<PAGE> 1
As filed with the Securities and Exchange Commission on May 1, 2000
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. 13
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 14
THE ARMADA ADVANTAGE FUND (FORMERLY KNOWN AS 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
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103-6996
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective:
/X/ immediately upon filing pursuant to paragraph (b).
/ / on May 1, 2000 pursuant to paragraph (b).
/ / 60 days after filing pursuant to paragraph (a)(1).
/ / on (date) pursuant to paragraph (a)(l) of Rule 485.
/ / 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
THE ARMADA ADVANTAGE FUND
PROSPECTUS
MAY 1, 2000
ARMADA ADVANTAGE EQUITY GROWTH FUND
ARMADA ADVANTAGE INTERNATIONAL EQUITY FUND
ARMADA ADVANTAGE MID CAP GROWTH FUND
ARMADA ADVANTAGE SMALL CAP GROWTH FUND
ARMADA ADVANTAGE BALANCED ALLOCATION FUND
ARMADA ADVANTAGE BOND 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. ANY STATEMENT TO THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1 of 40
<PAGE> 3
ABOUT THIS PROSPECTUS
The Armada Advantage Fund (the Trust) 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 its Funds:
the Armada Advantage Equity Growth Fund, the Armada Advantage International
Equity Fund, the Armada Advantage Mid Cap Growth Fund, the Armada Advantage
Small Cap Growth Fund, the Armada Advantage Balanced Allocation Fund and the
Armada Advantage Bond Fund (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 RISK AND RETURN THAT IS COMMON TO EACH OF THE
FUNDS. FOR MORE DETAILED INFORMATION ABOUT EACH FUND, PLEASE SEE:
<TABLE>
<CAPTION>
PAGE
<S> <C>
RISK/RETURN INFORMATION COMMON TO THE FUNDS.......................... 1
ARMADA ADVANTAGE EQUITY GROWTH FUND.................................. 2
ARMADA ADVANTAGE INTERNATIONAL EQUITY FUND........................... 4
ARMADA ADVANTAGE MID CAP GROWTH FUND................................. 6
ARMADA ADVANTAGE SMALL CAP GROWTH FUND............................... 8
ARMADA ADVANTAGE BALANCED ALLOCATION FUND............................ 10
ARMADA ADVANTAGE BOND FUND........................................... 12
FEES AND EXPENSES.................................................... 14
MORE INFORMATION ABOUT RISK.......................................... 16
MORE INFORMATION ABOUT FUND INVESTMENTS.............................. 20
PERFORMANCE INFORMATION OF COMPARABLE FUNDS.......................... 20
INVESTMENT ADVISER AND INVESTMENT TEAMS.............................. 21
PURCHASING, SELLING AND EXCHANGING FUND SHARES....................... 22
GENERAL INFORMATION.................................................. 22
DIVIDENDS AND DISTRIBUTIONS.......................................... 22
TAXES................................................................ 22
FINANCIAL HIGHLIGHTS................................................. 23
HOW TO OBTAIN MORE INFORMATION ABOUT THE
ARMADA ADVANTAGE FUND............................................ Back Cover
</TABLE>
Page 2 of 40
<PAGE> 4
RISK/RETURN INFORMATION COMMON TO THE FUNDS
Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities. Each Fund is 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's
judgments about the markets, the economy, or companies may not anticipate actual
market movements, economic conditions or company performance, and these
judgments may affect the return on your investment. In fact, no matter how good
a job an investment manager does, you could lose money on your investment in the
Fund, just as you could with other investments.
An investment in a Fund share is not a bank deposit and it is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any government
agency.
The value of your investment in a Fund is based primarily on the market prices
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.
Page 3 of 40
<PAGE> 5
ARMADA ADVANTAGE EQUITY GROWTH FUND
FUND SUMMARY
INVESTMENT GOAL Capital appreciation
INVESTMENT FOCUS Large cap equity
securities
SHARE PRICE VOLATILITY (RELATIVE TO High
MUTUAL FUNDS GENERALLY)
PRINCIPAL INVESTMENT STRATEGY Investing in
growth-oriented common
stocks of larger issuers
INVESTOR PROFILE Investors seeking capital
appreciation and who are
willing to accept the risk of
investing in equity securities
PRINCIPAL INVESTMENT STRATEGIES
The Fund's investment objective is to provide capital appreciation by investing
in a diversified portfolio of publicly traded larger cap equity securities. The
investment objective may be changed without a shareholder vote.
The Fund will normally invest at least 80% of its total assets in a diversified
portfolio of common stocks and securities convertible into common stocks of
companies with large stock market capitalization. The Fund may invest up to 20%
of its total assets at the time of purchase in foreign equity securities. In
buying and selling securities for the Fund, the Adviser considers factors such
as historical and projected earnings growth, earnings quality and liquidity.
The Fund generally purchases common stocks that are listed on a national
securities exchange or unlisted securities with an established over-the-counter
market.
The Fund considers a large capitalization or "large cap" company to be one that
has a comparable market capitalization to the companies in the S&P 500 Composite
Index. The S&P 500 Composite Index is a widely recognized, unmanaged index of
500 common stocks which are generally representative of the U.S. stock market as
a whole.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities, and will lower Fund performance.
PRINCIPAL RISKS OF INVESTING
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 from day-to-day. Individual companies may report poor
results or be negatively affected by industry and/or economic trends and
developments. The prices of securities issued by such companies may decline in
response. These factors contribute to price volatility, which is the principal
risk of investing in the Fund.
Page 4 of 40
<PAGE> 6
Investing in foreign countries poses additional risks since political and
economic events unique to a country or region will affect those markets and
their issuers. These events will not necessarily affect the U.S. economy or
similar issuers located in the United States. In addition, investments in
foreign countries are generally denominated in a foreign currency. As a result,
changes in the value of those currencies compared to the U.S. dollar may affect
(positively or negatively) the value of a Fund's investments. These currency
movements may happen separately from and in response to events that do not
otherwise affect the value of the security in the issuer's home country.
The Fund is also subject to the risk that its market segment, large cap equity
securities, may underperform other equity market segments or the equity market
as a whole. For additional information about risks, see "More Information About
Risk."
PERFORMANCE INFORMATION
There is no bar chart for the Fund because it has not completed a full calendar
year of operations.
Page 5 of 40
<PAGE> 7
ARMADA ADVANTAGE INTERNATIONAL EQUITY FUND
FUND SUMMARY
INVESTMENT GOAL Capital appreciation
INVESTMENT FOCUS Equity securities of foreign
issuers
SHARE PRICE VOLATILITY (RELATIVE TO High
MUTUAL FUNDS GENERALLY)
PRINCIPAL INVESTMENT STRATEGY Investing in equity securities
of issuers located in at least
three foreign countries
INVESTOR PROFILE Investors seeking capital
appreciation, who are willing
to accept the risks of foreign
investing
PRINCIPAL INVESTMENT STRATEGIES
The Fund's investment objective is to provide capital appreciation by
investing in a portfolio of equity securities of foreign issuers. Equity
securities of foreign issuers include common stock, preferred stock and
convertible bonds, of companies headquartered outside the United States. The
investment objective may be changed without a shareholder vote.
The Fund will normally invest at least 80% of its total assets in equity
securities of foreign issuers. The Fund focuses on issuers included in the
Morgan Stanley Capital International Europe, Australasia, Far East (MSCI EAFE)
GDP Weighted Index. The MSCI EAFE Index is an unmanaged index which represents
the performance of more than 1,000 equity securities of companies located in
those regions. The Adviser makes judgments about the attractiveness of
countries based upon a collection of criteria. The relative valuation, growth
prospects, fiscal, monetary and regulatory government policies are considered
jointly and generally in making these judgments. The percentage of the Fund
in each country is determined by its relative attractiveness and weight in
the MSCI EAFE Index. More than 25% of the Fund's assets may be invested in
the equity securities of issuers located in the same country.
Within foreign markets, the Adviser buys and sells securities based on its
analysis of competitive position and valuation. The Adviser sells securities
whose competitive position is deteriorating or whose valuation is
unattractive relative to industry peers. Likewise, companies with strong and
durable competitive advantages and attractive valuation are considered for
purchase.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities, and will lower Fund performance.
Page 6 of 40
<PAGE> 8
PRINCIPAL RISKS OF INVESTING
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 from day-to-day. Individual companies may report poor
results or be negatively affected by industry and/or economic trends and
developments. The prices of securities issued by such companies may decline in
response. These factors contribute to price volatility, which is the principal
risk of investing in the Fund.
Investing in foreign countries poses additional risks since political and
economic events unique to a country or region will affect those markets and
their issuers. These events will not necessarily affect the U.S. economy or
similar issuers located in the United States. In addition, investments in
foreign countries are generally denominated in a foreign currency. As a result,
changes in the value of those currencies compared to the U.S. dollar may affect
(positively or negatively) the value of a Fund's investments. These currency
movements may happen separately from and in response to events that do not
otherwise affect the value of the security in the issuer's home country.
Companies making up the MSCI EAFE Index are generally issuers of larger cap
securities of multi-national companies who are affected by risks worldwide.
Investment in a particular country of 25% or more of the Fund's total assets
will make the Fund's performance more dependent upon the political and economic
circumstances of that country than a mutual fund more widely diversified among
issuers in different countries.
The Fund is also subject to the risk that its market segment, international
equity securities, may underperform other equity market segments or the equity
market as a whole. For additional information about risks, see "More Information
About Risk."
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the volatility of an
investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
The bar chart shows changes in the performance of the Fund's shares from year to
year. This performance information does not include the impact of any charges
deducted by your insurance company. If it did, returns would be lower.
Page 7 of 40
<PAGE> 9
<TABLE>
<CAPTION>
CALENDAR YEAR TOTAL RETURN
<S> <C>
1994 -6.76%
1995 9.74%
1996 15.41%
1997 2.13%
1998 11.61%
1999 55.70%
BEST QUARTER WORST QUARTER
38.67% -15.69%
(12/31/99) (9/30/98)
</TABLE>
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1999 TO THOSE OF THE MSCI EAFE INDEX.
<TABLE>
<CAPTION>
INCEPTION DATE 1 YEAR 5 YEARS SINCE INCEPTION
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ARMADA ADVANTAGE INTERNATIONAL EQUITY FUND 9/23/93 55.70% 17.59% 13.14%
MSCI EAFE INDEX(1) 9/30/93 26.96% 12.83% 11.63%
</TABLE>
(1) The Morgan Stanley Capital International Europe, Australasia, and Far
East-GDP Weighted Index (MSCI EAFE Index) is a widely-recognized index of
over 900 securities listed on the stock exchanges in Europe, Australia and
the Far East. The index is weighted by the market capitalization of the
various companies in the index.
Page 8 of 40
<PAGE> 10
ARMADA ADVANTAGE MID CAP GROWTH FUND
FUND SUMMARY
INVESTMENT GOAL Capital appreciation
INVESTMENT FOCUS Mid cap equity securities
SHARE PRICE VOLATILITY (RELATIVE TO High
MUTUAL FUNDS GENERALLY)
PRINCIPAL INVESTMENT STRATEGY Investing in growth-oriented
equity securities of
medium-sized issuers
INVESTOR PROFILE Investors seeking capital
growth, who are willing to
accept the risks of investing
in equity securities
PRINCIPAL INVESTMENT STRATEGIES
The Fund's investment objective is to provide capital appreciation by investing
in a diversified portfolio of publicly traded mid cap equity securities. The
investment objective may be changed without a shareholder vote.
The Fund will normally invest at least 80% of its total assets in the common
stock of companies with mid cap stock market capitalizations. The Fund may
invest up to 20% of its total assets at the time of purchase in foreign
equity securities. In selecting investments for the Fund to buy and sell, the
Adviser invests in companies that have typically exhibited consistent,
above-average growth in revenues and earnings, strong management, sound and
improving financial fundamentals and presently exhibit the potential for
growth.
The Fund considers a mid-capitalization or "mid cap" company to be one that has
a comparable market capitalization as the companies in the Russell Midcap
Growth Index. The Russell Midcap Growth Index is an unmanaged index which
reflects a medium-sized universe of growth-oriented securities.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities, and will lower Fund performance.
PRINCIPAL RISKS OF INVESTING
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 from day-to-day. Individual companies may report poor
results or be negatively affected by industry and/or economic trends and
developments. The prices of securities issued by such companies may decline in
response. These factors contribute to price volatility, which is the principal
risk of investing in the Fund.
Investing in foreign countries poses additional risks since political and
economic events unique to a country or region will affect those markets and
their issuers. These events will not necessarily affect the U.S. economy or
similar issuers located in the United States. In addition, investments in
Page 9 of 40
<PAGE> 11
foreign countries are generally denominated in a foreign currency. As a result,
changes in the value of those currencies compared to the U.S. dollar may affect
(positively or negatively) the value of a Fund's investments. These currency
movements may happen separately from and in response to events that do not
otherwise affect the value of the security in the issuer's home country.
The Fund is also subject to the risk that its market segment, mid cap equity
securities, may underperform other equity market segments or the equity market
as a whole. For additional information about risks, see "More Information About
Risk."
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the volatility of an
investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the performance of the Fund's shares from year
to year. This performance information does not include the impact of any charges
deducted by your insurance company. If it did, returns would be lower.
<TABLE>
<CAPTION>
CALENDAR YEAR TOTAL RETURN
<S> <C>
1994 -5.21%
1995 29.05%
1996 17.36%
1997 12.58%
1998 10.33%
1999 44.36%
BEST QUARTER WORST QUARTER
33.69% -18.87%
(12/31/99) (9/30/98)
</TABLE>
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1999 TO THOSE OF THE RUSSELL MIDCAP GROWTH INDEX AND THE
S&P MIDCAP 400 INDEX.
<TABLE>
<CAPTION>
INCEPTION DATE 1 YEAR 5 YEARS SINCE INCEPTION
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ARMADA ADVANTAGE MID CAP GROWTH FUND 9/23/93 44.36% 22.12% 16.58%
RUSSELL MIDCAP GROWTH INDEX(1) 9/30/93 51.30% 28.02% 22.05%
S&P MIDCAP 400 INDEX(2) 9/30/93 14.72% 23.04% 17.83%
</TABLE>
(1) The Russell Midcap Growth Index is a widely-recognized, capitalization-
weighted (companies with larger market capitalizations have more influence
than those with smaller market capitalization) index of the 800 smallest
U.S. companies out of the 1000 largest U.S. companies, with higher growth
rates and price-to-book ratios. The Adviser believes that the Russell
Midcap Growth Index will better reflect the Fund's aggressive growth
orientation.
(2) The S&P MidCap 400 Index is a widely-recognized, capitalization-weighted
(companies with larger market capitalizations have more influence than those
with smaller market capitalizations) index of 400 domestic mid-cap stocks
chosen for market size, liquidity, and industry group representation.
Page 10 of 40
<PAGE> 12
ARMADA ADVANTAGE SMALL CAP GROWTH FUND
FUND SUMMARY
INVESTMENT GOAL Capital appreciation
INVESTMENT FOCUS Small cap equity securities
SHARE PRICE VOLATILITY (RELATIVE TO High
MUTUAL FUNDS GENERALLY)
PRINCIPAL INVESTMENT STRATEGY Investing in growth-oriented
equity securities of smaller
issuers
INVESTOR PROFILE Investors seeking capital
appreciation, who are willing
to accept the risk of share
price volatility that may
accompany small cap investing
PRINCIPAL INVESTMENT STRATEGIES
The Fund's investment objective is to provide capital appreciation by investing
in a diversified portfolio of publicly traded small cap equity securities. The
investment objective may be changed without a shareholder vote.
The Fund normally invests at least 80% of its total assets in the common
stocks of companies with small stock market capitalizations. The Fund may
invest up to 20% of its total assets at the time of purchase in foreign
equity securities. The Adviser seeks to invest in small capitalization
companies with strong growth in revenue, earnings and cash flow. Purchase
decisions are also based on the security's valuation relative to the
company's expected growth rate, earnings quality and competitive position,
valuation compared to similar securities and the security's trading
liquidity. Reasons for selling securities include disappointing fundamentals,
negative industry developments, evidence of management's inability to execute
a sound business plan, capitalization exceeding the Adviser's definition of
"small capitalization," desire to reduce exposure to an industry or sector,
and valuation levels which cannot be justified by the company's fundamental
growth prospects.
The Fund considers a small capitalization or "small cap" company to be one
that has a comparable market capitalization to the companies in the Russell
2000 Growth Index. The Russell 2000 Growth Index is an unmanaged index
comprised of securities in the Russell 2000 Index with a greater than average
growth orientation. The Russell 2000 Index is an unmanaged index comprised of
the 2000 smallest companies of the 3000 largest U.S. companies based on
market capitalization.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities, and will lower Fund performance.
Page 11 of 40
<PAGE> 13
PRINCIPAL RISKS OF INVESTING
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 from day-to-day. Individual companies may report poor
results or be negatively affected by industry and/or economic trends and
developments. The prices of securities issued by such companies may decline in
response. These factors contribute to price volatility, which is the principal
risk of investing in the Fund.
The smaller capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these small companies may have limited product lines, markets and
financial resources, and may depend upon a relatively small management group.
Therefore, small cap stocks may be more volatile than those of larger companies.
These securities may be traded over-the-counter or listed on an exchange and may
or may not pay dividends.
Investing in foreign countries poses additional risks since political and
economic events unique to a country or region will affect those markets and
their issuers. These events will not necessarily affect the U.S. economy or
similar issuers located in the United States. In addition, investments in
foreign countries are generally denominated in a foreign currency. As a result,
changes in the value of those currencies compared to the U.S. dollar may affect
(positively or negatively) the value of a Fund's investments. These currency
movements may happen separately from and in response to events that do not
otherwise affect the value of the security in the issuer's home country.
The Fund is also subject to the risk that its market segment, small cap equity
securities, may underperform other equity market segments or the equity market
as a whole. For additional information about risks, see "More Information About
Risk."
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the volatility of an
investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
The bar chart shows changes in the performance of the Fund's shares from year to
year. This performance information does not include the impact of any charges
deducted by your insurance company. If it did, returns would be lower.
CALENDAR YEAR TOTAL RETURN
1994 5.27%
1995 35.66%
1996 29.66%
1997 -5.47%
1998 -2.51%
1999 31.24%
Page 12 of 40
<PAGE> 14
BEST QUARTER WORST QUARTER
35.84% -25.37%
(12/31/99) (9/30/98)
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1999 TO THOSE OF THE RUSSELL 2000 GROWTH INDEX AND THE
RUSSELL 2000 INDEX.
<TABLE>
<CAPTION>
INCEPTION DATE 1 YEAR 5 YEARS SINCE INCEPTION
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ARMADA ADVANTAGE SMALL CAP GROWTH FUND 9/23/93 31.24% 16.30% 15.46%
RUSSELL 2000 GROWTH INDEX(1) 9/30/93 43.10% 18.99% 14.95%
RUSSELL 2000 INDEX(2) 9/30/93 21.26% 16.69% 13.27%
</TABLE>
(1) The Russell 2000 Growth Index is a widely-recognized,
capitalization-weighted (companies with larger market capitalizations
have more influence than those with smaller market capitalization) index
of the largest U.S. companies with higher growth rates and price-to-book
ratios. The Adviser believes that the Russell 2000 Growth Index will
better reflect current bias toward growth stocks and focus on the
small-cap sector of the U.S. stock market.
(2) The Russell 2000 Index is an unmanaged index comprised of the 2000
smallest companies of the 3000 largest U.S. companies based on market
capitalization.
Page 13 of 40
<PAGE> 15
ARMADA ADVANTAGE BALANCED ALLOCATION FUND
FUND SUMMARY
INVESTMENT GOAL Long-term capital appreciation
and current income
INVESTMENT FOCUS A combination of
growth-oriented common stocks,
fixed income securities and
cash equivalents
SHARE PRICE VOLATILITY (RELATIVE TO Medium
MUTUAL FUNDS GENERALLY)
PRINCIPAL INVESTMENT STRATEGY Investing in a diversified
portfolio of
growth-oriented common
stocks, investment-grade
fixed income securities and
cash equivalents with varying
asset allocations depending
on the Adviser's assessment
of market conditions
INVESTOR PROFILE Investors seeking a broad
diversification by asset class
and style to manage risk and
provide the potential for
above-average total returns
(as gauged by the returns of
the S&P 500 Composite Index and
the Lehman Aggregate Bond
Index)
PRINCIPAL INVESTMENT STRATEGIES
The Fund's investment objective is to provide long-term capital appreciation and
current income. The investment objective may be changed without a shareholder
vote.
The Fund intends to invest 50% to 70% of its net assets in common stocks
and convertible securities, 25% to 55% of its net assets in investment-grade
fixed income securities such as corporate bonds and U.S. government securities
and up to 30% of its net assets in cash and cash equivalent securities. The Fund
may invest up to 20% of its total assets at the time of purchase in foreign
securities (which includes common stock, preferred stock and convertible bonds
of companies headquartered outside the United States). The Fund also invests in
the common stock of small capitalization companies.
The Adviser buys and sells equity securities based on their potential for
long-term capital appreciation. The Fund invests the fixed income portion of
its portfolio of investments in a broad range of investment-grade debt
securities (which are those rated at the time of investment in one of the four
highest rating categories by a major rating agency) for current income. If a
fixed income security is downgraded, the Adviser will re-evaluate the holding
to determine whether it is in the best interests of investors to sell. The
Adviser buys and sells fixed income securities and cash equivalents based on a
number of factors, including yield to maturity, maturity, quality and the
outlook for particular issuers and market sectors. The Fund invests in cash
equivalent, short-term obligations for stability and liquidity.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities, and may lower Fund performance.
Page 14 of 40
<PAGE> 16
PRINCIPAL RISKS OF INVESTING
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 from day-to-day. Individual companies may report poor
results or be negatively affected by industry and/or economic trends and
developments. The prices of securities issued by such companies may decline in
response. 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. 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 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.
The smaller capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these small companies may have limited product lines, markets and
financial resources, and may depend upon a relatively small management group.
Therefore, small cap stocks may be more volatile than those of larger companies.
These securities may be traded over-the-counter or listed on an exchange and may
or may not pay dividends.
Investing in foreign countries poses additional risks since political and
economic events unique to a country or region will affect those markets and
their issuers. These events will not necessarily affect the U.S. economy or
similar issuers located in the United States. In addition, investments in
foreign countries are generally denominated in a foreign currency. As a result,
changes in the value of those currencies compared to the U.S. dollar may affect
(positively or negatively) the value of a Fund's investments. These currency
movements may happen separately from and in response to events that do not
otherwise affect the value of the security in the issuer's home country.
An investment in the Fund is subject to interest rate risk, which is the
possibility that the Fund's yield will decline due to falling interest rates.
Although the Fund's U.S. government securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued by some U.S. government agencies and
instrumentalities are backed by the U.S. Treasury, while others are backed
solely by the ability of the agency to borrow from the U.S. Treasury or by the
agency's own resources.
The Fund is also subject to the risk that its market segments, investment grade
fixed income and growth-oriented equity securities, may underperform other fixed
income or equity market
Page 15 of 40
<PAGE> 17
segments or the fixed income or equity markets as a whole. For additional
information about risks, see "More Information About Risk."
PERFORMANCE INFORMATION
There is no bar chart or performance table for the Fund because it has not yet
commenced operations.
Page 16 of 40
<PAGE> 18
ARMADA ADVANTAGE BOND FUND
FUND SUMMARY
INVESTMENT GOAL Current income as well as
preservation of capital
INVESTMENT FOCUS Investment-grade fixed income
securities
SHARE PRICE VOLATILITY (RELATIVE Medium
TO MUTUAL FUNDS GENERALLY)
PRINCIPAL INVESTMENT STRATEGY Investing in a diversified
portfolio of investment-grade
fixed income securities, which
maintains a dollar-weighted
average maturity of between
4 and twelve years
INVESTOR PROFILE Investors seeking current
income, who are willing to
accept the risks of investing
in fixed income securities
PRINCIPAL INVESTMENT STRATEGIES
The Fund's investment objective is to provide current income as well as
preservation of capital by investing primarily in a portfolio of
investment-grade fixed income securities. The investment objective may be
changed without a shareholder vote.
The Fund normally invests at least 80% of the value of its total assets in
investment-grade fixed income securities of all types, including obligations
of corporate and U.S. government issuers and mortgage-backed and asset-backed
securities. Corporate obligations may include bonds, notes and debentures.
U.S. government securities may include U.S. Treasury obligations and
obligations of certain U.S. government agencies or instrumentalities such as
Ginnie Maes and Fannie Maes. Investment-grade fixed income securities are
those rated in one of the four highest rating categories by a major rating
agency, or determined by the Adviser to be of equivalent quality.
If a security is downgraded, the Adviser will re-evaluate the holding to
determine whether it is in the best interests of investors to sell. In buying
and selling securities for the Fund, the Adviser considers a number of
factors, including yield to maturity, maturity, quality and the outlook for
particular issuers and market sectors. The Fund generally maintains a
dollar-weighted average maturity of between four and twelve years.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities, and will lower Fund performance.
Page 17 of 40
<PAGE> 19
PRINCIPAL RISKS OF INVESTING
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. Also, longer-term securities are generally more
volatile, so the average maturity or duration of these securities affects risk.
An investment in the Fund is subject to interest rate risk, which is the
possibility that the Fund's yield will decline due to falling interest rates.
The mortgages underlying mortgage-backed securities may be paid off early, which
makes it difficult to determine their actual maturity and therefore calculate
how they will respond to changes in interest rates. The Fund may have to
reinvest prepaid amounts at lower interest rates. This risk of prepayment is an
additional risk of mortgage-backed securities.
Debt extension risk is the risk that an issuer will exercise its right to pay
principal on an obligation held by the Fund (such as an asset-backed security)
later than expected. This may happen during a period of rising interest rates.
Under these circumstances, the value of the obligation will decrease and the
Fund will suffer from the inability to invest in higher yielding securities.
Although the Fund's U.S. government securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued by some U.S. government agencies and
instrumentalities are backed by the U.S. Treasury, while others are backed
solely by the ability of the agency to borrow from the U.S. Treasury or by the
agency's own resources.
The Fund is also subject to the risk that its market segment, investment grade
fixed income securities, may underperform other fixed income market segments or
the fixed income market as a whole. For additional information about risks, see
"More Information About Risk."
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the volatility of an
investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
Page 18 of 40
<PAGE> 20
This bar chart shows changes in the performance of the Fund's shares from year
to year. This performance information does not include the impact of any charges
deducted by your insurance company. If it did, returns would be lower.
<TABLE>
<CAPTION>
CALENDAR YEAR TOTAL RETURN
<S> <C>
1994 -5.38%
1995 16.98%
1996 1.83%
1997 7.69%
1998 6.71%
1999 -1.96%
BEST QUARTER WORST QUARTER
6.03% -3.61%
(6/30/95) (3/31/94)
</TABLE>
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1999 TO THOSE OF THE LEHMAN AGGREGATE BOND INDEX AND THE
SALOMON BROTHERS BROAD BOND INDEX.
<TABLE>
<CAPTION>
INCEPTION DATE 1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ARMADA ADVANTAGE BOND FUND 9/23/93 -1.96% 6.05% 3.81%
LEHMAN AGGREGATE BOND INDEX(1) 9/30/93 -0.83% 7.73% 5.65%
SALOMON BROTHERS BROAD BOND INDEX(2) 9/30/93 -0.84% 7.74% 5.65%
</TABLE>
(1) The Lehman Aggregate Bond Index is an unmanaged, fixed income, market
value-weighted index that includes treasury issues, agency issues, corporate
bond issues and mortgage-backed securities. Previously, the Fund's returns
had been compared only to the Salomon Brothers Broad Bond Index. The Adviser
believes that the Lehman Aggregate Bond Index has a more comprehensive
coverage of the types of securities in which the Fund may invest.
(2) The Salomon Brothers Broad Bond Index consists of U.S. Treasury and
Government-sponsored agency bonds with maturity of one year or longer and a
minimum of $100 million outstanding.
Page 19 of 40
<PAGE> 21
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
This table describes the highest fees and expenses that you may pay indirectly
if you hold shares of one of the Funds.
<TABLE>
<CAPTION>
ARMADA ARMADA
ARMADA ARMADA ADVANTAGE ADVANTAGE ARMADA
ARMADA ADVANTAGE ADVANTAGE ADVANTAGE MID SMALL CAP BALANCED ADVANTAGE
EQUITY GROWTH INTERNATIONAL CAP GROWTH GROWTH ALLOCATION BOND
FUND EQUITY FUND FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees 0.75% 1.15% 1.00% 1.00% 0.75% 0.55%
Other Expenses 1.00% 0.86% 0.59% 0.65% 1.00%(1) 0.74%
Total Annual Fund ----- ----- ----- ----- ----- -----
Operating Expenses 1.75%(2) 2.01% 1.59% 1.65% 1.75%(3) 1.29%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Other expenses are based on estimated amounts for the current fiscal year.
(2) The Fund's total actual annual fund operating expenses for the most recent
fiscal year were less than the amount shown above because the Adviser is
waiving a portion of their fees in order to keep total operating expenses at
a specified level. The Adviser may discontinue all or part of their waivers
at any time. With these fee waivers, the Fund's actual total operating
expenses are 1.00%.
(3) The Adviser plans to waive a portion of its fees during the Fund's first
year of operation. With these fee waivers the Fund's actual total operating
expenses for the year are estimated to be 1.00%.
For more information about these fees, see "Investment Adviser and Investment
Teams."
The amounts set forth above do not reflect the fees and expenses of the
insurance contract that are charged by your insurance company.
EXAMPLE
This Example is intended to help you compare the cost of investing in each Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in each of the Funds for the time periods indicated and does not
include fees and expenses charged by your insurance company, qualified pension
or retirement plan administrator.
The Example also assumes that each year your investment has a 5% return and Fund
operating expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
ARMADA ADVANTAGE EQUITY GROWTH FUND $178 $551 $949 $2062
ARMADA ADVANTAGE INTERNATIONAL EQUITY FUND $204 $630 $1083 $2338
ARMADA ADVANTAGE MID CAP GROWTH FUND $162 $502 $866 $1889
ARMADA ADVANTAGE SMALL CAP GROWTH FUND $168 $520 $897 $1955
ARMADA ADVANTAGE BALANCED ALLOCATION FUND $178 $551 N/A N/A
ARMADA ADVANTAGE BOND FUND $131 $409 $708 $1556
</TABLE>
Page 20 of 40
<PAGE> 22
MORE INFORMATION ABOUT RISK
The following table summarizes the risks related to investments in each of the
Armada Advantage portfolios. For more information about each of these risks,
please refer to the information below and on the following pages.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Equity Convertible Fixed Call Risk Credit Event Risk Mortgage- Asset- Foreign
Risk Securities Income Risk Backed Backed Security
Risk Risk Securities Securities Risk
Risk Risk
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Armada
Advantage X X X
Equity Growth
Fund
- --------------------------------------------------------------------------------------------------------------------------
Armada
Advantage X X
International
Equity Fund
- --------------------------------------------------------------------------------------------------------------------------
Armada
Advantage X X X
Mid Cap
Growth Fund
- --------------------------------------------------------------------------------------------------------------------------
Armada
Advantage X X
Small Cap
Growth Fund
- --------------------------------------------------------------------------------------------------------------------------
Armada
Advantage X X X X X X X
Balanced
Allocation
Fund
- --------------------------------------------------------------------------------------------------------------------------
Armada
Advantage X X X X X X
Bond Fund
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Currency Hedging Leveraging Derivatives Futures Options Short Real Tracking
Risk Risk Risk Risk Risk Risk Sales Risk Estate Error Risk
Investing
Risk
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Armada
Advantage X X X X X X
Equity Growth
Fund
- --------------------------------------------------------------------------------------------------------------------------
Armada
Advantage X X X X X X
International
Equity Fund
- --------------------------------------------------------------------------------------------------------------------------
Armada
Advantage X X X X X X X X
Mid Cap
Growth Fund
- --------------------------------------------------------------------------------------------------------------------------
Armada
Advantage X X X X X X
Small Cap
Growth Fund
- --------------------------------------------------------------------------------------------------------------------------
Armada
Advantage X X X X X X X
Balanced
Allocation
Fund
- --------------------------------------------------------------------------------------------------------------------------
Armada
Advantage X X X X X
Bond Fund
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
EQUITY RISK - Equity securities include public and privately issued equity
securities, common and preferred stocks, warrants, rights to subscribe to
common stock and convertible securities, as well as instruments that attempt
to track the price movement of equity indices. Investments in equity
securities and equity derivatives in general are subject to market risks that
may cause their prices to fluctuate over time. The value of securities
convertible into equity securities, such as warrants or convertible debt, is
also affected by prevailing interest rates, the credit quality of the issuer
and any call provision. Fluctuations in the value of equity securities in
which a mutual fund invests will cause a fund's net asset value to
fluctuate. An investment in a portfolio of equity securities may be more
suitable for long-term investors who can bear the risk of these share price
fluctuations.
CONVERTIBLE SECURITIES RISK --- Convertible securities have
characteristics of both fixed income and equity securities. The
value of the convertible security tends to move with the market
value of the underlying stock, but may also be affected by
interest rates, credit quality of the issuer and any call
provisions.
FIXED INCOME RISK --- The market value of fixed income investments change in
response to interest rate changes and other factors. During periods of
falling interest rates, the values of outstanding fixed income securities
generally rise. Moreover, while securities with longer maturities tend to
produce higher yields, the prices of longer maturity securities are also
subject to greater market fluctuations as a result of changes in interest
rates. In addition to these fundamental risks, different types of fixed
income securities may be subject to the following additional risks:
CALL RISK - During periods of falling interest rates, certain debt
obligations with high interest rates may be prepaid (or "called")
by the issuer prior to maturity. This may cause a Fund's average
weighted maturity to fluctuate, and may require a Fund to invest
the resulting proceeds at lower interest rates.
Page 21 of 40
<PAGE> 23
CREDIT RISK --- The possibility that an issuer will be unable to
make timely payments of either principal or interest.
EVENT RISK --- Securities may suffer declines in credit quality
and market value due to issuer restructurings or other factors.
This risk should be reduced because of the diversification
provided by the Fund's multiple holdings.
MORTGAGE-BACKED SECURITIES RISK - Mortgage-backed securities are
fixed income securities representing an interest in a pool of
underlying mortgage loans. They are sensitive to changes in interest
rates, but may respond to these changes differently than 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.
Page 22 of 40
<PAGE> 24
ASSET-BACKED SECURITIES RISK - Asset-backed securities are fixed
income securities representing an interest in a pool of shorter-term
loans such as automobile loans, home equity loans, equipment or
computer leases or credit card receivables. The payments from the
loans are passed through to the security holder. The loans
underlying asset-backed securities tend to have prepayment rates
that do not vary with interest rates. In addition, the short-term
nature of the loans reduces the impact of any change in prepayment
level. However, it is possible that prepayments will alter the
cash flow on asset-backed securities and it is not possible to
determine in advance the actual final maturity date or average
life. Faster prepayment will shorten the average life and slower
prepayment will lengthen it, affecting the price volatility of
the security. However, it is possible to determine what the range
of that movement could be and to calculate the effect that it will
have on the price of the security.
FOREIGN SECURITY RISKS - Investments in securities of foreign companies or
governments can be more volatile than investments in U.S. companies or
governments. Diplomatic, political, or economic developments, including
nationalization or appropriation, could affect investments in foreign
countries. Foreign securities markets generally have less trading volume and
less liquidity than U.S. markets. In addition, the value of securities
denominated in foreign currencies, and of dividends from such securities, can
change significantly when foreign currencies strengthen or weaken relative to
the U.S. dollar. Foreign companies or governments generally are not subject
to uniform accounting, auditing, and financial reporting standards comparable
to those applicable to domestic U.S. companies or governments. Transaction
costs are generally higher than those in the U.S. and expenses for custodial
arrangements of foreign securities may be somewhat greater than typical
expenses for custodial arrangements of similar U.S. securities. Some foreign
governments levy withholding taxes against dividend and interest income.
Although in some countries a portion of these taxes are recoverable, the
non-recovered portion will reduce the income received from the securities
comprising the portfolio.
In addition to these risks, certain foreign securities may be
Page 23 of 40
<PAGE> 25
subject to the following additional risk factors:
CURRENCY RISK - Investments in foreign securities denominated in
foreign currencies involve additional risks, including:
- The value of a Fund's assets measured in U.S. dollars
may be affected by changes in currency rates and in
exchange control regulations.
- A Fund may incur substantial costs in connection with
conversions between various currencies.
- A Fund may be unable to hedge against possible
variations in foreign exchange rates or to hedge a
specific security transaction or portfolio position.
- Only a limited market currently exists for hedging
transactions relating to currencies in certain emerging
markets.
HEDGING RISK - Hedging is a strategy designed to offset investment risks.
Hedging activities include, among other things, the use of forwards, options
and futures. There are risks associated with hedging activities, including:
- - The success of a hedging strategy may depend on an ability to
predict movements in the prices of individual securities,
fluctuations in markets, and movements in interest and currency
exchange rates;
- - There may be an imperfect or no correlation between the changes in
market value of the securities held by the Fund or the currencies in
which those securities are denominated and the prices of forward
contracts, futures and options on futures;
- - There may not be a liquid secondary market for a futures contract
or option;
- - Trading restrictions or limitations may be imposed by an exchange,
and government regulations may restrict trading in currencies,
futures contracts and options.
LEVERAGING RISK - Leveraging activities include, among other things,
borrowing and the use of short sales, options and futures. There are risks
associated with leveraging activities, including:
Page 24 of 40
<PAGE> 26
- - A fund experiencing losses over certain ranges in the market that
exceed losses experienced by a non-leveraged Fund.
- - There may be an imperfect or no correlation between the changes in
market value of the securities held by a fund and the prices of
futures and options on futures.
- - Although the funds will only purchase exchange-traded futures and
options, due to market conditions there may not be a liquid
secondary market for a futures contract or option. As a result, the
funds may be unable to close out their futures or options contracts
at a time which is advantageous.
- - Trading restrictions or limitations may be imposed by an exchange,
and government regulations may restrict trading in futures contracts
and options.
In addition, the following leveraged instruments are subject to certain
specific risks:
DERIVATIVES RISK - The Funds use derivatives to attempt to achieve
their investment objectives, while at the same time maintaining
liquidity. To collateralize (or cover) these derivatives
transactions, the Funds hold cash or U.S. government securities.
FUTURES RISK - Futures contracts and options on futures contracts
provide for the future sale by one party and purchase by another
party of a specified amount of a specific security at a specified
future time and at a specified price. An option on a futures
contract gives the purchaser the right, in exchange for a premium,
to assume a position in a futures contract at a specified exercise
price during the term of the option. Index futures are futures
contracts for various indices that are traded on registered
securities exchanges.
A Fund may use futures contracts and related options for bona
fide hedging purposes to offset changes in the value of securities
held or expected to be acquired. They may also be used to gain
exposure to a particular market or instrument, to create a
synthetic money market position, and for certain other tax-related
purposes. A Fund will only enter into futures contracts traded
on a
Page 25 of 40
<PAGE> 27
national futures exchange or board of trade.
OPTIONS RISK - The buyer of an option acquires the right to buy (a
call option) or sell (a put option) a certain quantity of a security
(the underlying security) or instrument at a certain price up to a
specified point in time. The seller or writer of an option is
obligated to sell (a call option) or buy (a put option) the
underlying security. When writing (selling) call options on
securities, a Fund may cover its position by owning the
underlying security on which the option is written or by owning a
call option on the underlying security. Alternatively, a Fund
may cover its position by maintaining in a segregated account cash
or liquid securities equal in value to the exercise price of the
call option written by the Fund.
Because option premiums paid or received by the Fund are small in
relation to the market value of the investments underlying the
options, buying and selling put and call options can be more
speculative than investing directly in securities.
SHORT SALES RISK - Short sales are transactions in which a Fund sells a security
it does not own. To complete a short sale, a Fund must borrow the security
to deliver to the buyer. The Fund is then obligated to replace the borrowed
security by purchasing the security at the market price at the time of
replacement. This price may be more or less than the price at which the
security was sold by the Fund.
REAL ESTATE INVESTING RISK - The Fund's investments in the securities of REITs
and companies principally engaged in the real estate industry may subject the
Fund to the risks associated with the direct ownership of real estate. Risks
commonly associated with the direct ownership of real estate include
fluctuations in the value of underlying properties and defaults by borrowers
or tenants. In addition to these risks, REITs are dependent on specialized
management skills and some REITs may have investments in relatively few
properties, or in a small geographic area or a single type of property.
These factors may increase the volatility of the Fund investments in REITs.
Page 26 of 40
<PAGE> 28
TRACKING ERROR RISK - Factors such as Fund expenses, imperfect correlation
between the Fund's investments and those of their benchmarks, rounding of
share prices, changes to the benchmark, regulatory policies, and leverage,
may affect their ability to achieve perfect correlation. The magnitude of
any tracking error may be affected by a higher portfolio turnover rate.
Because an index is just a composite of the prices of the securities it
represents rather than an actual portfolio of those securities, an index will
have no expenses. As a result, the Fund, which will have expenses such as
taxes, custody, management fees and other operational costs, and brokerage,
may not achieve its investment objective of accurately correlating to an
index.
MORE INFORMATION ABOUT FUND 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.
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 short term high quality debt instruments 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 achieving a
Fund's investment objective. Of course, the Fund cannot guarantee that any Fund
will achieve its investment goal.
Page 27 of 40
<PAGE> 29
PERFORMANCE INFORMATION OF COMPARABLE FUNDS
ARMADA ADVANTAGE EQUITY GROWTH FUND
This Fund is relatively new and has less than one year of performance history.
The performance table below is for the Armada Equity Growth Fund, which is
managed by the same Portfolio Management Team of the Adviser. The Armada
Advantage Equity Growth Fund and the Armada Equity Growth Fund have similar
investment goals and employ similar investment strategies. The Armada Advantage
Equity Growth Fund's "Total Operating Expenses" are higher than those of the
Armada Equity Growth Fund. Therefore, performance for this Fund will be lower
than that of the Armada Equity Growth Fund.
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.
This table compares the Armada Equity Growth Fund's average annual total return
for the period ended December 31, 1999 to those of the S&P 500 Composite Index.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ARMADA EQUITY GROWTH FUND (CLASS I SHARES) 22.98% 27.46% 17.18% 17.54%(1)
S&P 500 COMPOSITE INDEX(3) 21.04% 28.55% 18.20% 18.20%(2)
</TABLE>
(1) Since December 20, 1989.
(2) Since December 31, 1989.
(3) The S&P 500 Composite Index is a widely-recognized, market value-weighted
(higher market value stocks have more influence than lower market value stocks)
index of 500 stocks designed to mimic the overall equity market's industry
weightings. Most, but not all, large capitalization stocks are in the index.
There are also some small capitalization stocks in the index. Stocks included in
the index are mostly New York Stock Exchange listed companies, with some
American Stock Exchange and Nasdaq Stock Market stocks.
ARMADA ADVANTAGE BALANCED ALLOCATION FUND
This Fund is new and has no performance history. The performance table below is
for the Armada Balanced Allocation Fund, which is managed by the same Portfolio
Management Teams of the Adviser. The Armada Advantage Balanced Allocation Fund
and the Armada Balanced Allocation Fund have similar investment goals and employ
similar investment strategies. The Armada Advantage Balanced Allocation Fund's
"Total Operating Expenses" are higher than those of the Armada Balanced
Allocation Fund. Therefore, performance for this Fund will be lower than that of
the Armada Balanced Allocation Fund.
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.
Page 28 of 40
<PAGE> 30
This table compares the Armada Balanced Allocation Fund's average annual total
returns for the periods ended December 31, 1999 to those of the S&P 500
Composite Index and the Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
ARMADA BALANCED ALLOCATION FUND (CLASS I SHARES) 15.27% 14.31%(1)
S&P 500 COMPOSITE INDEX(3) 21.04% 22.73%(2)
LEHMAN AGGREGATE BOND INDEX(4) -0.83% 2.45%(2)
BALANCED ALLOCATION HYBRID BENCHMARK(5) 12.00% 14.77%(2)
</TABLE>
(1) Since July 10, 1998.
(2) Since July 31, 1998.
(3) The S&P 500 Composite Index is a widely-recognized, market value-weighted
(higher market value stocks have more influence than lower market value stocks)
index of 500 stocks designed to mimic the overall equity market's industry
weightings. Most, but not all, large capitalization stocks are in the index.
There are also some small capitalization stocks in the index. Stocks included in
the index are mostly New York Stock Exchange listed companies, with some
American Stock Exchange and Nasdaq Stock Market stocks.
(4) The Lehman Aggregate Bond Index is an unmanaged, fixed income, market
value-weighted index that includes treasury issues, agency issues, corporate
bond issues and mortgage-backed securities.
(5) The Balanced Allocation Hybrid Benchmark is an unmanaged composite of the
S&P 500 Composite Index and the Lehman Aggregate Bond Index. These two indices
are combined in the same ratio as the stock/bond ratio of the Balanced
Allocation Fund to arrive at the Hybrid Benchmark.
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.
Page 29 of 40
<PAGE> 31
INVESTMENT ADVISER AND INVESTMENT TEAMS
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 Trust 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, 2000, IMC had approximately $25.732 billion in assets
under management.
The Funds are managed by teams of investment professionals from IMC. No one
person is primarily responsible for making investment recommendations to the
team. Each team manages their respective segment allocation within the Fund,
according to their areas of specialization.
The table below shows the IMC management teams responsible for each fund as well
as the advisory fees IMC received for each fund for the fiscal period ended
December 31, 1999.
<TABLE>
<CAPTION>
ADVISORY FEES PAID AS A
PERCENTAGE OF AVERAGE
NET ASSETS FOR THE
MANAGEMENT TEAM/INVESTMENT FISCAL YEAR ENDED
FUND NAME ADVISER DECEMBER 31, 1999
- ------------------------------------------ ------------------------------------ ------------------------
<S> <C> <C>
Armada Advantage Equity Growth Fund Equity Growth Team 0.00%
Armada Advantage International Equity Fund International Equity Team 1.22%
Armada Advantage Mid Cap Growth Fund Mid Cap Growth Team 1.00%
Armada Advantage Small Cap Growth Fund Small Cap Growth Team 1.00%
Armada Advantage Balanced Allocation Fund Equity and Fixed Income Teams N/A(1)
Armada Advantage Bond Fund Taxable Fixed Income Team 0.71%
</TABLE>
(1) The Fund has not yet commenced operations.
PURCHASING, SELLING AND EXCHANGING FUND SHARES
Investors may not purchase or redeem shares of the Funds directly. 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 participating
entities' contract prospectus of each plan describes how contract owners may
allocate, transfer and withdraw amounts to, and from, separate accounts. The
Funds do not assess any fees, either when they sell or redeem shares. Surrender
charges, mortality and expense risk fees, and other charges may be assessed by
participating entities. These fees should be described in the participating
entities contract prospectus. The Trust assumes no responsibility for such
contract prospectuses.
Page 30 of 40
<PAGE> 32
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 wire transactions on days when banks are 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 Securities and Exchange Commission ("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 or redemption 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 or redemption 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
The NAV is calculated by dividing the value of all securities and other assets
belonging to a Fund, less the liabilities charged to the Fund, by the number of
shares of the Fund that are outstanding.
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. Foreign
securities are valued based on quotations from the primary market in which they
are traded and are translated from the local currency into U.S. dollars using
current exchange rates. Sometimes the price of a security trading on a foreign
exchange may be affected by events that happen after the exchange closes. If
this happens, the fair value of the security may be determined using other
factors and may not reflect the security's last quoted price. Foreign 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.
DIVIDENDS AND DISTRIBUTIONS
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
Page 31 of 40
<PAGE> 33
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 payment 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 a variable life insurance contract or under a qualified
pension or retirement plan.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
Page 32 of 40
<PAGE> 34
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about each Fund. This
information is intended to help you understand each Fund's financial performance
for the past five years, or, if shorter, the period of the Fund's operations.
Some of this information reflects financial information for a single Fund share.
The total returns in the table represent the rate that you would have earned (or
lost) on an investment in a Fund, assuming you reinvested all of your dividends
and distributions. During the periods covered by these tables, the Armada
Advantage Balanced Allocation Fund had not yet commenced investment operations.
Accordingly, no information is presented for this Fund.
This information has been audited by Ernst & Young LLP, independent auditors.
Their report, along with each Fund's financial statements, appears in the
annual report. You can obtain the annual report, which contains more
performance information, at no charge by calling 1-800-622-FUND (3863).
Page 33 of 40
<PAGE> 35
<TABLE>
<CAPTION>
Financial Highlights
- -------------------------------------------------------------------------------------------------------------------
THE ARMADA ADVANTAGE FUND
ARMADA ADVANTAGE EQUITY GROWTH FUND
PERIOD ENDED DECEMBER 31,
--------------------------------------
<S> <C>
FOR A SHARE OUTSTANDING THROUGHOUT
THE PERIOD 1999+
------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
------
INVESTMENT ACTIVITIES
Net investment loss (1.00)
Net realized and unrealized gains from investments 2.40
------
Total from Investment Activities 1.40
------
NET ASSET VALUE, END OF PERIOD $11.40
------
------
Total Return 14.00%(a)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $5,700
Ratio of expenses to average net assets 1.00% (b)
Ratio of net investment loss to average net assets (0.109%)(b)
Ratio of expenses to average net assets* 1.75% (b)
Portfolio turnover rate 26%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios have been indicated.
+ Fund commenced operations on September 13, 1999.
(a) Total return is for the period indicated and has not been annualized.
(b) Annualized.
Page 34 of 40
<PAGE> 36
ARMADA ADVANTAGE INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT
THE YEAR 1999(b) 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $13.83 $12.44 $12.18 $10.59 $9.65
------ ------ ------ ------ -----
INVESTMENT ACTIVITIES
Net investment loss (0.10) (0.10) (0.06) (0.04) (0.03)
Net realized and unrealized gains
from investments 7.54 1.55 0.32 1.67 0.97
------ ------ ------ ------ -----
Total from Investment Operations 7.44 1.45 0.26 1.63 0.94
------ ------ ------ ------ -----
LESS DISTRIBUTIONS
Dividends from net investment income -- -- -- (0.04) --
Distributions from net realized capital gains (0.76) (0.06) -- -- --
------ ------ ------ ------ -----
Total Distributions (0.76) (0.06) -- (0.04) --
------ ------ ------ ------ -----
NET ASSET VALUE, END OF YEAR $20.51 $13.83 $12.44 $12.18 $10.59
------ ------ ------ ------ -----
------ ------ ------ ------ -----
Total Return 55.70% 11.61% 2.13% 15.41% 9.74%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of year (000) $20,584 $18,371 $18,784 $17,001 $11,645
Ratio of expenses to average net assets 2.01% 2.05% 1.90% 2.00% 2.38%
Ratio of net investment loss to average
net assets (0.69%) (0.66%) (0.46%) (0.35%) (0.39%)
Ratio of expenses to average net assets (a) 2.11%* (a) (a) (a)
Portfolio turnover rate 115% 73% 34% 65% 86%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios have been indicated.
(a)There were no waivers or reimbursements during this period.
(b) Per share data calculated using average shares outstanding method.
Page 35 of 40
<PAGE> 37
ARMADA ADVANTAGE MID CAP GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT
THE YEAR 1999 1998 1997 1996 1995
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $15.70 $14.23 $14.60 $12.44 $9.64
------ ------ ------ ------ -----
INVESTMENT ACTIVITIES
Net investment loss (0.41) (0.16) (0.11) (0.09) (0.08)
Net realized and unrealized gains
from investments 7.08 1.63 1.90 2.25 2.88
------ ------ ------ ------ -----
Total from Investment Operations 6.67 1.47 1.79 2.16 2.80
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Distributions from net realized capital gains (1.10) -- (2.16) -- --
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $21.27 $15.70 $14.23 $14.60 $12.44
====== ====== ====== ====== ======
Total Return 44.36% 10.33% 12.58% 17.36% 29.05%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of year (000) $22,967 $29,066 $31,059 $24,041 $14,977
Ratio of expenses to average net assets 1.59% 1.51% 1.53% 1.42% 1.62%
Ratio of net investment loss to average
net assets (1.09%) (0.98%) (0.88%) (0.73%) (0.84%)
Ratio of expenses to average net assets* (a) 1.57% (a) (a) (a)
Portfolio turnover rate 139% 71% 55% 127% 44%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios have been indicated.
(a)There were no waivers or reimbursements during this period.
Page 36 of 40
<PAGE> 38
ARMADA ADVANTAGE SMALL CAP GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT
THE YEAR 1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $16.69 $17.12 $18.20 $15.71 $11.58
------ ------- ------ ------- ------
INVESTMENT ACTIVITIES
Net investment loss (0.22) (0.20) (0.20) (0.15) (0.15)
Net realized and unrealized gains/(losses)
from investments 5.16 (0.23) (0.79) 4.79 4.28
------ ------- ------ ------- ------
Total from Investment Operations 4.94 (0.43) (0.99) 4.64 4.13
------ ------- ------ ------- ------
LESS DISTRIBUTIONS
Distributions from net realized capital gains (0.86) -- (0.09) (2.15) --
------ ------- ------ ------- ------
NET ASSET VALUE, END OF YEAR $20.77 $ 16.69 $17.12 $ 18.20 $15.71
------ ------- ------ ------- ------
------ ------- ------ ------- ------
Total Return 31.24% (2.51%) (5.47%) 29.66% 35.66%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of year (000) $16,473 $22,454 $26,860 $24,495 $13,273
Ratio of expenses to average net assets 1.65% 1.53% 1.55% 1.40% 1.64%
Ratio of net investment loss to average
net assets (1.08%) (1.14%) (1.20%) (1.06%) (1.29%)
Ratio of expenses to average net assets* (a) 1.60% (a) (a) (a)
Portfolio turnover rate 135% 83% 51% 60% 64%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios have been indicated.
(a)There were no waivers or reimbursements during this period.
Page 37 of 40
<PAGE> 39
ARMADA ADVANTAGE BOND FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT
THE YEAR 1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.92 $10.70 $10.33 $10.50 $9.35
------ ------ ------ ------ ------
INVESTMENT ACTIVITIES
Net investment income 0.96 0.51 0.48 0.36 0.40
Net realized and unrealized gains/(losses)
from investments (1.19) 0.20 0.30 (0.18) 1.17
------ ------ ------ ------ ------
Total from Investment Operations (0.23) 0.71 0.78 0.18 1.57
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income (0.83) (0.49) (0.41) (0.35) (0.42)
Distributions from net realized capital gains (0.14) -- -- -- --
------ ------ ------ ------ ------
Total Distributions (0.97) (0.49) (0.41) (0.35) (0.42)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $9.72 $10.92 $10.70 $10.33 $10.50
====== ====== ====== ====== ======
Total Return (1.96%) 6.71% 7.69% 1.83% 16.98%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of year (000) $7,470 $12,337 $11,856 $9,754 $6,758
Ratio of expenses to average net assets 1.29% 1.44% 1.36% 1.29% 1.57%
Ratio of net investment income to average
net assets 5.25% 5.00% 5.36% 5.32% 5.31%
Ratio of expenses to average net assets* (a) 1.50% (a) (a) (a)
Portfolio turnover rate 242% 190% 144% 492% 178%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios have been indicated.
(a)There were no waivers or reimbursements during this period.
Page 38 of 40
<PAGE> 40
THE ARMADA ADVANTAGE FUND
INVESTMENT ADVISER
National City Investment Management Company
1900 East Ninth Street
Cleveland, Ohio 44114
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Drinker, Biddle & Reath LLP
One Logan Square
18th and Cherry Streets
Philadelphia, Pennsylvania 19103-6996
More information about each Fund is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI, as it may be amended or supplemented from time to time, includes more
detailed information about The Armada Advantage Fund. The SAI is on file with
the SEC and is incorporated by reference into this prospectus. This means that
the SAI, for legal purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list each Fund's holdings and contain information from the Fund's
managers about strategies, and recent market conditions and trends and their
impact on Fund performance. The reports also contain detailed financial
information about the Funds.
TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION:
BY TELEPHONE: Call 1-800-622-FUND(3863).
BY MAIL: Write to us at
One Freedom Valley Drive
Oaks, Pennsylvania 19456
Page 39 of 40
<PAGE> 41
FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports,
as well as other information about the Armada Advantage Funds, from the EDGAR
Database on the SEC's website ("http://www.sec.gov"). You may review and copy
documents at the SEC Public Reference Room in Washington, DC (for information on
the operation of the Public Reference Room, call 202-942-8090). You may request
documents by mail from the SEC, upon payment of a duplicating fee, by writing
to:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-0102
You may also obtain this information, upon payment of a duplicating fee, by
e-mailing the SEC at the following address: [email protected].
The Armada Advantage Fund's Investment Company Act registration number is
811-7850.
Page 40 of 40
<PAGE> 42
THE ARMADA ADVANTAGE FUND
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
ARMADA ADVANTAGE EQUITY GROWTH FUND
ARMADA ADVANTAGE INTERNATIONAL EQUITY FUND
ARMADA ADVANTAGE MID CAP GROWTH FUND
ARMADA ADVANTAGE SMALL CAP GROWTH FUND
ARMADA ADVANTAGE BALANCED ALLOCATION FUND
ARMADA ADVANTAGE BOND FUND
This Statement of Additional Information is not a Prospectus, but
should be read in conjunction with the Prospectus for The Armada Advantage Fund
dated May 1, 2000, as it may be supplemented or amended from time to time. This
Statement of Additional Information is incorporated by reference in its entirety
into the Prospectus. The Funds' audited financial statements and highlights
appearing in the 1999 Annual Report to Shareholders are incorporated by
reference into this Statement of Additional Information. Copies of the
Prospectus and the 1999 Annual Report to Shareholders may be obtained without
charge, upon request, by writing The Armada Advantage Fund at One Freedom Valley
Drive, Oaks, PA 19456, or by calling toll free (800) 622-FUND (3863).
<PAGE> 43
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVES AND POLICIES.............................................1
Additional Information on Fund Management.............................1
Additional Information About the Funds................................2
Amanda Advantage Growth Fund..........................................2
Amanda Advantage International Equity Fund............................2
Amanda Advantage Mid Cap Growth Fund..................................3
Amanda Advantage Small Cap Growth Fund................................4
Amanda Advantage Balanced Allocation Fund.............................4
Amanda Advantage Bond Fund............................................5
Additional Information on Portfolio Instruments.......................5
Ratings...............................................................5
U.S. Government Obligations and Money Market Instruments..............5
Variable and Floating Rate Obligations................................7
Repurchase and Reverse Repurchase Agreements..........................8
Dollar Rolls..........................................................8
Securities Lending....................................................9
Investment Company Securities.........................................9
REITS................................................................10
Derivative Securities................................................11
Foreign Securities...................................................20
American, European and Global Depository Receipts....................21
Asset-Backed Securities..............................................22
Mortgage-Backed Securities...........................................23
Convertible Securities...............................................23
When-Issued, Forward Commitment and Delayed Settlement Transactions..24
Guaranteed Investment Contracts......................................25
Restricted And Illiquid Securities...................................25
Warrants.............................................................26
U.S. Treasury Obligations and Receipts...............................26
Short Sales..........................................................27
Portfolio Turnover...................................................27
Investment Limitations...............................................27
NET ASSET VALUE...............................................................29
Valuation of the Funds...............................................29
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................30
MANAGEMENT OF THE TRUST.......................................................31
Shareholder and Trustee Liability....................................35
Investment Adviser...................................................35
Portfolio Transactions...............................................37
Authority to Act as Investment Adviser...............................38
Administrator........................................................39
Distributor..........................................................40
Custodians, Transfer Agent and Fund Accounting Services..............41
Independent Auditors.................................................41
ADDITIONAL INFORMATION........................................................41
Shareholder and Trustee Liability....................................35
Description of Shares................................................41
Vote of a Majority of the Outstanding Shares.........................43
Additional Tax Information...........................................44
Additional Tax Information Concerning the International Equity Fund..45
PERFORMANCE INFORMATION.......................................................45
General..............................................................45
Yields of the Funds..................................................46
Calculation of Total Return..........................................47
Performance Comparisons..............................................47
Miscellaneous........................................................49
-i-
<PAGE> 44
TABLE OF CONTENTS
(CONTINUED)
PAGE
Financial Statements.................................................50
APPENDIX A...................................................................A-1
APPENDIX B...................................................................B-1
-ii-
<PAGE> 45
THE ARMADA ADVANTAGE FUND
The Armada Advantage Fund (the "Trust") is an open-end management
investment company which currently 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 as
a Massachusetts business trust on May 18, 1993. The Trust was 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"), and by other entities under qualified pension and retirement plans.
Shares of the Trust are not offered to the general public but solely to such
separate accounts (the "Separate Accounts").
The Trust currently offers shares of beneficial interest in the
following funds: the Equity Growth Fund, the International Equity Fund, the Mid
Cap Growth Fund, the Small Cap Growth Fund, the Balanced Allocation Fund and the
Bond Fund. Until March 6, 1998, the Trust also offered a money market fund, the
Prime Obligations Fund, which is no longer available.
Prior to May 1, 2000, the Trust was named The Parkstone Advantage Fund.
Additionally, prior to May 1, 2000, the International Equity Fund was known as
the International Discovery Fund, the Mid Cap Growth Fund was known as the Mid
Capitalization Fund and Small Cap Growth Fund was known as the Small
Capitalization Fund. References in this Statement of Additional Information are
to the Trust's and the Fund's current name.
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.
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the investment objectives, principal
investment strategies and related risks of each Fund as set forth in the
Prospectus.
ADDITIONAL INFORMATION ON FUND MANAGEMENT
Further information on National City Investment Management Company's
("IMC" or the "Adviser") management strategies, techniques, policies and related
matters may be included from time to time in advertisements, sales literature,
communications to shareholders and other materials. See also, "Yield and
Performance Information" below.
-1-
<PAGE> 46
ADDITIONAL INFORMATION ABOUT THE FUNDS
ARMADA ADVANTAGE EQUITY GROWTH FUND
Under normal conditions, at least 80% of the Fund's total assets will
be invested in a diversified portfolio of common stocks and securities
convertible into common stocks with large stock market capitalizations
comparable to that of companies in the S&P 500 Composite Index. The Adviser
selects common stocks based on a number of factors, including historical and
projected earnings growth, earnings quality and liquidity, each in relation to
the market price of the stock. Stocks purchased for the Fund generally will be
listed on a national securities exchange or will be unlisted securities with an
established over-the-counter market.
ARMADA ADVANTAGE INTERNATIONAL EQUITY FUND
The Fund seeks to achieve its investment objective by investing, under
normal market conditions, at least 80% of its total assets in equity securities
of foreign issuers. The Fund's assets normally will be invested in the
securities of issuers located in at least three foreign countries. Foreign
investments may also include debt obligations issued or guaranteed by foreign
governments or their agencies, authorities, instrumentalities or political
subdivisions, including a foreign state, province or municipality. The Adviser
does not presently intend to invest in common stock of domestic companies.
The Fund will invest primarily in equity securities, including common
and preferred stocks, rights, warrants, securities convertible into common
stocks and American Depository Receipts ("ADRs") of companies included in the
Morgan Stanley Capital International Europe, Australasia, Far East ("MSCI
EAFE") Index, a broadly diversified international index consisting of more than
1,000 equity securities of companies located in Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia,
the Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, and
the United Kingdom. The Fund, however, is not an "index" fund, and is neither
sponsored by, nor affiliated with, Morgan Stanley Capital International. The
Fund does not anticipate making investments in markets where, in the judgment of
the Adviser, property rights are not defined and supported by adequate legal
infrastructure.
More than 25% of the Fund's assets may be invested in the securities of
issuers located in the same country. Investment in a particular country of 25%
or more of the Fund's total assets will make the Fund's performance more
dependent upon the political and economic circumstances of that country than a
mutual fund more widely diversified among issuers in different countries.
Criteria for determining the appropriate distribution of investments among
countries may include relative valuation, growth prospects, and fiscal,
monetary, and regulatory government policies. See "Additional Information on
Portfolio Instruments - Foreign Securities" below.
-2-
<PAGE> 47
ARMADA ADVANTAGE MID CAP GROWTH FUND
The Fund normally will invest at least 80% of the value of its total
assets in common stocks and securities convertible into common stocks of
companies believed by the Adviser to be characterized by sound management and
the ability to finance expected long-term growth. The Fund normally will invest
at least 80% of the value of its total assets in common stocks and securities
convertible into common stocks of companies with market capitalizations
comparable to companies in the Russell Mid Cap Growth Index. The Fund may also
invest up to 20% of the value of its total assets in preferred stocks, corporate
bonds, notes, units of real estate investment trusts, warrants, and short-term
obligations (with maturities of 12 months or less) consisting of commercial
paper (including variable amount master demand notes), bankers' acceptances,
certificates of deposit, repurchase agreements, obligations issued or guaranteed
by the U.S. government or, its agencies or instrumentalities, and demand and
time deposits of domestic and foreign banks and savings and loan associations.
The Fund may also hold securities of other investment companies and depository
or custodial receipts representing beneficial interests in any of the foregoing
securities.
Subject to the foregoing policies, the Fund may also invest up to 20%
of its net assets in foreign securities either directly or through the purchase
of ADRs, European Depository Receipts ("EDRs"), Global Depository Receipts
("GDRs") and other similar global instruments, and may also invest in securities
issued by foreign branches of U.S. banks and foreign banks, Canadian commercial
paper and in U.S. dollar-denominated commercial paper of a foreign issuer.
The Fund anticipates investing in growth-oriented, medium-sized
companies. Medium-sized companies are considered to be those with a market
capitalization comparable to companies in the Russell Mid Cap Growth Index.
Investments will be in companies that have typically exhibited consistent,
above-average growth in revenues and earnings, strong management, and sound and
improving financial fundamentals. Often, these companies are market or industry
leaders, have excellent products and/or services, and exhibit the potential for
growth. Primary holdings of the Fund are in companies that participate in
long-term growth industries, although these will be supplemented by holdings in
non-growth industries that exhibit the desired characteristics.
Consistent with the foregoing, the Fund will focus its investments in
those companies and types of companies that the Adviser believes will enable the
Fund to achieve its investment objective.
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ARMADA ADVANTAGE SMALL CAP GROWTH FUND
The Fund will normally invest at least 80% of its total assets in
equity securities of companies with stock market capitalizations comparable to
that of companies in the Russell 2000 Growth Index. The Adviser will seek
companies with above-average growth prospects. Factors considered in selecting
such issuers include participation in a fast growing industry, a strategic niche
position in a specialized market, and fundamental value. The Adviser will also
consider the relationship between price and book value, and other factors such
as trading volume and bid-ask spreads in an effort to allow the Fund to achieve
diversification.
Securities held by the Fund generally will be issued by public
companies with small capitalizations relative to those which predominate the
major market indices, such as the S&P 500 Composite Index or the Dow Jones
Industrial Average. Securities of these small companies may at times yield
greater returns on investment than stocks of larger, more established companies
as a result of inefficiencies in the marketplace. Small capitalization companies
are generally not as well-known to investors and have less of an investor
following than larger companies. However, the positions of small capitalization
companies in the market may be more tenuous because they typically are subject
to a greater degree of change in earnings and business prospects than larger,
more established companies. In addition, securities of small capitalization
companies are traded in lower volume than those of larger companies and may be
more volatile. As a result, the Fund may be subject to greater price volatility
than a fund consisting of large capitalization stocks. By maintaining a broadly
diversified portfolio, the Adviser will attempt to reduce this volatility.
ARMADA ADVANTAGE BALANCED ALLOCATION FUND
The Fund may invest in any type or class of security. The Fund normally
invests in common stocks, fixed income securities, securities convertible into
common stocks (i.e., warrants, convertible preferred stock, fixed rate preferred
stock, convertible fixed income securities, options and rights) and cash
equivalent securities. The Fund intends to invest 50% to 70% of its net assets
in common stocks and securities convertible into common stocks, 25% to 55% of
its net assets in fixed income securities and up to 30% of its net assets in
cash and cash equivalents. Of these investments, no more than 20% of the Fund's
total assets will be invested in foreign securities.
The Fund holds common stocks primarily for the purpose of providing
long-term growth of capital. When selecting stocks for the Fund, the Adviser
will consider primarily their potential for long-term capital appreciation. The
Fund intends to invest predominantly in those companies which are
growth-oriented and have exhibited consistent, above-average growth in revenues
and earnings.
The Fund invests the fixed income portion of its portfolio of
investments in a broad range of investment grade debt securities which are rated
at the time of purchase within the four highest rating categories assigned by
Moody's, S&P, Fitch or Duff (defined under "Ratings" below). These fixed income
securities will consist of bonds, debentures, notes, zero coupon securities,
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asset-backed securities, state, municipal and industrial revenue bonds,
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, certificates of deposit, time deposits, high quality
commercial paper, bankers' acceptances and variable amount master demand notes.
In addition, a portion of the Fund's assets may be invested from time to time in
first mortgage loans and participation certificates in pools of mortgages issued
or guaranteed by the U.S. government or its agencies or instrumentalities. Some
fixed income securities may have warrants or options attached.
ARMADA ADVANTAGE BOND FUND
The Fund seeks to achieve its objective by normally investing at least
80% of its total assets in investment grade fixed-income securities. The Fund
uses the Lehman Aggregate Bond Index as its performance benchmark. The average
maturity of the Fund will be from four to twelve years.
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
RATINGS
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, Inc. ("Fitch IBCA"), Duff & Phelps Credit
Rating Co. ("Duff"), and Moody's Investors Service, Inc. ("Moody's") for debt
securities which may be held by the Funds.
All debt obligations, including convertible bonds, purchased by the
Funds are rated investment grade by Moody's ("Aaa," "Aa," "A" and "Baa"),S&P
("AAA," "AA," "A" and "BBB"), Fitch IBCA ("AAA," "AA," "A" and "BBB"), Duff
("AAA," "AA," "A" and "BBB"), or, if not rated, are determined to be of
comparable quality by the Adviser. Debt securities rated "Baa" by Moody's or
"BBB" by S&P, Fitch IBCA and Duff, are generally considered to be investment
grade securities although they have speculative characteristics and changes in
economic conditions or circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case for higher
rated debt obligations.
Subsequent to its purchase by a Fund, an issue of securities may cease
to be rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Trustees or IMC, as the case may be, may
determine that it is appropriate for the Fund to continue to hold the obligation
if retention is in accordance with the interests of the particular Fund and
applicable regulations of the Securities and Exchange Commission ("SEC").
However, each Fund will sell promptly any security that is not rated investment
grade by either S&P, Fitch IBCA, Duff or Moody's if such securities exceed 5% of
the Fund's net assets.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
Each Fund may, in accordance with its investment policies, invest from
time to time in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and in
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other money market instruments, including but not limited to bank obligations,
commercial paper and corporate bonds with remaining maturities of 397 days or
less.
Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation, direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and
Maritime Administration.
U.S. Treasury securities differ only in their interest rates,
maturities and time of issuance: Treasury Bills have initial maturities of one
year or less; Treasury Notes have initial maturities of one to ten years; and
Treasury Bonds generally have initial maturities of more than ten years.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as those of the Government National Mortgage Association, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Federal
Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates
of deposit and non-negotiable 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 or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Time deposits with a maturity longer
than seven days or that do not provide for payment within seven days after
notice will be limited to 15% of a Fund's net assets. Investments by the Funds
in non-negotiable time deposits are limited to no more than 5% of each Fund's
total assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
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Investments in obligations of foreign branches of U.S. banks and U.S.
branches of foreign banks may subject a Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of foreign governmental restrictions which might adversely affect the
payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. Such investments may also subject the Funds to investment risks similar
to those accompanying direct investments in foreign securities.
Commercial paper may include variable and floating rate instruments
which are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, a Fund may demand
payment of principal and accrued interest at a time specified in the instrument
or may resell the instrument to a third party. In the event that an issuer of a
variable or floating rate obligation defaulted on its payment obligation, a Fund
might be unable to dispose of the note because of the absence of a secondary
market and could, for this or other reasons, suffer a loss to the extent of the
default. The Funds may also purchase Rule 144A securities. See "Restricted and
Illiquid Securities" below.
VARIABLE AND FLOATING RATE OBLIGATIONS
The Funds may purchase variable and floating rate instruments in
accordance with their investment objectives and policies as described in the
Prospectus and this Statement of Additional Information. If such an instrument
is not rated, IMC must determine that such instrument is comparable to rated
instruments eligible for purchase by the Funds and will consider the earning
power, cash flows and other liquidity ratios of the issuers and guarantors of
such instruments and will continuously monitor their financial status in order
to meet payment on demand.
In determining average weighted portfolio maturity, an instrument will
usually be deemed to have a maturity equal to the longer of the period remaining
until the next regularly scheduled interest rate adjustment or the time the Fund
involved can recover payment of principal as specified in the instrument.
Instruments which are U.S. Government obligations and certain variable rate
instruments having a nominal maturity of 397 days or less when purchased by the
Fund involved, however, will be deemed to have a maturity equal to the period
remaining until the next interest rate adjustment.
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REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by IMC. No Fund will enter into repurchase agreements with IMC or
any of its affiliates. Unless a repurchase agreement has a remaining maturity of
seven days or less or may be terminated on demand upon notice of seven days or
less, the repurchase agreement will be considered an illiquid security and will
be subject to each Fund's 15% limit on illiquid securities.
The seller under a repurchase agreement will be required to maintain
the value of the securities which are subject to the agreement and held by a
Fund at not less than the agreed upon repurchase price. If the seller defaulted
on its repurchase obligation, the Fund holding such obligation would suffer a
loss to the extent that the proceeds from a sale of the underlying securities
(including accrued interest) were less than the repurchase price (including
accrued interest) under the agreement. In the event that such a defaulting
seller filed for bankruptcy or became insolvent, disposition of such securities
by the Fund might be delayed pending court action.
The repurchase price under a repurchase agreement generally equals the
price paid by a Fund plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to a repurchase agreement will be held
by a Fund's custodian or sub-custodian in a segregated account or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by a Fund under the Investment Company Act of 1940, as amended (the "1940
Act").
Each Fund may also borrow funds for temporary purposes by selling
portfolio securities to financial institutions such as banks and broker/dealers
and agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. The Funds would pay interest on amounts obtained pursuant to a reverse
repurchase agreement. Whenever a Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account liquid assets such as
cash or liquid portfolio securities equal to the repurchase price (including
accrued interest). The Fund will monitor the account to ensure such equivalent
value is maintained. Reverse repurchase agreements are considered to be
borrowings by a Fund under the 1940 Act.
DOLLAR ROLLS
The Funds may invest in dollar roll agreements. A dollar roll agreement
is identical to a reverse repurchase agreement except for the fact that
substantially similar securities may be repurchased. At the time a Fund enters
into a reverse repurchase agreement or a dollar roll agreement, it will place in
a segregated custodial account assets such as U.S. government
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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 continually monitor the account to
insure that such equivalent value is maintained. Reverse repurchase agreements
and dollar roll agreements involve the risk that the market value of the
securities sold by a Fund may decline below the price at which a Fund is
obligated to repurchase the securities. Reverse repurchase agreements and dollar
roll agreements are considered to be borrowings by a Fund under the 1940 Act
and, therefore, a form of leverage. A Fund may experience a negative impact on
its net asset value if interest rates rise during the term of a reverse
repurchase agreement or dollar roll agreement. A Fund generally will invest the
proceeds of such borrowings only when such borrowings will enhance a Fund's
liquidity or when the Fund reasonably expects that the interest income to be
earned from the investment of the proceeds is greater than the interest expense
of the transaction.
SECURITIES LENDING
Each Fund may lend its portfolio securities to financial institutions
such as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. A Fund that loans portfolio securities would continue to
accrue interest on the securities loaned and would also earn income on the
loans. Any cash collateral received by the Funds would be invested in high
quality, short-term money market instruments. Loans will generally be
short-term, will be made only to borrowers deemed by IMC to be of good standing
and only when, in IMC's judgment, the income to be earned from the loan
justifies the attendant risks. The Funds currently intend to limit the lending
of their portfolio securities so that, at any given time, securities loaned by a
Fund represent not more than one-third of the value of its total assets.
INVESTMENT COMPANY SECURITIES
The Funds may invest in securities issued by other investment companies
which invest in high quality, short-term debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method. The International Equity Fund may also purchase shares of investment
companies investing primarily in foreign securities, including so-called
"country funds." Country funds have portfolios consisting primarily of
securities of issuers located in one foreign country.
Such "country funds" may be either open-end or closed-end investment
companies, and may include World Equity Benchmark Shares issued by The Foreign
Fund, Inc. ("WEBS") and similar securities of other issuers. WEBS are shares of
an investment company that invests substantially all of its assets in securities
included in the Morgan Stanley Capital International indices for specific
countries. Because the expense associated with an investment in WEBS can be
substantially lower than the expense of small investments directly in the
securities comprising the indices it seeks to track, the Adviser believes that
investments in WEBS of countries that are included in the MSCI EAFE Index can
provide a cost-effective means of diversifying the Fund's assets across a
broader range of equity securities.
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WEBS are listed on the American Stock Exchange (the "AMEX"), and were
initially offered to the public in 1996. The market prices of WEBS are expected
to fluctuate in accordance with both changes in the net asset values of their
underlying indices and supply and demand of WEBS on the AMEX. To date, WEBS have
traded at relatively modest discounts and premiums to their net asset values.
However, WEBS have a limited operating history, and information is lacking
regarding the actual performance and trading liquidity of WEBS for extended
periods or over complete market cycles. In addition, there is no assurance that
the requirements of the AMEX necessary to maintain the listing of WEBS will
continue to be met or will remain unchanged.
In the event substantial market or other disruptions affecting WEBS
should occur in the future, the liquidity and value of the International
Equity Fund's shares could also be substantially and adversely affected, and
the Fund's ability to provide investment results approximating the
performance of securities in the MSCI EAFE Index could be impaired. If such
disruptions were to occur, the Fund could be required to reconsider the use
of WEBS or other "country funds" as part of its investment strategy.
Investments in other investment companies will cause a Fund (and,
indirectly, the Fund's shareholders) to bear proportionately the costs
incurred in connection with the investment companies' operations. Securities
of other investment companies will be acquired by a Fund within the limits
prescribed by the 1940 Act. Each Fund currently intends to limit its
investments so that, as determined immediately after a securities purchase is
made: (a) not more than 5% of the value of its total assets will be invested
in the securities of any one investment company; (b) not more than 10% of the
value of its total assets will be invested in the aggregate in securities of
other investment companies as a group; (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Fund; and (d) not more than 10% of the outstanding voting stock of any one
closed-end investment company will be owned in the aggregate by the Fund,
other investment portfolios of the Trust, or any other investment companies
advised by IMC.
REITS
The Mid Cap Growth Fund may invest in real estate investment trusts
("REITs"). Equity REITs invest directly in real property while mortgage REITs
invest in mortgages on real property. REITs may be subject to certain risks
associated with the direct ownership of real estate, including declines in the
value of real estate, risks related to general and local economic conditions,
overbuilding and increased competition, increases in property taxes and
operating expenses, and variations in rental income. Generally, increases in
interest rates will decrease the value of high yielding securities and increase
the costs of obtaining financing, which could decrease the value of a REIT's
investments. In addition, equity REITs may be affected by changes in the value
of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of credit extended. Equity and mortgage REITs are
dependent upon management skill, are not diversified and are subject to the
risks of financing projects. REITs are also subject to heavy cash flow
dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue
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Code of 1986, as amended (the "Code"), and to maintain exemption from the 1940
Act. REITs pay dividends to their shareholders based upon available funds from
operations. It is quite common for these dividends to exceed a REIT's taxable
earnings and profits resulting in the excess portion of such dividends being
designated as a return of capital. The Mid Cap Growth Fund intends to include
the gross dividends from any investments in REITs in its periodic distributions
to its shareholders and, accordingly, a portion of the Fund's distributions may
also be designated as a return of capital.
DERIVATIVE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest or currency exchange rates, or indices, and include,
but are not limited to, interest rate futures, put and call options, stock index
futures and options, indexed securities and swap agreements, foreign currency
exchange contracts and certain asset-backed and mortgage-backed securities.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest or exchange rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
security will decline more than the assets, rates or indices on which it is
based; liquidity risk that a Fund will be unable to sell a derivative security
when it wants to because of lack of market depth or market disruption; pricing
risk that the value of a derivative security will not correlate exactly to the
value of the underlying assets, rates or indices on which it is based; and
operations risk that loss will occur as a result of inadequate systems and
controls, human error or otherwise. Some derivative securities are more complex
than others, and for those instruments that have been developed recently, data
are lacking regarding their actual performance over complete market cycles.
The Adviser will evaluate the risks presented by the derivative
securities purchased by the Funds, and will determine, in connection with their
day-to-day management of the Funds, how such securities will be used in
furtherance of the Funds' investment objectives. It is possible, however, that
IMC's evaluations will prove to be inaccurate or incomplete and, even when
accurate and complete, it is possible that the Funds will, because of the risks
discussed above, incur loss as a result of their investments in derivative
securities.
PUT AND CALL OPTIONS. The Funds may purchase put options and call
options on securities and securities indices. A put option gives the buyer the
right to sell, and the writer the obligation to buy, the underlying security at
the stated exercise price at any time prior to the expiration of the option. A
call option gives the buyer the right to buy the underlying security at the
stated exercise price at any time prior to the expiration of the option. Options
involving securities indices provide the holder with the right to make or
receive a cash settlement upon exercise of the option based on movements in the
relevant index. Such options must be listed on a national securities exchange
and issued by the Options Clearing Corporation. Such options may relate to
particular securities or to various stock indexes, except that a Fund may not
write covered call
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options on an index. A Fund may not purchase options unless immediately after
any such transaction the aggregate amount of premiums paid for put or call
options does not exceed 5% of its total assets. Purchasing options is a
specialized investment technique that may entail the risk of a complete loss of
the amounts paid as premiums to the writer of the option.
In order to close out put or call option positions, a Fund will be
required to enter into a "closing purchase transaction" -- the purchase of a put
or call option (depending upon the position being closed out) on the same
security with the same exercise price and expiration date as the option that it
previously wrote. When a portfolio security subject to a call option is sold, a
Fund will effect a closing purchase transaction to close out any existing call
option on that security. If a Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
option expires or a Fund delivers the underlying security upon exercise.
In contrast to an option on a particular security, an option on an
index provides the holder with the right to make or receive a cash settlement
upon exercise of the option. The amount of this settlement will be equal to the
difference between the closing price of the index at the time of exercise and
the exercise price of the option expressed in dollars, times a specified
multiple.
When a Fund purchases a put or call option, the premium paid by it is
recorded as an asset of the Fund. The amount of this asset will be subsequently
marked-to-market to reflect the current value of the option purchased. The
current value of the traded option is the last sale price or, in the absence of
a sale, the average of the closing bid and asked prices. If an option purchased
by a Fund expires unexercised, the Fund realizes a loss equal to the premium
paid. If a Fund enters into a closing sale transaction on an option purchased by
it, the Fund will realize a gain if the premium received by the Fund on the
closing transaction is more than the premium paid to purchase the option, or a
loss if it is less.
There are several risks associated with transactions in options on
securities. For example, there are significant differences between the
securities and options markets which could result in an imperfect correlation
between the 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 national 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, 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; 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 volume; 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. A Fund will likely be unable to
control losses by closing its position where a liquid secondary market does not
exist. Moreover, regardless of how much the market price of the underlying
security
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increases or decreases, the option buyer's risk is limited to the amount of the
original investment for the purchase of the option. However, options may be more
volatile than their underlying securities, and therefore, on a percentage basis,
an investment in options may be subject to greater fluctuation than an
investment in the underlying securities.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
COVERED CALL OPTIONS. To further increase return on their portfolio
securities, in accordance with their respective investment objectives and
policies, the Funds may engage in writing covered call options (options on
securities owned by a Fund) and may enter into closing purchase transactions
with respect to such options. Such options must be listed on a national
securities exchange and issued by the Options Clearing Corporation. The
aggregate value of the securities subject to options written by the Funds may
not exceed 25% of the value of their respective net assets. By writing a covered
call option, a Fund forgoes the opportunity to profit from an increase in the
market price of the underlying security above the exercise price, except insofar
as the premium represents such a profit. A Fund will not be able to sell the
underlying security until the option expires or is exercised or the Fund effects
a closing purchase transaction by purchasing an option of the same series. Such
options will normally be written on underlying securities as to which the
Adviser does not anticipate significant short-term capital appreciation.
The Funds may write listed covered call options. A listed call option
gives the purchaser of the option the right to buy from a clearing corporation,
and obligates the writer to sell to the clearing corporation, the underlying
security at the stated exercise price at any time prior to the expiration of the
option, regardless of the market price of the security. The premium paid to the
writer is consideration for undertaking the obligations under the option
contract. If an option expires unexercised, the writer realizes a gain in the
amount of the premium. Such a gain may be offset by a decline in the market
price of the underlying security during the option period.
A Fund may terminate its obligation to sell prior to the expiration
date of the option by executing 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 call 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 call option containing different terms on such underlying
security. The cost of such a liquidating purchase plus transaction costs may be
greater than the premium received upon the original option, in which event the
writer will have incurred a loss in the transaction. An option position may be
closed out only on an exchange that provides a secondary market for an option of
the same series. There is no assurance that a liquid secondary market on an
exchange will exist for any particular option. A covered option writer, unable
to effect a closing purchase transaction, will not be able to sell the
underlying security until the option expires or the underlying security is
delivered upon exercise. The writer in such circumstances will be subject to the
risk of market decline of the underlying security during such period. A Fund
will write an option on a particular security only if the Adviser believes that
a
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liquid secondary market will exist on an exchange for options of the same
series, which will permit the Fund to make a closing purchase transaction in
order to close out its position.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included as a deferred
credit in the liability section of the Fund's statement of assets and
liabilities. The amount of the 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
price, the average of the closing bid and asked prices. If an option expires on
the stipulated expiration date or if a 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 is
exercised, the Fund may deliver the underlying security from its portfolio and
purchase the underlying security in the open market. In either event, the
proceeds of the sale will be increased by the net premium originally received,
and the Fund will realize a gain or loss. Premiums from expired call options
written by a Fund and net gains from closing purchase transactions are treated
as short-term capital gains for federal income tax purposes, and losses on
closing purchase transactions are treated as short-term capital losses.
OPTIONS ON FOREIGN STOCK INDEXES -- INTERNATIONAL EQUITY FUND. The
International Equity Fund may, for the purpose of hedging its portfolio, subject
to applicable securities regulations purchase and write put and call options on
foreign stock indexes listed on foreign and domestic stock exchanges. A stock
index fluctuates with changes in the market values of the stocks included in the
index. Examples of foreign stock indexes are the Canadian Market Portfolio Index
(Montreal Stock Exchange), The Financial Times -- Stock Exchange 100 (London
Stock Exchange) and the Toronto Stock Exchange Composite 300 (Toronto Stock
Exchange).
Options on stock indexes are generally similar to options on stock
except that the delivery requirements are different. Instead of giving the right
to take or make delivery of stock at a specified price, an option on a stock
index gives the holder the right to receive a cash "exercise settlement amount"
equal to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by (b)
a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based being greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a closing
transaction on an exchange or the option may expire unexercised.
The effectiveness of purchasing or writing stock index options as a
hedging technique will depend upon the extent to which price movements in the
portion of the securities portfolio of the International Equity Fund correlate
with price movements of the stock index selected. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether the Fund realizes a gain or loss from the purchase
or writing of options on an index is dependent upon movements in the level of
stock prices in the
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stock market generally or, in the case of certain indexes, in an industry or
market segment, rather than movements in the price of a particular stock.
Accordingly, successful use by the Fund of options on stock indexes will be
subject to the Adviser's ability to predict correctly movements in the direction
of the stock market generally or of a particular industry. This requires
different skills and techniques than predicting changes in the price of
individual stocks. There can be no assurance that such judgment will be accurate
or that the use of these portfolio strategies will be successful. The Fund will
engage in stock index options transactions that are determined to be consistent
with its efforts to control risk.
When the Fund writes an option on a stock index, the Fund will
establish a segregated account with its custodian or with a foreign
sub-custodian in which the Fund will deposit cash or other liquid assets in an
amount equal to the market value of the option, and will maintain the account
while the option is open.
OPTIONS AND FUTURES CONTRACTS. The Funds may buy and sell options and
futures contracts to manage their exposure to changing interest rates, security
prices and currency exchange rates. The Funds may invest in options and futures
based on any type of security, index, or currency, including options and futures
based on foreign exchanges (see "Options on Foreign Stock Indexes --
International Equity Fund" above) and options not traded on exchanges. Some
options and futures strategies, including selling futures, buying puts, and
writing calls, tend to hedge a Fund's investments against price fluctuations.
Other strategies, including buying futures, writing puts, and buying calls, tend
to increase market exposure. Options and futures may be combined with each other
or with forward contracts in order to adjust the risk and return characteristics
of the overall strategy.
Options and futures can be volatile investments, and involve certain
risks. If the Adviser applies a hedge at an inappropriate time or judges market
conditions incorrectly, options and futures may lower a Fund's individual
return. A Fund could also experience losses if the prices of its options and
futures positions were poorly correlated with its other investments, or if it
could not close out its positions because of an illiquid secondary market.
The Funds will not hedge more than 20% of their respective total assets
by selling futures, buying puts, and writing calls under normal conditions. The
Funds will not buy futures or write puts whose underlying value exceeds 20% of
their respective total assets, and will not buy calls with a value exceeding 5%
of their respective total assets.
FUTURES CONTRACTS -- BOND FUND. The Bond Fund may enter into contracts
(both purchase and sale) for the future delivery of fixed income securities
commonly known as interest rate futures contracts. The Bond Fund will not engage
in futures transactions for speculation, but only to hedge against changes in
the market values of securities which the Fund holds or intends to purchase. The
Bond Fund will engage in futures transactions only to the extent permitted by
the Commodity Futures Trading Commission ("CFTC") and the SEC. The purchase of
futures instruments in connection with securities which the Fund intends to
purchase will require an amount of cash or other liquid assets, equal to the
market value of the outstanding futures contracts, to be deposited in a
segregated account to collateralize the position and thereby insure that the use
of such futures is unleveraged. The Bond Fund will limit its hedging
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transactions in futures contracts so that, immediately after any such
transaction, the aggregate initial margin that is required to be posted by the
Fund under the rules of the exchange on which the futures contract is traded
does not exceed 5% of the Fund's total assets after taking into account any
unrealized profits and unrealized losses on the Fund's open contracts. In
addition, no more than one-third of the Bond Fund's total assets may be covered
by such contracts.
Transactions in futures as a hedging device may subject the Bond Fund
to a number of risks. Successful use of futures by the Bond Fund is subject to
the ability of the Adviser to predict correctly movements in the direction of
the market. In addition, there may be an imperfect correlation, or no
correlation at all, between movements in the price of futures contracts and
movements in the price of the instruments being hedged. There is no assurance
that a liquid market will exist for any particular futures contract at any
particular time. Consequently, the Bond Fund may realize a loss on a futures
transaction that is not offset by a favorable movement in the price of
securities which it holds or intends to purchase or may be unable to close a
futures position in the event of adverse price movements. Any income from
investments in futures contracts will be taxable. Additional information
concerning futures transactions, including special rules regarding the taxation
of such transactions, is contained in Appendix B.
STOCK INDEX FUTURES, SWAP AGREEMENTS, INDEXED SECURITIES AND OPTIONS.
The Funds may utilize stock index futures contracts, options, swap agreements,
indexed securities, and options on futures contracts for the purposes of
managing cash flows into and out of their respective portfolios and potentially
reducing transaction costs, subject to the limitation that the value of these
futures contracts, swap agreements, indexed securities, and options will not
exceed 20% of the Funds' respective total assets. The Funds will not purchase
options to the extent that more than 5% of the value of their respective total
assets would be invested in premiums on open put option positions. In addition,
the Funds do not intend to invest more than 5% of the market value of their
respective total assets in each of the following: futures contracts, swap
agreements, and indexed securities. When a Fund enters into a swap agreement,
liquid assets of the Fund equal to the value of the swap agreement will be
segregated by that Fund. The Funds may not use stock index futures contracts and
options for speculative purposes.
There are several risks accompanying the utilization of futures
contracts. Positions in futures contracts may be closed only on an exchange or
board of trade that furnishes a secondary market for such contracts. While the
Funds plan to utilize futures contracts only if there exists an active market
for such contracts, there is no guarantee that a liquid market will exist for
the contracts at a specified time. Furthermore, because by definition, futures
contracts look to projected price levels in the future and not to current levels
of valuation, market circumstances may result in there being a discrepancy
between the price of the stock index future and the movement in the
corresponding stock index. The absence of a perfect price correlation between
the futures contract and its underlying stock index could stem from investors
choosing to close futures contracts by offsetting transactions, rather than
satisfying additional margin requirements. This could result in a distortion of
the relationship between the index and the futures market. In addition, because
the futures market imposes less burdensome margin requirements than the
securities market, an increased amount of participation by speculators in the
futures market could result in price fluctuations.
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As a means of reducing fluctuations in the net asset value of shares of
the Funds, the Funds (except for the Bond Fund) may attempt to hedge all or a
portion of their respective portfolios through the purchase of listed put
options on stocks, stock indices and stock index futures contracts. These
options will be used as a form of forward pricing to protect portfolio
securities against decreases in value resulting from market factors, such as an
anticipated increase in interest rates. A purchased put option gives a Fund, in
return for a premium, the right to sell the underlying security to the writer
(seller) at a specified price during the term of the option. Put options on
stock indices are similar to put options on stocks except for the delivery
requirements. Instead of giving a Fund the right to make delivery of stock at a
specified price, a put option on a stock index gives the Fund, as holder, the
right to receive an amount of cash upon exercise of the option.
The Funds may also write covered call options. As the writer of a call
option, a Fund has the obligation upon exercise of the option during the option
period to deliver the underlying security upon payment of the exercise price.
The Funds may only: (1) buy listed put options on stock indices and
stock index futures contracts; (2) buy listed put options on securities held in
their respective portfolios; and (3) sell listed call options either on
securities held in their respective portfolios or on securities which they have
the right to obtain without payment of further consideration (or have segregated
cash in the amount of any such additional consideration). A Fund will maintain
its positions in securities, option rights, and segregated cash subject to puts
and calls until the options are exercised, closed or expired. A Fund (except for
the Bond Fund) may also enter into stock index futures contracts. A stock index
futures contract is a bilateral agreement which obligates the seller to deliver
(and the purchaser to take delivery of) an amount of cash equal to a specific
dollar amount times the difference between the value of a specific stock index
at the close of trading of the contract and the price at which the agreement is
originally made. There is no physical delivery of the stocks constituting the
index, and no price is paid upon entering into a futures contract.
In general, option contracts are closed out prior to their expiration.
A Fund, when purchasing or selling a futures contract, will initially be
required to deposit in a segregated account in the broker's name with the Fund's
custodian an amount of cash or liquid portfolio securities approximately equal
to 5% - 10% of the contract value. This amount is known as "initial margin," and
it is subject to change by the exchange or board of trade on which the contract
is traded. Subsequent payments to and from the broker are made on a daily basis
as the price of the index or the securities underlying the futures contract
fluctuates. These payments are known as "variation margins," and the fluctuation
in value of the long and short positions in the futures contract is a process
referred to as "marking to market." A Fund may decide to close its position on a
contract at any time prior to the contract's expiration. This is accomplished by
the Fund taking an opposite position at the then prevailing price, thereby
terminating its existing position in the contract. Because the initial margin
resembles a performance bond or good-faith deposit on the contract, it is
returned to the Fund upon the termination of the contract, assuming that all
contractual obligations have been satisfied. Therefore, the margin utilized in
futures contracts is readily distinguishable from the margin employed in
security transactions, since the
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margin employed in futures contracts does not involve the borrowing of funds to
finance the transaction.
None of the Funds will enter into futures contracts if, immediately
thereafter, the sum of its initial margin deposits on open contracts exceed 5%
of the market value of its total assets. Further, a Fund will enter into stock
index futures contracts only for bona fide hedging purposes or such other
purposes permitted under Part 4 of the regulations promulgated by the Commodity
Futures Trading Commission. Also, a Fund may not enter into stock index futures
contracts and options to the extent that the value of such contracts would
exceed 20% of the Fund's total net assets and may not purchase put options to
the extent that more than 5% of the value of the Fund's total assets would be
invested in premiums on open put option positions.
The Funds may invest in indexed securities whose value is linked to
foreign currencies, interest rates, commodities, indices or other financial
indicators. Most indexed securities are short- to intermediate-term fixed income
securities whose values at maturity or interest rates rise or fall according to
the change in one or more specified underlying instruments. Indexed securities
may be positively or negatively indexed (i.e., their value may increase or
decrease if the underlying instrument appreciates), and may have return
characteristics similar to direct investments in the underlying instrument or to
one or more options on the underlying instrument. Indexed securities may be more
volatile than the underlying instrument itself.
As one way of managing their exposure to different types of
investments, the Balanced Allocation and Bond Funds may enter into interest rate
swaps, currency swaps, and other types of swap agreements such as caps, collars,
and floors. In a typical interest rate swap, one party agrees to make regular
payments equal to a floating interest rate times a "notional principal amount,"
in return for payments equal to a fixed rate times the same amount, for a
specified period of time. If a swap agreement provides for payments in different
currencies, the parties might agree to exchange notional principal amount as
well. Swaps may also depend on other prices or rates, such as the value of an
index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate exceeds
an agreed upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an agreed
upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from
one type of investment to another. For example, if a Fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options. Depending on how they are used, swap
agreements may increase or decrease the overall volatility of a Fund's
investments and its share price and yield.
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Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks assumed.
As a result, swaps can be highly volatile and may have a considerable impact on
the Funds' performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Funds may also suffer losses
if they are unable to terminate outstanding swap agreements or reduce their
exposure through offsetting transactions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Funds (except for
the Bond Fund) may buy and sell securities denominated in currencies other than
the U.S. dollar, and may receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Funds from time to time may enter
into foreign currency exchange transactions to convert the U.S. dollar to
foreign currencies, to convert foreign currencies to the U.S. dollar and to
convert foreign currencies to other foreign currencies. A Fund either enters
into these transactions on a spot (I.E., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or uses forward contracts to purchase
or sell foreign currencies. Forward foreign currency exchange contracts are
agreements to exchange one currency for another -- for example, to exchange a
certain amount of U.S. dollars for a certain amount of Japanese yen -- at a
future date, which may be any fixed number of days from the date of the
contract, and at a specified price. Typically, the other party to a currency
exchange contract will be a commercial bank or other financial institution. A
forward foreign currency exchange contract generally has no deposit requirement
and is traded at a net price without commission. Neither spot transactions nor
forward foreign currency exchange contracts eliminate fluctuations in the prices
of a Fund's portfolio securities or in foreign exchange rates, or prevent loss
if the prices of these securities should decline.
Forward foreign currency exchange contracts also allow the Funds
(except for the Bond Fund) to hedge the currency risk of portfolio securities
denominated in a foreign currency. This technique permits the assessment of the
merits of a security to be considered separately from the currency risk. By
separating the asset and the currency decision, it is possible to focus on the
opportunities presented by the security apart from the currency risk. Although
forward foreign currency exchange contracts are of short duration, generally
between one and twelve months, such contracts are rolled over in a manner
consistent with a more long-term currency decision. Because there is a risk of
loss to a Fund if the other party does not complete the transaction, forward
foreign currency exchange contracts will be entered into only with parties
approved by the Board of Trustees.
A Fund (except for the Bond Fund) may maintain "short" positions in
forward foreign currency exchange transactions, which would involve the Fund's
agreeing to exchange currency that it currently does not own for another
currency -- for example, to exchange an amount of Japanese yen that it does not
own for a certain amount of U.S. dollars -- at a future date and at a specified
price in anticipation of a decline in the value of the currency sold short
relative to the currency that the Fund has contracted to receive in the
exchange. In order to ensure that the short position is not used to achieve
leverage with respect to the Fund's investments, the Fund will establish with
its custodian a segregated account consisting of cash or other liquid assets
equal in value to the fluctuating market value of the currency as to which the
short position is being
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maintained. The value of the securities in the segregated account will be
adjusted at least daily to reflect changes in the market value of the short
position.
Forward foreign currency exchange contracts establish an exchange rate
at a future date. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward foreign currency exchange contract generally has no
deposit requirement and is traded at a net price without commission. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of a Fund's portfolio securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.
The Funds (except for the Bond Fund) may enter into foreign currency
hedging transactions in an attempt to protect against changes in foreign
currency exchange rates between the trade and settlement dates of specific
securities transactions or changes in foreign currency exchange rates that would
adversely affect a portfolio position or an anticipated portfolio position.
Since consideration of the prospect for currency parities will be incorporated
into a Fund's long-term investment decisions, the Funds will not routinely enter
into foreign currency hedging transactions with respect to portfolio security
transactions; however, it is important to have the flexibility to enter into
foreign currency hedging transactions when it is determined that the
transactions would be in the Fund's best interest. Although these transactions
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time they tend to limit any potential gain that might be
realized should the value of the hedged currency increase. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible because the future value of these securities in
foreign currencies will change as a consequence of market movements in the value
of those securities between the date the forward contract is entered into and
the date it matures. The projection of currency market movements is extremely
difficult, and the successful execution of a hedging strategy is highly
uncertain.
FOREIGN SECURITIES
Investments by the Funds (except for the Bond Fund) in foreign
securities may involve higher costs than investments in U.S. securities,
including higher transaction costs, as well as the imposition of additional
taxes by foreign governments. In addition, foreign investments may include
additional risks associated with currency exchange rates, less complete
financial information about the issuers, less market liquidity, and political
instability. Future political and economic developments, the possible imposition
of withholding taxes on interest income, the possible seizure or nationalization
of foreign holdings, the possible establishment of exchange controls, or the
adoption of other governmental restrictions, might adversely affect the payment
of dividends or principal and interest on foreign obligations.
Although the Funds (except for the Bond Fund) may invest in securities
denominated in foreign currencies, the Funds value their securities and other
assets in U.S. dollars. As a result, the net asset value of a Fund's shares may
fluctuate with U.S. dollar exchange rates as well as with price changes of the
Fund's securities in the various local markets and currencies. Thus, an increase
in the value of the U.S. dollar compared to the currencies in which the Fund
makes its
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foreign investments could reduce the effect of increases and magnify the effect
of decreases in the price of the Fund's securities in their local markets.
Conversely, a decrease in the value of the U.S. dollar will have the opposite
effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Funds' securities in their local markets. In
addition to favorable and unfavorable currency exchange rate developments, the
Funds are subject to the possible imposition of exchange control regulations or
freezes on convertibility of currency.
Many European countries have adopted a single European currency, the
euro. On January 1, 1999, the euro became legal tender for all countries
participating in the Economic and Monetary Union ("EMU"). A new European Central
Bank has been created to manage the monetary policy of the new unified region.
On the same date, the exchange rates were irrevocably fixed between the EMU
member countries. National currencies will continue to circulate until they are
replaced by euro coins and bank notes by the middle of 2002.
This change is likely to significantly impact the European capital
markets in which the International Equity Fund invests and may result in the
Fund facing additional risks in pursuing its investment objective. These risks,
which include, but are not limited to, uncertainty as to the proper tax
treatment of the currency conversion, volatility of currency exchange rates as a
result of the conversion, uncertainty as to capital market reaction, conversion
costs that may affect issuer profitability and creditworthiness, and lack of
participation by some European countries, may increase the volatility of the
Fund's net asset value per share.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS
Each Fund (except for the Bond Fund) may invest in ADRs, EDRs and GDRs.
ADRs are receipts issued in registered form by a U.S. bank or trust company
evidencing ownership of underlying securities issued by a foreign issuer. EDRs
are receipts issued in Europe typically by non-U.S. banks or trust companies and
foreign branches of U.S. banks that evidence ownership of foreign or U.S.
securities. GDRs are receipts structured similarly to EDRs and are marketed
globally. The Mid Cap Growth Fund may also invest in MidCap SPDRs. SPDRs are
receipts designed to replicate the performance of the S&P 500 Composite Index.
MidCap SPDRs represent ownership in the MidCap SPDR Trust, a unit investment
trust which holds a portfolio of common stocks that closely tracks the price
performance and dividend yield of the S&P MidCap 400 Index. ADRs may be listed
on a national securities exchange or may be traded in the over-the-counter
market. EDRs are designed for use in European exchange and over-the-counter
markets. GDRs are designed for trading in non-U.S. securities markets. ADRs,
EDRs and GDRs traded in the over-the-counter market which do not have an active
or substantial secondary market will be considered illiquid and therefore will
be subject to the Funds' 15% limitation with respect to such securities. If a
Fund invests in an unsponsored ADR, EDR or GDR, there may be less information
available to the Fund concerning the issuer of the securities underlying the
unsponsored ADR, EDR or GDR than is available for an issuer of securities
underlying a sponsored ADR, EDR or GDR. ADR prices are denominated in U.S.
dollars although the underlying securities are denominated in a foreign
currency. Investments in ADRs, EDRs and GDRs involve risks similar to those
accompanying direct investments in foreign securities.
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ASSET-BACKED SECURITIES
The Balanced Allocation and Bond Funds may purchase asset-backed
securities, which represent a participation in, or are secured by and payable
from, a stream of payments generated by particular assets, most often a pool of
assets similar to one another. Assets generating such payments will consist of
such instruments as motor vehicle installment purchase obligations, credit card
receivables and home equity loans. Payment of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit issued by a financial institution unaffiliated with entities issuing the
securities. The estimated life of an asset-backed security varies with the
prepayment experience with respect to the underlying debt instruments. The rate
of such prepayments, and hence the life of the asset-backed security, will be
primarily a function of current market rates, although other economic and
demographic factors will be involved.
Asset-backed securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in an
underlying pool of assets, or as debt instruments, which are also known as
collateralized obligations, and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund's experiencing difficulty in valuing or
liquidating such securities. For these reasons, under certain circumstances,
asset-backed securities may be considered illiquid securities.
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MORTGAGE-BACKED SECURITIES
The Balanced Allocation and Bond Funds may invest in mortgage-backed
securities (including collateralized mortgage obligations) that represent pools
of mortgage loans assembled for sale to investors by various governmental
agencies and government-related organizations, such as the Government National
Mortgage Association, the Federal National Mortgage Association, and the Federal
Home Loan Mortgage Corporation. Mortgage-backed securities provide a monthly
payment consisting of interest and principal payments. Additional payment may be
made out of unscheduled repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs that may be incurred. Prepayments of principal on mortgage-backed
securities may tend to increase due to refinancing of mortgages as interest
rates decline. To the extent that a Fund purchases mortgage-backed securities at
a premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of a
Fund, should it invest in mortgage-backed securities, may be affected by
reinvestment of prepayments at higher or lower rates than the original
investment.
Other mortgage-backed securities are issued by private issuers,
generally originators of and investors in mortgage loans, including savings
associations, mortgage bankers, commercial banks, investment bankers, and
special purpose entities. These private mortgage-backed securities may be
supported by U.S. Government mortgage-backed securities or some form of
non-government credit enhancement. Mortgage-backed securities have either fixed
or adjustable interest rates. The rate of return on mortgage-backed securities
may be affected by prepayments of principal on the underlying loans, which
generally increase as interest rates decline; as a result, when interest rates
decline, holders of these securities normally do not benefit from appreciation
in market value to the same extent as holders of other non-callable debt
securities. In addition, like other debt securities, the value of
mortgage-related securities, including government and government-related
mortgage pools, generally will fluctuate in response to market interest rates.
CONVERTIBLE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, invest in convertible securities. Convertible securities
are fixed income securities which may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified time period. Convertible securities may
take the form of convertible preferred stock, convertible bonds or debentures,
units consisting of "usable" bonds and warrants or a combination of the features
of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Usable bonds are corporate bonds that can be used in whole
or in part,
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customarily at full face value, in lieu of cash to purchase the issuer's common
stock. When owned as part of a unit along with warrants, which are options to
buy the common stock, they function as convertible bonds, except that the
warrants generally will expire before the bond's maturity. Convertible
securities are senior to equity securities and therefore have a claim to the
assets of the issuer prior to the holders of common stock in the case of
liquidation. However, convertible securities are generally subordinated to
similar non-convertible securities of the same issuer. The interest income and
dividends from convertible bonds and preferred stocks provide a stable stream of
income with generally higher yields than common stocks, but lower than
non-convertible securities of similar quality. A Fund will exchange or convert
the convertible securities held in its portfolio into shares of the underlying
common stock in instances in which, in the Adviser's opinion, the investment
characteristics of the underlying common shares will assist the Fund in
achieving its investment objective. Otherwise, a Fund will hold or trade the
convertible securities. In selecting convertible securities for a Fund, the
Adviser evaluates the investment characteristics of the convertible security as
a fixed income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with respect to a
particular convertible security, the Adviser considers numerous factors,
including the economic and political outlook, the value of the security relative
to other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
The Funds may purchase eligible securities on a "when-issued" basis,
and may purchase or sell securities on a "forward commitment" basis. The Funds
may also purchase eligible securities on a "delayed settlement" basis.
When-issued and forward commitment transactions, which involve a commitment by a
Fund to purchase or sell particular securities with payment and delivery taking
place at a future date (perhaps one or two months later), permit the Fund to
lock in a price or yield on a security it owns or intends to purchase,
regardless of future changes in interest rates. Delayed settlement describes
settlement of a securities transaction in the secondary market which will occur
sometime in the future. When-issued, forward commitment and delayed settlement
transactions involve the risk, however, that the yield or price obtained in a
transaction may be less favorable than the yield or price available in the
market when the securities delivery takes place. It is expected that forward
commitments, when-issued purchases and delayed settlements will not exceed 25%
of the value of a Fund's total assets absent unusual market conditions. In the
event a Fund's forward commitments, when-issued purchases and delayed
settlements ever exceeded 25% of the value of its total assets, the Fund's
liquidity and the ability of IMC to manage the Fund might be adversely affected.
The Funds do not intend to engage in when-issued purchases, forward commitments
and delayed settlements for speculative purposes, but only in furtherance of
their investment objectives.
A Fund may dispose of a commitment prior to settlement if the Adviser
deems it appropriate to do so. In addition, a Fund may enter into transactions
to sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Funds may realize short-term profits or losses upon the sale of such
commitments.
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<PAGE> 69
When a Fund agrees to purchase securities on a when-issued, forward
commitment or delayed settlement basis, the Fund's custodian will set aside cash
or liquid portfolio securities equal to the amount of the commitment in a
separate account. In the event of a decline in the value of the securities that
the custodian has set aside, the Fund may be required 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. A Fund's net assets may fluctuate
to a greater degree if it sets aside portfolio securities to cover such purchase
commitments than if it sets aside cash. Because a Fund sets aside liquid assets
to satisfy its purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be adversely affected in the event its
forward commitments, when-issued purchases or delayed settlements exceeded 25%
of the value of its assets.
When a Fund engages in when-issued, forward commitment or delayed
settlement 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 for a
security. For purposes of determining the average weighted maturity of a Fund's
portfolio, the maturity of when-issued securities is calculated from the date of
settlement of the purchase to the maturity date.
GUARANTEED INVESTMENT CONTRACTS
Each Fund may invest in guaranteed investment contracts ("GICs") issued
by U.S. and Canadian insurance companies. Pursuant to GICs, a Fund makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the Fund payments at negotiated, floating or
fixed interest rates. A GIC is a general obligation of the issuing insurance
company and not a separate account. The purchase price paid for a GIC becomes
part of the general assets of the insurance company, and the contract is paid
from the company's general assets. The Funds will only purchase GICs that are
issued or guaranteed by insurance companies that at the time of purchase are
rated at least AA by S&P or receive a similar high quality rating from a
nationally recognized service which provides ratings of insurance companies.
GICs are considered illiquid securities and will be subject to the Funds' 15%
limitation on such investments, unless there is an active and substantial
secondary market for the particular instrument and market quotations are readily
available.
RESTRICTED AND ILLIQUID SECURITIES
Each Fund may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933, as amended (the "1933 Act"). Section 4(2) commercial paper is restricted
as to disposition under federal securities law and is generally sold to
institutional investors, such as the Funds, who agree that they are purchasing
the paper for investment purposes and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2)
commercial paper is normally resold to other institutional investors like the
Funds through or with the assistance of the issuer or investment dealers who
make a market in Section 4(2) commercial paper, thus providing liquidity. The
Funds believe that Section 4(2) commercial paper and possibly certain other
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<PAGE> 70
restricted securities that meet the criteria for liquidity established by the
Board of Trustees are quite liquid. The Funds intend, therefore, to treat the
restricted securities that meet the criteria for liquidity established by the
Board of Trustees, including Section 4(2) commercial paper (as determined by the
Adviser), as liquid and not subject to the investment limitation applicable to
illiquid securities. In addition, because Section 4(2) commercial paper is
liquid, the Funds do not intend to subject such paper to the limitation
applicable to restricted securities.
Rule 144A under the 1933 Act allows for a broader institutional trading
market for securities otherwise subject to restrictions on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the 1933 Act for resales of certain securities to qualified institutional
buyers. A Fund's investment in Rule 144A securities could have the effect of
increasing the level of illiquidity of the Fund during any period that qualified
institutional buyers were no longer interested in purchasing these securities.
For purposes of each Fund's 15% limitation on purchases of illiquid instruments,
Rule 144A securities will not be considered to be illiquid if the Adviser has
determined, in accordance with guidelines established by the Board of Trustees,
that an adequate trading market exists for such securities.
WARRANTS
Each of the Funds 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.
U.S. TREASURY OBLIGATIONS AND RECEIPTS
The Funds may invest in obligations issued or guaranteed by the U.S.
government or its agencies. The Fund may invest in U.S. Treasury obligations
consisting of bills, notes and bonds issued by the U.S. Treasury, and separately
traded interest and principal component parts of such obligations that are
transferable through the Federal book-entry system known as STRIPS (Separately
Traded Registered Interest and Principal Securities).
The Funds may invest in separately traded interest and principal
component parts of the U.S. Treasury obligations that are issued by banks or
brokerage firms and are created by depositing U.S. Treasury obligations into a
special account at a custodian bank. The custodian holds the interest and
principal payments for the benefit of the registered owners of the certificates
of receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
Treasury Receipts (TRs), Treasury Investment Growth Receipts (TIGRs), Liquid
Yield Option Notes (LYONs), and Certificates of Accrual on Treasury Securities
(CATS). TIGRs, LYONs and CATS are interests in private proprietary accounts
while TR's are interests in accounts sponsored by the U.S. Treasury.
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<PAGE> 71
Securities denominated as TRs, TIGRs, LYONs and CATS are sold as zero
coupon securities which means that they are sold at a substantial discount and
redeemed at face value at their maturity date without interim cash payments of
interest or principal. This discount is accreted over the life of the security,
and such accretion will constitute the income earned on the security for both
accounting and tax purposes. Because of these features, such securities may be
subject to greater interest rate volatility than interest paying investments.
SHORT SALES
The Funds may engage in short sales of its securities. Selling
securities short involves selling securities the seller does not own (but has
borrowed) in anticipation of a decline in the market price of such securities.
To deliver the securities to the buyer, the seller must arrange through a broker
to borrow the securities and, in so doing, the seller becomes obligated to
replace the securities borrowed at their market price at the time of
replacement. In a short sale, the proceeds the seller receives from the sale are
retained by a broker until the seller replaces the borrowed securities. The
seller may have to pay a premium to borrow the securities and must pay any
dividends or interest payable on the securities until they are replaced.
PORTFOLIO TURNOVER
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.
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.
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
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<PAGE> 72
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.
4. Purchase any securities which would cause 25% or more of the value
of its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the same
industry, provided that:
(a) there is no limitation with respect to obligations issued
or guaranteed by the U.S. government, any state, territory or
possession of the United States, the District of Columbia or any of
their authorities, agencies, instrumentalities or political
subdivisions, and repurchase agreements secured by such instruments;
(b) wholly-owned finance companies will be considered to be in
the industries of their parents if their activities are primarily
related to financing the activities of the parents;
(c) utilities will be divided according to their services, for
example, gas, gas transmission, electric and gas, electric, and
telephone will each be considered a separate industry; and
(d) personal credit and business credit businesses will be
considered separate industries.
5. Purchase securities of any one issuer, other than securities issued
or guaranteed by the U.S. government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in such issuer or the Fund would hold more than 10% of
any class of securities of the issuer or more than 10% of the outstanding voting
securities of the issuer, except that up to 25% of the value of the Fund's total
assets may be invested without regard to such limitations.
6. Make loans, except that a Fund may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities in an amount
not exceeding one-third of its total assets.
7. Borrow money, issue senior securities or mortgage, pledge or
hypothecate its assets except to the extent permitted under the 1940 Act.
For purposes of the above investment limitations, the Funds treat all
supranational organizations as a single industry and each foreign government
(and all of its agencies) as a separate industry. In addition, a security is
considered to be issued by the government entity (or entities) whose assets and
revenues back the security.
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<PAGE> 73
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.
5. Invest more than 15% of its net assets in illiquid securities.
6. Purchase securities while its outstanding borrowings 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. With respect to the Bond and Balanced Allocation Funds, if there
have been no sales during such day, portfolio securities will be valued at the
mean between the most recent quoted bid and asked prices. Portfolio securities,
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<PAGE> 74
the principal market for which is not a securities exchange, will be valued at
the mean between the most recent quoted bid and asked prices in such principal
market. With respect to the Equity Growth, International Equity, Mid Cap Growth
and Small Cap Growth Funds, and the equity securities of the Balanced Allocation
Fund, if there have been no sales during such day, portfolio securities will be
valued at the latest bid quotation. In either case, if no such price is
available, then such securities will be valued in good faith at their respective
fair market values using methods determined by or under the supervision of the
Board of Trustees of the Trust. In determining market value, the International
Equity Fund's portfolio securities which are primarily traded on a domestic
exchange are valued at the last sale price on that exchange or, if there is no
recent sale, at the last current bid quotation. Portfolio securities which are
primarily traded on foreign securities exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
except when an occurrence subsequent to the time a value was so established is
likely to have changed such value, then the fair value of those securities may
be determined through consideration of other factors by or under the direction
of the Board of Trustees. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the primary
market for such security. For valuation purposes, quotations of foreign
securities in foreign currency are converted to U.S. dollars equivalent at the
prevailing market rate on the day of valuation. An option is generally valued at
the last sale price or, in the absence of a last sale price, the last offer
price. Certain of the securities acquired by the International Equity Fund may
be traded on foreign exchanges or over-the-counter markets on days on which the
Fund's net asset value is not calculated. In such cases, the net asset value of
the Fund's shares may be significantly affected on days when investors can
neither purchase nor redeem shares of the Fund. Portfolio securities with a
remaining maturity of 60 days or less may 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 market 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.
The Trust may suspend the right of redemption or postpone the date of
payment for shares during a 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 suspensions; 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.
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<PAGE> 75
MANAGEMENT OF THE TRUST
The trustees and executive officers of the Trust, their addresses, age
and their principal occupations during the past 5 years are as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- --------- ----------------------
<S> <C> <C>
Robert D. Neary Chairman of the Board and Trustee Retired Co-Chairman of Ernst & Young, April 1984
32980 Creekside Drive to September 1993; Director, Cold Metal
Pepper Pike, OH 44124 Products, Inc., since March 1994; Director,
Age 66 Strategic Distribution, Inc., since January
1999. Trustee, Parkstone Group of Funds and
Armada Funds.
Herbert R. Martens, Jr.* President and Trustee Executive Vice President, National City
c/o NatCity Investments, Inc. Corporation (bank holding company), since July
1965 East Sixth Street 1997; Chairman, President and Chief Executive
Cleveland, OH 44114 Officer, NatCity Investments, Inc. (investment
Age 47 banking), since July 1995; President and Chief
Executive Officer, Raffensberger, Hughes & Co.
(broker-dealer) from 1993 until 1995; President,
Reserve Capital Group, from 1990 until 1993.
Trustee, Parkstone Group of Funds and Armada
Funds.
Leigh Carter* Trustee Retired President and Chief Operating Officer,
13901 Shaker Blvd., #6B B.F. Goodrich Company, August 1986 to September
Cleveland, OH 44120 1990; Director, Adams Express Company
Age 74 (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.
Trustee, Parkstone Group of Funds and Armada
Funds.
</TABLE>
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<PAGE> 76
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- --------- ----------------------
<S> <C> <C>
John F. Durkott Trustee President and Chief Operating Officer, Kittle's
8600 Allisonville Road Home Furnishings Center, Inc., since January
Indianapolis, IN 46250 1982; partner, Kittle's Bloomington Properties
Age 55 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.).
Trustee, Parkstone Group of Funds and Armada
Funds.
Robert J. Farling Trustee Retired Chairman, President and Chief Executive
1608 Balmoral Way Officer, Centerior Energy (electric utility),
Westlake, OH 44145 March 1992 to October 1997; Director, National
Age 63 City Bank until October 1997; Director, Republic
Engineered Steels, October 1997 to September
1998. Trustee, Parkstone Group of Funds and
Armada Funds.
Richard W. Furst Dean Trustee Garvice D. Kincaid Professor of Finance and
2133 Rothbury Road Dean, Gatton College of Business and Economics,
Lexington, KY 40515 University of Kentucky, since 1981; Director,
Age 61 The Seed Corporation (restaurant group), since
1990; Director; Foam Design, Inc., (manufacturer
of industrial and commercial foam products),
since 1993; Director, Office Suites Plus, Inc.
(office buildings) since 1998; Director,
ihigh.com, Inc., (Internet company) since 1999;
Trustee, Parkstone Group of Funds and Armada
Funds.
Gerald L. Gherlein Trustee Retired Executive Vice-President and General
109 Goldeneye Counsel, Eaton Corporation (global
Kiawah Island, SC 29455 manufacturing) from 1991 to February 2000,
Age 62 Trustee, WVIZ Educational Television (public
television). Trustee, Parkstone Group of Funds
and Armada Funds.
</TABLE>
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<PAGE> 77
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- --------- ----------------------
<S> <C> <C>
J. William Pullen Trustee President and Chief Executive Officer, Whayne
Whayne Supply Company Supply Co. (engine and heavy equipment
1400 Cecil Avenue distribution), since 1986; President and Chief
P.O. Box 35900 Executive Officer, American Contractors Rentals
Louisville, KY 40232-5900 & Sales (rental subsidiary of Whayne Supply
Age 61 Co.), since 1988. Trustee, Parkstone Group of
Funds and Armada Funds.
W. Bruce McConnel, III Secretary Partner, Drinker Biddle & Reath LLP,
One Logan Square Philadelphia, Pennsylvania (law firm).
18th and Cherry Streets
Philadelphia, PA 19103-6996
Age 57
John Leven Treasurer Director of Funds Accounting of SEI Investments
One Freedom Valley Drive since March 1999; Division Controller, First
Oaks, PA 19456 Data Corp. from February 1998 to March 1999;
Age 42 Corporate Controller, FPS Services, a mutual
funds servicing company, from February 1993 to
February 1998; Treasurer, FPS Broker Services,
Inc. from March 1993 to December 1998.
</TABLE>
- --------------------
*Messrs. Carter and Martens are considered by the Trust to be "interested
persons" of the Trust as defined in the 1940 Act.
As of the date of this Statement of Additional Information, the
trustees and officers of the Trust as a group owned beneficially less than 1% of
the outstanding shares of each of the Funds of the Trust, and less than 1% of
the outstanding shares of all of the Funds of the Trust in the aggregate.
Mr. Martens is an "interested person" because (1) he is an Executive
Vice President of National City Corporation ("NCC"), the parent corporation to
IMC, which receives fees as investment adviser to the Trust, (2) he owns shares
of common stock and options to purchase common stock of NCC, and (3) he is the
Chief Executive Officer of NatCity Investments, Inc., a broker-dealer affiliated
with IMC.
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 NCC, an affiliate of
IMC, the Funds' investment adviser.
Mr. Leven is employed by SEI Investments Mutual Funds Services, which
receives fees as Administrator to the Trust. Mr. McConnel is a partner of the
law firm, Drinker Biddle & Reath LLP, which receives fees as counsel to the
Trust.
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<PAGE> 78
With respect to the Trust, The Parkstone Group of Funds and Armada
Funds, each trustee receives an annual fee of $15,000 plus $3,000 for each Board
meeting attended and reimbursement of expenses incurred in attending meetings.
The three fund companies generally hold concurrent Board meetings. The Chairman
of the Board is entitled to receive an additional $5,000 per annum for services
in such capacity.
The following table summarizes the compensation for each of the
Trustees of the Trust for the fiscal year ended December 31, 1999:
<TABLE>
<CAPTION>
Pension or Estimated
Aggregate Retirement Benefits Approval Total Compensation
Name of Compensation Accrued as Part of Benefits Upon from the Trust and
Person, Position From the Trust the Trust's Expense Retirement Fund Complex*
- ---------------- -------------- ------------------- ---------- -------------
<S> <C> <C> <C> <C>
Robert D. Neary, $147 $0 $0 $35,000
Chairman and Trustee
Leigh Carter, Trustee $126 $0 $0 $30,000
John F. Durkott, Trustee $126 $0 $0 $30,000
Robert J. Farling, Trustee $94 $32 $0 $30,000
Richard W. Furst, Trustee $126 $0 $0 $30,000
Gerald L. Gherlein, Trustee $126 $0 $0 $30,000
Herbert R. Martens, Jr., $0 $0 $0 $0
President and Trustee
J. William Pullen, Trustee $62 $64 $0 $30,000
</TABLE>
- ---------------------
* The "Fund Complex" consists of Armada Funds, The Parkstone Group of
Funds and The Armada Advantage Fund. Each of the Trustees serves as
Trustee to all three investment companies.
The Trustees may elect to defer payment of 25% to 100% of the fees they
receive in accordance with a Trustee Deferred Compensation Plan (the "Plan").
Under the Plan, a Trustee may elect to have his or her deferred fees treated as
if they had been invested by the Trust in the shares of one or more portfolios
of Armada Funds and the amount paid to the Trustee under the Plan will be
determined based on the performance of such investments. Distributions are
generally of equal installments over a period of 2 to 15 years. The Plan will
remain unfunded for federal income tax purposes under the Code. Deferral of
Trustee fees in accordance with the Plan will have a negligible impact on
portfolio assets and liabilities and will not obligate the Trust to retain any
trustee or pay any particular level of compensation.
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<PAGE> 79
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of 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
shareholders shall not be subject to any personal liability for the acts or
obligations of the Trust, and that every note, bond, contract, order, or other
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 or her being or having been a
shareholder and not because of his or her acts or omissions or some other
reason. 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 obligation of the Trust, and shall satisfy any judgment thereon. Thus,
the risk of a 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.
The Declaration of Trust states further that no trustee, officer, or
agent of the Trust shall be personally liable for or on account of any contract,
debt, tort, claim, damage, judgment or decree arising out of or connected with
the administration or preservation of the trust estate or the conduct of any
business of the Trust; nor shall any trustee be personally liable to any person
for any action or failure to act except by reason of his or her own bad faith,
willful misfeasance, gross negligence, or reckless disregard of his or her
duties as trustee. The Declaration of Trust also provides that all persons
having any claim against the trustees or the Trust shall look solely to the
trust property for payment. With the exceptions stated, the Declaration of Trust
provides that a trustee is entitled to be indemnified against all liabilities
and expense, reasonably incurred by him in connection with the defense or
disposition of any proceeding in which he or she may be involved or with which
he or she may be threatened by reason of his or her being or having been a
trustee, and that the trustees, have the power, but not the duty, to indemnify
officers and employees of the Trust unless any such person would not be entitled
to indemnification had he or she been a trustee.
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, 1900 East Ninth Street, Cleveland, Ohio 44114,
pursuant to Investment Advisory Agreements dated as of August 18, 1993 and
September 1, 1999. The first Investment Advisory Agreement relates to the
management of the Small Cap Growth Fund, the Mid Cap Growth Fund and the Bond
Fund, the second Investment Advisory Agreement relates to the management of the
International Equity Fund and the third advisory agreement relates to the
management of the Equity Growth and Balanced Allocation Funds (collectively, the
"Investment Advisory Agreements"). From the commencement of operations
(September 23, 1993) until December 1, 1998, Gulfstream Global Investors, Ltd.
was the Sub-Adviser of the International Equity Fund and was paid a fee by the
Adviser.
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<PAGE> 80
The Adviser is a registered investment adviser and an indirect
wholly-owned subsidiary of NCC, a publicly-held bank holding company. NCC
consolidated the asset management responsibilities of its various bank
affiliates including First of America Bank, N.A. ("FOA"). Prior to such time,
the investment adviser of the Funds was First of America Investment Corporation
("First of America"), a wholly-owned subsidiary of First of America Bank, N.A.
Under the Investment Advisory Agreements, the 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
Agreements, each of the Trust's Funds pays the 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: 1.00%
for the Small Cap Growth Fund and the Mid Cap Growth Fund; 0.55% for the Bond
Fund; 0.75% for the Equity Growth Fund and Balanced Allocation Fund; and, 1.15%
for the International Equity Fund. The 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 the Equity Growth and Balanced Allocation
Funds.
Pursuant to each of the Investment Advisory Agreements, the 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 Agreements other than the cost of
securities (including brokerage commissions) if any, purchased for the Trust.
For the fiscal years ended December 31, 1999, 1998 and 1997, IMC or
First of America received fees and voluntarily reduced the amounts listed below
which were payable to it with respect to its advisory services:
<TABLE>
<CAPTION>
- ------------------ --------------------------------- -------------------------------- --------------------------------
JANUARY 1, 1999 TO JANUARY 1, 1998 TO JANUARY 1, 1997 TO
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
- ------------------ --------------------------------- -------------------------------- --------------------------------
FEE FEE FEES
GROSS FEES VOLUNTARILY GROSS FEES VOLUNTARILY GROSS FEES VOLUNTARILY
FUND COLLECTED REDUCED COLLECTED REDUCED COLLECTED REDUCED
- ------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Small $161,238 $0 $241,606 $0 $256,828 $0
Cap Growth
- ------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
Mid $243,485 $0 $295,464 $0 $278,450 $0
Cap Growth
- ------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
Bond $ 70,729 $0 $ 91,640 $0 $ 78,638 $0
- ------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
International $211,347 $0 $233,750 $0 $239,144 $0
Equity
- ------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
Equity Growth $0 $11,617 N/A N/A N/A N/A
- ------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
Balanced N/A N/A N/A N/A N/A N/A
Allocation
- ------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
</TABLE>
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Unless sooner terminated, each of the Investment Advisory Agreements
continues in effect as to a particular Fund for successive one-year periods
ending September 30 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 Agreements, or
interested persons (as defined in the 1940 Act) of any such party, cast in
person at a meeting called for such purpose. Each of the Investment Advisory
Agreements 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 or by the Adviser. The Agreements also terminate
automatically in the event of any assignment, as defined in the 1940 Act.
The Investment Advisory Agreements provide that 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 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 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 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 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 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 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 Adviser and does not reduce the fees
payable to such adviser by the Trust. Such information may be useful to the
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.
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<PAGE> 82
While the Adviser generally seeks competitive commissions, the Trust
may not necessarily pay the lowest commission available on each brokerage
transaction for the reasons discussed above. For the fiscal years ended December
31, 1999, 1998 and 1997, the Trust paid an aggregate of approximately $173,268,
$146,751 and $204,067, respectively, as brokerage commissions on behalf of the
Funds.
The Trust will not acquire portfolio securities issued by, make savings
deposits in, or enter into repurchase or reverse repurchase agreements with NCC,
IMC, 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 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 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 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 Agreements in making
investment recommendations for the Trust, the 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 Adviser, its parent and affiliates will
not inquire or take into consideration whether securities of such customers are
held by the Trust.
The Funds held from time to time during the fiscal year ended December
31, 1999, securities of its regular brokers or dealers as defined in Rule 10b-1
under the 1940 Act, or their parent companies, including those of BA Securities,
Lehman Brothers and Chase Securities. As of December 31, 1999, the Bond Fund
held $99,000 in asset-backed securities of Banc One Auto Grantor Trust and
$196,450 in asset-backed securities of Prudential Securities Secured Financing
Corp.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations, including the Glass-Steagall Act as
presently interpreted by the Board of Governors of the Federal Reserve System,
(a) prohibit a bank holding company registered under the Federal Bank Holding
Company Act of 1956 or any 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 bank holding company
or affiliate from acting as investment adviser, transfer agent, or custodian to
such an investment company. The Adviser believes that it may perform the
services for the Fund contemplated by
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<PAGE> 83
its Advisory Agreement with the Trust as described in such agreement without
violation of applicable banking laws or regulations. However, there are no
controlling judicial precedents and future changes in legal requirements
relating to the permissible activities of banks and their affiliates, as well
as future interpretations of present requirements, could prevent the Adviser
from continuing to perform services for the Trust. If the Adviser were
prohibited from providing services to the Fund, the Board of Trustees would
consider selecting another qualified firm. Any new investment advisory
agreement would be subject to shareholder approval.
Should future legislative, judicial, or administrative action prohibit
or restrict the proposed activities of the Adviser, or its affiliated and
correspondent banks in connection with shareholder purchases of Fund shares, the
Adviser and its affiliated and correspondent banks might be required to alter
materially or discontinue the services offered by them to shareholders. It is
not anticipated, however, that any resulting change in the Trust's method of
operations would affect its net asset value per share or result in financial
losses to any shareholder.
If current restrictions preventing a bank or its affiliates from
legally sponsoring, organizing, controlling, or distributing shares of an
investment company were replaced, the Adviser, or an affiliate of the Adviser,
would consider the possibility of offering to perform additional services of the
Trust. Legislation modifying such restrictions has been proposed in past
sessions in Congress. It is not possible, of course, to predict whether or in
what form such legislation might be enacted or the terms upon which the Adviser,
or such an affiliate, might offer to provide such services.
ADMINISTRATOR
The Trust and SEI Investments Mutual Fund Services (the
"Administrator") have entered into an administration agreement (the
"Administration Agreement") as of July 2, 1999. Prior to July 2, 1999, BISYS
Fund Services (the "Former Administrator") served as the administrator to the
Trust pursuant to an Administration Agreement dated as of July 1, 1996.
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 is entitled to receive with respect to the Funds the
greater of an annual rate of .20% of the Funds' average daily net assets,
calculated daily and paid monthly, or $135,000 on aggregate net assets in the
Funds.
For the fiscal years ended December 31, 1999, 1998 and 1997, the
Administrator and the Former Administrator collected and voluntarily reduced the
amounts indicated below which were payable to them with respect to their
administrative services to the indicated Funds:
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<PAGE> 84
<TABLE>
<CAPTION>
- ------------------ --------------------------------- -------------------------------- --------------------------------
JANUARY 1, 1999 TO JANUARY 1, 1997 TO JANUARY 1, 1997 TO
DECEMBER 31, 1999* DECEMBER 31, 1997 DECEMBER 31, 1997*
- ------------------ --------------------------------- -------------------------------- --------------------------------
FUND GROSS FEES FEES GROSS FEES FEES GROSS FEES FEES
COLLECTED VOLUNTARILY COLLECTED VOLUNTARILY COLLECTED VOLUNTARILY
REDUCED REDUCED REDUCED
- ------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Small Cap Growth $32,248 $0 $48,322 $0 $51,366 $0
- ------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
Mid Cap Growth $48,697 $0 $59,093 $0 $55,690 $0
- ------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
Bond $20,106 $0 $24,768 $0 $21,254 $0
- ------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
International $49,187 $0 $37,400 $0 $38,263 $0
Equity
- ------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
Equity Growth $3,066 $0 N/A N/A N/A N/A
- ------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
Balanced $0 $0 N/A N/A N/A N/A
Allocation
- ------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
</TABLE>
* Of the $153,304 in administration fees paid in the fiscal year ended December
31, 1999, $90,045 were paid to the Former Administrator. The balance was paid to
the Administrator.
National City Bank serves as the sub-administrator (the "Sub
Administrator") to the Trust pursuant to a sub-administration agreement dated
July 2, 1999, (the "Sub-Administration Agreement"). The Sub-Administrator
assists the Administrator in providing administrative services with respect to
each Portfolio as may be reasonably requested by the Administrator from time to
time. Such services may include, but are in no way limited to, such clerical,
bookkeeping, accounting, stenographic, and administrative services which will
enable the Administrator to more efficiently perform its obligations under the
Administration Agreement.
The Sub-Administrator may receive a fee from the Administrator for its
services as Sub-Administrator and expenses assumed pursuant to the
Sub-Administration Agreement, calculated and paid monthly, at the annual rate of
0.05% of the average aggregate monthly net assets of the Funds.
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"). Prior to that time, BISYS Fund
Services served as distributor. 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.
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<PAGE> 85
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"). Union
Bank of California served as Custodian to the International Equity Fund for the
period from July 31, 1995 to July 23, 1998. 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"). Prior to that time, BISYS Fund
Services served as transfer agent and fund accountant to the Trust. 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. For such transfer agency services for the fiscal period from July 2,
1999 to December 31, 1999, the Transfer Agent received $16,667 from the
Trust. For such transfer agency services for the fiscal period from January 1,
1999 to July 1, 1999 and for the fiscal years ended December 31, 1998 and 1997,
BISYS, the former Transfer Agent received $33,333, $161,426 and $162,071,
respectively, from the Trust.
INDEPENDENT AUDITORS
The Financial Statements of the Trust as of December 31, 1999,
appearing in the Trust's Annual Report dated December 31, 1999, have been
audited by Ernst & Young LLP, Two Commerce Square, 2001 Market Street, Suite
4000, Philadelphia, PA 19103, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. The financial
statements and schedules audited by Ernst & Young LLP have been included in
reliance on their report given on their authority as experts in accounting
and auditing.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES
The Armada 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
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<PAGE> 86
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 Small
Cap Growth Fund, Mid Cap Growth Fund, Bond Fund, International Equity Fund,
Balanced Allocation Fund and 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.
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
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<PAGE> 87
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.
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<PAGE> 88
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, particularly the International
Equity Fund, 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.
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
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<PAGE> 89
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.
ADDITIONAL TAX INFORMATION CONCERNING THE INTERNATIONAL EQUITY FUND
If, for any reason, the International Equity Fund were treated as being
a United Kingdom ("UK") resident, the International Equity Fund's worldwide
income and capital gains would be subject to UK tax. If, for any reason, the
International Equity Fund were treated as having a permanent establishment in
the UK, the International Equity Fund's UK source income (although not its
capital gains) would become subject to UK tax and certain other advantages
otherwise available to the International Equity Fund under the double tax treaty
between the UK and the US would not be available. Provided that the
International Equity Fund is not treated as being resident or having a permanent
establishment in the UK, the International Equity Fund will not incur any UK tax
liability with respect to the types of income or gains that it is likely to
receive, except with respect to income on UK securities held in the
International Equity Fund's portfolio. The Trust believes, based upon the advice
of special counsel, that it would be highly unlikely for the International
Equity Fund, as a result of the activities of the Adviser, to be deemed or
treated as being a UK resident for UK tax purposes or having a permanent
establishment in the UK pursuant to the double tax treaty between the United
States and the UK.
PERFORMANCE INFORMATION
GENERAL
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
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<PAGE> 90
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 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 Fund, 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 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, variable life insurance policy, qualified pension or
retirement plan, 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
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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.
For the 30-day period ended December 31, 1999, the yield for the
Bond Fund was 5.25.
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 $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.
For the one and five-year periods ended December 31, 1999 and the
period from commencement of operations to December 31, 1999, the average
annual total returns for the Funds were, respectively: Small Cap Growth Fund,
31.24%, 16.30% and 15.46%; Mid Cap Growth Fund, 44.36%, 22.12% and 16.58%;
Bond Fund, (1.96%), 6.05% and 3.81%; International Equity Fund, 55.70%,
17.50% and 13.14%; and the total return for the Equity Growth Fund for the
period September 13, 1999 (commencement of operations) to December 31, 1999
was 14.00%. During the period ended December 31, 1999, the Balanced
Allocation Fund had not yet commenced operations.
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
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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.
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.
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<PAGE> 93
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.
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
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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 7, 2000, NCC or its affiliates owned of record the
following percentages of the Funds, respectively: Equity Growth Fund, 80%, Bond
Fund, 93.42%, Small Cap Growth Fund, 98.79%, Mid Cap Growth Fund, 98.32% and
International Equity Fund, 98.74%. NCC may be presumed to control both the Trust
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 the Trust and certain
of its 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.
FINANCIAL STATEMENTS
The Funds' financial statements for the year ended December 31, 1999,
and the financial highlights for each of the respective periods presented,
appearing in the 1999 Annual Report, and the report thereon of Ernst & Young
LLP, independent auditors of the Trust, are on file with the SEC (File Nos.
33-65690 and 811-7850) and are incorporated herein by reference to this
Statement of Additional Information. No other parts of the 1999 Annual Report
are incorporated herein.
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APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current
opinion of the creditworthiness of an obligor with respect to financial
obligations 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.
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LOCAL CURRENCY AND FOREIGN CURRENCY RISKS
Country risk considerations are a standard part of Standard &
Poor's analysis for credit ratings on any issuer or issue. Currency of repayment
is a key factor in this analysis. An obligor's capacity to repay foreign
obligations may be lower than its capacity to repay obligations in its local
currency due to the sovereign governments' own relatively lower capacity to
repay external versus domestic debt. These sovereign risk considerations are
incorporated in the debt ratings assigned to specific issues. Foreign currency
issuer ratings are also distinguished from local currency issuer ratings to
identify those instances where sovereign risks make them different for the same
issuer.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or 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:
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"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.
"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.
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"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.
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.
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"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 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
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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.
"c" - The 'c' subscript is used to provide additional
information to investors that the bank may terminate its obligation to purchase
tendered bonds if the long-term credit rating of the issuer is below an
investment-grade level and/or the issuer's bonds are deemed taxable.
"p" - The letter 'p' indicates that the rating is provisional.
A provisional rating assumes the successful completion of the project financed
by the debt being rated and indicates that payment of debt service requirements
is largely or entirely dependent upon the successful, timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of or the risk of
default upon failure of such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
* - Continuance of the ratings is contingent upon Standard &
Poor's receipt of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows.
"r" - The 'r' highlights derivative, hybrid, and certain other
obligations that Standard & Poor's believes may experience high volatility or
high variability in expected returns as a result of noncredit risks. Examples of
such obligations are securities with principal or interest return indexed to
equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an 'r'
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
N.R. Indicates that no rating has been requested, that there
is insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy. Debt obligations of
issuers outside that United States and its territories are rated on the same
basis as domestic corporate and municipal issues. The ratings measure
creditworthiness of the obligor but do not take into account currency exchange
and related uncertainties.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"A" - 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
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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. 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.
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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. This is the
lowest investment grade category.
"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.
"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
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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" and "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 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.
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'NR' indicates the Fitch IBCA does not rate the issuer or
issue in question.
'Withdrawn': A rating is withdrawn when Fitch IBCA deems the
amount of information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify
investors that there is a reasonable probability of a rating change and the
likely direction of such change. These are designated as "Positive," indicating
a potential upgrade, "Negative," for a potential downgrade, or "Evolving," if
ratings may be raised, lowered or maintained. RatingAlert is typically resolved
over a relatively short period.
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.
"B" - Issues rated B show a higher degree of uncertainty and
therefore greater likelihood of default than higher-rated issues. Adverse
developments could negatively affect the payment of interest and principal on a
timely basis.
"CCC" - Issues rated CCC clearly have a high likelihood of
default, with little capacity to address further adverse changes in financial
circumstances.
"CC" - This rating is applied to issues that are subordinate
to other obligations rated CCC and are afforded less protection in the event of
bankruptcy or reorganization.
"D" - This designation indicates that the long-term debt is in
default.
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PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity 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.
Margins of protection 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.
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"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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<PAGE> 107
APPENDIX B
As stated in the Prospectus, the Equity Growth, Balanced
Allocation, Small Cap Growth, Mid Cap Growth, Bond and International Equity
Funds ("Funds") may enter into certain futures transactions and options for
hedging purposes. Such transactions are described in this Appendix.
(a) 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 Funds 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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(b) 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.
(c) 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 instruments has been greater than
the volatility over such time period of the futures, or if
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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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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.
(d) 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.
(e) Other Matters
Accounting for futures contracts will be in accordance with
generally accepted accounting principles.
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THE ARMADA ADVANTAGE FUND
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) (1) 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").
(2) Amendment No. 1 to the Declaration of Trust.
(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 Mid Cap Growth Fund (formerly known as the Equity Fund), the
Small Cap Growth Fund (formerly known as 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 Equity Fund (formerly known as the International
Discovery Fund) is incorporated here by reference to Exhibit 5(b)
to PEA No. 5.
(3) Advisory Agreement between Registrant and National City Investment
Management Company, dated September 1, 1999, relating to the
Armada Advantage Equity Growth and Armada Advantage Balanced
Allocation Funds.
(4) Amendment No. 1 to the Investment Advisory Agreement between the
Registrant and National City Investment Management Company, dated
October 1, 1999.
(e) Distribution Agreement between Registrant and SEI Investments
Distribution Co., dated July 6, 1999.
(f) Not Applicable.
<PAGE> 113
(g) 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").
(h) (1) Administration Agreement between Registrant and SEI Investments
Mutual Funds Services, dated July 6, 1999.
(2) 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.
(3) Transfer Agency and Service Agreement between Registrant and State
Street Bank and Trust Company, dated August 4, 1999.
(i) (1) Opinion of Counsel dated May 28, 1999 is herein incorporated
by reference to Exhibit (i) of PEA No. 12.
(j) (1) Consent of Drinker Biddle & Reath LLP.
(2) Consent of Ernst & Young LLP.
(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.
(p) (1) Code of Ethics - The Armada Advantage Fund is to be filed by
amendment.
(2) Code of Ethics - National City Investment Management Company is to
be filed by amendment.
(3) Code of Ethics - SEI Investments Distribution Company is to be
filed by amendment.
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<PAGE> 114
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 Armada
Funds. As of April 7, 2000, National City Corporation, as trustee of
the Non-Contributory Pension Plan owned beneficially the following
percentages of certain funds, respectively: Equity Growth Fund, 80%,
Bond Fund, 93.42%, Small Cap Growth Fund (formerly known as the Small
Capitalization Fund), 98.79%, Mid Cap Growth Fund (formerly known as
the Mid Capitalization Fund), 98.32% and International Equity Fund
(formerly known as the International Discovery Fund), 98.74%. 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 and transfer agent is provided for
in Article 6 of the Distribution Agreement which is filed herewith as
Exhibit (e), 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 9 of the Investment Advisory
Agreement which is filed herewith as Exhibit (d)(3), Article 5 of the
Administration Agreement which is filed herewith as Exhibit (h)(1),and
Section 8 of the Transfer Agency Agreement which is filed herewith as
Exhibit (h)(3), respectively. 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 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,
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<PAGE> 115
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 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.
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<PAGE> 116
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 also serves
as an investment adviser to both taxable and tax-exempt clients,
including pensions, endowments, corporations, individual portfolios
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).
ITEM 27. PRINCIPAL UNDERWRITER.
(a) Registrant's distributor, SEI Investments Distribution Co.
("SIDCO"), acts as distributor for:
SEI Daily Income Trust
SEI Liquid Asset Trust
SEI Tax Exempt Trust
SEI Index Funds
SEI Institutional Managed Trust
SEI Institutional International Trust
The Pillar Funds
The Advisors' Inner Circle Fund
CUFUND
STI Classic Funds
STI Classic Variable Trust
PBHG Insurance Series Fund, Inc.
Alpha Select Funds
Oak Associates Funds
The Nevis Fund, Inc.
First American Funds, Inc.
First American Investment Funds, Inc.
Boston 1784 Funds
The Arbor Fund
The PBHG Funds, Inc.
The Achievement Funds Trust
Bishop Street Funds
STI Classic Variable Trust
ARK Funds
Huntington Funds
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SEI Asset Allocation Trust
TIP Funds
SEI Institutional Investments Trust
First American Strategy Funds, Inc.
HighMark Funds
Armada Funds
The Expedition Funds
CNI Charter Funds
The Armada Advantage Fund
Amerindo Funds, Inc.
Friends Ivory Funds
Huntington VA Funds
SEI Insurance Products Trust
(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 --
Richard B. Lieb Director, Executive Vice President --
Carmen V. Romeo Director --
Mark J. Held President & Chief Operating Officer --
Gilbert L. Beebower Executive Vice President --
Dennis J. McGonigle Executive Vice President --
Robert M. Silvestri Chief Financial Officer & Treasurer --
Leo J. Dolan, Jr. Senior Vice President
Carl A. Guarino Senior Vice President --
Jack May Senior Vice President --
Hartland J. McKeown Senior Vice President --
Todd Cipperman Senior Vice President & General Counsel
Kevin P. Robins Senior Vice President --
Wayne M. Withrow Vice President & Assistant Secretary
Patrick K. Walsh Senior Vice President --
Timothy D. Barto Vice President & Assistant Secretary
Robert Aller Vice President --
S. Courtney E. Collier Vice President & Assistant Secretary --
</TABLE>
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<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
Robert Crudup Vice President & Managing Director --
Richard A. Deak Vice President & Assistant Secretary
Barbara Doyne Vice President --
Jeff Drennen Vice President --
Vic Galef Vice President & Managing Director --
James R. Foggo Vice President & Assistant Secretary
Lydia A. Gavalis Vice President & Assistant Secretary --
Greg Gettinger Vice President & Assistant Secretary --
Kathy Heilig Vice President --
Jeff Jacobs Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing Director --
John Krzeminski Vice President & Managing Director --
Christine M. McCullough Vice President & Assistant Secretary
Carolyn McLaurin Vice President & Managing Director --
W. Kelso Morrill Vice President & Managing Director --
Mark Nagle Vice President --
Joanne Nelson Vice President --
Cynthia M. Parrish Vice President & Secretary --
Kim Rainey Vice President --
Rob Redican Vice President --
Maria Rinehart Vice President --
Steve Smith Vice President
Daniel Spaventa Vice President --
Lynda J. Striegel Vice President & Assistant Secretary --
Lori L. White Vice President & Assistant Secretary --
</TABLE>
(c) Compensation to SEI during the fiscal year ended December 31,
1999 was as follows:
-7-
<PAGE> 119
<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, One Logan Square, 18th and Cherry
Streets, Philadelphia, Pennsylvania 19103-6996 (Declaration of
Trust, Code of Regulations and Minute Books).
(4) National City Bank, 4100 West 150th Street, Cleveland, Ohio 44114
(records relating to its functions as custodian for the Funds).
(5) State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110 (records relating to its functions as
transfer agent for the Funds).
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.
-8-
<PAGE> 120
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, Registrant hereby certifies
that it meets all the requirements for effectiveness of this registration
pursuant to Rule 485(b) under the Securities Act of 1933, as amended, and has
duly caused this Post-Effective Amendment No. 13 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 April, 2000.
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. 13 to the Registrant's Registration Statement
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Robert D. Neary Chairman of the Board; April 28, 2000
- ---------------------------------- Trustee
Robert D. Neary
* Leigh Carter Trustee April 28, 2000
- ----------------------------------
Leigh Carter
* John F. Durkott Trustee April 28, 2000
- ----------------------------------
John F. Durkott
* Robert J. Farling Trustee April 28, 2000
- ----------------------------------
Robert J. Farling
* Richard W. Furst Trustee April 28, 2000
- ----------------------------------
Richard W. Furst
* Gerald L. Gherlein Trustee April 28, 2000
- ----------------------------------
Gerald L. Gherlein
</TABLE>
-9-
<PAGE> 121
<TABLE>
<S> <C> <C>
* J. William Pullen Trustee April 28, 2000
- ----------------------------------
J. William Pullen
/s/ Herbert R. Martens, Jr. Trustee April 28, 2000
- ----------------------------------
Herbert R. Martens, Jr.
/s/ John Leven Treasurer April 28, 2000
- ----------------------------------
John Leven
*By: /s/ Herbert R. Martens, Jr.
-----------------------------------------
Herbert R. Martens, Jr., Attorney-In-Fact
</TABLE>
-10-
<PAGE> 122
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> 123
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> 124
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> 125
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> 126
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> 127
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> 128
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> 129
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> 130
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
(a)(2) Amendment No. 1 to the Declaration of Trust.
(d)(3) Investment Advisory Agreement between Registrant and National City
Investment Management Company, dated September 1, 1999, relating to
the Equity Growth and Balanced Allocation Funds.
(d)(4) Amendment No. 1 to the Investment Advisory Agreement.
(e) Distribution Agreement between Registrant and SEI Investments
Distribution Co., dated July 6, 1999.
(h)(1) Administration Agreement between Registrant and SEI Investments
Mutual Funds Services, dated July 6, 1999.
(h)(3) Transfer Agency and Service Agreement between Registrant and State
Street Bank and Trust Company, dated August 4, 1999.
(j)(1) Consent of Drinker Biddle & Reath LLP.
(j)(2) Consent of Ernst & Young LLP.
<PAGE> 1
Exhibit (a)(2)
THE PARKSTONE ADVANTAGE FUND
AMENDMENT NO. 1
TO
DECLARATION OF TRUST
I, W. Bruce McConnel, III, do hereby certify as follows:
1. That I am the duly elected Secretary of The Parkstone Advantage Fund,
a Massachusetts business trust (hereinafter called the "Trust");
2. That in such capacity I have examined records of actions taken by the
Board of Trustees of the Trust;
3. That the current Trustees of the Trust duly adopted the following
resolutions on February 16, 2000 at a meeting duly called, legally held and at
which a quorum was present and acting throughout and such resolutions are the
only resolutions of the Trust relating to the subject matter thereof, have not
been rescinded or revoked and are in full force and effect on the date hereof.;
NAME CHANGE OF TRUST OF THE PARKSTONE ADVANTAGE FUND ("ADVANTAGE").
A. APPROVAL OF NAME CHANGE OF TRUST AND PORTFOLIOS.
RESOLVED, that pursuant to Section 10.8.c of Advantage's
Declaration of Trust, the trust name of The Parkstone Advantage
Fund be and it hereby is changed to The Armada Advantage Fund
effective with the new prospectus on May 1, 2000;
B. GENERAL POWERS.
RESOLVED, that Advantage's officers be, and each hereby is,
authorized and directed to do or cause to be done all such other
acts and things and to make, execute and deliver any and all
papers and documents in the name and on behalf of Advantage,
under its seal or otherwise, as they, or any of them, may, with
the advice of counsel to Advantage, deem necessary and desirable
to carry out the intent of the foregoing resolutions, such
determination to be conclusively evidenced by such actions.
4. That the foregoing resolutions remain in full force and effect as
of the date hereof; and
<PAGE> 2
5. That this Amendment No. 1 to the Declaration of Trust shall be
effective on May 1, 2000.
Dated April 24, 2000
/s/ W. Bruce McConnel, III
-------------------------------
W. Bruce McConnel, III
Secretary
Subscribed to and Sworn to Before
Me this 24th day of April, 2000
/s/ Dorothea A. Natale
- ----------------------------
Notary Public
<PAGE> 1
Exhibit (d)(3)
PARKSTONE ADVANTAGE FUND
ADVISORY AGREEMENT
AGREEMENT made as of September 1, 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:
-2-
<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
-3-
<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.
-4-
<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
-5-
<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.
-6-
<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: /s/ Herbert R. Martens
---------------------------------
Herbert R. Martens
President
NATIONAL CITY INVESTMENT
MANAGEMENT COMPANY
By: /s/ Robert M. Leggett
---------------------------------
Robert M. Leggett
President
-7-
<PAGE> 1
Exhibit (d)(4)
PARKSTONE ADVANTAGE FUND
FIRST AMENDMENT TO INVESTMENT ADVISORY AGREEMENT
This FIRST AMENDMENT TO INVESTMENT ADVISORY AGREEMENT (the "First
Amendment") dated as of October 1, 1999, by and between THE PARKSTONE ADVANTAGE
FUND, a Massachusetts business trust, located in Oaks, Pennsylvania (the
"Trust") and NATIONAL CITY INVESTMENT MANAGEMENT COMPANY (formerly First of
America Investment Corporation), located in Cleveland, Ohio (the "Investment
Advisor").
W I T N E S S E T H
WHEREAS, the parties hereto entered into that certain Investment Advisory
Agreement as of the 18th day of August, 1993, with respect to the Trust's
International Discovery Fund (the "Investment Advisory Agreement");
WHEREAS, the parties hereto wish to amend the Investment Advisory Agreement
to modify the amount of compensation to be paid to the Investment Adviser for
its services with regard to the International Discovery Fund.
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS. Unless otherwise defined herein, all capitalized terms
used in this First Amendment shall have their respective defined meanings
ascribed to them in the Investment Advisory Agreement.
2. AMENDMENTS. For the services provided and the expenses assumed pursuant
to the Investment Advisory Agreement, the Fund will pay the Investment Adviser,
and the Investment Adviser will accept as full compensation therefor, a fee set
forth on Schedule A hereto. The Fund's obligation to pay the above-described fee
to the Investment Adviser will begin as of the date of this First Amendment.
3. MISCELLANEOUS. Except to the extent expressly amended by this First
Amendment, the Investment Advisory Agreement shall remain unchanged and in full
force and effect. References therein to "this Agreement," "hereby," "herein,"
and the like shall be deemed to refer to the Investment Advisory Agreement, as
amended by this First Amendment. This First Amendment may be executed in two or
more counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
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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.
THE PARKSTONE ADVANTAGE FUND
By: /s/ Herbert R. Martens, Jr.
-----------------------------------
Herbert R. Martens, Jr.
Its: President
NATIONAL CITY INVESTMENT
MANAGEMENT COMPANY
By: /s/ Robert M. Leggett
-----------------------------------
Robert M. Leggett
Its: President
<PAGE> 3
DATED: OCTOBER 1, 1999
SCHEDULE A TO THE
FIRST AMENDMENT TO THE AUGUST 18, 1998 INVESTMENT ADVISORY AGREEMENT
BETWEEN THE PARKSTONE ADVANTAGE FUND AND
NATIONAL CITY INVESTMENT MANAGEMENT COMPANY
DATED OCTOBER 1, 1999
NAME OF FUND COMPENSATION
------------ ------------
International Discovery Fund Annual rate of one and fifteen one-
hundredths of one percent (1.15%) of the
average daily net assets of the Fund
<PAGE> 1
Exhibit (e)
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of this 6th 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
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expected to sell, to 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. No asset based compensation shall be paid for
sales of shares hereunder. Distributor shall, at its own expense, finance
appropriate activities which it deems reasonable, which are primarily intended
to result in the sale of Shares. Distributor shall be entitled to reimbursement
of its reasonable out-of-pocket expenses incurred on behalf of the Trust, and
which are the obligation of the Trust under this Agreement, and are incurred by
Distributor in connection with the implementation of this agreement.
ARTICLE 6. INDEMNIFICATION OF DISTRIBUTOR. The Trust agrees to indemnify
and hold harmless the Distributor and each of its directors and officers and
each person, if any, who controls the Distributor within the meaning of Section
15 of the 1933 Act against any loss, liability, claim, damages or expense
(including the reasonable cost of investigating or defending any alleged loss,
liability, claim, damages, or expense and reasonable counsel fees and
disbursements incurred in connection therewith), arising by reason of any person
acquiring any Shares, based upon the ground that the registration statement,
prospectus, Shareholder reports or other information filed or made public by the
Trust (as from time to time amended) included an untrue statement of a material
fact or omitted to state a material fact required to be stated or necessary in
order to make the statements made not misleading. However, the Trust does not
agree to indemnify the Distributor or hold it harmless to the extent that the
statements or omission was made in reliance upon, and in conformity with,
information furnished to the Trust by or on behalf of the Distributor.
In no case (i) is the indemnity of the Trust to be deemed to protect the
Distributor against any liability to the Trust or its Shareholders to which the
Distributor or such person otherwise would be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and duties under this
Agreement, or (ii) is the Trust to be liable to the Distributor under the
indemnity agreement contained in this paragraph with respect to any claim made
against the Distributor or any person indemnified unless the Distributor or
other person shall have notified the Trust in writing of the claim within a
reasonable time after the summons or other first written notification giving
information of the nature 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
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Distributor or any person against whom such action is brought otherwise than on
account of its indemnity agreement contained in this paragraph.
The Trust shall be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity provision. If the Trust elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Trust and satisfactory to the indemnified defendants in the suit
whose approval shall not be unreasonably withheld. In the event that the Trust
elects to assume the defense of any suit and retain counsel, the indemnified
defendants shall bear the fees and expenses of any additional counsel retained
by them. If the Trust does not elect to assume the defense of a suit, it will
reimburse the indemnified defendants for the reasonable fees and expenses of any
counsel retained by the indemnified defendants.
The Trust agrees to notify the Distributor promptly of the commencement of
any litigation or proceedings against it or any of its officers or Trustees in
connection with the issuance or sale of any of its Shares.
ARTICLE 7. INDEMNIFICATION OF TRUST. The Distributor covenants and agrees
that it will indemnify and hold harmless the Trust and each of its Trustees and
officers and each person, if any, who controls the Trust within the meaning of
Section 15 of the Act, against any loss, liability, damages, claim or expense
(including the reasonable cost of investigating or defending any alleged loss,
liability, damages, claim or expense and reasonable counsel fees incurred in
connection therewith) based upon the 1933 Act or any other statute or common law
and arising by reason of any person acquiring any Shares, and alleging a
wrongful act of the Distributor or any of its employees or alleging that the
registration statement, prospectus, Shareholder reports or other information
filed or made public by the Trust (as from time to time amended) included an
untrue statement of a material fact or omitted to state a material fact required
to be stated or necessary in order to make the statements not misleading,
insofar as the statement or omission was made in reliance upon and in conformity
with information furnished to the Trust by or on behalf of the Distributor.
In no case (i) is the indemnity of the Distributor in favor of the Trust or
any other person indemnified to be deemed to protect the Trust or any other
person against any liability to which the Trust or such other person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement, or (ii) is the
Distributor to be liable under its indemnity agreement contained in this
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.
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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 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,
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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 WHEREOF, the Trust and Distributor have each duly executed this
Agreement, as of the day and year above written.
THE PARKSTONE ADVANTAGE FUND
By: /s/Herb Martens
SEI INVESTMENTS DISTRIBUTION CO.
By: /s/Lynda J. Striegel
5
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Exhibit (h)(1)
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT is made as of this 6th 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
<PAGE> 2
the performance by any investment adviser or sub-adviser of its
responsibilities, except with respect to the Portfolios' compliance with
investment objective and policies.
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 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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(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.
<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
<PAGE> 5
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.
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
<PAGE> 6
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 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.
<PAGE> 7
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.
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, 2002 (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.
<PAGE> 8
In case of any request or demand for the inspection of such records by
another party, the Administrator shall notify the Trust and follow the Trust's
instructions as to permitting or refusing such inspection; provided that the
Administrator may exhibit such records to any person in any case where it is
advised by its counsel that it may be held liable for failure to do so, unless
(in cases involving potential exposure only to civil liability) the Trust has
agreed to indemnify the Administrator against such liability.
ARTICLE 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.
<PAGE> 9
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: /s/Herb Martens
SEI Investments Mutual Fund Services
By: /s/Lynda J. Striegel
<PAGE> 10
SCHEDULE
TO THE ADMINISTRATION AGREEMENT
DATED JULY 6, 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:
SMALL CAPITALIZATION FUND, MID CAPITALIZATION FUND, BOND FUND,
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.
<PAGE> 11
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;
<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.
<PAGE> 1
Exhibit (h)(3)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
PARKSTONE ADVANTAGE FUND
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 4th day of August, 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:
1. 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, no 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
<PAGE> 3
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;
(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:
-2-
<PAGE> 4
(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 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) NEW PROCEDURES. New procedures as to who shall provide certain of
these services in Section I 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.
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;
-3-
<PAGE> 5
(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 I 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.
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 asset 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
-4-
<PAGE> 6
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.
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.
-5-
<PAGE> 7
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 or 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 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
-6-
<PAGE> 8
payment order instructions as received and the Transfer Agent complies
with tile Security Procedure. The Security Procedure is established
for the purpose of authenticating payment orders only and not for the
detection of efforts 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 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
-7-
<PAGE> 9
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 mariner 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
(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.
-8-
<PAGE> 10
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 THERE
WITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS, THE TRANSFER AGENT
EXPRESSLY DISCLAIMS ALI. 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.
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:
(1) 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
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<PAGE> 11
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.
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.
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<PAGE> 12
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 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.
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<PAGE> 13
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.
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. 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, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party
without the written consent
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<PAGE> 14
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, 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 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 tile 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.
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<PAGE> 15
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 w6otemability 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.
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.
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<PAGE> 16
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:
Drinker Biddle and Reath LLP
1345 Chestnut Street, Suite I 100
Philadelphia, Pennsylvania 19107
Attention: W. Bruce McConnell, Ill., Esq.
And
National City Investment Management Co.
1900 E. 91h Street, 22" Floor
Cleveland, Ohio 44114
Attention: Proprietary Funds Group
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.
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<PAGE> 17
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: /s/ Herbert R. Martens, Jr.
--------------------------------
Herbert R. Martens, Jr.
ATTEST:
/s/ Illegible
- -------------------------------
STATE STREET BANK AND TRUST
COMPANY
BY: /s/ Illegible
-------------------------------
Vice Chairman
ATTEST:
/s/ Illegible
- -------------------------------
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<PAGE> 18
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 FUND STATE STREET BANK AND TRUST
COMPANY
BY: /s/ Herbert R. Martens, Jr. BY: /s/ Illegible
-------------------------------- ---------------------------
Herbert R. Martens, Jr.
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<PAGE> 19
SCHEDULE 2.1
THIRD PARTY ADMINISTRATOR(S) PROCEDURES
Dated AUGUST 4, 1999
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).
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<PAGE> 20
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 FUND STATE STREET BANK AND TRUST
COMPANY
BY: /s/ Herbert R. Martens, Jr. BY: /s/ Illegible
------------------------------------ -------------------------------
Herbert R. Martens
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<PAGE> 21
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 FUND STATE STREET BANK AND TRUST
COMPANY
BY: /s/ Herbert R. Martens, Jr. BY: Illegible
---------------------------------- ------------------------------
Herbert R. Martens, Jr.
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<PAGE> 1
Exhibit (j)(1)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to our
Firm under the caption "Counsel" in the Statement of Additional Information
included in Post-Effective Amendment No. 13 to the Registration Statement (1933
Act No. 33-65690 1940 Act No.811-7850) on Form N-1A under the Securities Act of
1933 and the Investment Company Act of 1940, as amended, of The Armada Advantage
Fund. This consent does not constitute a consent under Section 7 of the
Securities Act of 1933, and in consenting to the use of our name and the
references to our Firm under such caption we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under said Section 7 or the rules and
regulations of the Securities and Exchange Commission thereunder.
/s/ Drinker Biddle & Reath LLP
-------------------------------------
DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
April 28, 2000
<PAGE> 1
Exhibit (j)(2)
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the caption "Financial
Highlights" in the Prospectus and "Independent Auditors" and "Financial
Statements" in the Statement of Additional Information and to the incorporation
by reference in this Post-Effective Amendment No. 13 to the Registration
Statement (Form N-1A) (No.33-65690) of The Armada Advantage Fund of our report
dated February 11, 2000, included in the 1999 Annual Report to shareholders.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
April 24, 2000
