<PAGE> 1
As filed with the Securities and Exchange Commission on May 31, 1996
Registration No. _______
===============================================================================
U.S. Securities and Exchange Commission
Washington, DC 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. __ Post-Effective Amendment No. __
(Check appropriate box or boxes)
Exact Name of Registrant as Specified in Charter:
TRUST FOR FEDERAL SECURITIES
Area Code and Telephone Number:
(302) 792-2555
Bellevue Park Corporate Center EDWARD J. ROACH
400 Bellevue Parkway, Suite 100 Bellevue Park Corporate Center
Wilmington, Delaware 19809 400 Bellevue Parkway, Suite 100
(Address of Principal Executive Wilmington, Delaware 19809
Offices) (Name and Address of Agent for Service)
Copy to:
W. BRUCE McCONNEL, III
Drinker Biddle & Reath
1100 Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
Approximate Date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective under the Securities Act of 1933.
It is proposed that this filing will become effective on June 30, 1996 pursuant
to Rule 488 under the Securities Act of 1933.
Calculation of Registration Fee under the Securities Act of 1933: No filing fee
is required because an indefinite number of shares have previously been
registered on Form N-1A (Registration No. 2-53808) pursuant to Rule 24f-2 under
the Investment Company Act of 1940. The registrant is filing as an exhibit to
this Registration Statement a copy of its earlier declaration under Rule 24f-2.
Pursuant to Rule 429, this Registration Statement relates to the aforesaid
registration statement on Form N-1A.
<PAGE> 2
TRUST FOR FEDERAL SECURITIES
FORM N-14
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a)
<TABLE>
<CAPTION>
ITEM NO. PROSPECTUS HEADING
- -------- ------------------
<S> <C> <C>
1. Beginning of Registration Statement
and Outside Front Cover Page..................................... Cover Page
2. Beginning and Outside
Back Cover Page.................................................. Table of Contents
3. Fee Table, Synopsis Information
and Risk Factors................................................. Comparative Fee Tables;
Summary; Risk Factors
4. Information About the Transaction................................ Information Relating to
the Proposed
Reorganization;
Comparison of the Funds
5. Information About the Registrant................................. Summary; Comparison of
the Funds; Additional
Information About the
Funds
6. Information About the Company
Being Acquired................................................... Summary; Comparison of
the Funds; Additional
Information About the
Funds
7. Voting Information............................................... Summary; Information
Relating to Voting
Matters
8. Interest of Certain Persons
and Experts...................................................... Additional Information
About the Funds
9. Additional Information Required
for Reoffering by Persons Deemed
to be Underwriters............................................... Inapplicable
</TABLE>
<PAGE> 3
TRUST FOR FEDERAL SECURITIES
FedCash and T-Cash Portfolios
__________, 1996
Dear Shareholder:
The Board of Trustees of Trust for Federal Securities (the
"Company") is pleased to call a special shareholders meeting concerning matters
that are important to you.
At the meeting shareholders will be asked to consider the
combination of the FedCash and T-Cash portfolios, respectively, with the
Company's FedFund and T-Fund portfolios. The formal Notice of Special Meeting of
Shareholders and a Combined Proxy Statement/Prospectus describing this matter in
detail are enclosed, as is a form of Proxy for your use. IT IS IMPORTANT THAT
YOU RETURN THE PROXY WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
The proposed combination provides that the assets and liabilities
of the FedCash and T-Cash portfolios (the "Transferor Funds") will be
transferred to the FedFund and T-Fund portfolios, respectively (the "Surviving
Funds"), and that shareholders will exchange their shares of the Transferor
Funds for shares of the Surviving Funds having the same value.
In connection with its recommendation of the proposed combination
to shareholders, the Board of Trustees of the Company considered that the total
assets of the Surviving Funds are considerably greater than those of the
Transferor Funds. The Board believes that the investment and other operations of
the Transferor Funds can be conducted more efficiently through their combination
with the Surviving Funds, and that the proposed reorganization is in the best
interests of the Funds and their shareholders. The Board has also considered
that the investment objectives, policies and restrictions of each Surviving Fund
are substantially the same as those of its corresponding Transferor Fund and
that the annualized ordinary operating expense ratios of the Surviving Funds
after fee waivers have been comparable to those of the Transferor Funds.
<PAGE> 4
Because the matters described in the attached materials are
important to you, I urge you to complete and return the enclosed proxy promptly
to ensure that your shares are represented at the meeting. I also urge you to
vote "FOR" the proposed transaction.
Sincerely,
G. Willing Pepper
Chairman
<PAGE> 5
TRUST FOR FEDERAL SECURITIES
BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY, SUITE 100
WILMINGTON, DELAWARE 19809
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF FEDCASH AND T-CASH
TO BE HELD ON , 1996
TO THE SHAREHOLDERS OF
FedCash and T-Cash,
Investment Portfolios Offered by
Trust for Federal Securities
NOTICE IS HEREBY GIVEN THAT a Special Meeting of Shareholders of FEDCASH
and T-CASH, two investment portfolios offered by Trust for Federal Securities
(the "Company"), will be held at the Company's offices, Bellevue Park Corporate
Center, 400 Bellevue Parkway, Suite 100, Wilmington, Delaware 19809 on
, 1996 at 10:00 a.m., local time, for the following purpose: and to
transact such other business as may properly come before the Special Meeting or
any adjournment thereof.
ITEM 1. To approve or disapprove a Plan of Reorganization and the
transactions contemplated thereby, including the transfer of all of the
assets and liabilities of the Company's FedCash and T-Cash investment
portfolios (the "Transferor Funds") to the Company's FedFund and T-Fund
investment portfolios, respectively (the "Surviving Funds"), in exchange
for shares of the Surviving Funds, and a liquidating distribution of such
shares to shareholders of the Transferor Funds.
YOUR TRUSTEES RECOMMEND THAT YOU VOTE IN FAVOR OF ITEM 1.
The proposed reorganization and related matters are described in the
attached Combined Proxy Statement/Prospectus. A copy of the Plan of
Reorganization is appended as Appendix A thereto.
Shareholders of record as of the close of business on , 1996 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment
thereof.
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE THE ACCOMPANYING PROXY CARD WHICH IS BEING SOLICITED BY THE BOARD OF
TRUSTEES OF THE COMPANY. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE MEETING.
PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY SUBMITTING TO
THE COMPANY A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY EXECUTED PROXY OR
BY ATTENDING THE MEETING AND ELECTING TO VOTE IN PERSON.
By the Order of the
Board of Trustees
W. Bruce McConnel, III
Secretary
, 1996
<PAGE> 6
COMBINED PROXY STATEMENT/PROSPECTUS
DATED , 1996
TRUST FOR FEDERAL SECURITIES
BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY, SUITE 100
WILMINGTON, DELAWARE 19809
PHONE (800) 821-7432
This Combined Proxy Statement/Prospectus is furnished in connection with
the solicitation of proxies by the Board of Trustees of Trust for Federal
Securities (the "Company") for use at a Special Meeting of Shareholders of the
Company's FedCash and T-Cash investment portfolios (the "Transferor Funds") to
be held at 10:00 a.m., local time, on , 1996 at the Company's offices,
Bellevue Park Corporate Center, 400 Bellevue Parkway, Suite 100, Wilmington,
Delaware 19809, or any adjournment thereof (the "Meeting"). At the Meeting
shareholders of the Transferor Funds will be asked to consider and approve a
proposed Plan of Reorganization dated as of , 1996 and the
transactions contemplated thereby.
The Transferor Funds and the Company's FedFund and T-Fund investment
portfolios (the "Surviving Funds") are separate money market portfolios of the
Company, which is registered as an open-end management company under the
Investment Company Act of 1940 (the "1940 Act"). The investment objective,
policies and fundamental limitations of each Transferor Fund are substantially
the same as those of the corresponding Surviving Fund. In addition, the purchase
and redemption policies of each Transferor Fund and the corresponding Surviving
Fund are the same and the service providers for each Transferor Fund and the
corresponding Surviving Fund are the same. As discussed in this Combined Proxy
Statement/Prospectus, the original reasons for the separate organization of the
Transferor Funds no longer exist, and management of the Company believes that
because of the potential benefits of the larger asset base that may be achieved
through combining the Transferor and Surviving Funds, coupled with the fact that
the Transferor Funds are relatively smaller than the Surviving Funds, the
investment and other operations of the Transferor Funds would be conducted more
efficiently through their reorganization into the Surviving Funds.
The Plan of Reorganization provides that each Transferor Fund will transfer
all of its assets and liabilities to the corresponding Surviving Fund. In
exchange for the transfer of these assets and liabilities, the Company will
simultaneously issue shares in each of the Surviving Funds to the corresponding
Transferor Fund.
The Transferor Funds will then make a liquidating distribution of the
Surviving Funds' shares to the shareholders of the Transferor Funds, such that
each holder of shares of a Transferor Fund will hold, immediately after the
effective time of the reorganization, a like number of full and fractional
shares in the Surviving Fund. Each of the Transferor Funds has two classes of
shares outstanding. Likewise, the FedFund investment portfolio also has two
classes of shares outstanding, and although the T-Fund investment portfolio has
three classes of shares outstanding, only two of these classes are involved in
the transactions contemplated by the Plan of Reorganization as described herein.
Holders of each class of shares of a Transferor Fund will receive the class of
shares of the corresponding Surviving Fund as set forth in the table on page
under "Information Relating to the Proposed Reorganization -- Description of the
Plan of Reorganization."
This Combined Proxy Statement/Prospectus sets forth concisely the
information that a shareholder of the Transferor Funds should know before voting
on the Plan of Reorganization and should be retained for future reference. The
Prospectuses relating to the Surviving Funds and their shares dated February 28,
1996, which describe the operations of the Surviving Funds, accompany this
Combined Proxy Statement/Prospectus. Additional information is set forth in the
Statement of Additional Information dated May 31, 1996 relating to the Surviving
Funds and the Statement of Additional Information dated , 1996
relating to this Combined Proxy Statement/Prospectus, and in the Prospectuses
dated February 28, 1996 and the Statement of Additional Information dated
February 28, 1996 (as revised April 8, 1996) relating to the Transferor Funds.
Each of these documents is on file with the Securities and Exchange Commission
(the "SEC") and is available without charge upon oral or written request by
writing or calling the Company at the
1
<PAGE> 7
address or telephone number indicated above. The information contained in the
aforesaid Prospectuses and Statements of Additional Information is incorporated
herein by reference.
This Combined Proxy Statement/Prospectus constitutes the Transferor Funds'
Proxy Statement for the Meeting, and the Prospectus for the shares of the
Surviving Funds that have been registered with the SEC and are to be issued in
connection with the reorganization.
This Combined Proxy Statement/Prospectus is expected to be sent to
shareholders of the Transferor Funds on or about July , 1996.
Shares of the Transferor Funds and Surviving Funds (collectively, the
"Funds") are not deposits or obligations of or guaranteed, endorsed or otherwise
supported by PNC Bank Corp. or its affiliates, or the U.S. Government and are
not federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other agency. An investment in the Funds involves
investment risks, including the possible loss of principal. There can be no
assurance that any Fund will be able to maintain its net asset value of $1.00
per share.
THE SECURITIES OF THE SURVIVING FUNDS 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 COMBINED PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROXY
STATEMENT/PROSPECTUS AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY
REFERENCE AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
2
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY............................................................................... 1
Proposed Reorganization............................................................. 1
Reasons for Reorganization.......................................................... 1
Federal Income Tax Consequences..................................................... 1
Comparison of the Funds............................................................. 1
Expense Ratios...................................................................... 3
Comparative Fee Tables.............................................................. 3
Voting Information.................................................................. 6
Risk Factors........................................................................ 6
INFORMATION RELATING TO THE PROPOSED REORGANIZATION................................... 6
Description of the Plan of Reorganization........................................... 6
Board Consideration................................................................. 7
Capitalization...................................................................... 8
Federal Income Tax Consequences..................................................... 8
COMPARISON OF THE FUNDS............................................................... 9
Investment Objectives and Policies.................................................. 9
Other Information................................................................... 9
INFORMATION RELATING TO VOTING MATTERS................................................ 10
General Information................................................................. 10
Shareholder and Board Approval...................................................... 10
Quorum.............................................................................. 11
Annual Meetings..................................................................... 11
ADDITIONAL INFORMATION ABOUT THE FUNDS................................................ 11
FINANCIAL STATEMENTS.................................................................. 12
OTHER BUSINESS........................................................................ 12
SHAREHOLDER INQUIRIES................................................................. 12
Appendix A -- Plan of Reorganization.................................................. A-1
</TABLE>
<PAGE> 9
SUMMARY
The following is a summary of certain information relating to the proposed
reorganization, the parties thereto and the related transactions, and is
qualified by reference to the more complete information contained elsewhere in
this Combined Proxy Statement/Prospectus, including the Plan of Reorganization
attached as Appendix A hereto, and in the Prospectuses and Statements of
Additional Information of the Transferor Funds and Surviving Funds. The
Company's Annual Report to Shareholders may be obtained free of charge by
calling 1-800-821-7432 or by writing the Company at its address given on the
first page of this Combined Proxy Statement/Prospectus.
Proposed Reorganization: The Board of Trustees of the Company has approved
the Plan of Reorganization, which is being recommended to the shareholders of
the Transferor Funds for approval at the Meeting. Subject to such approval, the
Plan of Reorganization provides for the acquisition by each Surviving Fund of
all of the assets and liabilities of the corresponding Transferor Fund (such
assets subject to such liabilities are called the "Assets") in exchange for
shares of the Surviving Fund, and a liquidating distribution of such shares.
As a result of the proposed reorganization, each shareholder of a
Transferor Fund will become a shareholder of the corresponding Surviving Fund
and will hold, immediately after the time the reorganization becomes effective
(the "Effective Time of the Reorganization"), the same number of shares of a
class of shares of the corresponding Surviving Fund, with the same value, as the
number of shares of a class of shares the shareholder held in the particular
Transferor Fund immediately before the Effective Time of the Reorganization.
For further information, see "Information Relating to the Proposed
Reorganization -- Description of the Plan of Reorganization."
Reasons for Reorganization: In considering the Plan of Reorganization, the
Company's Board of Trustees observed that the Transferor Funds had been created
to offer investment portfolios with investment objectives and policies similar
to, but expense ratios and minimum investment amounts different from, those
offered by the Surviving Funds, but that over time the differences between the
expense ratios and minimum investment amounts had disappeared, so that there was
little distinction between the Transferor Funds and Surviving Funds. In
connection with its approval of the Plan of Reorganization, the Company's Board
of Trustees noted that the investment objective, policies and fundamental
investment limitations of each Transferor Fund were substantially the same as
those of the corresponding Surviving Fund; that the total assets of the
Surviving Funds were considerably greater than those of the Transferor Funds;
that the greater aggregate assets upon combination of the respective Transferor
and Surviving Funds would potentially allow the Surviving Funds to take
advantage of the possible benefits of a larger asset base such as economies of
scale, lower fixed expense ratios and greater leverage in the market; that the
annualized ordinary operating expense ratios (that is, the ratio of ordinary
operating expenses to average daily net assets) of the Surviving Funds before
fee waivers, have historically been lower than those for the corresponding
Transferor Funds and that, on a net basis, after fee waivers, these ratios have
been comparable; and that the service providers for each of the Transferor Funds
and Surviving Funds were the same. Management of the Company believes that
because of their relatively smaller size, the investment and other operations of
the Transferor Funds would be conducted more efficiently through their
reorganization with the Surviving Funds, and that the proposed reorganization is
in the interests of the Transferor Funds and their shareholders. See
"Information Relating to the Proposed Reorganization -- Board Consideration."
Federal Income Tax Consequences: Consummation of the reorganization will
not give rise to tax liability for federal income tax purposes to any of the
Transferor Funds or Surviving Funds or their respective shareholders. See
"Information Relating to the Proposed Reorganization -- Federal Income Tax
Consequences."
Comparison of the Funds: The Surviving Funds and their shares are
described in the Prospectuses dated February 28, 1996 that accompany this
Combined Proxy Statement/Prospectus. The investment objective and policies of
each Transferor Fund and its corresponding Surviving Fund are substantially the
<PAGE> 10
same. Investment advisory and sub-investment advisory services are provided to
each of the Transferor Funds and Surviving Funds by PNC Institutional Management
Corporation ("PIMC") and PNC Bank, National Association ("PNC Bank"),
respectively. Administration services are provided to each of the Transferor
Funds and Surviving Funds by PFPC Inc. ("PFPC") and Provident Distributors, Inc.
("PDI"). PDI also serves as distributor of the shares of each of the Transferor
Funds and Surviving Funds. In addition, each of the Transferor Funds and
Surviving Funds receive transfer agency services from PFPC and custodial
services from PNC Bank.
The procedures for purchasing and redeeming shares of the Transferor Funds
are the same as those for shares of the Surviving Funds. Additionally, dividends
on net investment income for both the Transferor Funds and Surviving Funds are
declared daily and paid monthly within five business days after the end of the
month. No Transferor Fund or Surviving Fund expects to realize net long-term
capital gains.
For the advisory services provided and expenses assumed by it, PIMC is
entitled to receive a fee from each Transferor Fund and each Surviving Fund
based on the combined average net assets of the Transferor Funds, the Surviving
Funds and the Company's Federal Trust Fund and Treasury Trust Fund, computed
daily and payable monthly, as follows:
<TABLE>
<CAPTION>
ANNUAL FEE COMBINED AVERAGE NET ASSETS
------------------------------------- -------------------------------------
<S> <C> <C>
.175%.............................. of the first $1 billion
.150%.............................. of the next $1 billion
.125%.............................. of the next $1 billion
.100%.............................. of the next $1 billion
.095%.............................. of the next $1 billion
.090%.............................. of the next $1 billion
.085%.............................. of the next $1 billion
.080%.............................. of amounts in excess of $7 billion.
</TABLE>
The advisory fee is allocated between the Transferor Funds, the Surviving
Funds and the Company's Federal Trust Fund and Treasury Trust Fund in proportion
to their relative net assets. For the fiscal year ending October 31, 1995, PIMC
received advisory fees (after fee waivers) from the Transferor Funds and the
Surviving Funds at the following effective rates: .07% of the average net assets
of each of FedFund, FedCash and T-Fund and .06% of the average net assets of
T-Cash.
For the services provided and expenses assumed pursuant to its Sub-Advisory
Agreement, PNC Bank, as sub-adviser, is entitled to receive a fee from PIMC in
an amount equal to 75% of the advisory fee paid by each Transferor Fund and
Surviving Fund to PIMC (subject to adjustment in certain circumstances). The
sub-advisory fees paid by PIMC to PNC Bank have no effect on the advisory fees
payable by each Fund to PIMC.
2
<PAGE> 11
Expense Ratios: The following table sets forth the ratios of operating
expenses to average net assets of each of the classes of shares of the
Transferor Funds and Surviving Funds involved in the reorganization for the
fiscal year ended October 31, 1995 (i) after fee waivers and (ii) absent fee
waivers:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED OCTOBER 31, 1995
-----------------------------------------
RATIO OF OPERATING RATIO OF OPERATING
EXPENSES TO AVERAGE EXPENSES TO AVERAGE
NET ASSETS AFTER NET ASSETS ABSENT
FEE WAIVERS FEE WAIVERS
------------------- -------------------
<S> <C> <C>
TRANSFEROR FUNDS
- ------------------
FedCash
FedCash Shares............................................ .18% .30%
FedCash Dollar Shares..................................... .43% .55%
T-Cash
T-Cash Shares............................................. .18% .30%
T-Cash Dollar Shares...................................... .43% .55%
SURVIVING FUNDS
- -----------------
FedFund
FedFund Shares............................................ .18% .29%
FedFund Dollar Shares..................................... .43% .54%
T-Fund
T-Fund Shares............................................. .18% .29%
T-Fund Dollar Shares...................................... .43% .54%
</TABLE>
Comparative Fee Tables: The following tables (i) compare the fees and
expenses of each Transferor Fund and its corresponding Surviving Fund based on
expenses incurred during their fiscal year ended October 31, 1995, restated to
reflect the expenses which each such Fund expects to incur during the current
fiscal year, and (ii) show the estimated fees and expenses on a pro forma basis
giving effect to the reorganization. The tables do not reflect any charges that
may be charged by institutional investors for providing administrative services
in connection with their customers' investments in FedCash Dollar Shares, T-Cash
Dollar Shares, FedFund Dollar Shares and T-Fund Dollar Shares.
3
<PAGE> 12
TABLE 1
<TABLE>
<CAPTION>
PRO FORMA
FEDCASH FEDFUND COMBINED FUND
------------------- ------------------- -------------------
(FEDCASH (FEDFUND (FEDFUND
(FEDCASH DOLLAR (FEDFUND DOLLAR (FEDFUND DOLLAR
SHARES) SHARES) SHARES) SHARES) SHARES) SHARES)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Annual Fund Operating Expenses:
(as a percentage of average net
assets)
Management Fees (net of
waivers)(1)....................... 0.07% 0.07% 0.07% 0.07% 0.07% 0.07%
Other Expenses...................... 0.13% 0.38% 0.13% 0.38% 0.13% 0.38%
---- ---- ---- ---- ---- ----
Administration Fees (net of
waivers)(2).................... .07% .07% .07% .07% .07% .07%
Shareholder Servicing Fees........ 0% .25% 0% .25% 0% .25%
Miscellaneous..................... .06% .06% .06% .06% .06% .06%
---- ---- ---- ---- ---- ----
Total Fund Operating Expenses:
(net of waivers)(3)............... 0.20% 0.45% 0.20% 0.45% 0.20% 0.45%
==== ==== ==== ==== ==== ====
</TABLE>
- ---------------
(1) Management Fees (absent fee waivers) would have been 0.13% and 0.13% for
FedCash Shares and FedCash Dollar Shares, respectively, 0.13% and 0.13% for
FedFund Shares and FedFund Dollar Shares, respectively, and 0.13% and 0.13%
for Pro Forma Combined FedFund Shares and FedFund Dollar Shares,
respectively. Fee waivers reflected in the table are voluntary and may be
terminated at any time, with respect to either Fund without the consent of
the Funds.
(2) Administration Fees (absent fee waivers) would have been 0.13% and 0.13% for
FedCash Shares and FedCash Dollar Shares, respectively, 0.13% and 0.13% for
FedFund Shares and FedFund Dollar Shares, respectively, and 0.13% and 0.13%
for Pro Forma Combined FedFund Shares and FedFund Dollar Shares,
respectively.
(3) Total Fund Operating Expenses (absent fee waivers) would have been 0.30% and
0.55% for FedCash Shares and FedCash Dollar Shares, respectively, 0.29% and
0.54% for FedFund Shares and FedFund Dollar Shares, respectively, and 0.29%
and 0.54% for Pro Forma Combined FedFund Shares and FedFund Dollar Shares,
respectively.
EXAMPLE:
You would pay the following expenses on a $1,000 investment, assuming (1)
5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
FedCash
FedCash Shares........................... $2 $ 6 $11 $26
FedCash Dollar Shares.................... $5 $14 $25 $57
FedFund
FedFund Shares........................... $2 $ 6 $11 $26
FedFund Dollar Shares.................... $5 $14 $25 $57
Pro Forma Combined
FedFund Shares........................... $2 $ 6 $11 $26
FedFund Dollar Shares.................... $5 $14 $25 $57
</TABLE>
4
<PAGE> 13
TABLE 2
<TABLE>
<CAPTION>
PRO FORMA
T-CASH T-FUND COMBINED FUND
------------------- ------------------- -------------------
(T-CASH (T-FUND (T-FUND
(T-CASH DOLLAR (T-FUND DOLLAR (T-FUND DOLLAR
SHARES) SHARES) SHARES) SHARES) SHARES) SHARES)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Annual Fund Operating Expenses:
(as a percentage of average net
assets)
Management Fees (net of
waivers)(1)....................... 0.06% 0.06% 0.07% 0.07% 0.07% 0.07%
Other Expenses...................... 0.14% 0.39% 0.13% 0.38% 0.13% 0.38%
----- ---- - ---- - ---- - ---- -
Administration Fees (net of
waivers)(2).................... .06% .06% .07% .07% .07% .07%
Shareholder Servicing Fees........ 0% .25% 0% .25% 0% .25%
Miscellaneous..................... .08% .08% .06% .06% .06% .06%
----- ----- ---- ---- ---- ----
Total Fund Operating Expenses:
(net of waivers)(3)............... 0.20% 0.45% 0.20% 0.45% 0.20% 0.45%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Management Fees (absent fee waivers) would have been 0.13% and 0.13% for
T-Cash Shares and T-Cash Dollar Shares, respectively, 0.13% and 0.13% for
T-Fund Shares and T-Fund Dollar Shares, respectively, and 0.13% and 0.13%
for Pro Forma Combined T-Fund Shares and T-Fund Dollar Shares, respectively.
Fee waivers reflected in the table are voluntary and may be terminated at
any time, with respect to either Fund without the consent of the Funds.
(2) Administration Fees (absent fee waivers) would have been 0.13% and 0.13% for
T-Cash Shares and T-Cash Dollar Shares, respectively, 0.13% and 0.13% for
T-Fund Shares and T-Fund Dollar Shares, respectively, and 0.13% and 0.13%
for Pro Forma Combined T-Fund Shares and T-Fund Dollar Shares, respectively.
(3) Total Fund Operating Expenses (absent fee waivers) would have been 0.30% and
0.55% for T-Cash Shares and T-Cash Dollar Shares, respectively, 0.29% and
0.54% for T-Fund Shares and T-Fund Dollar Shares, respectively, and 0.29%
and 0.54% for Pro Forma Combined T-Fund Shares and T-Fund Dollar Shares,
respectively.
EXAMPLE:
You would pay the following expenses on a $1,000 investment, assuming (1)
5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
T-Cash
T-Cash Shares............................ $2 $ 6 $11 $26
T-Cash Dollar Shares..................... $5 $14 $25 $57
T-Fund
T-Fund Shares............................ $2 $ 6 $11 $26
T-Fund Dollar Shares..................... $5 $14 $25 $57
Pro Forma Combined
T-Fund Shares............................ $2 $ 6 $11 $26
T-Fund Dollar Shares..................... $5 $14 $25 $57
</TABLE>
5
<PAGE> 14
Voting Information: This Combined Proxy Statement/Prospectus is being
furnished in connection with the solicitation of proxies by the Company's Board
of Trustees for use at the Meeting. Only shareholders of record of the
Transferor Funds at the close of business on , 1996 will be entitled
to vote. Each share or fraction thereof is entitled to one whole or fractional
vote. Shares represented by a properly executed proxy will be voted in
accordance with the instructions thereon, or if no specification is made, the
persons named as proxies will vote in favor of the proposal set forth in the
Notice of Special Meeting of Shareholders. Proxies may be revoked at any time
before they are exercised by the subsequent execution and submission of a
revised proxy, by written notice of revocation to the Company, or by voting in
person at the Meeting. For additional information, including a description of
the shareholder vote required for approval of the Plan of Reorganization and the
transactions contemplated therein, see "Information Relating to Voting Matters."
Risk Factors: Because of the similarities of the investment objectives and
policies of the Funds, management believes that an investment in a Surviving
Fund involves investment risks that are substantially the same as those of the
corresponding Transferor Fund. These investment risks, in general, are those
typically associated with investing in a portfolio of money market instruments.
There are some differences, however, between the Transferor Funds and the
Surviving Funds which can result in different risks. For example, T-Cash may
enter into reverse purchase agreements which involve the risk that the market
value of the portfolio securities sold by a Fund may decline below the price of
the securities the Fund is obligated to repurchase. T-Cash may lend its
portfolio securities to financial institutions against specified collateral
which is equal at all times to 100% of the value of the securities. Such loans
involve risks of delay in receiving additional collateral or in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. In contrast, T-Fund does not currently
engage in these somewhat riskier activities.
PIMC and PNC Bank evaluate the rewards and risks presented by all
securities purchased by the Transferor Funds and Surviving Funds, and determine,
in connection with the management of the Funds, how these securities will be
used in furtherance of the Funds' investment objectives. It is possible,
however, that these evaluations will prove to be inaccurate or incomplete and,
even when accurate and complete, it is possible that a Fund will incur loss.
Although each Transferor Fund and Surviving Fund seeks to maintain a stable net
asset value of $1.00 per share, there is no assurance that it will be able to do
so.
INFORMATION RELATING TO THE PROPOSED REORGANIZATION
The terms and conditions under which the reorganization may be consummated
are set forth in the Plan of Reorganization. Significant provisions of the Plan
of Reorganization are summarized below; however, this summary is qualified in
its entirety by reference to the Plan of Reorganization, a copy of which is
attached as Appendix A to this Combined Proxy Statement/Prospectus.
Description of the Plan of Reorganization: The Plan of Reorganization
provides that at the Effective Time of the Reorganization, all of the Assets of
each Transferor Fund will be transferred to its corresponding Surviving Fund,
such that at and after the Effective Time of the Reorganization the Assets
(including liabilities) of the Transferor Fund will become and be the Assets
(including liabilities) of the Surviving Fund. In exchange for the transfer of
Assets, the Company will issue to each Transferor Fund full and fractional
shares of the corresponding Surviving Fund, and the Transferor Fund will make a
liquidating distribution of such shares. The holders of each class of shares of
a Transferor Fund will receive the class of shares of the corresponding
Surviving Fund identified in the table below. In the table, (a) opposite the
name of each Transferor Fund is the name of the Surviving Fund which will issue
shares to such Transferor Fund, and (b) opposite the name of each class of
shares of a Transferor Fund is the name of the class of shares of the
corresponding Surviving Fund to be distributed to holders of such class of
shares of the Transferor Fund. The number of shares of each class of shares of a
Surviving Fund so issued will be equal in number to the number of full and
fractional shares of the corresponding class of shares representing interests in
the corresponding Transferor Fund that are outstanding immediately prior to the
Effective Time of the Reorganization. All of the shares of each Transferor Fund
and Surviving Fund have a net asset value of $1.00. At and after the Effective
Time of the Reorganization, all debts, liabilities and obligations of each
Transferor Fund will attach to its
6
<PAGE> 15
corresponding Surviving Fund and may thereafter be enforced against the
Surviving Fund to the same extent as if they had been incurred by it.
<TABLE>
<CAPTION>
TRANSFEROR FUNDS AND CLASSES SURVIVING FUNDS AND CLASSES
---------------------------------- ----------------------------------
<S> <C>
FedCash FedFund
FedCash Shares FedFund Shares
FedCash Dollar Shares FedFund Dollar Shares
T-Cash T-Fund
T-Cash Shares T-Fund Shares
T-Cash Dollar Shares T-Fund Dollar Shares
</TABLE>
To facilitate the foregoing, the Company will establish open accounts in
the name of each shareholder of a Transferor Fund representing the number of
FedFund Shares, FedFund Dollar Shares, T-Fund Shares or T-Fund Dollar Shares of
the corresponding Surviving Fund owned by the shareholder as a result of the
reorganization. The stock transfer books of the Company for the Transferor Funds
will be permanently closed as of the close of business on the day immediately
preceding the Effective Time of the Reorganization. Redemption requests received
thereafter by the Company with respect to the Transferor Funds will be deemed to
be redemption requests for the corresponding classes of shares of the Surviving
Funds issued in the reorganization. If any Transferor Fund shares held by a
Transferor Fund shareholder are represented by a share certificate, the
certificate must be surrendered to the Company's transfer agent for cancellation
before the Surviving Fund shares issued to the shareholder in the reorganization
will be redeemed.
The reorganization is subject to a number of conditions, including approval
of the Plan of Reorganization and the transactions contemplated therein by the
shareholders of the respective Transferor Funds, and the receipt of the legal
opinion of Drinker Biddle & Reath that shares of the Surviving Funds issued to
shareholders of the Transferor Funds in accordance with the terms of the Plan of
Reorganization will be validly issued, fully paid and nonassessable.
Each shareholder of the Transferor Funds will have the right to receive any
unpaid dividends or other distributions that were declared before the Effective
Time of the Reorganization with respect to the shares representing interests in
the Transferor Funds held by the shareholder immediately prior to the Effective
Time of the Reorganization. Assuming satisfaction of the conditions in the Plan
of Reorganization, the Effective Time of the Reorganization will be on
, 1996, or such other date as is scheduled by the Company.
The Plan of Reorganization and the reorganization described therein may be
abandoned at any time for any reason prior to the Effective Time of the
Reorganization upon the vote of a majority of the Board of Trustees of the
Company. The Plan of Reorganization provides further that at any time prior to
or (to the fullest extent permitted by law) after approval of the Plan of
Reorganization by the shareholders of the Transferor Funds the Company may, upon
authorization by the Board of Trustees of the Company, and with or without the
approval of the shareholders, amend any of the provisions of the Plan of
Reorganization. The Plan of Reorganization provides that in the event the Plan
is approved with respect to one but not both of the Transferor Funds, the Board
of Trustees may, in the exercise of its reasonable business judgment, either
abandon the reorganization with respect to both of the Transferor Funds or
direct that the reorganization be consummated to the extent it deems advisable.
Board Consideration: The Board of Trustees of the Company considered the
proposed reorganization at a meeting held on May 24, 1996. At the meeting, the
trustees observed that the original reasons for the organization of the
Transferor Funds as separate portfolios of the Company no longer existed as
discussed under "Summary -- Reasons for Reorganization." In addition, the
Surviving Funds had substantially greater assets ($2.9 billion as of October 31,
1995) than the Transferor Funds ($672 million as of the same date). The Board
was advised that because of their greater size, the investment and other
operations of the Surviving Funds were believed to be more efficient than those
of the Transferor Funds, and that management believed that the proposed
reorganization would benefit the Transferor Funds, the Surviving Funds and their
shareholders. These benefits included greater potential portfolio trading
efficiencies, such as quantity
7
<PAGE> 16
discounts, better securities execution and reduced portfolio volatility
resulting from shareholder purchase and redemption activity, and potentially
broader portfolio diversification.
The Board of Trustees reviewed the terms of the proposed reorganization,
and considered the similarity of the investment objectives, policies and
restrictions of the Transferor Funds and Surviving Funds. The Trustees also
considered the federal tax consequences of the reorganization. The Board of
Trustees reviewed the expected costs of the reorganization, estimated to be
approximately $ .
Based upon their evaluation of the relevant information presented to them,
and in light of their fiduciary duties under federal and state law, the
Company's Board of Trustees unanimously determined that the proposed
reorganization was in the best interests of each of the Transferor Funds and
Surviving Funds, that the interests of shareholders of the Company would not be
diluted as a result of the transaction, and that the Board should recommend
approval of the Plan of Reorganization by shareholders of the Transferor Funds
at the Meeting. The Plan of Reorganization in the form attached hereto as
Appendix A was approved by the Board of Trustees on May 24, 1996.
Capitalization: Because the Transferor Funds will be combined with the
Surviving Funds in the reorganization, the total capitalization of each
Surviving Fund after the reorganization is expected to be greater than the
current capitalization of the corresponding Transferor Fund. The following table
sets forth as of October 31, 1995 (i) the capitalization of each Transferor
Fund; (ii) the capitalization of each Surviving Fund; and (iii) the pro forma
capitalization of each Surviving Fund as adjusted to give effect to the proposed
reorganization of the corresponding Transferor Fund. There is, of course, no
assurance that the reorganization will be consummated. Moreover, if consummated,
the capitalization of each Fund is likely to be different at the Effective Time
of the Reorganization as a result of daily share purchase and redemption
activity in the Funds.
<TABLE>
<CAPTION>
PRO FORMA
FEDCASH FEDFUND COMBINED
------------ -------------- --------------
<S> <C> <C> <C>
Total Net Assets
FedCash/FedFund Shares...................... $356,602,000 $1,377,175,000 $1,733,777,000
FedCash/FedFund Dollar Shares............... $ 2,003,000 $ 213,177,000 $ 215,180,000
Shares Outstanding
FedCash/FedFund Shares...................... 356,679,113 1,377,353,815 1,734,032,928
FedCash/FedFund Dollar Shares............... 2,006,078 213,207,736 215,213,814
Net Asset Value Per Share
FedCash/FedFund Shares...................... $1.00 $1.00 $1.00
FedCash/FedFund Dollar Shares............... $1.00 $1.00 $1.00
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
T-CASH T-FUND COMBINED
------------ -------------- --------------
<S> <C> <C> <C>
Total Net Assets
T-Cash/T-Fund Shares........................ $250,041,000 $1,211,220,000 $1,461,261,000
T-Cash/T-Fund Dollar Shares................. $ 63,537,000 $ 82,502,000 $ 146,039,000
Shares Outstanding
T-Cash/T-Fund Shares........................ 250,036,829 1,211,196,665 1,461,233,494
T-Cash/T-Fund Dollar Shares................. 63,535,883 82,499,343 146,035,226
Net Asset Value Per Share
T-Cash/T-Fund Shares........................ $1.00 $1.00 $1.00
T-Cash/T-Fund Dollar Shares................. $1.00 $1.00 $1.00
</TABLE>
Federal Income Tax Consequences: Consummation of the transaction is
subject to the condition that the respective parties receive an opinion from
Drinker Biddle & Reath, subject to appropriate factual assumptions, to the
effect, among other things, that for federal income tax purposes (1) the
transaction will
8
<PAGE> 17
constitute a tax-free transaction under Section 368(a)(1)(C) or Section
368(a)(1)(D) of the Internal Revenue Code of 1986, as amended, (2) no gain or
loss will be recognized by the Transferor Funds or Surviving Funds or the
shareholders of the Transferor Funds, and (3) the basis and holding period of
FedFund Shares, FedFund Dollar Shares, T-Fund Shares or T-Fund Dollar Shares
received by the Shareholders of the Transferor Funds generally will be the same
as the basis and holding period of the corresponding shares of the Transferor
Funds exchanged therefor.
The Company has not sought a tax ruling from the Internal Revenue Service
("IRS"). The tax opinion described in the preceding paragraph will not be
binding on the IRS and will not preclude the IRS from adopting a contrary
position. Shareholders should consult their own advisors concerning the
potential tax consequences to them, including state and local income tax
consequences.
COMPARISON OF THE FUNDS
Investment Objectives and Policies: Each of the Funds is classified as a
"diversified" portfolio under the 1940 Act. The investment objective and
fundamental limitations of each Transferor Fund and corresponding Surviving Fund
are the same.
The investment policies of each Transferor Fund and Surviving Fund are
substantially the same, except as follows: FedFund and FedCash each invest in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. The agencies or instrumentalities of the U.S. Government the
obligations of which may be purchased by FedCash are limited, however, to those
obligations in which national banks may invest directly without limitation.
T-Fund and T-Cash may each enter into repurchase agreement transactions with
financial institutions. T-Fund, however, may only enter into such transactions
with primary dealers of the Federal Reserve Bank of New York and such
transactions must be collateralized at not less than 102% of the repurchase
price (as opposed to not less than 100% of the repurchase price for T-Cash).
T-Cash, unlike T-Fund, may invest in U.S. Government securities with remaining
maturities exceeding thirteen months if such securities provide for adjustments
in their interest rates not less frequently than every thirteen months, and may
enter into reverse repurchase agreements and lend its portfolio securities.
Other Information: The Company was organized as a Pennsylvania business
trust on May 14, 1975 and is registered with the SEC as an open-end management
investment company. Effective March 2, 1987, the Company's name was changed from
Trust for Short-Term Federal Securities to Trust for Federal Securities. The
Company's Amended and Restated Declaration of Trust authorizes the Board of
Trustees to issue an unlimited number of full and fractional shares of
beneficial interest in the Company and to classify or reclassify any unissued
shares into one or more additional classes or sub-classes of shares. Pursuant to
such authority, the Board of Trustees has authorized the issuance of an
unlimited number of shares in two classes of shares in each of FedFund, FedCash
and T-Cash and three classes of shares in T-Fund. The Board of Trustees has also
authorized the issuance of additional classes of shares representing interests
in other investment portfolios of the Company. Information regarding other
portfolios offered by the Company may be obtained by calling PDI at
1-800-998-7633.
Shares of each of the Surviving Funds' share classes bear a pro rata
portion of all operating expenses paid by a Fund except as follows. Holders of a
Fund's Dollar Shares bear the fees set forth in the prospectus describing such
shares that are paid under the Fund's Shareholder Services Plan for such shares,
and holders of T-Fund's Plus Shares bear the fees set forth in the prospectus
describing such shares that are paid under the Fund's Distribution and Service
Plan for such shares. Because of the Shareholder Services Plan and Distribution
and Service Plan, the performance of the FedFund Shares or T-Fund Shares of a
particular Surviving Fund is expected to be higher than the performance of the
Fund's Dollar Shares, and the performance of T-Fund's Dollar Shares is expected
to be higher than the performance of T-Fund's Plus Shares.
Shareholders are entitled to one vote for each full share held and
proportionate fractional votes for fractional shares held. Shares of all
portfolios of the Company vote together and not by class, unless otherwise
required by law or permitted by the Board of Trustees. All shareholders of a
Surviving Fund will vote together
9
<PAGE> 18
as a single class on matters pertaining to the Fund's investment advisory
agreement and fundamental investment policies. Only holders of Dollar Shares
will vote on matters pertaining to the Funds' Shareholder Services Plan for
those shares, and only holders of T-Fund's Plus Shares will vote on matters
pertaining to T-Fund's Distribution and Service Plan for those shares.
For information concerning the procedures for purchasing and redeeming
shares of the respective Funds, and for the advisory and other fees payable by
the Funds, see "Summary -- Comparison of the Funds."
The foregoing is only a summary of certain material attributes of the Funds
and their shares. Shareholders may obtain copies of the Company's Amended and
Restated Declaration of Trust and By-Laws from the Company upon written request
at its principal office.
INFORMATION RELATING TO VOTING MATTERS
General Information: This Combined Proxy Statement/Prospectus is being
furnished in connection with the solicitation of proxies by the Board of
Trustees of the Company for use at the Meeting. It is expected that the
solicitation of proxies will be primarily by mail. The Company's officers may
also solicit proxies by telephone, telegraph or personal interview. In addition,
the Company may retain the services of one or more outside organizations to aid
in the solicitation of proxies. Such organizations normally charge a fee plus
out-of-pocket charges.
Only shareholders of record at the close of business on , 1996
will be entitled to vote at the Meeting. On that date, there were outstanding
and entitled to be voted FedCash Shares and FedCash Dollar
Shares, representing interests in FedCash, and T-Cash Shares and
T-Cash Dollar Shares, representing interests in T-Cash. Each share or
fraction thereof is entitled to one vote or fraction thereof.
If the accompanying proxy is executed and returned in time for the Meeting,
the shares covered thereby will be voted in accordance with the proxy on all
matters that may properly come before the Meeting. Any shareholder giving a
proxy may revoke it at any time before it is exercised by submitting to the
Company a written notice of revocation or a subsequently executed proxy or by
attending the Meeting and electing to vote in person.
Shareholder and Board Approval: The Plan of Reorganization and the
transactions contemplated therein are being submitted for approval at the
Meeting by the holders of a majority of the outstanding shares of each
Transferor Fund in accordance with the terms of the Plan. Under those terms, a
"majority of the outstanding shares" means (a) 67% or more of the outstanding
shares of a Transferor Fund (irrespective of class) present at the meeting, if
the holders of more than 50% of the outstanding shares of the Transferor Fund
are present or represented by proxy, or (b) more than 50% of the outstanding
shares of the Transferor Fund (irrespective of class), whichever is less.
The vote of the shareholders of the Surviving Funds is not being solicited,
because their approval or consent is not required for the reorganization.
The approval of the Plan of Reorganization by the Board of Trustees of the
Company is discussed above under "Information Relating to the Proposed
Reorganization -- Board Consideration."
The name, address and share ownership of each person who may have possessed
sole or shared voting or investment power with respect to more than 5% of the
outstanding shares of the Transferor Funds' and Surviving Funds' respective
share classes at the record date for the Meeting are listed in the following
table. The table also shows the percentage of the Funds' respective share
classes that would be owned by these persons upon the consummation of the
reorganization based on their holdings at that date.
10
<PAGE> 19
<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE OF PORTFOLIO PERCENTAGE
CLASS AND OF CLASS SHARES OWNED OF CLASS
AMOUNT OF OWNED ON ON OWNED ON
PORTFOLIO NAME AND ADDRESS SHARES OWNED RECORD DATE RECORD DATE CONSUMMATION
------------- ------------------------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
FedCash......
T-Cash.......
FedFund......
T-Fund.......
</TABLE>
For purposes of the 1940 Act, any person who owns directly or though one or
more controlled companies more than 25 percent of the voting securities of a
company is presumed to "control" such company. Under this definition
, and its affiliates may be deemed to be controlling persons of the
Company.
At the record date for the Meeting, the trustees and officers of the
Company as a group owned beneficially less than 1% of the outstanding shares of
the Transferor Funds and the Surviving Funds.
Quorum: In the event that a quorum is not present at the Meeting, or in
the event that a quorum is present at the Meeting but sufficient votes to
approve the Plan of Reorganization are not received, the persons named as
proxies, or their substitutes, may propose one or more adjournments of the
Meeting to permit further solicitation of proxies. Any such adjournment will
require the affirmative vote of a majority of those shares represented at the
Meeting in person or by proxy. If a quorum is not present, the persons named as
proxies will vote those proxies FOR adjournment. If a quorum is present, the
persons named as proxies will vote those proxies which they are entitled to vote
FOR the Plan of Reorganization in favor of such adjournments, and will vote
those proxies required to be voted AGAINST such proposal against any
adjournment. A shareholder vote may be taken with respect to one Transferor Fund
(but not the other Transferor Fund) before any such adjournment if sufficient
votes have been received for approval. A quorum is constituted with respect to a
Fund by the presence in person or by proxy of the holders of more than 50% of
the outstanding shares of the Fund entitled to vote at the Meeting. Shares
represented by broker non-votes, are treated as being present for purposes of
determining a quorum. A vote cast does not include an abstention or the failure
to vote for or against a proposal. Therefore, for purposes of determining the
affirmative vote of a "majority of the outstanding shares," an abstention or the
failure to vote, including a broker non-vote, will be the equivalent of voting
against approval of the Plan of Reorganization.
Annual Meetings: The Company does not presently intend to hold annual
meetings of shareholders except as required by the 1940 Act or other applicable
law. The Company will call a meeting of shareholders for the purpose of voting
upon the question of removal of a member of the Board of Trustees upon written
request of shareholders owning at least 10% of the outstanding shares of the
Company entitled to vote.
ADDITIONAL INFORMATION ABOUT THE FUNDS
Information about the Surviving Funds and their FedFund Shares, T-Fund
Shares, FedFund Dollar Shares and T-Fund Dollar Shares is included in the
Prospectuses dated February 28, 1996 accompanying this Combined Proxy
Statement/Prospectus, which are incorporated by reference herein, and
information about the Transferor Funds is included in their Prospectuses dated
February 28, 1996, which are also incorporated herein by reference. Additional
information about the Surviving Funds and Transferor Funds is included in the
Transferor Funds' and Surviving Funds' Statements of Additional Information
dated February 28, 1996 (as revised April 8, 1996) and May 31, 1996,
respectively, which have been filed with the SEC. Copies of the Transferor
Funds' Prospectuses and the Transferor Funds' and Surviving Funds' Statements of
Additional Information may be obtained without charge by calling PDI at
1-800-998-7633. The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act, as applicable, and, in
accordance with such requirements, files proxy materials, reports and other
information with the SEC. These materials can be inspected and copied at the
Public Reference Facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and by calling PDI at the telephone number listed above.
In addition, these materials can be inspected and copied at the SEC's Regional
Offices at 77 Park Place, New York, New York 10007, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400,
11
<PAGE> 20
Chicago, Illinois 60621-2511. Copies of such material can also be obtained from
the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, Washington, D.C. 20549, at
prescribed rates.
FINANCIAL STATEMENTS
The financial highlights for the Transferor Funds and Surviving Funds for
the fiscal year ended October 31, 1995 and included in such Funds' Prospectuses
dated February 28, 1996 and the financial statements for the Transferor Funds
and Surviving Funds for the fiscal year ended October 31, 1995 are included in
the Company's Annual Report to Shareholders and are incorporated by reference in
such Funds' Statements of Additional Information dated February 28, 1996 (as
revised April 8, 1996) and May 31, 1996, respectively, which Prospectuses and
Statements of Additional Information are incorporated by reference in this
Combined Proxy Statement/Prospectus. Such financial highlights and financial
statements have been incorporated herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
OTHER BUSINESS
The Company's Board of Trustees knows of no other business to be brought
before the Meeting. However, if any other matters come before the Meeting, it is
the intention of the Board that proxies that do not contain specific
restrictions to the contrary will be voted on such matters in accordance with
the judgment of the persons named in the enclosed form of proxy.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Company in writing at the
address on the cover page of this Combined Proxy Statement/Prospectus or by
telephoning 1-800-821-7432.
* * *
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED
TO DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
12
<PAGE> 21
APPENDIX A
PLAN OF REORGANIZATION
THIS PLAN OF REORGANIZATION made this day of , 1996, by Trust
for Federal Securities (the "Company"), a Pennsylvania business trust
established under an Amended and Restated Declaration of Trust dated August 9,
1993, acting on behalf of its FedCash and T-Cash investment portfolios (the
"Transferor Funds") and its FedFund and T-Fund investment portfolios (the
"Surviving Funds").
WHEREAS, the Board of Trustees of the Company has determined that the
transfer of all of the assets and liabilities of FedCash and T-Cash to FedFund
and T-Fund, respectively, is in the best interests of each of the Transferor
Funds and Surviving Funds, respectively, and would provide more efficient
management and administration of those assets, and has further determined that
the interests of the shareholders of the said Funds would not be diluted as a
result of this transaction; and
WHEREAS, the Company intends to provide for the reorganization of each of
the Transferor Funds through the acquisition by the Surviving Funds of all of
the assets, subject to all of the liabilities, of the Transferor Funds in
exchange for shares of beneficial interest of the Surviving Funds of the share
classes known as "FedFund Shares," "FedFund Dollar Shares," "T-Fund Shares," and
"T-Fund Dollar Shares," respectively, the termination of the Transferor Funds
and the distribution to their shareholders of such Shares, all pursuant to the
provisions of Section 368(a)(1)(C) or Section 368(a)(1)(D) of the Internal
Revenue Code of 1986, as amended (the "Code");
NOW THEREFORE, the Company has adopted this Plan of Reorganization as
follows:
1. Plan of Reorganization and Liquidation
(a) The Company, on behalf of FedCash, shall assign, sell, convey,
transfer and deliver to FedFund at the closing provided for in Section 2
(hereinafter called the "Closing") all of the then existing assets of FedCash of
every kind and nature. In consideration therefor, FedFund shall at the Closing
(i) assume all of FedCash's obligations and liabilities then existing, whether
absolute, accrued, contingent or otherwise except for all fees and expenses in
connection with the transactions contemplated hereby and (ii) deliver to FedCash
a number of full and fractional FedFund Shares and FedFund Dollar Shares of
FedFund equal to the number of FedCash Shares and FedCash Dollar Shares,
respectively, then outstanding, all such Shares having a net asset value of
$1.00 per share. The number of FedCash Shares and FedCash Dollars Shares of
FedCash issued and outstanding and the number of FedFund Shares and FedFund
Dollar Shares of FedFund to be issued to FedCash shall in each case be
determined by PFPC Inc. ("PFPC"), the Company's Co-Administrator, as of 4:30
p.m., Eastern time, on the Closing Date (as defined in Section 2). The
determination of PFPC shall be conclusive and binding on FedCash and FedFund and
their respective shareholders.
(b) The Company, on behalf of T-Cash, shall assign, sell, convey,
transfer and deliver to T-Fund at the Closing all of the then existing assets of
T-Cash of every kind and nature. In consideration therefor, T-Fund shall at the
Closing (i) assume all of T-Cash's obligations and liabilities then existing,
whether absolute, accrued, contingent or otherwise except for all fees and
expenses in connection with the transactions contemplated hereby and (ii)
deliver to T-Cash a number of full and fractional T-Fund Shares and T-Fund
Dollar Shares of T-Fund equal to the number of T-Cash Shares and T-Cash Dollar
Shares, respectively, then outstanding, all such Shares having a net asset value
of $1.00 per share. The number of T-Cash Shares and T-Cash Dollar Shares of
T-Cash issued and outstanding and the number of T-Fund Shares and T-Fund Dollar
Shares of T-Fund to be issued to T-Cash shall in each case be determined by PFPC
as of 4:30 p.m., Eastern time, on the Closing Date. The determination of PFPC
shall be conclusive and binding on T-Cash and T-Fund and their respective
shareholders.
(c) Upon consummation of the transactions described in paragraphs (a) and
(b) of this Section 1, each Transferor Fund shall distribute in complete
liquidation pro rata to its shareholders of record as of the Closing Date the
FedFund Shares and FedFund Dollar Shares or T-Fund Shares and T-Fund Dollar
Shares, as the case may be, received by the Transferor Fund. Such distribution
shall be accomplished by the
A-1
<PAGE> 22
establishment of an open account on the share records of each Surviving Fund in
the name of each shareholder of the corresponding Transferor Fund representing a
number of FedFund Shares and FedFund Dollar Shares or T-Fund Shares and T-Fund
Dollar Shares, as the case may be, equal to the number of shares of the
Transferor Fund owned of record by the shareholder at the Closing Date.
Certificates for shares of the Transferor Funds issued prior to the
reorganization, if any, shall represent outstanding shares of the corresponding
Surviving Funds following the reorganization. In the interest of economy and
convenience, certificates representing FedFund Shares and FedFund Dollar Shares
and T-Fund Shares and T-Fund Dollar Shares of the Surviving Funds will not be
physically issued. After the Closing Date, neither of the Transferor Funds shall
conduct any business except in connection with its liquidation.
2. Closing and Closing Date. The Closing shall occur at the offices of
PFPC at 4:30 p.m., Eastern time, on , 1996 or at such other time and
date, or at such other location, as the Trust may determine (the "Closing
Date"). All acts taking place at the Closing shall be deemed to take place
simultaneously on the Closing Date unless otherwise provided.
3. Conditions Precedent. The obligations of the Transferor Funds and
Surviving Funds to effect the transactions contemplated hereunder shall be
subject to the satisfaction of each of the following conditions:
(a) All filings shall have been made with, and all authority and orders
shall have been received from, the Securities and Exchange Commission (the
"SEC") and state securities commissions as may be necessary to permit the
parties to carry out the transactions contemplated by this Plan.
(b) The Company shall have received an opinion of Drinker Biddle & Reath,
subject to appropriate factual assumptions, substantially to the effect that for
federal income tax purposes: (i) the acquisition of the assets and assumption of
the liabilities of the Transferor Funds by the Surviving Funds in return for
FedFund Shares, FedFund Dollar Shares, T-Fund Shares or T-Fund Dollar Shares of
the Surviving Funds followed by the distribution of such shares to the
shareholders of the Transferor Funds will constitute a "reorganization" within
the meaning of Section 368(a)(1)(C) or Section 368(a)(1)(D) of the Code and each
of the Surviving Funds and the Transferor Funds will be "a party to the
reorganization" within the meaning of Section 368(b) of the Code; (ii) no gain
or loss will be recognized by any corresponding Transferor Fund upon the
transfer of their assets and liabilities to the corresponding Surviving Fund;
(iii) no gain or loss will be recognized by any Surviving Fund upon the receipt
of the assets of the corresponding Transferor Fund in exchange for FedFund
Shares, FedFund Dollar Shares, T-Fund Shares or T-Fund Dollar Shares of the
Surviving Funds and the assumption by the Surviving Funds of the liabilities of
the Transferor Funds; (iv) no gain or loss will be recognized by the
shareholders of any Transferor Funds upon the receipt of said FedFund Shares,
FedFund Dollar Shares, T-Fund Shares or T-Fund Dollar Shares in exchange for
their shares in the Transferor Funds; (v) the aggregate basis of said FedFund
Shares, FedFund Dollar Shares, T-Fund Shares or T-Fund Dollar Shares received by
the shareholders of the Transferor Funds will be the same as the basis of the
shares of the Transferor Funds exchanged therefor; (vi) the tax basis of the
assets of the Transferor Funds in the hands of the Surviving Funds will be the
same as the tax basis of such assets in the hands of the Transferor Funds
immediately prior to the transfer; (vii) the holding period of said FedFund
Shares, FedFund Dollar Shares, T-Fund Shares or T-Fund Dollar Shares received by
the shareholders of the Transferor Funds will include the holding period of the
shares of the Transferor Funds exchanged therefor, provided that at the time of
the exchange the shares of the Transferor Funds were held as capital assets; and
(viii) the holding period of the Surviving Funds for the assets of the
Transferor Funds transferred to them will include the period during which such
assets were held by the Transferor Funds.
(c) The Company shall have received an opinion of Drinker Biddle & Reath
to the effect that the FedFund Shares, FedFund Dollar Shares, T-Fund Shares or
T-Fund Dollar Shares of the Surviving Funds issued pursuant to this Plan will,
when issued in accordance with the provisions hereof, be legally issued, fully
paid and non-assessable;
(d) This Plan and the reorganization contemplated hereby shall have been
approved by the affirmative vote of the holders of a majority of the outstanding
shares of beneficial interest of the Transferor Funds (as defined in the
Company's Amended and Restated Declaration of Trust) entitled to vote thereon,
voting separately on a Fund-by-Fund basis;
A-2
<PAGE> 23
(e) A Registration Statement on Form N-14 which shall include a combined
proxy statement/prospectus complying in all material respects with the
requirement of the federal securities laws relating to a meeting of shareholders
of the Transferor Funds to be called to consider and act upon the transactions
contemplated herein shall have been effective under the Securities Act of 1933.
4. Amendment. This Plan may be amended at any time by action of the
Trustees of the Company notwithstanding approval thereof by the shareholders of
the Transferor Funds, provided that no amendment shall have a material adverse
effect on the interests of the shareholders of the Transferor Funds and
Surviving Funds.
5. Termination. The Trustees of the Company may terminate this Plan and
abandon the reorganization contemplated hereby, notwithstanding approval thereof
by the shareholders of the Transferor Funds, at any time prior to the Closing,
if circumstances should develop that, in their judgment, make proceeding with
the Plan inadvisable.
6. No Survival of Representations, etc. The representations, warranties,
covenants and agreements contained herein shall not survive the Closing Date.
7. Waiver. The Company, after consultation with its counsel and by
consent of its Board of Trustees, Executive Committee or an officer authorized
by such Board of Trustees, may waive any condition to the obligations of any
Transferor Fund or Surviving Fund hereunder if, in its or such officer's
judgment, such waiver will not have a material adverse effect on the interests
of the shareholders of the Transferor Funds and Surviving Funds. In the event
shareholder approval of the reorganization is obtained with respect to one
Transferor Fund but not with respect to the other Transferor Fund, with the
result that the transactions contemplated by this Plan may be consummated with
respect to one but not both of the Transferor Funds, the Board of Trustees of
the Company may, in the exercise of its reasonable business judgment, either
abandon this Plan with respect to both of the Transferor Funds or direct that
the reorganization be consummated to the degree the Board deems advisable.
8. Miscellaneous Provisions. This Plan shall bind and inure to the
benefit of the Transferor Funds and Surviving Funds and their respective
successors and assigns. It shall be governed by and carried out in accordance
with the laws of the Commonwealth of Pennsylvania.
The names "Trust for Federal Securities" and "Trustees of Trust for Federal
Securities" refer respectively to the Trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under an
Amended and Restated Declaration of Trust dated August 9, 1993, which is hereby
referred to and a copy of which is on file at the office of the Department of
State of the Commonwealth of Pennsylvania and the principal office of the Trust.
The obligations of "Trust for Federal Securities" entered into in the name or on
behalf thereof by any of the Trustees, representatives or agents are not made
individually, but in such capacities, and are not binding upon any of the
Trustees, shareholders or representatives of the Trust personally, but bind only
the Trust Property, and all persons dealing with any class or sub-class of
shares of the Trust must look solely to the Trust Property belonging to such
class or sub-class for the enforcement of any claims against the Trust.
A-3
<PAGE> 24
IN WITNESS WHEREOF, the Company has caused this Plan of Reorganization to
be executed by a duly authorized officer as of the day and year first written.
TRUST FOR FEDERAL SECURITIES,
on behalf of its FedCash and T-Cash
investment portfolios
By:
--------------------------------------
Title:
--------------------------------------
TRUST FOR FEDERAL SECURITIES,
on behalf of its FedFund and T-Fund
investment portfolios
By:
--------------------------------------
Title:
--------------------------------------
A-4
<PAGE> 25
TRUST FOR FEDERAL SECURITIES
BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY, SUITE 100
WILMINGTON, DELAWARE 19809
STATEMENT OF ADDITIONAL INFORMATION
(1996 SPECIAL MEETING OF
SHAREHOLDERS OF FEDCASH AND T-CASH INVESTMENT PORTFOLIOS)
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Combined Proxy Statement/Prospectus dated
_______, 1996 ("Combined Proxy Statement/Prospectus") for the Special Meeting of
Shareholders of FedCash and T-Cash (the "Transferor Funds"), two investment
portfolios offered by Trust for Federal Securities, to be held on ______, 1996.
Copies of the Combined Proxy Statement/Prospectus may be obtained at no charge
by calling Provident Distributors, Inc. at 1-800-998-7633.
Unless otherwise indicated, capitalized terms used herein and not
otherwise defined have the same meanings as are given to them in the Combined
Proxy Statement/Prospectus.
Further information about FedCash Shares, FedCash Dollar Shares, T-Cash
Shares and T-Cash Dollar Shares of the Transferor Funds and FedFund Shares,
FedFund Dollar Shares, T-Fund Shares and T-Fund Dollar Shares of FedFund and
T-Fund (the "Surviving Funds") is contained in and incorporated by reference to
said Funds' Statements of Additional Information dated February 28, 1996 (as
revised April 8, 1996) and May 31, 1996, respectively, copies of which also
accompany this document. The audited financial statements and related
independent accountant's report for the Transferor Funds and Surviving Funds
contained in the Company's Annual Report to Shareholders dated October 31, 1995
are hereby incorporated herein by reference. No other parts of the Annual Report
are incorporated herein by reference.
The date of this Statement of Additional Information is _______, 1996.
B-1
<PAGE> 26
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information........................................................................................ B-3
Pro Forma Financial Statements............................................................................. PF-1
</TABLE>
B-2
<PAGE> 27
GENERAL INFORMATION
The shareholders of the Transferor Funds are being asked to approve or
disapprove a Plan of Reorganization dated as of ___________, 1996 and the
transactions contemplated thereby. The Plan contemplates the transfer of all of
the assets and liabilities of the Company's FedCash to the Company's FedFund and
all of the assets and liabilities of the Company's T-Cash to the Company's
T-Fund. In exchange therefor, each Transferor Fund will receive FedFund Shares,
FedFund Dollar Shares, T-Fund Shares or T-Fund Dollar Shares, respectively, of
the corresponding Surviving Fund, which will be distributed to the shareholders
of the Transferor Fund in connection with the Transferor Fund's liquidation,
such that each holder of shares in a Transferor Fund at the Effective Time of
the Reorganization will receive a like number of full and fractional FedFund
Shares, FedFund Dollar Shares, T-Fund Shares or T-Fund Dollar Shares in the
corresponding Surviving Fund.
A Special Meeting of Shareholders of the Transferor Funds to consider
the Plan of Reorganization and the related transactions, will be held at the
Company's offices, Bellevue Park Corporate Center, 400 Bellevue Parkway, Suite
100, Wilmington, Delaware 19809 at 10:00 a.m. local time on ______, 1996. For
further information about the transaction, see the Combined Proxy
Statement/Prospectus.
B-3
<PAGE> 28
FedFund Portfolio
FedCash Portfolio
Pro-Forma Combined Portfolios of Investments
<TABLE>
<CAPTION>
October 31, 1995 Shares/Par(000) Value at October 31, 1995
(Unaudited) ------------------------------- -----------------------------------
FedFund FedCash Pro-Forma FedFund FedCash Pro-Forma
Rate Maturity Portfolio Portfolio Combined Portfolio Portfolio Combined
------ -------- --------- --------- --------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. AGENCY & INSTRUMENTALITY
OBLIGATIONS:
Federal Farm Credit Bank Bonds 6.33 % 11/01/95 $ 990 $ 0 $ 990 $ 990,000 $ 0 $ 990,000
6.38 05/01/96 10,000 0 10,000 10,028,685 0 10,028,685
5.75 08/01/96 5,000 0 5,000 4,993,728 0 4,993,728
Federal Farm Credit Bank
Discount Notes 5.55 11/03/95 5,000 5,000 10,000 4,998,458 4,998,458 9,996,916
5.55 11/20/95 12,000 12,000 11,964,850 0 11,964,850
5.52 12/18/95 10,000 10,000 9,927,933 0 9,927,933
5.58 12/18/95 15,000 15,000 14,890,725 0 14,890,725
5.59 02/12/96 0 8,000 8,000 0 7,872,051 7,872,051
5.55 02/15/96 9,000 2,000 11,000 8,852,925 1,967,317 10,820,242
Federal Farm Credit Bank Notes 5.75 08/01/96 0 5,000 5,000 0 4,993,728 4,993,728
Federal Farm Credit Bank
Variable Rate Notes 5.65 11/01/95 40,000 0 40,000 39,956,877 0 39,956,877
5.71 11/01/95 50,000 35,000 85,000 49,971,195 34,978,776 84,949,971
Federal Home Loan Bank Bonds 6.41 11/22/95 3,900 0 3,900 3,901,395 0 3,901,395
9.50 12/26/95 10,000 0 10,000 10,042,061 0 10,042,061
7.305 01/19/96 10,000 0 10,000 10,031,286 0 10,031,286
7.145 01/26/96 15,000 0 15,000 14,999,431 0 14,999,431
6.787 02/15/96 4,855 0 4,855 4,863,808 0 4,863,808
6.85 02/28/96 17,400 0 17,400 17,439,348 0 17,439,348
8.10 03/25/96 2,000 0 2,000 2,017,599 0 2,017,599
9.80 03/25/96 5,400 0 5,400 5,482,366 0 5,482,366
6.01 05/23/96 10,715 0 10,715 10,726,643 0 10,726,643
6.17 06/05/96 10,000 0 10,000 9,993,201 0 9,993,201
Federal Home Loan Bank
Discount Notes 6.00 12/22/95 0 5,000 5,000 0 4,957,500 4,957,500
5.48 04/12/96 2,000 0 2,000 1,950,376 0 1,950,376
Federal Home Loan Bank Notes 9.75 02/09/96 0 1,140 1,140 0 1,151,576 1,151,576
Federal Home Loan Bank
Variable Rate Notes 5.53 11/01/95 17,000 0 17,000 17,000,000 0 17,000,000
5.725 11/01/95 25,000 0 25,000 24,987,738 0 24,987,738
5.655 11/02/95 0 5,000 5,000 0 4,998,470 4,998,470
Federal Home Loan Mortgage
Corporation Bonds 7.24 02/05/96 3,150 0 3,150 3,160,056 0 3,160,056
6.84 02/28/96 14,115 0 14,115 14,147,200 0 14,147,200
6.005 05/13/96 20,000 0 20,000 20,010,002 0 20,010,002
Federal Home Loan Mortgage
Corporation Discount Notes 0
5.55 11/30/95 13,150 0 13,150 13,091,209 0 13,091,209
5.60 01/05/96 13,500 0 13,500 13,363,500 0 13,363,500
</TABLE>
<PAGE> 29
<TABLE>
<CAPTION>
Shares/Par(000)
---------------------------------
FedFund FedCash Pro-Forma
Rate Maturity Portfolio Portfolio Combined
----- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
5.60 % 02/09/96 $ 5,000 $ 5,000 $ 10,000
5.60 05/10/96 5,000 5,000 10,000
5.43 06/12/96 0 2,955 2,955
Federal Home Loan Mortgage Corporation Notes 6.005 05/13/96 0 5,000 5,000
Federal National Mortgage Association Bonds 6.48 03/27/96 22,000 0 22,000
5.97 05/16/96 5,000 0 5,000
8.00 07/10/96 5,000 0 5,000
6.00 08/15/96 3,000 0 3,000
5.8125 09/27/96 25,000 0 25,000
Federal National Mortgage Association
Discount Notes 5.56 11/13/95 8,800 0 8,800
5.81 11/13/95 20,000 0 20,000
5.85 12/11/95 5,000 5,000 10,000
5.52 12/13/95 16,220 0 16,220
5.58 01/09/96 0 5,000 5,000
5.58 01/25/96 0 10,000 10,000
5.60 02/12/96 10,700 0 10,700
5.50 02/20/96 10,000 0 10,000
5.62 04/12/96 20,000 0 20,000
Federal National Mortgage Association
Medium Term Notes 6.37 11/14/95 5,750 2,375 8,125
6.72 02/28/96 0 3,210 3,210
6.67 03/15/96 9,900 0 9,900
6.48 03/27/96 0 5,000 5,000
8.00 07/10/96 0 5,000 5,000
5.8125 09/27/96 0 10,000 10,000
0
Federal National Mortgage Association 0
Variable Rate Notes 5.66 11/01/95 15,000 0 15,000
5.68 11/01/95 40,000 0 40,000
5.71 11/01/95 20,000 0 20,000
5.78 11/01/95 40,000 10,000 50,000
5.83 11/01/95 0 10,000 10,000
5.55 11/07/95 40,000 18,000 58,000
Private Export Funding Corporation Bonds 9.00 01/31/96 17,375 0 17,375
Student Loan Marketing Association Bonds 6.831 02/21/96 2,190 0 2,190
5.90 10/04/96 8,000 0 8,000
Student Loan Marketing Association Notes 4.53 11/09/95 0 10,225 10,225
Value at October 31, 1995
--------------------------------------
FedFund FedCash Pro-Forma
Portfolio Portfolio Combined
--------- --------- ---------
<S> <C> <C> <C>
$ 4,922,222 $4,922,222 $ 9,844,444
4,851,444 4,851,444 9,702,888
0 2,855,160 2,855,160
Federal Home Loan Mortgage Corporation Notes 0 5,009,104 5,009,104
Federal National Mortgage Association Bonds 22,065,725 0 22,065,725
5,005,477 0 5,005,477
5,072,242 0 5,072,242
3,000,643 0 3,000,643
24,993,217 0 24,993,217
Federal National Mortgage Association
Discount Notes 8,783,691 0 8,783,691
19,961,267 0 19,961,267
4,967,500 4,967,500 9,935,000
16,115,543 0 16,115,543
0 4,946,525 4,946,525
0 9,868,250 9,868,250
10,528,562 0 10,528,562
9,830,417 0 9,830,417
19,491,078 0 19,491,078
Federal National Mortgage Association
Medium Term Notes 5,751,089 2,375,422 8,126,511
0 3,213,781 3,213,781
9,933,056 0 9,933,056
0 5,012,625 5,012,625
0 5,072,242 5,072,242
0 9,997,287 9,997,287
0
Federal National Mortgage Association 0
Variable Rate Notes 14,995,393 0 14,995,393
39,985,691 0 39,985,691
19,990,438 0 19,990,438
39,967,483 9,991,871 49,959,354
0 10,000,000 10,000,000
40,000,000 18,000,000 58,000,000
Private Export Funding Corporation Bonds 17,504,150 0 17,504,150
Student Loan Marketing Association Bonds 2,196,861 0 2,196,861
8,000,000 0 8,000,000
Student Loan Marketing Association Notes 0 10,221,712 10,221,712
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
Shares/Par(000)
------------------------------------
FedFund FedCash Pro-Forma
Rate Maturity Portfolio Portfolio Combined
---- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Student Loan Marketing
Association Variable
Rate Notes 5.60 % 11/07/95 $ 4,000 $ 0 $ 4,000
5.62 11/07/95 47,850 25,000 72,850
5.64 11/07/95 38,545 10,000 48,545
5.65 11/07/95 35,000 0 35,000
5.66 11/07/95 10,000 10,000 20,000
5.67 11/07/95 0 7,545 7,545
5.78 11/07/95 11,600 0 11,600
5.80 11/07/95 4,475 10,000 14,475
5.825 11/07/95 71,520 8,000 79,520
5.85 11/07/95 18,700 5,000 23,700
Repurchase Agreements
Donaldson, Lufkin & Jenrette
Securities Corp. 5.95 11/01/95 50,000 50,000 100,000
Goldman, Sachs & Co. 5.95 11/01/95 150,000 0 150,000
Lehman Government
Securities, Inc. 5.80 11/01/95 75,000 0 75,000
Merrill Lynch & Co., Inc. 5.85 11/01/95 60,000 0 60,000
Merrill Lynch & Co., Inc. 5.90 11/01/95 70,000 30,000 100,000
Morgan Stanley & Co. 5.95 11/01/95 150,000 0 150,000
PaineWebber Incorporated 5.93 11/01/95 80,900 25,500 106,400
Value at October 31, 1995
-------------------------------------------
FedFund FedCash Pro-Forma
Portfolio Portfolio Combined
--------- --------- ---------
<S> <C> <C> <C>
Student Loan Marketing
Association Variable
Rate Notes $ 4,001,402 $ 0 $ 4,001,402
47,841,348 25,006,536 72,847,884
38,471,957 10,000,000 48,471,957
35,000,000 0 35,000,000
10,005,795 10,000,000 20,005,795
0 7,547,045 7,547,045
11,604,041 0 11,604,041
4,473,759 10,037,435 14,511,194
71,612,994 8,013,978 79,626,972
18,743,611 5,005,742 23,749,353
Repurchase Agreements
Donaldson, Lufkin & Jenrette
Securities Corp. 50,000,000 50,000,000 100,000,000
Goldman, Sachs & Co. 150,000,000 0 150,000,000
Lehman Government
Securities, Inc. 75,000,000 0 75,000,000
Merrill Lynch & Co., Inc. 60,000,000 0 60,000,000
Merrill Lynch & Co., Inc. 70,000,000 30,000,000 100,000,000
Morgan Stanley & Co. 150,000,000 0 150,000,000
PaineWebber Incorporated 80,900,000 25,500,000 106,400,000
0
0
$1,589,350,691 $358,333,757 $1,947,684,448
</TABLE>
See accompanying notes to pro forma financial statments.
<PAGE> 31
T-Fund Portfolio
T-Cash Portfolio
Pro-Forma Combined Portfolios of Investments
<TABLE>
<CAPTION>
October 31, 1995 Shares/Par(000) Value at October 31, 1995
(Unaudited) ------------------------------ --------------------------------------
T-Fund T-Cash Pro-Forma T-Fund T-Cash Pro-Forma
Rate Maturity Portfolio Portfolio Combined Portfolio Portfolio Combined
---- -------- --------- ---------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES
U.S. Treasury Bills 5.29% 05/30/96 $ 10,000 $ 0 $10,000 $ 9,689,947 $ 0 $ 9,689,947
U.S. Treasury Notes 4.625 02/29/96 20,000 0 20,000 19,895,695 0 19,895,695
5.125 03/31/96 50,000 10,000 60,000 49,748,121 9,949,624 59,697,745
9.375 04/15/96 20,000 0 20,000 20,320,302 0 20,320,302
5.50 04/30/96 30,000 10,000 40,000 29,972,399 9,988,050 39,960,449
7.625 04/30/96 20,000 10,000 30,000 20,150,502 10,075,251 30,225,753
4.25 05/15/96 10,000 0 10,000 9,925,919 0 9,925,919
7.375 05/15/96 40,000 20,000 60,000 40,347,265 20,171,289 60,518,554
7.25 08/31/96 20,000 10,000 30,000 20,205,709 10,114,761 30,320,470
6.50 09/30/96 30,000 0 30,000 30,180,104 0 30,180,104
REPURCHASE AGREEMENTS
Aubrey G. Lanston & Co., Inc. 5.90 11/01/95 60,000 15,000 75,000 60,000,000 15,000,000 75,000,000
Donaldson, Lufkin & Jenrette 5.71 11/16/95 135,000 30,000 165,000 135,000,000 30,000,000 165,000,000
Securities Corp.
First (The) Boston Corp. 5.70 11/16/95 40,000 0 40,000 40,000,000 0 40,000,000
Goldman, Sachs & Co. 5.88 11/01/95 240,000 60,000 300,000 240,000,000 60,000,000 300,000,000
Hong Kong Shanghai Bank Corp. 5.85 11/01/95 0 15,000 15,000 0 15,000,000 15,000,000
Lehman Government Securities, 5.92 11/01/95 60,000 15,000 75,000 60,000,000 15,000,000 75,000,000
Inc.
Merrill Lynch & Co., Inc. 5.85 11/01/95 60,000 30,000 90,000 60,000,000 30,000,000 90,000,000
Morgan (J.P.) Securities, Inc. 5.70 11/09/95 40,000 0 40,000 40,000,000 0 40,000,000
Morgan (J.P.) Securities, Inc. 5.875 11/01/95 0 15,000 15,000 0 15,000,000 15,000,000
Morgan Stanley & Co. 5.835 11/01/95 247,600 28,900 276,500 247,600,000 28,900,000 276,500,000
Smith Barney, Inc. 5.80 11/01/95 60,000 15,000 75,000 60,000,000 15,000,000 75,000,000
Swiss Bank Corp. 5.85 11/01/95 0 15,000 15,000 0 15,000,000 15,000,000
Swiss Bank Corp. 5.90 11/01/95 50,000 0 50,000 50,000,000 0 50,000,000
UBS Securities, Inc. 5.87 11/01/95 60,000 15,000 75,000 60,000,000 15,000,000 75,000,000
$1,303,035,963 $314,198,975 $1,617,234,938
</TABLE>
See accompanying notes to pro forma financial statments.
<PAGE> 32
FedFund Portfolio
FedCash Portfolio
Pro-Forma Combined Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
October 31, 1995
--------------------------------------------
FedFund FedCash Pro-Forma
Portfolio Portfolio Combined
----------- ----------- ------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $92,288,610 $27,553,298 $119,841,908
----------- ----------- ------------
TOTAL INVESTMENT INCOME 92,288,610 27,553,298 $119,841,908
----------- ----------- ------------
EXPENSES
Investment Advisory Fees 1,992,524 599,169 2,591,693
Administration Fees 1,992,524 599,169 2,591,693
Custodian Fees 238,805 105,672 344,477
Transfer Agent Fees 99,287 21,630 120,917
Service Organization Fees-Dollar Shares 250,609 47,937 298,546
Legal and Audit 50,621 15,326 65,947
Printing 4,737 5,559 10,296
Registration Fees 24,576 21,331 45,907
Organization 0 5,161 5,161
Trustees' Fees and Officers' Salaries 29,305 8,880 38,185
Shareholder computer access program 38,827 0 38,827
Other 61,328 12,591 73,919
----------- ----------- ------------
4,783,143 1,442,425 6,225,568
Less: Fees waived (1,711,611) (551,341) (2,262,952)
----------- ----------- ------------
TOTAL EXPENSES 3,071,532 891,084 3,962,616
----------- ----------- ------------
NET INVESTMENT INCOME 89,217,078 26,662,214 115,879,292
----------- ----------- ------------
REALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized loss on investment
transactions (45,794) (22,449) (68,243)
----------- ----------- ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $89,171,284 $26,639,765 $115,811,049
=========== =========== ============
</TABLE>
See accompanying notes to pro forma financial statments.
<PAGE> 33
T-Fund Portfolio
T-Cash Portfolio
Pro-Forma Combined Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
October 31, 1995
---------------------------------------------
T-Fund T-Cash Pro-Forma
Portfolio Portfolio Combined
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $74,450,769 $19,647,085 $94,097,854
----------- ----------- -----------
TOTAL INVESTMENT INCOME 74,450,769 19,647,085 $94,097,854
----------- ----------- -----------
EXPENSES
Investment Advisory Fees 1,620,479 428,287 2,048,766
Administration Fees 1,620,479 428,287 2,048,766
Custodian Fees 212,601 80,119 292,720
Transfer Agent Fees 65,092 24,604 89,696
Service Organization Fees-Dollar Shares 193,182 165,288 358,470
Legal and Audit 41,129 10,881 52,010
Printing 4,641 5,934 10,575
Registration Fees 20,069 15,907 35,976
Organization 0 5,208 5,208
Trustees' Fees and Officers' Salaries 23,784 6,892 30,676
Shareholder computer access program 30,809 0 30,809
Other 74,054 18,156 92,210
----------- ----------- -----------
3,906,319 1,189,563 5,095,882
Less: Fees waived (1,418,766) (420,331) (1,839,097)
----------- ----------- -----------
TOTAL EXPENSES 2,487,553 769,232 3,256,785
----------- ----------- -----------
NET INVESTMENT INCOME 71,963,216 18,877,853 90,841,069
----------- ----------- -----------
REALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain on investment
transactions 82,827 8,562 91,389
----------- ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $72,046,043 $18,886,415 $90,932,458
=========== =========== ===========
</TABLE>
See accompanying notes to pro forma financial statments.
<PAGE> 34
FedFund Portfolio
FedCash Portfolio
Pro-Forma Combined Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
October 31, 1995
------------------------------------------------------
Pro-Forma
FedFund FedCash Combined
-------------- ------------- ----------------
<S> <C> <C> <C>
ASSETS
Investments, @ value (Cost $1,589,350,691
and $358,333,757 and $ 1,947,684,448
respectively) $1,589,350,691 $358,333,757 $1,947,684,448
Cash (38,856) 64,088 25,232
Interest receivable 9,032,721 2,059,137 11,091,858
Prepaid expenses 1,820 3,383 5,203
-------------- ------------ -------------
TOTAL ASSETS 1,598,346,376 360,460,365 1,958,806,741
-------------- ------------ --------------
LIABILITIES
Dividends payable 7,676,345 1,776,844 9,453,189
Accrued expenses payable 318,070 78,362 396,432
-------------- ------------ --------------
TOTAL LIABILITIES 7,994,415 1,855,206 9,849,621
-------------- ------------ --------------
TOTAL NET ASSETS $1,590,351,961 $358,605,159 $1,948,957,120
============== ============ ==============
TOTAL NET ASSETS BY CLASS OF SHARES
Institutional Class $1,377,174,916 $356,601,828 $1,733,776,744
Service Class 213,177,045 2,003,331 215,180,376
$1,590,351,961 $358,605,159 $1,948,957,120
SHARES OUTSTANDING
FedFund/FedCash Shares
Pre-merger 1,377,353,815 356,679,113
Post-merger 1,734,032,928 1,734,032,928
FedFund Dollar/FedCash Dollar Shares
Pre-merger 213,207,736 2,006,078
Post-merger 215,213,814 215,213,814
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
(total net assets / shares outstanding)
FedFund/FedCash Shares
Pre-merger $1.00 $1.00
Post-merger $1.00 $1.00
FedFund Dollar/FedCash Dollar Shares
Pre-merger $1.00 $1.00
Post-merger $1.00 $1.00
</TABLE>
See accompanying notes to pro forma financial statements.
<PAGE> 35
T-Fund Portfolio
T-Cash Portfolio
Pro-Forma Combined Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
October 31, 1995
-----------------------------------------------------
Pro-Forma
T-Fund T-Cash Combined
-------------- ------------ --------------
<S> <C> <C> <C>
ASSETS
Investments, @ value (Cost $1,303,035,963
and $314,198,975 and $ 1,617,234,938
respectively) $1,303,035,963 $314,198,975 $1,617,234,938
Cash 96,090 78,402 174,492
Interest receivable 2,986,170 960,875 3,947,045
Prepaid expenses 7,010 7,828 14,838
-------------- ------------ --------------
TOTAL ASSETS 1,306,125,233 315,246,080 1,621,371,313
-------------- ------------ --------------
LIABILITIES
Capital shares redeemed payable 6,000,000 0 6,000,000
Dividends payable 6,162,069 1,588,702 7,750,771
Accrued expenses payable 241,239 79,214 320,453
-------------- ------------ --------------
TOTAL LIABILITIES 12,403,308 1,667,916 14,071,224
-------------- ------------ --------------
TOTAL NET ASSETS $1,293,721,925 $313,578,164 $1,607,300,089
============== ============ ==============
TOTAL NET ASSETS BY CLASS OF SHARES
Institutional Class $1,211,219,919 $250,041,391 $1,461,261,310
Service Class 82,502,006 63,536,773 146,038,779
-------------- ------------ --------------
$1,293,721,925 $313,578,164 $1,607,300,089
============== ============ ==============
SHARES OUTSTANDING
T-Fund/T-Cash Shares
Pre-merger 1,211,196,665 250,036,829
Post-merger 1,461,233,494 1,461,233,494
T-Fund Dollar/T-Cash Dollar Shares
Pre-merger 82,499,343 63,535,883
Post-merger 146,035,226 146,035,226
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
(total net assets / shares outstanding)
T-Fund/T-Cash Shares
Pre-merger $1.00 $1.00
Post-merger $1.00 $1.00
T-Fund Dollar/T-Cash Dollar Shares
Pre-merger $1.00 $1.00
Post-merger $1.00 $1.00
</TABLE>
See accompanying notes to pro forma financial statements.
<PAGE> 36
NOTES TO PRO-FORMA STATEMENTS OF THE
FEDFUND, T-FUND, FEDCASH AND T-CASH PORTFOLIOS
October 31, 1995
(Unaudited)
1. BASIS OF COMBINATION
The pro forma combined portfolio of investments and pro forma combined
statements of assets and liabilities reflect the accounts of the FedFund
Portfolio, the T-Fund Portfolio, the FedCash Portfolio, and the T-Cash
Portfolio at October 31, 1995. The pro forma combined statements of operation
reflect the accounts of the FedFund Portfolio, the T-Fund Portfolio, the
FedCash Portfolio and the T-Cash Portfolio for the twelve months ended October
31, 1995. These pro forma financial statements have been derived from the
annual report for Trust for Federal Securities as of October 31, 1995.
The pro forma statements give effect to the proposed transfer of the
assets and liabilities of the FedCash Portfolio into the FedFund Portfolio and
the proposed transfer of the assets and liabilities of the T-Cash Portfolio
into the T-Fund Portfolio assuming the transfer took place on November 1,
1994. The historical cost of investment securities will be carried forward to
the surviving portfolios and the results of operations of the surviving
portfolios for pre-combining periods will not be restated. The fiscal year end
of the surviving funds will still be October 31.
The accompanying pro forma financial statements should be read in
conjunction with the historical financial statements of the FedFund Portfolio,
T-Fund Portfolio, FedCash Portfolio, and T-Cash Portfolio.
2. SHARES OF BENEFICIAL INTEREST
The pro forma net asset value per share assumes the aquisition of the
assets and liabilities of existing FedCash and T-Cash and the issuance of
shares of FedFund and T-Fund, respectively, having net asset value equal to the
value of the assets acquired on the date of the proposed Transactions.
3. PRO-FORMA OPERATIONS
The pro forma statement of operations assumes the historical gross
investment income of the FedFund Portfolio, the T-Fund Portfolio, the FedCash
Portfolio, and the T-Cash Portfolio. Accordingly, the combined gross
investment income is equal to the sum of each funds' gross investment income.
The pro forma expenses reflect the historical expenses for the FedFund
Portfolio, the T-Fund Portfolio, the FedCash Portfolio and the T-Cash
Portfolio. Accordingly the combined operating expenses are equal to the sum of
each fund's actual expenses.
<PAGE> 37
FORM N-14
PART C. OTHER INFORMATION
Item 15. Indemnification
Indemnification of Registrant's Principal Underwriter,
Custodian and Transfer Agent against certain stated liabilities is provided for
in Section 6 of the Distribution Agreement, in Section 22 of the Custodian
Agreement and in Section 17 of the Transfer Agency Agreement, incorporated
herein by reference as Exhibits (7)(a), (9)(b) and (13)(d), respectively.
Registrant has obtained from at least one major insurance carrier a directors'
and officers' liability policy covering certain types of errors and omissions.
In addition, Section 2 of Article X of Registrant's Amended and Restated
Declaration of Trust incorporated herein by reference as Exhibit (1), provides
as follows:
10.2 Indemnification of Trustees, Representatives and
Employees. The Trust shall indemnify each of its Trustees against all
liabilities and expenses (including amounts paid in satisfaction of
judgments, in compromise, as fines and penalties, and as counsel fees)
reasonably incurred by him in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or
criminal, in which he may be involved or with which he may be
threatened, while in office or thereafter, by reason of his being or
having been such a Trustee except with respect to any matter as to
which he shall have been adjudicated to have acted in bad faith,
willful misfeasance, gross negligence or reckless disregard of his
duties, provided, however, that as to any matter disposed of by a
compromise payment by such person, pursuant to a consent decree or
otherwise, no indemnification either for said payment or for any other
expenses shall be provided unless the Trust shall have received a
written opinion from independent legal counsel approved by the Trustees
to the effect that if either the matter of willful misfeasance, gross
negligence or reckless disregard of duty, or the matter of bad faith
had been adjudicated, it would in his opinion have been adjudicated in
favor of such person. The rights accruing to any person under these
provisions shall not exclude any other right to which he may be
lawfully entitled; provided that no person may satisfy any right of
indemnity or reimbursement except out of the property of the Trust. The
Trustees may make advance payments in connection with the
indemnification under this Section 10.2, provided that the indemnified
person shall have given a written undertaking to reimburse the Trust in
the event it is subsequently determined that he is not entitled to such
indemnification.
The Trustees shall have the power, but not the duty, in their
sole discretion, to indemnify representatives and employees of the Trust
to the same extent that Trustees are entitled to indemnification
hereunder.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a trustee, officer or controlling person of Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a
C-1
<PAGE> 38
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 16. Exhibits
(1) Amended and Restated Declaration of Trust of the Registrant
dated August 9, 1993 is incorporated herein by reference to
Exhibit (1) of Registrant's Post-Effective Amendment No. 39 to
Registration Statement on Form N-1A, filed on January 28,
1994.
(2) Amended and Restated By-Laws dated as of August 9, 1993 is
incorporated herein by reference to Exhibit (2) of
Post-Effective Amendment No. 39 to Registrant's Registration
Statement on Form N-1A, filed on January 28, 1994.
(3) None.
(4) Plan of Reorganization filed herewith as Appendix A to the
Combined Proxy Statement/Prospectus.
(5) (a) Specimen copy of share certificate for FedFund
shares of beneficial interest in the FedFund
portfolio is incorporated herein by reference to
Exhibit (4)(a) of Post-Effective Amendment No. 26 to
Registrant's Registration Statement on Form N-1A
filed on December 2, 1987.
(b) Specimen copy of share certificate for FedFund Dollar
shares of beneficial interest in the FedFund
portfolio is incorporated herein by reference to
Exhibit (4)(b) of Post-Effective Amendment No. 26 to
Registrant's Registration Statement on Form N-1A
filed on December 2, 1987.
(c) Specimen copy of share certificate for T-Fund shares
of beneficial interest in the T-Fund portfolio is
incorporated herein by reference to Exhibit (4)(c) of
Post-Effective Amendment No. 26 to Registrant's
Registration Statement on Form N-1A filed on December
2, 1987.
(d) Specimen copy of share certificate for T-Fund Dollar
shares of beneficial interest in the T-Fund portfolio
is incorporated herein by reference to Exhibit (4)(d)
of Post-Effective Amendment No. 26 to Registrant's
Registration Statement on Form N-1A filed on December
2, 1987.
(e) Specimen copy of share certificate for Treasury Trust
shares of beneficial interest in the Treasury Trust
Fund portfolio is incorporated herein by reference to
Exhibit (4)(g) of Post-Effective Amendment No. 31 to
Registrant's Registration Statement on Form N-1A
filed on May 26, 1989.
(f) Specimen copy of share certificate for Treasury Trust
Dollar shares of beneficial interest in the Treasury
Trust Fund portfolio is incorporated herein by
reference to Exhibit (4)(h) of Post-Effective
Amendment No. 31 to Registrant's Registration
Statement on Form N-1A filed on May 26, 1989.
(g) Specimen copy of share certificate for Federal Trust
shares of beneficial interest in the Federal Trust
Fund portfolio is incorporated herein by reference to
Exhibit (4)(o) of Post-Effective Amendment No. 34 to
Registrant's
C-2
<PAGE> 39
Registration Statement on Form N-1A filed on
September 28, 1990.
(h) Specimen copy of share certificate for Federal Trust
Dollar shares of beneficial interest in the Federal
Trust Fund portfolio is incorporated herein by
reference to Exhibit (4)(p) of Post-Effective
Amendment No. 34 to Registrant's Registration
Statement on Form N-1A filed on September 28, 1990.
(i) Specimen copy of share certificate for FedCash shares
of beneficial interest in the FedCash portfolio is
incorporated herein by reference to Exhibit (4)(q) of
Post-Effective Amendment No. 37 to Registrant's
Registration Statement on Form N-1A filed on November
21, 1991.
(j) Specimen copy of share certificate for FedCash Dollar
shares of beneficial interest in the FedCash
portfolio is incorporated herein by reference to
Exhibit (4)(r) of Post-Effective Amendment No. 37 to
Registrant's Registration Statement on Form N-1A
filed on November 21, 1991.
(k) Specimen copy of share certificate for T-Cash shares
of beneficial interest in the T-Cash portfolio is
incorporated herein by reference to Exhibit (4)(s) of
Post-Effective Amendment No. 37 to Registrant's
Registration Statement on Form N-1A filed on November
21, 1991.
(l) Specimen copy of share certificate for T-Cash Dollar
shares of beneficial interest in the T-Cash portfolio
is incorporated herein by reference to Exhibit (4)(t)
of Post-Effective Amendment No. 37 to Registrant's
Registration Statement on Form N-1A filed on November
21, 1991.
(6) (a) Investment Advisory Agreement dated March 11,
1987 between Registrant and PNC Institutional
Management Corporation relating to its FedFund and
T-Fund portfolios is incorporated herein by reference
to Exhibit (5)(a) of Post-Effective Amendment No. 26
to Registrant's Registration Statement on Form N-1A
filed on December 2, 1987.
(b) Addendum No. 1 to Investment Advisory Agreement dated
June 30, 1988 between Registrant and PNC
Institutional Management Corporation relating to its
Treasury Trust Fund portfolio is incorporated herein
by reference to Exhibit (5)(b) of Post-Effective
Amendment No. 30 to Registrant's Registration
Statement on Form N-1A filed on January 25, 1989.
(c) Addendum No. 2 to Investment Advisory Agreement dated
September 7, 1988 between Registrant and PNC
Institutional Management Corporation relating to its
Intermediate Government and Long Government Fund
portfolios is incorporated herein by reference to
Exhibit (5)(c) of Post-Effective Amendment No. 30 to
Registrant's Registration Statement on Form N-1A
filed on January 25, 1989.
(d) Addendum No. 3 to Investment Advisory Agreement dated
as of November 1, 1990 between Registrant and PNC
Institutional Management Corporation relating to its
Federal Trust Fund portfolio is incorporated herein
by reference to Exhibit (5)(d) of Post-Effective
Amendment No. 35 to Registrant's
C-3
<PAGE> 40
Registration Statement on Form N-1A filed on February
28, 1991.
(e) Addendum No. 4 to Investment Advisory Agreement dated
May 9, 1991 between Registrant and PNC Institutional
Management Corporation relating to its FedCash and
T-Cash portfolios is incorporated herein by reference
to Exhibit (5)(e) of Post-Effective Amendment No. 37
to Registrant's Registration Statement on Form N-1A
filed on November 21, 1991.
(f) Sub-Advisory Agreement dated March 11, 1987 between
PNC Institutional Management Corporation and PNC
Bank, National Association relating to Registrant's
FedFund and T-Fund portfolios is incorporated herein
by reference to Exhibit (5)(c) of Post-Effective
Amendment No. 26 to Registrant's Registration
Statement on Form N-1A filed on December 2, 1987.
(g) Addendum No. 1 to Sub-Advisory Agreement dated June
30, 1988 between PNC Institutional Management
Corporation and PNC Bank, National Association
relating to Registrant's Treasury Trust Fund
portfolio is incorporated herein by reference to
Exhibit (5)(e) of Post-Effective Amendment No. 30 to
Registrant's Registration Statement on Form N-1A
filed on January 25, 1989.
(h) Addendum No. 2 to Sub-Advisory Agreement dated
September 7, 1988 between PNC Institutional
Management Corporation and PNC Bank, National
Association relating to Registrant's Intermediate
Government and Long Government Fund portfolios is
incorporated herein by reference to Exhibit (5)(f) of
Post-Effective Amendment No. 30 to Registrant's
Registration Statement on Form N-1A filed on January
25, 1989.
(i) Addendum No. 3 to Sub-Advisory Agreement dated as of
November 1, 1990 between PNC Institutional Management
Corporation and PNC Bank, National Association
relating to its Federal Trust Fund portfolio is
incorporated herein by reference to Exhibit (5)(h) of
Post-Effective Amendment No. 35 to Registrant's
Registration Statement on Form N-1A filed on February
28, 1991.
(j) Addendum No. 4 to Sub-Advisory Agreement dated May 9,
1991 between PNC Institutional Management Corporation
and PNC Bank, National Association relating to
Registrant's FedCash and T-Cash portfolios is
incorporated herein by reference to Exhibit (5)(j) of
Post Effective Amendment No. 37 to Registrant's
Registration Statement on Form N-1A filed on November
21, 1991.
(7) (a) Distribution Agreement dated January 31, 1994 between
Registrant and Provident Distributors, Inc. relating
to its FedFund, T-Fund, FedCash, T-Cash, Federal
Trust Fund and Treasury Trust Fund portfolios is
incorporated herein by reference to Exhibit (6) of
Post-Effective Amendment No. 39 to Registrant's
Registration Statement on Form N-1A filed on January
28, 1994.
(b) Form of Addendum No. 1 to Distribution Agreement
between Registrant and Provident Distributors, Inc.
relating to
C-4
<PAGE> 41
Plus shares in its T-Fund portfolio is incorporated
herein by reference to Exhibit (6)(b) of
Post-Effective Amendment No. 43 to Registrant's
Registration Statement on Form N-1A filed on April 1,
1996.
(c) Plan pursuant to Rule 18f-3 for Operation of a
Multi-Class System is incorporated herein by
reference to Exhibit (18) of Post-Effective Amendment
No. 43 to Registrant's Registration Statement on Form
N-1A filed on April 1, 1996.
(8) Trust for Federal Securities Fund Office Retirement
Profit-Sharing Plan and Trust Agreement as approved Fall of
1990 is incorporated herein by reference to Exhibit (7) of
Post-Effective Amendment No. 49 to Temporary Investment Fund,
Inc.'s Registration Statement on Form N-1A filed on December
12, 1990.
(9) (a) Custodian Fee Agreement dated May 9, 1991 between
Registrant and PNC Bank, National Association
relating to its FedFund, T-Fund, FedCash, T-Cash,
Federal Trust Fund and Treasury Trust Fund portfolios
is incorporated herein by reference to Exhibit (8)(b)
of Post-Effective Amendment No. 37 to Registrant's
Registration Statement on Form N-1A filed on November
21, 1991.
(b) Custodian Agreement dated June 1, 1989 between
Registrant and PNC Bank, National Association
relating to its FedFund, T-Fund and Treasury Trust
Fund portfolios is incorporated herein by reference
to Exhibit (8) of Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-1A
filed on November 21, 1991.
(c) Addendum No. 1 to Custodian Fee Agreement dated
November 1, 1990 between Registrant and PNC Bank,
National Association relating to its Federal Trust
Fund portfolio is incorporated herein by reference to
Exhibit (8)(d) of Post-Effective Amendment No. 35 to
Registrant's Registration Statement on Form N-1A
filed on November 21, 1991.
(d) Addendum No. 2 to Custodian Fee Agreement dated May
9, 1991 between Registrant and PNC Bank, National
Association relating to its FedCash and T-Cash
portfolios is incorporated herein by reference to
Exhibit (8)(e) of Post-Effective Amendment No. 37 to
Registrant's Registration Statement on Form N-1A
filed on November 21, 1991.
(e) Form of Addendum No. 3 to Custodian Agreement between
Registrant and PNC Bank, National Association
relating to Plus shares in its T-Fund portfolio is
incorporated herein by reference to Exhibit (8)(e) of
Post-Effective Amendment No. 43 to Registrant's
Registration Statement on Form N-1A filed on April 1,
1996.
(10) Form of Distribution and Service Plan and accompanying
agreement for Plus shares in its T-Fund Portfolio is
incorporated herein by reference to Exhibit (15) of
Post-Effective Amendment No. 43 to Registrant's Registration
Statement on Form N-1A filed on April 1, 1996.
(11) Opinion of Drinker Biddle & Reath that shares will be validly
issued, fully paid and non-assessable (including the consent
of such firm).
C-5
<PAGE> 42
(12) Opinion of Drinker Biddle & Reath as to tax matters and
consequences (including consent of such firm).
(13) (a) Administration Agreement dated January 18, 1993
between Registrant and PFPC Inc. and Provident
Distributors, Inc. as co-administrators, relating to
its FedFund, T-Fund, FedCash, T-Cash, Federal Trust
Fund and Treasury Trust Fund portfolios is
incorporated herein by reference to Exhibit (9)(a) of
Post-Effective Amendment No. 39 to Registrant's
Registration Statement on Form N-1A filed on January
28, 1994.
(b) Form of Addendum No. 1 to the Administration
Agreement between the Registrant, PFPC Inc. and
Provident Distributors, Inc. relating to the Plus
shares in its T-Fund Portfolio is incorporated
herein by reference to Exhibit (9)(b) of
Post-Effective Amendment No. 43 to Registrant's
Registration Statement on Form N-1A filed on
April 1, 1996.
(c) Transfer Agency Fee Agreement dated May 9, 1991
between Registrant and PFPC Inc. relating to its
FedFund, T-Fund, FedCash, T-Cash, Federal Trust Fund
and Treasury Trust Fund portfolios is incorporated
herein by reference to Exhibit (9)(e) of
Post-Effective Amendment No. 37 to Registrant's
Registration Statement on Form N-1A filed on November
21, 1991.
(d) Transfer Agency Agreement dated June 1, 1989 between
Registrant and PFPC Inc. relating to its FedFund,
T-Fund and Treasury Trust Fund portfolios is
incorporated herein by reference to Exhibit (9)(e) of
Post-Effective Amendment No. 33 to Registrant's
Registration Statement on Form N-1A filed on January
15, 1990.
(e) Addendum No. 1 to Transfer Agency Agreement dated as
of November 1, 1990 between the Registrant and PFPC
Inc. relating to its Federal Trust Fund portfolio is
incorporated herein by reference to Exhibit (9)(i) of
Post-Effective Amendment No. 35 to Registrant's
Registration Statement on Form N-1A filed on February
28, 1991.
(f) Addendum No. 2 to Transfer Agency Agreement dated May
9, 1991 between the Registrant and PFPC Inc. relating
to its FedCash and T-Cash portfolios is incorporated
herein by reference to Exhibit (9)(h) of
Post-Effective Amendment No. 37 to Registrant's
Registration Statement on Form N-1A filed on November
21, 1991.
(g) Form of Addendum No. 3 to Transfer Agency Agreement
between the Registrant and PFPC Inc. relating to Plus
shares in its T-Fund portfolio is incorporated herein
by reference to Exhibit (9)(g) of Post-Effective
Amendment No. 43 to Registrant's Registration
Statement on Form N-1A filed on April 1, 1996.
(14) (a) Consent of Coopers & Lybrand L.L.P.
(b) Consent of Drinker Biddle & Reath.
(15) None.
C-6
<PAGE> 43
(16) None.
(17) (a) Declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 of the Registrant.
(b) Forms of Proxy.
(c) Prospectus dated February 28, 1996 for Trust for
Federal Securities' FedFund (FedFund Shares and
FedFund Dollar Shares) is incorporated herein by
reference to Registrant's Post-Effective Amendment
No. 41 to Registration Statement on Form N-1A filed
on February 27, 1996.
(d) Prospectus dated February 28, 1996 for Trust for
Federal Securities' T-Fund (T-Fund Shares and T-Fund
Dollar Shares) is incorporated herein by reference to
Registrant's Post-Effective Amendment No. 41 to
Registration Statement on Form N-1A filed on February
27, 1996.
(e) Statement of Additional Information dated May 31,
1996 for Trust for Federal Securities' FedFund and
T-Fund (FedFund, FedFund Dollar, T-Fund, T-Fund
Dollar and T-Fund Plus Shares).
(f) Prospectus dated February 28, 1996 for Trust for
Federal Securities' FedCash (FedCash Shares and
FedCash Dollar Shares) is incorporated herein by
reference to Registrant's Post-Effective Amendment
No. 41 to Registration Statement on Form N-1A filed
on February 27, 1996.
(g) Prospectus dated February 28, 1996 for Trust for
Federal Securities' T-Cash (T-Cash Shares and T-Cash
Dollar Shares) is incorporated herein by reference to
Registrant's Post-Effective Amendment No. 41 to
Registration Statement on Form N-1A filed on February
27, 1996.
(h) Statement of Additional Information dated February
28, 1996 (as revised April 8, 1996) for Trust for
Federal Securities' FedCash and T-Cash (FedCash,
FedCash Dollar, T-Cash and T-Cash Dollar Shares).
(i) Annual Report to Shareholders dated October 31, 1995
for Trust for Federal Securities' FedFund, T-Fund,
FedCash, T-Cash, Federal Trust Fund, Treasury Trust
Fund and Short Government Fund is incorporated herein
by reference to the Registrant's File No. 2-53808
filed on December 26, 1995.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this registration statement by
any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c) of the Securities Act of 1933, as
amended (the "1933 Act"), the reoffering prospectus will
contain the information called for by the applicable
registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the
other items of the applicable form.
C-7
<PAGE> 44
(2) The undersigned Registrant agrees that every prospectus that
is filed under paragraph (1) above will be filed as a part of
an amendment to the registration statement and will not be
used until the amendment is effective, and that, in
determining any liability under the 1933 Act, each
post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and
the offering of the securities at that time shall be deemed to
be the initial bona fide offering of them.
C-8
<PAGE> 45
SIGNATURES
As required by the Securities Act of 1933, as amended, this
Registration Statement has been signed on behalf of the Registrant, in the City
of Wilmington, State of Delaware, on the 31st day of May, 1996.
TRUST FOR FEDERAL SECURITIES
Registrant
/s/ G. Willing Pepper
----------------------------
G. Willing Pepper
President
As required by the Securities Act of 1933, as amended, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ G. Nicholas Beckwith, III Trustee May 31, 1996
- -----------------------------
G. Nicholas Beckwith, III
/s/ Philip E. Coldwell Trustee May 31, 1996
- -----------------------------
Philip E. Coldwell
/s/ Robert R. Fortune Trustee May 31, 1996
- -----------------------------
Robert R. Fortune
/s/ Jerrold B. Harris Trustee May 31, 1996
- -----------------------------
Jerrold B. Harris
/s/ Rodney D. Johnson Trustee May 31, 1996
- -----------------------------
Rodney D. Johnson
/s/ G. Willing Pepper Chairman of the May 31, 1996
- ----------------------------- Board and President
G. Willing Pepper
/s/ Edward J. Roach Vice President and May 31, 1996
- ----------------------------- Treasurer
Edward J. Roach (Principal Financial
and Accounting
Officer)
</TABLE>
C-9
<PAGE> 46
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
- ----------- ------- --------
<S> <C> <C>
(11) Opinion of Drinker Biddle & Reath that shares will be
validly issued, fully paid and non-assessable
(including the consent of such firm).
(12) Opinion of Drinker Biddle & Reath
as to tax matters and consequences
(including consent of such firm).
(14) (a) Consent of Coopers & Lybrand L.L.P.
(14) (b) Consent of Drinker Biddle & Reath.
(17) (a) Declaration pursuant to Rule 24f-2
under the Investment Company Act of
1940 of the Registrant.
(17) (b) Forms of Proxy.
(17) (e) Statement of Additional Information dated May 31, 1996 for
Trust for Federal Securities' FedFund and T-Fund (FedFund,
FedFund Dollar, T-Fund, T-Fund Dollar and T-Fund Plus
Shares).
(17) (h) Statement of Additional Information dated February 28,
1996 (as revised April 8, 1996) for Trust for Federal
Securities' FedCash and T-Cash (FedCash, FedCash Dollar,
T-Cash and T-Cash Dollar Shares).
</TABLE>
<PAGE> 1
EXHIBIT 11
DRINKER BIDDLE & REATH
1345 CHESTNUT STREET, SUITE 1100
PHILADELPHIA, PA 19107
(215) 988-2700
May 31, 1996
Trust for Federal Securities
Bellevue Park Corporate Center
400 Bellevue Parkway, Suite 100
Wilmington, Delaware 19809
Re: Shares of Beneficial Interest ("Shares") of
Trust for Federal Securities
Ladies and Gentlemen:
We have acted as counsel to Trust for Federal Securities, a
Pennsylvania business trust (the "Company"), in connection with the Plan of
Reorganization (the "Plan") contemplated by the Company providing for the
transfer of substantially all of the assets and liabilities of the Company's
FedCash and T-Cash investment portfolios (the "Transferor Funds"), in exchange
for Shares of the Company's FedFund and T- Fund investment portfolios (the
"Surviving Funds"), which are to be distributed by the Company to holders of
Shares of the Transferor Funds (the "Reorganization"). The Company is authorized
to issue an unlimited number of Shares in each class.
In rendering the opinions hereinafter expressed, we have reviewed
the Amended and Restated Declaration of Trust and Amended and Restated By-Laws
of the Company, the Company's Registration Statement on Form N-14 (SEC File No.
2-53808) relating to the transaction contemplated by the Plan, the Combined
Proxy Statement and Prospectus contained therein, the proceedings of the Board
of Trustees of the Company approving the transactions contemplated by the Plan
and other factual matters we deemed relevant.
As to questions of fact material to this opinion, we have relied
upon the accuracy of the representations and warranties of the parties to the
Plan and other documents executed by officers and representatives of the
Company, as the
<PAGE> 2
Trust for Federal Securities
May 31, 1996
Page 2
case may be, and upon certificates of public officials. We have not undertaken
any independent investigation or verification of factual matters. Any change in
any law, regulation or interpretation, or any change in the facts, could cause a
change in our opinion.
In our examination, we have assumed that: (i) all documents
submitted to us as originals are authentic, the signatures thereon are genuine
and the persons signing the same were of legal capacity; (ii) all documents
submitted to us as certified or photostatic copies conform to the original
documents and that such originals are authentic; and (iii) all certificates of
public officials upon which we have relied have been duly and properly given and
that any public records reviewed by us are complete.
We have made such examination of law as in our judgment is
necessary and appropriate for the purposes of this opinion. We do not purport to
be experts in the laws of any jurisdiction other than the federal laws of the
United States of America and the laws of the Commonwealth of Pennsylvania.
On the basis of and subject to the foregoing and such other
considerations as we deem relevant, we are of the opinion that the issuance of
shares of the Company's FedFund and T-Fund portfolios in the Reorganization has
been duly and validly authorized by all appropriate action, and the shares, when
delivered to the Transferor Funds in exchange for the assets of the Transferor
Funds as provided for in the Plan, will be validly issued, fully paid and
non-assessable by the Company.
Under Pennsylvania law, shareholders of a Pennsylvania business
trust could, under certain circumstances, be held personally liable (as if they
were partners) for the obligations of the Company. However, the Company's
Amended and Restated Declaration of Trust disclaims shareholder liability for
acts or obligations of the Company and requires that notice of such disclaimer
be given in each note, bond, contract, order or other undertaking issued by or
on behalf of the Company or Trustees relating to the Company of any class of
shares of beneficial interest of the Company. The Company's Amended and Restated
Declaration of Trust provides for indemnification out of the Company property of
any shareholder held personally liable solely by reason of his being or having
been a shareholder and not
<PAGE> 3
Trust for Federal Securities
May 31, 1996
Page 3
because of any acts or omissions or some other reason. The Amended and Restated
Declaration of Trust also provides that the Company shall, upon request, assume
the defense of any claim made against any shareholder for any act or obligation
of the Company and satisfy any judgment thereon. Thus, the risk of a
shareholder's incurring financial loss beyond its investment on account of
shareholder liability is limited to circumstances in which the Company itself
would be unable to meet its obligations.
The opinions expressed in this letter are solely for the use of
the Company, and these opinions may not be referred to or used for any other
purpose or relied on by any other persons without our prior written approval.
The opinions expressed in this letter are limited to the matters set forth in
this letter, and no other opinions should be inferred beyond the matters
expressly stated.
We hereby consent to the inclusion of this opinion as an exhibit
to the Company's Registration Statement to be filed with the Securities and
Exchange Commission.
Very truly yours,
/s/ Drinker Biddle & Reath
DRINKER BIDDLE & REATH
<PAGE> 1
EXHIBIT 12
May 31, 1996
Trust for Federal Securities
Bellevue Park Corporate Center
400 Bellevue Parkway, Suite 100
Wilmington, DE 19809
Re: Plan of Reorganization for
FedCash, T-Cash, FedFund and T-Fund
Dear Sirs and Mesdames:
We have been asked to give our opinion, in accordance with the above
Plan of Reorganization by Trust for Federal Securities (the "Plan"), as to
certain Federal income tax consequences of the transactions contemplated in the
Plan.
Background
Trust for Federal Securities ("Trust") is a Pennsylvania business
trust consisting of multiple investment portfolios, including FedFund and T-Fund
(individually, a "Surviving Fund" and collectively, the "Surviving Funds") and
also FedCash and T-Cash (individually, a "Transferor Fund" and collectively, the
"Transferor Funds"). Each Fund has two classes of outstanding shares -- (i)
regular shares and (ii) "dollar" shares, which are available in smaller lots and
bear higher expense ratios to cover the higher administrative costs per share.
Trust is an open-end management investment company registered with the
Securities and Exchange Commission (the "SEC") under the Investment Company Act
of 1940, as amended (the "1940 Act").
At the Closing (as defined in the Plan), it is contemplated that each
Transferor Fund will transfer all of its assets and liabilities to a
corresponding Surviving Fund in exchange for shares of the Surviving Fund. Trust
will then distribute the shares of each Surviving Fund to the shareholders of
the corresponding Transferor Fund in exchange for all outstanding shares of the
Transferor Fund, and the existence of the Transferor Funds will be terminated.
(Each Transferor Fund shareholder will receive Surviving Fund shares of the same
class as the shares surrendered.) All of the above steps constitute
<PAGE> 2
Trust for Federal Securities
May 31, 1996
Page 2
the "Transactions." After the Transactions, each Surviving Fund will continue
the investment operations of the corresponding Transferor Fund.
Assumptions
For purposes of this opinion, we have made certain assumptions. Please
advise us if you are aware of any facts inconsistent with any of these
assumptions:
First, each of the Transferor and Surviving Funds qualified as a
"regulated investment company" under Part I of Subchapter M of Subtitle A,
Chapter 1, of the Internal Revenue Code of 1986, as amended (the "Code"), for
its most recently ended fiscal year and will so qualify for its current fiscal
year.
Second, each Transferor Fund will transfer to the corresponding
Surviving Fund assets consisting of at least 90% of the fair market value of the
Transferor Fund's net assets and at least 70% of the fair market value of its
gross assets immediately prior to the Transactions. For purposes of this
assumption, all of the following shall be considered as assets of such
Transferor Fund held immediately prior to the Transactions: (a) amounts used by
the Transferor Fund to pay its expenses in connection with the Transactions and
(b) all amounts used to make redemptions of or distributions on such Transferor
Fund's shares (except for redemptions in the ordinary course of its business, as
required by section 22(e) of the 1940 Act pursuant to a demand for redemption by
a shareholder of the Transferor Fund, and distributions of net investment income
and net capital gains, other than net capital gains resulting from sales of
assets for the purpose of satisfying investment objectives of the Surviving
Fund, if any, that differ from the existing investment objectives of the
Transferor Fund).
Third, each Transferor Fund, as promptly as practicable, will
distribute the Surviving Fund shares received in the Transactions to its
shareholders in complete liquidation of the Transferor Fund and, having made
such distributions, will take all necessary steps to terminate its existence.
Fourth, prior to the Transactions, each Transferor Fund will continue
its historic business within the meaning of
<PAGE> 3
Trust for Federal Securities
May 31, 1996
Page 3
Treasury Regulations section 1.368-1(d) and will not dispose of more than fifty
percent (50%) of the fair market value of its assets for the purpose of
satisfying investment objectives of the corresponding Surviving Fund, if any,
that differ from the existing investment objectives of the Transferor Fund.
Fifth, following the Transactions, each Surviving Fund will continue
the historic business of the corresponding Transferor Fund or will use a
significant portion of the Transferor Fund's historic business assets in a
business.
Sixth, at the time of the Transactions, the adjusted income tax basis
and the fair market value of the assets to be transferred by each Transferor
Fund to the corresponding Surviving Fund will each equal or exceed the sum of
the liabilities to be assumed by such Surviving Fund or to which such
transferred assets are subject.
Seventh, at the time of the Transactions, there will be no plan or
intention by the shareholders of any Transferor Fund who own five percent (5%)
or more of the Transferor Fund's stock and, to the best of the knowledge of the
management of Trust, no plan or intention on the part of the remaining
shareholders of the Transferor Fund, to sell, exchange or otherwise dispose of a
number of shares of the corresponding Surviving Fund's stock to be received in
the Transactions that would reduce the Transferor Fund shareholders' ownership
of Surviving Fund stock to a number of shares having a value, as of the time of
the Transactions, of less than fifty percent (50%) of the value of all of the
formerly outstanding stock of the Transferor Fund immediately prior to the
Transactions. For purposes of this assumption, (a) shares of the Transferor Fund
surrendered by dissenters will be treated as outstanding Transferor Fund stock
immediately prior to the Transactions, and (b) shares of the Transferor Fund and
the Surviving Fund held by Transferor Fund shareholders and otherwise sold,
redeemed or disposed of in anticipation of the Transactions, or subsequent to
the Transactions pursuant to a plan or intention that existed at the time of the
Transactions, also will be taken into account.
Eighth, at the time of the Transactions, no Surviving Fund will have
any plan or intention to reacquire any of its shares issued in the Transactions,
except in the ordinary course of business.
<PAGE> 4
Trust for Federal Securities
May 31, 1996
Page 4
Ninth, at the time of the Transactions, no Surviving Fund will have
any plan or intention to sell or otherwise to dispose of any of the assets of
the corresponding Transferor Fund acquired in the Transactions, except for
dispositions made in the ordinary course of business.
Tenth, there is and will be no intercorporate indebtedness between any
Surviving Fund and its corresponding Transferor Fund that was issued, acquired
or will be settled at a discount.
Eleventh, no Surviving Fund owns, will own or has owned during the
past five years, directly or indirectly, any stock of the corresponding
Transferor Fund.
Twelfth, no Transferor Fund is or will be under the jurisdiction of a
court in a case under Title 11 of the United States Code or a receivership,
foreclosure or similar proceeding in any Federal or State court.
Thirteenth, the liabilities of each Transferor Fund that will be
assumed by the corresponding Surviving Fund and the liabilities, if any, to
which the transferred assets will be subject were incurred by the Transferor
Fund in the ordinary course of its business.
Fourteenth, the Transactions will be accomplished for the purposes set
forth in the Combined Proxy Statement/Prospectus (the "Proxy Statement"), a
draft of which is part of the Registration Statement (the "Registration
Statement") being filed this day with the SEC.
Fifteenth, the Plan substantially in the form included as an exhibit
in the Proxy Statement will be duly authorized by the parties and approved by
the shareholders of each Transferor Fund, and the appropriate documents will be
filed with the appropriate government agencies.
Conclusions
Based upon the Code, applicable Treasury Department regulations in
effect as of the date hereof, current published administrative positions of the
Internal Revenue Service contained in revenue rulings and procedures, and
judicial
<PAGE> 5
Trust for Federal Securities
May 31, 1996
Page 5
decisions, and upon the information, representations and assumptions contained
herein and in the documents provided to us by you (including the Proxy Statement
and the Plan), it is our opinion for Federal income tax purposes that:
(i) the transfer by each Transferor Fund of all of its assets and
liabilities to the corresponding Surviving Fund in exchange for shares of the
corresponding Surviving Fund, and the distribution of said shares to the
shareholders of the Transferor Fund, as provided in the Plan, will constitute a
reorganization within the meaning of section 368(a)(1)(C) or 368(a)(1)(D) of the
Code, and each such Fund will be "a party to the reorganization" within the
meaning of section 368(b) of the Code;
(ii) in accordance with sections 361(a), 361(c)(1) and 357(a) of the
Code, no gain or loss will be recognized by any Transferor Fund as a result of
the Transactions;
(iii) in accordance with section 1032(a) of the Code, no gain or loss
will be recognized by any Surviving Fund as a result of the Transactions;
(iv) in accordance with section 354(a)(1) of the Code, no gain or loss
will be recognized by the shareholders of any Transferor Fund on the
distribution to them by the Transferor Fund of shares of the Surviving Fund in
exchange for their shares of the Transferor Fund;
(v) in accordance with section 358(a)(1) of the Code, the aggregate
basis of the shares of the Surviving Fund received by each shareholder of an
Transferor Fund will be the same as the aggregate basis of the shareholder's
Transferor Fund shares exchanged therefor in the Transactions;
(vi) in accordance with section 362(b) of the Code, the basis of the
assets received by each Surviving Fund in the Transactions will be the same as
the basis of such assets in the hands of the corresponding Transferor Fund
immediately before the Transactions;
(vii) in accordance with section 1223(1) of the Code, a Transferor
Fund shareholder's holding period for shares of the Surviving Fund will be
determined by including the period for which the shareholder held the shares of
the Transferor Fund
<PAGE> 6
Trust for Federal Securities
May 31, 1996
Page 6
exchanged therefor, provided that the shareholder held such shares of the
Transferor Fund as a capital asset;
(viii) in accordance with section 1223(2) of the Code, the holding
period of each Surviving Fund with respect to the assets acquired in the
Transactions will include the period for which such assets were held by the
corresponding Transferor Fund; and
(ix) in accordance with section 381(a) of the Code, each Surviving
Fund will succeed to the tax attributes of the corresponding Transferor Fund
described in section 381(c) of the Code.
We express no opinion relating to any Federal income tax matter except
on the basis of the documents and assumptions described above. In issuing our
opinion, we have relied solely upon existing provisions of the Code, existing
and proposed regulations thereunder, and current administrative positions and
judicial decisions. Such laws, regulations, administrative positions and
judicial decisions are subject to change at any time. Any such change could
affect the validity of the opinion set forth above.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to our firm under the caption
"Information Relating to the Proposed Reorganization -- Federal Income Tax
Consequences" in the Proxy Statement. This does not constitute a consent under
section 7 of the Securities Act of 1933, and in consenting to such references to
our firm we have not certified any part of the Registration Statement and do not
otherwise come within the categories of persons whose consent is required under
section 7 or under the rules and regulations of the SEC issued thereunder.
Very truly yours,
DRINKER BIDDLE & REATH
EMM:SDDH:FRB
<PAGE> 1
EXHIBIT 14(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the following with respect to the Registration Statement on Form
N-14 under the Securities Act of 1933 of Trust for Federal Securities with
respect to the transfer of all assets and liabilities of the FedCash and T-Cash
Portfolios to the FedFund and T-Fund Portfolios, respectively, of Trust for
Federal Securities:
- The incorporation by reference of our report dated December 8,
1995, accompanying the financial statements and financial
highlights of Trust for Federal Securities into the Combined
Proxy Statement/Prospectus.
- The reference to our Firm under the heading "Financial
Statements" in the Combined Proxy Statement/Prospectus for
Trust for Federal Securities.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
May 31, 1996
<PAGE> 1
EXHIBIT 14(b)
CONSENT OF COUNSEL
------------------
We hereby consent to the use of our name and to the reference
to our Firm under the caption "Information Relating to the Proposed
Reorganization" in the combined Proxy Statement/Prospectus included in the
Registration Statement on Form N-14 under the Securities Act of 1933 of Trust
for Federal Securities. This consent does not constitute a consent under
Section 7 of the Securities Act of 1933, and in consenting to the use of our
name and the references to our Firm under such caption we have not certified
any part of the Registration Statement and do not otherwise come within the
categories of persons whose consent is required under Section 7 or the rules
and regulations of the Securities and Exchange Commission thereunder.
/s/ DRINKER BIDDLE & REATH
--------------------------
DRINKER BIDDLE & REATH
Philadelphia, Pennsylvania
May 31, 1996
<PAGE> 1
EXHIBIT 17(a)
As filed with the Securities and Exchange Commission on May 28, 1975
Registration No. 2-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-5
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
----------------
Federal
Short-Term Securities Trust
(Exact name of registrant as specified in its Declaration of Trust)
1730 Pennsylvania Avenue
Washington, D.C. 20006
(Address of principal executive office)
Carlton Collins
1730 Pennsylvania Avenue
Washington, D.C. 20006
(Name and address of agent for service)
----------------
Approximate date of commencement of sale to public:
As soon as practicable after this Registration Statement becomes effective
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================================
Proposed
maximum offering Proposed maximum
Title of Securities price per unit aggregate offering Amount of Registration
being registered Amount being registered (1) price (1) fee
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Beneficial
Interest 500,000 shs. $1.00 $500,000 $100.00
=============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
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 this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE> 2
As filed with the Securities and Exchange Commission on April 1, 1996
Registration No. 2-53808
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 43
on
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 \x\
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 \x\
----------------
TRUST FOR FEDERAL SECURITIES
(FedFund, T-Fund, FedCash, T-Cash, Federal Trust Fund
and Treasury Trust Fund Portfolios)
(Exact Name of Registrant as Specified in Charter)
Bellevue Park Corporate Center EDWARD J. ROACH
400 Bellevue Parkway, Suite 100 Bellevue Park Corporate Center
Wilmington, Delaware 19809 400 Bellevue Parkway, Suite 100
(Address of Principal Executive Offices) Wilmington, Delaware 19809
Registrant's Telephone Number: (Name and Address of
(302) 792-2555 Agent for Service)
Copy to:
W. BRUCE McCONNEL, III
Drinker Biddle & Reath
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
==============================================================================
<PAGE> 1
Exhibit 17(b)
[PRELIMINARY COPY]
TRUST FOR FEDERAL SECURITIES
PROXY
FEDCASH
(FedCash Dollar Shares)
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of Trust for
Federal Securities (the "Company") for use at a Special Meeting of Shareholders
to be held at the Company's offices, Bellevue Park Corporate Center, 400
Bellevue Parkway, Suite 100, Wilmington, Delaware 19809 on _________, 1996 at
10:00 A.M. local time, and as adjourned from time to time.
THE UNDERSIGNED HEREBY APPOINTS Edward J. Roach and G. Willing
Pepper, and each of them, with full power of substitution, as proxies of the
undersigned to vote at the above-stated Special Meeting, and at all adjournments
thereof, all shares of beneficial interest evidencing interests in FedCash
Dollar Shares of the Company's FedCash portfolio that are held of record by the
undersigned on the record date for the Special Meeting, upon the following
proposal and upon any other matter that may come before the Special Meeting.
EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
THEREON AND, IN THE ABSENCE OF SPECIFICATION WILL BE TREATED AS VOTING FOR
PROPOSAL 1 AS STATED ON THE REVERSE SIDE.
<PAGE> 2
PROPOSAL 1:
To approve with respect to FedCash a Plan of Reorganization and
the transactions contemplated thereby, including the transfer of all of the
assets and liabilities of the Company's FedCash portfolio to the Company's
FedFund portfolio in exchange for FedFund Dollar Shares of FedFund, and a
liquidating distribution of such shares to shareholders of FedCash.
/ / / / / /
For Against Abstain
In their discretion, the proxies are authorized to vote upon such
other business as may properly come before a Special Meeting or any adjournment
thereof.
Receipt of Notice of Special Meeting and
Proxy Statement is hereby acknowledged.
IMPORTANT: Joint Tenants must EACH sign.
When signing as attorney, trustee, executor,
administrator, guardian or corporate officer,
please give your FULL title.
Dated:_______________________________, 1996
___________________________________________
Sign here exactly as name(s) appear on left
-2-
<PAGE> 3
Exhibit 17(b)
[PRELIMINARY COPY]
TRUST FOR FEDERAL SECURITIES
PROXY
FEDCASH
(FedCash Shares)
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of Trust for
Federal Securities (the "Company") for use at a Special Meeting of Shareholders
to be held at the Company's offices, Bellevue Park Corporate Center, 400
Bellevue Parkway, Suite 100, Wilmington, Delaware 19809 on _________, 1996 at
10:00 A.M. local time, and as adjourned from time to time.
THE UNDERSIGNED HEREBY APPOINTS Edward J. Roach and G. Willing
Pepper, and each of them, with full power of substitution, as proxies of the
undersigned to vote at the above-stated Special Meeting, and at all adjournments
thereof, all shares of beneficial interest evidencing interests in FedCash
Shares of the Company's FedCash portfolio that are held of record by the
undersigned on the record date for the Special Meeting, upon the following
proposal and upon any other matter that may come before the Special Meeting.
EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
THEREON AND, IN THE ABSENCE OF SPECIFICATION WILL BE TREATED AS VOTING FOR
PROPOSAL 1 AS STATED ON THE REVERSE SIDE.
<PAGE> 4
PROPOSAL 1:
To approve with respect to FedCash a Plan of Reorganization and
the transactions contemplated thereby, including the transfer of all of the
assets and liabilities of the Company's FedCash portfolio to the Company's
FedFund portfolio in exchange for FedFund Shares of FedFund, and a liquidating
distribution of such shares to shareholders of FedCash.
/ / / / / /
For Against Abstain
In their discretion, the proxies are authorized to vote upon such
other business as may properly come before a Special Meeting or any adjournment
thereof.
Receipt of Notice of Special Meeting and
Proxy Statement is hereby acknowledged.
IMPORTANT: Joint Tenants must EACH sign.
When signing as attorney, trustee, executor,
administrator, guardian or corporate officer,
please give your FULL title.
Dated:_______________________________, 1996
___________________________________________
Sign here exactly as name(s) appear on left
-2-
<PAGE> 5
Exhibit 17(b)
[PRELIMINARY COPY]
TRUST FOR FEDERAL SECURITIES
PROXY
T-CASH
(T-Cash Dollar Shares)
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of Trust for
Federal Securities (the "Company") for use at a Special Meeting of Shareholders
to be held at the Company's offices, Bellevue Park Corporate Center, 400
Bellevue Parkway, Suite 100, Wilmington, Delaware 19809 on _________, 1996 at
10:00 A.M. local time, and as adjourned from time to time.
THE UNDERSIGNED HEREBY APPOINTS Edward J. Roach and G. Willing
Pepper, and each of them, with full power of substitution, as proxies of the
undersigned to vote at the above-stated Special Meeting, and at all adjournments
thereof, all shares of beneficial interest evidencing interests in T-Cash Dollar
Shares of the Company's T-Cash portfolio that are held of record by the
undersigned on the record date for the Special Meeting, upon the following
proposal and upon any other matter that may come before the Special Meeting.
EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
THEREON AND, IN THE ABSENCE OF SPECIFICATION WILL BE TREATED AS VOTING FOR
PROPOSAL 1 AS STATED ON THE REVERSE SIDE.
<PAGE> 6
PROPOSAL 1:
To approve with respect to T-Cash a Plan of Reorganization and the
transactions contemplated thereby, including the transfer of all of the assets
and liabilities of the Company's T-Cash portfolio to the Company's T-Fund
portfolio in exchange for T-Fund Dollar Shares of T-Fund, and a liquidating
distribution of such shares to shareholders of T-Cash.
/ / / / / /
For Against Abstain
In their discretion, the proxies are authorized to vote upon such
other business as may properly come before a Special Meeting or any adjournment
thereof.
Receipt of Notice of Special Meeting and
Proxy Statement is hereby acknowledged.
IMPORTANT: Joint Tenants must EACH sign.
When signing as attorney, trustee, executor,
administrator, guardian or corporate officer,
please give your FULL title.
Dated:_______________________________, 1996
___________________________________________
Sign here exactly as name(s) appear on left
-2-
<PAGE> 7
Exhibit 17(b)
[PRELIMINARY COPY]
TRUST FOR FEDERAL SECURITIES
PROXY
T-CASH
(T-Cash Shares)
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of Trust for
Federal Securities (the "Company") for use at a Special Meeting of Shareholders
to be held at the Company's offices, Bellevue Park Corporate Center, 400
Bellevue Parkway, Suite 100, Wilmington, Delaware 19809 on _________, 1996 at
10:00 A.M. local time, and as adjourned from time to time.
THE UNDERSIGNED HEREBY APPOINTS Edward J. Roach and G. Willing
Pepper, and each of them, with full power of substitution, as proxies of the
undersigned to vote at the above-stated Special Meeting, and at all adjournments
thereof, all shares of beneficial interest evidencing interests in T-Cash Shares
of the Company's T-Cash portfolio that are held of record by the undersigned on
the record date for the Special Meeting, upon the following proposal and upon
any other matter that may come before the Special Meeting.
EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
THEREON AND, IN THE ABSENCE OF SPECIFICATION WILL BE TREATED AS VOTING FOR
PROPOSAL 1 AS STATED ON THE REVERSE SIDE.
<PAGE> 8
PROPOSAL 1:
To approve with respect to T-Cash a Plan of Reorganization and the
transactions contemplated thereby, including the transfer of all of the assets
and liabilities of the Company's T-Cash portfolio to the Company's T-Fund
portfolio in exchange for T-Fund Shares of T-Fund, and a liquidating
distribution of such shares to shareholders of T-Cash.
/ / / / / /
For Against Abstain
In their discretion, the proxies are authorized to vote upon such
other business as may properly come before a Special Meeting or any adjournment
thereof.
Receipt of Notice of Special Meeting and
Proxy Statement is hereby acknowledged.
IMPORTANT: Joint Tenants must EACH sign.
When signing as attorney, trustee, executor,
administrator, guardian or corporate officer,
please give your FULL title.
Dated:_______________________________, 1996
___________________________________________
Sign here exactly as name(s) appear on left
-2-
<PAGE> 1
EXHIBIT 17(e)
FEDFUND and T-FUND
Investment Portfolios Offered By
Trust for Federal Securities
Statement of Additional Information
May 31, 1996
TABLE OF CONTENTS
Page
THE COMPANY................................................................. 1
INVESTMENT OBJECTIVES AND POLICIES.......................................... 1
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.............................. 5
MANAGEMENT OF THE FUNDS..................................................... 8
ADDITIONAL INFORMATION CONCERNING TAXES..................................... 20
DIVIDENDS................................................................... 21
ADDITIONAL YIELD INFORMATION................................................ 21
ADDITIONAL DESCRIPTION CONCERNING FUND SHARES............................... 25
COUNSEL..................................................................... 26
AUDITORS.................................................................... 26
MISCELLANEOUS............................................................... 26
APPENDIX A.................................................................. 1
This Statement of Additional Information is meant to be read in conjunction
with the Prospectuses for FedFund dated February 28, 1996 and for T-Fund dated
February 28, 1996 and May 31, 1996 and is incorporated by reference in its
entirety into those Prospectuses. Because this Statement of Additional
Information is not itself a prospectus, no investment in shares of FedFund or
T-Fund should be made solely upon the information contained herein. Copies of
the Prospectuses for FedFund and T-Fund may be obtained by calling 800-821-7432.
Capitalized terms used but not defined herein have the same meanings as in the
Prospectuses.
<PAGE> 2
THE COMPANY
Trust for Federal Securities (Trust for Short-Term Federal Securities
prior to March 2, 1987) is a no-load, diversified, open-end investment company
designed primarily as a vehicle by which institutional investors can invest cash
reserves in a choice of portfolios consisting of government securities. Trust
for Federal Securities (the "Company") consists of six separate investment
portfolios--FedFund, T-Fund, FedCash, T-Cash, Federal Trust Fund and Treasury
Trust Fund. This Statement of Additional Information relates primarily to the
Company's FedFund and T-Fund portfolios (the "Funds").
The securities held by FedFund consist of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements relating to such obligations. Securities held by T-Fund
are limited to U.S. Treasury bills, notes and other direct obligations of the
U.S. Treasury and repurchase agreements relating to direct Treasury obligations.
Although both Funds have the same investment adviser and have comparable
investment objectives, their yields normally will differ due to their differing
cash flows and differences in the specific portfolio securities held.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE FUNDS' PROSPECTUSES
RELATE PRIMARILY TO THE FUNDS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES, OPERATIONS, CONTRACTS, AND OTHER MATTERS RELATING TO THE FUNDS.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE COMPANY'S FEDCASH,
T-CASH, FEDERAL TRUST FUND OR TREASURY TRUST FUND PORTFOLIOS MAY OBTAIN SEPARATE
PROSPECTUSES DESCRIBING THOSE PORTFOLIOS BY CALLING THE DISTRIBUTOR AT
800-998-7633.
INVESTMENT OBJECTIVES AND POLICIES
As stated in the Funds' Prospectuses, the investment objective of each
Fund is to seek current income with liquidity and security of principal. The
following policies supplement the description in the Prospectuses of the
investment objectives and policies of the Funds.
PORTFOLIO TRANSACTIONS
Subject to the general control of the Company's Board of Trustees, PNC
Institutional Management Corporation ("PIMC"), the Funds' investment adviser, is
responsible for, makes decisions with respect to and places orders for all
purchases and sales of portfolio securities for the Funds. Purchases and sales
of portfolio securities are usually principal transactions without brokerage
commissions. In making portfolio investments, PIMC seeks to obtain the best net
price and the most favorable
<PAGE> 3
execution of orders. To the extent that the execution and price offered by more
than one dealer are comparable, PIMC may, in its discretion, effect transactions
in portfolio securities with dealers who provide the Company with research
advice or other services. Although the Funds will not seek profits through
short-term trading, PIMC may, on behalf of the Funds, dispose of any portfolio
security prior to its maturity if it believes such disposition is advisable.
Investment decisions for the Funds are made independently from those
for other investment company portfolios or accounts advised or managed by PIMC.
Such other portfolios may invest in the same securities as the Funds. When
purchases or sales of the same security are made at substantially the same time
on behalf of such other portfolios, transactions are averaged as to price, and
available investments allocated as to amount, in a manner which PIMC believes to
be equitable to each portfolio, including either Fund. In some instances, this
investment procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained for a Fund. To the extent permitted by
law, PIMC may aggregate the securities to be sold or purchased for a Fund with
those to be sold or purchased for such other investment company portfolios in
order to obtain best execution.
Portfolio securities will not be purchased from or sold to and the
Funds will not enter into repurchase agreements or reverse repurchase agreements
with PIMC, PNC Bank, National Association ("PNC Bank"), PFPC Inc. ("PFPC"),
Provident Distributors, Inc. ("PDI") or any affiliated person (as such term is
defined in the Investment Company Act of 1940 (the "1940 Act") of any of them,
except to the extent permitted by the Securities and Exchange Commission (the
"SEC"). Furthermore, with respect to such transactions, securities and
repurchase agreements, the Funds will not give preference to Service
Organizations with whom the Funds enter into agreements concerning the provision
of support services to their customers. (See the Prospectuses, "Management of
the Fund--Service Organizations" and "Distribution and Service Plan.")
The Funds do not intend to seek profits through short- term trading.
The Funds' annual portfolio turnover rates will be relatively high but the
Funds' portfolio turnover is not expected to have a material effect on its net
incomes. The portfolio turnover rate for each of the Funds is expected to be
zero for regulatory reporting purposes.
ADDITIONAL INFORMATION ON INVESTMENT PRACTICES
The repurchase price under the repurchase agreements described in the
Funds' Prospectuses generally equals the price
-2-
<PAGE> 4
paid by a Fund plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to repurchase agreements will be held
by the Funds' custodian, sub-custodian or in the Federal Reserve/Treasury book-
entry system. Repurchase agreements are considered to be loans by the Funds
under the 1940 Act.
Whenever FedFund enters into reverse repurchase agreements as described
in its Prospectus, it will place in a segregated custodial account liquid assets
having a value equal to the repurchase price (including accrued interest) and
will subsequently monitor the account to ensure such equivalent value is
maintained. Reverse repurchase agreements are considered to be borrowings by
FedFund under the 1940 Act.
As stated in the Funds' Prospectuses, the Funds may purchase securities
on a "when-issued" basis (i.e., for delivery beyond the normal settlement date
at a stated price and yield). When a Fund agrees to purchase when-issued
securities, its custodian will set aside cash or liquid portfolio securities
equal to the amount of the commitment in a separate account. Normally, the
custodian will set aside portfolio securities to satisfy a purchase commitment,
and in such a case such Fund may be required subsequently to place additional
assets in the separate account in order to ensure that the value of the account
remains equal to the amount of such Fund's commitment. It may be expected that
a Fund's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because the Funds will set aside cash or liquid assets to satisfy their
respective purchase commitments in the manner described, such a Fund's liquidity
and ability to manage its portfolio might be affected in the event its
commitments to purchase when-issued securities ever exceeded 25% of the value of
its assets. Neither Fund intends to purchase when-issued securities for
speculative purposes but only in furtherance of its investment objectives. The
Funds reserve the right to sell the securities before the settlement date if it
is deemed advisable.
When a Fund engages in when-issued transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in a
Fund's incurring a loss or missing an opportunity to obtain a price considered
to be advantageous.
With respect to loans by FedFund of its portfolio securities as
described in its Prospectus, the Fund would continue to accrue interest on
loaned securities and would also earn income on loans. Any cash collateral
received by FedFund in connection with such loans would be invested in
short-term U.S.
-3-
<PAGE> 5
government obligations to the extent permitted by the Fund's investment
limitations, below.
Neither Fund will invest more than 10% of the value of its assets in
investments which are not readily marketable if such investment occurs
immediately after the purchase of a security which is not a readily marketable
security. Securities for purposes of this limitation do not include securities
which have been determined to be liquid by the Fund's Board of Trustees based
upon the trading markets for such securities.
INVESTMENT LIMITATIONS
The Funds' Prospectuses summarize certain investment limitations that
may not be changed without the affirmative vote of the holders of a "majority of
the outstanding shares" of the respective Fund (as defined below under
"Miscellaneous"). Below is a complete list of the Funds' investment limitations
that may not be changed without such a vote of shareholders.
1. FedFund may not purchase securities other than U.S. Treasury
bills, notes and other obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities, some of which may be subject to repurchase
agreements. There is no limit on the amount of FedFund's assets which may be
invested in the securities of any one issuer of such obligations.
2. T-Fund may not purchase securities other than direct
obligations of the U.S. Treasury such as Treasury bills and notes, some of which
may be subject to repurchase agreements. There is no limit on the amount of
T-Fund's assets which may be invested in securities of any one issuer of such
obligations.
FedFund and T-Fund may not:
3. Borrow money except from banks for temporary purposes and then
in an amount not exceeding 10% of the value of the particular Fund's total
assets, or mortgage, pledge or hypothecate its assets except in connection with
any such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of the particular Fund's total assets at
the time of such borrowing. (This borrowing provision is not for investment
leverage, but solely to facilitate management of each Fund by enabling the
Company to meet redemption requests where the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous.) Borrowing may take
the form of a sale of portfolio securities accompanied by a simultaneous
agreement as to their repurchase. Interest paid on borrowed funds will not be
available for investment.
-4-
<PAGE> 6
4. Act as an underwriter.
5. Make loans except that the Funds may purchase or hold debt
obligations in accordance with their respective investment objective and
policies, may enter into repurchase agreements for securities, and may lend
portfolio securities against collateral consisting of cash or securities which
are consistent with the lending Fund's permitted investments, which is equal at
all times to at least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned, except
that payments received on such loans, including amounts received during the loan
on account of interest on the securities loaned, may not (together with all
non-qualifying income) exceed 10% of the Fund's annual gross income (without
offset for realized capital gains) unless, in the opinion of counsel to the
Company, such amounts are qualifying income under federal income tax provisions
applicable to regulated investment companies.
6. The Company will not purchase or sell real estate or
commodities or commodity contracts.
Although Investment Limitation No. 5 above would permit each Fund to
lead its portfolio securities, T-Fund has no current policy permitting such
activity.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
IN GENERAL
Information on how to purchase and redeem a Fund's shares is included
in its Prospectus. The issuance of shares is recorded on the books of the
Funds, and share certificates are not issued unless expressly requested in
writing. Certificates are not issued for fractional shares.
The regulations of the Comptroller of the Currency provide that funds
held in a fiduciary capacity by a national bank approved by the Comptroller to
exercise fiduciary powers must be invested in accordance with the instrument
establishing the fiduciary relationship and local law. The Company believes
that the purchase of FedFund shares and T-Fund shares by such national banks
acting on behalf of their fiduciary accounts is not contrary to applicable
regulations if consistent with the particular account and proper under the law
governing the administration of the account.
Prior to effecting a redemption of shares represented by certificates,
PFPC, the Funds' transfer agent, must have received such certificates at its
principal office. All such
-5-
<PAGE> 7
certificates must be endorsed by the redeeming shareholder or accompanied by a
signed stock power, in each instance with the signature guaranteed by a
commercial bank, a member of a major stock exchange or other eligible guarantor
institution, unless other arrangements satisfactory to the Funds have previously
been made. The Funds may require any additional information reasonably
necessary to evidence that a redemption has been duly authorized.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange is closed, other than customary weekend and holiday
closings, or during which trading on said Exchange is restricted, or during
which (as determined by the SEC by rule or regulation) an emergency exists as a
result of which disposal or valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may permit. (The Funds may
also suspend or postpone the recordation of the transfer of their shares upon
the occurrence of any of the foregoing conditions.)
In addition, the Funds may redeem shares involuntarily in certain other
instances if the Board of Trustees determines that failure to redeem may have
material adverse consequences to a Fund's shareholders in general. Each Fund is
obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net
asset value, whichever is less, for any one shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless the Board of
Trustees determines that conditions exist which make payment of redemption
proceeds wholly in cash unwise or undesirable. In such a case, the Fund may
make payment wholly or partly in securities or other property, valued in the
same way as the Fund determines net asset value. (See "Net Asset Value" below
for an example of when such redemption or form of payment might be appropriate.)
Redemption in kind is not as liquid as a cash redemption. Shareholders who
receive a redemption in kind may incur transaction costs if they sell such
securities or property, and may receive less than the redemption value of such
securities or property upon sale, particularly where such securities are sold
prior to maturity.
Any institution purchasing shares on behalf of separate accounts will
be required to hold the shares in a single nominee name (a "Master Account").
Institutions investing in more than one of the Company's portfolios or classes
of shares must maintain a separate Master Account for each portfolio and class
of shares. Sub-accounts may be established by name or number either when the
Master Account is opened or later.
-6-
<PAGE> 8
NET ASSET VALUE
The manner in which each Fund's net asset value per share is calculated
is stated in each Fund's Prospectus. "Assets belonging to" a Fund consist of
the consideration received upon the issuance of shares together with all income,
earnings, profits and proceeds derived from the investment thereof, including
any proceeds from the sale, exchange or liquidation of such investments, any
funds or payments derived from any reinvestment of such proceeds, and a portion
of any general assets of the Company not belonging to a particular portfolio.
Assets belonging to a particular Fund are charged with the direct liabilities of
that Fund and with a share of the general liabilities of the Company allocated
in proportion to the relative net assets of such Fund and the Company's other
portfolios. Determinations made in good faith and in accordance with generally
accepted accounting principles by the Board of Trustees as to the allocations of
any assets or liabilities with respect to a Fund are conclusive.
As stated in the Funds' Prospectuses, in computing the net asset value
of shares of the Funds for purposes of sales and redemptions, the Funds use the
amortized cost method of valuation. Under this method, the Funds value each of
their portfolio securities at cost on the date of purchase and thereafter assume
a constant proportionate amortization of any discount or premium until maturity
of the security. As a result, the value of a portfolio security for purposes of
determining net asset value normally does not change in response to fluctuating
interest rates. While the amortized cost method provides certainty in portfolio
valuation, it may result in valuations for the Funds' securities which are
higher or lower than the market value of such securities.
In connection with their use of amortized cost valuation, each of the
Funds limits the dollar-weighted average maturity of its portfolio to not more
than 90 days and does not purchase any instrument with a remaining maturity of
more than thirteen months (with certain exceptions). In determining the average
weighted portfolio maturity of each Fund, a variable rate obligation that is
issued or guaranteed by the U.S. Government, or an agency or instrumentality
thereof, is deemed to have a maturity equal to the period remaining until the
obligation's next interest rate adjustment. The Company's Board of Trustees has
also established procedures, pursuant to rules promulgated by the SEC, that are
intended to stabilize the net asset value per share of each Fund for purposes of
sales and redemptions at $1.00. Such procedures include the determination at
such intervals as the Board deems appropriate, of the extent, if any, to which
each Fund's net asset value per share calculated by using available market
quotations or a matrix believed to provide
-7-
<PAGE> 9
reliable values deviates from $1.00 per share. In the event such deviation
exceeds 1/2 of 1% with respect to either Fund, the Board will promptly consider
what action, if any, should be initiated. If the Board believes that the amount
of any deviation from the $1.00 amortized cost price per share of a Fund may
result in material dilution or other unfair results to investors or existing
shareholders, it will take such steps as it considers appropriate to eliminate
or reduce to the extent reasonably practicable any such dilution or unfair
results. These steps may include selling portfolio instruments prior to
maturity; shortening the Fund's average portfolio maturity; withholding or
reducing dividends; redeeming shares in kind; or utilizing a net asset value per
share determined by using available market quotations.
MANAGEMENT OF THE FUNDS
TRUSTEES AND OFFICERS
The Company's trustees and executive officers, their addresses,
principal occupations during the past five years and other affiliations are
provided below. In addition to the information set forth below, the trustees
serve in the following capacities:
Each trustee of the Company serves as a director of Temporary
Investment Fund, Inc. ("Temp") and as a trustee of Municipal Fund for Temporary
Investment ("Muni"). In addition, Messrs. Fortune and Pepper are directors of
Independence Square Income Securities, Inc. ("ISIS") and Managing General
Partners of Chestnut Street Exchange Fund ("Chestnut"); Messrs. Pepper and
Johnson are directors of Municipal Fund for California Investors, Inc. ("Cal
Muni"); and Mr. Johnson is a director of Municipal Fund for New York Investors,
Inc. ("New York Muni") and a director of the International Dollar Reserve Fund
("IDR").
Each of the Company's officers, with the exception of Mr. McConnel,
holds like offices with Temp and Muni. In addition, Mr. McConnel is Secretary
of Temp. Mr. Roach is Treasurer of Chestnut, President and Treasurer of The RBB
Fund, Inc. and New York Muni, and Vice President and Treasurer of ISIS and Cal
Muni; and Mr. Pepper is President and Chairman of the Board of Muni and Cal
Muni; and Mr. Fortune is President and Chairman of the Board of ISIS and
Chestnut.
-8-
<PAGE> 10
<TABLE>
<CAPTION>
Principal Occupations
Position with the During Past 5 Years
Name and Address Company and Other Affiliations
- ---------------- ----------------- ----------------------
<S> <C> <C>
G. NICHOLAS BECKWITH, III Trustee President and Chief Executive Officer, Beckwith Machinery
Beckwith Machinery Company Company; Chairman of the Board of Trustees, Shadyside
Post Office Box 8718 Hospital; Vice Chairman of the Board of Trustees, Shadyside
Pittsburgh, PA 15221 Academy; Trustee, Claude Washington Benedum Foundation;
Age 51 Trustee, Chatham College.
PHILIP E. COLDWELL (3,4) Trustee Economic Consultant; Chairman, Coldwell Financial Consultants,
Coldwell Financial Member of the Board of Governors of the Federal Reserve System,
Consultants 1974 to 1980; President, Federal Reserve Bank of Dallas, 1968 to
3330 Southwestern Blvd. 1974; Director, Maxus Energy Corporation (energy products) (1989
Dallas, Texas 75225 - 1993); Director, Diamond Shamrock Corp. (energy and chemical
Age 73 products) until 1987.
ROBERT R. FORTUNE (2,3,4) Trustee Financial Consultant; Chairman, President and Chief Executive
2920 Ritter Lane Officer of Associated Electric & Gas Insurance Services Limited,
Allentown, PA 18104 1984-1993; Member of the Financial Executives Institute and
Age 79 American Institute of Certified Public Accountants; Director,
Prudential Utility Fund, Inc. and Prudential Structured Maturity
Fund, Inc.
JERROLD B. HARRIS Trustee President and Chief Executive Officer, VWR Corporation 1990
706 Haldane Drive to present.
Kennett Square, PA 19348
Age 53
RODNEY D. JOHNSON Trustee President, Fairmount Capital Advisors, Inc. (financial advising)
Fairmount Capital since 1987; Treasurer, North Philadelphia Health System (formerly
Advisors, Inc. Girard Medical Center), 1988 to 1992; Member, Board of Education,
1435 Walnut Street School District of Philadelphia, 1983 to 1988; Treasurer, Cascade
Drexel Building Aphasia Center, 1984 to 1988.
Philadelphia, PA 19102
Age 54
G. WILLING PEPPER (1,2) Chairman of the Retired; Chairman of the Board, The Institute for Cancer Research
128 Springton Lake Road Board, President until 1979; Director, Philadelphia National Bank until 1978;
Media, PA 19063 and Trustee President, Scott Paper Company, 1971 to 1973; Chairman of the
Age 87 Board, Specialty Composites Corp. until May 1984.
</TABLE>
- 9 -
<PAGE> 11
<TABLE>
<CAPTION>
Principal Occupations
Position with the During Past 5 Years
Name and Address Company and Other Affiliations
- ---------------- ----------------- ----------------------
<S> <C> <C>
EDWARD J. ROACH President Certified Public Accountant; Vice Chairman of the Board, Fox
Bellevue Park Corporate and Treasurer Chase Cancer Center; Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata College; Officer of
400 Bellevue Parkway various investment companies advised by PNC Institutional
Suite 100 Management Corporation.
Wilmington, DE 19809
Age 71
W. BRUCE McCONNEL, III Secretary Partner of the law firm of Drinker Biddle & Reath Philadelphia,
PNB Building Pennsylvania.
1345 Chestnut Street
Philadelphia, PA 19107-3496
Age 53
- -----------------------
</TABLE>
(1) This trustee is considered by the Company to be an "interested person"
of the Company as defined in the 1940 Act.
(2) Executive Committee Member.
(3) Audit Committee Member.
(4) Nominating Committee Member.
During intervals between meetings of the Board, the Executive Committee
may exercise the authority of the Board of Trustees in the management of the
Company's business to the extent permitted by law.
Each of the investment companies named above receives various advisory
and other services from PIMC and PNC. Of the above-mentioned funds, PDI
provides distribution services to Temp, Muni, Cal Muni and New York Muni. Of
the above-mentioned funds, the administrators provide administration services to
Temp, Muni, Cal Muni and New York Muni.
For the fiscal year ended October 31, 1995, the Company paid a total of
$100,887 to its officers and trustees in all capacities of which $53,147 was
allocated to the Funds. In addition, the Company contributed $2,715 during its
last fiscal year to its retirement plan for employees (which included Mr. Roach)
of which $1,452 was allocated to the Funds. Drinker Biddle & Reath, of which
Mr. McConnel is a partner, receives legal fees as counsel to the Company. No
employee of PDI, PIMC,
-10-
<PAGE> 12
PFPC or PNC Bank receives any compensation from the Company for acting as an
officer or trustee of the Company. The trustees and officers of the Company as
a group beneficially own less than 1% of the shares of the Company's FedFund,
T-Fund, FedCash, T-Cash, Federal Trust Fund and Treasury Trust Fund portfolios.
By virtue of the responsibilities assumed by PDI, PIMC, PFPC and PNC
Bank under their respective agreements with the Company, the Company itself
requires only one part-time employee in addition to its officers.
The table below sets forth the compensation actually received from the
Fund Complex of which the Fund is a part by the trustees for the fiscal year
ended October 31, 1995:
<TABLE>
<CAPTION>
Total
Compensation
from Registrant
Aggregate and Fund
Compensation Complex(1) Paid to
Name of Person, Position from Registrant Trustees
<S> <C> <C>
G. Nicholas Beckwith, III (5), Trustee N/A (3)(2) N/A
Philip E. Coldwell, Trustee $10,800.00 (3)(2) $43,600.00
Robert R. Fortune, Trustee 10,800.00 (5)(2) 63,600.00
Jerrold B. Harris, (5), Trustee N/A (3)(2) N/A
Rodney D. Johnson, Trustee 10,800.00 (5)(2) 55,850.00
G. Willing Pepper, Trustee and 19,100.00 (6)(2) 96,250.00
Chairman
David R. Wilmerding, Jr., (3) 12,466.68 (5)(2) 60,600.04
Trustee
Anthony M. Santomero, (4) Trustee 10,800.00 (4)(2) 49,900.00
---------- -----------
$74,766.68 $369,800.04
</TABLE>
- --------
1. A Fund Complex means two or more investment companies that hold
themselves out to investors as related companies for purposes of
investment and investor services, or have a common investment adviser or
have an investment adviser that is an affiliated person of the investment
adviser of any of the other investment companies.
2. Total number of such other investment companies trustee serves on within
the Fund Complex.
3. Mr. Wilmerding resigned as trustee of the Company on January 4, 1996.
4. Mr. Santomero resigned as trustee of the Company on January 4, 1996.
5. Messrs. Beckwith and Harris were elected to the Board of Trustees
of the Company on March 22, 1996.
-11-
<PAGE> 13
INVESTMENT ADVISER AND SUB-ADVISER
The advisory and sub-advisory services provided by PIMC and PNC Bank
are described in the Funds' Prospectuses. For the advisory services provided
and expenses assumed by it, PIMC is entitled to receive a fee, computed daily
and payable monthly, based on the combined average net assets of the Funds as
follows:
<TABLE>
<CAPTION>
Annual Fee The Funds' Combined
---------- Average Net Assets
-------------------
<S> <C>
.175%................................... of the first $1 billion
.150%................................... of the next $1 billion
.125%................................... of the next $1 billion
.100%................................... of the next $1 billion
.095%................................... of the next $1 billion
.090%................................... of the next $1 billion
.085%................................... of the next $1 billion
.080%........................ of amounts in excess of $7 billion.
</TABLE>
The advisory fee is allocated between these Funds in proportion to their
relative net assets.
PIMC and the administrators have each agreed that if, in any fiscal
year, the expenses borne by a Fund exceed the applicable expense limitations
imposed by the securities regulations of any state in which shares of the
particular Fund are registered or qualified for sale to the public, they will
each reimburse such Fund for one-half of any excess to the extent required by
such regulations. Unless otherwise required by law, such reimbursement would be
accrued and paid on the same basis that the advisory and administration fees are
accrued and paid by such Fund. To the Funds' knowledge, of the expense
limitations in effect on the date of this Statement of Additional Information,
none is more restrictive than two and one-half percent (2-1/2%) of the first $30
million of a Fund's average annual net assets, two percent (2%) of the next $70
million of the average annual net assets and one and one-half percent (1- 1/2%)
of the remaining average annual net assets.
For the fiscal years ended October 31, 1993, 1994 and 1995, the Company
paid fees (net of waivers) for advisory services aggregating $1,488,938,
$924,760 and $1,136,719 with respect to FedFund, and $1,081,025, $819,525 and
$911,096 with respect to T-Fund, respectively. For the same fiscal years, PIMC
voluntarily waived advisory fees aggregating $630,847, $807,814 and $855,806
with respect to FedFund, and,$526,120, $655,034 and $709,383 with respect to
T-Fund, respectively. Any fees waived by PIMC are not recoverable. PIMC and
PNC Bank also serve as the
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<PAGE> 14
adviser and sub-adviser, respectively, to the Company's FedCash, T-Cash, Federal
Trust Fund and Treasury Trust Fund portfolios.
BANKING LAWS
Certain banking laws and regulations with respect to investment
companies are discussed in the Funds' Prospectuses. PIMC, PNC Bank and PFPC
believe that they may perform the services for the Funds contemplated by their
respective agreements, Prospectuses and this Statement of Additional Information
without violation of applicable banking laws or regulations. It should be
noted, however, that future changes in legal requirements relating to the
permissible activities of banks and their affiliates, as well as further
interpretations of present requirements, could prevent PIMC and PFPC from
continuing to perform such services for the Funds and PNC Bank from continuing
to perform such services for PIMC and the Funds. If PIMC, PFPC, or PNC Bank
were prohibited from continuing to perform such services, it is expected that
the Company's Board of Trustees would recommend that the Funds enter into new
agreements with other qualified firms. Any new advisory agreement would be
subject to shareholder approval.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
ADMINISTRATOR
As the Funds' administrators, PFPC and PDI have agreed to provide the
following services: (i) assist generally in supervising the Funds' operations,
including providing a Wilmington, Delaware order-taking facility with toll-free
IN-WATS telephone lines, providing for the preparing, supervising and mailing of
purchase and redemption order confirmations to shareholders of record, providing
and supervising the operation of an automated data processing system to process
purchase and redemption orders, maintaining a back-up procedure to reconstruct
lost purchase and redemption data, providing information concerning the Funds to
their shareholders of record, handling shareholder problems, supervising the
services of employees, provided by PDI, whose principal responsibility and
function is to preserve and strengthen shareholder relations, and monitoring the
arrangements pertaining to the Funds' agreements with Service Organizations;
(ii) assure that persons are available to receive and transmit purchase and
redemption orders; (iii) participate in the periodic updating of the Funds'
Prospectuses and Registration Statements; (iv) assist in maintaining the Funds'
Wilmington, Delaware office; (v) perform administrative services in connection
with the Fund's computer access program maintained to
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<PAGE> 15
facilitate shareholder access to the Funds; (vi) accumulate information for and
coordinate the preparation of reports to the Funds' shareholders and the SEC;
(vii) maintain the registration or qualification of the Funds' shares for sale
under state securities laws; (viii) prepare or review, and provide advice with
respect to, all sales literature (advertisements, brochures and shareholder
communications) for each of the Funds and any class or sub-class thereof; and
(ix) assist in the monitoring of regulatory and legislative developments which
may affect the Company, participate in counseling and assisting the Company in
relation to routine regulatory examinations and investigations, and work with
the Company's counsel in connection with regulatory matters and litigation.
For their administrative services, the administrators are entitled
jointly to receive fees from the six Funds referred to above determined and
allocated in the same manner as PIMC's advisory fee set forth above. As stated
in their Prospectuses, each administrator is also reimbursed for its reasonable
out-of- pocket expenses incurred in connection with the Fund's computer access
program. For the Fiscal year ended October 31, 1995, the Company paid fees (net
of waivers) for administration fees aggregating $1,136,718 with respect to
FedFund and $911,096 with respect to T-Fund. For the same fiscal year, PFPC and
PDI voluntarily waived administration fees aggregating $855,806 with respect to
FedFund and $709,383 with respect to T-Fund. For the fiscal year ended October
31, 1994, the Company paid fees (net of waivers) for administration fees
aggregating $924,760 with respect to FedFund and $807,814 with respect to
T-Fund. For the same fiscal year, PFPC and PDI voluntarily waived
administration fees aggregating $819,525 with respect to FedFund and $655,034
with respect to T-Fund, respectively. For the period from October 1, 1992
through January 17, 1993 the Company paid fees (net of waivers) to its former
administrator, The Boston Company Advisors totalling $99,699 with respect to
FedFund and $65,982 with respect to T-Fund. Administration fees payable by
FedFund and T-Fund of $2,554 and $494, respectively, were voluntarily waived by
Boston Advisors during this period. For the period from January 18, 1993
through October 31, 1993, the Company paid fees (net of waivers) for
administrative services to PFPC and PDI (formerly called MFD Group, Inc.), its
administrators, aggregating $1,488,938 with respect to FedFund and $1,081,025
with respect to T-Fund. For the same period, administration fees of $630,847
with respect to FedFund and $526,120 with respect to T-Fund were voluntarily
waived.
PFPC, a wholly owned, indirect subsidiary of PNC Bank provides
administrative or and/or sub-administrative services to investment companies
which are distributed by PDI. PFPC and PDI also serve as co-administrators of
the Company's FedCash, T-Cash, Federal Trust Fund and Treasury Trust Fund
portfolios.
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<PAGE> 16
DISTRIBUTOR
PDI acts as the distributor of the Funds' shares. Each Fund's shares
are sold on a continuous basis by the distributor as agent, although it is not
obliged to sell any particular amount of shares. PDI will prepare or review,
provide advice with respect to, and file with the federal and state agencies or
other organization as required by federal, state, or other applicable laws and
regulations, all sales literature (advertisements, brochures and shareholder
communications) for each of the Funds and any class or sub-class thereof. The
distributor pays the cost of printing and distributing prospectuses to persons
who are not shareholders of the Funds (excluding preparation and printing
expenses necessary for the continued registration of Fund shares) and of
preparing, printing and distributing all sales literature. PDI also serves as
the distributor for the Company's FedCash, T-Cash, Federal Trust Fund and
Treasury Trust Fund portfolios. PDI is a Delaware corporation, with its
principal place of business located at 259 Radnor-Chester Road, Suite 120,
Radnor, Pennsylvania l9087.
CUSTODIAN AND TRANSFER AGENT
Pursuant to a Custodian Agreement, PNC Bank serves as the Funds'
custodian. Under the Agreement, PNC Bank has agreed to provide the following
services: (i) maintain a separate account or accounts in the name of the Funds;
(ii) hold and disburse portfolio securities on account of the Funds; (iii)
collect and make disbursements of money on behalf of the Funds; (iv) collect and
receive all income and other payments and distributions on account of the Funds'
portfolio securities; and (v) make periodic reports to the Board of Trustees
concerning the Funds' operations. The Custodian Agreement permits PNC Bank, on
30 days' notice, to assign its rights and delegate its duties thereunder to any
other affiliate of PNC Bank or PNC Bank Corp., provided that PNC Bank remains
responsible for the performance of the delegate under the Custodian Agreement.
The Funds reimburse PNC Bank for its direct and indirect costs and
expenses incurred in rendering custodial services. Under the Custodian
Agreement, each Fund pays PNC Bank an annual fee equal to $.25 for each $1,000
of such Fund's average daily gross assets, which fee declines as such Fund's
average daily gross assets increase. In addition, each Fund pays the custodian
a fee for each purchase, sale or delivery of a security, interest collection or
claim item, and reimburses PFPC for out-of-pocket expenses incurred on behalf of
the Fund. For the fiscal years ended October 31, 1993, 1994 and 1995 FedFund
paid fees for custodian services aggregating $254,450, $220,443 and $238,805,
respectively. For the same fiscal years, T-Fund paid fees for custodian services
aggregating, $216,000, $202,087
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<PAGE> 17
and $212,601 respectively. PNC Bank also serves as custodian for the Company's
FedCash, T-Cash, Federal Trust Fund and Treasury Trust Fund portfolios. PNC
Bank's principal business address is Broad and Chestnut Streets, Philadelphia,
Pennsylvania 19102.
PFPC also serves as the Funds' transfer agent, registrar and dividend
disbursing agent pursuant to a Transfer Agency Agreement. Under the Agreement,
PFPC has agreed to provide the following services: (i) maintain a separate
account or accounts in the name of the Funds; (ii) issue, transfer and redeem
shares of the Funds; (iii) disburse dividends and distributions, in the manner
described in each Fund's Prospectus, to shareholders of the Fund; (iv) transmit
all communications by the Funds to their shareholders or their authorized
representatives, including reports to shareholders, distribution and dividend
notices and proxy materials for meetings of shareholders; (v) prepare and file
with the appropriate taxing authorities reports or notices relating to dividends
and distributions made by the Funds; (vi) respond to correspondence by
shareholders, security brokers and others relating to its duties; (vii) maintain
shareholder accounts; and (viii) make periodic reports to the Company's Board of
Trustees concerning the Funds' operations. The Transfer Agency Agreement
permits PFPC, on 30-days' notice, to assign its rights and duties thereunder to
any other affiliate of PNC Bank or PNC Bank Corp., provided that PFPC remains
responsible for the performance of the delegate under the Transfer Agency
Agreement.
Under the Transfer Agency Agreement, each Fund pays PFPC fees at an
annual rate of $12.00 per account and sub-account maintained by PFPC plus $1.00
for each purchase or redemption transaction by an account (other than a purchase
transaction made in connection with the automatic reinvestment of dividends).
Payments to PFPC for sub-accounting services provided by others are limited to
the amount which PFPC pays to others for such services. In addition, the Funds
reimburse PFPC for out-of- pocket expenses related to such services. For the
fiscal years ended October 31, 1993, 1994 and 1995 FedFund paid fees for
transfer agency services aggregating, $147,259, $189,439 and $99,287
respectively. For the same fiscal years, T-Fund paid fees for transfer agency
services aggregating, $98,116, $81,291 and $65,092 respectively. PFPC also
serves as transfer agent, registrar and dividend disbursing agent for the
Company's FedCash, T-Cash, Federal Trust Fund and Treasury Trust Fund.
DOLLAR SHARE SERVICE ORGANIZATIONS
FedFund and T-Fund each currently offer a series of shares, Dollar
shares, which, as stated in the Funds' Prospectuses, the Funds will enter into
an agreement with each Service Organization which purchases Dollar shares
("Dollar Share
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<PAGE> 18
Service Organizations") requiring it to provide support services to its
customers who beneficially own Dollar shares in consideration of the Funds'
payment of .25% (on an annualized basis) of the average daily net asset value of
the Dollar shares held by the Dollar Share Service Organization for the benefit
of customers. Such services include: (i) aggregating and processing purchase
and redemption requests from customers and placing net purchase and redemption
orders with the transfer agent; (ii) providing customers with a service that
invests the assets of their accounts in Dollar shares; (iii) processing dividend
payments from the Funds on behalf of customers; (iv) providing information
periodically to customers showing their positions in Dollar shares; (v)
arranging for bank wires; (vi) responding to customer inquiries relating to the
services performed by the Dollar Share Service Organization; (vii) providing
sub-accounting with respect to Dollar shares beneficially owned by customers or
the information necessary for sub-accounting; (viii) forwarding shareholder
communications from the Funds (such as proxies, shareholder reports, annual and
semi- annual financial statements and dividend, distribution and tax notices) to
customers, if required by law; and (ix) other similar services if requested by
the Funds. For the fiscal year ended October 31, 1995, the Company paid
$256,849 in servicing fees to an affiliate of the Company's adviser
(representing 50.2% of the aggregate servicing fees) of which $70,358 and
$186,491 was allocated to FedFund and T-Fund, respectively, pursuant to the
service agreements discussed above in effect during such period.
Each Fund's agreements with Dollar Share Service Organizations are
governed by a Shareholder Services Plan (the "Plan") that has been adopted by
the Company's Board of Trustees. Pursuant to each Plan, the Board of Trustees
reviews, at least quarterly, a written report of the amounts expended under the
Fund's agreements with Dollar Share Service Organizations and the purposes for
which the expenditures were made. In addition, the Funds' arrangements with
Dollar Share Service Organizations must be approved annually by a majority of
the Company's trustees, including a majority of the trustees who are not
"interested persons" of the Company as defined in the 1940 Act and have no
direct or indirect financial interest in such arrangements.
The Board of Trustees has approved the Funds' arrangements with Dollar
Share Service Organizations based on information provided by the Funds' service
contractors that there is a reasonable likelihood that the arrangements will
benefit the Funds and their shareholders by affording the Funds greater
flexibility in connection with the servicing of the accounts of the beneficial
owners of their shares in an efficient manner. Any material amendment to the
Funds' arrangements with Dollar Share Service Organizations must be approved by
a majority of the Company's Board of Trustees (including a majority of the non-
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<PAGE> 19
interested trustees). So long as the Funds' arrangements with Dollar Share
Service Organizations are in effect, the selection and nomination of the members
of the Company's Board of Trustees who are not "interested persons" (as defined
in the 1940 Act) of the Company will be committed to the discretion of such non-
interested trustees.
DISTRIBUTION AND SERVICE PLAN
Pursuant to T-Fund's Distribution and Service Plan (the "Plus Shares
Plan"), the Fund may pay PDI fees for distribution and sales support services.
Currently, as described further below, only T-Fund Plus Shares bear the expense
of distribution fees under the Plus Shares Plan. In addition, the Fund may pay
PDI fees for the provision of personal services to shareholders and the
processing and administration of shareholder accounts. PDI, in turn, determines
the amount of the service fee to be paid to other Service Organizations that
purchase Plus Shares ("Plus Share Service Organizations"). The Plus Shares Plan
provides, among other things, that: (i) the Board of Trustees shall receive
quarterly reports regarding the amounts expended under the Plus Shares Plan and
the purposes for which such expenditures were made; (ii) the Plus Shares Plan
will continue in effect for so long as its continuance is approved at least
annually by the Board of Trustees in accordance with Rule 12b-1 under the 1940
Act; (iii) any material amendment thereto must be approved by the Board of
Trustees, including the trustees who are not "interested persons" of the Fund
(as defined in the 1940 Act) and who have no direct or indirect financial
interest in the operation of the Plus Shares Plan or any agreement entered into
in connection with the Plus Shares Plan (the "12b-1 Trustees"), acting in person
at a meeting called for said purpose; (iv) any amendment to increase materially
the costs which T-Fund Plus Shares may bear for distribution services pursuant
to the Plus Shares Plan shall be effective only upon approval by a vote of a
majority of the outstanding shares of such class and by a majority of the 12b-1
Trustees; and (v) while the Plus Shares Plan remains in effect, the selection
and nomination of the Company's trustees who are not "interested persons" of the
Company shall be committed to the discretion of such non-interested trustees.
The Plus Shares Plan is terminable without penalty at any time by a
vote of a majority of the 12b-1 Trustees, or by vote of the holders of a
majority of T-Fund Plus Shares. Similarly, any agreement entered into pursuant
to the Plus Shares Plan with a Plus Share Service Organization is terminable
without penalty, at any time, by T-Fund or by the Plus Share Service
Organization upon written notice to the other. Each such agreement will
terminate automatically in the event of its assignment.
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<PAGE> 20
The distribution fee payable under the Plus Shares Plan (at an annual
rate of .25% of the average daily net asset value of the outstanding T-Fund Plus
Shares) is used, among other things, to pay Plus Share Service Organizations for
sales support services and related expenses.
T-Fund intends to enter into service agreements with Plus Share Service
Organizations pursuant to which they will render certain support services to
their customers ("Customers") who are the beneficial owners of T-Fund Plus
Shares. Such services will be provided to Customers who are the beneficial
owners of T-Fund Plus Shares and are intended to supplement the services
provided by T-Fund's Administrators and transfer agent to the Fund's
shareholders of record. In consideration for payment of up to .25% (on an
annualized basis) of the average daily net asset value of the T-Fund Plus Shares
owned beneficially by their Customers, Plus Share Service Organizations may
provide general shareholder liaison services, including, but not limited to (i)
answering shareholder inquiries regarding account status and history, the manner
in which purchases, exchanges and redemptions of shares may be effected and
certain other matters pertaining to the shareholders' investments; and (ii)
assisting shareholders in designating and changing dividend options, account
designations and addresses.
EXPENSES
The Funds' expenses include taxes, interest, fees and salaries of the
Company's trustees and officers, SEC fees, state securities qualification fees,
Standard & Poor's rating fees (cost incurred by T-Fund only), Moody's rating
fees, costs of preparing and printing prospectuses for regulatory purposes and
for distribution to shareholders, advisory and administration fees, charges of
the custodian, transfer agent and dividend disbursing agent, shareholder
servicing fees, distribution fees, certain insurance premiums, outside auditing
and legal expenses, costs of the Funds' computer access program, costs of
shareholder reports and shareholder meetings and any extraordinary expenses. The
Funds also pay for brokerage fees and commissions (if any) in connection with
the purchase of portfolio securities.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations
generally affecting each Fund and its shareholders that are not described in
each Fund's Prospectus. No attempt is made to present a detailed explanation of
the tax treatment of the Funds or their shareholders or possible legislative
changes, and the discussion here and in each Fund's Prospectus is not intended
as a substitute for careful tax planning. Investors
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<PAGE> 21
should consult their tax advisors with specific reference to their own tax
situations.
Each Fund of the Company is treated as a separate corporate entity
under the Code and intends to qualify each year as a regulated investment
company under the Code. In order to so qualify for a taxable year, each Fund
must satisfy the distribution requirement described in its Prospectus, derive at
least 90% of its gross income for the year from certain qualifying sources,
comply with certain diversification requirements and derive less than 30% of its
gross income from the sale or other disposition of securities and certain other
investments held for less than three months. Interest (including original issue
discount and accrued market discount) received by a Fund upon maturity or
disposition of a security held for less than three months will not be treated as
gross income derived from the sale or other disposition of such security within
the meaning of this requirement. However, any other income that is attributable
to realized market appreciation will be treated as gross income from the sale or
other disposition of securities for this purpose.
A 4% nondeductible excise tax is imposed on regulated investment
companies that fail to distribute currently an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). Each Fund intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and any
capital gain net income each calendar year to avoid liability for this excise
tax.
If for any taxable year a Fund does not qualify for tax treatment as a
regulated investment company, all of its taxable income will be subject to
federal income tax at regular corporate rates, without any deduction for
distributions to Fund shareholders. In such event, dividend distributions would
be taxable as ordinary income to Fund shareholders to the extent of that Fund's
current and accumulated earnings and profits and would be eligible for the
dividends received deduction in the case of corporate shareholders.
Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or gross sale proceeds paid to any
shareholder who has failed to provide a correct tax identification number in the
manner required, who is subject to withholding by the Internal Revenue Service
for failure to properly include on his return payments of taxable interest or
dividends, or who has failed to certify to the Fund when required to do so that
he is not subject to backup withholding or that he is an "exempt recipient."
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<PAGE> 22
Depending upon the extent of the Funds' activities in states and
localities in which their offices are maintained, in which their agents or
independent contractors are located or in which they are otherwise deemed to be
conducting business, the Funds may be subject to the tax laws of such states or
localities. In addition, in those states and localities which have income tax
laws, the treatment of the Funds and their shareholders under such laws may
differ from their treatment under federal income tax laws. Shareholders are
advised to consult their tax advisors concerning the application of state and
local taxes.
The foregoing discussion is based on federal tax laws and regulations
which are in effect on the date of this Statement of Additional Information;
such laws and regulations may be changed by legislative or administrative
action.
DIVIDENDS
Net income of each of the Funds for dividend purposes consists of (i)
interest accrued and original issue discount earned on the Fund's assets, (ii)
plus the amortization of market discount and minus the amortization of market
premium on such assets, (iii) less accrued expenses directly attributable to the
Fund and the general expenses (e.g., legal, accounting and trustees' fees) of
the Company prorated to the Fund on the basis of its relative net assets. In
addition, Dollar shares bear exclusively the expense of fees paid to Dollar
Share Service Organizations and T-Fund Plus Shares bear exclusively the expenses
of fees paid to PDI and Plus Share Service Organizations. (See "Management of
the Funds--Service Organizations" and "Distribution and Service Plan.")
As stated, the Company uses its best efforts to maintain the net asset
value per share of FedFund and T-Fund at $1.00. As a result of a significant
expense or realized or unrealized loss incurred by either Fund, it is possible
that the Fund's net asset value per share may fall below $1.00.
ADDITIONAL YIELD INFORMATION
The "yields" and "effective yields" are calculated separately for each
class of shares of each Fund and in accordance with the formulas prescribed by
the SEC. The seven- day yield for each class of shares is calculated by
determining the net change in the value of a hypothetical pre-existing account
in the particular Fund which has a balance of one share of the class involved at
the beginning of the period, dividing the net change by the value of the account
at the beginning of
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<PAGE> 23
the period to obtain the base period return, and multiplying the base period
return by 365/7. The net change in the value of an account in a Fund includes
the value of additional shares purchased with dividends from the original share
and dividends declared on the original share and any such additional shares, net
of all fees charged to all shareholder accounts in proportion to the length of
the base period and the Fund's average account size, but does not include gains
and losses or unrealized appreciation and depreciation. In addition, an
effective annualized yield quotation may be computed on a compounded basis with
respect to each class of its shares by adding 1 to the base period return for
the class involved (calculated as described above), raising that sum to a power
equal to 365/7, and subtracting 1 from the result. Similarly, based on the
calculations described above, the Funds' 30-day (or one-month) yields and
effective yields may also be calculated.
For the seven-day period ended October 31, 1995, the yields on FedFund
shares and T-Fund shares were 5.66% and 5.67%, respectively, and the compounded
effective yields on FedFund shares and T-Fund shares were 5.82% and 5.83%,
respectively; the yields on FedFund Dollar shares and T-Fund Dollar shares were
5.41% and 5.42%, respectively, and the compounded effective yields on FedFund
Dollar shares and T-Fund Dollar shares were 5.56% and 5.57%, respectively.
During this seven-day period, the Funds' adviser and administrator voluntarily
waived a portion of its advisory and administration fees payable by the Funds.
Without these waivers, for the same period the yields on FedFund shares and
T-Fund shares would have been 5.55% and 5.56%, respectively, and the compounded
effective yields on FedFund shares and T-Fund shares would have been 5.70% and
5.71%, respectively, the yield on FedFund Dollar Shares and T-Fund Dollar Shares
would have been 5.30% and 5.31%, respectively, and the compounded effective
yields on FedFund Dollar Shares and T-Fund Dollar Shares would have been 5.44%
and 5.45%, respectively. As of October 31, 1995, T-Fund Plus Shares had not yet
been offered.
For the 30-day period ended October 31, 1995, the yields on FedFund
shares and T-Fund shares were 5.64% and 5.65%, respectively, and the compounded
effective yields on FedFund shares and T-Fund shares were 5.80% and 5.81%,
respectively; the yields on FedFund Dollar shares and T-Fund Dollar shares were
5.39% and 5.40%, respectively, and the compounded effective yields on FedFund
Dollar shares and T-Fund Dollar shares were 5.53% and 5.55%, respectively.
During this 30-day period, the Funds' adviser and administrator voluntarily
waived a portion of the advisory and administration fees payable by the Funds.
Without these waivers, for the same period the yields on FedFund shares and
T-Fund shares would have been 5.53% and 5.54%, respectively, and the compounded
effective yields on FedFund
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<PAGE> 24
shares and T-Fund shares would have been 5.68% and 5.69%, respectively, the
yield on FedFund Dollar Shares and T-Fund Dollar Shares would have been 5.28%
and 5.29%, respectively, and the compounded effective yields on FedFund Dollar
Shares and T-Fund Dollar Shares would have been 5.42% and 5.43%, respectively.
As of October 31, 1995, T-Fund Plus Shares had not yet been offered.
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that of other money
market funds or accounts with similar investment objectives and to stock or
other relevant indices. For example, the yields of the Funds may be compared to
the Donoghue's Money Fund Average, which is an average compiled by
IBC/Donoghue's MONEY FUND REPORT(R) of Holliston, MA 01746, a widely recognized
independent publication that monitors the performance of money market funds, or
to the average yields reported by the Bank Rate Monitor from money market
deposit accounts offered by the 50 leading banks and thrift institutions in the
top five standard metropolitan statistical areas.
THE FUNDS' YIELDS WILL FLUCTUATE, AND ANY QUOTATION OF YIELD SHOULD NOT
BE CONSIDERED AS REPRESENTATIVE OF THE FUTURE PERFORMANCE OF THE FUNDS. Since
yields fluctuate, yield data cannot necessarily be used to compare an investment
in the Funds' shares with bank deposits, savings accounts, and similar
investment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Shareholders should remember that performance and
yield are generally functions of the kind and quality of the investments held in
a Fund, portfolio maturity, operating expenses net of waivers and expense
reimbursements, and market conditions. Any fees charged by Dollar Share or Plus
Share Service Organizations or other institutional investors with respect to
customer accounts in investing in shares of the Funds will not be included in
calculations of yield and performance; such fees, if charged, would reduce the
actual performance and yield from that quoted.
The Funds may also from time to time include in advertisements, sales
literature, communications to shareholders and other materials ("Materials"),
discussions or illustrations of the effects of compounding. "Compounding"
refers to the fact that, if dividends or other distributions on a Fund
investment are reinvested by being paid in additional Fund shares, any future
income or capital appreciation of a Fund would increase the value, not only of
the original Fund investment, but also of the additional Fund shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been paid in
cash.
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<PAGE> 25
In addition, the Funds may also include in Materials discussions and/or
illustrations of the potential investment goals of a prospective investor,
investment management strategies, techniques, policies or investment suitability
of a Fund, economic conditions, the relationship between sectors of the economy
and the economy as a whole, various securities markets, the effects of inflation
and historical performance of various asset classes, including but not limited
to, stocks, bonds and Treasury securities. From time to time, Materials may
summarize the substance of information contained in shareholder reports
(including the investment composition of a Fund), as well as the views of the
advisers as to current market, economic, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
related matters believed to be of relevance to a Fund. The Funds may also
include in Materials charts, graphs or drawings which compare the investment
objective, return potential, relative stability and/or growth possibilities of
the Funds and/or other mutual funds, or illustrate the potential risks and
rewards of investment in various investment vehicles, including but not limited
to, stocks, bonds, Treasury securities and shares of a Fund and/or other mutual
funds. Materials may include a discussion of certain attributes or benefits to
be derived by an investment in a Fund and/or other mutual funds (such as value
investing, market timing, dollar cost averaging, asset allocation, constant
ratio transfer, automatic accounting rebalancing, the advantages and
disadvantages of investing in tax-deferred and taxable investments), shareholder
profiles and hypothetical investor scenarios, timely information on financial
management, designations assigned a Fund by various rating or ranking
organizations, Fund identifiers (such as CUSIP numbers or NASDAQ symbols), tax
and retirement planning and investment alternatives to certificates of deposit
and other financial instruments. Such Materials may include symbols, headlines
or other material which highlight or summarize the information discussed in more
detail therein.
From time to time in advertisements, sales literature and
communications to shareholders, the Funds may compare their total returns to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, such
data is found in IBC/Donoghue's Money Fund Report and reports prepared by Lipper
Analytical Services, Inc. Total return is the change in value of an investment
in a Fund over a particular period, assuming that all distributions have been
reinvested. Such rankings represent the Funds' past performance and should not
be considered as representative of future results.
The following information has been provided by the Funds' distributor:
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In managing each Fund's portfolio, the investment
adviser utilizes a "pure and simple" approach, which
may include disciplined research, stringent credit
standards and careful management of maturities.
ADDITIONAL DESCRIPTION CONCERNING FUND SHARES
The Company does not presently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. Upon
the written request of shareholders owning at least twenty percent of the
Company's shares, the Company will call for a meeting of shareholders to
consider the removal of one or more trustees and other certain matters. To the
extent required by law, the Company will assist in shareholder communication in
such matters.
As stated in the Prospectuses for the Funds, holders of the Company's
FedFund and FedFund Dollar shares will vote in the aggregate and not by class on
all matters, except where otherwise required by law and except that only FedFund
Dollar shares will be entitled to vote on matters submitted to a vote of
shareholders pertaining to the Fund's arrangements with Dollar Share Service
Organizations. Holders of the Company's T-Fund, T- Fund Dollar and T-Fund Plus
shares will also vote in the aggregate and not by class except as described
above and only T- Fund Plus Shares will be entitled to vote on matters submitted
to a vote of shareholders pertaining to distribution fees. (See "Management of
the Funds--Service Organizations" and "Distribution and Service Plan.") Further,
shareholders of all of the Company's portfolios will vote in the aggregate and
not by portfolio except as otherwise required by law or when the Board of
Trustees determines that the matter to be voted upon affects only the interests
of the shareholders of a particular portfolio. Rule 18f-2 under the 1940 Act
provides that any matter required to be submitted by the provisions of such Act
or applicable state law, or otherwise, to the holders of the outstanding
securities of an investment company such as the Company shall not be deemed to
have been effectively acted upon unless approved by the holders of a majority of
the outstanding shares of each portfolio affected by the matter. Rule 18f-2
further provides that a portfolio shall be deemed to be affected by a matter
unless it is clear that the interests of each portfolio in the matter are
identical or that the matter does not affect any interest of the portfolio.
Under the Rule the approval of an investment advisory agreement or any change in
a fundamental investment policy would be effectively acted upon with respect to
a portfolio only if approved by the holders of a majority of the outstanding
voting securities of such portfolio. However, the Rule also provides that the
ratification of the selection of independent accountants, the approval of
principal underwriting contracts and
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the election of trustees are not subject to the separate voting requirements and
may be effectively acted upon by shareholders of the investment company voting
without regard to portfolio.
COUNSEL
Drinker Biddle & Reath, Philadelphia National Bank Building, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107- 3496, of which W. Bruce
McConnel, III, Secretary of the Company, is a partner, serves as counsel to the
Company and will pass upon the legality of the shares offered hereby.
AUDITORS
The financial statements and financial highlights of the Funds
incorporated by reference into this Statement of Additional Information have
been audited by Coopers & Lybrand L.L.P., independent accountants, whose report
thereon is incorporated by reference herein. Coopers & Lybrand L.L.P. has
offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103.
MISCELLANEOUS
SHAREHOLDER VOTE
As used in this Statement of Additional Information and the
Prospectuses for the Funds, a "majority of the outstanding shares" of a Fund or
of any other portfolio means, with respect to the approval of an investment
advisory agreement, a distribution plan or a change in a fundamental investment
policy, the vote of the lesser of (1) 67% of the shares of such Fund
(irrespective of class) or of the portfolio represented at a meeting at which
the holders of more than 50% of the outstanding shares of such Fund or portfolio
are present in person or by proxy, or (2) more than 50% of the outstanding
shares of such Fund (irrespective of class) or of the portfolio.
CERTAIN RECORD HOLDERS
On March 26, 1996, the name, address and percentage of ownership of
each institutional investor that owned of record 5% or more of the outstanding
shares of the Company's FedFund and T-Fund portfolio were as follows:
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FedFund
Mercantile Bank N.A. 6.35%
Trust Securities Unit
P.O. Box 387 Main Post Office
St. Louis, MO 63166
Harris Trust & Savings Bank 5.28%
200 W. Monroe, 12th Floor
Chicago, IL 60690
State Street Bank & Trust Co. 5.48%
Securities Lending
2 International Place, 31st Floor
Boston, MA 02110
T-Fund
The Chase Manhattan Bank NA 8.37%
GSS As Agent
2 Chase Plaza, 4th Floor
New York, NY 10081
PNC Mortgage Securities Corp 7.46%
Attn: Trust Department
700 Deerpath Drive
Vernon Hills, IL 60061
PNC Bank/Saxon & Co. 6.70%
Attn: Income Collections
Airport Business Center/Intl Court 2
200 Stevens Drive
Lester, PA 19113
SHAREHOLDER AND TRUSTEE LIABILITY
The Company is organized as a "business trust" under the laws of the
Commonwealth of Pennsylvania. Shareholders of such a trust may, under certain
circumstances, be held personally liable (as if they were partners) for the
obligations of the trust. The Declaration of Trust of the Company provides that
shareholders of the Funds shall not be subject to any personal liability for the
acts or obligations of the Company and that every note, bond, contract, order or
other undertaking made by the Company shall contain a provision to the effect
that the shareholders are not personally liable thereunder. The Declaration of
Trust provides for indemnification out of the trust property of any shareholder
held personally liable solely by reason of being or having been a shareholder
and not because of any acts or omissions or some other reason. The Declaration
of Trust also provides that the Company shall, upon request, assume the defense
of any claim made against any shareholder for
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<PAGE> 29
any act or obligation of the Company and satisfy any judgment thereon. Thus,
the risk of a shareholder's incurring financial loss beyond its investment on
account of shareholder liability is limited to circumstances in which the
Company itself would be unable to meet its obligations.
The Company's Declaration of Trust provides further that no trustee,
officer or agent of the Company shall be personally liable for or on account of
any contract, debt, tort, claim, damage, judgment or decree arising out of or
connected with the administration or preservation of the trust estate or the
conduct of any business of the Company, nor shall any trustee be personally
liable to any person for any action or failure to act except by reason of bad
faith, willful misfeasance, gross negligence in the performance of any duties or
by reason of reckless disregard of the obligations and duties as trustee. It
also provides that all persons having any claim against the trustees or the
Company shall look solely to the trust property for payment. With the
exceptions stated, the Declaration of Trust provides that a trustee is entitled
to be indemnified against all liabilities and expenses reasonably incurred by
him or her in connection with the defense or disposition of any proceeding in
which the trustee may be involved or with which the trustee may be threatened by
reason of being or having been a trustee, and that the trustees have the power,
but not the duty, to indemnify officers and employees of the Company unless such
person would not be entitled to indemnification had he or she been a trustee.
FINANCIAL STATEMENTS
The Company's Annual Report to Shareholders for the fiscal year ended
October 31, 1995 has been filed with the Securities and Exchange Commission. The
financial statements in such Annual Report (the "Financial Statements") are
incorporated into this Statement of Additional Information by reference. The
Financial Statements included in the Annual Report for the fiscal year ended
October 31, 1995 have been audited by the Company's independent accountants,
Coopers & Lybrand L.L.P., whose report thereon also appears in such Annual
Report and is incorporated herein by reference. The Financial Statements in
such Annual Report have been incorporated herein in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
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APPENDIX A
Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of 9 months. The following summarizes the rating categories used by
Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered to
have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are considered to
have a strong capacity for repayment of short-
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<PAGE> 31
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 alternative liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D- 1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors. Risk
factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
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<PAGE> 32
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years. The following
summarizes the rating categories used by Fitch for short-term obligations:
"F-1+" - Securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
"F-1" - Securities possess very strong credit quality. Issues assigned
this rating reflect an assurance of timely payment only slightly less in degree
than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one year or less which is issued by United
States commercial banks, thrifts and non-bank banks; non-United States banks;
and broker-
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<PAGE> 33
dealers. The following summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for short-term debt ratings:
"A1+" - Obligations supported by the highest capacity for timely
repayment.
"A1" - Obligations are supported by a strong capacity for timely
repayment.
"A2" - Obligations are supported by a satisfactory capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment. Such capacity is more susceptible to adverse changes in business,
economic or financial conditions than for obligations in higher categories.
"B" - Obligations for which the capacity for timely repayment is
susceptible to adverse changes in business, economic or financial conditions.
"C" - Obligations for which there is an inadequate capacity to ensure
timely repayment.
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<PAGE> 34
"D" - Obligations which have a high risk of default or which are
currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay interest
and repay principal. Whereas such issues normally exhibit 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.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also
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<PAGE> 35
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
"CCC" - Debt has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no interest is
being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes such payments
will be made during such grace period. "D" rating is also used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
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likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the issuer ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issuer ranks at the lower end of its generic rating category.
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The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated "DD"
is a defaulted debt obligation, and the rating "DP" represents preferred stock
with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"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+."
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<PAGE> 38
"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 an 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.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" - Bonds that possess
one of these ratings are considered by Fitch to be speculative investments. The
ratings "BB" to "C" represent Fitch's assessment of the likelihood of timely
payment of principal and interest in accordance with the terms of obligation for
bond issues not in default. For defaulted bonds, the rating "DDD" to "D" is an
assessment of the ultimate recovery value through reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an original
maturity of more than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business,
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<PAGE> 39
economic or financial conditions may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of these
ratings where it is considered that speculative characteristics are present.
"BB" represents the lowest degree of speculation and indicates a possibility of
investment risk developing. "C" represents the highest degree of speculation
and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to denote
relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
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<PAGE> 40
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include
a plus or minus sign designation which indicates where within the respective
category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and market
access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad- based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
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<PAGE> 41
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-12
<PAGE> 1
EXHIBIT 17(h)
FEDCASH AND T-CASH
Investment Portfolios Offered By
Trust for Federal Securities
Statement of Additional Information
February 28, 1996
(As revised April 8, 1996)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . 2
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . 7
MANAGEMENT OF THE FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . 10
ADDITIONAL INFORMATION CONCERNING TAXES . . . . . . . . . . . . . . . . . 20
DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ADDITIONAL YIELD INFORMATION . . . . . . . . . . . . . . . . . . . . . . 22
ADDITIONAL DESCRIPTION CONCERNING FUND SHARES . . . . . . . . . . . . . . 24
COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 28
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
This Statement of Additional Information is meant to be read in
conjunction with the Prospectuses for FedCash and T-Cash dated February 28,
1996 and is incorporated by reference in its entirety into those Prospectuses.
Because this Statement of Additional Information is not itself a prospectus, no
investment in shares of FedCash or T-Cash should be made solely upon the
information contained herein. Copies of the Prospectuses for FedCash and
T-Cash may be obtained by calling 800-821-7432. Capitalized terms used but not
defined herein have the same meanings as in the Prospectuses.
<PAGE> 2
THE COMPANY
Trust for Federal Securities (Trust for Short-Term Federal Securities
prior to March 2, 1987) is a no-load, diversified, open-end investment company
designed primarily as a vehicle by which institutional investors can invest
cash reserves in a choice of portfolios consisting of government securities.
Trust for Federal Securities (the "Company") consists of six separate
investment portfolios--FedFund, T-Fund, FedCash, T-Cash, Federal Trust Fund and
Treasury Trust Fund. This Statement of Additional Information relates
primarily to the Company's FedCash and T-Cash portfolios (the "Funds").
The securities held by FedCash consist of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements relating to such obligations. Securities held by T-Cash
are limited to U.S. Treasury bills, notes and other direct obligations of the
U.S. Treasury and repurchase agreements relating to direct Treasury
obligations. Although both Funds have the same investment adviser and have
comparable investment objectives, their yields normally will differ due to
their differing cash flows and differences in the specific portfolio securities
held.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE FUNDS' PROSPECTUSES
RELATE PRIMARILY TO THE FUNDS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVES AND
POLICIES, OPERATIONS, CONTRACTS, AND OTHER MATTERS RELATING TO THE FUNDS.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE COMPANY'S
FEDFUND, T-FUND, FEDERAL TRUST FUND OR TREASURY TRUST FUND PORTFOLIOS MAY
OBTAIN SEPARATE PROSPECTUSES DESCRIBING THOSE PORTFOLIOS BY CALLING THE
DISTRIBUTOR AT 800-998-7633.
INVESTMENT OBJECTIVES AND POLICIES
As stated in the Funds' Prospectuses, the investment objective of
each Fund is to seek current income with liquidity and security of principal.
The following policies supplement the description in the Prospectuses of the
investment objectives and policies of the Funds.
PORTFOLIO TRANSACTIONS
Subject to the general control of the Company's Board of Trustees,
PNC Institutional Management Corporation ("PIMC"), the Funds' investment
adviser, is responsible for, makes decisions with respect to and places orders
for all purchases and sales of portfolio securities for the Funds. Purchases
and sales of portfolio securities are usually principal transactions without
brokerage commissions. In making portfolio investments,
-2-
<PAGE> 3
PIMC seeks to obtain the best net price and the most favorable execution of
orders. To the extent that the execution and price offered by more than one
dealer are comparable, PIMC may, in its discretion, effect transactions in
portfolio securities with dealers who provide the Company with research advice
or other services. Although the Funds will not seek profits through short-term
trading, PIMC may, on behalf of the Funds, dispose of any portfolio security
prior to its maturity if it believes such disposition is advisable.
Investment decisions for the Funds are made independently from those
for other investment company portfolios or accounts advised or managed by PIMC.
Such other portfolios may invest in the same securities as the Funds. When
purchases or sales of the same security are made at substantially the same time
on behalf of such other portfolios, transactions are averaged as to price, and
available investments allocated as to amount, in a manner which PIMC believes
to be equitable to each portfolio, including either Fund. In some instances,
this investment procedure may adversely affect the price paid or received by a
Fund or the size of the position obtained for a Fund. To the extent permitted
by law, PIMC may aggregate the securities to be sold or purchased for a Fund
with those to be sold or purchased for such other investment company portfolios
in order to obtain best execution.
Portfolio securities will not be purchased from or sold to and the
Funds will not enter into repurchase agreements or reverse repurchase
agreements with PIMC, PNC Bank, National Association ("PNC Bank"), PFPC Inc.
("PFPC"), Provident Distributors, Inc. ("PDI") or any affiliated person (as
such term is defined in the Investment Company Act of 1940 (the "1940 Act") of
any of them, except to the extent permitted by the Securities and Exchange
Commission (the "SEC")). Furthermore, with respect to such transactions,
securities and repurchase agreements, the Funds will not give preference to
Service Organizations with whom the Funds enter into agreements concerning the
provision of support services to customers who beneficially own FedCash Dollar
shares or T-Cash Dollar shares ("Dollar shares"). (See the Prospectuses,
"Management of the Fund--Service Organizations.")
The Funds do not intend to seek profits through short-term trading.
The Funds' annual portfolio turnover rates will be relatively high but the
Funds' portfolio turnover is not expected to have a material effect on their
net incomes. The portfolio turnover rate for each of the Funds is expected to
be zero for regulatory reporting purposes.
-3-
<PAGE> 4
ADDITIONAL INFORMATION ON INVESTMENT PRACTICES
The repurchase price under the repurchase agreements described in the
Funds' Prospectuses generally equals the price paid by a Fund plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the securities underlying the repurchase agreement).
Securities subject to repurchase agreements will be held by the Funds'
custodian, sub-custodian or in the Federal Reserve/Treasury book-entry system.
Repurchase agreements are considered to be loans by the Funds under the 1940
Act.
Whenever the Funds enter into reverse repurchase agreements as
described in their Prospectuses, they will place in a segregated custodial
account liquid assets having a value equal to the repurchase price (including
accrued interest) and will subsequently monitor the account to ensure such
equivalent value is maintained. Reverse repurchase agreements are considered
to be borrowings by the Funds under the 1940 Act.
As stated in the Funds' Prospectuses, the Funds may purchase
securities on a "when-issued" basis (i.e., for delivery beyond the normal
settlement date at a stated price and yield). When a Fund agrees to purchase
when-issued securities, its custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case such Fund may be required subsequently
to place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of such Fund's commitment. It
may be expected that a Fund's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such purchase commitments than
when it sets aside cash. Because the Funds will set aside cash or liquid
assets to satisfy their respective purchase commitments in the manner
described, such a Fund's liquidity and ability to manage its portfolio might be
affected in the event its commitments to purchase when-issued securities ever
exceeded 25% of the value of its assets. Neither Fund intends to purchase
when-issued securities for speculative purposes but only in furtherance of its
investment objectives. The Funds reserve the right to sell the securities
before the settlement date if it is deemed advisable.
When a Fund engages in when-issued transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in a
Fund's incurring a loss or missing an opportunity to obtain a price considered
to be advantageous.
-4-
<PAGE> 5
With respect to loans by the Funds of their portfolio securities as
described in their Prospectuses, the Funds would continue to accrue interest on
loaned securities and would also earn income on loans. Any cash collateral
received by the Funds in connection with such loans would be invested in
short-term U.S. government obligations.
FedCash, may also invest in multiple class pass-through securities,
including collateralized mortgage obligations ("CMOs") issued or guaranteed by
U.S. Government agencies or instrumentalities, which have a remaining maturity
of 397 days or less in accordance with the requirements of Rule 2a-7 under the
1940 Act. Each class of a CMO, which frequently elect to be taxed as a real
estate mortgage investment conduit ("REMIC") represents an ownership interest
in, and the right to receive a specified portion of the cash flow consisting of
interest and principal on a pool of residential mortgage loans or mortgage
pass-through securities ("Mortgage Assets"). CMOs are issued in multiple
classes, each with a specified fixed or floating interest rate and a final
distribution date. The relative payment rights of the various CMO classes may
be structured in many ways. In most cases, however, payments of principal are
applied to the CMO classes in the order of their respective stated maturities,
so that no principal payments will be made on a CMO class until all other
classes having an earlier stated maturity date are paid in full. These
multiple class securities may be issued or guaranteed by U.S. Government
agencies or instrumentalities, including GNMA, FNMA and FHLMC, or issued by
trusts formed by private originators of, or investors in, mortgage loans.
Classes in CMOs which the Fund may hold are known as "regular" interests. CMOs
also issue "residual" interests, which in general are junior to and more
volatile than regular interests.
Neither Fund will invest more than 10% of the value of its assets in
investments which are not readily marketable at the time of purchase of a not
readily marketable security. Securities for purposes of this limitation do not
include securities which have been determined to be liquid by the Fund's Board
of Trustees based upon the trading markets for such securities.
INVESTMENT LIMITATIONS
The Funds' Prospectuses summarize certain investment limitations that
may not be changed without the affirmative vote of the holders of a "majority
of the outstanding shares" of the respective Fund (as defined below under
"Miscellaneous"). Below is a complete list of the Funds' investment
limitations that may not be changed without such a vote of shareholders.
-5-
<PAGE> 6
1. FedCash may not purchase securities other than U.S. Treasury
bills, notes and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, some of which may be subject to
repurchase agreements. There is no limit on the amount of FedCash's assets
which may be invested in the securities of any one issuer of such obligations.
2. T-Cash may not purchase securities other than direct obligations
of the U.S. Treasury such as Treasury bills and notes, some of which may be
subject to repurchase agreements. There is no limit on the amount of T-Cash's
assets which may be invested in securities of any one issuer of such
obligations.
FedCash and T-Cash may not:
3. Borrow money except from banks for temporary purposes and then
in an amount not exceeding 10% of the value of the particular Fund's total
assets, or mortgage, pledge or hypothecate its assets except in connection with
any such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of the particular Fund's total assets at
the time of such borrowing. (This borrowing provision is not for investment
leverage, but solely to facilitate management of each Fund by enabling the
Company to meet redemption requests where the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous.) Borrowing may take
the form of a sale of portfolio securities accompanied by a simultaneous
agreement as to their repurchase. Interest paid on borrowed funds will not be
available for investment.
4. Act as an underwriter.
5. Make loans except that the Funds may purchase or hold debt
obligations in accordance with their respective investment objective and
policies, may enter into repurchase agreements for securities, and may lend
portfolio securities against collateral consisting of cash or securities which
are consistent with the lending Fund's permitted investments, which is equal at
all times to at least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned, except
that payments received on such loans, including amounts received during the
loan on account of interest on the securities loaned, may not (together with
all non-qualifying income) exceed 10% of the Fund's annual gross income
(without offset for realized capital gains) unless, in the opinion of counsel
to the Company, such amounts are qualifying income under federal income tax
provisions applicable to regulated investment companies.
-6-
<PAGE> 7
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
IN GENERAL
Information on how to purchase and redeem a Fund's shares is included
in its Prospectus. The issuance of shares is recorded on the books of the
Funds, and share certificates are not issued unless expressly requested in
writing. Certificates are not issued for fractional shares.
The regulations of the Comptroller of the Currency provide that funds
held in a fiduciary capacity by a national bank approved by the Comptroller to
exercise fiduciary powers must be invested in accordance with the instrument
establishing the fiduciary relationship and local law. The Company believes
that the purchase of FedCash shares and T-Cash shares by such national banks
acting on behalf of their fiduciary accounts is not contrary to applicable
regulations if consistent with the particular account and proper under the law
governing the administration of the account.
Prior to effecting a redemption of shares represented by
certificates, PFPC, the Funds' transfer agent, must have received such
certificates at its principal office. All such certificates must be endorsed
by the redeeming shareholder or accompanied by a signed stock power, in each
instance with the signature guaranteed by a commercial bank, a member of a
major stock exchange or other eligible guarantor institution, unless other
arrangements satisfactory to the Funds have previously been made. The Funds
may require any additional information reasonably necessary to evidence that a
redemption has been duly authorized.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
New York Stock Exchange is closed, other than customary weekend and holiday
closings, or during which trading on said Exchange is restricted, or during
which (as determined by the SEC by rule or regulation) an emergency exists as a
result of which disposal or valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may permit. (The Funds may
also suspend or
-7-
<PAGE> 8
postpone the recordation of the transfer of their shares upon the occurrence of
any of the foregoing conditions.)
In addition, the Funds may redeem shares involuntarily in certain
other instances if the Board of Trustees determines that failure to redeem may
have material adverse consequences to a Fund's shareholders in general. Each
Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the
Fund's net asset value, whichever is less, for any one shareholder within a
90-day period. Any redemption beyond this amount will also be in cash unless
the Board of Trustees determines that conditions exist which make payment of
redemption proceeds wholly in cash unwise or undesirable. In such a case, the
Fund may make payment wholly or partly in securities or other property, valued
in the same way as the Fund determines net asset value. (See "Net Asset Value"
below for an example of when such redemption or form of payment might be
appropriate.) Redemption in kind is not as liquid as a cash redemption.
Shareholders who receive a redemption in kind may incur transaction costs if
they sell such securities or property, and may receive less than the redemption
value of such securities or property upon sale, particularly where such
securities are sold prior to maturity.
Any institution purchasing shares on behalf of separate accounts will
be required to hold the shares in a single nominee name (a "Master Account").
Institutions investing in more than one of the Company's portfolios or classes
of shares must maintain a separate Master Account for each portfolio and class
of shares. Sub-accounts may be established by name or number either when the
Master Account is opened or later.
NET ASSET VALUE
As stated in each Fund's Prospectus, each Fund's net asset value per
share is calculated by adding the value of all of the Fund's portfolio
securities and other assets belonging to that Fund, subtracting the liabilities
charged to that Fund, and dividing the result by the total number of that
Fund's shares outstanding (by class). "Assets belonging to" a Fund consist of
the consideration received upon the issuance of shares together with all
income, earnings, profits and proceeds derived from the investment thereof,
including any proceeds from the sale, exchange or liquidation of such
investments, any funds or payments derived from any reinvestment of such
proceeds, and a portion of any general assets of the Company not belonging to a
particular portfolio. Assets belonging to a particular Fund are charged with
the direct liabilities of that Fund and with a share of the general liabilities
of the Company allocated in proportion to the relative net assets of such Fund
and the Company's other portfolios. Determinations made in good faith and in
accordance with generally accepted accounting principles by the Board of
-8-
<PAGE> 9
Trustees as to the allocations of any assets or liabilities with respect to a
Fund are conclusive.
As stated in the Funds' Prospectuses, in computing the net asset
value of shares of the Funds for purposes of sales and redemptions, the Funds
use the amortized cost method of valuation. Under this method, the Funds value
each of their portfolio securities at cost on the date of purchase and
thereafter assume a constant proportionate amortization of any discount or
premium until maturity of the security. As a result, the value of a portfolio
security for purposes of determining net asset value normally does not change
in response to fluctuating interest rates. While the amortized cost method
provides certainty in portfolio valuation, it may result in valuations for the
Funds' securities which are higher or lower than the market value of such
securities.
In connection with their use of amortized cost valuation, each of the
Funds limits the dollar-weighted average maturity of its portfolio to not more
than 90 days and does not purchase any instrument with a remaining maturity of
more than thirteen months (with certain exceptions). In determining the
average weighted portfolio maturity of each Fund, a variable rate obligation
that is issued or guaranteed by the U.S. Government, or an agency or
instrumentality thereof, is deemed to have a maturity equal to the period
remaining until the obligation's next interest rate adjustment. The Company's
Board of Trustees has also established procedures, pursuant to rules
promulgated by the SEC, that are intended to stabilize the net asset value per
share of each Fund for purposes of sales and redemptions at $1.00. Such
procedures include the determination at such intervals as the Board deems
appropriate, of the extent, if any, to which each Fund's net asset value per
share calculated by using available market quotations or a matrix believed to
provide reliable values deviates from $1.00 per share. In the event such
deviation exceeds 1/2 of 1% with respect to either Fund, the Board will
promptly consider what action, if any, should be initiated. If the Board
believes that the amount of any deviation from the $1.00 amortized cost price
per share of a Fund may result in material dilution or other unfair results to
investors or existing shareholders, it will take such steps as it considers
appropriate to eliminate or reduce to the extent reasonably practicable any
such dilution or unfair results. These steps may include selling portfolio
instruments prior to maturity; shortening the Fund's average portfolio
maturity; withholding or reducing dividends; redeeming shares in kind; or
utilizing a net asset value per share determined by using available market
quotations.
-9-
<PAGE> 10
MANAGEMENT OF THE FUNDS
TRUSTEES AND OFFICERS
The Company's trustees and executive officers, their addresses,
principal occupations during the past five years and other affiliations are
provided below. In addition to the information set forth below, the trustees
serve in the following capacities:
Each trustee of the Company serves as a director of Temporary
Investment Fund, Inc. ("Temp"), as a trustee of Municipal Fund for Temporary
Investment ("Muni"). In addition, Messrs. Fortune and Pepper are directors of
Independence Square Income Securities, Inc. ("ISIS") and Managing General
Partners of Chestnut Street Exchange Fund ("Chestnut"); Messrs. Pepper and
Johnson are directors of Municipal Fund for California Investors, Inc. ("Cal
Muni"); and Mr. Johnson is a director of Municipal Fund for New York Investors,
Inc. ("New York Muni") and the International Dollar Reserve Fund ("IDR").
Each of the Company's officers, with the exception of Mr. McConnel,
holds like offices with Temp and Muni. In addition, Mr. McConnel is Secretary
of Temp. Mr. Roach is Treasurer of Chestnut, President and Treasurer of The
RBB Fund, Inc. and New York Muni, and Vice President and Treasurer of ISIS and
Cal Muni; and Mr. Pepper is President and Chairman of the Board of Muni and Cal
Muni; and Mr. Fortune is President and Chairman of the Board of ISIS and
Chestnut.
<TABLE>
<CAPTION>
Principal Occupations
Position with the During Past 5 Years
Name and Address Company and Other Affiliations
- ---------------- ----------------- ----------------------
<S> <C> <C>
PHILIP E. COLDWELL(3),(4) Economic Consultant;
Coldwell Financial Chairman, Coldwell
Consultants Trustee Financial
3330 Southwestern Blvd. Consultants, Member
Dallas, Texas 75225 of the Board of
Governors of the
Federal Reserve
System, 1974 to
1980; President,
Federal Reserve
Bank of Dallas,
1968 to 1974;
Director, Maxus
Energy Corporation
(energy products)
(1989 -1993);
Director, Diamond
Shamrock Corp.
(energy and
chemical products)
until 1987.
ROBERT R. FORTUNE(2),(3),(4) Trustee Financial Consultant;
2920 Ritter Lane Chairman, President
Allentown, PA 18104 and Chief Executive
Officer
</TABLE>
-10-
<PAGE> 11
<TABLE>
<CAPTION>
Principal Occupations
Position with the During the Past 5 Years
Name and Address Company and Other Affiliations
- ---------------- ----------------- -----------------------
<S> <C> <C>
of Associated
Electric & Gas
Insurance Services
Limited, 1984-1993;
Member of the
Financial Executives
Institute and
American Institute
of Certified Public
Accountants;
Director, Prudential
Utility Fund, Inc.,
Prudential
IncomeVertible Fund,
Inc., and Prudential
Structured Maturity
Fund, Inc.
RODNEY D. JOHNSON Trustee President, Fairmount
Fairmount Capital Capital Advisors,
Advisors, Inc. Inc. (financial
1435 Walnut Street advising) since
Drexel Building 1987; Treasurer,
Philadelphia, PA 19102 North Philadelphia
Health System
(formerly Girard
Medical Center),
1988 to 1992;
Member, Board of
Education, School
District of
Philadelphia, 1983
to 1988; Treasurer,
Cascade Aphasia
Center, 1984 to
1988.
G. WILLING PEPPER(1),(2) Chairman of Retired; Chairman of
128 Springton Lake Road the Board, the Board, The
Media, PA 19063 President and Institute for
Trustee Cancer Research
until 1979;
Director,
Philadelphia
National Bank until
1978; President,
Scott Paper
Company, 1971 to
1973; Chairman of
the Board,
Specialty
Composites Corp.
until May 1984.
EDWARD J. ROACH President Certified Public
Bellevue Park Corporate and Treasurer Accountant; Partner
Center of the accounting
400 Bellevue Parkway firm of Main
Suite 100 Hurdman until 1981;
Wilmington, DE 19809 Vice Chairman of
the Board, Fox
Chase Cancer
Center; Trustee
Emeritus,
Pennsylvania School
for the Deaf;
Trustee, Immaculata
College, 1983-1984;
</TABLE>
-11-
<PAGE> 12
<TABLE>
<CAPTION>
Principal Occupations
Position with the During the Past 5 Years
Name and Address Company and Other Affiliations
- ---------------- ----------------- -----------------------
<S> <C> <C>
Director, The
Bradford Funds, Inc.
1995.
W. BRUCE McCONNEL, III Secretary Partner of the law
PNB Building firm of Drinker
1345 Chestnut Street Biddle & Reath
Philadelphia, PA Philadelphia,
19107-3496 Pennsylvania.
</TABLE>
- -----------------------
(1) This trustee is considered by the Company to be an "interested person"
of the Company as defined in the 1940 Act.
(2) Executive Committee Member.
(3) Audit Committee Member.
(4) Nominating Committee Member.
During intervals between meetings of the Board, the Executive
Committee may exercise the authority of the Board of Trustees in the
management of the Company's business to the extent permitted by law.
Each of the investment companies named above receives various
advisory and other services from PIMC and PNC Bank. Of the above-mentioned
funds, PDI provides distribution services to Temp, Muni, Cal Muni and New York
Muni. Of the above-mentioned funds, the administrators provide administration
services to Temp, Muni, Cal Muni and New York Muni.
For the fiscal year ended October 31, 1995, the Company paid a total
of $100,887 to its officers and trustees in all capacities of which $15,772 was
allocated to the Funds. In addition, the Company contributed $2,715 for the
fiscal year to its retirement plan for employees (which included Mr. Roach) of
which $418 was allocated to the Funds. Drinker Biddle & Reath, of which Mr.
McConnel is a partner, receives legal fees as counsel to the Company. No
employee of PDI, PIMC, PFPC or PNC Bank receives any compensation from the
Company for acting as an officer or trustee of the Company. The trustees and
officers of the Company as a group beneficially own less than 1% of the shares
of the Company's FedFund, T-Fund, FedCash, T-Cash, Federal Trust Fund and
Treasury Trust portfolios.
By virtue of the responsibilities assumed by PDI, PIMC, PFPC and PNC
Bank under their respective agreements with the
-12-
<PAGE> 13
Company, the Company itself requires only one part-time employee in addition to
its officers.
The table below sets forth the compensation actually received from
the Fund Complex of which the Fund is a part by the trustees for the fiscal
year ended October 31, 1995:
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement from Registrant
Aggregate Benefits Accrued Estimated Annual and Fund
Name of Person, Compensation as Part of Fund Benefits Upon Complex(1) Paid to
Position from Registrant Expenses Retirement Trustees
<S> <C> <C> <C> <C>
Philip E. Coldwell, $ 10,800.00 0 N/A (3)(2) $ 43,600.00
Trustee
Robert R. Fortune, 10,800.00 0 N/A (5)(2) 63,600.00
Trustee
Rodney D. Johnson, 10,800.00 0 N/A (5)(2) 55,850.00
Trustee
G. Willing Pepper, 19,100.00 0 N/A (6)(2) 96,250.00
Trustee and Chairman
David R. Wilmerding, 12,466.68 0 N/A (5)(2) 60,600.04
Jr.,(3) Trustee
Anthony M. 10,800.00 0 N/A (4)(2) 49,900.00
Santomero,(4) Trustee ---------- ---------
$74,766.68 $369,800.04
</TABLE>
- --------------------
1. A Fund Complex means two or more investment companies that hold themselves
out to investors as related companies for purposes of investment and
investor services, or have a common investment adviser or have an
investment adviser that is an affiliated person of the investment adviser
of any of the other investment companies.
2. Total number of such other investment companies trustee serves on within
the Fund Complex.
3. Mr. Wilmerding resigned as trustee of the Company on January 4, 1996.
4. Mr. Santomero resigned as trustee of the Company on January 4, 1996.
-13-
<PAGE> 14
INVESTMENT ADVISER AND SUB-ADVISER
The advisory and sub-advisory services provided by PIMC and PNC, as
well as the fees payable to them, are described in the Funds' Prospectuses.
For the advisory services provided and expenses assumed by it, PIMC is entitled
to receive a fee, computed daily and payable monthly, based on the combined
average net assets of the Funds as follows:
<TABLE>
<CAPTION>
Annual Fee The Funds' Combined
---------- Average Net Assets
--------------------
<S> <C>
.175% . . . . . . of the first $1 billion
.150% . . . . . . of the next $1 billion
.125% . . . . . . of the next $1 billion
.100% . . . . . . of the next $1 billion
.095% . . . . . . of the next $1 billion
.090% . . . . . . of the next $1 billion
.085% . . . . . . of the next $1 billion
.080% . . . . . . of amounts in excess of $7 billion.
</TABLE>
The advisory fee is allocated between these Funds in proportion to
their relative net assets.
PIMC and the administrators have each agreed that if, in any fiscal
year, the expenses borne by a Fund exceed the applicable expense limitations
imposed by the securities regulations of any state in which shares of the
particular Fund are registered or qualified for sale to the public, they will
each reimburse such Fund for one-half of any excess to the extent required by
such regulations. Unless otherwise required by law, such reimbursement would
be accrued and paid on the same basis that the advisory and administration fees
are accrued and paid by such Fund. To the Funds' knowledge, of the expense
limitations in effect on the date of this Statement of Additional Information,
none is more restrictive than two and one-half percent (2-1/2%) of the first
$30 million of a Fund's average annual net assets, two percent (2%) of the next
$70 million of the average annual net assets and one and one-half percent
(1-1/2%) of the remaining average annual net assets.
For the fiscal years ended October 31, 1993, 1994 and 1995, FedCash
paid fees (net of waivers) for advisory services aggregating $161,363, $244,352
and $323,499, respectively. For the same period, advisory fees payable by
FedCash of $480,376, $546,532 and $275,671, respectively, were voluntarily
waived. For the fiscal years ended October 31, 1993, 1994 and 1995, T-Cash
paid fees (net of waivers) for advisory services aggregating $162,472, $149,523
and $218,122, respectively. For the same
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<PAGE> 15
period, advisory fees payable by T-Cash of $502,288, $409,893 and $210,166,
respectively, were voluntarily waived. Any fees waived by PIMC are not
recoverable. PIMC and PNC Bank also serve as the adviser and sub-adviser,
respectively, to the Company's FedFund, T-Fund, Federal Trust Fund and Treasury
Trust Fund portfolios.
BANKING LAWS
Certain banking laws and regulations with respect to investment
companies are discussed in each Fund's Prospectus. PIMC, PNC Bank and PFPC
believe that they may perform the services for the Funds contemplated by their
respective agreements, Prospectuses and this Statement of Additional
Information without violation of applicable banking laws or regulations. It
should be noted, however, that future changes in legal requirements relating to
the permissible activities of banks and their affiliates, as well as further
interpretations of present requirements, could prevent PIMC and PFPC from
continuing to perform such services for the Funds and PNC Bank from continuing
to perform such services for PIMC and the Funds. If PIMC, PFPC, or PNC Bank
were prohibited from continuing to perform such services, it is expected that
the Company's Board of Trustees would recommend that the Funds enter into new
agreements with other qualified firms. Any new advisory agreement would be
subject to shareholder approval.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to State law.
ADMINISTRATORS
As the Funds' administrators, PFPC and PDI have agreed to provide the
following services: (i) assist generally in supervising the Funds' operations,
including providing a Wilmington, Delaware order-taking facility with toll-free
IN-WATS telephone lines, providing for the preparing, supervising and mailing
of purchase and redemption order confirmations to shareholders of record,
providing and supervising the operation of an automated data processing system
to process purchase and redemption orders, maintaining a back-up procedure to
reconstruct lost purchase and redemption data, providing information concerning
the Funds to their shareholders of record, handling shareholder problems,
supervising the services of employees, provided by PDI, whose principal
responsibility and function is to preserve and strengthen shareholder
relations, and monitoring the arrangements pertaining to the Funds' agreements
with Service
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<PAGE> 16
Organizations; (ii) assure that persons are available to receive and transmit
purchase and redemption orders; (iii) participate in the periodic updating of
the Funds' Prospectuses; (iv) assist in maintaining the Funds' Wilmington,
Delaware office; (v) perform administrative services in connection with the
Fund's computer access program maintained to facilitate shareholder access to
the Funds; (vi) accumulate information for and coordinate the preparation of
reports to the Funds' shareholders and the SEC; and (vii) maintain the
registration or qualification of the Funds' shares for sale under state
securities laws; (viii) prepare or review, and provide advice with respect to,
all sales literature (advertisements, brochures and shareholder communications)
for each of the Funds and any class or sub-class thereof; and (ix) assist in
the monitoring of regulatory and legislative developments which may affect the
Company, participate in counseling and assisting the Company in relation to
routine regulatory examinations and investigations, and work with the Company's
counsel in connection with regulatory matters and litigation.
For their administrative services, the administrators are entitled
jointly to receive fees from the six Funds referred to above determined and
allocated in the same manner as PIMC's advisory fee set forth above. As stated
in their prospectuses, each administrator is also reimbursed for its reasonable
out-of-pocket expenses incurred in connection with the Fund's computer access
program. For the Fiscal year ended October 31, 1995, Fedcash and T-Cash paid
PFPC and PDI fees (net of waivers) for administrative services aggregating
$323,499 and $218,122, respectively. For the same fiscal year, PFPC and PDI
voluntarily waived administration fees aggregating $275,671 with respect to
FedCash and $210,166 with respect to T-Cash. For the fiscal year ended October
31, 1994, FedCash and T-Cash paid PFPC and PDI fees (net of waivers) for
administrative services aggregating $244,352 and $149,523, respectively. For
the period from November 1, 1992 through January 17, 1993, the Company paid
fees (net of waivers) totalling $30,138 with respect to FedCash and $30,634
with respect to T-Cash to Boston Advisors. For the same period, administration
fees payable by FedCash and T-Cash of $22,206 and $22,848, respectively, were
voluntarily waived. For the period from January 18, 1993 through October 31,
1993, the Company paid fees (net of waivers) for administrative services to
PFPC and MFD, its administrators, aggregating $161,363 with respect to FedCash
Fund and $162,471 with respect to T-Cash Fund. For the same period,
administration fees of $508,289 with respect to T-Cash Fund and $480,376 with
respect to FedCash Fund were voluntarily waived.
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<PAGE> 17
For information regarding the administrators' obligations to
reimburse the Funds in the event their expenses exceed certain prescribed
limits, see "Investment Adviser and Sub-Adviser" above. PFPC, a wholly owned,
indirect subsidiary of PNC Bank provides advisory, administrative or, in some
cases, sub-advisory and/or sub-administrative services to investment companies
which are distributed by PDI. PFPC and PDI also serve as co-administrators of
the Company's FedFund, T-Fund, Federal Trust Fund and Treasury Trust Fund
portfolios.
DISTRIBUTOR
PDI acts as the distributor of the Funds' shares. Each Fund's shares
are sold on a continuous basis by the distributor as agent, although it is not
obliged to sell any particular amount of shares. PDI will prepare or review,
provide advice with respect to, and file with the federal and state agencies or
other organizations as required by federal, state, or other applicable laws and
regulations, all sales literature (advertisements, brochures and shareholder
communications) for each of the Funds and any class or sub-class thereof. The
distributor pays the cost of printing and distributing prospectuses to persons
who are not shareholders of the Funds (excluding preparation and printing
expenses necessary for the continued registration of Fund shares) and of
preparing, printing and distributing all sales literature. No compensation is
payable by the Funds to the distributor for its distribution services. PDI
also serves as the distributor for the Company's FedFund, T-Fund, Federal Trust
Fund and Treasury Trust Fund portfolios. PDI is a Delaware corporation with
its principal place of business located at 259 Radnor-Chester Road, Suite 120,
Radnor, Pennsylvania 19087.
CUSTODIAN AND TRANSFER AGENT
Pursuant to a Custodian Agreement, PNC Bank serves as the Funds'
custodian. Under the Agreement, PNC Bank has agreed to provide the following
services: (i) maintain a separate account or accounts in the name of the
Funds; (ii) hold and disburse portfolio securities on account of the Funds;
(iii) collect and make disbursements of money on behalf of the Funds; (iv)
collect and receive all income and other payments and distributions on account
of the Funds' portfolio securities; and (v) make periodic reports to the Board
of Trustees concerning the Funds' operations. The Custodian Agreement permits
PNC, on 30 days' notice, to assign its rights and delegate its duties
thereunder to any other affiliate of PNC Bank or PNC Bank Corp., provided that
PNC Bank remains responsible for the performance of the delegate under the
Custodian Agreement.
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<PAGE> 18
The Funds reimburse PNC Bank for its direct and indirect costs and
expenses incurred in rendering custodial services. Under the Custodian
Agreement, each Fund pays PNC Bank an annual fee equal to $.25 for each $1,000
of such Fund's average daily gross assets, which fee declines as such Fund's
average daily gross assets increase. In addition, each Fund pays the custodian
a fee for each purchase, sale or delivery of a security, interest collection or
claim item, and reimburses PFPC for out-of-pocket expenses incurred on behalf
of the Fund. For the fiscal years ended October 31, 1993, 1994 and 1995,
FedCash paid fees for custodian services aggregating $114,671, $130,951 and
$105,672, respectively. For the same periods, T-Cash paid fees for custodian
services aggregating $119,904, $100,276 and $80,119, respectively. PNC Bank
also serves as Custodian for the Company's FedFund, T-Fund, Federal Trust Fund
and Treasury Trust Fund portfolios. PNC's principal business address is Broad
and Chestnut Streets, Philadelphia, Pennsylvania 19102.
PFPC also serves as the Funds' transfer agent, registrar and dividend
disbursing agent pursuant to a Transfer Agency Agreement. Under the Agreement,
PFPC has agreed to provide the following services: (i) maintain a separate
account or accounts in the name of the Funds; (ii) issue, transfer and redeem
shares of the Funds; (iii) disburse dividends and distributions, in the manner
described in each Fund's Prospectus, to shareholders of the Fund; (iv) transmit
all communications by the Funds to their shareholders or their authorized
representatives, including reports to shareholders, distribution and dividend
notices and proxy materials for meetings of shareholders; (v) prepare and file
with the appropriate taxing authorities reports or notices relating to
dividends and distributions made by the Funds; (vi) respond to correspondence
by shareholders, security brokers and others relating to its duties; (vii)
maintain shareholder accounts; and (viii) make periodic reports to the
Company's Board of Trustees concerning the Funds' operations. The Transfer
Agency Agreement permits PFPC, on 30-days' notice, to assign its rights and
duties thereunder to any other affiliate of PNC Bank or PNC Bank Corp.,
provided that PFPC remains responsible for the performance of the delegate
under the Transfer Agency Agreement.
Under the Transfer Agency Agreement, each Fund pays PFPC fees at an
annual rate of $12.00 per account and sub-account maintained by PFPC plus $1.00
for each purchase or redemption transaction by an account (other than a
purchase transaction made in connection with the automatic reinvestment of
dividends). Payments to PFPC for sub-accounting services provided by others
are limited to the amount which PFPC pays to others for such
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<PAGE> 19
services. In addition, the Funds reimburse PFPC for out-of-pocket expenses
related to such services. For the fiscal years ended October 31, 1993, 1994
and 1995, FedCash paid fees for transfer agency services aggregating $18,905,
$23,192 and $21,630, respectively. For the same periods, T-Cash paid fees for
transfer agency expenses aggregating $22,708, $25,305 and $24,604,
respectively. PFPC also serves as transfer agent, registrar and dividend
disbursing agent for the Company's FedFund, T-Fund, Federal Trust Fund and
Treasury Trust Fund portfolios.
SERVICE ORGANIZATIONS
As stated in the Funds' Prospectuses, the Funds will enter into an
agreement with each Service Organization which purchases Dollar shares
requiring it to provide support services to its customers who beneficially own
Dollar shares in consideration of the Funds' payment of .25% (on an annualized
basis) of the average daily net asset value of the Dollar shares held by the
Service Organization for the benefit of customers. Such services include: (i)
aggregating and processing purchase and redemption requests from customers and
placing net purchase and redemption orders with the transfer agent; (ii)
providing customers with a service that invests the assets of their accounts in
Dollar shares; (iii) processing dividend payments from the Funds on behalf of
customers; (iv) providing information periodically to customers showing their
positions in Dollar shares; (v) arranging for bank wires; (vi) responding to
customer inquiries relating to the services performed by the Service
Organization; (vii) providing sub-accounting with respect to Dollar shares
beneficially owned by customers or the information necessary for
sub-accounting; (viii) forwarding shareholder communications from the Funds
(such as proxies, shareholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to customers, if
required by law; and (ix) other similar services if requested by the Funds.
For the fiscal year ended October 31, 1995, the Company paid $153,266 in
servicing fees to an affiliate of the Company's adviser (representing 30.0% of
the aggregate servicing fees) all of which was allocated to T-Cash pursuant to
service agreements in effect during such period.
Each Fund's agreements with Service Organizations are governed by a
Shareholder Services Plan (the "Plan") that has been adopted by the Company's
Board of Trustees pursuant to an exemptive order granted by the SEC in
connection with the creation of the Dollar shares. Pursuant to each Plan, the
Board of Trustees reviews, at least quarterly, a written report of the amounts
expended under the Fund's agreements with Service
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<PAGE> 20
Organizations and the purposes for which the expenditures were made. In
addition, the Funds' arrangements with Service Organizations must be approved
annually by a majority of the Company's trustees, including a majority of the
trustees who are not "interested persons" of the Company as defined in the 1940
Act and have no direct or indirect financial interest in such arrangements.
The Board of Trustees has approved the Funds' arrangements with
Service Organizations based on information provided by the Funds' service
contractors that there is a reasonable likelihood that the arrangements will
benefit the Funds and their shareholders by affording the Funds greater
flexibility in connection with the servicing of the accounts of the beneficial
owners of their shares in an efficient manner. Any material amendment to the
Funds' arrangements with Service Organizations must be approved by a majority
of the Company's Board of Trustees (including a majority of the non-interested
trustees). So long as the Funds' arrangements with Service Organizations are
in effect, the selection and nomination of the members of the Company's Board
of Trustees who are not "interested persons" (as defined in the 1940 Act) of
the Company will be committed to the discretion of such non-interested
trustees.
EXPENSES
The Funds' expenses include taxes, interest, fees and salaries of the
Company's trustees and officers, SEC fees, state securities qualification fees,
Standard & Poor's rating fees, Moody's rating fees (cost incurred by T-Cash
only), costs of preparing and printing prospectuses for regulatory purposes and
for distribution to shareholders, advisory and administration fees, charges of
the custodian, transfer agent and dividend disbursing agent, Service
Organization fees, certain insurance premiums, outside auditing and legal
expenses, costs of shareholder reports and shareholder meetings and any
extraordinary expenses. The Funds also pay for brokerage fees and commissions
(if any) in connection with the purchase of portfolio securities.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations
generally affecting each Fund and its shareholders that are not described in
each Fund's Prospectus. No attempt is made to present a detailed explanation
of the tax treatment of the Funds or their shareholders or possible legislative
changes,
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<PAGE> 21
and the discussion here and in each Fund's Prospectus is not intended as a
substitute for careful tax planning. Investors should consult their tax
advisors with specific reference to their own tax situations.
Each Fund of the Company is treated as a separate corporate entity
under the Code and intends to qualify each year as a regulated investment
company under the Code. In order to so qualify for a taxable year, each Fund
must satisfy the distribution requirement described in its Prospectus, derive
at least 90% of its gross income for the year from certain qualifying sources,
comply with certain diversification requirements and derive less than 30% of
its gross income from the sale or other disposition of securities and certain
other investments held for less than three months. Interest (including
original issue discount and accrued market discount) received by a Fund upon
maturity or disposition of a security held for less than three months will not
be treated as gross income derived from the sale or other disposition of such
security within the meaning of this requirement. However, any other income
that is attributable to realized market appreciation will be treated as gross
income from the sale or other disposition of securities for this purpose.
A 4% nondeductible excise tax is imposed on regulated investment
companies that fail to distribute currently an amount equal to specified
percentages of their ordinary taxable income and capital gain net income
(excess of capital gains over capital losses). Each Fund intends to make
sufficient distributions or deemed distributions of its ordinary taxable income
and any capital gain net income each calendar year to avoid liability for this
excise tax.
If for any taxable year a Fund does not qualify for tax treatment as
a regulated investment company, all of its taxable income will be subject to
federal income tax at regular corporate rates, without any deduction for
distributions to Fund shareholders. In such event, dividend distributions
would be taxable as ordinary income to Fund shareholders to the extent of that
Fund's current and accumulated earnings and profits and would be eligible for
the dividends received deduction in the case of corporate shareholders.
Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or gross sale proceeds paid to any
shareholder who has failed to provide a correct tax identification number in
the manner required, who is subject to withholding by the Internal Revenue
Service for failure to properly include on its return payments of taxable
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<PAGE> 22
interest or dividends, or who has failed to certify to the Fund when required
to do so that he is not subject to backup withholding or that he is an "exempt
recipient."
Depending upon the extent of the Funds' activities in states and
localities in which their offices are maintained, in which their agents or
independent contractors are located or in which they are otherwise deemed to be
conducting business, the Funds may be subject to the tax laws of such states or
localities. In addition, in those states and localities which have income tax
laws, the treatment of the Funds and their shareholders under such laws may
differ from their treatment under federal income tax laws. Shareholders are
advised to consult their tax advisors concerning the application of state and
local taxes.
The foregoing discussion is based on federal tax laws and regulations
which are in effect on the date of this Statement of Additional Information;
such laws and regulations may be changed by legislative or administrative
action.
DIVIDENDS
Net income of each of the Funds for dividend purposes consists of (i)
interest accrued and original issue discount earned on the Fund's assets, (ii)
plus the amortization of market discount and minus the amortization of market
premium on such assets, (iii) less accrued expenses directly attributable to
the Fund and the general expenses (e.g., legal, accounting and trustees' fees)
of the Company prorated to the Fund on the basis of its relative net assets.
In addition, Dollar shares bear exclusively the expense of fees paid to Service
Organizations. (See "Management of the Funds--Service Organizations.")
As stated, the Company uses its best efforts to maintain the net
asset value per share of FedCash and T-Cash at $1.00. As a result of a
significant expense or realized or unrealized loss incurred by either Fund, it
is possible that the Fund's net asset value per share may fall below $1.00.
ADDITIONAL YIELD INFORMATION
The "yields" and "effective yields" are calculated separately for
each class of shares of each Fund and in accordance with the formulas
prescribed by the SEC. The seven-day yield for each class of shares is
calculated by determining the net change in the value of a hypothetical
pre-existing
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<PAGE> 23
account in the particular Fund which has a balance of one share of the class
involved at the beginning of the period, dividing the net change by the value
of the account at the beginning of the period to obtain the base period return,
and multiplying the base period return by 365/7. The net change in the value
of an account in a Fund includes the value of additional shares purchased with
dividends from the original share and dividends declared on the original share
and any such additional shares, net of all fees charged to all shareholder
accounts in proportion to the length of the base period and the Fund's average
account size, but does not include gains and losses or unrealized appreciation
and depreciation. In addition, an effective annualized yield quotation may be
computed on a compounded basis with respect to each class of its shares by
adding 1 to the base period return for the class involved (calculated as
described above), raising that sum to a power equal to 365/7, and subtracting 1
from the result. Similarly, based on the calculations described above, the
Funds' 30-day (or one-month) yields and effective yields may also be
calculated.
For the seven-day period ended October 31, 1995, the yields on
FedCash shares and T-Cash shares were 5.60% and 5.66%, respectively, and the
compounded effective yields on FedCash shares and T-Cash shares were 5.76% and
5.82%, respectively; the yields on FedCash Dollar shares and T-Cash Dollar
shares were 5.35% and 5.41%, respectively, and the compounded effective yields
on FedCash Dollar Shares and T-Cash Dollar Shares were 5.49% and 5.56%,
respectively. During this seven-day period, the Funds' adviser and
administrator voluntarily waived a portion of its advisory and administration
fees payable by the Funds. Without these waivers, for the same period the
yields on FedCash shares and T-Cash shares would have been 5.48% and 5.54%,
respectively, and the compounded effective yields on FedCash shares and T-Cash
shares would have been 5.63% and 5.69%, respectively; and the yields on FedCash
Dollar Shares and T-Cash Dollar Shares would have been 5.23% and 5.29%,
respectively, and the compounded effective yields on FedCash Dollar Shares and
T-Cash Dollar Shares would have been 5.37% and 5.43%.
For the 30-day period ended October 31, 1995, the yields on FedCash and
T-Cash shares were 5.61% and 5.62%, respectively, and the compounded effective
yields on FedCash and T-Cash were 5.77% and 5.78%, respectively; the yields on
FedCash Dollar Shares and T-Cash Dollar Shares were 5.36% and 5.37%,
respectively, and the compounded effective yields on FedCash Dollar Shares and
T-Cash Dollar Shares were 5.50% and 5.51%, respectively. During this 30-day
period, the Funds' adviser and administrator voluntarily waived a portion of
the
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<PAGE> 24
advisory and administration fees payable by the Funds. Without these waivers
for the same period the yields on FedCash shares and T-Cash shares would have
been 5.49% and 5.50%, respectively, and the compounded effective yields on
FedCash shares and T-Cash shares would have been 5.64% and 5.65%, respectively;
the yield on FedCash Dollar Shares and T-Cash Dollar Shares would have been
5.24% and 5.25%, respectively, and the compounded effective yields on FedCash
Dollar Shares and T-Cash Dollar shares would have been 5.38% and 5.39%,
respectively.
From time to time, in advertisements or in reports to shareholders,
the performance of the Funds may be quoted and compared to that of other money
market funds or accounts with similar investment objectives and to stock or
other relevant indices. For example, the yields of the Funds may be compared
to the Donoghue's Money Fund Average, which is an average compiled by
IBC/Donoghue's MONEY FUND REPORT(R) of Holliston, MA 01746, a widely recognized
independent publication that monitors the performance of money market funds, or
to the average yields reported by the Bank Rate Monitor from money market
deposit accounts offered by the 50 leading banks and thrift institutions in the
top five standard metropolitan statistical areas.
THE FUNDS' YIELDS WILL FLUCTUATE, AND ANY QUOTATION OF YIELD SHOULD
NOT BE CONSIDERED AS REPRESENTATIVE OF THE FUTURE PERFORMANCE OF THE FUNDS.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the Funds' shares with bank deposits, savings accounts, and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance and yield are generally functions of kind and quality of the
investments held in a Fund, portfolio maturity, operating expenses net of
waivers and expense reimbursements, and market conditions. Any fees charged by
Service Organizations or other institutional investors with respect to customer
accounts in investing in shares of the Funds will not be included in
calculations of yield and performance; such fees, if charged, would reduce the
actual performance and yield from that quoted.
The Funds may also from time to time include in advertisements,
sales literature, communications to shareholders and other materials
("Materials"), discussions or illustrations of the effects of compunding.
"Compounding" refers to the fact that, if dividends or other distributions on
an investment are reinvested by being paid in additional Portfolios shares, any
future income or capital appreciation of a Fund would increase the value, not
only of the original investment, but also of the additional shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been paid in
cash.
In addition, the Funds may also include in Materials discussions
and/or illustrations of the potential investment goals of a prospective
investor, investment management strategies, techniques, policies or investment
suitability of a Fund, economic conditions, the relationship between sectors of
the economy and the economy as a whole, various securities markets, the effects
of inflation, and historical performance of various asset classes, including
but not limited to, stocks, bonds and Treasury securities. From time to time,
Materials may summarize the substance of information contained in shareholder
reports (including the investment composition of a Fund), as well as the views
of the advisers as to current market, economic, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
related matters believed to be of relevance to a Fund. The Funds may also
include in Materials charts, graphs or drawings which compare the investment
objective, return potential, relative stability and/or growth possibilities of
the Funds and/or mutual funds, or illustrate the potential risks and rewards of
investment in a Fund and/or mutual funds (such as value investing, market
timing, dollar cost averaging, asset allocation, constant ratio transfer,
automatic accounting rebalancing and the advantages and disadvantages of
investing in tax-deferred and taxable investments), shareholder profiles and
hypothetical investor scenarios, timely information on financial management,
designations assigned by a Fund by various rating or ranking organizations,
Fund identifiers (such as CUSIP numbers or NASDAQ symbols), tax and retirement
planning and investment alternatives to certificates of deposit and other
financial instruments. Such Materials may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
therein.
ADDITIONAL DESCRIPTION CONCERNING FUND SHARES
The Company does not presently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. Upon
the written request of shareholders owning at least twenty percent of the
Company's shares, the Company will call for a meeting of shareholders to
consider the
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<PAGE> 25
removal of one or more trustees and other certain matters. To the extent
required by law, the Company will assist in shareholder communication in such
matters.
As stated in the Prospectuses for the Funds, holders of the Company's
FedCash and FedCash Dollar shares will vote in the aggregate and not by class
on all matters, except where otherwise required by law and except that only
FedCash Dollar shares will be entitled to vote on matters submitted to a vote
of shareholders pertaining to the Fund's arrangements with Service
Organizations. (See "Management of the Funds--Service Organizations.") Holders
of the Company's T-Cash and T-Cash Dollar shares will also vote in the
aggregate and not by class as described above. Further, shareholders of all of
the Company's portfolios will vote in the aggregate and not by portfolio except
as otherwise required by law or when the Board of Trustees determines that the
matter to be voted upon affects only the interests of the shareholders of a
particular portfolio. Rule 18f-2 under the 1940 Act provides that any matter
required to be submitted by the provisions of such Act or applicable state law,
or otherwise, to the holders of the outstanding securities of an investment
company such as the Company shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each portfolio affected by the matter. Rule 18f-2 further provides that a
portfolio shall be deemed to be affected by a matter unless it is clear that
the interests of each portfolio in the matter are identical or that the matter
does not affect any interest of the portfolio. Under the Rule the approval of
an investment advisory agreement or any change in a fundamental investment
policy would be effectively acted upon with respect to a portfolio only if
approved by the holders of a majority of the outstanding voting securities of
such portfolio. However, the Rule also provides that the ratification of the
selection of independent accountants, the approval of principal underwriting
contracts and the election of trustees are not subject to the separate voting
requirements and may be effectively acted upon by shareholders of the
investment company voting without regard to portfolio.
COUNSEL
Drinker Biddle & Reath, Philadelphia National Bank Building, 1345
Chestnut Streets, Philadelphia, Pennsylvania 19107-3496, of which W. Bruce
McConnel, III, Secretary of the Company, is a partner, serves as counsel to the
Company and will pass upon the legality of the shares offered hereby.
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<PAGE> 26
AUDITORS
The financial statements of the Funds which appear in this Statement
of Additional Information and the information included in the Financial
Highlights section which appears in the Funds' Prospectuses have been audited
by Coopers & Lybrand L.L.P., independent accountants, whose report thereon
appears elsewhere herein, and have been included herein and in the Funds'
Prospectuses in reliance upon the report of said firm of accountants given upon
their authority as experts in accounting and auditing. Coopers & Lybrand
L.L.P. has offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania
19103.
MISCELLANEOUS
SHAREHOLDER VOTE
As used in this Statement of Additional Information and the
Prospectuses for the Funds, a "majority of the outstanding shares" of a Fund or
of any other portfolio means, with respect to the approval of an investment
advisory agreement, a distribution plan or a change in a fundamental investment
policy, the vote of the lesser of (1) 67% of the shares of such Fund
(irrespective of class) or of the portfolio represented at a meeting at which
the holders of more than 50% of the outstanding shares of such Fund or
portfolio are present in person or by proxy, or (2) more than 50% of the
outstanding shares of such Fund (irrespective of class) or of the portfolio.
CERTAIN RECORD HOLDERS
On January 10, 1996, the name, address and percentage of ownership of
each institutional investor that owned of record 5% or more of the outstanding
shares of the Company's FedCash and T-Cash portfolios were as follows:
<TABLE>
<S> <C>
FedCash
-------
Saxon & Company 63.65%
PNC Bank
200 Stevens Drive
Lester, PA 19113
Transco & Company 8.93%
Intrust Bank NA
P.O. Box 1
Wichita, KS 67201
</TABLE>
-26-
<PAGE> 27
<TABLE>
<S> <C>
Linden Owner Partnership 10.28%
c/o GE Capital
570 Lexington Avenue, 11th Floor
New York, NY 10022
T-Cash
------
Jato & Co. 14.92%
National City Bank/Minneapolis
P.O. Box E 1919
Minneapolis, MN 55480
Bank IV Kansas NA 6.73%
P.O. Box 47010
Wichita, KS 67202
Overton & Co. 8.70%
Overton Bank & Trust NA
P.O. Box 16509
Ft. Worth, TX 76162
Oltrust & Co. 23.84%
Old Natl. Bank in Evansville
P.O. Box 207
Evansville, IN 47702
Corporate Cash Sweep 16.12%
PNC Bank Kentucky Inc.
539 S 4th Avenue
Louisville, KY 40202
</TABLE>
SHAREHOLDER AND TRUSTEE LIABILITY
The Company is organized as a "business trust" under the laws of the
Commonwealth of Pennsylvania. Shareholders of such a trust may, under certain
circumstances, be held personally liable (as if they were partners) for the
obligations of the trust. The Declaration of Trust of the Company provides
that shareholders of the Funds shall not be subject to any personal liability
for the acts or obligations of the Company and that every note, bond, contract,
order or other undertaking made by the Company shall contain a provision to the
effect that the shareholders are not personally liable thereunder. The
Declaration of Trust provides for indemnification out of the trust property of
any shareholder held personally liable solely by reason of being or having been
a shareholder and not because
Financial Statements
The audited financial statements for the FedCash and T-Cash Portfolios and
notes thereto in the Fund's Annual Report to Shareholders for the fiscal year
ended October 31, 1995 (the "1995 Annual Report") are incorporated in this
Statement of Additional Information by reference. No other parts of the 1995
Annual Report are incorporated by reference herein. The financial statements
included in the 1995 Annual Report have been audited by the Fund's independent
accountants, Coopers & Lybrand L.L.P., whose reports thereon are incorporated
herein by reference. Such financial statements have been incorporated herein
in reliance upon such report given upon their authority as experts in
accounting and auditing. Additional copies of the 1995 Annual Report may
be obtained at no charge by telephoning the Fund at the telephone number
appearing on the front page of this Statement of Additional Information.
-27-
<PAGE> 28
of any acts or omissions or some other reason. The Declaration of Trust also
provides that the Company shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Company and
satisfy any judgment thereon. Thus, the risk of a shareholder's incurring
financial loss beyond its investment on account of shareholder liability is
limited to circumstances in which the Company itself would be unable to meet
its obligations.
The Company's Declaration of Trust provides further that no trustee,
officer or agent of the Company shall be personally liable for or on account of
any contract, debt, tort, claim, damage, judgment or decree arising out of or
connected with the administration or preservation of the trust estate or the
conduct of any business of the Company, nor shall any trustee be personally
liable to any person for any action or failure to act except by reason of bad
faith, willful misfeasance, gross negligence in the performance of any duties
or by reason of reckless disregard of the obligations and duties as trustee.
It also provides that all persons having any claim against the trustees or the
Company shall look solely to the trust property for payment. With the
exceptions stated, the Declaration of Trust provides that a trustee is entitled
to be indemnified against all liabilities and expenses reasonably incurred by
him or her in connection with the defense or disposition of any proceeding in
which the trustee may be involved or with which the trustee may be threatened
by reason of being or having been a trustee, and that the trustees have the
power, but not the duty, to indemnify officers and employees of the Company
unless such person would not be entitled to indemnification had he or she been
a trustee.
-28-
<PAGE> 29
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market. The following summarizes the rating categories used by
Standard and Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for issues designated
"A-1."
"A-3" - Issue has an adequate capacity for timely payment. It
is, however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely
payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are
considered to have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial
A-1
<PAGE> 30
charges and high internal cash generation; and well established access to a
range of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are
considered to 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
alternative liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D-1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
A-2
<PAGE> 31
"D-3" - Debt possesses satisfactory liquidity, and other
protection factors qualify issue as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as the "F-1+" and "F-1"
categories.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term
ratings to indicate that the rating is based upon a letter of credit issued by
a commercial bank.
A-3
<PAGE> 32
Thomson BankWatch short-term ratings assess the likelihood of
an untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one year or less which is issued by United
States commercial banks, thrifts and non-bank banks; non-United States banks;
and broker-dealers. The following summarizes the ratings used by Thomson
BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest rating category and indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of
safety regarding timely payment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment
grade category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded
as non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations supported by the highest capacity for
timely repayment.
"A1" - Obligations are supported by a strong capacity for
timely repayment.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment, although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by a satisfactory capacity
for timely repayment. Such capacity is more susceptible to adverse changes in
business, economic or financial conditions than for obligations in higher
categories.
A-4
<PAGE> 33
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic or financial
conditions.
"C" - Obligations for which there is an inadequate capacity to
ensure timely repayment.
"D" - Obligations which have a high risk of default or which
are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's to a debt obligation and indicates an extremely
strong capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in small
degree.
"A" - Debt is considered to have a strong capacity to pay
interest and repay principal although such issues are somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
debt in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit 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.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The
"BB" rating
A-5
<PAGE> 34
category is also used for debt subordinated to senior debt that is assigned an
actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
"CCC" - Debt has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The "CCC"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated
to senior debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no
interest is being paid.
"D" - Debt is in payment default. This rating is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S & P believes such
payments will be made during such grace period. "D" rating is also used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high
volatility or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or interest return
is indexed to equities, commodities, or currencies; certain swaps and options;
and interest only and principal only mortgage securities.
A-6
<PAGE> 35
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than in
"Aaa" securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be
in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical rating denotes
A-7
<PAGE> 36
probable credit stature upon completion of construction or elimination of basis
of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the issuer ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issuer ranks at the lower end of its generic rating
category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when
due. Debt rated "B" possesses the risk that obligations will not be met when
due. Debt rated "CCC" is well below investment grade and has considerable
uncertainty as to timely payment of principal, interest or preferred dividends.
Debt rated "DD" is a defaulted debt obligation, and the rating "DP" represents
preferred stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major
categories.
The following summarizes the highest four ratings used by
Fitch for corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally
A-8
<PAGE> 37
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 an 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.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" - Bonds that
possess one of these ratings are considered by Fitch to be speculative
investments. The ratings "BB" to "C" represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating "DDD" to "D" is an assessment of the ultimate recovery value through
reorganization or liquidation.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major
rating categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
A-9
<PAGE> 38
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree
of speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could
A-10
<PAGE> 39
be more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit very
strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given a plus (+)
designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit
risk and long-term risk. The following summarizes the ratings by Moody's
Investors Service, Inc. for short-term notes:
A-11
<PAGE> 40
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the
best quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of
favorable quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is likely to be less
well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of
adequate quality, carrying specific risk but having protection commonly
regarded as required of an investment security and not distinctly or
predominantly speculative.
"SG" - Loans bearing this designation are of speculative
quality and lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-12
