Information). However, subject to its permitted investments, any Portfolio
may invest in companies that invest in real estate, commodities or
commodities contracts.
5. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Trust may obtain short-term credits as
necessary for the clearance of security transactions; this limitation shall
not prohibit short sales "against the box."
6. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter under federal securities laws in selling a Portfolio
security.
7. Purchase securities of other investment companies except as permitted by the
1940 Act, and the rules and regulations thereunder.
8. 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.
NON-FUNDAMENTAL POLICIES
The following investment limitations of the Portfolios are non-fundamental and
may be changed by the Trust's Board of Trustees without shareholder approval.
None of the Equity Income, Capital Appreciation, Emerging Growth, Government, or
West Virginia Portfolios may invest in illiquid securities in an amount
exceeding, in the aggregate, 15% of that Portfolio's net assets, and the Money
Market Portfolio may not invest in illiquid securities in an amount exceeding,
in the aggregate, 10% of its net assets.
No Portfolio may invest in interests in oil, gas or other mineral exploration or
development programs and oil, gas or mineral leases.
No Portfolio may invest its assets in securities of any investment company,
except as permitted by the 1940 Act or pursuant to an order of exemption
therefrom.
The foregoing percentages, except with respect to borrowings and illiquid
securities, 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.
S-13
<PAGE>
THE ADVISER
The Trust and One Valley Bank, National Association ("One Valley," or the
"Adviser") have entered into an advisory agreement (the "Advisory Agreement").
The Advisory Agreement provides that the Adviser shall not be protected against
any liability to the Trust or its shareholders by reason of willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard of its obligations or duties thereunder.
The Advisory Agreement provides that if, for any fiscal year, the ratio of
expenses of any Portfolio (including amounts payable to the Adviser but
excluding interest, taxes, brokerage, litigation, and other extraordinary
expenses) exceeds limitations established by any jurisdiction in which shares of
the Portfolios are qualified for offer and sale, the Adviser will bear the
amount of such excess.
The continuance of the Advisory Agreement, after the first two years, 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 will terminate automatically in the event of its assignment, and is
terminable at any time without penalty by the Trustees of the Trust or, with
respect to the Portfolios by a majority of the outstanding shares of the
Portfolios, on not less than 30 days' nor more than 60 days' written notice to
the Adviser, or by the Adviser on 90 days' written notice to the Trust.
For the fiscal years ended January 31, 1995, January 31, 1996 and January 31,
1997, the Portfolios paid the following advisory fees:
<TABLE>
<CAPTION>
FEES PAID (000) FEE WAIVERS (000)
------------------------------- -------------------------------
PORTFOLIO 1995 1996 1997 1995 1996 1997
- --------------------------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Equity Income Portfolio........................................ * * $ 112 * * $ 8
Capital Appreciation Portfolio................................. $ 414 $ 632 $ 723 $ 202 $ 231 $ 270
Emerging Growth Portfolio...................................... $ 240 $ 367 $ 439 $ 105 $ 79 $ 96
Government Portfolio........................................... $ 187 $ 277 $ 243 $ 154 $ 165 $ 183
West Virginia Portfolio........................................ $ 77 $ 139 $ 200 $ 41 $ 27 $ 47
Money Market Portfolio......................................... $ 45 $ 92 $ 82 $ 160 $ 138 $ 158
</TABLE>
- ------------------------
* Not in operation during such period.
THE SUB-ADVISER
Wellington Management Company, LLP ("Wellington Management") serves as
investment sub-adviser to the OVB Prime Obligations Portfolio pursuant to a
sub-advisory agreement by and among Wellington Management, One Valley and the
Trust (the "Sub-Advisory Agreement"). Pursuant to the Sub-Advisory Agreement,
Wellington Management is entitled to receive .75% of the Portfolio's first $500
million average daily net assets and .20% on the Portfolio's average daily net
assets over $500 million.
For the fiscal years ended January 31, 1995, January 31, 1996 and January 31,
1997, the Portfolio paid the Sub-Adviser the following sub-advisory fees:
<TABLE>
<CAPTION>
FEES PAID (000) FEE WAIVERS (000)
------------------------------- -------------------------------
PORTFOLIO 1995 1996 1997 1995 1996 1997
- --------------------------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Money Market Portfolio......................................... $ 61 $ 69 $ 72 $ 0 $ 0 $ 0
</TABLE>
THE ADMINISTRATOR
SEI Fund Resources (the "Administrator") serves as administrator to the Trust
pursuant to an Administration Agreement (the "Administration Agreement"). The
Administration Agreement provides that the
S-14
<PAGE>
Administrator shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Trust 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 shall remain in effect for five years and
thereafter shall continue in effect for successive two-year periods subject to
annual review by the Trustees.
The Administrator, a Delaware business trust, has its principal business offices
at Oaks, Pennsylvania 19456. SEI Financial Management Corporation ("SFM"), a
wholly-owned subsidiary of SEI Investments Company ("SEI"), is the owner of all
beneficial interest in the Administrator. SEI 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 to the
following other mutual funds: The Achievement Funds Trust, The Advisors' Inner
Circle Fund, ARK Funds, Bishop Street Funds, CoreFunds, Inc., CrestFunds, Inc.,
CUFUND, FMB Funds, Inc., First American Funds, Inc., First American Investment
Funds, Inc., First American Strategy Funds, Inc., HighMark Funds, Marquis
Funds-Registered Trademark-, Monitor Funds, Morgan Grenfell Investment Trust,
The PBHG Funds, Inc., The Pillar Funds, Profit Funds Investment Trust, Rembrandt
Funds-Registered Trademark-, Santa Barbara Group of Mutual Funds, Inc., 1784
Funds-Registered Trademark-, SEI Asset Allocation Trust, SEI Daily Income Trust,
SEI Index Funds, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI International Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust,
Stepstone Funds, STI Classic Funds, STI Classic Variable Trust, and Turner
Funds.
For the fiscal years ended January 31, 1995, January 31, 1996 and January 31,
1997, the Portfolios paid the following administrative fees:
<TABLE>
<CAPTION>
FEES PAID (000) FEE WAIVERS (000)
------------------------------- -------------------------------
PORTFOLIO 1995 1996 1997 1995 1996 1997
- --------------------------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Equity Income Portfolio........................................ * * $ 33 * * $ 0
Capital Appreciation Portfolio................................. $ 130 $ 181 $ 209 $ 0 $ 0 $ 0
Emerging Growth Portfolio...................................... $ 100 $ 100 $ 113 $ 0 $ 0 $ 0
Government Portfolio........................................... $ 100 $ 118 $ 114 $ 0 $ 0 $ 0
West Virginia Portfolio........................................ $ 53 $ 74 $ 110 $ 47 $ 26 $ 0
Money Market Portfolio......................................... $ 163 $ 184 $ 192 $ 0 $ 0 $ 0
</TABLE>
- ------------------------
* Not in operation during such period.
THE DISTRIBUTOR
SEI Financial Services Company serves as distributor to the Trust pursuant to a
distribution agreement (the "Distribution Agreement") which applies to both
Class A and Class B shares of the Portfolios. The Distribution Agreement shall
be reviewed and ratified at least annually (i) by the Trust's Trustees or by the
vote of a majority of the outstanding shares of the Trust, and (ii) by the vote
of a majority of the Trustees of the Trust who are not parties to the
Distribution Agreement or interested persons (as defined in the 1940 Act) of any
party to the Distribution Agreement, cast in person at a meeting called for the
purpose of voting on such approval. The Distribution Agreement will terminate in
the event of any assignment, as defined in the 1940 Act, and is terminable with
respect to a particular Portfolio on not less than sixty days' notice by the
Trust's Trustees, by vote of a majority of the outstanding shares of such
Portfolio or by the Distributor.
The Trust has adopted a distribution plan for the Class B shares of each
Portfolio (the "Class B Plan") in accordance with the provisions of Rule 12b-1
under the 1940 Act, which regulates circumstances under which an investment
company may directly or indirectly bear expenses relating to the distribution of
its shares. Continuance of the Class B Plan must be approved annually by a
majority of the Trustees of the
S-15
<PAGE>
Trust and by a majority of the Trustees who are not "interested persons" of the
Trust or SEI Financial Services, as that term is defined in the 1940 Act
("Disinterested Trustees"). The Class B Plan requires that quarterly written
reports of amounts spent under the Plan and the purposes of such expenditures be
furnished to and reviewed by the Trustees. In accordance with Rule 12b-1 under
the 1940 Act, the Class B Plan may be terminated with respect to any Portfolio
by a vote of a majority of the Disinterested Trustees, or by a vote of a
majority of the outstanding shares of that Portfolio. The Class B Plan may be
amended by vote of the Trust's Board of Trustees, including a majority of the
Disinterested Trustees, cast in person at a meeting called for such purpose,
except that any change that would effect a material increase in any distribution
fee with respect to a Portfolio requires the approval of that Portfolio's
shareholders.
The Class B Distribution Plan provides that the Class B shares of each Portfolio
will pay the Distributor a fee of .25% of its average daily net assets which the
Distributor can use to compensate broker/dealers and service providers,
including the Adviser and its affiliates which provide administrative and/or
distribution services to the Class B Shareholders or their customers who
beneficially own Class B Shares.
For the fiscal years ended January 31, 1995, January 31, 1996 and January 31,
1997, the Class B Portfolios paid the Distributor the following distribution
fees:
<TABLE>
<CAPTION>
DISTRIBUTION FEES PAID
-------------------------------
PORTFOLIO 1995 1996 1997
- ------------------------------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Equity Income Portfolio............................................................. * * $ 1,020
Capital Appreciation Portfolio...................................................... $ 919 $ 2,530 $ 8,170
Emerging Growth Portfolio........................................................... $ 1,644 $ 3,638 $ 8,232
Government Portfolio................................................................ $ 958 $ 1,181 $ 4,017
West Virginia Portfolio............................................................. $ 4,335 $ 7,842 $ 12,693
Money Market Portfolio.............................................................. $ 889 $ 5,967 $ 17,317
</TABLE>
- ------------------------
* Not in operation during such period.
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 Trustees and Executive Officers
of the Trust, their respective dates of birth, and their principal occupations
for the last five years are set forth below. Each may have held other positions
with the named companies during that period. Unless otherwise noted, the
business address of each Trustee and each Executive Officer is SEI Investments
Company, Oaks, Pennsylvania 19456. Certain officers of the Trust also serve as
officers of some or all of the following: The Achievement Funds Trust, The
Advisors' Inner Circle Fund, ARK Funds, Bishop Street Funds, CoreFunds, Inc.,
CrestFunds, Inc., CUFUND, FMB Funds, Inc., First American Funds, Inc., First
American Investment Funds, Inc., First American Strategy Funds, Inc, HighMark
Funds, Marquis Funds-Registered Trademark-, Monitor Funds, Morgan Grenfell
Investment Trust, The PBHG Funds, Inc., The Pillar Funds, Profit Funds
Investment Trust, Rembrandt Funds-Registered Trademark-, Santa Barbara Group of
Mutual Funds, Inc., 1784 Funds-Registered Trademark-, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI International Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, Stepstone Funds, STI Classic Funds, STI
Classic Variable Trust and Turner Funds, each of which is an open-end management
investment company managed by SEI Fund Resources or its affiliates and, except
for Profit Funds Investment Trust, Rembrandt Funds-Registered Trademark-, and
Santa Barbara Group of Mutual Funds, Inc., are distributed by SEI Financial
Services Company.
ROBERT A. NESHER (DOB 08/17/46)--Chairman of the Board of Trustees*--Retired
since 1994. Executive Vice President of SEI, 1986-1994. Director and Executive
Vice President of the Administrator and the Distributor, 1981-1994. Trustee of
the Arbor Fund, Marquis Funds-Registered Trademark-, Advisors' Inner Circle
Fund, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Managed Trust, SEI
S-16
<PAGE>
International Trust, SEI Institutional Investments Trust, SEI Liquid Asset
Trust, SEI Tax Exempt Trust, Insurance Investment Products Trust, 1784
Funds-Registered Trademark-, Pillar Funds, Rembrandt
Funds-Registered Trademark-, and Stepstone Funds.
JOHN T. COONEY (DOB 01/20/27)--Trustee**--569 N. Post Oak Lane, Houston, TX
77024. Retired since 1992. Formerly Vice Chairman of Ameritrust Texas N.A.,
1989-1992, and MTrust Corp., 1985-1989. Trustee of the Arbor Fund, Marquis
Funds-Registered Trademark-, and Advisors' Inner Circle Fund.
WILLIAM M. DORAN (DOB 05/26/40)--Trustee*--2000 One Logan Square, Philadelphia,
PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the Trust,
Administrator and Distributor, Director and Secretary of SEI. Trustee of the
Arbor Fund, SEI Liquid Asset Trust, SEI Tax Exempt Trust, SEI Daily Income
Trust, SEI Index Funds, SEI Institutional Managed Trust, SEI International
Trust, SEI Asset Allocation Trust, SEI Institutional Investments Trust,
Insurance Investment Products Trust, The Advisors' Inner Circle Fund, and
Marquis Funds-Registered Trademark-.
FRANK E. MORRIS (DOB 12/30/23)--Trustee**--105 Walpole Street, Dover, MA 02030.
Retired since 1990. Peter Drucker Professor of Management, Boston College,
1989-1990. President, Federal Reserve Bank of Boston, 1968-1988. Trustee of The
Arbor Fund, Marquis Funds-Registered Trademark-, Advisors' Inner Circle Fund,
SEI Liquid Asset Trust, SEI Tax Exempt Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Managed Trust, SEI International Trust, Insurance
Investment Products Trust, SEI Asset Allocation Trust and SEI Institutional
Investments Trust.
ROBERT A. PATTERSON (DOB 11/05/27)--Trustee**--208 Old Main, University Park, PA
16802. Pennsylvania State University, Senior Vice President, Treasurer
(Emeritus). Financial and Investment Consultant, Professor of Transportation
(1984-present). Vice President-Investments, Treasurer, Senior Vice President
(Emeritus) (1982-1984). Director, Pennsylvania Research Corp.; Member and
Treasurer, Board of Trustees of Grove City College. Trustee of the Arbor Fund,
Marquis Funds-Registered Trademark-, and Advisors' Inner Circle Fund.
GENE PETERS (DOB 06/03/29)--Trustee**--943 Oblong Road, Williamstown, MA 01267.
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 Arbor Fund, Marquis
Funds-Registered Trademark- and Advisors' Inner Circle Fund.
JAMES M. STOREY (DOB 04/12/31)--Trustee**--Partner, Dechert Price & Rhoads, from
September 1987 - December 1993; Trustee of the Arbor Fund, Marquis
Funds-Registered Trademark-, Advisors' Inner Circle Fund, SEI Liquid Asset
Trust, SEI Tax Exempt Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Managed Trust, SEI International Trust, Insurance Investment
Products Trust, SEI Asset Allocation Trust, and SEI Institutional Investments
Trust.
DAVID G. LEE (DOB 04/16/52)--President and Chief Executive Officer--Senior Vice
President of the Administrator and Distributor since 1993. Vice President of the
Administrator and Distributor, 1991-1993. President, GW Sierra Trust Funds
before 1991.
SANDRA K. ORLOW (DOB 10/18/53)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of the Administrator and Distributor since
1988.
KEVIN P. ROBINS (DOB 04/15/61)--Vice President and Assistant Secretary--Senior
Vice President, General Counsel and Assistant Secretary of SEI, Senior Vice
President, General Counsel and Secretary of the Administrator and Distributor
since 1994. Vice President and Assistant Secretary of SEI, the Administrator and
Distributor, 1992-1994. Associate, Morgan, Lewis & Bockius LLP (law firm),
1988-1992.
RICHARD W. GRANT (DOB 10/25/45)--Secretary--2000 One Logan Square, Philadelphia,
PA 19103, Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the Trust,
Administrator and Distributor.
S-17
<PAGE>
KATHRYN L. STANTON (DOB 11/19/58)--Vice President and Assistant Secretary,
Deputy General Counsel of SEI, Vice President and Assistant Secretary of the
Administrator and Distributor since 1994. Associate, Morgan, Lewis & Bockius LLP
(law firm), 1989-1994.
JOSEPH P. LYDON (DOB 09/27/59)--Vice President and Assistant
Secretary--Director, Business Administration of Fund Resources, April 1995. Vice
President, Fund Group, Dremen Value Management, LP, President Dremen Financial
Services, Inc. prior to 1995.
STEPHEN G. MEYER (DOB 07/12/65)--Controller, Chief Financial Officer--Vice
President and Controller of SEI Fund Resources since 1995. Director, Internal
Audit and Risk Management, SEI Corporation, 1992-1995. Senior Associate, Coopers
and Lybrand, 1990-1992.
TODD B. CIPPERMAN (DOB 01/14/66)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of SEI, the Administrator and the Distributor
since 1995. Associate, Dewey Ballantine (law firm) (1994-1995). Associate,
Winston & Strawn (law firm) (1991-1994).
BARBARA A. NUGENT (DOB 06/18/56)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1996. Associate, Drinker Biddle & Reath (law firm) (1994-1996). Assistant
Vice President/Administration, Delaware Service Company, Inc. (1992-1993);
Assistant Vice President - Operations of Delaware Service Company, Inc.
(1988-1992).
MARC H. CAHN (DOB 06/19/57)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1996. Associate General Counsel, Barclays Bank PLC (1995-1996). ERISA
counsel, First Fidelity Bancorporation (1994-1995), Associate, Morgan, Lewis &
Bockius LLP (1989-1994).
- ------------------------
* Messrs. Nesher and Doran are Trustees who may be deemed to be "interested"
persons of the Trust as the term is defined in the 1940 Act.
** Messrs. Cooney, Morris, Patterson, Peters and Storey serve on the Audit
Committee of the Trust.
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. For the
fiscal year ended January 31, 1997, the Trust paid the unaffiliated Trustees
aggregate fees of approximately $63,860.
<TABLE>
<CAPTION>
TOTAL COMPENSATION
PENSION OR FROM REGISTRANT
RETIREMENT ESTIMATED AND FUND COMPLEX
AGGREGATE BENEFITS ANNUAL PAID TO TRUSTEES
COMPENSATION ACCRUED BENEFITS FOR THE FISCAL
FROM AS PART OF UPON YEAR ENDED JANUARY
NAME OF PERSON, POSITION REGISTRANT FUND EXPENSES RETIREMENT 31, 1997(1)
- -------------------------------------------------- ------------- -------------- ---------- ------------------
<S> <C> <C> <C> <C>
John T. Cooney, Trustee........................... $ 12,772 N/A N/A $ 12,772
Frank E. Morris, Trustee.......................... $ 12,772 N/A N/A $ 12,772
Robert A. Patterson, Trustee...................... $ 12,772 N/A N/A $ 12,772
Gene Peters, Trustee.............................. $ 12,772 N/A N/A $ 12,772
James M. Storey, Trustee.......................... $ 12,772 N/A N/A $ 12,772
William M. Doran, Trustee*........................ $ 0 N/A N/A $ 0
Robert A. Nesher, Trustee*........................ $ 0 N/A N/A $ 0
</TABLE>
- ------------------------
(1) Total Compensation for service on one board.
* A Trustee who is an "interested person" as defined in the 1940 Act.
S-18
<PAGE>
COMPUTATION OF YIELD
MONEY MARKET PORTFOLIO--From time to time the Money Market Portfolio may
advertise its "current yield" and "effective yield." Both yield figures are
based on historical earnings and are not intended to indicate future
performance. The "yield" of the Portfolio refers to the income generated by an
investment in the Portfolio over a stated seven-day period. This income is then
"annualized," that is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment.
The current yield of the Money Market Portfolio will be calculated daily based
upon the seven days ending on the date of calculation ("base period"). The yield
is computed by determining the net change (exclusive of capital changes) in the
value of a hypothetical pre-existing shareholder account having a balance of one
share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing such net change by
the value of the account at the beginning of the some 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 Portfolio 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, according to the following formula:
(365/7)
Effective Yield = [(Base Period Return + 1) ] - 1.
The current and the effective yields reflect the reinvestment of net income
earned daily on portfolio assets.
The yield of the Money Market Portfolio fluctuates, and the annualization of a
week's dividend is not a representation by the Trust as to what an investment in
the Portfolio will actually yield in the future. Actual yields will depend on
such variables as asset quality, average asset maturity, the type of instruments
the Portfolio invests in, changes in interest rates on money market instruments,
changes in the expenses of the Portfolio and other factors.
Yields are one basis upon which investors may compare the Money Market Portfolio
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.
For the seven-day period ended January 31, 1997, the Money Market Portfolio had
a current yield of 5.02% and an effective yield of 5.14% for Class A and a
current yield of 4.77% and an effective yield of 4.88% for Class B.
EQUITY INCOME, CAPITAL APPRECIATION, EMERGING GROWTH, GOVERNMENT AND WEST
VIRGINIA PORTFOLIOS--These Portfolios may advertise a 30-day yield. These
figures will be based on historical earnings and are not intended to indicate
future performance. The yield of a Portfolio refers to the annualized income
generated by an investment in the Portfolio over a specified 30-day period. The
yield is calculated by assuming that the income generated by the investment
during that 30-day period is generated over one
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year and is shown as a percentage of the investment. In particular, yield will
be calculated according to the following formula:
(6)
Yield = 2([(a-b)/(cd) + 1] - 1)
<TABLE>
<S> <C> <C> <C>
where a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursement)
c = the current daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period.
</TABLE>
For the 30-day period ended January 31, 1997, the Class A Portfolios' yields
were 2.94% for the Equity Income Portfolio, (0.23)% for the Capital Appreciation
Portfolio, (1.05)% for the Emerging Growth Portfolio, 5.99% for the Government
Portfolio and 4.91% for the West Virginia Portfolio.
For the same 30-day period, the Class B Portfolios' yields were 2.70% for the
Equity Income Portfolio, (0.45)% for the Capital Appreciation Portfolio, (1.30)%
for the Emerging Growth Portfolio, 5.73% for the Government Portfolio and 4.66%
for the West Virginia Portfolio.
The West Virginia Portfolio may also advertise a "tax-equivalent yield," which
is 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
Portfolio's yield, assuming certain tax brackets for a shareholder. The
tax-equivalent yield of the Portfolio will be calculated by adding (a) the
portion of the Portfolio's yield that is not tax-exempt and (b) the result
obtained by dividing the portion of the Portfolio's yield that is tax-exempt by
the difference of one minus a stated income tax rate.
For the 30-day period ended January 31, 1997, the West Virginia Portfolio's
tax-equivalent yield was 9.11% for Class A and 8.65% for Class B.
CALCULATION OF TOTAL RETURN
From time to time, the Equity Income, Capital Appreciation, Emerging Growth,
Government and West Virginia Portfolios may advertise total return. The total
return of a Portfolio refers to the average compounded rate of return to a
hypothetical investment for designated time periods (including but not limited
to, the period from which the Portfolio commenced operations through the
specified date), assuming that the entire investment is redeemed at the end of
each period. In particular, total return will be calculated according to the
following formula:
(n)
P (1 + T) = ERV
<TABLE>
<S> <C> <C> <C>
where P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
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.
</TABLE>
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<PAGE>
Based on the foregoing, the average annual total return for the Portfolios from
inception through January 31, 1997 and for the one, five and ten year periods
ended January 31, 1997 were as follows:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------------------
SINCE
PORTFOLIO CLASS ONE YEAR FIVE YEAR TEN YEAR INCEPTION
- ---------------------------------------- ----------------------- ----------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Equity Income Portfolio................. Class A N/A N/A N/A 29.83
Class B (with 12b-1) N/A N/A N/A 29.82
Capital Appreciation Portfolio.......... Class A 22.06 N/A N/A 17.26
Class B (with 12b-1) 21.81 N/A N/A 16.24
Emerging Growth Portfolio............... Class A 9.30 N/A N/A 7.28
Class B (with 12b-1) 9.09 N/A N/A 7.54
Government Portfolio.................... Class A 1.83 N/A N/A 4.94
Class B (with 12b-1) 1.69 N/A N/A 4.72
West Virginia Portfolio................. Class A 3.35 N/A N/A 4.87
Class B (with 12b-1) 3.19 N/A N/A 4.38
Money Market Portfolio.................. Class A 5.11 N/A N/A 4.86
Class B (with 12b-1) 4.85 N/A N/A 4.73
</TABLE>
PURCHASE AND REDEMPTION OF SHARES
Each Portfolio intends to pay cash for all shares redeemed, but under abnormal
conditions that make payment in cash unwise, payment may be made wholly or
partly in portfolio securities with a market value equal to the redemption
price. In such cases, an investor may incur brokerage costs in converting such
securities to cash.
It is currently the Trust's policy to pay for all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the Portfolios
in lieu of cash. Shareholders may incur brokerage charges on the sale of any
such securities so received in payment of redemptions. However, a shareholder
will at all times be entitled to aggregate cash redemptions from all Portfolios
of the Trust during any 90-day period of up to the lesser of $250,000 or 1% of
the Trust's net assets.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of
disposal or valuation of the Portfolio's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Trust also reserves the right to suspend sales of shares of the Portfolio for
any period during which the New York Stock Exchange, the Adviser, the
Administrator and/or the Custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
MONEY MARKET PORTFOLIO--The net asset value per share of the Money Market
Portfolio is calculated by adding the value of securities and other assets,
subtracting liabilities and dividing by the number of outstanding shares.
Securities will be valued by the amortized cost method, which involves valuing a
security at its cost on the date of purchase and thereafter (absent unusual
circumstances) assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuations in general market rates of
interest on the value of the instrument. While this method provides certainty in
valuation, it may result in periods during which a security's value, as
determined by this method, is higher or lower than the price the Portfolio would
receive if it sold the instrument. During periods of declining interest rates,
the daily yield of the Portfolio may tend to be higher than a like computation
made by a company with identical investments utilizing a method of valuation
based upon market prices and estimates of market prices for all of its portfolio
securities. Thus, if the use of amortized cost by the
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<PAGE>
Portfolio resulted in a lower aggregate portfolio value on a particular day, a
prospective investor in the Portfolio would be able to obtain a somewhat higher
yield than would result from investment in a company utilizing solely market
values, and existing investors in the Portfolio would experience a lower yield.
The converse would apply in a period of rising interest rates.
The Money Market Portfolio's use of amortized cost and the maintenance of the
Portfolio's net asset value at $1.00 are permitted by regulations promulgated by
Rule 2a-7 under the 1940 Act, provided that certain conditions are met. The
regulations also require the Trustees to establish procedures which are
reasonably designed to stabilize the net asset value per share at $1.00 for the
Portfolio. Such procedures include the determination of the extent of deviation,
if any, of the Portfolio's current net asset value per share calculated using
available market quotations from the Portfolio's amortized cost price per share
at such intervals as the Trustees deem appropriate and reasonable in light of
market conditions and periodic reviews of the amount of the deviation and the
methods used to calculate such deviation. In the event that such deviation
exceeds 0.5%, the Trustees are required to consider promptly what action, if
any, should be initiated, and, if the Trustees believe that the extent of any
deviation may result in material dilution or other unfair results to
shareholders, the Trustees are required to take such corrective action as they
deem appropriate to eliminate or reduce such dilution or unfair results to the
extent reasonably practicable. Such actions may include: the sale of portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity; withholding dividends; redeeming shares in kind; or
establishing a net asset value per share by using available market quotations.
In addition, if the Portfolio incurs a significant loss or liability, the
Trustees have the authority to reduce pro rata the number of shares of the
Portfolio in each shareholder's account and to offset each shareholder's pro
rata portion of such loss or liability from the shareholder's accrued but unpaid
dividends or from future dividends while each other Portfolio must annually
distribute at least 90% of its investment company taxable income.
EQUITY INCOME, CAPITAL APPRECIATION, EMERGING GROWTH, GOVERNMENT AND WEST
VIRGINIA PORTFOLIOS--The securities of these Portfolios are valued by the
Administrator pursuant to valuations provided by independent pricing services.
The pricing services rely primarily on prices of actual market transactions as
well as trader quotations. However, a service may also use a matrix system to
determine valuations of fixed income securities, which system considers such
factors as security prices, yields, maturities, call features, ratings and
developments relating to specific securities in arriving at valuations. The
procedures of a pricing service and its valuations are reviewed by the officers
of the Trust under the general supervision of the Trustees.
TAXES
The information set forth in the Prospectus and the following is only a summary
of certain tax considerations generally affecting a Portfolio and its
shareholders, and is not intended as a substitute for careful tax planning. No
attempt has been made to present a detailed explanation of the income tax
treatment of any Portfolio or its shareholders. Shareholders and potential
purchasers of shares are urged to consult their tax advisors with specific
reference to their own tax situations, including their state and local tax
liabilities.
ALL PORTFOLIOS
The following 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, certain 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.
Shareholders will be advised annually as to certain federal income tax
consequences of distributions made during the year.
It is the policy of each of the Trust's Portfolios to qualify for the favorable
tax treatment accorded regulated investment companies under Subchapter M of the
Code. By following such policy, each of the Trust's
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<PAGE>
Portfolios expects to eliminate or reduce to a nominal amount the federal income
taxes to which such Portfolio may be subject.
In order to qualify as a regulated investment company each Portfolio must, among
other things, (1) derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock, securities or foreign currencies; or
other income (including gains from options, futures or forward contracts)
derived with respect to its business of investing in stock, securities or
currencies; (2) derive less than 30% of its gross income each taxable year from
the sale or other disposition of certain assets held for less than three months
(the "Short-Short Limitation"), including stock and securities; options, futures
or forward contracts (other than on foreign currencies); or foreign currencies
(including options, futures or forward contracts) if not directly related to the
Portfolio's principal business of investing in stocks and securities; and (3)
diversify its holdings so that at the end of each quarter of each taxable year
(i) at least 50% of the market value of the Portfolio's total assets is
represented by cash or cash items, United States Government securities,
securities of other regulated investment companies, and other securities
limited, in respect of any one issuer, to a value not greater than 5% of the
value of the Portfolio's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than United States
Government securities or securities of any other regulated investment company)
or of two or more issuers that the Portfolio controls and that are engaged in
the same, similar, or related trades or businesses. These requirements may
restrict the degree to which the Portfolios may engage in short-term trading and
in certain hedging transactions and may limit the range of the Portfolio's
investments. If a Portfolio qualifies as a regulated investment company, it will
not be subject to federal income tax on the part of its net investment income
and net realized capital gains, if any, which it distributes each year to
shareholders, provided the Portfolio distributes at least (a) 90% of its
"investment company taxable income" (generally, net investment income plus net
short-term capital gain) and (b) 90% of its net interest exempt income (the
excess of (i) its tax-exempt interest income over (ii) certain deductions
attributable to that income).
If for any taxable year a Portfolio does not qualify for the special tax
treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporated tax rates without
any deduction for distributions to its shareholders and all such distributions
will be taxable to shareholders as ordinary dividends to the extent of the
Portfolio's current and accumulated earnings and profits. Such distributions
generally will be eligible for the 70% dividend received deduction for corporate
shareholders.
A Portfolio will be subject to a nondeductible 4% federal excise tax to the
extent that it fails to distribute in a calendar year at least the sum of 98% of
its ordinary income for the year and 98% of its capital gain net income (the
excess of short and long term capital gain over short and long term capital
losses) for the one-year period ending October 31 of the year (and any retained
amount from the prior calendar year).
Distributions declared in October, November, or December to shareholders of
record during those months and paid during the following January are treated as
if they were received by each shareholder on December 31 of the prior year for
tax purposes.
In certain cases, a Portfolio will be required to withhold and remit to the U.S.
Treasury, 31% of any taxable dividends, capital gain distributions and
redemption proceeds (other than from redemption of shares of the Money Market
Portfolio) paid to an individual or certain other non-corporate shareholder (1)
who has failed to provide a correct taxpayer identification number, (2) who is
subject to backup withholding by the Internal Revenue Service, or (3) who has
not certified to the Portfolio that such shareholder is not subject to backup
withholding. This backup withholding is not an additional tax, and any amounts
withheld may be credited against the shareholder's ultimate U.S. tax liability.
A Portfolio's transactions in certain futures contracts, options, forward
contracts, foreign currencies, foreign debt securities, and certain other
investment and hedging activities will be subject to special tax
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<PAGE>
rules. In a given case, these rules may accelerate income to the Portfolio,
defer losses to the Portfolio, cause adjustments in the holding periods of the
Portfolio's assets, convert short-term capital losses into long-term capital
losses, or otherwise affect the character of the Portfolio's income. These rules
could therefore affect the amount, timing, and character of distributions to
shareholders. Each Portfolio will endeavor to make any available elections
pertaining to such transactions in a manner believed to be in the best interest
of the Portfolio.
Income from the disposition of options and futures contracts will be subject to
the Short-Short Limitation if they were held for less than three months. If a
Portfolio satisfies certain requirements, then any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Portfolio satisfies
the Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. To the
extent this treatment is not available, the Portfolio may be forced to defer the
closing out of certain options and futures contracts beyond the time when it
otherwise would be advantageous to do so.
Generally, gain or loss on the sale or exchange of a Share will be capital gain
or loss which will be long-term if the Share has been held for more than one
year and otherwise will be short-term. 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 Portfolio with respect to such
Share are included in determining the shareholder's long-term capital gains),
the shareholder must treat the loss as a long-term capital loss to the extent of
the amount of the prior capital gains distribution (or any undistributed net
capital gains of a Portfolio which 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). Investors should particularly note that this loss
disallowance rule will apply to Shares received through the reinvestment of
dividends during the 61-day period.
ADDITIONAL INFORMATION FOR ALL PORTFOLIOS CONCERNING STATE TAXES
A Portfolio is not liable for any income or franchise tax in Massachusetts if it
qualifies as a regulated investment company for federal income tax purposes.
Distributions by the Portfolios to shareholders and the ownership of shares may
be subject to state and local taxes. Therefore, shareholders are urged to
consult with their tax advisors concerning the application of state and local
taxes to investments in the Portfolios, which may differ from the federal income
tax consequences. For example, under certain specified circumstances, state
income tax laws MAY exempt from taxation distributions of a regulated investment
company to the extent that such distributions are derived from interest on
federal obligations. SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR TAX ADVISORS
REGARDING WHETHER, AND UNDER WHAT CONDITIONS SUCH EXEMPTION IS AVAILABLE.
ADDITIONAL TAX INFORMATION CONCERNING THE WEST VIRGINIA PORTFOLIO
As indicated in the Prospectus, the West Virginia Portfolio is designed to
provide shareholders with interest income exempt from federal income tax and is
not intended to constitute a balanced investment program. Certain recipients of
Social Security and railroad retirement benefits may be required to take into
account income from the West Virginia Portfolio in determining the taxability of
their benefits. In addition, the West Virginia Portfolio may not be an
appropriate investment for shareholders that are "substantial users" or persons
related to such users of facilities financed by private activity bonds or
industrial revenue bonds. A "substantial user" is defined generally to include
certain persons who regularly use a facility in their trade or business. All
shareholders should consult their tax advisors to determine the
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<PAGE>
potential effect of investing in the West Virginia Portfolio, if any, on their
liability for federal, state, and local taxes.
If, at the close of each quarter of its taxable year, at least 50% of the value
of a Portfolio's total assets consists of securities the interest on which is
excludable from gross income, the Portfolio may pay "exempt-interest dividends"
to its shareholders. The policy of the West Virginia Portfolio is to pay each
year as dividends substantially all of its interest income, net of certain
deductions. An exempt-interest dividend is any dividend or part thereof (other
than a capital gain dividend) paid by the West Virginia Portfolio, and
designated by the Portfolio as an exempt-interest dividend in a written notice
mailed to shareholders within 60 days after the close of such Portfolio's
taxable year. However, aggregate exempt-interest dividends for the taxable year
may not exceed the net interest from Municipal Securities and other securities
exempt from the regular federal income tax received by the Portfolio during the
taxable year. The percentage of the total dividends paid for any taxable year
which qualifies as federal exempt-interest dividends will be the same for all
shareholders receiving dividends from the West Virginia Portfolio during such
year, regardless of the period for which the shares were held.
Exempt-interest dividends may nevertheless be subject to the alternative minimum
tax (the "Alternative Minimum Tax") imposed by section 55 of the Code or the
environmental tax (the "Environmental Tax") imposed by Section 59A of the Code.
The Environmental Tax is imposed at the rate of 0.12% and applies only to
corporate taxpayers. The Alternative Minimum Tax and the Environmental Tax may
be imposed in two circumstances. First, exempt-interest dividends derived from
certain "private activity bonds" issued after August 7, 1986, will generally be
an item of tax preference (and therefore potentially subject to the Alternative
Minimum Tax and the Environmental Tax) for both corporate and non-corporate
taxpayers. Second, in the case of exempt-interest dividends received by
corporate shareholders, all exempt-interest dividends, regardless of when the
bonds from which they are derived were issued or whether they were derived from
private activity bonds, will be included in the corporation's "adjusted current
earnings," as defined in section 56(g) of the Code, in calculating the
corporation's alternative minimum taxable income for purposes of determining the
Alternative Minimum Tax and the Environmental Tax.
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 the 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.
Issuers of bonds purchased by the West Virginia Portfolio (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 the covenants.
Under the Code, if a shareholder receives an exempt-interest dividend with
respect to any share and such share is held for six months or less, any loss on
the sale or exchange of such share will be disallowed to the extent of the
amount of such exempt-interest dividend.
Any net realized long-term capital gains of the Portfolio will be distributed at
least annually. The Portfolio will have no tax liability with respect to such
gains and the distributions will be taxable to shareholders as long-term capital
gains, regardless of how long a shareholder has held the Portfolio's shares.
Such distributions will be designated as a capital gains dividend in a written
notice mailed to shareholders after the close of the Portfolio's taxable year.
If a shareholder disposes of shares in the Portfolio at a loss before having
held those shares for more than six months, such loss will be treated as a
long-term capital loss to the extent the shareholder has received a long-term
capital gain distribution on the shares.
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Although the West Virginia Portfolio does not expect to earn any investment
company taxable income (as defined by the Code), any income earned on taxable
investments will be distributed and will be taxable to shareholders as ordinary
income. In general, "investment company taxable income" comprises taxable net
investment income and net short-term capital gains. The West Virginia Portfolio
would be taxed on any undistributed investment company taxable income. Since any
such income will be distributed, it is anticipated that no such tax will be paid
by the Portfolio.
As indicated in the Prospectus, the West Virginia Portfolio may acquire puts
with respect to Municipal Securities held in its portfolio. See "Additional
Description Of Permitted Investments -- Puts on Municipal Securities" in this
Statement of Additional Information. The policy of the Portfolio is to limit
acquisitions of puts to those under which an acquiring Portfolio will be treated
for federal income tax purposes as the owner of the Municipal Securities
acquired subject to the put and the interest on the Municipal Securities will be
tax-exempt to such Portfolio. Although the Internal Revenue Service has issued a
published ruling that provides some guidance regarding the tax consequences of
the purchase of puts, there is currently no guidance available from the Internal
Revenue Service that definitively establishes the tax consequences of many of
the types of puts that this Portfolio could acquire under the 1940 Act.
Therefore, although the West Virginia Portfolio will only acquire a put after
concluding that it will have the tax consequences described above, the Internal
Revenue Service could reach a different conclusion. If the West Virginia
Portfolio were not treated as the owner of the Municipal Securities, income from
such securities would probably not be tax-exempt.
Although the West Virginia Portfolio expects to qualify as a regulated
investment company and to be relieved of all or substantially all federal income
taxes, depending upon the extent of its activities in states and localities in
which its offices are maintained, in which its agents or independent contractors
are located, or in which it is otherwise deemed to be conducting business, the
Portfolio may be subject to the tax laws of such states or localities. In
addition, in those states and localities which have income tax laws, the
treatment of the West Virginia Portfolio and its shareholders under such laws
may differ from its treatment under federal income tax laws.
If for any taxable year the West Virginia Portfolio does not qualify for the
special tax treatment afforded regulated investment companies, all of its
taxable income will be subject to federal income tax at regular corporate rates
(without any deduction for distributions to its shareholders). Moreover, upon
distribution to shareholders, the Portfolio's income, including Municipal
Securities interest income, will be taxable to shareholders to the extent of the
Portfolio's current and/or accumulated earnings and profits. For information
regarding the risks of investing in West Virginia Securities, see the
Prospectus.
PORTFOLIO 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 Portfolio. 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 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 Portfolios 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
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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.
TRADING PRACTICES AND BROKERAGE
The Adviser or Sub-Adviser selects brokers or dealers to execute transactions
for the purchase or sale of portfolio securities on the basis of its judgment of
their professional capability to provide the service. The primary consideration
is to have brokers or dealers execute transactions at best price and execution.
Best price and execution refers to many factors, including the price paid or
received for a security, the commission charged, the promptness and reliability
of execution, the confidentiality and placement accorded the order and other
factors affecting the overall benefit obtained by the account on the
transaction. The Trust's determination of what are reasonably competitive rates
is based upon the professional knowledge of its trading department as to rates
paid and charged for similar transactions throughout the securities industry. In
some instances, the Trust pays a minimal share transaction cost when the
transaction presents no difficulty. Some trades are made on a net basis where
the Trust either buys securities directly from the dealer or sells them to the
dealer. In these instances, there is no direct commission charged but there is a
spread (the difference between the buy and sell price), which is the equivalent
of a commission.
The Trust may allocate, out of all commission business generated by all of the
funds and accounts under management by the Adviser, brokerage business to
brokers or dealers who provide brokerage and research services. These research
services include: advice, either directly or through publications or writings,
as to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or sellers
of securities; furnishing of analyses and reports concerning issuers, securities
or industries; providing information on economic factors and trends, assisting
in determining portfolio strategy, providing computer software used in security
analyses, and providing portfolio performance evaluation and technical market
analyses. Such services are used by the Adviser in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used exclusively with respect to the fund
or account generating the brokerage.
As provided in the Securities Exchange Act of 1934, as amended, higher
commissions may be paid to broker/dealers who provide brokerage and research
services than to broker/dealers who do not provide such services if such higher
commissions are deemed reasonable in relation to the value of the brokerage and
research services provided. Although transactions are directed to broker/dealers
who provide such brokerage and research services, the Trust believes that the
commissions paid to such broker/dealers are not, in general, higher than
commissions that would be paid to broker/dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In addition, portfolio transactions which
generate commissions or their equivalent are directed to broker/dealers who
provide daily portfolio pricing services to the Trust. Subject to best price and
execution, commissions used for pricing may or may not be generated by the funds
receiving the pricing service. During the fiscal year ended January 31, 1994, no
Portfolio directed transactions to broker-dealers for research services for
which commissions were paid.
The Adviser may place a combined order for two or more accounts or funds engaged
in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in a
manner deemed equitable to each account or fund. It is believed that the ability
of the accounts to participate in volume transactions will generally be
beneficial to the accounts and funds. Although it is recognized that, in some
cases, the joint execution of orders could adversely affect the price or volume
of the security that a particular account or trust may obtain, it is the opinion
of the Adviser and the Trust's Board of Trustees that the advantages of combined
orders outweigh the possible disadvantages of separate transactions.
S-27
<PAGE>
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, the Portfolio
may place orders with broker/dealers which have agreed to defray certain Trust
expenses such as custodian fees, and may, at the request of the Distributor,
give consideration to sales of shares of the Trust as a factor in the selection
of brokers and dealers to execute Trust portfolio transactions.
It is expected that the Trust may execute brokerage or other agency transactions
through the Distributor or a registered broker/dealer affiliate of the Adviser
for a commission in conformity with the 1940 Act, the Securities Exchange Act of
1934 and rules promulgated by the SEC. Under these provisions, the Distributor
or an affiliate of the Adviser is permitted to receive and retain compensation
for effecting portfolio transactions for the Trust on an exchange if a written
contract is in effect between the Distributor and the Trust expressly permitting
the Distributor or an affiliate of the Adviser to receive and retain such
compensation. These rules further require that commissions paid to the
Distributor or affiliate of the Adviser by the Trust for exchange transactions
not exceed "usual and customary" brokerage commissions. The rules define "usual
and customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time." In addition, the Trust may direct commission business to one or
more designated broker/dealers in connection with such broker/dealer's provision
of services to the Trust or payment of certain Trust expenses (e.g., custody,
pricing and professional fees). The Trustees, including those who are not
"interested persons" of the Trust, have adopted procedures for evaluating the
reasonableness of commissions paid to the Distributor and will review these
procedures periodically.
For the fiscal years ended January 31, 1996 and January 31, 1997, the Portfolios
paid the following brokerage commissions with respect to portfolio transactions:
<TABLE>
<CAPTION>
TOTAL
BROKERAGE
COMMISSIONS
% OF TOTAL BROKERAGE PAID TO
TOTAL $ % OF TOTAL BROKERAGE SFS IN
TOTAL $ AMOUNT OF CONNECTION
AMOUNT OF BROKERAGE TRANSACTIONS WITH
BROKERAGE COMMISSION PAID TO EFFECTED THROUGH REPURCHASE
COMMISSIONS PAID TO AGREEMENT
COMMISSIONS PAID AFFILIATES AFFILIATED BROKERS AFFILIATED BROKERS TRANSACTIONS
-------------------- -------------------- -------------------- -------------------- ---------
PORTFOLIO 1996 1997 1996 1997 1996 1997 1996 1997 1996
- ------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Income
Portfolio............. * 67,698 * 19,910 * 29% * 8% *
Capital Appreciation
Portfolio............. 279,453 218,593 89,877 51,252 32% 23% 32% 10% 1,206
Emerging Growth
Portfolio............. 59,915 61,021 0 N/A 0 N/A 0 N/A 712
Government Securities
Portfolio............. 2,000 N/A 0 N/A 0 N/A 0 N/A 1,314
West Virginia Tax-Exempt
Income Portfolio...... 0 N/A 0 N/A 0 N/A 0 N/A 0
Prime Obligations
Portfolio............. 0 N/A 0 N/A 0 N/A 0 N/A 16,878
<CAPTION>
TOTAL $
AMOUNT OF
BROKERAGE
COMMISSIONS PAID FOR
RESEARCH
--------------------
PORTFOLIO 1997 1996 1997
- ------------------------ --------- --------- ---------
<S> <C> <C> <C>
Equity Income
Portfolio............. 922.75 *
Capital Appreciation
Portfolio............. 1630.67 188,960
Emerging Growth
Portfolio............. 1131.42 17,263
Government Securities
Portfolio............. 694.85 N/A N/A
West Virginia Tax-Exempt
Income Portfolio...... N/A N/A N/A
Prime Obligations
Portfolio............. N/A N/A N/A
</TABLE>
- ------------------------
* Not in operation during such period.
S-28
<PAGE>
For the fiscal year ended January 31, 1995, the Portfolios paid the following
brokerage commissions with respect to portfolio transactions.
<TABLE>
<CAPTION>
TOTAL $ AMOUNT OF TOTAL $ AMOUNT OF
BROKERAGE COMMISSIONS BROKERAGE COMMISSIONS
PAID PAID TO AFFILIATES
PORTFOLIO 1995 1995
- ------------------------------------------------------------------ ---------------------- -----------------------
<S> <C> <C>
Equity Income Portfolio........................................... * *
Capital Appreciation Portfolio.................................... 218,217 0
Emerging Growth Portfolio......................................... 81,507 2,660
Government Securities Portfolio................................... 0 0
West Virginia Tax-Exempt Portfolio................................ 0 0
Prime Obligations Portfolio....................................... 0 0
</TABLE>
- ------------------------
* Not in operation during such period.
"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 amount of the Trust's shares. As of January 31,
1997, the following Portfolios held securities of the Trust's "regular brokers
or dealers" as follows: the Equity Income Portfolio held $440,625 in preferred
stock issued by Merrill Lynch, $350,875 in preferred stock issued by J.P. Morgan
and $2,822,000 in Repurchase agreements issued by Morgan Stanley; the Capital
Appreciation Portfolio held $589,750 in common stock issued by Merrill Lynch and
$1,202,389 in repurchase agreements issued by Lehman Brothers; the Emerging
Growth Portfolio held $752,812 in repurchase agreements issued by Lehman
Brothers; the Government Securities Portfolio held 199,750 in preferred stock
issued by Merrill Lynch and $960,897 in repurchase agreements issued by Lehman
Brothers; and the Prime Obligations Portfolio held $2,994,690 in commercial
paper issued by Bear Stearns and $4,677,000 in repurchase agreements issued by
Lehman Brothers.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the Board of Trustees to issue an unlimited
number of shares of the Portfolios, and to divide or redivide any unissued
shares of the Trust into one or more additional series.
Shares have no subscription or preemptive rights and only such conversion or
exchange rights as the Board of Trustees may grant in its discretion. When
issued for payment as described in the Prospectus and this Statement of
Additional Information, the Trust's shares will be fully paid and
non-assessable, subject only to the possibility of shareholder liability
described in the following section. 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. In the event of a liquidation or dissolution of the Trust,
shareholders of a Portfolio are entitled to receive the assets available for
distribution belonging to that Portfolio, and a proportionate distribution,
based upon the relative asset values of the respective Portfolios, of any
general assets not belonging to any particular Portfolio which are available for
distribution. 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
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 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
S-29
<PAGE>
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% SHAREHOLDERS
As of March 10, 1997, the following persons were the only persons who were
record owners (or to the knowledge of the Trust, beneficial owners) of 5% or
more of the shares of the Portfolios. The Trust believe that most of the shares
referred to below were held by the below persons in account for their fiduciary,
agency or custodial customers.
Money Market Portfolio--Class A: Kaw & Co, P.O. Box 1793, Attn: Securities Cage,
Charleston, WV 25326-1793, 100%.
Money Market Portfolio--Class B: One Valley Bank, P.O. Box 1793, Attn: P.
Taylor, Charleston, WV 25326-1793, 30.93%; Stuart Calwell, 854 Edgewood Drive,
Charleston, WV 25302-2812, 6.02%; Paul G. Taylor, 403 East Rd., Apt. 10,
Martinsburg, WV 25401-4976, 5.45%; One Valley Bank NA TTEE, Daily Valuation
Retirement Accounts, P.O. Box 1793, Charleston, WV 25326-1793, 16.01%.
Capital Appreciation Portfolio--Class A: Kaw & Co, P.O. Box 1793, Attn:
Securities Cage, Charleston, WV 25326-1793, 100%.
Capital Appreciation Portfolio--Class B: Stephan R. Maxwell, Attn: Teresa
Lightner, P.O. Box 1793, Charleston, WV 25326-1793, 7.70%.
Emerging Growth Portfolio--Class A: Kaw & Co, P.O. Box 1793, Attn: Securities
Cage, Charleston, WV 25326-1793, 99.17%.
Government Portfolio--Class A: Kaw & Co, P.O. Box 1793, Attn: Securities Cage,
Charleston, WV 25326-1793, 100%.
Government Portfolio--Class B: SEI Trust Company, Custodian for IRA of Darwin E.
Titchenell, Rt.2, Box 394, Albright, WV 26519-9768, 12.16%; Claudia L. & Jack L.
Workman TTEE. FBO Workman Developments Inc. MPP, c/o Susan Singletary, One
Valley Bank, P.O. Box 1793, Charleston, WV 25326-1793, 10.98%; One Valley Bank
NA TTEE, Daily Valuation Retirement Accounts, P.O. Box 1793, Charleston, WV
25326-1793, 7.91%.
West Virginia Portfolio--Class A: Kaw & Co, P.O. Box 1793, Attn: Securities
Cage, Charleston, WV 25326-1793, 100%.
West Virginia Portfolio--Class B: William A. Rice, Jr. & Ellen Crites Rice
JTTEN, c/o One Valley Bank, Attn: Teresa Lightner, P.O. Box 1793, Charleston, WV
25326-1793, 5.54%; Air Photographics, Inc. c/o One Valley Bank, NA, 400 Foxcraft
Ave., Suite 100, Martinsburg. WV 25401-5316, 6.75%.
S-30
<PAGE>
Equity Income Fund--Class A: Kaw & Co., P.O. Box 1793, Attn: Securities Cage,
Charleston, WV 25326-1793, 100.00%.
Equity Income Fund--Class B: Carson Insurance Agency Inc., P.O. Box 6278,
Charleston, WV 25362-0278, 7.58%; Jerry W. Coyne, 2137 Showers Ln., Martinsburg,
WV 25401-8882, 5.75%.
EXPERTS
The financial statements incorporated by reference into Statement of Additional
Information have been incorporated by reference in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
FINANCIAL STATEMENTS
The audited financial statements of the Portfolios for the fiscal year ended
January 31, 1997, and the Report of Independent Accountants of Price Waterhouse
LLP dated March 14, 1997, relating to the financial statements, including the
financial highlights of the Portfolios are incorporated herein by reference.
S-31
<PAGE>
U.S. GOVERNMENT SECURITIES MONEY FUND
PRIME OBLIGATIONS FUND
Investment Adviser:
CRESTAR ASSET MANAGEMENT COMPANY
The U.S. GOVERNMENT SECURITIES MONEY FUND and the PRIME OBLIGATIONS FUND (the
"Funds") are money market funds that offer a convenient means of investing in
professionally managed diversified portfolios of short-term, high quality
securities to qualified individual or institutional customers who have a Cash
Advantage Portfolio or Liquid Asset Manager account with Crestar Asset
Management Company or Crestar Bank or other institutions having a selling
agreement with the Funds' distributor.
THE SHARES OFFERED HEREBY ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING CRESTAR BANK OR ANY OF ITS AFFILIATES OR
CORRESPONDENTS. THE SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING LOSS OF PRINCIPAL.
AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE UNITED
STATES GOVERNMENT, AND THERE IS NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should know before investing. The Funds are separate series
of The Arbor Fund. Investors are advised to read this Prospectus and retain it
for future reference. A Statement of Additional Information dated June 1, 1997,
has been filed with the Securities and Exchange Commission and is available
without charge by calling 1-800-342-5734. The Statement of Additional
Information is incorporated into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
JUNE 1, 1997
CRE-F-001-04
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
U.S.
Government Prime
ANNUAL OPERATING EXPENSES Securities Obligations
(As a percentage of average net assets) Money Fund Fund
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Advisory Fees (after fee waiver) (1) .07% .07%
12b-1 Fees None None
Other Expenses (after fee waiver) (1) .13% .13%
- -------------------------------------------------------------------------------------------
Total Operating Expenses (after fee waiver) (2) .20% .20%
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
(1) The Adviser and the Administrator have agreed to waive, on a voluntary
basis, portions of their respective fees so that Total Operating Expenses do
not exceed .20%. The Adviser and the Administrator each reserves the right
to terminate its waiver at any time in its sole discretion. Absent such
waivers, Advisory Fees for each Fund would be .20% and Other Expenses
(including Administrator's fees) would be .18%. Advisory Fees and Other
Expenses for the Prime Obligations Fund are restated to reflect current
levels.
(2) Absent the voluntary fee waivers described above, Total Operating Expenses
would be .38% for the U.S. Government Securities Money Fund and the Prime
Obligations Fund. Additional information may be found under "The Adviser"
and "The Administrator and Distributor."
EXAMPLE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 yr. 3 yrs. 5 yrs. 10 yrs.
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2) redemption
at the end of each time period:
U.S. Government Securities Money Fund $ 2 $ 6 $ 11 $ 26
Prime Obligations Fund $ 2 $ 6 $ 11 $ 26
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of the
expense table and example is to assist the investor in understanding the various
costs and expenses that may be directly or indirectly borne by investors in a
Fund. A person who purchases shares through a financial institution may be
charged separate fees by that institution. Additional information may be found
under "The Adviser" and "The Administrator."
2
<PAGE>
FINANCIAL HIGHLIGHTS THE ARBOR FUND
The following information has been audited by Price Waterhouse LLP, the
independent accountants for the Arbor Fund (the "Trust"), as indicated in their
report dated March 14, 1997 on the Trust's financial statements as of January
31, 1997 included in the Trust's Statement of Additional Information under
"Financial Statements." Additional performance information is set forth in the
1997 Annual Report to Shareholders and is available upon request and without
charge by calling 1-800-342-5734. This table should be read in conjunction with
the Trust's financial statements and notes thereto.
For a Share Outstanding Throughout the Periods ended January 31,
<TABLE>
<CAPTION>
NET
DIVIDENDS ASSET
NET ASSET NET TOTAL FROM FROM NET VALUE,
VALUE, INVESTMENT INVESTMENT INVESTMENT TOTAL END OF TOTAL
BEGINNING INCOME OPERATIONS INCOME DISTRIBUTIONS PERIOD RETURN
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES MONEY FUND
1997................................. $1.00 0.05 0.05 (0.05) $1.00 5.29%
1996................................. $1.00 0.06 0.06 (0.06) (0.06) $1.00 5.88%
1995 (1)............................. $1.00 0.03 0.03 (0.03) (0.03) $1.00 4.98%*
PRIME OBLIGATIONS FUND
1997................................. $1.00 0.05 0.05 (0.05) (0.05) $1.00 5.45%
1996 (2)............................. $1.00 0.02 0.02 (0.02) (0.02) $1.00 5.82%*
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIO OF
NET
RATIO OF INVESTMENT
RATIO OF EXPENSES RATIO OF INCOME TO
NET EXPENSES TO AVERAGE NET AVERAGE
ASSETS, TO NET ASSETS INVESTMENT NET ASSETS
END OF AVERAGE (EXCLUDING INCOME TO (EXCLUDING
PERIOD NET FEE AVERAGE FEE
(000) ASSETS WAIVERS) NET ASSETS WAIVERS)
- --------------------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES MONEY FUND
1997................................. $586,731 0.20% 0.37% 5.17% 5.00%
1996................................. $514,870 0.20% 0.37% 5.72% 5.55%
1995 (1)............................. $579,422 0.20%* 0.38%* 4.98%* 4.80%*
PRIME OBLIGATIONS FUND
1997................................. $477,435 0.20% 0.38% 5.33% 5.15%
1996 (2)............................. $382,632 0.20%* 0.40%* 5.61%* 5.41%*
- --------------------------------------- ------------------------------------------------------------
- --------------------------------------- ------------------------------------------------------------
</TABLE>
* Annualized
(1) Commenced operations on August 1, 1994.
(2) Commenced operations on October 25, 1995.
3
<PAGE>
THE FUNDS AND THE TRUST
This Prospectus offers shares of the U.S. Government Securities Money Fund and
the Prime Obligations Fund (the "Funds"), both diversified portfolios. The Funds
are separate investment portfolios of The Arbor Fund (the "Trust"), an open-end
management investment company.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of each Fund is to provide high current income to the
extent consistent with the preservation of capital and the maintenance of
liquidity. Each Fund seeks to maintain a constant net asset value of $1.00 per
share. There is no assurance that either Fund will achieve its investment
objective or be able to maintain a stable net asset value.
Each Fund intends to comply with regulations of the Securities and Exchange
Commission (the "SEC") applicable to money market funds using the amortized cost
method for calculating net asset value. These regulations impose certain
quality, maturity and diversification restraints on each Fund's investments.
Under these regulations, each Fund will invest only in U.S. dollar denominated
securities, will maintain an average maturity on a dollar-weighted basis of 90
days or less, and will acquire only "eligible securities" that present minimal
credit risks and have maturities of 397 days or less.
U.S. GOVERNMENT SECURITIES MONEY FUND
The U.S. Government Securities Money Fund will invest solely in (i) U.S.
Treasury Obligations; (ii) obligations issued or guaranteed as to principal and
interest by agencies or instrumentalities of the U.S. Government; (iii)
repurchase agreements involving any of the foregoing obligations; and (iv)
shares of registered money market funds that invest in the foregoing.
PRIME OBLIGATIONS FUND
The Prime Obligations Fund will invest in: (i) U.S. Treasury Obligations, (ii)
obligations issued or guaranteed as to principal and interest by agencies or
instrumentalities of the U.S. Government; (iii) repurchase agreements involving
any of the foregoing obligations; (iv) commercial paper of U.S. or foreign
issuers; (v) short-term corporate obligations of U.S. or foreign issuers; (vi)
certificates of deposit, time deposits and bankers' acceptances of U.S.
commercial banks, foreign branches of such banks and domestic and foreign
branches of foreign banks; (vii) obligations of foreign governments and their
agencies; (viii) obligations of supranational entities; and (ix) custodial
receipts representing investments in component parts of U.S. Treasury
Obligations. The Fund also may purchase the securities of other registered money
market funds, and may purchase bank investment contracts and guaranteed
investment contracts in aggregate amounts up to 5% of its total assets.
The Fund will invest only in those obligations of U.S. and foreign banks that
meet the following quality standards: (a) investments in the obligations of U.S.
banks (including their foreign branches) are limited to those banks having total
assets in excess of $1 billion and subject to regulation by the U.S. Government,
provided, however, that the Fund may invest in certificates of deposit issued by
banks insured by the Federal Deposit Insurance Corporation ("FDIC") having total
assets of less than $1 billion, if the Fund at no time owns more than an
aggregate of $100,000 in principal and interest obligations (or any higher
principal amount or principal and interest that in the future may be fully
covered by FDIC insurance) of any one such issuer; and (b) investments in
obligations of U.S. or foreign branches of foreign banks are limited to U.S.
dollar denominated obligations of foreign banks that, at the time of investment,
have more than $5 billion (or the equivalent in other currencies) in total
assets and have branches or agencies in the United States; provided further that
these obligations are limited to banks headquartered, in and to those branches
located in, the United Kingdom, France, Germany, Belgium, the Netherlands,
Italy, Switzerland, Denmark, Norway, Sweden, Australia, Japan and Canada. The
Fund's investments in foreign government obligations will be limited to those of
the governments of the foregoing countries and their respective agencies.
4
<PAGE>
GENERAL INVESTMENT POLICIES
Each Fund may borrow money in amounts up to 33 1/3% of total assets for
temporary or emergency purposes; lend portfolio securities or enter into reverse
repurchase agreements, in either case up to 33 1/3% of total assets; purchase
securities subject to standby commitments or puts, or on a when-issued or
delayed delivery basis; and invest up to 10% of net assets in illiquid
securities.
For additional information regarding permitted investments for the Funds, see
"Description of Permitted Investments and Risk Factors" in this Prospectus and
"Description of Permitted Investments" in the Statement of Additional
Information.
INVESTMENT LIMITATIONS AND
FUNDAMENTAL POLICIES
The investment objectives and the following investment limitations are
fundamental policies of each Fund. Fundamental policies cannot be changed with
respect to a Fund without the consent of the holders of a majority of that
Fund's outstanding shares.
A Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agreements
involving such securities) if, as a result, more than 5% of the total assets of
the Fund would be invested in the securities of such issuer; provided, however,
that the Fund may invest up to 25% of its total assets without regard to this
restriction as permitted by applicable law. Money market funds are subject to
special diversification requirements. See "Description of Permitted Investments
and Risk Factors-Restraints on Investments by Money Market Funds."
2. Purchase any securities which would cause more than 25% 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, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities, repurchase agreements
involving such securities and obligations issued by domestic branches of U.S.
banks or U.S. branches of foreign banks subject to the same regulations as U.S.
banks. For purposes of this limitation, supranational entities will be
considered to be a separate industry.
3. Make loans, except that each Fund may (a) purchase or hold debt instruments
in accordance with its investment objective and policies, (b) enter into
repurchase agreements, and (c) engage in securities lending as described in this
Prospectus and in the Statement of Additional Information.
The foregoing percentages will apply at the time of the purchase of a security.
THE ADVISER
Crestar Asset Management Company, formerly Capitoline Investment Services
Incorporated, (the "Adviser") acts as investment adviser to the Funds. The
Adviser sets investment policies, and continuously reviews, supervises and
administers each Fund's investment program. The Adviser discharges its
responsibilities subject to the supervision of, and policies established by, the
Trustees of the Trust.
The Adviser, 919 East Main Street, Richmond, Virginia 23219, was established in
1973. As of January 31, 1997, the Adviser's total assets under management were
approximately $13.4 billion, including approximately $2.7 billion in other open-
end investment companies.
The Adviser is a wholly-owned subsidiary of Crestar Bank, which is a
wholly-owned subsidiary of Crestar Financial Corporation. Crestar Financial
Corporation is a bank holding company operating in the mid-Atlantic region that
had over $22.1 billion in assets as of January 31, 1997.
The Adviser is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .20% of the average daily net assets of the U.S. Government
Securities Money Fund and at an annual rate of
5
<PAGE>
.20% of the average daily net assets of the Prime Obligations Fund. The Adviser
and the Administrator have voluntarily agreed to waive a portion of their
respective fees to the extent necessary so that the total operating expenses of
each Fund do not exceed .20% of its respective average daily net assets. The
Adviser and the Administrator each reserves the right to terminate its voluntary
fee waivers at any time.
For the fiscal year ended January 31, 1997, the U.S. Government Securities Money
Fund and Prime Obligations Fund paid the Adviser an advisory fee of .07% and
.05%, respectively, of its average daily net assets.
The Glass-Steagall Act restricts the securities activities of banks and banks'
affiliates, such as the Adviser, but federal regulatory authorities permit such
banks to provide investment advisory and other services to mutual funds. Should
this position be challenged successfully in court or reversed by legislation,
the Funds might have to make other investment advisory arrangements.
THE ADMINISTRATOR AND DISTRIBUTOR
SEI Fund Resources (the "Administrator"), Oaks, Pennsylvania, 19456, provides
the Funds with administrative services, including fund accounting, all
regulatory reporting, necessary office space, equipment, personnel and
facilities.
The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .08% of the average daily net assets of each of
the Funds. For the fiscal year ended January 31, 1997, the U.S. Government
Securities Money Fund and the Prime Obligations Fund paid the Administrator an
administration fee of .04% and .05%, respectively, of its average daily net
assets.
SEI Financial Services Company (the "Distributor"), Oaks, Pennsylvania 19456, a
wholly-owned subsidiary of SEI Investments Company and an affiliate of the
Administrator, serves as the distributor of each Fund's shares. The Distributor
receives no fee for its services.
THE TRANSFER AGENT AND CUSTODIAN
Crestar Bank, 919 East Main Street, Richmond, Virginia 23219 ("Crestar Bank," or
the "Transfer Agent"), serves as the transfer agent and dividend disbursing
agent for the Funds. The Transfer Agent also acts as the shareholder servicing
agent and custodian of the Funds. As custodian, Crestar Bank holds cash,
securities and other assets of the Funds as required by the Investment Company
Act of 1940, as amended (the "1940 Act").
HOW TO PURCHASE SHARES
Each Fund is offered to qualified individuals or institutional customers that
have a Cash Advantage Portfolio or Liquid Asset Manager account with the Adviser
or Crestar Bank or other institutions having a selling agreement with the
Distributor. Financial institutions that are the record owner of shares for the
account of their customers may impose separate fees for account services to
their customers. An institution may arrange with the Transfer Agent for
sub-accounting services and will be charged directly for the cost of such
services.
Shares of each Fund may be purchased or redeemed on days on which the New York
Stock Exchange and the Federal Reserve wire are open for business ("Business
Days"). Shares of a Fund may not be purchased by wire on federal holidays
restricting wire transfers. The minimum initial investment is $10,000,000,
unless the Shareholder has, in the opinion of a Fund, adequate intent and
availability of funds to reach a future level of investment of $10,000,000.
There is no minimum for subsequent purchases. Each Fund reserves the right to
reject any purchase order. Share certificates will not be issued.
Fund shares may be purchased by contacting an account executive at the
Shareholder's financial institution ("Account Executive") or by calling
1-800-342-5734.
A telephone order will become effective at the price determined at 3:00 p.m.
Eastern time, and the shares purchased will receive the dividend on Fund shares
declared on that day if such order is placed by 3:00 p.m. Eastern time, and
federal funds are
6
<PAGE>
received by the Fund by 4:00 p.m. Eastern time, on that day.
In the case of wire orders, Shareholders whose payments are received in or
converted into federal funds by 3:00 p.m. Eastern time will become effective at
the price determined at 3:00 p.m. Eastern time, and the shares purchased will
receive the dividend declared that day. Shareholders whose payments are received
in or converted into federal funds after 3:00 p.m. Eastern time will begin to
accrue dividends on the following business day.
Initial purchases of Fund shares must be accompanied by an account application
which can be obtained from an Account Executive or by calling 1-800-342-5734.
A purchase order for shares will be executed at a per share price equal to the
net asset value next determined after the purchase order is received and
accepted by a Fund. Net asset value per share is determined as of 3:00 p.m. on
each Business Day, based on the amortized cost method described in the Statement
of Additional Information. The net asset value per share of a Fund is determined
by dividing the total market value of the Fund's investments, using amortized
cost valuations, and other assets, less any liabilities, by the total number of
outstanding shares of the Fund.
HOW TO REDEEM SHARES
Shareholders may redeem their shares without charge on any Business Day by
contacting their Account Executive or by calling 1-800-342-5734. Shares will be
redeemed by wire transfer, if requested, or by check. Shares may not be redeemed
by wire on federal holidays restricting wire transfers.
Shares may be redeemed by telephone unless the Shareholder has elected not to
effect telephone redemptions on the account application. Telephone redemption
orders must be placed prior to 3:00 p.m. Eastern time, on any Business Day in
order to be effective on such day. If transfer by wire is requested and the
order is placed prior to 3:00 p.m. Eastern time, the proceeds of the redemption
ordinarily will be transmitted in federal funds on the same day and the shares
will not receive the dividend declared on that day. If the request is received
later than 3:00 p.m. Eastern time, the shares will receive the dividend on a
Fund's shares declared on that day and the proceeds of redemption, if wire
transfer is requested, ordinarily will be transmitted in federal funds on the
next Business Day.
Each Fund reserves the right to refuse any request made by telephone and may
limit the amount involved or the number of telephone redemptions. This procedure
may be modified or terminated at any time by the Fund.
Purchase and redemption orders may be made by telephone. Neither a Fund nor the
Transfer Agent will be responsible for any loss, liability, cost or expense for
acting upon wire instructions or upon telephone instructions that it reasonably
believes to be genuine. A Fund and the Transfer Agent will each employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine, including requiring a form of personal identification prior to acting
upon instructions received by telephone and recording telephone instructions. If
market conditions are extraordinarily active, or other extraordinary
circumstances exist, Shareholders may wish to consider placing an order by other
means.
OTHER INFORMATION REGARDING REDEMPTIONS
At various times, a Fund may be requested to redeem shares for which it has not
yet received good payment. In such circumstances, proceeds will be forwarded as
soon as payment has been collected for the purchase of such shares, which may
take 10 days or more.
Each Fund reserves the right to redeem, at net asset value, the shares of any
Shareholder if, because of redemptions of shares by or on behalf of the
Shareholder, the account of such Shareholder decreases in value below the
minimum initial purchase amount for the shares. Accordingly, a Shareholder
purchasing shares of a Fund in only the minimum investment amount may be subject
to such involuntary redemption if it thereafter redeems any of these shares.
Before a Fund exercises its right to redeem such shares and to send the proceeds
to the Shareholder, the Shareholder will
7
<PAGE>
be given notice that the value of the shares in its account is less than the
minimum amount and will be allowed 60 days to make an additional investment in
the Fund in an amount which will increase the value of the account to at least
the minimum initial purchase amount.
See "Purchase and Redemption of Shares" in the Statement of Additional
Information for examples of when the right of redemption may be suspended.
The purchase and redemption price is expected to remain constant at $1.00 per
share.
PERFORMANCE
From time to time a Fund may advertise its current yield and effective yield.
Both yield figures are based on historical earnings and are not intended to
indicate future performance. No representation can be made concerning actual
future yields.
The "current yield" of a Fund refers to the income generated by an investment in
the Fund over a stated seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" (also called "effective compound yield") is calculated
similarly but, when annualized, the income earned by an investment in a Fund is
assumed to be reinvested. The effective yield will be slightly higher than the
current yield because of the compounding effect of this assumed reinvestment.
A Fund may periodically compare performance to other mutual funds tracked by
mutual fund rating services (such as Lipper Analytical Services, Inc.), to broad
groups of comparable mutual funds or to unmanaged indices which may assume
investment of dividends but generally do not reflect deductions for account
level fees.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of the Funds or
its Shareholders. Accordingly, Shareholders are urged to consult their tax
advisors regarding specific questions as to federal, state and local income
taxes. State and local tax consequences of an investment in a Fund may differ
from the federal income tax consequences described below. Additional information
concerning taxes is set forth in the Statement of Additional Information.
TAX STATUS OF THE FUNDS
A Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other funds. Each Fund intends to qualify for the
special tax treatment afforded regulated investment companies as defined under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), so
as to be relieved of federal income tax on that part of its net investment
income and net capital gain (the excess of net long-term capital gain over net
short-term capital loss) that it distributes to Shareholders.
TAX STATUS OF DISTRIBUTIONS
Each Fund will distribute all of its net investment income (including, for this
purpose, net short-term capital gains) to Shareholders. Dividends from net
investment company taxable income are taxable to Shareholders as ordinary income
(whether received in cash or in additional shares) and will not qualify for the
corporate dividends-received deduction. Distributions of net capital gains are
taxable to Shareholders as long-term capital gains, regardless of the length of
time a Shareholder has held its shares. Each Fund will provide annual reports to
Shareholders of the federal income tax status of all distributions.
Dividends declared by a Fund in October, November or December of any year and
payable to Shareholders of record on a date in that month will be deemed to have
been paid by the Fund and received by the Shareholders in the year declared if
paid by the Fund at any time during the following January.
8
<PAGE>
Income received on direct U.S. Government obligations is exempt from tax at the
state level when received directly and may be exempt, depending on the state,
when received by a Shareholder from a Fund provided certain conditions are
satisfied. Interest received on repurchase agreements normally is not exempt
from state taxation. Each Fund will inform Shareholders annually of the
percentage of income and distributions derived from direct U.S. Government
obligations. Shareholders should consult their tax advisors to determine whether
any portion of the income dividends received from a Fund is considered tax
exempt in their particular states.
A Fund may make investments in securities (such as Separately Traded Registered
Interest and Principal Securities ("STRIPS") or zero coupon obligations) that
bear "original issue discount" or "acquisition discount." 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 each Fund distributes all of its net
investment income to its Shareholders, a 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.
Each Fund intends to make sufficient distributions each calendar year to avoid
liability for federal excise tax.
A sale, exchange or redemption of a Fund's shares is a taxable event to the
Shareholder.
Income that a Fund derives from obligations of foreign issuers may be subject to
foreign withholding taxes. A Fund will not be able to elect to treat
Shareholders as having paid their proportionate share of such foreign taxes.
GENERAL INFORMATION
THE TRUST
The Trust is an open-end management investment company that has diversified and
non-diversified portfolios. The Trust is organized as a Massachusetts business
trust under a Declaration of Trust dated July 24, 1992. The Declaration of Trust
permits the Trust to offer separate portfolios of shares and different classes
of shares within each portfolio.
All consideration received by the Trust for shares of any portfolio and all
assets of such portfolio belong to that portfolio and are subject to liabilities
related thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to Shareholders, costs of custodial services and registering the
shares under federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
TRUSTEES OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust.
VOTING RIGHTS
Each share held entitles the Shareholder of record to one vote. Each portfolio
or class will vote separately on matters relating solely to that portfolio or
class. As a Massachusetts business trust, the Trust is not required to hold
annual meetings of Shareholders but approval will be sought for certain changes
in the operation of the Trust and for the election of Trustees under certain
circumstances.
In addition, a Trustee may be removed by the remaining Trustees or by
Shareholders at a special meeting called upon written request of Shareholders
owning at least 10% of the outstanding shares of the Trust. In the event that
such a meeting is requested, the Trust will provide appropriate assistance and
information to the Shareholders requesting the meeting.
9
<PAGE>
REPORTING
The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to an Account Executive.
DIVIDENDS
Substantially all of the net investment income (exclusive of capital gains) of
each Fund is distributed in the form of periodic dividends declared daily and
distributed monthly to Shareholders. Currently, capital gains of a Fund, if any,
will be distributed at least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares at the net asset value next determined
following the record date, unless the Shareholder has elected to take such
payment in cash. Shareholders may change their election by providing written
notice to their Account Executive at least 15 days prior to the distribution.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Price Waterhouse LLP
serves as the independent accountants of the Trust.
DESCRIPTION OF PERMITTED
INVESTMENTS AND RISK FACTORS
The following is a description of the permitted investment practices for one or
more of the Funds, and the associated risk factors:
BANKERS' ACCEPTANCES - Bankers' acceptances are bills of exchange or time drafts
drawn on and accepted by a commercial bank. Bankers' acceptances are used by
corporations to finance the shipment and storage of goods. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT - Certificates of deposit are interest bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER - Commercial paper is a term used to describe unsecured
short-term promissory notes issued by banks, municipalities, corporations and
other entities. Maturities on these issues vary from a few to 270 days.
EURODOLLAR AND YANKEE DOLLAR OBLIGATIONS - Eurodollar bank obligations are U.S.
dollar denominated certificates of deposit or time deposits issued outside the
United States by foreign branches of U.S. banks or by foreign banks. Yankee
dollar obligations are U.S. dollar denominated obligations issued in the United
States by foreign banks.
ILLIQUID SECURITIES - Illiquid securities are securities that cannot be disposed
of within seven business days at approximately the price at which they are being
carried on a Fund's books. An illiquid security includes a demand instrument
with a demand notice period exceeding seven days, where there is no secondary
market for such security, and repurchase agreements with maturities over seven
days in length.
OBLIGATIONS OF SUPRANATIONAL ENTITIES - Supranational entities are entities
established through the joint participation of several governments, and include
the Asian Development Bank, the Inter-American Development Bank, International
Bank for Reconstruction and Development (World Bank), African Development Bank,
European Economic Community, European Investment Bank and the Nordic Investment
Bank.
RECEIPTS - Receipts are sold as zero coupon securities which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for
10
<PAGE>
both accounting and tax purposes. Because of these features, such securities may
be subject to greater interest rate volatility than interest paying investments.
REPURCHASE AGREEMENTS - Repurchase agreements are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price on an agreed upon date within a number of days
from the date of purchase. The Fund will have actual or constructive possession
of the security as collateral for the repurchase agreement. A Fund bears a risk
of loss in the event of the other party defaults on its obligations and the Fund
is delayed or prevented from exercising its right to dispose of the collateral
or if the Fund realizes a loss on the sale of the collateral. A Fund will enter
into repurchase agreements only with financial institutions deemed to present
minimal risk of bankruptcy during the term of the agreement based on established
guidelines. Repurchase agreements are considered loans under the 1940 Act.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS - Investments by a money market
fund are subject to limitations imposed under regulations adopted by the SEC.
Under these regulations, money market funds may acquire only obligations that
present minimal credit risk and that are "eligible securities," which means they
are (i) rated, at the time of investment, by at least two NRSROs (one if it is
the only organization rating such obligation) in the highest rating category or,
if unrated, determined to be of comparable quality (a "first tier security"), or
(ii) rated according to the foregoing criteria in the second highest rating
category or, if unrated, determined to be of comparable quality ("second tier
security"). In the case of taxable money market funds, investments in second
tier securities are subject to further constraints in that (i) no more than 5%
of a money market fund's assets may be invested in second tier securities and
(ii) any investment in securities of any one such issuer is limited to the
greater of 1% of the money market fund's total assets or $1 million. A taxable
money market fund may not purchase securities of any issuer (except securities
issued or guaranteed by the U.S. Government, its agencies of instrumentalities)
if, as a result, more than 5% of the total assets of the Fund would be invested
the securities of one issuer. A taxable money market fund may also hold more
than 5% of its assets in first tier securities of a single issuer for three
"business days" (that is, any day other than a Saturday, Sunday or customary
business holiday).
RESTRICTED SECURITIES - Restricted securities are securities that may not be
sold freely to the public absent registration under the Securities Act of 1933,
as amended, or an exemption from registration.
REVERSE REPURCHASE AGREEMENTS - Reverse repurchase agreements are agreements by
which a Fund sells securities to financial institutions and simultaneously
agrees to repurchase those securities at a mutually agreed-upon date and price.
At the time a Fund enters into a reverse repurchase agreement, the Fund will
place liquid assets having a value equal to the repurchase price in a segregated
custodial account and monitor this account to ensure equivalent value is
maintained. Reverse repurchase agreements involve the risk that the market value
of the securities sold by a Fund may decline below the price at which the Fund
is obligated to repurchase the securities. Reverse repurchase are considered to
be borrowings by a Fund under the 1940 Act.
SECURITIES LENDING - In order to generate additional income, a Fund may lend
securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash, securities of the U.S.
Government or its agencies equal to at least 102% of the market value of the
securities lent. A Fund continues to receive interest on the securities lent
while simultaneously earning interest on the investment of cash collateral.
Collateral is marked to market daily. There may be risks of delay in recovery of
the securities or even loss of rights in the collateral should the borrower of
the securities fail financially or become insolvent.
SECURITIES OF FOREIGN ISSUERS - There are certain risks connected with investing
in foreign securities. These include risks of adverse political and economic
developments (including possible governmental seizure or nationalization of
assets), the possible imposition of exchange controls or other governmental
restrictions, less uniformity in accounting and reporting requirements, the
possibility that there will be less information on such
11
<PAGE>
securities and their issuers available to the public, the difficulty of
obtaining or enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in effecting repatriation of
capital invested abroad, and difficulties in transaction settlements and the
effect of delay on Shareholder equity. Foreign securities may be subject to
foreign taxes, and may be less marketable than comparable U.S. securities.
STANDBY COMMITMENTS AND PUTS - Securities subject to standby commitments or puts
permit the holder thereof to sell the securities at a fixed price prior to
maturity. Securities subject to a standby commitment or put may be sold at any
time at the current market price. However, unless the standby commitment or put
was an integral part of the security as originally issued, it may not be
marketable or assignable; therefore, the standby commitment or put would only
have value to a Fund owning the security to which it relates. In certain cases,
a premium may be paid for a standby commitment or put, which premium will have
the effect of reducing the yield otherwise payable on the underlying security. A
Fund will limit standby commitment or put transactions to institutions believed
to present minimal credit risk.
TIME DEPOSITS - Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time Deposits are considered to be illiquid
securities.
U.S. GOVERNMENT AGENCIES - Obligations issued or guaranteed by agencies of the
U.S. Government and obligations issued or guaranteed by instrumentalities of the
U.S. Government. Some of these securities are supported by the full faith and
credit of the U.S. Treasury (e.g., Government National Mortgage Association),
others are supported by the right of the issuer to borrow from the Treasury
(e.g., Federal Farm Credit Bank), while still others are supported only by the
credit of the instrumentality (e.g., Federal National Mortgage Association).
Guarantees of principal by agencies or instrumentalities of the U.S. Government
may be a guarantee of payment at the maturity of the obligation so that in the
event of a default prior to maturity there might not be a market and thus no
means of realizing on the obligation prior to maturity. Guarantees as to the
timely payment of principal and interest do not extend to the value or yield of
these securities nor to the value of a Fund's shares.
U.S. TREASURY OBLIGATIONS - U.S. Treasury obligations consist of bills, notes
and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
Federal book-entry system known as STRIPS.
VARIABLE AND FLOATING RATE INSTRUMENTS - Certain obligations 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 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.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES - When-issued or delayed delivery
basis transactions involve the purchase of an instrument with payment and
delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase commitment.
A Fund will maintain with the custodian a separate account with liquid assets in
an amount at least equal to these commitments. The interest rate realized on
these securities is fixed as of the purchase date and no interest accrues to a
Fund before settlement. These securities are subject to market fluctuation due
to changes in market interest rates and it is possible that the market value at
the time of settlement could be higher or lower than the purchase price if the
general level of interest rates has changed. Although a Fund generally purchases
securities on a when-issued or forward commitment basis with the intention of
actually acquiring securities for its portfolio, a Fund may dispose of a
when-issued security or forward commitment prior to settlement if it deems
appropriate.
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TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
EXPENSE SUMMARY.............................. 2
ANNUAL OPERATING EXPENSES.................... 2
FINANCIAL HIGHLIGHTS......................... 3
THE FUNDS AND THE TRUST...................... 4
INVESTMENT OBJECTIVE AND POLICIES............ 4
INVESTMENT LIMITATIONS AND FUNDAMENTAL
POLICIES..................................... 5
THE ADVISER.................................. 5
THE ADMINISTRATOR AND DISTRIBUTOR............ 6
THE TRANSFER AGENT AND CUSTODIAN............. 6
HOW TO PURCHASE SHARES....................... 6
HOW TO REDEEM SHARES......................... 7
PERFORMANCE.................................. 8
TAXES........................................ 8
GENERAL INFORMATION.......................... 9
DESCRIPTION OF PERMITTED
INVESTMENTS AND RISK FACTORS................. 10
</TABLE>
13
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<TABLE>
<S> <C>
Trust: THE ARBOR FUND
U.S. GOVERNMENT SECURITIES MONEY
FUND
Funds: PRIME OBLIGATIONS FUND
Investment Adviser: CRESTAR ASSET MANAGEMENT COMPANY
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION
This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus. It is intended to
provide additional information about the activities and operations of the U.S.
Government Securities Money Fund and the Prime Obligations Fund (each a "Fund"),
separate series of The Arbor Fund (the "Trust"). This Statement of Additional
Information should be read in conjunction with the Fund's Prospectus dated June
1, 1997. The Prospectus may be obtained by calling 1-800-342-5734.
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE FUNDS AND THE TRUST................................................................ S-2
DESCRIPTION OF PERMITTED INVESTMENTS................................................... S-2
INVESTMENT LIMITATIONS................................................................. S-6
THE ADVISER............................................................................ S-7
THE ADMINISTRATOR...................................................................... S-8
THE DISTRIBUTOR........................................................................ S-9
TRUSTEES AND OFFICERS OF THE TRUST..................................................... S-9
COMPUTATION OF YIELD................................................................... S-12
CALCULATION OF TOTAL RETURN............................................................ S-13
PURCHASE AND REDEMPTION OF SHARES...................................................... S-13
DETERMINATION OF NET ASSET VALUE....................................................... S-14
TAXES.................................................................................. S-14
FUND TRANSACTIONS...................................................................... S-16
TRADING PRACTICES AND BROKERAGE........................................................ S-16
DESCRIPTION OF SHARES.................................................................. S-17
SHAREHOLDER LIABILITY.................................................................. S-18
LIMITATION OF TRUSTEES' LIABILITY...................................................... S-18
5% SHAREHOLDERS........................................................................ S-18
EXPERTS................................................................................ S-18
FINANCIAL STATEMENTS................................................................... S-18
DESCRIPTION OF RATINGS................................................................. A-1
</TABLE>
June 1, 1997
CRE-F-002-04
<PAGE>
THE FUNDS AND THE TRUST
The Funds are a separate series of The Arbor Fund (the "Trust"). The Trust is an
open-end management investment company established under Massachusetts law as a
"Massachusetts business trust" under an Agreement and Declaration of Trust dated
as of July 24, 1992 (the "Declaration of Trust"). The Declaration of Trust
permits the Trust to offer separate series of units of beneficial interest
("shares") and different classes of shares of each series. Each share of each
portfolio represents an equal proportionate interest in that portfolio. See
"Description of Shares." This Statement of Additional Information relates only
to the U.S. Government Securities Money Fund and the Prime Obligations Fund
(each a "Fund," and collectively, the "Funds").
DESCRIPTION OF PERMITTED INVESTMENTS
BANK INVESTMENT CONTRACTS ("BICS")
BICs are contracts issued by U.S. banks and savings and loans institutions.
Pursuant to such contracts, the Prime Obligations Fund makes cash contributions
to a deposit fund of the general account of the bank or savings and loan
institution. The bank or savings and loan institution then credits to the Fund
on a monthly basis guaranteed interest at either a fixed, variable or floating
rate. A BIC provides that this guaranteed interest will not be less than a
certain minimum rate. A BIC is a general obligation of the issuing bank or
savings and loan institution and not a separate account. The purchase price paid
for a BIC becomes part of the general assets of the issuer, and the contract is
paid at maturity from the general assets of the issuer.
BICs are generally not assignable or transferable without the permission of the
issuing bank or savings and loan institution. For this reason, an active
secondary market in BICs currently does not exist. Therefore, BICs are
considered to be illiquid investments. The Fund may invest up to an aggregate
amount of 5% of its total assets in BICs and guaranteed investment contracts.
BANK OBLIGATIONS
The Prime Obligations Fund is not prohibited from investing in obligations of
banks that are clients of SEI Investments Company ("SEI"). However, the purchase
of shares of the Fund by such banks or by their customers will not be a
consideration in determining which bank obligations the Fund will purchase. The
Funds will not purchase obligations of the Adviser.
DEMAND INSTRUMENTS
Certain instruments may entail a demand feature that permits the holder to
demand payment of the principal amount of the instrument. Demand instruments
include variable rate demand notes. Each Fund may invest in demand instruments.
FOREIGN SECURITIES
The Prime Obligations Fund may invest in certain U.S. dollar denominated
obligations or securities of foreign issuers. Permissible investments for the
Fund may consist of obligations of foreign branches of U.S. banks and U.S. or
foreign branches of foreign banks; provided further that these obligations are
limited to banks headquartered in and to those branches located in the United
Kingdom, France, Germany, Belgium, the Netherlands, Italy, Switzerland, Denmark,
Norway, Sweden, Australia, Japan and Canada.
Foreign securities may subject the Fund to 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
S-2
<PAGE>
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.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA") CERTIFICATES
Each Fund may invest in securities issued by GNMA, a wholly-owned U.S.
Government corporation that guarantees the timely payment of principal and
interest. The market value and interest yield of these instruments can vary due
to market interest rate fluctuations and early prepayments of underlying
mortgages. These securities represent ownership in a pool of federally insured
mortgage loans. GNMA certificates consist of underlying mortgages with a maximum
maturity of 30 years. However, due to scheduled and unscheduled principal
payments, GNMA certificates have a shorter average maturity and, therefore, less
principal volatility than a comparable 30-year bond. Since prepayment rates vary
widely, it is not possible to predict accurately the average maturity of a
particular GNMA pool. The scheduled monthly interest and principal payments
relating to mortgages in the pool will be "passed through" to investors. GNMA
securities differ from conventional bonds in that principal is paid back to the
certificate holders over the life of the loan rather than at maturity. As a
result, there will be monthly scheduled payments of principal and interest. In
addition, there may be unscheduled principal payments representing prepayments
on the underlying mortgages. Although GNMA certificates may offer yields higher
than those available from other types of U.S. Government securities, GNMA
certificates may be less effective than other types of securities as a means of
"locking in" attractive long-term rates because of the prepayment feature. For
instance, when interest rates decline, the value of a GNMA certificate likely
will not rise as much as comparable debt securities due to the prepayment
feature. In addition, these prepayments can cause the price of a GNMA
certificate originally purchased at a premium to decline in price to its par
value, which may result in a loss.
GUARANTEED INVESTMENT CONTRACTS ("GICS")
GICs are contracts issued by U.S. insurance companies. Pursuant to such
contracts, the Prime Obligations Fund makes cash contributions to a deposit fund
of the insurance company's general account. The insurance company then credits
to the Fund on a monthly basis guaranteed interest at either a fixed, variable
or floating rate. A GIC provides that this guaranteed interest will not be less
than a certain minimum rate. A GIC is a general obligation of the issuing
insurance company and not a separate account. The purchase price paid for a GIC
becomes part of the general assets of the issuer, and the contract is paid at
maturity from the general assets of the issuer.
Generally, GICs are not assignable or transferable without the permission of the
issuing insurance company. For this reason, an active secondary market in GICs
does not currently exist and GICs are considered to be illiquid investments. The
Fund may invest not more than 5% of its total assets in GICs and BICs.
INVESTMENT COMPANY SHARES
Each Fund may invest in shares of other investment companies (including other
money market mutual funds), to the extent permitted by applicable law and
subject to certain restrictions. These investment companies typically incur fees
that are separate from those fees incurred directly by the Fund. The Fund's
purchase of such investment company securities results in a layering of
expenses, such that shareholders would indirectly bear a proportionate share of
the operating expenses of such investment companies, including advisory fees, in
addition to paying Fund expenses. Under applicable regulations, the Fund is
prohibited from acquiring the securities of another investment company if, as a
result of such acquisition: (1) the Fund owns more than 3% of the total voting
stock of the other company; (2) securities issued by
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any one investment company represent more than 5% of the Fund's total assets; or
(3) securities (other than treasury stock) issued by all investment companies
represent more than 10% of the total assets of the Fund. See also "Investment
Limitations."
PUT TRANSACTIONS (STANDBY COMMITMENTS)
Each Fund reserves the right to engage in put transactions. The Adviser has the
authority to purchase securities at a price that would result in a yield to
maturity lower than that generally offered by the seller at the time of purchase
when the Funds can simultaneously acquire the right to sell the securities back
to the seller, the issuer, or a third party (the "writer") at an agreed-upon
price at any time during a stated period or on a certain date. Such a right is
generally denoted as a "put" or "standby commitment." The Funds' ability to put
the securities depends on the writer's ability to pay for the securities at the
time the Funds exercise the put. The Funds will engage in put transactions only
with institutions that the Adviser believes present minimal credit risks, and
the Adviser will use its best efforts to determine initially and continue to
monitor the financial strength of the sellers of the options in accordance with
credit guidelines adopted by the Trust's Board of Trustees. In the event that
any writer is unable to honor a put for financial reasons, the Funds would be
general creditors (i.e., on a parity with all other unsecured creditors) of the
writer. Furthermore, particular provisions of the contract between the Fund and
the writer may excuse the writer from repurchasing the securities; for example,
a change in the published rating of the underlying securities or any similar
event that has an adverse effect on the issuer's credit or a provision in the
contract that the put will not be exercised except in certain special cases, for
example, to maintain portfolio liquidity. The Funds could, however, at any time
sell the underlying portfolio security in the open market or wait until the
portfolio security matures, at which time it should realize the full par value
of the security.
The securities purchased subject to a put may be sold to third persons at any
time, even though the put is outstanding, but the put itself, unless it is an
integral part of the security as originally issued, may not be marketable or
otherwise assignable. Therefore, the put would have value only to the Funds.
Sale of the securities to third parties or lapse of time with the put
unexercised may terminate the right to put the securities. Prior to the
expiration of any put option, the Funds could seek to negotiate terms for the
extension of such an option. If such a renewal cannot be negotiated on terms
satisfactory to the Funds, the Funds could, of course, sell the security. The
maturity of the underlying security will generally be different from that of the
put. There will be no limit to the percentage of portfolio securities that the
Funds may purchase subject to a put or a standby commitment but the amount paid
directly or indirectly for premiums on all puts and standby commitments
outstanding will not exceed 0.5% of a Fund's total assets calculated immediately
after any such put is acquired.
The Funds will consider the maturity of a security subject to a put to be the
first date on which the Funds have the right to demand payment from the writer,
even though the final maturity of the security will ordinarily be later than
such date.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with primary securities dealers
recognized by the Federal Reserve Bank of New York or with national member banks
as defined in Section 3(d)(1) of the Federal Deposit Insurance Act, as amended.
The repurchase agreement will have an agreed-upon price (including principal and
interest) and an agreed-upon repurchase 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.
The repurchase agreements entered into by the Funds 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, or its
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designated agent, monitors compliance with this requirement. Under all
repurchase agreements entered into by the Funds, the Custodian or its agent must
take possession of the underlying collateral. However, if the seller defaults,
the Funds could realize a loss on the sale of the underlying security to the
extent that the proceeds of 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 proceedings, the Funds may
incur delay and costs in selling the underlying security or may suffer a loss of
principal and interest if the Funds are treated as unsecured creditors and
required to return the underlying security to the seller's estate.
RESTRICTED AND ILLIQUID SECURITIES
Each Fund may, to the extent consistent with its investment policies, invest in
restricted securities that are securities in which the Funds may otherwise
invest as provided in the Prospectus or this Statement of Additional
Information. Each Fund may invest up to 10% of its net assets in illiquid
securities, including restricted securities. The Funds may invest in Section
4(2) commercial paper. Section 4(2) commercial paper is issued in reliance on an
exemption from registration under Section 4(2) of the Act and is generally sold
to institutional investors who purchase for investment. Any resale of such
commercial paper must be in an exempt transaction, usually to an institutional
investor through the issuer or investment dealers who make a market in such
commercial paper. The Trust believes that Section 4(2) commercial paper is
liquid to the extent it meets the criteria established by the Board of Trustees
of the Trust. The Trust intends to treat such commercial paper as not subject to
the investment limitations applicable to illiquid securities.
SECURITIES LENDING
Each Fund will normally pay lending fees to broker/dealers in connection with
securities loans, and related expenses from the interest earned on invested
collateral. Investments made with this collateral are considered to be assets of
the Funds and must comply with the Funds' investment limitations. Any securities
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 as a broker in these transactions. Each Fund may lend securities in an
amount up to 33 1/3% of its total assets.
SEPARATELY TRADED INTEREST AND PRINCIPAL SECURITIES ("STRIPS")
Each Fund may invest in STRIPS, which are component parts of U.S. Treasury
Securities traded through the Federal Book-Entry System. The Adviser will
purchase only STRIPS that it determines are liquid or, if illiquid, do not
violate the Funds' investment policy concerning investments in illiquid
securities. Consistent with Rule 2a-7, the Adviser will purchase for the Funds
only those STRIPS that have a remaining maturity of 397 days or less; therefore,
the Funds currently may purchase only 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 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 Funds.
VARIABLE AND FLOATING RATE OBLIGATIONS
The Funds may invest in variable rate obligations and floating rate obligations
(together, "adjustable interest rate obligations"). A VARIABLE RATE OBLIGATION
is one whose terms provide for the adjustment of its interest rate on set dates
and which, upon such adjustment, can reasonably be expected to have a market
value that approximates its par value; the degree to which a variable rate
obligation's market value approximates its par value will depend on the
frequency of the readjustment of the obligation's interest rate and the length
of time that must elapse before the next readjustment. A FLOATING RATE
OBLIGATION is one whose terms provide for the adjustment of its interest rate
whenever a specified interest rate changes and which, at any time, can
reasonably be expected to have a market value that approximates its par value.
Although there may be no active secondary market with respect to a particular
variable or floating rate
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obligation purchased by a Fund, the Funds may seek to resell the obligation at
any time to a third party. The absence of an active secondary market, however,
could make it difficult for the Funds to dispose of a variable or floating rate
obligation in the event the issuer of the obligation defaulted on its payment
obligations, and the Funds could, as a result or for other reasons, suffer a
loss to the extent of the default. In addition, a variable or floating rate
demand obligation with a demand notice exceeding seven days may be considered
illiquid if there is no secondary market for such securities. Variable or
floating rate obligations may be secured by bank letters of credit.
For the Funds, variable and floating rate obligations will be deemed to have
maturities as follows:
1. A variable rate obligation, the principal amount of which is scheduled on
the face of the instrument to be paid in thirteen months or less, will be
deemed by the Funds to have a maturity equal to the period remaining until
the next readjustment of the interest rate.
2. A variable rate obligation that is subject to a demand feature will be
deemed by the Funds to have a maturity equal to the longer of the period
remaining until the next readjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand.
3. A floating rate obligation that is subject to a demand feature will be
deemed by the Funds to have a maturity equal to the period remaining until
the principal amount can be recovered through demand.
As used above, an obligation is "subject to a demand feature" where the Funds
are entitled to receive the principal amount of the obligation either at any
time on no more than thirty days' notice or at specified intervals not exceeding
thirteen months and upon no more than thirty days' notice.
Each Fund may invest in variable rate master demand notes, which may or may not
be backed by bank letters of credit. These variable rate obligations permit the
investment of fluctuating amounts at varying market rates of interest pursuant
to direct arrangements between the Trust, as lender, and the borrower. Such
notes provide that the interest rate on the amount outstanding varies on a
daily, weekly or monthly basis depending upon a stated short-term interest rate
index. Both the lender and the borrower have the right to reduce the amount of
outstanding indebtedness at any time. There is no secondary market for the
notes. It is not generally contemplated that such instruments will be traded.
ZERO COUPON OBLIGATIONS
Zero coupon obligations are debt securities that do not bear any interest, but
instead are issued at a deep discount from par. The value of a zero coupon
obligation increases over time to reflect the interest accreted. Such
obligations will not result in the payment of interest until maturity, and will
have greater price volatility than similar securities that are issued at par and
pay interest periodically. Each Fund currently intends to invest no more than 5%
of its net assets in zero coupon obligations.
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
Each 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 Funds.
A "majority of the outstanding shares" of the Funds 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 Funds present at a meeting at which the holders
of more than 50% of the votes attributable to shareholders of record of the
Funds are represented in person or by proxy, or (b) the holders of more than 50%
of the outstanding votes of shareholders of the Funds. The following investment
limitations are in addition to those set forth in the Funds' Prospectus.
Pursuant to these investment restrictions, the Funds will not:
1. Invest in companies for the purpose of exercising control.
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<PAGE>
2. 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
Funds shall, within three days thereafter or such longer period as the
Securities and Exchange Commission may prescribe by rules and regulations,
reduce the amount of its borrowings to such an extent that the asset
coverage of such borrowings shall be at least 300%. This borrowing provision
is included solely to facilitate the orderly sale of portfolio securities to
accommodate heavy redemption requests if they should occur and is not for
investment purposes. All borrowings will be repaid before making additional
investments and any interest paid on such borrowings will reduce income.
3. Pledge, mortgage or hypothecate assets except to secure temporary borrowings
permitted by (2) above in aggregate amounts not to exceed 10% of total
assets taken at current value at the time of the incurrence of such loan,
except as permitted with respect to securities lending or reverse repurchase
agreements.
4. Purchase or sell real estate, real estate limited partnership interests,
commodities or commodities contracts. However, subject to its permitted
investments, the Funds may invest in companies that invest in real estate,
commodities or commodities contracts and the Prime Obligations Fund may
purchase commodities contracts relating to financial futures contracts and
options on such contracts.
5. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Funds may obtain short-term credits as
necessary for the clearance of security transactions; this limitation shall
not prohibit short sales "against the box."
6. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter under federal securities laws in selling a Fund
security.
7. Purchase securities of other investment companies, except as permitted by
the 1940 Act, and the rules and regulations thereunder.
8. Issue senior securities (as defined in the 1940 Act), except in connection
with permitted borrowings as described above or as permitted by rule,
regulation or order of the Securities and Exchange Commission.
NON-FUNDAMENTAL POLICIES
The following investment limitations of the Funds are non-fundamental and may be
changed by the Trust's Board of Trustees without shareholder approval.
1. Each Fund may not invest in illiquid securities in an amount exceeding, in
the aggregate, 10% of its net assets.
2. The Funds may not invest in interests in oil, gas or other mineral
exploration or development programs and oil, gas or mineral leases.
Except as specifically noted above, the foregoing percentages will apply at the
time of the purchase of a security and shall not be considered violated unless
an excess occurs or exists immediately after and as a result of a purchase of
such security.
THE ADVISER
The Trust and Crestar Asset Management Company (the "Adviser") have entered into
an advisory agreement (the "Advisory Agreement"). The Advisory Agreement
provides that the Adviser shall not be protected against any liability to the
Trust or its shareholders by reason of willful misfeasance, bad faith or
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gross negligence on its part in the performance of its duties or from reckless
disregard of its obligations or duties thereunder.
The Advisory Agreement provides that if, for any fiscal year, the ratio of
expenses of any Fund (including amounts payable to the Adviser but excluding
interest, taxes, brokerage, litigation, and other extraordinary expenses)
exceeds limitations established by any jurisdiction in which shares of the Fund
are qualified for offer and sale, the Adviser will bear the amount of such
excess.
The continuance of the Advisory Agreement, after the first two years, 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 will terminate automatically in the event of its assignment, and is
terminable at any time without penalty by the Trustees of the Trust or, with
respect to the Funds by a majority of the outstanding shares of each Fund, on
not less than 30 days' nor more than 60 days' written notice to the Adviser, or
by the Adviser on 60 days' written notice to the Trust.
For the fiscal years ended January 31, 1995, January 31, 1996 and January 31,
1997, the Funds paid the following advisory fees:
<TABLE>
<CAPTION>
FEES PAID (000) FEE WAIVERS (000)
------------------------------- -------------------------------
FUND 1995 1996 1997 1995 1996 1997
- ------------------------------------------------------------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government Securities Money Fund............................. $ 150 $ 236 $ 324 $ 402 $ 207 $ 626
Prime Obligations Fund............................................ * $ 44 $ 209 * $ 47 $ 629
</TABLE>
- ------------------------
* Not in operation during such period.
THE ADMINISTRATOR
SEI Fund Resources (the "Administrator") serves as administrator to the Funds
pursuant to an Administration Agreement (the "Administration Agreement") with
the Trust. 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 shall remain in effect for an initial period of
four years and thereafter shall continue in effect for successive two-year
periods subject to annual review by the Trustees.
The Administrator, a Delaware business trust, has its principal business offices
at Oaks, Pennsylvania 19456. SEI Financial Management Corporation ("SFM"), a
wholly-owned subsidiary of SEI Investments Company ("SEI"), is the owner of all
beneficial interest in the Administrator. SEI 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 to the
following other mutual funds: The Achievement Funds Trust, The Advisors' Inner
Circle Fund, The Arbor Fund, ARK Funds, Bishop Street Funds, CoreFunds, Inc.,
CrestFunds, Inc., CUFUND, FMB Funds, Inc., First American Funds, Inc., First
American Investment Funds, Inc., First American Strategy Funds, Inc., Highmark
Funds, Marquis Funds, Monitor Funds, Morgan Grenfell Investment Trust, The PBHG
Funds, Inc., The Pillar Funds, Profit Funds Investment Trust, Rembrandt Funds,
Santa Barbara Group of Mutual Funds, Inc., 1784 Funds, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI International Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, Stepstone Funds, STI Classic Funds, STI
Classic Variable Trust, and Turner Funds.
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For the fiscal years ended January 31, 1995, January 31, 1996 and January 31,
1997, the Portfolios paid the following administrative fees:
<TABLE>
<CAPTION>
FEES PAID (000) FEES WAIVED (000)
------------------------------- -------------------------------
1995 1996 1997 1995 1996 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government Securities Money Fund............................. $ 114 $ 236 $ 212 $ 107 $ 207 $ 168
Prime Obligations Fund............................................ * $ 44 $ 209 * $ 47 $ 126
</TABLE>
- ------------------------
* Fund had not yet commenced operations.
THE DISTRIBUTOR
SEI Financial Services Company serves as distributor (the "Distributor") to the
Trust pursuant to a distribution agreement (the "Distribution Agreement"). The
Distribution Agreement shall be reviewed and ratified at least annually (i) by
the Trust's Trustees or by the vote of a majority of the outstanding shares of
the Trust, and (ii) by the vote of a majority of the Trustees of the Trust who
are not parties to the Distribution Agreement or interested persons (as defined
in the 1940 Act) of any party to the Distribution Agreement, cast in person at a
meeting called for the purpose of voting on such approval. The Distribution
Agreement will terminate in the event of any assignment, as defined in the 1940
Act, and is terminable with respect to a particular Fund on not less than 60
days' notice by the Trust's Trustees, by vote of a majority of the outstanding
shares of such Fund or by the Distributor.
Although banking laws and regulations prohibit banks from distributing shares of
open-end investment companies such as the Trust, according to an opinion issued
to the staff of the SEC by the Office of the Comptroller of the Currency,
financial institutions are not prohibited from acting in other capacities for
investment companies, such as providing shareholder services. Should future
legislative, judicial or administrative action prohibit or restrict the
activities of financial institutions in connection with providing shareholder
services, the Trust may be required to alter materially or discontinue its
arrangements with such financial institutions.
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 Trustees and Executive Officers
of the Trust, their respective dates of birth, and their principal occupations
for the last five years are set forth below. Each may have held other positions
with the named companies during that period. Unless otherwise noted, the
business address of each Trustee and each Executive Officer is SEI Investments
Company, Oaks, Pennsylvania 19456. Certain officers of the Trust also serve as
officers of some or all of the following: The Achievement Funds Trust, The
Advisors' Inner Circle Fund, ARK Funds, Bishop Street Funds, CoreFunds, Inc.,
CrestFunds, Inc., CUFUND, FMB Funds, Inc., First American Funds, Inc., First
American Investment Funds, Inc., First American Strategy Funds, Inc, Highmark
Funds, Marquis Funds-Registered Trademark-, Monitor Funds, Morgan Grenfell
Investment Trust, The PBHG Funds, Inc., The Pillar Funds, Profit Funds
Investment Trust, Rembrandt Funds-Registered Trademark-, Santa Barbara Group of
Mutual Funds, Inc., 1784 Funds-Registered Trademark-, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI International Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, Stepstone Funds, STI Classic Funds, STI
Classic Variable Trust and Turner Funds, each of which is an open-end management
investment company managed by SEI Fund Resources or its affiliates and, except
for Profit Funds Investment Trust, Rembrandt Funds-Registered Trademark-, and
Santa Barbara Group of Mutual Funds, Inc., are distributed by SEI Financial
Services Company.
ROBERT A. NESHER (DOB 08/17/46)--Chairman of the Board of Trustees*--Retired
since 1994. Executive Vice President of SEI, 1986-1994. Director and Executive
Vice President of the Administrator and the Distributor, 1981-1994. Trustee of
the Arbor Fund, Marquis Funds-Registered Trademark-, Advisors' Inner Circle
Fund, SEI
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Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Managed Trust, SEI International Trust, SEI Institutional
Investments Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, Insurance
Investment Products Trust, 1784 Funds-Registered Trademark-, Pillar Funds,
Rembrandt Funds, and Stepstone Funds.
JOHN T. COONEY (DOB 01/20/27)--Trustee**--569 N. Post Oak Lane, Houston, TX
77024. Retired since 1992. Formerly Vice Chairman of Ameritrust Texas N.A.,
1989-1992, and MTrust Corp., 1985-1989. Trustee of the Arbor Fund, Marquis
Funds-Registered Trademark-, and Advisors' Inner Circle Fund.
WILLIAM M. DORAN (DOB 05/26/40)--Trustee*--2000 One Logan Square, Philadelphia,
PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the Trust,
Administrator and Distributor, Director and Secretary of SEI. Trustee of the
Arbor Fund, SEI Liquid Asset Trust, SEI Tax Exempt Trust, SEI Daily Income
Trust, SEI Index Funds, SEI Institutional Managed Trust, SEI International
Trust, SEI Asset Allocation Trust, SEI Institutional Investments Trust,
Insurance Investment Products Trust, The Advisors' Inner Circle Fund, and
Marquis Funds-Registered Trademark-.
FRANK E. MORRIS (DOB 12/30/23)--Trustee**--105 Walpole Street, Dover, MA 02030.
Retired since 1990. Peter Drucker Professor of Management, Boston College,
1989-1990. President, Federal Reserve Bank of Boston, 1968-1988. Trustee of The
Arbor Fund, Marquis Funds-Registered Trademark-, Advisors' Inner Circle Fund,
SEI Liquid Asset Trust, SEI Tax Exempt Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Managed Trust, SEI International Trust, Insurance
Investment Products Trust, SEI Asset Allocation Trust and SEI Institutional
Investments Trust.
ROBERT A. PATTERSON (DOB 11/05/27)--Trustee**--208 Old Main, University Park, PA
16802. Pennsylvania State University, Senior Vice President, Treasurer
(Emeritus). Financial and Investment Consultant, Professor of Transportation
(1984-present). Vice President-Investments, Treasurer, Senior Vice President
(Emeritus) (1982-1984). Director, Pennsylvania Research Corp.; Member and
Treasurer, Board of Trustees of Grove City College. Trustee of the Arbor Fund,
Marquis Funds-Registered Trademark-, and Advisors' Inner Circle Fund.
GENE PETERS (DOB 06/03/29)--Trustee**--943 Oblong Road, Williamstown, MA 01267.
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 Arbor Fund, Marquis
Funds-Registered Trademark- and Advisors' Inner Circle Fund.
JAMES M. STOREY (DOB 04/12/31)--Trustee**--Partner, Dechert Price & Rhoads, from
September 1987-December 1993; Trustee of the Arbor Fund, Marquis
Funds-Registered Trademark-, Advisors' Inner Circle Fund, SEI Liquid Asset
Trust, SEI Tax Exempt Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Managed Trust, SEI International Trust, Insurance Investment
Products Trust, SEI Asset Allocation Trust, and SEI Institutional Investments
Trust.
DAVID G. LEE (DOB 04/16/52)--President and Chief Executive Officer--Senior Vice
President of the Administrator and Distributor since 1993. Vice President of the
Administrator and Distributor, 1991-1993. President, GW Sierra Trust Funds
before 1991.
SANDRA K. ORLOW (DOB 10/18/53)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of the Administrator and Distributor since
1988.
KEVIN P. ROBINS (DOB 04/15/61)--Vice President and Assistant Secretary--Senior
Vice President, General Counsel and Assistant Secretary of SEI, Senior Vice
President, General Counsel and Secretary of the Administrator and Distributor
since 1994. Vice President and Assistant Secretary of SEI, the Administrator and
Distributor, 1992-1994. Associate, Morgan, Lewis & Bockius LLP (law firm),
1988-1992.
RICHARD W. GRANT (DOB 10/25/45)--Secretary--2000 One Logan Square, Philadelphia,
PA 19103, Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the Trust,
Administrator and Distributor.
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<PAGE>
KATHRYN L. STANTON (DOB 11/19/58)--Vice President and Assistant Secretary,
Deputy General Counsel of SEI, Vice President and Assistant Secretary of the
Administrator and Distributor since 1994. Associate, Morgan, Lewis & Bockius LLP
(law firm), 1989-1994.
JOSEPH P. LYDON (DOB 09/27/59)--Vice President and Assistant
Secretary--Director, Business Administration of Fund Resources, April 1995. Vice
President, Fund Group, Dremen Value Management, LP, President Dremen Financial
Services, Inc. prior to 1995.
STEPHEN G. MEYER (DOB 07/12/65)--Controller, Chief Financial Officer--Vice
President and Controller of SEI Fund Resources since 1995. Director, Internal
Audit and Risk Management, SEI Corporation, 1992-1995. Senior Associate, Coopers
and Lybrand, 1990-1992.
TODD B. CIPPERMAN (DOB 01/14/66)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of SEI, the Administrator and the Distributor
since 1995. Associate, Dewey Ballantine (law firm) (1994-1995). Associate,
Winston & Strawn (law firm) (1991-1994).
BARBARA A. NUGENT (DOB 06/18/56)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1996. Associate, Drinker Biddle & Reath (law firm) (1994-1996). Assistant
Vice President/Administration, Delaware Service Company, Inc. (1992-1993);
Assistant Vice President-Operations of Delaware Service Company, Inc.
(1988-1992).
MARC H. CAHN (DOB 06/19/57)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1996. Associate General Counsel, Barclays Bank PLC (1995-1996). ERISA
counsel, First Fidelity Bancorporation (1994-1995), Associate, Morgan, Lewis &
Bockius LLP (1989-1994).
- ------------------------
* Messrs. Nesher and Doran are Trustees who may be deemed to be "interested"
persons of the Trust as the term is defined in the 1940 Act.
** Messrs. Cooney, Morris, Patterson, Peters and Storey serve on the Audit
Committee of the Trust.
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. For the
fiscal year ended January 31, 1997, the Trust paid the unaffiliated Trustees
aggregate fees of $63,860.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL COMPENSATION
FROM REGISTRANT AND
PENSION OR FUND COMPLEX PAID TO
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL TRUSTEES FOR THE
COMPENSATION FROM ACCRUED AS PART OF BENEFITS UPON FISCAL YEAR ENDED
NAME OF PERSON, POSITION REGISTRANT FUND EXPENSES RETIREMENT JANUARY 31, 1997 (1)
- ----------------------------------- ----------------- ------------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
John T. Cooney, Trustee............ $ 12,772 N/A N/A $ 12,772
Frank E. Morris, Trustee........... $ 12,772 N/A N/A $ 12,772
Robert A. Patterson, Trustee....... $ 12,772 N/A N/A $ 12,772
Gene Peters, Trustee............... $ 12,772 N/A N/A $ 12,772
James M. Storey, Trustee........... $ 12,772 N/A N/A $ 12,772
William M. Doran, Trustee*......... $ 0 N/A N/A $ 0
Robert A. Nesher, Trustee*......... $ 0 N/A N/A $ 0
</TABLE>
- ------------------------
(1) Total Compensation for service on one board.
* A Trustee who is an "interested person" as defined in the 1940 Act.
S-11
<PAGE>
COMPUTATION OF YIELD
From time to time a Fund may advertise its "current yield" and "effective
yield." Both yield figures are based on historical earnings and are not intended
to indicate future performance. The "yield" of a Fund refers to the income
generated by an investment in the Fund over a stated seven-day period. This
income is then "annualized," that is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the income earned by an investment in
the Fund is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment.
The current yield of a Fund will be calculated daily based upon the seven days
ending on the date of calculation ("base period"). The yield is computed by
determining the net change (exclusive of capital changes) in the value of a
hypothetical pre-existing shareholder account having a balance of one share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing such net change by the value
of the account at the beginning of the same period to obtain the base period
return and multiplying the result by (365/7). Realized and unrealized gains and
losses are not included in the calculation of the yield. The effective compound
yield of a Fund 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, according to the
following formula:
Effective Yield = [(Base Period Return + 1)(365/7)] - 1.
The current and the effective yields reflect the reinvestment of net income
earned daily on portfolio assets.
For the seven-day period ended January 31, 1997, the U.S. Government Securities
Money Fund had a current yield of 5.22% and an effective yield of 5.36% and the
Prime Obligations Fund had a current yield of 5.44% and an effective yield of
5.49%.
The yield of the a Fund fluctuates, 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 the Fund invests
in, changes in interest rates on money market instruments, changes in the
expenses of the Fund and other factors.
Yields are one basis upon which shareholders may compare a Fund 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. A Fund also
may compare its performance or the performance of securities in which it may
invest to IBC/ Donoghue's MONEY FUND AVERAGES-TM-, which monitors the
performance of taxable and tax-free money market funds. This index, which
assumes reinvestment of distributions, is published by IBC/ Donoghue's MONEY
FUND REPORT-Registered Trademark- of Ashland, Massachusetts 01721.
S-12
<PAGE>
CALCULATION OF TOTAL RETURN
From time to time, a Fund may advertise total return. The total return of a Fund
refers to the average compounded rate of return to a hypothetical investment for
designated time periods (including but not limited to, the period from which the
Portfolio commenced operations through the specified date), assuming that the
entire investment is redeemed at the end of each period. In particular, total
return will be calculated according to the following formula:
P (1 + T)n = ERV
where P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
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.
Based on the foregoing, the average annual total return for the U.S. Government
Securities Money Fund and the Prime Obligations Fund from inception through
January 31, 1997 and for the one, five and ten year periods ended January 31,
1997 were as follows:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
------------------------------------
<S> <C> <C> <C> <C> <C>
ONE FIVE TEN SINCE
FUND CLASS YEAR YEAR YEAR INCEPTION
- -------------------------------------------------- ------------------------- ------ ------ ------ ---------
U.S. Government Securities Money Fund Class A.................. 5.29% * * 5.49%
Prime Obligations Fund Class A.................. 5.45% * * 5.53%
</TABLE>
- ------------------------
* Not in operation during such period.
PURCHASE AND REDEMPTION OF SHARES
Each Fund intends to pay cash for all shares redeemed, but under abnormal
conditions that make payment in cash unwise, payment may be made wholly or
partly in portfolio securities with a market value equal to the redemption
price. In such cases, an investor may incur brokerage costs in converting such
securities to cash.
It is currently the Trust's policy to pay for all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by a Fund in lieu
of cash. Shareholders may incur brokerage charges on the sale of any such
securities so received in payment of redemptions. However, a shareholder will at
all times be entitled to aggregate cash redemptions from all Funds of the Trust
during any 90-day period of up to the lesser of $250,000 or 1% of the Trust's
net assets.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the Securities and Exchange Commission by rule or
regulation) as a result of disposal or valuation of each Fund's securities is
not reasonably practicable, or for such other periods as the Securities and
Exchange Commission has by order permitted. The Trust also reserves the right to
suspend sales of shares of each Fund for any period during which the New York
Stock Exchange, the Adviser, the Administrator and/or the Custodian are not open
for business.
S-13
<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value per share of a Fund is calculated by adding the value of
securities and other assets, subtracting liabilities and dividing by the number
of outstanding shares. Securities will be valued by the amortized cost method,
which involves valuing a security at its cost on the date of purchase and
thereafter (absent unusual circumstances) assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuations in
general market rates of interest on the value of the instrument. While this
method provides certainty in valuation, it may result in periods during which a
security's value, as determined by this method, is higher or lower than the
price a Fund would receive if it sold the instrument. During periods of
declining interest rates, the daily yield of a Fund may tend to be higher than a
like computation made by a company with identical investments utilizing a method
of valuation based upon market prices and estimates of market prices for all of
its portfolio securities. Thus, if the use of amortized cost by the Fund
resulted in a lower aggregate portfolio value on a particular day, a prospective
investor in the Fund would be able to obtain a somewhat higher yield than would
result from investment in a company utilizing solely market values, and existing
investors in the Fund would experience a lower yield. The converse would apply
in a period of rising interest rates.
A Fund's use of amortized cost and the maintenance of a Fund's net asset value
at $1.00 are permitted by regulations promulgated by Rule 2a-7 under the 1940
Act, provided that certain conditions are met. The regulations also require the
Trustees to establish procedures which are reasonably designed to stabilize the
net asset value per share at $1.00 for each Fund. Such procedures include the
determination of the extent of deviation, if any, of a Fund's current net asset
value per share calculated using available market quotations from a Fund's
amortized cost price per share at such intervals as the Trustees deem
appropriate and reasonable in light of market conditions and periodic reviews of
the amount of the deviation and the methods used to calculate such deviation. In
the event that such deviation exceeds 0.5%, the Trustees are required to
consider promptly what action, if any, should be initiated, and, if the Trustees
believe that the extent of any deviation may result in material dilution or
other unfair results to shareholders, the Trustees are required to take such
corrective action as they deem appropriate to eliminate or reduce such dilution
or unfair results to the extent reasonably practicable. Such actions may
include: the sale of portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity; withholding dividends;
redeeming shares in kind; or establishing a net asset value per share by using
available market quotations. In addition, if a Fund incurs a significant loss or
liability, the Trustees have the authority to reduce pro rata the number of
shares of the Fund in each shareholder's account and to offset each
shareholder's pro rata portion of such loss or liability from the shareholder's
accrued but unpaid dividends or from future dividends.
TAXES
The information set forth in the Prospectus and the following is only a summary
of certain federal income tax considerations generally affecting each Fund and
its shareholders, and is not intended as a substitute for careful tax planning.
No attempt has been made to present a detailed explanation of the income tax
treatment of each Fund or its shareholders. Shareholders and potential
purchasers of shares are urged to consult their tax advisors with specific
reference to their own tax situations, including their state and local tax
liabilities.
THE FUNDS
The following discussion of 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, certain 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.
Shareholders will be advised annually as to certain federal income tax
consequences of distributions made during the year.
S-14
<PAGE>
It is the policy of each Fund to qualify for the favorable tax treatment
accorded regulated investment companies under Subchapter M of the Code. By
following such policy, each Fund expects to eliminate or reduce to a nominal
amount the federal taxes to which it may be subject.
In order to qualify as a regulated investment company each Fund must, among
other things, (1) derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock, securities or foreign currencies; or
other income (including gains from options, futures or forward contracts)
derived with respect to its business of investing in stock, securities or
currencies; (2) derive less than 30% of its gross income each taxable year from
the sale or other disposition of certain assets held for less than three months
("Short-Short Limitation"), including stock and securities; options, futures or
forward contracts (other than on foreign currencies); or foreign currencies
(including options, futures or forward contracts on such currencies) if not
directly related to the Fund's principal business of investing in stocks and
securities; and (3) diversify its holdings so that at the end of each quarter of
each taxable year (i) at least 50% of the market value of the Fund's total
assets is represented by cash or cash items, United States Government
securities, securities of other regulated investment companies, and other
securities limited, in respect of any one issuer, to a value not greater than 5%
of the value of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than United States
Government securities or securities of any other regulated investment company)
or of two or more issuers that the Fund controls and that are engaged in the
same, similar, or related trades or businesses. These requirements may restrict
the degree to which the Fund may engage in short-term trading and in certain
hedging transactions and may limit the range of the Fund's investments. If a
Fund qualifies as a regulated investment company, it will not be subject to
federal income tax on the part of its net investment income and net realized
capital gains, if any, which it distributes each year to shareholders, provided
the Fund distributes at least (a) 90% of its "investment company taxable income"
(generally, net investment income plus net short-term capital gain) and (b) 90%
of its net tax-exempt interest income (the excess of (i) its tax-exempt interest
income over (ii) certain deductions attributable to that income).
If for any taxable year a Fund does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income will be
subject to federal income tax at regular corporated tax rates without any
deduction for distributions to its shareholders and all such distributions will
be taxable to shareholders as ordinary dividends to the extent of the Fund's
current and accumulated earnings and profits. Such distributions generally will
be eligible for the 70% dividend received deduction for corporate shareholders.
If a Fund fails to distribute in a calendar year at least the sum of 98% of its
ordinary income for the year and 98% of its capital gain net income (the excess
of short and long term gain over short and long term capital losses) for the
one-year period ending October 31 of the year (and any retained amount from the
prior calendar year), the Fund will be subject to a nondeductible 4% federal
excise tax on the undistributed amounts.
Distributions declared in October, November, or December to shareholders of
record during those months and paid during the following January are treated as
if they were received by each shareholder on December 31 of the year declared
for tax purposes.
In certain cases, a Fund will be required to withhold and remit to the U.S.
Treasury 31% of any distribution paid to an individual or certain other
non-corporate shareholder (1) who has failed to provide a correct taxpayer
identification number, (2) who is subject to backup withholding by the Internal
Revenue Service, or (3) who has not certified to the Fund that such shareholder
is not subject to backup withholding. This backup withholding is not an
additional tax, and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.
S-15
<PAGE>
Generally, gain or loss on the sale or exchange of a Share will be capital gain
or loss which will be long-term if the Share has been held for more than one
year and otherwise will be short-term. However, if a shareholder realizes a loss
on the sale, exchange or redemption of a Share held for six months or less and
has previously received a capital gains distribution with respect to the Share
(or any undistributed net capital gains of a Fund with respect to such Share are
included in determining the shareholder's long-term capital gains), the
shareholder must treat the loss as a long-term capital loss to the extent of the
amount of the prior capital gains distribution (or any undistributed net capital
gains of a Fund which 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). Investors should particularly note that this loss disallowance rule
will apply to Shares received through the reinvestment of dividends during the
61-day period.
ADDITIONAL INFORMATION CONCERNING STATE TAXES
A Fund is not liable for any income or franchise tax in Massachusetts if it
qualifies as a regulated investment company for federal income tax purposes.
Distributions by the Fund to shareholders and the ownership of shares may be
subject to state and local taxes. Therefore, shareholders are urged to consult
with their tax advisors concerning the application of state and local taxes to
investments in the Fund, which may differ from the federal income tax
consequences. For example, under certain specified circumstances, state income
tax laws MAY exempt from taxation distributions of a regulated investment
company to the extent that such distributions are derived from interest on
federal obligations. SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR TAX ADVISORS
REGARDING WHETHER, AND UNDER WHAT CONDITIONS SUCH EXEMPTION IS AVAILABLE.
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 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 generally seeks reasonably competitive spreads or commissions, the
Fund will not necessarily be paying the lowest spread or commission available.
The money market securities in which a Fund invests 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
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 a Fund will primarily consist of dealer spreads and
underwriting commissions.
TRADING PRACTICES AND BROKERAGE
Certain investments may be appropriate for the Funds and for other clients
advised by the Adviser. Investment decisions for the Funds and other clients are
made with a view to achieving their respective investment objectives and after
consideration of such factors as their current holdings, availability of cash
for investment, and the size of their investments generally. A particular
security may be bought or sold for only one client or in different amounts and
at different times for more than one but less than all clients. Likewise, a
particular security may be bought for one or more clients when one or more other
clients are selling the security. In addition, purchases or sales of the same
security may be made for two or more
S-16
<PAGE>
clients of the Adviser on the same day. In such event, such transactions will be
allocated among the clients in a manner believed by the Adviser to be equitable
to each. In some cases, this procedure could have an adverse effect on the price
or amount of the securities purchased or sold by the Funds. Purchase and sale
orders for the Funds may be combined with those of other clients of the Adviser
in the interest of achieving the most favorable net results for the Funds.
Consistent with the Conduct of the National Association of Securities Dealers,
Inc., and subject to seeking best price and execution, a Fund may place orders
with broker/dealers which have agreed to defray certain Fund expenses such as
custodian fees.
It is expected that each Fund may execute brokerage or other agency transactions
through the Distributor or a registered broker/dealer affiliate of the Adviser
for a commission in conformity with the 1940 Act, the Securities Exchange Act of
1934 and rules promulgated by the Securities and Exchange Commission.
For the fiscal years ended January 31, 1996 and January 31, 1997 the U.S.
Government Securities Money Fund and the Prime Obligations Fund paid the
following brokerage commissions with respect to portfolio transactions:
<TABLE>
<CAPTION>
% OF TOTAL BROKERAGE
TOTAL $ AMOUNT OF % OF TOTAL BROKERAGE TOTAL BROKERAGE
TOTAL $ AMOUNT OF COMMISSIONS PAID TO
TRANSACTIONS SFS IN CONNECTION
BROKERAGE COMMISSIONS PAID TO EFFECTED THROUGH WITH REPURCHASE
BROKERAGE COMMISSIONS PAID TO AGREEMENT
COMMISSIONS PAID AFFILIATES AFFILIATED BROKERS AFFILIATED BROKERS TRANSACTIONS
-------------------- -------------------- -------------------- -------------------- --------------------
PORTFOLIO 1996 1997 1996 1997 1996 1997 1996 1997 1996 1997
- ---------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Securities
Fund.......... N/A N/A N/A N/A N/A N/A N/A N/A $8,354.53 $37,949.24
Prime
Obligations
Fund.......... N/A N/A N/A N/A N/A N/A N/A N/A 16,878.04 34,718.03
<CAPTION>
TOTAL $ AMOUNT OF
BROKERAGE
COMMISSIONS PAID FOR
RESEARCH
--------------------
PORTFOLIO 1996 1997
- ---------------- --------- ---------
<S> <C> <C>
U.S. Government
Securities
Fund.......... N/A N/A
Prime
Obligations
Fund.......... N/A N/A
</TABLE>
For the fiscal year ended January 31, 1995, the U.S. Government Securities Money
Fund and the Prime Obligations Fund did not pay any brokerage commissions with
respect to portfolio transactions.
The Trust is required to identify any securities of its "regular brokers or
dealers" (as such term is defined in the 1940 Act) which the Trust has acquired
during its most recent fiscal year. As of January 31, 1997, the Funds held
securities of the Trust's "regular brokers or dealers" as follows: the U.S.
Government Securities Money Fund held $75,153,000 in repurchase agreements
issued by Greenwich Capital; and the Prime Obligations Fund held $39,804,000 in
repurchase agreements issued by Paine Webber.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the Board of Trustees to issue an unlimited
number of shares of the Fund, and to divide or redivide any unissued shares of
the Trust into one or more additional series.
Shares have no subscription or preemptive rights and only such conversion or
exchange rights as the Board of Trustees may grant in its discretion. When
issued for payment as described in the Prospectus and this Statement of
Additional Information, the Trust's shares will be fully paid and
non-assessable, subject only to the possibility of shareholder liability
described in the following section. 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. In the event of a liquidation or dissolution of the Trust,
shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon the relative asset values of the respective Funds, of any general assets
not belonging to any particular Fund which are available for distribution.
S-17
<PAGE>
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
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 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% SHAREHOLDERS
As of March 10, 1997, the following person were the only persons who were record
owners (to the knowledge of the Trust, beneficial owners) of 5% or more of the
shares of the Funds. The Trust believes that most of the shares referred to
below were held by the below persons in account for their fiduciary, agency or
custodial customers.
U.S. GOVERNMENT SECURITIES MONEY FUND: Hamac & Co., Attention: Barbara Holloway
HDQ 5706, 919 East Main Street, Richmond, VA 23219, 83.91%; Crestar Securities
Corporation, P.O. Box 498, Richmond, VA 23204-0498, 16.09%.
PRIME OBLIGATIONS FUND: Hamac & Co., Attention: Barbara Holloway HDQ 5706, 919
East Main Street, Richmond, VA 23219, 83.91%; Crestar Securities Corp., P.O. Box
498, Richmond, VA 23204-0498, 16.45%.
EXPERTS
The financial statements incorporated by reference into this Statement of
Additional Information have been incorporated by reference in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
FINANCIAL STATEMENTS
The audited financial statements of the Funds for the fiscal year ended January
31, 1997, and the Report of Independent Accountants of Price Waterhouse LLP
dated March 14, 1997, relating to the financial statements, including the
financial highlights of the Fund are incorprated herein by reference.
S-18
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
DESCRIPTION OF COMMERCIAL PAPER RATINGS
The following descriptions are summaries of published 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+ and 2, 1 to indicate the relative
degree of safety. Issues rated A-1+ are those with an "overwhelming degree" of
credit protection. Those rated A-1 reflect a "very strong" degree of safety
regarding timely payment. Those rated A-2 reflect a 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 the "highest" quality and
"higher" quality respectively on the basis of relative repayment capacity.
The rating Fitch-1 (Highest Grade) is the highest commercial rating assigned by
Fitch Investors Service, Inc. ("Fitch"). Paper rated Fitch-1 is regarded as
having the strongest degree of assurance for timely payment. The rating Fitch-2
(Very Good Grade) is the second highest commercial paper rating assigned by
Fitch which reflects an assurance of timely payment only slightly less in degree
than the strongest issues.
The rating Duff-1 is the highest commercial paper rating assigned by Duff &
Phelps, Inc. ("Duff"). Paper rated Duff-1 is regarded as having very high
certainty of timely payment with excellent liquidity factors which are supported
by ample asset protection. Risk factors are minor. Paper rated Duff-2 is
regarded as having good certainty of timely payment, good access to capital
markets and sound liquidity factors and company fundamentals. Risk factors are
small. The designation A1 by IBCA, Inc. ("IBCA") indicates that the obligation
is supported by a very strong capacity for timely repayment. Those obligations
rated A1+ are supported by the highest capacity for timely repayment.
Obligations rated A2 are supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in business,
economic or financial conditions.
A-1
<PAGE>
PART C: OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS:
(a) Financial Statements:
Part A--Financial Highlights
Part B--
<TABLE>
<S> <C>
(1) The following audited financial statements for the Golden Oak Growth
Portfolio, Golden Oak Intermediate-Term Income Portfolio and Golden Oak
Prime Obligation Money Market Portfolio for the fiscal year ended January
31, 1997, including the report of Price Waterhouse LLP dated March 14,
1997, are incorporated by reference to the Statement of Additional
Information from Form N-30D filed on March 27, 1997 with Accession Number
0000935069-97-000034:
Statement of Net Assets
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
(2) The following audited financial statements for the California Tax Exempt
Portfolio and Institutional Tax Free Portfolio (the "PIMC Portfolios") for
the fiscal year ended January 31, 1997, including the report of Price
Waterhouse LLP dated March 14, 1997, are incorporated by reference to the
Statement of Additional Information from Form N-30D filed on March 24,
1997 with Accession Number 0000935069-97-000033:
Statement of Net Assets
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
(3) The following audited financial statements for the OVB Equity Income
Portfolio, OVB Prime Obligations Portfolio, OVB Capital Appreciation
Portfolio, OVB Emerging Growth Portfolio, OVB Government Securities
Portfolio and OVB West Virginia Tax-Exempt Income Portfolio (the "OVB
Portfolios") for the fiscal year ended January 31, 1997, including the
report of Price Waterhouse LLP dated March 14, 1997, are incorporated by
reference to the Statement of Additional Information from Form N-30D filed
on March 31, 1997 with Accession Number 0000935069-97-000040:
Statement of Net Assets
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(4) The following audited financial statements for the U.S. Government
Securities Money Fund and Prime Obligations Fund for the fiscal year ended
January 31, 1997, including the report of Price Waterhouse LLP dated March
14, 1997, are incorporated by reference to the Statement of Additional
Information from Form N-30D filed on March 27, 1997 with Accession Number
0000935069-97-000035:
Statement of Net Assets
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
</TABLE>
(b) Additional Exhibits:
<TABLE>
<S> <C>
(1) Registrant's Agreement and Declaration of Trust originally filed with the
Registrant's Registration Statement on Form N-1A (File No. 33-50718) with
the Securities and Exchange Commission on August 11, 1992 is filed
herewith.
(2) Registrant's By-Laws originally filed with the Registrant's Registration
Statement on Form N-1A (File No. 33-50718) with the Securities and
Exchange Commission on August 11, 1992 are filed herewith.
(3) Not Applicable.
(4) Not Applicable.
(5)(a) Investment Advisory Agreement between the Registrant and Citizens Commercial
and Savings Bank with respect to the Golden Oak Diversified Growth
Portfolio, the Golden Oak Intermediate-Term Income Portfolio, Golden Oak
Michigan Tax Free Bond Portfolio and Golden Oak Prime Obligation Money
Market Portfolio, originally filed as exhibit 5(b) with Pre-Effective
Amendment No. 2 to Registrant's Registration Statement on Form N-1A (File
No. 33-50718) with the Securities and Exchange Commission on January 13,
1993 is filed herewith.
(5)(b) Investment Sub-Advisory Agreement by and among Registrant, Citizens
Commercial and Savings Bank and Wellington Management Company, LLP with
respect to the Golden Oak Prime Obligation Money Market Portfolio,
originally filed as exhibit 5(c), is incorporated herein by reference to
Pre-Effective Amendment No. 2 to Registrant's Registration Statement on
Form N-1A (File No. 33-50718) filed with the Securities and Exchange
Commission on January 13, 1993.
(5)(c) Investment Advisory Agreement between Registrant and Prudential Investment
Corporation with respect to the California Tax Exempt Portfolio and the
Institutional Tax Free Portfolio originally filed as exhibit 5(f) with
Post-Effective Amendment No. 4 to Registrant's Registration Statement on
Form N-1A (File No. 33-50718) with the Securities and Exchange Commission
on July 29, 1993 is filed herewith.
(5)(d) Investment Advisory Agreement between the Registrant and One Valley Bank,
National Association with respect to the OVB Portfolios originally filed
as exhibit 5(h) with Post-Effective Amendment No. 6 to Registrant's
Registration Statement on Form N-1A (File No. 33-50718) with the
Securities and Exchange Commission on September 23, 1993 is filed
herewith.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
(5)(e) Investment Sub-Advisory Agreement by and among the Registrant, One Valley
Bank, National Association, and Wellington Management Company, LLP with
respect to the OVB Prime Obligations Portfolio, originally filed as
exhibit 5(i) with Post-Effective Amendment No. 6 to Registrant's
Registration Statement on Form N-1A (File No. 33-50718) with the
Securities and Exchange Commission on September 23, 1993 is filed
herewith.
(5)(f) Investment Advisory Agreement between the Registrant and Capitoline
Investment Services, Incorporated with respect to the U.S. Government
Securities Money Fund originally filed as exhibit 5(j), with
Post-Effective Amendment No. 9 to Registrant's Registration Statement on
Form N-1A (File No. 33-50718) with the Securities and Exchange Commission
on June 2, 1994 is filed herewith.
(5)(g) Form of Schedule B to Investment Advisory Agreement between the Registrant
and Citizens Commercial & Savings Bank with respect to Golden Oak Growth
and Income Portfolio, originally filed as exhibit 5(l), is incorporated
herein by reference to Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A (File No. 33-50718) filed with the
Securities and Exchange Commission on September 30, 1994.
(5)(h) Schedule to the Investment Advisory Agreement between Registrant and
Capitoline Investment Services Incorporated with respect to the Prime
Obligations Fund originally filed as exhibit 5(q) with Post-Effective
Amendment No. 13 to Registrant's Registration Statement on Form N-1A (File
No. 33-50718) with the Securities and Exchange Commission on August 11,
1995 is filed herewith.
(5)(i) Form of Investment Advisory Agreement between the Registrant and PNC
Institutional Management Corporation with respect to the California
Tax-Exempt Portfolio, originally filed as exhibit 5(s), is incorporated
herein by reference to Post-Effective Amendment No. 14 to Registrant's
Registration Statement on Form N-1A (File No. 33-50718) filed with the
Securities and Exchange Commission on March 29, 1996.
(5)(j) Form of Investment Advisory Agreement between the Registrant and PNC
Institutional Management Corporation with respect to the Institutional Tax
Free Portfolio, originally filed as exhibit 5(t), is incorporated herein
by reference to Post-Effective Amendment No. 14 to Registrant's
Registration Statement on Form N-1A (File No. 33-50718) filed with the
Securities and Exchange Commission on March 29, 1996.
(5)(k) Investment Sub-Advisory Agreement by and among the Registrant and Citizens
Bank and Nicholas-Applegate Capital Management with respect to the Golden
Oak Diversified Growth Portfolio, originally filed as exhibit 5(u), is
incorporated herein by reference to Post-Effective Amendment No. 14 to
Registrant's Registration Statement on Form N-1A (File No. 33-50718) filed
with the Securities and Exchange Commission on March 29, 1996.
(5)(l) Investment Advisory Agreement between the Registrant and One Valley Bank,
National Association with respect to the OVB Equity Income Portfolio, is
incorporated herein by reference to Post-Effective Amendment No. 16 to the
Registrant's Registration Statement on Form N-1A (File No. 33-50718) filed
with the Securities and Exchange Commission on February 28, 1997.
(5)(m) Form of Investment Sub-Advisory Agreement by and among the Registrant,
Citizens Bank and Systematic Financial Management, L.P. with respect to
the Golden Oak Value Portfolio is filed herewith.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
(6)(a) Distribution Agreement between Registrant and SEI Financial Services Company
originally filed with Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (File No. 33-50718) with the
Securities and Exchange Commission on October 14, 1992 is filed herewith.
(6)(b) Transfer Agent Agreement between Registrant and SEI Financial Management
Corporation is incorporated herein by reference to Pre-Effective Amendment
No. 2 to Registrant's Registration Statement on Form N-1A (File No.
33-50718) filed with the Securities and Exchange Commission on January 13,
1993.
(6)(c) Transfer Agent Agreement between Registrant and Crestar Bank is incorporated
herein by reference to Post-Effective Amendment No. 12 to Registrant's
Registration Statement on Form N-1A (File No. 33-50718) filed with the
Securities and Exchange Commission on May 31, 1995.
(6)(d) Transfer Agent Agreement between Registrant and Supervised Service Company
is incorporated herein by reference to Post-Effective Amendment No. 12 to
Registrant's Registration Statement on Form N-1A (File No. 33-50718) filed
with the Securities and Exchange Commission on May 31, 1995.
(7) Not Applicable.
(8)(a) Custodian Agreement between Registrant and CoreStates Bank N.A. originally
filed with Pre-Effective Amendment No. 1 to Registrant's Registration
Statement on Form N-1A (File No. 33-50718) with the Securities and
Exchange Commission on October 14, 1992 is filed herewith.
(8)(b) Form of Custodian Agreement between Registrant and Crestar Bank is
incorporated herein by reference to Post-Effective Amendment No. 9 to
Registrant's Registration Statement on Form N-1A (File No. 33-50718) filed
with the Securities and Exchange Commission on June 2, 1994.
(9)(a) Administration Agreement between Registrant and SEI Financial Management
Corporation with Schedule dated January 28, 1993 for the Golden Oak
Portfolios and forms of Schedule for the California Tax Exempt Portfolio
and Institutional Tax Free Portfolio, originally filed as exhibit 5(a), is
incorporated herein by reference to Post-Effective Amendment No. 4 to
Registrant's Registration Statement on Form N-1A (File No. 33-50718) filed
with the Securities and Exchange Commission on July 29, 1993.
(9)(b) Form of Schedule, relating to the OVB Prime Obligations, OVB Capital
Appreciation, OVB Emerging Growth, OVB Government Securities and OVB West
Virginia Tax-Exempt Income Portfolios (the "OVB Portfolios"), to
Administration Agreement by and between the Registrant and SEI Financial
Management Corporation dated as of January 28, 1993, originally filed as
exhibit 5(g), is incorporated herein by reference to Post-Effective
Amendment No. 6 to Registrant's Registration Statement on Form N-1A (File
No. 33-50718) filed with the Securities and Exchange Commission on
September 23, 1993.
(9)(c) Form of Schedule relating to U.S. Government Securities Money Fund, to
Administration Agreement by and between Registrant and SEI Financial
Management Corporation, originally filed as exhibit 5(k), is incorporated
herein by reference to Post-Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A (File No. 33-50718) filed with the
Securities and Exchange Commission on June 2, 1994.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
(9)(d) Form of Schedule, relating to Golden Oak Growth and Income Portfolio, to
Administration Agreement by and between Registrant and SEI Financial
Management Corporation, originally filed as exhibit 5(n), is incorporated
herein by reference to Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A (File No. 33-50718) filed with the
Securities and Exchange Commission on September 30, 1994.
(9)(e) Administration Agreement between Registrant and SEI Financial Corporation
with Schedule dated January 28, 1993 as amended and restated on May 17,
1994 for Golden Oak Portfolios, the Prudential Portfolios and the OVB
Portfolios originally filed as exhibit 5(o) with Post-Effective Amendment
No. 12 to Registrant's Registration Statement on Form N-1A (File No.
33-50718) with the Securities and Exchange Commission on May 31, 1995 is
filed herewith.
(9)(f) Administration Agreement between Registrant and SEI Financial Management
Corporation with Schedule dated August 1, 1994 originally filed as exhibit
5(p) with Post-Effective Amendment No. 12 to Registrant's Registration
Statement on Form N-1A (File No. 33-50718) with the Securities and
Exchange Commission on May 31, 1995 is filed herewith.
(9)(g) Schedule relating to the Prime Obligations Fund, to Administration Agreement
by and between Registrant and SEI Financial Management Corporation,
originally filed as exhibit 5(p) with Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A (File No. 33-50718) with
the Securities and Exchange Commission on August 11, 1995 is filed
herewith.
(9)(h) Consent to Assignment and Assumption of Administration Agreement between the
Registrant and SEI Financial Management Corporation, dated January 28,
1993, to SEI Fund Resources is filed herewith.
(10) Opinion and Consent of Counsel originally filed with Pre-Effective Amendment
No. 2 to Registrant's Registration Statement on Form N-1A (File No.
33-50718) with the Securities and Exchange Commission on January 13, 1993
is filed herewith.
(11) Consent of Independent Accountants is filed herewith.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15)(a) Registrant's Distribution Plan with respect to the Class B shares of the
Golden Oak Portfolios (except Golden Oak Growth and Income Portfolio)
originally filed with Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (File No. 33-50718) with the
Securities and Exchange Commission on October 14, 1992 is filed herewith.
(15)(b) Registrant's Distribution Plan with respect to the Class B shares of the OVB
Portfolios originally filed with Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form N-1A (File No. 33-50718) with
the Securities and Exchange Commission on September 23, 1993 is filed
herewith.
(15)(c) Form of Registrant's Distribution Plan with respect to the Class B Shares of
the Golden Oak Growth and Income Portfolio is incorporated herein by
reference to Post-Effective Amendment No. 10 to Registrant's Registration
Statement on Form N-1A (File No. 33-50718) filed with the Securities and
Exchange Commission on September 30, 1994.
(15)(d) Rule 18f-3 Multi-Class Plan originally filed with Post-Effective Amendment
No. 12 to Registrant's Registration Statement on Form N-1A (File No.
33-50718) with the Securities and Exchange Commission on May 31, 1995 is
filed herewith.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
(16) Performance Quotation Computation with respect to the Golden Oak Portfolios
is incorporated herein by reference to Pre-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A (File No. 33-50718) filed
with the Securities and Exchange Commission on January 13, 1993.
(17) Financial Data Schedules are filed herewith.
(24) Powers of Attorney for John T. Cooney, William M. Doran, Frank E. Morris,
Robert A. Nesher, Robert A. Patterson, Gene Peters, James M. Storey and
David G. Lee are filed herewith.
</TABLE>
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT:
See the Prospectuses and the Statement of Additional Information regarding
the Trust's control relationships. The Administrator is a subsidiary of SEI
Investments Company which also controls the distributor of the Registrant, SEI
Financial Services Company, and other corporations engaged in providing various
financial and record keeping services, primarily to bank trust departments,
pension plan sponsors, and investment managers.
6
<PAGE>
Item 26. NUMBER OF HOLDERS OF SECURITIES:
As of March 10, 1997:
<TABLE>
<CAPTION>
NUMBER OF
RECORD
TITLE OF CLASS HOLDERS
- ---------------------------------------------------------------------------------- -----------
<S> <C>
Units of beneficial interest, without par value--
Golden Oak Growth Portfolio
Class A......................................................................... 6
Class B......................................................................... 26
Golden Oak Intermediate-Term Income Portfolio
Class A......................................................................... 6
Class B......................................................................... 10
Golden Oak Michigan Tax Free Bond Portfolio
Class A......................................................................... N/A
Class B......................................................................... N/A
Golden Oak Prime Obligation Money Market Portfolio
Class A......................................................................... 6
Class B......................................................................... 147
Golden Oak Value Portfolio
Class A......................................................................... N/A
Class B......................................................................... N/A
California Tax Exempt Portfolio................................................... 9
Institutional Tax Free Portfolio.................................................. 7
OVB Prime Obligations Portfolio
Class A......................................................................... 6
Class B......................................................................... 147
OVB Capital Appreciation Portfolio
Class A......................................................................... 6
Class B......................................................................... 583
OVB Emerging Growth Portfolio
Class A......................................................................... 7
Class B......................................................................... 446
OVB Government Securities Portfolio
Class A......................................................................... 6
Class B......................................................................... 188
OVB West Virginia Tax-Exempt Income Portfolio
Class A......................................................................... 6
Class B......................................................................... 199
OVB Equity Income Portfolio
Class A......................................................................... 7
Class B......................................................................... 198
US Government Securities Money Fund............................................... 2
Prime Obligations Fund............................................................ 2
</TABLE>
Item 27. INDEMNIFICATION:
Article VIII of the Agreement and Declaration of Trust filed as Exhibit 1 to
the Registration Statement is incorporated by reference. Insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended, may be permitted to trustees, directors, officers and controlling
persons of the Registrant by the Registrant pursuant to the Declaration of Trust
or otherwise, the Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public
7
<PAGE>
policy as expressed in the Act and, therefore, is unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by trustees, directors,
officers or controlling persons of the Registrant in connection with the
successful defense of any act, suit or proceeding) is asserted by such trustees,
directors, officers or controlling persons in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issues.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:
Other business, profession, vocation or employment of a substantial nature
in which each director or principal officer of the Adviser is or has been, at
any time during the last two fiscal years, engaged for his or her own account or
in the capacity of director, officer, employee, partner or trustee are as
follows:
<TABLE>
<CAPTION>
NAME AND POSITION CONNECTION WITH
WITH INVESTMENT ADVISER NAME OF OTHER COMPANY OTHER COMPANY
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
CITIZENS BANK
Victor E. George Victor George Oldsmobile, Inc. Chairman
Chairman Citizens Banking Corporation Director
Charles R. Weeks Citizens Banking Corporation Chairman
Vice Chairman Wolohan Lumber Co. Director
David A. Thomas, Jr. Citizens Banking Corporation Vice Chairman
Director, President, CEO
Edward P. Abbott Abbott's Meat, Inc. President
Director Citizens Banking Corporation Director
John W. Ennest Citizens Banking Corporation Vice Chairman, CFO and Treasurer
Director
George H. Kossaras Spring's Drug Store, Inc. President
Director Citizens Banking Corporation Director
Gerald Schreiber Royalite Co. Vice President
Director
William C. Shedd Winegarden, Shedd, Haley, Attorney & Partner
Director Lindholm & Robertson Director
Citizens Banking Corporation
Joseph G. Shomsky Massachusetts Mutual Insurance Insurance
Director Company
James E. Truesdell The Austin Group President
Director Citizens Banking Corporation Director
Robert J. Vitito Citizens Banking Corporation President, CEO
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION CONNECTION WITH
WITH INVESTMENT ADVISER NAME OF OTHER COMPANY OTHER COMPANY
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Kendall B. Williams Gault Davison, P.C. Attorney & Vice President
Director Citizens Banking Corporation Director
Ada C. Washington
Director
Gary P. Drainville Citizens Banking Corporation Executive Vice President
Executive Vice President
Wayne G. Schaeffer Citizens Banking Corporation Executive Vice President
Senior Executive Vice President
Chief Financial Officer and Director
Chief Operating Officer
Gordon F. Strayer Citizens Bank Fenton Region Board Director
Executive Vice President
David H. Buick
Senior Vice President
Dana A. Czmer
Senior Vice President and
Trust Officer
Thomas W. Gallagher Citizens Banking Corporation Senior Vice President General
Senior Vice President,
General Counsel, Secretary
Gary O. Clark Citizens Banking Corporation Executive Vice President
CEO, Director Citizens Bank Illinois, N.A. President
Edward P. Majask
Senior Vice President
and Senior Investment Officer
Richard J. Mitsdarfer Citizens Banking Corporation Senior Vice President & General
Senior Vice President Auditor
and General Auditor
Edward H. Newman Citizens Banking Corporation Vice President & Assistant Secretary
Senior Vice President, Cashier &
Secretary
Thomas C. Shafer
Senior Vice President
Lawrence G. Southwell
Senior Vice President
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION CONNECTION WITH
WITH INVESTMENT ADVISER NAME OF OTHER COMPANY OTHER COMPANY
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Richard T. Albee
Senior Vice President
Marilyn K. Allor
Senior Vice President
Daniel E. Bekemeier
Senior Vice President & Controller
Dennis R. Johnston
Senior Vice President
Vicent V. Maysura
Senior Vice President
Leslie V. Starr
Senior Vice President
James M. VanTiflin
Director
Robert L. Critchfield Citizens Bank - Fenton
Community President & Director
Joseph F. Smith Citizens Bank - Sturgis
Community President & Director
Richard J. DeVries Citizens Bank - Ypsilanti
Community President & Director
ONE VALLEY BANK, NATIONAL ASSOCIATION:
J. Holmes Morrison One Valley Bancorp President & Chief Executive Officer
Chairman of the Board
Phyllis H. Arnold One Valley Bancorp Director
Director, President & Chief One Valley Bank, N.A. President & CEO
Executive Officer
Frederick H. Belden, Jr. One Valley Bancorp Senior Vice President and Assistant
Executive Vice President Corporate Secretary
Charles M. Avampato Clay Foundation, Inc. President
Director One Valley Bancorp Director
Robert F. Baronner One Valley Bancorp Chairman of the Board of Directors
Director
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION CONNECTION WITH
WITH INVESTMENT ADVISER NAME OF OTHER COMPANY OTHER COMPANY
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Herald R. Baughman One Valley Bank, N.A.
Senior Vice President
Gary L. Brown Parkerburg Region
Region President
James K. Brown Jackson & Kelly Attorney, Partner
Director One Valley Bancorp Director
Lloyd P. Calvert One Valley Bank, N.A.
Senior Vice President
John T. Chambers Ravenswood Land Co. and Mt. Alpha President
Director Development Co. Director
One Valley Bancorp
Nelle Ratrie Chilton Dickinson Fuel Co. Director
Director Terra Co., Inc. Director
Terra Care, Inc. Director
Terra Salis, Inc. Director
TerraSod, Inc. Director
One Valley Bancorp Director
Anthony N. Ciliberti One Valley Bank, N.A.
General Auditor
Bernice J. Deem One Valley Bank, N.A.
Senior Vice President
Ray Marshall Evans, Jr. Dickinson Co. and Quincy Coal Co. President
Director One Valley Bancorp Director
Jane Fleming One Valley Bank, N.A.
Senior Vice President
Brian Fox One Valley Bank, N.A.
Senior Vice President
Robert F. Goldsmith Cascades Coal Sales, Inc. President
Director Sentry Resource Associates, Inc. Executive Vice President
Phillip H. Goodwin CAMCARE and Charleston Area Medical President
Director Center Director
One Valley Bancorp
O. Nelson Jones Madison Coal & Supply Company President
Director Amherst Industries, Inc. Vice President
William M. Kidd One Valley Bank, N.A.
Senior Vice President
Carl E. Little One Valley Bank Vice Chairman (retired)
Director
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION CONNECTION WITH
WITH INVESTMENT ADVISER NAME OF OTHER COMPANY OTHER COMPANY
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Edward H. Maier General Corporation President
Director One Valley Bancorp Director
Roger D. Mooney
Senior Vice President
John F. Mork Eastern American Energy Corp. President
Director
Harold E. Neely One Valley Bank, N.A.
Senior Vice President
Robert O. Orders, Sr. Orders Construction Company Chief Executive Officer
Director One Valley Bancorp Director
John L. D. Payne Payne-Gallatin Mining Co. President
Director One Valley Bancorp Director
Angus E. Peyton Brown & Peyton Attorney & Partner
Director American Electric Power Co., Inc. Director
One Valley Bancorp Director
Brent D. Robinson One Valley Bank Huntington President
K. Richard C. Sinclair Jefferds Corporation President
Director
James C. Smith O.V. Smith & Sons of Big Chimney, President
Director Inc. Vice President
O.V. Smith & Sons, Inc.
Michael W. Stajduhar One Valley Bank, N.A.
Senior Vice President
James R. Thomas II Carbon Industries, Inc. Chairman (retired)
Director
J. Randy Valentine One Valley Bank, N.A.
Senior Vice President
Dr. Edwin H. Welch University of Charleston President
Director One Valley Bank, N.A.
John Henry Wick III Dickinson Fuel Co., Inc. Commercial Realtor (retired)
Director Harrison & Bates
Thomas D. Wilkerson Northwestern Mutual Life General Agent
Director Insurance Company Director
James D. Williams
Director
James A. Winter One Valley Bank, N.A.
Senior Vice President
Jack B. Young One Valley Bank, N.A.
Senior Vice President
John F. Ziebold One Valley Bank, N.A.
Senior Vice President
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION CONNECTION WITH
WITH INVESTMENT ADVISER NAME OF OTHER COMPANY OTHER COMPANY
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
CRESTAR ASSET MANAGEMENT COMPANY:
Thomas Dean Hogan Crestar Bank Group Executive Vice President -
Chairman and Director Trust
Ben L. Jones First Fidelity Bancorp Chief Investment Officer
President, Director
Linda Flory Rigsby Crestar Financial Corporation and Senior Vice President, Corporate
Secretary its subsidiary Crestar Bank Secretary and Deputy General
Counsel
Robert F. Norfleet, Jr. Crestar Bank Director of Client Relations; Prior
Director thereto Corporate Executive Vice
President
</TABLE>
The list required by this Item 28. of officers and partners of Wellington
Management Company, LLP together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and partners during the past two years, is incorporated by reference to
Schedules A and D of Form ADV, filed by Wellington Management Company pursuant
to the Investment Advisers Act of 1940 (SEC File No. 801-15908).
The list required by this Item 28. of officers and partners of
Nicholas-Applegate Capital Management, together with information as to any other
business, profession, vocation or employment of a substantial nature engaged in
by such officers and partners during the past two years, is incorporated by
reference to Schedules A and D of Form ADV, filed by Nicholas-Applegate Capital
Management pursuant to the Investment Advisers Act of 1940 (SEC File No.
801-21442).
The list required by this Item 28. of officers and partners of Systematic
Financial Management, L.P. together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and partners during the past two years, is incorporated by reference to
Schedules A and D of Form ADV, filed by Systematic Financial Management, L.P.
pursuant to the Investment Advisers Act of 1940 (SEC File No. 801-48908).
PNC Institutional Management Corporation ("PIMC") performs investment
advisory services for the Registrant and certain other investment companies and
accounts. PNC Bank, N.A. ("PNC"), the parent company of PIMC, and its
predecessors have been in the business of managing the investments of fiduciary
and other accounts in the Philadelphia area since 1847. In addition to its trust
business, PNC provides commercial banking services.
To the Registrant's knowledge, none of the directors or officers of PIMC,
except as set forth in the filings referred to below, is, or has been at any
time during the Registrant's past two fiscal years, engaged in any other
business, profession, vocation or employment of a substantial nature, except
that certain directors and officers and certain executives of PIMC also hold
various positions with, and engage in business for, PNC Bank Corp., which
indirectly owns all the outstanding stock of PIMC, or other subsidiaries of PNC
Bank Corp. Set forth in the filings referred to below are the names and
principal businesses of the directors and certain executives of PIMC who are
engaged in any other business, profession, vocation or employment of a
substantial nature.
The information required by this Item 28 with respect to each director, officer
and partner of PIMC is incorporated by reference to Schedules A and D of Form
ADV, filed by PNC Institutional Management Corporation pursuant to the
Investment Advisers Act of 1940 (SEC File No. 801-13304).
13
<PAGE>
Item 29. PRINCIPAL UNDERWRITERS:
(a) Furnish the name of each investment company (other than the Registrant) for
which each principal underwriter currently distributing the securities of the
Registrant also acts as a principal underwriter, distributor or investment
adviser.
<TABLE>
<S> <C>
Registrant's distributor, SEI Financial Services Company ("SFS"), acts as
distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI International Trust August 30, 1988
Stepstone Funds January 30, 1991
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
CoreFunds, Inc. October 30, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
1784 Funds-Registered Trademark- June 1, 1993
The PBHG Funds, Inc July 16, 1993
Marquis Funds-Registered Trademark- August 17, 1993
Morgan Grenfell Investment Trust January 3, 1994
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
STI Classic Variable Trust August 18, 1995
ARK Funds November 1, 1995
Monitor Funds January 11, 1996
FMB Funds, Inc. March 1, 1996
SEI Asset Allocation Trust April 1, 1996
Turner Funds April 28, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
HighMark Funds February 15, 1997
</TABLE>
SFS provides numerous financial services to investment managers, pension
plan sponsors, and bank trust departments. These services include portfolio
evaluation, performance measurement and consulting services ("Funds
Evaluation") and automated execution, clearing and settlement of securities
transactions ("MarketLink").
(b) Furnish the Information required by the following table with respect to each
director, officer or partner of each principal underwriter named in the answer
to Item 21 of Part B. Unless otherwise noted, the business address of each
director or officer is Oaks, PA 19456
14
<PAGE>
<TABLE>
<CAPTION>
POSITION AND OFFICE POSITIONS AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
- ------------------------------ -------------------------------------------------------- ------------------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman & Chief Executive Officer --
Henry H. Greer Director, President & Chief Operating Officer --
Carmen V. Romeo Director, Executive Vice President & Treasurer --
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President, President-Investment Services --
Division
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Jerome Hickey Senior Vice President --
Larry Hutchison Senior Vice President --
Steven Kramer Senior Vice President --
David G. Lee Senior Vice President President and Chief
Executive Officer
William Madden Senior Vice President --
Jack May Senior Vice President --
A. Keith McDowell Senior Vice President --
Dennis J. McGonigle Senior Vice President --
Hartland J. McKeown Senior Vice President --
Barbara J. Moore Senior Vice President --
James V. Morris Senior Vice President --
Steven Onofrio Senior Vice President --
Kevin P. Robins Senior Vice President, General Counsel & Secretary Vice President and
Assistant Secretary
Robert Wagner Senior Vice President --
Patrick K. Walsh Senior Vice President --
Kenneth Zimmer Senior Vice President --
Robert Aller Vice President --
Marc H. Cahn Vice President & Assistant Secretary Vice President and
Assistant Secretary
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Assistant Secretary Vice President and
Assistant Secretary
Robert Crudup Vice President & Managing Director --
Ed Daly Vice President --
Jeff Drennen Vice President --
Mick Duncan Vice President and Team Leader --
Vic Galef Vice President & Managing Director --
Kathy Heilig Vice President --
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
POSITION AND OFFICE POSITIONS AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
- ------------------------------ -------------------------------------------------------- ------------------------
<S> <C> <C>
Michael Kantor Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing Director --
Donald H. Korytowski Vice President --
John Krzeminski Vice President & Managing Director --
Robert S. Ludwig Vice President and Team Leader --
Vicki Malloy Vice President and Team Leader --
Carolyn McLaurin Vice President & Managing Director --
W. Kelso Morrill Vice President --
Barbara A. Nugent Vice President & Assistant Secretary Vice President and
Assistant Secretary
Sandra K. Orlow Vice President & Assistant Secretary Vice President and
Assistant Secretary
Donald Pepin Vice President & Managing Director --
Larry Pokora Vice President --
Kim Rainey Vice President --
Paul Sachs Vice President --
Mark Samuels Vice President & Managing Director --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary Vice President and
Assistant Secretary
Wayne M. Withrow Vice President & Managing Director --
William Zawaski Vice President --
James Dougherty Director of Brokerage Services --
</TABLE>
Item 30. LOCATION OF ACCOUNTS AND RECORDS:
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3);
(6); (8); (12); and 31a-1(d), the required books and records are maintained
at the offices of Registrant's Custodians:
CoreStates Bank, N.A.
Broad and Chestnut Streets
P.O. Box 7618
Philadelphia, PA 19101
Crestar Bank
919 East Main Street
Richmond, VA 23219
(b)/(c) With respect to Rules 31a-1(a); 31a-1(b)(1),(4);
(2)(C) and (D); (4); (5);
16
<PAGE>
(6); (8); (9); (10); (11); and 31a-1(f), the required books and records are
maintained at the offices of Registrant's Administrator:
SEI Fund Resources
Oaks, PA 19456
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f),
the required books and records are maintained at the principal offices of
the Registrant's Advisers:
<TABLE>
<S> <C>
GOLDEN OAK PORTFOLIOS Citizens Bank
One Citizens Banking Plaza
Flint, MI 48502
Wellington Management Company, LLP
75 State Street
Boston, MA 02109
Systematic Financial Management, L.P.
Two Executive Drive
Fort Lee, NJ 07024
Nicholas-Applegate Capital Management
600 West Broadway
29th Floor
San Diego, CA 92101
PIMC PORTFOLIOS PNC Institutional Management Corporation
400 Bellevue Parkway
Wilmington, DE 19809
OVB PORTFOLIOS One Valley Bank, National Association
One Valley Square
Charleston, WV 25301
Wellington Management Company
75 State Street
Boston, MA 02109
U.S. GOVERNMENT SECURITIES MONEY AND Crestar Asset Management Company
PRIME OBLIGATIONS FUNDS 919 East Main Street
Richmond, VA 23219
</TABLE>
Item 31. MANAGEMENT SERVICES:
None.
Item 32. UNDERTAKINGS:
Registrant hereby undertakes to file a Post-Effective Amendment to this
Registration Statement containing reasonably current financial information
regarding the Golden Oak Value Portfolio within 4-6 months of the later of the
effective date or commencement of operations.
Registrant hereby undertakes to file a Post-Effective Amendment to this
Registration Statement containing reasonably current financial information
regarding the Golden Oak Michigan Tax Free Bond Portfolio within 4-6 months of
the later of the effective date or commencement of operations.
Registrant hereby undertakes that whenever Shareholders meeting the
requirements of Section 16(c) of the Investment Company Act of 1940 inform the
Board of Trustees of their desire to communicate
17
<PAGE>
with Shareholders of the Trust, the Trustees will inform such Shareholders as to
the approximate number of Shareholders of record and the approximate costs of
mailing or afford said Shareholders access to a list of Shareholders.
Registrant undertakes to hold a meeting of Shareholders for the purpose of
voting upon the question of removal of a Trustee(s) when requested in writing to
do so by the holders of at least 10% of Registrant's outstanding shares and in
connection with such meetings to comply with the provisions of Section 16(c) of
the Investment Company Act of 1940 relating to Shareholder communications.
Registrant undertakes to furnish each prospective person to whom a
prospectus will be delivered with a copy of the Registrant's latest annual
report to shareholders, when such annual report is issued containing information
called for by Item 5A of Form N-1A, upon request and without charge.
NOTICE
A copy of the Agreement and Declaration of Trust for The Arbor Fund is on
file with the Secretary of State of The Commonwealth of Massachusetts and notice
is hereby given that this Registration Statement has been executed on behalf of
the Trust by an officer of the Trust as an officer and by its Trustees as
trustees and not individually and the obligations of or arising out of this
Registration Statement are not binding upon any of the Trustees, officers, or
Shareholders individually but are binding only upon the assets and property of
the Trust.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Post-Effective Amendment to Registration No. 33-50718 to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Wayne,
Commonwealth of Pennsylvania on the 28th day of March, 1997.
THE ARBOR FUND
By: /s/ David G. Lee
-----------------------------------------
David G. Lee
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacity and on the dates indicated.
*
- ------------------------------ Trustee March 28, 1997
John T. Cooney
*
- ------------------------------ Trustee March 28, 1997
William M. Doran
*
- ------------------------------ Trustee March 28, 1997
Frank E. Morris
*
- ------------------------------ Trustee March 28, 1997
Robert A. Nesher
*
- ------------------------------ Trustee March 28, 1997
Robert A. Patterson
*
- ------------------------------ Trustee March 28, 1997
Gene B. Peters
*
- ------------------------------ Trustee March 28, 1997
James M. Storey
/s/ David G. Lee
- ------------------------------ President & Chief March 28, 1997
David G. Lee Executive Officer
/s/ Stephen G. Meyer
- ------------------------------ Controller & Chief March 28, 1997
Stephen G. Meyer Financial Officer
*By: /s/ David G. Lee
-------------------------
David G. Lee
Attorney in Fact
19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
- --------------------
<S> <C>
EX-99.B(1) Registrant's Agreement and Declaration of Trust originally filed with the
Registrant's Registration Statement on Form N-1A (File No. 33-50718) with the
Securities and Exchange Commission on August 11, 1992 is filed herewith.
EX-99.B(2) Registrant's By-Laws originally filed with the Registrant's Registration Statement
on Form N-1A (File No. 33-50718) with the Securities and Exchange Commission on
August 11, 1992 are filed herewith.
EX-99.B(3) Not Applicable.
EX-99.B(4) Not Applicable.
EX-99.B(5)(a) Investment Advisory Agreement between the Registrant and Citizens Commercial and
Savings Bank with respect to the Golden Oak Diversified Growth Portfolio, the
Golden Oak Intermediate-Term Income Portfolio, Golden Oak Michigan Tax Free Bond
Portfolio and Golden Oak Prime Obligation Money Market Portfolio, originally
filed as exhibit 5(b) with Pre-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A (File No. 33-50718) with the Securities and
Exchange Commission on January 13, 1993 is filed herewith.
EX-99.B(5)(b) Investment Sub-Advisory Agreement by and among Registrant, Citizens Commercial and
Savings Bank and Wellington Management Company, LLP with respect to the Golden
Oak Prime Obligation Money Market Portfolio, originally filed as exhibit 5(c), is
incorporated herein by reference to Pre-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A (File No. 33-50718) filed with the Securities
and Exchange Commission on January 13, 1993.
EX-99.B(5)(c) Investment Advisory Agreement between Registrant and Prudential Investment
Corporation with respect to the California Tax Exempt Portfolio and the
Institutional Tax Free Portfolio originally filed as exhibit 5(f) with
Post-Effective Amendment No. 4 to Registrant's Registration Statement on Form
N-1A (File No. 33-50718) with the Securities and Exchange Commission on July 29,
1993 is filed herewith.
EX-99.B(5)(d) Investment Advisory Agreement between the Registrant and One Valley Bank, National
Association with respect to the OVB Portfolios originally filed as exhibit 5(h)
with Post-Effective Amendment No. 6 to Registrant's Registration Statement on
Form N-1A (File No. 33-50718) with the Securities and Exchange Commission on
September 23, 1993 is filed herewith.
EX-99.B(5)(e) Investment Sub-Advisory Agreement by and among the Registrant, One Valley Bank,
National Association, and Wellington Management Company, LLP with respect to the
OVB Prime Obligations Portfolio originally filed as exhibit 5(i) with
Post-Effective Amendment No. 6 to Registrant's Registration Statement on Form
N-1A (File No. 33-50718) with the Securities and Exchange Commission on September
23, 1993 is filed herewith.
EX-99.B(5)(f) Investment Advisory Agreement between the Registrant and Capitoline Investment
Services, Incorporated with respect to the U.S. Government Securities Money Fund
originally filed as exhibit 5(j) with Post-Effective Amendment No. 9 to
Registrant's Registration Statement on Form N-1A (File No. 33-50718) with the
Securities and Exchange Commission on June 2, 1994 is filed herewith.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
- --------------------
<S> <C>
EX-99.B(5)(g) Form of Schedule B to Investment Advisory Agreement between the Registrant and
Citizens Commercial & Savings Bank with respect to Golden Oak Growth and Income
Portfolio, originally filed as exhibit 5(l), is incorporated herein by reference
to Post-Effective Amendment No. 10 to Registrant's Registration Statement on Form
N-1A (File No. 33-50718) filed with the Securities and Exchange Commission on
September 30, 1994.
EX-99.B(5)(h) Schedule to the Investment Advisory Agreement between Registrant and Capitoline
Investment Services Incorporated with respect to the Prime Obligations Fund
originally filed as exhibit 5(q) with Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A (File No. 33-50718) with the
Securities and Exchange Commission on August 11, 1995 is filed herewith.
EX-99.B(5)(i) Form of Investment Advisory Agreement between the Registrant and PNC Institutional
Management Corporation with respect to the California Tax-Exempt Portfolio,
originally filed as exhibit 5(s), is incorporated herein by reference to
Post-Effective Amendment No. 14 to Registrant's Registration Statement on Form
N-1A (File No. 33-50718) filed with the Securities and Exchange Commission on
March 29, 1996.
EX-99.B(5)(j) Form of Investment Advisory Agreement between the Registrant and PNC Institutional
Management Corporation with respect to the Institutional Tax Free Portfolio,
originally filed as exhibit 5(t), is incorporated herein by reference to
Post-Effective Amendment No. 14 to Registrant's Registration Statement on Form
N-1A (File No. 33-50718) filed with the Securities and Exchange Commission on
March 29, 1996.
EX-99.B(5)(k) Investment Sub-Advisory Agreement by and among the Registrant and Citizens Bank and
Nicholas-Applegate Capital Management with respect to the Golden Oak Diversified
Growth Portfolio, originally filed as exhibit 5(u), is incorporated herein by
reference to Post-Effective Amendment No. 14 to Registrant's Registration
Statement on Form N-1A (File No. 33-50718) filed with the Securities and Exchange
Commission on March 29, 1996.
EX-99.B(5)(l) Investment Advisory Agreement between the Registrant and One Valley Bank, National
Association with respect to the OVB Equity Income Portfolio, is incorporated
herein by reference to Post-Effective Amendment No. 16 to the Registrant's
Registration Statement on Form N-1A (File No. 33-50718) filed with the Securities
and Exchange Commission on February 28, 1997.
EX-99.B(5)(m) Form of Investment Sub-Advisory Agreement by and among the Registrant, Citizens
Bank and Systematic Financial Management, L.P. with respect to the Golden Oak
Value Portfolio is filed herewith.
EX-99.B(6)(a) Distribution Agreement between Registrant and SEI Financial Services Company
originally filed with Pre-Effective Amendment No. 1 to Registrant's Registration
Statement on Form N-1A (File No. 33-50718) with the Securities and Exchange
Commission on October 14, 1992 is filed herewith.
EX-99.B(6)(b) Transfer Agent Agreement between Registrant and SEI Financial Management
Corporation is incorporated herein by reference to Pre-Effective Amendment No. 2
to Registrant's Registration Statement on Form N-1A (File No. 33-50718) filed
with the Securities and Exchange Commission on January 13, 1993.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
- --------------------
<S> <C>
EX-99.B(6)(c) Transfer Agent Agreement between Registrant and Crestar Bank is incorporated herein
by reference to Post-Effective Amendment No. 12 to Registrant's Registration
Statement on Form N-1A (File No. 33-50718) filed with the Securities and Exchange
Commission on May 31, 1995.
EX-99.B(6)(d) Transfer Agent Agreement between Registrant and Supervised Service Company is
incorporated herein by reference to Post-Effective Amendment No. 12 to
Registrant's Registration Statement on Form N-1A (File No. 33-50718) filed with
the Securities and Exchange Commission on May 31, 1995.
EX-99.B(7) Not Applicable.
EX-99.B(8)(a) Custodian Agreement between Registrant and CoreStates Bank N.A. originally filed
with Pre-Effective Amendment No. 1 to Registrant's Registration Statement on Form
N-1A (File No. 33-50718) with the Securities and Exchange Commission on October
14, 1992 is filed herewith.
EX-99.B(8)(b) Form of Custodian Agreement between Registrant and Crestar Bank is incorporated
herein by reference to Post-Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A (File No. 33-50718) filed with the Securities
and Exchange Commission on June 2, 1994.
EX-99.B(9)(a) Administration Agreement between Registrant and SEI Financial Management
Corporation with Schedule dated January 28, 1993 for the Golden Oak Portfolios
and forms of Schedule for the California Tax Exempt Portfolio and Institutional
Tax Free Portfolio, originally filed as exhibit 5(a), is incorporated herein by
reference to Post-Effective Amendment No. 4 to Registrant's Registration
Statement on Form N-1A (File No. 33-50718) filed with the Securities and Exchange
Commission on July 29, 1993.
EX-99.B(9)(b) Form of Schedule, relating to the OVB Prime Obligations, OVB Capital Appreciation,
OVB Emerging Growth, OVB Government Securities and OVB West Virginia Tax-Exempt
Income Portfolios (the OVB Portfolios), to Administration Agreement by and
between the Registrant and SEI Financial Management Corporation dated as of
January 28, 1993, originally filed as exhibit 5(g), is incorporated herein by
reference to Post-Effective Amendment No. 6 to Registrant's Registration
Statement on Form N-1A (File No. 33-50718) filed with the Securities and Exchange
Commission on September 23, 1993.
EX-99.B(9)(c) Form of Schedule relating to U.S. Government Securities Money Fund,to
Administration Agreement by and between Registrant and SEI Financial Management
Corporation, originally filed as exhibit 5(k), is incorporated herein by
reference to Post-Effective Amendment No. 9 to Registrant's Registration
Statement on Form N-1A (File No. 33-50718) filed with the Securities and Exchange
Commission on June 2, 1994.
EX-99.B(9)(d) Form of Schedule, relating to Golden Oak Growth and Income Portfolio, to
Administration Agreement by and between Registrant and SEI Financial Management
Corporation, originally filed as exhibit 5(n), is incorporated herein by
reference to Post-Effective Amendment No. 10 to Registrant's Registration
Statement on Form N-1A (File No. 33-50718) filed with the Securities and Exchange
Commission on September 30, 1994.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
- --------------------
<S> <C>
EX-99.B(9)(e) Administration Agreement between Registrant and SEI Financial Corporation with
Schedule dated January 28, 1993 as amended and restated on May 17, 1994 for
Golden Oak Portfolios, the Prudential Portfolios and the OVB Portfolios
originally filed as exhibit 5(o) with Post-Effective Amendment No. 12 to
Registrant's Registration Statement on Form N-1A (File No. 33-50718) with the
Securities and Exchange Commission on May 31, 1995 is filed herewith.
EX-99.B(9)(f) Administration Agreement between Registrant and SEI Financial Management
Corporation with Schedule dated August 1, 1994 originally filed as exhibit 5(p)
with Post-Effective Amendment No. 12 to Registrant's Registration Statement on
Form N-1A (File No. 33-50718) with the Securities and Exchange Commission on May
31, 1995 is filed herewith.
EX-99.B(9)(g) Schedule relating to the Prime Obligations Fund, to Administration Agreement by and
between Registrant and SEI Financial Management Corporation originally filed as
exhibit 5(p) with Post-Effective Amendment No. 13 to Registrant's Registration
Statement on Form N-1A (File No. 33-50718) with the Securities and Exchange
Commission on August 11, 1995 is filed herewith.
EX-99.B(9)(h) Consent to Assignment and Assumption of Administration Agreement between the
Registrant and SEI Financial Management Corporation, dated January 28, 1993, to
SEI Fund Resources is filed herewith.
EX-99.B(10) Opinion and Consent of Counsel originally filed with Pre-Effective Amendment No. 2
to Registrant's Registration Statement on Form N-1A (File No. 33-50718) with the
Securities and Exchange Commission on January 13, 1993 is filed herewith.
EX-99.B(11) Consent of Independent Accountants is filed herewith.
EX-99.B(12) Not Applicable.
EX-99.B(13) Not Applicable.
EX-99.B(14) Not Applicable.
EX-99.B(15)(a) Registrant's Distribution Plan with respect to the Class B shares of the Golden Oak
Portfolios (except Golden Oak Growth and Income Portfolio) originally filed with
Pre-Effective Amendment No. 1 to Registrant's Registration Statement on Form N-1A
(File No. 33-50718) with the Securities and Exchange Commission on October 14,
1992 is filed herewith.
EX-99.B(15)(b) Registrant's Distribution Plan with respect to the Class B shares of the OVB
Portfolios originally filed with Post-Effective Amendment No. 6 to Registrant's
Registration Statement on Form N-1A (File No. 33-50718) with the Securities and
Exchange Commission on September 23, 1993 is filed.
EX-99.B(15)(c) Form of Registrant's Distribution Plan with respect to the Class B Shares of the
Golden Oak Growth and Income Portfolio is incorporated herein by reference to
Post-Effective Amendment No. 10 to Registrant's Registration Statement on Form
N-1A (File No. 33-50718) filed with the Securities and Exchange Commission on
September 30, 1994.
EX-99.B(15)(d) Rule 18f-3 Multi-Class Plan originally filed with Post-Effective Amendment No. 12
to Registrant's Registration Statement on Form N-1A (File No. 33-50718) with the
Securities and Exchange Commission on May 31, 1995 is filed herewith.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
- --------------------
<S> <C>
EX-99.B(16) Performance Quotation Computation with respect to the Golden Oak Portfolios is
incorporated herein by reference to Pre-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A (File No. 33-50718) filed with the Securities
and Exchange Commission on January 13, 1993.
EX-99.B(24) Powers of Attorney for John T. Cooney, William M. Doran, Frank E. Morris, Robert A.
Nesher, Robert A. Patterson, Gene Peters, James M. Storey and David G. Lee are
filed herewith.
EX-27.1 Financial Data Schedule for the Golden Oak Prime Obligation Money Market Class A is
filed herewith
EX-27.2 Financial Data Schedule for the Golden Oak Prime Obligation Money Market Class B is
filed herewith
EX-27.3 Financial Data Schedule for the Golden Oak Intermediate Term Income Portfolio Class
A is filed herewith
EX-27.4 Financial Data Schedule for the Golden Oak Intermediate Term Income Portfolio Class
B is filed herewith
EX-27.5 Financial Data Schedule for the Golden Oak Diversified Growth Portfolio Class A is
filed herewith
EX-27.6 Financial Data Schedule for the Golden Oak Diversified Growth Portfolio Class B is
filed herewith
EX-27.7 Financial Data Schedule for the California Tax Exempt Portfolio is filed herewith
EX-27.8 Financial Data Schedule for the Institutional Tax Free Portfolio is filed herewith
EX-27.9 Financial Data Schedule for the OVB Prime Obligation Money Market Class A is filed
herewith
EX-27.10 Financial Data Schedule for the OVB Prime Obligation Money Market Class B is filed
herewith
EX-27.11 Financial Data Schedule for the OVB Capital Appreciation Portfolio Class A is filed
herewith
EX-27.12 Financial Data Schedule for the OVB Capital Appreciation Portfolio Class B is filed
herewith
EX-27.13 Financial Data Schedule for the OVB Emerging Growth Portfolio Class A is filed
herewith
EX-27.14 Financial Data Schedule for the OVB Emerging Growth Portfolio Class B is filed
herewith
EX-27.15 Financial Data Schedule for the OVB Government Securities Portfolio Class A is
filed herewith
EX-27.16 Financial Data Schedule for the OVB Government Securities Portfolio Class B is
filed herewith
EX-27.17 Financial Data Schedule for the OVB West Virginia Tax Exempt Income Portfolio Class
A is filed herewith
EX-27.18 Financial Data Schedule for the OVB West Virginia Tax Exempt Income Portfolio Class
B is filed herewith
EX-27.19 Financial Data Schedule for the Crestar U.S. Government Securities Money Fund is
filed herewith
EX-27.20 Financial Data Schedule for the Crestar Prime Obligations Fund is filed herewith
EX-27.21 Financial Data Schedule for the OVB Equity Income Portfolio Class A is filed
herewith
EX-27.22 Financial Data Schedule for the OVB Equity Income Portfolio Class B is filed
herewith
</TABLE>
<PAGE>
THE ARBOR FUND
AGREEMENT AND DECLARATION OF TRUST
AGREEMENT AND DECLARATION OF TRUST dated the 24th day of July, 1992,
by the Trustees hereunder, and by the holders of Shares of beneficial interest
to be issued hereunder as hereinafter provided.
WITNESSETH that
WHEREAS, this Trust has been formed to carry on the business of an
investment company; and
WHEREAS, the Trustees have agreed to manage all property coming into their
hands as trustees of a Massachusetts voluntary association with transferable
Shares in accordance with the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all cash,
securities and other assets, which they may from time to time acquire in any
manner as Trustees hereunder IN TRUST to manage and dispose of the same upon the
following terms and conditions for the pro rata benefit of the holders from time
to time of Shares in this Trust as hereinafter set forth.
ARTICLE I
NAME AND DEFINITIONS
NAME
SECTION 1. This Trust shall be known as The Arbor Fund, and the Trustees
shall conduct the business of the Trust under that name or any other name as
they may from time to time determine.
DEFINITIONS
SECTION 2. Whenever used herein, unless otherwise required by the context
or specifically provided:
(a) The "Trust" shall mean the Massachusetts voluntary association
established by this Agreement and Declaration of Trust, as amended
from time to time;
(b) "Trustees" shall mean the Trustees of the Trust named herein or
elected in accordance with Article IV and then in office;
<PAGE>
(c) The term "Shares" shall mean units of beneficial interest in the
assets, or in specified assets, of the Trust;
(d) "Shareholder" shall mean a record owner of Shares;
(e) The terms "Affiliated Person," "Assignment," "Commission," "Interested
Person," "Principal Underwriter" and "Majority Shareholder Vote" (the
67% or 50% requirement of the third sentence of Section 2(a)(42) of
the Investment Company Act of 1940 (the "1940 Act") and the Rules and
Regulations thereunder, all as amended from time to time, whichever
may be applicable) shall have the meanings given them in the 1940 Act;
(f) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust as amended or restated from time to time;
(g) "By-Laws" shall mean the By-Laws of the Trust as amended from time to
time;
(h) The "1940 Act" shall mean the Investment Company Act of 1940 and the
Rules and Regulations thereunder, all as amended from time to time.
ARTICLE II
PURPOSE
The purpose of the Trust is to provide investors with one or more
investment portfolio(s) consisting primarily of securities, including debt
instruments or obligations.
ARTICLE III
SHARES
DIVISION OF BENEFICIAL INTEREST
SECTION 1. The Trustees may divide the beneficial interest in the Trust
into an unlimited number of Shares and authorize the issuance of Shares without
prior Shareholder approval. Shares may be issued in series and, if so, Shares
of any series will constitute units of beneficial interest in assets of the
Trust specifically allocated to such series. Shares of the Trust, or any series
thereof, shall have no par value; shall represent equal and proportionate
interests in the Trust, or such series, with none having priority or preference
over any other except as specifically set forth in this Article III; and shall
be transferable. Shares of the Trust or of any series may be divided into
classes with Shares of any class being identical to those of any other class of
the Trust or such series except insofar as the Trustees may, consistent with the
1940 Act and other applicable law, allocate certain expenses to particular
classes of the Trust or a series thereof, and may provide for separate voting by
holders of securities of a class on matters affecting solely that class as
prescribed in Article V hereof.
2
<PAGE>
OWNERSHIP OF SHARES
SECTION 2. The ownership of Shares shall be recorded on the books of the
Trust or its transfer or similar agent. No certificates certifying the
ownership of Shares shall be issued except as the Trustees may otherwise
determine from time to time. The Trustees may make such rules as they consider
appropriate for the issuance of Share certificates, the transfer of Shares and
similar matters. The record books of the Trust as kept by the Trust or any
transfer or similar agent of the Trust, as the case may be, shall be conclusive
as to who are the Shareholders of each series and as to the number of Shares of
each series held from time to time by each Shareholder.
INVESTMENTS IN THE TRUST; ASSETS OF THE SERIES
SECTION 3. The Trustees may accept investments in the Trust from such
persons and on such terms and, subject to any requirements of law, for such
consideration, which may consist of cash or tangible or intangible property or a
combination thereof, as they may from time to time authorize.
All consideration received by the Trust for the issue or sale of Shares of
each series, together with all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation thereof,
and any funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to the series of Shares
with respect to which the same were received by the Trust for all purposes,
subject only to the rights of creditors, and shall be so recorded upon the books
of account of the Trust and are herein referred to as "assets of" such series.
In addition, any assets, income, earnings, profits, and proceeds thereof, funds,
or payments which are not readily identifiable as belonging to any particular
series shall be allocated by the Trustees between and among one or more of the
series in such manner as they, in their sole discretion, deem fair and
equitable. Each such allocation shall be conclusive and binding upon the
Shareholders of all series for all purposes, and shall be referred to as assets
belonging to that series.
NO PREEMPTIVE RIGHTS
SECTION 4. Shareholders shall have no preemptive or other right to
receive, purchase or subscribe for any additional Shares or other securities
issued by the Trust.
STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY
SECTION 5. Shares shall be deemed to be personal property giving only the
rights provided in this instrument. Every Shareholder by virtue of having
become a Shareholder shall be held to have expressly assented and agreed to the
terms of this Declaration of Trust and to have become a party thereto. The
death of a Shareholder during the continuance of the Trust shall not operate to
terminate the same nor entitle the representative of deceased Shareholder to an
accounting or to take any action in court or elsewhere against the Trust or the
Trustees, but only to the rights of
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said descendent under this Trust. Ownership of Shares shall not entitle the
Shareholder to any title in or to the whole or any part of the Trust property or
right to call for a partition or division of the same or to an accounting, nor
shall the ownership of Shares constitute the Shareholders partners. Neither the
Trust nor the Trustees, nor any officer, employee or agent of the Trust shall
have any power to bind personally any Shareholder, nor, except as specifically
provided herein, to call upon any Shareholder for the payment of any sum of
money or assessment whatsoever other than such as the Shareholder may at any
time personally agree to pay.
TRUSTEES AND OFFICERS AS SHAREHOLDERS
SECTION 6. Any Trustee, officer or other agent of the Trust may acquire,
own and dispose of Shares of the Trust to the same extent as if he were not a
Trustee, officer or agent; and the Trustees may issue and sell or cause to be
issued and sold Shares to and buy such Shares from any such person of any firm
or company in which he is interested, subject only to the general limitations
herein contained as to the sale and purchase of such Shares; and all subject to
any restrictions which may be contained in the By-Laws.
ARTICLE IV
THE TRUSTEES
ELECTION
SECTION 1. A Trustee may be elected either by the Trustees or the
Shareholders subject to the limitations of the 1940 Act. The number of Trustees
shall be fixed by the Trustees, except that, commencing with the first
shareholders meeting at which Trustees are elected, there shall be not less than
three nor more than fifteen Trustees, each of whom shall hold office during the
lifetime of this Trust or until the election and qualification of his or her
successor, or until he or she sooner dies, resigns or is removed. The number of
Trustees so fixed may be increased either by the Shareholders or by the Trustees
by a vote of a majority of the Trustees then in office. The number of Trustees
so fixed may be decreased either by the Shareholders or by the Trustees by vote
of a majority of the Trustees then in office, but only to eliminate vacancies
existing by reason of the death, resignation or removal of one or more Trustees.
The initial Trustees, each of whom shall serve until the first meeting of
Shareholders at which Trustees are elected and until his or her successor is
elected and until his or her successor is elected and qualified, or until he or
she sooner dies, resigns or is removed, shall be Carl A. Guarino and such other
persons as the Trustee or Trustees then in office shall, prior to any sale of
Shares pursuant to public offering, appoint. By vote of the Shareholders
holding a majority of the shares entitled to vote, the Shareholders may remove a
Trustee with or without cause. By vote of a majority of the Trustees then in
office, the Trustees may remove a Trustee. Any Trustee may resign at any time
by written instrument signed by him and delivered to any officer of the Trust,
to each other Trustee or to a meeting of the Trustees. Such resignation shall
be effective upon receipt unless specified to be effective at some other time.
Except to the extent expressly
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provided in a written agreement with the Trust, no Trustee resigning and no
Trustee removed shall have any right to any compensation for any period
following his resignation or removal, or any right to damages on account of such
removal. Any Trustee may, but need not, be a Shareholder.
In case of the declination, death, resignation, retirement, removal,
incapacity, or inability of any of the Trustees, or in case a vacancy shall
exist by reason of an increase in number, or for any other reason, the remaining
Trustees shall fill such vacancy by appointing such other person as they in
their discretion shall see fit consistent with the limitations under the 1940
Act. Such appointment shall be evidenced by a written instrument signed by a
majority of the Trustees in office or by recording in the records of the Trust,
whereupon the appointment shall take effect. An appointment of a Trustee may be
made by the Trustees then in office in anticipation of a vacancy to occur by
reason of retirement, resignation or increase in number of Trustees effective at
a later date, provided that said appointment shall become effective only at or
after the effective date of said retirement, resignation or increase in number
of Trustees. As soon as any Trustee so appointed shall have accepted this
trust, the trust estate shall vest in the new Trustee or Trustees, together with
the continuing Trustees, without any further act or conveyance, and he shall be
deemed a Trustee hereunder. The power of appointment is subject to the
provisions of Section 16(a) of the 1940 Act. In the event that at any time
after the commencement of public sales of Trust Shares less than a majority of
the Trustees then holding office were elected to such office by the
Shareholders, the Trustees or the Trust's President promptly shall call a
meeting of Shareholders for the purpose of electing Trustees. Each Trustee
elected by the Shareholders or by the Trustees shall serve until the election or
qualification of his or her successor, or until he or she sooner dies, resigns
or is removed.
EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE
SECTION 2. The death, declination, resignation, retirement, removal, or
incapacity of the Trustees, or any one of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.
POWERS
SECTION 3. Subject to the provisions of this Declaration of Trust, the
business of the Trust shall be managed by the Trustees, and they shall have all
powers necessary or convenient to carry out that responsibility. Without
limiting the foregoing, the Trustees may adopt By-Laws not inconsistent with
this Declaration of Trust providing for the conduct of the business of the Trust
and may amend and repeal them to the extent that such By-Laws do not reserve
that right to the Shareholders; they may fill vacancies in their number,
including vacancies resulting from increases in their number, and may elect and
remove such officers and appoint and terminate such agents as they consider
appropriate; they may appoint from their own number, and terminate, any one or
more committees consisting of two or more Trustees, including an executive
committee which may, when the Trustees, including an executive committee which
may, when the Trustees are not
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in session, exercise some or all of the powers and authority of the Trustees as
the Trustees may determine; they may appoint an advisory board, the members of
which shall not be Trustees and need not be Shareholders; they may employ one or
more investment advisers or administrators as provided in Section 7 of this
Article IV; they may employ one or more custodians of the assets of the trust
and may authorize such custodians to employ subcustodians and to deposit all or
any part of such assets in a system or systems for the central handling of
securities, retain a transfer agent or a Shareholder servicing agent, or both,
provide for the distribution of Shares by the Trust, through one or more
principal underwriters or otherwise, set record dates for the determination of
Shareholders with respect to various matters, and in general delegate such
authority as they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the Trust or to any
such custodian or underwriter; and they may elect and remove such officers and
appoint and terminate such agents as they consider appropriate.
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, write options
on and lease any or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property, and to execute and
deliver proxies or powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person or persons such
power and discretion with relation to securities or property as the
Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form, or in the
name of the Trustees or of the Trust or in the name of a custodian,
subcustodian or other depositary or a nominee or nominees or
otherwise;
(f) To establish separate and distinct series of shares with separately
defined investment objectives, policies and purposes, and to allocate
assets, liabilities and expenses of the Trust to a particular series
of Shares or to apportion the same among two or more series, provided
that any liability or expense incurred by a particular series of
Shares shall be payable solely out of the assets of that series and to
establish separate classes of shares of each series, all in accordance
with Article III hereof;
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(g) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any security or
property of which is or was held in the Trust; to consent to any
contract, lease, mortgage, purchase or sale of property by such
corporation or issuer, and to pay calls or subscriptions with respect
to any security held in the Trust;
(h) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to
deposit any security with, or transfer any security to, any such
committee, depositary or trustee, and to delegate to them such power
and authority with relation to any security (whether or not so
deposited or transferred) as the Trustees shall deem proper, and to
agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees
shall deem proper;
(i) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not
limited to claims for taxes;
(j) To enter into joint ventures, general or limited partnerships and any
other combinations or associations;
(k) To borrow funds;
(l) To endorse or guarantee the payment of any notes or other obligations
of any person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof; and to mortgage and
pledge the Trust property or any part thereof to secure any or all of
such obligations;
(m) To purchase and pay for entirely out of Trust property such insurance
as they may deem necessary or appropriate for the conduct of the
business, including, without limitation, insurance policies insuring
the assets of the Trust and payment of distributions and principal on
its portfolio investments, and insurance policies insuring the
Shareholders, Trustees, officers, employees, agents, investment
advisers or administrators, principal underwriters, or independent
contractors of the Trust individually against all claims and
liabilities of every nature arising by reason of holding, being or
having held any such office or position, or by reason of any action
alleged to have been taken or omitted by any such person as
Shareholder, Trustee, officer, employee, agent, investment adviser or
administrator, principal underwriter, or independent contractor,
including any action taken or omitted that may be determined to
constitute negligence, whether or not the Trust would have the power
to indemnify such person against such liability;
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(n) To pay pensions for faithful service, as deemed appropriate by the
Trustees, and to adopt, establish and carry out pension, profit-
sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions,
including the purchasing of life insurance and annuity contracts as a
means of providing such retirement and other benefits, for any or all
of the Trustees, officers, employees and agents of the Trust;
(o) To establish, from time to time, a minimum total investment for
Shareholders, and to require the redemption of the Shares of any
Shareholders whose investment is less than such minimum upon giving
notice to such Shareholder;
(p) To enter into contracts of any kind and description;
(q) To name, or to change the name or designation of the Trust or any
series or class of the Trust;
(r) To take whatever action may be necessary to enable the Trust to comply
with any applicable Federal, state or local statute, rule or
regulation; and
(s) To engage in any other lawful act or activity in which corporations
organized under the Massachusetts Business Corporation Law may engage.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by Trustees. Except as otherwise
provided herein or from time to time in the By-Laws, any action to be taken by
the Trustees may be taken by a majority of the Trustees present at a meeting of
Trustees (if a quorum be present), within or without Massachusetts, including
any meeting held by means of a conference telephone or other communications
equipment by which all persons participating in the meeting can communicate with
each other simultaneously and participation by such means shall constitute
presence in person at a meeting, or by written consent of a majority of the
Trustees then in office.
PAYMENT OF EXPENSES BY THE TRUST
SECTION 4. The Trustees are authorized to pay or to cause to be paid out
of the principal or income of the Trust, or partly out of principal and partly
out of income, as they deem fair, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust, or in connection
with the management thereof, including, but not limited to, the Trustees'
compensation and such expenses and charges for the services of the Trust's
officers, employees, investment adviser or administrator, principal underwriter,
auditor, counsel, custodian, transfer agent, Shareholder servicing agent, and
such other agents or independent contractors and such other expenses and charges
as the Trustees may deem necessary or proper to incur, provided, however, that
all expenses, fees, charges, taxes and liabilities incurred or arising in
connection with a particular series of Shares or class as determined by the
Trustees consistent with applicable
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law, shall be payable solely out of the assets of that series or class. Any
general liabilities, expenses, costs, charges or reserves of the Trust which are
not readily identifiable as belonging to any particular series shall be
allocated and charged by the Trustees between or among any one or more of the
series in such manner as the Trustees in their sole discretion deem fair and
equitable. Each such allocation shall be conclusive and binding upon the
Shareholders of all series for all purposes. Any creditor of any series may
look only to the assets of that series to satisfy such creditor's debt.
SECTION 5. The Trustees shall have the power, as frequently as they may
determine, to cause each Shareholder to pay directly, in advance or arrears, for
any and all expenses of the Trust, an amount fixed from time to time by the
Trustees, by setting off such charges due from such Shareholder from declared
but unpaid dividends owed such Shareholder and/or by reducing the number of
Shares in the account of such Shareholder by that number of full and/or
fractional Shares which represents the outstanding amount of such charges due
from such Shareholder.
OWNERSHIP OF ASSETS OF THE TRUST
SECTION 6. Title to all of the assets of each series of Shares and the
Trust shall at all times be considered as vested in the Trustees.
ADVISORY, ADMINISTRATION AND DISTRIBUTION
SECTION 7. The Trustees may, at any time and from time to time, contract
with respect to the Trust or any series thereof for exclusive or nonexclusive
advisory and/or administration services with SEI Financial Management
Corporation, a Delaware corporation, and/or with any corporation, trust,
association or other organization, every such contract to comply with such
requirements and restrictions as may be set forth in the By-Laws; and any such
contract may contain such other terms interpretive of or in addition to said
requirements and restrictions as the trustees may determine, including, without
limitation, in the case of a contract for advisory or sub-advisory services,
authority to determine from time to time what investments shall be purchased,
held, sold or exchanged and what portion, if any, of the assets of the Trust
shall be held uninvested and to make changes in the Trust's investments. Any
contract for advisory services shall be subject to such Shareholder approval as
is required by the 1940 Act. The Trustees may also, at any time and from time
to time, contract with SEI Financial Services Company, a Pennsylvania
corporation, and/or any other corporation, trust, association or other
organization, appointing it exclusive or nonexclusive distributor or principal
underwriter for the Shares, every such contract to comply with such requirements
and restrictions as may be set forth in the By-Laws, and any such contract may
contain such other terms interpretive of or in addition to said requirements and
restrictions as the Trustees may determine.
The fact that:
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(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, adviser,
principal underwriter, or distributor or agent of or for any
corporation, trust, association, or other organization, or of or for
any parent or affiliate of any organization, with which an advisory or
administration or principal underwriter's or distributor's contract,
or transfer, Shareholder servicing or other agency contract may have
been or may hereafter be made, or that any such organization, or any
parent or affiliate thereof, is a Shareholder or has an interest in
the Trust, or that
(ii) any corporation, trust, association or other organization with which
an advisory or administration or principal underwriter's or
distributor's contract, or transfer, Shareholder servicing or other
agency contract may have been or may hereafter be made also has an
advisory or administration contract, or principal underwriter's or
distributor's contract, or transfer, Shareholder servicing or other
agency contract with one or more other corporations, trusts,
associations, or other organizations, or has other businesses or
interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
VOTING POWERS
SECTION 1. The Shareholders shall have power to vote only (i) for the
election or removal of Trustees as provided in Article IV, Section 1, (ii) with
respect to any investment adviser as provided in Article IV, Section 7, (iii)
with respect to any termination of the Trust or any series to the extent and as
provided in Article IX, Section 4, (iv) with respect to any amendment of this
Declaration of Trust to the extent and as provided in Article IX, Section 7, (v)
to the same extent as the stockholders of a Massachusetts business corporation
as to whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or the Shareholders, and (vi) with respect to such additional matters relating
to the Trust as may be required by law, by this Declaration of Trust, by the By-
Laws or by any registration of the Trust with the Securities and Exchange
Commission or any state, or as the Trustees may consider necessary or desirable.
Each whole Share shall be entitled to one vote as to any matter on which it
is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. Notwithstanding any other provisions of this
Declaration of Trust, or any matter submitted to a vote of Shareholders, all
Shares of the Trust then entitled to vote shall be voted by individual series or
class, except (1) when required by the 1940 Act, Shares shall be voted in the
aggregate
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and not by individual series or class, and (2) when the Trustees have determined
that the matter affects only the interests of one or more series or class, then
only Shareholders of such series or class shall be entitled to vote thereon.
There shall be no cumulative voting in the election of Trustees. Shares may be
voted in person or by proxy.
A proxy with respect to Shares held in the name of two or more persons
shall be valid if executed by any one of them unless at or prior to the exercise
of the proxy the Trust receives a specific written notice to the contrary from
any one of them. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise
and the burden of proving invalidity shall rest on the challenger. Until Shares
are issued, the Trustees may exercise all rights of Shareholders and may take
any action required by law, this Declaration of Trust or by By-Laws to be taken
by Shareholders.
VOTING POWER AND MEETINGS
SECTION 2. Meetings of Shareholders of the Trust or of any series [or
class] may be called by the Trustees, or such other person or persons as may be
specified in the By-Laws, and held from time to time for the purpose of taking
action upon any matter requiring the vote or the authority of the Shareholders
of the Trust or any series or class as herein provided or upon any other matter
deemed by the Trustees to be necessary or desirable. Written notice of any
meeting of Shareholders shall be given or caused to be given by the Trustees by
mailing such notice at least seven days before such meeting, postage prepaid,
stating the time, place and purpose of the meeting, to each Shareholder at the
Shareholder's address as it appears on the records of the Trust. If the
Trustees shall fail to call or give notice of any meeting of Shareholders for a
period of thirty days after written application by Shareholders holding at lest
10% of the Shares then outstanding requesting a meeting to be called for a
purpose requiring action by the Shareholders as provided herein or in the By-
Laws, then Shareholders holding at least 10% of the Shares then outstanding may
call and give notice of such meeting, and thereupon the meeting shall beheld in
the manner provided for herein in case of call thereof by the Trustees. Notice
of a meeting need not be given to any Shareholder if a written waiver of notice,
executed by him or her before or after the meeting, is filed with the records of
the meeting, or to any Shareholder who attends the meeting without protesting
prior thereto or at its commencement the lack of notice to him or her.
QUORUM AND REQUIRED VOTE
SECTION 3. A majority of the Shares entitled to vote shall be a quorum for
the transaction of business at a Shareholders' meeting, except that where any
provision of law or of this Declaration of Trust permits or requires that
holders of any series or class shall vote as a series or class, then a majority
of the aggregate number of Shares of that series or class entitled to vote shall
be necessary to constitute a quorum for the transaction of business by that
series or class. Any lesser number, however, shall be sufficient for
adjournments. Any adjourned session or sessions may be held within a reasonable
time after the date set for the original meeting without the necessity of
further notice.
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Except when a larger vote is required by any provisions of this Declaration
of Trust or the By-Laws, a majority of the Shares voted on any matter shall
decide such matter and a plurality shall elect a Trustee, provided that where
any provision of law or of this Declaration of Trust permits or requires that
the holders of any series or class shall vote as a series or class, then a
majority of the Shares of that series or class voted on the matter shall decide
that matter insofar as that series or class is concerned.
ACTION BY WRITTEN CONSENT
SECTION 4. Any action taken by Shareholders may be taken without a meeting
if a majority of Shareholders entitled to vote on the matter (or such larger
votes as shall be required by any provision of this Declaration of Trust or the
By-Laws) consent to the action in writing and such written consents are filed
with the records of the meetings of Shareholders. Such consent shall be treated
for all purposes as a vote taken at a meeting of Shareholders.
ADDITIONAL PROVISIONS
SECTION 5. The By-Laws may include further provisions for Shareholders'
votes and meetings and related matters.
ARTICLE VI
DISTRIBUTIONS, REDEMPTIONS, REPURCHASES
AND DETERMINATION OF NET ASSET VALUE
DISTRIBUTIONS
SECTION 1. The Trustees may, but need not, distribute each year to the
Shareholders of each series such income and gains, accrued or realized, as the
Trustees may determine, after providing for actual and accrued expenses and
liabilities (including such reserves as the Trustees may establish) determined
in accordance with good accounting practices. The Trustees shall have full
discretion to determine which items shall be treated as income and which items
as capital and their determination shall be binding upon the Shareholders.
Distributions of each year's income of each series, if any be made, may be made
in one or more payments, which shall be in Shares, in cash or otherwise and on a
date or dates determined by the Trustees. At any time and from time to time in
their discretion, the Trustees may distribute to the Shareholders of any one or
more series as of a record date or dates determined by the Trustees, in shares,
in cash or otherwise, all or part of any gains realized on the sale or
disposition of property of the series or otherwise, or all or part of any other
principal of the Trust attributable to the series. Each distribution pursuant
to this Section 1 shall be made ratably according to the number of Shares of the
series or class held by the several Shareholders on the applicable record date
thereof, provided that no distributions need be made on Shares purchased
pursuant to orders received, or which payment is made, after such time or times
as the Trustees may determine. Any such distribution paid in Shares will be
paid at the net asset value thereof as determined in accordance with this
Declaration of Trust.
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REDEMPTIONS AND REPURCHASES
SECTION 2. Any holder of Shares of the Trust may, by presentation of a
written request, together with his certificates, if any, for such Shares, in
proper form for transfer, at the office of the Trust, the adviser, the
underwriter or the distributors, or at a principal office of a transfer or
Shareholder services agent appointed by the Trust (as the Trustees may
determine), redeem his Shares for the net asset value thereof determined and
computed in accordance with the provisions of this Section 2, less any
redemption charge which the Trustees may establish. Upon receipt of such
written request for redemption of Shares by the Trust, the adviser, the
underwriter or the distributor, or the Trust's transfer or Shareholder services
agent, such Shares shall be redeemed at the net asset value per share of the
particular series next determined after such Shares are tendered in proper form
for transfer to the Trust or determined as of such other time fixed by the
Trustees, as may be permitted or required by the 1940 Act, provided that no such
tender shall be required in the case of Shares for which a certificate or
certificates have not been issued, and in such case such Shares shall be
redeemed at the net asset value per share of the particular series next
determined after such demand has been received or determined at such other time
fixed by the Trustees, as may be determined or required by the 1940 Act.
The obligation of the Trust to redeem its Shares of each series as set
forth above in this Section 2 shall be subject to the condition that, during any
time of emergency, as hereinafter defined, such obligation may be suspended by
the Trust by or under authority of the Trustees for such period or periods
during such time of emergency as shall be determined by or under authority of
the Trustees. If there is such a suspension, any Shareholder may withdraw any
demand for redemption and any tender of Shares which has been received by the
Trust during any such period and any tender of Shares the applicable net asset
value of which would but for such suspension be calculated as of a time during
such period. Upon such withdrawal, the Trust shall return to the Shareholder
the certificates therefor, is any. For the purposes of any such suspension
"time of emergency" shall mean, either with respect to all Shares or any series
of Shares, any period during which:
(a) the New York Stock Exchange is closed other than for customary weekend
and holiday closings; or
(b) the Trustees or authorized officers of the Trust shall have
determined, in compliance with any applicable rules and regulations or
orders of the Commission, either that trading on the New York Stock
Exchange is restricted, or that an emergency exists as a result of
which (i) disposal by the Trust of securities owned by it is not
reasonably practicable or (ii) it is not reasonably practicable for
the Trust fairly to determine the current value of its net assets; or
(c) the suspension or postponement of such obligations is permitted by
order of the Commission.
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The Trust may also purchase, repurchase or redeem Shares in accordance with
such other methods, upon such other terms and subject to such other conditions
as the Trustees may from time to time authorize at a price not exceeding the net
asset value of such Shares in effect when the purchase or repurchase or any
contract to purchase or repurchase is made.
PAYMENT IN KIND
SECTION 3. Subject to any generally applicable limitation imposed by the
Trustees, any payment on redemption, purchase or repurchase by the Trust of
Shares may, if authorized by the Trustees, be made wholly or partly in kind,
instead of in cash. Such payment in kind shall be made by distributing
securities or other property, constituting, in the opinion of the Trustees, a
fair representation of the various types of securities and other property then
held by the series of Shares being redeemed, purchased or repurchased (but not
necessarily involving a portion of each of the series' holdings) and taken at
their value used in determining the net asset value of the Shares in respect of
which payment is made.
ADDITIONAL PROVISIONS RELATING TO REDEMPTIONS AND REPURCHASES
SECTION 4. The completion of redemption, purchase or repurchase of Shares
shall constitute a full discharge of the Trust and the Trustees with respect to
such Shares and the Trustees may require that any certificate or certificates
issued by the Trust to evidence the ownership of such Shares shall be
surrendered to the Trustees for cancellation or notation.
DIVIDENDS, DISTRIBUTIONS, REDEMPTIONS AND REPURCHASES
SECTION 5. No dividend or distribution (including, without limitation, any
distribution paid upon termination of the Trust or of any series) with respect
to, nor any redemption or repurchase of, the Shares of any series shall be
effected by the Trust other than from the assets of such series.
ARTICLE VII
COMPENSATION AND LIMITATION
OF LIABILITY OF TRUSTEES
COMPENSATION
SECTION 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Nothing herein shall in any way prevent the employment of any Trustee for
advisory, administration, legal, accounting, investment banking or other
services and payment for the same by the Trust.
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LIMITATION OF LIABILITY
SECTION 2. The Trustees shall not be responsible or liable in any event
for any neglect or wrongdoing of any officer, agent, employee, investment
adviser or administrator, principal underwriter or custodian, nor shall any
Trustee be responsible for the act or omission of any other Trustee, but nothing
herein contained shall protect any Trustee against any liability to which he or
she would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office.
Every note, bond, contract, instrument, certificate, Share or undertaking
and every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or with respect to
their or his or her capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
ARTICLE VIII
INDEMNIFICATION
Subject to the exceptions and limitations contained in this Article, every
person who is, or has been, a Trustee or officer of the Trust shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a
Trustee or officer and against amounts paid or incurred by him in settlement
thereof.
No indemnification shall be provided hereunder to a Trustee or officer:
(a) against any liability to the Trust or its Shareholders by reason of a
final adjudication by the court or other body before which the
proceeding was brought that he engaged in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved
in the conduct of his office;
(b) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief
that his action was in the best interests of the Trust;
(c) in the event of a settlement or other disposition not involving a
final adjudication (as provided in paragraph (a) or (b)) and resulting
in a payment by a Trustee or officer, unless there has been either a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office by the court or other
body approving the settlement or other disposition or a reasonable
determination, based
15
<PAGE>
on a review of readily available facts (as opposed to a full trial-
type inquiry) that he did not engage in such conduct:
(i) by a vote of a majority of the Disinterested Trustees acting on
the matter (provided that a majority of the Disinterested
Trustees then in office act on the matter); or
(ii) by written opinion of independent legal counsel.
The rights of indemnification hereinafter provided may be insured against
by policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Trustee or officer may now or hereafter be entitled,
shall continue as to a person who has ceased to be such Trustee or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to indemnification to
which Trust personnel other than Trustees and officers may be entitled by
contract or otherwise under law.
Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding of the character described in the next to the last paragraph
of this Article shall be advanced by the Trust prior to final disposition
thereof upon receipt of an undertaking by or on behalf of the recipient to repay
such amount if it is ultimately determined that he is not entitled to
indemnification under this Article, provided that either:
(a) such undertaking is secured by a surety bond or some other appropriate
security or the Trust shall be insured against losses arising out of
any such advances; or
(b) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in office
act on the matter) or independent legal counsel in a written opinion
shall determine, based upon a review of the readily available facts
(as opposed to a full trial-type inquiry), that there is reason to
believe that the recipient ultimately will be found entitled to
indemnification.
As used in this Article, a "Disinterested Trustee" is one (i) who is not an
"interested person" of the Trust (as defined by the 1940 Act) (including anyone
who has been exempted from being an "interested person:" by any rule, regulation
or order of the Securities and Exchange Commission), and (ii) against whom none
of such actions, suits or other proceedings or another action, suit or other
proceeding on the same or similar grounds is then or has been pending.
As used in this Article, the words "claim," "action," "suit" or
"proceeding" shall apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened; and the words
"liability" and expenses" shall include without limitation, attorney's fees,
costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
16
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In case any Shareholder or former Shareholder shall be held to be
personally liable solely by reason of his or her being or having been a
shareholder and not because of his or her acts or omissions or for some other
reason, the shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled to
be held harmless from and indemnified against all loss and expenses arising from
such liability, but only out of the assets of the particular series of Shares of
which he or she is or was a Shareholder.
ARTICLE IX
MISCELLANEOUS
TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE
SECTION 1. All persons extending credit to, contracting with or having any
claim against the Trust or a particular series of Shares shall look only to the
assets of the Trust or the assets of that particular series of Shares for
payment under such credit, contract or claim; and neither the Shareholders nor
the Trustees, nor any of the Trust's officers, employees or agents, whether
past, present or future, shall be personally liable therefor. Nothing in this
Declaration of Trust shall protect any Trustee against any liability to which
such Trustee would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officers or officer shall give notice that this
Declaration of Trust is on file with the Secretary of the Commonwealth of
Massachusetts and shall recite that the same was executed or made by or on
behalf of the Trust or by them as Trustees or Trustee or as officers or officer
and not individually and that the obligations of such instrument are not binding
upon any of them or the Shareholders individually but are binding only upon the
assets and property of the Trust, and may contain such further recital as he or
she or they may deem appropriate, but the omission thereof shall not operate to
bind any Trustees or Trustee or officers or officer or Shareholders or
Shareholder individually.
TRUSTEES' GOOD FAITH ACTION, EXPERT ADVICE; NO BOND OR SURETY
SECTION 2. The exercise by the Trustees of their powers and discretion
hereunder shall be binding upon everyone interested. A Trustee shall be liable
for his or her own willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and shall be
under no liability for any act or omission in accordance with such advice or for
failing to follow such advice. The Trustees shall not be required to give any
bond as such, nor any surety if a bond is required.
17
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LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES
SECTION 3. No person dealing with the Trustees shall be bound to make any
inquiry concerning the validity of any transaction made or to be made by the
Trustees or to see to the application of any payments made or property
transferred to the Trust or upon its order.
DURATION AND TERMINATION OF TRUST
SECTION 4. Unless terminated as provided herein, the Trust shall continue
without limitation of time. The Trust may be terminated at any time by vote of
Shareholders holding at least a majority of the Shares entitled to vote or by
the Trustees by written notice to the Shareholders. Any series of Shares may be
terminated at any time by vote of Shareholders holding at lest a majority of the
Shares of such series entitled to vote or by the Trustees by written notice to
the Shareholders of such series. Upon termination of the Trust or of any one or
more series of Shares, after paying or otherwise providing for all charges,
taxes, expenses and liabilities, whether due or accrued or anticipated, of the
Trust or of the particular series as may be determined by the Trustees, the
Trust shall, in accordance with such procedures as the Trustees consider
appropriate, reduce the remaining assets to distributable form in cash or Shares
or other securities, or any combination thereof, and distribute the proceeds to
the Shareholders of the series involved, ratably according to the number of
Shares of such series held by the several Shareholders of such series on the
date of termination.
SECTION 5. The original or a copy of this instrument and of each amendment
hereto shall be kept at the office of the Trust where it may be inspected by any
Shareholder. A copy of this instrument and of each amendment hereto shall be
filed by the Trust with the Secretary of the Commonwealth of Massachusetts and
with the Boston City Clerk, as well as any other governmental office where such
filing may from time to time be required. Anyone dealing with the Trust may
rely on certificate by an officer of the Trust as to whether or not any such
amendments have been made and as to any matters in connection with the Trust
hereunder; and, with the same effect as if it were the original, may rely on a
copy certified by an officer of the Trust to be a copy of this instrument or of
any such amendments. In this instrument and in such amendment, references to
this instrument, and the expression "herein," "hereof," and "hereunder" shall be
deemed to refer to this instrument as amended form time to time. Headings are
placed herein for convenience of reference only and shall not be taken as part
hereof or control or affect the meaning, construction or effect of this
instrument. This instrument may be executed in any number of counterparts each
of which shall be deemed an original.
APPLICABLE LAW
SECTION 6. The Trust shall be of the type commonly called a Massachusetts
business trust, and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust. This
Declaration of Trust is to be governed by and construed and administered
according to the laws of said Commonwealth.
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AMENDMENTS
SECTION 7. This Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees when authorized
to do so by a vote of Shareholders holding a majority of the Shares entitled to
vote, except that an amendment which shall affect the holders of one or more
series or classes of Shares but not the holders of all outstanding series as
classes shall be authorized by vote of the Shareholders holding a majority of
the Shares entitled to vote of each series or classes affected and no vote of
Shareholders of a series or classes not affected shall be required. Amendments
having the purpose of changing the name of the Trust or of supplying any
omission, curing any ambiguity or curing, correcting or supplementing any
defective or inconsistent provision contained herein shall not require
authorization by Shareholder vote.
IN WITNESS WHEREOF, the undersigned being the sole initial Trustee of the
Trust has executed this document this 24th day of July, 1992.
/s/ Carl A. Guarino
-----------------------------
c/o SEI Financial Services Company
680 E. Swedesford Road
Wayne, PA 19087
COMMONWEALTH OF PENNSYLVANIA
COUNTY OF CHESTER
I, the undersigned authority, hereby certify that the foregoing is a true and
correct copy of the instrument presented to me by Carl A. Guarino as the
original of such instrument.
WITNESS my hand and official seal, the 24th day of July, 1992.
/s/ Christine M. McCann
------------------------
Notary Public
My commission expires: May 6, 1995
Resident Agent: CT Corporation, 2 Oliver Street, Boston, MA 02109
19
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BY-LAWS
OF
THE ARBOR FUND
SECTION 1. AGREEMENT AND DECLARATION OF TRUST AND PRINCIPAL OFFICE
1.1 AGREEMENT AND DECLARATION OF TRUST. These By-Laws shall be subject to the
Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of The Arbor Fund, the Massachusetts business
trust established by the Declaration of Trust (the "Trust").
1.2 PRINCIPAL OFFICE OF THE TRUST. The principal office of the Trust shall be
located in Boston, Massachusetts.
SECTION 2. SHAREHOLDERS
2.1 ANNUAL MEETING. The annual meeting of the shareholders shall be at such
time and on such date in each year as the
president or Trustees may from time to time determine.
2.2 SPECIAL MEETING IN PLACE OF ANNUAL MEETING. If no annual
meeting has been held in accordance with the foregoing
provisions, a special meeting of the shareholders may be
held in place thereof, and any action taken at such special
meeting shall have the same force and effect as if taken at
the annual meeting, and in such case all references in these
By-Laws to the annual meeting of the shareholders shall be
deemed to refer to such special meeting.
2.3 SPECIAL MEETINGS. A special meeting of the shareholders may
be called at any time by the Trustees, by the president or,
if the Trustees and the president shall fail to call any
meeting of shareholders for a period of 30 days after
written application of one or more shareholders who hold at
least 25% of all shares issued and outstanding and entitled
to vote at the meeting, then such shareholders may call such
meeting. Each call of a meeting shall state the place,
date, hour and purposes of the meeting.
2.4 PLACE OF MEETINGS. All meetings of the shareholders shall
be held at the principal office of the Trust, or, to the
extent permitted by the Declaration of Trust, at such other
place within the United States as shall be designated by the
Trustees or the president of the Trust.
2.5 NOTICE OF MEETINGS. A written notice of each meeting of
<PAGE>
shareholders, stating the place, date and hour and the
purposes of the meeting, shall be given at least seven days
before the meeting to each shareholder entitled to vote
thereat by leaving such notice with him or at his residence
or usual place of business or by mailing it, postage
prepaid, and addressed to such shareholder at his address as
it appears in the records of the Trust. Such notice shall
be given by the secretary or an assistant secretary or by an
officer designated by the Trustees. No notice of any
meeting of shareholders need be given to a shareholder if a
written waiver of notice, executed before or after the
meeting by such shareholder or his attorney thereunto duly
authorized, is filed with the records of the meeting.
2.6 BALLOTS. No ballot shall be required for any election
unless requested by a shareholder present or represented at
the meeting and entitled to vote in the election.
2.7 PROXIES. Shareholders entitled to vote may vote either in
person or by proxy in writing dated not more than six months
before the meeting named therein, which proxies shall be
filed with the secretary or other person responsible to
record the proceedings of the meeting before being voted.
Unless otherwise specifically limited by their terms, such
proxies shall entitle the holders thereof to vote at any
adjournment of such meeting but shall not be valid after the
final adjournment of such meeting.
SECTION 3. TRUSTEES
3.1 COMMITTEES AND ADVISORY BOARD. The Trustees may appoint
from their number an executive committee and other
committees. Except as the Trustees may otherwise determine,
any such committee may make rules for conduct of its
business. The Trustees may appoint an advisory board to
consist of not less than two nor more than five members.
The members of the advisory board shall be compensated in
such manner as the Trustees may determine and shall confer
with and advise the Trustees regarding the investments and
other affairs of the Trust. Each member of the advisory
board shall hold office until the first meeting of the
Trustees following the next annual meeting of the
shareholders and until his successor is elected and
qualified, or until he sooner dies, resigns, is removed, or
becomes disqualified, or until the advisory board is sooner
abolished by the Trustees.
3.2 REGULAR MEETINGS. Regular meetings of the Trustees may be
held without call or notice at such places and at such times
as the Trustees may from time to time determine, provided
<PAGE>
that notice of the first regular meeting following any such
determination shall be given to absent Trustees. A regular
meeting of the Trustees may be held without call or notice
immediately after and at the same place as the annual
meeting of the shareholders.
3.3 SPECIAL MEETINGS. Special meetings of the Trustees may be
held at any time and at any place designated in the call of
the meeting, when called by the Chairman of the Board, the
president or the treasurer or by two or more Trustees,
sufficient notice thereof being given to each Trustee by the
secretary or an assistant secretary or by the officer or one
of the Trustees calling the meeting.
3.4 NOTICE. It shall be sufficient notice to a Trustee to send
notice by mail at least forty-eight hours or by telegram at
least twenty-four hours before the meeting addressed to the
Trustee at his or her usual or last known business or
residence address or to give notice to him or her in person
or by telephone at least twenty-four hours before the
meeting. Notice of a meeting need not be given to any
Trustee if a written waiver of notice, executed by him or
her before or after the meeting, is filed with the records
of the meeting, or to any Trustee who attends the meeting
without protesting prior thereto or at its commencement the
lack of notice to him or her. Neither notice of a meeting
nor a waiver of a notice need specify the purposes of the
meeting.
3.5 QUORUM. At any meeting of the Trustees one-third of the
Trustees then in office shall constitute a quorum; provided,
however, a quorum shall not be less than two. Any meeting
may be adjourned from time to time by a majority of the
votes cast upon the question, whether or not a quorum is
present, and the meeting may be held as adjourned without
further notice.
SECTION 4. OFFICERS AND AGENTS
4.1 ENUMERATION; QUALIFICATION. The officers of the Trust shall
be a president, a treasurer, a secretary and such other
officers, if any, as the Trustees from time to time may in
their discretion elect or appoint. The Trust may also have
such agents, if any, as the Trustees from time to time may
in their discretion appoint. Any officer may be but none
need be a Trustee or shareholder. Any two or more offices
may be held by the same person.
4.2 POWERS. Subject to the other provisions of these By-Laws,
each officer shall have, in addition to the duties and
<PAGE>
powers herein and in the Declaration of Trust set forth,
such duties and powers as are commonly incident to his or
her office as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the
Trustees may from time to time designate.
4.3 ELECTION. The president, the treasurer and the secretary
shall be elected annually by the Trustees at their first
meeting following the annual meeting of the shareholders.
Other officers, if any, may be elected or appointed by the
Trustees at said meeting or at any other time.
4.4 TENURE. The president, the treasurer and the secretary
shall hold office until the first meeting of Trustees
following the next annual meeting of the shareholders and
until their respective successors are chosen and qualified,
or in each case until he or she sooner dies, resigns, is
removed or becomes disqualified. Each agent shall retain
his or her authority at the pleasure of the Trustees.
4.5 PRESIDENT AND VICE PRESIDENTS. The president shall be the
chief executive officer of the Trust. The president shall,
subject to the control of the Trustees, have general charge
and supervision of the business of the Trust. Any vice
president shall have such duties and powers as shall be
designated from time to time by the Trustees.
4.6 CHAIRMAN OF THE BOARD. If a Chairman of the Board of
Trustees is elected, he shall have the duties and powers
specified in these By-Laws and, except as the Trustees shall
otherwise determine, preside at all meetings of the
shareholders and of the Trustees at which he or she is
present and have such other duties and powers as may be
determined by the Trustees.
4.7 TREASURER AND CONTROLLER. The treasurer shall be the chief
financial officer of the Trust and subject to any
arrangement made by the Trustees with a bank or trust
company or other organization as custodian or transfer or
shareholder services agent, shall be in charge of its
valuable papers and shall have such other duties and powers
as may be designated from time to time by the Trustees or by
the president. If at any time there shall be no controller,
the treasurer shall also be the chief accounting officer of
the Trust and shall have the duties and powers prescribed
herein for the controller. Any assistant treasurer shall
have such duties and powers as shall be designated from time
to time by the Trustees.
The controller, if any be elected, shall be the chief
accounting officer of the Trust and shall be in charge of
<PAGE>
its books of account and accounting records. The controller
shall be responsible for preparation of financial statements
of the Trust and shall have such other duties and powers as
may be designated from time to time by the Trustees or the
president.
4.8 SECRETARY AND ASSISTANT SECRETARIES. The secretary shall
record all proceedings of the shareholders and the Trustees
in books to be kept therefor, which books shall be kept at
the principal office of the Trust. In the absence of the
secretary from any meeting of shareholders or Trustees, an
assistant secretary, or if there be none or he or she is
absent, a temporary clerk chosen at the meeting shall record
the proceedings thereof in the aforesaid books.
SECTION 5. RESIGNATION AND REMOVALS
Any Trustee, officer or advisory board member may resign at any
time by delivering his or her resignation in writing to the
Chairman of the Board, the president, the treasurer or the
secretary or to a meeting of the Trustees. The Trustees may
remove any officer elected by them with or without cause by the
vote of a majority of the Trustees then in office. Except to the
extent expressly provided in a written agreement with the Trust,
no Trustee, officer, or advisory board member resigning, and no
officer or advisory board member removed shall have any right to
any compensation for any period following his or her resignation
or removal, or any right to damages on account of such removal.
SECTION 6. VACANCIES
A vacancy in any office may be filled at any time. Each
successor shall hold office for the unexpired term, and in the
case of the president, the treasurer and the secretary, until his
or her successor is chosen and qualified, or in each case until
he or she sooner dies, resigns, is removed or becomes
disqualified.
SECTION 7. SHARES OF BENEFICIAL INTEREST
7.1 SHARE CERTIFICATES. No certificates certifying the
ownership of shares shall be issued except as the Trustees
may otherwise authorize. In the event that the Trustees
authorize the issuance of share certificates, subject to the
provisions of Section 7.3, each shareholder shall be
entitled to a certificate stating the number of shares owned
by him or her, in such form as shall be prescribed from time
to time by the Trustees. Such certificate shall be signed
<PAGE>
by the president or a vice president and by the treasurer or
an assistant treasurer. Such signatures may be facsimiles
if the certificate is signed by a transfer or shareholder
services agent or by a registrar, other than a Trustee,
officer or employee of the Trust. In case any officer who
has signed or whose facsimile signature has been placed on
such certificate shall have ceased to be such officer before
such certificate is issued, it may be issued by the Trust
with the same effect as if he or she were such officer at
the time of its issue.
In lieu of issuing certificates for shares, the Trustees or
the transfer or shareholder services agent may either issue
receipts therefor or may keep accounts upon the books of the
Trust for the record holders of such shares, who shall in
either case be deemed, for all purposes hereunder, to be the
holders of certificates for such shares as if they had
accepted such certificates and shall be held to have
expressly assented and agreed to the terms hereof.
7.2 LOSS OF CERTIFICATES. In the case of the alleged loss or
destruction or the mutilation of a share certificate, a
duplicate certificate may be issued in place thereof, upon
such terms as the Trustees may prescribe.
7.3 DISCONTINUANCE OF ISSUANCE OF CERTIFICATES. The Trustees
may at any time discontinue the issuance of share
certificates and may, by written notice to each shareholder,
require the surrender of share certificates to the Trust for
cancellation. Such surrender and cancellation shall not
affect the ownership of shares in the Trust.
SECTION 8. RECORD DATE
The Trustees may fix in advance a time, which shall not be more
than 60 days before the date of any meeting of shareholders or
the date for the payment of any dividend or making of any other
distribution to shareholders, as the record date for determining
the shareholders having the right to notice and to vote at such
meeting and any adjournment thereof or the right to receive such
dividend or distribution, and in such case only shareholders of
record on such record date shall have such right, notwithstanding
any transfer of shares on the books of the Trust after the record
date.
SECTION 9. SEAL
The seal of the Trust shall, subject to alteration by the
Trustees, consist of a flat-faced circular die with the word
"Massachusetts", together with the name of the Trust and the year
<PAGE>
of its organization, cut or engraved thereon; but, unless
otherwise required by the Trustees, the seal shall not be
necessary to be placed on, and its absence shall not impair the
validity of, any document, instrument or other paper executed and
delivered by or on behalf of the Trust.
SECTION 10. EXECUTION OF PAPER:
Except as the Trustees may generally or in particular cases
authorize the execution thereof in some other manner, all deeds,
leases, transfers, contracts, bonds, notes, checks, drafts and
other obligations made, accepted or endorsed by the Trust shall
be signed, and any transfers of securities standing in the name
of the Trust shall be executed, by the president or by one of the
vice presidents or by the treasurer or by whomsoever else shall
be designated for that purpose by the vote of the Trustees and
need not bear the seal of the Trust.
SECTION 11. FISCAL YEAR
The fiscal year of the Trust shall end on such date in each year
as the Trustees shall from time to time determine.
SECTION 12. PROVISIONS RELATING TO THE CONDUCT OF THE TRUST'S
BUSINESS
12.1 DEALINGS WITH AFFILIATES. No officer, Trustee or agent of the Trust and
no officer,director or agent of any investment advisor shall deal for or
on behalf of the Trust with himself as principal or agent, or with any
partnership, association or corporation in which he has a material
financial interest; provided that the foregoing provisions shall not
prevent (a) officers and Trustees of the Trust from buying, holding or
selling shares in the Trust, or from being partners, officers or
directors of or financially interested in any investment advisor to the
Trust or in any corporation, firm or association which may at any time
have a distributor's or principal underwriter's contract with the Trust;
(b) purchases or sales of securities or other property if such transaction
is permitted by or is exempt or exempted from the provisions of the
Investment Company Act of 1940 or any Rule or Regulation thereunder and if
such transaction does not involve any commission or profit to any security
dealer who is, or one or more of whose partners, shareholders, officers or
directors is, an officer or Trustee of the Trust or an officer or director
of the investment advisor, manager or principal underwriter of the Trust;
(c) employment of legal counsel, registrar, transfer agent, shareholder
services, dividend disbursing agent or custodian who is, or has a
<PAGE>
partner, stockholder, officer or director who is, an officer or Trustee of
the Trust; (d) sharing statistical, research and management expenses,
including office hire and services, with any other company in which an
officer or Trustee of the Trust is an officer or director or financially
interested.
12.2 DEALING IN SECURITIES OF THE TRUST. The Trust, the
investment advisor, any corporation, firm or association
which may at any time have an exclusive distributor's or
principal underwriter's contract with the Trust (the
"distributor") and the officers and Trustees of the Trust
and officers and directors of every investment advisor and
distributor, shall not take long or short positions in the
securities of the Trust, except that:
(a) the distributor may place orders with the Trust for its
shares equivalent to orders received by the
distributor;
(b) shares of the Trust may be purchased at not less than
net asset value for investment by the investment
advisor and by officers and directors of the
distributor, investment advisor, or the Trust and by
any trust, pension, profit-sharing or other benefit
plan for such persons, no such purchase to be in
contravention of any applicable state or federal
requirement.
12.3 LIMITATION ON CERTAIN LOANS. The Trust shall not make loans
to any officer, Trustee or employee of the Trust or any
investment advisor or distributor or their respective
officers, directors or partners or employees.
12.4 CUSTODIAN. All securities and cash owned by the Trust shall
be maintained in the custody of one or more banks or trust
companies having (according to its last published report)
not less than two million dollars ($2,000,000) aggregate
capital, surplus and undivided profits (any such bank or
trust company is hereinafter referred to as the
"custodian"); provided, however, the custodian may deliver
securities as collateral on borrowings effected by the
Trust, provided, that such delivery shall be conditioned
upon receipt of the borrowed funds by the custodian except
where additional collateral is being pledged on an
outstanding loan and the custodian may deliver securities
lent by the trust against receipt of initial collateral
specified by the Trust. Subject to such rules, regulations
and orders, if any, as the Securities and Exchange
Commission may adopt, the Trust may, or may not permit any
custodian to, deposit all or any part of the securities
owned by the Trust in a system for the central handling of
<PAGE>
securities operated by the Federal Reserve Banks, or
established by a national securities exchange or national
securities association registered with said Commission under
the Securities Exchange Act of 1934, or such other person as
may be permitted by said Commission, pursuant to which
system all securities of any particular class or series of
any issue deposited with the system are treated as fungible
and may be transferred or pledged by bookkeeping entry,
without physical delivery of such securities.
The Trust shall upon the resignation or inability to serve
of its custodian or upon change of the custodian:
(a) in the case of such resignation or inability to serve
use its best efforts to obtain a successor custodian;
(b) require that the cash and securities owned by this
corporation be delivered directly to the successor
custodian; and
(c) in the event that no successor custodian can be found,
submit to the shareholders, before permitting delivery
of the cash and securities owned by this Trust
otherwise than to a successor custodian, the question
whether or not this Trust shall be liquidated or shall
function without a custodian.
12.5 REPORTS TO SHAREHOLDERS; DISTRIBUTIONS FROM REALIZED GAINS.
The Trust shall send to each shareholder of record at least
annually a statement of the condition of the Trust and of
the results of its operation, containing all information
required by applicable laws or regulations.
SECTION 13. AMENDMENTS
These By-Laws may be amended or repealed, in whole or in part, by
a majority of the Trustees then in office at any meeting of the
Trustees, or by one or more writings signed by such majority.
<PAGE>
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 28th day of January, 1993, by and between The Arbor
Fund, a Massachusetts business trust (the "Trust"), and Citizens Commercial &
Savings Bank (the "Adviser").
WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended,
consisting of several series of shares, each having its own investment policies;
and
WHEREAS, the Trust has retained SEI Financial Management Corporation (the
"Administrator") to provide administration of the Trust's operations, subject to
the control of the Board of Trustees;
WHEREAS, the Trust desires to retain the Adviser to render investment
management services with respect to its Diversified Growth, Intermediate-Term
Income, Michigan Tax Free Bond and Prime Obligation Money Market Portfolios and
such other portfolios as the Trust and the Adviser may agree upon (the
"Portfolios"), and the Adviser is willing to render such services.
NOW, THEREFORE, in consideration of mutual covenants herein contained, the
parties hereto agree as follows:
1. DUTIES OF ADVISER. The Trust hereby appoints the Adviser to act as
investment advisor to the Trust's Diversified Growth, Intermediate-
Term Income, Michigan Tax Free Bond and Prime Obligation Money Market
Portfolios and such other Portfolios as may be offered by the Trust
and agreed to by the Adviser for the period and on the terms set forth
in this Agreement. The Trust employs the Adviser to manage the
investment and reinvestment of the assets, and to continuously review,
supervise, and administer the investment program of the Portfolios, to
determine in its discretion the securities to be purchased or sold, to
provide the Administrator and the Trust with records concerning the
Adviser's activities which the Trust is required to maintain, and to
render regular reports to the Administrator and to the Trust's
Officers and Trustees concerning the Adviser's discharge of the
foregoing responsibilities.
The Adviser shall discharge the foregoing responsibilities subject to
the control of the Board of Trustees of the Trust and in compliance
with such policies as the Trustees may from time to time establish,
and in compliance with the objectives, policies, and limitations for
each such Portfolio set forth in the
<PAGE>
Trust's prospectus and statement of additional information as amended from
time to time, and applicable laws and regulations.
The Adviser accepts such employment and agrees, to render the services and
at its own expense to provide the office space, furnishings and equipment
and the personnel required by it to perform the services on the terms and
for the compensation provided herein.
2. PORTFOLIO TRANSACTIONS. The Adviser is authorized to select the brokers or
dealers that will execute the purchases and sales of portfolio securities
for the Portfolios and is directed to use its best efforts to obtain the
best net results as described in the Trust's prospectus and statement of
additional information from time to time. The Adviser will promptly
communicate to the Administrator and to the officers and the Trustees of
the Trust such information relating to portfolio transactions as they may
reasonably request.
It is understood that the Adviser will not be deemed to have acted
unlawfully, or to have breached a fiduciary duty to the Trust or be in
breach of any obligation owing to the Trust under this Agreement, or
otherwise, solely by reason of its having directed a securities transaction
on behalf of the Trust to a broker-dealer in compliance with the provisions
of Section 28(e) of the Securities Exchange Act of 1934.
3. COMPENSATION OF THE ADVISER. For the services to be rendered by the
Adviser as provided in Sections 1 and 2 of this Agreement, the Trust shall
pay to the Adviser compensation at the rate specified in the Schedule(s)
which are attached hereto and made a part of this Agreement. Such
compensation shall be paid to the Adviser at the end of each month, and
calculated by applying a daily rate, based on the annual percentage rates
as specified in the attached Schedule(s), to the assets. The fee shall be
based on the average daily net assets for the month involved. In the event
of termination of this Agreement, the fee provided in this Section shall be
computed on the basis of the period ending on the last business day on
which this Agreement is in effect.
All rights of compensation under this Agreement for services performed as
of the termination date shall survive the termination of this Agreement.
4. OTHER EXPENSES. The Adviser shall pay all expenses of preparing (including
typesetting), printing and mailing reports, prospectuses, statements of
additional information, and sales literature to prospective clients of the
Fund to the extent these expenses are not borne by the Trust under a
distribution plan adopted pursuant to Rule 12b-1.
<PAGE>
5. EXCESS EXPENSES. If the expenses, as described in Section 4, for any
Portfolio for any fiscal year (including fees and other amounts payable to
the Adviser, but excluding interest, taxes, brokerage costs, litigation,
and other extraordinary costs) as calculated every business day would
exceed the expense limitations imposed on investment companies by any
applicable statute or regulatory authority of any jurisdiction in which
Shares are qualified for offer and sale, the Adviser shall bear such excess
cost.
However, the Adviser will not bear expenses of the Trust or any Portfolio
which would result in the Trust's inability to qualify as a regulated
investment company under provisions of the Internal Revenue Code. Payment
of expenses by the Adviser pursuant to this Section 5 shall be settled on a
monthly basis (subject to fiscal year end reconciliation) by a reduction in
the fee payable to the Adviser for such month pursuant to Section 3 and, if
such reduction shall be insufficient to offset such expenses, by
reimbursing the Trust. However, prior to the reduction in the fee payable
or reimbursement of fees, the Trust will provide to the Adviser a detailed
list of each such excess expense.
6. REPORTS. The Trust and the Adviser agree to furnish to each other, if
applicable, current prospectuses, proxy statements, reports to
shareholders, certified copies of their financial statements, and such
other information with regard to their affairs as each may reasonably
request.
7. STATUS OF ADVISER. The services of the Adviser to the Trust are not to be
deemed exclusive, and the Adviser shall be free to render similar services
to others so long as its services to the Trust are not impaired thereby.
The Adviser shall be deemed to be an independent contractor and shall,
unless otherwise expressly provided or authorized, have no authority to act
for or represent the Trust in any way or otherwise be deemed an agent of
the Trust.
8. CERTAIN RECORDS. Any records required to be maintained and preserved
pursuant to the provisions of Rule 31a-1 and Rule 31a-2 promulgated under
the Investment Company Act of 1940 which are prepared or maintained by the
Adviser on behalf of the Trust are the property of the Trust and will be
surrendered promptly to the Trust on request, provided, however, that the
Adviser shall retain a copy of such records.
9. LIMITATION OF LIABILITY OF ADVISER. The duties of the Adviser shall be
confined to those expressly set forth herein, and no implied duties are
assumed by or may be asserted against the Adviser hereunder. The Adviser
shall not be liable to the Trust or any shareholder of the Trust or to any
other person for any error of judgment or mistake of law or any other act
or omission in the course
<PAGE>
of, or connected with, rendering services hereunder including, without
limitation, for any loss arising out of any purchase, holding, redemption,
exchange or sale of any security or the failure to do any of the foregoing
on behalf of any Portfolio of the Trust, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties, or by reason of reckless
disregard by the Adviser of its obligations and duties hereunder, except as
may otherwise be provided under provisions of applicable state law which
cannot be waived or modified hereby. (As used in this Paragraph 9, the
term "Adviser" shall include directors, officers, employees and other
corporate agents of the Adviser as well as that corporation itself).
10. PERMISSIBLE INTERESTS. Trustees, agents, and shareholders of the Trust are
or may be interested in the Adviser (or any successor thereof) as
directors, partners, officers, or shareholders, or otherwise; directors,
partners, officers, agents, and shareholders of the Adviser are or may be
interested in the Trust as Trustees, shareholders or otherwise; and the
Adviser (or any successor) is or may be interested in the Trust as a
shareholder or otherwise. The effect and limitations of any such inter-
relationships shall be governed by the provisions of the Investment Company
Act of 1940. In addition, brokerage transactions for the Trust may be
effected through affiliates of the Adviser if approved by the Board of
Trustees, subject to the rules and regulations of the Securities and
Exchange Commission.
11. DURATION AND TERMINATION. This Agreement, unless sooner terminated as
provided herein, shall remain in effect until two years from date of
execution, and thereafter, for periods of one year so long as such
continuance thereafter is specifically approved at least annually (a) by
the vote of a majority of those Trustees of the Trust who are not parties
to this Agreement or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval, and (b) by
the Trustees of the Trust or by vote of a majority of the outstanding
voting securities of each Portfolio; provided, however, that if the
shareholders of any Portfolio fail to approve the Agreement as provided
herein, the Adviser may continue to serve hereunder in the manner and to
the extent permitted by the Investment Company Act of 1940 and rules and
regulations thereunder. The foregoing requirement that continuance of this
Agreement be "specifically approved at least annually" shall be construed
in a manner consistent with the Investment Company Act of 1940 and the
rules and regulations thereunder.
This Agreement may be terminated as to any Portfolio at any time, without
the payment of any penalty by vote of a majority of the Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the
Portfolio on not less
<PAGE>
than 30 days nor more than 60 days written notice to the Adviser, or by the
Adviser at any time without the payment of any penalty, on 90 days written
notice to the Trust. This Agreement will automatically and immediately
terminate in the event of its assignment. Any notice under this Agreement
shall be given in writing, addressed and delivered, or mailed postpaid, to
the other party at any office of such party.
As used in this Section 11, the terms "assignment", "interested persons",
and a "vote of a majority of the outstanding voting securities" shall have
the respective meanings set forth in the Investment Company Act of 1940 and
the rules and regulations thereunder; subject to such exemptions as may be
granted by the Securities and Exchange Commission under said Act.
12. NOTICE. Any notice required or permitted to be given by either party to
the other shall be deemed sufficient if sent by registered or certified
mail, postage prepaid, addressed by the party giving notice to the other
party at the last address furnished by the other party to the party giving
notice: if to the Trust, at 680 East Swedesford Road, Wayne, PA 19087 and
if to the Adviser at One Citizens Banking Center, Flint, MI 48502,
Attention: Legal Department.
13. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
14. AMENDMENT OF AGREEMENT. The terms or provisions of this Agreement may be
amended, modified or waived in writing if such amendment, modification or
waiver is approved by the affirmative vote or action by written consent of
the Board of Trustees of the Trust and by the Adviser in accordance with
the Investment Company Act of 1940; provided, that an amendment,
modification or waiver shall also be approved by the shareholders of the
Trust if shareholder approval is required by the Investment Company Act of
1940 and the rules and regulations thereunder.
15. APPLICABLE LAW. This Agreement shall be construed in accordance with the
laws of the Commonwealth of Massachusetts and the applicable provisions of
the 1940 Act. To the extent that the applicable laws of the Commonwealth
of Massachusetts, or any of the provisions herein, conflict with the
applicable provisions of the 1940 Act, the latter shall control.
16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
<PAGE>
A copy of the Declaration of Trust of the Trust is on file with the Secretary of
The Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the Trustees of the Trust as Trustees, and
are not binding upon any of the Trustees, officers, or shareholders of the Trust
individually but binding only upon the assets and property of the Trust.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
as of the day and year first written above.
THE ARBOR FUND CITIZENS COMMERCIAL & SAVINGS BANK
By: /s/ Robert A. Nesher By: /s/ Stephen T. Swett
--------------------------- ----------------------------
Attest: /s/ Wayne M. Withrow Attest: /s/ Thomas W. Gallagher
----------------------- ------------------------
<PAGE>
SCHEDULE A
TO THE
INVESTMENT ADVISORY AGREEMENT
BETWEEN
THE ARBOR FUND
AND
CITIZENS COMMERCIAL & SAVINGS BANK
Pursuant to Article 3, the Trust shall pay the Adviser compensation at an annual
rate as follows:
Portfolio Fee (in basis points)
Diversified Growth Portfolio 74
Intermediate-Term Income Portfolio 50
Michigan Tax Free Bond Portfolio 50
Prime Obligation Money Market Fund 30
<PAGE>
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 27th day of September, 1993, by and between The Arbor
Fund, a Massachusetts business trust (the "Trust"), and Prudential Investment
Corporation (the "Adviser").
WHEREAS, the Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended, consisting of several
series of shares, each having its own investment policies; and
WHEREAS, the Trust has retained SEI Financial Management Corporation (the
"Administrator") to provide administration of the Trust's operations, subject to
the control of the Board of Trustees;
WHEREAS, the Trust desires to retain the Adviser to render investment
management services with respect to its California Tax Exempt Money Market Fund
and Institutional Tax Free Money Market Fund Portfolios and such other
portfolios as the Trust and the Adviser may agree upon (the "Portfolios"), and
the Adviser is willing to render such services:
NOW, THEREFORE, in consideration of mutual covenants herein contained, the
parties hereto agree as follows:
1. DUTIES OF THE ADVISER. The Trust employs the Adviser to manage the
investment and reinvestment of the assets, and to continuously review,
supervise, and administer the investment program of the Portfolios, to
determine in its discretion the securities to be purchased or sold, to
provide the Administrator and the Trust with records concerning the
Adviser's activities which the Trust is required to maintain by law or
by the Trust's Board of Trustees, and to render regular reports
(except for those special reports that the Board of Trustees may
require more frequently) to the Administrator and to the Trust's
Officers and Trustees concerning the Adviser's discharge of the
foregoing responsibilities.
The Adviser shall discharge the foregoing responsibilities subject to
the control of the Board of Trustees of the Trust and in compliance
with such policies as the Trustees may from time to time establish,
and in compliance with the objectives, policies, and limitations for
each such Portfolio set forth in the Portfolios' prospectus and
statement of additional information as amended from time to time, and
applicable laws and regulations.
The Adviser accepts such employment and agrees, at its own expense, to
render the services and to provide the office space, furnishings and
<PAGE>
equipment and the personnel required by it to perform the services on the
terms and for the compensation provided herein.
2. PORTFOLIO TRANSACTIONS. The Adviser is authorized to select the brokers or
dealers that will execute the purchases and sales of portfolio securities
for the Portfolios and is directed to use its best efforts to obtain the
best net results as described in the Portfolios' prospectus and statement
of additional information from time to time. The Adviser will promptly
communicate to the Administrator and to the officers and the Trustees of
the Trust such information relating to portfolio transactions as they may
reasonably request.
It is understood that the Adviser will not be deemed to have acted
unlawfully, or to have breached a fiduciary duty to the Trust or be in
breach of any obligation owing to the Trust under this Agreement, or
otherwise, solely by reason of its having directed a securities transaction
on behalf of the Trust to a broker-dealer in compliance with the provisions
of Section 28(e) of the Securities Exchange Act of 1934.
3. COMPENSATION OF THE ADVISER. For the services to be rendered by the
Adviser as provided in Sections 1 and 2 of this Agreement, the Trust shall
pay to the Adviser compensation at the rate specified in the Schedule(s)
which are attached hereto and made a part of this Agreement. Such
compensation shall be paid to the Adviser at the end of each month, and
calculated by applying a daily rate, based on the annual percentage rates
as specified in the attached Schedule(s), to the assets. The fee shall be
based on the average daily net assets for the month involved.
All rights of compensation under this Agreement for services performed as
of the termination date shall survive the termination of this Agreement.
4. EXCESS EXPENSES. If the expenses for any Portfolio for any fiscal year
(including fees and other amounts payable to the Adviser, but excluding
interest, taxes, brokerage costs, litigation, and other extraordinary
costs) as calculated every business day would exceed the expense
limitations imposed on investment companies by any applicable statute or
regulatory authority of any jurisdiction in which Shares are qualified for
offer and sale, the Adviser shall waive its fees, or reimburse to the Trust
out of fees previously paid to the Adviser for such year in the amount
necessary to comply with the expense limitation.
However, no waiver or reimbursement under the foregoing paragraph shall be
made which would result in the Trust's inability to qualify as a regulated
investment company under provisions of the Internal Revenue Code of 1986,
2
<PAGE>
as amended. Waivers or reimbursements pursuant to this Section 4 shall be
settled on a monthly basis (subject to fiscal year end reconciliation) by
a reduction in the fee payable to the Adviser for such month pursuant to
Section 3 and, if such reduction shall be insufficient to offset such
expenses, by reimbursing the Trust.
5. REPORTS. The Trust and the Adviser agree to furnish to each other, if
applicable, current prospectuses, proxy statements, reports to
shareholders, certified copies of their financial statements, and such
other information with regard to their affairs as each may reasonably
request.
6. STATUS OF THE ADVISER. The services of the Adviser to the Trust are not to
be deemed exclusive, and the Adviser shall be free to render similar
services to others so long as its services to the Trust are not impaired
thereby. The Adviser shall be deemed to be an independent contractor and
shall, unless otherwise expressly provided or authorized, have no authority
to act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust.
7. CERTAIN RECORDS. Any records required to be maintained and preserved
pursuant to the provisions of Rule 31a-1 and Rule 31a-2 promulgated under
the Investment Company Act of 1940 which are prepared or maintained by the
Adviser on behalf of the Trust are the property of the Trust and will be
surrendered promptly to the Trust on request.
8. LIMITATION OF LIABILITY OF THE ADVISER. The duties of the Adviser shall be
confined to those expressly set forth herein, and no implied duties are
assumed by or may be asserted against the Adviser hereunder. The Adviser
shall not be liable for any error of judgment or mistake of law or for any
loss arising out of any investment or for any act or omission in carrying
out its duties hereunder, except a loss resulting from willful misfeasance,
bad faith or gross negligence in the performance of its duties, or by
reason of reckless disregard of its obligations and duties hereunder,
except as may otherwise be provided under provisions of applicable state
and federal law which cannot be waived or modified hereby. (As used in
this Paragraph 9, the term "Adviser" shall include directors, officers,
employees and other corporate agents of the Adviser as well as that
corporation itself).
9. PERMISSIBLE INTERESTS. Trustees, agents, and shareholders of the Trust are
or may be interested in the Adviser (or any successor thereof) as
directors, partners, officers, or shareholders, or otherwise; directors,
partners, officers, agents, and shareholders of the Adviser are or may be
interested in the Trust as Trustees, shareholders or otherwise; and the
Adviser (or any
3
<PAGE>
successor) is or may be interested in the Trust as a shareholder or
otherwise. In addition, brokerage transactions for the Trust may be
effected through affiliates of the Adviser if approved by the Board of
Trustees, subject to the rules and regulations of the Securities and
Exchange Commission.
10. DURATION AND TERMINATION. This Agreement, unless sooner terminated as
provided herein, shall remain in effect until two years from date of
execution, and thereafter, for periods of one year so long as such
continuance thereafter is specifically approved at least annually (a) by
the vote of a majority of those Trustees of the Trust who are not parties
to this Agreement or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval, and (b) by
the Trustees of the Trust or by vote of a majority of the outstanding
voting securities of each Portfolio; provided, however, that if the
shareholders of any Portfolio fail to approve the Agreement as provided
herein, the Adviser may continue to serve hereunder in the manner and to
the extent permitted by the Investment Company Act of 1940 and rules and
regulations thereunder. The foregoing requirement that continuance of this
Agreement be "specifically approved at least annually" shall be construed
in a manner consistent with the Investment Company Act of 1940 and the
rules and regulations thereunder.
This Agreement may be terminated as to any Portfolio at any time, without
the payment of any penalty by vote of a majority of the Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the
Portfolio on not less than 30 days nor more than 60 days written notice to
the Adviser, or by the Adviser at any time without the payment of any
penalty, on 90 days written notice to the Trust. This Agreement will
automatically and immediately terminate in the event of its assignment.
Any notice under this Agreement shall be given in writing, addressed and
delivered, or mailed postpaid, to the other party at any office of such
party.
As used in this Section 11, the terms "assignment", "interested persons",
and a "vote of a majority of the outstanding voting securities" shall have
the respective meanings set forth in the Investment Company Act of 1940 and
the rules and regulations thereunder; subject to such exemptions as may be
granted by the Securities and Exchange Commission under said Act.
11. NOTICE. Any notice required or permitted to be given by either party to
the other shall be deemed sufficient if sent by registered or certified
mail, postage prepaid, addressed by the party giving notice to the other
party at the last address furnished by the other party to the party giving
notice: if to the Trust, at 680 East Swedesford Road, Wayne, PA 19087 and
if to the Adviser at: Two Gateway Center, 6th floor, Newark, NJ 07102-
5096.
4
<PAGE>
12. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
A copy of the Agreement and Declaration of Trust of the Trust is on file with
the Secretary of The Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the Trustees of the Trust as
Trustees, and are not binding upon any of the Trustees, officers, or
shareholders of the Trust individually but binding only upon the assets and
property of the Trust.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
as of the day and year first written above.
THE ARBOR FUND PRUDENTIAL INVESTMENT CORPORATION
By: /s/ Wayne W. Withrow By:
------------------------- --------------------------------
Attest: /s/ Mary Jane Maloney Attest: /s/ Mark J. Johnson
---------------------- -----------------------------
5
<PAGE>
SCHEDULE A
TO THE
INVESTMENT ADVISORY AGREEMENT
BETWEEN
THE ARBOR FUND
AND
PRUDENTIAL INVESTMENT CORPORATION
Pursuant to Article 3, the Trust shall pay the Adviser compensation at an annual
rate as follows:
CALIFORNIA TAX EXEMPT MONEY MARKET FUND: .075% of the average daily assets
of the Portfolio up to $300 million; .070% of the average daily assets of
the Portfolio from $300 million to $500 million; and .050% of the Portfolio's
assets over $500 million.
INSTITUTIONAL TAX FREE MONEY MARKET FUND: .075% of the average daily assets
of the Portfolio up to $300 million; .070% of the average daily assets of
the Portfolio from $300 million to $500 million; and .050% of the Portfolio's
assets over $500 million.
<PAGE>
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 22nd day of November, 1993 by and between The Arbor
Fund, a Massachusetts business trust (the "Trust"), and One Valley Bank, N.A.
(the "Adviser").
WHEREAS, the Trust is an open-end, non-diversified management investment
company registered under the Investment Company Act of 1940, as amended, (the
"Investment Company Act") consisting of several series of shares, each having
its own investment policies; and
WHEREAS, the Trust has retained SEI Financial Management Corporation (the
"Administrator") to provide administration of the Trust's operations, subject to
the control of the Board of Trustees;
WHEREAS, the Trust desires to retain the Adviser to render investment
management services with respect to its OVB Emerging Growth, OVB Capital
Appreciation, OVB West Virginia Tax-Exempt Income, OVB Government Securities and
OVB Prime Obligations Portfolios and such other portfolios as the Trust and the
Adviser may agree upon (the "Portfolios"), and the Adviser is willing to render
such services:
NOW, THEREFORE, in consideration of mutual covenants herein contained, the
parties hereto agree as follows:
1. DUTIES OF THE ADVISER. The Trust employs the Adviser to manage the
investment and reinvestment of the assets, and to continuously review,
supervise, and administer the investment program of the Portfolios, to
determine in its discretion the securities to be purchased or sold, to
provide the Administrator and the Trust with records concerning the
Adviser's activities which the Trust is required to maintain and to
render regular reports (except for those special reports that the
Board of Trustees may require more frequently) to the Administrator
and to the Trust's Officers and Trustees concerning the Adviser's
discharge of the foregoing responsibilities.
The Adviser shall discharge the foregoing responsibilities subject to
the control of the Board of Trustees of the Trust and in compliance
with such policies as the Trustees may from time to time establish,
and in compliance with the objectives, policies, and limitations for
each such Portfolio set forth in the Portfolios' prospectus and
statement of additional information as amended from time to time, and
applicable laws and regulations.
The Adviser accepts such employment and agrees, at its own expense, to
<PAGE>
render the services and to provide the office space, furnishings and
equipment and the personnel required by it to perform the services on the
terms and for the compensation provided herein.
2. PORTFOLIO TRANSACTIONS. The Adviser is authorized to select the brokers or
dealers that will execute the purchases and sales of portfolio securities
for the Portfolios and is directed to use its best efforts to obtain the
best net results as described in the Portfolios' prospectuses and statement
of additional information from time to time. The Adviser will promptly
communicate to the Administrator and to the officers and the Trustees of
the Trust such information relating to portfolio transactions as they may
reasonably request.
It is understood that the Adviser will not be deemed to have acted
unlawfully, or to have breached a fiduciary duty to the Trust or be in
breach of any obligation owing to the Trust under this Agreement, or
otherwise, solely by reason of its having directed a securities transaction
on behalf of the Trust to a broker-dealer in compliance with the provisions
of Section 28(e) of the Securities Exchange Act of 1934.
3. COMPENSATION OF THE ADVISER. For the services to be rendered by the
Adviser as provided in Sections 1 and 2 of this Agreement, the Trust shall
pay to the Adviser compensation at the rate specified in the Schedule(s)
which are attached hereto and made a part of this Agreement. Such
compensation shall be paid to the Adviser at the end of each month, and
calculated by applying a daily rate, based on the annual percentage rates
as specified in the attached Schedule(s), to the assets. The fee shall be
based on the average daily net assets for the month involved.
All rights of compensation under this Agreement for services performed as
of the termination date shall survive the termination of this Agreement.
4. OTHER EXPENSES. The Adviser shall pay all expenses of preparing (including
typesetting), printing and mailing reports, prospectuses, statements of
additional information, and sales literature to prospective clients to the
extent these expenses are not borne by the Trust under a distribution plan
adopted pursuant to Rule 12b-1 of the Investment Company Act.
5. EXCESS EXPENSES. If the expenses for any Portfolio for any fiscal year
(including fees and other amounts payable to the Adviser, but excluding
interest, taxes, brokerage costs, litigation, and other extraordinary
costs) as calculated every business day would exceed the expense
limitations imposed on investment companies by any applicable statute or
regulatory authority of
<PAGE>
any jurisdiction in which Shares are qualified for offer and sale, the
Adviser shall waive its fees, or reimburse to the Trust out of fees
previously paid to the Adviser for such year in the amount necessary to
comply with the expense limitation.
However, no waiver or reimbursement under the foregoing paragraph shall be
made which would result in the Trust's inability to qualify as a regulated
investment company under provisions of the Internal Revenue Code of 1986,
as amended. Waivers or reimbursements pursuant to this Section 5 shall be
settled on a monthly basis (subject to fiscal year end reconciliation) by a
reduction in the fee payable to the Adviser for such month pursuant to
Section 3 and, if such reduction shall be insufficient to offset such
expenses, by reimbursing the Trust.
6. REPORTS. The Trust and the Adviser agree to furnish to each other, if
applicable, current prospectuses, proxy statements, reports to
shareholders, certified copies of their financial statements, and such
other information with regard to their affairs as each may reasonably
request.
7. STATUS OF THE ADVISER. The services of the Adviser to the Trust are not to
be deemed exclusive, and the Adviser shall be free to render similar
services to others so long as its services to the Trust are not impaired
thereby. The Adviser shall be deemed to be an independent contractor and
shall, unless otherwise expressly provided or authorized, have no authority
to act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust.
8. CERTAIN RECORDS. Any records required to be maintained and preserved
pursuant to the provisions of Rule 31a-1 and Rule 31a-2 promulgated under
the Investment Company Act which are prepared or maintained by the Adviser
on behalf of the Trust are the property of the Trust and will be
surrendered promptly to the Trust on request.
9. LIMITATION OF LIABILITY OF THE ADVISER. The duties of the Adviser shall be
confined to those expressly set forth herein, and no implied duties are
assumed by or may be asserted against the Adviser hereunder. The Adviser
shall not be liable for any error of judgment or mistake of law or for any
loss arising out of any investment or for any act or omission in carrying
out its duties hereunder, except a loss resulting from willful misfeasance,
bad faith or gross negligence in the performance of its duties, or by
reason of reckless disregard of its obligations and duties hereunder,
except as may otherwise be provided under provisions of applicable state
and federal law which cannot be waived or modified hereby. (As used in
this Paragraph 9, the term "Adviser" shall include
<PAGE>
directors, officers, employees and other corporate agents of the Adviser as
well as that corporation itself).
10. PERMISSIBLE INTERESTS. Trustees, agents, and shareholders of the Trust are
or may be interested in the Adviser (or any successor thereof) as
directors, partners, officers, or shareholders, or otherwise; directors,
partners, officers, agents, and shareholders of the Adviser are or may be
interested in the Trust as Trustees, shareholders or otherwise; and the
Adviser (or any successor) is or may be interested in the Trust as a
shareholder or otherwise. In addition, brokerage transactions for the
Trust may be effected through affiliates of the Adviser if approved by the
Board of Trustees, subject to the rules and regulations of the Securities
and Exchange Commission.
11. DURATION AND TERMINATION. This Agreement, unless sooner terminated as
provided herein, shall remain in effect until two years from date of
execution, and thereafter, for periods of one year so long as such
continuance thereafter is specifically approved at least annually (a) by
the vote of a majority of those Trustees of the Trust who are not parties
to this Agreement or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval, and (b) by
the Trustees of the Trust or by vote of a majority of the outstanding
voting securities of each Portfolio; provided, however, that if the
shareholders of any Portfolio fail to approve the Agreement as provided
herein, the Adviser may continue to serve hereunder in the manner and to
the extent permitted by the Investment Company Act and rules and
regulations thereunder. The foregoing requirement that continuance of this
Agreement be "specifically approved at least annually" shall be construed
in a manner consistent with the Investment Company Act and the rules and
regulations thereunder.
This Agreement may be terminated as to any Portfolio at any time, without
the payment of any penalty by vote of a majority of the Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the
Portfolio on not less than 30 days nor more than 60 days written notice to
the Adviser, or by the Adviser at any time without the payment of any
penalty, on 90 days written notice to the Trust. This Agreement will
automatically and immediately terminate in the event of its assignment.
Any notice under this Agreement shall be given in writing, addressed and
delivered, or mailed postpaid, to the other party at any office of such
party.
As used in this Section 11, the terms "assignment", "interested persons",
and a "vote of a majority of the outstanding voting securities" shall have
the respective meanings set forth in the Investment Company Act and the
rules and regulations thereunder; subject to such exemptions as may be
granted by
<PAGE>
the Securities and Exchange Commission under said Act.
12. NOTICE. Any notice required or permitted to be given by either party to
the other shall be deemed sufficient if sent by registered or certified
mail, postage prepaid, addressed by the party giving notice to the other
party at the last address furnished by the other party to the party giving
notice: if to the Trust, at 680 East Swedesford Road, Wayne, PA 19087 and
if to the Adviser at: One Valley Square, Charleston, WV 25326
13. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
A copy of the Agreement and Declaration of Trust of the Trust is on file with
the Secretary of The Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the Trustees of the Trust as
Trustees, and are not binding upon any of the Trustees, officers, or
shareholders of the Trust individually but binding only upon the assets and
property of the Trust.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
as of the day and year first written above.
THE ARBOR FUND ONE VALLEY BANK, N.A.
By /s/ Wayne M. Withrow By: /s/ J. Randy Valentine
------------------------- ---------------------------------
Attest: /s/ Mary Jane Maloney Attest: /s/ S. H. Belden
--------------------- ------------------------------
<PAGE>
SCHEDULE A
TO THE
INVESTMENT ADVISORY AGREEMENT
BETWEEN
THE ARBOR FUND
AND
ONE VALLEY BANK, N.A.
Pursuant to Article 3, the Trust shall pay the Adviser compensation at an annual
rate as follows:
PORTFOLIO FEE (IN BASIS POINTS)
- --------- ---------------------
OVB Emerging Growth .95%
OVB Capital Appreciation .95%
OVB West Virginia Tax Exempt Income .45%
OVB Government Securities .75%
OVB Prime Obligations .25%
<PAGE>
THE ARBOR FUND
OVB PRIME OBLIGATIONS PORTFOLIO
INVESTMENT SUB ADVISORY AGREEMENT
AGREEMENT made this 22nd day of November, 1993, by and among One Valley
Bank, N.A., a national banking association (the "Adviser"), Wellington
Management Company, a Massachusetts general partnership (the "Sub-Adviser") and
The Arbor Fund, a Massachusetts business trust (the "Trust").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Adviser has entered into an Investment Advisory Agreement
dated November 22, 1993 (the "Advisory Agreement") with the Trust, pursuant to
which the Adviser will act as investment adviser to the OVB Prime Obligations
Portfolio (the "Portfolio"); and
WHEREAS, the Adviser and the Trust each desire to retain the Sub-Adviser to
provide investment advisory services to the Trust in connection with the
management of the Portfolio, and the Sub-Adviser is willing to render such
investment advisory services
NOW, THEREFORE, the parties hereto agree as follows:
1. (a) Subject to supervision by the Adviser and the Trust's Board of
Trustees, the Sub-Adviser shall manage the investment operations of
the Portfolio and the composition of the Portfolio's portfolio,
including the purchase, retention and disposition thereof, in
accordance with the Portfolio's investment objectives, policies and
restrictions as stated in the Portfolio's Prospectus (such Prospectus
and the Statement of Additional Information, as currently in effect
and as amended or supplemented from time to time, being herein called
the "Prospectus"), and subject to the following:
(1) The Sub-Adviser shall provide supervision of the Portfolio's
investments and determine from time to time what investments and
securities will be purchased, retained or sold by the Portfolio,
and what portion of the costs will be invested or held uninvested
in cash.
(2) In the performance of its duties and obligations under this
Agreement, the Sub-Adviser shall act in conformity with the
Trust's Declaration of Trust and the Prospectus and with the
instructions and directions of the Adviser and of the Board of
Trustees of the Trust and will conform to and comply with the
requirements of the 1940 Act, the Internal Revenue Code of 1986,
and all other applicable federal and state
<PAGE>
laws and regulations, as each is amended from time to time.
(3) The Sub-Adviser shall determine the securities to be purchased or sold by
the Portfolio and will place orders with or through such persons, brokers
or dealers to carry out the policy with respect to brokerage set forth in
the Portfolio's Registration Statement (as defined herein) and Prospectus
or as the Board of Trustee or the Adviser may direct from time to time, in
conformity with federal securities laws. In providing the Portfolio with
investment supervision, the Sub-Adviser will give primary consideration to
securing the most favorable price and efficient execution. Within the
framework of this policy, the Sub-Adviser may consider the financial
responsibility, research and investment information and other services
provided by brokers or dealers who may effect or be a party to any such
transaction or other transactions to which the Sub-Adviser's other clients
may be a party. It is understood that it is desirable for the Portfolio
that the Sub-Adviser have access to supplemental investment and market
research and security and economic analysis provided by brokers who may
execute brokerage transactions at higher cost to the Portfolio than may
result when allocating brokerage to other brokers on the basis of seeking
the most favorable price and efficient execution. Therefore, the Sub-
Adviser is authorized to place orders for the purchase and sale of
securities for the Portfolio with such brokers, subject to review by the
Trust's Board of Trustees from time to time with respect to the extent and
continuation of this practice. It is understood that the services provided
by such brokers may be useful to the Sub-Adviser in connection with the
Sub-Adviser's services to other clients.
On occasions when the Sub-Adviser deems the purchase or sale of a security
to be in the best interest of the Portfolio as well as other clients of the
Sub-Adviser, the Sub-Adviser, to the extent permitted by applicable laws
and regulations, may, but shall be under no obligation to, aggregate the
securities to be so purchased or sold in order to obtain the most favorable
price or lower brokerage commissions and efficient execution. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Sub-Adviser in
the manner it considers to be the most equitable and consistent with its
fiduciary obligation to the Portfolio and to such other clients.
(4) The Sub-Adviser shall maintain all books and records with respect to the
Portfolio's portfolio transactions required by subparagraphs (b)(5),
2
<PAGE>
(6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1
under the 1940 Act and shall render to the Trust's Board of
Trustees such periodic and special reports as the Trust's Board
of Trustees may reasonably request.
(5) The Sub-Adviser shall provide the Portfolio's Custodian on each
business day with information relating to all transactions
concerning the Portfolio's assets and shall provide the Adviser
with such information upon request of the Adviser.
(6) The investment management services provided by the Sub-Adviser
under this Agreement are not to be deemed exclusive and the Sub-
Adviser shall be free to render similar services to others, as
long as such services do not impair the services rendered to the
Adviser or the Trust.
(b) Services to be furnished by the Sub-Adviser under this Agreement may
be furnished through the medium of any of the Sub-Adviser's partners,
officers or employees.
(c) The Sub-Adviser shall keep the Portfolio's books and records required
to be maintained by the Sub-Adviser pursuant to paragraph 1(a) of this
Agreement and shall timely furnish to the Adviser all information
relating to the Sub-Adviser's services under this Agreement needed by
the Adviser to keep the other books and records of the Portfolio
required by Rule 31a-1 under the 1940 Act. The Sub-Adviser agrees that
all records that it maintains on behalf of the Portfolio are property
of the Portfolio and the Sub-Adviser will surrender promptly to the
Portfolio any of such records upon the Portfolio's request; provided,
however, that the Sub-Adviser may retain a copy of such records. The
Sub-Adviser further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any such records as are required to be
maintained by it pursuant to paragraph 1(a) of this Agreement.
2. The Adviser shall continue to have responsibility for all services to be
provided to the Portfolio pursuant to the Advisory Agreement and shall
oversee and review the Sub-Adviser's performance of its duties under this
Agreement
3. The Adviser has delivered to the Sub-Adviser copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) The Trust's Declaration of Trust, as filed with the Secretary of State
of Massachusetts (such Declaration of Trust, as in effect on the date
of this Agreement and as amended from time to time, herein called the
"Declaration
3
<PAGE>
of Trust");
(b) By-Laws of the Trust (such By-Laws, as in effect on the date of this
Agreement and as amended from time to time, are herein called the "By-
Laws");
(c) Certified resolutions of the Trust's Board of Trustees authorizing the
appointment of the Adviser and the Sub-Adviser with respect to the
Portfolio, and approving the form of this Agreement;
(d) Registration Statement under the 1940 Act and the Securities Act of
1933, as amended, on Form N-1A (the "Registration Statement"), as
filed with the Securities and Exchange Commission (the "Commission")
relating to the Portfolio and shares of the Portfolio's beneficial
shares, and all amendments thereto;
(e) Notification of Registration of the Trust under the 1940 Act on Form
N-8A as filed with the Commission, and all amendments thereto; and
(f) Prospectus of the Portfolio.
4. For the services to be provided by the Sub-Adviser pursuant to this
Agreement, the Portfolio will pay to the Sub-Adviser as full compensation
therefor a fee at an annual rate of 0.075% on the first $500 million and
0.020% on the excess of $500 million of the aggregate average daily net
assets of the Trust's money market portfolios to which the Sub-Adviser
serves as sub-adviser, pro rated based on the Portfolio's average daily net
assets. This fee will be computed daily and paid to the Sub-Adviser
monthly.
5. The Sub-Adviser shall not be liable for any error of judgment or for any
loss suffered by the Portfolio or the Adviser in connection with
performance of its obligations under this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages shall be
limited to the period and the amount set forth in Section 36(b)(3) of the
1940 Act), or a loss resulting from willful misfeasance, bad faith or gross
negligence on the Sub-Adviser's part in the performance of its duties or
from reckless disregard of its obligations and duties under this Agreement,
except as may otherwise be provided under provisions of applicable state
law which cannot be waived or modified hereby.
6. This Agreement shall continue in effect for a period of more than two years
from the date hereof only so long as continuance is specifically approved
at least annually in conformance with the 1940 Act; provided, however, that
this Agreement may be
4
<PAGE>
terminated (a) by the Portfolio at any time, without the payment of any
penalty, by the vote of a majority of Trustees of the Trust or by the vote
of a majority of the outstanding voting securities of such Portfolio, (b)
by the Adviser at any time, without the payment of any penalty, on not more
than 60 days' nor less than 30 days' written notice to the other parties,
or (c) by the Sub-Adviser at any time, without the payment of any penalty,
on 90 days' written notice to the other parties. This Agreement shall
terminate automatically and immediately in the event of its assignment. As
used in this Section 6, the terms "assignment" and "vote of a majority of
the outstanding voting securities" shall have the respective meanings set
forth in the 1940 Act and the rules and regulations thereunder, subject to
such exceptions as may be granted by the Commission under the 1940 Act.
7. Nothing in this Agreement shall limit or restrict the right of any of the
Sub-Adviser's partners, officers, or employees to engage in any other
business or to devote his or her time and attention in part to the
management or other aspects of any business, whether of a similar or
dissimilar nature, nor limit or restrict the Sub-Adviser's right to engage
in any other business or to render services of any kind to any other
corporation, firm, individual or association.
8. During the term of this Agreement, the Adviser agrees to furnish the Sub-
Adviser at its principal office all prospectuses, proxy statements, reports
to stockholders, sales literature or other materials prepared for
distribution to stockholders of the Portfolio, the Trust or the public that
refer to the Sub-Adviser or its clients in any way prior to use thereof and
not to use material if the Sub-Adviser reasonably objects in writing within
five business days (or such other period as may be mutually agreed) after
receipt thereof. The Sub-Adviser's right to object to such materials is
limited to the portions of such materials that expressly relate to the Sub-
Adviser, its services and its clients. The Adviser agrees to use its
reasonable best efforts to ensure that materials prepared by its employees
or agents or its affiliates that refer to the Sub-Adviser or its clients in
any way are consistent with those materials previously approved by the Sub-
Adviser as referenced in the first sentence of this paragraph. Sales
literature may be furnished to the Sub-Adviser by first class or overnight
mail, facsimile transmission equipment or hand delivery.
9. No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination
is sought, and no amendment of this Agreement shall be effective until
approved by the vote of the majority of the outstanding voting securities
of the Portfolio.
10. This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts; provided, however, that nothing herein shall be construed as
being inconsistent with the 1940 Act.
5
<PAGE>
11. This Agreement embodies the entire agreement and understanding among the
parties hereto, and supersedes all prior agreements and understandings
relating to this Agreement's subject matter. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be
an original, but such counterparts shall, together, constitute only one
instrument.
12. Should any part of this Agreement be held invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors.
13. Any notice, advice or report to be given pursuant to this Agreement shall
be delivered or mailed:
To the Adviser at:
One Valley Bank, National Association
One Valley Square
Charleston, West Virginia 25301
To the Sub-Adviser at:
Wellington Management Company
75 State Street
Boston, MA 02109
To the Trust or the Portfolio at:
The Arbor Fund
2 Oliver Street
Boston, MA 02109
6
<PAGE>
14. Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order of
the Commission, whether of special or general application, such provision
shall be deemed to incorporate the effect of such rule, regulation or
order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first written
above.
ONE VALLEY BANK, N.A. WELLINGTON MANAGEMENT COMPANY
By: /s/ J. Randy Valentine By: /s/ Robert Doran
-------------------------- --------------------------------
Title: Senior Vice President Title: Chairman
----------------------- -----------------------------
THE ARBOR FUND
By: /s/ Wayne M. Withrow
--------------------------
Title: Vice President
-----------------------
7
<PAGE>
THE ARBOR FUND
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 1st day of August, 1994, by and between The Arbor Fund,
a Massachusetts business trust (the "Trust"), and Capitoline Investment Services
Incorporated (the "Adviser").
WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), consisting of several series of shares, each having its own
investment policies; and
WHEREAS, the Trust has retained SEI Financial Management Corporation (the
"Administrator") to provide administration of the Trust's operations, subject to
the control of the Board of Trustees;
WHEREAS, the Trust desires to retain the Adviser to render investment
management services with respect to its U.S. Government Securities Money Fund
and such other portfolios as the Trust and the Adviser may agree upon (the
"Portfolios"), and the Adviser is willing to render such services:
NOW, THEREFORE, in consideration of mutual covenants herein contained, the
parties hereto agree as follows:
1. DUTIES OF THE ADVISER. The Trust employs the Adviser to manage the
investment and reinvestment of the assets, and to continuously review,
supervise, and administer the investment program of the Portfolios, to
determine in its discretion the securities to be purchased or sold, to
provide the Administrator and the Trust with records concerning the
Adviser's activities which the Trust is required to maintain, and to
render regular reports to the Administrator and to the Trust's
officers and Trustees concerning the Adviser's discharge of the
foregoing responsibilities.
The Adviser shall discharge the foregoing responsibilities subject to
the control of the Board of Trustees of the Trust and in compliance
with such policies as the Trustees may from time to time establish,
and in compliance with the objectives, policies, and limitations for
each such Portfolio set forth in the Trust's prospectus and statement
of additional information as amended from time to time, and applicable
laws and regulations.
The Adviser accepts such employment and agrees, at its own expense, to
render the services and to provide the office space, furnishings and
equipment
<PAGE>
and the personnel required by it to perform the services on the terms and
for the compensation provided herein.
2. PORTFOLIO TRANSACTIONS. The Adviser is authorized to select the brokers or
dealers that will execute the purchases and sales of portfolio securities
for the Portfolios and is directed to use its best efforts to obtain the
best net results as described in the Trust's prospectus and statement of
additional information from time to time. The Adviser will promptly
communicate to the Administrator and to the officers and the Trustees of
the Trust such information relating to portfolio transactions as they may
reasonably request.
It is understood that the Adviser will not be deemed to have acted
unlawfully, or to have breached a fiduciary duty to the Trust or be in
breach of any obligation owing to the Trust under this Agreement, or
otherwise, solely by reason of its having directed a securities transaction
on behalf of the Trust to a broker-dealer in compliance with the provisions
of Section 28(e) of the Securities Exchange Act of 1934.
3. COMPENSATION OF THE ADVISER. For the services to be rendered by the
Adviser as provided in Sections 1 and 2 of this Agreement, the Trust shall
pay to the Adviser compensation at the rate specified in the Schedule(s)
which are attached hereto and made a part of this Agreement. Such
compensation shall be paid to the Adviser at the end of each month, and
calculated by applying a daily rate, based on the annual percentage rates
as specified in the attached Schedule(s), to the assets. The fee shall be
based on the average daily net assets for the month involved.
All rights of compensation under this Agreement for services performed as
of the termination date shall survive the termination of this Agreement.
4. OTHER EXPENSES. The Adviser shall pay all expenses of preparing (including
typesetting), printing and mailing reports, prospectuses, statements of
additional information, and sales literature to prospective clients to the
extent these expenses are not borne by the Trust under a distribution plan
adopted pursuant to Rule 12b-1.
5. EXCESS EXPENSES. If the expenses for any Portfolio for any fiscal year
(including fees and other amounts payable to the Adviser, but excluding
interest, taxes, brokerage costs, litigation, and other extraordinary
costs) as calculated every business day would exceed the expense
limitations imposed on investment companies by any applicable statute or
regulatory authority of
<PAGE>
any jurisdiction in which Shares are qualified for offer and sale, the
Adviser shall bear such excess cost.
However, the Adviser will not bear expenses of the Trust or any Portfolio
which would result in the Trust's inability to qualify as a regulated
investment company under provisions of the Internal Revenue Code. Payment
of expenses by the Adviser pursuant to this Section 5 shall be settled on a
monthly basis (subject to fiscal year end reconciliation) by a reduction in
the fee payable to the Adviser for such month pursuant to Section 3 and, if
such reduction shall be insufficient to offset such expenses, by
reimbursing the Trust.
6. REPORTS. The Trust and the Adviser agree to furnish to each other, if
applicable, current prospectuses, proxy statements, reports to
shareholders, certified copies of their financial statements, and such
other information with regard to their affairs as each may reasonably
request.
7. STATUS OF THE ADVISER. The services of the Adviser to the Trust are not to
be deemed exclusive, and the Adviser shall be free to render similar
services to others so long as its services to the Trust are not impaired
thereby. The Adviser shall be deemed to be an independent contractor and
shall, unless otherwise expressly provided or authorized, have no authority
to act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust.
8. CERTAIN RECORDS. Any records required to be maintained and preserved
pursuant to the provisions of Rule 31a-1 and Rule 31a-2 promulgated under
the 1940 Act which are prepared or maintained by the Adviser on behalf of
the Trust are the property of the Trust and will be surrendered promptly to
the Trust on request.
9. LIMITATION OF LIABILITY OF THE ADVISER. The duties of the Adviser shall be
confined to those expressly set forth herein, and no implied duties are
assumed by or may be asserted against the Adviser hereunder. The Adviser
shall not be liable for any error of judgment or mistake of law or for any
loss arising out of any investment or for any act or omission in carrying
out its duties hereunder, except a loss resulting from willful misfeasance,
bad faith or gross negligence in the performance of its duties, or by
reason of reckless disregard of its obligations and duties hereunder,
except as may otherwise be provided under provisions of applicable state
law which cannot be waived or modified hereby. (As used in this Paragraph
9, the term "Adviser" shall include directors, officers, employees of the
Adviser and other corporate agents as well as that corporation itself).
<PAGE>
10. PERMISSIBLE INTERESTS. Trustees, agents, and shareholders of the Trust are
or may be interested in the Adviser (or any successor thereof) as
directors, partners, officers, or shareholders, or otherwise; directors,
partners, officers, agents, and shareholders of the Adviser are or may be
interested in the Trust as Trustees, shareholders or otherwise; and the
Adviser (or any successor) is or may be interested in the Trust as a
shareholder or otherwise. In addition, brokerage transactions for the
Trust may be effected through affiliates of the Adviser if approved by the
Board of Trustees, subject to the rules and regulations of the Securities
and Exchange Commission.
11. DURATION AND TERMINATION. This Agreement, unless sooner terminated as
provided herein, shall remain in effect until two years from date of
execution], and thereafter, for periods of one year so long as such
continuance thereafter is specifically approved at least annually (a) by
the vote of a majority of those Trustees of the Trust who are not parties
to this Agreement or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval, and (b) by
the majority of the Trustees of the Trust or by vote of a majority of the
outstanding voting securities of each Portfolio; provided, however, that if
the shareholders of any Portfolio fail to approve the Agreement as provided
herein, the Adviser may continue to serve hereunder in the manner and to
the extent permitted by the 1940 Act and rules and regulations thereunder.
The foregoing requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed in a manner
consistent with the 1940 Act and the rules and regulations thereunder.
This Agreement may be terminated as to any Portfolio at any time, without
the payment of any penalty by vote of a majority of the Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the
Portfolio on not less than 30 days nor more than 60 days written notice to
the Adviser, or by the Adviser at any time without the payment of any
penalty, on 60 days written notice to the Trust. This Agreement will
automatically and immediately terminate in the event of its assignment.
Any notice under this Agreement shall be given in writing, addressed and
delivered, or mailed postpaid, to the other party at any office of such
party.
As used in this Section 11, the terms "assignment", "interested persons",
and a "vote of a majority of the outstanding voting securities" shall have
the respective meanings set forth in the 1940 Act and the rules and
regulations thereunder; subject to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
<PAGE>
12. NOTICE. Any notice required or permitted to be given by either party
to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice
to the other party at the last address furnished by the other party to
the party giving notice: if to the Trust, at: 680 East Swedesford
Road, Wayne, PA and if to the Adviser at: 919 East Main Street,
Richmond, VA 23219.
13. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
14. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the Commonwealth of Virginia and the applicable provisions
of the Investment Advisers Act of 1940 (the "Advisers Act"). To the
extent that the applicable laws of the Commonwealth of Virginia, or
any of the provisions herein, conflict with the applicable provisions
of the Advisers Act, the latter shall control.
A copy of the Agreement and Declaration of Trust of the Trust is on file with
the Secretary of The Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the Trustees of the Trust as
Trustees, and are not binding upon any of the Trustees, officers, or
shareholders of the Trust individually but binding only upon the assets and
property of the Trust.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of the day and year first written above.
THE ARBOR FUND CAPITOLINE INVESTMENT SERVICES INCORPORATED
By: /s/ Kathryn L. Stanton By: /s/ Robert V. Callahan
------------------------- ---------------------------
Attest: /s/ Mary Jane Maloney Attest: /s/ Karl G. Verboncoeur
--------------------- -----------------------
<PAGE>
SCHEDULE DATED AUGUST 1, 1994
TO THE
INVESTMENT ADVISORY AGREEMENT
DATED AUGUST 1, 1994
BETWEEN
THE ARBOR FUND
AND
CAPITOLINE INVESTMENT SERVICES INCORPORATED
Pursuant to Article 3, the Trust shall pay the Adviser compensation, computed
daily at an annual rate of the Portfolio's average daily net assets, as
follows:
PORTFOLIO FEE
U.S. Government Securities Money Fund .20%
<PAGE>
SCHEDULE DATED OCTOBER 25, 1995
TO THE
INVESTMENT ADVISORY AGREEMENT
DATED AUGUST 1, 1994
BETWEEN
THE ARBOR FUND
AND
CAPITOLINE INVESTMENT SERVICES INCORPORATED
Pursuant to Article 3, the Trust shall pay the Adviser compensation, computed
daily at an annual rate of the Portfolio's average daily net assets, as
follows:
PORTFOLIO FEE
Prime Obligations Fund .20%
<PAGE>
[FORM]
THE ARBOR FUND
GOLDEN OAK VALUE PORTFOLIO
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made this ____ day of _________, 1997, between Citizens
Bank, (the "Adviser") and Systematic Financial Management, L.P. (the
"Sub-Adviser").
WHEREAS, The Advisors' Inner Circle Fund, a Massachusetts business
trust (the "Trust"), is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser has entered into an Investment Advisory Agreement
dated January 28, 1993 (the "Advisory Agreement") with the Trust, pursuant to
which the Adviser will act as investment adviser to the T.O. Richardson Sector
Rotation Fund (the "Portfolio"), which is a series of the Trust; and
WHEREAS, the Adviser, with the approval of the Trust, desires to
retain the Sub-Adviser to provide investment advisory services to the Adviser in
connection with the management of the Portfolio, and the Sub-Adviser is willing
to render such investment advisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. DUTIES OF THE SUB-ADVISER. Subject to supervision by the Adviser and
the Trust's Board of Trustees, the Sub-Adviser shall manage all of the
securities and other assets of the Portfolio entrusted to it hereunder
(the AAssets@), including the purchase, retention and disposition of
the Assets, in accordance with the Portfolio's investment objective,
policies and restrictions as stated in the Portfolio's prospectus and
statement of additional information, as currently in effect and as
amended or supplemented from time to time (referred to collectively as
the "Prospectus"), and subject to the following:
(a) The Sub-Adviser shall, in consultation with and subject to the
direction of the Adviser, determine from time to time what Assets will
be purchased, retained or sold by the Portfolio, and what portion of
the Assets will be invested or held uninvested in cash.
(b) In the performance of its duties and obligations under this
Agreement, the Sub-Adviser shall act in conformity with the Trust's
Declaration of Trust (as defined herein) and the Prospectus and with
the instructions and directions of the Adviser and of the Board of
Trustees of the Trust and will conform to and comply with the
requirements of the 1940 Act, the Internal Revenue Code of 1986, and
all other applicable federal and state laws and regulations, as each
is amended from time to time.
<PAGE>
(c) The Sub-Adviser shall determine the Assets to be purchased or
sold by the Portfolio as provided in subparagraph (a) and will place
orders with or through such persons, brokers or dealers to carry out
the policy with respect to brokerage set forth in the Portfolio's
Registration Statement (as defined herein) and Prospectus or as the
Board of Trustees or the Adviser may direct from time to time, in
conformity with federal securities laws. In executing Portfolio
transactions and selecting brokers or dealers, the Sub-Adviser will
use its best efforts to seek on behalf of the Portfolio the best
overall terms available. In assessing the best overall terms
available for any transaction, the Sub-Adviser shall consider all
factors that it deems relevant, including the breadth of the market in
the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness
of the commission, if any, both for the specific transaction and on a
continuing basis. In evaluating the best overall terms available, and
in selecting the broker-dealer to execute a particular transaction,
the Sub-Adviser may also consider the brokerage and research services
provided (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934). Consistent with any guidelines
established by the Board of Trustees of the Trust, the Sub-Adviser is
authorized to pay to a broker or dealer who provides such brokerage
and research services a commission for executing a Portfolio
transaction for the Portfolio which is in excess of the amount of
commission another broker or dealer would have charged for effecting
that transaction if, but only if, the Sub-Adviser determines in good
faith that such commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer
--viewed in terms of that particular transaction or terms of the
overall responsibilities of the Sub-Adviser to the Portfolio. In
addition, the Sub-Adviser is authorized to allocate purchase and sale
orders for securities to brokers or dealers (including brokers and
dealers that are affiliated with the Adviser, Sub-Adviser or the
Trust's principal underwriter) to take into account the sale of shares
of the Trust if the Sub-Adviser believes that the quality of the
transaction and the commission are comparable to what they would be
with other qualified firms. In no instance, however, will the
Portfolio's Assets be purchased from or sold to the Adviser,
Sub-Adviser, the Trust's principal underwriter, or any affiliated
person of either the Trust, Adviser, the Sub-Adviser or the principal
underwriter, acting as principal in the transaction, except to the
extent permitted by the Securities and Exchange Commission (ASEC@) and
the 1940 Act.
(d) The Sub-Adviser shall maintain all books and records with respect
to transactions involving the Assets required by subparagraphs (b)(5),
(6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the
1940 Act. The Sub-Adviser shall provide to the Adviser or the Board
of Trustees such periodic and special reports, balance sheets or
financial information, and such other information with regard to its
affairs as the Adviser or Board of Trustees may reasonably request.
The Sub-Adviser shall keep the books and records relating to the
Assets required to be maintained by the Sub-Adviser under this
Agreement and shall timely furnish to the Adviser all information
relating to the Sub-Adviser's services under this Agreement
<PAGE>
needed by the Adviser to keep the other books and records of the
Portfolio required by Rule 31a-1 under the 1940 Act. The Sub-Adviser
shall also furnish to the Adviser any other information relating to
the Assets that is required to be filed by the Adviser or the Trust
with the SEC or sent to shareholders under the 1940 Act (including the
rules adopted thereunder) or any exemptive or other relief that the
Adviser or the Trust obtains from the SEC. The Sub-Adviser agrees
that all records that it maintains on behalf of the Portfolio are
property of the Portfolio and the Sub-Adviser will surrender promptly
to the Portfolio any of such records upon the Portfolio's request;
provided, however, that the Sub-Adviser may retain a copy of such
records. In addition, for the duration of this Agreement, the
Sub-Adviser shall preserve for the periods prescribed by Rule 31a-2
under the 1940 Act any such records as are required to be maintained
by it pursuant to this Agreement, and shall transfer said records to
any successor sub-adviser upon the termination of this Agreement (or,
if there is no successor sub-adviser, to the Adviser).
(e) The Sub-Adviser shall provide the Portfolio's custodian on each
business day with information relating to all transactions concerning
the Portfolio's Assets and shall provide the Adviser with such
information upon request of the Adviser.
(f) The investment management services provided by the Sub-Adviser
under this Agreement are not to be deemed exclusive and the
Sub-Adviser shall be free to render similar services to others, as
long as such services do not impair the services rendered to the
Adviser or the Trust.
(g) The Sub-Adviser shall promptly notify the Adviser of any
financial condition that is likely to impair the Sub-Adviser's ability
to fulfill its commitment under this Agreement.
(h) The Sub-Adviser shall review all proxy solicitation materials and
be responsible for voting and handling all proxies in relation to the
securities held in the Portfolio. The Adviser shall instruct the
custodian and other parties providing services to the Portfolio to
promptly forward misdirected proxies to the Sub-Adviser.
Services to be furnished by the Sub-Adviser under this Agreement may
be furnished through the medium of any of the Sub-Adviser's partners,
officers or employees.
2. DUTIES OF THE ADVISER. The Adviser shall continue to have
responsibility for all services to be provided to the Portfolio
pursuant to the Advisory Agreement and shall oversee and review the
Sub-Adviser's performance of its duties under this Agreement;
provided, however, that in connection with its management of the
Assets, nothing herein shall be construed to relieve the Sub-Adviser
of responsibility for compliance with the Trust's Declaration of Trust
(as defined herein), the Prospectus, the instructions and directions
of the Board of Trustees of the Trust, the requirements of the 1940
Act, the Internal Revenue Code of 1986, and all other applicable
federal and state laws and regulations, as each is amended from time
to time.
<PAGE>
3. DELIVERY OF DOCUMENTS. The Adviser has furnished the Sub-Adviser with
copies properly certified or authenticated of each of the following
documents:
(a) The Trust's Agreement and Declaration of Trust, as filed with the
Secretary of State of the Commonwealth of Massachusetts (such
Agreement and Declaration of Trust, as in effect on the date of this
Agreement and as amended from time to time, herein called the
"Declaration of Trust");
(b) By-Laws of the Trust (such By-Laws, as in effect on the date of
this Agreement and as amended from time to time, are herein called the
"By-Laws");
(c) Prospectus(es) of the Portfolio.
4. COMPENSATION TO THE SUB-ADVISER. For the services to be provided by
the Sub-Adviser pursuant to this Agreement, the Adviser will pay the
Sub-Adviser, and the Sub-Adviser agrees to accept as full compensation
therefor, a sub-advisory fee at the rate specified in the Schedule(s)
which is attached hereto and made part of this Agreement. The fee
will be calculated based on the average monthly market value of the
Assets under the Sub-Adviser+s management and will be paid to the
Sub-Adviser monthly. Except as may otherwise be prohibited by law or
regulation (including any then current SEC staff interpretation), the
Sub-Adviser may, in its discretion and from time to time, waive a
portion of its fee.
5. INDEMNIFICATION. The Sub-Adviser shall indemnify and hold harmless
the Adviser from and against any and all claims, losses, liabilities
or damages (including reasonable attorney's fees and other related
expenses) howsoever arising from or in connection with the performance
of the Sub-Adviser+s obligations under this Agreement; provided,
however, that the Sub-Adviser+s obligation under this Section 5 shall
be reduced to the extent that the claim against, or the loss,
liability or damage experienced by the Adviser, is caused by or is
otherwise directly related to the Adviser's own willful misfeasance,
bad faith or negligence, or to the reckless disregard of its duties
under this Agreement.
6. DURATION AND TERMINATION. This Agreement shall become effective upon
its approval by the Trust's Board of Trustees and by the vote of a
majority of the outstanding voting securities of the Portfolio. This
Agreement shall continue in effect for a period of more than two years
from the date hereof only so long as continuance is specifically
approved at least annually in conformance with the 1940 Act; provided,
however, that this Agreement may be terminated with respect to the
Portfolio (a) by the Portfolio at any time, without the payment of any
penalty, by the vote of a majority of Trustees of the Trust or by the
vote of a majority of the outstanding voting securities of the
Portfolio, (b) by the Adviser at any time, without the payment of any
penalty, on not more than 60 days' nor less than 30 days' written
notice to the Sub-Adviser, or (c) by the Sub-Adviser at any time,
without the payment of any
<PAGE>
penalty, on 90 days' written notice to the Adviser. This Agreement
shall terminate automatically and immediately in the event of its
assignment, or in the event of a termination of the Adviser's
agreement with the Trust. As used in this Section 6, the terms
"assignment" and "vote of a majority of the outstanding voting
securities" shall have the respective meanings set forth in the 1940
Act and the rules and regulations thereunder, subject to such
exceptions as may be granted by the SEC under the 1940 Act.
7. GOVERNING LAW. This Agreement shall be governed by the internal laws
of the Commonwealth of Massachusetts, without regard to conflict of
law principles; provided, however, that nothing herein shall be
construed as being inconsistent with the 1940 Act.
8. SEVERABILITY. Should any part of this Agreement be held invalid by a
court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and
their respective successors.
9. NOTICE: Any notice, advice or report to be given pursuant to this
Agreement shall be deemed sufficient if delivered or mailed by
registered, certified or overnight mail, postage prepaid addressed by
the party giving notice to the other party at the last address
furnished by the other party:
To the Adviser at:
To the Sub-Adviser at:
10. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior
agreements and understandings relating to this Agreement's subject
matter. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts
shall, together, constitute only one instrument.
A copy of the Declaration of Trust is on file with the Secretary of State
of the Commonwealth of Massachusetts, and notice is hereby given that the
obligations of this instrument are not binding upon any of the Trustees,
officers or shareholders of the Portfolio or the Trust.
<PAGE>
Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order of the
SEC, whether of special or general application, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first written
above.
[T.O. RICHARDSON]
------------------------------------
By: By:
Name: Name:
Title: Title:
SCHEDULE A
TO THE
SUB-ADVISORY AGREEMENT
BETWEEN
[T.O. RICHARDSON]
AND
- -------------------------------
Pursuant to Article 4, the Adviser shall pay the Sub-Adviser compensation at an
annual rate as follows:
Fund [ ]%
- ---------------------------
<PAGE>
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of this 28th day of January, 1993, between The
Arbor Fund (the "Trust"), a Massachusetts business trust and SEI Financial
Services Company (the "Distributor"), a Pennsylvania corporation.
WHEREAS, the Trust is registered as an investment company with the
Securities and Exchange Commission ("SEC") under the Investment Company Act of
1940, as amended ("1940 Act"), and its Shares are registered with the SEC under
the Securities Act of 1933, as amended ("1933 Act"); and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the Trust and Distributor hereby agree as follows:
ARTICLE 1. SALE OF SHARES. The Trust grants to the Distributor the
exclusive right to sell Shares of the Trust at the net asset value per Share in
accordance with the current prospectus, as agent and on behalf of the Trust,
during the term of this Agreement and subject to the registration requirements
of the 1933 Act, the rules and regulations of the SEC and the laws governing the
sale of securities in the various states ("Blue Sky Laws").
ARTICLE 2. SOLICITATION OF SALES. In consideration of these rights
granted to the Distributor, the Distributor agrees to use all reasonable
efforts, consistent with its other business, in connection with the distribution
of Shares of the Trust; provided, however, that the Distributor shall not be
prevented from entering into like arrangements with other issuers. The
provisions of this paragraph do not obligate the Distributor to register as a
broker or dealer under the Blue Sky Laws of any jurisdiction when it determines
it would be uneconomical for it to do so or to maintain its registration in any
jurisdiction in which it is now registered nor obligate the Distributor to sell
any particular number of Shares.
ARTICLE 3. AUTHORIZED REPRESENTATIONS. The Distributor is not authorized
by the Trust to give any information or to make any representations other than
those contained in the current registration statements and prospectuses of the
Trust filed with the SEC or contained in Shareholder reports or other material
that may be prepared by or on behalf of the Trust for the Distributor's use.
The Distributor may prepare and distribute sales literature and other material
as it may deem appropriate, provided that such literature and materials have
been approved by the Trust prior to their use.
1
<PAGE>
ARTICLE 4. REGISTRATION OF SHARES. The Trust agrees that it will take all
action necessary to register Shares under the federal and state securities laws
so that there will be available for sale the number of Shares the Distributor
may reasonably be expected to sell and to pay all fees associated with said
registration. The Trust shall make available to the Distributor such number of
copies of its currently effective prospectus and statement of additional
information as the Distributor may reasonably request. The Trust shall furnish
to the Distributor copies of all information, financial statements and other
papers which the Distributor may reasonably request for use in connection with
the distribution of Shares of the Trust.
ARTICLE 5. COMPENSATION. As compensation for the services performed and
the expenses assumed under this Agreement [relative to retail class], and to the
extent provided in the Trust's annual budget [under its retail class
Distribution Plan] adopted in accordance with Rule 12b-1 under the Investment
Company Act of 1940, the Trust shall reimburse the Distributor for (i) the cost
of preparing and printing prospectuses and statements of additional information,
reports to Shareholders, sales literature and other materials for potential
investors, (ii) advertising, (iii) expenses incurred in connection with the
distribution of units.
ARTICLE 6. INDEMNIFICATION OF DISTRIBUTOR. The Trust agrees to indemnify
and hold harmless the Distributor and each of its directors and officers and
each person, if any, who controls the Distributor within the meaning of Section
15 of the 1933 Act against any loss, liability, claim, damages or expense
(including the reasonable cost of investigating or defending any alleged loss,
liability, claim, damages, or expense and reasonable counsel fees and
disbursements incurred in connection therewith), arising by reason of any person
acquiring any Shares, based upon the ground that the registration statement,
prospectus, Shareholder reports or other information filed or made public by the
Trust (as from time to time amended) included an untrue statement of a material
fact or omitted to state a material fact required to be stated or necessary in
order to make the statements made not misleading. However, the Trust does not
agree to indemnify the Distributor or hold it harmless to the extent that the
statements or omission was made in reliance upon, and in conformity with,
information furnished to the Trust by or on behalf of the Distributor.
In no case (i) is the indemnity of the Trust to be deemed to protect the
Distributor against any liability to the Trust or its Shareholders to which the
Distributor or such person otherwise would be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and duties under this
Agreement, or (ii) is the Trust to be liable to the Distributor under the
indemnity agreement contained in this paragraph with respect to any claim made
against the Distributor or any person indemnified unless the Distributor or
other person shall have notified the Trust in writing of the claim within a
reasonable time after the summons or other first written notification giving
information of the nature
2
<PAGE>
of the claim shall have been served upon the Distributor or such other person
(or after the Distributor or the person shall have received notice of service on
any designated agent). However, failure to notify the Trust of any claim shall
not relieve the Trust from any liability which it may have to the Distributor or
any person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this paragraph.
The Trust shall be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity provision. If the Trust elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Trust and satisfactory to the indemnified defendants in the suit
whose approval shall not be unreasonably withheld. In the event that the Trust
elects to assume the defense of any suit and retain counsel, the indemnified
defendants shall bear the fees and expenses of any additional counsel retained
by them. If the Trust does not elect to assume the defense of a suit, it will
reimburse the indemnified defendants for the reasonable fees and expenses of any
counsel retained by the indemnified defendants.
The Trust agrees to notify the Distributor promptly of the commencement of
any litigation or proceedings against it or any of its officers or Trustees in
connection with the issuance or sale of any of its Shares.
ARTICLE 7. INDEMNIFICATION OF TRUST. The Distributor covenants and agrees
that it will indemnify and hold harmless the Trust and each of its Trustees and
officers and each person, if any, who controls the Trust within the meaning of
Section 15 of the Act, against any loss, liability, damages, claim or expense
(including the reasonable cost of investigating or defending any alleged loss,
liability, damages, claim or expense and reasonable counsel fees incurred in
connection therewith) based upon the 1933 Act or any other statute or common law
and arising by reason of any person acquiring any Shares, and alleging a
wrongful act of the Distributor or any of its employees or alleging that the
registration statement, prospectus, Shareholder reports or other information
filed or made public by the Trust (as from time to time amended) included an
untrue statement of a material fact or omitted to state a material fact required
to be stated or necessary in order to make the statements not misleading,
insofar as the statement or omission was made in reliance upon and in conformity
with information furnished to the Trust by or on behalf of the Distributor.
In no case (i) is the indemnity of the Distributor in favor of the Trust or
any other person indemnified to be deemed to protect the Trust or any other
person against any liability to which the Trust or such other person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement, or (ii) is the
Distributor to be liable under its indemnity agreement contained in this
3
<PAGE>
paragraph with respect to any claim made against the Trust or any person
indemnified unless the Trust or person, as the case may be, shall have notified
the Distributor in writing of the claim within a reasonable time after the
summons or other first written notification giving information of the nature of
the claim shall have been served upon the Trust or upon any person (or after the
Trust or such person shall have received notice of service on any designated
agent). However, failure to notify the Distributor of any claim shall not
relieve the Distributor from any liability which it may have to the Trust or any
person against whom the action is brought otherwise than on account of its
indemnity agreement contained in this paragraph.
The Distributor shall be entitled to participate, at its own expense, in
the defense or, if it so elects, to assume the defense of any suit brought to
enforce the claim, but if the Distributor elects to assume the defense, the
defense shall be conducted by counsel chosen by the Distributor and satisfactory
to the indemnified defendants whose approval shall not be unreasonably withheld.
In the event that the Distributor elects to assume the defense of any suit and
retain counsel, the defendants in the suit shall bear the fees and expenses of
any additional counsel retained by them. If the Distributor does not elect to
assume the defense of any suit, it will reimburse the indemnified defendants in
the suit for the reasonable fees and expenses of any counsel retained by them.
The Distributor agrees to notify the Trust promptly of the commencement of
any litigation or proceedings against it in connection with the issue and sale
of any of the Trusts' Shares.
ARTICLE 8. EFFECTIVE DATE. This Agreement shall be effective upon its
execution, and unless terminated as provided, shall continue in force for one
year from the effective date and thereafter from year to year, provided that
such annual continuance is approved by (i) either the vote of a majority of the
Trustees of the Trust, or the vote of a majority of the outstanding voting
securities of the Trust, and (ii) the vote of a majority of those Trustees of
the Trust who are not parties to this Agreement or the Trust's Distribution Plan
or interested persons of any such party ("Qualified Trustees"), cast in person
at a meeting called for the purpose of voting on the approval. This Agreement
shall automatically terminate in the event of its assignment. As used in this
paragraph the terms "vote of a majority of the outstanding voting securities",
"assignment" and "interested person" shall have the respective meanings
specified in the 1940 Act. In addition, this Agreement may at any time be
terminated without penalty by SFS, by a vote of a majority of Qualified Trustees
or by vote of a majority of the outstanding voting securities of the Trust upon
not less than sixty days prior written notice to the other party.
ARTICLE 9. NOTICES. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by registered or
certified mail,
4
<PAGE>
postage prepaid, addressed by the party giving notice to the other party at the
last address furnished by the other party to the party giving notice: if to the
Trust, at 680 East Swedesford Road, Wayne, Pennsylvania, and if to the
Distributor, 680 East Swedesford Road, Wayne, Pennsylvania 19087.
ARTICLE 10. LIMITATION OF LIABILITY. A copy of the Declaration of Trust
of the Trust is on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed on
behalf of the Trustees of the Trust as Trustees and not individually and that
the obligations of this instrument are not binding upon any of the Trustees,
officers or unitholders of the Trust individually but binding only upon the
assets and property of the Trust.
ARTICLE 11. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Massachusetts and the applicable
provisions of the 1940 Act. To the extent that the applicable laws of the
Commonwealth of Massachusetts, or any of the provisions herein, conflict with
the applicable provisions of the 1940 Act, the latter shall control.
ARTICLE 12. MULTIPLE ORIGINALS. This Agreement may be executed in two or
more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
IN WITNESS, the Trust and Distributor have each duly executed this
Agreement, as of the day and year above written.
THE ARBOR FUND
By: /s/ Robert A. Nesher
---------------------------
Attest: /s/ Kevin P. Robins
-----------------------
SEI FINANCIAL SERVICES COMPANY
By: /s/ Wayne M. Withrow
---------------------------
Attest: /s/ Kevin P. Robins
-----------------------
5
<PAGE>
CUSTODIAN AGREEMENT
This Agreement, dated as of the _____ day of _______________ , 1993 by and
between The Arbor Fund (the "Trust"), a business trust operating as an open-end
investment company, duly organized under the laws of the Commonwealth of
Massachusetts and CoreStates Bank N.A.;
WITNESSETH:
WHEREAS, the Trust desires to deposit cash and securities with CoreStates
Bank N.A. as custodian; and
WHEREAS, CoreStates Bank N.A. is qualified and authorized to act as
custodian for the cash and securities of an open-end investment company and is
willing to act in such capacity upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
do hereby agree as follows:
SECTION 1. The terms as defined in this Section wherever used in this
Agreement, or in any amendment or supplement hereto, shall have meanings herein
specified unless the context otherwise requires.
CUSTODIAN: The term Custodian shall mean CoreStates Bank N.A. in its capacity
as Custodian under this Agreement.
PROPER INSTRUCTIONS: For purposes of this Agreement the Custodian shall be
deemed to have received Proper Instructions upon receipt of written (including
instructions received by means of computer terminals), telephone or telegraphic
instructions from a person or persons authorized from time to time by the
Trustees of the Trust to give the particular class of instructions. Telephone
or telegraphic instructions shall be confirmed in writing by such person or
persons as said Trustees or said Board of Directors shall have from time to time
authorized to give the particular class of instructions in question. The
Custodian may act upon telephone or telegraphic instructions without awaiting
receipt of written confirmation, and shall not be liable for the Trust's or such
investment adviser's failure to confirm such instructions in writing.
1
<PAGE>
SHAREHOLDERS: The term Shareholders shall mean the registered owners from time
to time of the Shares of the Trust in accordance with the registry records
maintained by the Trust or agents on its behalf.
SHARES: The term Shares of the Trust shall mean the units of beneficial
interest of the Trust.
SECTION 2. The Trust shall from time to time file with the Custodian a
certified copy of each resolution of its Board of Trustees authorizing the
person or persons to give Proper Instructions (as defined in Section 1) and
specifying the class of instructions that may be given by each person to the
Custodian under this Agreement, together with certified signatures of such
persons authorized to sign, which shall constitute conclusive evidence of the
authority of the officers and signatories designated therein to act, and shall
be considered in full force and effect with the Custodian fully protected in
acting in reliance thereon until it receives written notice to the contrary;
provided, however, that if the certifying officer is authorized to give Proper
Instructions, the certification shall be also signed by a second officer of the
Trust.
SECTION 3. The Trust hereby appoints the Custodian as custodian of cash and
securities from time to time on deposit hereunder, to be held by the Custodian
and applied as provided in this Agreement. The Custodian hereby accepts such
appointment subject to the terms and conditions hereinafter provided. Such cash
and securities shall, however, be segregated from the assets of others and shall
be and remain the sole property of the Trust and the Custodian shall have only
the bare custody thereof.
The Custodian may perform some or all of its duties hereunder through a
subcustodian.
The Custodian may deposit the Trust's portfolio securities with a U.S.
securities depository or in U.S. Federal book-entry systems pursuant to rules
and regulations of the Securities and Exchange Commission.
SECTION 4. The Trust will make an initial deposit of cash to be held and
applied by the Custodian hereunder. Thereafter the Trust will cause to be
deposited with the Custodian hereunder the applicable net asset value of Shares
sold from time to time whether representing initial issue, other stock or
reinvestments of dividends and/or distributions payable to Shareholders.
SECTION 5. The Custodian is hereby authorized and directed to disburse cash
from time to time upon receipt of and in accordance with Proper Instructions.
SECTION 6. The Custodian's compensation shall be as set forth in Schedule A
hereto attached, or as shall be set forth in amendments to such schedule
approved by the
2
<PAGE>
Trust and the Custodian.
SECTION 7. In connection with its functions under this Agreement, the Custodian
shall:
(a) render to the Trust a daily report of all monies received or paid on
behalf of the Trust.
(b) create, maintain and retain all records relating to its activities and
obligations under this Agreement in such manner as will meet the
obligations of the Trust with respect to said Custodian's activities
in accordance with generally accepted accounting principles. All
records maintained by the Custodian in connection with the performance
of its duties under this Agreement will remain the property of the
Trust and in the event of termination of this Agreement will be
relinquished to the Trust.
SECTION 8. No liability of any kind shall be attached to or incurred by the
Custodian by reason of its custody of the assets held by it from time to time
under this Agreement, or otherwise by reason of its position as Custodian
hereunder except only for its own negligence, bad faith, or willful misconduct
in the performance of its duties as specifically set forth in the Agreement.
Without limiting the generality of the foregoing sentence, the Custodian:
(a) may rely upon the advice of counsel, who may be counsel for the Trust
or for the Custodian, and upon statements of accountants, brokers and
other persons believed by it in good faith to be expert in the matters
upon which they are consulted; and for any action taken or suffered in
good faith based upon such advice or statements the Custodian shall
not be liable to anyone;
(b) shall not be liable for anything done or suffered to be done in good
faith in accordance with any request or advice of, or based upon
information furnished by, the Trust or its authorized officers or
agents;
(c) is authorized to accept a certificate of the Secretary or Assistant
Secretary of the Trust, or Proper Instructions, to the effect that a
resolution in the form submitted has been duly adopted by its Board of
Trustees or by the Shareholders, as conclusive evidence that such
resolution has been duly adopted and is in full force and effect;
(d) may rely and shall be protected in acting upon any signature, written
(including telegraph or other mechanical) instructions, request,
letter of
3
<PAGE>
transmittal, certificate, opinion of counsel, statement, instrument,
report, notice, consent, order, or other paper or document reasonably
believed by it to be genuine and to have been signed, forwarded or
presented by the purchaser, Trust or other proper party or parties.
SECTION 9. The Trust, its successors and assigns hereby indemnify and hold
harmless the Custodian, its successors and assigns, of and from any and all
liability whatsoever arising out of or in connection with the Custodian's
status, acts, or omissions under this Agreement, except only for liability
arising out of the Custodian's own negligence, bad faith, or willful misconduct
in the performance of its duties specifically set forth in this Agreement.
Without limiting the generality of the foregoing, the Trust, its successors and
assigns do hereby fully indemnify and hold harmless the Custodian its successors
and assigns, from any and all loss, liability, claims, demand, actions, suits
and expenses of any nature as the same may arise from the failure of the Trust
to comply with any law, rule, regulation or order of the United States, any
state or any other jurisdiction, governmental authority, body, or board relating
to the sale, registration, qualification of units of beneficial interest in the
Trust, or from the failure of the Trust to perform any duty or obligation under
this Agreement.
Upon written request of the Custodian, the Trust shall assume the entire defense
of any claim subject to the foregoing indemnity, or the joint defense with the
Custodian of such claim, as the Custodian shall request. The indemnities and
defense provisions of this Section 9 shall indefinitely survive termination of
this Agreement.
SECTION 10. This Agreement may be amended from time to time without notice to
or approval of the Shareholders by a supplemental agreement executed by the
Trust and the Custodian and amending and supplementing this Agreement in the
manner mutually agreed.
SECTION 11. Either the Trust or the Custodian may give one hundred twenty (120)
days written notice to the other of the termination of this Agreement, such
termination to take effect at the time specified in the notice. In case such
notice of termination is given either by the Trust or by the Custodian, the
Trustees of the Trust shall, by resolution duly adopted, promptly appoint a
Successor Custodian which Successor Custodian shall be a bank, trust company, or
a bank and trust company in good standing, with legal capacity to accept custody
of the cash and securities of a mutual fund.
Upon receipt of written notice from the Trust of the appointment of such
successor and upon receipt of Proper Instructions, the Custodian shall deliver
such cash and securities as it may then be holding hereunder directly and only
to the Successor
4
<PAGE>
Custodian. Unless or until a Successor Custodian has been appointed as above
provided, the Custodian then acting shall continue to act as Custodian under
this Agreement.
Every Successor Custodian appointed hereunder shall execute and deliver an
appropriate written acceptance of its appointment and shall thereupon become
vested with the rights, powers, obligations and custody of its predecessor
Custodian. The Custodian ceasing to act shall nevertheless, upon request of the
Trust and the Successor Custodian and upon payment of its charges and
disbursements, execute an instrument in form approved by its counsel
transferring to the Successor Custodian all the predecessor Custodian's rights,
duties, obligations and custody.
In case the Custodian shall consolidate with or merge into any other
corporation, the corporation remaining after or resulting from such
consolidation or merger shall ipso facto without the execution or filing of any
papers or other documents, succeed to and be substituted for the Custodian with
like effect as though originally named as such.
SECTION 12. This Agreement shall take effect when assets of the Trust are first
delivered to the Custodian.
SECTION 13. This Agreement may be executed in two or more counterparts, each of
which when so executed shall be deemed to be an original, but such counterparts
shall together constitute but one and the same instrument.
SECTION 14. A copy of the Declaration of Trust of the Trust is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Trustees of the Trust as Trustees
and not individually and that the obligations of this instrument are not binding
upon any of the Trustees, officers or Shareholders of the Trust individually,
but binding only upon the assets and property of the Trust.
SECTION 15. The Custodian shall create and maintain all records relating to its
activities and obligations under this Agreement in such manner as will meet the
obligations of the Trust under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder,
applicable Federal and state tax laws and any other law or administrative rules
or procedures which may be applicable to the Trust.
Subject to security requirements of the Custodian applicable to its own
employees having access to similar records within the Custodian and such
regulations as to the conduct of such monitors as may be reasonably imposed by
the Custodian after prior consultation with an officer of the Trust the books
and records of the Custodian pertaining to its actions under this Agreement
shall be open to inspection and audit at
5
<PAGE>
any reasonable times by officers of, attorneys for, and auditors employed by,
the Trust.
SECTION 16. Nothing contained in this Agreement is intended to or shall require
the Custodian in any capacity hereunder to perform any functions or duties on
any holiday or other day of special observance on which the Custodian is closed.
Functions or duties normally scheduled to be performed on such days shall be
performed on, and as of, the next business day the Custodian is open.
SECTION 17. This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Trust without the written
consent of the Custodian, or by the Custodian without the written consent of the
Trust, authorized or approved by a resolution of its Board of Trustees.
IN WITNESS WHEREOF, the Trust and the Custodian have caused this Agreement to be
signed by their respective officers as of the day and year first above written.
THE ARBOR FUND
By: /s/ R. A. Nesher
---------------------------
Attest: /s/ Wayne M. Withrow
-----------------------
CORESTATES BANK N.A.
By: /s/ Margaret Werton
---------------------------
Attest: /s/ Rebecca B. Ley
-----------------------
6
<PAGE>
SCHEDULE A
FEE SCHEDULE
1.00 basis points on the first $2.5 billion
.75 basis points on the next $2.5 billion
.50 basis points on amounts over $5 billion
Transactions billed separately by portfolio at the now current rates. Asset
level charges billed as one invoice covering all Trust portfolios custodied at
CoreStates. SEI will allocate charges back to individual portfolios.
Transactions charges are subject to change.
7
<PAGE>
SCHEDULE B
CUSTODY SERVICES
Transaction Fees
$4.00 Per trade clearing through Depository Trust Company or the
U.S. Treasury book-entry systems of the Philadelphia Federal
Reserve.
$15.00 Per trade for assets requiring physical settlement or
settlement at the N.Y. Federal Reserve.
$9.00 Mortgage backed securities-paydowns.
$3.00 Fed wire on collateral.
$5.50/7.50 Other wire transfers in/out.
* $15.00 Conversion of assets eligible for book-entry at the
Depository Trust or Philadelphia Federal Reserve.
* $40.00 Conversion of assets ineligible for book-entry at the
Depository Trust or Philadelphia Federal Reserve.
* Includes delivery of original asset and receipt of the asset
resulting from the conversion.
8
<PAGE>
ADMINISTRATION AGREEMENT
THE ARBOR FUND
THIS AGREEMENT is made as of this 28th day of January 1993 as amended and
restated this 17th day of May, 1994, by and between The Arbor Fund (the
"Trust"), a Massachusetts business trust, and SEI Financial Management
Corporation (the "Administrator"), a Delaware corporation.
WHEREAS, the Trust is an open-end diversified management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), consisting of several series of shares; and
WHEREAS, the Trust desires the Administrator to provide, and the
Administrator is willing to provide, management, shareholder services and
administrative services to such portfolios of the Trust as the Trust and the
Administrator may agree on (the "Portfolios") and as listed on the schedules
attached hereto (the "Schedules") and made a part of this Agreement, on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Trust and the Administrator hereby agree as follows:
ARTICLE 1. RETENTION OF THE ADMINISTRATOR. The Trust hereby retains the
Administrator to act as the administrator of the Portfolios and to furnish the
Portfolios with the management and administrative services as set forth below.
The Administrator hereby accepts such employment to perform the duties set forth
below.
The Administrator shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Trust in any way and shall
not be deemed an agent of the Trust.
ARTICLE 2. OTHER ADMINISTRATIVE SERVICES. The Administrator shall perform
or supervise the performance by others of other administrative services in
connection with the operations of the Portfolios, and, on behalf of the Trust,
will investigate, assist in the selection of and conduct relations with
custodians, depositories, accountants, legal counsel, underwriters, brokers and
dealers, corporate fiduciaries, insurers, banks and persons in any other
capacity deemed to be necessary or desirable for the Portfolios' operations. The
Administrator shall provide the Trustees of the Trust with such reports
regarding investment performance as they may reasonably request but shall have
no responsibility for supervising the performance by any investment adviser or
sub-adviser of its responsibilities.
<PAGE>
The Administrator shall provide the Trust with regulatory reporting, fund
accounting and related portfolio accounting services, all necessary office
space, equipment, personnel compensation and facilities (including facilities
for Shareholders' and Trustees' meetings) for handling the affairs of the
Portfolios and such other services as the Administrator shall, from time to
time, determine to be necessary to perform its obligations under this Agreement.
The Administrator shall make reports to the Trust's Trustees concerning the
performance of its obligations hereunder; furnish advice and recommendations
with respect to other aspects of the business and affairs of the Portfolios as
the Trust and the Administrator shall determine desirable; and shall provide the
Portfolios' Shareholders with the reports described in the Portfolios' then
current prospectuses.
The Administrator shall calculate the daily net asset value of the
Portfolios in accordance with the procedures prescribed in the Trust's
Registration Statement and such other procedures as may be established by the
Trustees of the Trust.
The Administrator will answer such correspondence and inquiries from
Shareholders, securities brokers and others relating to its duties hereunder and
such other correspondence and inquiries as may from time to time on such terms
as may be mutually agreed upon between the Administrator and the Trust.
Also, the Administrator may perform other services for the Trust as agreed
from time to time, including, but not limited to, preparation and mailing of
appropriate Federal income tax forms and returns to the Internal Revenue Service
and other appropriate taxing authorities; mailing the annual reports of the
Portfolios; preparing an annual list of Shareholders; furnishing the Trust with
such reports regarding the sale and redemption of Shares as may be required in
order to comply with Federal and state securities law; and mailing notices of
Shareholders' meetings, proxies and proxy statements, for all of which the Trust
will pay the Administrator's out-of-pocket expenses.
ARTICLE 3. ALLOCATION OF CHARGES AND EXPENSES.
(A) THE ADMINISTRATOR. The Administrator shall furnish at its own expense
the executive, supervisory and clerical personnel necessary to perform its
obligations under this Agreement. The Administrator shall also provide the items
which it is obligated to provide under this Agreement, and shall pay all
compensation, if any, of officers of the Trust as well as all Trustees of the
Trust who are affiliated persons of the Administrator or any affiliated
corporation of the Administrator; provided, however, that unless otherwise
specifically provided, the Administrator shall not be obligated to pay the
compensation of any employee of the Trust retained by the Trustees of the Trust
to perform services on behalf of the Trust.
<PAGE>
(B) THE TRUST. The Trust assumes and shall pay or cause to be paid all
other expenses of the Trust not otherwise allocated herein, including, without
limitation, organizational costs, taxes, expenses for legal and auditing
services, the expenses of preparing (including typesetting), printing and
mailing reports, prospectuses, statements of additional information, proxy
solicitation material and notices to existing Shareholders, all expenses
incurred in connection with issuing and redeeming Shares, the costs of custodial
services, the cost of initial and ongoing registration of the Shares under
Federal and state securities laws, fees and out-of-pocket expenses of Trustees
who are not affiliated persons of the Administrator or the investment adviser to
the Trust or any affiliated corporation of the Administrator or the investment
adviser, insurance, interest, brokerage costs, litigation and other
extraordinary or nonrecurring expenses, and all fees and charges of investment
advisers to the Trust.
ARTICLE 4. COMPENSATION OF THE ADMINISTRATOR.
(A) ADMINISTRATION FEE. For the services to be rendered, the facilities
furnished and the expenses assumed by the Administrator pursuant to this
Agreement, the Trust shall pay to the Administrator compensation at an annual
rate specified in the Schedules. Such compensation shall be calculated and
accrued daily, and paid to the Administrator monthly. The Trust shall also
reimburse the Administrator for its reasonable out of pocket expenses, including
the travel and lodging expenses incurred by officers and employees of the
Administrator in connection with attendance at Board meetings.
If this Agreement becomes effective subsequent to the first day of a month
or terminates before the last day of a month, the Administrator's compensation
for that part of the month in which this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
above. Payment of the Administrator's compensation for the preceding month shall
be made promptly.
(B) COMPENSATION FROM TRANSACTIONS. The Trust hereby authorizes any entity
or person associated with the Administrator which is a member of a national
securities exchange to effect any transaction on the exchange for the account of
the Trust which is permitted by Section 11 (a) of the Securities Exchange Act of
1934 and Rule 11a2-2(T) thereunder, and the Trust hereby consents to the
retention of compensation for such transactions in accordance with Rule
11a2-2(T) (a) (2) (iv).
(C) SURVIVAL OF COMPENSATION RATES. All rights of compensation under this
Agreement for services performed as of the termination date shall survive the
termination of this Agreement.
ARTICLE 5. LIMITATION OF LIABILITY OF THE ADMINISTRATOR. The duties of the
Administrator shall be confined to those expressly set forth herein, and no
implied duties are
<PAGE>
assumed by or may be asserted against the Administrator hereunder. The
Administrator shall not be liable for any error of judgment or mistake of law or
for any loss arising out of any investment or for any act or omission in
carrying out its duties hereunder, except a loss resulting from willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of reckless disregard of its obligations and duties hereunder, except
as may otherwise be provided under provisions of applicable law which cannot be
waived or modified hereby. (As used in this Article 7, the term "Administrator"
shall include directors, officers, employees and other corporate agents of the
Administrator as well as that corporation itself.)
So long as the Administrator acts in good faith and with due diligence and
without gross negligence, the Trust assumes full responsibility and shall
indemnify the Administrator and hold it harmless from and against any and all
actions, suits and claims, whether groundless or otherwise, and from and against
any and all losses, damages, costs, charges, reasonable counsel fees and
disbursements, payments, expenses and liabilities (including reasonable
investigation expenses) arising directly or indirectly out of said
administration, transfer agency, and dividend disbursing relationships to the
Trust or any other service rendered to the Trust hereunder. The indemnity and
defense provisions set forth herein shall indefinitely survive the termination
of this Agreement.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Trust may be asked to indemnify or hold the
Administrator harmless, the Trust shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Administrator will use all reasonable care to identify and
notify the Trust promptly concerning any situation which presents or appears
likely to present the probability of such a claim for indemnification against
the Trust, but failure to do so in good faith shall not affect the rights
hereunder.
The Administrator may apply to the Trust at any time for instructions and
may consult counsel for the Trust or its own counsel and with accountants and
other experts with respect to any matter arising in connection with the
Administrator's duties, and the Administrator shall not be liable or accountable
for any action taken or omitted by it in good faith in accordance with such
instruction or with the opinion of such counsel, accountants or other experts.
Also, the Administrator shall be protected in acting upon any document
which it reasonably believes to be genuine and to have been signed or presented
by the proper person or persons. Nor shall the Administrator be held to have
notice of any change of authority of any officers, employee or agent of the
Trust until receipt of written notice thereof from the Trust.
<PAGE>
ARTICLE 6. ACTIVITIES OF THE ADMINISTRATOR. The services of the
Administrator rendered to the Trust are not to be deemed to be exclusive. The
Administrator is free to render such services to others and to have other
businesses and interests. It is understood that Trustees, officers, employees
and Shareholders of the Trust are or may be or become interested in the
Administrator, as directors, officers, employees and shareholders or otherwise
and that directors, officers, employees and shareholders of the Administrator
and its counsel are or may be or become similarly interested in the Trust, and
that the Administrator may be or become interested in the Trust as a Shareholder
or otherwise.
ARTICLE 7. DURATION OF THIS AGREEMENT. The Term of this Agreement shall be
as specified in the Schedules.
This Agreement shall not be assignable by either party without the written
consent of the other party.
ARTICLE 8. AMENDMENTS. This Agreement may be amended by the parties hereto
only if such amendment is specifically approved (i) by the vote of a majority of
the Trustees of the Trust, and (ii) by the vote of a majority of the Trustees of
the Trust who are not parties to this Agreement or interested persons of any
such party, cast in person at a Board of Trustees meeting called for the purpose
of voting on such approval.
For special cases, the parties hereto may amend such procedures set forth
herein as may be appropriate or practical under the circumstances, and the
Administrator may conclusively assume that any special procedure which has been
approved by the Trust does not conflict with or violate any requirements of its
Declaration of Trust, By-Laws or then current prospectuses, or any rule,
regulation or requirement of any regulatory body.
ARTICLE 9. TRUSTEES' LIABILITY. A copy of the Declaration of Trust of the
Trust is on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that this instrument is executed on
behalf of the Trustees of the Trust as Trustees and not individually and that
the obligations of this instrument are not binding upon any of the Trustees,
officers or Shareholders of the Trust individually, but binding only upon the
assets and property of the Trust.
ARTICLE 10. CERTAIN RECORDS. The Administrator shall maintain customary
records in connection with its duties as specified in this Agreement. Any
records required to be maintained and preserved pursuant to Rules 31a-1 and
31a-2 under the 1940 Act which are prepared or maintained by the Administrator
on behalf of the Trust shall be prepared and maintained at the expense of the
Administrator, but shall be the property of the Trust and will be made available
to or surrendered promptly to the Trust on request.
<PAGE>
In case of any request or demand for the inspection of such records by
another party, the Administrator shall notify the Trust and follow the Trust's
instructions as to permitting or refusing such inspection; provided that the
Administrator may exhibit such records to any person in any case where it is
advised by its counsel that it may be held liable for failure to do so, unless
(in cases involving potential exposure only to civil liability) the Trust has
agreed to indemnify the Administrator against such liability.
ARTICLE 11. DEFINITIONS OF CERTAIN TERMS. The terms "interested person"
and "affiliated person," when used in this Agreement, shall have the respective
meanings specified in the 1940 Act and the rules and regulations thereunder,
subject to such exemptions as may be granted by the Securities and Exchange
Commission.
ARTICLE 12. NOTICE. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by registered or certified
mail, postage prepaid, addressed by the party giving notice to the other party
at the last address furnished by the other party to the party giving notice: if
to the Trust, at 680 East Swedesford Road, Wayne, PA 19087-1658, and if to the
Administrator at 680 East Swedesford Road, Wayne, PA 19087-1658.
ARTICLE 13. GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the Commonwealth of Massachusetts and the applicable provisions
of the 1940 Act. To the extent that the applicable laws of the Commonwealth of
Massachusetts, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.
ARTICLE 14. MULTIPLE ORIGINALS. This Agreement may be executed in two or
more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
THE ARBOR FUND
By: ______________________________________
Attest: __________________________________
SEI FINANCIAL MANAGEMENT CORPORATION
By: ______________________________________
Attest: __________________________________
<PAGE>
GOLDEN OAK DIVERSIFIED GROWTH PORTFOLIO
GOLDEN OAK MICHIGAN TAX FREE BOND PORTFOLIO
GOLDEN OAK PRIME OBLIGATION MONEY MARKET FUND PORTFOLIO
GOLDEN OAK INTERMEDIATE-TERM INCOME PORTFOLIO
GOLDEN OAK GROWTH AND INCOME PORTFOLIO
SCHEDULE DATED DECEMBER 1, 1994
TO THE ADMINISTRATION AGREEMENT
DATED JANUARY 28, 1993
AS AMENDED AND RESTATED MAY 17, 1994
BETWEEN
THE ARBOR FUND
AND
SEI FINANCIAL MANAGEMENT CORPORATION
Fees: Pursuant to Article 6, Section A, the Trust shall pay the
Administrator compensation for services rendered to the Golden Oak
Diversified Growth Portfolio, Golden Oak Michigan Tax Free Bond
Portfolio, Golden Oak Prime Obligation Money Market Fund Portfolio,
Golden Oak Intermediate-Term Income Portfolio and Golden Oak Growth
and Income Portfolio (the "Portfolios") at an annual rate of .20% of
the average daily net assets of each Portfolio, which is calculated
daily and paid monthly. There is a minimum annual administration fee
of $100,000 for each of the Golden Oak Michigan Tax Free Bond
Portfolio and the Golden Oak Growth and Income Portfolio.
Term: Pursuant to Article 9, the term of this Agreement shall commence on
January 28, 1993 and shall remain in effect for 5 years ("Initial
Term"). This Agreement shall continue in effect for successive
periods of 2 years after the Initial Term, unless terminated by either
party on not less than 90 days prior written notice to the other
party. In the event of a material breach of this Agreement by either
party, the non-breaching party shall notify the breaching party in
writing of such breach and upon receipt of such notice, the breaching
party shall have 45 days to remedy the breach or the non-breaching
party may immediately terminate this Agreement.
<PAGE>
CALIFORNIA TAX EXEMPT PORTFOLIO
INSTITUTIONAL TAX FREE PORTFOLIO
SCHEDULE DATED SEPTEMBER 27, 1993
TO THE ADMINISTRATION AGREEMENT
DATED JANUARY 28, 1993
AS AMENDED AND RESTATED MAY 17, 1994
BETWEEN
THE ARBOR FUND
AND
SEI FINANCIAL MANAGEMENT CORPORATION
Fees: Pursuant to Article 6, Section A, the Trust shall pay the
Administrator compensation for services rendered to the California Tax
Exempt Portfolio and the Institutional Tax Free Portfolio (the
"Portfolios") at an annual rate of .23% of the average daily net
assets of the California Tax Exempt Portfolio and .30% of the average
daily net assets of the Institutional Tax Free Portfolio.
Term: Pursuant to Article 9, the term of this Agreement shall commence on
September 27, 1993 and shall remain in effect for 5 years ("Initial
Term"). This Agreement shall continue in effect for successive periods
of 2 years after the Initial Term, unless terminated by either party
on not less than 90 days prior written notice to the other party. In
the event of a material breach of this Agreement by either party, the
non-breaching party shall notify the breaching party in writing of
such breach and upon receipt of such notice, the breaching party shall
have 45 days to remedy the breach or the non-breaching party may
immediately terminate this Agreement.
<PAGE>
OVB PRIME OBLIGATIONS PORTFOLO
OVB CAPITAL APPRECIATION PORTFOLIO
OVB EMERGING GROWTH PORTFOLIO
OVB GOVERNMENT SECURITIES PORTFOLIO
OVB WEST VIRGINIA TAX-EXEMPT INCOME PORTFOLIO
OVB EQUITY INCOME PORTFOLIO
SCHEDULE DATED AUGUST 1, 1996
TO ADMINISTRATION AGREEMENT
DATED JANUARY 28, 1993
AS AMENDED AND RESTATED MAY 17, 1994
BETWEEN
THE ARBOR FUND
AND
SEI FINANCIAL MANAGEMENT CORPORATION
Fees: Pursuant to Article 6, Section A, the Trust shall pay the
Administrator compensation for services rendered to the OVB Prime
Obligations Portfolio, OVB Capital Appreciation Portfolio, OVB
Emerging Growth Portfolio, OVB Government Securities Portfolio, OVB
West Virginia Tax-Exempt Income Portfolio and OVB Equity Income
Portfolio (the "Portfolios") at an annual rate of .20% of the average
daily net assets of each Portfolio, which is calculated daily and paid
monthly.
Term: Pursuant to Article 9, the term of this Agreement shall commence on
November 22, 1993 and shall remain in effect for 5 years ("Initial
Term"). This Agreement shall continue in effect for successive periods
of 2 years after the Initial Term, unless terminated by either party
on not less than 90 days prior written notice to the other party. In
the event of a material breach of this Agreement by either party, the
non-breaching party shall notify the breaching party in writing of
such breach and upon receipt of such notice, the breaching party shall
have 45 days to remedy the breach or the non-breaching party may
immediately terminate this Agreement.
<PAGE>
THE ARBOR FUND
ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of this 1st day of August, 1994, by and between
The Arbor Fund (the "Trust"), a Massachusetts business trust, and SEI Financial
Management Corporation (the "Administrator"), a Delaware corporation.
WHEREAS, the Trust is an open-end diversified management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), consisting of several series of shares; and
WHEREAS, the Trust desires the Administrator to provide, and the
Administrator is willing to provide, administrative services to such portfolios
of the Trust as the Trust and the Administrator may agree on (the "Portfolios")
and as listed on the schedules attached hereto (the "Schedules") and made a part
of this Agreement, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Trust and the Administrator hereby agree as follows:
ARTICLE 1. RETENTION OF THE ADMINISTRATOR. The Trust hereby retains the
Administrator to act as the administrator of the Portfolios and to furnish the
Portfolios with the management and administrative services as set forth below.
The Administrator hereby accepts such employment to perform the duties set forth
below.
The Administrator shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Trust in any way and shall
not be deemed an agent of the Trust.
ARTICLE 2. ADMINISTRATIVE SERVICES. The Administrator shall perform or
supervise the performance by others of other administrative services in
connection with the operations of the Portfolios, and, on behalf of the Trust,
will investigate, assist in the selection of and conduct relations with
custodians, depositories, accountants, legal counsel, underwriters, brokers and
dealers, corporate fiduciaries, insurers, banks and persons in any other
capacity deemed to be necessary or desirable for the Portfolios' operations. The
Administrator shall provide the Trustees of the Trust with such reports
regarding investment performance as they may reasonably request but shall have
no responsibility for supervising the performance by any investment adviser or
sub-adviser of its responsibilities.
The Administrator shall provide the Trust with regulatory reporting, fund
accounting and related portfolio accounting services, all necessary office
space, equipment, personnel compensation and facilities (including facilities
for Shareholders' and Trustees' meetings)
<PAGE>
for handling the affairs of the Portfolios and such other services as the
Administrator shall, from time to time, determine to be necessary to perform its
obligations under this Agreement.
The Administrator shall make reports to the Trust's Trustees concerning the
performance of its obligations hereunder; furnish advice and recommendations
with respect to other aspects of the business and affairs of the Portfolios as
the Trust and the Administrator shall determine desirable; and shall provide the
Portfolios' Shareholders with the reports described in the Portfolios' then
current prospectuses.
The Administrator shall calculate the daily net asset value of the
Portfolios in accordance with the procedures prescribed in the Trust's
Registration Statement and such other procedures as may be established by the
Trustees of the Trust.
Also, the Administrator may perform other services for the Trust as agreed
from time to time, including, but not limited to, preparation and mailing of
appropriate Federal income tax forms and returns to the Internal Revenue Service
and other appropriate taxing authorities; mailing the annual reports of the
Portfolios; furnishing the Trust with such reports regarding the sale and
redemption of Shares as may be required in order to comply with Federal and
state securities law; and mailing notices of Shareholders' meetings, proxies and
proxy statements, for all of which the Trust will pay the Administrator's out-
of-pocket expenses.
ARTICLE 3. ALLOCATION OF CHARGES AND EXPENSES.
(A) THE ADMINISTRATOR. The Administrator shall furnish at its own expense
the executive, supervisory and clerical personnel necessary to perform its
obligations under this Agreement. The Administrator shall also provide the items
which it is obligated to provide under this Agreement, and shall pay all
compensation, if any, of officers of the Trust as well as all Trustees of the
Trust who are affiliated persons of the Administrator or any affiliated
corporation of the Administrator; provided, however, that unless otherwise
specifically provided, the Administrator shall not be obligated to pay the
compensation of any employee of the Trust retained by the Trustees of the Trust
to perform services on behalf of the Trust.
(B) THE TRUST. The Trust assumes and shall pay or cause to be paid all
other expenses of the Trust not otherwise allocated herein, including, without
limitation, organizational costs, taxes, expenses for legal and auditing
services, the cost of pricing services, the expenses of preparing (including
typesetting), printing and mailing reports, prospectuses, statements of
additional information, proxy solicitation material and notices to existing
Shareholders, all expenses incurred in connection with issuing and redeeming
Shares, the costs of custodial services, the cost of initial and ongoing
registration of the Shares under Federal and state securities laws, fees and
out-of-pocket expenses of
2
<PAGE>
Trustees who are not affiliated persons of the Administrator or the investment
adviser to the Trust or any affiliated corporation of the Administrator or the
investment adviser, insurance, interest, brokerage costs, litigation and other
extraordinary or nonrecurring expenses, and all fees and charges of investment
advisers to the Trust.
ARTICLE 4. COMPENSATION OF THE ADMINISTRATOR.
(A) ADMINISTRATION FEE. For the services to be rendered, the facilities
furnished and the expenses assumed by the Administrator pursuant to this
Agreement, the Trust shall pay to the Administrator compensation at an annual
rate specified in the Schedules. Such compensation shall be calculated and
accrued daily, and paid to the Administrator monthly. The Trust shall also
reimburse the Administrator for its reasonable out of pocket expenses, including
the travel and lodging expenses incurred by officers and employees of the
Administrator in connection with attendance at Board meetings.
If this Agreement becomes effective subsequent to the first day of a month
or terminates before the last day of a month, the Administrator's compensation
for that part of the month in which this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
above. Payment of the Administrator's compensation for the preceding month shall
be made promptly.
(B) COMPENSATION FROM TRANSACTIONS. The Trust hereby authorizes any entity
or person associated with the Administrator which is a member of a national
securities exchange to effect any transaction on the exchange for the account of
the Trust which is permitted by Section 11 (a) of the Securities Exchange Act of
1934 and Rule 11a2-2(T) thereunder, and the Trust hereby consents to the
retention of compensation for such transactions in accordance with Rule
11a2-2(T) (a) (2) (iv).
(C) SURVIVAL OF COMPENSATION RATES. All rights of compensation under this
Agreement for services performed as of the termination date shall survive the
termination of this Agreement.
ARTICLE 5. LIMITATION OF LIABILITY OF THE ADMINISTRATOR. The duties of the
Administrator shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the Administrator
hereunder. The Administrator shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in carrying out its duties hereunder, except a loss resulting from
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of reckless disregard of its obligations and duties
hereunder, except as may otherwise be provided under provisions of applicable
law which cannot be waived or modified hereby. (As used in this Article 7, the
term "Administrator" shall include directors, officers, employees and other
corporate agents of the Administrator as well as that corporation itself.)
3
<PAGE>
So long as the Administrator acts in good faith and with due diligence and
without gross negligence, the Trust assumes full responsibility and shall
indemnify the Administrator and hold it harmless from and against any and all
actions, suits and claims, whether groundless or otherwise, and from and against
any and all losses, damages, costs, charges, reasonable counsel fees and
disbursements, payments, expenses and liabilities (including reasonable
investigation expenses) arising directly or indirectly out of said
administration, transfer agency, and dividend disbursing relationships to the
Trust or any other service rendered to the Trust hereunder. The indemnity and
defense provisions set forth herein shall indefinitely survive the termination
of this Agreement.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Trust may be asked to indemnify or hold the
Administrator harmless, the Trust shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Administrator will use all reasonable care to identify and
notify the Trust promptly concerning any situation which presents or appears
likely to present the probability of such a claim for indemnification against
the Trust, but failure to do so in good faith shall not affect the rights
hereunder.
The Administrator may apply to the Trust at any time for instructions and
may consult counsel for the Trust or its own counsel and with accountants and
other experts with respect to any matter arising in connection with the
Administrator's duties, and the Administrator shall not be liable or accountable
for any action taken or omitted by it in good faith in accordance with such
instruction or with the opinion of such counsel, accountants or other experts.
Also, the Administrator shall be protected in acting upon any document
which it reasonably believes to be genuine and to have been signed or presented
by the proper person or persons. Nor shall the Administrator be held to have
notice of any change of authority of any officers, employee or agent of the
Trust until receipt of written notice thereof from the Trust.
ARTICLE 6. ACTIVITIES OF THE ADMINISTRATOR. The services of the
Administrator rendered to the Trust are not to be deemed to be exclusive. The
Administrator is free to render such services to others and to have other
businesses and interests. It is understood that Trustees, officers, employees
and Shareholders of the Trust are or may be or become interested in the
Administrator, as directors, officers, employees and shareholders or otherwise
and that directors, officers, employees and shareholders of the Administrator
and its counsel are or may be or become similarly interested in the Trust, and
that the Administrator may be or become interested in the Trust as a Shareholder
or otherwise.
4
<PAGE>
ARTICLE 7. DURATION OF THIS AGREEMENT. The Term of this Agreement shall be
as specified in the Schedules.
This Agreement shall not be assignable by either party without the written
consent of the other party.
ARTICLE 8. AMENDMENTS. This Agreement may be amended by the parties hereto
only if such amendment is specifically approved (i) by the vote of a majority of
the Trustees of the Trust, and (ii) by the vote of a majority of the Trustees of
the Trust who are not parties to this Agreement or interested persons of any
such party, cast in person at a Board of Trustees meeting called for the purpose
of voting on such approval.
For special cases, the parties hereto may amend such procedures set forth
herein as may be appropriate or practical under the circumstances, and the
Administrator may conclusively assume that any special procedure which has been
approved by the Trust does not conflict with or violate any requirements of its
Declaration of Trust, By-Laws or then current prospectuses, or any rule,
regulation or requirement of any regulatory body.
ARTICLE 9. TRUSTEES' LIABILITY. A copy of the Declaration of Trust of the
Trust is on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that this instrument is executed on
behalf of the Trustees of the Trust as Trustees and not individually and that
the obligations of this instrument are not binding upon any of the Trustees,
officers or Shareholders of the Trust individually, but binding only upon the
assets and property of the Trust.
ARTICLE 10. CERTAIN RECORDS. The Administrator shall maintain customary
records in connection with its duties as specified in this Agreement. Any
records required to be maintained and preserved pursuant to Rules 31a-1 and
31a-2 under the 1940 Act which are prepared or maintained by the Administrator
on behalf of the Trust shall be prepared and maintained at the expense of the
Administrator, but shall be the property of the Trust and will be made available
to or surrendered promptly to the Trust on request.
In case of any request or demand for the inspection of such records by
another party, the Administrator shall notify the Trust and follow the Trust's
instructions as to permitting or refusing such inspection; provided that the
Administrator may exhibit such records to any person in any case where it is
advised by its counsel that it may be held liable for failure to do so, unless
(in cases involving potential exposure only to civil liability) the Trust has
agreed to indemnify the Administrator against such liability.
ARTICLE 11. DEFINITIONS OF CERTAIN TERMS. The terms "interested person"
and "affiliated person," when used in this Agreement, shall have the respective
meanings specified in the 1940 Act and the rules and regulations thereunder,
subject to such exemptions as may be granted by the Securities and Exchange
Commission.
5
<PAGE>
ARTICLE 12. NOTICE. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by registered or certified
mail, postage prepaid, addressed by the party giving notice to the other party
at the last address furnished by the other party to the party giving notice: if
to the Trust, at 680 East Swedesford Road, Wayne, PA 19087-1658, and if to the
Administrator at 680 East Swedesford Road, Wayne, PA 19087-1658.
ARTICLE 13. GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the Commonwealth of Massachusetts and the applicable provisions
of the 1940 Act. To the extent that the applicable laws of the Commonwealth of
Massachusetts, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.
ARTICLE 14. MULTIPLE ORIGINALS. This Agreement may be executed in two or
more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
THE ARBOR FUND
By: /s/ Kathryn L. Stanton
------------------------------------
Attest: /s/ Mary Jane Maloney
--------------------------------
SEI FINANCIAL MANAGEMENT CORPORATION
By: Kevin P. Robbins
------------------------------------
Attest: Mary Jane Maloney
--------------------------------
6
<PAGE>
THE ARBOR FUND
SCHEDULE DATED AUGUST 1, 1994
TO THE ADMINISTRATION AGREEMENT
DATED AUGUST 1, 1994
BETWEEN
THE ARBOR FUND
AND
SEI FINANCIAL MANAGEMENT CORPORATION
Fees: Pursuant to Article 6, Section A, the Trust shall pay the
Administrator compensation for services rendered to the U.S.
Government Securities Money Fund (the "Portfolio") at an annual rate
of .08% of the average daily net assets of the Portfolio, which is
calculated daily and paid monthly.
Term: Pursuant to Article 9, the term of this Agreement shall commence on
August 1, 1994, and shall remain in effect until January 31, 1998 (the
"Initial Term"). This Agreement shall continue in effect for
successive periods of 2 years after the Initial Term, unless
terminated by either party on not less than 90 days prior written
notice to the other party. In the event of a material breach of this
Agreement by either party, the non-breaching party shall notify the
breaching party in writing of such breach and upon receipt of such
notice, the breaching party shall have 45 days to remedy the breach or
the nonbreaching party may immediately terminate this Agreement.
<PAGE>
THE ARBOR FUND
SCHEDULE DATED AUGUST 8, 1995
TO THE ADMINISTRATION AGREEMENT
DATED AUGUST 1, 1994
BETWEEN
THE ARBOR FUND
AND
SEI FINANCIAL MANAGEMENT CORPORATION
Fees: Pursuant to Article 6, Section A, the Trust shall pay the
Administrator compensation for services rendered to the Prime
Obligations Fund (the "Portfolio") at an annual rate of .08% of the
average daily net assets of the Portfolio, which is calculated daily
and paid monthly.
<PAGE>
CONSENT TO ASSIGNMENT AND ASSUMPTION
1. SEI Financial Management Corporation ("Assignor") hereby notifies The Arbor
Fund (the "Trust") that it intends to assign all of its rights and delegate
its obligations under the Administration Agreement between the Trust and
SEI Financial Management Corporation, dated January 28, 1993 (the
"Assignment and Assumption Agreement") to SEI Fund Resources, ("Assignee"),
no later than June 1, 1996, in connection with the transition of Assignor's
fund administration and distribution business to Assignee;
2. Trust releases Assignor from its rights and obligations under the Agreement
on or after the date the Assignment and Assumption Agreement is executed
and any liability or responsibility for (i) breach of the Agreement by
Assignee or (ii) demands and claims made against the Trust or damages,
losses or expenses incurred by the Trust on or after the date of the
Assignment and Assumption Agreement, unless such demands, claims, losses,
damages or expenses arose out of or resulted from an act or omission of
Assignor prior to the date of the Assignment and Assumption Agreement.
3. This consent is not a waiver or estoppel with respect to any rights the
Trust may have by reason of the past performance or failure to perform by
Assignor.
4. This consent is conditioned upon the execution of an Assignment and
Assumption Agreement between Assignor and Assignee that require(s) Assignee
(i) to assume all rights and obligations of Assignor under the Agreement
and (ii) to be liable to the Trust for any default or breach of the
Agreement to the extent the default or breach occurs on or after the date
of execution of the Assignment and Assumption Agreement.
5. Except as provided herein, neither this consent nor the Assignment and
Assumption Agreement shall alter or modify the terms or conditions of the
Agreement.
Trust: Assignor:
The Arbor Fund SEI Financial Management Corporation
By: /s/ Barbara A. Nugent By: /s/ Kevin P. Robins
----------------------------- -----------------------------
Title: Vice President Title: Senior Vice President
Date: June 1, 1996 Date: June 1, 1996
<PAGE>
[LETTERHEAD OF MORGAN, LEWIS & BOCKIUS]
January 12, 1993
The Arbor Fund
2 Oliver Street
Boston, Massachusetts 02109
Gentlemen:
We are furnishing this opinion with respect to the proposed offer and
sale from time to time of units of beneficial interest, without par value (the
"Shares"), of The Arbor Fund (the "Trust"), a Massachusetts business trust, in
registration under the Securities Act of 1933 and the Investment Company Act of
1940, by a Registration Statement on Form N-1A (File No. 33-50718) as amended
from time to time (the "Registration Statement").
We have acted as counsel to the Trust since its inception, and we are
familiar with the actions taken by its Trustees to authorize the issuance of the
Shares. We have reviewed the Agreement and Declaration of Trust, the By-laws,
and the minute books of the Trust, and such other certificates, documents and
opinions of counsel as we deem necessary for the purpose of this opinion.
We have reviewed the Trust's Notification of Registration on Form N-8A
under the Investment Company Act of 1940. We have assisted in the preparation
of the Trust's Registration Statement, including all pre-effective amendments
thereto, filed or to be filed with the Securities and Exchange Commission.
We have assumed the appropriate action will be taken to register or
qualify the sale of the Shares under any applicable state and federal laws
regulating sales and offerings of securities.
Based upon the foregoing, we are of the opinion that:
1. The Trust is a business trust validly existing under the laws of
the Commonwealth of Massachusetts. The Trust is authorized to issue an
unlimited number of Shares in series representing interests in the OakTree
Diversified Growth Portfolio, the OakTree Intermediate-Term Income Portfolio,
the OakTree Tax Free Bond Portfolio and the OakTree Prime Obligation Money
Market Fund Portfolio of the Trust, and in such other series or classes as the
Trustees may hereafter duly authorize.
2. Upon the issuance of any Shares of any of the series or classes
of the Trust for payment therefor as described in the prospectus and Statement
of Additional Information for such series or class filed as part of the
Registration Statement, the Shares so issued will be validly issued, fully paid
and non-assessable.
This opinion is intended only for your use in connection with the
offering of Shares and may not be relied upon by any other person.
<PAGE>
We hereby consent to the inclusion of this opinion as Exhibit 10 to
the Trust's Registration Statement on Form N-1A to be filed with the Securities
and Exchange Commission and to the reference to our firm under the caption
"Counsel and Independent Accountant" in the Prospectus and Statement of
Additional Information filed as part of such Registration Statement.
Very truly yours,
/s/ Morgan, Lewis & Bockius
---------------------------------
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 17 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated March 14, 1997, relating to the financial
statements and financial highlights of The Arbor Fund (the "Fund") appearing in
the January 31, 1997 Annual Report to Shareholders of the Fund, which is also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" and "Independent
Accountants" in the Prospectus and under the headings "Experts" and "Financial
Statements" in the Statement of Additional Information.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Philadelphia, PA
March 28, 1997
<PAGE>
THE ARBOR FUND
DISTRIBUTION PLAN
CLASS B SHARES
WHEREAS, The Arbor Fund (the "Trust") is engaged in business as an open-end
investment company registered under the Investment Company Act of 1940, as
amended ("1940 Act"); and
WHEREAS, the Trustees of the Trust have determined that there is a
reasonable likelihood that the following Distribution Plan will benefit the
Trust and the owners of units of beneficial interest ("Shareholders") in the
Trust;
NOW, THEREFORE, the Trustees of the Trust hereby adopt this Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act.
SECTION 1. The Trust has adopted this Class B Distribution Plan ("Plan")
to enable the Trust to directly or indirectly bear expenses relating to the
distribution of Class B securities of the OakTree Diversified Growth, OakTree
Intermediate-Term Income, OakTree Tax Free Bond and OakTree Prime Obligation
Money Market Fund Portfolios (the "Portfolios") of which the Trust is the
issuer.
SECTION 2. The Trust may incur expenses for the items stipulated in
Section 3 of this Plan. All expenditures pursuant to this Plan shall be made
only pursuant to authorization by the President, any Vice President or the
Treasurer of the Trust. If there should be more than one series of Trust
shares, expenses incurred pursuant to this Plan shall be allocated among the
several series of the Trust on the basis of their relative net asset values,
unless otherwise determined by a majority of the Qualified Trustees.
In addition, the Trust will pay the Distributor a fee of up to .25% of the Class
B Portfolios' average daily net assets. Compensation of broker/dealers and
service providers which provide specified services shall be made by the
Distributor from such fees. The actual fee paid will be negotiated based on the
extent and quality of services provided.
SECTION 3. Expenses permitted pursuant to this Plan shall include, and be
limited to, the following:
(a) The incremental printing costs incurred in producing for and
distributing to persons other than current Shareholders of the Trust
the reports, prospectuses, notices and similar materials that are
prepared by the Trust for current Shareholders;
(b) advertising;
1
<PAGE>
(c) the costs of preparing, printing and distributing any literature used
in connection with the offering of the Trust's Shares and not covered
by Section 3(a) of this Plan; and
(d) expenses incurred in connection with the promotion and sale of the
Trust's Shares including, without limitation, travel and communication
expenses and expenses for the compensation of and benefits for sales
personnel.
SECTION 4. This Plan shall not take effect until it has been approved (a)
by a vote of at least a majority of the outstanding voting securities of the
Trust; and (b) together with any related agreements, by votes of the majority of
both (i) the Trustees of the Trust and (ii) the Qualified Trustees, cast in
person at a Board of Trustees meeting called for the purpose of voting on this
Plan or such agreement.
SECTION 5. This Plan shall continue in effect for a period of more than
one year after it takes effect only for so long as such continuance is
specifically approved at least annually in the manner provided in Part (b) of
Section 4 herein for the approval of this Plan.
SECTION 6. Any person authorized to direct the disposition of monies paid
or payable by the Trust pursuant to this Plan or any related agreement shall
provide to the Trustees of the Trust, at least quarterly, a written report of
the amounts so expended and the purposes for which such expenditures were made.
SECTION 7. This Plan may be terminated at any time by the vote of a
majority of the Qualified Trustees or by vote of a majority of the Trust's
outstanding voting securities.
SECTION 8. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide (a) that such agreement may be terminated at any time, without payment
of any penalty, by the vote of a majority of the Qualified Trustees or by the
vote of Shareholders holding a majority of the Trust's outstanding voting
securities, on not more than 60 days written notice to any other party to the
agreement; and (b) that such agreement shall terminate automatically in the
event of its assignment.
SECTION 9. This Plan may not be amended to increase materially the amount
of distribution expenses permitted pursuant to Section 2 hereof without the
approval of Shareholders holding a majority of the outstanding voting securities
of the Trust, and all material amendments to this Plan shall be approved in the
manner provided in Part (b) of Section 4 herein for the approval of this Plan.
SECTION 10. As used in this Plan, (a) the term "Qualified Trustees" shall
mean those Trustees of the Trust who are not interested persons of the Trust,
and have no direct
2
<PAGE>
or indirect financial interest in the operation of this Plan or any agreements
related to it, and (b) the terms "assignment" and "interested person" shall have
the respective meanings specified in the 1940 Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission.
SECTION 11. While this Plan is in effect, the selection and nomination of
those Trustees who are not interested persons of the Trust within the meaning of
Section 2(a) (19) of the 1940 Act shall be committed to the discretion of the
Trustees then in office who are not interested persons of the Trust.
SECTION 12. This Plan shall not obligate the Trust or any other party to
enter into an agreement with any particular person.
3
<PAGE>
THE ARBOR FUND
DISTRIBUTION PLAN
CLASS B SHARES
WHEREAS, The Arbor Fund (the "Trust") is engaged in business as an open-end
investment company registered under the Investment Company Act of 1940, as
amended ("1940 Act"); and
WHEREAS, the Trustees of the Trust have determined that there is a
reasonable likelihood that the following Distribution Plan will benefit the
Trust and the owners of units ("shares") of beneficial interest ("Shareholders")
in the Trust;
NOW, THEREFORE, the Trustees of the Trust hereby adopt this Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act.
SECTION 1. The Trust has adopted this Class B Distribution Plan ("Plan")
to enable the Trust to directly or indirectly bear expenses relating to the
distribution of Class B shares of the portfolios of the Trust listed on the
schedules attached hereto (each, a "Portfolio") of which the Trust is the
issuer.
SECTION 2. The Trust will pay the Distributor a fee at the annual rate
specified on the schedule attached hereto. The Distributor of the Class B
shares of each Portfolio may retain all or a part of this fee as compensation
for distribution or shareholder services it provides or it may use such fees for
compensation of broker/dealers and other financial institutions and
intermediaries that provide distribution or shareholder services as specified by
the Distributor. The actual fee to be paid by the Distributor to broker/dealers
and financial institutions and intermediaries will be negotiated based on the
extent and quality of services provided.
SECTION 3. This Plan shall not take effect as to a Portfolio until it has
been approved (a) by a vote of at least a majority of the outstanding Class B
shares of such Portfolio; and (b) together with any related agreements, by votes
of the majority of both (i) the Trustees of the Trust and (ii) the Qualified
Trustees (as defined herein), cast in person at a Board of Trustees meeting
called for the purpose of voting on this Plan or such agreement.
SECTION 4. This Plan shall continue in effect for a period of more than
one year after it takes effect only for so long as such continuance is
specifically approved at least annually in the manner provided in Part (b) of
Section 3 herein for the approval of this Plan.
SECTION 5. Any person authorized to direct the disposition of monies paid
or payable by the Trust pursuant to this Plan or any related agreement shall
provide to the Trustees of the Trust, at least quarterly, a written report of
the amounts so expended and the purposes for
<PAGE>
which such expenditures were made.
SECTION 6. This Plan may be terminated at any time by the vote of a
majority of the Qualified Trustees or, with respect to Class B shares of a
Portfolio, by vote of a majority of the Class B shares of the Portfolio.
Termination by the Class B shareholders of a Portfolio will not affect the
validity of this Plan with respect to Class B shares of any other Portfolio.
SECTION 7. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide (a) that such agreement may be terminated at any time, without payment
of any penalty, by the vote of a majority of the Qualified Trustees or with
respect to Class B shares of a Portfolio, by vote of a majority of the Class B
shares of the Portfolio, on not more than 60 days written notice to any other
party to the agreement; and (b) that such agreement shall terminate
automatically in the event of its assignment.
SECTION 8. This Plan may be amended in the manner provided in part (b) of
Section 3 herein for the approval of this Plan; provided, however, that the plan
may not be amended to increase materially the amount of distribution expenses
permitted pursuant to Section 2 hereof with respect to the Class B shares of a
Portfolio without the approval of Shareholders holding a majority of the
outstanding Class B shares of such Portfolio of the Trust.
SECTION 9. While this Plan is in effect, the selection and nomination of
those Trustees who are not interested persons of the Trust Act shall be
committed to the discretion of the Trustees then in office who are not
interested persons of the Trust.
SECTION 10. As used in this Plan, (a) the term "Qualified Trustees" shall
mean those Trustees of the Trust who are not interested persons of the Trust,
and have no direct or indirect financial interest in the operation of this Plan
or any agreements related to it, and (b) the terms "assignment" and "interested
person" shall have the respective meanings specified in the 1940 Act and the
rules and regulations thereunder, subject to such exemptions as may be granted
by the Securities and Exchange Commission.
SECTION 11. This Plan shall not obligate the Trust or any other party to
enter into an agreement with any particular person.
<PAGE>
SCHEDULE DATED NOVEMBER 22, 1993
TO THE
CLASS B
DISTRIBUTION PLAN
OF
THE ARBOR FUND
The Distributor receives a fee, paid on a monthly basis, as set forth below.
This fee is calculated based on the annual rate said below, applied to the
average daily net assets of the Portfolios.
PORTFOLIO FEE
- --------- ---
OVB Capital Appreciation .25%
OVB Emerging Growth .25%
OVB Government Securities .25%
OVB West Virginia Tax-Exempt Income .25%
OVB Prime Obligations .25%
<PAGE>
SCHEDULE DATED AUGUST 1, 1996
TO THE
CLASS B
DISTRIBUTION PLAN
OF
THE ARBOR FUND
The Distributor receives a fee, paid on a monthly basis, as set forth below.
This fee is calculated based on the annual rate said below, applied to the
average daily net assets of the Portfolios.
PORTFOLIO FEE
- --------- ---
OVB Capital Appreciation .25%
OVB Emerging Growth .25%
OVB Government Securities .25%
OVB West Virginia Tax-Exempt Income .25%
OVB Prime Obligations .25%
OVB Equity Income Fund .25%
<PAGE>
THE ARBOR FUND
RULE 18f-3
MULTIPLE CLASS PLAN
MAY 15, 1995
INTRODUCTION
The Golden Oak Diversified Growth Portfolio, Golden Oak Growth and
Income Portfolio, Golden Oak Intermediate-Term Income Portfolio, Golden Oak
Michigan Tax Free Bond Portfolio, Golden Oak Prime Obligation Money Market
Portfolio, OVB Prime Obligations Portfolio, OVB Capital Appreciation Portfolio,
OVB Emerging Growth Portfolio, OVB Government Securities Portfolio, OVB West
Virginia Tax-Exempt Income Portfolio, California Tax Exempt Portfolio,
Institutional Tax Free Portfolio and U.S. Government Securities Money Fund (each
a "Portfolio" and, collectively, the "Portfolios"), portfolios of The Arbor Fund
(the "Trust"), have elected to rely on Rule 18f-3 under the Investment Company
Act of 1940, as amended (the "1940 Act") in offering multiple classes of units
of beneficial interest ("shares") in each Portfolio. The Plan sets forth the
differences among classes, including shareholder services, distribution
arrangements, expense allocations, and conversion or exchange options.
A. ATTRIBUTES OF SHARE CLASSES
The rights of each existing class of the Portfolios (I.E., Classes A
and B) shall be as set forth in the resolutions and related materials of the
Portfolios' Board adopted pursuant to the order dated September 9, 1993,
obtained by [SEI Liquid Asset Trust, ET AL. (Inv. Co. Act Release No. IC-
19698)], and attached hereto as Exhibits A - C.
With respect to any class of shares of a Portfolio created after the
date hereof, each share of a Portfolio will represent an equal PRO RATA interest
in the Portfolio and will have identical terms and conditions, except that: (i)
each new class will have a different class name (or other designation) that
identifies the class as separate from any other class; (ii) each class will
separately bear any distribution expenses ("distribution fees") in connection
with a plan adopted pursuant to Rule 12b-1 under the 1940 Act (a "Rule 12b-1
Plan"), and will separately bear any non-Rule 12b-1 Plan service payments
("service fees") that are made under any servicing agreement entered into with
respect to that class; (iii) each class may bear, consistent with rulings and
other published statements of position by the Internal Revenue Service, the
expenses of the Portfolio's operations which are directly attributable to such
class ("Class Expenses"); and (iv) shareholders of the class will have exclusive
voting rights regarding the Rule 12b-1 Plan and
<PAGE>
the servicing agreements relating to such class, and will have separate voting
rights on any matter submitted to shareholders in which the interests of that
class differ from the interests of any other class.
B. EXPENSE ALLOCATIONS
Expenses of each existing class and of each class created after the
date hereof shall be allocated as follows: (i) distribution and shareholder
servicing payments associated with any Rule 12b-1 Plan or servicing agreement
relating to each class of shares are (or will be) borne exclusively by that
class; (ii) any incremental transfer agency fees relating to a particular class
are (or will be) borne exclusively by that class; and (iii) Class Expenses
relating to a particular class are (or will be) borne exclusively by that class.
Until and unless changed by the Board, the methodology and procedures
for calculating the net asset value of the various classes of shares and the
proper allocation of income and expenses among the various classes of shares
shall be as set forth in the "Report" rendered by Price Waterhouse LLP.
C. AMENDMENT OF PLAN; PERIODIC REVIEW
This Plan must be amended to properly describe (through additional
exhibits hereto or otherwise) each new class of shares approved by the Board
after the date hereof.
The Board of the Portfolios, including a majority of the independent
Trustees, must periodically review this Plan for its continued appropriateness,
and must approve any material amendment of the Plan as it relates to any class
of any Portfolio covered by the Plan.
- 2 -
<PAGE>
INVENTOR FUNDS, INC.
PBHG FUNDS, INC.
MARQUIS FUND
THE ARBOR FUND
FFB LEXICON FUND
THE ADVISORS' INNER CIRCLE FUND
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned
trustee/director and/or officer of the above referenced funds (the "Trusts"),
each a business trust organized under the laws of The Commonwealth of
Massachusetts, hereby constitutes and appoints David G. Lee, Kevin P. Robins and
Carmen V. Romeo, and each of them singly, his or her true and lawful attorney-
in-fact and agent with full power of substitution and resubstitution, to sign
for him or her in his or her name, place and stead, and in the capacity
indicated below, to sign any or all amendments (including post-effective
amendments) to each Trusts' Registration Statement on Form N-1A under the
provisions of the Investment Company Act of 1940 and the Securities Act of 1933,
each such Act as amended, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
acting alone, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.
/s/ John T. Cooney Date: 10-19-94
- ------------------ --------
John T. Cooney
Trustee
<PAGE>
INVENTOR FUNDS, INC.
PBHG FUNDS, INC.
MARQUIS FUND
THE ARBOR FUND
FFB LEXICON FUND
THE ADVISORS' INNER CIRCLE FUND
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned
trustee/director and/or officer of the above referenced funds (the "Trusts"),
each a business trust organized under the laws of The Commonwealth of
Massachusetts, hereby constitutes and appoints David G. Lee, Kevin P. Robins and
Carmen V. Romeo, and each of them singly, his or her true and lawful attorney-
in-fact and agent with full power of substitution and resubstitution, to sign
for him or her in his or her name, place and stead, and in the capacity
indicated below, to sign any or all amendments (including post-effective
amendments) to each Trusts' Registration Statement on Form N-1A under the
provisions of the Investment Company Act of 1940 and the Securities Act of 1933,
each such Act as amended, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
acting alone, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.
/s/ William M. Doran Date:10/19/94
- -------------------- --------
William M. Doran
Trustee
<PAGE>
INVENTOR FUNDS, INC.
PBHG FUNDS, INC.
MARQUIS FUND
THE ARBOR FUND
FFB LEXICON FUND
THE ADVISORS' INNER CIRCLE FUND
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned
trustee/director and/or officer of the above referenced funds (the "Trusts"),
each a business trust organized under the laws of The Commonwealth of
Massachusetts, hereby constitutes and appoints David G. Lee, Kevin P. Robins and
Carmen V. Romeo, and each of them singly, his or her true and lawful attorney-
in-fact and agent with full power of substitution and resubstitution, to sign
for him or her in his or her name, place and stead, and in the capacity
indicated below, to sign any or all amendments (including post-effective
amendments) to each Trusts' Registration Statement on Form N-1A under the
provisions of the Investment Company Act of 1940 and the Securities Act of 1933,
each such Act as amended, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
acting alone, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.
/s/ Frank E. Morris Date:10/31/94
- ------------------- --------
Frank E. Morris
Trustee
<PAGE>
MARQUIS FUND
THE ARBOR FUND
FFB LEXICON FUND
THE ADVISORS' INNER CIRCLE FUND
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced funds (the "Trusts"), each a business trust
organized under the laws of The Commonwealth of Massachusetts, hereby
constitutes and appoints David G. Lee, Theresa M. Messina and Carmen V. Romeo,
and each of them singly, his or her true and lawful attorney-in-fact and agent
with full power of substitution and resubstitution, to sign for him or her and
in his or her name, place and stead, and in the capacity indicated below, to
sign any or all amendments (including post-effective amendments) to each Trust's
Registration Statement on Form N-1A under the provisions of the Investment
Company Act of 1940 and the Securities Act of 1933, each such Act as amended,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, acting alone, full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand and
seal as of the date set forth below.
/s/ Rober A. Nesher Date: 5/20/94
- ------------------- -------
Robert A. Nesher
Trustee
<PAGE>
INVENTOR FUNDS, INC.
PBHG FUNDS, INC.
MARQUIS FUND
THE ARBOR FUND
FFB LEXICON FUND
THE ADVISORS' INNER CIRCLE FUND
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned
trustee/director and/or officer of the above referenced funds (the "Trusts"),
each a business trust organized under the laws of The Commonwealth of
Massachusetts, hereby constitutes and appoints David G. Lee, Kevin P. Robins and
Carmen V. Romeo, and each of them singly, his or her true and lawful attorney-
in-fact and agent with full power of substitution and resubstitution, to sign
for him or her in his or her name, place and stead, and in the capacity
indicated below, to sign any or all amendments (including post-effective
amendments) to each Trusts' Registration Statement on Form N-1A under the
provisions of the Investment Company Act of 1940 and the Securities Act of 1933,
each such Act as amended, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
acting alone, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.
/s/ Robert A. Patterson Date: 10-19-94
- ----------------------- --------
Robert A. Patterson
Trustee
<PAGE>
INVENTOR FUNDS, INC.
PBHG FUNDS, INC.
MARQUIS FUND
THE ARBOR FUND
FFB LEXICON FUND
THE ADVISORS' INNER CIRCLE FUND
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned
trustee/director and/or officer of the above referenced funds (the "Trusts"),
each a business trust organized under the laws of The Commonwealth of
Massachusetts, hereby constitutes and appoints David G. Lee, Kevin P. Robins and
Carmen V. Romeo, and each of them singly, his or her true and lawful attorney-
in-fact and agent with full power of substitution and resubstitution, to sign
for him or her in his or her name, place and stead, and in the capacity
indicated below, to sign any or all amendments (including post-effective
amendments) to each Trusts' Registration Statement on Form N-1A under the
provisions of the Investment Company Act of 1940 and the Securities Act of 1933,
each such Act as amended, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
acting alone, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.
/s/ Gene Peters Date: 20 OCT. 94
- --------------- ----------
Gene Peters
Trustee
<PAGE>
INVENTOR FUNDS, INC.
PBHG FUNDS, INC.
MARQUIS FUND
THE ARBOR FUND
FFB LEXICON FUND
THE ADVISORS' INNER CIRCLE FUND
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned
trustee/director and/or officer of the above referenced funds (the "Trusts"),
each a business trust organized under the laws of The Commonwealth of
Massachusetts, hereby constitutes and appoints David G. Lee, Kevin P. Robins and
Carmen V. Romeo, and each of them singly, his or her true and lawful attorney-
in-fact and agent with full power of substitution and resubstitution, to sign
for him or her in his or her name, place and stead, and in the capacity
indicated below, to sign any or all amendments (including post-effective
amendments) to each Trusts' Registration Statement on Form N-1A under the
provisions of the Investment Company Act of 1940 and the Securities Act of 1933,
each such Act as amended, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
acting alone, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.
/s/ James M. Storey Date: October 24, 1994
- ------------------- ----------------
James M. Storey
Trustee
<PAGE>
INVENTOR FUNDS, INC.
PBHG FUNDS, INC.
MARQUIS FUND
THE ARBOR FUND
FFB LEXICON FUND
THE ADVISORS' INNER CIRCLE FUND
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned
trustee/director and/or officer of the above referenced funds (the "Trusts"),
each a business trust organized under the laws of The Commonwealth of
Massachusetts, hereby constitutes and appoints Kevin P. Robins and Carmen V.
Romeo, and each of them singly, his or her true and lawful attorney-in-fact and
agent with full power of substitution and resubstitution, to sign for him or her
in his or her name, place and stead, and in the capacity indicated below, to
sign any or all amendments (including post-effective amendments) to each Trusts'
Registration Statement on Form N-1A under the provisions of the Investment
Company Act of 1940 and the Securities Act of 1933, each such Act as amended,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, acting alone, full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.
/s/ David G. Lee Date:_____________
- ----------------
David G. Lee
President
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<NUMBER-OF-SHARES-REDEEMED> (2)
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</TABLE>
