1933 Act File No.
1940 Act File No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. .................
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. ...............................
COURT STREET FUNDS
(Exact name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esq., Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering As soon as possible after
the effectiveness of the Registration Statement
Pursuant to the provisions of Rule 24f-2 of the Investment Company Act of 1940,
Registrant hereby elects to register an indefinite number of shares.
Amendment Pursuant to Rule 473
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
Copies To:
Matthew G. Maloney, Esquire
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
CROSS-REFERENCE SHEET
This Registration Statement of the Court Street Funds, which consists of
one portfolio: (1) Court Street Pennsylvania Intermediate Municipal Bond Fund,
is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page...............(1) Cover Page.
Item 2. Synopsis.................(1) Synopsis; (1) Risk Factors; (1)
Summary of Fund Expenses.
Item 3. Condensed Financial
Information..............(1) Performance Information; (1) Performance
Information for Predecessor Common and
Collective Investment Funds.
Item 4. General Description of
Registrant...............(1) Investment Objective and Policies of Each
Fund; (1) Pennsylvania Intermediate Municipal
Bond Fund; (1) Portfolio Investments and
Strategies.
Item 5. Management of the Fund...(1) Court Street Group of Funds Information;
(1) Management of the Court Street Group of
Funds;
(1) Distribution of Shares of the Funds; (1)
Expenses of the Funds.
Item 6. Capital Stock and Other
Securities...............(1) Dividends and Capital Gains; (1)
Shareholder
Information; (1) Court Street Funds-Voting
Rights; (1) Court Street Funds-Massachusetts
Partnership Law; (1) Effect of Banking
Laws; (1) Tax Information; (1) Federal
Income Tax; (1)
Additional Tax Information for Pennsylvania
Intermediate Municipal Bond Fund.
Item 7. Purchase of Securities Being
Offered..................(1) Net Asset Value; (1) Investing in the
Funds; (1) Share Purchases; (1) Minimum
Investment Required; (1) What Shares Cost;
(1) Reducing the Sales Charge; (1)
Systematic Investment Program;
(1) Certificates and Confirmations.
Item 8. Redemption or Repurchase.(1) Exchange Privilege; (1) Exchange by
Telephone; (1) Written Exchange; (1)
Redeeming Shares; (1) Systematic
Withdrawal Program; (1)
Accounts with Low Balances.
Item 9. Pending Legal Proceedings None
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page...............(1) Cover Page.
Item 11. Table of Contents........(1) Table of Contents.
Item 12. General Information and
History..................(1) General Information About the Funds.
Item 13. Investment Objectives and
Policies.................(1) Investment Objective and Policies of the
Funds; (1) Pennsylvania Investment Risks; (1)
Investment Limitations.
Item 14. Management of the Fund...(1) Court Street Funds Management; (1)
Trustees Compensation-Court Street Funds.
Item 15. Control Persons and Principal
Holders of Securities....(1) Fund Ownership.
Item 16. Investment Advisory and Other
Services.................(1) Investment Advisory Services; (1)
Administrative Services.
Item 17. Brokerage Allocation.....(1) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities...............Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered............(1) Purchasing Shares; (1) Determining
Net Asset Value; (1) Exchange Privilege;
(1) Redeeming Shares.
Item 20. Tax Status...............(1) Tax Status.
Item 21. Underwriters.............(1) Distribution Plan.
Item 22. Calculation of Performance
Data.....................(1) Total Return; (1) Yield; (1)
Tax-Equivalent Yield; (1) Performance
Comparisons; (1) Appendix.
Item 23. Financial Statements.....(to be filed by Amendment)
Court Street Funds, Inc. which currently consists of three diversified
investment portfolios, and Court Street Funds, which currently consists of one
non-diversified investment portfolio (each portfolio individually referred to as
a "Fund" and collectively as the "Funds") are open-end, management investment
companies (mutual funds). This combined prospectus offers investors interests
in the following four Funds, each having a distinct investment objective and
policies:
o Court Street Equity Fund;
o Court Street Pennsylvania Intermediate Municipal Bond Fund;
o Court Street Short-Term Bond Fund; and
o Court Street Intermediate U.S. Government Bond Fund.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
This combined prospectus contains the information you should read and know
before you invest in any of the Funds. Keep this prospectus for future
reference.
The Funds have also filed a Combined Statement of Additional Information dated
, 1995, with the Securities and Exchange Commission. The information
- ---------
contained in the Combined Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Combined
Statement of Additional Information free of charge, obtain other information, or
make inquiries about any of the Funds by writing to or calling the Funds at 1-
800- - .
--- ----
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Prospectus dated , 1995
----------
SYNOPSIS 1 INVESTING IN THE FUNDS 21
RISK FACTORS 1 SHARE PURCHASES 21
SUMMARY OF FUND EXPENSES 2 MINIMUM INVESTMENT REQUIRED 21
WHAT SHARES COST 21
INVESTMENT OBJECTIVE AND POLICIES
REDUCING THE SALES CHARGE 22
OF
EACH FUND 4
EQUITY FUND 4
PENNSYLVANIA INTERMEDIATE
MUNICIPAL BOND FUND 7
SHORT-TERM BOND FUND 9
INTERMEDIATE U.S. GOVERNMENT
BOND
FUND 10
PORTFOLIO INVESTMENTS AND
STRATEGIES 10
COURT STREET GROUP OF FUNDS
INFORMATION 17
MANAGEMENT OF THE COURT STREET
GROUP OF FUNDS 17
DISTRIBUTION OF SHARES OF THE
FUNDS 19
ADMINISTRATION OF THE FUNDS 19
BROKERAGE TRANSACTIONS 20
EXPENSES OF THE FUNDS 20
NET ASSET VALUE 21
SYSTEMATIC INVESTMENT PROGRAM 24
CERTIFICATES AND CONFIRMATIONS
24
DIVIDENDS AND CAPITAL GAINS 24
EXCHANGE PRIVILEGE 24
EXCHANGE BY TELEPHONE 25
WRITTEN EXCHANGE 25
REDEEMING SHARES 26
SYSTEMATIC WITHDRAWAL PROGRAM 27
ACCOUNTS WITH LOW BALANCES 27
SHAREHOLDER INFORMATION 27
VOTING RIGHTS 27
MASSACHUSETTS PARTNERSHIP LAW 28
EFFECT OF BANKING LAWS 28
TAX INFORMATION 29
FEDERAL INCOME TAX 29
ADDITIONAL TAX INFORMATION FOR
PENNSYLVANIA
INTERMEDIATEMUNICIPAL BOND FUND
29
PERFORMANCE INFORMATION 30
PERFORMANCE INFORMATION FOR
PREDECESSOR COMMON AND
COLLECTIVE INVESTMENT FUNDS 31
ADDRESSES 33
SYNOPSIS
Court Street Funds, Inc. was incorporated under the laws of the State of
Maryland on , 1995. Court Street Funds was established as a
------------
Massachusetts business trust under a Declaration of Trust dated , 1995.
---------
Both the Articles of Incorporation and the Declaration of Trust permit the Funds
to offer separate series of shares of beneficial interest representing interests
in separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. The Funds are designed for individuals and
institutions as a convenient means of accumulating interests in professionally
managed portfolios.
As of the date of this prospectus, Court Street Funds, Inc. is comprised of the
following three portfolios:
o Court Street Equity Fund ("Equity Fund")--seeks to provide growth of
principal by investing primarily in the equity securities of high
quality companies;
o Court Street Short-Term Bond Fund ("Short-Term Bond Fund")--seeks to
provide current income by investing primarily in investment grade debt
securities, U.S. government securities, and mortgage-backed and asset-
backed securities while maintaining a dollar-weighted average portfolio
maturity of between one to three years; and
o Court Street Intermediate U.S. Government Bond Fund ("Intermediate U.S.
Government Bond Fund")--seeks to provide current income by investing
primarily in securities which are issued or guaranteed as to payment of
principal and interest by the U.S. government or U.S. government
agencies or instrumentalities while maintaining an average portfolio
maturity of between three to ten years.
In addition, as of the date of this prospectus, Court Street Funds consists of
the following portfolio:
o Court Street Pennsylvania Intermediate Municipal Bond Fund
("Pennsylvania Intermediate Municipal Bond Fund")--seeks to provide
current income which is exempt from federal regular income tax and the
personal and corporate income taxes imposed by the Commonwealth of
Pennsylvania by investing primarily in Pennsylvania municipal
securities while maintaining a dollar-weighted average portfolio
maturity of between three to ten years. The Fund may not be a suitable
investment for non-Pennsylvania taxpayers or retirement plans since it
intends to invest in Pennsylvania municipal securities.
For information on how to purchase shares of any of the Funds, please refer to
"Investing in the Funds." A minimum initial investment of $1,000 is required
for each Fund. Subsequent investments must be in amounts of at least $50.
Shares of each Fund are sold at net asset value plus any applicable sales
charge, and are redeemed at net asset value. Information on redeeming shares
may be found under "Redeeming Shares." The Funds are advised by Dauphin Deposit
Bank and Trust Company ("Dauphin Deposit" or the "Adviser").
RISK FACTORS
Investors should be aware of the following general considerations: the market
value of fixed-income securities, which constitute a major part of the
investments of some of the Funds, may vary inversely in response to changes in
prevailing interest rates. The foreign securities in which some Funds may
invest may be subject to certain risks in addition to those inherent in U.S.
investments. One or more Funds may make certain investments and employ certain
investment techniques that involve other risks, including entering into
repurchase agreements, lending portfolio securities and entering into financial
futures contracts and related options as hedges. These risks and those
associated with investing in mortgage-backed securities, when-issued securities,
options and variable rate securities are described under "Investment Objective
and Policies of Each Fund" and "Portfolio Investments and Strategies."
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Pennsylvania
Intermediate
Municipal
Equity Fund Bond Fund
Maximum Sales Load Imposedon Purchases (as a
percentage of offering price)........... 4.75% 3.50%
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering price) None None
Contingent Deferred Sales Charge (as a
percentage of original purchase price or
redemption proceeds, as applicable)..... None None
Redemption Fees (as a percentage of amount
redeemed, if applicable)................ None None
Exchange Fee.............................. None None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fees (1)....................... . % . %
- -- - --
12b-1 Fees (2)............................ 0.00% 0.00%
Total Other Expenses...................... . % . %
- -- - --
Total Fund Operating Expenses (3). . % . %
- -- - --
(1) The estimated management fees for the Equity Fund and the
Pennsylvania Intermediate Municipal Bond Fund have been reduced to
reflect the anticipated voluntary waiver of a portion of the management
fee by the adviser. The adviser can terminate this voluntary waiver at
any time at its sole discretion. With respect to the Equity Fund and
the Pennsylvania Intermediate Municipal Bond Fund, the maximum
management fees are 1.00% and 0.75%, respectively.
(2) As of the date of this prospectus, the Funds are not paying
or accruing 12b-1 fees. The Funds can pay up to 0.25% as a 12b-1 fee to
the distributor. Certain trust clients of Dauphin Deposit Bank and
Trust Company will not be affected by the distribution plan because the
distribution plan will not be activated unless and until a second,
"Trust," class of shares of the Funds (which would not have a Rule 12b-1
plan) are created and such clients' investments in the Funds are
converted to such Trust class.
(3) The Total Fund Operating Expenses are estimated to be
. %and . %, for the Equity Fund and the Pennsylvania Intermediate
- -- - --
Municipal Bond Fund, respectively, had the maximum management fee and
12b-1 fee been in effect.
*Expenses in this table are estimated based on average expenses expected to be
incurred during the fiscal year ending November 30, 1996. During the course of
this period, expenses may be more or less than the average amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS
COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUNDS WILL BEAR, EITHER DIRECTLY OR
INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES,
SEE "COURT STREET GROUP OF FUNDS INFORMATION" AND "INVESTING IN THE FUNDS."
WIRE-TRANSFERRED REDEMPTIONS MAY BE SUBJECT TO ADDITIONAL FEES.
EXAMPLE 1 year 3 years
You would pay the following expenses on
a $1,000 investment assuming (a) 5% annual
return and (b) redemption at the end of each time
period.
Equity Fund ........................ $ $
-- --
Pennsylvania Intermediate Municipal Bond Fund $ $
-- --
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS EXAMPLE IS BASED
ON ESTIMATED DATA FOR THE FISCAL YEAR ENDING NOVEMBER 30, 1996.
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Intermediate
Short-Term U.S. Government
Bond Fund Bond Fund
Maximum Sales Load Imposedon Purchases (as a
percentage of offering price)........... 3.50% 3.50%
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering price) None None
Contingent Deferred Sales Charge (as a
percentage of original purchase price or
redemption proceeds, as applicable)..... None None
Redemption Fees (as a percentage of amount
redeemed, if applicable)................ None None
Exchange Fee.............................. None None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fees (1)....................... . % . %
- -- - --
12b-1 Fees (2)............................ 0.00% 0.00%
Total Other Expenses...................... . % . %
- -- - --
Total Fund Operating Expenses (3). . % . %
- -- - --
(1) The estimated management fees for the Short-Term Bond Fund
and the Intermediate U.S. Government Bond Fund have been reduced to
reflect the anticipated voluntary waiver of a portion of the management
fee by the adviser. The adviser can terminate this voluntary waiver at
any time at its sole discretion. With respect to the Short-Term Bond
Fund and the Intermediate U.S. Government Bond Fund, the maximum
management fees are 0.75% and 0.75%, respectively.
(2) As of the date of this prospectus, the Funds are not paying
or accruing 12b-1 fees. The Funds can pay up to 0.25% as a 12b-1 fee to
the distributor. Certain trust clients of Dauphin Deposit Bank and
Trust Company will not be affected by the distribution plan because the
distribution plan will not be activated unless and until a second,
"Trust," class of shares of the Funds (which would not have a Rule 12b-1
plan) are created and such clients' investments in the Funds are
converted to such Trust class.
(3) The Total Fund Operating Expenses are estimated to be . %
- --
and . %, for the Short-Term Bond Fund and the Intermediate U.S.
- --
Government Bond Fund, respectively, had the maximum management fee and
12b-1 fee been in effect.
*Expenses in this table are estimated based on average expenses expected to be
incurred during the fiscal year ending November 30, 1996. During the course of
this period, expenses may be more or less than the average amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS
COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUNDS WILL BEAR, EITHER DIRECTLY OR
INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES,
SEE "COURT STREET GROUP OF FUNDS INFORMATION" AND "INVESTING IN THE FUNDS."
WIRE-TRANSFERRED REDEMPTIONS MAY BE SUBJECT TO ADDITIONAL FEES.
EXAMPLE 1 year 3 years
You would pay the following expenses on
a $1,000 investment assuming (a) 5% annual
return and (b) redemption at the end of each time
period.
Short-Term Bond Fund ............... $ $
-- --
Intermediate U.S. Government Bond Fund $ $
-- --
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS EXAMPLE IS BASED
ON ESTIMATED DATA FOR THE FISCAL YEAR ENDING NOVEMBER 30, 1996.
INVESTMENT OBJECTIVE AND POLICIES OF EACH FUND
The investment objective and policies of each Fund appear below. The investment
objective of a Fund cannot be changed without the approval of the shareholders
of such Fund. While there is no assurance that a Fund will achieve its
investment objective, it endeavors to do so by following the investment policies
described in this prospectus.
Unless indicated otherwise, the investment policies of a Fund may be changed by
the Board of Trustees or the Board of Directors (hereinafter referred to as
"Board Members") without the approval of the shareholders of such Fund.
Shareholders will be notified before any material change in these policies
becomes effective.
Additional information about investment limitations, strategies that one or more
Funds may employ, and certain investment policies mentioned below, appears in
the "Portfolio Investments and Strategies" section of this prospectus and in the
Combined Statement of Additional Information.
EQUITY FUND
The investment objective of the Equity Fund is to provide growth of principal.
The Fund pursues its objective by investing primarily in the equity securities
of high quality companies. Emphasis is placed on stocks where the market price
of the stock appears low when compared to present earnings. The Fund's
investment approach is based on the conviction that, over the long term, the
economy will continue to expand and develop and that this economic growth will
be reflected in the growth of the revenues and earnings of publicly-held
corporations. Under normal market conditions, the Fund intends to invest at
least 65% of its total assets in equity securities of U.S. companies. In most
market conditions, the stocks comprising the Fund's assets will exhibit
traditional value characteristics, such as higher than average sales growth,
higher than average return on equity, low debt to equity ratios, and stocks of
companies with high return on their invested capital.
ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include, but
are not limited to:
o Common Stocks. The Fund invests primarily in common stocks of
companies selected by the Adviser on the basis of traditional research
techniques, including assessment of earnings and dividend growth
prospects of the companies. In addition, the Fund may invest in
preferred stocks of these companies. Most often, these companies will
be classified as large or mid cap companies. Factors such as, but not
limited to, product position, market share, potential earnings growth,
asset values, and revenues may be considered by the Adviser in
evaluating common stocks;
o Convertible Securities. Convertible securities are fixed income
securities which may be exchanged or converted into a predetermined
number 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. The
investment characteristics of each convertible security vary widely,
which allows convertible securities to be employed for different
investment objectives;
o American Depositary Receipts ("ADRs"). ADRs are receipts typically
issued by an American bank or trust company that evidences ownership of
underlying securities issued by a foreign issuer. ADRs may not
necessarily be denominated in the same currency as the securities into
which they may be converted. Generally, ADRs, in registered form, are
designed for use in U.S. securities markets. The Fund may invest up to
5% of its net assets in ADRs (see "Foreign Investments" under
"Portfolio Investments and Strategies");
o U.S. Government Securities (as defined under "Portfolio Investments and
Strategies");
o Corporate Obligations (as defined under "Portfolio Investments and
Strategies");
o Mortgage-Backed Securities (as defined under "Portfolio Investments and
Strategies");
o Put and Call Options (as defined below);
o Futures and Options on Futures (as defined below); and
o Money Market Instruments (as defined under "Portfolio Investments and
Strategies").
PUT AND CALL OPTIONS. The Fund may purchase put options on its portfolio
securities. A put option gives the 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. These options will be used as a hedge to attempt to
protect securities which the Fund holds against decreases in value. The Fund
may also write covered call options on all or any portion of its portfolio to
generate income. As a writer of a call option, the 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 Fund will write call options
on securities either held in its portfolio, or which it has the right to obtain
without payment of further consideration, or for which it has segregated cash or
U.S. government securities in the amount of any additional consideration.
The Fund may purchase and write over-the-counter options on portfolio securities
in negotiated transactions with the buyers or writers of the options when
options on the portfolio securities held by the Fund are not traded on an
exchange. The Fund purchases and writes options only with investment dealers
and other financial institutions (such as commercial banks or savings and loan
associations) deemed creditworthy by the Adviser.
Over-the-counter options are two-party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not. The Fund will not buy call
options or write put options, other than to close out open option positions,
without further notification to shareholders.
FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell futures
contracts to hedge against the effects of changes in the value of portfolio
securities due to anticipated changes in interest rates and market conditions.
Futures contracts call for the delivery of particular instruments at a certain
time in the future. The seller of the contract agrees to make delivery of the
type of instrument called for in the contract, and the buyer agrees to take
delivery of the instrument at the specified future time.
Stock index futures contracts are based on indexes that reflect the market value
of common stock of the firms included in the indexes. An index futures contract
is an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the differences between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written.
The Fund may also write call options and purchase put options on futures
contracts as a hedge to attempt to protect its portfolio securities against
decreases in value. When the Fund writes a call option on a futures contract,
it is undertaking the obligation of selling a futures contract at a fixed price
at any time during a specified period if the option is exercised. Conversely,
as purchaser of a put option on a futures contract, the Fund is entitled (but
not obligated) to sell a futures contract at the fixed price during the life of
the option.
The Fund may also write put options and purchase call options on futures
contracts as a hedge against rising purchase prices of portfolio securities.
The Fund will use these transactions to attempt to protect its ability to
purchase portfolio securities in the future at price levels existing at the time
it enters into the transactions. When the Fund writes a put option on a futures
contract, it is undertaking to buy a particular futures contract at a fixed
price at any time during a specified period if the option is exercised. As a
purchaser of a call option on a futures contract, the Fund is entitled (but not
obligated) to purchase a futures contract at a fixed price at any time during
the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets. When the Fund purchases futures
contracts, an amount of cash and cash equivalents, equal to the underlying
commodity value of the futures contracts (less any related margin deposits),
will be deposited in a segregated account with the custodian (or the broker, if
legally permitted) to collateralize the position and thereby insure that the use
of such futures contracts are unleveraged. When the Fund sells futures
contracts, it will either own or have the right to receive the underlying future
or security, or will make deposits to collateralize the position as discussed
above.
RISKS. When the Fund uses financial futures and options on futures as hedging
devices, there is a risk that the prices of the securities subject to the
futures contracts may not correlate perfectly with the prices of the securities
in the Fund's portfolio. This may cause the futures contract and any related
options to react differently than the portfolio securities to market changes.
In addition, the Adviser could be incorrect in its expectations about the
direction or extent of market factors such as stock price movements. In these
events, the Fund may lose money on the futures contract or option.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Adviser will consider
liquidity before entering into these transactions, there is no assurance that a
liquid secondary market on an exchange or otherwise will exist for any
particular futures contract or option at any particular time. The Fund's
ability to establish and close out futures and options positions depends on this
secondary market.
SECURITIES OF FOREIGN ISSUERS. The Fund may invest in the securities of foreign
issuers which are freely traded on United States securities exchanges or in the
over-the-counter market in the form of depositary receipts. There may be
certain risks associated with investing in foreign securities. These include
risks of adverse political and economic developments (including possible
governmental seizure or nationalization of assets), the possible imposition of
exchange controls or other governmental restrictions, less uniformity in
accounting and reporting requirements than applied to U.S. companies, and the
possibility that there will be less information on such securities and their
issuers available to the public. In addition, there are restrictions on foreign
investments in other jurisdictions and there tends to be difficulty in obtaining
judgments from abroad and effecting repatriation of capital invested abroad.
Delays could occur in settlement of foreign transactions, which could adversely
affect shareholder equity. Foreign securities may be subject to foreign taxes,
which reduce yield, and may be less marketable than comparable United States
securities. As a matter of practice, the Fund will not invest in the securities
of a foreign issuer if any risk identified above appears to the Adviser to be
substantial.
PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND
The investment objective of the Pennsylvania Intermediate Municipal Bond Fund is
to provide current income which is exempt from federal regular income tax and
the personal and corporate income taxes imposed by the Commonwealth of
Pennsylvania. (Federal regular income tax does not include the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.) In addition, shares of the Fund are exempt from personal
property taxes imposed by counties in Pennsylvania to the extent that the Fund
invests in obligations that are exempt from such taxes. The Fund pursues its
investment objective by investing primarily in Pennsylvania municipal
securities. Interest income of the Fund that is exempt from federal regular
income tax and Pennsylvania state personal and corporate income tax retains its
tax-free status when distributed to the Fund's shareholders. However, income
distributed by the Fund may not necessarily be exempt from state or municipal
taxes in states other than Pennsylvania. Thus, the Fund may not be a suitable
investment for non-Pennsylvania taxpayers or retirement plans. As a matter of
investment policy, which may not be changed without shareholder approval, under
normal market conditions at least 80% of the value of the Fund's net assets will
be invested in Pennsylvania municipal securities. The Fund will attempt to
maintain a dollar-weighted average portfolio maturity of between three to ten
years.
ACCEPTABLE INVESTMENTS. The Pennsylvania municipal securities in which the Fund
invests include the following:
o obligations issued by or on behalf of the Commonwealth of Pennsylvania,
its political subdivisions, agencies, or instrumentalities (i.e.,
authorities);
o debt obligations of any state, territory, or possession of the United
States, including the District of Columbia, or any political
subdivision of any of these; and
o participation interests, as described below, in any of the above
obligations;
the interest from which is, in the opinion of bond counsel for the issuers or in
the judgment of the Adviser to the Fund, exempt from both federal regular income
tax and the personal and corporate income taxes imposed by the Commonwealth of
Pennsylvania. It is likely that shareholders who are subject to alternative
minimum tax will be required to include interest from a portion of the municipal
securities owned by the Fund in calculating the federal individual alternative
minimum tax or the federal alternative minimum tax for corporations.
CHARACTERISTICS. The municipal securities in which the Fund invests are:
o rated within the four highest ratings for municipal securities by
Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A, or Baa),
Standard & Poor's Ratings Group ("S&P") (AAA, AA, A, or BBB), or Fitch
Investors Service, Inc. ("Fitch") (AAA, AA, A, or BBB); or
o guaranteed at the time of purchase by the U.S. government as to the
payment of principal and interest; or
o fully collateralized by an escrow of U.S. government securities or
other securities acceptable to the Adviser; or
o rated at the time of purchase within Moody's highest short-term
municipal obligation rating (MIG1/VMIG1) or Moody's highest municipal
commercial paper rating (PRIME-1) or S&P's highest municipal commercial
paper rating (SP-1); or
o unrated if, at the time of purchase, other municipal securities of that
issuer are rated Baa or BBB or better by Moody's, S&P, or Fitch; or
o unrated if determined to be of equivalent quality to one of the
foregoing rating categories by the Adviser.
If a security is subsequently downgraded, the Adviser will determine whether it
continues to be an acceptable investment; if not, the security will be sold.
Bonds rated BBB by S&P or Fitch or Baa by Moody's are investment grade, but have
more speculative characteristics than A-rated bonds. Changes in economic
conditions or other circumstances are more likely to lead to weakened capacity
to make principal and interest payments than higher rated bonds. A description
of the rating categories is contained in the Appendix to the Combined Statement
of Additional Information.
PARTICIPATION INTERESTS. The Fund may purchase participation interests in
Pennsylvania municipal securities from financial institutions such as commercial
banks, savings associations, and insurance companies. These participation
interests give the Fund an undivided interest in Pennsylvania municipal
securities held by such financial institutions. The financial institutions from
which the Fund purchases participation interests frequently provide or secure
irrevocable letters of credit or guarantees to assure that the participation
interests are of high quality. The Board Members will determine whether
participation interests meet the prescribed quality standards for the Fund.
VARIABLE RATE MUNICIPAL SECURITIES. Some of the Pennsylvania municipal
securities which the Fund purchases may have variable interest rates. Variable
interest rates are ordinarily stated as a percentage of a published interest
rate, interest rate index, or a similar standard, such as the 91-day U.S.
Treasury bill rate. Many variable rate municipal securities are subject to
payment of principal on demand by the Fund in not more than seven days. All
variable rate municipal securities will meet the quality standards for the Fund.
The Fund's Adviser has been instructed by the Board Members to monitor the
pricing, quality, and liquidity of the variable rate municipal securities,
including participation interests held by the Fund, on the basis of published
financial information and reports of the rating agencies and other analytical
services.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities. They may take the form of a lease, an installment purchase
contract, or a conditional sales contract.
TEMPORARY INVESTMENTS. The Fund normally invests its assets in Pennsylvania
municipal securities, as described above. However, from time to time, when the
Adviser determines that market conditions call for a temporary defensive
posture, the Fund may invest in short-term tax-exempt or taxable temporary
investments. These temporary investments include: notes issued by or on behalf
of municipal or corporate issuers; obligations issued or guaranteed by the U.S.
government, its agencies, or instrumentalities; other debt securities;
commercial paper; certificates of deposit of banks; shares of other investment
companies; and repurchase agreements.
There are no rating requirements applicable to temporary investments. However,
the Adviser will limit temporary investments to those it considers to be of
comparable quality to the Fund's acceptable investments.
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax
or Pennsylvania state personal income tax.
PENNSYLVANIA MUNICIPAL SECURITIES. Pennsylvania municipal securities are
generally issued to finance public works, such as airports, bridges, housing,
hospitals, mass transportation projects, schools, streets, and water and sewer
works. They are also issued to repay outstanding obligations, to raise funds
for general operating expenses, and to make loans to other public institutions
and facilities. Pennsylvania municipal securities include industrial
development bonds issued by or on behalf of public authorities to provide
financing aid to acquire sites or construct and equip facilities for privately
or publicly owned corporations. The availability of this financing encourages
these corporations to locate within the sponsoring communities and thereby
increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Revenue bonds do not represent a pledge of credit or
create any debt of or charge against the general revenues of a municipality or
public authority. Interest on and principal of revenue bonds are payable only
from the revenue generated by the facility financed by the bond or other
specified sources of revenue. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS. Yields on Pennsylvania municipal securities depend on a
variety of factors, including, but not limited to: the general conditions of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. Further, any adverse economic
conditions or developments affecting the Commonwealth of Pennsylvania or its
municipalities could impact the Fund's portfolio. The ability of the Fund to
achieve its investment objective also depends on the continuing ability of the
issuers of Pennsylvania municipal securities and participation interests, or the
guarantors of either, to meet their obligations for the payment of interest and
principal when due. Investing in Pennsylvania municipal securities which meet
the Fund's quality standards may not be possible if the Commonwealth of
Pennsylvania or its municipalities do not maintain their current credit ratings.
In addition, any Pennsylvania constitutional amendments, legislative measures,
executive orders, administrative regulations, or voter initiatives could result
in adverse consequences affecting Pennsylvania municipal securities.
NON-DIVERSIFICATION. The Fund is a non-diversified investment portfolio. As
such, there is no limit on the percentage of assets which can be invested in any
single issuer. An investment in the Fund, therefore, will entail greater risk
than would exist in a diversified portfolio of securities because the higher
percentage of investment among fewer issuers may result in greater fluctuation
in the total market value of the Fund's portfolio. Any economic, political, or
regulatory developments affecting the value of the securities in the Fund's
portfolio will have a greater impact on the total value of the portfolio than
would be the case if the portfolio was diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code, as
amended. This undertaking requires that at the end of each quarter of the
taxable year, with regard to at least 50% of the Fund's total assets, no more
than 5% of its total assets are invested in the securities of a single issuer;
and beyond that, no more than 25% of its total assets are invested in the
securities of a single issuer.
SHORT-TERM BOND FUND
The investment objective of the Short-Term Bond Fund is to provide current
income. The Fund will invest primarily in investment grade debt securities,
U.S. government securities, and mortgage-backed and asset-backed securities. In
addition, the Fund may invest in taxable municipal obligations. Under normal
market conditions, the Fund will invest at least 65% of its assets in bonds.
The Fund will attempt to maintain a dollar-weighted average portfolio maturity
of between one to three years.
ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include, but
are not limited to:
o U.S. Government Securities (as defined under "Portfolio Investments and
Strategies");
o Corporate Obligations (as defined under "Portfolio Investments and
Strategies");
o Mortgage-Backed Securities (as defined under "Portfolio Investments and
Strategies");
o Asset-Backed Securities (as defined under "Portfolio Investments and
Strategies"); and
o Money Market Instruments (as defined under "Portfolio Investments and
Strategies").
INTERMEDIATE U.S. GOVERNMENT BOND FUND
The investment objective of the Intermediate U.S. Government Bond Fund is to
provide current income. Under normal market conditions, the Fund will invest at
least 65% of the value of its total assets in securities which are issued or
guaranteed as to payment of principal and interest by the U.S. government or
U.S. government agencies or instrumentalities. For purposes of this 65% policy,
the Fund will consider CMOs (as defined under "Portfolio Investments and
Strategies") issued by U.S. government agencies or instrumentalities to be U.S.
government securities. The remaining 35% of the Fund's assets may be invested
in any of the securities discussed below. In addition, the Fund may invest in
taxable municipal obligations. The Fund will attempt to maintain a dollar-
weighted average portfolio maturity of between three to ten years.
ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include, but
are not limited to:
o U.S. Government Securities (as defined under "Portfolio Investments and
Strategies");
o Mortgage-Backed Securities (as defined under "Portfolio Investments and
Strategies");
o Asset-Backed Securities (as defined under "Portfolio Investments and
Strategies");
o Corporate Obligations (as defined under "Portfolio Investments and
Strategies"); and
o Money Market Instruments (as defined under "Portfolio Investments and
Strategies").
PORTFOLIO INVESTMENTS AND STRATEGIES
U.S. GOVERNMENT SECURITIES. The Funds may invest in U.S. government securities,
which generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations (including mortgage-backed
securities, bonds, notes and discount notes) issued or guaranteed by the
following U.S. government agencies or instrumentalities: Farm Credit System,
including the National Bank for Cooperatives, Farm Credit Banks, and Banks for
Cooperatives; Farmers Home Administration; Federal Home Loan Banks; Federal Home
Loan Mortgage Corporation; Federal National Mortgage Association; Government
National Mortgage Association; and Student Loan Marketing Association. These
securities are backed by: the full faith and credit of the U.S. Treasury; the
issuer's right to borrow an amount limited to a specific line of credit from the
U.S. Treasury; the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or the credit of the
agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities securities of which are permissible
investments but may not always receive financial support from the U.S.
government are: Farm Credit System, including the National Bank for
Cooperatives, Farm Credit Banks, and Banks for Cooperatives; Federal Home Loan
Banks; Federal National Mortgage Association; Student Loan Marketing
Association; and Federal Home Loan Mortgage Corporation.
MORTGAGE-BACKED SECURITIES. The Equity Fund, the Short-Term Bond Fund, and the
Intermediate U.S. Government Bond Fund may invest in mortgage-backed securities
rated BBB or Baa or better by a nationally recognized statistical rating
organization, or which are of comparable quality in the judgment of the Adviser.
Mortgage-backed securities are securities that directly or indirectly represent
a participation in, or are secured by and payable from, mortgage loans on real
property. There are currently four basic types of mortgage-backed securities:
(i) those issued or guaranteed by the U.S. government or one of its agencies or
instrumentalities, such as the Government National Mortgage Association ("Ginnie
Mae"), the Federal National Mortgage Association ("Fannie Mae") and the Federal
Home Loan Mortgage Corporation ("Freddie Mac"); (ii) those issued by private
issuers that represent an interest in or are collateralized by mortgage-backed
securities issued or guaranteed by the U.S. government or one of its agencies or
instrumentalities; (iii) those issued by private issuers that represent an
interest in or are collateralized by whole loans or mortgage-backed securities
without a government guarantee but usually having some form of private credit
enhancement; and (iv) privately issued securities which are collateralized by
pools of mortgages in which each mortgage is guaranteed as to payment of
principal and interest by an agency or instrumentality of the U.S. government.
The privately issued mortgage-related securities provide for a periodic payment
consisting of both interest and/or principal. The interest portion of these
payments will be distributed by a Fund as income, and the capital portion will
be reinvested.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS"). The Equity Fund, the
Short-Term Bond Fund, and the Intermediate U.S. Government Bond Fund may
invest in ARMS. ARMS are pass-through mortgage-backed securities with
adjustable rather than fixed interest rates. The ARMS in which a Fund
invests are issued by Ginnie Mae, Fannie Mae, and Freddie Mac and are
actively traded. The underlying mortgages which collateralize ARMS issued
by Ginnie Mae are fully guaranteed by the Federal Housing Administration
or Veterans Administration, while those collateralizing ARMS issued by
Fannie Mae or Freddie Mac are typically conventional residential
mortgages conforming to strict underwriting size and maturity
constraints.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). The Equity Fund, the
Short-Term Bond Fund, and the Intermediate U.S. Government Bond Fund may
invest in CMOs. CMOs are debt obligations collateralized by mortgage
loans or mortgage pass-through securities. Typically, CMOs are
collateralized by Ginnie Mae, Fannie Mae or Freddie Mac certificates, but
may be collateralized by whole loans or private pass-through securities.
CMOs may have fixed or floating rates of interest.
A Fund will invest only in CMOs that are rated BBB or Baa or better by a
nationally recognized statistical rating organization. A Fund may also
invest in certain CMOs which are issued by private entities such as
investment banking firms and companies related to the construction
industry. The CMOs in which a Fund may invest may be: (i) securities
which are collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government; (ii) securities which are
collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized
by U.S. government securities; (iii) collateralized by pools of mortgages
in which payment of principal and interest is dependent upon the
underlying pool of mortgages with no U.S. government guarantee; or (iv)
other securities in which the proceeds of the issuance are invested in
mortgage-backed securities and payment of the principal and interest is
supported by the credit of an agency or instrumentality of the U.S.
government.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS"). The Equity Fund, the
Short-Term Bond Fund, and the Intermediate U.S. Government Bond Fund may
invest in REMICs REMICs are offerings of multiple class mortgage-backed
securities which qualify and elect treatment as such under provisions of
the Internal Revenue Code, as amended. Issuers of REMICs may take several
forms, such as trusts, partnerships, corporations, associations, or
segregated pools of mortgages. Once REMIC status is elected and obtained,
the entity is not subject to federal income taxation. Instead, income is
passed through the entity and is taxed to the person or persons who hold
interests in the REMIC. A REMIC interest must consist of one or more
classes of "regular interests," some of which may offer adjustable rates
of interest, and a single class of "residual interests." To qualify as a
REMIC, substantially all the assets of the entity must be in assets
directly or indirectly secured principally by real property.
ASSET-BACKED SECURITIES. The Short-Term Bond Fund and the Intermediate U.S.
Government Bond Fund may invest in asset-backed securities. Asset-backed
securities have structural characteristics similar to mortgage-backed securities
but have underlying assets that generally are not mortgage loans or interests in
mortgage loans. The Funds may invest in asset-backed securities rated BBB or Baa
or better by a nationally recognized statistical rating organization including,
but not limited to, interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables, equipment leases,
manufactured housing (mobile home) leases, or home equity loans. These
securities may be in the form of pass-through instruments or asset-backed bonds.
The securities are issued by non-governmental entities and carry no direct or
indirect government guarantee.
INVESTMENT RISKS OF MORTGAGE-BACKED AND ASSET-BACKED SECURITIES.
Mortgage-backed and asset-backed securities generally pay back principal
and interest over the life of the security. At the time a Fund reinvests
the payments and any unscheduled prepayments of principal received, the
Fund may receive a rate of interest which is actually lower than the rate
of interest paid on these securities ("prepayment risks"). Mortgage-
backed and asset-backed securities are subject to higher prepayment risks
than most other types of debt instruments with prepayment risks because
the underlying mortgage loans or the collateral supporting asset-backed
securities may be prepaid without penalty or premium. Prepayment risks on
mortgage-backed securities tend to increase during periods of declining
mortgage interest rates because many borrowers refinance their mortgages
to take advantage of the more favorable rates. Prepayments on mortgage-
backed securities are also affected by other factors, such as the
frequency with which people sell their homes or elect to make unscheduled
payments on their mortgages. Although asset-backed securities generally
are less likely to experience substantial prepayments than are mortgage-
backed securities, certain factors that affect the rate of prepayments on
mortgage-backed securities also affect the rate of prepayments on asset-
backed securities.
While mortgage-backed securities generally entail less risk of a decline
during periods of rapidly rising interest rates, mortgage-backed
securities may also have less potential for capital appreciation than
other similar investments (e.g., investments with comparable maturities)
because as interest rates decline, the likelihood increases that
mortgages will be prepaid. Furthermore, if mortgage-backed securities are
purchased at a premium, mortgage foreclosures and unscheduled principal
payments may result in some loss of a holder's principal investment to
the extent of the premium paid. Conversely, if mortgage-backed securities
are purchased at a discount, both a scheduled payment of principal and an
unscheduled prepayment of principal would increase current and total
returns and would accelerate the recognition of income, which would be
taxed as ordinary income when distributed to shareholders.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the
benefit of the same security interest in the related collateral. Credit
card receivables are generally unsecured and the debtors are entitled to
the protection of a number of state and federal consumer credit laws,
many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. Most issuers of
asset-backed securities backed by motor vehicle installment purchase
obligations permit the servicer of such receivables to retain possession
of the underlying obligations. If the servicer sells these obligations to
another party, there is a risk that the purchaser would acquire an
interest superior to that of the holders of the related asset-backed
securities. Further, if a vehicle is registered in one state and is then
re-registered because the owner and obligor moves to another state, such
re-registration could defeat the original security interest in the
vehicle in certain cases. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under
state laws, the trustee for the holders of asset-backed securities backed
by automobile receivables may not have a proper security interest in all
of the obligations backing such receivables. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
CORPORATE OBLIGATIONS. The Equity Fund, the Short-Term Bond Fund, and the
Intermediate U.S. Government Bond Fund may invest in corporate obligations
including preferred stocks and corporate bonds, notes, and debentures, which may
have floating or fixed rates of interest. Corporate debt obligations will
normally be rated BBB or Baa or better by a nationally recognized statistical
rating organization. Bonds rated BBB by S&P or Fitch or Baa by Moody's are
investment grade, but have more speculative characteristics than A-rated bonds.
Changes in economic conditions or other circumstances are more likely to lead to
weakened capacity to make principal and interest payments than higher rated
bonds.
FLOATING RATE CORPORATE DEBT OBLIGATIONS. The Equity Fund, the Short-
Term Bond Fund, and the Intermediate U.S. Government Bond Fund expect to
invest in floating rate corporate debt obligations, including increasing
rate securities. Floating rate securities are generally offered at an
initial interest rate which is at or above prevailing market rates. The
interest rate paid on these securities is then reset periodically
(commonly every 90 days) to an increment over some predetermined interest
rate index. Commonly utilized indices include the three-month Treasury
bill rate, the six-month Treasury bill rate, the one-month or three-month
London Interbank Offered Rate (LIBOR), the prime rate of a bank, the
commercial paper rates, or the longer-term rates on U.S. Treasury
securities.
Increasing rate securities, which currently do not make up a significant
share of the market in corporate debt securities, are generally offered
at an initial interest rate which is at or above prevailing market rates.
Interest rates are reset periodically (most commonly every 90 days) at
different levels on a predetermined scale. These levels of interest are
ordinarily set at progressively higher increments over time. Some
increasing rate securities may, by agreement, revert to a fixed rate
status. These securities may also contain features which allow the issuer
the option to convert the increasing rate of interest to a fixed rate
under such terms, conditions, and limitations as are described in each
issue's prospectus.
FIXED RATE CORPORATE DEBT OBLIGATIONS. The Equity Fund, the Short-Term
Bond Fund, and the Intermediate U.S. Government Bond Fund will also
invest in fixed rate securities, including fixed rate securities with
short-term characteristics. Fixed rate securities with short-term
characteristics are long-term debt obligations but are treated in the
market as having short maturities because call features of the securities
may make them callable within a short period of time. A fixed rate
security with short-term characteristics would include a fixed income
security priced close to call or redemption price or a fixed income
security approaching maturity, where the expectation of call or
redemption is high.
Fixed rate securities tend to exhibit more price volatility during times
of rising or falling interest rates than securities with floating rates
of interest. This is because floating rate securities, as described
above, behave like short-term instruments in that the rate of interest
they pay is subject to periodic adjustments based on a designated
interest rate index. Fixed rate securities pay a fixed rate of interest
and are more sensitive to fluctuating interest rates. In periods of
rising interest rates, the value of a fixed rate security is likely to
fall. Fixed rate securities with short-term characteristics are not
subject to the same price volatility as fixed rate securities without
such characteristics. Therefore, they behave more like floating rate
securities with respect to price volatility.
VARIABLE RATE DEMAND NOTES. The Equity Fund, the Short-Term Bond Fund,
and the Intermediate U.S. Government Bond Fund may purchase variable rate
demand notes. Variable rate demand notes are long-term corporate debt
instruments that have variable or floating interest rates and provide the
Funds with the right to tender the security for repurchase at its stated
principal amount plus accrued interest. Such securities typically bear
interest at a rate that is intended to cause the securities to trade at
par. The interest rate may float or be adjusted at regular intervals
(ranging from daily to annually), and is normally based on a published
interest rate or interest rate index. Many variable rate demand notes
allow a Fund to demand the repurchase of the security on not more than
seven days prior notice. Other notes only permit a Fund to tender the
security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features."
BANK INSTRUMENTS. The Funds only invest in Bank Instruments either issued by an
institution that has capital, surplus and undivided profits over $100 million or
is insured by the Bank Insurance Fund or the Savings Association Insurance Fund.
The Equity Fund, the Short-Term Bond Fund, and the Intermediate U.S. Government
Bond Fund may purchase foreign Bank Instruments which include Eurodollar
Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit ("Yankee CDs")
and Eurodollar Time Deposits ("ETDs"). The banks issuing these instruments are
not necessarily subject to the same regulatory requirements that apply to
domestic banks, such as reserve requirements, loan requirements, loan
limitations, examinations, accounting, auditing, and recordkeeping and the
public availability of information.
CREDIT FACILITIES. Demand notes are borrowing arrangements between a
corporation and an institutional lender (such as a Fund) payable upon demand by
either party. The notice period for demand typically ranges from one to seven
days, and the party may demand full or partial payment.
Revolving credit facilities are borrowing arrangements in which the lender
agrees to make loans up to a maximum amount upon demand by the borrower during a
specified term. As the borrower repays the loan, an amount equal to the
repayment may be borrowed again during the term of the facility. A Fund
generally acquires a participation interest in a revolving credit facility from
a bank or other financial institution. The terms of the participation require a
Fund to make a pro rata share of all loans extended to the borrower and entitles
the Fund to a pro rata share of all payments made by the borrower. Demand notes
and revolving credit facilities usually provide for floating or variable rates
of interest.
CREDIT ENHANCEMENT. Certain of the acceptable investments of the Equity Fund,
the Short-Term Bond Fund, and the Intermediate U.S. Government Bond Fund may
have been credit enhanced by a guaranty, letter of credit or insurance. A Fund
typically evaluates the credit quality and ratings of credit enhanced securities
based upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. Generally, a Fund
will not treat credit enhanced securities as having been issued by the credit
enhancer for diversification purposes. However, under certain circumstances
applicable regulations may require a Fund to treat the securities as having been
issued by both the issuer and the credit enhancer. The bankruptcy, receivership
or default of the credit enhancer will adversely affect the quality and
marketability of the underlying security.
DEMAND FEATURES. The Equity Fund, The Short-Term Bond Fund, and the
Intermediate U.S. Government Bond Fund may acquire securities that are subject
to puts and standby commitments ("demand features") to purchase the securities
at their principal amount (usually with accrued interest) within a fixed period
following a demand by a Fund. The demand feature may be issued by the issuer of
the underlying securities, a dealer in the securities or by another third party,
and may not be transferred separately from the underlying security. A Fund uses
these arrangements to provide the Fund with liquidity and not to protect against
changes in the market value of the underlying securities. The bankruptcy,
receivership or default by the issuer of the demand feature, or a default on the
underlying security or other event that terminates the demand feature before its
exercise, will adversely affect the liquidity of the underlying security. Demand
features that are exercisable even after a payment default on the underlying
security are treated as a form of credit enhancement.
MONEY MARKET INSTRUMENTS. For temporary defensive purposes (up to 100% of
total assets) and to maintain liquidity (up to 35% of total assets), the
Equity Fund, the Short-Term Bond Fund, and the Intermediate U.S. Government
Bond Fund may invest in U.S. and foreign short-term money market
instruments, including:
o commercial paper rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by
Moody's, or F-1 or F-2 by Fitch, and Europaper (dollar-denominated
commercial paper issued outside the United States) rated A-1, A-2,
Prime-1, or Prime-2;
o instruments of domestic and foreign banks and savings and loans (such
as certificates of deposit, demand and time deposits, savings shares,
and bankers' acceptances) if they have capital, surplus, and undivided
profits of over $100,000,000, or if the principal amount of the
instrument is insured by the Bank Insurance Fund, which is administered
by the Federal Deposit Insurance Corporation ("FDIC"), or the Savings
Association Insurance Fund, which is also administered by the FDIC.
These instruments may include Eurodollar Certificates of Deposit
("ECDs"), Yankee Certificates of Deposit ("Yankee CDs"), and Eurodollar
Time Deposits ("ETDs");
o obligations of the U.S. government or its agencies or
instrumentalities;
o repurchase agreements;
o securities of other investment companies; and
o other short-term instruments which are not rated but are determined by
the Adviser to be of comparable quality to the other obligations in
which a Fund may invest.
REPURCHASE AGREEMENTS. The securities in which each Fund invests may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell securities to a Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that
the original seller does not repurchase the securities from a Fund, the Fund
could receive less than the repurchase price on any sale of such securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. Each Fund may invest in
the securities of other investment companies, but will not own more than 3% of
the total outstanding voting stock of any investment company, invest more than
5% of total assets in any one investment company, or invest more than 10% of
total assets in investment companies in general. The Funds will invest in other
investment companies primarily for the purpose of investing short-term cash
which has not yet been invested in other portfolio instruments. It should be
noted that investment companies incur certain expenses such as management fees
and, therefore, any investment by a Fund in shares of another investment company
would be subject to such duplicate expenses. The Adviser will waive its
investment advisory fee on assets invested in securities of open-end investment
companies.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. Each Fund may purchase
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which a Fund purchases securities with payment and delivery
scheduled for a future time. The seller's failure to complete these transactions
may cause a Fund to miss a price or yield considered to be advantageous.
Settlement dates may be a month or more after entering into these transactions,
and the market values of the securities purchased may vary from the purchase
prices. Accordingly, a Fund may pay more or less than the market value of the
securities on the settlement date.
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. A Fund may realize short-term profits or losses upon the sale of such
commitments.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, each
Fund may lend portfolio securities on a short-term or long-term basis, to
broker/dealers, banks, or other institutional borrowers of securities. A Fund
will only enter into loan arrangements with broker/dealers, banks, or other
institutions which the Adviser has determined are creditworthy under guidelines
established by the Board Members and will receive collateral in the form of cash
or U.S. government securities equal to at least 100% of the value of the
securities loaned at all times. This policy cannot be changed without the
approval of holders of a majority of a Fund's shares.
There is the risk that when lending portfolio securities, the securities may not
be available to a Fund on a timely basis and a Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
RESTRICTED AND ILLIQUID SECURITIES. The Funds may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. However, each
Fund will limit investments in illiquid securities, including (where applicable)
restricted securities not determined by the Board Members to be liquid, non-
negotiable time deposits, over-the-counter options, and repurchase agreements
providing for settlement in more than seven days after notice, to 15% of its net
assets.
BORROWING MONEY. The Funds will not borrow money directly or through reverse
repurchase agreements (arrangements in which a Fund sells a portfolio instrument
for a percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, a Fund may
borrow up to one-third of the value of its total assets and pledge assets as
necessary to secure such borrowings. This policy cannot be changed without the
approval of holders of a majority of a Fund's shares.
DIVERSIFICATION. With respect to 75% of the value of total assets, the Equity
Fund, the Short-Term Bond Fund, and the Intermediate U.S. Government Bond Fund
will not invest more than 5% in securities of any one issuer, other than cash,
cash items or securities issued or guaranteed by the government of the United
States or its agencies or instrumentalities and repurchase agreements
collateralized by U.S. government securities or acquire more than 10% of the
outstanding voting securities of any one issuer. This policy cannot be changed
without the approval of holders of a majority of a Fund's shares.
COURT STREET GROUP OF FUNDS INFORMATION
MANAGEMENT OF THE COURT STREET GROUP OF FUNDS
BOARD MEMBERS. Court Street Funds, Inc. is managed by a Board of Directors.
Court Street Funds is managed by a Board of Trustees. The Board Members are
responsible for managing each Fund's business affairs and for exercising all of
the powers of the Funds except those reserved for the shareholders.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with both Court
Street Funds, Inc. and Court Street Funds, investment decisions for the Funds
are made by Dauphin Deposit Bank and Trust Company, the Funds' investment
adviser, subject to direction by the Board Members. The Adviser continually
conducts investment research and supervision for each Fund and is responsible
for the purchase or sale of portfolio instruments, for which it receives an
annual advisory fee from the assets of each Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee at
annual rates equal to percentages of the relevant Fund's average net
assets as follows: the Equity Fund--1.00% and the Pennsylvania
Intermediate Municipal Bond Fund, the Short-Term Bond Fund, and the
Intermediate U.S. Government Bond Fund--0.75%. The Adviser has
undertaken to reimburse each Fund, up to the amount of the advisory fee,
for operating expenses in excess of limitations established by certain
states. The Adviser may voluntarily choose to waive a portion of its fee
or reimburse the Funds for certain operating expenses, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND. Dauphin Deposit is a wholly-owned subsidiary of
Dauphin Deposit Corporation (the "Corporation"), a bank holding company.
Through its subsidiaries and affiliates, the Corporation provides a
comprehensive range of financial services to the public. The
headquarters of both the Corporation and Dauphin Deposit are located at
213 Market Street, Harrisburg, PA 17105.
Dauphin Deposit, and its divisions, Bank of Pennsylvania, Valleybank, and
Farmers Bank, provides banking services through over 100 branch offices
located in a nine county area in south central Pennylvania with regional
headquarters in Harrisburg, Hanover, and Reading, Pennsylvania. Among
the services offered to clients are commercial and consumer lending, time
and regular savings and demand deposits, cash management, credit cards,
and personal, corporate, and pension trust services. Mortgage lending is
provided through its affiliate, Eastern Mortgage Services, Inc. As of
June 30, 1995, Dauphin Deposit had assets in excess of $5 billion.
Dauphin Deposit's Trust and Financial Services Group provides
individuals, businesses, and municipalities with investment, custodial,
and trust services. As of June 30, 1995, Trust and Financial Services
had in excess of $2 billion under active managment. Although Dauphin
Deposit has not previously served as an investment adviser to a mutual
fund, it has managed, on behalf of its trust clients, eight common and
collective investment funds having a market value in excess of $800
million.
Hopper Soliday and Co., Inc. ("Hopper Soliday"), headquartered in
Lancaster, Pennsylvania, is a wholly-owned subsidiary of the Corporation.
Hopper Soliday's services include municipal finance, investment banking,
securities underwriting, market making, institutional sales, retail
brokerage, and other general securities businesses permitted for bank
holding companies and their non-bank subsidiaries. Where permitted by
law, the Adviser may seek to transact business with Hopper Soliday on
behalf of the Funds (see "Brokerage Transactions").
As part of its regular banking operations, Dauphin Deposit may make loans
to public companies and municipalities. Thus, it may be possible, from
time to time, for the Fund to hold or acquire the securities of issuers
which are also lending clients of Dauphin Deposit. Because of the
internal controls maintained by Dauphin Deposit to restrict the flow of
non-public information, Fund investments are typically made without any
knowledge of Dauphin Deposit's or its affiliates' lending relationships
with an issuer; therefore, the lending relationship will not be a factor
in the selection of securities.
PORTFOLIO MANAGERS' BACKGROUND. Samuel E. Long is an Equity Specialist
and Vice President of Dauphin Deposit. Mr. Long joined Dauphin Deposit
in November 1985 as Senior Equity Manager. From 1979 to 1985, Mr. Long
was Resident Manager and Vice President of the Harrisburg branch office
of W.H. Newbold's Son and Company, Inc. In this capacity, Mr. Long
achieved the designations of Registered Options Principal, General Sales
Supervisor, as well as Series III-Commodities Representative, and Series
IV-General Securities Representative. From 1974 to 1979, Mr. Long
managed an Equity Fund as well as Employee Benefit Accounts for
Commonwealth National Bank, where his investment performance record
ranked among the top-quartile of all Equity Managers throughout the
United States. From 1969 to 1974, he was a Registered Investment
Representative with Walston and Co. Mr. Long has been the portfolio
manager for the Equity Fund since its inception in of 1995.
---------
Daryl B. Girton is a Fixed Income Specialist and Vice President of
Dauphin Deposit. He has been the Portfolio Manager of Dauphin Deposit's
Employee Benefit Short Term Bond Fund and Personal Trust U.S. Government
Fund since September of 1994. Mr. Girton worked for over 18 years with
Fulton Bank, managing both fixed income and equity assets for personal,
pension, and charitable accounts. Mr. Girton graduated from Thiel
College with a B.A. in Business Administration and received an M.B.A.
from Shippensburg University. Mr. Girton is a Chartered Financial
Analyst and a member of the Philadelphia Financial Analysts Society. Mr.
Girton has been the portfolio manager for the Short-Term Bond Fund since
its inception in of 1995.
------------
Cathleen S. Saylor is a Fixed Income Specialist and Vice President of
Dauphin Deposit. Ms. Saylor has been the Manager of Dauphin Deposit's
Personal Trust Municipal Bond Fund (since 1987), Dauphin Deposit's
Employee Benefit Fixed Income Fund (since 1985), and Dauphin Deposit's
Personal Trust Fixed Income Fund (since 1985). She had previously
managed Dauphin Deposit's Employee Benefit Short Term Bond Fund from 1987
to 1994. Ms. Saylor joined Dauphin Deposit in 1974 and is a former
supervisor in the Trust Operations Securities Processing Department. She
attended Harrisburg Area Community College for Business Administration
and is a graduate of the Pennsylvania Bankers' Association Central
Atlantic School of Trust. Ms. Saylor is a Chartered Financial Analyst
and a member of the Baltimore Security Analysts Society. Ms. Saylor has
been the portfolio manager for the Pennsylvania Intermediate Municipal
Bond Fund and the Intermediate U.S. Government Bond Fund since their
inception in of 1995.
------------
DISTRIBUTION OF SHARES OF THE FUNDS
Edgewood Services, Inc. is the principal distributor for shares of the Funds.
It is a New York corporation organized on October 26, 1993, and is the principal
distributor for a number of investment companies. Edgewood Services, Inc. is a
subsidiary of Federated Investors.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with the Investment Company Act Rule 12b-1 (the "Plan"), each Fund
may pay to Edgewood Services, Inc., the distributor, an amount computed at an
annual rate of up to one quarter of 1% of the average daily net asset value of
that Fund's shares to finance any activity which is principally intended to
result in the sale of that Fund's shares subject to the Plan. Certain trust
clients of Dauphin Deposit will not be affected by the Plan because the Plan
will not be activated unless and until a second, "Trust," class of shares of the
Funds (which would not have a Rule 12b-1 plan) is created and such trust
clients' investments in the Funds are converted to such Trust class.
The distributor may, from time to time, and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan to the extent
the expenses attributable to the shares exceed such lower expense limitation as
the distributor may, by notice to the Funds, voluntarily declare to be
effective.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers to provide
sales and support services as agents for their clients or customers who
beneficially own shares. Financial institutions will receive fees from the
distributor based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the distributor.
The Funds' Plan is a compensation type plan. As such, the Funds make no
payments to the distributor except as described above. Therefore, the Funds do
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Funds, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Funds
under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of certain securities, including shares of registered open-end mutual fund
companies. The Glass-Steagall Act does not prohibit such a depository
institution from acting as investment adviser or custodian to such an investment
company or from purchasing shares of such a company as agent for and upon the
order of their customer. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the advisory or custodial
capacities described above or should Congress relax current restrictions on
depository institutions, the Board Members will consider appropriate changes in
the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as broker/dealers pursuant to state law.
ADMINISTRATIVE ARRANGEMENTS. The distributor may also pay financial
institutions as directed by the Adviser a fee based upon the average daily net
asset value of shares of their customers invested in each Fund for providing
administrative services. This fee is in addition to the amounts paid under the
Distribution Plan for administrative services, and, if paid, will be reimbursed
by the Adviser and not a Fund.
ADMINISTRATION OF THE FUNDS
ADMINISTRATIVE SERVICES. Federated Administrative Services ("FAS"), Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Funds with the
administrative personnel and services necessary to operate each Fund. Such
services include certain legal and accounting services. FAS receives an annual
administrative fee equal to .15 of 1% of the Funds' average aggregate daily net
assets.
The administrative fee received during any fiscal year shall aggregate at least
$75,000 per Fund. FAS may voluntarily choose to waive a portion of its fee at
any time.
CUSTODIAN. Dauphin Deposit Bank and Trust Company, Harrisburg, Pennsylvania, is
custodian for the securities and cash of the Funds.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES.
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated
Investors, is transfer agent and dividend disbursing agent for the Funds. It
also provides certain accounting and recordkeeping services with respect to each
Fund's portfolio investments.
INDEPENDENT AUDITORS. The independent auditors for the Funds are Ernst & Young
LLP, Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who
are recognized dealers in specific portfolio instruments, except when a better
price and execution of the order can be obtained elsewhere. In selecting among
firms believed to meet these criteria, the Adviser may give consideration to
those firms which have sold or are selling shares of a Fund. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Board Members.
Notwithstanding the foregoing, to the extent consistent with applicable
provisions of the Investment Company Act of 1940, Rule 17e-1, and other rules
and exemptions adopted by the Securities and Exchange Commission (the "SEC")
under that Act, the Board Members have determined that all orders for
transactions in securities or options on behalf of the Equity Fund will be
placed by Dauphin Deposit with broker/dealers selected by Dauphin Deposit,
including Hopper Soliday and other affiliated brokers. The Equity Fund may use
a Hopper Soliday affiliated broker in a portfolio transaction when Dauphin
Deposit believes that the affiliated broker's charge for the transaction does
not exceed usual and customary levels and is likely to result in price and
execution at least as favorable as those of other qualified broker/dealers.
EXPENSES OF THE FUNDS
The Funds pay all of their own expenses and their allocable shares of Court
Street Funds, Inc.'s and Court Street Funds' expenses. The expenses of each
Fund include, but are not limited to, the cost of: organizing the Funds and
continuing their existence; Board Members' fees; investment advisory and
administrative services; printing prospectuses and other Fund documents for
shareholders; registering the Funds and shares of the Funds; taxes and
commissions; issuing, purchasing, repurchasing, and redeeming shares; fees for
custodians, transfer agents, dividend disbursing agents, shareholder servicing
agents, and registrars; printing, mailing, auditing, accounting, and legal
expenses; reports to shareholders and governmental agencies; meetings of Board
Members and shareholders and proxy solicitations therefor; distribution fees;
insurance premiums; association membership dues; and such nonrecurring and
extraordinary items as may arise. However, the Adviser may voluntarily
reimburse the Funds the amount, up to the amount of the advisory fee, by which
operating expenses exceed limitations imposed by certain states.
NET ASSET VALUE
Each Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUNDS
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange and the
Federal Reserve Wire System are open for business except on Martin Luther King
Day, Columbus Day, and Veterans' Day. Shares of the Funds may be purchased
through Hopper Soliday or Dauphin Deposit. In connection with the sale of
shares of the Funds, the distributor may from time to time offer certain items
of nominal value to any shareholder or investor. The Funds reserve the right to
reject any purchase request.
To purchase shares of the Funds through Hopper Soliday, call toll free 1-800- -
--
. Trust and institutional investors should contact their account officer to
- ----
make purchase requests through Dauphin Deposit. Texas residents must purchase
shares of the Funds through Edgewood Services, Inc. at 1-800-618-3573. The
order will be placed by Hopper Soliday when payment is received. Payment for
shares purchased through Dauphin Deposit must be received on the next business
day after placing the order.
BY CHECK. Purchases of shares by check must be made payable to the Fund and
sent to Hopper Soliday, , Lancaster,
-------------------------------------------
PA 17101.
BY WIRE. Shares of the Funds cannot be purchased by Federal Reserve Wire on
Martin Luther King Day, Columbus Day, or Veterans' Day. To purchase shares by
wire, Dauphin Deposit trust and institutional investors should contact their
account officer. All other shareholders should contact Hopper Soliday.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in a Fund by an investor is $1,000. Subsequent
investments must be in amounts of at least $50. These minimums may be waived
for purchases by the Trust and Financial Services Group of Dauphin Deposit and
its affiliates for fiduciary or custodial accounts. An institutional investor's
minimum investment will be calculated by combining all accounts it maintains
with the Funds.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales charge, as follows:
Equity Fund:
Sales Charge as Sales Charge as
a Percentage of a Percentage of
Amount of Transaction Public Offering Price Net
Amount Invested
Less than $50,000 4.75% 4.99%
$50,000 but less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 4.00% 4.17%
$250,000 but less than $500,000 3.50% 3.63%
$500,000 or more 3.00% 3.09%
Pennsylvania Intermediate Municipal Bond Fund, Short-Term Bond Fund, and
Intermediate U.S. Government Bond Fund:
Sales Charge as Sales Charge as
a Percentage of a Percentage of
Amount of Transaction Public Offering Price Net
Amount Invested
Less than $100,000 3.50% 3.63%
$100,000 but less than $250,000 3.00% 3.09%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 or more 2.00% 2.04%
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value of a
Fund's portfolio securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for redemption and no
orders to purchase shares are received; and (iii) the following holidays: New
Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day, and
Christmas Day.
PURCHASES AT NET ASSET VALUE. Shares of the Funds may be purchased at net asset
value, without a sales charge, by the Trust and Financial Services Division of
Dauphin Deposit and their affiliates for accounts in which the Trust and
Financial Services Division holds or manages assets, by trust companies, trust
departments of other financial institutions, and by banks and savings and loans
for their own accounts. Board Members, emeritus trustees, employees and retired
employees of Court Street Funds, Inc. and Court Street Funds, Dauphin Deposit
Corporation and its subsidiaries, including Dauphin Deposit and Hopper Soliday,
or Edgewood Services, Inc. or their affiliates, or any bank or investment dealer
who has a sales agreement with Edgewood Services, Inc. with regard to the Funds,
and their spouses and children under 21, may also buy shares at net asset value,
without a sales charge.
SALES CHARGE REALLOWANCE. For sales of shares of a Fund, a dealer will normally
receive up to 85% of the applicable sales charge. For shares sold with a sales
charge, Hopper Soliday will receive 85% of the applicable sales charge for
purchases of shares of the Funds made directly through Hopper Soliday.
The sales charge for shares sold other than through Hopper Soliday or registered
broker/dealers will be retained by the distributor. However, the distributor
will, periodically, uniformly offer to pay to dealers additional amounts in the
form of cash or promotional incentives, such as reimbursement of certain
expenses of qualified employees and their spouses to attend informational
meetings about the Funds or other special events at recreational-type
facilities, or items of material value. Such payments, all or a portion of
which may be paid from the sales charge the distributor normally retains or any
other source available to it, will be predicated upon the amount of shares of
the Funds that are sold by the dealer.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of shares through:
o quantity discounts and accumulated purchases;
o signing a 13-month letter of intent;
o using the reinvestment privilege; or
o concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce the sales charge paid. The Funds will combine purchases
made on the same day by the investor, the investor's spouse, and the investor's
children under age 21 when it calculates the sales charge.
If an additional purchase of shares of a Fund is made, each Fund will consider
the previous purchases still invested in any of the Funds. For example, if a
shareholder of the Equity Fund already owns shares having a current value at the
public offering price of $30,000 and purchases $20,000 more at the current
public offering price, the sales charge on the additional purchase according to
the schedule now in effect would be 4.50%, not 4.75%.
To receive the sales charge reduction, Hopper Soliday or the distributor must be
notified by the shareholder in writing or by the shareholder's financial
institution at the time the purchase is made that Fund shares are already owned
or that purchases are being combined. Each Fund will reduce the sales charge
after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $50,000 of
shares in the Equity Fund or $100,000 of shares in the Pennsylvania Intermediate
Municipal Bond Fund, the Short-Term Bond Fund, and the Intermediate U.S.
Government Bond Fund over the next 13 months, the sales charge may be reduced by
signing a letter of intent to that effect. This letter of intent includes a
provision for a sales charge adjustment depending on the amount actually
purchased within the 13-month period and a provision for the custodian to hold
up to 4.75% (for the Equity Fund) or 3.50% (for the Pennsylvania Intermediate
Municipal Bond Fund, the Short-Term Bond Fund, and the Intermediate U.S.
Government Bond Fund) of the total amount intended to be purchased in escrow (in
shares of the Funds) until such purchase is completed.
The shares held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may
be redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does so, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days; however, these previous purchases will not receive the reduced sales
charge.
REINVESTMENT PRIVILEGE. If shares in the Funds have been redeemed, the
shareholder has a one-time right, within 30 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales charge.
Hopper Soliday or the distributor must be notified by the shareholder in writing
or by the shareholder's financial institution of the reinvestment in order to
eliminate a sales charge. If the shareholder redeems his shares in a Fund,
there may be tax consequences. Shareholders contemplating such transactions
should consult their own tax advisers.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction,
a shareholder has the privilege of combining concurrent purchases of two or more
Funds in Court Street Group of Funds, the purchase price of which includes a
sales charge. For example, if a shareholder concurrently invested $30,000 in
shares of the Equity Fund with a sales charge, and $20,000 in shares of another
Fund with a sales charge, the sales charge would be reduced on both purchases.
To receive this sales charge reduction, Hopper Soliday or the distributor must
be notified by the shareholder in writing or by their financial institution at
the time the concurrent purchases are made. The Funds will reduce the sales
charge after they confirm the purchases.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $50. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares at the net asset value next determined after an order is
received by a Fund, plus the applicable sales charge. A shareholder may apply
for participation in this program through Hopper Soliday.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Funds, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless
requested in writing to a Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. In addition, monthly confirmations are sent to report dividends
paid during that month.
DIVIDENDS AND CAPITAL GAINS
With respect to the Equity Fund, dividends are declared and paid quarterly.
With respect to the Pennsylvania Intermediate Municipal Bond Fund, Short-Term
Bond Fund, and Intermediate U.S. Government Bond Fund, dividends are declared
daily and paid monthly. Dividends are declared just prior to determining net
asset value. If an order for shares is placed on the preceding business day,
shares purchased by wire begin earning dividends on the business day wire
payment is received by a Fund. If the order for shares and payment by wire are
received on the same day, shares begin earning dividends on the next business
day. Shares purchased by check begin earning dividends on the business day
after the check is converted into federal funds. Capital gains realized by a
Fund, if any, will be distributed at least once every 12 months. Dividends and
capital gains will be automatically reinvested in additional shares on payment
dates at the ex-dividend date net asset value without a sales charge, unless
cash payments are requested by writing to the Fund.
EXCHANGE PRIVILEGE
Shareholders may exchange shares of one Fund for shares of any of the other
Funds in the Court Street Group of Funds at net asset value, subject to certain
conditions. In addition, shares of a Fund may be exchanged for shares of the
following funds distributed by Federated Securities Corp.:
o Federated Liberty U.S. Government Money Market Trust--a U.S. government
money market fund; and
o Pennsylvania Municipal Cash Trust (Institutional Service Shares)--a
Pennsylvania municipal money market fund.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value of at least $1,000. Prior to any exchange, the shareholder must
receive a copy of the current prospectus of the participating fund into which an
exchange is to be made.
Exchanges are made at net asset value, plus the difference between a Fund's
sales charge already paid and any applicable sales charge on shares of the fund
to be acquired in the exchange.
The exchange privilege is available to shareholders residing in any state in
which the participating fund shares being acquired may legally be sold. Upon
receipt by Federated Services Company of proper instructions and all necessary
supporting documents, shares submitted for exchange will be redeemed at the next
determined net asset value. If the exchanging shareholder does not have an
account in the participating fund whose shares are being acquired, a new account
will be established with the same registration, dividend, and capital gain
options as the account from which shares are exchanged, unless otherwise
specified by the shareholder. In the case where the new account registration is
not identical to that of the existing account, a signature guarantee is
required. (See "Redeeming Shares by Mail.")
Exercise of this privilege is treated as a redemption and a new purchase for
federal income tax purposes and, depending on the circumstances, a short or
long-term capital gain or loss may be realized. The Funds reserve the right to
modify or terminate the exchange privilege at any time. Shareholders would be
notified prior to any modification or termination. Shareholders may obtain
further information on the exchange privilege by calling their Hopper Soliday
representative or an authorized broker.
EXCHANGE BY TELEPHONE
Shareholders may provide instructions for exchanges between participating funds
by calling Hopper Soliday toll-free at 1-800- - . In addition, investors
--- ----
may exchange shares by calling their authorized broker directly.
An authorization form permitting the Funds to accept telephone exchange requests
must first be completed. It is recommended that investors request this
privilege at the time of their initial application. If not completed at the
time of initial application, authorization forms and information on this service
can be obtained through a Hopper Soliday representative or authorized broker.
Shares may be exchanged by telephone only between fund accounts having identical
shareholder registrations. Telephone exchange instructions may be recorded. If
reasonable procedures are not followed by a Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
Telephone exchange instructions must be received by Hopper Soliday or an
authorized broker and transmitted to Federated Services Company before 3:00 p.m.
(Eastern time) for shares to be exchanged the same day. Shareholders who
exchange into shares of the Funds will not receive a dividend from a Fund on the
date of the exchange.
Shareholders of the Funds may have difficulty in making exchanges by telephone
through banks, brokers, and other financial institutions during times of drastic
economic or market changes. If shareholders cannot contact their Hopper Soliday
representative or authorized broker by telephone, it is recommended that an
exchange request be made in writing and sent by mail for next day delivery.
WRITTEN EXCHANGE
An investor may exchange shares by sending a written request to Hopper Soliday,
, Lancaster, PA 17101. In addition, trust and
- ------------------------------
institutional investors of Dauphin Deposit wishing to make an exchange by
written request may do so by sending it to their trust officer, c/o Dauphin
Deposit Bank and Trust Company, 213 Market Street, Harrisburg, PA 17101.
Any shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, the transfer agent, by a Hopper Soliday
representative or authorized broker and deposited to the shareholder's account
before being exchanged.
REDEEMING SHARES
Each Fund redeems shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which a
Fund computes its net asset value. Telephone or written requests for
redemptions must be received in proper form and can be made through Hopper
Soliday or Dauphin Deposit.
BY TELEPHONE. To redeem shares of a Fund through Hopper Soliday, call toll-free
1-800- - . Trust and institutional investors of Dauphin Deposit should
--- ----
contact their account officer to make redemption requests. Shares of a Fund
will be redeemed at the net asset value next determined after a Fund receives
the redemption request from Hopper Soliday or Dauphin Deposit.
A redemption request must be received by Hopper Soliday or Dauphin Deposit
before 4:00 p.m. (Eastern time) in order for shares of a Fund to be redeemed at
that day's net asset value. Redemption requests through registered
broker/dealers must be received by Hopper Soliday before 3:00 p.m. (Eastern
time) in order for shares to be redeemed at that day's net asset value. Hopper
Soliday and Dauphin Deposit are responsible for promptly submitting redemption
requests and providing proper written redemption instructions to a Fund.
Registered broker/dealers may charge customary fees and commissions for this
service. In no event will proceeds be sent more than seven days after a proper
request for redemption has been received.
An authorization form permitting a Fund to accept telephone requests must first
be completed. Authorization forms and information on this service are available
from Hopper Soliday or Dauphin Deposit. Telephone redemption instructions may
be recorded. If reasonable procedures are not followed by a Fund, it may be
liable for losses due to unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption should be utilized, such as a written request to Hopper
Soliday or Dauphin Deposit.
If, at any time, a Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
BY MAIL. Any shareholder may redeem shares of a Fund by sending a written
request to Hopper Soliday. Trust and institutional investors should send a
written request to Dauphin Deposit. The written request should include the
shareholder's name, the Fund name, the account number, and the share or dollar
amount requested. If share certificates have been issued, they must be properly
endorsed and should be sent by registered or certified mail with the written
request. Shareholders should call Hopper Soliday or Dauphin Deposit for
assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
a Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
o a trust company or commercial bank whose deposits are insured by the
Bank Insurance Fund ("BIF"), which is administered by the Federal
Deposit Insurance Corporation ("FDIC");
o a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
o a savings bank or savings and loan association whose deposits are
insured by the Savings Association Insurance Fund ("SAIF"), which is
administered by the FDIC; or
o any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934.
The Funds do not accept signatures guaranteed by a notary public.
The Funds and their transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Funds may elect in the
future to limit eligible signature guarantors to institutions that are members
of a signature guarantee program. The Funds and their transfer agent reserve
the right to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Fund shares
are redeemed to provide for periodic withdrawal payments in an amount directed
by the shareholder. Depending upon the amount of the withdrawal payments, the
amount of dividends paid and capital gains distributions with respect to Fund
shares, and the fluctuation of the net asset value of Fund shares redeemed under
this program, redemptions may reduce, and eventually deplete, the shareholder's
investment in a Fund. For this reason, payments under this program should not
be considered as yield or income on the shareholder's investment in a Fund. To
be eligible to participate in this program, a shareholder must have an account
value of at least $10,000. A shareholder may apply for participation in this
program through Hopper Soliday. Due to the fact that shares are sold with a
sales charge, it is not advisable for shareholders to be purchasing shares while
participating in this program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, a Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000 due to
shareholder redemptions. This requirement does not apply, however, if the
balance falls below $1,000 because of changes in a Fund's net asset value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
COURT STREET FUNDS, INC.
VOTING RIGHTS. Each share of a Fund gives the shareholder one vote in Board
Member elections and other matters submitted to shareholders for vote. All
shares of each Fund in Court Street Funds, Inc have equal voting rights, except
that in matters affecting only a particular Fund, only shares of that Fund are
entitled to vote.
As a Maryland corporation, Court Street Funds, Inc. is not required to hold
annual shareholder meetings. Shareholder approval will be sought only for
certain changes in the operation of Court Street Funds, Inc. and for the
election of Board Members under certain circumstances.
Board Members may be removed by the Board Members or by shareholders at a
special meeting. A special meeting of shareholders shall be called by the Board
Members upon the written request of shareholders owning at least 10% of the
outstanding shares of all series of Court Street Funds, Inc. entitled to vote.
COURT STREET FUNDS
VOTING RIGHTS. Each share of a Fund gives the shareholder one vote in Board
Member elections and other matters submitted to shareholders for vote.
As a Massachusetts business trust, Court Street Funds is not required to hold
annual shareholder meetings. Shareholder approval will be sought only for
certain changes in the operation of Court Street Funds or a Fund and for the
election of Board Members under certain circumstances.
Board Members may be removed by the Board Members or by shareholders at a
special meeting. A special meeting of the shareholders for this purpose shall
be called by the Board Members upon the written request of shareholders owning
at least 10% of the outstanding shares of all series of Court Street Funds
entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW. Under certain circumstances, shareholders may be
held personally liable as partners under Massachusetts law for acts or
obligations of the Court Street Funds. To protect shareholders, Court Street
Funds has filed legal documents with Massachusetts that expressly disclaim the
liability of shareholders of a Fund for such acts or obligations of Court Street
Funds. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument Court Street Funds or its Board Members
enter into or sign on behalf of a Fund.
In the unlikely event a shareholder of a Fund is held personally liable for
Court Street Funds' obligations, Court Street Funds is required by the
Declaration of Trust to use its property to indemnify, protect or compensate the
shareholder. On request, Court Street Funds will defend any claim made and pay
any judgment against a shareholder of a Fund for any act or obligation of Court
Street Funds. Therefore, financial loss resulting from liability as a
shareholder of a Fund will occur only if Court Street Funds cannot meet its
obligations to indemnify shareholders and pay judgments against them from the
assets of a Fund.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Bank Holding Company Act of 1956, as
amended, or any bank or non-bank affiliate thereof from sponsoring, organizing,
controlling, or distributing the shares of a registered, open-end investment
company continuously engaged in the issuance of its shares, and prohibit banks
generally from underwriting, or distributing certain types of securities such as
shares of a registered open-end investment company. Such laws and regulations
do not prohibit such a holding company or bank or non-bank affiliate from acting
as investment adviser, transfer agent, or custodian to such an investment
company or from purchasing shares of such a company as agent for and upon the
order of their customer. The Funds' Adviser, Dauphin Deposit, is subject to
such banking laws and regulations. In addition, Dauphin Deposit may enter into
brokerage transactions with Hopper Soliday, which is an affiliate of Dauphin
Deposit (see "Brokerage Transactions").
Dauphin Deposit believes, based on the advice of its counsel, that it may
perform the investment advisory services for any Fund contemplated by its
advisory agreement with the Funds without violating the Glass-Steagall Act or
other applicable banking laws or regulations. Such counsel has pointed out,
however, that changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could prevent
Dauphin Deposit from continuing to perform all or a part of the above services
for its customers and/or a Fund. In such event, changes in the operation of a
Fund may occur, including the possible alteration or termination of any
automatic or other Fund share investment and redemption services then being
provided by Dauphin Deposit, and the Board Members would consider alternative
investment advisers and other means of continuing available investment services.
It is not expected that Fund shareholders would suffer any adverse financial
consequences (if another adviser with equivalent abilities to Dauphin Deposit is
found) as a result of any of these occurrences.
TAX INFORMATION
FEDERAL INCOME TAX
The Funds expect to pay no federal income tax because each Fund intends to meet
requirements of the Internal Revenue Code, as amended, applicable to regulated
investment companies and to receive the special tax treatment afforded to such
companies.
Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by a Fund
will not be combined for tax purposes with those realized by any of the other
Funds.
With respect to the Equity Fund, the Short-Term Bond Fund, and the Intermediate
U.S. Government Bond Fund, unless otherwise exempt, shareholders are required to
pay federal income tax on any dividends and other distributions received. This
applies whether dividends and distributions are received in cash or as
additional shares. Each Fund will provide detailed tax information for
reporting purposes.
PENNSYLVANIA PERSONAL PROPERTY TAXES. With respect to the Equity Fund, the
Short-Term Bond Fund, and the Intermediate U.S. Government Bond Fund, shares are
exempt from personal property taxes imposed by counties, municipalities, and
school districts in Pennsylvania. Shareholders are urged to consult their own
tax advisers regarding the status of their accounts under state and local tax
laws.
ADDITIONAL TAX INFORMATION FOR PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND
FUND
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest income earned on some municipal bonds may be included
in calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, up to 28% of alternative minimum taxable income for
individuals and 20% for corporations, applies when it exceeds the regular tax
for the taxable year. Alternative minimum taxable income is equal to the
regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986 as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds will become subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75%
of the excess of a taxpayer's "adjusted current earnings" over the taxpayer's
alternative minimum taxable income as a tax preference item. "Adjusted current
earnings" is based upon the concept of a corporation's "earnings and profits."
Since "earnings and profits" generally includes the full amount of any Fund
dividend, and alternative minimum taxable income does not include the portion of
the Fund's dividend attributable to municipal bonds which are not private
activity bonds, the difference will be included in the calculation of the
corporation's alternative minimum tax.
Shareholders should consult with their tax advisers to determine whether they
are subject to the alternative minimum tax or the corporate alternative minimum
tax and, if so, the tax treatment of dividends paid by the Fund.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
Distributions representing net long-term capital gains realized by the Fund, if
any, will be taxable as long-term capital gains regardless of the length of time
shareholders have held their shares.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
PENNSYLVANIA TAXES. Under existing Pennsylvania laws, distributions made by the
Fund will not be subject to Pennsylvania income taxes to the extent that such
distributions qualify as exempt-interest dividends under the Internal Revenue
Code, as amended, and represent (i) interest from obligations of the
Commonwealth of Pennsylvania, or of any municipal corporation, or political
subdivision thereof; or (ii) interest from obligations of the United States or
its possessions. Conversely, to the extent that distributions made by the Fund
are attributable to other types of obligations, such distributions will be
subject to Pennsylvania income taxes.
Fund shares are exempt from personal property taxes imposed by counties in
Pennsylvania to the extent that the Fund invests in obligations that are exempt
from such taxes. In addition, the Fund is not subject to Pennsylvania corporate
taxes.
OTHER STATE AND LOCAL TAXES. Income from the Fund is not necessarily free from
taxes in states other than Pennsylvania. State laws differ on this issue, and
shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Funds may advertise total return and yield. In addition,
the Pennsylvania Intermediate Municipal Bond Fund may advertise tax-equivalent
yield.
Total return represents the change, over a specified period of time, in the
value of an investment in a Fund after reinvesting all income and capital gains
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of each Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by each Fund
over a thirty-day period by the maximum offering price per share of a Fund on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
each Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The tax-equivalent yield of the Pennsylvania Intermediate Municipal Bond Fund is
calculated similarly to the yield, but is adjusted to reflect the taxable yield
that the Fund would have had to earn to equal its actual yield, assuming a
specific tax rate. The yield and tax-equivalent yield do not necessarily
reflect income actually earned by the Fund and, therefore, may not correlate to
the dividends or other distributions paid to shareholders.
The performance information normally reflects the effect of the maximum sales
load which, if excluded, would increase the total return and yield.
From time to time, advertisements for the Funds may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Funds' performance to certain indices.
PERFORMANCE INFORMATION FOR PREDECESSOR COMMON AND COLLECTIVE INVESTMENT
FUNDS
The Equity Fund, the Pennsylvania Intermediate Municipal Bond Fund, the Short-
Term Bond Fund, and the Intermediate U.S. Government Bond Fund emanate from
common and collective investment funds currently managed by the Adviser (the
"Common and Collective Fund(s)"). It is anticipated that the assets from each
Common and Collective Fund will be transferred to the corresponding Fund on or
about , 1995 in connection with each Fund's commencement of
----------------
operations.
Set forth below are certain performance data for the Common and Collective
Funds, common trust funds currently managed by the Funds' Adviser. This
information is deemed relevant because the Common and Collective Funds were
managed using substantially the same investment objective, policies, and
limitations as those used by each of the corresponding Funds. However, the past
performance data shown below is not necessarily indicative of each Fund's future
performance. Each Fund is actively managed, and its investments will vary from
time to time. Each Fund's investments are not identical to the past portfolio
investments of the Common and Collective Funds. Moreover, the Common and
Collective Funds did not incur expenses that correspond to the advisory,
administrative, and other fees to which each Fund is subject. Accordingly, the
performance information shown below has been adjusted to reflect the anticipated
total expense ratios for each Fund. This adjustment has the effect of lessening
the actual performance for the Common and Collective Funds. Because a sales
load was not imposed on the Common and Collective Funds, the performance figures
shown below have been adjusted to reflect the effect of the maximum sales load
(i.e., 4.75% on the Equity Fund and 3.50% on the Pennsylvania Intermediate
Municipal Bond Fund, the Short-Term Bond Fund, and the Intermediate U.S.
Government Bond Fund, respectively) applicable to certain purchasers of each
Fund. This adjustment further reduces the actual performance of the Common and
Collective Funds. Corresponding performance figures which do not reflect the
sales load are also provided.
Average Annual Total Return for the period ending
, 1995*
- ----------
Predecessor Common Funds Reflecting Load
Since Inception
1 Year 3 Years 5 Years (Insert Date)
Personal Trust Equity Fund
(COURT STREET EQUITY FUND) . % . % . % . %
-- - -- - -- - -- -
Equity Fund for Tax-Exempt
Organizations
(COURT STREET EQUITY FUND) . % . % . % . %
-- - -- - -- - -- -
Municipal Bond Fund
(COURT STREET PENNSYLVANIA
INTERMEDIATE MUNICIPAL BOND
FUND) . % . % . % . %
-- - -- - -- - -- -
U.S. Government Fixed Income Fund
(COURT STREET SHORT-TERM
BOND FUND) . % . % . % . %
-- - -- - -- - -- -
Fixed Income Fund
(COURT STREET INTERMEDIATE U.S.
GOVERNMENT BOND FUND) . % . % . % . %
-- - -- - -- - -- -
Without Load
Since Inception
1 Year 3 Years 5 Years (Insert Date)
Personal Trust Equity Fund
(COURT STREET EQUITY FUND) . % . % . % . %
-- - -- - -- - -- -
Equity Fund for Tax-Exempt
Organizations
(COURT STREET EQUITY FUND) . % . % . % . %
-- - -- - -- - -- -
Municipal Bond Fund
(COURT STREET PENNSYLVANIA
INTERMEDIATE MUNICIPAL BOND
FUND) . % . % . % . %
-- - -- - -- - -- -
U.S. Government Fixed Income Fund
(COURT STREET SHORT-TERM
BOND FUND) . % . % . % . %
-- - -- - -- - -- -
Fixed Income Fund
(COURT STREET INTERMEDIATE U.S.
GOVERNMENT BOND FUND) . % . % . % . %
-- - -- - -- - -- -
* The Average Annual Total Return for each Common Fund has been adjusted to
reflect each corresponding Fund's anticipated expenses, net of voluntary
waivers.
Average Annual Total Return for the period ending
, 1995*
- ----------
Predecessor Collective Funds Reflecting Load
Since Inception
1 Year 3 Years 5 Years (Insert Date)
Employee Benefit Equity Fund
(COURT STREET EQUITY FUND) . % . % . % . %
-- - -- - -- - -- -
Employee Benefit Short-Term Fixed
Income Fund
(COURT STREET SHORT-TERM
BOND FUND) . % . % . % . %
-- - -- - -- - -- -
Employee Benefit Fixed Income Fund
(COURT STREET INTERMEDIATE U.S.
GOVERNMENT BOND FUND) . % . % . % . %
-- - -- - -- - -- -
Without Load
Since Inception
1 Year 3 Years 5 Years (Insert Date)
Employee Benefit Equity Fund
(COURT STREET EQUITY FUND) . % . % . % . %
-- - -- - -- - -- -
Employee Benefit Short-Term Fixed
Income Fund
(COURT STREET SHORT-TERM
BOND FUND) . % . % . % . %
-- - -- - -- - -- -
Employee Benefit Fixed Income Fund
(COURT STREET INTERMEDIATE U.S.
GOVERNMENT BOND FUND) . % . % . % . %
-- - -- - -- - -- -
* The Average Annual Total Return for each Collective Fund has been
adjusted to reflect each corresponding Fund's anticipated expenses, net of
voluntary waivers.
ADDRESSES
Court Street Equity Fund
Court Street Pennsylvania Intermediate Municipal Bond Fund
Court Street Short-Term Bond Fund
Court Street Intermediate U.S. Government Bond Fund
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Distributor
Edgewood Services, Inc. Clearing Operations
P.O. Box 897
Pittsburgh, Pennsylvania 15230-0897
Investment Adviser
Dauphin Deposit Bank and Trust Company
213 Market Street
Harrisburg, Pennsylvania 17101
Custodian
Dauphin Deposit Bank and Trust Company
213 Market Street
Harrisburg, Pennsylvania 17101
Transfer Agent, Dividend Disbursing Agent, and Portfolio Accounting
Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
Combined Prospectus
COURT STREET FUNDS, INC.
COURT STREET FUNDS
Open-End Management
Investment Companies
, 1995
--------------------
COURT STREET GROUP OF FUNDS
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information relates to the following
four portfolios (individually, the "Fund," or collectively, the "Funds")
comprising the Court Street Group of Funds:
EDGEWOOD SERVICES, INC.
RE
Distributor
A subsidiary of FEDERATED INVESTORS
Federated Investors Tower Dauphin Deposit Bank and Trust Company
Pittsburgh, PA 15222-3779 Investment Adviser
CUSIP #s
#######X (date)
o Court Street Equity Fund;
o Court Street Pennsylvania Intermediate Municipal Bond Fund;
o Court Street Short-Term Bond Fund; and
o Court Street Intermediate U.S. Government Bond Fund.
This Combined Statement of Additional Information should be read with the
combined prospectus of the Funds dated , 1995. This Statement
-----------
is not a prospectus itself. To receive a copy of the prospectus, write to
the Funds or call Hopper Soliday and Co., Inc. at 1-800- - .
--- ----
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated , 1995
------------
EDGEWOOD SERVICES, INC.
Distributor Dauphin Deposit Bank and
Trust Company
A subsidiary of FEDERATED INVESTORS Investment Adviser
GENERAL INFORMATION ABOUT THE FUNDS 1 RESETS OF INTEREST 6
CAPS AND FLOORS 6
INVESTMENT OBJECTIVE AND POLICIES
FOREIGN BANK INSTRUMENTS 7
OF THE FUNDS 1 WHEN-ISSUED AND DELAYED
DELIVERY TRANSACTIONS 7
REPURCHASE AGREEMENTS 7
CONVERTIBLE SECURITIES 1
RESTRICTED AND ILLIQUID SECURITIES
WARRANTS 1 7
REVERSE REPURCHASE AGREEMENTS
FUTURES AND OPTIONS TRANSACTIONS 2 8
LENDING OF PORTFOLIO SECURITIES
FUTURES CONTRACTS 2 8
PORTFOLIO TURNOVER
"MARGIN" IN FUTURES TRANSACTIONS 2 8
PENNSYLVANIA INVESTMENT RISKS
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS 28
STOCK INDEX OPTIONS 3
INVESTMENT LIMITATIONS 9
CALL OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES
CONTRACTS 3
PURCHASING PUT AND CALL OPTIONS ON PORTFOLIO
SECURITIES 3
WRITING COVERED PUT AND CALL OPTIONS ON PORTFOLIO
SECURITIES 3
OVER-THE-COUNTER OPTIONS 4
PENNSYLVANIA MUNICIPAL SECURITIES 4
PARTICIPATION INTERESTS 4
VARIABLE RATE MUNICIPAL SECURITIES 4
MUNICIPAL LEASES 4
WEIGHTED AVERAGE PORTFOLIO MATURITY 5
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS") 5
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS") 5
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS")
6
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES 6
COURT STREET FUNDS, INC. MANAGEMENT
THE FUNDS' TAX STATUS 17
COURT STREET FUNDS MANAGEMENT 12
SHAREHOLDERS' TAX STATUS 17
TOTAL RETURN 18
OFFICERS AND BOARD MEMBERS12
FUND OWNERSHIP 13
YIELD 18
DIRECTORS COMPENSATION-COURT STREET FUNDS, INC 13
TAX-EQUIVALENT YIELD 18
TRUSTEES COMPENSATION-COURT STREET FUNDS 13
TRUSTEE LIABILITY 13
TAX-EQUIVALENCY TABLE 18
INVESTMENT ADVISORY SERVICES 14
PERFORMANCE COMPARISONS 19
ADVISER TO THE FUNDS 14
APPENDIX 21
ADVISORY FEES 14
ADMINISTRATIVE SERVICES 14
BROKERAGE TRANSACTIONS 14
PURCHASING SHARES 15
DISTRIBUTION PLAN 15
ADMINISTRATIVE ARRANGEMENTS 15
CONVERSION TO FEDERAL FUNDS 15
DETERMINING NET ASSET VALUE 16
DETERMINING MARKET VALUE OF SECURITIES 16
VALUING MUNICIPAL BONDS 16
USE OF AMORTIZED COST 16
EXCHANGE PRIVILEGE 16
REDEEMING SHARES 16
REDEMPTION IN KIND 17
TAX STATUS 17
GENERAL INFORMATION ABOUT THE FUNDS
Court Street Group of Funds consists of the four investment portfolios contained
in both Court Street Funds and Court Street Funds, Inc. Court Street Funds, Inc.
was incorporated under the laws of the State of Maryland on , 1995.
----------
Court Street Funds was established as a Massachusetts business trust under a
Declaration of Trust dated , 1995.
---------
As of the date of this Combined Statement of Additional Information, Court
Street Funds, Inc. consists of three separate portfolios of securities which are
as follows: Court Street Equity Fund ("Equity Fund"), Court Street Short-Term
Bond Fund ("Short-Term Bond Fund"), and Court Street Intermediate U.S.
Government Bond Fund ("Intermediate U.S. Government Bond Fund"). Court Street
Funds consists of the following portfolio of securities which is as follows:
Court Street Pennsylvania Intermediate Municipal Bond Fund ("Pennsylvania
Intermediate Municipal Bond Fund").
INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS
The combined prospectus discusses the objective of each Fund and the policies
employed to achieve those objectives. The following discussion supplements the
description of the Funds' investment policies in the combined prospectus.
The Funds' respective investment objectives cannot be changed without the
approval of that Fund's shareholders. Unless otherwise indicated, the
investment policies described below may be changed by the Board of Trustees or
the Board of Directors (hereinafter referred to as "Board Members") without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
CONVERTIBLE SECURITIES
The Equity Fund may invest in convertible securities. Convertible bonds and
convertible preferred stocks are fixed income securities that 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, 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 assets of the corporation prior to the holders of common stock in the
case of liquidation. However, convertible securities are generally subordinated
to similar nonconvertible securities of the same company. 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.
The 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,
the Fund will hold or trade the convertible securities. In selecting
convertible securities for the 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.
WARRANTS
The Equity Fund may invest in warrants. Warrants provide an option to purchase
common stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than a year to twenty years or may be
perpetual. However, most warrants have expiration dates after which they are
worthless. In addition, if the market price of the common stock does not exceed
the warrant's exercise price during the life of the warrant, the warrant will
expire as worthless. Warrants have no voting rights, pay no dividends, and have
no rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
underlying common stock. The Fund will not invest more than 5% of its net
assets in warrants. No more than 2% of the Fund's net assets, to be included
within the overall 5% limit on investments in warrants, may be warrants which
are not listed on the New York Stock Exchange or the American Stock Exchange.
Warrants acquired in units or attached to securities may be deemed to be without
value for purposes of this policy.
FUTURES AND OPTIONS TRANSACTIONS
The Equity Fund may engage in futures and options transactions as described
below. As a means of reducing fluctuations in the net asset value of shares of
the Fund, the Fund may attempt to hedge all or a portion of its portfolio by
buying and selling financial futures contracts, buying put and call options on
portfolio securities and put options on financial futures contracts, and writing
call options on futures contracts. The Fund may also write covered call options
on its portfolio securities and covered put options to attempt to increase its
current income. The Fund will maintain its positions in securities, option
rights, and segregated cash subject to puts and calls until the options are
exercised, closed, or have expired. An option position on financial futures
contracts may be closed out over-the-counter or on a nationally recognized
exchange which provides a secondary market for options of the same series.
FUTURES CONTRACTS
The Equity Fund may purchase and sell financial futures contracts to hedge
against the effects of changes in the value of portfolio securities due to
anticipated changes in interest rates and market conditions without necessarily
buying or selling the securities. The Fund also may purchase and sell stock
index futures to hedge against changes in prices. The Fund will not engage in
futures transactions for speculative purposes.
A futures contract is a firm commitment by two parties: the seller who agrees to
make delivery of the specific type of security called for in the contract
("going short") and the buyer who agrees to take delivery of the security
("going long") at a certain time in the future. For example, in the fixed income
securities market, prices move inversely to interest rates. A rise in rates
means a drop in price. Conversely, a drop in rates means a rise in price. In
order to hedge its holdings of fixed income securities against a rise in market
interest rates, the Fund could enter into contracts to deliver securities at a
predetermined price (i.e., "go short") to protect itself against the possibility
that the prices of its fixed income securities may decline during the Fund's
anticipated holding period. The Fund would "go long" (agree to purchase
securities in the future at a predetermined price) to hedge against a decline in
market interest rates.
Stock index futures contracts are based on indices that reflect the market value
of common stock of the firms included in the indices. An index futures contract
is an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the differences between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Equity Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather, the Fund
is required to deposit an amount of "initial margin" in cash or U.S. Treasury
bills with its custodian (or the broker, if legally permitted). The nature of
initial margin in futures transactions is different from that of margin in
securities transactions in that initial margin in futures transactions does not
involve the borrowing of funds by the Fund to finance the transactions. 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.
A futures contract held by the Fund is valued daily at the official settlement
price of the exchange on which it is traded. Each day the Fund pays or receives
cash, called "variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to market." Variation margin
does not represent a borrowing or loan by the Fund but is instead settlement
between the Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the Fund will
mark to market its open futures positions.
The Fund is also required to deposit and maintain margin when it writes call
options on futures contracts.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Equity Fund may purchase listed put options on financial futures contracts
to protect portfolio securities against decreases in value resulting from market
factors, such as an anticipated increase in interest rates. Unlike entering
directly into a futures contract, which requires the purchaser to buy a
financial instrument on a set date at a specified price, the purchase of a put
option on a futures contract entitles (but does not obligate) its purchaser to
decide on or before a future date whether to assume a short position at the
specified price.
Generally, if the hedged portfolio securities decrease in value during the term
of an option, the related futures contracts will also decrease in value and the
option will increase in value. In such an event, the Fund will normally close
out its option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be large
enough to offset both the premium paid by the Fund for the original option plus
the decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the position.
To do so, it would simultaneously enter into a futures contract of the type
underlying the option (for a price less than the strike price of the option) and
exercise the option. The Fund would then deliver the futures contract in return
for payment of the strike price. If the Fund neither closes out nor exercises an
option, the option will expire on the date provided in the option contract, and
only the premium paid for the contract will be lost.
STOCK INDEX OPTIONS
The Equity Fund may purchase put options on stock indices listed on national
securities exchanges or traded in the over-the-counter market. A stock index
fluctuates with changes in the market values of the stocks included in the
index.
The effectiveness of purchasing stock index options will depend upon the extent
to which price movements in the Fund's portfolio 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 will realize a gain or loss from the purchase of options on an
index depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indices, 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 indices will be subject to the
ability of the Adviser to predict correctly movements in the directions 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.
CALL OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS
In addition to purchasing put options on futures, the Equity Fund may write
listed and over-the-counter call options on financial and stock index futures
contracts (including cash-settled stock index options) to hedge its portfolio
against an increase in market interest rates or a decrease in stock prices. When
the Fund writes a call option on a futures contract, it is undertaking the
obligation of assuming a short futures position (selling a futures contract) at
the fixed strike price at any time during the life of the option if the option
is exercised. As stock prices fall or market interest rates rise, causing the
prices of futures to go down, the Fund's obligation under a call option on a
future (to sell a futures contract) costs less to fulfill, causing the value of
the Fund's call option position to increase.
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that the
Fund keeps the premium received for the option. This premium can substantially
offset the drop in value of the Fund's portfolio securities.
Prior to the expiration of a call written by the Fund, or exercise of it by the
buyer, the Fund may close out the option by buying an identical option. If the
hedge is successful, the cost of the second option will be less than the premium
received by the Fund for the initial option. The net premium income of the Fund
will then substantially offset the decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it has sold or
call options it has written on futures contracts if, in the aggregate, the value
of the open positions (marked to market) exceeds the current market value of its
securities portfolio plus or minus the unrealized gain or loss on those open
positions, adjusted for the correlation of volatility between the hedged
securities and the futures contracts. If this limitation is exceeded at any
time, the Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
PURCHASING PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES
The Equity Fund may purchase put and call options on portfolio securities to
protect against price movements in particular securities in its portfolio. A put
option gives the 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. A call option gives the Fund, in return for a premium, the right to buy
the underlying securities from the seller.
WRITING COVERED PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES
The Equity Fund may also write covered put and call options to generate income
and thereby protect against price movements in particular securities in the
Fund's portfolio. As the writer of a call option, the Fund has the obligation
upon exercise of the option during the option period to deliver the underlying
security upon payment of the exercise price. As the writer of a put option, the
Fund has the obligation to purchase a security from the purchaser of the option
upon the exercise of the option.
The Fund may only write call options either on securities held in its portfolio
or on securities which it has the right to obtain without payment of further
consideration (or has segregated cash in the amount of any additional
consideration). In the case of put options, the Fund will segregate cash or U.S.
Treasury obligations with a value equal to or greater than the exercise price of
the underlying securities.
OVER-THE-COUNTER OPTIONS
The Equity Fund may purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the options
when options on the portfolio securities held by the Fund are not traded on an
exchange.
PENNSYLVANIA MUNICIPAL SECURITIES
The Pennsylvania Intermediate Municipal Bond Fund may invest in
Pennsylvania municipal securities which have the characteristics set forth
in the prospectus.
A Pennsylvania municipal security will be determined by the Fund's adviser
to meet the quality standards established by the Board Members if it is of
comparable quality to municipal securities within the Fund's rating
requirements. The Board Members consider the creditworthiness of the
issuer of a municipal security, the issuer of a participation interest if
the Fund has the right to demand payment from the issuer of the interest,
or the guarantor of payment by either of those issuers. The Fund is not
required to sell a municipal security if the security's rating is reduced
below the required minimum subsequent to its purchase by the Fund. The
investment adviser considers this event, however, in its determination of
whether the Fund should continue to hold the security in its portfolio. If
Moody's Investors Service, Inc., Standard & Poor's Ratings Group or Fitch
Investors Service, Inc. ratings change because of changes in those
organizations or in their rating systems, the Fund will try to use
comparable ratings as standards in accordance with the investment policies
described in the Fund's prospectus.
Examples of Pennsylvania municipal securities are:
o municipal notes and municipal commercial paper;
o serial bonds sold with differing maturity dates;
o tax anticipation notes sold to finance working capital needs of
municipalities in anticipation of receiving taxes at a later date;
o bond anticipation notes sold prior to the issuance of longer-term bonds;
o pre-refunded municipal bonds; and
o general obligation bonds secured by a municipality pledge of taxation.
PARTICIPATION INTERESTS
The Pennsylvania Intermediate Municipal Bond Fund may invest in participation
interests. The financial institutions from which the Fund purchases
participation interests frequently provide or secure from other financial
institutions irrevocable letters of credit or guarantees and give the Fund the
right to demand payment of the principal amounts of the participation interests
plus accrued interest on short notice (usually within seven days).
VARIABLE RATE MUNICIPAL SECURITIES
The Pennsylvania Intermediate Municipal Bond Fund may invest in variable rate
municipal securities. Variable interest rates generally reduce changes in the
market value of municipal securities from their original purchase prices.
Accordingly, as interest rates decrease or increase, the potential for capital
appreciation or depreciation is less for variable interest rate municipal
securities than for fixed income obligations. Many municipal securities with
variable interest rates purchased by the Fund are subject to repayment of
principal (usually within seven days) on the Fund's demand. The terms of these
variable rate demand instruments require payment of principal and accrued
interest from the issuer of the municipal obligations, the issuer of the
participation interests, or a guarantor of either issuer.
MUNICIPAL LEASES
The Pennsylvania Intermediate Municipal Bond Fund may purchase municipal
securities in the form of participation interests which represent undivided
proportional interests in lease payments by a governmental or non-profit entity.
The lease payments and other rights under the lease provide for and secure the
payments on the certificates. Lease obligations may be limited by municipal
charter or the nature of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the entity does not
appropriate funds for future lease payments, the entity cannot be compelled to
make such payments. Furthermore, a lease may provide that the certificate
trustee cannot accelerate lease obligations upon default. The trustee would
only be able to enforce lease payments as they became due. In the event of
default or failure of appropriation, it is unlikely that the trustee would be
able to obtain an acceptable substitute source of payment.
In determining the liquidity of municipal lease securities, the Fund's
investment adviser, under the authority delegated by the Board Members, will
base its determination on the following factors: (a) whether the lease can be
terminated by the lessee: (b) the potential recovery, if any, from a sale of the
leased property upon termination of the lease; (c) the lessee's general credit
strength (e.g., its debt, administrative, economic, and financial
characteristics and prospects); (d) the likelihood that the lessee will
discontinue appropriating funding for the leased property because the property
is no longer deemed essential to its operations (e.g., the potential for an
"event of non-appropriation"); and (e) any credit enhancement or legal recourse
provided upon an event of non-appropriation or other termination of the lease.
WEIGHTED AVERAGE PORTFOLIO MATURITY
The Pennsylvania Intermediate Municipal Bond Fund, the Short-Term Bond Fund, and
the Intermediate U.S. Government Bond Fund will determine their dollar-weighted
average portfolio maturity by assigning a "weight" to each portfolio security
based upon the pro rata market value of such portfolio security in comparison to
the market value of the entire portfolio. The remaining maturity of each
portfolio security is then multiplied by its weight, and the results are added
together to determine the weighted average maturity of the portfolio. For
purposes of calculating its dollar-weighted average portfolio maturity, each
Fund will treat variable and floating rate instruments as having a remaining
maturity commensurate with the period remaining until the next scheduled
adjustment to the instrument's interest rate.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS")
The ARMS in which the Equity Fund, the Short-Term Bond Fund, and the
Intermediate U.S. Government Bond Fund invests will be issued by Government
National Mortgage Association, Federal National Mortgage Association, and
Federal Home Loan Mortgage Corporation. Unlike conventional bonds, ARMS pay back
principal over the life of the ARMS rather than at maturity. Thus, a holder of
the ARMS, such as a Fund, would receive monthly scheduled payments of principal
and interest, and may receive unscheduled principal payments representing
prepayments on the underlying mortgages. At the time that a holder of the ARMS
reinvests the payments and any unscheduled prepayments of principal that it
receives, the holder may receive a rate of interest which is actually lower than
the rate of interest paid on the existing ARMS. As a consequence, ARMS may be a
less effective means of "locking in" long-term interest rates than other types
of U.S. government securities.
Like other U.S. government securities, the market value of ARMS will generally
vary inversely with changes in market interest rates. Thus, the market value of
ARMS generally declines when interest rates rise and generally rises when
interest rates decline.
While ARMS generally entail less risk of a decline during periods of rapidly
rising rates, ARMS may also have less potential for capital appreciation than
other similar investments (e.g., investments with comparable maturities)
because, as interest rates decline, the likelihood increases that mortgages will
be prepaid. Furthermore, if ARMS are purchased at a premium, mortgage
foreclosures and unscheduled principal payments may result in some loss of a
holder's principal investment to the extent of the premium paid. Conversely, if
ARMS are purchased at a discount, both a scheduled payment of principal and an
unscheduled prepayment of principal would increase current and total returns and
would accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")
The following example illustrates how mortgage cash flows are prioritized in the
case of CMOs. Most of the CMOs in which the Equity Fund, the Short-Term Bond
Fund, and the Intermediate U.S. Government Bond Fund invests use the same basic
structure:
(1) several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of securities. The
first three (A, B, and C bonds) pay interest at their stated rates beginning
with the issue date, and the final class (Z bond) typically receives any excess
income from the underlying investments after payments are made to the other
classes and receives no principal or interest payments until the shorter
maturity classes have been retired, but then receives all remaining principal
and interest payments;
(2) The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities; and
(3) The classes of securities are retired sequentially. All principal payments
are directed first to the shortest-maturity class (or A bond). When those
securities are completely retired, all principal payments are then directed to
the next shortest-maturity security (or B bond). This process continues until
all of the classes have been paid off.
Because the cash flow is distributed sequentially instead of pro rata, as with
pass-through securities, the cash flows and average lives of CMOs are more
predictable, and there is a period of time during which the investors in the
longer-maturity classes receive no principal paydowns. The interest portion of
these payments is distributed by a Fund as income, and the capital portion is
reinvested.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS")
The Equity Fund, the Short-Term Bond Fund, and the Intermediate U.S. Government
Bond Fund may invest in REMICs. REMICs are offerings of multiple class
mortgage-backed securities which qualify and elect treatment as such under
provisions of the Internal Revenue Code. Issuers of REMICs may take several
forms, such as trusts, partnerships, corporations, associations, or segregated
pools of mortgages. Once REMIC status is elected and obtained, the entity is not
subject to federal income taxation. Instead, income is passed through the entity
and is taxed to the person or persons who hold interests in the REMIC. A REMIC
interest must consist of one or more classes of "regular interests," some of
which may offer adjustable rates of interest, and a single class of "residual
interests." To qualify as a REMIC, substantially all the assets of the entity
must be in assets directly or indirectly secured principally by real property.
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES
The Equity Fund, the Short-Term Bond Fund, and the Intermediate U.S. Government
Bond Fund may invest in privately issued mortgage-related securities. Privately
issued mortgage-related securities generally represent an ownership interest in
federal agency mortgage pass-through securities such as those issued by
Government National Mortgage Association as well as those issued by non-
government related entities. The terms and characteristics of the mortgage
instruments may vary among pass-through mortgage loan pools. The market for such
mortgage-related securities has expanded considerably since its inception. The
size of the primary issuance market and the active participation in the
secondary market by securities dealers and other investors makes government-
related and non-government related pools highly liquid.
RESETS OF INTEREST
The interest rates paid on the ARMS, CMOs, and REMICs in which the Equity Fund,
the Short-Term Bond Fund, and the Intermediate U.S. Government Bond Fund invests
generally are readjusted at intervals of one year or less to an increment over
some predetermined interest rate index. There are two main categories of
indices: those based on U.S. Treasury securities and those derived from a
calculated measure, such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year and five-year
constant maturity Treasury Note rates, the three-month Treasury Bill rate, the
180-day Treasury Bill rate, rates on longer-term Treasury securities, the
National Median Cost of Funds, the one-month or three-month London Interbank
Offered Rate (LIBOR), the prime rate of a specific bank, or commercial paper
rates. Some indices, such as the one-year constant maturity Treasury Note rate,
closely mirror changes in market interest rate levels.
To the extent that the adjusted interest rate on the mortgage security reflects
current market rates, the market value of an adjustable rate mortgage security
will tend to be less sensitive to interest rate changes than a fixed rate debt
security of the same stated maturity. Hence, ARMS which use indices that lag
changes in market rates should experience greater price volatility than
adjustable rate mortgage securities that closely mirror the market.
CAPS AND FLOORS
The underlying mortgages which collateralize the ARMS, CMOs, and REMICs in which
the Equity Fund, the Short-Term Bond Fund, and the Intermediate U.S. Government
Bond Fund invests will frequently have caps and floors which limit the maximum
amount by which the loan rate to the residential borrower may change up or down:
(1) per reset or adjustment interval, and (2) over the life of the loan. Some
residential mortgage loans restrict periodic adjustments by limiting changes in
the borrower's monthly principal and interest payments rather than limiting
interest rate changes. These payment caps may result in negative amortization.
The value of mortgage securities in which a Fund invests may be affected if
market interest rates rise or fall faster and farther than the allowable caps or
floors on the underlying residential mortgage loans. Additionally, even though
the interest rates on the underlying residential mortgages are adjustable,
amortization and prepayments may occur, thereby causing the effective maturities
of the mortgage securities in which a Fund invests to be shorter than the
maturities stated in the underlying mortgages.
FOREIGN BANK INSTRUMENTS
The Equity Fund, the Short-Term Bond Fund, and the Intermediate U.S. Government
Bond Fund may invest in foreign bank instruments. Eurodollar Certificates of
Deposit ("ECDs"), Eurodollar Time Deposits ("ETDs"), Yankee Certificates of
Deposit ("Yankee CDs"), and Europaper are subject to somewhat different risks
than domestic obligations of domestic issuers. Examples of these risks include
international, economic and political developments, foreign governmental
restrictions that may adversely affect the payment of principal or interest,
foreign withholdings or other taxes on interest income, difficulties in
obtaining or enforcing a judgment against the issuing bank, and the possible
impact of interruptions of the flow of international currency transactions.
Different risks may also exist for ECDs, ETDs, and Yankee CDs because the banks
issuing these instruments, or their domestic or foreign branches, are not
necessarily subject to the same regulatory requirements that apply to domestic
banks, such as reserve requirements, loan requirements, loan limitations,
examinations, accounting, auditing, and recordkeeping and the public
availability of information. These factors will be carefully considered by a
Fund's adviser in selecting investments for a Fund.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Funds may engage in when-issued and delayed delivery transactions. These
transactions are made to secure what is considered to be an advantageous price
or yield for a Fund. No fees or other expenses, other than normal transaction
costs, are incurred. However, liquid assets of a Fund sufficient to make
payment for the securities to be purchased are segregated on a Fund`s records at
the trade date. These assets are marked to market daily and are maintained
until the transaction has been settled. The Funds do not intend to engage in
when-issued and delayed delivery transactions to an extent that would cause the
segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Funds require their custodian to take possession of the securities subject
to repurchase agreements, and these securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities from a
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by a Fund might be delayed
pending court action. The Funds believe that under the regular procedures
normally in effect for custody of a Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
a Fund and allow retention or disposition of such securities. A Fund will only
enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by a Fund's adviser to be
creditworthy pursuant to guidelines established by the Board Members.
RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933 and
treats such commercial paper as liquid. Section 4(2) commercial paper is
restricted as to disposition under federal securities law and is generally sold
to institutional investors, such as a Fund, 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 ability of the Board Members to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange Commission
("SEC") staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive safe-harbor
for certain secondary market transactions involving resales of otherwise
restricted securities to qualified institutional buyers without registration of
securities under the Securities Act of 1933. The Rule was expected to further
enhance the liquidity of the secondary market for securities eligible for resale
under the Rule. The Funds believe that the staff of the SEC has left the
question of determining the liquidity of all restricted securities to the Board
Members. The Board Members may consider the following criteria in determining
the liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
REVERSE REPURCHASE AGREEMENTS
Each Fund may enter into reverse repurchase agreements. These transactions are
similar to borrowing cash. In a reverse repurchase agreement, a Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable a Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund in a
dollar amount sufficient to make payment for the obligations to be purchased are
segregated at the trade date. These securities are marked to market daily and
are maintained until the transaction is settled.
LENDING OF PORTFOLIO SECURITIES
The collateral received when a Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays a Fund any dividends or
interest paid on such securities. Loans are subject to termination at the
option of a Fund or the borrower. A Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker.
A Fund would not have the right to vote securities on loan, but would terminate
the loan and regain the right to vote if that were considered important with
respect to the investment.
PORTFOLIO TURNOVER
The Funds will not attempt to set or meet portfolio turnover rates since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Funds' investment objectives. It is not anticipated that the portfolio
trading engaged in by the Equity Fund, the Pennsylvania Intermediate Municipal
Bond Fund, the Short-Term Bond Fund, and the Intermediate U.S. Government Bond
Fund will result in its annual rates of portfolio turnover exceeding 75%, 50%,
90%, and 90%, respectively.
PENNSYLVANIA INVESTMENT RISKS
The Pennsylvania Intermediate Municipal Bond Fund invests in obligations of the
Commonwealth of Pennsylvania (the "State") and obligations of its political
subdivisions, agencies, or instrumentalities which results in the Fund's
performance being subject to risks associated with the overall conditions
present within the State. The following information is a general summary of the
State's financial condition and a brief summary of the prevailing economic
conditions. This information is based on official statements relating to
securities issued by the State that are believed to be reliable but should not
be considered as a complete description of all relevant information.
Fiscal operations improved gradually since the $1.1 billion deficit in 1991.
The deficit was nearly eliminated in 1992 with the addition of increased taxes.
During fiscal 1993, Pennsylvania focused on expenditure reductions while
revenues were stabilized and reserves were increased by $24 million. Fiscal
1994 saw further improvement in revenues and ended with a surplus of $336
million. Revenues are expected to increase slightly in fiscal 1995, but the
State has budgeted an increase in appropriations which will decrease the Budget
Stabilization Fund to $4.1 million due to the projected operating deficit of
$297 million. Also, it should be noted that due to the length and severity of
the 1991 recession, coupled with the structural changes in the industrial
landscape, several municipalities have undergone severe financial stress and are
still vulnerable to further economic cycles.
Historically, the State's economy was largely composed of heavy industry that
was concentrated in steel production, coal and railroads. The reliance on these
industries, especially the steel sector, has declined and the economy has
diversified into services and trade sectors. Presently, services and trade
compose over 50% of the economy. Unemployment in the State over the past two
years has surpassed the national average and population growth, as in many of
the industrial states, has been motionless.
The debt ratings further demonstrate the overall condition of the State. The
State maintains an A1 rating by Moody's that has been in effect since 1986.
Standard & Poor's Ratings Group rates the State AA- since 1985.
The Fund's concentration in securities issued by the State and its political
subdivisions provides a greater level of risk than a fund whose assets are
diversified across numerous states and municipal issuers. The ability of the
State or its municipalities to meet their obligations will depend on the
availability of tax and other revenues; economic, political, and demographic
conditions within the State; and the underlying fiscal condition of the State,
its counties, and its municipalities.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Funds will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of portfolio securities. With respect to
the Equity Fund, the deposit or payment by the Fund of initial or variation
margin in connection with futures contracts or related options transactions
is not considered the purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Funds will not issue senior securities, except that each Fund may
borrow money directly or through reverse repurchase agreements in amounts
up to one-third of the value of its total assets, including the amount
borrowed and except to the extent that the Equity Fund may enter into
futures contracts and options. The Funds will not borrow money or engage
in reverse repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate management
of its portfolio by enabling a Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. A Fund will not purchase any securities while any
borrowings in excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Funds will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. For purposes of this limitation, the
following will not be deemed to be pledges (where applicable): margin
deposits for the purchase and sale of financial futures contracts and
related options and segregation or collateral arrangements made in
connection with options activities or the purchase of securities on a when-
issued basis.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total assets,
each Fund (with the exception of the Pennsylvania Intermediate Municipal
Bond Fund) will not purchase securities issued by any one issuer (other
than cash, cash items, or securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities) if, as a result, more than 5% of the
value of its total assets would be invested in the securities of that
issuer, and will not acquire more than 10% of the outstanding voting
securities of any one issuer.
UNDERWRITING
The Funds will not underwrite any issue of securities, except as a Fund may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
INVESTING IN REAL ESTATE
The Funds will not purchase or sell real estate, including limited
partnership interests, although the Funds may invest in the securities of
issuers whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Funds will not purchase or sell commodities, commodity contracts, or
commodity futures contracts except to the extent that the Equity Fund may
engage in transactions involving financial futures contracts or options on
financial futures contracts.
LENDING CASH OR SECURITIES
The Funds will not lend any of its assets, except portfolio securities.
This shall not prevent a Fund from purchasing or holding U.S. government
obligations, money market instruments, variable rate demand notes, bonds,
debentures, notes, certificates of indebtedness, or other debt securities,
entering into repurchase agreements, or engaging in other transactions
where permitted by a Fund's investment objective, policies, and limitations
or Declaration of Trust or Articles of Incorporation, as applicable.
The Pennsylvania Intermediate Municipal Bond Fund may, however, acquire
publicly or non-publicly issued municipal securities or temporary
investments or enter into repurchase agreements in accordance with its
investment objective, policies, and limitations or its Articles of
Incorporation.
CONCENTRATION OF INVESTMENTS
The Equity Fund, the Short-Term Bond Fund, and the Intermediate U.S.
Government Bond Fund will not invest 25% or more of the value of their
respective total assets in any one industry (other than securities issued
by the U.S. government, its agencies or instrumentalities).
The Pennsylvania Intermediate Municipal Bond Fund will not purchase
securities if, as a result of such purchase, 25% or more of the value of
its total assets would be invested in any one industry or in industrial
development bonds or other securities, the interest upon which is paid from
revenues of similar types of projects. However, the Fund may invest as
temporary investments more than 25% of the value of its assets in cash or
cash items.
The above investment limitations cannot be changed with respect to a Fund
without shareholder approval of a majority of that Fund's shares. The following
investment limitations may be changed by the Board Members without shareholder
approval. Shareholders will be notified before any material change in these
limitations becomes effective.
INVESTING IN NEW ISSUERS
The Equity Fund, the Short-Term Bond Fund, and the Intermediate U.S.
Government Bond Fund will not invest more than 5% of the value of their
respective total assets in securities of issuers with records of less than
three years of continuous operations, including the operation of any
predecessor.
The Pennsylvania Intermediate Municipal Bond Fund will not invest more than
5% of the value of its total assets in industrial development bonds where
the principal and interest are the responsibility of companies (or
guarantors, where applicable) with less than three years of continuous
operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND BOARD OF
DIRECTORS OF THE COURT STREET FUNDS, INC.
A Fund will not purchase or retain the securities of any issuer if the
officers and Board of Directors of Court Street Funds, Inc. or its
investment adviser, owning individually more than 1/2 of 1% of the issuer's
securities, together own more than 5% of the issuer's securities.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND BOARD OF
TRUSTEES OF THE COURT STREET FUNDS
A Fund will not purchase or retain the securities of any issuer if the
officers and Board of Trustees of Court Street Funds or its investment
adviser, owning individually more than 1/2 of 1% of the issuer's
securities, together own more than 5% of the issuer's securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Funds will limit their respective investment in other investment
companies to no more than 3% of the total outstanding voting stock of any
investment company, invest no more than 5% of its total assets in any one
investment company, and invest no more than 10% of its total assets in
investment companies in general. The Funds will purchase securities of
investment companies only in open-market transactions involving only
customary broker's commissions. However, these limitations are not
applicable if the securities are acquired in a merger, consolidation, or
acquisition of assets.
INVESTING IN RESTRICTED SECURITIES
The Funds will not invest more than 10% (5% for the Equity Fund) of the
value of its total assets in securities subject to restrictions on resale
under the Securities Act of 1933, except for commercial paper issued under
Section 4(2) of the Securities Act of 1933 and certain other restricted
securities which meet the criteria for liquidity as established by the
Board Members.
INVESTING IN ILLIQUID SECURITIES
The Funds will not invest more than 15% of the value of their net assets in
illiquid securities, including, (where applicable), repurchase agreements
providing for settlement in more than seven days after notice, over-the-
counter options, non-negotiable fixed time deposits with maturities over
seven days, and certain restricted securities not determined by the Board
Members to be liquid.
INVESTING IN MINERALS
A Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although they may invest in
the securities of issuers which invest in or sponsor such programs.
PURCHASING SECURITIES TO EXERCISE CONTROL
A Fund will not purchase securities of a company for the purpose of
exercising control or management.
INVESTING IN WARRANTS
The Equity Fund will not invest more than 5% of its net assets in warrants.
No more than 2% of the Fund's net assets, to be included within the overall
5% limit on investments in warrants, may be warrants which are not listed
on the New York Stock Exchange or the American Stock Exchange.
ARBITRAGE TRANSACTIONS
The Equity Fund will not enter into transactions for the purpose of
engaging in arbitrage.
INVESTING IN PUT OPTIONS
The Equity Fund will not purchase put options on securities other than put
options on stock indices, unless the securities are held in the Fund's
portfolio and not more than 5% of the value of the Fund's total assets
would be invested in premiums on open put option positions.
WRITING COVERED CALL OPTIONS
The Equity Fund will not write call options on securities unless the
securities are held in the Fund's portfolio or unless the Fund is entitled
to them in deliverable form without further payment or after segregating
cash in the amount of any further payment.
Except with respect to the Funds' policy of borrowing money, if a percentage
limitation is adhered to at the time of investment, a later increase or decrease
in percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
The Funds do not expect to borrow money or pledge securities in excess of 5% of
the value of its total assets in the coming fiscal year.
For purposes of its policies and limitations, the Funds consider certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan association having capital, surplus, and undivided profits
in excess of $100,000,000 at the time of investment to be "cash items."
To comply with registration requirements in certain states, the Equity Fund
(1) will limit the aggregate value of the assets underlying covered call options
or put options written by the Fund to not more than 25% of its net assets,
(2) will limit the premiums paid for options purchased by the Fund to 5% of its
net assets, and (3) will limit the margin deposits on futures contracts entered
into by the Fund to 5% of its net assets. (If state requirements change, these
restrictions may be revised without shareholder notification.)
COURT STREET FUNDS, INC. MANAGEMENT
COURT STREET FUNDS MANAGEMENT
OFFICERS AND BOARD MEMBERS
Officers and Directors/Trustees are listed with their addresses, birthdates,
present positions with Court Street Funds, Inc. and Court Street Funds and
principal occupations.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: October 22, 1930
Chairman, President, Treasurer, and Director of Court Street Funds, Inc.
Chairman, President, Treasurer, and Trustee of Court Street Funds
Vice President, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Services Company; Chairman, Treasurer, and Trustee, Federated Administrative
Services; Trustee or Director of certain investment companies distributed,
organized, or advised by Federated Investors and its affiliates (Federated
Funds); Executive Vice President, President, or Trustee of the Federated Funds.
George D. McKeon
107 Marlin Drive
Duck, North Carolina
Birthdate:
----------------
Director of Court Street Funds, Inc.
Trustee of Court Street Funds
Formerly, Head of Trust and Financial Services, Dauphin Deposit Bank and Trust
Company (retired February 1990).
Gary Mozenter
1180 Gantt Drive
Huntingdon Valley, Pennsylvania
Birthdate:
----------------
Director of Court Street Funds, Inc.
Trustee of Court Street Funds
Formerly, Vice Chairman and Partner, Coopers & Lybrand, Philadelphia office
(retired 1994).
Richard Seidel
770 Hedges Lane
Strafford, Pennsylvania
Birthdate:
----------------
Director of Court Street Funds, Inc.
Trustee of Court Street Funds
President and Director of Girard Partners, Ltd. (1994 to present); President and
Director of The Fairfield Group, Inc. (1983-1993).
Jeffrey W. Sterling
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: February 5, 1947
Vice President and Assistant Treasurer of Court Street Funds, Inc. and Court
Street Funds
Vice President, Federated Administrative Services; Vice President and Assistant
Treasurer of some of the Federated Funds.
C. Grant Anderson
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: November 6, 1940
Secretary of Court Street Funds, Inc and Court Street Funds
Corporate Counsel, Federated Investors; Partner of Rogers and Wells, a New York
based law firm, from 1973 to June 1991.
* This Director/Trustee is deemed to be an "interested person" as defined in
the Investment Company Act of 1940, as amended.
FUND OWNERSHIP
Officers and Board Members own less than 1% of the outstanding shares of each
Fund.
DIRECTORS COMPENSATION--COURT STREET FUNDS, INC. (THE "CORPORATION")
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
THE CORPORATION THE CORPORATION*# FROM FUND COMPLEX +
Edward C. Gonzales
Chairman, President,
Treasurer, and Director $ $ for the Corporation and
----- -----
1 other investment company in the Fund Complex
George D. McKeon
Director $ $ for the Corporation and
----- -----
1 other investment company in the Fund Complex
Gary Mozenter
Director $ $ for the Corporation and
----- -----
1 other investment company in the Fund Complex
Richard Seidel
Director $ $ for the Corporation and
----- -----
1 other investment company in the Fund Complex
*Information is estimated for the period from [month/date/year], organization
date of the Corporation, to [fiscal year end].
#The aggregate compensation is provided for the Corporation which is comprised
of three portfolios.
+The information is provided for the upcoming calendar year.
TRUSTEES COMPENSATION--COURT STREET FUNDS (THE "TRUST")
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
THE TRUST THE TRUST*# FROM FUND COMPLEX +
Edward C. Gonzales
Chairman, President,
Treasurer, and Trustee $ $ for the Trust and
----- -----
1 other investment company in the Fund Complex
George D. McKeon
Trustee $ $ for the Trust and
----- -----
1 other investment company in the Fund Complex
Gary Mozenter
Trustee $ $ for the Trust and
----- -----
1 other investment company in the Fund Complex
Richard Seidel
Trustee $ $ for the Trust and
----- -----
1 other investment company in the Fund Complex
*Information is estimated for the period from [month/date/year], organization
date of the Trust, to [fiscal year end].
#The aggregate compensation is provided for the Trust which is comprised of one
portfolio.
+The information is provided for the upcoming calendar year.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Board Members will only be
liable for their own willful defaults. If reasonable care has been exercised in
the selection of officers, agents, employees, or investment advisers, a Trustee
shall not be liable for any neglect or wrongdoing of any such person. However,
they are not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUNDS
The Funds' investment adviser is Dauphin Deposit Bank and Trust Company
("Dauphin Deposit" or the "Adviser"). It is a wholly-owned subsidiary of
Dauphin Deposit Corporation.
The adviser shall not be liable to Court Street Funds, Inc., Court Street Funds,
a Fund, or any shareholder of any of the Funds for any losses that may be
sustained in the purchase, holding, or sale of any security, or for anything
done or omitted by it, except acts or omissions involving willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties imposed upon it
by its contract with the Funds.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If a Fund's normal operating expenses
(including the investment advisory fee, but not including brokerage
commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per
year of the first $30 million of average net assets, 2% per year of the
next $70 million of average net assets, and 1-1/2% per year of the
remaining average net assets, the Adviser will reimburse a Fund for its
expenses over the limitation.
If a Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the amount
of the excess, subject to an annual adjustment. If the expense limitation
is exceeded, the amount to be reimbursed by the Adviser will be limited, in
any single fiscal year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended or
rescinded in the future.
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Funds for a fee as described in the
prospectus.
Under the custodian agreement, Dauphin Deposit Bank and Trust Company holds each
Fund's portfolio securities and keeps all necessary records and documents
relating to its duties. Dauphin Deposit's fees for custody services are based
upon the market value of Fund securities held in custody plus certain securities
transaction charges.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Board Members.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Funds or to the
Adviser and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser exercises reasonable business judgment in selecting brokers who
offer brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services provided.
Research services provided by brokers and dealers may be used by the Adviser in
advising the Funds and other accounts. To the extent that receipt of these
services may supplant services for which the Adviser might otherwise have paid,
it would tend to reduce their expenses.
The Board Members have determined that portfolio transactions for the Equity
Fund may be executed through Hopper Soliday and other affiliated broker/dealers
if, in the judgment of Dauphin Deposit, the use of Hopper Soliday or an
affiliated broker is likely to result in prices and execution at least as
favorable as those of other qualified broker/dealers and if, in such
transactions, the affiliated broker/dealer charges the Equity Fund a rate
consistent with that charged to comparable unaffiliated customers in similar
transactions. Hopper Soliday will not participate in commissions from brokerage
given by the Equity Fund to other brokers or dealers. In addition, pursuant to
an exemption granted by the SEC, the Equity Fund may engage in transactions
involving certain money market instruments with Hopper Soliday or particular
affiliates acting as principal. Over-the-counter purchases and sales are
transacted directly with principal market makers except in those cases in which
better prices and executions may be obtained elsewhere.
Under rules adopted by the SEC, Hopper Soliday may not execute transactions for
the Equity Fund on the floor of any national securities exchange, but may effect
transactions for the Equity Fund by transmitting orders for execution, providing
for clearance and settlement, and arranging for the performance of those
functions by members of the exchange not associated with Hopper Soliday. Hopper
Soliday will be required to pay fees charged by those persons performing the
floor brokerage elements out of the brokerage compensation it receives from the
Equity Fund. The Equity Fund has been advised by Hopper Soliday that on most
transactions, the floor brokerage generally constitutes from between three-
quarters of a cent and one cent per share, which may be as high as 20% of the
total commissions paid.
PURCHASING SHARES
Except under certain circumstances described in the prospectus, shares of the
Funds are sold at their net asset value plus a sales charge, if any, on days the
New York Stock Exchange and the Federal Reserve Wire System are open for
business. The procedure for purchasing shares of the Funds is explained in the
prospectus under "Investing in the Funds."
DISTRIBUTION PLAN
With respect to the Funds, Court Street Funds, Inc. and Court Street Funds have
each adopted a Plan pursuant to Rule 12b-1 which was promulgated by the
Securities and Exchange Commission pursuant to the Investment Company Act of
1940, as amended (the "Plan"). Each Plan provides for payment of fees to the
distributor to finance any activity which is principally intended to result in
the sale of a Fund's shares subject to the Plan. Such activities may include
the advertising and marketing of shares of a Fund; preparing, printing, and
distributing prospectuses and sales literature to prospective shareholders,
brokers, or administrators; and implementing and operating each Plan. Pursuant
to each Plan, the distributor may pay fees to brokers and others for such
services.
The Board Members expect that the adoption of a Plan will assist a Fund in
selling a sufficient number of shares so as to allow a Fund to achieve economic
viability. It is also anticipated that an increase in the size of a Fund will
facilitate more efficient portfolio management and thereby assist a Fund in
seeking to achieve its investment objective.
ADMINISTRATIVE ARRANGEMENTS
The administrative services include, but are not limited to, providing office
space, equipment, telephone facilities, and various personnel, including
clerical, supervisory, and computer, as is necessary or beneficial to establish
and maintain shareholders' accounts and records, process purchase and redemption
transactions, process automatic investments of client account cash balances,
answer routine client inquiries regarding a Fund, assist clients in changing
dividend options, account designations, and addresses, and providing such other
services as a Fund may reasonably request.
CONVERSION TO FEDERAL FUNDS
It is the Funds' policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. Federated Services Company
acts as the shareholder's agent in depositing checks and converting them to
federal funds.
DETERMINING NET ASSET VALUE
The net asset value generally changes each day. The days on which the net asset
value is calculated by the Funds are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market or fair values of the Equity Fund, the Short-Term Bond Fund, and the
Intermediate U.S. Government Bond Fund's portfolio securities, other than
options, are determined as follows:
o for equity securities, according to the last sale price on a national
securities exchange, if applicable;
o in the absence of recorded sales for listed equity securities,
according to the mean between the last closing bid and asked prices;
o for unlisted equity securities, latest bid prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, or for short-
term obligations with remaining maturities of 60 days or less at the
time of purchase, at amortized cost; or
o for all other securities, at fair value as determined in good faith by
the Board Members.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Equity Fund will value futures contracts, options and put options on
financial futures at their market values established by the exchanges at the
close of options trading on such exchanges unless the Board Members determine in
good faith that another method of valuing option positions is necessary.
VALUING MUNICIPAL BONDS
With respect to the Pennsylvania Intermediate Municipal Bond Fund, the Board
Members use an independent pricing service to value municipal bonds. The
independent pricing service takes into consideration yield, stability, risk,
quality, coupon rate, maturity, type of issue, trading characteristics, special
circumstances of a security or trading market, and any other factors or market
data it considers relevant in determining valuations for normal institutional
size trading units of debt securities, and does not rely exclusively on quoted
prices.
USE OF AMORTIZED COST
With respect to the Pennsylvania Intermediate Municipal Bond Fund, the Board
Members have decided that the fair value of debt securities authorized to be
purchased by the Fund with remaining maturities of 60 days or less at the time
of purchase shall be their amortized cost value, unless the particular
circumstances of the security indicate otherwise. Under this method, portfolio
instruments and assets are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at current
market value. The Board Members periodically assess this method of valuation
and recommends changes where necessary to assure that the Fund's portfolio
instruments are valued at their fair value as determined in good faith by the
Board Members.
EXCHANGE PRIVILEGE
Shareholders of a Fund may exchange shares of that Fund for shares of other
Funds advised by Dauphin Deposit subject to certain conditions. Exchange
procedures are explained in the prospectus under "Exchange Privilege."
REDEEMING SHARES
Each Fund redeems shares at the next computed net asset value after a Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares." Redemption requests cannot be executed on
days on which the New York Stock Exchange is closed or on federal holidays when
wire transfers are restricted.
REDEMPTION IN KIND
Court Street Funds, Inc. and Court Street Funds have elected to be governed by
Rule 18f-1 of the Investment Company Act of 1940, under which the Funds are
obligated to redeem Shares for any one shareholder in cash only up to the lesser
of $250,000 or 1% of a Fund's net asset value during any 90-day period.
Any redemption beyond this amount will also be in cash unless the Board Members
determine that payments should be in kind. In such a case, a Fund will pay all
or a portion of the remainder of the redemption in portfolio instruments, valued
in the same way as a Fund determines net asset value. The portfolio instruments
will be selected in a manner that the Board Members deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
THE FUNDS' TAX STATUS
The Funds will pay no federal income tax because each Fund expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, each Fund must, among other
requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
With respect to the Equity Fund, the Short-Term Bond Fund, and the Intermediate
U.S. Government Bond Fund, shareholders are subject to federal income tax on
dividends and capital gains received as cash or additional shares. No portion
of any income dividend paid by a Fund is eligible for the dividends received
deduction available to corporations. These dividends, and any short-term
capital gains, are taxable as ordinary income.
With respect to the Pennsylvania Intermediate Municipal Bond Fund, no portion of
any income dividend paid by the Fund is eligible for the dividends received
deduction available to corporations.
CAPITAL GAINS
With respect to the Equity Fund, the Short-Term Bond Fund, and the
Intermediate U.S. Government Bond Fund, long-term capital gains distributed
to shareholders will be treated as long-term capital gains regardless of
how long shareholders have held shares.
With respect to the Pennsylvania Intermediate Municipal Bond Fund, capital
gains or losses may be realized by the Fund on the sale of portfolio
securities and as a result of discounts from par value on securities held
to maturity. Sales would generally be made because of:
othe availability of higher relative yields;
odifferentials in market values;
onew investment opportunities;
ochanges in creditworthiness of an issuer; or
oan attempt to preserve gains or limit losses.
Distributions of long-term capital gains are taxed as such, whether they
are taken in cash or reinvested, and regardless of the length of time the
shareholder has owned the shares.
TOTAL RETURN
The average annual total return for each Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the net asset value per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, less any applicable sales load, adjusted
over the period by any additional shares, assuming the monthly/quarterly
reinvestment of all dividends and distributions.
YIELD
The yield for each Fund is determined by dividing the net investment income per
share (as defined by the SEC) earned by each Fund over a thirty-day period by
the maximum offering price per share of each Fund on the last day of the period.
This value is then annualized using semi-annual compounding. This means that
the amount of income generated during the thirty-day period is assumed to be
generated each month over a twelve-month period and is reinvested every six
months. The yield does not necessarily reflect income actually earned by a Fund
because of certain adjustments required by the SEC and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in a Fund,
the performance will be reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD
The tax-equivalent yield for the Pennsylvania Intermediate Municipal Bond Fund
is calculated similarly to the yield, but is adjusted to reflect the taxable
yield that the Fund would have had to earn to equal its actual yield, assuming
the maximum effective federal tax rate for individuals, and also assuming that
income is 100% tax-exempt.
TAX-EQUIVALENCY TABLE
The Pennsylvania Intermediate Municipal Bond Fund may also use a tax-equivalency
table in advertising and sales literature. The interest earned by the municipal
bonds in the Fund's portfolio generally remains free from federal regular income
tax,* and is often free from state and local taxes as well. As the table below
indicates, a "tax-free" investment is an attractive choice for investors,
particularly in times of narrow spreads between "tax-free" and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1995
STATE OF PENNSYLVANIA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
17.80% 30.80% 33.80% 38.80% 42.40%
JOINT $1- $39,001- $94,251- $143,601- OVER
RETURN 39,000 94,250 143,600 256,500 256,500
SINGLE $1- $23,351- $56,551- $117,951- OVER
RETURN 23,350 56,550 117,950 256,500 256,500
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.82% 2.17% 2.27% 2.45% 2.60%
2.00% 2.43% 2.89% 3.02% 3.27% 3.47%
2.50% 3.04% 3.61% 3.78% 4.08% 4.34%
3.00% 3.65% 4.34% 4.53% 4.90% 5.21%
3.50% 4.26% 5.06% 5.29% 5.72% 6.08%
4.00% 4.87% 5.78% 6.04% 6.54% 6.94%
4.50% 5.47% 6.50% 6.80% 7.35% 7.81%
5.00% 6.08% 7.23% 7.55% 8.17% 8.68%
5.50% 6.69% 7.95% 8.31% 8.99% 9.55%
6.00% 7.30% 8.67% 9.06% 9.80% 10.42%
Note: The maximum marginal tax rate for each bracket was used in calculating
the taxable yield equivalent. Furthermore, additional state and local taxes paid
on comparable taxable investments were not used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of Fund shares.
*Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local income taxes.
PERFORMANCE COMPARISONS
Each Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in each Fund's expenses; and
o various other factors.
Each Fund's performance fluctuates on a daily basis largely because net earnings
and the maximum offering price per share fluctuate daily. Both net earnings and
offering price per share are factors in the computation of yield and total
return.
Investors may use financial publications and/or indices to obtain a more
complete view of a Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which a Fund uses in advertising may include:
o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, the Fund will
quote its Lipper ranking in the applicable funds category in
advertising and sales literature.
o STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a
composite index of common stocks in industry, transportation, and
financial and public utility companies, can be used to compare to the
total returns of funds whose portfolios are invested primarily in
common stocks. In addition, the Standard & Poor's index assumes
reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated in Standard & Poor's figures.
o THE NEW YORK STOCK EXCHANGE COMPOSITE OR COMPONENT INDICES are
unmanaged indices of all industrial, utilities, transportation, and
finance stocks listed on the New York Stock Exchange.
o DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of
selected large capitalization, well-established blue-chip industrial
corporations as well as public utility and transportation companies.
The DJIA indicates daily changes in the average price of stocks in any
of its categories. It also reports total sales for each group of
industries.
o MORNINGSTAR, INC., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their risk-
adjusted returns. The maximum rating is five stars, and ratings are
effective for two weeks.
o MERRILL LYNCH 1-3 YEAR TREASURY INDEX is an unmanaged index tracking
short-term U.S. government securities between 1 and 2.99 years. The
index is produced by Merrill Lynch, Pierce, Fenner & Smith, Inc.
o LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX is
comprised of issues which include non-convertible bonds publicly issued
by the U.S. government or its agencies; corporate bonds guaranteed by
the U.S. government and quasi-federal corporations; and publicly
issued, fixed rate, non-convertible domestic bonds of companies in
industry, public utilities, and finance. The average maturity of these
bonds is between 1 and 9.9 years.
o LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX is comprised of all
publicly issued, non-convertible domestic debt of the U.S. government,
or any agency thereof, or any quasi-federal corporation. The index
also includes corporate debt guaranteed by the U.S. government. Only
notes and bonds with a minimum outstanding principal of $1 million and
a minimum maturity of one year and maximum maturity of 9.9 years are
included.
o LEHMAN BROTHERS GENERAL OBLIGATION MUNICIPAL BOND INDEX is comprised of
state general obligation debt issues. These bonds are rated A or
better and represent a variety of coupon ranges. Index figures are
total return calculated for one, three, and twelve month periods as
well as year-to-date.
o LEHMAN BROTHERS FIVE-YEAR STATE GENERAL OBLIGATION BONDS is an index
comprised of all state general obligation debt issues with maturities
between four and six years. These bonds are rated A or better and
represent a variety of coupon ranges. Index figures are total returns
calculated for one, three, and twelve month periods as well as year-to-
date. Total returns are also calculated as of the index inception,
December 31, 1979.
o LEHMAN BROTHERS TEN-YEAR STATE GENERAL OBLIGATION BONDS is an index
comprised on the same issues noted above except that the maturities
range between nine and eleven years. Index figures are total returns
calculated as of the index inception, December 31, 1979.
O LEHMAN BROTHERS 1-3 YEAR GOVERNMENT INDEX is comprised of all publicly
issued, non-convertible domestic debt of the U.S. government, or any
agency thereof, or any quasi-federal corporation. The index also
includes corporate debt guaranteed by the U.S. government. Only notes
and bonds with a minimum maturity of one year and maximum maturity of
2.9 years are included.
Advertisements and other sales literature for the Funds may quote total returns
which are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in the Funds based
on quarterly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
APPENDIX
STANDARD AND POOR'S RATINGS GROUP MUNICIPAL/CORPORATE BOND RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's Ratings
Group. Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
Ratings Group does not rate a particular type of obligation as a matter of
policy.
PLUS (+) OR MINUS (-):--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC., MUNICIPAL/CORPORATE BOND RATING DEFINITIONS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or 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 which are rated Aa 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 risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
NR--Not rated by Moody's Investors Service, Inc.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these bonds, and therefore, impair
timely payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
NR--NR indicates that Fitch Investors Service, Inc. does not rate the specific
issue.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATING DEFINITIONS
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATING DEFINITIONS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory 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, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
FITCH INVESTORS SERVICE, INC., SHORT-TERM DEBT RATING DEFINITIONS
F-1+--(Exceptionally Strong Credit Quality). Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--(Very Strong Credit Quality). Issues assigned this rating reflect an
assurance for timely payment only slightly less in degree than issues rated F-
1+.
F-2--(Good Credit Quality). Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as for issues assigned F-1+ and F-1 ratings.
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
CUSIP #
Product Code
(a) Financial Statements (to be filed by Amendment)
(b) Exhibits:
(1) Conformed Copy of Declaration of Trust of the Registrant; +
(i) Conformed copy of Amendment No. 1 to Declaration of Trust
dated September 1, 1995; +
(2) Copy of By-Laws of the Registrant; (to be filed by Amendment)
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of Beneficial Interest
of the Registrant; (to be filed by Amendment)
(5) Conformed Copy of Investment Advisory Contract of the
Registrant; (to be filed by Amendment)
(6) (i)Conformed Copy of Distributor's Contract of the
Registrant; (to be filed by Amendment)
(ii)Conformed Copy of Administrative Agreement; (to be filed
by Amendment)
(7) Not applicable;
(8) Conformed Copy of Custodian Agreement of the Registrant; (to be
filed by Amendment)
(9) Conformed Copy of Transfer Agency and Service Agreement of the
Registrant; (to be filed by Amendment)
(10) Conformed Copy of Opinion and Consent of Counsel as to
legality of shares being registered; (to be filed by
Amendment)
(11) Conformed Copy of Consent of Independent Auditors; (to be
filed by Amendment)
(12) Not applicable;
(13) Conformed Copy of Initial Capital Understanding; (to be
filed by Amendment)
(14) Not applicable;
(15) (i)Conformed Copy of Distribution Plan; (to be filed by
Amendment)
(ii)Copy of Dealer Agreement; (to be filed by Amendment)
(iii)Copy of 12b-1 Agreement; (to be filed by Amendment)
(16) Copy of Schedule for Computation of Fund Performance Data;
(17) Not applicable;
(18) Not applicable;
(19) Conformed Copy of Power of Attorney; +
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
+ All exhibits have been filed electronically.
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of
Shares of beneficial interest
(no par value)
Court Street Pennsylvania
Intermediate Municipal Bond Fund
---
Item 27. Indemnification:
Indemnification is provided to Officers and Trustees of the Registrant
pursuant to Section 4 of Article XI of Registrant's Declaration of Trust.
The Investment Advisory Contract between the Registrant and Dauphin
Deposit Bank and Trust Company ("Adviser") provides that, in the absence
of willful misfeasance, bad faith, gross negligence, or reckless disregard
of the obligations or duties under the Investment Advisory Contract on the
part of Adviser, Adviser shall not be liable to the Registrant or to any
shareholder for any act or omission in the course of or connected in any
way with rendering services or for any losses that may be sustained in the
purchase, holding, or sale of any security. Registrant's Trustees and
Officers are covered by an Investment Trust Errors and Omissions Policy.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Trustees, Officers, and controlling
persons of the Registrant by the Registrant pursuant to the Declaration of
Trust or otherwise, the Registrant is aware that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and, therefore, is unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by
Trustees, Officers, or controlling persons of the Registrant in connection
with the successful defense of any act, suit, or proceeding) is asserted
by such Trustees, Officers, or controlling persons in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issues.
Insofar as indemnification for liabilities may be permitted pursuant to
Section 17 of the Investment Company Act of 1940 for Trustees, Officers,
and controlling persons of the Registrant by the Registrant pursuant to
the Declaration of Trust or otherwise, the Registrant is aware of the
position of the Securities and Exchange Commission as set forth in
Investment Company Act Release No. IC-11330. Therefore, the Registrant
undertakes that in addition to complying with the applicable provisions of
the Declaration of Trust or otherwise, in the absence of a final decision
on the merits by a court or other body before which the proceeding was
brought, that an indemnification payment will not be made unless in the
absence of such a decision, a reasonable determination based upon factual
review has been made (i) by a majority vote of a quorum of non-party
Trustees who are not interested persons of the Registrant or (ii) by
independent legal counsel in a written opinion that the indemnitee was not
liable for an act of willful misfeasance, bad faith, gross negligence, or
reckless disregard of duties. The Registrant further undertakes that
advancement of expenses incurred in the defense of a proceeding (upon
undertaking for repayment unless it is ultimately determined that
indemnification is appropriate) against an Officer, Trustee, or
controlling person of the Registrant will not be made absent the
fulfillment of at least one of the following conditions: (i) the
indemnitee provides security for his undertaking; (ii) the Registrant is
insured against losses arising by reason of any lawful advances; or
(iii) a majority of a quorum of disinterested non-party Trustees or
independent legal counsel in a written opinion makes a factual
determination that there is reason to believe the indemnitee will be
entitled to indemnification.
Item 28. Business and Other Connections of Investment Adviser:
For a description of the other business of the investment adviser, see the
section entitled "Court Street Group of Funds Information - Management of
the Court Street Group of Funds" in Part A.
The principal executive officers and directors of the Trust's Investment
Adviser are set forth in the following tables. Unless otherwise noted,
the position listed under other Substantial Business, Profession,
Vocation, or Employment is with Dauphin Bank and Trust Company.
(1) (2) (3)
Other Substantial
Position with Business, Profession,
Name the Adviser Vocation or Employment
Christopher R. JenningsChairman of the Chairman of the Board
Board, CEO, and and CEO, Dauphin Director Deposit Corporation
Paul B. Shannon President, Chief Credit
Policy Officer, and
Director
Dennis L. Dinger Senior Executive Vice
President, Chief Fiscal
and Administrative Officer
and Assistant Treasurer
Richard B. Brokenshire Executive Vice President
and COO
Rick A. Gold Executive Vice President,
Manager-Trust and Financial
Services
Lawrence J. LaMaina, Jr. President-Southern Vice Chairman,
Dauphin
Division, Executive Deposit Corporation
Vice President-DDB,
and Director
Stewart P. McEntee Executive Vice President
and Chief Marketing
Officer
Leon S. Myers Executive Vice President
Donald. H. Ross Executive Vice President
and Deputy Director of
Community Banking
Robert A. Rupel President-Eastern Division
and Executive Vice
President-DDB
Kenneth H. Sallade Executive Vice President and
Chief Investment Officer
Michael D. Zarcone President-Central Division
and Executive Vice
President-DDB
Claire D. Flemming Senior Vice President and
Corporate Secretary
Joseph T. Lysczek, Jr. Senior Vice President and
Treasurer
James J. Trupp, Jr. Senior Vice President and
General Auditor
Jackie Rothchild Senior Vice President and
Deputy Director of Comunity
Banking
George W. Kemp Executive Vice President,
Corporate Counsel, and
Secretary
J. Edward Beck, Jr. Director President, Bitreck Corp.
John R. Buchart Director Retired Chairman of the
Board, H.G. Rotz
Associates, Inc.
James O. Green Director Retired Chairman of the
Board, Green's Dairy, Inc.
Alfred G. Hemmerich Director Retired President,
Green Hills Management Company
Lee H. Javitch Director Private Investor, Former
Chairman of the Board, Giant Food Stores, Inc.
Richard E. Jordan, II Director Chairman of the Board, L.B.
Smith, Inc.
William T. Kirchhoff Director Executive Vice
President, Cleveland Brothers Equipment
Company, Inc.
Andrew Maier, II Director President, Maier's
Bakery
Robert F. Nation Director President, Penn Harris Company
Elmer E. Naugle Director Retired Fiscal Officer,
Shippensburg University
Walter F. Raab Director Chairman of the
Executive Committee of the Board of Directors,
AMP Incorporated
Paul C. Raub Director Chairman of the Board, York
Corrugating Co.
Henry W. Rhoads, Esq. Director Rhoads & Sinon,
Attorneys
Jean D. Seibert Director Partner, Wion, Zulli &
Seibert, Attorneys
L. Andrew Zausner, Esq.Director Partner, Dickstein,
Shapiro & Morin
Item 29. Principal Underwriters:
(a)Federated Securities Corp., the Distributor for shares of the
Registrant, also acts as principal underwriter for the following open-
end investment companies: UST Master Funds, Inc. and UST Master Tax-
Exempt Funds, Inc.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
James J. Dolan Trustee and President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
R. Jeffrey Niss Senior Vice President and --
Federated Investors Tower Trustee, Edgewood Services,
Pittsburgh, PA 15222-3779 Inc.
Douglas L. Hein Trustee, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Frank E. Polefrone Trustee, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Newton Heston, III Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Assistant Secretary
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Charles H. Field Assistant Secretary, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Jeannette Fisher-Garber Assistant Secretary, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Kenneth W. Pegher, Jr. Treasurer, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
(c) Not applicable
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
("Transfer Agent, Dividend Pittsburgh, PA 15222-3779
Disbursing Agent and Portfolio
Recordkeeper")
Federated Administrative Services Federated Investors Tower
("Administrator") Pittsburgh, PA 15222-3779
Dauphin Deposit Bank and Trust Company 213 Market Street
("Adviser" and "Custodian") Harrisburg, PA 17101
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six
months from the effective date of Registrant's 1933 Act Registration
Statement.
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of Trustees and
the calling of special shareholder meetings by shareholders.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, COURT STREET FUNDS, has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Pittsburgh and Commonwealth
of Pennsylvania, on the 27th day of October, 1995.
COURT STREET FUNDS
BY: /s/C. Grant Anderson
C. Grant Anderson, Secretary
Attorney in Fact for Edward C. Gonzales
October 27, 1995
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person in the
capacity and on the date indicated:
NAME TITLE DATE
By:/s/C. Grant Anderson
C. Grant Anderson Attorney In Fact October 27, 1995
SECRETARY For the Persons
Listed Below
NAME TITLE
Edward C. Gonzales* Chairman, President, Treasurer
and Trustee (Principal Financial
and Accounting Officer)
George D. McKeon* Trustee
Gary Mozenter* Trustee
Richard Seidel* Trustee
Exhibit 1 under Form N-1A
Exhibit 3(a) under Item 601/Reg. S-K
COURT STREET FUNDS
DECLARATION OF TRUST
TABLE OF CONTENTS
Page
ARTICLE I. NAMES AND DEFINITIONS ......................................1
Section 1. Name .................................................1
Section 2. Definitions ..........................................1
ARTICLE II. PURPOSE OF TRUST..........................................2
ARTICLE III. BENEFICIAL INTEREST.......................................2
Section 1. Shares of Beneficial Interest.........................2
Section 2. Ownership of Shares ..................................2
Section 3. Investment in the Trust ..............................3
Section 4. No Pre-emptive Rights; Action by Shareholder..........3
Section 5. Establishment and Designation of Series or Class .....3
ARTICLE IV. THE TRUSTEES .............................................5
Section 1. Management of the Trust ..............................5
Section 2. Election of Trustees by Shareholders .................5
Section 3. Term of Office of Trustees ...........................5
Section 4. Termination of Service and Appointment of Trustees ...6
Section 5. Number of Trustees ...................................6
Section 6. Effect of Death, Resignation, etc. of a Trustee ......6
Section 7. Ownership of Assets ..................................6
Section 8. Teleconference Meetings; Action by Consent ............6
ARTICLE V. POWERS OF THE TRUSTEES ...................................6
Section 1. Powers ...............................................6
Section 2. Principal Transactions ...............................9
Section 3. Trustees and Officers as Shareholders.................9
Section 4. Parties to Contract...................................9
Page
ARTICLE VI. TRUSTEES' EXPENSES AND COMPENSATION .....................10
Section 1. Trustee Reimbursement...............................10
Section 2. Trustee Compensation ...............................10
ARTICLE VII. INVESTMENT ADVISER, ADMINISTRATIVE SERVICES, PRINCIPAL
UNDERWRITER AND TRANSFER AGENT .............................11
Section 1. Investment Adviser .................................11
Section 2. Administrative Services ............................11
Section 3. Principal Underwriter ..............................11
Section 4. Transfer Agent .....................................12
ARTICLE VIII. SHAREHOLDERS' VOTING POWERS AND MEETINGS ................12
Section 1. Voting Powers ......................................12
Section 2. Meetings............................................12
Section 3. Quorum and Required Vote ...........................13
Section 4. Action by Written Consent ..........................13
Section 5. Additional Provisions ..............................13
ARTICLE IX. CUSTODIAN ...............................................13
ARTICLE X. DISTRIBUTIONS AND REDEMPTIONS ...........................13
Section 1. Distributions ......................................13
Section 2. Redemptions and Repurchases ........................14
Section 3. Net Asset Value of Shares...........................15
Section 4. Suspension of the Right of Redemption...............15
Section 5. Trust's Right to Redeem Shares .....................15
ARTICLE XI. LIMITATION OF LIABILITY AND INDEMNIFICATION .............15
Section 1. Limitation of Personal Liability and Indemnification of
Shareholders ...............................................15
Section 2. Limitation of Personal Liability and Indemnification of
Trustees, Officers, Employees or Agents of the Trust .......16
Section 3. Express Exculpatory Clauses and Instruments ........16
Page
ARTICLE XII. MISCELLANEOUS............................................17
Section 1. Trust is not a Partnership .........................17
Section 2. Trustee Action Binding, Expert Advice, No Bond or Surety
............................................................17
Section 3. Establishment of Record Dates ......................17
Section 4. Termination of Trust ...............................18
Section 5. Offices of the Trust, Filing of Copies, Headings,
Counterparts ...............................................18
Section 6. Applicable Law .....................................18
Section 7. Amendments -- General ..............................19
Section 8. Amendments -- Series and Classes....................19
Section 9. Use of Name ........................................20
COURT STREET FUNDS
DECLARATION OF TRUST
Dated September 1, 1995
DECLARATION OF TRUST made September 1, 1995, by the undersigned, and by the
holders of shares of beneficial interest to be issued hereunder as
hereinafter provided.
WHEREAS, the Trustees desire to establish a trust fund for the investment and
reinvestment of funds contributed thereto;
NOW, THEREFORE, the Trustees declare that all money and property contributed
to the trust fund hereunder shall be held and managed under this
Declaration of Trust IN TRUST as herein set forth below.
ARTICLE I
NAMES AND DEFINITIONS
Section 1. Name. This Trust shall be known as the Court Street Funds, and
the Trustees may conduct the business of the Trust under that name or any
other name as they may determine from time to time.
Section 2. Definitions. Wherever used herein, unless otherwise required by
the context or specifically provided:
(a) The terms "Affiliated Person," "Assignment," "Commission,"
"Interested Person," "Majority Shareholder Vote" (the 67% or 50%
requirement of Section 2(a)(42) of the 1940 Act, whichever may be
applicable) and "Principal Underwriter" shall have the meanings
given them in the 1940 Act, as amended from time to time;
(b) The "Trust" refers to the Massachusetts Business Trust established
by this Declaration of Trust, as amended from time to time,
inclusive of each and every Series and Class established hereunder;
(c) "Class" refers to a class of Shares established and designated under
or in accordance with the provisions of Article III;
(d) "Series" refers to a series of Shares established and designated
under or in accordance with the provisions of Article III;
(e) "Series Company" refers to the form of a registered open-end
investment company described in Section 18(f)(2) of the 1940 Act or
in any successor statutory provision;
(f) "Shareholder" means a record owner of Shares of any Series or Class;
(g) "Trustees" refer to the individual Trustees in their capacity as
Trustees hereunder of the Trust and their successor or successors
for the time being in office as such Trustees;
(h) "Shares" means the equal proportionate units of interest into which
the beneficial interest in the Trust shall be divided from time to
time, or if more than one Series or Class of Shares is authorized by
the Trustees, the equal proportionate units into which each Series
or Class of Shares shall be divided from time to time and includes
fractions of Shares as well as whole Shares;
(i) The "1940 Act" refers to the Investment Company Act of 1940, and the
Rules and Regulations thereunder, (including any exemptions granted
thereunder) as amended from time to time; and
(j) "By-Laws" shall mean the By-Laws of the Trust as amended from time
to time.
ARTICLE II
PURPOSE OF TRUST
The purpose of this Trust is to operate as an investment company, and provide
investors a continuous source of managed investments by investing
primarily in securities, derivative securities, and also in debt
instruments, commodities, commodity contracts and options thereon, and
other property.
ARTICLE III
BENEFICIAL INTEREST
Section 1. Shares of Beneficial Interest. The beneficial interest in the
Trust shall at all times be divided into transferable Shares, without par
value. Subject to the provisions of Section 5 of this Article III, each
Share shall have voting rights as provided in Article VIII hereof, and
holders of the Shares of any Series shall be entitled to receive
dividends, when and as declared with respect thereto in the manner
provided in Article X, Section 1 hereof. The Shares of any Series may be
issued in one or more Classes, as the Trustees may authorize pursuant to
Article XII, Section 8 hereof. Unless the Trustees have authorized the
issuance of Shares of a Series in two or more Classes, each Share of a
Series shall represent an equal proportionate interest in the assets and
liabilities and the income and the expenses of the Series with each other
Share of the same Series, none having priority or preference over
another. If the Trustees have authorized the issuance of Shares of a
Series in two or more Classes, then the Classes may have such variations
as to dividend, redemption, and voting rights, net asset values, expenses
borne by the Classes, and other matters as the Trustees have authorized
provided that each Share of a Class shall represent an equal
proportionate interest in the assets and liabilities and the income and
the expenses of the Class with each other Share of the same Class, none
having priority or preference over another. The number of Shares
authorized shall be unlimited. The Trustees may from time to time divide
or combine the Shares of any Series or Class into a greater or lesser
number without thereby changing the proportionate beneficial interests in
the Series or Class.
Section 2. Ownership of Shares. The ownership of Shares shall be recorded in
the books of the Trust or a transfer agent which books shall be
maintained separately for the Shares of each Series or Class. The
Trustees may make such rules as they consider appropriate for the
transfer of Shares and similar matters. The record books of the Trust or
any transfer agent, as the case may be, shall be conclusive as to who are
the Shareholders of each Series or Class and as to the number of Shares
of each Series or Class held from time to time by each.
Section 3. Investment in the Trust. The Trustees shall accept investments in
the Trust from such persons and on such terms as they may from time to
time authorize. After the date of the initial contribution of capital
(which shall occur prior to the initial public offering of Shares), the
number of Shares to represent the initial contribution shall be
considered as outstanding and the amount received by the Trustees on
account of the contribution shall be treated as an asset of the Trust to
be allocated among any Series or Classes in the manner described in
Section 5(a) of this Article. Subsequent to such initial contribution of
capital, Shares (including Shares which may have been redeemed or
repurchased by the Trust) may be issued or sold at a price which will net
the relevant Series or Class, as the case may be, before paying any taxes
in connection with such issue or sale, not less than the net asset value
(as defined in Article X, Section 3) thereof; provided, however, that the
Trustees may in their discretion impose a sales charge upon investments
in or redemptions from the Trust, and upon reinvestments of dividends and
capital gains in Shares.
Section 4. No Pre-emptive Right; Action by Shareholder. Shareholders shall
have no pre-emptive or other right to subscribe to any additional Shares
or other securities issued by the Trust. No action may be brought by a
Shareholder on behalf of the Trust unless a prior demand regarding such
matter has been made on the Trustees of the Trust.
Section 5. Establishment and Designation of Series or Class. Without
limiting the authority of the Trustees set forth in Article XII, Section
8, inter alia, to establish and designate any additional Series or Class
or to modify the rights and preferences of any existing Series or Class,
the initial Series shall be, and is established and designated as Court
Street Equity Fund, Court Street Intermediate U.S. Government Bond Fund,
Court Street Pennsylvania Intermediate Municipal Bond Fund, and Court
Street Short-Term Bond Fund.
Shares of any Series or Class established in this Section 5 shall have
the following relative rights and preferences:
(a) Assets belonging to Series or Class. All consideration received by
the Trust for the issue or sale of Shares of a particular Series or
Class, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds
thereof from whatever source derived, including, without limitation,
any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of
such proceeds in whatever form the same may be, shall irrevocably
belong to that Series or Class for all purposes, subject only to the
rights of creditors, and shall be so recorded upon the books of
account of the Trust. Such consideration, assets, income, earnings,
profits and proceeds thereof, from whatever source derived,
including, without limitation, any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds, in whatever form the
same may be, are herein referred to as "assets belonging to" that
Series or Class. In the event that there are any assets, income,
earnings, profits and proceeds thereof, funds or payments which are
not readily identifiable as belonging to any particular Series or
Class (collectively "General Assets"), the Trustees shall allocate
such General Assets to, between or among any one or more of the
Series or Classes established and designated from time to time in
such manner and on such basis as they, in their sole discretion,
deem fair and equitable, and any General Assets so allocated to a
particular Series or Class shall belong to that Series or Class.
Each such allocation by the Trustees shall be conclusive and binding
upon the Shareholders of all Series or Classes for all purposes.
(b) Liabilities Belonging to Series or Class. The assets belonging to
each particular Series or Class shall be charged with the
liabilities of the Trust in respect to that Series or Class and all
expenses, costs, charges and reserves attributable to that Series or
Class, and any general liabilities of the Trust which are not
readily identifiable as belonging to any particular Series or Class
shall be allocated and charged by the Trustees to and among any one
or more of the Series or Classes established and designated from
time to time in such manner and on such basis as the Trustees in
their sole discretion deem fair and equitable. The liabilities,
expenses, costs, charges and reserves so charged to a Series or
Class are herein referred to as "liabilities belonging to" that
Series or Class. Each allocation of liabilities belonging to a
Series or Class by the Trustees shall be conclusive and binding upon
the Shareholders of all Series or Classes for all purposes.
(c) Dividends, Distributions, Redemptions, Repurchases
and Indemnification. Notwithstanding any other provisions of this
-
Declaration of Trust, including, without limitation, Article X, no
dividend or distribution (including, without limitation, any
distribution paid upon termination of the Trust or of any Series or
Class) with respect to, nor any redemption or repurchase of the
Shares of any Series or Class shall be effected by the Trust other
than from the assets belonging to such Series or Class, nor except
as specifically provided in Section 1 of Article XI hereof, shall
any Shareholder of any particular Series or Class otherwise have any
right or claim against the assets belonging to any other Series or
Class except to the extent that such Shareholder has such a right or
claim hereunder as a Shareholder of such other Series or Class.
(d) Voting. Notwithstanding any of the other provisions of this
Declaration of Trust, including, without limitation, Section 1 of
Article VIII, only Shareholders of a particular Series or Class
shall be entitled to vote on any matters affecting such Series or
Class. Except with respect to matters as to which any particular
Series or Class is affected materially differently or as otherwise
required by applicable law, all of the Shares of each Series or
Class shall, on matters as to which such Series or Class is entitled
to vote, vote with other Series or Classes so entitled as a single
class. Notwithstanding the foregoing, with respect to matters which
would otherwise be voted on by two or more Series or Classes as a
single class, the Trustees may, in their sole discretion, submit
such matters to the Shareholders of any or all such Series or
Classes, separately.
(e) Fraction. Any fractional Share of a Series or Class shall carry
proportionately all the rights and obligations of a whole Share of
that Series or Class, including rights with respect to voting,
receipt of dividends and distributions, redemption of Shares and
termination of the Trust or of any Series or Class.
(f) Exchange Privilege. The Trustees shall have the authority to
provide that the holders of Shares of any Series or Class shall have
the right to exchange said Shares for Shares of one or more other
Series or Classes in accordance with such requirements and
procedures as may be established by the Trustees.
(g) Combination of Series or Classes. The Trustees shall have the
authority, without the approval of the Shareholders of any Series or
Class, unless otherwise required by applicable law, to combine the
assets and liabilities belonging to a single Series or Class with
the assets and liabilities of one or more other Series or Classes.
(h) Elimination of Series or Classes. The Trustees shall have the
authority, without the approval of Shareholders of any Series or
Class, unless otherwise required by applicable law, to amend this
Declaration of Trust to abolish that Series or Class and to rescind
the establishment and designation thereof.
ARTICLE IV
THE TRUSTEES
Section 1. Management of the Trust. The business and affairs of the Trust
shall be managed by the Trustees, and they shall have all powers
necessary and desirable to carry out that responsibility. The Trustees
who shall serve as Trustees are the undersigned.
Section 2. Election of Trustees by Shareholders. Unless otherwise required
by the 1940 Act or any court or regulatory body of competent
jurisdiction, or unless the Trustees determine otherwise, a Trustee shall
be elected by the Trustees, and Shareholders shall have no right to elect
Trustees.
Section 3. Term of Office of Trustees. The Trustees shall hold office
during the lifetime of this Trust, and until its termination as
hereinafter provided; except (a) that any Trustee may resign his office
at any time by written instrument signed by him and delivered to the
other Trustees, which shall take effect upon such delivery or upon such
later date as is specified therein; (b) that any Trustee may be removed
at any time by written instrument signed by at least two-thirds of the
number of Trustees prior to such removal, specifying the date when such
removal shall become effective; (c) that any Trustee who requests in
writing to be retired or who has become mentally or physically
incapacitated may be retired by written instrument signed by a majority
of the other Trustees, specifying the date of his retirement; and (d) a
Trustee may be removed at any special meeting of Shareholders of the
Trust by a vote of two-thirds of the outstanding Shares. Any removals
shall be effective as to the Trust and each Series and Class hereunder.
Section 4. Termination of Service and Appointment of Trustees. In case of
the death, resignation, retirement, removal or mental or physical
incapacity of any of the Trustees, or in case a vacancy shall, by reason
of an increase in number, or for any other reason, exist, the remaining
Trustees shall fill such vacancy by appointing such other person as they
in their discretion shall see fit. An appointment of a Trustee may be
made by the Trustees then in office in anticipation of a vacancy to occur
by reason of retirement, resignation or increase in number of Trustees
effective at a later date, provided that said appointment shall become
effective only at or after the effective date of said retirement,
resignation or increase in number of Trustees. As soon as any Trustee so
appointed shall have accepted this Trust, the trust estate shall vest in
the new Trustee or Trustees, together with the continuing Trustees,
without any further act or conveyance, and he shall be deemed a Trustee
hereunder. Any appointment authorized by this Section 4 is subject to
the provisions of Section 16(a) of the 1940 Act.
Section 5. Number of Trustees. The number of Trustees, not less than three
(3) nor more than twenty (20) serving hereunder at any time, shall be
determined by the Trustees themselves.
Whenever a vacancy in the Board of Trustees shall occur, until such
vacancy is filled or while any Trustee is physically or mentally
incapacitated, the other Trustees shall have all the powers hereunder and
the certificate signed by a majority of the other Trustees of such
vacancy, absence or incapacity shall be conclusive, provided, however,
that no vacancy which reduces the number of Trustees below three (3)
shall remain unfilled for a period longer than six calendar months.
Section 6. Effect of Death, Resignation, etc. of a Trustee. The death,
resignation, retirement, removal, or mental or physical incapacity of the
Trustees, or any one or more of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of
this Declaration of Trust.
Section 7. Ownership of Assets. The assets belonging to each Series or Class
shall be held separate and apart from any assets now or hereafter held in
any capacity other than as Trustee hereunder by the Trustees or any
successor Trustee. All of the assets belonging to each Series or Class
or owned by the Trust shall at all times be considered as vested in the
Trustees. No Shareholder shall be deemed to have a severable ownership
interest in any individual asset belonging to any Series or Class or
owned by the Trust or any right of partition or possession thereof, but
each Shareholder shall have a proportionate undivided beneficial interest
in a Series or Class.
ARTICLE V
POWERS OF THE TRUSTEES
Section 1. Powers. The Trustees in all instances shall act as principals,
and are and shall be free from the control of the Shareholders. The
Trustees shall have full power and authority to do any and all acts and
to make and execute any and all contracts and instruments that they may
consider necessary or appropriate in connection with the management of
the Trust or a Series or Class. The Trustees shall not be bound or
limited by present or future laws or customs in regard to trust
investments, but shall have full authority and power to make any and all
investments which they, in their uncontrolled discretion, shall deem
proper to accomplish the purpose of this Trust. Without limiting the
foregoing, the Trustees shall have the following specific powers and
authority, subject to any applicable limitation in the 1940 Act or in
this Declaration of Trust or in the By-Laws of the Trust:
(a) To buy, and invest funds in their hands in securities and other
property, including, but not limited to, common stocks, preferred
stocks, bonds, debentures, warrants and rights to purchase
securities, options, certificates of beneficial interest, money
market instruments, notes or other evidences of indebtedness issued
by any corporation, trust or association, domestic or foreign, or
issued or guaranteed by the United States of America or any agency
or instrumentality thereof, by the government of any foreign
country, by any State of the United States, or by any political
subdivision or agency or instrumentality of any State or foreign
country, or "when-issued" or "delayed-delivery" contracts for any
such securities, or any repurchase agreement or reverse repurchase
agreement, or debt instruments, commodities, commodity contracts and
options thereon, or to retain assets belonging to each and every
Series or Class in cash, and from time to time to change the
investments of the assets belonging to each Series or Class;
(b) To adopt By-Laws of the Trust not inconsistent with the Declaration
of Trust providing for the conduct of the business of the Trust and
to amend and repeal them to the extent that they do not reserve that
right to the Shareholders;
(c) To elect and remove such officers of the Trust and appoint and
terminate such agents of the Trust as they consider appropriate;
(d) To appoint or otherwise engage a bank or other entity permitted by
the 1940 Act, as custodian of any assets belonging to any Series or
Class subject to any conditions set forth in this Declaration of
Trust or in the By-Laws;
(e) To appoint or otherwise engage transfer agents, dividend disbursing
agents, Shareholder servicing agents, investment advisers, sub-
investment advisers, principal underwriters, administrative service
agents, and such other agents as the Trustees may from time to time
appoint or otherwise engage;
(f) To provide for the distribution of any Shares of any Series or Class
either through a Principal Underwriter in the manner hereinafter
provided for or by the Trust itself, or both;
(g) To set record dates in the manner hereinafter provided for;
(h) To delegate such authority as they consider desirable to a committee
or committees composed of Trustees, including without limitation, an
Executive Committee, or to any officers of the Trust and to any
agent, custodian or underwriter;
(i) To sell or exchange any or all of the assets belonging to one or
more Series or Classes, subject to the provisions of Article XII,
Section 4(b) hereof;
(j) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver powers of attorney to such person or persons, including the
investment adviser of the Trust as the Trustees shall deem proper,
granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem
proper;
(k) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities or other property;
(l) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form; or either
in its own name or in the name of a custodian or a nominee or
nominees, subject in either case to proper safeguards according to
the usual business practice of Massachusetts business trusts or
investment companies;
(m) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security
of which belongs to any Series or Class; to consent to any contract,
lease, mortgage, purchase, or sale of property by such corporation
or concern, and to pay calls or subscriptions with respect to any
security which belongs to any Series or Class;
(n) To engage in and to prosecute, compound, compromise, abandon, or
adjust, by arbitration or otherwise, any actions, suits,
proceedings, disputes, claims, demands, and things relating to the
Trust, and out of the assets belonging to any Series or Class to
pay, or to satisfy, any debts, claims or expenses incurred in
connection therewith, including those of litigation, upon any
evidence that the Trustees may deem sufficient (such powers shall
include without limitation any actions, suits, proceedings,
disputes, claims, demands and things relating to the Trust wherein
any of the Trustees may be named individually and the subject matter
of which arises by reason of business for or on behalf of the
Trust);
(o) To make distributions of income and of capital gains to
Shareholders;
(p) To borrow money;
(q) From time to time to issue and sell the Shares of any Series or
Class either for cash or for property whenever and in such amounts
as the Trustees may deem desirable, but subject to the limitation
set forth in Section 3 of Article III.
(r) To purchase insurance of any kind, including, without limitation,
insurance on behalf of any person who is or was a Trustee, officer,
employee or agent of the Trust, or is or was serving at the request
of the Trust as a trustee, director, officer, agent or employee of
another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against him or incurred
by him in any such capacity or arising out of his status as such;
(s) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or
write options with respect to or otherwise deal in any property
rights relating to any or all of the assets belonging to any Series
or Class;
(t) To pay pensions or other compensation for faithful service, as
deemed appropriate by the Trustees, and to adopt, establish and
carry out pension, profit-sharing, share bonus, share purchase,
deferred compensation, savings, thrift and other retirement,
incentive and benefit plans, including the purchase of life
insurance and annuity contracts as a means of providing such
retirement and other benefits, for any or all of the Trustees,
officers, employees and agents of the Trust;
(u) To take action by written consent and teleconference, as provided in
the By-Laws.
The Trustees shall have all of the powers set forth in this Section 1
with respect to all assets and liabilities of each Series and Class.
Section 2. Principal Transactions. The Trustees shall not cause the Trust on
behalf of any Series or Class to buy any securities (other than Shares)
from or sell any securities (other than Shares) to, or lend any assets
belonging to any Series or Class to any Trustee or officer or employee of
the Trust or any firm of which any such Trustee or officer is a member
acting as principal unless permitted by the 1940 Act, but the Trust may
employ any such other party or any such person or firm or company in
which any such person is an interested person in any capacity not
prohibited by the 1940 Act.
Section 3. Trustees and Officers as Shareholders. Any Trustee, officer,
employee or other agent of the Trust may acquire, own and dispose of
Shares of any Series or Class to the same extent as if he were not a
Trustee, officer, employee or agent; and the Trustees may issue and sell
or cause to be issued or sold Shares of any Series or Class to and buy
such Shares from any such person or any firm or company in which he is an
interested person subject only to the general limitations herein
contained as to the sale and purchase of such Shares; and all subject to
any restrictions which may be contained in the By-Laws.
Section 4. Parties to Contract. The Trustees may enter into any contract of
the character described in Article VII or in Article IX hereof or any
other capacity not prohibited by the 1940 Act with any corporation, firm,
partnership, trust or association, although one or more of the
shareholders, Trustees, officers, employees or agents of the Trust or
their affiliates may be an officer, director, trustee, partner,
shareholder or interested person of such other party to the contract, and
no such contract shall be invalidated or rendered voidable by reason of
the existence of any such relationship, nor shall any person holding such
relationship be liable merely by reason of such relationship for any loss
or expense to the Trust or any Series or Class under or by reason of said
contract or accountable for any profit realized directly or indirectly
therefrom, in the absence of actual fraud. The same person (including a
firm, corporation, partnership, trust or association) may be the other
party to contracts entered into pursuant to Article VII or Article IX or
any other capacity not prohibited by the 1940 Act, and any individual may
be financially interested or otherwise an interested person of persons
who are parties to any or all of the contracts mentioned in this Section
4.
ARTICLE VI
TRUSTEES' EXPENSES AND COMPENSATION
Section 1. Trustee Reimbursement. The Trustees shall be reimbursed from the
assets belonging to each particular Series or Class for all of such
Trustees' expenses as such expenses are allocated to and among any one or
more of the Series or Classes pursuant to Article III, Section 5(b),
including, without limitation, expenses of organizing the Trust or any
Series or Class and continuing its or their existence; fees and expenses
of Trustees and officers of the Trust; fees for investment advisory
services, administrative services and principal underwriting services
provided for in Article VII, Sections 1, 2 and 3; fees and expenses of
preparing and printing Registration Statements under the Securities Act
of 1933 and the 1940 Act and any amendments thereto; expenses of
registering and qualifying the Trust and any Series or Class and the
Shares of any Series or Class under federal and state laws and
regulations; expenses of preparing, printing and distributing
prospectuses and any amendments thereto sent to shareholders,
underwriters, broker-dealers and to investors who may be considering the
purchase of Shares; expenses of registering, licensing or other
authorization of the Trust or any Series or Class as a broker-dealer and
of its or their officers as agents and salesmen under federal and state
laws and regulations; interest expenses, taxes, fees and commissions of
every kind; expenses of issue (including cost of share certificates),
purchases, repurchases and redemptions of Shares, including expenses
attributable to a program of periodic issue; charges and expenses of
custodians, transfer agents, dividend disbursing agents, Shareholder
servicing agents and registrars; printing and mailing costs; auditing,
accounting and legal expenses; reports to Shareholders and governmental
officers and commissions; expenses of meetings of Shareholders and proxy
solicitations therefor; insurance expenses; association membership dues
and nonrecurring items as may arise, including all losses and liabilities
by them incurred in administering the Trust and any Series or Class,
including expenses incurred in connection with litigation, proceedings
and claims and the obligations of the Trust under Article XI hereof and
the By-Laws to indemnify its Trustees, officers, employees, shareholders
and agents, and any contract obligation to indemnify Principal
Underwriters under Section 3 of Article VII; and for the payment of such
expenses, disbursements, losses and liabilities, the Trustees shall have
a lien on the assets belonging to each Series or Class prior to any
rights or interests of the Shareholders of any Series or Class. This
section shall not preclude the Trust from directly paying any of the
aforementioned fees and expenses.
Section 2. Trustee Compensation. The Trustees shall be entitled to
compensation from the Trust from the assets belonging to any Series or
Class for their respective services as Trustees, to be determined from
time to time by vote of the Trustees, and the Trustees shall also
determine the compensation of all officers, employees, consultants and
agents whom they may elect or appoint. The Trust may pay out of the
assets belonging to any Series or Class any Trustee or any corporation,
firm, partnership, trust or other entity of which a Trustee is an
interested person for services rendered in any capacity not prohibited by
the 1940 Act, and such payments shall not be deemed compensation for
services as a Trustee under the first sentence of this Section 2 of
Article VI.
ARTICLE VII
INVESTMENT ADVISER, ADMINISTRATIVE SERVICES, PRINCIPAL UNDERWRITER AND
TRANSFER AGENT
-
Section 1. Investment Adviser. Subject to a Majority Shareholder Vote by the
relevant Series or Class to the extent such vote is required by law, the
Trustees may in their discretion from time to time enter into an
investment advisory contract whereby the other party to such contract
shall undertake to furnish the Trustees investment advisory services for
such Series or Class upon such terms and conditions and for such
compensation as the Trustees may in their discretion determine. Subject
to a Majority Shareholder Vote by the relevant Series or Class to the
extent such vote is required by law, the investment adviser may enter
into a sub-investment advisory contract to receive investment advice
and/or statistical and factual information from the sub-investment
adviser for such Series or Class upon such terms and conditions and for
such compensation as the Trustees, in their discretion, may agree.
Notwithstanding any provisions of this Declaration of Trust, the Trustees
may authorize the investment adviser or sub-investment adviser or any
person furnishing administrative personnel and services as set forth in
Article VII, Section 2 (subject to such general or specific instructions
as the Trustees may from time to time adopt) to effect purchases, sales
or exchanges of portfolio securities belonging to a Series or Class on
behalf of the Trustees or may authorize any officer, employee or Trustee
to effect such purchases, sales, or exchanges pursuant to recommendations
of the investment adviser (and all without further action by the
Trustees). Any such purchases, sales and exchanges shall be deemed to
have been authorized by the Trustees. The Trustees may also authorize
the investment adviser to determine what firms shall be employed to
effect transactions in securities for the account of a Series or Class
and to determine what firms shall participate in any such transactions or
shall share in commissions or fees charged in connection with such
transactions.
Section 2. Administrative Services. The Trustees may in their discretion
from time to time contract for administrative personnel and services
whereby the other party shall agree to provide the Trustees
administrative personnel and services to operate the Trust or a Series or
Class on a daily basis, on such terms and conditions as the Trustees may
in their discretion determine. Such services may be provided by one or
more entities.
Section 3. Principal Underwriter. The Trustees may in their discretion from
time to time enter into an exclusive or nonexclusive contract or
contracts providing for the sale of the Shares of a Series or Class to
net such Series or Class not less than the amount provided in Article
III, Section 3 hereof, whereby a Series or Class may either agree to sell
the Shares to the other party to the contract or appoint such other party
its sales agent for such shares. In either case, the contract shall be
on such terms and conditions (including indemnification of Principal
Underwriters allowable under applicable law and regulation) as the
Trustees may in their discretion determine not inconsistent with the
provisions of this Article VII; and such contract may also provide for
the repurchase or sale of Shares of a Series or Class by such other party
as principal or as agent of the Trust and may provide that the other
party may maintain a market for shares of a Series or Class.
Section 4. Transfer Agent. The Trustees may in their discretion from time
to time enter into transfer agency and Shareholder services contracts
whereby the other party shall undertake to furnish transfer agency and
Shareholder services. The contracts shall be on such terms and
conditions as the Trustees may in their discretion determine not
inconsistent with the provisions of this Declaration of Trust or of the
By-Laws. Such services may be provided by one or more entities.
ARTICLE VIII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. Voting Powers. Subject to the provisions set forth in Article
III, Section 5(d), the Shareholders shall have power to vote, (i) for the
election of Trustees as provided in Article IV, Section 2; (ii) for the
removal of Trustees as provided in Article IV, Section 3(d); (iii) with
respect to any investment adviser or sub-investment adviser as provided
in Article VII, Section 1; (iv) with respect to the amendment of this
Declaration of Trust as provided in Article XII, Section 7; and (v) with
respect to such additional matters relating to the Trust as may be
required by law, by this Declaration of Trust, or the By-Laws of the
Trust or any regulation of the Trust or the Securities and Exchange
Commission or any State, or as the Trustees may consider desirable. Each
whole Share shall be entitled to one vote as to any matter on which it is
entitled to vote, and each fractional Share shall be entitled to a
proportionate fractional vote. There shall be no cumulative voting in
the election of Trustees. Shares may be voted in person or by proxy. A
proxy with respect to Shares held in the name of two or more persons
shall be valid if executed by any one of them unless at or prior to
exercise of the proxy the Trust receives a specific written notice to the
contrary from any one of them. A proxy purporting to be executed by or
on behalf of a Shareholder shall be deemed valid unless challenged at or
prior to its exercise and the burden of proving invalidity shall rest on
the challenger. At all meetings of Shareholders, unless inspectors of
election have been appointed, all questions relating to the qualification
of votes and the validity of proxies and the acceptance or rejection of
votes shall be decided by the chairman of the meeting. Unless otherwise
specified in the proxy, the proxy shall apply to all shares of the Trust
(or each Series or Class) owned by the Shareholder. Any proxy may be in
written form, telephonic or electronic form, including facsimile, and all
such forms shall be valid when in conformance with procedures established
and implemented by the officers of the Trust. Until Shares of a Series
or Class are issued, the Trustees may exercise all rights of Shareholders
of such Series or Class with respect to matters affecting such Series or
Class, and may take any action with respect to the Trust or such Series
or Class required or permitted by law, this Declaration of Trust or any
By-Laws of the Trust to be taken by Shareholders.
Section 2. Meetings. A Shareholders' meeting shall be held as specified in
Section 2 of Article IV at the principal office of the Trust or such
other place as the Trustees may designate. Special meetings of the
Shareholders may be called by the Trustees or the Chief Executive Officer
of the Trust and shall be called by the Trustees upon the written request
of Shareholders owning at least one-tenth of the outstanding Shares of
all Series and Classes entitled to vote. Shareholders shall be entitled
to at least fifteen days' notice of any meeting.
Section 3. Quorum and Required Vote. Except as otherwise provided by law,
the presence in person or by proxy of the holders of (a) one-half of the
Shares of the Trust on all matters requiring a Majority Shareholder Vote,
as defined in the Investment Company Act of 1940, or (b) one-third of the
Shares of the Trust on all other matters permitted by law, in each case,
entitled to vote without regard to Class shall constitute a quorum at any
meeting of the Shareholders, except with respect to any matter which by
law requires the separate approval of one or more Series or Classes, in
which case the presence in person or by proxy of the holders of one-half
or one-third, as set forth above, of the Shares of each Series or Class
entitled to vote separately on the matter shall constitute a quorum.
When any one or more Series or Class is entitled to vote as a single
Series or Class, more than one-half, or one-third, as appropriate, of the
Shares of each such Series or Class entitled to vote shall constitute a
quorum at a Shareholders' meeting of that Series or Class. If a quorum
shall not be present for the purpose of any vote that may properly come
before the meeting, the Shares present in person or by proxy and entitled
to vote at such meeting on such matter may, by plurality vote, adjourn
the meeting from time to time to such place and time without further
notice than by announcement to be given at the meeting until a quorum
entitled to vote on such matter shall be present, whereupon any such
matter may be voted upon at the meeting as though held when originally
convened. Subject to any applicable requirement of law or of this
Declaration of Trust or the By-Laws, a plurality of the votes cast shall
elect a Trustee, and all other matters shall be decided by a majority of
the votes cast and entitled to vote thereon.
Section 4. Action by Written Consent. Subject to the provisions of the 1940
Act and other applicable law, any action taken by Shareholders may be
taken without a meeting if a majority of Shareholders entitled to vote on
the matter (or such larger proportion thereof as shall be required by
applicable law or by any express provision of this Declaration of Trust
or the By-Laws) consents to the action in writing. Such consents shall
be treated for all purposes as a vote taken at a meeting of Shareholders.
Section 5. Additional Provisions. The By-Laws may include further provisions
for Shareholders' votes and meetings and related matters.
ARTICLE IX
CUSTODIAN
The Trustees may, in their discretion, from time to time enter into contracts
providing for custodial and accounting services to the Trust or any
Series or Class. The contracts shall be on the terms and conditions as
the Trustees may in their discretion determine not inconsistent with the
provisions of this Declaration of Trust or of the By-Laws. Such services
may be provided by one or more entities, including one or more sub-
custodians.
ARTICLE X
DISTRIBUTIONS AND REDEMPTIONS
Section 1. Distributions.
(a) The Trustees may from time to time declare and pay dividends to the
Shareholders of any Series or Class, and the amount of such
dividends and the payment of them shall be wholly in the discretion
of the Trustees. The frequency of dividends and distributions to
Shareholders may be determined by the Trustees pursuant to a
standing resolution, or otherwise. Such dividends may be accrued
and automatically reinvested in additional Shares (or fractions
thereof) of the relevant Series or Class or another Series or Class,
or paid in cash or additional Shares of the relevant Series or
Class, all upon such terms and conditions as the Trustees may
prescribe.
(b) The Trustees may distribute in respect of any fiscal year as
dividends and as capital gains distributions, respectively, amounts
sufficient to enable any Series or Class to qualify as a regulated
investment company and to avoid any liability for federal income or
excise taxes in respect of that year.
c) The decision of the Trustees as to what constitutes income and what
constitutes principal shall be final, and except as specifically
provided herein the decision of the Trustees as to what expenses and
charges of any Series or Class shall be charged against principal
and what against the income shall be final. Any income not
distributed in any year may be permitted to accumulate and as long
as not distributed may be invested from time to time in the same
manner as the principal funds of any Series or Class.
(d) All dividends and distributions on Shares of a particular
Series or Class shall be distributed pro rata to the holders of that
Series or Class in proportion to the number of Shares of that Series
or Class held by such holders and recorded on the books of the Trust
or its transfer agent at the date and time of record established for
that payment.
Section 2. Redemptions and Repurchases.
(a) In case any Shareholder of record of any Series or Class at any
time desires to dispose of Shares of such Series or Class recorded
in his name, he may deposit a written request (or such other form of
request as the Trustees may from time to time authorize) requesting
that the Trust purchase his Shares, together with such other
instruments or authorizations to effect the transfer as the Trustees
may from time to time require, at the office of the transfer agent,
or as otherwise provided by the Trustees and the Trust shall
purchase his Shares out of assets belonging to such Series or Class.
The purchase price shall be the net asset value of his shares
reduced by any redemption charge or deferred sales charge as the
Trustees from time to time may determine.
Payment for such Shares shall be made by the Trust to the
Shareholder of record within that time period required under the
1940 Act after the request (and, if required, such other instruments
or authorizations of transfer) is received, subject to the right of
the Trustees to postpone the date of payment pursuant to Section 4
of this Article X. If the redemption is postponed beyond the date
on which it would normally occur by reason of a declaration by the
Trustees suspending the right of redemption pursuant to Section 4 of
this Article X, the right of the Shareholder to have his Shares
purchased by the Trust shall be similarly suspended, and he may
withdraw his request (or such other instruments or authorizations of
transfer) from deposit if he so elects; or, if he does not so elect,
the purchase price shall be the net asset value of his Shares
determined next after termination of such suspension (reduced by any
redemption charge or deferred sales charge), and payment therefor
shall be made within the time period required under the 1940 Act.
(b) The Trust may purchase Shares of a Series or Class by agreement
with the owner thereof at a purchase price not exceeding the net
asset value per Share (reduced by any redemption charge or deferred
sales charge) determined (1) next after the purchase or contract of
purchase is made or (2) at some later time.
(c) The Trust may pay the purchase price (reduced by any redemption
charge or deferred sales charge) in whole or in part by a
distribution in kind of securities from the portfolio of the
relevant Series or Class, taking such securities at the same value
employed in determining net asset value, and selecting the
securities in such manner as the Trustees may deem fair and
equitable.
Section 3. Net Asset Value of Shares. The net asset value of each Share of a
Series or Class outstanding shall be determined at such time or times as
may be determined by or on behalf of the Trustees. The power and duty to
determine net asset value may be delegated by the Trustees from time to
time to one or more of the Trustees or officers of the Trust, to the
other party to any contract entered into pursuant to Section 1 or 2 of
Article VII or to the custodian or to a transfer agent or other person
designated by the Trustees.
The net asset value of each Share of a Series or Class as of any
particular time shall be the quotient (adjusted to the nearer cent)
obtained by dividing the value, as of such time, of the net assets
belonging to such Series or Class (i.e., the value of the assets
belonging to such Series or Class less the liabilities belonging to such
Series or Class exclusive of capital and surplus) by the total number of
Shares outstanding of the Series or Class at such time in accordance with
the requirements of the 1940 Act and applicable provisions of the By-Laws
of the Trust in conformity with generally accepted accounting practices
and principles.
The Trustees may declare a suspension of the determination of net asset
value for the whole or any part of any period in accordance with the 1940
Act.
Section 4. Suspension of the Right of Redemption. The Trustees may declare a
suspension of the right of redemption or postpone the date of payment for
the whole or any part of any period in accordance with the 1940 Act.
Section 5. Trust's Right to Redeem Shares. The Trust shall have the right to
cause the redemption of Shares of any Series or Class in any
Shareholder's account for their then current net asset value and promptly
make payment to the shareholder (which payment may be reduced by any
applicable redemption charge or deferred sales charge), if (a) at any
time the total investment in the account does not have a minimum dollar
value determined from time to time by the Trustees in their sole
discretion, (b) at any time a Shareholder fails to furnish certified
Social Security or Tax Identification Numbers, or (c) at any time the
Trustees determine in their sole discretion that failure to so redeem may
have materially adverse consequences to the other Shareholders or the
Trust or any Series or Class thereof.
ARTICLE XI
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 1. Limitation of Personal Liability and Indemnification of
Shareholders. The Trustees, officers, employees or agents of the Trust
shall have no power to bind any Shareholder of any Series or Class
personally or to call upon such Shareholder for the payment of any sum of
money or assessment whatsoever, other than such as the Shareholder may at
any time agree to pay by way of subscription for any Shares or otherwise.
No Shareholder or former Shareholder of any Series or Class shall be
liable solely by reason of his being or having been a Shareholder for any
debt, claim, action, demand, suit, proceeding, judgment, decree,
liability or obligation of any kind, against or with respect to the Trust
or any Series or Class arising out of any action taken or omitted for or
on behalf of the Trust or such Series or Class, and the Trust or such
Series or Class shall be solely liable therefor and resort shall be had
solely to the property of the relevant Series or Class of the Trust for
the payment or performance thereof.
Each Shareholder or former Shareholder of any Series or Class (or their
heirs, executors, administrators or other legal representatives or, in
case of a corporation or other entity, its corporate or other general
successor) shall be entitled to be held harmless from and indemnified
against to the full extent of such liability and the costs of any
litigation or other proceedings in which such liability shall have been
determined, including, without limitation, the fees and disbursements of
counsel if, contrary to the provisions hereof, such Shareholder or former
Shareholder of such Series or Class shall be held to be personally
liable. Such indemnification shall come exclusively from the assets of
the relevant Series or Class.
The Trust shall, upon request by a Shareholder or former Shareholder,
assume the defense of any claim made against any Shareholder for any act
or obligation of the Trust or any Series or Class and satisfy any
judgment thereon.
Section 2. Limitation of Personal Liability and Indemnification of Trustees,
Officers, Employees or Agents of the Trust. No Trustee, officer,
employee or agent of the Trust shall have the power to bind any other
Trustee, officer, employee or agent of the Trust personally. The
Trustees, officers, employees or agents of the Trust in incurring any
debts, liabilities or obligations, or in taking or omitting any other
actions for or in connection with the Trust, are, and each shall be
deemed to be, acting as Trustee, officer, employee or agent of the Trust
and not in his own individual capacity.
Trustees and officers of the Trust shall be liable for their willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee or officer, as
the case may be, and for nothing else.
Each person who is or was a Trustee, officer, employee or agent of the
Trust shall be entitled to indemnification out of the assets of the Trust
(or of any Series or Class) to the extent provided in, and subject to the
provisions of, the By-Laws, provided that no indemnification shall be
granted in contravention of the 1940 Act.
Section 3. Express Exculpatory Clauses and Instruments.
(a) All persons extending credit to, contracting with or having any
claim against the Trust or a particular Series or Class shall only
look to the assets of the Trust or the assets of that particular
Series or Class for payment under such credit, contract or claim;
and neither the Shareholders nor the Trustees, nor any of the
Trust's officers, employees or agents, whether past, present or
future, shall be liable therefor.
(b) The Trustees shall use every reasonable means to assure that all
persons having dealings with the Trust or any Series or Class shall
be informed that the property of the Shareholders and the Trustees,
officers, employees and agents of the Trust or any Series or Class
shall not be subject to claims against or obligations of the Trust
or any other Series or Class to any extent whatsoever. The Trustees
shall cause to be inserted in any written agreement, undertaking or
obligation made or issued on behalf of the Trust or any Series or
Class (including certificates for Shares of any Series or Class) an
appropriate reference to the provisions of this Declaration of
Trust, providing that neither the Shareholders, the Trustees, the
officers, the employees nor any agent of the Trust or any Series or
Class shall be liable thereunder, and that the other parties to such
instrument shall look solely to the assets belonging to the relevant
Series or Class for the payment of any claim thereunder or for the
performance thereof; but the omission of such provisions from any
such instrument shall not render any Shareholder, Trustee, officer,
employee or agent liable, nor shall the Trustee, or any officer,
agent or employee of the Trust or any Series or Class be liable to
anyone for such omission. If, notwithstanding this provision, any
Shareholder, Trustee, officer, employee or agent shall be held
liable to any other person by reason of the omission of such
provision from any such agreement, undertaking or obligation, the
Shareholder, Trustee, officer, employee or agent shall be
indemnified and reimbursed by the Trust.
ARTICLE XII
MISCELLANEOUS
Section 1. Trust is not a Partnership. It is hereby expressly declared that
a trust and not a partnership is created hereby.
Section 2. Trustee Action Binding, Expert Advice, No Bond or Surety. The
exercise by the Trustees of their powers and discretions hereunder shall
be binding upon everyone interested. Subject to the provisions of
Article XI, the Trustees shall not be liable for errors of judgment or
mistakes of fact or law. The Trustees may take advice of counsel or
other experts with respect to the meaning and operation of this
Declaration of Trust, and subject to the provisions of Article XI, shall
be under no liability for any act or omission in accordance with such
advice or for failing to follow such advice. The Trustees shall not be
required to give any bond as such, nor any surety if a bond is required.
Section 3. Establishment of Record Dates. The Trustees may close the Share
transfer books of the Trust maintained with respect to any Series or
Class for a period not exceeding ninety (90) days preceding the date of
any meeting of Shareholders of the Trust or any Series or Class, or the
date for the payment of any dividend or the making of any distribution to
Shareholders, or the date for the allotment of rights, or the date when
any change or conversion or exchange of Shares of any Series or Class
shall go into effect or the last day on which the consent or dissent of
Shareholders of any Series or Class may be effectively expressed for any
purpose; or in lieu of closing the Share transfer books as aforesaid, the
Trustees may fix in advance a date, not exceeding ninety (90) days
preceding the date of any meeting of Shareholders of the Trust or any
Series or Class, or the date for the payment of any dividend or the
making of any distribution to Shareholders of any Series or Class, or the
date for the allotment of rights, or the date when any change or
conversion or exchange of Shares of any Series or Class shall go into
effect, or the last day on which the consent or dissent of Shareholders
of any Series or Class may be effectively expressed for any purpose, as a
record date for the determination of the Shareholders entitled to notice
of, and, to vote at, any such meeting and any adjournment thereof, or
entitled to receive payment of any such dividend or distribution, or to
any such allotment of rights, or to exercise the rights in respect of any
such change, conversion or exchange of shares, or to exercise the right
to give such consent or dissent, and in such case such Shareholders and
only such Shareholders as shall be Shareholders of record on the date so
fixed shall be entitled to such notice of, and to vote at, such meeting,
or to receive payment of such dividend or distribution, or to receive
such allotment or rights, or to change, convert or exchange Shares of any
Series or Class, or to exercise such rights, as the case may be,
notwithstanding, after such date fixed aforesaid, any transfer of any
Shares on the books of the Trust maintained with respect to any Series or
Class. Nothing in the foregoing sentence shall be construed as
precluding the Trustees from setting different record dates for different
Series or Classes.
Section 4. Termination of Trust.
(a) This Trust shall continue without limitation of time but
subject to the provisions of paragraphs (b), (c) and (d) of this
Section 4.
(b) The Trustees may, by majority action, with the approval of a
Majority Shareholder Vote of each Series or Class entitled to vote
as determined by the Trustees under Section 5(d) of Article III,
sell and convey the assets of the Trust or any Series or Class to
another trust or corporation. Upon making provision for the payment
of all outstanding obligations, taxes and other liabilities, accrued
or contingent, belonging to each Series or Class, the Trustees shall
distribute the remaining assets belonging to each Series or Class
ratably among the holders of the outstanding Shares of that Series
or Class. The Trustees shall make a good faith determination that a
conveyance of a part of the assets of a Series or Class is in the
best interest of Shareholders of the relevant Series or Class.
(c) The Trustees may at any time sell and convert into money all
the assets of the Trust or any Series or Class without Shareholder
approval, unless otherwise required by applicable law. Upon making
provision for the payment of all outstanding obligations, taxes and
other liabilities, accrued or contingent, belonging to each Series
or Class, the Trustees shall distribute the remaining assets
belonging to each Series or Class ratably among the holders of the
outstanding Shares of that Series or Class.
(d) Upon completion of the distribution of the remaining proceeds
of the remaining assets as provided in paragraphs (b) and (c), the
Trust or the applicable Series or Class shall terminate and the
Trustees shall be discharged of any and all further liabilities and
duties hereunder or with respect thereto and the right, title and
interest of all parties shall be canceled and discharged.
Section 5. Offices of the Trust, Filing of Copies, Headings, Counterparts.
The Trust shall maintain a usual place of business in Massachusetts,
which, initially, shall be c/o Donnelly, Conroy & Gelhaar, One Post
Office Square, Boston, Massachusetts 02109-2105, and shall continue to
maintain an office at such address unless changed by the Trustees to
another location in Massachusetts. The Trust may maintain other offices
as the Trustees may from time to time determine. The original or a copy
of this instrument and of each declaration of trust supplemental hereto
shall be kept at the office of the Trust where it may be inspected by any
Shareholder. A copy of this instrument and of each supplemental
declaration of trust shall be filed by the Trustees with the
Massachusetts Secretary of State and the Boston City Clerk, as well as
any other governmental office where such filing may from time to time be
required. Headings are placed herein for convenience of reference only
and in case of any conflict, the text of this instrument, rather than the
headings shall control. This instrument may be executed in any number of
counterparts each of which shall be deemed an original.
Section 6. Applicable Law. The Trust set forth in this instrument is created
under and is to be governed by and construed and administered according
to the laws of The Commonwealth of Massachusetts. The Trust shall be of
the type commonly called a Massachusetts business trust, and without
limiting the provisions hereof, the Trust may exercise all powers which
are ordinarily exercised by such a trust.
Section 7. Amendments -- General. All rights granted to the Shareholders
under this Declaration of Trust are granted subject to the reservation of
the right to amend this Declaration of Trust as herein provided, except
that no amendment shall repeal the limitations on personal liability of
any Shareholder or Trustee or repeal the prohibition of assessment upon
the Shareholders without the express consent of each Shareholder or
Trustee involved. Subject to the foregoing, the provisions of this
Declaration of Trust (whether or not related to the rights of
Shareholders) may be amended at any time, so long as such amendment does
not adversely affect the rights of any Shareholder with respect to which
such amendment is or purports to be applicable and so long as such
amendment is not in contravention of applicable law, including the 1940
Act, by an instrument in writing signed by a majority of the then
Trustees (or by an officer of the Trust pursuant to the vote of a
majority of such Trustees). Any amendment to this Declaration of Trust
that adversely affects the rights of Shareholders may be adopted at any
time by an instrument signed in writing by a majority of the then
Trustees (or by any officer of the Trust pursuant to the vote of a
majority of such Trustees) when authorized to do so by the vote of the
Shareholders holding a majority of the Shares entitled to vote. Subject
to the foregoing, any such amendment shall be effective as provided in
the instrument containing the terms of such amendment or, if there is no
provision therein with respect to effectiveness, upon the execution of
such instrument and of a certificate (which may be a part of such
instrument) executed by a Trustee or officer to the effect that such
amendment has been duly adopted. Copies of the amendment to this
Declaration of Trust shall be filed as specified in Section 5 of this
Article XII. A restated Declaration of Trust, integrating into a single
instrument all of the provisions of the Declaration of Trust which are
then in effect and operative, may be executed from time to time by a
majority of the Trustees and shall be effective upon filing as specified
in Section 5.
Section 8. Amendments -- Series and Classes. The establishment and
designation of any Series or Class of Shares in addition to those
established and designated in Section 5 of Article III hereof shall be
effective upon the execution by a majority of the then Trustees, without
the need for Shareholder approval, of an amendment to this Declaration of
Trust, taking the form of a complete restatement or otherwise, setting
forth such establishment and designation and the relative rights and
preferences of any such Series or Class, or as otherwise provided in such
instrument.
Without limiting the generality of the foregoing, the Declaration of the
Trust may be amended without the need for Shareholder approval to:
(a) create one or more Series or Classes of Shares (in addition to
any Series or Classes already existing or otherwise) with such
rights and preferences and such eligibility requirements for
investment therein as the Trustees shall determine and reclassify
any or all outstanding Shares as Shares of particular Series or
Classes in accordance with such eligibility requirements;
(b) combine two or more Series or Classes of Shares into a single
Series or Class on such terms and conditions as the Trustees shall
determine;
(c) change or eliminate any eligibility requirements for investment
in Shares of any Series or Class, including without limitation the
power to provide for the issue of Shares of any Series or Class in
connection with any merger or consolidation of the Trust with
another trust or company or any acquisition by the Trust of part or
all of the assets of another trust or company;
(d) change the name of the Trust or the designation of any Series
or Class of Shares;
(e) change the method of allocating dividends among the various
Series and Classes of Shares;
(f) allocate any specific assets or liabilities of the Trust or any
specific items of income or expense of the Trust to one or more
Series and Classes of Shares; and
(g) specifically allocate assets to any or all Series or Classes of
Shares or create one or more additional Series or Classes of Shares
which are preferred over all other Series or Classes of Shares in
respect of assets specifically allocated thereto or any dividends
paid by the Trust with respect to any net income, however
determined, earned from the investment and reinvestment of any
assets so allocated or otherwise and provide for any special voting
or other rights with respect to such Series or Classes.
Section 9. Use of Name. The Trust acknowledges that Dauphin Deposit Bank and
Trust Company has reserved the right to grant the non-exclusive use of
the name "Court Street Funds" or any derivative thereof to any other
investment company, investment company portfolio, investment adviser,
distributor, or other business enterprise, and to withdraw from the Trust
or one or more Series or Classes any right to the use of the name "COURT
STREET FUNDS".
IN WITNESS WHEREOF, the undersigned have executed this instrument as of the
day and year first above written.
/s/ Edward C. Gonzales /s/ Jeffrey W.
Sterling
Edward C. Gonzales Jeffrey W. Sterling
/s/ C. Grant Anderson
C. Grant Anderson
COMMONWEALTH OF PENNSYLVANIA )
: ss: )
COUNTY OF ALLEGHENY )
I hereby certify that on September 1, 1995, before me, the subscriber, a
Notary Public of the Commonwealth of Pennsylvania, in for the County of
Allegheny, personally appeared EDWARD C. GONZALES, JEFFREY W. STERLING AND C.
GRANT ANDERSON who acknowledged the foregoing Declaration of Trust to be their
act.
Witness my hand and notarial seal the day and year above written.
/s/ Marie M. Hamm
Notary Public
Notarial Seal
Marie M. Hamm, Notary Public
Plum Boro, Allegheny County
Exhibit 1(i) under Form N-1A
Exhibit 3(a) under Item 601/Reg. S-K
COURT STREET FUNDS
Amendment No. 1
DECLARATION OF TRUST
dated September 1, 1995
THIS Declaration of Trust is amended as follows:
Delete the first paragraph of Section 5 in Article III and substitute in its
place the following:
Section 5. Establishment and Designation of Series or Class.
Without limiting the authority of the Trustees set forth in Article
XII, Section 8, inter alia, to establish and designate any additional
Series or Class or to modify the rights and preferences of any existing
Series or Class, the Series of the Trust shall be and is established
and designated as Pennsylvania Intermediate Municipal Bond Fund.
The undersigned Secretary of Court Street Funds hereby certifies that the
above stated Amendment is a true and correct Amendment to the Declaration of
Trust, as adopted by the Board of Trustees of the Trust as of the 20th day of
October, 1995.
WITNESS the due execution hereof this 23rd day of October, 1995.
/s/ C. Grant Anderson
C. Grant Anderson
Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretary of ***SEE BELOW*** and the Assistant
General Counsel of Federated Investors, and each of them, their true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for them and in their names, place and stead, in any and all capacities, to sign
any and all documents to be filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, by means of the Securities and Exchange
Commission's electronic disclosure system known as EDGAR; and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to sign and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as each of them might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/Edward C. Gonzales Chairman and TreasurerSeptember 27, 1995
Edward C. Gonzales (Chief Executive Officer
and Principal Financial
and Accounting Officer)
and Trustee/Director and
President
/s/George D. McKeon Trustee/Director September 27, 1995
George D. McKeon
/s/Gary Mozenter Trustee/Director September 27, 1995
Gary Mozenter
/s/Richard Seidel Trustee/Director September 27, 1995
Richard Seidel
***COURT STREET FUNDS/COURT STREET FUNDS, INC.
Sworn to and subscribed before me this 27th day of September, 1995
/s/Marie M. Hamm
Notarial Seal
Marie M. Hamm, Notary Public
Plum Boro, Allegheny County
