<PAGE> 1
As filed with the Securities and Exchange Commission on May 28, 1999
Securities Act File No. 33-65690
Investment Company Act File No. 811-7850
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 12
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 13
THE PARKSTONE ADVANTAGE FUND
----------------------------
(Exact Name of Registrant as Specified in Charter)
One Freedom Valley Drive
Oaks, PA 19456
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (800) 451-8377
W. Bruce McConnel, III, Esq.
Audrey C. Talley, Esq.
DRINKER BIDDLE & REATH LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b).
[ ] on ____________ pursuant to paragraph (b).
[ ] 60 days after filing pursuant to paragraph (a)(1).
[ ] on (date) pursuant to paragraph (a)(l) of Rule 485.
[X] 75 days after filing pursuant to paragraph (a)(2).
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Beneficial Interest
<PAGE> 2
PROSPECTUS
AUGUST __, 1999
ARMADA ADVANTAGE EQUITY GROWTH FUND
ARMADA ADVANTAGE BALANCED ALLOCATION FUND
INVESTMENT ADVISER
NATIONAL CITY INVESTMENT MANAGEMENT COMPANY
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED ANY FUND
SHARES OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
IT IS A CRIME FOR ANYONE TO TELL YOU OTHERWISE.
<PAGE> 3
HOW TO READ THIS PROSPECTUS
The Parkstone Advantage Fund offers shares in separate investment portfolios
(funds). The funds have individual investment goals and strategies. This
prospectus gives you important information about the shares of two of its
portfolios, the Armada Advantage Equity Growth and Balanced Allocation Funds
(Funds) that you should know before investing. Please read this prospectus and
keep it for future reference.
This prospectus has been arranged into different sections so that you can easily
review this important information. On the next page, there is some general
information you should know about the Funds. For more detailed information about
each Fund, please see:
PAGE
INTRODUCTION.....................................................3
ARMADA ADVANTAGE EQUITY GROWTH FUND..............................4
ARMADA ADVANTAGE BALANCED ALLOCATION FUND........................7
EACH FUND'S OTHER INVESTMENTS....................................10
MORE INFORMATION ABOUT RISK......................................10
THE INVESTMENT ADVISER AND INVESTMENT TEAM.......................13
PURCHASING, SELLING AND EXCHANGING FUND SHARES...................13
DISTRIBUTIONS AND TAXES..........................................15
HOW TO OBTAIN MORE INFORMATION ABOUT THE
ARMADA ADVANTAGE FUNDS...........................................Back Cover
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Introduction
------------
Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities. Each Fund is also an
investment vehicle for variable annuity contracts and variable life insurance
policies and for certain tax-qualified investors.
Each Fund has its own investment goal and strategies for reaching that goal. The
investment managers invest Fund assets in a way that they believe will help a
Fund achieve its goal. Still, investing in each Fund involves risk and there is
no guarantee that a Fund will achieve its goal. An investment manager will make
judgments about future events concerning the markets, the economy, or companies
which may not match actual market movements, economic conditions or company
performance, and these judgments may affect the return on your investment. In
fact, no matter how good a job an investment manager does, you could lose money
on your investment in the Fund, just as you could with other investments.
The value of your investment in a Fund is based on the market value of the
securities the Fund holds. These prices change daily due to economic and other
events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities a Fund owns and the markets in which they trade. The
effect on a Fund of a change in the value of a single security will depend on
how widely the Fund diversifies its holdings.
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Armada Advantage Equity Growth Fund
-----------------------------------
FUND SUMMARY
INVESTMENT GOAL High level of total return
INVESTMENT FOCUS Large cap equity securities
SHARE PRICE VOLATILITY High
PRINCIPAL INVESTMENT STRATEGY Investing in growth oriented common
stocks of larger issuers
INVESTOR PROFILE Investors seeking a high level of total
return, who are willing to accept the
risk of investing in equity securities
PRINCIPAL INVESTMENT STRATEGY OF THE FUND
The investment objective of the Armanda Advantage Equity Growth Fund is to seek
a high level of total return arising primarily out of capital appreciation. The
Fund's investment objective may be changed without a vote of shareholders,
although the Board of Trustees would only change a fund's objective upon 30
days' notice to shareholders.
The Armada Advantage Equity Growth Fund invests primarily in a diversified
portfolio of common stocks with large capitalizations. The Fund considers a
"large capitalization" company one that has a market capitalization, measured at
the time it purchases a security of the company, within the range of
capitalizations of companies in the S&P 500. In selecting investments for the
Fund, the Adviser considers factors such as historical and projected earnings
growth, earnings quality and liquidity. The Fund generally purchases stocks that
are listed on a national securities exchange or unlisted securities with an
established over-the-counter market.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments, causing the prices of securities issued by such companies to
decline. These factors contribute to price volatility, which is the principal
risk of investing in the Fund. The loss of money is a risk of investing in the
Fund.
The Fund is also subject to the risk that growth-oriented equity securities may
underperform other equity market segments or the equity markets as a whole.
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PERFORMANCE INFORMATION OF COMPARABLE FUND
This Fund is new and has no performance history. The performance table below is
for the Armada Equity Growth Fund, a similarly managed fund with the same
Adviser. The performance table illustrates the risks and volatility of
investment in a similar fund. Of course, past performance of the Armada Equity
Growth Fund does not necessarily indicate how the Armada Advantage Equity Growth
Fund will perform in the future.
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This table compares the Armada Equity Growth Fund's average annual total returns
for the period ended December 31, 1998, to those of the S&P 500.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS SINCE INCEPTION
<S> <C> <C> <C> <C> <C>
ARMADA EQUITY GROWTH FUND 29.09% 28.51% 22.11% N/A 16.95%*
S&P 500 28.60% 28.23% 24.05% N/A 17.89%
<FN>
* Since December 20, 1989
</TABLE>
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The S&P 500 Index is an unmanaged index composed of
industrial, financial, utilities and transportation stocks.
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<PAGE> 8
Armada Advantage Balanced Allocation Fund
-----------------------------------------
FUND SUMMARY
INVESTMENT GOAL Current income, long-term capital growth and
conservation of capital
INVESTMENT FOCUS A combination of growth-oriented equity securities,
fixed income securities and cash equivalents
SHARE PRICE VOLATILITY Medium
PRINCIPAL INVESTMENT Investing in a diversified portfolio of equity
STRATEGY securities, investment grade fixed income
securities and cash equivalents
INVESTOR PROFILE Investors seeking a broad diversification by asset
class and style to manage risk and provide the
potential for above-average after-tax returns.
PRINCIPAL INVESTMENT STRATEGY OF THE FUND
The Armada Advantage Balanced Allocation Fund's investment objective is to seek
current income, long-term capital growth and conservation of capital. The Fund's
investment objective may be changed without a vote of shareholders, although the
Board of Trustees would only change the Fund's objective upon 30 days' notice to
shareholders.
The Armada Advantage Balanced Allocation Fund is both a "balanced fund," which
means the Adviser will generally strive to invest in a balance of equity
investments and fixed-income investments, and an "asset allocation fund," which
means the Adviser will periodically shift assets from investments it believes
will underperform to investments it believes have greater potential. The Fund
intends to invest 45% to 65% of its assets in common stocks and convertible
securities, 25% to 55% of its net assets in investment grade fixed income
securities and up to 30% of its net assets in cash and cash equivalent
securities. The Adviser seeks to invest in equity securities based on their
potential for long-term capital appreciation. Generally, these will be
growth-oriented companies with high revenue expectations and market
capitalizations of at least $100 million. The Fund invests in investment grade
fixed income securities.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and at times the value of some or all of
the Fund's equity securities may fluctuate drastically from one day to the next.
Individual companies may report poor results or be negatively affected by
industry and/or economic
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<PAGE> 9
trends and developments, causing the prices of securities issued by such
companies to decline. These factors contribute to price volatility, which is the
principal risk of investing in the Fund.
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if interest
rates rise and vice versa, and the volatility of lower rated securities is even
greater than that of higher rated securities. Also, longer-term securities are
generally more volatile, so the average maturity or duration of these securities
affects risk.
The Fund is also subject to the risk that intermediate and long term fixed
income securities may underperform other fixed income segments or the fixed
income market as a whole. Investments in equity securities may also underperform
relative to certain segments of the equity market and the equity market as a
whole.
The Fund is also subject to the risk that the Adviser's asset allocation and
balancing decisions will not anticipate market trends successfully. For example,
weighting common stocks too heavily during a stock market decline may result in
a failure to preserve capital. Conversely, investing too heavily in fixed income
securities during a period of stock market appreciation may result in lower
total return.
PERFORMANCE INFORMATION OF COMPARABLE FUND
This Fund is new and has no performance history. The performance table below is
for the Armada Balanced Allocation Fund, a similarly managed fund with the same
Adviser. The performance table illustrates the risks and volatility of
investment in a similar fund. Of course, past performance of the Armada Balanced
Allocation Fund does not necessarily indicate how the Armada Advantage Balanced
Allocation Fund will perform in the future.
This table compares the Armada Balanced Allocation Fund's average annual total
returns for the periods ending December 31, 1998, to those of a Composite Index
composed of returns from the S&P 500 Index and the Lehman Brothers
Aggregate Bond Index.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS SINCE INCEPTION
<S> <C> <C> <C> <C> <C>
ARMADA BALANCED ALLOCATION FUND N/A N/A N/A N/A 5.69%*
COMPOSITE INDEX N/A N/A N/A N/A 8.53%
<FN>
* Since July 10, 1998
</TABLE>
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The Composite Index, a hypothetical combination of
unmanaged indices, reflects the Fund's typical mix of 60% stocks and 40% bonds.
The index combines returns from the S&P 500 Index and the Lehman Brothers
Aggregate Bond Index. The S&P 500 Index is an unmanaged index composed of
industrial, financial, utilities and transportation stocks. The Lehman Brothers
Aggregate Bond Index is an unmanaged index made up of the Lehman Brothers
Government Corporate Bond, Mortgage Backed Securities, and Asset Backed
Securities Indices.
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EACH FUND'S OTHER INVESTMENTS
In addition to the investments and strategies described in this prospectus, each
Fund also may invest in other securities, use other strategies and engage in
other investment practices. These investments and strategies, as well as those
described in this prospectus, are described in detail in our Statement of
Additional Information. Of course, the Fund cannot guarantee that any Fund will
achieve its investment goal.
The investments and strategies described in this prospectus are those that we
use under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, each Fund may invest up to 100%
of its assets in investments that would not ordinarily be consistent with a
Fund's objectives. A Fund will do so only if the Adviser believes that the risk
of loss outweighs the opportunity for capital gains or higher income.
MORE INFORMATION ABOUT RISK
EQUITY RISK-- Equity securities include Both Funds
public and privately issued equity
securities, common and preferred stocks,
warrants, rights to subscribe to common
stock and convertible securities, as well as
instruments that attempt to track the price
movement of equity indices. Invest-ments in
equity securities and equity derivatives in
general are subject to market risks that may
cause their prices to fluctuate over time.
The value of securities convertible into
equity securities, such as warrants or
convertible debt, is also affected by
prevailing interest rates, the credit
quality of the issuer and any call
provision. Fluctuations in the value of
equity securities in which a mutual fund
invests will cause a fund's net asset value
to fluctuate. An investment in a portfolio
of equity securities may be more suitable
for long-term investors who can bear the
risk of these share price fluctuations.
FIXED INCOME RISK -- The market value of Armada Advantage Balanced
fixed income investments change in response Allocation Fund
to interest rate changes and other factors.
During periods of falling interest rates,
the values of outstanding fixed income
securities generally rise. Moreover, while
securities with longer maturities tend to
produce higher yields, the prices of longer
maturity securities are also subject to
greater market fluctuations as a result of
changes in interest rates. In addition to
these fundamental risks, different types of
fixed income securities may be subject to
the following additional risks:
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CALL RISK -- During periods of falling interest Armada Advantage
rates, certain debt obligations with high interest Balanced Allocation
rates may be prepaid (or "called") by the issuer Fund
prior to maturity. This may cause a Fund's average
weighted maturity to fluctuate, and may require a
Fund to invest the resulting proceeds at lower
interest rates.
CREDIT RISK -- The possibility that an Armada Advantage
issuer will be unable to make timely Balanced Allocation
payments of either principal or interest. Fund
EVENT RISK -- Securities may suffer declines Armada Advantage
in credit quality and market value due to Balanced Allocation
issuer restructurings or other factors. This Fund
risk should be reduced because of a Fund's
multiple holdings.
MORTGAGE-BACKED SECURITIES-- Mortgage-backed Armada Advantage
securities are fixed income securities Balanced Allocation
representing an interest in a pool of Fund
underlying mortgage loans. They are
sensitive to changes in interest rates, but
may respond to these changes differently
from other fixed income securities due to
the possibility of prepayment of the
underlying mortgage loans. As a result, it
may not be possible to determine in advance
the actual maturity date or average life of
a mortgage-backed security. Rising interest
rates tend to discourage refinancings, with
the result that the average life and
volatility of the security will increase
exacerbating its decrease in market price.
When interest rates fall, however,
mortgage-backed securities may not gain as
much in market value because of the
expectation of additional mortgage
prepayments that must be reinvested at lower
interest rates. Prepayment risk may make it
difficult to calculate the average maturity
of a portfolio of mortgage-backed securities
and, therefore, to assess the volatility
risk of that portfolio.
YEAR 2000 RISK-- The Funds depend on the Both Funds
smooth functioning of computer systems in
almost every aspect of their business. Like
other mutual funds, businesses and
individuals around the world, the Funds
could be adversely affected if the computer
systems used by its service providers do not
properly process dates on and after January
1, 2000, and distinguish between the year
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<PAGE> 13
2000 and the year 1900. The Funds have asked
their service providers whether they expect
to have their computer systems adjusted for
the year 2000 transition, and is seeking
assurances from each service provider that
they are devoting significant resources to
prevent material adverse consequences to the
Funds. While it is likely that such
assurances will be obtained, the Funds and
their shareholders may experience losses if
these assurances prove to be incorrect or as
a result of year 2000 computer difficulties
experienced by issuers of portfolio
securities or third parties, such as
custodians, banks, broker-dealers or others
with which the Funds do business.
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<PAGE> 14
INVESTMENT ADVISER
The Investment Adviser makes investment decisions for the Funds and continuously
reviews, supervises and administers each Fund's respective investment program.
The Board of Trustees of the Armada Advantage Funds supervises the Adviser and
establishes policies that the Adviser must follow in its management activities.
National City Investment Management Company ("IMC"), serves as the Adviser to
the Funds. As of March 31, 1999, IMC had approximately $23.7 billion in assets
under management. Advisory fees for the Funds are:
Armada Advantage Equity Growth Fund .75%
Armada Advantage Balanced Allocation Fund .75%
The Adviser plans to waive all advisory fees for both funds for the first three
months of operation. The Adviser plans to charge a reduced advisory fee of 0.25%
for each Fund for the next three months, 0.50% for each Fund for the following
three months and 0.75% after nine months for each Fund.
THE INVESTMENT TEAM
The Funds are managed by a team of investment professionals from IMC. No one
person is primarily responsible for making investment recommendations to the
team. The Equity Growth Fund is managed by the Equity Growth team. The Balanced
Allocation Fund is managed by an investment management teams within IMC; each
team manages their respective segment allocation within the Fund, according to
their areas of specialization.
PURCHASING, SELLING AND EXCHANGING FUND SHARES
The Funds offer their shares only to insurance companies for separate accounts
they establish to fund variable life insurance and variable annuity contracts
and by other entities under qualified pension and retirement plans. The contract
prospectus of each plan describes how contract owners may allocate, transfer and
withdraw amounts to, and from, separate accounts.
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GENERAL INFORMATION
Shares may be purchased by your insurance company on any day that the New York
Stock Exchange ("NYSE") is open for business (a Business Day). Shares cannot be
purchased by Federal Reserve Wire on days when either the NYSE or the Federal
Reserve is closed.
The Trust may suspend the right of redemption or postpone the date of payment
for shares during any period when: (a) trading on the NYSE is restricted by
applicable rules and regulations of the SEC; (b) the NYSE is closed for other
than customary weekend and holiday closings; (c) the SEC has by order permitted
such suspension; or (d) 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 to determine the fair market value
of its net assets.
A Fund may reject any purchase order if it is determined that accepting the
order would not be in the best interests of the Fund or its shareholders.
The insurance company's price per share (the offering price) will be the net
asset value per share (NAV) next determined after a Fund receives your insurance
company's purchase order.
Each Fund calculates its NAV once each Business Day at the regularly-scheduled
close of normal trading on the NYSE (normally, 4:00 p.m., Eastern time). So, for
the insurance company to receive the current Business Day's NAV, generally a
Fund must receive your insurance company's purchase order before 4:00 p.m.,
Eastern time.
HOW WE CALCULATE NAV
NAV for one Fund share is the value of that share's portion of all of the assets
in the Fund.
In calculating NAV, a Fund generally values its investment portfolio at market
price. If market prices are unavailable or a Fund thinks that they are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees.
Some Funds hold securities that are listed on foreign exchanges. These
securities may trade on weekends or other days when the Funds do not calculate
NAV. As a result, the market value of these Fund's investments may change on
days when you cannot purchase or sell Fund shares.
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<PAGE> 16
DISTRIBUTIONS AND TAXES
The Funds intend to declare and distribute, as dividends or capital gains
distributions, at least annually, substantially all of its net investment income
and net profits realized from the sale of portfolio securities, if any, to its
shareholders (Participating Insurance Companies' separate accounts). The net
investment income of the Funds consists of all dividends or interest received by
the Funds, less estimated expenses (including the advisory and administrative
fees). The Funds will declare and distribute income dividends annually. All net
short-term and long-term capital gains of the Funds, net of carry-forward
losses, if any, realized during the fiscal year, are declared and distributed
periodically, no less frequently than annually. All dividends and distributions
are reinvested in additional shares of the Funds at net asset value, as of the
record date for the distributions.
TAXES
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Funds and their shareholders. This summary is based on current
tax laws, which may change.
The Funds believe that they will not have to pay income taxes if they distribute
all of their income and gains. Net income and realized capital gains that the
Funds distribute are not currently taxable when left to accumulate within a
variable annuity or variable life insurance contract or under a qualified
pension or retirement plan.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
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ARMADA ADVANTAGE FUNDS
INVESTMENT ADVISER
National City Investment Management Company ("IMC")
1900 E. Ninth Street
Cleveland, Ohio 44114
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Drinker Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, PA 19107
More information about each Fund is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated August __, 1999, includes detailed information about the Armada
Advantage Funds. The SAI is on file with the SEC and is incorporated by
reference into this prospectus. This means that the SAI, for legal purposes, is
a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
Annual and semi-annual reports are not currently available because the funds are
new. When available, the reports will list each Fund's holdings and contain
information from the Fund's managers about strategies, and recent market
conditions and trends. The reports will also contain detailed financial
information about the Funds.
TO OBTAIN MORE INFORMATION:
BY TELEPHONE: Call 1-800-862-6668
BY MAIL: Write to us at One Freedom Valley Drive, Oaks, PA 19456
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<PAGE> 18
FROM THE SEC: You can also obtain the SAI or other information about the Armada
Advantage Funds of the Parkstone Advantage Fund, from the SEC's website
("http://www.sec.gov"). You may review and copy documents at the SEC Public
Reference Room in Washington, DC (for information call 1-800-SEC-0330). You may
request documents by mail from the SEC, upon payment of a duplicating fee, by
writing to: Securities and Exchange Commission, Public Reference Section,
Washington, DC 20549-6009. The Parkstone Advantage Fund's Investment Company
Act registration number is 811-7850.
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<PAGE> 19
ARMADA ADVANTAGE EQUITY GROWTH FUND
ARMADA ADVANTAGE BALANCED ALLOCATION FUND
Each an Investment Portfolio of
THE PARKSTONE ADVANTAGE FUND
Statement of Additional Information
August _____, 1999
This Statement of Additional Information is not a Prospectus, but
should be read in conjunction with the Prospectus for Armada Advantage Equity
Growth Fund and the Armada Advantage Balanced Allocation Fund of The Parkstone
Advantage Fund dated August __, 1999, which may be supplemented from time to
time. This Statement of Additional Information is incorporated by reference in
its entirety into the Prospectus. The Funds are new mutual funds. Copies of the
Prospectus and the Annual Report to Shareholders, following the Fund's first
fiscal period, may be obtained without charge, upon request, by writing The
Parkstone Advantage Fund at One Freedom Valley Drive, Oaks, PA 19456, or by
calling toll free (800) 862-6668.
<PAGE> 20
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INVESTMENTS AND RISKS............................................................................................1
Additional Information on Portfolio Instruments.........................................................1
Foreign Securities......................................................................................2
Foreign Government Obligations..........................................................................2
Foreign Currency Transactions...........................................................................2
Convertible Securities..................................................................................3
Warrants................................................................................................4
Futures Contracts and Related Options...................................................................4
"Covered Call" Options..................................................................................4
Asset-Backed Securities.................................................................................5
Interest Rate and Total Return Swaps....................................................................7
Income Participation Loans..............................................................................7
Short-Term Obligations..................................................................................8
When-Issued Securities..................................................................................9
Repurchase Agreements...................................................................................9
Reverse Repurchase Agreements..........................................................................10
U.S. Government Obligations............................................................................10
Variable and Floating Rate Obligations.................................................................10
Securities of Other Investment Companies...............................................................11
Lending of Portfolio Securities........................................................................11
Portfolio Turnover.....................................................................................11
Additional Investment Limitations......................................................................12
NET ASSET VALUE.................................................................................................13
Valuation of the Funds.................................................................................13
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..................................................................13
MANAGEMENT OF THE TRUST.........................................................................................14
Trustees and Officers..................................................................................14
Investment Adviser.....................................................................................18
Portfolio Transactions.................................................................................19
Authority to Act as Investment Adviser.................................................................21
Glass-Steagall Act.....................................................................................21
Administrator..........................................................................................22
Distributor............................................................................................23
Custodians, Transfer Agent and Fund Accounting Services................................................23
Independent Auditors...................................................................................23
ADDITIONAL INFORMATION..........................................................................................24
Description of Shares..................................................................................24
Vote of a Majority of the Outstanding Shares...........................................................25
Shareholder and Trustee Liability......................................................................25
Additional Tax Information.............................................................................26
Performance Information................................................................................27
Yields of the Funds....................................................................................28
Calculation of Total Return............................................................................28
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Performance Comparisons................................................................................29
Miscellaneous..........................................................................................30
Financial Statements...................................................................................31
APPENDIX A.....................................................................................................A-1
APPENDIX B.....................................................................................................B-1
</TABLE>
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STATEMENT OF ADDITIONAL INFORMATION
THE PARKSTONE ADVANTAGE FUND
The Parkstone Advantage Fund (the "Trust") is an open-end management
company which offers six separate and diversified investment portfolios
(collectively, the "Funds" and each individually, a "Fund"), each with a
different investment objective. The Trust was organized in the Commonwealth of
Massachusetts on May 19, 1993. The Trust is established exclusively for the
purpose of providing an investment vehicle for variable annuity contracts and
variable life insurance policies offered by the separate accounts of various
life insurance companies (the "Participating Insurance Companies"). Shares of
the Trust are not offered to the general public but solely to such separate
accounts (the "Separate Accounts").
The Trust offers six variable net asset value funds: the Parkstone
Advantage Small Capitalization Fund, the Parkstone Advantage Mid Capitalization
Fund, the Parkstone Advantage Bond Fund, the Parkstone Advantage International
Discovery Fund, the Armada Advantage Equity Growth Fund (the "Equity Growth
Fund") and the Armada Advantage Balanced Allocation Fund (the "Balanced
Allocation Fund"). This Statement of Additional Information relates solely to
the Equity Growth Fund and Balanced Allocation Fund. The Equity Growth Fund
seeks a high level of total return arising primarily out of capital
appreciation. The Balanced Allocation Fund seeks current income, long-term
capital growth and conservation of capital.
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectus of the Funds
described above. Capitalized terms not defined herein are defined in the
Prospectus. No investment in shares of a Fund should be made without first
reading the Funds' Prospectus.
INVESTMENTS AND RISKS
The following policies supplement the investment objectives, principal
investment strategies and related risks of the Balanced Allocation and Equity
Growth Funds of the Trust as set forth in the Balanced Allocation and Equity
Growth Funds' Prospectus for the Trust.
The Armada Advantage Equity Growth Fund may invest up to 20% of its
assets in one or more of the following: futures contracts and related options,
options, foreign securities, foreign currency exchange contracts, exchange-rate
related securities, when-issued securities, short-term obligations, and illiquid
securities. In order to generate additional income, each Fund may, from time to
time, lend its portfolio securities to broker-dealers, banks or other
institutional borrowers.
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
Attached to this Statement of Additional Information is Appendix A
which contains descriptions of the rating symbols used by Standard & Poor's
Rating Group ("S&P"), Fitch IBCA,
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<PAGE> 23
Inc. ("Fitch IBCA"), Duff & Phelps Credit Rating Co. ("Duff"), and Moody's
Investors Service, Inc. ("Moody's") for securities which may be held by the
Fund.
FOREIGN SECURITIES
- ------------------
Unanticipated political or social developments may affect the value of
the Equity Growth and Balanced Allocation Funds' investments in emerging market
countries and the availability to the Fund of additional investments in those
countries. The small size, relatively unseasoned nature of the securities
markets and limited volume of trading in securities in certain of these
countries may make the Balanced Allocation Fund's investments there illiquid and
more volatile than investments in Japan or most Western European countries. In
addition, the Balanced Allocation Fund may be required to establish special
custodial or other arrangements before making certain investments. Moreover,
there may be little financial or accounting information available with respect
to issuers located in certain emerging market countries, and it may be difficult
as a result to assess the value or prospects of an investment in such issuers.
FOREIGN GOVERNMENT OBLIGATIONS
- ------------------------------
The Equity Growth and Balanced Allocation Funds may purchase debt
obligations issued or guaranteed by governments (including states, provinces or
municipalities) of countries other than the United States, or by their agencies,
authorities or instrumentalities. The percentage of assets invested in
securities of a particular country or denominated in a particular currency will
vary in accordance with the adviser's assessment of gross domestic product in
relation to aggregate debt, current account surplus or deficit, the trend of the
current account, reserves available to defend the currency, and the monetary and
fiscal policies of the government.
FOREIGN CURRENCY TRANSACTIONS
- -----------------------------
In order to protect against a possible loss on investments resulting
from a decline or appreciation in the value of a particular foreign currency
against the U.S. dollar or another foreign currency or for other reasons, the
Equity Growth and Balanced Allocation Funds is authorized to enter into forward
currency exchange contracts. These contracts involve an obligation to purchase
or sell a specified currency at a future date at a price set at the time of the
contract. Forward currency contracts do not eliminate fluctuations in the values
of portfolio securities but rather allow the Balanced Allocation Fund to
establish a rate of exchange for a future point in time.
When entering into a contract for the purchase or sale of a security,
the Balanced Allocation Fund may enter into a forward foreign currency exchange
contract for the amount of the purchase or sale price to protect against
variations, between the date the security is purchased or sold and the date on
which payment is made or received, in the value of the foreign currency relative
to the U.S. dollar or other foreign currency.
When the adviser anticipates that a particular foreign currency may
decline substantially relative to the U.S. dollar or other leading currencies,
in order to reduce risk, the Balanced Allocation Fund may enter into a forward
contract to sell, for a fixed amount, the amount of foreign currency
approximating the value of some or all of the Balanced Allocation Fund's
securities denominated in such foreign currency. Similarly, when the obligations
held by the Balanced Allocation Fund create a short position in a foreign
currency, the Balanced Allocation Fund may
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<PAGE> 24
enter into a forward contract to buy, for a fixed amount, an amount of foreign
currency approximating the short position. With respect to any forward foreign
currency contract, it will not generally be possible to match precisely the
amount covered by that contract and the value of the securities involved due to
the changes in the values of such securities resulting from market movements
between the date the forward contract is entered into and the date it matures.
In addition, while forward contracts may offer protection from losses resulting
from declines or appreciation in the value of a particular foreign currency,
they also limit potential gains which might result from changes in the value of
such currency. The Balanced Allocation Fund will also incur costs in connection
with forward foreign currency exchange contracts and conversions of foreign
currencies and U.S. dollars.
A separate account consisting of cash or liquid securities equal to the
amount of the Balanced Allocation Fund's assets that could be required to
consummate forward contracts will be established with the Trust's custodian
except to the extent the contracts are otherwise "covered." For the purpose of
determining the adequacy of the securities in the account, the deposited
securities will be valued at market or fair value. If the market or fair value
of such securities declines, additional cash or liquid securities will be placed
in the account daily so that the value of the account will equal the amount of
such commitments by the Balanced Allocation Fund. A forward contract to sell a
foreign currency is "covered" if the Balanced Allocation Fund owns the currency
(or securities denominated in the currency) underlying the contract, or holds a
forward contract (or call option) permitting the Balanced Allocation Fund to buy
the same currency at a price no higher than the Fund's price to sell the
currency. A forward contract to buy a foreign currency is "covered" if the
Balanced Allocation Fund holds a forward contract (or call option) permitting
the Balanced Allocation Fund to sell the same currency at a price as high as or
higher than the Balanced Allocation Fund's price to buy the currency.
CONVERTIBLE SECURITIES
- ----------------------
Convertible securities entitle the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the securities
mature or are redeemed, converted or exchanged. Prior to conversion, convertible
securities have characteristics similar to ordinary debt securities in that they
normally provide a stable stream of income with generally higher yields than
those of common stock of the same or similar issuers. Convertible securities
rank senior to common stock in a corporation's capital structure and therefore
generally entail less risk than the corporation's common stock. The value of the
convertibility feature depends in large measure upon the degree to which the
convertible security sells above its value as a fixed income security.
In selecting convertible securities for the Balanced Allocation and
Equity Growth Funds, the adviser will consider, among other factors, the
creditworthiness of the issuers of the securities; the interest or dividend
income generated by the securities; the potential for capital appreciation of
the securities and the underlying common stocks; the prices of the securities
relative to other comparable securities and to the underlying common stocks;
whether the securities are entitled to the benefits of sinking funds or other
protective conditions; diversification of the Balanced Allocation and Equity
Growth Funds' respective portfolios as to issuers; and the ratings of the
securities. Since credit rating agencies may fail to timely change the credit
ratings of securities to reflect subsequent events, the adviser will consider
whether such issuers will have sufficient cash flow and profits to meet required
principal and interest payments. The Balanced Allocation and
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<PAGE> 25
Equity Growth Funds may retain a portfolio security whose rating has been
changed if the adviser deems that retention of such security is warranted.
WARRANTS
- --------
Each Fund may invest in warrants. Warrants enable the owner to
subscribe to and purchase a specified number of shares of the issuing
corporation at a specified price during a specified period of time. The prices
of warrants do not necessarily correlate with the prices of the underlying
securities. The purchase of warrants involves the risk that the purchaser could
lose the purchase value of the warrant if the right to subscribe to additional
shares is not exercised prior to the warrant's expiration. Also, the purchase of
warrants involves the risk that the effective price paid for the warrant added
to the subscription price of the related security may exceed the value of the
subscribed security's market price such as when there is no movement in the
level of the underlying security.
FUTURES CONTRACTS AND RELATED OPTIONS
- -------------------------------------
The Balanced Allocation and Equity Growth Funds may invest in futures
contracts and related options. For a detailed description of these investments
and related risks, see Appendix B attached to this Statement of Additional
Information.
"COVERED CALL" OPTIONS
- ----------------------
The Balanced Allocation and Equity Growth Funds will write call options
only if they are "covered." The option is "covered" if a Fund owns the security
underlying the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or, if additional cash
consideration is required, liquid assets of equal value are held in a segregated
account by its custodian) upon conversion or exchange of other securities held
by it. For a call option on an index, the option is covered if the Fund
maintains with its custodian a portfolio of securities substantially replicating
the movement of the index, or liquid assets equal to the contract value. A call
option is also covered if the Fund holds a call on the same security or index as
the call written where the exercise price of the call held is (i) equal to or
less than the exercise price of the call written, or (ii) greater than the
exercise price of the call written provided the difference is maintained by the
Fund in liquid assets in a segregated account with its custodian.
A Fund's obligation to sell a security subject to a covered call option
written by it may be terminated prior to the expiration date of the option by
the Fund's execution of a closing purchase transaction, which is effected by
purchasing on an exchange an option of the same series (i.e., same underlying
security, exercise price and expiration date) as the option previously written.
Such a purchase does not result in the ownership of an option. A closing
purchase transaction will ordinarily be effected to realize a profit on an
outstanding option, to prevent an underlying security from being called, to
permit the sale of the underlying security or to permit the writing of a new
option containing different terms on such underlying security. The cost of such
a liquidation purchase plus transaction costs may be greater than the premium
received upon the original option, in which event the Fund will have incurred a
loss on the transaction. There is no assurance that a liquid secondary market
will exist for any particular option. An option writer, unable to effect a
closing purchase transaction, will not be able to sell the underlying security
until the option expires or the optioned security is delivered upon exercise
with the result that the writer in such
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<PAGE> 26
circumstances will be subject to the risk of market decline or appreciation in
the security during such period.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included in the liability
section of the Fund's statement of assets and liabilities as a deferred credit.
The amount of this deferred credit will be subsequently marked-to-market to
reflect the current value of the option written. The current value of the traded
option is the last sale price or, in the absence of a sale, the current bid
price. If an option written by a Fund expires on the stipulated expiration date
or if the Fund enters into a closing purchase transaction, it will realize a
gain (or loss if the cost of a closing purchase transaction exceeds the net
premium received when the option is sold) and the deferred credit related to
such option will be eliminated. If an option written by the Fund is exercised,
the proceeds of the sale will be increased by the net premium originally
received and the Fund will realize a gain or loss.
There are several risks associated with transactions in certain
options. For example, there are significant differences between the securities
and options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. In addition,
a liquid secondary market for particular options, whether traded
over-the-counter or on a securities exchange may be absent for reasons which
include the following: there may be insufficient trading interest in certain
options; restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; trading halts, suspensions or other restrictions
may be imposed with respect to particular classes or series of options or
underlying securities or currencies; unusual or unforeseen circumstances may
interrupt normal operations on an exchange; the facilities of an exchange or the
Options Clearing Corporation may not at all times be adequate to handle current
trading value; or one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
ASSET-BACKED SECURITIES
- -----------------------
The Balanced Allocation Fund may purchase asset-backed securities,
which are securities backed by mortgages, installment contracts, credit card
receivables or other assets. Asset-backed securities represent interests in
"pools" of assets in which payments of both interest and principal on the
securities are made periodically, thus in effect "passing through" periodic
payments made by the individual borrowers on the assets that underlie the
securities, net of any fees paid to the issuer or guarantor of the securities.
The average life of asset-backed securities varies with the maturities of the
underlying instruments, and the average life of a mortgage-backed instrument, in
particular, is likely to be substantially less than the original maturity of the
mortgage pools underlying the securities as a result of mortgage prepayments.
For this and other reasons, an asset-backed security's stated maturity may be
shortened, and the security's total return may be difficult to predict
precisely. Asset-backed securities acquired by the Balanced Allocation Fund may
include collateralized mortgage obligations ("CMOs") issued by private
companies.
The Balanced Allocation Fund may invest in securities the timely
payment of principal and interest on which are guaranteed by the Government
National Mortgage Association ("GNMA") a
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<PAGE> 27
wholly-owned U.S. Government corporation within the Department of Housing and
Urban Development. 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. 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. The scheduled monthly
interest and principal payments relating to mortgages in the pool are "passed
through" to investors. 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.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities guaranteed
by the GNMA include GNMA Mortgage Pass-Through Certificates (also known as
"Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-backed securities issued by the FNMA
include FNMA Guaranteed Mortgage Pass-Through Certificates (also known as
"Fannie Maes") which are solely the obligations of the FNMA and are not backed
by or entitled to the full faith and credit of the United States, but are
supported by the right of the issuer to borrow from the Treasury. FNMA is a
government-sponsored organization owned entirely by private stockholders. Fannie
Maes are guaranteed as to timely payment of the principal and interest by FNMA.
Mortgage-related securities issued by the FHLMC include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCs"). They are
solely the obligations of the FHLMC and guaranteed as to timely payment of the
principal and interest by FHLMC only.
Non-mortgage asset-backed securities involve certain risks that are not
presented by mortgage-backed securities. Primarily, these securities may not
have the benefit of the same security interest in the underlying collateral.
Credit card receivables are generally unsecured and the debtors are entitled to
the protection of a number of state and federal consumer credit laws, many of
which have given debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the balance due. Most issuers of automobile receivables
permit the servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the
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<PAGE> 28
holders of the automobile receivables may not have an effective security
interest in all of the obligations backing such receivables. Therefore, there is
a possibility that recoveries on repossessed collateral may not, in some cases,
be able to support payments on these securities.
INTEREST RATE AND TOTAL RETURN SWAPS
- ------------------------------------
The Balanced Allocation Fund may enter into interest rate or total
return swaps for hedging purposes and not for speculation. It will typically use
interest rate or total return swaps to preserve a return on a particular
investment or portion of its portfolio or to shorten the effective duration of
its investments. Swaps involve the exchange by the Balanced Allocation Fund with
another party of their respective commitments to pay or receive interest or the
total return of a predefined "index," such as an exchange of fixed rate payments
for floating rate payments or an exchange of a floating rate payment for the
total return on an index.
The Balanced Allocation Fund will only enter into swaps on a net basis,
(i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments). Inasmuch
as these transactions are entered into for good faith hedging purposes, the
Balanced Allocation Fund and its adviser believe that such obligations do not
constitute senior securities as defined in the 1940 Act and, accordingly, will
not treat them as being subject to the Fund's borrowing restrictions. The net
amount of the excess, if any, of the Balanced Allocation Fund's obligations over
its entitlements with respect to each swap will be accrued on a daily basis and
an amount of liquid assets, such as cash, U.S. government securities or other
liquid high grade debt securities, having an aggregate net asset value at least
equal to such accrued excess will be maintained in a segregated account by the
Balanced Allocation Fund's custodian.
If there is a default by the other party to a swap transaction, the
Balanced Allocation Fund will have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid in comparison with markets
for other similar instruments which are traded in the Interbank market.
INCOME PARTICIPATION LOANS
- --------------------------
The Balanced Allocation Fund may make or acquire participations in
privately negotiated loans to borrowers. Frequently, such loans have variable
interest rates and may be backed by a bank letter of credit; in other cases they
may be unsecured. Such transactions may provide an opportunity to achieve higher
yields than those that may be available from other securities offered and sold
to the general public.
Privately arranged loans, however, will generally not be rated by a
credit rating agency and will normally be liquid, if at all, only through a
provision requiring repayment following demand by the lender. Such loans made by
the Balanced Allocation Fund may have a demand provision permitting the Balanced
Allocation Fund to require repayment within seven days. Participations in such
loans, however, may not have such a demand provision and may not be otherwise
marketable. Recovery of an investment in any such loan that is illiquid and
payable on demand will depend on the ability of the borrower to meet an
obligation for full repayment of principal and payment of accrued interest
within the demand period, normally seven days or less (unless the Balanced
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<PAGE> 29
Allocation Fund determines that a particular loan issue, unlike most such loans,
has a readily available market). As it deems appropriate, the Board of Trustees
of the Trust will establish procedures to monitor the credit standing of each
such borrower, including its ability to honor contractual payment obligations.
SHORT-TERM OBLIGATIONS
- ----------------------
Each Fund may invest directly in various short-term obligations
including those described below.
Investments include commercial paper and other short-term promissory
notes issued by corporations (including variable and floating rate instruments).
In addition, each Fund may invest in Canadian Commercial Paper ("CCP"), which is
commercial paper issued by a Canadian corporation or a Canadian counterpart of a
U.S. corporation, and in Europaper, which is U.S. dollar denominated commercial
paper of a foreign issuer. Each Fund may also acquire zero coupon obligations,
which have greater price volatility than coupon obligations and which will not
result in the payment of interest until maturity.
Bank obligations include bankers' acceptances and negotiable
certificates of deposit, and non-negotiable demand and time deposits issued for
a definite period of time and earning a specified return by a U.S. bank which is
a member of the Federal Reserve System. Bank obligations also include U.S.
dollar denominated bankers' acceptances and certificates of deposit and time
deposits issued by foreign branches of U.S. banks or foreign banks. Investment
in bank obligations is limited to the obligations of financial institutions
having more than $1 billion in total assets at the time of purchase. Each Fund
may also make interest bearing savings deposits in commercial and savings banks
not in excess of 5% of its total assets. Investment in non-negotiable time
deposits is limited to no more than 5% of a Fund's total assets at the time of
purchase.
Each Fund may make limited investments in "GICs" issued by U.S.
insurance companies. When investing in GICs, a Fund makes cash contributions to
a deposit fund or an insurance company's general account. The insurance company
then credits to the Fund monthly a guaranteed minimum interest which is based on
an index. The insurance company may assess periodic charges against a GIC for
expense and service costs allocable to it, and the charges will be deducted from
the value of the deposit fund. A Fund will purchase a GIC only when its adviser
has determined, under guidelines established by the Board of Trustees, that the
GIC presents minimal credit risks to the Fund and is of comparable quality to
instruments that are rated high quality by one or more rating agencies. In
addition, because the Fund may not receive the principal amount of a GIC from
the insurance company on seven days' notice or less, the GIC is considered an
illiquid investment, and, together with other instruments in the Fund which are
not readily marketable, will not exceed 15% of the Fund's net assets.
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<PAGE> 30
WHEN-ISSUED SECURITIES
- ----------------------
Each Fund may purchase securities on a "when-issued" basis (i.e., for
delivery beyond the normal settlement date at a stated price and yield). When a
Fund agrees to purchase when-issued securities, the custodian sets aside cash or
liquid portfolio securities equal to the amount of the commitment in a separate
account. Normally, the custodian will set aside portfolio securities to satisfy
a purchase commitment, and in such a case a Fund may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitment,
marked to market daily. It is likely that a Fund's net assets will fluctuate to
a greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because a Fund will set aside cash or
liquid assets to satisfy its purchase commitments in the manner described, the
Fund's liquidity and ability to manage its portfolio might be affected in the
event its commitments to purchase when-issued securities ever exceeded 25% of
the value of its total assets.
When a Fund engages in when-issued transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in the
Fund's incurring a loss or missing an opportunity to obtain a price considered
to be advantageous.
REPURCHASE AGREEMENTS
- ---------------------
Securities held by the Funds may be subject to repurchase agreements.
Under the terms of a repurchase agreement, a Fund purchases securities from
financial institutions such as banks and broker-dealers which the adviser deems
creditworthy under guidelines approved by the Board of Trustees, subject to the
seller's agreement to repurchase such securities at a mutually agreed-upon date
and price. The repurchase price generally equals the price paid by the Fund plus
interest negotiated on the basis of current short term rates, which may be more
or less than the rate on the underlying portfolio securities. The seller under a
repurchase agreement will be required to maintain the value of collateral held
pursuant to the agreement at not less than the repurchase price (including
accrued interest). If the seller were to default on its repurchase obligation or
become insolvent, the Fund would suffer a loss to the extent that the proceeds
from a sale of the underlying portfolio securities were less than the repurchase
price under the agreement, or to the extent that the disposition of such
securities by the Fund were delayed pending court action. Although there is no
controlling legal precedent confirming that a Fund would be entitled, as against
a claim by such seller or its receiver or trustee in bankruptcy, to retain the
underlying securities, the Board of Trustees of the Trust believes that, under
the regular procedures normally in effect for custody of a Fund's securities
subject to repurchase agreements and under federal laws, a court of competent
jurisdiction would rule in favor of the Trust if presented with the question.
Securities subject to repurchase agreements will be held by the Trust's
custodian or another qualified custodian or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by the Fund
under the 1940 Act.
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<PAGE> 31
REVERSE REPURCHASE AGREEMENTS
- -----------------------------
Each Fund may borrow funds for temporary purposes by entering into
reverse repurchase agreements in accordance with its investment restrictions.
Pursuant to such agreements, a Fund would sell portfolio securities to financial
institutions such as banks and broker-dealers, and agree to repurchase them at a
mutually agreed-upon date and price. A Fund intends to enter into reverse
repurchase agreements only to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions. At the time a Fund enters
into a reverse repurchase agreement, it will place in a segregated custodial
account assets such as U.S. Government securities or other liquid, high grade
debt securities consistent with the Fund's investment restrictions having a
value equal to the repurchase price (including accrued interest), and will
subsequently monitor the account to ensure that such equivalent value is
maintained. Reverse repurchase agreements involve the risk that the market value
of the securities sold by the Fund may decline below the price at which it is
obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings by the Fund under the Investment Company Act of
1940.
U.S. GOVERNMENT OBLIGATIONS
- ---------------------------
As described in the Prospectus, each Fund may purchase obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Some of these obligations are supported by the full faith and credit of the U.S.
Treasury, such as obligations issued by the Government National Mortgage
Association. Others, such as those of the Export-Import Bank of the United
States, are supported by the right of the issuer to borrow from the U.S.
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; and still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the agency or
instrumentality issuing the obligation. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so by law.
VARIABLE AND FLOATING RATE OBLIGATIONS
- --------------------------------------
Each Fund may purchase variable and floating rate obligations
(including variable amount master demand notes) which are unsecured instruments
that permit the indebtedness thereunder to vary and provide for periodic
adjustments in the interest rate. Because variable and floating rate obligations
are direct lending arrangements between the Fund and the issuer, they are not
normally traded although certain variable and floating rate obligations, such as
Student Loan Marketing Association variable rate obligations, may have a more
active secondary market because they are issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. Even though there may be no
active secondary market in such instruments, a Fund may demand payment of
principal and accrued interest at a time specified in the instrument or may
resell them to a third party. Such obligations may be backed by bank letters of
credit or guarantees issued by banks, other financial institutions or the U.S.
government, its agencies or instrumentalities. The quality of any letter of
credit or guarantee will be rated high quality or, if unrated, will be
determined to be of comparable quality by the adviser. In the event an issuer of
a variable or floating rate obligation defaulted on its payment obligation, a
Fund might be unable to dispose of the instrument because of the absence of a
secondary market and could, for this or other reasons, suffer a loss to the
extent of the default.
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<PAGE> 32
SECURITIES OF OTHER INVESTMENT COMPANIES
- ----------------------------------------
Each Fund currently intends to limit its investments in securities
issued by other investment companies so that, as determined immediately after a
purchase of such securities is made: (i) not more than 5% of the value of the
Fund's total assets will be invested in the securities of any one investment
company; (ii) not more than 10% of the value of its total assets will be
invested in the aggregate in securities of investment companies as a group; and
(iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Fund or by the Trust as a whole.
LENDING OF PORTFOLIO SECURITIES
- -------------------------------
The Equity Growth and Balanced Allocation Funds may lend securities
pursuant to agreements requiring that the loans be continuously secured by cash,
securities of the U.S. government or its agencies, or any combination of cash
and such securities, as collateral equal to 100% 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 Fund exceed
one-third of the value of its total assets taken at fair market value. The
Equity Growth Fund will continue to receive interest on the securities lent
while simultaneously earning interest on the investment of the cash collateral
in U.S. government securities. However, the Fund will normally pay lending fees
to such broker-dealers and related expenses from the interest earned on invested
collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by the Adviser to be of good standing
and when, in the judgment of the adviser, the consideration which can be earned
currently from such securities loans justifies the attendant risk. Any loan may
be terminated by either party upon reasonable notice to the other party.
PORTFOLIO TURNOVER
- ------------------
Each Fund may engage in short term trading and may sell securities
which have been held for periods ranging from several months to less than a day.
Portfolio turnover will tend to rise during periods of economic turbulence and
decline during periods of stable growth. The Balanced Allocation Fund's annual
portfolio turnover is not expected to exceed 200% under normal market
conditions. The Equity Growth Fund's annual portfolio turnover is not expected
to exceed 100% under normal market conditions.
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of purchases or sales of portfolio securities for the year by the monthly
average value of the portfolio securities. The calculation excludes U.S.
Government securities and all securities whose maturities at the time of
acquisition were one year or less. Portfolio turnover may vary greatly from year
to year as well as within a particular year, and may also be affected by cash
requirements for redemptions of shares and by requirements which enable a Fund
to receive certain favorable tax treatment. Portfolio turnover will not be a
limiting factor in making investment decisions.
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<PAGE> 33
ADDITIONAL INVESTMENT LIMITATIONS
- ---------------------------------
In addition to the investment limitations disclosed in the Prospectus,
the Funds are subject to the following investment limitations which may be
changed with respect to a particular Fund only by a vote of the holders of a
majority of such Fund's outstanding shares (as defined under "Miscellaneous" in
the Prospectus).
No Fund may:
1. Purchase or sell real estate, except that the Fund may
purchase securities of issuers which deal in real estate and may purchase
securities which are secured by interests in real estate.
2. Invest in commodities, except that as consistent with its
investment objective and policies the Fund may: (a) purchase and sell options,
forward contracts, futures contracts, including without limitation those
relating to indices; (b) purchase and sell options on futures contracts or
indices; and (c) purchase publicly traded securities of companies engaging in
whole or in part in such activities. For purposes of this investment limitation,
"commodities" will include commodity contracts.
3. Act as an underwriter of securities within the meaning of
the Securities Act of 1933 except insofar as the Fund might be deemed to be an
underwriter upon the disposition of portfolio securities acquired within the
limitation on purchases of illiquid securities and except to the extent that the
purchase of obligations directly from the issuer thereof in accordance with its
investment objective, policies and limitations may be deemed to be underwriting.
In addition, the Funds are subject to the following non-fundamental
limitations, which may be changed without the vote of shareholders.
No Fund may:
1. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted under the 1940 Act.
2. Write or sell put options, call options, straddles,
spreads, or any combination thereof, except as consistent with the Fund's
investment objective and policies for transactions in options on securities or
indices of securities, futures contracts and options on futures contracts and in
similar investments.
3. Purchase securities on margin, make short sales of
securities or maintain a short position, except that, as consistent with a
Fund's investment objective and policies, (a) this investment limitation shall
not apply to the Fund's transactions in futures contracts and related options,
options on securities or indices of securities and similar instruments, and (b)
the Fund may obtain short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities.
4. Purchase securities of companies for the purpose of
exercising control.
-12-
<PAGE> 34
5. Invest more than 15% of its net assets in illiquid
securities.
6. Purchase securities while its outstanding borrowings
(including reverse repurchase agreements) are in excess of 5% of its assets.
Securities held in escrow or in separate accounts in connection with a Fund's
investment practices described in its Prospectus are not deemed to be pledged
for purposes of this limitation.
NET ASSET VALUE
As indicated in the Prospectus, the net asset value of each Fund is
determined and the shares of each Fund are priced as of the Valuation Times
defined in the Prospectus on each Business Day of the Trust. A "Business Day" is
a day on which the New York Stock Exchange (the "NYSE") is open for trading.
Currently, the NYSE will not be open in observance of the following holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
VALUATION OF THE FUNDS
- ----------------------
Portfolio securities, the principal market for which is a securities
exchange, will be valued at the closing sales price on that exchange on the day
of computation or, if there have been no sales during such day, at the latest
bid quotation. Portfolio securities, the principal market for which is not a
securities exchange, will be valued at their latest bid quotation in such
principal market. In either case, if no such bid price is available then such
securities will be valued in good faith at their respective fair market values
using methods by or under the supervision of the Board of Trustees of the Trust.
Portfolio securities with a remaining maturity of 60 days or less will be valued
either at amortized cost or original cost plus accrued interest, which
approximates current value.
All other assets and securities, including securities for which market
quotations are not readily available, will be valued at their fair value as
determined in good faith under the general supervision of the Board of Trustees
of the Trust.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by the Trust's
distributor SEI Investments Distribution Co. (the "Distributor"). As described
in the Prospectus, shares of the Funds are sold and redeemed at their net asset
value as next determined after receipt of the purchase or redemption order. Each
purchase is confirmed to a separate account in a written statement of the number
of shares purchased and the aggregate number of shares currently held.
-13-
<PAGE> 35
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
Overall responsibility for management of the Trust rests with its Board
of Trustees, who are elected by the shareholders of the Trust's Funds. The
Trustees elect the officers of the Trust to supervise actively its day-to-day
operations. One officer of the Trust, Herbert R. Martens, Jr., also serves as a
Trustee.
The Trust will be managed by the Trustees in accordance with the laws
of the Commonwealth of Massachusetts governing business trusts. There are
currently eight Trustees, six of whom are not "interested persons" of the Trust
within the meaning of that term under the 1940 Act. The Trustees of the Trust
receive quarterly fees and fees and expenses for each meeting of the Board of
Trustees attended. However, no officer or employee of the Distributor, the
Adviser or National City Corporation ("NCC") receives any compensation from the
Trust for acting as a Trustee of the Trust. The officers of the Trust receive no
compensation directly from the Trust for performing the duties of their offices.
SEI receives fees from the Trust for acting as Administrator. State Street Bank
and Trust Co. receives fees from the Trust for acting as Transfer Agent.
-14-
<PAGE> 36
The Trustees and Officers of the Trust, their addresses and their
principal occupations during the past 5 years are as follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE TRUST PRINCIPAL OCCUPATION
DURING PAST 5 YEARS
AND OTHER AFFILIATIONS
<S> <C> <C>
Robert D. Neary Chairman of the Board and Trustee Retired Co-Chairman of Ernst &
32980 Creekside Drive Young, April 1984 to September 1993;
Pepper Pike, OH 44124 Director, Cold Metal Products, Inc.,
Age 65 since March 1994; Director,
Strategic Distribution, Inc., since
January 1999.
Herbert R. Martens, Jr. * President and Trustee Executive Vice President, National
c/o NatCity Investments, Inc. City Corporation (bank holding
1965 East Sixth Street company), since July 1997; Chairman,
Cleveland, OH 44114 President and Chief Executive
Age 46 Officer, NatCity Investments, Inc.,
since July 1995 (investment
banking); President and Chief
Executive Officer, Raffensberger,
Hughes & Co. from 1993 until 1995
(broker-dealer).
Leigh Carter * Trustee Retired President and Chief
13901 Shaker Blvd., #6B Operating Officer, B.F. Goodrich
Cleveland, OH 44120 Company, August 1986 to September
Age 73 1990; Director, Adams Express
Company (closed-end investment
company), April 1982 to December
1997; Director, Acromed Corporation
(producer of spinal implants),
June 1992 to March 1998; Director,
Petroleum & Resources Corp.,
April 1987 to December 1997;
Director, Morrison Products
(manufacturer of blower fans and
air moving equipment), since April
1983; Director, Kirtland Capital
Corp. (privately funded investment
group), since January 1992; Director,
TruSeal Technologies (manufacturer of
insulated glass sealants), since April 1997.
</TABLE>
-15-
<PAGE> 37
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE TRUST PRINCIPAL OCCUPATION
DURING PAST 5 YEARS
AND OTHER AFFILIATIONS
<S> <C> <C>
John F. Durkott Trustee President and Chief Operating
8600 Allisonville Road Officer, Kittle's Home Furnishings
Indianapolis, IN 46250 Center, Inc. since January 1982;
Age 54 partner, Kittle's Bloomington
Properties LLC, since January 1981;
partner, KK&D LLC, since January
1989; partner KK&D II LLC, since
February 1998 (affiliated real
estate companies of Kittle's Home
Furnishings Center, Inc.).
Robert J. Farling Trustee Retired Chairman, President and
1608 Balmoral Way Chief Executive Officer, Centerior
Westlake, OH 44145 Energy (electric utility), March
Age 61 1992 to October 1997; Director,
National City Bank until October
1997; Director, Republic Engineered
Steels, October 1997 to September
1998.
Richard W. Furst Trustee Professor of Finance and Dean, Carol
600 Autumn Lane Martin Gatton College of Business
Lexington, KY 40502 and Economics, University of
Age 60 Kentucky, since 1981; Director, The
Seed Corporation (restaurant group),
since 1990; Director, Foam Design,
Inc., (manufacturer of industrial
and commercial foam products), since
1993.
Gerald L. Gherlein Trustee Executive Vice President and General
3679 Greenwood Drive Counsel, Eaton Corporation, since
Pepper Pike, OH 44124 1991 (global manufacturing);
Age 61 Trustee, WVIZ Educational Television
(public television).
J. William Pullen Trustee President and Chief Executive
Whayne Supply Company Officer, Whayne Supply Co. (engine
1400 Cecil Avenue and heavy equipment distribution),
P.O. Box 35900 since 1986; President and Chief
Louisville, KY 40232-5900 Executive Officer, American
Age 60 Contractors Rentals & Sales (rental
subsidiary of Whayne Supply Co.),
since 1988.
</TABLE>
-16-
<PAGE> 38
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE TRUST PRINCIPAL OCCUPATION
DURING PAST 5 YEARS
AND OTHER AFFILIATIONS
<S> <C> <C>
W. Bruce McConnel, III Secretary Partner of the law firm Drinker,
1345 Chestnut Street Biddle & Reath LLP Philadelphia,
Philadelphia, PA 19107-3496 Pennsylvania.
Age 56
John Leven Treasurer
One Freedom Valley Drive
Oaks, PA 19456
Age _____
Lynda Striegel Assistant Treasurer Vice President and Assistant
One Freedom Valley Drive Secretary of SEI Investments Mutual
Oaks, PA 19456 Fund Services and SEI Investments
Age 56 Distribution Co. since 1998; Senior
Asset Management Counsel, Barnett
Banks, Inc. from 1997 to 1998; Partner,
Groom and Nordberg, Chartered from 1996
to 1997; Associate General Counsel, Riggs
Bank, N.A. from 1991 to 1995.
</TABLE>
*Mr. Carter and Mr. Martens are each an "interested person" of the
Trust, as defined in the 1940 Act.
Mr. Martens is an "interested person" because (1) he is an Executive
Vice President of National City Corporation, (2) he owns shares of common stock
and options to purchase common stock of National City Corporation, and (3) he is
the Chief Executive Officer of NatCity Investments, Inc., a broker-dealer
affiliated with National City Investment Management Company.
Mr. Carter is an "interested person" of the Trust, as defined in the
1940 Act, due to his ownership of 7,200 shares of stock of National City
Corporation, an affiliate of National City Investment Management Company, the
Fund's investment adviser.
The Trust paid an aggregate of $16,500 in Trustees' fees and expenses
for the fiscal year ended December 31, 1998 to all Trustees of the Trust who
served during that year.
All of the Trustees also serve as Trustees of The Parkstone Group of
Funds and Armada Funds, open-end investment companies managed by the Trust's
Investment Adviser. The following table depicts, for the fiscal year ended
December 31, 1998, the compensation received by each of the Trustees from the
Trust and in total from all investment companies managed by the Investment
Adviser to the Trust.
-17-
<PAGE> 39
COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME OF TRUSTEE AGGREGATE PENSION OR ESTIMATED ANNUAL TOTAL COMPENSATION FROM THE
COMPENSATION FROM RETIREMENT BENEFITS BENEFITS UPON TRUST, THE PARKSTONE GROUP OF
THE FUNDS* ACCRUED AS PART OF RETIREMENT FUNDS AND ARMADA FUNDS PAID TO
FUND EXPENSES TRUSTEES**
<S> <C> <C> <C> <C>
Robert D. Neary 0 0 0 27,000
Leigh Carter 0 0 0 23,250
John F. Durkott 0 0 0 23,250
Robert J. Farling 0 0 0 23,250
Richard W. Furst 0 0 0 23,250
Gerald L. Gherlein 0 0 0 23,250
Herbert R. Martens, Jr 0 0 0 0
J. William Pullen 0 0 0 23,250
John B. Rapp*** 0 0 0 11,500
Robert M. Beam*** 0 0 0 16,500
Lawrence D. Bryan*** 0 0 0 16,500
Adrian Charles Edwards*** 0 0 0 16,500
James R. Schmank*** 0 0 0 0
Brenda M. Harwood*** 0 0 0 0
</TABLE>
Each Trustee who is not an affiliated person of SEI or National City
Corporation, the ultimate parent of National City Investment Management Company,
receives an annual fee of $15,000 plus $3,000 for each Board meeting attended
and reimbursement of expenses incurred in attending meetings for services as a
Trustee to the Fund Complex. The Chairman of the Board is entitled to receive an
additional $5,000 per annum for services in such capacity. Mr. Martens is an
employee of National City Corporation. He receives no compensation from the
Trust for acting as Trustee.
*The Balanced Allocation and Equity Growth Funds, did not operate during 1998.
**Represents total compensation for the period January 1, 1998 through December
31, 1998.
*** Messrs. Rapp, Beam, Bryan, Edwards and Jones served as Trustees until their
resignations on August 14, 1998.
INVESTMENT ADVISER
Subject to the general supervision of the Trust's Board of Trustees and
in accordance with the Funds' investment objectives and restrictions, investment
advisory services are provided to the Funds of the Trust by National City
Investment Management Company ("IMC" or the "Investment Adviser"), 1900 East
Ninth Street, Cleveland, Ohio 44114, pursuant to an Investment Advisory
Agreement dated as of September 1, 1999 (the "Investment Advisory Agreement").
The Investment Adviser is a registered investment adviser and an
indirect wholly-owned subsidiary of National City Corporation ("NCC"), a
publicly-held bank holding company.
-18-
<PAGE> 40
Under the Investment Advisory Agreement, the Investment Adviser has
agreed to provide, either directly or through one or more subadvisers,
investment advisory services for each of the Trust's Funds as described in the
Prospectus. For the services provided and the expenses assumed pursuant to the
Investment Advisory Agreement, each of the Trust's Funds pays the Investment
Adviser a fee, computed daily and paid monthly, at an annual rate calculated as
a percentage of the average daily net assets of that Fund. The annual rates for
the Funds are as follows: .75% for the Balanced Allocation Fund and .75% for the
Equity Growth Fund. The Investment Adviser may periodically voluntarily reduce
all or a portion of its advisory fee with respect to any Fund to increase the
net income of one or more of the Funds available for distribution as dividends.
The Adviser intends to waive a portion of the advisory fees during the first
nine months of operation of both Funds.
Pursuant to the Investment Advisory Agreement, the Investment Adviser
will pay all expenses, including as applicable, the compensation of any
subadvisers directly appointed by it, incurred by it in connection with its
activities under the Investment Advisory Agreement other than the cost of
securities (including brokerage commissions) if any, purchased for the Trust.
Unless sooner terminated, the Investment Advisory Agreement continues
in effect as to a particular Fund for successive one-year periods ending
December 31 of each year if such continuance is approved at least annually (i)
by the Trust's Board of Trustees or by vote of a majority of the outstanding
voting securities of such Fund and (ii) by vote of a majority of the Trustees
who are not parties to the Investment Advisory Agreement, or interested persons
(as defined in the 1940 Act) of any such party, cast in person at a meeting
called for such purpose. The Investment Advisory Agreement is terminable as to a
particular Fund at any time on 60 days' prior written notice without penalty by
the Trustees, by vote of a majority of outstanding shares of that Fund, by the
Investment Adviser. The Agreement also terminates automatically in the event of
any assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that the Investment Adviser
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 performance of its duties, except a
loss suffered by a Fund resulting from a breach of fiduciary duty with respect
to its receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment Adviser
in the performance of its duties, or from reckless disregard of its duties and
obligations thereunder.
PORTFOLIO TRANSACTIONS
With respect to all Funds of the Trust pursuant to the Investment
Advisory Agreements, the Investment Adviser determines, subject to the general
supervision of the Trustees of the Trust and in accordance with each Fund's
objective and restrictions, which securities are to be purchased and sold by a
Fund and which brokers are to be eligible to execute such Fund's portfolio
transactions.
Purchases and sales of portfolio securities which are debt securities
usually are principal transactions in which portfolio securities are normally
purchased directly from the issuer or from an underwriter or market maker for
the securities. Purchases from underwriters of portfolio securities generally
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers, serving as market makers may include the spread between
the bid
-19-
<PAGE> 41
and asked prices. Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. Transactions in the over-the-counter market
are generally principal transactions with dealers. With respect to the
over-the-counter market, the Trust, where possible will deal directly with the
dealers who make a market in the securities involved except under those
circumstances where better price and execution are available elsewhere.
Allocation of transactions, including their frequency, to various
brokers and dealers is determined by the Investment Adviser in its best judgment
and in the manner deemed fair and reasonable to shareholders. The primary
consideration is prompt execution of orders in an effective manner at the most
favorable price. Subject to this consideration, brokers and dealers who provide
supplemental investment research to the Investment Adviser may receive orders
for transactions on behalf of the Trust. Information so received is in addition
to and not in lieu of services required to be performed by the Investment
Adviser and does not reduce the fees payable to such adviser by the Trust . Such
information may be useful to the Investment Adviser in serving both the Trust
and other clients and, conversely supplemental information obtained by the
placement of business of other clients may be useful to the Adviser in carrying
out its obligations to the Trust.
While the Investment Adviser generally seeks competitive commissions,
the Trust may not necessarily pay the lowest commission available on each
brokerage transaction for the reasons discussed above. See "INVESTMENT
OBJECTIVES AND POLICIES - Portfolio Transactions" above.
The Trust will not acquire portfolio securities issued by, make savings
deposits in, or enter into repurchase or reverse repurchase agreements with NCC,
the Distributor, or their affiliates, and will not give preference to NCC's
correspondents with respect to such transactions, securities, savings deposits,
repurchase agreements and reverse repurchase agreements.
Investment decisions for each Fund of the Trust are made independently
from those made for the other Funds or any other portfolio investment company or
account managed by the Investment Adviser. Any such other portfolio, investment
company or account may also invest in the same securities as the Trust. When a
purchase or sale of the same security is made at substantially the same time on
behalf of a Fund and another Fund, portfolio, investment company or account, the
transaction will be averaged as to price and available investments will be
allocated as to amount in a manner which the Investment Adviser believes to be
equitable to the Fund(s) and such other portfolio, investment company, or
account. In some instances, this investment procedure may adversely affect the
price paid or received by a Fund or the size of the position obtained by the
Fund. To the extent permitted by law, the Investment Adviser may aggregate the
securities to be sold or purchased for a Fund with those to be sold or purchased
for other Funds or for other portfolios, investment companies, or accounts in
order to obtain best execution. As provided by the Investment Advisory Agreement
in making investment recommendations for the Trust, the Investment Adviser will
not inquire or take into consideration whether an issuer of securities proposed
for purchase or sale by the Trust is a customer of the Investment Adviser, its
parent or affiliates, and, in dealing with its customers, the Investment
Adviser, its parent and affiliates will not inquire or take into consideration
whether securities of such customers are held by the Trust.
-20-
<PAGE> 42
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibits banks
generally from issuing, underwriting, selling, or distributing securities such
as shares of the Funds, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The investment adviser and
custodians are subject to such banking laws and regulations. Should legislative,
judicial, or administrative action prohibit or restrict the activities of such
companies in connection with their services to the Funds, the Trust might be
required to alter materially or discontinue its arrangements with such companies
and change its method of operation. It is anticipated, however, that any
resulting change in the Trust's method of operation would not affect a Fund's
net asset value per share or result in financial losses to any shareholder.
State securities laws on this issue may differ from federal law and banks and
financial institutions may be required to register as dealers pursuant to state
law.
GLASS-STEAGALL ACT
In 1971, the United States Supreme Court held in Investment Company
Institute v. Camp, that the federal statute commonly referred to as the
"Glass-Steagall Act" prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System ("the Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing or controlling a registered open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer agent
and custodian to such an investment company.
In 1981, the United States Supreme Court held in Board of Governors of
the Federal Reserve System v. Investment Company Institute, that the Board did
not exceed its authority under the Holding Company Act when it adopted its
regulation and interpretation authorizing bank holding companies and their
non-bank affiliates to act as investment advisers to registered closed-end
investment companies. In the Board of Governors case, the Supreme Court also
stated that if a national bank complied with the restrictions imposed by the
Board in its regulation and interpretation authorizing bank holding companies
and their non-bank affiliates to act as investment advisers to investment
companies, a national bank performing investment advisory services for an
investment company would not violate the Glass-Steagall Act. The Office of the
Comptroller of the Currency, which has jurisdiction over national banks and
their subsidiaries, has specifically permitted national banks and their
subsidiaries to act as investment advisers to investment companies.
The Investment Adviser believes that it possesses the legal authority
to perform the services contemplated by the Prospectus, this Statement of
Additional Information and the Investment Advisory Agreement without violation
of applicable statutes and regulations. Future
-21-
<PAGE> 43
changes in either federal or state statutes and regulations relating to the
permissible activities of banks or bank holding companies and the subsidiaries
or affiliates of those entities, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent or restrict the Investment Adviser from continuing to perform such
services for the Trust. Depending on the nature of any changes in the services
which could be provided by the Investment Adviser, the Board of Trustees would
review the Trust's relationship with the Investment Adviser and consider taking
all action necessary under the circumstances.
Should future legislative, judicial or administrative action prohibit
or restrict the proposed activities of the Investment Adviser and/or NCC's
affiliated and correspondent banks in connection with customer purchases of
shares of the Trust, those banks might be required to alter materially or
discontinue the services offered by them to customers. It is not anticipated,
however, that any change in the Trust's method of operations would affect its
net asset value per share or result in financial losses to any shareholder.
ADMINISTRATOR
The Trust and SEI Fund Resources (the "Administrator") have entered
into an administration agreement (the "Administration Agreement") as of July 2,
1999.
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 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 Administrator, a Delaware business trust, has its principal
business offices at One Freedom Valley Drive, Oaks, Pennsylvania 19456. SEI
Investments Management Corporation ("SIMC"), a wholly-owned subsidiary of SEI
Investments Company ("SEI Investments"), is the owner of all beneficial
interests in the Administrator. SEI Investments and its affiliates, including
the Administrator, are leading providers of funds evaluation services, trust
accounting systems, and brokerage and information services to financial
institutions, institutional investors, and money managers. The Administrator and
its affiliates also serve as administrator or sub-administrator to the following
other mutual funds: The Achievement Funds Trust, The Advisors' Inner Circle
Fund, The Arbor Fund, ARK Funds, Bishop Street Funds, Boy 1784 Funds(R), CUFUND,
The Expedition Funds, FMB Funds, Inc., First American Funds, Inc., First
American Investment Funds, Inc., First American Strategy Funds, Inc., HighMark
Funds, Marquis Funds(R), Monitor Funds, Morgan Grenfell Investment Trust, Oak
Associates Funds, The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., The
Pillar Funds, Santa Barbara Group of Mutual Funds, Inc., 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, STI Classic Funds, STI Classic Variable
Trust, TIP Funds and TIP Institutional Funds.
The Administrator is entitled to receive with respect to the Funds, an
administrative fee of .20% of the Portfolio's average daily net assets, which is
calculated daily and paid monthly, prior to January 1, 2000; thereafter the
Trust shall pay the Administrator the greater of an annual rate of
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<PAGE> 44
.20% of the Portfolio's average daily net assets, calculated daily and paid
monthly, or $135,000 on aggregate net assets in the Trust.
DISTRIBUTOR
SEI Investments Distribution Co. serves as distributor (the
"Distributor") to the Trust pursuant to a Distribution Agreement dated as of
July 2, 1999 (the "Distribution Agreement"). Unless otherwise terminated the
Distribution Agreement between the Trust and the Distributor shall continue in
force until May 1, 2001 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 the Distribution 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. The Distribution Agreement shall automatically terminate in the event
of its assignment. In addition, the Distribution Agreement may at any time be
terminated by the Distributor, 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.
CUSTODIANS, TRANSFER AGENT AND FUND ACCOUNTING SERVICES
National City Bank, 1900 East Ninth Street, Cleveland, Ohio 44114, an
affiliate of IMC, serves as Custodian to the Trust pursuant to the Custodian
Services Agreement dated as of July 24, 1998 (the "Custody Agreement"). The
Custodian's responsibilities include safeguarding and controlling the Funds'
cash and securities, handling the receipt and delivery of securities, and
collecting interest and dividends on the Funds' investments. National City Bank
is paid an annual custody fee of .02% of each Fund's first $100 million of
average daily net assets, .01% of each Fund's next $650 million of average daily
net assets and .008% of the average daily net assets of each Fund which exceed
$750 million, exclusive of out-of-pocket expenses and transaction charges.
Custody fees shall be calculated daily and paid monthly.
State Street Bank and Trust Company serves as transfer agent (the
"Transfer Agent") pursuant to a Transfer Agency and Service Agreement dated July
2, 1999 (the "Transfer Agency Agreement"). The Transfer Agent will, among other
things: receive for acceptance orders for the purchase of shares; pursuant to
orders, issue the appropriate number of shares; receive for acceptance
redemption requests and directions; execute transactions; pay over monies
received from Custodian to redeeming Shareholders; effect transfers of shares;
prepare and transmit payments for dividends and distributions; issue replacement
certificates; maintain records of account; and record the issuance of shares.
INDEPENDENT AUDITORS
Ernst & Young, LLP acts as independent auditor for the Trust and are
located at 10 West Broad Street, Columbus, Ohio 43215. The Funds are new and do
not have Financial Statements.
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ADDITIONAL INFORMATION
DESCRIPTION OF SHARES
The Parkstone Advantage Fund is a Massachusetts business trust. The
Trust was organized on May 18, 1993 and the Trust's Declaration of Trust was
filed with the Secretary of State of the Commonwealth of Massachusetts on May
19, 1993. The Declaration of Trust authorizes through the Board of Trustees to
issue an unlimited number of shares and to classify or re-classify any unissued
shares into one or more additional classes by setting or changing in one or more
respects their respective preferences, conversion or other rights, voting
powers, restrictions, limitations, as to dividends, qualifications and terms and
conditions of redemption. Pursuant to such authority, the Board of Trustees has
authorized the issuance of six series of shares, each representing interest in
one of six separate portfolios: the Parkstone Advantage Small Capitalization
Fund, Parkstone Advantage Mid Capitalization Fund, Parkstone Advantage Bond
Fund, Parkstone Advantage International Discovery Fund, Armada Advantage
Balanced Allocation Fund and Armada Advantage Equity Growth Fund.
The Trust's shares have no pre-emptive 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, the Trust's shares will be
fully paid and non-assessable. In the event of the liquidation or dissolution of
the Trust or an individual Fund, shareholders of a Fund are entitled to receive
the assets available for distribution belonging to the particular Fund, at a
proportionate distribution based on the relative asset values of the respective
Funds, of any general assets of the Trust not belonging to any particular Fund
which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the shareholders of the outstanding voting securities in an
investment company such as the Trust shall not be deemed to have been
effectively acted upon unless approved by holders of a majority of the
outstanding shares of each Fund affected by the matter. A particular Fund is
deemed to be affected by a matter unless it is clear that the interest of each
Fund in the matter is substantially identical or that the matter does not affect
any interest of the Fund. Under the Rule, the approval of an Investment Advisory
Agreement or any change in fundamental investment policy would be effectively
acted upon with respect to a Fund only if approved by a majority of the
outstanding shares of such Fund. However, the Rule also provides that the
ratification of the appointment of independent public accountants, the approval
of principal underwriting contracts, and the election of Trustees may be
effectively acted upon by shareholders of the Trust voting without regard to
series.
Shareholders are entitled to one vote for each dollar of net asset
value invested and a proportionate fractional vote for any fraction of one
dollar of net asset value invested, and will vote in the aggregate, and not by
class except as otherwise required by the 1940 Act or other applicable law, or
when the matter to be voted upon affects only interests of the shareholders of a
particular class. Voting rights are not cumulative, and, accordingly, the
holders of more than 50% of the Trust's outstanding shares may elect all of the
Trustees, irrespective of the votes of other shareholders.
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<PAGE> 46
The Trust does not intend to hold annual shareholder meetings except as
may be required by the 1940 Act. The Trust's Agreement and Declaration of Trust
provides that a meeting of shareholders shall be called by the Board of Trustees
upon written request of shareholders owning at least 10% of the outstanding
shares of the Trust entitled to vote.
The Trust's Agreement and Declaration of Trust authorizes the Board of
Trustees, without shareholder approval (unless otherwise required by applicable
law) to (a) sell and convey the assets of a class of shares to another
management investment company for consideration which may include securities
issued by the purchaser and, in connection therewith, to cause all outstanding
shares of such class to be redeemed at a price which is equal to their net asset
value and which may be cash or by distribution of the securities or other
consideration received from the sale and conveyance; (b) sell and convert the
assets belonging to a class of shares into money and, in connection therewith,
to cause all outstanding shares of such class to be redeemed at their net asset
value; or (c) combine the assets belonging to a class of shares with the assets
belonging to one or more other classes of shares of the Trust if the Board of
Trustees reasonably determines that such combination will not have a material
adverse effect on the shareholders of any class participating in such
combination and, in connection therewith, to cause all outstanding shares of any
class to be redeemed at their net asset value or converted into shares of
another class of the Trust's shares at their net asset value. However, the
exercise of such authority by the Board of Trustees may be subject to certain
restrictions under the 1940 Act. The Board of Trustees may authorize the
termination of any class of shares after the assets belonging to such class have
been distributed to its shareholders.
VOTE OF A MAJORITY OF THE OUTSTANDING SHARES
As used in the Funds' Prospectus and the Statement of Additional
Information, "vote of a majority of the outstanding shares" of the Trust or the
Fund means the affirmative vote, at an annual or special meeting of shareholders
duly called, of the lesser of: (a) 67% or more of the votes of shareholders of
the Trust or the Fund, present at such meeting at which the holders of more than
50% of the votes attributable to the shareholders of record of the Trust or the
Fund are represented in person or by proxy, or (b) the holders of more than
fifty percent (50%) of the outstanding votes of shareholders of the Trust or the
Fund.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, holders of units of interest in a business
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the Trust. However, the Trust's Declaration of Trust
provides that the shareholders shall not be subject to any personal liability or
the obligations of the Trust, and that every written agreement, obligation,
instrument or undertaking made by the Trust shall contain a provision to the
effect that the shareholders are not personally liable thereunder. The
Declaration of Trust provides for indemnification out of the Trust property of
any shareholder held personally liable solely by reason of his being or having
been a shareholder. The Declaration of Trust also provides that the Trust shall,
upon request, assume the defense of any claim made against any shareholder for
any act or obligations of the Trust, and shall satisfy any judgment thereon.
Thus, the risk of the shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself
would be unable to meet its obligations.
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The Declaration of Trust states further that no Trustee, officer or
agent of the Trust shall be personally liable in connection with the
administration or preservation of the assets of the Trust or the conduct of the
Trust's business; nor shall any Trustee, officer or agent be personally liable
to any person for any action or failure to act except for bad faith, willful
misfeasance, gross negligence, or reckless disregard of his duties. The
Declaration of Trust also provides that all persons having any claim against the
Trustees or the Trust shall look solely to the assets of the Trust for payment.
ADDITIONAL TAX INFORMATION
Each Fund intends to qualify as a "regulated investment company" (a
"RIC" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification generally will relieve the Funds of liability for federal income
taxes to the extent their earnings are distributed in accordance with the Code.
However, taxes may be imposed on the Funds by foreign countries with respect to
income received on foreign securities. Depending on the extent of each Fund's
activities in states and localities in which its offices are maintained, in
which its agents or independent contractors are located, or in which it is
otherwise deemed to be conducting business, each Fund may be subject to the tax
laws of such states or localities. In addition, if for any taxable year the Fund
does not qualify for the special tax treatment afforded regulated investment
companies, all of its taxable income will be subject to a federal tax at regular
corporate rates (without any deduction for distributions to its shareholders).
In such event, dividend distributions would be taxable to shareholders to the
extent of earnings and profits, and would be eligible for the dividends-received
deduction for corporations.
To qualify as a RIC, a Fund must comply with certain distribution,
diversification, source of income and other applicable requirements. If for any
taxable year a Fund does not qualify for the special federal tax treatment
afforded RICs, all of the Fund's taxable income would be subject to tax at
regular corporate rates without any deduction for distributions to shareholders.
In such event, a Fund's distributions to segregated asset accounts holding
shares of the Fund would be taxable as ordinary income of the extent to the
Fund's current and accumulated earnings and profits. A failure of a Fund to
qualify as a RIC also could result in the loss of the tax-favored status of
variable annuity contracts based on a segregated asset account which invests in
the Fund.
Under Code Section 817(h), a segregated asset account upon which a
variable annuity contract or variable life insurance policy is based must be
"adequately diversified." A segregated asset account will be adequately
diversified if it complies with certain diversification tests set forth in
Treasury regulations. If a RIC satisfies certain conditions relating to the
ownership of its shares, a segregated asset account investing in such investment
company will be entitled to treat its pro rata portion of each asset of the
investment company as an asset for purposes of these diversification tests. The
Funds intend to meet these ownership conditions and to comply with the
diversification tests noted above. Accordingly, a segregated asset account
investing solely in shares of a Fund will be adequately diversified. However,
the failure of a Fund to meet such conditions and to comply with such tests
could cause the owners of variable annuity contracts and variable life insurance
policies based on such account to recognize ordinary income each year in the
amount of any net appreciation of such contract or policy during the year.
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<PAGE> 48
Provided that a Fund and a segregated asset account investing in the
Fund satisfy the above requirements, any distributions from the Fund to such
account will be exempt from current federal income taxation to the extent that
such distributions accumulate in a variable annuity contract or variable life
insurance policy.
Persons investing in a variable annuity contract or variable life
insurance policy offered by a segregated asset account investing in a Fund
should refer to the Prospectus with respect to such contract or policy for
further tax information.
Information set forth in the Prospectus and this Statement of
Additional Information which relates to federal taxation is only a summary of
some of the important federal tax considerations generally affecting purchasers
of shares of the Funds. No attempt has been made to present a detailed
explanation of the federal income tax treatment of a Fund or its shareholders
and this description is not intended as a substitute for federal tax planning.
Accordingly, potential purchasers of shares of a Fund are urged to consult their
tax advisers with specific reference to their own tax situation. In addition,
the tax discussion in the Prospectus and this Statement of Additional
Information is based on tax laws and regulations which are in effect on the date
of the Prospectus and this Statement of Additional Information; such laws and
regulations may be changed by legislative or administrative action.
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing their
average annual total return, aggregate total return and/or yield may be
presented in advertisements, sales literature and shareholder reports. Such
performance figures are based on historical earnings and are not intended to
indicate future performance. Average annual total return of a Fund will be
calculated for the period since the establishment of the Fund and will reflect
the imposition of the maximum sales charge, if any. Average annual total return
is measured by comparing the value of an investment in a Fund at the beginning
of the relevant period to the redemption value of the investment at the end of
the period (assuming immediate reinvestment of any dividends or capital gains
distributions) and annualizing the result. Aggregate total return is calculated
similarly to average annual total return except that the return figure is
aggregated over the relevant period instead of annualized. Yield of a Fund will
be computed by dividing a Fund's net investment income per share earned during a
recent one-month period by that Fund's per share maximum offering price (reduced
by any undeclared earned income expected to be paid shortly as a dividend) on
the last day of the period and annualizing the result. Each Fund may also
present its average annual total return, aggregate total return and yield, as
the case may be, excluding the effect of a sales charge, if any.
In addition, from time to time, the Funds may present their respective
distribution rates in shareholder reports and in supplemental sales literature
which is accompanied or preceded by a Prospectus and in shareholder reports.
Distribution rates will be computed by dividing the distribution per share over
a twelve-month period by the maximum offering price per share. The calculation
of income in the distribution rate includes both income and capital gains
dividends and does not reflect unrealized gains or losses, although a Fund may
also present a distribution rate excluding the effect of capital gains. The
distribution rate differs from the yield, because it includes capital gains
which are often non-recurring in nature, whereas yield does not include
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<PAGE> 49
such items. Distribution rates may also be presented excluding the effect of a
sales charge, if any.
Total return and yield are functions of the type and quality of
instruments held in the portfolio, levels of operation expenses and changes in
market conditions. Consequently, total return and yield will fluctuate and are
not necessarily representative of future results. Any fees charged by IMC or any
of its affiliates with respect to customer accounts for investing in shares of
the Funds will not be included in performance calculations. Such fees, if
charged, will reduce the actual performance from that quoted. In addition, if
the Investment Adviser or SEI voluntarily reduce all or a part of their
respective fees, as further discussed in the Prospectus, the total return of
such Fund will be higher than it would otherwise be in the absence of such
voluntary fee reductions.
Yields and total returns quoted for the Funds include the effect of
deducting the Funds' expenses, but may not include charges and expenses
attributable to a particular variable annuity contract or variable life
insurance policy. Since shares of the Funds may be purchased only through a
variable annuity contract or variable life insurance policy, you should
carefully review the prospectus of the variable annuity contract or variable
life insurance policy you have chosen for information on relevant charges and
expenses. Including these charges in the quotations of the Funds' yield and
total return would have the effect of decreasing performance. Performance
information for the Funds must always be accompanied by, and reviewed with,
performance information for the insurance product which invests in the Funds.
YIELDS OF THE FUNDS
Yields of each of the Funds will be computed by analyzing net
investment income per share for a recent 30-day period and dividing that amount
by a Fund shares maximum offering price (reduced by any undeclared earned income
expected to be paid shortly as a dividend) on the last trading day of that
period. Net investment income will reflect amortization of any market value
premium or discount of fixed-income securities (except for obligations backed by
mortgages or other assets) and may include recognition of a pro-rata portion of
the stated dividend rate of dividend paying portfolio securities. The yield of
each of the Funds will vary from time to time, depending upon market conditions,
the composition of a funds portfolio and operating expenses of the Trust
allocated to each Fund. These factors and possible differences in the methods
used in calculating yield should be considered when comparing a Fund's yield to
yields published for other investment companies and other investment vehicles.
Yield should also be considered relative to changes in the value of the Fund's
shares and to the relative risks associated with the investment objectives and
policies of each of the Funds.
At any time in the future, yields may be higher or lower than past
yields and there can be no assurance that any historical results will continue.
CALCULATION OF TOTAL RETURN
Average annual total return is a measure of the change in value of the
investment in a Fund over the period covered, which assumes any dividends or
capital gains distributions are reinvested in the Fund immediately rather than
paid to the investor in cash. Average annual total return will be calculated by:
(1) adding to the total number of shares purchased by a hypothetical
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$1,000 investment in the Fund and all additional shares which would have been
purchased if all dividends and distributions paid or distributed during the
period had immediately been reinvested, (2) calculating the value of the
hypothetical initial investment of $1,000 as of the end of the period by
multiplying the total number of shares owned at the end of the period by the net
asset value per share on the last trading day of the period, (3) assuming
redemption at the end of the period, and (4) dividing this account value for the
hypothetical investor by the initial $1,000 investment and annualizing the
result for periods of less than one year.
PERFORMANCE COMPARISONS
Investors may judge the performance of the Funds by comparing their
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices such as the Morgan Stanley Capital International EAFE Index
and those prepared by Dow-Jones & Co., Inc., Standard & Poor's Corporation,
Shearson-Lehman Brothers, Inc. and the Russell 2000 Growth Index and to data
prepared by Lipper Analytical Services, Inc. a widely recognized independent
service which monitors the performance of mutual funds, Morningstar, Inc. and
the Consumer Price Index. Comparisons may also be made to indices or data
published in Money Magazine, Forbes, Barron's, The Wall Street Journal, The Bond
Buyer's Weekly, 20-Bond Index, The Bond Buyer's Index, The Bond Buyer, The New
York Times, Business Week, Pensions and Investments, and USA Today. In addition
to performance information, general information about these Funds that appears
in a publication such as those mentioned above, may be included in
advertisements and in reports to shareholders,
From time to time, the Funds may include the following types of
information in advertisements, supplemental sales literature and reports to
shareholders: (1) discussions of general economic or financial principles (such
as the effects of compounding and the benefits of dollar-cost averaging); (2)
discussions of general economic trends; (3) presentations of statistical data to
supplement such discussions; (4) descriptions of past or anticipated portfolio
holdings for one or more of the Funds within the Trust; (5) descriptions of
investment strategies for one or more of the Funds; (6) descriptions or
comparisons of various savings and investment policies (including, but not
limited to, insured bank products, annuities, qualified retirement plans and
individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant market or
industry indices or other appropriate benchmarks; and (8) discussions of fund
rankings or ratings by recognized rating organizations. The Funds may also
include calculations, such as hypothetical compounding examples which describe
hypothetical investment results in such communications. Such performance
examples will be based on an expressed set of assumptions and are not indicative
of the performance of any of the Funds.
Morningstar, Inc., Chicago, Illinois, rates mutual funds on a one- to
five-star rating scale with five stars representing the highest rating. Such
ratings are based on a fund's historical -risk/reward ratio as determined by
Morningstar relative to other funds in that fund's class. Funds are divided into
classes based upon the respective investment objectives. The one- to five-star
ratings represent the following ratings by Morningstar, respectively: Lowest,
Below Average, Neutral, Above Average and Highest.
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Current yields or performance will fluctuate from time to time and are
not necessarily representative of future results. Accordingly a Fund's yield or
performance may not provide for comparison with bank deposits or other
investments which provide fixed returns for a stated period of time. Yield and
performance are functions of a Fund's quality, composition and maturity as well
as expenses allocated to the Fund. Fees imposed on customer accounts by the
Investment Adviser or its affiliated or correspondent banks or cash management
services will reduce a Fund's effective yield to its customers.
MISCELLANEOUS
Individual Trustees are elected by the shareholders and, subject to
removal by a vote of two-thirds of the Board of Trustees, serve for a term
lasting until the next meeting of shareholders at which Trustees are elected.
Such meetings are not required to be held at any specific intervals. Individual
Trustees may be removed by vote of the shareholders voting not less than a
majority of the shares outstanding cast in persons on or by proxy at an meeting
called for that purpose, or by a written declaration signed by the shareholder
voting not less than two-thirds of the shares then outstanding.
The Trust is registered with the SEC as a management investment
company. Such registration does not involve supervision of the management
policies of the Trust.
The Prospectus and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the SEC. Copies of such information may be obtained from the SEC by payment of
the prescribed fee.
Holders of variable annuity contracts or variable life insurance
policies issued by Participating Insurance Companies for which shares of the
Funds are the investment vehicle will receive from the Participating Insurance
Companies the Trust's unaudited semi-annual financial statements and year-end
financial statements audited by the Trust's independent auditors. Each report
will show the investments owned by the Funds and the market values of the
investments and will provide other information about the Funds and their
operations.
The Trust currently does not foresee any disadvantages to the holders
of variable annuity contracts and variable life insurance policies of affiliated
and unaffiliated Participating Insurance Companies arising from the fact that
the interests of the holders of variable annuity contracts and variable life
insurance policies may differ due to differences of tax treatment or other
considerations or due to conflict between the affiliated or unaffiliated
Participating Insurance Companies. Nevertheless, the Trustees intend to monitor
events in order to identify any material irreconcilable conflicts which may
possibly arise and to determine what action, if any, should be taken in response
to such conflicts. The variable annuity contracts and variable life insurance
policies are described in the separate prospectuses issued by the Participating
Insurance Companies. The Trust assumes no responsibility for such prospectuses.
Pursuant to Rule 17f-2, since IMC and National City Bank serve as the
Funds' Investment Adviser and Custodian, respectively, a procedure has been
established requiring three annual verifications, two of which are to be
unannounced, of all investments held pursuant to the Custodian Services
Agreement, to be conducted by the Funds' independent auditors.
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The portfolio managers of the Funds and other investment professionals
may from time to time discuss in advertising, sales literature or other
material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include, but are not
limited to, the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products and tax, retirement and investment planning.
The Prospectus and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer or other person is authorized to
give any information or make any representation other than those contained in
the Prospectus and this Statement of Additional Information.
As of April 30, 1999, the Trustees and officers of the Trust, as a
group, owned, as separate account contract owners or otherwise, none of the
shares of any Fund of the Trust.
FINANCIAL STATEMENTS
The Funds are new and do not have Financial Statements. Ernst & Young
LLP acts as independent auditor for the Trust.
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APPENDIX A
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COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The "D"
rating will be used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one
A-1
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year, unless explicitly noted. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D-1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely
payment. Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
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<PAGE> 55
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as to investment grade. Risk factors are
larger and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
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Thomson Financial BankWatch short-term ratings assess the
likelihood of an untimely payment of principal and interest of debt instruments
with original maturities of one year or less. The following summarizes the
ratings used by Thomson Financial BankWatch:
"TBW-1" - This designation represents Thomson Financial
BankWatch's highest category and indicates a very high likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson Financial
BankWatch's second-highest category and indicates that while the degree of
safety regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson Financial
BankWatch's lowest investment-grade category and indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.
"TBW-4" - This designation represents Thomson Financial
BankWatch's lowest rating category and indicates that the obligation is regarded
as non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more
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likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded
as having significant speculative characteristics. "BB" indicates the least
degree of speculation and "C" the highest. While such obligations will likely
have some quality and protective characteristics, these may be outweighed by
large uncertainties or major exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to
nonpayment than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or economic conditions
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"B" - An obligation rated "B" is more vulnerable to nonpayment
than obligations rated "BB", but the obligor currently has the capacity to meet
its financial commitment on the obligation. Adverse business, financial or
economic conditions will likely impair the obligor's capacity or willingness to
meet its financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable
to nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action taken, but payments on this
obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D"
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace period. The
"D" rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are
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not addressed in the credit rating. Examples include: obligations linked or
indexed to equities, currencies, or commodities; obligations exposed to severe
prepayment risk - such as interest-only or principal-only mortgage securities;
and obligations with unusually risky interest terms, such as inverse floaters.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operating experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches.
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Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered to be of high credit quality.
Protection factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater economic
stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
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"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic change over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. The ratings of
obligations in this category are based on their prospects for achieving partial
or full recovery in a reorganization or liquidation of the obligor. While
expected recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD" obligations have the
highest potential for recovery, around 90%-100% of outstanding amounts and
accrued interest. "DD" indicates potential recoveries in the range of 50%-90%,
and "D" the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all
of their obligations. Entities rated "DDD" have the highest prospect for
resumption of performance or continued operation with or without a formal
reorganization process. Entities rated "DD" and "D" are generally undergoing a
formal reorganization or
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liquidation process; those rated "DD" are likely to satisfy a higher portion of
their outstanding obligations, while entities rated "D" have a poor prospect for
repaying all obligations.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "CCC" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
Thomson Financial BankWatch assesses the likelihood of an
untimely repayment of principal or interest over the term to maturity of long
term debt and preferred stock which are issued by United States commercial
banks, thrifts and non-bank banks; non-United States banks; and broker-dealers.
The following summarizes the rating categories used by Thomson BankWatch for
long-term debt ratings:
"AAA" - This designation indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis, with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson Financial BankWatch to non-investment grade long-term debt. Such
issues are regarded as having speculative characteristics regarding the
likelihood of timely payment of principal and interest. "BB" indicates the
lowest degree of speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
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MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity factors
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess a
very strong capacity to pay debt service are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality.
There is present strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with
margins of protection that are ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
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APPENDIX B
----------
As stated in the Prospectus, the Balanced Allocation and
Equity Growth Funds ("Funds") may enter into certain futures transactions and
options for hedging purposes. Such transactions are described in this Appendix.
1. Index Futures Contracts
-----------------------
GENERAL. A stock index assigns relative values to the stocks
included in the index and the index fluctuates with changes in the market values
of the stocks included. Some stock index futures contracts are based on broad
market indexes, such as the Standard & Poor's Ratings Group 500 or the New York
Stock Exchange Composite Index. In contrast, certain exchanges offer futures
contracts on narrower market indexes or indexes based on an industry or market
segment, such as oil and gas stocks.
Futures contracts are traded on organized exchanges regulated
by the Commodity Futures Trading Commission. Transactions on such exchanges are
cleared through a clearing corporation, which guarantees the performance of the
parties to each contract.
The Equity Index Fund will purchase index futures contracts in
anticipation of purchases of securities. A long futures position may be
terminated without a corresponding purchase of securities.
A Fund may sell index futures contracts in order to offset a
decrease in market value of its portfolio securities that might otherwise result
from a market decline. A Fund may do so either to hedge the value of the Fund as
a whole, or to protect against declines, occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, a Fund will purchase
index futures contracts in anticipation of purchases of securities. A long
futures position may be terminated without a corresponding purchase of
securities.
In addition, a Fund may utilize index futures contracts in
anticipation of changes in the composition of its Fund holdings. For example, in
the event that a Fund expects to narrow the range of industry groups represented
in its holdings it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. A Fund may also
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of the Fund will decline prior to the time of sale.
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II. Margin Payments
---------------
Unlike purchases or sales of portfolio securities, no price is
paid or received by a Fund upon the purchase or sale of a futures contract.
Initially, a Fund will be required to deposit with the broker or in a segregated
account with the Custodian an amount of cash or cash equivalents, known as
initial margin, based on the value of the contract. 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 customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking-to-the-market. For example, when a particular Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Fund has purchased a
futures contract and the price of the future contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and the Fund would be required to make a variation margin payment to the broker.
At any time prior to expiration of the futures contract, the Adviser may elect
to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the Fund's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or gain.
III. Risks of Transactions in Futures Contracts
------------------------------------------
There are several risks in connection with the use of futures
by the Funds as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the futures and movements in the
price of the instruments which are the subject of the hedge. The price of the
future may move more than or less than the price of the instruments being
hedged. If the price of the futures moves less than the price of the instruments
which are the subject of the hedge, the hedge will not be fully effective but,
if the price of the instruments being hedged has moved in an unfavorable
direction, a Fund would be in a better position than if it had not hedged at
all. If the price of the instruments being hedged has moved in a favorable
direction, this advantage will be partially offset by the loss on the futures.
If the price of the futures moves more than the price of the hedged instruments,
the Fund involved will experience either a loss or gain on the futures which
will not be completely offset by movements in the price of the instruments which
are the subject of the hedge. To compensate for the imperfect correlation of
movements in the price of instruments being hedged and movements in the price of
futures contracts, a Fund may buy or sell futures contracts in a greater dollar
amount than the dollar amount of instruments being hedged if the volatility over
a particular time period of the prices of such
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instruments has been greater than the volatility over such time period of the
futures, or if otherwise deemed to be appropriate by the Adviser. Conversely, a
Fund may buy or sell fewer futures contracts if the volatility over a particular
time period of the prices of the instruments being hedged is less than the
volatility over such time period of the futures contract being used, or if
otherwise deemed to be appropriate by the Adviser. It is also possible that,
where a Fund has sold futures to hedge its Fund against a decline in the market,
the market may advance and the value of instruments held in the Fund may
decline. If this occurred, the Fund would lose money on the futures and also
experience a decline in value in its portfolio securities.
When futures are purchased to hedge against a possible
increase in the price of securities before a Fund is able to invest its cash (or
cash equivalents) in an orderly fashion, it is possible that the market may
decline instead; if the Fund then concludes not to invest its cash at that time
because of concern as to possible further market decline or for other reasons,
the Fund will realize a loss on the futures contract that is not offset by a
reduction in the price of the instruments that were to be purchased.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
instruments being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the Adviser may still not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. Although the
Funds intend to purchase or sell futures only on exchanges or boards of trade
where there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, the Funds will continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures contract. However, as described above,
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<PAGE> 66
there is no guarantee that the price of the securities will in fact correlate
with the price movements in the futures contract and thus provide an offset on a
futures contract.
Further, it should be noted that the liquidity of a secondary
market in a futures contract may be adversely affected by "daily price
fluctuation limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once the
daily limit has been reached in the contract, no trades may be entered into at a
price beyond the limit, thus preventing the liquidation of open futures
positions. The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
Successful use of futures by a Fund is also subject to the
Adviser's ability to predict correctly movements in the direction of the market.
For example, if a Fund has hedged against the possibility of a decline in the
market adversely affecting securities held by it and securities prices increase
instead, the Fund will lose part or all of the benefit to the increased value of
its securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if a Fund has insufficient
cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. A Fund may have to sell
securities at a time when it may be disadvantageous to do so.
IV. Options on Futures Contracts
----------------------------
The Fund may purchase and write options on the futures
contracts described above. A futures option gives the holder, in return for the
premium paid, the right to buy (call) from or sell (put) to the writer of the
option a futures contract at a specified price at any time during the period of
the option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing an option of the same series,
at which time the person entering into the closing transaction will realize a
gain or loss. The Funds will be required to deposit initial margin and variation
margin with respect to put and call options on futures contracts written by it
pursuant to brokers' requirements similar to those described above. Net option
premiums received will be included as initial margin deposits.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). In
addition, the purchase or sale of an option also entails the risk that changes
in the value of the underlying futures contract will not correspond to changes
in the value of the option purchased. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the
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futures contract or such securities. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contract. Compared to the purchase or sale of futures contracts,
however, the purchase of call or put options on futures contracts may frequently
involve less potential risk to the Funds because the maximum amount at risk is
the premium paid for the options (plus transaction costs). The writing of an
option on a futures contract involves risks similar to those risks relating to
the sale of futures contracts.
V. Other Matters
-------------
Accounting for futures contracts will be in accordance with
generally accepted accounting principles.
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THE PARKSTONE ADVANTAGE FUND
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) Declaration of Trust dated May 18, 1993 is incorporated herein
by reference to Exhibit 1 of Post-Effective Amendment No. 5 to
the Registrant's Registration Statement on Form N-1A (Nos.
33-65690/811-7850) as filed with the Securities and Exchange
Commission (the "SEC") on April 16, 1997 ("PEA No. 5").
(b) (1) Code of Regulations is incorporated herein by
reference to Exhibit 2(a) of PEA No. 5.
(2) Amendment to Code of Regulations dated February 10,
1994 is incorporated herein by reference to Exhibit
No. 2(b) of PEA No. 5.
(c) Not Applicable.
(d) (1) Investment Advisory Agreement between Registrant and
National City Investment Management Company, dated
August 18, 1993, relating to the Equity Fund, the
Small Capitalization Fund and the Bond Fund is
incorporated herein to Exhibit 5(a) of PEA No. 5.
(2) Investment Advisory Agreement between Registrant and
National City Investment Management Company, dated
August 18, 1993, relating to the International
Discovery Fund is incorporated here by reference to
Exhibit 5(b) to PEA No. 5.
(3) Form of Advisory Agreement between Registrant and
National City Investment Management Company, dated
May 11, 1999, relating to the Armada Advantage Equity
Growth and Armada Advantage Balanced Allocation
Funds.
(e) (1) Distribution Agreement between Registrant and BISYS
Fund Services, L.P., dated July 1, 1996 is
incorporated herein by reference to Exhibit No. 6 of
PEA No. 5.
(2) Form of Distribution Agreement between Registrant and
SEI Investments Distribution Co., dated July 2, 1999.
<PAGE> 69
(f) Not Applicable.
(g) (1) Custody Agreement between Registrant and National
City Bank, dated July 24, 1998 is incorporated herein
by reference to Exhibit No. 8(a) of Post-Effective
Amendment No. 9 to the Registrant's Registration
Statement on Form N-1A (Nos. 33-65690/811-7850) as
filed with the SEC on September 18, 1998 ("PEA No.
9").
(2) Custodian Agreement between Registrant and The Bank
of California N.A., dated July 31, 1995, relating to
the International Discovery Fund is incorporated
herein by reference to Exhibit 8(b) of PEA No. 2.
(h) (1) Administration Agreement between Registrant and BISYS
Fund Services, L.P., dated July 1, 1996 is
incorporated herein by reference to Exhibit 9(a) of
PEA No. 5.
(2) Form of Administration Agreement between Registrant
and SEI Investments Mutual Funds Services, dated July
2, 1999.
(3) Fund Accounting and Transfer Agency Agreement between
Registrant and BISYS Fund Services, Inc., dated July
1, 1996 is incorporated herein by reference to
Exhibit 9(b) of PEA No. 5.
(i) Schedule C to Fund Accounting and Transfer
Agency Agreement between the Registrant and
BISYS Funds Services, L.P. dated February
12, 1997 is incorporated herein by reference
to Exhibit 9(b)(i) of PEA No. 5.
(4) Fund Participation and Variable Contract Marketing
Agreement between Registrant and Security Benefit
Life Insurance Company, on its behalf and on behalf
of The Parkstone Variable Annuity Account, The
Parkstone Advantage Fund, National City Investment
Management Company, Security Management Company,
Security Distributors, Inc., and [Servicing Agent],
dated September 10, 1993 is incorporated herein by
reference to Exhibit 9(c) of PEA No. 5.
(5) Transfer Agency Agreement is incorporated herein by
reference to Exhibit 9(d) of PEA No. 9.
(6) Form of Transfer Agency and Service Agreement between
Registrant and State Street Bank and Trust Company,
dated July 2, 1999.
-2-
<PAGE> 70
(i) Opinion of Counsel.
(j) Not Applicable.
(k) Purchase Agreement between Registrant and Security Benefit
Life Insurance Company, dated August 17, 1993 is incorporated
herein by reference to Exhibit 13 of PEA No. 5.
(l) Not Applicable.
(m) Not Applicable.
(n) Not Applicable.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is controlled by its Board of Trustees, all of the
members of which also serve as members of the Board of
Trustees of The Parkstone Group of Funds and as members of the
Board of Trustees of Armada Funds. As of April 16, 1999,
National City Corporation, as trustee of the Non-Contributory
Pension Plan owned beneficially the following percentages of
certain funds, respectively: Bond Fund, 22%, Small
Capitalization Fund, 19%, Mid Capitalization Fund, 14% and
International Discovery Fund, 40%. National City Corporation
may be presumed to control both the Registrant and each of the
Funds because it possesses or shares investment or voting
power with respect to more than 25% of the total outstanding
of certain of the funds. As a result, National City Bank may
have the ability to elect the Trustees of the Trust, approve
the Investment Advisory and Distribution Agreements for each
of the Funds and to control any other matters submitted to the
shareholders of the Funds for their approval or ratification.
ITEM 25. INDEMNIFICATION.
Indemnification of Registrant's principal underwriter,
custodian, investment adviser, administrator, transfer agent
and fund accountant is provided for, respectively, in Section
6 of the Distribution Agreement incorporated by reference as
Exhibit 6 of PEA No. 5, Sections 12 and 10 of the Custody
Agreements incorporated by reference as Exhibit 8(a) and 8(b)
of PEA No. 9, Section 8 of the Investment Advisory Agreements
incorporated by reference as Exhibits 5(a) and (b) of PEA No.
5, Section 5 of the Administration Agreement incorporated by
reference as Exhibit 9(a) of PEA No. 5, and Section 8 of the
Fund Accounting and Transfer Agency Agreement incorporated by
reference as Exhibit 9(b) of PEA No. 5. Registrant has
obtained from a major insurance carrier a Trustee's and
officer's liability policy covering certain types of errors
and omissions. In no event will Registrant indemnify any of
its Trustees, officers, employees or agents
-3-
<PAGE> 71
against any liability to which such person would otherwise be
subject by reason of his or her willful misfeasance, bad faith
or gross negligence in the performance of his or her duties,
or by reason of his or her reckless disregard of the duties
involved in the conduct of his or her office or under his or
her agreement with Registrant. In addition, Section 9.2 of
Registrant's Agreement and Declaration of Trust dated May 18,
1993, provides as follows:
9.2 Indemnification of Trustees, Representatives and
Employees. The Trust shall indemnify, to the fullest extent
permitted by law, every person who is or has been a Trustee or
officer of the Trust and any person rendering or having
rendered Investment Advisory, administrative, distribution,
custodian or transfer agency services to the Trustee or to the
Trust or any series thereof pursuant to Article VII of this
Declaration of Trust or otherwise, and every officer,
director, Trustee, Shareholder, employee and agent of any such
person (all persons hereinafter referred to as the "covered
persons") against all liabilities and expenses (including
amounts paid in satisfaction of judgments, and compromise, as
fines an penalties, and as counsel fees (reasonably incurred
by him in connection with the defense or disposition of any
action, suit, or other proceeding, whether civil or criminal,
in which he may be involved or which he may be threatened
while as a covered person or thereafter, by reason of his
being or having been such a covered person except with respect
to any matter as to which he shall have been adjudicated to
have acted in bad faith, willful misfeasance, gross
negligence, or reckless disregard of his duties; provided,
however, that as to any matter disposed of by a compromised
payment by such person, pursuant to a consent decree or
otherwise, no indemnification either for said payment or for
any other expenses shall be provided unless the Trust shall
have received a written opinion from independent legal counsel
approved by the Trustees to the effect that, if either the
matter of willful misfeasance, gross negligence, or reckless
disregard of duty or the matter of bad faith had been
adjudicated, it would in the opinion of such counsel, have
been adjudicated in favor of such person. The rights accruing
to any covered person under these provisions shall not exclude
any other right to which he may be lawfully entitled;
provided, however, that no covered person may satisfy any
right of indemnity or reimbursement except out of the property
of the Trust. If the Trustees make advance payments in
connection with the indemnification under this Section 9.2;
provided, however, that the indemnified covered person shall
have given a written undertaking to reimburse the Trust in the
event that it is subsequently determined that he is not
entitled to such indemnification. Rights of indemnification
herein provided may be insured against by policies maintained
by the Trust. Such rights of indemnification are severable,
and such inure to the benefit of the heirs, executors,
administrators and other legal representatives of such covered
persons.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of Securities and Exchange
Commission such indemnification
-4-
<PAGE> 72
is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
National City Investment Management Company ("IMC") Cleveland,
Ohio is an investment adviser registered under the Investment
Advisers' Act of 1940, as amended (the "Advisers Act"). IMC is
an indirect, wholly-owned subsidiary of National City
Corporation. IMC currently manages over $12 billion on behalf
of both taxable and tax-exempt clients, including pensions,
endowments, corporations, individual portfolios, The Parkstone
Group of Funds and Armada Funds. To the knowledge of
Registrant, none of the directors or officers of IMC is or has
been at any time during the past two fiscal years engaged in
any other business profession, vocation or employment of a
substantial nature, except that certain directors and officers
of IMC may also hold positions with IMC's parent, or National
City Corporation or other subsidiaries. Information relating
to any business, profession, or employment of a substantial
nature engaged in by officers and directors of IMC during the
past two years is presented below as Schedules A and D of Form
ADV filed by IMC pursuant to the Advisers Act (SEC File No.
811-446).
To the knowledge of Registrant, none of the directors or
officers of IMC, except those set forth below, is or has been,
at any time during the past two calendar years, engaged in any
other business, profession, vocation or employment of a
substantial nature, except that certain directors and officers
also hold various positions with, and engage in business for,
the Corporation, which owns all of the outstanding stock of
National City Bank, Michigan, Illinois, which in turn owns all
of the outstanding stock of IMC, or other subsidiaries of the
Corporation. Set forth below are the names and principal
businesses of the directors and certain of the senior
executive officers of IMC who are engaged in any other
business, profession, vocation or employment of a substantial
nature.
-5-
<PAGE> 73
NATIONAL CITY INVESTMENT MANAGEMENT COMPANY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Position with National City
Investment Management Other Business
Name Company Connections Type of Business
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kathleen T. Barr Managing Director, Sales National City Bank Bank
and Marketing
- -----------------------------------------------------------------------------------------------------
Susan E. Kentosh Vice President and Chief National City Bank Bank
Compliance
Officer
- -----------------------------------------------------------------------------------------------------
Robert M. Leggett Vice Chairman of the Board, National City Bank Bank
President and Managing
Director
- -----------------------------------------------------------------------------------------------------
Michael Minnaugh Chairman of the Board and National City Bank Bank
Managing Director
- -----------------------------------------------------------------------------------------------------
Joseph C. Penko Vice President and National City Bank Bank
Director, Legal Affairs
- -----------------------------------------------------------------------------------------------------
Donald L. Ross Chief Investment Officer National City Bank Bank
and Managing Director
- -----------------------------------------------------------------------------------------------------
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITER.
(a) Registrant's distributor, SEI Investments Distribution Co.
("SIDCO"), acts as distributor for:
<TABLE>
<S> <C>
SEI Daily Income Trust July 14, 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 Institutional International Trust August 30, 1988
The Pillar Funds February 28, 1992
The Advisors' Inner Circle Fund November 14, 1991
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
STI Classic Variable Trust August 18, 1995
PBHG Insurance Series Fund, Inc. April 1, 1997
Alpha Select Funds January 1, 1998
Oak Associates Funds February 27, 1998
The Nevis Funds, Inc. June 29, 1998
</TABLE>
-6-
<PAGE> 74
<TABLE>
<S> <C>
The Parkstone Group of Funds September 14, 1998
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
Boston 1784 Funds(R) June 1, 1993
The PBHG Funds, Inc. July 16, 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
Huntington Funds January 11, 1996
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 30, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
HighMark Funds February 15, 1997
Armada Funds March 8, 1997
Expedition Funds June 9, 1997
CNI Charter Funds April 1, 1999
</TABLE>
SIDCO 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) Unless otherwise noted, the principal business address of each
director or officer is Oaks, PA 19456.
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman of the Board of --
Directors
Henry H. Greer Director --
Carmen V. Romeo Director --
Mark J. Held President & Chief Operating Officer --
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President --
Dennis J. McGonigle Executive Vice President --
Robert M. Silvestri Chief Financial Officer & Treasurer --
Carl A. Guarino Senior Vice President --
</TABLE>
-7-
<PAGE> 75
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
<S> <C> <C>
Larry Hutchison Senior Vice President --
Jack May Senior Vice President --
Hartland J. McKeown Senior Vice President --
Barbara J. Moore Senior Vice President --
Kevin P. Robins Senior Vice President & General Counsel --
& Secretary
Patrick K. Walsh Senior Vice President --
Robert Aller Vice President --
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Assistant Secretary --
S. Courtney E. Collier Vice President & Assistant Secretary --
Robert Crudup Vice President & Managing Director --
Barbara Doyne Vice President --
Jeff Drennen Vice President --
Vic Galef Vice President & Managing Director --
Lydia A. Gavalis Vice President & Assistant Secretary --
Greg Gettinger Vice President & Assistant Secretary --
Kathy Heilig Vice President & --
Treasurer
Jeff Jacobs Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing Director --
John Krzeminski Vice President & Managing Director --
Carolyn McLaurin Vice President & Managing Director --
W. Kelso Morrill Vice President & Managing Director --
Mark Nagle Vice President --
Joanne Nelson Vice President --
Joseph M. O'Donnell Vice President --
Cynthia M. Parrish Vice President & Assistant Secretary
</TABLE>
-8-
<PAGE> 76
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
<S> <C> <C>
Kim Rainey Vice President --
Rob Redican Vice President --
Maria Rinehart Vice President --
Mark Samuels Vice President & Managing Director --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary Assistant Treasurer
Lynda J. Striegel Vice President & Assistant Secretary --
Lori L. White Vice President & Assistant Secretary --
Wayne M. Withrow Vice President & Managing Director --
</TABLE>
(c) Compensation to SEI during the fiscal year ended December 31, 1998 was
as follows:
<TABLE>
<CAPTION>
NET UNDERWRITING COMPENSATION
DISCOUNTS AND ON REDEMPTION BROKERAGE OTHER
COMMISSIONS AND REPURCHASE COMMISSIONS COMPENSATION
----------- -------------- ----------- ------------
<S> <C> <C> <C>
-0- -0- -0- -0-
</TABLE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
(1) National City Investment Management Company, 1900
East Ninth Street, Cleveland, Ohio 44114 (records
relating to its functions as investment adviser).
(2) SEI Investments Distribution Co., One Freedom Valley
Drive, Oaks, Pennsylvania 19456 (records relating to
its function as distributor and administrator).
(3) Drinker Biddle & Reath LLP, Philadelphia National
Bank Building, 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107-3496 (Registrant's Declaration of
Trust, Code of Regulations and Minutes Books).
(4) National City Bank, 4100 West 150th Street,
Cleveland, Ohio 44114 (records relating to its
functions as custodian for the Funds).
-9-
<PAGE> 77
ITEM 29. MANAGEMENT SERVICES.
Not Applicable.
ITEM 30. UNDERTAKINGS.
(1) Registrant hereby undertakes to furnish each person
to whom a prospectus is delivered a copy of its
latest annual report, containing Management's
Discussion of Fund Performance, to shareholders upon
request and without charge.
-10-
<PAGE> 78
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Post-Effective Amendment No. 12 to its Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Cleveland, State of Ohio on the 28th day of May, 1999.
THE PARKSTONE ADVANTAGE FUND
/s/ Herbert R. Martens, Jr.
By: Herbert R. Martens, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 12 to the Registrant's Registration Statement
has been signed below by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
* Robert D. Neary Chairman of the Board; May 28, 1999
- ----------------------------
Robert D. Neary Trustee
* Leigh Carter Trustee May 28, 1999
- ----------------------------
Leigh Carter
* John F. Durkott Trustee May 28, 1999
- ----------------------------
John F. Durkott
* Robert J. Farling Trustee May 28, 1999
- ----------------------------
Robert J. Farling
* Richard W. Furst Trustee May 28, 1999
- ----------------------------
Richard W. Furst
* Gerald L. Gherlein Trustee May 28, 1999
- ----------------------------
Gerald L. Gherlein
-11-
<PAGE> 79
* J. William Pullen Trustee May 28, 1999
- ----------------------------
J. William Pullen
/s/ Herbert R. Martens, Jr. Trustee May 28, 1999
- ----------------------------
Herbert R. Martens, Jr.
/s/ Gary Tenkman Treasurer May 28, 1999
- ----------------------------
Gary Tenkman
*By: /s/ Herbert R. Martens, Jr.
- ----------------------------
Herbert R. Martens, Jr., Attorney-In-Fact
-12-
<PAGE> 80
THE PARKSTONE ADVANTAGE FUND
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Robert
D. Neary, hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce
McConnel, III, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Trustee or officer, or both, of The Parkstone
Advantage Fund, the Registration Statement and any amendments thereto and all
instruments necessary or incidental in connection therewith, and to file the
same with the Securities and Exchange Commission; and said attorneys shall have
full power and authority to do and perform in his name and on his behalf, in any
and all capacities, every act whatsoever requisite or necessary to be done in
the premises, as fully and to all intents and purposes as he might or could do
in person, said acts of said attorneys being hereby ratified and approved.
DATED: September 15, 1998
/s/ Robert D. Neary
- ---------------------------
Robert D. Neary
<PAGE> 81
THE PARKSTONE ADVANTAGE FUND
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Leigh
Carter, hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce
McConnel, III, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Trustee or officer, or both, of The Parkstone
Advantage Fund, the Registration Statement and any amendments thereto and all
instruments necessary or incidental in connection therewith, and to file the
same with the Securities and Exchange Commission; and said attorneys shall have
full power and authority to do and perform in his name and on his behalf, in any
and all capacities, every act whatsoever requisite or necessary to be done in
the premises, as fully and to all intents and purposes as he might or could do
in person, said acts of said attorneys being hereby ratified and approved.
DATED: September 15, 1998
/s/ Leigh Carter
- ---------------------------
Leigh Carter
<PAGE> 82
THE PARKSTONE ADVANTAGE FUND
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, John F.
Durkott, hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce
McConnel, III, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Trustee or officer, or both, of The Parkstone
Advantage Fund, the Registration Statement and any amendments thereto and all
instruments necessary or incidental in connection therewith, and to file the
same with the Securities and Exchange Commission; and said attorneys shall have
full power and authority to do and perform in his name and on his behalf, in any
and all capacities, every act whatsoever requisite or necessary to be done in
the premises, as fully and to all intents and purposes as he might or could do
in person, said acts of said attorneys being hereby ratified and approved.
DATED: September 15, 1998
/s/ John F. Durkott
- ---------------------------
John F. Durkott
<PAGE> 83
THE PARKSTONE ADVANTAGE FUND
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Robert
J. Farling, hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce
McConnel, III, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Trustee or officer, or both, of The Parkstone
Advantage Fund, the Registration Statement and any amendments thereto and all
instruments necessary or incidental in connection therewith, and to file the
same with the Securities and Exchange Commission; and said attorneys shall have
full power and authority to do and perform in his name and on his behalf, in any
and all capacities, every act whatsoever requisite or necessary to be done in
the premises, as fully and to all intents and purposes as he might or could do
in person, said acts of said attorneys being hereby ratified and approved.
DATED: September 15, 1998
/s/ Robert J. Farling
- ---------------------------
Robert J. Farling
<PAGE> 84
THE PARKSTONE ADVANTAGE FUND
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Richard
W. Furst, Dean, hereby constitutes and appoints Herbert R. Martens, Jr. and W.
Bruce McConnel, III, is true and lawful attorneys, to execute in his name,
place, and stead, in his capacity as Trustee or officer, or both, of The
Parkstone Advantage Fund, the Registration Statement and any amendments thereto
and all instruments necessary or incidental in connection therewith, and to file
the same with the Securities and Exchange Commission; and said attorneys shall
have full power and authority to do and perform in his name and on his behalf,
in any and all capacities, every act whatsoever requisite or necessary to be
done in the premises, as fully and to all intents and purposes as he might or
could do in person, said acts of said attorneys being hereby ratified and
approved.
DATED: September 15, 1998
/s/ Richard W. Furst, Dean
- ---------------------------
Richard W. Furst, Dean
<PAGE> 85
THE PARKSTONE ADVANTAGE FUND
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Herbert
R. Martens, Jr., hereby constitutes and appoints W. Bruce McConnel, III, his
true and lawful attorney, to execute in his name, place, and stead, in his
capacity as Trustee or officer, or both, of The Parkstone Advantage Fund, the
Registration Statement and any amendments thereto and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission; and said attorney shall have full power and authority
to do and perform in his name and on his behalf, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as fully
and to all intents and purposes as he might or could do in person, said acts of
said attorney being hereby ratified and approved.
DATED: September 15, 1998
/s/ Herbert R. Martens, Jr.
- ---------------------------
Herbert R. Martens, Jr.
<PAGE> 86
THE PARKSTONE ADVANTAGE FUND
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Gerald
L. Gherlein, hereby constitutes and appoints Herbert R. Martens, Jr. and W.
Bruce McConnel, III, his true and lawful attorneys, to execute in his name,
place, and stead, in his capacity as Trustee or officer, or both, of The
Parkstone Advantage Fund, the Registration Statement and any amendments thereto
and all instruments necessary or incidental in connection therewith, and to file
the same with the Securities and Exchange Commission; and said attorneys shall
have full power and authority to do and perform in his name and on his behalf,
in any and all capacities, every act whatsoever requisite or necessary to be
done in the premises, as fully and to all intents and purposes as he might or
could do in person, said acts of said attorneys being hereby ratified and
approved.
DATED: September 15, 1998
/s/ Gerald L. Gherlein
- ---------------------------
Gerald L. Gherlein
<PAGE> 87
THE PARKSTONE ADVANTAGE FUND
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, J.
William Pullen, hereby constitutes and appoints Herbert R. Martens, Jr. and W.
Bruce McConnel, III, his true and lawful attorneys, to execute in his name,
place, and stead, in his capacity as Trustee or officer, or both, of The
Parkstone Advantage Fund, the Registration Statement and any amendments thereto
and all instruments necessary or incidental in connection therewith, and to file
the same with the Securities and Exchange Commission; and said attorneys shall
have full power and authority to do and perform in his name and on his behalf,
in any and all capacities, every act whatsoever requisite or necessary to be
done in the premises, as fully and to all intents and purposes as he might or
could do in person, said acts of said attorneys being hereby ratified and
approved.
DATED: September 15, 1998
/s/ J. William Pullen
- ---------------------------
J. William Pullen
<PAGE> 88
THE PARKSTONE ADVANTAGE FUND
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Gary
Tenkman, hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce
McConnel, III, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Trustee or officer, or both, of The Parkstone
Advantage Fund, the Registration Statement and any amendments thereto and all
instruments necessary or incidental in connection therewith, and to file the
same with the Securities and Exchange Commission; and said attorneys shall have
full power and authority to do and perform in his name and on his behalf, in any
and all capacities, every act whatsoever requisite or necessary to be done in
the premises, as fully and to all intents and purposes as he might or could do
in person, said acts of said attorneys being hereby ratified and approved.
DATED: September 15, 1998
/s/ Gary Tenkman
- ---------------------------
Gary Tenkman
<PAGE> 89
Exhibit Index
-------------
Exhibit No. Description
- ----------- -----------
(d)(3) Form of Investment Advisory Agreement between Registrant and
National City Investment Management Company, dated May 11,
1999, relating to the Equity Growth and Balanced Allocation
Funds.
(e)(2) Form of Distribution Agreement between Registrant and SEI
Investments Distribution Co., dated July 2, 1999.
(h)(2) Form of Administration Agreement between Registrant and SEI
Investments Mutual Funds Series, dated July 2, 1999.
(h)(6) Form of Transfer Agency and Service Agreement between
Registrant and State Street Bank and Trust Company, dated July
2, 1999.
(i) Opinion of Counsel.
-13-
<PAGE> 1
Exhibit (d)(3)
PARKSTONE ADVANTAGE FUND
ADVISORY AGREEMENT
AGREEMENT made as of ______________, 1999 between PARKSTONE ADVANTAGE
FUND, a Massachusetts business trust, located in Oaks, Pennsylvania (the
"Trust") and NATIONAL CITY INVESTMENT MANAGEMENT COMPANY, located in Cleveland,
Ohio (the "Adviser").
WHEREAS, the Trust is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Trust desires to retain the Adviser as investment adviser
to the Armada Advantage Equity Growth and Armada Advantage Balanced Allocation
Funds (individually, a "Fund" and collectively, the "Funds");
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed among the parties hereto as follows:
1. DELIVERY OF DOCUMENTS. The Adviser acknowledges that it has
received copies of each of the following:
(a) The Trust's Declaration of Trust, as filed with the
State Secretary of the Commonwealth of Massachusetts
on May 18, 1993 and all amendments thereto (such
Declaration of Trust, as presently in effect and as
it shall from time to time be amended, is herein
called the "Declaration of Trust");
(b) The Trust's Code of Regulations, and amendments
thereto (such Code of Regulations, as presently in
effect and as it shall from time to time be amended,
is herein called the "Code of Regulations");
(c) Resolutions of the Trust's Board of Trustees
authorizing the appointment of the Adviser and
approving this Agreement;
(d) The Trust's Notification of Registration on Form N-8A
under the 1940 Act as filed with the Securities and
Exchange Commission ("SEC") and all amendments
thereto;
(e) The Trust's Registration Statement on Form N-1A under
the Securities Act of 1933, as amended ("1933 Act")
(File No. 33-65690) and under the 1940 Act as filed
with the SEC and all amendments thereto; and
(f) The Trust's most recent prospectuses and statements
of additional information with respect to the Funds
(such prospectuses and statements
-1-
<PAGE> 2
of additional information, as presently in effect and
all amendments and supplements thereto are herein
called individually, a "Prospectus", and
collectively, the "Prospectuses").
The Trust will furnish the Adviser from time to time with
execution copies of all amendments of or supplements to the foregoing.
2. SERVICES. The Trust hereby appoints the Adviser to act as
investment adviser to the Funds for the period and on the terms set
forth in this Agreement. Intending to be legally bound, the Adviser
accepts such appointment and agrees to furnish the services required
herein to the Funds for the compensation hereinafter provided.
Subject to the supervision of the Trust's Board of Trustees,
the Adviser will provide a continuous investment program for each Fund,
including investment research and management with respect to all
securities and investments and cash equivalents in each Fund. The
Adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by each Fund. The
Adviser will provide the services under this Agreement in accordance
with each Fund's investment objective, policies, and restrictions as
stated in the Prospectus and resolutions of the Trust's Board of
Trustees applicable to such Fund.
3. SUBCONTRACTORS. It is understood that the Adviser may from
time to time employ or associate with itself such person or persons as
the Adviser may believe to be particularly fitted to assist in the
performance of this Agreement; provided, however, that the compensation
of such person or persons shall be paid by the Adviser and that the
Adviser shall be as fully responsible to the Trust for the acts and
omissions of any subcontractor as it is for its own acts and omissions.
Without limiting the generality of the foregoing, it is agreed that
investment advisory service to any Fund may be provided by a
subcontractor agreeable to the Adviser and approved in accordance with
the provisions of the 1940 Act. Any such sub-advisers are hereinafter
referred to as the "Sub-Advisers." In the event that any Sub-Adviser
appointed hereunder is terminated, the Adviser may provide investment
advisory services pursuant to this Agreement to the Fund involved
without further shareholder approval. Notwithstanding the employment of
any Sub-Adviser, the Adviser shall in all events: (a) establish and
monitor general investment criteria and policies for each Fund;
(b) review investments in each Fund on a periodic basis for compliance
with its investment objective, policies and restrictions as stated in
the Prospectus; (c) review periodically any Sub-Adviser's policies with
respect to the placement of orders for the purchase and sale of
portfolio securities; (d) review, monitor, analyze and report to the
Board of Trustees on the performance of any Sub-Adviser; (e) furnish to
the Board of Trustees or any Sub-Adviser, reports, statistics and
economic information as may be reasonably requested; and (f) recommend,
either in its sole discretion or in conjunction with any Sub-Adviser,
potential changes in investment policy.
4. COVENANTS BY ADVISER. The Adviser agrees with respect to the
services provided to each Fund that it:
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<PAGE> 3
(a) will comply with all applicable Rules and Regulations
of the SEC and will in addition conduct its
activities under this Agreement in accordance with
other applicable law;
(b) will use the same skill and care in providing such
services as it uses in providing services to similar
fiduciary accounts for which it has investment
responsibilities;
(c) will not make loans to any person to purchase or
carry shares in the Funds, or make interest-bearing
loans to the Trust or the Funds;
(d) will maintain a policy and practice of conducting its
investment management activities independently of the
Commercial Departments of all banking affiliates. In
making investment recommendations for the Funds,
personnel will not inquire or take into consideration
whether the issuers (or related supporting
institutions) of securities proposed for purchase or
sale for the Funds' accounts are customers of the
Commercial Department. In dealing with commercial
customers, the Commercial Department will not inquire
or take into consideration whether securities of
those customers are held by the Funds;
(e) will place orders pursuant to its investment
determinations for the Funds either directly with the
issuer or with any broker or dealer. In selecting
brokers or dealers for executing portfolio
transactions, the Adviser will use its best efforts
to seek on behalf of the Trust and each Fund the best
overall terms available. In assessing the best
overall terms available for any transaction the
Adviser shall consider all factors 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 or dealer to
execute a particular transaction, the Adviser may
also consider the brokerage and research services (as
those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934, as amended) provided
to any Fund and/or other accounts over which the
Adviser or any affiliate of the Adviser exercises
investment discretion. The Adviser is authorized,
subject to the prior approval of the Board, to
negotiate and pay to a broker or dealer who provides
such brokerage and research services a commission for
executing a portfolio transaction for any Fund which
is in excess of the amount of commission another
broker or dealer would have charged for effecting
that transaction if, but only if, the Adviser
determines in good faith that such commission was
reasonable in relation to the value of the brokerage
and research services provided by such broker or
dealer viewed in terms of that particular transaction
or in terms of the overall
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<PAGE> 4
responsibilities of the Adviser with respect to the
accounts as to which it exercises investment
discretion. In no instance will fund securities be
purchased from or sold to the Adviser, any
Sub-Adviser, SEI Investments Distribution Co. ("SEI")
(or any other principal underwriter to the Trust) or
an affiliated person of either the Trust, the
Adviser, Sub-Adviser, or SEI (or such other principal
underwriter) unless permitted by an order of the SEC
or applicable rules. In executing portfolio
transactions for any Fund, the Adviser may, but shall
not be obligated to, to the extent permitted by
applicable laws and regulations, aggregate the
securities to be sold or purchased with those of
other Funds and its other clients where such
aggregation is not inconsistent with the policies set
forth in the Trust's registration statement. In such
event, the Adviser will allocate the securities so
purchased or sold, and the expenses incurred in the
transaction, in the manner it considers to be the
most equitable and consistent with its fiduciary
obligations to the Funds and such other clients;
(f) will maintain all books and records with respect to
the securities transactions for the Funds and furnish
the Trust's Board of Trustees such periodic and
special reports as the Board may request; and
(g) will treat confidentially and as proprietary
information of the Trust all records and other
information relative to the Funds and prior, present
or potential shareholders, and will not use such
records and information for any purpose other than
performance of its responsibilities and duties
hereunder (except after prior notification to and
approval in writing by the Trust, which approval
shall not be unreasonably withheld and may not be
withheld and will be deemed granted where the Adviser
may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to
divulge such information by duly constituted
authorities, or when so requested by the Trust).
5. SERVICES NOT EXCLUSIVE. The services furnished by the Adviser
hereunder are deemed not to be exclusive, and the Adviser shall be free
to furnish similar services to others so long as its services under
this Agreement are not impaired thereby.
6. BOOKS AND RECORDS. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, the Adviser hereby agrees that all
records which it maintains for the Trust are the property of the Trust
and further agrees to surrender promptly to the Trust any of such
records upon the Trust's request. The Adviser further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by Rule 31a-1 under the 1940 Act.
7. EXPENSES. During the term of this Agreement, the Adviser will
pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Funds.
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<PAGE> 5
8. COMPENSATION. For the services provided and the expenses
assumed pursuant to this Agreement, the Trust will pay the Adviser from
the assets belonging to the Funds and the Adviser will accept as full
compensation therefor fees, computed daily and paid monthly, at the
following annual rates: .75% of the average daily net assets of the
Armada Advantage Equity Growth Fund; and .75% of the average daily net
assets of the Armada Advantage Balanced Allocation Fund.
The fee attributable to each Fund shall be the several (and
not joint or joint and several) obligation of each Fund.
9. LIMITATION OF LIABILITY. The Adviser 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 performance of this Agreement, except a
loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser
in the performance of its duties or from reckless disregard by it of
its obligations and duties under this Agreement.
10. DURATION AND TERMINATION. This Agreement will become effective
with respect to each Fund upon approval of this Agreement by vote of a
majority of the outstanding voting securities of each such Fund, and,
unless sooner terminated as provided herein, shall continue in effect
until September 30, 2000. Thereafter, if not terminated, this Agreement
shall continue in effect with respect to a particular Fund for
successive twelve month periods ending on September 30, PROVIDED such
continuance is specifically approved at least annually (a) by the vote
of a majority of those members of the Trust's Board of Trustees who are
not interested persons of any party to this Agreement, cast in person
at a meeting called for the purpose of voting on such approval, and (b)
by the Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities of the Fund. Notwithstanding the
foregoing, this Agreement may be terminated as to any Fund at any time,
without the payment of any penalty, by the Trust (by the Trust's Board
of Trustees or by vote of a majority of the outstanding voting
securities of the particular Fund), or by the Adviser on 60 days'
written notice. This Agreement will immediately terminate in the event
of its assignment. (As used in this Agreement, the terms "majority of
the outstanding voting securities," "interested persons" and
"assignment" shall have the same meaning of such terms in the 1940
Act.)
11. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of
the change, waiver, discharge or termination is sought. No amendment of
this Agreement shall be effective with respect to a Fund until approved
by vote of a majority of the outstanding voting securities of that
Fund.
12. MISCELLANEOUS. The Adviser expressly agrees that
notwithstanding the termination of or failure to continue this
Agreement with respect to a particular Fund, the Adviser shall continue
to be legally bound to provide the services required herein for the
other Funds for the period and on the terms set forth in this
Agreement. The captions in
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<PAGE> 6
this Agreement are included for convenience of reference only and in no
way define or delimit any of the provisions hereof or otherwise affect
their construction or effect. If any provision of this Agreement shall
be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected
thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall
be governed by Delaware law.
13. NAMES. The names "PARKSTONE ADVANTAGE FUND" and "Trustees of
PARKSTONE ADVANTAGE FUND" refer respectively to the Trust created and
the Trustees, as trustees but not individually or personally, acting
from time to time under a Declaration of Trust dated May 18, 1993 which
is hereby referred to and a copy of which is on file at the office of
the State Secretary of the Commonwealth of Massachusetts and the
principal office of the Trust. The obligations of "PARKSTONE ADVANTAGE
FUND" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually, but in
such capacities, and are not binding upon any of the Trustees,
shareholders, or representatives of the Trust personally, but bind only
the Trust property, and all persons dealing with any class of shares of
the Trust must look solely to the Trust property belonging to such
class for the enforcement of any claims against the Trust.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
PARKSTONE ADVANTAGE FUND
By:
--------------------------------
Title:
-----------------------------
NATIONAL CITY INVESTMENT
MANAGEMENT COMPANY
By:
--------------------------------
Title:
-----------------------------
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<PAGE> 1
Exhibit (e)(2)
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of this 2nd day of July, 1999 between The
Parkstone Advantage Fund ("the Trust"), a Massachusetts business trust and SEI
Investments Distribution Co. (the "Distributor"), a Pennsylvania corporation.
WHEREAS, the Trust is registered as an investment company with the
Securities and Exchange Commission (the "SEC") under the Investment Company Act
of 1940, as amended (the "1940 Act"), and its shares are registered with the SEC
under the Securities Act of 1933, as amended (the "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 units (the"Shares") of the portfolios (the "Portfolios")
of the Trust at the net asset value per Share, plus any applicable sales charges
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.
ARTICLE 4. REGISTRATION OF SHARES. As applicable, 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, to
<PAGE> 2
monitor sale of Trust shares for compliance with state securities laws, and to
file with the appropriate state securities authorities the registration
statements and reports for the Trust and the Trust's shares and all amendments
thereto, as may be necessary or convenient to register and keep effective the
Trust and the Trust's shares with state securities authorities to enable the
Trust to make a continuous offering of its shares 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 providing the services
under this Agreement:
(a) The Distributor shall receive from the Trust:
(1) all distribution and service fees, as applicable, at the
rate and under the terms and conditions set forth in each
Distribution and Shareholder Services Plan adopted by the
appropriate class of shares of each of the Portfolios, as such
Plans may be amended from time to time, and subject to any
further limitations on such fees as the Board of Trustees of
the Trust may impose;
(2) all contingent deferred sales charges ("CDSCs") applied on
redemption's of CDSC Class Shares of each Portfolio on the
terms and subject to such waivers as are described in the
Trust's Registration Statement and current prospectuses, as
amended from time to time, or as otherwise required pursuant
to applicable law; and
(3) all front-end sales charges, if any, on purchases of Class
A Shares of each Portfolio sold subject to such charges as
described in the Trust's Registration Statement and current
prospectuses, as amended from time to time. The Distributor,
or brokers, dealers and other financial institutions and
intermediaries that have entered into sub-distribution
agreements with the Distributor, may collect the gross
proceeds derived from the sale of such Class A Shares, remit
the net asset value thereof to the Trust upon receipt of the
proceeds and retain the applicable sales charge.
(b) The Distributor may reallow any or all of the distribution or
service fees, contingent deferred sales charges and front-end sales
charges which it is paid by the Trust to such brokers, dealers and
other financial institutions and intermediaries as the Distributor may
from time to time determine.
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
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<PAGE> 3
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 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
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<PAGE> 4
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
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 Trust's Shares.
ARTICLE 8. YEAR 2000 COMPLIANT. The Distributor warrants that all
software code owned by or under the Distributor's control, used in the
performance of the Distributor's obligations under this contract, will be Year
2000 compliant. For purposes of this paragraph, "Year 2000 Compliant" means that
the software will continue to operate beyond December 31, 1999 without creating
any logical or mathematical inconsistencies concerning any date after December
31, 1999 and without decreasing the functionality of the system applicable to
dates prior to January 1, 2000 including, but not limited to, making changes to
[a] date and data century recognition; [b] calculations which accommodate same-
and multi-century formulas and date values; and [c] input/output of date values
which reflect century dates. All changes described in this paragraph will be
made at no additional cost to the Trust.
ARTICLE 9. EFFECTIVE DATE. This Agreement shall be effective upon its
execution, and unless terminated as provided, shall continue in force until May
1, 2001 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
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<PAGE> 5
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 the Distributor, 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 10. 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, 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 1900 East Ninth Street, Cleveland, Ohio 44114, and
if to the Distributor, One Freedom Valley Drive, Oaks, Pennsylvania 19456.
ARTICLE 11. 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 shareholders of the Trust individually but binding only upon the
assets and property of the Trust.
ARTICLE 12. 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 13. 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 PARKSTONE ADVANTAGE FUND
By:
-------------------------
Attest:
---------------------
SEI INVESTMENTS DISTRIBUTION CO.
By:
-------------------------
Attest:
---------------------
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<PAGE> 1
Exhibit (h)(2)
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT is made as of this 2nd day of July, 1999,
by and between The Parkstone Advantage Fund, a Massachusetts business trust,
(the "Trust"), and SEI Investments Mutual Funds Services (the "Administrator"),
a Delaware business trust.
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 of Common Stock; and
WHEREAS, the Trust desires the Administrator to provide, and the
Administrator is willing to provide, management and administrative services to
such portfolios of the Trust as the Trust and the Administrator may agree on
("Portfolios") and as listed on the schedules attached hereto ("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 in
Article 2 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 AND ACCOUNTING 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. All
services provided hereunder shall be in conformity with the Declaration of
trust, Bylaws, resolutions and other instructions of the Board of trustees and
the current prospectuses and statements of additional information of the
Portfolios. The Administrator agrees to furnish the services set forth herein in
return for the compensation provided in Article 4 of this Agreement. The
determination of compliance with the requisite service level standards shall be
the responsibility of the Board of Trustees of the Trust. The Administrator
shall provide the Trustees of the Trust with such reports regarding investment
performance and compliance with investment policies and applicable laws, rules
and regulations as they may reasonably request but shall have no responsibility
for supervising the performance by any investment adviser or sub-adviser of its
responsibilities, except with respect to the Portfolios' compliance with
investment objective and policies.
<PAGE> 2
The Administrator shall provide the Trust with administrative services,
regulatory reporting, fund accounting and related portfolio accounting services
as set forth on Schedule II of this Agreement, 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 Trustees may, from time to time, reasonably
request and the Administrator shall, from time to time, reasonably determine to
be necessary to perform its obligations under this Agreement. In addition, at
the request of the Trust's Board of Trustees (the "Trustees"), the Administrator
shall make reports to the Trustees concerning the performance of its obligations
hereunder.
Without limiting the generality of the foregoing, the Administrator shall:
(A) calculate contractual Trust expenses and control all
disbursements for the Trust, and as appropriate compute the
Trust's yields, total return, expense ratios, portfolio
turnover rate and, if required, portfolio average
dollar-weighed maturity;
(B) assist Trust counsel with the preparation of prospectuses,
statements of additional information, registration statements,
and proxy materials;
(C) prepare such reports, applications and documents (including
reports regarding the sale and redemption of Shares as may be
required in order to comply with Federal and state securities
law) as may be necessary or desirable to register the Trust's
shares with state securities authorities, monitor sale of
Trust shares for compliance with state securities laws, and
file with the appropriate state securities authorities the
registration statements and reports for the Trust and the
Trust's shares and all amendments thereto, as may be necessary
or convenient to register and keep effective the Trust and the
Trust's shares with state securities authorities to enable the
Trust to make a continuous offering of its shares;
(D) develop and prepare communications to shareholders, including
the annual report to shareholders, coordinate mailing
prospectuses, notices, proxy statements, proxies and other
reports to Trust shareholders, and supervise and facilitate
the solicitation of proxies solicited by the Trust for all
shareholder meetings, including tabulation process for
shareholder meetings;
(E) coordinate with Trust counsel the preparation of, and
administer contracts on behalf of the Trust with, among
others, the Trust's investment adviser, distributor,
custodian, and transfer agent;
(F) maintain the Trust's general ledger and prepare the Trust's
financial statements, including expense accruals and payments,
determine the net asset value of the Trust's assets and of the
Trust's shares, and supervise the Trust's transfer agent with
respect to the payment of dividends and other distributions to
shareholders;
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<PAGE> 3
(G) calculate performance data of the Trust and its portfolios for
dissemination to information services covering the investment
company industry;
(H) coordinate and supervise the preparation and filing of the
Trust's tax returns;
(I) At the request of the Trustees, examine and review the
operations and performance of the various organizations
providing services to the Trust or any Portfolio of the Trust,
and report to the Trustees;
(J) assist with the layout and printing of publicly disseminated
prospectuses and assist with and coordinate layout and
printing of the Trust's semi-annual and annual reports to
shareholders;
(K) provide internal legal and administrative services as
requested by the Trust from time to time;
(L) assist with the design, development, and operation of the
Trust, including new portfolio and class investment
objectives, policies and structure;
(M) provide individuals acceptable to the Trustees for nomination,
appointment, or election as officers of the Trust, who will be
responsible for the management of certain of the Trust's
affairs as determined by the Trustees;
(N) advise the Trust and its Trustees on matters concerning the
Trust and its affairs;
(O) obtain and keep in effect fidelity bonds and directors and
officers/errors and omissions insurance policies for the Trust
in accordance with the requirements of Rules 17g-1 and
17d-1(7) under the 1940 Act as such bonds and policies are
approved by the Trust's Board of Trustees;
(P) monitor and advise the Trust and its Portfolios on their
registered investment company status under the Internal
Revenue Code of 1986, as amended;
(Q) perform all administrative services and functions of the Trust
and each Portfolio to the extent administrative services and
functions are not provided to the Trust or such Portfolio
pursuant to the Trust's or such Portfolio's investment
advisory agreement, distribution agreement, custodian
agreement and transfer agent agreement;
(R) 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
(S) prepare and file with the SEC the semi-annual report for the
Trust on Form N-SAR and all required notices pursuant to Rule
24f-2.
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<PAGE> 4
Also, the Administrator will perform other services for the Trust as agreed from
time to time, including, but not limited to performing internal audit
examinations; mailing the annual reports of the Portfolios; preparing an annual
list of shareholders; and mailing notices of shareholders' meetings, proxies and
proxy statements, for all of which the Trust will pay the Administrator's or
out-of-pocket expenses.
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
the Administrator agrees that all records which it maintains for the Trust are
the property of the Trust and further agrees to surrender promptly to the Trust
any of such records upon the Trust's request.
In the event that the Administrator cannot perform the services
required by this Agreement, SEI, the parent of the Administrator shall succeed
to the rights, duties, obligations and liabilities of the Administrator
hereunder, and may without limitation and whenever it deems necessary or
appropriate, subcontract, delegate or assign its rights, duties, obligations and
liabilities hereunder to subsidiaries or affiliates of the Administrator
following notice to the Trust. Such actions shall discharge the Administrator or
SEI from its obligations hereunder.
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 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 pricing
services, 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, the costs of
Trustees' meetings, 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 Schedule. 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.
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<PAGE> 5
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 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 5, the term
"Administrator" shall include directors, officers, employees and other agents of
the Administrator as well as that corporation itself.)
So long as the Administrator, or its agents, acts in good faith and
with due diligence 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 from any action which the Administrator takes or
does not take (i) at the request, on the direction of or in reliance on the
advice of the Trust pursuant to this agreement or (ii) upon oral or written
instructions. The indemnity provision set forth herein shall survive the
termination of this Agreement.
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 the
written 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
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<PAGE> 6
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.
ARTICLE 7. CONFIDENTIALITY. The Administrator agrees on behalf of
itself and its employees to treat confidentially all records and other
information relative to the Trust and its prior, present or potential
Shareholders and relative to the Adviser and its prior, present or potential
customers, except, after prior notification to and approval in writing by the
Trust, which approval shall not be unreasonably withheld and may not be withheld
where the Administrator may be exposed to civil or criminal contempt proceedings
for failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust.
ARTICLE 8. EQUIPMENT FAILURES. In the event of equipment failures
beyond the Administrator's control, the Administrator shall, at no additional
expense to the Trust, take reasonable steps to minimize service interruptions
but shall have no liability with respect thereto. The Administrator shall
develop and maintain a plan for recovery from equipment failures which may
include contractual arrangements with appropriate parties making reasonable
provision for emergency use of electronic data processing equipment to the
extent appropriate equipment is available.
ARTICLE 9. YEAR 2000 COMPLIANT. The Administrator warrants that all
software code owned by or under the Administrator's control, used in the
performance of the Administrator's obligations under this contract, will be Year
2000 compliant. For purposes of this paragraph, "Year 2000 Compliant" means that
the software will continue to operate beyond December 31, 1999 without creating
any logical or mathematical inconsistencies concerning any date after December
31, 1999 and without decreasing the functionality of the system applicable to
dates prior to January 1, 2000 including, but not limited to, making changes to
[a] date and data century recognition; [b] calculations which accommodate same-
and multi-century formulas and date values; and [c] input/output of date values
which reflect century dates. All changes described in this paragraph will be
made at no additional cost to the Trust.
ARTICLE 10. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS. The
Administrator undertakes to comply with all applicable requirements of the 1933
Act, the 1934 Act, the 1940 Act and any laws, rules and regulations of
governmental authorities having jurisdiction with respect to the duties to be
performed by the Administrator hereunder.
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<PAGE> 7
ARTICLE 11. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement
shall become effective on the date set forth above in the Schedules and shall
remain in effect until May 1, 2001 (the "Initial Term"). This Agreement may be
renewed for subsequent terms upon the agreement of the parties (each, a "Renewal
Term"), unless terminated in accordance with the provisions of this Article 11.
This Agreement may be terminated only: (a) by the mutual written agreement of
the parties; (b) by either party hereto on 90 days' written notice, as of the
end of the Initial Term or the end of any Renewal Term; (c) by either party
hereto on such date as is specified in written notice given by the terminating
party, in the event of a material breach of this Agreement by the other party,
provided the terminating party has notified the other party of such breach at
least 45 days prior to the specified date of termination and the breaching party
has not remedied such breach by the specified date; (d) effective upon the
liquidation of the Administrator; or (e) as to any Portfolio or the Trust,
effective upon the liquidation of such Portfolio or the Trust, as the case may
be. For purposes of this Article 11, the term "liquidation" shall mean a
transaction in which the assets of the Administrator, the Trust or a Portfolio
are sold or otherwise disposed of and proceeds therefrom are distributed in cash
to the shareholders in complete liquidation of the interests of such
shareholders in the entity.
This Agreement shall not be assignable by the Administrator, without
the prior written consent of the Trust, except to an entity that is controlled
by, or under common control, with, the Administrator.
Upon termination of this Agreement, the Administrator shall use its
best efforts to assist in the transfer of its responsibilities hereunder to any
successor administrator without additional compensation (it being understood
that they would be reimbursed for their reasonable out-of-pocket expenses).
ARTICLE 12. AMENDMENTS. This Agreement or any part hereof may be
changed or waived only by an instrument in writing signed by the party against
which enforcement of such change or waiver is sought.
ARTICLE 13. 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.
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<PAGE> 8
ARTICLE 14. 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 15. 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 National City Bank, 1900 East Ninth Street,
Cleveland Ohio 44114, with a copy to:
W. Bruce McConnel, III, Esquire
Drinker Biddle & Reath, LLP
1345 Chestnut Street
Philadelphia, Pennsylvania 19107;
and if to the Administrator at 1 Freedom Valley Drive, Oaks,
Pennsylvania, 19456.
ARTICLE 16. 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 17. 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.
ARTICLE 18. LIMITATION OF LIABILITY. The Administrator is hereby
expressly put on notice of the limitation of liability as set forth in Article
XI of the Trust's Declaration of Trust and agrees that the obligations pursuant
to this Agreement of a particular Portfolio and of the Trust with respect to
that Portfolio shall be limited solely to the assets of that Portfolio, and the
Administrator shall not seek satisfaction of any such obligation from any other
Portfolio, the shareholders of any Portfolio, the Trustees, officers, employees
or agents of the Trust, or any of them.
ARTICLE 19. BINDING AGREEMENT. This Agreement, and the rights and
obligations of the parties and the Portfolios hereunder, shall be binding on,
and inure to the benefit of, the parties and the Portfolios and the respective
successors and assigns of each of them.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
The Parkstone Advantage Fund
By:
---------------------------
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<PAGE> 9
Attest:
------------------------
SEI Investments Mutual Fund Services
By:
---------------------------
Attest:
------------------------
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<PAGE> 10
SCHEDULE
TO THE ADMINISTRATION AGREEMENT
DATED JULY 2, 1999
BETWEEN
THE PARKSTONE ADVANTAGE FUND (THE "TRUST")
AND
SEI INVESTMENTS MUTUAL FUND SERVICES
Portfolios: This Agreement shall apply to all Portfolios of the Trust as
set forth below (collectively, the "Portfolios").
The following is a listing of the portfolios of the Trust:
Parkstone Advantage Small Capitalization Fund, Parkstone
Advantage Mid Capitalization Fund, Parkstone Advantage Bond
Fund, Parkstone Advantage International Discovery Fund,
Armada Advantage Equity Growth Fund, and Armada Advantage
Balanced Allocation Fund.
Fees: Pursuant to Article 4, Section A of the Administration
Agreement, the Trust shall pay the Administrator compensation
for services rendered to the Portfolios at an annual rate of
.20% of the Portfolio's average daily net assets, which is
calculated daily and paid monthly, prior to January 1, 2000;
thereafter, the Trust shall pay the Administrator the greater
of an annual rate of .20% of the Portfolio's average daily net
assets, calculated daily and paid monthly, or $135,000 on
aggregate net assets in the Trust.
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<PAGE> 11
(1) SCHEDULE II
ACCOUNTING SERVICES
The Administrator will perform the following accounting functions:
(i) Journalize each Portfolio's investment, capital share and
income and expense activities;
(ii) Receive duplicate investment buy/sell trade tickets and
receivable trades with the Fund's custodian;
(iii) Maintain individual ledgers for investment securities;
(iv) Maintain historical tax lots for each security;
(v) Reconcile cash and investment balances of each Portfolio
with the custodian, and prepare the beginning cash balance
available for investment purposes;
(vi) Update the cash availability throughout the day as
required;
(vii) Post to and prepare each Portfolio's statement of Assets
and Liabilities and the Statement of Operations;
(viii) Calculate various contractual expenses (e.g., advisory
and custody fees);
(ix) Monitor the expense accruals and notify Fund management
of any proposed adjustments;
(x) Control all disbursements from each Portfolio and
authorize such disbursements upon Written Instruction;
(xi) Calculate capital gains and losses;
(xii) Determine each Portfolio's net income;
(xiii)Obtain security market quotes from independent pricing
services approved by the Fund, or if such quotes are
unavailable, then obtain such prices from the management of
the Fund, and in either case calculate the market value of
each Portfolio's investment's;
(xiv) Transit or mail a copy of the daily portfolio valuation
to each Portfolio's investment advisor;
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<PAGE> 12
(xv) Compute the net asset value of each Portfolio;
(xvi) As appropriate, compute the yields, total return,
expense ratios, portfolio turnover rate, and, if required,
portfolio average dollar-weighted maturity; and
(xvii) Prepare a monthly financial statement, which will
include the following items:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Change in Net Assets
Cash Statement
Schedule of Capital Gains and Loses.
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<PAGE> 1
Exhibit (h)(6)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
PARKSTONE ADVANTAGE FUND
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
1. Terms of Appointment and Duties.................................................................1
2. Third Party Administrators for Defined Contribution Plans ......................................4
3. Fees and Expenses...............................................................................5
4. Representations and Warranties of the Transfer Agent............................................6
5. Representations and Warranties of the Fund......................................................6
6. Wire Transfer Operating Guidelines..............................................................7
7. Data Access and Proprietary Information.........................................................8
8. Indemnification................................................................................10
9. Standard of Care...............................................................................11
10. Year 2000......................................................................................12
11. Confidentiality ...............................................................................12
12. Covenants of the Fund and the Transfer Agent...................................................13
13. Termination of Agreement.......................................................................13
14. Assignment and Third Party Beneficiaries.......................................................14
15. Subcontractors.................................................................................14
16. Miscellaneous..................................................................................15
17. Additional Funds...............................................................................16
18. Limitations of Liability of the Trustees and Shareholders......................................16
</TABLE>
<PAGE> 3
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the day of , 1999, by and between PARKSTONE
ADVANTAGE FUND, a Massachusetts business trust, having its principal office and
place of business at 680 East Swedesford Road, Wayne, Pennsylvania 19087(the
"Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company
having its principal office and place of business at 225 Franklin Street,
Boston, Massachusetts 02110 (the "Transfer Agent").
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets;
WHEREAS, the Fund intends to initially offer shares in six (6) series, such
series shall be named in the attached Schedule A which may be amended by the
parties from time to time (each such series, together with all other series
subsequently established by the Fund and made subject to this Agreement in
accordance with Section 17, being herein referred to as a "Portfolio", and
collectively as the "Portfolios"); and
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Transfer
Agent as its transfer agent, dividend disbursing agent, custodian of certain
retirement plans and agent in connection with certain other activities, and the
Transfer Agent desires to accept such appointment.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
l. Terms of Appointment and Duties
-------------------------------
1.1 Transfer Agency Services. Subject to the terms and conditions set forth
in this Agreement, the Fund, on behalf of the Portfolios, hereby
employs and appoints the Transfer Agent to act as, and the Transfer
Agent agrees to act as its transfer agent for the Fund's authorized and
issued shares of its beneficial interest, $ par value, ("Shares"),
dividend disbursing agent, custodian of certain retirement plans and
agent in connection with any accumulation, open-account or similar plan
provided to the shareholders of each of the respective Portfolios of
the Fund ("Shareholders") and set out in the currently effective
prospectus and statement of additional information ("prospectus") of
the Fund on behalf of the applicable Portfolio, including without
limitation any periodic investment plan or periodic withdrawal program.
In accordance with procedures established from time to time by
agreement between the Fund on behalf of each of the Portfolios, as
applicable and the Transfer Agent, the Transfer Agent agrees that it
will perform the following services:
(a) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation thereof to the
Custodian of the Fund authorized pursuant to the Declaration of Trust
of the Fund (the "Custodian");
(b) Pursuant to purchase orders, issue the appropriate number of Shares
and hold such Shares in the appropriate Shareholder account;
(c) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof to the
Custodian;
<PAGE> 4
(d) In respect to the transactions in items (a), (b) and (c) above, the
Transfer Agent shall execute transactions directly with broker-dealers
authorized by the Fund;
(e) At the appropriate time as and when it receives monies paid to it
by the Custodian with respect to any redemption, pay over or cause to
be paid over in the appropriate manner such monies as instructed by the
redeeming Shareholders;
(f) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(g) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio;
(h) Issue replacement certificates for those certificates alleged to
have been lost, stolen or destroyed upon receipt by the Transfer Agent
of indemnification satisfactory to the Transfer Agent and protecting
the Transfer Agent and the Fund, and the Transfer Agent at its option,
may issue replacement certificates in place of mutilated stock
certificates upon presentation thereof and without such indemnity;
(i) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(j) Record the issuance of Shares of the Fund and maintain pursuant to
SEC Rule 17Ad-10(e) a record of the total number of Shares of the Fund
which are authorized, based upon data provided to it by the Fund, and
issued and outstanding. The Transfer Agent shall also provide the Fund
on a regular basis with the total number of Shares which are authorized
and issued and outstanding and shall have no obligation, when recording
the issuance of Shares, to monitor the issuance of such Shares or to
take cognizance of any laws relating to the issue or sale of such
Shares, which functions shall be the sole responsibility of the Fund.
1.2 Additional Services. In addition to, and neither in lieu nor in
contravention of, the services set forth in the above paragraph, the
Transfer Agent shall perform the following services:
(a) Other Customary Services. Perform the customary services of a
transfer agent, dividend disbursing agent, custodian of certain
retirement plans and, as relevant, agent in connection with
accumulation, open-account or similar plan (including without
limitation any periodic investment plan or periodic withdrawal
program), including but not limited to: maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing Shareholder
proxies, Shareholder reports and prospectuses to current Shareholders,
withholding taxes on U.S. resident and non-resident alien accounts,
preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect
2
<PAGE> 5
to dividends and distributions by federal authorities for all
Shareholders, preparing and mailing confirmation forms and statements
of account to Shareholders for all purchases and redemptions of Shares
and other confirmable transactions in Shareholder accounts, preparing
and mailing activity statements for Shareholders, and providing
Shareholder account information.
(b) Control Book (also known as "Super Sheet"). Maintain a daily record
and produce a daily report for the Fund of all transactions and
receipts and disbursements of money and securities and deliver a copy
of such report for the Fund for each business day to the Fund no later
than 9:00 AM Eastern Time, or such earlier time as the Fund may
reasonably require, on the next business day.
(c) "Blue Sky" Reporting. The Fund shall (i) identify to the Transfer
Agent in writing those transactions and assets to be treated as exempt
from blue sky reporting for each State; and (ii) verify the
establishment of transactions for each State on the system prior to
activation and thereafter monitor the daily activity for each State.
The responsibility of the Transfer Agent for the Fund's blue sky State
registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Fund and providing a
system which will enable the Fund to monitor the total number of Shares
sold in each State.
(d) National Securities Clearing Corporation (the "NSCC"). (i) accept
and effectuate the registration and maintenance of accounts through
Networking and the purchase, redemption, transfer and exchange of
shares in such accounts through Fund/SERV (networking and Fund/SERV
being programs operated by the NSCC on behalf of NSCC's participants,
including the Fund), in accordance with, instructions transmitted to
and received by the Transfer Agent by transmission from NSCC on behalf
of broker-dealers and banks which have been established by, or in
accordance with the instructions of authorized persons, as hereinafter
defined on the dealer file maintained by the Transfer Agent; (ii) issue
instructions to Fund's banks for the settlement of transactions between
the Fund and NSCC (acting on behalf of its broker-dealer and bank
participants); (iii) provide account and transaction information from
the affected Fund's records on DST Systems, Inc. computer system TA2000
("TA2000 System") in accordance with NSCC's Networking and Fund/SERV
rules for those broker-dealers; and (iv) maintain Shareholder accounts
on TA2000 System through Networking.
(e) New Procedures. New procedures as to who shall provide certain of
these services in Section 1 may be established in writing from time to
time by agreement between the Fund and the Transfer Agent. The Transfer
Agent may at times perform only a portion of these services and the
Fund or its agent may perform these services on the Fund's behalf.
3
<PAGE> 6
(f) Additional Telephone Support Services. If the parties elect to have
the Transfer Agent provide additional telephone support services under
this Agreement, the parties will agree to such services, fees and
sub-contracting as stated in Schedule 1.2(f) entitled "Telephone
Support Services" attached hereto.
2. Third Party Administrators for Defined Contribution Plans
---------------------------------------------------------
2.1 The Fund may decide to make available to certain of its customers, a
qualified plan program (the "Program") pursuant to which the customers
("Employers") may adopt certain plans of deferred compensation ("Plan
or Plans") for the benefit of the individual Plan participant (the
"Plan Participant"), such Plan(s) being qualified under Section 401(a)
of the Internal Revenue Code of 1986, as amended ("Code") and
administered by third party administrators which may be plan
administrators as defined in the Employee Retirement Income Security
Act of 1974, as amended)(the "TPA(s)").
2.2 In accordance with the procedures established in the initial Schedule
2.1 entitled "Third Party Administrator Procedures", as may be amended
by the Transfer Agent and the Fund from time to time ("Schedule 2.1"),
the Transfer Agent shall:
(a) Treat Shareholder accounts established by the Plans in the name of
the Trustees, Plans or TPAs as the case may be as omnibus accounts;
(b) Maintain omnibus accounts on its records in the name of the TPA or
its designee as the Trustee for the benefit of the Plan; and
(c) Perform all services under Section 1 as transfer agent of the Funds
and not as a record-keeper for the Plans.
2.3 Transactions identified under Section 2 of this Agreement shall be
deemed exception services ("Exception Services") when such
transactions:
(a) Require the Transfer Agent to use methods and procedures other than
those usually employed by the Transfer Agent to perform services under
Section 1 of this Agreement;
(b) Involve the provision of information to the Transfer Agent after
the commencement of the nightly processing cycle of the TA2000 System;
or
(c) Require more manual intervention by the Transfer Agent, either in
the entry of data or in the modification or amendment of reports
generated by the TA2000 System than is usually required by
non-retirement plan and pre-nightly transactions.
4
<PAGE> 7
3. Fees and Expenses
-----------------
3.1 Fee Schedule. For the performance by the Transfer Agent pursuant to
this Agreement, the Fund agrees to pay the Transfer Agent an annual
maintenance fee for each Shareholder account as set forth in the
attached fee schedule ("Schedule 3.1"). Such fees and out-of-pocket
expenses and advances identified under Section 3.2 below may be changed
from time to time subject to mutual written agreement between the Fund
and the Transfer Agent.
3.2 Out-of-Pocket Expenses. In addition to the fee paid under Section 3.1
above, the Fund agrees to reimburse the Transfer Agent for
out-of-pocket expenses, including but not limited to confirmation
production, postage, forms, telephone, microfilm, microfiche, mailing
and tabulating proxies, records storage, or advances incurred by the
Transfer Agent for the items set out in Schedule 3.1 attached hereto.
In addition, any other expenses incurred by the Transfer Agent at the
request or with the consent of the Fund, will be reimbursed by the
Fund.
3.3 Postage. Postage for mailing of dividends, proxies, Fund reports and
other mailings to all shareholder accounts shall be advanced to the
Transfer Agent by the Fund at least seven (7) days prior to the mailing
date of such materials.
3.4 Invoices. The Fund agrees to pay all fees and reimbursable expenses
within thirty (30) days following the receipt of the respective billing
notice, except for any fees or expenses which are subject to good faith
dispute. In the event of such a dispute, the Fund may only withhold
that portion of the fee or expense subject to the good faith dispute.
The Fund shall notify the Transfer Agent in writing within twenty-one
(21) calendar days following the receipt of each billing notice if the
Fund is disputing any amounts in good faith. If the Fund does not
provide such notice of dispute within the required time, the billing
notice will be deemed accepted by the Fund.
4. Representations and Warranties of the Transfer Agent
----------------------------------------------------
The Transfer Agent represents and warrants to the Fund that:
4.1 It is a trust company duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
4.2 It is duly qualified to carry on its business in The Commonwealth of
Massachusetts.
4.3 It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
4.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
5
<PAGE> 8
4.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement.
5. Representations and Warranties of the Fund
------------------------------------------
The Fund represents and warrants to the Transfer Agent that:
5.1 It is a business trust duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
5.2 It is empowered under applicable laws and by its Declaration of Trust
and By-Laws to enter into and perform this Agreement.
5.3 All corporate proceedings required by said Declaration of Trust and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
5.4 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
5.5 A registration statement under the Securities Act of 1933, as amended
is currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made,
with respect to all Shares of the Fund being offered for sale.
6. Wire Transfer Operating Guidelines/Articles 4A of the Uniform
Commercial Code
---------------
6.1 The Transfer Agent is authorized to promptly debit the appropriate Fund
account(s) upon the receipt of a payment order in compliance with the
selected security procedure (the "Security Procedure") chosen for funds
transfer and in the amount of money that the Transfer Agent has been
instructed to transfer. The Transfer Agent shall execute payment orders
in compliance with the Security Procedure and with the Fund
instructions on the execution date provided that such payment order is
received by the customary deadline for processing such a request,
unless the payment order specifies a later time. All payment orders and
communications received after this the customary deadline will be
deemed to have been received the next business day.
6.2 The Fund acknowledges that the Security Procedure it has designated on
the Fund Selection Form was selected by the Fund from security
procedures offered by the Transfer Agent. The Fund shall restrict
access to confidential information relating to the Security Procedure
to authorized persons as communicated to the Transfer Agent in writing.
The Fund must notify the Transfer Agent immediately if it has reason to
believe
6
<PAGE> 9
unauthorized persons may have obtained access to such information or of
any change in the Fund's authorized personnel. The Transfer Agent shall
verify the authenticity of all Fund instructions according to the
Security Procedure.
6.3 The Transfer Agent shall process all payment orders on the basis of the
account number contained in the payment order. In the event of a
discrepancy between any name indicated on the payment order and the
account number, the account number shall take precedence and govern.
6.4 The Transfer Agent reserves the right to decline to process or delay
the processing of a payment order which (a) is in excess of the
collected balance in the account to be charged at the time of the
Transfer Agent's receipt of such payment order; (b) if initiating such
payment order would cause the Transfer Agent, in the Transfer Agent's
sole judgement, to exceed any volume, aggregate dollar, network, time,
credit or similar limits which are applicable to the Transfer Agent; or
(c) if the Transfer Agent, in good faith, is unable to satisfy itself
that the transaction has been properly authorized.
6.5 The Transfer Agent shall use reasonable efforts to act on all
authorized requests to cancel or amend payment orders received in
compliance with the Security Procedure provided that such requests are
received in a timely manner affording the Transfer Agent reasonable
opportunity to act. However, the Transfer Agent assumes no liability if
the request for amendment or cancellation cannot be satisfied.
6.6 The Transfer Agent shall assume no responsibility for failure to detect
any erroneous payment order provided that the Transfer Agent complies
with the payment order instructions as received and the Transfer Agent
complies with the Security Procedure. The Security Procedure is
established for the purpose of authenticating payment orders only and
not for the detection of errors in payment orders.
6.7 The Transfer Agent shall assume no responsibility for lost interest
with respect to the refundable amount of any unauthorized payment
order, unless the Transfer Agent is notified of the unauthorized
payment order within thirty (30) days of notification by the Transfer
Agent of the acceptance of such payment order. In no event (including
failure to execute a payment order) shall the Transfer Agent be liable
for special, indirect or consequential damages, even if advised of the
possibility of such damages.
6.8 When the Fund initiates or receives Automated Clearing House credit and
debit entries pursuant to these guidelines and the rules of the
National Automated Clearing House Association and the New England
Clearing House Association, the Transfer Agent will act as an
Originating Depository Financial Institution and/or receiving
depository Financial Institution, as the case may be, with respect to
such entries. Credits given by the Transfer Agent with respect to an
ACH credit entry are provisional until the Transfer Agent receives
final settlement for such entry from the Federal Reserve Bank. If the
Transfer Agent does not receive such final settlement, the Fund agrees
that the Transfer
7
<PAGE> 10
Agent shall receive a refund of the amount credited to the Fund in
connection with such entry, and the party making payment to the Fund
via such entry shall not be deemed to have paid the amount of the
entry.
6.9 Confirmation of Transfer Agent's execution of payment orders shall
ordinarily be provided within twenty four (24) hours notice of which
may be delivered through the Transfer Agent's proprietary information
systems, or by facsimile or call-back. Fund must report any objections
to the execution of an order within thirty (30) days.
7. Data Access and Proprietary Information
---------------------------------------
7.1 The Fund acknowledges that the databases, computer programs, screen
formats, report formats, interactive design techniques, and
documentation manuals furnished to the Fund by the Transfer Agent as
part of the Fund's ability to access certain Fund-related data
("Customer Data") maintained by the Transfer Agent on databases under
the control and ownership of the Transfer Agent or other third party
("Data Access Services") constitute copyrighted, trade secret, or other
proprietary information (collectively, "Proprietary Information") of
substantial value to the Transfer Agent or other third party. In no
event shall Proprietary Information be deemed Customer Data. The Fund
agrees to treat all Proprietary Information as proprietary to the
Transfer Agent and further agrees that it shall not divulge any
Proprietary Information to any person or organization except as may be
provided hereunder. Without limiting the foregoing, the Fund agrees for
itself and its employees and agents to:
(a) Use such programs and databases (i) solely on the Fund's computers,
or (ii) solely from equipment at the location agreed to between the
Fund and the Transfer Agent and (iii) solely in accordance with the
Transfer Agent's applicable user documentation;
(b) Refrain from copying or duplicating in any way (other than in the
normal course of performing processing on the Fund's computer(s)), the
Proprietary Information;
(c) Refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and if such access is inadvertently obtained,
to inform in a timely manner of such fact and dispose of such
information in accordance with the Transfer Agent's instructions;
(d) Refrain from causing or allowing information transmitted from the
Transfer Agent's computer to the Fund's terminal to be retransmitted to
any other computer terminal or other device except as expressly
permitted by the Transfer Agent (such permission not to be unreasonably
withheld);
(e) Allow the Fund to have access only to those authorized transactions
as agreed to between the Fund and the Transfer Agent; and
8
<PAGE> 11
(f) Honor all reasonable written requests made by the Transfer Agent to
protect at the Transfer Agent's expense the rights of the Transfer
Agent in Proprietary Information at common law, under federal copyright
law and under other federal or state law.
7.2 Proprietary Information shall not include all or any portion of any of
the foregoing items that: (i) are or become publicly available without
breach of this Agreement; (ii) are released for general disclosure by a
written release by the Transfer Agent; or (iii) are already in the
possession of the receiving party at the time or receipt without
obligation of confidentiality or breach of this Agreement.
7.3 The Fund acknowledges that its obligation to protect the Transfer
Agent's Proprietary Information is essential to the business interest
of the Transfer Agent and that the disclosure of such Proprietary
Information in breach of this Agreement would cause the Transfer Agent
immediate, substantial and irreparable harm, the value of which would
be extremely difficult to determine. Accordingly, the parties agree
that, in addition to any other remedies that may be available in law,
equity, or otherwise for the disclosure or use of the Proprietary
Information in breach of this Agreement, the Transfer Agent shall be
entitled to seek and obtain a temporary restraining order, injunctive
relief, or other equitable relief against the continuance of such
breach.
7.4 If the Fund notifies the Transfer Agent that any of the Data Access
Services do not operate in material compliance with the most recently
issued user documentation for such services, the Transfer Agent shall
endeavor in a timely manner to correct such failure. Organizations from
which the Transfer Agent may obtain certain data included in the Data
Access Services are solely responsible for the contents of such data
and the Fund agrees to make no claim against the Transfer Agent arising
out of the contents of such third-party data, including, but not
limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER
PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE
PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE TRANSFER AGENT EXPRESSLY
DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN
INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
7.5 If the transactions available to the Fund include the ability to
originate electronic instructions to the Transfer Agent in order to:
(i) effect the transfer or movement of cash or Shares; or (ii) transmit
Shareholder information or other information, then in such event the
Transfer Agent shall be entitled to rely on the validity and
authenticity of such instruction without undertaking any further
inquiry as long as such instruction is undertaken in conformity with
security procedures established by the Transfer Agent from time to
time.
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<PAGE> 12
7.6 Each party shall take reasonable efforts to advise its employees of
their obligations pursuant to this Section 7. The obligations of this
Section shall survive any earlier termination of this Agreement.
8. Indemnification
---------------
8.1 The Transfer Agent shall not be responsible for, and the Fund shall
indemnify and hold the Transfer Agent harmless from and against, any
and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to:
(a) All actions of the Transfer Agent or its agents or subcontractors
required to be taken pursuant to this Agreement, provided that such
actions are taken in good faith and without negligence or willful
misconduct;
(b) The Fund's lack of good faith, negligence or willful misconduct;
(c) The reliance upon, and any subsequent use of or action taken or
omitted, by the Transfer Agent, or its agents or subcontractors on: (i)
any information, records, documents, data, stock certificates or
services, which are received by the Transfer Agent or its agents or
subcontractors by machine readable input, facsimile, CRT data entry,
electronic instructions or other similar means authorized by the Fund,
and which have been prepared, maintained or performed by the Fund or
any other person or firm on behalf of the Fund including but not
limited to any previous transfer agent or registrar; (ii) any
instructions or requests of the Fund or any of its officers; (iii) any
instructions or opinions of legal counsel with respect to any matter
arising in connection with the services to be performed by the Transfer
Agent under this Agreement which are provided to the Transfer Agent
after consultation with such legal counsel; or (iv) any paper or
document, reasonably believed to be genuine, authentic, or signed by
the proper person or persons;
(d) The offer or sale of Shares in violation of federal or state
securities laws or regulations requiring that such Shares be registered
or in violation of any stop order or other determination or ruling by
any federal or any state agency with respect to the offer or sale of
such Shares;
(e) The negotiation and processing of any checks including without
limitation for deposit into the Fund's demand deposit account
maintained by the Transfer Agent; or
(f) Upon the Fund's request entering into any agreements required by
the National Securities Clearing Corporation (the "NSCC") for the
transmission of Fund or Shareholder data through the NSCC clearing
systems.
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<PAGE> 13
8.2 In order that the indemnification provisions contained in this Section
8 shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Transfer Agent, the Transfer Agent shall
promptly notify the Fund of such assertion, and shall keep the Fund
advised with respect to all developments concerning such claim. The
Fund shall have the option to participate with the Transfer Agent in
the defense of such claim or to defend against said claim in its own
name or in the name of the Transfer Agent. The Transfer Agent shall in
no case confess any claim or make any compromise in any case in which
the Fund may be required to indemnify the Transfer Agent except with
the Fund's prior written consent.
9. Standard of Care
----------------
9.1 The Transfer Agent shall at all times act in good faith and agrees to
use its best efforts within reasonable limits to insure the accuracy of
all services performed under this Agreement, but assumes no
responsibility and shall not be liable for loss or damage due to errors
unless said errors are caused by its negligence, bad faith, or willful
misconduct or that of its employees, except as provided in Section 9.2
below.
9.2 In the case of Exception Services as defined in Section 2.3 herein, the
Transfer Agent shall be held to a standard of gross negligence and
encoding and payment processing errors shall not be deemed negligence.
10. Year 2000
---------
The Transfer Agent will take reasonable steps to ensure that its
products (and those of its third-party suppliers) reflect the available
technology to offer products that are Year 2000 ready, including, but
not limited to, century recognition of dates, calculations that
correctly compute same century and multi century formulas and date
values, and interface values that reflect the date issues arising
between now and the next one-hundred years, and if any changes are
required, the Transfer Agent will make the changes to its products at a
price to be agreed upon by the parties and in a commercially reasonable
time frame and will require third-party suppliers to do likewise.
11. Confidentiality
---------------
11.1 The Transfer Agent and the Fund agree that they will not, at any time
during the term of this Agreement or after its termination, reveal,
divulge, or make known to any person, firm, corporation or other
business organization, any customers' lists, trade secrets, cost
figures and projections, profit figures and projections, or any other
secret or confidential information whatsoever, whether of the Transfer
Agent or of the Fund, used or gained by the Transfer Agent or the Fund
during performance under this Agreement. The Fund and the Transfer
Agent further covenant and agree to retain all such knowledge and
information acquired during and after the term of this Agreement
respecting such lists, trade secrets, or any secret or confidential
information whatsoever in trust for the sole
11
<PAGE> 14
benefit of the Transfer Agent or the Fund and their successors and
assigns. In the event of breach of the foregoing by either party, the
remedies provided by Section 7.3 shall be available to the party whose
confidential information is disclosed. The above prohibition of
disclosure shall not apply to the extent that the Transfer Agent must
disclose such data to its sub-contractor or Fund agent for purposes of
providing services under this Agreement.
11.2 In the event that any requests or demands are made for the inspection
of the Shareholder records of the Fund, other than request for records
of Shareholders pursuant to standard subpoenas from state or federal
government authorities (i.e., divorce and criminal actions), the
Transfer Agent will endeavor to notify the Fund and to secure
instructions from an authorized officer of the Fund as to such
inspection. The Transfer Agent expressly reserves the right, however,
to exhibit the Shareholder records to any person whenever it is advised
by counsel that it may be held liable for the failure to exhibit the
Shareholder records to such person or if required by law or court
order.
12. Covenants of the Fund and the Transfer Agent
--------------------------------------------
12.1 The Fund shall promptly furnish to the Transfer Agent the following:
(a) A certified copy of the resolution of the Board of Trustees of the
Fund authorizing the appointment of the Transfer Agent and the
execution and delivery of this Agreement; and
(b) A copy of the Declaration of Trust and By-Laws of the Fund and all
amendments thereto.
12.2 The Transfer Agent hereby agrees to establish and maintain facilities
and procedures reasonably acceptable to the Fund for safekeeping of
stock certificates, check forms and facsimile signature imprinting
devices, if any; and for the preparation or use, and for keeping
account of, such certificates, forms and devices.
12.3 The Transfer Agent shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable.
To the extent required by Section 31 of the Investment Company Act of
1940, as amended, and the Rules thereunder, the Transfer Agent agrees
that all such records prepared or maintained by the Transfer Agent
relating to the services to be performed by the Transfer Agent
hereunder are the property of the Fund and will be preserved,
maintained and made available in accordance with such Section and
Rules, and will be surrendered promptly to the Fund on and in
accordance with its request.
12
<PAGE> 15
13. Termination of Agreement
------------------------
13.1 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
13.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Fund. Additionally, the Transfer Agent reserves the right
to charge for any other reasonable expenses associated with such
termination and a charge equivalent to the average of three (3) months'
fees. Payment of such expenses or costs shall be in accordance with
Section 3.4 of this Agreement.
13.3 Upon termination of this Agreement, each party shall return to the
other party all copies of confidential or proprietary materials or
information received from such other party hereunder, other than
materials or information required to be retained by such party under
applicable laws or regulations.
14. Assignment and Third Party Beneficiaries.
-----------------------------------------
14.1 Except as provided in Section 15.1 below and the Additional Telephone
Support Services Schedule 1.2(f) attached, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party
without the written consent of the other party. Any attempt to do so in
violation of this Section shall be void. Unless specifically stated to
the contrary in any written consent to an assignment, no assignment
will release or discharge the assignor from any duty or responsibility
under this Agreement.
14.2 Except as explicitly stated elsewhere in this Agreement, nothing under
this Agreement shall be construed to give any rights or benefits in
this Agreement to anyone other than the Transfer Agent and the Fund,
and the duties and responsibilities undertaken pursuant to this
Agreement shall be for the sole and exclusive benefit of the Transfer
Agent and the Fund. This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and
assigns.
14.3 This Agreement does not constitute an agreement for a partnership or
joint venture between the Transfer Agent and the Fund. Other than as
provided in Section 15.1 and Schedule 1.2(f), neither party shall make
any commitments with third parties that are binding on the other party
without the other party's prior written consent.
15. Subcontractors
--------------
15.1 The Transfer Agent may, without further consent on the part of the
Fund, subcontract for the performance hereof with (i) Boston Financial
Data Services, Inc., a Massachusetts corporation ("BFDS") which is duly
registered as a transfer agent pursuant to Section 17A(c)(2) of the
Securities Exchange Act of 1934, as amended, (ii) a BFDS subsidiary
13
<PAGE> 16
duly registered as a transfer agent or (iii) a BFDS affiliate duly
registered as a transfer agent; provided, however, that the Transfer
Agent shall be fully responsible to the Fund for the acts and omissions
of BFDS or its subsidiary or affiliate as it is for its own acts and
omissions.
15.2 Nothing herein shall impose any duty upon the Transfer Agent in
connection with or make the Transfer Agent liable for the actions or
omissions to act of unaffiliated third parties such as by way of
example and not limitation, Airborne Services, Federal Express, United
Parcel Service, the U.S. Mails, the NSCC and telecommunication
companies, provided, if the Transfer Agent selected such company, the
Transfer Agent shall have exercised due care in selecting the same.
16. Miscellaneous
-------------
16.1 Amendment. This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a
resolution of the Board of Trustees of the Fund.
16.2 Massachusetts Law to Apply. This Agreement shall be construed and the
provisions thereof interpreted under and in accordance with the laws of
The Commonwealth of Massachusetts.
16.3 Force Majeure. In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God,
strikes, equipment or transmission failure or damage reasonably beyond
its control, or other causes reasonably beyond its control, such party
shall not be liable for damages to the other for any damages resulting
from such failure to perform or otherwise from such causes.
16.4 Consequential Damages. Neither party to this Agreement shall be liable
to the other party for consequential damages under any provision of
this Agreement or for any consequential damages arising out of any act
or failure to act hereunder.
16.5 Survival. All provisions regarding indemnification, warranty,
liability, and limits thereon, and confidentiality and/or protections
of proprietary rights and trade secrets shall survive the termination
of this Agreement.
16.6 Severability. If any provision or provisions of this Agreement shall be
held invalid, unlawful, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be
affected or impaired.
16.7 Priorities Clause. In the event of any conflict, discrepancy or
ambiguity between the terms and conditions contained in this Agreement
and any Schedules or attachments hereto, the terms and conditions
contained in this Agreement shall take precedence.
14
<PAGE> 17
16.8 Waiver. No waiver by either party or any breach or default of any of
the covenants or conditions herein contained and performed by the other
party shall be construed as a waiver of any succeeding breach of the
same or of any other covenant or condition.
16.9 Merger of Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes any prior agreement with
respect to the subject matter hereof whether oral or written.
16.10 Counterparts. This Agreement may be executed by the parties hereto on
any number of counterparts, and all of said counterparts taken together
shall be deemed to constitute one and the same instrument.
16.11. Reproduction of Documents. This Agreement and all schedules, exhibits,
attachments and amendments hereto may be reproduced by any
photographic, photostatic, microfilm, micro-card, miniature
photographic or other similar process. The parties hereto each agree
that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether
or not the original is in existence and whether or not such
reproduction was made by a party in the regular course of business, and
that any enlargement, facsimile or further reproduction shall likewise
be admissible in evidence.
16.12 Notices. All notices and other communications as required or permitted
hereunder shall be in writing and sent by first class mail, postage
prepaid, addressed as follows or to such other address or addresses of
which the respective party shall have notified the other.
(a) If to State Street Bank and Trust Company, to:
State Street Bank and Trust Company
c/o Boston Financial Data Services, Inc.
Two Heritage Drive
Quincy, Massachusetts 02171
Attention: Legal Department
Facsimile: (617) 774-2287
(b) If to the Fund, to:
Attention:
15
<PAGE> 18
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to the attached Schedule A with respect to which it desires to
have the Transfer Agent render services as transfer agent under the
terms hereof, it shall so notify the Transfer Agent in writing, and if
the Transfer Agent agrees in writing to provide such services, such
series of Shares shall become a Portfolio hereunder.
18. Limitations of Liability of the Trustees and Shareholders
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 or Shareholders
individually but are binding only upon the assets and property of the
Fund.
16
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
PARKSTONE ADVANTAGE FUND
BY: ___________________________________
ATTEST:
- --------------------------------
STATE STREET BANK AND TRUST COMPANY
BY: _______________________________
Vice Chairman
ATTEST:
- --------------------------------
17
<PAGE> 20
SCHEDULE A
Parkstone Advantage Mid Capitalization Fund
Parkstone Advantage Small Capitalization Fund
Parkstone Advantage International Discovery Fund
Parkstone Advantage Bond Fund
Armada Advantage Equity Growth Fund
Armada Advantage Balanced Allocation Fund
PARKSTONE ADVANTAGE STATE STREET BANK AND TRUST
FUND COMPANY
BY:_________________________________ BY:__________________________
<PAGE> 21
SCHEDULE 1.2(f)
ADDITIONAL TELEPHONE SUPPORT FEES AND SERVICES
Dated ____________
I. SERVICES
1. Transfer Agent and Telephone Support Functions
a. Answer telephone inquiries from [XXX 8 a.m. to 8 p.m. Boston time
Monday through Friday except Christmas Day XXX] [XXX OTHER HOLIDAY
COVERAGE AVAILABLE?XXX] from [XXX existing customers and prospective
customers XXX] of the Fund [XXX for sales literature XXX] in accordance
with the telephone script provided by the Fund.
b. Answer questions pertaining thereto the extent that such questions are
answerable based upon the information supplied to the Transfer Agent by
the Fund.
c. [XXX As the Fund and the Transfer Agent may agree in writing, the
Transfer Agent will receive calls and take written transaction requests
from shareholders of the Fund. Transfer Agent transactions include:
[XXX telephone redemptions, account maintenance, exchanges, transfers,
confirmed purchases, account balances and general inquiries XXX]. Some
transactions may result in research which will be done by the Fund.
Other calls may be referred directly to the Fund. Fax any referrals to
[XXX name of company XXX] on the same day the telephone call is
received.XXX];
2. Incorporate new information into the above referenced script upon
written instructions from the Fund;
3. Maintain prospect detail information for six (6) months thereafter,
provide such information to the Fund in the form that the Fund may
reasonably request;
4. Send all literature orders for information from BFDS/DST [XXX [how?]
[to whom?] XXX] a minimum of [XXX one XXX] transmission per day;
5. Provide the Fund with a [XXX daily/weekly/monthly XXX] telephone report
detailing the calls received during the [XXX day/week/month XXX];
6. [XXX Provide the Fund with monthly conversion reports as selected by
the Fund from DST's standard report package. XXX]
<PAGE> 22
7. TARGET SERVICE LEVELS: Average speed of answer is fifteen (15) seconds,
abandon rate of no more than 2%, and an overall service level of 85%.
The averages will be calculated on a weekly basis.
II. SUBCONTRACTORS
1. The Transfer Agent may, without further consent on the part of the
Fund, subcontract ministerial telephone support services for the
performance hereof.
III. FEES
PARKSTONE ADVANTAGE STATE STREET BANK AND TRUST
FUND COMPANY
BY:_______________________________ BY:______________________________
<PAGE> 23
SCHEDULE 2.1
THIRD PARTY ADMINISTRATOR(S) PROCEDURES
Dated ____________
1. On each Business Day, the TPA(s) shall receive, on behalf of and as
agent of the Fund(s), Instructions (as hereinafter defined) from the
Plan. Instructions shall mean as to each Fund (i) orders by the Plan
for the purchases of Shares, and (ii) requests by the Plan for the
redemption of Shares; in each case based on the Plan's receipt of
purchase orders and redemption requests by Participants in proper form
by the time required by the term of the Plan, but not later than the
time of day at which the net asset value of a Fund is calculated, as
described from time to time in that Fund's prospectus. Each Business
Day on which the TPA receives Instructions shall be a "Trade Date".
2. The TPA(s) shall communicate the TPA(s)'s acceptance of such
Instructions, to the applicable Plan.
3. On the next succeeding Business Day following the Trade Date on which
it accepted Instructions for the purchase and redemption of Shares,
(TD+1), the TPA(s) shall notify the Transfer Agent of the net amount of
such purchases or redemptions, as the case may be, for each of the
Plans. In the case of net purchases by any Plan, the TPA(s) shall
instruct the Trustees of such Plan to transmit the aggregate purchase
price for Shares by wire transfer to the Transfer Agent on (TD+1). In
the case of net redemptions by any Plan, the TPA(s) shall instruct the
Fund's custodian to transmit the aggregate redemption proceeds for
Shares by wire transfer to the Trustees of such Plan on (TD+1). The
times at which such notification and transmission shall occur on (TD+1)
shall be as mutually agreed upon by each Fund, the TPA(s), and the
Transfer Agent.
4. The TPA(s) shall maintain separate records for each Plan, which record
shall reflect Shares purchased and redeemed, including the date and
price for all transactions, and Share balances. The TPA(s) shall
maintain on behalf of each of the Plans a single master account with
the Transfer Agent and such account shall be in the name of that Plan,
the TPA(s), or the nominee of either thereof as the record owner of
Shares owned by such Plan.
5. The TPA(s) shall maintain records of all proceeds of redemptions of
Shares and all other distributions not reinvested in Shares.
6. The TPA(s) shall prepare, and transmit to each of the Plans, periodic
account statements showing the total number of Shares owned by that
Plan as of the statement closing date, purchases and redemptions of
Shares by the Plan during the period covered by the statement, and the
dividends and other distributions paid to the Plan on Shares during the
statement period (whether paid in cash or reinvested in Shares).
<PAGE> 24
7. The TPA(s) shall, at the request and expense of each Fund, transmit to
the Plans prospectuses, proxy materials, reports, and other information
provided by each Fund for delivery to its shareholders.
8. The TPA(s) shall, at the request of each Fund, prepare and transmit to
each Fund or any agent designated by it such periodic reports covering
Shares of each Plan as each Fund shall reasonably conclude are
necessary to enable the Fund to comply with state Blue Sky
requirements.
9. The TPA(s) shall transmit to the Plans confirmation of purchase orders
and redemption requests placed by the Plans; and
10. The TPA(s) shall, with respect to Shares, maintain account balance
information for the Plan(s) and daily and monthly purchase summaries
expressed in Shares and dollar amounts.
11. Plan sponsors may request, or the law may require, that prospectuses,
proxy materials, periodic reports and other materials relating to each
Fund be furnished to Participants in which event the Transfer Agent or
each Fund shall mail or cause to be mailed such materials to
Participants. With respect to any such mailing, the TPA(s) shall, at
the request of the Transfer Agent or each Fund, provide at the TPA(s)'s
expense complete and accurate set of mailing labels with the name and
address of each Participant having an interest through the Plans in
Shares.
PARKSTONE ADVANTAGE STATE STREET BANK AND TRUST
FUND COMPANY
BY:__________________________________ BY:_______________________
<PAGE> 25
SCHEDULE 3.1
FEES
Dated ____________
Fund Base Fee (per cusip) $6,000.00*
*Base fee will be $500.00 for new cusips for the first ninety days.
Account Fees $ 16.50
Fees are billed on a monthly basis at the rate of 1/12 of the annual fee. A
charge is made for an account in the month that an account opens or closes.
Out-of-Pocket Expenses
- ----------------------
Out-of-Pocket expenses include but are not limited to: confirmation statements,
postage, forms, audio response, telephone, records retention, transcripts,
microfilm, microfiche, and expenses incurred at the specific direction of the
fund.
This fee schedule is subject to an annual Cost of Living Adjustment based on
regional consumer price index.
PARKSTONE ADVANTAGE STATE STREET BANK AND TRUST
FUND COMPANY
BY:_________________________________ BY:_______________________
<PAGE> 1
EXHIBIT (i)
LAW OFFICES
DRINKER BIDDLE & REATH LLP
PHILADELPHIA NATIONAL BANK BUILDING
1345 CHESTNUT STREET
PHILADELPHIA, PA 19107
TELEPHONE: (215) 988-2700
FAX: (215) 988-2757
May 28, 1999
The Parkstone Advantage Fund
3435 Stelzer Road
Columbus, Ohio 43219
RE: POST-EFFECTIVE AMENDMENT NO. 12 TO THE REGISTRATION STATEMENT
ON FORM N-1A (FILE NOS. 33-65690 AND 811-7850)
--------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to The Parkstone Advantage Fund, a
Massachusetts business trust (the "Trust"), in connection with the preparation
and filing with the Securities and Exchange Commission of Post-Effective
Amendment No. 12 (the "Amendment") to the Trust's Registration Statement on Form
N-1A under the Securities Act of 1933, as amended.
The Trust is authorized to issue an unlimited number of shares of
beneficial interest (the "Shares"), without par value. The Board of Trustees of
the Trust has the power to designate one or more series ("Series") of Shares and
to classify or reclassify any unissued Shares with respect to such Series.
Currently the Trust is offering Shares of four Series, the Small Capitalization
Fund, Mid Capitalization Fund, Bond Fund, International Discovery Fund Armada
Advantage Equity Growth Fund and Armada Advantage Balanced Allocation Fund. The
Board of Trustees has previously authorized the issuance of Shares to the
public.
We have reviewed the Trust's Declaration of Trust, Code of Regulations,
resolutions of its Board of Trustees and such other legal and factual matters as
we have deemed appropriate. We have also relied upon an opinion of Ropes & Gray,
local Massachusetts counsel to the Trust, as to matter to which the laws of the
Commonwealth of Massachusetts are applicable. We assume that the Shares will
be issued against payment therefor as described in the Trust's applicable
Prospectus.
This opinion is based exclusively on Massachusetts law and the federal
law of the United States of America.
<PAGE> 2
The Parkstone Advantage Fund
May 28, 1999
Page 2
Based upon the foregoing, it is our opinion that the Shares will be
validly issued, fully paid and non-assessable by the Trust.
We note that under Massachusetts law, shareholders of a Massachusetts
business trust could, under certain circumstances, be held personally liable for
the obligations of such trust. However, the Declaration of Trust disclaims
shareholder liability for claims against the Trust. The Declaration of Trust
further provides that every note, bond, contract, instrument, certificate or
other undertaking made or issued by the Trust's trustees or officers shall
recite to the effect that the same was executed or made by or on behalf of the
Trust or by them as trustees or officers and that the obligations of such
instrument are not binding upon the Trust's shareholders individually but are
binding only upon the assets and property of the Trust or a particular Series
thereof. The Declaration of Trust provides for indemnification out of the assets
of the Series of which a shareholder owns or owned Shares, for any and all loss
or expense for which the shareholder shall be charged or held personally liable
solely by reason of the shareholder's being or having been such a shareholder.
Thus, the risk of a shareholder's incurring financial loss on account of
shareholder liability is limited to circumstances in which the relevant Series
itself would be unable to meet its obligations.
We hereby consent to the filing of this opinion as an exhibit to the
Amendment to the Trust's Registration Statement.
Very truly yours,
/s/ Drinker Biddle & Reath LLP
DRINKER BIDDLE & REATH LLP
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