<PAGE> 1
FedFund
An Investment Portfolio Offered By
Trust for Federal Securities
<TABLE>
<S> <C>
Bellevue Park Corporate Center For purchase and redemption orders only call:
400 Bellevue Parkway 800-441-7450 (in Delaware: 302-791-5350).
Suite 100 For yield information call: 800-821-6006
Wilmington, DE 19809 (FedFund shares code: 30; FedFund Dollar
shares code: 31).
For other information call: 800-821-7432.
</TABLE>
Trust for Federal Securities (the "Company") is a no-load, diversified,
open-end investment company that currently offers shares in six separate
investment portfolios. The shares described in this Prospectus represent
interests in the FedFund portfolio (the "Fund"), a money market portfolio.
The Fund's investment objective is to seek current income with liquidity
and security of principal. The Fund invests in a portfolio consisting of U.S.
Treasury bills, notes and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and repurchase agreements relating
to such obligations.
Fund shares may not be purchased by individuals directly, but institutional
investors may purchase shares for accounts maintained by individuals. In
addition to FedFund Shares, investors may purchase FedFund "Dollar Shares" which
accrue daily dividends in the same manner as FedFund Shares but bear all fees
payable by the Fund to institutional investors for certain services they provide
to the beneficial owners of such Shares. (See "Management of the Fund-Service
Organizations.")
PNC Institutional Management Corporation ("PIMC") and PNC Bank, National
Association ("PNC Bank") serve as the Fund's adviser and sub-adviser,
respectively. PFPC Inc. ("PFPC") and Provident Distributors, Inc. ("PDI") serve
as the Fund's administrators. PDI also serves as the Fund's distributor.
------------------------
SHARES OF THE FUND 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 FUND INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO
ASSURANCE THAT IT WILL BE ABLE TO MAINTAIN ITS NET ASSET
VALUE OF $1.00 PER SHARE.
------------------------
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information currently dated
February 28, 1996, has been filed with the Securities and Exchange Commission
and is available to investors without charge by calling the Fund at
800-821-7432. The Statement of Additional Information, as amended from time to
time, is incorporated in its entirety by reference into this Prospectus.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
February 28, 1996
<PAGE> 2
BACKGROUND AND EXPENSE INFORMATION
Two classes of shares are offered by this Prospectus: FedFund Shares and
FedFund Dollar Shares. Shares of each class represent equal, pro rata interests
in the Fund and accrue daily dividends in the same manner except that the Dollar
Shares bear fees payable by the Fund (at the rate of .25% per annum) to
institutional investors for services they provide to the beneficial owners of
such shares. (See "Management of the Fund--Service Organizations.")
EXPENSE SUMMARY
<TABLE>
<CAPTION>
FEDFUND
FEDFUND DOLLAR
SHARES SHARES
---------- ----------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (net of waivers)................................. .07% .07%
Other Expenses................................................... .13% .38%
Administration Fees (net of waivers)........................ .07% .07%
Shareholder Servicing Fees.................................. 0% .25%
Miscellaneous............................................... .04% .04%
--- ---
Total Fund Operating Expenses (net of waivers)................... .20% .45%
=== ===
</TABLE>
- ------------
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) redemption at the
end of each time period with respect to the following
shares:
FedFund Shares: $2 $ 6 $11 $ 26
FedFund Dollar Shares: $5 $14 $25 $ 57
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. The table is based on expenses incurred by the
FedFund Shares and Dollar Shares during the last fiscal year, restated to
reflect the expenses which each class of shares expects to incur during the
current fiscal year. In addition, institutional investors may charge fees for
providing administrative services in connection with their customers' investment
in Dollar Shares. Absent fee waivers, Management and Administration fees for
FedFund Shares and Dollar Shares would have been each .13% and Total Fund
Operating Expenses would have been .29% and .54%, respectively. (For more
complete descriptions of the various costs and expenses, see "Management of the
Fund" in this Prospectus and the Statement of Additional Information and the
financial statements and related notes contained in the Statement of Additional
Information.) The investment adviser and administrators may from time to time
waive the advisory and administration fees otherwise payable to them or may
reimburse the Fund for its operating expenses. The foregoing table has not been
audited by the Fund's independent accountants.
2
<PAGE> 3
FINANCIAL HIGHLIGHTS
The following financial highlights for FedFund Shares and for FedFund
Dollar Shares for the fiscal year ended October 31, 1995 and for each of the
nine preceding fiscal years. The financial highlights for the fiscal years set
forth below have been audited by Coopers & Lybrand L.L.P. independent
accountants whose report on the financial statements and financial highlights
(for the most recent five years) of the Fund is included in the Statement of
Additional Information. The tables should be read in conjunction with the
financial statements and related notes included in the Statement of Additional
Information. Further information about the performance of the Fund is available
in the annual report to shareholders, which may be obtained without charge by
calling 800-821-7432.
TRUST FOR FEDERAL SECURITIES
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
FEDFUND SHARES
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ---------- ---------- ---------- ----------
Income From Investment Operations:
Net Investment Income................ .0571 .0377 .0308 .0397 .0637
Net Capital Gains.................... -- -- .0001 .0010 --
----------- ---------- ---------- ---------- ----------
Total From Investment Operations..... .0571 .0377 .0309 .0407 .0637
----------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends to Shareholders from:
Net Investment Income................ (.0571) (.0377) (.0308) (.0397) (.0637)
Net Capital Gains.................... -- -- (.0001) (.0010) --
----------- ---------- ---------- ---------- ----------
Total Distributions.................. (.0571) (.0377) (.0309) (.0407) (.0637)
----------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========= ========= ========= =========
Total Return......................... 5.86% 3.84% 3.12% 4.15% 6.56%
Ratios/Supplemental Data
Net Assets, End of Period (in 000s).. $1,377,175 $1,557,562 $1,290,971 $2,976,954 $1,918,966
Ratio of Expenses to Average Net
Assets............................. .18%(1) .18%(1) .20%(1) .27% .30%
Ratio of Net Investment Income to
Average Net Assets................. 5.71% 3.78% 3.08% 3.91% 6.36%
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------------
1988 1987 1986 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Income From Investment Operations:
Net Investment Income................ .0703 .0614 .0676 .0800 .0891
Net Capital Gains.................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total From Investment Operations..... .0703 .0614 .0676 .0800 .0891
---------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends to Shareholders from:
Net Investment Income................ (.0703) (.0614) (.0676) (.0800) (.0891)
Net Capital Gains.................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total Distributions.................. (.0703) (.0614) (.0676) (.0800) (.0891)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Total Return......................... 7.28% 6.32% 6.98% 8.29% 9.29%
Ratios/Supplemental Data
Net Assets, End of Period (in 000s).. $1,772,390 $2,108,838 $2,135,060 $1,488,141 $1,786,196
Ratio of Expenses to Average Net
Assets............................. .30%(1) .30%(1) .33 .30%(1) .30%(1)
Ratio of Net Investment Income to
Average Net Assets................. 7.02% 6.12% 6.70% 8.00% 8.91%
</TABLE>
- ------------
(1) Without the waiver of advisory and administration fees, the ratios of
expenses to average daily net assets would have been .29%, .30%, .27%, .34%,
.35%, .32%, and .32% respectively, for each of the years ended October 31,
1995, 1994, 1993, 1990, 1989, 1988, and 1987, respectively, for FedFund
Shares.
3
<PAGE> 4
TRUST FOR FEDERAL SECURITIES
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
FEDFUND DOLLAR SHARES
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------
Income From Investment Operations:
Net Investment Income.......................... .0546 .0352 .0283 .0372 .0612
Net Capital Gains.............................. -- -- .0001 .0010 --
-------- -------- -------- -------- -------
Total From Investment Operations............... .0546 .0352 .0284 .0382 .0612
-------- -------- -------- -------- -------
Less Distributions:
Dividends to Shareholders from:
Net Investment Income.......................... (.0546) (.0352) (.0283) (.0372) (.0612)
Net Capital Gains.............................. -- -- (.0001) (.0010) --
-------- -------- -------- -------- -------
Total Distributions............................ (.0546) (.0352) (.0284) (.0382) (.0612)
-------- -------- -------- -------- -------
Net Asset Value, End of Period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== =======
Total Return................................... 5.61% 3.59% 2.87% 3.90% 6.31%
Ratios/Supplemental Data
Net Assets, End of Period (in 000s)............ $213,177 $135,769 $169,877 $148,363 $62,842
Ratio of Expenses to Average Net Assets........ .43%(1) .43%(1) .45%(1) .52% .55%
Ratio of Net Investment Income to Average Net
Assets....................................... 5.46% 3.51% 2.83% 3.66% 6.11%
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------
1988 1987 1986 1990 1989
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Income From Investment Operations:
Net Investment Income.......................... .0678 .0589 .0651 .0775 .0866
Net Capital Gains.............................. -- -- -- -- --
------- ------- ------- ------- -------
Total From Investment Operations............... .0678 .0589 .0651 .0775 .0866
------- ------- ------- ------- -------
Less Distributions:
Dividends to Shareholders from:
Net Investment Income.......................... (.0678) (.0589) (.0651) (.0775) (.0866)
Net Capital Gains.............................. -- -- -- -- --
------- ------- ------- ------- -------
Total Distributions............................ (.0678) (.0589) (.0651) (.0775) (.0866)
------- ------- ------- ------- -------
Net Asset Value, End of Period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return................................... 7.02% 6.05% 6.71% 8.04% 9.04%
Ratios/Supplemental Data
Net Assets, End of Period (in 000s)............ $35,741 $29,372 $37,131 $19,815 $15,473
Ratio of Expenses to Average Net Assets........ .55%(1) .55%(1) .58%(1) .55%(1) .55%(1)
Ratio of Net Investment Income to Average Net
Assets....................................... 6.77% 5.87% 6.45% 7.75% 8.66%
</TABLE>
- ------------
(1) Without the waiver of advisory and administration fees, the ratio of
expenses to average daily net assets would have been .54%, .55%, .52%, .59%,
.60%, .57%, and .57%, respectively, for each of the years ended October 31,
1995, 1994, 1993, 1990, 1989, 1988, and 1987, respectively, for FedFund
Dollar Shares.
4
<PAGE> 5
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek current income with liquidity
and security of principal. The Fund invests in obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities (in addition to direct
Treasury obligations) and repurchase agreements relating to such obligations.
Portfolio obligations held by the Fund have remaining maturities of 397 days
(thirteen months) or less (with certain exceptions), subject to the quality,
diversification, and other requirements of Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act") and other rules of the
Securities and Exchange Commission (the "SEC").
The "instrumentalities" or "agencies" of the U.S. Government the
obligations of which may be purchased by FedFund include: the Central Bank for
Cooperatives, Export-Import Bank of the United States, Farmers Home
Administration, Federal Farm Credit Banks, Federal Financing Bank, Federal Home
Loan Banks, Federal Home Loan Mortgage Corporation, Federal Housing
Administration, Federal Intermediate Credit Banks, Federal Land Banks, Federal
National Mortgage Association, Financing Corporation, General Services
Administration, Government National Mortgage Association, International Bank for
Reconstruction and Development, Maritime Administration, Private Export Funding
Corp., Resolution Trust Company, Small Business Administration, Student Loan
Marketing Association, Tennessee Valley Authority and Washington D.C. Armory
Board. Obligations of certain agencies or instrumentalities of the U.S.
Government are backed by the full faith and credit of the United States; others
are backed by the right of the issuer to borrow from the U.S. Treasury or are
backed only by the credit of the agency or instrumentality issuing the
obligation.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal if
held to maturity. However, due to fluctuations in interest rates, the market
value of such securities may vary during the period a shareholder owns shares of
the Fund. Certain government securities held by the Fund may have remaining
maturities exceeding thirteen months if such securities provide for adjustments
in their interest rates not less frequently than every thirteen months. To the
extent consistent with its investment objectives, the Fund may invest in
Treasury receipts and other "stripped" securities issued or guaranteed by the
U.S. Government, where the principal and interest components are traded
independently under the Separate Trading of Registered Interest and Principal of
Securities program ("STRIPS"). Under the STRIPS program, the principal and
interest components are individually numbered and separately issued by the U.S.
Treasury at the request of depository financial institutions, which then trade
the component parts independently. Currently, the Fund only invests in
"stripped" securities issued or guaranteed by the U.S. Government which are
registered under the STRIPS program. The principal and interest components may
exhibit greater price volatility than ordinary debt securities because of the
manner in which their principal and interest are returned to investors.
The Fund may purchase government securities from financial institutions,
such as banks and broker-dealers, subject to the seller's agreement to
repurchase them at an agreed upon time and price ("repurchase agreements"). The
securities subject to a repurchase agreement may bear maturities exceeding
thirteen months, provided the repurchase agreement itself matures in one year or
less. The Fund will not invest more than 10% of the value of its net assets in
repurchase agreements which do not provide for settlement within seven days. The
seller under a repurchase agreement will be required to maintain the value of
the securities subject to the agreement at not
5
<PAGE> 6
less than the repurchase price. Default by or bankruptcy of the seller would,
however, expose the Fund to possible loss because of adverse market action or
delay in connection with the disposition of the underlying obligations.
The Fund may borrow funds for temporary purposes by entering into reverse
repurchase agreements in accordance with the investment restrictions described
below. Pursuant to such agreements, the Fund would sell portfolio securities to
financial institutions and agree to repurchase them at an agreed upon date and
price. The Fund would consider entering into reverse repurchase agreements to
avoid otherwise selling securities during unfavorable market conditions in order
to meet redemptions. Reverse repurchase agreements involve the risk that the
market value of the portfolio securities sold by the Fund may decline below the
price of the securities the Fund is obligated to repurchase.
The Fund may purchase securities on a "when-issued" basis. When-issued
securities are securities purchased for delivery beyond the normal settlement
date at a stated price and yield. The Fund will generally not pay for such
securities or start earning interest on them until they are received. Securities
purchased on a when-issued basis are recorded as an asset and are subject to
changes in value based upon changes in the general level of interest rates. The
Fund expects that commitments to purchase when-issued securities will not exceed
25% of the value of its total assets absent unusual market conditions. The Fund
does not intend to purchase when-issued securities for speculative purposes but
only in furtherance of its investment objective.
The Fund may also lend its portfolio securities to financial institutions
in accordance with the investment restrictions described below. Such loans would
involve risks of delay in receiving additional collateral or in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to
borrowers deemed by the Fund's investment adviser to be of good standing and
only when, in the adviser's judgment, the income to be earned from the loans
justifies the attendant risks.
INVESTMENT LIMITATIONS
The Fund's investment objective and policies described above are not
fundamental and may be changed by the Company's Board of Trustees without a vote
of shareholders. If there is a change in the investment objective, shareholders
should consider whether the Fund remains an appropriate investment in light of
their then current financial position and needs. The Fund's investment
limitations summarized below may not be changed without the affirmative vote of
the holders of a majority of its outstanding shares. (A complete list of the
investment limitations that cannot be changed without a vote of shareholders is
contained in the Statement of Additional Information under "Investment
Objectives and Policies.")
The Fund may not:
1. 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.
2. Borrow money except from banks for temporary purposes and then in
an amount not exceeding 10% of the value of the 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 Fund's total assets at the time
of such borrowing.
6
<PAGE> 7
3. Make loans except that the Fund may purchase or hold debt
obligations in accordance with its 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 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.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
Fund shares are sold at the net asset value per share next determined after
receipt of a purchase order by PFPC, the Fund's transfer agent. Purchase orders
for shares are accepted only on days on which both the New York Stock Exchange
and the Federal Reserve Bank of Philadelphia are open for business (a "Business
Day") and must be transmitted to PFPC in Wilmington, Delaware, by telephone
(800-441-7450; in Delaware: 302-791-5350) or through the Fund's computer access
program. Orders received before 12:00 noon, Eastern time, for which payment has
been received by PNC Bank, the Fund's custodian, will be executed at 12:00 noon.
Orders received after 12:00 noon and before 3:00 P.M., Eastern time (or orders
received earlier in the same day for which payment has not been received by
12:00 noon), will be executed at 4:00 P.M., Eastern time, if payment has been
received by PNC Bank by that time. Orders received at other times, and orders
for which payment has not been received by 4:00 P.M., Eastern time, will not be
accepted, and notice thereof will be given to the institution placing the order.
(Payment for orders which are not received or accepted will be returned after
prompt inquiry to the sending institution.) The Fund may in its discretion
reject any order for shares.
Payment for Fund shares may be made only in federal funds or other funds
immediately available to PNC Bank. The minimum initial investment by an
institution is $3 million for FedFund Shares and $5,000 for Dollar Shares;
however, broker-dealers and other institutional investors may set a higher
minimum for their customers. There is no minimum subsequent investment. The
Fund, at its discretion, may reduce the minimum initial investment for FedFund
Shares for specific institutions whose aggregate relationship with the Provident
Institutional Funds is substantially equivalent to this $3 million minimum and
warrants this reduction.
Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by the Fund in connection with the investment of fiduciary
funds in Dollar Shares. (See also "Management of the Fund--Service
Organizations.") Institutions, including banks regulated by the Comptroller of
the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult their legal advisors before investing fiduciary
funds in Dollar Shares. (See also "Management of the Fund--Banking Laws.")
7
<PAGE> 8
REDEMPTION PROCEDURES
Redemption orders must be transmitted to PFPC in Wilmington, Delaware, in
the manner described under "Purchase Procedures." Shares are redeemed at the net
asset value per share next determined after PFPC's receipt of the redemption
order. While the Fund intends to use its best efforts to maintain its net asset
value per share at $1.00, the proceeds paid to a shareholder upon redemption may
be more or less than the amount invested depending upon a share's net asset
value at the time of redemption.
Payment for redeemed shares for which a redemption order is received by
PFPC by 3:00 P.M., Eastern time, on a Business Day is normally made in federal
funds wired to the redeeming shareholder on the same day. Payment for redemption
orders which are received between 3:00 P.M. and 4:00 P.M., Eastern time, or on a
day when PNC Bank is closed, is normally wired in federal funds on the next day
following redemption that PNC Bank is open for business.
The Fund shall have the right to redeem shares in any account if the value
of the account is less than $1,000 after sixty-days' prior written notice to the
shareholder. Any such redemption shall be effected at the net asset value per
share next determined after the redemption order is entered. If during the
sixty-day period the shareholder increases the value of its account to $1,000 or
more, no such redemption shall take place. Moreover, if a shareholder's FedFund
Shares account falls below an average of $100,000 in any particular calendar
month, the account may be charged an account maintenance fee with respect to
that month. In addition, the Fund may also redeem shares involuntarily or
suspend the right of redemption under certain special circumstances described in
the Statement of Additional Information under "Additional Purchase and
Redemption Information."
OTHER MATTERS
The Fund's net asset value per share for purposes of pricing purchase and
redemption orders is determined by PIMC as of 12:00 noon and 4:00 P.M., Eastern
time, on each day on which both the Federal Reserve Bank of Philadelphia and the
New York Stock Exchange are open for business. Currently, one or both of these
institutions are closed on the customary national business holidays of New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Columbus Day (observed), Veteran's
Day, Thanksgiving Day and Christmas Day. The net asset value per share of each
class of the Fund is calculated by adding the value of all securities and other
assets belonging to the Fund, subtracting liabilities attributable to each
class, and dividing the result by the total number of the outstanding shares of
each class. In computing net asset value, the Fund uses the amortized cost
method of valuation as described in the Statement of Additional Information
under "Additional Purchase and Redemption Information." The Fund's net asset
value per share for purposes of pricing purchase and redemption orders is
determined independently of the net asset values of the shares of the Company's
other investment portfolios.
Fund shares are sold and redeemed without charge by the Fund. Institutional
investors purchasing or holding Fund shares for their customer accounts may
charge customer fees for cash management and other services provided in
connection with their accounts. A customer should, therefore, consider the terms
of its account with an institution before purchasing Fund shares. An institution
purchasing or redeeming Fund shares on behalf of its customers is responsible
for transmitting orders to the Fund in accordance with its customer agreements.
8
<PAGE> 9
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The business and affairs of the Fund are managed under the direction of the
Company's Board of Trustees. The trustees of the Company are as follows:
Philip E. Coldwell is an economic consultant and a former Member of
the Board of Governors of the Federal Reserve System.
Robert R. Fortune is a financial consultant and former Chairman,
President and Chief Executive Officer of Associated Electric & Gas
Insurance Services Limited.
Rodney D. Johnson is President of Fairmount Capital Advisors, Inc.
G. Willing Pepper, Chairman of the Board and President of the Company,
is a retired President of Scott Paper Company.
Mr. Pepper is considered by the Company to be an "interested person" of the
Company as defined in the 1940 Act.
The other officers of the Company are as follows:
Edward J. Roach is Vice President and Treasurer of the Company.
W. Bruce McConnel, III, Secretary of the Company, is a partner of the
law firm of Drinker Biddle & Reath, Philadelphia, Pennsylvania.
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly-owned subsidiary of PNC Bank, serves as the Fund's
investment adviser. PIMC was organized in 1977 by PNC Bank to perform advisory
services for investment companies and has its principal offices at 400 Bellevue
Parkway, Wilmington, Delaware 19809. PNC Bank serves as the Fund's sub-adviser.
PNC Bank is one of the largest bank managers of investments for individuals in
the United States, and together with its predecessors has been in the business
of managing the investments of fiduciary and other accounts since 1847. PNC Bank
is a wholly-owned, indirect subsidiary of PNC Bank Corp., and has its principal
offices at Broad and Chestnut Streets, Philadelphia, Pennsylvania 19102. PNC
Bank Corp. is a multi-bank holding company. PIMC and PNC Bank also serve as
adviser and sub-adviser, respectively, to the Company's T-Fund, FedCash, T-Cash,
Federal Trust Fund and Treasury Trust Fund portfolios.
PNC Bank Corp., headquartered in Pittsburgh, Pennsylvania, is one of the
largest financial services organizations in the United States with banking
subsidiaries in Pennsylvania, New Jersey, Delaware, Ohio, Kentucky, Indiana,
Massachusetts and Florida. Its major businesses include corporate banking,
consumer banking, mortgage banking and asset management.
PNC Financial Services Group is PNC Bank Corp.'s mutual fund complex,
headquartered in Wilmington, Delaware. This group includes PIMC, PFPC, and PNC
Bank. In 1973, Provident National Bank (predecessor to PNC Bank) commenced
advising the first institutional money market mutual fund -- a U.S.
dollar-denominated constant net asset value fund -- offered in the United
States.
The PNC Financial Services Group is one of the largest U.S. bank managers
of mutual funds with assets currently under management in excess of $30 billion.
This group, through PFPC and PFPC International Ltd, is also a leading mutual
fund service provider having contractual
9
<PAGE> 10
relationships with approximately 370 mutual funds with 3.5 million shareholders
and in excess of $101 billion in assets, including some $2 billion in non-U.S.
assets. This group, through its PNC Institutional Investment Service, provides
investment research to some 250 financial institutions located in the United
States and abroad. PNC Bank provides custodial services for approximately $210
billion in assets, including $160 billion in mutual fund assets.
As adviser, PIMC manages the Fund's portfolio and is responsible for all
purchases and sales of the Fund's portfolio securities. PIMC also maintains
certain of the Fund's financial accounts and records and computes the Fund's net
asset value and net income. 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 Fund's average net assets. PIMC and the administrators may
from time to time reduce the advisory and administration fees otherwise payable
to them or may reimburse the Fund for its operating expenses. Any fees waived or
expenses reimbursed by PIMC and the administrators with respect to a particular
fiscal year are not recoverable. For the fiscal year ended October 31, 1995, the
Fund paid investment advisory fees aggregating .07% of its average net assets.
As sub-adviser, PNC Bank provides research, credit analysis and
recommendations with respect to the Fund's investments, and supplies PIMC with
certain computer facilities, personnel and other services. For its sub-advisory
services, PNC Bank is entitled to receive from PIMC an amount equal to 75% of
the advisory fee paid by the 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 the Fund to PIMC. PNC Bank also serves as the
Fund's custodian. The services provided by PNC Bank and PIMC and the fees
payable by the Fund for these services are described further in the Statement of
Additional Information under "Management of the Funds."
ADMINISTRATORS
PFPC, whose principal business address is 400 Bellevue Parkway, Wilmington,
Delaware 19809, and PDI whose principal business address is 259 Radnor-Chester
Road, Suite 120, Radnor, Pennsylvania 19087, serve as administrators. PFPC is an
indirect wholly-owned subsidiary of PNC Bank Corp. A majority of the outstanding
stock of PDI is owned by its officers. The administrative services provided by
the administrators, which are described more fully in the Statement of
Additional Information, include providing and supervising the operation of an
automated data processing system to process purchase and redemption orders;
assisting in maintaining the Fund's Wilmington, Delaware office; performing
administrative services in connection with the Fund's computer access program
maintained to facilitate shareholder access to the Fund; accumulating
information for and coordinating the preparation of reports to the Fund's
shareholders and the SEC; and maintaining the registration or qualification of
the Fund's shares for sale under state securities laws. PFPC and PDI are each
responsible for carrying out the duties undertaken pursuant to the
Administration Agreement with the Fund.
For their administrative services, the administrators are entitled jointly
to receive a fee computed daily and payable monthly. (For information regarding
the administrators' waivers and expense reimbursements, see "Investment Adviser
and Sub-Adviser" above.) The Fund also reimburses each administrator for its
reasonable out-of-pocket expenses incurred in connection with the Funds'
computer access program. For the fiscal year ended October 31, 1995, the Fund
paid administration fees aggregating .07% of its average net assets.
10
<PAGE> 11
PFPC also serves as transfer agent, registrar and dividend disbursing
agent. PFPC's address is P.O. Box 8950, Wilmington, Delaware 19885-9628. The
services provided by PFPC and PDI and the fees payable by the Fund for these
services are described further in the Statement of Additional Information under
"Management of the Funds."
DISTRIBUTOR
PDI serves as distributor of the Fund's shares. Its principal offices are
located at 259 Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087. Fund
shares are sold on a continuous basis by the distributor as agent. The
distributor pays the cost of printing and distributing prospectuses to persons
who are not shareholders of the Fund (excluding preparation and printing
expenses necessary for continued registration of the Fund's shares) and of
printing and distributing all sales literature. No compensation is payable by
the Fund to the distributor for its distribution services.
SERVICE ORGANIZATIONS
Institutional investors, such as banks, savings and loan associations and
other financial institutions, including affiliates of PNC Bank Corp. ("Service
Organizations"), may purchase Dollar Shares. Dollar Shares are identical in all
respects to FedFund Shares except that they bear the service fees described
below and enjoy certain exclusive voting rights on matters relating to these
fees. The Fund will enter into an agreement with each Service Organization which
purchases Dollar Shares requiring it to provide support services to its
customers who are the beneficial owners of such shares in consideration of the
Fund's 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, which are described more fully in the Statement of
Additional Information under "Management of the Funds--Service Organizations,"
include aggregating and processing purchase and redemption requests from
customers and placing net purchase and redemption orders with PFPC; processing
dividend payments from the Fund on behalf of customers; providing information
periodically to customers showing their positions in Dollar Shares; and
providing sub-accounting or the information necessary for sub-accounting with
respect to Dollar Shares beneficially owned by customers. Under the terms of the
agreements, Service Organizations are required to provide to their customers a
schedule of any fees that they may charge customers in connection with their
investments in Dollar Shares. FedFund Shares are sold to institutions that have
not entered into servicing agreements with the Fund in connection with their
investments.
EXPENSES
Except as noted above and in the Statement of Additional Information, the
Fund's service contractors bear all expenses in connection with the performance
of their services. Similarly, the Fund bears the expenses incurred in its
operations. For the fiscal year ended October 31, 1995, the Fund's total
expenses with respect to FedFund Shares and Dollar Shares were .18% and .43%
(net of fee waivers of .11% and .11%, respectively) of the average net assets of
the FedFund Shares and the FedFund Dollar Shares, respectively. With regard to
fees paid exclusively by Dollar Shares, see "Service Organizations" above.
BANKING LAWS
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from
11
<PAGE> 12
sponsoring, organizing or controlling a registered, open-end investment company
engaged continuously in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities such as Fund
shares. Such banking laws and regulations do not prohibit such a holding company
or affiliate or banks generally from acting as investment adviser, transfer
agent or custodian to such an investment company, or from purchasing shares of
such a company for or upon the order of customers. PNC Bank, PIMC and PFPC, as
well as some Service Organizations, are subject to such banking laws and
regulations, but believe they may perform the services for the Fund contemplated
by their respective agreements, this Prospectus and the Statement of Additional
Information without violating applicable banking laws or regulations.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of bank Service Organizations in connection with the
provision of support services to their customers, the Fund might be required to
alter or discontinue its arrangements with Service Organizations and change its
method of operations with respect to Dollar Shares. It is not anticipated,
however, that any change in the Fund's method of operations would affect its net
asset value per share or result in a financial loss to any customer.
DIVIDENDS
Shareholders of the Fund are entitled to dividends and distributions
arising only from the net investment income and capital gains, if any, earned on
investments held by the Fund. The Fund's net investment income is declared daily
as a dividend to its shareholders of record at the close of business on the day
of declaration. Shares begin accruing dividends on the day the purchase order
for the shares is executed and continue to accrue dividends through the day
before such shares are redeemed. Dividends are paid monthly by check, or by wire
transfer if requested in writing by the shareholder, within five business days
after the end of the month or within five business days after a redemption of
all of a shareholder's shares of a particular class. The Fund does not expect to
realize net long-term capital gains.
Dividends are determined in the same manner for each class of shares of the
Fund. Dollar Shares bear all the expense of fees paid to Service Organizations
and as a result, at any given time, the net yield on Dollar Shares will be
approximately .25% lower than the net yield on FedFund Shares.
Institutional shareholders may elect to have their dividends reinvested in
additional full and fractional shares of the same class of shares with respect
to which such dividends are declared at the net asset value of such shares on
the payment date. Reinvested dividends receive the same tax treatment as
dividends paid in cash. Such election, or any revocation thereof, must be made
in writing to PFPC at P.O. Box 8950, Wilmington, Delaware 19885-9628, and will
become effective after its receipt by PFPC with respect to dividends paid.
PFPC, as transfer agent, will send each Fund shareholder or its authorized
representative an annual statement designating the amount, if any, of any
dividends and distributions made during each year and their federal tax
qualification.
TAXES
The Fund qualified in its last taxable year and intends to qualify in
future years as a "regulated investment company" under the Internal Revenue Code
of 1986, as amended (the
12
<PAGE> 13
"Code"). A regulated investment company is generally exempt from federal income
tax on amounts distributed to its shareholders.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that the Fund distribute to its
shareholders at least 90% of its investment company taxable income for such
year. In general, the Fund's investment company taxable income will be its
taxable income (including interest and short-term capital gains, if any),
subject to certain adjustments and excluding the excess of any net long-term
capital gain for the taxable year over the net short-term capital loss, if any,
for such year. The Fund intends to distribute substantially all of its
investment company taxable income each year. Such distributions will be taxable
as ordinary income to the Fund's shareholders that are not currently exempt from
federal income taxes, whether such income is received in cash or reinvested in
additional shares. (Federal income taxes for distributions to an IRA or a
qualified retirement plan are deferred under the Code.) It is anticipated that
none of the Fund's distributions will be eligible for the dividends received
deduction for corporations. The Fund does not expect to realize long-term
capital gains and, therefore, does not contemplate payment of any "capital gain
dividends," as described in the Code.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by the shareholders and paid by the Fund on December 31 of such
year, in the event such dividends are actually paid during January of the
following year.
The foregoing discussion is only a brief summary of some of the important
federal tax considerations generally affecting the Fund and its shareholders. As
indicated above, IRAs receive special tax treatment. No attempt is made to
present a detailed explanation of the federal, state or local income tax
treatment of the Fund or its shareholders, and this discussion is not intended
as a substitute for careful tax planning. Accordingly, potential investors in
the Fund should consult their tax advisors with specific reference to their own
tax situations.
YIELDS
From time to time, in advertisements or in reports to shareholders,
"yields" and "effective yields" for FedFund Shares and Dollar Shares may be
quoted. Yield quotations are computed separately for FedFund Shares and Dollar
Shares. The "yield" for a particular class or sub-class of Fund shares refers to
the income generated by an investment in such shares over a specified period
(such as a seven-day period). This income is then "annualized"; that is, the
amount of income generated by the investment during that period is assumed to be
generated for each such period over a 52-week or one-year period and is shown as
a percentage of the investment. The "effective-yield" is calculated similarly
but, when annualized, the income earned by an investment in a particular class
or sub-class is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment.
The Fund's yields may be compared to those of other mutual funds with
similar objectives, to stock or other relevant indices, or to rankings prepared
by independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, such data are reported in national
financial publications such as IBC/Donoghue's Money Fund Report(R), The
13
<PAGE> 14
Wall Street Journal, and The New York Times, reports prepared by Lipper
Analytical Services, Inc., and publications of a local or regional nature.
The Fund's yield figures for FedFund Shares and FedFund Dollar Shares
represent the Fund's past performance, will fluctuate, and should not be
considered as representative of future results. The yield of any investment is
generally a function of portfolio quality and maturity, type of investment and
operating expenses. Any fees charged by Service Organizations or other
institutional investors directly to their customers in connection with
investments in Fund shares are not reflected in the Fund's yields; and, such
fees, if charged, would reduce the actual return received by customers on their
investments. The methods used to compute the Fund's yields are described in more
detail in the Statement of Additional Information. Investors may call 800-821-
6006 (FedFund Shares code: 30; FedFund Dollar Shares code: 31) to obtain current
yield information.
DESCRIPTION OF SHARES AND MISCELLANEOUS
The Company is a Pennsylvania business trust established on May 14, 1975.
Effective March 2, 1987, the Company's name was changed from Trust for
Short-Term Federal Securities to Trust for Federal Securities. The Company
commenced operations of the Fund in October, 1975.
The Company's 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 of shares. Pursuant to such authority, the Board of
Trustees has authorized the issuance of twelve classes of shares designated as
FedFund, FedFund Dollar, T-Fund, T-Fund Dollar, FedCash, FedCash Dollar, T-Cash,
T-Cash Dollar, Federal Trust, Federal Trust Dollar, Treasury Trust and Treasury
Trust Dollar. The Declaration of Trust further authorizes the trustees to
classify or reclassify any class of shares into one or more sub-classes.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE COMPANY'S T-FUND,
FEDCASH, T-CASH, FEDERAL TRUST FUND, AND TREASURY TRUST FUND PORTFOLIOS MAY
OBTAIN SEPARATE PROSPECTUSES DESCRIBING THOSE PORTFOLIOS BY CALLING THE
DISTRIBUTOR AT 800-998-7633.
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.
Each Fund Share represents an equal proportionate interest in the assets
belonging to the Fund. Each share is without par value and has no preemptive or
conversion rights. When issued for payment as described in this Prospectus,
shares will be fully paid and non-assessable.
Holders of the Company's FedFund Shares and FedFund Dollar Shares will vote
in the aggregate and not by class or sub-class on all matters, except where
otherwise required by law and except that only Dollar Shares will be entitled to
vote on matters submitted to a vote of
14
<PAGE> 15
shareholders pertaining to the Fund's arrangements with Service Organizations.
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. (See the Statement of
Additional Information under "Additional Description Concerning Fund Shares" for
examples where the 1940 Act requires voting by portfolio.) Shareholders of the
Company are entitled to one vote for each full share held (irrespective of
class, sub-class, or portfolio) and fractional votes for fractional shares held.
Voting rights are not cumulative and, accordingly, the holders of more than 50%
of the aggregate shares of the Company may elect all of the trustees.
For information concerning the redemption of Fund shares and possible
restrictions on their transferability, see "Purchase and Redemption of Shares."
As stated above, the Company is organized as a 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 Company's Declaration of Trust provides for
indemnification out of the trust property of any shareholder of the Fund 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.
15
<PAGE> 16
NO PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS,
OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION
INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR
ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE
COMPANY OR BY THE DISTRIBUTOR
IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
---------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Background and Expense
Information................... 2
Financial Highlights............ 3
Investment Objective and
Policies...................... 5
Purchase and Redemption of
Shares........................ 7
Management of the Fund.......... 9
Dividends....................... 12
Taxes........................... 12
Yields.......................... 13
Description of Shares and
Miscellaneous................. 14
</TABLE>
PIF-P-003
FEDFUND
AN INVESTMENT PORTFOLIO
OFFERED BY
TRUST FOR FEDERAL SECURITIES
[PROVIDENT INSTITUTIONAL FUNDS LOGO]
Prospectus
February 28, 1996
<PAGE> 17
T-Fund
An Investment Portfolio Offered By
Trust for Federal Securities
<TABLE>
<S> <C>
Bellevue Park Corporate Center For purchase and redemption orders only call:
400 Bellevue Parkway 800-441-7450 (in Delaware: 302-791-5350).
Suite 100 For yield information call: 800-821-6006
Wilmington, DE 19809 (T-Fund shares code: 60; T-Fund Dollar shares
code: 61).
For other information call: 800-821-7432.
</TABLE>
Trust for Federal Securities (the "Company") is a no-load, diversified,
open-end investment company that currently offers shares in six separate
investment portfolios. The shares described in this Prospectus represent
interests in the T-Fund portfolio (the "Fund"), a money market portfolio.
The Fund's investment objective is to seek current income with liquidity
and security of principal. The Fund invests in a portfolio consisting of U.S.
Treasury bills, notes and direct obligations of the U.S. Treasury and repurchase
agreements relating to direct Treasury obligations.
Fund shares may not be purchased by individuals directly, but institutional
investors may purchase shares for accounts maintained by individuals. In
addition to T-Fund Shares, investors may purchase T-Fund "Dollar Shares" which
accrue daily dividends in the same manner as T-Fund Shares but bear all fees
payable by the Fund to institutional investors for certain services they provide
to the beneficial owners of such Shares. (See "Management of the Fund--Service
Organizations.")
PNC Institutional Management Corporation ("PIMC") and PNC Bank, National
Association ("PNC Bank") serve as the Fund's adviser and sub-adviser,
respectively. PFPC Inc. ("PFPC") and Provident Distributors, Inc. ("PDI") serve
as the Fund's administrators. PDI also serves as the Fund's distributor.
SHARES OF THE FUND 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 FUND INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE
CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO
MAINTAIN ITS NET ASSET VALUE OF $1.00 PER
SHARE.
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information currently dated
February 28, 1996, has been filed with the Securities and Exchange Commission
and is available to investors without charge by calling the Fund at
800-821-7432. The Statement of Additional Information, as amended from time to
time, is incorporated in its entirety by reference into this Prospectus.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
February 28, 1996
<PAGE> 18
BACKGROUND AND EXPENSE INFORMATION
Two classes of shares are offered by this Prospectus: T-Fund Shares and
T-Fund Dollar Shares. Shares of each class represent equal, pro rata interests
in the Fund and accrue daily dividends in the same manner except that the Dollar
shares bear fees payable by the Fund (at the rate of .25% per annum) to
institutional investors for services they provide to the beneficial owners of
such shares. (See "Management of the Fund -- Service Organizations.")
EXPENSE SUMMARY
<TABLE>
<CAPTION>
T-FUND
T-FUND DOLLAR
SHARES SHARES
------------ ------------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
- ----------------------------------------------------------------
(as a percentage of average net assets)
Management Fees (net of waivers)........................... .07 % .07 %
Other Expenses............................................. .13 % .38 %
Administration Fees (net of waivers).................. .07 % .07 %
Shareholder Servicing Fees............................ 0 % .25 %
Miscellaneous......................................... .04 % .04 %
---- ----
Total Fund Operating Expenses (net of waivers)............. .20 % .45 %
=== ===
</TABLE>
- ------------
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and
(2) redemption at the end of each time period with
respect to the following shares:
T-Fund Shares: $2 $ 6 $11 $ 26
T-Fund Dollar Shares: $5 $14 $25 $ 57
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. The table is based on expenses incurred by the
T-Fund Shares and Dollar Shares during the last fiscal year, restated to reflect
the expenses which each class of shares expects to incur during the current
fiscal year. In addition, institutional investors may charge fees for providing
administrative services in connection with their customers' investment in Dollar
Shares. Absent fee waivers, Management and Administration fees for T-Fund Shares
and Dollar Shares each would have been .13% and Total Fund Operating Expenses
would have been .29% and .54%, respectively. (For more complete descriptions of
the various costs and expenses, see "Management of the Fund" in this Prospectus
and the Statement of Additional Information and the financial statements and
related notes contained in the Statement of Additional Information.) The
investment adviser and administrators may from time to time waive the advisory
and administration fees otherwise payable to them or may reimburse the fund for
its operating expenses. The foregoing table has not been audited by the Fund's
independent accountants.
2
<PAGE> 19
FINANCIAL HIGHLIGHTS
The following financial highlights for T-Fund Shares have been derived from
the financial statements of the Fund for the fiscal year ended October 31, 1995,
and for each of the nine preceding fiscal years, and for T-Fund Dollar Shares
for the fiscal year ended October 31, 1995 and for each of the nine preceding
fiscal years and the fiscal period ended October 31, 1986 (commencement of Fund
operations). The financial highlights for the fiscal years set forth below have
been audited by Coopers & Lybrand L.L.P. independent accountants whose report on
the financial statements and financial highlights (for the most recent five
years) of the Fund is included in the Statement of Additional Information. The
tables should be read in conjunction with the financial statements and related
notes included in the Statement of Additional Information. Further information
about the performance of the Fund is available in the annual report to
shareholders, which may be obtained without charge by calling 800-821-7432.
TRUST FOR FEDERAL SECURITIES
Financial Highlights
(For a Share Outstanding Throughout Each Period)
T-FUND SHARES
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ---------- ---------- ---------- ----------
Income From Investment Operations:
Net Investment Income................ .0565 .0368 .0303 .0392 .0626
----------- ---------- ---------- ---------- ----------
Total From Investment Operations..... .0565 .0368 .0303 .0392 .0626
----------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends to Shareholders from:
Net Investment Income................ (.0565) (.0368) (.0303) (.0392) (.0626)
----------- ---------- ---------- ---------- ----------
Total Distributions.................. (.0565) (.0368) (.0303) (.0392) (.0626)
----------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========= ========= ========= =========
Total Return........................... 5.80% 3.75% 3.07% 3.99% 6.44%
Ratios/Supplemental Data
Net Assets, End of Period (in 000s).. $1,211,220 $1,035,172 $1,361,624 $1,327,743 $1,592,750
Ratio of Expenses to Average Net
Assets............................. .18%(1) .18%(1) .20%(1) .28% .30%
Ratio of Net Investment Income to
Average Net Assets................. 5.66% 3.65% 3.03% 3.93% 6.26%
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------------
1990 1989 1988 1987 1986
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Income From Investment Operations:
Net Investment Income................ .0799 .0880 .0692 .0606 .0676
---------- ---------- ---------- ---------- ----------
Total From Investment Operations..... .0799 .0880 .0692 .0606 .0676
---------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends to Shareholders from:
Net Investment Income................ (.0799) (.0880) (.0692) (.0606) (.0676)
---------- ---------- ---------- ---------- ----------
Total Distributions.................. (.0799) (.0880) (.0692) (.0606) (.0676)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Total Return........................... 8.29% 9.17% 7.14% 6.23% 6.97%
Ratios/Supplemental Data
Net Assets, End of Period (in 000s).. $1,497,476 $1,422,788 $1,793,479 $1,737,258 $1,680,120
Ratio of Expenses to Average Net
Assets............................. .30%(1) .30%(1) .30%(1) .30%(1) .33%
Ratio of Net Investment Income to
Average Net Assets................. 7.99% 8.80% 6.91% 6.05% 6.72%
</TABLE>
- ------------
(1) Without the waiver of advisory and administration fees, the ratio of
expenses to average daily net assets would have been .29%, .29%, .28%, .34%,
.35%, .33%, and .33%, respectively, for each of the years ended October 31,
1995, 1994, 1993, 1990, 1989, 1988 and 1987, respectively, for T-Fund
Shares.
3
<PAGE> 20
TRUST FOR FEDERAL SECURITIES
Financial Highlights
(For a Share Outstanding Throughout Each Period)
T-FUND DOLLAR SHARES
<TABLE>
<CAPTION>
T-FUND DOLLAR SHARES
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Income From Investment Operations:
Net Investment Income.............................. .0540 .0343 .0278 .0367 .0601
------- ------- ------- ------- -------
Total From Investment Operations................... .0540 .0343 .0278 .0367 .0601
------- ------- ------- ------- -------
Less Distributions:
Dividends to Shareholders from:
Net Investment Income.............................. (.0540) (.0343) (.0278) (.0367) (.0601)
------- ------- ------- ------- -------
Total Distributions................................ (.0540) (.0343) (.0278) (.0367) (.0601)
------- ------- ------- ------- -------
Net Asset Value, End of Period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return....................................... 5.55% 3.50% 2.82% 3.74% 6.19%
Ratios/Supplemental Data
Net Assets, End of Period
(in 000s)........................................ $82,502 $22,195 $13,328 $ 4,915 $40,372
Ratio of Expenses to Average Net Assets............ .43%(1) .43%(1) .45% .53% .55%
Ratio of Net Investment Income to Average Net
Assets........................................... 5.41% 3.40% 2.78% 3.68% 6.01%
<CAPTION>
T-FUND DOLLAR SHARES
YEAR ENDED OCTOBER 31, JANUARY 6, 1986
------------------------------------------------------ TO
1990 1989 1988 1987 OCTOBER 31, 1986
---------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ------- ------- ------- -------
Income From Investment Operations:
Net Investment Income............................. .0774 .0855 .0667 .0581 .0520
---------- ------- ------- ------- -------
Total From Investment Operations.................. .0774 .0855 .0667 .0581 .0520
---------- ------- ------- ------- -------
Less Distributions:
Dividends to Shareholders from:
Net Investment Income............................. (.0774) (.0855) (.0667) (.0581) (.0520)
---------- ------- ------- ------- -------
Total Distributions............................... (.0774) (.0855) (.0667) (.0581) (.0520)
---------- ------- ------- ------- -------
Net Asset Value, End of Period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ==========
Total Return...................................... 8.04% 8.92% 6.89% 5.98% 5.32%
Ratios/Supplemental Data
Net Assets, End of Period
(in 000s)....................................... $ 27,116 $42,439 $52,083 $30,686 $ 4,259
Ratio of Expenses to Average Net Assets........... .55%(1) .55%(1) .55%(1) .55%(1) .58%(2)
Ratio of Net Investment Income to Average Net
Assets.......................................... 7.74% 8.55% 6.66% 5.80% 6.27%(2)
</TABLE>
- ---------------
(1) Without the waiver of advisory and administration fees, the ratios of
expenses to average daily net assets would have been .54%, .54%, .53%,
.59%, .60%, .58% and .58%, respectively, for each of the years ended
October 31, 1995, 1994, 1993, 1990, 1989, 1988 and 1987 for T-Fund Dollar
Shares.
(2) Annualized.
4
<PAGE> 21
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek current income with liquidity
and security of principal. The Fund invests solely in direct obligations of the
U.S. Treasury, such as Treasury bills and notes and repurchase agreements
relating to direct Treasury obligations. Portfolio obligations held by the Fund
have remaining maturities of 397 days (thirteen months) or less (with certain
exceptions), subject to the quality, diversification, and other requirements of
Rule 2a-7 under the Investment Company Act of 1940, as amended (the "1940 Act")
and other rules of the Securities and Exchange Commission (the "SEC").
Securities issued or guaranteed by the U.S. Government have historically
involved little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period a shareholder owns shares of the Fund. To the extent
consistent with its investment objectives, the Fund may invest in Treasury
receipts and other "stripped" securities issued or guaranteed by the U.S.
Government, where the principal and interest components are traded independently
under the Separate Trading of Registered Interest and Principal of Securities
program ("STRIPS"). Under the STRIPS program, the principal and interest
components are individually numbered and separately issued by the U.S. Treasury
at the request of depository financial institutions, which then trade the
component parts independently. Currently, the Fund only invests in "stripped"
securities issued or guaranteed by the U.S. Government which are registered
under the STRIPS program. The principal and interest components may exhibit
greater price volatility than ordinary debt securities because of the manner in
which their principal and interest are returned to investors.
The Fund may purchase government securities from primary dealers of the
Federal Reserve Bank of New York, subject to the seller's agreement to
repurchase them at an agreed upon time and price ("repurchase agreements"). The
securities subject to a repurchase agreement may bear maturities exceeding
thirteen months, provided the repurchase agreement itself matures in one year or
less. The Fund will not invest more than 10% of the value of its net assets in
repurchase agreements which do not provide for settlement within seven days. The
seller under a repurchase agreement will be required to maintain the value of
the underlying securities subject to the agreement at not less than 102% of the
repurchase price. Default by or bankruptcy of the seller would, however, expose
the Fund to possible loss because of adverse market action or delay in
connection with the disposition of the underlying obligations.
The Fund may purchase securities on a "when-issued" basis. When-issued
securities are securities purchased for delivery beyond the normal settlement
date at a stated price and yield. The Fund will generally not pay for such
securities or start earning interest on them until they are received. Securities
purchased on a when-issued basis are recorded as an asset and are subject to
changes in value based upon changes in the general level of interest rates. The
Fund expects that commitments to purchase when-issued securities will not exceed
25% of the value of its total assets absent unusual market conditions. The Fund
does not intend to purchase when-issued securities for speculative purposes or
as a means of leverage, but only in furtherance of its investment objective.
INVESTMENT LIMITATIONS
The Fund's investment objective and policies described above are not
fundamental and may be changed by the Company's Board of Trustees without a vote
of shareholders. If there is a
5
<PAGE> 22
change in the investment objective, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current financial
position and needs. The Fund's investment limitations summarized below may not
be changed without the affirmative vote of the holders of a majority of its
outstanding shares. (A complete list of the investment limitations that cannot
be changed without a vote of shareholders is contained in the Statement of
Additional Information under "Investment Objectives and Policies.")
The Fund may not:
1. 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.
2. Borrow money except from banks for temporary purposes and then in an
amount not exceeding 10% of the value of the 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 Fund's total assets at the time of such borrowing.
3. Make loans except that the Fund may purchase or hold debt obligations in
accordance with its investment objective and policies, may enter into repurchase
agreements for securities.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
Fund shares are sold at the net asset value per share next determined after
receipt of a purchase order by PFPC, the Fund's transfer agent. Purchase orders
for shares are accepted only on days on which both the New York Stock Exchange
and the Federal Reserve Bank of Philadelphia, are open for business (a "Business
Day") and must be transmitted to PFPC in Wilmington, Delaware, by telephone
(800-441-7450; in Delaware: 302-791-5350) or through the Fund's computer access
program. Orders received before 12:00 noon, Eastern time, for which payment has
been received by PNC Bank the Fund's custodian will be executed at 12:00 noon.
Orders received after 12:00 noon and before 3:00 P.M., Eastern time (or orders
received earlier in the same day for which payment has not been received by
12:00 noon), will be executed at 4:00 P.M., Eastern time, if payment has been
received by PNC Bank by that time. Orders received at other times, and orders
for which payment has not been received by 4:00 P.M., Eastern time, will not be
accepted, and notice thereof will be given to the institution placing the order.
(Payment for orders which are not received or accepted will be returned after
prompt inquiry to the sending institution.) The Fund may in its discretion
reject any order for shares.
Payment for Fund shares may be made only in federal funds or other funds
immediately available to PNC Bank. The minimum initial investment by an
institution is $3 million for T-Fund Shares and $5,000 for Dollar Shares;
however, broker-dealers and other institutional investors may set a higher
minimum for their customers. There is no minimum subsequent investment. The
Fund, at its discretion, may reduce the minimum initial investment for T-Fund
Shares for specific institutions whose aggregate relationship with the Provident
Institutional Funds is substantially equivalent to this $3 million minimum and
warrants this reduction.
6
<PAGE> 23
Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by the Fund in connection with the investment of fiduciary
funds in Dollar Shares. (See also "Management of the Fund -- Service
Organizations.") Institutions, including banks regulated by the Comptroller of
the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult their legal advisors before investing fiduciary
funds in Dollar Shares. (See also "Management of the Fund -- Banking Laws.")
REDEMPTION PROCEDURES
Redemption orders must be transmitted to PFPC in Wilmington, Delaware, in
the manner described under "Purchase Procedures." Shares are redeemed at the net
asset value per share next determined after PFPC's receipt of the redemption
order. While the Fund intends to use its best efforts to maintain its net asset
value per share at $1.00, the proceeds paid to a shareholder upon redemption may
be more or less than the amount invested depending upon a share's net asset
value at the time of redemption.
Payment for redeemed shares for which a redemption order is received by
PFPC by 3:00 P.M., Eastern time, on a Business Day is normally made in federal
funds wired to the redeeming shareholder on the same business day. Payment for
redemption orders which are received between 3:00 P.M. and 4:00 P.M., Eastern
time, or on a day when PNC Bank is closed, is normally wired in federal funds on
the next day following redemption that PNC Bank is open for business.
The Fund shall have the right to redeem shares in any account if the value
of the account is less than $1,000 after sixty-days' prior written notice to the
shareholder. Any such redemption shall be effected at the net asset value per
share next determined after the redemption order is entered. If during the
sixty-day period the shareholder increases the value of its account to $1,000 or
more, no such redemption shall take place. Moreover, if a shareholder's T-Fund
Shares account falls below an average of $100,000 in any particular calendar
month, the account may be charged an account maintenance fee with respect to
that month. In addition, the Fund may also redeem shares involuntarily or
suspend the right of redemption under certain special circumstances described in
the Statement of Additional Information under "Additional Purchase and
Redemption Information."
OTHER MATTERS
The Fund's net asset value per share for purposes of pricing purchase and
redemption orders is determined by PIMC as of 12:00 noon and 4:00 P.M., Eastern
time, on each day on which both the Federal Reserve Bank of Philadelphia and the
New York Stock Exchange are open for business. Currently, one or both of these
institutions are closed on the customary national business holidays of New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Columbus Day (observed), Veteran's
Day, Thanksgiving Day and Christmas Day. The net asset value per share of each
class of the Fund is calculated by adding the value of all securities and other
assets belonging to the Fund, subtracting liabilities attributable to each
class, and dividing the result by the total number of the outstanding shares of
each class. In computing net asset value, the Fund uses the amortized cost
method of valuation as described in the Statement of Additional Information
under "Additional
7
<PAGE> 24
Purchase and Redemption Information." The Fund's net asset value per share for
purposes of pricing purchase and redemption orders is determined independently
of the net asset values of the shares of the Company's other investment
portfolios.
Fund shares are sold and redeemed without charge by the Fund. Institutional
investors purchasing or holding Fund shares for their customer accounts may
charge customer fees for cash management and other services provided in
connection with their accounts. A customer should, therefore, consider the terms
of its account with an institution before purchasing Fund shares. An institution
purchasing or redeeming Fund shares on behalf of its customers is responsible
for transmitting orders to the Fund in accordance with its customer agreements.
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The business and affairs of the Fund are managed under the direction of the
Company's Board of Trustees. The trustees of the Company are as follows:
Philip E. Coldwell is an economic consultant and a former Member of
the Board of Governors of the Federal Reserve System.
Robert R. Fortune is a financial consultant and former Chairman,
President and Chief Executive Officer of Associated Electric & Gas
Insurance Services Limited.
Rodney D. Johnson is President of Fairmount Capital Advisors, Inc.
G. Willing Pepper, Chairman of the Board and President of the Company,
is a retired President of Scott Paper Company.
Mr. Pepper is considered by the Company to be an "interested person" of the
Company as defined in the 1940 Act.
The other officers of the Company are as follows:
Edward J. Roach is Vice President and Treasurer of the Company.
W. Bruce McConnel, III, Secretary of the Company, is a partner of the
law firm of Drinker Biddle & Reath, Philadelphia, Pennsylvania.
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly-owned subsidiary of PNC Bank, serves as the Fund's
investment adviser. PIMC was organized in 1977 by PNC Bank to perform advisory
services for investment companies and has its principal offices at 400 Bellevue
Parkway, Wilmington, Delaware 19809. PNC Bank serves as the Fund's sub-adviser.
PNC Bank is one of the largest bank managers of investments for individuals in
the United States, and together with its predecessors has been in the business
of managing the investments of fiduciary and other accounts since 1847. PNC Bank
is a wholly-owned, indirect subsidiary of PNC Bank Corp. and has its principal
offices at Broad and Chestnut Streets, Philadelphia, Pennsylvania 19102. PNC
Bank Corp. is a multi-bank holding company. PIMC and PNC Bank also serve as
adviser and sub-adviser, respectively, to the Company's FedFund, FedCash,
T-Cash, Federal Trust Fund and Treasury Trust Fund portfolios.
8
<PAGE> 25
PNC Bank Corp., headquartered in Pittsburgh, Pennsylvania, is one of the
largest financial services organizations in the United States with banking
subsidiaries in Pennsylvania, New Jersey, Delaware, Ohio, Kentucky, Indiana,
Massachusetts and Florida. Its major businesses include corporate banking,
consumer banking, mortgage banking and asset management.
PNC Financial Services Group is PNC Bank Corp.'s mutual fund complex,
headquartered in Wilmington, Delaware. This group includes PIMC, PFPC and PNC
Bank. In 1973, Provident National Bank (predecessor to PNC Bank) commenced
advising the first institutional money market mutual fund -- a U.S.
dollar-denominated constant net asset value fund -- offered in the United
States.
The PNC Financial Services Group is one of the largest U.S. bank managers
of mutual funds with assets currently under management in excess of $30 billion.
This group, through PFPC and PFPC International Ltd, is also a leading mutual
fund service provider having contractual relationships with approximately 370
mutual funds with 3.5 million shareholders and in excess of $101 billion in
assets, including some $2 billion in non-U.S. assets. This group, through its
PNC Institutional Investment Service, provides investment research to some 250
financial institutions located in the United States and abroad. PNC Bank
provides custodial services for approximately $210 billion in assets, including
$160 billion in mutual fund assets.
As adviser, PIMC manages the Fund's portfolio and is responsible for all
purchases and sales of the Fund's portfolio securities. PIMC also maintains
certain of the Fund's financial accounts and records and computes the Fund's net
asset value and net income. 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 Fund's average net assets. PIMC and the administrators may
from time to time reduce the advisory and administration fees otherwise payable
to them or may reimburse the Fund for its operating expenses. Any fees waived by
PIMC with respect to a particular fiscal year are not recoverable. For the
fiscal year ended October 31, 1995, the Fund paid investment advisory fees
aggregating .07% of its average net assets.
As sub-adviser, PNC Bank provides research, credit analysis and
recommendations with respect to the Fund's investments, and supplies PIMC with
certain computer facilities, personnel and other services. For its sub-advisory
services, PNC Bank is entitled to receive from PIMC an amount equal to 75% of
the advisory fee paid by the 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 the Fund to PIMC. PNC Bank also serves as the
Fund's custodian. The services provided by PNC Bank and PIMC and the fees
payable by the Fund for these services are described further in the Statement of
Additional Information under "Management of the Funds."
ADMINISTRATOR
PFPC, whose principal business address is 400 Bellevue Parkway, Wilmington,
Delaware 19809, and PDI whose principal business address is 259 Radnor-Chester
Road, Suite 120, Radnor, Pennsylvania 19087, serve as administrators. PFPC is an
indirect wholly-owned subsidiary of PNC Bank Corp. A majority of the outstanding
stock of PDI is owned by its officers. The administrative services provided by
the administrators, which are described more fully in the Statement of
Additional Information, include providing and supervising the operation of an
automated data processing system to process purchase and redemption orders;
assisting in maintaining the Fund's Wilmington, Delaware office; performing
administrative services in connection with the Fund's
9
<PAGE> 26
computer access program maintained to facilitate shareholder access to the Fund;
accumulating information for and coordinating the preparation of reports to the
Fund's shareholders and the SEC; and maintaining the registration or
qualification of the Fund's shares for sale under state securities laws. PFPC
and PDI are each responsible for carrying out the duties undertaken pursuant to
the Administration Agreement with the Fund.
For their administrative services, the administrators are entitled jointly
to receive a fee computed daily and payable monthly. (For information regarding
the administrators' waivers and expense reimbursements, see "Investment Adviser
and Sub-Adviser" above.) The Fund also reimburses each administrator for its
reasonable out-of-pocket expenses incurred in connection with the Funds'
computer access program. For the fiscal year ended October 31, 1995, the Fund
paid administration fees aggregating .07% of its average net assets.
PFPC also serves as transfer agent, registrar and dividend disbursing
agent. PFPC's address is P.O. Box 8950, Wilmington, Delaware 19885-9628. The
services provided by PFPC and PDI and the fees payable by the Fund for these
services are described further in the Statement of Additional Information under
"Management of the Funds."
DISTRIBUTOR
PDI serves as distributor of the Fund's shares. Its principal offices are
located at 259 Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087. Fund
shares are sold on a continuous basis by the distributor as agent. The
distributor pays the cost of printing and distributing prospectuses to persons
who are not shareholders of the Fund (excluding preparation and printing
expenses necessary for the continued registration of the Fund's shares) and of
printing and distributing all sales literature. No compensation is payable by
the Fund to the distributor for its distribution services.
SERVICE ORGANIZATIONS
Institutional investors, such as banks, savings and loan associations and
other financial institutions, including affiliates of PNC Bank Corp. ("Service
Organizations"), may purchase Dollar Shares. Dollar Shares are identical in all
respects to T-Fund Shares except that they bear the service fees described below
and enjoy certain exclusive voting rights on matters relating to these fees. The
Fund will enter into an agreement with each Service Organization which purchases
Dollar Shares requiring it to provide support services to its customers who are
the beneficial owners of such shares in consideration of the Fund's 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, which are described more fully in the Statement of Additional
Information under "Management of the Funds--Service Organizations," include
aggregating and processing purchase and redemption requests from customers and
placing net purchase and redemption orders with PFPC; processing dividend
payments from the Fund on behalf of customers; providing information
periodically to customers showing their positions in Dollar Shares; and
providing sub-accounting or the information necessary for sub-accounting with
respect to Dollar Shares beneficially owned by customers. Under the terms of the
agreements, Service Organizations are required to provide to their customers a
schedule of any fees that they may charge customers in connection with their
investments in Dollar Shares.
10
<PAGE> 27
T-Fund Shares are sold to institutions that have not entered into servicing
agreements with the Fund in connection with their investments.
EXPENSES
Except as noted above and in the Statement of Additional Information, the
Fund's service contractors bear all expenses in connection with the performance
of their services. Similarly, the Fund bears the expenses incurred in its
operations. For the fiscal year ended October 31, 1995, the Fund's total
expenses with respect to T-Fund Shares and Dollar Shares were .18% and .43% net
of waivers of .11% and .11%, respectively of the average net assets of the
T-Fund Shares and the T-Fund Dollar Shares respectively. With regard to fees
paid exclusively by Dollar Shares, see "Service Organizations" above.
BANKING LAWS
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company engaged continuously in the issuance of
its shares, and prohibit banks generally from issuing, underwriting, selling or
distributing securities such as Fund shares. Such banking laws and regulations
do not prohibit such a holding company or affiliate or banks generally from
acting as investment adviser, transfer agent or custodian to such an investment
company, or from purchasing shares of such a company for or upon the order of
customers. PNC Bank, PIMC and PFPC, as well as some Service Organizations, are
subject to such banking laws and regulations, but believe they may perform the
services for the Fund contemplated by their respective agreements, this
Prospectus and the Statement of Additional Information without violating
applicable banking laws or regulations.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of bank Service Organizations in connection with the
provision of support services to their customers, the Fund might be required to
alter or discontinue its arrangements with Service Organizations and change its
method of operations with respect to Dollar Shares. It is not anticipated,
however, that any change in the Fund's method of operations would affect its net
asset value per share or result in a financial loss to any customer.
DIVIDENDS
Shareholders of the Fund are entitled to dividends and distributions
arising only from the net investment income and capital gains, if any, earned on
investments held by the Fund. The Fund's net investment income is declared daily
as a dividend to its shareholders of record at the close of business on the day
of declaration. Shares begin accruing dividends on the day the purchase order
for the shares is executed and continue to accrue dividends through the day
before such shares are redeemed. Dividends are paid monthly by check, or by wire
transfer if requested in writing by the shareholder, within five business days
after the end of the month or within five business days after a redemption of
all of a shareholder's shares of a particular class. The Fund does not expect to
realize net long-term capital gains.
Dividends are determined in the same manner for each class of shares of the
Fund. Dollar Shares bear all the expense of fees paid to Service Organizations
and as a result, at any given time,
11
<PAGE> 28
the net yield on Dollar Shares will be approximately .25% lower than the net
yield on T-Fund Shares.
Institutional shareholders may elect to have their dividends reinvested in
additional full and fractional shares of the same class of shares with respect
to which such dividends are declared at the net asset value of such shares on
the payment date. Reinvested dividends receive the same tax treatment as
dividends paid in cash. Such election, or any revocation thereof, must be made
in writing to PFPC at P.O. Box 8950, Wilmington, Delaware 19885-9628, and will
become effective after its receipt by PFPC with respect to dividends paid.
PFPC, as transfer agent, will send each Fund shareholder or its authorized
representative an annual statement designating the amount, if any, of any
dividends and distributions made during each year and their federal tax
qualification.
TAXES
The Fund qualified in its last taxable year and intends to qualify in
future years as a "regulated investment company" under the Internal Revenue Code
of 1986, as amended (the "Code"). A regulated investment company is generally
exempt from federal income tax on amounts distributed to its shareholders.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that the Fund distribute to its
shareholders at least 90% of its investment company taxable income for such
year. In general, the Fund's investment company taxable income will be its
taxable income (including interest and short-term capital gains, if any),
subject to certain adjustments and excluding the excess of any net long-term
capital gain for the taxable year over the net short-term capital loss, if any,
for such year. The Fund intends to distribute substantially all of its
investment company taxable income each year. Such distributions will be taxable
as ordinary income to the Fund's shareholders that are not currently exempt from
federal income taxes, whether such income is received in cash or reinvested in
additional shares. (Federal income taxes for distributions to an IRA or a
qualified retirement plan are deferred under the Code.) It is anticipated that
none of the Fund's distributions will be eligible for the dividends received
deduction for corporations. The Fund does not expect to realize long-term
capital gains and, therefore, does not contemplate payment of any "capital gain
dividends," as described in the Code.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by the shareholders and paid by the Fund on December 31 of such
year, in the event such dividends are actually paid during January of the
following year.
The foregoing discussion is only a brief summary of some of the important
federal tax considerations generally affecting the Fund and its shareholders. As
indicated above, IRAs receive special tax treatment. No attempt is made to
present a detailed explanation of the federal, state or local income tax
treatment of the Fund or its shareholders, and this discussion is not intended
as a substitute for careful tax planning. Accordingly, potential investors in
the Fund should consult their tax advisors with specific reference to their own
tax situations.
12
<PAGE> 29
YIELDS
From time to time, in advertisements or reports to Shareholders, "yields"
and "effective yields" for T-Fund Shares and Dollar Shares may be quoted. Yield
quotations are computed separately for T-Fund Shares and Dollar Shares. The
"yield" for a particular class or sub-class of Fund shares refers to the income
generated by an investment in such shares over a specified period (such as a
seven-day period). This income is then "annualized"; that is, the amount of
income generated by the investment during that period is assumed to be generated
for each such period over a 52-week or one year period and is shown as a
percentage of the investment. The "effective yield" is calculated similarly but,
when annualized, the income earned by an investment in a particular class or
sub-class of Fund shares is assumed to be reinvested. The "effective yield" will
be slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment.
The Fund's yields may be compared to those of other mutual funds with
similar objectives, to stock or other relevant indices, or to rankings prepared
by independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, such data are reported in national
financial publications such as IBC/Donoghue's Money Fund Report(R), The Wall
Street Journal, and The New York Times, reports prepared by Lipper Analytical
Services, Inc., and publications of a local or regional nature.
The Fund's yield figures for T-Fund Shares and Dollar Shares represent the
Fund's past performance, will fluctuate, and should not be considered as
representative of future results. The yield of any investment is generally a
function of portfolio quality and maturity, type of investment and operating
expenses. Any fees charged by Service Organizations or other institutional
investors directly to their customers in connection with investments in Fund
shares are not reflected in the Fund's yield; and, such fees, if charged, would
reduce the actual return received by customers on their investments. The methods
used to compute the Fund's yields are described in more detail in the Statement
of Additional Information. Investors may call 800-821-6006 (T-Fund Shares code
60: T-Fund Dollar Shares code: 61) to obtain current yield information.
DESCRIPTION OF SHARES AND MISCELLANEOUS
The Company is a Pennsylvania business trust established on May 14, 1975.
Effective March 2, 1987, the Company's name was changed from Trust for
Short-Term Federal Securities to Trust for Federal Securities. The Company
commenced operations of the Fund in March, 1980.
The Company's 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 of shares. Pursuant to such authority, the Board of
Trustees has authorized the issuance of twelve classes of shares designated as
FedFund, FedFund Dollar, T-Fund, T-Fund Dollar, FedCash, FedCash Dollar, T-Cash,
T-Cash Dollar, Federal Trust, Federal Trust Dollar, Treasury Trust and Treasury
Trust Dollar. The Declaration of Trust further authorizes the trustees to
classify or reclassify any class of shares into one or more sub-classes.
13
<PAGE> 30
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE COMPANY'S FEDFUND,
FEDCASH, T-CASH, FEDERAL TRUST FUND AND TREASURY TRUST FUND PORTFOLIOS MAY
OBTAIN SEPARATE PROSPECTUSES DESCRIBING THOSE PORTFOLIOS BY CALLING THE
DISTRIBUTOR AT 800-998-7633.
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.
Each Fund Share represents an equal proportionate interest in the assets
belonging to the Fund. Each share is without par value and has no preemptive or
conversion rights. When issued for payment as described in this Prospectus,
shares will be fully paid and non-assessable.
Holders of the Company's T-Fund Shares and Dollar Shares will vote in the
aggregate and not by class or sub-class on all matters, except where otherwise
required by law and except that only Dollar Shares will be entitled to vote on
matters submitted to a vote of shareholders pertaining to the Fund's
arrangements with Service Organizations. 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. (See the Statement of Additional Information under
"Additional Description Concerning Fund Shares" for examples where the 1940 Act
requires voting by portfolio.) Shareholders of the Company are entitled to one
vote for each full share held (irrespective of class, sub-class, or portfolio)
and fractional votes for fractional shares held. Voting rights are not
cumulative and, accordingly, the holders of more than 50% of the aggregate
shares of the Company may elect all of the trustees.
For information concerning the redemption of Fund shares and possible
restrictions on their transferability, see "Purchase and Redemption of Shares."
As stated above, the Company is organized as a 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 Company's Declaration of Trust provides for
indemnification out of the trust property of any shareholder of the Fund 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.
14
<PAGE> 31
NO PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS,
OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION
INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR
ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE
COMPANY OR BY THE DISTRIBUTOR
IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
---------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Background and Expense
Information................... 2
Financial Highlights............ 3
Investment Objective and
Policies...................... 5
Purchase and Redemption of
Shares........................ 6
Management of the Fund.......... 8
Dividends....................... 11
Taxes........................... 12
Yields.......................... 13
Description of Shares and
Miscellaneous................. 13
</TABLE>
PIF-P-006
T-FUND
AN INVESTMENT PORTFOLIO
OFFERED BY
TRUST FOR FEDERAL SECURITIES
[PROVIDENT INSTITUTIONAL FUNDS LOGO]
Prospectus
February 28, 1996
<PAGE> 32
FEDFUND AND T-FUND
Investment Portfolios Offered By
Trust for Federal Securities
Statement of Additional Information
February __, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . 2
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . 6
MANAGEMENT OF THE FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . 9
DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ADDITIONAL YIELD INFORMATION . . . . . . . . . . . . . . . . . . . . . . 22
ADDITIONAL DESCRIPTION CONCERNING FUND SHARES . . . . . . . . . . . . . . 24
COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . FS-1
</TABLE>
This Statement of Additional Information is meant to be read in
conjunction with the Prospectuses for FedFund and T-Fund dated February __,
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> 33
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
-2-
<PAGE> 34
without brokerage commissions. In making portfolio investments, 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 FedFund Dollar
shares or T-Fund 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 its net
incomes. The portfolio turnover rate for each of the Funds is expected to be
zero for regulatory reporting purposes.
-3-
<PAGE> 35
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 FedFund enters into reverse repurchase agreements as
described in its Prospectus, 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> 36
With respect to loans by FedFund of its portfolio securities as
described in its Prospectus, FedFund 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. government obligations to the extent permitted by FedFund's
investment limitations, below.
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.
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
-5-
<PAGE> 37
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. The FedFund, but
not the T-Fund, 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.
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.
-6-
<PAGE> 38
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 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
-7-
<PAGE> 39
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
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.
-8-
<PAGE> 40
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.
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
-9-
<PAGE> 41
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.
<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) Trustee Economic Consultant;
Coldwell Financial Chairman, Coldwell
Consultants Financial Consultants,
3330 Southwestern Blvd. Member of the Board of
Dallas, Texas 75225 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 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. and
Prudential Structured
Maturity Fund, Inc.
</TABLE>
-10-
<PAGE> 42
<TABLE>
<CAPTION>
Principal Occupations
Position with the During the Past 5 Years
Name and Address Company and Other Affiliations
- ---------------- ----------------- ---------------------
<S> <C> <C>
RODNEY D. JOHNSON Trustee President, Fairmount
Fairmount Capital Capital Advisors, Inc.
Advisors, Inc. (financial advising)
1435 Walnut Street since 1987; Treasurer,
Drexel Building North Philadelphia
Philadelphia, PA 19102 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 Cancer
Trustee 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 of
Center the accounting firm of
400 Bellevue Parkway Main Hurdman until
Suite 100 1981; Vice Chairman of
Wilmington, DE 19809 the Board, Fox Chase
Cancer Center; Trustee
Emeritus, Pennsylvania
School for the Deaf;
Trustee, Immaculata
College, 1983-1984;
Director, The Bradford
Funds, Inc.
W. BRUCE McCONNEL, III Secretary Partner of the law
1345 Chestnut Street firm of Drinker Biddle
Philadelphia, PA & Reath 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.
-11-
<PAGE> 43
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, 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:
-12-
<PAGE> 44
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement from Registrant
Aggregate Benefits Accrued Estimated Annual and Fund
Compensation as Part of Fund Benefits Upon Complex(1) Paid to
Name of Person, Position from Registrant Expenses Retirement Trustees
<S> <C> <C> <C> <C>
Philip E. Coldwell, Trustee $ 10,800.00 0 N/A (3)(2)$ 43,600.00
Robert R. Fortune, Trustee 10,800.00 0 N/A (5)(2) 63,600.00
Rodney D. Johnson, Trustee 10,800.00 0 N/A (5)(2) 55,850.00
G. Willing Pepper, Trustee and Chairman 19,100.00 0 N/A (6)(2) 96,250.00
David R. Wilmerding, Jr.,(3) Trustee 12,466.68 0 N/A (5)(2) 60,600.04
Anthony M. Santomero,(4) Trustee 10,800.00 0 N/A (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. Wilmeiding 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> 45
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 adviser and sub-adviser,
respectively, to the
-14-
<PAGE> 46
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
-15-
<PAGE> 47
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 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. 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 Fiscal year ended October 31,
1995, the Company paid fees (not 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.
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.
-16-
<PAGE> 48
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. No compensation is
payable by the Funds to the distributor for its distribution services. 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
-17-
<PAGE> 49
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 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.
-18-
<PAGE> 50
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 $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 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 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
-19-
<PAGE> 51
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 (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, Service
Organization 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 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
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<PAGE> 52
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."
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.
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<PAGE> 53
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 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 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
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<PAGE> 54
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.
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 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.
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
-23-
<PAGE> 55
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
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.
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 Service
Organizations. (See "Management of the Funds--Service Organizations.") Holders
of the Company's T-Fund and T-Fund Dollar shares will also vote in the
aggregate and not by class except 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
-24-
<PAGE> 56
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 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 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,
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<PAGE> 57
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 FedFund and T-Fund portfolio were as follows:
<TABLE>
<S> <C>
FedFund
-------
Mercantile Bank N.A. 6.45%
Trust Securities Unit
P.O. Box 387 Main Post Office
St. Louis, MO 63166
Havris Trust & Savings Bank 7.85%
200 W. Monroe, 12th Floor
Chicago, IL 60690
Reinvested Earnings 9.52%
State Street Bank & Trust Co.
2 International Place, 31st Floor
Boston, MA 02110
T-Fund
------
The Chase Manhattan Bank NA 7.42%
GSS As Agent
2 Chase Plaza, 4th Floor
New York, NY 10081
PNC Mortgage Securities Corp 7.57%
Attn: Trust Department
700 Deerpath Drive
Vernon Hills, IL 60061
CTC Illinois Trust Co. 9.43%
209 W. Jackson Boulevard
Suite 700
Chicago, IL 60606
</TABLE>
SHAREHOLDER AND TRUSTEE LIABILITY
The Company is organized as a "business trust" under the laws of the
Commonwealth of Pennsylvania. Shareholders of
-26-
<PAGE> 58
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 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.
-27-
<PAGE> 59
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> 60
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> 61
"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> 62
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> 63
"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> 64
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> 65
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> 66
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> 67
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> 68
"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> 69
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> 70
"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
<PAGE> 71
FedCash
An Investment Portfolio Offered By
Trust for Federal Securities
<TABLE>
<S> <C>
Bellevue Park Corporate Center For purchase and redemption orders only call:
400 Bellevue Parkway 800-441-7450 (in Delaware: 302-791-5350).
Suite 100 For yield information call: 800-821-6006
Wilmington, DE 19809 (FedCash shares code: 70; FedCash Dollar
shares code: 71).
For other information call: 800-821-7432.
</TABLE>
Trust for Federal Securities (the "Company") is a no-load, diversified,
open-end investment company that currently offers shares in six separate
investment portfolios. The shares described in this Prospectus represent
interests in the FedCash portfolio (the "Fund"), a money market portfolio.
The Fund's investment objective is to seek current income with liquidity
and security of principal. The Fund invests in a portfolio consisting of U.S.
Treasury bills, notes and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and repurchase agreements relating
to such obligations.
Fund shares may not be purchased by individuals directly, but institutional
investors may purchase shares for accounts maintained by individuals. In
addition to FedCash Shares, investors may purchase FedCash "Dollar Shares" which
accrue daily dividends in the same manner as FedCash Shares but bear all fees
payable by the Fund to institutional investors for certain services they provide
to the beneficial owners of such Shares. (See "Management of the Fund--Service
Organizations.")
PNC Institutional Management Corporation ("PIMC") and PNC Bank, National
Association ("PNC Bank") serve as the Fund's adviser and sub-adviser,
respectively. PFPC Inc. ("PFPC") and Provident Distributors Inc. ("PDI") serve
as the Fund's administrators. PDI also serves as the Fund's distributor.
------------------------
SHARES OF THE FUND 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 FUND INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO
ASSURANCE THAT IT WILL BE ABLE TO MAINTAIN ITS NET ASSET
VALUE OF $1.00 PER SHARE.
------------------------
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information currently dated
February 28, 1996, has been filed with the Securities and Exchange Commission
and is available to investors without charge by calling the Fund at
800-821-7432. The Statement of Additional Information, as amended from time to
time, is incorporated in its entirety by reference into this Prospectus.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
February 28, 1996
<PAGE> 72
BACKGROUND AND EXPENSE INFORMATION
Two classes of shares are offered by this Prospectus: FedCash Shares and
FedCash Dollar Shares. Shares of each class represent equal, pro rata interests
in the Fund and accrue daily dividends in the same manner except that the Dollar
Shares bear fees payable by the Fund (at the rate of .25% per annum) to
institutional investors for services they provide to the beneficial owners of
such shares. (See "Management of the Fund--Service Organizations.")
EXPENSE SUMMARY
<TABLE>
<CAPTION>
FEDCASH
FEDCASH DOLLAR
SHARES SHARES
---------- ----------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
- ------------------------------------------------------------------
(as a percentage of average net assets)
Management Fees (net of waivers)............................. .07% .07%
Other Expenses............................................... .13% .38%
Administration Fees (net of waivers).................... .07% .07%
Shareholder Servicing Fees.............................. 0% .25%
Miscellaneous........................................... .04% .04%
--- ---
Total Fund Operating Expenses (net of waivers)............... .20% .45%
=== ===
</TABLE>
- ------------
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------- ------- -------- -------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2)
redemption at the end of each time period with respect
to the following shares:
FedCash Shares: $ 2 $ 6 $ 11 $26
FedCash Dollar Shares: $ 5 $ 14 $ 25 $57
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. The table is based on expenses incurred by the
FedCash Shares and Dollar Shares during the last fiscal year, restated to
reflect the expenses which each class of shares expects to incur during the
current fiscal year. In addition, institutional investors may charge fees for
providing administrative services in connection with their customers' investment
in Dollar Shares. Absent fee waivers, Management and Administration fees for
FedCash Shares and Dollar Shares each would have been .13% and Total Fund
Operating Expenses would have been .30% and .55%, respectively. (For more
complete descriptions of the various costs and expenses, see "Management of the
Fund" in this Prospectus and the Statement of Additional Information and the
financial statements and related notes contained in the Statement of Additional
Information.) The investment adviser and administrators may from time to time
waive the advisory and administration fees otherwise payable to them or may
reimburse the Fund for its operating expenses. The foregoing table has not been
audited by the Fund's independent accountants.
2
<PAGE> 73
FINANCIAL HIGHLIGHTS
The following financial highlights for FedCash Shares have been derived
from the financial statements of the Fund for the fiscal year ended October 31,
1995 and for each of the three preceding fiscal years, and for the fiscal period
ended October 31, 1991 (commencement of operations), and for FedCash Dollar
Shares for the fiscal years ended October 31, 1995 and for each of the two
preceding fiscal years, and the fiscal period ended October 31, 1992
(commencement of operations). The financial highlights for the fiscal years set
forth below have been audited by Coopers & Lybrand L.L.P. independent
accountants whose report on the financial statements and financial highlights
(for the most recent five years) of the Fund is included in the Statement of
Additional Information. The tables should be read in conjunction with the
financial statements and related notes included in the Statement of Additional
Information. Further information about the performance of the Fund is available
in the annual report to shareholders, which may be obtained without charge by
calling 800-821-7432.
TRUST FOR FEDERAL SECURITIES
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
FEDCASH SHARES
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, MAY 21, 1991(3)
----------------------------------------- TO
1995 1994 1993 1992 OCTOBER 31, 1991
-------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- ----------------
Income From Investment Operations:
Net Investment Income......................... .0569 .0382 .0316 .0433 .0266
Net Realized Gains on Investments............. -- -- -- .0012 --
-------- -------- -------- -------- ----------------
Total From Investment Operations.............. .0569 .0382 .0316 .0445 .0266
-------- -------- -------- -------- ----------------
Less Distributions:
Dividends (From Net Investment Income)........ (.0569) (.0382) (.0316) (.0433) (.0266)
Distributions (From Capital Gains)............ -- -- -- (.0012) --
-------- -------- -------- -------- ----------------
Total Distributions........................... (.0569) (.0382) (.0316) (.0445) (.0266)
-------- -------- -------- -------- ----------------
Net Asset Value, End of Period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ================
Total Return.................................... 5.85% 3.89% 3.20% 4.54% 2.69%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (in 000s)........... $356,602 $629,209 $447,942 $717,978 $290,558
Ratio of Expenses to Average Net Assets(1).... .18% .12% .10% .07% .00%(2)
Ratio of Net Investment Income to Average Net
Assets...................................... 5.67% 3.80% 3.16% 3.99% 5.80%(2)
</TABLE>
- ------------
(1) Without the waiver of advisory and administration fees and without expense
reimbursements, the ratio of expenses to average daily net assets for
FedCash Shares would have been .30%, .29%, .28% and .29%, respectively, for
each of the years ended October 31, 1995, 1994, 1993 and 1992, and .39%
(annualized) for the period ended October 31, 1991.
(2) Annualized.
(3) Commencement of operations.
(4) Total returns are not annualized for periods of less than one year.
3
<PAGE> 74
TRUST FOR FEDERAL SECURITIES
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
FEDCASH DOLLAR SHARES
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, MAY 21, 1991(3)
----------------------------- TO
1995 1994 1993 OCTOBER 31, 1992
------- ------- ------- ----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
Income From Investment Operations:
Net Investment Income........................................ .0544 .0357 .0291 .0349
Net Realized Gains on Investments............................ -- -- -- .0012
------- ------- ------- -------
Total From Investment Operations............................. .0544 .0357 .0291 .0361
------- ------- ------- -------
Less Distributions:
Dividends (From Net Investment Income)....................... (.0544) (.0357) (.0291) (.0349)
Distributions (From Capital Gains)........................... -- -- -- (.0012)
------- ------- ------- -------
Total Distributions.......................................... (.0544) (0.357) (.0291) (.0361)
------- ------- ------- -------
Net Asset Value, End of Period................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ===============
Total Returns.................................................. 5.60% 3.64% 2.95% 3.67%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (in 000s).......................... $ 2,003 $22,737 $58,847 $ 53,813
Ratio of Expenses to Average Daily Net Assets1............... .43% .37% .35% .32%(2)
Ratio of Net Investment Income to Average Net Assets......... 5.42% 3.55% 2.91% 3.66%(2)
</TABLE>
- ------------
(1) Without the waiver of advisory and administration fees and without expense
reimbursements, the ratio of expenses to average daily net assets for
FedCash Dollar Shares would have been .55%, .54% and .53%, respectively, for
each of the years ended October 31, 1995, 1994 and 1993, and .54%
(annualized) for the period ended October 31, 1992.
(2) Annualized.
(3) First issuance of shares.
(4) Total returns are not annualized for periods of less than one year.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek current income with liquidity
and security of principal. The Fund invests in obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities (in addition to direct
Treasury obligations) and repurchase agreements relating to such obligations.
Portfolio obligations held by the Fund have remaining maturities of 397 days
(thirteen months) or less (with certain exceptions), subject to the quality,
diversification, and other requirements of Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act") and other rules of the
Securities and Exchange Commission (the "SEC").
The "agencies" or "instrumentalities" of the U.S. Government the
obligations of which may be purchased by FedCash are limited to those
obligations in which national banks may invest directly without limitation. The
agencies or instrumentalities which currently qualify include the Central Bank
for Cooperatives, Export-Import Bank of the United States, Farmers Home
Administration, Federal Farm Credit Banks, Federal Financing Bank, Federal Home
Loan Banks,
4
<PAGE> 75
Federal Home Loan Mortgage Corporation, Federal National Mortgage Association,
General Services Administration, Government National Mortgage Association,
Maritime Administration, Small Business Administration and Student Loan
Marketing Association. The Fund's investment procedures set forth above are
designed to permit national banks to invest in shares of the Fund without
limitation under applicable law and regulations.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal if
held to maturity. However, due to fluctuations in interest rates, the market
value of such securities may vary during the period a shareholder owns shares of
the Fund. Certain government securities held by the Fund may have remaining
maturities exceeding thirteen months if such securities provide for adjustments
in their interest rates not less frequently than every thirteen months. To the
extent consistent with its investment objectives, the Fund may invest in
Treasury receipts and other "stripped" securities issued or guaranteed by the
U.S. Government, where the principal and interest components are traded
independently under the Separate Trading of Registered Interest and Principal of
Securities program ("STRIPS"). Under the STRIPS program, the principal and
interest components are individually numbered and separately issued by the U.S.
Treasury at the request of depository financial institutions, which then trade
the component parts independently. Currently, the Fund only invests in
"stripped" securities issued or guaranteed by the U.S. Government which are
registered under the STRIPS program. The principal and interest components may
exhibit greater price volatility than ordinary debt securities because of the
manner in which their principal and interest are returned to investors.
The Fund may purchase government securities from financial institutions,
such as banks and broker-dealers, subject to the seller's agreement to
repurchase them at an agreed upon time and price ("repurchase agreements"). The
securities subject to a repurchase agreement may bear maturities exceeding
thirteen months, provided the repurchase agreement itself matures in one year or
less. The Fund will not invest more than 10% of the value of its net assets in
repurchase agreements which do not provide for settlement within seven days. The
seller under a repurchase agreement will be required to maintain the value of
the securities subject to the agreement at not less than the repurchase price.
Default by or bankruptcy of the seller would, however, expose the Fund to
possible loss because of adverse market action or delay in connection with the
disposition of the underlying obligations.
The Fund may borrow funds for temporary purposes by entering into reverse
repurchase agreements in accordance with the investment restrictions described
below. Pursuant to such agreements, the Fund would sell portfolio securities to
financial institutions and agree to repurchase them at an agreed upon date and
price. The Fund would consider entering into reverse repurchase agreements to
avoid otherwise selling securities during unfavorable market conditions in order
to meet redemptions. Reverse repurchase agreements involve the risk that the
market value of the portfolio securities sold by the Fund may decline below the
price of the securities the Fund is obligated to repurchase.
The Fund may purchase securities on a "when-issued" basis. When-issued
securities are securities purchased for delivery beyond the normal settlement
date at a stated price and yield. The Fund will generally not pay for such
securities or start earning interest on them until they are received. Securities
purchased on a when-issued basis are recorded as an asset and are subject to
changes in value based upon changes in the general level of interest rates. The
Fund expects that commitments to purchase when-issued securities will not exceed
25% of the value of its total
5
<PAGE> 76
assets absent unusual market conditions. The Fund does not intend to purchase
when-issued securities for speculative purposes but only in furtherance of its
investment objective.
The Fund may also lend its portfolio securities to financial institutions
in accordance with the investment restrictions described below. Such loans would
involve risks of delay in receiving additional collateral or in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to
borrowers deemed by the Fund's investment adviser to be of good standing and
only when, in the adviser's judgment, the income to be earned from the loans
justifies the attendant risks.
INVESTMENT LIMITATIONS
The Fund's investment objective and policies described above are not
fundamental and may be changed by the Company's Board of Trustees without a vote
of shareholders. If there is a change in the investment objective, shareholders
should consider whether the Fund remains an appropriate investment in light of
their then current financial position and needs. The Fund's investment
limitations summarized below may not be changed without the affirmative vote of
the holders of a majority of its outstanding shares. (A complete list of the
investment limitations that cannot be changed without a vote of shareholders is
contained in the Statement of Additional Information under "Investment
Objectives and Policies.")
The Fund may not:
1. 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.
2. Borrow money except from banks for temporary purposes and then in
an amount not exceeding 10% of the value of the 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 Fund's total assets at the time
of such borrowing.
3. Make loans except that the Fund may purchase or hold debt
obligations in accordance with its 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 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> 77
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
Fund shares are sold at the net asset value per share next determined after
receipt of a purchase order by PFPC, the Fund's transfer agent. Purchase orders
for shares are accepted only on days on which both the New York Stock Exchange
and the Federal Reserve Bank of Philadelphia are open for business (a "Business
Day") and must be transmitted to PFPC in Wilmington, Delaware, by telephone
(800-441-7450; in Delaware: 302-791-5350) or through the Fund's computer access
program. Orders received before 12:00 noon, Eastern time, for which payment has
been received by PNC Bank, the Fund's custodian, will be executed at 12:00 noon.
Orders received after 12:00 noon and before 3:00 P.M., Eastern time (or orders
received earlier in the same day for which payment has not been received by
12:00 noon), will be executed at 4:00 P.M., Eastern time, if payment has been
received by PNC Bank by that time. Orders received at other times, and orders
for which payment has not been received by 4:00 P.M., Eastern time, will not be
accepted, and notice thereof will be given to the institution placing the order.
(Payment for orders which are not received or accepted will be returned after
prompt inquiry to the sending institution.) The Fund may in its discretion
reject any order for shares.
Payment for Fund shares may be made only in federal funds or other funds
immediately available to PNC Bank. The minimum initial investment is $3 million
for FedCash Shares and $5,000 for Dollar Shares, however, Broker-dealers and
other institutional investors may set a higher minimum for their customers.
There is no minimum subsequent investment. The Fund, at its discretion, may
reduce the minimum initial investment for FedCash Shares for specific
institutions whose aggregate relationship with the Provident Institutional Funds
is substantially equivalent to this $3 million minimum and warrants this
reduction.
Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by the Fund in connection with the investment of fiduciary
funds in Dollar Shares. (See also "Management of the Fund--Service
Organizations.") Institutions, including banks regulated by the Comptroller of
the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult their legal advisors before investing fiduciary
funds in Dollar Shares. (See also "Management of the Fund--Banking Laws.")
REDEMPTION PROCEDURES
Redemption orders must be transmitted to PFPC in Wilmington, Delaware, in
the manner described under "Purchase Procedures." Shares are redeemed at the net
asset value per share next determined after PFPC's receipt of the redemption
order. While the Fund intends to use its best efforts to maintain its net asset
value per share at $1.00, the proceeds paid to a shareholder upon redemption may
be more or less than the amount invested depending upon a share's net asset
value at the time of redemption.
Payment for redeemed shares for which a redemption order is received by
PFPC by 3:00 P.M., Eastern time, on a Business Day is normally made in federal
funds wired to the redeeming shareholder on the same day. Payment for redemption
orders which are received between 3:00 P.M. and 4:00 P.M., Eastern time, or on a
day when PNC Bank is closed, is normally wired in federal funds on the next day
following redemption that PNC Bank is open for business.
7
<PAGE> 78
The Fund shall have the right to redeem shares in any account if the value
of the account is less than $1,000 after sixty-days' prior written notice to the
shareholder. Any such redemption shall be effected at the net asset value per
share next determined after the redemption order is entered. If during the
sixty-day period the shareholder increases the value of its account to $1,000 or
more, no such redemption shall take place. Moreover, if a shareholder's FedCash
Shares account falls below an average of $100,000 in any particular calendar
month, the account may be charged an account maintenance fee with respect to
that month. In addition, the Fund may also redeem shares involuntarily or
suspend the right of redemption under certain special circumstances described in
the Statement of Additional Information under "Additional Purchase and
Redemption Information."
OTHER MATTERS
The Fund's net asset value per share for purposes of pricing purchase and
redemption orders is determined by PIMC as of 12:00 noon and 4:00 P.M., Eastern
time, on each day on which both the Federal Reserve Bank of Philadelphia and the
New York Stock Exchange are open for business. Currently, one or both of these
institutions are closed on the customary national business holidays of New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Columbus Day (observed), Veteran's
Day, Thanksgiving Day and Christmas Day. The net asset value per share of each
class of the Fund is calculated by adding the value of all securities and other
assets belonging to the Fund, subtracting liabilities attributable to each
class, and dividing the result by the total number of the outstanding shares of
each class. In computing net asset value, the Fund uses the amortized cost
method of valuation as described in the Statement of Additional Information
under "Additional Purchase and Redemption Information." The Fund's net asset
value per share for purposes of pricing purchase and redemption orders is
determined independently of the net asset values of the shares of the Company's
other investment portfolios.
Fund shares are sold and redeemed without charge by the Fund. Institutional
investors purchasing or holding Fund shares for their customer accounts may
charge customer fees for cash management and other services provided in
connection with their accounts. A customer should, therefore, consider the terms
of its account with an institution before purchasing Fund shares. An institution
purchasing or redeeming Fund shares on behalf of its customers is responsible
for transmitting orders to the Fund in accordance with its customer agreements.
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The business and affairs of the Fund are managed under the direction of the
Company's Board of Trustees. The trustees of the Company are as follows:
Philip E. Coldwell is an economic consultant and a former Member of
the Board of Governors of the Federal Reserve System.
Robert R. Fortune is a financial consultant and former Chairman,
President and Chief Executive Officer of Associated Electric & Gas
Insurance Services Limited.
Rodney D. Johnson is President of Fairmount Capital Advisors, Inc.
8
<PAGE> 79
G. Willing Pepper, Chairman of the Board and President of the Company,
is a retired President of Scott Paper Company.
Mr. Pepper is considered by the Company to be an "interested person" of the
Company as defined in the 1940 Act.
The other officers of the Company are as follows:
Edward J. Roach is Vice President and Treasurer of the Company.
W. Bruce McConnel, III, Secretary of the Company, is a partner of the
law firm of Drinker Biddle & Reath, Philadelphia, Pennsylvania.
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly-owned subsidiary of PNC Bank, serves as the Fund's
investment adviser. PIMC was organized in 1977 by PNC Bank to perform advisory
services for investment companies, and has its principal offices at 400 Bellevue
Parkway, Wilmington, Delaware 19809. PNC Bank serves as the Fund's sub-adviser.
PNC Bank is one of the largest bank managers of investments for individuals in
the United States, and together with its predecessors has been in the business
of managing the investments of fiduciary and other accounts since 1847. PNC Bank
is a wholly-owned, indirect subsidiary of PNC Bank Corp. and has its principal
offices at Broad and Chestnut Streets, Philadelphia, Pennsylvania 19102. PNC
Bank Corp. is a multi-bank holding company. PIMC and PNC Bank also serve as
adviser and sub-adviser, respectively, to the Company's FedFund, T-Fund, T-Cash,
Federal Trust Fund and Treasury Trust Fund portfolios.
PNC Bank Corp., headquartered in Pittsburgh, Pennsylvania, is one of the
largest financial services organizations in the United States with banking
subsidiaries in Pennsylvania, New Jersey, Delaware, Ohio, Kentucky, Indiana,
Massachusetts and Florida. Its major businesses include corporate banking,
consumer banking, mortgage banking and asset management.
PNC Financial Services Group is PNC Bank Corp.'s mutual fund complex,
headquartered in Wilmington, Delaware. This group includes PIMC, PFPC and PNC
Bank. In 1973, Provident National Bank (predecessor to PNC Bank) commenced
advising the first institutional money market mutual fund -- a U.S.
dollar-denominated constant net asset value fund -- offered in the United
States.
The PNC Financial Services Group is one of largest U.S. bank managers of
mutual funds with assets currently under management in excess of $30 billion.
This group, through PFPC and PFPC International Ltd., is also a leading mutual
fund service provider having contractual relationships with approximately 370
mutual funds with 3.5 million shareholders and in excess of $101 billion in
assets, including some $2 billion in non-U.S. assets. This group, through its
PNC Institutional Investment Service, provides investment research to some 250
financial institutions located in the United States and abroad. PNC Bank
provides custodial services for approximately $210 billion in assets, including
$160 billion in mutual fund assets.
As adviser, PIMC manages the Fund's portfolio and is responsible for all
purchases and sales of the Fund's portfolio securities. PIMC also maintains
certain of the Fund's financial accounts and records and computes the Fund's net
asset value and net income. 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 Fund's average net assets. PIMC and the administrators may
from time to time reduce the advisory and administration fees otherwise payable
to them or may reimburse the Fund for its
9
<PAGE> 80
operating expenses. Any fees waived or expenses reimbursed by PIMC and the
administrators with respect to a particular fiscal year are not recoverable. For
the fiscal year ended October 31, 1995, the Fund paid advisory fees aggregating
.07% of the Fund's average net assets.
As sub-adviser, PNC Bank provides research, credit analysis and
recommendations with respect to the Fund's investments, and supplies PIMC with
certain computer facilities, personnel and other services. For its sub-advisory
services, PNC Bank is entitled to receive from PIMC an amount equal to 75% of
the advisory fee paid by the 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 the Fund to PIMC. PNC Bank also serves as the
Fund's custodian. The services provided by PNC Bank and PIMC and the fees
payable by the Fund for these services are described further in the Statement of
Additional Information under "Management of the Funds."
ADMINISTRATORS
PFPC, whose principal business address is 400 Bellevue Parkway, Wilmington,
Delaware 19809, and PDI whose principal business address is 259 Radnor-Chester
Road, Suite 120, Radnor, Pennsylvania 19087, serve as administrators. PFPC is an
indirect wholly-owned subsidiary of PNC Bank Corp. A majority of the outstanding
stock of PDI is owned by its officers. The administrative services provided by
the administrators, which are described more fully in the Statement of
Additional Information include providing and supervising the operation of an
automated data processing system to process purchase and redemption orders;
assisting in maintaining the Fund's Wilmington, Delaware office; performing
administration services in connection with the Fund's computer access program
maintained to facilitate shareholder access to the Fund; accumulating
information for and coordinating the preparation of reports to the Fund's
shareholders and the SEC; and maintaining the registration or qualification of
the Fund's shares for sale under state securities laws. PFPC and PDI are each
responsible for carrying out the duties undertaken pursuant to the
Administration Agreement with the Fund.
For their administrative services, the administrators are entitled jointly
to receive a fee computed daily and payable monthly. (For information regarding
the administrators' waivers and expense reimbursements, see "Investment Adviser
and Sub-Adviser" above.) The Fund also reimburses each administrator for its
reasonable out-of-pocket expenses incurred in connection with the Funds'
computer access program. For the fiscal year ended October 31, 1995, the Fund
paid administration fees aggregating .07% of its average net assets.
PFPC also serves as transfer agent, registrar and dividend disbursing
agent. PFPC's address is P.O. Box 8950, Wilmington, Delaware 19885-9628. The
services provided by PFPC and PDI and the fees payable by the Fund for these
services are described further in the Statement of Additional Information under
"Management of the Funds."
DISTRIBUTOR
PDI serves as distributor of the Fund's shares. Its principal offices are
located at 259 Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087. Fund
shares are sold on a continuous basis by the distributor as agent. The
distributor pays the cost of printing and distributing prospectuses to persons
who are not shareholders of the Fund (excluding preparation and printing
expenses necessary for the continued registration of the Fund's shares) and of
printing and distributing all sales literature. No compensation is payable by
the Fund to the distributor for its distribution services.
10
<PAGE> 81
SERVICE ORGANIZATIONS
Institutional investors, such as banks, savings and loan associations and
other financial institutions, including affiliates of PNC Bank Corp. ("Service
Organizations"), may purchase Dollar Shares. Dollar Shares are identical in all
respects to the Company's FedCash Shares except that they bear the service fees
described below and enjoy certain exclusive voting rights on matters relating to
these fees. The Fund will enter into an agreement with each Service Organization
which purchases Dollar Shares requiring it to provide support services to its
customers who are the beneficial owners of such shares in consideration of the
Fund's 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, which are described more fully in the Statement of
Additional Information under "Management of the Funds--Service Organizations,"
include aggregating and processing purchase and redemption requests from
customers and placing net purchase and redemption orders with PFPC; processing
dividend payments from the Fund on behalf of customers; providing information
periodically to customers showing their positions in Dollar Shares; and
providing sub-accounting or the information necessary for sub-accounting with
respect to Dollar Shares beneficially owned by customers. Under the terms of the
agreements, Service Organizations are required to provide to their customers a
schedule of any fees that they may charge customers in connection with their
investments in Dollar Shares. FedCash Shares are sold to institutions that have
not entered into servicing agreements with the Fund in connection with their
investments.
EXPENSES
Except as noted above and in the Statement of Additional Information, the
Fund's service contractors bear all expenses in connection with the performance
of their services. Similarly, the Fund bears the expenses incurred in its
operations. For the fiscal year ended October 31, 1995, the Fund's total
expenses with respect to FedCash Shares and Dollar Shares were .18% and .43%
(net of fee waivers of .12% and .12%, respectively) of the average net assets of
FedCash Shares and FedCash Dollar Shares, respectively. With regard to fees paid
exclusively by Dollar Shares, see "Service Organizations" above.
BANKING LAWS
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company engaged continuously in the issuance of
its shares, and prohibit banks generally from issuing, underwriting, selling or
distributing securities such as Fund shares. Such banking laws and regulations
do not prohibit such a holding company or affiliate or banks generally from
acting as investment adviser, transfer agent or custodian to such an investment
company, or from purchasing shares of such a company for or upon the order of
customers. PNC Bank, PIMC and PFPC, as well as some Service Organizations, are
subject to such banking laws and regulations, but believe they may perform the
services for the Fund contemplated by their respective agreements, this
Prospectus and the Statement of Additional Information without violating
applicable banking laws or regulations.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of bank Service Organizations in connection with the
provision of support services to their customers, the Fund might be required to
alter or discontinue its arrangements with Service
11
<PAGE> 82
Organizations and change its method of operations with respect to Dollar shares.
It is not anticipated, however, that any change in the Fund's method of
operations would affect its net asset value per share or result in a financial
loss to any customer.
DIVIDENDS
Shareholders of the Fund are entitled to dividends and distributions
arising only from the net investment income and capital gains, if any, earned on
investments held by the Fund. The Fund's net investment income is declared daily
as a dividend to its shareholders of record at the close of business on the day
of declaration. Shares begin accruing dividends on the day the purchase order
for the shares is executed and continue to accrue dividends through, and
including, the day before such shares are redeemed. Dividends are paid monthly
by check, or by wire transfer if requested in writing by the shareholder, within
five business days after the end of the month or within five business days after
a redemption of all of a shareholder's shares of a particular class. The Fund
does not expect to realize net long-term capital gains.
Dividends are determined in the same manner for each class of shares of the
Fund. Dollar Shares bear all the expense of fees paid to Service Organizations
and as a result, at any given time, the net yield on Dollar Shares will be
approximately .25% lower than the net yield on FedCash Shares.
Institutional shareholders may elect to have their dividends reinvested in
additional full and fractional shares of the same class of shares with respect
to which such dividends are declared at the net asset value of such shares on
the payment date. Reinvested dividends receive the same tax treatment as
dividends paid in cash. Such election, or any revocation thereof, must be made
in writing to PFPC at P.O. Box 8950, Wilmington, Delaware 19885-9628, and will
become effective after its receipt by PFPC with respect to dividends paid.
PFPC, as transfer agent, will send each Fund shareholder or its authorized
representative an annual statement designating the amount, if any, of any
dividends and distributions made during each year and their federal tax
qualification.
TAXES
The Fund qualified in its last taxable year and intends to qualify in
future years as a "regulated investment company" under the Internal Revenue Code
of 1986, as amended (the "Code"). A regulated investment company is generally
exempt from federal income tax on amounts distributed to its shareholders.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that the Fund distribute to its
shareholders at least 90% of its investment company taxable income for such
year. In general, the Fund's investment company taxable income will be its
taxable income (including interest and short-term capital gains, if any),
subject to certain adjustments and excluding the excess of any net long-term
capital gain for the taxable year over the net short-term capital loss, if any,
for such year. The Fund intends to distribute substantially all of its
investment company taxable income each year. Such distributions will be taxable
as ordinary income to the Fund's shareholders that are not currently exempt from
federal income taxes, whether such income is received in cash or reinvested in
additional shares. (Federal income taxes for distributions to an IRA or a
qualified retirement plan are deferred under the Code.) It is anticipated that
none of the Fund's distributions will be eligible for the dividends received
deduction for corporations. The
12
<PAGE> 83
Fund does not expect to realize long-term capital gains and, therefore, does not
contemplate payment of any "capital gain dividends," as described in the Code.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by the shareholders and paid by the Fund on December 31 of such
year, in the event such dividends are actually paid during January of the
following year.
The foregoing discussion is only a brief summary of some of the important
federal tax considerations generally affecting the Fund and its shareholders. As
indicated above, IRAs receive special tax treatment. No attempt is made to
present a detailed explanation of the federal, state or local income tax
treatment of the Fund or its shareholders, and this discussion is not intended
as a substitute for careful tax planning. Accordingly, potential investors in
the Fund should consult their tax advisors with specific reference to their own
tax situations.
YIELDS
From time to time in advertisements or in reports to Shareholders, the
"yields" and "effective yields" for FedCash Shares and Dollar Shares may be
quoted. Yield quotations are computed for FedCash Shares separately from those
for Dollar Shares. The "yield" for a particular class or sub-class of Fund
shares refers to the income generated by an investment in such shares over a
specified period (such as a seven-day period). This income is then "annualized";
that is, the amount of income generated by the investment during that period is
assumed to be generated for each such period over a 52-week or one-year period
and is shown as a percentage of the investment. The "effective-yield" is
calculated similarly but, when annualized, the income earned by an investment in
a particular class or sub-class is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment.
The Fund's yields may be compared to those of other mutual funds with
similar objectives, to stock or other relevant indices, or to rankings prepared
by independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, such data are reported in national
financial publications such as IBC/Donoghue's Money Fund Report(R), The Wall
Street Journal, and The New York Times, reports prepared by Lipper Analytical
Services, Inc., and publications of a local or regional nature.
The Fund's yield figures for FedCash Shares and FedCash Dollar Shares
represent the Fund's past performance, will fluctuate, and should not be
considered as representative of future results. The yield of any investment is
generally a function of portfolio quality and maturity, type of investment and
operating expenses. Any fees charged by Service Organizations or other
institutional investors directly to their customers in connection with
investments in Fund shares are not reflected in the Fund's yields; and, such
fees, if charged, would reduce the actual return received by customers on their
investments. The methods used to compute the Fund's yields are described in more
detail in the Statement of Additional Information. Investors may call
800-821-6006 (FedCash Shares code: 70; FedCash Dollar Shares code: 71) to obtain
current yield information.
DESCRIPTION OF SHARES AND MISCELLANEOUS
The Company is a Pennsylvania business trust established on May 14, 1975.
Effective March 2, 1987, the Company's name was changed from Trust for
Short-Term Federal Securities to Trust for Federal Securities. The Company
commenced operations of the Fund in May, 1991.
13
<PAGE> 84
The Company's 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 of shares. Pursuant to such authority, the Board of
Trustees has authorized the issuance of twelve classes of shares designated as
FedFund, FedFund Dollar, T-Fund, T-Fund Dollar, FedCash, FedCash Dollar, T-Cash,
T-Cash Dollar, Federal Trust, Federal Trust Dollar, Treasury Trust and Treasury
Trust Dollar. The Declaration of Trust further authorizes the trustees to
classify or reclassify any class of shares into one or more sub-classes.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE COMPANY'S FEDFUND,
T-FUND, T-CASH, FEDERAL TRUST FUND AND TREASURY TRUST FUND PORTFOLIOS MAY OBTAIN
SEPARATE PROSPECTUSES DESCRIBING THOSE PORTFOLIOS BY CALLING THE DISTRIBUTOR AT
800-998-7633.
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.
Each Fund Share represents an equal proportionate interest in the assets
belonging to the Fund. Each share is without par value and has no preemptive or
conversion rights. When issued for payment as described in this Prospectus,
shares will be fully paid and non-assessable.
Holders of the Company's FedCash Shares and FedCash Dollar Shares will vote
in the aggregate and not by class or sub-class on all matters, except where
otherwise required by law and except that only Dollar Shares will be entitled to
vote on matters submitted to a vote of shareholders pertaining to the Fund's
arrangements with Service Organizations. 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. (See the Statement of Additional Information under
"Additional Description Concerning Fund Shares" for examples where the 1940 Act
requires voting by portfolio.) Shareholders of the Company are entitled to one
vote for each full share held (irrespective of class, sub-class, or portfolio)
and fractional votes for fractional shares held. Voting rights are not
cumulative and, accordingly, the holders of more than 50% of the aggregate
shares of the Company may elect all of the trustees.
For information concerning the redemption of Fund shares and possible
restrictions on their transferability, see "Purchase and Redemption of Shares."
As stated above, the Company is organized as a 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 Company's Declaration of Trust provides for
indemnification out of the trust property of any shareholder of the Fund 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.
14
<PAGE> 85
NO PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS,
OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION
INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR
ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE
COMPANY OR BY THE DISTRIBUTOR
IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
---------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Background and Expense
Information................... 2
Financial Highlights............ 3
Investment Objective and
Policies...................... 4
Purchase and Redemption of
Shares........................ 7
Management of the Fund.......... 8
Dividends....................... 12
Taxes........................... 12
Yields.......................... 13
Description of Shares and
Miscellaneous................. 13
</TABLE>
PIF-P-004
FEDCASH
AN INVESTMENT PORTFOLIO
OFFERED BY
TRUST FOR FEDERAL SECURITIES
LOGO
Prospectus
February 28, 1996
<PAGE> 86
T-Cash
An Investment Portfolio Offered By
Trust for Federal Securities
<TABLE>
<S> <C>
Bellevue Park Corporate Center For purchase and redemption orders only call:
400 Bellevue Parkway 800-441-7450 (in Delaware: 302-791-5350).
Suite 100 For yield information call: 800-821-6006
Wilmington, DE 19809 (T-Cash shares code: 72; T-Cash Dollar shares
code: 73).
For other information call: 800-821-7432.
</TABLE>
Trust for Federal Securities (the "Company") is a no-load, diversified,
open-end investment company that currently offers shares in six separate
investment portfolios. The shares described in this Prospectus represent
interests in the T-Cash portfolio (the "Fund"), a money market portfolio.
The Fund's investment objective is to seek current income with liquidity
and security of principal. The Fund invests in a portfolio consisting of U.S.
Treasury bills, notes and direct obligations of the U.S. Treasury and repurchase
agreements relating to direct Treasury obligations.
Fund shares may not be purchased by individuals directly, but institutional
investors may purchase shares for accounts maintained by individuals. In
addition to T-Cash Shares, investors may purchase T-Cash "Dollar Shares" which
accrue daily dividends in the same manner as T-Cash Shares but bear all fees
payable by the Fund to institutional investors for certain services they provide
to the beneficial owners of such Shares. (See "Management of the Fund--Service
Organizations.")
PNC Institutional Management Corporation ("PIMC") and PNC Bank, National
Association ("PNC Bank") serve as the Fund's adviser and sub-adviser,
respectively. PFPC Inc. ("PFPC") and Provident Distributors, Inc. ("PDI") serve
as the Fund's administrators. PDI also serves as the Fund's distributor.
SHARES OF THE FUND 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 FUND INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE
CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO
MAINTAIN ITS NET ASSET VALUE OF $1.00 PER
SHARE.
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information currently dated
February 28, 1996, has been filed with the Securities and Exchange Commission
and is available to investors without charge by calling the Fund at
800-821-7432. The Statement of Additional Information, as amended from time to
time, is incorporated in its entirety by reference into this Prospectus.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
February 28, 1996
<PAGE> 87
BACKGROUND AND EXPENSE INFORMATION
Two classes of shares are offered by this Prospectus: T-Cash Shares and
T-Cash Dollar Shares. Shares of each class represent equal, pro rata interests
in the Fund and accrue daily dividends in the same manner except that the Dollar
Shares bear fees payable by the Fund (at the rate of .25% per annum) to
institutional investors for services they provide to the beneficial owners of
such shares. (See "Management of the Fund--Service Organizations.")
EXPENSE SUMMARY
<TABLE>
<CAPTION>
T-CASH
T-CASH DOLLAR
SHARES SHARES
------------ ------------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
- ---------------------------------------------------------------
(as a percentage of average net assets)
Management Fees (net of waivers).......................... .06% .06%
Other Expenses............................................ .14% .39%
Administration Fees (net of waivers)................. .06% .06%
Shareholder Servicing Fees........................... 0% .25%
Miscellaneous........................................ .06% .06%
--- ---
Total Fund Operating Expenses (net of waivers)............ .20% .45%
=== ===
</TABLE>
- ------------
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and
(2) redemption at the end of each time period with
respect to the following shares:
T-Cash Shares: $2 $ 6 $11 $ 26
T-Cash Dollar Shares: $5 $14 $25 $ 57
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. The table is based on expenses incurred by the
T-Cash Shares and Dollar Shares during the last fiscal year, restated to reflect
the expenses which each class of shares expects to incur during the current
fiscal year. In addition, institutional investors may charge fees for providing
administrative services in connection with their customers' investment in Dollar
Shares. Absent fee waivers, Management and Administration fees for T-Cash Shares
and Dollar Shares each would have been .13% and Total Fund Operating Expenses
would have been .30% and .55%, respectively. (For more complete descriptions of
the various costs and expenses, see "Management of the Fund" in this Prospectus
and the Statement of Additional Information and the financial statements and
related notes contained in the Statement of Additional Information.) The
investment adviser and administrators may from time to time waive the advisory
and administration fees otherwise payable to them or may reimburse the Fund for
its operating expenses. The foregoing table has not been audited by the Fund's
independent accountants.
2
<PAGE> 88
FINANCIAL HIGHLIGHTS
The following financial highlights for T-Cash Fund Shares have been derived
from the financial statements of the Fund for the fiscal year ended October 31,
1995 and for each of the three preceding fiscal years, and for the fiscal period
ended October 31, 1991 (commencement of operations) and for T-Cash Dollar Shares
for the fiscal years ended October 31, 1995 and for each of the two preceding
fiscal years, and for the fiscal period ended October 31, 1992 (commencement of
operations). The financial highlights for the fiscal years set forth below have
been audited by Coopers & Lybrand L.L.P. independent accountants whose report on
the financial statements and financial highlights (for the most recent five
years) of the Fund is included in the Statement of Additional Information. The
tables should be read in conjunction with the financial statements and related
notes included in the Statement of Additional Information. Further information
about the performance of the Fund is available in the annual report to
shareholders, which may be obtained without charge by calling 800-821-7432.
TRUST FOR FEDERAL SECURITIES
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
T-CASH SHARES
<TABLE>
<CAPTION>
T-CASH SHARES
--------------------------------------------------------------------
YEAR ENDED OCTOBER 31, JUNE 5, 1991(3)
----------------------------------------------- TO
1995 1994 1993 1992 OCTOBER 31, 1991
-------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income From Investment Operations:
Net Investment Income........................... .0565 .0371 .0311 .0406 .0235
-------- -------- -------- -------- --------
Total From Investment Operations................ .0565 .0371 .0311 .0406 .0235
-------- -------- -------- -------- --------
Less Distributions:
Dividends to Shareholders from:
Net Investment Income........................... (.0565) (.0371) (.0311) (.0406) (.0235)
-------- -------- -------- -------- --------
Total Distributions............................. (.0565) (.0371) (.0311) (.0406) (.0235)
-------- -------- -------- -------- --------
Net Asset Value, End of Period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return:..................................... 5.80% 3.77% 3.15% 4.13% 2.38%(4)
Ratios/Supplemental Data
Net Assets, End of Period (in 000s)............... $250,041 $217,910 $424,641 $477,599 $301,526
Ratio of Expenses to Average Net Assets(1)........ .18% .11% .10% .06% .00%(2)
Ratio of Net Investment Income to Average Net
Assets.......................................... 5.66% 3.58% 3.11% 3.99% 5.70%(2)
</TABLE>
- ------------
(1) Without the waiver of advisory and administration fees and without expense
reimbursements, the ratio of expenses to average daily net assets for T-Cash
Shares would have been .30%, .30%, .29% and .29%, respectively, for each of the
years ended October 31, 1995, 1994, 1993 and 1992, and .37% (annualized) for the
period ended October 31, 1991.
(2) Annualized.
(3) Commencement of operations.
(4) Total returns are not annualized for periods of less than one year.
3
<PAGE> 89
TRUST FOR FEDERAL SECURITIES
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
T-CASH DOLLAR SHARES
<TABLE>
<CAPTION>
T-CASH DOLLAR SHARES
--------------------------------------------------
AUGUST 4,
YEAR ENDED OCTOBER 31, 1992(3)
------------------------------ TO
1995 1994 1993 OCTOBER 31, 1992
------- ------- -------- ----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- -------- --------
Income from Investment Operations:
Net Investment Income................................ .0540 .0346 .0286 .0080
------- ------- -------- --------
Total From Investment Operations..................... .0540 .0346 .0286 .0080
------- ------- -------- --------
Less Distributions:
Dividends to Shareholders from:
Net Investment Income................................ (.0540) (.0346) (.0286) (.0080)
------- ------- -------- --------
Total Distributions.................................. (.0540) (.0346) (.0286) (.0080)
------- ------- -------- --------
Net Asset Value, End of Period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ========= =================
Total Return........................................... 5.55% 3.52% 2.90% .76%(4)
Ratios/Supplemental Data
Net Assets, End of Period (in 000s).................... $63,537 $82,293 $161,176 $ 24,261
Ratio of Expenses to Average
Net Assets(1)........................................ .43% .36% .35% .35%(2)
Ratio of Net Investment Income to Average Net Assets... 5.41% 3.33% 2.86% 3.03%(2)
</TABLE>
- ------------
(1) Without the waiver of advisory and administration fees and without expense
reimbursements, the ratio of expenses to average daily net assets for T-Cash
Dollar Shares would have been .55%, .55% and .54% for the years ended October
31, 1995, 1994 and 1993 and .58% (annualized) for the period ended October 31,
1992.
(2) Annualized.
(3) First issuance of shares.
(4) Total returns are not annualized for periods of less than one year.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek current income with liquidity
and security of principal. The Fund invests solely in direct obligations of the
U.S. Treasury, such as Treasury bills and notes and repurchase agreements
relating to direct Treasury obligations. Portfolio obligations held by the Fund
have remaining maturities of 397 days (thirteen months) or less (with certain
exceptions), subject to the quality, diversification, and other requirements of
Rule 2a-7 under the Investment Company Act of 1940, as amended (the "1940 Act")
and other rules of the Securities and Exchange Commission (the "SEC").
Securities issued or guaranteed by the U.S. Government have historically
involved little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period a shareholder owns shares of the Fund. Certain government
securities held by the Fund may have remaining maturities exceeding
4
<PAGE> 90
thirteen months if such securities provide for adjustments in their interest
rates not less frequently than every thirteen months. To the extent consistent
with its investment objectives, the Fund may invest in Treasury receipts and
other "stripped" securities issued or guaranteed by the U.S. Government, where
the principal and interest components are traded independently under the
Separate Trading of Registered Interest and Principal of Securities program
("STRIPS"). Under the STRIPS program, the principal and interest components are
individually numbered and separately issued by the U.S. Treasury at the request
of depository financial institutions, which then trade the component parts
independently. Currently, the Fund only invests in "stripped" securities issued
or guaranteed by the U.S. Government which are registered under the STRIPS
program. The principal and interest components may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
The Fund may purchase government securities from financial institutions,
such as banks and broker-dealers, subject to the seller's agreement to
repurchase them at an agreed upon time and price ("repurchase agreements"). The
securities subject to a repurchase agreement may bear maturities exceeding
thirteen months, provided the repurchase agreement itself matures in one year or
less. The Fund will not invest more than 10% of the value of its net assets in
repurchase agreements which do not provide for settlement within seven days. The
seller under a repurchase agreement will be required to maintain the value of
the securities subject to the agreement at not less than the repurchase price.
Default by or bankruptcy of the seller would, however, expose the Fund to
possible loss because of adverse market action or delay in connection with the
disposition of the underlying obligations.
The Fund may borrow funds for temporary purposes by entering into reverse
repurchase agreements in accordance with the investment restrictions described
below. Pursuant to such agreements, the Fund would sell portfolio securities to
financial institutions and agree to repurchase them at an agreed upon date and
price. The Fund would consider entering into reverse repurchase agreements to
avoid otherwise selling securities during unfavorable market conditions in order
to meet redemptions. Reverse repurchase agreements involve the risk that the
market value of the portfolio securities sold by the Fund may decline below the
price of the securities the Fund is obligated to repurchase.
The Fund may purchase securities on a "when-issued" basis. When-issued
securities are securities purchased for delivery beyond the normal settlement
date at a stated price and yield. The Fund will generally not pay for such
securities or start earning interest on them until they are received. Securities
purchased on a when-issued basis are recorded as an asset and are subject to
changes in value based upon changes in the general level of interest rates. The
Fund expects that commitments to purchase when-issued securities will not exceed
25% of the value of its total assets absent unusual market conditions. The Fund
does not intend to purchase when-issued securities for speculative purposes but
only in furtherance of its investment objective.
The Fund may also lend its portfolio securities to financial institutions
in accordance with the investment restrictions described below. Such loans would
involve risks of delay in receiving additional collateral or in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to
borrowers deemed by the Fund's investment adviser to be of good standing and
only when, in the adviser's judgment, the income to be earned from the loans
justifies the attendant risks.
5
<PAGE> 91
INVESTMENT LIMITATIONS
The Fund's investment objective and policies described above are not
fundamental and may be changed by the Company's Board of Trustees without a vote
of shareholders. If there is a change in the investment objective, shareholders
should consider whether the Fund remains an appropriate investment in light of
their then current financial position and needs. The Fund's investment
limitations summarized below may not be changed without the affirmative vote of
the holders of a majority of its outstanding shares. (A complete list of the
investment limitations that cannot be changed without a vote of shareholders is
contained in the Statement of Additional Information under "Investment
Objectives and Policies.")
The Fund may not:
1. 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.
2. Borrow money except from banks for temporary purposes and then in
an amount not exceeding 10% of the value of the 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 Fund's total assets at the time
of such borrowing.
3. Make loans except that the Fund may purchase or hold debt
obligations in accordance with its 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 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.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
Fund shares are sold at the net asset value per share next determined after
receipt of a purchase order by PFPC, the Fund's transfer agent. Purchase orders
for shares are accepted only on days on which both the New York Stock Exchange
and the Federal Reserve Bank of Philadelphia are open for business (a "Business
Day") and must be transmitted to PFPC in Wilmington, Delaware, by telephone
(800-441-7450; in Delaware: 302-791-5350) or through the Fund's computer access
program. Orders received before 12:00 noon, Eastern time, for which payment has
been received by PNC Bank, the Fund's custodian will be executed at 12:00 noon.
Orders received after 12:00 noon and before 3:00 P.M., Eastern time (or orders
received earlier in the same day for which payment has not been received by
12:00 noon), will be executed at 4:00 P.M., Eastern time, if payment has been
received by PNC Bank by that time. Orders received
6
<PAGE> 92
at other times, and orders for which payment has not been received by 4:00 P.M.,
Eastern time, will not be accepted, and notice thereof will be given to the
institution placing the order. (Payment for orders which are not received or
accepted will be returned after prompt inquiry to the sending institution.) The
Fund may in its discretion reject any order for shares.
Payment for Fund shares may be made only in federal funds or other funds
immediately available to PNC Bank. The minimum initial investment is $3 million
for T-Cash Shares and $5,000 for Dollar Shares, however Broker-dealers and other
institutional investors may set a higher minimum for their customers. There is
no minimum subsequent investment. The Fund, at its discretion, may reduce the
minimum initial investment for T-Cash Shares for specific institutions whose
aggregate relationship with the Provident Institutional Funds is substantially
equivalent to this $3 million minimum and warrants this reduction.
Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by the Fund in connection with the investment of fiduciary
funds in Dollar Shares. (See also "Management of the Fund--Service
Organizations.") Institutions, including banks regulated by the Comptroller of
the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult their legal advisors before investing fiduciary
funds in Dollar Shares. (See also "Management of the Fund--Banking Laws.")
REDEMPTION PROCEDURES
Redemption orders must be transmitted to PFPC in Wilmington, Delaware, in
the manner described under "Purchase Procedures." Shares are redeemed at the net
asset value per share next determined after PFPC's receipt of the redemption
order. While the Fund intends to use its best efforts to maintain its net asset
value per share at $1.00, the proceeds paid to a shareholder upon redemption may
be more or less than the amount invested depending upon a share's net asset
value at the time of redemption.
Payment for redeemed shares for which a redemption order is received by
PFPC by 3:00 P.M., Eastern time, on a Business Day is normally made in federal
funds wired to the redeeming shareholder on the same day. Payment for redemption
orders which are received between 3:00 P.M. and 4:00 P.M., Eastern time, or on a
day when PNC Bank is closed, is normally wired in federal funds on the next day
following redemption that PNC Bank is open for business.
The Fund shall have the right to redeem shares in any account if the value
of the account is less than $1,000 after sixty-days' prior written notice to the
shareholder. Any such redemption shall be effected at the net asset value per
share next determined after the redemption order is entered. If during the
sixty-day period the shareholder increases the value of its account to $1,000 or
more, no such redemption shall take place. Moreover, if a shareholder's T-Cash
Shares account falls below an average of $100,000 in any particular calendar
month, the account may be charged an account maintenance fee with respect to
that month. In addition, the Fund may also redeem shares involuntarily or
suspend the right of redemption under certain special circumstances described in
the Statement of Additional Information under "Additional Purchase and
Redemption Information."
7
<PAGE> 93
OTHER MATTERS
The Fund's net asset value per share for purposes of pricing purchase and
redemption orders is determined by PIMC as of 12:00 noon and 4:00 P.M., Eastern
time, on each day on which both the Federal Reserve Bank of Philadelphia and the
New York Stock Exchange are open for business. Currently, one or both of these
institutions are closed on the customary national business holidays of New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Columbus Day (observed), Veteran's
Day, Thanksgiving Day and Christmas Day. The net asset value per share of each
class of the Fund is calculated by adding the value of all securities and other
assets belonging to the Fund, subtracting liabilities attributable to each class
and dividing the result by the total number of the outstanding shares of each
class. In computing net asset value, the Fund uses the amortized cost method of
valuation as described in the Statement of Additional Information under
"Additional Purchase and Redemption Information." The Fund's net asset value per
share for purposes of pricing purchase and redemption orders is determined
independently of the net asset values of the shares of the Company's other
investment portfolios.
Fund shares are sold and redeemed without charge by the Fund. Institutional
investors purchasing or holding Fund shares for their customer accounts may
charge customer fees for cash management and other services provided in
connection with their accounts. A customer should, therefore, consider the terms
of its account with an institution before purchasing Fund shares. An institution
purchasing or redeeming Fund shares on behalf of its customers is responsible
for transmitting orders to the Fund in accordance with its customer agreements.
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The business and affairs of the Fund are managed under the direction of the
Company's Board of Trustees. The trustees of the Company are as follows:
Philip E. Coldwell is an economic consultant and a former Member of
the Board of Governors of the Federal Reserve System.
Robert R. Fortune is a financial consultant and former Chairman,
President and Chief Executive Officer of Associated Electric & Gas
Insurance Services Limited.
Rodney D. Johnson is President of Fairmount Capital Advisors, Inc.
G. Willing Pepper, Chairman of the Board and President of the Company,
is a retired President of Scott Paper Company.
Mr. Pepper is considered by the Company to be an "interested person" of the
Company as defined in the 1940 Act.
The other officers of the Company are as follows:
Edward J. Roach is Vice President and Treasurer of the Company.
W. Bruce McConnel, III, Secretary of the Company, is a partner of the
law firm of Drinker Biddle & Reath, Philadelphia, Pennsylvania.
8
<PAGE> 94
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly-owned subsidiary of PNC Bank, serves as the Fund's
investment adviser. PIMC was organized in 1977 by PNC Bank to perform advisory
services for investment companies and has its principal offices at Bellevue Park
Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware 19809. PNC Bank
serves as the Fund's sub-adviser. PNC Bank is one of the largest bank managers
of investments for individuals in the United States, and together with its
predecessors has been in the business of managing the investments of fiduciary
and other accounts since 1847. PNC Bank is a wholly-owned, indirect subsidiary
of PNC Bank Corp. and has its principal offices at Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19102. PNC Bank Corp. is a multi-bank holding
company. PIMC and PNC Bank also serve as adviser and sub-adviser, respectively,
to the Company's FedFund, T-Fund, FedCash, Federal Trust Fund and Treasury Trust
Fund portfolios.
PNC Bank Corp., headquartered in Pittsburgh, Pennsylvania, is one of the
largest financial services organizations in the United States with banking
subsidiaries in Pennsylvania, New Jersey, Delaware, Ohio, Kentucky, Indiana,
Massachusetts and Florida. Its major businesses include corporate banking,
consumer banking, mortgage banking and asset management.
PNC Financial Services Group is PNC Bank Corp.'s mutual fund complex,
headquartered in Wilmington, Delaware. This group includes PIMC, PFPC, and PNC
Bank. In 1973, Provident National Bank (predecessor to PNC Bank) commenced
advising the first institutional money market mutual fund - a U.S.
dollar-denominated constant net asset value fund - offered in the United States.
The PNC Financial Services Group is one of the largest U.S. bank managers
of mutual funds with assets currently under management in excess of $30 billion.
This group, through PFPC and PFPC International Ltd, is also a leading mutual
fund service provider having contractual relationships with approximately 370
mutual funds with 3.5 million shareholders and in excess of $101 billion in
assets, including some $2 billion in non-U.S. assets. This group, through its
PNC Institutional Investment Service, provides investment research to some 250
financial institutions located in the United States and abroad. PNC Bank
provides custodial services for approximately $210 billion in assets, including
$160 billion in mutual fund assets.
As adviser, PIMC manages the Fund's portfolio and is responsible for all
purchases and sales of the Fund's portfolio securities. PIMC also maintains
certain of the Fund's financial accounts and records and computes the Fund's net
asset value and net income. 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 Fund's average net assets. PIMC and the administrators may
from time to time reduce the advisory and administration fees otherwise payable
to them or may reimburse the Fund for its operating expenses. Any fees waived or
expenses reimbursed by PIMC or the administrators with respect to a particular
fiscal year are not recoverable. For the fiscal year ended October 31, 1995, the
Fund paid advisory fees aggregating .06% of the Fund's average net assets.
As sub-adviser, PNC Bank provides research, credit analysis and
recommendations with respect to the Fund's investments, and supplies PIMC with
certain computer facilities, personnel and other services. For its sub-advisory
services, PNC Bank is entitled to receive from PIMC an amount equal to 75% of
the advisory fee paid by the Fund to PIMC (subject to adjustment in certain
circumstances). The sub-advisory fees paid by PIMC to PNC Bank have no effect on
the
9
<PAGE> 95
advisory fees payable by the Fund to PIMC. PNC Bank also serves as the Fund's
custodian. The services provided by PNC Bank and PIMC and the fees payable by
the Fund for these services are described further in the Statement of Additional
Information under "Management of the Funds."
ADMINISTRATORS
PFPC, whose principal business address is 400 Bellevue Parkway, Wilmington,
Delaware 19809, and PDI whose principal business address is 259 Radnor-Chester
Road, Suite 120, Radnor, Pennsylvania 19087, serve as administrators. PFPC is an
indirect wholly-owned subsidiary of PNC Bank Corp. A majority of the outstanding
stock of PDI is owned by its officers. The administrative services provided by
the administrators, which are described more fully in the Statement of
Additional Information, include providing and supervising the operation of an
automated data processing system to process purchase and redemption orders;
assisting in maintaining the Fund's Wilmington, Delaware office; performing
administration services in connection with the Fund's computer access program
maintained to facilitate shareholder access to the Fund; accumulating
information for and coordinating the preparation of reports to the Fund's
shareholders and the SEC; and maintaining the registration or qualification of
the Fund's shares for sale under state securities laws. PFPC and PDI are each
responsible for carrying out the duties undertaken pursuant to the
Administration Agreement with the Fund.
For their administrative services, the administrators are entitled jointly
to receive a fee computed daily and payable monthly. (For information regarding
the administrators' waivers and expense reimbursements, see "Investment Adviser
and Sub-Adviser" above.) The Fund also reimburses each administrator for its
reasonable out-of-pocket expenses incurred in connection with the Funds'
computer access program. For the fiscal year ended October 31, 1995, the Fund
paid administration fees aggregating less than .06% of its average net assets.
PFPC also serves as transfer agent, registrar and dividend disbursing
agent. PFPC's address is P.O. Box 8950, Wilmington, Delaware 19885-9628. The
services provided by PFPC and PDI and the fees payable by the Fund for these
services are described further in the Statement of Additional Information under
"Management of the Funds."
DISTRIBUTOR
PDI serves as distributor of the Fund's shares. Its principal offices are
located at 259 Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087. Fund
shares are sold on a continuous basis by the distributor as agent. The
distributor pays the cost of printing and distributing prospectuses to persons
who are not shareholders of the Fund (excluding preparation and printing
expenses necessary for the continued registration of the Fund's shares) and of
printing and distributing all sales literature. No compensation is payable by
the Fund to the distributor for its distribution services.
SERVICE ORGANIZATIONS
Institutional investors, such as banks, savings and loan associations and
other financial institutions, including affiliates of PNC Bank Corp. ("Service
Organizations"), may purchase Dollar Shares. Dollar Shares are identical in all
respects to the Company's T-Cash Shares except that they bear the service fees
described below and enjoy certain exclusive voting rights on matters relating to
these fees. The Fund will enter into an agreement with each Service
10
<PAGE> 96
Organization which purchases Dollar Shares requiring it to provide support
services to its customers who are the beneficial owners of such shares in
consideration of the Fund's 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, which are described
more fully in the Statement of Additional Information under "Management of the
Funds--Service Organizations," include aggregating and processing purchase and
redemption requests from customers and placing net purchase and redemption
orders with PFPC; processing dividend payments from the Fund on behalf of
customers; providing information periodically to customers showing their
positions in Dollar Shares; and providing sub-accounting or the information
necessary for sub-accounting with respect to Dollar Shares beneficially owned by
customers. Under the terms of the agreements, Service Organizations are required
to provide to their customers a schedule of any fees that they may charge
customers in connection with their investments in Dollar Shares. T-Cash Shares
are sold to institutions that have not entered into servicing agreements with
the Fund in connection with their investments.
EXPENSES
Except as noted above and in the Statement of Additional Information, the
Fund's service contractors bear all expenses in connection with the performance
of their services. Similarly, the Fund bears the expenses incurred in its
operations. For the fiscal year ended October 31, 1995, the Fund's total
expenses with respect to T-Cash Shares and Dollar Shares were .18% and .43% (net
of fee waivers of .12% and .12%, respectively) of the average net assets of the
T-Cash Shares and T-Cash Dollar Shares, respectively. With regard to fees paid
exclusively by Dollar Shares, see "Service Organizations" above.
BANKING LAWS
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company engaged continuously in the issuance of
its shares, and prohibit banks generally from issuing, underwriting, selling or
distributing securities such as Fund shares. Such banking laws and regulations
do not prohibit such a holding company or affiliate or banks generally from
acting as investment adviser, transfer agent or custodian to such an investment
company, or from purchasing shares of such a company for or upon the order of
customers. PNC Bank, PIMC and PFPC, as well as some Service Organizations, are
subject to such banking laws and regulations, but believe they may perform the
services for the Fund contemplated by their respective agreements, this
Prospectus and the Statement of Additional Information without violating
applicable banking laws or regulations.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of bank Service Organizations in connection with the
provision of support services to their customers, the Fund might be required to
alter or discontinue its arrangements with Service Organizations and change its
method of operations with respect to Dollar shares. It is not anticipated,
however, that any change in the Fund's method of operations would affect its net
asset value per share or result in a financial loss to any customer.
11
<PAGE> 97
DIVIDENDS
Shareholders of the Fund are entitled to dividends and distributions
arising only from the net investment income and capital gains, if any, earned on
investments held by the Fund. The Fund's net investment income is declared daily
as a dividend to its shareholders of record at the close of business on the day
of declaration. Shares begin accruing dividends on the day the purchase order
for the shares is executed and continue to accrue dividends through, and
including, the day before such shares are redeemed. Dividends are paid monthly
by check, or by wire transfer if requested in writing by the shareholder, within
five business days after the end of the month or within five business days after
a redemption of all of a shareholder's shares of a particular class. The Fund
does not expect to realize net long-term capital gains.
Dividends are determined in the same manner for each class of shares of the
Fund. Dollar Shares bear all the expense of fees paid to Service Organizations
and as a result, at any given time, the net yield on Dollar Shares will be
approximately .25% lower than the net yield on T-Cash Shares.
Institutional shareholders may elect to have their dividends reinvested in
additional full and fractional shares of the same class of shares with respect
to which such dividends are declared at the net asset value of such shares on
the payment date. Reinvested dividends receive the same tax treatment as
dividends paid in cash. Such election, or any revocation thereof, must be made
in writing to PFPC at P.O. Box 8950, Wilmington, Delaware 19885-9628, and will
become effective after its receipt by PFPC with respect to dividends paid.
PFPC, as transfer agent, will send each Fund shareholder or its authorized
representative an annual statement designating the amount, if any, of any
dividends and distributions made during each year and their federal tax
qualification.
TAXES
The Fund qualified in its last taxable year and intends to qualify in
future years as a "regulated investment company" under the Internal Revenue Code
of 1986, as amended (the "Code"). A regulated Investment Company is generally
exempt from federal income tax on amounts distributed to its shareholders.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that the Fund distribute to its
shareholders at least 90% of its investment company taxable income for such
year. In general, the Fund's investment company taxable income will be its
taxable income (including interest and short-term capital gains, if any),
subject to certain adjustments and excluding the excess of any net long-term
capital gain for the taxable year over the net short-term capital loss, if any,
for such year. The Fund intends to distribute substantially all of its
investment company taxable income each year. Such distributions will be taxable
as ordinary income to the Fund's shareholders that are not currently exempt from
federal income taxes, whether such income is received in cash or reinvested in
additional shares. (Federal income taxes for distributions to an IRA or a
qualified retirement plan are deferred under the Code.) It is anticipated that
none of the Fund's distributions will be eligible for the dividends received
deduction for corporations. The Fund does not expect to realize long-term
capital gains and, therefore, does not contemplate payment of any "capital gain
dividends," as described in the Code.
12
<PAGE> 98
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by the shareholders and paid by the Fund on December 31 of such
year, in the event such dividends are actually paid during January of the
following year.
The foregoing discussion is only a brief summary of some of the important
federal tax considerations generally affecting the Fund and its shareholders. As
indicated above, IRAs receive special tax treatment. No attempt is made to
present a detailed explanation of the federal, state or local income tax
treatment of the Fund or its shareholders, and this discussion is not intended
as a substitute for careful tax planning. Accordingly, potential investors in
the Fund should consult their tax advisors with specific reference to their own
tax situations.
YIELDS
From time to time in advertisements or in reports to shareholders, the
"yields" and "effective yields" for T-Cash Shares and Dollar Shares may be
quoted. Yield quotations are computed for T-Cash Shares separately from those
for Dollar Shares. The "yield" for a particular class or sub-class of Fund
shares refers to the income generated by an investment in such shares over
specified period (such as a seven-day period). This income is then "annualized";
that is, the amount of income generated by the investment during that period is
assumed to be generated for each such period over a 52-week or one-year period
and is shown as a percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the income earned by an investment in
a particular class or sub-class of shares is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
The Fund's yields may be compared to those of other mutual funds with
similar objectives, to stock or other relevant indices, or to rankings prepared
by independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, such data are reported in national
financial publications such as IBC/Donoghue's Money Fund Report(R), The Wall
Street Journal, and The New York Times, reports prepared by Lipper Analytical
Services, Inc., and publications of a local or regional nature.
The Fund's yield figures for T-Cash Shares and T-Cash Dollar Shares
represent the Fund's past performance, will fluctuate, and should not be
considered as representative of future results. The yield of any investment is
generally a function of portfolio quality and maturity, type of investment and
operating expenses. Any fees charged by Service Organization or other
institutional investors directly to their customers in connection with
investments in Fund shares are not reflected in the Fund's yields; and, such
fees, if charged, would reduce the actual return received by customers on their
investments. The methods used to compute the Fund's yields are described in more
detail in the Statement of Additional Information. Investors may call 800-821-
6006 (T-Cash Shares code: 72 T-Cash Dollar Shares code: 73) to obtain current
yield information.
DESCRIPTION OF SHARES AND MISCELLANEOUS
The Company is a Pennsylvania business trust established on May 14, 1975.
Effective March 2, 1987, the Company's name was changed from Trust for
Short-Term Federal Securities to Trust for Federal Securities. The Company
commenced operations of the Fund in June, 1991.
13
<PAGE> 99
The Company's 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 of shares. Pursuant to such authority, the Board of
Trustees has authorized the issuance of twelve classes of shares designated as
FedFund, FedFund Dollar, T-Fund, T-Fund Dollar, FedCash, FedCash Dollar, T-Cash,
T-Cash Dollar, Federal Trust, Federal Trust Dollar, Treasury Trust and Treasury
Trust Dollar. The Declaration of Trust further authorizes the trustees to
classify or reclassify any class of shares into one or more sub-classes.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE COMPANY'S FEDFUND,
T-FUND, FEDCASH, FEDERAL TRUST FUND AND TREASURY TRUST FUND PORTFOLIOS MAY
OBTAIN SEPARATE PROSPECTUSES DESCRIBING THOSE PORTFOLIOS BY CALLING THE
DISTRIBUTOR AT 800-998-7633.
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.
Each Fund Share represents an equal proportionate interest in the assets
belonging to the Fund. Each share is without par value and has no preemptive or
conversion rights. When issued for payment as described in this Prospectus,
shares will be fully paid and non-assessable.
Holders of the Company's T-Cash Shares and T-Cash Dollar Shares will vote
in the aggregate and not by class or sub-class on all matters, except where
otherwise required by law and except that only Dollar Shares will be entitled to
vote on matters submitted to a vote of shareholders pertaining to the Fund's
arrangements with Service Organizations. 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. (See the Statement of Additional Information under
"Additional Description Concerning Fund Shares" for examples where the 1940 Act
requires voting by portfolio.) Shareholders of the Company are entitled to one
vote for each full share held (irrespective of class, sub-class, or portfolio)
and fractional votes for fractional shares held. Voting rights are not
cumulative and, accordingly, the holders of more than 50% of the aggregate
shares of the Company may elect all of the trustees.
For information concerning the redemption of Fund shares and possible
restrictions on their transferability, see "Purchase and Redemption of Shares."
As stated above, the Company is organized as a 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 Company's Declaration of Trust provides for
indemnification out of the trust property of any shareholder of the Fund 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.
14
<PAGE> 100
NO PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS,
OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION
INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR
ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE
COMPANY OR BY THE DISTRIBUTOR
IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
---------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Background and Expense
Information................... 2
Financial Highlights............ 3
Investment Objective and
Policies...................... 4
Purchase and Redemption of
Shares........................ 6
Management of the Fund.......... 8
Dividends....................... 12
Taxes........................... 12
Yields.......................... 13
Description of Shares and
Miscellaneous................. 13
</TABLE>
PIF-P-007
T-CASH
AN INVESTMENT PORTFOLIO
OFFERED BY
TRUST FOR FEDERAL SECURITIES
[PROVIDENT INSTITUTIONAL FUND LOGO]
Prospectus
February 28, 1996
<PAGE> 101
FEDCASH AND T-CASH
Investment Portfolios Offered By
Trust for Federal Securities
Statement of Additional Information
February __, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . FS-1
</TABLE>
This Statement of Additional Information is meant to be read in
conjunction with the Prospectuses for FedCash and T-Cash dated February __,
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> 102
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> 103
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.
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<PAGE> 104
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> 105
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.
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<PAGE> 106
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> 107
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
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<PAGE> 108
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
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<PAGE> 109
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.
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<PAGE> 110
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>
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<PAGE> 111
<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>
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<PAGE> 112
<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
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<PAGE> 113
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.
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<PAGE> 114
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> 115
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> 116
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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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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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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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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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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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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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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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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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.
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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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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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>
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<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
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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.
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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
A-1
<PAGE> 130
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.
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<PAGE> 131
"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> 132
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> 133
"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> 134
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> 135
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> 136
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> 137
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> 138
"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> 139
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> 140
"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
<PAGE> 141
Federal Trust Fund
An Investment Portfolio Offered By
Trust for Federal Securities
<TABLE>
<S> <C>
Bellevue Park Corporate Center For purchase and redemption orders only call:
400 Bellevue Parkway 800-441-7450 (in Delaware: 302-791-5350).
Suite 100 For yield information call: 800-821-6006
Wilmington, DE 19809 (Federal Trust shares code: 11;
Federal Trust Dollar shares code: 12).
For other information call: 800-821-7432.
</TABLE>
Trust for Federal Securities (the "Company") is a no-load, diversified,
open-end investment company that currently offers shares in six separate
investment portfolios. The shares described in this Prospectus represent
interests in the Federal Trust Fund portfolio (the "Fund"), a money market
portfolio.
To the extent permissible by federal and state law, the Fund is structured
to provide shareholders with income that is exempt or excluded from taxation at
the state and local level. See "Taxes." The Fund is also designed to provide an
economical and convenient means for the investment of short-term funds held by
banks, trust companies, corporations, employee benefit plans and other
institutional investors. The investment objective of the Fund is to seek current
income with liquidity and security of principal. The Fund invests in those
obligations issued or guaranteed as to principal and interest by the U.S.
Government or by agencies or instrumentalities thereof the interest income from
which, under current law, generally may not be subject to state income tax by
reason of federal law.
Fund shares may not be purchased by individuals directly, but institutional
investors may purchase shares for accounts maintained by individuals. In
addition to Federal Trust Shares, investors may purchase Federal Trust "Dollar
Shares" which accrue daily dividends in the same manner as Federal Trust Shares
but bear all fees payable by the Fund to institutional investors for certain
services they provide to the beneficial owners of such Shares. (See "Management
of the Fund--Service Organizations.")
PNC Institutional Management Corporation ("PIMC") and PNC Bank, National
Association ("PNC Bank") serve as the Fund's adviser and sub-adviser,
respectively. PFPC Inc. ("PFPC") and Provident Distributors, Inc. ("PDI") serve
as the Fund's administrators. PDI also serves as the Fund's distributor.
------------------------
SHARES OF THE FUND 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 FUND INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO
ASSURANCE THAT IT WILL BE ABLE TO MAINTAIN ITS NET ASSET
VALUE OF $1.00 PER SHARE.
------------------------
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information currently dated
February 28, 1996, has been filed with the Securities and Exchange Commission
and is available to investors without charge by calling the Fund at
800-821-7432. The Statement of Additional Information, as amended from time to
time, is incorporated in its entirety by reference into this Prospectus.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
February 28, 1996
<PAGE> 142
BACKGROUND AND EXPENSE INFORMATION
Two classes of shares are offered by this Prospectus: Federal Trust shares
and Federal Trust Dollar shares. Shares of each class represent equal, pro rata
interests in the Fund and accrue daily dividends in the same manner except that
the Dollar shares bear fees payable by the Fund (at the rate of .25% per annum)
to institutional investors for services they provide to the beneficial owners of
such shares. (See "Management of the Fund--Service Organizations.")
EXPENSE SUMMARY
<TABLE>
<CAPTION>
FEDERAL
FEDERAL TRUST
TRUST DOLLAR
SHARES SHARES
-------------- --------------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
- ------------------------------
(as a percentage of average net assets)
Management Fees (net of waivers)........................ .06% .06%
Other Expenses.......................................... .14% .39%
Administration Fees (net of waivers)............... .06% .06%
Shareholder Servicing Fees......................... 0% .25%
Miscellaneous...................................... .06% .06%
----- -----
Total Fund Operating Expenses (net of waivers).......... .20% .45%
===== =====
</TABLE>
- ------------
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2)
redemption at the end of each time period with
respect to the following shares:
Federal Trust Shares: $2 $ 6 $11 $ 26
Federal Trust Dollar Shares: $5 $14 $25 $ 57
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. The table is based on expenses incurred by the
Federal Trust Shares and Dollar Shares during the last fiscal year, restated to
reflect the expenses which each class of shares expects to incur during the
current fiscal year. In addition, institutional investors may charge fees for
providing administrative services in connection with their customers' investment
in Dollar Shares. Absent fee waivers, Management and Administration fees for
Federal Trust Shares and Dollar Shares each would have been .13% and Total Fund
Operating Expenses would have been .32% and .57%, respectively. (For more
complete descriptions of the various costs and expenses, see "Management of the
Fund" in this Prospectus and the Statement of Additional Information and the
financial statements and related notes contained in the Statement of Additional
Information.). The investment adviser and administrators may from time to time
waive the advisory and administration fees otherwise payable to them or may
reimburse the Fund for its operating expenses. The foregoing table has not been
audited by the Fund's independent accountants.
2
<PAGE> 143
FINANCIAL HIGHLIGHTS
The following financial highlights for Federal Trust Fund Shares have been
derived from the financial statements of the Fund for the fiscal years ended
October 31, 1995 and for each of the three preceding fiscal years and for the
fiscal period ended October 31, 1991 (commencement of operations) and for
Federal Trust Dollar Shares for the fiscal years ended October 31, 1995 and for
each of the three preceding fiscal years and for the fiscal period ended October
31, 1991 (commencement of operations). The financial highlights for the fiscal
years set forth below have been audited by Coopers & Lybrand L.L.P. independent
accountants whose report on the financial statements and financial highlights of
the Fund is included in the Statement of Additional Information. The tables
should be read in conjunction with the financial statements and related notes
included in the Statement of Additional Information. Further information about
the performance of the Fund is available in the annual report to shareholders,
which may be obtained without charge by calling 800-821-7432.
TRUST FOR FEDERAL SECURITIES
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
FEDERAL TRUST SHARES
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, DECEMBER 3, 1990(3)
-------------------------------------------- TO
1995 1994 1993 1992 OCTOBER 31, 1991
-------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -----------------
Income From Investment Operations:
Net Investment Income...................... .0563 .0380 .0302 .0389 .0564
Net Capital Gains.......................... -- -- .0001 .0018 --
-------- -------- -------- -------- -----------------
Total From Investment Operations........... .0563 .0380 .0303 .0407 .0564
-------- -------- -------- -------- -----------------
Less Distributions:
Dividends to Shareholders from:
Net Investment Income.................... (.0563) (.0380) (.0302) (.0389) (.0564)
Net Capital Gains........................ -- -- (.0001) (.0018) --
-------- -------- -------- -------- -----------------
Total Distributions........................ (.0563) (.0380) (.0303) (.0407) (.0564)
-------- -------- -------- -------- -----------------
Net Asset Value, End of Period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ==================
Total Return................................. 5.77% 3.87% 3.06% 4.15% 5.79%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (in 000s)........ $237,718 $317,769 $257,125 $428,365 $ 184,063
Ratio of Expenses to Average Net
Assets(1)................................ .18% .18% .18% .20% .12%(2)
Ratio of Net Investment Income to Average
Net Assets............................... 5.61% 3.85% 3.02% 3.75% 5.93%(2)
</TABLE>
- ------------
(1) Without the waiver of advisory and administration fees and without expense
reimbursements, the ratio of expenses to average daily net assets would have
been .32%, .31%, .29% and .30% respectively, for each of the years ended
October 31, 1995, 1994, 1993 and 1992, and .39% (annualized) for the period
ended October 31, 1991 for Federal Trust Shares.
(2) Annualized.
(3) Commencement of operations.
(4) Total returns are not annualized for periods of less than one year.
3
<PAGE> 144
TRUST FOR FEDERAL SECURITIES
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
FEDERAL TRUST DOLLAR SHARES
<TABLE>
<CAPTION>
DECEMBER 31,
YEAR ENDED OCTOBER 31, 1990(3)
---------------------------------------- TO
1995 1994 1993 1992 OCTOBER 31, 1991
------- ------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- --------
Income From Investment Operations:
Net Investment Income........................ .0538 .0355 .0277 .0364 .0487
Net Capital Gains............................ -- -- .0001 .0018 --
------- ------- ------- ------- --------
Total From Investment Operations............. .0538 .0355 .0278 .0382 .0487
------- ------- ------- ------- --------
Less Distributions:
Dividends to Shareholders from:
Net Investment Income...................... (.0538) (.0355) (.0277) (.0364) (.0487)
Net Capital Gains.......................... -- -- (.0001) (.0018) --
------- ------- ------- ------- --------
Total Distributions.......................... (.0538) (.0355) (.0278) (.0382) (.0487)
------- ------- ------- ------- --------
Net Asset Value, End of Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ===================
Total Return................................... 5.52% 3.62% 2.81% 3.90% 4.98%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (in 000s).......... $28,402 $ 8,278 $ 1,025 $ 2,442 $ 1,681
Ratio of Expenses to Average Net Assets(1)... .43% .43% .43% .45% .37%(2)
Ratio of Net Investment Income to Average Net
Assets..................................... 5.36% 3.60% 2.77% 3.50% 5.86%(2)
</TABLE>
- ------------
(1) Without the waiver of advisory and administration fees and without expense
reimbursements, the ratio of expenses to average daily net assets would have
been .57%, .56%, .54% and .55%, respectively, for each of the years ended
October 31, 1995, 1994, 1993 and 1992, and .64% (annualized) for the period
ended October 31, 1991 for Federal Trust Dollar Shares.
(2) Annualized.
(3) First issuance of shares.
(4) Total returns are not annualized for periods of less than one year.
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INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek current income with liquidity
and security of principal. The investment objective of the Fund is fundamental
and may not be changed without the approval of the holders of at least a
majority of the outstanding shares of the Fund. The Fund invests in obligations
issued or guaranteed as to principal and interest by the U.S. Government or by
agencies or instrumentalities thereof the interest income from which, under
current law, generally may not be subject to state income tax by reason of
federal law, including securities issued by the U.S. Treasury and by certain
agencies or instrumentalities such as the Federal Home Loan Bank, Federal Farm
Credit Banks Funding Corp. and the Student Loan Marketing Association.
Shareholders in a particular state that imposes an income tax should determine
through consultation with their own tax advisors whether such interest income,
when distributed by the Fund, will be considered by the state to have retained
exempt status, and whether the Fund's capital gain and other income, if any,
when distributed will be subject to the state's income tax. See "Taxes." DUE TO
STATE INCOME TAX CONSIDERATIONS, THE FUND WILL NOT ENTER INTO REPURCHASE
AGREEMENTS.
Portfolio obligations held by the Fund have remaining maturities of 397
days (thirteen months) or less (with certain exceptions), subject to the
quality, diversification, and other requirements of Rule 2a-7 under the
Investment Company Act of 1940, as amended (the "1940 Act") and other rules of
the Securities and Exchange Commission (the "SEC"). Certain government
securities held by the Fund may have remaining maturities exceeding thirteen
months if such securities provide for adjustments in their interest rates not
less frequently than every thirteen months.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal if
held to maturity. However, due to fluctuations in interest rates, the market
value of such securities may vary during the period a shareholder owns shares of
the Fund. The Fund may from time to time engage in portfolio trading for
liquidity purposes, in order to enhance its yield or if otherwise deemed
advisable. In selling portfolio securities prior to maturity, the Fund may
realize a price higher or lower than that paid to acquire any given security,
depending upon whether interest rates have decreased or increased since its
acquisition. To the extent consistent with its investment objectives, the Fund
may invest in Treasury receipts and other "stripped" securities issued or
guaranteed by the U.S. Government, where the principal and interest components
are traded independently under the Separate Trading of Registered Interest and
Principal of Securities program ("STRIPS"). Under the STRIPS program, the
principal and interest components are individually numbered and separately
issued by the U.S. Treasury at the request of depository financial institutions,
which then trade the component parts independently. Currently, the Fund only
invests in "stripped" securities issued or guaranteed by the U.S. Government
which are registered under the STRIPS program. The principal and interest
components may exhibit greater price volatility then ordinary debt securities
because of the manner in which their principal and interest are returned to
investors.
The Fund may purchase securities on a "when-issued" basis. When-issued
securities are securities purchased for delivery beyond the normal settlement
date at a stated price and yield. The Fund will generally not pay for such
securities or start earning interest on them until they are
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<PAGE> 146
received. Securities purchased on a when-issued basis are recorded as an asset
and are subject to changes in value based upon changes in the general level of
interest rates. The Fund expects that commitments to purchase when-issued
securities will not exceed 25% of the value of its total assets absent unusual
market conditions. The Fund does not intend to purchase when-issued securities
for speculative purposes but only in furtherance of its investment objective.
SUITABILITY
The Fund is designed as an economical and convenient vehicle for those
institutional investors seeking to obtain current income with liquidity and
security of principal. The Fund is designed for banks and other institutions
seeking investment of monies held in accounts for which the institution acts in
a fiduciary, advisory, agency, custodial or other similar capacity. The Fund may
also be suitable for the investment of funds held or managed by corporations,
employee benefit plans, insurance companies, unions, hospitals, investment
counselors, professional firms, educational, religious and charitable
organizations, investment bankers, brokers, and others, if consistent with the
objectives of the particular account and any applicable state and federal laws
and regulations.
The Fund offers the advantage of diversification and economies of scale,
thereby avoiding the generally greater expense of executing a large number of
small transactions. Moreover, investment in the Fund relieves the investor of
many management and administrative burdens associated with the direct purchase
and sale of income obligations. These include the selection of investments;
surveying the market for the best terms at which to buy and sell; receipt,
delivery and safekeeping of securities; and recordkeeping.
INVESTMENT LIMITATIONS
The Fund's investment policies described above may be changed by the
Company's Board of Trustees without a vote of shareholders. The Fund's
investment objective and investment limitations summarized below may not be
changed without the affirmative vote of the holders of a majority of its
outstanding shares. (A complete list of the investment limitations that cannot
be changed without a vote of shareholders is contained in the Statement of
Additional Information under "Investment Objectives and Policies.")
The Fund may not:
1. Purchase securities other than obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
2. Borrow money except from banks for temporary purposes and then in
an amount not exceeding 10% of the value of the 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 Fund's total assets at the time
of such borrowing.
3. Make loans except that the Fund may purchase or hold debt
obligations in accordance with its investment objective and policies.
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<PAGE> 147
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
Fund shares are sold at the net asset value per share next determined after
receipt of a purchase order by PFPC, the Fund's transfer agent. Purchase orders
for shares are accepted only on days on which both the New York Stock Exchange
and the Federal Reserve Bank of Philadelphia are open for business (a "Business
Day") and must be transmitted to PFPC in Wilmington, Delaware, by telephone
(800-441-7450; in Delaware: 302-791-5350) or through the Fund's computer access
program. Orders received before 12:00 noon, Eastern time, for which payment has
been received by PNC Bank, the Fund's custodian, will be executed at 12:00 noon.
Orders received after 12:00 noon and before 2:30 P.M., Eastern time (or orders
received earlier in the same day for which payment has not been received by
12:00 noon) will be executed at 4:00 P.M., Eastern time, if payment has been
received by PNC Bank by that time. Orders received at other times, and orders
for which payment has not been received by 4:00 P.M., Eastern time, will not be
accepted, and notice thereof will be given to the institution placing the order.
(Payment for orders which are not received or accepted will be returned after
prompt inquiry to the sending institution.) The Fund may in its discretion
reject any order for shares.
Payment for Fund shares may be made only in federal funds or other funds
immediately available to PNC Bank. The minimum initial investment by an
institution is $3 million for Federal Trust Shares and $5,000 for Dollar Shares;
however, broker-dealers and other institutional investors may set a higher
minimum for their customers. There is no minimum subsequent investment. The
Fund, at its discretion, may reduce the minimum initial investment for Federal
Trust Shares for specific institutions whose aggregate relationship with the
Provident Institutional Funds is substantially equivalent to this $3 million
minimum and warrants this reduction.
Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by the Fund in connection with the investment of fiduciary
funds in Dollar Shares. (See also "Management of the Fund--Service
Organizations.") Institutions, including banks regulated by the Comptroller of
the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult their legal advisors before investing fiduciary
funds in Dollar Shares. (See also "Management of the Fund--Banking Laws.")
REDEMPTION PROCEDURES
Redemption orders must be transmitted to PFPC in Wilmington, Delaware in
the manner described under "Purchase Procedures." Shares are redeemed at the net
asset value per share next determined after PFPC's receipt of the redemption
order. While the Fund intends to use its best efforts to maintain its net asset
value per share at $1.00, the proceeds paid to a shareholder upon redemption may
be more or less than the amount invested depending upon a share's net asset
value at the time of redemption.
Payment for redeemed shares for which a redemption order is received by
PFPC by 2:30 P.M., Eastern time, on a Business Day is normally made in federal
funds wired to the redeeming shareholder on the same day. Payment for redemption
orders which are received between 2:30 P.M. and 4:00 P.M., Eastern time, or on a
day when PNC Bank is closed, is normally wired in federal funds on the next day
following redemption that PNC Bank is open for business.
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<PAGE> 148
The Fund shall have the right to redeem shares in any account if the value
of the account is less than $1,000 after sixty-days' prior written notice to the
shareholder. Any such redemption shall be effected at the net asset value per
share next determined after the redemption order is entered. If during the
sixty-day period the shareholder increases the value of its account to $1,000 or
more, no such redemption shall take place. Moreover, if a shareholder's Federal
Trust Shares account falls below an average of $100,000 in any particular
calendar month, the account may be charged an account maintenance fee with
respect to that month. In addition, the Fund may also redeem shares
involuntarily or suspend the right of redemption under certain special
circumstances described in the Statement of Additional Information under
"Additional Purchase and Redemption Information."
OTHER MATTERS
The Fund's net asset value per share for purposes of pricing purchase and
redemption orders is determined by PIMC as of 12:00 noon and 4:00 P.M., Eastern
time, on each day (on which both the Federal Reserve Bank of Philadelphia and
the New York Stock Exchange are open for business). Currently, one or both of
these institutions are closed on the customary national business holidays of New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Columbus Day (observed), Veteran's
Day, Thanksgiving Day and Christmas Day. The net asset value per share of each
class of the Fund is calculated by adding the value of all securities and other
assets belonging to the Fund, subtracting liabilities attributable to each class
and dividing the result by the total number of the outstanding shares of each
class. In computing net asset value, the Fund uses the amortized cost method of
valuation as described in the Statement of Additional Information under
"Additional Purchase and Redemption Information." The Fund's net asset value per
share for purposes of pricing purchase and redemption orders is determined
independently of the net asset values of the shares of the Company's other
investment portfolios.
Fund shares are sold and redeemed without charge by the Fund. Institutional
investors purchasing or holding Fund shares for their customer accounts may
charge customer fees for cash management and other services provided in
connection with their accounts. A customer should, therefore, consider the terms
of its account with an institution before purchasing Fund shares. An institution
purchasing or redeeming Fund shares on behalf of its customers is responsible
for transmitting orders to the Fund in accordance with its customer agreements.
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The business and affairs of the Fund are managed under the direction of the
Company's Board of Trustees. The trustees of the Company are as follows:
Philip E. Coldwell is an economic consultant and a former Member of
the Board of Governors of the Federal Reserve System.
Robert R. Fortune is a financial consultant and former Chairman,
President and Chief Executive Officer of Associated Electric & Gas
Insurance Services Limited.
Rodney D. Johnson is President of Fairmount Capital Advisors, Inc.
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<PAGE> 149
G. Willing Pepper, Chairman of the Board and President of the Company,
is a retired President of Scott Paper Company.
Mr. Pepper is considered by the Company to be an "interested person"
of the Company as defined in the 1940 Act.
The other officers of the Company are as follows:
Edward J. Roach is Vice President and Treasurer of the Company.
W. Bruce McConnel, III, Secretary of the Company, is a partner of the
law firm of Drinker Biddle & Reath, Philadelphia, Pennsylvania.
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly-owned subsidiary of PNC Bank, serves as the Fund's
investment adviser. PIMC was organized in 1977 by PNC Bank to perform advisory
services for investment companies and has its principal offices at 400 Bellevue
Parkway, Wilmington, Delaware 19809. PNC Bank serves as the Fund's sub-adviser.
PNC Bank is one of the largest bank managers of investments for individuals in
the United States, and together with its predecessors has been in the business
of managing the investments of fiduciary and other accounts since 1847. PNC Bank
is a wholly-owned, indirect subsidiary of PNC Bank Corp. and has its principal
offices at Broad and Chestnut Streets, Philadelphia, Pennsylvania 19102. PNC
Bank Corp. is a multi-bank holding company. PIMC and PNC Bank also serve as
adviser and sub-adviser, respectively, to the Company's FedFund, T-Fund,
FedCash, T-Cash and Treasury Trust Fund portfolios.
PNC Bank Corp., headquartered in Pittsburgh, Pennsylvania, is one of the
largest financial services organizations in the United States with banking
subsidiaries in Pennsylvania, New Jersey, Delaware, Ohio, Kentucky, Indiana,
Massachusetts and Florida. Its major businesses include corporate banking,
consumer banking, mortgage banking and asset management.
PNC Financial Services Group is PNC Bank Corp.'s mutual fund complex,
headquartered in Wilmington, Delaware. This group includes PIMC, PFPC and PNC
Bank. In 1973, Provident National Bank (predecessor to PNC Bank) commenced
advising the first institutional money market mutual fund--a U.S.
dollar-denominated constant net asset value fund--offered in the United States.
The PNC Financial Services Group is one of the largest U.S. bank managers
of mutual funds with assets currently under management in excess of $30 billion.
This group, through PFPC and PFPC International Ltd., is also a leading mutual
fund service provider having contractual relationships with approximately 370
mutual funds with 3.5 million shareholders and in excess of $101 billion in
assets, including some $2 billion in non-U.S. assets. This group, through its
PNC Institutional Investment Service, provides investment research to some 250
financial institutions located in the United States and abroad. PNC Bank
provides custodial services for approximately $210 billion in assets, including
$160 billion in mutual fund assets.
As adviser, PIMC manages the Fund's portfolio and is responsible for all
purchases and sales of the Fund's portfolio securities. PIMC also maintains
certain of the Fund's financial accounts and records and computes the Fund's net
asset value and net income. 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 Fund's average net assets. PIMC and the administrators may
from
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<PAGE> 150
time to time reduce the advisory and administration fees otherwise payable to
them or may reimburse the Fund for its operating expenses. Any fees waived or
expenses reimbursed by PIMC or the administrators with respect to a particular
fiscal year are not recoverable. For the fiscal year ended October 31, 1995, the
Fund paid advisory fees aggregating .06% of the Fund's average net assets.
As sub-adviser, PNC Bank provides research, credit analysis and
recommendations with respect to the Fund's investments, and supplies PIMC with
certain computer facilities, personnel and other services. For its sub-advisory
services, PNC Bank is entitled to receive from PIMC an amount equal to 75% of
the advisory fee paid by the 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 the Fund to PIMC. PNC Bank also serves as the
Fund's custodian. The services provided by PNC Bank and PIMC and the fees
payable by the Fund for these services are described further in the Statement of
Additional Information under "Management of the Funds."
ADMINISTRATORS
PFPC whose principal business address is 400 Bellevue Parkway, Wilmington,
Delaware 19809, and PDI, whose principal business address is 259 Radnor-Chester
Road, Suite 120, Radnor, Pennsylvania 19087, serve as administrators. PFPC is an
indirect wholly-owned subsidiary of PNC Bank Corp. A majority of the outstanding
stock of PDI is owned by its officers. The administrative services provided by
the administrators, which are described more fully in the Statement of
Additional Information, include providing and supervising the operation of an
automated data processing system to process purchase and redemption orders;
assisting in maintaining the Fund's Wilmington, Delaware office; performing
administrative services in connection with the Fund's computer access program
maintained to facilitate shareholder access to the Fund; accumulating
information for and coordinating the preparation of reports to the Fund's
shareholders and the Securities and Exchange Commission; and maintaining the
registration or qualification of the Fund's shares for sale under state
securities laws. PFPC and PDI are each responsible for carrying out the duties
undertaken pursuant to the Administration Agreement with the Fund.
For their administrative services, the administrators are entitled jointly
to receive a fee computed daily and payable monthly. (For information regarding
the administrators' waivers and expense reimbursements, see "Investment Adviser
and Sub-Adviser" above.) The Fund also reimburses each administrator for its
reasonable out-of-pocket expenses incurred in connection with the Funds'
computer access program. For the fiscal year ended October 31, 1995, the Fund
paid administration fees aggregating .06% of its average net assets.
PFPC also serves as transfer agent, registrar and dividend disbursing
agent. PFPC's address is P.O. Box 8950, Wilmington, Delaware 19885-9628. The
services provided by PFPC and PDI and the fees payable by the Fund for these
services are described further in the Statement of Additional Information under
"Management of the Funds."
DISTRIBUTOR
PDI serves as distributor of the Fund's shares. Its principal offices are
located at 259 Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087. Fund
shares are sold on a continuous basis by the distributor as agent. The
distributor pays the cost of printing and distributing prospectuses to persons
who are not shareholders of the Fund (excluding preparation and printing
expenses
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<PAGE> 151
necessary for the continued registration of the Fund's shares) and of printing
and distributing all sales literature. No compensation is payable by the Fund to
the distributor for its distribution services.
SERVICE ORGANIZATIONS
Institutional investors, such as banks, savings and loan associations and
other financial institutions, including affiliates of PNC Bank Corp. ("Service
Organizations") may purchase Dollar Shares. Dollar Shares are identical in all
respects to the Company's Federal Trust Shares except that they bear the service
fees described below and enjoy certain exclusive voting rights on matters
relating to these fees. The Fund will enter into an agreement with each Service
Organization which purchases Dollar Shares requiring it to provide support
services to its customers who are the beneficial owners of such shares in
consideration of the Fund's payment of .25% (on an annualized basis) of the
average daily net assets of the Dollar Shares held by the Service Organization
for the benefit of customers. Such services, which are described more fully in
the Statement of Additional Information under "Management of the Funds--Service
Organizations," include aggregating and processing purchase and redemption
requests from customers and placing net purchase and redemption orders with
PFPC; processing dividend payments from the Fund on behalf of customers;
providing information periodically to customers showing their positions in
Dollar Shares; and providing sub-accounting or the information necessary for
sub-accounting with respect to Dollar Shares beneficially owned by customers.
Under the terms of the agreements, Service Organizations are required to provide
to their customers a schedule of any fees that they may charge customers in
connection with their investments in Dollar Shares. Federal Trust Shares are
sold to institutions that have not entered into servicing agreements with the
Fund in connection with their investments.
EXPENSES
Except as noted above and in the Statement of Additional Information, the
Fund's service contractors bear all expenses in connection with the performance
of their services. Similarly, the Fund bears the expenses incurred in its
operations. For the fiscal year ended October 31, 1995, the Fund's total
expenses with respect to Federal Trust Shares and Dollar Shares were .18% and
.43% (net of fee waivers of .14% and .14%, respectively) of the average net
assets of the Federal Trust Shares and Federal Trust Dollar Shares,
respectively. With regard to fees paid exclusively by Dollar Shares, see
"Service Organizations" above.
BANKING LAWS
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company engaged continuously in the issuance of
its shares, and prohibit banks generally from issuing, underwriting, selling or
distributing securities such as Fund shares. Such banking laws and regulations
do not prohibit such a holding company or affiliate or banks generally from
acting as investment adviser, transfer agent or custodian to such an investment
company, or from purchasing shares of such a company for or upon the order of
customers. PNC Bank, PIMC and PFPC, as well as some Service Organizations, are
subject to such banking laws and regulations, but believe they may perform the
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services for the Fund contemplated by their respective agreements, this
Prospectus and the Statement of Additional Information without violating
applicable banking laws or regulations.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of bank Service Organizations in connection with the
provision of support services to their customers, the Fund might be required to
alter or discontinue its arrangements with Service Organizations and change its
method of operations with respect to Dollar Shares. It is not anticipated,
however, that any change in the Fund's method of operations would affect its net
asset value per share or result in a financial loss to any customer.
DIVIDENDS
Shareholders of the Fund are entitled to dividends and distributions
arising only from the net investment income and capital gains, if any, earned on
investments held by the Fund. The Fund's net investment income is declared daily
as a dividend to its shareholders of record at the close of business on the day
of declaration. Shares begin accruing dividends on the day the purchase order
for the shares is executed and continue to accrue dividends through, and
including, the day before such shares are redeemed. Dividends are paid monthly
by check, or by wire transfer if requested in writing by the shareholder, within
five business days after the end of the month or within five business days after
a redemption of all of a shareholder's shares of a particular class. The Fund
does not expect to realize net long-term capital gains.
Dividends are determined in the same manner for each class of shares of the
Fund. Dollar Shares bear all the expense of fees paid to Service Organizations
and as a result, at any given time, the net yield on Dollar Shares will be
approximately .25% lower than the net yield on Federal Trust Shares.
Institutional shareholders may elect to have their dividends reinvested in
additional full and fractional shares of the same class of shares with respect
to which such dividends are declared at the net asset value of such shares on
the payment date. Reinvested dividends receive the same tax treatment as
dividends paid in cash. Such election, or any revocation thereof, must be made
in writing to PFPC at P.O. Box 8950, Wilmington, Delaware 19885-9628, and will
become effective after its receipt by PFPC with respect to dividends paid.
PFPC, as transfer agent, will send each Fund shareholder or its authorized
representative an annual statement designating the amount, if any, of any
dividends and distributions made during each year and their federal tax
qualification.
TAXES
The Fund qualified in its last taxable year and intends to qualify in
future years as a "regulated investment company" under the Internal Revenue Code
of 1986, as amended (the "Code"). A regulated investment company is generally
exempt from federal income tax on amounts distributed to its shareholders.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that the Fund distribute to its
shareholders at least 90% of its investment company taxable income for such
year. In general, the Fund's investment company taxable income will be its
taxable income (including interest and short-term capital gains, if any),
subject
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<PAGE> 153
to certain adjustments and excluding the excess of any net long-term capital
gain for the taxable year over the net short-term capital loss, if any, for such
year. The Fund intends to distribute substantially all of its investment company
taxable income each year. Such distributions will be taxable as ordinary income
to the Fund's shareholders that are not currently exempt from federal income
taxes, whether such income is received in cash or reinvested in additional
shares. (Federal income taxes for distributions to an IRA or a qualified
retirement plan are deferred under the Code.) It is anticipated that none of the
Fund's distributions will be eligible for the dividends received deduction for
corporations. The Fund does not expect to realize long-term capital gains and,
therefore, does not contemplate payment of any "capital gain dividends", as
described in the Code.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by the shareholders and paid by the Fund on December 31 of such
year, in the event such dividends are actually paid during January of the
following year.
TO THE EXTENT PERMISSIBLE BY FEDERAL AND STATE LAW, THE FUND IS STRUCTURED
TO PROVIDE SHAREHOLDERS WITH INCOME THAT IS EXEMPT OR EXCLUDED FROM TAXATION AT
THE STATE AND LOCAL LEVEL. SUBSTANTIALLY ALL DIVIDENDS PAID TO SHAREHOLDERS
RESIDING IN CERTAIN STATES WILL BE EXEMPT OR EXCLUDED FROM STATE INCOME TAX.
MANY STATES, BY STATUTE, JUDICIAL DECISION OR ADMINISTRATIVE ACTION, HAVE TAKEN
THE POSITION THAT DIVIDENDS OF A REGULATED INVESTMENT COMPANY SUCH AS THE FUND
THAT ARE ATTRIBUTABLE TO INTEREST ON OBLIGATIONS OF THE U.S. TREASURY AND
CERTAIN U.S. GOVERNMENT AGENCIES AND INSTRUMENTALITIES ARE THE FUNCTIONAL
EQUIVALENT OF INTEREST FROM SUCH OBLIGATIONS AND ARE, THEREFORE, EXEMPT FROM
STATE AND LOCAL INCOME TAXES. INVESTORS SHOULD BE AWARE OF THE APPLICATION OF
THEIR STATE AND LOCAL TAX LAWS TO INVESTMENTS IN THE FUND.
The foregoing discussion is only a brief summary of some of the important
federal tax considerations generally affecting the Fund and its shareholders. As
indicated above, IRAs receive special tax treatment. No attempt is made to
present a detailed explanation of the federal, state or local income tax
treatment of the Fund or its shareholders, and this discussion is not intended
as a substitute for careful tax planning. Accordingly, potential investors in
the Fund should consult their tax advisors with specific reference to their own
tax situations.
YIELDS
From time to time, in advertisements or in reports to shareholders, the
"yields" and "effective yields" for Federal Trust Shares and Dollar Shares may
be quoted. Yield quotations are computed for Federal Trust Shares separately
from those for Dollar Shares. The "yield" for a particular class or sub-class of
Fund shares refers to the income generated by an investment in such shares over
a specified period (such as a seven-day period). This income is then
"annualized"; that is, the amount of income generated by the investment during
that period is assumed to be generated for each such period over a 52-week or
one-year period and is shown as a percentage of the investment. The "effective
yield" is calculated similarly but, when annualized, the income earned by an
investment in a particular class or sub-class of shares is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
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<PAGE> 154
The Fund's yields may be compared to those of other mutual funds with
similar objectives, to stock or other relevant indices, or to rankings prepared
by independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, such data are reported in national
financial publications such as IBC/Donoghue's Money Fund Report(R), The Wall
Street Journal, and The New York Times, reports prepared by Lipper Analytical
Services, Inc., and publications of a local or regional nature.
The Fund's yield figures for Federal Trust Fund Shares and Federal Trust
Fund Dollar Shares represent the Fund's past performance, will fluctuate, and
should not be considered as representative of future results. The yield of any
investment is generally a function of portfolio quality and maturity, type of
investment and operating expenses. Any fees charged by Service Organization or
other institutional investors directly to their customers in connection with
investments in Fund shares are not reflected in the Fund's yields; and, such
fees, if charged, would reduce the actual return received by customers on their
investments. The methods used to compute the Fund's yields are described in more
detail in the Statement of Additional Information. Investors may call
800-821-6006 (Federal Trust Shares code: 11; Federal Trust Dollar Shares code:
12) to obtain current yield information.
DESCRIPTION OF SHARES AND MISCELLANEOUS
The Company is a Pennsylvania business trust established on May 14, 1975.
Effective March 2, 1987, the Company's name was changed from Trust for
Short-Term Federal Securities to Trust for Federal Securities. The Company
commenced operations of the Fund in December, 1990.
The Company's 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 of shares. Pursuant to such authority, the Board of
Trustees has authorized the issuance of twelve classes of shares designated as
Federal Trust, Federal Trust Dollar, FedFund, FedFund Dollar, T-Fund, T-Fund
Dollar, FedCash, FedCash Dollar, T-Cash, T-Cash Dollar, Treasury Trust and
Treasury Trust Dollar. The Declaration of Trust further authorizes the trustees
to classify or reclassify any class of shares into one or more sub-classes.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE COMPANY'S FEDFUND,
T-FUND, FEDCASH, T-CASH AND TREASURY TRUST FUND PORTFOLIOS MAY OBTAIN SEPARATE
PROSPECTUSES DESCRIBING THESE PORTFOLIOS BY CALLING THE DISTRIBUTOR AT
800-998-7633.
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.
14
<PAGE> 155
Each Fund Share represents an equal proportionate interest in the assets
belonging to the Fund. Each share is without par value and has no preemptive or
conversion rights. When issued for payment as described in this Prospectus,
shares will be fully paid and non-assessable.
Holders of the Company's Federal Trust Shares and Federal Trust Dollar
Shares will vote in the aggregate and not by class or sub-class on all matters,
except where otherwise required by law and except that only Federal Trust Dollar
Shares will be entitled to vote on matters submitted to a vote of shareholders
pertaining to the Fund's arrangements with Service Organizations. 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. (See the Statement of Additional
Information under "Additional Description Concerning Fund Shares" for examples
where the 1940 Act requires voting by portfolio.) Shareholders of the Company
are entitled to one vote for each full share held (irrespective of class,
sub-class, or portfolio) and fractional votes for fractional shares held. Voting
rights are not cumulative and, accordingly, the holders of more than 50% of the
aggregate shares of the Company may elect all of the trustees.
For information concerning the redemption of Fund shares and possible
restrictions on their transferability, see "Purchase and Redemption of Shares."
As stated above, the Company is organized as a 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 Company's Declaration of Trust provides for
indemnification out of the trust property of any shareholder of the Fund 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.
15
<PAGE> 156
NO PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS,
OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION
INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR
ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE
COMPANY OR BY THE DISTRIBUTOR
IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
---------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Background and Expense
Information................... 2
Financial Highlights............ 3
Investment Objective and
Policies...................... 5
Purchase and Redemption of
Shares........................ 7
Management of the Fund.......... 8
Dividends....................... 12
Taxes........................... 12
Yields.......................... 13
Description of Shares and
Miscellaneous................. 14
</TABLE>
PIF-P-005
FEDERAL
TRUST FUND
AN INVESTMENT PORTFOLIO
OFFERED BY
TRUST FOR FEDERAL SECURITIES
[PROVIDENT INSTITUTIONAL FUND LOGO]
Prospectus
February 28, 1996
<PAGE> 157
Treasury Trust Fund
An Investment Portfolio Offered By
Trust for Federal Securities
<TABLE>
<S> <C>
Bellevue Park Corporate Center For purchase and redemption orders only call:
400 Bellevue Parkway 800-441-7450 (in Delaware: 302-791-5350).
Suite 100 For yield information call: 800-821-6006
Wilmington, DE 19809 (Treasury Trust shares code: 62; Treasury
Trust Dollar shares code: 63).
For other information call: 800-821-7432.
</TABLE>
Trust for Federal Securities (the "Company") is a no-load, diversified,
open-end investment company that currently offers shares in six separate
investment portfolios. The shares described in this Prospectus represent
interests in the Treasury Trust Fund portfolio (the "Fund"), a money market
portfolio.
To the extent permissible by federal and state law, the Fund is structured
to provide shareholders with income that is exempt or excluded from taxation at
the state and local level. See "Taxes." The Fund is also designed to provide an
economical and convenient means for the investment of short-term funds held by
banks, trust companies, corporations, employee benefit plans and other
institutional investors. The investment objective of the Fund is to seek current
income with liquidity and security of principal. The Fund invests solely in U.S.
Treasury bills, notes and direct obligations of the U.S. Treasury.
Fund shares may not be purchased by individuals directly, but institutional
investors may purchase shares for accounts maintained by individuals. In
addition to Treasury Trust Shares, investors may purchase Treasury Trust "Dollar
Shares" which accrue daily dividends in the same manner as Treasury Trust Shares
but bear all fees payable by the Fund to institutional investors for certain
services they provide to the beneficial owners of such Shares. (See "Management
of the Fund-- Service Organizations.")
PNC Institutional Management Corporation ("PIMC") and PNC Bank, National
Association ("PNC Bank") serve as the Fund's adviser and sub-adviser,
respectively. PFPC Inc. ("PFPC") and Provident Distributors, Inc. ("PDI") serve
as the Fund's administrators. PDI also serves as the Fund's distributor.
------------------------
SHARES OF THE FUND 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 FUND INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO
ASSURANCE THAT IT WILL BE ABLE TO MAINTAIN ITS NET ASSET
VALUE OF $1.00 PER SHARE.
------------------------
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information currently dated
February 28, 1996, has been filed with the Securities and Exchange Commission
and is available to investors without charge by calling the Fund at
800-821-7432. The Statement of Additional Information, as amended from time to
time, is incorporated in its entirety by reference into this Prospectus.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
February 28, 1996
<PAGE> 158
BACKGROUND AND EXPENSE INFORMATION
Two classes of shares are offered by this Prospectus: Treasury Trust Shares
and Treasury Trust Dollar Shares. Shares of each class represent equal, pro rata
interests in the Fund and accrue daily dividends in the same manner except that
the Dollar Shares bear fees payable by the Fund (at the rate of .25% per annum)
to institutional investors for services they provide to the beneficial owners of
such shares. (See "Management of the Fund--Service Organizations.")
EXPENSE SUMMARY
<TABLE>
<CAPTION>
TREASURY
TREASURY TRUST
TRUST DOLLAR
SHARES SHARES
-------------- --------------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (net of waivers)............................. .07% .07%
Other Expenses............................................... .13% .38%
Administration Fees (net of waivers)................. .07% .07%
Shareholder Servicing Fees........................... 0% .25%
Miscellaneous........................................ .04% .04%
----- -----
Total Fund Operating Expenses (net of waivers)................. .20% .45%
===== =====
</TABLE>
- ---------------
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2)
redemption at the end of each time period with
respect to the following shares:
Treasury Trust Shares: $2 $ 6 $11 $ 26
Treasury Trust Dollar Shares: $5 $14 $25 $ 57
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. The table is based on expenses incurred by the
Treasury Trust Shares and Dollar Shares during the last fiscal year, restated to
reflect the expenses which each class of shares expects to incur during the
current fiscal year. In addition, institutional investors may charge fees for
providing administrative services in connection with their customers' investment
in Dollar Shares. Absent fee waivers, Management and Administration fees for
Treasury Trust Shares and Dollar Shares each would have been .13% and Total Fund
Operating Expenses would have been .29% and .54%, respectively. (For more
complete descriptions of the various costs and expenses, see "Management of the
Fund" in this Prospectus and the Statement of Additional Information and the
financial statements and related notes contained in the Statement of Additional
Information.) The investment adviser and administrators may from time to time
waive the advisory and administration fees otherwise payable to them or may
reimburse the Fund for its operating expenses. The foregoing table has not been
audited by the Fund's independent accountants.
2
<PAGE> 159
FINANCIAL HIGHLIGHTS
The following financial highlights for Treasury Trust Fund Shares and for
Treasury Trust Fund Dollar Shares for the fiscal year ended October 31, 1995 and
for each of the five preceding fiscal years and the fiscal period ended October
31, 1989 (commencement of operations). The financial highlights for the fiscal
years set forth below have been audited by Coopers & Lybrand L.L.P. independent
accountants whose report on the financial statements and financial highlights
(for the most recent five years) of the Fund is included in the Statement of
Additional Information. The tables should be read in conjunction with the
financial statements and related notes included in the Statement of Additional
Information. Further information about the performance of the Fund is available
in the annual report to shareholders, which may be obtained without charge by
calling 800-821-7432.
TRUST FOR FEDERAL SECURITIES
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
TREASURY TRUST SHARES
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, MAY 1, 1989(3)
------------------------------------------------------------------------- TO
1995 1994 1993 1992 1991 1990 OCTOBER 31, 1989
--------- --------- --------- --------- --------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- --------- -------- --------
Income From Investment
Operations:
Net Investment Income......... .0545 .0359 .0292 .0380 .0612 .0777 0.422
--------- --------- --------- --------- --------- -------- --------
Total From Investment
Operations.................. .0545 .0359 .0292 .0380 .0612 .0777 0.422
--------- --------- --------- --------- --------- -------- --------
Less Distributions:
Dividends to Shareholders from:
Net Investment Income......... (.0545) (.0359) (.0292) (.0380) (.0612) (.0777) (0.422)
--------- --------- --------- --------- --------- -------- --------
Total Distributions............ (.0545) (.0359) (.0292) (.0380) (.0612) (.0777) (0.422)
--------- --------- --------- --------- --------- -------- --------
Net Asset Value, End of Period.. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========= ======== ===========
Total Returns................. 5.59% 3.65% 2.96% 3.85% 6.30% 8.05% 4.29%(4)
Ratios/Supplemental Data
Net Assets, End of Period, (in
000s)....................... $1,101,834 $1,016,635 $1,188,412 $1,552,207 $1,275,545 $692,404 $111,556
Ratio of Expenses to Average
Net Assets(1)............... .18% .18% .18% .20% .20% .20% .20%(2)
Ratio of Net Investment Income
to Average Net Assets....... 5.45% 3.57% 2.92% 3.78% 6.00% 7.74% 8.29%(2)
</TABLE>
- ------------
(1) Without the waiver of advisory and administration fees, ratio of expenses to
average daily net assets would have been .29%, .29%, .28%, .27%, .32%, and
.37% respectively, for each of the years ended October 31, 1995, 1994, 1993,
1992, 1991 and 1990, and .43% (annualized) for the period ended October 31,
1989 for Treasury Trust Shares.
(2) Annualized.
(3) Commencement of operations.
(4) Total returns are not annualized for periods of less than one year.
3
<PAGE> 160
TRUST FOR FEDERAL SECURITIES
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
TREASURY TRUST DOLLAR SHARES
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, JUNE 14, 1989(3)
------------------------------------------------------------------ TO
1995 1994 1993 1992 1991 1990 OCTOBER 31, 1989
-------- -------- -------- -------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- ------- ------- ------
Income From Investment Operations:
Net Investment Income............ .0520 .0334 .0267 .0355 .0587 .0752 .0309
-------- -------- -------- -------- ------- ------- ------
Total From Investment
Operations..................... .0520 .0334 .0267 .0355 .0587 .0752 .0309
-------- -------- -------- -------- ------- ------- ------
Less Distributions:
Dividends to Shareholders from:
Net Investment Income............ (.0520) (.0334) (.0267) (.0355) (.0587) (.0752) (.0309)
-------- -------- -------- -------- ------- ------- ------
Total Distributions.............. (.0520) (.0334) (.0267) (.0355) (.0587) (.0752) (.0309)
-------- -------- -------- -------- ------- ------- ------
Net Asset Value, End of Period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======= ======= ================
Total Return..................... 5.34% 3.40% 2.71% 3.60% 6.05% 7.80% 3.13%(4)
Ratios/Supplemental Data
Net Assets, End of Period
(in 000s)...................... $223,272 $181,934 $258,206 $218,320 $50,729 $61,270 $1,448
Ratio of Expenses to Average
Net Assets(1).................. .43% .43% .43% .45% .45% .45% .45%(2)
Ratio of Net Investment Income to
Average Net Assets............. 5.20% 3.32% 2.67% 3.53% 5.75% 7.49% 8.19%(2)
</TABLE>
- ------------
(1) Without the waiver of advisory and administration fees, the ratios of
expenses to average daily net assets would have been .54%, .54%, .53%, .52%,
.57% and .62%, respectively, for each of the fiscal years ended October 31,
1995, 1994, 1993, 1992, 1991 and 1990, and .68% (annualized) for the period
ended October 31, 1989 for Treasury Trust Dollar Shares.
(2) Annualized.
(3) First issuance of shares.
(4) Total returns are not annualized for periods of less than one year.
4
<PAGE> 161
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek current income with liquidity
and security of principal. The Fund invests solely in direct obligations of the
U.S. Treasury, such as Treasury bills and notes. The Fund does not enter into
repurchase agreements nor does the Fund purchase obligations of agencies or
instrumentalities of the U.S. Government. Because the Fund invests exclusively
in direct U.S. Treasury obligations, investors may benefit from income tax
exclusions or exemptions that are available in certain states and localities.
See "Taxes." As a fundamental policy, the Fund will invest only in those
instruments which will permit Fund shares to qualify as "short-term liquid
assets" for federally regulated thrifts.
Portfolio obligations held by the Fund have remaining maturities of one
year or less (with certain exceptions), subject to the quality, diversification,
and other requirements of Rule 2a-7 under the Investment Company Act of 1940, as
amended (the "1940 Act") and other rules of the Securities and Exchange
Commission (the "SEC"). Certain government securities held by the Fund may have
remaining maturities exceeding one year if such securities provide for
adjustments in their interest rates not less frequently than annually.
Securities issued or guaranteed by the U.S. Government have historically
involved little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period a shareholder owns shares of the Fund. The Fund may from time
to time engage in portfolio trading for liquidity purposes, in order to enhance
its yield or if otherwise deemed advisable. In selling portfolio securities
prior to maturity, the Fund may realize a price higher or lower than that paid
to acquire any given security, depending upon whether interest rates have
decreased or increased since its acquisition. To the extent consistent with its
investment objectives, the Fund may invest in Treasury receipts and other
"stripped" securities issued or guaranteed by the U.S. Government, where the
principal and interest components are traded independently under the Separate
Trading of Registered Interest and Principal of Securities program ("STRIPS").
Under the STRIPS program, the principal and interest components are individually
numbered and separately issued by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts independently.
Currently, the Fund only invests in "stripped" securities issued or guaranteed
by the U.S. Government which are registered under the STRIPS program. The
principal and interest components may exhibit greater price volatility than
ordinary debt securities because of the manner in which their principal and
interest are returned to investors.
The Fund may purchase securities on a "when-issued" basis. When-issued
securities are securities purchased for delivery beyond the normal settlement
date at a stated price and yield. The Fund will generally not pay for such
securities or start earning interest on them until they are received. Securities
purchased on a when-issued basis are recorded as an asset and are subject to
changes in value based upon changes in the general level of interest rates. The
Fund expects that commitments to purchase when-issued securities will not exceed
25% of the value of its total assets absent unusual market conditions. The Fund
does not intend to purchase when-issued securities for speculative purposes but
only in furtherance of its investment objective.
5
<PAGE> 162
SUITABILITY
The Fund is designed as an economical and convenient vehicle for those
institutional investors seeking to obtain current income with liquidity and
security of principal. The Fund is designed for banks and other institutions
seeking investment of monies held in accounts for which the institution acts in
a fiduciary, advisory, agency, custodial or other similar capacity. The Fund may
also be suitable for the investment of funds held or managed by corporations,
employee benefit plans, insurance companies, unions, hospitals, investment
counselors, professional firms, educational, religious and charitable
organizations, investment bankers, brokers, and others, if consistent with the
objectives of the particular account and any applicable state and federal laws
and regulations.
The Fund offers the advantage of diversification and economies of scale,
thereby avoiding the generally greater expense of executing a large number of
small transactions. Moreover, investment in the Fund relieves the investor of
many management and administrative burdens associated with the direct purchase
and sale of income obligations. These include the selection of investments;
surveying the market for the best terms at which to buy and sell; receipt,
delivery and safekeeping of securities; and recordkeeping.
The Fund's investment policies are intended to qualify Fund shares for the
investment of funds of federally regulated thrifts. The Fund intends to qualify
its shares as "short-term liquid assets" as established in the published
rulings, interpretations, and regulations of the Office of Thrift Supervision.
However, investing institutions are advised to consult their primary regulator
for concurrence that Fund shares qualify under applicable regulations and
policies.
INVESTMENT LIMITATIONS
The Fund's investment objective described above is not fundamental and may
be changed by the Company's Board of Trustees without a vote of shareholders. If
there is a change in the investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current financial position and needs. The Fund's investment limitations
summarized below may not be changed without the affirmative vote of the holders
of a majority of its outstanding shares. (A complete list of the investment
limitations that cannot be changed without a vote of shareholders is contained
in the Statement of Additional Information under "Investment Objectives and
Policies.")
The Fund may not:
1. Purchase securities other than direct obligations of the U.S. Treasury
such as Treasury bills and notes which will permit Fund shares to qualify as
"short-term liquid assets" for federally regulated thrifts.
2. Borrow money except from banks for temporary purposes and then in an
amount not exceeding 10% of the value of the 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 Fund's total assets at the time of such borrowing.
3. Make loans except that the Fund may purchase or hold debt obligations in
accordance with its investment objective and policies.
6
<PAGE> 163
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
Fund shares are sold at the net asset value per share next determined after
receipt of a purchase order by PFPC, the Fund's transfer agent. Purchase orders
for shares are accepted only on days on which both the New York Stock Exchange
and the Federal Reserve Bank of Philadelphia, are open for business (a "Business
Day") and must be transmitted to PFPC in Wilmington, Delaware, by telephone
(800-441-7450; in Delaware: 302-791-5350) or through the Fund's computer access
program. Orders received before 12:00 noon, Eastern time, for which payment has
been received by PNC Bank, the Fund's custodian, will be executed at 12:00 noon.
Orders received after 12:00 noon and before 2:30 P.M., Eastern time (or orders
received earlier in the same day for which payment has not been received by
12:00 noon) will be executed at 4:00 P.M., Eastern time, if payment has been
received by PNC Bank by that time. Orders received at other times, and orders
for which payment has not been received by 4:00 P.M., Eastern time, will not be
accepted, and notice thereof will be given to the institution placing the order.
(Payment for orders which are not received or accepted will be returned after
prompt inquiry to the sending institution.) The Fund may in its discretion
reject any order for shares.
Payment for Fund shares may be made only in federal funds or other funds
immediately available to PNC Bank. The minimum initial investment by an
institution is $3 million for Treasury Trust Shares and $5,000 for Dollar
Shares; however, broker-dealers and other institutional investors may set a
higher minimum for their customers. There is no minimum subsequent investment.
The Fund, at its discretion, may reduce the minimum initial investment for
Treasury Trust Shares for specific institutions whose aggregate relationship
with the Provident Institutional Funds is substantially equivalent to this $3
million minimum and warrants this reduction.
Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by the Fund in connection with the investment of fiduciary
funds in Dollar Shares. (See also "Management of the Fund--Service
Organizations.") Institutions, including banks regulated by the Comptroller of
the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult their legal advisors before investing fiduciary
funds in Dollar Shares. (See also "Management of the Fund--Banking Laws.")
REDEMPTION PROCEDURES
Redemption orders must be transmitted to PFPC in Wilmington, Delaware, in
the manner described under "Purchase Procedures." Shares are redeemed at the net
asset value per share next determined after PFPC receipt of the redemption
order. While the Fund intends to use its best efforts to maintain its net asset
value per share at $1.00, the proceeds paid to a shareholder upon redemption may
be more or less than the amount invested depending upon a share's net asset
value at the time of redemption.
Payment for redeemed shares for which a redemption order is received by
PFPC by 2:30 P.M., Eastern time, on a Business Day is normally made in Federal
funds wired to the redeeming shareholder on the same business day. Payment for
redemption orders which are received between 2:30 P.M. and 4:00 P.M., Eastern
time, or on a day when PNC Bank is closed, is
7
<PAGE> 164
normally wired in federal funds on the next day following redemption that PNC
Bank is open for business.
The Fund shall have the right to redeem shares in any account if the value
of the account is less than $1,000 after sixty-days' prior written notice to the
shareholder. Any such redemption shall be effected at the net asset value per
share next determined after the redemption order is entered. If during the
sixty-day period the shareholder increases the value of its account to $1,000 or
more, no such redemption shall take place. Moreover, if a shareholder's Treasury
Trust Shares account falls below an average of $100,000 in any particular
calendar month, the account may be charged an account maintenance fee with
respect to that month. In addition, the Fund may also redeem shares
involuntarily or suspend the right of redemption under certain special
circumstances described in the Statement of Additional Information under
"Additional Purchase and Redemption Information."
OTHER MATTERS
The Fund's net asset value per share for purposes of pricing purchase and
redemption orders is determined by PIMC as of 12:00 noon and 4:00 P.M., Eastern
time, on each day on which both the Federal Reserve Bank of Philadelphia and the
New York Stock Exchange are open for business. Currently, one or both of these
institutions are closed on the customary national business holidays of New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Columbus Day (observed), Veteran's
Day, Thanksgiving Day and Christmas Day. The net asset value per share of each
class of the Fund is calculated by adding the value of all securities and other
assets belonging to the Fund, subtracting liabilities attributable to each class
and dividing the result by the total number of the outstanding shares of each
class. In computing net asset value, the Fund uses the amortized cost method of
valuation as described in the Statement of Additional Information under
"Additional Purchase and Redemption Information." The Fund's net asset value per
share for purposes of pricing purchase and redemption orders is determined
independently of the net asset values of the shares of the Company's other
investment portfolios.
Fund shares are sold and redeemed without charge by the Fund. Institutional
investors purchasing or holding Fund shares for their customer accounts may
charge customer fees for cash management and other services provided in
connection with their accounts. A customer should, therefore, consider the terms
of its account with an institution before purchasing Fund shares. An institution
purchasing or redeeming Fund shares on behalf of its customers is responsible
for transmitting orders to the Fund in accordance with its customer agreements.
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The business and affairs of the Fund are managed under the direction of the
Company's Board of Trustees. The trustees of the Company are as follows:
Philip E. Coldwell is an economic consultant and a former Member of
the Board of Governors of the Federal Reserve System.
8
<PAGE> 165
Robert R. Fortune is a financial consultant and former Chairman,
President and Chief Executive Officer of Associated Electric & Gas
Insurance Services Limited.
Rodney D. Johnson is President of Fairmount Capital Advisors, Inc.
G. Willing Pepper, Chairman of the Board and President of the Company,
is a retired President of Scott Paper Company.
Mr. Pepper is considered by the Company to be an "interested person" of the
Company as defined in the 1940 Act.
The other officers of the Company are as follows:
Edward J. Roach is Vice President and Treasurer of the Company.
W. Bruce McConnel, III, Secretary of the Company, is a partner of the
law firm of Drinker Biddle & Reath, Philadelphia, Pennsylvania.
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly-owned subsidiary of PNC Bank, serves as the Fund's
investment adviser. PIMC was organized in 1977 by PNC Bank to perform advisory
services for investment companies and has its principal offices at Bellevue Park
Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware 19809. PNC Bank
serves as the Fund's sub-adviser. PNC Bank is one of the largest bank managers
of investments for individuals in the United States, and together with its
predecessors has been in the business of managing the investments of fiduciary
and other accounts since 1847. PNC Bank is a wholly-owned, indirect subsidiary
of PNC Bank Corp. has its principal offices at Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19102. PNC Bank Corp. is a multi-bank holding
company. PIMC and PNC Bank also serve as adviser and sub-adviser, respectively,
to the Company's FedFund, T-Fund, FedCash, T-Cash and Federal Trust Fund
Portfolios.
PNC Bank Corp., headquartered in Pittsburgh, Pennsylvania, is one of the
largest financial services organizations in the United States with banking
subsidiaries in Pennsylvania, New Jersey, Delaware, Ohio, Kentucky, Indiana,
Massachusetts and Florida. Its major businesses include corporate banking,
consumer banking, mortgage banking and asset management.
PNC Financial Services Group is PNC Bank Corp.'s mutual fund complex,
headquartered in Wilmington, Delaware. This group includes PIMC, PFPC and PNC
Bank. In 1973, Provident National Bank (predecessor to PNC Bank) commenced
advising the first institutional money market mutual fund - a U.S.
dollar-denominated constant net asset value fund - offered in the United States.
The PNC Financial Services Group is one of the largest U.S. bank managers
of mutual funds with assets currently under management in excess of $30 billion.
This group, through PFPC and PFPC International Ltd, is also a leading mutual
fund service provider having contractual relationships with approximately 370
mutual funds with 3.5 million shareholders and in excess of $101 billion in
assets, including some $2 billion in non-U.S. assets. This group, through its
PNC Institutional Investment Service, provides investment research to some 250
financial institutions located in the United States and abroad. PNC Bank
provides custodial services for approximately $210 billion in assets, including
$160 billion in mutual fund assets.
9
<PAGE> 166
As adviser, PIMC manages the Fund's portfolio and is responsible for all
purchases and sales of the Fund's portfolio securities. PIMC also maintains
certain of the Fund's financial accounts and records and computes the Fund's net
asset value and net income. 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 Fund's average net assets. PIMC and the administrators may
from time to time reduce the advisory and administration fees otherwise payable
to them or may reimburse the Fund for its operating expenses. Any fees waived or
expenses reimbursed by PIMC and the administrators with respect to a particular
fiscal year are not recoverable. For the fiscal year ended October 31, 1995, the
Fund paid investment advisory fees aggregating .07% of its average net assets.
As sub-adviser, PNC Bank provides research, credit analysis and
recommendations with respect to the Fund's investments, and supplies PIMC with
certain computer facilities, personnel and other services. For its sub-advisory
and other services, PNC Bank is entitled to receive from PIMC an amount equal to
75% of the advisory fee paid by the 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 the Fund to PIMC. PNC Bank also serves as
the Fund's custodian. The services provided by PNC Bank and PIMC and the fees
payable by the Fund for these services are described further in the Statement of
Additional Information under "Management of the Funds."
ADMINISTRATORS
PFPC, whose principal business address is 400 Bellevue Parkway, Wilmington,
Delaware 19809, and PDI whose principal business address is 259 Radnor-Chester
Road, Suite 120, Radnor, Pennsylvania 19087, serve as administrators. PFPC is an
indirect wholly-owned subsidiary of PNC Bank Corp. A majority of the outstanding
stock of PDI is owned by its officers. The administrative services provided by
the administrators, which are described more fully in the Statement of
Additional Information, include providing and supervising the operation of an
automated data processing system to process purchase and redemption orders;
assisting in maintaining the Fund's Wilmington, Delaware office; performing
administrative services in connection with the Fund's computer access program
maintained to facilitate shareholder access to the Fund; accumulating
information for and coordinating the preparation of reports to the Fund's
shareholders and the Securities and Exchange Commission; and maintaining the
registration or qualification of the Fund's shares for sale under state
securities laws. PFPC and PDI are each responsible for carrying out the duties
undertaken pursuant to the Administration Agreement with the Fund.
For their administrative services, the administrators are entitled jointly
to receive a fee computed daily and payable monthly. (For information on
regarding the administrators' waivers and expense reimbursements, see
"Investment Adviser and Sub-Adviser" above.) The Fund also reimburses each
administrator for its reasonable out-of-pocket expenses incurred in connection
with the Funds' computer access program. For the fiscal year ended October 31,
1995, the Fund paid administration fees aggregating .07% of its average net
assets.
PFPC also serves as transfer agent, registrar and dividend disbursing
agent. PFPC's address is P.O. Box 8950, Wilmington Delaware 19885-9628. The
services provided by PFPC and PDI and the fees payable by the Fund for these
services are described further in the Statement of Additional Information under
"Management of the Funds."
10
<PAGE> 167
DISTRIBUTOR
PDI serves as distributor of the Fund's shares. Its principal offices are
located at 259 Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087. Fund
shares are sold on a continuous basis by the distributor as agent. The
distributor pays the cost of printing and distributing prospectuses to persons
who are not shareholders of the Fund (excluding preparation and printing
expenses necessary for the continued registration of the Fund's shares) and of
printing and distributing all sales literature. No compensation is payable by
the Fund to the distributor for its distribution services.
SERVICE ORGANIZATIONS
Institutional investors, such as banks, savings and loan associations and
other financial institutions, including affiliates of PNC Bank Corp. ("Service
Organizations"), may purchase Dollar Shares. Dollar Shares are identical in all
respects to Treasury Trust Shares except that they bear the service fees
described below and enjoy certain exclusive voting rights on matters relating to
these fees. The Fund will enter into an agreement with each Service Organization
which purchases Dollar Shares requiring it to provide support services to its
customers who are the beneficial owners of such shares in consideration of the
Fund's 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, which are described more fully in the Statement of
Additional Information under "Management of the Fund-Service Organizations,"
include aggregating and processing purchase and redemption requests from
customers and placing net purchase and redemption orders with PFPC; processing
dividend payments from the Fund on behalf of customers; providing information
periodically to customers showing their positions in Dollar Shares; and
providing sub-accounting or the information necessary for sub-accounting with
respect to Dollar Shares beneficially owned by customers. Under the terms of the
agreements, Service Organizations are required to provide to their customers a
schedule of any fees that they may charge customers in connection with their
investments in Dollar Shares. Treasury Trust Shares are sold to institutions
that have not entered into servicing agreements with the Fund in connection with
their investments.
EXPENSES
Except as noted above and in the Statement of Additional Information, the
Fund's service contractors bear all expenses in connection with the performance
of their services. Similarly, the Fund bears the expenses incurred in its
operations. For the fiscal year ended October 31, 1995, the Fund's total
expenses with respect to Treasury Trust Shares and Dollar Shares were .18% and
.43% (net of fee waivers of .11% and .11%, respectively) of the average net
assets of the Treasury Trust Shares and Treasury Trust Dollar Shares,
respectively. With regard to fees paid exclusively by Dollar Shares, see
"Service Organizations" above.
BANKING LAWS
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company engaged continuously in the issuance of
its shares, and prohibit banks generally from issuing, underwriting,
11
<PAGE> 168
selling or distributing securities such as Fund shares. Such banking laws and
regulations do not prohibit such a holding company or affiliate or banks
generally from acting as investment adviser, transfer agent or custodian to such
an investment company, or from purchasing shares of such a company for or upon
the order of customers. PNC Bank, PIMC and PFPC, as well as some Service
Organizations, are subject to such banking laws and regulations, but believe
they may perform the services for the Fund contemplated by their respective
agreements, this Prospectus and the Statement of Additional Information without
violating applicable banking laws or regulations.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of bank Service Organizations in connection with the
provision of support services to their customers, the Fund might be required to
alter or discontinue its arrangements with Service Organizations and change its
method of operations with respect to Dollar shares. It is not anticipated,
however, that any change in the Fund's method of operations would affect its net
asset value per share or result in a financial loss to any customer.
DIVIDENDS
Shareholders of the Fund are entitled to dividends and distributions
arising only from the net investment income and capital gains, if any, earned on
investments held by the Fund. The Fund's net investment income is declared daily
as a dividend to its shareholders of record at the close of business on the day
of declaration. Shares begin accruing dividends on the day the purchase order
for the shares is executed and continue to accrue dividends through, and
including, the day before such shares are redeemed. Dividends are paid monthly
by check, or by wire transfer if requested in writing by the shareholder, within
five business days after the end of the month or within five business days after
a redemption of all of a shareholder's shares of a particular class. The Fund
does not expect to realize net long-term capital gains.
Dividends are determined in the same manner for each class of shares of the
Fund. Dollar Shares bear all the expense of fees paid to Service Organizations
and as a result, at any given time, the net yield on Dollar Shares will be
approximately .25% lower than the net yield on Treasury Trust Shares.
Institutional shareholders may elect to have their dividends reinvested in
additional full and fractional shares of the same class of shares with respect
to which such dividends are declared at the net asset value of such shares on
the payment date. Reinvested dividends receive the same tax treatment as
dividends paid in cash. Such election, or any revocation thereof, must be made
in writing to PFPC at P.O. Box 8950, Wilmington, Delaware 19885-9628, and will
become effective after its receipt by PFPC with respect to dividends paid.
PFPC, as transfer agent, will send each Fund shareholder or its authorized
representative an annual statement designating the amount, if any, of any
dividends and distributions made during each year and their Federal tax
qualification.
TAXES
The Fund qualified in its last taxable year and intends to qualify in
future years as a "regulated investment company" under the Internal Revenue Code
of 1986, as amended (the
12
<PAGE> 169
"Code"). A regulated investment company is generally exempt from federal income
tax on amounts distributed to its shareholders.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that the Fund distribute to its
shareholders at least 90% of its investment company taxable income for such
year. In general, the Fund's investment company taxable income will be its
taxable income (including interest and short-term capital gains, if any),
subject to certain adjustments and excluding the excess of any net long-term
capital gain for the taxable year over the net short-term capital loss, if any,
for such year. The Fund intends to distribute substantially all of its
investment company taxable income each year. Such distributions will be taxable
as ordinary income to the Fund's shareholders that are not currently exempt from
federal income taxes, whether such income is received in cash or reinvested in
additional shares. (Federal income taxes for distributions to an IRA or a
qualified retirement plan are deferred under the Code.) It is anticipated that
none of the Fund's distributions will be eligible for the dividends received
deduction for corporations. The Fund does not expect to realize long-term
capital gains and, therefore, does not contemplate payment of any "capital gains
dividends" as described in the Code.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by the shareholders and paid by the Fund on December 31 of such
year, in the event such dividends are actually paid during January of the
following year.
TO THE EXTENT PERMISSIBLE BY FEDERAL AND STATE LAW, THE FUND IS STRUCTURED
TO PROVIDE SHAREHOLDERS WITH INCOME THAT IS EXEMPT OR EXCLUDED FROM TAXATION AT
THE STATE AND LOCAL LEVEL. SUBSTANTIALLY ALL DIVIDENDS PAID TO SHAREHOLDERS
RESIDING IN CERTAIN STATES WILL BE EXEMPT OR EXCLUDED FROM STATE INCOME TAX.
MANY STATES, BY STATUTE, JUDICIAL DECISION OR ADMINISTRATIVE ACTION, HAVE TAKEN
THE POSITION THAT DIVIDENDS OF A REGULATED INVESTMENT COMPANY SUCH AS THE FUND
THAT ARE ATTRIBUTABLE TO INTEREST ON DIRECT U.S. TREASURY OBLIGATIONS ARE THE
FUNCTIONAL EQUIVALENT OF INTEREST FROM SUCH OBLIGATIONS AND ARE, THEREFORE,
EXEMPT FROM STATE AND LOCAL INCOME TAXES. INVESTORS SHOULD BE AWARE OF THE
APPLICATION OF THEIR STATE AND LOCAL TAX LAWS TO INVESTMENTS IN THE FUND.
The foregoing discussion is only a brief summary of some of the important
federal tax considerations generally affecting the Fund and its shareholders. As
indicated above, IRAs receive special tax treatment. No attempt is made to
present a detailed explanation of the federal, state or local income tax
treatment of the Fund or its shareholders, and this discussion is not intended
as a substitute for careful tax planning. Accordingly, potential investors in
the Fund should consult their tax advisors with specific reference to their own
tax situations.
YIELDS
From time to time, in advertisements or in reports to shareholders, the
"yields" and "effective yields" for Treasury Trust Shares and Dollar Shares may
be quoted. Yield quotations are computed for Treasury Trust Shares separately
from those for Dollar Shares. The "yield" for a particular class or sub-class of
Fund shares refers to the income generated by an investment in such shares over
a specified period (such as a seven-day period). This income is then
"annualized"; that is, the amount of income generated by the investment during
that period is
13
<PAGE> 170
assumed to be generated for each such period over a 52-week or one-year period
and is shown as a percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the income earned by an investment in
a class or sub-class of Fund shares is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment.
The Fund's yields may be compared to those of other mutual funds with
similar objectives, to stock or other relevant indices, or to rankings prepared
by independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, such data are reported in national
financial publications such as IBC/Donoghue's Money Fund Report(R), The Wall
Street Journal, and The New York Times, reports prepared by Lipper Analytical
Services, Inc., and publications of a local or regional nature.
The Fund's yield figures for Treasury Trust Fund Shares and Treasury Trust
Fund Dollar Shares represent the Fund's past performance, will fluctuate, and
should not be considered as representative of future results. The yield of any
investment is generally a function of portfolio quality and maturity, type of
investment and operating expenses. Any fees charged by Service Organizations or
other institutional investors directly to their customers in connection with
investments in Fund shares are not reflected in the Fund's yields; and, such
fees, if charged, would reduce the actual return received by customers on their
investments. The methods used to compute the Fund's yields are described in more
detail in the Statement of Additional Information. Investors may call
800-821-6006 (Treasury Trust Shares code: 62; Treasury Trust Dollar Shares code:
63) to obtain current yield information.
DESCRIPTION OF SHARES AND MISCELLANEOUS
The Company is a Pennsylvania business trust established on May 14, 1975.
Effective March 2, 1987, the Company's name was changed from Trust for
Short-Term Federal Securities to Trust for Federal Securities. The Company
commenced operations of the Fund in May, 1989.
The Company's 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 of shares. Pursuant to such authority, the Board of
Trustees has authorized the issuance of twelve classes of shares designated as
Treasury Trust, Treasury Trust Dollar, FedFund, FedFund Dollar, T-Fund, T-Fund
Dollar, FedCash, FedCash Dollar, T-Cash, T-Cash Dollar, Federal Trust and
Federal Trust Dollar. The Declaration of Trust further authorizes the trustees
to classify or reclassify any class of shares into one or more sub-classes.
14
<PAGE> 171
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE FUND'S OTHER CLASS
OF SHARES OR THE COMPANY'S FEDFUND, T-FUND, FEDCASH, T-CASH AND FEDERAL TRUST
FUND PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THESE PORTFOLIOS BY
CALLING THE DISTRIBUTOR AT 800-998-7633.
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.
Each Fund Share represents an equal proportionate interest in the assets
belonging to the Fund. Each share is without par value and has no preemptive or
conversion rights. When issued for payment as described in this Prospectus,
shares will be fully paid and non-assessable.
Holders of the Company's Treasury Trust Shares and Treasury Trust Dollar
Shares will vote in the aggregate and not by class or sub-class on all matters,
except where otherwise required by law and except that only Dollar Shares will
be entitled to vote on matters submitted to a vote of shareholders pertaining to
the Fund's arrangements with Service Organizations. 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. (See the Statement of Additional Information under
"Additional Description Concerning Fund Shares" for examples where the 1940 Act
requires voting by portfolio.) Shareholders of the Company are entitled to one
vote for each full share held (irrespective of class, sub-class, or portfolio)
and fractional votes for fractional shares held. Voting rights are not
cumulative and, accordingly, the holders of more than 50% of the aggregate
shares of the Company may elect all of the trustees.
For information concerning the redemption of Fund shares and possible
restrictions on their transferability, see "Purchase and Redemption of Shares."
As stated above, the Company is organized as a 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 Company's Declaration of Trust provides for
indemnification out of the trust property of any shareholder of the Fund 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.
15
<PAGE> 172
NO PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS,
OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION
INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR
ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE
COMPANY OR BY THE DISTRIBUTOR
IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
---------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Background and Expense
Information................... 2
Financial Highlights............ 3
Investment Objective and
Policies...................... 5
Purchase and Redemption of
Shares........................ 7
Management of the Fund.......... 8
Dividends....................... 12
Taxes........................... 12
Yields.......................... 13
Description of Shares and
Miscellaneous................. 14
</TABLE>
PIF-P-008
TREASURY
TRUST FUND
AN INVESTMENT PORTFOLIO
OFFERED BY
TRUST FOR FEDERAL SECURITIES
[PROVIDENT INSTITUTIONAL FUNDS LOGO]
Prospectus
February 28, 1996
<PAGE> 173
Treasury Trust Fund
Dollar Shares
An Investment Portfolio Offered By
Trust for Federal Securities
<TABLE>
<S> <C>
Bellevue Park Corporate Center For purchase and redemption orders only call:
400 Bellevue Parkway 800-441-7450 (in Delaware: 302-791-5350).
Suite 100 For yield information call: 800-821-6006
Wilmington, DE 19809 (Dollar Shares code: 63).
For other information call: 800-821-7432.
</TABLE>
Trust for Federal Securities (the "Company") is a no-load, diversified,
open-end investment company that currently offers shares in six separate
investment portfolios. This Prospectus describes one class of shares ("Dollar
Shares") in the Treasury Trust Fund portfolio (the "Fund"), a money market
portfolio.
To the extent permissible by federal and state law, the Fund is structured
to provide shareholders with income that is exempt or excluded from taxation at
the state and local level. See "Taxes." The Fund is also designed to provide an
economical and convenient means for the investment of short-term funds held by
banks, trust companies, corporations, employee benefit plans and other
institutional investors. The investment objective of the Fund is to seek current
income with liquidity and security of principal. The Fund invests solely in U.S.
Treasury bills, notes and direct obligations of the U.S. Treasury.
PNC Institutional Management Corporation ("PIMC") and PNC Bank, National
Association ("PNC Bank") serve as the Fund's adviser and sub-adviser,
respectively. PFPC Inc. ("PFPC") and Provident Distributors, Inc. ("PDI") serve
as the Fund's administrators. PDI also serves as the Fund's distributor. Dollar
Shares are sold exclusively to and must be purchased through Service
Organizations. Service Organizations provide various shareholder services to
their Customers in connection with their investment in Dollar Shares. (See
"Management of the Fund--Service Organizations.")
------------------------
SHARES OF THE FUND 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 FUND INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO
ASSURANCE THAT IT WILL BE ABLE TO MAINTAIN ITS NET ASSET
VALUE OF $1.00 PER SHARE.
------------------------
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information currently dated
February 28, 1996, has been filed with the Securities and Exchange Commission
and is available to investors without charge by calling the Fund at
800-821-7432. The Statement of Additional Information, as amended from time to
time, is incorporated in its entirety by reference into this Prospectus.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
February 28, 1996
<PAGE> 174
BACKGROUND AND EXPENSE INFORMATION
The Company offers two classes of shares in the Fund: Treasury Trust Shares
and Treasury Trust Dollar Shares ("Dollar Shares"). Shares of each class
represent equal, pro rata interests in the Fund and accrue daily dividends in
the same manner except that the Dollar Shares bear fees payable by the Fund (at
the rate of .25% per annum) to Service Organizations for administrative support
services they provide to the beneficial owners of such shares. (See "Management
of the Fund-Service Organizations.")
EXPENSE SUMMARY--DOLLAR SHARES
<TABLE>
<CAPTION>
DOLLAR
SHARES
-------------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES
- ------------------------------
(as a percentage of average net assets)
Management Fees (net of waivers)....................................... .07%
Other Expenses......................................................... .38%
Administration Fees (net of waivers).............................. .07%
Shareholder Servicing Fees........................................ .25%
Miscellaneous..................................................... .04%
----
Total Fund Operating Expenses (net of waivers)......................... .45%
=====
</TABLE>
- ------------
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2)
redemption at the end of each time period with
respect to Dollar Shares: $5 $14 $25 $57
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. The table is based on expenses incurred by the
Treasury Trust Dollar Shares during the last fiscal year, restated to reflect
the expenses which it expects to incur during the current fiscal year. In
addition, institutional investors may charge fees for providing administrative
services in connection with their customers' investment in Dollar Shares. Absent
fee waivers, Management and Administration fees for Dollar Shares each would
have been .13% and Total Fund Operating Expenses would have been .54%. (For more
complete descriptions of the various costs and expenses, see "Management of the
Fund" in this Prospectus and the Statement of Additional Information and the
financial statements and related notes contained in the Statement of Additional
Information.) The investment adviser and administrators may from time to time
waive the advisory and administration fees otherwise payable to them or may
reimburse the Fund for its operating expenses. The foregoing table has not been
audited by the Fund's independent accountants.
2
<PAGE> 175
FINANCIAL HIGHLIGHTS
The following financial highlights for Treasury Trust Fund Shares and for
Treasury Trust Fund Dollar Shares for the fiscal year ended October 31, 1995 and
for each of the five preceding fiscal years and the fiscal period ended October
31, 1989 (commencement of operations). The financial highlights for the fiscal
years set forth below have been audited by Coopers & Lybrand L.L.P. independent
accountants whose report on the financial statements and financial highlights
(for the most recent five years) of the Fund is included in the Statement of
Additional Information. The tables should be read in conjunction with the
financial statements and related notes included in the Statement of Additional
Information. Further information about the performance of the Fund is available
in the annual report to shareholders, which may be obtained without charge by
calling 800-821-7432.
TRUST FOR FEDERAL SECURITIES
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
TREASURY TRUST SHARES
<TABLE>
<CAPTION>
TREASURY TRUST SHARES
YEAR ENDED OCTOBER 31, MAY 1, 19893
----------------------------------------------------------------------------------- TO
1995 1994 1993 1992 1991 1990 OCTOBER 31, 1989
---------- ---------- ---------- ---------- ---------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ---------- -------- --------
Income from Investment
Operations:
Net Investment Income..... .0545 .0359 .0292 .0380 .0612 .0777 .0422
---------- ---------- ---------- ---------- ---------- -------- --------
Total from Investment
Operations.............. .0545 .0359 .0292 .0380 .0612 .0777 .0422
---------- ---------- ---------- ---------- ---------- -------- --------
Less Distributions:
Dividends to Shareholders
from:
Net Investment Income..... (.0545) (.0359) (.0292) (.0380) (.0612) (.0777) (.0422)
---------- ---------- ---------- ---------- ---------- -------- --------
Total Distributions....... (.0545) (.0359) (.0292) (.0380) (.0612) (.0777) (.0422)
---------- ---------- ---------- ---------- ---------- -------- --------
Net Asset Value, End of
Period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== =========== ========== =================
Total Returns............. 5.59% 3.65% 2.96% 3.85% 6.30% 8.05% 4.29%4
Ratios/Supplemental Data
Net Assets, End of Period
(in 000s)............... $1,101,834 $1,016,635 $1,188,412 $1,552,207 $1,275,545 $692,404 $111,556
Ratio of Expenses to
Average Net Assets1..... .18% .18% .18% .20% .20% .20% .20%2
Ratio of Net Investment
Income to Average Net
Assets.................. 5.45% 3.57% 2.92% 3.78% 6.00% 7.74% 8.29%2
</TABLE>
- ------------
(1) Without the waiver of advisory and administration fees, the ratio of
expenses to average daily net assets would have been .29%, .29%, .28%, .27%,
.32% and .37%, respectively, for each of the years ended October 31, 1995,
1994, 1993, 1992, 1991 and 1990, and .43% (annualized) for the period ended
October 31, 1989 for Treasury Trust Shares.
(2) Annualized.
(3) Commencement of operations.
(4) Total returns are not annualized for periods of less than one year.
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<PAGE> 176
TRUST FOR FEDERAL SECURITIES
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
TREASURY TRUST DOLLAR SHARES
<TABLE>
<CAPTION>
TREASURY TRUST DOLLAR SHARES
YEAR ENDED OCTOBER 31, JUNE 14, 1989(3)
----------------------------------------------------------------------- TO
1995 1994 1993 1992 1991 1990 OCTOBER 31, 1989
-------- -------- -------- -------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- ------- ------- -------
Income from Investment Operations:
Net Investment Income............... .0520 .0334 .0267 .0355 .0587 .0752 .0309
-------- -------- -------- -------- ------- ------- -------
Total from Investment Operations.... .0520 .0334 .0267 .0355 .0587 .0752 .0309
-------- -------- -------- -------- ------- ------- -------
Less Distributions:
Dividends to Shareholders from:
Net Investment Income............... (.0520) (.0334) (.0267) (.0355) (.0587) (.0752) (.0309)
-------- -------- -------- -------- ------- ------- -------
Total Distributions................. (.0520) (.0334) (.0267) (.0355) (.0587) (.0752) (.0309)
-------- -------- -------- -------- ------- ------- -------
Net Asset Value, End of Period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ======== ======== ==================
Total Return........................ 5.34% 3.40% 2.71% 3.60% 6.05% 7.80% 3.13%(4)
Ratios/Supplemental Data
Net Assets, End of Period (in
000s)............................. $223,272 $181,934 $258,206 $218,320 $50,729 $61,270 $ 1,448
Ratio of Expenses to Average Net
Assets(1)......................... .43% .43% .43% .45% .45% .45% .45%(2)
Ratio of Net Investment Income to
Average Net Assets................ 5.20% 3.32% 2.67% 3.53% 5.75% 7.49% 8.19%(2)
</TABLE>
- ------------
(1) Without the waiver of advisory and administration fees, the ratio of
expenses to average daily net assets would have been .54%, .54%, .53%, .52%,
.57% and .62%, respectively, for each of the years ended October 31, 1995,
1994, 1993, 1992, 1991 and 1990, and .68% (annualized) for the period ended
October 31, 1989 for Treasury Trust Dollar Shares.
(2) Annualized.
(3) First issuance of shares.
(4) Total returns are not annualized for periods of less than one year.
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek current income with liquidity
and security of principal. The Fund invests solely in direct obligations of the
U.S. Treasury, such as Treasury bills and notes. The Fund does not enter into
repurchase agreements nor does the Fund purchase obligations of agencies or
instrumentalities of the U.S. Government. Because the Fund invests exclusively
in direct U.S. Treasury obligations, investors may benefit from income tax
exclusions or exemptions that are available in certain states and localities.
See "Taxes." As a fundamental policy, the Fund will invest only in those
instruments which will permit Fund shares to qualify as "short-term liquid
assets" for federally regulated thrifts.
Portfolio obligations held by the Fund have remaining maturities of one
year or less (with certain exceptions), subject to the quality, diversification,
and other requirements of Rule 2a-7
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<PAGE> 177
under the Investment Company Act of 1940, as amended (the "1940 Act") and other
rules of the Securities and Exchange Commission (the "SEC"). Certain government
securities held by the Fund may have remaining maturities exceeding one year if
such securities provide for adjustments in their interest rates not less
frequently than annually.
Securities issued or guaranteed by the U.S. Government have historically
involved little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period a shareholder owns shares of the Fund. The Fund may from time
to time engage in portfolio trading for liquidity purposes, in order to enhance
its yield or if otherwise deemed advisable. In selling portfolio securities
prior to maturity, the Fund may realize a price higher or lower than that paid
to acquire any given security, depending upon whether interest rates have
decreased or increased since its acquisition. To the extent consistent with its
investment objectives, the Fund may invest in Treasury receipts and other
"stripped" securities issued or guaranteed by the U.S. Government, where the
principal and interest components are traded independently under the Separate
Trading of Registered Interest and Principal of Securities program ("STRIPS").
Under the STRIPS program, the principal and interest components are individually
numbered and separately issued by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts independently.
Currently, the Fund only invests in "stripped" securities issued or guaranteed
by the U.S. Government which are registered under the STRIPS program. The
principal and interest components may exhibit greater price volatility than
ordinary debt securities because of the manner in which their principal and
interest are returned to investors.
The Fund may purchase securities on a "when-issued" basis. When-issued
securities are securities purchased for delivery beyond the normal settlement
date at a stated price and yield. The Fund will generally not pay for such
securities or start earning interest on them until they are received. Securities
purchased on a when-issued basis are recorded as an asset and are subject to
changes in value based upon changes in the general level of interest rates. The
Fund expects that commitments to purchase when-issued securities will not exceed
25% of the value of its total assets absent unusual market conditions. The Fund
does not intend to purchase when-issued securities for speculative purposes but
only in furtherance of its investment objective.
SUITABILITY
The Fund is designed as an economical and convenient vehicle for those
institutional investors seeking to obtain current income with liquidity and
security of principal. The Fund is designed for banks and other institutions
seeking investment of monies held in accounts for which the institution acts in
a fiduciary, advisory, agency, custodial or other similar capacity. The Fund may
also be suitable for the investment of funds held or managed by corporations,
employee benefit plans, insurance companies, unions, hospitals, investment
counselors, professional firms, educational, religious and charitable
organizations, investment bankers, brokers, and others, if consistent with the
objectives of the particular account and any applicable state and federal laws
and regulations.
The Fund offers the advantage of diversification and economies of scale,
thereby avoiding the generally greater expense of executing a large number of
small transactions. Moreover, investment in the Fund relieves the investor of
many management and administrative burdens associated with the direct purchase
and sale of income obligations. These include the selection of
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<PAGE> 178
investments; surveying the market for the best terms at which to buy and sell;
receipt, delivery and safekeeping of securities; and recordkeeping.
The Fund's investment policies are intended to qualify Fund shares for the
investment of funds of federally regulated thrifts. The Fund intends to qualify
its shares as "short-term liquid assets" as established in the published
rulings, interpretations, and regulations of the Office of Thrift Supervision.
However, investing institutions are advised to consult their primary regulator
for concurrence that Fund shares qualify under applicable regulations and
policies.
INVESTMENT LIMITATIONS
The Fund's investment objective described above is not fundamental and may
be changed by the Company's Board of Trustees without a vote of shareholders. If
there is a change in the investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current financial position and needs. The Fund's investment limitations
summarized below may not be changed without the affirmative vote of the holders
of a majority of its outstanding shares. (A complete list of the investment
limitations that cannot be changed without a vote of shareholders is contained
in the Statement of Additional Information under "Investment Objective and
Policies.")
The Fund may not:
1. Purchase securities other than direct obligations of the U.S. Treasury
such as Treasury bills and notes which will permit Fund shares to qualify as
"short-term liquid assets" for federally regulated thrifts.
2. Borrow money except from banks for temporary purposes and then in an
amount not exceeding 10% of the value of the 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 Fund's total assets at the time of such borrowing.
3. Make loans except that the Fund may purchase or hold debt obligations in
accordance with its investment objective and policies.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
Dollar Shares are sold exclusively to institutional investors, such as
banks and savings and loan associations and other financial institutions,
including affiliates of PNC Financial Corp ("Service Organizations"), acting on
behalf of themselves or their customers and customers of their affiliates
("customers"). The customers, which may include individuals, trusts,
partnerships and corporations, must maintain accounts (such as demand deposit,
custody, trust or escrow accounts) with the Service Organization. Service
Organizations (or their nominees) will normally be the holders of record of
Dollar Shares, and will reflect their customers' beneficial ownership of shares
in the account statements provided by them to their customers. The exercise of
voting rights and the delivery to customers of shareholder communications from
the Fund will be governed by the customers' account agreements with the Service
Organizations. Investors wishing to purchase Dollar Shares should contact their
account representatives.
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<PAGE> 179
Purchase orders must be transmitted by a Service Organization directly to
PFPC, the Fund's transfer agent. All such transactions are effected pursuant to
procedures established by the Service Organization in connection with a
customer's account. Shares are sold at the net asset value per share next
determined after receipt of a purchase order by PFPC.
Purchase orders for shares are accepted by the Fund only on days on which
both the New York Stock Exchange and the Federal Reserve Bank of Philadelphia
are open for business (a "Business Day") and must be transmitted to PFPC in
Wilmington, Delaware, by telephone (800-441-7450; in Delaware: 302-791-5350) or
through the Fund's computer access program. Orders received before 12:00 noon,
Eastern time, for which payment has been received by PNC Bank, the Fund's
custodian, will be executed at 12:00 noon. Orders received after 12:00 noon and
before 2:30 P.M., Eastern time (or orders received earlier in the same day for
which payment has not been received by 12:00 noon) will be executed at 4:00
P.M., Eastern time, if payment has been received by PNC Bank by that time.
Orders received at other times, and orders for which payment has not been
received by 4:00 P.M., Eastern time, will not be accepted, and notice thereof
will be given to the Service Organization placing the order. (Payment for orders
which are not received or accepted will be returned after prompt inquiry to the
sending institution.) The Fund may in its discretion reject any order for
shares.
Payment for Dollar Shares may be made only in federal funds or other funds
immediately available to PNC Bank. The minimum initial investment by a Service
Organization is $5,000; however, Service Organizations may set higher minimums
for their customers. There is no minimum subsequent investment.
Conflict of interest restrictions may apply to a Service Organization's
receipt of compensation paid by the Fund in connection with the investment of
fiduciary funds in Dollar Shares. (See also "Management of the Fund-Service
Organizations.") Institutions, including banks regulated by the Comptroller of
the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult their legal advisors before investing fiduciary
funds in Dollar Shares. (See also "Management of the Fund-Banking Laws.")
REDEMPTION PROCEDURES
Redemption orders must be transmitted by the Service Organization to PFPC
in Wilmington, Delaware in the manner described under "Purchase Procedures."
Shares are redeemed at the net asset value per share next determined after
PFPC's receipt of the redemption order. While the Fund intends to use its best
efforts to maintain its net asset value per share at $1.00, the proceeds paid to
a shareholder upon redemption may be more or less than the amount invested
depending upon a share's net asset value at the time of redemption.
Payment for redeemed shares for which a redemption order is received by
PFPC by 2:30 P.M., Eastern time, on a Business Day is normally made in federal
funds wired to the redeeming shareholder on the same day. Payment for redemption
orders which are received between 2:30 P.M. and 4:00 P.M., Eastern time, or on a
day when PNC Bank is closed, is normally wired in federal funds on the next day
following redemption that PNC Bank is open for business.
The Fund shall have the right to redeem shares in any account if the value
of the account is less than $1,000 after sixty-days' prior written notice to the
shareholder. Any such redemption shall be effected at the net asset value per
share next determined after the redemption order is
7
<PAGE> 180
entered. If during the sixty-day period the shareholder increases the value of
its account to $1,000 or more, no such redemption shall take place. In addition,
the Fund may also redeem shares involuntarily or suspend the right of redemption
under certain special circumstances described in the Statement of Additional
Information under "Additional Purchase and Redemption Information."
OTHER MATTERS
The Fund's net asset value per share for purposes of pricing purchase and
redemption orders is determined by PIMC as of 12:00 noon and 4:00 P.M., Eastern
time, on each day on which both the Federal Reserve Bank of Philadelphia and the
New York Stock Exchange are open for business. Currently, one or both of these
institutions are closed on the customary national business holidays of New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Columbus Day (observed), Veteran's
Day, Thanksgiving Day and Christmas Day. The net asset value per share of each
class of the Fund is calculated by adding the value of all securities and other
assets belonging to the Fund, subtracting liabilities attributable to each class
and dividing the result by the total number of the outstanding shares of each
class. In computing net asset value, the Fund uses the amortized cost method of
valuation as described in the Statement of Additional Information under
"Additional Purchase and Redemption Information." The Fund's net asset value per
share for purposes of pricing purchase and redemption orders is determined
independently of the net asset values of the shares of the Company's other
investment portfolios.
Fund shares are sold and redeemed without charge by the Fund. Service
Organizations purchasing or holding Dollar Shares for their customer accounts
may charge customer fees for cash management and other services provided in
connection with their accounts. In addition, if a customer has agreed with a
particular Service Organization to maintain a minimum balance in its account
with the Service Organization and the balance in such account falls below that
minimum, the customer may be obliged by the Service Organization to redeem all
or part of its shares in the Fund to the extent necessary to maintain the
required minimum balance in such account. A customer should, therefore, consider
the terms of its account with a Service Organization before purchasing Dollar
Shares. A Service Organization purchasing or redeeming Fund shares on behalf of
its customers is responsible for transmitting orders to the Fund in accordance
with its customer agreements, and to provide customers with account statements
with respect to share transactions for their accounts.
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The business and affairs of the Fund are managed under the direction of the
Company's Board of Trustees. The trustees of the Company are as follows:
Philip E. Coldwell is an economic consultant and a former Member of
the Board of Governors of the Federal Reserve System.
Robert R. Fortune is a financial consultant and former Chairman,
President and Chief Executive Officer of Associated Electric & Gas
Insurance Services Limited.
Rodney D. Johnson is President of Fairmount Capital Advisors, Inc.
8
<PAGE> 181
G. Willing Pepper, Chairman of the Board and President of the Company,
is a retired President of Scott Paper Company.
Mr. Pepper is considered by the Company to be an "interested person" of the
Company as defined in the 1940 Act.
The other officers of the Company are as follows:
Edward J. Roach is Vice President and Treasurer of the Company.
W. Bruce McConnel, III, Secretary of the Company, is a partner of the
law firm of Drinker Biddle & Reath, Philadelphia, Pennsylvania.
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly-owned subsidiary of PNC Bank, serves as the Fund's
investment adviser. PIMC was organized in 1977 by PNC Bank to perform advisory
services for investment companies and has its principal offices at 400 Bellevue
Parkway, Wilmington, Delaware 19809. PNC Bank serves as the Fund's sub-adviser.
PNC Bank is one of the largest bank managers of investments for individuals in
the United States, and together with its predecessors has been in the business
of managing the investments of fiduciary and other accounts since 1847. PNC Bank
is a wholly-owned, indirect subsidiary of PNC Bank Corp. and has its principal
offices at Broad and Chestnut Streets, Philadelphia, Pennsylvania 19102. PNC
Bank Corp. is a multi-bank holding company. PIMC and PNC Bank also serve as
adviser and sub-adviser, respectively, to the Company's FedFund, T-Fund,
FedCash, T-Cash and Federal Trust Fund portfolios.
PNC Bank Corp., headquartered in Pittsburgh, Pennsylvania, is one of the
largest financial services organizations in the United States with banking
subsidiaries in Pennsylvania, New Jersey, Delaware, Ohio, Kentucky, Indiana,
Massachusetts and Florida. Its major businesses include corporate banking,
consumer banking, mortgage banking and asset management.
PNC Financial Services Group is PNC Bank Corp.'s mutual fund complex,
headquartered in Wilmington, Delaware. This group includes PIMC, PFPC and PNC
Bank. In 1973, Provident National Bank (predecessor to PNC Bank) commenced
advising the first institutional money market mutual fund -- a U.S.
dollar-denominated constant net asset value fund -- offered in the United
States.
The PNC Financial Services Group is one of the largest U.S. bank managers
of mutual funds with assets currently under management in excess of $30 billion.
This group, through PFPC and PFPC International Ltd., is also a leading mutual
fund service provider having contractual relationships with approximately 370
mutual funds with 3.5 million shareholders and in excess of $101 billion in
assets, including some $2 billion in non-U.S. assets. This group, through its
PNC Institutional Investment Service, provides investment research to some 250
financial institutions located in the United States and abroad. PNC Bank
provides custodial services for approximately $210 billion in assets, including
$160 billion in mutual fund assets.
As adviser, PIMC manages the Fund's portfolio and is responsible for all
purchases and sales of the Fund's portfolio securities. PIMC also maintains
certain of the Fund's financial accounts and records and computes the Fund's net
asset value and net income. 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 Fund's average net assets. PIMC and the administrators may
from
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<PAGE> 182
time to time reduce the advisory and administration fees otherwise payable to
them or may reimburse the Fund for its operating expenses. Any fees waived or
expenses reimbursed by PIMC and the administrators with respect to a particular
fiscal year are not recoverable. For the fiscal year ended October 31, 1995, the
Fund paid investment advisory fees with respect to Dollar Shares aggregating
.07% of Dollar Shares' average net assets.
As sub-adviser, PNC Bank provides research, credit analysis and
recommendations with respect to the Fund's investments, and supplies PIMC with
certain computer facilities, personnel and other services. For its sub-advisory
services, PNC Bank is entitled to receive from PIMC an amount equal to 75% of
the advisory fee paid by the 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 the Fund to PIMC. PNC Bank also serves as the
Fund's custodian. The services provided by PNC Bank and PIMC and the fees
payable by the Fund for these services are described further in the Statement of
Additional Information under "Management of the Funds."
ADMINISTRATORS
PFPC, whose principal business address is 400 Bellevue Parkway, Wilmington,
Delaware 19809, and PDI, whose principal business address is 259 Radnor-Chester
Road, Suite 120, Radnor, Pennsylvania 19087, serve as administrators. PFPC is an
indirect wholly-owned subsidiary of PNC Bank Corp. A majority of the outstanding
stock of PDI is owned by its officers. The administrative services provided by
the administrators, which are described more fully in the Statement of
Additional Information, include providing and supervising the operation of an
automated data processing system to process purchase and redemption orders;
assisting in maintaining the Fund's Wilmington, Delaware office; performing
administrative services in connection with the Fund's computer access program
maintained to facilitate shareholder access to the Fund; accumulating
information for and coordinating the preparation of reports to the Fund's
shareholders and the Securities and Exchange Commission; and maintaining the
registration or qualification of the Fund's shares for sale under state
securities laws. PFPC and PDI are each responsible for carrying out the duties
undertaken pursuant to the Administration Agreement with the Fund.
For their administrative services, the administrators are entitled jointly
to receive a fee computed daily and payable monthly. (For information regarding
the administrators' waivers and expense reimbursements, see "Investment Adviser
and Sub-Adviser" above.) The Fund also reimburses each administrator for its
reasonable out-of-pocket expenses incurred in connection with the Funds'
computer access program. For the fiscal year ended October 31, 1995, the Fund
paid administration fees aggregating .07% of its average net assets.
PFPC also serves as transfer agent, registrar and dividend disbursing
agent. PFPC's address is P.O. Box 8950, Wilmington, Delaware 19885-9628. The
services provided by PFPC and PDI and the fees payable by the Fund for these
services are described further in the Statement of Additional Information under
"Management of the Funds."
DISTRIBUTOR
PDI serves as distributor of the Fund's shares. Its principal offices are
located at 259 Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087. Fund
shares are sold on a continuous basis by the distributor as agent. The
distributor pays the cost of printing and distributing prospectuses to persons
who are not shareholders of the Fund (excluding preparation and printing
expenses necessary for the continued registration of the Fund's shares) and of
printing and distributing all
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<PAGE> 183
sales literature. No compensation is payable by the Fund to the distributor for
its distribution services.
SERVICE ORGANIZATIONS
As stated above, Service Organizations may purchase Dollar Shares. Dollar
Shares are identical in all respects to the Company's Treasury Trust Shares
except that Dollar Shares bear the service fees described below and enjoy
certain exclusive voting rights on matters relating to these fees. The Fund will
enter into an agreement with each Service Organization which purchases Dollar
Shares requiring it to provide support services to its customers who are the
beneficial owners of such shares in consideration of the Fund's 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, which are described more fully in the Statement of Additional
Information under "Management of the Funds--Service Organizations," include
aggregating and processing purchase and redemption requests from customers and
placing net purchase and redemption orders with PFPC; processing dividend
payments from the Fund on behalf of customers; providing information
periodically to customers showing their positions in Dollar Shares; and
providing sub-accounting or the information necessary for sub-accounting with
respect to Dollar Shares beneficially owned by customers. Under the terms of the
agreements, Service Organizations are required to provide to their customers a
schedule of any fees that they may charge customers in connection with their
investments in Dollar Shares.
EXPENSES
Except as noted above and in the Statement of Additional Information, the
Fund's service contractors bear all expenses in connection with the performance
of their services. Similarly, the Fund bears the expenses incurred in its
operations. For the fiscal year ended October 31, 1995, the Fund's total
expenses (net of fee waivers of .11%) with respect to Dollar Shares were .43% of
the average net assets of the Dollar Shares. With regard to fees paid
exclusively by Dollar Shares, see "Service Organizations" above.
BANKING LAWS
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company engaged continuously in the issuance of
its shares, and prohibit banks generally from issuing, underwriting, selling or
distributing securities such as Fund shares. Such banking laws and regulations
do not prohibit such a holding company or affiliate or banks generally from
acting as investment adviser, transfer agent or custodian to such an investment
company, or from purchasing shares of such a company for or upon the order of
customers. PNC Bank, PIMC and PFPC, as well as some Service Organizations, are
subject to such banking laws and regulations, but believe they may perform the
services for the Fund contemplated by their respective agreements, this
Prospectus and the Statement of Additional Information without violating
applicable banking laws or regulations.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of bank Service Organizations in connection with the
provision of support services to their customers, the Fund might be required to
alter or discontinue its arrangements with Service Organizations and change its
method of operations with respect to Dollar Shares. It is not
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<PAGE> 184
anticipated, however, that any change in the Fund's method of operations would
affect its net asset value per share or result in a financial loss to any
customer.
DIVIDENDS
Shareholders of the Fund are entitled to dividends and distributions
arising only from the net investment income and capital gains, if any, earned on
investments held by the Fund. The Fund's net investment income is declared daily
as a dividend to its shareholders of record at the close of business on the day
of declaration. Dividends are determined in the same manner and are paid in the
same amount for each share of the Fund irrespective of class, except that Dollar
Shares bear all the expense of fees paid to Service Organizations. As a result,
at any given time, the net yield on Treasury Trust Dollar Shares will be
approximately .25% lower than the net yield on Treasury Trust Shares. Shares
begin accruing dividends on the day the purchase order for the shares is
executed and continue to accrue dividends through, and including, the day before
such shares are redeemed. Dividends are paid monthly by check, or by wire
transfer if requested in writing by the shareholder, within five business days
after the end of the month or within five business days after a redemption of
all of a shareholder's shares of a particular class. The Fund does not expect to
realize net long-term capital gains.
Institutional shareholders may elect to have their dividends reinvested in
additional full and fractional shares of the same class of shares with respect
to which such dividends are declared at the net asset value of such shares on
the payment date. Reinvested dividends receive the same tax treatment as
dividends paid in cash. Such election, or any revocation thereof, must be made
in writing to PFPC at P.O. Box 8950, Wilmington, Delaware 19885-9628, and will
become effective after its receipt by PFPC with respect to dividends paid.
PFPC, as transfer agent, will send each Fund shareholder or its authorized
representative an annual statement designating the amount, if any, of any
dividends and distributions made during each year and their federal tax
qualification.
TAXES
The Fund qualified in its last taxable year and intends to qualify in
future years as a "regulated investment company" under the Internal Revenue Code
of 1986, as amended (the "Code"). A regulated investment company is generally
exempt from federal income tax on amounts distributed to its shareholders.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that the Fund distribute to its
shareholders at least 90% of its investment company taxable income for such
year. In general, the Fund's investment company taxable income will be its
taxable income (including interest and short-term capital gains, if any),
subject to certain adjustments and excluding the excess of any net long-term
capital gain for the taxable year over the net short-term capital loss, if any,
for such year. The Fund intends to distribute substantially all of its
investment company taxable income each year. Such distributions will be taxable
as ordinary income to the Fund's shareholders that are not currently exempt from
federal income taxes, whether such income is received in cash or reinvested in
additional shares. (Federal income taxes for distributions to an Individual IRA
or a qualified retirement plan are deferred under the Code.) It is anticipated
that none of the Fund's distributions will be eligible for the
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<PAGE> 185
dividends received deduction for corporations. The Fund does not expect to
realize long-term capital gains and, therefore, does not contemplate payment of
any "capital gain dividends", as described in the Code.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by the shareholders and paid by the Fund on December 31 of such
year, in the event such dividends are actually paid during January of the
following year.
TO THE EXTENT PERMISSIBLE BY FEDERAL AND STATE LAW, THE FUND IS STRUCTURED
TO PROVIDE SHAREHOLDERS WITH INCOME THAT IS EXEMPT OR EXCLUDED FROM TAXATION AT
THE STATE AND LOCAL LEVEL. SUBSTANTIALLY ALL DIVIDENDS PAID TO SHAREHOLDERS
RESIDING IN CERTAIN STATES WILL BE EXEMPT OR EXCLUDED FROM STATE INCOME TAX.
MANY STATES, BY STATUTE, JUDICIAL DECISION OR ADMINISTRATIVE ACTION, HAVE TAKEN
THE POSITION THAT DIVIDENDS OF A REGULATED INVESTMENT COMPANY SUCH AS THE FUND
THAT ARE ATTRIBUTABLE TO INTEREST ON DIRECT U.S. TREASURY OBLIGATIONS ARE THE
FUNCTIONAL EQUIVALENT OF INTEREST FROM SUCH OBLIGATIONS AND ARE, THEREFORE,
EXEMPT FROM STATE AND LOCAL INCOME TAXES. INVESTORS SHOULD BE AWARE OF THE
APPLICATION OF THEIR STATE AND LOCAL TAX LAWS TO INVESTMENTS IN THE FUND.
The foregoing discussion is only a brief summary of some of the important
federal tax considerations generally affecting the Fund and its shareholders. As
indicated above, IRAs receive special tax treatment. No attempt is made to
present a detailed explanation of the federal, state or local income tax
treatment of the Fund or its shareholders and this discussion is not intended as
a substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisors with specific reference to their own tax
situations.
YIELDS
From time to time, in advertisements or in reports to shareholders, the
"yields" and "effective yields" for Treasury Trust Shares and Dollar Shares may
be quoted. Yield quotations are computed for Dollar Shares separately from those
for Treasury Trust Shares. The "yield" for a particular class or sub-class of
Fund shares refers to the income generated by an investment in such shares over
a particular period (such as a seven-day period). This income is then
"annualized"; that is, the amount of income generated by an investment during
that period is assumed to be generated for each such period over a 52-week or
one year period and is shown as a percentage of the investment. The "effective
yield" is calculated similarly but, when annualized, the income earned by an
investment in a class or sub-class of Fund shares is assumed to be reinvested.
The "effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
The Fund's yields may be compared to those of other mutual funds with
similar objectives, to stock or other relevant indices, or to rankings prepared
by independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, such data are reported in national
financial publications such as IBC/Donoghue's Money Fund Report(R), The Wall
Street Journal, and The New York Times, reports prepared by Lipper Analytical
Services, Inc., and publications of a local or regional nature.
The Fund's yield figures for Treasury Trust Fund Shares and Treasury Trust
Fund Dollar Shares represent the Fund's past performance, will fluctuate, and
should not be considered as representative
13
<PAGE> 186
of future results. The yield of any investment is generally a function of
portfolio quality and maturity, type of investment and operating expenses. Any
fees charged by Service Organizations directly to their customers in connection
with investments in Dollar Shares are not reflected in the Dollar Shares'
yields; and, such fees, if charged, would reduce the actual return received by
Customers on their investments. The methods used to compute the Fund's yields
are described in more detail in the Statement of Additional Information.
Investors may call 800-821-6006 (Treasury Trust Shares code: 62; Treasury Trust
Dollar Shares code: 63) to obtain current yield information.
DESCRIPTION OF SHARES AND MISCELLANEOUS
The Company is a Pennsylvania business trust established on May 14, 1975.
Effective March 2, 1987, the Company's name was changed from Trust for
Short-Term Federal Securities to Trust for Federal Securities. The Company
commenced operations of the Fund in May, 1989.
The Company's 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 of shares. Pursuant to such authority, the Board of
Trustees has authorized the issuance of twelve classes of shares designated as
Treasury Trust, Treasury Trust Dollar, FedFund, FedFund Dollar, T-Fund, T-Fund
Dollar, FedCash, FedCash Dollar, T-Cash, T-Cash Dollar, Federal Trust and
Federal Trust Dollar. The Declaration of Trust further authorizes the trustees
to classify or reclassify any class of shares into one or more sub-classes.
THIS PROSPECTUS RELATES PRIMARILY TO THE DOLLAR SHARES OF THE FUND AND
DESCRIBES ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS RELATING TO THE FUND. INVESTORS WISHING TO OBTAIN SIMILAR
INFORMATION REGARDING THE FUND'S OTHER CLASS OF SHARES OR THE COMPANY'S FEDFUND,
T-FUND, FEDCASH, T-CASH AND FEDERAL TRUST FUND PORTFOLIOS MAY OBTAIN SEPARATE
PROSPECTUSES BY CALLING THE DISTRIBUTOR AT 800-998-7633.
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.
Each Fund Share represents an equal proportionate interest in the assets
belonging to the Fund. Each share is without par value and has no preemptive or
conversion rights. When issued for payment as described in this Prospectus,
shares will be fully paid and non-assessable.
Holders of the Company's Treasury Trust Shares and Dollar Shares will vote
in the aggregate and not by class on all matters, except where otherwise
required by law and except that only Dollar Shares will be entitled to vote on
matters submitted to a vote of shareholders pertaining to the Fund's
arrangements with Service Organizations. 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. (See the Statement of Additional Information under
"Additional Description Concerning Fund Shares" for examples where the
14
<PAGE> 187
1940 Act requires voting by portfolio.) Shareholders of the Company are entitled
to one vote for each full share held (irrespective of class, sub-class, or
portfolio) and fractional votes for fractional shares held. Voting rights are
not cumulative and, accordingly, the holders of more than 50% of the aggregate
shares of the Company may elect all of the trustees.
For information concerning the redemption of Fund shares and possible
restrictions on their transferability, see "Purchase and Redemption of Shares."
As stated above, the Company is organized as a 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 Company's Declaration of Trust provides for
indemnification out of the trust property of any shareholder of the Fund held
personally liable solely by reason of being or having been a shareholder and not
because of his acts or omissions or some other reason.
15
<PAGE> 188
NO PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS,
OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION
INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR
ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE
COMPANY OR BY THE DISTRIBUTOR
IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
---------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Background and Expense
Information................... 2
Financial Highlights............ 3
Investment Objective and
Policies...................... 4
Purchase and Redemption of
Shares........................ 6
Management of the Fund.......... 8
Dividends....................... 12
Taxes........................... 12
Yields.......................... 13
Description of Shares and
Miscellaneous................. 14
</TABLE>
PIF-P-022
TREASURY
TRUST FUND
DOLLAR SHARES
AN INVESTMENT PORTFOLIO
OFFERED BY
TRUST FOR FEDERAL SECURITIES
[PROVIDENT INSTITUTIONAL FUNDS LOGO]
Prospectus
February 28, 1996
<PAGE> 189
FEDERAL TRUST FUND
TREASURY TRUST FUND
Investment Portfolios Offered By
Trust for Federal Securities
Statement of Additional Information
February __, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . 2
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . 5
MANAGEMENT OF THE FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . 8
ADDITIONAL INFORMATION CONCERNING TAXES . . . . . . . . . . . . . . . . . 19
DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ADDITIONAL YIELD INFORMATION . . . . . . . . . . . . . . . . . . . . . . 21
ADDITIONAL DESCRIPTION CONCERNING FUND SHARES . . . . . . . . . . . . . . 23
COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . FS-1
</TABLE>
This Statement of Additional Information is meant to be read in
conjunction with the Prospectuses for Federal Trust Fund and Treasury Trust
Fund dated February __, 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 Federal Trust Fund or
Treasury Trust Fund should be made solely upon the information contained
herein. Copies of the Prospectuses for Federal Trust Fund and Treasury Trust
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> 190
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--Federal Trust Fund, Treasury Trust Fund, FedFund,
T-Fund, FedCash and T-Cash. This Statement of Additional Information relates
primarily to the Company's Federal Trust Fund and Treasury Trust Fund
portfolios (the "Funds").
The obligations held by Federal Trust Fund are limited to obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
The obligations held by Treasury Trust Fund are limited to U.S. Treasury bills,
notes and other direct obligations of the U.S. Treasury. Although the Funds
and the Company's FedFund, T-Fund, FedCash and T-Cash portfolios have the same
investment adviser and have comparable investment objectives, the Funds differ
in that they may not engage in repurchase agreements; 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
FEDFUND, T-FUND, FEDCASH OR T-CASH 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
-2-
<PAGE> 191
without brokerage commissions. In making portfolio investments, 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.
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 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, 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
Federal Trust Dollar shares or Treasury Trust Dollar shares ("Dollar shares").
(See the Prospectuses, "Management of the Fund--Service Organizations.")
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
-3-
<PAGE> 192
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.
The Funds may seek profits through short-term trading and engage in
short-term trading for liquidity purposes. Increased trading may provide
greater potential for capital gains and losses, and also involves
correspondingly greater trading costs which are borne by the Fund involved.
PIMC will consider such costs in determining whether or not a Fund should
engage in such trading. The portfolio turnover rate for the Funds is expected
to be zero for regulatory reporting purposes.
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.
Currently, Treasury Trust Fund does not invest in securities with
maturities in excess of one year, as the U.S. Treasury does not currently issue
securities with maturities of such lengths. However, if such securities ever
become available, Treasury Trust Fund may purchase them under provisions
consistent with Rule 2a-7 under the 1940 Act and 12 C.F.R. Section 566.1(h) of
the regulations that govern federally regulated thrifts.
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. Federal Trust Fund may not purchase securities other than U.S.
Treasury bills, notes and other obligations
-4-
<PAGE> 193
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
2. Treasury Trust Fund may not purchase securities other than
direct obligations of the U.S. Treasury such as Treasury bills and notes, which
will permit Fund shares to qualify as "short-term liquid assets" for federally
regulated thrifts.
Federal Trust Fund and Treasury Trust 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 the Funds by enabling the
Company to meet redemption requests where the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous.) 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.
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
the purchase of Federal Trust shares and Treasury Trust 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.
-5-
<PAGE> 194
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 organization, 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.
-6-
<PAGE> 195
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
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. Federal Trust Fund and Treasury Trust Fund do not purchase any
instrument with a remaining maturity of more than thirteen months and one year,
respectively (with certain exceptions). In determining the average weighted
portfolio maturity of each Fund, a variable rate
-7-
<PAGE> 196
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.
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 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,
-8-
<PAGE> 197
Inc. and New York Muni and Vice President and Treasurer of ISIS and Cal Muni;
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) Trustee Economic Consultant;
Coldwell Financial Chairman, Coldwell
Consultants Financial Consultants,
3330 Southwestern Blvd. Member of the Board of
Dallas, Texas 75225 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 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.
and Prudential
Structured Maturity
Fund, Inc.
RODNEY D. JOHNSON Trustee President, Fairmount
Fairmount Capital Capital Advisors, Inc.
Advisors, Inc. (financial advising)
1435 Walnut Street since 1987; Treasurer,
Drexel Building North Philadelphia
Philadelphia, PA 19102 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.
</TABLE>
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<PAGE> 198
<TABLE>
<CAPTION>
Principal Occupations
Position with the During the Past 5 Years
Name and Address Company and Other Affiliations
- ---------------- ----------------- -----------------------
<S> <C> <C>
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 Cancer
Trustee 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 and Certified Public
Bellevue Park Corporate Treasurer Accountant; Partner of
Center the accounting firm of
400 Bellevue Parkway Main Hurdman until
Suite 100 1981; Vice Chairman of
Wilmington, DE 19809 the Board, Fox Chase
Cancer Center; Trustee
Emeritus, Pennsylvania
School for the Deaf;
Trustee Immaculata
College, 1983-1984;
Director, The Bradford
Funds, Inc.
W. BRUCE McCONNEL, III Secretary Partner of the law
1345 Chestnut Street firm of Drinker Biddle
Philadelphia, PA & Reath, 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.
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<PAGE> 199
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 $31,968 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 $845 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 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:
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<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.
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<PAGE> 201
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 Treasury
Trust Fund paid fees (net of waivers) for advisory services aggregating
$1,158,339, $991,942 and $929,458 respectively. For the same periods, advisory
fees payable by Treasury Trust Fund of $750,375, $748,721 and $751,364
respectively, were voluntarily waived. For the fiscal years ended October 31,
1993, 1994 and 1995. Federal Trust Fund paid fees (net of waivers) for
advisory services aggregating $244,903, $175,896 and $161,037, respectively.
For the same periods, advisory fees payable by Federal Trust Fund of $202,045,
$197,112 and $192,033, respectively, were voluntarily
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<PAGE> 202
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, FedCash and T-Cash 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 laws 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; (iv) assist in maintaining the Funds'
Wilmington, Delaware office; (v) perform administrative services in connection
with the Fund's computer
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<PAGE> 203
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 a fee 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, Treasury Trust Fund and
Federal Trust Fund paid fees (net of waivers) for administrative services to
PFPC and PDI aggregating $929,458 and $161,037, respectively. For the same
fiscal year, PFPC and PDI voluntarily waived administration fees aggregating
$751,364 with respect to Treasury Trust Fund and $192,033 with respect to
Federal Trust Fund. For the fiscal year ended October 31, 1994, Treasury Trust
Fund and Federal Trust Fund paid fees (net of waivers) for administrative
services to PFPC and PDI aggregating $991,942 and $175,896, 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 $66,520 with respect to Federal Trust Fund and $359,966 with respect
to Treasury Trust Fund. Administration fees totalling $46,130 and $141,059 for
Federal Trust Fund and Treasury Trust Fund, respectively, were 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 to PDI, its administrators, aggregating $103,838 with
respect to Federal Trust Fund and $1,158,339 with respect to Treasury Trust
Fund. For the same period, administration fees of $750,375 with respect to
Treasury Trust Fund and $343,110 with respect to Federal Trust Fund were
voluntarily waived.
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
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<PAGE> 204
companies which are distributed by PDI. PFPC and PDI also serve as the
co-administrators of the Company's FedFund, T-Fund, FedCash and T-Cash
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 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. 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, FedCash and
T-Cash 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 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
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<PAGE> 205
for out-of-pocket expenses incurred on behalf of the Fund. For the fiscal
years ended October 31, 1993, 1994 and 1995, Treasury Trust Fund paid fees for
custodian services aggregating $238,777, $220,900 and $216,081 respectively.
For fiscal years ended October 31, 1993, 1994 and 1995, Federal Trust Fund paid
fees for custodian services aggregating $85,941, $71,103 and $68,120,
respectively. PNC Bank also serves as Custodian for the Company's FedFund,
T-Fund, FedCash and T-Cash 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, Treasury
Trust Fund paid fees for transfer agency services aggregating $149,325,
$133,142 and $94,981, respectively. For the fiscal years ended October 31,
1993, 1994 and 1995, Federal Trust Fund paid fees for transfer agency services
aggregating $37,448, $36,244 and $44,229, respectively. PFPC also serves as
transfer agent, registrar and dividend disbursing agent for the Company's
FedFund, T-Fund, FedCash and T-Cash portfolios.
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<PAGE> 206
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 $100,976 in
servicing fees to an affiliate of the Company's adviser (representing 19.8% of
the aggregate servicing fees) of which $82,355 and $18,621 was allocated to the
Treasury Trust Fund and Federal Trust Fund, respectively, 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 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
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<PAGE> 207
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, 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 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 and sale 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 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
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<PAGE> 208
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, or 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."
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.
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<PAGE> 209
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 Federal Trust Fund and Treasury Trust Fund at $1.00.
As a result of a significant expense or realized or unrealized loss incurred by
either Fund 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 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
Federal Trust shares and Treasury Trust shares were 5.51% and 5.27%,
respectively, and the compounded effective
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<PAGE> 210
yields on Federal Trust shares and Treasury Trust shares were 5.66% and 5.41%,
respectively; the yields on Federal Trust Dollar shares and Treasury Trust
Dollar shares were 5.26% and 5.02%, respectively, and the compounded effective
yields on Federal Trust Dollar shares and Treasury Trust Dollar shares were
5.40% and 5.15%, respectively. During this seven-day period, the Funds'
adviser and administrator voluntarily waived a portion of the advisory and
administration fees payable by the Fund. Without these waivers, for the same
period the yields on Federal Trust shares and Treasury Trust shares would have
been 5.37% and 5.16%, respectively; the compounded effective yields on Federal
Trust shares and Treasury Trust shares would have been 5.51% and 5.29%,
respectively; the yields on Federal Trust Dollar shares and Treasury Trust
Dollar shares would have been 5.12% and 4.91%, respectively; and the compounded
effective yields on Federal Trust Dollar shares and Treasury Trust Dollar
shares would have been 5.25% and 5.03%, respectively.
For the 30-day period ended October 31, 1995, the yields on Federal
Trust shares and Treasury Trust shares were 5.51% and 5.29%, respectively, and
the compounded effective yields on Federal Trust shares and Treasury Trust
shares were 5.66% and 5.43%, respectively; the yields on Federal Trust Dollar
shares and Treasury Trust Dollar shares were 5.26% and 5.04%, respectively, and
the compounded effective yields on Federal Trust Dollar shares and Treasury
Trust Dollar shares were 5.40% and 5.17%, respectively. During this 30-day
period, the Funds' adviser and administrator voluntarily waived a portion of
the advisory and administration fees payable by the Fund. Without these
waivers, for the same period the yields on Federal Trust shares and Treasury
Trust shares would have been 5.37% and 5.18%, respectively; the compounded
effective yields on Federal Trust shares and Treasury Trust shares would have
been 5.51% and 5.31%, respectively; the yields on Federal Trust Dollar shares
and Treasury Trust Dollar shares would have been 5.12% and 4.93%, respectively;
and the compounded effective yields on Federal Trust Dollar shares and Treasury
Trust Dollar shares would have been 5.25% and 5.05%, 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.
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<PAGE> 211
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
Service Organizations or other institutional investors with respect to customer
accounts in investing in shares of the Funds will not be included in yield
calculations; such fees, if charged, would reduce the actual yield from that
quoted.
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
Federal Trust shares and Federal Trust Dollar shares will vote in the aggregate
and not by class on all matters, except where otherwise required by law and
except that only Federal Trust 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 Treasury Trust and
Treasury Trust Dollar shares will also vote in the aggregate and not by class
except 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
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<PAGE> 212
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 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 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 the 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.
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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 Federal Trust Fund and Treasury Trust Fund portfolios
were as follows:
<TABLE>
<S> <C>
Federal Trust Fund
------------------
Saxon & Company 10.86%
PNC Bank
200 Stevens Drive
Lester, PA 19113
Cudd & Co. 29.27%
Chase Manhattan Bank
1211 Avenue of the Americas
New York, NY 10036
Green Mountain Bank 6.75%
Trust Operations Department
80 West Street, P.O. Box 669
Rutland, VT 05702
Painewebber Inc. 5.41%
Madison County Treasury Inv. Pool
8182 Maryland Avenue, Suite 700
St. Louis, MO 63105
Keystone Health Plan East Inc. 8.05%
1901 Market Street
Philadelphia, PA 19101
Union Trust Company 5.05%
Branch & Co.
66 Main Street
Ellsworth, ME 04605
Treasury Trust Fund
-------------------
Deutsche Bank Securities 5.29%
1290 Avenue of the Americas
New York, NY 10104
Rhode Island Hospital Trust 5.78%
Bank of Boston National Bank
150 Royal Street
Canton, MA 02021
</TABLE>
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<PAGE> 214
<TABLE>
<S> <C>
First Interstate Bank/California 8.22%
26610 West Agoura Road
Calabasas, CA 91302
Bankers Trust Company 13.51%
210 West 10th Street, 8th Floor
Kansas City, MO 64105
</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 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
the trustee 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,
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<PAGE> 215
to indemnify officers and employees of the Company unless such person would not
be entitled to indemnification had he or she been a trustee.
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<PAGE> 216
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> 217
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.
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"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> 219
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
