As filed with the Securities and Exchange Commission on December 29, 1995
Registration No.__
U.S. Securities and Exchange Commission
Washington, DC 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ___ Post-Effective Amendment No. ___
(Check appropriate box or boxes)
Exact Name of Registrant as Specified in Charter:
COREFUNDS, INC.
Area Code and Telephone Number:
(800) 355-2673
Address of Principal Executive Offices:
680 East Swedesford Road
Wayne, PA 19087-1658
Name and Address of Agent for Service:
DAVID G. LEE
SEI Corporation
680 East Swedesford Road
Wayne, Pennsylvania 19087-1658
copies to:
HENRY S. HILLES, JR. JAMES W. JENNINGS
Drinker Biddle & Reath Morgan, Lewis & Bockius LLP
Philadelphia National Bank Building One Logan Square
1345 Chestnut Street Philadelphia, Pennsylvania 19103-6993
Philadelphia, Pennsylvania 19107-3496
Approximate Date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective under the Securities Act of 1933.
It is proposed that this filing will become effective on January 28, 1996
pursuant to Rule 488 under the Securities Act of 1933.
Calculation of Registration Fee under the Securities Act of 1933: No filing fee
is required because an indefinite number of shares have previously been
registered on Form N-1A (Registration Nos. 2-93214, 811-4107) pursuant to Rule
24f-2 under the Investment Company Act of 1940. The Registrant is filing as an
exhibit to this Registration Statement a copy of its earlier declaration under
Rule 24f-2. Pursuant to Rule 429, this Registration Statement relates to the
aforesaid Registration Statement on Form N-1A.
<PAGE>
COREFUNDS, INC.
FORM N-14
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a)
<TABLE>
<CAPTION>
Item No. Heading
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<S> <C> <C>
Part A
1. Beginning of Registration Statement
and Outside Front Cover Page.......................... Cover Page
2. Beginning and Outside
Back Cover Page....................................... Table of Contents
3. Fee Table, Synopsis Information
and Risk Factors...................................... Summary; Comparative Fee Tables; Risk
Factors; Comparison of Investment Policies
and Risk Factors; Appendix III
4. Information About the Transaction..................... Summary; Risk Factors; Information Relating
to the Proposed Reorganization; Comparison
of Investment Policies and Risk Factors;
Appendix III
5. Information About the Registrant...................... Summary; Risk Factors; Comparison of
Investment Policies and Risk Factors;
Additional Information About CoreFunds;
Additional Information About Conestoga;
Appendix III
5A. Management's Discussion of
Fund Performance...................................... Appendix II
6. Information About the Company
Being Acquired........................................ Summary; Risk Factors; Comparison of
Investment Policies and Risk Factors;
Additional Information About CoreFunds;
Additional Information About Conestoga;
Appendix III
7. Voting Information.................................... Summary; Information Relating to Voting
Matters
8. Interest of Certain Persons
and Experts........................................... Additional Information About CoreFunds;
Additional Information About Conestoga
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<PAGE>
9. Additional Information Required
for Reoffering by Persons Deemed
to be Underwriters.................................... Inapplicable
Part B
10. Cover Page......................................... Statement of Additional Information Cover
Page
11. Table of Contents................................... Table of Contents
12. Additional Information
About the Registrant................................ Statement of Additional Information of
CoreFunds, Inc. dated November 1, 1995*
13. Additional Information
About the Company Being
Acquired............................................ Statement of Additional Information of
Conestoga Family of Funds dated May 1, 1995
(as revised November 3, 1995)*
14. Financial Statements................................... Financial Statements of Conestoga; Pro Forma
Financial Statements
</TABLE>
Part C
Items 15-17. Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C of this Registration Statement.
* Incorporated by reference thereto.
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<PAGE>
THE CONESTOGA FAMILY OF FUNDS
680 East Swedesford Road
Wayne, Pennsylvania 19087-1658
February __, 1996
Dear Conestoga Funds Shareholder:
The Board of Trustees of The Conestoga Family of Funds ("Conestoga
Funds" or the "Funds") is pleased to call a special shareholders meeting, to be
held at 10:00 a.m., on March 22, 1996, at The Wilmington Hilton, 630 Naamans
Road, Wilmington, Delaware.
As you may know, CoreStates Financial Corp ("CoreStates") and Meridian
Bancorp, Inc. ("Meridian") recently announced a plan to merge, in a transaction
expected to close during the second quarter of 1996. Meridian Bancorp, Inc., is
the parent company of the investment adviser to the Conestoga Funds. In
anticipation of the consummation of that merger, management of both companies
deemed it wise to consider the consolidation of the mutual fund investment
advisory activities of Meridian and CoreStates into one entity. Similarly, it
was deemed appropriate to consider the merger of the Conestoga Funds into the
CoreFunds Family of Funds, an open-end management investment company, in order
to create one consolidated family of mutual funds and offer shareholders more
investment options in an efficient manner. The Conestoga Funds Board of Trustees
believes that these actions are in the best interests of the Funds'
shareholders.
The Conestoga Board of Trustees has carefully reviewed the proposal to
combine all portfolios of The Conestoga Family of Funds with the CoreFunds
Family of Funds with similar investment objectives and policies (the
"Transaction"), and has considered the effects of this Transaction on
shareholder value with respect to investment performance, expenses levels, and
shareholders services. The Board of Trustees has also considered the interim
advisory and sub-advisory agreements for the Funds that are described in the
attached materials if the merger of CoreStates Financial Corp and Meridian
Bancorp, Inc. occurs before the Funds' consolidations. In light of their
consideration, the Board of Trustees unanimously recommends the approval of the
<PAGE>
Transaction. As you evaluate the proposal, please note the
following points:
o The absolute dollar value of your investment in the Conestoga Funds
before the Transaction will NOT change, and will be the same immediately after
the transaction although the Funds you have invested in, as well as the number
of shares and the net asset value of each share, may be different.
o The Transaction will be tax-free and will not involve
any sales loads, commissions or transaction charges.
o The investment objective and policies of your new portfolio will be
substantially similar to your portfolio's current objective and policies, except
as stated in the enclosures.
o The CoreFunds service providers have agreed to waive fees and
reimburse expenses for a period of one year after the reorganization, if
necessary, to ensure that the operating expenses of the CoreFunds portfolios are
limited to the ratios stated in the Combined Proxy Statement/Prospectus.
The Board of Trustees recommends the approval of this Transaction in
light of the following shareholder benefits:
o The Transaction will result in a broader array of investment
opportunities available to shareholders.
o Existing purchase and redemption features will remain in place.
o There is the potential for economies of scale in portfolio
management resulting from the larger asset size.
A proxy card is enclosed for your use in the shareholder meeting. This
card represents shares you hold as of the record date, January 26, 1996. IT IS
IMPORTANT THAT YOU COMPLETE, SIGN, AND RETURN YOUR PROXY CARD IN THE ENVELOPE
PROVIDED AS SOON AS POSSIBLE. This will ensure that your shares will be
represented at the shareholders meeting to be held on March 22, 1996.
Sincerely,
Thomas J. Taylor
Chairman of the Board
<PAGE>
CONESTOGA FAMILY OF FUNDS
The document you hold in your hands contains your combined proxy
statement/prospectus and proxy card. A proxy card is, in essence, a ballot. When
you vote your proxy, it tells us how to vote on your behalf on important issues
relating to the Portfolios. If you simply sign the proxy without specifying a
vote, your shares will be voted in accordance with the recommendations of the
Board of Trustees.
We urge you to spend a few minutes with the proxy/prospectus statement, fill out
your proxy card, and return it to us. Voting your proxy, and doing so promptly,
enables the Portfolios to avoid conducting additional mailings. When
shareholders do not return their proxies in sufficient numbers, the Portfolios
may bear the expense of follow-up solicitations.
Please take a few moments to exercise your right to vote. Thank you.
<PAGE>
CONESTOGA FAMILY OF FUNDS
680 East Swedesford Road
Wayne, Pennsylvania 19087-1658
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on March 22, 1996
To Conestoga Shareholders:
NOTICE IS HEREBY GIVEN THAT a Special Meeting of the Shareholders
("Shareholders") of each Portfolio of the Conestoga Family of Funds
("Conestoga") will be held at The Wilmington Hilton, 630 Naamans Road,
Wilmington, Delaware, on March 22, 1996 at 10:00 a.m. (Eastern time) for the
following purposes:
ITEM 1. With respect to each investment portfolio (a
"Conestoga Portfolio") of Conestoga:
To consider and act upon a proposal to approve an Agreement
and Plan of Reorganization (the "Reorganization Agreement")
and the transactions contemplated thereby, including (a) the
transfer of substantially all of the assets and liabilities of
the Cash Management Fund, Tax-Free Fund, U.S. Treasury
Securities Fund, Equity Fund, Special Equity Fund, Bond Fund,
Intermediate Income Fund, Pennsylvania Tax-Free Bond Fund,
Balanced Fund, Short-Term Income Fund and International Equity
Fund to corresponding investment portfolios (the "CoreFunds
Portfolios") of CoreFunds, Inc. in exchange for Institutional
and Individual shares, as applicable, of the CoreFunds
Portfolios; (b) the distribution of such CoreFunds
Portfolio shares to the shareholders of the Conestoga
Portfolios according to their respective interests; (c) the
approval of an interim investment advisory agreement for the
Conestoga Portfolios, and an interim sub-advisory agreement
for the Conestoga International Equity Fund, if the merger of
Meridian Bancorp, Inc. and CoreStates Financial Corp occurs
before the closing of the proposed reorganization; and (d) the
termination under state law and the Investment Company Act of
1940, as amended, of Conestoga.
ITEM 2. With respect to each Conestoga Portfolio:
To transact such other business as may properly come before
the Special Meeting or any adjournment(s) thereof.
The proposed reorganization and related matters are described in the
attached Combined Proxy Statement/Prospectus.
<PAGE>
Appendix I to the Combined Proxy Statement/Prospectus is a copy of the
Reorganization Agreement.
Shareholders of record as of the close of business on January 26, 1996
are entitled to notice of, and to vote at, the Special Meeting or any
adjournment(s) thereof.
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE THE ACCOMPANYING PROXY CARD WHICH IS BEING SOLICITED BY
CONESTOGA'S BOARD OF TRUSTEES. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE
SPECIAL MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY
SUBMITTING TO CONESTOGA A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY
EXECUTED PROXY OR BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
-----------------------------
Henry S. Hilles, Jr.
Secretary
February 1, 1996
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<PAGE>
COMBINED PROXY STATEMENT/PROSPECTUS
Dated February 1, 1996
CONESTOGA FAMILY OF FUNDS
680 East Swedesford Road
Wayne, Pennsylvania 19087-1658
(800) 344-2716
COREFUNDS, INC.
680 East Swedesford Road
Wayne, Pennsylvania 19087-1658
(800) 355-CORE
This Combined Proxy Statement/Prospectus is furnished in connection
with the solicitation of proxies by the Board of Trustees of the Conestoga
Family of Funds ("Conestoga") in connection with a Special Meeting (the
"Meeting") of Shareholders ("Shareholders") to be held on March 22, 1996 at
10:00 a.m. (Eastern time) at The Wilmington Hilton, 630 Naamans Road,
Wilmington, Delaware, at which Shareholders will be asked to consider and
approve a proposed Agreement and Plan of Reorganization dated ____________, 1996
(the "Reorganization Agreement"), by and between Conestoga and CoreFunds, Inc.
("CoreFunds") and the matters contemplated therein. A copy of the Reorganization
Agreement is attached as Appendix I.
Conestoga and CoreFunds are both open-end, management investment
companies. Meridian Investment Company ("MIC") currently provides investment
advisory services to Conestoga. CoreStates Investment Advisers, Inc.
("CoreStates Advisers") provides investment advisory services to CoreFunds. In
reviewing the proposed reorganization (the "Reorganization"), the Conestoga
Board considered the pending merger of Meridian Bancorp, Inc., the parent
company of MIC and CoreStates Financial Corp (the "Holding Company Merger); the
effect of such merger on Conestoga; the recommendations of MIC and CoreStates
Advisers with respect to the proposed consolidation of Conestoga and CoreFunds;
the fact that the Reorganization would constitute a tax-free reorganization; and
the fact that the interests of Shareholders would not be diluted as a result of
the Reorganization.
The Reorganization Agreement provides that each of the following eight
investment portfolios of Conestoga (collectively, the "Reorganizing Portfolios")
will transfer substantially all its assets and known liabilities to the existing
CoreFunds investment portfolio (collectively, the "Existing CoreFunds
Portfolios") identified below opposite its name:
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<TABLE>
<CAPTION>
Reorganizing Portfolios Existing CoreFunds Portfolios
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Cash Management Fund Cash Reserve
Tax-Free Fund Tax-Free Reserve
U.S. Treasury Securities Fund Treasury Reserve
Equity Fund Value Equity Fund
Intermediate Income Fund Intermediate Bond Fund
Pennsylvania Tax-Free Pennsylvania Municipal
Bond Fund Bond Fund
Balanced Fund Balanced Fund
International Equity Fund International Growth Fund
</TABLE>
The Reorganization Agreement also provides that each of the following
three investment portfolios of Conestoga (collectively, the "Continuing
Portfolios") will transfer all its assets and known liabilities to the
newly-organized CoreFunds investment portfolio (collectively, the "New CoreFunds
Portfolios") identified below opposite its name:
<TABLE>
<CAPTION>
Continuing Portfolios New CoreFunds Portfolios
--------------------- ------------------------
<S> <C>
Special Equity Fund Special Equity Fund
Bond Fund Bond Fund
Short-Term Income Fund Short-Term Income Fund
</TABLE>
In exchange for the transfer of these assets and liabilities, CoreFunds
will simultaneously issue shares in the eleven CoreFunds investment portfolios
listed above (collectively, the "CoreFunds Portfolios") to the corresponding
Conestoga investment portfolios listed above (collectively, the "Conestoga
Portfolios").
The Conestoga Portfolios have two classes of shares outstanding, as do
the CoreFunds Portfolios. Holders of each class of shares of a Conestoga
Portfolio will receive the class of shares of the corresponding CoreFunds
Portfolio as set forth in the table on page ___ under "Information Relating to
the Proposed Reorganization -- Description of the Reorganization Agreement."
The Conestoga Portfolios will then make a liquidating distribution of
the CoreFunds Portfolios' shares to the Shareholders of the Conestoga
Portfolios, so that a holder of a class of shares in a Conestoga Portfolio at
the Effective Time of the Reorganization (as hereinafter defined) will receive a
class of Shares (as described herein) of the corresponding CoreFunds Portfolio
with the same aggregate net asset value as the Shareholder had in the Conestoga
Portfolio immediately before the Reorganization. Following the Reorganization,
Shareholders of the Conestoga Portfolios will be Shareholders of their
corresponding CoreFunds Portfolios, and Conestoga will be terminated under state
law and the Investment Company Act of 1940, as amended.
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<PAGE>
The Existing CoreFunds Portfolios currently are conducting investment
operations as described in this Combined Proxy Statement/Prospectus. The New
CoreFunds Portfolios have recently been organized for the purpose of continuing
the investment operations of the Conestoga Special Equity Fund, Bond Fund and
Short-Term Income Fund.
The Reorganization Agreement also provides that if the Holding Company
Merger occurs before the Reorganization, Conestoga will enter into an interim
investment advisory agreement with MIC (or its successor), and an interim
sub-advisory agreement with Marvin and Palmer Associates, Inc. for the Conestoga
International Equity Fund. The interim investment advisory and sub-advisory
agreements will be effective for the period between the date of the Holding
Company Merger and the consummation of the proposed Reorganization between
Conestoga and CoreFunds. The interim investment advisory and sub-advisory
agreements will contain substantially the same terms as Conestoga's current
investment advisory and sub-advisory agreements.
This Combined Proxy Statement/Prospectus sets forth the information
that a Shareholder of Conestoga should know before voting on the Reorganization
Agreement (and related transactions), and should be retained for future
reference. The Prospectuses relating to the shares of the Existing CoreFunds
Portfolios, which describe the operations of those Funds, accompany this
Combined Proxy Statement/Prospectus. Additional information is set forth in the
Statements of Additional Information relating to those Funds and this Combined
Proxy Statement/Prospectus, which are dated November 1, 1995 and February 1,
1996, respectively, and in the Prospectuses and Statement of Additional
Information, dated February 21, 1995 (as revised November 3, 1995) and May 1,
1995 (as revised November 3, 1995), respectively, relating to Conestoga. Each of
these documents is on file with the Securities and Exchange Commission (the
"SEC"), and is available without charge upon oral or written request by writing
or calling either Conestoga or CoreFunds at the respective addresses or
telephone numbers indicated above. The information contained in the Prospectuses
and Statement of Additional Information, dated February 21, 1995 (as revised
November 3, 1995) and May 1, 1995 (as revised November 3, 1995), respectively,
relating to Conestoga is incorporated herein by reference.
This Combined Proxy Statement/Prospectus constitutes the Proxy
Statement of Conestoga for the meeting of its Shareholders, and CoreFunds'
Prospectus for the shares of its Existing CoreFunds Portfolios that have been
registered with the SEC and are to be issued in connection with the
Reorganization. Because the operations of the Continuing Portfolios will be
carried on by the New CoreFunds Portfolios, this Combined Proxy
Statement/Prospectus does not constitute a prospectus for the shares that
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<PAGE>
will be issued in the Reorganization with respect to the Continuing Portfolios.
This Combined Proxy Statement/Prospectus is expected to first be sent
to Shareholders on or about February 5, 1996.
THE SECURITIES OF THE COREFUNDS PORTFOLIOS HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS COMBINED PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROXY
STATEMENT/PROSPECTUS AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY
REFERENCE AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CONESTOGA OR COREFUNDS.
SHARES OF THE COREFUNDS PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, CORESTATES BANK, N.A., THE PARENT CORPORATION OF EACH
OF THE COREFUNDS PORTFOLIOS' INVESTMENT ADVISER, OR ANY OF ITS AFFILIATES.
SHARES OF THE COREFUNDS PORTFOLIOS ARE NOT FEDERALLY INSURED BY, GUARANTEED BY,
OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL VALUE WILL VARY AS A RESULT
OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES OF THE COREFUNDS
PORTFOLIOS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE COREFUNDS PORTFOLIOS INVOLVES INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. THERE IS NO ASSURANCE THAT THE
COREFUNDS CASH RESERVE, TAX-FREE RESERVE OR TREASURY RESERVE WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
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<PAGE>
TABLE OF CONTENTS
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Page
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Summary............................................................................................................
Proposed Reorganization...................................................................................
Reasons for Reorganization................................................................................
Federal Income Tax Consequences...........................................................................
Overview of the Conestoga Portfolios and
CoreFunds Portfolios....................................................................................
Voting Information........................................................................................
Risk Factors..............................................................................................
Information Relating to the Proposed Reorganization................................................................
Description of the Reorganization Agreement...............................................................
Capitalization............................................................................................
Federal Income Tax Consequences...........................................................................
Comparison of Investment Policies and Risk Factors................................................................
Conestoga Cash Management Fund and
CoreFunds Cash Reserve..................................................................................
Conestoga Tax-Free Fund and CoreFunds
Tax-Free Reserve........................................................................................
Conestoga U.S. Treasury Securities Fund
and CoreFunds Treasury Reserve..........................................................................
Conestoga Equity Fund and CoreFunds
Value Equity Fund.......................................................................................
Conestoga Intermediate Income Fund and
CoreFunds Intermediate Bond Fund........................................................................
Conestoga Pennsylvania Tax-Free Bond Fund and
CoreFunds Pennsylvania Municipal Bond Fund..............................................................
Conestoga Balanced Fund and CoreFunds
Balanced Fund...........................................................................................
Conestoga International Equity Fund and
CoreFunds International Growth Fund.....................................................................
Investment Policies and Risks -- General..................................................................
Investment Limitations....................................................................................
Purchase and Redemption Information, Exchange
Privileges, Distribution and Pricing....................................................................
Other Information.........................................................................................
Interim Investment Advisory and Sub-Advisory Agreements............................................................
Information Relating to Voting Matters.............................................................................
General Information.......................................................................................
Shareholder and Board Approvals...........................................................................
Appraisal Rights..........................................................................................
Quorum....................................................................................................
Annual Meetings...........................................................................................
Additional Information about CoreFunds.............................................................................
Additional Information about Conestoga.............................................................................
Additional Information about the Investment Advisers and Sub-Advisers..............................................
Litigation.........................................................................................................
Financial Statements...............................................................................................
Other Business.....................................................................................................
<PAGE>
<CAPTION>
Page
Shareholder Inquiries..............................................................................................
Appendix I--Agreement and Plan of Reorganization................................................................A-1
Appendix II - Manager's Discussion of Fund Performance -
Existing CoreFunds Portfolios..........................................................................B-1
Appendix III - Shareholders Transactions and Services...........................................................C-1
Appendix IV - Interim Investment Advisory and Sub-Advisory
Agreements.............................................................................................D-1
</TABLE>
<PAGE>
SUMMARY
The following is a summary of certain information relating to the
proposed Reorganization, the parties thereto and the related transactions, and
is qualified by reference to the more complete information contained elsewhere
in this Combined Proxy Statement/Prospectus, the prospectuses and statements of
additional information of Conestoga and CoreFunds, and the Reorganization
Agreement attached to this Combined Proxy Statement/Prospectus as Appendix I.
Conestoga's Annual Report to Shareholders may be obtained free of charge by
calling 1-800-344-2716 or writing 680 East Swedesford Road, Wayne, Pennsylvania
19087-1658. CoreFunds Annual Report to Shareholders may be obtained free of
charge by calling 1-800-355-CORE or writing 680 East Swedesford Road, Wayne,
Pennsylvania 19087-1658.
Proposed Reorganization. Based upon their evaluation of the relevant information
presented to them, and in light of their fiduciary duties under federal and
state law, Conestoga's and CoreFunds' Boards, including their members who are
not "interested persons" within the meaning of the Investment Company Act of
1940 (the "1940 Act"), have determined that the proposed Reorganization is in
the best interests of Conestoga's and CoreFunds' Shareholders, respectively, and
that the interests of existing Shareholders of Conestoga and CoreFunds,
respectively, will not be diluted as a result of such Reorganization.
The Reorganization Agreement provides that the Reorganization will occur
contemporaneously with, or shortly after, the consummation of the Holding
Company Merger. Because this merger will result in a change in control of MIC,
the existing investment advisory and sub-advisory agreements for Conestoga will,
by their terms, automatically terminate upon the Holding Company Merger. If this
merger and the Reorganization do not occur contemporaneously, the
Reorganization Agreement provides that Conestoga will enter into an interim
investment advisory agreement with MIC (or its successor) for the period between
the date of the Holding Company Merger and the Effective Time of the
Reorganization. In addition, MIC will enter into an interim sub-advisory
agreement with respect to the Conestoga International Equity Fund with Marvin
and Palmer Associates, Inc. for the same period. The provisions of the interim
investment advisory and sub-advisory agreements, including the fee rates, will
be the same as those of the existing investment advisory and sub-advisory
agreements. See "Interim Investment Advisory and Sub-Advisory Agreements" below.
The Cover Page and pages ___-___ hereof summarize the proposed
Reorganization, including the interim investment advisory and sub-advisory
agreements.
Reasons for the Reorganization. The primary reason for the Reorganization is the
pending merger between Meridian Bancorp,
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<PAGE>
Inc., the parent of MIC, and CoreStates Financial Corp. If this merger is
completed, the currently existing investment advisory contract between the
Conestoga Portfolios and MIC, would be terminated. MIC and CoreStates Advisers
have recommended that each of the Conestoga Portfolios be reorganized as
described in this Combined Proxy Statement/Prospectus contemporaneously with or
shortly after the proposed merger of the bank holding companies. In light of
this recommendation, after consideration of the reasons therefor and the
proposed operations of the combined funds after the Reorganization, and in
consideration of the fact that the Reorganization will be tax-free and will not
dilute the interests of Conestoga Shareholders, the Board of Trustees of
Conestoga has authorized the Agreement and Plan of Reorganization and
recommended approval of the Reorganization by Shareholders.
Federal Income Tax Consequences. Shareholders of the Conestoga Portfolios will
recognize no gain or loss for federal income tax purposes on their receipt of
shares of the CoreFunds Portfolios. Shareholders of the CoreFunds Portfolios
will have no tax consequence from the Reorganization. The Conestoga Portfolios
will incur no federal tax purposes on their issuance of shares in the
Reorganization. See "Information Relating to the Proposed Reorganization --
Federal Income Tax Consequences."
Overview of the Conestoga Portfolios and CoreFunds Portfolios. There are no
material differences between the investment objectives and policies of the
Continuing Portfolios and the corresponding New CoreFunds Portfolios. The
investment objectives and policies of the Reorganizing Portfolios are similar to
those of the corresponding Existing CoreFunds Portfolios.
Conestoga Cash Management Fund and CoreFunds Cash Reserve.
The Conestoga Cash Management Fund's investment objective is to seek
current income with liquidity and stability of principal. CoreFunds Cash
Reserve's investment objective is to provide as high a level of current income
as is consistent with liquidity and relative stability of principal. Each
pursues its investment objective by investing in a diversified portfolio of high
quality money market instruments.
Conestoga Tax-Free Fund and CoreFunds Tax-Free Reserve.
The Conestoga Tax-Free Fund's investment objective is to seek current
income which is exempt from regular federal income tax with liquidity and
stability of principal. CoreFunds Tax-Free Reserve's investment objective is to
provide as high a level of current interest income that is exempt from federal
income taxes as is consistent with liquidity and relative stability of
principal. Both Funds intend, under normal market conditions, to invest at least
80% of their assets in short-term, high quality municipal obligations, the
interest on which is exempt from
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<PAGE>
regular federal income tax. CoreFunds Tax-Free Reserve intends to invest, when
possible, its assets in municipal securities exempt from Pennsylvania income
taxation.
Conestoga U.S. Treasury Securities Fund and CoreFunds
Treasury Reserve.
The Conestoga U.S. Treasury Securities Fund's investment objective is
to seek current income with liquidity and stability of principal. CoreFunds
Treasury Reserve's investment objective is to provide current interest income,
liquidity and safety of principal. Each pursues its investment objective by
investing in short-term obligations of the U.S. Treasury and in repurchase
agreements relating to such Treasury obligations.
Conestoga Equity Fund and CoreFunds Value Equity Fund.
The investment objective of the Conestoga Equity Fund is to seek
capital growth by investing principally in a diversified portfolio of common
stocks of companies with large, medium or small capitalizations. The investment
objective of CoreFunds Value Equity Fund is to provide maximum total return,
including capital appreciation and investment income, in excess of stock market
indices such as the S&P 500 Index, as measured over a period of time. CoreFunds
Value Equity Fund expects to change its name and investment policies before the
Effective Time for the Reorganization to more closely resemble the investment
policies of the Conestoga Equity Fund.
Conestoga Intermediate Income Fund and CoreFunds
Intermediate Bond Fund.
The Conestoga Intermediate Income Fund's primary investment objective
is to seek current income by investing principally in a diversified portfolio of
debt securities with expected or remaining maturities of ten years or less, and
its secondary objective is to seek capital growth. The CoreFunds Intermediate
Bond Fund's investment objective is to provide a moderate level of current
income consistent with conservation of capital, by investing substantially all
of its assets in a diversified portfolio of intermediate-term, fixed income
obligations which will have an expected average weighted maturity of one to five
years.
Conestoga Pennsylvania Tax-Free Bond Fund and CoreFunds
Pennsylvania Municipal Bond Fund.
The Conestoga Pennsylvania Tax-Free Bond Fund's investment objective is
to seek a high level of current income consistent with the preservation of
capital, which income is exempt from federal individual income tax and, to the
extent possible, from Pennsylvania state and local personal income tax, and is
not a tax preference item under the federal alternative minimum tax. CoreFunds
Pennsylvania Municipal Bond Fund seeks current income
-3-
<PAGE>
exempt from federal and Pennsylvania income taxation with preservation of
capital by investing primarily in a non-diversified portfolio of municipal
securities.
Conestoga Balanced Fund and CoreFunds Balanced Fund.
The Conestoga Balanced Fund's investment objective is to seek a balance
of capital appreciation and current income consistent with the preservation of
capital. CoreFunds Balanced Fund's investment objective is to provide total
return while preserving capital. Both Funds pursue their objective by investing
in a combination of equity and fixed income securities.
Conestoga International Equity Fund and CoreFunds
International Growth Fund.
The Conestoga International Equity Fund's investment objective is to
seek long-term growth of capital. CoreFunds International Growth Fund's
investment objective is long-term capital appreciation, consistent with
reasonable risk. Both Funds invest at least 65% of their total assets in
diversified portfolios of equity securities of issuers located outside of the
United States.
See "Comparison of Investment Objectives and Risk Factors" below and
the Conestoga and CoreFunds Prospectuses, which are incorporated by reference
herein, for a description of the similarities and differences between the
investment objectives and policies of the Reorganizing Portfolios and the
corresponding Existing CoreFunds Portfolios.
Certain Arrangements with Service Providers - The Conestoga Portfolios. MIC
serves as investment adviser for Conestoga and is entitled to receive advisory
fees from them, computed daily and paid monthly, at the following annual rates,
expressed as a percentage of average daily net assets:
-4-
<PAGE>
<TABLE>
<CAPTION>
Actual Advisory
Fee For Year
Maximum Ended October 31,
Conestoga Portfolios Advisory Fee 1995 (after waivers)
- -------------------- ------------ --------------------
<S> <C> <C>
Cash Management Fund 0.40% 0.20%
Tax-Free Fund 0.40% 0.16%
U.S. Treasury Securities Fund 0.40% 0.27%
Equity Fund 0.74% 0.74%
Special Equity Fund 1.50% 0%
Bond Fund 0.74% 0.34%
Intermediate Income Fund 0.74% 0.25%
Pennsylvania Tax-Free
Bond Fund 0.74% 0%
Short-Term Income Fund 0.74% 0.29%
Balanced Fund 0.75% 0.49%
International Equity Fund 1.00% 1.00%
</TABLE>
- -----------------------------------------------------------------
Pursuant to the Conestoga investment advisory contract, MIC provides
investment research and management to Conestoga and conducts a continuous
investment program. MIC also directs the investments of the Conestoga Portfolios
in accordance with each Portfolio's investment objectives, policies and
limitations, and creates and maintains all necessary books and records.
Marvin and Palmer Associates, Inc. ("Marvin and Palmer") provides
sub-advisory services to the International Equity Fund under a sub-advisory
agreement between MIC and Marvin and Palmer. The sub-adviser assists MIC in
providing a continuous investment program for the International Equity Fund,
including investment research and management with respect to all securities and
investments and cash equivalents of the portfolio. The sub-adviser provides the
services under this agreement in accordance with the International Equity Fund's
investment objective, policies, and limitations. For the services provided
as the International Equity Fund's sub-adviser, Marvin and Palmer is entitled
to receive a fee from MIC, computed daily and paid monthly, at the annual rate
of .75% of the first $100 million of the Fund's average daily net assets,
.70% of the next $100 million of the Fund's average daily net assets, .65%
of the third $100 million of the Fund's average daily net assets, and .60%
of the Fund's average daily net assets in excess of $300 million.
Since May 1, 1995, Administrative services have been provided to
Conestoga by SEI Financial Management Corporation ("SFM") a wholly-owned
subsidiary of SEI Corporation ("SEI"). For its services, SFM receives a fee,
calculated daily and paid monthly, at the annual rate of .17% of the average
aggregate daily net assets of each Conestoga Portfolio. For the period May
-5-
<PAGE>
1, 1995, through the end of Conestoga's fiscal year (i.e., October 31, 1995),
SFM received administration fees (after fee waivers) at the effective annual
rates of 0.17%, 0.17%, 0.15%, 0.12%, 0.12%, 0.16%, 0.17%, 0.17%, 0.17%, 0.17%
and 0.17% of the average daily net assets of the Cash Management, Tax-Free, U.S.
Treasury Securities, Equity, Special Equity, Bond, Intermediate Income,
Pennsylvania Tax-Free Bond, Short-Term Income, Balanced and International Equity
Funds, respectively. Prior to May 1, 1995, administrative services were provided
to Conestoga by The Winsbury Company ("Winsbury"). For its services, Winsbury
received a fee, calculated daily and paid monthly, at the annual rate of .20% of
the average daily net assets of each Conestoga Portfolio. For the fiscal period
November 1, 1994 through April 30, 1995, Winsbury received administration fees,
net of voluntary fee reductions, at the effective annual rates of 0.20%, 0.09%,
0.20%, 0.20%, 0.09%, 0.16%, 0.15% and 0.10% of the average daily net assets of
the Cash Management, Tax-Free, U.S. Treasury Securities, Equity, Special Equity,
Bond, Intermediate Income and Pennsylvania Tax-Free Bond Funds, respectively.
The Short-Term Income, Balanced and International Equity Funds had not commenced
investment operations prior to May 1, 1995.
SFM also serves as Conestoga's transfer agent and State Street Bank and
Trust Company serves as sub-transfer agent for Conestoga pursuant to an
agreement with the administrator. For these services, SFM receives an annual fee
equal to .02% of each Conestoga Portfolio's total assets, an annual per
shareholder account charge of $25 per account, plus out-of-pocket expenses.
Citibank, N.A. provides custodial services to each Conestoga Portfolio
except the International Equity Fund. The Bank of New York provides custodial
services to the International Equity Fund. It is anticipated that on or about
March 7, 1996, CoreStates Bank, N.A. will begin providing custodial services to
each Conestoga Portfolio except the International Equity Portfolio.
SEI Financial Services Company ("SFS") is the principal distributor for
Conestoga. Under the distribution agreement, SFS acts as the agent of Conestoga
in connection with the offering of shares of each Conestoga Portfolio.
Conestoga has adopted a Distribution and Services Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 (the "Conestoga 12b-1 Plan").
Under the Conestoga 12b-1 Plan, the class of shares known as the Retail Shares
of each of the Conestoga Portfolios bears the expense of distribution fees
payable to SFS at an annual rate of up to .40% of the average daily net asset
value of such Portfolio's outstanding Retail Shares to finance activities which
are principally intended to result in the sale of Retail Shares. SFS may enter
into agreements with financial institutions and industry professionals which
provide distribution and/or administrative services as agents for their
customers who beneficially own Retail Shares.
-6-
<PAGE>
Services provided by such financial institutions may include, without
limitation: printing and distributing advertising and sales literature and
reports to shareholders used in connection with the sale of a Portfolio's
shares, and personnel and communication equipment used in servicing shareholder
accounts and prospective shareholder inquiries.
The Conestoga 12b-1 Plan is a "compensation" type plan as opposed to a
"reimbursement" type plan. Accordingly, payments by Retail Shares under the
Conestoga 12b-1 Plan are based on the expressed fee rather than on the specific
amounts expended by SFS for distribution purposes. SFS may be able to recover
such amounts or may earn a profit from payments made by Retail Shares of
Conestoga under the Conestoga 12b-1 Plan.
For the fiscal year ended October 31, 1995, Conestoga paid, in the
aggregate, fees to SFS pursuant to the Distribution and Services Plan of
$35,000, which represent 0.15% of the Conestoga Portfolios' Retail Shares
average net assets during that period.
Certain Arrangements with Service Providers - CoreFunds Portfolios. Corestates
Advisers, a wholly-owned subsidiary of CoreStates Bank which is itself a
wholly-owned subsidiary of CoreStates Financial Corp, serves as investment
adviser to CoreFunds and is entitled to receive advisory fees from the CoreFunds
Portfolios computed daily and paid monthly, at the following annual rates:
<TABLE>
<CAPTION>
Actual Advisory
Advisory Fee Fee For Year Ended
(% of average June 30, 1995
CoreFunds daily net assets) (after waivers)
--------- ----------------- ---------------
<S> <C> <C>
Cash Reserve 0.40% 0.22%
Tax-Free Reserve 0.40% 0.22%
Treasury Reserve 0.40% 0.22%
Value Equity Fund 0.74% 0.60%
Special Equity Fund 1.50% N/A%*
Bond Fund 0.74% N/A%*
Intermediate Bond Fund 0.50% 0.35%
Pennsylvania Municipal
Bond Fund 0.50% 0%
Short-Term Income Fund 0.74% N/A%*
Balanced Fund 0.70% 0.45%
International Growth Fund 0.80% 0.45%
</TABLE>
* These are new portfolios which have not commenced operations as of the
date hereof.
-7-
<PAGE>
As investment adviser, CoreStates Advisers manages the investments of
each Portfolio, makes decisions with respect to and places orders for all
purchases and sales of a Portfolio's securities, and maintains certain records
relating to such purchases and sales.
CoreStates Advisers has delegated some of its investment management
functions with respect to the Value Equity Fund to Cashman, Farrell and
Associates ("Cashman, Farrell"), and with respect to the International Growth
Fund to Martin Currie, Inc. ("Martin Currie") and Aberdeen Trust, pursuant to
separate sub-advisory agreements between CoreStates Advisers and each of
Cashman, Farrell, Martin Currie and Aberdeen Trust. After the Reorganization, it
is expected that the sub-advisory agreement with Cashman, Farrell will be
terminated.
For the services provided as Value Equity Fund's sub-adviser, Cashman,
Farrell is entitled to receive a fee from CoreStates Advisers, computed daily
and paid monthly, at the annual rate of .50% of such Portfolio's average net
assets. For the services provided as International Growth Fund's sub-advisers,
Martin Currie and Aberdeen Trust are entitled to receive fees from CoreStates
Advisers, computed daily and paid monthly, at the annual rate of .50% and ____%,
respectively, of such Portfolio's average net assets under management by each
sub-adviser.
As sub-advisers to Value Equity Fund and International Growth Fund,
Cashman, Farrell, Martin Currie and Aberdeen Trust manage the investments of
their respective Portfolios, make decisions with respect to and place orders for
the majority of the purchases and sales of such Portfolio's securities, and
maintain certain records relating to such purchases and sales.
See "Management--Investment Adviser, Sub-Advisers" in CoreFunds'
Prospectuses accompanying this Combined Proxy Statement/Prospectus which are
incorporated herein by reference, for additional information on CoreFunds'
Adviser.
Administrative services are provided to CoreFunds by SFM. For its
services, SFM is entitled to receive a fee, computed daily and paid monthly, on
a Portfolio's average daily net assets at a rate of 0.25%. However, SFM has
voluntarily agreed to reduce its fee for administration to the annual rate of
0.16% of the undertaken daily net assets of each portfolio for the one year
period following the Reorganization.
For the fiscal year ended June 30, 1995, SFM received administration
fees at the annual rate of 0.16% of the average daily net assets of each of the
Value Equity, International Growth, Balanced, Intermediate Bond, Cash Reserve,
Treasury Reserve, and Tax-Free Reserve Funds. For this same period, SFM waived
all administration fees with respect to the Pennsylvania Municipal Bond Fund.
The Special Equity, Short-Term Income and Bond Funds were not operational during
this time period.
-8-
<PAGE>
See "Management--Administrator" in CoreFunds' Prospectuses accompanying
this Combined Proxy/Prospectus, which are incorporated herein by reference, for
additional information on CoreFunds' administrator.
State Street Bank and Trust Company serves as CoreFunds' transfer and
dividend disbursing agent. For these services, State Street Bank and Trust
Company receives fees based on annual per shareholder account charges for
account maintenance and fees for certain shareholder-generated transactions,
plus out-of-pocket expenses. The minimum annual transfer agency fee for each
class of each Portfolio is $15,000. See "Administrator" in the CoreFunds'
Prospectuses accompanying this Combined Proxy/Prospectus, which are incorporated
herein by reference, for additional information on CoreFunds' transfer agent.
Custodial services are provided to CoreFunds by CoreStates Bank, N.A.
See "Custodian and Transfer Agent" in CoreFunds' Statement of Additional
Information, which is incorporated herein by reference, for additional
information about CoreFunds' custodian.
SFS serves as distributor of the shares of CoreFunds' Portfolios.
CoreFunds has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "CoreFunds 12b-1 Plan"). Under the CoreFunds
12b-1 Plan, the class of shares known as the Individual Shares of each of the
CoreFunds' Portfolios bears the expense of distribution fees payable to SFS at
an annual rate of up to .25% of the average daily net asset value of such
Portfolio's outstanding Individual Shares to finance activities which are
principally intended to result in the sale of Individual Shares. SFS may enter
into agreements with financial institutions and industry professionals which
provide distribution and/or administrative services as agents for their
customers who beneficially own Individual Shares. Services provided by such
financial institutions may include, without limitation: printing and
distributing advertising and sales literature and reports to shareholders used
in connection with the sale of a Portfolio's shares, and personnel and
communication equipment used in servicing shareholder accounts and prospective
shareholder inquiries.
The CoreFunds 12b-1 Plan is a "compensation" type plan as opposed to a
"reimbursement" type plan. Accordingly, payments by Individual Shares under the
CoreFunds 12b-1 Plan are based on the expressed fee rather than on the specific
amounts expended by SFS for distribution purposes. SFS may be able to recover
such amounts or may earn a profit from payments made by Individual Shares of
CoreFunds under the CoreFunds 12b-1 Plan.
For the fiscal year ended June 30, 1995, CoreFunds paid, in the
aggregate, fees to SFS pursuant to the Distribution Plan of $120,490, which
represent 0.25% of the CoreFunds' Portfolios Individual Shares average net
assets during that period.
-9-
<PAGE>
Comparative Fee Tables. Set forth in the tables below is (i) information
regarding the fees and expenses paid by each class of shares of each Conestoga
Portfolio and of each class of shares of each CoreFunds Portfolio as of their
most recent fiscal years, restated to reflect expenses the Conestoga Portfolio
and the CoreFunds Portfolio, respectively, expect to incur during the current
fiscal year and (ii) pro forma information for each combined Portfolio assuming
the Reorganization had taken place on November 1, 1994.
Comparative Fee Table For Each Portfolio
<TABLE>
<CAPTION>
Conestoga Cash
Management CoreFunds Pro Forma
Fund Cash Reserve Combined
-------------- ------------ ----------
Class Y Class C Class Y Class C
Institutional Retail (Institutional) (Individual) (Institutional) (Individual)
Shares Shares Shares Shares Shares Shares
------------- ------ --------------- ----------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees
(after fee waivers) .20%(1) .20%(1) .29%(2) .29%(2) .28% .28%
12b-1 Fees (after fee waivers) None .25%(3) None .25% None .25%
Other Expenses(4)
(after fee waivers and/or
expense reimbursements) .36% .36% .24% .24% .23% .23%
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) 0.56%(5) 0.81%(5) 0.53%(6) 0.78%(6) .51%(7) .76%(7)
</TABLE>
(1) The maximum advisory fee for the Institutional Shares and Retail
Shares of the Conestoga Cash Management Fund is 0.40%.
(2) The maximum advisory fee for the Class Y (Institutional) Shares and
Class C (Individual) Shares of the CoreFunds Cash Reserve is 0.50%.
(3) 12b-1 fees for the Retail Shares of the Conestoga Cash Management Fund
have been reduced to reflect the voluntary waiver of fees by that
Fund's distributor. The Conestoga Cash Management Fund can pay up to
0.40% of the average daily net assets of its Retail Shares as a 12b-1
fee to the distributor.
(4) Includes administration fees. Absent voluntary fee waivers,
administration fees are payable at the maximum annual rate of 0.25% of
the Class Y (Institutional) Shares and Class C (Individual) Shares of
the CoreFunds Cash Reserve, and 0.17% of the Institutional Shares
and Retail Shares of the Conestoga Cash Management Fund.
(5) Absent the voluntary waivers and reimbursements, which can be
terminated at any time, the operating expenses for the Institutional
Shares and Retail Shares of the Conestoga Cash Management Fund would
have been 0.76% and 1.16%, respectively.
(6) Absent the voluntary waivers by the investment adviser and
administrator, which can be terminated at any time, the operating
expenses for the Class Y (Institutional) Shares and Class C
(Individual) Shares of the CoreFunds Cash Reserve would have been
0.83% and 1.08%, respectively.
(7) Absent voluntary waivers, which can be terminated at any time, the pro
forma operating expenses for the Class Y (Institutional) Shares and
Class C (Individual) Shares of the CoreFunds Cash Reserve would be
0.72% and 0.97%, respectively.
-10-
<PAGE>
Example: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Conestoga Cash Management Fund
Institutional Shares $ 6 $18 $ 31 $ 70
Retail Shares $ 8 $26 $ 45 $100
CoreFunds Cash Reserve
Class Y (Institutional) Shares $ 5 $17 $ 30 $ 66
Class C (Individual) Shares $ 8 $25 $ 43 $ 97
Pro Forma Combined
Class Y (Institutional) Shares $5 $16 $29 $64
Class C (Individual) Shares $8 $24 $42 $94
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
Conestoga
Tax-Free CoreFunds Pro Forma
Fund Tax-Free Reserve Combined
Class Y Class C Class Y Class C
Institutional Retail (Institutional) (Individual) (Institutional) (Individual)
Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees
(after fee waivers) .16%(1) .16%(1) .29%(2) .29%(2) .28% .28%
12b-1 Fees (after fee waivers) None .05%(3) None .25% None .25%
Other Expenses(4)
(after fee waivers and/or
expense reimbursements) .30% .30% .24% .24% .23% .23%
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) .46%(5) .51%(5) .53%(5) .78%(6) .51%(7) .76%(7)
</TABLE>
- --------------------------
(1) The maximum advisory fee for the Institutional Shares and Retail Shares of
the Conestoga Tax-Free Fund is .40%.
(2) The maximum advisory fee for the Class Y (Institutional) Shares and Class C
(Individual) Shares of the CoreFunds Tax-Free Reserve is .50%.
(3) 12b-1 fee(s) for the Retail Shares of the Conestoga Tax-Free Fund have been
reduced to reflect the voluntary waiver of fees by that Fund's distributor.
The Conestoga Tax-Free Fund can pay up to .40% of the average daily net
assets of its Retail Shares as a 12b-1 fee to its distributor.
(4) Includes administration fees. Absent voluntary fee waivers, administration
fees are payable at the maximum annual rate of .25% of the Class Y
(Institutional) Shares and Class C (Individual) Shares of the CoreFunds
Tax-Free Reserve, and .17% of the Institutional Shares and Retail Shares of
the Conestoga Tax-Free Fund.
(5) Absent the voluntary waivers and reimbursements by the investment adviser
and administrator, which can be terminated at any time, the operating
expenses for the Institutional Shares and Retail Shares of the Conestoga
Tax-Free Fund would be 0.70% and 1.10%, respectively.
(6) Without voluntary waivers by its investment adviser and administrator, which
can be terminated at any time, operating expenses for the Class Y
(Institutional) Shares and Class C (Individual) Shares of the CoreFunds
Tax-Free Reserve would be 0.83% and 1.08%, respectively.
(7) Absent voluntary waivers, which can be terminated at any time, the pro forma
operating expenses for the Class Y (Institutional) Shares and Class C
(Individual) Shares of the CoreFunds Tax-Free Reserve would be 0.72% and
0.97%, respectively.
Example: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Conestoga Tax-Free Fund
Institutional Shares $5 $15 $26 $58
Retail Shares $5 $16 $29 $64
CoreFunds Tax-Free Reserve
Class Y (Institutional) Shares $5 $17 $30 $66
Class C (Individual) Shares $8 $25 $43 $97
Pro Forma
Class Y (Institutional) Shares $5 $16 $29 $64
Class C (Individual) Shares $8 $24 $42 $94
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
Conestoga
U.S. Treasury
Securities CoreFunds Pro Forma
Fund Treasury Reserve Combined
Class Y Class C Class Y Class C
Institutional Retail (Institutional) (Individual) (Institutional) (Individual)
Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees
(after fee waivers) .27%(1) .27%(1) .29%(2) .29%(2) .28% .28%
12b-1 Fees (after fee waivers) None .15%(3) None .25% None .25%
Other Expenses(4)
(after fee waivers and/or
expense reimbursements) .35% .35% .24% .24% .23% .23%
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) .62%(5) .77%(5) .53%(6) .78%(6) .51%(7) .76%(7)
</TABLE>
- --------------------------
(1) The maximum advisory fee for the Institutional Shares and Retail Shares
of the Conestoga U.S. Treasury Securities Fund is .40%.
(2) The maximum advisory fee for the Class Y (Institutional) Shares and
Class C (Individual) Shares of the CoreFunds Treasury Reserve is .50%.
(3) 12b-1 fees for the Retail Shares of the Conestoga U.S. Treasury
Securities Fund have been reduced to reflect the voluntary waiver of
fees by that Fund's distributor. The Conestoga U.S. Treasury Securities
Fund can pay up to .40% of the average daily net assets of its Retail
Shares as a 12b-1 fee to its distributor.
(4) Includes administration fees. Absent voluntary fee waivers,
administration fees are payable at the maximum annual rate of .25% of
the Class Y (Institutional) Shares and Class C (Individual) Shares of
the CoreFunds Treasury Reserve, and .17% of the Institutional Shares
and Retail Shares of the Conestoga U.S. Treasury Securities Fund.
(5) Absent the voluntary waivers and reimbursements by the investment
adviser, which can be terminated at any time, the operating expenses
for the Institutional Shares and Retail Shares of the Conestoga U.S.
Treasury Securities Fund are 0.77% and 1.17%, respectively.
(6) Absent the voluntary waivers and/or expense reimbursements by the
investment adviser and administrator, which can be terminated at any
time, operating expenses for the Class Y (Institutional) Shares and
Class C (Individual) Shares of the CoreFunds Treasury Reserve would be
0.83% and 1.08%, respectively.
(7) Absent voluntary waivers, which can be terminated at any time, the pro
forma operating expenses for the Class Y (Institutional) Shares and
Class C (Individual) Shares of the CoreFunds Treasury Reserve would be
0.72% and 0.97%, respectively.
Example: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Conestoga U.S. Treasury Securities Fund
Institutional Shares $6 $20 $35 $77
Retail Shares $8 $25 $43 $95
CoreFunds Treasury Reserve
Class Y (Institutional) Shares $5 $17 $30 $66
Class C (Individual) Shares $8 $25 $43 $97
Pro Forma Combined
Class Y (Institutional) Shares $5 $16 $29 $64
Class C (Individual) Shares $8 $24 $42 $94
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
Conestoga
Equity CoreFunds Pro Forma
Fund Value Equity Fund* Combined
Class Y Class A Class Y Class A
Institutional Retail (Institutional) (Individual) (Institutional) (Individual)
Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases None 2.00% None 3.25% None 3.25%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering
price) None None None None None None
Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None None None None None None
Redemption Fee (as a percentage
of amount redeemed, if
applicable) None None None None None None
Exchange Fee None None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees
(after fee waivers) .74% .74% .75% .75% .74% .74%
12b-1 Fees (after fee waivers) None .25%(1) None .25% None .25%
Other Expenses(2)
(after fee waivers and/or
expense reimbursements) .31% .31% .24% .24% .26 .26
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) 1.05%(3) 1.30%(3) .99%(4) 1.24%(4) 1.00%(5) 1.25%(5)
</TABLE>
- --------------------------
* It is expected that the CoreFunds Value Equity Fund will change its
name and investment policies upon consummation of the Reorganization
and that it will continue the operations of the Conestoga Equity Fund.
(1) 12b-1 fees for the Retail Shares of the Conestoga Equity Fund have been
reduced to reflect the voluntary waiver of fees by that Fund's
Distributor. Conestoga Equity Fund can pay up to 0.40% of the average
daily net assets of its Retail Shares as a 12b-1 fee to the
distributor.
(2) Includes administration fees. Absent voluntary fee waivers,
administration fees are payable at the maximum annual rate of .25% of
the Class Y (Institutional) Shares and Class A (Individual) Shares of
the CoreFunds Value Equity Fund, and .17% of the Institutional Shares
and Retail Shares of the Conestoga Equity Fund.
(3) Absent the voluntary waivers and reimbursements by the investment
adviser, which can be terminated at any time, the operating expenses of
the Institutional Shares and Retail Shares of the Conestoga Equity Fund
would be 1.10% and 1.50%, respectively.
(4) Absent fee waivers by the investment adviser and administrator, which
can be terminated at any time, the operating expenses for Class Y
(Institutional) Shares and Class A (Individual) Shares of the CoreFunds
Value Equity Fund would be 1.08% and 1.33%, respectively.
(5) Absent voluntary waivers, which can be terminated at any time, the pro
forma operating expenses of the Class Y (Institutional) Shares and
Class A (Individual) Shares of the CoreFunds Value Equity Fund would be
1.09% and 1.34%, respectively.
-14-
<PAGE>
Example: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Conestoga Equity Fund
Institutional Shares $11 $33 $58 $128
Retail Shares $33 $60 $90 $174
CoreFunds Value Equity Fund
Class Y (Institutional) Shares $10 $32 $55 $121
Class A (Individual) Shares $45 $71 $98 $178
Pro Forma Combined
Class Y (Institutional) Shares $10 $32 $55 $122
Class A (Individual) Shares $45 $71 $99 $179
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
Conestoga CoreFunds
Special Equity Special Equity Pro Forma
Fund Fund* Combined
---- ----- --------
Class Y Class A Class Y Class A
Institutional Retail (Institutional) (Individual) (Institutional) (Individual)
Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases None 2.00% None None None 3.25%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering
price) None None None None None None
Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None None None None None None
Redemption Fee (as a percentage
of amount redeemed, if
applicable) None None None None None None
Exchange Fee None None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees
(after fee waivers) .0%(1) .0%(1) N/A N/A .10% .10%
12b-1 Fees (after fee waivers) None .0%(2) N/A N/A None .25%
Other Expenses(3)
(after fee waivers and/or
expense reimbursements) .32% .32% N/A N/A .21% .21%
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) .32%(4) .32%(4) N/A N/A .31%(5) .56%(5)
</TABLE>
- --------------------------
* The CoreFunds Special Equity Fund has not yet commenced operations. The
CoreFunds Special Equity Fund will continue the operations of the
Conestoga Special Equity Fund upon consummation of the Reorganization
relating to that Fund.
(1) The maximum advisory fee for the Institutional Shares and Retail
Shares of the Conestoga Special Equity Fund is 1.50%.
(2) 12b-1 fees for the Retail Shares of the Conestoga Special Equity Fund
have been reduced to reflect the voluntary waiver of fees by that
Fund's distributor. The Conestoga Special Equity Fund can pay up to
0.40% of the average daily net assets of its Retail Shares as a 12b-1
fee to the distributor.
(3) Includes administration fees. Absent voluntary fee waivers,
administration fees are payable at the maximum annual rate of .17% of
the Institutional Shares and Retail Shares of the Conestoga Special
Equity Fund.
(4) Absent the voluntary waivers and reimbursements by the investment
adviser and administrator, which can be terminated at any time, the
operating expenses of the Institutional Shares and Retail Shares of the
Conestoga Special Equity Fund would be 1.87% and 2.27%, respectively.
(5) Absent voluntary waivers, which can be terminated at any time, the pro
forma operating expenses of the Class Y (Institutional) Shares and
Class A (Individual) Shares of the CoreFunds Special Equity Fund would
be 1.80% and 2.05%, respectively.
-16-
<PAGE>
Example: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Conestoga Special Equity Fund
Institutional Shares $ 3 $10 $18 $41
Retail Shares $23 $30 $38 $60
CoreFunds Special Equity Fund
Class Y (Institutional) Shares N/A N/A N/A N/A
Class A (Individual) Shares N/A N/A N/A N/A
Pro Forma Combined
Class Y (Institutional) Shares $ 3 $10 $17 $ 39
Class A (Individual) Shares $38 $50 $63 $100
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
Conestoga CoreFunds
Bond Bond Pro Forma
Fund Fund* Combined
---- ----- --------
Class Y Class A Class Y Class A
Institutional Retail (Institutional) (Individual) (Institutional) (Individual)
Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases None 2.00% None None None 3.25%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering
price) None None None None None None
Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None None None None None None
Redemption Fee (as a percentage
of amount redeemed, if
applicable) None None None None None None
Exchange Fee None None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees
(after fee waivers) .34%(1) .34%(1) N/A N/A .35% .35%
12b-1 Fees (after fee waivers) None .25%(2) N/A N/A None .25%
Other Expenses(2)
(after fee waivers and/or
expense reimbursements) .37% .37% N/A N/A .21% .21%
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) .71%(4) .96%(4) N/A N/A .56%(4) .81%(4)
</TABLE>
- --------------------------
* The CoreFunds Bond Fund has not yet commenced operations. The CoreFunds
Bond Fund will continue the operations of the Conestoga Bond Fund upon
consummation of the Reorganization relating to that Fund.
(1) The maximum advisory fee for the Institutional Shares and Retail
Shares of the Conestoga Bond Fund is 0.74%.
(2) 12b-1 fees for the Retail Shares of the Conestoga Bond Fund have been
reduced to reflect the voluntary waiver of fees by that Fund's
distributor. The Conestoga Bond Fund can pay up to .40% of its average
daily net assets of its Retail Shares as a 12b-1 fee to its
distributor.
(3) Includes administration fees. Absent voluntary fee waivers,
administration fees are payable at the maximum annual rate of .17% of
the Institutional Shares and Retail Shares of the Conestoga Bond Fund.
(4) Absent the voluntary waivers and reimbursements by the investment
adviser and administrator, which can be terminated at any time, the
operating expenses for the Institutional Shares and Retail Shares of
the Conestoga Bond Fund would have been 1.12% and 1.52%, respectively.
(5) Absent voluntary waivers, which can be terminated at any time, the pro
forma operating expenses of the Class Y (Institutional) Shares and
Class A (Individual) Shares of the CoreFunds Bond Fund would be 1.04%
and 1.29%, respectively.
-18-
<PAGE>
Example: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Conestoga Bond Fund
Institutional Shares $ 7 $23 $40 $ 88
Retail Shares $30 $50 $72 $135
CoreFunds Bond Fund
Class Y (Institutional) Shares N/A N/A N/A N/A
Class A (Individual) Shares N/A N/A N/A N/A
Pro Forma Combined
Class Y (Institutional) Shares $ 6 $18 $31 $ 70
Class A (Individual) Shares $41 $58 $76 $129
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
Conestoga CoreFunds
Intermediate Intermediate Pro Forma
Income Fund Bond Fund Combined
----------- --------- --------
Class Y Class A Class Y Class A
Institutional Retail (Institutional) (Individual) (Institutional) (Individual)
Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases None 2.00% None 3.25% None 3.25%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering
price) None None None None None None
Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None None None None None None
Redemption Fee (as a percentage
of amount redeemed, if
applicable) None None None None None None
Exchange Fee None None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees
(after fee waivers) .25%(1) .25%(1) .37%(2) .37%(2) .25% .25%
12b-1 Fees (after fee waivers) None .25%(3) None .25% None .25%
Other Expenses(4)
(after fee waivers and/or
expense reimbursements) .39% .39% .23% .23% .26% .26%
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) .64%(5) .89%(5) .60%(6) .85%(6) .51%(7) .76%(7)
</TABLE>
- --------------------------
(1) The maximum advisory fee for the Institutional Shares and Retail Shares
of the Conestoga Intermediate Income Fund is .74%.
(2) The maximum advisory fee for the Class Y (Institutional) Shares and
Class A (Individual) Shares of the CoreFunds Intermediate Bond Fund is
.50%.
(3) 12b-1 fees for the Retail Shares of the Conestoga Intermediate Income
Fund have been reduced to reflect the voluntary waiver of fees by that
Fund's distributor. The Conestoga Intermediate Income Fund can pay up
to .40% of its daily net assets as a 12b-1 fee to its distributor.
(4) Includes administration fees. Absent voluntary fee waivers,
administration fees are payable at the maximum annual rate of .25% of
the Class Y (Institutional) Shares and Class A (Individual) Shares of
the CoreFunds Intermediate Bond Fund, and .17% of the Institutional
Shares and Retail Shares of the Conestoga Intermediate Income Fund.
(5) Absent the voluntary waivers and reimbursements by the investment
adviser and administrator, the operating expenses for the Institutional
Shares and Retail Shares of the Conestoga Intermediate Income Fund
would be 1.13% and 1.53%, respectively.
(6) Absent voluntary waivers by its investment adviser and administrator,
which can be terminated at any time, operating expenses for the Class Y
(Institutional) Shares and Class A (Individual) Shares of the CoreFunds
Intermediate Bond Fund would be 0.82% and 1.07%, respectively.
(7) Absent voluntary waivers, which can be terminated at any time, the pro
forma operating expenses for the Class Y (Institutional) Shares and
Class A (Individual) Shares of the CoreFunds Intermediate Bond Fund
would be 0.85% and 1.10%, respectively.
-20-
<PAGE>
Example: An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return, and (2) redemption at the end of the
following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Conestoga Intermediate Income Fund
Institutional Shares $ 7 $20 $36 $ 80
Retail Shares $29 $48 $68 $127
CoreFunds Intermediate Bond Fund
Class Y (Institutional) Shares $ 6 $19 $33 $ 75
Class A (Individual) Shares $41 $59 $78 $134
Pro Forma Combined
Class Y (Institutional) Shares $ 5 $16 $29 $64
Class A (Individual) Shares $40 $56 $73 $124
</TABLE>
-21-
<PAGE>
<TABLE>
<CAPTION>
Conestoga Pennsylvania CoreFunds Pennsylvania
Tax-Free Bond Municipal Bond Pro Forma
Fund Fund Combined
---- ---- --------
Class Y Class A Class Y Class A
Institutional Retail (Institutional) (Individual) (Institutional) (Individual)
Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases None 2.00% None 3.25% None 3.25%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering
price) None None None None None None
Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None None None None None None
Redemption Fee (as a percentage
of amount redeemed, if
applicable) None None None None None None
Exchange Fee None None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees
(after fee waivers) .0%(1) .0%(1) .0%(2) .0%(2) .0% .0%
12b-1 Fees (after fee waive None .0%(3) None .25% None .25%
Other Expenses(4)
(after fee waivers and/or
expense reimbursements) .51% .51% .37% .37% .14% .14%
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) .51%(5) .51%(5) .37%(6) .62%(6) .14%(7) .39%(7)
</TABLE>
- --------------------------
(1) The maximum advisory fee for the Institutional Shares and Retail Shares
of the Conestoga Pennsylvania Tax-Free Bond Fund is .74%.
(2) The maximum advisory fee for the Class Y (Institutional) Shares and
Class A (Individual) Shares of the CoreFunds Pennsylvania Municipal
Bond Fund is .50%.
(3) 12b-1 fees for the Retail Shares of the Conestoga Pennsylvania Tax-Free
Bond Fund have been reduced to reflect the voluntary waiver of fees by
that Fund's distributor. The Conestoga Pennsylvania Tax-Free Bond Fund
can pay up to .40% of the average daily net assets of its Retail Shares
as a 12b-1 fee to its distributor.
(4) Includes administration fees. Absent voluntary fee waivers,
administration fees are payable at the maximum annual rate of .25% of
the Class Y (Institutional) Shares and Class A (Individual) Shares of
the CoreFunds Pennsylvania Municipal Bond Fund, and .17% of the
Institutional Shares and Retail Shares of the Conestoga Pennsylvania
Tax-Free Bond Fund.
(5) Absent the voluntary waivers and reimbursements by the investment
adviser and administrator, which can be terminated at any time, the
operating expenses for the Institutional Shares and Retail Shares of
the Conestoga Pennsylvania Tax-Free Bond Fund would be 1.25% and 1.65%,
respectively.
(6) Absent the voluntary fee waivers by the investment adviser and
administrator, which can be terminated at any time, operating expenses
for the Class Y (Institutional) Shares and Class A (Individual) Shares
of the CoreFunds Pennsylvania Municipal Bond Fund would be 0.96% and
1.21%, respectively.
(7) Absent voluntary waivers, which can be terminated at any time, the pro
forma operating expenses for the Class Y (Institutional) Shares and
Class A (Individual) Shares of the CoreFunds Pennsylvania Municipal
Bond Fund would be 0.89% and 1.14%, respectively.
-22-
<PAGE>
Example: An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return, and (2) redemption at the end of the
following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Conestoga Pennsylvania Tax-Free Bond Fund
Institutional Shares $ 5 $16 $29 $64
Retail Shares $25 $36 $48 $83
CoreFunds Pennsylvania Municipal Bond Fund
Class Y (Institutional) Shares $ 4 $12 $21 $ 47
Class A (Individual) Shares $39 $52 $66 $107
Pro Forma Combined
Class Y (Institutional) Shares $ 1 $ 5 $ 8 $ 18
Class A (Individual) Shares $36 $45 $54 $ 80
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
Conestoga CoreFunds
Balanced Balanced Pro Forma
Fund Fund Combined
---- ---- --------
Class Y Class A Class Y Class A
Institutional Retail (Institutional) (Individual) (Institutional) (Individual)
Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases None 2.00% None 3.25% None 3.25%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering
price) None None None None None None
Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None None None None None None
Redemption Fee (as a percentage
of amount redeemed, if
applicable) None None None None None None
Exchange Fee None None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees
(after fee waivers) .49%(1)% .49%(1)% .67%(2) .67%(2) .56% .56%
12b-1 Fees (after fee waivers) None .25%(3) None .25% None .25%
Other Expenses(4)
(after fee waivers and/or
expense reimbursements) .33% .33% .26% .26% .24% .24%
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) .82%(5) 1.07%(5) .93%(6) 1.18%(6) .80%(7) 1.05%(7)
</TABLE>
- --------------------------
(1) The maximum advisory fee for the Institutional Shares and Retail Shares
of the Conestoga Balanced Fund is 0.75%.
(2) The maximum advisory fee for the Class Y (Institutional) Shares and
Class A (Individual) Shares of the CoreFunds Balanced Fund is .70%.
(3) 12b-1 fees for the Retail Shares of the Conestoga Balanced Fund have
been reduced to reflect the voluntary waiver of fees by that Fund's
distributor. The Conestoga Balanced Fund can pay up to 0.40% of its
average daily net assets of its Retail Shares as a 12b-1 fee to its
distributor.
(4) Includes administration fees. Absent voluntary fee waivers,
administration fees are payable at the maximum annual rate of .25% of
the Class Y (Institutional) Shares and Class A (Individual) Shares, and
.17% of the Institutional Shares and Retail Shares of the Conestoga
Balanced Fund.
(5) Absent the voluntary waivers and reimbursements by the investment
adviser and administrator, which can be terminated at any time, the
operating expenses of the Institutional Shares and Retail Shares of the
Conestoga Balanced Fund would be 1.08% and 1.48%, respectively.
(6) Absent the voluntary fee waivers by the investment adviser and
administrator, which can be terminated at any time, the operating
expenses for the Class Y (Institutional) Shares and Class A
(Individual) Shares of the CoreFunds Balanced Fund would be 1.05% and
1.30%, respectively.
(7) Absent voluntary waivers, which can be terminated at any time, the pro
forma operating expenses of the Class Y (Institutional) Shares and
Class A (Individual) Shares of the CoreFunds Balanced Fund would be
1.03% and 1.28%, respectively.
-24-
<PAGE>
Example: An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return, and (2) redemption at the end of the
following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Conestoga Balanced Fund
Institutional Shares $ 8 $26 $46 $101
Retail Shares $31 $53 $78 $148
CoreFunds Balanced Fund
Class Y (Institutional) Shares $ 9 $30 $51 $114
Class A (Individual) Shares $44 $69 $95 $171
Pro Forma Combined
Class Y (Institutional) Shares $ 8 $26 $44 $ 99
Class A (Individual) Shares $43 $65 $89 $157
</TABLE>
-25-
<PAGE>
<TABLE>
<CAPTION>
Conestoga CoreFunds
Short-Term Short-Term Pro Forma
Income Fund Income Fund* Combined
----------- ------------ --------
Class Y Class A Class Y Class A
Institutional Retail (Institutional) (Individual) (Institutional) (Individual)
Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases None 2.00% None None None 3.25%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering
price) None None None None None None
Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None None None None None None
Redemption Fee (as a percentage
of amount redeemed, if
applicable) None None None None None None
Exchange Fee None None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees
(after fee waivers) .29%(1) .29%(1) N/A N/A .25% .25%
12b-1 Fees (after fee waivers) None .25%(2) N/A N/A None .25%
Other Expenses(3)
(after fee waivers and/or
expense reimbursements) .34% .34% N/A N/A .21% .21%
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) .63%(4) .88%(4) N/A N/A .46%(5) .71%(5)
</TABLE>
- --------------------------
* The CoreFunds Short-Term Income Fund has not yet commenced operations.
The CoreFunds Short-Term Income Fund will continue the operations of
the Conestoga Short-Term Income Fund upon consummation of the
Reorganization relating to that Fund.
(1) The maximum advisory fee for the Conestoga Short-Term Income Fund is
.74%.
(2) 12b-1 fees for the Retail Shares of the Conestoga Short-Term Income
Fund have been reduced to reflect the voluntary waiver of fees by that
Fund's distributor. The Conestoga Short-Term Income Fund can pay up to
0.40% of the average daily net assets of its Retail Shares as a 12b-1
fee to the distributor.
(3) Includes administration fees. Absent voluntary fee waivers,
administration fees are payable at the maximum annual rate of .17% of
the Institutional Shares and Retail Shares of the Conestoga Short-Term
Income Fund.
(4) Absent the voluntary waivers and reimbursements by the investment
adviser and administrator, which can be terminated at any time, the
operating expenses for the Institutional and Retail Shares of the
Conestoga Short-Term Income Fund would be 1.08% and 1.48%,
respectively.
(5) Absent voluntary waivers, which can be terminated at any time, the pro
forma operating expenses of the Class Y (Institutional) Shares and
Class A (Individual) Shares of the CoreFunds Short-Term Income Fund
would be 1.04% and 1.29%, respectively.
-26-
<PAGE>
Example: An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return, and (2) redemption at the end of the
following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Conestoga Short-Term Income Fund
Institutional Shares $ 6 $20 N/A N/A
Retail Shares $29 $48 N/A N/A
CoreFunds Short-Term Income Fund
Class Y (Institutional) Shares N/A N/A N/A N/A
Class A (Individual) Shares N/A N/A N/A N/A
Pro Forma Combined
Class Y (Institutional) Shares $ 5 $15 N/A N/A
Class A (Individual) Shares $40 $54 N/A N/A
</TABLE>
-27-
<PAGE>
<TABLE>
<CAPTION>
Conestoga CoreFunds
International International Pro Forma
Equity Fund Growth Fund Combined
----------- ----------- --------
Class Y Class A Class Y Class A
Institutional Retail (Institutional) (Individual) (Institutional) (Individual)
Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases None 2.00% None 3.25% None 3.25%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering
price) None None None None None None
Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None None None None None None
Redemption Fee (as a percentage
of amount redeemed, if
applicable) None None None None None None
Exchange Fee None None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees
(after fee waivers) 1.00% 1.00% .80% .80% .80% .80%
12b-1 Fees (after fee waivers) None .25%(1) None .25% None .25%
Other Expenses(2)
(after fee waivers and/or
expense reimbursements) .88% .88% .41% .41% .34% .34%
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) 1.88%(3) 2.13%(3) 1.21%(4) 1.46%(4) 1.14%(5) 1.39%(5)
</TABLE>
- --------------------------
(1) 12b-1 fees for the Retail Shares of the Conestoga International Equity
Fund have been reduced to reflect the voluntary waiver of fees by that
Fund's distributor. The Conestoga International Equity Fund can pay up
to 0.40% of the average daily net assets of its Retail Shares as a
12b-1 fee to the distributor.
(2) Includes administration fees. Absent voluntary fee waivers,
administration fees are payable at the maximum annual rate of .25% of
the Class Y (Institutional) Shares and Class A (Individual) Shares of
the CoreFunds International Growth Fund.
(3) Absent the voluntary waivers and reimbursements by the investment
adviser and administrator, which can be terminated at any time, the
operating expenses for the Institutional Shares and Retail Shares of
the Conestoga International Equity Fund would be 1.88% and 2.28%,
respectively.
(4) Absent voluntary waivers, which can be terminated at any time, the pro
forma operating expenses of the Class Y (Institutional) Shares and
Class A (Individual) Shares of the CoreFunds International Growth Fund
would be 1.30% and 1.55%, respectively.
(5) Absent voluntary waivers, which can be terminated at any time, the pro
forma operating expenses of the Class Y (Institutional) Shares and
Class A (Individual) Shares of the CoreFunds International Growth Fund
would be 1.23% and 1.48%, respectively.
-28-
<PAGE>
Example: An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return, and (2) redemption at the end of the
following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Conestoga International Equity Fund
Institutional Shares $19 $59 N/A N/A
Retail Shares $41 $85 N/A N/A
CoreFunds International Growth Fund
Class Y (Institutional) Shares $12 $38 $ 66 $147
Class A (Individual) Shares $44 $77 $110 $201
Pro Forma Combined
Class Y (Institutional) Shares $12 $36 $ 63 $139
Class A (Individual) Shares $46 $75 $106 $194
</TABLE>
-29-
<PAGE>
Expense Ratios -- Conestoga Portfolios. The following table sets forth (i) the
ratios of operating expenses to average net assets of the Conestoga Portfolios
for the fiscal year ended October 31, 1995 (a) after fee waivers and expense
reimbursements, and (b) absent fee waivers and expense reimbursements:
<TABLE>
<CAPTION>
Fiscal Year Ended October 31, 1995
----------------------------------
Ratio of Operating Ratio of Operating
Expenses to Average Expenses to Average
Net Assets After Net Assets Absent
Fee Waivers and Fee Waivers and
Expense Expense
Reimbursements Reimbursements
------------------- -------------------
<S> <C> <C>
Conestoga Portfolios
Conestoga Cash Management Fund
Institutional Shares .56% .79%
Retail Shares .74% .97%
Conestoga Tax-Free Fund
Institutional Shares .46% .83%
Retail Shares .48% .88%
Conestoga U.S. Treasury Securities
Fund
Institutional Shares .62% .78%
Retail Shares .73% .79%
Conestoga Equity Fund
Institutional Shares 1.05% 1.10%
Retail Shares 1.34% 1.53%
Conestoga Special Equity Fund
Institutional Shares .32% 1.97%
Retail Shares .27% 2.24%
Conestoga Bond Fund
Institutional Shares .71% 1.12%
Retail Shares .97% 1.44%
Conestoga Intermediate Income Fund
Institutional Shares .64% 1.15%
Retail Shares .93% 1.51%
Conestoga Pennsylvania Tax-Free Bond Fund
Institutional Shares .51% 1.65%
Retail Shares .51% 1.62%
Conestoga Balanced Fund
Institutional Shares .82% 1.07%
Retail Shares 1.07% 1.32%
Conestoga Short-Term Income Fund
Institutional Shares .63% 1.08%
Retail Shares .88% 1.33%
Conestoga International Equity Fund
Institutional Shares 1.88% 1.88%
Retail Shares 2.13% 2.26%
</TABLE>
-30-
<PAGE>
Expense Ratios -- CoreFunds Portfolios. The following tables set forth (i) the
ratios of operating expenses to average net assets of the CoreFunds Portfolios
for the fiscal year ended June 30, 1995 (a) after fee waivers and expense
reimbursements, and (b) absent fee waivers and expense reimbursements:
-31-
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 1995
-------------------------------
Ratio of Operating Ratio of Operating
Expenses to Average Expenses to Average
Net Assets After Net Assets Absent
Fee Waivers and Fee Waivers and
Expense Expense
Reimbursements Reimbursements
------------------- -------------------
<S> <C> <C>
CoreFunds Portfolios
CoreFunds Cash Reserve
Class Y (Institutional) Shares .48% .85%
Class C (Individual) Shares .73% 1.10%
CoreFunds Tax-Free Reserve
Class Y (Institutional) Shares .48% .85%
Class C (Individual) Shares .73% 1.10%
CoreFunds Treasury Reserve
Class Y (Institutional) Shares .48% .85%
Class C (Individual) Shares .73% 1.10%
CoreFunds Value Equity Fund
Class Y (Institutional) Shares .86% 1.10%
Class A (Individual) Shares 1.11% 1.35%
CoreFunds Special Equity Fund --(1) --(1)
CoreFunds Bond Fund --(1) --(1)
CoreFunds Intermediate Bond Fund
Class Y (Institutional) Shares .60% .84%
Class A (Individual) Shares .85% 1.09%
CoreFunds Pennsylvania Municipal Bond Fund
Class Y (Institutional) Shares .39% 1.14%
Class A (Individual) Shares .64% 1.39%
CoreFunds Balanced Fund
Class Y (Institutional) Shares .73% 1.07%
Class A (Individual) Shares .98% 1.32%
CoreFunds Short-Term Income Fund --(1) --(1)
CoreFunds International Growth Fund
Class Y (Institutional) Shares 1.05% 1.19%
Class A (Individual) Shares 1.30% 1.44%
</TABLE>
(1) The CoreFunds Special Equity, Bond and Short-Term Portfolios will not
commence operations until the Reorganization is effective.
-32-
<PAGE>
Voting Information. This Combined Proxy Statement/Prospectus is being furnished
in connection with the solicitation of proxies by Conestoga's Board of Trustees
in connection with a Special Meeting of Shareholders to be held at The
Wilmington Hilton, 630 Naamans Road, Wilmington, Delaware, on Friday, March 22,
1996 at 10:00 a.m. Eastern time (such meeting and any adjournments thereof
hereinafter referred to as the "Meeting"). Only Shareholders of record at the
close of business on January 26, 1996 will be entitled to notice of and to vote
at the Meeting. Each share or fraction thereof is entitled to one vote or
fraction thereof and all shares will vote separately by Portfolio. Shares
represented by a properly executed proxy will be voted in accordance with the
instructions thereon, or if no specification is made, the persons named as
proxies will vote in favor of each proposal set forth in the Notice of Meeting.
Proxies may be revoked at any time before they are exercised by submitting to
Conestoga a written notice of revocation or a subsequently executed proxy or by
attending the Meeting and voting in person. For additional information,
including a description of the Shareholder vote required for approval of the
Reorganization Agreement and related transactions contemplated thereby,
including for the approval of the interim investment advisory and sub-advisory
agreements, see "Information Relating to Voting Matters."
Risk Factors. The following discussion highlights the principal risk factors
associated with an investment in the Conestoga Reorganizing Portfolios and the
Existing CoreFunds Portfolios and is qualified in its entirety by the more
extensive discussion of risk factors in "Comparison of Investment Policies and
Risk Factors."
Because of the similarities of the investment objectives and policies
of the Conestoga Reorganizing Portfolios and the corresponding Existing
CoreFunds Portfolios, management believes that an investment in an Existing
CoreFunds Portfolio involves risks that are similar to those of the
corresponding Conestoga Reorganizing Portfolio. These investment risks include
those typically associated with investing in a portfolio of high quality,
short-term money market instruments in the case of the money market portfolios;
government or investment grade bonds in the case of the taxable and tax-exempt
bond portfolios; common stocks in the case of the stock portfolios; and foreign
securities in the case of the international portfolios.
There are differences, however, between the Conestoga Reorganizing
Portfolios and the Existing CoreFunds Portfolios as noted above under "Summary
- -- Overview of the Conestoga Portfolios and the CoreFunds Portfolios" and below
under "Comparison of Investment Policies and Risk Factors." These differences
can result in different risks. For example, the Conestoga Tax-Free Fund may
invest in securities with lower credit ratings than CoreFunds Tax-Free Reserve.
In addition, unlike the Existing CoreFunds Portfolios, the Conestoga
Reorganizing Portfolios may
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<PAGE>
invest its assets in securities rated in the lowest investment grade rating
category. Debt securities with the lowest investment grade rating do not have
outstanding investment characteristics and may have speculative characteristics
as well.
Although the money market portfolios offered by both Conestoga and
CoreFunds seek to maintain a stable net asset value of $1.00 per share, there is
no assurance they will be able to do so. The per share price of the other
portfolios will fluctuate with changes in value of the investments held by each
portfolio. Generally, the market value of debt securities will vary inversely to
changes in prevailing interest rates. Certain portfolios may seek to achieve
their investment objectives through investments in securities of foreign issuers
that involve risks not typically associated with U.S. issuers; debt instruments
with the lowest investment grade rating which are speculative; mortgage-backed
and asset-backed securities; illiquid instruments; and certain options, futures
and foreign currency transactions. Some of the Conestoga fixed-income and equity
portfolios may have higher portfolio turnover rates, resulting in higher
portfolio costs. Both the Conestoga Reorganizing Portfolios and the Existing
CoreFunds Portfolios may engage in the use of reverse repurchase agreements that
can cause their net asset values to rise or fall faster than they otherwise
would. Reverse repurchase agreements involve the risk that the market value of
the securities sold by a portfolio may decline below the price of the securities
the portfolio is obligated to purchase. The policy of CoreFunds Tax-Free
Reserve, Conestoga Pennsylvania Tax-Free Bond Fund and CoreFunds Pennsylvania
Municipal Bond Fund to invest primarily in municipal obligations of Pennsylvania
and the non-diversified status of Conestoga Pennsylvania Tax-Free Bond Fund and
CoreFunds Pennsylvania Municipal Bond Fund, present additional risks as stated
in their current prospectuses. There is no assurance that any portfolio will
achieve its investment objective.
INFORMATION RELATING TO THE PROPOSED REORGANIZATION
Conestoga has entered into an agreement whereby its investment
portfolios are to be acquired by portfolios of CoreFunds. Significant provisions
of this Reorganization Agreement are summarized below; however, this summary is
qualified in its entirety by reference to the Reorganization Agreement, a copy
of which is attached as Appendix I to this Combined Proxy Statement and
Prospectus.
Description of the Reorganization Agreement. There are eleven separate
Conestoga investment portfolios. The assets of eight of them are being acquired
by eight similar investment portfolios currently offered by CoreFunds. Three
portfolios will be acquired by three new CoreFunds portfolios which have been
organized to continue the operations of these Conestoga Portfolios.
-34-
<PAGE>
The Reorganization Agreement provides that at the Effective Time of the
Reorganization substantially all of the assets and liabilities of the Conestoga
Reorganizing Portfolios will be transferred to the Existing CoreFunds Portfolios
identified in the table below. On a date not less than seven calendar days
following the Effective Time of the Reorganization for the Conestoga
Reorganizing Portfolios, substantially all of the assets and liabilities of the
Continuing Portfolios will be transferred to the New Core Funds Portfolios
identified in the table below. The holders of each class of shares of a
Conestoga Portfolio will receive the Class of shares of the corresponding
CoreFunds Portfolio identified in the table. In the tables, (a) opposite the
name of each Conestoga Portfolio is the name of the CoreFunds Portfolio which
will issue shares to such Conestoga Portfolio, and (b) opposite the name of each
class of shares of the Conestoga Portfolio is the name of the class of shares of
the CoreFunds Portfolio to be distributed to the holders of such Conestoga
class. The number of each class of shares to be issued by the CoreFunds
Portfolios will have an aggregate net asset value equal to the aggregate net
asset value of the corresponding class or classes of shares of the particular
Conestoga Portfolio as of the regular close of the New York Stock Exchange,
currently 4:00 p.m. New York time, on the Valuation Date.
<TABLE>
<CAPTION>
Conestoga Reorganizing Existing CoreFunds Portfolios
Portfolios and Classes and Classes
- ---------------------- -----------------------------
<S> <C>
Cash Management Fund Cash Reserve
Institutional Shares Class Y Shares-Institutional
Retail Shares Class C Shares-Individual
Tax-Free Fund Tax-Free Reserve
Institutional Shares Class Y Shares-Institutional
Retail Shares Class C Shares-Individual
U.S. Treasury Securities Fund Treasury Reserve
Institutional Shares Class Y Shares-Institutional
Retail Shares Class C Shares-Individual
Equity Fund Value Equity Fund
Institutional Shares Class Y Shares-Institutional
Retail Shares Class A Shares-Individual
Intermediate Income Fund Intermediate Bond Fund
Institutional Shares Class Y Shares-Institutional
Retail Shares Class A Shares-Individual
Pennsylvania Tax-Free Bond Fund Pennsylvania Municipal Bond Fund
Institutional Shares Class Y Shares-Institutional
Retail Shares Class A Shares-Individual
Balanced Fund Balanced Fund
Institutional Shares Class Y Shares-Institutional
Retail Shares Class A Shares-Individual
International Equity Fund International Growth Fund
Institutional Shares Class Y Shares-Institutional
Retail Shares Class A Shares-Individual
</TABLE>
-35-
<PAGE>
<TABLE>
<CAPTION>
Continuing Portfolios and Classes New CoreFunds Portfolios and Classes
- --------------------------------- ------------------------------------
<S> <C>
Special Equity Fund Special Equity Fund
Institutional Shares Class Y Shares-Institutional
Retail Shares Class A Shares-Individual
Bond Fund Bond Fund
Institutional Shares Class Y Shares-Institutional
Retail Shares Class A Shares-Individual
Short-Term Income Fund Short-Term Income Fund
Institutional Shares Class Y Shares-Institutional
Retail Shares Class A Shares-Individual
</TABLE>
Conestoga expects to liquidate a limited number of holdings of certain
of the Conestoga Portfolios in light of the investment policies of CoreFunds and
the strategies of its investment adviser. Similarly, CoreFunds Value Equity Fund
expects to liquidate a limited number of holdings in light of its intention to
change its investment policies to resemble those of Conestoga Equity Portfolio.
The transaction costs that will result from such sales are expected to be
minimal.
The Reorganization Agreement provides that the Effective Time of the
Reorganization with respect to the Conestoga Reorganizing Portfolios will occur
contemporaneously with, or after, the Holing Company Merger. If the Effective
Time of the Reorganization with respect to the Conestoga Reorganizing Portfolios
and the Holding Company Merger do not occur contemporaneously, the
Reorganization Agreement provides for interim investment advisory and
sub-advisory arrangements as discussed below.
The Reorganization Agreement provides that Conestoga will declare a
dividend or dividends prior to the Effective Time of the Reorganization which,
together with all previous dividends, will have the effect of distributing to
the Shareholders of each of the Conestoga Reorganizing Portfolios all
undistributed ordinary income earned and net capital gains realized up to and
including the Effective Time of the Reorganization.
Following the transfer of assets and liabilities from the Conestoga
Portfolios to the CoreFunds Portfolios, and the issuance of shares by the
CoreFunds Portfolios to the Conestoga Portfolios, each of the Conestoga
Portfolios will distribute the class of shares of the CoreFunds Portfolios pro
rata to the holders of classes of shares of the Conestoga Portfolios as
described above in liquidation of the Conestoga Portfolios. Each holder of a
class of shares of a Conestoga Portfolio at the Effective Time of the
Reorganization will receive an amount of the corresponding class of shares of
the corresponding CoreFunds Portfolio of equal value, plus the right to receive
any dividends or distributions which were declared before the Effective Time of
the Reorganization but which remained unpaid at that time.
-36-
<PAGE>
Following the Reorganization, the registration of Conestoga as an investment
company under the 1940 Act will be terminated, and Conestoga will be terminated
under state law.
The stock transfer books of Conestoga will be permanently closed at the
Effective Time of the Reorganization.
The Reorganization is subject to a number of conditions, including
approval of the Reorganization Agreement and the transactions contemplated
thereby described in this Combined Proxy Statement/Prospectus by the
Shareholders of Conestoga; the receipt of certain legal opinions described in
the Reorganization Agreement; the receipt of certain certificates from the
parties concerning the continuing accuracy of the representations and warranties
in the Reorganization Agreement and other matters; and the parties' performance
in all material respects of their agreements and undertakings in the
Reorganization Agreement. Assuming satisfaction of the conditions in the
Reorganization Agreement, the Effective Time of the Reorganization is expected
to occur on April 1, 1996 or such other date as is agreed to by the parties.
The expenses of CoreFunds and of Conestoga incurred in connection with
the Reorganization will be borne by CoreStates Financial Corp and/or Meridian
Bancorp., Inc.
The Reorganization may be abandoned at any time prior to the Effective
Time of the Reorganization by the mutual consent of the parties to the
Reorganization Agreement. The Reorganization Agreement provides further that at
any time prior to or (to the fullest extent permitted by law) after approval of
the Reorganization Agreement by the Shareholders of Conestoga (a) the parties
thereto may, by written agreement approved by their respective Boards of
Trustees or Directors, or authorized officers and with or without the approval
of their Shareholders, amend any of the provisions of the Reorganization
Agreement; and (b) either party may waive any breach by the other party or the
failure to satisfy any of the conditions to its obligations with or without the
approval of such party's shareholders.
The Reorganization Agreement also provides that the Reorganization will
be contingent upon the consummation of the Holding Company Merger.
In its consideration and approval of the Reorganization at a meeting on
December 21, 1995, the Board of Trustees of Conestoga considered, primarily, the
pending merger between Meridian Bancorp, Inc., the parent company of MIC, and
CoreStates Financial Corp. If this merger is completed, the currently existing
investment advisory contract between Conestoga and MIC would be terminated.
Given that fact, MIC and CoreStates Advisers have recommended that each of the
Conestoga Portfolios
-37-
<PAGE>
be reorganized as described in this Combined Proxy Statement/Prospectus
contemporaneously with or shortly after the proposed merger of the bank holding
companies. The Board of Trustees of Conestoga considered the effect of the
proposed merger of the bank holding companies on Conestoga; the recommendation
of MIC and CoreStates Advisers with respect to the proposed consolidation of
Conestoga and CoreFunds; the fact that the Reorganization would constitute a
tax-free reorganization; and that the interests of Shareholders would not be
diluted as a result of the Reorganization.
Section 15(f) of the 1940 Act provides that when a change in the
control of an investment adviser occurs, the investment adviser or any of its
affiliated persons may receive any amount or benefit in connection therewith as
long as, among other things, no "unfair burden" is imposed on the investment
company as a result of the transaction relating to the change of control, or any
express or implied terms, conditions or understandings applicable thereto. The
term "unfair burden" as defined in the 1940 Act includes any arrangement during
the two-year period after the transaction whereby the investment adviser (or
predecessor or successor adviser), or any "interested person" of any such
adviser, receives or is entitled to receive any compensation, directly or
indirectly, from the investment company or its security holders (other than fees
for bona fide investment advisory or other services) or from any person in
connection with the purchase or sale of securities or other property to, from or
on behalf of the investment company (other than fees for bona fide principal
underwriting services).
After consideration of all of the foregoing factors, together with
certain other factors and information considered to be relevant, Conestoga's
Trustees unanimously approved the Reorganization Agreement and directed that it
be submitted to shareholders for approval. CONESTOGA'S BOARD OF TRUSTEES
RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF THE REORGANIZATION
AGREEMENT.
The Board of Trustees of Conestoga has not determined what action it
will take in the event the shareholders of any Conestoga Portfolio fail to
approve the Reorganization Agreement or for any reason the Reorganization is not
consummated. In either such event, the Trustees may choose to consider approval
-38-
<PAGE>
of a new investment advisory agreement with CoreStates Advisers, alternative
dispositions of Conestoga's assets, including the sales of assets to, or merger
with, another investment company, or the possible liquidation of any of its
Portfolios.
At a meeting held on December 7, 1995, the CoreFunds Board of Directors
considered the proposed Reorganization. Based upon their evaluation of the
relevant information provided to them, and in light of their fiduciary duties
under federal and state law, the Board of Directors unanimously determined that
the proposed Reorganization was in the best interests of CoreFunds and their
respective shareholders that the interests of existing shareholders of CoreFunds
would not be diluted as a result of effecting the transaction.
Capitalization. Because the Reorganizing Portfolios will be combined in
the Reorganization with the Existing CoreFunds Portfolios, the total
capitalization of each of the Existing CoreFunds Portfolios after the
Reorganization is expected to be greater than the current capitalization of the
corresponding Conestoga Reorganizing Portfolios. The following table sets forth
as of October 31, 1995, (i) the capitalization of each of the Reorganizing
Portfolios and (ii) the pro forma capitalization of each of the Existing
CoreFunds Portfolios as adjusted to give effect to the Reorganization. If
consummated, the capitalization of each Portfolio is likely to be different at
the Effective Time of the Reorganization as a result of daily share purchase and
redemption activity in the Portfolios.
<TABLE>
<CAPTION>
Conestoga Cash CoreFunds Cash Pro Forma
Management Fund Reserve Combined
--------------- -------------- ---------
<S> <C> <C> <C>
Total Net Assets $237,878,356 $589,145,282 $827,023,638
Retail/Individual Shares 3,358,438 19,112,811 22,471,249
Institutional Shares 234,519,918 570,032,471 804,552,389
Shares Outstanding 238,013,959 589,151,299 827,165,258
Retail/Individual Shares 3,361,129 19,113,426 22,474,555
Institutional Shares 234,652,830 570,037,873 804,690,703
Net Asset Value Per Share _____________ _____________ _____________
Retail/Individual Shares $1.00 $1.00 $1.00
Institutional Shares $1.00 $1.00 $1.00
Conestoga Core Funds Pro Forma
Tax-Free Fund Tax-Free Reserve Combined
------------- ---------------- ---------
Total Net Assets $61,791,142 $69,441,351 $131,232,493
Retail/Individual Shares 1,282,263 1,494,128 2,776,391
Institutional Shares 60,508,879 67,947,223 128,456,102
Shares Outstanding 61,773,578 69,490,610 131,264,188
Retail/Individual Shares 1,281,648 1,495,186 2,776,834
Institutional Shares 60,491,930 67,995,424 128,487,354
Net Asset Value Per Share _____________ _____________ _____________
Retail/Individual Shares $1.00 $1.00 $1.00
Institutional Shares $1.00 $1.00 $1.00
</TABLE>
-39-
<PAGE>
<TABLE>
<CAPTION>
Conestoga
U.S. Treasury CoreFunds Pro Forma
Securities Fund Treasury Reserve Combined
--------------- ---------------- ---------
<S> <C> <C> <C>
Total Net Assets $445,258,938 $490,560,703 $935,819,641
Retail/Individual Shares 730,223 16,316,781 17,047,004
Institutional Shares 444,528,715 474,243,922 918,772,637
Shares Outstanding 445,152,418 490,544,813 935,697,231
Retail/Individual Shares 729,855 16,316,145 17,046,000
Institutional Shares 444,422,563 474,228,668 918,651,231
Net Asset Value Per Share _____________ _____________ _____________
Retail/Individual Shares $1.00 $1.00 $1.00
Institutional Shares $1.00 $1.00 $1.00
Conestoga CoreFunds Pro Forma
Equity Fund Value Equity Fund Combined
----------- ----------------- ---------
Total Net Assets $384,942,920 $33,132,707 $418,075,627
Retail/Individual Shares 6,590,598 3,444,452 10,035,050
Institutional Shares 878,352,322 $29,688,255 408,040,577
Shares Outstanding 22,545,761 2,377,850 24,923,611
Retail/Individual Shares 385,954 246,805 632,759
Institutional Shares 22,159,807 2,131,045 24,290,852
Net Asset Value Per Share _____________ _____________ _____________
Retail/Individual Shares $17.08 $13.96 $17.08
Institutional Shares $17.07 $13.93 $17.07
CoreFunds
Conestoga Intermediate Intermediate Pro Forma
Income Fund Bond Fund Combined
----------- --------- ---------
Total Net Assets $139,472,996 $57,389,991 $196,862,987
Retail/Individual Shares 1,229,481 2,025,303 3,254,784
Institutional Shares 138,243,515 55,364,688 193,608,203
Shares Outstanding 13,024,666 5,807,248 18,831,914
Retail/Individual Shares 114,721 204,958 319,679
Institutional Shares 12,909,945 5,602,290 18,512,235
Net Asset Value Per Share _____________ _____________ _____________
Retail/Individual Shares $10.72 $9.88 $9.88
Institutional Shares $10.71 $9.88 $9.88
Conestoga CoreFunds
Pennsylvania Pennsylvania Pro Forma
Tax-Free Bond Fund Municipal Bond Fund Combined
------------------ ------------------- ---------
Total Net Assets $6,796,328 $3,095,793 $9,892,121
Retail/Individual Shares 819,697 306,516 1,126,213
Institutional Shares 5,976,630 2,789,277 8,765,907
Shares Outstanding 664,126 297,107 961,233
Retail/Individual Shares 584,020 29,416 613,436
Institutional Shares 80,106 267,691 347,797
Net Asset Value Per Share _____________ _____________ _____________
Retail/Individual Shares $10.23 $10.42 $10.42
Institutional Shares $10.23 $10.42 $10.42
</TABLE>
-40-
<PAGE>
<TABLE>
<CAPTION>
Conestoga CoreFunds Pro Forma
Balanced Fund Balanced Fund Combined
------------- ------------- --------
<S> <C> <C> <C>
Total Net Assets $38,563,960 $67,973,567 $106,537,527
Retail/Individual Shares 69,340 2,539,380 2,608,720
Institutional Shares 38,494,620 65,434,187 103,928,807
Shares Outstanding 3,713,929 5,785,948 9,499,877
Retail/Individual Shares 6,675 216,129 222,804
Institutional Shares 3,707,254 5,569,819 9,277,073
Net Asset Value Per Share _____________ _____________ _____________
Retail/Individual Shares $10.39 $11.75 $11.75
Institutional Shares $10.38 $11.75 $11.75
Conestoga CoreFunds
International International Pro Forma
Equity Fund Growth Fund Combined
----------- ----------- ---------
Total Net Assets $13,381,000 $112,404,878 $125,785,878
Retail/Individual Shares 9,000 1,932,923 1,941,923
Institutional Shares 13,372,000 110,471,955 123,843,955
Shares Outstanding 1,215,740 8,832,512 10,048,252
Retail/Individual Shares 758 152,205 152,963
Institutional Shares 1,214,982 8,680,307 9,895,289
Net Asset Value Per Share _____________ _____________ _____________
Retail/Individual Shares $10.99 $12.70 $12.70
Institutional Shares $11.01 $12.73 $12.73
</TABLE>
Federal Income Tax Consequences. Consummation of the Reorganization is subject
to the condition that Conestoga and CoreFunds receive an opinion from Morgan,
Lewis & Bockius LLP to the effect that for federal income tax purposes: (i) the
transfer of all of the assets and liabilities of each of the Conestoga
Reorganizing Portfolios (except in each case for a cash reserve in an amount
necessary for the discharge of all known and reasonably anticipated liabilities
of each of the Conestoga Reorganizing Portfolios) and each of the Continuing
Funds to the corresponding CoreFunds Portfolio in exchange for shares of the
corresponding CoreFunds Portfolio and liquidating distributions to Shareholders
of the Conestoga Portfolios of the shares of the CoreFunds Portfolio so
received, as described in the Reorganization Agreement, will constitute
reorganizations within the meaning of Section 368(a)(1)(C), Section 368(a)(1)(D)
or Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended, and
with respect to the Reorganization, each Conestoga Portfolio and CoreFunds
Portfolio will be considered "a party to a reorganization" within the meaning of
Section 368(b) of the Code; (ii) no gain or loss will be recognized by the
Conestoga Portfolios as a result of such transactions; (iii) no gain or loss
will be recognized by the CoreFunds Portfolios as a result of such transactions;
(iv) no gain or loss will be recognized by the Shareholders of any Conestoga
Portfolio on the distribution to them by Conestoga of shares of any Class of the
corresponding CoreFunds Portfolio in exchange for their shares of any class of
the Conestoga Portfolio; (v) the aggregate basis of the CoreFunds Portfolio
shares received by a shareholder of a Conestoga Portfolio will be the same as
the aggregate basis of the Shareholder's Conestoga Portfolio shares immediately
prior to the Reorganization; (vi) the basis of each CoreFunds Portfolio in the
assets of the corresponding Conestoga Portfolio received pursuant to the
Reorganization will be the same as the basis of the assets
-41-
<PAGE>
in the hands of the Conestoga Portfolio immediately before the Reorganization;
(vii) a shareholder's holding period for CoreFunds Portfolio shares will be
determined by including the period for which the shareholder held the Conestoga
Portfolio shares exchanged therefor, provided that the shareholder held such
Conestoga Portfolio shares as a capital asset; and (viii) each CoreFunds
Portfolio's holding period with respect to the assets received in the
Reorganization will include the period for which such assets were held by the
corresponding Conestoga Portfolio.
CoreFunds and Conestoga have not sought a tax ruling from the Internal
Revenue Service ("IRS"), but are acting in reliance upon the opinion of counsel
discussed in the previous paragraph. That opinion is not binding on the IRS and
does not preclude the IRS from adopting a contrary position. Shareholders should
consult their own advisers concerning the potential tax consequences to them,
including state and local income taxes.
COMPARISON OF INVESTMENT POLICIES AND RISK FACTORS
The investment objectives and policies of the Conestoga Reorganizing
Portfolios are, in many respects, similar to those of the corresponding Existing
CoreFunds Portfolios. There are, however, certain differences. The following
discussion summarizes some of the more significant similarities and differences
in the investment policies and risk factors of the Conestoga Reorganizing
Portfolios and corresponding Existing CoreFunds Portfolios and is qualified in
its entirety by the discussion elsewhere herein, and in the prospectuses and
statements of additional information of the Conestoga Reorganizing Portfolios
and the Existing CoreFunds Portfolios incorporated herein by reference.
Conestoga Cash Management Fund and CoreFunds Cash Reserve
Each Fund is a money market fund that seeks to maintain a net asset
value of $1.00 per share, although there is no assurance either will be able to
do so. Both the Conestoga Cash Management Fund and CoreFunds Cash Reserve may
invest in a broad range of U.S. dollar-denominated, high quality, short-term
instruments, including government obligations, commercial paper, asset-backed
securities, bank obligations and repurchase agreements.
Both Funds may invest their assets in securities that are rated in the
highest two rating categories by a nationally recognized statistical rating
organization (a "Rating Agency"), provided that investments in securities that
are not "First Tier Securities" (as defined below) may not exceed 5% of their
assets, and investments in securities of any single issuer that is not
-42-
<PAGE>
"First Tier" may not exceed the greater of 1% of a Fund's total assets or $1
million. "First Tier Securities" are securities that (i) are rated in the
highest rating category by a Rating Agency; (ii) are rated in the highest rating
category by at least two Rating Agencies, if rated by more than one Rating
Agency; (iii) have no short-term rating, but have been issued by an issuer that
has other outstanding short-term obligations that have been so rated and are of
comparable quality; and (iv) are unrated but have been determined to be of
comparable quality. Commercial paper purchased by either Fund must be rated in
the highest rating category.
Both Funds may invest in "stripped" U.S. Treasury obligations
("STRIPS"), may purchase receipts in U.S. Treasury obligations (e.g., "TIGRs"
and "CATS") and zero coupon securities. These securities may exhibit greater
price volatility than ordinary debt securities because of the manner in which
their principal and interest are returned to investors. Conestoga Cash
Management Fund may not purchase zero coupon securities if, immediately after
such purchase, more than 5% of its net assets would be invested in such
obligations. CoreFunds Cash Reserve has no explicit limit on its investment in
such securities.
Both Funds may invest in U.S. dollar denominated bank obligations of
foreign and domestic banks such as certificates of deposit, time deposits,
bankers' acceptances, Eurodollar Certificates of Deposit, Eurodollar Time
Deposits, Canadian Time Deposits and Yankee Certificates of Deposit.
The Conestoga Cash Management Fund will not invest in excess of 10% of
its total assets in time deposits, including Eurodollar Time Deposits and
Canadian Time Deposits but not including certificates of deposit, with
maturities in excess of seven days which are subject to penalties upon early
withdrawal. CoreFunds Cash Reserve is not bound by this restriction.
Conestoga U.S. Treasury Securities Fund and CoreFunds Treasury Reserve.
Each Fund is a money market fund that seeks to maintain a net asset
value of $1.00 per share, although there is no assurance either will be able to
do so. Both Funds invest exclusively in short-term obligations issued by the
U.S. Treasury, including STRIPS, some of which may be subject to repurchase
agreements collateralized by the underlying U.S. Treasury obligations.
Conestoga Tax-Free Fund and CoreFunds Tax-Free Reserve
Each Fund is a money market fund that seeks to maintain a net asset
value of $1.00 per share, although there is no
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assurance they will be able to do so. Both Funds invest at least 80% of their
assets in municipal securities, the interest on which is both exempt from
regular Federal income tax and is not an item of tax preference for purposes of
the Federal alternative minimum tax.
Conestoga Tax-Free Fund may invest in securities rated in the two
highest rating categories by a Rating Agency, or, if unrated, are determined to
be of comparable quality. CoreFunds Tax-Free Reserve's investments in securities
that are not "First Tier Securities" may not exceed 5% of its assets, and
investment in securities of any single issuer that is not "First Tier" may not
exceed the greater of 1% of the Fund's total assets of $1 million.
Both Funds invest in the same types of municipal securities. Both are
permitted to invest up to 20% of their total assets in taxable obligations for
temporary defensive purpose or when sufficient tax-exempt securities are not
available. Conestoga Tax-Free Fund's investment policies permit that Fund to
invest up to 100% of its assets in taxable obligations for temporary defensive
purposes. Taxable obligations eligible for purchase by the Funds include, but
are not limited to obligations of the U.S. Government, its agencies and
instrumentalities, debt securities (including taxable commercial paper) of
issuers having the highest short-term rating assigned by a Rating Agency, bank
obligations, repurchase agreements and reverse repurchase agreements.
Both Funds may enter into when-issued transactions. These transactions
are arrangements in which a fund purchases securities with payment and delivery
scheduled for a future time. The seller's failure to complete these transactions
may cause a fund to miss a price or a yield considered to be advantageous.
Settlement dates may be a month or more after entering into these transactions,
and the market values of the securities purchases may vary from the purchase
prices. Accordingly, a fund may pay more or less than the market value of the
securities on the settlement date. Commitments to purchase when-issued
securities will not exceed 25% of either Fund's total assets and will not be
purchased for speculative purposes.
CoreStates Advisers intends to invest, when possible, the CoreFunds
Tax-Free Reserve's assets in municipal securities, the interest on which is
exempt from Pennsylvania personal income tax ("Pennsylvania Municipal
Securities"), provided the investment is consistent with the Fund's investment
objective, policies and status as a diversified investment company. To the
extent that the Fund's assets are so concentrated in Pennsylvania Municipal
Securities, it would be subject to the peculiar risks presented by the laws and
economic conditions of Pennsylvania to a greater extent than it would be if its
assets were not so concentrated.
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CoreFunds Tax-Free Reserve may, unlike Conestoga Tax-Free Fund, invest
in municipal lease obligations. Municipal lease obligations are issued by a
state or local government or authority to acquire land and a wide variety of
equipment and facilities. These obligations typically are not fully backed by
the municipality's credit, and their interest may become taxable if the lease is
assigned. If funds are not appropriated for the following year's lease payments,
the lease may terminate, with the possibility of default on the lease obligation
and significant loss to a Fund. Certificates of participation in municipal lease
obligations or installment sales contracts entitle the holder to a proportionate
interest in the lease-purchase payments made.
Conestoga Equity Fund and CoreFunds Value Equity Fund.
It is expected that the CoreFunds Value Equity Fund will change its
name to "CoreFunds Equity Fund" and adopt investment policies that are
substantially identical to Conestoga Equity Fund at the time of the
Reorganization.
The investment policies of both Funds are similar. The principal
difference between the policies is that under normal market condition, 80% of
the Conestoga Equity Fund's assets will be invested in common stock whereas
CoreFunds Value Equity Fund is only required to hold 75% of its assets in equity
securities which may include common stock. CoreFunds Value Equity Fund has a
broader range of eligible investments which include common stocks, preferred
stocks and convertible securities. Both Funds may invest portions of their
assets in short-term and fixed income vehicles. There are differences in the
quality of the debt investments each Fund may make. Conestoga Equity Fund may
invest in fixed income securities rated in the four highest rating categories by
a Rating Agency whereas CoreFunds Value Equity Fund is limited to fixed income
securities rated in the highest rating category. Similarly, short-term debt
securities invested in by Conestoga Equity Fund may be rated in the two highest
rating categories by a Rating Agency whereas CoreFunds Value Equity is limited
to short-term debt securities rated in the highest rating category.
Conestoga Equity Fund may also purchase put and call options on
securities for the purposes of hedging against market risks related to its
portfolio securities. Such put and call options must be listed on a national
securities exchange and may not exceed 5% of the Fund's net assets. Purchasing
options is a specialized investment technique that entails a substantial risk of
a complete loss of the amounts paid as premiums to writers of options. Conestoga
Equity Fund may also engage in writing call options. Conestoga Equity Fund will
write only covered call options (options on securities owned by the Fund).
Conestoga Equity Fund will forego any capital appreciation above the
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exercise price on securities on which it has written a call option. In order to
close out a call option it has written, Conestoga Equity Fund will enter into a
"closing purchase transaction" -- the purchase of a call option on the same
security with the same exercise price and expiration date as the call option
which the Fund previously wrote on a particular security. When a portfolio
security subject to a call option is sold, Conestoga Equity Fund will effect a
closing purchase transaction to close out any existing call option on that
security. If Conestoga Equity Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
option expires or the Fund delivers the underlying security upon exercise. Under
normal conditions, it is not expected that the underlying value of portfolio
securities subject to such options would exceed 50% of the net assets of
Conestoga Equity Fund. CoreFunds Value Equity Fund, as a matter of fundamental
policy, is not permitted to engage in options transactions.
Conestoga Equity Fund may invest in the securities of foreign issuers
by acquiring both sponsored and unsponsored American Depositary Receipts
("ADRs"). ADRs are receipts issued by a bank or trust company in the United
States evidencing ownership of underlying securities of a foreign issuer.
Unsponsored ADRs are organized independently and without the cooperation of the
issuer of the underlying securities. As a result, available information
concerning the issuer may not be as current as for sponsored ADRs, and the
prices of unsponsored ADRs may be more volatile than if such instruments were
sponsored by the issuer. Conestoga Equity Fund may also invest in securities
issued by foreign branches of U.S. banks and foreign banks, in Canadian
commercial paper, and in Europaper (U.S. dollar-denominated commercial paper of
a foreign issuer). By contrast, CoreFunds Value Equity Fund is not expressly
permitted to invest in securities of foreign issuers and may only invest in
short-term debt obligations of domestic branches of U.S. banks.
For many foreign securities, U.S. dollar-denominated ADRs, which are
traded in the United States on exchanges or over-the-counter, are issued by
domestic banks. ADRs represent the right to receive securities of foreign
issuers deposited in a domestic bank or a correspondent bank. ADRs do not
eliminate the risk inherent in investing in the securities of foreign issuers.
However, by investing in ADRs rather than directly in stock of foreign issuers,
the Conestoga Equity Fund can avoid currency risks during the settlement period
for either purchases or sales. In general, there is a large, liquid market in
the United States for many ADRs. The information available for ADRs is subject
to the accounting, auditing and financial reporting standards of the domestic
market or exchange on which they are traded, which standards are more uniform
and more exacting than those to which many foreign issuers may be subject.
Conestoga Equity Fund may
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also invest in European Depositary Receipts, or EDRs, which are receipts
evidencing an arrangement with a European bank similar to that for ADRs and are
designed for use in the European securities markets. EDRs are not necessarily
denominated in the currency of the underlying security.
Certain ADRs and EDRs, typically those denominated as unsponsored,
require the holders thereof to bear most of the costs of such facilities while
issuers of sponsored facilities normally pay more of the costs thereof. The
depositary of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
securities or to pass through the voting rights to facility holders in respect
to the deposited securities, whereas the depositary of a sponsored facility
typically distributes shareholder communications and passes through the voting
rights.
Investment in securities of foreign issuers involves certain risks not
ordinarily associated with investments in securities of domestic issuers. Such
risks include fluctuations in foreign exchange rates, difficulties in predicting
international trade patterns, political, social and economic instability in the
country of the issuer, foreign trading practices (including higher trading
commissions, custodial charges and delayed settlements), foreign withholding and
income taxation, the possible establishment of exchange controls or the adoption
of other foreign governmental restrictions (which might adversely affect the
payment of principal and interest), difficulty in obtaining and enforcing
judgments against foreign issuers, and the possible imposition of exchange
controls or other foreign governmental laws or restrictions. With respect to
certain countries, there is also the possibility of expropriation of assets,
nationalization of assets, limits on removal of currency or other assets,
confiscatory taxation, political or social instability or diplomatic
developments which could adversely affect investments in those countries.
Foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
U.S. domestic companies. There is generally less government regulation of
securities exchanges, brokers and listed companies abroad than in the U.S.
Confiscatory taxation or diplomatic developments could also affect investment in
those countries. In addition, foreign branches of U.S. banks, foreign banks and
foreign issuers may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting, and recordkeeping standards than
those applicable to domestic branches of U.S. banks and U.S. domestic issuers.
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Conestoga Intermediate Income Fund and CoreFunds Intermediate
Bond Fund
The investment policies of these Funds are similar. The principle
difference is that Conestoga Intermediate Income Fund will normally invest 80%
of its total assets in debt securities of all types whereas CoreFunds
Intermediate Bond Fund intends, under normal market conditions, to invest 65% of
its total assets in bonds and 35% or less in other debt securities. Both Funds
are permitted to have an average weighted maturity of three to ten years,
however, CoreFunds Intermediate Bond Fund currently maintains a maximum average
maturity of no more than five years pursuant to a non-fundamental investment
policy which can be changed without shareholder approval. CoreFunds expects to
present to the shareholders of the Intermediate Bond Fund a change in
fundamental policy requiring the Fund to have an average weighted maturity
between one and five years. The types of debt securities eligible for investment
by both Funds are the same, with the exception that debt securities in Conestoga
Intermediate Bond Fund may be rated in the four highest rating categories by a
Rating Agency whereas CoreFunds Intermediate Bond Fund is limited to investments
in the three highest rating categories.
Conestoga Pennsylvania Tax-Free Bond Fund and CoreFunds
Pennsylvania Municipal Bond Fund
The Funds have similar, but not identical, investment policies. Since
both invest primarily in Pennsylvania Municipal Securities, the Funds are
subject to the risk that the value of their shares may be especially affected by
factors pertaining to the economy of Pennsylvania and the ability of issuers of
Pennsylvania Municipal Securities to meet their obligations. Both Funds are
classified as non-diversified investment companies under the 1940 Act, which
means that since a relative high percentage of assets of each Fund may be
invested in the obligations of a limited number of issuers, the value of the
shares of a Fund may be more susceptible to any single economic, political or
regulatory occurrence then shares of a diversified investment company.
Both Funds invest 80% of their total assets in municipal securities,
the interest on which is exempt from federal income tax. Conestoga Pennsylvania
Tax-Free Bond Fund normally invests at least 80% of its total assets in
Pennsylvania Municipal Securities whereas the policies of CoreFunds Pennsylvania
Municipal Bond Fund state that it is only required to invest 65% of its total
assets in Pennsylvania Municipal Securities.
Conestoga Pennsylvania Tax-Free Bond Fund may invest in debt
obligations rated in one of the four highest rating categories by a Rating
Agency, whereas CoreFunds Pennsylvania Municipal Bond
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Fund may only purchase securities rated in one of the three highest rating
categories. CoreStates Advisers, however, does have the discretion to permit it
to invest 20% of the Fund's assets in municipal securities rated in the fourth
highest category. Both Funds may invest in municipal notes. CoreFunds
Pennsylvania Municipal Bond Fund may invest in municipal notes rated in one of
the two highest rating categories by a Rating Agency whereas Conestoga
Pennsylvania Tax-Free Bond Fund is limited to municipal notes in the highest
rating category. Both Funds may invest in when-issued securities and municipal
leases. See "Comparison of Investment Policies and Risk Factors -- Conestoga
Tax-Free Fund and CoreFunds Tax-Free Reserve" for a discussion of when-issued
securities and municipal leases.
Conestoga Balanced Fund and CoreFunds Balanced Fund
The investment policies of these Funds are similar. The principal
difference is that Conestoga Balanced Fund invests at least 30% of its total
assets in fixed income securities and no more than 80% in equity securities,
whereas CoreFunds Balanced Fund is required to invest only 25% of its total
assets in fixed income securities with the remainder in common stocks. Fixed
income securities acquired by Conestoga Balanced Fund are rated in one of the
four highest rating categories by a Rating Agency whereas fixed income
securities acquired by CoreFunds Balanced Fund must be rated in one of the three
highest rating categories. The equity and fixed income securities eligible for
purchase by both Funds are substantially the same. Both Funds may invest in
securities of foreign issuers using ADRs. See "Comparison of Investment Policies
and Risk Factors -- Conestoga Equity Fund and CoreFunds Value Equity Fund" for a
description of ADRs and the risk factors of investment in foreign issuers.
Conestoga International Equity Fund and CoreFunds International
Growth Fund
The investment policies of both Funds are similar. Conestoga
International Equity Fund invests at least 65% of its assets in an
internationally diversified portfolio of equity securities and may invest up to
35% of its assets in U.S. companies. CoreFunds International Growth Fund has the
same 65% diversification requirement but has no express statement as to
permissible investments in U.S. companies. Both Funds intend to invest at least
65% of their total assets in securities traded in at least three foreign
countries.
Both Funds invest directly in the securities of foreign issuers. Direct
investments in foreign securities generally involve higher costs than
investments in U.S. securities, including higher transaction costs as well as
the imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency
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exchange rates, less complete financial information about the issuers, less
market liquidity and political instability. See "Investment Policies and Risk
Factors -- Conestoga Equity Fund and CoreFunds Value Equity Fund" for a
discussion of ADRs and the risk factors of investment in foreign issuers. In
furtherance of their investment objectives, each Fund may engage in foreign
currency transactions including forward currency contracts, futures, contracts
or options transactions. The principal difference is that Conestoga
International Equity Fund may only purchase puts and calls up to 5% of its net
assets and write covered calls up to 50% of its net assets whereas CoreFunds
International Growth Fund may purchase, write or sell options on securities
(including puts and calls) only to the extent obligations under such
transactions represent not more than 20% of its total assets.
Investment Policies and Risks -- General
The investment objective of each of the Conestoga Cash Management Fund,
Tax-Free Fund, U.S. Treasury Securities Fund, Equity Fund, Special Equity Fund,
Bond Fund, Intermediate Income Fund, Pennsylvania Tax-Free Bond Fund and of each
of the Existing CoreFunds Portfolios is fundamental, meaning that it may not be
changed without a vote of the holders of a majority of the Fund's outstanding
shares, as defined by the 1940 Act. The investment objective of each of the
Conestoga International Equity Fund, Short-Term Income Fund and Balanced Fund is
not fundamental and may be changed by Conestoga's Board of Trustees. The
investment policies of the Conestoga Portfolios and CoreFunds are not
fundamental and may be changed by the respective Board of Trustees and
Directors.
This section describes certain policies and risks that are common to a
number of Conestoga Reorganizing Portfolios and Existing CoreFunds Portfolios.
Each Reorganizing Conestoga Portfolio and each Existing CoreFunds
Portfolio is permitted to (i) enter into repurchase agreements and reverse
repurchase agreements; and (ii) purchase obligations of the U.S. Government, its
agencies and instrumentalities. Each Conestoga Reorganizing Portfolio may invest
in bank obligations of issuers having capital, surplus and undivided profits in
excess of $100 million (as of the date of its most recently published financial
statements) whereas each Existing CoreFund Portfolio may only invest in bank
obligations of domestic branches of U.S. banks having total assets at the time
of purchase of $1 billion.
Each Conestoga Reorganizing Portfolio and the CoreFunds Tax-
Free Reserve, Intermediate Bond Fund and Pennsylvania Municipal
Bond Fund may enter into when-issued transactions. See
"Investment Policies and Risk Factors -- Conestoga Tax-Free Fund
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and CoreFunds Tax-Free Reserve" for a discussion of the risk
factors involved in when-issued transactions.
The Conestoga Pennsylvania Tax-Free Bond Fund is permitted to enter
into stand-by commitments with respect to municipal securities. None of the
Existing CoreFunds Portfolios is permitted to participate in these transactions.
There are similarities between the Funds with respect to the types of
money market instruments they are permitted to purchase. Each Conestoga
Reorganizing Portfolio may invest in a broad array of money market instruments,
all rated in one of the top two rating categories by a Rating Agency and (with
the exception of Conestoga Cash Management Fund, U.S. Treasuries Securities Fund
and Tax-Free Fund) may invest in commercial paper rated in the top two rating
categories. Conestoga Cash Management Fund, U.S. Treasury Securities Fund and
Tax-Free Fund may only invest in commercial paper rated in the highest rating
category by a Rating Agency. Each Existing CoreFunds Portfolio may also purchase
money market instruments and commercial paper; the CoreFunds Cash Reserve,
Treasury Reserve, Tax-Free Reserve, Value Equity Fund and International Growth
Fund may only purchase money market instruments and commercial paper that are
rated by a Rating Agency in the highest rating category for such instruments,
and the CoreFunds Balanced Fund, Intermediate Bond Fund and Pennsylvania
Municipal Bond Fund may purchase money market instruments and commercial paper
that are within the two highest rating categories by a Rating Agency.
Each of the Conestoga Equity Fund, Intermediate Income Fund, Balanced
Fund and International Equity Fund may lend its portfolio securities. There is
no limit on the amount of securities which these Funds may lend, except that the
Conestoga International Equity Fund may only lend portfolio securities up to
one-third the value of its total assets. Such loans involve risks of delay in
receiving additional collateral or in recovering the securities loaned or even
loss of rights in the collateral, should the borrower of the securities fail
financially. Any portfolio securities purchased with cash collateral would also
be subject to possible depreciation. The Existing CoreFunds Portfolios (with the
exception of CoreFunds International Growth Fund) have a fundamental investment
limitation prohibiting loans.
Conestoga Cash Management Fund, Intermediate Income Fund and Balanced
Fund and CoreFunds Cash Reserve and Intermediate Bond Fund may invest in
asset-backed securities. These securities may be backed by either credit card
receivables or motor vehicle installment purchase obligations. Asset-backed
securities entail certain risks, including the risk that credit card receivables
are generally unsecured, and the debtors are entitled to the protection of a
number of state and federal consumer credit laws,
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many of which give such debtors the right to set off certain amounts owned on
the credit cards, thereby reducing the balance due. Most issuers of asset-backed
securities backed by motor vehicle installment purchase obligations permit the
servicer of such receivable to retain possession of the underlying obligations.
If the servicer sells these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related asset-backed securities. Further, if a vehicle is registered in one
state and is then reregistered because the owner and obligor move to another
state, such reregistration could defeat the original security interest in the
vehicle in certain cases. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of asset-backed securities backed by automobile
receivables may not have a proper security interest in all of the obligations
backing such receivables. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support payments
on these securities.
Conestoga Intermediate Income Fund and Balanced Fund and CoreFunds
Intermediate Bond Fund and Balanced Fund may invest in mortgage-backed
securities. To the extent that a Fund purchases mortgage-backed securities at a
premium, mortgage foreclosures and prepayments of principal by mortgagors (which
may be made at any time without penalty) may result in some loss of the Fund's
principal investment to the extent of the premium paid. The yield of a Fund that
invests in mortgage-backed securities may be affected by reinvestment of
prepayments at higher or lower rates than the original investment.
Mortgage-backed securities have either fixed or adjustable interest rates. The
rate of return on mortgage-backed securities may be affected by prepayments on
principal on the underlying loans, which generally increase as interest rates
decline. As a result, when interest rates decline, holders of these securities
normally do not benefit from appreciation in market value to the same extent as
holders of other non-callable debt securities. In addition, the value of
mortgage-backed securities will fluctuate in response to market interest rates.
Investment Limitations
Neither the Conestoga Reorganizing Portfolios nor the Existing
CoreFunds Portfolios may change their fundamental investment limitations without
the affirmative vote of the holders of a majority of the outstanding shares (as
defined in the 1940 Act) of the particular Conestoga Reorganizing Portfolio or
Existing CoreFunds Portfolio. The investment limitations of the Conestoga
Reorganizing Portfolios and the corresponding Existing CoreFunds Portfolios are
similar, but not identical.
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Each of the Conestoga Reorganizing Portfolios (except the Conestoga
Pennsylvania Tax-Free Bond Fund) and each of the corresponding Existing
CoreFunds Portfolios (except the CoreFunds Pennsylvania Municipal Bond Fund) is
a "diversified" investment portfolio and, therefore, has a fundamental policy
limiting investments in securities of any one issuer, other than securities
issued by the U.S. Government, its agencies and instrumentalities and repurchase
agreements collateralized by such securities, to 5% of the value of a fund's
total assets, except that up to 25% of the value of a fund's total assets may be
invested without regard to this 5% limitation. In addition, none of the
Conestoga Reorganizing Portfolios (except the Conestoga Cash Management Fund,
Tax-Free Fund, U.S. Treasury Securities Fund and Pennsylvania Tax-Free Bond
Fund) may acquire more than 10% of the outstanding voting securities of any one
issuer, except that the Conestoga Equity Fund, Intermediate Income Fund,
Balanced Fund and International Equity Fund may invest up to 25% of their
respective assets without regard to such limitation. Of the CoreFunds, only the
Value Equity Fund, Balanced Fund and International Growth Fund have the same 10%
voting securities limitation, although CoreFunds Cash Reserve, Tax-Free Reserve,
Treasury Reserve, Intermediate Bond Fund and Pennsylvania Municipal Bond Fund
have a fundamental limitation prohibiting the purchase of any common stock or
voting securities.
With respect to at least 50% of the total assets of each of the
Conestoga Pennsylvania Tax-Free Bond Fund and CoreFunds Pennsylvania Municipal
Bond Fund, no more than 5% may be invested in securities of a single issuer, and
no more than 25% of each Fund's total assets may be invested in the securities
of a single issuer at the close of each quarter of each fiscal year. For
purposes of this limitation, governmental subdivisions, including states,
territories, possessions of the United States, or their political subdivisions,
agencies, authorities, instrumentalities, or similar entities, will be
considered a separate issuer if their assets and revenues are separate from
those of the government body creating it and the security is backed only by its
own assets and revenues. Industrial revenue bonds backed only by the assets and
revenues of a non-governmental issuer are considered to be issued solely by that
user. If, in the case of an industrial development bond or government-issued
security, a governmental or other entity guarantees the security, such guarantee
would be considered a separate security issued by the guarantor, as well as the
other issuer, subject to limited exclusions allowed by the 1940 Act.
Neither the Conestoga Reorganizing Portfolios nor the Existing
CoreFunds Portfolios may borrow money directly except that each Fund may borrow
money from banks and enter into reverse repurchase agreements for temporary
purposes, and then in amounts not in excess of 10% of the value of each Fund's
total assets. A
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Conestoga Reorganizing Portfolio (except the Conestoga Tax-Free Fund) will not
purchase securities while its borrowings, including reverse repurchase
agreements, exceed 5% of the total assets of the Portfolio. Conestoga Tax-Free
Fund and each Existing CoreFunds Portfolio will not purchase securities while
its borrowings, including reverse repurchase agreements, are outstanding.
The Conestoga Reorganizing Portfolios and the Existing CoreFunds
Portfolios may only mortgage, pledge or hypothecate their assets to secure
permitted indebtedness, and then may only pledge assets having a market value
not exceeding the lesser of the dollar amounts borrowed or 10% of the value of
total assets.
The investment limitations described in the foregoing paragraphs
regarding diversification, borrowing and pledging of assets are fundamental with
respect to both Conestoga and CoreFunds.
Neither the Conestoga Reorganizing Portfolios nor the Existing
CoreFunds Portfolios may make loans, except that: (i) Conestoga Equity Fund,
Intermediate Income Fund, Balanced Fund and International Equity Fund may lend
portfolio securities; and (ii) the Conestoga Reorganizing Portfolios may
purchase or hold certain debt instruments and may enter into repurchase
agreements; and (iii) each Existing CoreFunds Portfolio may purchase or hold
debt instruments and enter into repurchase agreements. The foregoing limitations
on securities lending are fundamental limitations for both the Conestoga
Reorganizing Portfolios and the Existing CoreFunds Portfolios.
The Conestoga Reorganizing Portfolios and the Existing CoreFunds
Portfolios will not invest 25% or more of the value of their respective total
assets in any one industry, provided that there is no limitation with respect to
(i) obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; (ii) tax-exempt securities issued by governments or political
subdivisions of governments; (iii) wholly-owned finance companies will be
considered to be in the industry of their parents if their activities are
primarily related to financing the activities of their partners; and (iv)
utilities will be divided according to their services. The foregoing investment
limitations of each of the Conestoga Reorganizing Portfolios and the Existing
CoreFunds Portfolios with respect to industry concentration of investments is a
fundamental investment limitation.
Each of the Conestoga Reorganizing Portfolios must limit its
investments in illiquid securities to 15% of its net assets, except that the
Conestoga Cash Management Fund, Tax-Free Fund and U.S. Treasury Securities are
subject to a 10% limitation and the Conestoga Equity Fund and Intermediate
Income Fund will not
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invest in repurchase agreements maturing in excess of seven days if such
investment, together with other investments of such Fund that are not readily
marketable, exceeds 10% of such Fund's total assets. By contrast, each of the
Existing CoreFunds Portfolios must limit its investments in illiquid securities
to 10% of its net assets (except for the CoreFunds Balanced and Pennsylvania
Municipal Bond Funds). With respect to the Conestoga Reorganizing Portfolios,
Rule 144A securities will not be considered illiquid if the Funds' investment
adviser determines that an adequate trading market exists with respect to such
securities. The foregoing limitations on investments in illiquid securities are
fundamental as to the Existing CoreFunds Portfolios but are not fundamental as
to the Conestoga Reorganizing Portfolios.
Neither the Conestoga Reorganizing Portfolios nor the Existing
CoreFunds Portfolios may purchase or sell real estate, except that the Funds may
purchase securities of issuers which deal in real estate and may purchase
securities which are secured by interests in real estate.
None of the Conestoga Reorganizing Portfolios (except Conestoga Cash
Management Fund, Tax-free Fund and U.S. Treasury Securities Fund) and the
Existing CoreFunds Portfolios may acquire any other investment company or
investment company security except in connection with a merger, consolidation,
reorganization or acquisition of assets or where otherwise permitted by the 1940
Act. The Conestoga Cash Management Fund, Tax-Free Fund and U.S. Treasury
Securities Fund are not permitted to acquire investment company securities,
except in connection with a merger, consolidation, reorganization or acquisition
of assets.
Neither the Conestoga Reorganizing Portfolios nor the Existing
CoreFunds Portfolios may act as an underwriter of securities within the meaning
of the Securities Act of 1933 except to the extent that the purchase of
obligations directly from the issuer thereof, or the disposition of securities,
in accordance with a Fund's investment objective, policies and limitations may
be deemed to be underwriting.
Neither the Conestoga Reorganizing Portfolios nor the Existing
CoreFunds Portfolios may purchase securities of companies for the purpose of
exercising control.
Neither the Conestoga Reorganizing Portfolios nor the Existing
CoreFunds Portfolios may purchase securities on margin, make short sales of
securities or maintain a short position, except that each Conestoga Reorganizing
Portfolio may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of portfolio securities.
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<PAGE>
None of the Existing CoreFunds Portfolios may invest in puts, calls,
straddles, spreads, or any combination thereof, except that (i) CoreFunds
International Growth Fund may enter into forward currency contracts, purchase
futures contracts and options thereon, and purchase, sell and write options on
securities (including puts and calls) to a limited extent; and (iii) CoreFunds
Pennsylvania Municipal Bond Fund may engage in put transactions.
Neither the Conestoga Reorganizing Portfolios nor the Existing
CoreFunds Portfolios may purchase or sell commodity contracts, or invest in oil,
gas or mineral exploration or development programs or leases.
The following fundamental investment limitations of the Existing
CoreFunds Portfolios have no counterpart in the Conestoga Reorganizing
Portfolios:
Each Existing CoreFunds Portfolio is prohibited from investing more
than 10% of its total assets in the securities of any company not in operation
continuously for at least three years (including any predecessor company).
Each Existing CoreFunds Portfolio is prohibited from purchasing or
retaining the securities of any issuer if officers and directors of CoreFunds,
or its advisor, owning beneficially more than one-half of 1% of the securities
of such issuer together own more than 5% of the securities of such issuer.
The Existing CoreFunds Portfolios may not invest in securities with
legal or contractual restrictions.
See "Additional Investment Restrictions" in CoreFunds' Statement of
Additional Information which is incorporated by reference herein for additional
investment limitations of the Existing CoreFunds Portfolios.
Purchase and Redemption Information, Exchange Privileges, Distribution and
Pricing. The purchase, redemption, exchange privileges and distribution policies
of the Conestoga Portfolios and the CoreFunds Portfolios are discussed above
under "Summary - - Overviews of the Conestoga Portfolios and CoreFunds
Portfolios" and below in Appendix III to this Combined Proxy
Statement/Prospectus.
Other Information. Conestoga and CoreFunds are registered as open-end management
investment companies under the 1940 Act. Currently, Conestoga offers eleven
investment portfolios and CoreFunds offers seventeen investment portfolios.
Conestoga is organized as a Massachusetts business trust and
is subject to the provisions of its Declaration of Trust and Code
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<PAGE>
of Regulations. CoreFunds is organized as a Maryland corporation and subject to
the provisions of its Articles of Incorporation and By-laws. Shares of both
Conestoga and CoreFunds: (i) are entitled to one vote for each full share held
and a proportionate fractional vote for each fractional share held; (ii) will
vote in the aggregate and not by class except as otherwise expressly required by
law or when class voting is permitted by the respective Board of Trustees or
Directors; and (iii) are entitled to participate equally in the dividends and
distributions that are declared with respect to a particular investment
portfolio and in the net distributable assets of such portfolio on liquidation.
Shares of both the Conestoga Portfolios and the CoreFunds Portfolios have a par
value of $.001. In addition, shares of the Conestoga Portfolios and CoreFunds
Portfolios have no preemptive rights and only such conversion and exchange
rights as the respective Boards of Trustees or Directors may grant in their
discretion. When issued for payment as described in their prospectuses,
Conestoga Portfolio shares and CoreFunds Portfolio shares are fully paid and
non-assessable by such entities except as required under Massachusetts law with
respect to Conestoga. CoreFunds is not required under Maryland General
Corporation Law to hold annual shareholder meetings and intends to do so only if
required by the 1940 Act. Shareholders have the right to remove Directors. To
the extent required by law, CoreFunds will assist in shareholder communications
in such matters.
The foregoing is only a summary. Shareholders may obtain copies of the
Declaration of Trust and By-laws of Conestoga and the Articles of Incorporation
and By-laws of CoreFunds upon written request at the addresses shown on the
cover page of this Combined Proxy Statement/Prospectus.
INTERIM INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS
The Reorganization Agreement provides that the Effective Time of the
Reorganization will occur contemporaneously with, or after, the Holding
Company Merger. As stated above, because the Holding Company Merger will result
in a change in control of MIC, the existing investment advisory and sub-advisory
agreements will, by their terms, automatically terminate on the date the Holding
Company Merger occurs. The Reorganization Agreement provides, therefore, that if
the Holding Company Merger and the Reorganization do not occur
contemporaneously, subject to the approval of the Reorganization Agreement by
Conestoga's shareholders, Conestoga will enter into an interim investment
advisory agreement with MIC (or its successor) and MIC will enter into an
interim sub-investment advisory agreement with respect to the Conestoga
International Equity Fund with Marvin and Palmer (collectively, the "Interim
Agreements") which will take effect between the Holding Company Merger and the
Reorganization (the "Interim Period"). It is contemplated that the firms that
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<PAGE>
currently provide investment advisory and sub-advisory services for the
Conestoga Portfolios will continue to provide services during the Interim Period
under the Interim Agreements.
The investment advisory and sub-advisory fee rates stated in the
Interim Agreements will be the same, and the other provisions of the Interim
Agreements will be substantially the same, as those in the current investment
and sub-advisory agreements for the Conestoga Portfolios.
Copies of the proposed Interim Agreements are attached as Appendix IV.
In the Interim Agreements, the investment adviser agrees, subject to the
supervision of the Conestoga Board of Trustees, to provide a continuous
investment program for the Conestoga Portfolios and to determine from time to
time what securities and other investments will be purchased, retained or sold
in accordance with that Portfolio's investment objectives, policies and
restrictions. An investment adviser's responsibilities include, but are not
limited to, placing purchase and sale orders for portfolio transactions;
maintaining books and records with respect to a Portfolio's securities
transactions; and furnishing periodic and special reports to the Conestoga Board
of Trustees as requested. The Interim Agreements further provide that a
Portfolio's investment adviser will pay all expenses incurred by it in
connection with its advisory activities, other than the cost of securities
(including brokerage commissions, if any) purchased for a Portfolio.
With respect to the Conestoga International Equity Fund, some of an
investment adviser's responsibilities under the Interim Agreement will be
performed by the sub-adviser. In particular, Marvin and Palmer will, subject to
supervision by MIC (or its successor) and the Conestoga Board of Trustees,
manage the investment operations of the Conestoga International Equity Fund
during the Interim Period and determine the composition of the Fund, including
the purchase, retention and disposition of securities in accordance with the
Fund's investment objective, policies and restrictions. In addition, Marvin and
Palmer will prepare, subject to MIC's approval, lists of foreign countries for
investment by the Fund.
Under the Interim Agreements, in placing orders with brokers and
dealers, the investment adviser and sub-adviser are to attempt to obtain prompt
execution of orders at the most favorable price. Consistent with this
obligation, when the execution and price offered by two or more brokers or
dealers are comparable, the investment adviser or sub-adviser may, in its
discretion, purchase and sell portfolio securities to and from brokers and
dealers that provide research advice and other services. These brokerage and
research services might consist of reports and statistics on specific companies
of industries, general summaries of groups of stocks or bonds and their
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<PAGE>
comparative earnings and yields, or broad overviews of the securities markets
and the economy.
Supplementary research information so received is in addition to, and
not in lieu of, services required to be performed by the investment adviser or
sub-adviser, and does not reduce the advisory fees payable by the Conestoga
Portfolios. It is possible that certain of the supplementary research or other
services received will primarily benefit one or more other investment companies
or other accounts for which the investment adviser or sub-adviser exercises
investment discretion. Conversely, the Conestoga Portfolios may be the primary
beneficiary of the research or services received as a result of portfolio
transactions effected for such other account or investment company.
Investment decisions for the Conestoga Portfolios and for other
investment accounts managed by the investment adviser and sub-adviser during the
Interim Period will be made independently of each other in light of differing
conditions. However, the same investment decision may be made for two or more of
such accounts. In such cases, simultaneous transactions are inevitable.
Purchases or sales are then allocated in a manner believed by the investment
adviser or sub-adviser to be equitable to each such account. While in some cases
this practice could have a detrimental effect on the price or value of the
security as far as a Conestoga Portfolio is concerned, in other cases it may be
beneficial to the portfolio. To the extent permitted by law, the investment
adviser or sub-adviser may aggregate the securities to be sold or purchased for
the Conestoga Portfolios with those to be sold or purchased for other investment
companies or accounts in executing transactions. Portfolio securities will not
be purchased from or sold to the investment adviser, sub-adviser, or any
affiliated person (as defined in the 1940 Act) during the Interim Period.
If in any fiscal year the aggregate expenses of any Conestoga Portfolio
exceeds the expense limitation of any state having jurisdiction over Conestoga,
the Interim Agreements provide that the Portfolio's investment adviser will
reimburse the Portfolio for a portion of such excess expenses equal to such
excess times the ratio of the fees otherwise payable by the Portfolio to the
investment adviser to the aggregate fees otherwise payable by the Portfolio to
the investment adviser and to the Portfolio's administrator under its
administration agreement. The obligation of the investment adviser to reimburse
a Portfolio is limited in any fiscal year to the amount of its fee for such
fiscal year, provided that an investment adviser will reimburse a Portfolio for
such proportion of such excess expenses regardless of the amount of fees paid to
it during such fiscal year to the extent that the securities regulations of any
state having jurisdiction over Conestoga so require. As of the
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<PAGE>
date hereof, the most restrictive expense limitation applicable to a Conestoga
Portfolio limits its aggregate annual expenses (as defined by applicable
regulations) to 2 1/2% of the first $30 million of its average net assets, 2% of
the next $70 million of its average net assets, and 1 1/2% of its remaining net
assets.
The investment adviser or sub-adviser will not be liable for any error
of judgment or mistake of law or for any loss suffered by a Conestoga Portfolio
in connection with the performance of its agreements, except a loss arising from
a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from wilful misfeasance, bad faith or gross
negligence on the part of the investment adviser or sub-adviser in the
performance of its duties or from reckless disregard by it of its obligations
and duties under the agreements.
Unless sooner terminated, the Interim Agreement for a Conestoga
Portfolio will continue in effect until the Effective Time of the Reorganization
for that Portfolio. If the Effective Time of the Reorganization has not
occurred, the Interim Agreements may thereafter be renewed for successive
periods with respect to a Conestoga Portfolio if specifically approved at least
annually (a) by the vote of a majority of those members of the Conestoga Board
of Trustees who are not parties to the agreements or interested persons of any
party to the agreements, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by the vote of a majority of the Conestoga
Board of Trustees or by the vote of a majority of all votes attributable to the
outstanding shares of the Portfolio.
The Interim Agreements will terminate upon their assignment (as defined
in the 1940 Act). In addition, the Interim Agreements may be terminated with
respect to any Conestoga Portfolio by the Conestoga Board of Trustees, by vote
of a majority of the outstanding shares of that Portfolio, by the investment
adviser or, in the case of an Interim Sub-Advisory Agreement, by either the
investment adviser or sub-adviser upon notice as stated in the particular
agreement.
The table at page ___ shows (i) the current contractual fee rates for
the Portfolios, which will be the same throughout the Interim Period until the
Effective Time of the Reorganization, and (ii) the advisory/sub-advisory fees
actually paid by the Conestoga Portfolios for their last fiscal year net of
waivers. All fee rates are annualized, and are computed daily and payable
monthly based on a Portfolio's average daily net assets.
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<PAGE>
INFORMATION RELATING TO VOTING MATTERS
General Information. This Combined Proxy Statement/Prospectus is being furnished
in connection with the solicitation of proxies by Conestoga's Board of Trustees
in connection with the Meeting. It is expected that the solicitation of proxies
will be primarily by mail. Officers and service contractors of Conestoga may
also solicit proxies by telephone, telegraph, facsimile or personal interview.
Any shareholder giving a proxy may revoke it at any time before it is exercised
by submitting to Conestoga a written notice of revocation or a subsequently
executed proxy or by attending the Meeting and voting in person.
Only shareholders of record at the close of business on January 26,
1996 will be entitled to vote at the Meeting. On that date there were
outstanding and entitled to be voted __________ shares of the Conestoga Cash
Management Fund, __________ shares of the Conestoga Tax-Free Fund, __________
shares of the Conestoga U.S. Treasury Securities Fund, __________ shares of the
Conestoga Equity Fund, __________ shares of the Conestoga Special Equity Fund,
__________ shares of the Conestoga Bond Fund, __________ shares of the Conestoga
Intermediate Income Fund, __________ shares of the Conestoga Pennsylvania
Tax-Free Bond Fund, __________ shares of the Conestoga Balanced Fund, __________
shares of the Conestoga Short-Term Income Fund and __________ shares of the
Conestoga International Equity Fund. Each share or fraction thereof is entitled
to one vote or fraction thereof, and all shares will vote separately by Fund.
Conestoga and CoreFunds have been advised by MIC that the shares of
each Conestoga Portfolio over which Meridian Bancorp, Inc. or its affiliates
have voting power will be voted in accordance with instructions received
from beneficial owners and fiduciaries of such shares who are not related to
Meridian Bancorp, Inc. or its affiliates. The remaining shares over which
Meridian Bancorp, Inc. or its affiliates have voting power will (i) be voted FOR
or AGAINST the Reorganization and any other matters properly brought before the
meeting in the same proportions as the total votes that are cast FOR or AGAINST
the proposals by such unrelated beneficial owners and fiduciaries, (ii) be voted
by a fiduciary that is not related to Meridian Bancorp, Inc. or its affiliates,
or (iii) not be voted.
If the accompanying proxy is executed and returned in time for the
Meeting, the shares covered thereby will be voted in accordance with the proxy
on all matters that may properly come before the Meeting or any adjournment
thereof. For information on adjournment of the meeting, see "Quorum" below.
Shareholder and Board Approvals. The Reorganization Agreement (and the
transactions contemplated thereby including the implementation of the interim
investment advisory and Sub- advisory agreements), is being submitted for
approval at the
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Meeting by the holders of a majority of the outstanding shares of the Conestoga
Cash Management Fund, Tax-Free Fund, U.S. Treasury Securities Fund, Equity Fund,
Special Equity Fund, Bond Fund, Intermediate Income Fund, Pennsylvania Tax-Free
Bond Fund, Balanced Fund, Short-Term Income Fund and International Equity Fund
in accordance with the provisions of Conestoga's Declaration of Trust and the
requirements of the 1940 Act. The term "majority of the outstanding shares" of a
Conestoga Portfolio as used herein means the lesser of (a) 67% of the shares of
the particular Conestoga Portfolio present at the Meeting if the holders of more
than 50% of the outstanding shares of the Conestoga Portfolio are present in
person or by proxy, or (b) more than 50% of the outstanding shares of such
Conestoga Portfolio.
In tallying shareholder votes, abstentions and broker non-votes (i.e.,
proxies sent in by brokers and other nominees that cannot be voted on a proposal
because instructions have not been received from the beneficial owners) will be
counted for purposes of determining whether or not a quorum is present for
purposes of convening the meeting. On the Reorganization proposal abstentions
and broker non-votes will be considered to be a vote against the Reorganization
proposal.
The approval of the shareholders of CoreFunds of the Reorganization is
being separately solicited.
At January 26, 1996, MIC and its affiliates held of record ____% of the
Conestoga Cash Management Fund, Tax-Free Fund, U.S. Treasury Securities Fund,
Equity Fund, Special Equity Fund, Bond Fund, Intermediate Income Fund,
Pennsylvania Tax-Free Bond Fund, Balanced Fund, Short-Term Income Fund and
International Equity Fund.
At January 26, 1996, the name, address and share ownership of the
persons who beneficially owned 5% or more of the Conestoga Portfolios are as
follows:
At January 26, 1996, the trustees and officers of Conestoga, as a
group, owned less than 1% of the outstanding shares of each of the Conestoga
Portfolios. At January 26, 1996, the trustees and officers of CoreFunds owned
less than 1% of the outstanding shares of each of the corresponding CoreFunds
Portfolios.
At January 26, 1996, the name, address, and share ownership of the
persons who beneficially owned 5% or more of the CoreFunds Portfolios are as
follows:
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Appraisal Rights. Shareholders are not entitled to any rights of share appraisal
under Conestoga's Declaration of Trust or under the laws of the Commonwealth of
Massachusetts in connection with the Reorganization. Shareholders have, however,
the right to redeem from Conestoga their Conestoga Portfolio shares at net asset
value until the Effective Time of the Reorganization, and thereafter
shareholders may redeem from CoreFunds the CoreFunds shares acquired by them in
the Reorganization at net asset value.
Quorum. In the event that a quorum is not present at the Meeting, or in the
event that a quorum is present at the Meeting but sufficient votes to approve
the Reorganization Agreement and the transactions contemplated thereby are not
received, the persons named as proxies may propose one or more adjournments of
the Meeting to permit further solicitation of proxies. Any such adjournment will
require the affirmative vote of a majority of those shares affected by the
adjournment that are represented at the Meeting in person or by proxy. If a
quorum is present, the persons named as proxies will vote those proxies which
they are entitled to vote FOR the Reorganization Agreement, in favor of such
adjournments, and will vote those proxies required to be voted AGAINST such
proposals against any adjournment. A shareholder vote may be taken with respect
to one or more Conestoga Portfolios prior to any such adjournment if sufficient
votes have been received for approval with respect to any such Conestoga
Portfolio. A quorum is constituted with respect to a Conestoga Portfolio by the
presence in person or by proxy of the holders of more than 50% of the
outstanding shares of the Fund entitled to vote at the Meeting. Conestoga
proxies properly executed and marked with a negative vote or an abstention will
be considered to be present at the Meeting for the purposes of determining the
existence of a quorum for the transaction of business.
Annual Meetings. CoreFunds does not presently intend to hold annual meetings of
shareholders for the election of directors and other business unless and until
such time as less than a majority of the directors holding office have been
elected by the shareholders, at which time the directors then in office will
call a shareholders' meeting for the election of directors. Shareholders have
the right to call a meeting of shareholders to consider the removal of one or
more directors or for other matters and such meetings will be called when
requested in writing by the holders of record of 10% or more of CoreFunds'
outstanding shares of common stock. To the extent required by law, CoreFunds
will assist in shareholder communications on such matters.
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<PAGE>
ADDITIONAL INFORMATION ABOUT COREFUNDS
Information about the Existing CoreFunds Portfolios is included in the
Prospectuses accompanying this Combined Proxy Statement/Prospectus, which are
incorporated by reference herein. Additional information about these Portfolios
is included in their Statement of Additional Information dated November 1, 1995
which has been filed with the SEC. A copy of the Statement of Additional
Information may be obtained without charge by writing to CoreFunds c/o 680 East
SwedesFord Road, Wayne, PA 19087, or by calling CoreFunds at 1-800-355-CORE.
CoreFunds is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act, as applicable, and, in accordance with
such requirements, files proxy materials, reports and other information with the
SEC. These materials can be inspected and copied at the Public Reference
Facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the offices of listed above and at the SEC's Regional Offices at 7
World Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can also be
obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington, D.C.
20549, at prescribed rates.
The current directors and officers of CoreFunds will continue as
directors and officers following the Reorganization. The name of each such
director as well as information concerning his principal occupations during the
past five years are set forth below.
<TABLE>
<CAPTION>
Position(s) held Principal Occupations
Name and Address Age with CoreFunds During Past 5 Years
---------------- --- ---------------- --------------------
<S> <C> <C> <C>
Erin Anderson 40 Director Professor of Marketing, INSEAD,
Fountainebleu, France since 1994;
Associate Professor of Marketing,
The Wharton School of the
University of Pennsylvania until
1994.
Emil J. Mikity 67 Director Retired; Senior Vice President
Investments, Atochem North
America until 1989.
George H. Strong 69 Director Financial Consultant.
David G. Lee 43 President Senior Vice President of SFM and
SFS since 1993; Vice President of
SFM and SFS since 1991;
President, GW Sierra Trust Funds
prior to 1991.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Position(s) held Principal Occupations
Name and Address Age with CoreFunds During Past 5 Years
---------------- --- ---------------- --------------------
<S> <C> <C> <C>
Carmen V. Romeo 43 Treasurer, Assistant Director, Executive Vice
Secretary President, Chief Financial
Officer and Treasurer of SEI
Corporation; Director and
Treasurer of SFM and SFS.
James W. Jennings 59 Secretary Partner of the law firm of
Morgan, Lewis & Bockius.
Kevin P. Robins 34 Vice President, Senior Vice President and General
Assistant Secretary Counsel of SEI Corporation and
SFS since 1994; Vice President
and Assistant Secretary of SFM
and SFS, 1992-1994; Associate of
the law firm of Morgan, Lewis &
Bockius prior to 1992.
Sandra K. Orlow 42 Vice President, Vice President and Assistant
Assistant Secretary Secretary of SFM and SFS.
Robert B. Carroll 35 Vice President, Vice President and Assistant
Assistant Secretary Secretary of SEI Corporation, SFM
and SFS since 1994. United
States Securities and Exchange
Commission, Division of
Investment Management, 1990-1994.
Kathryn L. Stanton 37 Vice President, Vice President and Assistant
Assistant Secretary Secretary of SFM and SFS since
1994. Associate of the law firm
of Morgan, Lewis & Bockius before
1994.
Richard J. Shoch 29 Vice President and Vice President and Assistant
Assistant Secretary Secretary of SEI Corporation
since 1995; prior thereto
Regulatory Manager of SEI
Corporation.
Joseph Lydon 36 Vice President and Director of Business
Assistant Secretary Administration of Fund Resources
for SEI Corporation since April
1995. Prior thereto, Vice
President - Dreman Value
Management, LP and President -
Dreman Financial Services, Inc.
Stephen G. Meyer 30 Controller and Chief Vice President and Controller -
Accounting Officer Fund Resources, a division of SEI
Corporation; Director - Internal
Audit and Risk Management - SEI
Corporation, 1992 - 1995.
Coopers & Lybrand, Senior
Associate, 1990 - 1992.
</TABLE>
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ADDITIONAL INFORMATION ABOUT CONESTOGA
Information about Conestoga is incorporated herein by reference from
its Prospectuses dated February 21, 1995 (as revised through November 3, 1995)
and Statement of Additional Information, dated May 1, 1995 (as revised through
November 3, 1995), copies of which may be obtained without charge by writing or
calling Conestoga at the address and telephone number shown on the cover page of
this Combined Proxy Statement/Prospectus. Reports and other information filed by
Conestoga can be inspected and copied at the Public Reference Facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of such material can be obtained from the Public Reference Branch, Office
of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549, at prescribed rates.
The name and address of each trustee and officer of Conestoga as well
as information concerning his or her principal occupations during the past five
years are as follows:
<TABLE>
<CAPTION>
Position(s) Held Principal Occupations
Name and Address Age With Conestoga During Past 5 Years
- ---------------- --- ---------------- -------------------
<S> <C> <C> <C>
Thomas J. Taylor 56 Chairman and Consultant; Trustee, Community
1015 Darby Drive Trustee Heritage Fund
Yardley, PA 19067
*Dominic S. Genuardi, Sr. 72 Trustee Retired; Chief Executive
805 East Germantown Pike Officer, Genuardi Supermarkets,
Norristown, PA 19401 Inc. until October 1990.
*Steven I. Gross 49 Trustee Managing Partner, Gross &
2655 Philmont Avenue Company (certified public
Huntingdon Valley, PA 19006 accountants).
Robert C. Kingston 67 Trustee Consultant; Member of the
1603 River Farm Drive Special Operations Policy
Alexandria, VA 22308 Group of the Secretary of
Defense; Director, Vinnell
Corporation; Founder, Military
Professional Resources, Inc.
Dale E. Smith 65 Trustee Retired; Formerly President,
230 West Washington Square Farm Journal, Inc.
Philadelphia, PA 19106 until November 1995
- ---------------------------
* May be deemed to be an "interested person" of the Company as
defined in the Investment Company Act of 1940.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name and Address Age With Conestoga During Past 5 Years
- ---------------- --- ---------------- -------------------
<S> <C> <C> <C>
David G. Lee 43 President and Senior Vice President of SFM
Chief Executive and SFS since 1993; Vice President
Officer of SFM and SFS since 1991;
President of G.W. Sierra Trust Funds
since 1991.
Sandra K. Orlow 42 Vice President Vice President and Assistant
and Assistant Secretary of SFM and SFS.
Secretary
Robert B. Carroll 35 Vice President Vice President and Assistant
and Assistant Secretary of SEI Corporation, SFM
Secretary and SFS since 1994. United States
Securities and Exchange Commission,
Division of Investment Management,
1990-1994.
Kathryn L. Stanton 37 Vice President Vice President and Assistant
and Assistant Secretary of SFM and SFS since
Secretary 1994. Associate of the law firm of
Morgan, Lewis & Bockius before 1994.
Kevin P. Robins 34 Vice President Senior Vice President and General
and Assistant Counsel of SEI Corporation and SFS
Secretary since 1994; Vice President and
Assistant Secretary of SFM and SFS,
1992-1994; Associate of the law firm
of Morgan, Lewis & Bockius prior to
1992.
Henry S. Hilles, Jr. 56 Secretary Partner in the law firm of Drinker
Biddle & Reath.
Stephen G. Meyer 30 Treasurer Vice President and Controller - Fund
Resources, a division of SEI; Director -
Internal Audit and Risk Management - SEI
Corporation, 1992-1995. Coopers & Lybrand,
Senior Associate, 1990-1992.
</TABLE>
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<PAGE>
ADDITIONAL INFORMATION ABOUT THE INVESTMENT
ADVISER AND SUB-ADVISER
MIC's principal offices are located at 55 Valley Stream Parkway,
Malvern, Pennsylvania 19355. MIC is a wholly-owned subsidiary of Meridian Asset
Management, Inc., which is located at 55 Valley Stream Parkway, Malvern,
Pennsylvania 19355. Meridian Asset Management, Inc. is a wholly-owned subsidiary
of Meridian Bancorp, Inc., a regional multi-bank holding company located at 35
North Sixth Street, Reading, Pennsylvania 19603. MIC is registered as an
investment adviser under the Investment Advisers Act of 1940. The current
advisory contract was most recently submitted for shareholder approval on
February 28, 1991. MIC does not serve as investment advisor to any other
investment companies.
At January 26, 1996, the name, address and share ownership of the
persons who beneficially owned 10% or more of any class of issued and
outstanding voting securities of Meridian Bancorp, Inc. are as follows:
The name and principal occupation of the directors and principal
executive officers of MIC are as follows:
MERIDIAN INVESTMENT COMPANY
<TABLE>
<CAPTION>
Position With
Meridian Other
Investment Business Type of
Company Name Connection(s) Business
- ------- ---- ------------- --------
<S> <C> <C> <C>
Director George J. Baxter Director, Asset
Meridian Asset Management
Management, Inc.
Trust Company
Meridian Trust
Company, P.O. Box
2000, Valley Forge,
PA 19482
Director, Trust Company
Delaware Trust Capital
Management, Inc.
Delaware Trust Company Banking
900 Market Street
Wilmington, DE 19801
Senior Vice President Brokerage
Chicago Corporation
16 South Main Street
Yardley, PA 19067
Director DeLight E. Breidegam, President
</TABLE>
-68-
<PAGE>
<TABLE>
<CAPTION>
Position With
Meridian Other
Investment Business Type of
Company Name Connection(s) Business
- ------- ---- ------------- --------
<S> <C> <C> <C>
Jr. East Penn Battery
Manufacturing Co., Manufac-
Inc. turing
Lyon Station, PA
19536
Director
Meridian Bancorp, Bank
Inc. Holding Co.
Meridian Bank Bank
35 North Sixth Street
Reading, PA 19603
Director
Meridian Asset Asset
Management, Inc. Management
Meridian Trust Trust
Company Company
P.O. Box 2000
Valley Forge, PA
19482
Director
Spotts, Stevens & Engineering
McCoy
345 N. Wyomissing
Blvd.
Reading, PA 19610
President and Philip H. Brown, II Director
Director Meridian Securities, Broker-Dealer
Inc.
35 North Sixth St.
Reading, PA 19603
Director Walter J. Laird, Jr. Senior Vice President Broker-Dealer
Dean Witter Reynolds,
Inc.
P.O. Box 749
Wilmington, DE 19899
Director Investment
Wentz Corporation Management
707 Foulk Rd.
Suite 102
Wilmington, DE
19803-3700
Director Investment
Sinkler Corporation Management
707 Foulk Rd.
Suite 102
Wilmington, DE 19803-3700
Director Banking
</TABLE>
-69-
<PAGE>
<TABLE>
<CAPTION>
Position With
Meridian Other
Investment Business Type of
Company Name Connection(s) Business
- ------- ---- ------------- --------
<S> <C> <C> <C>
Delaware Trust
Company
900 Market Street
Wilmington, DE 19801
Director Trust Company
Delaware Trust
Capital Management
900 Market Street
Wilmington, DE 19801
Director Asset
Meridian Asset Management
Management
P.O. Box 2000
Valley Forge, PA 19482
Director Nancy Pearlstine 182 Oaks Road Homemaker
Conger, C.F.P. Millington, NJ 07946
Director
Meridian Asset Asset
Management, Inc. Management
Meridian Trust Trust
Company Company
P.O. Box 2000
Valley Forge, PA
19482
Director Sidney D. Kline, Jr. Attorney and
Principal
Stevens and Lee Law
607 Washington Street
Reading, PA 19601
Director
Meridian Bancorp, Bank Holding
Inc. Co.
Meridian Bank Bank
35 North Sixth Street
Reading, PA 19603
Director
Meridian Asset Asset
Management, Inc. Management
Meridian Trust Trust
Company Company
P.O. Box 2000
Valley Forge, PA 19482
</TABLE>
-70-
<PAGE>
<TABLE>
<CAPTION>
Position With
Meridian Other
Investment Business Type of
Company Name Connection(s) Business
- ------- ---- ------------- --------
<S> <C> <C> <C>
Director
Meridian Title Title
Insurance Company Insurance
101 N. 6th Street
Reading, PA 19603
Director
American Title Title
Insurance Company Insurance
1101 Brickell Avenue
Miami, FL 33131
Director
Horrigan American, Equipment
Inc. Leasing
Flying Hills
Corporate Center
Reading, PA 19607
Director
Reading Eagle Company Newspaper
345 Penn Street
Reading, PA 19601
Director
FCP, Inc. Manufacturer
Flying Hills Building
Reading, PA 19607 Material
Director
The Bachman Company Snack Food
50 N. 4th Street
Reading, PA 19601
Director Blaine T. Phillips Partner Law Firm
Potter Anderson &
Corroon
350 Delaware Trust
Building
P.O. Box 951
Wilmington, DE 19899
Director Banking
Delaware Trust
Company
900 Market Street
Wilmington, DE 19801
Director Trust Company
Delaware Trust
Capital Management
900 Market Street
Wilmington, DE 19801
Director Trust Company
Meridian Trust Company
</TABLE>
-71-
<PAGE>
<TABLE>
<CAPTION>
Position With
Meridian Other
Investment Business Type of
Company Name Connection(s) Business
- ------- ---- ------------- --------
<S> <C> <C> <C>
P.O. Box 2000
Valley Forge, PA 19482
Director Asset
Meridian Asset Management
Management
P.O. Box 2000
Valley Forge, PA
19482
Director George Strawbridge, Jr. Owner Thoroughbred
Augustine Stables Racing and
3801 Kennett Pike Breeding
Suite 100-B
Wilmington, DE 19807
Director Foods
Campbell Soup Company
Campbell Place
Camden, NJ 08101
Partner Venture
Philadelphia Ventures Capital
200 S. Broad Street
Philadelphia, PA 19102
Co-owner Survey
GAR, Inc. Company
3801 Kennett Pike
Suite 100-B
Wilmington, DE 19807
Co-owner Survey
Keystone Aerial Company
Surveys
P.O. Box 21059
Philadelphia, PA 19114
Director National
Niagara Frontier Hockey
Hockey Corporation League
140 Main Street
Buffalo, NY 14202
Director Banking
Delaware Trust
Company
900 Market Street
Wilmington, DE 19801
Director Trust Company
Delaware Trust
Capital Management
900 Market Street
Wilmington, DE 19801
</TABLE>
-72-
<PAGE>
<TABLE>
<CAPTION>
Position With
Meridian Other
Investment Business Type of
Company Name Connection(s) Business
- ------- ---- ------------- --------
<S> <C> <C> <C>
Director Bank Holding
Meridian Bancorp, Company Inc.
Meridian Bank
35 North Sixth Street
Reading, PA 19603
Senior Craig A. Moyer None
Investment
Manager
Senior Joseph E. Stocke None
Investment
Manager
Assistant Cathy L. Rahab None
Vice
President
Vice Leslie M. Varrelman None
President
Investment Christine M. Frampton None
Officer
</TABLE>
Marvin and Palmer's principal offices are located at 1201 N. Market Street,
Suite 2300, Wilmington, Delaware 19801. Marvin and Palmer is a privately held
company owned by Messrs. Marvin, Palmer and twenty one other holders. Marvin and
Palmer is registered as an investment adviser under the Investment Advisers Act
of 1940.
The table below sets forth information concerning other investment
companies that have similar investment objectives for which Marvin and Palmer
act as investment adviser or sub-adviser.
<TABLE>
<CAPTION>
================================================================================
Name of Investment Net Assets as of Annual Fee
Company December 27, 1995 (Based on Average
Net Assets)
<S> <C> <C>
First American $1.3 million .75% of the first $100 million of the Fund's average
International Fund daily net assets, .70% of the next $100 million of
the Fund's average daily net assets, .65% of the
third $100 million of the Fund's average daily net
assets, and .60% of the Fund's average daily net
assets in excess of $300 million.
================================================================================
</TABLE>
SFM serves as administrator and SFC serves as distributor for both
Conestoga and CoreFunds. The principal address of SFM and SFC is 680 East
Swedesford Road, Wayne, Pennsylvania 19087.
-73-
<PAGE>
LITIGATION
Neither Conestoga nor CoreFunds is involved in any litigation that
would have any material adverse financial effect upon either the Conestoga
Portfolios or the CoreFunds Portfolios.
FINANCIAL HIGHLIGHTS
Conestoga Financial Highlights. The tables set forth below
present financial information for the Institutional Shares and Retail Shares of
the Conestoga Cash Management, Tax-Free, U.S. Treasury Securities, Equity,
Special Equity, Bond, Intermediate Income, Pennsylvania Tax-Free Bond, Balanced,
Short-Term Income and International Equity Portfolios. This information is
derived from the Conestoga Portfolios' audited financial statements for the
fiscal year ended October 31, 1995. The data should be read in conjunction with
the audited financial statements and related notes which are included in the
Statement of Additional Information related to this Combined Proxy
Statement/Prospectus. The financial highlights for the Conestoga Portfolios for
prior periods are contained in Conestoga's Prospectuses dated February 21, 1995,
as supplemented November 3, 1995, and the financial statements for the Conestoga
Portfolios for prior periods are contained in Conestoga's Annual Report to
Shareholders and are incorporated by reference into Conestoga's Statement of
Additional Information dated May 1, 1995 (as revised November 3, 1995), which
Prospectuses and Statement of Additional Information are incorporated herein by
reference.
-74-
<PAGE>
Selected data for a Conestoga Share of capital stock
outstanding throughout the period indicated:
Cash Management Fund
<TABLE>
<CAPTION>
Fiscal Year Ended
October 31, 1995
========================================================================================================================
Institutional Retail
Shares Shares
------ ------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, beginning
of period....................................................... $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income............................................ .05 .05
- ------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized
Gain/(Loss) on Investments...................................... .0 .0
- ------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations................................. .05 .05
- ------------------------------------------------------------------------------------------------------------------------
Dividends to Shareholders from
Net Investment Income........................................... (.05) (.05)
- ------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
from Net Realized Gain on
Investment Transactions......................................... (0) (0)
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions.............................................. (.05) (.05)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period................................... $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------
Total Return..................................................... 5.43% 5.25%
- ------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period
(000 omitted).................................................. $234,520 $3,358
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets.......................... .56% .74%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average
Net Assets..................................................... 5.32% 5.16%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets
(Excluding Waivers)............................................ .79% .97%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average
Net Assets (Excluding Waivers)................................. 5.09% .93%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate.......................................... N/A N/A
========================================================================================================================
- -------------------------------
</TABLE>
-75-
<PAGE>
Selected data for a Conestoga Share of capital stock
outstanding throughout the period indicated:
<TABLE>
<CAPTION>
Tax-Free Fund
--------------
Fiscal Year Ended
October 31, 1995
========================================================================================================================
Institutional Retail
Shares Shares
------ ------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, beginning
of period....................................................... $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income............................................ .03 .03
- ------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized
Gain/(Loss) on Investments...................................... .0 .0
- ------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations................................. .03 .03
- ------------------------------------------------------------------------------------------------------------------------
Dividends to Shareholders from
Net Investment Income........................................... (.03) (.03)
- ------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
from Net Realized Gain on
Investment Transactions......................................... (0) (0)
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions.............................................. (.03) (.03)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period................................... $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------
Total Return..................................................... 3.43% 3.39%
- ------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period
(000 omitted).................................................. $60,509 $1,282
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets.......................... .46% .48%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average
Net Assets..................................................... 3.37% 3.35%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets
(Excluding Waivers)............................................ .83% .88%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average
Net Assets (Excluding Waivers)................................. 3.00% 2.95%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate.......................................... N/A N/A
========================================================================================================================
- -------------------------------
</TABLE>
-76-
<PAGE>
<TABLE>
<CAPTION>
Selected data for a Conestoga Share of capital stock
outstanding throughout the period indicated:
U.S. Treasury Securities Fund
-----------------------------
Fiscal Year Ended
October 31, 1995
========================================================================================================================
Institutional Retail
Shares Shares
------ ------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, beginning
of period....................................................... $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income............................................ .05 .05
- ------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized
Gain/(Loss) on Investments...................................... .0 .0
- ------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations................................. .05 .05
- ------------------------------------------------------------------------------------------------------------------------
Dividends to Shareholders from
Net Investment Income........................................... (.05) (.05)
- ------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
from Net Realized Gain on
Investment Transactions......................................... (0) (0)
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions.............................................. (.05) (.05)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period................................... $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------
Total Return..................................................... 5.27% 5.16%
- ------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period
(000 omitted).................................................. $444,259 $730
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets.......................... .62% .73%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average
Net Assets..................................................... 5.14% 5.26%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets
(Excluding Waivers)............................................ .78% .79%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average
Net Assets (Excluding Waivers)................................. 4.98% 5.20%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate.......................................... N/A N/A
========================================================================================================================
- -------------------------------
</TABLE>
-77-
<PAGE>
<TABLE>
<CAPTION>
Selected data for a Conestoga Share of capital stock
outstanding throughout the period indicated:
Equity Fund
-----------
Fiscal Year Ended
October 31, 1995
========================================================================================================================
Institutional Retail
Shares Shares
------ ------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, beginning
of period....................................................... $15.00 $15.00
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income............................................ .19 .18
- ------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized
Gain/(Loss) on Investments...................................... 2.87 2.87
- ------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations................................. 18.06 18.05
- ------------------------------------------------------------------------------------------------------------------------
Dividends to Shareholders from
Net Investment Income........................................... (.19) (.17)
- ------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
from Net Realized Gain on
Investment Transactions......................................... (.80) (.80)
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions.............................................. (.99) (.97)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period................................... $17.07 $17.08
- ------------------------------------------------------------------------------------------------------------------------
Total Return..................................................... 22.00% 21.94%
- ------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period
(000 omitted).................................................. $378,352 $6,591
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets.......................... 1.05% 1.34%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average
Net Assets..................................................... 1.44% 1.23%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets
(Excluding Waivers)............................................ 1.10% 1.53%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average
Net Assets (Excluding Waivers)................................. 1.49% 1.04%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate.......................................... 119% 119%
========================================================================================================================
- -------------------------------
</TABLE>
-78-
<PAGE>
<TABLE>
<CAPTION>
Selected data for a Conestoga Share of capital stock
outstanding throughout the period indicated:
Special Equity Fund
-------------------
Fiscal Year Ended
October 31, 1995
========================================================================================================================
Institutional Retail
Shares Shares
------ ------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, beginning
of period....................................................... $9.37 $9.37
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income............................................ .12 .12
- ------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized
Gain/(Loss) on Investments...................................... 2.12 2.12
- ------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations................................. 11.61 11.61
- ------------------------------------------------------------------------------------------------------------------------
Dividends to Shareholders from
Net Investment Income........................................... (.12) (.12)
- ------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
from Net Realized Gain on
Investment Transactions......................................... (.07) (.07)
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions.............................................. (.19) (.19)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period................................... $11.42 $11.42
- ------------------------------------------------------------------------------------------------------------------------
Total Return..................................................... 24.44% 24.44%
- ------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period
(000 omitted).................................................. $57,396 $734
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets.......................... .32% .27%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average
Net Assets..................................................... 1.14% 1.29%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets
(Excluding Waivers)............................................ 1.97% 2.24%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average
Net Assets (Excluding Waivers)................................. (.51)% (.68)%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate.......................................... 129% 129%
========================================================================================================================
- -------------------------------
</TABLE>
-79-
<PAGE>
Selected data for a Conestoga Share of capital stock
outstanding throughout the period indicated:
<TABLE>
<CAPTION>
Bond Fund
---------
Fiscal Year Ended
October 31, 1995
========================================================================================================================
Institutional Retail
Shares Shares
------ ------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, beginning
of period....................................................... $9.81 $9.81
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income............................................ .61 .60
- ------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized
Gain/(Loss) on Investments...................................... .71 .72
- ------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations................................. 11.13 11.13
- ------------------------------------------------------------------------------------------------------------------------
Dividends to Shareholders from
Net Investment Income........................................... (.58) (.57)
- ------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
from Net Realized Gain on
Investment Transactions......................................... (0) (0)
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions.............................................. (.58) (.57)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period................................... $10.55 $10.56
- ------------------------------------------------------------------------------------------------------------------------
Total Return..................................................... 13.87% 13.83%
- ------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period
(000 omitted).................................................. $194,442 $1,373
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets.......................... .71% .97%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average
Net Assets..................................................... 6.09% 6.02%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets
(Excluding Waivers)............................................ 1.12% 1.44%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average
Net Assets (Excluding Waivers)................................. 5.68% 5.55%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate.......................................... 352% 352%
========================================================================================================================
- -------------------------------
</TABLE>
-80-
<PAGE>
<TABLE>
<CAPTION>
Selected data for a Conestoga Share of capital stock
outstanding throughout the period indicated:
Intermediate Income Fund
------------------------
Fiscal Year Ended
October 31, 1995
========================================================================================================================
Institutional Retail
Shares Shares
------ ------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, beginning
of period....................................................... $10.27 $10.27
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income............................................ .57 .55
- ------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized
Gain/(Loss) on Investments...................................... .42 .44
- ------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations................................. 11.26 11.26
- ------------------------------------------------------------------------------------------------------------------------
Dividends to Shareholders from
Net Investment Income........................................... (.55) (.54)
- ------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
from Net Realized Gain on
Investment Transactions......................................... (0) (0)
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions.............................................. (.55) (.54)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period................................... $10.71 $10.72
- ------------------------------------------------------------------------------------------------------------------------
Total Return..................................................... 9.92% 9.90%
- ------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period
(000 omitted).................................................. $138,243 $1,230
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets.......................... .64% .93%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average
Net Assets..................................................... 5.72% 5.47%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets
(Excluding Waivers)............................................ 1.15% 1.51%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average
Net Assets (Excluding Waivers)................................. 5.21% 4.89%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate.......................................... 260% 260%
========================================================================================================================
- -------------------------------
</TABLE>
-81-
<PAGE>
Selected data for a Conestoga Share of capital stock
outstanding throughout the period indicated:
<TABLE>
<CAPTION>
Pennsylvania Tax-Free Bond Fund
-------------------------------
Fiscal Year Ended
October 31, 1995
========================================================================================================================
Institutional Retail
Shares Shares
------ ------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, beginning
of period....................................................... $9.56 $9.56
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income............................................ .47 .47
- ------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized
Gain/(Loss) on Investments...................................... .67 .67
- ------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations................................. 10.70 10.70
- ------------------------------------------------------------------------------------------------------------------------
Dividends to Shareholders from
Net Investment Income........................................... (.46) (.46)
- ------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
from Net Realized Gain on
Investment Transactions......................................... (.01) (.01)
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions.............................................. (.47) (.47)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period................................... $10.23 $10.23
- ------------------------------------------------------------------------------------------------------------------------
Total Return..................................................... 12.30% 12.30%
- ------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period
(000 omitted).................................................. $5,977 $820
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets.......................... .51% .51%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average
Net Assets..................................................... 4.64% 4.64%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets
(Excluding Waivers)............................................ 1.65% 1.62%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average
Net Assets (Excluding Waivers)................................. 3.50% 3.53%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate.......................................... 15% 15%
========================================================================================================================
- -------------------------------
</TABLE>
-82-
<PAGE>
Selected data for a Conestoga Share of capital stock
outstanding throughout the period indicated:
<TABLE>
<CAPTION>
Balanced Fund
-------------
Fiscal Year Ended
October 31, 1995
========================================================================================================================
Institutional Retail
Shares Shares
------ ------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, beginning
of period....................................................... $10.00 $9.97
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income............................................ .12 .11
- ------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized
Gain/(Loss) on Investments...................................... .37 .42
- ------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations................................. 10.49 10.50
- ------------------------------------------------------------------------------------------------------------------------
Dividends to Shareholders from
Net Investment Income........................................... (.11) (.11)
- ------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
from Net Realized Gain on
Investment Transactions......................................... (0) (0)
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions.............................................. (.11) (.11)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period................................... $10.38 $10.39
- ------------------------------------------------------------------------------------------------------------------------
Total Return..................................................... 4.89% 5.27%
- ------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period
(000 omitted).................................................. 38,494 $69
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets.......................... .82% 1.07%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average
Net Assets..................................................... 3.66% 3.37%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets
(Excluding Waivers)............................................ 1.07% 1.32%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average
Net Assets (Excluding Waivers)................................. 3.41% 3.12%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate.......................................... 65% 65%
========================================================================================================================
- -------------------------------
</TABLE>
-83-
<PAGE>
<TABLE>
<CAPTION>
Selected data for a Conestoga Share of capital stock
outstanding throughout the period indicated:
Short-Term Income Fund
----------------------
Fiscal Year Ended
October 31, 1995
========================================================================================================================
Institutional Retail
Shares Shares
------ ------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, beginning
of period....................................................... $10.00 $10.01
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income............................................ .25 .23
- ------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized
Gain/(Loss) on Investments...................................... .03 .02
- ------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations................................. 10.28 10.26
- ------------------------------------------------------------------------------------------------------------------------
Dividends to Shareholders from
Net Investment Income........................................... (.23) (.22)
- ------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
from Net Realized Gain on
Investment Transactions......................................... (0) (0)
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions.............................................. (.23) (.22)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period................................... $10.05 $10.04
- ------------------------------------------------------------------------------------------------------------------------
Total Return..................................................... 2.87% 2.57%
- ------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period
(000 omitted).................................................. $36,059 $11
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets.......................... .63% .88%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average
Net Assets..................................................... 5.43% 5.05%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets
(Excluding Waivers)............................................ 1.08% 1.33%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average
Net Assets (Excluding Waivers)................................. 4.98% 4.60%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate.......................................... 40% 40%
========================================================================================================================
- -------------------------------
</TABLE>
-84-
<PAGE>
<TABLE>
<CAPTION>
Selected data for a Conestoga Share of capital stock
outstanding throughout the period indicated:
International Equity Fund
-------------------------
Fiscal Year Ended
October 31, 1995
========================================================================================================================
Institutional Retail
Shares Shares
------ ------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, beginning
of period....................................................... $10.00 $10.00
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income............................................ 0.00 (0.01)
- ------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized
Gain/(Loss) on Investments...................................... 1.01 1.00
- ------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations................................. 11.01 10.99
- ------------------------------------------------------------------------------------------------------------------------
Dividends to Shareholders from
Net Investment Income........................................... (0) (0)
- ------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
from Net Realized Gain on
Investment Transactions......................................... (0) (0)
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions.............................................. (0) (0)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period................................... $11.01 $10.99
- ------------------------------------------------------------------------------------------------------------------------
Total Return..................................................... 10.10% 9.90%
- ------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period
(000 omitted).................................................. $13,372 $9
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets.......................... 1.88% 2.13%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average
Net Assets..................................................... (.10)% (.69)%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets
(Excluding Waivers)............................................ 1.88% 2.26%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average
Net Assets (Excluding Waivers)................................. (.10)% (.83)%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate.......................................... 23% 23%
========================================================================================================================
- -------------------------------
</TABLE>
-85-
<PAGE>
FINANCIAL STATEMENTS
The financial statements for the Conestoga Portfolios for the fiscal
year ended October 31, 1995, are included in the Statement of Additional
Information related to this Combined Proxy Statement/Prospectus. The financial
highlights and the financial statements for Institutional and Individual shares
of the Existing CoreFunds Portfolios for the fiscal year ended June 30, 1995 are
contained in CoreFunds' Annual Report to Shareholders and in CoreFunds'
Prospectuses and Statement of Additional Information dated November 1, 1995,
each of which is incorporated by reference in this Combined Proxy
Statement/Prospectus.
The financial statements for the Conestoga Portfolios as of October 31,
1995, and the related statements of operations, changes in net assets and
financial highlights for the periods indicated in the financial statements
contained in Conestoga's Annual Report and incorporated by reference in this
Combined Proxy/Prospectus, have been incorporated herein in reliance on the
reports of Coopers & Lybrand L.L.P., independent auditors, given on the
authority of that firm as experts in accounting and auditing.
The financial statements of the Existing CoreFunds Portfolios as of
June 30, 1995, and the related statements of operations, changes in net assets
and financial highlights for the periods indicated in the financial statements
are included in CoreFunds' Prospectuses and contained in CoreFunds' Statement of
Additional Information, and incorporated by reference in this Combined
Proxy/Prospectus, have been incorporated by reference herein in reliance on the
reports of Ernst & Young LLP, independent auditors, given on the authority of
that firm as experts in accounting and auditing.
OTHER BUSINESS
Conestoga's Board knows of no other business to be brought before the
Meeting. However, if any other matters come before the Meeting, it is the
intention that proxies which do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of proxy.
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SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to Conestoga in writing at the
address on the cover page of this Combined Proxy Statement/Prospectus or by
telephoning 1-800-344-2716.
* * *
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED TO
DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
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APPENDIX I
AGREEMENT AND PLAN OF
REORGANIZATION
BY AND BETWEEN
COREFUNDS, INC.
AND
CONESTOGA FAMILY OF FUNDS
DATED __________________, 1996
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TABLE OF CONTENTS
Page
----
I. Transfer of Assets of Conestoga Portfolios..........................
II. Liquidating Distributions and Termination of Conestoga..............
III. Valuation Times.....................................................
IV. Certain Representations, Warranties and Agreements
of Conestoga........................................................
V. Certain Representations, Warranties and Agreements
of CoreFunds........................................................
VI. Shareholder Action on behalf of the Acquired Funds..................
VII. N-14 Registration Statement and Proxy Solicitation
Materials...........................................................
VIII. Effective Times of the Reorganization...............................
IX. CoreFunds Conditions................................................
X. Conestoga Conditions................................................
XI. Tax Documents.......................................................
XII. Finder's Fees.......................................................
XIII. Announcements.......................................................
XIV. Further Assurances..................................................
XV. Termination of Representations and Warranties.......................
XVI. Termination of Agreement............................................
XVII. Amendment and Waiver................................................
XVIII. Governing Law.......................................................
XIX. Successors and Assigns..............................................
XX. Beneficiaries.......................................................
XXI. Conestoga Liability.................................................
XXII. Notices.............................................................
XXIII. Expenses............................................................
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XXIV. Entire Agreement....................................................
XXV. Counterparts........................................................
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AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION made as of ________________, 1996
between COREFUNDS, INC., a Maryland corporation ("CoreFunds"), and CONESTOGA
FAMILY of FUNDS, a Massachusetts business trust ("Conestoga").
WHEREAS, the parties desire that substantially all of the known assets
and liabilities of Conestoga's portfolios be transferred to, and be acquired and
assumed by, certain CoreFunds portfolios in exchange for Individual Shares or
Institutional Shares of the CoreFunds portfolios which shall thereafter be
distributed by Conestoga to the holders of Retail Shares or Institutional Shares
of its portfolios, all as described in this Agreement (the "Reorganization");
WHEREAS, the parties intend that the CoreFunds Special Equity Fund,
Bond Fund and Short-Term Income Fund portfolios will have nominal assets and
liabilities before the Reorganization and will continue the investment
operations of the Conestoga Special Equity Fund, Bond Fund and Short-Term Income
Fund (the "Continuing Funds"), respectively, after the Reorganization;
WHEREAS, the Reorganization with respect to Conestoga's Cash Management
Fund, Tax-Free Fund, U.S. Treasury Securities Fund, Equity Fund, Intermediate
Income Fund, Pennsylvania Tax-Free Bond Fund, Balanced Fund and International
Equity Fund (the
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"Reorganizing Funds") shall occur on a date that is prior to the Reorganization
with respect to the Continuing Funds;
WHEREAS, the parties intend that the transfers of assets, assumptions
of liabilities, and distributions of Individual Shares or Institutional Shares,
as the case may be, be treated as tax-free reorganizations under Section
368(a)(1)(C), 368(a)(1)(D), or 368(a)(1)(F) of the Internal Revenue Code of
1986, as amended (the "Code"); and
WHEREAS, the parties intend that in connection with the Reorganization
each of the Conestoga portfolios shall be terminated and Conestoga shall be
terminated under state law and deregistered as described in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and subject to the terms and conditions hereof, and
intending to be legally bound hereby, CoreFunds and Conestoga agree as follows:
I. Transfer of Assets of Conestoga Portfolios.
1.01 (a) At the Effective Time of the Reorganization (as defined in
Article VIII) with respect to each of the Conestoga portfolios
(each, an "Acquired Fund"), all property of every description,
and all
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interests, rights, privileges and powers of each Acquired Fund
other than cash in an amount necessary to pay any unpaid
dividends and distributions as provided in Article IV(g) (such
assets, the "Acquired Fund Assets") shall be transferred and
conveyed by such Acquired Fund to CoreFunds on behalf of one
of its portfolios as set forth in Section 1.02 (each, an
"Acquiring Fund"), and shall be accepted by CoreFunds on
behalf of such Acquiring Fund, and CoreFunds, on behalf of
such Acquiring Fund, shall assume all known liabilities
whether accrued, absolute, contingent or otherwise, of such
Acquired Fund reflected in the calculation of such Acquired
Fund's net asset value (the "Acquired Fund Liabilities"), so
that at and after the Effective Time of the Reorganization
with respect to such Acquired Fund: (i) all assets of such
Acquired Fund shall become and be the assets of its Acquiring
Fund; and (ii) all known liabilities of such Acquired Fund
reflected as such in the calculation of the Acquired Fund's
net asset value shall attach to its Acquiring Fund as
aforesaid and may thenceforth be enforced against such
Acquiring Fund to the extent as if the same had been incurred
by it. Without limiting the
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<PAGE>
generality of the foregoing, the Acquired Fund Assets shall
include all property and assets of any nature whatsoever,
including, without limitation, all cash, cash equivalents,
securities, claims and receivables (including dividend and
interest receivables) owned by an Acquired Fund, and (subject
to Section 1.01(b)) any deferred or prepaid expenses shown as
an asset on an Acquired Fund's books, at the Effective Time of
the Reorganization of such Acquired Fund, and all good will,
all other intangible property and all books and records
belonging to an Acquired Fund. Recourse by any person for the
Acquired Fund Liabilities assumed by an Acquiring Fund shall,
at and after the Effective Time of the Reorganization of such
Acquired Fund, be limited to such Acquiring Fund.
(b) Notwithstanding Section 1.01(a), unamortized organizational
expenses of the Reorganizing Funds shall not be transferred or
assumed hereunder. The parties have been advised that such
expenses will be paid to such Reorganizing Funds by one or
more third parties and will be eliminated from the balance
sheets of such Reorganizing Funds prior to
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<PAGE>
the applicable Effective Time of the Reorganization of the
Reorganizing Funds.
1.02 The assets of each Acquired Fund shall be acquired by the
Acquiring Fund identified below opposite its name, and the holders of each class
of shares of such Acquired Fund shall receive the class of shares of common
stock of the Acquiring Fund identified below opposite the name of such class:
Conestoga Portfolios and Classes CoreFunds Portfolios and Class
- -------------------------------- ------------------------------
Cash Management Fund Cash Reserve Fund
Institutional Shares Class Y-Institutional Shares
(Class A Common Stock)
Retail Shares Class C-Individual Shares
(Class A Common Stock, Class B)
Tax-Free Fund Tax-Free Reserve Fund
Institutional Shares Class Y-Institutional Shares
(Class J Common Stock)
Retail Shares Class C-Individual Shares
(Class J Common Stock, Class B)
U.S. Treasury Securities Fund Treasury Reserve Fund
Institutional Shares Class Y-Institutional Shares
(Class B Common Stock)
Retail Shares Class C-Individual Shares
(Class B Common Stock, Class B)
Intermediate Income Fund Short Intermediate Bond Fund
Institutional Shares Class Y-Institutional Shares
(Class H Common Stock)
Retail Shares Class A-Individual Shares
(Class H Common Stock, Class B)
Pennsylvania Tax-Free Bond Fund Pennsylvania Municipal Bond Fund
Institutional Shares Class Y-Institutional Shares
(Class P Common Stock)
Retail Shares Class A-Individual Shares
(Class P Common Stock, Class B)
Balanced Fund Balanced Fund
Institutional Shares Class Y-Institutional Shares
(Class L Common Stock)
Retail Shares Class A-Individual Shares
(Class L Common Stock, Class B)
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<PAGE>
Conestoga Portfolios and Classes CoreFunds Portfolios and Class
- -------------------------------- ------------------------------
International Equity Fund International Growth Fund
Institutional Shares Class Y-Institutional Shares
(Class E Common Stock)
Retail Shares Class A-Individual Shares
(Class E Common Stock, Class B)
Equity Fund Equity Fund
Institutional Shares Class Y-Institutional Shares
(Class D Common Stock)
Retail Shares Class A-Individual Shares
(Class D Common Stock, Class B)
Special Equity Fund Special Equity Fund
Institutional Shares Class Y-Institutional Shares
Retail Shares Class A-Individual Shares
Bond Fund Bond Fund
Institutional Shares Class Y-Institutional Shares
Retail Shares Class A-Individual Shares
Short-Term Income Fund Short-Term Income Fund
Institutional Shares Class Y-Institutional Shares
Retail Shares Class A-Individual Shares
The Board of Directors of CoreFunds has adopted resolutions authorizing the
change of names of the Intermediate Bond Fund to the Short Intermediate Bond
Fund and of the Value Equity Fund to the Equity Fund and the change of
designations of the classes of each Acquiring Fund (i) from Individual-Class A
to Class A for each Acquiring Fund except the Cash Reserve Fund, Tax-Free
Reserve Fund and Treasury Reserve Fund, which will be designated Class C, and
(ii) from Institutional-Class B to Class Y for each Acquiring Fund. These
changes will be effective by the Effective Time of the Reorganization with
respect to each Acquired Fund.
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<PAGE>
1.03 In exchange for the transfer of the Acquired Fund Assets and the
assumption of the Acquired Fund Liabilities, CoreFunds shall simultaneously
issue at the applicable Effective Time of the Reorganization to each Acquired
Fund a number of full and fractional shares to the third decimal place, of the
Acquiring Fund specified in Section 1.02 and of the class or classes identified
in Section 1.02, all determined and adjusted as provided in this Agreement. The
number of each class of shares of the Acquiring Funds so issued will have an
aggregate net asset value equal to the value of the Acquired Fund Assets that
are represented by the class of shares of the Acquired Fund, the holders of
which shall receive such class of shares of the Acquiring Fund, as specified in
Section 1.02, all determined and adjusted as provided in this Agreement.
1.04 The net asset value of each class of shares of the Acquiring Funds
and the net asset value of each class of shares of the Acquired Funds shall be
determined as of the applicable Valuation Time with respect to each Acquired
Fund specified in Article III.
1.05 The net asset value of each class of shares of each Acquiring Fund
shall be computed in the manner set forth in such Acquiring Fund's then current
prospectuses under the Securities Act of 1933, as amended (the "1933 Act"). The
net value of the Acquired Fund Assets to be transferred by the Conestoga
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<PAGE>
portfolios shall be computed by Conestoga and shall be subject to adjustment by
the amount, if any, agreed to by CoreFunds and Conestoga. In determining the
value of the securities transferred by the Acquired Funds to the Acquiring
Funds, each security shall be priced in accordance with the policies and
procedures of CoreFunds described in its then current prospectuses and
statements of additional information and adopted by CoreFunds' Board of
Directors, which are and shall be consistent with the policies now in effect for
Conestoga. For such purposes, price quotations and the security characteristics
relating to establishing such quotations shall be determined by CoreFunds,
provided that such determination shall be subject to the approval of Conestoga.
The value of the Acquired Fund Assets of the Conestoga Cash Management
Fund, Tax-Free Fund and U.S. Treasury Securities Fund (each, a "Conestoga Money
Market Fund") and the value of the shares of the corresponding Acquiring Funds
for purposes of sales and redemptions shall be based on the amortized cost
valuation procedures that have been adopted by the Board of Trustees of
Conestoga and the Board of Directors of CoreFunds, respectively. Any provision
in this Agreement to the contrary notwithstanding, if the difference between the
per share net asset values of a Conestoga Money Market Fund and its
corresponding Acquiring Fund equals or exceeds $.0025 at the applicable
Valuation Time, as computed by using such market values in accordance with the
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<PAGE>
policies and procedures established by CoreFunds (or as otherwise mutually
determined by the Board of Trustees of Conestoga and the Board of Directors of
CoreFunds), either the Board of Trustees of Conestoga or the Board of Directors
of CoreFunds shall have the right to postpone the applicable Valuation Time and
the applicable Effective Time of the Reorganization with respect to such
Conestoga Money Market Fund until such time as the per share difference is less
than $.0025.
II. Liquidating Distributions and Termination of Conestoga.
Immediately after the Effective Time of the Reorganization with respect to each
Acquired Fund, such Acquired Fund shall distribute in complete liquidation pro
rata to the record holders of each class of its shares at the applicable
Effective Time of the Reorganization the shares of the class of the Acquiring
Fund identified in Section 2.01 to be received by the record holders of such
class of such Acquired Fund. In addition, each shareholder of record of an
Acquired Fund shall have the right to receive any unpaid dividends or other
distributions which were declared before the applicable Effective Time of the
Reorganization with respect to the shares of an Acquired Fund that are held by
the shareholder at the applicable Effective Time of the Reorganization. In
accordance with instructions it receives from Conestoga, CoreFunds shall record
on its books the ownership of each class of shares of each Acquiring Fund by the
record holders of the class of shares of the Acquired Fund
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<PAGE>
identified in Section 1.02. All of the issued and outstanding shares of each
class of each Acquired Fund shall be redeemed and canceled on the books of
Conestoga at the Effective Time of the Reorganization of such Acquired Fund and
shall thereafter represent only the right to receive the class of shares of the
Acquiring Fund identified in Section 1.02, and the Acquired Fund's transfer
books shall be closed permanently. As soon as practicable after the Effective
Time of the Reorganization with respect to the Continuing Funds, Conestoga shall
make all filings and take all other steps as shall be necessary and proper to
effect its complete dissolution, and shall file an application pursuant to
Section 8(f) of the 1940 Act for an order declaring that it has ceased to be an
investment company and any and all documents that may be necessary to terminate
its existence under state law. After the Effective Time of the Reorganization
with respect to the Continuing Funds, Conestoga shall not conduct any business
except in connection with its liquidation, dissolution, and deregistration.
III. Valuation Times. Subject to Section 1.05 hereof, (a) the Valuation
Time for the Reorganization with respect to the Reorganizing Funds shall be 4:00
P.M., Eastern Time, on such date as may be agreed in writing by the duly
authorized officers of both parties hereto, which date shall not be later than
the thirty-first calendar day following the consummation of the
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<PAGE>
merger between CoreStates Financial Corp and Meridian Bancorp, Inc. described in
an Agreement and Plan of Merger dated October 10, 1995 (the "Bank Holding
Company Merger"), and (b) the Valuation Time for the Reorganization with respect
to the Continuing Funds shall be 4:00 p.m., Eastern Time, on such date as may be
agreed in writing by the duly authorized officers of both parties hereto, which
date shall be not less than seven calendar days following the Valuation Time for
the Reorganization with respect to the Reorganizing Funds.
IV. Certain Representations, Warranties and Agreements of Conestoga.
Conestoga, on behalf of itself and each Acquired Fund, represents and warrants
to, and agrees with, CoreFunds as follows:
(a) It is a Massachusetts business trust duly created pursuant to
its Agreement and Declaration of Trust for the purpose of
acting as a management investment company under the 1940 Act
and is validly existing under the laws of, and duly authorized
to transact business in, the Commonwealth of Massachusetts.
It is registered with the Securities and Exchange Commission
(the "SEC") as an open-end management investment company under
the 1940 Act and such registration is in full force and
effect.
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<PAGE>
(b) It has power to own all of its properties and assets and,
subject to the approvals of shareholders referred to herein,
to carry out and consummate the transactions contemplated
hereby, and has all necessary federal, state and local
authorizations to carry on its business as now being conducted
and to consummate the transactions contemplated by this
Agreement.
(c) This Agreement has been duly authorized, executed and
delivered by Conestoga, and represents Conestoga's valid and
binding contract, enforceable in accordance with its terms,
subject as to enforcement to bankruptcy, insolvency,
reorganization, arrangement, moratorium, and other similar
laws of general applicability relating to or affecting
creditors' rights and to general principles of equity. The
execution and delivery of this Agreement does not and will
not, and the consummation of the transactions contemplated by
this Agreement will not, violate Conestoga's Agreement and
Declaration of Trust or Code of Regulations or any agreement
or arrangement to which it is a party or by which it is bound.
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<PAGE>
(d) Each Acquired Fund has elected to qualify and has qualified
as a regulated investment company under Part I of Subchapter M
of the Code, as of and since its first taxable year; has been
a regulated investment company under such Part of the Code at
all times since the end of its first taxable year when it so
qualified; and qualifies and shall continue to qualify as a
regulated investment company until the Effective Time of the
Reorganization with respect to such Acquired Fund.
(e) All federal, state, local and foreign income, profits,
franchise, sales, withholding, customs, transfer and other
taxes, including interest, additions to tax and penalties
(collectively, "Taxes") relating to the Acquired Fund Assets
due or properly shown to be due on any return filed by any
Acquired Fund with respect to taxable periods ending on or
prior to, and the portion of any interim period up to, the
date hereof have been fully and timely paid or provided for;
and there are no levies, liens, or other encumbrances relating
to Taxes existing, threatened or pending with respect to the
Acquired Fund Assets.
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<PAGE>
(f) The financial statements of Conestoga's U.S. Treasury
Securities Fund, Cash Management Fund, Tax-Free Fund,
Intermediate Income Fund, Bond Fund, Equity Fund, Special
Equity Fund, and Pennsylvania Tax-Free Bond Fund for the
fiscal year ended October 31, 1995, and the financial
statements of Conestoga's Balanced Fund, Short- Term Income
Fund, and International Equity Fund for their respective
fiscal periods ended October 31, 1995, examined by Coopers &
Lybrand L.L.P., copies of which have been previously furnished
to CoreFunds, present fairly the financial position of each
Acquired Fund as of October 31, 1995 and the results of its
operations for the year or period then ending, in conformity
with generally accepted accounting principles.
(g) Prior to the Valuation Time applicable to the Reorganizing
Funds, each of the Reorganizing Funds shall have declared a
dividend or dividends, with a record date and ex-dividend date
prior to such Valuation Time, which, together with all
previous dividends, shall have the effect of distributing to
its shareholders all of its net investment company income, if
any, for the taxable periods or years ended on or before
October 31, 1995 and for
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the period from said date to and including the Effective Time
of the Reorganization applicable to the Reorganizing Funds
(computed without regard to any deduction for dividends paid),
and all of its net capital gain, if any, realized in taxable
periods or years ended on or before October 31, 1995 and in
the period from said date to and including the Effective Time
of the Reorganization applicable to the Reorganizing Funds.
(h) At both the Valuation Time and the Effective Time of the
Reorganization with respect to each Acquired Fund, there shall
be no known liabilities of such Acquired Fund, whether
accrued, absolute, contingent or otherwise, not reflected in
the net asset values per share of its outstanding classes of
shares.
(i) There are no legal, administrative or other proceedings
pending or, to Conestoga's knowledge threatened, against
Conestoga or an Acquired Fund which could result in liability
on the part of Conestoga or an Acquired Fund.
(j) Subject to the approvals of shareholders referred to herein,
at both the Valuation Time and the
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Effective Time of the Reorganization with respect to each
Acquired Fund, it shall have full right, power and authority
to sell, assign, transfer and deliver the Acquired Fund Assets
of such Acquired Fund and, upon delivery and payment for the
Acquired Fund Assets as contemplated herein, an Acquiring Fund
shall acquire good and marketable title thereto, free and
clear of all liens and encumbrances, and subject to no
restrictions on the ownership or transfer thereof (except as
imposed by federal or state securities laws).
(k) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by
Conestoga of the transactions contemplated by this Agreement,
except such as may be required under the 1933 Act, the
Securities Exchange Act of 1934, as amended ("1934 Act"), the
1940 Act, the rules and regulations under those Acts, and
state securities laws.
(l) Insofar as the following relate to Conestoga, the registration
statement filed by CoreFunds on Form N-14 relating to the
shares of certain Acquiring Funds that will be registered with
the SEC
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<PAGE>
pursuant to this Agreement, which, without limitation, shall
include a proxy statement of Conestoga and the prospectuses of
CoreFunds with respect to the transactions contemplated by
this Agreement, and any supplement or amendment thereto or to
the documents contained or incorporated therein by reference
(the "N-14 Registration Statement"), on the effective date of
the N-14 Registration Statement, at the time of any
shareholders' meeting referred to herein and at each Effective
Time of the Reorganization: (i) shall comply in all material
respects with the provisions of the 1933 Act, the 1934 Act and
the 1940 Act, the rules and regulations thereunder, and state
securities laws, and (ii) shall not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading.
(m) All of the issued and outstanding shares of each class of each
Acquired Fund have been duly and validly issued, are fully
paid and non-assessable, and were offered for sale and sold in
conformity with all applicable federal and state securities
laws, and no shareholder of an Acquired Fund has
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any preemptive right of subscription or purchase in respect of
such shares.
(n) Conestoga shall not sell or otherwise dispose of any shares of
an Acquiring Fund to be received in the transactions
contemplated herein, except in distribution to its
shareholders as contemplated herein.
V. Certain Representations, Warranties and Agreements of CoreFunds.
CoreFunds, on behalf of itself and each Acquiring Fund, represents and warrants
to, and agrees with, Conestoga as follows:
(a) It is a Maryland corporation duly organized and validly
existing under the laws of the State of Maryland. It is
registered with the SEC as an open-end management investment
company under the 1940 Act and such registration is in full
force and effect.
(b) It has power to own all of its properties and assets and to
carry out and consummate the transactions contemplated herein,
and has all necessary federal, state and local authorizations
to carry on its business as now being conducted
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and to consummate the transactions contemplated by this
Agreement.
(c) This Agreement has been duly authorized, executed and
delivered by CoreFunds, and represents CoreFunds' valid and
binding contract, enforceable in accordance with its terms,
subject as to enforcement to bankruptcy, insolvency,
reorganization, arrangement, moratorium, and other similar
laws of general applicability relating to or affecting
creditors' rights and to general principles of equity. The
execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated by this
Agreement will not, violate CoreFunds' Articles of
Incorporation or By-laws or any agreement or arrangement to
which it is a party or by which it is bound.
(d) Each Acquiring Fund has elected or will elect to qualify, and
each of the first eight Acquiring Funds listed in Section 1.02
has qualified, as a regulated investment company under Part I
of Subchapter M of the Code, as of and since its first taxable
year; each of the first eight Acquiring Funds listed in
Section 1.02 has been a
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regulated investment company under such Part of the Code at
all times since the end of its first taxable year when it so
qualified and intends to continue to qualify as a regulated
investment company.
(e) The financial statements of each of the first eight Acquiring
Funds listed in Section 1.02 for its fiscal year ended June
30, 1995 examined by Ernst & Young LLP, and for the six-month
period ended December 31, 1995, copies of which have been
previously furnished to Conestoga, present fairly the
financial position of each such Acquiring Fund as of the dates
indicated and the results of its operations for the year and
period ended as of such dates, in conformity with generally
accepted accounting principles.
(f) At both the Valuation Time and the Effective Time of the
Reorganization with respect to each Acquiring Fund, there
shall be no known liabilities of such Acquiring Fund, whether
accrued, absolute, contingent or otherwise, not reflected in
the net asset values per share of its outstanding classes to
be issued pursuant to this Agreement.
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<PAGE>
(g) There are no legal, administrative or other proceedings
pending or, to its knowledge, threatened against CoreFunds or
an Acquiring Fund which could result in liability on the part
of CoreFunds or an Acquiring Fund.
(h) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by
CoreFunds of the transactions contemplated by this Agreement,
except such as may be required under the 1933 Act, the 1934
Act, the 1940 Act, the rules and regulations under those Acts,
and state securities laws.
(i) Insofar as the following relate to CoreFunds, the N-14
Registration Statement on its effective date, at the time of
any shareholders' meetings referred to herein and at each
Effective Time of the Reorganization: (i) shall comply in all
material respects with the provisions of the 1933 Act, the
1934 Act and the 1940 Act, the rules and regulations
thereunder, and state securities laws, and (ii) shall not
contain any untrue statement of a material fact or omit to
state a material fact
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<PAGE>
required to be stated therein or necessary to make the
statements therein not misleading.
(j) The shares of each class of each Acquiring Fund to be issued
and delivered to an Acquired Fund for the account of record
holders of shares of an Acquired Fund, pursuant to the terms
hereof, shall have been duly authorized as of the Effective
Time of the Reorganization application to such Acquiring Fund
and, when so issued and delivered, shall be registered under
the 1933 Act and under applicable state securities laws, duly
and validly issued, fully paid and non-assessable, and no
shareholder of CoreFunds shall have any preemptive right of
subscription or purchase in respect thereto.
VI. Shareholder Action on Behalf of the Acquired Funds.
6.01 As soon as practicable after the effective date of the N-14
Registration Statement, but in any event prior to the Effective Time of the
Reorganization applicable to the Reorganizing Funds and as a condition to the
Reorganization, the Board of Trustees of Conestoga shall call, and Conestoga
shall hold, a meeting of the shareholders of the Acquired Funds for the purpose
of considering and voting upon:
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(a) Approval of this Agreement and the transactions contemplated
hereby, including, without limitation:
(i) The transfer of the Acquired Fund Assets belonging to
each Acquired Fund to an Acquiring Fund, and the
assumption by such Acquiring Fund of the Acquired Fund
Liabilities of such Acquired Fund, in exchange for a
class or classes of shares of an Acquiring Fund, as set
forth in Section 1.02.
(ii) The liquidation of each Acquired Fund through the
distribution to its record holders of shares of the
class or classes of shares of an Acquiring Fund as
described in this Agreement.
(b) Approval of interim investment advisory and/or sub-advisory
agreements which would be effective with respect to each
Acquired Fund for the period from the Bank Holding Company
Merger until the Effective Time of the Reorganization with
respect to such Acquired Fund.
I-26
<PAGE>
(c) Such other matters as may be determined by the Boards of
Trustees or authorized officers of the parties.
6.02 Approval of this Reorganization Agreement by the shareholders of
the Acquired Funds shall constitute the waiver of the application of any
fundamental policy of such Acquired Funds that might be deemed to prevent them
from taking the actions necessary to effectuate the Reorganization as described,
and such policies, if any, shall be deemed to have been amended accordingly.
VII. N-14 Registration Statement and Proxy Solicitation Materials.
CoreFunds shall file the N-14 Registration Statement under the 1933 Act, and
Conestoga shall file the combined prospectus/proxy statement contained therein
under the 1934 Act and 1940 Act proxy rules, with the SEC as promptly as
practicable. Each of CoreFunds and Conestoga has cooperated and shall continue
to cooperate with the other, and has furnished and shall continue to furnish the
other with the information relating to itself that is required by the 1933 Act,
the 1934 Act, the 1940 Act, the rules and regulations under each of those Acts
and state securities laws, to be included in the N-14 Registration Statement.
I-27
<PAGE>
VIII. Effective Times of the Reorganization. Delivery of the Acquired
Fund Assets of each Acquired Fund and the shares of the classes of its Acquiring
Fund to be issued pursuant to Article I and the liquidation of each Acquired
Fund pursuant to Article II shall occur at the opening of business on the next
business day following the Valuation Time applicable to such Acquired Fund, or
on such other date, and at such place and time and date, as may be determined by
the President or any Vice President of each party hereto. The respective date
and time at which such actions are taken with respect to an Acquired Fund are
referred to herein as the "Effective Time of the Reorganization." To the extent
any Acquired Fund Assets are, for any reason, not transferred at the applicable
Effective Time of the Reorganization, Conestoga shall cause such Acquired Fund
Assets to be transferred in accordance with this Agreement at the earliest
practicable date thereafter.
IX. CoreFunds Conditions. The obligations of CoreFunds hereunder with
respect to each Acquired Fund shall be subject to the following conditions
precedent:
(a) This Agreement and the transactions contemplated by this
Agreement shall have been approved by the shareholders of such
Acquired Fund, in the manner required by law.
I-28
<PAGE>
(b) Conestoga shall have duly executed and delivered to CoreFunds
such bills of sale, assignments, certificates and other
instruments of transfer ("Transfer Documents") as may be
necessary or desirable to transfer all right, title and
interest of Conestoga and such Acquired Fund in and to the
Acquired Fund Assets of such Acquired Fund. The Acquired Fund
Assets shall be accompanied by all necessary state stock
transfer stamps or cash for the appropriate purchase price
therefor.
(c) All representations and warranties of Conestoga made in this
Agreement shall be true and correct in all material respects
as if made at and as of each Valuation Time and each Effective
Time of the Reorganization. As of the Valuation Time and the
Effective Time of the Reorganization applicable to each
Acquired Fund, there shall have been no material adverse
change in the financial position of such Acquired Fund since
October 31, 1995 other than those changes incurred in the
ordinary course of business as an investment company. No
action, suit or other proceeding shall be threatened or
pending before any court or governmental agency in which it is
sought to restrain or prohibit, or
I-29
<PAGE>
obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
(d) CoreFunds shall have received an opinion of Drinker Biddle &
Reath addressed to CoreFunds in form reasonably satisfactory
to it and dated the Effective Time of the Reorganization
applicable to each Acquired Fund, substantially to the effect
that: (i) Conestoga is a Massachusetts business trust duly
organized and validly existing under the laws of the
Commonwealth of Massachusetts; (ii) the shares of such
Acquired Fund outstanding at such time are duly authorized,
validly issued, fully paid and non-assessable by such Acquired
Fund, and to such counsel's knowledge, no shareholder of such
Acquired Fund has any option, warrant or pre-emptive right to
subscription or purchase in respect thereof; (iii) this
Agreement and the Transfer Documents have been duly
authorized, executed and delivered by Conestoga and represent
legal, valid and binding contracts, enforceable in accordance
with their terms, subject to the effect of bankruptcy,
insolvency, moratorium, fraudulent conveyance and similar laws
relating to or affecting creditors' rights
I-30
<PAGE>
generally and court decisions with respect thereto, and such
counsel shall not be required to express an opinion with
respect to the application of equitable principles in any
proceeding, whether at law or in equity, or with respect to
the provisions of this Agreement intended to limit liability
for particular matters to an Acquired Fund and its assets;
(iv) the execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated by this
Agreement will not, violate the Agreement and Declaration of
Trust or Code of Regulations of Conestoga or any material
agreement known to such counsel to which Conestoga is a party
or by which Conestoga is bound; and (v) to such counsel's
knowledge, no consent, approval, authorization or order of any
court or governmental authority is required for the
consummation by Conestoga of the transactions contemplated by
this Agreement, except such as have been obtained under the
1933 Act, the 1934 Act, the 1940 Act, the rules and
regulations under those Acts and such as may be required under
the state securities laws. Such opinion may rely on the
opinion of other counsel to the extent set forth in such
opinion, provided
I-31
<PAGE>
such other counsel is reasonably acceptable to CoreFunds.
(e) CoreFunds shall have received an opinion of Morgan, Lewis &
Bockius LLP, addressed to CoreFunds and Conestoga in form
reasonably satisfactory to them and dated the Effective Time
of the Reorganization applicable to each Acquired Fund,
substantially to the effect that for federal income tax
purposes (i) the transfers of all of the Acquired Fund Assets
hereunder, and the assumption by its Acquiring Fund of
Acquired Fund Liabilities, in exchange for shares of each
class of such Acquiring Fund, and the distribution of said
shares to the shareholders of such Acquired Fund, as provided
in this Agreement, will each constitute a reorganization
within the meaning of Section 368(a)(1)(C), 368(a)(1)(D) or
368(a)(1)(F) of the Code and with respect to each
reorganization, the Acquired Fund and the Acquiring Fund will
each be considered "a party to a reorganization" within the
meaning of Section 368(b) of the Code; (ii) in accordance with
Sections 361(a), 361(c)(1) and 357(a) of the Code, no gain or
loss will be recognized by such Acquired Fund as a result of
such transactions;
I-32
<PAGE>
(iii) in accordance with Section 1032 of the Code, no gain or
loss will be recognized by an Acquiring Fund as a result of
such transactions; (iv) in accordance with Section 354(a)(1)
of the Code, no gain or loss will be recognized by the
shareholders of such Acquired Fund on the distribution to them
by such Acquired Fund of shares of any class of an Acquiring
Fund in exchange for their shares of the corresponding class
of the Acquired Fund; (v) in accordance with Section 358(a)(1)
of the Code, the aggregate basis of Acquiring Fund shares
received by each shareholder of any class of an Acquired Fund
will be the same as the aggregate basis of the shareholder's
Acquired Fund shares immediately prior to the transactions;
(vi) in accordance with Section 362(b) of the Code, the basis
of the Acquired Fund Assets to any Acquiring Fund will be the
same as the basis of such Acquired Fund Assets in the hands of
the corresponding Acquired Fund immediately prior to the
exchange; (vii) in accordance with Section 1223 of the Code, a
shareholder's holding period for Acquiring Fund shares will be
determined by including the period for which the shareholder
held the shares of an Acquired Fund exchanged therefor,
provided that
I-33
<PAGE>
the shareholder held such shares of an Acquired Fund as a
capital asset; and (viii) in accordance with Section 1223 of
the Code, the holding period of an Acquiring Fund with respect
to the Acquired Fund Assets will include the period for which
such Acquired Fund Assets were held by an Acquired Fund.
(f) The SEC shall not have issued any unfavorable advisory report
under Section 25(b) of the 1940 Act nor instituted any
proceeding seeking to enjoin consummation of the transactions
contemplated by this Agreement under Section 25(c) of the 1940
Act.
(g) The N-14 Registration Statement shall have become effective
under the 1933 Act and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge
of CoreFunds, contemplated by the SEC and the parties shall
have received all permits and other authorizations necessary
under state securities laws to consummate the transactions
contemplated by this Agreement.
I-34
<PAGE>
(h) The President or a Vice President of Conestoga shall have
certified that Conestoga has performed and complied in all
material respects with each of its agreements and covenants
required by this Agreement to be performed or complied with by
it prior to or at each Valuation Time and each Effective Time
of the Reorganization.
(i) Conestoga shall have delivered or caused to be delivered to
CoreFunds each account, book, record or other document of
Conestoga applicable to such Acquired Fund which is required
to be maintained by Section 31(a) of the 1940 Act and Rules
31a-1 to 31a-3 thereunder (regardless of what person possesses
the same). Conestoga has instructed its service contractors
to provide CoreFunds upon request with access to and copies of
all documents belonging to Conestoga.
(j) The Bank Holding Company Merger shall have been consummated.
(k) With respect to the Reorganization of the Continuing Funds,
the Reorganization of all of the Reorganizing Funds shall have
been consummated.
I-35
<PAGE>
X. Conestoga Conditions. The obligations of Conestoga hereunder with
respect to each Acquired Fund shall be subject to the following conditions
precedent:
(a) This Agreement and the transactions contemplated by this
Agreement shall have been approved by the shareholders of such
Acquired Fund, in the manner required by law.
(b) All representations and warranties of CoreFunds made in this
Agreement shall be true and correct in all material respects
as if made at and as of each Valuation Time and each Effective
Time of the Reorganization. As of the Valuation Time and the
Effective Time of the Reorganization applicable to each
Acquired Fund, there shall have been no material adverse
change in the financial condition of its Acquiring Fund since
June 30, 1995 other than those changes incurred in the
ordinary course of business as an investment company. No
action, suit or other proceeding shall be threatened or
pending before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions
contemplated herein.
I-36
<PAGE>
(c) Conestoga shall have received an opinion of Morgan, Lewis &
Bockius LLP, addressed to Conestoga in form reasonably
satisfactory to it and dated the Effective Time of the
Reorganization applicable to each Acquired Fund, substantially
to the effect that: (i) CoreFunds is a Maryland corporation
duly organized and validly existing under the laws of the
State of Maryland and is qualified to do business and in good
standing in each state in which such qualification is
required; (ii) the shares of each class of each Acquiring Fund
to be delivered at such time to an Acquired Fund as provided
for by this Agreement are duly authorized and upon delivery
will be validly issued, fully paid and non-assessable by such
Acquiring Fund and to such counsel's knowledge, no shareholder
of an Acquiring Fund has any option, warrant or pre-emptive
right to subscription or purchase in respect thereof; (iii)
this Agreement has been duly authorized, executed and
delivered by CoreFunds and represents a legal, valid and
binding contract, enforceable in accordance with its terms,
subject to the effect of bankruptcy, insolvency, moratorium,
fraudulent conveyance and similar laws relating to or
affecting creditors' rights generally and court
I-37
<PAGE>
decisions with respect thereto, and such counsel shall not be
required to express an opinion with respect to the application
of equitable principles in any proceeding, whether at law or
in equity, or with respect to the provisions of this Agreement
intended to limit liability for particular matters to an
Acquiring Fund and its assets; (iv) the execution and delivery
of this Agreement did not, and the consummation of the
transactions contemplated by this Agreement will not, violate
the Articles of Incorporation or By-laws of CoreFunds, or any
material agreement known to such counsel to which CoreFunds is
a party or by which CoreFunds is bound; and (v) to such
counsel's knowledge no consent, approval, authorization or
order of any court or governmental authority is required for
the consummation by CoreFunds of the transactions contemplated
by this Agreement, except such as have been obtained under the
1933 Act, the 1934 Act, the 1940 Act, the rules and
regulations under those Acts and such as may be required under
the state securities laws. Such opinion may rely on the
opinion of other counsel to the extent set forth in such
opinion, provided such other counsel is reasonably acceptable
to CoreFunds.
I-38
<PAGE>
(d) Conestoga shall have received an opinion of Morgan, Lewis &
Bockius LLP, addressed to CoreFunds and Conestoga in the form
reasonably satisfactory to them and dated the Effective Time
of the Reorganization applicable to each Acquired Fund, with
respect to the matters specified in Section IX(e).
(e) The N-14 Registration Statement shall have become effective
under the 1933 Act and no stop order suspending such
effectiveness shall have been instituted, or to the knowledge
of CoreFunds, contemplated by the SEC and the parties shall
have received all permits and other authorizations necessary
under state securities laws to consummate the transactions
contemplated by this Agreement.
(f) The SEC shall not have issued any unfavorable advisory report
under Section 25(b) of the 1940 Act nor instituted any
proceeding seeking to enjoin consummation of the transactions
contemplated by this Agreement under Section 25(c) of the 1940
Act.
I-39
<PAGE>
(g) The President or Vice President of CoreFunds shall have
certified that CoreFunds has performed and complied in all
material respects with each of its agreements and covenants
required by this Agreement to be performed or complied with by
it prior to or at each Valuation Time and each Effective Time
of the Reorganization.
(h) The Bank Holding Company Merger shall have been consummated.
(i) With respect to the Reorganization of the Continuing Funds,
the Reorganization of all of the Reorganizing Funds shall have
been consummated.
XI. Tax Documents. Conestoga shall deliver to CoreFunds at each
Effective Time of the Reorganization confirmations or other adequate evidence as
to the adjusted tax basis of the Acquired Fund Assets then delivered to an
Acquiring Fund in accordance with the terms of this Agreement.
XII. Finder's Fees. Each party represents and warrants to each of the
other parties hereto that there is no person who is entitled to any finder's or
other similar fee or commission arising out of the transactions contemplated by
this Agreement.
I-40
<PAGE>
XIII. Announcements. Any announcements or similar publicity with
respect to this Agreement or the transactions contemplated herein shall be at
such time and in such manner as the parties shall agree; provided, that nothing
herein shall prevent any party upon notice to the other parties from making such
public announcements as such party's counsel may consider advisable in order to
satisfy the party's legal and contractual obligations in such regard.
XIV. Further Assurances. Subject to the terms and conditions herein
provided, each of the parties hereto shall use its best efforts to take, or
cause to be taken, such action, to execute and deliver, or cause to be executed
and delivered, such additional documents and instruments, and to do, or cause to
be done, all things necessary, proper or advisable under the provisions of this
Agreement and under applicable law to consummate and make effective the
transactions contemplated by this Agreement.
XV. Termination of Representations and Warranties. The representations
and warranties of the parties set forth in this Agreement shall terminate at the
Effective Time of the Reorganization of the Continuing Funds.
I-41
<PAGE>
XVI. Termination of Agreement.
16.01 This Agreement may be terminated by a party at any time at or
prior to (i) the Effective Time of the Reorganization of the Reorganizing Funds,
or (ii) with respect to the Continuing Funds and the corresponding Acquiring
Funds at any time at or prior to the Effective Time of the Reorganization of the
Continuing Funds, by the Board of Directors of CoreFunds or the Board of
Trustees of Conestoga, as provided below:
(a) By CoreFunds if the conditions set forth in Article IX are
not satisfied as specified in said Section;
(b) By Conestoga if the conditions set forth in Article X are not
satisfied as specified in said Section;
(c) By the mutual consent of the parties.
16.02 If a party terminates this Agreement as to any investment
portfolio because one or more of its conditions precedent have not been
fulfilled, or if this Agreement is terminated by mutual consent, this Agreement
will become null and void without any liability of either party or any of their
investment portfolios to the other; provided, however, that if such termination
is by CoreFunds pursuant to Section 16.01(a) as
I-42
<PAGE>
a result of a breach by Conestoga of any of its representations, warranties or
covenants in this Agreement, or such termination is by Conestoga pursuant to
Section 16.01(b) as a result of a breach by CoreFunds of any of its
representations, warranties or covenants in this Agreement, nothing herein shall
affect the non-breaching party's right to damages on account of such other
party's breach.
XVII. Amendment and Waiver. At any time prior to or (to the fullest
extent permitted by law) after approval of this Agreement by the shareholders of
Conestoga, (a) the parties hereto may, by written agreement authorized by their
respective Boards of Directors or Trustees, as the case may be, or their
respective Presidents or any Vice Presidents, and with or without the approval
of their shareholders, amend any of the provisions of this Agreement, and (b)
either party may waive any breach by the other party or the failure to satisfy
any of the conditions to its obligations (such waiver to be in writing and
authorized by the President or Vice President of the waiving party with or
without the approval of such party's shareholders).
XVIII. Governing Law. This Agreement and the transactions contemplated
hereby shall be governed, construed and enforced in accordance with the laws of
the Commonwealth of Massachusetts, without giving effect to the conflicts of law
principles otherwise applicable therein.
I-43
<PAGE>
XIX. Successors and Assigns. This Agreement shall be binding upon the
respective successors and permitted assigns of the parties hereto. This
Agreement and the rights, obligations and liabilities hereunder may not be
assigned by either party without the consent of the other party.
XX. Beneficiaries. Nothing contained in this Agreement shall be deemed
to create rights in persons not parties hereto, other than the successors and
permitted assigns of the parties.
XXI. Conestoga Liability.
21.01 The names "Conestoga Family of Funds" and "Trustees of Conestoga
Family of Funds" refer respectively to the trust created and the trustees, as
trustees but not individually or personally, acting from time to time under a
Declaration of Trust dated August 1, 1989, which is hereby referred to and a
copy of which is on file at the office of the State Secretary of the
Commonwealth of Massachusetts and at the principal office of Conestoga. The
obligations of Conestoga entered into in the name or on behalf thereof by any of
the trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the trustees, shareholders or
representatives of Conestoga personally, but bind only the trust property, and
all persons dealing with any portfolio of Conestoga
I-44
<PAGE>
must look solely to the trust property belonging to such portfolio for the
enforcement of any claims against Conestoga.
21.02 Both parties specifically acknowledge and agree that any
liability of Conestoga under this Agreement with respect to an Acquired Fund, or
in connection with the transactions contemplated herein with respect to an
Acquired Fund, shall be discharged only out of the assets of that Acquired Fund
and that no other portfolio of Conestoga shall be liable with respect thereto.
XXII. Notices. All notices required or permitted herein shall be in
writing and shall be deemed to be properly given when delivered personally or by
telecopier to the party entitled to receive the notice or when sent by certified
or registered mail, postage prepaid, or delivered to a nationally recognized
overnight courier service, in each case properly addressed to the party entitled
to receive such notice at the address or telecopier number stated below or to
such other address or telecopier number as may hereafter be furnished in writing
by notice similarly given by one party to the other party hereto:
If to CoreFunds:
CoreFunds, Inc.
c/o David G. Lee, President
680 East Swedesford Road
Wayne, PA 19087-1658
Telecopier Number: (610) 254-1040
I-45
<PAGE>
With a copy to:
James W. Jennings, Esq.
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Telecopier Number: (215) 963-5299
If to Conestoga:
Conestoga Family of Funds
c/o David G. Lee, President
680 East Swedesford Road
Wayne, PA 19087-1658
Telecopier Number: (610) 254-1040
With a copy to:
Henry S. Hilles, Jr., Esq.
Drinker Biddle & Reath
1345 Chestnut Street
Philadelphia, PA 19107
Telecopier Number: (215) 988-2757
XXIII. Expenses. Each party represents to the other that its expenses
incurred in connection with the Reorganization will be borne by one or both of
the parties to the Bank Holding Company Merger, provided, however, that (a)
CoreFunds shall bear any filing fees under the 1933 Act and state securities
laws in connection with its Individual Shares and Institutional Shares to be
distributed to shareholders of the Acquired Funds, and (b) Conestoga shall bear
any custody termination fees incurred by Conestoga as a result of effecting the
transactions contemplated by this Agreement.
XXIV. Entire Agreement. This Agreement embodies the entire agreement
and understanding of the parties hereto and supersedes
I-46
<PAGE>
any and all prior agreements, arrangements and understandings relating to
matters provided for herein.
XXV. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered shall be deemed to be
an original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized officers designated below as of the date
first written above.
COREFUNDS, INC.
ATTEST:
___________________________ By: _______________________
CONESTOGA FAMILY OF FUNDS
ATTEST:
____________________________ By: ________________________
I-47
<PAGE>
APPENDIX II
COREFUND
VALUE EQUITY FUND
The CoreFund Value Equity Fund, Series A, returned 17.29% for the 12-
month period ending June 30, 1995. While in absolute terms this was an
acceptable return, the S&P 500 returned 26.0% in the same timeframe.
For Series B shares from which a sales charge has been deducted, the
return for the period was 11.7%; for those without a sales load it was 17.0%.
The most significant economic event during the period was the series
of moves made by the Federal Reserve Board to tighten interest rates. With
the Fund's exposure to industrial issues that are more economically sensitive,
the Fed's actions negatively affected performance. Investors in the broad market
sold industrial issues and purchased so-called defensive issues in groups such
as pharmaceuticals, tobacco, and food and beverage, where earnings are less
dependent on economic activity. The Fund's exposure in these sectors is
underweighted compared to the broader market.
As the new fiscal year begins, we are optimistic that the industrial
sector will come back into favor. Even as the economy has slowed,
industrial issues have continued to display positive fundamentals and solid
earnings. Productivity enhancements, careful control of inventories and costs,
and exposure to still-healthy global economies have helped these companies
maintain steady results during boom/bust cycles. The interest rate decrease
instituted by the Fed at the beginning of the new fiscal year, combined with
excellent company fundamentals, should bring investors back to the sector.
The Fund has also benefitted from
(continued)
QUICK FUND FACTS VALUE EQUITY (6/30/95)
Inception Date: February 6, 1990
Portfolio Size: $34.71 million
Shares Outstanding: 2,432,599 (A&B combined)
<TABLE>
<CAPTION>
Top Five Holdings (as of June 30, 1995)
% of fund investments
<S> <C>
Salomon Inc. 3.3%
Allied Signal Inc. 3.1%
Sears Roebuck & Co. 3.1%
Mobil Corp 3.0%
Conrail Inc. 3.0%
<CAPTION>
Average Annual Total Return 1
1 Year 5 Year Inception
<S> <C> <C> <C>
Series A 17.29% 9.21% 9.32%
Series B without Load 16.96% 9.10% 9.22%
Series B with Load 11.73% 8.10% 8.29%
{GRAPHIC]
Data for chart to follow:
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
<S> <C>
Value Equity (Series A) $16,111
Value Equity (Series B) $15,314
S&P 500 Index $19,293
<CAPTION>
Initial Investment Date 2/28/90 Jun 90 Jun 91 Jun 92 Jun 93 Jun 94 Jun 95
<S> <C> <C> <C> <C> <C> <C> <C>
CoreFund Value Equity Fund,
Class A $10,000 $10,369 $10,718 $11,788 $13,946 $13,736 $16,111
CoreFund Value Equity Fund,
Class B (Synthetic)
4.50% load $9,550 $9,902 $10,236 $11,258 $13,319 $13,094 $15,314
S&P 500 Composite Index $10,000 $10,909 $11,717 $13,289 $15,099 $15,312 $19,293
</TABLE>
1 For the period ended June 30, 1995. Past performance of the portfolio is
not predictive of future performance. Individual Series B shares were offered
beginning January 4, 1993. The performance shown for Value Equity Portfolio
Series B (synthetic) prior to that date is based on the performance of
Institutional Series A shares adjusted to reflect the maximum sales charge of
4.5% for the Series B shares. Series A shares of the Value Equity Portfolio
commenced operations on February 6, 1990.
9
<PAGE>
June 30, 1995
MANAGERS' DISCUSSION OF FUND PERFORMANCE (continued)
VALUE EQUITY FUND (CONTINUED)
investment in financial issues such as security brokerages, investment
management firms, and mutual fund companies. Specific investments have
included Merrill Lynch, Charles Schwab, Salomon Brothers, and Franklin
Resources. As the "graying of America" continues and more government
policies are instituted that reward investment, the long-term outlook
for financial issues remains strong.
Overall, we continue to maintain a constructive outlook for the value
equity market. The breadth of issues participating in the rally indicates that
excesses can be worked off individually, without damaging the fabric of an
overall market that is healthy and improving.
10
<PAGE>
INTERNATIONAL GROWTH FUND
The International Growth Fund, Series A shares, returned (0.21)% for
the year ended June 30, 1995. This compared favorably with the 0.1% increase of
the MSCI EAFE Index during the same period.
For Series B shares from which a sales charge has been deducted, the
return for the period was (4.95)%; for those without a load it was (0.48)%.
Despite continued growth in most of the world's major economies,
international stock markets have been affected by considerable
currency volatility. In December, the Mexican crisis caused investors to
repatriate funds that had been invested in many of the world's smaller or
"emerging" markets.
The International Growth Fund's largest single area of investment is
Japan (34%). This was the worst-performing major market in the period,
falling by 28%. A currency gain softened the damage for the U.S. investor,
however. The Kobe earthquake in February 1995 disrupted Japan's infrastructure
and manufacturing industries, and had a considerable, albeit short-term, impact
on economic activity.
The rise of the Yen is of greater long-term significance. This has
made Japan's exports less competitive, and encouraged a flood of imports.
In turn, this has put pressure on economic growth and corporate margins, and
kept the domestic investor away from the stock market. Although the Japanese
financial sector is hardly in the best of health, the manufacturing sector has
suffered the worst.
One bright spot has been the technology sector, in which the Fund has
a large position.
(continued)
11
<PAGE>
June 30, 1995
MANAGERS' DISCUSSION OF FUND PERFORMANCE (continued)
INTERNATIONAL GROWTH FUND (continued)
This allowed the Fund to outperform the Tokyo Stock Exchange
Index over the 12-month period.
Through most of the year, the Fund was partially hedged against
weakness in the Yen, through a forward sale of Yen for U.S. dollars. This hedge
expired in February, shortly before another sharp rise in the Yen (to Y80/US$).
The hedge was subsequently reinstated; currently, 28% of the Fund's Japanese
assets are protected.
Southeast Asia, which currently accounts for 17% of the Fund's
portfolio, was an unrewarding region for most of the year. In Hong Kong,
Singapore and Malaysia, where local currencies are linked to the U.S. dollar,
stock markets suffered at a time when U.S. interest rates were rising. However,
there was a strong recovery toward the end of the period, spurred by the
strengthening U.S. bond market. In Hong Kong (at 6% the Fund's largest position
in the region), the Index rose by 5%, despite concerns about
Chinese politics and weakness in local real estate prices.
In Western Europe, which currently accounts for 40% of the Fund's
holdings, the past 12 months was a period of economic recovery. The improvement
was largely led by exports, as high rates of unemployment in the region
discouraged local consumption. However, the strength of the Deutschemark in the
first half of 1995 created problems for export industries in Germany, where
there is now considerable pressure on corporate earnings.
International confidence in Latin America was dealt a heavy blow at
the end of 1994 by a series of political scandals and a mishandling of the
Mexican economy. This led to a 40% devaluation of the Peso and a collapse in the
Mexican stock market, as international capital, on which the Mexican economy
relies so heavily, was quickly repatriated. Stock markets in Brazil and
Argentina suffered a similar fate (somewhat unfairly, as the commitment to
economic discipline appears much stronger in those countries than in Mexico).
Despite some recovery toward the end of the period, indices in both countries
remain well below their December levels.
The Fund's position in the region had been reduced prior to the
Mexican crisis, and further sales were made thereafter. The Fund now has
only 5% of its portfolio in Latin America, with no holdings in Mexico.
12
<PAGE>
COREFUND
Quick Fund Facts International Growth (6/30/95)
Inception Date: February 12, 1990
Portfolio Size: $112.78 million
Shares Outstanding: 9,180,295 (A&B combined)
<TABLE>
<CAPTION>
Top Five Holdings (as of June 30, 1995)
% of fund investments
<S> <C>
Rohm 1.8%
Hutchinson Whampoa 1.7%
Swire Pacific "A" 1.6%
Kyocera 1.6%
Mitsubishi Heavy Industries 1.6%
<CAPTION>
Average Annual Total Return 1
1 Year 5 Year Inception
<S> <C> <C> <C>
Series A (0.21)% 5.82% 7.24%
Series B without Load (0.48)% 5.73% 7.15%
Series B with Load (4.95)% 4.75% 6.24%
[GRAPHIC]
Data for chart below:
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
<S> <C>
International Growth Equity (Series A) $14,578
International Growth Equity (Series B) $13,861
MSCI EAFE Index $12,352
<CAPTION>
Initial Investment Date 2/28/90 Jun 90 Jun 91 Jun 92 Jun 93 Jun 94 Jun 95
<S> <C> <C> <C> <C> <C> <C> <C>
CoreFund International Growth
Equity Fund, Class A $10,000 $10,985 $10,688 $11,211 $12,563 $14,609 $14,578
CoreFund International Growth
Equity Fund, Class B
(Synthetic) 4.50% load $9,550 $10,491 $10,207 $10,707 $11,998 $13,927 $13,861
Morgan Stanley EAFE Index $10,000 $9,814 $8,690 $8,635 $10,385 $12,151 $12,352
</TABLE>
1 For the period ended June 30, 1995. Past performance of the portfolio is not
predictive of future performance. Individual Series B shares were offered
beginning January 4, 1993. The performance shown for International Growth
Portfolio Series B (synthetic) prior to that date is based on the performance of
Institutional Series A shares adjusted to reflect the maximum sales charge of
4.5% for the Series B shares. Series A shares of the International Growth
Portfolio commenced operations on February 12, 1990.
BALANCED FUND
Performance of Series A shares of the Balanced Fund improved
significantly during the year ended June 30, 1995, generating a 16.21% gain for
the period. This compared with a 26.01% return for the Standard & Poor's 500
Index, and a 10.37% return for the Lehman Brothers Intermediate
Government/Corporate Bond Index.
For Series B shares from which a sales charge has been deducted, the
return for the period was 10.58%; for those without a load it was 15.84%.
The Balanced Fund grew in asset size through June 30 to $63,436,000.
The Balanced Fund's equity holdings modestly underperformed a very
strong S&P Index during the period, rising 24.0%. Returns from the Fund's
holdings in the technology sector and from pharmaceutical issues matched or
outperformed those sectors in the broader market. Additionally, strong positions
in the cable television, entertainment and gaming industries more than offset
weakness in the Fund's underweighted holdings (relative to the broader market)
in interest-sensitive sectors.
The Fund's fixed-income holdings underperformed the fixed-income
benchmark during the 12-month period (9.2% vs. the
Bond Index's 10.37%). The Fund's bond holdings were overweighted in the
two-years-or-less portion of the yield curve; this market segment generated
smaller returns than longer-dated securities. Our defensive posture, which
served the Fund well during the first six months of the period, made it
difficult to fully exploit the rapid and sharp rally in bond prices during
the final three months of the period.
(continued)
13
<PAGE>
June 30, 1995
MANAGERS' DISCUSSION OF FUND PERFORMANCE (continued)
BALANCED FUND (CONTINUED)
Cash levels in the Fund are fairly low, reflecting a fully invested
position in stocks and bonds. We anticipate continued volatility in the capital
markets, with an upward bias, during the second half of 1995. During periods of
weakness, we plan to seek opportunities to add high-coupon, high-quality bonds,
while intensifying our focus on attractively valued stocks of companies with
visible earnings growth and improving fundamentals.
<TABLE>
<CAPTION>
Asset Allocation (as of June 30, 1995)
% of fund investments
<S> <C>
Glenayre Technologies 1.3%
Comcast Corp CI.A 1.2%
Texas Utilities 1.2%
Public Service Enter Group 1.2%
Glaxo 1.2%
<CAPTION>
Average Annual Total Return 1
1 Year Inception
<S> <C> <C>
Series A 16.21% 7.84%
Series B without Load 15.84% 6.91%
Series B with Load 10.58% 4.80%
[GRAPHIC]
Data for chart below:
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
<S> <C>
Balanced (Series A) $11,980
Balanced (Series B) $11,373
S&P 500 Index $13,290
Lehman Govt/Corp Bond $11,475
<CAPTION>
Initial Investment Date 1/31/93 Jun 93 Jun 94 Jun 95
<S> <C> <C> <C> <C>
CoreFund Balanced Fund, Class A $10,000 $10,478 $10,309 $11,980
CoreFund Balanced Fund, Class B
(Synthetic) 4.50% load $9,550 $10,004 $9,818 $11,373
S&P 500 Composite Index $10,000 $10,400 $10,547 $13,290
Lehman Government/Corporate
Bond Index $10,000 $10,551 $10,397 $11,475
</TABLE>
1 For the period ended June 30, 1995. Past performance of the portfolio is not
predictive of future performance. Individual Series B shares were offered
beginning March 16, 1993. The performance shown for Balanced Portfolio
Series B (synthetic) prior to that date is based on the performance of
Institutional Series A shares adjusted to reflect the maximum sales charge of
4.5% for the Series B shares. Series A shares of the Balanced Portfolio
commenced operations on January 4, 1993.
14
<PAGE>
INTERMEDIATE BOND FUND
The CoreFund Intermediate Bond Fund Series A shares returned 8.22% for
the year ended June 30, 1995. This compared with a 7.71% return for the Merrill
Lynch 1-3 year Treasury Index. The Fund's assets changed during the period from
$57,744,000 to $57,089,000.
For Series B shares from which a sales charge has been deducted, the
return for the period was 3.13%; for those without a load it was 7.95%.
The extremely volatile bond market conditions that characterized the
past year were particularly evident in the intermediate part of the yield curve.
This is evidenced by the wide yield fluctuations in the two-year Treasury note,
which rose by 1.52% during the second half of 1994, and rallied by 1.89% in the
first half of 1995.
The Intermediate Bond Fund was able to outperform its benchmark during
both of these periods. In 1994, the Fund benefitted from a shorter average
maturity, large cash positions (as high as 18%), and large exposure to the
mortgage-backed securities market, which performed well on a relative basis
in 1994.
16
<PAGE>
COREFUND
In late 1994, the Fund began to extend its average maturity and reduce
its cash position, allowing it to benefit from the broad market rally. It
further benefitted from its large holdings of asset-backed securities (as much
as 23% of the portfolio), which performed extremely well in 1995. A shortage of
high-quality corporate bonds allowed spreads to narrow significantly, compared
to Treasuries of similar maturity.
The Fund has maintained its emphasis on credit quality, with over 85%
of its holdings being U.S. government and agency obligations or AAA-rated
securities. Recently, the Fund raised its cash position to 9.9%, due to the
relative unattractiveness of short-to-intermediate Treasuries, which currently
yield less than cash equivalents. We expect this to be a temporary holding.
Looking to the rest of 1995, we expect the Fed to follow through on
market expectations and reduce short-term rates by at least another 25 basis
points. A steepening of the yield curve should accompany this action, creating a
more friendly environment for mortgage-backed securities.
While a further drop in rates is possible, we would also expect
volatility in the fixed-income markets to subside. This would place more
emphasis on yield enhancement, rather than price movement, as a source of
investor return.
Quick Fund Facts Intermediate Bond (6/30/95)
Inception Date: February 3, 1992
Portfolio Size: $57.09 million
Shares Outstanding: 5,800,877 (A&B combined)
Average Weighted Maturity: 3.5 years
QUALITY DIVERSIFICATION (AS OF JUNE 30, 1995)
[GRAPHIC]
Data for chart to follow:
Maturity in years
% of fund investments
AAA
66%
AA
4%
A
10%
NR
20%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1
1 Year Inception
<S> <C> <C>
Series A 8.22% 5.32%
Series B without Load 7.95% 5.12%
Series B with Load 3.13% 3.71%
[GRAPHIC]
Data for chart to follow:
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
<S> <C>
Intermediate Bond (Series A) $11,930
Intermediate Bond (Series B) $11,337
Lehman Govt/Corp Bond Index $12,594
Merrill Lynch 1-3 Yr Treasury $11,997
<CAPTION>
Initial Investment Date 2/29/92 Jun 92 Jun 93 Jun 94 Jun 95
<S> <C> <C> <C> <C> <C>
CoreFund Intermediate-Term Bond Fund, Class A $10,000 $10,249 $11,059 $11,024 $11,930
CoreFund Intermediate-Term Bond Fund, Class B
(Synthetic) 4.50% load $9,550 $9,788 $10,561 $10,502 $11,337
Lehman Intermediate Government/Corporate
Bond Index $10,000 $10,355 $11,442 $11,412 $12,594
Merrill Lynch 1-3 Year Short-Term Treasury $10,000 $10,284 $10,961 $11,138 $11,997
</TABLE>
1 For the period ended June 30, 1995. Past performance of the portfolio is not
predictive of future performance. Individual Series B shares were offered
beginning January 4, 1993. The performance shown for Intermediate Bond Portfolio
Series B (synthetic) prior to that date is based on the performance of
Institutional Series A shares adjusted to reflect the maximum sales charge of
4.5% for the Series B shares. Series A shares of the Intermediate Bond Portfolio
commenced operations on February 3, 1992.
17
<PAGE>
June 30, 1995
MANAGERS' DISCUSSION OF FUND PERFORMANCE (continued)
PA Municipal Bond Fund
The PA Municipal Bond Fund, Series A, provided its shareholders with a
return of 7.50% for the 12 months ended June 30, 1995. This compared to a return
for the Lehman PAState Bond Index of 8.84% in the same period. For Series B
shares from which a sales charge has been deducted, the return was 2.41%;
for those without a load, the return was 7.25%.
As of June 30, 1995, the 30-day yield was 5.39% and 4.90%,
respectively, for A and B shares. Assets in the Fund increased from $597,000 to
$2,589,000.
The Fund's lower performance, relative to the benchmark index, was
mainly due to supply factors. During the third quarter of 1994, the Fund grew
dramatically. At that time, supply of municipal bonds was very light (down 40%
from 1993). This forced managers to carry unusually high cash levels due to a
lack of coupon income.
In the municipal bond market was driven mostly by ebbs and flows in
demand during the year. In late 1994, many tax-exempt mutual funds experienced
large withdrawals, because of the bond market's poor performance. As
dealer inventories swelled, demand for bonds decreased and prices fell. Then,
when Orange County, CA declared bankruptcy, investors temporarily fled the
munibond market, causing prices to drop further.
In the first half of 1995, yields on fixed-income securities fell, as
the economy showed signs of a slowdown. The municipal bond market has been
unable to attract investors, and has underperformed the Treasury market as a
result. Demand has been slowed by concern over enactment of a flat tax, the
Orange County default, and the strong appeal of the stock market.
We believe the Fed will lower interest rates further if inflation
remains under control. In addition, the municipal bond market is technically
positioned to outperform the Treasury market in the coming months. We continue
to seek attractive opportunities to swap or make new purchases, as the market
reacts to these various factors.
QUICK FUND FACTS PA MUNICIPAL BOND (6/30/95)
Inception Date: May 16, 1994
Portfolio Size: $2.59 million
Shares Outstanding: 254,865 (A&B combined)
Average Weighted Maturity: 15.6 years
<TABLE>
<CAPTION>
Average Annual Total Return 1
1 Year Inception
<S> <C> <C>
Series A 7.50% 7.65%
Series B without Load 7.25% 6.52%
Series B with Load 2.41% 2.25%
[GRAPHIC]
Data for chart to follow:
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
<S> <C>
Pennsylvania Municipal Bond (Series A) $10,656
Pennsylvania Municipal Bond (Series B) $10,232
Lehman Pennsylvania State Bond Index $10,958
<CAPTION>
Initial Investment Date 5/31/94 Jun 94 Jun 95
<S> <C> <C> <C>
CoreFund Pennsylvania Municipal Bond Fund, Class A $10,000 $9,913 $10,656
CoreFund Pennsylvania Municipal Bond Fund, Class B
4.50% load $9,550 $9,540 $10,232
Lehman Pennsylvania State Bond Index (MF) $10,000 $9,946 $10,958
</TABLE>
1 For the period ended June 30, 1995. Past performance of the portfolio is not
predictive of future performance. Series A and Series B shares were offered
beginning May 16, 1994. The maximum sales charge for Series B shares is 4.5%.
20
<PAGE>
MANAGERS' DISCUSSION OF FUND PERFORMANCE (CONTINUED)
CASH RESERVE
Quick Fund Facts -- Cash Reserve (6/30/95)
Inception Date: August 16, 1985
Portfolio Size: $527.92 million (A&B combined)
Average Weighted Maturity: 43 days
Seven Day Yield: 5.75 Series A
5.48 Series B
The CoreFund Cash Reserve continued to offer strong returns to the
money-market investor during the period ending June 30, 1995. The annual total
return for Series A shares during that period was 5.15%. Series B shares, from
which a 12b-1 fee is deducted, had an annual return of 4.89%. These returns
compared favorably to that of the IBC/Donoghue's All-Taxable Money Fund Average,
which was 4.98% on June 30, 1995.
The Cash Reserve experienced modest growth in assets during the
period. The Fund totaled $527,924,000 on June 30, 1995, up from $516,724,000
a year earlier.
The average maturity of the portfolio had been as short as 28 days in
the first quarter of 1995. In a defensive move against declining rates, the
average maturity was then gradually extended. By June 30, it was 43 days.
Portfolio structure of the Cash Reserve has favored commercial paper,
due to the widening spread of returns relative to other investment vehicles. As
spreads fluctuate, we will routinely evaluate the structure, to add value to the
portfolio.
Interest rates appear to have peaked, and the negative tone of the
forward curve would indicate further reductions in rates. In coming months, we
look for further declines on the heels of the recent lowering of the Fed Funds
rate. To maintain yield, we will pursue an extension strategy with the Cash
Reserve, targeting an average weighted maturity of 50 to 55 days.
TREASURY RESERVE
Quick Fund Facts -- Treasury Reserve (6/30/95)
Inception Date: November 21, 1988
Portfolio Size: $500.82 million (A&B combined)
Average Weighted Maturity: 47 days
Seven Day Yield: 5.68 Series A
5.42 Series B
During a period when short-term interest rates increased 50 basis
points, the Treasury Reserve continued to deliver excellent investment results
for the period ending June 30, 1995. Series A shares returned an effective
average annual yield of 4.98%. The six-month total return for Series A shares
was 5.58%. Series B shares returned an effective average annual yield of 4.72%.
The six-month total return for Series B shares, from which a 12b-1 fee has been
deducted, was 5.32%.
22
<PAGE>
COREFUND
Since June 30, 1994, the CoreFund Treasury Reserve increased in size
by 1.7%. Assets as of June 30, 1995, totaled $500,818,000. The average
maturity increased by 13 days, to 47.
Although assets increased by $8 million, the increase in maturities
was mainly due to the purchase of longer-term Treasury securities. These
securities were purchased in order to hedge against the possibility of an easing
in short-term rates by the Federal Reserve Board.
As of this writing the Fed has lowered the funds rate by 25 basis
points. Economic data is expected to be mixed and inflation should remain under
control during the second half of 1995. Our near-term position remains
biased towards a gradual decline in short-term rates as long as inflationary
pressures remain subdued. For this reason we will continue to look for buying
opportunities along the treasury bill yield curve while keeping the average
maturity in the 45 to 55 day range.
TAX-FREE RESERVE
Quick Fund Facts -- Tax-Free Reserve (6/30/95)
Inception Date: April 16, 1991
Portfolio Size: $64.28 million (A&B combined)
Average Weighted Maturity: 34 days
Seven Day Yield: 3.56 Series A
3.30 Series B
The CoreFund Tax-Free Reserve, Series A shares, returned 3.12% for
the year ending June 30, 1995. This compared favorably to the 3.11% return
provided by Donoghue's Tax-Free Fund during the same period. For Series B
shares of the CoreFund Tax-Free Reserve, from which a 12b-1 fee has been
deducted, the return for the same period was 2.86%.
The average maturity of the Tax-Free Reserve was shortened from 44 to
34 days during the period, to take advantage of rising interest rates. Net
assets in the Tax-Free Reserve decreased 22% to $64,280,000 on June 30,
1995 from $80,330,000 on December 31, 1994.
The decrease in assets was caused by the volatility of the tax-exempt
money market. Although rates increased steadily throughout the year, the spread
between taxables and non-taxables widened. The taxable equivalent yields on
many tax-exempt money market securities did not compare favorably to their
taxable counterparts. This prompted crossover buyers to move out of their
tax-exempt funds, and into taxable funds.
In coming months, management of the Fund will focus on extending the
average maturity, to pick up yield.
23
<PAGE>
APPENDIX III
SHAREHOLDER TRANSACTIONS AND SERVICES
This Appendix compares the shareholder transactions and services that
are available in connection with: (1) Individual Shares and Institutional Shares
of the CoreFunds Portfolios, and (2) Retail and Institutional Shares of the
Conestoga Portfolios.
I. COREFUNDS PORTFOLIOS - INDIVIDUAL SHARES AND INSTITUTIONAL
SHARES AND CORRESPONDING CONESTOGA PORTFOLIOS*
*(Includes Retail and Institutional Shares of the Conestoga Cash
Management Fund, Tax-Free Fund, U.S. Treasury Securities Fund (collectively, the
"Conestoga Money Market Portfolios"); the Equity Fund, Special Equity Fund,
Balanced Fund and International Equity Fund (collectively, the "Conestoga Equity
Portfolios"); and the Bond Fund, Intermediate Income Fund, Pennsylvania Tax-Free
Bond Fund and Short-Term Income Fund (collectively, the "Conestoga Fixed Income
Portfolios").
A. Sales Charges and Exemptions
CoreFunds Portfolios - Individual and Institutional Shares
(a) Institutional Shares of each CoreFunds Portfolio
are sold without a sales charge.
(b) Individual Shares of the CoreFunds Equity and
Fixed Income Portfolios are sold with a 3.25% sales charge.
Individual Shares of CoreFunds Money Market Portfolios are sold without a sales
charge.
(c) The CoreFunds Portfolios offer sales charge exemptions to
the following classes of shareholders: (a) employees (including members of their
immediate families and significant others) of CoreStates Financial Corp,
Cashman, Farrell, Martin Currie, Alpha Global and Investment Alternatives, Inc.
and their affiliates; (b) employees of the administrator and distributor; (c)
Directors and officers of CoreFunds; (d) customers who purchase their shares
under a shareholder servicing arrangement between CoreFunds and CoreStates
Financial Corp or its affiliates, having met specific standards which CoreStates
Financial Corp or its affiliates will publish periodically and which qualify
those customers as customers of the Private Banking Groups or UniFinancial
Groups of those affiliates, (e) Individual Retirement Account rollovers from
qualified employee benefit plans, Keogh plans, and Simplified Employee Benefit
Plans where CoreStates Financial Corp or its affiliate serves as trustee or
investment manager; (f) any retirement plan qualified under Section 401(a) of
the code or any other non-qualified benefit
III-1
<PAGE>
plan; and (g) any participant-directed retirement plan qualified under Section
401(a) of the Code or any participant-directed non-qualified defined
compensation plan described in Section 457 of the Code. In addition, the initial
sales charge will be waived for (a) investors who are transferring shares from
another investment company which has a broker/dealer relationship with CoreFunds
for which they have already paid a sales charge since October 26, 1992, (b)
customers converting from CoreStates Personal Financial Services Asset
Allocation Program (CorePath) to Individual Shares of a Portfolio and (c)
shareholders who have purchased shares of a mutual fund through an asset
allocation program offered by a company which has been acquired by CoreStates
Financial Corp, and who wishes to transfer those shares to Individual Shares of
a portfolio. Subsequent investments in the Portfolios by these investors will be
subject to the applicable sales charge.
The sales charge will not apply to purchases made
through reinvested dividends and distributions. The sales charge also will not
apply to exchanges between CoreFunds Portfolios to the extent that a shareholder
has credit for previously paid sales charges on purchases of any of the
CoreFunds Portfolios.
(d) The CoreFunds Portfolios also offer rights of accumulation
and letter of intent programs that can reduce the sales charge payable on
Individual share purchases.
Conestoga Portfolios - Retail and Institutional Shares
(a) Institutional Shares of the Conestoga Portfolios
are sold without a sales charge.
(b) Retail Shares of the Conestoga Equity and Fixed
Income Portfolios are sold with a 2.0% maximum front-end sales
charge. Retail Shares of the Money Market Portfolios are sold
without a sales charge.
(c) The following classes of Conestoga investors may purchase
Retail Shares of the Equity and Fixed Income Portfolios with no sales charge:
(1) existing shareholders of the applicable Portfolios upon the automatic
reinvestment of dividend and capital gain distributions; (2) Trustees of
Conestoga and officers, directors, employees and retired employees of the
investment advisor and its affiliates, SFS and its affiliates, and spouses and
minor children of each of the foregoing; (3) Investors for whom the investment
advisor or one of its affiliates (except a Conestoga IRA (as defined below)),
acts in a fiduciary, advisory, custodial, agency or similar capacity and for
whom purchases are made through such accounts; (4) Investors who purchase Retail
Shares of the applicable portfolio through a payroll deduction plan, a 401(k)
plan, a 403(b) plan or other similar retirement plans which by its terms permits
purchases of
III-2
<PAGE>
such shares; (5) Investors investing in a Conestoga Portfolio direct individual
retirement account (a "Conestoga IRA") may make both initial and subsequent
purchases without a sales charge if the initial purchase is funded in whole or
in part by assets directly transferred to the Conestoga IRA from a distribution
made by a qualified retirement plan maintained through the asset management
affiliates of Meridian Bancorp, Inc.; (6) Employees (and their spouses and
children under the age of 21) of any broker-dealer with which the distributor
enters into a dealer agreement to sell shares of the Portfolios; and (7) Orders
placed on behalf of other investment companies distributed by the distributor or
any of its affiliates. The distributor may change or eliminate the foregoing
waivers at any time. The distributor may also periodically waive the sales
charge for all investors with respect to any portfolio.
(d) The Conestoga Portfolios also offer rights of accumulation
and letter of intent programs that can reduce the sales charge payable on Retail
Share purchases.
B. Purchase Policies
<TABLE>
<CAPTION>
==========================================================================================================================
CoreFunds Portfolios - Conestoga Portfolios
Individual and - Retail and
Institutional Shares Institutional Shares
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Minimum Initial $1,000,000 for initial $1,000 for initial
Investments purchases of Institu- purchases of Retail
tional Shares and $500 and Institutional
for initial purchases Shares ($100 for
of Individual Shares Auto Invest Plan).
(No minimum for The minimum
Automatic Investment investment may be
Plan). waived if share
purchases are made
in connection with
a qualified pension
plan, payroll savings
plans or other employer
plans.
- --------------------------------------------------------------------------------------------------------------------------
Minimum No minimum (except $50 No minimum (except
Subsequent for Automatic $50 for Auto Invest
Investments Investment Plan). Plan).
</TABLE>
III-3
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Yes. Individual Yes. Retail Shares
Investment Plan Shares may be may be purchased on
purchased monthly a monthly or
through automatic quarterly basis
deductions from a through automatic
shareholder's checking deductions from a
or savings account. shareholder's
There is no minimum checking or savings
initial investment account with a $100
amount for Automatic initial and $50
Investment Plans, subsequent
however the minimum investment minimum.
pre-authorized The minimum initial
investment amount is purchase amounts and
$50 per month per minimum maintained
account. balance requirements
may be waived for
purchases under the
Auto Invest Plan.
- --------------------------------------------------------------------------------------------------------------------------
Purchase Methods Shares are sold by SFS Shares are sold by
directly and through SFS directly and
broker/dealers having through
a dealer agreement broker/dealers
with SFS and may also having a dealer
be purchased through agreement with SFS
CoreStates Securities by mail, by
Corp.; by mail, by telephone, by wire.
telephone, by wire.
- --------------------------------------------------------------------------------------------------------------------------
Payment methods By check (or other By check (or other
negotiable bank negotiable bank
instrument or money instrument or money
order), by wire, by order), by wire, by
Automated Clearing ACH.
House (ACH).
==========================================================================================================================
</TABLE>
A Conestoga Institutional shareholder who, at the Effective Time of the
Transaction, meets the Conestoga, but not the CoreFunds, minimum investment
requirement, will not be required to redeem the CoreFunds shares received in
connection with the Transaction, unless the balance in the shareholder's account
drops below the Conestoga minimum as a result of redemptions.
The CoreFunds Portfolios and Conestoga Portfolios each reserve the
right to reject any purchase order.
C. Redemption Policies
<TABLE>
<CAPTION>
==========================================================================================================================
CoreFunds Conestoga
Portfolios - Portfolios - Retail
Individual and and Institutional
Institutional Shares
Shares
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Redemption Methods By mail or By mail or
telephone. telephone.
- --------------------------------------------------------------------------------------------------------------------------
Payment Methods By check, by wire, By check, by wire
by ACH. There is a or ACH. There is a
$10.00 charge for $7 charge for
wiring redemption wiring redemption
proceeds Payment is proceeds. Payment
normally made on made within 7 days,
the next business but Conestoga
day, but CoreFunds attempts to honor
may take up to 7 requests for next
days to honor day payment of
redemption redemption
requests). proceeds.
- --------------------------------------------------------------------------------------------------------------------------
Check Writing Yes, for CoreFunds Yes, for Conestoga
Privilege Money Market Money Market
Portfolios ($250 Portfolios ($1,000
minimum). minimum).
- --------------------------------------------------------------------------------------------------------------------------
Automatic Cash Yes. ($5,000 Yes. (No minimum
Withdrawal Plan minimum balance/$50 balance required/
minimum per $100 minimum per
transaction). transaction).
==========================================================================================================================
</TABLE>
A shareholder of record may be required to redeem Individual Shares in
any CoreFunds Portfolio if the balance in the shareholder's account in that
Portfolio drops below $500 as the result of a redemption request and the
shareholder does not increase the balance to at least $500 upon sixty days'
notice. The Conestoga Portfolios may redeem involuntarily, upon sixty days'
notice, Retail shares of a shareholder whose account decreases to a value of
less than $1,000 because of redemptions unless the shareholder makes an
additional investment during that period in an amount that will increase the
value of the account to at least $500. CoreFunds Portfolios and the Conestoga
Portfolios may also redeem shares involuntarily when appropriate in light of
their responsibilities under the 1940 Act, and may make payment for redemptions
in securities in lieu of cash.
III-4
<PAGE>
D. Share Exchanges
<TABLE>
<CAPTION>
==========================================================================================================================
CoreFunds Portfolios - Conestoga Portfolios -
Individual and Retail and
Institutional Shares Institutional Shares
==========================================================================================================================
<S> <C> <C>
By Mail Yes. Yes.
- --------------------------------------------------------------------------------------------------------------------------
By Telephone Yes. Yes.
- --------------------------------------------------------------------------------------------------------------------------
Minimum Inapplicable. $1,000 minimum.
==========================================================================================================================
</TABLE>
CoreFunds Individual Shares may be exchanged for Individual Shares in
any other CoreFunds Portfolios. Shareholders who exchange into any CoreFunds
Portfolio that imposes a sales charge may be subject to such sales charge, if
applicable and not previously paid. With respect to the Conestoga Portfolios, a
shareholder who has paid a sales load on purchases of Retail Shares of an Equity
or Fixed Income Portfolio may exchange those Retail Shares for Retail Shares of
another Conestoga Equity or Fixed Income Portfolio at net asset value.
Shareholders of Retail Shares of the Conestoga Money Market Portfolios may
exchange these for Retail Shares of another Conestoga Money Market Portfolio at
net asset value. Shareholders who want to move investments in a Conestoga Money
Market Portfolio to a Conestoga Equity or Fixed Income Portfolio must follow the
redemption and purchase procedures for Retail Shares. If however, those Retail
Shares of a Conestoga Money Market Portfolio were acquired by a previous
exchange from Retail Shares of a Conestoga Equity or Fixed Income Portfolio,
these may be exchanged without payment of a sales charge. Exchanges are only
available in states where exchanges can lawfully be made from one Portfolio to
another, and must satisfy the requirements relating to the minimum initial
investment in a Portfolio. CoreFunds and Conestoga reserve the right to reject
any telephone exchange request and to modify or terminate exchange privileges at
any time.
E. Responsibility for Telephone Instructions
The CoreFunds and Conestoga Portfolios, their administrators and their
distributors are not liable for any loss, liability, cost or expense for acting
upon telephone instructions that are reasonably believed to be genuine. In
attempting to confirm that telephone instructions are genuine, procedures are
used that are considered reasonable, which may include recording telephone
instructions and requesting information as to account registration such as the
shareholder account number and/or tax identification number (in the case of
CoreFunds) or sending confirmations within 72 hours of the exchange, verifying
the name in which an account is registered, the account number, and the
III-5
<PAGE>
account holder's Social Security number, and sending proceeds only to the
address of record or to a previously authorized bank account (in the case of
Conestoga).
II. DIVIDENDS AND DISTRIBUTIONS
All CoreFunds Portfolios and Conestoga Portfolios distribute their net
capital gains to shareholders at least annually. The following table shows the
Portfolios' policies concerning the declaration and payment of dividends from
net investment income.
A. Dividends Declared Daily/Paid Monthly
<TABLE>
<CAPTION>
======================================================================================================================
CoreFunds Portfolios Conestoga Portfolios
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Cash Reserve Cash Management Fund
- ----------------------------------------------------------------------------------------------------------------------
Tax-Free Reserve Tax-Free Fund
- ----------------------------------------------------------------------------------------------------------------------
Treasury Reserve U.S. Treasury Securities Fund
- ----------------------------------------------------------------------------------------------------------------------
Intermediate Bond Fund
- ----------------------------------------------------------------------------------------------------------------------
Pennsylvania Municipal Bond
Fund
- ----------------------------------------------------------------------------------------------------------------------
Short-Term Fund
- ----------------------------------------------------------------------------------------------------------------------
Bond Fund
======================================================================================================================
B. Dividends Declared Monthly/Paid Monthly
======================================================================================================================
CoreFunds Portfolios Conestoga Portfolios
- ----------------------------------------------------------------------------------------------------------------------
(None) Intermediate Income Fund
- ----------------------------------------------------------------------------------------------------------------------
Tax-Free Bond Fund
- ----------------------------------------------------------------------------------------------------------------------
Short-Term Income Fund
- ----------------------------------------------------------------------------------------------------------------------
Bond Fund
======================================================================================================================
C. Dividends Declared Quarterly/Paid Quarterly
======================================================================================================================
CoreFunds Portfolios Conestoga Portfolios
- ----------------------------------------------------------------------------------------------------------------------
Value Equity Fund Equity Fund
- ----------------------------------------------------------------------------------------------------------------------
Balanced Fund Balanced Fund
- ----------------------------------------------------------------------------------------------------------------------
Special Equity Fund Special Equity Fund
======================================================================================================================
</TABLE>
III-6
<PAGE>
D. Dividends Declared Annually/Paid Annually
<TABLE>
<CAPTION>
======================================================================================================================
CoreFunds Portfolios Conestoga Portfolios
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
(None) International Equity Fund
======================================================================================================================
E. Dividends Declared Periodically/Paid Periodically
======================================================================================================================
CoreFunds Portfolios Conestoga Portfolios
- ----------------------------------------------------------------------------------------------------------------------
International Growth Fund (None)
======================================================================================================================
</TABLE>
F. The CoreFunds Portfolios and Conestoga Portfolios all offer
dividend reinvestment programs.
III-7
<PAGE>
APPENDIX IV
INTERIM INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS
IV-1
<PAGE>
FORM OF
INTERIM INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of _______________, 1996 between CONESTOGA FAMILY OF
FUNDS, a Massachusetts trust with transferrable shares (the "Company"), and
Meridian Investment Company or its successor (the "Investment Adviser").
WHEREAS, the Company is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended ("1940 Act"); and
WHEREAS, the Company desires to retain the Investment Adviser to
furnish investment advisory services to the Cash Management Fund, Tax-Free Fund,
U.S. Treasury Securities Fund, Equity Fund, Special Equity Fund, Bond Fund,
Intermediate Income Fund, Pennsylvania Tax-Free Bond Fund, Balanced Fund,
Short-Term Income Fund and International Equity Fund and such other investment
portfolios of the Company as the Company and the Investment Adviser may agree
upon from time to time (each, a "Fund" and collectively, the "Funds") and the
Investment Adviser represents that it is willing and possesses legal authority
to so furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Company hereby appoints the Investment Adviser to
act as investment adviser to the Fund or Funds identified on Schedule A hereto
for the period and on the terms set forth in this Agreement. The Investment
Adviser accepts such appointment and agrees to furnish the services herein set
forth for the compensation herein provided. Additional Funds may be added to
this Agreement from time to time by the parties executing a new Schedule A which
shall become effective upon its execution and shall supersede any Schedule A
having an earlier date.
2. Delivery of Documents. The Company has furnished the Investment
Adviser with copies properly certified or authenticated of each of the
following:
(a) the Company's Agreement and Declaration of Trust, as
executed on August 1, 1989 and as filed with the Secretary of State of the
Commonwealth of Massachusetts on August 2, 1989, and all amendments thereto or
restatements thereof;
(b) the Company's Code of Regulations and any amendments
thereto;
<PAGE>
(c) resolutions of the Company's Board of Trustees authorizing
the appointment of the Investment Adviser and approving this Agreement;
(d) the Company's Notification of Registration on Form N-8A
under the 1940 Act as filed with the Securities and Exchange Commission on
August 9, 1989 and any amendments thereto;
(e) the Company's Registration Statement on Form N-1A under
the Securities Act of 1933, as amended ("1933 Act") (File No. 33-30431) and
under the 1940 Act as filed with the Securities and Exchange Commission and all
amendments thereto; and
(f) the most recent prospectus and Statement of Additional
Information of each Fund (such prospectuses and Statement of Additional
Information, as presently in effect, and all amendments and supplements thereto
are herein collectively called the "Prospectus").
The Company will furnish the Investment Adviser from time to time with
copies of all amendments of or supplements to the foregoing.
3. Management. Subject to the supervision of the Company's Board of
Trustees, the Investment Adviser will provide a continuous investment program
for each Fund, including investment research and management with respect to all
securities and investments and cash equivalents in said Funds. The Investment
Adviser will determine from time to time what securities and other investments
will be purchased, retained or sold by the Company with respect to each Fund.
The Investment Adviser will provide the services under this Agreement in
accordance with each Fund's investment objective, policies, and restrictions as
stated in the Prospectus and resolutions of the Company's Board of Trustees. The
Investment Adviser further agrees that it:
(a) will use the same skill and care in providing such
services as it uses in providing services to other accounts for which it has
investment responsibilities;
(b) will conform with all applicable Rules and Regulations of
the Securities and Exchange Commission and in addition will conduct its
activities under this Agreement in accordance with any applicable regulations of
any governmental authority pertaining to the investment advisory activities of
the Investment Adviser;
(c) will not make loans to any person to purchase or carry
units of beneficial interest in the Company or make interest-bearing loans to
the Company;
-3-
<PAGE>
(d) will place orders pursuant to its investment
determinations for the Company either directly with the issuer or with any
broker or dealer. In placing orders with brokers and dealers, the Investment
Adviser will attempt to obtain prompt execution of orders in an effective manner
at the most favorable price. Consistent with this obligation, when the execution
and price offered by two or more brokers or dealers are comparable, the
Investment Adviser may, in its discretion, purchase and sell portfolio
securities to and from brokers and dealers who provide the Investment Adviser
with research advice and other services; In no instance will portfolio
securities be purchased from or sold to SEI Financial Management Corporation,
SEI Financial Services Company, the Investment Adviser, or any affiliated person
of either the Company, SEI Financial Management Corporation, SEI Financial
Services Company, or the Investment Adviser;
(e) will maintain all books and records with respect to the
Company's securities transactions and will furnish the Company's Board of
Trustees such periodic and special reports as the Board may request;
(f) will treat confidentially and as proprietary information
of the Company all records and other information relative to the Company and
prior, present, or potential interestholders, and will not use such records and
information for any purpose other than performance of its responsibilities and
duties hereunder, except after prior notification to and approval in writing by
the Company, which approval shall not be unreasonably withheld and may not be
withheld where the Investment Adviser may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the
Company; and
(g) will maintain its policy and practice of conducting its
fiduciary functions independently. In making investment recommendations for the
Company, the Investment Adviser's personnel will not inquire or take into
consideration whether the issuers of securities proposed for purchase or sale
for the Company's account are customers of the Investment Adviser or of its
parent or its subsidiaries or affiliates. In dealing with such customers, the
Investment Adviser and its parent, subsidiaries, and affiliates will not inquire
or take into consideration whether securities of those customers are held by the
Company.
4. Assistance. The Investment Adviser may employ or contract with other
persons to assist it in the performance of this Agreement (herein, a
"Sub-Adviser"); provided, however, that the retention of any Sub-Adviser shall
be approved as may be required by the 1940 Act. A Sub-Adviser may perform under
the
-4-
<PAGE>
supervision of the Investment Adviser any or all services described under
Section 3. Sub-Advisers may include other investment advisory or management
firms and officers or employees who are employed by both the Investment Adviser
and the Company. The fees or other compensation of any Sub-Adviser shall be paid
by the Investment Adviser and no obligation may be incurred on the Company's
behalf to any such person.
In the event that the Investment Adviser appoints a Sub-Adviser, the
Investment Adviser will review, monitor, and report to the Company's Board of
Trustees on the performance and investment procedures of any such Sub-Adviser;
assist and consult with any Sub-Adviser in connection with the Fund's continuous
investment program; and approve lists of foreign countries which may be
recommended by any Sub-Adviser for investment by the Fund.
5. Services Not Exclusive. The investment management services furnished
by the Investment Adviser hereunder are not to be deemed exclusive, and the
Investment Adviser shall be free to furnish similar services to others so long
as its services under this Agreement are not impaired thereby.
6. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Investment Adviser hereby agrees that all records which
it maintains for the Company are the property of the Company and further agrees
to surrender promptly to the Company any of such records upon the Company's
request. The Investment Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act.
7. Expenses. During the term of this Agreement, the Investment Adviser
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Company.
8. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, each Fund will pay the Investment Adviser and the
Investment Adviser will accept as full compensation therefor a fee equal to the
lesser of (i) the fee computed daily and paid monthly at the applicable annual
rate set forth on Schedule A hereto, or (ii) such fee as may from time to time
be agreed upon in writing by the Company and the Investment Adviser in advance
of the period to which the fee relates. Each Fund's obligation to pay the
above-described fee to the Investment Adviser will begin as of the date of the
initial public sale of shares in that Fund.
If in any fiscal year the aggregate expenses of any Fund (as defined
under the securities regulations of any state having
-5-
<PAGE>
jurisdiction over the Company) exceed the expense limitations of any such state,
the Investment Adviser will reimburse such Fund for a portion of such excess
expenses equal to such excess times the ratio of the fees otherwise payable by
such Fund to the Investment Adviser hereunder to the sum of the aggregate fees
otherwise payable by the Fund to the Investment Adviser hereunder and to SEI
Financial Management Corporation under the Administration Agreement between SEI
Financial Management Corporation and the Company. The obligation of the
Investment Adviser to reimburse the Funds hereunder is limited in any fiscal
year to the amount of its fee hereunder for such fiscal year, provided, however,
that notwithstanding the foregoing, the Investment Adviser shall reimburse the
Funds for such proportion of such excess expenses regardless of the amount of
fees paid to it during such fiscal year to the extent that the securities
regulations of any state having jurisdiction over the Company so require. Such
expense reimbursement, if any, will be estimated daily and reconciled and paid
on a monthly basis.
The fee attributable to each Fund shall be the several (and not joint
or joint and several) obligation of each such Fund.
9. Limitation of Liability. The Investment Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by any Fund
in connection with the performance of this Agreement, except a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement.
10. Duration and Termination. This Agreement will become effective as
to a Fund as of the date first written above, provided that it shall have been
approved by vote of a majority of the outstanding voting securities of such Fund
in accordance with the requirements under the 1940 Act, and, unless sooner
terminated as provided herein, shall continue in effect for two years after such
effective date. Thereafter, if not terminated, this Agreement shall continue in
effect as to each Fund for successive yearly periods, provided that such
continuance is specifically approved at least annually (a) by the vote of a
majority of those members of the Company's Board of Trustees who are not parties
to this Agreement or interested persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the vote of a majority of the Company's Board of Trustees or by the vote of a
majority of the outstanding voting securities of such Fund. Notwithstanding the
foregoing, this Agreement may be terminated as to a particular Fund at any time
on 60 days' written notice, without the payment of any penalty, by the Company
(by vote of the Company's Board of Trustees or by vote of a majority of the
-6-
<PAGE>
outstanding voting securities of such Fund) or by the investment Adviser. This
Agreement will immediately terminate in the event of its assignment. (As used in
this Agreement, the terms "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the meaning given to such terms
by the 1940 Act.)
11. Amendment of this Agreement. No provision of this Agreement may be
changed, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, discharge
or-termination is sought.
12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by the law of the Commonwealth of Pennsylvania.
The names "Conestoga Family of Funds" and "Trustees of
Conestoga Family of Funds" refer respectively to the Trust created and the
Trustees, as trustees but not individually or personally, acting from time to
time under a Declaration of Trust dated August 1, 1989 which is hereby referred
to and a copy of which is on file at the office of the State Secretary of The
Commonwealth of Massachusetts and at the principal office of the Trust. The
obligations of "Conestoga Family of Funds" entered into in the name or on behalf
thereof by any of the Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, shareholders or representatives of the Trust personally, but bind only
the Trust Property, and all persons dealing with any class of shares of the
Trust must look solely to the Trust Property
-7-
<PAGE>
belonging to such class for the enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized officers designated below as of the day and
year first above written.
CONESTOGA FAMILY OF FUNDS
Seal By: s/
Title:
MERIDIAN INVESTMENT COMPANY
Seal By: s/
Title:
-8-
<PAGE>
Schedule A
to the
Investment Advisory Agreement
between Conestoga Family of Funds and
Meridian Investment Company
dated ______________, 1996
Name of Fund Compensation*
- ------------ -------------
Cash Management Fund 0.40%
Tax-Free Fund 0.40%
U.S. Treasury Securities Fund 0.40%
Equity Fund 0.74%
Special Equity Fund 1.50%
Bond Fund 0.74%
Intermediate Income Fund 0.74%
Pennsylvania Tax-Free Bond Fund 0.74%
Short-Term Income Fund 0.74%
Balanced Fund 0.75%
International Equity Fund 1.00%
CONESTOGA FAMILY OF FUNDS
By: s/
Title:
Date:
MERIDIAN INVESTMENT COMPANY
By: s/
Title:
Date:
- ---------------------------
* All fees are stated as an annual rate based upon the Fund's average daily net
assets and are computed daily and payable monthly.
-9-
<PAGE>
FORM OF
INTERIM SUB-ADVISORY AGREEMENT
AGREEMENT made as of _______________, 1996 between Meridian Investment
Company or its successor (the "Adviser") and Marvin and Palmer Associates, Inc.
(the "Sub-Adviser").
WHEREAS, Conestoga Family of Funds (the "Company") is registered as an
open-end diversified, management investment company under the Investment Company
Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Adviser desires to retain the Sub-Adviser to furnish
investment advisory services to the Company's International Equity Fund (the
"Fund") and the Sub-Adviser represents that it is willing and possesses legal
authority to so furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Advisor hereby appoints the Sub-Advisor to act as
Sub-adviser to the Fund for the period and on the terms set forth in this
Agreement. The Sub-Adviser accepts such appointment and agrees to furnish the
services herein set forth for the compensation herein provided.
2. Delivery of Documents. The Adviser has furnished the Sub-Adviser
with copies properly certified or authenticated of each of the following:
(a) the Company's Agreement and Declaration of Trust, as
executed on August 1, 1989 and as filed with the Secretary of State of the
Commonwealth of Massachusetts on August 2, 1989, and all amendments thereto or
restatements thereof;
(b) the Company's Code of Regulations and any amendments
thereto;
(c) resolutions of the Company's Board of Trustees authorizing
the appointment of the Sub-Adviser, approving this Agreement, and establishing
the investment objective, policies and restrictions of the Fund;
(d) the Company's Notification of Registration on Form N-8A
under the 1940 Act as filed with the Securities and Exchange Commission on
August 9, 1989 and any amendments thereto;
-10-
<PAGE>
(e) the amendments to the Company's Registration Statement on
Form N-1A under the Securities Act of 1933, as amended ("1933 Act"), (File No.
33-30431) and under the 1940 Act relating to the Fund as filed with the
Securities and Exchange Commission and all amendments thereto; and
(f) the Fund's most recent prospectuses and Statement of
Additional Information (such prospectuses and Statement of Additional
Information, as presently in effect, and all amendments and supplements thereto
are herein collectively called the "Prospectus").
The Adviser will furnish the Sub-Adviser from time to time with copies
of all amendments of or supplements to the foregoing.
3. Duties of Sub-Adviser. Subject to the supervision of the Company's
Board of Trustees, the Sub-Adviser will assist the Adviser in providing a
continuous investment program for the Fund, including investment research and
management with respect to all securities and investments and cash equivalents
of the Fund. The Sub-Adviser will provide the services under this Agreement in
accordance with the Fund's investment objective, policies, and restrictions as
stated in the Prospectus and resolutions of the Company's Board of Trustees.
Without limiting the generality of the foregoing, Sub-Adviser further
agrees that it will:
(a) prepare, subject to the Adviser's approval, lists of
foreign countries for investment by the Fund and determine from time to time
what securities and other investments will be purchased, retained or sold for
the Fund, including, with the assistance of the Adviser, the Fund's investments
in futures and forward currency contracts;
(b) manage in consultation with the Adviser the Fund's
temporary investments in securities;
(c) manage the Fund's overall cash position, and determine
from time to time what portion of the Fund's assets will be held in different
currencies;
(d) provide the Adviser with foreign broker research, a
quarterly review of international economic and investment developments, and
occasional analyses on international investment issues;
(e) attend regular business and investment-related meetings
with the Company's Board of Trustees and the Adviser if requested to do so by
the Company and/or the Adviser; and
-11-
<PAGE>
(f) maintain books and records with respect to the securities
transactions for the Fund, furnish to the Adviser and the Company's Board of
Trustees such periodic and special reports as they may request with respect to
the Fund, and provide in advance to the Adviser all reports to the Company's
Board of Trustees for examination and review within a reasonable time prior to
the Company's Board meetings.
4. Covenants by Sub-Adviser. Sub-Adviser agrees with respect to the
services provided to the Fund that it:
(a) will use the same skill and care in providing such
services as it uses in providing services to other accounts for which it has
investment responsibilities, and will conform with all applicable Rules and
Regulations of the Securities and Exchange Commission ("SEC Regulations") and in
addition will conduct its activities under this Agreement in accordance with any
applicable regulations of any governmental authority pertaining to the
investment advisory activities of the Sub-Adviser;
(b) will telecopy trade information to the Adviser on the
first business day following the day of the trade and cause broker confirmations
to be sent directly to the Adviser; and
(c) will treat confidentially and as proprietary information
of the Company all records and other information relative to the Fund and prior,
present or potential shareholders, and will not use such records and information
for any purpose other than performance of its responsibilities and duties
hereunder (except after prior notification to and approval in writing by the
Company, which approval may not be withheld where Sub-Adviser would be exposed
to civil or criminal contempt proceedings for failure to comply, when requested
to divulge such information by duly constituted authorities, or when so
requested by the Company).
5. Services Not Exclusive.
(a) The services furnished by Sub-Adviser hereunder are deemed
not to be exclusive, and nothing in this Agreement shall (i) prevent Sub-Adviser
or any affiliated person (as defined in the 1940 Act) of Sub-Adviser from acting
as investment adviser or manager for any other person or persons, including
other management investment companies with investment objectives and policies
the same as or similar to those of the Fund or (ii) limit or restrict
Sub-Adviser or any such affiliated person from buying, selling or trading any
securities or other investments (including any securities or other investments
which the Fund is eligible to buy) for its or their own accounts or for the
accounts of others for whom it or they may be acting; provided, however, that
Sub-Adviser agrees that it will not undertake any
-12-
<PAGE>
activities which, in its reasonable judgment, will adversely affect the
performance of its obligations to the Fund under this Agreement.
(b) Nothing contained herein, however, shall prohibit
Sub-Adviser from advertising or soliciting the public generally with respect to
other products or services, regardless of whether such advertisement or
solicitation may include prior, present or potential shareholders of the
Company.
6. Portfolio Transactions. Investment decisions for the Fund shall be
made by Sub-Adviser independently from those for any other investment companies
and accounts advised or managed by Sub-Adviser. The Fund and such investment
companies and accounts may, however, invest in the same securities. When a
purchase or sale of the same security is made at substantially the same time on
behalf of the Fund and/or another investment company or account, the transaction
will be averaged as to price, and available investments allocated as to amount,
in a manner which Sub-Adviser believes to be equitable to the Fund and such
other investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by the Fund or the
size of the position obtained or sold by the Fund. To the extent permitted by
law, Sub-Adviser may aggregate the securities to be sold or purchased for the
Fund with those to be sold or purchased for other investment companies or
accounts in order to obtain best execution.
Sub-Adviser shall place orders for the purchase and sale of
portfolio securities and will solicit broker-dealers to execute transactions in
accordance with the Fund's policies and restrictions regarding brokerage
allocations. Sub-Adviser shall place orders pursuant to its investment
determination for the Fund either directly with the issuer or with any broker or
dealer selected by Sub-Adviser. In executing portfolio transactions and
selecting brokers or dealers, Sub-Adviser shall use its reason- able best
efforts to seek the most favorable execution of orders, after taking into
account all factors Sub-Adviser deems relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing basis.
Consistent with this obligation, Sub-Adviser may, to the extent permitted by
law, purchase and sell portfolio securities to and from brokers and dealers who
provide brokerage and research services (within the meaning of Section 28(e) of
the Securities Exchange Act of 1934) to or for the benefit of the Fund and/or
other accounts over which Sub-Adviser or any of its affiliates exercises
investment discretion. Sub-Adviser is authorized to pay to a broker or dealer
who provides such brokerage and research services a commission for executing a
portfolio transaction for the Fund which is in excess of the
-13-
<PAGE>
amount of commission another broker or dealer would have charged for effecting
that transaction if Sub-Adviser determines in good faith that such commission
was reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of either that particular
transaction or Sub-Adviser's overall responsibilities to the Fund and to the
Company. In no instance will portfolio securities be purchased from or sold to
Sub-Adviser, or the Fund's principal underwriter, or any affiliated person
thereof except as permitted by SEC Regulations.
7. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, Sub-Adviser acknowledges that all records which it maintains
for the Company are the property of the Company and agrees to surrender promptly
to the Company any of such records upon the Company's request, provided, that
Sub-Adviser may retain copies thereof at its own expense. Sub-Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by Rule 31a-1 under the 1940 Act.
8. Expenses. During the term of this Agreement, Sub-Adviser will pay
all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities, commodities and other investments
(including brokerage commissions and other transaction charges, if any)
purchased for the Fund.
9. Compensation. For the services provided by the Sub-Adviser pursuant
to this Agreement, the Adviser will pay to the Sub-Adviser a fee, payable
monthly, at the annual rates of seventy-five one-hundredths of one percent
(0.75%) of the average of the first $100,000,000 of the daily net assets of the
Fund, seventy one-hundredths of one percent (0.70%) of the average of the next
$100,000,000 of such assets, sixty-five one-hundredths of one percent (0.65%) of
the average of the next $100,000,000 of such assets, and sixty one-hundredths of
one percent (0.60%) of the average of such assets in excess of $300,000,000. If
this Agreement shall become effective subsequent to the first day of a month, or
shall terminate before the last day of a month, the Sub-Adviser's compensation
for such fraction of the month shall be determined by applying the foregoing
percentages to the average daily net asset value of the Fund during such
fraction of a month and in the proportion that such fraction of a month bears to
the entire month.
10. Limitation of Liability. The Sub-Adviser shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund or
the Adviser in connection with the performance of this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance,
-14-
<PAGE>
bad faith or gross negligence on the part of the Sub-Adviser in the performance
of its duties or from reckless disregard by it of its obligations and duties
under this Agreement.
The Sub-Adviser agrees to indemnify the Adviser with respect to any
loss, liability, judgment, cost or penalty which the Fund or the Adviser may
directly or indirectly suffer or incur in any way arising out of or in
connection with any material breach of this Agreement by the Sub-Adviser. The
Adviser agrees to indemnify the Sub-Adviser with respect to any loss, liability,
judgment, cost or penalty which the Sub-Adviser may directly or indirectly
suffer or incur in any way arising out of the performance of its duties under
this Agreement as provided in the following paragraph.
The Sub-Adviser shall give the Adviser the benefit of its best judgment
and effort in rendering services hereunder, but the Sub-Adviser shall not be
liable for any act or omission or for any loss sustained by the Adviser in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations and duties, under this Agreement. The Sub-Adviser shall be entitled
to full indemnification from the Adviser for any loss, liability, judgment, cost
or penalty arising from (a) any act by any person or entity (including the
Adviser) for which the Sub-Adviser was not involved directly in either the act
itself or the decision making process leading up to such act, (b) any act by the
Sub-Adviser taken upon the written instructions of the Adviser or (c) the
performance of the Sub-Adviser's duties under this Agreement; provided, however,
the Sub-Adviser shall not be entitled to indemnity under clause (c) of this
sentence for any loss, liability, judgment, cost or penalty resulting from
willful misfeasance, bad faith or negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations and duties, under this
Agreement.
11. Duration and Termination. This Agreement will become effective as
to the Fund as of the date first written above, provided that it shall have been
approved by vote of a majority of the outstanding voting securities of the Fund
in accordance with the requirements under the 1940 Act, and, unless sooner
terminated as provided herein, shall continue in effect for two years after such
effective date. Thereafter, if not terminated, this Agreement shall continue in
effect for successive yearly periods, provided that such continuance is
specifically approved at least annually (a) by the vote of a majority of those
members of the Company's Board of Trustees who are not parties to this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the vote of a majority of the Company's Board of Trustees
or by the vote of a majority of the
-15-
<PAGE>
outstanding voting securities of the Fund. Notwithstanding the foregoing, this
Agreement may be terminated at any time on 60 days' written notice, without the
payment of any penalty, by the Company (by vote of the Company's Board of
Trustees or by vote of a majority of the outstanding voting securities of the
Fund), by the Adviser, or by the Sub-Adviser. This Agreement will immediately
terminate in the event of its assignment. (As used in this Agreement, the terms
"majority of the outstanding voting securities," "interested persons" and
"assignment" shall have the meaning given to such terms by the 1940 Act.)
12. Amendment of this Agreement. No provision of this Agreement may be
changed, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, discharge or
termination is sought. No amendment of this Agreement shall be effective with
respect to the Fund until approved by the vote of a majority of the outstanding
voting securities of the Fund.
13. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by the law of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized officers designated below as of the day and
year first above written.
MERIDIAN INVESTMENT COMPANY
By: s/
Title:
MARVIN AND PALMER ASSOCIATES, INC.
By: s/
Title:
-16-
<PAGE>
PART B
<PAGE>
CONESTOGA FAMILY OF FUNDS
680 East Swedesford Road
Wayne, Pennsylvania 19087-1658
COREFUNDS, INC.
680 East Swedesford Road
Wayne, Pennsylvania 19087-1658
STATEMENT OF ADDITIONAL INFORMATION
(1996 Special Meeting of Shareholders of
Conestoga Family of Funds)
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Combined Proxy Statement/Prospectus dated
February 1, 1996 for the Special Meeting of Shareholders of Conestoga Family of
Funds, to be held
on March 22, 1996. Copies of the Combined Proxy Statement/Prospectus may be
obtained at no charge by calling The Conestoga Family of Funds at
1-800-344-2716.
Unless otherwise indicated, capitalized terms used herein and not
otherwise defined have the same meanings as are given to them in the Combined
Proxy Statement/Prospectus.
Further information about Institutional and Individual Shares of the
Existing CoreFunds Portfolios is contained in and incorporated by reference to
CoreFunds' Statement of Additional Information dated November 1, 1995, a copy of
which is included herewith. The audited financial statements and related
independent accountant's report for the Existing CoreFunds Portfolios contained
in the Annual Report dated June 30, 1995, are hereby incorporated herein by
reference. No other parts of the Annual Reports are incorporated by reference
herein.
Further information about Institutional and Retail Shares of the
Conestoga Portfolios is contained in and incorporated by reference to
Conestoga's Statement of Additional Information dated May 1, 1995 (as revised
through November 3, 1995), copies of which are included herewith. The audited
financial statements and related independent accountant's report for Conestoga
contained in the Annual Report dated October 31, 1995 are included herein. No
other parts of the Annual Report are incorporated by reference herein.
The date of this Statement of Additional Information is February 1,
1996.
C-2
<PAGE>
TABLE OF CONTENTS
Page
General Information............................................. 3
Pro Forma Financial Statements.................................. PFS-1
Audited Financial Statements for the
Conestoga Portfolios for the year ended
October 31, 1995.......................................... FS-
C-3
<PAGE>
GENERAL INFORMATION
The Shareholders of the Conestoga Family of Funds ("Conestoga") are
being asked to approve or disapprove an Agreement and Plan of Reorganization
(the "Reorganization Agreement") dated as of ______________, 1996 between
Conestoga and CoreFunds, Inc. ("CoreFunds"), and the transactions contemplated
thereby. The Reorganization Agreement contemplates the transfer of substantially
all of the assets and liabilities of Conestoga's Cash Management Fund, Tax-Free
Fund, U.S. Treasury Securities Fund, Equity Fund, Special Equity Fund, Bond
Fund, Intermediate Income Fund, Pennsylvania Tax-Free Bond Fund, Balanced Fund,
Short-Term Income Fund and International Equity Fund to corresponding CoreFunds
Portfolios in exchange for full and fractional shares representing interests in
such corresponding CoreFunds Portfolios. The shares issued by CoreFunds will
have an aggregate net asset value equal to the aggregate net asset value of the
shares of the respective Conestoga Portfolios that are outstanding immediately
before the Effective Time of the Reorganization.
Following the exchange, the Conestoga Portfolios will make a
liquidating distribution of corresponding CoreFunds Portfolios shares to their
shareholders. Each shareholder owning shares of a particular Conestoga Portfolio
at the Effective Time of the Reorganization will receive shares of the
corresponding CoreFunds Portfolio of equal value, plus the right to receive any
unpaid dividends and distributions that were declared before the Effective Time
of the Reorganization on Conestoga Portfolio shares. Upon completion of the
Reorganization, Conestoga will be terminated under state law and deregistered
under the Investment Company Act of 1940.
The Special Meeting of Shareholders of Conestoga to consider the
Reorganization Agreement and the related transactions will be held at 10:00 a.m.
Eastern time on March 22, 1996 at The Wilmington Hilton, 630 Naamans Road,
Wilmington, Delaware. For further information about the transaction, see the
Combined Proxy
Statement/Prospectus.
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as shares
of the CoreFunds Portfolios, but do not prohibit such a bank holding company or
its affiliates or banks generally from acting as investment adviser, transfer
agent, or custodian to such an investment company or from purchasing shares of
such a
C-4
<PAGE>
company as agent for and upon the order of customers. CoreStates Advisers and
financial intermediaries which agree to provide shareholder support services
that are banks or bank affiliates are subject to such banking laws and
regulations. Should legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the CoreFunds Portfolios, CoreFunds might be required to alter materially or
discontinue its arrangement with such companies and change its method of
operation. It is anticipated, however, that any resulting change in CoreFunds'
method of operation would not affect a CoreFunds Portfolio's net asset value per
share or result in financial loss to any shareholder.
C-5
<PAGE>
CoreFund Cash Reserve Fund
Conestoga Cash Management Fund
Pro-forma Schedule of Investments
31-Oct-95
<TABLE>
<CAPTION>
CoreFund Conestoga Pro-forma Combined
Maturity Coupon
Security Description Date Rate Par Value Par Value Par Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT SECURITIES
U.S. TREASURY BILLS
UNITED STATES TREASURY BILL 1/11/96 5.41 3,000,000 2,967,991 3,000,000 2,967,991
UNITED STATES TREASURY BILL 7/25/96 5.54 5,000,000 4,794,558 5,000,000 4,794,558
U.S. AGENCY BONDS
FEDERAL HOME LOAN MORTGAGE ASSOCIATION 11/21/95 5.56 5,000,000 4,984,556 5,000,000 4,984,556
FEDERAL NATIONAL MORTGAGE ASSOCIATION 12/4/95 5.42 10,000,000 9,950,317 10,000,000 9,950,317
FEDERAL NATIONAL MORTGAGE ASSOCIATION 12/5/95 5.52 10,000,000 9,947,867 10,000,000 9,947,867
FEDERAL NATIONAL MORTGAGE ASSOCIATION 12/6/95 5.64 20,000,000 19,891,694 20,000,000 19,891,694
FEDERAL NATIONAL MORTGAGE ASSOCIATION 1/4/96 5.59 5,000,000 4,950,311 5,000,000 4,950,311
FEDERAL HOME LOAN BANK 1/17/96 5.49 3,000,000 2,964,773 3,000,000 2,964,773
FEDERAL NATIONAL MORTGAGE ASSOCIATION 2/20/96 5.58 5,000,000 4,913,975 5,000,000 4,913,975
FLOATING RATE AGENCIES
FEDERAL NATIONAL MORTGAGE ASSOCIATION 11/1/95 5.55 10,000,000 10,000,000 10,000,000 10,000,000
STUDENT LOAN MARKETING ASSOCOATION 1/11/96 5.65 5,000,000 5,000,000 5,000,000 5,000,000
CORPORATE SECURITIES
CORPORATE BONDS
AMERICAN EXPRESS CENTURIAN BANK 11/7/95 5.87 10,000,000 10,000,000 10,000,000 10,000,000
ASSET BACKED SECURITIES
CASE EQUIPMENT LOAN TRUST 1995-B CLASS A1 9/15/96 5.83 2,047,541 2,047,541 2,047,541 2,047,541
DOMESTIC CD'S
NATIONAL WESTMINSTER BANK 12/11/95 5.77 5,000,000 5,000,000 5,000,000 5,000,000
EURO CD'S
HARRIS TRUST & SAVINGS BANK 1/17/96 5.79 10,000,000 10,000,132 10,000,000 10,000,132
PRIVATE PLACEMENT
ELI LILLY 1/16/96 5.82 3,000,000 2,963,140 3,000,000 2,963,140
CAISSE DES DEPOTS ET CONSIGNATIONS 1/16/96 5.64 5,000,000 4,940,467 5,000,000 4,940,467
DOMESTIC CP
AIG FUNDING 11/1/95 6.04 3,000,000 3,000,000 3,000,000 3,000,000
AMERICAN EXPRESS 11/1/95 5.70 5,000,000 5,000,000 5,000,000 5,000,000
NEW CENTER ASSET TRUST 11/1/95 5.90 25,000,000 25,000,000 25,000,000 25,000,000
SARA LEE 11/2/95 5.80 5,000,000 4,999,194 5,000,000 4,999,194
PEPSI 11/3/95 5.67 5,000,000 4,998,425 5,000,000 4,998,425
ABBEY NATIONAL BANK 11/7/95 5.67 10,000,000 9,990,550 10,000,000 9,990,550
METROPOLITAN LIFE FUNDING INCORPORATED 11/8/95 5.72 10,884,000 10,871,895 10,884,000 10,871,895
SARA LEE 11/8/95 5.71 5,000,000 4,994,449 5,000,000 4,994,449
AIG FUNDING INCORPORATED 11/9/95 5.70 10,000,000 9,987,333 10,000,000 9,987,333
COCA-COLA COMPANY 11/9/95 5.68 10,000,000 9,987,378 10,000,000 9,987,378
DUPONT (E.I.DE NEMOURS) & COMPANY 11/9/95 5.67 10,000,000 9,987,400 10,000,000 9,987,400
ASSET SECURITIZATION CO-OP CORPORATION 11/10/95 5.74 15,000,000 14,978,475 15,000,000 14,978,475
RAYTHEON CORPORATION 11/13/95 5.66 10,000,000 9,981,133 10,000,000 9,981,133
MERRILL LYNCH & COMPANY 11/15/95 5.72 10,000,000 9,977,756 10,000,000 9,977,756
ASSET SECURITIZATION CO-OP CORPORATION 11/16/95 5.69 3,150,000 3,142,532 3,150,000 3,142,532
GENERAL ELECTRIC CAPITAL CORPORATION 11/16/95 5.67 4,000,000 3,990,550 4,000,000 3,990,550
AT&T CORPORATION 11/17/95 5.65 10,000,000 9,974,889 10,000,000 9,974,889
CAISSE DES DEPOTS EN CONSIGNATION 11/20/95 5.70 10,000,000 9,969,917 10,000,000 9,969,917
CORPORATE ASSET FUNDING COMPANY 11/21/95 5.67 15,000,000 14,952,750 15,000,000 14,952,750
TOYS-R-US 11/21/95 5.69 15,000,000 14,952,583 15,000,000 14,952,583
CANADIAN IMPERIAL BANK OF COMMERCE 11/22/95 5.72 10,000,000 9,966,633 10,000,000 9,966,633
HEWLETT-PACKARD COMPANY 11/28/95 5.63 10,000,000 9,957,775 10,000,000 9,957,775
BARCLAYS BANK OF CANADA 11/30/95 5.67 10,000,000 9,954,325 10,000,000 9,954,325
JC PENNY 11/30/95 5.71 5,000,000 4,977,001 5,000,000 4,977,001
CAISSE DES DEPOTS EN CONSIGNATION 12/4/95 5.69 10,000,000 9,947,842 10,000,000 9,947,842
BANC ONE FUNDING CORPORATION 12/5/95 5.65 5,000,000 4,973,319 5,000,000 4,973,319
DUPONT (E.I.DE NEMOURS) & COMPANY 12/5/95 5.64 5,000,000 4,973,367 5,000,000 4,973,367
MERRILL LYNCH & COMPANY 12/6/95 5.65 5,000,000 4,972,535 5,000,000 4,972,535
ARCO COAL AUSTRALIA 12/7/95 5.67 4,524,000 4,498,349 4,524,000 4,498,349
FORD MOTOR CREDIT CORPORATION 12/8/95 5.68 10,000,000 9,941,622 10,000,000 9,941,622
NATIONAL AUSTRALIA FUNDING 12/14/95 5.70 10,000,000 9,931,917 10,000,000 9,931,917
PITNEY BOWES CREDIT CORPORATION 12/14/95 5.58 10,000,000 9,933,350 10,000,000 9,933,350
COCA-COLA COMPANY 12/15/95 5.68 10,000,000 9,930,578 10,000,000 9,930,578
GENERAL ELECTRIC CAPITAL CORPORATION 12/18/95 5.68 10,900,000 10,819,170 10,900,000 10,819,170
SWEDISH EXPORT CREDIT CORPORATION 12/18/95 5.58 5,000,000 4,963,575 5,000,000 4,963,575
INTEL CORPORATION 12/22/95 5.67 25,000,000 24,799,188 25,000,000 24,799,188
SARA LEE CORPORATION 12/27/95 5.68 10,000,000 9,911,644 10,000,000 9,911,644
DEUTSCHE BANK FINANCIAL 1/5/96 5.72 5,000,000 4,948,361 5,000,000 4,948,361
ABBEY NATIONAL 1/8/96 5.59 5,000,000 4,947,206 5,000,000 4,947,206
INTERNATIONAL LEASE FINANCE 1/8/96 5.71 5,000,000 4,946,072 5,000,000 4,946,072
PROVINCE OF QUEBEC 1/9/96 5.62 10,000,000 9,892,283 10,000,000 9,892,283
AMERICAN EXPRESS 1/12/96 5.69 5,000,000 4,943,100 5,000,000 4,943,100
PROVINCE OF ALBERTA 1/12/96 5.55 3,000,000 2,966,700 3,000,000 2,966,700
SCHERRING-PLOUGH CORPORATION 1/16/96 5.55 10,000,000 9,882,833 10,000,000 9,882,833
CIT GROUP HOLDINGS 1/17/96 5.65 10,000,000 9,879,153 10,000,000 9,879,153
TORONTO DOMINION 1/17/96 5.66 5,000,000 4,939,469 5,000,000 4,939,469
INTERNATIONAL LEASE FINANCE 1/22/96 5.63 5,000,000 4,935,881 5,000,000 4,935,881
ASSOCIATES CORPORATION 1/23/96 5.70 5,000,000 4,934,292 5,000,000 4,934,292
BRITISH GAS 1/24/96 5.67 10,000,000 9,867,700 10,000,000 9,867,700
PROVINCE OF ALBERTA 1/25/96 5.67 5,000,000 4,933,063 5,000,000 4,933,063
AT&T CORPORATION 1/31/96 5.67 10,000,000 9,856,675 10,000,000 9,856,675
NATIONAL RURAL UTILITY CORPORATION 2/9/96 5.65 9,250,000 9,104,826 9,250,000 9,104,826
GENERAL ELECTRIC CAPITAL CORPORATION 2/12/96 5.66 5,000,000 4,919,031 5,000,000 4,919,031
PROVINCE OF BRITISH COLUMBIA 2/12/96 5.56 6,000,000 5,904,553 6,000,000 5,904,553
TRANSAMERICA FINANCE 2/15/96 5.62 5,000,000 4,917,261 5,000,000 4,917,261
GENERAL ELECTRIC CAPITAL CORPORATION 2/16/96 5.65 11,954,000 11,753,256 11,954,000 11,753,256
ALCATEL-ALSTHOM INCORPORATED 2/21/96 5.64 10,000,000 9,824,533 10,000,000 9,824,533
AMERITECH CAPITAL CORPORATION 3/5/96 5.63 16,000,000 15,687,222 16,000,000 15,687,222
PROVINCE OF QUEBEC 3/6/96 5.58 10,000,000 9,804,700 10,000,000 9,804,700
GOLDMAN SACHS GROUP L.P. 3/18/96 5.62 10,000,000 9,784,567 10,000,000 9,784,567
TORONTO DOMINION 3/19/96 5.49 5,000,000 4,894,013 5,000,000 4,894,013
BANK NOTE
FCC NATIONAL BANK 11/1/96 5.65 4,000,000 3,997,280 4,000,000 3,997,280
FCC NATIONAL BANK 8/21/96 5.90 5,000,000 4,996,151 5,000,000 4,996,151
CASH EQUIVALENTS
TIME DEPOSITS
BANQUE PARIBAS 11/1/95 5.88 25,000,000 25,000,000 25,000,000 25,000,000
SUMITOMO BANK 11/1/95 5.88 25,000,000 25,000,000 25,000,000 25,000,000
MASTER NOTES
ASSOCIATES CORPORATION OF NORTH AMERICA 11/1/95 5.71 1,120 1,120 1,120 1,120
STUDENT LOAN MARKETING ASSOCIATION 11/1/95 5.60 3,819,000 3,819,000 3,819,000 3,819,000
REPURCHASE AGREEMENTS
HONG KONG SHANGHAI BANK CORPORATION 11/1/95 5.85 35,000,000 35,000,000 35,000,000 35,000,000
MERRILL LYNCH 11/1/95 5.85 46,165,900 46,165,900 46,165,900 46,165,900
MORGAN STANLEY 11/1/95 5.85 35,000,000 35,000,000 35,000,000 35,000,000
SWISS BANK 11/1/95 5.95 16,834,000 16,834,000 16,834,000 16,834,000
---------- ---------- ---------- ----------- ---------- ----------
TOTALS 595,363,661 591,845,176 244,165,900 242,941,744 839,529,561 834,786,921
=========== =========== =========== =========== =========== ==========
</TABLE>
<PAGE>
CoreFund Treasury Reserve Fund
Conestoga US Treasury Securities Fund
Pro-Forma Combined Schedule of Investments
October 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Core Fund Conestoga Pro-forma Combined
Security Description Maturity Coupon Par Value Par Value Par Value
<S> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES
U.S. TREASURY BILLS
UNITED STATES TREASURY BILL 11/9/95 5.660-5.720 5,000,000 4,993,711 10,000,000 9,987,267 15,000,000 14,980,978
UNITED STATES TREASURY BILL 11/16/95 5.715-6.620 8,000,000 7,979,819 8,000,000 7,979,819
UNITED STATES TREASURY BILL 11/24/95 5.365 5,000,000 4,982,862 5,000,000 4,982,862
UNITED STATES TREASURY BILL 12/7/95 5.405 5,000,000 4,972,975 5,000,000 4,972,975
UNITED STATES TREASURY BILL 12/14/95 5.330 5,000,000 4,968,168 5,000,000 4,968,168
UNITED STATES TREASURY BILL 12/21/95 5.400-5.415 5,000,000 4,962,397 20,000,000 19,850,000 25,000,000 24,812,397
UNITED STATES TREASURY BILL 1/4/96 5.340-5.445 5,000,000 4,951,600 25,000,000 24,762,667 30,000,000 29,714,267
UNITED STATES TREASURY BILL 1/11/96 5.310-5.830 5,000,000 4,946,257 30,000,000 29,673,598 35,000,000 34,619,855
UNITED STATES TREASURY BILL 1/18/96 5.370 5,000,000 4,941,825 5,000,000 4,941,825
UNITED STATES TREASURY BILL 2/1/96 5.470 5,000,000 4,930,106 5,000,000 4,930,106
UNITED STATES TREASURY BILL 2/8/96 5.290-5.780 10,000,000 9,854,319 10,000,000 9,850,950 20,000,000 19,705,269
UNITED STATES TREASURY BILL 2/15/96 5.355 5,000,000 4,921,163 5,000,000 4,921,163
UNITED STATES TREASURY BILL 2/22/96 5.290 7,000,000 6,883,767 7,000,000 6,883,767
UNITED STATES TREASURY BILL 3/7/96 5.300-5.340 11,000,000 10,793,360 15,000,000 14,719,542 26,000,000 25,512,902
UNITED STATES TREASURY BILL 3/14/96 5.290 10,000,000 9,803,094 10,000,000 9,803,094
UNITED STATES TREASURY BILL 3/14/96 5.310 8,700,000 8,528,045 8,700,000 8,528,045
UNITED STATES TREASURY BILL 3/21/96 5.310 10,000,000 9,792,025 10,000,000 9,792,025
UNITED STATES TREASURY BILL 4/4/96 5.310-6.020 10,000,000 9,767,607 20,000,000 19,532,202 30,000,000 29,299,809
UNITED STATES TREASURY BILL 4/11/96 5.320 5,500,000 5,368,330 5,500,000 5,368,330
UNITED STATES TREASURY BILL 4/18/96 5.300 10,000,000 9,751,194 10,000,000 9,751,194
UNITED STATES TREASURY BILL 5/2/96 5.475-5.540 5,000,000 4,860,844 10,000,000 9,718,383 15,000,000 14,579,227
UNITED STATES TREASURY BILL 7/25/96 5.540 5,000,000 4,794,558 5,000,000 4,794,558
U.S. TREASURY NOTES
UNITED STATES TREASURY NOTE 11/30/95 4.250 20,000,000 19,974,139 20,000,000 19,974,139
UNITED STATES TREASURY NOTE 2/29/96 7.500 10,000,000 10,061,505 10,000,000 10,061,505
UNITED STATES TREASURY NOTE 4/30/96 5.500 10,000,000 9,979,648 10,000,000 9,979,648
UNITED STATES TREASURY NOTE 4/30/96 7.625 10,000,000 10,095,545 10,000,000 10,095,545
U.S. TREASURY STRIPS
UNITED STATES TREASURY STRIP 11/15/95 10,000,000 9,978,950 10,000,000 9,978,950
UNITED STATES TREASURY STRIP 5/15/96 5,000,000 4,852,920 5,000,000 4,852,920
UNITED STATES TREASURY STRIP 5/15/96 6,000,000 5,810,047 6,000,000 5,810,047
UNITED STATES TREASURY STRIP 5/15/96 5,000,000 4,854,447 5,000,000 4,854,447
REPURCHASE AGREEMENTS
AUBREY LANSTON 11/1/95 5.850 51,000,000 51,000,000 51,000,000 51,000,000
HONG KONG SHANGHAI BANK 11/1/95 5.850 31,000,000 31,000,000 31,000,000 31,000,000
NATIONS BANK 11/1/95 5.875 55,000,000 55,000,000 55,000,000 55,000,000
SANWA BANK 11/1/95 5.850 40,000,000 40,000,000 40,000,000 40,000,000
SWISS BANK 11/1/95 5.950 17,848,000 17,848,000 17,848,000 17,848,000
REPUBLIC BANK OF NEW YORK 11/1/95 5.850 42,000,000 42,000,000 42,000,000 42,000,000
MORGAN STANLEY 11/1/95 5.850 39,000,000 39,000,000 39,000,000 39,000,000
FIRST NATIONAL BANK OF CHICAGO 11/1/95 5.850 33,000,000 33,000,000 33,000,000 33,000,000
BZW 11/1/95 5.850 50,000,000 50,000,000 50,000,000 50,000,000
MERRILL TRI-PARTY 11/1/95 5.850 49,571,400 49,571,400 49,571,400 49,571,400
MORGAN STANLEY 11/1/95 5.850 85,000,000 85,000,000 85,000,000 85,000,000
HSBC 11/1/95 5.850 85,000,000 85,000,000 85,000,000 85,000,000
----------- ----------- ----------- ----------- ----------- -----------
TOTALS 495,048,000 492,594,075 449,571,400 447,275,157 944,619,400 939,869,233
=========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
CoreFund Value Equity
Conestoga Equity Fund
Pro-forma Schedule of Investments
31-Oct-95
<TABLE>
<CAPTION>
CoreFund Conestoga Pro-forma Combined
Market Market Market
Security Description Shares Value Shares Value Shares Value
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
BUILDING AND CONSTRUCTION
OWENS CORNING FIBERGLASS CORPORATION 46,910 1,987,811 46,910 1,987,811
OWENS - ILLINOIS INCORPORATED 119,455 1,508,119 119,455 1,508,119
SHERWIN WILLIAMS COMPANY 14,500 545,563 14,500 545,563
STANLEY WORKS 20,800 993,200 20,800 993,200
CHEMICALS AND DRUGS -- --
AMERICAN HOME PRODUCTS 14,000 1,240,750 14,000 1,240,750
CAREMARK INTERNATIONAL INCORPORATED 60,000 1,237,500 23,200 478,500 83,200 1,716,000
CARTER-WALLACE INCORPORATED 55,300 580,650 55,300 580,650
COLUMBIA/HCA HEALTHCARE CORPORATION 25,000 1,228,125 25,000 1,228,125
CORAM HEALTHCARE CORPORATION 100,000 400,000 100,000 400,000
DOW CHEMICAL COMPANY 25,525 1,751,653 25,525 1,751,653
ELAN CORPORATION 35,000 1,404,375 111,100 4,457,888 146,100 5,862,263
ELI LILLY AND COMPANY 8,000 773,000 8,000 773,000
FIRST ALERT INCORPORATED 33,800 523,900 33,800 523,900
FMC CORPORATION 11,500 823,688 11,500 823,688
FOUNDATION HEALTH CORPORATION 53,704 2,275,707 53,704 2,275,707
HERCULES INCORPORATED 5,100 272,213 5,100 272,213
HUMANA INCORPORATED 122,300 2,583,588 122,300 2,583,588
IMC GLOBAL, INCORPORATED 36,600 2,562,000 36,600 2,562,000
MERCK AND COMPANY INCORPORATED 15,000 862,500 45,805 2,633,788 60,805 3,496,288
MONSANTO COMPANY 32,500 3,404,375 32,500 3,404,375
PRAXAIR INCORPORATED 155,000 4,185,000 155,000 4,185,000
UNITED STATES SURGICAL CORPORATION 37,557 920,147 37,557 920,147
UPJOHN COMPANY 15,900 806,925 15,900 806,925
CONSUMER PRODUCTS -- --
BED BATH & BEYOND INCORPORATED 7,600 237,500 7,600 237,500
BURLINGTON INDUSTRIES INCORPORATED 49,771 553,702 49,771 553,702
CML GROUP INCORPORATED 275,000 1,581,250 275,000 1,581,250
GENERAL ELECTRIC COMPANY 180,000 11,385,000 180,000 11,385,000
HASBRO INCORPORATED 50,000 1,525,000 50,000 1,525,000
HEILIG-MEYERS COMPANY 44,800 823,200 44,800 823,200
IBP INCORPORATED 38,200 2,287,225 38,200 2,287,225
INTERNATIONAL PAPER COMPANY 50,000 1,850,000 50,000 1,850,000
KELLWOOD COMPANY 49,800 933,750 49,800 933,750
KIMBERLY CLARK CORPORATION 10,000 726,250 10,000 726,250
MGM GRAND INCORPORATED 43,870 1,047,396 43,870 1,047,396
NEWS CORPORATION -- PREFERRED SHARES ADR 72,915 1,330,699 72,915 1,330,699
PHILIP MORRIS COMPANIES INCORPORATED 173,860 14,691,170 173,860 14,691,170
SCOTT PAPER 6,000 319,500 6,000 319,500
DURABLE GOODS -- --
ALLIED SIGNAL INCORPORATED 24,500 1,041,250 84,775 3,602,938 109,275 4,644,188
APPLE COMPUTER INCORPORATED 94,000 3,413,375 94,000 3,413,375
AUTOTOTE CORPORATION CLASS A 90,230 270,690 90,230 270,690
BEVERLY ENTERPRISES INCORPORATED 136,600 1,605,050 136,600 1,605,050
BOEING COMPANY 11,200 735,000 27,310 1,792,219 38,510 2,527,219
BOMBAY COMPANY 50,000 293,750 50,000 293,750
BRUNSWICK CORPORATION 80,800 1,575,600 80,800 1,575,600
BURLINGTON NORTHERN SANTA FE 30,000 2,516,250 30,000 2,516,250
CASE EQUIPMENT CORPORATION 55,000 2,096,875 55,000 2,096,875
CATERPILLAR INCORPORATED 33,700 1,891,413 33,700 1,891,413
CELLULAR COMMUNICATIONS PREFERRED 23,866 1,279,814 23,866 1,279,814
CELLULAR COMMUNICATIONS -- CLASS A 24,773 1,328,452 24,773 1,328,452
COMMUNITY PSYCHIATRIC 48,400 526,350 48,400 526,350
COMPAQ COMPUTER CORPORATION 57,500 3,205,625 57,500 3,205,625
COMPUTER ASSOCIATES INTERNATIONAL INC 52,500 2,887,500 52,500 2,887,500
DARDEN RESTAURANTS INCORPORATED 619,000 7,041,125 619,000 7,041,125
DEERE AND COMPANY 40,000 3,575,000 40,000 3,575,000
DIGITAL EQUIPMENT CORPORATION 84,750 4,587,094 84,750 4,587,094
FHP INTERNATIONAL CORPORATION 45,000 1,091,250 45,000 1,091,250
FLIGHT SAFETY INTERNATIONAL INCORPORATED 20,000 955,000 20,000 955,000
FORD MOTOR COMPANY 205,000 5,893,750 205,000 5,893,750
FRANKLIN RESOURCES, INCORPORATED 12,000 609,000 12,000 609,000
GENERAL INSTRUMENT CORPORATION 51,800 984,200 51,800 984,200
GOODYEAR TIRE AND RUBBER COMPANY 245,000 9,310,000 245,000 9,310,000
HARNISCHFEGER INDUSTRIES 40,000 1,260,000 40,000 1,260,000
HEWLETT PACKARD COMPANY 14,330 1,327,316 14,330 1,327,316
INTEL CORPORATION 73,400 5,128,825 73,400 5,128,825
INTERNATIONAL BUSINESS MACHINES CORPORATION 98,000 9,530,500 98,000 9,530,500
INTERNATIONAL GAME TECHNOLOGY 146,358 1,701,412 146,358 1,701,412
LOCKHEED MARTIN CORPORATION 25,401 1,730,443 25,401 1,730,443
LORAL CORPORATION 25,000 740,625 25,000 740,625
LOWE'S COMPANIES INCORPORATED 159,200 4,298,400 159,200 4,298,400
MAGNA INTERNATIONAL, CLASS A 27,500 1,189,375 27,500 1,189,375
MANPOWER INCORPORATED 116,000 3,146,500 116,000 3,146,500
MAYTAG CORPORATION 85,800 1,630,200 85,800 1,630,200
MCDONNELL DOUGLAS CORPORATION 21,717 1,775,365 21,717 1,775,365
MICHAEL FOODS INCORPORATED 3,726 45,178 3,726 45,178
MICRON TECHNOLOGY INCORPORATED 24,500 1,730,313 24,500 1,730,313
MOTOROLA INCORPORATED 32,175 2,111,484 32,175 2,111,484
MYLAN LABORATORIES 63,100 1,198,900 63,100 1,198,900
NABISCO HOLDINGS CORP -- CLASS A 179,500 4,824,063 179,500 4,824,063
NATIONAL SEMICONDUCTOR CORPORATION 76,000 1,852,500 76,000 1,852,500
NOVELL INCORPORATED 56,435 931,178 56,435 931,178
PEP BOYS -- MANNY MOE AND JACK 100,000 2,187,500 100,000 2,187,500
POTASH CORPORATION OF SASKATCHEWAN 49,400 3,439,475 49,400 3,439,475
PRESIDENT CASINOS INCORPORATED 31,325 95,933 31,325 95,933
PYXIS CORPORATION 24,839 313,592 24,839 313,592
QUALCOMM INCORPORATED 65,000 2,502,500 65,000 2,502,500
RALLY'S HAMBURGERS INCORPORATED 18,426 34,549 18,426 34,549
RJR NABISCO HOLDINGS CORPORATION 256,160 7,876,920 256,160 7,876,920
ROCKWELL INTERNATIONAL CORPORATION 18,000 801,000 18,000 801,000
SBC COMMUNICATIONS INC 80,000 4,470,000 80,000 4,470,000
SUNDSTRAND CORPORATION 10,300 630,875 10,300 630,875
TEXAS INSTRUMENTS INCOPORATED 13,100 894,075 13,100 894,075
TEXTRON INCOPORATED 30,000 2,062,500 30,000 2,062,500
TRANSPORT HOLDINGS INC CL-A 625 24,531 625 24,531
TRIPOS INCORPORATED 1 7 1 7
UNITED TECHNOLOGIES CORPORATION 16,500 1,464,375 16,500 1,464,375
UNIVERSAL CORPORATION -- VA 21,770 457,170 21,770 457,170
VICORP RESTAURANTS INCORPORATED 61,534 676,874 61,534 676,874
VLSI TECHNOLOGY INC. 40,000 940,000 40,000 940,000
VONS COMPANY 23,000 583,625 23,000 583,625
WEBB DEL E CORPORATION 105,000 2,178,750 105,000 2,178,750
WESTERN ATLAS INC. 15,300 671,288 15,300 671,288
WESTINGHOUSE ELECTRIC CORPORATION 235,000 3,319,375 235,000 3,319,375
XEROX CORPORATION 13,000 1,686,750 13,000 1,686,750
FINANCIAL -- --
AETNA LIFE AND CASUALTY COMPANY 30,000 2,111,250 30,000 2,111,250
BANK OF BOSTON CORPORATION 74,000 3,293,000 74,000 3,293,000
BANKAMERICA CORPORATION 196,900 11,321,750 196,900 11,321,750
CHASE MANHATTAN CORPORATION 206,600 11,776,200 206,600 11,776,200
CHEMICAL BANKING CORPORATION 103,000 5,858,125 103,000 5,858,125
CIGNA CORPORATION 30,000 2,973,750 30,000 2,973,750
CITICORP INCORPORATED 99,000 6,422,625 99,000 6,422,625
DEAN WITTER DISCOVER & COMPANY 89,013 4,428,397 89,013 4,428,397
EQUITABLE COMPANIES INC. 195,500 4,154,375 195,500 4,154,375
FLEET FINANCIAL GROUP 55,000 2,131,250 55,000 2,131,250
HOUSEHOLD INTERNATIONAL INCORPORATED 38,000 2,137,500 38,000 2,137,500
MBNA CORPORATION 62,900 2,319,438 62,900 2,319,438
MERRILL LYNCH AND COMPANY 8,000 444,000 8,000 444,000
PAINE WEBBER GROUP INCORPORATED 35,000 770,000 35,000 770,000
PARK NATIONAL CORPORATION 8,000 362,000 8,000 362,000
PNC BANK CORPORATION 50,000 1,312,500 50,000 1,312,500
PROGRESSIVE CORPORATION OHIO 15,000 622,500 15,000 622,500
THE TRAVELERS GROUP, INC 125,000 6,312,500 125,000 6,312,500
UNITED HEALTHCARE CORPORATION 9,850 523,281 9,850 523,281
METALS AND MINING -- --
COLLECTIBLES & PRECIOUS METAL -- --
BIRMINGHAM STEEL CORPORATION 8,070 123,068 8,070 123,068
JAN BELL MARKETING 80,480 271,620 80,480 271,620
PHELPS DODGE CORPORATION 46,600 2,953,275 46,600 2,953,275
USX CORPORATION -- U.S. STEEL GROUP 100,100 2,990,488 100,100 2,990,488
OIL-ENERGY -- --
ANADARKO PETROLEUM CORPORATION 37,600 1,630,900 37,600 1,630,900
ASHLAND INCORPORATED -- NEW 100,000 3,162,500 100,000 3,162,500
ATLANTIC RICHFIELD COMPANY 7,000 747,250 7,000 747,250
BAKER HUGHES INCORPORATED 90,000 1,766,250 90,000 1,766,250
BRITISH PETROLEUM PLC 92,000 8,119,000 92,000 8,119,000
DIAMOND SHAMROCK INCORPORATED 31,750 817,563 31,750 817,563
ENRON CORPORATION 10,000 343,750 85,000 2,921,875 95,000 3,265,625
MCDERMOTT INTERNATIONAL INCORPORATED 30,635 486,331 30,635 486,331
MOBIL CORPORATION 78,600 7,918,950 78,600 7,918,950
REPSOL S.A. 161,500 4,784,438 161,500 4,784,438
ROYAL DUTCH PETROLEUM COMPANY 53,550 6,579,956 53,550 6,579,956
TOSCO CORPORATION 57,700 1,990,650 57,700 1,990,650
RETAIL -- --
BORDER GROUP INCORPORATED 187,000 3,202,375 187,000 3,202,375
CIRCUIT CITY STORES 30,900 1,031,288 30,900 1,031,288
FRUIT OF THE LOOM 75,000 1,303,125 75,000 1,303,125
KROGER COMPANY 169,505 5,657,229 169,505 5,657,229
SEARS ROEBUCK AND COMPANY 28,200 958,800 28,200 958,800
WENDY'S INTERNATIONAL INCORPORATED 40,000 795,000 40,000 795,000
UTILITIES
BROWNING FERRIS INDUSTRIES 125,000 3,640,625 125,000 3,640,625
CENTRAL AND SOUTH WEST CORPORATION 124,200 3,322,350 124,200 3,322,350
CONSOLIDATED EDISON COMPANY 142,000 4,313,250 142,000 4,313,250
MCI COMMUNICATIONS CORPORATION 178,475 4,450,720 178,475 4,450,720
PACIFIC GAS AND ELECTRIC COMPANY 120,800 3,548,500 120,800 3,548,500
PECO ENERGY COMPANY 200,000 5,850,000 200,000 5,850,000
SCECORP 425,000 7,225,000 425,000 7,225,000
WORLDCOM INCORPORATED 350,100 11,422,013 350,100 11,422,013
MISCELLANEOUS -- --
BUENOS AIRES EMBOTELLADO-ADR 27,355 625,746 27,355 625,746
CONRAIL INCORPORATED 10,000 687,500 10,000 687,500
CSX CORPORATION 28,600 2,395,250 28,600 2,395,250
ITT CORPORATION 40,000 4,900,000 40,000 4,900,000
NOVACARE CORPORATION 25,964 162,275 25,964 162,275
YPF SOCIEDAD ANONIMA 72,385 1,239,593 72,385 1,239,593
AMERICAN DEPOSITORY RECEIPT -- --
PHILIPS ELECTRONICS 75,000 2,896,875 75,000 2,896,875
TEVA PHARMACEUTICAL INDUSTRIES LIMITED 32,672 1,282,376 32,672 1,282,376
CORPORATE BONDS -- --
DOMESTIC CP -- --
AMERICAN EXPRESS 3,336,000 3,336,000 3,336,000 3,336,000
CASH EQUIVALENTS -- --
REPURCHASE AGREEMENTS -- --
SWISS BANK 355,000 355,000 355,000 355,000
HONG KONG SHANGHAI BANK CORPORATION 355,000 355,000 355,000 355,000
--------- ---------- ---------- ----------- ---------- -----------
TOTALS 1,703,401 33,961,457 14,371,601 385,182,148 16,075,002 419,143,605
========= ========== ========== =========== ========== ===========
</TABLE>
<PAGE>
CoreFund Tax-Free Reserve Fund
Conestoga Tax-Free Fund
Pro-form Combined Schedule of Investments
31-Oct-95
<TABLE>
<CAPTION>
CoreFund Conestoga Pro-forma Combined
Security Description Maturity Date Coupon Rate Par Market Value Par Market Value Par Market Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANTICIPATION NOTES
RHODE ISLAND STATE 6/28/96 4.50 3,000,000 $3,016,679 3,000,000 $3,016,679
TEXAS STATE 8/30/96 4.75 1,000,000 $1,005,577 1,000,000 1,005,577
TEXAS STATE 8/30/96 4.75 1,000,000 1,005,985 1,000,000 1,005,985
PRE-REFUNDED SECURITIES - -
EASTERN MUNICIPAL AGENCY,
NORTH CAROLINA* 11/1/95 7.75 2,000,000 2,069,515 2,000,000 2,069,515
PIEDMONT, SOUTH CAROLINA* 11/1/95 9.70 500,000 519,510 500,000 519,510
GENERAL OBLIGATIONS - -
HAWAII STATE 2/1/96 3.85 750,000 750,265 750,000 750,265
MASSACHUSETTS STATE* 11/1/95 3.70 600,000 600,000 600,000 600,000
MANCHESTER, NEW HAMSHIRE 11/1/96 5.50 1,945,000 1,976,178 1,945,000 1,976,178
OREGON STATE* 11/1/95 4.20 500,000 500,000 500,000 500,000
SAN ANTONIO, TEXAS* 11/1/04 8.00 1,700,000 1,700,000 1,700,000 1,700,000
TAX EXEMPT COMMERCIAL PAPER - -
VALDEZ, ALASKA 1/16/96 3.80 2,000,000 2,000,000 2,000,000 2,000,000
VALDEZ, ALASKA 1/31/96 3.75 1,200,000 1,200,000 1,200,000 1,200,000
MONTGOMERY, ALABAMA 1/11/96 3.75 2,000,000 2,000,000 2,000,000 2,000,000
ALABAMA HOUSING 11/9/95 3.80 500,000 500,000 500,000 500,000
ALABAMA HOUSING 12/1/95 3.65 2,000,000 2,000,000 2,000,000 2,000,000
MESA MUNICIPAL DEVELOPEMENT,
ARIZONA 12/6/95 3.80 3,000,000 3,000,000 3,000,000 3,000,000
FLAGSTAFF, ARIZONA 12/5/95 3.50 250,000 250,000 250,000 250,000
SUNSHINE STATE, FLORIDA 12/1/95 3.90 1,200,000 1,200,000 1,200,000 1,200,000
BURKE COUNTY, GEORGIA 12/7/95 3.75 2,400,000 2,400,000 2,400,000 2,400,000
ST COUNTY HONOLULU HAWAII 12/5/95 3.80 1,500,000 1,500,000 1,500,000 1,500,000
SULLIVAN, INDIANA 12/11/95 3.75 300,000 300,000 300,000 300,000
JASPER COUNTY, INDIANA 1/9/96 3.80 500,000 500,000 500,000 500,000
JASPER COUNTY, INDIANA 1/10/96 3.80 690,000 690,000 690,000 690,000
JASPER COUNTY, INDIANA 1/12/95 3.80 700,000 700,000 700,000 700,000
SULLIVAN, INDIANA 2/9/96 3.90 600,000 600,000 600,000 600,000
SULLIVAN, INDIANA 2/1/96 3.85 1,000,000 1,000,000 1,000,000 1,000,000
BURLINGTON, KANSAS 12/13/95 3.85 1,500,000 1,500,000 1,500,000 1,500,000
BURLINGTON, KANSAS 11/15/95 3.75 1,450,000 1,450,000 1,450,000 1,450,000
BURLINGTON, KANSAS 12/6/95 3.85 2,000,000 2,000,000 2,000,000 2,000,000
BURLINGTON, KANSAS 2/9/96 3.90 400,000 400,000 400,000 400,000
BURLINGTON, KANSAS 11/28/95 3.90 1,000,000 1,000,000 1,000,000 1,000,000
JEFFERSON COUNTY, KENTUCKY 11/20/95 3.80 2,200,000 2,200,000 2,200,000 2,200,000
ROCHESTER, MINNESOTA 11/9/95 3.15 1,100,000 1,100,000 1,100,000 1,100,000
ROCHESTER MINNESOTA 1/22/96 3.80 1,500,000 1,500,000 1,500,000 1,500,000
INDEPENDENCE MS WASTE 11/3/95 3.50 2,000,000 2,000,000 2,000,000 2,000,000
DELTA COUNTY, MISSOURI 11/21/95 3.75 1,300,000 1,300,000 1,300,000 1,300,000
MISSOURI STATE 11/21/95 3.85 1,500,000 1,500,000 1,500,000 1,500,000
NORTH CAROLINA MUNICIPAL POWER 1/24/96 3.75 2,000,000 2,000,000 2,000,000 2,000,000
OHIO STATE AIR QUALITY 11/6/95 3.70 3,000,000 3,000,000 3,000,000 3,000,000
DELAWARE COUNTY, PENNSYLVANIA 11/2/95 3.60 1,500,000 1,500,000 1,500,000 1,500,000
MONTGOMERY COUNTY, PENNSYLVANIA 12/7/95 3.80 300,000 300,000 300,000 300,000
BEAVER COUNTY, PENNSYLVANIA 1/24/96 3.75 2,000,000 2,000,000 2,000,000 2,000,000
TEXAS A & M 12/8/95 3.80 1,500,000 1,500,000 1,500,000 1,500,000
DALLS/FT. WORTH, TEXAS 11/1/95 3.60 1,900,000 1,900,000 1,900,000 1,900,000
CHESAPEAKE, VIRGINIA 11/6/95 3.60 1,000,000 1,000,000 1,000,000 1,000,000
PENNINSULA PORTS, VIRGINIA 11/7/95 3.65 1,000,000 1,000,000 1,000,000 1,000,000
SEATTLE LIGHT & POWER 11/8/95 3.50 1,000,000 1,000,000 1,000,000 1,000,000
SEATTLE LIGHT & POWER, WASHINGTON 11/9/95 3.65 1,000,000 1,000,000 1,000,000 1,000,000
CONVERSE, WYOMING 11/6/95 3.50 1,000,000 1,000,000 1,000,000 1,000,000
GILLETTE COUNTY, WYOMING 11/17/95 3.70 1,000,000 1,000,000 1,000,000 1,000,000
LINCOLN COUNTY, WYOMING 11/21/95 3.70 1,400,000 1,400,000 1,400,000 1,400,000
SWEETWATER COUNTY, WYOMING 12/8/95 3.65 2,500,000 2,500,000 2,500,000 2,500,000
REVENUE BONDS - -
ALABAMA STATE* 11/1/95 3.85 900,000 900,000 900,000 900,000
MCINTOSH, ALABAMA* 11/1/95 4.00 400,000 400,000 400,000 400,000
STEVENSON, ALABAMA* 11/1/95 3.90 600,000 600,000 600,000 600,000
WINFIELD, ALABAMA* 11/1/95 3.85 1,800,000 1,800,000 1,800,000 1,800,000
SANTA CLARA, CALIFORNIA* 11/1/95 3.70 370,000 370,000 370,000 370,000
COLORADO STATE* 11/2/95 3.90 1,955,000 1,955,000 1,955,000 1,955,000
WILMINGTON, DELAWARE* 11/1/95 3.90 100,000 100,000 100,000 100,000
WILMINGTON, DELEWARE* 11/1/95 3.90 100,000 100,000 100,000 100,000
DISTRICT OF COLUMBIA* 11/1/95 3.95 2,835,000 2,835,000 2,835,000 2,835,000
DADE COUNTY, FLORIDA* 11/1/95 4.15 1,200,000 1,200,000 1,200,000 1,200,000
HILLSBOROUGH, FLORIDA* 11/1/95 4.00 700,000 700,000 700,000 700,000
CHICAGO, ILLINOIS* 11/1/95 3.90 1,200,000 1,200,000 1,200,000 1,200,000
DES MOINES, IOWA* 11/1/95 3.90 400,000 400,000 400,000 400,000
ILLINOIS STATE* 11/1/95 4.00 700,000 700,000 700,000 700,000
GARY, INDIANA* 11/15/95 3.90 1,600,000 1,600,000 1,600,000 1,600,000
HAMMOND, INDIANA* 11/1/95 3.90 200,000 200,000 200,000 200,000
WICHITA, KANSAS* 11/1/95 4.15 100,000 100,000 100,000 100,000
LOUISIANA STATE* 11/1/95 3.90 1,565,000 1,565,000 1,565,000 1,565,000
PARISH OF DESOTA, LOUISIANA* 11/1/95 3.80 700,000 700,000 700,000 700,000
JEFFERSON PARISH, LOUISIANA* 11/1/95 3.95 800,000 800,000 800,000 800,000
CORNELL TOWNSHIP, MICHIGAN* 11/1/95 3.80 200,000 200,000 200,000 200,000
DELTA COUNTY, MICHIGAN* 11/1/95 4.00 1,700,000 1,700,000 1,700,000 1,700,000
MICHIGAN STATE* 11/1/95 3.90 100,000 100,000 100,000 100,000
MICHIGAN STATE* 11/1/95 3.90 1,500,000 1,500,000 1,500,000 1,500,000
ROBBINSDALE, MINNESOTA* 11/1/95 4.00 1,100,000 1,100,000 1,100,000 1,100,000
ROBINSDALE, MINNISOTA* 11/1/95 4.00 1,200,000 1,200,000 1,200,000 1,200,000
SAINT LOUIS PARK, MINNESOTA* 11/1/95 3.80 400,000 400,000 400,000 400,000
MISSOURI STATE 6/1/96 4.00 750,000 750,000 750,000 750,000
KANSAS CITY, MISSOURI* 11/1/95 4.00 700,000 700,000 700,000 700,000
JACKSON COUNTY, MISSISSIPPI* 11/1/95 3.90 1,000,000 1,000,000 1,000,000 1,000,000
PERRY COUNTY, MISSISSIPPI* 11/1/95 3.95 800,000 800,000 800,000 800,000
JACKSON COUNTY, MISSISSIPPI* 11/1/95 3.90 300,000 300,000 300,000 300,000
BILLINGS, MONTANA* 11/1/95 3.95 600,000 600,000 600,000 600,000
FORSYTH, MONTANA* 11/1/95 3.85 600,000 600,000 600,000 600,000
FORSYTH, MONTANA* 11/1/95 3.85 100,000 100,000 100,000 100,000
FORSYTH, MONTANA* 11/1/95 3.85 1,000,000 1,000,000 1,000,000 1,000,000
FORSYTH, MONTANA* 11/1/95 3.85 600,000 600,000 600,000 600,000
FORSYTH, MONTANA* 11/1/95 3.85 200,000 200,000 200,000 200,000
WAKE COUNTY, NORTH CAROLINA* 11/1/95 3.85 400,000 400,000 400,000 400,000
NEVADA STATE* 11/1/95 4.20 500,000 500,000 500,000 500,000
NEW YORK, NEW YORK* 11/1/95 4.00 1,000,000 1,000,000 1,000,000 1,000,000
NEW YORK, NEW YORK* 11/1/95 4.00 300,000 300,000 300,000 300,000
OHIO STATE* 11/1/95 4.00 2,000,000 2,000,000 2,000,000 2,000,000
OHIO STATE* 11/1/95 3.80 100,000 100,000 100,000 100,000
PORT OF PORTLAND, OREGON* 11/1/95 3.90 200,000 200,000 200,000 200,000
PORT OF ST. HELENS, OREGAN* 11/1/95 3.95 1,800,000 1,800,000 1,800,000 1,800,000
PORT ST. HELENS OREGON* 11/1/95 3.95 400,000 400,000 400,000 400,000
UMATILLA COUNTY, OREGON* 11/1/95 3.90 100,000 100,000 100,000 100,000
ALLEGHANY COUNTY, PENNSYLVANIA* 11/2/95 3.85 355,000 355,000 355,000 355,000
ALLEGHENY COUNTY, PENNSYLVANIA* 11/1/95 3.85 1,150,000 1,150,000 1,150,000 1,150,000
BEAVER COUNTY, PENNSYLVANIA* 11/1/95 3.90 100,000 100,000 100,000 100,000
SCHUYKILL COUNTY, PENNSYLVANIA* 11/1/95 4.20 300,000 300,000 300,000 300,000
LEHIGH COUNTY, PENNSYLVANIA* 11/1/95 3.90 300,000 300,000 300,000 300,000
PENNSYLVANIA STATE 11/1/96 4.25 1,560,000 1,567,551 1,560,000 1,567,551
PENNSYLVANIA STATE* 11/1/95 4.00 1,100,000 1,100,000 1,100,000 1,100,000
LANGHORNE, PENNSYLVANIA* 11/1/95 3.80 100,000 100,000 100,000 100,000
WASHINGTON COUNTY, PENNSYLVANIA* 11/1/95 4.00 2,255,000 2,255,000 2,255,000 2,255,000
RHODE ISLAND STATE* 11/1/95 3.95 1,000,000 1,000,000 1,000,000 1,000,000
RICHLAND COUNTY, SOUTH CAROLINA* 11/1/95 4.30 450,000 450,000 450,000 450,000
YORK COUNTY, SOUTH CAROLINA* 11/1/95 3.95 400,000 400,000 400,000 400,000
RAPID CITY, SOUTH DAKOTA* 11/1/95 3.80 765,000 765,000 765,000 765,000
SULLIVAN COUNTY, TENNESSEE* 11/1/95 3.90 1,300,000 1,300,000 1,300,000 1,300,000
CAMP COUNTY, TEXAS* 11/1/95 4.10 500,000 500,000 500,000 500,000
HARRIS COUNTY, TEXAS* 11/1/95 4.00 1,100,000 1,100,000 1,100,000 1,100,000
TEXAS PORT DEVELOPMENT
CORPORATION* 11/1/95 3.85 1,300,000 1,300,000 1,300,000 1,300,000
GRAPEVINE, TEXAS* 11/1/95 3.90 100,000 100,000 100,000 100,000
GRAPEVINE, TEXAS INDUSTRIAL
DEVELOPMENT REVENUE* 11/1/95 3.90 600,000 600,000 600,000 600,000
GRAPEVINE TEXAS* 11/1/95 3.90 100,000 100,000 100,000 100,000
GRAPEVINE, TEXAS* 11/1/95 3.70 800,000 800,000 800,000 800,000
MONTGOMERY COUNTY, TEXAS* 11/1/95 3.95 100,000 100,000 100,000 100,000
NUECES COUNTY, TEXAS* 11/1/95 3.95 1,675,000 1,675,000 1,675,000 1,675,000
PENINSULA, VIRGINIA* 11/1/95 3.80 100,000 100,000 100,000 100,000
VERMONT STATE* 11/1/95 3.90 1,400,000 1,400,000 1,400,000 1,400,000
LAC DU FLAMBEAU, WISCONSIN* 11/1/95 3.85 800,000 800,000 800,000 800,000
WEST VIRGINIA STATE* 11/1/95 4.15 400,000 400,000 400,000 400,000
LINCOLN COUNTY, WYOMING* 11/1/95 4.00 200,000 200,000 200,000 200,000
LINCOLN COUNTY, WYOMING* 11/1/95 4.00 500,000 500,000 500,000 500,000
LINCOLN COUNTY WYOMING* 11/1/95 3.90 1,300,000 1,300,000 1,300,000 1,300,000
SUBLETTE COUNTY, WYOMING* 11/1/95 3.90 200,000 200,000 200,000 200,000
UINTA COUNTY, WYOMING* 11/1/95 3.90 1,800,000 1,800,000 1,800,000 1,800,000
---------- ---------- ---------- ---------- ----------- --------------
TOTALS 71,215,000 71,290,183 61,655,000 61,736,077 132,870,000 133,026,260.27
========== ========== ========== ========== =========== ==============
</TABLE>
* Variable rate security. Rate shown reflects the rate
that was in effect at October 31, 1995.
<PAGE>
CoreFund Intermediate Bond Fund
Conestoga Intermediate Income Fund
Pro-Forma Schedule of Investments
October 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Core Fund Conestoga Pro-forma Combined
Security Description Maturity Coupon Par Value Par Value Par Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES
U.S. TREASURY NOTES
UNITED STATES TREASURY NOTE 1/31/97 7.500 4,110,000 4,202,434 4,110,000 4,202,434
UNITED STATES TREASURY NOTE 5/15/97 6.500 7,010,000 7,098,396 7,010,000 7,098,396
UNITED STATES TREASURY NOTE 5/15/97 8.500 700,000 729,190 700,000 729,190
UNITED STATES TREASURY NOTE 7/15/97 8.500 8,670,000 9,067,953 8,670,000 9,067,953
UNITED STATES TREASURY NOTE 8/15/97 6.500 6,890,000 6,989,836 6,890,000 6,989,836
UNITED STATES TREASURY NOTE 8/31/97 6.000 6,575,000 6,617,277 6,575,000 6,617,277
UNITED STATES TREASURY NOTE 11/15/97 7.375 4,000,000 4,130,920 2,420,000 2,499,207 6,420,000 6,630,127
UNITED STATES TREASURY NOTE 2/15/98 8.125 145,000 152,520 145,000 152,520
UNITED STATES TREASURY NOTE 5/15/98 9.000 4,050,000 4,363,551 4,050,000 4,363,551
UNITED STATES TREASURY NOTE 8/15/98 9.250 10,580,000 11,531,248 10,580,000 11,531,248
UNITED STATES TREASURY NOTE 5/31/99 6.750 2,215,000 2,284,197 2,215,000 2,284,197
UNITED STATES TREASURY NOTE 9/30/99 7.125 7,015,000 7,335,796 7,015,000 7,335,796
UNITED STATES TREASURY NOTE 10/15/99 6.000 2,200,000 2,217,556 2,200,000 2,217,556
UNITED STATES TREASURY NOTE 10/31/99 7.500 6,270,000 6,645,573 6,270,000 6,645,573
UNITED STATES TREASURY NOTE 11/30/99 7.750 230,000 246,010 230,000 246,010
UNITED STATES TREASURY NOTE 1/31/00 7.750 3,315,000 3,552,818 3,315,000 3,552,818
UNITED STATES TREASURY NOTE 5/31/00 6.250 1,000,000 1,017,200 1,000,000 1,017,200
UNITED STATES TREASURY NOTE 9/30/00 6.125 2,000,000 2,026,080 2,000,000 2,026,080
UNITED STATES TREASURY NOTE 11/15/01 7.500 14,690,000 15,882,828 14,690,000 15,882,828
UNITED STATES TREASURY NOTE 2/15/05 7.500 2,360,000 2,602,207 2,360,000 2,602,207
UNITED STATES TREASURY NOTE 8/15/05 6.500 3,000,000 3,105,300 3,000,000 3,105,300
CORPORATE SECURITIES
ASSET BACKED SECURITIES
ADVANTA CMO 10/25/09 4.900 1,675,257 1,573,871 1,675,257 1,573,871
BANC ONE CREDIT CARD MASTER
TRUST 1994-A 12/15/98 7.150 1,675,000 1,703,559 1,675,000 1,703,559
CASE EQUIPMENT LOAN TRUST 9/15/00 5.950 1,000,000 1,001,600 1,000,000 1,001,600
DAIMLER-BENZ GRANTOR TRUST
1993-A-A 10/15/98 3.900 610,288 601,927 610,288 601,927
DISCOVER CARD MASTER TRUST I 4/16/02 6.065 2,000,000 2,000,600 2,000,000 2,000,600
FORD CREDIT GRANTOR TRUST 5/15/99 6.350 1,255,289 1,260,511 1,255,289 1,260,511
PREMIER AUTO TRUST 9/15/97 6.375 15,451 15,472 15,451 15,472
PREMIER AUTO TRUST 2/4/98 7.850 2,000,000 2,057,200 2,000,000 2,057,200
PREMIER AUTO TRUST 5/2/98 6.450 1,625,000 1,638,569 1,625,000 1,638,569
PREMIER AUTO TRUST 9/4/98 7.850 870,000 894,882 870,000 894,882
SEARS CREDIT ACCOUNT MASTER
TRUST 10/15/04 7.000 3,000,000 3,103,800 3,000,000 3,103,800
STANDARD CREDIT CARD MASTER
TRUST 6/7/00 6.750 2,000,000 2,035,320 2,000,000 2,035,320
CORPORATE BONDS
AMERICAN EXPRESS MASTER TRUST 8/15/99 7.150 1,000,000 1,030,700 1,000,000 1,030,700
ASSOCIATES CORPORATION NA 8/15/98 6.375 1,500,000 1,509,375 1,500,000 1,509,375
BEAR STEARNS CO. 10/1/05 6.875 710,000 709,113 710,000 709,113
CARTER HOLT HARVEY LTD. 12/1/04 8.875 1,120,000 1,276,800 1,120,000 1,276,800
CHASE MANHATTEN BANK 8/1/05 6.500 695,000 677,625 695,000 677,625
CHRYSLER CORPORATION 8/1/99 10.400 1,095,000 1,162,069 1,095,000 1,162,069
CSR AMERICA INCORPORATED 7/21/05 6.875 1,670,000 1,692,963 1,670,000 1,692,963
DEAN WITTER DISCOVER 3/1/98 6.000 1,250,000 1,248,438 1,250,000 1,248,438
FIRST NATIONAL BANK OF BOSTON 9/15/04 8.000 2,000,000 2,150,000 2,000,000 2,150,000
FORD MOTOR CREDIT CORPORATION 8/15/97 6.800 1,000,000 1,013,750 1,000,000 1,013,750
GREAT LAKES POWER INCORPORATED 12/1/99 8.900 990,000 1,053,113 990,000 1,053,113
JOHN DEERE CAPITAL CORPORATION 9/2/96 4.625 1,500,000 1,484,460 1,500,000 1,484,460
LEHMAN BOTHERS INCORPORATED 10/15/00 9.875 2,000,000 2,262,500 2,000,000 2,262,500
NORWEST FINANCIAL INCORPORATED 2/15/97 6.250 1,500,000 1,507,500 1,500,000 1,507,500
PENN POWER AND LIGHT 5/1/02 7.750 1,280,000 1,358,400 1,280,000 1,358,400
PROVIDENT BANK 6/15/96 5.000 225,000 224,156 225,000 224,156
PROVINCE OF ONTARIO 8/4/05 7.000 1,000,000 1,026,250 1,000,000 1,026,250
SYSTEM ENERGY RESOURCES 9/1/96 10.500 725,000 751,281 725,000 751,281
TRANSCONT GAS 1/15/97 8.125 1,055,000 1,076,100 1,055,000 1,076,100
CORPORATE NOTES
CAPITAL ONE BANK 2/27/98 8.125 800,000 833,000 800,000 833,000
COLONIAL NATIONAL BANK 8/1/03 7.000 1,595,000 1,608,956 1,595,000 1,608,956
SANTANDER FINANCE 4/15/05 7.875 1,625,000 1,734,688 1,625,000 1,734,688
TELE-COMMUN INCORPORATED 1/15/03 8.250 1,600,000 1,672,000 1,600,000 1,672,000
DOMESTIC CP
AMERICAN EXPRESS 11/1/95 5.750 1,567,000 1,567,000 1,567,000 1,567,000
MEDIUM TERM NOTES
ASSOCIATES CORPORATION 5/6/96 4.730 1,000,000 994,900 1,000,000 994,900
BHP FINANCIAL LIMITED 11/1/00 5.625 1,730,000 1,660,800 1,730,000 1,660,800
FIRST USA BANK 9/12/96 6.880 655,000 660,731 655,000 660,731
FLEET FINANCIAL GROUP 7/9/97 7.180 160,000 162,800 160,000 162,800
INTERNATIONAL LEASE CORPORATION 11/14/96 7.830 1,345,000 1,370,528 1,345,000 1,370,528
KN ENERGY INCORPORATED 2/1/96 9.940 300,000 302,625 300,000 302,625
PAINE WEBBER 1/20/04 6.730 750,000 731,250 750,000 731,250
PAINE WEBBER GROUP 9/17/97 6.630 160,000 160,800 160,000 160,800
PHILLIP MORRIS 12/12/95 6.500 250,000 250,000 250,000 250,000
UNITED AIR LINES 12/1/97 6.750 2,435,000 2,425,869 2,435,000 2,425,869
YANKEE BONDS
KOREA DEVELOPMENT BANK 5/1/00 6.250 1,000,000 993,750 1,000,000 993,750
LAIDLAW INCORPORATED 4/15/05 7.875 1,490,000 1,584,988 1,490,000 1,584,988
NORANDA INCORPORATED 6/1/03 8.000 775,000 829,250 775,000 829,250
CMO'S & REMICS
FHLMC 5/15/05 6.500 1,755,000 1,689,082 1,755,000 1,689,082
FHLMC 3/15/07 6.750 1,755,000 1,780,325 1,755,000 1,780,325
FHLMC REMIC 10/15/00 6.500 1,233,257 1,216,460 1,233,257 1,216,460
FHLMC REMIC 11/15/08 6.250 757,299 756,882 757,299 756,882
FHLMC REMIC 2/15/16 6.000 1,725,000 1,712,718 1,725,000 1,712,718
FHLMC REMIC 4/15/18 7.250 205,000 205,482 205,000 205,482
FNMA REMIC 10/25/98 5.500 1,900,000 1,849,479 1,900,000 1,849,479
FNMA REMIC 2/25/03 5.750 1,140,000 1,123,037 1,140,000 1,123,037
FNMA REMIC 1/25/18 7.000 300,000 301,881 300,000 301,881
FNMA REMIC 11/25/20 6.500 947,061 943,168 947,061 943,168
FHLMC MORTGAGES
FHLMC 11/1/08 5.500 2,228,485 2,137,942 2,228,485 2,137,942
FNMA MORTGAGES
FNMA 12/22/97 6.260 3,000,000 3,014,550 3,000,000 3,014,550
FNMA 4/1/07 8.000 506,034 521,215 506,034 521,215
FNMA 7/1/10 6.500 1,808,932 1,794,786 1,808,932 1,794,786
FNMA 10/1/10 6.500 1,360,000 1,349,365 1,360,000 1,349,365
GNMA MORTGAGES
GNMA 9/15/16 9.500 86,079 91,997 86,079 91,997
GNMA 12/15/16 9.500 61,186 65,393 61,186 65,393
GNMA 6/15/20 9.500 77,287 82,601 77,287 82,601
GNMA 7/15/22 8.000 608,706 626,967 608,706 626,967
GNMA 8/15/24 8.500 3,376,150 3,516,463 3,376,150 3,516,463
GNMA 5/15/25 8.000 968,532 997,588 968,532 997,588
REPURCHASE AGREEMENTS
SANWA BANK 11/1/95 5.850 3,427,000 3,427,000 3,427,000 3,427,000
---------- ---------- ----------- ----------- ----------- -----------
TOTALS 56,405,293 57,046,248 131,543,999 137,102,062 187,949,292 194,148,310
========== ========== =========== =========== =========== ===========
</TABLE>
<PAGE>
CoreFund PA Municipal Bond Fund
Conestoga PA Tax-Free Bond Fund
Pro-Forma Combined Schedule of Investments
October 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Core Fund Conestoga Pro-forma Combined
Security Description Maturity Coupon Par Value Par Value Par Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MUNICIPAL BONDS
GENERAL OBLIGATIONS
ABINGTON, PENNSYLVANIA 5/15/20 5.625 100,000 98,000 100,000 98,000
ALLEGHENY COUNTY, PENNSYLVANIA 9/15/10 5.875 60,000 62,175 60,000 62,175
ALLEGHENY COUNTY, PENNSYLVANIA 9/15/13 5.875 100,000 102,375 100,000 102,375
BEDFORD, PENNSYLVANIA 4/15/24 6.200 25,000 25,688 25,000 25,688
CENTRAL BUCKS, PA. 2/1/03 6.600 175,000 190,750 175,000 190,750
CHESTER COUNTY, PENNSYLVANIA 11/15/16 5.625 100,000 98,750 100,000 98,750
CRAWFORD, PENNSYLVANIA 2/15/05 7.000 100,000 115,625 100,000 115,625
DAUPHIN COUNTY, PENNSYLVANIA 8/1/07 5.450 200,000 204,000 200,000 204,000
DELAWARE COUNTY, PENNSYLVANIA 12/1/98 7.100 170,000 175,569 170,000 175,569
DELAWARE COUNTY, PENNSYLVANIA 10/1/15 5.500 75,000 74,063 75,000 74,063
HAMPDEN TOWNSHIP, PENNSYLVANIA 4/1/03 5.350 140,000 145,250 140,000 145,250
HEMPFIELD, PENNSYLVANIA 10/15/14 5.300 250,000 240,625 250,000 240,625
KEYSTONE, PENNSYLVANIA 9/1/06 4.750 240,000 230,700 240,000 230,700
LOWER MERION TOWNSHIP, PENNSYLVANIA 8/1/05 5.625 100,000 104,625 100,000 104,625
MANHEIM, PENNSYLVANIA 5/15/14 6.100 100,000 102,750 100,000 102,750
MONTGOMERY COUNTY, PENNSYLVANIA 10/15/11 5.750 175,000 178,719 175,000 178,719
NAZARETH, PENNSYLVANIA 11/15/12 5.500 200,000 197,822 200,000 197,822
PENNSYLVANIA STATE 9/1/00 6.250 150,000 153,896 150,000 153,896
PENNSYLVANIA STATE 7/1/05 6.000 25,000 26,875 25,000 26,875
PENNSYLVANIA STATE 7/1/11 6.250 60,000 64,650 60,000 64,650
PITTSBURGH, PENNSYLVANIA 9/1/17 6.125 25,000 25,781 25,000 25,781
ROSE TREE/MEDIA, PENNSYLVANIA 2/15/10 5.350 150,000 149,625 150,000 149,625
SENECA VALLEY, PENNSYLVANIA 2/15/15 5.850 105,000 105,919 105,000 105,919
YORK, PENNSYLVANIA 3/1/07 5.600 75,000 76,688 75,000 76,688
REVENUE BONDS
ALLEGHENY COUNTY, PENNSYLVANIA 4/1/01 6.450 200,000 219,000 200,000 219,000
ALLEGHENY COUNTY, PENNSYLVANIA 10/1/03 5.800 140,000 146,300 140,000 146,300
ALLEGHENY COUNTY, PENNSYLVANIA 2/1/07 5.700 15,000 14,925 15,000 14,925
ALLEGHENY COUNTY, PENNSYLVANIA 12/1/09 7.450 130,000 143,163 130,000 143,163
ALLEGHENY COUNTY, PENNSYLVANIA 11/1/12 6.000 25,000 25,688 25,000 25,688
ALLENTOWN, PENNSYLVANIA 7/15/96 5.650 100,000 101,148 100,000 101,148
BERKS COUNTY, PENNSYLVANIA 10/1/06 5.600 65,000 67,438 65,000 67,438
CENTER CITY DISTRICT, PENNSYLVANIA 12/1/08 5.600 60,000 61,800 60,000 61,800
DELAWARE COUNTY, PENNSYLVANIA 8/1/08 5.400 200,000 202,750 200,000 202,750
DOVER TOWNSHIP, PENNSYLVANIA 5/1/12 6.250 20,000 21,250 20,000 21,250
ERIE COUNTY, PENNSYLVANIA 11/1/96 5.850 100,000 101,981 100,000 101,981
GETTYSBURG, PENNSYLVANIA 11/1/95 3.950 100,000 100,000 100,000 100,000
GETTYSBURG, PENNSYLVANIA 2/15/97 5.300 250,000 253,750 250,000 253,750
HARRISBURG, PENNSYLVANIA 9/1/13 5.875 200,000 201,250 200,000 201,250
LEHIGH COUNTY, PENNSYLVANIA 11/1/95 3.850 200,000 200,000 200,000 200,000
LEHIGH COUNTY, PENNSYLVANIA 11/1/21 6.400 25,000 26,344 25,000 26,344
LOWER BURRELL, PENNSYLVANIA 2/1/16 5.125 250,000 233,750 250,000 233,750
LOWER SALFORD TOWNSHIP, PENNSYLVANIA 11/15/20 5.500 100,000 95,750 100,000 95,750
MILLCREEK TOWNSHIP, PENNSYLVANIA 11/1/06 6.000 150,000 159,000 150,000 159,000
MONTGOMERY COUNTY, PENNSYLVANIA 6/1/14 5.125 250,000 231,563 250,000 231,563
NORTH PENN, PENNSYLVANIA 11/1/05 5.800 90,000 94,613 90,000 94,613
NORTH PENN, PENNSYLVANIA 11/1/22 6.200 25,000 25,719 25,000 25,719
NORTH WALES, PENNSYLVANIA 11/1/10 6.750 100,000 114,875 100,000 114,875
NORTH WALES, PENNSYLVANIA 11/1/20 5.600 20,000 19,575 20,000 19,575
NORTHAMPTON COUNTY, PENNSYLVANIA 11/15/18 5.750 150,000 150,375 150,000 150,375
PENNSYLVANIA STATE 9/1/97 6.300 200,000 206,500 200,000 206,500
PENNSYLVANIA STATE 12/1/99 5.100 250,000 257,188 250,000 257,188
PENNSYLVANIA STATE 12/1/01 5.350 250,000 260,313 250,000 260,313
PENNSYLVANIA STATE 1/1/05 6.000 25,000 27,063 25,000 27,063
PENNSYLVANIA STATE 3/1/05 6.150 145,000 156,781 145,000 156,781
PENNSYLVANIA STATE 3/1/05 6.150 40,000 43,250 40,000 43,250
PENNSYLVANIA STATE 12/1/06 5.800 75,000 79,594 75,000 79,594
PENNSYLVANIA STATE 12/1/08 5.900 125,000 130,781 125,000 130,781
PENNSYLVANIA STATE 7/1/09 5.800 250,000 260,625 250,000 260,625
PENNSYLVANIA STATE 12/15/09 6.000 225,000 232,313 225,000 232,313
PENNSYLVANIA STATE 1/1/10 6.000 100,000 104,125 100,000 104,125
PENNSYLVANIA STATE 1/1/12 6.000 100,000 102,875 100,000 102,875
PENNSYLVANIA STATE 7/1/12 6.400 300,000 305,250 300,000 305,250
PENNSYLVANIA STATE 9/1/13 5.850 100,000 102,250 100,000 102,250
PENNSYLVANIA STATE 9/1/16 6.700 75,000 84,938 75,000 84,938
PENNSYLVANIA STATE 10/1/17 5.450 200,000 182,500 200,000 182,500
PENNSYLVANIA STATE HIGHER EDUCATION 7/1/19 6.000 150,000 151,313 150,000 151,313
PHILADELPHIA, PENNSYLVANIA 8/1/03 4.600 250,000 246,563 250,000 246,563
PHILADELPHIA, PENNSYLVANIA 2/15/14 5.250 250,000 235,625 250,000 235,625
PITTSBURGH, PENNSYLVANIA 6/1/21 6.125 115,000 118,738 115,000 118,738
QUAKERTOWN, PENNSYLVANIA 11/1/95 3.750 100,000 100,000 100,000 100,000
SCRANTON-LACKAWANNA, PENNSYLVANIA 3/1/03 6.150 150,000 159,563 150,000 159,563
VENANGO, PENNSYLVANIA 11/1/95 4.600 200,000 200,000 200,000 200,000
WAYNE COUNTY, PENNSYLVANIA 10/1/07 5.350 190,000 185,963 190,000 185,963
--------- --------- --------- --------- --------- ---------
TOTALS 2,930,000 3,045,275 6,800,000 6,851,753 9,730,000 9,897,028
========= ========= ========= ========= ========= =========
</TABLE>
<PAGE>
CoreFund Balanced Fund
Conestoga Balanced Fund
Pro-Forma Combined Schedule of Investments
October 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
CoreFunds Conestoga Pro-Forma Combined
Security Description Maturity Coupon Shares/Par Value Shares/Par Value Shares/Par Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCK
AETNA LIFE AND CASUALTY COMPANY 1,200 84,450 1,200 84,450
ALLIED SIGNAL INCORPORATED 3,800 161,500 3,800 161,500
ALLSTATE CORPORATION 462 16,979 462 16,979
ALLTEL CORPORATION 15,000 459,375 15,000 459,375
AMERICAN ELECTRIC POWER INC 1,800 68,625 1,800 68,625
AMERICAN EXPRESS COMPANY 20,000 812,500 20,000 812,500
AMERICAN HOME PRODUCTS 10,000 886,250 10,000 886,250
AMERICAN INTERNATIONAL GROUP INC 6,000 506,250 6,000 506,250
AMGEN INCORPORATED 13,600 652,800 13,600 652,800
AMOCO CORPORATION 7,500 479,063 7,500 479,063
AMPHENOL CORPORATION - CLASS A 30,000 648,750 30,000 648,750
AMSOUTH BANCORP 20,000 797,500 20,000 797,500
APPLE COMPUTER INCORPORATED 3,600 130,725 3,600 130,725
ASHLAND INCORPORATED-NEW 3,500 110,688 3,500 110,688
ATLANTIC RICHFIELD COMPANY 5,875 627,156 5,875 627,156
BAKER HUGHES INCORPORATED 24,000 471,000 3,000 58,875 27,000 529,875
BANK OF BOSTON CORPORATION 2,600 115,700 2,600 115,700
BANKAMERICA CORPORATION 8,300 477,250 8,300 477,250
BARNETT BANKS INCORPORATED 11,000 607,750 11,000 607,750
BELLSOUTH CORPORATION 8,000 612,000 8,000 612,000
BEVERLY ENTERPRISES INCORPORATED 5,100 59,925 5,100 59,925
BIRMINGHAM STEEL CORPORATION 300 4,575 300 4,575
BOEING COMPANY 1,500 98,438 1,500 98,438
BORDER GROUP INCORPORATED 1,000 17,125 1,000 17,125
BRITISH PETROLEUM PLC 4,000 353,000 4,000 353,000
BROWNING FERRIS INDUSTRIES 4,500 131,063 4,500 131,063
BURLINGTON INDUSTRIES INCORPORATED 1,900 21,138 1,900 21,138
BURLINGTON NORTHERN SANTA FE 1,100 92,263 1,100 92,263
BURLINGTON RESOURCES INCORPORATED 12,500 450,000 12,500 450,000
CAREMARK INTERNATIONAL INCORPORATED 900 18,563 900 18,563
CASE EQUIPMENT CORPORATION 2,500 95,313 2,500 95,313
CATERPILLAR INCORPORATED 1,200 67,350 1,200 67,350
CCB FINANCIAL CORP. 12,000 594,000 12,000 594,000
CELLULAR COMMUNICATIONS-CLASS A 2,000 107,250 2,000 107,250
CENTRAL AND SOUTH WEST CORPORATION 4,100 109,675 4,100 109,675
CHASE MANHATTAN CORPORATION 7,800 444,600 7,800 444,600
CHEMICAL BANKING CORPORATION 4,400 250,250 4,400 250,250
CHEVRON CORPORATION 10,000 467,500 10,000 467,500
CHIRON CORPORATION 3,767 342,797 3,767 342,797
CHUBB CORPORATION 10,000 898,750 10,000 898,750
CIGNA CORPORATION 1,200 118,950 1,200 118,950
CISCO SYSTEMS INCORPORATED 9,100 705,250 9,100 705,250
CITICORP INCORPORATED 3,500 227,063 3,500 227,063
CML GROUP INCORPORATED 9,000 51,750 9,000 51,750
COCA COLA COMPANY 7,600 546,250 7,600 546,250
COMCAST CORPORATION 42,522 760,081 42,522 760,081
COMMUNITY PSYCHIATRIC 1,500 16,313 1,500 16,313
COMPAQ COMPUTER CORPORATION 2,000 111,500 2,000 111,500
COMPUTER ASSOCIATES INTERNATIONAL INC 2,400 132,000 2,400 132,000
CONAGRA INCORPORATED 12,000 463,500 12,000 463,500
CONRAIL INCORPORATED 8,300 570,625 8,300 570,625
CON EDISON COMPANY NEW YORK INC 5,400 164,025 5,400 164,025
CSX CORPORATION 1,200 100,500 1,200 100,500
DARDEN RESTAURANTS INCORPORATED 17,300 196,788 17,300 196,788
DEAN WITTER DISCOVER & COMPANY 3,700 184,075 3,700 184,075
DEERE AND COMPANY 1,800 160,875 1,800 160,875
DIAMOND SHAMROCK INCORPORATED 1,400 36,050 1,400 36,050
DIGITAL EQUIPMENT CORPORATION 3,500 189,438 3,500 189,438
DOW CHEMICAL COMPANY 900 61,763 900 61,763
ELAN CORPORATION 3,900 156,488 3,900 156,488
EMERSON ELECTRIC COMPANY 5,750 409,688 5,750 409,688
ENRON CORPORATION 3,500 120,313 3,500 120,313
EQUITABLE COMPANIES INC. 7,300 155,125 7,300 155,125
EXXON CORPORATION 10,300 786,663 10,300 786,663
FEDERAL NATIONAL MORTGAGE ASSOCIATION 7,200 755,100 7,200 755,100
FHP INTERNATIONAL CORPORATION 1,500 36,375 1,500 36,375
FIRST ALERT INCORPORATED 1,200 18,600 1,200 18,600
FIRST DATA CORPORATION 7,000 462,875 7,000 462,875
FIRST VIRGINIA BANKS INC. 10,000 408,750 10,000 408,750
FLEET FINANCIAL GROUP 2,000 77,500 2,000 77,500
FORD MOTOR COMPANY 7,700 221,375 7,700 221,375
FOUNDATION HEALTH CORPORATION 1,600 67,800 1,600 67,800
FRONTIER CORPORATION 30,000 810,000 30,000 810,000
FRUIT OF THE LOOM 3,000 52,125 3,000 52,125
GENERAL ELECTRIC COMPANY 10,000 632,500 7,200 455,400 17,200 1,087,900
GENERAL MOTORS CORPORATION, CLASS E 10,000 471,250 10,000 471,250
GENERAL RE CORPORATION 5,000 724,375 5,000 724,375
GILLETTE COMPANY 10,600 512,775 10,600 512,775
GLAXO PLC 30,400 824,600 30,400 824,600
GLENAYRE TECHNOLOGIES INCORPORATED 16,350 1,050,485 16,350 1,050,485
GOODYEAR TIRE AND RUBBER COMPANY 9,700 368,600 9,700 368,600
HEALTH MANAGEMENT ASSOCIATION - CL A 19,575 420,863 19,575 420,863
HEALTH SYSTEMS INTERNATIONAL INC., CLASS A 700 21,263 700 21,263
HERCULES INCORPORATED 1,900 101,413 1,900 101,413
HEWLETT PACKARD COMPANY 7,400 685,425 800 74,100 8,200 759,525
HONEYWELL INCORPORATED 17,000 714,000 17,000 714,000
HOUSEHOLD INTERNATIONAL INCORPORATED 1,400 78,750 1,400 78,750
HUBBELL INCORPORATED 10,000 602,500 10,000 602,500
HUMANA INCORPORATED 1,500 31,688 1,500 31,688
IBP INCORPORATED 1,900 113,763 1,900 113,763
IMC GLOBAL, INCORPORATED 1,700 119,000 1,700 119,000
INTEL CORPORATION 3,100 216,613 3,100 216,613
INTERNATIONAL BUSINESS MACHINES CORPORATION 4,000 389,000 4,000 389,000
INTERNATIONAL GAME TECHNOLOGY 5,400 62,775 5,400 62,775
INTERNATIONAL PAPER COMPANY 1,800 66,600 1,800 66,600
INTUIT INCORPORATION 10,000 720,000 10,000 720,000
ITT CORPORATION 1,500 183,750 1,500 183,750
J P MORGAN AND COMPANY INCORPORATED 10,000 771,250 10,000 771,250
JOHNSON AND JOHNSON 6,600 537,900 6,600 537,900
KROGER COMPANY 7,200 240,300 7,200 240,300
LCI INTERNATIONAL INCORPORATED 40,000 720,000 40,000 720,000
LINEAR TECHNOLOGY CORPORATION 20,000 875,000 20,000 875,000
LORAL CORPORATION 24,000 711,000 24,000 711,000
LOWE'S COMPANIES INCORPORATED 6,500 175,500 6,500 175,500
MAGNA INTERNATIONAL, CLASS A 1,000 43,250 1,000 43,250
MALLINCKRODT GROUP INCORPORATED 15,000 521,250 15,000 521,250
MANPOWER INCORPORATED 4,000 108,500 4,000 108,500
MAYTAG CORPORATION 2,700 51,300 2,700 51,300
MBNA CORPORATION 2,500 92,188 2,500 92,188
MCDERMOTT INTERNATIONAL INCORPORATED 1,300 20,638 1,300 20,638
MCDONNELL DOUGLAS CORPORATION 900 73,575 900 73,575
MCI COMMUNICATIONS CORPORATION 6,500 162,094 6,500 162,094
MERCK AND COMPANY INCORPORATED 11,600 667,000 1,600 92,000 13,200 759,000
MGM GRAND INCORPORATED 1,800 42,975 1,800 42,975
MICRON TECHNOLOGY INCORPORATED 900 63,563 900 63,563
MIRAGE RESORTS, INCORPORATED 20,000 655,000 20,000 655,000
MOBIL CORPORATION 5,100 513,825 3,200 322,400 8,300 836,225
MONSANTO COMPANY 1,200 125,700 1,200 125,700
MOTOROLA INCORPORATED 11,600 761,250 1,300 85,313 12,900 846,563
MYLAN LABORATORIES 2,500 47,500 2,500 47,500
NABISCO HOLDINGS CORP-CLASS A 8,000 215,000 8,000 215,000
NATIONAL SEMICONDUCTOR CORPORATION 3,200 78,000 3,200 78,000
NEWS CORPORATION- PREFERRED SHARES ADR 3,200 58,400 3,200 58,400
NOVACARE CORPORATION 2,300 14,375 2,300 14,375
NOVELL INCORPORATED 2,252 37,158 2,252 37,158
ORACLE SYSTEMS CORPORATION 15,300 667,463 15,300 667,463
OWENS CORNING FIBERGLASS CORPORATION 1,200 50,850 1,200 50,850
OWENS-ILLINOIS INCORPORATED 5,300 66,913 5,300 66,913
PACIFIC GAS AND ELECTRIC COMPANY 4,200 123,375 4,200 123,375
PAYCHEX INCORPORATED 15,000 650,625 15,000 650,625
PECO ENERGY COMPANY 8,500 248,625 8,500 248,625
PEOPLESOFT INCORPORATED 5,000 430,000 5,000 430,000
PEP BOYS-MANNY MOE AND JACK 3,500 76,563 3,500 76,563
PEPSICO INCORPORATED 8,000 422,000 8,000 422,000
PHELPS DODGE CORPORATION 1,900 120,413 1,900 120,413
PHILIP MORRIS COMPANIES INCORPORATED 6,700 566,150 6,700 566,150
PHILIPS ELECTRONICS 2,700 104,288 2,700 104,288
POTASH CORPORATION OF SASKATCHEWAN 1,700 118,363 1,700 118,363
PRAXAIR INCORPORATED 6,500 175,500 6,500 175,500
PROCTER AND GAMBLE COMPANY 5,275 427,275 5,275 427,275
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED 26,900 790,188 26,900 790,188
PYXIS CORPORATION 1,000 12,625 1,000 12,625
QUALCOMM INCORPORATED 10,000 385,000 2,500 96,250 12,500 481,250
REPSOL S.A. 7,100 210,338 7,100 210,338
RJR NABISCO HOLDINGS CORPORATION 10,300 316,725 10,300 316,725
ROYAL DUTCH PETROLEUM COMPANY 2,200 270,325 2,200 270,325
SARA LEE CORPORATION 13,300 390,688 13,300 390,688
SBC COMMUNICATIONS INC 3,000 167,625 3,000 167,625
SBC TELECOMMUNICATIONS INCORPORATED 10,000 558,750 10,000 558,750
SCECORP 14,300 243,100 14,300 243,100
SCHERING PLOUGH CORPORATION 17,000 911,625 17,000 911,625
SCOTT PAPER 11,800 628,350 11,800 628,350
SMITH KLINE BEECHAM PUBLIC LIMITED COMPANY 16,000 830,000 16,000 830,000
TEVA PHARMACEUTICAL INDUSTRIES LIMITED 1,400 54,950 1,400 54,950
TEXAS INSTRUMENTS INCOPORATED 1,800 122,850 1,800 122,850
TEXTRON INCOPORATED 1,000 68,750 1,000 68,750
THE TRAVELERS GROUP, INC 5,000 252,500 5,000 252,500
TOSCO CORPORATION 2,300 79,350 2,300 79,350
TRANSPORT HOLDINGS INC CL-A 25 981 25 981
U.S. ROBOTICS INCORPORATED 9,200 851,000 9,200 851,000
UNITED HEALTHCARE CORPORATION 500 26,563 500 26,563
UNITED STATES SURGICAL CORPORATION 1,700 41,650 1,700 41,650
UNITED TECHNOLOGIES CORPORATION 900 79,875 900 79,875
UNIVERSAL CORPORATION- VA 900 18,900 900 18,900
USX CORPORATION - U.S. STEEL GROUP 3,900 116,513 3,900 116,513
VICORP RESTAURANTS INCORPORATED 2,200 24,200 2,200 24,200
VLSI TECHNOLOGY INC. 1,500 35,250 1,500 35,250
VONS COMPANY 1,500 38,063 1,500 38,063
WARNER LAMBERT COMPANY 10,000 851,250 10,000 851,250
WEBB DEL E CORPORATION 5,400 112,050 5,400 112,050
WELLS FARGO AND COMPANY 2,000 420,250 2,000 420,250
WESTINGHOUSE ELECTRIC CORPORATION 7,500 105,938 7,500 105,938
WORLDCOM INCORPORATED 15,000 489,375 14,300 466,538 29,300 955,913
XEROX CORPORATION 500 64,875 500 64,875
YPF SOCIEDAD ANONIMA 2,700 46,238 2,700 46,238
PREFERRED STOCKS
GENERAL MOTORS CORPORATION, SERIES C PFD-CV 6,500 435,500 6,500 435,500
U.S. TREASURY BONDS
UNITED STATES TREASURY BOND 5/15/16 7.25 500,000 547,855 500,000 547,855
UNITED STATES TREASURY BOND 5/15/17 8.75 1,040,000 1,319,947 1,040,000 1,319,947
UNITED STATES TREASURY BOND 2/15/23 7.13 500,000 544,725 500,000 544,725
UNITED STATES TREASURY BOND 2/15/23 7.63 80,000 92,831 80,000 92,831
UNITED STATES TREASURY BOND 8/15/23 6.25 500,000 488,675 500,000 488,675
U.S. TREASURY NOTES
UNITED STATES TREASURY NOTE 1/31/96 4.00 1,000,000 996,220 1,000,000 996,220
UNITED STATES TREASURY NOTE 5/15/96 7.38 700,000 706,587 700,000 706,587
UNITED STATES TREASURY NOTE 5/31/96 5.88 2,000,000 2,003,320 2,000,000 2,003,320
UNITED STATES TREASURY NOTE 8/31/96 7.25 500,000 506,525 500,000 506,525
UNITED STATES TREASURY NOTE 9/30/96 6.50 2,500,000 2,519,575 2,500,000 2,519,575
UNITED STATES TREASURY NOTE 1/31/97 7.50 950,000 971,366 950,000 971,366
UNITED STATES TREASURY NOTE 5/15/97 8.50 85,000 88,545 85,000 88,545
UNITED STATES TREASURY NOTE 5/15/97 6.50 645,000 653,133 645,000 653,133
UNITED STATES TREASURY NOTE 11/15/97 7.38 1,645,000 1,698,819 1,645,000 1,698,819
UNITED STATES TREASURY NOTE 12/31/97 6.00 500,000 503,770 500,000 503,770
UNITED STATES TREASURY NOTE 2/15/98 8.13 355,000 373,410 355,000 373,410
UNITED STATES TREASURY NOTE 3/31/98 5.13 500,000 493,895 500,000 493,895
UNITED STATES TREASURY NOTE 5/15/98 9.00 815,000 878,097 815,000 878,097
UNITED STATES TREASURY NOTE 8/15/98 9.25 430,000 468,661 430,000 468,661
UNITED STATES TREASURY NOTE 11/15/98 8.88 1,105,000 1,201,257 1,105,000 1,201,257
UNITED STATES TREASURY NOTE 5/31/99 6.75 1,215,000 1,252,957 1,215,000 1,252,957
UNITED STATES TREASURY NOTE 9/30/99 7.13 600,000 627,438 600,000 627,438
UNITED STATES TREASURY NOTE 10/15/99 6.00 500,000 503,990 500,000 503,990
UNITED STATES TREASURY NOTE 10/31/99 7.50 970,000 1,028,103 970,000 1,028,103
UNITED STATES TREASURY NOTE 1/15/00 6.38 500,000 510,590 500,000 510,590
UNITED STATES TREASURY NOTE 11/15/01 7.50 1,275,000 1,378,530 1,275,000 1,378,530
UNITED STATES TREASURY NOTE 8/15/05 6.50 500,000 517,550 500,000 517,550
UNITED STATES TREASURY NOTE 2/15/16 9.25 510,000 673,430 510,000 673,430
U.S. TREASURY BILLS
UNITED STATES TREASURY BILL 12/14/95 7.14 1,000,000 993,650 1,000,000 993,650
GNMA MORTGAGES
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 10/15/19 9.00 233,908 245,821 233,908 245,821
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 12/15/22 7.50 750,858 761,415 750,858 761,415
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 7/15/23 7.00 386,093 383,799 386,093 383,799
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 7/15/25 7.50 714,832 727,563 714,832 727,563
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 8/15/25 7.00 499,580 496,612 499,580 496,612
FHLMC MORTGAGES
FEDERAL HOME LOAN MORTGAGE CORPORATION 1/28/00 6.44 500,000 508,750 500,000 508,750
FEDERAL HOME LOAN MORTGAGE CORPORATION 11/1/08 5.50 853,310 818,640 853,310 818,640
FEDERAL HOME LOAN MORTGAGE CORPORATION 11/1/08 5.50 35,831 34,375 35,831 34,375
FEDERAL HOME LOAN MORTGAGE CORPORATION 9/1/25 7.00 350,000 347,484 350,000 347,484
FNMA MORTGAGES
FEDERAL NATIONAL MORTGAGE ASSOCIATION 7/1/10 6.50 288,056 285,804 288,056 285,804
FEDERAL NATIONAL MORTGAGE ASSOCIATION 2/1/23 8.00 175,892 180,399 175,892 180,399
FEDERAL NATIONAL MORTGAGE ASSOCIATION 5/1/25 7.50 159,134 160,873 159,134 160,873
FEDERAL NATIONAL MORTGAGE ASSOCIATION 7/1/25 7.50 174,544 176,452 174,544 176,452
CMO'S & REMICS
FEDERAL HOME LOAN MORTGAGE CORPORATION 5/1/08 6.00 837,340 817,972 837,340 817,972
FEDERAL HOME LOAN MORTGAGE CORPORATION 8/1/10 7.00 138,629 139,797 138,629 139,797
CORPORATE BONDS
BEAR STEARNS CO. 10/1/05 6.88 175,000 174,781 175,000 174,781
BELLSOUTH CORPORATION 2/1/05 7.00 500,000 518,750 500,000 518,750
CARTER HOLT HARVEY LTD. 4/15/15 8.38 85,000 94,456 85,000 94,456
CHASE MANHATTEN BANK 8/1/05 6.50 100,000 97,500 100,000 97,500
COCA-COLA COMPANY 7/15/03 6.00 1,000,000 976,250 1,000,000 976,250
DAYTON HUDSON CORPORATION 12/1/22 8.50 500,000 525,000 500,000 525,000
FIRST BANK SYSTEM 9/15/07 6.88 500,000 500,625 500,000 500,625
FIRST NATIONWIDE 10/1/06 10.00 50,000 58,938 50,000 58,938
FORD MOTOR CREDIT CORPORATION 4/15/00 6.38 500,000 500,625 500,000 500,625
FORD MOTOR CREDIT CORPORATION 1/15/03 7.50 1,000,000 1,048,750 1,000,000 1,048,750
FORD MOTOR CREDIT CORPORATION 11/8/00 6.25 500,000 497,500 500,000 497,500
MANUFACTURERS & TRADERS 7/1/05 7.00 165,000 165,000 165,000 165,000
MERRILL LYNCH AND COMPANY 4/27/08 7.00 250,000 252,500 250,000 252,500
NIAGARA MHWK POWER 4/1/22 8.75 80,000 75,600 80,000 75,600
PROVIDENT BANK 1/15/04 6.38 160,000 156,400 160,000 156,400
TORONTO-DOMNION BANK-NY 10/15/08 6.15 140,000 131,250 140,000 131,250
U.S. BANCORP 10/15/05 6.75 500,000 497,500 500,000 497,500
CONVERTIBLE BONDS
AAB-GLOBAL BD 5/31/05 7.25 250,000 259,688 250,000 259,688
BROWNING-FERRIS CV 8/15/12 6.25 425,000 420,750 425,000 420,750
ORYX ENERGY COMPANY CV 5/15/14 7.50 400,000 345,000 400,000 345,000
TIME WARNER INCORPORATED 1/10/15 8.75 216,800 224,659 216,800 224,659
CORPORATE NOTES
AHMANSON H. F. 9/1/04 7.88 185,000 196,563 185,000 196,563
CAPITAL ONE BANK 2/27/98 8.13 90,000 93,713 90,000 93,713
CHEMICAL BANK 11/1/08 6.13 230,000 213,613 230,000 213,613
LEHMAN BROTHERS HOLDINGS 9/15/03 7.13 175,000 176,094 175,000 176,094
SANTANDER FINANCE 4/15/05 7.88 100,000 106,750 100,000 106,750
TCI COMMUNICATIONS INCORPORATED 8/1/15 8.75 90,000 95,963 90,000 95,963
TELE-COMMUN INCORPORATED 1/15/03 8.25 100,000 104,500 100,000 104,500
UNITED AIR LINES 5/1/04 10.67 320,000 377,200 320,000 377,200
ASSET BACKED SECURITIES
PREMIER AUTO TRUST 9/4/98 7.85 110,000 113,146 110,000 113,146
CORPORATE CMO'S
PRUDENTIAL HOME MORTGAGE SECURITIES 10/25/24 7.00 235,000 229,717 235,000 229,717
YANKEE BONDS
CSR FINANCE LTD 7/21/25 7.70 200,000 207,750 200,000 207,750
LAIDLAW INCORPORATED 4/15/25 8.75 75,000 86,344 75,000 86,344
NORANDA INCORPORATED 6/1/03 8.00 100,000 107,000 100,000 107,000
QUEBEC PROVINCE 7/15/23 7.50 280,000 280,700 280,000 280,700
DOMESTIC CP - -
AMERICAN EXPRESS 11/1/95 5.75 4,030,000 4,030,000 4,030,000 4,030,000
MEDIUM TERM NOTES - -
BELL ATLANTIC CORPORATION 4/27/98 5.47 500,000 492,500 500,000 492,500
REPURCHASE AGREEMENTS
AUBREY LANSTON 11/1/95 5.85 1,337,000 1,337,000 1,337,000 1,337,000
HONG KONG SHANGHAI BANK 11/1/95 5.85 1,336,000 1,336,000 1,336,000 1,336,000
SANWA BANK 11/1/95 5.88 1,336,000 1,336,000 1,336,000 1,336,000
NATIONS BANK 11/1/95 5.85 1,336,000 1,336,000 1,336,000 1,336,000
---------- ---------- ---------- ---------- ---------- -----------
TOTALS 27,723,141 68,183,144 22,733,519 38,356,565 50,456,660 106,539,709
========== ========== ========== ========== ========== ===========
</TABLE>
<PAGE>
CoreFund International Growth Fund
Conestoga International Equity Fund
Pro-forma Combined Schedule of Investments
31-Oct-95
<TABLE>
<CAPTION>
CoreFund Conestoga Fund Pro-forma Combined
Security Description Shares Market Value Shares Market Value Shares Market Value
<S> <C> <C> <C> <C> <C> <C>
ARGENTINA
BANCO FRANCES DEL RIO 2,200.00 48,125.00 2,200.00 48,125.00
BUENOS AIRES EMBOTELLADORA 5,200.00 118,950.00 5,200.00 118,950.00
CAPEX - GDS 12,500.00 153,125.00 12,500.00 153,125.00
COMMERCIAL DEL PLATA SA 19,000.00 38,380.00 19,000.00 38,380.00
COMPANIA NAVIERA PEREZ 36,700.00 161,847.00 36,700.00 161,847.00
CORP CEMENTERA ARGENTINA 6,500.00 27,950.00 6,500.00 27,950.00
IRSA GDR 1,400.00 29,400.00 1,400.00 29,400.00
YPF SOCIEDAD ANONIMA ADS 5,400.00 92,475.00 5,400.00 92,475.00
AUSTRALIA
BROKEN HILL PROPRIETARY 121,770.00 1,648,698.29 121,770.00 1,648,698.29
NEWSCORP 21,000.00 105,863.54 21,000.00 105,863.54
QANTAS AIRWAYS 313,000.00 552,969.84 313,000.00 552,969.84
AUSTRIA
OEST ELEKTRIZATSWITS 'A' 5,047.00 308,458.94 5,047.00 308,458.94
VIENNA INTERNATIONAL AIRPORT 9,500.00 610,364.68 9,500.00 610,364.68
BELGIUM
KREDIETBANK 2,600.00 652,471.48 2,600.00 652,471.48
BRAZIL
CEMIG - ADR 12,100.00 263,780.00 12,100.00 263,780.00
COMPANIA VALE RIO DOCE ADR 11,200.00 453,712.00 11,200.00 453,712.00
ELETROBRAS - ADR 23,500.00 331,937.50 23,500.00 331,937.50
RHODIA-STER - GDR 20,097.00 261,461.97 20,097.00 261,461.97
TELEBRAS ADR 13,450.00 541,894.66 13,450.00 541,894.66
USIMINAS - ADR 18,600.00 172,050.00 18,600.00 172,050.00
CHILE
MADECO ADR 9,630.00 239,546.25 9,630.00 239,546.25
MADERAS Y SINTECTICOS SOCIEDAD ADR 12,500.00 223,437.50 12,500.00 223,437.50
SANTA ISABEL ADR 1,100.00 24,887.50 1,100.00 24,887.50
SOCIEDAD QUIMICA Y MINERA ADR 4,861.00 210,845.88 4,861.00 210,845.88
COLOMBIA
CEMENTOS DIAMANTE - GDS 18,800.00 319,600.00 18,800.00 319,600.00
ECUADOR
LA CEMENTO NACIONAL-GDR 832.00 174,720.00 832.00 174,720.00
FINLAND
NOKIA AB 'A' 8,400.00 481,040.70 8,400.00 481,040.70
FRANCE
AXA 18,500.00 1,027,840.85 800.00 44,447.17 19,300.00 1,072,288.02
BANCAIRE 350.00 36,299.48 350.00 36,299.48
BUSINESS OBJECTS 1,300.00 56,225.00 1,300.00 56,225.00
CASTORAMA 165.00 26,765.88 165.00 26,765.88
CIE DE SAINT GOBAIN 87.00 10,375.58 87.00 10,375.58
ELF AQUITAINE 10,466.00 712,934.03 10,466.00 712,934.03
IMETAL SA 3,887.00 457,995.70 3,887.00 457,995.70
L'OREAL 4,800.00 1,173,366.06 4,800.00 1,173,366.06
PEUGEOT 7,500.00 977,293.65 7,500.00 977,293.65
SCHNEIDER (SPIE BATIGN) 25,600.00 987,656.75 25,600.00 987,656.75
SEITA 22,000.00 765,060.86 22,000.00 765,060.86
SGS-THOMSON ADR 1,500.00 67,875.00 1,500.00 67,875.00
GERMANY
HOECHST 2,198.00 573,323.38 2,198.00 573,323.38
MANNESMANN 4,300.00 1,411,940.30 4,300.00 1,411,940.30
SAP PFD 1,250.00 191,453.45 1,250.00 191,453.45
VEBA 40,000.00 1,638,379.53 2,250.00 92,158.85 42,250.00 1,730,538.38
HONG KONG
AMOY PROPERTIES 1,062,000.00 1,023,372.83 1,062,000.00 1,023,372.83
CHEUNG KONG 11,000.00 62,034.35 11,000.00 62,034.35
CHINA LIGHT & POWER 200,000.00 1,065,811.26 200,000.00 1,065,811.26
CITIC PACIFIC 230,000.00 718,452.50 20,800.00 64,973.10 250,800.00 783,425.60
FIRST PACIFIC 266,000.00 306,213.78 266,000.00 306,213.78
HSBC HOLDINGS 151,501.00 2,204,555.89 15,200.00 221,181.71 166,701.00 2,425,737.60
HUTCHISON WHAMPOA 265,000.00 1,460,187.29 12,000.00 66,121.69 277,000.00 1,526,308.98
SUN HUNG KAI PROPERTIES 8,000.00 63,896.94 8,000.00 63,896.94
SWIRE PACIFIC 'A' 207,000.00 1,552,928.39 207,000.00 1,552,928.39
INDIA
EAST INDIA HOTELS GDS 1,400.00 24,150.00 1,400.00 24,150.00
I.T.C. LIMITED ADR 4,100.00 35,875.00 4,100.00 35,875.00
RANBAXY LABORATORIES GDR 1,000.00 22,370.00 1,000.00 22,370.00
INDONESIA
INDOSAT ADR 4,000.00 132,500.00 4,000.00 132,500.00
IRELAND
ELAN 1,300.00 52,162.50 1,300.00 52,162.50
ISRAEL
ECI TELECOM 1,800.00 34,200.00 1,800.00 34,200.00
ITALY
ASSICURAZIONI GENERALI 2,200.00 51,305.71 2,200.00 51,305.71
FALCK 12,200.00 27,961.21 12,200.00 27,961.21
GUCCI GROUP ADR 3,100.00 93,000.00 3,100.00 93,000.00
GUCCI GROUP ADR 900.00 38,812.50 900.00 38,812.50
MEDIOBANCA 4,000.00 26,742.00 4,000.00 26,742.00
RINASCENTE 162,000.00 961,016.95 162,000.00 961,016.95
TELECOM ITALIA MOBILE SPA 635,000.00 1,066,305.71 71,500.00 120,064.34 706,500.00 1,186,370.05
JAPAN
ADVANTEST 4,000.00 226,828.31 4,000.00 226,828.31
ALPINE ELECTRONICS 4,000.00 55,533.83 4,000.00 55,533.83
AMANO CORPORATION (6436.T) 47,000.00 569,808.37 47,000.00 569,808.37
ASAHI CHEMICAL INDUSTRIES 198,000.00 1,389,949.16 198,000.00 1,389,949.16
ASAHI DIAMOND INDUSTRIAL 43,000.00 550,743.06 43,000.00 550,743.06
BEST DENKI 2,000.00 28,744.62 2,000.00 28,744.62
BRIDGESTONE 3,000.00 41,650.37 3,000.00 41,650.37
CANON 93,000.00 1,591,220.18 6,000.00 102,659.37 99,000.00 1,693,879.55
CANON SALES 1,000.00 23,660.54 1,000.00 23,660.54
DAIFUKU CO. LTD. 43,000.00 512,905.75 43,000.00 512,905.75
DAIWA SECURITIES 7,000.00 82,127.49 7,000.00 82,127.49
DDI 147.00 1,191,464.61 32.00 259,366.45 179.00 1,450,831.06
EIDEN SAKAKIYA 27,000.00 314,137.66 27,000.00 314,137.66
FANUC 2,000.00 86,624.95 2,000.00 86,624.95
HIROSE ELECTRIC 1,050.00 67,036.57 1,050.00 67,036.57
HITACHI 163,000.00 1,673,347.67 163,000.00 1,673,347.67
HITACHI METALS 112,000.00 1,379,741.89 112,000.00 1,379,741.89
ITO YOKADO 22,000.00 1,202,385.61 3,000.00 163,961.67 25,000.00 1,366,347.28
ITOCHU 236,000.00 1,398,279.23 236,000.00 1,398,279.23
KAMIGUMI COMPANY 102,000.00 922,467.74 102,000.00 922,467.74
KEYENCE 500.00 61,595.62 500.00 61,595.62
KIRIN BEVERAGE 35,000.00 530,406.73 35,000.00 530,406.73
KOA 5,000.00 81,149.78 5,000.00 81,149.78
KOKUSAI ELECTRIC 5,000.00 113,903.01 5,000.00 113,903.01
KOMATSU 6,000.00 46,930.00 6,000.00 46,930.00
KUBOTA 6,000.00 37,192.02 6,000.00 37,192.02
KURARAY NO. 4 WARRANTS 1/13/98 360.00 112,500.00 360.00 112,500.00
KURITA WATER 1,000.00 27,864.69 1,000.00 27,864.69
KYOCERA 21,000.00 1,720,570.98 4,000.00 327,727.81 25,000.00 2,048,298.79
MABUCHI MOTOR 9,000.00 544,681.27 9,000.00 544,681.27
MAKITA 2,000.00 31,091.12 2,000.00 31,091.12
MARUI COMPANY 44,000.00 761,439.19 2,000.00 34,610.87 46,000.00 796,050.06
MASPRO DENKOH (6749.T) 14,400.00 204,145.48 14,400.00 204,145.48
MATSUSHITA ELECTRIC 3,000.00 42,530.31 3,000.00 42,530.31
MITS BNK(CNV) 3%,11/30/02 1,100,000.00 1,145,375.00 1,100,000.00 1,145,375.00
MITSUBISHI ELECTRIC 5,000.00 37,348.46 5,000.00 37,348.46
MITSUBISHI ESTATE 7,000.00 74,599.14 7,000.00 74,599.14
MITSUBISHI HEAVY INDUSTRIES 254,000.00 1,959,386.00 254,000.00 1,959,386.00
MITSUBISHI TRUST & BANKING 2,000.00 27,962.46 2,000.00 27,962.46
MITSUI FUDOSAN 101,000.00 1,155,357.84 5,000.00 57,195.93 106,000.00 1,212,553.77
MURATA 4,000.00 140,398.90 4,000.00 140,398.90
NEC 20,000.00 263,981.23 20,000.00 263,981.23
NIKON 10,000.00 142,745.40 10,000.00 142,745.40
NIPPON EXPRESS 154,000.00 1,249,706.69 154,000.00 1,249,706.69
NIPPON SYSTEM DEVELOPMENT (9759.OS) 17,000.00 207,763.00 17,000.00 207,763.00
NIPPON TELEGRAPH & TELEPHONE 4.00 32,811.89 4.00 32,811.89
NISSAN MOTORS 7,000.00 47,223.31 7,000.00 47,223.31
NOMURA SECURITIES 77,000.00 1,407,802.11 6,000.00 109,698.87 83,000.00 1,517,500.98
NTT DATA COMMUNICATIONS 3.00 75,087.99 3.00 75,087.99
ORGANO CO. LTD. 40,000.00 410,637.47 40,000.00 410,637.47
RISO KAGAKU CORPORATION 6,100.00 491,435.28 6,100.00 491,435.28
ROHM COMPANY 32,000.00 1,942,901.84 32,000.00 1,942,901.84
SANKYO 61,000.00 1,341,904.58 1,000.00 21,998.44 62,000.00 1,363,903.02
SANWA BANK 3,000.00 51,036.37 3,000.00 51,036.37
SEKISUI WARRANTS 155.00 205,375.00 155.00 205,375.00
SHARP 7,000.00 97,184.20 7,000.00 97,184.20
SHIMACHU 17,000.00 448,768.09 17,000.00 448,768.09
SHIN ETSU CHEMICAL 66,000.00 1,348,650.76 66,000.00 1,348,650.76
SONY 24,000.00 1,079,389.91 1,000.00 44,974.58 25,000.00 1,124,364.49
SUMITOMO BANK 3,000.00 53,089.56 3,000.00 53,089.56
SUMITOMO ELECTRIC 109,000.00 1,257,528.35 109,000.00 1,257,528.35
SUMITOMO FORESTRY 88,000.00 1,238,951.90 88,000.00 1,238,951.90
SUMITOMO TRUST & BANKING 110,000.00 1,269,065.31 4,000.00 46,147.83 114,000.00 1,315,213.14
TAISHO PHARMACEUTICAL 21,000.00 379,839.66 21,000.00 379,839.66
TAKEDA CHEMICAL INDUSTRIES 2,000.00 28,158.00 2,000.00 28,158.00
TDK 1,000.00 51,525.22 1,000.00 51,525.22
TOCHIGI FUJI INDUSTRIAL 41,000.00 284,610.87 41,000.00 284,610.87
TOKIO MARINE & FIRE INSURANCE 123,000.00 1,262,710.21 123,000.00 1,262,710.21
TOKYO ELECTRONICS 4,000.00 173,640.99 4,000.00 173,640.99
TORAY 6,000.00 37,485.33 6,000.00 37,485.33
TOYOTA MOTOR 4,000.00 74,305.83 4,000.00 74,305.83
USHIO 2,000.00 22,682.83 2,000.00 22,682.83
YAMANOUCHI PHARMACEUTICAL 3,000.00 66,875.24 3,000.00 66,875.24
LUXEMBOURG
MILLICOM INTERNATIONAL 6,800.00 224,400.00 500.00 16,500.00 7,300.00 240,900.00
MALAYSIA
ARAB-MALAYSIAN MERCHANT BANK 106,000.00 1,314,308.21 12,000.00 148,789.61 118,000.00 1,463,097.82
EDARAN OTOMOBIL 80,000.00 629,797.28 80,000.00 629,797.28
GENTING BERHAD 157,000.00 1,353,395.00 157,000.00 1,353,395.00
MALAYAN BANKING 10,000.00 80,692.78 10,000.00 80,692.78
NEW STRAITS TIMES PRESS 20,000.00 62,979.73 20,000.00 62,979.73
RESORTS WORLD BERHAD 88,000.00 429,521.75 88,000.00 429,521.75
SIME DARBY MALAYSIA 20,000.00 49,990.16 20,000.00 49,990.16
TECHNOLOGY RESOURCES 44,000.00 111,710.29 44,000.00 111,710.29
UNITED ENGINEERS 150,000.00 932,887.23 9,000.00 55,973.23 159,000.00 988,860.46
MEXICO
BUFETE INDUSTRIAL ADR 1,600.00 21,400.00 1,600.00 21,400.00
CEMEX SA DE CV A"" 5,300.00 16,440.51 5,300.00 16,440.51
CIFRA, S.A. (CFRAY.OB) 35,000.00 37,449.99 35,000.00 37,449.99
EMPRESAS ICA SOCIEDAD CONTROLADORA ADR 16,000.00 152,000.00 16,000.00 152,000.00
GRUPO CARSO SA ADR 15,500.00 151,125.00 2,500.00 24,375.00 18,000.00 175,500.00
GRUPO FINANCIERO BANAMEX, SERIES B 75,000.00 129,603.40 75,000.00 129,603.40
GRUPO FINANCIERO BANAMEX, SERIES B 11,000.00 19,008.50 11,000.00 19,008.50
GRUPO FINANCIERO BANAMEX, SERIES L 550.00 906.80 550.00 906.80
GRUPO FINANCIERO INBURSA B"" 20,000.00 54,674.22 20,000.00 54,674.22
GRUPO IND ALFA SERIES A" NPV (CPO)" 13,000.00 152,832.86 13,000.00 152,832.86
GRUPO IUSACELL, 1,400.00 16,625.00 1,400.00 16,625.00
GRUPO MODELO SA SERIES C"" 5,000.00 19,192.63 5,000.00 19,192.63
GRUPO POSADAS 52,300.00 16,667.85 52,300.00 16,667.85
GRUPO SYNKRO, CL B 80,000.00 19,600.00 80,000.00 19,600.00
KIMBERLY CLARK, SERIES A 1,700.00 22,369.69 1,700.00 22,369.69
KIMBERLY CLARKE - ADR 5,500.00 144,375.00 5,500.00 144,375.00
NETHERLANDS
ADV SEMICONDUCTOR ENG ADR 700.00 32,812.50 700.00 32,812.50
ASM LITHO HOLDINGS 2,000.00 99,250.00 2,000.00 99,250.00
BAAN 2,300.00 97,750.00 2,300.00 97,750.00
ELSEVIER NV 131,750.00 1,703,231.94 4,500.00 58,174.90 136,250.00 1,761,406.84
GETRONICS 1,000.00 47,718.63 1,000.00 47,718.63
INTERNATIONAL NEDERLANDEN 23,182.00 1,382,399.37 500.00 29,816.22 23,682.00 1,412,215.59
KPN 17,000.00 597,908.75 17,000.00 597,908.75
MADGE NETWORKS 1,900.00 79,562.50 1,900.00 79,562.50
PHILIPS ELECTRONICS 1,800.00 69,581.75 1,800.00 69,581.75
POLYGRAM 14,500.00 905,101.39 1,100.00 68,662.86 15,600.00 973,764.25
WOLTERS KLUWER 500.00 45,500.63 500.00 45,500.63
NEW ZEALAND
TELECOM CORP NEW ZEALAND 1,015.00 67,370.63 1,015.00 67,370.63
NORWAY
HAFSLUND NYCOMED 'B' 1,200.00 33,536.78 1,200.00 33,536.78
PETROLEUM GEO-SERVICES ADR 6,200.00 120,125.00 6,200.00 120,125.00
PERU
BANCO WIESE 6,900.00 45,712.50 6,900.00 45,712.50
PHILIPPINES
SAN MIGUEL, CL B 20,000.00 66,204.77 20,000.00 66,204.77
SINGAPORE
CITY DEVELOPMENTS 7,000.00 43,362.83 7,000.00 43,362.83
CREATIVE TECHNOLOGY 1,100.00 12,787.50 1,100.00 12,787.50
DEVELOPMENT BANK OF SINGAPORE 106,000.00 1,215,716.81 106,000.00 1,215,716.81
FIRST CAPITAL CORPORATION 227,000.00 613,904.42 227,000.00 613,904.42
FLEXTRONICS 1,000.00 23,250.00 1,000.00 23,250.00
JARDINE MATHESON HOLDINGS 156,800.00 956,480.00 156,800.00 956,480.00
SINGAPORE PRESS HOLDINGS F"" 98,400.00 1,539,568.14 2,400.00 37,550.44 100,800.00 1,577,118.58
STRAITS STEAMSHIP LAND 14,000.00 39,249.56 14,000.00 39,249.56
UNITED OVERSEAS BANK 10,600.00 93,054.87 10,600.00 93,054.87
SOUTH AFRICA
ISCOR 140,100.00 142,155.49 140,100.00 142,155.49
MALBAK 50,000.00 332,510.63 50,000.00 332,510.63
MURRAY & ROBERTS 34,500.00 241,258.74 34,500.00 241,258.74
POLIFIN LIMITED 5,250.00 11,301.93 5,250.00 11,301.93
SAFMARINE & RENNIE HOLDING LIMITED 80,000.00 279,720.28 80,000.00 279,720.28
SASOL 35,000.00 302,344.71 35,000.00 302,344.71
SOUTH AFRICAN BREWERY 7,400.00 243,013.85 7,400.00 243,013.85
SOUTH KOREA
KOREA FUND 3,000.00 64,875.00 3,000.00 64,875.00
KOREA MOBILE TELECOM GDR 2,500.00 92,500.00 2,500.00 92,500.00
SAMSUNG ELECTRONICS GDS 4,000.00 256,000.00 4,000.00 256,000.00
SAMSUNG ELECTRONICS GDS NEW 22.00 2,332.00 22.00 2,332.00
SEOUL EXCEL TRUST - IDR 18.00 202,680.00 18.00 202,680.00
SPAIN
BANCO DE SANTANDER 23,000.00 1,003,279.76 23,000.00 1,003,279.76
FCC 5,000.00 353,394.56 5,000.00 353,394.56
REPSOL 19,220.00 574,425.22 19,220.00 574,425.22
SWEDEN
ALLGAN SERIES B 1,600.00 24,224.89 1,600.00 24,224.89
ASEA AB B-F 1,400.00 138,148.18 1,400.00 138,148.18
ASTRA 'B' 5,200.00 188,014.10 5,200.00 188,014.10
AUTOLIV AB 2,200.00 126,276.78 2,200.00 126,276.78
ERICSSON LM TELEPHONE 29,000.00 616,017.36 23,400.00 499,809.38 52,400.00 1,115,826.74
PHARMACIA B 500.00 17,475.67 500.00 17,475.67
STORA KOPPARBERGS 'A' 61,000.00 739,778.24 61,000.00 739,778.24
SWITZERLAND
BBC BROWN BOVERI 65.00 75,422.91 65.00 75,422.91
CIBA GEIGY 125.00 108,259.91 125.00 108,259.91
NESTLE SA REGISTERED 1,470.00 1,541,233.48 1,470.00 1,541,233.48
ROCHE HOLDING 35.00 254,405.29 35.00 254,405.29
ROCHE HOLDING 210.00 1,526,431.72 210.00 1,526,431.72
SANDOZ PHARMACEUTICAL 260.00 214,643.17 260.00 214,643.17
ZURICH VERSICHERUNG 3,150.00 901,982.38 3,150.00 901,982.38
THAILAND
ADVANCED INFO SERVICE 9,000.00 148,807.63 9,000.00 148,807.63
LAND AND HOUSE F"" 2,000.00 32,273.45 2,000.00 32,273.45
THAI MILITARY BANK 335,000.00 1,318,163.75 335,000.00 1,318,163.75
TOTAL ACCESS COMMUNICATIONS ADR 11,000.00 66,550.00 11,000.00 66,550.00
UNITED COMMUNICATIONS 5,000.00 62,798.09 5,000.00 62,798.09
UNITED KINGDOM
ARGYLL GROUP 170,000.00 865,180.97 170,000.00 865,180.97
BARCLAYS BANK 5,200.00 61,065.28 5,200.00 61,065.28
BARRATT DEVELOPMENT 319,000.00 978,125.49 319,000.00 978,125.49
BAT 4,200.00 34,452.35 4,200.00 34,452.35
BRITISH AIRWAYS 109,000.00 783,862.81 109,000.00 783,862.81
BRITISH SKY BROADCASTING ADR 5,500.00 196,625.00 5,500.00 196,625.00
BRITISH TELECOMMUNICATIONS 138,000.00 821,194.88 138,000.00 821,194.88
BTR WARRANTS 265,000.00 314,129.92 265,000.00 314,129.92
COMMERCIAL UNION 5,300.00 51,349.77 5,300.00 51,349.77
DIXONS GROUP 164,000.00 992,761.18 164,000.00 992,761.18
EAST MIDLANDS ELECTRICITY 76,532.00 1,050,545.95 76,532.00 1,050,545.95
GKN 86,000.00 1,096,917.97 86,000.00 1,096,917.97
GLAXO WELLCOME 106,000.00 1,429,919.39 7,200.00 97,126.60 113,200.00 1,527,045.99
GRANADA GROUP 96,000.00 1,025,699.38 96,000.00 1,025,699.38
LADBROKE ORD 10 P 353,000.00 926,157.74 353,000.00 926,157.74
LEX SERVICE 101,833.00 531,134.66 101,833.00 531,134.66
LOGICA 6,100.00 46,181.44 6,100.00 46,181.44
MCKENCHIE 84,000.00 578,852.54 84,000.00 578,852.54
NEXT 12,000.00 77,761.97 12,000.00 77,761.97
NFC 362,000.00 892,555.71 362,000.00 892,555.71
RECKITT & COLEMAN 118,000.00 1,255,160.42 118,000.00 1,255,160.42
REUTERS HOLDINGS 16,200.00 150,554.77 16,200.00 150,554.77
SMITHKLINE BEECHAM 20,500.00 209,957.33 20,500.00 209,957.33
TAKARE 6,000.00 19,440.49 6,000.00 19,440.49
TELE-COMMUNICATIONS - A 7,500.00 169,687.50 7,500.00 169,687.50
TOMKINS 323,000.00 1,273,723.72 323,000.00 1,273,723.72
TSB GROUP 208,000.00 1,226,236.76 208,000.00 1,226,236.76
UNILEVER 64,000.00 1,243,180.02 64,000.00 1,243,180.02
VODAFONE GROUP 26,200.00 108,079.66 26,200.00 108,079.66
WASSALL 168,750.00 725,462.30 168,750.00 725,462.30
WOLSELEY 196,000.00 1,214,351.19 196,000.00 1,214,351.19
WPP GROUP 11,600.00 28,234.55 11,600.00 28,234.55
ZENECA GROUP 8,000.00 149,012.17 8,000.00 149,012.17
UNITED STATES
BARCLAY'S T/D, 4.75& 763,000.00 763,000.00 763,000.00 763,000.00
CLYDESDALE T/D, 5.00% 201,511.21 201,511.21 201,511.21 201,511.21
HIMILAYAN FUND WARRANTS 7,243.00 3,621.50 7,243.00 3,621.50
HIMILAYAN MUTUAL FUND 77,718.00 990,904.50 77,718.00 990,904.50
INDIAN OPPORTUNITIES FND 41,982.73 425,704.88 41,982.73 425,704.88
KOREA PREF SHARE FUND 41,000.00 467,400.00 41,000.00 467,400.00
NEAR EAST OPPORTUNITIES FUND 59,000.00 636,020.00 59,000.00 636,020.00
QUILMES INDUSTRIAL (REG) 2,200.00 38,720.00 2,200.00 38,720.00
TAIWAN OPPORTUNITIES FUND 204,500.00 1,623,730.00 204,500.00 1,623,730.00
USD TIME DEPOSIT 12/11/95 1,028,558.00 1,028,558.00 1,028,558.00 1,028,558.00
------------- -------------- ------------ ------------- ------------- --------------
TOTALS 14,581,107.94 113,133,791.69 2,345,434.00 13,281,387.99 16,926,541.94 126,415,179.68
============= ============== ============ ============= ============= ==============
</TABLE>
<PAGE>
CoreFund Treasury Reserve Fund
Conestoga US Treasury Securities Fund
Pro-Forma Combined Statement of Assets and Liabilities
October 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
CoreFund Conestoga
Treasury US Treasury
Reserve Securities Pro-Forma
Fund Fund Combined
<S> <C> <C> <C>
ASSETS
Investments, @ value (Cost
$492,594,075 and $447,275,157
respectively) $492,594,075 $447,275,157 $939,869,232
Cash 979 93 1,072
Dividends and Interest receivable 409,437 173,647 583,084
Prepaid expenses 20,516 51,788 72,304
------------ ------------ ------------
Total Assets 493,025,007 447,500,685 940,525,692
------------ ------------ ------------
LIABILITIES
Dividends payable 2,148,866 1,917,532 4,066,398
Accrued expenses payable 315,438 324,215 639,653
------------ ------------ ------------
Total Liabilities 2,464,304 2,241,747 4,706,051
------------ ------------ ------------
TOTAL NET ASSETS $490,560,703 $445,258,938 $935,819,641
============ ============ ============
Total Net Assets by Class of Shares
Institutional Class $474,243,922 444,528,715 $918,772,637
Retail Class $ 16,316,781 730,223 $ 17,047,004
------------ ------------ ------------
$490,560,703 $445,258,938 $935,819,641
============ ============ ============
Shares Outstanding
Institutional Class
Pre-combination 474,228,668 444,422,563 N/A
Post-combination 918,651,231 0 918,651,231
Retail Class
Pre-combination 16,316,145 729,856 N/A
Post-combination 17,046,001 0 17,046,001
Net Asset Value, Offering and
Redemption Price Per Share
Institutional Class $ 1.00 $ 1.00 $ 1.00
Retail Class $ 1.00 $ 1.00 $ 1.00
</TABLE>
<PAGE>
CoreFund Cash Reserve Fund
Conestoga Cash Management Fund
Pro-Forma Combined Statement of Assets and Liabilities
October 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Conestoga
Corefund Cash
Cash Reserve Management Pro-Forma
Fund Fund Combined
<S> <C> <C> <C>
ASSETS
Investments, @ value (Cost
$591,845,176 and $242,941,744
respectively) $591,845,176 $242,941,744 $834,786,920
Cash 0 73 73
Dividends and Interest receivable 357,937 118,748 476,685
Prepaid expenses 0 32,022 32,022
------------ ------------ ------------
Total Assets 592,203,113 243,092,587 835,295,700
------------ ------------ ------------
LIABILITIES
Investment Securities Purchased 0 3,997,280 3,997,280
Dividends payable 2,648,761 1,027,217 3,675,978
Accrued expenses payable 409,070 189,734 598,804
------------ ------------ ------------
Total Liabilities 3,057,831 5,214,231 8,272,062
------------ ------------ ------------
TOTAL NET ASSETS $589,145,282 $237,878,356 $827,023,638
============ ============ ============
Total Net Assets by Class of Shares
Institutional Class $570,032,471 $234,519,918 $804,552,389
Retail Class 19,112,811 3,358,438 22,471,249
------------ ------------ ------------
$589,145,282 $237,878,356 $827,023,638
============ ============ ============
Shares Outstanding
Institutional Class
Pre-combination 570,037,873 234,652,830 N/A
Post-combination 804,690,703 0 804,690,703
Retail Class
Pre-combination 19,113,426 3,361,129 N/A
Post-combination 22,474,555 0 22,474,555
Net Asset Value, Offering and Redemption
Price Per Share
Institutional Class $ 1.00 $ 1.00 $ 1.00
Retail Class $ 1.00 $ 1.00 $ 1.00
</TABLE>
<PAGE>
CoreFund Tax-Free Reserve Fund
Conestoga Tax-Free Fund
Pro-Forma Combined Statement of Assets and Liabilities
October 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
CoreFund
Tax-Free Conestoga
Reserve Tax-Free Pro-Forma
Fund Fund Combined
-------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Investments, @ value (Cost
$71,290,183 and $61,736,077
respectively) $ 71,290,183 $ 61,736,077 $ 133,026,260
Dividends and Interest receivable 310,510 343,207 653,717
Prepaid Expenses 2,141 11,206 13,347
------------- ------------- -------------
Total Assets 71,602,834 62,090,490 133,693,324
------------- ------------- -------------
LIABILITIES
Cash/Cash Overdraft (54,143) (67,747) (13,604)
Dividends payable 179,278 175,826 355,104
Accrued expenses payable 60,170 55,775 115,945
Investment Securities Purchased 1,976,178 0 1,976,178
------------- ------------- -------------
Total Liabilities 2,161,483 299,348 2,460,831
------------- ------------- -------------
TOTAL NET ASSETS $ 69,441,351 $ 61,791,142 $ 131,232,493
============= ============= =============
Total Net Assets by Class of Shares
Institutional Class $ 67,947,223 $ 60,508,879 $ 128,456,102
Retail Class 1,494,128 1,282,263 2,776,391
------------- ------------- -------------
$ 69,441,351 $ 61,791,142 $ 131,232,493
============= ============= =============
Shares Outstanding
Institutional Class
Pre-combination 67,995,424 60,491,930 N/A
Post-combination 128,504,303 0 128,504,303
Retail Class
Pre-combination 1,495,186 1,281,648 N/A
Post-combination 2,776,834 0 2,776,834
Net Asset Value, Offering and Redemption Price Per Share
Institutional Class 1.00 1.00 1.00
Retail Class 1.00 1.00 1.00
</TABLE>
<PAGE>
CoreFund Intermediate Bond Fund
Conestoga Intermediate Income Fund
Pro-Forma Combined Statement of Assets and Liabilities
October 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
CoreFund Conestoga
Intermediate Intermediate Pro-Forma
Bond Fund Income Fund Combined
<S> <C> <C> <C>
ASSETS
Investments, @ value (Cost
$56,462,364 and $135,703,358
respectively) $ 57,046,248 $137,102,062 $194,148,310
Cash 589 4,152 4,741
Dividends and Interest receivable 635,404 2,510,392 3,145,796
Investment securities sold 0 613,081 613,081
Capital shares sold receivable 0 241,195 241,195
Prepaid Expenses 0 78,239 78,239
------------ ------------ ------------
Total Assets 57,682,241 140,549,121 198,231,362
------------ ------------ ------------
LIABILITIES
Investment securities purchased 0 830,408 830,408
Dividends payable 272,457 0 272,457
Other Payables 0 44,793 44,793
Accrued expenses payable 19,793 220,924 220,717
------------ ------------ ------------
Total Liabilities 292,250 1,076,125 1,368,375
------------ ------------ ------------
TOTAL NET ASSETS $ 57,389,991 $139,472,996 $196,862,987
============ ============ ============
Total Net Assets by Class of Shares
Institutional Class $ 55,364,689 $138,243,515 $193,608,204
Retail Class 2,025,303 1,229,481 3,254,784
------------ ------------ ------------
$ 57,389,992 $139,472,996 $196,862,988
============ ============ ============
Shares Outstanding
Institutional Class
Pre-combination $ 5,602,290 $ 12,909,945 N/A
Post-combination $ 19,590,994 $ 0 $ 19,590,994
Retail Class
Pre-combination 204,958 114,722 N/A
Post-combination 329,380 0 329,380
Net Asset Value, Offering and Redemption
Price Per Share
Institutional Class $ 9.88 $ 10.71 $ 9.88
Retail Class $ 9.88 $ 10.72 $ 9.88
Maximum offering price per retail class $ 10.21 $ 10.94 $ 10.21
Maximum sales load imposed on purchases
of retail class of shares 3.25% 2.00% 3.25%
</TABLE>
<PAGE>
CoreFund PA Municipal Bond Fund
Conestoga PA Tax-Free Bond Fund
Pro-Forma Combined Statement of Assets and Liabilities
October 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
CoreFund Conestoga
PA PA
Municipal Bond Tax-Free Bond Pro-Forma
Fund Fund Combined
<S> <C> <C> <C>
ASSETS
Investments, @ value (Cost
$2,917,497 and $6,839,773
respectively) $ 3,045,275 $ 6,851,753 $ 9,897,028
Cash 6,789 103,030 109,819
Dividends and Interest receivable 54,368 86,922 141,290
Capital shares sold receivable 0 39,195 39,195
Prepaid expenses 10,584 2,887 13,471
----------- ----------- -----------
Total Assets 3,117,016 7,083,787 10,200,803
----------- ----------- -----------
LIABILITIES
Capital shares redeemed payable 0 279,486 279,486
Dividends payable 13,272 0 13,272
Accrued expenses payable 7,951 7,974 15,925
----------- ----------- -----------
Total Liabilities 21,223 287,460 308,683
----------- ----------- -----------
TOTAL NET ASSETS $ 3,095,793 $ 6,796,327 $ 9,892,120
=========== =========== ===========
Total Net Assets by Class of Shares
Institutional Class $ 2,789,277 $ 5,976,630 $ 8,765,907
Retail Class 306,516 819,697 1,126,213
----------- ----------- -----------
$ 3,095,793 $ 6,796,327 $ 9,892,120
=========== =========== ===========
Shares Outstanding
Institutional Class
Pre-combination 267,691 584,020 N/A
Post-combination 841,264 0 841,264
Retail Class
Pre-combination 29,416 80,106 N/A
Post-combination 108,082 0 108,082
Net Asset Value, Offering and
Redemption Price Per Share
Institutional Class $ 10.42 $ 10.23 $ 10.42
Retail Class $ 10.42 $ 10.23 $ 10.42
Maximum offering price per retail class $ 10.77 $ 10.44 $ 10.77
Maximum sales load imposed on purchases
of retail class of shares 3.25% 2.00% 3.25%
</TABLE>
<PAGE>
CoreFund Balanced Fund
Conestoga Balanced Fund
Pro-Forma Combined Statement of Assets and Liabilities
October 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
CoreFund Conestoga
Balanced Balanced Pro-Forma
Fund Fund Combined
<S> <C> <C> <C>
ASSETS
Investments, @ value (Cost
$60,380,939 and $37,497,969
respectively) 68,183,144 38,356,565 106,539,709
Cash 250 1,366 1,616
Dividends and Interest receivable 335,296 447,299 782,595
Investment securities sold 0 185,422 185,422
Capital shares sold receivable 0 3,574 3,574
Prepaid expenses 86,812 23,692 110,504
------------ ------------ ------------
Total Assets 68,605,502 39,017,918 107,623,420
------------ ------------ ------------
LIABILITIES
Capital shares redeemed payable 0 699 699
Accrued expenses payable 133,585 39,995 173,580
Other payables 0 2,570 2,570
Investment Securities Purchased 498,350 410,694 909,044
------------ ------------ ------------
Total Liabilities 631,935 453,958 1,085,893
------------ ------------ ------------
TOTAL NET ASSETS $ 67,973,567 $ 38,563,960 $106,537,527
------------ ------------ ------------
Total Net Assets by Class of Shares
Institutional Class $ 65,434,187 $ 38,494,620 $103,928,807
Retail Class 2,539,380 69,340 2,608,720
------------ ------------ ------------
$ 67,973,567 $ 38,563,960 $106,537,527
============ ============ ============
Shares Outstanding
Institutional Class
Pre-combination 5,569,819 3,707,254 N/A
Post-combination 8,845,957 0 8,845,957
Retail Class
Pre-combination 216,129 6,676 N/A
Post-combination 222,030 0 222,030
Net Asset Value, Offering and Redemption
Price Per Share
Institutional Class $ 11.75 $ 10.38 $ 11.75
Retail Class $ 11.75 $ 10.39 $ 11.75
Maximum offering price per retail class $ 12.14 $ 10.60 $ 12.14
Maximum sales load imposed on purchases
of retail class of shares 3.25% 2.00% 3.25%
</TABLE>
<PAGE>
CoreFund International Growth Fund
Conestoga International Equity Fund
Pro-Forma Combined Statement of Assets and Liabilities
October 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
CoreFund Conestoga
International International Pro-Forma
Growth Fund Equity Fund Combined
<S> <C> <C> <C>
ASSETS
Investments, @ value (Cost
$105,859,974 and $12,574,795
respectively) $ 113,133,792 $ 13,281,388 $ 126,415,180
Cash 0 1,410 1,410
Dividends and Interest receivable 456,013 13,377 469,390
Capital shares sold receivable 0 1,482 1,482
Prepaid expenses 0 16,604 16,604
Investment Securities Sold 198,414 242,408 440,822
Income Receivable 0 108 108
Reclaim Receivable 0 723 723
------------- ------------- -------------
Total Assets 113,788,219 13,557,500 127,345,719
------------- ------------- -------------
LIABILITIES
Cash overdraft 41,780 0 41,780
Capital shares redeemed payable 0 470 470
Accrued expenses payable 202,495 35,452 237,947
Investment Securities Purchased 1,138,928 187,000 1,325,928
Unrealized gain (loss) on
currency contracts 138 (46,268) (46,130)
------------- ------------- -------------
Total Liabilities 1,383,341 176,654 1,559,995
------------- ------------- -------------
TOTAL NET ASSETS $ 112,404,878 $ 13,380,846 $ 125,785,724
============= ============= =============
Total Net Assets by Class of Shares
Institutional Class $ 110,471,955 $ 13,372,041 $ 123,843,996
Retail Class 1,932,923 8,805 1,941,728
------------- ------------- -------------
$ 112,404,878 $ 13,380,846 $ 125,785,724
============= ============= =============
Shares Outstanding
Institutional Class
Pre-combination 8,680,307 1,214,983 N/A
Post-combination 9,730,742 0 9,730,742
Retail Class
Pre-combination 152,205 758 N/A
Post-combination 152,898 0 152,898
Net Asset Value, Offering and Redemption
Price Per Share
Institutional Class $ 12.73 $ 11.01 $ 12.73
Retail Class $ 12.70 $ 11.62 $ 12.70
Maximum offering price per retail class $ 13.13 $ 11.85 $ 13.13
Maximum sales load imposed on purchases
of retail class of shares 3.25% 2.00% 3.25%
</TABLE>
<PAGE>
CoreFund Value Equity Fund
Conestoga Equity Fund
Pro-Forma Combined Statement of Assets and Liabilities
Investment Securities Sold
(Unaudited)
<TABLE>
<CAPTION>
CoreFund
Value Conestoga
Equity Equity Pro-Forma
Fund Fund Combined
<S> <C> <C> <C>
ASSETS
Investments, @ value (Cost
$33,122,312 and $368,840,462
respectively) $ 33,961,457 $385,182,148 $419,143,605
Cash 746 0 746
Dividends and Interest receivable 9,548 374,662 384,210
Capital shares sold receivable 40,000 837,388 877,388
Investment Securities Sold 0 7,099,622 7,099,622
Prepaid expenses 42,517 31,456 73,973
------------ ------------ ------------
Total Assets 34,054,268 393,525,276 427,579,544
------------ ------------ ------------
LIABILITIES
Cash overdraft 0 4,739 4,739
Capital shares redeemed payable 85,680 175,502 261,182
Accrued expenses payable 0 507,498 507,498
Investment Securities Purchased 835,881 7,894,617 8,730,498
------------ ------------ ------------
Total Liabilities 921,561 8,582,356 9,503,917
------------ ------------ ------------
TOTAL NET ASSETS $ 33,132,707 $384,942,920 $418,075,627
============ ============ ============
Total Net Assets by Class of Shares
Institutional Class $ 29,688,256 $378,352,322 $408,040,578
Retail Class 3,444,452 6,590,598 10,035,050
------------ ------------ ------------
$ 33,132,708 $384,942,920 $418,075,628
============ ============ ============
Shares Outstanding
Institutional Class
Pre-combination 2,131,045 22,159,807 N/A
Post-combination (1) 23,898,626 0 23,898,626
Retail Class
Pre-combination 246,805 385,955 N/A
Post-combination (2) 587,667 0 587,667
Net Asset Value, Offering and
Redemption Price Per Share
Institutional Class $ 13.93 $ 17.07 $ 17.07
Retail Class $ 13.96 $ 17.08 $ 17.08
Maximum offering price per retail class $ 14.42 $ 17.42 $ 17.65
Maximum sales load imposed on purchases
of retail class of shares 3.25% 2.00% 3.25%
</TABLE>
(1) Reduction in shares due to a 81.59% reverse stock split
(2) Reduction in shares due to a 81.73% reverse stock split
<PAGE>
CoreFund Treasury Reserve Fund
Conestoga US Treasury Securities Fund
Pro-Forma Combined Statement of Operations
For the Twelve Months Ended October 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Conestoga
CoreFund US Treasury
Treasury Reserve Securities Pro-Forma Pro-Forma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income
Interest $28,278,700 $21,000,859 0 $49,279,559
Dividends 0 0 0 0
----------- ----------- -------- -----------
Total Investment Income 28,278,700 21,000,859 0 49,279,559
----------- ----------- -------- -----------
Expenses
Investment Advisory Fees 2,442,549 1,457,258 (487,180) (1) 3,412,627
Administration Fees 1,221,251 670,514 241,127 (1) 2,132,892
Custodian Fees 0 99,751 (99,751) (1) 0
Transfer Agent Fees 166,066 61,098 (56,533) (1) 170,631
Service Fees 0 160,346 (160,346) (1) 0
Distribution Fees 36,652 136,344 (108,012) (1) 64,984
Legal and Audit 85,224 115,539 (81,301) (2) 119,462
Printing 61,344 42,977 (18,043) (2) 86,278
Registration Fees 54,838 62,924 0 117,762
Trustees' Fees and Officers'
Salaries 25,524 24,019 (16,359) (2) 33,184
Organization and Other 109,928 44,923 (92,088) (2) 62,763
----------- ----------- -------- -----------
4,203,376 2,875,693 (878,486) 6,200,583
Less: Fees waived & Expenses
Reimbursed (1,807,526) (608,930) 631,956 (3) (1,784,500)
----------- ----------- -------- -----------
Total Expenses 2,395,850 2,266,763 (246,530) 4,416,083
----------- ----------- -------- -----------
NET INVESTMENT INCOME 25,882,850 18,734,096 246,530 44,863,476
----------- ----------- -------- -----------
Realized and Unrealized Gain (Loss) on
Investments Transactions
Net realized gain (loss) on investment
transactions 15,303 41,347 0 56,650
Change in unrealized appreciation
(depreciation) 0 0 0 0
Net Realized and Unrealized
Gain (Loss) on Investment Transactions 15,303 41,347 0 56,650
----------- ----------- -------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Operations $25,898,153 $18,775,443 $246,530 $44,920,126
=========== =========== ======== ===========
</TABLE>
- -----------------------------------------
(1) Based on the fee structure of the registrant and the assets of
the combined fund.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects pro-forma voluntary waiver of advisory and administration fees.
<PAGE>
CoreFund Cash Reserve Fund
Conestoga Cash Management Fund
Pro-Forma Combined Statement of Operations
For the Twelve Months Ended October 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Conestoga
CoreFund Cash
Cash Reserve Management Pro-Forma Pro-Forma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income
Interest $33,026,315 $11,680,234 0 $44,706,549
Dividends 0 0 0 0
----------- ----------- -------- -----------
Total Investment Income 33,026,315 11,680,234 0 44,706,549
----------- ----------- -------- -----------
Expenses
Investment Advisory Fees 2,792,661 793,531 (557,493) (1) 3,028,699
Administration Fees 1,396,330 365,560 131,047 (1) 1,892,937
Custodian Fees 4 64,305 (64,309) (1) 0
Transfer Agent Fees 193,594 44,325 (86,484) (1) 151,435
Service Fees 0 145,040 (145,040) (1) 0
Distribution Fees 42,711 7,182 1,893 (1) 51,786
Legal and Audit 103,576 64,656 (62,210) (2) 106,022
Printing 73,090 19,867 (16,386) (2) 76,571
Registration Fees 70,060 50,127 0 120,187
Trustees' Fees 31,432 10,790 (12,771) (2) 29,451
Organization and Other 127,376 18,962 (108,484) (2) 37,854
----------- ----------- -------- -----------
4,830,834 1,584,345 (920,237) 5,494,942
Less: Fees waived & Expenses Reimbursed (2,066,500) (459,548) 944,483 (3) (1,581,565)
----------- ----------- -------- -----------
Total Expenses 2,764,334 1,124,797 24,246 3,913,377
----------- ----------- -------- -----------
NET INVESTMENT INCOME 30,261,981 10,555,437 (24,246) 40,793,172
----------- ----------- -------- -----------
Realized and Unrealized Gain (Loss) on
Investments Transactions
Net realized gain (loss) on investment
transactions (9,022) 2,310 0 (6,712)
Change in unrealized appreciation
(depreciation) 0 0 0 0
Net Realized and Unrealized
Gain (Loss) on Investment Transactions (9,022) 2,310 0 (6,712)
----------- ----------- -------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Operations $30,252,959 $10,557,747 ($24,246) $40,786,460
=========== =========== ======== ===========
</TABLE>
- -----------------------------------
(1) Based on the fee structure of the registrant and the assets of
the combined fund.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects pro-forma voluntary waiver of advisory and administration fees.
<PAGE>
CoreFund Tax-Free Reserve Fund
Conestoga Tax-Free Fund
Pro-Forma Combined Statement of Operations
For the Twelve Months Ended October 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
CoreFund
Tax-Free Conestoga
Reserve Tax-Free Pro-Forma Pro-Forma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income
Interest $2,858,151 $2,483,931 0 $5,342,082
Dividends 0 0 0 0
---------- ---------- -------- ----------
Total Investment Income 2,858,151 2,483,931 0 5,342,082
---------- ---------- -------- ----------
Expenses
Investment Advisory Fees 374,654 259,383 (74,989) (1) 559,048
Administration Fees 187,327 120,127 41,951) (1) 349,405
Custodian Fees 0 26,780 (26,780) (1) 0
Transfer Agent Fees 25,277 22,836 (20,161) (1) 27,952
Service Fees 0 53,220 (53,220) (1) 0
Distribution Fees 4,849 3,238 1,714 (1) 9,801
Legal and Audit 13,130 17,889 (11,449) (2) 19,570
Printing 8,993 9,231 (4,090) (2) 14,134
Registration Fees 8,180 20,521 0 28,701
Trustees' Fees 3,684 4,340 (2,588) (2) 5,436
Organization and Other 15,184 6,672 (11,059) (2) 10,797
---------- ---------- -------- ----------
641,278 544,237 (160,671) 1,024,844
Less: Fees waived & Expenses Reimbursed (277,267) (248,289) 223,299 (3) (302,257)
---------- ---------- -------- ----------
Total Expenses 364,011 295,948 62,628 722,587
---------- ---------- -------- ----------
NET INVESTMENT INCOME 2,494,140 2,187,983 (62,628) 4,619,495
---------- ---------- -------- ----------
Realized and Unrealized Gain (Loss) on
Investments Transactions
Net realized gain (loss) on investment
transactions (2,150) (3,824) 0 (5,974)
Change in unrealized appreciation
(depreciation) 0 0 0 0
Net Realized and Unrealized
Gain (Loss) on Investment Transactions (2,150) (3,824) 0 (5,974)
---------- ---------- -------- ----------
Net increase (Decrease) in Net Assets
Resulting from Operations $2,491,990 $2,184,159 ($62,628) $4,613,521
========== ========== ======== ==========
</TABLE>
- --------------
(1) Based on the fee structure of the registrant and the assets of
the combined fund.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects pro-forma voluntary waiver of advisory and administration fees.
<PAGE>
CoreFund Intermediate Bond Fund
Conestoga Intermediate Income Fund
Pro-Forma Combined Statement of Operations
For the Twelve Months Ended October 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Corefund Conestoga
Intermediate Intermediate
Bond Income Pro-Forma Pro-Forma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income
Interest $ 3,771,682 $ 4,760,160 0 $ 8,531,842
Dividends 0 0 0 0
------------ ------------ --------- ------------
Total Investment Income 3,771,682 4,760,160 8,531,842
------------ ------------ --------- ------------
Expenses
Investment Advisory Fees 285,898 551,495 (177,242)(1) 660,151
Administration Fees 142,949 129,365 57,761 (1) 330,075
Custodian Fees 4 38,342 (38,346)(1) 0
Transfer Agent Fees 18,718 36,212 (28,524)(1) 26,406
Service Fees 0 14,092 (14,092)(1) 0
Distribution Fees 9,397 3,608 (181)(1) 12,824
Legal and Audit 9,722 25,720 (16,955)(2) 18,487
Printing 5,680 8,926 (1,254)(2) 13,352
Registration Fees 2,592 47,046 0 49,638
Trustees' Fees 3,241 4,277 (2,383)(2) 5,135
Organization and Other 15,561 11,728 (10,762)(2) 16,527
------------ ------------ --------- ------------
493,762 870,811 (231,978) 1,132,595
Less: Fees waived & Expenses
Reimbursed (137,211) (386,232) 77,025 (3) (446,418)
------------ ------------ --------- ------------
Total Expenses 356,551 484,579 (154,953) 686,177
------------ ------------ --------- ------------
NET INVESTMENT INCOME 3,415,131 4,275,581 154,953 7,845,665
------------ ------------ --------- ------------
Realized and Unrealized Gain (Loss)
on Investments Transactions
Net realized gain (loss) on
investment transactions (140,711) 1,152,428 0 1,011,717
Change in unrealized
appreciation (depreciation) 1,945,357 1,825,062 0 3,770,419
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions 1,804,646 2,977,490 0 4,782,136
------------ ------------ --------- ------------
Net Increase (Decrease) in Net
Assets Resulting from Operations $ 5,219,777 $ 7,253,070 $ 154,953 $ 12,627,801
============ ============ ======== ============
</TABLE>
- -------------------------------------
(1) Based on the fee structure of the registrant and the assets of
the combined fund.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects pro-forma voluntary waiver of advisory and administration fees.
<PAGE>
CoreFund PA Municipal Fund
Conestoga PA Tax-Free Bond Fund
Pro-Forma Combined Statement of Operations
For the Twelve Months Ended October 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
CoreFund Conestoga
PA Municipal PA Tax-Free Pro-Forma Pro-Forma
Fund Bond Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income
Interest $ 148,872 $ 323,038 0 $ 471,910
Dividends 0 0 0 0
----------- ----------- ----------- -----------
Total Investment Income 148,872 323,038 0 471,910
----------- ----------- ----------- -----------
Expenses
Investment Advisory Fees 12,760 46,358 (15,017)(1) 44,101
Administration Fees 6,380 11,558 4,112 22,050
Custodian Fees 0 21,079 (21,079)(1) 0
Transfer Agent Fees 1,659 10,885 (10,780)(1) 1,764
Service Fees 0 5,239 (5,239)(1) 0
Distribution Fees 632 1,552 277 2,461
Legal and Audit 893 3,384 (3,042)(2) 1,235
Printing 510 1,728 (1,346)(2) 892
Registration Fees 2,296 699 0 2,995
Trustees' Fees 255 439 (351)(2) 343
Organization and Other 4,177 1,739 (489)(2) 5,427
----------- ----------- ----------- -----------
29,562 104,660 (52,954) 81,268
Less: Fees waived &
Expenses Reimbursed (19,140) (72,626) 25,615 (66,151)
----------- ----------- ----------- -----------
Total Expenses 10,422 32,034 (27,339) 15,117
----------- ----------- ----------- -----------
NET INVESTMENT INCOME 138,450 291,004 27,339 456,793
----------- ----------- ----------- -----------
Realized and Unrealized Gain (Loss)
on Investments Transactions
Net realized gain (loss) on
investment transactions (8,784) (68,029) 0 (76,813)
Change in unrealized
appreciation (depreciation) 215,516 501,514 0 717,030
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions 206,732 433,485 0 640,217
----------- ----------- ----------- -----------
Net Increase (Decrease) in Net
Assets Resulting from Operations $ 345,182 $ 724,489 $ 27,339 $ 1,097,010
=========== =========== =========== ===========
</TABLE>
- ----------------
(1) Based on the fee structure of the registrant and the assets of
the combined fund.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects pro-forma voluntary waiver of advisory and administration fees.
<PAGE>
CoreFund Balanced Fund
Conestoga Balanced Fund
Pro-Forma Combined Statement of Operations
For the Twelve Months Ended October 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
CoreFund Conestoga
Balanced Balanced Pro-Forma Pro-Forma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income
Interest $ 1,614,474 $ 426,640 0 $ 2,041,114
Dividends 740,800 104,596 0 845,396
------------ ------------ ------------ ------------
Total Investment Income 2,355,274 531,236 0 2,886,510
------------ ------------ ------------ ------------
Expenses
Investment Advisory Fees 413,868 89,444 (4,256)(1) 499,056
Administration Fees 147,810 20,274 10,150 (1) 178,234
Custodian Fees 0 2,028 (2,028)(1) 0
Transfer Agent Fees 18,528 3,503 (7,772)(1) 14,259
Service Fees 0 0 0 (1) 0
Distribution Fees 5,767 76 (27)(1) 5,816
Legal and Audit 9,806 4,240 (4,063)(2) 9,983
Printing 5,913 1,289 8 (2) 7,210
Registration Fees 8,180 4,254 0 12,434
Trustees' Fees 3,153 954 (1,334)(2) 2,773
Organization and Other 23,349 1,864 (12,320)(2) 12,893
------------ ------------ ------------ ------------
636,374 127,926 (21,642) 742,658
Less: Fees waived & Expenses
Reimbursed (201,060) (30,666) (65,234)(3) (166,492)
------------ ------------ ------------ ------------
Total Expenses 435,314 97,260 43,592 576,166
------------ ------------ ------------ ------------
NET INVESTMENT INCOME 1,919,960 433,976 (43,592) 2,310,344
------------ ------------ ------------ ------------
Realized and Unrealized Gain
(Loss) on Investments
Transactions
Net realized gain (loss) on
investment transactions 1,059,484 285,600 0 1,345,084
Change in unrealized
appreciation (depreciation) 8,452,088 858,609 0 9,310,697
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions 9,511,572 1,144,209 0 10,655,781
------------ ------------ ------------ ------------
Net Increase (Decrease) in Net
Assets Resulting from
Operations $ 11,431,532 $ 1,578,185 ($ 43,592) $ 12,966,125
============ ============ ============ ============
</TABLE>
- ---------------
(1) Based on the fee structure of the registrant and the assets of
the combined fund.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects pro-forma voluntary waiver of advisory and administration fees.
<PAGE>
CoreFund International Growth Fund
Conestoga International Equity Fund
Pro-Forma Combined Statement of Operations
For the Twelve Months Ended October 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
CoreFund Conestoga
International International
Growth Equity Pro-Forma Pro-Forma
Fund Fund Adjustments Combined
------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Investment Income
Interest $ 342,672 $ 48,019 0 $ 390,691
Dividends 2,336,765 50,501 0 2,387,266
Net Foreign Tax Withholding (226,079) (6,450) 0 (232,529)
----------- ----------- ----------- -----------
Total Investment Income 2,453,358 92,070 0 2,545,428
----------- ----------- ----------- -----------
Expenses
Investment Advisory Fees 910,487 51,367 (10,277)(1) 951,577
Administration Fees 284,527 8,726 4,115 297,368
Custodian Fees 96,294 16,942 0 (1) 113,236
Transfer Agent Fees 47,866 1,439 (25,516)(1) 23,789
Distribution Fees 4,957 6 (53)(1) 4,910
Legal and Audit 15,247 1,482 (74)(2) 16,655
Printing 13,516 549 (2,036)(2) 12,029
Registration Fees 14,058 5,456 0 19,514
Trustees' Fees 3,998 315 313 4,626
Organization and Other 37,349 11,085 (21,417)(2) 27,017
----------- ----------- ----------- -----------
1,428,299 97,367 (54,945) 1,470,721
Less: Fees waived & Expenses Reimbursed (159,337) (2) 49,525 (109,814)
----------- ----------- ----------- -----------
Total Expenses 1,268,962 97,365 (5,420) 1,360,907
----------- ----------- ----------- -----------
NET INVESTMENT INCOME 1,184,396 (5,295) 5,420 1,184,521
Realized and Unrealized Gain (Loss) from
Investments and Foreign Currency
Net realized gain (loss) from:
Investments 1,163,510 (33,090) 0 1,130,420
Foreign Currency Transactions 1,065,899 233,706 0 1,299,605
Net Increase (Decrease) in unrealized
appreciation or (Depreciation) on:
Investments (6,459,978) 706,593 0 (5,753,385)
Translations of assets and
Liabilities in Foreign Currencies (110,493) 45,762 0 (64,731)
Net Realized and Unrealized Gain (Loss)
from Investments and Foreign Currency (4,341,062) 952,971 (3,388,091)
----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Operations $(3,156,666) $ 947,676 $ 5,420 $(2,203,570)
=========== =========== =========== ===========
</TABLE>
- -----------------------------
(1) Based on the fee structure of the registrant and the assets of
the combined fund.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects pro-forma voluntary waiver of advisory and administration fees.
<PAGE>
CoreFund Value Equity Fund
Conestoga Equity Fund
Pro-Forma Combined Statement of Operations
For the Twelve Months Ended October 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
CoreFund Conestoga
Value Equity Equity Pro-Forma Pro-Forma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income
Interest $ 36,914 $ 582,013 0 $ 618,927
Dividends 585,927 4,506,937 0 5,092,864
------------ ------------ ------------ ------------
Total Investment Income 622,841 5,088,950 0 5,711,791
------------ ------------ ------------ ------------
Expenses
Investment Advisory Fees 256,410 1,503,062 3,456 (1) 1,762,928
Administration Fees 85,470 352,407 157,707 (1) 595,584
Custodian Fees 4 71,199 (71,203)(1) 0
Transfer Agent Fees 11,333 85,642 (49,328)(1) 47,647
Service Fees 0 37,965 (37,965)(1) 0
Distribution Fees 10,964 17,151 (2,040)(1) 26,075
Legal and Audit 5,778 48,342 (20,762)(2) 33,358
Printing 3,761 24,590 (4,259)(2) 24,092
Registration Fees 4,257 113,778 0 118,035
Trustees' Fees 1,778 11,514 (4,026)(2) 9,266
Organization and Other 7,277 5,978 (6,574)(2) 6,681
------------ ------------ ------------ ------------
387,032 2,271,628 (34,994) 2,623,666
Less: Fees waived & Expenses Reimbursed (82,024) (107,015) (26,216)(3) (215,255)
------------ ------------ ------------ ------------
Total Expenses 305,008 2,164,613 (61,210) 2,408,411
------------ ------------ ------------ ------------
NET INVESTMENT INCOME 317,833 2,924,337 61,210 3,303,380
------------ ------------ ------------ ------------
Realized and Unrealized Gain (Loss) on
Investments Transactions
Net realized gain (loss) on investment
transactions 4,590,958 28,978,833 0 33,569,791
Change in unrealized appreciation
(depreciation) (2,442,005) 12,893,781 0 10,451,776
Net Realized and Unrealized
Gain (Loss) on Investment Transactions 2,148,953 41,872,614 0 44,021,567
------------ ------------ ------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Operations $ 2,466,786 $ 44,796,951 $ 61,210 $ 47,324,947
============ ============ ============ ============
</TABLE>
- ---------------------------------
(1) Based on the fee structure of the registrant and the assets of
the combined fund.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects pro-forma voluntary waiver of advisory and administration fees.
<PAGE>
Notes to Pro Forma Financial Statements of CoreFunds, Inc. and
The Conestoga Family of Funds
October 31, 1995
(Unaudited)
1. Basis of Combination
The pro forma combined portfolios of investments and pro forma combined
statements of assets and liabilities reflect the accounts of CoreFunds,
Inc. ("CoreFunds") and The Conestoga Family of Funds ("Conestoga Fund") at
October 31, 1995. The pro forma combined statements of operations reflect
the accounts of CoreFunds and the Conestoga Fund for the twelve months
ended October 31 1995. These combined pro forma financial statements have
been derived from the annual financial statements of Conestoga Fund as of
October 31, 1995, and from the books and records of CoreFunds utilized in
calculating daily net asset values for the twelve months ended October 31, 1995.
The pro forma combined financial statements give effect to the proposed
transfer of the assets and liabilities of Conestoga Fund in exchange for
shares of CoreFunds. The historical cost of investment securities will be
carried forward to the surviving portfolios and the results of operations
of the surviving portfolios for pre-combining periods will not be restated.
The pro forma statements do not reflect the expenses of CoreFunds and
Conestoga Fund in carrying out their obligations under the Agreement and Plan of
Reorganization as these expenses are immaterial to the pro forma financial
statements.
The accompanying pro forma financial statements should be read in
conjunction with the historical financial statements of the CoreFunds and
the Conestoga Fund included or incorporated by reference in the Statement
of Additional Information.
The portfolios affected by the proposed merger are as follows:
CoreFunds Portfolio Conestoga Fund Portfolio
CoreFunds Treasury Reserve Conestoga U.S. Treasury Securities
CoreFunds Cash Reserve Conestoga Cash Management
CoreFunds Tax-Free Reserve Conestoga Tax-Free Income
CoreFunds Intermediate Bond Conestoga Intermediate Income
CoreFunds Pennsylvania Municipal Bond Conestoga Pennsylvania Tax-Free Bond
CoreFunds Balanced Conestoga Balanced
CoreFunds International Growth Conestoga International Equity
CoreFunds Value Equity Conestoga Equity
CoreFunds Bond Conestoga Bond 1
CoreFunds Special Equity Conestoga Special Equity 1
CoreFunds Short-Term Income Conestoga Short Term Income 1
1. Pro forma financial statements not presented because acquired fund is
being merged into an inactive portfolio of the registrant.
<PAGE>
Notes to Pro Forma Financial Statements of CoreFunds, Inc. and
The Conestoga Family of Funds
October 31, 1995
(Unaudited)
2. Shares of Beneficial Interest
The pro forma net asset value per share assumes the issuance on October
31, 1995 of additional shares of CoreFunds to the holders of the Conestoga
Funds in conjunction with the proposed transactions.
3. Pro Forma Operations
The pro forma combined statements of operation assume historical rates of gross
investment income for the investments of each of the CoreFunds and each of the
Conestoga Funds. Accordingly, the combined gross investment income is equal to
the sum of each such funds gross investment income.Certain expenses have been
adjusted to reflect the expected expenses of the combined fund. Pro forma
operating expenses include the actual expenses of each of the CoreFunds and each
of the Conestoga Funds and of the pro forma combined fund adjusted for certain
items.
4. Surviving Entity
The CoreFunds Treasury Reserve Portfolio, Corefunds Cash Reserve Portfolio,
CoreFunds Tax Free Reserve Portfolio, CoreFunds Intermediate Bond Portfolio,
CoreFunds Pennsylvania Municipal Bond Portfolio, CoreFunds Balanced Portfolio,
CoreFunds International Growth Portfolio, will be the surviving entities for
accounting purposes. This determination was based on the following:
o The investment objectives, policies and restrictions of the above
CoreFunds portfolios will be the investment objectives, policies and
restrictions of the surviving portfolios.
o The composition of the surviving portfolio will more closely resemble
the composition of the above CoreFunds portfolios.
The Conestoga Equity Portfolio will be the surviving entity based on the
following:
o The investment objectives, policies and restrictions of the Conestoga
Equity Portfolio will be the investment objectives, policies and
restrictions of the surviving portfolio.
o The composition of the surviving portfolio will more closely resemble
the composition of the Conestoga Equity Portfolio.
o The CoreFunds Value Equity Portfolio is significantly smaller than
Conestoga Equity Portfolio.
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Equity Fund
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 98.5%
AEROSPACE & DEFENSE -- 0.9%
Lockheed Martin 25,401 $ 1,730
McDonnell Douglas 21,717 1,776
------
Total Aerospace & Defense 3,506
------
AIRCRAFT -- 2.3%
Allied Signal 84,775 3,603
Boeing 27,310 1,792
Textron 30,000 2,063
United Technologies 16,500 1,464
------
Total Aircraft 8,922
------
APPAREL/TEXTILES -- 0.5%
Burlington Industries* 49,771 554
Fruit Of The Loom* 75,000 1,303
------
Total Apparel/Textiles 1,857
------
AUTOMOTIVE -- 1.8%
Ford Motor 205,000 5,894
Magna International, Class A 27,500 1,189
------
Total Automotive 7,083
------
BANKS -- 10.0%
Bank Of Boston 74,000 3,293
BankAmerica 196,900 11,322
Chase Manhattan 206,600 11,774
Chemical Banking 103,000 5,858
Citicorp 99,000 6,423
------
Total Banks 38,670
------
BUILDING & CONSTRUCTION -- 0.6%
Webb (Dell E.) 105,000 2,179
------
Total Building & Construction 2,179
------
CHEMICALS -- 3.2%
Dow Chemical 25,525 1,752
Hercules 5,100 272
IMC Global 36,600 2,562
Monsanto 32,500 3,404
Praxair 155,000 4,185
------
Total Chemicals 12,175
------
COMMUNICATIONS EQUIPMENT -- 1.4%
First Alert* 33,800 524
Motorola 32,175 2,111
Qualcomm* 65,000 2,503
------
Total Communications Equipment 5,138
------
COMPUTER SOFTWARE -- 1.4%
Autotote -- Class A* 90,230 271
Computer Associates
International 52,500 2,887
International Game Technology 146,358 1,701
Pyxis* 24,839 314
------
Total Computer Software 5,173
------
COMPUTER AND OFFICE EQUIPMENT -- 3.1%
Hewlett Packard 14,330 1,327
IBM 98,000 9,531
Novell* 56,435 931
------
Total Computer and Office Equipment 11,789
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
COMPUTERS & SERVICES -- 2.9%
Apple Computer 94,000 $ 3,413
Compaq Computer* 57,500 3,206
Digital Equipment* 84,750 4,587
------
Total Computers & Services 11,206
------
CONCRETE & MINERAL PRODUCTS -- 0.5%
Owens Corning Fiberglass* 46,910 1,988
------
Total Concrete & Mineral Products 1,988
------
CONTAINERS & PACKAGING -- 0.4%
Owens-Illinois* 119,455 1,508
------
Total Containers & Packaging 1,508
------
ELECTRICAL SERVICES -- 6.3%
Central & South West 124,200 3,322
Consolidated Edison New York 142,000 4,313
Pacific Gas & Electric 120,800 3,549
Peco Energy 200,000 5,850
SCE 425,000 7,225
------
Total Electrical Services 24,259
------
ELECTRONIC AND OTHER ELECTRICAL EQUIPMENT -- 3.9%
General Electric 180,000 11,385
Philips Electronics ADR 75,000 2,897
Texas Instruments 13,100 894
------
Total Electronic and Other
Electrical Equipment 15,176
------
ENTERTAINMENT -- 0.3%
MGM Grand* 43,870 1,047
President Casinos* 31,325 96
------
Total Entertainment 1,143
------
ENVIRONMENTAL SERVICES -- 1.0%
Browning Ferris Industries 125,000 3,641
------
Total Environmental Services 3,641
------
FINANCIAL SERVICES -- 4.1%
Dean Witter Discover 89,013 4,428
Fleet Financial Group 55,000 2,131
Household International 38,000 2,138
ITT 40,000 4,901
MBNA 62,900 2,319
------
Total Financial Services 15,917
------
FOOD, BEVERAGE & TOBACCO -- 7.9%
Buenos Aires Embotellado-ADR 27,355 626
IBP 38,200 2,287
Nabisco Holdings -- Class A 179,500 4,824
Philip Morris Companies 173,860 14,691
RJR Nabisco Holdings 256,160 7,877
------
Total Food, Beverage & Tobacco 30,305
------
</TABLE>
11
<PAGE>
- -------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
HOUSEHOLD PRODUCTS -- 0.4%
Maytag 85,800 $ 1,630
------
Total Household Products 1,630
------
INSURANCE -- 4.0%
Aetna Life & Casualty 30,000 2,111
Cigna 30,000 2,974
Equitable Companies 195,500 4,154
The Travelers Group 125,000 6,312
Transport Holdings -- Class A* 625 25
------
Total Insurance 15,576
------
MACHINERY -- 3.0%
Baker Hughes 90,000 1,766
Brunswick 80,800 1,576
Case Equipment 55,000 2,097
Caterpillar 33,700 1,891
Deere 40,000 3,575
McDermott International 30,635 486
------
Total Machinery 11,391
------
MEDICAL PRODUCTS & SERVICES -- 2.6%
Beverly Enterprises* 136,600 1,605
Community Psychiatric* 48,400 526
Coram Healthcare* 100,000 400
FHP International* 45,000 1,091
Foundation Health* 53,704 2,276
Humana* 122,300 2,585
Novacare* 25,964 162
United Healthcare 9,850 523
United States Surgical 37,557 920
------
Total Medical Products & Services 10,088
------
METALS & MINING -- 0.9%
Potash of Saskatchewan 49,400 3,439
------
Total Metals & Mining 3,439
------
OIL AND GAS FIELD EXPLORATION SERVICES -- 9.7%
Ashland 100,000 3,163
British Petroleum Plc ADR 92,000 8,118
Diamond Shamrock 31,750 818
Enron 85,000 2,922
Mobil 78,600 7,919
Repsol S.A. ADR 161,500 4,784
Royal Dutch Petroleum 53,550 6,580
Tosco 57,700 1,991
YPF Sociedad Anonima ADR 72,385 1,240
------
Total Oil and Gas Field
Exploration Services 37,535
------
PAPER & PAPER PRODUCTS -- 0.5%
International Paper 50,000 1,850
------
Total Paper & Paper Products 1,850
------
PHARMACEUTICALS -- 2.6%
Caremark International 23,200 479
Elan Public* 111,100 4,457
Merck 45,805 2,634
Mylan Laboratories 63,100 1,199
Teva Pharmaceutical Industries
ADR 32,672 1,282
------
Total Pharmaceuticals 10,051
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
PHOTOGRAPHIC EQUIPMENT & SUPPLIES -- 0.4%
Xerox 13,000 $ 1,687
------
Total Photographic Equipment & Supplies 1,687
------
RAILROADS -- 1.3%
Burlington Northern Santa Fe 30,000 2,517
CSX 28,600 2,395
------
Total Railroads 4,912
------
RESTAURANTS -- 2.0%
Darden Restaurants* 619,000 7,041
Rally's Hamburgers* 18,426 35
Vicorp Restaurants* 61,534 677
------
Total Restaurants 7,753
------
RETAIL -- 4.6%
Bed, Bath & Beyond* 7,600 238
Borders Group* 187,000 3,202
CML Group 275,000 1,581
Kroger* 169,505 5,657
Lowe's 159,200 4,298
Pep Boys 100,000 2,188
Vons* 23,000 584
------
Total Retail 17,748
------
RUBBER & PLASTIC -- 2.4%
Goodyear Tire & Rubber 245,000 9,310
------
Total Rubber & Plastic 9,310
------
SEMI-CONDUCTORS/INSTRUMENTS -- 2.5%
Intel 73,400 5,129
Micron Technology 24,500 1,730
National Semiconductor* 76,000 1,853
VLSI Technology 40,000 940
------
Total Semi-Conductors/Instruments 9,652
------
SERVICES-EMPLOYMENT AGENCIES -- 0.8%
Manpower 116,000 3,147
------
Total Services-Employment Agencies 3,147
------
SPECIALTY MACHINERY -- 0.9%
Westinghouse Electric 235,000 3,319
------
Total Specialty Machinery 3,319
------
STEEL & STEEL WORKS -- 1.6%
Birmingham Steel 8,070 123
Phelps Dodge 46,600 2,953
USX -- U.S. Steel Group 100,100 2,991
------
Total Steel & Steel Works 6,067
------
</TABLE>
12
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Equity Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Shares/Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
TELEPHONES & TELECOMMUNICATION -- 5.6%
Cellular Communications -- Class
A* 24,773 $ 1,328
MCI Communications 178,475 4,451
SBC Communications 80,000 4,470
Worldcom* 350,100 11,422
------
Total Telephones & Telecommunication 21,671
------
WHOLESALE -- 0.2%
Jan Bell Marketing* 80,480 272
Michael Foods 3,726 45
Universal -- Va 21,770 457
------
Total Wholesale 774
------
Total Common Stock
(Cost $362,939,414) 379,235
------
PREFERRED STOCKS -- 0.7%
PRINTING & PUBLISHING -- 0.4%
News -- Preferred Shares ADR 72,915 1,331
------
Total Printing & Publishing 1,331
------
TELEPHONES & TELECOMMUNICATION -- 0.3%
Cellular Communications
Preferred* 23,866 1,280
------
Total Telephones & Telecommunication 1,280
------
Total Preferred Stocks
(Cost $2,565,048) 2,611
------
COMMERCIAL PAPER -- 0.9%
American Express
5.750%, 11/01/95 $ 3,336 3,336
------
Total Commercial Paper
(Cost $3,336,000) 3,336
------
Total Investments -- 100.1%
(Cost $368,840,462) 385,182
------
OTHER ASSETS AND LIABILITIES -- (0.1%)
Other Assets and Liabilities,
Net (239)
------
Total Other Assets and Liabilities (239)
------
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 22,159,807
outstanding shares of
beneficial interest 334,512
Portfolio shares of the Retail
Class (unlimited
authorization -- $0.001 par
value) based on 385,955
outstanding shares of
beneficial interest 5,056
Undistributed net investment
income 101
Undistributed net realized gain
on investments 28,932
Unrealized appreciation on
investments 16,342
------
Total Net Assets -- 100.0% $ 384,943
======
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
Net Asset Value, Offering Price
and Redemption Price Per
Share -- Institutional Class $ 17.07
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 17.08
======
Maximum Offering Price Per
Share -- Retail Class
($17.08 / 98.0%) $ 17.43
======
* Non-income producing security
ADR American Depository Receipt
SPECIAL EQUITY FUND
COMMON STOCK -- 96.1%
AEROSPACE & DEFENSE -- 1.0%
McDonnell Douglas 7,500 $ 613
------
Total Aerospace & Defense 613
------
AGRICULTURE PRODUCTS -- 0.8%
Terra Industries 35,000 442
------
Total Agriculture Products 442
------
APPAREL/TEXTILES -- 3.7%
Burlington Industries* 5,117 57
Cyrk International* 20,100 221
Fieldcrest Cannon* 17,400 335
Gadzooks* 1,000 19
Gucci Group* 2,700 81
Haggar 20,000 330
Oneita Industries* 55,000 371
Oxford Industries 20,000 325
Quaker Fabric* 11,900 107
Supreme International* 18,400 294
------
Total Apparel/Textiles 2,140
------
AUTOMOTIVE -- 1.2%
Ford 13,000 373
Magna International -- Class A 6,500 281
Walbro 3,000 59
------
Total Automotive 713
------
BANKS -- 5.4%
Bank of Boston 14,500 645
BankAmerica 13,900 799
Barnett Banks 7,000 387
Chase Manhattan 12,000 684
Chemical Banking 9,100 518
MBNA 2,200 81
------
Total Banks 3,114
------
BROADCASTING, NEWSPAPERS & ADVERTISING -- 0.1%
Argyle Television* 2,000 34
------
Total Broadcasting, Newspapers & Advertising 34
------
</TABLE>
13
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
BUILDING & CONSTRUCTION -- 1.4%
Empresas ICA S.A.-ADS 7,500 $ 71
Webb (Del. E.) 35,000 727
------
Total Building & Construction 798
------
CHEMICALS -- 0.4%
Kinark* 65,000 195
------
Total Chemicals 195
------
COMMUNICATIONS EQUIPMENT -- 1.0%
ECI Telecommunications* 9,000 171
First Alert* 22,000 341
Qualcomm* 1,500 58
------
Total Communications Equipment 570
------
COMPUTER SOFTWARE -- 4.7%
Autotote -- Class A* 35,000 105
Checkfree* 3,600 76
Computer Associates
International 8,500 468
Computervision* 72,500 850
Control Data Systems* 60,000 795
Gametek* 10,000 18
Pyxis* 16,947 214
Simware* 18,400 173
------
Total Computer Software 2,699
------
COMPUTERS & SERVICES -- 2.4%
IBM 8,500 826
International Game Technology 21,514 250
Landmark Graphics* 7,200 157
Mizar* 18,200 155
------
Total Computers & Services 1,388
------
CONCRETE & MINERAL PRODUCTS -- 1.3%
Owens Corning Fiberglass* 17,500 742
------
Total Concrete & Mineral Products 742
------
CONTAINERS & PACKAGING -- 0.6%
Owens-Illinois* 25,700 324
------
Total Containers & Packaging 324
------
ELECTRICAL SERVICES -- 1.0%
SCE 35,000 595
------
Total Electrical Services 595
------
ELECTRONIC GAMING DEVICES -- 1.1%
Mikohn Gaming* 110,000 495
Video Lottery Technologies* 34,200 162
------
Total Electronic Gaming Devices 657
------
ELECTRONIC AND OTHER ELECTRICAL EQUIPMENT -- 1.9%
Cincinnati Microwave* 27,300 157
Philips Electronics ADR* 18,300 707
Rexel* 18,800 216
Smartflex Systems* 2,300 34
------
Total Electronic and Other Electrical Equipment 1,114
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
ENERGY & POWER -- 1.3%
Zurn Industries 30,000 $ 750
------
Total Energy & Power 750
------
ENGINEERING CONSULTING -- 0.1%
Corrpro Companies* 9,700 55
------
Total Engineering Consulting 55
------
ENTERTAINMENT -- 1.0%
Boomtown* 17,000 125
Cinergi Pictures Entertainment* 14,300 55
Hollywood Park* 20,000 194
President Casinos* 17,226 53
Sports Club* 38,000 162
------
Total Entertainment 589
------
ENVIRONMENTAL CONSULTING -- 0.5%
Harding Associates* 40,300 277
------
Total Environmental Consulting 277
------
ENVIRONMENTAL SERVICES -- 1.3%
Browning Ferris Industries 25,000 728
------
Total Environmental Services 728
------
FINANCIAL SERVICES -- 3.7%
Donaldson, Luftkin, & Jenrette* 4,800 143
Household International 5,600 315
ITT 5,000 613
Jayhawk Acceptance* 27,400 329
WFS Financial* 45,000 747
------
Total Financial Services 2,147
------
FOOD, BEVERAGE & TOBACCO -- 5.6%
Cott 19,000 157
Michael Foods 51,476 624
Pepsi-Cola Puerto Rico Bottling* 69,200 944
Philip Morris Companies 8,500 718
RJR Nabisco Holdings 19,200 590
Rymer Foods* 178,600 223
------
Total Food, Beverage & Tobacco 3,256
------
HOME BUILDERS -- 0.4%
Belmont Homes* 4,100 72
Cavalier Homes 10,925 185
------
Total Home Builders 257
------
HOTELS & LODGING -- 1.3%
John Q. Hammons Hotels* 9,600 113
Prime Hospitality* 64,500 637
------
Total Hotels & Lodging 750
------
HOUSEHOLD FURNITURE & FIXTURES -- 0.7%
Ameriwood Industries
International* 20,900 105
Winsleow Furniture* 44,180 287
------
Total Household Furniture & Fixtures 392
------
</TABLE>
14
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Special Equity Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
INSURANCE -- 3.5%
Allstate 740 $ 27
Gryphon Holdings* 36,700 573
Pac Rim Holding* 87,700 252
Prudential Reinsurance Holdings* 32,700 667
St. Paul Companies 3,840 195
The Travelers Group 6,500 328
Transport Holdings* 33 1
------
Total Insurance 2,043
------
LABORATORY ANALYTICAL INSTRUMENTS -- 0.4%
Molecular Dynamics* 1,400 8
Perseptive Biosystems* 21,000 224
------
Total Laboratory Analytical Instruments 232
------
MACHINERY -- 3.9%
Agco 8,950 401
Caterpillar 11,500 645
Deere 7,500 670
Kuhlman 50,000 575
------
Total Machinery 2,291
------
MEDICAL PRODUCTS & SERVICES -- 6.0%
Acme United* 129,200 388
Aequitron Medical* 9,000 71
Community Psychiatric* 12,400 135
Cooper Companies* 50,000 294
Keravision* 34,500 427
Metra Biosystems* 6,800 126
Pace Health Management Systems* 43,500 201
Possis Medical* 22,600 319
Resound* 47,400 373
Scios Nova* 218,200 789
Sterling House* 18,000 223
United Healthcare 1,366 73
Value Health* 5,400 124
------
Total Medical Products & Services 3,543
------
METALS & MINING -- 0.9%
Potash of Saskatchewan 7,800 543
------
Total Metals & Mining 543
------
OIL AND GAS FIELD EXPLORATION SERVICES -- 1.9%
Enron 10,000 344
Repsol S.A. ADR 25,000 740
------
Total Oil and Gas Field
Exploration Services 1,084
------
PAPER & PAPER PRODUCTS -- 1.1%
International Paper 17,000 629
------
Total Paper & Paper Products 629
------
PETROLEUM & FUEL PRODUCTS -- 0.1%
Kelley Oil & Gas* 15,000 38
------
Total Petroleum & Fuel Products 38
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
PHARMACEUTICALS -- 7.1%
Alpharma 18,700 $ 449
Anesta* 45,200 480
Aphton* 24,300 231
Elan* 17,000 682
Guilford Pharmaceuticals* 22,600 373
ISIP Pharmaceuticals* 27,300 276
NBTY* 26,500 133
Pharmaceutical Resources* 91,300 753
Roberts Pharmaceutical* 12,500 242
Teva Pharmaceutical Industries
ADR 14,000 550
------
Total Pharmaceuticals 4,169
------
RAILROADS -- 1.0%
CSX 7,200 603
------
Total Railroads 603
------
REAL ESTATE -- 0.2%
Agree Realty 9,400 139
------
Total Real Estate 139
------
REPAIR SERVICES -- 0.1%
Earl Scheib* 4,900 29
------
Total Repair Services 29
------
RESTAURANTS -- 4.0%
Darden Restaurants* 81,500 927
Hometown Buffet* 44,800 588
Rally's Hamburgers* 5,815 11
Uno Restaurant* 90,000 686
Vicorp Restaurants* 5,000 55
Vie De France* 21,000 66
------
Total Restaurants 2,333
------
RETAIL -- 6.4%
Bed Bath & Beyond* 3,500 109
Bon-Ton Stores* 51,000 332
Border Group* 54,000 926
Chico's Fas* 8,300 37
CML Group 92,200 530
De Rigo S.P.A. ADR* 200 4
Drug Emporium* 92,100 374
Intimate Brands* 5,400 90
Kroger* 16,000 534
Pacific Sunwear of California* 74,900 543
Sportmart Class A* 14,400 68
Sportmart* 14,400 110
Strouds* 19,000 88
------
Total Retail 3,745
------
RUBBER & PLASTIC -- 1.7%
Goodyear Tire And Rubber 13,000 494
O'Sullivan 45,000 495
------
Total Rubber & Plastic 989
------
</TABLE>
15
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Shares/Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
SEMI-CONDUCTORS -- 3.8%
ESS Technology* 9,100 $ 273
Intel 7,400 517
Lam Research* 7,500 457
Micron Technology 7,800 550
National Semiconductor* 17,300 422
------
Total Semi-Conductors 2,219
------
SERVICES-EMPLOYMENT AGENCIES -- 0.9%
Manpower 20,000 543
------
Total Services-Employment Agencies 543
------
SPORTING AND ATHLETIC GOODS -- 1.2%
Callaway Golf 36,500 597
Meridian Sports* 17,300 104
------
Total Sporting and Athletic Goods 701
------
STEEL & STEEL WORKS -- 2.5%
Ak Steel Holding 22,000 682
Cold Metal Products* 42,800 246
USX 17,500 523
------
Total Steel & Steel Works 1,451
------
TELEPHONES & TELECOMMUNICATION -- 2.3%
Cellular Communications -- Class
A* 5,439 292
Executone Information Systems* 55,900 143
Intermedia Communications of
Florida* 40,500 511
Nextel Communications* 15,000 208
Peoples Telephone* 14,300 37
Telefonica De Espana ADR 4,000 151
------
Total Telephones & Telecommunication 1,342
------
TRUCKING -- 1.6%
Expeditors International of
Washington 25,000 656
PST Vans* 45,900 258
------
Total Trucking 914
------
VIDEO TECHNOLOGY -- 1.3%
Videonics* 55,000 770
------
Total Video Technology 770
------
WHOLESALE -- 0.3%
Government Technology Services* 33,500 188
------
Total Wholesale 188
------
Total Common Stock
(Cost $55,333,061) 55,877
------
COMMERCIAL PAPER -- 4.4%
American Express
5.750%, 11/01/95 $ 2,540 2,540
------
Total Commercial Paper
(Cost $2,540,000) 2,540
------
Total Investments -- 100.5%
(Cost $57,873,061) 58,417
------
OTHER ASSETS AND LIABILITIES -- (0.5%)
Other Assets and Liabilities,
Net (287)
------
Total Other Assets and Liabilities (287)
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 5,027,349
outstanding shares of
beneficial interest $ 48,443
Portfolio shares of the Retail
Class (unlimited
authorization -- $0.001 par
value) based on 64,279
outstanding shares of
beneficial interest 643
Undistributed net investment
income 16
Undistributed net realized gain
on investments 8,483
Unrealized appreciation on
investments 545
------
Total Net Assets: -- 100.0% $ 58,130
======
Net Asset Value, Offering Price
and Redemption Price Per
Share -- Institutional Class $ 11.42
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 11.42
======
Maximum Offering Price Per
Share -- Retail Class
($11.42 / 98.0%) $ 11.65
======
* Non-income producing security
ADR American Depository Receipt
INTERNATIONAL EQUITY FUND
FOREIGN COMMON STOCKS 90.2%
ARGENTINA 1.4%
Banco Frances Rio Plata ADR 2,200 $ 49
Cementera Argentina* 6,500 28
Commercial del Plata* 19,000 38
Irsa GDR* 1,400 29
Quilmes Industrial 2,200 39
------
Total Argentina 183
------
AUSTRALIA 0.8%
Newscorp 21,000 106
------
Total Australia 106
------
CHILE 0.2%
Santa Isabel ADR* 1,100 25
------
Total Chile 25
------
FINLAND 3.6%
Nokia, Cl A 8,400 481
------
Total Finland 481
------
</TABLE>
16
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
International Equity Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
FRANCE 1.7%
Axa 800 $ 44
Business Objects ADR* 1,300 56
Castorama 165 27
Cie Bancaire 350 36
SGS-Thomson ADR* 1,500 68
------
Total France 231
------
GERMANY 0.7%
Veba 2,250 92
------
Total Germany 92
------
HONG KONG 5.9%
Cheung Kong Holdings 11,000 62
Citic Pacific 20,800 65
First Pacific 266,000 306
HSBC Holdings 15,200 221
Hutchison Whampoa 12,000 66
Sun Hung Kai Properties 8,000 64
------
Total Hong Kong 784
------
INDIA 0.6%
East India Hotels GDR* 1,400 24
I.T.C. ADR* 4,100 36
Ranbaxy Laboratories GDR 1,000 22
------
Total India 82
------
INDONESIA 1.0%
Indonesian Satellite ADR 4,000 133
------
Total Indonesia 133
------
IRELAND 0.4%
Elan ADR* 1,300 52
------
Total Ireland 52
------
ISRAEL 0.3%
ECI Telecommunications 1,800 34
------
Total Israel 34
------
ITALY 2.7%
Assicurazioni Generali 2,200 51
Falck* 12,200 28
Fila Holdings ADR 900 39
Gucci Group ADR* 3,100 93
Mediobanca 4,000 27
Telecom Italia 71,500 120
------
Total Italy 358
------
JAPAN 27.7%
Advantest 4,000 227
Alpine Electronics 4,000 56
Best Denski 2,000 29
Bridgestone 3,000 42
Canon 6,000 103
Canon Sales 1,000 24
Daini Denden 32 259
Daiwa Securities 7,000 82
Fanuc 2,000 87
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
Hirose Electric 1,050 $ 67
Ito Yokado 3,000 164
Keyence 500 62
Koa 5,000 81
Kokusai Electric 5,000 114
Komatsu 6,000 47
Kubota 6,000 37
Kurita Water Industries 1,000 28
Kyocera 4,000 328
Makita 2,000 31
Marui 2,000 35
Matsushita Electric 3,000 43
Mitsubishi Electric 5,000 37
Mitsubishi Estate 7,000 75
Mitsubishi Trust & Banking 2,000 28
Mitsui Fudosan 5,000 57
Murata 4,000 140
NEC 20,000 264
Nikon 10,000 143
Nippon Telegraph & Telephone 4 33
Nissan Motors 7,000 47
Nomura Securities 6,000 110
NTT Data Communications 3 75
Sankyo 1,000 22
Sanwa Bank 3,000 51
Sharp 7,000 97
Sony 1,000 45
Sumitomo Bank 3,000 53
Sumitomo Trust & Banking 4,000 46
Takeda Chemical Industries 2,000 28
TDK 1,000 52
Tokyo Electronics 4,000 174
Toray 6,000 37
Toyota Motor 4,000 74
Ushio 2,000 23
Yamanouchi Pharmaceutical 3,000 67
------
Total Japan 3,724
------
LUXEMBOURG 0.1%
Millicom International* 500 17
------
Total Luxembourg 17
------
MALAYSIA 3.8%
Arab-Malaysian Merchant Bank 12,000 148
Malayan Banking 10,000 81
New Straits Times Press 20,000 63
Sime Darby Malaysia 20,000 50
Technology Resources* 44,000 112
United Engineers 9,000 56
------
Total Malaysia 510
------
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
MEXICO 2.0%
Bufete Industrial ADR* 1,600 $ 21
Cemex, Cl A 5,300 16
Cifra* 35,000 37
Grupo Carso ADR* 2,500 24
Grupo Financiero Banamex, Cl B 11,000 19
Grupo Financiero Banamex, Cl L 550 1
Grupo Financiero Inbursa, Cl C 20,000 55
Grupo Iusacell ADS* 1,400 17
Grupo Modelo, Cl C 5,000 19
Grupo Posadas, Cl A* 52,300 17
Grupo Synkro ADR, Cl B* 80,000 20
Kimberly Clark, Cl A 1,700 22
------
Total Mexico 268
------
NETHERLANDS 4.7%
Advanced Semi-Conductor ADR* 700 33
ASM Litho Holdings ADR* 2,000 97
Baan ADR* 2,300 98
Elsevier 4,500 58
Getronics 1,000 48
International Nederlanden 500 30
Madge Networks ADR* 1,900 80
Philips Electronics 1,800 70
Polygram 1,100 69
Wolters Kluwer 500 46
------
Total Netherlands 629
------
NEW ZEALAND 0.5%
Telecom New Zealand ADR 1,015 67
------
Total New Zealand 67
------
NORWAY 1.2%
Hafslund Nycomed, Cl B 1,200 34
Petroleum Geo-Services ADR* 6,200 120
------
Total Norway 154
------
PERU 0.3%
Banco Wiese ADR 6,900 46
------
Total Peru 46
------
PHILIPPINES 0.5%
San Miguel, Cl B 20,000 66
------
Total Philippines 66
------
SINGAPORE 1.9%
City Development 7,000 43
Creative Technology ADR* 1,100 13
Flextronics ADR* 1,000 23
Singapore Press, F 2,400 38
Straits Steamship Land 14,000 39
United Overseas Bank, F 10,600 93
------
Total Singapore 249
------
SOUTH KOREA 3.1%
Korea Fund 3,000 65
Korea Mobile Telecom GDR* 2,500 93
Samsung Electric Non-Voting
GDS New* 4,000 256
Samsung Electric Voting GDR* 22 2
------
Total South Korea 416
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
SWEDEN 7.4%
Allgan, Cl B 1,600 $ 24
Asea, Cl B 1,400 138
Astra, Cl B 5,200 188
Autoliv 2,200 126
Ericsson Telephone ADR 23,400 500
Pharmacia, Cl B 500 17
------
Total Sweden 993
------
SWITZERLAND 4.9%
Brown Boveri & Cie Bearer 65 75
Ciba Geigy 125 108
Roche Holdings 35 255
Sandoz Pharmaceutical 260 215
------
Total Switzerland 653
------
THAILAND 2.3%
Advanced Info Service, F 9,000 148
Land and House, F 2,000 32
Total Access Communications ADR 11,000 67
United Communications 5,000 63
------
Total Thailand 310
------
UNITED KINGDOM 10.5%
Barclays Bank 5,200 61
BAT 4,200 34
British Sky Broadcasting ADR 5,500 197
Commercial Union 5,300 51
Glaxo Wellcome 7,200 97
Logica 6,100 46
Next 12,000 78
Reuters 16,200 151
Smithkline Beecham 20,500 210
Takare 6,000 19
Tele-Communications ADR, Cl A* 7,500 170
Vodafone Group 26,200 108
WPP Group 11,600 28
Zeneca Group 8,000 149
------
Total United Kingdom 1,399
------
Total Foreign Common Stocks
(Cost $11,387,561) 12,062
------
FOREIGN PREFERRED STOCKS 1.4%
GERMANY 1.4%
SAP 1,250 191
------
Total Germany 191
------
Total Foreign Preferred Stocks
(Cost $158,684) 191
------
</TABLE>
18
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
International Equity Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
TIME DEPOSIT 7.7%
Bank of New York -- Cayman
Time Deposit
5.563%, 11/01/95 $ 1,029 $ 1,029
------
Total Time Deposit
(Cost $1,028,558) 1,029
------
Total Investments (99.3% of Net Assets)
(Cost $12,574,803) 13,282
------
OTHER ASSETS AND LIABILITIES 0.7%
Other Assets and Liabilities, Net 99
------
Total Other Assets and Liabilities 99
------
NET ASSETS:
Portfolio shares of
Institutional
Class (unlimited
authorization -- $0.001 par
value) -- based on
1,214,982 outstanding shares 12,425
Portfolio shares of Retail
Class (unlimited
authorization -- $0.001 par
value) -- based on
758 outstanding shares 8
Accumulated net investment loss (5)
Undistributed net realized gain
on investments and foreign
currency transactions 201
Unrealized appreciation on
forward foreign currency
contracts, foreign currency
and translation of other
assets and liabilities in
foreign currency 45
Unrealized appreciation on
investments 707
------
Total Net Assets: -- 100.0% $ 13,381
======
Net Asset Value, Offering Price
and
Redemption Price Per Share --
Institutional Class $ 11.01
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 10.99
======
Maximum Offering Price Per
Share -- Retail Class
($10.99 / 98%) $ 11.21
======
* Non-income producing security
ADR American Depository Receipts
ADS American Depository Shares
GDR Global Depository Receipts
GDS Global Depository Shares
Cl Class
F Foreign Registry Shares
BALANCED FUND
COMMON STOCK -- 38.5%
AEROSPACE & DEFENSE -- 0.2%
McDonnell Douglas 900 $ 74
------
Total Aerospace & Defense 74
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
AIRCRAFT -- 1.1%
Allied Signal 3,800 $ 162
Boeing 1,500 98
Textron 1,000 69
United Technologies 900 80
------
Total Aircraft 409
------
APPAREL/TEXTILES -- 0.2%
Burlington Industries* 1,900 21
Fruit Of The Loom* 3,000 52
------
Total Apparel/Textiles 73
------
AUTOMOTIVE -- 0.7%
Ford Motor 7,700 222
Magna International, Class A 1,000 43
------
Total Automotive 265
------
BANKS -- 3.9%
Bank of Boston 2,600 116
BankAmerica 8,300 477
Chase Manhattan 7,800 445
Chemical Banking 4,400 250
Citicorp 3,500 227
------
Total Banks 1,515
------
BOOKS -- 0.0%
Borders Group* 1,000 17
------
Total Books 17
------
BUILDING & CONSTRUCTION -- 0.3%
Webb (Del E.) 5,400 112
------
Total Building & Construction 112
------
CHEMICALS -- 1.5%
Dow Chemical 900 62
Hercules 1,900 101
IMC Global 1,700 119
Monsanto 1,200 126
Praxair 6,500 175
------
Total Chemicals 583
------
COMMUNICATIONS EQUIPMENT -- 0.5%
First Alert* 1,200 19
Motorola 1,300 85
Qualcomm* 2,500 96
------
Total Communications Equipment 200
------
COMPUTER SOFTWARE -- 0.5%
Computer Associates
International 2,400 131
International Game Technology 5,400 63
Pyxis* 1,000 13
------
Total Computer Software 207
------
</TABLE>
19
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
COMPUTERS & SERVICES -- 2.4%
Apple Computer 3,600 $ 131
Compaq Computer* 2,000 112
Digital Equipment* 3,500 189
Hewlett Packard 800 74
IBM 4,000 389
Novell* 2,252 37
------
Total Computers & Services 932
------
CONCRETE & MINERAL PRODUCTS -- 0.1%
Owens Corning Fiberglass* 1,200 51
------
Total Concrete & Mineral Products 51
------
CONTAINERS & PACKAGING -- 0.2%
Owens-Illinois* 5,300 67
------
Total Containers & Packaging 67
------
ELECTRICAL SERVICES -- 2.5%
American Electric Power 1,800 69
Central And South West 4,100 110
Consolidated Edison New York 5,400 164
Pacific Gas And Electric 4,200 123
Peco Energy 8,500 248
SCE 14,300 243
------
Total Electrical Services 957
------
ELECTRONIC AND OTHER ELECTRICAL EQUIPMENT -- 1.8%
General Electric 7,200 456
Philips Electronics ADR 2,700 104
Texas Instruments 1,800 123
------
Total Electronic and Other
Electrical Equipment 683
------
ENTERTAINMENT -- 0.1%
MGM Grand* 1,800 43
------
Total Entertainment 43
------
ENVIRONMENTAL SERVICES -- 0.3%
Browning Ferris Industries 4,500 131
------
Total Environmental Services 131
------
FINANCIAL SERVICES -- 1.6%
Dean Witter Discover 3,700 183
Fleet Financial Group 2,000 78
Household International 1,400 79
ITT 1,500 184
MBNA 2,500 92
------
Total Financial Services 616
------
FOOD, BEVERAGE & TOBACCO -- 3.1%
IBP 1,900 114
Nabisco Holdings -- Class A 8,000 215
Philip Morris Companies 6,700 566
RJR Nabisco Holdings 10,300 317
------
Total Food, Beverage & Tobacco 1,212
------
HOUSEHOLD PRODUCTS -- 0.1%
Maytag 2,700 51
------
Total Household Products 51
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C>
INSURANCE -- 1.6%
Aetna Life And Casualty 1,200 $ 84
Allstate 462 17
Cigna 1,200 119
Equitable Companies 7,300 155
The Travelers Group 5,000 253
Transport Holdings -- Class A* 25 1
------
Total Insurance 629
------
MACHINERY -- 1.1%
Baker Hughes 3,000 59
Case Equipment 2,500 95
Caterpillar 1,200 67
Deere 1,800 161
McDermott International 1,300 21
------
Total Machinery 403
------
MEDICAL PRODUCTS & SERVICES -- 0.8%
Beverly Enterprises* 5,100 60
Community Psychiatric* 1,500 16
FHP International* 1,500 36
Foundation Health* 1,600 68
Health Systems International
Class A* 700 21
Humana* 1,500 32
Novacare* 2,300 14
United Healthcare 500 27
United States Surgical 1,700 42
------
Total Medical Products & Services 316
------
METALS & MINING -- 0.3%
Potash of Saskatchewan 1,700 118
------
Total Metals & Mining 118
------
OIL AND GAS FIELD EXPLORATION SERVICES -- 4.0%
Ashland 3,500 111
British Petroleum PLC ADR 4,000 353
Diamond Shamrock 1,400 36
Enron 3,500 120
Mobil 3,200 322
Repsol S.A. ADR 7,100 210
Royal Dutch Petroleum 2,200 270
Tosco 2,300 79
YPF Sociedad Anonima ADR 2,700 46
------
Total Oil and Gas Field Exploration Services 1,547
------
PAPER & PAPER PRODUCTS -- 0.2%
International Paper 1,800 67
------
Total Paper & Paper Products 67
------
PHARMACEUTICALS -- 1.0%
Caremark International 900 19
Elan Public* 3,900 156
Merck 1,600 92
Mylan Laboratories 2,500 48
Teva Pharmaceutical Industries
ADR 1,400 55
------
Total Pharmaceuticals 370
------
</TABLE>
20
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Balanced Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
PHOTOGRAPHIC EQUIPMENT & SUPPLIES -- 0.2%
Xerox 500 $ 65
------
Total Photographic Equipment & Supplies 65
------
RAILROADS -- 0.5%
Burlington Northern Santa Fe 1,100 92
CSX 1,200 101
------
Total Railroads 193
------
RESTAURANTS -- 0.6%
Darden Restaurants* 17,300 197
Vicorp Restaurants* 2,200 24
------
Total Restaurants 221
------
RETAIL -- 1.5%
CML Group 9,000 52
Kroger* 7,200 239
Lowe's 6,500 176
Pep Boys 3,500 77
Vons* 1,500 38
------
Total Retail 582
------
RUBBER & PLASTIC -- 1.0%
Goodyear Tire And Rubber 9,700 369
------
Total Rubber & Plastic 369
------
SEMI-CONDUCTORS/INSTRUMENTS -- 1.0%
Intel 3,100 216
Micron Technology 900 64
National Semiconductor* 3,200 78
VLSI Technology 1,500 35
------
Total Semi-Conductors/Instruments 393
------
SERVICES-EMPLOYMENT AGENCIES -- 0.3%
Manpower 4,000 109
------
Total Services-Employment Agencies 109
------
SPECIALTY MACHINERY -- 0.3%
Westinghouse Electric 7,500 106
------
Total Specialty Machinery 106
------
STEEL & STEEL WORKS -- 0.6%
Birmingham Steel 300 5
Phelps Dodge 1,900 120
USX -- U.S. Steel Group 3,900 117
------
Total Steel & Steel Works 242
------
TELEPHONES & TELECOMMUNICATION -- 2.3%
Cellular Communications -- Class
A* 2,000 107
MCI Communications 6,500 162
SBC Communications 3,000 168
Worldcom* 14,300 467
------
Total Telephones & Telecommunication 904
------
WHOLESALE -- 0.1%
Universal -- Va 900 19
------
Total Wholesale 19
------
Total Common Stock
(Cost $14,129,471) 14,851
------
PREFERRED STOCKS -- 0.1%
PRINTING & PUBLISHING -- 0.1%
News -- Preferred Shares ADR 3,200 58
------
Total Printing & Publishing 58
------
Total Preferred Stocks
(Cost $64,400) 58
------
<CAPTION>
----------------------------------------------------------
Shares/Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 34.8%
U.S. Treasury Bonds
8.750%, 05/15/17 $ 1,040 $ 1,320
7.625%, 02/15/25 80 93
U.S. Treasury Notes
7.375%, 05/15/96 700 707
7.500%, 01/31/97 950 971
6.500%, 05/15/97 645 653
8.500%, 05/15/97 85 89
7.375%, 11/15/97 1,645 1,699
8.125%, 02/15/98 355 373
9.000%, 05/15/98 815 878
9.250%, 08/15/98 430 469
8.875%, 11/15/98 1,105 1,201
6.750%, 05/31/99 1,215 1,253
7.125%, 09/30/99 600 627
7.500%, 10/31/99 970 1,028
7.500%, 11/15/01 1,275 1,379
9.250%, 02/15/16 510 673
------
Total U.S. Treasury Obligations
(Cost $13,321,228) 13,413
------
CORPORATE OBLIGATIONS -- 5.2%
Ahmanson H. F
7.875%, 09/01/04 185 197
Bear Stearns
6.875%, 10/01/05 175 175
Capital One Bank
8.125%, 02/27/98 90 94
Chase Manhattan Bank
6.500%, 08/01/05 100 98
Chemical Bank
6.125%, 11/01/08 230 214
First Nationwide
10.000%, 10/01/06 50 59
Lehman Brothers Holdings
7.125%, 09/15/03 175 176
Manufacturers & Traders
7.000%, 07/01/05 165 165
Niagara Mohawk Power
Callable @100 04/01/02
8.750%, 04/01/22 80 76
Provident Bank
6.375%, 01/15/04 160 156
TCI Communications
8.750%, 08/01/15 90 96
Tele-Communications
8.250%, 01/15/03 100 105
United Air Lines
10.670%, 05/01/04 320 375
------
Total Corporate Obligations
(Cost $1,968,434) 1,986
------
</TABLE>
21
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 6.2%
FHLMC CMO Pool #E00388
7.000%, 08/01/10 $ 139 $ 140
FHLMC Pool #D63546
7.000%, 09/01/25 350 347
FNMA Pool #190203
8.000%, 02/01/23 176 180
FNMA Pool #290383
7.500%, 05/01/25 159 161
FNMA Pool #303460
6.500%, 07/01/10 288 286
FNMA Pool #317278
7.500%, 07/01/25 175 176
GNMA Pool #356688
7.000%, 07/15/23 386 384
GNMA Pool #780190
7.500%, 07/15/25 715 728
------
Total U.S. Government Agency Obligations
(Cost $2,393,321) 2,402
------
YANKEE BONDS -- 3.3%
AAB-Global
7.250%, 05/31/05 250 260
Carter Holt Harvey
8.375%, 04/15/15 85 94
CSR Finance
7.700%, 07/21/25 200 208
Laidlaw
8.750%, 04/15/25 75 86
Noranda
8.000%, 06/01/03 100 107
Quebec Province
7.500%, 07/15/23 280 281
Santander Finance
7.875%, 04/15/05 100 107
Toronto-Domnion Bank -- New York
6.150%, 10/15/08 140 131
------
Total Yankee Bonds
(Cost $1,251,897) 1,274
------
COMMERCIAL PAPER -- 10.5%
American Express
5.750%, 11/01/95 4,030 4,030
------
Total Commercial Paper
(Cost $4,030,000) 4,030
------
MORTGAGE RELATED -- 0.9%
Premier Auto Trust Series 1995-1
Class A4
7.850%, 09/04/98 110 113
Prudential Home Mortgage
Securities Pool #1994-29 Class
A5
7.000%, 10/25/24 235 230
------
Total Mortgage Related
(Cost $339,218) 343
------
Total Investments -- 99.5%
(Cost $37,497,969) 38,357
------
OTHER ASSETS AND LIABILITIES -- 0.5%
Other Assets and Liabilities, Net 206
------
Total Other Assets and Liabilities 206
------
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 3,707,254
outstanding shares of
beneficial interest $ 37,304
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value) based on
6,676 outstanding shares of
beneficial interest 68
Undistributed net investment
income 47
Undistributed net realized gain
on investments 285
Unrealized appreciation on
investments 859
------
Total Net Assets: -- 100.0% $ 38,563
======
Net Asset Value, Offering Price
and Redemption Price Per
Share -- Institutional Class $ 10.38
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 10.39
======
Maximum Offering Price Per
Share -- Retail Class
($10.39 / 98.0%) $ 10.60
======
</TABLE>
* Non-income producing security
ADR American Depository Receipt
CMO Collateralized Mortgage Obligation
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
<TABLE>
<CAPTION>
BOND FUND
U.S. TREASURY OBLIGATIONS -- 35.8%
<S> <C> <C>
U.S. Treasury Bonds
10.750%, 05/15/03 $ 200 $ 257
8.750%, 05/15/17 8,745 11,099
8.125%, 08/15/19 195 235
8.500%, 02/15/20 2,600 3,251
7.500%, 11/15/24 500 571
7.625%, 02/15/25 2,450 2,843
U.S. Treasury Notes
7.500%, 01/31/97 1,065 1,089
6.500%, 05/15/97 1,155 1,170
8.500%, 05/15/97 1,225 1,276
8.500%, 07/15/97 2,075 2,170
9.000%, 05/15/98 6,345 6,836
9.250%, 08/15/98 12,140 13,231
8.875%, 02/15/99 4,568 4,991
6.750%, 05/31/99 6,050 6,239
7.125%, 09/30/99 6,335 6,625
</TABLE>
22
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Bond Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- CONTINUED
7.500%, 10/31/99 $ 3,955 $ 4,192
7.750%, 01/31/00 3,780 4,051
------
Total U.S. Treasury Obligations
(Cost $69,349,806) 70,126
------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 30.9%
FHLMC Pool #D63546
7.000%, 09/01/25 3,542 3,517
FHLMC Pool #E00388
7.000%, 08/01/10 1,386 1,398
FHLMC Pool #E20013
7.500%, 01/01/08 3,674 3,748
FHLMC Pool #E20185
7.000%, 07/01/10 1,559 1,572
FHLMC Series 1254 Class F
7.250%, 04/15/18 2,020 2,025
FHLMC Series 1411 Class E
6.000%, 02/15/16 2,580 2,562
FHLMC Series 1519 Class F
6.750%, 03/15/07 1,925 1,953
FHLMC Series 1528 Class C
6.500%, 05/15/05 1,920 1,848
FHLMC Series 1606 Class KA
6.250%, 11/15/08 1,971 1,970
FHLMC Series 30 Class D
9.500%, 02/15/20 2,000 2,186
FNMA Pool #190203
8.000%, 02/01/23 1,836 1,883
FNMA Pool #290383
7.500%, 05/01/25 1,651 1,669
FNMA Pool #303460
6.500%, 07/01/10 3,340 3,313
FNMA Pool #317278
7.500%, 07/01/25 1,840 1,860
FNMA Pool #50726
7.000%, 05/01/23 3,534 3,505
FNMA Series 1992-124 Class PG
7.000%, 01/25/18 1,930 1,942
FNMA Series 1992-196 Class E
5.750%, 02/25/03 1,680 1,655
FNMA Series 1992-210 Class H
6.500%, 03/25/19 1,660 1,641
FNMA Series 1992-65 Class H
8.500%, 01/25/20 1,836 1,914
FNMA Series 1993-194 Class B
5.500%, 10/25/98 1,585 1,543
FNMA Series 1993-2 Class PD
6.750%, 01/25/16 1,600 1,603
FNMA Series G92-24 Class E
6.500%, 11/25/20 1,397 1,392
GNMA Pool #286395
9.000%, 04/15/20 2,611 2,744
GNMA Pool #356688
7.000%, 07/15/23 3,825 3,802
GNMA Pool #780190
7.500%, 07/15/25 7,153 7,280
------
Total U.S. Government Agency Obligations
(Cost $59,949,162) 60,525
------
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
CORPORATE OBLIGATIONS -- 15.4%
Ahmanson H. F.
7.875%, 09/01/04 $ 2,500 $ 2,656
Bear Stearns
6.875%, 10/01/05 1,640 1,638
Capital One Bank
8.125%, 02/27/98 910 948
Chase Manhattan Bank
6.500%, 08/01/05 1,005 980
Chemical Bank
6.125%, 11/01/08 2,140 1,988
First Nationwide
10.000%, 10/01/06 485 572
Georgia Pacific
7.700%, 06/15/15 975 997
8.250%, 03/01/23 770 805
Great Lakes Power
8.900%, 12/01/99 750 798
Laidlaw
8.750%, 04/15/25 1,485 1,710
Lehman Brothers
9.875%, 10/15/00 1,050 1,188
Lehman Brothers Holdings
7.125%, 09/15/03 1,725 1,736
Manufacturers & Traders
7.000%, 07/01/05 1,605 1,605
Niagara Mohawk Power
Callable 04/01/02 @ 104
8.750%, 04/01/22 940 888
Provident Bank
6.375%, 01/15/04 1,855 1,813
Southern Cal Gas
7.500%, 06/15/23 665 687
System Energy Resources
10.500%, 09/01/96 1,020 1,057
TCI Communications
8.750%, 08/01/15 905 965
Tele-Communications
Callable 01/15/03
9.250%, 01/15/23 1,885 2,019
Texas Utilities
Callable 04/01/03 @ 103.85
7.875%, 04/01/24 720 751
United Air Lines
10.670%, 05/01/04 2,910 3,427
Virginia Electric & Power
Callable 03/01/05 @ 103.48
8.250%, 03/01/25 840 919
------
Total Corporate Obligations
(Cost $29,483,836) 30,147
------
MORTGAGE RELATED -- 3.3%
GE Capital Mortgage Services
Series 1994-2 Class A4
6.000%, 01/25/09 2,680 2,605
Prudential Home Mortgage
Securities Series 1994-29
Class A5
7.000%, 10/25/24 2,475 2,419
</TABLE>
23
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
MORTGAGE RELATED -- CONTINUED
Residential Funding Mtg Sec 1
Series 1993-S7 Class A6
7.150%, 02/25/08 $ 1,500 $ 1,499
------
Total Mortgage Related
(Cost $6,450,512) 6,523
------
ASSET BACKED SECURITIES -- 2.5%
Banc One Credit Card Master
Trust Series 1994-A Class A
7.150%, 12/15/98 1,970 2,003
Premier Auto Trust Series 1995-1
Class A4
7.850%, 09/04/98 1,080 1,111
Standard Credit Card Master
Trust Series 1991-4 Class B
8.250%, 10/07/97 1,675 1,710
------
Total Asset Backed Securities
(Cost $4,788,625) 4,824
------
YANKEE BOND -- 7.0%
AAB-Global
7.250%, 05/31/05 2,070 2,150
Carter Holt Harvey
8.375%, 04/15/15 865 961
CSR Finance
7.700%, 07/21/25 1,815 1,885
Korea Electric Power
7.750%, 04/01/13 805 830
Noranda
8.000%, 06/01/03 1,330 1,423
Quebec Province
7.500%, 07/15/23 2,895 2,903
Santander Finance
7.875%, 04/15/05 2,265 2,418
Toronto-Domnion Bank-New York
6.150%, 10/15/08 1,160 1,088
------
Total Yankee Bond
(Cost $13,291,504) 13,658
------
MEDIUM TERM NOTE -- 1.2%
Paine Webber
6.730%, 01/20/04 1,300 1,267
Salomon
6.280%, 02/05/97 1,160 1,156
------
Total Medium Term Note
(Cost $2,339,420) 2,423
------
COMMERCIAL PAPER -- 2.4%
American Express
5.750%, 11/01/95 4,607 4,607
------
Total Commercial Paper
(Cost $4,607,000) 4,607
------
Total Investments -- 98.5%
(Cost $190,259,865) 192,833
------
OTHER ASSETS AND LIABILITIES -- 1.5%
Other Assets and Liabilities, Net 2,982
------
Total Other Assets and Liabilities 2,982
------
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 18,422,250
outstanding shares of
beneficial interest $ 189,788
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value) based on
130,046 outstanding shares of
beneficial interest 1,372
Undistributed net investment
income 384
Undistributed net realized gain
on investments 1,698
Unrealized appreciation on
investments 2,573
------
Total Net Assets: -- 100.0% $ 195,815
======
Net Asset Value, Offering Price
and
Redemption Price Per Share --
Institutional Class $ 10.55
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 10.56
======
Maximum Offering Price Per
Share -- Retail Class
($10.56 / 98.0%) $ 10.78
======
</TABLE>
CMO Collateralized Mortgage Obligation
FNMA Federal National Mortgage Association
FHLMC Federal Home Loan Mortgage Corporation
GNMA Government National Mortgage Association
<TABLE>
<CAPTION>
INTERMEDIATE INCOME FUND
U.S. TREASURY OBLIGATIONS -- 61.1%
<S> <C> <C>
U.S. Treasury Notes
7.500%, 01/31/97 $ 4,110 $ 4,202
6.500%, 05/15/97 7,010 7,098
8.500%, 05/15/97 700 729
8.500%, 07/15/97 8,670 9,068
6.500%, 08/15/97 6,890 6,990
7.375%, 11/15/97 2,420 2,499
8.125%, 02/15/98 145 153
9.000%, 05/15/98 4,050 4,364
9.250%, 08/15/98 10,580 11,531
6.750%, 05/31/99 2,215 2,284
7.125%, 09/30/99 7,015 7,336
7.500%, 10/31/99 6,270 6,646
7.750%, 11/30/99 230 246
7.750%, 01/31/00 3,315 3,553
7.500%, 11/15/01 14,690 15,883
7.500%, 02/15/05 2,360 2,602
------
Total U.S. Treasury Obligations
(Cost $84,374,220) 85,184
------
</TABLE>
24
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Intermediate Income Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
CORPORATE OBLIGATIONS -- 13.3%
Bear Stearns
6.875%, 10/01/05 $ 710 $ 709
Capital One Bank
8.125%, 02/27/98 800 833
Chase Manhattan Bank
6.500%, 08/01/05 695 678
Chrysler, Callable @ 100 08/01/97
10.400%, 08/01/99 1,095 1,162
Colonial National Bank
7.000%, 08/01/03 1,595 1,609
First National Bank of Boston
8.000%, 09/15/04 2,000 2,150
Great Lakes Power
8.900%, 12/01/99 990 1,053
KN Energy
9.940%, 02/01/96 300 303
Lehman Bothers
9.875%, 10/15/00 2,000 2,263
Pennsylvania Power And Light
7.750%, 05/01/02 1,280 1,358
Philip Morris, Callable @ 100
06/11/92
6.500%, 12/12/95 250 250
Provident Bank
5.000%, 06/15/96 225 224
System Energy Resources
10.500%, 09/01/96 725 751
Tele-Communications
8.250%, 01/15/03 1,600 1,672
Transcont Gas
8.125%, 01/15/97 1,055 1,076
United Airlines
6.750%, 12/01/97 2,435 2,426
------
Total Corporate Obligations
(Cost $18,319,062) 18,517
------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 10.6%
FHLMC Remic Series 1254 Class F
7.250%, 04/15/18 205 205
FHLMC Remic Series 1411 Class E
6.000%, 02/15/16 1,725 1,713
FHLMC Remic Series 1509 Class A
6.500%, 10/15/00 1,233 1,216
FHLMC Remic Series 1519 Class F
6.750%, 03/15/07 1,755 1,780
FHLMC Remic Series 1528 Class C
6.500%, 05/15/05 1,755 1,689
FHLMC Remic Series 1606 Class KA
6.250%, 11/15/08 757 757
FNMA Pool #303460
6.500%, 07/01/10 1,809 1,795
FNMA Pool #327118
6.500%, 10/01/10 1,360 1,349
FNMA Remic Series 1992-124 Class
PG
7.000%, 01/25/18 300 302
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
FNMA Remic Series 1992-196 Class
E
5.750%, 02/25/03 1,140 $ 1,123
FNMA Remic Series 1993-194 Class
B
5.500%, 10/25/98 $1,900 1,851
FNMA Remic Series G92-24 Class E
6.500%, 11/25/20 947 943
------
Total U.S. Government Agency Obligations
(Cost $14,643,023) 14,723
------
YANKEE BONDS -- 7.0%
BHP Financial
5.625%, 11/01/00 1,730 1,661
Carter Holt Harvey
8.875%, 12/01/04 1,120 1,277
CSR America
6.875%, 07/21/05 1,670 1,693
Korea Development Bank
6.250%, 05/01/00 1,000 994
Laidlaw
7.875%, 04/15/05 1,490 1,585
Noranda
8.000%, 06/01/03 775 829
Santander Finance
7.875%, 04/15/05 1,625 1,734
------
Total Yankee Bonds
(Cost $9,551,082) 9,773
------
MEDIUM TERM NOTES -- 2.2%
First USA Bank
6.880%, 09/12/96 655 661
Fleet Financial Group
7.180%, 07/09/97 160 163
International Leases
7.830%, 11/14/96 1,345 1,370
Paine Webber
6.730%, 01/20/04 750 731
Paine Webber Group
6.630%, 09/17/97 160 161
------
Total Medium Term Notes
(Cost $3,018,165) 3,086
------
ASSET BACKED SECURITIES -- 3.1%
Banc One Credit Card
Master Trust 1994-A
7.150%, 12/15/98 1,675 1,703
Premier Auto Trust Series 1992-2
Class A
6.375%, 09/15/97 15 15
Premier Auto Trust Series 1994-4
Class A4
6.450%, 05/02/98 1,625 1,639
Premier Auto Trust Series 1995-1
Class 4
7.850%, 09/04/98 870 895
------
Total Asset Backed Securities
(Cost $4,230,806) 4,252
------
</TABLE>
25
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER -- 1.1%
American Express
5.750%, 11/01/95 $1,567 $ 1,567
------
Total Commercial Paper
(Cost $1,567,000) 1,567
------
Total Investments -- 98.3%
(Cost $135,703,358) 137,102
------
OTHER ASSETS AND LIABILITIES -- 1.7%
Other Assets and Liabilities, Net 2,371
------
Total Other Assets and Liabilities 2,371
------
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 12,909,945
outstanding shares of
beneficial interest 135,805
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value) based on
114,722 outstanding shares of
beneficial interest 1,243
Undistributed net investment
income 261
Undistributed net realized gain
on investments 765
Unrealized appreciation on
investments 1,399
------
Total Net Assets: -- 100.0% $ 139,473
======
Net Asset Value, Offering Price and
Redemption Price Per Share --
Institutional Class $ 10.71
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 10.72
======
Maximum Offering Price Per
Share -- Retail Class
($10.72 / 98.0%) $ 10.94
======
</TABLE>
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
REMIC Real Estate Mortgage Investment Conduit
<TABLE>
<CAPTION>
SHORT-TERM INCOME FUND
U.S. TREASURY OBLIGATIONS -- 65.8%
<S> <C> <C>
U.S. Treasury Notes
7.500%, 01/31/96 $2,975 $ 2,989
5.125%, 03/31/96 4,515 4,508
7.875%, 07/31/96 1,500 1,525
6.500%, 09/30/96 555 559
7.500%, 01/31/97 5,000 5,113
6.500%, 05/15/97 2,140 2,167
8.500%, 05/15/97 190 198
5.625%, 08/31/97 2,000 2,000
7.375%, 11/15/97 2,500 2,582
7.125%, 09/30/99 2,000 2,091
------
Total U.S. Treasury Obligations
(Cost $23,674,766) 23,732
------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS -- 13.0%
Philip Morris
6.500%, 12/12/95 500 $ 500
Provident Bank
5.000%, 06/15/96 520 518
Smith Barney
6.000%, 03/15/97 600 599
Smithkline Beecham
5.250%, 01/26/96 1,000 999
Tele-Communications
5.280%, 08/20/96 560 555
Transcont Gas
8.125%, 01/15/97 525 536
W.R. Grace
6.500%, 12/01/95 1,000 1,000
------
Total Corporate Bonds
(Cost $4,698,191) 4,707
------
MEDIUM TERM NOTES -- 9.0%
First USA Bank
6.880%, 09/12/96 190 192
Ford Motor Credit
8.850%, 05/01/96 1,000 1,015
International Lease
7.830%, 11/14/96 1,000 1,018
McDonnell Douglas Finance
7.310%, 02/19/96 500 502
Salomon Brothers
9.000%, 07/23/96 500 509
------
Total Medium Term Notes
(Cost $3,224,578) 3,236
------
ASSET BACKED SECURITIES -- 6.1%
Banc One Credit Card
Master Trust 1994-A
7.150%, 12/15/98 420 427
Fical Home Equity Loans 90-1a
8.900%, 11/15/97 23 23
Premier Auto Trust 1994-4
Class A-4
6.450%, 05/02/98 600 605
</TABLE>
26
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Short-Term Income Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
ASSET BACKED SECURITIES -- CONTINUED
Premier Auto Trust Series 1992-2
Class A
6.375%, 09/15/97 $ 103 $ 103
Premier Auto Trust Series 1995-1
Class 4
7.850%, 09/04/98 1,000 1,028
------
Total Asset Backed Securities
(Cost $2,176,405) 2,186
------
U.S. GOVERNMENT AGENCY OBLIGATION -- 1.6%
FNMA Remic Series G92-24 Class E
6.500%, 11/25/20 577 575
------
Total U.S. Government Agency Obligation
(Cost $569,547) 575
------
COMMERCIAL PAPER -- 2.6%
American Express
5.750%, 11/01/95 932 932
------
Total Commercial Paper
(Cost $932,000) 932
------
Total Investments -- 98.1%
(Cost $35,275,487) 35,368
------
OTHER ASSETS AND LIABILITIES -- 1.9%
Other Assets and Liabilities,
Net 702
------
Total Other Assets and Liabilities 702
------
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 3,587,673
outstanding shares of
beneficial interest 35,870
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value) based on
1,131 outstanding shares of
beneficial interest 11
Undistributed net investment
income 64
Undistributed net realized gain
on investments 33
Unrealized appreciation on
investments 92
------
Total Net Assets: -- 100.0% $ 36,070
======
Net Asset Value, Offering Price
and
Redemption Price Per Share --
Institutional Class $ 10.05
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 10.04
======
Maximum Offering Price Per
Share -- Retail Class
($10.04 / 98.0%) $ 10.24
======
FNMA Federal National Mortgage Association
REMIC Real Estate Mortgage Investment Conduit
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
PENNSYLVANIA TAX-FREE
Bond Fund
MUNICIPAL BONDS -- 100.8%
PENNSYLVANIA -- 100.8%
Allegheny County, Mercy Hospital
of Pittsburgh, RB, AMBAC
6.450%, 04/01/01 $ 200 $ 219
Allegheny County, Montefiore
Hospital Improvement, RB,
Escrowed To Maturity
5.800%, 10/01/03 140 146
Allentown, Water Authority, RB
5.650%, 07/15/96 100 101
Central Bucks, School District,
GO
6.600%, 02/01/03 175 191
Dauphin County, Correctional
Facility, GO, MBIA
5.450%, 08/01/07 200 204
Delaware County GO,
Callable @ 100 09/01/96
7.100%, 12/01/98 170 176
Delaware County, Villanova
University, RB, AMBAC
5.400%, 08/01/08 200 203
Erie County, Correctional
Facility, GO, MBIA, Escrowed
To Maturity
5.850%, 11/01/96 100 102
Gettysburg, Gettysburg College,
RB
5.300%, 02/15/97 250 254
Gettysburg, RB, VRDN
3.950%, 03/01/04 (B) 100 100
Hampden Township,
Sewer Authority, SO,
Escrowed To Maturity
5.350%, 04/01/03 140 145
Harrisburg, Resource Recovery,
RB
5.875%, 09/01/13 (A) 200 201
Hempfield, School District, GO,
FGIC
5.300%, 10/15/14 250 241
Keystone, School District, GO,
FGIC
4.750%, 09/01/06 240 231
Lehigh County, Sewer Authority,
RB, VRDN, FGIC
3.850%, 03/15/05 (B) 200 200
Lower Burrell, Sewer Authority,
RB, AMBAC
5.125%, 02/01/16 250 234
Millcreek Township, Sewer
Authority, RB, MBIA,
Pre-Refunded
6.000%, 11/01/99 (C) 150 159
Montgomery County, Hospital
Authority, Abington Hospital,
Series A, RB, AMBAC
5.125%, 06/01/14 250 232
</TABLE>
27
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
PENNSYLVANIA -- CONTINUED
Montgomery County, Public
Improvements, GO,
Callable @ 100 10/15/03
5.750%, 10/15/11 $ 175 $ 179
Nazareth, School District, GO,
AMBAC
5.500%, 11/15/12 200 198
Northampton County, Lehigh
University, Series A, RB, MBIA
5.750%, 11/15/18 150 150
Pennsylvania State, Allegheny
General Hospital, Series A, RB
6.300%, 09/01/97 200 207
Pennsylvania State, Housing
Finance Authority, Series 37a,
RB
5.450%, 10/01/17 (A) 200 183
Pennsylvania State, Industrial
Development Authority, RB,
AMBAC
5.800%, 07/01/09 250 258
Pennsylvania State,
Miscellaneous Improvement, GO,
Callable @ 100 09/01/99
6.250%, 09/01/00 150 154
Pennsylvania State, Penn State
University, RB, Callable @ 100
03/01/04
6.150%, 03/01/05 (A) 145 157
Pennsylvania State, Turnpike
Commission, Series P, RB
5.100%, 12/01/99 250 257
5.350%, 12/01/01 250 259
Pennsylvania State, University
Improvement, Series F, RB,
AMBAC, Callable @ 100 12/15/02
6.000%, 12/15/09 225 232
Philadelphia, Pennsylvania
Hospital, Series A, RB
5.250%, 02/15/14 250 236
Philadelphia, Philadelphia Gas
Works, Series 15, RB, MBIA
4.600%, 08/01/03 250 247
Quakertown, Hospital Authority,
RB, VRDN
3.750%, 07/01/05 (A) (B) 100 100
Rose Tree Media, School
District, GO, FGIC
5.350%, 02/15/10 150 150
Scranton-Lackawanna, University
of Scranton, Series A, RB,
Callable @ 100 03/01/02
6.150%, 03/01/03 (A) 150 160
Venango, Pollution Control, RB,
VRDN
4.600%, 12/01/12 (A) (B) 200 200
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
Wayne County, Housing Authority,
RB, MBIA
5.350%, 10/01/07 $ 190 $ 186
------
Total Pennsylvania 6,852
------
Total Municipal Bonds
(Cost $6,839,773) 6,852
------
Total Investments -- 100.8%
(Cost $6,839,773) 6,852
------
OTHER ASSETS AND LIABILITIES -- (0.8)%
Other Assets and Liabilities, Net (55)
------
Total Other Assets and Liabilities (55)
------
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 584,020
outstanding shares of
beneficial interest 6,018
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value) based on
80,106 outstanding shares of
beneficial interest 825
Undistributed net investment
income 10
Accumulated net realized loss on
investments (68)
Unrealized appreciation on
investments 12
------
Total Net Assets: -- 100.0% $ 6,797
======
Net Asset Value, Offering Price
and Redemption Price Per
Share -- Institutional Class $ 10.23
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 10.23
======
Maximum Offering Price Per
Share -- Retail Class
($10.23 / 98.0%) $ 10.44
======
</TABLE>
AMBAC American Municipal Bond Assurance Company
FGIC Federal Guaranty Insurance Corporation
GO General Obligation
MBIA Municipal Bond Insurance Association
RB Revenue Bonds
SO Special Obligation
VRDN Variable Rate Demand Note
(A) Securities are held in connection with a letter of
credit or other credit support.
(B) Floating Rate Security -- the rate reflected on the
Statement of Net Assets is the rate in effect on October
31, 1995.
(C) Pre-Refunded Security -- The Maturity Date shown is the
pre-refunded date.
28
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
CASH MANAGEMENT FUND
<TABLE>
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER -- 36.6%
Abbey National
5.590%, 01/08/96 $ 5,000 $ 4,947
AIG Funding
6.035%, 11/01/95 3,000 3,000
American Express
5.700%, 11/01/95 5,000 5,002
5.690%, 01/12/96 5,000 4,943
Associates
5.700%, 01/23/96 5,000 4,934
Caisse Des Depots Et
Consignations
5.640%, 01/16/96 5,000 4,940
Eli Lilly
5.820%, 01/16/96 3,000 2,963
General Electric Capital
5.670%, 11/16/95 4,000 3,991
5.660%, 02/12/96 5,000 4,919
International Lease Finance
5.710%, 01/08/96 5,000 4,946
5.630%, 01/22/96 5,000 4,936
J.C. Penney
5.710%, 11/30/95 5,000 4,977
Pepsico
5.670%, 11/03/95 5,000 4,998
Province of Alberta
5.550%, 01/12/96 3,000 2,967
Sara Lee
5.800%, 11/02/95 5,000 4,999
5.710%, 11/08/95 5,000 4,994
Toronto Dominion Bank
5.660%, 01/17/96 5,000 4,939
5.490%, 03/19/96 5,000 4,894
Transamerica Finance
5.620%, 02/15/96 5,000 4,917
------
Total Commercial Paper
(Cost $87,206,251) 87,206
------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 7.5%
FHLB
5.490%, 01/17/96 3,000 2,965
FHLMC
5.560%, 11/21/95 5,000 4,985
FNMA
5.590%, 01/04/96 5,000 4,950
5.580%, 02/20/96 5,000 4,914
------
Total U.S. Government Agency Obligations
(Cost $17,813,615) 17,814
------
BANK NOTES -- 3.8%
FCC National Bank
5.900%, 08/21/96 5,000 4,996
5.650%, 11/01/96 4,000 3,997
------
Total Bank Notes
(Cost $8,993,431) 8,993
------
U.S. TREASURY OBLIGATIONS -- 3.3%
U.S. Treasury Bills
5.410%, 01/11/96 $ 3,000 2,968
5.540%, 07/25/96 5,000 4,795
------
Total U.S. Treasury Obligations
(Cost $7,762,549) 7,763
------
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
CERTIFICATES OF DEPOSIT -- 2.1%
National Westminster Bank
5.770%, 12/11/95 5,000 $ 5,000
------
Total Certificates of Deposit
(Cost $5,000,000) 5,000
------
REPURCHASE AGREEMENTS -- 48.8%
Hong Kong Shanghai Banking
5.850%, dated 10/31/95,
matures 11/01/95, repurchase
price $35,005,688
(collateralized by
U.S. Treasury Note, par value
$35,000,000, 6.875%, matures
03/31/97: market value
$35,803,299) 35,000 35,000
Merrill Lynch
5.850%, dated 10/31/95,
matures 11/01/95, repurchase
price $46,173,402
(collateralized by various
U.S. Treasury Notes,
total par value $44,803,000,
6.500%-6.875%, 04/30/97: total
market value $47,090,599) 46,166 46,166
Morgan Stanley
5.850%, dated 10/31/95,
matures 11/01/95, repurchase
price $35,005,688
(collateralized by
U.S. Treasury Note, par value
$26,675,000, 9.250%, matures
02/15/16: market value
$35,747,093) 35,000 35,000
------
Total Repurchase Agreements
(Cost $116,165,900) 116,166
------
Total Investments -- 102.1%
(Cost $242,941,746) 242,942
------
OTHER ASSETS AND LIABILITIES -- (2.1%)
Other Assets and Liabilities,
Net (5,064)
------
Total Other Assets and Liabilities (5,064)
------
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 234,652,830
outstanding shares of
beneficial interest 234,653
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value) based on
3,361,129 outstanding shares
of
beneficial interest 3,361
</TABLE>
29
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
NET ASSETS -- CONTINUED
Accumulated net realized loss on
investments $ (136)
------
Total Net Assets: -- 100.0% $ 237,878
======
Net Asset Value, Offering Price
and Redemption Price Per
Share -- Institutional Class $ 1.00
======
Net Asset Value, Offering Price
and Redemption Price Per
Share --
Retail Class $ 1.00
======
</TABLE>
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
<TABLE>
<CAPTION>
U.S. TREASURY
SECURITIES FUND
U.S. TREASURY OBLIGATIONS -- 39.9%
<S> <C> <C>
U.S. Treasury Bills
5.720%, 11/09/95 $ 10,000 $ 9,987
5.400%, 12/21/95 20,000 19,850
5.340%, 01/04/96 25,000 24,763
5.310%, 01/11/96 10,000 9,895
5.410%, 01/11/96 10,000 9,893
5.830%, 01/11/96 10,000 9,885
5.780%, 02/08/96 10,000 9,851
5.300%, 03/07/96 15,000 14,720
5.290%, 03/14/96 10,000 9,803
5.310%, 04/04/96 15,000 14,657
6.020%, 04/04/96 5,000 4,875
5.540%, 05/02/96 10,000 9,718
5.540%, 07/25/96 5,000 4,795
U.S. Treasury Notes
7.500%, 02/29/96 10,000 10,062
7.625%, 04/30/96 10,000 10,096
U.S. Treasury Strip
05/15/96 5,000 4,854
------
Total U.S. Treasury Obligations
(Cost $177,703,757) 177,704
------
REPURCHASE AGREEMENTS -- 60.5%
Barclays De Zoete Wedd
5.850%, dated 10/31/95,
matures 11/01/95, repurchase
price $50,008,125
(collateralized by
U.S. Treasury Note, par value
$32,632,000, 11.250%, matures
02/15/15: market value
$51,069,081) 50,000 50,000
Hong Kong Shanghai Banking
5.850%, dated 10/31/95,
matures 11/01/95, repurchase
price $85,013,813
(collateralized by various
U.S. Treasury Notes,
total par value $70,220,000,
7.125%-12.500%,
08/15/14-02/15/23:
total market value
$87,257,890) $ 85,000 $ 85,000
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
Merrill Lynch
5.850%, dated 10/31/95,
matures 11/01/95, repurchase
price $49,579,455
(collateralized by various
U.S. Treasury Notes, total par
value $40,257,000, 7.250%-
9.875%, 11/15/15-05/15/17:
total market value
$50,566,595) $ 49,571 $ 49,571
Morgan Stanley
5.850%, dated 10/31/95,
matures 11/01/95, repurchase
price $85,013,813
(collateralized by
U.S. Treasury Note, par value
$66,670,000, 8.750%, matures
08/15/20: market value
$86,689,520) 85,000 85,000
------
Total Repurchase Agreements
(Cost $269,571,400) 269,571
------
Total Investments -- 100.4%
(Cost $447,275,157) 447,275
------
OTHER ASSETS AND LIABILITIES -- (0.4%)
Other Assets and Liabilities,
Net (2,016)
------
Total Other Assets and Liabilities (2,016)
------
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 444,422,563
outstanding shares of
beneficial interest 444,423
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value) based on
729,856 outstanding shares of
beneficial interest 730
Undistributed net realized gain
on investments 106
------
Total Net Assets: -- 100.0% $ 445,259
======
Net Asset Value, Offering and
Redemption Price Per Share --
Institutional Class $ 1.00
======
Net Asset Value, Offering and
Redemption Price Per Share --
Retail Class $ 1.00
======
</TABLE>
30
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
TAX-FREE FUND
<TABLE>
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS -- 99.9%
ALABAMA -- 0.7%
McIntosh, Industrial Development
Board, Ciba Geigy Corporate
Project, RB, VRDN
4.000%, 07/01/04 (A) (B) $ 400 $ 400
------
Total Alabama 400
------
ARIZONA -- 0.4%
Flagstaff, TECP
3.500%, 12/05/95 (B) 250 250
------
Total Arizona 250
------
ARKANSAS -- 4.9%
Mesa, Municipal Developement,
TECP
3.800%, 12/06/95 (B) 3,000 3,000
------
Total Arkansas 3,000
------
COLORADO -- 3.2%
Colorado State, Health
Facilities Authority, RB,
VRDN, MBIA
3.900%, 10/01/14 (A) 1,955 1,955
------
Total Colorado 1,955
------
FLORIDA -- 1.1%
Hillsborough, Pollution Control,
RB, VRDN
4.000%, 09/01/25 (A) (B) 700 700
------
Total Florida 700
------
GEORGIA -- 3.9%
Burke County, TECP
3.750%, 12/07/95 (B) 2,400 2,400
------
Total Georgia 2,400
------
HAWAII -- 2.4%
St County Honolulu, TECP
3.800%, 12/05/95 (B) 1,500 1,500
------
Total Hawaii 1,500
------
ILLINOIS -- 1.9%
Chicago, O'Hare Airport, RB,
VRDN
3.900%, 01/01/18 (A) (B) 1,200 1,200
------
Total Illinois 1,200
------
KANSAS -- 4.8%
Burlington, TECP
3.750%, 11/15/95 (B) 1,450 1,450
3.850%, 12/13/95 (B) 1,500 1,500
------
Total Kansas 2,950
------
KENTUCKY -- 3.6%
Jefferson County, TECP
3.800%, 11/20/95 (B) 2,200 2,200
------
Total Kentucky 2,200
------
LOUISIANA -- 2.5%
Louisiana State, Public
Facilities, RB, VRDN, FGIC
3.900%, 09/01/10 (A) $ 1,565 1,565
------
Total Louisiana 1,565
------
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
MICHIGAN -- 4.5%
Delta County, TECP
3.750%, 11/21/95 (B) 1,300 $ 1,300
Michigan State, Storage Tank
Financial Authority, RB, VRDN
3.900%, 12/01/04 (A) (B) 1,500 1,500
------
Total Michigan 2,800
------
MINNESOTA -- 6.0%
Robbinsdale, Industrial
Development, Unicare Homes
Project,
RB, VRDN
4.000%, 10/01/14 (A) (B) 1,100 1,100
Rochester, TECP
3.150%, 11/09/95 (B) 1,100 1,100
3.800%, 01/22/96 (B) 1,500 1,500
------
Total Minnesota 3,700
------
MISSISSIPPI -- 6.2%
Independence, Waste, TECP
3.500%, 11/03/95 (B) 2,000 2,000
Jackson County, Pollution
Control, RB, VRDN
3.900%, 12/01/16 (A) 1,000 1,000
Perry County, Pollution Control,
RB, VRDN
3.950%, 03/01/02 (A) (B) 800 800
------
Total Mississippi 3,800
------
MISSOURI -- 1.1%
Kansas City, Hospital, RB, VRDN,
MBIA
4.000%, 04/15/15 (A) 700 700
------
Total Missouri 700
------
MONTANA -- 1.0%
Billings, Industrial
Development, RB, VRDN
3.950%, 12/01/14 (A) (B) 600 600
------
Total Montana 600
------
NEW YORK -- 2.1%
New York, Water Finance
Authority, RB, VRDN, FGIC
4.000%, 06/15/22 (A) 300 300
4.000%, 06/15/23 (A) 1,000 1,000
------
Total New York 1,300
------
NORTH CAROLINA -- 6.6%
Eastern Municipal Agency, Power
Systems, RB, Prerefunded
01/01/96 @ 103
7.750%, 01/01/96 (C) 2,000 2,070
</TABLE>
31
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
NORTH CAROLINA -- CONTINUED
North Carolina, Municipal Power,
TECP
3.750%, 01/24/96 (B) $ 2,000 $ 2,000
------
Total North Carolina 4,070
------
OHIO -- 8.1%
Ohio State, Air Quality
Development Authority, RB,
VRDN
4.000%, 09/01/30 (A)(B) 2,000 2,000
Ohio State, Air Quality, TECP
3.700%, 11/06/95 (B) 3,000 3,000
------
Total Ohio 5,000
------
PENNSYLVANIA -- 2.4%
Delaware County, TECP, FGIC
3.600%, 11/02/95 1,500 1,500
------
Total Pennsylvania 1,500
------
TEXAS -- 12.3%
Harris County, RB, VRDN
4.000%, 03/01/24 (A) (B) 1,100 1,100
San Antonio, Independent School
District, GO, Prerefunded
11/01/95 @ 100
8.000%, 11/01/95 (C) 1,700 1,700
Texas A & M, TECP
3.800%, 12/08/95 (B) 1,500 1,500
Texas Port Development
Authority, Stolt Terminals
Project, RB, VRDN
3.850%, 01/15/14 (A) (B) 1,300 1,300
Texas State, TAN
4.750%, 08/30/96 2,000 2,012
------
Total Texas 7,612
------
VIRGINIA -- 3.2%
Chesapeake, Independent
Development Authority, TECP
3.600%, 11/06/95 (B) 1,000 1,000
Penninsula Ports, TECP
3.650%, 11/07/95 (B) 1,000 1,000
------
Total Virginia 2,000
------
WASHINGTON, D.C. -- 4.6%
District of Columbia, Education
Bonds, American University
Issue A, RB, VRDN
3.950%, 12/01/15 (A) (B) 2,835 2,835
------
Total Washington, D.C. 2,835
------
WYOMING -- 12.5%
Converse, TECP
3.500%, 11/06/95 (B) 1,000 1,000
Gillette County, TECP
3.700%, 11/17/95 (B) 1,000 1,000
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
Lincoln County, TECP
3.700%, 11/21/95 (B) $ 1,400 $ 1,400
Sweetwater County, TECP
3.650%, 12/08/95 2,500 2,499
Uinta County, Pollution Control,
RB, VRDN
3.900%, 08/15/02 (A) (B) 1,800 1,800
------
Total Wyoming 7,699
------
Total Municipal Bonds
(Cost $61,736,077) 61,736
------
Total Investments -- 99.9%
(Cost $61,736,077) 61,736
------
OTHER ASSETS AND LIABILITIES -- 0.1%
Other Assets and Liabilites, Net 55
------
Total Other Assets and Liabilities 55
------
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 60,491,930
outstanding shares of
beneficial interest 60,492
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value ) based on
1,281,648 outstanding shares
of
beneficial interest 1,282
Undistributed net realized gain
on investments 17
------
Total Net Assets: -- 100.0% $ 61,791
======
Net Asset Value, Offering and
Redemption Price Per Share --
Institutional Class $ 1.00
======
Net Asset Value, Offering and
Redemption Price Per Share --
Retail Class $ 1.00
======
</TABLE>
FGIC Financial Guaranty Insurance Corporation
GO General Obligation
MBIA Municipal Bond Insurance Association
RB Revenue Bond
TAN Tax Anticipation Note
TECP Tax Exempt Commercial Paper
VRDN Variable Rate Demand Note
(A) Floating Rate Security -- the rate reflected on the
Statement of Net Assets is the rate in effect on October
31, 1995.
(B) Securities are held in conjunction with a letter of
credit or other credit support.
(C) The maturity date shown is the pre-refunded date.
32
<PAGE>
STATEMENT OF OPERATIONS (000)
- --------------------------------------------------------------------------------
The Conestoga Funds--For the year ended October 31, 1995
<TABLE>
<CAPTION>
------- ------- ------------ --------
SPECIAL INTERNATIONAL
EQUITY EQUITY EQUITY BALANCED
FUND FUND FUND(1) FUND(2)
------- ------- ------------ --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest Income $ 582 $ 121 $ 50 $ 427
Dividend Income 4,507 351 48 104
Less Foreign Taxes Withheld -- -- (6) --
------- ------- -------- -------
Total Investment Income 5,089 472 92 531
------- ------- -------- -------
EXPENSES:
Investment Advisory Fees 1,503 480 51 89
Investment Advisory Fees Waived -- (466) -- (30)
Reimbursement from Advisor -- (50) -- --
Administrator Fees 352 56 9 20
Administrator Fees Waived (97) (18) -- (1)
Shareholder Servicing Fees(3) 38 8 -- --
Shareholder Servicing Fees Waived -- (8) -- --
Distribution Fees(4) 17 2 -- --
Distribution Fees Waived (10) (2) -- --
Registration Fees 114 20 5 4
Custody and Accounting Fees 71 30 17 2
Professional Fees 48 11 1 4
Transfer Agent Fees 86 25 1 4
Printing Fees 25 4 1 1
Pricing Expense 3 -- 8 --
Trustee Fees 12 2 -- 1
Insurance and Other Fees 3 2 2 1
Amortization of Deferred Organization Costs -- 8 2 2
------- ------- -------- -------
Total Expenses 2,165 104 97 97
------- ------- -------- -------
NET INVESTMENT INCOME (LOSS) 2,924 368 (5) 434
------- ------- -------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net Realized Gain (Loss) on Security Transactions 28,979 8,512 (33) 285
Net Realized Gain on Foreign Currency Transactions -- -- 234 --
Net Change in Unrealized Appreciation on Investments 12,894 1,127 707 859
Net Change in Unrealized Appreciation on Foreign
Currency
and Translation of Other Assets and Liabilities in
Foreign Currencies -- -- 45 --
------- ------- -------- -------
Net Realized and Unrealized Gain (Loss) on
Investments: 41,873 9,639 953 1,144
------- ------- -------- -------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $44,797 $10,007 $ 948 $1,578
------- ------- -------- -------
------- ------- -------- -------
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
(1) The International Equity Fund and the Short-Term Income Fund commenced
operations on May 15, 1995.
(2) The Balanced Fund commenced operations on June 26, 1995.
(3) Shareholder Servicing Fees relate to a Shareholder Service Plan that was in
effect through February 20, 1995.
(4) Distribution Fees relate to a Distribution Plan effective February 21, 1995
and are incurred solely by the Retail Class.
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------- ------------ ---------- ------------ ---------- ------------- --------
PENNSYLVANIA
INTERMEDIATE SHORT-TERM TAX-FREE CASH U.S. TREASURY
BOND INCOME INCOME BOND MANAGEMENT SECURITIES TAX-FREE
FUND FUND FUND(1) FUND FUND FUND FUND
------- ------------ ---------- ------------ ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 6,924 $4,760 $1,095 $323 $ 11,680 $21,001 $2,484
-- -- -- -- -- -- --
-- -- -- -- -- -- --
------- --------- -------- -------- -------- ---------- -------
6,924 4,760 1,095 323 11,680 21,001 2,484
------- --------- -------- -------- -------- ---------- -------
750 552 135 46 794 1,457 259
(409) (365) (82) (39) (397) (456) (158)
-- (6) -- (24) -- -- --
176 129 31 11 366 671 120
(13) (5) -- (3) -- (35) (35)
21 14 -- 5 145 266 51
(3) (8) -- (5) (62) (106) (51)
3 4 -- 2 10 30 5
(1) (2) -- (2) (3) (13) (5)
63 47 13 1 53 63 21
46 38 3 21 64 100 27
31 26 3 4 62 116 19
39 36 5 11 43 61 23
12 9 2 2 20 44 9
2 5 1 1 -- -- --
6 4 1 -- 11 24 4
3 6 1 1 19 45 7
-- -- 1 -- -- -- --
------- --------- -------- -------- -------- ---------- -------
726 484 114 32 1,125 2,267 296
------- --------- -------- -------- -------- ---------- -------
6,198 4,276 981 291 10,555 18,734 2,188
------- --------- -------- -------- -------- ---------- -------
3,058 1,152 32 (68) 2 41 (4)
-- -- -- -- -- -- --
3,499 1,825 92 501 -- -- --
-- -- -- -- -- -- --
------- --------- -------- -------- -------- ---------- -------
6,557 2,977 124 433 2 41 (4)
------- --------- -------- -------- -------- ---------- -------
$12,755 $7,253 $1,105 $724 $ 10,557 $18,775 $2,184
------- --------- -------- -------- -------- ---------- -------
------- --------- -------- -------- -------- ---------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (000)
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
<TABLE>
<CAPTION>
-------------------- -------------------- ----------- ---------- --------------------
SPECIAL INTERNATIONAL
EQUITY EQUITY EQUITY BALANCED BOND
FUND FUND FUND FUND FUND
-------------------- -------------------- ----------- ---------- --------------------
11/1/94 11/1/93 11/1/94 3/15/94** 5/15/95** 6/26/95** 11/1/94 11/1/93
to 10/31/95 to 10/31/94 to 10/31/95 to 10/31/94 to 10/31/95 to 10/31/95 to 10/31/95 to 10/31/94
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net Investment Income
(Loss) $ 2,924 $ 361 $ 368 $ 62 $ (5) $ 434 $ 6,198 $ 1,302
Net Realized Gain (Loss)
on Securities and
Foreign Currency
Transactions 28,979 2,619 8,512 51 201 285 3,058 (1,359)
Net Change in Unrealized
Appreciation
(Depreciation) of
Investments and Foreign
Currencies 12,894 (1,933) 1,127 (583) 752 859 3,499 (1,239)
-------- -------- -------- -------- --------- -------- -------- --------
Increase (Decrease) in
Net Assets Resulting
from Operations 44,797 1,047 10,007 (470) 948 1,578 12,755 (1,296)
-------- -------- -------- -------- --------- -------- -------- --------
DISTRIBUTIONS TO
SHAREHOLDERS:
Net Investment Income:
Prior Class (a)* (125) (361) (35) (57) -- -- (359) (1,291)
Retail Class (b)* (53) -- (5) -- -- (1) (56) --
Institutional Class
(b)* (2,638) -- (316) -- -- (386) (5,443) --
Net Realized Gains:
Prior Class (a)* (2,660) (1,895) (80) -- -- -- -- (841)
-------- -------- -------- -------- --------- -------- -------- --------
Total Distributions (5,476) (2,256) (436) (57) -- (387) (5,858) (2,132)
CAPITAL TRANSACTIONS (C):
Prior Class (a)*:
Redesignated to Retail
Class (5,674) -- (471) -- -- -- (1,365) --
Redesignated to
Institutional Class (42,589) -- (9,970) -- -- -- (29,097) --
Proceeds from Shares
Issued 4,679 15,691 652 11,284 -- -- 9,204 5,563
Reinvestment of Cash
Distributions 2,420 1,929 115 57 -- -- 244 1,430
Cost of Shares
Repurchased (6,294) (11,959) (81) (745) -- -- (2,665) (7,534)
-------- -------- -------- -------- --------- -------- -------- --------
Increase (Decrease) in
Net Assets Derived from
Prior Class
Transactions (47,458) 5,661 (9,755) 10,596 -- -- (23,679) (541)
Retail Class (b)*:
Redesignated from Prior
Class 5,674 -- 471 -- -- -- 1,365 --
Proceeds from Shares
Issued 676 -- 186 -- 9 68 164 --
Reinvestment of Cash
Distributions 52 -- 5 -- -- -- 48 --
Cost of Shares
Repurchased (948) -- (57) -- (1) -- (291) --
-------- -------- -------- -------- --------- -------- -------- --------
Increase in Net Assets
Derived from Retail
Class Transactions 5,454 -- 605 -- 8 68 1,286 --
Institutional Class (b)*:
Redesignated from Prior
Class 42,589 -- 9,970 -- -- -- 29,097 --
Proceeds from Shares
Issued 351,837 -- 46,892 -- 13,282 39,740 192,154 --
Reinvestment of Cash
Distributions 2,568 -- 316 -- -- 386 5,109 --
Cost of Shares
Repurchased (59,497) -- (9,538) -- (857) (2,822) (38,426) --
-------- -------- -------- -------- --------- -------- -------- --------
Increase (Decrease) in
Net Assets Derived from
Institutional Class
Transactions 337,497 -- 47,640 -- 12,425 37,304 187,934 --
-------- -------- -------- -------- --------- -------- -------- --------
Increase (Decrease) in Net
Assets Derived from
Capital Transactions 295,493 5,661 38,490 10,596 12,433 37,372 165,541 (541)
-------- -------- -------- -------- --------- -------- -------- --------
Net Increase (Decrease)
in Net Assets 334,815 4,452 48,061 10,069 13,381 38,563 172,438 (3,969)
-------- -------- -------- -------- --------- -------- -------- --------
NET ASSETS:
Beginning of Period 50,128 45,676 10,069 -- -- -- 23,377 27,346
-------- -------- -------- -------- --------- -------- -------- --------
End of Period $ 384,943 $ 50,128 $58,130 $10,069 $13,381 $38,563 $ 195,815 $23,377
-------- -------- -------- -------- --------- -------- -------- --------
-------- -------- -------- -------- --------- -------- -------- --------
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
* On February 21, 1995, the shareholders of each fund ratified the
classification of such fund's outstanding shares into Retail and
Institutional shares.
** Commencement of operations.
(a) For the current fiscal year Prior Class figures represent activity from
November 1, 1994 to February 21, 1995.
(b) Retail and Institutional Class figures represent activity from February 22,
1995 through October 31, 1995.
(c) See Capital Share Transactions in the Notes to the Financial Statements.
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------- ---------- -------------------- -------------------- -------------------- -----------
SHORT- PENNSYLVANIA
INTERMEDIATE TERM TAX-FREE CASH U.S. TREASURY
INCOME INCOME BOND MANAGEMENT SECURITIES TAX-FREE
FUND FUND FUND FUND FUND FUND
-------------------- ---------- -------------------- -------------------- -------------------- -----------
11/1/94 11/1/93 5/15/95** 11/1/94 11/1/93 11/1/94 11/1/93 11/1/94 11/1/93 11/1/94
to 10/31/95 to 10/31/94 to 10/31/95 to 10/31/95 to 10/31/94 to 10/31/95 to 10/31/94 to 10/31/95 to 10/31/94 to 10/31/95
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 4,276 $ 1,036 $ 981 $ 291 $ 354 $ 10,555 $ 4,692 $ 18,734 $ 9,637 $ 2,188
1,152 (387) 32 (68) 9 2 (220) 41 10 (4)
1,825 (920) 92 501 (767) -- -- -- -- --
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
7,253 (271) 1,105 724 (404) 10,557 4,472 18,775 9,647 2,184
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
(264) (1,030) -- (81) (351) (2,788) (4,692) (5,069) (9,637) (706)
(50) -- -- (25) -- (133) -- (586) -- (42)
(3,736) -- (917) (186) -- (7,634) -- (13,079) -- (1,440)
-- (294) -- (9) (42) -- -- -- -- --
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
(4,050) (1,324) (917) (301) (393) (10,555) (4,692) (18,734) (9,637) (2,188)
(1,398) -- -- (684) -- (4,185) -- (618) -- (2,456)
(15,213) -- -- (5,397) -- (206,899) -- (311,650) -- (67,736)
1,544 8,000 -- 470 6,261 229,934 588,009 304,528 797,674 113,629
179 891 -- 40 175 31 34 10 17 86
(6,352) (10,096) -- (1,662) (4,513) (159,426) (662,501) (317,660) (730,256) (98,423)
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
(21,240) (1,205) -- (7,233) 1,923 (140,545) (74,458) (325,390) 67,435 (54,900)
1,398 -- -- 684 -- 4,185 -- 618 -- 2,456
161 -- 11 168 -- 1,981 -- 130,272 -- 330
46 -- -- 23 -- 126 -- 22 -- 42
(429) -- -- (78) -- (2,934) -- (130,182) -- (1,546)
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
1,176 -- 11 797 -- 3,358 -- 730 -- 1,282
15,213 -- -- 5,397 -- 206,899 -- 311,650 -- 67,736
139,413 -- 46,933 1,858 -- 457,561 -- 1,003,030 -- 201,870
3,580 -- 917 73 -- 478 -- 683 -- 91
(23,119) -- (11,979) (1,527) -- (430,420) -- (870,864) -- (209,187)
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
[135,087] -- 35,871 5,801 -- 234,518 -- 444,499 -- 60,510
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
115,023 (1,205) 35,882 (634) 1,923 97,331 (74,458) 119,839 67,435 6,891
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
118,226 (2,800) 36,070 (211) 1,126 97,333 (74,678) 119,880 67,445 6,887
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
21,247 24,047 -- 7,008 5,882 140,545 215,223 325,379 257,934 54,904
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
$ 139,473 $ 21,247 $ 36,070 $ 6,797 $ 7,008 $ 237,878 $ 140,545 $ 445,259 $ 325,379 $ 61,791
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
<CAPTION>
TAX-FREE
FUND
-----------
11/1/93
to 10/31/94
------------
<S> <C>
$ 1,197
--
--
---------
1,197
---------
(1,197)
--
--
--
---------
(1,197)
--
--
261,151
73
(252,559)
---------
8,665
--
--
--
--
---------
--
--
--
--
--
---------
--
---------
8,665
---------
8,665
---------
46,239
---------
$ 54,904
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Conestoga Funds--For the year ended October 31, 1995
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net
Realized and
Unrealized Net
Net Asset Gains Dividends Distributions Assets
Value Net (Losses) from Net from Net Asset End of
Beginning Investment on Investment Realized Value End Total Period
of Period Income Investments Income Capital Gains of Period Return* (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------
EQUITY FUND
- -------------
RETAIL
1995(1) $ 15.00 $ 0.18 $ 2.87 $(0.17) $ (0.80) $ 17.08 21.94% $ 6,591
INSTITUTIONAL
1995(1) 15.00 0.19 2.87 (0.19) (0.80) 17.07 22.00% 378,352
PRIOR CLASS
1994 15.39 0.11 0.22 (0.11) (0.61) 15.00 2.21% 50,128
1993 13.93 0.14 1.89 (0.14) (0.43) 15.39 14.90% 45,677
1992 13.08 0.19 1.02 (0.19) (0.17) 13.93 9.27% 28,103
1991 8.95 0.26 4.13 (0.26) -- 13.08 49.37% 12,830
1990(2) 10.00 0.14 (1.05) (0.14) -- 8.95 (9.22)% 5,982
- ----------------------
SPECIAL EQUITY FUND
- ----------------------
RETAIL
1995(1) $ 9.37 $ 0.12 $ 2.12 $(0.12) $ (0.07) $ 11.42 24.44% $ 734
INSTITUTIONAL
1995(1) 9.37 0.12 2.12 (0.12) (0.07) 11.42 24.44% 57,396
PRIOR CLASS
1994(3) 10.00 0.06 (0.63) (0.06) -- 9.37 (5.72)% 10,069
- ----------------------------
INTERNATIONAL EQUITY FUND
- ----------------------------
RETAIL
1995(4) $ 10.00 $ (.01) $ 1.00 $ -- $ -- $ 10.99 9.90% $ 9
INSTITUTIONAL
1995(4) 10.00 -- 1.01 -- -- 11.01 10.10% 13,372
- ----------------
BALANCED FUND
- ----------------
RETAIL
1995(5) $ 9.97 $ 0.11 $ 0.42 $(0.11) $ -- $ 10.39 5.27% $ 69
INSTITUTIONAL
1995(6) 10.00 0.12 0.37 (0.11) -- 10.38 4.89% 38,494
- ------------
BOND FUND
- ------------
RETAIL
1995(1) $ 9.81 $ 0.60 $ 0.72 $(0.57) $ -- $ 10.56 13.83% $ 1,373
INSTITUTIONAL
1995(1) 9.81 0.61 0.71 (0.58) -- 10.55 13.87% 194,442
PRIOR CLASS
1994 11.18 0.53 (1.04) (0.52) (0.34) 9.81 (4.75)% 23,377
1993 10.89 0.56 0.54 (0.56) (0.25) 11.18 10.63% 27,346
1992 10.65 0.70 0.32 (0.68) (0.10) 10.89 9.82% 15,180
1991 9.96 0.78 0.69 (0.78) -- 10.65 15.16% 7,255
1990(2) 10.00 0.50 (0.04) (0.50) -- 9.96 4.64% 4,593
- -----------------------------
INTERMEDIATE INCOME FUND
- -----------------------------
RETAIL
1995(1) $ 10.27 $ 0.55 $ 0.44 $(0.54) $ -- $ 10.72 9.90% $ 1,230
INSTITUTIONAL
1995(1) 10.27 0.57 0.42 (0.55) -- 10.71 9.92% 138,243
PRIOR CLASS
1994 11.01 0.50 (0.61) (0.49) (0.14) 10.27 (0.97)% 21,247
1993 10.87 0.53 0.21 (0.53) (0.07) 11.01 6.99% 24,047
1992 10.61 0.65 0.29 (0.64) (0.04) 10.87 9.11% 16,718
1991 10.12 0.77 0.50 (0.77) (0.01) 10.61 12.94% 7,116
1990(2) 10.00 0.48 0.12 (0.48) -- 10.12 6.10% 3,986
- ----------------------------
SHORT-TERM INCOME FUND
- ----------------------------
RETAIL
1995(7) $ 10.01 $ 0.23 $ 0.02 $(0.22) $ -- $ 10.04 2.57% $ 11
INSTITUTIONAL
1995(4) 10.00 0.25 0.03 (0.23) -- 10.05 2.87% 36,059
<CAPTION>
Ratio of
Ratio of of Expenses Income
Net to Average to Average
Ratio of Investment Net Assets Net Assets
Expenses Income (Excluding (Excluding Portfolio
to Average to Average Waivers and Waivers and Turnover
Net Assets Net Assets Reimbursements) Reimbursements) Rate
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -------------
EQUITY FUND
- -------------
RETAIL
1995(1) 1.34% 1.23% 1.53% 1.04% 119%
INSTITUTIONAL
1995(1) 1.05% 1.44% 1.10% 1.44% 119%
PRIOR CLASS
1994 1.49% 0.75% 1.51% 0.73% 35%
1993 1.20% 0.94% 1.41% 0.73% 24%
1992 0.92% 1.47% 1.23% 1.17% 39%
1991 0.54% 2.30% 1.48% 1.36% 68%
1990(2) 0.65% 2.29% 1.59% 1.35% 43%
- ----------------------
SPECIAL EQUITY FUND
- ----------------------
RETAIL
1995(1) 0.27% 1.29% 2.24% (0.68)% 129%
INSTITUTIONAL
1995(1) 0.32% 1.14% 1.97% (0.51)% 129%
PRIOR CLASS
1994(3) 0.15% 1.06% 2.10% (0.89)% 39%
- ----------------------------
INTERNATIONAL EQUITY FUND
- ----------------------------
RETAIL
1995(4) 2.13% (.69)% 2.26% (.83)% 23%
INSTITUTIONAL
1995(4) 1.88% (0.10)% 1.88% (0.10)% 23%
- ---------------
BALANCED FUND
- ---------------
RETAIL
1995(5) 1.07% 3.37% 1.32% 3.12% 65%
INSTITUTIONAL
1995(6) 0.82% 3.66% 1.07% 3.41% 65%
- ------------
BOND FUND
- ------------
RETAIL
1995(1) 0.97% 6.02% 1.44% 5.55% 352%
INSTITUTIONAL
1995(1) 0.71% 6.09% 1.12% 5.68% 352%
PRIOR CLASS
1994 1.01% 5.07% 1.60% 4.48% 232%
1993 0.88% 5.16% 1.49% 4.55% 158%
1992 0.46% 6.78% 1.24% 6.01% 99%
1991 0.47% 7.71% 1.41% 6.78% 47%
1990(2) 0.68% 7.75% 1.62% 6.81% 23%
- -----------------------------
INTERMEDIATE INCOME FUND
- -----------------------------
RETAIL
1995(1) 0.93% 5.47% 1.51% 4.89% 260%
INSTITUTIONAL
1995(1) 0.64% 5.72% 1.15% 5.21% 260%
PRIOR CLASS
1994 0.90% 4.66% 1.64% 3.92% 170%
1993 0.78% 4.89% 1.50% 4.17% 90%
1992 0.47% 6.31% 1.24% 5.57% 53%
1991 0.40% 7.69% 1.34% 6.76% 33%
1990(2) 0.75% 7.42% 1.69% 6.48% 39%
- ----------------------------
SHORT-TERM INCOME FUND
- ----------------------------
RETAIL
1995(7) 0.88% 5.05% 1.33% 4.60% 40%
INSTITUTIONAL
1995(4) 0.63% 5.43% 1.08% 4.98% 40%
</TABLE>
37
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
Realized and
Unrealized Net
Net Asset Gains Dividends Distributions Assets
Value Net (Losses) from Net from Net Asset End of
Beginning Investment on Investment Realized Value End Total Period
of Period Income Investments Income Capital Gains of Period Return* (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------
PENNSYLVANIA TAX-FREE BOND FUND
- --------------------------------------
RETAIL
1995(1) $ 9.56 $ 0.47 $ 0.67 $(0.46) $ (0.01) $ 10.23 12.30% $ 820
INSTITUTIONAL
1995(1) 9.56 0.47 0.67 (0.46) (0.01) 10.23 12.30% 5,977
PRIOR CLASS
1994 10.48 0.46 (0.85) (0.46) (0.07) 9.56 (3.90)% 7,008
1993 9.77 0.45 0.70 (0.44) -- 10.48 11.94% 5,883
1992(8) 10.00 -- (0.23) -- -- 9.77 (2.28)% 3,405
- --------------------------
CASH MANAGEMENT FUND
- --------------------------
RETAIL
1995(1) $ 1.00 $ 0.05 $ -- $(0.05) $ -- $ 1.00 5.25% $ 3,358
INSTITUTIONAL
1995(1) 1.00 0.05 -- (0.05) -- 1.00 5.43% 234,520
PRIOR CLASS
1994 1.00 0.03 (0.03) -- -- 1.00 3.41% 140,545
1993 1.00 0.03 (0.03) -- -- 1.00 2.80% 215,223
1992 1.00 0.04 (0.04) -- -- 1.00 3.79% 113,096
1991 1.00 0.06 (0.06) -- -- 1.00 6.22% 151,166
1990(9) 1.00 0.07 (0.07) -- -- 1.00 7.59% 39,061
- ---------------------------------
U.S. TREASURY SECURITIES FUND
- ---------------------------------
RETAIL
1995(1) $ 1.00 $ 0.05 $ -- $(0.05) $ -- $ 1.00 5.16% $ 730
INSTITUTIONAL
1995(1) 1.00 0.05 -- (0.05) -- 1.00 5.27% 444,529
PRIOR CLASS
1994 1.00 0.03 (0.03) -- -- 1.00 3.07% 325,379
1993 1.00 0.03 (0.03) -- -- 1.00 2.57% 257,934
1992 1.00 0.04 (0.04) -- -- 1.00 3.64% 340,904
1991 1.00 0.06 (0.06) -- -- 1.00 5.96% 341,931
1990(9) 1.00 0.07 (0.07) -- -- 1.00 7.44% 106,771
- ----------------
TAX-FREE FUND
- ----------------
RETAIL
1995(1) $ 1.00 $ 0.03 $ -- $(0.03) $ -- $ 1.00 3.39% $ 1,282
INSTITUTIONAL
1995(1) 1.00 0.03 -- (0.03) -- 1.00 3.43% 60,509
PRIOR CLASS
1994 1.00 0.02 (0.02) -- -- 1.00 2.21% 54,904
1993 1.00 0.02 (0.02) -- -- 1.00 1.97% 46,239
1992 1.00 0.03 (0.03) -- -- 1.00 2.88% 46,295
1991 1.00 0.04 (0.04) -- -- 1.00 4.44% 45,647
1990(9) 1.00 0.05 (0.05) -- -- 1.00 5.31% 24,167
<CAPTION>
Ratio of
Ratio of of Expenses Income
Net to Average to Average
Ratio of Investment Net Assets Net Assets
Expenses Income (Excluding (Excluding Portfolio
to Average to Average Waivers and Waivers and Turnover
Net Assets Net Assets Reimbursements) Reimbursements) Rate
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------
PENNSYLVANIA TAX-FREE BOND FUND
- --------------------------------------
RETAIL
1995(1) 0.51% 4.64% 1.62% 3.53% 15%
INSTITUTIONAL
1995(1) 0.51% 4.64% 1.65% 3.50% 15%
PRIOR CLASS
1994 0.38% 4.61% 1.57% 3.42% 37%
1993 0.51% 4.35% 1.63% 3.23% 50%
1992(8) 2.67% 0.52% 3.41% (0.22)% 31%
- --------------------------
CASH MANAGEMENT FUND
- --------------------------
RETAIL
1995(1) 0.74% 5.16% 0.97% 4.93% N/A
INSTITUTIONAL
1995(1) 0.56% 5.32% 0.79% 5.09% N/A
PRIOR CLASS
1994 0.71% 3.32% 0.99% 3.05% N/A
1993 0.65% 2.75% 0.87% 2.53% N/A
1992 0.48% 3.76% 0.70% 3.55% N/A
1991 0.49% 5.84% 0.79% 5.54% N/A
1990(9) 0.42% 7.95% 0.75% 7.62% N/A
- ---------------------------------
U.S. TREASURY SECURITIES FUND
- ---------------------------------
RETAIL
1995(1) 0.73% 5.26% 0.79% 5.20% N/A
INSTITUTIONAL
1995(1) 0.62% 5.14% 0.78% 4.98% N/A
PRIOR CLASS
1994 0.72% 3.03% 0.97% 2.78% N/A
1993 0.66% 2.55% 0.87% 2.33% N/A
1992 0.46% 3.65% 0.69% 3.44% N/A
1991 0.51% 5.61% 0.79% 5.32% N/A
1990(9) 0.38% 7.73% 0.79% 7.32% N/A
- ----------------
TAX-FREE FUND
- ----------------
RETAIL
1995(1) 0.48% 3.35% 0.88% 2.95% N/A
INSTITUTIONAL
1995(1) 0.46% 3.37% 0.83% 3.00% N/A
PRIOR CLASS
1994 0.37% 2.22% 1.05% 1.53% N/A
1993 0.45% 1.95% 0.96% 1.44% N/A
1992 0.33% 2.83% 0.73% 2.45% N/A
1991 0.43% 4.37% 0.87% 3.93% N/A
1990(9) 0.31% 5.57% 0.91% 4.97% N/A
</TABLE>
* Total Return figures do not reflect applicable sales loads.
(1) On February 21, 1995 the shares of the Fund were redesignated as either
Retail or Institutional shares. For the year ended October 31, 1995, the
Financial Highlights' ratios of expenses, ratios of net investment income,
total return, and the per share investment activities and distributions are
presented on a basis whereby the Fund's net investment income, expenses, and
distributions for the period November 1, 1994 through February 20, 1995 were
allocated to each class of shares based upon the relative net assets of each
class of shares as of February 21, 1995 and the results combined therewith
the results of operations and distributions for each applicable class for
the period February 21, 1995 through October 31, 1995.
(2) Commenced operations on February 28, 1990. All ratios for the period have
been annualized.
(3) Commenced operations on March 15, 1994. All ratios for the period have been
annualized.
(4) Commenced operations on May 15, 1995. All ratios for the period have been
annualized.
(5) Commenced operations on June 29, 1995. All ratios for the period have been
annualized.
(6) Commenced operations on June 26, 1995. All ratios for the period have been
annualized.
(7) Commenced operations on May 17, 1995. All ratios for the period have been
annualized.
(8) Commenced operations on September 21, 1992. All ratios for the period have
been annualized.
(9) Commenced operations on November 27, 1989. All ratios for the period have
been annualized.
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
1. Organization:
The Conestoga Family of Funds (the "Company") was organized as a Massachusetts
business trust under a Declaration of Trust dated August 1, 1989. The Company is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company with eleven funds: the U.S. Treasury Securities
Fund, the Cash Management Fund, the Tax-Free Fund (collectively "the Money
Market Funds"), the Intermediate Income Fund, the Bond Fund, the Pennsylvania
Tax-Free Bond Fund, the Short-Term Income Fund (collectively "the Fixed Income
Funds"), the Equity Fund, the Special Equity Fund, the International Equity Fund
(collectively "the Equity Funds") and the Balanced Fund. The assets of each Fund
are segregated, and a shareholder's interest is limited to the Fund in which
shares are held. The Company currently offers two classes of shares in each
Fund: Institutional and Retail. Each Fund is authorized to issue an unlimited
number of shares of either class which are units of beneficial interest with a
par value of $0.001 per share. The Institutional and Retail Shares of each Fund
are subject to the same expenses except that Institutional Shares are not
subject to a distribution fee, and the Institutional Shares of the Fixed Income
and Equity Funds are not sold with a sales charge.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by the
Company. These policies are
in conformity with generally accepted accounting principles.
Security Valuation--Investments in equity securities which are traded on a
national securities exchange (or reported on the NASDAQ national market system)
are stated at the last quoted sales price--if readily available for such equity
securities--on each business day. If there is no such reported sale, these
securities, and unlisted securities for which market quotations are readily
available, are valued at the most recently quoted bid price.
Debt obligations exceeding 60 days to maturity for which market quotations
are readily available are valued at the most recently quoted bid price. Debt
obligations with 60 days or less until maturity may be valued either at the most
recently quoted bid price or at their amortized cost.
Investment securities held by the Money Market Funds are stated at
amortized cost which approximates market value. Under the amortized cost method,
any discount or premium is amortized ratably to the maturity of the security and
is included in interest income.
Foreign securities in the International Equity Fund are valued based upon
quotations from the primary market in which they are traded.
Federal Income Taxes--It is each Fund's intention to qualify as a regulated
investment company by complying with the appropriate provisions of the Internal
Revenue Code of 1986, as amended. Accordingly, no provisions for Federal income
taxes are required in the accompanying financial statements.
Security Transactions and Investment Income--
Security transactions are accounted for on the trade date of the security
purchase or sale. Dividend income is recognized on ex-dividend date, and
interest income is recognized on an accrual basis and includes the pro rata
amortization of premium or accretion of discount. The cost used in determining
net realized capital gains and losses on the sale of securities are those of the
specific securities sold, adjusted for the accretion and amortization of
purchase discounts and premiums during the applicable holding period. Purchase
discounts and premiums on securities held by the Equity and Fixed Income Funds
are accreted and amortized to maturity using the scientific amortization method,
which approximates the effective interest method.
Repurchase Agreements--Securities pledged as collateral for repurchase
agreements are held at a custodian bank in the name of the Fund until the
repurchase agreements mature. Provisions of the repurchase agreements ensure
that the market value of the collateral, including accrued interest thereon, is
sufficient in the event of default of the counterparty. If the counterparty
defaults and the value of the collateral declines or if the counterparty enters
an insolvency proceeding, realization of the collateral by the Funds may be
delayed or limited.
Net Asset Value Per Share--The net asset value per share of each class of
each Fund is calculated on each business day. In general, it is computed by
dividing the assets of each class of each Fund, less its liabilities, by the
number of outstanding shares of the respective class of the Fund. The maximum
offering price per share for Retail Shares of the Equity and Fixed Income Funds
is
39
<PAGE>
- --------------------------------------------------------------------------------
equal to the net asset value per share plus a sales load of 2.00%. The offering
price per share for the Institutional Shares of the Equity and Fixed Income
Funds is the net asset value per share. The offering price for Institutional and
Retail Shares of the Money Market Funds is the amortized cost per share, which
approximates net asset value per share.
Foreign Currency Translation--The books and records of the International
Equity Fund are maintained in U.S. dollars on the following basis:
(I) market value of investment securities, assets and liabilities at the
current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates of
such transactions.
The International Equity Fund does not isolate that portion of gains and
losses on investments in equity securities which is due to changes in the
foreign exchange rates from that which is due to changes in market prices of
equity securities.
The International Equity Fund reports certain foreign currency related
transactions as components of realized gains for financial reporting purposes,
whereas such components are treated as ordinary income for Federal income tax
purposes.
Forward Foreign Currency Contracts--The International Equity Fund enters
into forward foreign currency contracts as hedges against either specific
transactions or Fund positions. All commitments are "marked-to-market" daily at
the applicable foreign exchange rate and any resulting unrealized gains or
losses are recorded currently. The International Equity Fund realizes gains or
losses at the time the forward contracts are extinguished. Unrealized gains or
losses on outstanding positions in forward foreign currency contracts held at
the close of the year will be recognized as ordinary income or loss for Federal
income tax purposes.
Maturity Dates--Certain variable rate and floating rate securities are
subject to "maturity shortening" devices such as put or demand features. Under
Rule 2a-7 of the Investment Company Act of 1940 (the "1940 Act"), as amended,
these securities are deemed to have maturities shorter than the ultimate
maturity dates. Accordingly, the maturity dates reflected in the Statement of
Net Assets are the shorter of the effective demand/put date or the ultimate
maturity date.
Classes--Class-specific expenses are borne by that class. Other expenses,
income, and realized and unrealized gains and losses are allocated to their
respective classes on the basis of relative daily net assets.
Other--Distributions from net investment income for the Equity and Fixed
Income Funds are declared and paid to shareholders on a periodic basis.
Distributions from net investment income for the Money Market Funds are declared
daily and paid to shareholders monthly. Any net realized capital gains are
distributed to shareholders at least annually.
3. Administration and Distribution Agreements:
The Company and SEI Financial Management Corporation (the "Administrator") are
parties to an administration agreement (the "Administration Agreement") dated
May 1, 1995. Under the terms of the Administration Agreement the Administrator
is entitled to a fee calculated daily and paid monthly at an annual rate of .17%
of the average daily net assets of each Fund. Prior to May 1, 1995, The Winsbury
Company ("Winsbury") served as the Administrator to the Company and was entitled
to a fee calculated daily and paid monthly at the annual rate of .20% of the
average daily net assets of each Fund.
The Company has adopted a distribution and services plan (the "Distribution
Plan") applicable to the Retail Shares pursuant to rule 12b-1 under the 1940
Act. As provided in the Distribution Plan, each Fund is authorized to pay the
distributor a fee for distribution services in an amount not to exceed on an
annual basis .40% of the average daily net assets of the Retail Shares of the
Funds. The Company and SEI Financial Services Company (the "Distributor"), a
wholly-owned subsidiary of SEI Corporation and a registered broker-dealer, are
parties to a distribution agreement (the "Distribution Agreement") dated May 1,
1995. Under the terms of the Distribution Agreement, the Distributor receives no
fees for its Institutional Shares distribution services, and is entitled to
receive fees as set forth in the Distribution Plan for services performed and
expenses assumed under the Distribution Agreement as to the Retail Shares of the
Funds. Prior to May 1, 1995 Winsbury served as Distributor to the Company and
was entitled to receive commissions earned on sales of shares of the Equity and
40
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Fixed Income Funds. For the six months ended April 30, 1995, Winsbury received
$7,736 from commissions earned on sales of shares of the Equity and Fixed Income
Funds, of which $261 was reallowed to Meridian Securities Inc., an affiliate of
Meridian Bancorp, and an investment dealer of the Funds.
4. Investment Advisory Agreements:
Investment advisory services are provided to the Company by Meridian Investment
Company (the "Investment Advisor"), a subsidiary of Meridian Bancorp, Inc. Under
the terms of the investment advisory agreements, the Investment Advisor is
entitled to receive a fee from the Fund, computed daily and paid monthly, at an
annual rate equal to the lesser of (a) (i) .40% of the average daily net assets
of each of the Cash Management, Tax-Free and U.S. Treasury Securities Funds,
(ii) .74% of the average daily net assets of each of the Equity, Bond,
Intermediate Income, Pennsylvania Tax-Free Bond, and Short-Term Income Funds,
(iii) .75% of the average daily net assets of the Balanced Fund, (iv) 1.00% of
the average daily net assets of the International Equity Fund, and (v) 1.50% of
the average daily net assets of the Special Equity Fund, or (b) such fee as
agreed upon in writing by a Fund and the Investment Advisor in advance of the
period to which the fee relates.
Pursuant to the Company's investment advisory agreement for the
International Equity Fund, the Investment Advisor has retained Marvin & Palmer
Associates, Inc. ("Marvin & Palmer") as Sub-Advisor to such Fund pursuant to a
Sub-Investment Advisory Agreement. For its services under such Sub-Investment
Advisory Agreement, Marvin & Palmer is paid a monthly fee by Meridian calculated
on an annual basis equal to .75% of the first $100 million of the International
Equity Fund's average daily net assets, .70% of the second $100 million of the
International Equity Fund's average daily net assets, .65% of the third $100
million of the International Equity Fund's average daily net assets, and .60% of
the International Equity Fund's average daily net assets in excess of $300
million.
5. Organizational Costs and
Transactions with Affiliates:
Organizational costs have been capitalized by the Company and are being, or
were, amortized on a straight line basis over a maximum of sixty months
following commencement of operations. In the event any of the initial shares of
the Company are redeemed by any holder thereof during the period that the
Company is amortizing its organizational costs, the redemption proceeds payable
to the holder thereof by the Company will be reduced by the unamortized
organizational cost in the same ratio as the number of initial shares being
redeemed bears to the number of initial shares outstanding at the time of
redemption.
Certain officers of the Company are also officers of the Administrator
and/or SEI Financial Services Company (the "Distributor"). Such officers are
paid no fees by the Company for serving as officers of the Company.
6. Investment Transactions:
The cost of security purchases and the proceeds from security sales, excluding
short-term investments, for the year ended October 31, 1995 were as follows:
<TABLE>
<CAPTION>
U.S. Govt.
Purchases Sales Purchases U.S. Govt. Sales
(000) (000) (000) (000)
------- ------- ------- ----------
<S> <C> <C> <C> <C>
Equity $ 228,276 $229,329 -- --
Special Equity 38,281 39,567 -- --
International Equity 14,651 2,343 -- --
Balanced 52,677 20,147 -- --
Bond 255,196 251,397 $ 163,069 $182,327
Intermediate Income 140,542 138,144 101,752 100,103
Short-Term Income 20,442 7,585 16,637 5,479
Pennsylvania
Tax-Free Bond 897 1,865 -- --
</TABLE>
At October 31, 1995, the total cost of securities and net realized gains or
losses on securities sold for Federal income tax purposes was not materially
different from amounts reported for financial reporting purposes. The aggregate
gross unrealized appreciation and depreciation for securities held by the Equity
41
<PAGE>
- --------------------------------------------------------------------------------
and Fixed Income Funds at October 31, 1995 were as follows:
<TABLE>
<CAPTION>
Net
Unrealized
Appreciated Depreciated Appreciation--
Securities Securities (Depreciation)
(000) (000) (000)
------- ------- ---------
<S> <C> <C> <C>
Equity $28,816 $12,474 $16,342
Special Equity 5,315 4,771 544
International Equity 1,081 374 707
Balanced 1,218 359 859
Bond 2,765 192 2,573
Intermediate Income 1,472 73 1,399
Short-Term Income 94 2 92
Pennsylvania Tax-Free Bond 89 77 12
</TABLE>
At October 31, 1995 the following Funds had available realized capital
losses to offset future net capital gains in the amounts shown as follows:
<TABLE>
<CAPTION>
Capital Loss Carryover
Fund October 31, 1995 Expiring 2002 Expiring 2003
- --- -------------- -------- --------
<S> <C> <C> <C>
International Equity $ 21,098 $ -- $21,098
Pennsylvania
Tax-Free Bond 68,029 -- 68,029
Cash Management 217,837 217,837 --
Tax-Free 3,824 -- 3,824
</TABLE>
The Bond Fund utilized its entire capital loss carryforward balance of
$1,283,474 which was carried over from the previous year.
The Cash Management Fund utilized $2,310 of its capital loss carryforward
balance during the year.
The Intermediate Income Fund utilized its entire capital loss carryforward
balance of $383,000 which was carried over from the previous year.
7. Forward Foreign Currency Contracts:
The International Equity Fund may enter into forward foreign currency exchange
contracts as hedges against fund positions. Such contracts, which may protect
the value of the Fund's investment securities against a decline in the value of
currency, do not eliminate fluctuations in the underlying prices of the
securities. They simply establish an exchange rate at a future date. Also,
although such contracts tend to minimize the risk of loss due to a decline in
the value of a hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of such foreign currency
increase.
The following forward foreign currency contracts
in the International Equity Fund were outstanding at
October 31, 1995:
<TABLE>
<CAPTION>
Net Unrealized
Contracts to In Exchange Appreciation/
Settlement Deliver FX For $ Depreciation
Date Currency (000) (000) (000)
------- ----- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Foreign Currency 11/30/95 UK 450 $ 709 $ --
Sales 11/30/95 JY 191,660 1,930 46
11/02/95 JY 3,209 31 --
11/02/95 SK 139 21 --
----------- ---
$ 2,691 $ 46
----------- ---
Foreign Currency 11/02/95 JY 2,927 $ 29 $ --
Purchases 11/02/95 JY 2,237 22 --
----------- ---
$ 51 $ --
----------- ---
$ 46
==========
</TABLE>
Currency Legend
JY Japanese Yen
SK Swedish Krona
UK British Sterling Pound
42
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
8. Share Transactions:
<TABLE>
<CAPTION>
Special International Intermediate
Equity Equity Equity Balanced Bond Income
Fund Fund Fund Fund Fund Fund
---- ---- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
PERIOD FROM
NOVEMBER 1, 1994
THROUGH
FEBRUARY 21, 1995:
Exchange out to
Retail Class (401) (52) -- -- (138) (136)
Exchange out to
Institutional Class (3,007) (1,099) -- -- (2,935) (1,478)
Shares issued 331 73 -- -- 938 151
Shares issued in
lieu of cash
distributions 180 13 -- -- 25 18
Shares repurchased (446) (9) -- -- (273) (625)
------ ------ ----- ----- ------ ------
Net Decrease (3,343) (1,074) -- -- (2,383) (2,070)
====== ====== ===== ===== ====== ======
PERIOD FROM
FEBRUARY 22, 1995
THROUGH
OCTOBER 31, 1995:
RETAIL CLASS:
Exchange in from
previous class 401 52 -- -- 138 136
Shares issued 41 17 1 7 15 15
Shares issued in
lieu of cash
distributions 3 -- -- -- 5 4
Shares repurchased (59) (5) -- -- (28) (40)
------ ------ ----- ----- ------ ------
Net Increase 386 64 1 7 130 115
====== ====== ===== ===== ====== ======
INSTITUTIONAL CLASS:
Exchange in from
previous class 3,007 1,099 -- -- 2,935 1,478
Shares issued 22,654 4,786 1,291 3,945 18,682 13,274
Shares issued in
lieu of cash
distributions 151 28 -- 37 491 338
Shares repurchased (3,652) (886) (76) (275) (3,686) (2,180)
------ ------ ----- ----- ------ ------
Increase in net
assets derived from
Institutional
transactions 22,160 5,027 1,215 3,707 18,422 12,910
====== ====== ===== ===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania
Short-Term Tax-Free Cash U.S. Treasury
Income Bond Management Securities Tax-Free
Fund Fund Fund Fund Fund
------ -------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
PERIOD FROM
NOVEMBER 1, 1994
THROUGH
FEBRUARY 21, 1995:
Exchange out to
Retail Class -- (69) (4,188) (618) (2,456)
Exchange out to
Institutional
Class -- (543) (207,034) (311,574) (67,719)
Shares issued -- 49 229,934 304,528 113,629
Shares issued in lieu
of cash distributions -- 4 31 10 86
Shares repurchased -- (174) (159,426) (317,660) (98,423)
--
---- -------- -------- -------
Net Decrease -- (733) (140,683) (325,314) (54,883)
== ==== ======== ======== =======
PERIOD FROM
FEBRUARY 22, 1995
THROUGH OCTOBER 31,
1995:
RETAIL CLASS:
Exchange in from
previous class -- 69 4,188 618 2,456
Shares issued 1 16 1,981 130,272 332
Shares issued in lieu
of cash distributions -- 2 126 22 42
Shares repurchased -- (7) (2,934) (130,182) (1,548)
--
---- -------- -------- -------
Net Increase 1 80 3,361 730 1,282
== ==== ======== ======== =======
INSTITUTIONAL CLASS:
Exchange in from
previous class -- 543 207,034 311,574 67,719
Shares issued 4,689 185 457,561 1,003,029 201,868
Shares issued in lieu
of cash distributions 91 7 479 683 91
Shares repurchased (1,192) (151) (430,420) (870,863) (209,186)
--
---- -------- -------- -------
Net Increase 3,588 584 234,654 444,423 60,492
== ==== ======== ======== =======
</TABLE>
43
<PAGE>
- --------------------------------------------------------------------------------
9. Shareholder Voting Results:
A special meeting of shareholders was held on January 9, 1995 (reconvened
January 12, 1995, January 13, 1995 and February 10, 1995) for the Company to
vote on the following proposals (i) the election of a Board of seven (7)
trustees (Dominic S. Genuardi, Sr., Steven I. Gross, J. David Huber, Robert C.
Kingston, Dale E. Smith, Thomas J. Taylor and William J. Tomko); (ii) the
ratification of the selection of Coopers & Lybrand, L.L.P. as independent
accountants for the Company for the fiscal year ending October 31, 1995; (iii)
the approval of the adoption of a new Distribution and Services Plan with
respect to the Retail Shares of each of the Company's existing Funds (the U.S.
Treasury Securities Fund, the Cash Management Fund, the Tax-Free Fund, the
Intermediate Income Fund, the Bond Fund, the Equity Fund, the Pennsylvania
Tax-Free Bond Fund and the Special Equity Fund), pursuant to Rule 12b-1 under
the Investment Company Act of 1940; (iv) with respect to the Bond Fund only, the
approval of a change in the fundamental investment objective of the Fund; and
(v) with respect to the Intermediate Income Fund only, the approval of a change
in the fundamental investment objective of the Fund. The following were the
results of the vote (Unaudited):
MEETING OF SHAREHOLDERS
JANUARY 9, 1995
<TABLE>
<CAPTION>
Proposal 3 Cash Management Tax-Free Special Equity
- ---------------------- --------------- ---------- --------------
<S> <C> <C> <C>
For................... 81,862,297 30,681,945 934,540
Against............... 3,217,557 634,459 1,368
Abstentions........... 8,118,366 1,444,175 none
</TABLE>
RECONVENED
JANUARY 13, 1995
<TABLE>
<CAPTION>
Proposal 1 In Favor Withheld
- ------------------------ ----------- -----------
<S> <C> <C>
Dominic S. Genuardi,
Sr..................... 347,299,332 23,395,703
Steven I. Gross......... 347,159,952 23,535,083
J. David Huber.......... 347,283,622 23,411,413
Robert C. Kingston...... 346,762,700 23,932,336
Dale E. Smith........... 347,304,576 23,390,459
Thomas J. Taylor........ 347,283,622 23,411,413
William J. Tomko........ 347,283,622 23,411,413
</TABLE>
<TABLE>
<CAPTION>
Proposal 2
- -------------------------
<S> <C>
COOPERS & LYBRAND, L.L.P.
For...................... 330,010,191
Against.................. 16,943,555
Abstentions.............. 23,741,287
</TABLE>
<TABLE>
<CAPTION>
Proposal 3 Intermediate Income Bond Equity PA Tax-Free
- ---------------------- ------------------- --------- -------------- -----------
<S> <C> <C> <C> <C>
For................... 1,107,049 1,110,841 1,343,747 369,400
Against............... 5,266 54,399 366,865 10,079
Abstentions........... 9,098 39,677 102,000 47,478
</TABLE>
<TABLE>
<CAPTION>
Proposal 4 Bond
- -------------------------- ---------
<S> <C>
For....................... 1,138,236
Against................... 29,140
Abstentions............... 37,540
</TABLE>
<TABLE>
<CAPTION>
Proposal 5 Intermediate Income
- -------------------- -------------------
<S> <C>
For................. 1,107,122
Against............. 5,722
Abstentions......... 8,568
</TABLE>
RECONVENED
FEBRUARY 10, 1995
<TABLE>
<CAPTION>
U.S. Treasury
Proposal 3 Securities
- ----------------- ------------------------
<S> <C>
For.............. 178,314,048
Against.......... 3,692,885
Abstentions...... 50,897,923
</TABLE>
44
<PAGE>
NOTICE TO SHAREHOLDERS OF THE CONESTOGA FUNDS
For shareholders that do not have an October 31, 1995 taxable year end, this
notice is for informational purposes only. For shareholders with an October 31,
1995 taxable year end, please consult your tax advisor as to the pertinence of
this notice.
For the fiscal year ended October 31, 1995 the portfolios of The Conestoga Funds
are designating long term capital gains and qualifying dividend income with
regard to distributions paid during the year as follows:
<TABLE>
<CAPTION>
(A) (B)
LONG TERM ORDINARY
CAPITAL GAINS INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
FUND (TAX BASIS) (TAX BASIS) (TAX BASIS)
- ---------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Equity 37% 63% 100%
Special Equity 0% 100% 100%
International Equity 0% 100% 100%
Balanced 0% 100% 100%
Bond 0% 100% 100%
Intermediate Income 0% 100% 100%
Short-Term Income 0% 100% 100%
Pennsylvania Tax-Free Bond 3% 97% 100%
Cash Management 0% 100% 100%
U.S. Treasury Securities 0% 100% 100%
Tax-Free 0% 100% 100%
</TABLE>
<TABLE>
<CAPTION>
(C) (D) (E)
QUALIFYING TAX EXEMPT FOREIGN
FUND DIVIDENDS (1) INTEREST TAX CREDIT
- ---------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Equity 53% 0% 0%
Special Equity 49% 0% 0%
International Equity 0% 0% 0%
Balanced 10% 0% 0%
Bond N/A 0% 0%
Intermediate Income N/A 0% 0%
Short-Term Income N/A 0% 0%
Pennsylvania Tax-Free Bond N/A 100% 0%
Cash Management N/A 0% 0%
U.S. Treasury Securities N/A 0% 0%
Tax-Free N/A 97% 0%
</TABLE>
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
* Items (A) and (B) are based on the percentage of each portfolio's total
distribution.
** Items (C) and (D) are based on the percentage of gross income of each
portfolio.
45
<PAGE>
PART C
<PAGE>
FORM N-14
PART C. OTHER INFORMATION
Item 15. Indemnification.
Article VII, Section 3 of the Registrant's Articles of
Incorporation by reference as Exhibit (1)(a) hereto, and
Article VI, Section 2 of Registrant's By-Laws, filed as
Exhibit (2) hereto, provide for the indemnification of
Registrant's directors and officers. Indemnification of the
Registrant's principal underwriter, custodian, and transfer
agent is provided for, respectively, in Section 1.11 of the
Distribution Agreement, incorporated by reference as Exhibit
(7) (a) hereto, Section 3, 18, and 19 of the Custodian
Agreement, incorporated by reference as Exhibit (9)(a) hereto,
and Sections 14, 37, and 38 of the Transfer Agency Agreement,
incorporated by reference as Exhibit (10)(c) hereto.
Registrant has obtained from a major insurance carrier a
directors' and officers' liability policy covering certain
types of errors and omissions. In no event will Registrant
indemnify any of its directors, officers, employees, its
investment adviser or principal underwriter against any
liability to which such person would otherwise be subject by
reason of his willful misfeasance, bad faith, or gross
negligence in the performance of his duties as director,
officer, employee, investment adviser, or principal
underwriter, or by reason of his reckless disregard of the
duties involved in the conduct of his office or under the
advisory or underwriting agreement with Registrant. Registrant
will comply with Rule 484 under the Securities Act of 1933 and
Release 11330 under the Investment Company Act of 1940 in
connection with any indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors,
officers, and controlling persons of Registrant pursuant to
the foregoing provisions, or otherwise, Registrant has been
advised that in the opinion of the Securities and Exchange
Commission (the "Commission") such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a director, officer, or
controlling person of Registrant in the successful defense of
any action,
C-2
<PAGE>
suit, or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Item 16. Exhibits.
(1) (a) Articles of Incorporation dated September 11,
1984 are incorporated herein by reference to Exhibit
(1)(a) to the Registrant's Registration Statement on
Form N-1A filed with the Commission on
September 11, 1984.
(b) Articles of Amendment dated as of March 29, 1985 to
Articles of Incorporation are incorporated herein by
reference to Exhibit (1)(b) to Pre-Effective
Amendment No. 1 to the Registrant's Registration
Statement on Form N-1A filed with the Commission on
May 22, 1985.
(c) Articles Supplementary dated March 29, 1985 to
Articles of Incorporation dated September 11, 1984
are incorporated herein by reference to Exhibit
(1)(c) of Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A
filed with the Commission on May 22, 1985.
(d) Articles of Amendment dated June 30, 1987 to Articles
of Incorporation dated September 11, 1984 are
incorporated herein by reference to Exhibit (1)(d) of
Post-Effective Amendment No. 5 to the Registrant's
Registration Statement on Form N-1A filed with the
Commission on October 30, 1987.
(e) Articles Supplementary dated March 30, 1989 to
Articles of Incorporation dated September 11, 1984
are incorporated herein by reference to Exhibit
(1)(e) of Post-Effective Amendment No. 8 to the
Registrant's Registration Statement on Form N-1A
filed with the Commission on April 3, 1989.
(f) Articles Supplementary dated December 18, 1990 to
Registrant's Articles of Incorporation dated
September 11, 1984 are incorporated herein by
reference to Exhibit (1)(f) of Post-Effective
Amendment No. 11 to the Registrant's Registration
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<PAGE>
Statement on Form N-1A filed with the Commission on
January 24, 1991.
(g) Articles Supplementary dated September 3, 1991 to
Registrant's Articles of Incorporation dated
September 11, 1984 are incorporated herein by
reference to Exhibit (1)(g) of Post-Effective
Amendment No. 12 to the Registrant's Registration
Statement on Form N-1A filed with the Commission on
October 31, 1991.
(h) Articles Supplementary dated December 18, 1992 to
Registrant's Articles of Incorporation dated
September 11, 1984 are incorporated herein by
reference to Exhibit (1)(h) of Post-Effective
Amendment No. 15 to the Registrant's Registration
Statement on Form N-1A filed with the Commission on
June 30, 1993.
(i) Articles Supplementary dated June 26, 1992 to
Registrant's Articles of Incorporation dated
September 11, 1984 are incorporated herein by
reference to Exhibit (1)(i) of Post-Effective
Amendment No. 16 to the Registrant's Registration
Statement on Form N-1A filed with the Commission on
August 27, 1993.
(j) Articles Supplementary dated November 8, 1993 to
Registrant's Articles of Incorporation dated
September 11, 1984 are incorporated herein by
reference to Exhibit (1)(j) of Post-Effective
Amendment No. 17 to the Registrant's Registration
Statement on Form N-1A filed with the Commission on
December 30, 1993.
(k) Articles of Transfer dated November 23, 1993 are
incorporated herein by reference to Exhibit (1)(k) of
Post-Effective Amendment No. 17 to the Registrant's
Registration Statement on Form N-1A filed with the
Commission on December 30, 1993.
(l) Articles Supplementary dated December 15, 1993 to
Registrant's Articles of Incorporation dated
September 11, 1984 are incorporated herein by
reference to Exhibit (1)(l) of Post-Effective
Amendment No. 17 to the Registrant's Registration
Statement on Form N-1A filed with the Commission on
December 30, 1993.
(m) Articles Supplementary dated April 14, 1994 to
Registrant's Articles of Incorporation dated
September 11, 1984 are incorporated herein by
C-4
<PAGE>
reference to Exhibit (1)(m) of Post-Effective
Amendment No. 21 to the Registrant's Registration
Statement on Form N-1A filed with the Commission
on October 28, 1994.
(n) Specimen certificate for Class A Common Stock Shares
is incorporated herein by reference to Exhibit (4)(a)
to Post-Effective Amendment No. 7 to the Registrant's
Registration Statement on Form N-1A filed with the
Commission on September 9, 1988.
(o) Specimen certificate for Class B Common Stock is
incorporated herein by reference to Exhibit(4)(b) to
Post-Effective Amendment No. 7 to the Registrant's
Registration Statement on Form N-1A filed with the
Commission on September 9, 1988.
(p) Specimen certificate for Class C Common Stock is
incorporated herein by reference to Exhibit (4)(c) to
Post-Effective Amendment No. 10 to the Registrant's
Registration Statement on Form N-1A filed with the
Commission on October 29, 1990.
(q) Specimen certificate for Class D Common Stock is
incorporated herein by reference to Exhibit (4)(d) to
Post-Effective Amendment No. 10 to the Registrant's
Registration Statement on Form N-1A filed with the
Commission on October 29, 1990.
(r) Specimen certificate for Class E Common Stock is
incorporated herein by reference to Exhibit (4)(e) to
Post-Effective Amendment No. 10 to the Registrant's
Registration Statement on Form N-1A filed with the
Commission October 29, 1990.
(s) Specimen copy of certificate for Class F Common Stock
is incorporated herein by reference to Exhibit (4)(f)
to Post-Effective Amendment No. 12 to the
Registrant's Registration Statement on Form N1-A
filed with the Commission on October 31, 1991.
(t) Specimen copy of share certificate for Class G Common
Stock is incorporated herein by reference to Exhibit
(4)(g) to Post-Effective Amendment No. 12 to the
Registrant's Registration Statement on Form N1-A
filed with the Commission on October 31, 1991.
(u) Specimen copy of share certificate for Class H
Common Stock is incorporated herein by reference
C-5
<PAGE>
to Exhibit (4)(h) to Post-Effective Amendment No.
12 to the Registrant's Registration Statement on
Form N-1A filed with the Commission on October 31,
1991.
(v) Specimen copy of share certificate for Class I Common
Stock is incorporated herein by reference to Exhibit
(4)(i) to Post-Effective Amendment No. 12 to the
Registrant's Registration Statement on Form N-1A
filed with the Commission on October 31, 1991.
(w) Specimen copy of share certificate for Class J Common
Stock is incorporated herein by reference to Exhibit
(4)(j) to Post-Effective Amendment No. 12 to the
Registrant's Registration Statement on Form N-1A
filed with the Commission on October 31, 1991.
(x) Specimen copy of share certificate for Class K Common
Stock is incorporated herein by reference to Exhibit
(4)(k) to Post-Effective Amendment No. 12 to the
Registrant's Registration Statement on Form N-1A
filed with the Commission on October 31, 1991.
(2) By-laws as amended, restated and adopted by Registrant's Board
of Directors on September 3, 1991 are incorporated herein by
reference to Exhibit (2) of Post-Effective Amendment No. 12 to
the Registrant's Registration Statement on Form N-1A filed
with the Commission on October 31, 1991.
(3) None.
(4) Agreement and Plan of Reorganization filed herewith as
Appendix A to the Combined Proxy Statement/Prospectus.
(5) None.
(6) (a) Investment Advisory Agreement between Registrant
and New Jersey National Bank dated August 2, 1985 is
incorporated herein by reference to Exhibit (5) of
Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A filed with the
Commission on May 22, 1985.
(b) Investment Advisory Agreement between Registrant
and CoreStates Investment Advisers, Inc. dated
June 23, 1987 is incorporated herein by reference
to Exhibit (5)(b) of Post-Effective Amendment No.
5 to the Registrant's Registration Statement on
C-6
<PAGE>
Form N-1A filed with the Commission on October 30,
1987.
(c) Investment Advisory Agreement between Registrant
and CoreStates Investment Advisers, Inc. dated
December 5, 1989 with respect to CoreFund
International Growth Fund is incorporated herein
by reference to Exhibit (5)(c) of Post-Effective
Amendment No. 9 to the Registrant's Registration
Statement on Form N-1A filed with the Commission
on September 1, 1989.
(d) Investment Advisory Agreement between Registrant
and CoreStates Investment Advisers, Inc. dated
December 5, 1989 with respect to Corefund Value
Equity Fund is incorporated herein by reference to
Exhibit (5)(d) of Post-Effective Amendment No. 9
to the Registrant's Registration Statement on Form
N-1A filed with the Commission on September 1,
1989.
(e) Sub-Investment Advisory Agreement between Registrant
and Cashman, Farrell and Associates dated December 5,
1989 is incorporated herein by reference to Exhibit
(5)(e) of Post-Effective Amendment No. 9 to the
Registrant's Registration Statement on Form N-1A
filed with the Commission on September 1, 1989.
(f) Sub-Investment Advisory Agreement between
Registrant and Martin Currie, Inc. dated December
5, 1989 is incorporated herein by reference to
Exhibit (5)(f) of Post-Effective Amendment No. 9
to the Registrant's Registration Statement on Form
N-1A filed with the Commission on September 1,
1989.
(g) Proposed Investment Advisory Agreement between
Registrant and CoreStates Investment Advisers,
Inc. with respect to CoreFund Equity Index Fund
dated March 25, 1991 is incorporated herein by
reference to Exhibit (5)(g) of Post-Effective
Amendment No. 11 to the Registrant's Registration
Statement on Form N-1A filed with the Commission
on January 24, 1991.
(h) Proposed Investment Advisory Agreement between
Registrant and CoreStates Investment Advisers,
Inc. with respect to CoreFund Growth Equity Fund
dated March 25, 1991 is incorporated herein by
reference to Exhibit (5)(h) of Post-Effective
Amendment No. 11 to the Registrant's Registration
C-7
<PAGE>
Statement on Form N-1A filed with the Commission on
January 24, 1991.
(i) Proposed Investment Advisory Agreement between
Registrant and CoreStates Investment Advisers,
Inc. with respect to CoreFund Intermediate Bond
Fund dated March 25, 1991 is incorporated herein
by reference to Exhibit (5)(i) of Post-Effective
Amendment No. 11 to the Registrant's Registration
Statement on Form N-1A filed with the Commission
on January 24, 1991.
(j) Proposed Investment Advisory Agreement between
Registrant and CoreStates Investment Advisers,
Inc. with respect to CoreFund Fiduciary Tax-Free
Reserve dated March 25, 1991 is incorporated
herein by reference to Exhibit (5)(J) of Post-
Effective Amendment No. 11 to the Registrant's
Registration Statement on Form N-1A filed with the
Commission on January 24, 1991.
(k) Proposed Investment Advisory Agreement between
Registrant and CoreStates Investment Advisers,
Inc. with respect to CoreFund Tax-Free Reserve
dated March 25, 1991 is incorporated herein by
reference to Exhibit (5)(k) of Post-Effective
Amendment No. 11 to the Registrant's Registration
Statement on Form N-1A filed with the Commission
on January 24, 1991.
(l) Proposed Investment Advisory Agreement between
Registrant and CoreStates Investment Advisers,
Inc. with respect to CoreFund Fiduciary Treasury
Reserve dated March 25, 1991 is incorporated
herein by reference to Exhibit (5)(k) of Post-
Effective Amendment No. 11 to the Registrant's
Registration Statement on Form N-1A filed with the
Commission on January 24, 1991.
(m) Investment Advisory Agreement between Registrant
and CoreStates Investment Advisers, Inc. with
respect to CoreFund Balanced Fund dated September
15, 1992 is incorporated herein by reference to
Exhibit (5)(m) of Post-Effective Amendment No. 15
to the Registrant's Registration Statement on Form
N-1A filed with the Commission on June 30, 1993.
(n) Proposed Investment Advisory Agreement between
Registrant and CoreStates Investment Advisers,
Inc. with respect to CoreFund Government Income
Fund dated March 25, 1991 is incorporated herein
by reference to Exhibit (5)(k) of Post-Effective
C-8
<PAGE>
Amendment No. 11 to the Registrant's Registration
Statement on Form N-1A filed with the Commission
on January 24, 1991.
(o) Proposed Investment Advisory Agreement between
Registrant and CoreStates Investment Advisers,
Inc. with respect to CoreFund Intermediate-Term
Municipal Fund dated March 25, 1991 is
incorporated herein by reference to Exhibit (5)(k)
of Post-Effective Amendment No. 11 to the
Registrant's Registration Statement on Form N-1A
filed with the Commission on January 24, 1991.
(p) Investment Advisory Agreement between Registrant
and CoreStates Investment Advisers, Inc. with
respect to CoreFund Global Bond Fund dated March
25, 1991 is incorporated herein by reference to
Exhibit (5)(k) of Post-Effective Amendment No. 11
to the Registrant's Registration Statement on Form
N-1A filed with the Commission on January 24,
1991.
(q) Sub-Advisory Agreement between CoreStates
Investment Advisers, Inc. and Alpha Global Fixed
Income Managers, Inc. with respect to Global Bond
Fund dated December 15, 1993 is incorporated
herein by reference to Exhibit (5)(q) of Post-
Effective Amendment No. 17 to Registrant's
Registration Statement on Form N-1A filed with the
Commission on December 30, 1993.
(r) Investment Advisory Agreement between Registrant
and CoreStates Investment Advisers, Inc. with
respect to Pennsylvania Municipal Bond Fund dated
March 25, 1991 is incorporated herein by reference
to Exhibit (5)(i) of Post-Effective Amendment No.
11 to the Registrant's Registration Statement on
Form N-1A filed with the Commission on January 24,
1991.
(s) Investment Advisory Agreement between Registrant
and CoreStates Investment Advisers, Inc. with
respect to New Jersey Municipal Bond Fund dated
March 25, 1991 is incorporated herein by reference
to Exhibit (5)(i) of Post-Effective Amendment No.
11 to the Registrant's Registration Statement on
Form N-1A filed with the Commission on January 24,
1991.
(t) Investment Advisory Agreement between Registrant
and CoreStates Investment Advisers, Inc. with
respect to CoreFund Elite Cash Reserve, CoreFund
C-9
<PAGE>
Elite Government Reserve and CoreFund Elite Treasury
Reserve dated June 21, 1994 is incorporated herein by
reference to Exhibit (5)(t) of Post-Effective
Amendment No. 21 to the Registrant's Registration
Statement on Form N-1A filed with the Commission on
October 28, 1994.
(7) (a) Distribution Agreement between Registrant and
Fairfield Group, Inc. dated as of August 2, 1985
is incorporated herein by reference to Exhibit (6)
to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A
filed with the Commission on May 22, 1985.
(b) Distribution Agreement between Registrant and SEI
Financial Services Company is incorporated herein by
reference to Exhibit (6)(b) to Post-Effective
Amendment No. 14 to the Registrant's Registration
Statement on Form N-1A filed with the Commission on
August 31, 1992.
(8) None.
(9) (a) Custodian Agreement between Registrant and First
Pennsylvania Bank n.a. dated as of July 24, 1985
is incorporated herein by reference to Exhibit (8)
to Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form N-1A
filed with the Commission on August 1, 1985.
(b) Custodian Agreement between Registrant and
Philadelphia National Bank dated May 20, 1987 is
incorporated herein by reference to Exhibit (8)(b) to
Post-Effective Amendment No. 5 to the Registrant's
Registration Statement on Form N-1A filed with the
Commission on October 30, 1987.
(10) (a) Amended Administration Agreement between
Registrant and Fairfield Group, Inc. dated as of
March 6, 1990 is incorporated herein by reference
to Exhibit (9)(a) to Post-Effective Amendment No.
12 to the Registrant's Registration Statement on
Form N-1A filed with the Commission on October 31,
1991.
(b) Administration Agreement between Registrant and SEI
Financial Management Corporation dated October 30,
1992 is incorporated herein by reference to Exhibit
(9)(e) of Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N- 1A
filed with the Securities and Exchange commission on
June 30, 1993.
C-10
<PAGE>
(c) Transfer Agency Agreement between Registrant and
First Pennsylvania Bank n.a. dated as of July 24,
1985 is incorporated herein by reference to
Exhibit (9)(b) to Post-Effective Amendment No. 2
to the Registrant's Registration Statement on Form
N-1A filed with the Commission on August 1, 1985.
(d) Amended Transfer Agency Agreement between First
Pennsylvania Bank n.a. and Fund/Plan Services,
Inc., dated December 31, 1985 is incorporated
herein by reference to Exhibit (9)(c) of Post-
Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A filed with the
Commission on February 5, 1986.
(e) Retail Transfer Agency Agreement between Registrant
and SEI Financial Management Corporation is
incorporated herein by reference to Exhibit (9)(d) of
Post-Effective Amendment No. 14 to Registrant's
Registration Statement on Form N- 1A filed with the
Commission on August 31, 1992.
(f) Transfer Agent and Shareholder Services Agreement
between Registrant and SEI Financial Management
Corporation dated March 4, 1993 is incorporated
herein by reference to Exhibit (9)(f) of
Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A filed with the
Commission on June 30, 1993.
(g) Purchase Agreement dated July 24, 1985 between
Registrant and Fairfield Group, Inc. is
incorporated herein by reference to Exhibit (13)
of Pre-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N1-A filed with the
Commission on August 1, 1985.
1(11) Opinion of counsel that shares are validly issued,
fully paid and non-assessable.
(12) Opinion of Morgan, Lewis & Bockius LLP as to tax
consequences (including consent of such firm).
(13) None.
(14) (a) Consent of Coopers & Lybrand L.L.P.
- --------
1 Filed pursuant to Rule 24f-2 as part of Registrant's Rule
24f-2 Notice.
C-11
<PAGE>
(b) Consent of Ernst & Young LLP.
(c) Consent of Drinker Biddle & Reath.
(15) None.
(16) None.
(17) (a) Declaration of the Registrant pursuant to Rule
24f-2 under the Investment Company Act of 1940.
(b) Forms of Proxy.
(c) Prospectus for Institutional Shares of Registrant's
Treasury Reserve, Cash Reserve, Tax-Free Reserve,
Intermediate Bond, Pennsylvania Municipal Bond,
Balanced, Value Equity and International Growth Funds
dated November 1, 1995.
(d) Prospectuses for Individual Shares of Registrant's
Treasury Reserve, Cash Reserve, Tax-Free Reserve,
Intermediate Bond, Pennsylvania Municipal Bond,
Balanced, Value Equity and International Growth Funds
dated November 1, 1995.
(e) Statement of Additional Information for the
Registrant's Treasury Reserve, Cash Reserve, Tax-Free
Reserve, Intermediate Bond, Pennsylvania Municipal
Bond, Balanced, Value Equity and International Growth
Funds dated November 1, 1995.
(f) Prospectus for Institutional Shares of Conestoga
Family of Funds' U.S. Treasury Securities, Cash
Management, Tax-Free, Intermediate Income,
Pennsylvania Tax-Free Bond, Balanced, Equity and
International Equity Funds dated February 21, 1995 as
supplemented November 3, 1995.
(g) Prospectus for Retail Shares of Conestoga Family of
Funds' U.S. Treasury Securities, Cash Management,
Tax-Free, Intermediate Income, Pennsylvania Tax-Free
Bond, Balanced, Equity and International Equity Funds
dated February 21, 1995 as supplemented October 5,
1995 and November 3, 1995.
(h) Statement of Additional Information for
Institutional Shares and Retail Shares of
Conestoga Family of Funds' U.S. Treasury
Securities, Cash Management, Tax-Free,
Intermediate Income, Pennsylvania Tax-Free Bond,
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<PAGE>
Balanced, Equity and International Equity Funds dated
May 1, 1995 as revised November 3, 1995.
(i) Annual Report to Shareholders for the Registrant's
Treasury Reserve, Cash Reserve, Tax-Free Reserve,
Intermediate Bond, Pennsylvania Municipal Bond,
Balanced, Value Equity and International Growth Funds
for the fiscal year ended June 30, 1995.
(j) Annual Report of Conestoga Family of Funds for the
fiscal year ended October 31, 1995.
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any
public reoffering of the securities registered through
the use of a prospectus which is a part of this
registration statement by any person or party who is
deemed to be an underwriter within the meaning of Rule
145(c) of the Securities Act of 1933, as amended, the
reoffering prospectus will contain the information
called for by the applicable registration form for
reofferings by persons who may be deemed underwriters,
in addition to the information called for by the other
items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus
that is filed under paragraph (1) above will be filed
as a part of an amendment to the registration statement
and will not be used until the amendment is effective,
and that, in determining any liability under the 1933
Act, each post-effective amendment shall be deemed to
be a new registration statement for the securities
offered therein, and the offering of the securities at
that time shall be deemed to be the initial bona fide
offering of them.
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<PAGE>
SIGNATURES
As required by the Securities Act of 1933, as amended, this registration
statement has been signed on behalf of the Registrant, in the City of Wayne,
Commonwealth of Pennsylvania on the 29th day of December, 1995.
COREFUNDS, INC.
/s/ David G. Lee
---------------------------------
David G. Lee
President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacity on the dates indicated.
/s/ David G. Lee President & Chief December 29, 1995
- -------------------- Executive Officer
David G. Lee
Director December 29, 1995
- --------------------
Erin Anderson
/s/ Emil J. Mikity Director December 29, 1995
- ---------------------
Emil J. Mikity
/s/ George H. Strong Director December 29, 1995
- ---------------------
George H. Strong
/s/ Stephen G. Meyer Controller December 29, 1995
- ---------------------
Stephen G. Meyer
/s/ Carmen V. Romeo Treasurer & Decmeber 29, 1995
- --------------------- Assistant Secretary
Carmen V. Romeo
<PAGE>
N-14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
(12) Opinion of Morgan, Lewis & Bockius LLP as to tax
consequences (including consent of such firm).
(14)(a) Consent of Coopers & Lybrand L.L.P.
(14)(b) Consent of Ernst & Young LLP.
(14)(c) Consent of Drinker Biddle & Reath.
(17)(a) Declaration of the Registrant pursuant
to Rule 24f-2 under the Investment
Company Act of 1940.
(17)(b) Form of Proxy.
(17)(c) Prospectus for Institutional
Shares of Registrant's Treasury
Reserve, Cash Reserve, Tax-Free
Reserve, Intermediate Bond,
Pennsylvania Municipal Bond,
Balanced, Value Equity and
International Growth Funds
dated November 1, 1995.
(17)(d) Prospectuses for Individual
Shares of Registrant's Treasury
Reserve, Cash Reserve, Tax-Free
Reserve, Intermediate Bond,
Pennsylvania Municipal Bond,
Balanced, Value Equity and
International Growth Funds
dated November 1, 1995.
(17)(e) Statement of Additional
Information for the
Registrant's Treasury Reserve,
Cash Reserve, Tax-Free Reserve,
Intermediate Bond, Pennsylvania
Municipal Bond, Balanced, Value
Equity and International Growth
Funds dated November 1, 1995.
</TABLE>
C-14
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<TABLE>
<S> <C> <C>
(17)(f) Prospectus for Institutional
Shares of Conestoga Family of
Funds' U.S. Treasury
Securities, Cash Management,
Tax-Free, Intermediate Income,
Pennsylvania Tax-Free Bond,
Balanced, Equity and
International Equity Funds
dated February 21, 1995 as
supplemented November 3, 1995.
(17)(g) Prospectus for Retail Shares of
Conestoga Family of Funds' U.S.
Treasury Securities, Cash
Management, Tax-Free,
Intermediate Income,
Pennsylvania Tax-Free Bond,
Balanced, Equity and
International Equity Funds
dated February 21, 1995 as
supplemented October 5, 1995
and November 3, 1995.
(17)(h) Statement of Additional
Information for Institutional
Shares and Retail Shares of
Conestoga Family of Funds' U.S.
Treasury Securities, Cash
Management, Tax-Free,
Intermediate Income,
Pennsylvania Tax-Free Bond,
Balanced, Equity and
International Equity Funds
dated May 1, 1995 as revised
November 3, 1995.
(17)(i) Annual Report to Shareholders
for the Registrant's Treasury
Reserve, Cash Reserve, Tax-Free
Reserve, Intermediate Bond,
Pennsylvania Municipal Bond,
Balanced, Value Equity and
International Growth Funds for
the fiscal year ended June 30,
1995.
(17)(j) Annual Report of Conestoga
Family of Funds for the fiscal
year ended October 31, 1995.
</TABLE>
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<PAGE>
December 29, 1995
CoreFunds, Inc.
Conestoga Family of Funds
680 East Swedesford Road
Wayne, PA 19087-1658
Gentlemen:
This opinion is being delivered to you in connection with the Agreement and Plan
of Reorganization dated ___________, ____, by and between CoreFunds, Inc.
("CoreFunds") and Conestoga Family of Funds ("Conestoga") (the "Agreement").
Each of CoreFunds and Conestoga have several investment portfolios (each a
"Portfolio"). Each Portfolio is taxable as a regulated investment company under
subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Pursuant to the Agreement, eleven separate Conestoga Portfolios will be acquired
by CoreFunds in the following manner: (1) each of eight Conestoga Portfolios
will transfer all of their assets and liabilities to eight similar CoreFunds
Portfolios in exchange for shares of the CoreFunds Portfolios; (2) each of three
Conestoga Portfolios will transfer all of their assets and liabilities to three
newly created CoreFunds Portfolios which have been organized to continue the
operations of the Conestoga Portfolios in exchange for shares of the newly
created CoreFunds Portfolios ("CoreFunds Portfolio Shares"); (3) each of the
eleven Conestoga Portfolios will then distribute the CoreFunds shares received
to their respective shareholders in liquidation of their Conestoga Portfolio
Shares ("Conestoga Portfolio Shares"); and (4) each of the eleven Conestoga
Portfolios will be terminated under state law (each such transfer and
distribution shall be referred to herein as a "Reorganization").
Except as otherwise provided, capitalized terms referred to herein have the
meanings set forth in the Agreement. All section references, unless otherwise
indicated, are to the Code.
<PAGE>
CoreFunds, Inc.
Conestoga Family of Funds
December 29, 1995
Page 2
We have acted as legal counsel to CoreFunds and each of the Portfolios in
connection with the Reorganization. As such, and for the purpose of rendering
this opinion, we have examined and are relying upon (without any independent
investigation or review thereof) the truth and accuracy, at all relevant times,
of the statements, covenants, representations and warranties contained in the
following documents:
A. The Agreement;
B. The Registration Statement on Form N-14 (File No.
- - ), including the Joint Proxy Statement/Prospectus included
therein (the "Registration Statement"); and
C. Such other instruments and documents related to
the formation, organization and operation of the Conestoga Portfolios and the
CoreFunds Portfolios or to the consummation of the Reorganization and the
transactions contemplated thereby as we have deemed necessary or appropriate.
In preparing our opinion we have reviewed such federal income tax authority as
we deemed relevant under the circumstances. Further, for purposes of this
opinion, we have assumed, with your permission and without independent
investigation, the following:
1. Original documents (including signatures) are
authentic, documents submitted to us as copies conform to the original
documents, and there has been (or will be by the Effective Time of the
Reorganization) due execution and delivery of all documents where due execution
and delivery are prerequisites to effectiveness thereof.
2. With respect to each Reorganization, the total
fair market value of the CoreFunds Portfolio Shares received by Conestoga
Portfolio shareholders will be approximately equal to the fair market value of
the Conestoga Portfolio Shares surrendered in exchange thereof.
3. Each CoreFunds Portfolio will acquire at least 90%
of the fair market value of the net assets and at least 70% of the fair market
value of the gross assets held by the corresponding Conestoga Portfolio
immediately prior to the Reorganization.
<PAGE>
CoreFunds, Inc.
Conestoga Family of Funds
December 29, 1995
Page 3
4. With respect to each Reorganization, to the best
knowledge of the management of the Conestoga Portfolio, there is no plan or
intention on the part of the Conestoga Portfolio shareholders to sell, exchange,
or otherwise dispose of a number of CoreFunds Portfolio Shares received in the
Reorganization that would reduce the Conestoga Portfolio shareholders' ownership
of CoreFunds Portfolio Shares to a number of shares having a value, as of the
date of the Reorganization, of less than 50 percent of the value of the formerly
outstanding Conestoga Portfolio Shares as of the same date.
5. Each of the CoreFunds Portfolios has no plan or
intention to reacquire any of the CoreFunds Portfolio Shares issued in the
Reorganization or to make any extraordinary distribution in respect of its
capital stock.
6. With respect to each Reorganization, the CoreFunds
Portfolio has no plan or intention to sell or otherwise dispose of any of the
assets of the Conestoga Portfolio acquired in the transaction, except for
dispositions made in the ordinary course of business or transfers described in
section 368(a)(2)(C) of the Internal Revenue Code.
7. Each of the Conestoga Portfolios will distribute
the stock, securities and other property it receives in the transaction, and
its other properties, in pursuance of the plan of reorganization.
8. With respect to each Reorganization, any
liabilities of the Conestoga Portfolio assumed by the CoreFunds Portfolio as a
result of the Reorganization and the liabilities to which the transferred assets
of the Conestoga Portfolio are subject were incurred by the Conestoga Portfolio
in the ordinary course of its business.
9. Following the Reorganization, each CoreFunds
Portfolio will continue the historic business of the corresponding Conestoga
Portfolio or use a significant portion of the Conestoga Portfolios' historic
business assets in a business.
10. Each of the CoreFunds Portfolios, the Conestoga
Portfolios, and the Conestoga Portfolios' shareholders will pay their respective
expenses, if any, incurred in connection with the transaction.
<PAGE>
CoreFunds, Inc.
Conestoga Family of Funds
December 29, 1995
Page 4
11. There is no intercorporate indebtedness existing
between any of the Conestoga Portfolios, on the one hand, and the CoreFunds
Portfolios, on the other hand, that was issued, acquired or will be settled at a
discount.
12. None of the Conestoga Portfolios is under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
13. None of the CoreFunds Portfolios own, directly or
indirectly, nor has any owned during the past five years, directly or
indirectly, any stock of the Conestoga Portfolios.
14. With respect to each Reorganization, the fair
market value of the assets of the Conestoga Portfolio transferred to the
CoreFunds Portfolio will equal or exceed the sum of any liabilities assumed by
the CoreFunds Portfolio, plus the amount of liabilities, if any, to which the
transferred assets are subject.
Based on the foregoing items and subject to the assumptions,
exceptions, limitations and qualifications set forth herein, we are of the
opinion that, with respect to each Reorganization, for federal income tax
purposes:
A. The Reorganization will constitute a
"reorganization" within the meaning of Section 368(a) of the Code
and each of the Conestoga Portfolio and the CoreFunds Portfolio
will be considered a party to a reorganization within the meaning
of Section 368(b) of the Code;
B. No gain or loss will be recognized by the
Conestoga Portfolio or the CoreFunds Portfolio as a result of the
Reorganization;
C. No gain or loss will be recognized to the
Conestoga Portfolio shareholders upon receipt of CoreFunds
Portfolio Shares in liquidation of their Conestoga Portfolio
Shares pursuant to the Reorganization;
D. To the extent that they hold their Conestoga
Portfolio Shares as capital assets, the Conestoga Portfolio
shareholders receiving CoreFunds Portfolio Shares pursuant to to the
<PAGE>
CoreFunds, Inc.
Conestoga Family of Funds
December 29, 1995
Page 5
Reorganization will include their holding period for the Conestoga Portfolio
Shares in computing their holding periods for such CoreFunds Portfolio Shares;
E. The holding period of the assets acquired by the
CoreFunds Portfolio will include the period for which such assets
were held by the Conestoga Portfolio;
F. The tax basis of the CoreFunds Portfolio Shares
received by the Conestoga Portfolio shareholders in the
Reorganization will be the same as the tax basis such
shareholders had in their Conestoga Portfolio Shares prior to the
Reorganization; and
G. The tax basis of the Conestoga Portfolio assets
received by the CoreFunds Portfolio will be the same as the basis
such assets had in the hands of the Conestoga Portfolio
immediately prior to the Reorganization.
In addition to the assumptions set forth above, this opinion is subject to the
exceptions, limitations and qualifications set forth below.
1. This opinion represents and is based upon our best
judgment regarding the application of federal income tax laws arising under the
Code, existing judicial decisions, administrative regulations and published
rulings and procedures. Our opinion is not binding upon the Internal Revenue
Service or the courts, and there is no assurance that the Internal Revenue
Service will not assert a contrary position. Furthermore, no assurance can be
given that future legislative, judicial or administrative changes, on either a
prospective or retroactive basis, will not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
2. No opinion is expressed as to any transaction
other than the Reorganization as described in the Agreement or to any
transaction whatsoever, including the Reorganization, if all the transactions
described in the Agreement are not consummated in accordance with the terms of
such Agreement and without waiver or breach of any material provision thereof or
if all of the representations, warranties, statements and assumptions upon
<PAGE>
CoreFunds, Inc.
Conestoga Family of Funds
December 29, 1995
Page 6
which we relied are not true and accurate at all relevant times. In the event
any one of the statements, representations, warranties or assumptions upon which
we have relied to issue this opinion is incorrect, our opinion might be
adversely affected and may not be relied upon.
3. This opinion has been delivered to you for the
purpose of complying with Securities and Exchange Commission requirements
relating to the offering of the CoreFunds Portfolio Shares.
We consent to the use of this opinion as an exhibit to the Registration
Statement to register the CoreFunds Portfolio Shares to be issued to the
Conestoga Portfolio shareholders in connection with the Reorganization, and
further consent to the use of our name wherever appearing in the Registration
Statement, including the Prospectus constituting a part thereof, and any
amendment thereto. In giving such opinion, we do not thereby admit that we are
acting within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules or regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
Morgan, Lewis & Bockius LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the following with respect to the Registration Statement on Form
N-14 under the Securities Act of 1933 of CoreFunds, Inc. with respect to the
transfer of substantially all assets and liabilities of the Cash Management,
Tax-Free, U.S. Treasury Securities, Equity, Intermediate Income, Pennsylvania
Tax-Free Bond, Balanced, International Equity, Special Equity, Bond and
Short-Term Income Funds of The Conestoga Funds to the Cash Reserve, Tax-Free,
Treasury, Value Equity, Intermediate Bond, Pennsylvania Municipal Bond,
Balanced, International Growth, Special Equity, Bond and Short-Term Income Funds
of CoreFunds, Inc.:
1. The inclusion of our report dated December 8, 1995
accompanying the financial statements of The Conestoga Funds
in the Statement of Additional Information related to the
Combined Proxy Statement/Prospectus.
2. The reference to our firm under the heading "Financial
Statements" in the aforementioned Combined Proxy
Statement/Prospectus.
COOPERS & LYBRAND L.L.P.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 29, 1995
Consent of Independent Auditors
We consent to the references to our firm under the caption "Financial
Statements" of the Value Equity Fund, International Growth Fund, Balanced Fund,
Cash Reserve Fund, Treasury Reserve Fund, Intermediate Bond Fund, Pennsylvania
Municipal Bond Fund, and Tax-Free Reserve Fund and to the use of our reports
dated August 14, 1995, in this Registration Statement (Form N-14) and related
Prospectuses of CoreFunds, Inc., which are incorporated by reference in
CoreFunds' Post-Effective Amendment No. 23 to the Registration Statement (Form
N-1A No. 33-93214) filed with the Securities and Exchange Commission on
October 27, 1995.
/s/ ERNST & YOUNG LLP
---------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
December 28, 1995
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our
Firm included in the Registration Statement on Form N-14 under the Securities
Act of 1933 and the Investment Company Act of 1940, respectively. However, this
action does not constitute a consent under Section 7 of the Securities Act of
1933, because we have not certified any part of the Registration Statement and
do not otherwise come within the categories of persons whose consent is required
under Section 7 or under the rules and regulations of the Securities and
Exchange Commission thereunder.
/s/ DRINKER BIDDLE & REATH
--------------------------
DRINKER BIDDLE & REATH
Philadelphia, Pennsylvania
December 28, 1995
<PAGE>
As filed with the Securities and Exchange Commission on September 11, 1984
Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 x
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 x
OMNI CASH RESERVE FUND, INC.
(Exact Name of Registrant as Specified in Charter)
232 Lakeside Drive
Horsham, PA 19044
(Address of Principal Executive Offices)
Registrant's Telephone Number:
(215) 443-7850
MARTIN E. LYBECKER, ESQ.
Drinker Biddle & Reath
1752 N. Street, N.W.
Suite 500
Washington, D.C. 20036
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after
the Effective Date of the Registration Statement.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
Proposed
Title of Maximum
Securities Amount Offering Amount of
Being Being Price Per Registration
Registered Registered Share Fee
<S> <C> <C> <C>
Common Shares Indefinite $1.00 $500*
($.001 par value)
</TABLE>
*Pursuant to the provisions of Rule 24f-2 under the Investment Company Act of
1940, Registrant hereby elects to register an indefinite number of Common
Shares.
Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
August 25, 1995
Securities & Exchange Commission
450 Fifth Street, NW
Judiciary Plaza
Washington, DC 20549
RE: Rule 24f-2 Notice for CoreFunds, Inc. (the "Fund")
SEC File No. 2-93214
Gentlemen:
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, you are hereby
notified as follows:
(i) the fiscal year of the Fund for which this Notice is filed is
the year-ended June 30, 1995.
(ii) the number of securities of the same class of the Fund which
had been registered under the Securities Act of 1933 other
than pursuant to Rule 24f-2 which remained unsold at the
beginning of such fiscal year was: 0.
(iii) the number of securities of the Fund registered during such
fiscal year other than pursuant to Rule 24f-2 was: 0.
(iv) the number of securities of the Fund sold during such fiscal
year was: 4,109,787,249.
(v) the number of securities of the Fund sold during such fiscal
year in reliance upon registration pursuant to Rule 24f-2 was:
4,109,787,249.
This Notice is accompanied by an opinion of counsel as to whether the
securities, the registration of which this Notice makes definite in number, were
legally issued, fully paid and non-assessable and a certified check for the
filing fee as required by paragraphs (b)(l)(v) and (c), respectively, of Rule
24f-2.
<PAGE>
Page 2
Corefunds Inc
August 25, 1995
*Pursuant to Rule 24f-2(c) the filing fee accompanying this Notice
was calculated as follows:
(a) actual aggregate sale price of
securities sold pursuant to
Rule 24f-2 during fiscal year
(paragraph (v) above): $4,226,450,013
(b) reduced by the difference
between:
(1) the actual aggregate re-
demption price of
securities of the Trust
redeemed by the Trust
during such fiscal year; $4,178,254,942
and
(2) the actual aggregate re-
demption price of such
redeemed securities
previously applied pursuant
to Rules 24e-2(a) and 24e-1
of the Act; $ 0
Net Redemptions $ 48,195,071
Fee calculated pursuant to Section 6(b) of
the Securities Act of 1933: $ 16,618.99
--------------
The above fee was sent to the SEC's acct at Mellon Bank on 8/24/95.
Very truly yours,
By: ____________________
Stephen G Meyer
Controller
<PAGE>
Auqust 25, 1995
Securities & Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, DC 20549
Gentlemen:
CoreFunds, Inc. (the "Fund") was organized under the laws of the State of
Maryland with its principal place of business in Wayne, Pennsylvania. The Fund
is about to file a Rule 24f-2 Notice pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended, for the purpose of making definite the number
of shares ("Shares") which it has registered under the Securities Act of 1933,
as amended, and which it sold during its fiscal year ended June 30, 1995.
As counsel to SEI Financial Services Company, I have examined copies, either
certified or otherwise proved to be genuine, of the Fund's Articles of
Incorporation and By-Laws, as now in effect, and such minutes of meetings of its
Directors and other documents relating to the Fund's organization and operation,
as I have deemed necessary in rendering this opinion. I have been advised that
during its fiscal year ended June 30, 1995, the Fund sold 4,109,787,249 Shares
at an aggregate sales price of $4,226,450,013 and redeemed 4,098,807,741 Shares
having an aggregate redemption price of $4,178,254,942. Based upon the
foreqoinq, it is my opinion that:
1. At all times during the fiscal year, the fund was authorized to
issue a total of $10 Billion shares of common stock, par value
$0.001 per share.
2. The 4,109,787,249 Shares sold during the Fund's fiscal year
ended June 30, 1995, the registration of which will be made
definite by the filing of a Rule 24f-2 Notice, were legally
issued, fully paid and non-assessable. I express no legal
opinion with respect to compliance with the Securities Act of
1933, the Investment Company Act of 1940 or applicable state
securities laws in connection with the sale of such Shares.
<PAGE>
Page 2
Corefunds Inc
August 25, 1995
I hereby consent to this opinion accompanying the Rule 24f-2 Notice which the
Fund is about to file with the Securities and Exchange Commission.
Very truly yours,
______________________
Kevin Robins, Esquire
<PAGE>
[PRELIMINARY COPY]
PROXY
CONESTOGA FAMILY OF FUNDS
U.S. TREASURY SECURITIES FUND
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of CONESTOGA FAMILY OF
FUNDS (the "Company") for use at a Meeting of Shareholders to be held at The
Wilmington Hilton, 630 Naamans Road, Wilmington, Delaware on March 22, 1996 at
10:00 a.m.
The undersigned hereby appoints Sandra A. Oechslin and Kevin P. Robins,
and each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest, evidencing interests in the U.S.
Treasury Securities Fund (the "Fund"), held of record by the undersigned on
January 26, 1996, the record date for the meeting, upon the following matters
and upon any other matter which may come before the meeting, in their
discretion:
FOR AGAINST ABSTAIN
/ / / / / /
1. Proposal to approve an Agreement and Plan of
Reorganization and the transactions contemplated
thereby, including the transfer of substantially all
of the assets of the Company's U.S. Treasury
Securities Fund (the "Reorganizing Portfolio") to
CoreFunds Treasury Reserve (the "Existing CoreFunds
Portfolio") in exchange for shares of the Existing
CoreFunds Portfolio, the distribution of the
Existing CoreFunds Portfolio's shares so received to
shareholders of the Reorganizing Portfolio, the
approval of an interim investment advisory agreement
with Meridian Investment Company (or its successor)
if the Merger of Meridian Bancorp, Inc. and
CoreStates Financial Corp occurs before the proposed
reorganization, and the termination of the Company's
<PAGE>
existence under state law and the Investment Company
Act of 1940, as amended.
2. In their discretion, the proxies are authorized to
vote upon such other business as may properly come
before the meeting.
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
Please sign exactly as name appears hereon. When
shares are held by joint tenants, both should sign.
When signing as attorney or as executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by president or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
Dated: __________________________________
X________________________________________
Signature
X_______________________________________
Signature, if held jointly
-2-
<PAGE>
[PRELIMINARY COPY]
PROXY
CONESTOGA FAMILY OF FUNDS
CASH MANAGEMENT FUND
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of CONESTOGA FAMILY OF
FUNDS (the "Company") for use at a Meeting of Shareholders to be held at The
Wilmington Hilton, 630 Naamans Road, Wilmington, Delaware on March 22, 1996 at
10:00 a.m.
The undersigned hereby appoints Sandra A. Oechslin and Kevin P. Robins,
and each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest, evidencing interests in the Cash
Management Fund (the "Fund"), held of record by the undersigned on January 26,
1996, the record date for the meeting, upon the following matters and upon any
other matter which may come before the meeting, in their discretion:
FOR AGAINST ABSTAIN
/ / / / / /
1. Proposal to approve an Agreement and Plan of Reorganization
and the transactions contemplated thereby, including the
transfer of substantially all of the assets of the
Company's Cash Management Fund (the "Reorganizing
Portfolio") to CoreFunds Cash Reserve (the "Existing
CoreFunds Portfolio") in exchange for shares of the
Existing CoreFunds Portfolio, the distribution of the
Existing CoreFunds Portfolio's shares so received to
shareholders of the Reorganizing Portfolio, the approval of
an interim investment advisory agreement with Meridian
Investment Company (or its successor) if the Merger of
Meridian Bancorp, Inc. and CoreStates Financial Corp occurs
before the proposed reorganization, and the termination of
the Company's
<PAGE>
existence under state law and the Investment Company Act of
1940, as amended.
2. In their discretion, the proxies are authorized to vote
upon such other business as may properly come before the
meeting.
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE.
Please sign exactly as name appears hereon. When shares are
held by joint tenants, both should sign. When signing as
attorney or as executor, administrator, trustee or
guardian, please give full title as such. If a corporation,
please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in
partnership name by authorized person.
Dated: __________________________________
X________________________________________
Signature
X_______________________________________
Signature, if held jointly
-2-
<PAGE>
[PRELIMINARY COPY]
PROXY
CONESTOGA FAMILY OF FUNDS
TAX-FREE FUND
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of CONESTOGA FAMILY OF
FUNDS (the "Company") for use at a Meeting of Shareholders to be held at The
Wilmington Hilton, 630 Naamans Road, Wilmington, Delaware on March 22, 1996 at
10:00 a.m.
The undersigned hereby appoints Sandra A. Oechslin and Kevin P. Robins,
and each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest, evidencing interests in the Tax-Free
Fund (the "Fund"), held of record by the undersigned on January 26, 1996, the
record date for the meeting, upon the following matters and upon any other
matter which may come before the meeting, in their discretion:
FOR AGAINST ABSTAIN
/ / / / / /
1. Proposal to approve an Agreement and Plan of
Reorganization and the transactions contemplated
thereby, including the transfer of substantially all
of the assets of the Company's Tax-Free Fund (the
"Reorganizing Portfolio") to CoreFunds Tax-Free
Reserve (the "Existing CoreFunds Portfolio") in
exchange for shares of the Existing CoreFunds
Portfolio, the distribution of the Existing
CoreFunds Portfolio's shares so received to
shareholders of the Reorganizing Portfolio, the
approval of an interim investment advisory agreement
with Meridian Investment Company (or its successor)
if the Merger of Meridian Bancorp, Inc. and
CoreStates Financial Corp occurs before the proposed
reorganization, and the termination of the Company's
<PAGE>
existence under state law and the Investment Company
Act of 1940, as amended.
2. In their discretion, the proxies are authorized to
vote upon such other business as may properly come
before the meeting.
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
Please sign exactly as name appears hereon. When
shares are held by joint tenants, both should sign.
When signing as attorney or as executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by president or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
Dated: __________________________________
X________________________________________
Signature
X_______________________________________
Signature, if held jointly
-2-
<PAGE>
[PRELIMINARY COPY]
PROXY
CONESTOGA FAMILY OF FUNDS
EQUITY FUND
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of CONESTOGA FAMILY OF
FUNDS (the "Company") for use at a Meeting of Shareholders to be held at The
Wilmington Hilton, 630 Naamans Road, Wilmington, Delaware on March 22, 1996 at
10:00 a.m.
The undersigned hereby appoints Sandra A. Oechslin and Kevin P. Robins,
and each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest, evidencing interests in the Equity
Fund (the "Fund"), held of record by the undersigned on January 26, 1996, the
record date for the meeting, upon the following matters and upon any other
matter which may come before the meeting, in their discretion:
FOR AGAINST ABSTAIN
/ / / / / /
1. Proposal to approve an Agreement and Plan of
Reorganization and the transactions contemplated
thereby, including the transfer of substantially all
of the assets of the Company's Equity Fund (the
"Reorganizing Portfolio") to CoreFunds Value Equity
Fund (the "Existing CoreFunds Portfolio") in
exchange for shares of the Existing CoreFunds
Portfolio, the distribution of the Existing
CoreFunds Portfolio's shares so received to
shareholders of the Reorganizing Portfolio, the
approval of an interim investment advisory agreement
with Meridian Investment Company (or its successor)
if the Merger of Meridian Bancorp, Inc. and
CoreStates Financial Corp occurs before the proposed
reorganization, and the termination of the Company's
<PAGE>
existence under state law and the Investment Company
Act of 1940, as amended.
2. In their discretion, the proxies are authorized to
vote upon such other business as may properly come
before the meeting.
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
Please sign exactly as name appears hereon. When
shares are held by joint tenants, both should sign.
When signing as attorney or as executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by president or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
Dated: __________________________________
X________________________________________
Signature
X_______________________________________
Signature, if held jointly
-2-
<PAGE>
[PRELIMINARY COPY]
PROXY
CONESTOGA FAMILY OF FUNDS
INTERMEDIATE INCOME FUND
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of CONESTOGA FAMILY OF
FUNDS (the "Company") for use at a Meeting of Shareholders to be held at The
Wilmington Hilton, 630 Naamans Road, Wilmington, Delaware on March 22, 1996 at
10:00 a.m.
The undersigned hereby appoints Sandra A. Oechslin and Kevin P. Robins,
and each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest, evidencing interests in the
Intermediate Income Fund (the "Fund"), held of record by the undersigned on
January 26, 1996, the record date for the meeting, upon the following matters
and upon any other matter which may come before the meeting, in their
discretion:
FOR AGAINST ABSTAIN
/ / / / / /
1. Proposal to approve an Agreement and Plan of
Reorganization and the transactions contemplated
thereby, including the transfer of substantially all
of the assets of the Company's Intermediate Income
Fund (the "Reorganizing Portfolio") to CoreFunds
Intermediate Bond Fund (the "Existing CoreFunds
Portfolio") in exchange for shares of the Existing
CoreFunds Portfolio, the distribution of the
Existing CoreFunds Portfolio's shares so received to
shareholders of the Reorganizing Portfolio, the
approval of an interim investment advisory agreement
with Meridian Investment Company (or its successor)
if the Merger of Meridian Bancorp, Inc. and
CoreStates Financial Corp occurs before the proposed
reorganization, and the
<PAGE>
termination of the Company's existence under state
law and the Investment Company Act of 1940, as
amended.
2. In their discretion, the proxies are authorized to
vote upon such other business as may properly come
before the meeting.
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
Please sign exactly as name appears hereon. When
shares are held by joint tenants, both should sign.
When signing as attorney or as executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by president or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
Dated: __________________________________
X________________________________________
Signature
X_______________________________________
Signature, if held jointly
-2-
<PAGE>
[PRELIMINARY COPY]
PROXY
CONESTOGA FAMILY OF FUNDS
PENNSYLVANIA TAX-FREE BOND FUND
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of CONESTOGA FAMILY OF
FUNDS (the "Company") for use at a Meeting of Shareholders to be held at The
Wilmington Hilton, 630 Naamans Road, Wilmington, Delaware on March 22, 1996 at
10:00 a.m.
The undersigned hereby appoints Sandra A. Oechslin and Kevin P. Robins,
and each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest, evidencing interests in the
Pennsylvania Tax-Free Bond Fund (the "Fund"), held of record by the undersigned
on January 26, 1996, the record date for the meeting, upon the following matters
and upon any other matter which may come before the meeting, in their
discretion:
FOR AGAINST ABSTAIN
/ / / / / /
1. Proposal to approve an Agreement and Plan of
Reorganization and the transactions contemplated
thereby, including the transfer of substantially all
of the assets of the Company's Pennsylvania Tax-Free
Bond Fund (the "Reorganizing Portfolio") to
CoreFunds Pennsylvania Municipal Bond Fund (the
"Existing CoreFunds Portfolio") in exchange for
shares of the Existing CoreFunds Portfolio, the
distribution of the Existing CoreFunds Portfolio's
shares so received to shareholders of the
Reorganizing Portfolio, the approval of an interim
investment advisory agreement with Meridian
Investment Company (or its successor) if the Merger
of Meridian Bancorp, Inc. and CoreStates Financial
Corp occurs before the proposed reorganization, and
the
<PAGE>
termination of the Company's existence under state
law and the Investment Company Act of 1940, as
amended.
2. In their discretion, the proxies are authorized to
vote upon such other business as may properly come
before the meeting.
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
Please sign exactly as name appears hereon. When
shares are held by joint tenants, both should sign.
When signing as attorney or as executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by president or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
Dated: __________________________________
X________________________________________
Signature
X_______________________________________
Signature, if held jointly
-2-
<PAGE>
[PRELIMINARY COPY]
PROXY
CONESTOGA FAMILY OF FUNDS
BALANCED FUND
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of CONESTOGA FAMILY OF
FUNDS (the "Company") for use at a Meeting of Shareholders to be held at The
Wilmington Hilton, 630 Naamans Road, Wilmington, Delaware on March 22, 1996 at
10:00 a.m.
The undersigned hereby appoints Sandra A. Oechslin and Kevin P. Robins,
and each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest, evidencing interests in the Balanced
Fund (the "Fund"), held of record by the undersigned on January 26, 1996, the
record date for the meeting, upon the following matters and upon any other
matter which may come before the meeting, in their discretion:
FOR AGAINST ABSTAIN
/ / / / / /
1. Proposal to approve an Agreement and Plan of
Reorganization and the transactions contemplated
thereby, including the transfer of substantially all
of the assets of the Company's Balanced Fund (the
"Reorganizing Portfolio") to CoreFunds Balanced Fund
(the "Existing CoreFunds Portfolio") in exchange for
shares of the Existing CoreFunds Portfolio, the
distribution of the Existing CoreFunds Portfolio's
shares so received to shareholders of the
Reorganizing Portfolio, the approval of an interim
investment advisory agreement with Meridian
Investment Company (or its successor) if the Merger
of Meridian Bancorp, Inc. and CoreStates Financial
Corp occurs before the proposed reorganization, and
the termination of the Company's
<PAGE>
existence under state law and the Investment Company
Act of 1940, as amended.
2. In their discretion, the proxies are authorized to
vote upon such other business as may properly come
before the meeting.
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
Please sign exactly as name appears hereon. When
shares are held by joint tenants, both should sign.
When signing as attorney or as executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by president or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
Dated: __________________________________
X________________________________________
Signature
X_______________________________________
Signature, if held jointly
-2-
<PAGE>
[PRELIMINARY COPY]
PROXY
CONESTOGA FAMILY OF FUNDS
INTERNATIONAL EQUITY FUND
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of CONESTOGA FAMILY OF
FUNDS (the "Company") for use at a Meeting of Shareholders to be held at The
Wilmington Hilton, 630 Naamans Road, Wilmington, Delaware on March 22, 1996 at
10:00 a.m.
The undersigned hereby appoints Sandra A. Oechslin and Kevin P. Robins,
and each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest, evidencing interests in the
International Equity Fund (the "Fund"), held of record by the undersigned on
January 26, 1996, the record date for the meeting, upon the following matters
and upon any other matter which may come before the meeting, in their
discretion:
FOR AGAINST ABSTAIN
/ / / / / /
1. Proposal to approve an Agreement and Plan of
Reorganization and the transactions contemplated
thereby, including the transfer of substantially all
of the assets of the Company's International Fund
(the "Reorganizing Portfolio") to CoreFunds
International Growth Fund (the "Existing CoreFunds
Portfolio") in exchange for shares of the Existing
CoreFunds Portfolio, the distribution of the
Existing CoreFunds Portfolio's shares so received to
shareholders of the Reorganizing Portfolio, the
approval of an interim investment advisory agreement
with Meridian Investment Company (or its successor)
and an interim sub- advisory agreement with Marvin
and Palmer Associates, Inc. if the Merger of
Meridian Bancorp,
<PAGE>
Inc. and CoreStates Financial Corp occurs before the
proposed reorganization, and the termination of the
Company's existence under state law and the
Investment Company Act of 1940, as amended.
2. In their discretion, the proxies are authorized to
vote upon such other business as may properly come
before the meeting.
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
Please sign exactly as name appears hereon. When
shares are held by joint tenants, both should sign.
When signing as attorney or as executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by president or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
Dated: __________________________________
X________________________________________
Signature
X_______________________________________
Signature, if held jointly
-2-
<PAGE>
COREFUND
FAMILY OF
MUTUAL FUNDS
PROSPECTUS
COREFUNDS, INC.
NOVEMBER 1, 1995
SERIES A-INSTITUTIONAL
CoreFunds, Inc. is an open-end management investment company presently
offering shares in seventeen diversified and
non-diversified portfolios that offer a variety of investment opportunities.
These portfolios are managed by CoreStates Investment Advisers, Inc. This
Prospectus relates to Series A Shares in fourteen portfolios, including
equity, fixed income, and money market portfolios (the "Funds").
This Prospectus gives you information about the Funds that you should
be aware of before investing. Additional information about the Funds,
contained in a Statement of Additional Information dated November 1, 1995,
has been filed with the Securities and Exchange Commission. It is
incorporated in this Prospectus by reference. To obtain a copy without
charge, call or write:
CoreFunds, Inc.
680 East Swedesford Road
Wayne, PA 19087
1-800-355-CORE
Keep this Prospectus for future reference.
SHARES IN THE FUNDS ARE NOT OBLIGATIONS, DEPOSITS, OR ACCOUNTS OF, OR GUARANTEED
OR ENDORSED BY, CORESTATES BANK, N.A., THE
PARENT CORPORATION OF EACH FUND'S INVESTMENT ADVISER, OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
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.
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS /X/ COREFUND
<TABLE>
<S> <C>
Transaction and Operating
Expense Tables...................................... 3
Financial Highlights.................................. 7
Highlights............................................ 10
</TABLE>
_____________________ FUNDAMENTALS OF MUTUAL FUND INVESTING ____________________
<TABLE>
<S> <C>
Types of Investment Vehicles.......................... 13
How to Invest in Stocks, Bonds and Money Market
Instruments......................................... 15
Developing Your Investment Strategy................... 20
</TABLE>
___________________________ INFORMATION ON THE FUNDS ___________________________
<TABLE>
<S> <C>
Investment Objectives of the Funds.................... 24
Equity Funds..................................... 24
Fixed Income Funds............................... 24
Money Market Funds............................... 25
Investment Policies................................... 25
Equity Funds..................................... 25
Fixed Income Funds............................... 29
Money Market Funds............................... 32
Other Investment Practices
of the Funds.................................. 34
Types of Securities in Which the Funds Invest......... 38
Equity Funds..................................... 38
Taxable Fixed Income Funds....................... 38
Taxable Money Market Funds....................... 40
Tax-Free Fixed Income and Money
Market Funds.................................. 41
Temporary Investments............................ 43
Investment Restrictions............................... 44
Investor Considerations............................... 46
Investment Suitability........................... 46
Investment Risks................................. 48
Distributions......................................... 51
Taxes................................................. 52
Valuation of Shares................................... 55
Net Asset Value.................................. 55
Portfolio Pricing................................ 56
Management............................................ 57
Investment Adviser, Sub-Advisers................. 57
Fund Managers.................................... 59
Administrator.................................... 61
Distributor...................................... 61
Performance Information............................... 62
Total Return and Yield........................... 62
In General....................................... 63
How to Purchase and Redeem Shares..................... 63
Purchase of Shares............................... 63
Redemption of Shares............................. 64
Description of Shares................................. 65
General Information................................... 66
Description of Ratings................................ 66
Description of Municipal and Bond Ratings........ 66
Description of Municipal
Note Ratings.................................. 68
</TABLE>
<TABLE>
<S> <C> <C>
No person is authorized by CoreFunds, Inc. to give any
information or make any representation other than those
contained in this Prospectus or in other printed or written
- ---- material issued by CoreFunds, Inc., and you should not rely
2 Table of Contents on any other information or representation.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION AND OPERATING EXPENSE TABLES /X/ COREFUND
The purpose of the following tables is to help you understand the various costs
and expenses that you, as a shareholder, will bear directly or indirectly in
connection with an investment in shares of the Funds.
The information contained in the tables should not be considered a
representation of past or future expenses. Actual expenses may be more or less
than those shown.
<TABLE>
<CAPTION>
--------------- ------------- ------------- ---------------------
Equity Funds GROWTH EQUITY VALUE EQUITY EQUITY INDEX INTERNATIONAL GROWTH
- ----------------------------------------------------- --------------- ------------- ------------- ---------------------
<S> <C> <C> <C> <C>
Series A Shares
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases none none none none
Maximum Sales Load Imposed on
Reinvested Dividends none none none none
Deferred Sales Load none none none none
Redemption Fee none none none none
Exchange Fee none none none none
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets):
Investment Advisory Fees After Fee
Waivers1 .72% .75% .12% .80%
12b-1 Fees none none none none
Administrative Fees After Fee Waivers2 .16% .16% .16% .16%
Other Expenses3 .08% .08% .09% .25%
Net Annual Fund Operating Expenses4 .96% .99% .37% 1.21%
EXAMPLE
You would pay the following
expenses on a $1,000 investment, 1 year $ 10 $ 10 $ 4 $ 12
assuming (1) a 5% annual return 3 years 31 32 12 38
and (2) redemption at the end 5 years 53 55 21 66
of each time period.5 10 years 118 121 47 147
<CAPTION>
-----------------
<S> <C>
Equity Funds BALANCED
- ----------------------------------------------------- -----------------
Series A Shares
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases none
Maximum Sales Load Imposed on
Reinvested Dividends none
Deferred Sales Load none
Redemption Fee none
Exchange Fee none
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets):
Investment Advisory Fees After Fee
Waivers1 .67%
12b-1 Fees none
Administrative Fees After Fee Waivers2 .16%
Other Expenses3 .10%
Net Annual Fund Operating Expenses4 .93%
EXAMPLE
You would pay the following
expenses on a $1,000 investment, 1 year $ 9
assuming (1) a 5% annual return 3 years 30
and (2) redemption at the end 5 years 51
of each time period.5 10 years 114
</TABLE>
- --------------------------------------------------------------------------------
(1) Absent voluntary waivers, the Adviser's investment advisory fees are
calculated at the annual rate of .75%, .75%, .40%, .80%, and .70% of the
average net assets of Growth Equity Fund, Value Equity Fund, Equity Index
Fund, International Growth Fund, and Balanced Fund, respectively.
(2) Absent voluntary waivers, the Administrator's fee is calculated at the
annual rate of .25% of each Fund's average net assets.
(3) Includes (among others) custodial, legal and auditing fees.
(4) The Adviser and the Administrator have voluntarily waived a portion of their
fees in order to assist the Funds in maintaining a competitive expense
ratio. The expense ratios noted herein are net of investment advisory and
administrative fee waivers expected to be in effect during the fiscal period
ending June 30, 1996. Absent any fee waivers, such expense ratios would have
been 1.08%, 1.08%, 0.74%, 1.30% and 1.05% for Growth Equity Fund, Value
Equity Fund, Equity Index Fund, International Growth Fund and Balanced Fund,
respectively. The service providers of all the Funds have been voluntarily
waiving a portion of their fees since inception. However, during this year,
these providers may change this waiver so that a Fund's expense ratio will
approach the contractually mandated ratio.
(5) Absent the voluntary waiver of fees by the Adviser and Administrator, the
amounts for this example, for one year, three years, five years and ten
years, would be $11, $34, $60 and $132 for Growth Equity Fund; $11, $34, $60
and $132 for Value Equity Fund; $8, $24, $41 and $92 for Equity Index Fund;
$13, $41, $71 and $157 for International Growth Fund; and $11, $33, $58 and
$128 for Balanced Fund.
Transaction and Operating Expense Tables ----
3
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION AND OPERATING EXPENSE TABLES (CONTINUED)
<TABLE>
<CAPTION>
---------------- --------------- ----------------
INTERMEDIATE GOVERNMENT INTERMEDIATE
Fixed Income Funds BOND INCOME MUNICIPAL BOND
- ------------------------------------------------------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Series A Shares
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases none none none
Maximum Sales Load Imposed on Reinvested Dividends none none none
Deferred Sales Load none none none
Redemption Fee none none none
Exchange Fee none none none
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets):
Investment Advisory Fees After Fee Waivers1 .37% .37% .37%
12b-1 Fees none none none
Administrative Fees After Fee Waivers2 .16% .16% .16%
Other Expenses3 .07% .21% .06%
Net Annual Fund Operating Expenses4 .60% .74% .59%
EXAMPLE
You would pay the following
expenses on a $1,000 investment, 1 year $ 6 $ 8 $ 6
assuming (1) a 5% annual return 3 years 19 24 19
and (2) redemption at the end 5 years 33 41 33
of each time period.5 10 years 75 92 74
</TABLE>
- --------------------------------------------------------------------------------
(1) Absent voluntary waivers, the Adviser's investment advisory fees are
calculated at the annual rate of .50%, .50% and .50% of the average net
assets of Intermediate Bond Fund, Government Income Fund and Intermediate
Municipal Bond Fund, respectively.
(2) Absent voluntary waivers, the Administrator's fee is calculated at the
annual rate of .25% of each Fund's average net assets.
(3) Includes (among others) legal, auditing and printing fees.
(4) The Adviser and the Administrator have voluntarily waived a portion of their
fees in order to assist the Funds in maintaining a competitive expense
ratio. The expense ratios noted herein are net of investment advisory and
administrative fee waivers expected to be in effect during the fiscal period
ending June 30, 1996. Absent fee waivers, such expense ratios would have
been 0.82%, 0.96% and 0.81% for Intermediate Bond Fund, Government Income
Fund and Intermediate Municipal Bond Fund, respectively. The service
providers of all the Funds have been waiving all or a portion of their fees
since inception. However, during this year, these providers may change the
waiver so that a Fund's expense ratio will approach the contractually
mandated ratio.
(5) Absent the voluntary waiver of fees by the Adviser and the Administrator,
the amounts in this Example, for one year, three years, five years and ten
years, would be $8, $26, $46 and $101 for Intermediate Bond Fund; $10, $31,
$53 and $118 for Government Income Fund; and $8, $26, $45 and $100 for
Intermediate Municipal Bond Fund.
<TABLE>
<S> <C>
4 Transaction and Operating Expense Tables
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
<TABLE>
<CAPTION>
------------------- ----------------- -----------
PENNSYLVANIA NEW JERSEY
MUNICIPAL MUNICIPAL GLOBAL
Fixed Income Funds BOND BOND BOND
- -------------------------------------------------------------------- ------------------- ----------------- -----------
<S> <C> <C> <C> <C>
Series A Shares
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases none none none
Maximum Sales Load Imposed on Reinvested Dividends none none none
Deferred Sales Load none none none
Redemption Fee none none none
Exchange Fee none none none
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets):
Investment Advisory Fees After Fee Waivers1 0% 0% .52%
12b-1 Fees none none none
Administrative Fees After Fee Waivers2 0% 0% .16%
Other Expenses3 .37% .40% .21%
Net Annual Fund Operating Expenses4 .37% .40% .89%
EXAMPLE
You would pay the following
expenses on a $1,000 investment, 1 year $ 4 $ 4 $ 9
assuming (1) a 5% annual return 3 years 12 13 28
and (2) redemption at the end 5 years 21 22 49
of each time period.5 10 years 47 51 110
</TABLE>
- --------------------------------------------------------------------------------
(1) Absent voluntary waivers, the Adviser's investment advisory fees are
calculated at the annual rate of .50%, .50% and .60% of the average net
assets of Pennsylvania Municipal Bond Fund, New Jersey Municipal Bond Fund
and Global Bond Fund, respectively.
(2) Absent voluntary waivers, the Administrator's fee is calculated at the
annual rate of .25% of each Fund's average net assets.
(3) Includes (among others) legal, auditing and printing fees.
(4) The Adviser and the Administrator have voluntarily waived a portion of their
fees in order to assist the Funds in maintaining a competitive expense
ratio. The expense ratios noted herein are net of investment advisory and
administrative fee waivers expected to be in effect during the fiscal period
ending June 30, 1996. Absent fee waivers, such expense ratios would have
been 0.96%, 0.99% and 1.06% for Pennsylvania Municipal Bond Fund, New Jersey
Municipal Bond Fund and Global Bond Fund, respectively. The service
providers of all the Funds have been waiving all or a portion of their fees
since inception. However, during this year, these providers may change the
waiver so that a Fund's expense ratio will approach the contractually
mandated ratio.
(5) Absent the voluntary fee waiver of the Adviser and the Administrator, the
amounts in this Example, for one year, three years, five years and ten
years, would be $10, $31, $53, and $118 for Pennsylvania Municipal Bond
Fund; $10, $32, $55, and $121 for New Jersey Municipal Bond Fund; and $11,
$34, $58, and $129 for Global Bond Fund.
Transaction and Operating Expense Tables ----
5
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION AND OPERATING EXPENSE TABLES (CONTINUED) /X/ COREFUND
<TABLE>
<CAPTION>
------------- ------------- -------------
TREASURY TAX-FREE
Money Market Funds CASH RESERVE RESERVE RESERVE
- ------------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Series A Shares
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases none none none
Maximum Sales Load Imposed on Reinvested
Dividends none none none
Deferred Sales Load none none none
Redemption Fee none none none
Exchange Fee none none none
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets):
Investment Advisory Fees After Fee Waivers1 .29% .29% .29%
12b-1 Fees none none none
Administrative Fees After Fee Waivers2 .16% .16% .16%
Other Expenses3 .08% .08% .08%
Net Annual Fund Operating Expenses4 .53% .53% .53%
EXAMPLE
You would pay the following
expenses on a $1,000 investment, 1 year $ 5 $ 5 $ 5
assuming (1) a 5% annual return 3 years 17 17 17
and (2) redemption at the end 5 years 30 30 30
of each time period.5 10 years 66 66 66
</TABLE>
- --------------------------------------------------------------------------------
(1) Absent voluntary waivers, the Adviser's investment advisory fees are
calculated at the annual rate of .50%, .50%, and .50% of the average net
assets of Cash Reserve, Treasury Reserve, and Tax-Free Reserve,
respectively.
(2) Absent voluntary waivers, the Administrator's fee is calculated at the
annual rate of .25% of each Fund's average net assets.
(3) Includes (among others) legal, auditing, and printing fees.
(4) The Adviser and the Administrator have voluntarily waived a portion of their
fees in order to assist the Funds in maintaining a competitive expense
ratio. The expense ratios noted herein are net of investment advisory and
administrative fee waivers expected to be in effect during the fiscal period
ended June 30, 1996. Absent any fee waivers, such expense ratios would have
been 0.83%, 0.83% and 0.83%, for Cash Reserve, Treasury Reserve, and
Tax-Free Reserve, respectively. The service providers of all the Funds have
been waiving all or a portion of their fees since inception. However, during
this year, these providers may change the waiver so that a Fund's expense
ratio will approach the contractually mandated ratio.
(5) Absent the voluntary fee waiver of the Adviser and the Administrator, the
amounts in this Example, for one year, three years, five years and ten
years, would be $8, $28, $46 and $103 for Cash Reserve; $8, $28, $46 and
$103 for Treasury Reserve; and $8, $28, $46 and $103 for Tax-Free Reserve.
<TABLE>
<S> <C>
6 Transaction and Operating Expense Tables
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS /X/ COREFUND
The tables that follow present information about the investment results of
the shares of the Funds. The financial highlights for each of the periods
presented have been audited by Ernst & Young LLP, independent certified public
accountants, whose report thereon appears in CoreFunds' annual report which
accompanies the Statement of Additional Information.
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED JUNE 30,
Equity Funds
______________
<TABLE>
<CAPTION>
Realized
and Net
Unrealized Assets,
Net Asset Net Gains Dividends Distribution End of
Value, Net or (Losses) from Net from Net Asset Period
Beginning Investment on Investment Capital Value End Total (000
of Period Income Securities Income Gains of Period Return omitted)
----------- ----------- ----------- ----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------
GROWTH EQUITY
- -----------------
SERIES A
1995 $ 9.11 $ 0.08 $ 2.07 $ (0.08) $ -- $ 11.18 23.71% $ 91,345
1994 9.95 0.05 (0.84) (0.05) -- 9.11 (8.01) 64,877
1993 8.74 0.08 1.21 (0.08) -- 9.95 14.76 63,777
19921 10.00 0.05 (1.26) (0.05) -- 8.74 (12.05)+ 33,418
SERIES B
1995 $ 9.10 $ 0.06 $ 2.07 $ (0.06) $ -- $ 11.17 23.44% $ 2,043
1994 9.95 0.04 (0.85) (0.04) -- 9.10 (8.13) 1,730
1993* 9.80 0.03 0.15 (0.03) -- 9.95 1.80+ 5,224
- ---------------
VALUE EQUITY
- ---------------
SERIES A
1995 $ 12.58 $ 0.15 $ 1.97 $ (0.15) $ (0.28) $ 14.27 17.29% $ 31,003
1994 13.11 0.09 (0.27) (0.09) (0.26) 12.58 (1.51) 25,448
1993 11.22 0.16 1.89 (0.16) -- 13.11 18.31 15,397
1992 10.33 0.15 0.89 (0.15) -- 11.22 9.98 10,882
1991 10.31 0.15 0.18 (0.15) (0.16) 10.33 3.37 5,182
19902 10.00 0.10 0.31 (0.10) -- 10.31 4.10+ 5,154
SERIES B
1995 $ 12.60 $ 0.13 $ 1.96 $ (0.12) $ (0.28) $ 14.29 16.96% $ 3,708
1994 13.12 0.06 (0.26) (0.06) (0.26) 12.60 (1.69) 4,737
1993* 12.49 0.05 0.67 (0.09) -- 13.12 5.77+ 714
- ---------------
EQUITY INDEX
- ---------------
SERIES A
1995 $ 20.54 $ 0.52 $ 4.24 $ (0.52) $ (0.99) $ 23.79 24.45% $ 112,553
1994 20.97 0.55 (0.43) (0.55) -- 20.54 0.55 72,552
1993 19.22 0.52 1.84 (0.52) (0.09) 20.97 12.39 50,551
1992 18.46 0.52 1.80 (0.48) (1.08) 19.22 12.59 20,166
19913 19.48 0.03 (0.94) (0.02) (0.09) 18.46 (4.64)+ 12,117
- -------------------------
INTERNATIONAL GROWTH
- -------------------------
SERIES A
1995 $ 13.18 $ 0.12 $ (0.17) $ (0.04) $ (0.80) $ 12.29 (0.21)% $110,838
1994 11.71 0.12 1.78 (0.12) (0.31) 13.18 16.28 108,911
1993 10.52 0.10 1.16 (0.07) -- 11.71 12.06 61,655
1992 10.10 0.17 0.31 -- (0.06) 10.52 4.90 42,594
1991 10.75 0.19 (0.44) (0.27) (0.13) 10.10 (2.71) 20,582
19904 10.00 0.11 0.86 (0.09) (0.13) 10.75 9.74+ 13,513
SERIES B
1995 $ 13.17 $ 0.09 $ (0.17) $ (0.02) $ (0.80) $ 12.27 (0.48)% $ 1,943
1994 11.71 0.06 1.82 (0.11) (0.31) 13.17 16.08 2,019
1993* 10.07 0.05 1.59 -- -- 11.71 16.29+ 344
- ----------
BALANCED
- ----------
SERIES A
1995 $ 9.88 $ 0.35 $ 1.21 $ (0.35) $ (0.03) $ 11.06 16.21% $ 61,092
1994 10.39 0.35 (0.51) (0.35) -- 9.88 (1.62) 42,429
19935 10.00 0.16 0.39 (0.16) -- 10.39 5.52+ 29,434
SERIES B
1995 $ 9.89 $ 0.34 $ 1.19 $ (0.33) $ (0.03) $ 11.06 15.84% $ 2,344
1994 10.38 0.31 (0.49) (0.31) -- 9.89 (1.86) 2,222
1993* 10.00 0.16 0.38 (0.16) -- 10.38 2.50+ 701
<CAPTION>
Ratio of Ratio of
Expenses to Net Income
Ratio of Ratio of Net Average Net to Average
Expenses to Income to Assets Net Assets Portfolio
Average Net Average Net (Excluding (Excluding Turnover
Assets Assets Waivers) Waivers) Rate
------------- ------------- ------------- ----------- -----------
- -----------------
GROWTH EQUITY
- -----------------
SERIES A
1995 0.76% 0.84% 1.10% 0.50% 113%
1994 0.69 0.48 1.11 0.06 127
1993 0.43 0.85 1.11 0.17 103
19921 0.14 1.38 1.12 0.40 66
SERIES B
1995 1.01% 0.59% 1.35% 0.25% 113%
1994 0.94 0.23 1.36 (0.19) 127
1993* 0.80 0.39 1.48 (0.29) 103
- ---------------
VALUE EQUITY
- ---------------
SERIES A
1995 0.86% 1.12% 1.10% 0.88% 108%
1994 0.80 0.73 1.09 0.44 78
1993 0.71 1.29 1.18 0.82 97
1992 0.99 1.36 1.63 0.72 117
1991 1.74 1.53 2.39 0.88 96
19902 1.76 2.35 2.43 1.68 20
SERIES B
1995 1.11% 0.89% 1.35% 0.65% 108%
1994 1.05 0.48 1.34 0.19 78
1993* 0.85 0.97 1.32 0.50 97
- ---------------
EQUITY INDEX
- ---------------
SERIES A
1995 0.37% 2.48% 0.76% 2.09% 27%
1994 0.35 2.63 0.75 2.23 13
1993 0.49 2.82 0.88 2.43 4
1992 0.57 2.66 1.06 2.17 27
19913 0.97 1.79 1.20 1.56 --
- --------------------
INTERNATIONAL GROWTH
- --------------------
SERIES A
1995 1.05% 0.98% 1.19% 0.84% 59%
1994 0.99 0.23 1.18 0.04 67
1993 0.99 1.22 1.28 0.93 59
1992 0.96 1.67 1.40 1.23 87
1991 0.99 1.80 1.56 1.23 49
19904 1.22 2.57 1.99 1.80 20
SERIES B
1995 1.30% 0.73% 1.44% 0.59% 59%
1994 1.24 0.05 1.43 (0.14) 67
1993* 1.15 1.51 1.44 1.22 59
- ----------
BALANCED
- ----------
SERIES A
1995 0.73% 3.51% 1.07% 3.17% 46%
1994 0.62 3.46 1.08 3.00 56
19935 0.45 3.38 1.39 2.45 21
SERIES B
1995 0.98% 3.27% 1.32% 2.93% 46%
1994 0.87 3.21 1.33 2.75 56
1993* 0.55 5.76 1.48 4.83 21
</TABLE>
- --------------------------------------------------------------------------------
+ Returns are for the period indicated and have not been annualized.
* Series B has been offered since January 4, 1993. Balanced has offered Series B
since March 16, 1993.
(1) Growth Equity commenced operations on February 3, 1992. All ratios for the
period have been annualized.
(2) Value Equity commenced operations on February 6, 1990. All ratios for the
period have been annualized.
(3) Equity Index commenced operations on June 1, 1991. All ratios for the period
have been annualized.
(4) International Growth commenced operations on February 12, 1990. All the
ratios for the period have been annualized.
(5) Balanced commenced operations on January 4, 1993. All ratios for the period
have been annualized.
Financial Highlights ----
7
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED JUNE 30,
Fixed Income Funds
______________________
<TABLE>
<CAPTION>
Realized
and
Unrealized
Net Asset Net Gains Dividends Distributions Net Assets,
Value, Net or (Losses) from Net from Net Asset End of
Beginning Investment on Investment Capital Value, End Total Period (000
of Period Income Securities Income Gains of Period Return omitted)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------
GOVERNMENT INCOME
- -----------------
SERIES A
1995 $ 9.52 $ 0.62 $ 0.31 $ (0.62) $ -- $ 9.83 10.26% $ 11,305
1994 10.18 0.50 (0.62) (0.50) (0.04) 9.52 (1.34) 9,089
1993(1) 10.00 0.13 0.18 (0.13) -- 10.18 3.12+ 6,323
SERIES B
1995 $ 9.51 $ 0.61 $ 0.33 $ (0.61) $ -- $ 9.84 10.23% $ 1,374
1994 10.17 0.47 (0.62) (0.47) (0.04) 9.51 (1.57) 1,536
1993* 10.00 0.07 0.17 (0.07) -- 10.17 1.71+ 201
- -------------------
INTERMEDIATE BOND
- -------------------
SERIES A
1995 $ 9.63 $ 0.53 $ 0.21 $ (0.53) $ -- $ 9.84 8.22% $ 55,128
1994 10.18 0.43 (0.53) (0.43) (0.02) 9.63 (0.32) 48,379
1993 10.01 0.47 0.31 (0.47) (0.14) 10.18 7.90 44,692
1992(2) 10.00 0.23 0.01 (0.23) -- 10.01 2.49+ 22,623
SERIES B
1995 $ 9.63 $ 0.54 $ 0.20 $ (0.53) $ -- $ 9.84 7.95% $ 1,961
1994 10.18 0.41 (0.53) (0.41) (0.02) 9.63 (0.56) 9,365
1993* 10.01 0.20 0.17 (0.20) -- 10.18 3.95+ 5,752
- ----------------------------
INTERMEDIATE MUNICIPAL BOND
- ----------------------------
SERIES A
1995 $ 9.68 $ 0.38 $ 0.15 $ (0.38) $ -- $ 9.83 5.58% $ 365
1994 10.09 0.39 (0.41) (0.39) -- 9.68 (0.27) 1,088
1993(3) 10.00 0.04 0.09 (0.04) -- 10.09 1.33+ 2,009
SERIES B
1995 $ 9.67 $ 0.35 $ 0.16 $ (0.35) $ -- $ 9.83 5.42% $ 1,027
1994 10.08 0.37 (0.41) (0.37) -- 9.67 (0.52) 1,311
1993* 10.00 0.03 0.08 (0.03) -- 10.08 1.19+ 166
- ------------
GLOBAL BOND
- ------------
SERIES A
1995 $ 9.06 $ 0.62 $ 0.24 $ (0.30) $ -- $ 9.62 9.70% $ 26,898
1994(4) 10.00 0.25 (1.15) (0.04) -- 9.06 (9.00)+ 24,957
SERIES B
1995 $ 9.04 $ 0.61 $ 0.24 $ (0.28) $ -- $ 9.61 9.57% $ 170
1994(4) 10.00 0.19 (1.11) (0.04) -- 9.04 (9.22)+ 167
- ----------------------------
PENNSYLVANIA MUNICIPAL BOND
- ----------------------------
SERIES A
1995 $ 9.95 $ 0.51 $ 0.21 $ (0.51) $ -- $ 10.16 7.50% $ 2,272
1994(5) 10.00 0.06 (0.05) (0.06) -- 9.95 0.14+ 434
SERIES B
1995 $ 9.95 $ 0.49 $ 0.21 $ (0.49) $ -- $ 10.16 7.25% $ 317
1994(5) 10.00 0.06 (0.05) (0.06) -- 9.95 0.09+ 163
- --------------------------
NEW JERSEY MUNICIPAL BOND
- --------------------------
SERIES A
1995 $ 9.94 $ 0.52 $ 0.18 $ (0.52) $ -- $ 10.12 7.25% $ 1,550
1994(5) 10.00 0.06 (0.06) (0.06) -- 9.94 0.01+ 1,432
SERIES B
1995 $ 9.95 $ 0.49 $ 0.17 $ (0.49) $ -- $ 10.12 6.84% $ 24
1994(5) 10.00 0.06 (0.05) (0.06) -- 9.95 0.08+ 2
<CAPTION>
Ratio of Ratio of Net
Expenses to Income to
Ratio of Ratio of Net Average Net Average Net
Expenses to Income to Assets Assets Portfolio
Average Net Average Net (Excluding (Excluding Turnover
Assets Assets Waivers) Waivers) Rate
------------- ------------- ------------- ------------- -----------
- ------------------
GOVERNMENT INCOME
- ------------------
SERIES A
1995 0.59% 6.53% 0.98% 6.14% 368%
1994 0.50 4.93 1.00 4.43 157
1993(1) 0.44 5.41 1.10 4.75 93
SERIES B
1995 0.85% 6.25% 1.24% 5.86% 368%
1994 0.75 4.68 1.25 4.18 157
1993* 0.63 5.35 1.29 4.69 93
- ------------------
INTERMEDIATE BOND
- ------------------
SERIES A
1995 0.60% 5.76% 0.84% 5.52% 405%
1994 0.58 4.30 0.86 4.02 299
1993 0.42 4.62 0.86 4.18 188
1992(2) 0.11 5.73 0.84 5.00 51
SERIES B
1995 0.85% 5.27% 1.09% 5.03% 405%
1994 0.83 4.05 1.11 3.77 299
1993* 0.75 3.78 1.19 3.34 188
- ----------------------------
INTERMEDIATE MUNICIPAL BOND
- ----------------------------
SERIES A
1995 0.82% 3.91% 1.26% 3.47% 9%
1994 0.63 3.91 1.17 3.37 43
1993(3) 0.58 2.74 1.45 1.87 10
SERIES B
1995 1.08% 3.65% 1.52% 3.21% 9%
1994 0.88 3.66 1.42 3.12 43
1993* 0.81 2.51 1.68 1.64 10
- ------------
GLOBAL BOND
- ------------
SERIES A
1995 0.64% 6.84% 1.03% 6.45% 133%
1994(4) 0.73 5.04 1.12 4.65 161
SERIES B
1995 0.89% 6.59% 1.28% 6.20% 133%
1994(4) 0.98 4.79 1.37 4.40 161
- ----------------------------
PENNSYLVANIA MUNICIPAL BOND
- ----------------------------
SERIES A
1995 0.39% 5.26% 1.14% 4.51% 18%
1994(5) 0.42 5.09 1.17 4.34 3
SERIES B
1995 0.64% 4.95% 1.39% 4.20% 18%
1994(5) 0.67 4.84 1.42 4.09 3
- --------------------------
NEW JERSEY MUNICIPAL BOND
- --------------------------
SERIES A
1995 0.42% 5.21% 1.17% 4.46% 32%
1994(5) 0.43 5.07 1.35 4.15 13
SERIES B
1995 0.68% 4.97% 1.44% 4.21% 32%
1994(5) 0.68 4.82 1.60 3.90 13
</TABLE>
- --------------------------------------------------------------------------------
+ Returns are for the period indicated and have not been annualized.
* Series B has been offered since January 4, 1993. Government Income and
Intermediate Municipal Bond Funds have offered Series B since May 3, 1993.
Ratios for this period have been annualized.
(1) Government Income commenced operations on April 1, 1993. Ratios for this
period have been annualized.
(2) Intermediate Bond commenced operations on February 3, 1992. Ratios for this
period have been annualized.
(3) Intermediate Municipal Bond commenced operations on May 3, 1993. Ratios for
this period have been annualized.
(4) Global Bond Fund commenced operations on December 15, 1993. Ratios for this
period have been annualized.
(5) Pennsylvania Municipal Bond and New Jersey Municipal Bond Funds commenced
operations on May 16, 1994. Ratios for this period have been annualized.
<TABLE>
<S> <C>
8 Financial Highlights
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED JUNE 30,
Money Market Funds
_______________________
<TABLE>
<CAPTION>
Ratio of
Net Expenses to
Net Asset Dividends Net Assets Ratio of Ratio of Average Net
Value Net from Net Asset Value End of Expenses to Net Income Assets
Beginning Investment Investment End of Total Period Average Net to Average (Excluding
of Period Income Income Period Return (000) Assets Net Assets Waivers)
----------- ----------- ----------- ----------- ----------- --------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------
CASH RESERVE
- --------------
SERIES A
1995 $ 1.00 $ 0.05 $ (0.05) $ 1.00 5.15% $ 510,341 0.48% 5.04% 0.85%
1994 1.00 0.03 (0.03) 1.00 3.00 505,273 0.47 2.95 0.85
1993 1.00 0.03 (0.03) 1.00 2.99 460,832 0.46 2.97 0.85
1992 1.00 0.05 (0.05) 1.00 4.83 568,672 0.38 4.68 0.82
1991 1.00 0.07 (0.07) 1.00 7.28 473,187 0.37 6.94 0.82
1990 1.00 0.08 (0.08) 1.00 8.65 316,290 0.34 8.28 0.80
1989 1.00 0.09 (0.09) 1.00 8.87 186,151 0.37 8.62 0.90
1988 1.00 0.07 (0.07) 1.00 6.70 82,399 0.55 6.54 1.14
1987 1.00 0.06 (0.06) 1.00 5.85 35,054 0.54 5.60 1.01
19861 1.00 0.06 (0.06) 1.00 3.36+ 56,416 0.59 6.93 1.21
SERIES B
1995 $ 1.00 $ 0.05 $ (0.05) $ 1.00 4.89% $ 17.583 0.73% 4.86% 1.10%
1994 1.00 0.03 (0.03) 1.00 2.74+ 11,451 0.72 2.70 1.10
1993* 1.00 0.01 (0.01) 1.00 1.23+ 15,330 0.76 2.52 1.15
- --------------------
TREASURY RESERVE
- --------------------
SERIES A
1995 $ 1.00 $ 0.05 $ (0.05) $ 1.00 4.98% $ 479,206 0.48% 4.91% 0.85%
1994 1.00 0.03 (0.03) 1.00 2.91 484,974 0.48 2.87 0.86
1993 1.00 0.03 (0.03) 1.00 2.96 446,788 0.46 2.89 0.85
1992 1.00 0.05 (0.05) 1.00 4.73 444,388 0.38 4.58 0.82
1991 1.00 0.07 (0.07) 1.00 7.11 427,439 0.37 6.80 0.82
1990 1.00 0.08 (0.08) 1.00 8.38 270,524 0.37 8.03 0.84
19892 1.00 0.06 (0.06) 1.00 4.66+ 220,479 0.20 9.26 0.84
SERIES B
1995 $ 1.00 $ 0.05 $ (0.05) $ 1.00 4.72% $ 21,612 0.73% 4.81% 1.10%
1994 1.00 0.03 (0.03) 1.00 2.65 7,573 0.73 2.62 1.11
1993* 1.00 0.01 (0.01) 1.00 1.21+ 7,672 0.75 2.46 1.14
- --------------------
TAX-FREE RESERVE
- --------------------
SERIES A
1995 $ 1.00 $ 0.03 $ (0.03) $ 1.00 3.12% $ 62,756 0.48% 3.09% 0.85%
1994 1.00 0.02 (0.02) 1.00 2.03 79,384 0.49 2.00 0.87
1993 1.00 0.02 (0.02) 1.00 2.23 72,255 0.51 2.20 0.89
1992 1.00 0.03 (0.03) 1.00 3.56 80,147 0.37 3.39 0.88
19913 1.00 0.01 (0.01) 1.00 1.07+ 42,573 0.06 4.20 0.81
SERIES B
1995 $ 1.00 $ 0.03 $ (0.03) $ 1.00 2.86% $ 1,524 0.73% 2.80% 1.10%
1994 1.00 0.02 (0.02) 1.00 1.78 2,708 0.74 1.75 1.12
1993* 1.00 0.01 (0.01) 1.00 0.85+ 1,795 0.76 1.71 1.14
<CAPTION>
Ratio of Net
Income to
Average Net
Assets
(Excluding
Waivers)
-------------
- -------------
CASH RESERVE
- -------------
SERIES A
1995 4.67%
1994 2.57
1993 2.58
1992 4.24
1991 6.49
1990 7.82
1989 8.05
1988 5.96
1987 5.13
19861 6.31
SERIES B
1995 4.49%
1994 2.32
1993* 2.13
- -----------------
TREASURY RESERVE
- -----------------
SERIES A
1995 4.54%
1994 2.49
1993 2.50
1992 4.14
1991 6.35
1990 7.56
19892 8.62
SERIES B
1995 4.44%
1994 2.24
1993* 2.07
- -----------------
TAX-FREE RESERVE
- -----------------
SERIES A
1995 2.72%
1994 1.62
1993 1.82
1992 2.88
19913 3.45
SERIES B
1995 2.43%
1994 1.37
1993* 1.33
</TABLE>
- --------------------------------------------------------------------------------
+ Returns are for the period indicated and have not been annualized.
* Series B has been offered since January 4, 1993. Ratios for this period have
been annualized.
(1) Cash Reserve commenced operations on August 16, 1985. Ratios for this period
have been annualized.
(2) Treasury Reserve commenced operations on November 21, 1988. Ratios for this
period have been annualized.
(3) Tax-Free Reserve commenced operations on April 16, 1991. Ratios for this
period have been annualized.
Financial Highlights ----
9
<PAGE>
- --------------------------------------------------------------------------------
HIGHLIGHTS
<TABLE>
<S> <C> <C> <C>
COREFUNDS CoreFunds, Inc. ('CoreFunds') is an open-end management investment company presently offering shares
in seventeen diversified and non-diversified portfolios. This Prospectus offers Series A Shares of
fourteen portfolios. Series A Shares are primarily offered to various types of institutional
investors, which may include CoreStates Bank and its affiliate and corresponding banks, for the
investment of their own funds or for funds for which they serve in a fiduciary, agency or custodial
capacity. The shares offered in this Prospectus are not subject to a sales load or 12b-1 charges.
Materials relating to Series B Shares of the Funds may be obtained by calling 1-800-355-CORE or by
writing to CoreFunds, Inc., 680 E. Swedesford Road, Wayne PA 19087.
- -------------------------------------------------------------------------------------------------------------------------------
FUNDAMENTALS OF MUTUAL This section will assist you in appreciating investments generally. It describes the three basic
FUND INVESTING types of investments--stocks, bonds, and money market investments--as well as mutual funds which
employ one or more of these instruments. The various types of mutual funds available and the
advantages of mutual fund investing are also discussed.
PAGE 13
- -------------------------------------------------------------------------------------------------------------------------------
MULTIPLE PORTFOLIOS Investors may choose to invest in any of the fourteen funds of CoreFunds offered in this Prospectus.
EQUITY FUNDS FIXED INCOME FUNDS MONEY MARKET FUNDS
Growth Equity Fund Intermediate Bond Fund Cash Reserve
Value Equity Fund Government Income Fund Treasury Reserve
Equity Index Fund Intermediate Municipal Tax-Free Reserve
International Growth Fund Bond Fund
Balanced Fund Pennsylvania Municipal
Bond Fund
New Jersey Municipal Bond Fund
Global Bond Fund
PAGE 24
- -------------------------------------------------------------------------------------------------------------------------------
RISK CHARACTERISTICS Investment in the Funds involves a number of risks, including possible loss of principal. The Funds
differ significantly in terms of specific risks. Certain risk factors applicable to the Funds are
described below.
EQUITY FUNDS
The Equity Funds are subject to market risk and fund risk. Market risk is the possibility that stock
prices in general will decline over short or even extended periods of time. Stock markets tend to be
cyclical, with periods when stock prices generally rise and periods when stock prices generally
decline. Fund risk is the possibility that a Fund's performance during a specific period may not meet
or exceed that of the stock market as a whole. Therefore, investors should consider their holdings in
equity mutual funds to be long-term investments.
</TABLE>
<TABLE>
<S> <C> <C>
10 Highlights
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
In addition to market and fund risks, International
Growth Fund is also subject to foreign market and currency
risk. Investments in foreign stock markets can be as
volatile, if not more volatile, than investments in U.S.
markets. Currency risk is the risk that changes in foreign
exchange rates will affect, favorably or unfavorably, the
value of foreign securities held by the Fund.
FIXED INCOME FUNDS
Securities held by the Fixed Income Funds may be subject to
several types of investment risk, including market risk,
credit risk, and call risk. With respect to these Funds,
market risk (or interest rate risk) is the potential for a
decline in the price of fixed income securities due to
rising interest rates. Credit risk is the possibility that
a bond issuer will be unable to make timely payments of
either principal or interest. Call risk (or income risk)
relates to corporate bonds during periods of falling
interest rates, and involves the possibility that
securities with high interest rates will be prepaid (or
'called') by the issuer prior to maturity. Such an event
would require a Fund to invest the resulting proceeds
elsewhere, at generally lower interest rates, which would
cause fluctuations in the Fund's net income.
Intermediate Bond Fund may also be exposed to event
risk, the possibility that corporate fixed income
securities held by it may suffer a substantial decline in
credit quality and market value due to a corporate
restructuring. While event risk may be high for certain
corporate securities held by this Fund, event risk for the
Fund in the aggregate should be low because of the Fund's
diversified holdings.
An investment in either the Pennsylvania Municipal
Bond Fund or the New Jersey Municipal Bond Fund involves
special risk considerations. The concentration of
investments in Pennsylvania municipal securities by the
Pennsylvania Municipal Bond Fund and the concentration of
investments in New Jersey municipal securities by the New
Jersey Municipal Bond Fund raises certain investment
considerations, including the possibility that changes in
the economic condition and governmental policies of either
state or its municipalities could adversely affect the
value of the corresponding Fund and the portfolio
securities held by it.
Global Bond Fund is also subject to foreign market
and currency risks, as discussed above.
MONEY MARKET FUNDS
Securities held by Cash Reserve and Treasury Reserve may be
subject, on a limited basis, to credit risk. The credit
risk of a money market investment portfolio is similar to
that of a fixed income portfolio.
Securities held by Tax-Free Reserve may be subject,
on a limited basis, to several types of investment risk,
including market risk (or interest rate risk), credit risk
and call risk (or income risk).
PAGE 48
- -------------------------------------------------------------------------------
HIGHLIGHTS-------
11
<PAGE>
- --------------------------------------------------------------------------------
HIGHLIGHTS (CONTINUED) /X/ COREFUND
<TABLE>
<S> <C>
INVESTMENT CoreStates Investment Advisers, Inc. ('CoreStates Advisers') serves as the investment adviser for
ADVISER each Fund. Value Equity Fund, International Growth Fund and Global Bond Fund also retain
sub-advisers. CoreStates Advisers has extensive experience in the management of money market,
tax-free, fixed income, equity, and international investments. It currently manages discretionary
and non-discretionary client security portfolios with a total aggregate market value exceeding $29
billion, for individuals, corporations, institutions and municipalities.
PAGE 57
- ------------------------------------------------------------------------------------------------------------------------------
DIVIDEND Shareholders of a Fund are entitled to dividends and distributions arising from the net investment
POLICY income and capital gains, if any, earned on investments held by the Fund.
PAGE 51
- ------------------------------------------------------------------------------------------------------------------------------
TAXES The sale or redemption of shares of a mutual fund is a taxable event to the selling or redeeming
shareholder. In addition, any receipt of dividends which represent capital gain distributions will
be subject to federal and state income taxes. However, receipt of other dividends will generally not
be subject to federal income taxes. Ordinary dividends also will be subject to state income taxes,
except as to Pennsylvania residents for the Pennsylvania Municipal Bond Fund and New Jersey
residents for the New Jersey Municipal Bond Fund.
PAGE 52
- ------------------------------------------------------------------------------------------------------------------------------
PURCHASING Institutional investors may acquire Class A Shares of the Funds for their own account or as a record
SHARES holder on behalf of fiduciary, agency or custody accounts by placing orders with the Funds'
distributor. The minimum initial investment is $1,000,000 for each Fund which amount may be waived
at the discretion of the distributor. However, the minimum initial investment amount for retail
investors investing in Equity Index Fund (primarily through IRAs) is $500. There is no minimum for
subsequent investments.
PAGE 63
- ------------------------------------------------------------------------------------------------------------------------------
SELLING With respect to shares held by institutional investors on behalf of their customer accounts, all or
SHARES part of the shares beneficially owned by a customer may be redeemed in accordance with instructions
and limitations pertaining to their account at the institution. The share price of each Fund except
for the Money Market Funds is expected to fluctuate and may at redemption be more or less than at
the time of initial purchase, resulting in a gain or loss.
PAGE 64
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
12 Highlights
</TABLE>
<PAGE>
AN INTRODUCTORY GUIDE FOR INVESTORS
This section is devoted to those who are unfamiliar or uncomfortable with the
concepts of mutual fund investing, as well as those
who are interested in developing a coordinated strategy which can help them
reach their financial goals.
It describes the three basic types of investment vehicles stocks, bonds,
and money market instruments as well as
mutual funds which employ one or more of these investments.
Of course, no guide alone can help you determine how or when to invest.
That's why we recommend that you work closely
with an investment representative to develop a solid program which is
designed specifically for your goals and risk tolerance.
PART I:
TYPES OF INVESTMENT VEHICLES
FOR DETAILS ON HOW EACH OF THESE INSTRUMENTS IS USED IN MUTUAL FUNDS, PLEASE
SEE THE SECTION ENTITLED, "WHAT TYPES OF MUTUAL FUNDS ARE AVAILABLE?"
The three most popular types of investments are stocks, bonds, and money
market instruments. The following is an introduction to what they are and how
they work.
WHAT IS A STOCK?
Also known as equities, stocks represent an ownership position in a business
entity, such as a company or corporation. Each share of stock represents a
proportionate "share" of ownership in the business entity. As a result,
stocks offer individual investors the opportunity to take part in the
economic future of business.
Stocks are bought and sold on the open market, through a variety of stock
exchanges in the U.S. and around the world.
This system allows any individual to purchase and sell shares through stock
brokers, who are licensed to participate in the exchange.
The price for a share of stock is established by an "auction" system, in
which the broker for the buyer negotiates with the broker for the seller.
When the demand for a stock is low, its price will most likely fall; when
demand is high, the stock's price will most likely rise.
Because each share of stock represents a share in the company's earnings,
one of the most common factors affecting the price of the stock is the
direction of the company's earnings. In theory, the more a company earns, or
is expected to earn, the higher the price of its shares.
However, a number of other factors can cause a stock's price to go up or
down, including events which will positively
or negatively affect the company's future, changes in the overall economy,
changes in the mood of the market, and the market's perceptions of the
company or its stock.
ALSO SEE: "EQUITY MUTUAL FUNDS" AND "WHAT ARE BALANCED FUNDS?"
13
<PAGE>
FOR DEFINITIONS OF INVESTMENT TERMS, PLEASE SEE THE
GLOSSARY FOLLOWING THIS SECTION.
WHAT IS A BOND?
When a corporation, government or government agency needs money for a
certain project, it often borrows money by issuing bonds to investors. So, in
the simplest terms, a bond is an IOU. The investor who purchases a bond is
acting as the lender.
Rather than offering an ownership share in business, as stocks do,
bonds are simply an agreement to repay the investor the amount loaned, also
known as principal, on a certain date. In addition, the issuer commits to
making periodic fixed interest payments to the lender until the loan is repaid.
When the bond is issued by a state or municipality, the interest paid to
investors is generally free of federal income
taxes.
Like stocks, bonds are also traded in the open market. The value of a bond
can fluctuate due to changing market
conditions. For example, when interest rates in the market fall, the prices of
bonds tend to rise. On the other hand, when
interest rates rise, the value of bonds falls.
Generally, the longer the maturity of a bond, the higher its yield and the
greater its price volatility. The shorter
the maturity, the lower the yield and the greater its price stability.
ALSO SEE: "FIXED INCOME MUTUAL FUNDS"
<TABLE>
<CAPTION>
Price of the
same bond if
Price of a 7% the yield
coupon bond increases to 8%
Years to now trading to to keep pace with Percent change
maturity yield 7% rising interest rates in price
<S> <C> <C> <C>
1 year $100.00 $99.06 -0.94%
3 years $100.00 $97.38 -2.62%
10 years $100.00 $93.20 -6.80%
30 years $100.00 $88.69 -11.31%
</TABLE>
DURING TIMES WHEN OVERALL INTEREST RATES ARE FALLING, FIXED-INCOME INVESTORS
GENERALLY ENJOY HIGHER PRICES FOR THEIR BONDS.
CONVERSELY, RISING INTEREST RATES TEND TO REDUCE THE VALUE OF BONDS. LONGER
MATURITY BONDS EXPERIENCE A GREATER CHANGE IN PRICE, AS SHOWN ABOVE.
WHAT IS A MONEY MARKET INSTRUMENT?
Simply put, money market instruments are short-term bonds, with maturities
typically ranging from overnight to 13 months. They pay investors a rate of
interest which is generally lower than that of longer-term bonds.
Money market securities are issued by a number of sources, including the
U.S. Government, its agencies and large,
reputable banks and corporations.
Money market instruments are generally quite stable, due to their short
maturities. Therefore, they are chosen by
investors who wish to maintain the safety of their investment.
ALSO SEE: "MONEY MARKET MUTUAL FUNDS"
14
<PAGE>
PART II:
HOW TO INVEST IN STOCKS, BONDS, AND MONEY
MARKET INSTRUMENTS
Now that you've reviewed the basic types of investment vehicles available,
here's a discussion of how mutual funds can help you invest in stocks, bonds,
and money market securities.
WHAT IS A MUTUAL FUND?
Simply defined, a mutual fund pools the money of many investors and invests
it toward a specific goal, such as stability of principal, regular income, or
long-term growth. The fund's professional managers choose investments that,
in their judgment, will help the fund achieve its goal. As an investor, you
share in the fund's gains, losses, income, and expenses on a proportional
basis.
An equity fund pools its money to purchase stocks, a fixed-income fund
purchases bonds, and a money market fund
purchases short-term debt instruments.
ADVANTAGES OF MUTUAL FUND INVESTING.
While many investors enjoy excellent results by purchasing individual stocks
or bonds, most investors find that mutual funds offer a more viable
alternative, for the following reasons:
PROFESSIONAL MANAGEMENT: With individual securities, you or your
broker must do the extensive research necessary to choose from among the
thousands of securities available. With mutual funds, you enjoy having a
professional money manager uncover opportunities and research them to make sure
the investment is appropriate for the needs of
the fund.
LOW COSTS: With mutual funds, trading costs are modest because they are
shared by all investors in the fund.
DIVERSIFICATION: When investing, it's important to not put all your eggs in
one basket, so that you will be protected against an excessive loss in any one
investment. But only the wealthiest investors can afford to purchase the wide
range of individual securities to achieve true diversification. With mutual
funds, however, you can enjoy immediate diversification with even a very limited
amount of money, because investment risk is spread over many different
securities for greater stability and safety of your investment.
LIQUIDITY: With individual securities, it can sometimes be difficult to
redeem your investment due to market conditions and other factors. Mutual fund
shares, however, are easily redeemed at their current market value.
WHAT TYPES OF MUTUAL FUNDS ARE AVAILABLE?
The three basic categories of mutual funds are as follows:
EQUITY (STOCK) MUTUAL FUNDS A stock fund consists of selected
securities
traded on the stock market. The fund changes in value as the prices of the
stocks in the fund change. Although these funds tend to rise or fall in price
more than other types of mutual funds, they have traditionally rewarded
investors with higher returns over the long run.
15
<PAGE>
FIXED INCOME (BOND) MUTUAL FUNDS A fixed income fund is a mutual fund
which invests in a pool of bonds. Bonds generally pay a fixed rate of interest.
While fixed income mutual funds buy bonds, it's important to note that the
income paid by a bond fund will fluctuate as individual securities are added to
or subtracted from the pool.
In addition, fixed income funds are subject to changes in net asset value
due to changing market conditions. Like individual bonds, fixed income funds
will tend to increase in value during times of decreasing interest rates, and
will generally decrease in value when interest rates rise.
There are a wide range of fixed-income funds to choose from, each with its
own investment objectives. These objectives
range from stability of principal, to maximum yield, to tax-free income.
MONEY MARKET FUNDS Of the basic mutual fund categories, money market funds
are managed to maintain the greatest
stability of principal. They are managed to maintain a value of $1 per share.
Money market funds invest in short-term money market securities, such as
U.S. Treasury Bills, certificates of deposit
from large banks, and commercial paper. Because the interest rates paid on
these securities fluctuate with market conditions, the yield for money market
funds will also change.
WHAT ARE TAX-FREE FUNDS?
Tax-free funds, which include both fixed income (bond) and money market
funds, invest in securities which are issued by state, county, and local
governments and their agencies. The proceeds from these securities are used
to finance a variety of public-works projects, such as the building of roads,
schools, and sewers.
Under current tax laws, the interest paid to investors in these securities
is generally exempt from Federal income
taxes. Therefore, they are frequently purchased by investors who wish to shelter
their investment income from taxes. However,
Congress from time to time reviews this aspect of the tax code and may at any
time repeal the exemption on any or all of these securities. If this were to
occur, it would have a negative impact on any affected securities, as well as
the mutual funds in which they were held.
It's Easy to Compare Tax-Free and Taxable Yields:
Tax-Free Yield = Taxable Yield
1 - Tax Rate
16
<PAGE>
WHAT ARE BALANCED FUNDS?
In addition to the types of mutual funds already described, there are also
funds which blend investments in stock, bond, and money market securities.
These are commonly known as balanced funds.
The returns for balanced funds are typically greater than those of bond
and money market funds, but lower than those of pure stock funds. Investing in
all three types of securities means the value of your principal should fluctuate
less than it would in a stock or bond fund alone.
Typically, the fund's professional manager has the flexibility to change
the investment mix based on current economic conditions.
COMPARING THE PERFORMANCE OF STOCK, BOND, AND MONEY MARKET INVESTMENTS
In order to balance risks and rewards, it's helpful to see how stocks, bonds,
and money market investments have performed over time.
Mutual fund performance is stated in terms of total return. The
total return of a mutual fund or any other investment consists of the
combination of capital appreciation (or loss) and investment income.
Capital appreciation (or loss) is a change in the market value. Income is
made up of dividends earned on stocks, and interest paid on bonds or money
market investments. In general, stocks have the highest total return, because
over long periods of time they have achieved the greatest capital appreciation.
Bonds have provided the greatest income or interest, but because their
prices are more stable they have less potential than stocks for capital
appreciation. Therefore, they have a lower total return potential over time than
stocks.
Of course, past returns are no guarantee of future results. But historical
data tells a story which surprises many
investors.
As the chart on the following page shows, for the forty-year period between
January 1955 and December 1994, stocks have averaged annual returns of 10.7%,
while long-term bonds have averaged 5.6%, intermediate-term bonds have averaged
6.6%, and money market instruments have averaged 5.6%. During this same period,
inflation averaged 4.4%. Therefore, bonds and money market investments actually
delivered very little growth in excess of inflation.
Stocks, on the other hand, averaged more than double the rate of inflation.
What about the price fluctuations? Well, it's true that stocks do fluctuate and
probably always will. But as the accompanying chart shows, stocks have
consistently rewarded long-term investors.
Since money market funds are managed to have a constant $1 share price,
their total return consists only of the
interest earned on their investments.
17
<PAGE>
GROWTH OF $1,000 (HISTORICAL PERFORMANCE
OF STOCKS, BONDS AND CASH)
<TABLE>
Dollars in Thousands
<CAPTION>
Large Long-Term Intermediate-Term
Year Stock Govt Bonds Inflation TBill Govt Bonds
<S> <C> <C> <C> <C> <C>
1955 1.32 1.02 1 0.99 0.99
1956 1.4 1.04 1.03 0.93 0.99
1957 1.25 1.07 1.06 1 1.07
1958 1.79 1.09 1.08 0.94 1.05
1959 2.01 1.12 1.1 0.92 1.05
1960 2.02 1.15 1.12 1.05 1.17
1961 2.56 1.18 1.12 1.06 1.19
1962 2.34 1.21 1.14 1.13 1.26
1963 2.87 1.25 1.16 1.14 1.28
1964 3.35 1.29 1.17 1.18 1.33
1965 3.77 1.34 1.19 1.19 1.35
1967 3.39 1.4 1.23 1.23 1.41
1968 4.2 1.46 1.27 1.12 1.42
1969 4.66 1.54 1.33 1.12 1.49
1970 4.27 1.64 1.41 1.06 1.48
1971 4.44 1.75 1.49 1.19 1.73
1972 5.07 1.82 1.54 1.35 1.88
1973 6.04 1.89 1.59 1.42 1.97
1974 5.15 2.02 1.73 1.41 2.07
1975 3.79 2.19 1.94 1.47 2.18
1976 5.19 2.31 2.08 1.6 2.35
1977 6.43 2.43 2.18 1.87 2.66
1978 5.97 2.56 2.32 1.86 2.69
1979 6.36 2.74 2.53 1.84 2.79
1980 7.53 3.02 2.87 1.82 2.9
1981 9.97 3.36 3.23 1.74 3.02
1982 9.48 3.86 3.51 1.78 3.3
1983 11.51 4.26 3.65 2.49 4.26
1984 14.1 4.64 3.79 2.51 4.58
1985 14.99 5.09 3.94 2.9 5.22
1986 19.82 5.48 4.09 3.8 6.28
1987 23.48 5.82 4.14 4.73 7.23
1988 24.7 6.14 4.32 4.6 7.44
1989 28.85 6.53 4.51 5.04 7.89
1990 37.94 7.08 4.72 5.96 8.94
1991 36.73 7.63 5 6.33 9.81
1992 47.93 8.06 5.16 7.55 11.33
1993 51.62 8.34 5.31 8.15 12.14
1994 56.78 8.58 5.45 9.64 13.51
1995 57.52 8.92 5.6 .89 12.81
</TABLE>
THIS CHART SHOWS HOW THE MAJOR TYPES OF INVESTMENTS HAVE PERFORMED OVER THE
PAST 40 YEARS. MORE STABLE MONEY MARKET INVESTMENTS HAVE PRODUCED THE LOWEST
ANNUAL RETURNS, WHILE STOCKS HAVE PRODUCED THE GREATEST GROWTH EVEN THOUGH
THEIR VALUE FLUCTUATES MORE.
HISTORICAL ANNUALIZED RETURN
(JANUARY 1955 -DECEMBER 1994)
<TABLE>
<S> <C>
Stocks 10.7 %
Long-Term Government Bonds 5.6
Intermediate-Term Government Bonds 6.6
Cash 5.6
Inflation 4.4
</TABLE>
ASSUMPTIONS FOR THE TABLE AND CHARTS SHOWN ON THIS PAGE: RETURNS BASED ON
HISTORICAL PERFORMANCE, WHICH IS NO GUARAN-
TEE OF FUTURE RESULTS. STOCK RETURNS REPRESENT TOTAL RETURN OF THE STANDARD &
POOR'S 500 COMPOSITE STOCK PRICE INDEX (THE "S&P 500 INDEX"). FIXED INCOME,
OR BONDS, IS COMPOSED OF INTERMEDIATE- AND LONG-TERM GOVERNMENT BONDS. CASH
REPRESENTS 30-DAY TREASURY BILLS. SOURCE: SEI FINANCIAL SERVICES COMPANY.
RANGE OF STOCK RATES OF RETURN FOR ONE-
AND FIVE-YEAR ROLLING PERIODS
(1955-1994)
Percent
<TABLE>
<CAPTION>
One-Year Five-Year
Rolling Periods Rolling Periods
<S> <C> <C>
95th Percentile 37.2 20.0
5th Percentile -10.8 1.6
</TABLE>
MANY INDIVIDUALS ARE CONCERNED ABOUT THE RISKS ASSOCIATED WITH INVESTING IN
STOCKS. MANY DO NOT REALIZE, HOWEVER, THAT DESPITE THE FLUCTUATION OF ANNUAL
RETURNS, INVESTORS WHO HELD STOCKS FOR A FULL FIVE YEARS HISTORICALLY EARNED
A POSITIVE RETURN IN MORE THAN NINETY FIVE PERCENT OF THE CASES. BEST AND WORST
CASE SCENARIOS PRESENTED IN THIS ILLUSTRATION REPRESENT THE FIFTH AND
NINETY-FIFTH PERCENTILE OF THE HISTORICAL RETURN DISTRIBUTION. SOURCE: SEI
FINANCIAL SERVICES COMPANY.
18
<PAGE>
WHAT ARE INTERNATIONAL FUNDS?
International funds invest primarily in stock, bond and money market
securities issued by corporations, governments and banks worldwide.
International equity funds invest in the equity (stock) securities
of companies based outside the United States. Today, international markets
account for over 60% of the world's equity capitalization, as measured by the
Morgan Stanley World Index in February, 1995. This indicates that many
investment opportunities now exist globally. Likewise, international bond
funds may invest in government and corporate debt obligations from around the
world with the aim of providing income and the potential for capital
appreciation. Investing in international equity (stock) and fixed income (bond)
funds provides investors with a way to participate in a diversified
portfolio of many international securities of many countries.
GROWTH OF $1,000
(PERFORMANCE OF INTERNATIONAL AND DOMESTIC STOCKS)
<TABLE>
Dollars in Thousands
<CAPTION>
Year MSCI EAFE S&P 500
<S> <C> <C>
1975 1.371 1.372
1976 1.4223 1.6985
1977 1.6986 1.5762
1978 2.2812 1.6803
1979 2.4222 1.9894
1980 3.014 2.634
1981 2.9829 2.505
1982 2.9573 3.041
1983 3.6851 3.7252
1984 3.9749 3.9599
1985 6.2296 5.235
1986 10.586 6.2035
1987 13.226 6.5291
1988 17.007 7.6225
1989 18.843 10.024
1990 14.473 9.7028
1991 16.281 12.662
1992 14.352 13.637
1993 19.08 15.001
1994 20.618 15.196
</TABLE>
GROWTH OF $1,000 IN INTERNATIONAL AND DOMESTIC STOCKS. MSCI EAFE (THE MORGAN
STANLEY CAPITAL INTERNATIONAL EUROPE AUSTRALIA AND FAR EAST INDEX) REPRESENTS
THE GROWTH OF AN INVESTMENT IN INTERNATIONAL STOCKS, AND THE S&P 500 INDEX
INDICATES AN INVESTMENT IN DOMESTIC STOCKS.
A COMPARISON OF FOREIGN GOV'T BOND
RETURN PERFORMANCE 1994
<TABLE>
Dollars in Thousands
<S> <C>
Japan 8.88
U.K. -1.54
Australia 6.88
France 4.37
Canada -9.86
U.S. -3.36
Germany 9.98
</TABLE>
SOURCE: SEI FINANCIAL SERVICES COMPANY
Although investing internationally can reward investors (see graphs
above), there is an added dimension to the risks involved in investing in
domestic securities. Currency fluctuations in the countries in which
international stock and bond securities are issued can negatively impact the
value of these securities, as well as the mutual funds in which they are
held.
19
<PAGE>
PART III:
DEVELOPING YOUR INVESTMENT STRATEGY
Now that you have a basic understanding of the investments available to you,
let's look at how these investments can be used to help you achieve your
goals.
Everyone, whatever their income level, has financial goals. Perhaps yours
include a comfortable retirement, education
for your children or grandchildren,
a new home, or simply the accumulation of wealth.
Whatever your personal goals, the best way to achieve them is to take
control of your financial future. And one of the best ways to do that is
through a coordinated program of saving and investing.
Saving money provides the foundation for reaching your goals, while
investing builds on that foundation by using the
money you save to make even more money.
Mutual funds provide one of the most convenient and rewarding means of
saving and investing.
Mutual funds are particularly well-suited to long-term goals such as
education and retirement, because they offer a
convenient way to invest regularly in a diversified portfolio of securities.
Once you've decided to use mutual funds to help reach your goals, here are
some very simple steps to follow:
STEP 1:
SET WELL-DEFINED GOALS.
Whether you're investing for retirement, education, wealth accumulation, or
regular income, start by determining how much you will need to satisfy your
goals. When making this assessment, you may want to seek the guidance of an
investment professional. Also take into account the effects of inflation,
which
historically has reduced purchasing power by an average of 4.4% per year.
Short-term goals will require a greater initial investment and a more
conservative investment approach. Longer-term
goals will require a smaller initial investment and a more aggressive approach,
including investments in stock and bond funds
which are expected to yield higher returns over the long run.
Once you determine your primary and secondary goals, you'll then need to
calculate how soon you will need your money.
STEP 2:
ESTABLISH YOUR TIME HORIZON.
For each of your goals, determine how soon you will need the money you're
investing. If it's a shorter-term goal, such as a new
home in a few years, you'll want investments that offer fairly predictable
results in a short time. If it is a longer-term goal, such as education for
young children, you can plan for longer-term results. Accordingly, the type
of investments you choose for retirement will depend on whether your
retirement is a few years away, or a few decades.
20
<PAGE>
STEP 3:
UNDERSTAND THE REAL RISKS.
Most people think of an investment as "risky" or "safe" based only on how
much the value of their principal can fluctuate. But in the long run, there
is more to risk than whether your principal goes up or down. It's just as
important to consider the
following risks:
THE RISK OF INFLATION. To achieve any real increase in your wealth, your
investment return must outstrip inflation, or
you may end up actually losing purchasing power in the long run. To beat
inflation, consider investing some of your money where values and return are
not fixed, but grow with the economy. Experience shows that stock-based
investments such as equity mutual funds offer this type
of performance potential.
THE RISK OF NOT REACHING YOUR GOAL. Another potential risk that many
investors tend to overlook is the risk that an investment strategy will not
enable them to reach their goal. To properly assess this risk, you first need to
define your goals, and then strike a balance between the risk of principal
volatility and the risk of failing to reach your goals.
For example, statistics show that at age 70 you can expect to live another
20 years. To achieve the many years of comfortable retirement you want, you must
have the discipline to set aside enough money during your working years and
invest it wisely.
STEP 4:
DECIDE ON AN INVESTMENT MIX.
When you are selecting specific investments, choose those which offer the
greatest potential for reaching your short-term and long-term goals, and
which are within your risk tolerance.
Many investors find that they are most comfortable with a mix of
investments, including stocks, bonds, and money market funds. This approach
offers the advantage of not putting all your eggs in
one basket, and also allows you to enjoy the distinct advantages of each type
of investment.
If you use this approach, known as "asset allocation", the key is deciding
how much to allocate to each type of
investment. To make this decision easier, you can select a balanced fund,
which combines stock, bond, and money market investments under the guidance
of professional investment managers.
As this chart below suggests, bonds and money markets fluctuate less in the
short term, and there is less chance of
experiencing a loss. History has shown, however, that the longer you stay
invested, the more stocks have provided a higher return, with a decreasing
potential for loss.
21
<PAGE>
REDUCTION OF RISK
OVER TIME
<TABLE>
<S> <C> <C>
Stocks 43.4 -26.5
Long Term Bonds 40.36 -9.18
Intermediate-Term Bonds 29.1 -5.14
Cash 14.7 1.5
Inflation 13.3 0.4
Stocks 20.4 -2.36
Long Term Bonds 21.62 -2.14
Intermediate-Term Bonds 16.98 0.96
Cash 11.12 2.33
Inflation 10.06 1.24
Stocks 17.59 1.24
Long Term Bonds 15.56 1.13
Intermediate-Term Bonds 13.13 2.92
Cash 9.17 2.58
Inflation 7.34 1.57
Stocks 14.58 6.53
Long Term Bonds 10.1 1.94
Intermediate-Term Bonds 9.85 3.98
Cash 7.72 4
Inflation 6.36 3.37
</TABLE>
THE LONGER YOU HOLD ANY PARTICULAR ASSET CLASS (STOCKS, BONDS, MONEY MARKET
INSTRUMENTS), THE LESS THE VARIATION IN RETURN. WHILE STOCKS HAVE FLUCTUATED
IN VALUE MUCH MORE THAN OTHER INVESTMENTS, THEY HAVE ALSO DELIVERED HIGHER
RETURNS OVER THE LONG RUN. IN ADDITION, THE LONGER AN INVESTOR REMAINS
INVESTED IN STOCKS, THE LESS THE CHANCE THERE IS FOR A CAPITAL LOSS. THE
BEST- AND WORST-CASE SCENARIOS PRESENTED IN THIS ILLUSTRATION REPRESENT THE
ABSOLUTE HIGHEST AND LOWEST RETURNS FROM JANUARY 1955 TO 1994. SOURCE: BASED
ON HISTORICAL DATA ON THE S&P 500 INDEX, INTERMEDIATE-AND LONG-TERM
GOVERNMENT BONDS, AND 30-DAY TREASURY BILLS FOR ROLLING ONE-, FIVE-, 10-, AND
20-YEAR PERIODS BETWEEN 1955 AND 1994. PAST RESULTS DO NOT GUARANTEE FUTURE
PERFORMANCE.
STEP 5:
GET STARTED.
Don't make the mistake of waiting until tomorrow. With mutual funds, you
don't need a large investment to start your program. All it takes is a small
amount of money, and a strong desire to reach your goals.
For full details on how the principles of mutual fund investing can
work for you, please contact your investment representative.
STEP 6:
BE DISCIPLINED.
Once you have a good strategy, stay with it. Avoid sudden changes in reaction
to temporary market trends. Remember, you're interested in long-term
performance.
In mutual fund investing, particularly with equity funds, one of
the surest ways to maximize the value of your investment is through a regular
program of monthly contributions. By adding to your account each month,
you'll be purchasing shares during both "up" markets and "down" markets. This
technique, known as "dollar cost averaging", has been shown to yield optimum
results over the long run.
22
<PAGE>
GLOSSARY
OF KEY INVESTMENT TERMS
CAPITAL GAIN: The profit made from the sale of securities due to an increase in
share value.
CURRENT YIELD: The income paid annually on mutual fund shares, expressed as a
percentage of the current price per share.
DISTRIBUTION: Payment of capital gains to shareholders of a mutual fund. For tax
purposes, distributions are separate from
interest income or dividends.
DOLLAR COST AVERAGING: Investing a fixed dollar amount at regular intervals
over a long period of time to reduce the average cost per share of a mutual
fund.
INCOME DIVIDENDS: Regular payments from mutual funds to their shareholders,
made up of dividends, interest, and short-term capital gains earned from the
fund's portfolio of securities. May be distributed annually, bi-annually,
quarterly, or monthly, with operating expenses deducted.
MATURITY: The date on which the issuer is scheduled to return the amount
borrowed to the lender, or investor.
MUNICIPAL BOND: A debt obligation issued by a city, state, or municipality.
Interest from these bonds is generally exempt from federal income tax.
NET ASSET VALUE: The dollar value of one share of a mutual fund. This value
is generally calculated at least once each day, and is the price at which the
fund will redeem its shares from investors.
PRINCIPAL, OR PAR VALUE: Also known as face value, this is the amount loaned
to the issuer of a bond.
PROSPECTUS: A booklet distributed by the issuer of a security or mutual fund,
in compliance with SEC regulations. A mutual fund prospectus must include the
fund's investment objectives, all expenses and fees including management and
sales fees, a description of shareholder services offered, and information on
how to buy shares.
REDEMPTION PRICE: Also known as "bid price", this is the price at which
mutual funds buy back their shares. It is usually the net asset price of the
fund.
TOTAL RETURN: The combined return of capital appreciation and income
(interest and dividends) that an investment earns. (See page 62).
23
<PAGE>
- --------------------------------------------------------------------------------
INFORMATION ON THE FUNDS
/X/
INVESTMENT
OBJECTIVES
OF THE FUNDS
The descriptions that follow are designed to help you choose the Fund that best
fits your investment objectives. The objectives of each Fund are fundamental and
may only be changed by the affirmative vote of a majority of the outstanding
shares of such Fund. You may want to pursue more than one objective by investing
in more than one of these Funds.
As investment adviser of each Fund, CoreStates Advisers manages each
Fund's portfolio of investments in a manner which it believes will best
accomplish the Fund's stated objective. However, there can be no assurance that
a Fund will meet its objective.
EQUITY FUNDS ___________________________________________________________________
GROWTH EQUITY FUND Growth Equity Fund's investment objective is to provide
growth of capital and an increasing flow of dividends from the diversified
portfolio of common stocks comprising the Fund.
VALUE EQUITY FUND Value Equity Fund's investment objective is to provide maximum
total return, including capital appreciation and investment income, in excess of
stock market indices such as the S&P 500 Index, as measured over a period of
time.
EQUITY INDEX FUND Equity Index Fund's investment objective is to provide its
shareholders with investment results that achieve price and yield performance
similar to the S&P 500 Index, thereby tracking with reasonable accuracy the
performance of the stock market as a whole.
INTERNATIONAL GROWTH FUND International Growth Fund's investment objective is to
provide its shareholders with long-term capital appreciation, consistent with
reasonable risk, by investing primarily in a diversified portfolio of
appreciation-oriented equity securities of companies located outside the United
States.
BALANCED FUND Balanced Fund's investment objective is to provide total return
while preserving capital. This Fund pursues its objective by investing in a
combination of common stocks and fixed income securities. Under normal
conditions, Balanced Fund will invest a minimum of 25% of its assets in senior
fixed income securities and between 30% and 70% of its assets in common stocks.
FIXED INCOME FUNDS _____________________________________________________________
INTERMEDIATE BOND FUND Intermediate Bond Fund's investment objective is to
provide a moderate level of current income consistent with conservation of
capital, by investing substantially all of its assets in a diversified portfolio
of intermediate-term, fixed income obligations which will have an expected
average weighted maturity of three to ten years.
GOVERNMENT INCOME FUND Government Income Fund's investment objective is to
provide current income while preserving principal value and maintaining
liquidity.
INTERMEDIATE MUNICIPAL BOND FUND Intermediate Municipal Bond Fund's investment
objective is to seek the highest level of income exempt from federal income
taxes that can be obtained, consistent with the preservation of capital, from a
diversified portfolio of high quality, intermediate-term municipal securities.
This Fund has a fundamental policy to invest, under normal circumstances, at
least 80% of its assets in municipal securities the interest of which is exempt
from federal income taxes, based on opinions from bond counsel for the issuers.
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24 Investment Objectives
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/X/ COREFUND
PENNSYLVANIA MUNICIPAL BOND FUND Pennsylvania Municipal Bond Fund seeks current
income exempt from federal and Pennsylvania income taxation with preservation of
capital by investing primarily in a non-diversified portfolio of municipal
securities.
NEW JERSEY MUNICIPAL BOND FUND New Jersey Municipal Bond Fund seeks current
income exempt from federal and New Jersey income taxation with preservation of
capital by investing primarily in a non-diversified portfolio of municipal
securities.
GLOBAL BOND FUND Global Bond Fund's investment objective is to provide capital
appreciation and current income through investment primarily in fixed income
securities of United States and foreign issuers denominated in United States
dollars and in other currencies.
MONEY MARKET FUNDS _____________________________________________________________
CASH RESERVE Cash Reserve's investment objective is to provide as high a level
of current income as is consistent with liquidity and relative stability of
principal.
TREASURY RESERVE Treasury Reserve's investment objective is to provide current
interest income, liquidity and safety of principal.
TAX-FREE RESERVE Tax-Free Reserve's investment objective is to provide as high a
level of current interest income that is exempt from federal income taxes as is
consistent with liquidity and relative stability of principal. This Fund
intends, under normal market conditions, to invest at least 80% of its assets in
tax-free securities.
/X/
INVESTMENT
POLICIES
The policies which the Funds follow to achieve their investment objectives are
described below. These are non-fundamental
policies which may be changed without a shareholder vote.
Descriptions of the securities in which the Funds invest are contained
below in 'Types of Securities in Which the Funds Invest.'
EQUITY FUNDS ___________________________________________________________________
The CoreFund Equity Funds cover a range of investment styles. CoreStates
Advisers, specialists in the management of growth portfolios, manages the Growth
Equity, Equity Index and Balanced Funds. CoreStates Advisers has selected
Cashman, Farrell and Associates and Martin Currie, Inc. to manage the Value
Equity and International Growth Funds, respectively. These firms are specialists
in their respective investment styles.
GROWTH EQUITY FUND Growth Equity Fund strives to provide a return in excess of
stock market indices such as the S&P Barra Growth Index and S&P 500 Index.
Growth Equity Fund pursues its investment objective by investing primarily in
common stocks, preferred stocks, convertible securities, and other equity
securities of companies which CoreStates Advisers believes to show the potential
for growth of earnings over time. Stock selection is guided by a bottom-up
approach that places heavy emphasis on fundamental research to uncover companies
with proven earnings growth records, high reinvestment rates, high returns on
equity, and strong balance sheets showing low debt to total capital. The adviser
makes qualitative judgments on such elements as the company's competitive
position, the quality of its management and the potential for future growth.
This Fund intends, under normal market conditions, to hold at least 75% of
its total assets in the equity securities described above. Over the long term,
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Investment Policies 25
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INFORMATION ON THE FUNDS (CONTINUED)
continued earnings growth tends to lead to both higher dividends and capital
appreciation.
VALUE EQUITY FUND Value Equity Fund pursues its investment objective by
investing primarily in a diversified portfolio of selected common stocks or
other equity securities which CoreStates Advisers and Cashman, Farrell and
Associates, the sub-adviser, believe to be undervalued in the marketplace at the
time of purchase. Value Equity Fund intends, under normal circumstances, to hold
at least 75% of its total assets in such equity securities.
A security may be considered to be undervalued for many reasons, including
investor apathy, market decline within an industry group, difficult industry
conditions, and other factors which may result in current buying opportunities
at attractive prices relative to the long-term prospects of the security under
consideration. The advisers believe that purchasing securities undervalued due
to temporary factors may provide an investment return superior to that obtained
when premium prices are paid for securities currently in favor.
In general, Value Equity Fund's advisers select undervalued,
income-producing equity securities characterized as having high dividend yields
and low price-earnings ratios relative to the stock market in general, as
measured by the S&P 500 Index. Current income, although considered, is not a
primary factor in the selection of securities. All of the securities selected
are traded on registered exchanges or in the 'over-the-counter' market.
To select individual equity securities, the advisers employ an investment
process that serves to identify undervalued securities and employs sufficient
fundamental analysis to substantiate an improved long-term outlook. It involves,
to start, ranking the equity universe according to price-earnings ratios. The
lowest 40% of equities believed by the advisers to be the most undervalued are
identified. A performance screen is applied to look for those which have
experienced a substantial price decline, either in absolute terms or relative to
the S&P 500 Index. Those companies are further subjected to a fundamental
analysis to uncover candidates with strong balance sheets, an improving earnings
outlook, or the potential for an expansion of the valuation multiples such as
price-earnings ratios.
The advisers purchase equity securities which look attractive
fundamentally. This fundamental analysis serves to indicate which of the
companies under consideration possess better long-term prospects than the
valuation of their securities indicates. The advisers, however, restrict the
position of each security to less than 5% of the cost of the Fund's total
portfolio.
The Fund's advisers maintain an equally strict sell discipline to
eliminate any security when its valuation has increased, or the prospects of its
issuer or the stock price deteriorate. A security is generally sold if its
valuation is determined to rank in the top 40% of the equity universe. A
security is also sold if it suffers a steep decline from its acquisition price
or the issuer exhibits deteriorating fundamentals.
EQUITY INDEX FUND Equity Index Fund intends, under normal market conditions, to
hold at least 90% of its total assets in equity securities that as a group
reflect a composite of those represented in the S&P 500 Index. To mirror and
confine the holdings to relatively large, well-known companies within the S&P
500 Index, CoreStates Advisers utilizes a computer model that closely monitors
industry weightings of the S&P 500
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26 Investment Policies
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/X/ COREFUND
Index. While common stocks represented in the S&P 500 Index are the primary
securities utilized to achieve Equity Index Fund's objective, CoreStates
Advisers may also invest in other types of securities, consistent with the
objective and policies described herein. Equity Index Fund is not sponsored by
nor affiliated with Standard & Poor's Corporation ('S&P').
The S&P 500 Index consists of 500 common stocks, most of which are listed
on the New York Stock Exchange. In choosing the 500 stocks which are included in
the S&P 500 Index, S&P considers market values and industry diversification.
Most of the stocks in the S&P 500 Index are issued by companies which are among
the largest, in terms of the aggregate market value of their outstanding stock,
measured by the market price per share multiplied by the number of shares
outstanding. Stocks that are not among the fived hundred largest are included in
the S&P 500 Index for diversification purposes.
Traditional methods of mutual fund investment management typically involve
frequent changes in a portfolio of securities on the basis of economic,
financial, and market analyses. Index funds such as Equity Index Fund are not
managed in this manner, however. Instead, CoreStates Advisers only purchases and
sells securities with respect to the Fund in an attempt to duplicate the total
return of the S&P 500 Index, taking into account redemptions, sales of
additional Fund shares, and other adjustments as described below.
Consistent with its investment objective, Equity Index Fund's investment
portfolio will at any time consist of common stocks of as many issuers listed in
the S&P 500 Index as is feasible, consistent with the policies stated herein.
Accordingly, the Fund invests in both dividend-paying and non-dividend-paying
securities that are not included in the S&P 500 Index. While Equity Index Fund
may own about 350 names, the largest 50 companies within the S&P 500 Index
generally represent nearly 85% of the value of the S&P 500 Index, and the
largest 200 companies represent nearly 95%. The number of companies owned by the
Fund is determined in an effort to minimize the impact of transaction costs and
balance these costs with tracking error.
Generally, Equity Index Fund only trades securities to reflect changes in
the S&P 500 Index, to carry out appropriate rebalancing for diversification
purposes, or to more closely track the return of the S&P 500 Index. This Fund
invests in equity securities that, as a group, reflect the composite performance
of the S&P 500 Index based on a computer-based financial model that tracks the
performance of the various stocks in the S&P 500 Index. As the Fund grows in
total assets, its portfolio may eventually include all 500 stocks in the S&P 500
Index. This decision would be made by CoreStates Advisers, based on its
financial model.
Although CoreStates Advisers does not screen securities for investment by
this Fund by traditional methods of financial and market analyses, it monitors
the Fund's investments with a view toward removing stocks of companies which
exhibit extreme financial distress or which may impair for any reason the Fund's
ability to achieve its investment objective. Therefore, an investor
participating in the Fund bears the risk of such adverse market conditions. The
Fund expects that its return will match the S&P 500 Index, prior to the
deduction of brokerage and other transaction costs, other Fund expenses, and
tracking errors.
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Investment Policies 27
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INFORMATION ON THE FUNDS (CONTINUED)
Common stocks purchased by the Fund are initially selected in accordance
with their market capitalizations. Market capitalization is calculated by
multiplying the market price of an issuer's stock by the number of outstanding
shares of its common stock. The issues selected for this Fund are then ranked
and weighted accordance to their respective market capitalizations. The weighted
market capitalization of each issuer selected is determined by dividing the
issuer's market capitalization by the total market capitalizations of all
issuers listed.
The industry sector diversification of the issuers selected for inclusion
in Equity Index Fund according to their weighted market capitalizations is then
compared with the industry sector diversification of the issuers of all common
stocks publicly traded in the United States.
CoreStates Advisers will include in the Fund certain 'balancing
securities,' which are common stocks of companies with smaller market
capitalizations which are added to complete the portfolio to provide broad
industry representation. As indicated, 'balancing securities' are issued by
issuers whose market capitalizations are such that they would not otherwise be
eligible for inclusion in the Fund, and replace the securities of issuers in
over-represented sectors in the fund.
INTERNATIONAL GROWTH FUND International Growth Fund pursues its investment
objective by investing in foreign equity securities which offer favorable
prospects for capital return. This Fund seeks to diversify its assets by
investing in appreciation-oriented equity securities of companies located
outside the United States, which may include, but not be limited to, Australia,
Canada, France, Hong Kong, Japan, Mexico, Singapore, Sweden, Switzerland,
Germany, the Netherlands, and the United Kingdom. In general,
'appreciation-oriented' securities are equity securities of companies that
CoreStates Advisers and the sub-adviser, Martin Currie, Inc., believe have the
greatest potential for long-term growth, and which exhibit operating
characteristics that may enable such companies to compete successfully in their
marketplace.
International Growth Fund offers increased diversification through
investment in foreign markets. This Fund's advisers believe that both the
selection of individual securities and the allocation of International Growth
Fund's assets across foreign markets are important in managing an international
equity fund. Most foreign equity securities are purchased in over-the-counter
markets or on stock exchanges located in the countries in which the respective
principal offices of the issuers of the various securities are located. Under
normal market conditions, International Growth Fund will invest an aggregate of
at least 65% of its total assets in the equity securities of at least three
different countries.
In determining the distribution of International Growth Fund's investments
among various countries and geographic regions, the advisers consider many
factors, such as: prospects for relative economic growth between countries;
government policies affecting business conditions; outlook for local currency;
and the range of available, attractive investment opportunities. For the
selection of securities, the advisers' criteria includes: earnings growth;
return on capital; quality of management; cash flow; and strength of balance
sheet.
While foreign stocks are the primary securities utilized to achieve
International Growth Fund's objective, the advisers may also invest in other
types of foreign equity securities, consistent with the objective and policies
described herein.
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28 Investment Policies
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/X/ COREFUND
The net asset value of this Fund will fluctuate, and investments are
expected to yield little, if any, current income.
BALANCED FUND In managing Balanced Fund, CoreStates Advisers uses a balanced
portfolio philosophy which combines separate equity, fixed income, and asset
allocation strategies. This produces a portfolio of stocks of companies
exhibiting growth in revenues and earnings and strong balance sheet
characteristics. All of the common stocks in which Balanced Fund invests are
traded on registered exchanges or in the 'over-the-counter' market.
The fixed income strategy values bonds using historical yield
differentials. U.S. Government securities and corporate bonds are used
exclusively to implement Balanced Fund's fixed income strategy. The asset
allocation strategy shifts the stock-fixed income-money market instrument mix
based on the investment adviser's judgment of the relative attractiveness of
these markets and securities given its view of economic conditions, the level of
interest rates, and the outlook for corporate profits. The strategy uses present
and historical economic and market data to reach these conclusions.
Balanced Fund seeks strong total return in all market conditions, with a
special emphasis on minimizing interim declines during falling equity markets.
Long-term growth is pursued through equity holdings, and current income through
fixed income securities and common stock dividends.
The strategy focuses on controlling downside risk, both through holdings
in relatively high-dividend-yielding stocks and convertible securities, and
through diversification between stocks and bonds. To employ this strategy, the
Fund's adviser uses present and historical economic and market data.
This Fund will, under normal conditions, invest between 30% and 70% of
total assets in common stocks, depending on the investment adviser's assessment
of market conditions. When CoreStates Advisers believes that equity markets are
overvalued, the common stock exposure will be at the low end of this range.
CoreStates Advisers expects that equity exposure will average 60% over time.
Balanced Fund may also invest in U.S. dollar denominated securities of foreign
issuers (including American Depositary Receipts that are traded on registered
exchanges or listed on NASDAQ).
FIXED INCOME FUNDS _____________________________________________________________
CoreFund Fixed Income Funds employ an investment process that attempts to manage
large swings in interest rates within the maturity parameters of each Fund to
reduce an investor's risk of principal. Significant effort is put forth to
identify value along the yield curve, taking into account the economic outlook,
fiscal and monetary policies, and the inflation trend. Developments that can
significantly impact the supply and demand of securities within the various
sectors of the bond market are also carefully considered. By identifying these
opportunities, and acting upon them in a timely manner, the Funds' advisers seek
to enhance overall value.
INTERMEDIATE BOND FUND This Fund pursues its investment objective by investing
primarily in corporate debt securities such as bonds and commercial paper, as
well as securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
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Investment Policies 29
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INFORMATION ON THE FUNDS (CONTINUED)
The Fund intends, under normal market conditions, to invest at least 65% of its
total assets in bonds and 35% or less in other fixed income securities.
Intermediate Bond Fund maintains a maximum average maturity of no more
than five years, pursuant to a non-fundamental investment policy which can be
changed without shareholder approval. By maintaining an average maturity of not
more than five years, CoreStates Advisers expects the Fund's net asset value to
be relatively stable while providing higher income than money market funds.
Should a security held by this Fund be downgraded below the minimum
required ratings, CoreStates Advisers will reassess the creditworthiness of the
security and will consider such an event in determining whether the Fund should
continue to hold the security in question. Securities that are unrated at the
time of purchase may only be purchased by the Fund if they are determined by
CoreStates Advisers to be of comparable quality to securities meeting the rating
criteria set forth in 'Types of Securities in Which the Funds Invest.' See the
'Appendix' to the Statement of Additional Information for a description of
applicable ratings.
GOVERNMENT INCOME FUND Government Income Fund invests exclusively in obligations
issued or guaranteed as to principal and interest by the agencies and
instrumentalities of the U.S. Government and repurchase agreements involving any
of such obligations. Although there are no restrictions on maturity, Government
Income Fund generally strives to maintain an average maturity of about seven
years. This Fund intends to invest at least 65% of its total assets in
instruments issued or guaranteed as to principal and interest by the agencies
and instrumentalities of the U.S. Government and mortgage-backed securities.
INTERMEDIATE MUNICIPAL BOND FUND Intermediate Municipal Bond Fund invests
substantially all of its assets in a diversified portfolio consisting of
short-term obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia and their political
subdivisions, agencies, instrumentalities and authorities, the interest on
which, in the opinion of counsel to the issuer, is exempt from federal income
tax. The municipal securities in which this Fund invests are described in 'Types
of Securities in Which the Funds Invest.'
Although CoreStates Advisers has no present intention of doing so, up to
20% of all assets in this Fund can be invested in taxable debt securities for
defensive purposes or when sufficient tax-exempt securities considered
appropriate by CoreStates Advisers are not available for purchase.
Intermediate Municipal Bond Fund will maintain an average weighted
maturity of three to ten years. However, when the investment adviser determines
that market conditions so warrant, the Fund can maintain an average weighted
maturity of less than three years. CoreStates Advisers may, at times, elect to
adjust the average maturity upwards, between seven and ten years, in order to
pick up incremental yield, while avoiding the risks associated with long-term
bonds.
PENNSYLVANIA MUNICIPAL BOND FUND At least 80% of this Fund's assets will be
invested in municipal securities, the interest on which is exempt from federal
income tax. Under normal circumstances, at least 65% of the Fund's assets will
be invested in municipal securities, the interest on which is exempt from
Pennsylvania personal income tax ('Pennsylvania Municipal Securities').
This Fund will primarily purchase (i) municipal bonds rated in one of the
three highest rating categories; (ii) municipal notes
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30 Investment Policies
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/X/ COREFUND
rated in one of the two highest rating categories; (iii) commercial paper rated
in one of the two highest short-term categories; or (iv) any of the foregoing
determined by CoreStates Advisers to be of comparable quality at the time of
investment. However, CoreStates Advisers has discretion to invest up to 20% of
the Fund's assets in municipal bonds rated BBB by Standard & Poor's Corporation
('S&P') or Baa by Moody's Investors Service, Inc. ('Moody's'). See 'Description
of Ratings.'
Pennsylvania Municipal Bond Fund will invest more than 25% of its net
assets in municipal securities whose issuers are located in Pennsylvania. This
Fund may also invest up to 20% of its assets in Taxable Obligations. Taxable
Obligations may include obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, certificates of deposit and demand and
time deposits of domestic banks and savings and loan associations, bankers'
acceptances issued by domestic banks, commercial paper issued by U.S.
corporations (including variable amount master demand notes) meeting the Fund's
quality standards, and securities subject to Federal Alternative Minimum Tax.
Pennsylvania Municipal Bond Fund may also hold a portion of its assets in
cash. Under normal market conditions, such holdings will not exceed 1% of the
Fund's net assets. To the extent that the Fund's assets are invested in cash,
they will not be invested so as to meet such Fund's investment objective. There
are no restrictions on the average maturity of Pennsylvania Municipal Bond Fund
or the maturity of a single instrument.
Pennsylvania Municipal Bond Fund is a non-diversified investment portfolio
which means that more than 5% of its assets may be invested in each of one or
more issuers. Since a relatively high percentage of assets of the Fund may be
invested in the obligations of a limited number of issuers, the value of the
shares of the Fund may be more susceptible to any single economic, political or
regulatory occurrence than the shares of a diversified investment portfolio
would be. The Fund intends to satisfy the diversification requirements necessary
to comply with Subchapter M of the Internal Revenue Code of 1986, as amended
(the 'Code'). In part, Subchapter M requires that, at the close of each quarter
of the taxable year, those issues which represent more than 5% of the Fund's
assets be limited in aggregate to 50% of the Fund and that no one issue exceed
25% of the Fund's total assets.
NEW JERSEY MUNICIPAL BOND FUND At least 80% of this Fund's assets will be
invested in municipal securities, the interest on which is exempt from federal
income tax. Under normal circumstances, at least 65% of the Fund's assets will
be invested in municipal securities, the interest on which is exempt from New
Jersey personal income tax ('New Jersey Municipal Securities').
This Fund will primarily purchase (i) municipal bonds rated in one of the
three highest rating categories; (ii) municipal notes rated in one of the two
highest rating categories; (iii) commercial paper rated in one of the two
highest short-term categories; or (iv) any of the foregoing determined by
CoreStates Advisers to be of comparable quality at the time of investment.
However, CoreStates Advisers has discretion to invest up to 20% of the Fund's
assets in municipal bonds rated BBB or better by S&P or Baa or better by
Moody's. See 'Description of Ratings.'
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Investment Policies 31
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INFORMATION ON THE FUNDS (CONTINUED)
New Jersey Municipal Bond Fund will invest more than 25% of its net assets
in municipal securities whose issuers are located in New Jersey. This Fund may
also invest up to 20% of its assets in Taxable Obligations, as described above.
New Jersey Municipal Bond Fund may also hold a portion of its assets in
cash. Under normal market conditions, such holdings will not exceed 1% of the
Fund's net assets. To the extent that the Fund's assets are invested in cash,
they will not be invested so as to meet such Fund's investment objective. There
are no restrictions on the average maturity of New Jersey Municipal Bond Fund or
the maturity of a single instrument.
New Jersey Municipal Bond Fund is a non-diversified investment portfolio,
as described above. The Fund intends to satisfy the diversification requirements
necessary to comply with Subchapter M of the Code.
GLOBAL BOND FUND Global Bond Fund will invest, under normal circumstances, at
least 65% of its total assets in high quality fixed income securities or debt
obligations of foreign or domestic government entities, corporations or
supranational agencies. The Fund will invest in at least three supranational
agencies or countries. Supranational agencies will include, but not be limited
to, the International Bank of Reconstruction and Development, the InterAmerican
Development Bank, and the Asian Development Bank. Countries will include, but
not be limited to, Austria, Australia, Belgium, Canada, Denmark, Finland,
France, Germany, Ireland, Italy, Japan, Luxembourg, The Netherlands, New
Zealand, Norway, Spain, Sweden, Switzerland, the United Kingdom, and the United
States. Although this Fund will concentrate its investments in the developed
countries listed above, it may invest up to 5% of its assets in similar
securities or debt obligations that are denominated in the currencies of
developing countries and that are of comparable quality to such securities and
debt obligations at the time of purchase as determined by CoreStates Advisers
and the sub-adviser, Alpha Global Fixed Income Managers, Inc.
Global Bond Fund will strive to take maximum advantage of financial and
economic developments and currency fluctuations. All of its investments will be
in quality securities denominated in various currencies, including the European
Currency Unit, and will be rated in one of the highest four rating categories by
a nationally recognized statistical rating agency or of comparable quality at
the time of purchase as determined by the advisers.
There are no restrictions on the average maturity of Global Bond Fund or
the maturity of any single instrument. Maturities may vary widely depending on
the advisers' assessment of interest rate trends and other economic and market
factors. In the event a security owned by Global Bond Fund is downgraded below
rating categories discussed above, the advisers will review the situation and
take appropriate action with regard to the security.
MONEY MARKET FUNDS _____________________________________________________________
Investments by money market funds such as Cash Reserve, Treasury Reserve and
Tax-Free Reserve are subject to limitations imposed under regulations adopted by
the Securities and Exchange Commission (the 'SEC'). These regulations generally
require money market funds to acquire only U.S. dollar denominated obligations
maturing in 397 days or less, although securities subject to repurchase
agreements, securities with optional and mandatory tender provisions, variable
rate demand obligations and certain other securities may bear longer maturities.
Money market funds also must maintain a dollar-weighted average portfolio
maturity of 90 days or less.
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32 Investment Policies
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/X/ COREFUND
In addition, money market funds may acquire only obligations that
represent minimal credit risks and that are 'eligible securities' which means
they are (i) rated, at the time of investment, by at least two nationally
recognized statistical rating organizations (one if it is the only organization
rating such obligation) in the highest short-term rating category or, if
unrated, determined to be of comparable quality (a 'first tier security'), or
(ii) rated according to the foregoing criteria in the second highest short-term
rating category, or, if unrated, determined to be of comparable quality (a
'second tier security'). A security is not considered to be unrated if its
issuer has outstanding obligations of comparable priority and security that have
a short-term rating. CoreStates Advisers will determine that an obligation
presents minimal credit risks or that unrated instruments are of comparable
quality in accordance with guidelines established by CoreFunds' Board of
Directors. The Directors must also approve or ratify the acquisition of unrated
securities or securities rated by only one rating organization. Investments in
second tier securities are subject to the further constraints that (i) no more
than 5% of a Fund's assets may be invested in such securities in the aggregate,
and (ii) any investment in such securities of one issuer is limited to the
greater of 1% of the Fund's total assets or $1 million. In addition, a Fund may
only invest up to 25% of its total assets in the first tier securities of a
single issuer for three business days.
CASH RESERVE Cash Reserve intends to achieve its objective by investing in a
diversified portfolio of money market instruments of the highest quality,
including a broad range of U.S. dollar-denominated government, bank, and
commercial paper obligations. By investing only in high quality money market
instruments with remaining maturities of 13 months or less, Cash Reserve strives
to capture the highest yield possible within safety, compliance, and liquidity
parameters.
TREASURY RESERVE Treasury Reserve intends to invest in direct obligations of the
U.S. Treasury, such as bills, bonds, and notes and separately traded interest
and principal component parts of such obligations that are transferable through
the Federal book-entry system known as Separately Traded Registered Investment
and Principal Securities ('STRIPS') and in repurchase agreements relating to
direct U.S. Treasury obligations.
TAX-FREE RESERVE Tax-Free Reserve invests substantially all of its assets in a
diversified portfolio consisting of short-term obligations issued by or on
behalf of states, territories and possessions of the United States, the District
of Columbia and their political subdivisions, agencies, instrumentalities and
authorities, the interest on which, in the opinion of counsel to the issuer, is
exempt from federal income tax. The municipal securities in which this Fund
invests are described in 'Types of Securities in Which the Funds Invest.' In
managing Tax-Free Reserve, the investment adviser uses a strategy that aims to
take advantage of key seasonal supply and demand factors that govern short-term
rates.
Although CoreStates Advisers has no present intention of doing so, up to
20% of all assets in this Fund can be invested in taxable debt securities for
defensive purposes or when sufficient tax-exempt securities considered
appropriate by CoreStates Advisers are not available for purchase.
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Investment Policies 33
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INFORMATION ON THE FUNDS (CONTINUED)
OTHER INVESTMENT PRACTICES OF THE FUNDS ________________________________________
In addition to the investments described above, the Funds may engage in a number
of additional investment practices, as discussed below:
REPURCHASE AGREEMENTS--All Funds
Under certain circumstances, the Funds may enter into repurchase agreements with
respect to portfolio securities. Under the terms of a repurchase agreement, a
Fund purchases securities ('collateral') from financial institutions such as
banks and broker-dealers ('seller') which are deemed to be creditworthy under
guidelines approved by the Fund's management, subject to the seller's agreement
to repurchase them at a mutually agreed-upon date and price. The repurchase
price generally equals the price paid by the Fund plus interest negotiated on
the basis of current short-term rates (which may be more or less than the rate
on the underlying portfolio securities). The seller under a repurchase agreement
is required to maintain the value of the collateral held pursuant to the
agreement at not less than 100% of the repurchase price, and securities subject
to repurchase agreements are held by CoreFunds' custodian in the Federal Reserve
book-entry system. Default by the seller could, however, expose a Fund to loss
in the event of adverse market action or delay in connection with the
disposition of the underlying securities. Repurchase agreements are considered
to be loans by a Fund under the Investment Company Act of 1940 (the 'Investment
Company Act').
REVERSE REPURCHASE AGREEMENTS--
All Funds
Each of the Funds may borrow funds for temporary purposes by entering into
reverse repurchase agreements. Pursuant to such agreements, a Fund would sell
portfolio securities to financial institutions such as banks and broker-dealers,
and agree to repurchase them at a mutually agreed-upon date and price. A Fund
enters into reverse repurchase agreements only to avoid otherwise selling
securities during unfavorable market conditions to meet redemptions. At the
time the Fund enters into a reverse repurchase agreement, it places in a
segregated custodial account liquid assets such as U.S. Government securities
or other liquid high-grade debt securities having a value equal to the
repurchase price (including accrued interest), and will subsequently monitor
the account to ensure that such equivalent value is maintained. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by a Fund may decline below the price at which it is obligated to
repurchase the securities. Reverse repurchase agreements are considered to be
borrowings by a Fund under the Investment Company Act.
OTHER INVESTMENT COMPANIES--All Funds
The Funds may invest in the securities of other investment companies. Such
shares will be purchased by the Funds within the limits prescribed by the
Investment Company Act. Such investments will be limited to amounts not in
excess of 5% of a Fund's total assets at the time of purchase.
PUT TRANSACTIONS--Intermediate Municipal Bond Fund, Intermediate Bond Fund,
Pennsylvania Municipal Bond Fund, New Jersey Municipal Bond Fund, Global Bond
Fund, Tax-Free Reserve
These Funds may purchase securities subject to a put. A 'put' feature permits a
Fund to sell a security at a fixed price prior to maturity. The underlying
municipal securities subject to a put may be sold at any time at the market
rates. However, unless the put was an integral
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INVESTMENT POLICIES 34
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/X/ COREFUND
part of the security as originally issued, it may not be marketable or
assignable; therefore, the put would only have value to the Fund. In certain
cases a premium may be paid for put features. A premium paid will have the
effect of reducing the yield otherwise payable on the underlying security. The
purpose of engaging in transactions involving puts is to maintain flexibility
and liquidity to permit the Fund to meet redemption requests and remain as fully
invested as possible in municipal securities. These Funds will limit their put
transactions to institutions which their advisers believe present minimal credit
risk.
There is no limit to the percentage of portfolio securities that each Fund
may purchase subject to a put, but the amount paid directly or indirectly for
puts which are not integral parts of the security as originally issued held in
the Fund will not exceed 1/2 of 1% of the value of the total assets of the Fund
calculated immediately after any such put is acquired.
WHEN-ISSUED SECURITIES--Intermediate Municipal Bond Fund, Intermediate Bond
Fund, Government Income Fund, Pennsylvania Municipal Bond Fund,
New Jersey Municipal Bond Fund, Global Bond Fund, Tax-Free Reserve
These Funds may purchase securities on a 'when-issued' basis. When-issued
securities are subject to settlement on a future date. The interest rate
realized on these securities is fixed as of the purchase date and no interest
accrues to the Fund before settlement. These securities are subject to market
fluctuation due to changes in market interest rates and will have the effect of
leveraging a Fund's assets. Each Fund will establish one or more segregated
accounts with the custodian and will maintain liquid assets in such accounts in
an amount at least equal to the value of its commitments to purchase when-issued
securities.
MUNICIPAL LEASE OBLIGATIONS--
Intermediate Municipal Bond Fund, Pennsylvania Municipal Bond Fund,
New Jersey Municipal Bond Fund, Tax-Free Reserve
Municipal lease obligations are issued by a state or local government or
authority to acquire land and a wide variety of equipment and facilities. These
obligations typically are not fully backed by the municipality's credit, and
their interest may become taxable if the lease is assigned. If funds are not
appropriated for the following year's lease payments, the lease may terminate,
with the possibility of default on the lease obligation and significant loss to
a Fund. Certificates of participation in municipal lease obligations or
installment sales contracts entitle the holder to a proportionate interest in
the lease-purchase payments made.
FORWARD CURRENCY CONTRACTS--
International Growth Fund, Global Bond Fund
International Growth Fund and Global Bond Fund may enter into forward foreign
currency exchange contracts in order to protect against uncertainty in the level
of future foreign exchange rates in the purchase and sale of investment
securities. These Funds will not enter into such contracts for speculative
purposes.
A forward foreign currency exchange contract is an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. In addition, International Growth
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Investment Policies 35
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INFORMATION ON THE FUNDS (CONTINUED)
Fund and Global Bond Fund may be required to segregate certain assets when
entering into such contracts, in order to complete the settlement transactions
in the future. The contracts may be bought or sold in amounts up to 100% of
exposure to protect a Fund to a limited extent against adverse changes in
exchange rates between foreign currencies and the U.S. dollar. Such contracts,
which protect the value of a Fund's investment securities against a decline in
the value of currency, do not eliminate fluctuations in the underlying prices of
the securities. They simply establish an exchange rate at a future date. Also,
although such contracts tend to minimize the risk of loss due to a decline in
the value of a hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of such foreign currency
increase.
FUTURES CONTRACTS OR OPTIONS TRANSACTIONS--International Growth Fund, Global
Bond Fund
International Growth Fund and Global Bond Fund may purchase futures contracts
and may purchase, sell, and write options on securities (including puts and
calls) to a limited extent. Specifically, each Fund may purchase futures
contracts provided that not more than 5% of its total assets are acquired as a
futures contract; in addition, each Fund may purchase futures contracts or enter
into options transactions only to the extent that obligations under such
contracts or transactions represent not more than 20% of its total assets.
International Growth Fund and Global Bond Fund do not intend to use options on
futures contracts.
Futures contracts or options transactions may be used for several reasons:
to maintain cash reserves while remaining fully invested; to facilitate trading;
to reduce transactions costs; or to seek higher investment returns when a
futures contract is priced more attractively than the underlying equity security
or index. International Growth Fund and Global Bond Fund may not use futures
contracts or options transactions to leverage their net assets, or for
speculative purposes.
For example, in order to remain fully invested in stocks while maintaining
liquidity to meet potential shareholder redemptions, International Growth Fund
and Global Bond Fund may invest a portion of their assets in futures contracts
or options transactions. Because futures contracts only require a small marginal
deposit, these Funds would then be able to maintain a cash reserve for potential
redemptions, while at the same time remaining fully exposed to markets. Also,
because transaction costs of futures and options may be lower than the costs of
investing in securities directly, it is expected that the use of futures
contracts and options transactions may reduce the total transaction costs of
International Growth Fund and Global Bond Fund.
The primary risks associated with the use of futures and options are (i)
imperfect correlation between the changes in market value of the securities held
by a Fund and the prices of futures and options and (ii) possible lack of a
liquid secondary market for a futures contract and the resulting inability to
close a futures position prior to its maturity date. The risk of imperfect
correlation will be minimized by investing only in those contracts whose
behavior is expected to resemble that of International Growth Fund's and Global
Bond Fund's underlying securities. The risk that these Funds will be unable to
close out a futures position will be minimized by entering into such
transactions on a national exchange with an active and liquid secondary market.
In addition, although these Funds will not use
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36 Investment Policies
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/X/ COREFUND
futures contracts for speculative purposes, there is the risk that the advisers
of these Funds could be incorrect in their assessment of the direction of stock
prices.
ILLIQUID SECURITIES--International Growth Fund, Global Bond Fund
International Growth Fund and Global Bond Fund may invest up to 10% and 15%,
respectively, of their assets in illiquid securities. Under the supervision of
CoreFunds' Board of Directors, each Fund's advisers determine the liquidity of
the Fund's investments. The absence of a trading market can make it difficult to
ascertain a market value for illiquid investments. Disposing of illiquid
investments may involve time-consuming negotiations and legal expenses, and it
may be difficult or impossible for a Fund to sell them promptly at an acceptable
price.
LENDING OF SECURITIES--International Growth Fund, Global Bond Fund
International Growth Fund and Global Bond Fund may lend their portfolio
securities to qualified brokers, dealers, banks, and other financial
institutions for the purpose of realizing additional net investment income
through the receipt of interest on the loan. Each Fund may lend portfolio
securities with a value of up to 50% of its total assets. Such loans may be
terminated at any time. These Funds will receive cash, government or government
agency securities as collateral in an amount equal to at least 100% of the
current market value of the loaned securities plus accrued interest. Cash
collateral received by the Funds will be invested in short-term debt securities.
These Funds will retain most rights of beneficial ownership including
dividends, interest or other distributions on the loaned securities. Voting
rights pass with the lending. The Funds will call loans to vote proxies if a
material issue affecting the investment is to be voted upon. Loans will be made
only to borrowers deemed by CoreStates Advisers to be of good standing.
Such loans would involve risk of delay in receiving additional collateral
in the event the value of the collateral decreased below the value of the
securities loaned, or risk of delay in recovering the securities loaned or even
loss of rights in the collateral should the borrower of the securities fail
financially.
SWAPS--Global Bond Fund
Global Bond Fund may enter into interest rate swaps, currency swaps and other
types of swap agreements such as caps, collars and floors as a way of managing
its exposure to different types of investments. In a typical interest rate swap,
one party agrees to make regular payments equal to a floating interest rate
times a 'notional principal amount,' in return for payments equal to a fixed
rate times the same amount, for a specific period of time. If a swap agreement
provides for payment in different currencies, the parties might agree to
exchange the notional principal amount as well. Swaps may also depend on other
prices or rates, such as the value of an index or mortgage prepayment rates. In
a typical cap or floor agreement, one party agrees to make payments only under
specified circumstances, usually in return for payment of a fee by the other
party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specific interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
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Investment Policies 37
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INFORMATION ON THE FUNDS (CONTINUED)
Swap agreements will tend to shift the Global Bond Fund's investment
exposure from one type of investment to another. For example, if this Fund
agrees to exchange payments in U.S. dollars for receipts in foreign currency,
the swap agreement would tend to increase the Fund's exposure to foreign
currency and interest rates. Caps and floors have an effect similar to buying or
writing options. Depending on how they are used, swap agreements may increase or
decrease the overall volatility of the Global Bond Fund's investments and its
share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks assumed.
As a result, swaps can be highly volatile and have a considerable impact on a
Fund's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. A Fund may also suffer losses if
it is unable to terminate outstanding swap agreements or reduce their exposure
through offsetting transactions. Any obligation Global Bond Fund may have under
these types of arrangements will be covered by setting aside high quality liquid
securities in a segregated account. Global Bond Fund will enter into swaps only
with counterparties deemed creditworthy by its advisers.
/X/
TYPES OF
SECURITIES IN
WHICH THE
FUNDS
INVEST
The various types of securities in which the Funds invest are described below.
EQUITY FUNDS ___________________________________________________________________
GROWTH EQUITY FUND
VALUE EQUITY FUND
EQUITY INDEX FUND
INTERNATIONAL GROWTH FUND
The types of equity securities in which these Funds invest generally include
common stocks, preferred stocks and convertible securities.
BALANCED FUND In addition to equity securities, Balanced Fund may invest in
fixed income securities. The fixed income securities in which this Fund will
invest consist of bonds, debentures, notes and similar obligations or
instruments which constitute a security and evidence indebtedness, including
U.S. Government obligations, mortgage-backed securities and bank obligations (as
described below). Balanced Fund may also invest in corporate bonds which are
rated, at time of purchase, A or higher by S&P or Moody's.
TAXABLE FIXED INCOME FUNDS _____________________________________________________
INTERMEDIATE BOND FUND The various types of securities which may be purchased by
Intermediate Bond Fund include the following:
U.S. Government Obligations--
1. U.S. Treasury Securities--includes bills, notes, bonds, and other debt
securities issued by the U.S. Treasury. These are direct obligations of the U.S.
Government and are supported by the full faith and credit of the United States.
They differ mainly in interest rates, maturities, and dates of issue.
2. U.S. Government Agency Securities--issued or guaranteed by U.S.
Government-sponsored instrumentalities and federal agencies. These include
obligations supported by the right of the issuer to borrow from the Treasury,
such as those of the Export-Import Bank of the United States; obligations
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38 Types of Securities
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/X/ COREFUND
supported by the discretionary authority of the U.S. Treasury to purchase the
agency's obligations, such as those of the Federal National Mortgage Association
('FNMA'); and obligations supported only by the credit of the agency or
instrumentality, such as those of the Student Loan Marketing Association
('SLMA'). However, no assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law.
Bank Obligations--
1. Certificates of Deposit-negotiable certificates representing a
commercial bank's obligation to repay funds deposited with it, earning specified
rates of interest over given periods.
2. Bankers' Acceptances-negotiable drafts or bills of exchange, normally
drawn by an importer or exporter to pay for specific merchandise, which are
'accepted' by a bank; meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument upon maturity.
Each of Intermediate Bond Fund and Intermediate Municipal Bond Fund, as
well as Balanced Fund, will limit its purchases of bank obligations to those of
domestic branches of U.S. banks having total assets at the time of purchase of
$1 billion or more as shown on their last published financial statements at the
time of investment.
Mortgage-Backed Securities--
These securities may be issued or guaranteed by U.S. Government agencies such as
the Government National Mortgage Association ('GNMA'), FNMA, or the Federal Home
Loan Mortgage Corporation ('FHLMC'). GNMA mortgage-backed certificates are
mortgage-backed securities of the modified pass-through type, which means that
both interest and principal payments (including prepayments) are passed through
monthly to the holder of the certificate. The National Housing Act provides that
the full faith and credit of the United States is pledged to the timely payment
of principal and interest by GNMA of amounts due on these GNMA certificates.
Each GNMA certificate evidences an interest in a specific pool of mortgage loans
insured by the Federal Housing Administration or the Farmers Home Administration
or guaranteed by the Veterans Administration. FNMA, a federally chartered and
stockholder-owned corporation, issues pass-through certificates which are
guaranteed as to principal and interest by FNMA. FHLMC, a corporate
instrumentality of the United States, issues participation certificates which
represent an interest in mortgages held in FHLMC's portfolio. FHLMC guarantees
the timely payment of interest and the ultimate collection of principal.
Securities issued or guaranteed by FNMA and FHLMC are not backed by the full
faith and credit of the United States. There can be no assurance that the United
States Government would provide financial support to FNMA or FHLMC if necessary
in the future.
Mortgage-backed securities also include collateralized mortgage
obligations ('CMOs') or real estate mortgage investment conduits ('REMICs'), a
type of CMO. CMOs or REMICs are mortgage pass-throughs issued in multiple
classes. In a CMO, a series of bonds or certificates are usually issued in
multiple classes. Each class of CMOs is issued with a specific fixed or floating
coupon rate and has a stated maturity or final distribution date. Principal
prepayments on the underlying mortgage assets may cause the CMOs to be retired
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Types of Securities 39
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INFORMATION ON THE FUNDS (CONTINUED)
substantially earlier than their stated maturities or final distribution dates,
resulting in a loss of all or part of any premium paid. Interest typically is
paid or accrues on all classes of the CMOs on a monthly, quarterly or semiannual
basis. The principal of and interest on the underlying mortgage assets may be
allocated among the several classes of a series of a CMO in a variety of ways.
In a common structure, payments of principal, including any principal payments,
on the underlying mortgage assets are applied to the classes of the series of a
CMO in the order of their respective stated maturities or final distribution
dates, so that no payment of principal will be made on any class of CMOs until
all other classes having an earlier stated maturity or final distribution date
have been paid in full.
Asset-backed Securities--
Asset-backed securities consist of securities secured by company receivables,
truck and auto loans, leases and credit card receivables. These issues are
normally traded over-the-counter and typically have a short-intermediate
maturity structure depending on the paydown characteristics of the underlying
financial assets which are passed through to the security holder.
Corporate Securities--
Corporate securities include corporate bonds, convertible and non-convertible
debt securities, and preferred stocks, as well as commercial paper. Corporate
securities in which Intermediate Bond Fund invests must satisfy certain minimum
ratings at the time of purchase by Moody's or S&P. Corporate bonds must be rated
A or better by S&P or Moody's.
GOVERNMENT INCOME FUND Government Income Fund may invest in U.S. Government
obligations, mortgage-backed securities, and asset-backed securities, as defined
above.
GLOBAL BOND FUND Global Bond Fund may invest in fixed income or debt obligations
issued or guaranteed by the U.S. Government or a foreign government, or by one
of its agencies, authorities, instrumentalities or political subdivisions; fixed
income or debt obligations issued or guaranteed by supranational entities; and
corporate securities and bank obligations, as described above.
TAXABLE MONEY MARKET FUNDS _____________________________________________________
CASH RESERVE The various types of securities invested in by Cash Reserve include
U.S. Government obligations, bank obligations, and asset-backed securities, as
described above.
With respect to U.S. Government obligations, in addition to bills, notes
and bonds issued by U.S. government agencies, Cash Reserve may invest in STRIPS
as defined above in 'Investment Policies-Treasury Reserve.' STRIPS may be sold
as zero coupon securities, which means that they are sold at a substantial
discount and redeemed at face value at their maturity date without interim cash
payments of interest or principal. This discount is amortized over the life of
the security, and such amortization will constitute the income earned on the
security for both accounting and tax purposes. See also 'Taxes.'
With respect to bank obligations, in addition to certificates of deposit
and bankers' acceptances, Cash Reserve may invest in foreign securities and time
deposits. Time deposits are non-negotiable deposits in a banking institution
earning a specified interest rate over a given period of time. Such deposits
cannot be withdrawn before the date specified at the time of deposit.
With respect to asset-backed securities, the asset-backed securities in
which Cash Reserve invests must have final maturities of 13 months or less.
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40 Types of Securities
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/X/ COREFUND
Cash Reserve may also invest in the following types of securities:
Commercial Paper--
Commercial paper are short-term promissory notes issued by corporations,
including variable amount master demand notes, having short-term ratings at the
time of purchase of 'Prime-1' by Moody's and/or 'A-1' or better by S&P.
Variable amount master demand notes in which Cash Reserve may invest are
unsecured demand notes that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate according to the terms of
the instrument. The rate of interest on such notes is generally based upon the
interest rates for commercial paper issued by the master demand note issuer. The
rate will be adjusted automatically at periodic intervals which normally will
not exceed 31 days but may extend longer. Because master demand notes are direct
lending arrangements between such Fund and the issuer, they are not normally
traded. Although there is no secondary market in the notes, the Fund may demand
payment of principal and accrued interest at any time. While the notes are not
typically rated by credit rating agencies, issuers of variable amount master
demand notes (which are normally manufacturing, retail, financial, and other
business concerns) must satisfy the same criteria as set forth above for issuers
of commercial paper. CoreStates Advisers will consider the earning power, cash
flow, and other liquidity ratios of the issuers of such notes and will
continuously monitor their financial status to meet payment on demand.
Receipts--
Receipts are interests in separately traded interest and principal component
parts of U.S. Treasury obligations that are issued by banks or brokerage firms
and are created by depositing U.S. Treasury obligations into a special account
at a custodian bank. The custodian holds the interest and principal payments for
the benefit of the registered owners of the certificates or receipts. The
custodian arranges for the issuance of the certificates or receipts evidencing
ownership and maintains the register. Receipts include 'Treasury Receipts'
('TR'S'), 'Treasury Investment Growth Receipts' ('TIGR'S'), and 'Certificates of
Accrual on Treasury Securities' ('CATS').
TREASURY RESERVE Treasury Reserve may invest in U.S. Treasury obligations, such
as bills, notes, and bonds, and separately traded interest and principal
component parts of such obligations, such as STRIPS. Treasury Reserve may also
invest in repurchase agreements fully collateralized by U.S. Treasury
obligations.
TAX-FREE FIXED INCOME AND MONEY MARKET FUNDS ___________________________________
INTERMEDIATE MUNICIPAL BOND FUND
PENNSYLVANIA MUNICIPAL BOND FUND
NEW JERSEY MUNICIPAL BOND FUND
TAX-FREE RESERVE These Funds will invest in municipal securities. The two
principal classifications of municipal securities which may be held by these
Funds are 'general obligation' securities and 'revenue' securities. These are
discussed below, along with other municipal securities in which these Funds may
invest.
1. General Obligation Securities
'General obligation' securities are secured by the issuer's pledge of its full
faith, credit, and taxing power for the payment of principal and interest.
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Types of Securities 41
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INFORMATION ON THE FUNDS (CONTINUED)
2. Revenue Securities
'Revenue' securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or another specific revenue source such as the user of
the facility being financed. Industrial development and pollution control bonds
held by these Funds are in most cases revenue securities and are not payable
from the unrestricted revenues of the issuer. Consequently, the credit quality
of such revenue bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
3. Moral Obligation Bonds
The portfolios of these Funds may also include 'moral obligation' bonds, which
are normally issued by special-purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
4. Variable Rate Demand Obligations
Municipal securities purchased by these Funds may include 'variable rate demand
obligations,' which are tax-exempt obligations upon which interest is payable at
a floating or variable rate. While there may be no active secondary market with
respect to a particular variable rate demand obligation purchased by such Funds,
they normally may demand payment of the principal of and accrued interest on the
obligation upon not more than seven days' notice and may resell the obligation
at any time to a third party. The absence of any active secondary market,
however, could make it difficult for such Funds to dispose of a variable rate
demand obligation if the issuer defaulted on its payment obligation, and it
could, for this or other reasons, suffer a loss to the extent of the default.
5. When-Issued Securities
These Funds may purchase municipal securities on a 'when-issued' basis, as
described in 'Other Investment Practices of the Funds.' Each Fund expects that
commitments to purchase when-issued securities will not exceed 25% of the value
of its total assets, absent unusual market conditions, and does not intend to
purchase when-issued securities for speculative purposes, but only in
furtherance of its investment objective. Because each Fund will set aside cash
or liquid assets to satisfy its purchase commitments in the manner described,
its liquidity and ability to manage its portfolio might be affected in the event
its commitments to purchase when-issued securities should ever exceed 25% of the
value of its total assets.
PENNSYLVANIA MUNICIPAL SECURITIES
In managing the portfolios of Intermediate Municipal Bond Fund and Tax-Free
Reserve, CoreStates Advisers intends to invest, when possible, such Funds'
assets in Pennsylvania Municipal Securities, provided the investment is
consistent with the Funds' investment objectives and policies and their status
as diversified investment companies. Because of the relatively limited number of
Pennsylvania municipal issuers and the restricted supply of outstanding
municipal securities issued by them that meet the Funds' investment criteria,
CoreStates Advisers cannot predict precisely what percentage of each Fund's
portfolio will be invested in such issuers.
Except as stated above with respect to Pennsylvania Municipal Securities,
CoreStates Advisers does not intend on a regular basis to invest more than 25%
of either Fund's total
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42 Types of Securities
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/X/ COREFUND
assets in (i) municipal securities whose issuers are in the same state, (ii)
municipal securities, the interest on which is paid solely from revenues of
similar projects, and (iii) industrial development bonds, although it may do so
from time to time. To the extent such Funds' assets are so concentrated, they
would be subject to the peculiar risks presented by the laws and economic
conditions relating to such states, projects, and bonds to a greater extent than
it would be if its assets were not so concentrated.
AMT OBLIGATIONS
While Intermediate Municipal Bond Fund and Tax-Free Reserve are permitted to
purchase 'private activity bonds' that are subject to the Alternative Minimum
Tax (the 'AMT') imposed by Section 55 of the Code, these Funds do not currently
hold or anticipate purchasing such bonds. If they did so, however, a portion of
the dividends received would be subject to the AMT. The purchase of such bonds
by these Funds could have a material effect on the AMT liability of their
investors, and hence these Funds do not intend to invest any portion of their
assets in such bonds.
Corporate shareholders, however, should note that all exempt-interest
dividends are includable in the computation of 'adjusted current earnings' for
AMT purposes, regardless of when the bonds from which they are derived were
issued or whether they are derived from 'private activity bonds.' Accordingly,
corporate shareholders should consult their tax advisers regarding the impact
that holding shares of these Funds would have on their own AMT liability.
TEMPORARY INVESTMENTS __________________________________________________________
On occasion, a Fund may be unable to achieve its investment objective due to
market conditions. Under such circumstances, a Fund is permitted to make certain
temporary investments which deviate from the investment policies described
above. Such investments may be used to invest uncommitted cash balances, to
maintain liquidity to meet shareholder redemptions, or to take a temporary
defensive position against potential or serious stock market declines. The
temporary investments the Funds are permitted to make under such circumstances
are described below.
GROWTH EQUITY FUND
VALUE EQUITY FUND
EQUITY INDEX FUND
INTERNATIONAL GROWTH FUND
Although these Funds normally seek to remain fully invested in equity
securities, they may invest all or a portion of their assets temporarily in
certain short-term and fixed income vehicles, in accordance with the investment
restrictions described herein. Money market instruments, such as commercial
paper, and fixed income securities, such as bonds, must be assigned, or
determined by the advisers to be equal to, certain minimum ratings in each
category by either Moody's or S&P at the time of purchase by a Fund. Temporary
investments may include the following:
Money Market Instruments
U.S. Government Obligations
Fixed Income Securities
Repurchase Agreements
BALANCED FUND Although Balanced Fund normally seeks to remain fully invested in
a combination of equity, fixed income, and
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Types of Securities 43
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INFORMATION ON THE FUNDS (CONTINUED)
money market securities, when CoreStates Advisers determines that market
conditions warrant, it may invest up to 100% of its assets in money market
instruments, including securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities, repurchase agreements, certificates of
deposit and bankers' acceptances issued by banks or savings and loan
associations having net assets of at least $500 million as of the end of their
most recent fiscal year, and commercial paper rated, at time of purchase, in the
top two categories by a national rating agency or determined to be of comparable
quality by the investment adviser at time of purchase, and other long- and
short-term debt instruments which are rated A or higher at time of purchase, and
may hold a portion of its assets in cash reserves.
PENNSYLVANIA MUNICIPAL BOND FUND
NEW JERSEY MUNICIPAL BOND FUND
Each of these Funds may increase its investment in Taxable Obligations to over
20% of its total assets if suitable tax-exempt obligations are unavailable or
for temporary defensive purposes.
GLOBAL BOND FUND For temporary defensive purposes, when the advisers determine
that market conditions warrant, Global Bond Fund may invest up to 100% of its
assets in U.S. dollar-denominated fixed income securities or debt obligations
and the following domestic and foreign money market instruments: government
obligations, certificates of deposit, bankers' acceptances, time deposits,
commercial paper, short-term corporate debt issues and repurchase agreements.
This Fund may hold a portion of its assets in cash for liquidity purposes.
TAX-FREE RESERVE Tax-Free Reserve may hold uninvested cash reserves which do not
earn income (pending investment) during temporary defensive periods or if, in
the opinion of CoreStates Advisers, suitable tax-exempt obligations are
unavailable. There is no percentage limitation on the amount of assets which may
be held uninvested. In addition, such Fund may invest from time to time, to the
extent consistent with its investment objective, a portion of its assets on a
temporary basis or for temporary defensive purposes in short-term money market
instruments, the income from which is subject to federal income tax.
Temporary investments will generally not exceed 20% of the total assets of
Tax-Free Reserve except when made for temporary defensive purposes, and may
include obligations of the U.S. Government or its agencies or instrumentalities;
debt securities (including taxable commercial paper) of issuers having been
assigned, at the time of purchase, the highest short-term rating of either
Moody's or S&P; certificates of deposit or bankers' acceptances of domestic
branches of U.S. Banks with total assets at the time of purchase of $1 billion
or more; repurchase agreements with respect to such obligations; or reverse
repurchase agreements.
/X/
INVESTMENT
RESTRICTIONS
Investment policies of the Funds that are not fundamental may be changed by the
Board of Directors without shareholder approval, provided such changes are
deemed to be consistent with a Fund's objective and in the best interests of its
shareholders. However, the investment objectives of each Fund, along with the
restrictions and limitations described herein and in the Statement of Additional
Information, are fundamental and may be changed only by the affirmative vote of
a majority of the outstanding shares of such Fund. See 'Description of Shares.'
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44 Investment Restrictions
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/X/ COREFUND
A FUND MAY NOT:
1. Make loans, except that each Fund may purchase or hold certain debt
instruments and enter into repurchase agreements, in accordance with its
policies and limitations.
2. Borrow money or issue senior securities, except that each Fund may
borrow from banks and enter into reverse repurchase agreements for temporary
purposes in amounts not to exceed 10% of the value of its total assets at the
time of such borrowing; or mortgage, pledge or hypothecate any 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 its total assets at the time
of such borrowing. A Fund will not purchase any securities while its borrowings
(including reverse repurchase agreements) are outstanding.
3. Invest more than 10% of its total assets in illiquid securities,
including repurchase agreements maturing in more than seven days or the lending
of securities which provide for settlement more than seven days after notice.
This fundamental restriction does not apply to Balanced Fund, Government Income
Fund, Intermediate Municipal Bond Fund, Pennsylvania Municipal Bond Fund, New
Jersey Municipal Bond Fund or Global Bond Fund. These Funds, as a matter of non-
fundamental investment policy, may invest up to 15% of their assets in illiquid
securities.
4. Purchase securities of any one issuer (other than obligations issued or
guaranteed as to principal and interest by the U.S. Government, its agencies or
instrumentalities) if, immediately after such purchase, more than 5% of the
value of the Fund's total assets would be invested in such issuer, except that
up to 25% of the value of the Fund's total assets may be invested without regard
to such 5% limitation. With respect to the Fixed Income Funds and Cash Reserve,
however, there is no limit to the percentage of assets that may be invested in
U.S. Treasury bills and notes, or other obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities. With respect to Global
Bond Fund, there is no limit to the percentage of assets that may be invested in
securities issued by foreign governments. This restriction does not apply to
Pennsylvania Municipal Bond Fund, New Jersey Municipal Bond Fund or Treasury
Reserve.
5. Invest 25% or more of its total assets in any one industry. For
purposes of this limitation, wholly-owned finance companies will be considered
to be in the industries of their parents if their activities are primarily
related to financing the activities of their parents, and utilities will be
divided according to their services-for example, gas, gas transmission, electric
and gas, electric, and telephone will each be considered a separate industry.
This restriction does not apply to Treasury Reserve.
With respect to Intermediate Municipal Bond Fund, Pennsylvania Municipal
Bond Fund, New Jersey Municipal Bond Fund and Tax-Free Reserve, this limitation
does not apply to investments in tax-exempt securities issued by governments or
political sub-divisions of governments.
With respect to Global Bond Fund, there is no limitation with respect to
obligations issued by the U.S. Government, foreign governments, or supranational
agencies.
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Investment Restrictions 45
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INFORMATION ON THE FUNDS (CONTINUED)
With respect to Cash Reserve, there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government or its
instrumentalities.
EQUITY FUNDS In addition, an Equity Fund may not purchase securities of any one
issuer (other than obligations issued or guaranteed as to principal and interest
by the U.S. Government, its agencies or instrumentalities) if, as a result
thereof, more than 10% of the voting securities of such issuer would be held by
the Fund.
TREASURY RESERVE In addition, Treasury Reserve may not purchase securities other
than direct obligations of the U.S. Treasury, such as Treasury bills and notes,
none of which may be subject to repurchase agreements.
PORTFOLIO TURNOVER It is not a policy of the Funds to purchase or sell
securities for trading purposes. However, the advisers manage the Funds without
regard generally to restrictions on portfolio turnover, except those imposed by
provisions of the federal tax laws regarding short-term trading. Generally, the
Funds will not trade for short-term profits, but when circumstances warrant,
investments may be sold without regard to the length of time held. It is
expected that the Equity Funds' annual portfolio turnover rates will not exceed
100%. A 100% rate of turnover would occur, for example, if all of a portfolio's
securities are replaced within a one year period. With respect to the Fixed
Income Funds, the annual portfolio turnover rate may exceed 100% due to changes
in portfolio duration, yield curve strategy or commitments to forward delivery
mortgage-backed securities. With the exception of Global Bond Fund, however, it
is expected that the annual turnover rate for the Fixed Income Funds will not
exceed 250%.
High rates of portfolio turnover necessarily result in correspondingly
heavier brokerage and portfolio trading costs which are paid by a Fund. Trading
in fixed income securities does not generally involve the payment of brokerage
commissions, but does involve indirect transaction costs. In addition to
portfolio trading costs, higher rates of portfolio turnover may result in the
realization of capital gains. As a general rule, net gains are distributed to
shareholders and will be taxable at ordinary income tax rates, for federal
income tax purposes, regardless of long- or short-term capital gains status. See
'Distributions' and 'Taxes' for more information on taxation. The tables set
forth in 'Financial Highlights' present the Funds' historical portfolio turnover
rates.
/X/
INVESTOR
CONSIDERATIONS
INVESTMENT SUITABILITY _________________________________________________________
EQUITY FUNDS
The Equity Funds are appropriate for investors seeking long-term growth.
Historically, equities have provided significantly higher returns than fixed
income and money market instruments, yet subject the investor to greater price
fluctuation. The CoreFund Equity Funds offer a range of growth and risk
characteristics, incorporating high grade domestic and international securities.
Growth Equity Fund
Value Equity Fund
These Funds are appropriate for investors who are seeking long-term income and
capital appreciation, and who do not need to earn current income from their
investments in a Fund. They are suited to those investors who
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46 Investor Considerations
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are willing to hold their investments over a long horizon in anticipation of the
returns that common stocks may provide. Because these Funds invest in equity
securities, investors should be able to tolerate fluctuations in the principal
value of their investment. Investors should be cognizant of the inherent
volatility in the stock market, and the investment risks discussed below; and
understand that all investments carry a risk factor.
Equity Index Fund
Equity Index Fund is suitable for those who want to participate in the equity
market's superior long-term performance without the near-term commitment and
risks associated with choosing a particular investment style which may or may
not be out of favor during any period of time. Investors generally can expect
returns in line with the S&P 500 Index, which is tracked closely by the Fund.
Balanced Fund
Balanced Fund is appropriate for investors who seek to capture the interest
income of bonds and the capital appreciation of stocks while reducing risk
through diversification among these securities.
International Growth Fund
International Growth Fund is appropriate for investors who are seeking long-term
capital appreciation, and who do not need to earn current income from their
investment in a Fund. International Growth Fund is suited to those investors who
are willing to hold their investment over a long horizon in anticipation of the
returns that foreign stocks may provide. Because the Fund invests in foreign
equity securities, investors should be able to tolerate fluctuations in the
principal value of their investment. Investors should be cognizant of the unique
risks of international investing, including their exposure to currency
fluctuations; and understand that all investments carry a risk factor.
FIXED INCOME FUNDS
These Funds are appropriate for investors seeking an investment vehicle that
offers a higher level of current income with low to moderate share price
fluctuations. These Funds differ primarily by their average maturity, credit
quality, and tax status.
Intermediate Bond Fund will purchase U.S. Government and corporate
securities rated A or better and is expected to have an average maturity of no
more than five years.
Government Income Fund will invest only in obligations issued or
guaranteed by the U.S. Government and its agencies. There is no limit to the
average maturity so it is appropriate for investors who seek a higher level of
current income than that which is generally possible with money market funds,
and who can tolerate moderate fluctuations in principal value.
Intermediate Municipal Bond Fund is for investors seeking income exempt
from federal income taxes, generally investors in a high income tax bracket.
This Fund will only purchase securities rated A or better and is expected to
have an average maturity of three to ten years.
Pennsylvania Municipal Bond Fund is appropriate generally for investors
seeking an investment vehicle that offers a higher level of current income
exempt from federal income taxes and (as to Pennsylvania residents) Pennsylvania
income taxes, with low to moderate share price fluctuations.
New Jersey Municipal Bond Fund is appropriate generally for investors
seeking an investment vehicle that offers a higher
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Investor Considerations 47
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INFORMATION ON THE FUNDS (CONTINUED)
level of current income exempt from federal income taxes and (as to New Jersey
residents) New Jersey income taxes, with low to moderate share price
fluctuations.
Global Bond Fund is suitable for long-term investors who are looking for
both income and capital appreciation from a portfolio of fixed income securities
denominated in U.S. and foreign currencies. Because the value of the securities
will fluctuate with changes in interest rates and relative currency values,
investors must be willing to invest their money over a longer time horizon in
anticipation of the returns afforded by a diversified portfolio of U.S. and
foreign bonds.
MONEY MARKET FUNDS
As each of these Funds is designed and managed to maintain a stable price per
share of $1.00, they provide liquidity and a high degree of safety for investors
who are unable to tolerate fluctuations in the principal value of their
investments.
Cash Reserve is appropriate for investors who are seeking an investment
vehicle that provides current interest income at competitive rates of return.
By investing in direct obligations of the U.S. Treasury, Treasury Reserve
affords an extra margin of protection for investors for whom a high degree of
safety is a primary concern. Treasury Reserve is considered to be the most
secure of the Money Market Funds. This Fund is appropriate for investors who are
seeking an investment vehicle that provides current interest income at
competitive rates of return.
Tax-Free Reserve is appropriate for conservative investors in higher-level
federal income tax brackets who may benefit from an investment that offers
current interest income that is at least 80% free of federal income taxes.
Therefore, investors contemplating the purchase of this Fund should first
consider their 'taxable equivalent yield.' This is the comparison between the
tax-exempt yield from Tax-Free Reserve and the equivalent yield from a taxable
investment, using a calculation that takes into account the investor's current
tax bracket. Tax-Free Reserve's current taxable equivalent yield may be obtained
by contacting its distributor.
INVESTMENT RISKS _______________________________________________________________
The Funds differ significantly in terms of risk. Because of the concerns listed
below, a Fund should not be considered a complete investment program. Most
investors should maintain diversified holdings of securities with different risk
characteristics-including common stocks, bonds and different types of money
market instruments. Investors may also wish to complement an investment in a
Fund with other portfolios offered by CoreFunds.
EQUITY FUNDS
The Equity Funds are subject to market risk and fund risk. Market risk is the
possibility that stock prices in general will decline over short or even
extended periods of time. Stock markets tend to be cyclical, with periods when
stock prices generally rise and periods when stock prices generally decline.
Fund risk is the possibility that a Fund's performance during a specific period
may not meet or exceed that of the stock market as a whole. Therefore, investors
should consider their holdings in equity mutual funds to be long-term
investments. In addition to the risks noted above for all equity funds, the
following equity funds are also subject to additional risks as described below.
Balanced Fund
With respect to Balanced Fund, the market value of fixed income securities bears
an
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48 Investor Considerations
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inverse relationship to changes in market interest rates. Moreover, changes by
recognized rating agencies in the ratings of any fixed income security and in
the ability of an issuer to make payments of interest and principal may also
affect the market value of these securities. Each of these factors will cause
the net asset value of shares of Balanced Fund to fluctuate over time.
In addition, mortgage-backed securities are subject to prepayment of the
underlying mortgages. During periods of declining interest rates, pre-payment of
mortgages underlying these securities can be expected to accelerate. When the
mortgage-backed securities held by a Fund are prepaid, the Fund must reinvest
the proceeds in securities, the yield of which reflects prevailing interest
rates, which may be lower than the yield on the prepaid securities. Thus,
mortgage-backed securities may not be an effective means of locking in long-term
interest rates for Balanced Fund.
International Growth Fund
In addition to market and fund risk, International Growth Fund is also subject
to currency risk. Currency risk is the risk that changes in foreign exchange
rates will affect, favorably or unfavorably, the value of foreign securities
held by the Fund. In a period when the U.S. dollar generally rises against
foreign currencies, the returns on foreign stocks for U.S. investors will
usually be diminished. By contrast, in a period when the U.S. dollar generally
declines, the returns on foreign stocks will usually be enhanced. In addition,
investments in foreign stock markets can be as volatile, if not more volatile,
than investments in U.S. markets.
Investors should also recognize that investing in foreign companies
involves certain special considerations which are not typically associated with
investing in U.S. companies. Since the stocks of foreign companies are
frequently denominated in foreign currencies, and since this Fund may
temporarily hold uninvested reserves in bank deposits in foreign currencies, its
portfolio will be affected favorably or unfavorably by changes in currency rates
and in exchange control regulations, and may incur costs in connection with
conversions between various currencies. The investment policies of International
Growth Fund permit it to enter into forward foreign currency exchange contracts
in order to hedge its holdings and commitments against changes in the level of
future currency rates. Such contracts involve an obligation to purchase or sell
a specific currency at a future date at a price set at the time of the contract.
In addition, as foreign companies are not generally subject to uniform
accounting, auditing, and financial reporting standards and practices comparable
to those applicable to domestic companies, there may be less publicly available
information about certain foreign companies than about domestic companies.
Securities of some foreign companies are generally less liquid and more volatile
than securities of comparable domestic companies. There is generally less
government supervision and regulation of stock exchanges, brokers, and listed
companies than in the U.S. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments which could affect
U.S. investments in those countries.
Although International Growth Fund will endeavor to achieve the most
favorable execution costs in its portfolio transactions,
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Investor Considerations 49
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INFORMATION ON THE FUNDS (CONTINUED)
fixed commissions on many foreign stock exchanges are generally higher than
negotiated commissions on U.S. exchanges. Moreover, transactions executed on
foreign exchanges may be subject to longer settlement periods than transactions
executed on U.S. exchanges. In addition, it is expected that the expenses for
custodial arrangements of the Fund's foreign securities will be somewhat greater
than typical expenses for custodial arrangements for handling U.S. securities of
equal value.
Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from the companies comprising International Growth Fund's
portfolio. However, these foreign withholding taxes are not expected to have a
significant impact since this Fund's investment objective is to seek long-term
capital appreciation and any income should be considered incidental.
International Growth Fund attempts to reduce international investment
risks by diversifying among as many foreign economies and currencies as
possible. This includes investments in both developed and selected emerging
markets. In addition, the International Growth Fund offers its shareholders the
ability to diversify their equity investments to reduce the risk of having such
investments affected solely by political and economic events in one country.
FIXED INCOME FUNDS
Securities held by the Fixed Income Funds may be subject to several types of
investment risk, including market risk, credit risk, and call risk. With respect
to these Funds, market risk (or interest rate risk) is the potential for a
decline in the price of fixed income securities due to rising interest rates.
Market risk will be greater for longer term securities than for shorter term
securities. Credit risk is the possibility that a bond issuer will be unable to
make timely payments of either principal or interest. Call risk (or income risk)
relates to corporate bonds during periods of falling interest rates, and
involves the possibility that securities with high interest rates will be
prepaid (or 'called') by the issuer prior to maturity. Such an event would
require a Fund to invest the resulting proceeds elsewhere, at generally lower
interest rates, which would cause fluctuations in the Fund's net income.
Intermediate Bond Fund may also be exposed to event risk, the possibility
that corporate fixed income securities held by it may suffer a substantial
decline in credit quality and market value due to a corporate restructuring.
Corporate restructurings (mergers, leveraged buyouts, takeovers or similar
events) are often financed by a significant expansion of corporate debt. As a
result, the credit quality and market value of a firm's existing debt securities
may decline significantly. While event risk may be high for certain corporate
securities held by this Fund, event risk for the Fund in the aggregate should be
low because of the Fund's diversified holdings.
Government Income Fund may acquire mortgage-backed securities and thus may
be subject to the risks associated with these securities, which are described
above.
The concentration of investments in Pennsylvania Municipal Securities by
the Pennsylvania Municipal Bond Fund raises special investment considerations.
In particular, changes in the economic condition and governmental policies of
the Commonwealth of Pennsylvania and its municipalities could adversely affect
the value
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50 Investor Considerations
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/X/ COREFUND
of the Fund and the portfolio securities held by it. Rising medical assistance
costs, a slow rate of economic recovery, increased costs of union contracts,
rising unemployment and the potential negative impact of pending litigation may
place increased pressures on the tax resources of the Commonwealth and its
municipalities. See 'Special Risk Factors-Pennsylvania Municipal Securities' in
the Statement of Additional Information for further discussion of the risks
associated with Pennsylvania Municipal Securities.
The concentration of investments in New Jersey Municipal Securities by the
New Jersey Municipal Bond Fund raises special investment considerations that are
discussed under the caption 'Special Risk Factors-New Jersey Municipal
Securities' in the Statement of Additional Information. In particular, changes
in economic conditions and governmental policies of the State of New Jersey and
its municipalities could adversely affect the value of the Fund and the
portfolio securities held by it.
Global Bond Fund is also subject to currency risk and other risks
associated with investing in the securities of foreign companies, as described
above with respect to International Growth Fund.
MONEY MARKET FUNDS
Securities held by Cash Reserve and Treasury Reserve may be subject, on a
limited basis, to credit risk. The credit risk of an investment portfolio is a
function of its underlying securities, and in general, securities of somewhat
lower credit quality provide correspondingly higher yields.
Securities held by Tax-Free Reserve may be subject, on a limited basis, to
several types of investment risk, including market risk (or interest rate risk),
credit risk and call risk (or income risk).
/X/
DISTRIBUTIONS
Shareholders of each Fund are entitled to dividends and distributions arising
from the net investment income and capital gains, if any, earned on investments
held by such Fund. Series A Shares of the Money Market Funds begin earning
dividends on the business day on which the purchase order for the shares is
executed and continue to earn dividends through, and including, the day before
the redemption order for such shares is executed. Series A shares of the Fixed
Income Funds begin earning dividends on the business day following the day on
which the purchase order for the shares is executed and continue to earn
dividends through, and including, the day on which the redemption order for such
shares is executed.
Dividends are paid in the form of additional Series A Shares of a Fund
unless a shareholder selects one of the following options on the Account
Application Form: Cash Dividend Option-to receive dividends in cash and capital
gains distributions in additional shares of the Fund at net asset value; All
Cash Option-to receive both dividends and capital gains distributions in cash.
In the absence of either of these selections on the Account Application Form,
each purchase of shares is made upon the condition and understanding that the
Fund's agent is automatically appointed to receive the dividends and
distributions upon all shares in the shareholder's account and to reinvest them
in full and fractional shares of the Fund at the net asset value in effect at
the close of business on the
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Distributions 51
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INFORMATION ON THE FUNDS (CONTINUED)
reinvestment date. Dividends and distributions are automatically paid in cash
(along with any redemption proceeds) not later than seven business days after a
shareholder closes an account with the Fund.
The dividends from Series A Shares are normally higher than those of
Series B Shares because of the distribution and incremental transfer agent
expenses charged to Series B Shares.
The Funds maintain different dividend and capital gain distributions
policies. These are:
EQUITY FUNDS
Growth Equity Fund
Value Equity Fund
Equity Index Fund
Balanced Fund
Dividends from the net investment income of each of these Funds are declared and
paid to shareholders on a quarterly basis. Distributions of any capital gains
will be made at least annually.
International Growth Fund
The net investment income of this Fund is periodically declared and paid as a
dividend. Distributions of any capital gains will be made at least annually.
FIXED INCOME FUNDS
MONEY MARKET FUNDS
The net investment income of each of these Funds except Global Bond Fund is
declared daily as a dividend to its shareholders and paid monthly. Global Bond
Fund will distribute its net investment income in the form of quarterly
dividends. Capital gains distributions, if any, will be made by the Fixed Income
Funds and Money Market Funds at least annually.
If any capital gains are realized from the sale of underlying securities,
the Funds normally distribute such gains with the last dividend for the calendar
year.
In all Funds except the Money Market Funds, undistributed net investment
income is included in the Fund's net assets for the purpose of calculating net
asset value per share. Therefore, on the 'ex-dividend' date, the net asset value
per share excludes the dividend (i.e., is reduced by the per share amount of the
dividend). Dividends paid shortly after the purchase of shares by an investor,
although in effect a return of capital, are taxable as ordinary income.
/X/
TAXES
The following is only a brief summary of some of the important tax
considerations generally affecting the Funds and their shareholders. No attempt
has been made to present a detailed explanation of the federal, state or local
income tax treatment of the Funds or their shareholders, and this discussion is
not intended as a substitute for careful tax planning. Potential investors in
the Funds are urged to consult their tax advisers with specific reference to
their own tax situations.
The following summary is based on current tax laws and regulations which
may be changed by legislative, judicial or administrative action.
ALL FUNDS
Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with any of CoreFunds' other portfolios. Each Fund intends to
qualify for the favorable tax treatment afforded a 'regulated investment
company' under the Code. This requires, among other things, that a Fund
distribute to its shareholders at least 90% of its net investment income.
Provided a Fund meets this 90% distribution and other
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requirements, it will be relieved of federal income tax on that part of its net
investment income and any net capital gains (the excess of net long-term capital
gain over net short-term capital loss) distributed to shareholders.
Whether paid in cash or in additional shares, dividends attributable to a
Fund's net investment income (including ordinary income and net short-term
capital gains), including any dividends attributable to taxable net investment
income of Tax-Free Reserve or Intermediate Municipal Bond Fund, will be taxable
to shareholders as ordinary income. Capital gains distributions of all Funds
will be taxable as long-term capital gain, regardless of how long a shareholder
has held shares.
Dividends declared by a Fund in October, November, or December of any year
and payable to shareholders of record on a date in such a month will be deemed
to have been paid by the Fund and received by the shareholders on December 31 of
that year, if paid by the Fund during the following January.
INTERNATIONAL GROWTH FUND
GLOBAL BOND FUND
International Growth Fund and Global Bond Fund will receive dividends and
interest paid by foreign issuers which are frequently subject to withholding
taxes by foreign governments. Provided that more than 50% of the value of the
total assets of either International Growth Fund or Global Bond Fund at the
close of any taxable year consists of equity or debt securities of foreign
corporations, such Fund may elect (for U.S. federal income tax purposes) to
treat each shareholder as having additional income equal to a proportionate
amount of such foreign taxes paid by the Fund and as having directly paid such
foreign taxes. In addition, if a Fund makes such an election, shareholders will
be treated as having directly earned a portion of the Fund's gross income from
foreign sources. The Fund will make such an election only if it deems it to be
in the best interests of its shareholders and will notify shareholders
accordingly.
TAX-FREE RESERVE
INTERMEDIATE MUNICIPAL BOND FUND
PENNSYLVANIA MUNICIPAL BOND FUND
NEW JERSEY MUNICIPAL BOND FUND
Each of these Funds expects to qualify to pay exempt-interest dividends to its
shareholders by satisfying the Code's requirement that at the close of each
quarter of its taxable year, at least 50% of the value of its total assets
consists of obligations the interest on which is exempt from regular federal
income tax. Tax-exempt interest dividends may generally be treated by such
Fund's shareholders as items of income excludible from their gross income under
the Code unless, under the circumstances applicable to the particular
shareholder, exclusion would be disallowed. Exempt-interest dividends may also
have certain collateral federal income tax consequences, including Alternative
Minimum Tax consequences.
Current federal tax law limits the types and volume of bonds qualifying
for the federal income tax exemption of interest, which may have an effect on
the ability of these Funds to purchase sufficient amounts of tax-exempt
securities to satisfy the Code's requirements for the payment of 'exempt-
interest' dividends.
Interest on indebtedness incurred or continued by a shareholder in order
to purchase or carry shares of these Funds is not deductible for federal income
tax
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Taxes 53
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INFORMATION ON THE FUNDS (CONTINUED)
purposes. Furthermore, these Funds may not be an appropriate investment for
persons (including corporations and other business entities) who are
'substantial users' (or persons related to 'substantial users') of facilities
financed by industrial development or private activity bonds. Such persons
should consult their tax advisers before purchasing shares. A 'substantial user'
is defined generally to include 'certain persons' who regularly use in their
trade or business a part of a facility financed from the proceeds of such bonds.
Except as noted below, tax-exempt interest dividends and other
distributions paid by these Funds may be taxable to investors as dividend income
under state or local law even though a substantial portion of such distributions
may be derived from interest on tax-exempt obligations which, if received
directly, would be exempt from such income taxes.
CASH RESERVE
TREASURY RESERVE
TAX-FREE RESERVE
With respect to investments in STRIPS and Receipts which are sold at original
issue discount and thus do not make periodic cash interest payments, a Fund will
be required to include as part of its current income the imputed interest on
such obligations even though the Fund has not received any interest payments on
such obligations during that period. Because each Fund distributes all of its
net investment income to its shareholders, a Fund may have to sell portfolio
securities to distribute such imputed income, which may occur at a time when the
investment adviser would not have chosen to sell such securities and which may
result in a taxable gain or loss.
PENNSYLVANIA TAX CONSIDERATIONS
For purposes of the Pennsylvania Personal Income Tax and the Philadelphia School
District Investment Net Income Tax, distributions which are attributable to
interest received by the Pennsylvania Municipal Bond Fund from its investments
in Pennsylvania Municipal Securities or in direct obligations of the United
States, its territories and certain of its agencies and instrumentalities
('Federal Securities'), including obligations issued by U.S. possessions, are
not taxable. Distributions by the Fund to a Pennsylvania resident that are
attributable to most other sources may be subject to the Pennsylvania Personal
Income Tax and (for residents of Philadelphia) to the Philadelphia School
District Investment Net Income Tax.
Shares of the Pennsylvania Municipal Bond Fund are exempt from
Pennsylvania county personal property taxes and (as to residents of Pittsburgh)
from personal property taxes imposed by the City of Pittsburgh and the School
District of Pittsburgh to the extent that the Fund's portfolio consists of
Pennsylvania Municipal Securities and Federal Securities, including obligations
issued by U.S. possessions.
To the extent that gain on the disposition of a share represents gain
realized on Pennsylvania Municipal Securities held by the Pennsylvania Municipal
Bond Fund, such gain may be subject to the Pennsylvania Personal Income Tax and
the School District Tax, except that gain realized with respect to a share held
for more than six months is not subject to the School District Tax.
NEW JERSEY TAX CONSIDERATIONS
Investors of the New Jersey Municipal Bond Fund will not be subject to the New
Jersey Gross Income Tax on distributions from the Fund attributable to interest
income from (and net gain, if any, from the disposition of) New Jersey Municipal
Securities or Federal Securities held by the Fund, either when
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received by the Fund or when credited or distributed to the investors, provided
that the Fund meets the requirements for a qualified investment fund by: (i)
maintaining its registration as a registered investment company; (ii) investing
at least 80% of the aggregate principal amount of the Fund's investments,
excluding cash and cash items, in New Jersey Municipal Securities or Federal
Securities; and (iii) investing 100% of its assets in interest-bearing
obligations, discount obligations, and cash, including receivables.
For New Jersey Gross Income Tax purposes, net income or gains and
distributions derived from investments in other than New Jersey Municipal
Securities and Federal Securities, and distributions from net realized capital
gains in respect of such investments, will be taxable.
Gain on the disposition of shares of this Fund is not subject to New
Jersey Gross Income Tax, provided that the Fund meets the requirements for a
qualified investment fund set forth above.
BACK-UP WITHHOLDING
Generally, the Funds are required to withhold 31% of ordinary income dividends,
capital gains distributions, and redemptions paid to shareholders who have not
complied with IRS taxpayer identification regulations and in certain other
circumstances. Shareholders who are not otherwise subject to back-up withholding
may avoid this withholding requirement by certifying on the Account Application
Form their proper Social Security or Taxpayer Identification Number and
certifying that they are not subject to back-up withholding.
IN GENERAL
The sale or redemption of shares of a mutual fund is a taxable event to the
selling or redeeming shareholder. Gains or losses (if any) may also be realized
from an ordinary redemption of shares, as described herein, or on a telephone
exchange among the CoreFunds portfolios.
In the opinion of counsel, shares of the Funds are exempt from current
Pennsylvania Personal Property Taxes.
Shareholders will be advised at least annually as to the federal income
tax status of distributions made during the year. See the Statement of
Additional Information for further information regarding taxes.
/X/
VALUATION OF SHARES
NET ASSET VALUE ________________________________________________________________
EQUITY FUNDS
FIXED INCOME FUNDS
The shares of these Funds will fluctuate in value as a result of changes in the
value of their portfolio investments. Shares in the Funds will realize capital
gains or losses as portfolio investments are sold above or below costs,
respectively.
The net asset value per share of these Funds for purposes of pricing
purchase and redemption orders is normally determined as of 4:00 p.m. (Eastern
time) (the 'valuation time') on each business day of the Funds. A 'business day'
of a Fund is a day on which the New York Stock Exchange is open for trading, and
any other day (other than a day on which no shares of the Fund are tendered for
redemption and no order to purchase any shares is received) during which there
is a sufficient degree of trading in securities or
----
Valuation of Shares 55
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INFORMATION ON THE FUNDS (CONTINUED)
instruments held by the Fund such that the Fund's net asset value per share
might be materially affected. Net asset value per share is calculated by
dividing the value of all of the Fund's portfolio securities and other assets,
less liabilities, by the number of outstanding shares of the Fund at the time of
the valuation. The result (adjusted to the nearest cent) is the net asset value
per share.
MONEY MARKET FUNDS The net asset value per share of each of these Funds for
purposes of pricing purchase and redemption orders is normally determined as of
12:00 noon (Eastern time) on each business day of the Funds. These Funds are
managed to maintain a stable price per share of $1.00.
PORTFOLIO PRICING ______________________________________________________________
Portfolio securities which are traded both over-the-counter and on a national
securities exchange are valued according to the broadest and most representative
market. When securities exchange valuations are used, the valuation will be the
latest sale price on such exchange on such business day or, if there is no such
reported sale, the current bid price. Other assets and securities for which no
quotations are readily available will be valued in a manner determined in good
faith by the Board of Directors to reflect their fair market value.
INTERNATIONAL GROWTH FUND
GLOBAL BOND FUND
Securities listed on a foreign exchange are valued at the most recent closing
price available before the time when assets are valued. All prices of listed
securities are taken from the exchange where the security is primarily traded.
Securities regularly traded in the over-the-counter market for which market
quotations are readily available will be valued at the current bid price.
Securities may be valued on the basis of prices provided by a pricing service
when such prices are believed to reflect the fair market value of such
securities. Other assets and securities for which no quotations are readily
available will be valued in a manner determined in good faith by the Board of
Directors to reflect their fair market value.
In addition, all assets and liabilities initially expressed in foreign
currencies will be translated into U.S. dollars at the bid price of such
currencies against U.S. dollars last quoted by a major bank or by a broker. If
such quotations are not available as of the close of the Exchange, the rate of
exchange will be determined in accordance with the policies established in good
faith by the Board of Directors.
FIXED INCOME FUNDS Portfolio securities which are traded both over-the-counter
and on a national securities exchange are valued according to the broadest and
most representative market, and it is expected that for bonds, and other fixed
income securities, this would ordinarily be the over-the-counter market.
Valuation of such securities is the currently quoted bid price on each business
day. When securities exchange valuations are used, the valuation will be the
latest sale price on such exchange on such business day or, if there is no such
reported sale, the current bid price. Short-term investments (if any) are stated
at cost, which approximates market value. Other assets and securities for which
no quotations are readily available will be valued in a manner determined in
good faith by the Board of Directors to reflect their fair market value.
Bonds and other fixed income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities. The prices provided by a
- ----
56 Valuation of Shares
<PAGE>
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/X/ COREFUND
pricing service take into account a variety of factors in determining fair
market value.
Even though the market prices of intermediate-term, fixed income
securities tend to be relatively stable, the prices of such securities vary
inversely with changes in interest rates and are therefore subject to market
price fluctuations. The longer maturity a bond has, the greater the potential
for fluctuations in prices.
MONEY MARKET FUNDS The assets in the Money Market Funds are valued based upon
the amortized cost method, pursuant to rules promulgated under the Investment
Company Act. Under this method of valuation, the value of a Fund's shares
normally will not change in response to fluctuating interest rates. In
connection with its use of this valuation method, however, each Fund monitors
the deviation between the amortized cost value of its assets and their market
value (which can be expected to vary inversely with changes in prevailing
interest rates). Although each Fund seeks, through its use of amortized cost
valuation, to maintain its net asset value per share at $1.00, there can be no
assurance that the net asset value will not vary.
/X/
MANAGEMENT
The business and affairs of each Fund are managed under the direction of
CoreFunds' Board of Directors.
INVESTMENT ADVISER,
SUB-ADVISERS ___________________________________________________________________
CoreStates Advisers has overall responsibility for portfolio management for each
of the Funds. CoreStates Advisers is a wholly-owned subsidiary of CoreStates
Bank, itself a wholly-owned subsidiary of CoreStates Corp. CoreStates Corp,
based in Philadelphia, Pennsylvania, is one of the 30 largest bank holding
companies in the United States, and leads the region in investing corporate
cash. CoreStates Corp currently has over $29 billion in assets and discretionary
management over $22 billion in customer accounts through a variety of banking
activities at over 355 domestic and foreign locations. Corestates Corp's leading
subsidiary, CoreStates Bank, currently ranks thirty-second in the management of
discretionary trust assets.
CoreStates Advisers is an adviser registered under the Investment Advisers
Act of 1940. It performs most investment management and advisory functions for
the trust departments of CoreStates Corp's banking subsidiaries, related
investment advisory, research, trading, and fund management functions, and also
provides similar services to customers unrelated to CoreStates Corp. CoreStates
Advisers currently manages discretionary and nondiscretionary client security
portfolios with a total aggregate market value of over $10 billion, for
individuals, corporations, institutions, and municipalities. CoreStates Advisers
has extensive experience in the management of money market, tax-free, fixed
income, equity, and international investments. CoreStates Advisers has principal
offices at 1500 Market Street, P.O. Box 7558, Philadelphia, PA 19102.
As investment adviser, CoreStates Advisers manages the investment
portfolio of each Fund, makes decisions with respect to and places orders for
all purchases and sales of a Fund's portfolio securities, and maintains certain
records relating to such
----
Management 57
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INFORMATION ON THE FUNDS (CONTINUED)
purchases and sales. CoreStates Advisers pays all expenses incurred by it in
connection with its investment advisory activities, other than the cost of
securities (including any brokerage commissions) purchased for the Funds and the
cost of obtaining market quotations for portfolio securities held by the Funds.
CoreStates Advisers has delegated some of its portfolio management
functions with respect to Value Equity Fund to Cashman, Farrell and Associates
('Cashman, Farrell'), with respect to International Growth Fund to Martin
Currie, Inc. ('Martin Currie'), and with respect to Global Bond Fund to Alpha
Global Fixed Income Managers, Inc. ('Alpha Global') pursuant to separate
Sub-Advisory Agreements between CoreStates Advisers and each of Cashman,
Farrell, Martin Currie and Alpha Global.
Cashman, Farrell is a professional investment counseling firm and, along
with its predecessor, Cashman, Farrell and Associates, Inc., has been in
operation since 1980. Cashman, Farrell is located at 1235 W. Lakes Drive,
Berwyn, PA 19312.
Martin Currie, a New York corporation located in Edinburgh, Scotland, is a
wholly-owned subsidiary of Martin Currie, Ltd., which is wholly-owned by its
full-time working executives and is one of Scotland's largest independent
investment management groups. Martin Currie was founded in order to provide
foreign investment advisory services to U.S. funds seeking diversification into
international markets. Although Martin Currie has had extensive experience in
managing a variety of international equity investment companies, International
Growth Fund is the first U.S. registered investment company for which Martin
Currie has acted in an investment advisory capacity. Martin Currie has principal
offices at Saltire Court, 20 Castle Terrace, Edinburgh EH 2ES, Scotland.
Alpha Global is a specialist manager of fixed income securities and cash
for institutional investors. Based in London, England, it is a wholly-owned
subsidiary of United Asset Management Corporation of Boston, Massachusetts,
whose assets under management currently exceed $130 billion. Alpha Global is a
member of the Investment Management Regulatory Organization, one of the
regulatory bodies approved by the UK Government, and its activities are
regulated accordingly. Alpha Global is located at 25/28 Old Burlington Street,
London WIX 1LB, England.
As sub-advisers to Value Equity Fund, International Growth Fund and Global
Bond Fund, Cashman, Farrell, Martin Currie and Alpha Global manage the
investment portfolio of their respective Fund, make decisions with respect to
and place orders for the majority of the purchases and sales of such Fund's
portfolio securities, and maintain certain records relating to such purchases
and sales. Cashman, Farrell, Martin Currie and Alpha Global pay all expenses
incurred by them in connection with their sub-advisory activities, other than
the cost of securities (including any brokerage commissions) purchased for a
Fund and the cost of obtaining market quotations for portfolio securities held
by a Fund.
ADVISORY FEES
For the services provided and expenses assumed as investment adviser of each
Fund, CoreStates Advisers is entitled to receive an annual fee from each of the
Funds, computed daily and paid monthly, at the annual rate of .40% of the
average daily net assets of Equity Index Fund; .75% of the average daily net
assets of Growth Equity Fund and Value Equity Fund, respectively; .80% of the
average daily net assets of International Growth Fund;
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58 Management
<PAGE>
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/X/ COREFUND
.70% of the average daily net assets of Balanced Fund; .60% of the average daily
net assets of Global Bond Fund; and .50% of the average daily net assets of
Intermediate Bond Fund, Intermediate Municipal Bond Fund, Government Income
Fund, Pennsylvania Municipal Bond Fund, New Jersey Municipal Bond Fund, Treasury
Reserve, Cash Reserve, and Tax-Free Reserve, respectively. CoreStates Advisers
may, from to time and at its discretion, voluntarily waive all or a portion of
its investment advisory fees in order to assist the Funds in maintaining
competitive expense ratios.
For the services provided as Value Equity Fund's sub-adviser, Cashman,
Farrell is entitled to receive a fee from CoreStates Advisers, computed daily
and paid monthly, at the annual rate of .50% of such Fund's average net assets.
For the services provided as International Growth Fund's sub-adviser, Martin
Currie is entitled to receive a fee from CoreStates Advisers, computed daily and
paid monthly, at the annual rate of .50% of such Fund's average net assets. For
the services provided as Global Bond Fund's sub-adviser, Alpha Global is
entitled to receive a fee from CoreStates Advisers, computed daily and paid
monthly, at the annual rate of .30% of such Fund's average net assets.
FUND MANAGERS __________________________________________________________________
The following individuals are primarily responsible for managing the investment
portfolios of the Funds:
GROWTH EQUITY FUND Timothy R. Stives, a Managing Director and Senior Vice
President of CoreStates Advisers, manages Growth Equity Fund. Prior to joining
CoreStates Advisers, Mr. Stives was Vice President of Chancellor Capital
Management. Prior to joining Chancellor, he was a securities analyst and
portfolio manager with CitiCorp. Mr. Stives has been managing growth stock
portfolios, including corporate and public pension fund portfolios, since 1988.
Mr. Stives holds an M.B.A from Rutgers University and a B.A. from Pennsylvania
State University.
VALUE EQUITY FUND Douglas H. Pyle, Managing Partner of Cashman, Farrell, has
managed Value Equity Fund since its inception. Mr. Pyle joined Cashman, Farrell
in 1988 as a security analyst covering chemicals, papers, and intermediate
materials. He became a portfolio manager in 1989 and was admitted as a general
partner in 1990.
EQUITY INDEX FUND Lary Aasheim, C.F.A., a Vice President of CoreStates Advisers,
is portfolio manager of Equity Index Fund. In addition, he is a securities
analyst with responsibility for the technology and telecommunications equipment
industries, paper, forest products and building material industries. Prior to
joining CoreStates Advisers in 1990, Mr. Aasheim worked as an analyst at First
Fidelity Bank/Fidelity Bank, First Pennsylvania Bank and Bear Stearns in New
York. He received his B.S. degree in Economics from The Wharton School,
University of Pennsylvania. He also has earned his CFA from the Institute of
Chartered Financial Analysts.
INTERNATIONAL GROWTH FUND Michael J. Gibson, Director of Client Services for
Martin Currie, is the lead director of an investment team responsible for
managing International Growth Fund. Mr. Gibson has 21 years experience of
portfolio investment in international stock markets. A graduate
----
Management 59
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INFORMATION ON THE FUNDS (CONTINUED)
of the University of Oxford, England, he spent seven years as an investment
manager with British Investment Trust in Edinburgh and a further four years with
The Bank of Scotland in the same capacity. He joined Martin Currie in 1983 where
he worked initially in the North American investment team and was then made
responsible for the firm's investments in Continental Europe. He became Director
of Client Services in 1992.
BALANCED FUND Paul Kuper, a Vice President of CoreStates Advisers, is portfolio
manager of the Balanced Fund. Mr. Kuper has managed some of CoreStates Bank's
largest pension, personal and charitable accounts, including the taxable equity
and balanced commingled funds. He has served on the Investment Policy and
Portfolio Review Committees, and was formerly director of the Investment
Research Division. Prior to joining CoreStates Advisers, he was an Executive
Vice President of Centre Square Investment Group and spent 14 years with First
Pennsylvania Bank as a divisional vice-president of the Balanced Portfolio
Management Division. Mr. Kuper has an M.B.A. in finance from Northwestern
University and a B.S. in economics from the Wharton School of Finance of the
University of Pennsylvania.
INTERMEDIATE BOND FUND
GOVERNMENT INCOME FUND
William T. Lawrence, a Vice President of CoreStates Advisers, is portfolio
manager for Intermediate Bond Fund and Government Income Fund. Mr. Lawrence is
also involved in specialized fixed income products including the GIC and
Mortgage Backed Securities. Prior to joining CoreStates Advisers, he was Vice
President, Fixed Income Sales for First Boston Corp. He has an M.B.A. in Finance
from the Wharton School and a B.A. in Economics and English from Bucknell
University.
INTERMEDIATE MUNICIPAL BOND FUND
PENNSYLVANIA MUNICIPAL BOND FUND
NEW JERSEY MUNICIPAL BOND FUND
Joseph R. Baxter manages these Funds. Mr. Baxter, a Vice President of CoreStates
Advisers, is head of the Tax-Advantaged unit at CoreStates Advisers. He is
directly responsible for management of the CoreStates Pennsylvania Tax Exempt
Common Trust Fund. Mr. Baxter graduated from LaSalle University with a Bachelor
of Science Degree majoring in Finance and Marketing. In June 1980, he joined a
stock brokerage firm, Elkins & Co., in an operations capacity and came to
Philadelphia National Bank in May 1982 as an operations supervisor. In October
1984, he joined the Investment Management Division as a corporate cash manager
and in 1986 assumed responsibility for the tax exempt common trust funds.
GLOBAL BOND FUND George McNeill, President and Chief Executive Officer of Alpha
Global, is portfolio manager for Global Bond Fund. Together with United Asset
Management Corporation of Boston, Mr. McNeill founded Alpha Global and has
overall responsibility for its operations. After graduating from Edinburgh
University with degrees in Political Economy and Economic History, he joined the
investment department of Scottish Equitable Life Assurance Society. He then
joined Wallace Brothers Bank where he spent nine years, including seven years as
a Director with principal responsibility for the bank's fixed income
investments. Since 1977, he has worked as Managing Director of the investment
management operating company of Gillett Brothers, and for eight years as
Managing Director of Reserve Asset Managers, a specialist fixed income manager.
In 1989 Mr. McNeill joined Axe-Houghton, Ltd., the London subsidiary of USF&G
Corporation, as
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60 Management
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/X/ COREFUND
Director and Chairman of the Investment Strategy Committee.
CASH RESERVE Rosemary B. Crowley, a Senior Investment Officer of CoreStates
Advisers, is responsible for managing Cash Reserve. Ms. Crowley also manages the
CoreStates Liquidity Fund, as well as individually managed fixed income
portfolios. She is pursuing a Bachelor's Degree at the Wharton Evening School,
University of Pennsylvania. Ms. Crowley joined the Philadelphia National Bank in
1980 in the Institutional Sales Department and in 1981 transferred to the
Investment Management Division.
TREASURY RESERVE Ronald R. Brasten, a Senior Investment Officer of CoreStates
Advisers, manages Treasury Reserve. He also manages the CoreFund Fiduciary
Treasury Reserve and has investment responsibility for individually managed
corporate and personal accounts. After receiving his B.S. in Accounting from
Drexel University, Mr. Brasten joined the Financial Division of CoreStates in
1984. In 1986, he transferred to the Asset and Liability group as an ALCO
analyst. Mr. Brasten joined CoreStates Advisers in August 1989.
TAX-FREE RESERVE Folu Abiona, Senior Investment Officer, is portfolio manager of
the Tax-Free Reserve portfolio. Ms. Abiona also manages the Fiduciary Tax-Free
Reserve portfolio. She joined CoreStates Advisers in 1985 and became fixed
income portfolio manager in 1990. Prior to that, she was a mutual fund
administrator with CoreStates' Institutional Custody Division. She holds an
M.B.A. from Temple University and B.Sc. from the University of Ife, Nigeria.
ADMINISTRATOR __________________________________________________________________
SEI Financial Management Corporation ('SFMC' or the 'Administrator'), with
principal offices at 680 East Swedesford Road, Wayne, PA 19087, acts as each
Fund's administrator. For its administrative services, SFMC is entitled to
receive a fee from each Fund, computed daily and paid monthly, at the annual
rate of .25% of such Fund's average daily net assets. As Administrator, SFMC
generally assists in the Funds' administration and operations. State Street Bank
and Trust Company located at 225 Franklin Street, Boston, MA 02110, serves as
each Fund's transfer agent (the 'Transfer Agent') and dividend paying agent.
DISTRIBUTOR ____________________________________________________________________
SEI Financial Services Company ('SFS' or the 'Distributor'), with principal
offices at 680 East Swedesford Road, Wayne, PA 19087, serves as each Fund's
distributor pursuant to a Distribution Agreement which applies to both Series A
Shares and Series B Shares. Series B Shares are also subject to a separate
distribution plan (the 'Distribution Plan') approved by the Board of Directors
on April 13, 1992. The Distribution Plan provides that CoreFunds will pay the
Distributor an annual fee, calculated on an average daily net basis and paid
monthly, of up to .25% of the average daily net assets of Series B Shares of
each Fund. The Distributor may use this fee as compensation for its
distribution-related services or to compensate Participating Broker/Dealers and
Shareholder Servicing Agents for performing distribution-related or shareholder
services.
The services provided by Participating Broker/Dealers or Shareholder
Servicing Agents may include establishing and maintaining customer accounts and
records;
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Management 61
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INFORMATION ON THE FUNDS (CONTINUED)
aggregating and processing purchase and redemption requests from customers and
placing net purchase and redemption orders with the Distributor; automatically
investing customer account cash balances; providing periodic statements to
customers; arranging for bank wires; answering routine customer inquiries
concerning their investments; assisting customers in changing dividend options,
account designations and addresses; performing sub-accounting functions;
processing dividend payments on behalf of customers; forwarding certain
shareholder communications from the Funds to customers; and providing other
similar services.
Persons selling Series B Shares will receive different compensation with
respect to Series B Shares than Series A Shares.
EXPENSES The Funds' expenses are accrued daily and are deducted from total
income before dividends are paid. Except as noted herein and in the Statement of
Additional Information, the Funds' service contractors bear all expenses
incurred in connection with the performance of their services on behalf of the
Funds. Similarly, the Funds bear the expenses incurred in their operations.
GLASS-STEAGALL ACT CoreStates Corp and its banking subsidiaries are permitted to
perform the services contemplated by the investment advisory agreements with the
Funds and to engage in certain activities in connection with the investment of
their customer accounts in Series A Shares of the Funds without violating the
federal banking law commonly referred to as the Glass-Steagall Act, or other
applicable banking laws or regulations. Future changes to any of these laws or
regulations or administrative or judicial interpretations of such laws or
regulations, however, could prevent or restrict CoreStates Corp (and its banking
subsidiaries) from performing such services. If CoreStates Advisers was thereby
prohibited from serving as investment adviser to the Funds, the Board of
Directors would promptly seek to retain another qualified investment adviser for
the Funds.
In addition, certain state securities laws may require banks and other
institutional investors purchasing shares on behalf of their customers in such
states to register as dealers pursuant to state law.
/X/
PERFORMANCE
INFORMATION
TOTAL RETURN AND YIELD _________________________________________________________
From time to time, in advertisements or reports to shareholders, the performance
of the Funds may be quoted and compared to that of other mutual funds with
similar investment objectives and to relevant indices.
The Funds may calculate their performance on a total return basis for
various periods. The total return basis combines principal changes, income
dividends, and capital gains distributions paid during the period. Principal
changes are based on the difference between the beginning and closing net asset
values for the period and assume reinvestment of income dividends and capital
gains distributions paid during the period. The Funds may calculate their
performance for periods since commencement of operations and for calendar or
fiscal year periods (including multiple years). See 'Total Return' in the
Statement of Additional Information.
FIXED INCOME FUNDS
MONEY MARKET FUNDS
In addition to quoting total return, the Fixed Income Funds and Money Market
Funds may advertise 'yield' and 'effective yield.' Both yield figures are based
on historical earnings and are not intended to indicate future performance. The
'yield' of a Fund refers to
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62 Performance Information
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/X/ COREFUND
the income generated by an investment in the Fund over a 30-day period (which
period will be stated in the advertisement). This income is then 'annualized.'
That is, the amount of income generated by the investment during that month is
assumed to be generated each month over a 12-month 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 the Fund is assumed to be
reinvested. The 'effective yield' will be slightly higher than the 'yield'
because of the compounding effect of this assumed reinvestment. See 'Yields' in
the Statement of Additional Information.
Intermediate Municipal Bond Fund, Pennsylvania Municipal Bond Fund, New
Jersey Municipal Bond Fund and Tax-Free Reserve may also advertise their
'taxable equivalent yield,' which is calculated by taking into account the
investor's current tax bracket. This is the yield an investor would need to earn
from a taxable investment in order to realize an 'after-tax' benefit equal to
the tax-free yield provided by the Fund.
IN GENERAL _____________________________________________________________________
With the exception of Equity Index Fund, the Funds will include performance data
for both Series A Shares and Series B Shares in any advertisement or information
including performance data of the Funds. Total return and performance data
concerning Series B Shares will reflect the sales charge and distribution and
incremental transfer agent expenses borne exclusively by Series B Shares.
The performance of any investment will generally reflect market
conditions, portfolio quality and maturity, type of investment, and operating
expenses. Each Fund's performance will fluctuate and is not necessarily
representative of future results. A Fund's performance would be favorably
affected by any investment advisory fee waivers on the part of CoreStates
Advisers. Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent auditors.
EXPENSE RATIOS OF INTERNATIONAL GROWTH FUND AND GLOBAL BOND FUND Investors
should understand that the expense ratios of International Growth Fund and
Global Bond Fund can be expected to be higher than the expense ratios of funds
that invest only in domestic securities, since the cost of maintaining the
custody of foreign securities and the rate of advisory fees relating to foreign
portfolios are generally higher.
/X/
HOW TO
PURCHASE
AND REDEEM
SHARES
PURCHASE OF SHARES _____________________________________________________________
Shares of the Funds are sold on a continuous basis by the Distributor with
principal offices located at 680 East Swedesford Road, Wayne, Pennsylvania
19087. Shares may also be purchased through CoreStates Securities Corp.
Institutional investors may acquire Series A Shares of a Fund for their own
account or as a record owner on behalf of fiduciary, agency, or custody accounts
by placing orders with the Distributor. Purchases may be made on any business
day of the Fund at the net asset value per share (see 'Valuation of Shares')
next determined after
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How to Purchase and Redeem Shares 63
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INFORMATION ON THE FUNDS (CONTINUED)
receipt by the Fund of an order to purchase shares. Shares of the Funds are
offered only to residents of states in which the shares are eligible for
purchase.
An order received before the valuation time on any business day will be
executed on the date of receipt at the net asset value determined as of the
valuation time on such date so long as federal funds are transmitted or
delivered to the Fund's custodian by close of business on the next business day
(or, in the case of the Money Market Funds, by the close of business on the same
business day). An order received after the valuation time on any business day
will be executed on the next business day of the Fund at the net asset value
determined on such date.
Funds should be wired to CORESTATES PHIL, Philadelphia, PA ABA #031000011,
for credit to COREFUNDS-A/C #0169-0541. The wire instructions must also include
the account number. Before wiring any funds however, an investor must call SEI
Financial Management Corporation at 1-800-355-CORE in order to confirm the wire
instructions for the Transfer Agent, State Street Bank and Trust Company. An
order to purchase shares by federal funds wire will be deemed to have been
received by a Fund on the business day that investors notify SEI Financial
Management Corporation by 12:00 p.m. (Eastern time) of their intentions to wire
money provided that federal funds are received by the custodian on the following
business day.
The minimum investment amount is $1,000,000 for the initial purchase of
shares by an investor which amount may be waived at the discretion of the
Distributor. However, the minimum initial investment amount for retail investors
investing in Equity Index Fund (primarily through IRAs) is $500. There is no
minimum for subsequent investments.
The Funds reserve the right to reject any order for the purchase of their
shares in whole or in part.
Every shareholder of record will receive a confirmation of each new share
transaction with a Fund, which will also show the total number of shares being
held in safekeeping by the Transfer Agent for the account of the shareholder.
Shareholders may rely on these statements in lieu of certificates. Certificates
representing shares of the Funds will not be issued.
Beneficial ownership of shares held of record by institutional investors
on behalf of their customers will be recorded by the institutions and reflected
in the regular account statements provided by them to their customers.
REDEMPTION OF SHARES ___________________________________________________________
Series A Shares may ordinarily be redeemed in accordance with the procedures
described below.
With respect to shares held by institutional investors on behalf of their
customer accounts, all or part of the shares beneficially owned by a customer
may be redeemed in accordance with instructions and limitations pertaining to
their account at the institution.
Shareholders who desire to redeem Series A Shares of a Fund must place
their redemption orders with SEI Financial Management Corporation for the
Transfer Agent, State Street Bank and Trust Company, prior to 4:00 p.m. (Eastern
Time) on any business day (12:00 p.m. for the Money Market Funds). Payment will
be made the next business day after proper receipt by the Transfer Agent by
transfer of federal funds. Otherwise, the redemption order will be effective the
next business day.
The Funds intend to pay cash for all shares redeemed but under abnormal
conditions which make payment in cash
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64 How to Purchase and Redeem Shares
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/X/ COREFUND
unwise, the Funds may make payment wholly or partly in portfolio securities at
their then market value equal to the redemption price. In such cases, a
shareholder may incur brokerage costs in converting such securities to cash.
/X/
DESCRIPTION
OF SHARES
CoreFunds has set up twenty Classes representing the following portfolios:
Growth Equity, Value Equity, Equity Index, International Growth, Balanced,
Intermediate Bond, Government Income, Intermediate Municipal Bond, Pennsylvania
Municipal Bond, New Jersey Municipal Bond, Global Bond, Cash Reserve, Treasury
Reserve, Tax-Free Reserve, Fiduciary Reserve, Fiduciary Treasury Reserve,
Fiduciary Tax-Free Reserve, CoreFund Elite Cash Reserve, CoreFund Elite
Government Reserve and CoreFund Elite Treasury Reserve. CoreFunds offers two
series of each portfolio except for Equity Index Fund, CoreFund Elite Cash
Reserve, CoreFund Elite Government Reserve, CoreFund Elite Treasury Reserve,
Fiduciary Reserve, Fiduciary Tax-Free Reserve, and Fiduciary Treasury Reserve.
CoreFunds may in the future create one or more additional portfolios, or one or
more series of shares within a portfolio. Series B Shares of the Funds, and
shares of CoreFund Elite Cash Reserve, CoreFund Elite Government Reserve,
CoreFund Elite Treasury Reserve, Fiduciary Reserve, Fiduciary Treasury Reserve,
and Fiduciary Tax-Free Reserve, are offered in separate prospectuses.
Series B Shares differ from Series A Shares in that Series B Shares are
subject to a sales load and distribution and transfer agent expenses for certain
additional shareholder services they receive. Series B Shares also have voting
rights which Series A Shares do not, in connection with the Distribution Plan
affecting Series B Shares. In addition, the distribution and transfer agent
expenses charged Series B Shares result in Series B Shares having different
dividends and performance results from Series A Shares. In addition, the minimum
initial investment for series A Shares is substantially higher than that
required for Series B Shares.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO SERIES A SHARES OF THE FUNDS AND SHARES OF EQUITY
INDEX FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS,
CONTRACTS, AND OTHER MATTERS RELATING TO SUCH SHARES. INVESTORS WISHING TO
OBTAIN SIMILAR INFORMATION REGARDING OTHER COREFUNDS PORTFOLIOS MAY OBTAIN
PROSPECTUSES DESCRIBING SUCH PORTFOLIOS BY CONTACTING THE DISTRIBUTOR AT
1-800-355-CORE.
Except for differences between series of some of CoreFunds' portfolios
pertaining to distribution costs, incremental transfer agency fees and any other
incremental expenses identified that should be properly allocated to a series,
each share in each Fund represents an equal proportionate interest in that Fund
with each other share of the same Fund and is entitled to such dividends and
distributions out of the income earned on the assets belonging to such Fund as
are declared in the discretion of the Board of Directors.
CoreFunds' shareholders are entitled to one vote for each full share held,
and fractional votes for fractional shares held, and will vote in the aggregate
and not by portfolio or series except as otherwise expressly required by law or
when the
----
Description of Shares 65
<PAGE>
- --------------------------------------------------------------------------------
INFORMATION ON THE FUNDS (CONTINUED)
Board of Directors determines that the matter to be voted upon affects only the
interests of the shareholders of a particular portfolio or series. See the
Statement of Additional Information under 'Description of Shares' for examples
where the Investment Company Act requires voting by portfolio or series. Voting
rights are not cumulative and, accordingly, the holders of more than 50% of the
aggregate number of shares of all of the Funds may elect all of the directors if
they choose to do so and, in such event, the holders of the remaining shares
would not be able to elect any person or persons to the Board of Directors.
As used in this Prospectus, a 'vote of a majority of the outstanding
shares' of a Fund means the affirmative vote of the lesser of (a) more than 50%
of the outstanding shares of a Fund, or (b) at least 67% of the shares of a Fund
present at a meeting at which the holders of more than 50% of the outstanding
shares of such Fund are represented in person or by proxy.
/X/
GENERAL
INFORMATION
In accordance with the Maryland General Corporation Law, CoreFunds is not
required to hold annual meetings of shareholders unless the Investment Company
Act requires the shareholders to elect members of the Board of Directors.
However, a meeting of shareholders may be called for any purpose upon the
written request of the holders of at least 10% of the outstanding shares of
CoreFunds, or of a Fund with respect to matters affecting only such Fund.
As used in this Prospectus, 'assets belonging to the Fund' means the
consideration received by CoreFunds upon the issuance or sale of shares in a
Fund, 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, and any funds or payments derived from any
reinvestment of such proceeds, and a portion of any general assets of CoreFunds
not belonging to that Fund or CoreFunds' other portfolios. Assets belonging to a
Fund are charged with the direct liabilities in respect of that Fund and with a
share of the general liabilities of CoreFunds allocated in proportion to the
relative asset values of each of CoreFunds' portfolios at the time the expense
or liability is incurred. The management of CoreFunds makes determinations with
respect to a Fund as to liabilities when they are incurred and as to assets when
they are acquired. Such determinations are reviewed and approved annually by the
Board of Directors and are conclusive.
/X/
DESCRIPTION
OF RATINGS
DESCRIPTION OF MUNICIPAL AND
CORPORATE BOND RATINGS _________________________________________________________
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
Debt rated A by S&P has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
- ----
66 Description of Ratings
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Bonds which are rated Aaa by Moody's are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as 'gilt edge.' Interest payments are protected by a large, or 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. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa, 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.
Bonds which are rated A by Moody's 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.
Bonds which are rated Baa by Moody's are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions liable to only slight market fluctuation other than through changes
in the money rate. The prime feature of an AAA bond is a showing of earnings
several times or many times interest requirements, with such stability of
applicable earnings that safety is beyond reasonable question whatever changes
occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be of safety
virtually beyond question and are readily salable, whose merits are not unlike
those of the AAA class, but whose margin of safety is less strikingly broad. The
issue may be the obligation of a small company, strongly secured but influenced
as to rating by the lesser financial power of the enterprise and more local type
market.
Bonds rated Duff-1 are judged by Duff to be of the highest credit quality
with negligible risk factors, only slightly more than U.S. Treasury debt. Bonds
rated Duff-2, 3 and 4 are judged by Duff to be of high credit quality with
strong protection factors. Risk is modest but may vary slightly from time to
time because of economic conditions.
Obligations rated AAA by IBCA have 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 significantly. Obligations for
----
Description of Ratings 67
<PAGE>
- --------------------------------------------------------------------------------
INFORMATION ON THE FUNDS (CONTINUED) /X/ COREFUND
which there is a very low expectation of investment risk are rated AA by IBCA.
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.
DESCRIPTION OF MUNICIPAL NOTE RATINGS __________________________________________
Moody's highest rating for state and municipal and other short-term notes is
MIG-1 and VMIG-1. Short-term municipal securities rated MIG-1 or VMIG-1 are of
the best quality. They have strong protection from established cash flows of
funds for their servicing or from established and broad-based access to the
market for refinancing or both. Short-term municipal securities rated MIG-2 or
VMIG-2 are of high quality. Margins of protection are ample although not so
large as in the preceding group.
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt rating.
The following criteria will be used in making that assessment.
/ / Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
/ / Source of Payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
S&P NOTE RATING SYMBOLS ARE AS FOLLOWS:
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
- ----
68 Description Ratings
<PAGE>
NOTES
<PAGE>
EQUITY FUNDS
(STOCKS)
GROWTH EQUITY FUND seeks capital growth by investing primarily in the equity
securities of companies believed by management to show the potential for
growth of earnings over time.
VALUE EQUITY FUND seeks maximum total return by investing primarily in common
stocks or other equities that are considered by management to be undervalued
in the marketplace at the time of purchase.
EQUITY INDEX FUND seeks to track the price and yield performance of the
Standard & Poor's 500 Composite Stock Price Index.
INTERNATIONAL GROWTH FUND seeks long-term capital appreciation by investing
primarily in appreciation-oriented equity securities of companies located
outside the United States.
BALANCED FUND seeks to provide total return while preserving capital by
investing in a combination of common stocks and fixed income securities.
FIXED INCOME FUNDS
(BONDS)
INTERMEDIATE BOND FUND seeks income through investment in a diversified
portfolio of intermediate term, fixed income obligations with an expected
average weighted maturity of three to ten years.
GOVERNMENT INCOME FUND seeks to provide current income while preserving
principal value and maintaining liquidity by investing exclusively in securities
of the United States government and its agencies.
INTERMEDIATE MUNICIPAL BOND FUND seeks a high level of income generally exempt
from federal income taxes by investing at least
80% of its assets in tax-exempt municipal securities.
PENNSYLVANIA MUNICIPAL BOND FUND seeks to provide a high rate of current
income that is exempt from both federal income taxes and (for Pennsylvania
residents) Pennsylvania state income taxes. The Fund invests primarily in
highly-rated, long-term municipal bonds issued by state, county, and local
agencies within the Commonwealth of Pennsylvania.
NEW JERSEY MUNICIPAL BOND FUND seeks to provide a high rate of current income
that is exempt from both federal income taxes and (for New Jersey residents)
New Jersey state income taxes. The Fund invests primarily in highly-rated,
long-term municipal bonds issued by state, county, and local agencies within
the state of New Jersey.
GLOBAL BOND FUND seeks to provide capital appreciation and current income
through investment primarily in fixed income securities of United States and
foreign issuers denominated in United States dollars and in other currencies.
There is no assurance that the Funds will achieve their respective
objectives.
<PAGE>
Money Market Funds
CASH RESERVE seeks to obtain maximum current income consistent with the
preservation of principal and maintenance of liquidity by
investing in a diversified portfolio of money market instruments of the
highest quality, including a broad range of U.S. dollar-denominated
government, bank, and commercial paper obligations.
TREASURY RESERVE seeks to provide current interest income, liquidity and safety
of principal by investing in direct obligations
of the U.S. Treasury and repurchase agreements relating to such obligations.
TAX-FREE RESERVE seeks a high level of income exempt from federal income taxes
through investment of at least 80% of its total
assets in tax-free securities.
There is no assurance that the Funds will achieve their respective objectives.
<PAGE>
COREFUND
FAMILY OF
MUTUAL FUNDS
COREFUNDS, INC.
DIRECTORS
EMIL J. MIKITY, CHAIRMAN
GEORGE H. STRONG
ERIN ANDERSON
OFFICERS
DAVID G. LEE, PRESIDENT
JAMES W. JENNINGS, SECRETARY
INVESTMENT ADVISER
CORESTATES INVESTMENT ADVISERS, INC.
PHILADELPHIA, PA 19101
ADMINISTRATOR
SEI FINANCIAL MANAGEMENT CORPORATION
WAYNE, PA 19087
DISTRIBUTOR
SEI FINANCIAL SERVICES COMPANY
WAYNE, PA 19087
LEGAL COUNSEL
MORGAN, LEWIS & BOCKIUS LLP
PHILADELPHIA, PA 19103
AUDITORS
ERNST & YOUNG LLP
PHILADELPHIA, PA 19103
INSTITUTIONAL SHARES
PROSPECTUS
November 1, 1995
INVESTMENT ADVISER
CORESTATES
INVESTMENT ADVISERS
FOR CURRENT PERFORMANCE, PURCHASE, REDEMPTION AND
OTHER INFORMATION, CALL 1-800-355-CORE (2673)
COR-F-045-03
<PAGE>
COREFUND
FAMILY OF
MUTUAL FUNDS
PROSPECTUS
COREFUNDS, INC.
NOVEMBER 1, 1995
SERIES B-INDIVIDUAL
CoreFunds, Inc. is an open-end management investment company presently
offering shares in seventeen diversified and non-diversified portfolios that
offer a variety of investment opportunities. These portfolios are managed by
CoreStates Investment Advisers, Inc. This Prospectus relates to Series B Shares
in thirteen portfolios, including equity, fixed income, and money market
portfolios (the "Funds").
This Prospectus gives you information about the Funds that you should
be aware of before investing. Additional information about the Funds,
contained in a Statement of Additional Information dated November 1, 1995,
has been filed with the Securities and Exchange Commission. It is
incorporated in this Prospectus by reference. To obtain a copy without
charge, call or write:
CoreFunds, Inc.
680 East Swedesford Road
Wayne, PA 19087
1-800-355-CORE
Keep this Prospectus for future reference.
SHARES IN THE FUNDS ARE NOT OBLIGATIONS, DEPOSITS, OR ACCOUNTS OF, OR
GUARANTEED OR ENDORSED BY, CORESTATES BANK, N.A., THE
PARENT CORPORATION OF EACH FUND'S INVESTMENT ADVISER, OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
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.
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS /X/ COREFUND
<TABLE>
<S> <C>
Transaction and Operating Expense Tables............. 3
Financial Highlights................................. 7
Highlights........................................... 10
</TABLE>
- ----------------------------
- ----------------------------
FUNDAMENTALS OF MUTUAL FUND INVESTING
<TABLE>
<S> <C>
Types of Investment Vehicles......................... 14
How to Invest in Stocks, Bonds and Money Market
Instruments....................................... 16
Developing Your Investment Strategy.................. 21
</TABLE>
- ----------------------------------------
- ----------------------------------------
INFORMATION ON THE FUNDS
<TABLE>
<S> <C>
Investment Objectives of the Funds................... 25
Equity Funds....................................... 25
Fixed Income Funds................................. 25
Money Market Funds................................. 26
Investment Policies.................................. 26
Equity Funds....................................... 26
Fixed Income Funds................................. 29
Money Market Funds................................. 32
Other Investment Practices of the Funds............ 33
Types of Securities in Which the Funds Invest........ 38
Equity Funds....................................... 38
Taxable Fixed Income Funds......................... 38
Taxable Money Market Funds......................... 40
Tax-Free Fixed Income and Money Market Funds....... 41
Temporary Investments.............................. 43
Investment Restrictions.............................. 44
Investor Considerations.............................. 46
Investment Suitability............................. 46
Investment Risks................................... 48
Distributions........................................ 51
Taxes................................................ 52
Valuation of Shares.................................. 55
Net Asset Value.................................... 55
Portfolio Pricing.................................. 56
Management........................................... 57
Investment Adviser, Sub-Advisers................... 57
Fund Managers...................................... 59
Administrator...................................... 61
Distributor........................................ 61
Performance Information.............................. 62
Total Return and Yield............................. 62
In General......................................... 63
Description of Shares................................ 63
General Information.................................. 64
Description of Ratings............................... 65
Description of Municipal and Corporate Bond
Ratings......................................... 65
Description of Municipal Note
Ratings......................................... 66
</TABLE>
- -------------------------------------
- -------------------------------------
SHAREHOLDER SERVICES GUIDE
<TABLE>
<S> <C>
Opening an Account and Purchasing
Shares............................................ 67
Selling your Shares.................................. 71
Exchanging Shares.................................... 74
</TABLE>
<TABLE>
<S> <C> <C>
No person is authorized by CoreFunds, Inc. to give any
information or make any representation other than those
contained in this Prospectus or in other printed or written
material issued by CoreFunds, Inc., and you should not rely
2 Table of Contents on any other information or representation.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION AND OPERATING EXPENSE TABLES /X/ COREFUND
The purpose of the following tables is to help you understand the various costs
and expenses that you, as a shareholder, will bear directly or indirectly in
connection with an investment in Series B Shares of the Funds.
The information contained in the tables should not be considered a
representation of past or future expenses. Actual expenses may be more or less
than those shown.
<TABLE>
<S> <C> <C> <C> <C>
--------- ------- ---------------- -----------
GROWTH VALUE INTERNATIONAL
Equity Funds EQUITY EQUITY GROWTH BALANCED
- --------------- --------- ------- ---------------- -----------
Series B Shares
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases 3.25% 3.25% 3.25% 3.25%
Maximum Sales Load Imposed on Reinvested Dividends none none none none
Deferred Sales Load none none none none
Redemption Fee none none none none
Exchange Fee none none none none
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets):
Investment Advisory Fees After Fee Waivers(1) .72% .75% .80% .67%
12b-1 Fees(2) .25% .25% .25% .25%
Administrative Fees After Fee Waivers(3) .16% .16% .16% .16%
Other Expenses(4) .08% .08% .25% .10%
Net Annual Fund Operating Expenses(5) 1.21% 1.24% 1.46% 1.18%
EXAMPLE
You would pay the following
expenses on a $1,000 investment, 1 year $ 44 $ 45 $ 47 $ 44
assuming (1) a 5% annual return 3 years 70 71 77 69
and (2) redemption at the end 5 years 97 98 110 95
of each time period.(6) 10 years 174 178 201 171
</TABLE>
- --------------------------------------------------------------------------------
(1) Absent voluntary waivers, the Adviser's investment advisory fees are
calculated at the annual rate of .75%, .75%, .80%, and .70% of the average
net assets of Growth Equity Fund, Value Equity Fund, International Growth
Fund, and Balanced Fund, respectively.
(2) Note that long-term shareholders may pay more than the economic equivalent
of the maximum front-end load (6.25%) permitted by the Rules of Fair
Practice of the National Association of Securities Dealers.
(3) Absent voluntary waivers, the Administrator's fee is calculated at the
annual rate of .25% of each Fund's average net assets.
(4) Includes (among others) legal, auditing, and printing fees.
(5) The Adviser and the Administrator have voluntarily waived a portion of their
fees in order to assist the Funds in maintaining a competitive expense
ratio. The expense ratios noted herein are net of investment advisory and
administrative fee waivers expected to be in effect during the fiscal period
ending June 30, 1996. Absent any fee waivers, such expense ratios would have
been 1.33%, 1.33%, 1.55% and 1.30% for Growth Equity Fund, Value Equity
Fund, International Growth Fund and Balanced Fund, respectively. The service
providers of all the Funds have been waiving all or a portion of their fees
since inception. However, during this year, these providers may change the
waiver so that a Fund's expense ratio will approach the contractually
mandated ratio.
(6) Absent the voluntary fee waiver of the Adviser and the Administrator, the
amounts in this Example, for one year, three years, five years and ten
years, would be $46, $73, $103 and $187 for Growth Equity Fund; $46, $73,
$103 and $187 for Value Equity Fund; $48, $80, $114 and $211 for
International Growth Fund; and $45, $72, $101, and $198 for Balanced Fund.
Transaction and Operating Expense Tables ----
3
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION AND OPERATING EXPENSE TABLES (CONTINUED)
<TABLE>
<S> <C> <C> <C>
------------------- ----------------- -------------------
INTERMEDIATE
Fixed Income Funds INTERMEDIATE BOND GOVERNMENT INCOME MUNICIPAL BOND
------------------- ----------------- -------------------
Series B Shares
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases 3.25% 3.25% 3.25%
Maximum Sales Load Imposed on Reinvested Dividends none none none
Deferred Sales Load none none none
Redemption Fee none none none
Exchange Fee none none none
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets):
Investment Advisory Fees After Fee Waivers1 .37% .37% .37%
12b-1 Fees2 .25% .25% .25%
Administrative Fees After Fee Waivers3 .16% .16% .16%
Other Expenses4 .07% .21% .06%
Net Annual Fund Operating Expenses5 .85% .99% .84%
EXAMPLE
You would pay the following
expenses on a $1,000 investment, 1 year $ 41 $ 42 $ 41
assuming (1) a 5% annual return 3 years 59 63 58
and (2) redemption at the end 5 years 78 85 78
of each time period.6 10 years 134 150 133
</TABLE>
- --------------------------------------------------------------------------------
(1) Absent voluntary waivers, the Adviser's investment advisory fees are
calculated at the annual rate of .50%, .50% and .50% of the average net
assets of Intermediate Bond Fund, Government Income Fund and Intermediate
Municipal Bond Fund, respectively.
(2) Note that long-term shareholders may pay more than the economic equivalent
of the maximum front-end load (6.25%) permitted by the Rules of Fair
Practice of the National Association of Securities Dealers.
(3) Absent voluntary waivers, the Administrator's fee is calculated at the
annual rate of .25% of each Fund's average net assets.
(4) Includes (among others) legal, auditing and printing fees.
(5) The Adviser and the Administrator have voluntarily waived a portion of their
fees in order to assist the Funds in maintaining a competitive expense
ratio. The expense ratios noted herein are net of investment advisory and
administrative fee waivers expected to be in effect during the fiscal period
ending June 30, 1996. Absent fee waivers, such expense ratios would have
been 1.07%, 1.21% and 1.06% for Intermediate Bond Fund, Government Income
Fund and Intermediate Municipal Bond Fund, respectively. The service
providers of all the Funds have been waiving all or a portion of their fees
since inception. However, during this year, these providers may change the
waiver so that a Fund's expense ratio will approach the contractually
mandated ratio.
(6) Absent the voluntary fee waiver of the Adviser and the Administrator, the
amounts in this Example, for one year, three years, five years and ten
years, would be $43, $65, $90 and $159 for Intermediate Bond Fund; $44, $70,
$97, and $174 for Government Income Fund; and $43, $65, $89, and $158 for
Intermediate Municipal Bond Fund.
<TABLE>
<S> <C>
4 Transaction and Operating Expense Tables
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
<TABLE>
<S> <C> <C> <C>
---------------- ------------- --------
PENNSYLVANIA NEW JERSEY
MUNICIPAL MUNICIPAL GLOBAL
Fixed Income Funds BOND BOND BOND
- ----------------------- ---------------- ------------- --------
Series B Shares
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases 3.25% 3.25% 3.25%
Maximum Sales Load Imposed on Reinvested Dividends none none none
Deferred Sales Load none none none
Redemption Fee none none none
Exchange Fee none none none
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets):
Investment Advisory Fees After Fee Waivers(1) 0% 0% .52%
12b-1 Fees(2) .25% .25% .25%
Administrative Fees After Fee Waivers(3) 0% 0% .16%
Other Expenses(4) .37% .40% .21%
Net Annual Fund Operating Expenses(5) .62% .65% 1.14%
EXAMPLE
You would pay the following
expenses on a $1,000 investment, 1 year $ 39 $ 39 $ 44
assuming (1) a 5% annual return 3 years 52 53 68
and (2) redemption at the end 5 years 66 68 93
of each time period.(6) 10 years 107 111 167
</TABLE>
- --------------------------------------------------------------------------------
(1) Absent voluntary waivers, the Adviser's investment advisory fees are
calculated at the annual rate of .50%, .50% and .60% of the average net
assets of Pennsylvania Municipal Bond Fund, New Jersey Municipal Bond Fund
and Global Bond Fund, respectively.
(2) Note that long-term shareholders may pay more than the economic equivalent
of the maximum front-end load (6.25%) permitted by the Rules of Fair
Practice of the National Association of Securities Dealers.
(3) Absent voluntary waivers, the Administrator's fee is calculated at the
annual rate of .25% of each Fund's average net assets.
(4) Includes (among others) legal, auditing and printing fees.
(5) The Adviser and the Administrator have voluntarily waived a portion of their
fees in order to assist the Funds in maintaining a competitive expense
ratio. The expense ratios noted herein are net of investment advisory and
administrative fee waivers expected to be in effect during the fiscal period
ending June 30, 1996. Absent fee waivers, such expense ratios would have
been 1.21%, 1.24% and 1.31% for Pennsylvania Municipal Bond Fund, New Jersey
Municipal Bond Fund and Global Bond Fund, respectively. The service
providers of all the Funds have been waiving all or a portion of their fees
since inception. However, during this year, these providers may change the
waiver so that a Fund's expense ratio will approach the contractually
mandated ratio.
(6) Absent the voluntary fee waiver of the Adviser and the Administrator, the
amounts in this Example, for one year, three years, five years and ten
years, would be $44, $70, $97, and $174 for Pennsylvania Municipal Bond
Fund; $45, $73, $102, and $185 for New Jersey Municipal Bond Fund; and $45,
$71, $98, and $178 for Global Bond Fund.
Highlights -----
5
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION AND OPERATING EXPENSE TABLES (CONTINUED) /X/ COREFUND
<TABLE>
<S> <C> <C> <C>
------------- --------------- ---------------
TREASURY TAX-FREE
Money Market Funds CASH RESERVE RESERVE RESERVE
- ------------------------ ------------- --------------- ---------------
Series B Shares
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases none none none
Maximum Sales Load Imposed on Reinvested
Dividends none none none
Deferred Sales Load none none none
Redemption Fee none none none
Exchange Fee none none none
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets):
Investment Advisory Fees After Fee Waivers1 .29% .29% .29%
12b-1 Fees2 .25% .25% .25%
Administrative Fees After Fee Waivers3 .16% .16% .16%
Other Expenses4 .08% .08% .08%
Net Annual Fund Operating Expenses5 .78% .78% .78%
EXAMPLE
You would pay the following
expenses on a $1,000 investment, 1 year $ 8 $ 8 $ 8
assuming (1) a 5% annual return 3 years 25 25 25
and (2) redemption at the end 5 years 43 43 43
of each time period.6 10 years 97 97 97
</TABLE>
- --------------------------------------------------------------------------------
(1) Absent voluntary waivers, the Adviser's investment advisory fees are
calculated at the annual rate of .50%, .50%, and .50% of the average net
assets of Cash Reserve, Treasury Reserve, and Tax-Free Reserve,
respectively.
(2) Note that long-term shareholders may pay more than the economic equivalent
of the maximum front-end load (6.25%) permitted by the Rules of Fair
Practice of the National Association of Securities Dealers.
(3) Absent voluntary waivers, the Administrator's fee is calculated at the
annual rate of .25% of each Fund's average net assets.
(4) Includes (among others) legal, auditing, and printing fees.
(5) The Adviser and the Administrator have voluntarily waived a portion of their
fees in order to assist the Funds in maintaining a competitive expense
ratio. The expense ratios noted herein are net of investment advisory and
administrative fee waivers expected to be in effect during the fiscal period
ending June 30, 1996. Absent any fee waivers, such expense ratios would have
been 1.08%, 1.08%, and 1.08% for Cash Reserve, Treasury Reserve, and
Tax-Free Reserve, respectively. The service providers of all the Funds have
been waiving all or a portion of their fees since inception. However, during
this year, these providers may change the waiver so that a Fund's expense
ratio will approach the contractually mandated ratio.
(6) Absent the voluntary fee waiver of the Adviser and the Administrator, the
amounts in this Example, for one year, three years, five years and ten
years, would be $11, $34, $60 and $132 for Cash Reserve; $11, $34, $60, and
$132 for Treasury Reserve; and $11, $34, $60 and $132 for Tax-Free Reserve.
<TABLE>
<S> <C>
6 Transaction and Operating Expense Tables
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS /X/ COREFUND
The tables that follow present information about the investment results of
the shares of the Funds. The financial highlights for each of the periods
presented have been audited by Ernst & Young LLP, independent certified public
accountants, whose report thereon appears in CoreFunds' annual report which
accompanies the Statement of Additional Information.
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED JUNE 30,
Equity Funds
<TABLE>
<CAPTION>
Realized
and Net
Unrealized Assets,
Net Asset Net Gains Dividends Distribution End of
Value, Net or (Losses) from Net from Net Asset Period
Beginning Investment on Investment Capital Value End Total (000
of Period Income Securities Income Gains of Period Return omitted)
----------- ----------- ----------- ----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH EQUITY
SERIES A
1995 $ 9.11 $ 0.08 $ 2.07 $ (0.08) $ -- $ 11.18 23.71% $ 91,345
1994 9.95 0.05 (0.84) (0.05) -- 9.11 (8.01) 64,877
1993 8.74 0.08 1.21 (0.08) -- 9.95 14.76 63,777
19921 10.00 0.05 (1.26) (0.05) -- 8.74 (12.05)+ 33,418
SERIES B
1995 $ 9.10 $ 0.06 $ 2.07 $ (0.06) $ -- $ 11.17 23.44% $ 2,043
1994 9.95 0.04 (0.85) (0.04) -- 9.10 (8.13) 1,730
1993* 9.80 0.03 0.15 (0.03) -- 9.95 1.80+ 5,224
VALUE EQUITY
SERIES A
1995 $ 12.58 $ 0.15 $ 1.97 $ (0.15) $ (0.28) $ 14.27 17.29% $ 31,003
1994 13.11 0.09 (0.27) (0.09) (0.26) 12.58 (1.51) 25,448
1993 11.22 0.16 1.89 (0.16) -- 13.11 18.31 15,397
1992 10.33 0.15 0.89 (0.15) -- 11.22 9.98 10,882
1991 10.31 0.15 0.18 (0.15) (0.16) 10.33 3.37 5,182
19902 10.00 0.10 0.31 (0.10) -- 10.31 4.10+ 5,154
SERIES B
1995 $ 12.60 $ 0.13 $ 1.96 $ (0.12) $ (0.28) $ 14.29 16.96% $ 3,708
1994 13.12 0.06 (0.26) (0.06) (0.26) 12.60 (1.69) 4,737
1993* 12.49 0.05 0.67 (0.09) -- 13.12 5.77+ 714
EQUITY INDEX
SERIES A
1995 $ 20.54 $ 0.52 $ 4.24 $ (0.52) $ (0.99) $ 23.79 24.45% $ 112,553
1994 20.97 0.55 (0.43) (0.55) -- 20.54 0.55 72,552
1993 19.22 0.52 1.84 (0.52) (0.09) 20.97 12.39 50,551
1992 18.46 0.52 1.80 (0.48) (1.08) 19.22 12.59 20,166
19913 19.48 0.03 (0.94) (0.02) (0.09) 18.46 (4.64)+ 12,117
INTERNATIONAL GROWTH
SERIES A
1995 $ 13.18 $ 0.12 $ (0.17) $ (0.04) $ (0.80) $ 12.29 (0.21)% $110,838
1994 11.71 0.12 1.78 (0.12) (0.31) 13.18 16.28 108,911
1993 10.52 0.10 1.16 (0.07) -- 11.71 12.06 61,655
1992 10.10 0.17 0.31 -- (0.06) 10.52 4.90 42,594
1991 10.75 0.19 (0.44) (0.27) (0.13) 10.10 (2.71) 20,582
19904 10.00 0.11 0.86 (0.09) (0.13) 10.75 9.74+ 13,513
SERIES B
1995 $ 13.17 $ 0.09 $ (0.17) $ (0.02) $ (0.80) $ 12.27 (0.48)% $ 1,943
1994 11.71 0.06 1.82 (0.11) (0.31) 13.17 16.08 2,019
1993* 10.07 0.05 1.59 -- -- 11.71 16.29+ 344
BALANCED
SERIES A
1995 $ 9.88 $ 0.35 $ 1.21 $ (0.35) $ (0.03) $ 11.06 16.21% $ 61,092
1994 10.39 0.35 (0.51) (0.35) -- 9.88 (1.62) 42,429
19935 10.00 0.16 0.39 (0.16) -- 10.39 5.52+ 29,434
SERIES B
1995 $ 9.89 $ 0.34 $ 1.19 $ (0.33) $ (0.03) $ 11.06 15.84% $ 2,344
1994 10.38 0.31 (0.49) (0.31) -- 9.89 (1.86) 2,222
1993* 10.00 0.16 0.38 (0.16) -- 10.38 2.50+ 701
<CAPTION>
Ratio of Ratio of
Expenses to Net Income
Ratio of Ratio of Net Average Net to Average
Expenses to Income to Assets Net Assets Portfolio
Average Net Average Net (Excluding (Excluding Turnover
Assets Assets Waivers) Waivers) Rate
------------- ------------- ------------- ----------- -----------
GROWTH EQUITY
SERIES A
1995 0.76% 0.84% 1.10% 0.50% 113%
1994 0.69 0.48 1.11 0.06 127
1993 0.43 0.85 1.11 0.17 103
19921 0.14 1.38 1.12 0.40 66
SERIES B
1995 1.01% 0.59% 1.35% 0.25% 113%
1994 0.94 0.23 1.36 (0.19) 127
1993* 0.80 0.39 1.48 (0.29) 103
VALUE EQUITY
SERIES A
1995 0.86% 1.12% 1.10% 0.88% 108%
1994 0.80 0.73 1.09 0.44 78
1993 0.71 1.29 1.18 0.82 97
1992 0.99 1.36 1.63 0.72 117
1991 1.74 1.53 2.39 0.88 96
19902 1.76 2.35 2.43 1.68 20
SERIES B
1995 1.11% 0.89% 1.35% 0.65% 108%
1994 1.05 0.48 1.34 0.19 78
1993* 0.85 0.97 1.32 0.50 97
EQUITY INDEX
SERIES A
1995 0.37% 2.48% 0.76% 2.09% 27%
1994 0.35 2.63 0.75 2.23 13
1993 0.49 2.82 0.88 2.43 4
1992 0.57 2.66 1.06 2.17 27
19913 0.97 1.79 1.20 1.56 --
INTERNATIONAL GROWTH
SERIES A
1995 1.05% 0.98% 1.19% 0.84% 59%
1994 0.99 0.23 1.18 0.04 67
1993 0.99 1.22 1.28 0.93 59
1992 0.96 1.67 1.40 1.23 87
1991 0.99 1.80 1.56 1.23 49
19904 1.22 2.57 1.99 1.80 20
SERIES B
1995 1.30% 0.73% 1.44% 0.59% 59%
1994 1.24 0.05 1.43 (0.14) 67
1993* 1.15 1.51 1.44 1.22 59
BALANCED
SERIES A
1995 0.73% 3.51% 1.07% 3.17% 46%
1994 0.62 3.46 1.08 3.00 56
19935 0.45 3.38 1.39 2.45 21
SERIES B
1995 0.98% 3.27% 1.32% 2.93% 46%
1994 0.87 3.21 1.33 2.75 56
1993* 0.55 5.76 1.48 4.83 21
</TABLE>
- --------------------------------------------------------------------------------
+ Returns are for the period indicated and have not been annualized.
* Series B has been offered since January 4, 1993. Balanced has offered Series B
since March 16, 1993.
(1) Growth Equity commenced operations on February 3, 1992. All ratios for the
period have been annualized.
(2) Value Equity commenced operations on February 6, 1990. All ratios for the
period have been annualized.
(3) Equity Index commenced operations on June 1, 1991. All ratios for the period
have been annualized.
(4) International Growth commenced operations on February 12, 1990. All the
ratios for the period have been annualized.
(5) Balanced commenced operations on January 4, 1993. All ratios for the period
have been annualized.
Financial Highlights----
7
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED JUNE 30,
Fixed Income Funds
<TABLE>
<CAPTION>
Realized
and
Unrealized
Net Asset Net Gains Dividends Distributions Net Assets,
Value, Net or (Losses) from Net from Net Asset End of
Beginning Investment on Investment Capital Value, End Total Period (000
of Period Income Securities Income Gains of Period Return omitted)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT INCOME
SERIES A
1995 $ 9.52 $ 0.62 $ 0.31 $ (0.62) $ -- $ 9.83 10.26% $ 11,305
1994 10.18 0.50 (0.62) (0.50) (0.04) 9.52 (1.34) 9,089
1993(1) 10.00 0.13 0.18 (0.13) -- 10.18 3.12+ 6,323
SERIES B
1995 $ 9.51 $ 0.61 $ 0.33 $ (0.61) $ -- $ 9.84 10.23% $ 1,374
1994 10.17 0.47 (0.62) (0.47) (0.04) 9.51 (1.57) 1,536
1993* 10.00 0.07 0.17 (0.07) -- 10.17 1.71+ 201
INTERMEDIATE BOND
SERIES A
1995 $ 9.63 $ 0.53 $ 0.21 $ (0.53) $ -- $ 9.84 8.22% $ 55,128
1994 10.18 0.43 (0.53) (0.43) (0.02) 9.63 (0.32) 48,379
1993 10.01 0.47 0.31 (0.47) (0.14) 10.18 7.90 44,692
1992(2) 10.00 0.23 0.01 (0.23) -- 10.01 2.49+ 22,623
SERIES B
1995 $ 9.63 $ 0.54 $ 0.20 $ (0.53) $ -- $ 9.84 7.95% $ 1,961
1994 10.18 0.41 (0.53) (0.41) (0.02) 9.63 (0.56) 9,365
1993* 10.01 0.20 0.17 (0.20) -- 10.18 3.95+ 5,752
INTERMEDIATE MUNICIPAL BOND
SERIES A
1995 $ 9.68 $ 0.38 $ 0.15 $ (0.38) $ -- $ 9.83 5.58% $ 365
1994 10.09 0.39 (0.41) (0.39) -- 9.68 (0.27) 1,088
1993(3) 10.00 0.04 0.09 (0.04) -- 10.09 1.33+ 2,009
SERIES B
1995 $ 9.67 $ 0.35 $ 0.16 $ (0.35) $ -- $ 9.83 5.42% $ 1,027
1994 10.08 0.37 (0.41) (0.37) -- 9.67 (0.52) 1,311
1993* 10.00 0.03 0.08 (0.03) -- 10.08 1.19+ 166
GLOBAL BOND
SERIES A
1995 $ 9.06 $ 0.62 $ 0.24 $ (0.30) $ -- $ 9.62 9.70% $ 26,898
1994(4) 10.00 0.25 (1.15) (0.04) -- 9.06 (9.00)+ 24,957
SERIES B
1995 $ 9.04 $ 0.61 $ 0.24 $ (0.28) $ -- $ 9.61 9.57% $ 170
1994(4) 10.00 0.19 (1.11) (0.04) -- 9.04 (9.22)+ 167
PENNSYLVANIA MUNICIPAL BOND
SERIES A
1995 $ 9.95 $ 0.51 $ 0.21 $ (0.51) $ -- $ 10.16 7.50% $ 2,272
1994(5) 10.00 0.06 (0.05) (0.06) -- 9.95 0.14+ 434
SERIES B
1995 $ 9.95 $ 0.49 $ 0.21 $ (0.49) $ -- $ 10.16 7.25% $ 317
1994(5) 10.00 0.06 (0.05) (0.06) -- 9.95 0.09+ 163
NEW JERSEY MUNICIPAL BOND
SERIES A
1995 $ 9.94 $ 0.52 $ 0.18 $ (0.52) $ -- $ 10.12 7.25% $ 1,550
1994(5) 10.00 0.06 (0.06) (0.06) -- 9.94 0.01+ 1,432
SERIES B
1995 $ 9.95 $ 0.49 $ 0.17 $ (0.49) $ -- $ 10.12 6.84% $ 24
1994(5) 10.00 0.06 (0.05) (0.06) -- 9.95 0.08+ 2
<CAPTION>
Ratio of Ratio of Net
Expenses to Income to
Ratio of Ratio of Net Average Net Average Net
Expenses to Income to Assets Assets Portfolio
Average Net Average Net (Excluding (Excluding Turnover
Assets Assets Waivers) Waivers) Rate
------------- ------------- ------------- ------------- -----------
GOVERNMENT INCOME
SERIES A
1995 0.59% 6.53% 0.98% 6.14% 368%
1994 0.50 4.93 1.00 4.43 157
1993(1) 0.44 5.41 1.10 4.75 93
SERIES B
1995 0.85% 6.25% 1.24% 5.86% 368%
1994 0.75 4.68 1.25 4.18 157
1993* 0.63 5.35 1.29 4.69 93
INTERMEDIATE BOND
SERIES A
1995 0.60% 5.76% 0.84% 5.52% 405%
1994 0.58 4.30 0.86 4.02 299
1993 0.42 4.62 0.86 4.18 188
1992(2) 0.11 5.73 0.84 5.00 51
SERIES B
1995 0.85% 5.27% 1.09% 5.03% 405%
1994 0.83 4.05 1.11 3.77 299
1993* 0.75 3.78 1.19 3.34 188
INTERMEDIATE MUNICIPAL BOND
SERIES A
1995 0.82% 3.91% 1.26% 3.47% 9%
1994 0.63 3.91 1.17 3.37 43
1993(3) 0.58 2.74 1.45 1.87 10
SERIES B
1995 1.08% 3.65% 1.52% 3.21% 9%
1994 0.88 3.66 1.42 3.12 43
1993* 0.81 2.51 1.68 1.64 10
GLOBAL BOND
SERIES A
1995 0.64% 6.84% 1.03% 6.45% 133%
1994(4) 0.73 5.04 1.12 4.65 161
SERIES B
1995 0.89% 6.59% 1.28% 6.20% 133%
1994(4) 0.98 4.79 1.37 4.40 161
PENNSYLVANIA MUNICIPAL BOND
SERIES A
1995 0.39% 5.26% 1.14% 4.51% 18%
1994(5) 0.42 5.09 1.17 4.34 3
SERIES B
1995 0.64% 4.95% 1.39% 4.20% 18%
1994(5) 0.67 4.84 1.42 4.09 3
NEW JERSEY MUNICIPAL BOND
SERIES A
1995 0.42% 5.21% 1.17% 4.46% 32%
1994(5) 0.43 5.07 1.35 4.15 13
SERIES B
1995 0.68% 4.97% 1.44% 4.21% 32%
1994(5) 0.68 4.82 1.60 3.90 13
</TABLE>
- --------------------------------------------------------------------------------
+ Returns are for the period indicated and have not been annualized.
* Series B has been offered since January 4, 1993. Government Income and
Intermediate Municipal Bond Funds have offered Series B since May 3, 1993.
Ratios for this period have been annualized.
(1) Government Income commenced operations on April 1, 1993. Ratios for this
period have been annualized.
(2) Intermediate Bond commenced operations on February 3, 1992. Ratios for this
period have been annualized.
(3) Intermediate Municipal Bond commenced operations on May 3, 1993. Ratios for
this period have been annualized.
(4) Global Bond Fund commenced operations on December 15, 1993. Ratios for this
period have been annualized.
(5) Pennsylvania Municipal Bond and New Jersey Municipal Bond Funds commenced
operations on May 16, 1994. Ratios for this period have been annualized.
<TABLE>
<S> <C>
8 Financial Highlights
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED JUNE 30,
Money Market Funds
<TABLE>
<CAPTION>
Net Ratio of
Assets Expenses to
Net Asset Dividends Net End of Ratio of Ratio of Average Net
Value Net from Net Asset Value Period Expenses to Net Income Assets
Beginning Investment Investment End of Total (000 Average Net to Average (Excluding
of Period Income Income Period Return omitted) Assets Net Assets Waivers)
----------- ----------- ----------- ----------- ----------- --------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH RESERVE
SERIES A
1995 $ 1.00 $ 0.05 $ (0.05) $ 1.00 5.15% $ 510,341 0.48% 5.04% 0.85%
1994 1.00 0.03 (0.03) 1.00 3.00 505,273 0.47 2.95 0.85
1993 1.00 0.03 (0.03) 1.00 2.99 460,832 0.46 2.97 0.85
1992 1.00 0.05 (0.05) 1.00 4.83 568,672 0.38 4.68 0.82
1991 1.00 0.07 (0.07) 1.00 7.28 473,187 0.37 6.94 0.82
1990 1.00 0.08 (0.08) 1.00 8.65 316,290 0.34 8.28 0.80
1989 1.00 0.09 (0.09) 1.00 8.87 186,151 0.37 8.62 0.90
1988 1.00 0.07 (0.07) 1.00 6.70 82,399 0.55 6.54 1.14
1987 1.00 0.06 (0.06) 1.00 5.85 35,054 0.54 5.60 1.01
19861 1.00 0.06 (0.06) 1.00 3.36+ 56,416 0.59 6.93 1.21
SERIES B
1995 $ 1.00 $ 0.05 $ (0.05) $ 1.00 4.89% $ 17,583 0.73% 4.86% 1.10%
1994 1.00 0.03 (0.03) 1.00 2.74+ 11,451 0.72 2.70 1.10
1993* 1.00 0.01 (0.01) 1.00 1.23+ 15,330 0.76 2.52 1.15
TREASURY RESERVE
SERIES A
1995 $ 1.00 $ 0.05 $ (0.05) $ 1.00 4.98% $ 479,206 0.48% 4.91% 0.85%
1994 1.00 0.03 (0.03) 1.00 2.91 484,974 0.48 2.87 0.86
1993 1.00 0.03 (0.03) 1.00 2.96 446,788 0.46 2.89 0.85
1992 1.00 0.05 (0.05) 1.00 4.73 444,388 0.38 4.58 0.82
1991 1.00 0.07 (0.07) 1.00 7.11 427,439 0.37 6.80 0.82
1990 1.00 0.08 (0.08) 1.00 8.38 270,524 0.37 8.03 0.84
19892 1.00 0.06 (0.06) 1.00 4.66+ 220,479 0.20 9.26 0.84
SERIES B
1995 $ 1.00 $ 0.05 $ (0.05) $ 1.00 4.72% $ 21,612 0.73% 4.81% 1.10%
1994 1.00 0.03 (0.03) 1.00 2.65 7,573 0.73 2.62 1.11
1993* 1.00 0.01 (0.01) 1.00 1.21+ 7,672 0.75 2.46 1.14
TAX-FREE RESERVE
SERIES A
1995 $ 1.00 $ 0.03 $ (0.03) $ 1.00 3.12% $ 62,756 0.48% 3.09% 0.85%
1994 1.00 0.02 (0.02) 1.00 2.03 79,384 0.49 2.00 0.87
1993 1.00 0.02 (0.02) 1.00 2.23 72,255 0.51 2.20 0.89
1992 1.00 0.03 (0.03) 1.00 3.56 80,147 0.37 3.39 0.88
19913 1.00 0.01 (0.01) 1.00 1.07+ 42,573 0.06 4.20 0.81
SERIES B
1995 $ 1.00 $ 0.03 $ (0.03) $ 1.00 2.86% $ 1,524 0.73% 2.80% 1.10%
1994 1.00 0.02 (0.02) 1.00 1.78 2,708 0.74 1.75 1.12
1993* 1.00 0.01 (0.01) 1.00 0.85+ 1,795 0.76 1.71 1.14
<CAPTION>
Ratio of Net
Income to
Average Net
Assets
(Excluding
Waivers)
-------------
CASH RESERVE
SERIES A
1995 4.67%
1994 2.57
1993 2.58
1992 4.24
1991 6.49
1990 7.82
1989 8.05
1988 5.96
1987 5.13
19861 6.31
SERIES B
1995 4.49%
1994 2.32
1993* 2.13
TREASURY RESERVE
SERIES A
1995 4.54%
1994 2.49
1993 2.50
1992 4.14
1991 6.35
1990 7.56
19892 8.62
SERIES B
1995 4.44%
1994 2.24
1993* 2.07
TAX-FREE RESERVE
SERIES A
1995 2.72%
1994 1.62
1993 1.82
1992 2.88
19913 3.45
SERIES B
1995 2.43%
1994 1.37
1993* 1.33
</TABLE>
- --------------------------------------------------------------------------------
+ Returns are for the period indicated and have not been annualized.
* Series B has been offered since January 4, 1993. Ratios for this period have
been annualized.
(1) Cash Reserve commenced operations on August 16, 1985. Ratios for this period
have been annualized.
(2) Treasury Reserve commenced operations on November 21, 1988. Ratios for this
period have been annualized.
(3) Tax-Free Reserve commenced operations on April 16, 1991. Ratios for this
period have been annualized.
Financial Highlights----
9
<PAGE>
- --------------------------------------------------------------------------------
HIGHLIGHTS
<TABLE>
<S> <C> <C> <C>
COREFUNDS CoreFunds, Inc. ('CoreFunds') is an open-end management investment company presently offering shares
in seventeen diversified and non-diversified portfolios. This Prospectus offers Series B Shares of
thirteen portfolios. Series B Shares are primarily offered to the general public as well as various
types of institutional investors, which may include CoreStates Bank and its affiliate and
corresponding banks, for the investment of their own funds or for funds for which they serve in a
fiduciary, agency or custodial capacity. Investors may also include shareholders of other investment
companies which are advised by a Fund's adviser or sub-adviser, and whose assets a Fund acquires in a
tax-free reorganization, who propose to become shareholders of the Fund as a result of such
reorganization. Investors purchasing Series B Shares will normally be those who desire certain
additional shareholder services from certain security broker/dealers and financial institutions which
have entered into shareholder servicing agreements with the Funds' distributor. Materials relating to
Series A Shares of the Funds may be obtained by calling 1-800-355-CORE or by writing to CoreFunds,
Inc., 680 East Swedesford Road, Wayne, PA 19087.
- -------------------------------------------------------------------------------------------------------------------------------
FUNDAMENTALS OF MUTUAL This section will assist you in appreciating investments generally. It describes the three basic
FUND INVESTING types of investment vehicles--stocks, bonds, and money market instruments--as well as mutual funds
which employ one or more of these instruments. The various types of mutual funds available and the
advantages of mutual fund investing are discussed.
PAGE 14
- -------------------------------------------------------------------------------------------------------------------------------
MULTIPLE PORTFOLIOS Investors may choose to invest in any of the thirteen funds of CoreFunds offered in this Prospectus.
EQUITY FUNDS FIXED INCOME FUNDS MONEY MARKET FUNDS
Growth Equity Fund Intermediate Bond Fund Cash Reserve
Value Equity Fund Government Income Fund Treasury Reserve
International Growth Intermediate Municipal Tax-Free Reserve
Fund Bond Fund
Balanced Fund Pennsylvania Municipal
Bond Fund
New Jersey Municipal
Bond Fund
Global Bond Fund
PAGE 25
- -------------------------------------------------------------------------------------------------------------------------------
RISK Investment in the Funds involves a number of risks, including possible loss of principal. The Funds
CHARACTER- differ significantly in terms of specific risks. Certain risk factors applicable to the Funds are
ISTICS described below.
</TABLE>
<TABLE>
<S> <C> <C>
10 Highlights
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
EQUITY FUNDS
The Equity Funds are subject to market risk and fund risk.
Market risk is the possibility that stock prices in general
will decline over short or even extended periods of time.
Stock markets tend to be cyclical, with periods when stock
prices generally rise and periods when stock prices generally
decline. Fund risk is the possibility that a Fund's
performance during a specific period may not meet or exceed
that of the stock market as a whole. Investors should consider
their holdings in equity mutual funds to be long-term
investments.
In addition to market and fund risks, International
Growth Fund is subject to foreign market and currency risk.
Investments in foreign stock markets can be as volatile, if
not more volatile, than investments in U.S. markets. Currency
risk is the risk that changes in foreign exchange rates will
affect, favorably or unfavorably, the value of foreign
securities held by the Fund.
FIXED INCOME FUNDS
Securities held by the Fixed Income Funds may be subject to
several types of investment risk, including market risk,
credit risk, and call risk. With respect to these Funds,
market risk (or interest rate risk) is the potential for a
decline in the price of fixed-income securities due to rising
interest rates. Credit risk is the possibility that a bond
issuer will be unable to make timely payments of either
principal or interest. Call risk (or income risk) relates to
corporate and municipal bonds during periods of falling
interest rates, and involves the possibility that securities
with high interest rates will be prepaid (or 'called') by the
issuer prior to maturity. Such an event would require a Fund
to invest the resulting proceeds elsewhere, at generally lower
interest rates, which would cause fluctuations in the Fund's
net income.
Intermediate Bond Fund may also be exposed to event
risk, the possibility that corporate fixed income securities
held by it may suffer a substantial decline in credit quality
and market value due to a corporate restructuring, such as an
acquisition. While event risk may be high for certain
corporate securities held by this Fund, event risk for the
Fund in the aggregate should be low because of the Fund's
diversified holdings.
An investment in either the Pennsylvania Municipal Bond
Fund or the New Jersey Municipal Bond Fund involves special
risk considerations. The concentration of investments in
Pennsylvania municipal securities by the Pennsylvania
Municipal Bond Fund and the concentration of investments in
New Jersey municipal securities by the New Jersey Municipal
Bond Fund raises certain investment considerations, including
the possibility that changes in the economic condition and
governmental policies of either state or its municipalities
could adversely affect the value of the corresponding Fund and
the portfolio securities held by it.
Highlights----
11
<PAGE>
- --------------------------------------------------------------------------------
HIGHLIGHTS (CONTINUED)
<TABLE>
<S> <C>
Global Bond Fund is also subject to foreign market and currency risks, as described above.
MONEY MARKET FUNDS
Securities held by Cash Reserve and Treasury Reserve may be subject, on a limited basis, to credit
risk. The credit risk of a money market investment portfolio is similar to that of a fixed income
portfolio.
Securities held by Tax-Free Reserve may be subject, on a limited basis, to several types of
investment risk, including market risk (or interest rate risk), credit risk and call risk (or income
risk).
PAGE 48
- ------------------------------------------------------------------------------------------------------------------------------
INVESTMENT CoreStates Investment Advisers, Inc. ('CoreStates Advisers') serves as the investment adviser for
ADVISER each Fund. Value Equity Fund, International Growth Fund and Global Bond Fund also retain
sub-advisers. CoreStates Advisers has extensive experience in the management of money market,
tax-free, fixed income, equity, and international investments. It currently manages discretionary
and non-discretionary client security portfolios with a total aggregate market value exceeding $29
billion, for individuals, corporations, institutions and municipalities.
PAGE 57
- ------------------------------------------------------------------------------------------------------------------------------
DIVIDEND Shareholders of a Fund are entitled to dividends and distributions arising from the net investment
POLICY income and capital gains, if any, earned on investments held by the Fund.
PAGE 51
- ------------------------------------------------------------------------------------------------------------------------------
TAXES The sale or redemption of shares of a mutual fund is a taxable event to the selling or redeeming
shareholder. In addition, any receipt of dividends which represent capital gain distributions will
be subject to federal and state income taxes. However, receipt of other dividends will generally not
be subject to federal income taxes. Ordinary dividends also will be subject to state income taxes,
except as to Pennsylvania residents for the Pennsylvania Municipal Bond Fund and New Jersey
residents for the New Jersey Municipal Bond Fund.
PAGE 52
- ------------------------------------------------------------------------------------------------------------------------------
PURCHASING You may purchase shares by mail, wire or exchange from another account or Fund. The minimum initial
SHARES investment is $500 for each Fund. There is no minimum for subsequent investments. There is also no
minimum initial investment for automatic investment plans.
PAGE 67
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
12 Highlights
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
<TABLE>
<S> <C>
SELLING You may redeem or sell shares of each Fund by mail or telephone. You may also redeem shares of the
SHARES Money Market Funds by check. There is no charge for redemptions, except for wire withdrawals which
are subject to the transfer agent's then-current wire fee. Your bank may also impose a fee upon
receipt of a wire. The share price of each Fund except for the Money Market Funds is expected to
fluctuate, and may at redemption be more or less than at the time of initial purchase, resulting in
a gain or loss.
PAGE 71
- ------------------------------------------------------------------------------------------------------------------------------
SERVICES TO CoreFunds offers checkwriting services (minimum $250) on the Money Market Funds for easy access to
SHAREHOLDERS your account balances.
CoreFunds also offers additional services including automatic investment and systematic withdrawal
plans.
PAGE 68
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Highlights----
13
<PAGE>
AN INTRODUCTORY GUIDE FOR INVESTORS
This section is devoted to those who are unfamiliar or uncomfortable with the
concepts of mutual fund investing, as well as those
who are interested in developing a coordinated strategy which can help them
reach their financial goals.
It describes the three basic types of investment vehicles stocks, bonds,
and money market instruments--as well as
mutual funds which employ one or more of these investments.
Of course, no guide alone can help you determine how or when to invest.
That's why we recommend that you work closely
with an investment representative to develop a solid program which is
designed specifically for your goals and risk tolerance.
PART I:
TYPES OF INVESTMENT VEHICLES
FOR DETAILS ON HOW EACH OF THESE INSTRUMENTS IS USED IN MUTUAL FUNDS, PLEASE
SEE THE SECTION ENTITLED, "WHAT TYPES OF MUTUAL FUNDS ARE AVAILABLE?"
The three most popular types of investments are stocks, bonds, and money
market instruments. The following is an introduction to what they are and how
they work.
WHAT IS A STOCK?
Also known as equities, stocks represent an ownership position in a business
entity, such as a company or corporation. Each share of stock represents a
proportionate "share" of ownership in the business entity. As a result,
stocks offer individual investors the opportunity to take part in the
economic future of business.
Stocks are bought and sold on the open market, through a variety of stock
exchanges in the U.S. and around the world.
This system allows any individual to purchase and sell shares through stock
brokers, who are licensed to participate in the exchange.
The price for a share of stock is established by an "auction" system, in
which the broker for the buyer negotiates with the broker for the seller.
When the demand for a stock is low, its price will most likely fall; when
demand is high, the stock's price will most likely rise.
Because each share of stock represents a share in the company's earnings,
one of the most common factors affecting the price of the stock is the
direction of the company's earnings. In theory, the more a company earns, or
is expected to earn, the higher the price of its shares.
However, a number of other factors can cause a stock's price to go up or
down, including events which will positively
or negatively affect the company's future, changes in the overall economy,
changes in the mood of the market, and the market's perceptions of the
company or its stock.
ALSO SEE: "EQUITY MUTUAL FUNDS" AND "WHAT ARE BALANCED FUNDS?"
14
<PAGE>
FOR DEFINITIONS OF INVESTMENT TERMS, PLEASE SEE THE
GLOSSARY FOLLOWING THIS SECTION.
WHAT IS A BOND?
When a corporation, government or government agency needs money for a
certain project, it often borrows money by issuing bonds to investors. So, in
the simplest terms, a bond is an IOU. The investor who purchases a bond is
acting as the lender.
Rather than offering an ownership share in business, as stocks do,
bonds are simply an agreement to repay the investor the amount loaned, also
known as principal, on a certain date. In addition, the issuer commits to
making periodic fixed interest payments to the lender until the loan is repaid.
When the bond is issued by a state or municipality, the interest paid to
investors is generally free of federal income taxes.
Like stocks, bonds are also traded in the open market. The value of a bond
can fluctuate due to changing market conditions. For example, when interest
rates in the market fall, the prices of bonds tend to rise. On the other hand,
when interest rates rise, the value of bonds falls.
Generally, the longer the maturity of a bond, the higher its yield and the
greater its price volatility. The shorter the maturity, the lower the yield and
the greater its price stability.
ALSO SEE: "FIXED INCOME MUTUAL FUNDS"
<TABLE>
<CAPTION>
Price of the
same bond if
Price of a 7% the yield
coupon bond increases to 8%
Years to now trading to to keep pace with Percent change
maturity yield 7% rising interest rates in price
<S> <C> <C> <C>
1 year $100.00 $99.06 -0.94%
3 years 100.00 97.38 -2.62%
10 years 100.00 93.20 -6.80%
30 years 100.00 88.69 -11.31%
DURING TIMES WHEN OVERALL INTEREST RATES ARE FALLING, FIXED-INCOME INVESTORS
GENERALLY ENJOY HIGHER PRICES FOR THEIR BONDS.
CONVERSELY, RISING INTEREST RATES TEND TO REDUCE THE VALUE OF BONDS. LONGER
MATURITY BONDS EXPERIENCE A GREATER CHANGE IN PRICE, AS SHOWN ABOVE.
</TABLE>
WHAT IS A MONEY MARKET INSTRUMENT?
Simply put, money market instruments are short-term bonds, with maturities
typically ranging from overnight to 13 months. They pay investors a rate of
interest which is generally lower than that of longer-term bonds.
Money market securities are issued by a number of sources, including the
U.S. Government, its agencies and large, reputable banks and corporations.
Money market instruments are generally quite stable, due to their short
maturities. Therefore, they are chosen by investors who wish to maintain the
safety of their investment.
ALSO SEE: "MONEY MARKET MUTUAL FUNDS"
15
<PAGE>
PART II:
HOW TO INVEST IN STOCKS, BONDS, AND MONEY
MARKET INSTRUMENTS
Now that you've reviewed the basic types of investment vehicles available,
here's a discussion of how mutual funds can help you invest in stocks, bonds,
and money market securities.
WHAT IS A MUTUAL FUND?
Simply defined, a mutual fund pools the money of many investors and invests
it toward a specific goal, such as stability of principal, regular income, or
long-term growth. The fund's professional managers choose investments that,
in their judgment, will help the fund achieve its goal. As an investor, you
share in the fund's gains, losses, income, and expenses on a proportional
basis.
An equity fund pools its money to purchase stocks, a fixed-income fund
purchases bonds, and a money market fund purchases short-term debt instruments.
ADVANTAGES OF MUTUAL FUND INVESTING.
While many investors enjoy excellent results by purchasing individual stocks
or bonds, most investors find that mutual funds offer a more viable
alternative, for the following reasons:
PROFESSIONAL MANAGEMENT: With individual securities, you or your
broker must do the extensive research necessary to choose from among the
thousands of securities available. With mutual funds, you enjoy having a
professional money manager uncover opportunities and research them to make sure
the investment is appropriate for the needs of the fund.
LOW COSTS: With mutual funds, trading costs are modest because they are
shared by all investors in the fund.
DIVERSIFICATION: When investing, it's important to not put all your eggs in
one basket, so that you will be protected against an excessive loss in any one
investment. But only the wealthiest investors can afford to purchase the wide
range of individual securities to achieve true diversification. With mutual
funds, however, you can enjoy immediate diversification with even a very limited
amount of money, because investment risk is spread over many different
securities for greater stability and safety of your investment.
LIQUIDITY: With individual securities, it can sometimes be difficult to
redeem your investment due to market conditions and other factors. Mutual fund
shares, however, are easily redeemed at their current market value.
WHAT TYPES OF MUTUAL FUNDS ARE AVAILABLE?
The three basic categories of mutual funds are as follows:
EQUITY (STOCK) MUTUAL FUNDS A stock fund consists of selected securities
traded on the stock market. The fund changes in value as the prices of the
stocks in the fund change. Although these funds tend to rise or fall in price
more than other types of mutual funds, they have traditionally rewarded
investors with higher returns over the long run.
16
<PAGE>
FIXED INCOME (BOND) MUTUAL FUNDS A fixed income fund is a mutual fund
which invests in a pool of bonds. Bonds generally pay a fixed rate of
interest. While fixed income mutual funds buy bonds, it's important to note that
the income paid by a bond fund will fluctuate as individual securities are added
to or subtracted from the pool.
In addition, fixed income funds are subject to changes in net asset value
due to changing market conditions. Like individual bonds, fixed income funds
will tend to increase in value during times of decreasing interest rates, and
will generally decrease in value when interest rates rise.
There are a wide range of fixed-income funds to choose from, each with its
own investment objectives. These objectives range from stability of principal,
to maximum yield, to tax-free income.
MONEY MARKET FUNDS Of the basic mutual fund categories, money market funds
are managed to maintain the greatest stability of principal. They are managed to
maintain a value of $1 per share.
Money market funds invest in short-term money market securities, such as
U.S. Treasury Bills, certificates of deposit from large banks, and commercial
paper. Because the interest rates paid on these securities fluctuate with market
conditions, the yield for money market funds will also change.
WHAT ARE TAX-FREE FUNDS?
Tax-free funds, which include both fixed income (bond) and money market
funds, invest in securities which are issued by state, county, and local
governments and their agencies. The proceeds from these securities are used
to finance a variety of public-works projects, such as the building of roads,
schools, and sewers.
Under current tax laws, the interest paid to investors in these securities
is generally exempt from Federal income taxes. Therefore, they are frequently
purchased by investors who wish to shelter their investment income from taxes.
However, Congress from time to time reviews this aspect of the tax code and may
at any time repeal the exemption on any or all of these securities. If this were
to occur, it would have a negative impact on any affected securities, as well as
the mutual funds in which they were held.
It's Easy to Compare Tax-Free and Taxable Yields:
Tax-Free Yield = Taxable Yield
1 - Tax Rate
17
<PAGE>
WHAT ARE BALANCED FUNDS?
In addition to the types of mutual funds already described, there are also
funds which blend investments in stock, bond, and money market securities.
These are commonly known as balanced funds.
The returns for balanced funds are typically greater than those of bond and
money market funds, but lower than those of pure stock funds. Investing in all
three types of securities means the value of your principal should fluctuate
less than it would in a stock or bond fund alone.
Typically, the fund's professional manager has the flexibility to change
the investment mix based on current economic conditions.
COMPARING THE PERFORMANCE OF STOCK, BOND, AND MONEY MARKET INVESTMENTS
In order to balance risks and rewards, it's helpful to see how stocks, bonds,
and money market investments have performed over time.
Mutual fund performance is stated in terms of total return. The
total return of a mutual fund or any other investment consists of the
combination of capital appreciation (or loss) and investment income.
Capital appreciation (or loss) is a change in the market value. Income is
made up of dividends earned on stocks, and interest paid on bonds or money
market investments. In general, stocks have the highest total return, because
over long periods of time they have achieved the greatest capital appreciation.
Bonds have provided the greatest income or interest, but because their
prices are more stable they have less potential than stocks for capital
appreciation. Therefore, they have a lower total return potential over time than
stocks.
Of course, past returns are no guarantee of future results. But historical
data tells a story which surprises many investors.
As the chart on the following page shows, for the forty-year period between
January 1955 and December 1994, stocks have averaged annual returns of 10.7%,
while long-term bonds have averaged 5.6%, intermediate-term bonds have averaged
6.6%, and money market instruments have averaged 5.6%. During this same period,
inflation averaged 4.4%. Therefore, bonds and money market investments actually
delivered very little growth in excess of inflation.
Stocks, on the other hand, averaged more than double the rate of inflation.
What about the price fluctuations? Well, it's true that stocks do fluctuate--and
probably always will. But as the accompanying chart shows, stocks have
consistently rewarded long-term investors.
Since money market funds are managed to have a constant $1 share price,
their total return consists only of the interest earned on their investments.
18
<PAGE>
GROWTH OF $1,000 (HISTORICAL PERFORMANCE
OF STOCKS, BONDS AND CASH)
<TABLE>
Dollars in Thousands
<CAPTION>
Large Long-Term Intermediate-Term
Year Stock Govt Bonds Inflation TBill Govt Bonds
<S> <C> <C> <C> <C> <C>
1955 1.32 1.02 1 0.99 0.99
1956 1.4 1.04 1.03 0.93 0.99
1957 1.25 1.07 1.06 1 1.07
1958 1.79 1.09 1.08 0.94 1.05
1959 2.01 1.12 1.1 0.92 1.05
1960 2.02 1.15 1.12 1.05 1.17
1961 2.56 1.18 1.12 1.06 1.19
1962 2.34 1.21 1.14 1.13 1.26
1963 2.87 1.25 1.16 1.14 1.28
1964 3.35 1.29 1.17 1.18 1.33
1965 3.77 1.34 1.19 1.19 1.35
1967 3.39 1.4 1.23 1.23 1.41
1968 4.2 1.46 1.27 1.12 1.42
1969 4.66 1.54 1.33 1.12 1.49
1970 4.27 1.64 1.41 1.06 1.48
1971 4.44 1.75 1.49 1.19 1.73
1972 5.07 1.82 1.54 1.35 1.88
1973 6.04 1.89 1.59 1.42 1.97
1974 5.15 2.02 1.73 1.41 2.07
1975 3.79 2.19 1.94 1.47 2.18
1976 5.19 2.31 2.08 1.6 2.35
1977 6.43 2.43 2.18 1.87 2.66
1978 5.97 2.56 2.32 1.86 2.69
1979 6.36 2.74 2.53 1.84 2.79
1980 7.53 3.02 2.87 1.82 2.9
1981 9.97 3.36 3.23 1.74 3.02
1982 9.48 3.86 3.51 1.78 3.3
1983 11.51 4.26 3.65 2.49 4.26
1984 14.1 4.64 3.79 2.51 4.58
1985 14.99 5.09 3.94 2.9 5.22
1986 19.82 5.48 4.09 3.8 6.28
1987 23.48 5.82 4.14 4.73 7.23
1988 24.7 6.14 4.32 4.6 7.44
1989 28.85 6.53 4.51 5.04 7.89
1990 37.94 7.08 4.72 5.96 8.94
1991 36.73 7.63 5 6.33 9.81
1992 47.93 8.06 5.16 7.55 11.33
1993 51.62 8.34 5.31 8.15 12.14
1994 56.78 8.58 5.45 9.64 13.51
1995 57.52 8.92 5.6 .89 12.81
</TABLE>
THIS CHART SHOWS HOW THE MAJOR TYPES OF INVESTMENTS HAVE PERFORMED OVER THE
PAST 40 YEARS. MORE STABLE MONEY MARKET INVESTMENTS HAVE PRODUCED THE LOWEST
ANNUAL RETURNS, WHILE STOCKS HAVE PRODUCED THE GREATEST GROWTH EVEN THOUGH
THEIR VALUE FLUCTUATES MORE.
HISTORICAL ANNUALIZED RETURN
(JANUARY 1955 -DECEMBER 1994)
<TABLE>
<S> <C>
Stocks 10.7 %
Long-Term Government Bonds 5.6
Intermediate-Term Government Bonds 6.6
Cash 5.6
Inflation 4.4
</TABLE>
ASSUMPTIONS FOR THE TABLE AND CHARTS SHOWN ON THIS PAGE: RETURNS BASED ON
HISTORICAL PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS. STOCK RETURNS
REPRESENT TOTAL RETURN OF THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX
(THE "S&P 500 INDEX"). FIXED INCOME, OR BONDS, IS COMPOSED OF INTERMEDIATE- AND
LONG-TERM GOVERNMENT BONDS. CASH REPRESENTS 30-DAY TREASURY BILLS. SOURCE: SEI
FINANCIAL SERVICES COMPANY.
RANGE OF STOCK RATES OF RETURN FOR ONE-
AND FIVE-YEAR ROLLING PERIODS
(1955-1994)
Percent
<TABLE>
<CAPTION>
One-Year Five-Year
Rolling Periods Rolling Periods
<S> <C> <C>
95th Percentil 37.2 20.0
5th Percentil -10.8 1.6
</TABLE>
MANY INDIVIDUALS ARE CONCERNED ABOUT THE RISKS ASSOCIATED WITH INVESTING IN
STOCKS. MANY DO NOT REALIZE, HOWEVER, THAT DESPITE THE FLUCTUATION OF ANNUAL
RETURNS, INVESTORS WHO HELD STOCKS FOR A FULL FIVE YEARS HISTORICALLY EARNED
A POSITIVE RETURN IN MORE THAN NINETY FIVE PERCENT OF THE CASES. BEST AND WORST
CASE SCENARIOS PRESENTED IN THIS ILLUSTRATION REPRESENT THE FIFTH AND
NINETY-FIFTH PERCENTILE OF THE HISTORICAL RETURN DISTRIBUTION. SOURCE: SEI
FINANCIAL SERVICES COMPANY.
19
<PAGE>
WHAT ARE INTERNATIONAL FUNDS?
International funds invest primarily in stock, bond and money market
securities issued by corporations, governments and banks worldwide.
International equity funds invest in the equity (stock) securities
of companies based outside the United States. Today, international markets
account for over 60% of the world's equity capitalization, as measured by the
Morgan Stanley World Index in February, 1995. This indicates that many
investment opportunities now exist globally. Likewise, international bond
funds may invest in government and corporate debt obligations from around the
world with the aim of providing income and the potential for capital
appreciation. Investing in international equity (stock) and fixed income (bond
) funds provides investors with a way to participate in a diversified
portfolio of many international securities of many countries.
GROWTH OF $1,000
(PERFORMANCE OF INTERNATIONAL AND DOMESTIC STOCKS)
<TABLE>
Dollars in Thousands
<CAPTION>
Year MSCI EAFE S&P 500
<S> <C> <C>
1975 1.371 1.372
1976 1.4223 1.6985
1977 1.6986 1.5762
1978 2.2812 1.6803
1979 2.4222 1.9894
1980 3.014 2.634
1981 2.9829 2.505
1982 2.9573 3.041
1983 3.6851 3.7252
1984 3.9749 3.9599
1985 6.2296 5.235
1986 10.586 6.2035
1987 13.226 6.5291
1988 17.007 7.6225
1989 18.843 10.024
1990 14.473 9.7028
1991 16.281 12.662
1992 14.352 13.637
1993 19.08 15.001
1994 20.618 15.196
</TABLE>
GROWTH OF $1,000 IN INTERNATIONAL AND DOMESTIC STOCKS. MSCI EAFE (THE MORGAN
STANLEY CAPITAL INTERNATIONAL EUROPE AUSTRALIA AND FAR EAST INDEX) REPRESENTS
THE GROWTH OF AN INVESTMENT IN INTERNATIONAL STOCKS, AND THE S&P 500 INDEX
INDICATES AN INVESTMENT IN DOMESTIC STOCKS.
A COMPARISON OF FOREIGN GOV'T BOND
RETURN PERFORMANCE 1994
<TABLE>
Total Return in U.S. Dollars
<S> <C>
Japan 8.88%
U.K. -1.54%
Australia 6.88%
France 4.37%
Canada -9.86%
U.S. -3.36%
Germany 9.98%
</TABLE>
SOURCE: SEI FINANCIAL SERVICES COMPANY
Although investing internationally can reward investors (see graphs
above), there is an added dimension to the risks involved in investing in
domestic securities. Currency fluctuations in the countries in which
international stock and bond securities are issued can negatively impact the
value of these securities, as well as the mutual funds in which they are
held.
20
<PAGE>
PART III:
DEVELOPING YOUR INVESTMENT STRATEGY
Now that you have a basic understanding of the investments available to you,
let's look at how these investments can be used to help you achieve your
goals.
Everyone, whatever their income level, has financial goals. Perhaps yours
include a comfortable retirement, education for your children or grandchildren,
a new home, or simply the accumulation of wealth.
Whatever your personal goals, the best way to achieve them is to take
control of your financial future. And one of the best ways to do that is
through a coordinated program of saving and investing.
Saving money provides the foundation for reaching your goals, while
investing builds on that foundation by using the money you save to make even
more money.
Mutual funds provide one of the most convenient and rewarding means of
saving and investing.
Mutual funds are particularly well-suited to long-term goals such as
education and retirement, because they offer a convenient way to invest
regularly in a diversified portfolio of securities.
Once you've decided to use mutual funds to help reach your goals, here are
some very simple steps to follow:
STEP 1:
SET WELL-DEFINED GOALS.
Whether you're investing for retirement, education, wealth accumulation, or
regular income, start by determining how much you will need to satisfy your
goals. When making this assessment, you may want to seek the guidance of an
investment professional. Also take into account the effects of inflation,
which historically has reduced purchasing power by an average of 4.4% per year.
Short-term goals will require a greater initial investment and a more
conservative investment approach. Longer-term goals will require a smaller
initial investment and a more aggressive approach, including investments in
stock and bond funds which are expected to yield higher returns over the long
run.
Once you determine your primary and secondary goals, you'll then need to
calculate how soon you will need your money.
STEP 2:
ESTABLISH YOUR TIME HORIZON.
For each of your goals, determine how soon you will need the money you're
investing. If it's a shorter-term goal, such as a new
home in a few years, you'll want investments that offer fairly predictable
results in a short time. If it is a longer-term goal, such as education for
young children, you can plan for longer-term results. Accordingly, the type
of investments you choose for retirement will depend on whether your
retirement is a few years away, or a few decades.
21
<PAGE>
STEP 3:
UNDERSTAND THE REAL RISKS.
Most people think of an investment as "risky" or "safe" based only on how
much the value of their principal can fluctuate. But in the long run, there
is more to risk than whether your principal goes up or down. It's just as
important to consider the following risks:
THE RISK OF INFLATION. To achieve any real increase in your wealth, your
investment return must outstrip inflation, or you may end up actually losing
purchasing power in the long run. To beat inflation, consider investing some of
your money where values and return are not fixed, but grow with the economy.
Experience shows that stock-based investments such as equity mutual funds offer
this type of performance potential.
THE RISK OF NOT REACHING YOUR GOAL. Another potential risk that many
investors tend to overlook is the risk that an
investment strategy will not enable them to reach their goal. To properly
assess this risk, you first need to define your goals, and then strike a
balance between the risk of principal volatility and the risk of failing to
reach your goals.
For example, statistics show that at age 70 you can expect to live another
20 years. To achieve the many years of comfortable retirement you want, you
must have the discipline to set aside enough money during your working years
and invest it wisely.
STEP 4:
DECIDE ON AN INVESTMENT MIX.
When you are selecting specific investments, choose those which offer the
greatest potential for reaching your short-term and long-term goals, and
which are within your risk tolerance.
Many investors find that they are most comfortable with a mix of
investments, including stocks, bonds, and money market funds. This approach
offers the advantage of not putting all your eggs in
one basket, and also allows you to enjoy the distinct advantages of each type
of investment.
If you use this approach, known as "asset allocation", the key is deciding
how much to allocate to each type of investment. To make this decision easier,
you can select a balanced fund, which combines stock, bond, and money market
investments under the guidance of professional investment managers.
As this chart below suggests, bonds and money markets fluctuate less in the
short term, and there is less chance of experiencing a loss. History has shown,
however, that the longer you stay invested, the more stocks have provided a
higher return, with a decreasing potential for loss.
22
<PAGE>
REDUCTION OF RISK
OVER TIME
<TABLE>
Average Annual Return
<S> <C> <C>
Stocks 43.4 -26.5
Long Term Bonds 40.36 -9.18
Intermediate-Term Bonds 29.1 -5.14
Cash 14.7 1.5
Inflation 13.3 0.4
Stocks 20.4 -2.36
Long Term Bonds 21.62 -2.14
Intermediate-Term Bonds 16.98 0.96
Cash 11.12 2.33
Inflation 10.06 1.24
Stocks 17.59 1.24
Long Term Bonds 15.56 1.13
Intermediate-Term Bonds 13.13 2.92
Cash 9.17 2.58
Inflation 7.34 1.57
Stocks 14.58 6.53
Long Term Bonds 10.1 1.94
Intermediate-Term Bonds 9.85 3.98
Cash 7.72 4
Inflation 6.36 3.37
1 Year
5 Years
10 Years
20 Years
</TABLE>
THE LONGER YOU HOLD ANY PARTICULAR ASSET CLASS (STOCKS, BONDS, MONEY MARKET
INSTRUMENTS), THE LESS THE VARIATION IN RETURN. WHILE STOCKS HAVE FLUCTUATED
IN VALUE MUCH MORE THAN OTHER INVESTMENTS, THEY HAVE ALSO DELIVERED HIGHER
RETURNS OVER THE LONG RUN. IN ADDITION, THE LONGER AN INVESTOR REMAINS
INVESTED IN STOCKS, THE LESS THE CHANCE THERE IS FOR A CAPITAL LOSS. THE
BEST- AND WORST-CASE SCENARIOS PRESENTED IN THIS ILLUSTRATION REPRESENT THE
ABSOLUTE HIGHEST AND LOWEST RETURNS FROM JANUARY 1955 TO 1994. SOURCE: BASED
ON HISTORICAL DATA ON THE S&P 500 INDEX, INTERMEDIATE-AND LONG-TERM
GOVERNMENT BONDS, AND 30-DAY TREASURY BILLS FOR ROLLING ONE-, FIVE-, 10-, AND
20-YEAR PERIODS BETWEEN 1955 AND 1994. PAST RESULTS DO NOT GUARANTEE FUTURE
PERFORMANCE.
STEP 5:
GET STARTED.
Don't make the mistake of waiting until tomorrow. With mutual funds, you
don't need a large investment to start your program. All it takes is a small
amount of money, and a strong desire to reach your goals.
For full details on how the principles of mutual fund investing can
work for you, please contact your investment representative.
STEP 6:
BE DISCIPLINED.
Once you have a good strategy, stay with it. Avoid sudden changes in reaction
to temporary market trends. Remember, you're interested in long-term
performance.
In mutual fund investing, particularly with equity funds, one of
the surest ways to maximize the value of your investment is through a regular
program of monthly contributions. By adding to your account each month,
you'll be purchasing shares during both "up" markets and "down" markets. This
technique, known as "dollar cost averaging", has been shown to yield optimum
results over the long run.
23
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GLOSSARY
OF KEY INVESTMENT TERMS
CAPITAL GAIN: The profit made from the sale of securities due to an increase in
share value.
CURRENT YIELD: The income paid annually on mutual fund shares, expressed as a
percentage of the current price per share.
DISTRIBUTION: Payment of capital gains to shareholders of a mutual fund. For tax
purposes, distributions are separate from interest income or dividends.
DOLLAR COST AVERAGING: Investing a fixed dollar amount at regular intervals
over a long period of time to reduce the average cost per share of a mutual
fund.
INCOME DIVIDENDS: Regular payments from mutual funds to their shareholders,
made up of dividends, interest, and short-term capital gains earned from the
fund's portfolio of securities. May be distributed annually, bi-annually,
quarterly, or monthly, with operating expenses deducted.
MATURITY: The date on which the issuer is scheduled to return the amount
borrowed to the lender, or investor.
MUNICIPAL BOND: A debt obligation issued by a city, state, or municipality.
Interest from these bonds is generally exempt from federal income tax.
NET ASSET VALUE: The dollar value of one share of a mutual fund. This value
is generally calculated at least once each day, and is the price at which the
fund will redeem its shares from investors.
PRINCIPAL, OR PAR VALUE: Also known as face value, this is the amount loaned
to the issuer of a bond.
PROSPECTUS: A booklet distributed by the issuer of a security or mutual fund,
in compliance with SEC regulations. A mutual fund prospectus must include the
fund's investment objectives, all expenses and fees including management and
sales fees, a description of shareholder services offered, and information on
how to buy shares.
REDEMPTION PRICE: Also known as "bid price", this is the price at which
mutual funds buy back their shares. It is usually the net asset price of the
fund.
TOTAL RETURN: The combined return of capital appreciation and income
(interest and dividends) that an investment earns. (See page 62).
24
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INFORMATION ON THE FUNDS /X/ COREFUND
/X/
INVESTMENT
OBJECTIVES
OF THE FUNDS
The descriptions that follow are designed to help you choose the Fund that best
fits your investment objectives. The objectives of each Fund are fundamental and
may only be changed by the affirmative vote of a majority of the outstanding
shares of such Fund. You may want to pursue more than one objective by investing
in more than one of these Funds.
As investment adviser of each Fund, CoreStates Advisers manages each
Fund's portfolio of investments in a manner which it believes will best
accomplish the Fund's stated objective. However, there can be no assurance that
a Fund will meet its objective.
EQUITY FUNDS ___________________________________________________________________
GROWTH EQUITY FUND Growth Equity Fund's investment objective is to provide
growth of capital and an increasing flow of dividends from the diversified
portfolio of common stocks comprising the Fund.
VALUE EQUITY FUND Value Equity Fund's investment objective is to provide maximum
total return, including capital appreciation and investment income, in excess of
stock market indices such as the S&P 500 Index, as measured over a period of
time.
INTERNATIONAL GROWTH FUND International Growth Fund's investment objective is to
provide its shareholders with long-term capital appreciation, consistent with
reasonable risk, by investing primarily in a diversified portfolio of
appreciation-oriented equity securities of companies located outside the United
States.
BALANCED FUND Balanced Fund's investment objective is to provide total return
while preserving capital. This Fund pursues its objective by investing in a
combination of common stocks and fixed income securities. Under normal
conditions, Balanced Fund will invest a minimum of 25% of its assets in senior
fixed income securities and between 30% and 70% of its assets in common stocks.
FIXED INCOME FUNDS _____________________________________________________________
INTERMEDIATE BOND FUND Intermediate Bond Fund's investment objective is to
provide a moderate level of current income consistent with conservation of
capital, by investing substantially all of its assets in a diversified portfolio
of intermediate-term, fixed income obligations which will have an expected
average weighted maturity of three to ten years.
GOVERNMENT INCOME FUND Government Income Fund's investment objective is to
provide current income while preserving principal value and maintaining
liquidity.
INTERMEDIATE MUNICIPAL BOND FUND Intermediate Municipal Bond Fund's investment
objective is to seek the highest level of income exempt from federal income
taxes that can be obtained, consistent with the preservation of capital, from a
diversified portfolio of high quality, intermediate-term municipal securities.
This Fund has a fundamental policy to invest, under normal circumstances, at
least 80% of its assets in municipal securities the interest of which is exempt
from federal income taxes, based on opinions from bond counsel for the issuers.
PENNSYLVANIA MUNICIPAL BOND FUND Pennsylvania Municipal Bond Fund seeks current
income exempt from federal and Pennsylvania income taxation with preservation of
capital by investing primarily in a non-diversified portfolio of municipal
securities.
Investment Objectives ----
25
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INFORMATION ON THE FUNDS (CONTINUED)
NEW JERSEY MUNICIPAL BOND FUND New Jersey Municipal Bond Fund seeks current
income exempt from federal and New Jersey income taxation with preservation of
capital by investing primarily in a non-diversified portfolio of municipal
securities.
GLOBAL BOND FUND Global Bond Fund's investment objective is to provide capital
appreciation and current income through investment primarily in fixed income
securities of United States and foreign issuers denominated in United States
dollars and in other currencies.
MONEY MARKET FUNDS _____________________________________________________________
CASH RESERVE Cash Reserve's investment objective is to provide as high a level
of current income as is consistent with liquidity and relative stability of
principal.
TREASURY RESERVE Treasury Reserve's investment objective is to provide current
interest income, liquidity and safety of principal.
TAX-FREE RESERVE Tax-Free Reserve's investment objective is to provide as high a
level of current interest income that is exempt from federal income taxes as is
consistent with liquidity and relative stability of principal. This Fund
intends, under normal market conditions, to invest at least 80% of its assets in
tax-free securities.
/X/
INVESTMENT
POLICIES
The policies which the Funds follow to achieve their investment objectives are
described below. These are non-fundamental policies which may be changed without
a shareholder vote.
Descriptions of the securities in which the Funds invest are contained
below in 'Types of Securities in Which the Funds Invest.'
EQUITY FUNDS ___________________________________________________________________
The CoreFund Equity Funds cover a range of investment styles. CoreStates
Advisers, specialists in the management of growth portfolios, manages the Growth
Equity and Balanced Funds. CoreStates Advisers has selected Cashman, Farrell and
Associates and Martin Currie, Inc. to manage the Value Equity and International
Growth Funds, respectively. These firms are specialists in their respective
investment styles.
GROWTH EQUITY FUND Growth Equity Fund strives to provide a return in excess of
stock market indices such as the S&P Barra Growth Index and the S&P 500 Index.
Growth Equity Fund pursues its investment objective by investing primarily in
common stocks, preferred stocks, convertible securities, and other equity
securities of companies which CoreStates Advisers believes to show the potential
for growth of earnings over time. Stock selection is guided by a bottom-up
approach that places heavy emphasis on fundamental research to uncover companies
with proven earnings growth records, high reinvestment rates, high returns on
equity, and strong balance sheets showing low debt to total capital. The adviser
makes qualitative judgments on such elements as the company's competitive
position, the quality of its management and the potential for future growth.
This Fund intends, under normal market conditions, to hold at least 75% of
its total assets in the equity securities described above. Over the long term,
continued earnings
26 Investment Policies
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/X/ COREFUND
growth tends to lead to both higher dividends and capital appreciation.
VALUE EQUITY FUND Value Equity Fund pursues its investment objective by
investing primarily in a diversified portfolio of selected common stocks or
other equity securities which CoreStates Advisers and Cashman, Farrell and
Associates, the sub-adviser, believe to be undervalued in the marketplace at the
time of purchase. Value Equity Fund intends, under normal circumstances, to hold
at least 75% of its total assets in such equity securities.
A security may be considered to be undervalued for many reasons, including
investor apathy, market decline within an industry group, difficult industry
conditions, and other factors which may result in current buying opportunities
at attractive prices relative to the long-term prospects of the security under
consideration. The advisers believe that purchasing securities undervalued due
to temporary factors may provide an investment return superior to that obtained
when premium prices are paid for securities currently in favor.
In general, Value Equity Fund's advisers select undervalued, income-
producing equity securities characterized as having high dividend yields and low
price-earnings ratios relative to the stock market, as measured by the S&P 500
Index. Current income, although considered, is not a primary factor in the
selection of securities. All of the securities selected are traded on registered
exchanges or in the 'over-the-counter' market.
To select individual equity securities, the advisers employ an investment
process that serves to identify undervalued securities and employs sufficient
fundamental analysis to substantiate an improved long-term outlook. It involves,
to start, ranking the equity universe according to price-earnings ratios. The
lowest 40% of equities believed by the advisers to be the most undervalued are
identified. A performance screen is applied to look for those which have
experienced a substantial price decline, either in absolute terms or relative to
the S&P 500 Index. Those companies are further subjected to a fundamental
analysis to uncover candidates with strong balance sheets, an improving earnings
outlook, or the potential for an expansion of the valuation multiples such as
price-earnings ratios.
The advisers purchase equity securities which look attractive
fundamentally. This fundamental analysis serves to indicate which of the
companies under consideration possess better long-term prospects than the
valuation of their securities indicates. The advisers, however, restrict the
position of each security to less than 5% of the cost of the Fund's total
portfolio.
The Fund's advisers maintain an equally strict sell discipline to
eliminate any security when its valuation has increased, or the prospects of its
issuer or the stock price deteriorate. A security is generally sold if its
valuation is determined to rank in the top 40% of the equity universe. A
security is also sold if it suffers a steep decline from its acquisition price
or the issuer exhibits deteriorating fundamentals.
INTERNATIONAL GROWTH FUND International Growth Fund pursues its investment
objective by investing in foreign equity
Investment Policies ----
27
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INFORMATION ON THE FUNDS (CONTINUED)
securities which offer favorable prospects for capital return. This Fund seeks
to diversify its assets by investing in appreciation-oriented equity securities
of companies located outside the United States, which may include, but not be
limited to, Australia, Canada, France, Hong Kong, Japan, Mexico, Singapore,
Sweden, Switzerland, Germany, the Netherlands, and the United Kingdom. In
general, 'appreciation-oriented' securities are equity securities of companies
that CoreStates Advisers and Martin Currie, Inc., the sub-adviser, believe have
the greatest potential for long-term growth, and which exhibit operating
characteristics that may enable such companies to compete successfully in their
marketplace.
International Growth Fund offers increased diversification through
investment in foreign markets. This Fund's advisers believe that both the
selection of individual securities and the allocation of International Growth
Fund's assets across foreign markets are important in managing an international
equity fund. Most foreign equity securities are purchased in over-the-counter
markets or on stock exchanges located in the countries in which the respective
principal offices of the issuers of the various securities are located. Under
normal market conditions, International Growth Fund will invest an aggregate of
at least 65% of its total assets in the equity securities of at least three
different countries.
In determining the distribution of International Growth Fund's investments
among various countries and geographic regions, the advisers consider many
factors, such as: prospects for relative economic growth between countries;
government policies affecting business conditions; outlook for local currency;
and the range of available, attractive investment opportunities. For the
selection of securities, the advisers' criteria includes: earnings growth;
return on capital; quality of management; cash flow; and strength of balance
sheet.
While foreign stocks are the primary securities utilized to achieve
International Growth Fund's objective, the advisers may also invest in other
types of foreign equity securities, consistent with the objective and policies
described herein.
The net asset value of this Fund will fluctuate, and investments are
expected to yield little, if any, current income.
BALANCED FUND In managing Balanced Fund, CoreStates Advisers uses a balanced
portfolio philosophy which combines separate equity, fixed income, and asset
allocation strategies. This produces a portfolio of stocks of companies
exhibiting growth in revenues and earnings and strong balance sheet
characteristics. All of the common stocks in which Balanced Fund invests are
traded on registered exchanges or in the 'over-the-counter' market.
The fixed income strategy values bonds using historical yield
differentials. U.S. Government securities and corporate bonds are used
exclusively to implement Balanced Fund's fixed income strategy. The asset
allocation strategy shifts the stock-fixed income-money market instrument mix
based on the investment adviser's judgment of the relative attractiveness of
these markets and securities given its view of economic conditions, the level of
interest rates, and the outlook for corporate profits. The strategy uses present
and historical economic and market data to reach these conclusions.
Balanced Fund seeks strong total return in all market conditions, with a
special emphasis on minimizing interim declines during falling equity markets.
Long-term
28 Investment Policies
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/X/ COREFUND
growth is pursued through equity holdings, and current income through fixed
income securities and common stock dividends.
The strategy focuses on controlling downside risk, both through holdings
in relatively high-dividend-yielding stocks and convertible securities, and
through diversification between stocks and bonds.
To employ this strategy, the Fund's adviser uses present and historical
economic and market data.
This Fund will, under normal conditions, invest between 30% and 70% of
total assets in common stocks, depending on the investment adviser's assessment
of market conditions. When CoreStates Advisers believes that equity markets are
overvalued, the common stock exposure will be at the low end of this range.
CoreStates Advisers expects that equity exposure will average 60% over time.
Balanced Fund may also invest in U.S. dollar denominated securities of foreign
issuers (including American Depositary Receipts that are traded on registered
exchanges or listed on NASDAQ).
FIXED INCOME FUNDS _____________________________________________________________
CoreFund Fixed Income Funds employ an investment process that attempts to manage
large swings in interest rates within the maturity parameters of each Fund to
reduce an investor's risk of principal. Significant effort is put forth to
identify value along the yield curve, taking into account the economic outlook,
fiscal and monetary policies, and inflation trend. Developments that can
significantly impact the supply and demand of securities within the various
sectors of the bond market are also carefully considered. By identifying these
opportunities, and acting upon them in a timely manner, the Funds' advisers seek
to enhance overall value.
INTERMEDIATE BOND FUND This Fund pursues its investment objective by investing
primarily in corporate debt securities such as bonds and commercial paper, as
well as securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. The Fund intends, under normal market conditions, to invest
at least 65% of its total assets in bonds and 35% or less in other fixed income
securities.
Intermediate Bond Fund maintains a maximum average maturity of no more
than five years, pursuant to a non-fundamental investment policy which can be
changed without shareholder approval. By maintaining an average maturity of not
more than five years, CoreStates Advisers expects the Fund's net asset value to
be relatively stable while providing higher income than money market funds.
Should a security held by this Fund be downgraded below the minimum
required ratings, CoreStates Advisers will reassess the creditworthiness of the
security and will consider such an event in determining whether the Fund should
continue to hold the security in question. Securities that are unrated at the
time of purchase may only be purchased by the Fund if they are determined by
CoreStates Advisers to be of comparable quality to securities meeting the rating
criteria set forth in 'Types of Securities in Which the Funds Invest.' See the
'Appendix' to the Statement of Additional Information for a description of
applicable ratings.
GOVERNMENT INCOME FUND Government Income Fund invests exclusively in obligations
issued or guaranteed as to
Investment Policies ----
29
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INFORMATION ON THE FUNDS (CONTINUED)
principal and interest by the agencies and instrumentalities of the U.S.
Government and repurchase agreements involving any of such obligations. Although
there are no restrictions on maturity, Government Income Fund generally strives
to maintain an average maturity of about seven years. This Fund intends to
invest at least 65% of its total assets in instruments issued or guaranteed as
to principal and interest by the agencies and instrumentalities of the U.S.
Government and mortgage-backed securities.
INTERMEDIATE MUNICIPAL BOND FUND Intermediate Municipal Bond Fund invests
substantially all of its assets in a diversified portfolio consisting of
short-term obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia and their political
subdivisions, agencies, instrumentalities and authorities, the interest on
which, in the opinion of counsel to the issuer, is exempt from federal income
tax. The municipal securities in which this Fund invests are described in 'Types
of Securities in Which the Funds Invest.'
Although CoreStates Advisers has no present intention of doing so, up to
20% of all assets in this Fund can be invested in taxable debt securities for
defensive purposes or when sufficient tax-exempt securities considered
appropriate by CoreStates Advisers are not available for purchase.
Intermediate Municipal Bond Fund will maintain an average weighted
maturity of three to ten years. However, when the investment adviser determines
that market conditions so warrant, the Fund can maintain an average weighted
maturity of less than three years. CoreStates Advisers may, at times, elect to
adjust the average maturity upwards, between seven and ten years, in order to
pick up incremental yield, while avoiding the risks associated with long-term
bonds.
PENNSYLVANIA MUNICIPAL BOND FUND At least 80% of this Fund's assets will be
invested in municipal securities, the interest on which is exempt from federal
income tax. Under normal circumstances, at least 65% of the Fund's assets will
be invested in municipal securities, the interest on which is exempt from
Pennsylvania personal income tax ('Pennsylvania Municipal Securities').
This Fund will primarily purchase (i) municipal bonds rated in one of the
three highest rating categories; (ii) municipal notes rated in one of the two
highest rating categories; (iii) commercial paper rated in one of the two
highest short-term categories; or (iv) any of the foregoing determined by
CoreStates Advisers to be of comparable quality at the time of investment.
However, CoreStates Advisers has discretion to invest up to 20% of the Fund's
assets in municipal bonds rated BBB by Standard & Poor's Corporation ('S&P') or
Baa by Moody's Investors Service, Inc. ('Moody's'). See 'Description of
Ratings.'
Pennsylvania Municipal Bond Fund will invest more than 25% of its net
assets in municipal securities whose issuers are located in Pennsylvania. This
Fund may also invest up to 20% of its assets in Taxable Obligations. Taxable
Obligations may include obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, certificates of deposit and demand and
time deposits of domestic banks and savings and loan associations, bankers'
acceptances issued by domestic banks, commercial paper issued by U.S.
corporations (including variable amount master demand notes) meeting the Fund's
quality standards, and securities subject to Federal Alternative Minimum Tax.
30 Investment Policies
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/X/ COREFUND
Pennsylvania Municipal Bond Fund may also hold a portion of its assets in
cash. Under normal market conditions, such holdings will not exceed 1% of the
Fund's will not be invested so as to meet such Fund's investment objective.
There are no restrictions on the average maturity of Pennsylvania Municipal Bond
Fund or the maturity of a single instrument.
Pennsylvania Municipal Bond Fund is a non-diversified investment portfolio
which means that more than 5% of its assets may be invested in each of one or
more issuers. Since a relatively high percentage of assets of the Fund may be
invested in the obligations of a limited number of issuers, the value of the
shares of the Fund may be more susceptible to any single economic, political or
regulatory occurrence than the shares of a diversified investment portfolio
would be. The Fund intends to satisfy the diversification requirements necessary
to comply with Subchapter M of the Internal Revenue Code of 1986, as amended
(the 'Code'). In part, Subchapter M requires that, at the close of each quarter
of the taxable year, those issues which represent more than 5% of the Fund's
assets be limited in aggregate to 50% of the Fund and that no one issue exceed
25% of the Fund's total assets.
NEW JERSEY MUNICIPAL BOND FUND At least 80% of this Fund's assets will be
invested in municipal securities, the interest on which is exempt from federal
income tax. Under normal circumstances, at least 65% of the Fund's assets will
be invested in municipal securities, the interest on which is exempt from New
Jersey personal income tax ('New Jersey Municipal Securities').
This Fund will primarily purchase (i) municipal bonds rated in one of the
three highest rating categories; (ii) municipal notes rated in one of the two
highest rating categories; (iii) commercial paper rated in one of the two
highest short-term categories; or (iv) any of the foregoing determined by
CoreStates Advisers to be of comparable quality at the time of investment.
However, CoreStates Advisers has discretion to invest up to 20% of the Fund's
assets in municipal bonds rated BBB or better by S&P or Baa or better by
Moody's. See 'Description of Ratings.'
New Jersey Municipal Bond Fund will invest more than 25% of its net assets
in municipal securities whose issuers are located in New Jersey. This Fund may
also invest up to 20% of its assets in Taxable Obligations, as described above.
New Jersey Municipal Bond Fund may also hold a portion of its assets in
cash. Under normal market conditions, such holdings will not exceed 1% of the
Fund's net assets. To the extent that the Fund's assets are invested in cash,
they will not be invested so as to meet such Fund's investment objective. There
are no restrictions on the average maturity of New Jersey Municipal Bond Fund or
the maturity of a single instrument.
New Jersey Municipal Bond Fund is a non-diversified investment portfolio,
as described above. The Fund intends to satisfy the diversification requirements
necessary to comply with Subchapter M of the Code.
GLOBAL BOND FUND Global Bond Fund will invest, under normal circumstances, at
least 65% of its total assets in high quality fixed income securities or debt
obligations of foreign or domestic government entities,
Investment Policies ----
31
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INFORMATION ON THE FUNDS (CONTINUED)
corporations or supranational agencies. The Fund will invest in at least three
supranational agencies or countries. Supranational agencies will include, but
not be limited to, the International Bank of Reconstruction and Development, the
InterAmerican Development Bank, and the Asian Development Bank. Countries will
include, but not be limited to, Austria, Australia, Belgium, Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan, Luxembourg, The Netherlands,
New Zealand, Norway, Spain, Sweden, Switzerland, the United Kingdom and the
United States. Although this Fund will concentrate its investments in the
developed countries listed above, it may invest up to 5% of its assets in
similar securities or debt obligations that are denominated in the currencies of
developing countries and that are of comparable quality to such securities and
debt obligations at the time of purchase as determined by CoreStates Advisers
and the sub-adviser, Alpha Global Fixed Income Managers, Inc.
This Fund will strive to take maximum advantage of financial and economic
developments and currency fluctuations. All of its investments will be in
quality securities denominated in various currencies, including the European
Currency Unit, and will be rated in one of the highest four rating categories by
a nationally recognized statistical rating agency or of comparable quality at
the time of purchase as determined by the advisers.
There are no restrictions on the average maturity of Global Bond Fund or
the maturity of any single instrument. Maturities may vary widely depending on
the advisers' assessment of interest rate trends and other economic and market
factors. In the event a security owned by Global Bond Fund is downgraded below
rating categories discussed above, the advisers will review the situation and
take appropriate action with regard to the security.
MONEY MARKET FUNDS _____________________________________________________________
Investments by money market funds such as Cash Reserve, Treasury Reserve and
Tax-Free Reserve are subject to limitations imposed under regulations adopted by
the Securities and Exchange Commission (the 'SEC'). These regulations generally
require money market funds to acquire only U.S. dollar denominated obligations
maturing in 397 days or less, although securities subject to repurchase
agreements, securities with optional and mandatory tender provisions, variable
rate demand obligations and certain other securities may bear longer maturities.
Money market funds also must maintain a dollar-weighted average portfolio
maturity of 90 days or less.
In addition, money market funds may acquire only obligations that
represent minimal credit risks and that are 'eligible securities' which means
they are (i) rated, at the time of investment, by at least two nationally
recognized statistical rating organizations (one if it is the only organization
rating such obligation) in the highest short-term rating category or, if
unrated, determined to be of comparable quality (a 'first tier security'), or
(ii) rated according to the foregoing criteria in the second highest short-term
rating category, or, if unrated, determined to be of comparable quality (a
'second tier security'). A security is not considered to be unrated if its
issuer has outstanding obligations of comparable priority and security that have
a short-term rating. CoreStates Advisers will determine that an obligation
presents minimal credit risks or that unrated instruments are of comparable
quality in accordance with guidelines established by
32 Investment Policies
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/X/ COREFUND
CoreFunds' Board of Directors. The Directors must also approve or ratify the
acquisition of unrated securities or securities rated by only one rating
organization. Investments in second tier securities are subject to the further
constraints that (i) no more that 5% of a Fund's assets may be invested in such
securities in the aggregate, and (ii) any investment in such securities of one
issuer is limited to the greater of 1% of the Fund's total assets or $1 million.
In addition, a Fund may only invest up to 25% of its total assets in the first
tier securities of a single issuer for three business days.
CASH RESERVE Cash Reserve intends to achieve its investment objective by
investing in a diversified portfolio of money market instruments of the highest
quality, including a broad range of U.S. dollar-denominated government, bank,
and commercial paper obligations. By investing only in high quality money market
instruments with remaining maturities of 13 months or less, Cash Reserve strives
to capture the highest yield possible within safety, compliance, and liquidity
parameters.
TREASURY RESERVE Treasury Reserve intends to achieve its investment objective by
investing in direct obligations of the U.S. Treasury, such as bills, bonds, and
notes and separately traded interest and principal component parts of such
obligations that are transferable through the Federal book-entry system, known
as Separately Traded Registered Investment and Principal Securities ('STRIPS'),
and in repurchase agreements relating to direct U.S. Treasury obligations.
TAX-FREE RESERVE Tax-Free Reserve invests substantially all of its assets in a
diversified portfolio consisting of short-term obligations issued by or on
behalf of states, territories and possessions of the United States, the District
of Columbia and their political subdivisions, agencies, instrumentalities and
authorities, the interest on which, in the opinion of counsel to the issuer, is
exempt from federal income tax. The municipal securities in which this Fund
invests are described in 'Types of Securities in Which the Funds Invest.' In
managing Tax-Free Reserve, the investment adviser uses a strategy that aims to
take advantage of key seasonal supply and demand factors that govern short-term
rates.
Although CoreStates Advisers has no present intention of doing so, up to
20% of all assets in this Fund can be invested in taxable debt securities for
defensive purposes or when sufficient tax-exempt securities considered
appropriate by CoreStates Advisers are not available for purchase.
OTHER INVESTMENT PRACTICES OF THE FUNDS ________________________________________
In addition to the investments described above, the Funds may engage in a number
of additional investment practices, as discussed below:
REPURCHASE AGREEMENTS--All Funds
Under certain circumstances, the Funds may enter into repurchase agreements with
respect to portfolio securities. Under the terms of a repurchase agreement, a
Fund purchases securities ('collateral') from financial institutions such as
banks and broker-dealers ('seller') which are deemed to be creditworthy under
guidelines approved by the Fund's management, subject to the seller's agreement
to
Investment Policies ----
33
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INFORMATION ON THE FUNDS (CONTINUED)
repurchase them at a mutually agreed-upon date and price. The repurchase price
generally equals the price paid by the Fund plus interest negotiated on the
basis of current short-term rates (which may be more or less than the rate on
the underlying portfolio securities). The seller under a repurchase agreement is
required to maintain the value of the collateral held pursuant to the agreement
at not less than 100% of the repurchase price, and securities subject to
repurchase agreements are held by CoreFunds' custodian in the Federal Reserve
book-entry system. Default by the seller could, however, expose a Fund to loss
in the event of adverse market action or delay in connection with the
disposition of the underlying securities. Repurchase agreements are considered
to be loans by a Fund under the Investment Company Act of 1940 (the 'Investment
Company Act').
REVERSE REPURCHASE AGREEMENTS--
All Funds
Each of the Funds may borrow funds for temporary purposes by entering into
reverse repurchase agreements. Pursuant to such agreements, a Fund would sell
portfolio securities to financial institutions such as banks and broker-dealers,
and agree to repurchase them at a mutually agreed-upon date and price. A Fund
enters into reverse repurchase agreements only to avoid otherwise selling
securities during unfavorable market conditions to meet redemptions. At the time
the Fund enters into a reverse repurchase agreement, it places in a segregated
custodial account liquid assets such as U.S. Government securities or other
liquid high-grade debt securities having a value equal to the repurchase price
(including accrued interest), and will subsequently monitor the account to
ensure that such equivalent value is maintained. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Fund may
decline below the price at which it is obligated to repurchase the securities.
Reverse repurchase agreements are considered to be borrowings by a Fund under
the Investment Company Act.
OTHER INVESTMENT COMPANIES--All Funds
The Funds may invest in the securities of other investment companies. Such
shares will be purchased by the Funds within the limits prescribed by the
Investment Company Act. Such investments will be limited to amounts not in
excess of 5% of a Fund's total assets at the time of purchase.
PUT TRANSACTIONS-- Intermediate Municipal Bond Fund, Intermediate Bond Fund,
Pennsylvania Municipal Bond Fund, New Jersey Municipal Bond Fund, Global Bond
Fund, Tax-Free Reserve
These Funds may purchase securities subject to a put. A 'put' feature permits a
Fund to sell a security at a fixed price prior to maturity. The underlying
municipal securities subject to a put may be sold at any time at the market
rates. However, unless the put was an integral part of the security as
originally issued, it may not be marketable or assignable; therefore, the put
would only have value to the Fund. In certain cases a premium may be paid for
put features. A premium paid will have the effect of reducing the yield
otherwise receivable on the underlying security. The purpose of engaging in
transactions involving puts is to maintain flexibility and liquidity to permit
these Funds to meet redemption requests and remain as fully invested as possible
in municipal securities. These Funds will limit their put transactions to
institutions which their advisers believe present minimal credit risk.
34 Investment Policies
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/X/ COREFUND
There is no limit to the percentage of portfolio securities that each Fund
may purchase subject to a put, but the amount paid directly or indirectly for
puts which are not integral parts of the security as originally issued held in
such Fund will not exceed 1/2 of 1% of the value of the total assets of the Fund
calculated immediately after any such put is acquired.
WHEN-ISSUED SECURITIES--Intermediate Municipal Bond Fund, Intermediate Bond
Fund, Government Income Fund, Pennsylvania Municipal Bond Fund, New Jersey
Municipal Bond Fund, Global Bond Fund, Tax-Free Reserve
These Funds may purchase securities on a 'when-issued' basis. When-issued
securities are subject to settlement on a future date. The interest rate
realized on these securities is fixed as of the purchase date and no interest
accrues to the Fund before settlement. These securities are subject to market
fluctuation due to changes in market interest rates and will have the effect of
leveraging a Fund's assets. Each Fund will establish one or more segregated
accounts with the custodian and will maintain liquid assets in such accounts in
an amount at least equal to the value of its commitments to purchase when-issued
securities.
MUNICIPAL LEASE OBLIGATIONS--
Intermediate Municipal Bond Fund, Pennsylvania Municipal Bond Fund, New Jersey
Municipal Bond Fund, Tax-Free Reserve
Municipal lease obligations are issued by a state or local government or
authority to acquire land and a wide variety of equipment and facilities. These
obligations typically are not fully backed by the municipality's credit, and
their interest may become taxable if the lease is assigned. If funds are not
appropriated for the following year's lease payments, the lease may terminate,
with the possibility of default on the lease obligation and significant loss to
a Fund. Certificates of participation in municipal lease obligations or
installment sales contracts entitle the holder to a proportionate interest in
the lease-purchase payments made.
FORWARD CURRENCY CONTRACTS--
International Growth Fund, Global Bond Fund
International Growth Fund and Global Bond Fund may enter into forward foreign
currency exchange contracts in order to protect against uncertainty in the level
of future foreign exchange rates in the purchase and sale of investment
securities. These Funds will not enter into such contracts for speculative
purposes.
A forward foreign currency exchange contract is an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. In addition, International Growth Fund and Global Bond
Fund may be required to segregate certain assets when entering into such
contracts, in order to complete the settlement transactions in the future. The
contracts may be bought or sold in amounts up to 100% of exposure to protect a
Fund to a limited extent against adverse changes in exchange rates between
foreign currencies and the U.S. dollar. Such contracts, which protect the value
of a Fund's investment securities against a decline in the value of currency, do
not eliminate fluctuations in the underlying prices of the securities. They
simply
Investment Policies ----
35
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INFORMATION ON THE FUNDS (CONTINUED)
establish an exchange rate at a future date. Also, although such contracts tend
to minimize the risk of loss due to a decline in the value of a hedged currency,
at the same time they tend to limit any potential gain that might be realized
should the value of such foreign currency increase.
FUTURES CONTRACTS OR OPTIONS TRANSACTIONS--International Growth Fund, Global
Bond Fund
International Growth Fund and Global Bond Fund may purchase futures contracts
and may purchase, sell, and write options on securities (including puts and
calls) to a limited extent. Specifically, each Fund may purchase futures
contracts provided that not more than 5% of its total assets are acquired as a
futures contract; in addition, each Fund may purchase futures contracts or enter
into options transactions only to the extent that obligations under such
contracts or transactions represent not more than 20% of its total assets.
International Growth Fund and Global Bond Fund do not intend to use options on
futures contracts.
Futures contracts or options transactions may be used for several reasons:
to maintain cash reserves while remaining fully invested; to facilitate trading;
to reduce transactions costs; or to seek higher investment returns when a
futures contract is priced more attractively than the underlying equity security
or index. International Growth Fund and Global Bond Fund may not use futures
contracts or options transactions to leverage their net assets, or for
speculative purposes.
For example, in order to remain fully invested in stocks while maintaining
liquidity to meet potential shareholder redemptions, International Growth Fund
and Global Bond Fund may invest a portion of their assets in futures contracts
or options transactions. Because futures contracts only require a small marginal
deposit, these Funds would then be able to maintain a cash reserve for potential
redemptions, while at the same time remaining fully exposed to markets. Also,
because transaction costs of futures and options may be lower than the costs of
investing in securities directly, it is expected that the use of futures
contracts and options transactions may reduce the total transaction costs of
International Growth Fund and Global Bond Fund.
The primary risks associated with the use of futures and options are (i)
imperfect correlation between the changes in market value of the securities held
by a Fund and the prices of futures and options, and (ii) possible lack of a
liquid secondary market for a futures contract and the resulting inability to
close a futures position prior to its maturity date. The risk of imperfect
correlation will be minimized by investing only in those contracts whose
behavior is expected to resemble that of the underlying securities of
International Growth Fund and Global Bond Fund. The risk that the Funds will be
unable to close out a futures position will be minimized by entering into such
transactions on a national exchange with an active and liquid secondary market.
In addition, although these Funds will not use futures contracts for speculative
purposes, there is the risk that the advisers of these Funds could be incorrect
in their assessment of the direction of stock prices.
ILLIQUID SECURITIES--International Growth Fund, Global Bond Fund
International Growth Fund and Global Bond Fund may invest up to 10% and 15%,
respectively, of their assets in illiquid securities. Under the supervision of
CoreFunds' Board of Directors, each Fund's advisers determine the liquidity of
the Fund's
36 Investment Policies
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/X/ COREFUND
investments. The absence of a trading market can make it difficult to ascertain
a market value for illiquid investments. Disposing of illiquid investments may
involve time-consuming negotiations and legal expenses, and it may be difficult
or impossible for a Fund to sell them promptly at an acceptable price.
LENDING OF SECURITIES--International Growth Fund, Global Bond Fund
International Growth Fund and Global Bond Fund may lend their portfolio
securities to qualified brokers, dealers, banks, and other financial
institutions for the purpose of realizing additional net investment income
through the receipt of interest on the loan. Each Fund may lend portfolio
securities with a value of up to 50% of its total assets. Such loans may be
terminated at any time. International Growth Fund and Global Bond Fund will
receive cash, government or government agency securities as collateral in an
amount equal to at least 100% of the current market value of the loaned
securities plus accrued interest. Cash collateral received by the Funds will be
invested in short-term debt securities.
These Funds will retain most rights of beneficial ownership including
dividends, interest or other distributions on the loaned securities. Voting
rights pass with the lending. The Funds will call loans to vote proxies if a
material issue affecting the investment is to be voted upon. Loans will be made
only to borrowers deemed by CoreStates Advisers to be of good standing.
Such loans would involve risk of delay in receiving additional collateral
in the event the value of the collateral decreased below the value of the
securities loaned, or risk of delay in recovering the securities loaned or even
loss of rights in the collateral should the borrower of the securities fail
financially.
SWAPS--Global Bond Fund
Global Bond Fund may enter into interest rate swaps, currency swaps and other
types of swap agreements such as caps, collars and floors as a way of managing
its exposure to different types of investments. In a typical interest rate swap,
one party agrees to make regular payments equal to a floating interest rate
times a 'notional principal amount,' in return for payments equal to a fixed
rate times the same amount, for a specific period of time. If a swap agreement
provides for payment in different currencies, the parties might agree to
exchange the notional principal amount as well. Swaps may also depend on other
prices or rates, such as the value of an index or mortgage prepayment rates. In
a typical cap or floor agreement, one party agrees to make payments only under
specified circumstances, usually in return for payment of a fee by the other
party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specific interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift the Global Bond Fund's investment
exposure from one type of investment to another. For example, if this Fund
agrees to exchange payments in U.S. dollars for receipts in foreign currency,
the swap agreement would tend to increase the Fund's exposure to foreign
currency and interest rates. Caps
Investment Policies ----
37
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INFORMATION ON THE FUNDS (CONTINUED)
and floors have an effect similar to buying or writing options. Depending on how
they are used, swap agreements may increase or decrease the overall volatility
of Global Bond Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks assumed.
As a result, swaps can be highly volatile and have a considerable impact on a
Fund's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. A Fund may also suffer losses if
it is unable to terminate outstanding swap agreements or reduce their exposure
through offsetting transactions. Any obligation a Fund may have under these
types of arrangements will be covered by setting aside high quality liquid
securities in a segregated account. Global Bond Fund will enter into swaps only
with counterparties deemed creditworthy by its advisers.
/X/
TYPES OF
SECURITIES IN
WHICH THE
FUNDS INVEST
The various types of securities in which the Funds invest are described below.
EQUITY FUNDS ___________________________________________________________________
GROWTH EQUITY FUND
VALUE EQUITY FUND
INTERNATIONAL GROWTH FUND
The types of equity securities in which these Funds invest generally include
common stocks, preferred stocks and convertible securities.
BALANCED FUND In addition to equity securities, Balanced Fund may invest in
fixed income securities. The fixed income securities in which this Fund will
invest consist of bonds, debentures, notes and similar obligations or
instruments which constitute a security and evidence indebtedness, including
U.S. Government obligations, mortgage-backed securities and bank obligations (as
described below). Balanced Fund may also invest in corporate bonds which are
rated, at time of purchase, A or higher by S&P or Moody's.
TAXABLE FIXED INCOME FUNDS _____________________________________________________
INTERMEDIATE BOND FUND The various types of securities which may be purchased by
Intermediate Bond Fund include the following:
U.S. Government Obligations--
1. U.S. Treasury Securities-includes bills, notes, bonds, and other debt
securities issued by the U.S. Treasury. These are direct obligations of the U.S.
Government and are supported by the full faith and credit of the United States.
They differ mainly in interest rates, maturities, and dates of issue.
2. U.S. Government Agency Securities-issued or guaranteed by U.S.
Government-sponsored instrumentalities and federal agencies. These include
obligations supported by the right of the issuer to borrow from the Treasury,
such as those of the Export-Import Bank of the United States; obligations
supported by the discretionary authority of the U.S. Treasury to purchase the
agency's obligations, such as those of the Federal National Mortgage Association
('FNMA'); and obligations supported only by the credit of the agency or
instrumentality, such as those of the Student Loan Marketing Association
('SLMA').
38 Types of Securities
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/X/ COREFUND
However, no assurance can be given that the U.S. Government would provide
financial support to U.S. Government-sponsored instrumentalities if it is not
obligated to do so by law.
Bank Obligations--
1. Certificates of Deposit--negotiable certificates representing a
commercial bank's obligation to repay funds deposited with it, earning specified
rates of interest over given periods.
2. Bankers' Acceptances--negotiable drafts or bills of exchange, normally
drawn by an importer or exporter to pay for specific merchandise, which are
'accepted' by a bank; meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument upon maturity.
Each of Intermediate Bond Fund and Intermediate Municipal Bond Fund, as
well as Balanced Fund, will limit its purchases of bank obligations to those of
domestic branches of U.S. banks having total assets at the time of purchase of
$1 billion or more as shown on their last published financial statements at the
time of investment.
Mortgage-Backed Securities--
These securities may be issued or guaranteed by U.S. Government agencies such as
the Government National Mortgage Association ('GNMA'), FNMA, or the Federal Home
Loan Mortgage Corporation ('FHLMC'). GNMA mortgage-backed certificates are
mortgage-backed securities of the modified pass-through type, which means that
both interest and principal payments (including prepayments) are passed through
monthly to the holder of the certificate. The National Housing Act provides that
the full faith and credit of the United States is pledged to the timely payment
of principal and interest by GNMA of amounts due on these GNMA certificates.
Each GNMA certificate evidences an interest in a specific pool of mortgage loans
insured by the Federal Housing Administration or the Farmers Home Administration
or guaranteed by the Veterans Administration. FNMA, a federally chartered and
stockholder-owned corporation, issues pass-through certificates which are
guaranteed as to principal and interest by FNMA. FHLMC, a corporate
instrumentality of the United States, issues participation certificates which
represent an interest in mortgages held in FHLMC's portfolio. FHLMC guarantees
the timely payment of interest and the ultimate collection of principal.
Securities issued or guaranteed by FNMA and FHLMC are not backed by the full
faith and credit of the United States. There can be no assurance that the United
States Government would provide financial support to FNMA or FHLMC if necessary
in the future.
Mortgage-backed securities also include collateralized mortgage
obligations ('CMOs') or real estate mortgage investment conduits ('REMICs'), a
type of CMO. CMOs or REMICS are mortgage pass-throughs issued in multiple
classes. In a CMO, a series of bonds or certificates are usually issued in
multiple classes. Each class of CMOs is issued with a specific fixed or floating
coupon rate and has a stated maturity or final distribution date. Principal
prepayments on the underlying mortgage assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates,
resulting in a loss of all or part of any premium paid. Interest typically is
paid or accrues on all classes of the CMOs on a monthly, quarterly or semiannual
basis.
Types of Securities ----
39
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INFORMATION ON THE FUNDS (CONTINUED)
The principal of and interest on the underlying mortgage assets may be
allocated among the several classes of a series of a CMO in a variety of ways.
In a common structure, payments of principal, including any principal payments,
on the underlying mortgage assets are applied to the classes of the series of a
CMO in the order of their respective stated maturities or final distribution
dates, so that no payment of principal will be made on any class of CMOs until
all other classes having an earlier stated maturity or final distribution date
have been paid in full.
Asset-backed Securities--
Asset-backed securities consist of securities secured by company receivables,
truck and auto loans, leases and credit card receivables. These issues are
normally traded over-the-counter and typically have a short-intermediate
maturity structure depending on the paydown characteristics of the underlying
financial assets which are passed through to the security holder.
Corporate Securities--
Corporate securities include corporate bonds, convertible and non-convertible
debt securities, and preferred stocks, as well as commercial paper. Corporate
securities in which Intermediate Bond Fund invests must satisfy certain minimum
ratings at the time of purchase by Moody's or S&P. Corporate bonds must be rated
A or better by S&P or Moody's.
GOVERNMENT INCOME FUND Government Income Fund may invest in U.S. Government
obligations, mortgage-backed securities and asset-backed securities, as defined
above.
GLOBAL BOND FUND Global Bond Fund may invest in fixed income or debt obligations
issued or guaranteed by the U.S. Government or a foreign government, or by one
of its agencies, authorities, instrumentalities or political subdivisions; fixed
income or debt obligations issued or guaranteed by supranational entities; and
corporate securities and bank obligations, as described above.
TAXABLE MONEY MARKET FUNDS _____________________________________________________
CASH RESERVE The various types of securities invested in by Cash Reserve include
U.S. Government obligations, bank obligations, and asset-backed securities, as
described above.
With respect to U.S. Government obligations, in addition to bills, notes
and bonds issued by U.S. Government agencies, Cash Reserve may invest in STRIPS
as defined above in 'Investment Policies-Treasury Reserve.' STRIPS may be sold
as zero coupon securities, which means that they are sold at a substantial
discount and redeemed at face value at their maturity date without interim cash
payments of interest or principal. This discount is amortized over the life of
the security, and such amortization will constitute the income earned on the
security for both accounting and tax purposes. See also 'Taxes.'
With respect to bank obligations, in addition to certificates of deposit
and bankers' acceptances, Cash Reserve may invest in foreign securities and time
deposits. Time deposits are non-negotiable deposits in a banking institution
earning a specified interest rate over a given period of time. Such deposits
cannot be withdrawn before the date specified at the time of deposit.
With respect to asset-backed securities, Cash Reserve may invest only in
asset-backed securities having final maturity dates of 13 months or less.
Cash Reserve may also invest in the following types of securities:
40 Types of Securities
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/X/ COREFUND
Commercial Paper--
Commercial paper are short-term promissory notes issued by corporations,
including variable amount master demand notes, having short-term ratings at the
time of purchase of 'Prime-1' by Moody's and/or 'A-1' or better by S&P.
Variable amount master demand notes in which Cash Reserve may invest are
unsecured demand notes that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate according to the terms of
the instrument. The rate of interest on such notes is generally based upon the
interest rates for commercial paper issued by the master demand note issuer. The
rate will be adjusted automatically at periodic intervals which normally will
not exceed 31 days but may extend longer. Because master demand notes are direct
lending arrangements between such Fund and the issuer, they are not normally
traded. Although there is no secondary market in the notes, the Fund may demand
payment of principal and accrued interest at any time. While the notes are not
typically rated by credit rating agencies, issuers of variable amount master
demand notes (which are normally manufacturing, retail, financial, and other
business concerns) must satisfy the same criteria as set forth above for issuers
of commercial paper. CoreStates Advisers will consider the earning power, cash
flow, and other liquidity ratios of the issuers of such notes and will
continuously monitor their financial status to meet payment on demand.
Receipts--
Receipts are interests in separately traded interest and principal component
parts of U.S. Treasury obligations that are issued by banks or brokerage firms
and are created by depositing U.S. Treasury obligations into a special account
at a custodian bank. The custodian holds the interest and principal payments for
the benefit of the registered owners of the certificates or receipts. The
custodian arranges for the issuance of the certificates or receipts evidencing
ownership and maintains the register. Receipts include 'Treasury Receipts'
('TR'S'), 'Treasury Investment Growth Receipts' ('TIGR'S'), and 'Certificates of
Accrual on Treasury Securities' ('CATS').
TREASURY RESERVE Treasury Reserve may invest in U.S. Treasury obligations, such
as bills, notes and bonds, and in separately traded interest and principal
component parts of such obligations, such as STRIPS. Treasury Reserve may also
invest in repurchase agreements fully collateralized by U.S. Treasury
obligations.
TAX-FREE FIXED INCOME AND MONEY MARKET FUNDS ___________________________________
INTERMEDIATE MUNICIPAL BOND FUND
PENNSYLVANIA MUNICIPAL BOND FUND
NEW JERSEY MUNICIPAL BOND FUND
TAX-FREE RESERVE These Funds will invest in municipal securities. The two
principal classifications of municipal securities which may be held by these
Funds are 'general obligation' securities and 'revenue' securities. These are
discussed below, along with other municipal securities in which these Funds may
invest.
1. General Obligation Securities
'General obligation' securities are secured by the issuer's pledge of its full
faith, credit, and taxing power for the payment of principal and interest.
Types of Securities ----
41
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INFORMATION ON THE FUNDS (CONTINUED)
2. Revenue Securities
'Revenue' securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or another specific revenue source such as the user of
the facility being financed. Industrial development and pollution control bonds
held by these Funds are in most cases revenue securities and are not payable
from the unrestricted revenues of the issuer. Consequently, the credit quality
of such revenue bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
3. Moral Obligation Bonds
The portfolios of these Funds may also include 'moral obligation' bonds, which
are normally issued by special-purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
4. Variable Rate Demand Obligations
Municipal securities purchased by these Funds may include 'variable rate demand
obligations,' which are tax-exempt obligations upon which interest is payable at
a floating or variable rate. While there may be no active secondary market with
respect to a particular variable rate demand obligation purchased by such Funds,
they normally may demand payment of the principal of and accrued interest on the
obligation upon not more than seven days' notice and may resell the obligation
at any time to a third party. The absence of any active secondary market,
however, could make it difficult for such Funds to dispose of a variable rate
demand obligation if the issuer defaulted on its payment obligation, and they
could, for this or other reasons, suffer a loss to the extent of the default.
5. When-Issued Securities
These Funds may purchase municipal securities on a 'when-issued' basis, as
described in 'Other Investment Practices of the Funds.' Each Fund expects that
commitments to purchase when-issued securities will not exceed 25% of the value
of its total assets, absent unusual market conditions, and does not intend to
purchase when-issued securities for speculative purposes, but only in
furtherance of its investment objective. Because each Fund will set aside cash
or liquid assets to satisfy its purchase commitments in the manner described,
its liquidity and ability to manage its portfolio might be affected in the event
its commitments to purchase when-issued securities should ever exceed 25% of the
value of its total assets.
PENNSYLVANIA MUNICIPAL SECURITIES
In managing the portfolios of Intermediate Municipal Bond Fund and Tax-Free
Reserve, CoreStates Advisers intends to invest, when possible, such Funds'
assets in Pennsylvania Municipal Securities, provided the investment is
consistent with the Funds' investment objectives and policies and their status
as diversified investment companies. Because of the relatively limited number of
Pennsylvania municipal issuers and the restricted supply of outstanding
municipal securities issued by them that meet the Funds' investment criteria,
CoreStates Advisers cannot predict precisely what percentage of each Fund's
portfolio will be invested in such issuers.
Except as stated above with respect to Pennsylvania Municipal Securities,
CoreStates Advisers does not intend on a regular basis to
42 Types of Securities
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/X/ COREFUND
invest more than 25% of either Intermediate Municipal Bond Fund's or Tax-Free
Reserve's total assets in (i) municipal securities whose issuers are in the same
state, (ii) municipal securities, the interest on which is paid solely from
revenues of similar projects, and (iii) industrial development bonds, although
it may do so from time to time. To the extent such Funds' assets are so
concentrated, they would be subject to the peculiar risks presented by the laws
and economic conditions relating to such states, projects, and bonds to a
greater extent than it would be if its assets were not so concentrated.
AMT OBLIGATIONS
While Intermediate Municipal Bond Fund and Tax-Free Reserve are permitted to
purchase 'private activity bonds' that are subject to the Alternative Minimum
Tax (the 'AMT') imposed by Section 55 of the Code, these Funds do not currently
hold or anticipate purchasing such bonds. If they did so, however, a portion of
the dividends received would be subject to the AMT. The purchase of such bonds
by these Funds could have a material effect on the AMT liability of their
investors, and hence these Funds do not intend to invest any portion of their
assets in such bonds.
Corporate shareholders, however, should note that all exempt-interest
dividends are includable in the computation of 'adjusted current earnings' for
AMT purposes, regardless of when the bonds from which they are derived were
issued or whether they are derived from 'private activity bonds.' Accordingly,
corporate shareholders should consult their tax advisers regarding the impact
that holding shares of these Funds would have on their own AMT liability.
TEMPORARY INVESTMENTS __________________________________________________________
On occasion, a Fund may be unable to achieve its investment objective due to
market conditions. Under such circumstances, a Fund is permitted to make certain
temporary investments which deviate from the investment policies described
above. Such investments may be used to invest uncommitted cash balances, to
maintain liquidity to meet shareholder redemptions, or to take a temporary
defensive position against potential or serious stock market declines. The
temporary investments the Funds are permitted to make under such circumstances
are described below.
GROWTH EQUITY FUND
VALUE EQUITY FUND
INTERNATIONAL GROWTH FUND
Although these Funds normally seek to remain fully invested in equity
securities, they may invest all or a portion of their assets temporarily in
certain short-term and fixed income vehicles, in accordance with the investment
restrictions described herein. Money market instruments, such as commercial
paper, and fixed income securities, such as bonds, must be assigned, or
determined by the advisers to be equal to, certain minimum ratings in each
category by either Moody's or S&P at the time of purchase by a Fund. Temporary
investments may include the following:
Money Market Instruments
U.S. Government Obligations
Fixed Income Securities
Repurchase Agreements
BALANCED FUND Although Balanced Fund normally seeks to remain fully invested in
a combination of equity, fixed income, and money market securities, when
CoreStates
Investment Restrictions ----
43
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INFORMATION ON THE FUNDS (CONTINUED)
Advisers determines that market conditions warrant, it may invest up to 100% of
its assets in money market instruments, including securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, repurchase
agreements, certificates of deposit and bankers' acceptances issued by banks or
savings and loan associations having net assets of at least $500 million as of
the end of their most recent fiscal year, and commercial paper rated, at time of
purchase, in the top two categories by a national rating agency or determined to
be of comparable quality by the investment adviser at time of purchase, and
other long- and short-term debt instruments which are rated A or higher at time
of purchase, and may hold a portion of its assets in cash reserves.
PENNSYLVANIA MUNICIPAL BOND FUND
NEW JERSEY MUNICIPAL BOND FUND
Each of the Funds may increase its investment in Taxable Obligations to over 20%
of its total assets if suitable taxexempt obligations are unavailable or for
temporary defensive purposes.
GLOBAL BOND FUND For temporary defensive purposes, when the advisers determine
that market conditions warrant, Global Bond Fund may invest up to 100% of its
assets in U.S. dollar-denominated fixed income securities or debt obligations
and the following domestic and foreign money market instruments: government
obligations, certificates of deposit, bankers' acceptances, time deposits,
commercial paper, short-term corporate debt issues and repurchase agreements.
This Fund may hold a portion of its assets in cash for liquidity purposes.
TAX-FREE RESERVE Tax-Free Reserve may hold uninvested cash reserves which do not
earn income (pending investment) during temporary defensive periods or if, in
the opinion of CoreStates Advisers, suitable tax-exempt obligations are
unavailable. There is no percentage limitation on the amount of assets which may
be held uninvested. In addition, such Fund may invest from time to time, to the
extent consistent with its investment objective, a portion of its assets on a
temporary basis or for temporary defensive purposes in short-term money market
instruments, the income from which is subject to federal income tax.
Temporary investments will generally not exceed 20% of the total assets of
Tax-Free Reserve except when made for temporary defensive purposes, and may
include obligations of the U.S. Government or its agencies or instrumentalities;
debt securities (including taxable commercial paper) of issuers having been
assigned, at the time of purchase, the highest short-term rating of either
Moody's or S&P; certificates of deposit or bankers' acceptances of domestic
branches of U.S. banks with total assets at the time of purchase of $1 billion
or more; repurchase agreements with respect to such obligations; or reverse
repurchase agreements.
/X/
INVESTMENT
RESTRICTIONS
Investment policies of the Funds that are not fundamental may be changed by the
Board of Directors without shareholder approval, provided such changes are
deemed to be consistent with a Fund's objective and in the best interests of its
shareholders. However, the investment objectives of each Fund, along with the
restrictions and limitations described herein and in the Statement of Additional
Information, are fundamental and may be
44 Investment Restrictions
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/X/ COREFUND
changed only by the affirmative vote of a majority of the outstanding shares of
such Fund. See 'Description of Shares.'
A FUND MAY NOT:
1. Make loans, except that each Fund may purchase or hold certain debt
instruments and enter into repurchase agreements, in accordance with its
policies and limitations.
2. Borrow money or issue senior securities, except that each Fund may
borrow from banks and enter into reverse repurchase agreements for temporary
purposes in amounts not to exceed 10% of the value of its total assets at the
time of such borrowing; or mortgage, pledge or hypothecate any 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 its total assets at the time
of such borrowing. A Fund will not purchase any securities while its borrowings
(including reverse repurchase agreements) are outstanding.
3. Invest more than 10% of its total assets in illiquid securities,
including repurchase agreements maturing in more than seven days or the lending
of securities which provide for settlement more than seven days after notice.
This fundamental restriction does not apply to Balanced Fund, Government Income
Fund, Intermediate Municipal Bond Fund, Pennsylvania Municipal Bond Fund, New
Jersey Municipal Bond Fund or Global Bond Fund. These Funds, as a matter of non-
fundamental investment policy, may invest up to 15% of their assets in illiquid
securities.
4. Purchase securities of any one issuer (other than obligations issued or
guaranteed as to principal and interest by the U.S. Government, its agencies or
instrumentalities) if, immediately after such purchase, more than 5% of the
value of the Fund's total assets would be invested in such issuer, except that
up to 25% of the value of the Fund's total assets may be invested without regard
to such 5% limitation. With respect to the Fixed Income Funds and Cash Reserve,
however, there is no limit to the percentage of assets that may be invested in
U.S. Treasury bills and notes, or other obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities. With respect to Global
Bond Fund, there is no limit to the percentage of assets that may be invested in
securities issued by foreign governments. This restriction does not apply to
Pennsylvania Municipal Bond Fund, New Jersey Municipal Bond Fund or Treasury
Reserve.
5. Invest 25% or more of its total assets in any one industry. For
purposes of this limitation, wholly-owned finance companies will be considered
to be in the industries of their parents if their activities are primarily
related to financing the activities of their parents, and utilities will be
divided according to their services--for example, gas, gas transmission,
electric and gas, electric, and telephone will each be considered a separate
industry. This restriction does not apply to Treasury Reserve.
With respect to Intermediate Municipal Bond Fund, Pennsylvania Municipal
Bond Fund, New Jersey Municipal Bond Fund and Tax-Free Reserve, this limitation
does not apply to investments in tax-exempt securities issued by governments or
political sub-divisions of governments.
Investment Restriction ----
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INFORMATION ON THE FUNDS (CONTINUED)
With respect to Global Bond Fund, there is no limitation with respect to
obligations issued by the U.S. Government, by foreign governments, or by
supranational agencies.
With respect to Cash Reserve, there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government or its
instrumentalities.
EQUITY FUNDS In addition, an Equity Fund may not purchase the securities of any
one issuer (other than obligations issued or guaranteed as to principal and
interest by the U.S. Government, its agencies or instrumentalities) if, as a
result thereof, more than 10% of the voting securities of such issuer would be
held by the Fund.
TREASURY RESERVE In addition, Treasury Reserve may not purchase securities other
than direct obligations of the U.S. Treasury, such as Treasury bills and notes,
none of which may be subject to repurchase agreements.
PORTFOLIO TURNOVER It is not a policy of the Funds to purchase or sell
securities for trading purposes. However, the advisers manage the Funds without
regard generally to restrictions on portfolio turnover, except those imposed by
provisions of the federal tax laws regarding short-term trading. Generally, the
Funds will not trade for short-term profits, but when circumstances warrant,
investments may be sold without regard to the length of time held. It is
expected that the Equity Funds' annual portfolio turnover rates will not exceed
100%. A 100% rate of turnover would occur, for example, if all of a portfolio's
securities are replaced within a one year period. With respect to the Fixed
Income Funds, the annual portfolio turnover rate may exceed 100% due to changes
in portfolio duration, yield curve strategy or commitments to forward delivery
mortgage-backed securities. With the exception of Global Bond Fund, however, it
is expected that the annual turnover rate for the Fixed Income Funds will not
exceed 250%.
High rates of portfolio turnover necessarily result in correspondingly
heavier brokerage and portfolio trading costs which are paid by a Fund. Trading
in fixed income securities does not generally involve the payment of brokerage
commissions, but does involve indirect transaction costs. In addition to
portfolio trading costs, higher rates of portfolio turnover may result in the
realization of capital gains. As a general rule, net gains are distributed to
shareholders and will be taxable at ordinary income tax rates, for federal
income tax purposes, regardless of long- or short-term capital gains status. See
'Distributions' and 'Taxes' for more information on taxation. The tables set
forth in 'Financial Highlights' present the Funds' historical portfolio turnover
rates.
/X/
INVESTOR
CONSIDERATIONS
INVESTMENT SUITABILITY _________________________________________________________
EQUITY FUNDS
The Equity Funds are appropriate for investors seeking long-term growth.
Historically, equities have provided significantly higher returns than fixed
income and money market instruments, yet subject the investor to greater price
fluctuation. The CoreFund Equity Funds offer a range of growth and risk
characteristics, incorporating high grade domestic and international securities.
Growth Equity Fund
Value Equity Fund
These Funds are appropriate for investors who are seeking long-term income and
capital
46 Investor Considerations
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/X/ COREFUND
appreciation, and who do not need to earn current income from their investments
in a Fund. They are suited to those investors who are willing to hold their
investments over a long horizon in anticipation of the returns that common
stocks may provide. Because these Funds invest in equity securities, investors
should be able to tolerate fluctuations in the principal value of their
investment. Investors should be cognizant of the inherent volatility in the
stock market, and the investment risks discussed below; and understand that all
investments carry a risk factor.
Balanced Fund
Balanced Fund is appropriate for investors who seek to capture the interest
income of bonds and the capital appreciation of stocks while reducing risk
through diversification among these securities.
International Growth Fund
International Growth Fund is appropriate for investors who are seeking long-term
capital appreciation, and who do not need to earn current income from their
investment in a Fund. International Growth Fund is suited to those investors who
are willing to hold their investment over a long horizon in anticipation of the
returns that foreign stocks may provide. Because the Fund invests in foreign
equity securities, investors should be able to tolerate fluctuations in the
principal value of their investment. Investors should be cognizant of the unique
risks of international investing, including their exposure to currency
fluctuations; and understand that all investments carry a risk factor.
FIXED INCOME FUNDS
These Funds are appropriate for investors seeking an investment vehicle that
offers a higher level of current income with low to moderate share price
fluctuations. These Funds differ primarily by their average maturity, credit
quality, and tax status.
Intermediate Bond Fund will purchase U.S. Government and corporate
securities rated A or better and is expected to have an average maturity of no
more than five years.
Government Income Fund will invest only in obligations issued or
guaranteed by the U.S. Government and its agencies. There is no limit to the
average maturity so it is appropriate for investors who seek a higher level of
current income than that which is generally possible with money market funds,
and who can tolerate moderate fluctuations in principal value.
Intermediate Municipal Bond Fund is for investors seeking income exempt
from federal income taxes, generally investors in a high income tax bracket.
This Fund will only purchase securities rated A or better and is expected to
have an average maturity of three to ten years.
Pennsylvania Municipal Bond Fund is appropriate generally for investors
seeking an investment vehicle that offers a higher level of current income
exempt from federal income taxes and (as to Pennsylvania residents) Pennsylvania
income taxes, with low to moderate share price fluctuations.
New Jersey Municipal Bond Fund is appropriate generally for investors
seeking an investment vehicle that offers a higher level of current income
exempt from federal income taxes and (as to New Jersey residents) New Jersey
income taxes, with low to moderate share price fluctuations.
Global Bond Fund is suitable for long-term investors who are looking for
both income and capital appreciation from a
Investor Considerations ----
47
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INFORMATION ON THE FUNDS (CONTINUED)
portfolio of fixed income securities denominated in U.S. and foreign currencies.
Because the value of the securities will fluctuate with changes in interest
rates and relative currency values, investors must be willing to invest their
money over a longer time horizon in anticipation of the returns afforded by a
diversified portfolio of U.S. and foreign bonds.
MONEY MARKET FUNDS
As each of these Funds is designed and managed to maintain a stable price per
share of $1.00, they provide liquidity and a high degree of safety for investors
who are unable to tolerate fluctuations in the principal value of their
investments.
Cash Reserve is appropriate for investors who are seeking an investment
vehicle that provides current interest income at competitive rates of return.
By investing in direct obligations of the U.S. Treasury, Treasury Reserve
affords an extra margin of protection for investors for whom a high degree of
safety is a primary concern. Treasury Reserve is considered to be the most
secure of the Money Market Funds. This Fund is appropriate for investors who are
seeking an investment vehicle that provides current interest income at
competitive rates of return. Tax-Free Reserve is appropriate for conservative
investors in higher-level federal income tax brackets who may benefit from an
investment that offers current interest income that is at least 80% free of
federal income taxes. Therefore, investors contemplating the purchase of this
Fund should first consider their 'taxable equivalent yield.' This is the
comparison between the tax-exempt yield from Tax-Free Reserve and the equivalent
yield from a taxable investment, using a calculation that takes into account the
investor's current tax bracket. Tax-Free Reserve's current taxable equivalent
yield may be obtained by contacting its distributor.
INVESTMENT RISKS _______________________________________________________________
The Funds differ significantly in terms of risk. Because of the concerns listed
below, a Fund should not be considered a complete investment program. Most
investors should maintain diversified holdings of securities with different risk
characteristics--including common stocks, bonds and different types of money
market instruments. Investors may also wish to complement an investment in a
Fund with other portfolios offered by CoreFunds.
EQUITY FUNDS
The Equity Funds are subject to market risk and fund risk. Market risk is the
possibility that stock prices in general will decline over short or even
extended periods of time. Stock markets tend to be cyclical, with periods when
stock prices generally rise and periods when stock prices generally decline.
Fund risk is the possibility that a Fund's performance during a specific period
may not meet or exceed that of the stock market as a whole. Therefore, investors
should consider their holdings in equity mutual funds to be long-term
investments. In addition to the risks noted above for all equity funds, the
following equity funds are also subject to additional risks as described below.
Balanced Fund
With respect to Balanced Fund, the market value of fixed income securities bears
an inverse relationship to changes in market interest rates. Moreover, changes
by recognized rating agencies in the ratings of any fixed income security and in
the ability of an issuer to make payments of interest and principal may also
affect the market value of these securities. Each of these factors will cause
the net asset value of shares of Balanced Fund to fluctuate over time.
48 Investor Considerations
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/X/ COREFUND
In addition, mortgage-backed securities are subject to prepayment of the
underlying mortgages. During periods of declining interest rates, pre-payment of
mortgages underlying these securities can be expected to accelerate. When the
mortgage-backed securities held by a Fund are prepaid, the Fund must reinvest
the proceeds in securities, the yield of which reflects prevailing interest
rates, which may be lower than the yield on the prepaid securities. Thus,
mortgage-backed securities may not be an effective means of locking in long-term
interest rates for Balanced Fund.
International Growth Fund
In addition to market and fund risk, International Growth Fund is also subject
to currency risk. Currency risk is the risk that changes in foreign exchange
rates will affect, favorably or unfavorably, the value of foreign securities
held by the Fund. In a period when the U.S. dollar generally rises against
foreign currencies, the returns on foreign stocks for U.S. investors will
usually be diminished. By contrast, in a period when the U.S. dollar generally
declines, the returns on foreign stocks will usually be enhanced. In addition,
investments in foreign stock markets can be as volatile, if
not more volatile, than investments in U.S. markets.
Investors should also recognize that investing in foreign companies
involves certain special considerations which are not typically associated with
investing in U.S. companies. Since the stocks of foreign companies are
frequently denominated in foreign currencies, and since this Fund may
temporarily hold uninvested reserves in bank deposits in foreign currencies, its
portfolio will be affected favorably or unfavorably by changes in currency rates
and in exchange control regulations, and may incur costs in connection with
conversions between various currencies. The investment policies of International
Growth Fund permit it to enter into forward foreign currency exchange contracts
in order to hedge its holdings and commitments against changes in the level of
future currency rates. Such contracts involve an obligation to purchase or sell
a specific currency at a future date at a price set at the time of the contract.
In addition, as foreign companies are not generally subject to uniform
accounting, auditing, and financial reporting standards and practices comparable
to those applicable to domestic companies, there may be less publicly available
information about certain foreign companies than about domestic companies.
Securities of some foreign companies are generally less liquid and more volatile
than securities of comparable domestic companies. There is generally less
government supervision and regulation of stock exchanges, brokers, and listed
companies than in the U.S. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments which could affect
U.S. investments in those countries.
Although International Growth Fund will endeavor to achieve the most
favorable execution costs in its portfolio transactions, fixed commissions on
many foreign stock exchanges are generally higher than negotiated commissions on
U.S. exchanges. Moreover, transactions executed on foreign exchanges may be
subject to longer settlement periods than transactions executed on U.S.
exchanges. In addition, it
Investor Considerations ----
49
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INFORMATION ON THE FUNDS (CONTINUED)
is expected that the expenses for custodial arrangements of the Fund's foreign
securities will be somewhat greater than typical expenses for custodial
arrangements for handling U.S. securities of equal value.
Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from the companies comprising International Growth Fund's
portfolio. However, these foreign withholding taxes are not expected to have a
significant impact since this Fund's investment objective is to seek long- term
capital appreciation and any income should be considered incidental.
International Growth Fund attempts to reduce international investment
risks by diversifying among as many foreign economies and currencies as
possible. This includes investments in both developed and selected emerging
markets. In addition, the International Growth Fund offers its shareholders the
ability to diversify their equity investments to reduce the risk of having such
investments affected solely by political and economic events in one country.
FIXED INCOME FUNDS
Securities held by the Fixed Income Funds may be subject to several types of
investment risk, including market risk, credit risk, and call risk. With respect
to these Funds, market risk (or interest rate risk) is the potential for a
decline in the price of fixed income securities due to rising interest rates.
Market risk will be greater for longer term securities than for shorter term
securities. Credit risk is the possibility that a bond issuer will be unable to
make timely payments of either principal or interest. Call risk (or income risk)
relates to corporate bonds during periods of falling interest rates, and
involves the possibility that securities with high interest rates will be
prepaid (or 'called') by the issuer prior to maturity. Such an event would
require a Fund to invest the resulting proceeds elsewhere, at generally lower
interest rates, which would cause fluctuations in the Fund's net income.
Intermediate Bond Fund may also be exposed to event risk, the possibility
that corporate fixed income securities held by it may suffer a substantial
decline in credit quality and market value due to a corporate restructuring.
Corporate restructurings (mergers, leveraged buyouts, takeovers or similar
events) are often financed by a significant expansion of corporate debt. As a
result, the credit quality and market value of a firm's existing debt securities
may decline significantly. While event risk may be high for certain corporate
securities held by this Fund, event risk for the Fund in the aggregate should be
low because of the Fund's diversified holdings.
Government Income Fund may acquire mortgage-backed securities and thus may
be subject to the risks associated with these securities, which are described
above.
The concentration of investments in Pennsylvania Municipal Securities by
the Pennsylvania Municipal Bond Fund raises special investment considerations.
In particular, changes in the economic condition and governmental policies of
the Commonwealth of Pennsylvania and its municipalities could adversely affect
the value of the Fund and the portfolio securities held by it. Rising medical
assistance costs, a slow rate of economic recovery, increased costs of union
contracts, rising unemployment and the potential negative impact of pending
litigation may place increased pressures on the tax
50 Investor Considerations
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/X/ COREFUND
resources of the Commonwealth and its municipalities. See 'Special Risk
Factors-- Pennsylvania Municipal Securities' in the Statement of Additional
Information for further discussion of the risks associated with Pennsylvania
Municipal Securities.
The concentration of investments in New Jersey Municipal Securities by the
New Jersey Municipal Bond Fund raises special investment considerations that are
discussed under the caption 'Special Risk Factors-- New Jersey Municipal
Securities' in the Statement of Additional Information. In particular, changes
in economic conditions and governmental policies of the State of New Jersey and
its municipalities could adversely affect the value of the Fund and the
portfolio securities held by it.
Global Bond Fund is also subject to currency risk and other risks
associated with investing in the securities of foreign companies, as described
above with respect to International Growth Fund.
MONEY MARKET FUNDS
Securities held by Cash Reserve and Treasury Reserve may be subject, on a
limited basis, to credit risk. The credit risk of an investment portfolio is a
function of its underlying securities, and in general, securities of somewhat
lower credit quality provide correspondingly higher yields.
Securities held by Tax-Free Reserve may be subject, on a limited basis, to
several types of investment risk, including market risk (or interest rate risk),
credit risk and call risk (or income risk).
/X/
DISTRIBUTIONS
Shareholders of each Fund are entitled to dividends and distributions arising
from the net investment income and capital gains, if any, earned on investments
held by such Fund. Series B Shares of the Money Market Funds begin earning
dividends on the business day on which the purchase order for the shares is
executed and continue to earn dividends through, and including, the day before
the redemption order for such shares is executed. Series B shares of the Fixed
Income Funds begin earning dividends on the business day following the day on
which the purchase order for the shares is executed and continue to earn
dividends through, and including, the day on which the redemption order for such
shares is executed.
Dividends are paid in the form of additional Series B Shares of a Fund
unless a shareholder selects one of the following options on the Account
Application Form: Cash Dividend Option--to receive dividends in cash and capital
gains distributions in additional shares of the Fund at net asset value; All
Cash Option-- to receive both dividends and capital gains distributions in cash.
In the absence of either of these selections on the Account Application Form,
each purchase of shares is made upon the condition and understanding that the
Fund's agent is automatically appointed to receive the dividends and
distributions upon all shares in the shareholder's account and to reinvest them
in full and fractional shares of the Fund at the net asset value in effect at
the close of business on the reinvestment date. Dividends and distributions are
automatically paid in cash (along with any redemption proceeds) not later than
seven business days after a shareholder closes an account with the Fund.
Distributions ----
51
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INFORMATION ON THE FUNDS (CONTINUED)
The dividends from Series A Shares are normally higher than those of
Series B Shares because of the distribution and incremental transfer agent
expenses charged to Series B Shares.
The Funds maintain different dividend and capital gain distributions
policies. These are:
EQUITY FUNDS
Growth Equity Fund
Value Equity Fund
Balanced Fund
Dividends from the net investment income of each of these Funds are declared and
paid to shareholders on a quarterly basis. Distributions of any capital gains
will be made at least annually.
International Growth Fund
The net investment income of this Fund is periodically declared and paid as a
dividend. Distributions of any capital gains will be made at least annually.
FIXED INCOME FUNDS
MONEY MARKET FUNDS
The net investment income of each of these Funds except Global Bond Fund is
declared daily as a dividend to its shareholders and paid monthly. Global Bond
Fund will distribute its net investment income in the form of quarterly
dividends. Capital gains distributions, if any, will be made by the Fixed Income
Funds and Money Market Funds at least annually.
If any capital gains are realized from the sale of underlying securities,
the Funds normally distribute such gains with the last dividend for the calendar
year.
In all Funds except the Money Market Funds, undistributed net investment
income is included in the Fund's net assets for the purpose of calculating net
asset value per share. Therefore, on the 'ex-dividend' date, the net asset value
per share excludes the dividend (i.e., is reduced by the per share amount of the
dividend). Dividends paid shortly after the purchase of shares by an investor,
although in effect a return of capital, are taxable as ordinary income.
/X/
TAXES
The following is only a brief summary of some of the important tax
considerations generally affecting the Funds and their shareholders. No attempt
has been made to present a detailed explanation of the federal, state or local
income tax treatment of the Funds or their shareholders, and this discussion is
not intended as a substitute for careful tax planning. Potential investors in
the Funds are urged to consult their tax advisers with specific reference to
their own tax situations.
The following summary is based on current tax laws and regulations, which
may be changed by legislative, judicial or administrative action.
ALL FUNDS
Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with any of CoreFunds' other portfolios. Each Fund intends to
qualify for the favorable tax treatment afforded a 'regulated investment
company' under the Code. This requires, among other things, that a Fund
distribute to its shareholders at least 90% of its net investment income.
Provided a Fund meets this 90% distribution and certain other requirements, it
will be relieved of federal income tax on that part of its net investment income
and any net capital gains (the excess of net long-term capital gain over net
short-term capital loss) distributed to shareholders.
52 Taxes
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/X/ COREFUND
Whether paid in cash or in additional shares, dividends attributable to a
Fund's net investment income (including ordinary income and net short-term
capital gains), including any dividends attributable to taxable net investment
income of Tax-Free Reserve or Intermediate Municipal Bond Fund, will be taxable
to shareholders as ordinary income. Capital gains distributions of all Funds
will be taxable as long-term capital gain, regardless of how long a shareholder
has held shares.
Dividends declared by a Fund in October, November, or December of any year
and payable to shareholders of record on a date in such a month will be deemed
to have been paid by the Fund and received by the shareholders on December 31 of
that year, if paid by the Fund during the following January.
INTERNATIONAL GROWTH FUND
GLOBAL BOND FUND
International Growth Fund and Global Bond Fund will receive dividends and
interest paid by foreign issuers which are frequently subject to withholding
taxes by foreign governments. Provided that more than 50% of the value of the
total assets of either International Growth Fund or Global Bond Fund at the
close of any taxable year consists of equity or debt securities of foreign
corporations, such Fund may elect (for U.S. federal income tax purposes) to
treat each shareholder as having additional income equal to a proportionate
amount of such foreign taxes paid by the Fund and as having directly paid such
foreign taxes. In addition, if a Fund makes such an election, shareholders will
be treated as having directly earned a portion of the Fund's gross income from
foreign sources. The Fund will make such an election only if it deems it to be
in the best interests of its shareholders and will notify shareholders
accordingly.
TAX-FREE RESERVE
INTERMEDIATE MUNICIPAL BOND FUND
PENNSYLVANIA MUNICIPAL BOND FUND
NEW JERSEY MUNICIPAL BOND FUND
Each of these Funds expects to qualify to pay exempt-interest dividends to its
shareholders by satisfying the Code's requirement that at the close of each
quarter of its taxable year, at least 50% of the value of its total assets
consists of obligations the interest on which is exempt from regular federal
income tax. Tax-exempt interest dividends may generally be treated by such
Fund's shareholders as items of income excludible from their gross income under
the Code unless, under the circumstances applicable to the particular
shareholder, exclusion would be disallowed. Exempt-interest dividends may also
have certain collateral federal income tax consequences, including Alternative
Minimum Tax consequences. Current federal tax law limits the types and volume of
bonds qualifying for the federal income tax exemption of interest, which may
have an effect on the ability of these Funds to purchase sufficient amounts of
tax-exempt securities to satisfy the Code's requirements for the payment of
'exempt-interest' dividends.
Interest on indebtedness incurred or continued by a shareholder in order
to purchase or carry shares of these Funds is not deductible for federal income
tax purposes. Furthermore, these Funds may not be an appropriate investment for
persons (including corporations and other business entities) who are
'substantial users' (or persons related to 'substantial users') of facilities
financed by industrial development
Taxes ----
53
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INFORMATION ON THE FUNDS (CONTINUED)
or private activity bonds. Such persons should consult their tax advisers before
purchasing shares. A 'substantial user' is defined generally to include 'certain
persons' who regularly use in their trade or business a part of a facility
financed from the proceeds of such bonds.
Except as noted below, tax-exempt interest dividends and other
distributions paid by these Funds may be taxable to investors as dividend income
under state or local law even though a substantial portion of such distributions
may be derived from interest on tax-exempt obligations which, if received
directly, would be exempt from such income taxes.
CASH RESERVE
TREASURY RESERVE
TAX-FREE RESERVE
With respect to investments in STRIPS and Receipts which are sold at original
issue discount and thus do not make periodic cash interest payments, a Fund will
be required to include as part of its current income the imputed interest on
such obligations even though the Fund has not received any interest payments on
such obligations during that period. Because each Fund distributes all of its
net investment income to its shareholders, a Fund may have to sell portfolio
securities to distribute such imputed income, which may occur at a time when the
investment adviser would not have chosen to sell such securities and which may
result in a taxable gain or loss.
PENNSYLVANIA TAX CONSIDERATIONS
For purposes of the Pennsylvania Personal Income Tax and the Philadelphia School
District Investment Net Income Tax, distributions which are attributable to
interest received by the Pennsylvania Municipal Bond Fund from its investments
in Pennsylvania Municipal Securities or in direct obligations of the United
States, its territories and certain of its agencies and instrumentalities
('Federal Securities'), including obligations issued by U.S. possessions, are
not taxable. Distributions by the Fund to a Pennsylvania resident that are
attributable to most other sources may be subject to the Pennsylvania Personal
Income Tax and (for residents of Philadelphia) to the Philadelphia School
District Investment Net Income Tax.
Shares of the Pennsylvania Municipal Bond Fund are exempt from
Pennsylvania county personal property taxes and (as to residents of Pittsburgh)
from personal property taxes imposed by the City of Pittsburgh and the School
District of Pittsburgh to the extent that the Fund's portfolio consists of
Pennsylvania Municipal Securities and Federal Securities, including obligations
issued by U.S. possessions.
To the extent that gain on the disposition of a share represents gain
realized on Pennsylvania Municipal Securities held by the Pennsylvania Municipal
Bond Fund, such gain may be subject to the Pennsylvania Personal Income Tax and
the School District Tax, except that gain realized with respect to a share held
for more than six months is not subject to the School District Tax.
NEW JERSEY TAX CONSIDERATIONS
Investors of the New Jersey Municipal Bond Fund will not be subject to the New
Jersey Gross Income Tax on distributions from the Fund attributable to interest
income from (and net gain, if any, from the disposition of) New Jersey Municipal
Securities or Federal Securities held by the Fund, either when received by the
Fund or when credited or distributed to the investors, provided that the Fund
meets the requirements for a qualified investment fund
54 Taxes
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/X/ COREFUND
by: (i) maintaining its registration as a registered investment company; (ii)
investing at least 80% of the aggregate principal amount of the Fund's
investments, excluding cash and cash items, in New Jersey Municipal Securities
or Federal Securities; and (iii) investing 100% of its assets in
interest-bearing obligations, discount obligations, and cash, including
receivables.
For New Jersey Gross Income Tax purposes, net income or gains and
distributions derived from investments in other than New Jersey Municipal
Securities and Federal Securities, and distributions from net realized capital
gains in respect of such investments, will be taxable.
Gain on the disposition of shares of this Fund is not subject to New
Jersey Gross Income Tax, provided that the Fund meets the requirements for a
qualified investment fund set forth above.
BACK-UP WITHHOLDING
Generally, the Funds are required to withhold 31% of ordinary income dividends,
capital gains distributions, and redemptions paid to shareholders who have not
complied with IRS taxpayer identification regulations and in certain other
circumstances. Shareholders who are not otherwise subject to back-up withholding
may avoid this withholding requirement by certifying on the Account Application
Form their proper Social Security or Taxpayer Identification Number and
certifying that they are not subject to back-up withholding.
IN GENERAL
The sale or redemption of shares of a mutual fund is a taxable event to the
selling or redeeming shareholder. Gains or losses (if any) may also be realized
from an ordinary redemption of shares, as described herein, or on a telephone
exchange among the CoreFunds portfolios.
In the opinion of counsel, shares of the Funds are exempt from current
Pennsylvania Personal Property Taxes.
Shareholders will be advised at least annually as to the federal income
tax status of distributions made during the year. See the Statement of
Additional Information for further information regarding taxes.
/X/
VALUATION OF SHARES
NET ASSET VALUE ________________________________________________________________
EQUITY FUNDS
FIXED INCOME FUNDS
The shares of these Funds will fluctuate in value as a result of changes in the
value of their portfolio investments. Shares in the Funds will realize capital
gains or losses as portfolio investments are sold above or below costs,
respectively.
The net asset value per share of these Funds for purposes of pricing
purchase and redemption orders is normally determined as of 4:00 p.m. (Eastern
time) (the 'Valuation Time') on each business day of the Funds. A 'business day'
of a Fund is a day on which the New York Stock Exchange is open for trading, and
any other day (other than a day on which no shares of the Fund are tendered for
redemption and no order to purchase any shares is received) during which there
is a sufficient degree of trading in securities or instruments held by the Fund
such that the Fund's net asset value per share might be materially affected. Net
asset value per share
Valuation of Shares ----
55
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INFORMATION ON THE FUNDS (CONTINUED)
is calculated by dividing the value of all of the Fund's portfolio securities
and other assets, less liabilities, by the number of outstanding shares of the
Fund at the time of the valuation. The result (adjusted to the nearest cent) is
the net asset value per share.
MONEY MARKET FUNDS The net asset value per share of each of these Funds for
purposes of pricing purchase and redemption orders is normally determined as of
12:00 noon (Eastern time) on each business day of the Funds. These Funds are
managed to maintain a stable price per share of $1.00.
PORTFOLIO PRICING ______________________________________________________________
Portfolio securities which are traded both over-the-counter and on a national
securities exchange are valued according to the broadest and most representative
market. When securities exchange valuations are used, the valuation will be the
latest sale price on such exchange on such business day or, if there is no such
reported sale, the current bid price. Other assets and securities for which no
quotations are readily available will be valued in a manner determined in good
faith by the Board of Directors to reflect their fair market value.
INTERNATIONAL GROWTH FUND
GLOBAL BOND FUND
Securities listed on a foreign exchange are valued at the most recent closing
price available before the time when assets are valued. All prices of listed
securities are taken from the exchange where the security is primarily traded.
Securities regularly traded in the over-the-counter market for which market
quotations are readily available will be valued at the current bid price.
Securities may be valued on the basis of prices provided by a pricing service
when such prices are believed to reflect the fair market value of such
securities. Other assets and securities for which no quotations are readily
available will be valued in a manner determined in good faith by the Board of
Directors to reflect their fair market value.
In addition, all assets and liabilities initially expressed in foreign
currencies will be translated into U.S. dollars at the bid price of such
currencies against U.S. dollars last quoted by a major bank or by a broker. If
such quotations are not available as of the close of the Exchange, the rate of
exchange will be determined in accordance with the policies established in good
faith by the Board of Directors.
FIXED INCOME FUNDS Portfolio securities which are traded both over-the-counter
and on a national securities exchange are valued according to the broadest and
most representative market, and it is expected that for bonds, and other fixed
income securities, this would ordinarily be the over-the-counter market.
Valuation of such securities is the currently quoted bid price on each business
day. When securities exchange valuations are used, the valuation will be the
latest sale price on such exchange on such business day or, if there is no such
reported sale, the current bid price. Short-term investments (if any) are stated
at cost, which approximates market value. Other assets and securities for which
no quotations are readily available will be valued in a manner determined in
good faith by the Board of Directors to reflect their fair market value.
Bonds and other fixed income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities. The prices provided by a pricing
service take into account a variety of factors in determining fair market value.
56 Valuation of Shares
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/X/ COREFUND
Even though the market prices of intermediate-term, fixed income
securities tend to be relatively stable, the prices of such securities vary
inversely with changes in interest rates and are therefore subject to market
price fluctuations. The longer maturity a bond has, the greater the potential
for fluctuations in prices.
MONEY MARKET FUNDS The assets in the Money Market Funds are valued based upon
the amortized cost method, based on rules promulgated under the Investment
Company Act. Under this method of valuation, the value of a Fund's shares
normally will not change in response to fluctuating interest rates. In
connection with its use of this valuation method, however, each Fund monitors
the deviation between the amortized cost value of its assets and their market
value (which can be expected to vary inversely with changes in prevailing
interest rates). Although each Fund seeks, through its use of amortized cost
valuation, to maintain its net asset value per share at $1.00, there can be no
assurance that the net asset value will not vary.
/X/
MANAGEMENT
The business and affairs of each Fund are managed under the direction of
CoreFunds' Board of Directors.
INVESTMENT ADVISER,
SUB-ADVISERS ___________________________________________________________________
CoreStates Advisers has overall responsibility for portfolio management for each
of the Funds. CoreStates Advisers is a wholly-owned subsidiary of CoreStates
Bank, itself a wholly-owned subsidiary of CoreStates Financial Corp ('CoreStates
Corp'). CoreStates Corp, based in Philadelphia, Pennsylvania, is one of the 30
largest bank holding companies in the United States, and leads the region in
investing corporate cash. CoreStates Corp currently has over $29 billion in
assets and discretionary management over $22 billion in customer accounts
through a variety of banking activities at over 355 domestic and foreign
locations. CoreStates Corp's leading subsidiary, CoreStates Bank, currently
ranks thirty-second in the management of discretionary trust assets.
CoreStates Advisers is an adviser registered under the Investment Advisers
Act of 1940. It performs most investment management and advisory functions for
the trust departments of CoreStates Corp's banking subsidiaries, related
investment advisory, research, trading, and fund management functions, and also
provides similar services to customers unrelated to CoreStates Corp. CoreStates
Advisers currently manages discretionary and nondiscretionary client security
portfolios with a total aggregate market value of over $10 billion, for
individuals, corporations, institutions, and municipalities. CoreStates Advisers
has extensive experience in the management of money market, tax-free, fixed
income, equity, and international investments. CoreStates Advisers principal
offices are located at 1500 Market Street, P.O. Box 7558, Philadelphia, PA
19102.
As investment adviser, CoreStates Advisers manages the investment
portfolio of each Fund, makes decisions with respect to and places orders for
all purchases and sales of a Fund's portfolio securities, and
Management ----
57
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INFORMATION ON THE FUNDS (CONTINUED)
maintains certain records relating to such purchases and sales. CoreStates
Advisers pays all expenses incurred by it in connection with its investment
advisory activities, other than the cost of securities (including any brokerage
commissions) purchased for the Funds and the cost of obtaining market quotations
for portfolio securities held by the Funds.
CoreStates Advisers has delegated some of its portfolio management
functions with respect to Value Equity Fund to Cashman, Farrell and Associates
('Cashman, Farrell'), with respect to International Growth Fund to Martin
Currie, Inc. ('Martin Currie') and with respect to Global Bond Fund to Alpha
Global Fixed Income Managers, Inc. ('Alpha Global') pursuant to separate
Sub-Advisory Agreements between CoreStates Advisers and each of Cashman,
Farrell, Martin Currie and Alpha Global.
Cashman, Farrell is a professional investment counseling firm and, along
with its predecessor, Cashman, Farrell and Associates, Inc., has been in
operation since 1980. Cashman, Farrell is located at 1235 W. Lakes Drive, Suite
370, Berwyn, PA 19312.
Martin Currie, a New York corporation located in Edinburgh, Scotland, is a
wholly-owned subsidiary of Martin Currie, Ltd., which is wholly-owned by its
full-time working executives and is one of Scotland's largest independent
investment management groups. Martin Currie was founded in order to provide
foreign investment advisory services to U.S. funds seeking diversification into
international markets. Although Martin Currie has had extensive experience in
managing a variety of international equity investment companies, International
Growth Fund is the first U.S. registered investment company for which Martin
Currie has acted in an investment advisory capacity. Martin Currie is located at
Saltire Court, 20 Castle Terrace, Edinburgh EH 2ES, Scotland.
Alpha Global is a specialist manager of fixed income securities and cash
for institutional investors. Based in London, England, it is a wholly-owned
subsidiary of United Asset Management Corporation of Boston, Massachusetts,
whose assets under management currently exceed $130 billion. Alpha Global is a
member of the Investment Management Regulatory Organization, one of the
regulatory bodies approved by the UK Government, and its activities are
regulated accordingly. Alpha Global is located at 25/28 Old Burlington Street,
London WIX 1LB, England.
As sub-advisers to Value Equity Fund, International Growth Fund and Global
Bond Fund, Cashman, Farrell, Martin Currie and Alpha Global manage the
investment portfolio of their respective Fund, make decisions with respect to
and place orders for the majority of the purchases and sales of such Fund's
portfolio securities, and maintain certain records relating to such purchases
and sales. Cashman, Farrell, Martin Currie and Alpha Global pay all expenses
incurred by them in connection with their sub-advisory activities, other than
the cost of securities (including any brokerage commissions) purchased for a
Fund and the cost of obtaining market quotations for portfolio securities held
by a Fund.
ADVISORY FEES
For the services provided and expenses assumed as investment adviser of each
Fund, CoreStates Advisers is entitled to receive an annual fee from each of the
Funds, computed daily and paid monthly, at the annual rate of .75% of the
average daily net assets of Growth Equity Fund and Value Equity Fund,
respectively; .80% of the average daily net assets of International Growth Fund;
.70% of
58 Management
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/X/ COREFUND
the average daily net assets of Balanced Fund; .60% of the average daily net
assets of Global Bond Fund; and .50% of the average daily net assets of
Intermediate Bond Fund, Intermediate Municipal Bond Fund, Government Income
Fund, Pennsylvania Municipal Bond Fund, New Jersey Municipal Bond Fund, Treasury
Reserve, Cash Reserve, and Tax-Free Reserve, respectively. CoreStates Advisers
may, from to time and at its discretion, voluntarily waive all or a portion of
its investment advisory fees in order to assist the Funds in maintaining
competitive expense ratios.
For the services provided as Value Equity Fund's sub-adviser, Cashman,
Farrell is entitled to receive a fee from CoreStates Advisers, computed daily
and paid monthly, at the annual rate of .50% of such Fund's average net assets.
For the services provided as International Growth Fund's sub-adviser, Martin
Currie is entitled to receive a fee from CoreStates Advisers, computed daily and
paid monthly, at the annual rate of .50% of such Fund's average net assets. For
the services provided as Global Bond Fund's sub-adviser, Alpha Global is
entitled to receive a fee from CoreStates Advisers, computed daily and paid
monthly, at the annual rate of .30% of such Fund's average net assets.
FUND MANAGERS __________________________________________________________________
The following individuals are primarily responsible for managing the investment
portfolios of the Funds:
GROWTH EQUITY FUND Timothy R. Stives, a Managing Director and Senior Vice
President of CoreStates Advisers, manages Growth Equity Fund. Prior to joining
CoreStates Advisers, Mr. Stives was Vice President of Chancellor Capital
Management. Prior to joining Chancellor, he was a securities analyst and
portfolio manager with CitiCorp. Mr. Stives has managed growth stock portfolios,
including corporate and public pension fund portfolios, since 1988. Mr. Stives
holds an M.B.A. from Rutgers University and a B.A. from Pennsylvania State
University.
VALUE EQUITY FUND Douglas H. Pyle, Managing Partner of Cashman, Farrell, has
managed Value Equity Fund since its inception. Mr. Pyle joined Cashman, Farrell
in 1988 as a security analyst covering chemicals, papers, and intermediate
materials. He became a portfolio manager in 1989 and was admitted as a general
partner in 1990.
INTERNATIONAL GROWTH FUND Michael J. Gibson, Director of Client Services for
Martin Currie, is the lead director of an investment team responsible for
managing International Growth Fund. Mr. Gibson has 21 years experience of
portfolio investment in international stock markets. A graduate of the
University of Oxford, England, he spent seven years as an investment manager
with British Investment Trust in Edinburgh and a further four years with The
Bank of Scotland in the same capacity. He joined Martin Currie in 1983 where he
worked initially in the North American Investment team and was then made
responsible for the firm's investments in Continental Europe. He became Director
of Client Services in 1992.
BALANCED FUND Paul Kuper, a Vice President of CoreStates Advisers, is portfolio
manager of the Balanced Fund. Mr. Kuper has managed some of CoreStates Bank's
Management ----
59
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INFORMATION ON THE FUNDS (CONTINUED)
largest pension, personal and charitable accounts, including the taxable equity
and balanced commingled funds. He has served on the Investment Policy and
Portfolio Review Committees, and was formerly director of the Investment
Research Division. Prior to joining CoreStates Advisers, he was an Executive
Vice President of Centre Square Investment Group and spent 14 years with First
Pennsylvania Bank as a divisional vice president of the Balanced Portfolio
Management Division. Mr. Kuper has an M.B.A. in Finance from Northwestern
University and a B.S. in Economics from the Wharton School of Finance of the
University of Pennsylvania.
INTERMEDIATE BOND FUND
GOVERNMENT INCOME FUND
William T. Lawrence, a Vice President of CoreStates Advisers, is portfolio
manager for Intermediate Bond Fund and Government Income Fund. Mr. Lawrence is
also involved in specialized fixed income products including the GIC and
Mortgage Backed Securities. Prior to joining CoreStates Advisers, he was Vice
President, Fixed Income Sales for First Boston Corp. He has an M.B.A. in Finance
from the Wharton School and a B.A. in Economics and English from Bucknell
University.
INTERMEDIATE MUNICIPAL BOND FUND
PENNSYLVANIA MUNICIPAL BOND FUND
NEW JERSEY MUNICIPAL BOND FUND
Joseph R. Baxter manages these Funds. Mr. Baxter, a Vice President of CoreStates
Advisers, is head of the Tax-Advantaged unit at CoreStates Advisers. He is
directly responsible for management of the CoreStates Pennsylvania Tax Exempt
Common Trust Fund. Mr. Baxter graduated from LaSalle University with a Bachelor
of Science Degree majoring in Finance and Marketing. In June 1980, he joined a
stock brokerage firm, Elkins & Co., in an operations capacity and came to
Philadelphia National Bank in May 1982 as an operations supervisor. In October
1984, he joined the Investment Management Division as a corporate cash manager
and in 1986 assumed responsibility for the tax exempt common trust funds.
GLOBAL BOND FUND George McNeill, President and Chief Executive Officer of Alpha
Global, is portfolio manager for Global Bond Fund. Together with United Asset
Management Corporation of Boston, Mr. McNeill founded Alpha Global and has
overall responsibility for its operations. After graduating from Edinburgh
University with degrees in Political Economy and Economic History, he joined the
investment department of Scottish Equitable Life Assurance Society. He then
joined Wallace Brothers Bank where he spent nine years, including seven years as
a Director with principal responsibility for the bank's fixed income
investments. Since 1977, he has worked as Managing Director of the investment
management operating company of Gillett Brothers, and for eight years as
Managing Director of Reserve Asset Managers, a specialist fixed income manager.
In 1989 Mr. McNeill joined Axe-Houghton, Ltd., the London subsidiary of USF&G
Corporation, as Director and Chairman of the Investment Strategy Committee.
CASH RESERVE Rosemary B. Crowley, a Senior Investment Officer of CoreStates
Advisers, is responsible for managing Cash Reserve. Ms. Crowley also manages the
CoreStates Liquidity Fund, as well as individually managed fixed income
portfolios. She is pursuing a Bachelor's Degree at the Wharton Evening School,
University of Pennsylvania. Ms. Crowley joined the Philadelphia National Bank in
1980 in the Institutional Sales Department and in 1981 transferred to the
Investment Management Division.
60 Performance Information
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/X/ COREFUND
TREASURY RESERVE Ronald R. Brasten, a Senior Investment Officer of CoreStates
Advisers, manages Treasury Reserve. He also manages the CoreFund Fiduciary
Treasury Reserve and has investment responsibility for individually managed
corporate and personal accounts. After receiving his B.S. in Accounting from
Drexel University, Mr. Brasten joined the Financial Division of CoreStates in
1984. In 1986, he transferred to the Asset and Liability group as an ALCO
analyst. Mr. Brasten joined CoreStates Advisers in August 1989.
TAX-FREE RESERVE Folu Abiona, Senior Investment Officer, is portfolio manager of
the Tax-Free Reserve portfolio. Ms. Abiona also manages the Fiduciary Tax-Free
Reserve portfolio. She joined CoreStates Advisers in 1985 and became fixed
income portfolio manager in 1990. Prior to that, she was a mutual fund
administrator with CoreStates' Institutional Custody Division. Ms. Abiona holds
an M.B.A. from Temple University and B.Sc. from the University of Ife, Nigeria.
ADMINISTRATOR __________________________________________________________________
SEI Financial Management Corporation ('SFMC' or the 'Administrator'), with
principal offices at 680 East Swedesford Road, Wayne, PA 19087, acts as each
Fund's administrator. For its administrative services, SFMC is entitled to
receive a fee from each Fund, computed daily and paid monthly, at the annual
rate of .25% of such Fund's average daily net assets. As Administrator, SFMC
generally assists in the Funds' administration and operations. State Street Bank
and Trust Company located at 225 Franklin Street, Boston, MA 02110, serves as
each Fund's transfer agent (the 'Transfer Agent') and dividend paying agent.
DISTRIBUTOR ____________________________________________________________________
SEI Financial Services Company ('SFS' or the 'Distributor'), with principal
offices at 680 East Swedesford Road, Wayne, PA 19087, serves as each Fund's
distributor pursuant to a Distribution Agreement which applies to both Series A
Shares and Series B Shares. Series B Shares are also subject to a separate
distribution plan (the 'Distribution Plan') approved by the Board of Directors
on April 13, 1992. The Distribution Plan provides that CoreFunds will pay the
Distributor an annual fee, calculated on an average daily net basis and paid
monthly, of up to .25% of the average daily net assets of Series B Shares of the
Fund. The Distributor may use this fee as compensation for its
distribution-related services or to compensate Participating Broker/Dealers and
Shareholder Servicing Agents for performing distribution-related or shareholder
services.
The services provided by Participating Broker/Dealers or Shareholder
Servicing Agents may include establishing and maintaining customer accounts and
records; aggregating and processing purchase and redemption requests from
customers and placing net purchase and redemption orders with the Distributor;
automatically investing customer account cash balances; providing periodic
statements to customers; arranging for bank wires; answering routine customer
inquiries concerning their investments; assisting customers in changing dividend
options, account designations and addresses; performing sub-accounting
functions; processing dividend payments on behalf of customers; forwarding
certain shareholder communications from the Funds to customers; and providing
other similar services.
Performance Information ----
61
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INFORMATION ON THE FUNDS (CONTINUED)
With respect to the Money Market Funds, the Distributor may, from time to
time and at its own expense, provide promotional incentives, in the form of cash
or other compensation, to certain financial institutions whose representatives
have sold or are expected to sell significant amounts of the shares of these
Funds.
Persons selling Series B Shares will receive different compensation with
respect to Series B Shares than Series A Shares.
EXPENSES The Funds' expenses are accrued daily and are deducted from total
income before dividends are paid. Except as noted herein and in the Statement of
Additional Information, the Funds' service contractors bear all expenses
incurred in connection with the performance of their services on behalf of the
Funds. Similarly, the Funds bear the expenses incurred in their operations.
GLASS-STEAGALL ACT CoreStates Corp and its banking subsidiaries are permitted to
perform the services contemplated by the investment advisory agreements with the
Funds and to engage in certain activities in connection with the investment of
their customer accounts in Series B Shares of the Funds without violating the
federal banking law commonly referred to as the Glass-Steagall Act, or other
applicable banking laws or regulations. Future changes to any of these laws or
regulations or administrative or judicial interpretations of such laws or
regulations, however, could prevent or restrict CoreStates Corp (and its banking
subsidiaries) from performing such services. If CoreStates Advisers were thereby
prohibited from serving as investment adviser to the Funds, the Board of
Directors would promptly seek to retain another qualified investment adviser for
the Funds.
In addition, certain state securities laws may require banks and other
institutional investors purchasing shares on behalf of their customers in such
states to register as dealers pursuant to state law.
/X/
PERFORMANCE
INFORMATION
TOTAL RETURN AND YIELD _________________________________________________________
From time to time, in advertisements or reports to shareholders, the performance
of the Funds may be quoted and compared to that of other mutual funds with
similar investment objectives and to relevant indices.
The Funds may calculate their performance on a total return basis for
various periods. The total return basis combines principal changes, income
dividends, and capital gains distributions paid during the period. Principal
changes are based on the difference between the beginning and closing net asset
values for the period and assume reinvestment of income dividends and capital
gains distributions paid during the period. The Funds may calculate their
performance for periods since commencement of operations and for calendar or
fiscal year periods (including multiple years). See 'Total Return' in the
Statement of Additional Information.
FIXED INCOME FUNDS
MONEY MARKET FUNDS
In addition to quoting total return, the Fixed Income Funds and Money Market
Funds may advertise 'yield' and 'effective yield.' Both yield figures are based
on historical earnings and are not intended to indicate future performance. The
'yield' of a Fund refers to the income generated by an investment in the Fund
over a 30-day period (which period will
62 Performance Information
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/X/ COREFUND
be stated in the advertisement). This income is then 'annualized.' That is, the
amount of income generated by the investment during that month is assumed to be
generated each month over a 12-month 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 the Fund is assumed to be reinvested. The
'effective yield' will be slightly higher than the 'yield' because of the
compounding effect of this assumed reinvestment. See 'Yields' in the Statement
of Additional Information.
Intermediate Municipal Bond Fund, Pennsylvania Municipal Bond Fund, New
Jersey Municipal Bond Fund and Tax-Free Reserve may also advertise their
'taxable equivalent yield,' which is calculated by taking into account the
investor's current tax bracket. This is the yield an investor would need to earn
from a taxable investment in order to realize an 'after-tax' benefit equal to
the tax-free yield provided by the Fund.
IN GENERAL _____________________________________________________________________
The Funds will include performance data for both Series A Shares and Series B
Shares in any advertisement or information including performance data of the
Funds. Total return and performance data concerning Series B Shares will reflect
the sales charge and distribution and incremental transfer agent expenses borne
exclusively by Series B Shares.
The performance of any investment will generally reflect market
conditions, portfolio quality and maturity, type of investment, and operating
expenses. Each Fund's performance will fluctuate and is not necessarily
representative of future results. A Fund's performance would be favorably
affected by any investment advisory fee waivers on the part of CoreStates
Advisers. Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent auditors.
EXPENSE RATIOS OF INTERNATIONAL GROWTH FUND AND GLOBAL BOND FUND Investors
should understand that the expense ratios of International Growth Fund and
Global Bond Fund can be expected to be higher than the expense ratios of funds
that invest only in domestic securities, since the cost of maintaining the
custody of foreign securities and the rate of advisory fees relating to foreign
portfolios are generally higher.
/X/
DESCRIPTION
OF SHARES
CoreFunds has set up twenty Classes representing the following portfolios:
Growth Equity, Value Equity, Equity Index, International Growth, Balanced,
Intermediate Bond, Government Income, Intermediate Municipal Bond, Pennsylvania
Municipal Bond, New Jersey Municipal Bond, Global Bond, Cash Reserve, Treasury
Reserve, Tax-Free Reserve, Fiduciary Reserve, Fiduciary Treasury Reserve,
Fiduciary Tax-Free Reserve, CoreFund Elite Cash Reserve, CoreFund Elite
Government Reserve and CoreFund Elite Treasury Reserve. CoreFunds offers two
series of each portfolio except for Equity Index Fund, CoreFund Elite Cash
Reserve, CoreFund Elite Government Reserve, CoreFund Elite Treasury Reserve,
Fiduciary Reserve, Fiduciary Tax-Free Reserve, and Fiduciary Treasury Reserve.
CoreFunds may in the future create one or more additional portfolios, or one or
more series of shares within a portfolio. Series A Shares of the Funds, and
shares of Equity Index Fund,
Description of Shares ----
63
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INFORMATION ON THE FUNDS (CONTINUED)
CoreFund Elite Cash Reserve, CoreFund Elite Government Reserve, CoreFund Elite
Treasury Reserve, Fiduciary Reserve, Fiduciary Treasury Reserve, and Fiduciary
Tax-Free Reserve, are offered in separate prospectuses.
Series B Shares differ from Series A Shares in that Series B Shares are
subject to a sales load and distribution and transfer agent expenses for certain
additional shareholder services they receive. Series B Shares also have voting
rights which Series A Shares do not, in connection with the Distribution Plan
affecting Series B Shares. The distribution and transfer agent expenses charged
Series B Shares result in Series B Shares having different dividends and
performance results from Series A Shares. In addition, the minimum initial
investment for Series A Shares is substantially higher than that required for
Series B Shares.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO SERIES B SHARES OF THE FUNDS AND DESCRIBE ONLY THE
INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS, AND OTHER MATTERS
RELATING TO SUCH SHARES. INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION
REGARDING OTHER COREFUNDS PORTFOLIOS MAY OBTAIN PROSPECTUSES DESCRIBING SUCH
PORTFOLIOS BY CONTACTING THE DISTRIBUTOR AT 1-800-355-CORE.
Except for differences between series of some of CoreFunds' portfolios
pertaining to distribution costs, incremental transfer agency fees and any other
incremental expenses identified that should be properly allocated to a series,
each share in each Fund represents an equal proportionate interest in that Fund
with each other share of the same Fund and is entitled to such dividends and
distributions out of the income earned on the assets belonging to such Fund as
are declared in the discretion of the Board of Directors.
CoreFunds' shareholders are entitled to one vote for each full share held,
and fractional votes for fractional shares held, and will vote in the aggregate
and not by portfolio or series except as otherwise expressly required by law or
when the Board of Directors determines that the matter to be voted upon affects
only the interests of the shareholders of a particular portfolio or series. See
the Statement of Additional Information under 'Description of Shares' for
examples where the Investment Company Act requires voting by portfolio or
series. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate number of shares of all of the Funds may elect all of
the directors if they choose to do so and, in such event, the holders of the
remaining shares would not be able to elect any person or persons to the Board
of Directors.
As used in this Prospectus, a 'vote of a majority of the outstanding
shares' of a Fund means the affirmative vote of the lesser of (a) more than 50%
of the outstanding shares of a Fund, or (b) at least 67% of the shares of a Fund
present at a meeting at which the holders of more than 50% of the outstanding
shares of such Fund are represented in person or by proxy.
/X/
GENERAL
INFORMATION
In accordance with the Maryland General Corporation Law, CoreFunds is not
required to hold annual meetings of shareholders unless the Investment Company
Act requires the shareholders to elect members of the Board of Directors.
However, a meeting of shareholders may be called for any purpose upon the
written request of the holders of at
64 General Information
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/X/ COREFUND
least 10% of the outstanding shares of CoreFunds, or of a Fund with respect to
matters affecting only such Fund.
As used in this Prospectus, 'assets belonging to the Fund' means the
consideration received by CoreFunds upon the issuance or sale of shares in a
Fund, 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, and any funds or CoreFunds' other portfolios.
Assets belonging to a Fund are charged with the direct liabilities in respect of
that Fund and with a share of the general liabilities of CoreFunds allocated in
proportion to the relative asset values of each of CoreFunds' portfolios at the
time the expense or liability is incurred. The management of CoreFunds makes
determinations with respect to a Fund as to liabilities when they are incurred
and as to assets when they are acquired. Such determinations are reviewed and
approved annually by the Board of Directors and are conclusive.
/X/
DESCRIPTION
OF RATINGS
DESCRIPTION OF MUNICIPAL AND
CORPORATE BOND RATINGS _________________________________________________________
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
Debt rated A by S&P has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Bonds which are rated Aaa by Moody's are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as 'gilt edge.' Interest payments are protected by a large, or 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. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa, 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.
Bonds which are rated A by Moody's 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.
Description of Ratings ----
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INFORMATION ON THE FUNDS (CONTINUED) /X/ COREFUND
Bonds which are rated Baa by Moody's are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions liable to only slight market fluctuation other than through changes
in the money rate. The prime feature of an AAA bond is a showing of earnings
several times or many times interest requirements, with such stability of
applicable earnings that safety is beyond reasonable question whatever changes
occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be of safety
virtually beyond question and are readily salable, whose merits are not unlike
those of the AAA class, but whose margin of safety is less strikingly broad. The
issue may be the obligation of a small company, strongly secured but influenced
as to rating by the lesser financial power of the enterprise and more local type
market.
Bonds rated Duff-1 are judged by Duff to be of the highest credit quality
with negligible risk factors, only slightly more than U.S. Treasury debt. Bonds
rated Duff-2, 3 and 4 are judged by Duff to be of high credit quality with
strong protection factors. Risk is modest but may vary slightly from time to
time because of economic conditions.
Obligations rated AAA by IBCA have 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 significantly. Obligations for which there
is a very low expectation of investment risk are rated AA by IBCA. 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.
DESCRIPTION OF MUNICIPAL NOTE RATINGS __________________________________________
Moody's highest rating for state and municipal and other short-term notes is
MIG-1 and VMIG-1. Short-term municipal securities rated MIG-1 or VMIG-1 are of
the best quality. They have strong protection from established cash flows of
funds for their servicing or from established and broad-based access to the
market for refinancing or both. Short-term municipal securities rated MIG-2 or
VMIG-2 are of high quality. Margins of protection are ample although not so
large as in the preceding group.
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt rating.
The following criteria will be used in making that assessment.
/ / Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
/ / Source of Payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
S&P NOTE RATING SYMBOLS ARE AS FOLLOWS:
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
66 Description of Ratings
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SHAREHOLDER SERVICES GUIDE /X/ COREFUND
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OPENING AN ACCOUNT AND To open a new account, either by mail or by wire, simply complete and return an Account
PURCHASING SHARES Application Form. Your purchase must be equal to or greater than the $500 minimum initial
investment requirement for a Fund. There is no minimum initial investment requirement for
Automatic Investment Plans. Shares of the Funds are only offered to residents of states in which
the shares are eligible for purchase. If you need assistance with the Account Application Form or
have any questions about the Funds, please call 1-800-355-CORE.
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</TABLE>
<TABLE>
<S> <C> <C>
PURCHASING NEW ACCOUNT ADDITIONAL INVESTMENTS TO EXISTING ACCOUNTS
BY MAIL: Mail the Account Application Form and a check Mail your check with the return stub from your
Complete and sign the payable to CoreFunds, Inc. (Fund name) in at confirmation or statement to:
enclosed Account least the minimum initial purchase amount to:
Application Form.
COREFUNDS, INC.,
P.O. BOX 470
WAYNE, PA 19087-0470
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</TABLE>
<TABLE>
<S> <C>
PURCHASING CORESTATES PHIL,
BY WIRE: Philadelphia, PA
Money should be wired ABA 031000011,
to: for credit to
COREFUNDS
A/C 0169-0541
ACCOUNT NUMBER
BEFORE WIRING: The wire instructions must include the investor's account number. An order to purchase shares by
Please contact Federal Funds wire will be deemed to have been received on the business day of the wire, provided
SEI Financial Management that investors notify SEI Financial Management Corporation at 1-800-355-CORE by 12:00 p.m.
Corporation (Eastern Time) of their intentions to wire money.
(1-800-355-CORE)
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PURCHASING You may open an account or purchase additional shares by making an exchange from an existing
BY CoreFunds account. Call SEI Financial Management Corporation at 1-800-355-CORE. For further
EXCHANGE: information regarding exchanges, please refer to page 74.
(from a CoreFunds
account)
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Shareholder Services ----
67
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SHAREHOLDER SERVICES GUIDE (CONTINUED)
<TABLE>
<S> <C>
AUTOMATIC INVESTMENT A Shareholder or prospective shareholder may arrange for periodic investments in a Fund through
PLAN automatic deductions by ACH from a checking account by completing the appropriate section on the
application. There is no minimum initial investment amount for AIPs; however, the minimum
pre-authorized investment amount is $50 per month per account. An Application Form may be
obtained by calling 1-800-355-CORE.
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SYSTEMATIC WITHDRAWAL CoreFunds offers a Systematic Withdrawal Plan which may be utilized by shareholders who wish to
PLAN receive regular distributions from their account. Upon commencement of the SWP, the account must
have a current value of $5,000 or more. Shareholders may elect to receive automatic payments via
check or ACH of $50 or more on a monthly, quarterly, semi-annual, or annual basis. Automatic
withdrawals are normally processed on the 25th day of the applicable month or, if such day is not
a business day, on the previous business day, and are paid promptly thereafter. To arrange a SWP,
complete the appropriate section on the application. An Application Form may be obtained by
contacting the Distributor. Shareholders should realize that if withdrawals exceed income
dividends, their invested principal in the account will be depleted. Thus, depending upon the
frequency and amounts of the withdrawal payments and/or any fluctuations in the net asset value
per share, their original investment could be exhausted entirely. To participate in the SWP,
shareholders must have their dividends automatically reinvested. Shareholders may change or
cancel the SWP at any time, upon written notice to SEI Financial Management Corporation for the
Transfer Agent.
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EXECUTION OF ORDERS An order received before 4:00 p.m. for an Equity or Fixed Income Fund, or prior to 12:00 p.m. for
a Money Market Fund, on any business day, and in accordance with the procedures described below,
will be executed on the date of receipt at the net asset value determined as of 4:00 p.m. (12:00
p.m. for a Money Market Fund) on such date, plus any applicable sales charge. An order received
after 4:00 p.m. on any business day for an Equity or Fixed Income Fund, or after 12:00 p.m. for a
Money Market Fund, will be executed on the next business day of the Fund. An order is deemed to
be received when received by the Transfer Agent and the execution of purchase orders by the
Transfer Agent will be delayed for the period of time that the order is in transit from SEI
Financial Management Corporation to the Transfer Agent. Special procedures may be established by
a Fund to expedite the receipt of orders from institutional investors. Institutional investors
purchasing or holding shares on behalf of their customers are responsible for the transmission of
purchase and redemption orders (and the delivery of funds) to a Fund on a timely basis. The Funds
strongly recommend that investors of substantial amounts use Federal Funds to purchase shares.
</TABLE>
68 Shareholder Services
<PAGE>
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/X/ COREFUND
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Every shareholder of record will receive a confirmation of each new share transaction with a
Fund, which will show the total number of shares being held in safekeeping by the Transfer Agent
for the account of the shareholder. Shareholders may rely on these statements in lieu of
certificates. Beneficial ownership of shares held of record by institutional investors on behalf
of their customers will be recorded by the institutions and reflected in the regular account
statements provided by them to their customers.
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SALES The sales charges for Series B Shares are as follows:
CHARGES
</TABLE>
<TABLE>
<S> <C> <C> <C>
SALES CHARGE AS
SALES CHARGE AS PERCENTAGE OF BROKER
AMOUNT OF PERCENTAGE OF NET AMOUNT DEALER
PURCHASE OFFERING PRICE INVESTED REALLOWANCE
- -----------------------------------------------------------------------------------------------------------
Less than $100,000 ....................... 3.25% 3.36% 2.75%
$100,000 but less than $250,000 .......... 2.50% 2.56% 2.00%
$250,000 but less than $500,000 .......... 1.75% 1.78% 1.25%
$500,000 but less than $1,000,000 ........ 1.00% 1.01% 0.50%
$1,000,000 and above ..................... 0% 0% 0%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
The Reallowances shown in the above table apply to sales through financial institutions. Under
certain circumstances, the Distributor may use its own funds to compensate financial institutions in
amounts that are additional to the reallowances shown in the table. In addition, the Distributor
may, from time to time and at its own expense, provide promotional incentives, in the form of cash
or other compensation, to certain financial institutions whose representatives have sold or are
expected to sell significant amounts of the shares of a Fund.
Brokers, dealers, or financial institutions that receive a reallowance of 100% of the sales charge
may be considered underwriters for purposes of the federal securities laws.
The following classes of shareholders will be exempted from paying any sales charge: (a) employees
(including members of their immediate families and significant others) of CoreStates Corp, Cashman,
Farrell, Martin Currie, Alpha Global and their affiliates and those persons engaged in the sale and
distribution of CoreFunds; (b) employees of the Administrator and Distributor; (c) Directors and
officers of CoreFunds; (d) customers who purchase their shares under a shareholder servicing
arrangement between CoreFunds and CoreStates Corp or its affiliates, having met specific standards
which CoreStates Corp or its affiliates will publish periodically and which qualify those customers
as customers of the Private Banking Groups or Unifinancial Groups of those affiliates; (e)
Individual Retirement Account rollovers from qualified employee benefit plans, Keogh
</TABLE>
Shareholder Services ----
69
<PAGE>
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SHAREHOLDER SERVICES GUIDE (CONTINUED)
<TABLE>
<S> <C>
plans, and Simplified Employee Benefit Plans where CoreStates Corp or its affiliate serves as
trustee or investment manager; (f) any retirement plan qualified under Section 401(a) of the Code or
any other non-qualified benefit plan; (g) any participant-directed retirement plan qualified under
Section 401(a) of the Code or any participant-directed non-qualified defined compensation plan
described in Section 457 of the Code; and (h) persons purchasing shares directly through a payroll
deduction program administered by CoreStates Corp or its affiliates. In addition, the initial sales
charge will be waived for (a) investors who are transferring shares from another investment company
which has a broker/dealer relationship with CoreFunds for which they have already paid a sales
charge since October 26, 1992, (b) customers converting from CoreStates Personal Financial Services
Asset Allocation Program (CorePath) to Series B Shares of a Fund and (c) shareholders who have
purchased shares of a mutual fund through an asset allocation program offered by a company which has
been acquired by CoreStates Financial Corp, and who wish to transfer those shares to Series B Shares
of a Fund. Subsequent investments in the Funds by these investors will be subject to the applicable
sales charge.
The sales charge will not apply to purchases made through reinvested dividends and distributions.
The sales charge also will not apply to exchanges between portfolios of CoreFunds to the extent that
a shareholder has credit for previously paid sales charges on purchases of any of the portfolios of
CoreFunds.
1. RIGHT OF ACCUMULATION
A shareholder who purchases additional Series B Shares may obtain a 'Right of Accumulation.' This
Right allows an investor to combine the current purchase of Series B Shares with the total market
value or net investment, whichever is higher, of all shares held of any portfolio of CoreFunds which
assesses a sales charge. To obtain the reduced sales charge through a Right of Accumulation, the
shareholder must provide the Distributor, either directly or through CoreStates Securities Corp. or
a Participating Broker/Dealer, as applicable, with sufficient information to verify that the
shareholder has such a right. CoreFunds may amend or terminate this Right of Accumulation at any
time as to subsequent purchases.
2. LETTER OF INTENT
An investor may also obtain the reduced sales charge shown above by executing a 'Letter of Intent'
which states the investor's intention to invest not less than $100,000 within a 13 month period in
Series B Shares. Each purchase under a
</TABLE>
70 Shareholder Services
<PAGE>
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/X/ COREFUND
<TABLE>
<S> <C>
Letter of Intent will be made at the offering price applicable at the time of such purchase to the
full amount indicated on the Letter of Intent. The Letter of Intent may apply to purchases made up
to ninety days before the date of the Letter. Any redemptions made during the 13 month period will
be subtracted from the amount of purchases in determining whether the terms of the Letter of Intent
have been met. During the term of the Letter of Intent, the Transfer Agent will hold Series B Shares
representing 5% of the specified amount in escrow for payment of a higher sales charge if the full
amount specified is not purchased. The escrowed shares will be released when the full amount
specified has been purchased. If the full amount specified is not purchased within the 13 month
period, the investor will be required to pay an amount equal to the difference in the dollar amount
of sales charge actually paid and the amount of sales charge the investor would have had to pay on
his or her aggregate purchases if the total of such purchases had been made at a single time. See
'Terms and Conditions' included in the Letter of Intent. An investor who wishes to enter into a
Letter of Intent in conjunction with an investment in Series B Shares should complete the
appropriate section of the application or contact the Distributor, CoreStates Securities Corp or a
Participating Broker/Dealer.
- ------------------------------------------------------------------------------------------------------------------------------
SELLING YOUR You may withdraw any portion of the funds in your account by redeeming shares at any time. You may
SHARES initiate a request by writing or by telephoning. Your redemption proceeds may be sent via mail, wire
or ACH. With respect to shares held by institutional investors on behalf of their customers'
accounts, however, all or part of the shares beneficially owned by a customer must be redeemed in
accordance with instructions and limitations pertaining to their account at the institution.
----------------------------------------------------------------------------------------------------
REDEMPTION A written request for redemption must be received by the Transfer Agent in order to constitute a
BY MAIL: valid tender for redemption by mail. Requests should be mailed to:
COREFUNDS, INC.
P.O. BOX 470
WAYNE, PA 19087-0470
The Transfer Agent may require that the signature on the written request be guaranteed by a
commercial bank or by a member firm of a domestic stock exchange. Signature guarantees will be
required if: (a) the redemption request is an amount in excess of $25,000; (b) redemption proceeds
are to be sent to a name and/or address that differs from the registered name or address of record;
or (c) a transfer of registration is requested. Otherwise, written redemption requests by mail may
be accepted without a signature guarantee.
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Shareholder Services ----
71
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SHAREHOLDER SERVICES GUIDE (CONTINUED)
<TABLE>
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REDEMPTION Shareholders wishing to make redemptions by telephone must check the appropriate box and provide the
BY information requested in the Account Application form. Thereafter, telephone redemption requests may
TELEPHONE: be made by calling SEI Financial Management Corporation at 1-800-355-CORE. Payment for telephone
redemptions will normally be transmitted on the next business day following receipt of a valid
request for redemption. You may have the proceeds sent to you either by mail or wire.
</TABLE>
<TABLE>
<S> <C> <C>
BY WIRE: Shareholders of record may have their telephone redemption requests paid by a direct
wire to a domestic commercial bank account previously designated by the shareholder
on the Account Application Form. The Transfer Agent may deduct its then-current wire
fee from the proceeds for wire redemptions. As of the date of this Prospectus, such
fee was $10.00 for each wire redemption. There is no minimum for telephone
redemptions paid by wire.
BY MAIL: Redemption proceeds may be paid by a check mailed to the name and address in which
the shareholder's account is registered with a Fund. There is no minimum for
telephone redemptions paid by check.
Shareholders may not close their accounts by telephone.
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REDEMPTION The Money Market Funds will provide shareholders of record, upon request to SEI Financial Management
BY CHECK: Corporation for the Transfer Agent and without charge, with checks drawn on these Funds that will
Money Market Funds only clear through CoreStates Bank of Delaware, N.A. (the 'Clearing Bank'). Shareholders will be required
to sign signature cards and will be subject to any applicable rules and regulations of the Clearing
Bank relating to such check redemption privileges. Banks, corporations, trusts, and other
organizations should contact the Funds before submitting signature cards, since corporate resolutions
or other supporting documents may be required before the checkwriting privilege may be used.
Checks drawn on the Money Market Funds may be made payable to the order of any payee in an amount of
$250 or more. Shareholders should be aware that, as is the case with regular bank checks, certain
banks may not provide cash at the time of deposit, but will wait until they have received payment from
the Clearing Bank. When a check is presented to the Clearing Bank for payment, subject to a Fund's
acceptance of the check, the Clearing Bank, as agent, causes the Fund to redeem, at the net asset
value next determined after such presentation, a sufficient number of full and fractional shares in
the shareholder's account with the Fund to cover the amount of the check. Checks will be returned by
the Clearing Bank if there are insufficient shares to meet the withdrawal amount. Shareholders of
record wishing to use this method of redemption should check the appropriate box in the Account
Application form,
</TABLE>
72 Shareholder Services
<PAGE>
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/X/ COREFUND
<TABLE>
<S> <C>
fill out the signature card available from SEI Financial Management Corporation, and mail the
complete Form and signature card to CoreFunds, Inc., P.O. Box 470, Wayne, PA 19087-0470. The Funds
will not permit shareholders to close their accounts through issuance of a check. There is no charge
for the clearance of any checks, although the Clearing Bank will impose its customary overdraft fee
in connection with returning any checks as to which there are insufficient shares to meet the
withdrawal amount. As of the date hereof, such overdraft fee is $20.00.
Cancelled checks will ordinarily not be returned to the shareholder, although a shareholder may
obtain copies of cancelled checks drawn on the Funds by requesting them (in writing) from SEI
Financial Management Corporation.
----------------------------------------------------------------------------------------------------
REDEMPTION You may sell shares of the Fund by making an exchange into another CoreFunds account. For more
BY information, please see below.
EXCHANGE:
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</TABLE>
<TABLE>
<S> <C> <C>
IMPORTANT / / Shareholders should be careful that fluctuations in the net asset value per share of a Fund
REDEMPTION have not caused the value of their account to fall below the amount of the intended redemption.
INFORMATION:
/ / Redemption orders for the Fixed Income and Equity Funds are executed at the net asset value per
share at 4:00 p.m. that day if received by 4:00 p.m. that day. Redemption orders for the Money
Market Funds are executed at the net asset value per share at 12:00 p.m. that day if received
by 12:00 p.m. that day. An order is deemed to be received when received by the Transfer Agent
and the execution of redemption orders by the Transfer Agent will be delayed for the period of
time that the redemption order is in transit from SEI Financial Management Corporation to the
Transfer Agent. Except as stated in the following paragraph, payment to shareholders for
redeemed shares will be made not later than seven business days after receipt by the Transfer
Agent of the request for redemption, absent extraordinary circumstances. However, to the
largest extent possible, the Funds will try to honor requests from shareholders for next-day
payment, if such payment would be consistent with a Fund's need for liquidity and stability.
/ / Shareholders should note that payment for the redemption of shares which were purchased by
check may not be made until a Fund can verify that the payment for such purchase has been, or
will be, collected, which may take up to eight business days after the date of purchase. The
Funds intend to pay cash for all shares redeemed, but under abnormal conditions which make
payment in cash unwise, a Fund may make payment wholly or partly in portfolio securities at
their then market value equal to the redemption price. In such cases, a shareholder may incur
brokerage costs in converting such securities to cash.
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Shareholder Services ----
73
<PAGE>
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SHAREHOLDER SERVICES GUIDE (CONTINUED)
<TABLE>
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MINIMUM Because of the relatively high cost of handling small investments, the Funds reserve the right to
ACCOUNT redeem, at net asset value, the shares of any shareholder whose account decreases to the a value of
BALANCE less than $500. Accordingly, a shareholder making redemptions from a Fund may be subject to such
REQUIREMENT involuntary redemption. A shareholder will not be subject to such involuntary redemption if the
value of the shareholder's account falls below $500 solely because of market action. Before a Fund
redeems such shares and sends the proceeds to the shareholder, the shareholder will be given notice
that the value of the shares in the account is less than the minimum amount and will be allowed
sixty days to make an additional investment in an amount which will increase the value of the
account to at least $500.
- ------------------------------------------------------------------------------------------------------------------------------
EXCHANGING Series B Shares of a Fund held by a shareholder of record may be exchanged for shares in any of
SHARES CoreFunds' other retail portfolios. Shareholders wishing to use this telephone exchange privilege
EXCHANGING must check the appropriate box on the Account Application Form. Exchange requests should be directed
BY to SEI Financial Management Corporation at 1-800-355-CORE. Telephone exchange privileges are only
TELEPHONE: available in states where exchanges from one CoreFunds portfolio to another can lawfully be made.
Call SEI Financial
Management Corporation
(1-800-355-CORE)
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EXECUTION OF Telephone exchange requests received prior to 4:00 p.m. for an Equity or Fixed Income Fund, or prior
EXCHANGE to 12:00 p.m. for a Money Market Fund, on any business day will be processed on the date of receipt.
REQUESTS 'Processing' a telephone exchange request means that shares in the fund from which the shareholder
is making an exchange will be redeemed at the net asset value per share determined as of 4:00 p.m.
(12:00 p.m. for a Money Market Fund) on the date of receipt. Purchases of shares of the fund into
which the shareholder is making an exchange will be effected on the same business day, at such other
fund's net asset value per share determined as of 4:00 p.m. (12:00 p.m. for a Money Market Fund) on
such business day. Telephone exchange requests received after 4:00 p.m. for an Equity or Fixed
Income Fund, or after 12:00 p.m. for a Money Market Fund, will be processed on the next business day
in the manner described above. CoreFunds will not be responsible for the authenticity of redemption
or exchange instructions received by telephone and the investor will bear the risk of loss. To
ensure the authenticity of such instructions, the Transfer Agent examines each shareholder request
by verifying the shareholder account number and/or tax identification number at the time such
request is made. The Transfer Agent subsequently sends confirmations of both exchange sales and
exchange purchases to the shareholder for verification.
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</TABLE>
74 Shareholder Services
<PAGE>
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/X/ COREFUND
<TABLE>
<S> <C>
IMPORTANT Before you make an exchange, you should consider the following:
EXCHANGE / / Shareholders may not exchange into a series of a portfolio for which they would not have been
INFORMATION initially eligible, and investors who exchange into any portfolio which imposes a sales charge
may be subject to such sales charge, if applicable and not previously paid.
/ / Shareholders should consider the investment objective, policies, and restrictions of the Fund
into which the shareholder is making an exchange, as set forth in the applicable prospectus. A
copy of the prospectus for any of the CoreFunds portfolios may be obtained by calling
1-800-355-CORE.
/ / Any telephone exchange must satisfy the requirements relating to the minimum initial investment
amounts of the Fund involved.
/ / The Company reserves the right to reject any telephone exchange request and to modify or
terminate the exchange privilege at any time, upon sixty days' written notice to Shareholders.
/ / Telephone exchanges may be subject to limitations as to amount or frequency, and to other
restrictions that may be established from time to time to ensure that such exchanges do not
disadvantage any Fund or its shareholders. There are no such limitations or restrictions in
effect as of the date hereof. Shareholders may obtain the terms of any such limitations or
restrictions, which may be revised at any time, from SEI Financial Management Corporation.
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TAXES For federal income tax purposes, an exchange between Funds is a taxable event and, accordingly, a
capital gain or loss may be realized. Before making a telephone exchange request, shareholders
should consult a tax or other financial adviser to determine whether the redemption of shares of one
Fund or investment in shares of another Fund would be appropriate.
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Shareholder Services ----
75
<PAGE>
NOTES
<PAGE>
NOTES
<PAGE>
EQUITY FUNDS
(STOCKS)
GROWTH EQUITY FUND seeks capital growth by investing primarily in the equity
securities of companies believed by management to show the potential for
growth of earnings over time.
VALUE EQUITY FUND seeks maximum total return by investing primarily in common
stocks or other equities that are considered by management to be undervalued
in the marketplace at the time of purchase.
INTERNATIONAL GROWTH FUND seeks long-term capital appreciation by investing
primarily in appreciation-oriented equity securities of companies located
outside the United States.
BALANCED FUND seeks to provide total return while preserving capital by
investing in a combination of common stocks and fixed income securities.
FIXED INCOME FUNDS
(BONDS)
INTERMEDIATE BOND FUND seeks income through investment in a diversified
portfolio of intermediate term, fixed income obligations with an expected
average weighted maturity of three to ten years.
GOVERNMENT INCOME FUND seeks to provide current income while preserving
principal value and maintaining liquidity by investing exclusively in
securities of the United States government and its agencies.
INTERMEDIATE MUNICIPAL BOND FUND seeks a high level of income generally exempt
from federal income taxes by investing at least 80% of its assets in tax-exempt
municipal securities.
PENNSYLVANIA MUNICIPAL BOND FUND seeks to provide a high rate of current
income that is exempt from both federal income taxes and (for Pennsylvania
residents) Pennsylvania state income taxes. The Fund invests primarily in
highly-rated, long-term municipal bonds issued by state, county, and local
agencies within the Commonwealth of Pennsylvania.
NEW JERSEY MUNICIPAL BOND FUND seeks to provide a high rate of current income
that is exempt from both federal income taxes and (for New Jersey residents)
New Jersey state income taxes. The Fund invests primarily in highly-rated,
long-term municipal bonds issued by state, county, and local agencies within
the state of New Jersey.
GLOBAL BOND FUND seeks to provide capital appreciation and current income
through investment primarily in fixed income securities of United States and
foreign issuers denominated in United States dollars and in other currencies.
There is no assurance that the Funds will achieve their respective
objectives.
<PAGE>
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COREFUND FAMILY OF MUTUAL FUNDS /X/ COREFUND
<TABLE>
<S> <C>
MONEY CASH RESERVE seeks to obtain maximum current income consistent with the preservation of
MARKET principal and maintenance of liquidity by investing in a diversified portfolio of money market
FUNDS instruments of the highest quality, including a broad range of U.S. dollar-denominated
government, bank, and commercial paper obligations.
TREASURY RESERVE seeks to provide current interest income, liquidity and safety of principal by
investing in direct obligations of the U.S. Treasury and repurchase agreements relating to such
obligations.
TAX-FREE RESERVE seeks a high level of income exempt from federal income taxes through
investment of at least 80% of its total assets in tax-free securities.
</TABLE>
- ------------------
There is no assurance that the Funds will achieve their respective objectives.
<PAGE>
COREFUND
FAMILY OF
MUTUAL FUNDS
COREFUNDS, INC.
DIRECTORS
EMIL J. MIKITY, CHAIRMAN
GEORGE H. STRONG
ERIN ANDERSON
OFFICERS
DAVID G. LEE, PRESIDENT
JAMES W. JENNINGS, SECRETARY
INVESTMENT ADVISER
CORESTATES INVESTMENT ADVISERS, INC.
PHILADELPHIA, PA 19101
ADMINISTRATOR
SEI FINANCIAL MANAGEMENT CORPORATION
WAYNE, PA 19087
DISTRIBUTOR
SEI FINANCIAL SERVICES COMPANY
WAYNE, PA 19087
LEGAL COUNSEL
MORGAN, LEWIS & BOCKIUS LLP
PHILADELPHIA, PA 19103
AUDITORS
ERNST & YOUNG LLP
PHILADELPHIA, PA 19103
INDIVIDUAL SHARES
PROSPECTUS
NOVEMBER 1, 1995
INVESTMENT ADVISER
CORESTATES
INVESTMENT ADVISERS
FOR CURRENT PERFORMANCE, PURCHASE, REDEMPTION AND
OTHER INFORMATION, CALL 1-800-355-CORE (2673)
9513 (11/95)
COR-F-046-03
COREFUNDS, INC.
Statement of Additional Information
Dated November 1, 1995
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE COMPANY.....................................................................................................B-3
ADDITIONAL INVESTMENT POLICIES..................................................................................B-4
ADDITIONAL INVESTMENT RESTRICTIONS.............................................................................B-21
TEMPORARY INVESTMENTS..........................................................................................B-25
SPECIAL CONSIDERATIONS.........................................................................................B-27
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.................................................................B-28
NET ASSET VALUE................................................................................................B-29
DIVIDENDS......................................................................................................B-30
TOTAL RETURN...................................................................................................B-31
YIELDS.........................................................................................................B-33
ADDITIONAL INFORMATION CONCERNING TAXES........................................................................B-34
DESCRIPTION OF SHARES..........................................................................................B-37
DIRECTORS AND OFFICERS.........................................................................................B-40
PRINCIPAL HOLDERS OF SECURITIES................................................................................B-41
INVESTMENT ADVISER.............................................................................................B-51
SUB-ADVISERS...................................................................................................B-54
PORTFOLIO TRANSACTIONS.........................................................................................B-56
ADMINISTRATOR..................................................................................................B-58
DISTRIBUTOR....................................................................................................B-60
CUSTODIAN AND TRANSFER AGENT...................................................................................B-61
EXPENSES.......................................................................................................B-62
LEGAL COUNSEL..................................................................................................B-62
MISCELLANEOUS..................................................................................................B-62
APPENDIX......................................................................................................BA-64
FINANCIAL STATEMENTS...........................................................................................FS-1
</TABLE>
This Statement of Additional Information is meant to be read in
conjunction with the applicable Prospectuses for the portfolios offered by
CoreFunds, Inc. dated November 1, 1995 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 any portfolio
should be made solely upon the information contained herein. Copies of the
Prospectuses for the portfolios may be obtained by writing CoreFunds, Inc. at
680 East Swedesford Road, Wayne, Pennsylvania 19087, or by telephoning
1-800-355-CORE.
COR-F-032-03
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THE COMPANY
CoreFunds, Inc. (the "Company") is an open-end management investment
company presently offering shares in seventeen diversified and non-diversified
portfolios (the "Fund" or "Funds"). Although Shares in the Elite Cash Reserve,
Elite Government Reserve and Elite Treasury Reserve portfolios ("Elite Funds")
are not currently being offered, the Company expects to introduce these Elite
Funds in the future. The Company is authorized to offer separate series of
shares of beneficial interest (the "Shares") of each Fund. Shareholders may
purchase Shares through two separate series, Series A Shares and Series B
Shares, which provide for variations in distribution costs, transfer agent fees,
voting rights, and dividends. Except for differences between Series A and Series
B Shares, each Share of each Fund represents an equal proportionate interest in
that Fund. See "Description of Shares."
The Funds
The information disclosed herein relates to all of the Funds, and all
of the Series of the Funds, unless otherwise noted. Sections that are particular
to a certain Fund will be so referenced, or the Funds may be grouped according
to types of investment, as illustrated below.
<TABLE>
<S> <C>
Equity Funds: Taxable Money Market Funds:
- Growth Equity Fund - Cash Reserve
- Value Equity Fund - Treasury Reserve
- Equity Index Fund - Elite Cash Reserve
- International Growth Fund - Elite Government Reserve
- Balanced Fund - Elite Treasury Reserve
- Fiduciary Reserve
- Fiduciary Treasury Reserve
Fixed Income Funds: Tax-Exempt Money Market Funds:
- Intermediate Bond Fund - Tax-Free Reserve
- Government Income Fund - Fiduciary Tax-Free Reserve
- Intermediate Municipal Bond Fund
- Pennsylvania Municipal Bond Fund
- New Jersey Municipal Bond Fund
- Global Bond Fund
</TABLE>
Sale of Shares
Series A Shares in the Funds are sold primarily to various types of
institutional investors, which may include CoreStates Bank, N.A. and its
affiliates and corresponding banks, for the investment of their own funds or
funds for which they serve in a fiduciary, agency, or custodial capacity.
Series B Shares in the Funds are offered to the general public as well
as to various types of institutional investors, which may include CoreStates
Bank, N.A. and its affiliates and corresponding banks, for the investment of
their own funds or funds for which they serve in a fiduciary, agency, or
custodial capacity. Investors may also include shareholders of other investment
companies which are advised by a Fund's adviser or sub-adviser, and whose assets
a Fund acquires in a tax-free reorganization, who propose to become shareholders
of the Fund as a result of such reorganization.
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<PAGE>
ADDITIONAL INVESTMENT POLICIES
In General
The following policies supplement the investment objectives and
policies described in the Prospectuses for the Funds set forth below.
- Tax-Exempt Money Market Funds -
- Intermediate Municipal Bond Fund -
- Pennsylvania Municipal Bond Fund -
- New Jersey Municipal Bond Fund -
Municipal Securities
Municipal securities include debt obligations issued by or on behalf of
governmental entities or public authorities to obtain funds for various
purposes, including the construction of a wide range of public and
privately-operated facilities; the refunding of outstanding obligations; the
payment of general operating expenses; and the extension of loans to public
institutions and facilities.
There are, of course, variations in the quality of municipal securities
both within a particular classification and between classifications, and the
yields on municipal securities depend upon a variety of factors, including
general money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation, and the rating of the issue. The ratings of Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P")
described in the Prospectuses and the "Appendix" to this Statement of Additional
Information represent their opinions as to the quality of municipal securities.
It should be emphasized, however, that ratings are general and are not absolute
standards of quality, and municipal securities with the same maturity, interest
rate and rating may have different yields, while municipal securities of the
same maturity and interest rate with different ratings may have the same yield.
Subsequent to purchase by a Fund, an issue of municipal securities may cease to
be rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. As Investment Adviser, CoreStates Investment Advisers,
Inc. ("CoreStates Advisers") will consider such an event in determining whether
a Fund should continue to hold the obligation.
The payment of principal and interest on most municipal securities
purchased by a Fund will depend upon the ability of the issuers to meet their
obligations. An issuer's obligations to make payments on its municipal
securities are subject to the provisions of bankruptcy, insolvency and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Code, and laws, if any, which may be enacted by federal or state
legislatures extending the time for payment of principal or interest, or both,
or imposing other constraints upon enforcement of such obligations or upon the
ability of municipalities to levy taxes. The power or ability of an issuer to
meet its obligations for the payment of interest on, and principal of, its
municipal securities may be materially adversely affected by litigation or other
conditions. For purposes of the investment limitations described in this
Statement of Additional Information and the Prospectuses, the District of
Columbia, each state, each of their political subdivisions, agencies,
instrumentalities and authorities and each multi-state agency of which a state
is a member is considered to be an "issuer." Further, the non-governmental user
of facilities financed by industrial development bonds is considered to be an
"issuer." With respect to those municipal securities that are supported by a
bank guarantee or other credit facility, the bank or other institution (or
governmental agency) providing the guarantee or credit facility may also be
considered to be an "issuer" in connection with the guarantee or facility.
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Among other types of municipal securities, the Funds may purchase
short-term general obligation notes, tax anticipation notes, bond anticipation
notes, revenue anticipation notes, tax-exempt commercial paper, construction
loan notes and other forms of short-term loans. Such instruments are issued with
a short-term maturity in anticipation of the receipt of tax funds, the proceeds
of bond placements, or other revenues. In addition, these Funds may invest in
other types of tax-exempt instruments such as municipal bonds, industrial
development bonds and pollution control bonds, provided (for the Tax-Exempt
Money Market Funds) they have remaining maturities of 397 days or less at the
time of purchase.
Special Risk Factors - Pennsylvania Municipal Securities
The following information as to certain Pennsylvania risk factors has
been provided in view of the policy of concentrating in Pennsylvania Municipal
Securities by the Pennsylvania Municipal Bond Fund. This information constitutes
only a brief summary, does not purport to be a complete description of
Pennsylvania risk factors and is principally drawn from official statements
relating to securities offerings of the Commonwealth of Pennsylvania that have
come to the attention of the Pennsylvania Municipal Bond Fund and were available
as of the date of this Statement of Additional Information. The Fund has not
independently verified any of this information but is not aware of any fact
which would render such information inaccurate.
General. Pennsylvania has historically been dependent on heavy industry
although recent declines in the coal, steel and railroad industries have led to
diversification of the Commonwealth's economy. Recent sources of economic growth
in Pennsylvania are in the service sector, including trade, medical and health
services, education and financial institutions. Agriculture continues to be an
important component of the Commonwealth's economic structure, with nearly
one-fourth of the Commonwealth's total land area devoted to cropland, pasture
and farm woodlands.
In 1994, the population of Pennsylvania was 12.09 million people.
According to the U.S. Bureau of the Census, Pennsylvania experienced a slight
increase from the 1985 estimate of $11.77 million. Pennsylvania has a high
proportion of persons 65 or older. The Commonwealth is highly urbanized, with
almost 85% of the 1990 census population residing in metropolitan statistical
areas. The cities of Philadelphia and Pittsburgh, the Commonwealth's largest
metropolitan statistical areas, together comprise approximately 50% of the
Commonwealth's total population.
Pennsylvania's average annual unemployment rate remained below the
national average between 1986 and 1990. Slower economic growth caused the rate
to rise to 6.9% in 1991 and 7.5% in 1992. The resumption of faster economic
growth resulted in a decrease in the Commonwealth's unemployment rate to 7.1
percent in 1993. Seasonally adjusted data for March 1995, the most recent month
for which data is available, shows an unemployment rate of 6.0% compared to an
unemployment rate of 5.5% for the United States as a whole.
Financial Accounting. Pennsylvania utilizes the fund method of
accounting and over 150 funds have been established for the purpose of recording
receipts and disbursements, of which the General Fund is the largest. Most of
the operating and administrative expenses are payable from the General Fund. The
Motor License Fund is a special revenue fund that receives tax and fee revenues
relating to motor fuels and vehicles (except one-half cent per gallon of the
liquid fuels tax which is deposited in the Liquid Fuels Tax Fund for
distribution to local municipalities) and all such revenues are required to be
used for highway purposes. Other special revenue funds have been established to
receive specified revenues appropriated to specific departments, boards and/or
commissions. Such funds include the Game, Fish, Boat, Banking Department, Milk
Marketing, State Farm Products Show, State Racing and State Lottery Funds. The
General Fund, all special revenue funds, the Debt Service Funds and the Capital
Project Funds combine to form the Governmental Fund Types.
Enterprise funds are maintained for departments or programs operated
like private enterprises. The largest of the Enterprise funds is the State
Stores Fund, which is used for the receipts and disbursements of the
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Commonwealth's liquor store system. Sale and distribution of all liquor within
Pennsylvania is a government enterprise.
Financial information for the funds is maintained on a budgetary basis
of accounting ("Budgetary"). Since 1984, the Commonwealth has also prepared
financial statements in accordance with generally accepted accounting principles
("GAAP"). The GAAP statements have been audited jointly by the Auditor General
of the Commonwealth and an independent public accounting firm. The Budgetary
information is adjusted at fiscal year end to reflect appropriate accruals for
financial reporting in conformity with GAAP. The Commonwealth maintains a June
30th fiscal year end.
The Constitution of Pennsylvania provides that operating budget
appropriations may not exceed the actual and estimated revenues and available
surplus in the fiscal year for which funds are appropriated. Annual budgets are
enacted for the General Fund and for certain special revenue funds which
represent the majority of expenditures of the Commonwealth.
Revenues and Expenditures. Pennsylvania's Governmental Fund Types
receive over 57% of their revenues from taxes levied by the Commonwealth.
Interest earnings, licenses and fees, lottery ticket sales, liquor store
profits, miscellaneous revenues, augmentations and federal government grants
supply the balance of the receipts of these funds. Revenues not required to be
deposited in another fund are deposited in the General Fund. The major tax
sources for the General Fund are the 6% sales and use tax (33.7% of General Fund
revenues in fiscal 1994), the 2.8% personal income tax (32.0% of General Fund
revenues in fiscal 1994) and the 10.99% corporate net income tax (10.2% of
General Fund revenues in fiscal 1994). Tax and fee proceeds relating to motor
fuels and vehicles are constitutionally dedicated to highway purposes and are
deposited into the Motor License Fund. The major sources of revenue for the
Motor License Fund include the liquid fuels tax, the oil company franchise tax,
aviation taxes and revenues from fees levied on heavy trucks. These revenues are
restricted to the repair and construction of highway bridges and aviation
programs. Lottery ticket sales revenues are deposited in the State Lottery Fund
and are reserved by statute for programs to benefit senior citizens.
Pennsylvania's major expenditures include funding for education ($6.4
billion of fiscal 1994 expenditures, the projected $6.7 billion of the fiscal
1995 budget and the proposed $6.9 billion of the fiscal 1996 budget) and public
health and human services ($11.7 billion of fiscal 1994 expenditures, the
projected $12.8 billion of the fiscal 1995 budget and the proposed decreases of
the fiscal 1996 $12.3 billion budget).
Governmental Fund Types: Financial Condition/Results of Operations
(GAAP Basis). Reduced revenue growth and increased expenses contributed to
negative unreserved-undesignated fund balances of the Governmental Fund Types at
the end of the 1990 and 1991 fiscal years, largely due to operating deficits in
the General Fund and State Lottery Fund during those years. Actions taken during
fiscal 1992 to bring the General Fund back into balance, including tax increases
and expenditure restraints, resulted in a $1.1 billion reduction to the
unreserved-undesignated fund deficit for combined Governmental Fund Types and a
return to a positive fund balance. Financial performance continued to improve
during fiscal 1994 resulting in a positive unreserved- undesignated balance for
combined governmental types at June 30, 1994, as a result of a $289.2 million in
the balance. These gains were produced by continued efforts to control
expenditure growth. At the end of fiscal 1994, the total fund balance and other
credits for the total Governmental Fund Types was $1,981.9 million, a $22
million increase from the balance at June 30, 1994. During fiscal 1994, total
assets increased by $1,424.9 million to $8,521.3 million, while liabilities
increased $655.6 million to $5,792.1 million.
General Fund: Financial Condition/Results of Operations.
Five Year Overview (GAAP Basis). The five year period from fiscal 1990
through fiscal 1994 was marked by public health and welfare costs growing at a
rate double the growth rate for all the state expenditures. Rising caseloads,
increased utilization of services and rising prices joined to produce the rapid
rise of public
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<PAGE>
health and welfare costs at a time when a national recession caused tax revenues
to stagnate and even decline. During the period from fiscal 1990 through fiscal
1994, public health and welfare costs rose by an average annual rate of 9.4%
while tax revenues were growing at an average annual rate of 5.8%. Consequently,
spending on other budget programs was restrained to a growth rate below 4.7% and
sources of revenues other than taxes became larger components of fund revenues.
Among those sources are transfers from other funds and hospital and nursing home
pooling of contributions to use as federal matching funds.
Tax revenues declined in fiscal 1991 as a result of the recession in
the economy. A $2.7 billion tax increase enacted for fiscal 1992 brought
financial stability to the General Fund. That tax increase included several
taxes with retroactive effective dates which generated some one-time revenues
during fiscal 1992. The absence of those revenues in fiscal 1993 contributed to
the decline in tax revenues shown for fiscal 1993. Fiscal 1994 tax revenues
increased by 4.1%, but a decline in other revenues caused by the end of medical
assistance pooled financing in fiscal 1993 held total revenues to a 1.8% gain.
Expenditure for fiscal 1994 rose by 4.3%.
During fiscal 1992 enactment of over $2.7 billion in General Fund tax
increases and implementation of expenditure control initiatives have helped the
General Fund balance return to a surplus at June 30, 1992, of $87.5 million. The
actions taken to increase revenues and restrain expenditure growth were
necessary to offset the effects on General Fund finances of a period of slow
economic growth including a national economic recession. The recession caused
tax revenues during fiscal 1991 to be below the amount received during fiscal
1990 while spending, particularly for public health and welfare programs to
support needy individuals, increased by over 21%. Public health and welfare
expenditures continued their rapid increase with a 23.9% increase during fiscal
1992 as caseloads and costs continued upward. Some of these increased costs were
met through the use of pooled financing techniques that use private
contributions and intergovernmental transfers to substitute for state funds
match for federal governmental grants-in-aid. Debt service expenditures
escalated as the amount of tax anticipation note borrowing increased in response
to the fiscal pressures brought about by slow economic growth and the recession.
Fiscal 1992 Financial Results (GAAP Basis). During fiscal 1992, the
General Fund recorded a $1.1 billion operating surplus. This operating surplus
was achieved through legislated tax rate increases and tax base broadening
measures enacted in August 1991, and by controlling expenditures through
numerous cost reduction measures implemented during the fiscal year. As a result
of the operating surplus, the General Fund balance increased to $87.5 million at
June 30, 1992.
Fiscal 1993 Financial Results (GAAP Basis). The fund balance of the
General Fund increased by $611.4 million during the fiscal year, led by an
increase in the unreserved balance of $576.8 million over the prior fiscal year
balance. At June 30, 1993, the fund balance totaled $698.9 million and the
unreserved- undesignated balance totaled $64.4 million.
Fiscal 1994 Budget (GAAP Basis). The fund balance of the General Fund
increased by $194.0 million due largely to an increased reserve for encumbrances
and an increase in other designated funds. At June 30, 1994, the fund balance
totalled $892.9 million and the unreserved-undesignated balance totaled $79.1
million. A continuing recovery of the Commonwealth's financial condition from
the effects of the national economic recession of 1990 and 1991 is demonstrated
by this increase in the balance and a return to a positive unreserved-
undesignated balance. For the third consecutive fiscal year the increase in the
unreserved-undesignated balance exceeded the increase recorded in the budgetary
basis unappropriated surplus during the fiscal year.
Fiscal 1995 Budget (Budgetary Basis). The approved fiscal 1995 budget
provides for $15,665.7 million appropriations from commonwealth funds, an
increase of 4.0 percent over appropriations, including supplemental
appropriations, for fiscal 1994. Medical assistance expenditures represent the
largest single increase in the budget ($221 million) representing a nine percent
increase over the prior fiscal year. The budget includes a reform of the
state-funded public assistance program that added certain categories of
eligibility to the program
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but also limited the availability of such assistance to other eligible persons.
Education subsidies to local school districts were increased by $132.2 million
to continue the increased funding for the poorest school districts in the state.
Several tax reductions were enacted with the fiscal 1995 budget.
Estimated fiscal year revenues, net of the enacted tax cuts, were increased
$296.5 million in the revised projection for fiscal 1994. The increase
represents a 1.9 percentage point increase in the rate of growth anticipated for
fiscal 1995 to 6.3 percent, excluding the effect of the fiscal 1995 tax
reductions, and is largely due to actual and anticipated higher collections of
the corporate net income tax, the sales and use tax and miscellaneous
collections. For the March 1995 fiscal year-to-date official estimate used for
enactment of the budget. Collections of corporation taxes are $195.8 million
(7.3 percent) above the official estimate through March. The sales tax is also
above estimate while the personal income tax is $30.2 million (0.9 percent)
under the official estimate through March.
After a review of the fiscal 1994 budget in January 1995, $64.9 million
of additional appropriation needs were identified for the fiscal year. Of this
amount, the largest are for medical assistance ($21.8 million) and general
assistance cash grants ($10.3) million). The balance of the additional
appropriation needs are for their public welfare programs, educational
subsidiaries and office relocation costs due to a fire. The supplemental
appropriations requested are proposed to be funded from appropriation lapses
estimated to total $172 million for the fiscal year.
Proposed Fiscal 1996 Budget: The proposed General Fund budget submitted
by the Governor to the General Assembly on March 7, 1995, is balanced on a
modified cash basis assuming the drawdowns of approximately $333.0 million of
the projected $336.2 million year-end balance for fiscal 1994. Appropriations of
commonwealth funds are proposed to be $16,094.9 million, a 2.3 percent increase
over the estimated $15,730.6 million total current fiscal year appropriations
and supplemental appropriations. The rate of increase is among the lowest rates
of increase proposed over the last decade.
A major contribution to the overall low rate of increase in
appropriated commonwealth funds is the proposed 1.8 percent increase to medical
assistance costs paid from this funds. In recent fiscal years such costs
increased an average 14.4 percent per year. The Governor's budget proposes a
number of cost reduction strategies for the medical assistance program that
total $332 million and are responsible for the small costs increase in fiscal
1996.
The revenue projections in the proposed budget are based on an
expectation for economic growth in the nation to average 2.5 percent for the
first half of 1995 gradually slowing to a 1.7 percent rate for 1996. The
Commonwealth believes these rates of economic growth are conservative estimates
based on forecasts it has reviewed. Fiscal 1996 commonwealth revenues are
projected to increase 3.6 percent before deducting the estimated costs of the
various tax reductions approved in July 1994. Revenues on a cash basis, that is
net of those 1994 tax reductions and the proposed tax reductions for fiscal
1995, are estimated to increase by 1 percent over current estimates for the 1994
fiscal year.
Tax changes proposed by the Governor for the fiscal 1995 budget are
aimed at improving the competitiveness of the Commonwealth's corporate tax rates
and are estimated to reduce commonwealth revenues for fiscal year 1995 by $214.8
million representing 1.3% of anticipated revenues. The largest part of this cost
is from a proposed acceleration of the currently scheduled reduction of the
corporate net income tax rate to 9.99 percent. The Governor's proposed budget is
currently being reviewed in committee hearings in the General Assembly.
Commonwealth Debt. Current constitutional provisions permit
Pennsylvania to issue the following types of debt: (i) debt to suppress
insurrection or rehabilitate areas affected by disaster, (ii) electorate
approved debt, (iii) debt for capital projects subject to an aggregate debt
limit of 1.75 times the annual average tax revenues of
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the preceding five fiscal years, (iv) tax anticipation notes payable in the
fiscal year of issuance. All debt except tax anticipation notes must be
amortized in substantial and regular amounts.
General obligation debt totaled $5.076 million at June 30, 1994. Over
the 10-year period ended June 30, 1994, total outstanding general obligation
debt increased at an annual rate of 1.3% and for the five years ended June 30,
1994, at an annual rate of 1.5%. All outstanding general obligation bonds of the
Commonwealth are rated AA- by Standard and Poor's Corporation, A1 by Moody's
Investors Service, and AA- by Fitch Investors Service. The ratings reflect only
the views of the rating agencies.
Pennsylvania engages in short-term borrowing to fund expenses within a
fiscal year through the sale of tax anticipation notes which must mature within
the fiscal year of issuance. The principal amount issued, when added to that
already outstanding, may not exceed in aggregate 20% of the revenues estimated
to accrue to the appropriate fund in the fiscal year. The Commonwealth is not
permitted to fund deficits between fiscal years with any form of debt. All
year-end deficit balances must be funded within the succeeding fiscal year's
budget. Pennsylvania issued a total of $600.0 million of tax anticipation notes
for the account of the General Fund in fiscal 1995, all of which matured on June
30, 1995, and were paid from fiscal 1995 General Fund receipts.
Pending the issuance of bonds, Pennsylvania may issue bond anticipation
notes subject to the applicable statutory and constitutional limitations
generally imposed on bonds. The term of such borrowings may not exceed three
years. Currently, there are no bond anticipation notes outstanding.
State-related Obligations. Certain state-created agencies have
statutory authorization to incur debt for which no legislation providing for
state appropriations to pay debt service thereon is required. The debt of these
agencies is supported by assets of, or revenues derived from, the various
projects financed and the debt of such agencies is not an obligation of
Pennsylvania although some of the agencies are indirectly dependent on
Commonwealth appropriations. The following agencies had debt currently
outstanding as of December 31, 1994: Delaware River Joint Toll Bridge Commission
($56.3 million), Delaware River Port Authority ($233.9 million), Pennsylvania
Economic Development Financing Authority ($659.9 million), Pennsylvania Energy
Development Authority ($162.1 million), Pennsylvania Higher Education Assistance
Agency ($1,283.8 million), Pennsylvania Higher Educational Facilities Authority
($1,965.8 million), Pennsylvania Industrial Development Authority ($357.3
million), Pennsylvania Infrastructure Investment Authority ($227.5 million),
Pennsylvania Turnpike Commission ($1,252.6 million), Philadelphia Regional Port
Authority ($63.9 million) and the State Public School Building Authority ($286.8
million). In addition, the Governor is statutorily required to place in the
budget of the Commonwealth an amount sufficient to make up any deficiency in the
capital reserve fund created for, or to avoid default on, bonds issued by the
Pennsylvania Housing Finance Agency ($2,060 million of revenue bonds and $240
million of notes outstanding as of December 31, 1994), and an amount of funds
sufficient to alleviate any deficiency that may arise in the debt service
reserve fund for bonds issued by The Hospitals and Higher Education Facilities
Authority of Philadelphia ($1.64 million of the loan principal was outstanding
as of December 31, 1994.) The budget as finally adopted by the legislation may
or may not include the amounts requested by the Governor.
Litigation. Certain litigation is pending against the Commonwealth that
could adversely affect the ability of the Commonwealth to pay debt service on
its obligations, including suits relating to the following matters: (a)
approximately 3,500 suits are pending against the Commonwealth pursuant to the
General Assembly's 1978 approval of a limited waiver of sovereign immunity which
permits recovery of damages for any loss up to $250,000 per person and
$1,000,000 per accident ($32.0 million appropriated from the Motor License Fund
in fiscal 1994 has been decreased to $27.0 million for fiscal 1995; (b) the ACLU
filed suit in April 1990 in federal court demanding additional funding for child
welfare services (no available estimates of potential liability), which the
Commonwealth then sought dismissal based on, among other things, the settlement
in a similar Commonwealth court action that provided for more funding in fiscal
1991 as well as a commitment to pay to counties $30.0 million over 5 years (on
April 12, 1993, the court dismissed all claims except for the
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constitutional claims of some of the plaintiffs and two Americans with
Disabilities Act claims). The district court has since denied the ACLU's motion
for class certification. The parties have stipulated to a judgment against the
plaintiffs in order for plaintiffs to appeal the denial of class certification
to the Third Circuit. In December of 1994, the third Circuit reversed Judge
Kelly's ruling, finding that he erred in refusing to certify the class.
Consistent with the Third Circuit's ruling, the District Court recently
certified the class, and the parties have resumed discovery; (c) in 1987, the
Supreme Court of Pennsylvania held that the statutory scheme for county funding
of the judicial system was in conflict with the Pennsylvania Constitution but
stayed judgment pending enactment by the legislature of funding consistent with
the opinion (the legislature has yet to consider legislation implementing the
judgment); (d) several banks have filed suit against the Commonwealth contesting
the constitutionality of a 1989 law imposing a bank shares tax on banking
institutions. Pursuant to a Settlement Agreement dated as of April 2, 1995, the
Commonwealth agreed to enter a credit in favor of Fidelity in the amount of
$4,100,000 in settlement of the constitutional and non-constitutional issues
including interest. Pursuant to a separate Settlement Agreement dated as of
April 21, 1995, the Commonwealth settled with the intervening banks, referred to
as "New Banks." As part of the settlement, the Commonwealth agreed neither to
assesses nor attempt to recoup any new bank tax credits which had been granted
or taken by any of the intervening banks; (e) in November 1990, the ACLU brought
a class action suit on behalf of the inmates in thirteen Commonwealth
correctional institutions challenging confinement conditions and including a
variety of other allegations. On August 1, 1994, the parties submitted a
proposed settlement agreement to the Court for its review. The Court held
hearings on the proposed Settlement Agreement in December 1994. The Court
approved the Settlement Agreement with a January 17, 1995 Memorandum. On
February 3, 1995, the Commonwealth paid $1.3 million in attorney's fees to the
plaintiffs' attorneys in accordance with the Agreement. The remaining $100,00 in
attorneys' fees will be paid upon dismissal of the preliminary injunction
relating to certain health issues. The parties are currently complying with
monitoring provisions outlined in the Agreement. The monitoring phase will
expire on January 6, 1998; (f) in 1991, a consortium of public interest law
firms filed a class action suit alleging that the Commonwealth had failed to
comply with the 1989 federal mandate with respect to certain services for
Medicaid-eligible children under the age of 21. In July 1994, the Court denied
the plaintiffs' request to proceed as a class action and dismissed five of the
eighteen plaintiff organizations from the case. The parties have reached a
tentative settlement agreement which they have submitted to the court for
approval; (g) litigation has been filed in both state and federal court by an
association of rural and small schools and several individual school districts
and parents challenging the constitutionality of the Commonwealth's system for
funding local school districts -- the federal case has been stayed pending
resolution of the state case and the state case is in the pre-trial discovery
stage. The trial has not yet been scheduled. Following a status conference among
counsel, Judge Pellegrini issued an Order, dated April 6, 1995, in which certain
deadlines were established for exchange of information and depositions for
expert witnesses. An additional status conference is scheduled for July 10, 1995
(no available estimate of potential liability); (h) The Pennsylvania Medical
Society sued the Commonwealth for payment of the full Medicare co-pay and
deductible for outpatient services to medical assistance clients who are also
eligible for Medicare. The Commonwealth received a favorable decision in the
United Stated District Court but the Pennsylvania Medical Society appealed the
decision and won a reversal in the United States Third Circuit Court. After
similarly unfavorable decisions by every other appellate court that addressed
the issue, the Commonwealth implemented a new payment system effective January
23, 1995. Preliminary estimated costs to the Commonwealth are approximately $50
million per year; and (i) On November 11, 1993, the Commonwealth of
Pennsylvania, Department of Transportation and Envirotest/Synterra Partners
("Envirotest"), a partnership, entered into a "Contract for Centralized
Emissions Inspection Facilities." Thereafter, Envirotest acquired certain land
and constructed approximately 85 automobile emissions inspection facilities
throughout various regions of the Commonwealth. By Act of the General Assembly
in October 1994 (Act No. 1994-95), the program was suspended and the Department
of Transportation was prohibited from expending funds to implement the program.
On April 12, 1995, Envirotest Systems Corporation, Envirotest Partners
(successor to Envirotest/Synterra Partners) and the Commonwealth of Pennsylvania
entered into a Standstill Agreement pursuant to which the parties will proceed
to discuss the resolution of claims which Envirotest might have against the
Commonwealth arising from the suspension of the
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emissions testing program. The Office of General Counsel believes it is
premature at this time to estimate the nature and size of Envirotest's potential
claim in this matter.
Philadelphia. (For the fiscal year ending June 30, 1991, Philadelphia
experienced a cumulative General Fund balance deficit of $153.5 million. The
audit findings for the fiscal year ending June 30, 1992 place the cumulative
General Fund balance deficit at $224.9 million.)
Legislation providing for the establishment of the Pennsylvania
Intergovernmental Cooperation Authority ("PICA") to assist Philadelphia in
remedying fiscal emergencies was enacted by the General Assembly and approved by
the Governor in June 1991. PICA is designed to provide assistance through the
issuance of funding debt and to make factual findings and recommendations to the
assisted city concerning its budgetary and fiscal affairs. An intergovernmental
cooperation agreement between Philadelphia and PICA was approved by City Council
on January 3, 1992, and approved by the PICA Board and signed by the Mayor on
January 8, 1992. At this time, Philadelphia is operating under a five year
fiscal plan approved by PICA on May 2, 1994. The latest five year plan was
presented to PICA by the Mayor on March 15, 1995 and PICA is scheduled to act on
it at the authority's April 17, 1995 meeting.
To date, PICA has issued $1,418,680,000 of its Special Tax Revenue
Bonds. This financial assistance has included the refunding of certain city
general obligation bonds, funding of capital projects and the liquidation of the
Cumulative General Fund balance deficit as of June 30, 1992, of $224.9 million.
The audited General Fund balance of the city as of June 30, 1994, showed a
surplus of approximately $15.4 million, up from approximately $3 million as of
June 30, 1993.
No further bonds are to be issued by PICA for the purpose of financing
a capital project or deficit as the authority for such bond sales expired
December 31, 1994. PICA's authority to issue debt for the purpose of financing a
cash flow deficit expires on December 31, 1996.
Special Risk Factors - New Jersey Municipal Securities
The following summary is based upon the most recent information
available as of the date of this Statement of Additional Information.
New Jersey Municipal Securities and Special Considerations Relating
Thereto. The concentration of investments in New Jersey Municipal Securities by
the New Jersey Municipal Bond Fund raises special investment considerations. In
particular, changes in the economic condition and governmental policies of the
State of New Jersey or its municipalities could adversely affect the value of
this Fund and the securities held by it.
The following information is based on official statements relating to
securities offerings of the State of New Jersey (the "State") and various local
agencies that have come to the Fund's attention and available as of the date of
this Statement of Additional Information. The New Jersey Municipal Bond Fund has
not independently verified any of the information contained in the official
statement but is not aware of any fact which would render such information
inaccurate.
General. New Jersey is located at the center of the Middle Atlantic
region which extends from Boston to Washington, and which includes almost
one-fourth of the country's population. The extensive facilities of the Port
Authority of New York and New Jersey, the Delaware River Port Authority and the
South Jersey Port Corporation across the Delaware River from Philadelphia
augment the air, land and water transportation complex which has influenced much
of the State's economy. This central location in the northeastern corridor, the
transportation and port facilities and proximity to New York City make the State
an attractive location for corporate headquarters and international business
offices. A number of Fortune Magazine's top 500 companies
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maintain headquarters or major facilities in New Jersey, and many foreign-owned
firms have located facilities in the State.
The State's economic base is diversified, consisting of a variety of
manufacturing, construction and service industries, supplemented by rural areas
with selective commercial agriculture. New Jersey's principal manufacturing
industries produce chemicals and pharmaceuticals, electrical equipment and
instruments, printing, machinery and food products. In addition, the State
introduced legalized casino gambling into Atlantic City in the 1970's which has
fostered employment and tourism in Atlantic City.
New Jersey is the ninth largest state in population and the fifth
smallest in land area. It is the most densely populated state in the United
States with an average of 1,062 persons per square mile. New Jersey's population
grew rapidly in the years following World War II, before slowing to an annual
rate of .27% in the 1970's. Between 1980 and 1990, the annual growth rate was
.49% and between 1990 and 1994 accelerated to .52%. While this rate of growth is
less than that for the United States, it compares favorably with other Middle
Atlantic States.
After enjoying an extraordinary boom during the mid-1980's, New Jersey,
as well as the rest of the Northeast, slipped into a slowdown well before the
onset of the national recession, which began in July 1990. By the beginning of
the national recession, construction activity had already been declining in New
Jersey for nearly two years. The onset of recession caused an acceleration of
New Jersey's job losses in construction and manufacturing, as well as an
employment downturn in such previously growing sectors as wholesale trade,
retail trade, finance, utilities and trucking and warehousing.
Reflecting the downturn, the rate of unemployment in the State rose
from a peacetime low of 3.6% during the first quarter of 1989 to a recessionary
peak of 8.4% during 1992. The unemployment rate fell to 6.9% during the first
quarter of 1995.
Financial Accounting. The State utilizes the fund method of accounting.
Accordingly, the State prepares separate statements for the General Fund,
Special Revenue Funds, Debt Service Funds, Capital Project Funds, Trust and
Agency Funds, Enterprise Funds, University Funds, General Fixed Asset Account
Group and General Long-Term Debt Account Group.
The General Fund is the fund into which all State revenues not
otherwise restricted by statute are deposited and from which appropriations are
made. The largest part of the total financial operations of the State is
accounted for in the General Fund. Revenues received from taxes and unrestricted
by statute, most federal revenue and certain miscellaneous revenue items are
recorded in the General Fund.
Special Revenue Funds are used to account for resources legally
restricted to expenditure for specified purposes. Special Revenue Funds include
the Casino Control Fund, the Casino Revenue Fund, the Gubernatorial Elections
Fund and the Property Tax Relief Fund. Other Special Revenue Funds have been
created which are either reported ultimately in the General Fund or are created
to hold revenues derived from private sources.
Debt Service Funds are used to account for the accumulation of
resources for, and the payment of, principal and redemption premium, if any, of,
and interest on, general obligation bonds. Capital Project Funds are used to
account for financial resources to be used for the acquisition or construction
of major State capital facilities. Trust and Agency Funds are used to account
for assets held in a trust capacity or as an agent for individuals, private
organizations, other governments and/or other funds. The General Fixed Asset
Account Group accounts for the State's fixed assets acquired or constructed for
general governmental purposes. The General Long-Term Debt Account Group accounts
for the unmatured general long-term liabilities of the State.
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Enterprise Funds account for operations where the intent of the State
is that the cost of providing goods or services to the general public on a
continuing basis be financed or recovered primarily through user charges, or
where periodic measurement of the results of operations is appropriate for
capital maintenance, public policy, management control or accountability. The
College and University Funds account for the operations of Rutgers, the State
University, the University of Medicine and Dentistry of New Jersey, the New
Jersey Institute of Technology, and the nine State colleges including their
foundations and associations, in accordance with existing authoritative
accounting and reporting principles applicable to universities and hospitals.
The State operates on a fiscal year beginning July 1 and ending June
30. The State Constitution provides that all monies for the support of State
government and all other State purposes, as far as can be ascertained or
reasonably foreseen, must be provided for in one general appropriation law
covering one and the same fiscal year. No general appropriations law or other
law appropriating money for any State purpose shall be enacted if the amount of
money appropriated therein, together with all other prior appropriations made
for the same fiscal year, exceeds the total amount of revenue on hand and
anticipated to be available for such fiscal year, as certified by the Governor.
Should revenues be less than the amount anticipated in the budget for a
fiscal year, the Governor may, pursuant to statutory authority, prevent any
expenditure under any appropriation. There are additional means by which the
Governor may ensure that the State is operated efficiently and does not incur a
deficit. No supplemental appropriation may be enacted after adoption of an
appropriations act except where there are sufficient revenues on hand or
anticipated, as certified by the Governor, to meet such appropriation. In the
past when actual revenues have been less than the amount anticipated in the
budget, the Governor has exercised plenary powers leading to, among other
actions, implementation of a hiring freeze for all State departments and the
discontinuation of programs for which appropriations were budgeted but not yet
spent.
Financial Results and Projections.
Revenues. Estimated receipts from State taxes and revenues are
forecasts based on the best information available at the time of such forecasts.
The principal taxes in New Jersey are the Sales and Use Tax, the Gross Income
Tax, and the Corporation Business Tax. The fiscal year 1996 Appropriation Act
forecasts Sales and Use Tax collections of $4,356 million, a 5.5% increase over
receipts estimated for fiscal year 1995; Gross Income Tax collections of $4,580
million, a 9.0% increase over receipts estimated in the revised estimates for
fiscal year 1995; and Corporation Business Tax collections of $1,145 million, a
8.6% increase over receipts estimated in the revised estimates for fiscal year
1995. Changes in economic activity in the State and the nation, consumption of
durable goods, corporate financial performance and other factors that are
difficult to predict may result in actual collections being more or less than
forecasted.
Appropriations. The State appropriated approximately $14,737
million for fiscal year 1993 and $15,492 million for fiscal year 1994. Estimated
appropriations for fiscal years 1995 and 1996 total $15,528 million and $15,995
million, respectively. Of the estimated $15,995 million appropriated in fiscal
year 1995 from the General Fund, the Property Tax Relief Fund, the Casino
Control Fund, the Casino Revenue Fund, and the Gubernatorial Elections Fund,
$6,423.5 million (40.2%) is appropriated for State aid to local governments,
$3,708 million (23.2%) is appropriated for grants-in-aid (payments to
individuals or public or private agencies for benefits to which a recipient is
entitled to by law, or for the provision of services on behalf of the State),
$5,179.6 million (32.4%) for direct State services, $466.3 million (2.9%) for
debt service on State general obligation bonds and $443.9 million (2.9%) for
capital construction.
Fund Balances. The undesignated Fund balances are available
for appropriations in succeeding fiscal years. There have been positive Fund
balances in the General Fund at the end of each year since the State
Constitution was adopted in 1947. Total ending Fund balances for fiscal years
1992, 1993 and 1994 were $836.2 million, $1,149.6 million and $1,264.6 million,
respectively. General Fund balances accounted for $1.4 million,
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and $760.8 million and $937.4 million of the total ending Fund balances in
fiscal years 1992, 1993 and 1994, respectively. Total ending Fund balances are
estimated to be $965.7 million for the fiscal year 1995, of which the General
Fund balance is expected to account for $926.0 million. The estimates for fiscal
year 1995 are preliminary and are subject to change upon completion of the
State's year end audit. The estimates for Total and General Fund balances for
the fiscal year ended 1995 are $549.3 million and $563 million, respectively.
The estimates for fiscal 1996 reflect amounts contained in the Fiscal Year 1996
Appropriations Act and Supplemental Appropriations enacted through September 1,
1993. It should be noted that an adverse determination in certain litigation in
which the State is a party would have a significant impact on fiscal 1995 and
subsequent fiscal year fund balances (see "Litigation" section).
Indebtedness of the State.
General Obligation Bonds. The primary method for State
financing of capital projects is through the sale of the general obligation
bonds of the State. These bonds are backed by the full faith and credit of the
State. State tax revenues and certain other fees are pledged to meet the
principal payments, interest payments and if provided, redemption premium
payments, if any, required to fully pay the bonds. As of June 30, 1994, the
outstanding general obligation bonded indebtedness of the State was
approximately $3.65 billion. For fiscal 1996, $466.3 million has been
appropriated for the debt service obligation on outstanding indebtedness.
Tax and Revenue Anticipation Notes. In fiscal year 1992 the
State initiated a program under which it issued tax and revenue anticipation
notes to aid in providing effective cash flow management to fund imbalances
which occur in the collection and disbursement of the General Fund and Property
Tax Relief Fund revenues. There are presently no tax and revenue anticipation
notes outstanding. Such tax and revenue anticipation notes do not constitute a
general obligation of the State or a debt or liability within the meaning of the
State Constitution. These notes constitute special obligations of the State
payable solely from moneys on deposit in the General Fund and Property Tax
Relief Fund and legally available for such payment.
State Related Obligations.
Lease Financing. The State has entered into a number of leases
relating to the financing of certain real property and equipment. Lease
financing obligations outstanding as of December 31, 1992 totalled $804.8
million.
State Supported School and County College Bonds. Legislation
provides for future appropriations for State aid to local school districts equal
to debt service on a maximum principal amount of $280.0 million of bonds issued
by such local school districts for construction and renovation of school
facilities and for State aid to counties equal to debt service on up to $80.0
million of bonds issued by counties for construction of county college
facilities. The State Legislature is not legally bound to make such future
appropriations, but has done so to date on all outstanding obligations issued
under these laws. As of December 31, 1993, the maximum amount of $280.0 million
of school district bonds has been approved for State support. Bonds or notes in
the amount of $274.1 million have been issued by local school districts, of
which $211.2 million have been retired and $62.8 million are still outstanding.
As of June 30, 1993, $81.9 million of county college bonds or notes have been
authorized or issued, of which $42.0 million have been retired.
Moral Obligation Financing. The authorizing legislation for
certain State entities provides for specific budgetary procedures with respect
to certain obligations issued by such entities. Pursuant to such legislation, a
designated official is required to certify any deficiency in a debt service
reserve fund maintained to meet payments of principal of and interest on the
obligations, and a State appropriation in the amount of the deficiency is to be
made. However, the State Legislature is not legally bound to make such an
appropriation. Bonds issued pursuant to authorizing legislation of this type are
sometimes referred to as "moral obligation" bonds. There is no statutory
limitation on the amount of moral obligation bonds which may be issued by
eligible
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State entities. The State provides the South Jersey Port Corporation with funds
to cover all debt service and property tax requirements to the extent earned
revenues are anticipated to be insufficient to cover these obligations. All
other entities with moral obligation bonds are expected to generate revenues
sufficient to cover debt service requirements thereon. As of June 30, 1994,
outstanding moral obligation indebtedness totalled $737.9 million, with an
approximate maximum annual debt service requirement of $68.2 million.
New Jersey Transportation Trust Fund Authority. In July 1984,
the State created the New Jersey Transportation Trust Authority (the
"Authority"), an instrumentality of the State organized and existing under the
New Jersey Transportation Trust Fund Authority Act of 1984, as amended (the
"Act") for the purpose of funding a portion of the State's share of the cost of
improvements to the State's transportation system. Pursuant to the Act, the
Authority, the State Treasurer and the Commissioner of Transportation executed a
contract (the "Contract") which provides for the payment of these revenues to
the Authority. The payment of all such amounts is subject to and dependent upon
appropriations being made by the State Legislature and there is no requirement
that the Legislature make such appropriations.
Pursuant to the Act, the aggregate principal amount of the
Authority's bonds, notes or other obligations outstanding at any one time may
not exceed $1.7 billion. This amount is reduced by certain payments to the
Authority by the State in excess of the contract amount. Since January 1985, the
Authority has issued $1.223 billion in bonds. Of these, $1,222.3 million were
outstanding on June 30, 1994. These bonds are special obligations of the
Authority payable from the payments made by the State pursuant to the Contract.
Economic Recovery Fund Bonds. Legislation enacted during 1992
by the State authorizes the New Jersey Economic Development Authority ("NJEDA")
to issue bonds for various economic development purposes. Pursuant to that
legislation, NJEDA and the State Treasurer have entered into an agreement (the
"ERF Contract") through which NJEDA has agreed to undertake the financing of
certain projects and the State Treasurer has agreed to credit to the Economic
Recovery Fund from the General Fund amounts equivalent to payments due to the
State under an agreement with the Port Authority of New York and New Jersey. The
payment of all amounts under the ERF Contract is subject to and dependent upon
appropriations being made by the State Legislature. On June 1, 1994, NJEDA
issued $705.3 million in Economic Recovery Fund Bonds.
Miscellaneous. Other State related obligations include bonds
of the New Jersey Sports and Exposition Authority and lease purchase agreements
of the New Jersey Commission on Science and Technology. Amounts outstanding as
of June 30, 1994 totalled $615.1 million and $1.3 million, respectively, for
these two organizations.
State Employees. The State, as a public employer, is covered by the New
Jersey Public Employer-Employee Relations Act, as amended, which guarantees
public employees the right to negotiate collectively through employee
organizations certified or recognized as the exclusive collective negotiations
representatives for units of public employees found to be appropriate for
collective negotiations purposes. Approximately 64,500 employees are paid
through the State payroll system. Of the 64,500 employees, 56,800 are
represented by certified or recognized exclusive majority representatives and
are organized into various negotiation units. The State is conducting
negotiations for successor agreement with various negotiation units affecting
approximately 54,400 employees. The current agreement expired on June 30, 1994.
Three units of State Police employees, representing approximately 2,400
Troopers, Sergeants and Lieutenants are in the second year of a three-year
contract which expires on June 30, 1996. Their agreements call for a 4% wage
increase effective June 24, 1995. The fiscal year 1996 budget is expected to
reduce the workforce through attrition, voluntary furlough and layoff of state
employees during the fiscal year.
Counties and Municipalities. The Local Budget Law imposes specific
budgetary procedures upon counties and municipalities ("local units"). Every
local unit must adopt an operating budget which is balanced on a cash basis, and
items of revenue and appropriation must be examined by the Director of the
Division (the
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"Director"). This process insures that every municipality and county annually
adopts a budget balanced on a cash basis, within limitations on appropriations
or tax levies, respectively, and making adequate provision for principal of and
interest on indebtedness falling due in the fiscal year, deferred charges and
other statutory expenditure requirements. In addition to the exercise of
regulatory and oversight functions, the Director offers expert technical
assistance to local units in all aspects of financial administration, including
revenue collection and cash management procedures, contracting procedures, debt
management and administrative analysis.
State law also regulates the issuance of debt by local units. The Local
Budget Law limits the amount of tax anticipation notes that may be issued by
local units and requires the repayment of such notes within 120 days of the end
of the fiscal year (six months in the case of the counties) in which they were
issued. The Local Bond Law governs the issuance of bonds and notes by the local
units. No local unit is permitted to issue bonds for the payment of current
expenses (other than Fiscal Year Adjustment bonds). Local units may not issue
bonds to pay outstanding bonds, except for refunding purposes, and then only
with the approval of the Local Finance Board. Local units may issue bond
anticipation notes for temporary periods not exceeding in the aggregate
approximately ten years from the date of first issue. The debt that any local
unit may authorize is limited to a percentage of its equalized valuation basis,
which is the average of the equalized value of all taxable real property and
improvements within the geographic boundaries of the local unit, as annually
determined by the Director of the Division of Taxation, for each of the three
most recent years.
State law authorizes State officials to supervise fiscal administration
in any municipality which is in default on its obligations or upon the
occurrence of certain other events. State officials are authorized to continue
such supervision for as long as any of the conditions exist and until the
municipality operates for a fiscal year without incurring a cash deficit.
School Districts. New Jersey's school districts operate under the same
comprehensive review and regulation as do its counties and municipalities.
Certain exceptions and differences are provided, but the State supervision of
school finance closely parallels that of local governments.
Litigation. Certain litigation is pending or threatened in which the
State has the potential for either a significant loss of revenue or a
significant unanticipated expenditure, including suits relating to the following
matters:
(a) Several cases are pending in the State courts challenging the
methods by which the State Department of Human Services shares with
county governments the maintenance recoveries and costs for residents
in State psychiatric hospitals and residential facilities for the
developmentally disabled.
(b) Suits have been initiated by various counties in the State seeking
the return of moneys paid by the counties since 1980 for the
maintenance of Medicaid or Medicare eligible residents of institutions
for the developmentally disabled. In March 1994, the State Superior
Court ruled that the counties were entitled to credits for payments
made since 1989. In February 1995 all but one county had resolved its
cost-sharing disputes with the State. One county has filed for
administrative review to contest the State's calculation of the
credits.
(c) A class action on behalf of all New Jersey long-term care
facilities avers that the State has implemented unreasonably low
Medicaid payment rates. A final decision in favor of the plaintiffs
could require the State to make substantial expenditures. A plaintiffs'
motion for a preliminary injunction was denied on May 25, 1995, and
that denial is being appealed to the Third Circuit.
(d) Litigation is pending challenging various portions of the State's
Fair Automobile Insurance Reform Act of 1990, which substantially
altered the State's statutory scheme governing private passenger
automobile insurance.
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(e) At any given time, there are various numbers of claims and cases
pending against the State, its agencies and employees seeking recovery
of damages paid out of a fund created pursuant to the State's Tort
Claims Act. The State is unable to estimate its exposure for these
claims and cases. An independent study estimated an aggregate potential
exposure of $50 million for tort claims pending as of January 1, 1982.
It is estimated that were a similar study made of claims currently
pending, the amount of such estimated exposure would be somewhat
higher.
(f) At any given time, there are various claims of contract and other
claims against the State, and State agencies including environmental
claims arising from the alleged disposal of hazardous waste. The
State is unable to estimate its exposure for these claims.
(g) At any given time, there are various numbers of claims and cases
pending against the University of Medicine and Dentistry ("University")
and its employees seeking recovery of damages that are paid out of the
Self Insurance Reserve Fund created pursuant to the State's Tort Claims
Act. An independent study estimated an aggregate potential exposure of
$66.5 million for claims pending as of December 31, 1994. In addition,
various other claims are pending against the University seeking damages
or other relief which, if granted, would require the expenditure of
funds (amount not estimated).
(h) Various hospitals have challenged the Commissioner's calculation of
the hospital assessment required by the Health Care Cost Reduction Act
of 1991. The court denied a request by 11 hospitals for injunctive
relief to prevent the assessment after fiscal year 1994. The assessment
is intended to produce approximately $3 million per month from all
State hospitals. On January 17, 1995, the Appellate Division rejected
the hospitals' argument. The Supreme Court denied the hospitals'
petition for certification on April 26, 1995. In a separate case, the
Appellate Division rejected a group of 67 hospital's request for a
refund based on a prior opinion because the appeal had been filed in an
untimely manner.
(i) An individual plaintiff has filed a suit against two members of the
New Jersey Bureau of Securities alleging various causes of action for
defamation, injury to reputation, abuse of process and improper
disclosure of private facts. The State was granted a Motion for Summary
Judgment on January 11, 1995. Plaintiff has filed a notice of appeal.
The State is unable to estimate its exposure for this claim and intends
to defend the suit vigorously.
(j) Fourteen counties have filed suits against various State agencies
and employees, seeking a portion of $412 million in federal funding the
State received for disproportionate share hospital payments made to
county psychiatric facilities. The State contends that it does not have
to share the federal funding because it already paid the counties their
portion of disproportionate share hospital payments. The State has
requested oral argument.
(k) In October 1993, a suit was filed against the Governor and various
State Commissioners alleging violations of numerous laws allegedly
resulting from the existence of chromium contamination in the
State-owned Liberty Park in Jersey City. No immediate relief was
sought, but injunctive and monetary relief was asked for. The
complaints were amended and the plaintiffs filed another suit seeking
cessation of all construction and penalties against the transporter of
soil to the park. The cases have been consolidated and referred to
mediation.
(l) Various labor unions filed suit on October 17, 1994, challenging
State legislation dealing with the funding of several public employee
pension funds. The suit alleges, among other things, that certain
provisions of the legislation violate the contract, due process and
taking clauses of the United States and New Jersey Constitutions, and
that the changes constitute a breach of the States fiduciary duty to
two of the pension systems. Plaintiffs seek to permanently enjoin the
State from administering the changes.
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An adverse determination in this matter would have a significant impact
on the State's fiscal 1996 budget. The State has filed motions to
dismiss and for summary judgment. The State intends to vigorously
defend this action.
(m) A case has been filed in federal district court seeking injunctive
relief and damages in excess of $19 million from the State's
Department of Environmental Protection and several of its officers
based on alleged violations of the Commerce Clause and Contracts
Clause of the U.S. Constitution. The State intends to vigorously
defend this action.
(n) A complaint was filed in Tax Court on May 23, 1994 against the
State and certain of its officials challenging the constitutionality of
waste licensure renewal fees collected by the Department of
Environmental Protection. The State is unable to estimate its exposure
for this claim and intends to defend this suit vigorously.
Additional Information on Investment Practices
1. Variable Rate Demand Obligations. Variable rate demand obligations
held by the Tax-Exempt Money Market, Intermediate Municipal Bond, Pennsylvania
Municipal Bond and New Jersey Municipal Bond Funds may have maturities of more
than 397 days, provided (i) the Funds are entitled to the payment of principal
and accrued interest at specified intervals not exceeding 397 days and upon not
more than 30 days' notice, or (ii) the rate of interest on such obligations is
adjusted automatically at periodic intervals, which normally will not exceed 31
days but may extend up to 397 days. This 397 day limit does not apply to the
Intermediate Municipal Bond Fund.
2. When-Issued Securities. As stated in the Prospectuses relating to
these Funds, these Funds, as well as Global Bond Fund, may purchase municipal
securities on a "when-issued" basis (i.e., for delivery beyond the normal
settlement date at a stated price and yield). When a Fund agrees to purchase
when-issued securities, the Company's Custodian will set aside cash or high
quality liquid portfolio securities equal to the amount of the commitment in a
separate account. The Fund may be required subsequently to place additional
assets in the separate account in order to ensure that the value of the account
remains equal to the amount of the Fund's commitment. Therefore, it may be
expected that the Fund's net assets will fluctuate to a greater degree when they
set aside portfolio securities to cover such purchase commitments than when they
set aside cash. In addition, because a Fund will set aside cash or liquid assets
to satisfy its purchase commitments in the manner described, the Fund's
liquidity and ability to manage its investment portfolios might be affected in
the event its commitments to purchase when-issued securities ever exceeded 25%
of the value of its total assets. CoreStates Advisers intends, however, to take
reasonable precautions in connection with the Tax-Free Money Market Funds'
investment practices with respect to when-issued securities to avoid any adverse
effect on a Fund's policy of maintaining a net asset value per Share at $1.00.
When acquiring when-issued securities for a Fund, CoreStates Advisers
will assess such factors as the stability or instability of prevailing interest
rates, the amount and period of a Fund's commitment with respect to the
when-issued securities being acquired, the interest rate to be paid on those
securities, and the length of a Fund's average weighted portfolio maturity at
the time.
When a Fund engages in when-issued transactions, it relies upon the
seller to consummate the trade. Failure of the seller to do so may result in a
Fund incurring a loss or missing an opportunity to obtain a price considered to
be advantageous.
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-Government Income Fund-
- Elite Government Reserve -
GNMAs
Government Income Fund and Elite Government Reserve may invest in
securities issued by the Government National Mortgage Association ("GNMA"), a
wholly-owned U.S. Government corporation which guarantees the timely payment of
principal and interest. Obligations of GNMA are backed by the full faith and
credit of the U.S. Government. The market value and interest yield of GNMA
securities can vary due to market interest rate fluctuations and early
prepayments of underlying mortgages. These securities represent ownership in a
pool of federally insured mortgage loans. GNMA certificates consist of
underlying mortgages with a maximum maturity of 30 years. However, due to
scheduled and unscheduled principal payments, GNMA certificates have a shorter
average maturity and, therefore, less principal volatility than a comparable
30-year bond. Since prepayment rates vary widely, it is not possible to
accurately predict the average maturity of a particular GNMA pool. The scheduled
monthly interest and principal payments relating to mortgages in the pool will
be "passed through" to investors. GNMA securities differ from conventional bonds
in that principal is paid back to the certificate holders over the life of the
loan rather than at maturity. As a result, there will be monthly scheduled
payments of principal and interest. In addition, there may be unscheduled
principal payments representing prepayments on the underlying mortgages.
Although GNMA certificates may offer yields higher than those available from
other types of U.S. Government securities, GNMA certificates may be less
effective than other types of securities as a means of "locking in" attractive
long-term rates because of the prepayment feature. For instance, when interest
rates decline, the value of a GNMA certificate likely will not rise as much as
comparable debt securities due to the prepayment feature. In addition, these
prepayments can cause the price of a GNMA certificate originally purchased at a
premium to decline in price to its par value, which may result in a loss.
- Intermediate Municipal Bond Fund -
- Intermediate Bond Fund -
- Global Bond Fund -
- Pennsylvania Municipal Bond Fund -
- New Jersey Municipal Bond Fund -
- Tax-Free Reserve -
Puts
Intermediate Municipal Bond Fund, Intermediate Bond Fund, Global Bond
Fund, Pennsylvania Municipal Bond Fund, New Jersey Municipal Bond Fund and
Tax-Free Reserve reserve the right to engage in put transactions. CoreStates
Advisers has the authority to purchase securities at a price which would result
in a yield to maturity lower than that generally offered by the seller at the
time of purchase when a Fund can simultaneously acquire the right to sell the
securities back to the seller, the issuer, or a third party (the "writer") at an
agreed-upon price at any time during a stated period or on a certain date. Such
a right is generally denoted as a "standby commitment" or a "put." The purpose
of engaging in transactions involving puts is to maintain flexibility and
liquidity and to permit each Fund to meet redemptions and remain as fully
invested as possible. The right to put the securities depends on the writer's
ability to pay for the securities at the time the put is exercised. Each Fund
would limit its put transactions to institutions which its adviser believes
present minimal credit risks, and the adviser would use its best efforts to
initially determine and continue to monitor the financial strength of the
sellers of the options by evaluating their financial statements and such other
information as is available in the marketplace. It may, however, be difficult to
monitor the financial strength of the writers because adequate current financial
information may not be available. In the event that any writer is unable to
honor a put for financial reasons, each Fund would be general creditor (i.e. on
a parity with all other unsecured
B-18
<PAGE>
creditors) of the writer. Furthermore, particular provisions of the contract
between the Fund and the writer may excuse the writer from repurchasing the
securities; for example, a change in the published rating of the underlying
securities or any similar event that has an adverse effect on the issuer's
credit or a provision in the contract that the put will not be exercised except
in certain special cases, for example, to maintain portfolio liquidity. The Fund
could, however, at any time, sell the underlying portfolio security in the open
market or wait until the portfolio security matures, at which time it should
realize the full par value of the security.
The securities purchased subject to a put may be sold to third persons
at any time, even though the put is outstanding, but the put itself, unless it
is an integral part of the security as originally issued, may not be marketable
or otherwise assignable. Therefore, the put would have value only to the Fund.
Sale of the securities to third parties or a lapse of time with the put
unexercised may terminate the right to put the securities. Prior to the
expiration of any put option, the Fund could seek to negotiate terms for the
extension of such option. If such a renewal cannot be negotiated on terms
satisfactory to the Fund, the Fund could, of course, sell the security. The
maturity of the underlying security will generally be different from that of the
put. There will not be a limit to the percentage of portfolio securities that
the Funds may purchase subject to a put, but the amount paid directly or
indirectly for premiums on all puts outstanding will not exceed 2% of the value
of the total assets of such Fund calculated immediately after any such put is
acquired. For the purpose of determining the "maturity" of securities purchased
subject to an option to put, and for purposes of determining the dollar-weighted
average maturity of a Fund including such securities, the Company will consider
the "maturity" to be the first date on which it has the right to demand payment
from the writer of the put although the final maturity of the security is later
than such date.
- Growth Equity Fund -
Convertible Securities
Some securities purchased by Growth Equity Fund (usually bonds,
debentures or preferred stock) may have a conversion or exchange feature. This
allows the holder to exchange the security for another class of security
(usually common stock) according to the specific terms and conditions of the
issue. The interest or dividend rate may be lower than the market rate on a
comparable non-convertible security, but the market value of the convertible
security will rise if the common stock price rises sufficiently. The value of a
security is also affected by prevailing interest rates, the credit quality of
the issuer, and any put or call provisions. "Conversion parity" is the price at
which common stock has the same value as bonds that are convertible into that
stock. The holder of a convertible bond will usually not exercise the exchange
privilege until the market price of the common stock reaches conversion parity.
- International Growth Fund -
- Global Bond Fund -
Futures and Options
As stated in the Prospectuses relating to these Funds, International
Growth Fund and Global Bond Fund may purchase futures contracts and purchase or
sell options for, among other things, the purposes of remaining fully invested,
and reducing transaction costs and currency fluctuations. Futures contracts
provide for the future sale by one party and purchase by another party of a
specified amount of a specific security at a specified future time and at a
specified price. Futures contracts which are standardized as to maturity date
and underlying financial instruments are traded on national futures exchanges.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which
B-19
<PAGE>
has previously been "sold," "selling" a contract previously purchased) in an
identical contract to terminate the position. Brokerage commissions are incurred
when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in
cash or government securities with a broker or custodian to initiate and
maintain open positions in futures contracts. A margin deposit is intended to
assure completion of the contract (delivery or acceptance of the underlying
security) if it is not terminated prior to the specified delivery date. Minimal
initial margin requirements are established by the futures exchange and may be
changed. Brokers may establish deposit requirements which are higher than the
exchange minimums.
After a futures contract position is opened, the value of the contract
is marked to market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of an
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. International
Growth Fund and Global Bond Fund expect to earn interest income on its margin
deposits.
Traders in futures contracts may be broadly classified as either
"hedgers" or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from fluctuations in
the market value of the underlying securities.
Regulations of the Commodity Futures Trading Commission ("CFTC")
applicable to International Growth Fund and Global Bond Fund permit the use of
future transactions for bona fide hedging purposes without regard to the
percentage of assets committed to futures margin and options premiums. In
addition, CFTC regulations also allow funds to employ futures transactions for
other non-hedging purposes to the extent that aggregate initial futures margins
and options premiums do not exceed 5% of total assets. International Growth Fund
and Global Bond Fund will only sell futures contracts to protect securities they
own against price declines or purchase contracts to protect against an increase
in the price of securities it intends to purchase.
The use of such futures contracts is an effective way in which these
Funds may control the exposure of its income to market fluctuations. While
International Growth Fund and Global Bond Fund may incur commission expenses in
both opening and closing out futures positions, these costs are lower than
transaction costs incurred in the purchase and sale of U.S. Government
securities.
Forward Currency Contracts
Forward currency contracts involve an obligation to purchase or sell a
specified currency at a future date at a price set at the time of the contract.
Forward currency contracts do not eliminate fluctuations in the values of
portfolio securities but, rather, allow International Growth Fund and Global
Bond Fund to establish a rate of exchange for a future point in time.
When entering into a forward currency contract for the purchase or sale
of a security in a foreign currency, these Funds may enter into a contract for
the amount of the purchase or sale price to protect against variations between
the date the security is purchased or sold and the date on which payment is made
or received, in the value of the foreign currency relative to the U.S. dollar or
other foreign currency.
Also, when the advisers anticipate that a particular foreign currency
may decline substantially relative to the U.S. dollar or other leading
currencies, in order to reduce risk, International Growth Fund and Global Bond
Fund may enter into a contract to sell, for a fixed amount, the amount of
foreign currency approximating the value of its securities denominated in such
foreign currency. With respect to any such forward currency contract,
B-20
<PAGE>
it will not generally be possible to match precisely the amount covered by that
contract and the value of the securities involved due to changes in the values
of such securities resulting from market movements between the date the contract
is entered into and the date it matures. In addition, while forward currency
contracts may offer protection from losses resulting from declines in value of a
particular foreign currency, they also limit potential gains which might result
from increases in the value of such currency. International Growth Fund and
Global Bond Fund will also incur costs in connection with forward currency
contracts and conversions of foreign currencies into U.S. dollars.
ADDITIONAL INVESTMENT RESTRICTIONS
In General
The Prospectuses relating to the Funds list certain investment
restrictions that may be changed only by a vote of a majority of the outstanding
Shares of each Fund, as defined in the Prospectuses. The additional investment
limitations and restrictions listed herein supplement those contained in the
applicable Prospectuses. Except as otherwise indicated, these limitations and
restrictions may be changed only by such a shareholder vote.
The percentage limitations noted will apply at the time of the purchase
of a security and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of a purchase of
such security.
Additional Fundamental Investment Limitations and Restrictions
- Equity Funds -
The following policies are applicable to the Equity Funds, except International
Growth Fund, which is subject only to Restrictions #5, #7, #8 and #10.
An Equity Fund may not:
1. Purchase securities on margin, sell securities short, or
participate on a joint or joint and several basis in any
securities trading account.
2. Purchase or sell commodities, commodity contracts (including
futures contracts), oil, gas or mineral exploration or
development programs, or real estate (although investments in
marketable securities of companies engaged in such activities
are not hereby precluded).
3. Purchase securities of other investment companies, except as
they may be acquired as part of a merger, consolidation,
reorganization, acquisition of assets, or where otherwise
permitted by the Investment Company Act of 1940.
4. Write or purchase options, including puts, calls, straddles,
spreads, or any combination thereof.
5. Invest in any issuer for purposes of exercising control or
management.
6. Purchase securities with legal or contractual restrictions.
7. Purchase or retain securities of any issuer, if the Officers
or Directors of the Company or its investment adviser owning
beneficially more than one-half of
B-21
<PAGE>
1% of the securities of such issuer together own beneficially
more than 5% of such securities.
8. Invest more than 10% of its total assets in the securities of
issuers which together with any predecessors have a record of
less than three years continuous operation.
9. Underwrite the securities of other issuers, except to the
extent that the purchase of debt obligations directly from an
issuer thereof, in accordance with an Equity Fund's investment
objective, policies, and restrictions, may be deemed to be an
underwriting.
10. Purchase any securities which would cause 25% or more of its
total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal
business activities in the same industry.
- Fixed Income Funds -
The following policies are applicable to the Fixed Income Funds.
A Fixed Income Fund may not:
1. Purchase securities on margin, sell securities short, or
participate on a joint or joint and several basis in any
securities trading account.
2. Purchase or sell commodities, commodity contracts (including
futures contracts), oil, gas or mineral exploration or
development programs, or real estate (although investments in
marketable securities of companies engaged in such activities
are not hereby precluded).
3. Purchase securities of other investment companies, except as
they may be acquired as part of a merger, consolidation,
reorganization, acquisition of assets, or where otherwise
permitted by the Investment Company Act.
4. Write or purchase options, including puts, calls, straddles,
spreads, or any combination thereof, except that Government
Income Fund, Intermediate Municipal Bond Fund, Global Bond
Fund, Pennsylvania Municipal Bond Fund and New Jersey
Municipal Bond Fund may engage in put transactions.
5. Buy common stocks or voting securities.
6. Invest in any issuer for purposes of exercising control or
management.
7. With respect to the Intermediate Bond Fund, purchase
securities with legal or contractual restrictions.
8. Invest more than 10% of its total assets in the securities of
issuers which together with any predecessors have a record of
less than three years continuous operation.
B-22
<PAGE>
9. Purchase or retain securities of any issuer, if the Officers
or Directors of the Company or its investment adviser owning
beneficially more than one-half of 1% of the securities of
such issuer together own beneficially more than 5% of such
securities.
10. Underwrite the securities of other issuers, except to the
extent that the purchase of debt obligations directly from an
issuer thereof, in accordance with a Fixed Income Fund's
investment objective, policies, and restrictions, may be
deemed to be an underwriting.
- Taxable Money Market Funds -
The following policies are applicable to the Company's Taxable Money Market
Funds.
A Taxable Money Market Fund may not:
1. Purchase securities on margin, sell securities short, or
participate on a joint or joint and several basis in any
securities trading account.
2. Purchase or sell commodities, commodity contracts (including
futures contracts), oil, gas or mineral exploration or
development programs, or real estate (although investments in
marketable securities of companies engaged in such activities
are not hereby precluded).
3. Purchase securities of other investment companies, except as
they may be acquired as part of a merger, consolidation,
reorganization, acquisition of assets, or where otherwise
permitted by the Investment Company Act.
4. Write or purchase options, including puts, calls, straddles,
spreads, or any combination thereof.
5. Buy common stocks or voting securities, or state, municipal
or industrial revenue bonds.
6. Invest in any issuer for purposes of exercising control or
management.
7. Purchase securities with legal or contractual restrictions.
8. Invest more than 10% of its total assets in the securities of
issuers which together with any predecessors have a record of
less than three years continuous operation.
9. Purchase or retain securities of any issuer, if the Officers
or Directors of the Company or its investment adviser owning
beneficially more than one-half of 1% of the securities of
such issuer together own beneficially more than 5% of such
securities.
10. Underwrite the securities of other issuers, except to the
extent that the purchase of debt obligations directly from an
issuer thereof, in accordance with a taxable Money Market
Fund's investment objective, policies, and restrictions, may
be deemed to be an underwriting.
B-23
<PAGE>
- Tax-Exempt Money Market Funds -
The following policies are applicable to the Company's Tax-Exempt Money Market
Funds.
A Tax-Exempt Money Market Fund may not:
1. Invest less than 80% of its total assets in securities, the
interest on which is exempt from federal income tax, except
during temporary defensive periods.
2. Purchase or sell commodities, commodity contracts (including
futures contracts), oil, gas or mineral exploration or
development programs, or real estate (although investments in
marketable securities of companies engaged in such activities
are not hereby precluded).
3. Purchase the securities of any one issuer if, as a result
thereof, more than 5% of the value of its total assets would
be invested in the securities of such issuer, except that this
5% limitation does not apply to securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities; provided, however, that the Fund may invest
up to 25% of its total assets without regard to this
restriction as permitted by applicable law.
For purposes of this limitation, a security is considered to
be issued by the governmental entity (or entities) whose
assets and revenues back the security, or, with respect to an
industrial development bond that is backed only by the assets
and revenues of a non-governmental user, such non-governmental
user. The guarantor of a guaranteed security may also be
considered to be an issuer in connection with such guarantee,
except that a guarantee of a security shall not be deemed to
be a security issued by the guarantor when the value of all
securities issued or guaranteed by the guarantor, and owned by
a Tax-Exempt Money Market Fund, does not exceed 10% of the
value of the Fund's total assets.
4. Purchase securities on margin, sell securities short, or
participate on a joint or joint and several basis in any
securities trading account.
5. Purchase securities of other investment companies, except as
they may be acquired as part of a merger, consolidation,
reorganization, acquisition of assets, or where otherwise
permitted by the Investment Company Act.
6. Write or purchase options, including puts, calls, straddles,
spreads, or any combination thereof.
7. Buy common stocks or voting securities.
8. Invest more than 10% of its total assets in the securities of
issuers which together with any predecessors have a record of
less than three years continuous operation.
9. Invest in any issuer for purposes of exercising control or
management.
10. Purchase securities with legal or contractual restrictions.
B-24
<PAGE>
11. Purchase or retain securities of any issuer, if the Officers
or Directors of the Company or the Fund's investment adviser
or sub-adviser owning beneficially more than one-half of 1% of
the securities of such issuer together own beneficially more
than 5% of such securities.
12. Underwrite the securities of other issuers, except to the
extent that the purchase of debt obligations directly from an
issuer thereof, in accordance with a Tax-Exempt Money Market
Fund's investment objective, policies, and restrictions, may
be deemed to be an underwriting.
Non-Fundamental Investment Limitations
The following are non-fundamental investment restrictions that may be
changed by a majority of the Board of Directors.
- All Funds -
1. With regard to Restriction #2 for each Fund, all Funds have a
non-fundamental investment limitation which precludes
investments in oil, gas, or other mineral leases, as well as
investments in real estate limited partnerships, except for
readily marketable interests in real estate investment trusts.
2. Notwithstanding the language in Restriction #8 for each Fund,
each Fund currently has no intention of investing more than 5%
of its total assets in the securities of issuers which
together with any predecessors have a record of less than
three years continuous operation.
- Equity Funds -
An Equity Fund's investments in warrants, valued at the lower of cost
or market value, may not exceed 5% of the value of its net assets. Warrants
included within this amount may be warrants that are not listed on the New York
Stock Exchange or the American Stock Exchange; provided that the amount of such
warrants shall not exceed 2% of the value of an Equity Fund's net assets.
- Government Income Fund -
- Intermediate Municipal Bond Fund -
- Balanced Fund -
- Global Bond Fund -
- Pennsylvania Municipal Bond Fund -
- New Jersey Municipal Bond Fund -
Each of the above Funds may not knowingly invest more than 15% of its
total assets in illiquid securities, including repurchase agreements providing
for settlement more than seven days after notice.
TEMPORARY INVESTMENTS
In General
As stated in the Prospectuses relating to the Equity Funds and
Tax-Exempt Money Market Funds, these Funds may invest a portion of their assets
in certain "Temporary Investments." Short-term taxable investments which these
Funds may utilize include fixed-income securities (such as bonds) and/or money
market instruments (such as Treasury bills, certificates of deposit, commercial
paper, and repurchase agreements).
B-25
<PAGE>
Generally, the Equity and Tax-Exempt Money Market Funds' use of such
Temporary Investments is subject to certain minimum ratings by Moody's and/or
S&P. These Funds may utilize Temporary Investments that are not rated by either
agency if, in the opinion of their investment adviser, they are determined to be
of comparable investment quality. See the "Appendix" to this Statement of
Additional Information for a description of applicable ratings.
-Equity Funds -
- Tax-Exempt Money Market Funds -
1. Money Market Instruments. Short-term money market instruments issued
in the U.S. (or abroad with respect to International Growth Fund) in which the
Equity and Tax-Exempt Money Market Funds may invest temporary cash balances
include bankers' acceptances, certificates of deposit, and commercial paper.
Bankers' acceptances are negotiable drafts or bills of exchange normally drawn
by an importer or exporter to pay for specific merchandise which are "accepted"
by a bank; meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument upon maturity. A certificate of deposit is a
negotiable certificate issued against funds deposited in a commercial bank for a
definite period of time and earning a specified return. Commercial paper
consists of unsecured short-term promissory notes issued by corporations and
must be rated at least A-1 by S&P or Prime-1 by Moody's.
Except for International Growth Fund, the Funds will limit their
purchases of bank obligations to those of domestic branches of U.S. banks having
total assets at the time of purchase of $1 billion or more.
2. Government Obligations. The Equity and Tax-Exempt Money Market Funds
may invest in obligations issued or guaranteed by the U.S. Government or its
agencies and instrumentalities. U.S. Treasury bills and notes and obligations of
certain agencies and instrumentalities of the U.S. Government, such as the
Government National Mortgage Association, are supported by the full faith and
credit of the United States; others, such as those of the Export-Import Bank of
the United States, are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the discretionary authority of the U.S. Treasury to purchase
the agency's obligations; still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the agency or
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law.
In addition, International Growth Fund may invest in the obligations of
foreign governments or foreign governmental agencies deemed to be creditworthy
under guidelines approved by the Company's management. Such investments may
include securities issued by supranational organizations, such as the European
Economic Community and the World Bank, which are chartered to promote economic
development and are supported by various governments and governmental entities.
3. Repurchase Agreements. The Equity and Tax-Exempt Money Market Funds
may enter into repurchase agreements with respect to portfolio securities. Under
the terms of a repurchase agreement, a Fund purchases securities ("collateral")
from financial institutions such as banks and broker-dealers ("seller") which
are deemed to be creditworthy under guidelines approved by the Funds'
management, subject to the seller's agreement to repurchase them at a mutually
agreed-upon date and price. The repurchase price 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 underlying portfolio
securities). The seller under a repurchase agreement is required to maintain the
value of the collateral held pursuant to the agreement at not less than 100% of
the repurchase price, and securities subject to repurchase agreements are held
by the Custodian in the Federal Reserve's book-entry system. Default by the
seller would, however, expose a Fund to possible loss because of adverse market
action or delay in connection with the disposition of the underlying securities.
Repurchase agreements are considered to be loans by the Funds under the
Investment Company Act.
B-26
<PAGE>
4. Reverse Repurchase Agreements. The Equity and Tax-Exempt Money
Market Funds may borrow funds for temporary purposes by entering into reverse
repurchase agreements. Pursuant to such agreements, a Fund would sell portfolio
securities to financial institutions such as banks and broker-dealers, and agree
to repurchase them at a mutually agreed-upon date and price. A Fund enters into
reverse repurchase agreements only to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions. At the time a Fund enters
into a reverse repurchase agreement, it places in a segregated custodial account
liquid assets such as U.S. Government securities or liquid debt securities rated
in the highest rating category and having a value equal to the repurchase price
(including accrued interest), and will subsequently monitor the account to
ensure that such equivalent value is maintained. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Fund may
decline below the price at which it is obligated to repurchase the securities.
Reverse repurchase agreements are considered to be borrowings by the Funds under
the Investment Company Act.
5. Fixed-Income Securities. The Equity Funds may make short-term
investments in fixed-income debt securities (such as bonds and notes) issued by
banks, corporations, and the U.S. Government or governmental entities, in
accordance with the minimum securities ratings discussed herein. The Equity
Funds anticipate that their investments in debt securities will be generally in
those with the most active trading markets.
In addition, International Growth Fund may invest in fixed-income debt
securities of foreign governments or foreign governmental entities.
<TABLE>
<CAPTION>
Minimum Bond Ratings
Moody's S&P
------- -----
<S> <C> <C>
Equity Index, Value Equity,
and International Growth Funds.............................. "Aaa" "AAA"
Growth Equity Fund.............................................. "A" "A"
</TABLE>
SPECIAL CONSIDERATIONS
- Equity Funds -
Common Stocks
An investment in shares of the Equity Funds should be made with an
understanding of the risks which an investment in common stocks entails,
including the risk that the financial condition of the issuers of securities
held by an Equity Fund or the general condition of the stock markets may worsen,
and the value of the securities held by the Fund and, therefore, the value of
the Fund's shares may decline.
The rights of holders of common stocks to receive payments from the
issuers of such common stocks are generally inferior to those of creditors, or
holders of preferred stocks of such issuers. Holders of common stocks of the
type held by the Equity Funds have a right to receive dividends only when and
if, and in the amounts, declared by the issuer's board of directors, and have a
right to participate in amounts available for distribution by the issuer upon
liquidation only after all other claims on the issuer have been paid or provided
for. By contrast, holders of preferred stocks generally have the right to
receive dividends at a fixed rate when and as declared by the issuer's board of
directors, frequently on a cumulative basis, but do not participate in other
amounts available for distribution by the issuing corporation. Common stocks do
not represent a secured
B-27
<PAGE>
obligation of the issuer and therefore do not offer an assurance of income or
provide the same degree of protection of capital as do debt securities. The
issuance of additional debt securities or preferred stock will create prior
claims for payment of principal, interest, and dividends, which could adversely
affect the ability and inclination of the issuer to declare or pay dividends on
its common stock, or the rights of holders of common stock with respect to
assets of the issuer upon liquidation or bankruptcy. The value of common stocks
is subject to market fluctuations for as long as the common stocks remain
outstanding. Thus, the value of such securities held by the Equity Funds may be
expected to fluctuate.
- Tax-Exempt Money Market Funds -
- Intermediate Municipal Bond Fund -
- Pennsylvania Municipal Bond Fund -
- New Jersey Municipal Bond Fund -
Municipal Securities
From time to time, proposals have been introduced in Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal securities, and the Funds cannot predict what legislation
relating to municipal securities, if any, may be introduced in Congress in the
future. It may be noted, however, that the Treasury Department has in the past
proposed, as a part of general tax reform, to limit the exemption for state and
local bonds to those issued for governmental purposes. Such proposals, if
enacted, might materially adversely affect the availability of municipal
securities for investment by the Funds and hence the value of their portfolios.
In such an event, the Funds would re-evaluate their investment objectives and
policies and consider changes in their structure or possible dissolution.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
- All Funds -
The various types of customer accounts maintained by institutional
investors which may be used to purchase shares of the Funds include: Qualified
Individual Retirement and Keogh Plan Accounts (for non-tax-exempt Funds); trust
accounts; managed agency accounts; custodial accounts; and various other
depository accounts. Investors purchasing Fund shares may include officers,
directors, or employees of CoreStates Corp or its affiliated and subsidiary
banks.
A Fund may suspend the right of redemption or postpone the date of
payment for Shares during any period when: (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Securities and Exchange Commission; (b) the Exchange is closed for other
than customary weekend and holiday closings; (c) the Securities and Exchange
Commission has by order permitted such suspension; or (d) an emergency exists as
determined by the Securities and Exchange Commission. Upon the occurrence of any
of the foregoing conditions, a Fund may also suspend or postpone the recordation
of the transfer of its shares.
In addition, a Fund may compel the redemption of, reject any order for,
or refuse to give effect on the Fund's books to the transfer of, its Shares in
an effort to prevent personal holding company status within the meaning of the
Internal Revenue Code of 1986, as amended (the "Code"). A Fund may also make
payment for redemption in portfolio securities if it appears appropriate to do
so in light of the Fund's responsibilities under the Investment Company Act. See
"Net Asset Value."
B-28
<PAGE>
Rights of Accumulation
In calculating the sales charge rates applicable to current purchases
of Series B Shares of the Fixed Income and Equity Funds by a "single purchaser,"
the Company will cumulate current purchases at the offering price with total
market value or net investment, whichever is higher, of Series B Shares which
are sold subject to a sales charge ("Eligible Funds").
The term "single purchaser" refers to (i) an individual; (ii) an
individual and spouse purchasing shares of an Eligible Fund for their own
account or for trust or custodial accounts for their minor children; or (iii) a
fiduciary purchasing for any one trust, estate or fiduciary account, including
employee benefit plans created under Sections 401 or 457 of the Code, including
related plans of the same employer. To be entitled to a reduced sales charge
based upon shares already owned, the investor must ask the Distributor for such
reduction at the time of purchase and provide the account number(s) of the
investor, the investor and spouse, and their children (under age 21), and give
the ages of such children. The Funds may amend or terminate this Right of
Accumulation at any time as to subsequent purchases.
Letter of Intent
The reduced sales charges described in the Prospectus for Series B
Shares are also applicable to the aggregate amount of purchases made by any such
purchaser previously enumerated within a 13-month period pursuant to a written
Letter of Intent provided by the Distributor, and not legally binding on the
signer or a Fund which provides for the holding in escrow by the Administrator
of 5% of the total amount intended to be purchased until such purchase is
completed within the 13-month period. A Letter of Intent may be dated to include
shares purchased up to 90 days prior to the date the Letter is signed. The
13-month period begins on the date of the earliest purchase. If the intended
investment is not completed, the purchaser will be asked to pay an amount equal
to the difference between the sales charge on the shares purchased at the
reduced rate and the sales charge otherwise applicable to the total shares
purchased. If such payment is not made within 20 days following the expiration
of the 13-month period, the Administrator will surrender an appropriate number
of the escrowed shares for redemption in order to realize the difference. Such
purchasers may include the market value of all their shares of the Fund, and of
any of the other Funds, previously purchased and still held as of the date of
their Letter of Intent toward the completion of such Letter.
NET ASSET VALUE
- Taxable Money Market Funds -
- Tax-Exempt Money Market Funds -
Rule 2a-7
Each Money Market Fund has elected to use the amortized cost method of
valuation pursuant to Rule 2a-7 under the Investment Company Act. This involves
valuing an instrument at its cost initially and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. This method
may result in periods during which the value of an instrument, as determined by
amortized cost, is higher or lower than the price a Money Market Fund would
receive if it sold the instrument. The value of securities held by the Money
Market Funds can be expected to vary inversely with changes in prevailing
interest rates.
Pursuant to Rule 2a-7, as amended, each Money Market Fund will maintain
a dollar-weighted average portfolio maturity appropriate to its objective of
maintaining a stable net asset value per share, provided that a Money Market
Fund will neither purchase any security with a remaining maturity of more than
397 days
B-29
<PAGE>
(securities subject to repurchase agreements and certain other securities may
bear longer maturities) nor maintain a dollar-weighted average portfolio
maturity which exceeds 90 days.
In addition, each Money Market Fund may acquire only U.S.
dollar-denominated obligations that present minimal credit risks and that are
"First Tier Securities" at the time of investment. First Tier Securities are
those that are rated in the highest rating category by at least two nationally
recognized security rating organizations ("NRSROs") or by one if it is the only
NRSRO rating such obligation or, if unrated, determined to be of comparable
quality. A security is deemed to be rated if the issuer has any security
outstanding of comparable priority and security which has received a short-term
rating by an NRSRO. CoreStates Advisers will determine that an obligation
presents minimal credit risks or that unrated investments are of comparable
quality, in accordance with guidelines established by CoreFunds' Board of
Directors. However, with respect to the Taxable Money Market Funds, the Board of
Directors must approve or ratify the purchase of any unrated obligations or
obligations rated by only one NRSRO.
CoreFunds' Board of Directors has also undertaken to establish
procedures reasonably designed, taking into account current market conditions
and a Money Market Fund's investment objective, to stabilize such Fund's net
asset value per share for purposes of sales and redemptions at $1.00. These
procedures include review by the Board of Directors, at such intervals as it
deems appropriate, to determine the extent, if any, to which a Money Market
Fund's net asset value per share calculated by using available market quotations
deviates from $1.00 per share. In the event such deviation exceeds one-half of
one percent, the Rule requires that the Board promptly consider what action, if
any, should be initiated. If the Board believes that the extent of any deviation
from a Money Market Fund's $1.00 amortized cost price per share may result in
material dilution or other unfair results to new or existing investors, 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 average
portfolio maturity; withholding or reducing dividends; or redeeming shares in
kind.
DIVIDENDS
- Equity Funds -
The policy of the Growth Equity, Value Equity, Equity Index and
Balanced Funds is to generally declare and distribute dividends from their net
investment income on a quarterly basis. Distributions of any net realized
long-term capital gains will be made at least annually.
The policy of International Growth Fund is to generally declare and
distribute dividends from its net investment income and net realized capital
gains on a semi-annual basis.
The shareholders of the Equity Funds have the privilege of reinvesting
both income dividends and capital gains distributions, if any, in additional
full or fractional shares of the respective Funds at the net asset value in
effect on the reinvestment date. The Company's management believes that most
investors will wish to take advantage of this privilege. The Equity Funds have,
therefore, made arrangements with the Transfer Agent to have all income
dividends and capital gains distributions declared by each Fund automatically
reinvested in the account of each shareholder. At any time, a shareholder may
request in writing to the Company or with the Transfer Agent to have subsequent
dividends and/or distributions paid in cash. In the absence of such a written
request, each purchase of shares of an Equity Fund is made upon the condition
and understanding that the Transfer Agent is automatically appointed to receive
the dividends and distributions upon all Shares in the shareholder's account and
to reinvest them in full and fractional shares of the Fund at the net asset
value in effect at the close of business on the reinvestment date.
B-30
<PAGE>
Any dividend or capital gains distribution received by a shareholder
shortly after the purchase of shares of an Equity Fund may have the effect of
reducing the per share net asset value of such Shares by the amount of the
dividend or distribution. Furthermore, such a dividend or distribution, although
in effect a return of capital, may be subject to income taxes.
- Fixed-Income Funds -
The policy of the Intermediate Bond, Government Income, Intermediate
Municipal Bond, Pennsylvania Municipal Bond and New Jersey Municipal Bond Funds
is to generally declare their net investment income on a daily basis and to make
distributions to shareholders in the form of monthly dividends. The policy of
Global Bond Fund is to distribute its net investment income in the form of
quarterly dividends.
Net income for dividend purposes includes (i) interest and dividends
accrued and discount earned on the Funds' assets (including both original issue
and market discount), less (ii) amortization of any premium on such assets and
accrued expenses directly attributable to the Funds, and the general expenses
(e.g., legal, auditing, and Directors' fees) of the Company prorated to each
portfolio on the basis of its relative net assets. Realized and unrealized gains
and losses on portfolio securities are reflected in fluctuations in net asset
value. Net realized long-term capital gains (if any) are distributed at least
annually.
- Taxable Money Market Funds -
- Tax-Exempt Money Market Funds -
The policy of the Money Market Funds is to generally declare their net
investment income on a daily basis and to make distributions to shareholders in
the form of monthly dividends.
Net income for dividend purposes includes (i) interest and dividends
accrued (whether taxable or tax-exempt) and discount earned on a Money Market
Fund's assets (including both original issue and market discount), less (ii)
amortization of any premium on such assets and accrued expenses directly
attributable to a Fund, and the general expenses (e.g., legal, auditing, and
Directors' fees) of the Company prorated to each Fund on the basis of its
relative net assets. Capital gains dividends (if any) would be calculated
separately and distributed to shareholders on an annual basis.
TOTAL RETURN
- Equity Funds -
- Fixed-Income Funds -
In General
An Equity or Fixed Income Fund's total return is computed by dividing
the net change in value of a hypothetical pre-existing account in a Fund having
a value of $1,000 (less any applicable sales charge) at the beginning of the
base period by the value of such account at the end of the base period. For
purposes of such computation, "net change" includes (i) increases in the value
of the account arising from the reinvestment in the account of income and
capital gains dividends declared on the original share, and income and capital
gains dividends declared on shares, including fractions thereof, purchased
through reinvestment and (ii) decreases in the value of the account arising from
all fees charged to such account, based upon the duration of the base period and
a Fund's average account size.
B-31
<PAGE>
Total return will vary from time to time and is not indicative of
future results. Total return is a function of the market value of the securities
held in a Fund and dividends paid on them, as well as expenses of the Fund.
Performance
The performance results listed below refer to results on Series A
Shares and Series B Shares (where applicable) of the Funds.
- Equity Index Fund -
The average annualized total return for shares of Equity Index Fund was
24.45% for the period from 7/1/94 to 6/30/95.
- Value Equity Fund -
The average annualized total returns for Series A Shares and Series B
Shares of Value Equity Fund were 17.29% and 16.96%, respectively, for the period
from 7/01/94 to 6/30/95.
- Growth Equity Fund -
The average annualized total returns for Series A Shares and Series B
Shares of Growth Equity Fund were 23.71% and 23.44%, respectively, for the
period from 7/01/94 to 6/30/95.
- International Growth Fund -
The average annualized total returns for Series A Shares and Series B
Shares of International Growth Fund were (0.21)% and (0.48)%, respectively, for
the period from 7/01/94 to 6/30/95.
- Balanced Fund -
The average annualized total returns for Series A Shares and Series B
Shares of Balanced Fund were 16.21% and 15.84%, respectively, for the period
from 7/01/94 to 6/30/95.
- Intermediate Bond Fund -
The average annualized total returns for Series A Shares and Series B
Shares of Intermediate Bond Fund were 8.22% and 7.95% respectively, for the
period from 7/01/94 to 6/30/95.
- Government Income Fund -
The average annualized total returns for Series A Shares and Series B
Shares of Government Income Fund were 10.26% and 10.23%, respectively, for the
period from 7/01/94 to 6/30/95.
- Intermediate Municipal Bond Fund -
The average annualized total returns for Series A Shares and Series B
Shares of Intermediate Municipal Bond Fund were 5.58% and 5.42%, respectively,
for the period from 7/01/94 to 6/30/95.
B-32
<PAGE>
- Pennsylvania Municipal Bond Fund -
The cumulative total returns since inception for Series A Shares and
Series B Shares of Pennsylvania Municipal Bond Fund were 7.50% and 7.25%,
respectively, for the period from 7/01/94 to 6/30/95.
- New Jersey Municipal Bond Fund -
The cumulative total returns since inception for Series A Shares and
Series B Shares of New Jersey Municipal Bond Fund were 7.25% and 6.84%,
respectively, for the period from 7/01/94 to 6/30/95.
- Global Bond Fund -
The cumulative total returns since inception for Series A Shares and
Series B Shares of Global Bond Fund were 9.70% and 9.57%, respectively, for the
period from 7/01/94 to 6/30/95.
YIELDS
The various types of yields which are quoted to illustrate the
performance of non-equity portfolios are calculated as follows.
- Taxable Money Market Funds -
- Tax-Exempt Money Market Funds -
Seven-day Yield
Each Taxable or Tax-Exempt Money Market Fund's standardized 7-day yield
is computed by determining the net change, exclusive of capital changes, in the
value of a hypothetical pre-existing account in a Money Market Fund having a
balance of one share at the beginning of the period, dividing the net change in
account value by the value of the account at the beginning of the base 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 Money Market Fund includes the
value of additional shares purchased with dividends from the original share and
any such additional shares, and all fees, other than non-recurring account or
sales charges, that are charged to all shareholder accounts in proportion to the
length of the base period and a Fund's average account size. The capital changes
to be excluded from the calculation of the net change in account value are
realized gains and losses from the sale of securities and unrealized
appreciation and depreciation. A Money Market Fund's effective annualized yield
is computed by compounding the unannualized base period return (calculated as
above) by adding 1 to the base period return, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result.
Taxable Equivalent Yield
For a Tax-Exempt Money Market Fund, the taxable equivalent yield is
determined by dividing the Fund's current tax-free yield by the sum of one minus
the investor's current tax bracket (e.g., 15%, 28%, or 31%).
The resulting yield is what an investor generally would need to earn
from a taxable investment in order to realize an "after-tax" benefit equal to
the tax-free yield provided by a Tax-Exempt Money Market Fund.
B-33
<PAGE>
- Fixed Income Funds -
Thirty-day Yield
The yield of the Fixed Income Funds is calculated by dividing the net
investment income per share (as described below) earned by a Fund during a
30-day (or one month) period by the net asset value per share on the last day of
the period and analyzing the result on a semi-annual basis by adding one to the
quotient, raising the sum to the power of six, subtracting one from the result,
and then doubling the difference. The Fund's net investment income per share
earned during the period is based on the average daily number of shares
outstanding during the period entitled to receive dividends and includes
dividends and interest earned during the period minus expenses accrued for the
period, net of reimbursements. This calculation can be expressed as follows:
Yield = 2[(A-B + 1)6 - 1]
----------------
CxD
Where: A = dividends and interest earned during the period
B = expenses accrued for the period
(net of reimbursements)
C = the average daily number of shares outstanding during
the period that were entitled to receive dividends
D = net asset value per share on the last day of the
period
Except as noted below, for the purpose of determining net investment
income earned during the period (variable "A" in the formula), interest earned
on debt obligations held by the Fund is calculated by computing the
yield-to-maturity of each obligation based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, based on the purchase price (plus actual accrued interest), dividing the
result by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date.
Undeclared earned income will be subtracted from the net asset value
per share (variable "D" in the formula). Undeclared earned income is net
investment income which, at the end of the base period, has not been declared as
a dividend, but is reasonably expected to be, and is declared as a dividend
shortly thereafter.
Taxable Equivalent Yield
For the Intermediate Municipal Bond Fund, the taxable equivalent yield
is determined by dividing such Fund's current tax-free yield by the sum of one
minus the investor's current tax bracket.
The resulting yield is what an investor generally would need to earn
from a taxable investment in order to realize an "after-tax" benefit equal to
the tax-free yield provided by the Fund.
ADDITIONAL INFORMATION CONCERNING TAXES
- All Funds -
The following is only a summary of certain additional tax
considerations generally affecting the Funds and their shareholders that are not
described in the Funds' prospectuses. No attempt is made to present a
B-34
<PAGE>
detailed explanation of the tax treatment of the Funds or their shareholders and
the discussion here and in the Funds' prospectuses is not intended as a
substitute for careful tax planning.
The following discussion of federal income tax consequences is based on
the Code and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information. New legislation, as well as administrative
changes or court decisions, may significantly change the conclusions expressed
herein, and may have a retroactive effect with respect to the transactions
contemplated herein.
In General
The Company's policy is to distribute as dividends substantially all of
its net investment company income (whether taxable or tax-exempt) and any net
realized long-term capital gains to shareholders each year.
Information as to the tax status of distributions to shareholders will
be furnished at least annually by each Fund. Investors considering purchasing
shares of any Fund should consult competent tax counsel regarding the state and
local, as well as federal, tax consequences before investing.
Tax Status of the Funds
Each Fund is treated as a separate entity for federal income tax
purposes and is not combined with the Company's other Funds. Each Fund intends
to qualify in its current taxable year as a "regulated investment company"
("RIC") under Subchapter M of the Code so that it will be relieved of federal
income tax on that part of its income that is distributed to shareholders. In
order to qualify as a RIC, each Fund must distribute dividends each year equal
to at least the aggregate of (i) 90% of its tax-exempt interest income, net of
certain deductions, and (ii) 90% of its investment company taxable income, if
any. In addition, each Fund must meet numerous tests regarding derivation of
gross income and diversification of assets.
Specifically, a Fund must meet two income requirements. First it must
derive at least 90% of its gross income each taxable year from certain specified
investment sources, such as dividends, interest, and gains from the sale of
stock or securities. Second, a Fund must derive less than 30% of its gross
income each taxable year from the sale or other disposition of stocks or
securities held for less than three months. In addition, each Fund must
diversify its assets such that at the close of each fiscal quarter of the Fund's
taxable year, at least 50% of the value of its assets is made up of cash and
cash items, U.S. government securities, securities of other RICs, and certain
other securities, such "other" securities being limited with respect to each
issuer to an amount not greater than 10% of the outstanding voting securities of
such issuer and not more than 5% of the value of the Fund's assets. Finally, at
the close of each fiscal quarter of the Fund's taxable year, no more than 25% of
the value of its assets may be invested in the securities (other than U.S.
government securities and securities of other RICs) of any one issuer or of two
or more issuers which the Fund controls and which are engaged in the same,
similar, or related trades or businesses.
While none of the Money Market or Fixed Income Funds expect to realize
any net capital gains (the excess of net long-term capital gains over net
short-term capital losses), any Fund that does realize such gains will
distribute them at least annually. A Fund will have no tax liability with
respect to distributed gains and the distributions will be taxable to Fund
shareholders as long-term capital gains, regardless of how long a shareholder
has held Fund shares. Such distributions will be designated as capital gains
dividends in a written notice mailed by each Fund to shareholders not later than
sixty days after the close of the Fund's taxable year.
If a shareholder recognizes a loss on the disposition of shares held
six months or less with respect to which the shareholder has received a capital
gains distribution, the loss will be treated as a long-term capital loss to the
extent of the amount of the capital gains distributions received.
B-35
<PAGE>
A non-deductible, 4% federal excise tax will be imposed on any
regulated investment company that does not distribute to investors in each
calendar year an amount equal to (i) 98% of its calendar year ordinary income,
(ii) 98% of its capital gain net income (the excess of short- and long-term
capital gain over short- and long-term capital loss) for the one-year period
ending October 31, and (iii) 100% of any undistributed ordinary income or
capital gain net income from the prior year. Each Fund intends to declare and
pay dividends and any capital gains distributions so as to avoid imposition of
the federal excise tax.
If for any taxable year a Fund does not qualify for the special tax
treatment afforded to RICS, all of the taxable income of that Fund will be
subject to federal income tax at regular corporate rates (without any deduction
for distributions to Fund shareholders). In such event, all dividend
distributions made by the Fund (whether or not derived from tax-exempt interest)
would be taxable to shareholders to the extent of the Fund's earnings and
profits, and such dividend distributions would be eligible for the
dividends-received deduction for corporate shareholders.
- Tax-Exempt Money Market Funds -
- Intermediate Municipal Bond Fund -
- Pennsylvania Municipal Bond Fund -
- New Jersey Municipal Bond Fund -
As described herein and in the Prospectuses relating to the Tax-Exempt
Money Market Funds, Intermediate Municipal Bond Fund, Pennsylvania Municipal
Bond Fund, and New Jersey Municipal Bond Fund, each of these Funds is designed
to provide investors with current tax-exempt interest income and is not intended
to constitute a balanced investment program. Shares of the Tax-Exempt Funds
would not be suitable for tax-exempt shareholders and plans, since such
shareholders and plans would not gain any additional benefit from the Funds'
dividends being tax-exempt.
In addition, the Funds may not be appropriate investments for entities
which are "substantial users" (or related to substantial users) of facilities
financed by "private activity bonds" or industrial development bonds. For these
purposes, the term "substantial user" is defined under U.S. Treasury Regulations
to include a non-exempt person who regularly uses a part of such facilities in a
trade or business.
Each Fund intends to qualify to pay "exempt-interest dividends" to its
shareholders by satisfying the Code's requirement that at the close of each
quarter of its taxable year at least 50% of the value of its total assets
consists of securities the interest on which is exempt from federal income tax.
Current federal tax law limits the types and volume of bonds qualifying for
federal income tax exemption of interest, which may have an effect on the
ability of the funds to purchase sufficient amounts of tax-exempt securities to
satisfy this requirement. Exempt interest dividends are excludable from
shareholders' gross income for regular federal income tax purposes but may have
collateral federal income tax consequences. Exempt-interest dividends may be
subject to the alternative minimum tax (the "AMT") imposed by Section 55 of the
Code or the environmental tax (the "Environmental Tax") imposed by Section 59A
of the Code. The AMT is imposed at a rate of up to 28% in the case of
non-corporate taxpayers and at the rate of 20% in the case of corporate
taxpayers, to the extent it exceeds the taxpayer's regular tax liability. The
Environmental Tax is imposed at the rate of 0.12% and applies only to corporate
taxpayers. The AMT and the Environmental Tax may be affected by the receipt of
exempt-interest dividends in two circumstances. First, exempt-interest dividends
derived from certain "private activity bonds" issued after August 7, 1986 will
generally be an item of tax preference for both corporate and non-corporate
taxpayers. Second, exempt-interest dividends, regardless of when the bonds from
which they are derived were issued or whether they are derived from private
activity bonds, will be included in a corporate shareholder's "adjusted current
earnings," as defined in Section 56(g) of the Code, in calculating the
corporation's alternative minimum taxable income for purposes of determining the
AMT and the Environmental Tax.
B-36
<PAGE>
The deduction otherwise allowable to property and casualty insurance
companies for "losses incurred" will be reduced by an amount equal to a portion
of exempt-interest dividends received or accrued during any taxable year.
Foreign corporations engaged in a trade or business in the United States will be
subject to a "branch profits tax" on their "dividend equivalent amount" for the
taxable year, which will include exempt- interest dividends. Certain Subchapter
S corporations may also be subject to taxes on their "passive investment
income," which could include exempt-interest dividends. Up to 85 percent of the
Social Security benefits or railroad retirement benefits received by an
individual during any taxable year will be included in the gross income of such
individual if the individual's modified adjusted gross income (which includes
exempt-interest dividends) plus one-half of the Social Security benefits or
railroad retirement benefits received by such individual during that taxable
year exceeds the base amount described in Section 86 of the Code.
Issuers of bonds purchased by a Fund (or the beneficiary of such bonds)
may have made certain representations or covenants in connection with the
issuance of such bonds to satisfy certain requirements of the Code that must be
satisfied subsequent to the issuance of such bonds. Shareholders should be aware
that exempt-interest dividends may become subject to federal income taxation
retroactively to the date of issuance of the bonds to which such dividends are
attributable if such representations are determined to have been inaccurate or
if the issuers (or the beneficiary) of the bonds fail to comply with certain
covenants made at that time.
The percentage of total dividends paid by each Fund with respect to
any taxable year which qualifies as federal exempt-interest dividends will be
the same for all shareholders receiving dividends during such year. Interest on
indebtedness incurred by a shareholder to purchase or carry Fund shares will
generally not be deductible for federal income tax purposes. Any loss on the
sale or exchange of shares held for six months or less will be disallowed to the
extent of any exempt-interest dividends received by the selling shareholder with
respect to such shares.
In addition, while each of these Funds will seek to invest
substantially all of its assets in tax-exempt obligations (except on a temporary
basis or for temporary defensive periods), any investment company taxable income
earned by a Fund will be distributed. In general, a Fund's investment company
taxable income would include interest income received from Temporary Investments
(as defined herein), plus any net short-term capital gains realized by the Fund,
subject to certain adjustments and excluding net long-term capital gains for the
taxable year over the net short-term capital losses, if any, for such year ("net
capital gains"). To the extent such income is distributed by a Fund (whether in
cash or additional Shares), it will generally be taxable to shareholders as
ordinary income. Additionally, any net capital gains distributed to shareholders
will be taxable to shareholders as long-term capital gains, regardless of how
long a shareholder has held Fund shares.
DESCRIPTION OF SHARES
- All Funds -
The Company's Articles of Incorporation authorize the Board of
Directors to issue up to 20 billion full and fractional shares of Common Stock.
The Company presently offers seventeen classes of Common Stock (the three Elite
portfolios have not offered their shares of Common Stock), and two series of the
Cash Reserve, Treasury Reserve, Value Equity, International Growth, Growth
Equity, Intermediate Bond, Tax-Free Reserve, Balanced, Government Income,
Intermediate Municipal Bond, Global Bond, Pennsylvania Municipal Bond and New
Jersey Municipal Bond Funds, as listed below:
<TABLE>
<CAPTION>
Class of Shares # of Shares Fund
- --------------- ----------- ----
<S> <C> <C>
Class "A" Common Stock 1 billion Cash Reserve
Class "A" Common Stock, Series B 1 billion Cash Reserve
B-37
<PAGE>
<CAPTION>
Class of Shares # of Shares Fund
- --------------- ----------- ----
Class "B" Common Stock 1 billion Treasury Reserve
Class "B" Common Stock, Series B 1 billion Treasury Reserve
Class "C" Common Stock 750 million Fiduciary Reserve
Class "D" Common Stock 25 million Value Equity Fund
Class "D" Common Stock, Series B 25 million Value Equity Fund
Class "E" Common Stock 25 million International
Growth Fund
Class "E" Common Stock, Series B 25 million International
Growth Fund
Class "F" Common Stock 500 million Equity Index Fund
Class "G" Common Stock 100 million Growth Equity Fund
Class "G" Common Stock, Series B 100 million Growth Equity Fund
Class "H" Common Stock 100 million Intermediate
Bond Fund
Class "H" Common Stock, Series B 100 million Intermediate
Bond Fund
Class "I" Common Stock 250 million Fiduciary
Tax-Free Reserve
Class "J" Common Stock 250 million Tax-Free Reserve
Class "J" Common Stock, Series B 250 million Tax-Free Reserve
Class "K" Common Stock 250 million Fiduciary Treasury Reserve
Class "L" Common Stock 100 million Balanced Fund
Class "L" Common Stock 100 million Balanced Fund
Class "M" Common Stock 100 million Government Income Fund
Class "M" Common Stock, Series B 100 million Government Income Fund
Class "N" Common Stock 100 million Intermediate Municipal Bond Fund
Class "N" Common Stock, Series B 100 million Intermediate Municipal Bond Fund
Class "O" Common Stock 25 million Global Bond Fund
Class "O" Common Stock, Series B 25 million Global Bond Fund
Class "P" Common Stock 100 million Pennsylvania Municipal Bond Fund
Class "P" Common Stock, Series B 100 million Pennsylvania Municipal Bond Fund
Class "Q" Common Stock 100 million New Jersey Municipal Bond Fund
Class "Q" Common Stock, Series B 100 million New Jersey Municipal Bond Fund
B-38
<PAGE>
<CAPTION>
Class of Shares # of Shares Fund
- --------------- ----------- ----
Class "R" Common Stock 1 billion Elite Cash Reserve
Class "S" Common Stock 1 billion Elite Government Reserve
Class "T" Common Stock 1 billion Elite Treasury Reserve
</TABLE>
The Board of Directors may classify or reclassify any authorized but
unissued shares of the Company into one or more additional portfolios or series
of shares within a portfolio.
Shares have no subscription or pre-emptive rights and only such
conversion or exchange rights as the Board may grant in its discretion. When
issued for payment as described in the Prospectuses relating to the Funds and in
this Statement of Additional Information, a Fund's shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Company,
shares of each Fund are entitled to receive the assets available for
distribution belonging to the Fund, and a proportionate distribution, based upon
the relative asset values of the Fund and the Company's other portfolios, of any
general assets not belonging to any particular Fund which are available for
distribution.
Rule 18f-2 under the Investment Company Act provides that any matter
required to be submitted to the holders of the outstanding voting 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 the Fund affected by the matter. A Fund is affected by a
matter unless it is clear that the interests of each Fund in the matter are
identical or that the matter does not affect any interest of the Fund. Under
Rule 18f-2, the approval of an investment advisory agreement or any change in a
fundamental investment policy would be effectively acted upon with respect to a
Fund only if approved by a majority of the outstanding shares of such Fund. In
the case of a Rule 12b-1 distribution plan, approval by a series would be
effectively acted upon only if approved by a majority of the outstanding shares
of the series of a Fund having such a distribution plan. However, Rule 18f-2
also provides that the ratification of independent auditors, the approval of
principal underwriting contracts, and the election of Directors may be
effectively acted upon by shareholders of the Company voting together without
regard to class or series.
Notwithstanding any provision of Maryland law requiring a greater vote
of the Company's shares (or of any class voting as a class) in connection with
any corporate action, unless otherwise provided by law (for example, by Rule
18f-2) or by the Company's Articles of Incorporation, the Company may take or
authorize such action upon the favorable vote of the holders of more than 50% of
the outstanding Common Stock of all of the Funds (voting together without regard
to class or series).
B-39
<PAGE>
DIRECTORS AND OFFICERS
- All Funds -
The names and general background information of the Company's Directors
and Executive Officers are set forth below:
ERIN ANDERSON - Director - Professor of Marketing, INSEAD,
Fountainebleu, France since 1994; Associate Professor of Marketing, The
Wharton School of the University of Pennsylvania, prior to 1994.
EMIL J. MIKITY - Director - Retired; Senior Vice President Investments,
Atochem North America, 1979-1989.
GEORGE H. STRONG - Director - Financial Consultant since 1985; Director
and Senior Vice President, Universal Health Services, Inc., 1979-1984.
DAVID LEE - President - Senior Vice President of the Administrator and
Distributor since 1993; Vice President of the Administrator and
Distributor since 1991; President, GW Sierra Trust Funds prior to 1991.
CARMEN V. ROMEO - Treasurer, Assistant Secretary - Director, Executive
Vice President, Chief Financial Officer and Treasurer of SEI
Corporation; Director and Treasurer of the Administrator and
Distributor since 1981; President, GW Sierra Trust Funds prior to 1991.
JAMES W. JENNINGS - Secretary - Partner of the law firm of Morgan,
Lewis & Bockius LLP since 1970.
KEVIN P. ROBINS - Vice President, Assistant Secretary - Senior Vice
President and General Counsel of SEI Corporation and the Distributor
since 1994; Vice President and Assistant Secretary of the Administrator
and the Distributor, 1992-1994; Associate, Morgan, Lewis & Bockius LLP
(law firm) prior to 1992.
SANDRA K. ORLOW - Vice President, Assistant Secretary - Vice President
and Assistant Secretary of the Administrator and Distributor
since 1983.
ROBERT CARROLL - Vice President, Assistant Secretary - Vice President
and Assistant Secretary of SEI Corporation, the Administrator and
Distributor since 1994. United States Securities and Exchange
Commission, Division of Investment Management, 1990-1994. Associate,
McGuire, Woods, Brattle & Boothe (law firm) before 1990.
KATE STANTON - Vice President, Assistant Secretary - Vice President and
Assistant Secretary of the Administrator and Distributor since 1994.
Associate, Morgan, Lewis & Bockius LLP (law firm) before 1994.
STEPHEN G. MEYER - Controller - CPA - 1995 to Present. Director,
Internal Audit and Risk Management, SEI, 1992 to 1995. Coopers &
Lybrand, Senior Associate, 1990 to 1992. Vanguard Group of
Investments, Internal Audit Supervisor prior to 1990.
The Directors of the Company receive fees and expenses for each meeting
of the Board of Directors attended, and an annual retainer. During the fiscal
year ended June 30, 1995, the Company paid a total of
B-40
<PAGE>
$77,831 on behalf of the Funds to its Directors. No officer or employee of the
Administrator or Distributor receives any compensation from the Company for
acting as a director of the Company, and the officers of the Company receive no
compensation from the Company for performing the duties of their offices.
Morgan, Lewis & Bockius LLP, of which Mr. Jennings is a partner, receives legal
fees as counsel to the Company. The Directors and Officers of the Company as a
group own less than 1% of the outstanding shares of each Fund.
The following Compensation table shows aggregate compensation paid to
each of the Fund's Directors by the Fund and the Fund Complex reprectively, for
the year ended June 30, 1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Aggregate Pension or Estimated Total Compensation
Person, Compensation Retirement Annual From Registrant
Position From Registrant Benefits Accrued Benefits and Fund Complex
for the fiscal as Part of Fund Upon Paid to Directors
year ended Expenses Retirement for the fiscal year
June 30, 1995 ended June 30, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
*David G. Lee, $0 $0 $0 $0
President and Chief
Executive Officer
Carmen V. Romeo, 0 0 0 0
Treasurer and Assistant
Secretary
Erin Anderson, 17,750 0 0 17,750
Director
Emil J. Mikity, 19,250 0 0 19,250
Director
George H. Strong, 17,750 0 0 17,750
Director
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* A Director who is an "interested person" as defined in the Investment
Company Act.
PRINCIPAL HOLDERS OF SECURITIES
- Growth Equity Fund -
As of September 29, 1995, the following account was a holder of record
of 5% or more of the outstanding Series A Shares of Growth Equity Fund:
B-41
<PAGE>
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
<S> <C> <C>
Patterson & Co. 7,762,249.198 96.32%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
As of September 29, 1995, the following account was a holder of record
of 5% or more of the outstanding Series B Shares of Growth Equity Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
<S> <C> <C>
Julia P. Alley Trust 13,574.708 7.33%
DTD 1989
165 Stone Hedge Court
Lebanon, PA 17042
Julia P. Alley Trust 11,649.552 6.29%
DTD 10/17/94
165 Stone Hedge Court
Lebanon, PA 17042
CoreStates Bank NA c/f IRA of 10,200.752 5.5%
Richard M. McCaffery
67 Kara Lane
Feasterville, PA 19053
</TABLE>
- Value Equity Fund -
As of September 29, 1995, the following account was a holder of record
of 5% or more of the outstanding Series A Shares of Value Equity Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
<S> <C> <C>
Patterson & Co. 2,012,217.382 93.83%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
As of September 29, 1995, the following account was a holder of record
of 5% or more of the outstanding Series B Shares of Value Equity Fund:
B-42
<PAGE>
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
<S> <C> <C>
Edward T. Moynahan Jr. & 30,469.213 12.04%
Kathleen J. Moynahan Jtten
669 Heatherton Lane
West Chester, PA 19380
CoreStates Bank NA C/F IRA 28,453.113 11.24%
of Arthur Jordan RO
200 Mifflin Avenue
Scranton, PA 18503
Krallinger Family Trust 24,693.517 9.76%
Joseph C. Krallinger & Hilde
Krallinger Trustees UAD 11/17/93
48872 Marisposa Drive
Palm Desert, CA 92260
</TABLE>
- Equity Index Fund -
As of September 29, 1995, the following account was a holder of record
of 5% or more of the outstanding shares of Equity Index Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
<S> <C> <C>
Patterson & Co. 3,974,419.112 83.59%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
- International Growth Fund -
As of September 29, 1995, the following account was a holder of record
of 5% or more of the outstanding Series A Shares of International Growth Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
<S> <C> <C>
Patterson & Co. 8,700,384.086 98.52%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
B-43
<PAGE>
As of September 29, 1995, the following accounts were holders of record
of 5% or more of the outstanding Series B Shares of International Growth Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
<S> <C> <C>
Mark E. Stalnecker & 13,175.650 8.50%
Susan M. Stalnecker JTTEN
9 Briarcrest Drive
Wallingford, PA 19086
</TABLE>
- Balanced Fund -
As of October 29, 1995, the following account was a holder of record of
5% or more of the outstanding Series A Shares of Balanced Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
----- ---------------- ------------------
<S> <C> <C>
Patterson & Co. 5,236,515.566 94.71%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
As of September 29, 1995, the following accounts were holders of record
of 5% or more of the outstanding Series B Shares of Balanced Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
<S> <C> <C>
CoreStates Bank, NA C/F IRA 11,603.489 5.26%
of James E. Brown
1025 Cross Road
Schwenksville, PA 19473
</TABLE>
- Intermediate Bond Fund -
As of September 29, 1995, the following account was a holder of record
of 5% or more of the outstanding Series A Shares of Intermediate Bond Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
<S> <C> <C>
Patterson & Co. 4,846,259.170 86.96%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
B-44
<PAGE>
As of September 29, 1995, the following account was a holder of record
of 5% or more of the outstanding Series B Shares of Intermediate Bond Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
<S> <C> <C>
CoreStates Bank NA C/F IRA 10,333.214 5.07%
of Arnold A. Fleck
32 Summit Circle
Churchville, PA 18966
CoreStates Bank NA C/F IRA 10,239.445 5.02%
of Robert T. Mathie
60 Roselyn Drive
York, PA 17402
</TABLE>
- Intermediate Municipal Bond Fund -
As of September 29, 1995, the following account was a holder of record
of 5% or more of the outstanding Series A Shares of Intermediate Municipal Bond
Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- --------------- ------------------
<S> <C> <C>
Patterson & Co. 26,119.039 99.99%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
As of October ___, 1995, the following accounts were holders of record
of 5% or more of the outstanding Series B Shares of Intermediate Municipal Bond
Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
----- ---------------- ------------------
<S> <C> <C>
Salvatore J. Alesi Sr. & 8,134.305 8.27%
Rose P Alesi Jtten
284 Ellis Road
Havertown, PA 19083
Joseph T. Oprocha & 6,723.849 6.84%
Teresa E. Oprocha Jtten
107 Snyder Avenue
Philadelphia, PA 19148
Frank B. Holst & 5,698.178 5.79%
E. Joan Holst Jtten
2218 Oak Terrace
Lansdale, PA 19446
B-45
<PAGE>
Thomas Glenn 5,267.438 5.35%
827 North 63rd Street
Philadelphia, PA 19151
Irene Sungalia 4,966.128 5.05%
5214 Burton Street
Philadelphia, PA 19124
</TABLE>
- Government Income Fund -
As of September 29, 1995, the following account was a holder of record
of 5% or more of the outstanding Series A Shares of Government Income Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
<S> <C> <C>
Patterson & Co. 1,220,135.976 99.92%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
As of September 29, 1995, the following accounts were holders of record
of 5% or more of the outstanding Series B Shares of Government Income Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
----- ---------------- ------------------
<S> <C> <C>
Jean Taxin 7,958.935 5.83%
5005 Woodbine Avenue
Philadelphia, PA 19131
CoreStates Bank NA C/F IRA 7,131.212 5.22%
of Salvatore M. Reyes
500 Newport Avenue
Ocean Gate, NJ 08740
CoreStates Bank NA C/F IRS 7,105.657 5.21%
of Donald A. Fleck
322 Summit Circle
Churchville, PA 18966
</TABLE>
- Pennsylvania Municipal Bond Fund -
As of September 29, 1995, the following account was a holder of record
of 5% or more of the outstanding Series A Shares of Pennsylvania Municipal Bond
Fund:
B-46
<PAGE>
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
<S> <C> <C>
Dr. Vernon F. Alibert & 172,264.978 62.99%
Dolores V. Alibert
1420 Conchester Highway
Boothwyn, PA 19061
Patterson & Co 50,886.354 18.60%
PNB Personal Trust Acctg
P.O. Box 7829
Philadelphia, PA 19101
Patterson & Co 50,312.294 18.39%
PNB Personal Trust Acctg
P.O. Box 7829
Philadelphia, PA 19101
</TABLE>
As of September 29, 1995, the following accounts were holders of record
of 5% or more of the outstanding Series B Shares of Pennsylvania Municipal Bond
Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
<S> <C> <C>
Salvatore J. Alesi, Sr. 14,979.879 51%
Rose P. Alesi
284 Ellis Road
Havertown, PA 19083
Peter Z. Davis & 11,720.144 39.9%
Kathryn K. Davis Jtten
509 Manor House Lane
Huntington Valley, PA 19006
</TABLE>
- New Jersey Municipal Bond Fund -
As of September 29, 1995, the following account was a holder of record
of 5% or more of the outstanding Series A Shares of New Jersey Municipal Bond
Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
<S> <C> <C>
Patterson & Co. 159,263.940 99.99%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
As of September 29, 1995, the following accounts were holders of record
of 5% or more of the outstanding Series B Shares of New Jersey Municipal Bond
Fund:
B-47
<PAGE>
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
<S> <C> <C>
Nathan J. Bershanoff 3,694.720 60.94%
5251 Garden Avenue
Pennsauken, NJ 08109
Almira E. Brinser & 2,181.556 35.98%
Everett L. Brisner Jtten
802 Chester Avenue
Laurel Springs, NJ 08021
</TABLE>
- Cash Reserve -
As of September 29, 1995, the following account was a holder of record
of 5% or more of the outstanding Series A Shares of Cash Reserve:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
<S> <C> <C>
Patterson & Co. 495,621,290.000 87.52%
P.O. Box 7618 FC9-1-17
Philadelphia, PA 19101-7618
</TABLE>
- Treasury Reserve -
As of September 29, 1995, the following accounts were holders of record
of 5% or more of the outstanding Series A Shares of Treasury Reserve:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- --------------- ------------------
<S> <C> <C>
Patterson & Co. 353,912,498.610 80.34%
c/o CoreStates Bank NA
P.O. Box 7618 FC 9-1-17
Attn: Jim Quinlan
Philadelphia, PA 19101-7618
</TABLE>
As of September 29, 1995, the following accounts were holders of record
of 5% or more of the outstanding Series B Shares of Treasury Reserve:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
<S> <C> <C>
Patterson & Co. 11,243,103.570 66.54%
c/o CoreStates Bank NA
Attn: Jim Quinlan
P.O. Box 7618 FC9-1-17
Philadelphia, PA 19101-7618
</TABLE>
B-48
<PAGE>
- Tax-Free Reserve -
As of September 29, 1995, the following account was a holder of record
of 5% or more of the outstanding Series A Shares of Tax-Free Reserve:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
<S> <C> <C>
Patterson & Co. 49,363,640.190 87.32%
c/o CoreStates Bank, NA
P.O. Box 7618 FC 9-1-17
Philadelphia, PA 19101
</TABLE>
As of September 29, 1995, the following accounts were holders of record
of 5% or more of the outstanding Series B Shares of Tax-Free Reserve:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
----- ---------------- ------------------
<S> <C> <C>
William H. Simon, MD 215,149.130 14.82%
255 S. 17th Street
11th Floor
Philadelphia, PA 19103
Harold D. McKemy 136,859.630 9.43%
3 Bobolink Drive
Wyomissing, PA 19610
William J. Schimmel 109,801.790 7.56%
108 Highland Road
York, PA 17403
O. Gordon Brewer Jr. & 83,507.830 7.38%
Gail Brewer
3645 Holt Lane
Huntingdon Valley, PA 19006
Stephen J. Assenheimer 91,494.320 6.30%
39 Lexington Avenue
Lansdowne, PA 19050
Keystone Marketing Dist & 86,400.170 5.95%
Mgnt Co. Inc.
550 S. Henderson Road
King of Prussia, PA 19406
David W. Schoffstall & 83,507.830 5.75%
Joann G. Schoffstall Jtten
4980 Bossler Road
Elizabethtown, PA 17022
</TABLE>
B-49
<PAGE>
- Fiduciary Reserve -
As of September 29, 1995, the following account was a holder of record
of 5% or more of the outstanding shares of Fiduciary Reserve:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- --------------- ------------------
<S> <C> <C>
Patterson & Co. 426,311,696.800 99.99%
c/o CoreStates Bank, NA
P.O. Box 7618 FC 9-1-17
Philadelphia, PA 19101
</TABLE>
As of September 29, 1995, the following account was a holder of record
of 5% or more of the outstanding shares of Fiduciary Treasury Reserve:
- Fiduciary Treasury Reserve -
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
<S> <C> <C>
Patterson & Co. 23,082,067.180 99.99%
c/o CoreStates Bank, NA
P.O. Box 7618 FC 9-1-17
Philadelphia, PA 19101
</TABLE>
- Fiduciary Tax-Free Reserve -
As of September 29, 1995, the following account was a holder of record
of 5% or more of the outstanding shares of Fiduciary Tax-Free Reserve:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
----- ---------------- ------------------
<S> <C> <C>
Patterson & Co. 72,205,372.920 99.99%
c/o CoreStates Bank, NA
P.O. Box 7618 FC 9-1-17
Philadelphia, PA 19101
</TABLE>
- Global Bond Fund -
As of September 29, 1995, the following account was a holder of record
of 5% or more of the outstanding Series A Shares of Global Bond Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- -------------------
<S> <C> <C>
Patterson & Co. 2,847,721.471 99.98%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
B-50
<PAGE>
As of September 29, 1995, the following account was a holder of record
of 5% or more of the outstanding Series B Shares of Global Bond Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
----- ---------------- ------------------
<S> <C> <C>
CoreStates Bank N.A. C/F IRA of 5,519.165 30.95%
A. Gilbert Heebner
2 Etienne Arbordeau
Berwyn Baptist Road
Devon, PA 19333
James W. Jennings 4,355.297 24.43%
2000 One Logan Square
Philadelphia, PA 19103
CoreStates Bank NA C/F IRA of 2,572.722 14.43%
Allen Luke
17 Bennett Court
East Brunswick, NJ 08816
CoreStates Bank NA C/F IRA of 1,614.421 9.05%
Patrick M. Carlomango
3124 Taft Road
Norristown, PA 19403
</TABLE>
INVESTMENT ADVISER
- All Funds -
CoreStates Investment Advisers, Inc. ("CoreStates Advisers"), a
wholly-owned subsidiary of CoreStates Bank, N.A. ("CoreStates Bank"),
itself a wholly-owned subsidiary of CoreStates Financial Corp ("CoreStates
Corp"), is the Company's investment adviser.
The services provided and the expenses assumed by Corestates Advisers
as investment adviser, as well as the fees payable to it, are described in the
Funds' Prospectuses.
CoreStates Corp is a bank holding company registered under the Bank
Holding Company Act. CoreStates Corp is engaged through its principal
subsidiaries, CoreStates Bank and New Jersey National Bank (national banking
associations), and Hamilton Bank (a Pennsylvania banking institution), in
commercial, international and consumer banking, and in providing trust services.
CoreStates Corp, through other direct and indirect subsidiaries also provides
consumer financing, factoring, commercial financing, and financial advisory
services. The principal executive offices of CoreStates Corp are located at 1500
Market Street, Philadelphia, Pennsylvania 19102.
B-51
<PAGE>
The Investment Advisory Agreements
The Investment Advisory Agreements between each Fund and CoreStates
Advisers provide that CoreStates Advisers shall not be liable for any error of
judgment or mistake of law or for any loss suffered by a Fund in connection with
its performance under the respective Investment Advisory Agreements, except a
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of CoreStates Advisers in the performance
of its duties, or from reckless disregard by it of its duties and obligations
thereunder.
Unless sooner terminated, the Investment Advisory Agreements will
remain in effect from year to year if such continuance is approved at least
annually by CoreFunds' Board of Directors, or by vote of a majority of the
outstanding shares of each Fund (as defined in the Prospectuses), and by a
majority of the Directors who are not parties to the Investment Advisory
Agreements or interested persons (as defined in the Investment Company Act) of
any party to the Investment Advisory Agreements, by vote cast in person at a
meeting called for such purpose. The Investment Advisory Agreements are
terminable at any time on sixty days' written notice without penalty by the
Directors, by vote of a majority of the outstanding shares of the respective
Funds, or by CoreStates Advisers. The Investment Advisory Agreements also
terminate automatically in the event of their assignment, as defined in the
Investment Company Act.
Investment Advisory Fees
For the fiscal year ended June 30, 1995, CoreStates Advisers was paid
investment advisory fees by Growth Equity Fund totalling $386,678 after
voluntary fee waivers of $193,333. For the fiscal year ended June 30, 1994,
CoreStates Advisers was paid investment advisory fees by this Fund totalling
$320,583, after voluntary fee waivers of $248,000. For the fiscal year ended
June 30, 1993, CoreStates Advisers was paid investment advisory fees by this
Fund totalling $96,277 after voluntary fee waivers of $288,940.
For the fiscal year ended June 30, 1995, CoreStates Advisers was paid
investment advisory fees by Value Equity Fund totalling $199,645, after
voluntary fee waivers of $51,162. For the fiscal year ended June 30, 1994,
CoreStates Advisers was paid investment advisory fees by this Fund totalling
$121,274, after voluntary fee waivers of $44,569. For the fiscal year ended June
30, 1993, CoreStates Advisers was paid investment advisory fees by this Fund
totalling $46,772 after voluntary fee waivers of $51,353.
For the fiscal period ended June 30, 1995, CoreStates Advisers was paid
investment advisory fees by Equity Index Fund totalling $85,692, after voluntary
fee waivers of $259,535. For the fiscal period ended June 30, 1994, CoreStates
Advisers was paid investment advisory fees by this Fund totalling $73,135, after
voluntary fee waivers of $219,716. For the fiscal period ended June 30, 1993,
CoreStates Advisers was paid investment advisory fees by this Fund totalling
$33,052, after voluntary fee waivers of $93,023.
For the fiscal period ended June 30, 1995, CoreStates Advisers was paid
investment advisory fees by International Growth Fund totalling $861,592, after
voluntary fee waivers of $57,439. For the fiscal period ended June 30, 1994,
CoreStates Advisers was paid investment advisory fees by this Fund totalling
$664,153, after voluntary fee waivers of $85,107. For the fiscal year ended June
30, 1993, CoreStates Advisers was paid investment advisory fees by this Fund
totalling $270,891, after voluntary fee waivers of $104,113.
For the fiscal year ended June 30, 1995, CoreStates Advisers was paid
investment advisory fees by Balanced Fund totalling $240,853, after voluntary
fee waivers of $133,801. For the fiscal year ended June 30, 1994, CoreStates
Advisers was paid investment advisory fees by this Fund totalling $134,678,
after voluntary fee waivers of $145,819. For the fiscal year ended June 30,
1993, CoreStates Advisers was paid investment advisory fees by this Fund
totalling $0, after voluntary fee waivers of $88,537.
For the fiscal year ended June 30, 1995, CoreStates Advisers was paid
investment advisory fees by Intermediate Bond Fund totalling $203,083, after
voluntary fee waivers of $87,019. For the fiscal year ended June 30, 1994,
CoreStates Advisers
B-52
<PAGE>
was paid investment advisory fees by this Fund totalling $183,014, after
voluntary fee waivers of $106,631. For the fiscal year ended June 30, 1993,
CoreStates Advisers was paid investment advisory fees by this Fund totalling
$58,743 after voluntary fee waivers of $114,593.
For the fiscal year ended June 30, 1995, CoreStates Advisers was paid
investment advisory fees by Intermediate Municipal Bond Fund totalling $2,752,
after voluntary fee waivers of $6,425. For the fiscal year ended June 30, 1994,
CoreStates Advisers was paid investment advisory fees by this Fund totalling
$1,899, after voluntary fee waivers of $11,626. For the fiscal year ended June
30, 1993, CoreStates Advisers was paid investment advisory fees by this Fund
totalling $0, after voluntary fee waivers of $1,329.
For the fiscal year ended June 30, 1995, CoreStates Advisers was paid
investment advisory fees by Government Income Fund totalling $22,528, after
voluntary fee waivers of $33,796. For the fiscal year ended June 30, 1994,
CoreStates Advisers was paid investment advisory fees by this Fund totalling
$10,608 after voluntary fee waivers of $38,912. For the fiscal year ended June
30, 1993, CoreStates Advisers were paid advisory fees by this Fund totalling $0,
after voluntary fee waivers of $7,616.
For the fiscal year ended June 30, 1995, CoreStates Advisers was paid
investment advisory fees by Pennsylvania Municipal Bond Fund totalling $0, after
voluntary fee waivers of $10,956. For fiscal year ended June 30, 1994,
CoreStates Advisers were paid investment advisory fees by this Fund totalling
$0, after voluntary fee waivers of $361.
For the fiscal year ended June 30, 1995, CoreStates Advisers was paid
investment advisory fees by New Jersey Municipal Fund totalling $0, after
voluntary fee waivers of $8,045. For the fiscal year ended June 30, 1994,
CoreStates Advisers was paid investment advisory fees by this Fund totalling $0,
after voluntary waivers of $788.
For the fiscal year ended June 30, 1995, CoreStates Advisers was paid
investment advisory fees by Global Bond Fund totalling $77,740, after voluntary
fee waivers of $77,729. For the fiscal year ended June 30, 1994, CoreStates
Advisers was paid investment advisory fees by this Fund totalling $41,845, after
voluntary waivers of $41,845.
For the fiscal year ended June 30, 1995, Treasury Reserve paid
CoreStates Advisers investment advisory fees totalling $1,039,138, after
voluntary fee waivers of $1,322,599. For the fiscal year ended June 30, 1994,
this Fund paid CoreStates Advisers investment advisory fees totalling
$1,067,724, after voluntary fee waivers of $1,358,926. For the fiscal year ended
June 30, 1993, CoreStates Advisers was paid investment advisory fees by this
Fund totalling $1,136,845 after voluntary fee waivers of $1,455,070.
For the fiscal year ended June 30, 1995, Cash Reserve paid CoreStates
Advisers investment advisory fees totalling $1,196,254, after voluntary fee
waivers of $1,522,489. For the fiscal year ended June 30, 1994, this Fund paid
CoreStates Advisers investment advisory fees totalling $1,182,826, after
voluntary fee waivers of $1,505,298. For the fiscal year ended June 30, 1993,
CoreStates Advisers was paid investment advisory fees by this Fund totalling
$1,265,297, after voluntary fee waivers of $1,611,344.
For the fiscal year ended June 30, 1995, CoreStates Advisers was paid
investment advisory fees by Tax-Free Reserve totalling $172,635, after voluntary
fee waivers of $219,739. For the fiscal year ended June 30, 1994, CoreStates
Advisers was paid investment advisory fees by this Fund totalling $197,246,
after voluntary fee waivers of $252,250. For the fiscal year ended June 30,
1993, CoreStates Advisers was paid $178,951 in investment advisory fees for
investment advisory services provided to this Fund, after voluntary fee waivers
of $229,185.
For the fiscal year ended June 30, 1995, CoreStates Advisers was paid
investment advisory fees by Fiduciary Treasury Reserve totalling $0, after
voluntary fee waivers of $109,215. For the fiscal year ended June 30, 1994,
CoreStates Advisers was paid investment advisory fees by this Fund totalling $0,
after voluntary fee waivers of $104,101. For the fiscal year ended June 30,
1993, CoreStates Advisers was paid investment advisory fees for this Fund
totalling $0, after voluntary fee waivers of $288,065.
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<PAGE>
For the fiscal year ended June 30, 1995, CoreStates Advisers was paid
investment advisory fees for Fiduciary Reserve totalling $0, after voluntary fee
waivers of $2,011,375. For the fiscal year ended June 30, 1994, CoreStates
Advisers was paid investment advisory fees for Fiduciary Reserve totalling $0,
after voluntary fee waivers of $2,179,755. For the fiscal year ended June 30,
1993, CoreStates Advisers was paid investment advisory fees by Fiduciary Reserve
totalling $0, after voluntary fee waivers of $2,106,368.
For the fiscal year ended June 30, 1995, CoreStates Advisers was paid
investment advisory fees by Fiduciary Tax-Free Reserve totalling $0, after
voluntary fee waivers of $424,166. For the fiscal year ended June 30, 1994,
CoreStates Advisers was paid investment advisory fees by this Fund totalling $0,
after voluntary fee waivers of $409,628. For the fiscal year ended June 30,
1993, CoreStates Advisers was paid investment advisory fees for Fiduciary
Tax-Free Reserve totalling $0, after voluntary waivers of $266,276.
Elite Cash Reserve, Elite Government Reserve and Elite Treasury Reserve
were not in operation as of June 30, 1995.
SUB-ADVISERS
- Value Equity Fund -
Cashman, Farrell and Associates ("Cashman, Farrell") is Value Equity
Fund's sub-adviser.
Cashman, Farrell is a professional investment counseling firm and, as
such, provides investment advisory and portfolio management services to Value
Equity Fund and other similar investment companies. Currently, Cashman, Farrell
has total assets under management of over $2.5 billion. The Cashman, Farrell
offices are located at 1235 Westlakes Drive, Berwyn, Pennsylvania 19312.
The services provided and the expenses assumed by Cashman, Farrell as a
sub-adviser, as well as the fees payable to it, are described in the
Prospectuses relating to Value Equity Fund.
The Value Equity Sub-Advisory Agreement
The Value Equity Sub-Advisory Agreement between CoreStates Advisers and
Cashman, Farrell provides that Cashman, Farrell shall not be liable for any
error of judgment or mistake of law or for any loss suffered by Value Equity
Fund in connection with its performance under this Sub-Advisory Agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or loss resulting from willful misfeasance,
bad faith or gross negligence on the part of Cashman, Farrell in the performance
of its duties, or from reckless disregard by it of its duties and obligations
thereunder.
Unless sooner terminated, the Value Equity Sub-Advisory Agreement will
remain in effect from year to year if such continuance is approved at least
annually by CoreFunds' Board of Directors, or by vote of a majority of the
outstanding shares of Value Equity Fund (as defined in the Prospectuses), and by
a majority of the Directors who are not parties to this Sub-Advisory Agreement
or interested persons (as defined in the Investment Company Act) of any party to
this Sub-Advisory Agreement, by vote cast in person at a meeting called for such
purpose. The Value Equity Sub-Advisory Agreement is terminable at any time on
sixty days' written notice without penalty by the Directors, by vote of a
majority of the outstanding shares of the Fund, by CoreStates Advisers, or by
Cashman, Farrell. The Value Equity Sub-Advisory Agreement also terminates
automatically in the event of its assignment, as defined in the Investment
Company Act.
- International Growth Fund -
Martin Currie, Inc. ("Martin Currie"), a subsidiary of Martin Currie,
Ltd., is the International Growth Fund's sub-adviser.
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Martin Currie, Ltd. performs various investment advisory services for
a number of open- and closed-end mutual funds, offshore funds, pension
funds, foundations, and charities. Current assets under management total over $4
billion. The Martin Currie offices are located in Saltire Court, 20 Castle
Terrace, Edinburgh, Scotland.
The services provided and the expenses assumed by Martin Currie as
sub-adviser, as well as the fees payable to it, are described in the
Prospectuses relating to International Growth Fund.
The International Growth Sub-Advisory Agreement
The International Growth Sub-Advisory Agreement between CoreStates
Advisers and Martin Currie provides that Martin Currie shall not be liable for
any error of judgment or mistake of law or for any loss suffered by
International Growth Fund in connection with its performance under this
Sub-Advisory Agreement, except a loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services or loss resulting from
willful misfeasance, bad faith or gross negligence on the part of Martin Currie
in the performance of its duties, or from reckless disregard by it of its duties
and obligations thereunder.
Unless sooner terminated, the International Growth Sub-Advisory
Agreement will remain in effect from year to year if such continuance is
approved at least annually by CoreFunds' Board of Directors, or by vote of a
majority of the outstanding shares of International Growth Fund (as defined in
the Prospectuses), and by a majority of the Directors who are not parties to
this Sub-Advisory Agreement or interested persons (as defined in the Investment
Company Act) of any party to this Sub-Advisory Agreement, by vote cast in person
at a meeting called for such purpose. The International Growth Sub-Advisory
Agreement is terminable at any time on sixty days' written notice without
penalty by the Directors, by vote of a majority of the outstanding shares of the
Fund, by CoreStates Advisers, or by Martin Currie. The International Growth
Sub-Advisory Agreement also terminates automatically in the event of its
assignment, as defined in the Investment Company Act.
- Global Bond Fund -
Alpha Global Fixed Income Managers, Inc. ("Alpha Global") is
sub-adviser to Global Bond Fund.
Alpha Global is a specialist manager of fixed income securities and
cash for institutional investors. Based in London, England, it is a wholly-owned
subsidiary of United Asset Management Corporation of Boston, Massachusetts,
whose assets under management currently exceed $130 billion. Alpha Global is a
member of the Investment Management Regulatory Organization, one of the
regulatory bodies approved by the UK Government, and its activities are
regulated accordingly.
The Global Bond Sub-Advisory Agreement
The Global Bond Sub-Advisory Agreement between CoreStates Advisers and
Alpha Global provides that Alpha Global shall not be liable for any error of
judgment or mistake of law or for any loss suffered by Global Bond Fund in
connection with its performance under this Sub-Advisory Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or loss resulting from willful misfeasance, bad faith
or gross negligence on the part of Alpha Global in the performance of its
duties, or from reckless disregard by it of its duties and obligations
thereunder.
Unless sooner terminated, the Global Bond Sub-Advisory Agreement will
remain in effect from year to year if such continuance is approved at least
annually by CoreFunds' Board of Directors, or by vote of a majority of the
outstanding shares of Global Bond Fund (as defined in the Prospectuses), and by
a majority of the Directors who are not parties to this Sub-Advisory Agreement
or interested persons (as defined in the Investment Company Act) of any party to
this Sub-Advisory Agreement, by vote cast in person at a meeting called for such
purpose. The Global Bond Sub-Advisory Agreement is terminable at any time on
sixty days' written notice without penalty by the Directors, by vote of a
majority of the outstanding shares of the Fund, by CoreStates Advisers, or by
Alpha Global. The Global Bond Sub-Advisory Agreement also terminates
automatically in the event of its assignment, as defined in the Investment
Company Act.
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<PAGE>
PORTFOLIO TRANSACTIONS
- All Funds -
In General
Pursuant to the Funds' respective advisory agreements, CoreStates
Advisers and/or the sub-advisers with regard to the Value Equity, International
Growth and Global Bond Funds (collectively, the "Advisers") determine which
securities are to be sold and purchased by each Fund and which brokers are to be
eligible to execute the portfolio transactions. Fund securities are normally
purchased directly from the issuer or from an underwriter or market maker for
the securities. Purchases from underwriters of certain portfolio securities
include a commission or concession paid by the issuer to the underwriter and
purchases from dealers serving as market makers may include the spread between
the bid and asked price. While the Advisers generally seeks competitive spreads
or commissions, each Fund may not necessarily pay the lowest spread or
commission available on each transaction for reasons discussed below.
Allocation of security transactions, including their frequency, to
various dealers is determined by the Advisers in their best judgment and in a
manner deemed fair and reasonable to shareholders. The primary consideration is
the prompt execution of orders in an effective manner at the most favorable
price. Subject to this consideration, broker/dealers who provide supplemental
investment research to the Advisers may receive orders for transactions by a
Fund, although consideration of such supplemental investment research is not
applicable with respect to Equity Index Fund. Information so received is in
addition to and not in lieu of services required to be performed by the
Advisers, nor would the receipt of such information reduce the Advisers' fees.
Such information may be useful to the Advisers in serving the Funds as well as
their other clients, and conversely, supplemental information obtained by the
placement of business of other clients may be useful to the Advisers in carrying
out their respective obligations to the Funds. In addition, the Funds may direct
commission business to one or more designated broker/dealers, including the
Distributor or an affiliate of the Adviser, in connection with such
broker/dealer's payment of certain of the Fund's expenses.
A Fund will not acquire portfolio securities issued by, make savings
deposits in, or enter into repurchase or reverse repurchase agreements with the
Advisers, the Administrator, the Distributor, or their affiliates, and will not
give preference to any correspondents of the Advisers with respect to such
transactions, securities, savings deposits, repurchase agreements, and reverse
repurchase agreements. However, a Fund may, on a non-preferential basis, enter
into such transactions with institutional investors who purchase shares of a
Fund on behalf of their customers. However, absent exemptive relief, a Fund will
not engage in such activities if prohibited from doing so by Section 17(a) of
the Investment Company Act.
Investment decisions for each Fund are made independently from those
for any other investment portfolios or accounts ("accounts") managed by the
Advisers. Such accounts may also invest in the same securities as a Fund. When a
purchase or sale of the same security is made at substantially the same time on
behalf of a Fund and another account, the transaction will be averaged as to
price, and available investments allocated as to amount, in a manner which the
Advisers believe to be equitable to the Fund and such other account. In some
instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained or sold by the Fund. To
the extent permitted by law, the Advisers may aggregate the securities to be
sold or purchased for a Fund with those to be sold or purchased for other
accounts in order to obtain the best execution.
As provided by their respective Agreements, in making investment
recommendations for a Fund, the Advisers will not inquire or take into
consideration whether the issuer of securities proposed for purchase or sale by
a Fund is another commercial customer of any of the Advisers and, in dealing
with their other commercial customers, the Advisers will not inquire or take
into consideration whether securities of those customers are held by a Fund.
It is expected that the Funds may execute brokerage or other agency
transactions through the Distributor, a registered broker-dealer, or an
affiliate of the Adviser for a commission in conformity with the Investment
Company Act, the Securities Exchange Act of 1934 and rules promulgated by the
Securities and Exchange Commission. Under these provisions, the
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<PAGE>
Distributor is permitted to receive and retain compensation for effecting
portfolio transactions for the Funds on an exchange if a written contract is in
effect between the Distributor and the Company expressly permitting the
Distributor to receive and retain such compensation. These rules further require
that commissions paid to the Distributor by the Company for exchange
transactions not exceed "usual and customary" brokerage commissions. The rules
define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other renumeration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." In addition, the
Company may direct commission business to one or more designated broker/dealers
in connection with such broker/dealer's provision of services to the Company or
payment of certain Company expenses (e.g., custody, pricing and professional
fees). The Directors, including those who are not "interested persons" of the
Company, have adopted procedures for evaluating the reasonableness of
commissions paid to the Distributor and will review these procedures
periodically.
In addition, the Tax-Exempt Funds and Intermediate Municipal Bond Fund
may participate, if and when practicable, in bidding for the purchase of
municipal securities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. The Funds will
engage in this practice, however, only when CoreStates Advisers, in its sole
discretion, believes such practice to be in the best interests of these Funds.
Brokerage Commissions
- Growth Equity Fund -
During the fiscal year ended June 30, 1995, Growth Equity Fund paid
aggregate brokerage commissions of approximately $223,429.
- Value Equity Fund -
During the fiscal year ended June 30, 1995, Value Equity Fund paid
aggregate brokerage commissions of approximately $117,625.
- Equity Index Fund -
During the fiscal period ended June 30, 1995, Equity Index Fund paid
aggregate brokerage commissions of approximately $61,052.
- International Growth Fund -
During the fiscal year ended June 30, 1995, International Growth Fund
paid aggregate brokerage commissions of approximately $350,685.
- Balanced Fund -
During the fiscal year ended June 30, 1995, Balanced Fund paid
aggregate brokerage commissions of approximately $66,243.
Portfolio Turnover
It is not a policy of the Funds to purchase or sell securities for
trading purposes. However, the Advisers manage the Funds without regard
generally to restrictions on portfolio turnover, except those imposed by
provisions of the federal tax laws regarding short-term trading. Generally, the
Funds will not trade for short-term profits, but when circumstances warrant,
investments may be sold without regard to the length of time held. It is
expected that the Equity Funds' annual portfolio turnover rates will not exceed
100%. A 100% turnover rate would occur, for example, if all of a portfolio's
securities are replaced within
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<PAGE>
a one year period. With respect to the Fixed Income Funds, the annual portfolio
turnover rate may exceed 100% due to changes in portfolio duration, yield curve
strategy or commitments to forward delivery mortgage-backed securities. The
portfolio turnover rate for the Global Bond Fund during its first year of
operation could be as high as 400%. With the exception of Global Bond, however,
it is expected that the annual turnover rate for the Fixed Income Funds will not
exceed 250%.
High rates of portfolio turnover necessarily result in correspondingly
heavier brokerage and portfolio trading costs which are paid by a Fund. Trading
in fixed income securities does not generally involve the payment of brokerage
commissions, but does involve indirect transaction costs. In addition to
portfolio trading costs, higher rates of portfolio turnover may result in the
realization of capital gains. As a general rule, net gains are distributed to
shareholders and will be taxable at ordinary income tax rates, for federal
income tax purposes, regardless of long-or short-term capital gains status. See
"Distributions" and "Taxes" for more information on taxation. The tables set
forth in "Financial Highlights" present the Fund's historical portfolio turnover
rates.
ADMINISTRATOR
- All Funds -
SEI Financial Management Corporation (the "Administrator") generally
assists in supervising the operation of the Funds pursuant to an Administration
Agreement. The respective fees payable to the Administrator are described in the
Funds' Prospectuses.
The Administration Agreement
Under the terms of the Administration Agreement, the Administrator
provides the Company with administrative services (other than investment
advisory services) including all regulatory reporting, necessary office space,
equipment, personnel, and facilities.
The Administration Agreement provides that the Administrator shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by the Company in connection with the matters to which the Administration
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Administrator in the performance of its
duties or from reckless disregard by it of its duties and obligations
thereunder.
The Administrator, a wholly owned subsidiary of SEI Corporation
("SEI"), was organized as a Delaware corporation in 1969 and has its principal
business offices at 680 East Swedesford Road, Wayne, PA 19087. Alfred P. West,
Jr., Carmen V. Romeo, and Robert A. Nesher constitute the Board of Directors of
the Administrator. Mr. West is the Chairman of the Board and President of the
Administrator. Mr. West serves as the Chairman of the Board of Directors, and
Chief Executive Officer of SEI. SEI and its subsidiaries are leading providers
of funds evaluation services, trust accounting systems, and brokerage and
information services to financial institutions, institutional investors and
money managers. The Administrator also serves as administrator to the following
other institutional mutual funds: SEI Liquid Asset Trust; SEI Tax Exempt Trust;
SEI Index Funds; SEI Institutional Managed Trust; SEI Cash+Plus Trust; SEI
International Trust; Key Investment Funds, Inc.; The Capitol Mutual Funds; Union
Investors Funds, Inc.; The Compass Capital Group; Advisor's Inner Circle Fund;
FFB Lexicon Funds; The Pillar Funds; CUFund; STI Classic Funds; The One Group
Fund; First American Investment Funds, Inc.; First American Funds, Inc.; The
Arbor Funds; and 1784 Funds.
Administration Fees
For the fiscal period ended June 30, 1995, Growth Equity Fund paid SEI
administrative fees totalling $123,731, after voluntary fee waivers of $69,600.
For the fiscal period ended June 30, 1994, Growth Equity Fund paid SEI
administrative fees totalling $116,502, after voluntary fee waivers of $73,176.
For the fiscal period ended June 30, 1993, Growth Equity Fund paid SEI and the
Fairfield Group, Inc. ("Fairfield") administrative fees totalling $67,825, after
voluntary fee waivers of $60,564.
For the fiscal period ended June 30, 1995, Value Equity Fund paid SEI
administrative fees totalling $53,535, after
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<PAGE>
voluntary fee waivers of $30,067. For the fiscal period ended June 30, 1994,
Value Equity Fund paid SEI administrative fees totalling $34,108, after
voluntary fee waivers of $21,186. For the fiscal period ended June 30, 1993,
this Fund paid SEI and Fairfield administrative fees totalling $22,301, after
voluntary fee waivers of $10,407.
For the fiscal period ended June 30, 1995, Equity Index Fund paid SEI
administrative fees totalling $137,868, after voluntary fee waivers of $77,861.
For the fiscal period ended June 30, 1994, Equity Index Fund paid SEI
administrative fees totalling $112,341, after voluntary fee waivers of $70,393.
For the fiscal period ended June 30, 1993, this Fund paid SEI and Fairfield
administrative fees totalling $48,717, after voluntary fee waivers of $30,080.
For the fiscal period ended June 30, 1995, International Growth Fund
paid SEI administrative fees totalling $183,805, after voluntary fee waivers of
$103,392. For the fiscal period ended June 30, 1994, International Growth Fund
paid SEI administrative fees totalling $144,204, after voluntary fee waivers of
$89,940. For the fiscal year ended June 30, 1993, this Fund paid SEI and
Fairfield administrative fees totalling $88,375, after voluntary fee waivers of
$28,814.
For the fiscal period ended June 30, 1995, Balanced Fund paid SEI
administrative fees totalling $85,636, after voluntary fee waivers of $48,169.
For the fiscal period ended June 30, 1994 Balanced Fund paid SEI administrative
fees totalling $62,159, after voluntary fee waivers of $38,369. For the fiscal
period ended June 30, 1993, Balanced Fund paid SEI administrative fees totalling
$19,360 , after voluntary fee waivers of $12,260.
For the fiscal period ended June 30, 1995, Intermediate Bond Fund paid
SEI administrative fees totalling $92,840, after voluntary fee waivers of
$52,211. For the fiscal period ended June 30, 1994, Intermediate Bond Fund paid
SEI administrative fees totalling $89,032, after voluntary fee waivers of
$55,791. For the fiscal period ended June 30, 1993, Intermediate Bond Fund paid
SEI and Fairfield administrative fees totalling $48,169, after voluntary fee
waivers of $38,499.
For the fiscal period ended June 30, 1995, Government Income Fund paid
SEI administrative fees totalling $18,024, after voluntary fee waivers of
$10,139. For the fiscal period ended June 30, 1993, Government Income Fund paid
SEI administrative fees totalling $14,856, after voluntary fee waivers of
$9,904. For the fiscal period ended June 30, 1993, Government Income Fund paid
SEI administrative fees totalling $0, after voluntary fee waivers of $3,808.
For the fiscal period ended June 30, 1995, Intermediate Municipal Bond
Fund paid SEI administrative fees totalling $2,937, after voluntary fee waivers
of $1,652. For the fiscal period ended June 30, 1994, Intermediate Bond Fund
paid SEI administrative fees totalling $2,665, after voluntary fee waivers of
$3,994. For the fiscal period ended June 30, 1994, Intermediate Municipal Bond
Fund paid SEI administrative fees totalling $0, after voluntary fee waivers of
$664.
For the fiscal period ended June 30, 1995, Pennsylvania Municipal Bond
Fund paid SEI administrative fees totalling $0, after voluntary fee waivers of
$5,478. For the period ended June 30, 1994, Pennsylvania Municipal Bond Fund
paid SEI administrative fees totalling $0, after voluntary fee waivers of $180.
For the fiscal period ended June 30, 1995, New Jersey Municipal Bond Fund paid
SEI administrative fees totalling $0, after voluntary fee waivers of $4,023. For
the fiscal period ended June 30, 1994, New Jersey Municipal Bond Fund paid SEI
administrative fees totalling $0, after voluntary fee waivers of $394.
For the fiscal period ended June 30, 1995, Global Bond Fund paid SEI
administrative fees totalling $41,460, after voluntary fee waivers of $23,318.
For the fiscal period ended June 30, 1994, Global Bond Fund paid SEI
administrative fees totalling $21,878, after voluntary fee waivers of $12,993.
For the fiscal period ended June 30, 1995, Treasury Reserve paid SEI
administrative fees totalling $755,724, after voluntary fee waivers of $425,121.
For the fiscal year ended June 30, 1994, this Fund paid SEI administrative fees
totalling $745,911, after voluntary fee waivers of $467,414. For the fiscal
period ended June 30, 1993, Treasury Reserve paid SEI and Fairfield
administrative fees totalling $729,031, after voluntary fee waivers of $566,927.
For the fiscal period ended June 30, 1995, Cash Reserve paid SEI
administrative fees totalling $869,998, after voluntary fee waivers of $489,371.
For the fiscal year ended June 30, 1994, this Fund paid Fairfield administrative
fees totalling $825,937,
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<PAGE>
after voluntary fee waivers of $518,125. For the fiscal period ended June 30,
1993, Cash Reserve paid SEI and Fairfield administrative fees totalling
$793,472, after voluntary fee waivers of $644,849.
For the fiscal period ended June 30, 1995, Tax-Free Reserve paid SEI
administrative fees totalling $125,548, after voluntary fee waivers of $70,639.
For the fiscal period ended June 30, 1994, Tax-Free Reserve paid SEI
administrative fees totalling $137,980, after voluntary fee waivers of $86,767.
For the fiscal period ended June 30, 1993, Tax-Free Reserve paid SEI and
Fairfield administrative fees totalling $118,611, after voluntary fee waivers of
$85,457.
For the fiscal period ended June 30, 1995, Fiduciary Treasury Reserve
paid SEI administrative fees totalling $24,029, after voluntary fee waivers of
$30,578. For the fiscal period ended June 30, 1994, Fiduciary Treasury Reserve
paid SEI administrative fees totalling $22,988, after voluntary fee waivers of
$29,256. For the fiscal period ended June 30, 1993, Fiduciary Treasury Reserve
paid SEI and Fairfield administrative fees totalling $45,206, after voluntary
fee waivers of $98,826.
For the fiscal period ended June 30, 1995, Fiduciary Reserve paid SEI
administrative fees totalling $442,499, after voluntary fee waivers of $563,185.
For the fiscal period ended June 30, 1994, Fidicuary Reserve paid SEI
administrative fees totalling $479,759 after voluntarily fee waivers of
$610,315. For the fiscal period ended June 30, 1993, Fiduciary Reserve paid SEI
and Fairfield administrative fees totalling $479,639, after voluntary fee
waivers of $573,545.
For the fiscal period ended June 30, 1995, Fiduciary Tax-Free Reserve
paid SEI administrative fees totalling $93,316, after voluntary fee waivers of
$118,767. For the fiscal period ended June 30, 1994, Fiduciary Tax-Free Reserve
paid SEI administrative fees totalling $90,162, after voluntary fee waivers of
$114,765. For the fiscal period ended June 30, 1993, this Fund paid SEI and
Fairfield administrative fees totalling $55,637, after voluntary fee waivers of
$77,501.
Elite Cash Reserve, Elite Government Reserve and Elite Treasury Reserve
were not in operation as of June 30, 1995.
DISTRIBUTOR
- All Funds -
SEI Financial Services Company (the "Distributor") acts as Distributor
of the Company's shares pursuant to a Distribution Agreement. Shares of each
Fund are sold on a continuous basis by the Distributor as agent, although the
Distributor is not obliged to sell any particular amount of shares. The
Distributor is a broker-dealer registered with the SEC, and is a member of the
National Association of Securities Dealers, Inc. As Distributor, the Distributor
pays the cost of printing and distributing prospectuses to persons who are not
shareholders of a Fund (excluding preparation and printing expenses necessary
for the continued registration of the Funds' shares) and of preparing, printing,
and distributing all sales literature. No compensation is payable by the Company
to the Distributor for its distribution services pursuant to the Distribution
Agreement.
The Company has adopted a Distribution Plan (the "Plan") for those
Funds offering Series B Shares. The Plan provides for the payment by the Company
to the Distributor of up to .25% of the average daily net assets of each Series
B Fund to which the Plan is applicable. The Distributor is authorized to use
this fee as compensation for its distribution-related services and as service
payments to certain securities broker/dealers and financial institutions which
enter into shareholder servicing agreements or broker agreements (collectively,
the "Service Agreements") with the Distributor. Pursuant to the Service
Agreements, the securities broker/dealers and financial institutions will
provide shareholder servicing administrative services, including such services
as: (i) establishing and maintaining customer accounts and records; (ii)
aggregating and processing purchase and redemption requests from customers and
placing net purchase and redemption orders with the Distributor; (iii)
automatically investing customer account cash balances; (iv) providing periodic
statements to their customers; (v) arranging for bank wires; (vi) answering
routine customer inquiries concerning their investments in the Shares offered in
connection with this 12b-1 Plan and related distribution agreement; (vii)
assisting customers in changing dividend options, account designations and
addresses; (viii) performing sub-accounting functions; (ix) processing dividend
payments from the Funds on behalf of customers; (x) forwarding certain
shareholder communications from the Funds (such as proxies, Shareholder reports
and dividend, distribution and tax
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<PAGE>
notices) to customers; and (xi) providing such other similar services as may be
reasonably requested to the extent they are permitted to do so under applicable
statutes, rules or regulations. The actual fee paid to a securities
broker/dealer or financial institution will be based upon the extent and quality
of the services provided.
Continuance of the Plan must be approved annually by shareholders or by
a majority of the Directors of the Company and by a majority of the Directors
who are not interested persons (as defined in the Investment Company Act) and
who have no direct or indirect financial interest in the operation of the Plan
or in any agreement relating to the Plan (the "Qualified Directors"). The Plan
requires that quarterly reports of such expenditures be furnished to and
reviewed by the Directors. The Plan may not be amended to materially increase
the amount which may be spent thereunder without approval by a majority of the
outstanding shares of the affected Fund series. All material amendments of the
Plan require approval by a majority of the Directors of the Company and the
Qualified Directors.
For the fiscal year ended June 30, 1995, the Distributor received
distribution fees (which amount solely represents sales expenses) on the
following Funds offering Series B Shares: (a) $4,631 for the Growth Equity Fund;
(b) $12,103 for the Value Equity Fund; (c) $4,641 for the International Growth
Fund; (d) $5,601 for the Balanced Fund; (e) $15,654 for the Intermediate Bond
Fund; (f) $3,465 for the Government Income Fund; (g) $2,870 for the Intermediate
Municipal Bond Fund; (h) $510 for the Pennsylvania Municipal Bond Fund; (i) $19
for the New Jersey Municipal Bond Fund; (j) $416 for the Global Bond Fund; (k)
$38,272 for the Cash Reserve Fund; (l) $27,023 for the Treasury Reserve Fund;
and (m) $5,265 for the Tax-Free Reserve Fund.
CUSTODIAN AND TRANSFER AGENT
- All Funds -
Custodian Agreement
Cash and securities owned by each Fund are held by CoreStates Bank as
the Company's Custodian pursuant to a Custodian Agreement. Under the Custodian
Agreement, CoreStates Bank (i) holds each Fund's securities and cash items, (ii)
makes receipts and disbursements of money on behalf of each Fund, (iii) collects
and receives all income and other payments and distributions on account of the
Funds' securities, and (iv) performs other related services. CoreStates Bank
may, in its discretion and at its own expense, open and maintain a sub-custody
account or employ a sub-custodian on behalf of the Funds investing exclusively
in the United States and may, with the Fund's Board approval and at the expense
of the Funds, employ sub-custodians on behalf of the Funds who invest in foreign
countries provided that CoreStates Bank shall remain liable for the performance
of all of its duties under the Custodian Agreement.
Transfer Agency Agreement
State Street Bank and Trust Company (the "Transfer Agent") provides
each Fund with transfer agency, dividend disbursing, custodial services for
certain retirement plans, agency services in connection with certain other
activities and accounting services under the terms of the Transfer Agency and
Service Agreement. Under this Agreements, the Transfer Agent has agreed to (i)
issue and redeem shares of each Fund, (ii) forward dividends and distributions
to shareholders, (iii) maintain each Fund's books of original entry, (iv)
maintain shareholder accounts, (v) compute the Funds' net asset value per share
and calculate the Funds' net income, and (vi) perform other related services.
Fees
For the services provided under the retail Transfer Agency Agreement,
the Transfer Agent may receive fees from each Fund. Such fees are based upon
relative asset values and shareholder accounts, and may include certain
transaction charges and out-of-pocket expenses.
B-61
<PAGE>
EXPENSES
- All Funds -
Except as noted herein and in the Funds' Prospectuses, each Fund's
service contractors bear all expenses incurred in connection with the
performance of their services. Similarly, the Funds bear the expenses incurred
in their own operations. Expenses borne by the Funds include taxes (including
preparation of returns), interest, brokerage fees and commissions, if any, fees
of the Company's Directors, SEC fees, state securities qualification fees
(including preparation of filings), costs of preparing and printing prospectuses
for regulatory purposes and for distribution to current Fund shareholders,
charges of the Custodian and the Transfer Agent, outside auditing and legal
expenses, investment advisory and administrative fees, certain insurance
premiums, costs of maintenance of the Funds' existence, costs of shareholder
reports and shareholder meetings, and any extraordinary expenses incurred in the
Funds' operations.
The aggregate rates of the investment advisory, sub-advisory, and
administrative fees payable to the Advisers and the Distributor are not subject
to reduction as the Funds' net assets increase. However, if total expenses borne
by a Fund in any fiscal year exceed expense limitations imposed by applicable
state securities regulations, the Adviser(s) and the Distributor will reimburse
the Fund by the amount of such excess in proportion to their respective fees.
Certain of each Fund's expenses may be reduced because the regulations
in various states where Fund Shares may be qualified for sale impose limitations
on the annual expense ratio of a Fund. For example, under California law, a
Fund's aggregate annual expenses (excluding brokerage commissions, interest,
taxes, and extraordinary expenses such as legal claims, liabilities, litigation
costs and indemnification related thereto) may not exceed 2.5% of the first $30
million of its average daily net assets; 2.0% of the next $70 million of average
daily net assets; and 1.5% of average daily net assets in excess of $100
million. The Funds may also seek to qualify their Shares in other jurisdictions
which impose expense limitations.
To the Company's knowledge, as of the date hereof, there are no state
expense limitations applicable to any Fund. Any future expense reimbursements
required to be paid by the Advisers and the Distributor would be estimated daily
and reconciled and paid on a monthly basis.
LEGAL COUNSEL
- All Funds -
Morgan, Lewis & Bockius LLP (of which Mr. Jennings, Secretary of the
Company, is a partner), 2000 One Logan Square, Philadelphia, Pennsylvania 19103,
is counsel to the Company and has passed upon certain matters in connection with
these offerings. From time to time, Morgan, Lewis & Bockius LLP has rendered
legal services to the Administrator, Distributor and CoreStates Corp.
MISCELLANEOUS
- All Funds -
The Company is registered with the SEC as a management investment
company. Such registration does not involve supervision by the Commission of the
management or policies of any Fund.
The Funds' Prospectuses and this Statement of Additional Information
omit certain of the information contained in the Company's Registration
Statement filed with the Securities and Exchange Commission. Copies of such
information may be obtained from the Commission upon payment of the prescribed
fee.
The Funds' Prospectuses and this Statement of Additional Information
do not constitute an offering of the securities
B-62
<PAGE>
herein described in any state in which such offering may not lawfully be made.
No salesman, dealer, or other person is authorized to give any information or
make any representation other than those contained in the Prospectuses and this
Statement of Additional Information.
B-63
<PAGE>
APPENDIX
- All Funds -
Rated Investments
Bonds
Excerpts from Moody's Investors Service, Inc. ("Moody's") descriptions
of its three highest bond ratings:
"Aaa": Bonds which are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt 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 which are rated "Aa" are judged to be of high quality by
all standards. Together with the "Aaa" group they comprise what are generally
known as "high-grade" bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities, fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A": Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper- medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Modifiers 1, 2, or 3: Moody's applies numerical modifiers with respect
to bonds rated "Aa" or "A". The modifier 1 indicates that the bond being rated
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 bond ranks in the
lower end of its generic rating category.
Excerpts from Standard & Poor's Corporation ("S&P") descriptions of its
three highest bond ratings:
"AAA": Debt rated "AAA" has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
"AA": Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small degree.
"A": Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
Plus (+) or Minus (-): To provide more detailed indications of credit
quality, the "AA" or "A" ratings may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within these major rating
categories.
Notes
The following summarizes the highest ratings assigned by Moody's to
municipal notes and variable rate demand obligations:
"MIG-1/VMIG-1": Obligations bearing these designations 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.
The following summarizes the two highest ratings assigned by S&P to
municipal notes:
BA-64
<PAGE>
"SP-1": This is the highest rating assigned by S&P to municipal notes
and indicates very strong or strong capacity to pay interest and repay
principal. Those issues determined to possess overwhelming safety
characteristics are given a plus (+) designation.
"SP-2": Issues of this rating display a satisfactory capacity to pay
interest and repay principal, although to a lesser degree than "SP-1" issues.
Commercial Paper
Commercial paper ratings of Moody's are current assessments of the
ability of issuers to repay punctually senior debt obligations which have an
original maturity of no more than one year.
"Prime-1": The rating "Prime-1", or "P-1", is the highest commercial
paper rating assigned by Moody's. These issues (or related supporting
institutions) are considered to have a superior capacity for repayment of
short-term debt obligations.
"Prime-2": The rating "Prime-2", or "P-2", indicates that the issues
(or related supporting institutions) have a strong capacity for repayment of
short-term debt obligations. This will normally be evidenced by many of the
characteristics of "Prime- 1" rated issues, but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Commercial paper ratings of S&P are current assessments of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
"A-1": This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted "A-1+."
"A-2": This rating indicates that capacity for timely payment is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1." Among other types of municipal securities, the Funds
may purchase short-term general obligation notes, tax anticipation notes, bond
anticipation notes, revenue anticipation notes, tax-exempt commercial paper,
construction loan notes and other forms of short-term loans. Such instruments
are issued with a short-term maturity in anticipation of the receipt of tax
funds, the proceeds of bond placements, or other revenues. In addition, these
Funds may invest in other types of tax-exempt instruments such as municipal
bonds, industrial development bonds and pollution control bonds, provided (for
the Tax-Exempt Money Market Funds) they have remaining maturities of 397 days or
less at the time of purchase.
BA-65
<PAGE>
FINANCIAL STATEMENTS
- All Funds -
The following are the audited financial statements of each Fund for the
fiscal year ended June 30, 1995, appearing in CoreFunds' 1995 Annual Reports to
Shareholders for the Funds, and the reports thereon by Ernst & Young LLP,
independent auditors, also appearing therein.
FS-1
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
Board of Directors and Shareholders
CoreFunds, Inc.
We have audited the accompanying statements of net assets of the Growth
Equity Fund, Value Equity Fund, Equity Index Fund, Balanced Fund, Government
Income Fund, Intermediate Bond Fund, Pennsylvania Municipal Bond Fund, New
Jersey Municipal Bond Fund, Cash Reserve, Treasury Reserve, and Tax-Free Reserve
and the schedules of investments and statements of assets and liabilities of the
International Growth Fund, Intermediate Municipal Bond Fund, and Global Bond
Fund of CoreFunds, Inc. (the "Fund") as of June 30, 1995, and the related
statements of operations for the period then ended, and the statements of
changes in net assets and the financial highlights for each of the periods
presented herein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification by examination of securities
held by the Custodian as of June 30, 1995 and confirmation of securities not
held by the Custodian by correspondence with others. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Growth Equity Fund, Value Equity Fund, Equity Index Fund, International Growth
Fund, Balanced Fund, Government Income Fund, Intermediate Bond Fund,
Intermediate Municipal Bond Fund, Global Bond Fund, Pennsylvania Municipal Bond
Fund, New Jersey Municipal Bond Fund, Cash Reserve, Treasury Reserve, and
Tax-Free Reserve of the Fund at June 30, 1995, the results of their operations
for the period then ended, the changes in their net assets and the financial
highlights for each of the periods presented herein, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
August 14, 1995
FS-2
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
GROWTH EQUITY FUND
[GRAPH]
% of Total Portfolio Investments
Technology 36%
Healthcare 19%
Consumer Cyclical 18%
Financial 12%
Consumer Staples 6%
Capital Goods 4%
Energy 3%
Utilities 2%
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 91.4%
BANKS -- 5.0%
Bank of New York 50,591 $ 2,042
Citicorp 16,000 926
Fleet Financial Group 24,000 891
JP Morgan 12,000 842
-----------
4,701
-----------
BROADCASTING, NEWSPAPERS &
ADVERTISING -- 4.5%
Capital Cities ABC 8,900 933
Comcast, Cl A Special 88,600 1,645
Tele-Communications, Cl A* 70,393 1,650
-----------
4,228
-----------
COMMUNICATIONS EQUIPMENT -- 4.9%
General Instrument* 45,902 1,761
Qualcomm* 48,400 1,673
U.S. Robotics* 10,053 1,096
-----------
4,530
-----------
<PAGE>
COMPUTERS & SOFTWARE SERVICES -- 2.9%
Hewlett Packard 13,426 1,000
Silicon Graphics* 43,884 1,750
-----------
2,750
-----------
DRUGS -- 16.4%
Abbott Laboratories 38,600 1,563
Amgen* 25,932 2,086
Glaxo PLC (ADR) 74,000 1,804
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
DRUGS, (continued)
Johnson & Johnson 29,800 $ 2,015
Merck 36,532 1,790
Schering Plough 40,892 1,804
Smith Kline Beecham (ADR) 48,550 2,199
Warner Lambert 24,050 2,077
-----------
15,338
-----------
ENTERTAINMENT -- 4.0%
Circus Circus Enterprises* 25,253 890
Disney 15,764 877
Mirage Resorts* 64,200 1,966
-----------
3,733
-----------
FINANCIAL SERVICES -- 2.9%
American Express 24,000 843
Federal National Mortgage 19,914 1,879
-----------
2,722
-----------
FOOD, BEVERAGE & TOBACCO -- 5.4%
ConAgra 23,100 806
CPC International 27,100 1,673
PepsiCo 38,450 1,755
Sara Lee 28,500 812
-----------
5,046
-----------
HOTELS & LODGING -- 3.6%
Hilton Hotels 22,600 1,588
Promus Companies* 45,100 1,759
-----------
3,347
-----------
INSURANCE -- 2.9%
American International Group 10,600 1,208
<PAGE>
Chubb 18,389 1,474
-----------
2,682
-----------
MACHINERY -- 3.3%
Emerson Electric 12,900 922
General Electric 17,589 992
Lam Research* 18,640 1,193
-----------
3,107
-----------
MEDICAL PRODUCTS & SERVICES -- 1.0%
Health Management, Cl A* 32,900 962
-----------
MISCELLANEOUS BUSINESS SERVICES -- 12.4%
Cisco Systems* 37,000 1,871
Computer Sciences* 47,494 2,701
CUC International* 43,008 1,806
First Data 42,500 2,417
Microsoft* 11,316 1,023
Oracle Systems* 46,083 1,780
-----------
11,598
-----------
PETROLEUM & FUEL PRODUCTS -- 0.9%
Atlantic Richfield 7,200 790
-----------
</TABLE>
* Non-income producing security
See accompanying notes to financial statements
----
FS-3
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GROWTH EQUITY FUND (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
PETROLEUM REFINING -- 1.8%
Amoco 12,745 $ 849
Mobil 8,870 852
-----------
1,701
<PAGE>
-----------
PRINTING & PUBLISHING -- 1.0%
Time Warner 21,675 891
-----------
PROFESSIONAL SERVICES -- 1.9%
Paychex 49,350 1,789
-----------
RETAIL -- 1.1%
McDonalds 26,200 1,025
-----------
SEMICONDUCTORS/INSTRUMENTS -- 4.3%
Amphenol, Cl A* 33,497 976
Intel 18,104 1,146
Linear Technology 15,971 1,054
Molex 22,075 855
-----------
4,031
-----------
TELEPHONES & TELECOMMUNICATION -- 11.2%
Airtouch Communications* 66,600 1,898
ALC Communications* 40,066 1,808
Glenayre Technologies* 38,725 1,976
LCI International* 41,217 1,262
MFS Communications* 48,356 1,559
Mobile Telecommunication* 70,152 1,920
-----------
10,423
-----------
TOTAL COMMON STOCK
(Cost $70,790,326) 85,394
-----------
<CAPTION>
- ------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS -- 7.2%
Goldman Sachs 6.05%, dated
06/30/95, matures 07/03/95,
repurchase price $2,241,129
(collateralized by U.S.
Treasury Note, par value
$2,335,000, 4.75%, matures
08/31/98: market value,
$2,328,105) $ 2,240 $ 2,240
Republic New York City 6.07%,
dated 06/30/95, matures
07/03/95, repurchase price
$2,240,133 (collateralized by
<PAGE>
U.S. Treasury Note, par value
$2,235,000, 7.5%, matures
12/31/96: market value
$2,285,288) 2,239 2,239
Swiss Bank 6.12%, dated
06/30/95, matures 07/03/95,
repurchase price $2,240,142
(collateralized by U.S.
Treasury Note, par value
$2,240,000, 7.875%, matures
06/30/96: market value
$2,283,904) 2,239 2,239
-----------
TOTAL REPURCHASE AGREEMENTS
(Cost $6,718,000) 6,718
-----------
TOTAL INVESTMENTS -- 98.6%
(Cost $77,508,326) 92,112
-----------
TOTAL OTHER ASSETS AND
LIABILITIES, NET -- 1.4% 1,276
-----------
NET ASSETS:
Portfolio shares -- Series A ($0.001 par value -- 100 million authorized)
based on
8,171,138 outstanding shares 78,691
Portfolio shares -- Series B ($0.001 par value -- 100 million authorized)
based on
182,970 outstanding shares 1,638
Accumulated Net Realized Loss on
Investments (1,547)
Net Unrealized Appreciation on
Investments 14,604
Undistributed Net Investment
Income 2
-----------
TOTAL NET ASSETS -- 100.0% $ 93,388
-----------
-----------
NET ASSET VALUE & REDEMPTION
PRICE PER SHARE
SERIES A $11.18
-----------
-----------
SERIES B $11.17
-----------
<PAGE>
-----------
</TABLE>
*Non-income producing security
- ---- ADR -- American Depository Receipt
FS-4 See accompanying notes to financial statements
<PAGE>
- --------------------------------------------------------------------------------
COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VALUE EQUITY FUND
[GRAPH]
% of Total Portfolio Investments
Capital Goods 28%
Consumer Cyclical 26%
Financial 17%
Energy 9%
Basic Goods 7%
Utilities 5%
Transportation 4%
Staples 3%
Equivalents 1%
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 99.4%
AEROSPACE & DEFENSE -- 4.3%
Loral 11,200 $ 580
Rockwell International 20,000 915
-----------
1,495
-----------
AIR TRANSPORTATION -- 1.2%
Southwest Airlines 18,100 432
-----------
AIRCRAFT -- 3.4%
Boeing 11,200 701
Sundstrand 8,000 478
-----------
1,179
<PAGE>
-----------
AUTOMOTIVE -- 3.1%
Allied Signal 24,500 1,090
-----------
BANKS -- 4.0%
Bank of New York 16,000 646
First Union 8,000 362
Park National 8,000 389
-----------
1,397
-----------
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
CHEMICALS -- 1.6%
FMC* 8,000 $ 538
-----------
DRUGS -- 5.3%
Caremark International 36,800 735
Carter-Wallace 60,000 683
Johnson & Johnson 6,000 406
-----------
1,824
-----------
ELECTRICAL SERVICES -- 4.0%
American Electric Power 20,000 702
Peco Energy 25,000 691
-----------
1,393
-----------
FINANCIAL SERVICES -- 11.5%
Caterpillar 9,500 610
Dial 14,300 354
Franklin Resources 20,000 890
Merrill Lynch 19,000 998
Salomon 28,600 1,147
-----------
3,999
-----------
FOOD, BEVERAGE & TOBACCO -- 2.0%
PepsiCo 15,000 684
-----------
GAS/NATURAL GAS -- 1.0%
<PAGE>
Enron 10,000 351
-----------
GLASS PRODUCTS -- 2.2%
Corning 23,200 760
-----------
HOUSEHOLD PRODUCTS -- 1.5%
Sherwin Williams 14,500 517
-----------
INSURANCE -- 4.0%
American International Group 3,600 410
Progressive of Ohio 25,000 960
-----------
1,370
-----------
</TABLE>
* Non-income producing security
See accompanying notes to financial statements
--------
FS-5
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VALUE EQUITY FUND (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
MACHINERY -- 4.7%
Emerson Electric 10,600 $ 758
Harnischfeger Industries 25,000 866
-----------
1,624
-----------
MEDICAL PRODUCTS &
SERVICES -- 6.8%
Columbia/HCA Healthcare 19,900 860
Manor Care 23,100 673
Varian Associates 15,000 829
-----------
2,362
-----------
<PAGE>
PAPER & PAPER PRODUCTS -- 5.9%
Avery Dennison 15,000 600
Mead 12,900 765
Minnesota Mining & Manufacturing 11,800 676
-----------
2,041
-----------
PETROLEUM & FUEL
PRODUCTS -- 6.1%
Anadarko Petroleum 20,000 863
Atlantic Richfield 7,000 768
Western Atlas 11,000 488
-----------
2,119
-----------
PETROLEUM REFINING -- 3.0%
Mobil 11,000 1,056
-----------
PROFESSIONAL SERVICES -- 1.8%
Flight Safety International 13,000 634
-----------
RAILROADS -- 3.0%
Conrail 18,900 1,051
-----------
<CAPTION>
- ------------------------------------------------------------
Description Shares/Par (000) Value (000)
- --------------------------------------------------------------
<S> <C> <C>
RETAIL -- 14.8%
Bombay* 50,000 $ 394
Circuit City Stores 25,500 806
Heilig-Meyers 31,200 796
Price/Costco* 32,000 520
Sears Roebuck 18,000 1,078
Talbots 10,000 398
Toys R US* 15,000 439
Wendy's International 40,000 715
-----------
5,146
-----------
RUBBER AND PLASTICS
FOOTWEAR -- 2.1%
Nike, Cl B 8,500 714
-----------
SEMI-CONDUCTORS/
INSTRUMENTS -- 2.1%
<PAGE>
AMP 17,000 718
-----------
TOTAL COMMON STOCK
(Cost $29,816,002) 34,494
-----------
REPURCHASE AGREEMENTS -- 1.6%
Goldman Sachs 6.05%, dated
06/30/95, matures
07/03/95, repurchase price
$283,143 (collateralized
by U.S. Treasury Note, par
value $295,000, 4.375%,
matures 08/31/98: market
value $294,129) $ 283 283
-----------
Swiss Bank 6.12%, dated
06/30/95, matures
07/03/95, repurchase price
$282,144 (collateralized
by U.S. Treasury Note, par
value $280,000, 7.875%,
matures 06/30/96: market
value $285,488) 282 282
-----------
TOTAL REPURCHASE AGREEMENTS
(Cost $565,000) 565
-----------
</TABLE>
- ------
FS-6 See accompanying notes to financial statements
<PAGE>
- --------------------------------------------------------------------------------
COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Value (000)
- -------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS -- 101.0%
Cost $30,381,002) $ 35,059
-----------
TOTAL OTHER ASSETS AND LIABILITIES,
NET -- (1.0%) (348)
-----------
<PAGE>
NET ASSETS:
Portfolio Shares -- Series A ($0.001 par value -- 25 million authorized)
based on
2,173,174 outstanding shares 26,113
Portfolio Shares -- Series B ($0.001 par value -- 25 million authorized)
based on
259,425 outstanding shares 2,357
Accumulated Net Realized Gain on
Investments 1,563
Net Unrealized Appreciation on
Investments 4,678
-----------
TOTAL NET ASSETS -- 100.0% $ 34,711
-----------
-----------
NET ASSET VALUE & REDEMPTION PRICE
PER SHARE
SERIES A $14.27
-----------
-----------
SERIES B $14.29
-----------
-----------
</TABLE>
* Non-income producing security
See accompanying notes to financial statements
--------
FS-7
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EQUITY INDEX FUND
[GRAPH]
% of Total Portfolio Investments
Consumer Cyclicals 15%
Consumer Staples 12%
Utilities 12%
Finance 11%
Technology 11%
Energy 10%
Healthcare 9%
Capital Goods 8%
Basic Material 7%
Miscellaneous 3%
Transportation 2%
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 99.8%
AEROSPACE & DEFENSE -- 0.9%
Lockheed Martin 4,382 $ 276
Loral 1,900 98
Raytheon 3,000 233
Rockwell International 5,763 264
TRW 1,500 120
-----------
991
-----------
AGRICULTURE -- 0.1%
Pioneer Hi-Bred International 2,500 105
-----------
AIR TRANSPORTATION -- 0.6%
AMR* 1,800 134
Delta Air Lines 1,000 74
Federal Express* 1,300 79
Southwest Airlines 3,300 79
UAL* 1,300 182
US Air Group* 15,300 178
-----------
726
-----------
AIRCRAFT -- 1.4%
Aviall 375 3
Boeing 8,937 560
General Dynamics 1,700 75
McDonnell Douglas 2,700 207
Northrop Grumman 1,700 89
Parker Hannifin 2,850 103
Teledyne 3,700 91
Textron 2,000 116
United Technologies 4,300 336
-----------
1,580
-----------
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
<PAGE>
APPAREL/TEXTILES -- 0.2%
Liz Claiborne 5,000 $ 106
Russell 3,100 89
V. F. 1,500 81
-----------
276
-----------
AUTOMOTIVE -- 2.6%
Allied Signal 7,700 343
Chrysler 9,500 455
Echlin 2,500 87
Fleetwood Enterprises 4,055 80
Ford Motor 24,300 723
General Motors 20,100 942
Genuine Parts 2,800 106
Varity* 3,260 143
-----------
2,879
-----------
BANKS -- 5.7%
Banc One 12,222 394
Bank of Boston 2,900 109
Bankamerica 11,372 598
Bankers Trust New York 1,800 112
Barnett Banks 2,200 113
Boatman Bancshares 4,600 162
Chase Manhattan 4,200 197
Chemical Banking 8,000 378
Citicorp 10,500 608
First Chicago 2,100 126
First Fidelity Bancorp 1,800 106
First Interstate Bancorp 1,900 152
First Union 5,500 249
Fleet Financial Group 3,100 115
Golden West Financial 1,800 85
Great Western Financial 3,800 78
H.F. Ahmanson 3,600 79
J P Morgan 5,800 407
Keycorp 7,800 245
MBNA 3,300 111
NBD Bancorp 3,600 115
NationsBank 7,200 386
Norwest 10,900 313
PNC Bank 8,900 235
Shawmut National 3,700 118
Suntrust Banks 4,200 245
U. S. Bancorp 2,900 70
U.S.T. 4,600 137
Wachovia 3,900 139
Wells Fargo 1,500 270
-----------
6,452
-----------
BEAUTY PRODUCTS -- 1.8%
<PAGE>
Alberto Culver 3,200 97
Avon Products 1,600 107
Colgate Palmolive 3,346 245
Dial 3,300 82
International Flavors 2,500 124
Procter & Gamble 19,700 1,416
-----------
2,071
-----------
</TABLE>
- ----- * Non-income producing security
FS-8 See accompanying notes to financial statements
<PAGE>
- --------------------------------------------------------------------------------
COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
BROADCASTING, NEWSPAPERS &
ADVERTISING -- 1.1%
Capital Cities ABC 4,000 $ 419
CBS 1,500 101
Comcast 5,400 100
Interpublic Group 2,200 83
Tele-Communications, Cl A* 16,000 375
Viacom Variable Common Rights* 5,600 8
Viacom Voting* 448 21
Viacom, Cl B Non-Voting* 3,394 157
-----------
1,264
-----------
BUILDING & CONSTRUCTION -- 0.2%
Fluor 1,900 99
McDermott International 3,400 82
Owens Corning Fiberglas* 2,800 103
-----------
284
-----------
CHEMICALS -- 3.5%
Air Products & Chemical 2,600 145
Albemarle 3,750 59
Cytec Industries* 842 34
Dow Chemical 7,250 521
Dupont (E.I.) De Nemour 15,200 1,045
Eastman Chemical 2,850 170
First Mississippi 3,700 126
FMC* 1,400 94
<PAGE>
Great Lakes Chemical 1,600 96
Hercules 2,700 132
Lilly Eli 7,800 612
Monsanto 3,900 351
Nalco Chemical 2,300 84
Praxair 5,200 130
Rohm & Haas 1,500 82
Union Carbide 3,400 113
W.R. Grace 2,100 129
-----------
3,923
-----------
COMMUNICATIONS EQUIPMENT -- 2.1%
Andrew* 2,400 139
Cisco Systems* 7,200 364
DSC Communications* 2,591 120
ITT 2,600 306
Motorola 16,400 1,101
Northern Telecom 5,700 208
Scientific-Atlantic 3,400 75
-----------
2,313
-----------
COMPUTERS & SERVICES -- 6.4%
Amdahl* 8,100 90
Apple Computer 2,600 121
Autodesk 2,400 103
Automatic Data Processing 3,700 233
Ceridian* 3,000 111
Compaq Computer* 8,700 395
Computer Associates International 3,700 251
Computer Sciences* 1,900 108
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
COMPUTERS & SERVICES, (continued)
Digital Equipment* 3,900 $ 159
Harris 1,600 83
Harris Computer Systems* 80 1
Hewlett Packard 14,200 1,058
International Business Machines 16,800 1,612
Lotus Development* 1,800 115
Microsoft* 16,800 1,518
Novell* 8,300 165
Oracle Systems* 11,450 442
Pitney Bowes 5,000 192
Sun Microsystems* 2,800 136
Tandem Computers* 5,986 97
Tandy 1,800 93
Unisys* 7,400 80
-----------
<PAGE>
7,163
-----------
CONTAINERS & PACKAGING -- 0.2%
Crown Cork & Seal* 2,100 105
Newell 3,600 88
-----------
193
-----------
DRUGS -- 4.8%
Allergan 3,200 87
Alza, Cl A* 3,400 79
American Home Products 8,000 619
Amgen* 3,000 241
Bristol-Myers Squibb 13,620 928
Merck 34,100 1,671
Pfizer 8,800 813
Schering Plough 10,900 481
Therapeutic Discovery* 190 1
Upjohn 3,900 148
Warner Lambert 3,700 320
-----------
5,388
-----------
ELECTRICAL EQUIPMENT -- 2.8%
Emerson Electric 6,300 450
General Electric 46,400 2,616
Westinghouse Electric 8,000 117
-----------
3,183
-----------
ELECTRICAL SERVICES -- 3.4%
American Electric Power 4,200 148
Baltimore Gas & Electric 6,050 151
Carolina Power & Light 3,600 109
Central & South West 7,400 194
Consolidated Edison New York 5,300 156
Detroit Edison 3,300 97
Dominion Resources of Virginia 3,500 128
Duke Power 4,600 191
Entergy 5,200 125
FPL Group 6,100 236
Houston Industries 2,900 122
Niagara Mohawk Power 6,200 91
Northern States Power 1,700 78
Ohio Edison 4,100 93
Pacific Gas & Electric 11,500 334
</TABLE>
* Non-income producing security
See accompanying notes to financial statements
--------
FS-9
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
EQUITY INDEX FUND (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
ELECTRICAL SERVICES, (continued)
Pacificorp 6,400 $ 120
PECO Energy 5,000 138
Public Service Enterprise Group 5,500 153
SCEcorp 21,000 360
Southern 17,100 382
Texas Utilities 5,100 175
Unicom 4,800 128
Union Electric Power 2,300 86
-----------
3,795
-----------
ENTERTAINMENT -- 0.8%
King World Productions* 2,600 105
Walt Disney 14,000 779
-----------
884
-----------
ENVIRONMENTAL SERVICES -- 0.5%
Browning Ferris Industries 5,900 213
WMX Technologies 12,900 366
-----------
579
-----------
FINANCIAL SERVICES -- 2.5%
American Express 12,600 443
Beneficial 2,400 106
Dean Witter Discover 8,341 392
Federal Home Loan Mortgage
Corporation 4,700 323
Federal National Mortgage
Association 8,200 774
Household International 2,100 104
Lehman Brothers Holdings 2,520 55
Mellon Bank 5,700 237
Merrill Lynch 4,600 242
Providian 2,300 83
Salomon 2,500 100
-----------
2,859
<PAGE>
-----------
FOOD, BEVERAGE & TOBACCO -- 8.7%
American Brands 4,500 179
Anheuser Busch 6,900 392
Archer Daniels Midland 22,826 425
Brown Forman, Cl B 2,700 90
Campbell Soup 6,800 333
Coca Cola 34,900 2,226
Conagra 5,600 195
Coors (Adolph), Cl B 5,600 92
CPC International 3,400 210
General Mills 3,600 185
H J Heinz 5,700 253
Hershey Foods 2,000 111
Kellogg 6,100 435
Pepsico 23,000 1,049
Philip Morris Companies 24,300 1,807
Quaker Oats 3,000 99
Ralcorp Holdings* 1,633 37
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
FOOD, BEVERAGE & TOBACCO, (continued)
Ralston-Ralston Purina Group 2,386 $ 122
RJR Nabisco Holdings 4,207 117
Sara Lee 12,600 359
Seagram 10,400 360
Unilever N V 4,200 547
Whitman 5,100 99
Wrigley, William Jr 2,600 121
-----------
9,843
-----------
GAMES AND TOYS -- 0.2%
Hasbro 2,400 76
Mattel 5,000 130
-----------
206
-----------
GAS/NATURAL GAS -- 0.9%
Coastal 2,500 76
Columbia Gas Systems* 3,500 111
Consoldiated Natural Gas 2,100 79
Enron 5,600 197
Nicor 3,700 99
Pacific Enterprises 3,800 93
Panhandle Eastern 4,200 102
Peoples Energy 4,100 106
Sonat 2,300 70
Williams 2,500 87
-----------
<PAGE>
1,020
-----------
GLASS PRODUCTS -- 0.5%
Corning 6,100 200
PPG Industries 7,300 314
-----------
514
-----------
HOTELS & LODGING -- 0.5%
Hilton Hotels 1,100 77
Marriott International 11,000 395
Promus* 2,300 90
-----------
562
-----------
HOUSEHOLD FURNITURE &
FIXTURES -- 0.5%
Armstrong World Industries 1,600 80
Black and Decker 3,500 108
Masco 3,500 95
Sherwin Williams 2,300 82
Snap-On Tools 2,700 105
Stanley Works 1,800 68
-----------
538
-----------
HOUSEHOLD PRODUCTS -- 0.7%
Clorox 1,300 85
Gillette 11,800 526
Maytag 5,600 90
Whirlpool 1,700 94
-----------
795
-----------
</TABLE>
- ----- * Non-income producing security
FS-10 See accompanying notes to financial statements
<PAGE>
- --------------------------------------------------------------------------------
COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Shares Value (000)
- -------------------------------------------------------------
<S> <C> <C>
INSURANCE -- 3.3%
Aetna Life & Casualty 2,500 $ 157
Alexander and Alexander
Services 4,400 105
American General 5,400 182
<PAGE>
American International Group 8,812 1,005
Chubb 2,000 160
Cigna 1,600 124
First Colony 2,508 60
General Re 1,900 254
Jefferson-Pilot 1,400 77
Lincoln National 2,100 92
Marsh & McLennan 1,700 138
Safeco 1,400 80
St. Paul 11,327 558
Torchmark 1,800 68
Transamerica 1,600 93
Travelers 6,481 284
Unum 1,700 80
USF & G 5,500 89
USLife 2,600 105
-----------
3,711
-----------
LUMBER & WOOD PRODUCTS -- 0.5%
Georgia Pacific 2,000 174
Louisiana Pacific 2,500 66
Potlatch 2,100 88
Rayonier 1,000 36
Weyerhaeuser 4,606 217
-----------
581
-----------
MACHINERY -- 1.6%
Caterpillar 6,400 409
Cooper Industries 2,600 103
Deere 1,900 163
Dover 1,400 102
Eaton 1,700 99
Gardner Denver Machinery* 272 5
Harnischfeger Industries 3,300 114
Illinois Tool Works 2,500 138
Ingersoll Rand 2,400 92
National Service Industry 3,000 87
SPX 9,000 102
Tenneco 5,000 230
Tyco International 1,700 92
W W Grainger 1,200 71
-----------
1,807
-----------
MEASURING DEVICES -- 0.6%
General Signal 2,100 83
Honeywell 2,900 125
Johnson Controls 1,500 85
Millipore 1,700 115
Pall 4,500 100
Perkin Elmer 3,725 132
-----------
<PAGE>
640
-----------
<CAPTION>
- -------------------------------------------------------------
Description Shares Value (000)
- -------------------------------------------------------------
<S> <C> <C>
MEDICAL PRODUCTS &
SERVICES -- 2.0%
Bausch & Lomb 2,000 $ 83
Becton Dickinson 1,700 99
Beverly Enterprises* 6,600 82
Biomet* 5,800 90
C R Bard 3,500 105
Columbia/HCA Healthcare 21,132 913
Community Psychiatric* 8,300 93
Manor Care 3,100 90
Medtronic 2,600 201
St. Jude Medical 1,900 95
Tenet Healthcare* 4,100 59
U.S. Healthcare 3,600 110
United Healthcare 3,700 153
United States Surgical 2,900 61
-----------
2,234
-----------
MEDICAL SUPPLIES -- 2.2%
Abbott Laboratories 21,100 855
Baxter International 7,800 284
Caremark International 600 12
Johnson & Johnson 18,400 1,243
Mallinckrodt Group 3,425 122
-----------
2,516
-----------
METALS & MINING -- 0.9%
Alcan Aluminum 5,000 151
Aluminum America 4,000 200
Asarco 3,300 101
Cyprus AMAX Minerals 2,400 68
Englehard 2,800 120
Inco 2,600 73
Newmont Mining 1,900 80
Phelps Dodge 1,600 94
Reynolds Metal 1,500 78
Santa Fe Pacific Gold* 2,519 31
-----------
996
-----------
MISCELLANEOUS BUSINESS
SERVICES -- 0.3%
Ecolab 3,300 81
Ogden 9,600 210
<PAGE>
-----------
291
-----------
MISCELLANEOUS CHEMICAL
PRODUCTS -- 0.1%
Morton International 3,300 96
Raychem 1,900 73
-----------
169
-----------
</TABLE>
* Non-income producing security
See accompanying notes to financial statements
--------
FS-11
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
EQUITY INDEX FUND (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
MISCELLANEOUS CONSUMER
SERVICES -- 0.2%
H & R Block 2,400 $ 98
Service International 2,900 92
-----------
190
-----------
PAPER & PAPER PRODUCTS -- 2.3%
Alco Standard 1,200 96
Avery Dennison 2,300 92
Bemis 3,500 91
Boise Cascade 2,800 113
Champion International 2,200 115
Federal Paper Board 2,700 96
International Paper 3,500 300
James River 3,200 88
Kimberly Clark 3,600 216
Mead 1,600 95
Minnesota Mining &
Manufacturing 12,800 733
Moore 4,100 91
Scott Paper 3,400 168
<PAGE>
Stone Container* 3,800 81
Temple Inland 1,400 67
Union Camp 1,550 90
Westvaco 2,100 93
-----------
2,625
-----------
PETROLEUM REFINING -- 9.8%
Amerada Hess 2,100 103
Amoco 15,800 1,053
Ashland Oil 2,100 74
Atlantic Richfield 4,500 494
Baker Hughes 4,000 82
Brunswick 3,500 60
Burlington Resources 2,900 107
Chevron 19,100 891
Dresser Industries 3,900 87
Enserch 6,600 113
Exxon 34,700 2,450
Halliburton 2,600 93
Helmerich & Payne 7,000 207
Kerr-McGee 1,500 80
Louisiana Land & Exploration 3,100 124
Mobil 11,500 1,104
Occidental Petroleum 6,900 158
Oryx Energy* 8,400 116
Pennzoil 1,500 71
Phillips Petroleum 5,900 197
Royal Dutch Petroleum 15,000 1,828
Santa Fe Energy Resources* 22,000 209
Schlumberger 6,400 398
Texaco 6,800 446
Unocal 6,400 177
USX Marathon Group 6,500 128
USX-U.S. Steel Group 1,900 65
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
PETROLEUM REFINING, (continued)
Western Atlas* 2,594 $ 115
-----------
11,030
-----------
PHOTOGRAPHIC EQUIPMENT &
SUPPLIES -- 0.8%
Eastman Kodak 7,100 430
Polaroid 2,300 94
Xerox 2,800 328
-----------
852
-----------
<PAGE>
PRECIOUS METALS -- 0.7%
Barrick Gold 12,000 303
Echo Bay Mines 23,200 209
Homestake Mining 6,800 112
Placer Dome 5,400 141
-----------
765
-----------
PRINTING & PUBLISHING -- 1.4%
American Greetings, Cl A 3,200 94
Deluxe 2,500 83
Donnelley R R & Sons 3,200 115
Dow Jones 5,600 207
Gannett 3,300 179
Knight-Ridder 1,500 85
McGraw-Hill 1,100 83
Meredith 3,800 96
New York Times, Cl A 3,200 75
Time Warner 9,900 408
Times Mirror, Cl A 3,100 74
Times Mirror, Cl C* 880 19
Tribune 1,500 92
-----------
1,610
-----------
PROFESSIONAL SERVICES -- 0.2%
Dun & Bradstreet 3,800 200
-----------
RAILROADS -- 1.0%
Burlington Northern 2,036 129
Conrail 1,800 100
CSX 2,400 180
Norfolk Southern 3,100 209
Santa Fe Pacific 4,200 107
Union Pacific 6,300 349
-----------
1,074
-----------
RETAIL -- 6.3%
Albertsons 6,400 190
American Stores 3,200 90
Bruno's 9,400 109
Circuit City Stores 3,000 95
Darden Restaurants* 3,600 39
Dayton Hudson 1,600 115
Dillard Department Stores 2,700 79
Gap 3,300 115
Giant Food 3,900 111
Great Atlantic and Pacific 4,000 106
</TABLE>
* Non-income producing security
See accompanying notes to financial statements
- -----
FS-12
<PAGE>
- --------------------------------------------------------------------------------
COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Shares Value (000)
- -------------------------------------------------------------
<S> <C> <C>
RETAIL, (continued)
Harcourt General 2,300 $ 97
Home Depot 11,866 482
J.C. Penney 6,500 312
K Mart 9,200 135
Kroger* 3,100 83
Limited 9,500 209
Lowe's 3,500 105
May Department Stores 6,900 287
McDonald's 18,900 739
Melville 2,400 82
Mercantile Stores 2,200 102
Nordstrom 1,800 74
Pep Boys -- Manny, Moe & Jack 3,226 86
Price/Costco* 4,900 80
Rite Aid 3,700 95
Sears Roebuck 12,100 724
TJX Companies 6,700 89
Toys R US* 6,500 190
Wal Mart Stores 62,300 1,667
Walgreen 2,800 140
Wendy's International 5,900 105
Winn Dixie Stores 1,700 98
Woolworth* 7,500 113
-----------
7,143
-----------
RUBBER & PLASTIC -- 0.5%
Cooper Tire & Rubber 3,000 73
Goodrich B F 2,100 113
Goodyear Tire & Rubber 3,380 139
Premark International 1,700 88
Rubbermaid 6,300 175
-----------
588
-----------
SEMICONDUCTORS/INSTRUMENTS -- 2.0%
Advanced Micro Devices* 2,800 102
AMP 4,800 203
Intel 23,400 1,481
<PAGE>
National Semiconductor* 4,400 122
Texas Instruments 2,600 348
-----------
2,256
-----------
SHOES -- 0.2%
Nike, Cl B 1,700 143
Reebok International 2,000 68
-----------
211
-----------
<CAPTION>
- -------------------------------------------------------------
Description Shares Value (000)
- -------------------------------------------------------------
<S> <C> <C>
STEEL & STEEL WORKS -- 0.3%
Bethlehem Steel* 5,900 $ 96
Nucor 2,000 107
Worthington Industries 4,600 94
-----------
297
-----------
TELEPHONES & TELECOMMUNICATION -- 8.4%
AT&T 48,836 2,596
Airtouch Communications* 24,900 710
Ameritech 14,400 634
Bell Atlantic 11,400 638
Bellsouth 14,700 933
Cox* 2,399 46
GTE 28,100 959
MCI Communications 17,358 382
NYNEX 11,000 443
Pacific Telesis Group 13,700 366
SBC Telecommunications 17,976 856
Sprint 10,800 363
U S West 11,900 495
-----------
9,421
-----------
TRUCKING -- 0.3%
Cummins Engine 1,900 83
Paccar 1,500 70
Pittston Services Group 3,700 89
Roadway Services 1,300 61
Ryder System 1,500 36
-----------
339
-----------
WHOLESALE -- 0.3%
Fleming Companies 4,700 124
McKesson 900 42
Super-Valu 2,700 79
<PAGE>
Sysco 4,100 121
-----------
366
-----------
TOTAL COMMON STOCK
(Cost $92,407,326) 112,299
-----------
CONVERTIBLE PREFERRED STOCKS -- 0%
AIRCRAFT -- 0%
Teledyne Incorporated $1.20
Series E* 37 1
-----------
TOTAL CONVERTIBLE PREFERRED
STOCKS 1
-----------
</TABLE>
* Non-income producing security
See accompanying notes to financial statements
--------
FS-13
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
- -------------------------------------------------------------
EQUITY INDEX FUND (concluded)
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS -- 0.6%
Goldman Sachs 6.05%, dated
06/30/95, matures 07/03/95,
repurchase price $353,178
(collateralized by U.S.
Treasury Note, par value
$370,000, 4.75%, matures
08/31/98: market value
$368,907) $ 353 $ 353
Sanwa Bank 6.15%, dated
06/30/95, matures 07/03/95,
repurchase price $353,181
(collateralized by U.S.
Treasury Note, par value
$350,000, 6.625%, matures
03/31/97: market value
<PAGE>
$365,825) 353 353
-----------
TOTAL REPURCHASE AGREEMENTS
(Cost $706,000) 706
-----------
TOTAL INVESTMENTS -- 100.4%
(Cost $93,113,326) 113,006
-----------
TOTAL OTHER ASSETS AND
LIABILITIES, NET -- (0.4%) (453)
-----------
NET ASSETS:
Portfolio shares ($0.001 par
value -- 500 million
authorized) based on 4,731,823
outstanding shares 92,048
Accumulated Net Realized Gain on
Investments 612
Net Unrealized Appreciation on
Investments 19,893
-----------
TOTAL NET ASSETS -- 100.0% $ 112,553
-----------
-----------
NET ASSET VALUE & REDEMPTION
PRICE PER SHARE $23.79
-----------
-----------
</TABLE>
* Non-income producing security
See accompanying notes to financial statements
- -----
FS-14
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
INTERNATIONAL GROWTH FUND
[GRAPH]
% of Total Portfolio Investments
Japan 34%
Europe 22%
United Kingdom 18%
Other Pacific Rim 16%
Smaller Markets 7%
Cash Equivalents 3%
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Description Shares Value (000)
- -----------------------------------------------------------
<S> <C> <C>
FOREIGN STOCKS -- 95.6%
ARGENTINA -- 0.5%
Buenos Aires Embotelladora ADR 4,200 $ 106
Capex GDS* 12,500 181
Compania Naviera Perez ADS 36,700 154
YPF Sociedad Anonima ADS 5,400 103
-----------
544
-----------
AUSTRALIA -- 1.3%
Broken Hill Proprietary 121,770 1,497
-----------
AUSTRIA -- 0.8%
Oest Elektrizatswirts Series A 5,047 370
Vienna International Airport 9,500 505
-----------
875
-----------
BELGIUM -- 0.5%
Kredietbank 2,600 615
-----------
<CAPTION>
- -----------------------------------------------------------
Description Shares Value (000)
- -----------------------------------------------------------
<S> <C> <C>
BRAZIL -- 1.1%
Compania Vale Rio Doce ADR 10,300 $ 395
Rhodia-Ster GDR 20,097 281
Telebras ADR 9,550 322
Usiminas ADR 18,600 205
-----------
1,203
-----------
CHILE -- 1.2%
Madeco ADR 14,830 426
<PAGE>
Maderas Y Sintecticos Sociedad
ADR 17,000 319
Sociedad Quimica Y Minera ADR 13,161 622
-----------
1,367
-----------
COLOMBIA -- 0.5%
Cementos Diamante GDS 18,800 536
-----------
ECUADOR -- 0.2%
La Cemento Nacional GDR 832 200
-----------
FRANCE -- 5.6%
AXA 18,500 999
Cie de Saint-Gobain 3,100 375
Imetal SA 3,887 457
L'Oreal 4,800 1,203
Schneider 12,800 1,013
Seita 35,000 1,052
Societe Nationale Elf Aquitaine 16,000 1,183
-----------
6,282
-----------
GERMANY -- 3.0%
Bayerische Motoren Werk 863 474
Mannesmann AG 4,300 1,315
Veba AG 4,000 1,571
-----------
3,360
-----------
HONG KONG -- 6.3%
Amoy Properties 952,000 837
China Light & Power 200,000 1,029
HSBC Holdings 123,501 1,584
Hutchison Whampoa 374,000 1,807
Swire Pacific 235,000 1,792
-----------
7,049
-----------
INDIA -- 1.2%
Himalayan Fund* 77,718 1,050
Himalayan Fund Warrants* 7,243 5
Indian Opportunities Fund* 29,000 352
-----------
1,407
-----------
</TABLE>
*Non-income producing security ADR -- American Depository Receipts ADS --
American Depository Shares GDR -- Global Depository Receipts GDS -- Global
Depository Shares IDR -- International Depository Receipts
<PAGE>
See accompanying notes to financial statements --------
FS-15
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
- -----------------------------------------------------------
INTERNATIONAL GROWTH FUND (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
ISRAEL -- 0.7%
Near East Opportunities Fund* 80,000 $ 800
-----------
ITALY -- 1.6%
Rinascente 162,000 921
Telecom Italia 345,000 936
-----------
1,857
-----------
JAPAN -- 32.9%
Amano Corporation 47,000 555
Asahi Chemical Industries 198,000 1,301
Asahi Diamond Industrial 43,000 528
Canon Incorporated 93,000 1,515
Daifuku Company Limited 43,000 482
DDI Corporation 147 1,180
Eidensha Limited 27,000 331
Enplas 15,000 301
Hitachi Limited 163,000 1,625
Hitachi Metals 112,000 1,257
Honda Motor Company 79,000 1,212
Ito Yokado Company 22,000 1,160
Itochu Company 236,000 1,379
Kamigumi Company 102,000 1,023
Kirin Beverage 35,000 582
Kuraray Warrants* 360 117
Kyocera Corporation 21,000 1,730
Mabuchi Motor 9,000 620
Marui Company 67,000 1,067
Maspro Denkoh 12,000 241
Mitsubishi Heavy Industries 254,000 1,727
Mitsui Fudosan 101,000 1,157
Nippon Express 151,000 1,390
Nippon System Development 17,000 207
Nomura Securities 77,000 1,345
Organo 40,000 373
<PAGE>
Riso Kagaku Corporation 6,100 425
Rohm Company 37,000 1,913
Sankyo Company 61,000 1,418
Sekisui Warrants* 155 122
Shimachu 17,000 431
Shin-Etsu Chemical 83,000 1,459
Sony Corporation 24,000 1,153
Sumitomo Electric 109,000 1,299
Sumitomo Forestry 88,000 1,464
Sumitomo Trust & Banking 110,000 1,337
Tochigi Fuji Industrial 41,000 314
Tokio Marine & Fire Insurance 117,000 1,342
-----------
37,082
-----------
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
LUXEMBOURG -- 0.5%
Millicom International* 18,000 $ 533
-----------
MALAYSIA -- 2.6%
Arab-Malaysian Merchant Bank 106,000 1,261
Genting Berhad 114,000 1,127
Resorts World Berhad 88,000 516
-----------
2,904
-----------
NETHERLANDS -- 3.8%
Elsevier NV 131,750 1,556
International Nederlanden 22,700 1,256
International Nederlanden Rights* 26,500 37
Koninkijke PTT Nederland* 17,000 611
Polygram 14,500 857
-----------
4,317
-----------
SINGAPORE -- 3.8%
Development Bank of Singapore 88,000 1,002
First Capital Corporation 227,000 702
Jardine Matheson & Company ADR 156,800 1,152
Singapore Press 98,400 1,472
-----------
4,328
-----------
SOUTH AFRICA -- 1.4%
Iscor* 106,100 121
Malbak 50,000 316
Murray & Roberts* 34,500 199
Safmarine & Rennie Holding Limited 80,000 232
Sasol 35,000 336
<PAGE>
South African Brewery 12,000 342
-----------
1,546
-----------
SOUTH KOREA -- 0.6%
Korea Preferred Share Fund* 41,000 400
Seoul Access Trust IDR* 9 140
Seoul Excel Trust IDR* 18 186
-----------
726
-----------
SPAIN -- 1.7%
Banco de Santander 23,000 908
Fom de Const Y Contratas SA* 5,000 425
Repsol Petroleum SA 19,220 605
-----------
1,938
-----------
SWEDEN -- 1.3%
Electrolux 14,900 678
Stora Kopparbergs Series A 61,000 817
-----------
1,495
-----------
SWITZERLAND -- 3.7%
Nestle SA Registered 1,470 1,531
Roche Holding 210 1,354
Zurich Insurance 1,010 1,270
-----------
4,155
-----------
</TABLE>
* Non-income producing security
ADR -- American Depository Receipts
ADS -- American Depository Shares
GDR -- Global Depository Receipts
GDS -- Global Depository Shares
- ---- IDR -- International Depository Receipts
FS-16 See accompanying notes to financial statements
<PAGE>
- --------------------------------------------------------------------------------
COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Description Shares/Par (000) Value (000)
- ---------------------------------------------------------------
<S> <C> <C>
TAIWAN -- 1.1%
Taiwan Opportunities Fund* 130,000 $ 1,197
-----------
THAILAND -- 0.2%
Krung Thai Bank 42,000 170
-----------
UNITED KINGDOM -- 17.5%
Argyll Group 170,000 908
Barratt Development 377,000 1,097
British Airways 109,000 714
British Telecommunications 138,000 860
BTR Warrants* 265,000 259
Dixons Group 212,000 866
East Midlands Electricity 76,532 780
GKN 102,000 1,039
Glaxo Wellcome 106,000 1,300
Granada Group 124,000 1,198
Grand Metropolitan 189,000 1,158
Ladbroke 250,000 672
Lex Service 119,000 653
McKenchie 84,000 567
NFC 362,000 926
Reckitt & Coleman 118,000 1,244
Tomkins 361,000 1,291
TSB Group 258,000 992
Unilever 72,000 1,458
Wassall 168,750 697
Wolseley 196,000 1,081
-----------
19,760
-----------
TOTAL FOREIGN STOCKS
(Cost $102,618,242) 107,743
-----------
CONVERTIBLE BONDS -- 0.8%
JAPAN -- 0.8%
Daiwa International
2.000%, 03/31/98 80,000 954
-----------
TOTAL CONVERTIBLE BONDS
(Cost $973,449) 954
-----------
TOTAL INVESTMENTS -- 96.4%
(Cost $103,591,691) $ 108,697
-----------
-----------
</TABLE>
*Non-income producing security
ADR -- American Depository Receipts
ADS -- American Depository Shares
GDR -- Global Depository Receipts
GDS -- Global Depository Shares
IDR -- International Depository Receipts
See accompanying notes to financial statements --------
FS-17
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
BALANCED FUND
[GRAPH]
% of Total Portfolio Investments
Technology 23%
Consumer Cyclicals 16%
Healthcare 16%
Energy 11%
Finance 10%
Utilities 8%
Capital Goods 7%
Consumer Staples 6%
Basic Materials 2%
Transportation 1%
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 60.3%
AEROSPACE & DEFENSE -- 1.0%
Loral 12,000 $ 621
-----------
BANKS -- 2.0%
Barnett Banks 11,000 564
J P Morgan 10,000 701
-----------
1,265
-----------
BEAUTY PRODUCTS -- 0.6%
Procter & Gamble 5,275 379
-----------
BROADCASTING, NEWSPAPERS &
ADVERTISING -- 3.2%
Capital Cities ABC 6,000 629
Comcast 42,522 789
Tele-Communications, Cl A* 25,200 591
-----------
2,009
-----------
COMMUNICATION -- 1.3%
Cisco Systems* 9,100 460
Qualcomm Incorporated* 10,000 346
-----------
806
-----------
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
COMMUNICATIONS EQUIPMENT -- 3.7%
Amphenol -- C1 A* 21,600 $ 629
General Instrument 10,000 384
Glenayre Technologies* 16,350 834
U.S. Robotics* 4,600 501
-----------
2,348
-----------
COMPUTERS & SERVICES -- 1.6%
Hewlett Packard 7,400 552
Silicon Graphics* 12,500 498
-----------
1,050
-----------
DRUGS -- 6.9%
American Home Products 5,700 441
Amgen* 6,800 547
Chiron* 3,767 245
Glaxo PLC ADR 30,400 738
Merck 11,600 568
Schering Plough 13,800 609
Smith Kline Beecham ADR 16,000 724
Warner Lambert 6,150 531
-----------
4,403
-----------
ELECTRICAL EQUIPMENT -- 1.3%
Emerson Electric 5,750 411
General Electric 7,000 395
-----------
806
-----------
ELECTRICAL UTILITIES -- 3.5%
Central & South West 28,000 735
<PAGE>
Public Service Enterprise Group 26,900 746
Texas Utilities 21,900 753
-----------
2,234
-----------
ENTERTAINMENT -- 2.3%
Circus Circus Enterprises* 10,000 353
Walt Disney 8,500 473
Mirage Resorts* 20,000 612
-----------
1,438
-----------
FINANCIAL SERVICES -- 3.1%
American Express 14,200 499
Chelsea GCA Realty REIT 14,900 402
Federal National Mortgage
Association 7,200 680
Horizon Outlet Centers REIT 15,500 360
-----------
1,941
-----------
FOOD, BEVERAGE & TOBACCO -- 2.6%
Coca Cola 7,600 484
Conagra 12,000 419
Pepsico 8,000 365
Sara Lee 13,300 379
-----------
1,647
-----------
</TABLE>
* Non-income producing security
ADR -- American Depository Receipt
FHLMC -- Federal Home Loan Mortgage Corporation
GNMA -- Government National Mortgage Association
- ---- REIT -- Real Estate Investment Trust
FS-18 See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Shares Value (000)
- -------------------------------------------------------------
<S> <C> <C>
HOTELS & LODGING -- 1.5%
Hilton Hotels 6,600 $ 464
Promus Companies* 12,100 472
-----------
936
-----------
HOUSEHOLD FURNITURE & FIXTURES -- 0.5%
Masco 11,800 319
-----------
HOUSEHOLD PRODUCTS -- 0.7%
Gillette 10,600 473
-----------
INSURANCE -- 1.4%
American International Group 4,000 456
Chubb 5,300 425
-----------
881
-----------
MEASURING DEVICES -- 1.2%
Honeywell 17,000 733
-----------
MEDICAL PRODUCTS & SERVICES
-- 0.6%
Health Management -- Cl A* 13,050 382
-----------
MEDICAL SUPPLIES -- 1.9%
Abbott Laboratories 12,500 506
Johnson and Johnson 10,600 717
-----------
1,223
-----------
PAPER & PAPER PRODUCTS -- 0.9%
Scott Paper 11,800 584
-----------
PETROLEUM REFINING -- 6.7%
Amoco 7,500 500
Atlantic Richfield 5,875 645
Baker Hughes 24,000 492
Burlington Resources 12,500 461
Chevron 10,000 466
Exxon 10,300 726
Mobil 5,100 490
Texaco 7,000 459
-----------
4,239
-----------
PRINTING & PUBLISHING -- 0.7%
Time Warner 10,800 444
-----------
<CAPTION>
- -------------------------------------------------------------
Description Shares Value (000)
- -------------------------------------------------------------
<S> <C> <C>
PROFESSIONAL SERVICES -- 1.5%
First Data 7,000 $ 398
Paychex 15,000 544
-----------
<PAGE>
942
-----------
RAILROADS -- 0.7%
Conrail 8,300 462
-----------
RESTAURANT -- 0.8%
McDonald's 13,100 513
-----------
RETAIL -- 0.4%
Gap 7,500 262
-----------
SEMI-CONDUCTORS/INSTRUMENTS -- 3.2%
Intel 11,200 709
Lam Research* 9,909 634
Linear Technology 10,000 660
-----------
2,003
-----------
SERVICES-PREPACKAGED SOFTWARE -- 0.9%
Oracle Systems* 15,300 591
-----------
TELEPHONES &
TELECOMMUNICATION -- 3.6%
ALC Communications* 10,000 451
Bellsouth 5,500 349
LCI International* 18,000 551
Mobile Telecommunication* 21,000 576
SBC Telecommunications 8,000 381
-----------
2,308
-----------
TOTAL COMMON STOCK
(Cost $32,973,313) 38,242
-----------
CONVERTIBLE PREFERRED STOCKS -- 0.6%
AUTOMOTIVE -- 0.6%
General Motors, Ser C, 3.25%
annual rate, convertible to
1.4078 shares 6,500 410
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $365,290) 410
-----------
</TABLE>
* Non-income producing security
ADR -- American Depository Receipt
FHLMC -- Federal Home Loan Mortgage Corporation
GNMA -- Government National Mortgage Association
REIT -- Real Estate Investment Trust
See accompanying notes to financial statements
--------
FS-19
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- -------------------------------------------------------------
BALANCED FUND (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS -- 2.0%
Browning-Ferris, convertible to
24.39 shares
6.250%, 08/15/12 $ 425 $ 426
Masco, convertible to 23.364
shares
5.250%, 02/15/12 100 88
Oryx Energy, convertible to
25.559 shares
7.500%, 05/15/14 400 350
Time Warner, convertible to
1.0476 shares
8.750%, 01/10/15 396 412
-----------
TOTAL CONVERTIBLE BONDS
(Cost $1,327,167) 1,276
-----------
U.S. TREASURY OBLIGATIONS -- 19.8%
U.S. Treasury Bill
7.140%, 12/14/95 1,000 975
U.S. Treasury Bonds
7.250%, 05/15/16 500 531
7.125%, 02/15/23 500 527
U.S. Treasury Notes
4.625%, 08/15/95 1,500 1,498
3.875%, 08/31/95 500 499
3.875%, 10/31/95 500 497
4.000%, 01/31/96 1,000 990
5.875%, 05/31/96 2,000 2,002
7.250%, 08/31/96 500 508
6.500%, 09/30/96 2,500 2,521
6.000%, 12/31/97 500 501
5.125%, 03/31/98 500 490
6.000%, 10/15/99 500 500
6.375%, 01/15/00 500 507
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $12,551,608) 12,546
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS
-- 0.8%
FHLMC
6.440%, 01/28/00 500 504
-----------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(Cost $500,000) 504
-----------
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT MORTGAGE-BACKED
BONDS -- 1.7%
GNMA
9.000%, 10/15/19 $ 247 $ 260
7.500%, 12/15/22 799 804
-----------
TOTAL U.S. GOVERNMENT MORTGAGE-
BACKED BONDS
(Cost $1,063,499) 1,064
-----------
U.S. AGENCY MORTGAGE-BACKED
BONDS -- 2.7%
FHLMC
6.000%, 05/01/08 855 828
5.500%, 11/01/08 908 864
-----------
TOTAL U.S. AGENCY MORTGAGE-BACKED
BONDS
(Cost $1,744,652) 1,692
-----------
CORPORATE OBLIGATIONS -- 6.7%
Bell Atlantic
5.470%, 04/27/98 500 489
Bellsouth
7.000%, 02/01/05 500 510
Coca Cola
6.000%, 07/15/03 1,000 961
Dayton Hudson
8.500%, 12/01/22 500 536
Ford Motor Credit
6.375%, 04/15/00 500 494
7.500%, 01/15/03 1,000 1,040
Merrill Lynch
7.000%, 04/27/08 250 246
-----------
TOTAL CORPORATE OBLIGATIONS
(Cost $4,248,417) 4,276
-----------
REPURCHASE AGREEMENTS -- 5.8%
Goldman Sachs 6.05% dated
06/30/95, matures 07/03/95,
repurchase price $924,466
(collateralized by U.S.
Treasury Note, par value
$965,000, 4.75%, matures
08/31/98: market value
$962,151) 924 924
</TABLE>
* Non-income producing security
ADR -- American Depository Receipt
FHLMC -- Federal Home Loan Mortgage Corporation
GNMA -- Government National Mortgage Association
- ---- REIT -- Real Estate Investment Trust
FS-20 See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS, (continued)
Republic New York City 6.07% dated 06/30/95, matures 07/03/95, repurchase
price $923,467 (collateralized by U.S. Treasury Note, par value $920,000,
7.50%, matures 12/31/96: market value
$940,700) $ 923 $ 923
Sanwa Bank 6.15% dated 06/30/95,
matures 07/03/95, repurchase
price $923,473 (collateralized
by U.S. Treasury Note, par
value $915,000, 6.625%,
matures 03/31/97: market value
$956,241) 923 923
Swiss Bank 6.12% dated 06/30/95,
matures 07/03/95, repurchase
price $923,471 (collateralized
by U.S. Treasury Note, par
value $925,000, 7.875%,
matures 03/31/96: market value
$943,130) 923 923
<PAGE>
-----------
TOTAL REPURCHASE AGREEMENTS
(Cost $3,693,000) 3,693
-----------
TOTAL INVESTMENTS -- 100.4%
(Cost $58,466,946) 63,703
-----------
TOTAL OTHER ASSETS AND LIABILITIES,
NET -- (0.4%) (267)
-----------
<CAPTION>
- -------------------------------------------------------------
Description Value (000)
- -------------------------------------------------------------
<S> <C> <C>
NET ASSETS:
Portfolio Shares -- Series A ($0.001 par value -- 100 million authorized)
based on
5,524,814 outstanding shares $ 56,397
Portfolio Shares -- Series B ($0.001 par value -- 100 million authorized)
based on
211,863 outstanding shares 2,158
Undistributed Net Investment
Income 2
Accumulated Net Realized Loss on
Investments (357)
Net Unrealized Appreciation on
Investments 5,236
-----------
TOTAL NET ASSETS -- 100.0% $ 63,436
-----------
-----------
NET ASSET VALUE & REDEMPTION
PRICE PER SHARE
SERIES A $11.06
-----------
-----------
SERIES B $11.06
-----------
-----------
</TABLE>
* Non-income producing security
ADR -- American Depository Receipt
FHLMC -- Federal Home Loan Mortgage Corporation
GNMA -- Government National Mortgage Association
REIT -- Real Estate Investment Trust
<PAGE>
See accompanying notes to financial statements
--------
FS-21
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (000) COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------
INTERNATIONAL
GROWTH FUND
-----------
<S> <C>
ASSETS:
Investments at Market Value (Cost $103,591,691) $ 108,697
Cash 3,029
Other Assets 1,878
-----------
Total Assets 113,604
-----------
LIABILITIES:
Other Liabilities 823
-----------
Total Liabilities 823
-----------
NET ASSETS:
Portfolio Shares--Series A ($0.001 Par Value--25 million authorized) based on
9,021,890 outstanding shares $ 104,794
Portfolio Shares--Series B ($0.001 Par Value--25 million authorized) based on
158,405 outstanding shares 2,039
Accumulated Net Realized Loss on Investments (299)
Accumulated Net Realized Loss on Foreign Currency Transactions (467)
Net Unrealized Appreciation on Foreign Currency and Translation of Other Assets and Liabilities
Denominated in Foreign Currencies 659
Net Unrealized Appreciation on Investments 5,105
Undistributed Net Investment Income 950
-----------
TOTAL NET ASSETS $ 112,781
-----------
-----------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
SERIES A $ 12.29
-----------
-----------
SERIES B $ 12.27
-----------
-----------
</TABLE>
<PAGE>
- -----
FS-22 See accompanying notes to financial statements
<PAGE>
For the year ended June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (000) COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------- ----------- ---------- ----------- ----------
GROWTH VALUE EQUITY INTERNATIONAL BALANCED
EQUITY FUND EQUITY FUND INDEX FUND GROWTH FUND FUND
----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 855 $ 618 $ 2,376 $ 2,218 $ 1,949
Interest 385 46 86 334 317
Less: Foreign taxes withheld -- -- -- (227) --
----------- ----------- ---------- ----------- ----------
Total investment income 1,240 664 2,462 2,325 2,266
----------- ----------- ---------- ----------- ----------
EXPENSES:
Investment advisory fees 580 251 345 919 375
Waiver of Investment advisory fees (193) (51) (260) (57) (134)
Administrative fees 193 84 216 287 134
Waiver of Administrative fees (70) (30) (78) (103) (48)
Transfer agent fees & expenses 25 10 28 45 17
Custodian fees -- -- -- 32 --
Professional fees 13 6 14 15 9
Registration & filing fees 13 5 17 14 7
Organizational costs -- -- -- -- 6
12b-1 fees 5 12 -- 5 6
Taxes--other than income 11 5 13 21 9
Pricing fees 9 1 2 13 2
Miscellaneous 9 7 18 19 11
----------- ----------- ---------- ----------- ----------
Total expenses 595 300 315 1,210 394
----------- ----------- ---------- ----------- ----------
Net investment income 645 364 2,147 1,115 1,872
----------- ----------- ---------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS, FORWARD FOREIGN
CURRENCY CONTRACTS AND FOREIGN
CURRENCY:
Net realized gain (loss) from
security transactions 308 2,110 3,527 1,400 (155)
Net realized loss on forward
foreign currency contracts and
foreign currency transactions -- -- -- (351) --
Net unrealized appreciation on
<PAGE>
forward foreign currency
contracts and translation of
assets and liabilities in
foreign currency -- -- -- 1,178 --
Net unrealized appreciation
(depreciation) on investments 16,243 2,869 14,303 (3,861) 6,794
----------- ----------- ---------- ----------- ----------
Net realized and unrealized gain
(loss) on investments, forward
foreign currency contracts and
foreign currency 16,551 4,979 17,830 (1,634) 6,639
----------- ----------- ---------- ----------- ----------
Net increase (decrease) in net
assets resulting from operations $17,196 $ 5,343 $ 19,977 $ (519) $ 8,511
----------- ----------- ---------- ----------- ----------
----------- ----------- ---------- ----------- ----------
COMPUTATION OF NET ASSET VALUE AND
OFFERING PRICE--JUNE 30, 1995:
Series A
(1) Net asset value, offer and
redemption price $ 11.18 $ 14.27 $ 23.79 $ 12.29 $ 11.06
----------- ----------- ---------- ----------- ----------
----------- ----------- ---------- ----------- ----------
Series B
(1) Net asset value,
redemption price 11.17 14.29 12.27 11.06
(2) Maximum sales charge of
4.50% 0.53 0.67 0.58 0.52
----------- ----------- ----------- ----------
Offering price $ 11.70 $ 14.96 $ 12.85 $ 11.58
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
</TABLE>
(1) Net asset value per share, as illustrated, is the amount which would be
paid upon the redemption or repurchase of shares.
(2) The offer price is calculated by dividing the net asset value of Series
B by 1 minus the maximum sales charge of 4.50%.
See accompanying notes to financial statements. ----------
FS-23
<PAGE>
For the periods ended June 30,
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (000)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------
GROWTH
EQUITY FUND
------------------
1995 1994
--------- ---------
<S> <C> <C>
OPERATIONS:
Net investment income $ 645 $ 345
Net realized gain (loss) from security
transactions 308 2,112
Net realized gain (loss) on forward
foreign currency contracts and
foreign currency transactions -- --
Net unrealized appreciation (depreciation) on forward foreign currency
contracts and translation of assets and liabilities in foreign
currencies -- --
Net unrealized appreciation
(depreciation) on investments 16,243 (8,083)
--------- ---------
Net increase (decrease) in net assets
resulting from operations 17,196 (5,626)
--------- ---------
DIVIDENDS DISTRIBUTED FROM:
Net investment income:
Series A (632) (329)
Series B (10) (14)
Net realized gains:
Series A -- --
Series B -- --
--------- ---------
Total dividends distributed (642) (343)
--------- ---------
CAPITAL SHARE TRANSACTIONS:
Series A:
Proceeds from shares issued 28,885 28,410
Shares issued in lieu of cash
distributions 528 256
Cost of shares repurchased (19,116) (21,517)
--------- ---------
Increase in net assets from Series A
transactions 10,297 7,149
Series B:
<PAGE>
Proceeds from shares issued 280 6,201
Shares issued in connection with
acquisition of Capstone Cashman
Farrell Value Fund -- --
Shares issued in lieu of cash
distributions 9 14
Cost of shares repurchased (359) (9,789)
--------- ---------
Increase (decrease) in net assets
from Series B transactions (70) (3,574)
--------- ---------
Increase in net assets derived from
capital share transaction 10,227 3,575
--------- ---------
Net increase (decrease) in net
assets 26,781 (2,394)
--------- ---------
NET ASSETS:
Beginning of period 66,607 69,001
--------- ---------
End of period $ 93,388 $ 66,607
--------- ---------
--------- ---------
CAPITAL SHARE TRANSACTIONS:
Capital shares outstanding at beginning
of period 7,309 6,934
--------- ---------
Series A:
Shares issued 2,945 2,826
Shares issued in lieu of cash
distributions 54 26
Shares repurchased (1,947) (2,142)
--------- ---------
Total Series A transactions 1,052 710
--------- ---------
Series B:
Shares issued 29 598
Shares issued in connection with
acquisition of Capstone Cashman
Farrell Value Fund -- --
Shares issued in lieu of cash
distributions 1 1
Shares repurchased (37) (934)
--------- ---------
Total Series B transactions (7) (335)
--------- ---------
Increase in capital share transactions 1,045 375
--------- ---------
Capital shares outstanding at end of
period 8,354 7,309
--------- ---------
--------- ---------
</TABLE>
<PAGE>
- -----
FS-24 See accompanying notes to financial statements.
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------ ------------------- -------------------- ------------------
VALUE EQUITY INTERNATIONAL BALANCED
EQUITY FUND INDEX FUND GROWTH FUND FUND
------------------ ------------------- -------------------- ------------------
1995 1994 1995 1994 1995 1994 1995 1994
-------- ------- -------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 364 $ 154 $ 2,147 $ 1,932 $ 1,115 $ 211 $ 1,872 $ 1,393
Net realized gain (loss) from security
transactions 2,110 83 3,527 742 1,400 8,097 (155) (35)
Net realized gain (loss) on forward
foreign currency contracts and
foreign currency transactions -- -- -- -- (351) 3 -- --
Net unrealized appreciation
(depreciation) on forward foreign
currency contracts and translation
of assets and liabilities in
foreign currencies -- -- -- -- 1,178 (516) -- --
Net unrealized appreciation
(depreciation) on investments 2,869 (27) 14,303 (2,366) (3,861) 3,291 6,794 (2,519)
-------- ------- -------- ------- -------- -------- ------- -------
Net increase (decrease) in net assets
resulting from operations 5,343 210 19,977 308 (519) 11,086 8,511 (1,161)
-------- ------- -------- ------- -------- -------- ------- -------
DIVIDENDS DISTRIBUTED FROM:
Net investment income:
Series A (321) (138) (2,147) (1,932) (373) (907) (1,799) (1,345)
Series B (39) (16) -- -- (3) (10) (71) (51)
Net realized gains:
Series A (611) (354) (3,652) (9) (7,009) (2,205) (171) --
Series B (104) (94) -- -- (129) (26) (8) --
-------- ------- -------- ------- -------- -------- ------- -------
Total dividends distributed (1,075) (602) (5,799) (1,941) (7,514) (3,148) (2,049) (1,396)
-------- ------- -------- ------- -------- -------- ------- -------
CAPITAL SHARE TRANSACTIONS:
Series A:
Proceeds from shares issued 5,102 25,165 31,601 70,028 16,395 98,169 19,859 48,790
Shares issued in lieu of cash
distributions 889 444 5,180 1,277 6,850 3,021 1,818 960
Cost of shares repurchased (4,118) (14,442) (10,958) (47,671) (13,444) (61,836) (9,222) (34,350)
-------- ------- -------- ------- -------- -------- ------- -------
Increase in net assets from
Series A transactions 1,873 11,167 25,823 23,634 9,801 39,354 12,455 15,400
Series B:
Proceeds from shares issued 345 1,231 -- -- 440 2,342 216 1,803
Shares issued in connection with
acquisition of Capstone Cashman
<PAGE>
Farrell Value Fund -- 3,014 -- -- -- -- -- --
Shares issued in lieu of cash
distributions 139 103 -- -- 129 35 79 33
Cost of shares repurchased (2,099) (1,049) -- -- (486) (738) (427) (162)
-------- ------- -------- ------- -------- -------- ------- -------
Increase (decrease) in net assets
from Series B transactions (1,615) 3,299 -- -- 83 1,639 (132) 1,674
-------- ------- -------- ------- -------- -------- ------- -------
Increase in net assets derived from
capital share transaction 258 14,466 25,823 23,634 9,884 40,993 12,323 17,074
-------- ------- -------- ------- -------- -------- ------- -------
Net increase (decrease) in net
assets 4,526 14,074 40,001 22,001 1,851 48,931 18,785 14,517
-------- ------- -------- ------- -------- -------- ------- -------
NET ASSETS:
Beginning of period 30,185 16,111 72,552 50,551 110,930 61,999 44,651 30,134
-------- ------- -------- ------- -------- -------- ------- -------
End of period $ 34,711 $30,185 $112,553 $72,552 $112,781 $110,930 $63,436 $44,651
-------- ------- -------- ------- -------- -------- ------- -------
-------- ------- -------- ------- -------- -------- ------- -------
CAPITAL SHARE TRANSACTIONS:
Capital shares outstanding at beginning
of period 2,399 1,229 3,532 2,411 8,414 5,294 4,520 2,901
-------- ------- -------- ------- -------- -------- ------- -------
Series A:
Shares issued 390 1,872 1,461 3,292 1,282 7,250 1,956 4,605
Shares issued in lieu of cash
distributions 71 31 254 59 567 228 182 91
Shares repurchased (311) (1,055) (515) (2,230) (1,088) (4,482) (908) (3,234)
-------- ------- -------- ------- -------- -------- ------- -------
Total Series A transactions 150 848 1,200 1,121 761 2,996 1,230 1,462
-------- ------- -------- ------- -------- -------- ------- -------
Series B:
Shares issued 27 91 -- -- 34 177 21 170
Shares issued in connection with
acquisition of Capstone Cashman
Farrell Value Fund -- 300 -- -- -- -- -- --
Shares issued in lieu of cash
distributions 11 8 -- -- 11 3 8 3
Shares repurchased (154) (77) -- -- (40) (56) (42) (16)
-------- ------- -------- ------- -------- -------- ------- -------
Total Series B transactions (116) 322 -- -- 5 124 (13) 157
-------- ------- -------- ------- -------- -------- ------- -------
Increase in capital share transactions 34 1,170 1,200 1,121 766 3,120 1,217 1,619
-------- ------- -------- ------- -------- -------- ------- -------
Capital shares outstanding at end of
period 2,433 2,399 4,732 3,532 9,180 8,414 5,737 4,520
-------- ------- -------- ------- -------- -------- ------- -------
-------- ------- -------- ------- -------- -------- ------- -------
</TABLE>
--------
FS-25
<PAGE>
For the periods ended June 30,
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net
Net Asset Realized and Dividends Net Assets
- --------- Value Net Unrealized Gains from Net Distributions Asset Value End
GROWTH Beginning Investment or (Losses) on Investment from End Total of Period
EQUITY of Period Income Securities Income Capital Gains of Period Return (000)
- --------- --------- ---------- ----------------- ---------- ------------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SERIES A
1995 $ 9.11 $ 0.08 $ 2.07 $(0.08) -- $ 11.18 23.71% $ 91,345
1994 9.95 0.05 (0.84) (0.05) -- 9.11 (8.01) 64,877
1993 8.74 0.08 1.21 (0.08) -- 9.95 14.76 63,777
1992(1) 10.00 0.05 (1.26) (0.05) -- 8.74 (12.05)+ 33,418
SERIES B
1995 $ 9.10 $ 0.06 $ 2.07 $(0.06) -- $ 11.17 23.44% $ 2,043
1994 9.95 0.04 (0.85) (0.04) -- 9.10 (8.13) 1,730
1993* 9.80 0.03 0.15 (0.03) -- 9.95 1.80+ 5,224
- ---------------
VALUE EQUITY
- ---------------
SERIES A
1995 $ 12.58 $ 0.15 $ 1.97 $(0.15) $ (0.28) $ 14.27 17.29% $ 31,003
1994 13.11 0.09 (0.27) (0.09) (0.26) 12.58 (1.51) 25,448
1993 11.22 0.16 1.89 (0.16) -- 13.11 18.31 15,397
1992 10.33 0.15 0.89 (0.15) -- 11.22 9.98 10,882
1991 10.31 0.15 0.18 (0.15) (0.16) 10.33 3.37 5,182
1990(2) 10.00 0.10 0.31 (0.10) -- 10.31 4.10+ 5,154
SERIES B
1995 $ 12.60 $ 0.13 $ 1.96 $(0.12) $ (0.28) $ 14.29 16.96% $ 3,708
1994 13.12 0.06 (0.26) (0.06) (0.26) 12.60 (1.69) 4,737
1993* 12.49 0.05 0.67 (0.09) -- 13.12 5.77+ 714
- ---------------
EQUITY INDEX
- ---------------
SERIES A
1995 $ 20.54 $ 0.52 $ 4.24 $(0.52) $ (0.99) $ 23.79 24.45% $ 112,553
1994 20.97 0.55 (0.43) (0.55) -- 20.54 0.55 72,552
1993 19.22 0.52 1.84 (0.52) (0.09) 20.97 12.39 50,551
1992 18.46 0.52 1.80 (0.48) (1.08) 19.22 12.59 20,166
1991(3) 19.48 0.03 (0.94) (0.02) (0.09) 18.46 (4.64)+ 12,117
<PAGE>
- --------------------------
INTERNATIONAL GROWTH
- --------------------------
SERIES A
1995 $ 13.18 $ 0.12 $ (0.17) $(0.04) $ (0.80) $ 12.29 (0.21)% $ 110,838
1994 11.71 0.12 1.78 (0.12) (0.31) 13.18 16.28 108,911
1993 10.52 0.10 1.16 (0.07) -- 11.71 12.06 61,655
1992 10.10 0.17 0.31 -- (0.06) 10.52 4.90 42,594
1991 10.75 0.19 (0.44) (0.27) (0.13) 10.10 (2.71) 20,582
1990(4) 10.00 0.11 0.86 (0.09) (0.13) 10.75 9.74+ 13,513
SERIES B
1995 $ 13.17 $ 0.09 $ (0.17) $(0.02) $ (0.80) $ 12.27 (0.48)% $ 1,943
1994 11.71 0.06 1.82 (0.11) (0.31) 13.17 16.08 2,019
1993* 10.07 0.05 1.59 -- -- 11.71 16.29+ 344
- -----------
BALANCED
- -----------
SERIES A
1995 $ 9.88 $ 0.35 $ 1.21 $(0.35) $ (0.03) $ 11.06 16.21% $ 61,092
1994 10.39 0.35 (0.51) (0.35) -- 9.88 (1.62) 42,429
1993(5) 10.00 0.16 0.39 (0.16) -- 10.39 5.52+ 29,434
SERIES B
1995 $ 9.89 $ 0.34 $ 1.19 $(0.33) $ (0.03) $ 11.06 15.84% $ 2,344
1994 10.38 0.31 (0.49) (0.31) -- 9.89 (1.86) 2,222
1993* 10.00 0.16 0.38 (0.16) -- 10.38 2.50+ 701
<CAPTION>
Ratio of
Ratio Net
Ratio of Expenses Income(Loss)
Ratio of Net to Average to Average
- --------- of Expenses Income Net Assets Net Assets Portfolio
GROWTH to Average to Average (Excluding (Excluding Turnover
EQUITY Net Assets Net Assets Waivers) Waivers) Rate
- --------- ----------- ---------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
SERIES A
1995 0.76% 0.84% 1.10% 0.50% 113%
1994 0.69 0.48 1.11 0.06 127
1993 0.43 0.85 1.11 0.17 103
1992(1) 0.14 1.38 1.12 0.40 66
SERIES B
1995 1.01% 0.59% 1.35% 0.25% 113%
1994 0.94 0.23 1.36 (0.19) 127
1993* 0.80 0.39 1.48 (0.29) 103
- ------------
VALUE EQUITY
- ------------
SERIES A
1995 0.86% 1.12% 1.10% 0.88% 108%
1994 0.80 0.73 1.09 0.44 78
1993 0.71 1.29 1.18 0.82 97
<PAGE>
1992 0.99 1.36 1.63 0.72 117
1991 1.74 1.53 2.39 0.88 96
1990(2) 1.76 2.35 2.43 1.68 20
SERIES B
1995 1.11% 0.89% 1.35% 0.65% 108%
1994 1.05 0.48 1.34 0.19 78
1993* 0.85 0.97 1.32 0.50 97
- ------------
EQUITY INDEX
- ------------
SERIES A
1995 0.37% 2.48% 0.76% 2.09% 27%
1994 0.35 2.63 0.75 2.23 13
1993 0.49 2.82 0.88 2.43 4
1992 0.57 2.66 1.06 2.17 27
1991(3) 0.97 1.79 1.20 1.56 --
- -------------
INTERNATIONAL
- -------------
SERIES A
1995 1.05% 0.98% 1.19% 0.84% 59%
1994 0.99 0.23 1.18 0.04 67
1993 0.99 1.22 1.28 0.93 59
1992 0.96 1.67 1.40 1.23 87
1991 0.99 1.80 1.56 1.23 49
1990(4) 1.22 2.57 1.99 1.80 20
SERIES B
1995 1.30% 0.73% 1.44% 0.59% 59%
1994 1.24 0.05 1.43 (0.14) 67
1993* 1.15 1.51 1.44 1.22 59
- -----------
BALANCED
- -----------
SERIES A
1995 0.73% 3.51% 1.07% 3.17% 46%
1994 0.62 3.46 1.08 3.00 56
1993(5) 0.45 3.38 1.39 2.45 21
SERIES B
1995 0.98% 3.27% 1.32% 2.93% 46%
1994 0.87 3.21 1.33 2.75 56
1993* 0.55 5.76 1.48 4.83 21
</TABLE>
+ Returns are for the period indicated and have not been annualized.
* Series B has been offered since January 4, 1993. Balanced has
offered Series B since March 16, 1993.
1 Growth Equity commenced operations on February 3, 1992. All ratios for
the period have been annualized.
2 Value Equity commenced operations on February 6, 1990. All ratios for
the period have been annualized.
3 Equity Index commenced operations on June 1, 1991. All ratios for the
period have been annualized.
4 International Growth commenced operations on February 12, 1990.
All ratios for the period have been annualized.
5 Balanced commenced operations on January 4, 1993. All ratios for the
period have been annualized.
See accompanying notes to financial statements
- --------
FS-26
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS COREFUND FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
- -------------------------------------------------------------
GOVERNMENT INCOME FUND
[GRAPH]
% of Total Portfolio Investments
U.S. Government Backed Bonds 71%
U.S. Treasury Notes 16%
U.S. Agency Backed Bonds 10%
Cash Equivalents 3%
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT MORTGAGE-BACKED
BONDS -- 70.5%
GNMA 8.000%, 09/15/22 $ 73 $ 75
8.000%, 09/15/09 983 1,015
8.000%, 02/15/22 445 456
8.000%, 10/15/22 323 331
8.000%, 11/15/22 508 521
7.000%, 04/15/23 418 412
7.500%, 08/15/23 1,548 1,557
7.000%, 01/15/24 981 966
8.500%, 09/15/24 989 1,027
9.500%, 01/15/25 1,456 1,544
8.000%, 05/15/25 1,011 1,036
-----------
TOTAL U.S. GOVERNMENT MORTGAGE-
BACKED BONDS
(Cost $8,867,465) 8,940
-----------
U.S. AGENCY MORTGAGE-BACKED BONDS --
10.2%
FHLMC
6.000%, 05/01/08 420 407
FNMA
7.000%, 10/01/22 898 884
-----------
TOTAL U.S. AGENCY MORTGAGE-BACKED
BONDS
(Cost $1,325,364) 1,291
-----------
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 16.1%
U.S. Treasury Notes
6.875%, 10/31/96 $ 500 $ 507
6.500%, 05/15/05 1,500 1,531
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $2,046,294) 2,038
-----------
REPURCHASE AGREEMENT -- 3.1%
Swiss Bank 6.12%, dated
06/30/95, matures 07/03/95,
repurchase price $397,202
(collateralized by U.S.
Treasury Note, par value
$395,000, 7.875%, matures
06/30/96: market value
$402,742) 397 397
-----------
TOTAL REPURCHASE AGREEMENT
(Cost $397,000) 397
-----------
TOTAL INVESTMENTS -- 99.9%
(Cost $12,636,123) 12,666
-----------
TOTAL OTHER ASSETS AND LIABILITIES,
NET -- 0.1% 13
-----------
NET ASSETS:
Portfolio Shares -- Series A ($0.001 par value -- 100 million authorized)
based on
1,149,549 outstanding shares 11,485
Portfolio Shares -- Series B ($0.001 par value -- 100 million authorized)
based on
139,659 outstanding shares 1,426
Accumulated Net Realized Loss on
<PAGE>
Investments (260)
Net Unrealized Appreciation on
Investments 30
Distributions in Excess of Net
Investment Income (2)
-----------
TOTAL NET ASSETS: -- 100.0% $ 12,679
-----------
-----------
NET ASSET VALUE & REDEMPTION PRICE
PER SHARE
SERIES A $9.83
-----------
-----------
SERIES B $9.84
-----------
-----------
</TABLE>
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
GNMA -- Government National Mortgage Association
See accompanying notes to financial statements
--------
FS-27
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
INTERMEDIATE BOND FUND
[GRAPH]
% of Total Portfolio Investments
Corporate Bonds 39%
U.S. Treasury Notes 28%
U.S. Government Backed Bonds 13%
Cash Equivalents 10%
U.S. Agency Backed Bonds 10%
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Par (000) Value (000)
- ------------------------------------------------------------
<PAGE>
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 27.7%
U.S. Treasury Notes
6.875%, 10/31/96 $ 3,000 $ 3,040
7.250%, 11/30/96 3,500 3,565
7,375%, 11/15/97 4,000 4,129
6.250%, 05/31/00 1,000 1,010
6.500%, 05/15/05 4,000 4,085
-----------
TOTAL U. S. TREASURY OBLIGATIONS
(Cost $15,640,683) 15,829
-----------
U.S. AGENCY OBLIGATION -- 5.2%
FNMA
6.260%, 12/22/97 3,000 2,992
-----------
TOTAL U.S. AGENCY OBLIGATION
(Cost $2,872,770) 2,992
-----------
U.S. GOVERNMENT MORTGAGE-BACKED
BONDS -- 13.3%
GNMA
9.500%, 09/15/16 91 97
9.500%, 12/15/16 75 79
9.500%, 06/15/20 87 93
8.000%, 07/15/22 632 648
8.500%, 08/15/24 3,462 3,597
9.000%, 01/15/25 1,985 2,086
8.000%, 05/15/25 979 1,003
-----------
TOTAL U.S. GOVERNMENT MORTGAGE-
BACKED BONDS
(Cost $7,403,774) 7,603
-----------
<CAPTION>
- ------------------------------------------------------------
Description Par (000) Value (000)
- ------------------------------------------------------------
<S> <C> <C>
U.S. AGENCY MORTGAGE-BACKED
BONDS -- 4.8%
FHLMC
5.500%, 11/01/08 $ 2,297 $ 2,186
FNMA
8.000%, 04/01/07 538 553
-----------
TOTAL U.S. AGENCY MORTGAGE-BACKED
BONDS
(Cost $2,820,339) 2,739
-----------
NON AGENCY MORTGAGE-BACKED BOND -- 3.1%
Advanta, Ser 93-3, CMO 4.900%,
10/25/09 1,836 1,760
-----------
TOTAL NON AGENCY MORTGAGE-BACKED
BOND
(Cost $1,835,528) 1,760
-----------
CORPORATE OBLIGATIONS -- 14.0%
Associates Corporation of North
America
4.730%, 05/06/96 1,000 989
Dean Witter Discover
6.000%, 03/01/98 1,250 1,241
Ford Motor Credit
6.800%, 08/15/97 1,000 1,013
6.413%, 09/16/98 (A) 1,250 1,248
John Deere Capital
4.625%, 09/02/96 1,500 1,476
Merrill Lynch
5.250%, 10/30/95 500 499
Norwest Financial
6.250%, 02/15/97 1,500 1,502
-----------
TOTAL CORPORATE OBLIGATIONS
(Cost $7,990,734) 7,968
-----------
ASSET BACKED SECURITIES -- 22.0%
American Express Master Trust,
Ser 94-1 A
7.150%, 08/15/99 1,000 1,026
Daimler-Benz Grantor Trust,
Ser 93-A A
3.900%, 10/15/98 833 820
Discover Card Master
Trust I, Ser 94-3 A
6.253%, 04/16/02 (A) 2,000 2,001
Ford Credit Grantor Trust,
Ser 94-A A
6.350%, 05/15/99 1,520 1,525
Premier Auto Trust,
Ser 95-1 A4
7.850%, 02/04/98 2,000 2,054
Sears Credit Master
Trust, Ser 95-3 A
7.000%, 10/15/04 3,000 3,085
</TABLE>
CMO -- Collateralized Mortgage Obligation FHLMC -- Federal Home Loan
Mortgage Corporation FNMA -- Federal National Mortgage Association
GNMA -- Government National Mortgage Association (A) Variable Rate
Security -- The rate reported on the Statement
of Net Assets is the rate in effect on June 30, 1995.
See accompanying notes to financial statements
- -----
FS-28
<PAGE>
- --------------------------------------------------------------------------------
COREFUND FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
ASSET BACKED SECURITIES (continued)
Standard Credit Card Master
Trust, Ser 95-6 A
6.750%, 06/07/00 $ 2,000 $ 2,037
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $12,313,990) 12,548
-----------
REPURCHASE AGREEMENTS -- 9.6%
HSBC Securities
5.90%, dated 06/30/95, matures
07/03/95, repurchase price
$2,743,348.15
(collateralized by U.S.
Treasury Note, par value
$2,695,000, 7.375%, matures
11/01/97: market value
$2,829,531) 2,742 2,742
Swiss Bank
6.12%, dated 06/30/95, matures
07/03/95, repurchase price
$2,743,398.42
(collateralized by U.S.
Treasury Note, par value
$2,690,000, 7.375%, matures
11/15/97: market value
$2,821,860) 2,742 2,742
-----------
TOTAL REPURCHASE AGREEMENTS
(Cost $5,484,000) 5,484
-----------
<CAPTION>
- -------------------------------------------------------------
Description Value (000)
- -------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS -- 99.7%
(Cost $56,361,818) $ 56,923
-----------
TOTAL OTHER ASSETS AND LIABILITIES,
NET 0.3% 166
-----------
NET ASSETS:
Portfolio shares -- Series A ($0.001 par value -- 100 million authorized)
based on
5,601,569 outstanding shares 55,928
Portfolio shares -- Series B ($0.001 par value -- 100 million authorized)
based on
199,308 outstanding shares 2,529
Accumulated Net Realized Loss on
Investments (1,929)
Net Unrealized Appreciation on
Investments 561
-----------
TOTAL NET ASSETS: -- 100% $ 57,089
-----------
-----------
NET ASSET VALUE &
REDEMPTION PRICE PER SHARE
SERIES A $9.84
-----------
-----------
SERIES B $9.84
-----------
-----------
</TABLE>
CMO -- Collateralized Mortgage Obligation
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
GNMA -- Government National Mortgage Association
(A) Variable rate security -- The rate reported on the Statement of Net Assets
is the rate in effect on June 30, 1995.
See accompanying notes to financial statements
--------
FS-29
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
- -----------------------------------------------------------
INTERMEDIATE MUNICIPAL BOND FUND
[GRAPH]
% of Total Portfolio Investments
General Obligations 43%
Revenue Bonds 36%
Pre-Refunded Securities 21%
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Par (000) Value (000)
- ------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS -- 91.2%
FLORIDA -- 3.7%
Jacksonville, Florida Electric
Authority Revenue Bond,
Ser 3-A
5.200%, 10/01/02 $ 50 $ 51
-----------
GEORGIA -- 3.7%
De Kalb County, Georgia Health
Facilities Bond, GO
5.300%, 01/01/03 50 51
-----------
HAWAII -- 3.6%
Hawaii State, GO
5.200%, 06/01/04 50 50
-----------
MARYLAND -- 3.6%
Maryland State Health & Higher
Educational Facilities
Authority for Johns Hopkins
Project
5.125%, 07/01/03 50 50
-----------
<CAPTION>
- ------------------------------------------------------------
Description Par (000) Value (000)
- ------------------------------------------------------------
<S> <C> <C>
MASSACHUSETTS -- 3.6%
Massachusetts Bay Transportation
Authority Revenue Bond, Ser A
5.300%, 03/01/05 $ 50 $ 50
-----------
MICHIGAN -- 6.9%
Grand Haven, Michigan Electric
Revenue Bond (MBIA)
5.000%, 07/01/04 100 97
-----------
NEW JERSEY -- 3.6%
Burlington County, New Jersey
Community Bridge Systems
Revenue Bond, Callable
10/01/03 at 101
5.050%, 10/01/04 CG 50 50
-----------
PENNSYLVANIA -- 55.6%
Allegheny County, Pennsylvania
Community College Project Ser
A
4.375%, 07/15/02 CGIC 100 93
Allegheny County, Pennsylvania,
Ser C-33, GO
7.450%, 02/15/98 50 53
Bethlehem Pennsylvania School
District GO (FGIC)
4.800%, 09/01/01 50 49
Governor Mifflin, Pennsylvania
School District, GO (AMBAC)
4.850%, 11/15/01 50 49
Luzerne County, Pennsylvania,
Ser A, GO, Callable 09/15/00
at 100 (FGIC)
5.850%, 09/15/02 50 51
Pennsylvania State Higher
Educational Facilities
Authority Hospital Revenue
Bond for Thomas Jefferson
University Project, Pre-
refunded 01/01/98 at 102
8.000%, 01/01/18 100 111
</TABLE>
AMBAC -- American Municipal Bond Assurance Company
CG -- County Guaranty
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guaranty Insurance Company
MBIA -- Municipal Bond Investors Assurance
GO -- General Obligation
See accompanying notes to financial statements
- ----
FS-30
<PAGE>
- --------------------------------------------------------------------------------
COREFUND FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
PENNSYLVANIA, (Continued)
Pennsylvania State Turnpike
Commission Revenue Bond,
Pre-refunded 12/01/99 at 102
(AMBAC)
7.250%, 12/01/17 $ 100 $ 113
Pennsylvania State Turnpike
Commission Revenue Bond,
Series I, Pre-refunded
12/01/01 at 102 (FGIC)
7.150%, 12/01/11 50 57
Pittsburgh, Pennsylvania School
District, Ser A, GO (FGIC)
4.850%, 09/01/03 100 96
Reading, Pennsylvania Parking
Authority (MBIA)
4.950%, 11/15/02 50 50
Wallenpaupack, Pennsylvania Area
School District, Ser C, GO,
Callable 09/01/00 at 100
(FGIC)
6.000%, 09/01/03 50 52
-----------
TOTAL PENNSYLVANIA 774
-----------
TENNESSEE -- 3.7%
Tennessee State, Ser B, GO
5.900%, 06/01/98 50 52
-----------
WISCONSIN -- 3.2%
Wisconsin State Transportation,
Ser A
5.000%, 07/01/01 45 45
-----------
<CAPTION>
- -------------------------------------------------------------
Description Value (000)
- -------------------------------------------------------------
<S> <C>
TOTAL MUNICIPAL BONDS
(Cost $1,285,772) $ 1,270
-----------
TOTAL INVESTMENTS -- 91.2%
(Cost $1,285,772) $ 1,270
-----------
-----------
</TABLE>
AMBAC -- American Municipal Bond Assurance Company
CG -- County Guaranty
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guaranty Insurance Company
MBIA -- Municipal Bond Investors Assurance
GO -- General Obligation
See accompanying notes to financial statements
--------
FS-31
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS COREFUND FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
GLOBAL BOND FUND
[GRAPH]
% of Total Portfolio Investments
United States 24%
Germany 19%
France 18%
Denmark 10%
United Kingdom 9%
New Zealand 6%
Australia 5%
Netherlands 5%
Other 4%
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Par (000) Value (000)
- ------------------------------------------------------------
<S> <C> <C>
FOREIGN BONDS -- 64.6%
AUSTRALIA -- 4.5%
Australian Government
6.250%, 03/15/99 $ 1,858 $ 1,231
-----------
DENMARK -- 8.8%
Kingdom of Denmark
8.000%, 05/15/03 10,958 1,974
8.000%, 03/15/06 2,350 415
-----------
2,389
-----------
FRANCE -- 15.6%
Electric de France
7.500%, 05/11/12 5,950 1,151
Government of France OAT
7.500%, 04/25/05 6,228 1,273
Kansai Electric Power
7.000%, 08/04/03 2,700 533
Republic of Portugal
7.700%, 06/07/05 6,210 1,256
-----------
4,213
-----------
<CAPTION>
- ------------------------------------------------------------
Description Par (000) Value (000)
- ------------------------------------------------------------
<S> <C> <C>
GERMANY -- 16.3%
Bundesrepublic
7.375%, 01/03/05 $ 5,205 $ 3,844
World Bank
7.125%, 04/12/05 800 576
-----------
4,420
-----------
IRELAND -- 2.2%
Government of Ireland
9.250%, 07/11/03 356 598
-----------
NETHERLANDS -- 4.5%
Kingdom of Netherlands
8.250%, 09/15/07 1,546 1,078
7.500%, 01/15/23 215 138
-----------
1,216
-----------
NEW ZEALAND -- 4.9%
Government of New Zealand
10.000%, 07/15/97 1,901 1,313
-----------
UNITED KINGDOM -- 7.8%
European Investment Bank
10.375%, 11/22/04 420 732
United Kingdom Treasury
9.000%, 07/12/11 830 1,372
-----------
2,104
-----------
TOTAL FOREIGN BONDS
(Cost $16,762,082) 17,484
-----------
FOREIGN CURRENCY OPTIONS -- 0.5%
UNITED STATES -- 0.5%
Deutsche Mark Put
09/20/95 5,000 134
-----------
TOTAL FOREIGN CURRENCY OPTIONS
(Cost $137,000) 134
-----------
U. S. TREASURY OBLIGATIONS -- 20.3%
UNITED STATES -- 20.3%
U.S. Treasury Notes
8.625%, 10/15/95 870 877
6.125%, 05/31/97 1,790 1,798
6.875%, 07/31/99 1,180 1,217
7.750%, 11/30/99 1,510 1,612
-----------
TOTAL U. S. TREASURY OBLIGATIONS
(Cost $5,367,698) 5,504
-----------
TOTAL INVESTMENTS -- 85.4%
(Cost $22,266,780) $ 23,122
-----------
-----------
</TABLE>
- -----
FS-32 See accompanying notes to financial statements
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS COREFUND FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
- -------------------------------------------------------------
PENNSYLVANIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS -- 98.4%
PENNSYLVANIA -- 98.4%
Allegheny County, Pennsylvania
Hospital Development
Authority Revenue Bond,
Callable 11/01/02
at 102 (MBIA)
6.000%, 11/01/12 $ 25 $ 25
Allegheny County, Pennsylvania
Redevelopment Authority Home
Improvement Loan-Impac
XIV-A, Callable 02/01/04
at 102 (FHA)
5.700%, 02/01/07 15 15
Allegheny County, Pennsylvania
Sanitation Authority Sewer
Revenue Bond, Ser B,
Callable 06/01/99
at 100 (FGIC)
7.450%, 12/01/09 130 144
Allegheny County, Pennsylvania,
Ser C-43, GO, Callable
09/15/04 at 100 (MBIA)
5.875%, 09/15/10 60 61
5.875%, 09/15/13 100 100
Bedford, Pennsylvania, Bedford
Area School District, Ser A,
GO, Callable 04/15/04 at
100 (MBIA)
6.200%, 04/15/24 25 25
Berks County, Pennsylvania,
Reading Hospital & Medical
Center Project Revenue
Bond, Ser B, Callable
10/01/04 at 102 (MBIA)
5.600%, 10/01/06 65 65
Center City District,
Pennsylvania Business
Improvement Assessment,
Callable 12/01/07 at 100
(AMBAC)
5.600%, 12/01/08 60 60
Crawford, Pennsylvania
Central School District,
GO (FGIC)
7.000%, 02/15/05 100 112
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
Dover Township, Pennsylvania
Sewer Authority
Revenue Bond
6.250%, 05/01/12 $ 20 $ 21
Elizabeth Forward School
District, Pennsylvania,
Ser A, GO, Callable
09/01/02 at 100 (MBIA)
6.000%, 09/01/09 35 36
Lehigh County, Pennsylvania
Industrial Development
Authority Pollution Control
Revenue Bond for Pennsylvania
Power and Light Project, Ser A,
Callable 11/01/02
at 102 (MBIA)
6.400%, 11/01/21 25 26
Lower Merion Township,
Pennsylvania, GO, Callable
08/01/02 at 100
5.625%, 08/01/05 100 102
Manheim, Pennsylvania,
Manheim Central School
District, GO, Callable
05/15/04 at 100 (FGIC)
6.100%, 05/15/14 100 101
North Penn, Pennsylvania Water
Authority Revenue Bond,
Callable 11/01/02 at
101 (FGIC)
5.800%, 11/01/05 90 93
6.200%, 11/01/22 25 25
North Wales, Pennsylvania Water
Authority Revenue Bond,
Callable 11/01/04 at
100 (FGIC)
6.750%, 11/01/10 100 107
5.600%, 11/01/20 20 19
Pennsylvania State Convention
Center Authority Revenue
Bond, Ser A (FGIC)
6.700%, 09/01/16 75 84
Pennsylvania State Higher
Education Facilities Authority
for Health Services, Ser A,
Callable 01/01/04 at 102
6.000%, 01/01/10 100 101
</TABLE>
AMBAC -- American Municipal Bond Assurance Company
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Agency
FNMA -- Federal National Mortgage Association
MBIA -- Municipal Bond Investors Assurance
GO -- General Obligation
See accompanying notes to financial statements --------
FS-33
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL BOND FUND (Cont.)
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
Pennsylvania State Higher
Education Facilities
Authority for
University of Pennsylvania,
Ser B
5.850%, 09/01/13 $ 100 $ 99
Pennsylvania State Higher
Education Thomas Jefferson
University, Ser A,
Callable 07/01/99 at 102
6.000%, 07/01/19 150 147
Pennsylvania State Housing
Finance Agency Revenue
Bond, Callable 07/01/02
at 102 (FNMA)
6.400%, 07/01/12 300 301
Pennsylvania State Industrial
Development Authority,
(AMBAC)
6.000%, 01/01/05 25 26
Pennsylvania State Industrial
Development Authority,
Callable 01/01/04 at
102 (AMBAC)
6.000%, 01/01/12 100 101
Pennsylvania State Turnpike
Commission Revenue Bond,
Ser O, Callable 12/01/02
at 102 (FGIC)
5.900%, 12/01/08 125 127
Pennsylvania State Turnpike
Commission Revenue Bond,
Ser P
5.800%, 12/01/06 75 77
Pennsylvania State University,
Callable 03/01/04 at 100
6.150%, 03/01/05 40 42
Pennsylvania State, GO
6.000%, 07/01/05 25 26
Pennsylvania State,
Ser 2, GO
6.250%, 07/01/11 60 63
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
Pittsburgh, Pennsylvania
University of Pittsburgh Higher
Education University Capital
Improvements, Ser A, Callable
06/01/02 at 102 (MBIA)
6.125%, 06/01/21 $ 115 $ 117
Pittsburgh, Pennsylvania, Ser D,
GO, Callable 09/01/02 at 102
(AMBAC)
6.125%, 09/01/17 25 25
York, Pennsylvania, York City
School District, GO, Callable
03/01/03 at 100 (FGIC)
5.600%, 03/01/07 75 75
-----------
TOTAL MUNICIPAL BONDS
(Cost $2,488,122) 2,548
-----------
TOTAL INVESTMENTS -- 98.4%
(Cost $2,488,122) 2,548
-----------
TOTAL OTHER ASSETS AND LIABILITIES,
NET -- 1.6% 41
-----------
NET ASSETS:
Portfolio Shares -- Series A ($0.001 par value -- 100 million authorized)
based on 223,677
outstanding shares 2,228
Portfolio shares -- Series B ($0.001 par value -- 100 million authorized)
based on 31,188
outstanding shares 313
Accumulated Net Realized Loss on
Investments (12)
Net Unrealized Appreciation on
Investments 60
-----------
TOTAL NET ASSETS: -- 100.0% $ 2,589
-----------
-----------
NET ASSET VALUE & REDEMPTION PRICE
PER SHARE
SERIES A $ 10.16
-----------
-----------
SERIES B $ 10.16
-----------
-----------
</TABLE>
AMBAC -- American Municipal Bond Assurance Company
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Agency
FNMA -- Federal National Mortgage Association
MBIA -- Municipal Bond Investors Assurance
GO -- General Obligation
See accompanying notes to financial statements
- ----
FS-34
<PAGE>
- --------------------------------------------------------------------------------
COREFUND FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
- -----------------------------------------------------------
NEW JERSEY MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS -- 97.3%
NEW JERSEY -- 97.3%
Atlantic County, New Jersey,
GO, (MBIA)
6.000%, 01/01/11 $ 55 $ 56
Bayonne, New Jersey, GO,
Callable 05/01/05 at 100 (FGIC)
5.900%, 05/01/08 175 179
Cherry Hill Township, New
Jersey, GO, Callable 06/01/02 at
102
5.900%, 06/01/05 50 52
Cinnaminson Township, New Jersey
Cinnaminson Township School
District GO, Callable 07/15/04
at 100, (MBIA)
5.800%, 07/15/05 55 57
Flemington-Raritan, New Jersey
Regional School District GO,
Callable 05/01/04 at 102
5.700%, 05/01/06 50 51
Gloucester County, New Jersey
Improvement Authority Revenue
Bond, Callable 04/01/05 at 100
5.800%, 04/01/06 20 20
Mercer County, New Jersey
Improvement Authority Revenue
Bond
5.400%, 12/01/05 50 51
Monmouth County, New Jersey
Improvement Authority Revenue
Bond
6.625%, 12/01/05 40 43
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
New Jersey Health Care Facilities
Finance Authority Revenue
Bond for Bridgeton Hospital
Association, Ser B
6.000%, 07/01/13 $ 50 $ 51
New Jersey Health Care Facilities
Finance Authority Revenue
Bond for Burlington County
Memorial Hospital Project
6.000%, 07/01/12 50 51
New Jersey State Economic
Development Authority
Revenue Bond for Peddie
School Project, Ser A
5.400%, 02/01/06 50 50
New Jersey State Economic
Development Authority Revenue
Bond for Rutgers State
University -- Civic Square
(AMBAC)
6.125%, 07/01/24 55 56
New Jersey State, GO
5.500%, 02/15/04 230 236
New York & New Jersey States
Port Authority Revenue Bond,
Eighty-First Series
5.700%, 08/01/07 50 51
North Brunswick Township,
New Jersey, GO
6.125%, 05/15/04 45 48
6.300%, 02/01/12 150 155
North Jersey District Water
Supply Revenue Bond for
Wanaque South Project,
Callable 07/01/03 at 102
(MBIA)
6.000%, 07/01/21 50 50
Secaucus, New Jersey Sewer
Revenue Authority Bond,
Ser A
6.100%, 12/01/10 60 63
</TABLE>
AMBAC -- American Municipal Bond Assurance Company
FGIC -- Financial Guaranty Insurance Company
GO -- General Obligation
MBIA -- Municipal Bond Investors Assurance
See accompanying notes to financial statements --------
FS-35
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS COREFUND FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
- -------------------------------------------------------------
NEW JERSEY MUNICIPAL BOND FUND (Cont.)
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
South Monmouth, New Jersey
Sewer Authority Revenue Bond,
Callable 01/15/04 at 102
(MBIA)
5.550%, 01/15/06 $ 50 $ 51
Teaneck Township, New Jersey
Board of Education, GO
5.750%, 07/01/13 55 54
West Windsor Township, New
Jersey Parking Authority
Revenue Bond, Callable
12/01/04 at 102
6.100%, 12/01/12 50 51
Winslow Township, New Jersey,
GO (AMBAC)
5.950%, 12/01/16 55 55
-----------
TOTAL MUNICIPAL BONDS
(Cost $1,500,935) 1,531
-----------
TOTAL INVESTMENTS -- 97.3%
(Cost $1,500,935) $ 1,531
-----------
<CAPTION>
- -------------------------------------------------------------
Description Value (000)
- -------------------------------------------------------------
<S> <C>
TOTAL OTHER ASSETS AND LIABILITIES --
NET 2.7% $ 43
-----------
NET ASSETS:
Portfolio Shares -- Series A ($0.001 par value -- 100 million authorized)
based on
153,170 outstanding shares 1,516
Portfolio Shares -- Series B
($0.001 par value -- 100
million authorized) based on
2,351 outstanding shares 24
Accumulated Net Realized Gain on
Investments 4
Net Unrealized Appreciation on
Investments 30
-----------
TOTAL NET ASSETS: -- 100.0% $ 1,574
-----------
-----------
NET ASSET VALUE & REDEMPTION PRICE
PER SHARE
SERIES A $ 10.12
-----------
-----------
SERIES B $ 10.12
-----------
-----------
</TABLE>
AMBAC -- American Municipal Bond Assurance Company
FGIC -- Financial Guaranty Insurance Company
GO -- General Obligation
MBIA -- Municipal Bond Investors Assurance
See accompanying notes to financial statements
- ----
FS-36
<PAGE>
As of June 30, 1995
- ------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (000) COREFUND FIXED INCOME FUNDS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------
INTERMEDIATE
MUNICIPAL
BOND FUND
---------------
<S> <C>
ASSETS:
Investments at Market Value (Cost
$1,285,772) $ 1,270
Receivable -- Investment Securities
Sold 77
Cash 12
Other Assets 25
----------------
Total Assets 1,384
----------------
LIABILITIES:
Other Liabilities 8
----------------
Total Liabilities 8
----------------
NET ASSETS:
Portfolio Shares -- Series A ($0.001 Par Value -- 100 million authorized)
based on 37,105
outstanding shares 406
Portfolio Shares -- Series B ($0.001
Par Value -- 100 million
authorized) based on 104,526
outstanding shares 1,079
Accumulated Net Realized Loss on
Investments (76)
Net Unrealized Loss on Investments (17)
----------------
TOTAL NET ASSETS $ 1,392
----------------
----------------
NET ASSET VALUE REDEMPTION PRICE PER
SHARE
SERIES A $ 9.83
----------------
----------------
SERIES B $ 9.83
----------------
----------------
--------------
GLOBAL
BOND FUND
--------------
ASSETS:
Investments at Market Value (Cost
$22,266,780) $ 23,122
Cash 3,511
Foreign Currency (Cost $304,586) 305
Interest Receivable 502
Other Assets 12
--------------
Total Assets 27,452
--------------
LIABILITIES:
Other Liabilities 384
--------------
Total Liabilities 384
--------------
NET ASSETS:
Portfolio Shares--Series A ($0.001
Par Value--25 million authorized)
based on 2,796,181 outstanding
shares 27,872
Portfolio Shares--Series B ($0.001
Par Value--25 million authorized)
based on 17,704 outstanding shares 176
Accumulated Net Realized Loss on
Investments (1,203)
Accumulated Net Realized Loss on
Foreign Currency Transactions (2,052)
Net Unrealized Depreciation on
Foreign Currency and Translation
of Other Assets and Liabilities
Denominated in Foreign Currencies (94)
Net Unrealized Appreciation on
Investments 855
Undistributed Net Investment Income 1,514
--------------
TOTAL NET ASSETS $ 27,068
--------------
--------------
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE
SERIES A $ 9.62
--------------
--------------
SERIES B $ 9.61
--------------
--------------
</TABLE>
See accompanying notes to financial statements --------
FS-37
<PAGE>
For the year ended June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (000)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------- --------------
GOVERNMENT INTERMEDIATE
INCOME FUND BOND FUND
------------- --------------
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 802 $ 3,673
------------- --------------
EXPENSES:
Investment advisory fees 56 290
Waiver of Investment advisory fees (34) (87)
Administrative fees 28 145
Waiver of Administrative fees (10) (52)
Transfer agent fees 4 19
Custodian fees -- --
Professional fees 2 10
Registration & filing fees 9 5
Organizational costs 6 --
12b-1 fees 3 16
Taxes--other than income 2 3
Pricing fees -- 7
Miscellaneous 4 6
------------- --------------
Total expenses 70 362
------------- --------------
Net investment income 732 3,311
------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS, FORWARD FOREIGN
CURRENCY CONTRACTS AND FOREIGN
CURRENCY:
Net realized gain (loss) from
security transactions (213) (738)
Net realized loss on forward
foreign currency contracts and
foreign currency transactions -- --
Net unrealized appreciation on
forward foreign currency
contracts and translations of
assets and liabilities in
foreign currency -- --
Net unrealized appreciation on
investments 611 1,857
------------- --------------
Net realized and unrealized gain
on investments 398 1,119
------------- --------------
Net increase in net assets
resulting from operations $ 1,130 $ 4,430
------------- --------------
------------- --------------
COMPUTATION OF NET ASSET VALUE AND
OFFERING PRICE--JUNE 30, 1995:
SERIES A:
(1) Net asset value, offer
and redemption price $ 9.83 $ 9.84
------------- --------------
------------- --------------
SERIES B:
(1) Net asset value,
redemption price 9.84 9.84
(2) Maximum sales charge
4.50% 0.46 0.46
------------- --------------
Offering Price $ 10.30 $ 10.30
------------- --------------
------------- --------------
</TABLE>
(1) Net asset value per share, as illustrated, is the amount which would be
paid upon the redemption or repurchase of shares.
(2) The offer price is calculated by dividing the net asset value of Series B
by 1 minus the maximum sales charge of 4.50%. Amounts designated as '--'
are either $0 or have been rounded to $0.
See accompanying notes to financial statements
- -----
FS-38
<PAGE>
- --------------------------------------------------------------------------------
COREFUND FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------- ---------- -------------- -----------
PENNSYLVANIA NEW JERSEY
INTERMEDIATE GLOBAL MUNICIPAL MUNICIPAL
MUNICIPAL BOND FUND BOND FUND BOND FUND BOND FUND
------------------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 87 $ 1,937 $ 124 $ 91
-------- ---------- ------- -----------
EXPENSES:
Investment advisory fees 9 155 11 8
Waiver of Investment advisory fees (7) (78) (11) (8)
Administrative fees 5 65 5 4
Waiver of Administrative fees (2) (23) (5) (4)
Transfer agent fees 1 15 1 1
Custodian fees -- 2 -- --
Professional fees -- 7 1 --
Registration & filing fees 2 3 2 2
Organizational costs 6 1 3 2
12b-1 fees 3 -- -- --
Taxes--other than income -- 8 1 --
Pricing fees -- 4 -- --
Miscellaneous 1 6 1 2
-------- ---------- ------- -----------
Total expenses 18 165 9 7
-------- ---------- ------- -----------
Net investment income 69 1,772 115 84
-------- ---------- ------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS, FORWARD FOREIGN
CURRENCY CONTRACTS AND FOREIGN
CURRENCY:
Net realized gain (loss) from
security transactions (57) 1,044 (12) 4
Net realized loss on forward
foreign currency contracts and
foreign currency transactions -- (1,224) -- --
Net unrealized appreciation on
forward foreign currency
contracts and translations of
assets and liabilities in
foreign currency -- 344 -- --
Net unrealized appreciation on
investments 70 503 64 40
-------- ---------- ------- -----------
Net realized and unrealized gain
on investments 13 667 52 44
-------- ---------- ------- -----------
Net increase in net assets
resulting from operations $ 82 $ 2,439 $ 167 $ 128
-------- ---------- ------- -----------
-------- ---------- ------- -----------
COMPUTATION OF NET ASSET VALUE AND
OFFERING PRICE--JUNE 30, 1995:
SERIES A:
(1) Net asset value, offer and
redemption price $ 9.83 $ 9.62 $10.16 $ 10.12
-------- ---------- ------- -----------
-------- ---------- ------- -----------
SERIES B:
(1) Net asset value, redemption
price 9.83 9.61 10.16 10.12
(2) Maximum sales charge 4.50% 0.46 0.45 0.48 0.48
-------- ---------- ------- -----------
Offering Price $ 10.29 $ 10.06 $10.64 $ 10.60
-------- ---------- ------- -----------
-------- ---------- ------- -----------
</TABLE>
--------
FS-39
<PAGE>
For the periods ended June 30,
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (000)
<TABLE>
<CAPTION>
--------------------
GOVERNMENT
INCOME FUND
--------------------
1995 1994
--------- ---------
<S> <C> <C>
OPERATIONS:
Net investment income $ 732 $ 486
Net realized gain (loss) from security
transactions (213) (34)
Net realized loss on forward foreign
currency contracts and foreign
currency translations -- --
Net unrealized appreciation (depreciation) on forward foreign currency
contracts and translation of assets and liabilities in foreign
currencies -- --
Net unrealized appreciation
(depreciation) on investments 611 (655)
--------- ---------
Net increase (decrease) in net assets
resulting from operations 1,130 (203)
--------- ---------
DIVIDENDS DISTRIBUTED FROM:
Net investment income:
Series A (648) (439)
Series B (86) (47)
Net realized gains:
Series A (1) (38)
Series B -- (5)
Dividends in excess of net realized gains:
Series A -- --
Series B -- --
--------- ---------
Total dividends distributed (735) (529)
CAPITAL SHARE TRANSACTIONS:
Series A:
Proceeds from shares issued 3,952 4,302
Shares issued in lieu of cash
distributions 268 135
Cost of shares repurchased (2,353) (1,039)
--------- ---------
Increase (decrease) in net assets
from Series A transactions 1,867 3,398
--------- ---------
Series B:
Proceeds from shares issued 170 1,556
Shares issued in lieu of cash
distributions 72 38
Cost of shares repurchased (450) (159)
--------- ---------
Increase (decrease) in net assets
from Series B transactions (208) 1,435
--------- ---------
Increase (decrease) in net assets
derived from capital share
transactions 1,659 4,833
--------- ---------
Net increase (decrease) in net
assets 2,054 4,101
--------- ---------
NET ASSETS:
Beginning of period 10,625 6,524
--------- ---------
End of period $ 12,679 $ 10,625
--------- ---------
--------- ---------
CAPITAL SHARE TRANSACTIONS:
Capital shares outstanding at beginning
of period 1,116 641
--------- ---------
Series A:
Shares issued 415 425
Shares issued in lieu of cash
distributions 28 13
Shares repurchased (248) (105)
--------- ---------
Total Series A transactions 195 333
--------- ---------
Series B:
Shares issued 18 154
Shares issued in lieu of cash
distributions 8 4
Shares repurchased (47) (16)
--------- ---------
Total Series B transactions (22) 142
--------- ---------
Increase (decrease) derived from capital
share transaction 173 475
--------- ---------
Capital shares outstanding at end of
period 1,289 1,116
--------- ---------
--------- ---------
</TABLE>
(1) Global Bond Fund commenced operations December 15, 1993.
(2) Pennsylvania Municipal Bond and New Jersey Municipal Bond Funds
commenced operations May 16, 1994.
See accompanying notes to financial statements.
- ----
FS-40
<PAGE>
- --------------------------------------------------------------------------------
COREFUND FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------- -------------------- -------------
INTERMEDIATE
INTERMEDIATE MUNICIPAL GLOBAL
BOND FUND BOND FUND BOND FUND(1)
-------------------- -------------------- -------------
1995 1994 1995 1994 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 3,311 $ 2,468 $ 69 $ 102 $ 1,772
Net realized gain (loss) from security
transactions (738) (824) (57) (2,247) 1,044
Net realized loss on forward foreign
currency contracts and foreign
currency translations -- -- -- -- (1,224)
Net unrealized appreciation (depreciation) on forward foreign currency
contracts and translation of assets and liabilities in foreign
currencies -- -- -- -- 344
Net unrealized appreciation
(depreciation) on investments 1,857 (1,870) 70 (106) 503
------------- ------------- ------ ------ -------------
Net increase (decrease) in net assets
resulting from operations 4,430 (226) 82 (23) 2,439
------------- ------------- ------ ------ -------------
DIVIDENDS DISTRIBUTED FROM:
Net investment income:
Series A (2,981) (2,115) (27) (68) (845)
Series B (331) (347) (42) (34) (5)
Net realized gains:
Series A (9) (172) -- -- --
Series B (2) (32) -- -- --
Dividends in excess of net realized gains:
Series A -- (301) -- -- --
Series B -- (55) -- -- --
------------- ------------- ------ ------ -------------
Total dividends distributed (3,323) (3,022) (69) (102) (850)
CAPITAL SHARE TRANSACTIONS:
Series A:
Proceeds from shares issued 17,116 22,755 -- 439 327
Shares issued in lieu of cash
distributions 2,752 2,358 10 15 564
Cost of shares repurchased (14,254) (18,757) (732) (1,317) (529)
------------- ------------- ------ ------ -------------
Increase (decrease) in net assets
from Series A transactions 5,614 6,356 (722) (863) 362
------------- ------------- ------ ------ -------------
Series B:
Proceeds from shares issued 62 4,089 76 1,474 76
Shares issued in lieu of cash
distributions 325 386 33 23 4
Cost of shares repurchased (7,763) (283) (407) (285) (87)
------------- ------------- ------ ------ -------------
Increase (decrease) in net assets
from Series B transactions (7,376) 4,192 (298) 1,212 (7)
------------- ------------- ------ ------ -------------
Increase (decrease) in net assets
derived from capital share
transactions (1,762) 10,548 (1,020) 349 355
------------- ------------- ------ ------ -------------
Net increase (decrease) in net
assets (655) 7,300 (1,007) 224 1,944
------------- ------------- ------ ------ -------------
NET ASSETS:
Beginning of period 57,744 50,444 2,399 2,175 25,124
------------- ------------- ------ ------ -------------
End of period $57,089 $57,744 $ 1,392 $ 2,399 $27,068
------------- ------------- ------ ------ -------------
------------- ------------- ------ ------ -------------
CAPITAL SHARE TRANSACTIONS:
Capital shares outstanding at beginning
of period 5,995 4,954 248 215 2,774
------------- ------------- ------ ------ -------------
Series A:
Shares issued 1,777 2,262 -- 43 36
Shares issued in lieu of cash
distributions 286 235 1 2 62
Shares repurchased (1,484) (1,863) (76) (131) (58)
------------- ------------- ------ ------ -------------
Total Series A transactions 579 634 (75) (86) 40
------------- ------------- ------ ------ -------------
Series B:
Shares issued 6 403 8 146 8
Shares issued in lieu of cash
distributions 34 39 3 2 1
Shares repurchased (813) (35) (42) (29) (9)
------------- ------------- ------ ------ -------------
Total Series B transactions (773) 407 (31) 119 --
------------- ------------- ------ ------ -------------
Increase (decrease) derived from capital
share transaction (194) 1,041 (106) 33 40
------------- ------------- ------ ------ -------------
Capital shares outstanding at end of
period 5,801 5,995 142 248 2,814
------------- ------------- ------ ------ -------------
------------- ------------- ------ ------ -------------
<CAPTION>
PENNSYLVANIA NEW JERSEY
GLOBAL MUNICIPAL MUNICIPAL
BOND FUND(1) BOND FUND(2) BOND FUND(2)
-------------- ------------------------------ ------------------------------
1994 1995 1994 1995 1994
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 703 $ 115 $ 4 $ 84 $ 8
Net realized gain (loss) from security
transactions (2,247) (12) -- 4
Net realized loss on forward foreign
currency contracts and foreign
currency translations (828) -- -- -- --
Net unrealized appreciation (depreciation) on forward foreign currency
contracts and translation of assets and liabilities in foreign
currencies (438) -- -- -- --
Net unrealized appreciation
(depreciation) on investments 352 64 (4) 40 (10)
------------- ------ ----- ------ ------
Net increase (decrease) in net assets
resulting from operations (2,458) 167 -- 128 (2)
------------- ------ ----- ------ ------
DIVIDENDS DISTRIBUTED FROM:
Net investment income:
Series A (110) (105) (3) (84) (8)
Series B (1) (10) (1) -- --
Net realized gains:
Series A -- -- -- -- --
Series B -- -- -- -- --
Dividends in excess of net realized gains:
Series A -- -- -- -- --
Series B -- -- -- -- --
------------- ------ ----- ------ ------
Total dividends distributed (111) (115) (4) (84) (8)
CAPITAL SHARE TRANSACTIONS:
Series A:
Proceeds from shares issued 27,751 1,718 440 520 1,445
Shares issued in lieu of cash
distributions -- 73 1 54 2
Cost of shares repurchased (241) -- (4) (499) (6)
------------- ------ ----- ------ ------
Increase (decrease) in net assets
from Series A transactions 27,510 1,791 437 75 1,441
------------- ------ ----- ------ ------
Series B:
Proceeds from shares issued 206 154 189 21 3
Shares issued in lieu of cash
distributions -- 9 -- -- --
Cost of shares repurchased (23) (14) (25) -- --
------------- ------ ----- ------ ------
Increase (decrease) in net assets
from Series B transactions 183 149 164 21 3
------------- ------ ----- ------ ------
Increase (decrease) in net assets
derived from capital share
transactions 27,693 1,940 601 96 1,444
------------- ------ ----- ------ ------
Net increase (decrease) in net
assets 25,124 1,992 597 140 1,434
------------- ------ ----- ------ ------
NET ASSETS:
Beginning of period -- 597 -- 1,434 --
------------- ------ ----- ------ ------
End of period $25,124 $ 2,589 $ 597 $ 1,574 $ 1,434
------------- ------ ----- ------ ------
------------- ------ ----- ------ ------
CAPITAL SHARE TRANSACTIONS:
Capital shares outstanding at beginning
of period -- 60 -- 144 --
------------- ------ ----- ------ ------
Series A:
Shares issued 2,781 173 44 54 145
Shares issued in lieu of cash
distributions -- 7 -- 5 --
Shares repurchased (25) -- -- (50) (1)
------------- ------ ----- ------ ------
Total Series A transactions 2,756 180 44 9 144
------------- ------ ----- ------ ------
Series B:
Shares issued 21 15 19 2 --
Shares issued in lieu of cash
distributions -- 1 -- -- --
Shares repurchased (3) (1) (3) -- --
------------- ------ ----- ------ ------
Total Series B transactions 18 15 16 2 --
------------- ------ ----- ------ ------
Increase (decrease) derived from capital
share transaction 2,774 195 60 11 144
------------- ------ ----- ------ ------
Capital shares outstanding at end of
period 2,774 255 60 155 144
------------- ------ ----- ------ ------
------------- ------ ----- ------ ------
</TABLE>
--------
FS-41
<PAGE>
For the periods ended June 30,
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS COREFUND FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Realized and
Net Unrealized
Asset Gains Dividends Distributions Net Net
Value Net or (Losses) from Net from Asset Value Assets
Beginning Investment on Investment Capital End Total End
of Period Income Securities Income Gains of Period Return of Period
--------- ---------- ------------ ---------- ------------- ----------- ------ ---------
- ------------------------
GOVERNMENT INCOME
- ------------------------
SERIES A
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 9.52 $ 0.62 $ 0.31 $(0.62) $ -- $ 9.83 10.26% $ 11,305
1994 10.18 0.50 (0.62) (0.50) (0.04) 9.52 (1.34) 9,089
1993(1) 10.00 0.13 0.18 (0.13) -- 10.18 3.12+ 6,323
SERIES B
1995 $ 9.51 $ 0.61 $ 0.33 $(0.61) $ -- $ 9.84 10.23% $ 1,374
1994 10.17 0.47 (0.62) (0.47) (0.04) 9.51 (1.57) 1,536
1993* 10.00 0.07 0.17 (0.07) -- 10.17 1.71+ 201
- ----------------------
INTERMEDIATE BOND
- ----------------------
SERIES A
1995 $ 9.63 $ 0.53 $ 0.21 $(0.53) $ -- $ 9.84 8.22% $ 55,128
1994 10.18 0.43 (0.53) (0.43) (0.02) 9.63 (0.32) 48,379
1993 10.01 0.47 0.31 (0.47) (0.14) 10.18 7.90 44,692
1992(2) 10.00 0.23 0.01 (0.23) -- 10.01 2.49+ 22,623
SERIES B
1995 $ 9.63 $ 0.54 $ 0.20 $(0.53) $ -- $ 9.84 7.95% $ 1,961
1994 10.18 0.41 (0.53) (0.41) (0.02) 9.63 (0.56) 9,365
1993* 10.01 0.20 0.17 (0.20) -- 10.18 3.95+ 5,752
- ------------------------------------
INTERMEDIATE MUNICIPAL BOND
- ------------------------------------
SERIES A
1995 $ 9.68 $ 0.38 $ 0.15 $(0.38) -- $ 9.83 5.58% $ 365
1994 10.09 0.39 (0.41) (0.39) -- 9.68 (0.27) 1,088
1993(3) 10.00 0.04 0.09 (0.04) -- 10.09 1.33+ 2,009
SERIES B
1995 $ 9.67 $ 0.35 $ 0.16 $(0.35) -- $ 9.83 5.42% $ 1,027
1994 10.08 0.37 (0.41) (0.37) -- 9.67 (0.52) 1,311
1993* 10.00 0.03 0.08 (0.03) -- 10.08 1.19+ 166
- ---------------
GLOBAL BOND
- ---------------
SERIES A
1995 $ 9.06 $ 0.62 $ 0.24 $(0.30) -- $ 9.62 9.70% $ 26,898
1994(4) 10.00 0.25 (1.15) (0.04) -- 9.06 (9.00)+ 24,957
SERIES B
1995 $ 9.04 $ 0.61 $ 0.24 $(0.28) -- $ 9.61 9.57% $ 170
1994(4) 10.00 0.19 (1.11) (0.04) -- 9.04 (9.22)+ 167
- ------------------------------------
PENNSYLVANIA MUNICIPAL BOND
- ------------------------------------
SERIES A
1995 $ 9.95 $ 0.51 $ 0.21 $(0.51) -- $ 10.16 7.50% $ 2,272
1994(5) 10.00 0.06 (0.05) (0.06) -- 9.95 0.14+ 434
SERIES B
1995 $ 9.95 $ 0.49 $ 0.21 $(0.49) -- $ 10.16 7.25% $ 317
1994(5) 10.00 0.06 (0.05) (0.06) -- 9.95 0.09+ 163
- ----------------------------------
NEW JERSEY MUNICIPAL BOND
- ----------------------------------
SERIES A
1995 $ 9.94 $ 0.52 $ 0.18 $(0.52) -- $ 10.12 7.25% $ 1,550
1994(5) 10.00 0.06 (0.06) (0.06) -- 9.94 0.01+ 1,432
SERIES B
1995 $ 9.95 $ 0.49 $ 0.17 $(0.49) -- $ 10.12 6.84% $ 24
1994(5) 10.00 0.06 (0.05) (0.06) -- 9.95 0.08+ 2
<CAPTION>
Ratio Ratio of
Ratio of Expenses Net Income
Ratio of Net to Average to Average
of Expenses Income Net Assets Net Assets Portfolio
to Average to Average (Excluding (Excluding Turnover
Net Assets Net Assets Waivers) Waivers) Rate
----------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
- -----------------
GOVERNMENT INCOME
- -----------------
SERIES A
1995 0.59% 6.53% 0.98% 6.14% 368%
1994 0.50 4.93 1.00 4.43 157
1993(1) 0.44 5.41 1.10 4.75 93
SERIES B
1995 0.85% 6.25% 1.24% 5.86% 368%
1994 0.75 4.68 1.25 4.18 157
1993* 0.63 5.35 1.29 4.69 93
- -----------------
INTERMEDIATE BOND
- -----------------
SERIES A
1995 0.60% 5.76% 0.84% 5.52% 405%
1994 0.58 4.30 0.86 4.02 299
1993 0.42 4.62 0.86 4.18 188
1992(2) 0.11 5.73 0.84 5.00 51
SERIES B
1995 0.85% 5.27% 1.09% 5.03% 405%
1994 0.83 4.05 1.11 3.77 299
1993* 0.75 3.78 1.19 3.34 188
- ---------------------------
INTERMEDIATE MUNICIPAL BOND
- ---------------------------
SERIES A
1995 0.82% 3.91% 1.26% 3.47% 9%
1994 0.63 3.91 1.17 3.37 43
1993(3) 0.58 2.74 1.45 1.87 10
SERIES B
1995 1.08% 3.65% 1.52% 3.21% 9%
1994 0.88 3.66 1.42 3.12 43
1993* 0.81 2.51 1.68 1.64 10
- -------------
GLOBAL BOND
- -------------
SERIES A
1995 0.64% 6.84% 1.03% 6.45% 133%
1994(4) 0.73 5.04 1.12 4.65 161
SERIES B
1995 0.89% 6.59% 1.28% 6.20% 133%
1994(4) 0.98 4.79 1.37 4.40 161
- ---------------------------
PENNSYLVANIA MUNICIPAL BOND
- ---------------------------
SERIES A
1995 0.39% 5.26% 1.14% 4.51% 18%
1994(5) 0.42 5.09 1.17 4.34 3
SERIES B
1995 0.64% 4.95% 1.39% 4.20% 18%
1994(5) 0.67 4.84 1.42 4.09 3
- -------------------------
NEW JERSEY MUNICIPAL BOND
- -------------------------
SERIES A
1995 0.42% 5.21% 1.17% 4.46% 32%
1994(5) 0.43 5.07 1.35 4.15 13
SERIES B
1995 0.68% 4.97% 1.44% 4.21% 32%
1994(5) 0.68 4.82 1.60 3.90 13
</TABLE>
<TABLE>
<S> <C> <C>
Series B has been offered since January 4, 1993. Government
Income and Intermediate-Term Municipal Funds have + offered Series
B since May 3, 1993. Ratios for these periods have been annualized.
* Government Income commenced operations on April 1, 1993. Ratios
for this period have been annualized.
Intermediate Bond commenced operations on February 3, 1992. Ratios for this period have been annualized.
(1) Intermediate Municipal Bond commenced operations on May 3, 1993. Ratios for this period have been annualized.
(2) Global Bond commenced operations on December 15, 1993. Ratios for this period have been annualized.
(3) Pennsylvania Municipal Bond and New Jersey Municipal Bond Funds commenced operation on May 16, 1994. Ratios for
(4) this period have been annualized.
See accompanying notes to financial statements.
</TABLE>
- ----
FS-42
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS COREFUND MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
CASH RESERVE
[GRAPH]
% of Total Portfolio Investments
Corporate Securities 80%
Time Deposits 9%
U.S. Government Securities 8%
Cash Equivalents 3%
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Par (000) Value (000)
- ------------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER -- 78.3%
A.I. Credit
5.930%, 07/19/95 $ 5,000 $ 4,985
5.930%, 08/02/95 10,000 9,947
American Express Credit
6.010%, 07/17/95 10,000 9,973
Ameritech Capital
6.000%, 07/24/95 10,500 10,460
5.630%, 03/05/96 16,000 15,379
Arco Coal Australia
6.080%, 07/10/95 5,000 4,992
5.780%, 09/19/95 6,191 6,111
Asset Securitization
5.930%, 07/05/95 10,000 9,993
5.900%, 07/21/95 10,000 9,967
AT&T
5.970%, 07/13/95 10,000 9,980
5.970%, 07/26/95 10,000 9,959
5.880%, 08/11/95 5,000 4,967
Barclay's Bank, Canada
5.940%, 07/19/95 5,000 4,985
Caisse Des Depots En Consignations
6.000%, 07/18/95 10,000 9,972
5.890%, 08/21/95 10,000 9,917
Canadian Imperial Bank of Commerce
5.840%, 09/29/95 10,000 9,854
<CAPTION>
- ------------------------------------------------------------
Description Par (000) Value (000)
- ------------------------------------------------------------
<S> <C> <C>
Corporate Asset Funding
5.800%, 09/13/95 $10,000 $ 9,881
Dupont (E.I. De Nemours)
6.000%, 07/07/95 10,000 9,990
Ford Motor Credit
6.000%, 07/11/95 10,000 9,983
General Electric Capital
5.910%, 08/07/95 10,000 9,939
General Electric Credit
5.770%, 09/21/95 5,000 4,934
Goldman Sachs
5.700%, 09/01/95 5,000 4,951
Hewlett-Packard
5.990%, 07/18/95 10,000 9,972
5.870%, 09/28/95 10,000 9,855
J.C. Penney Funding
5.940%, 07/14/95 5,000 4,989
Metropolitan Life Funding
5.900%, 08/07/95 10,000 9,939
Minnesota Mining & Manufacturing
5.600%, 09/08/95 7,300 7,222
Motorola
5.880%, 07/27/95 6,400 6,373
New Center Asset Trust
6.300%, 07/03/95 20,000 19,994
Province of Alberta
5.900%, 07/10/95 10,000 9,985
Province of British Columbia
6.040%, 08/04/95 12,900 12,826
5.860%, 09/15/95 10,000 9,876
Province of Quebec
5.900%, 08/08/95 10,000 9,938
5.890%, 08/29/95 5,000 4,952
5.880%, 08/30/95 10,000 9,902
Shell Oil
5.750%, 09/15/95 10,000 9,879
Siemens
6.430%, 07/25/95 10,000 9,957
Southwest Bell Capital
6.035%, 07/12/95 15,000 14,972
Swedish Export Credit
6.080%, 07/06/95 10,000 9,992
5.870%, 08/08/95 10,000 9,938
Teco Finance
5.930%, 07/13/95 3,500 3,493
5.930%, 07/14/95 3,500 3,493
Toyota Motor Credit
5.880%, 07/28/95 10,000 9,956
Unilever Capital
6.090%, 10/11/95 15,000 14,741
US West Capital Funding
5.990%, 07/07/95 10,000 9,990
-----------
TOTAL COMMERCIAL PAPER
(Cost $413,353,037) 413,353
-----------
</TABLE>
See accompanying notes to financial statements --------
FS-43
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- -----------------------------------------------------------
CASH RESERVE (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Par (000) Value (000)
- ------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 8.1%
FNMA
5.700%, 09/22/95 $13,500 $ 13,323
5.420%, 12/04/95 10,000 9,765
5.520%, 12/05/95 10,000 9,759
5.610%, 02/16/96 (A) 10,000 10,000
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $42,846,988) 42,847
-----------
CORPORATE OBLIGATION -- 1.9%
American Express Centurion Bank
6.000%, 06/07/96 (A) 10,000 10,000
-----------
TOTAL CORPORATE OBLIGATION
(Cost $10,000,000) 10,000
-----------
TIME DEPOSITS -- 9.5%
Banque Paribas
6.250%, 07/03/95 25,000 25,000
Sumitomo Bank
6.375%, 07/03/95 25,000 25,000
-----------
TOTAL TIME DEPOSITS
(Cost $50,000,000) 50,000
-----------
MASTER NOTES -- 0.8%
Associates Corporation of North
America
5.867%, (A) 4,328 4,328
Student Loan Marketing
Association
5.660%, (A) 39 39
-----------
TOTAL MASTER NOTES
(Cost $4,366,969) 4,367
-----------
REPURCHASE AGREEMENT -- 1.9%
First National Bank of Chicago 6.18%, dated 06/30/95, matures 07/03/95,
repurchase price $10,005,150 (collateralized by
U.S. Treasury Bill, par value
$10,345,000, 7.00%, matures
09/28/95: market value
$10,218,791) 10,000 10,000
-----------
TOTAL REPURCHASE AGREEMENT
(Cost $10,000,000) 10,000
-----------
<CAPTION>
- ------------------------------------------------------------
Description Value (000)
- ------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS -- 100.5%
(Cost $530,566,994) $ 530,567
-----------
TOTAL OTHER ASSETS AND LIABILITIES, NET --
(0.5%) (2,643)
-----------
NET ASSETS:
Portfolio Shares -- Series A ($0.001 par value -- 1 billion authorized) based
on 510,344,357
outstanding shares 510,344
Portfolio Shares -- Series B ($0.001 par value -- 1 billion authorized) based
on 17,583,902
outstanding shares 17,584
Accumulated Net Realized Loss on
Investments (4)
-----------
TOTAL NET ASSETS -- 100.0% $ 527,924
-----------
-----------
NET ASSET VALUE & REDEMPTION
PRICE PER SHARE
SERIES A $1.00
-----------
-----------
SERIES B $1.00
-----------
-----------
</TABLE>
(A) Variable Rate Securities--The rate reflected on the Statement of
Net Assets is the rate in effect on June 30, 1995.
FNMA -- Federal National Mortgage Association
See accompanying notes to financial statements.
- ----
FS-44
<PAGE>
- --------------------------------------------------------------------------------
COREFUND MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
- -----------------------------------------------------------
TREASURY RESERVE
- -----------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Par (000) Value (000)
- ------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 40.5%
U.S. Treasury Bills
5.840%, 07/13/95 $ 10,000 $ 9,981
5.800%, 07/27/95 10,000 9,958
5.800%, 07/27/95 10,000 9,958
6.105%, 08/10/95 10,000 9,932
5.840%, 08/17/95 10,000 9,924
5.350%, 08/24/95 5,000 4,960
5.350%, 08/24/95 5,000 4,960
5.790%, 08/31/95 10,000 9,902
5.520%, 09/07/95 5,000 4,948
5.480%, 09/14/95 5,000 4,943
5.485%, 09/21/95 5,000 4,938
5.550%, 10/05/95 5,000 4,926
5.630%, 10/05/95 6,000 5,910
5.750%, 10/12/95 10,000 9,835
5.460%, 10/19/95 5,000 4,917
5.410%, 10/26/95 5,000 4,912
5.340%, 11/02/95 5,000 4,908
5.635%, 11/02/95 6,000 5,884
5.660%, 11/09/95 5,000 4,897
5.715%, 11/16/95 5,000 4,890
6.620%, 11/16/95 3,000 2,924
5.365%, 11/24/95 5,000 4,891
5.405%, 12/07/95 5,000 4,881
5.415%, 12/21/95 5,000 4,870
5.475%, 04/04/96 5,000 4,789
5.475%, 05/02/96 5,000 4,767
U.S. TREASURY NOTES
4.250%, 11/30/95 20,000 19,863
5.500%, 04/30/96 5,000 4,978
U.S. TREASURY STRIPS
5.651%, 11/15/95 10,000 9,794
6.195%, 05/15/96 6,000 5,691
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $202,930,759) 202,931
-----------
<CAPTION>
- ------------------------------------------------------------
Description Par (000) Value (000)
- ------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS -- 60.0%
First National Bank of Chicago 6.10%, dated 06/30/95, matures 07/03/95,
repurchase price $10,005,083 (collateralized by various U.S. Treasury Notes,
total par value $10,230,000, 4.75% - 6.00%, 12/31/97 - 09/30/98: total
market value
$10,238,927) $ 10,000 $ 10,000
First National Bank of Chicago 6.18%, dated 06/30/95, matures 07/03/95,
repurchase price $2,465,269 (collateralized by U.S. Treasury Bill, par value
$2,545,000, 7.00%, matures 09/28/95: market value
$2,513,951) 2,464 2,464
Goldman Sachs 6.05%, dated
06/30/95, matures 07/03/95,
repurchase price $10,005,042
(collateralized by U.S. Treasury
Note, par value $10,430,000,
4.75%, matures 08/31/98: market
value $10,399,203) 10,000 10,000
HSBC Securities 5.90%, dated
06/30/95, matures 07/03/95,
repurchase price $18,008,850
(collateralized by U.S. Treasury
Note, par value $17,690,000,
7.375%, matures 11/15/97: market
value $18,573,063) 18,000 18,000
Morgan Stanley 6.02%, dated
06/30/95, matures 07/03/95,
repurchase price 18,009,030
(collateralized by U.S. Treasury
Note, par value $16,685,000,
8.00%, matures 08/15/99: market
value $18,864,633) 18,000 18,000
Republic New York City 6.07%,
dated 06/30/95, matures
07/03/95, repurchase price
$112,056,653 (collateralized by
various U.S. Treasury Notes,
total par value $110,945,000,
5.375% - 7.125%, 5/31/98 -
09/30/99: total market value
$115,659,109) 112,000 112,000
Sanwa Bank 6.15%, dated 06/30/95,
matures 07/03/95, repurchase
price $120,006,150
(collateralized by various U.S.
Treasury Notes, total par value
$118,280,000, 4.75% - 8.875%,
10/31/98 - 02/29/00: total
market value $123,889,995) 120,000 120,000
</TABLE>
STRIPS -- Separately Traded Registered Interest and Principal Securities See
accompanying notes to financial statements
--------
FS-45
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- -----------------------------------------------------------
TREASURY RESERVE (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
Swiss Bank 6.12%, dated 06/30/95,
matures 07/03/95, repurchase
price $10,005,100
(collateralized by various U.S.
Treasury Notes, total value
$9,940,000, 7.875% - 8.50%,
08/15/95 - 06/30/96: total
market value $10,354,069) $10,000 $ 10,000
-----------
TOTAL REPURCHASE AGREEMENTS
(Cost $300,464,000) 300,464
-----------
TOTAL INVESTMENTS -- 100.5%
(Cost $503,394,759) 503,395
-----------
TOTAL OTHER ASSETS AND LIABILITIES,
NET (0.5%) (2,577)
-----------
NET ASSETS:
Portfolio Shares -- Series A ($0.001 par value -- 1 billion authorized) based
on 479,203,905
outstanding shares 479,204
Portfolio Shares -- Series B
($0.001 par value -- 1 billion
authorized) based on 21,611,365
outstanding shares 21,611
Accumulated Net Realized Gain on
Investments 3
-----------
TOTAL NET ASSETS: -- 100.0% $ 500,818
-----------
-----------
<CAPTION>
NET ASSET VALUE & REDEMPTION PRICE PER SHARE
SERIES A $1.00
-----------
-----------
SERIES B $1.00
-----------
-----------
</TABLE>
- ----
FS-46
<PAGE>
- ----------------------------------------------------------
TAX-FREE RESERVE
[GRAPH]
% of Total Portfolio Investments
Revenue Bonds 54%
Tax-Exempt Commercial Paper 39%
General Obligations 6%
Pre-Refunded Securities 1%
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS -- 97.3%
ALABAMA -- 10.9%
Alabama Housing TECP
3.600%, 09/22/95(C) $ 500 $ 500
Alabama State Housing
Finance Authority Revenue Bond
for Heatherboro Project
4.250%, 07/07/95(A)(B)(C) 900 900
Mobile, Alabama Industrial
Development Authority Revenue
Bond for Scott Paper Project,
Ser A
4.050%, 07/07/95(A)(B)(C) 2,000 2,000
Montgomery, Alabama TECP
4.100%, 07/31/95(C) 380 380
3.250%, 09/21/95(C) 2,000 2,000
Winfield, Alabama Industrial
Development Authority Revenue
Bond for Union Underwear
Project
4.250%, 07/07/95(A)(B)(C) 1,200 1,200
-----------
6,980
-----------
CALIFORNIA -- 0.6%
Santa Clara, California
Electric Revenue Bond,
Ser A
4.050%, 07/07/95(A)(B)(C) 400 400
-----------
</TABLE>
STRIPS--Separate Trading of Registered Interest and Principal
of Securities.
See accompanying notes to financial statements
- ----
FS-47
<PAGE>
- --------------------------------------------------------------------------------
COREFUND MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
DELAWARE -- 0.2%
Wilmington, Delaware
Hospital Revenue Bond
for Franciscan Health
Systems Project, Ser B
4.350%, 07/03/95(A)(B)(C) $ 100 $ 100
-----------
FLORIDA -- 4.8%
Dade County, Florida Fixed
Capital Asset Acquisition
Revenue Bond 11/01/90
4.300%, 07/07/95(A)(B)(C) 1,500 1,500
Sunshine State TECP
4.250%, 08/15/95(C) 1,600 1,600
-----------
3,100
-----------
HAWAII -- 1.2%
Hawaii State GO, Ser CD
3.850%, 02/01/96 750 750
-----------
ILLINOIS -- 1.1%
Illinois State Health
Facilities Authority Revenue
Bond for Franciscan
Village Project, Ser A
4.300%, 07/07/95(A)(B)(C) 700 700
-----------
INDIANA -- 8.9%
Gary, Indiana Environmental
Improvement Revenue Bond for
U.S. Steel Project
3.600%, 07/07/95(A)(B)(C) 1,600 1,600
Jasper, Indiana TECP
4.150%, 08/10/95(C) 1,000 1,000
3.600%, 09/25/95(C) 1,590 1,590
Sullivan, Indiana TECP
3.650%, 07/13/95(C) 455 455
3.600%, 08/21/95(C) 500 500
3.650%, 10/02/95(C) 600 600
-----------
5,745
-----------
IOWA -- 3.3%
Des Moines, Iowa Commercial
Development Revenue for
Capitol Center III Project
4.250%, 07/07/95(A)(B)(C) 400 400
West Des Moines, Iowa
Commercial Development
Revenue Bond for Greyhound
Lines Project
4.150%, 07/07/95(A)(B)(C) 1,700 1,700
-----------
2,100
-----------
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
KANSAS -- 5.8%
City of Burlington, Kansas TECP
3.650%, 07/13/95(C) $ 1,000 $ 1,000
3.850%, 08/03/95(C) 1,000 1,000
3.850%, 09/01/95(C) 1,000 1,000
3.650%, 10/02/95(C) 400 400
Kansas City, Kansas
Industrial Revenue Bond
for PQ Project
4.350%, 07/03/95(A)(B)(C) 200 200
Wichita, Kansas Revenue Bond
for Wichita Health Systems
Project, Ser XXV
4.250%, 07/07/95(A)(B)(C) 100 100
-----------
3,700
-----------
LOUISIANA -- 3.0%
East Baton Rouge,
Louisiana Pollution Control
Revenue Bond
4.250%, 07/03/95(A)(B)(C) 450 450
Jefferson Parish, Louisiana
Industrial Development Board
Revenue Bond for
George J. Ackel, Sr. Project
4.300%, 07/07/95(A)(B)(C) 800 800
Parish of Desota, Louisiana
Pollution Control Revenue
Bond for Central Louisiana
Electric Project, Ser A
3.950%, 07/07/95(A)(B)(C) 700 700
-----------
1,950
-----------
MICHIGAN -- 2.3%
Delta County, Michigan
Environmental Improvement
Revenue Bond for
Escanaba Paper Project,
Ser C
4.250%, 07/03/95(A)(B)(C) 1,500 1,500
-----------
MINNESOTA -- 2.6%
Golden Valley, Minnesota
Industrial Development
Authority Revenue Bond
for Unicare Homes Project
4.150%, 07/07/95(A)(B)(C) 1,300 1,300
Saint Louis Park, Minnesota
Industrial Development
Authority Revenue Bond for
Unicare Homes Project
4.000%, 07/03/95(A)(B)(C) 400 400
-----------
1,700
-----------
</TABLE>
See accompanying notes to financial statements --------
FS-48
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- -------------------------------------------------------------
TAX-FREE RESERVE (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
MISSOURI -- 7.7%
Independence, Missouri TECP
3.300%, 07/12/95(C) $ 2,100 $ 2,100
Missouri State Environmental
Improvement and Energy
Resources Authority Revenue
Bond for Union Electric
Project, Ser B
4.000%, 07/03/95(A)(B)(C) 750 750
Missouri State Environmental
Improvement Authority
TECP
4.250%, 08/09/95(C) 600 600
3.850%, 11/21/95(C) 1,500 1,500
-----------
4,950
-----------
MONTANA -- 3.9%
Forsyth, Montana Pollution
Control Revenue Bond
for Portland General
Electric Project
4.050%, 07/07/95(A)(B)(C) 200 200
Forsyth, Montana Pollution
Control Revenue Bond for
Portland General Electric
Project, Ser A
4.050%, 07/07/95(A)(B)(C) 600 600
Forsyth, Montana Pollution
Control Revenue Bond for
Portland General Electric
Project, Ser B
4.050%, 07/07/95(A)(B)(C) 100 100
Forsyth, Montana Pollution
Control Revenue Bond for
Portland General Electric
Project, Ser C
4.050%, 07/07/95(A)(B)(C) 1,000 1,000
Forsyth, Montana Pollution
Control Revenue Bond for
Portland General Electric
Project, Ser D
4.050%, 07/07/95(A)(B)(C) 600 600
-----------
2,500
-----------
NEVADA -- 0.8%
Nevada State Housing Division
Revenue Bond for Multi-Unit
Park Vista Project, Ser A
4.200%, 07/07/95(A)(B)(C) 500 500
-----------
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
NORTH CAROLINA -- 0.6%
Wake County, North Carolina
Pollution Control Finance
Authority Revenue Bond for
Carolina Power & Light Project,
Ser A
4.000%, 07/07/95(A)(B)(C) $ 400 $ 400
-----------
OREGON -- 0.9%
Oregon State GO, Ser 73-G
4.150%, 07/07/95(A)(B)(C) 500 500
Umatilla County, Oregon
Hospital Facilities Authority
Revenue Bond for Franciscan
Health Project, Ser B
4.350%, 07/03/95(A)(B)(C) 100 100
-----------
600
-----------
PENNSYLVANIA -- 8.1%
Beaver County Industrial
Development Authority,
Pennsylvania, TECP
4.500%, 10/10/95(C) 2,000 2,000
Beaver County, Pennsylvania
Industrial Development
Authority Revenue Bond for
Duquesne-Mansfield Project,
Ser B
4.150%, 07/07/95(A)(B)(C) 100 100
Langhorne, Pennsylvania
Saint Mary's Hospital
Authority Revenue Bond
for Franciscan Health
Systems, Ser B
4.250%, 07/03/95(A)(B)(C) 550 550
Lehigh County, Pennsylvania
Industrial Development
Authority Revenue Bond
for Allegheny Electric Project
4.000%, 07/03/95(A)(B)(C) 300 300
Washington County, Pennsylvania
Authority Lease Revenue
Bond for Higher Education
Pooled Equipment Lease
4.250%, 07/07/95(A)(B)(C) 2,255 2,255
-----------
5,205
-----------
</TABLE>
- -----
FS-49 See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
COREFUND MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
RHODE ISLAND -- 1.6%
Rhode Island State Port
Authority & Economic
Development Facilities
Revenue Bond for
Newport Electric Project
4.150%, 07/07/95(A)(B)(C) $ 1,000 $ 1,000
-----------
SOUTH CAROLINA -- 2.2%
Piedmont, South Carolina
Municipal Power Agency
Revenue Bond, Prerefunded
01/01/96 @ 103
9.700%, 01/01/24 500 529
Richland County, South
Carolina Hospital Facilities
Revenue Bond for
Sunhealth-Orangeburg
Project, Ser C-2
4.450%, 07/07/95(A)(B)(C) 450 450
York County, South Carolina
Pollution Control Revenue
Bond for Electric Project,
Ser NRU-84N-2
4.300%, 07/07/95(A)(B)(C) 450 450
-----------
1,429
-----------
SOUTH DAKOTA -- 1.2%
Rapid City, South Dakota
Industrial Development
Authority Revenue Bond
for Corporate Property
Association Project
4.050%, 07/07/95(A)(B)(C) 765 765
-----------
TENNESSEE -- 0.5%
Sullivan County, Tennessee
Industrial Development
Authority Revenue Bond
for Mead Project
4.350%, 07/03/95(A)(B)(C) 300 300
-----------
TEXAS -- 9.4%
Austin, Texas TECP
3.400%, 09/14/95(C) 1,400 1,400
Camp County, Texas Industrial
Development Authority
Revenue Bond for Texas
Oil & Gas Project
4.450%, 07/07/95(A)(B)(C) 500 500
Dallas/Fort Worth, Texas TECP
3.700%, 09/08/95(C) 1,900 1,900
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
TEXAS (continued)
Harris County, Texas
Industrial Development
Authority Revenue Bond
4.250%, 07/03/95(A)(B)(C) $ 400 $ 400
4.250%, 07/03/95(A)(B)(C) 100 100
Montgomery County, Texas
Industrial Development
Revenue Bond for Dallas Tile
Project, Ser A
4.300%, 07/07/95(A)(B)(C) 100 100
Nueces County, Texas
Health Facilities Development
Revenue Bond for Driscoll
Children's Foundation Project
4.300%, 07/07/95(A)(B)(C) 1,675 1,675
-----------
6,075
-----------
VERMONT -- 2.2%
Vermont State Student Loan
Revenue Bond
4.000%, 07/03/95(A)(B)(C) 1,400 1,400
-----------
WASHINGTON -- 7.8%
Seattle Light & Power TECP
3.250%, 09/07/95(C) 1,000 1,000
4.200%, 09/11/95(C) 2,000 2,000
Seattle Washington Municipality
Sewer Revenue Bond
3.500%, 07/01/95 2,000 2,000
-----------
5,000
-----------
WASHINGTON, D.C. -- 1.3%
District of Columbia
Revenue Bond for American
University Issue, Ser A
4.300%, 07/07/95(A)(B)(C) 805 805
-----------
WEST VIRGINIA -- 0.6%
West Virginia State Hospital
Finance Authority Revenue
Bond for Saint Mary's
Hospital Project
4.300%, 07/07/95(A)(B)(C) 400 400
-----------
</TABLE>
See accompanying notes to financial statements --------
FS-50
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
WISCONSIN -- 1.2%
Lac Du Flambeau, Wisconsin,
Lake Superior Chippewa
Indian's Special Obligation
Bond for Simpson
Electric Project
4.100%, 07/07/95(A)(B)(C) $ 800 $ 800
-----------
WYOMING -- 2.6%
Platte County, Wyoming
Pollution Control Revenue
Bond, Ser B
4.350%, 07/03/95(A)(B)(C) 1,300 1,300
Sublette County, Wyoming
Pollution Control Revenue
Bond for Exxon Project
4.200%, 07/03/95(A)(B)(C) 400 400
-----------
1,700
-----------
TOTAL MUNICIPAL BONDS
(Cost $62,554,221) 62,554
-----------
TOTAL INVESTMENTS -- 97.3%
(Cost $62,554,221) 62,554
-----------
TOTAL OTHER ASSETS AND LIABILITIES,
NET -- 2.7% 1,726
-----------
NET ASSETS:
Portfolio Shares -- Series A ($0.001 par value -- 250 million authorized) based
on 62,803,924 outstanding
shares 62,804
Portfolio Shares -- Series B ($0.001
par value -- 250 million authorized)
based on 1,525,087 outstanding
shares 1,525
Accumulated Net Realized Loss on
Investments (49)
-----------
TOTAL NET ASSETS -- 100.0% $ 64,280
-----------
-----------
NET ASSET VALUE & REDEMPTION PRICE
PER SHARE
SERIES A $1.00
-----------
-----------
SERIES B $1.00
-----------
-----------
</TABLE>
GO -- General Obligation
TECP -- Tax Exempt Commercial Paper
(A) Variable rate securities -- the rate reflected on the Statement of
Net Assets is the rate in effect on June 30, 1995.
(B) Put or Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the lesser
of the put demand date or maturity date.
(C) Securities are held in connection with a letter of credit issued by
a major commercial bank.
- -----
FS-51 See accompanying notes to financial statements.
<PAGE>
For the year ended June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (000) COREFUND MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------- -------- -------
TAX-
CASH TREASURY FREE
RESERVE RESERVE RESERVE
------- -------- -------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $30,019 $25,449 $2,802
------- -------- -------
EXPENSES:
Investment Advisory fees 2,719 2,362 392
Less Investment Advisory fees waived (1,522) (1,322) (220)
Administrative fees 1,359 1,181 196
Less Administrative fees waived (489) (425) (71)
Transfer Agent fees 176 153 26
Insurance 16 14 3
Professional fees 91 79 13
Registration & Filing fees 70 56 12
12b-1 fees 38 27 5
Taxes--other than income 79 65 11
Printing 66 58 10
Miscellaneous 47 41 7
------- -------- -------
Total expenses 2,650 2,289 384
------- -------- -------
Net investment income 27,369 23,160 2,418
Net realized gain (loss) on securities
transactions (30) 4 (27)
------- -------- -------
Net increase in net assets resulting
from operations $27,339 $23,164 $2,391
------- -------- -------
------- -------- -------
</TABLE>
See accompanying notes to financial statements. --------
FS-52
<PAGE>
For the period ended June 30,
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (000) COREFUND MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------- --------------------- ------------------
CASH TREASURY TAX-FREE
RESERVE RESERVE RESERVE
--------------------- --------------------- ------------------
1995 1994 1995 1994 1995 1994
---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 27,369 $ 15,827 $ 23,160 $ 13,910 $ 2,418 $ 1,794
Net realized gain (loss) on securities
transactions (30) 9 4 2 (27) (22)
---------- ---------- ---------- ---------- --------- ---------
Net increase in net assets resulting from
operations 27,339 15,836 23,164 13,912 2,391 1,772
---------- ---------- ---------- ---------- --------- ---------
DIVIDENDS DISTRIBUTED FROM:
Net investment income:
Series A (26,626) (15,507) (22,642) (13,703) (2,359) (1,757)
Series B (743) (320) (518) (207) (59) (37)
Net realized gain:
Series A -- -- -- -- -- --
Series B -- -- -- -- -- --
---------- ---------- ---------- ---------- --------- ---------
Total dividends distributed (27,369) (15,827) (23,160) (13,910) (2,418) (1,794)
CAPITAL SHARE TRANSACTIONS:
Series A:
Proceeds from shares issued 1,153,765 1,182,462 1,884,529 1,580,054 196,955 233,149
Shares issued in lieu of cash distributions 3,226 1,911 5,268 3,520 228 243
Cost of shares repurchased (1,151,894) (1,139,941) (1,895,568) (1,545,390) (213,785) (226,241)
---------- ---------- ---------- ---------- --------- ---------
Increase (decrease) in net assets from Series
A transactions 5,097 44,432 (5,771) 38,184 (16,602) 7,151
Series B:
Proceeds from shares issued 42,775 45,016 31,754 16,771 3,788 7,641
Shares issued in lieu of cash distributions 690 289 257 192 55 35
Cost of shares repurchased (37,332) (49,184) (17,973) (17,062) (5,026) (6,763)
---------- ---------- ---------- ---------- --------- ---------
Increase (decrease) in net assets from Series
B transactions 6,133 (3,879) 14,038 (99) (1,183) 913
---------- ---------- ---------- ---------- --------- ---------
Increase (decrease) in net assets derived from
capital share transactions 11,230 40,553 8,267 38,085 (17,785) 8,064
---------- ---------- ---------- ---------- --------- ---------
Net increase (decrease) in net assets 11,200 40,562 8,271 38,087 (17,812) 8,042
---------- ---------- ---------- ---------- --------- ---------
NET ASSETS:
Beginning of year 516,724 476,162 492,547 454,460 82,092 74,050
---------- ---------- ---------- ---------- --------- ---------
End of year $ 527,924 $ 516,724 $ 500,818 $ 492,547 $ 64,280 $ 82,092
---------- ---------- ---------- ---------- --------- ---------
---------- ---------- ---------- ---------- --------- ---------
CAPITAL SHARE TRANSACTIONS
Capital shares outstanding at beginning of period 516,698 476,145 492,548 454,463 82,113 74,049
Series A:
Shares issued 1,153,765 1,182,462 1,884,530 1,580,054 196,955 233,149
Shares issued in lieu of cash distributions 3,226 1,911 5,268 3,520 228 243
Shares repurchased (1,151,894) (1,139,941) (1,895,567) (1,545,390) (213,785) (226,241)
---------- ---------- ---------- ---------- --------- ---------
Total Series A transactions 5,097 44,432 (5,771) 38,184 (16,602) 7,151
Series B:
Shares issued 42,775 45,016 31,754 16,771 3,788 7,641
Shares issued in lieu of cash distributions 690 289 257 192 55 35
Shares repurchased (37,332) (49,184) (17,973) (17,062) (5,026) (6,763)
---------- ---------- ---------- ---------- --------- ---------
Total Series B transactions 6,133 (3,879) 14,038 (99) (1,183) 913
---------- ---------- ---------- ---------- --------- ---------
Increase (decrease) derived from capital share
transactions 11,230 40,553 8,267 38,085 (17,785) 8,064
---------- ---------- ---------- ---------- --------- ---------
Capital shares outstanding at end of period 527,928 516,698 500,815 492,548 64,328 82,113
---------- ---------- ---------- ---------- --------- ---------
---------- ---------- ---------- ---------- --------- ---------
</TABLE>
- -----
FS-53 See accompanying notes to financial statements.
<PAGE>
For the period ended June 30,
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS COREFUND MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Net Ratio
Asset Dividends Net Assets Ratio of Net
Value Net from Net Asset Value End of Expenses Income
- ---------------- Beginning Investment Investment End Total of Period to Average to Average
CASH RESERVE of Period Income Income of Period Return (000) Net Assets Net Assets
- ---------------- --------- ---------- ---------- ----------- ------ --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SERIES A
1995 $1.00 $ 0.05 $(0.05) $1.00 5.15% $ 510,341 0.48% 5.04%
1994 1.00 0.03 (0.03) 1.00 3.00 505,273 0.47 2.95
1993 1.00 0.03 (0.03) 1.00 2.99 460,832 0.46 2.97
1992 1.00 0.05 (0.05) 1.00 4.83 568,672 0.38 4.68
1991 1.00 0.07 (0.07) 1.00 7.28 473,187 0.37 6.94
1990 1.00 0.08 (0.08) 1.00 8.65 316,290 0.34 8.28
1989 1.00 0.09 (0.09) 1.00 8.87 186,151 0.37 8.62
1988 1.00 0.07 (0.07) 1.00 6.70 82,399 0.55 6.54
1987 1.00 0.06 (0.06) 1.00 5.85 35,054 0.54 5.60
1986(1) 1.00 0.06 (0.06) 1.00 3.36+ 56,416 0.59 6.93
SERIES B
1995 $1.00 $ 0.05 $(0.05) $1.00 4.89% $ 17,583 0.73% 4.86%
1994 1.00 0.03 (0.03) 1.00 2.74%+ 11,451 0.72 2.70
1993* 1.00 0.01 (0.01) 1.00 1.23+ 15,330 0.76 2.52
- --------------------
TREASURY RESERVE
- --------------------
SERIES A
1995 $1.00 $ 0.05 $(0.05) $1.00 4.98% $ 479,206 0.48% 4.91%
1994 1.00 0.03 (0.03) 1.00 2.91 484,974 0.48 2.87
1993 1.00 0.03 (0.03) 1.00 2.96 446,788 0.46 2.89
1992 1.00 0.05 (0.05) 1.00 4.73 444,388 0.38 4.58
1991 1.00 0.07 (0.07) 1.00 7.11 427,439 0.37 6.80
1990 1.00 0.08 (0.08) 1.00 8.38 270,524 0.37 8.03
1989(2) 1.00 0.06 (0.06) 1.00 4.66+ 220,479 0.20 9.26
SERIES B
1995 $1.00 $ 0.05 $(0.05) $1.00 4.72% $ 21,612 0.73% 4.81%
1994 1.00 0.03 (0.03) 1.00 2.65 7,573 0.73 2.62
1993* 1.00 0.01 (0.01) 1.00 1.21+ 7,672 0.75 2.46
- --------------------
TAX-FREE RESERVE
- --------------------
SERIES A
1995 $1.00 $ 0.03 $(0.03) $1.00 3.12% $ 62,756 0.48% 3.09%
1994 1.00 0.02 (0.02) 1.00 2.03 79,384 0.49 2.00
1993 1.00 0.02 (0.02) 1.00 2.23 72,255 0.51 2.20
1992 1.00 0.03 (0.03) 1.00 3.56 80,147 0.37 3.39
1991(3) 1.00 0.01 (0.01) 1.00 1.07+ 42,573 0.06 4.20
SERIES B
1995 $1.00 $ 0.03 $(0.03) $1.00 2.86% $ 1,524 0.73% 2.80%
1994 1.00 0.02 (0.02) 1.00 1.78 2,708 0.74 1.75
1993* 1.00 0.01 (0.01) 1.00 0.85+ 1,795 0.76 1.71
<CAPTION>
Ratio Ratio of
of Expenses Net Income
to Average to Average
Net Assets Net Assets
- ---------------- (Excluding (Excluding
CASH RESERVE Waivers) Waivers)
- ---------------- ----------- ----------
<S> <C> <C>
SERIES A
1995 0.85% 4.67%
1994 0.85 2.57
1993 0.85 2.58
1992 0.82 4.24
1991 0.82 6.49
1990 0.80 7.82
1989 0.90 8.05
1988 1.14 5.96
1987 1.01 5.13
1986(1) 1.21 6.31
SERIES B
1995 1.10% 4.49%
1994 1.10 2.32
1993* 1.15 2.13
- --------------------
TREASURY RESERVE
- --------------------
SERIES A
1995 0.85% 4.54%
1994 0.86 2.49
1993 0.85 2.50
1992 0.82 4.14
1991 0.82 6.35
1990 0.84 7.56
1989(2) 0.84 8.62
SERIES B
1995 1.10% 4.44%
1994 1.11 2.24
1993* 1.14 2.07
- --------------------
TAX-FREE RESERVE
- --------------------
SERIES A
1995 0.85% 2.72%
1994 0.87 1.62
1993 0.89 1.82
1992 0.88 2.88
1991(3) 0.81 3.45
SERIES B
1995 1.10% 2.43%
1994 1.12 1.37
1993* 1.14 1.33
</TABLE>
+ Returns are for the period indicated and have not been annualized.
* Series B has been offered since January 4, 1993. Ratios for this period have
been annualized.
(1) Cash Reserve commenced operations on August 16, 1985. Ratios for this period
have been annualized.
(2) Treasury Reserve commenced operations on November 21, 1988. Ratios for this
period have been annualized.
(3) Tax-Free Reserve commenced operations on April 16, 1991. Ratios for this
period have been annualized.
See accompanying notes to financial statements. --------
FS-54
<PAGE>
June 30, 1995
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION
The CoreFund Growth Equity Fund, Value Equity Fund, Equity Index Fund,
International Growth Fund, Balanced Fund (the Equity Funds), Government Income
Fund, Intermediate Bond Fund, Intermediate Municipal Bond Fund, Global Bond
Fund, Pennsylvania Municipal Bond Fund, New Jersey Municipal Bond Fund (the
Fixed Income Funds), Cash Reserve, Treasury Reserve, and Tax-Free Reserve (the
Money Market Funds) are portfolios offered by CoreFunds, Inc. (The Company), an
open-end investment company registered under the Investment Company Act of 1940,
as amended. The Company is presently authorized to offer 17 separate portfolios
(the Portfolios):
EQUITY PORTFOLIOS: MONEY MARKET PORTFOLIOS:
Growth Equity Fund Cash Reserve
Value Equity Fund Treasury Reserve
Equity Index Fund Tax-Free Reserve
International Growth Fund Fiduciary Reserve
Balanced Fund Fiduciary Treasury Reserve
Fiduciary Tax-Free Reserve
FIXED INCOME PORTFOLIOS:
Government Income Fund
Intermediate Bond Fund
Intermediate Municipal Bond Fund
Global Bond Fund
Pennsylvania Municipal Bond Fund
New Jersey Municipal Bond Fund
The financial statements of the Equity Funds are included on pages 25 to
48, the financial statements of the Fixed Income Funds are included on pages 49
to 64 and the financial statements of the Money Market Funds are included on
pages 65 to 75. The financial statements of the Fiduciary Reserve, Fiduciary
Treasury Reserve and Fiduciary Tax-Free Reserve are not presented herein. The
assets of each Portfolio are segregated, and a Shareholder's interest is limited
to the Portfolio in which shares are held.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Portfolios.
Security Valuation--Investment securities of the Equity and Fixed Income
Funds which are listed on a securities exchange for which market quotations are
available are valued by an independent pricing service at the last quoted sales
price for such securities on each business day. If there is no such reported
sale, these securities and unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Investment securities of the Money Market Funds are stated at amortized
cost which approximates market value. Under this valuation method, purchase
discounts and premiums are accreted and amortized ratably to maturity and are
included in interest income.
The books and records of the International Growth Fund and Global Bond Fund
are maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars on the following basis:
(I) market value of investment securities, assets and liabilities at the
current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates of
such transactions.
- -----
FS-55
<PAGE>
- --------------------------------------------------------------------------------
COREFUND
- --------------------------------------------------------------------------------
The International Growth Fund does not isolate that portion of gains and
losses in investments in equity securities which is due to changes in the
foreign exchange rates from that which is due to changes in market prices of
equity securities.
The International Growth Fund and Global Bond Fund report certain foreign
currency related transactions as components of realized gains for financial
reporting purposes, whereas such components are treated as ordinary income for
Federal income tax purposes.
Forward Foreign Currency Contracts--The International Growth Fund and
Global Bond Fund enter into foreign currency contracts as hedges against either
specific transactions or portfolio positions. The aggregate principal amounts of
the contracts are not recorded as the funds intend to settle the contracts prior
to delivery. All commitments are 'marked-to-market' daily at the applicable
foreign exchange rate and any resulting unrealized gains or losses are recorded
currently. The funds realize gains or losses at the time forward contracts are
extinguished.
Security Transactions and Investment Income--Security transactions are
accounted for on the trade date of the security purchase or sale. Cost used in
determining net realized capital gains and losses on the sale of securities are
those of the specific securities sold, adjusted for the accretion and
amortization of purchase discounts or premiums during the respective holding
period which is calculated using the effective interest method. Interest income
is recorded on the accrual basis. Dividend income is recorded on ex-date.
Repurchase Agreements--Securities pledged as collateral for Repurchase
Agreements are held by each Portfolio's custodian bank until maturity of the
Repurchase Agreements. Provisions of the Agreements and procedures adopted by
the Adviser ensure that the market value of the collateral, including accrued
interest thereon, is sufficient in the event of default by the counterparty. If
the counterparty defaults and the value of the collateral declines or if the
counterparty enters into insolvency proceedings, realization of collateral by
the Portfolio may be delayed or limited.
Expenses--Expenses that are directly related to one of the Portfolios are
charged directly to that Portfolio. Other operating expenses of the Company are
prorated to the Portfolios on the basis of relative net asset value. Series
specific expenses, such as the 12b-1 fees, are borne by that series. Income,
other expenses and accumulated realized and unrealized gains and losses of a
Portfolio are allocated to the respective series on the basis of the relative
net asset value each day.
Distribution to Shareholders--The Growth Equity, Value Equity, Equity
Index, Balanced, and Global Bond Funds declare and pay dividends on a quarterly
basis. The International Growth Fund declares and pays dividends on a
semi-annual basis. Such dividends are reinvested in additional shares unless
otherwise requested. The Government Income Fund, Intermediate Bond Fund,
Intermediate Municipal Bond Fund, Pennsylvania Municipal Bond Fund, New Jersey
Municipal Bond Fund, Cash Reserve, Treasury Reserve and Tax-Free Reserve
distributions from net investment income are declared on a daily basis and are
payable on the first business day of the following month. Any net realized
capital gains on sales of securities for a Portfolio are distributed to its
shareholders at least annually.
Federal Income Taxes--It is each Portfolio's intention to continue to
qualify as a regulated investment company and distribute all of its taxable
income. Accordingly, no provision for Federal income tax was made. For Federal
income tax purposes required distributions related to realized gains from
security transactions are computed as of October 31st. Dividends distributed
exceed net realized gains from the Intermediate Bond Fund for financial
reporting purposes primarily due to the timing of distributions for tax
purposes.
Other--All organizational costs incurred with the start-up of the Balanced
Fund, Government Income Fund, Intermediate Municipal Bond Fund, Global Bond
Fund, Pennsylvania Municipal Bond Fund and New Jersey Municipal Bond Fund are
being amortized on a straight-line basis over a period of sixty months. If any
or all of the shares representing initial capital of each fund are redeemed by
any holder thereof prior to the end of the amortization period, the proceeds
will be reduced by the unamortized organization cost balance in the same
proportion as the number of shares redeemed bears to the initial shares
outstanding immediately preceding the redemption.
--------
FS-56
<PAGE>
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NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
3. INVESTMENT ADVISORY AND CUSTODIAL SERVICES
Pursuant to investment advisory agreements dated June 23, 1987 (Treasury
Reserve and Cash Reserve), December 5, 1989 (International Growth and Value
Equity), March 25, 1991 (Equity Index, Growth Equity, Balanced, Government
Income Bond Fund, Intermediate Bond Fund, Intermediate Municipal Bond Fund,
Global Bond Fund and Tax-Free Reserve), and May 15, 1994 (Pennsylvania Municipal
Bond Fund and New Jersey Municipal Bond Fund), investment advisory services are
provided to the Funds by CoreStates Investment Advisers, Inc. (CoreStates
Advisers), a wholly-owned subsidiary of CoreStates Bank, N.A. (CoreStates Bank),
itself a wholly-owned subsidiary of CoreStates Financial Management Corporation.
CoreStates Advisers is entitled to receive an annual fee of 0.75% on the average
net assets of the Growth Equity and Value Equity Funds, 0.40% on the average net
assets of the Equity Index Fund, 0.80% on the average net assets of the
International Growth Fund, 0.70% on the average net assets of the Balanced Fund,
0.60% on the average net assets of the Global Bond Fund and 0.50% on the average
net assets of the Government Income Fund, Intermediate Bond Fund, Intermediate
Municipal Bond Fund, Pennsylvania Municipal Bond Fund, New Jersey Municipal Bond
Fund and each of the Money Market Funds. Such fee is computed daily and paid
monthly. During the year ended June 30, 1995, CoreStates Advisers voluntarily
waived a portion of their fees in order to assist the Funds in maintaining a
competitive expense ratio.
CoreStates Bank serves as Custodian to the Company. No fees are being paid
to CoreStates Bank for such Services. Sub-Advisory services are provided to the
CoreStates Advisers for Value Equity Fund by Cashman, Farrell and Associates and
for the International Growth Fund by Martin Currie, Inc. (The 'Sub-Advisers')
pursuant to a sub-advisory agreements dated December 5, 1989. Sub-Advisory
services are provided for the Global Bond Fund by Alpha Global Fixed Income
Managers, Inc. pursuant to a sub-advisory agreement dated December 15, 1993.
Under the terms of such agreements, the Sub-Advisers are entitled to receive a
fee from CoreStates Advisers. Such a fee is computed daily and paid monthly.
CoreStates Advisers is responsible for the supervision of, and payment of fees
to, the Sub-Adviser in connection with their services.
4. ADMINISTRATIVE, TRANSFER AGENT AND DISTRIBUTION SERVICES
Pursuant to an Administration agreement dated October 30, 1992, as amended
June 1, 1995, SEI Financial Management Company (SEI) acts as the Portfolio's
Administrator. Under the terms of such agreement, SEI is entitled to receive an
annual fee of 0.25% on the average net assets of the Portfolios. Such fee is
computed daily and paid monthly. SEI voluntarily waives a portion of their fees
in order to assist the Funds in maintaining a competitive expense ratio.
Pursuant to a Transfer Agency agreement dated March 4, 1993, SEI acts as
Transfer Agent to the Portfolios. As such, SEI provides transfer agency,
dividend disbursing and shareholder servicing for the Portfolios.
On November 2, 1992, SEI Financial Services Company (SFS), a wholly owned
subsidiary of SEI, became the Portfolios' exclusive Distributor pursuant to a
distribution agreement dated October 30, 1992.
The Company has adopted a Distribution Plan (the Plan) for those Portfolios
offering Series B shares. The Plan provides for the payment by the Company to
the Distributor of up to 0.25% of the daily net assets of each Series B
Portfolio to which the Plan is applicable. The Distributor is authorized to use
this fee as compensation for its distribution related services and as payment to
certain securities broker/dealers and financial institutions which enter into
shareholder servicing agreements or broker agreements with the Distributor. The
Portfolios paid approximately $468,000 to affiliated brokers for commissions
earned on the sales of the Funds.
Certain officers of the Company are also officers of the Administrator.
Such officers are paid no fees by the Portfolio.
The Portfolios have paid legal fees to a law firm in which the Secretary of
the Company is partner.
- -----
FS-57
<PAGE>
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COREFUND
- --------------------------------------------------------------------------------
5. INVESTMENT TRANSACTIONS
During the year ended June 30, 1995, purchases of securities and proceeds
from sales of securities, other than temporary investments in short-term
securities, were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------- -------------------------------
PURCHASES SALES
------------------------------- -------------------------------
U.S. U.S.
PORTFOLIO INVESTMENT TRANSACTIONS (000) GOVERNMENT OTHER TOTAL GOVERNMENT OTHER TOTAL
---------- ------ ------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Growth Equity Fund -- 91,968 91,968 -- 70,432 70,432
Value Equity Fund -- 36,870 36,870 -- 34,961 34,961
Equity Index -- 46,813 46,813 -- 22,923 22,923
International Growth Fund -- 71,752 71,752 -- 64,683 64,683
Balanced 3,428 30,989 34,417 1,313 20,651 21,964
Government Income 30,917 9,577 40,494 31,916 6,833 38,749
Intermediate Bond Fund 163,832 35,731 199,563 159,485 39,691 199,176
Intermediate Municipal Fund -- 153 153 -- 1,149 1,149
Global Bond 10,061 21,798 31,859 10,329 24,490 34,819
Pennsylvania Municipal Bond Fund -- 2,289 2,289 -- 369 369
New Jersey Municipal Bond Fund -- 722 722 -- 504 504
</TABLE>
- --------------------------------------------------------------------------------
At June 30, 1995, the Growth Equity Fund, Balanced Fund, Government Income
Fund, Intermediate Bond Fund, Intermediate Municipal Bond Fund, Global Bond
Fund, Cash Reserve and Tax-Free Reserve had capital loss carryforwards for
federal tax purposes of approximately $1,520,000, $3,000, $240,000, $1,509,000,
$38,000, $1,203,000, $23,000 and $48,000, respectively, resulting from security
sales. For tax purposes, the losses in the Funds can be carried forward for a
maximum of eight years to offset any net realized capital gains. The
carryforward for the Growth Equity Fund expires in 2002. The carryforward for
the Balanced Fund, Government Income Fund, Intermediate Bond Fund, Intermediate
Municipal Bond Fund, Global Bond Fund, Cash Reserve and Tax-Free Reserve Funds
expires in 2003. On June 30, 1995, the total cost of securities and the net
realized gains or losses on securities sold for Federal income tax purposes was
not materially different from amounts reported for financial purposes. The
aggregate gross unrealized gain or loss on securities at June 30, 1995 for each
portfolio within CoreFunds is as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------ ------------ -------
AGGREGATE AGGREGATE
GROSS GROSS
AGGREGATE GROSS UNREALIZED GAIN/(LOSS) (000) APPRECIATION DEPRECIATION NET
------------ ------------ -------
<S> <C> <C> <C>
Growth Equity Fund 14,994 (390) 14,604
Value Equity Fund 4,943 (265) 4,678
Equity Index 22,147 (2,254) 19,893
International Growth Fund 10,263 (5,158) 5,105
Balanced 5,877 (641) 5,236
Government Income 154 (124) 30
Intermediate Bond Fund 825 (264) 561
Intermediate Municipal Fund 1 (18) (17)
Global Bond 986 (131) 855
Pennsylvania Municipal Bond Fund 63 (3) 60
New Jersey Municipal Bond Fund 31 (1) 30
</TABLE>
- --------------------------------------------------------------------------------
--------
FS-58
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
6. FORWARD FOREIGN CURRENCY CONTRACTS
The International Growth Fund and Global Bond Fund enter into forward
foreign currency contracts as hedges against portfolio positions. Such
contracts, which protect the value of a Fund's investment securities against a
decline in the value of currency, do not eliminate fluctuations in the
underlying prices of the securities. They simply establish an exchange rate at a
future date. Also, although such contracts tend to minimize the risk of loss due
to a decline in the value of a hedged currency, at the same time they tend to
limit any potential gain that might be realized should the value of such foreign
currency increase.
The following forward foreign currency contracts were outstanding at June
30, 1995:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------- ----------- --------------
UNREALIZED
CONTRACTS TO IN EXCHANGE APPRECIATION
MATURITY DATE DELIVER/RECEIVE FOR (DEPRECIATION)
----------------------------- ----------------- ----------- --------------
<S> <C> <C> <C> <C>
INTERNATIONAL GROWTH FUND:
FOREIGN CURRENCY SALES:
07/21/95 JY 818,686,161 $10,323,000 $ 631,947
----------- --------------
----------- --------------
GLOBAL BOND FUND:
FOREIGN CURRENCY SALES:
07/13/95-08/22/95 DM 6,425,143 $4,566,510 $ (88,345)
07/13/95-08/22/95 FF 21,182,350 4,328,430 (33,745)
08/16/95-08/22/95 DK 13,270,000 2,445,662 (10,970)
08/16/95-08/22/95 UK 1,363,000 2,180,429 19,556
08/22/95 NG 1,926,000 1,247,409 557
08/30/95 AD 1,800,000 1,284,930 10,299
----------- --------------
$16,053,370 $ (102,648)
----------- --------------
----------- --------------
</TABLE>
- --------------------------------------------------------------------------------
CURRENCY LEGEND
AD Australian Dollars
DK Danish Kroner
DM German Marks
FF French Francs
JY Japanese Yen
NG Netherlands Guilders
UK British Pounds Sterling
7. CONCENTRATION OF CREDIT RISK
The Intermediate Municipal Bond Fund, Pennsylvania Municipal Bond Fund, New
Jersey Municipal Bond Fund, and Tax-Free Reserve invest in debt instruments of
municipal issuers. Although these Funds maintain a diversified portfolio, the
issuers' ability to meet their obligations may be affected by economic
developments in a specific state or region.
- -----
FS-59
<PAGE>
- --------------------------------------------------------------------------------
COREFUND
- --------------------------------------------------------------------------------
The Intermediate Municipal Bond Fund, Pennsylvania Municipal Bond Fund, New
Jersey Municipal Bond Fund, and Tax-Free Reserve invest in securities which
include revenue bonds, tax exempt commercial paper, tax and revenue anticipation
notes, and general obligation bonds. At June 30, 1995, the percentage of
portfolio investments by each revenue source was as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------ ------------ ---------- --------
INTERMEDIATE PENNSYLVANIA NEW JERSEY
MUNICIPAL MUNICIPAL MUNICIPAL TAX-FREE
BOND FUND BOND FUND BOND FUND RESERVE
------------ ------------ ---------- --------
<S> <C> <C> <C> <C>
REVENUE BONDS
Education Bonds 19 16 7 7
Health Care Bonds -- 8 7 9
Transportation Bonds 23 8 3 4
Utility Bonds 11 16 14 7
Housing Bonds -- 12 -- 2
Pollution Control Bonds -- -- -- 11
Industrial Bonds -- 6 -- 13
Other 4 5 11 2
GENERAL OBLIGATIONS 43 29 58 6
TAX EXEMPT COMMERCIAL PAPER -- -- -- 39
--- --- --- ---
100% 100% 100% 100%
</TABLE>
- --------------------------------------------------------------------------------
The rating of long-term debt as a percentage of total value of investments
at June 30, 1995 is as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------ ------------ ---------- ------ ------------ ------------
PENNSYLVANIA NEW JERSEY
INTERMEDIATE INTERMEDIATE GOVERNMENT GLOBAL INTERMEDIATE INTERMEDIATE
BOND MUNICIPAL INCOME BOND MUNICIPAL MUNICIPAL
FUND FUND FUND FUND FUND FUND
------------ ------------ ---------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STANDARD & POORS RATINGS:
AAA 71 64 97 70 77 39
AA+ -- 10 -- 2 -- 15
AA -- 15 -- 8 4 23
AA- 4 7 -- -- 9 12
A+ 5 4 -- -- 6 --
A 5 -- -- -- 4 --
NR 15 -- 3 20 -- 11
--- --- --- ------ --- ---
100% 100% 100% 100% 100% 100%
</TABLE>
- --------------------------------------------------------------------------------
Many municipalities insure their obligations with insurance underwritten by
insurance companies which undertake to pay a holder, when due, the interest and
principal amount on an obligation if the issuer defaults on its obligation.
Although bond insurance reduces the risk of loss due to default by the issuer,
there is no assurance that the insurance company will meet its obligations.
Also, some of the securities have credit enhancements (letters of credit or
guarantees issued by third party domestic or foreign banks or other
institutions). At June 30, 1995, 54.7% of the investments held by the
Intermediate Municipal Bond Fund were insured, of which FGIC insured 22.1%,
Municipal Bond Insurance Association insured 10.6% and American Municipal Bond
insured 11.7%. At June 30, 1995, 71.7% of the investments held by the
Pennsylvania Municipal Bond Fund were insured, of which FGIC insured 34.0%,
American Municipal Bond insured 8.1% and Municipal Bond Insurance Association
insured 17.4%. At June 30, 1995, 13.5% of the investments held by the New Jersey
Municipal Bond Fund were insured, of
--------
FS-60
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (concluded) COREFUND
- --------------------------------------------------------------------------------
which FGIC insured 11.3%. At June 30, 1995, 93.9% of the investments held by the
Tax-Free Reserve Fund had credit enhancements, of which Swiss Bank held 13.5%,
Bank of Nova Scotia insured 6.7%, Morgan Guaranty insured 10.2%, National Rural
Utility Cooperative Financial Corp. insured 8.4%, Barclay's Bank insured 6.7%,
Sanwa Bank insured 5.8% and National West PLC insured 10.2%.
8. ACQUISITION OF CAPSTONE CASHMAN FARRELL VALUE FUND
On November 26, 1993 CoreFund Value Equity acquired all net assets of
Capstone Cashman Farrell Value Fund (Capstone) pursuant to a plan of
reorganization approved by Capstone shareholders on November 2, 1993. The
acquisition was accompanied by a tax-free exchange of 330,695 shares of Capstone
for 300,247 shares of Value Equity Fund Series B outstanding on November 29,
1993. Capstone's net assets at the date were combined with those of CoreFund
Value Equity. The aggregate net assets of CoreFund Value Equity and Capstone
before the acquisition were $18,685,000 and $3,978,000 respectively.
- -----
FS-61
<PAGE>
CONESTOGA FAMILY OF FUNDS
Supplement Dated November 3, 1995
to the Prospectus Dated February 21, 1995
Institutional Shares
1. The following paragraph is added as a second paragraph under the
heading "Financial Highlights" in the Institutional Shares Prospectus on page 5:
The financial data set forth below for all periods after October 31,
1994 are unaudited. Information about the prior performance of the Company is
contained in the Company's annual report which may be obtained without charge.
The following tables supplement the Financial Highlights tables in the
Institutional Shares Prospectus on pages 6 through 9:
<PAGE>
<TABLE>
<CAPTION>
U.S. Treasury
Cash Management Fund Tax-Free Fund Securities Fund
Institutional Institutional Institutional
Six Months Six Months Six Months
Ended Ended Ended
April 30, 1995(1) April 30, 1995(1) April 30, 1995(1)
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00
------ ------ -----
Investment Activities
Net Investment Income 0.026 0.017 0.025
------ ------ -----
Distributions
Net Investment Income (0.026) (0.017) (0.025)
------ ------ ------
Net Asset Value, End of Period $1.00 $1.00 $1.00
====== ====== =====
Total Return 1.80% 1.14% 1.72%
Ratios/Supplementary Data
Net Assets at End of Period (000) $169,595 $58,279 $274,830
Ratio of Expenses to Average Net Assets 0.58%(2) 0.42%(2) 0.68%(2)
Ratio of Net Investment Income to
Average Net Assets 5.25%(2) 3.41%(2) 4.96%(2)
Ratio of Expenses to Average
Net Assets(3) 0.89%(2) 0.96%(2) 0.89%(2)
Ratio of Net Investment Income to
Average Net Assets(3) 4.94%(2) 2.87%(2) 4.75%(2)
</TABLE>
____________________________
<PAGE>
<TABLE>
<CAPTION>
Pennsylvania
Intermediate Tax-Free
Equity Fund Special Equity Fund Bond Fund Income Fund Bond Fund
Institutional Institutional Institutional Institutional Institutional
Six Months Six Months Six Months Six Months Six Months
Ended Ended Ended Ended Ended
April 30, 1995(1) April 30, 1995(1) April 30, 1995(1) April 30, 1995(1) April 30, 1995(1)
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $15.00 $9.37 $9.81 $10.27 $9.56
------ ------ ------ ------ -----
Investment Activities
Net Investment Income 0.08 0.07 0.30 0.28 0.23
Net Realized and Unrealized
Gains (Losses) on Investments 0.79 0.08 0.25 0.12 0.44
------ ------ ------ ------ -----
Total from Investment Activities 0.87 0.15 0.55 0.40 0.67
Distributions
Net Investment Income (0.08) (0.07) (0.30) (0.28) (0.23)
Net Realized Gains (0.79) (0.07) 0.00 0.00 (0.01)
------ ------ ------ ------ -----
Total Distributions (0.87) (0.14) (0.30) (0.28) (0.24)
------ ------ ------ ------ -----
Net Asset Value, End of Period $15.00 $9.38 $10.06 $10.39 $9.99
====== ====== ====== ====== =====
Total Return 11.11% 6.31% 5.67% 3.03% 6.27%
Ratios/Supplementary Data
Net Assets at End of Period (000) $41,214 $10,165 $30,191 $14,804 $5,578
Ratio of Expenses to Average Net
Assets 1.48%(2) 0.15%(2) 1.00%(2) 1.01%(2) 0.47%(2)
Ratio of Net Investment Income to
Average Net Assets 1.15%(2) 1.52%(2) 6.25%(2) 5.42%(2) 4.85%(2)
Ratio of Expenses to Average
Net Assets(3) 1.48%(2) 2.89%(2) 1.56%(2) 1.71%(2) 2.25%(2)
Ratio of Net Investment Income to
Average Net Assets(3) 1.15%(2) (1.23)%(2) 5.69%(2) 4.72%(2) 3.07%(2)
Portfolio Turnover Rate 30.09% 193.20% 121.06% 62.87% 9.17%
</TABLE>
____________________________
(For a Fund Share Outstanding Throughout the Period presented)
<PAGE>
<TABLE>
<CAPTION>
International Equity Fund Short-Term Income Fund Balanced Fund
Institutional Institutional Institutional
May 15, 1995 to May 15, 1995 to June 27, 1995 to
September 30, 1995(4) September 30, 1995(4) September 30, 1995(4)
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $10.00 $10.00 $ 10.00
------ ------ -------
Investment Activities
Net Investment Income 0.01 0.21 0.09
Net Realized and Unrealized
Gains (Losses) on Investments 1.28 0.01 0.40
------ ------ -------
Total from Investment Activities 1.29 0.22 0.49
Distributions
Net Investment Income -- (0.19) (0.02)
Net Realized Gains -- -- --
------ ------ -------
Total Distributions -- (0.19) (0.02)
------ ------ -------
Net Asset Value, End of Period $11.29 $10.03 $10.47
====== ====== ======
Total Return 12.90% 2.20% 4.92%
Ratios/Supplementary Data
Net Assets at End of Period (000) $ 13,184 $ 36,722 $ 38,271
Ratio of Expenses to Average Net Assets 1.87%(2) 0.63%(2) 0.82%(2)
Ratio of Net Investment Income to
Average Net Assets 0.22%(2) 5.33%(2) 1.07%(2)
Ratio of Expenses to Average Net Assets(3) 1.87%(2) 1.07%(2) 3.65%(2)
Ratio of Net Investment Income to
Average Net Assets(3) 0.22%(2) 4.89%(2) 3.40%(2)
Portfolio Turnover Rate 18.00% 3.00% 16.00%
</TABLE>
____________________________
(1) Prior to February 21, 1995, only one class of shares of each portfolio
of the Fund was outstanding. One that date, the shareholders of the Fund
exchanged their shares for either the Fund's Retail or Institutional
shares. The financial data for the six months ended April 30, 1995 are
presented on a basis whereby each Fund's net investment income, expenses
and distributions for the period November 1, 1994 through February 20,
1995 were allocated to each class of shares based upon the relative net
assets of each class of shares as of February 21, 1995 and the results
combined with such information for each applicable class for the period
February 21, 1995 through April 30, 1995.
(2) Annualized.
(3) During the period the investment advisory and/or administration fees
were voluntarily reduced. If such voluntary fee reductions had not
occurred the ratios would have been as indicated.
(4) Period from commencement of operations.
PLEASE RETAIN FOR FUTURE REFERENCE
CON-A-002-01
<PAGE>
CONESTOGA FAMILY OF FUNDS
INSTITUTIONAL SHARES
680 East Swedesford Road For information,
Wayne, Pennsylvania 19087-1658 call (800) 344-2716
Conestoga Family of Funds (the "Company") is an open-end management
investment company. This Prospectus describes the eleven separate investment
portfolios (the "Funds") which are offered by the Company, each of which is
advised by Meridian Investment Company (the "Investment Advisor"). These Funds
enable the Company to meet a wide range of investment needs. This Prospectus
relates to a separate series of shares (the "Institutional Shares") of each of
the Funds.
MONEY MARKET FUNDS
The Conestoga Cash Management Fund's investment objective is to seek
current income with liquidity and stability of principal.
The Conestoga Tax-Free Fund's investment objective is to seek current
income which is exempt from regular federal income tax with liquidity and
stability of principal.
The Conestoga U.S. Treasury Securities Fund's investment objective is
to seek current income with liquidity and stability of principal.
EQUITY FUNDS
The Conestoga Equity Fund seeks capital growth by investing principally
in a diversified portfolio of common stocks.
The Conestoga International Equity Fund's investment objective is to
seek long-term growth of capital.
The Conestoga Special Equity Fund seeks capital growth by investing
principally in a diversified portfolio of common stocks.
BOND FUNDS
The Conestoga Bond (formerly the Income) Fund's investment objective is
to seek to maximize long-term total return by investing principally in a
diversified portfolio of debt securities.
The Conestoga Intermediate Income (formerly the Limited Maturity) Fund
has a primary investment objective of seeking current income by investing
principally in a diversified portfolio of debt securities with remaining or
expected maturities of ten years or less, and a secondary objective of seeking
capital growth.
The Conestoga Pennsylvania Tax-Free Bond Fund's investment objective is
to seek a high level of current income consistent with the preservation of
capital, which income is exempt from federal individual income tax and, to the
extent possible, from Pennsylvania state and local personal income tax, and is
not a tax preference item under the federal alternative minimum tax.
<PAGE>
The Conestoga Short-Term Income Fund's investment objective is to seek
consistent current income with relative stability of principal by investing
principally in a diversified portfolio of investment grade debt securities.
BALANCED FUND
The Balanced Fund's investment objective is to seek a balance of
capital appreciation and current income consistent with the preservation of
capital.
The Investment Advisor is located in Malvern, Pennsylvania. Marvin &
Palmer Associates, Inc. is the sub-investment adviser to the International
Equity Fund. SEI Financial Management Corporation acts as the Company's
administrator and SEI Financial Services Company acts as the Company's
distributor. Fund shares are not bank deposits or obligations of, or guaranteed
or endorsed by, the Investment Advisor or any of its affiliates, and are not
federally insured by, guaranteed by, obligations of or otherwise supported by
the U.S. Government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other governmental agency. Each of the Cash Management,
Tax-Free and U.S. Treasury Securities Funds seeks to maintain its net asset
value per share at $1.00 for purposes of purchases and redemptions, although
there can be no assurance that it will be able to do so on a continuous basis.
Investment in any Fund involves investment risk, including the possible loss of
principal.
This Prospectus sets forth concisely the information about
Institutional Shares of the Funds that a prospective investor ought to know
before investing. Investors should read this Prospectus and retain it for future
reference. The Statement of Additional Information bears the same date as this
Prospectus, is incorporated by reference in its entirety into this Prospectus,
and is available upon request without charge by writing to the Company at its
address or by calling the Company at the telephone number shown above.
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.
The date of this Prospectus is February 21, 1995.
-2-
<PAGE>
PROSPECTUS SUMMARY
SHARES OFFERED:
Units of Beneficial Interest of a separate class (the "Institutional
Shares") of each Fund.
OFFERING PRICE AND SALES CHARGE:
The public offering price of Institutional Shares of each Fund is equal
to its net asset value per Share which, with respect to the Cash Management,
Tax-Free and U.S. Treasury Securities Funds, the Company will seek to maintain
at $1.00.
MINIMUM PURCHASE:
$1,000 minimum initial investment with no minimum subsequent
investment.
INVESTMENT OBJECTIVES:
MONEY MARKET FUNDS: The Cash Management Fund and the U.S. Treasury
Securities Fund will each seek current income with liquidity and stability of
principal. The Tax-Free Fund will seek current income which is exempt from
regular federal income tax with liquidity and stability of principal.
EQUITY FUNDS: The Equity Fund and the Special Equity Fund
will each seek capital growth by investing primarily in a diversified portfolio
of common stocks. The International Equity Fund will seek long-term growth of
capital.
BOND FUNDS: The Bond Fund will seek to maximize long-term total return
by investing principally in a diversified portfolio of debt securities. The
Intermediate Income Fund has a primary investment objective of seeking current
income by investing principally in a diversified portfolio of debt securities
with expected or remaining maturities of ten years or less, and a secondary
objective of seeking capital growth. The investment objective of the
Pennsylvania Tax-Free Bond Fund is to seek a high level of current income
consistent with the preservation of capital, which income is exempt from federal
individual income tax and, to the extent possible, from Pennsylvania state and
local personal income tax, and is not a tax preference item under the federal
alternative minimum tax. Shares of the Pennsylvania Tax-Free Bond Fund will be
exempt from Pennsylvania personal property taxes. The Short-Term Income Fund's
investment objective is to seek consistent current income with relative
stability of principal by investing principally in a diversified portfolio of
investment grade debt securities.
-3-
<PAGE>
BALANCED FUND: The Balanced Fund's investment objective is to seek a
balance of capital appreciation and current income consistent with the
preservation of capital.
INVESTMENT POLICIES:
MONEY MARKET FUNDS: The Cash Management Fund invests principally in
short-term high-quality money market instruments. The Tax-Free Fund invests
principally in short-term high-quality municipal obligations the interest on
which is exempt from regular federal income tax and not treated as a specific
tax preference item under the federal alternative minimum tax. The U.S. Treasury
Securities Fund invests exclusively in short-term obligations issued or
guaranteed by the U.S. Treasury and in repurchase agreements secured by U.S.
Treasury instruments.
EQUITY FUNDS: The Equity Fund will normally invest at least 80% of its
total assets in common stocks. The Special Equity Fund will normally invest in
common stocks of domestic companies that the Investment Advisor expects will
experience growth in earnings and price. The International Equity Fund will
normally invest at least 65% of its total assets in an internationally
diversified portfolio of equity securities which trade in markets other than the
United States.
BOND FUNDS: The Bond Fund will normally invest at least 80% of its
total assets in debt securities of all types. The Intermediate Income Fund will
normally invest at least 80% of its total assets in debt securities of all types
with maximum expected or remaining maturities of ten years or less. The
Pennsylvania Tax-Free Bond Fund will invest substantially all of its assets (but
in no event less than 80%) in investment grade municipal securities the interest
on which is exempt from federal individual income tax and from Pennsylvania
state and local personal income tax, and is not treated as a specific tax
preference item under the federal alternative minimum tax. The Short-Term Income
Fund will invest principally in investment grade debt securities of all types
with maximum expected or remaining maturities of three years or less. The Fund
will normally have an average dollar-weighted portfolio maturity of
approximately one year.
BALANCED FUND: The Balanced Fund will normally invest at all times at
least 30% of the value of its total assets in fixed-income securities and no
more than 70% in equity securities.
INVESTMENT RISKS AND CHARACTERISTICS:
Funds investing in debt and equity securities are subject to market
risk. Market risk is the possibility that prices held by a Fund will decline
over a short or even extended periods. Stock
-4-
<PAGE>
markets tend to be cyclical, with periods of generally declining prices. The
cycles will affect the value of a fund investing in equity securities. Funds
investing in equity securities of foreign companies also will be subject to the
risks of fluctuations in the values of foreign currencies relative to the U.S.
dollar and other risks, including future political and economic developments and
the possible imposition of exchange controls or other foreign governmental laws
or restrictions. Funds investing in debt securities are subject to market risk
caused by fluctuations in interest rates and are subject to the risk that
particular issuers will be unable to meet their obligations. See "Investment
Objectives and Policies" and "Other Investment Policies" in the Prospectus and
"Investment, Policies and Restrictions" in the Statement of Additional
Information.
DIVIDENDS AND CAPITAL GAINS:
Dividends from net income are generally declared and paid annually with
respect to the International Equity Fund, quarterly with respect to the Equity
Fund, the Special Equity Fund and the Balanced Fund and monthly with respect to
the Bond Funds. Dividends from net income are declared daily and paid monthly
with respect to the Money Market Funds. Net realized capital gains are
distributed at least annually.
INVESTMENT ADVISOR:
Meridian Investment Company. Marvin & Palmer Associates, Inc. (the
"Sub-advisor") serves as the sub-advisor for the International Equity Fund.
DISTRIBUTOR:
SEI Financial Services Company.
-5-
<PAGE>
EXPENSE SUMMARY
The purpose of the following table is to assist a potential purchaser
of Institutional Shares of a Fund in understanding the various costs and
expenses that an investor in such Shares of the Fund will bear directly or
indirectly.
<TABLE>
<CAPTION>
Conestoga Conestoga Conestoga
Money Equity Conestoga Balanced
Market Funds Funds Bond Funds Fund
------------ --------- ---------- --------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ............................... 0% 0% 0% 0%
Maximum Sales Load Imposed on Reinvested Dividends ................... 0% 0% 0% 0%
Deferred Sales Load .................................................. 0% 0% 0% 0%
Redemption Fees ...................................................... 0% 0% 0% 0%
Exchange Fee ......................................................... 0% 0% 0% 0%
</TABLE>
<TABLE>
<CAPTION>
U.S. Treasury International
Annual Fund Operating Expenses Cash Management Tax-Free Securities Equity Equity
(as a percentage of average net assets) Fund Fund Fund Fund Fund
-------------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Advisory Fees After Fee Waivers 1 ..................... .34% .25% .32% .74% 1.00%
Other Expenses After Reimbursements 2 ................. .25% .32% .25% .27% .92%
--- --- --- ---- ----
Total Fund Operating Expenses ........................ .59% .57% .57% 1.01% 1.92%
=== === === ==== ====
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania
Special Intermediate Tax-Free Short-Term
Equity Bond Income Bond Income Balanced
Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees After Fee Waivers1 ................. .50% .40% .40% .25% .50% .75%
Other Expenses After Reimburse-
ments2 ...................................... .39% .28% .28% .59% .37% .48%
--- --- --- --- --- ----
Total Fund Operating Expenses ................... .89% .68% .68% .84% .87% 1.23%
=== === === === === ====
</TABLE>
- ------------------------
1 Advisory Fees are payable at the maximum annual rates of .40%, .40%, .40%,
.74%, 1.00%, 1.50%, .74%, .74%, .74%, .74% and .75% of the average daily net
assets of the Cash Management Fund, the Tax-Free Fund, the U.S. Treasury
Securities Fund, the Equity Fund, the International Equity Fund, the Special
Equity Fund, the Bond Fund, the Intermediate Income Fund, the Pennsylvania
Tax-Free Bond Fund, the Short-Term Income Fund and the Balanced Fund,
respectively.
2 "Other Expenses After Reimbursements" include administration fees. Until
April 30, 1995, administration fees will equal .20% of each Fund's average net
assets. Effective May 1, 1995, an Administration Agreement with a new
Administrator provides that administration fees will not exceed .17% of each
Fund's average net assets. (See "MANAGEMENT OF THE FUND -- Investment Advisor
and Administrator and Distributor.")
-6-
<PAGE>
Example
You would pay the following expenses on a $1,000 investment, assuming:
(1) a 5% annual return;
(2) redemption at the end of each time period; and
(3) the imposition of a maximum sales load at the beginning of the
period.
<TABLE>
<CAPTION>
Cash U.S. Treasury International Special
Management Tax-Free Securities Equity Equity Equity
Fund Fund Fund Fund Fund Fund
------ ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
1 Year ......................... $ 6 $ 6 $ 6 $ 10 $ 19 $ 9
3 Years ........................ 19 18 18 32 60 28
5 Years ........................ 33 32 32 56 49
10 Years ....................... 74 71 71 124 110
<CAPTION>
Intermediate Pennsylvania Short-Term
Bond Income Tax-Free Income Balanced
Fund Fund Bond Fund Fund Fund
------ ------ ---------- ------ -------
1 Year ...................... $ 7 $ 7 $ 9 $ 9 $ 13
3 Years ..................... 22 22 27 28 39
5 Years ..................... 38 38 47
10 Years .................... 85 85 104
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. THE INTERNATIONAL EQUITY, SHORT-TERM INCOME AND BALANCED FUNDS
ARE NEW. THE ABOVE FIGURES WITH RESPECT TO EACH FUND ARE ESTIMATES FOR THE
CURRENT YEAR ONLY. ACTUAL EXPENSES FOR EACH FUND MAY BE GREATER OR LESSER THAN
THOSE SHOWN.
The Expense Summary has been restated with respect to the Cash Management,
Tax-Free, U.S. Treasury Securities, Equity, Bond, Intermediate Income and
Pennsylvania Tax-Free Bond Funds to reflect various projected fee and expense
rates for the fiscal year ending October 31, 1995. The Special Equity Fund did
not commence investment operations until March 15, 1994. The International
Equity, Short-Term Income and Balanced Funds are expected to commence operations
shortly after the effective date of this Prospectus. Without fee waivers and
expense reimbursements by the Investment Advisor, Total Fund Operating Expenses
for the Cash Management Fund, the Tax-Free Fund, the U.S. Treasury Securities
Fund, the Equity Fund, the International Equity Fund, the Special Equity Fund,
the Bond Fund, the Intermediate Income Fund, the Pennsylvania Tax-Free Bond
Fund, the Short-Term Income Fund and the Balanced Fund would be .70%, .77%,
.70%, 1.06%, 1.97%, 1.94%, 1.07%, 1.07%, 2.06%, 1.16%, and 1.28%, respectively,
for the fiscal year or period ending October 31, 1995. Certain of the fee
waivers and expense reimbursements reflected in the Expense Summary are based
upon informal commitments of the Investment Advisor in connection with the
implementation of the Company's multiple class structure to waive or reimburse
certain expenses until February 1996; there can be no assurance that such
commitments will continue thereafter. There may be a charge of $7.00 for each
redemption paid by wire. See "MANAGEMENT OF THE FUND-Expenses" for a more
complete discussion of the shareholder transaction expenses and annual operating
expenses of the Funds.
The information in the foregoing fee tables and examples relates only to the
Institutional Shares of each Fund. Each of the Company's eleven Funds also offer
another class of Shares known as Retail Shares. The Institutional Shares and
Retail Shares of each Fund are subject to the same expenses except that
Institutional Shares are not subject to a Rule 12b-1 fee and the Institutional
Shares of the Equity, International Equity, Special Equity, Bond, Intermediate
Income, Pennsylvania Tax-Free Bond, Short-Term Income and Balanced Funds are not
sold with a sales charge.
-7-
<PAGE>
FINANCIAL HIGHLIGHTS
The "Financial Highlights" in the following tables supplements the
Company's financial statements contained in the Statement of Additional
Information and sets forth certain historic investment results of Shares of each
Fund that had commenced investment operations prior to the date of this
Prospectus. The Company's financial statements and the data reported in
"Financial Highlights" for the years ended October 31, 1994, 1993, 1992 and 1991
and period ended October 31, 1990 with respect to the Cash Management, Tax-Free,
U.S. Treasury Securities, Equity, Bond and Intermediate Income Funds, the years
ended October 31, 1994 and 1993 and period ended October 31, 1992 with respect
to the Pennsylvania Tax-Free Bond Fund and the period ended October 31, 1994
with respect to the Special Equity Fund were audited by the Company's
independent auditors, whose report thereon is incorporated by reference in the
Statement of Additional Information. Further information about the performance
of the Company is contained in the Company's annual report which may be obtained
without charge.
-8-
<PAGE>
CASH MANAGEMENT FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
For the Year Ended October 31, November 27, 1989
----------------------------------------------- to October 31,
1994 1993 1992 1991 1990(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
Investment Activities
Net Investment Income 0.034 0.028 0.037 0.060 0.073
----- ----- ----- ----- -----
Distributions
Net Investment Income (0.034) (0.028) (0.037) (0.060) (0.073)
------- ------- ------- ------- -------
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
- ---------------------------------------
Total Return 3.41% 2.80% 3.79% 6.22% 7.59%
Ratios/Supplementary Data
Net Assets at end of period (000) $140,545 $215,223 $113,096 $151,166 $39,061
Ratio of Expenses to
Average Net Assets 0.71% 0.65% 0.48% 0.49% 0.42%(2)
Ratio of Net Investment Income to
Average Net Assets 3.32% 2.75% 3.76% 5.84% 7.95%(2)
Ratio of Expenses to Average
Net Assets* 0.99% 0.87% 0.70% 0.79% 0.75%(2)
Ratio of Net Investment Income to Average
Net Assets* 3.05% 2.53% 3.55% 5.54% 7.62%(2)
</TABLE>
- ----------------------------
* During the periods the investment advisory, administration and/or
shareholder servicing plan fees were voluntarily reduced. If such
voluntary fee reductions had not occurred the ratios would have been as
indicated.
(1) Period from commencement of operations.
(2) Annualized.
-9-
<PAGE>
TAX-FREE FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
For the Year Ended October 31, November 27, 1989
--------------------------------------------- to October 31,
1994 1993 1992 1991 1990(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
Investment Activities
Net Investment Income 0.022 0.020 0.028 0.044 0.052
----- ----- ----- ----- -----
Distributions
Net Investment Income (0.022) (0.020) (0.028) (0.044) (0.052)
------- ------- ------- ------- -------
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
- ---------------------------------------
Total Return 2.21% 1.97% 2.88% 4.44% 5.31%
Ratios/Supplementary Data
Net Assets at end of period (000) $54,904 $46,239 $46,295 $45,647 $24,167
Ratio of Expenses to
Average Net Assets 0.37% 0.45% 0.33% 0.43% 0.31%(2)
Ratio of Net Investment Income to
Average Net Assets 2.22% 1.95% 2.83% 4.37% 5.57%(2)
Ratio of Expenses to Average
Net Assets* 1.05% 0.96% 0.73% 0.87% 0.91%(2)
Ratio of Net Investment Income to Average
Net Assets* 1.53% 1.44% 2.45% 3.93% 4.97%(2)
</TABLE>
- ----------------------------
* During the periods the investment advisory, administration and/or
shareholder servicing plan fees were voluntarily reduced. If such
voluntary fee reductions had not occurred the ratios would have been as
indicated.
(1) Period from commencement of operations.
(2) Annualized.
-10-
<PAGE>
U.S. TREASURY SECURITIES FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
For the Year Ended October 31, November 27, 1989
--------------------------------------------- to October 31,
1994 1993 1992 1991 1990(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
Investment Activities
Net Investment Income 0.030 0.025 0.036 0.058 0.073
----- ----- ----- ----- -----
Distributions
Net Investment Income (0.030) (0.025) (0.036) (0.058) (0.073)
------- ------- ------- ------- -------
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
- ---------------------------------------
Total Return 3.07% 2.57% 3.64% 5.96% 7.44%
Ratios/Supplementary Data
Net Assets at end of period (000) $325,379 $257,934 $340,904 $341,931 $106,771
Ratio of Expenses to
Average Net Assets 0.72% 0.66% 0.46% 0.51% 0.38%(2)
Ratio of Net Investment Income to
Average Net Assets 3.03% 2.55% 3.65% 5.61% 7.73%(2)
Ratio of Expenses to Average
Net Assets* 0.97% 0.87% 0.69% 0.79% 0.79%(2)
Ratio of Net Investment Income to Average
Net Assets* 2.78% 2.33% 3.44% 5.32% 7.32%(2)
</TABLE>
- ----------------------------
* During the periods the investment advisory, administration and/or
shareholder servicing plan fees were voluntarily reduced. If such
voluntary fee reductions had not occurred the ratios would have been as
indicated.
(1) Period from commencement of operations.
(2) Annualized.
-11-
<PAGE>
EQUITY FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
For the Year Ended October 31, February 28, 1990
------------------------------------- to October 31,
1994 1993 1992 1991 1990(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $15.39 $13.93 $13.08 $8.95 $10.00
------ ------ ------ ----- ------
Investment Activities
Net Investment Income 0.11 0.14 0.19 0.26 0.14
Net Realized and Unrealized Gains
(Losses) on Investments 0.22 1.89 1.02 4.13 (1.05)
---- ------ ------ ----- -------
Total from Investment Activities 0.33 2.03 1.21 4.39 (0.91)
Distributions
Net Investment Income (0.11) (0.14) (0.19) (0.26) (0.14)
Net Realized Gains (0.61) (0.43) (0.17)
------ ------ ------
Total Distributions (0.72) (0.57) (0.36) (0.26) (0.14)
------ ------ ------ ------ ------
Net Asset Value, End of Period $15.00 $15.39 $13.93 $13.08 $8.95
====== ====== ====== ====== =====
- ---------------------------------------
Total Return 2.21% 14.90% 9.27% 49.37% (9.22)%
Ratios/Supplementary Data
Net Assets, at end of period (000) $50,128 $45,677 $28,103 $12,830 $5,982
Ratio of Expenses to
Average Net Assets 1.49% 1.20% 0.92% 0.54% 0.65%(2)
Ratio of Net Investment Income to
Average Net Assets 0.75% 0.94% 1.47% 2.30% 2.29%(2)
Ratio of Expenses to Average
Net Assets* 1.51% 1.41% 1.23% 1.48% 1.59%(2)
Ratio of Net Investment Income to Average
Net Assets* 0.73% 0.73% 1.17% 1.36% 1.35%(2)
Portfolio Turnover Rate 35.41% 23.68% 38.90% 68.15% 42.78%
</TABLE>
- ----------------------------
* During the periods the investment advisory, administration and/or
shareholder servicing plan fees were voluntarily reduced. If such
voluntary fee reductions had not occurred the ratios would have been as
indicated.
(1) Period from commencement of operations.
(2) Annualized.
-12-
<PAGE>
SPECIAL EQUITY FUND
(For a Fund Share Outstanding Throughout the Period presented.)
<TABLE>
<CAPTION>
March 15, 1994 to
October 31, 1994(1)
-------------------
<S> <C>
Net Asset Value, Beginning of Period $10.00
------
Investment Activities
Net Investment Income 0.06
Net Realized and Unrealized Gains
(Losses) on Investments (0.63)
----
Total from Investment Activities (0.57)
Distributions
Net Investment Income (0.06)
----
Net Realized Gains
Total Distributions (0.06)
Net Asset Value, End of Period $9.37
=====
- ---------------------------------------
Total Return (5.72)%
Ratios/Supplementary Data
Net Assets at end of period (000) $10,069
Ratio of Expenses to
Average Net Assets 0.15%(2)
Ratio of Net Investment Income to
Average Net Assets 1.06%(2)
Ratio of Expenses to Average
Net Assets* 2.10%(2)
Ratio of Net Investment Income to Average
Net Assets* (0.89)%(2)
Portfolio Turnover Rate 38.70%
</TABLE>
- ----------------------------
* During the periods the investment advisory, administration, and/or
shareholder servicing plan fees were voluntarily reduced. If such
voluntary fee reductions had not occurred the ratios would have been as
indicated.
(1) Period from commencement of operations.
(2) Annualized.
-13-
<PAGE>
BOND FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
February 28, 1990
For the Year Ended October 31, to October 31,
1994 1993 1992 1991 1990(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $11.18 $10.89 $10.65 $9.96 $10.00
------ ------ ------ ----- ------
Investment Activities
Net Investment Income 0.53 0.56 0.70 0.78 0.50
Net Realized and Unrealized
Gains (Losses) on Investments (1.04) 0.54 0.32 0.69 (0.04)
------ ------ ------ ------ -------
Total from Investment Activities (0.51) 1.10 1.02 1.47 0.46
Distributions
Net Investment Income (0.52) (0.56) (0.68) (0.78) (0.50)
Net Realized Gains (0.34) (0.25) (0.10)
------ ------ ------
Total Distributions (0.86) (0.81) (0.78) (0.78) (0.50)
------ ------ ------ ------ ------
Net Asset Value, End of Period $9.81 $11.18 $10.89 $10.65 $9.96
===== ====== ====== ====== =====
- ---------------------------------------
Total Return (4.75)% 10.63% 9.82% 15.16% 4.64%
Ratios/Supplementary Data
Net Assets at end of period (000) $23,377 $27,346 $15,180 $7,255 $4,593
Ratio of Expenses to
Average Net Assets 1.01% 0.88% 0.46% 0.47% 0.68%(2)
Ratio of Net Investment Income to
Average Net Assets 5.07% 5.16% 6.78% 7.71% 7.75%(2)
Ratio of Expenses to Average
Net Assets* 1.60% 1.49% 1.24% 1.41% 1.62%(2)
Ratio of Net Investment Income to Average
Net Assets* 4.48% 4.55% 6.01% 6.78% 6.81%(2)
Portfolio Turnover Rate 231.88% 158.51% 99.03% 47.30% 22.57%
- ----------------------------
</TABLE>
* During the periods the investment advisory, administration and/or
shareholder servicing plan fees were voluntarily reduced. If such
voluntary fee reductions had not occurred the ratios would have been as
indicated.
(1) Period from commencement of operations.
(2) Annualized.
-14-
<PAGE>
INTERMEDIATE INCOME FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
For the Year Ended October 31, February 28, 1990
------------------------------------------------ to October 31,
1994 1993 1992 1991 1990(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $11.01 $10.87 $10.61 $10.12 $10.00
------ ------ ------ ------ ------
Investment Activities
Net Investment Income 0.50 0.53 0.65 0.77 0.48
Net Realized and Unrealized
Gains (Losses) on Investments (0.61) 0.21 0.29 0.50 0.12
------ ---- ---- ---- ----
Total from Investment Activities (0.11) 0.74 0.94 1.27 0.60
Distributions
Net Investment Income (0.49) (0.53) (0.64) (0.77) (0.48)
Net Realized Gains (0.14) (0.07) (0.04) (0.01)
------ ------ ------ ------
Total Distributions (0.63) (0.60) (0.68) (0.78) (0.48)
------ ------ ------ ------ ------
Net Asset Value, End of Period $10.27 $11.01 $10.87 $10.61 $10.12
====== ====== ====== ====== ======
- ---------------------------------------
Total Return (0.97)% 6.99% 9.11% 12.94% 6.10%
Ratios/Supplementary Data
Net Assets at end of period (000) $21,247 $24,047 $16,718 $7,116 $3,986
Ratio of Expenses to
Average Net Assets 0.90% 0.78% 0.47% 0.40% 0.75%(2)
Ratio of Net Investment Income to
Average Net Assets 4.66% 4.89% 6.31% 7.69% 7.42%(2)
Ratio of Expenses to Average
Net Assets* 1.64% 1.50% 1.24% 1.34% 1.69%(2)
Ratio of Net Investment Income to Average
Net Assets* 3.92% 4.17% 5.57% 6.76% 6.48%(2)
Portfolio Turnover Rate 170.23% 90.17% 53.28% 32.94% 39.36%
</TABLE>
- ----------------------------
* During the periods the investment advisory, administration and/or
shareholder servicing plan fees were voluntarily reduced. If such
voluntary fee reductions had not occurred the ratios would have been as
indicated.
(1) Period from commencement of operations.
(2) Annualized.
-15-
<PAGE>
PENNSYLVANIA TAX-FREE BOND FUND
(For a Fund Share Outstanding Throughout the Year and Period presented.)
<TABLE>
<CAPTION>
September 21,
Year Ended 1992 to
October 31, October 31,
1994 1993 1992(1)
---- ----------- ---------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $10.48 $9.77 $10.00
------ ----- ------
Investment Activities
Net Investment Income 0.46 0.45
Net Realized and Unrealized Gains
(Losses) on Investments (0.85) 0.70 (0.23)
------ ------ ------
Total from Investment Activities (0.39) 1.15 (0.23)
------ ------ ------
Distributions
Net Investment Income (0.46) (0.44)
Net Realized Gains (0.07)
------
Total Distributions (0.53) (0.44)
------ ------
Net Asset Value, End of Period $9.56 $10.48 $9.77
===== ====== =====
- ---------------------------------------
Total Return (3.90)% 11.94% (2.28)%
Ratios/Supplementary Data
Net Assets at end of period (000) $7,008 $5,883 $3,405
Ratio of Expenses to
Average Net Assets 0.38% 0.51% 2.67%(2)
Ratio of Net Investment Income to
Average Net Assets 4.61% 4.35% 0.52%(2)
Ratio of Expenses to Average
Net Assets* 1.57% 1.63% 3.41%(2)
Ratio of Net Investment Income to Average
Net Assets* 3.42% 3.23% (0.22)%(2)
Portfolio Turnover Rate 37.23% 50.19% 31.37%
- ----------------------------
</TABLE>
* During the periods the investment advisory, administration and/or
shareholder servicing plan fees were voluntarily reduced. If such
voluntary fee reductions had not occurred the ratios would have been as
indicated.
(1) Period from commencement of operations.
(2) Annualized.
-16-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
MONEY MARKET FUNDS
The Conestoga Cash Management Fund
The investment objective of the Cash Management Fund is to seek current
income with liquidity and stability of principal. The Cash Management Fund will
invest only in those obligations which are considered by the Investment Advisor
to present minimal credit risk and which at the time of purchase are rated of a
high quality, i.e., rated in the highest rating category by a nationally
recognized statistical rating organization ("Rating Organization") in the case
of commercial paper; or rated in one of the two highest rating categories by a
Rating Organization in the case of bonds; or which are unrated at the time of
purchase but are determined to be of comparable quality by the Investment
Advisor pursuant to guidelines approved by the Company's Board of Trustees. All
securities or instruments in which the Cash Management Fund invests have
remaining maturities of 397 days or less, although instruments subject to
repurchase agreements may bear longer maturities. The average dollar-weighted
maturity of the securities in the Cash Management Fund will not exceed 90 days.
Obligations purchased by the Cash Management Fund are limited to U.S.
dollar-denominated obligations which the Board of Trustees has determined
present minimal credit risks.
The Conestoga U.S. Treasury Securities Fund
The U.S. Treasury Securities Fund invests exclusively in short-term
obligations issued or guaranteed by the U.S. Treasury and in repurchase
agreements secured by U.S. Treasury instruments. All securities or instruments
in which the U.S. Treasury Securities Fund invests have remaining maturities of
397 days or less, although instruments subject to repurchase agreements may bear
longer maturities. The average dollar-weighted maturity of the securities in the
U.S. Treasury Securities Fund will not exceed 90 days. Obligations purchased by
the U.S. Treasury Securities Fund are limited to U.S. dollar-denominated
obligations which the Board of Trustees has determined present minimal credit
risks.
To the extent permitted by state and local law, in addition to being
suitable for individuals, institutions, custody and certain trust accounts, the
U.S. Treasury Securities Fund offers an economical and convenient vehicle for
the investment of available cash by state and local governments, their political
subdivisions, agencies, instrumentalities and public authorities, as well as by
trustees and others, of proceeds of tax-exempt bond issues, whether or not
subject to arbitrage limitations or rebate requirements under the Internal
Revenue Code of 1986 as amended.
-17-
<PAGE>
Potential investors should consult their legal advisors to determine whether or
not their state and local statutes, regulations and applicable governing
instruments (such as bond indentures and resolutions) permit such investors to
purchase Shares in the U.S. Treasury Securities Fund. The U.S. Treasury
Securities Fund offers the advantages of liquidity, diversification and combined
investing power, thereby avoiding the generally greater expense of executing a
large number of small transactions. Moreover, investment in the U.S. Treasury
Securities Fund relieves the investor of many management and administrative
burdens associated with the direct purchase and sale of U.S. Treasury
securities. These include selection of investments; surveying the market for the
best terms at which to buy and sell; scheduling and monitoring maturities and
reinvestments; receipt, delivery and safekeeping of securities; and
recordkeeping.
The Conestoga Tax-Free Fund
The investment objective of the Tax-Free Fund is to seek current income
which is exempt from regular federal income tax with liquidity and stability of
principal. The assets of the Tax-Free Fund will be primarily invested in
high-quality bonds and notes issued by, or on behalf of, states (including the
District of Columbia), territories, and possessions of the United States and
their respective authorities, agencies, instrumentalities, and political
subdivisions, the interest on which is exempt from regular federal income tax
and is not treated as a specific tax preference item under the federal
alternative minimum tax ("Municipal Obligations"), and which have remaining
maturities of 397 days or less. The average dollar-weighted maturity of the
securities in the Tax-Free Fund will not exceed 90 days. As a matter of
fundamental policy, under normal market conditions, at least 80% of the Tax-Free
Fund's total assets will be invested in Municipal Obligations.
The Tax-Free Fund may invest in private activity bonds (e.g., bonds
issued by industrial development authorities) that are issued by or on behalf of
public authorities to finance various privately-operated facilities. Private
activity bonds are included in the term "Municipal Obligations" only if the
interest paid thereon is exempt from regular federal income tax and is not
treated as a specific tax preference item under the federal alternative minimum
tax for either individuals or corporations. See "TAXES."
Under normal market conditions, the Tax-Free Fund may invest up to 20%
of its total assets in obligations, the interest on which is either subject to
regular federal income taxation or is treated as a specific tax preference item
under the federal alternative minimum tax ("Taxable Obligations"). If deemed
appropriate for temporary defensive purposes, the Tax-Free Fund
-18-
<PAGE>
may increase its holdings in Taxable Obligations to over 20% of its total assets
and may also hold uninvested cash reserves pending investment. When the Fund is
so invested, its investment objective may not be achieved. Uninvested cash
reserves will not earn income. Taxable Obligations may include obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
(some of which may be subject to repurchase agreements), certificates of deposit
and banker's acceptances of selected banks, private activity bonds and
commercial paper meeting the Tax-Free Fund's quality standards (as described
below) for tax-exempt commercial paper. These obligations are described further
in the Statement of Additional Information.
The Tax-Free Fund will invest only in those Municipal Obligations which
are considered by the Investment Advisor to present minimal credit risks and
which at the time of purchase are rated high quality, i.e., rated in one of the
two highest rating categories assigned by a Rating Organization in the case of
bonds; rated in the highest rating category assigned by a Rating Organization in
the case of notes, variable rate demand notes and tax-exempt commercial paper;
or which are unrated at the time of purchase but are determined to be of
comparable quality by the Investment Advisor pursuant to guidelines approved by
the Company's Board of Trustees. Municipal Obligations may be purchased in
reliance upon a rating only where the Rating Organization is not affiliated with
the issuer or guarantor of the Municipal Obligations. If a security is subject
to a demand feature, the security must receive both a short-term and a long-term
high quality rating or must be determined to be of comparable quality by the
Investment Advisor; except that where the demand feature is considered to be
"unconditional" under the Investment Company Act of 1940, the security may be
acquired solely in reliance on a short-term high quality rating or a
determination of comparable quality by the Investment Advisor. The applicable
Municipal Obligations ratings are described in Appendix "A" to the Statement of
Additional Information.
The Tax-Free Fund is not intended to constitute a balanced investment
program and is not designed for investors seeking capital appreciation or
maximum tax-exempt income irrespective of fluctuations in principal. Investment
in the Tax-Free Fund would not be appropriate for tax-deferred plans, such as
IRA or Keogh plans. Investors should consult a tax or other financial advisor to
determine whether investment in the Tax-Free Fund would be appropriate.
-19-
<PAGE>
EQUITY FUNDS
The Conestoga Equity Fund
The investment objective of the Equity Fund is to seek capital growth
by investing principally in a diversified portfolio of common stocks of
companies with large, medium or small capitalizations. The Equity Fund will
normally invest at least 80% of the value of its total assets in common stocks.
The Fund may also invest up to 20% of the value of its total assets in
securities convertible into common stocks, preferred stocks, corporate bonds,
notes, warrants, and short-term obligations (with maturities of 18 months or
less) such as commercial paper (including variable amount master demand notes),
banker's acceptances, certificates of deposit, repurchase agreements,
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and demand and time deposits of domestic and foreign banks
and savings and loan associations. During temporary defensive periods, the Fund
has the ability to hold up to 100% of its total assets in short-term obligations
including domestic bank certificates of deposit, banker's acceptances and
repurchase agreements secured by U.S. Government securities.
Stocks held by the Equity Fund may be listed on a national securities
exchange or may be unlisted securities with an established over-the-counter
market. The Investment Advisor has developed a quantitative process which
evaluates stocks in a number of ways, including the ratios of market price to
book value, recent changes in market price, return on equity, price to earnings
ratios, dividend paying abilities, and liquidity. The Investment Advisor
believes that its quantitative approach reduces subjectivity in the stock
selection process.
Equity securities such as those in which the Equity Fund may invest are
more volatile and carry more risk than some other forms of investment. Depending
upon the performance of the Fund's investments, the net asset value per Share of
the Fund may decrease instead of increase.
The Conestoga International Equity Fund
The investment objective of the International Equity Fund is to seek
long-term growth of capital. Under normal market conditions, the Fund will
invest at least 65% of its total assets in an internationally diversified
portfolio of equity securities which trade in markets other than the United
States. Generally, these securities will be issued by companies (i) domiciled in
countries other than the United States, or (ii) that derive at least 50% of
either their revenues or their pre-tax income from activities outside of the
United States. Equity securities include for this purpose common and preferred
stock, securities
-20-
<PAGE>
(bonds and preferred stock) convertible into common stock, warrants and
securities representing underlying international securities such as American
Depositary Receipts, or ADRs, and European Depositary Receipts, or EDRs. The
Fund may also hold depositary or custodial receipts representing beneficial
interests in any of the foregoing securities.
The Fund may invest in securities of issuers with large, medium or
small capitalizations in any country including but not limited to, Argentina,
Australia, Austria, Belgium, Canada, Chile, Colombia, Denmark, Finland, France,
Germany, Hong Kong, India, Ireland, Israel, Italy, Japan, South Korea, Malaysia,
Mexico, the Netherlands, New Zealand, Norway, Peru, the Philippines, Singapore,
Spain, Sweden, Switzerland, Taiwan, Thailand, the United Kingdom and Venezuela.
Normally, the Fund will invest at least 65% of its total assets in securities
traded in at least three foreign countries, including the countries listed
above. It is possible, although not currently anticipated, that up to 35% of the
Fund's assets could be invested in U.S. companies.
Initial emphasis in the selection of investments is expected to be
placed on selection of countries in which to invest, followed by selection of
industries or sectors within or across countries and by selection of individual
stocks corresponding to the industries or sectors selected. Investments are
expected to be made primarily in developed markets and larger capitalization
companies. However, the Fund also may invest in emerging markets where smaller
capitalization companies are the norm.
Under normal market conditions, it is expected that the Fund will be
fully invested in equity securities and related hedging instruments (except for
short-term investments of cash for liquidity purposes and pending investment).
However, during temporary defensive periods, the Fund may invest up to 100% of
its total assets in short-term obligations (with maturities of 12 months or
less) consisting of commercial paper (including variable amount master demand
notes), banker's acceptances, certificates of deposit, repurchase and reverse
repurchase agreements, and demand and time deposits of domestic or foreign banks
and savings and loan associations, and in money market mutual funds.
The Conestoga Special Equity Fund
The investment objective of the Special Equity Fund is to seek capital
growth by investing principally in a diversified portfolio of common stocks. The
Special Equity Fund will normally invest in common stocks of domestic companies
that the Investment Advisor expects will experience growth in earnings and
price. The Fund may invest up to 35% of its total assets in foreign securities.
The Fund may also purchase securities
-21-
<PAGE>
convertible into common stocks, preferred stocks, notes, warrants, and, for
daily case management purposes, short-term obligations (with maturities of 18
months or less) such as commercial paper (including variable amount master
demand notes), banker's acceptances, certificates of deposit, repurchase
agreements, obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, and demand and time deposits of domestic and
foreign banks and savings and loan associations. During temporary defensive
periods, the Fund has the ability to hold up to 100% of its total assets in
short-term obligations, including domestic bank certificates of deposit,
banker's acceptances and repurchase agreements secured by U.S. Government
securities. The Investment Advisor's quantitative process described above under
"The Conestoga Equity Fund" will be utilized for the Special Equity Fund.
Many of the companies in which the Special Equity Fund invests will be
small and medium capitalized companies. Small capitalized companies are those
organizations with "stock market capitalizations" between $100 million and $1
billion and medium capitalized companies are those organizations with stock
market capitalizations between $1 billion and $5 billion. "Stock market
capitalizations" means the total number of common shares outstanding multiplied
by the market price per share.
The Special Equity Fund will normally purchase the securities of small
and medium capitalized companies across a wide range of industry sectors. These
securities may be traded over-the-counter or listed on an exchange and may or
may not pay dividends. Small and medium capitalized companies may be more
vulnerable than larger, more established organizations to adverse business or
economic developments. In particular, small capitalized companies may have
limited product lines, markets and financial resources and may be dependent upon
a relatively small management group. Accordingly, equity securities such as
those in which the Fund may invest are more volatile and carry more risk than
some other forms of investment. Depending upon the performance of the Fund's
investments, the net asset value per Share of the Fund may decrease instead of
increase.
BOND FUNDS
The Conestoga Bond Fund
The investment objective of the Bond Fund is to seek to maximize
long-term total return by investing principally in a diversified portfolio of
debt securities. The Bond Fund will normally invest at least 80% of the value of
its total assets in debt securities of all types. Debt securities include
domestic and foreign bonds, debentures, notes, equipment lease and trust
certificates, asset-backed and mortgage-backed securities, and obligations
issued or guaranteed by the U.S. Government or its
-22-
<PAGE>
agencies or instrumentalities. In addition, a portion of the Fund may from time
to time be invested in first mortgage loans and participation certificates in
pools of mortgages issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, in preferred stocks, and in debt securities which are
convertible into, or exchangeable for, common stocks, common stock obtained upon
the conversion or exchange of such securities, and short-term money market
instruments and Money Market Funds. Some of the securities in which the Fund
invests may have warrants or options attached.
The Conestoga Intermediate Income Fund
The Intermediate Income Fund has a primary investment objective of
seeking current income by investing principally in a diversified portfolio of
debt securities with expected or remaining maturities of ten years or less, and
a secondary objective of seeking capital growth. The Fund will normally have an
average dollar-weighted portfolio maturity of three to ten years. The Fund will
normally invest at least 80% of the value of its total assets in debt securities
of all types. Debt securities include domestic and foreign bonds, debentures,
notes, equipment lease and trust certificates, asset-backed and mortgage-backed
securities, and obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. In addition, a portion of the Fund may from time
to time be invested in first mortgage loans and participation certificates in
pools of mortgages issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, in preferred stocks, and in debt securities which are
convertible into, or exchangeable for, common stocks, common stock obtained upon
the conversion or exchange of such securities, and short-term money market
instruments and Money Market Funds. Some of the securities in which the Fund
invests may have warrants or options attached.
The Conestoga Pennsylvania Tax-Free Bond Fund
The investment objective of the Pennsylvania Tax-Free Bond Fund is to
seek a high level of current income consistent with the preservation of capital,
which income is exempt from federal individual income tax and from Pennsylvania
state and local personal income tax, and is not a tax preference item under the
federal alternative minimum tax. Shares of the Fund will be exempt from
Pennsylvania personal property taxes. To achieve this objective, the Fund
anticipates that it will invest primarily in Pennsylvania Municipal Obligations
(as defined below). Under normal market conditions, the Fund will invest
substantially all of its total assets (but in no event less than 80%) in
investment grade municipal securities issued by the Commonwealth of Pennsylvania
and its political subdivisions, agencies, instrumentalities and authorities
("Pennsylvania
-23-
<PAGE>
Municipal Obligations"), the interest on which, in the opinion of bond counsel
to the issuer, is exempt from federal individual income tax and Pennsylvania
state and local personal income tax, and is not treated as a specific tax
preference item under the federal alternative minimum tax. During temporary
defensive periods, the Fund may invest without limitation in other types of
securities. These securities may include other types of bonds, notes, variable
rate demand notes and commercial paper, provided such securities are rated
within the relevant categories applicable to the Pennsylvania Municipal
Obligations, or if unrated, are of comparable quality as determined by the
Investment Advisor at the time of purchase. Other debt obligations, such as bank
obligations, may be included. Since the Fund's purchases will be limited to
investment grade securities, it will not acquire lower quality securities which
would carry higher yields and also greater risk.
Pennsylvania Municipal Obligations acquired by the Pennsylvania
Tax-Free Bond Fund will be investment grade at the time of purchase -- that is,
obligations rated in one of the four highest rating categories assigned by a
Rating Organization in the case of bonds; rated "Duff 1," "Duff 2," or "Duff 3"
by D&P, "F-1" or "F-2" by Fitch, "SP-1" or "SP-2" by S&P, or "MIG-1" or "MIG-2"
by Moody's in the case of notes; rated "Duff 1," "Duff 2," or "Duff 3" by D&P,
"F-1" or "F-2" by Fitch, or "VMIG-1" or "VMIG-2" by Moody's in the case of
variable rate demand notes; or rated "Duff 1," "Duff 2," or "Duff 3" by D&P,
"F-1" or "F-2" by Fitch, "A-1" or "A-2" by S&P, or "Prime-1" or "Prime-2" by
Moody's in the case of tax-exempt commercial paper. Unrated obligations acquired
by the Fund will be determined by the Investment Advisor to be of comparable
quality at the time of purchase to rated obligations that may be acquired by the
Fund. Obligations rated in the lowest of the top four rating categories ("BBB"
by D&P, Fitch, or S&P, or "Baa" by Moody's) have speculative characteristics,
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade bonds. Subsequent to its purchase by the Fund, an issue
of Pennsylvania Municipal Obligations may cease to be rated, or its rating may
be reduced below the minimum rating required for purchase by the Fund. The
Investment Advisor will consider such an event in determining whether the Fund
should continue to hold the obligation. See "Appendix A" to the Statement of
Additional Information for a description of these rating designations.
The Conestoga Short-Term Income Fund
The investment objective of the Short-Term Income Fund is to seek
consistent current income with relative stability of principal by investing
principally in a diversified portfolio of investment grade debt securities.
Under normal conditions, the
-24-
<PAGE>
Fund's portfolio securities will have maximum expected or remaining maturities
of three years or less. The Fund will normally have an average dollar weighted
Portfolio maturity of approximately one year.
The Fund will invest principally in debt securities, including bonds,
debentures, notes, equipment lease and trust certificates, asset-backed and
mortgage-backed securities, and obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. The Fund may invest up to 35%
of its total assets in U.S. dollar denominated international debt securities for
which the primary trading market is in the United States ("Yankee Bonds").
BALANCED FUND
The Conestoga Balanced Fund
The investment objective of the Balanced Fund is to seek a balance of
capital appreciation and current income consistent with the preservation of
capital. The Fund seeks to achieve its objective through a policy of diversified
investment in fixed income and equity securities. Equity securities will be
selected on the basis of the potential for capital appreciation; current income
will not be a significant consideration. Fixed income securities will be
selected in an effort to maximize total return with respect to the fixed income
portion of the Fund's portfolio. An investor should not consider an investment
in the Fund to be a complete investment program.
The Fund's policy is to invest at all times at least 30% of the value
of its total assets in fixed-income securities and no more than 70% in equity
securities. The actual percentage of assets invested in fixed-income and equity
securities will vary from time to time depending of the judgment of the
Investment Advisor as to the general market and economic conditions, trends and
yields, interest rates and fiscal and monetary developments. The Fund will not
purchase a security if as a result less than 30% of its total assets will be in
fixed-income securities (including short-term obligations, long-term debt
securities, and convertible debt securities and preferred stocks to the extent
their value is attributable to their fixed income characteristics).
During temporary defensive periods, the Fund may invest up to 100% of
its total assets in short-term obligations (with maturities of 12 months or
less) consisting of commercial paper (including variable amount master demand
notes), banker's acceptances, certificates of deposit, repurchase and reverse
repurchase agreements, and demand and time deposits of domestic
-25-
<PAGE>
or foreign banks and savings and loan associations, and in money
market mutual funds.
Stocks held by the Balanced Fund may be listed on a national securities
exchange or may be unlisted securities with an established over-the-counter
market. The Investment Advisor has developed a quantitative process which
evaluates stocks in a number of ways, including the ratios of market price to
book value, recent changes in market price, return on equity, price to earnings
ratios, dividend paying abilities, and liquidity. The Investment Advisor
believes that its quantitative approach reduces subjectivity in the stock
selection process.
Fixed income securities include both debt securities and preferred
stocks, which may be convertible into, or exchangeable for, common stocks. Debt
securities include domestic and foreign bonds, Yankee Bonds, debentures, notes,
equipment lease and trust certificates, asset-backed and mortgage-backed
securities, obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, first mortgage loans and participation
certificates in pools of mortgages issued or guaranteed by the U.S. Government
or its agencies or instrumentalities. Some of the securities in which the Fund
invests may have warrants or options attached.
GENERAL
The investment objective of each of the Cash Management Fund, U.S.
Treasury Securities Fund, Tax-Free Fund, Equity Fund, Special Equity Fund, Bond
Fund, Intermediate Income Fund and Pennsylvania Tax-Free Bond Fund is
fundamental and may not be changed without a vote of the holders of a majority
of the outstanding voting securities of the Fund. The investment objective of
each of the International Equity Fund, Short-Term Income Fund and Balanced Fund
may be changed by the Board of Trustees of the Company.
HOW TO PURCHASE AND REDEEM SHARES
Distributor
Institutional Shares of each Fund are sold on a continuous basis by the
Company's distributor, SEI Financial Services Company (the "Distributor") in
connection with the requirements of qualified accounts maintained by or on
behalf of certain persons ("Customers") by the Investment Advisor, its related
companies or their correspondents ("Entities"). With respect to the Cash
Management, Tax-Free and U.S. Treasury Securities Funds (collectively, the
"Money Market Funds"), these procedures may include instructions under which a
Customer's account is "swept" automatically no less frequently than weekly and
amounts in
-26-
<PAGE>
excess of a minimum amount agreed upon by an Entity and its Customer are
invested by the Distributor in Shares of one or more of the Money Market Funds
depending upon the type of account or the instructions of the Customer. The
principal office of the Distributor is 680 East Swedesford Road, Wayne,
Pennsylvania 19087-1658.
Institutional Shares of a Fund sold to an Entity acting in a fiduciary,
advisory, custodial, or other similar capacity on behalf of Customers will
normally be held of record by the Entity. With respect to Institutional Shares
so sold, it is the responsibility of the holder of record to transmit purchase
or redemption orders to the Distributor and to deliver funds for the purchase
thereof on a timely basis. Beneficial ownership of Institutional Shares of the
Funds will be recorded by the Entities and reflected in the account statements
provided to Customers. Entities may exercise voting authority for those
Institutional Shares for which they had been granted authority by the Customer.
The minimum initial purchase is $1,000; however, there is no minimum subsequent
purchase. The minimum may be waived if purchases are made in connection with
qualified pension plans, payroll savings plans or other employer plans.
Purchasers will pay the sum of the next calculated net asset value per Share of
a Fund selected after the Distributor's agent's receipt of an order to purchase
Shares.
Other Information Regarding Purchases
Money Market Funds: Institutional Shares of these Funds are purchased
at the net asset value per Share of each such Fund (see "VALUATION OF SHARES")
next determined after receipt by the Distributor of an order in good form to
purchase Institutional Shares. An order to purchase Institutional Shares will be
deemed to have been received by the Distributor only when federal funds with
respect thereto are available to the Company's custodian for investment. Federal
funds are monies credited to a bank's account with a Federal Reserve Bank.
Payment for an order to purchase Institutional Shares which is transmitted by
federal funds wire will be available the same day for investment by the
Company's custodian, if received prior to noon. Payments transmitted by other
means (such as by check drawn on a member of the Federal Reserve System) will
normally be converted into federal funds within two banking days after receipt.
The Company strongly recommends that investors of substantial amounts use
federal funds to purchase Institutional Shares.
Purchases of Institutional Shares of the Money Market Funds will be
effected only on a Business Day (as defined in "VALUATION OF SHARES") of the
Company. An order received prior to a Valuation Time on any Business Day will be
executed at the net asset value determined as of the next Valuation Time on the
date of receipt. An order received after the last Valuation Time on
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<PAGE>
any Business Day will be executed at the net asset value determined as of the
next Valuation Time on the next Business Day of the Company. Institutional
Shares purchased before 12:00 noon, (Eastern Time) begin earning dividends on
the same Business Day. All Institutional Shares continue to earn dividends
through the day before their redemption.
Equity, Bond and Balanced Funds: Purchases of Institutional Shares in
these Funds (the "Non-Money Market Funds") will be effected only on a Business
Day. The purchase price will be the net asset value per share (see "VALUATION OF
SHARES") as determined on the Business Day the order is received in good form by
the Distributor, but only if the Distributor receives the order in good form by
4:00 P.M. Eastern Time. Otherwise, the price will be determined as of 4:00 P.M.
Eastern Time on the next Business Day.
All Funds: The minimum investment is $1,000 for the initial purchase of
Institutional Shares by an investor. There is no minimum investment for
subsequent purchases. The minimum may be waived if purchases are made in
connection with qualified pension plans or other employer plans.
Depending upon the terms of a particular Customer account, an Entity
may charge its Customers account fees for services provided in connection with
investment in the Funds. Information concerning these services and any charges
will be provided by the Entities. This Prospectus should be read in conjunction
with any such information so received from the Entities.
The Company reserves the right to reject any order for the purchase of
its Institutional Shares in whole or in part.
Every Shareholder will receive a confirmation of each transaction in
its account, which will also show the total number of Institutional Shares of a
Fund owned by the Shareholder. Confirmation of purchases and redemptions of
Institutional Shares of the Funds by the Investment Advisor or one of its
affiliates or their correspondents on behalf of a Customer will be sent to the
Investment Advisor or the affiliate. Shareholders may rely on these statements
in lieu of certificates. Certificates representing Institutional Shares of the
Funds will not be issued.
Exchange Privilege
Shareholders may exchange Institutional Shares of various Funds for
Institutional Shares of all or any of the Company's other Funds at respective
net asset values, provided that the Shareholder making the exchange is eligible
on the date of exchange to purchase Institutional Shares and the exchange is
made in states where it is legally authorized. An exchange is
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considered a sale of shares and will result in a capital gain or loss for
federal income tax purposes. To receive the public offering price, Shareholders
must, at the time of purchase, give the Distributor sufficient information to
permit confirmation of qualification.
An Entity should notify the Company of its desire to make an exchange
on behalf of its Customer, and the Distributor will furnish the shareholder with
the prospectus of the appropriate class of shares of the Fund and the
appropriate authorization form.
The Institutional Shares exchanged must have a current value of at
least $1,000. A Shareholder may make an exchange request by calling (800)
344-2716 or by providing written instructions to the Distributor. An investor
should consult the Distributor for further information regarding exchanges.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete.
Redemption of Shares
Shareholders may redeem their Institutional Shares on any day that net
asset value is calculated (see "VALUATION OF SHARES"). Redemptions will be
effected at the net asset value per share next determined after receipt of a
redemption request. Redemptions may be requested by mail or by telephone.
However, all or part of a Customer's Institutional Shares may be redeemed in
accordance with instructions and limitations pertaining to his or her account at
an Entity. For example, if a Customer has agreed with an Entity to maintain a
minimum balance in his or her account with the Entity, and the balance in that
account falls below that minimum, the Customer may be obliged to redeem, or the
Entity may redeem for and on behalf of the Customer, all or part of the
Customer's Institutional Shares of a Fund to the extent necessary to maintain
the required minimum balance. There may be no notice period affording
shareholders an opportunity to increase the account balance in order to avoid an
involuntary redemption by an Entity.
Redemption By Mail
A written request for redemption must be submitted to the Distributor.
The Distributor's address is: SEI Financial Services Company, 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658. There is no charge for having
redemption requests mailed to a designated bank account.
Other Information Regarding Redemption of Institutional Shares
All redemption orders are effected at the net asset value per share
next determined after a properly completed redemption
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order has been received, as described above. The proceeds paid upon redemption
of Institutional Shares in a Fund may be more or less than the amount invested.
Payment to Shareholders for Institutional Shares redeemed will normally be made
within seven days after receipt by the Distributor of the request for
redemption. To the extent possible, however, the Company will attempt to honor
requests from Shareholders for (a) next day payments upon redemption of
Institutional Shares in the Non-Money Market Funds if received by the
Distributor before 4:00 P.M., Eastern Time, on a Business Day or, if received
after 4:00 P.M., Eastern Time, within two Business Days or (b) same day payments
upon redemption of Institutional Shares in the Money Market Funds if the request
for redemption is received by the Distributor before 12:00 noon, Eastern Time,
on a Business Day or, if the request for redemption is received after 12:00
noon, Eastern Time, to honor requests for payment on the next Business Day;
unless it would be disadvantageous in the opinion of the Investment Advisor to
the Fund to sell or liquidate portfolio securities in an amount sufficient to
satisfy requests for payments in that manner.
At various times a Fund may be requested to redeem Institutional Shares
for which it has not yet received good payment. In such circumstances, the
forwarding of proceeds may be delayed for up to fifteen days until payment has
been collected for the purchase of such Institutional Shares. Such delay may be
avoided if Institutional Shares are purchased by wire transfer of federal funds.
The Funds intend to pay cash for all Institutional Shares redeemed, but under
abnormal conditions which make payment in cash unwise, payment may be made
wholly or partly in portfolio securities at their then current market value
equal to the redemption price. In such cases, an investor may incur brokerage
costs in converting such securities to cash.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION -- Matters
Affecting Redemption" and "Net Asset Value" in the Statement of Additional
Information for examples of when the Company may suspend the right of redemption
or redeem Institutional Shares involuntarily if it appears appropriate to do so
in light of the Company's responsibilities under the Investment Company Act of
1940.
VALUATION OF SHARES
The net asset value of each of the Money Market Funds is determined,
and the Institutional Shares of each such Fund are priced, as of 12:00 noon and
the close of regular trading on the New York Stock Exchange ("NYSE") (generally,
4:00 P.M., Eastern Time) on each Business Day of the Company. The net asset
value of each of the Non-Money Market Funds is determined, and the Shares of
each such Fund are priced, as of the close of regular
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trading on the NYSE (generally, 4:00 P.M., Eastern Time) on each Business Day.
Each time the net asset value of a Fund is determined and its Institutional
Shares priced is referred to as a "Valuation Time." As used herein, a "Business
Day" constitutes any day on which the NYSE is open for trading and the Federal
Reserve Bank of Philadelphia is open, except days on which there are not
sufficient changes in the value of the Fund's portfolio securities that the
Fund's net asset value might be materially affected, or days during which no
Shares are tendered for redemption and no orders to purchase Shares are
received. Currently, either the NYSE or the Federal Reserve Bank of Philadelphia
is closed on the customary national business holidays of New Year's Day, Martin
Luther King, Jr., Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day. Net
asset value per Share for purposes of pricing sales and redemptions is
calculated by dividing the value of all securities and other assets belonging to
the Institutional Shares of a Fund less the liabilities charged to such class of
such Fund by the number of its outstanding Institutional Shares.
The assets in the Money Market Funds are each valued based upon the
amortized cost method. Pursuant to the rules and regulations of the Securities
and Exchange Commission regarding the use of the amortized cost method, the
Money Market Funds will each maintain a dollar-weighted average portfolio
maturity of 90 days or less. Although the Company seeks to maintain the net
asset value per Institutional Share of the Money Market Funds at $1.00 each,
there can be no assurance that net asset value will not vary.
The net asset value per Institutional Share of the Non-Money Market
Funds will fluctuate as the value of the investment portfolio of each Fund
changes. The securities in these Funds will be valued at market value. If market
quotations are not available, the securities will be valued by a method which
the Board of Trustees believes accurately reflects fair value. For further
information about valuation of investments, see the Statement of Additional
Information.
DIVIDENDS
MONEY MARKET FUNDS: The net income of each of these Funds is declared
daily as a dividend to the respective Shareholders of each such Fund at the
close of business on the day of declaration. Dividends are paid monthly, and a
Shareholder's dividends will automatically be reinvested in additional full and
fractional Institutional Shares of such Fund at net asset value as of the date
of payment, unless the Shareholder elects to receive dividends in cash or
directs such dividends to another Fund (see "How To Purchase And Redeem Shares
- -- Directed Dividend
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Option"). Reinvested dividends receive the same tax treatment as dividends paid
in cash. In the case of redemptions, dividends will be paid in cash not later
than seven Business Days after a Shareholder's complete redemption of his or her
Institutional Shares in the Cash Management, Tax-Free and U.S. Treasury
Securities Funds. Such election, or any revocation thereof, must be made in
writing to State Street Bank and Trust Company, (the "Transfer Agent") at The
BFDS Building, 2 Heritage Drive, Quincy, MA 02171, and will become effective
with respect to dividends paid after its receipt by the Transfer Agent.
NON-MONEY MARKET FUNDS: The net income of the International Equity Fund
is generally declared annually, the net income of each of the Equity, the
Special Equity and the Balanced Funds is generally declared quarterly, and the
net income of each of the Bond, Intermediate Income, Pennsylvania Tax-Free Bond
and Short-Term Income Funds (collectively, the "Bond Funds") is generally
declared monthly, as a dividend to the respective Shareholders at the close of
business on the record date. Dividends are generally paid annually with respect
to the International Equity Fund, quarterly with respect to the Equity, the
Special Equity and the Balanced Funds, and monthly with respect to the Bond
Funds. Distributable net realized capital gains are distributed at least
annually. A Shareholder will automatically receive all income dividends and
capital gain distributions from the Fund in additional full and fractional
Shares of the Fund at net asset value as of the date of payment, unless the
Shareholder elects to receive dividends or distributions in cash. Such election,
or any revocation thereof, must be made in writing to the Transfer Agent at The
BFDS Building, 2 Heritage Drive, Quincy, MA 02171, and will become effective
with respect to dividends and distributions having record dates after its
receipt by the Transfer Agent.
OTHER INVESTMENT POLICIES
Government and Related Obligations
The Funds may invest in Treasury bills, notes and bonds and other
obligations issued or guaranteed by the U.S. Treasury, as well as "stripped"
U.S. Treasury obligations such as Treasury Receipts representing either future
interest or principal payments. Stripped securities are issued at a discount to
their "face value," and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors. The Funds may also acquire repurchase agreements secured
by U.S. Treasury obligations.
The Funds (except the U.S. Treasury Fund) may also invest in other
obligations issued or guaranteed by the agencies or
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instrumentalities of the U.S. Government. These obligations may differ from U.S.
Treasury obligations in their interest rates, maturities, and times of issuance.
These Funds may also purchase interests in U.S. Treasury securities (such as
TIGRs and CATS). TIGRs and CATS are not issued by the U.S. Treasury.
Participations other than those issued or guaranteed by the U.S. are not
obligations of the U.S. Government.
Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association and the
Export-Import Bank of the United States, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal National
Mortgage Association, may borrow from the Treasury in its discretion; others,
such as those of the Student Loan Marketing Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government will provide
financial support to U.S. Government-sponsored agencies or instrumentalities if
it is not obligated to do so by law. The obligations of such agencies and
instrumentalities and stripped securities will only be purchased when the
Investment Advisor deems the credit risk with respect thereto to be minimal.
Banker's Acceptances
The Cash Management Fund may invest in banker's acceptances guaranteed
by domestic and foreign banks if, at the time of investment, the guarantor bank
has capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most recently published financial statements) and the bank, its
parent or holding company is rated "A/B" or better at the time of investment by
Thomson BankWatch, Inc., or unrated at the time of purchase but are determined
to be institutions of comparable quality by the Investment Advisor pursuant to
guidelines approved by the Company's Board of Trustees. For a description of the
rating symbols of Thomson BankWatch, Inc., see Appendix "A" to the Statement of
Additional Information.
Certificates of Deposit and Time Deposits
The Cash Management Fund may invest in certificates of deposit and time
deposits of domestic and foreign banks and savings and loan associations if (a)
at the time of investment the depositary institution has capital, surplus, and
undivided profits in excess of $100,000,000 (as of the date of its most recently
published financial statements) and the depositary institution, its parent or
holding company is rated "A/B" or better at the time of investment by Thomson
BankWatch, Inc., (b)
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the principal amount of the instrument is insured in full by the FDIC or the
Federal Savings and Loan Insurance Corporation, or (c) which are unrated at the
time of purchase but are determined to be at comparable quality by the
Investment Advisor pursuant to guidelines approved by the Company's Board of
Trustees.
The Funds (except the U.S. Treasury Securities Fund) may invest in
Eurodollar Certificates of Deposits ("ECDs") which are U.S. dollar-denominated
certificates of deposit issued by offices of foreign and domestic banks located
outside the United States; Eurodollar Time Deposits ("ETDs") which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or a foreign
bank; Canadian Time Deposits ("CTDs") which are essentially the same as ETDs
except they are issued by Canadian offices of Canadian banks; and Yankee
Certificates of Deposit ("Yankee CDs") which are certificates of deposit issued
by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the
United States.
The Cash Management Fund will not invest in excess of 10% of its total
assets in time deposits, including ETDs and CTDs but not including certificates
of deposit, with maturities in excess of seven days which are subject to
penalties upon early withdrawal.
Commercial Paper
The Funds (except the U.S. Treasury Securities Fund) may invest in
short-term promissory notes issued by corporations (including variable amount
master demand notes). In the case of the Cash Management and Tax-Free Funds,
such instruments at the time of purchase (1) have received the highest
short-term rating by at least two Rating Organizations, (2) have received the
highest short-term rating by the only rating agencies to have rated the notes,
or (3) are unrated, but are determined to be of comparable quality pursuant to
guidelines adopted by the Board of Trustees. Instruments may be purchased in
reliance upon a rating only when the rating organization is not affiliated with
the issuer or guarantor of the instrument. For a description of the rating
symbols used in this paragraph, see the Appendix to the Statement of Additional
Information. The Funds (except the U.S. Treasury Securities Fund) may also
invest in foreign commercial paper ("FCP") which is U.S. dollar-denominated
commercial paper issued by a foreign corporation or a foreign counterpart of a
U.S. corporation.
Zero Coupon Obligations
The Cash Management, Bond, Intermediate Income, Short-Term and Balanced
Funds may invest in zero coupon obligations, which have greater price volatility
than coupon obligations and which will not result in the payment of interest
until maturity,
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provided that immediately after any purchase not more than 5% of the value of
the net assets of the respective Fund would be invested in such obligations.
Foreign Securities
The Equity Funds and the Balanced Fund may invest in securities of
foreign issuers by acquiring both sponsored and unsponsored American Depositary
Receipts ("ADRs"). ADRs are receipts issued by a bank or trust company in the
United States evidencing ownership of underlying securities of a foreign issuer.
Unsponsored ADRs are organized independently and without the cooperation of the
issuer of the underlying securities. As a result, available information
concerning the issuer may not be as current as for sponsored ADRs, and the
prices of unsponsored ADRs may be more volatile than if such instruments were
sponsored by the issuer. The Equity Funds may also invest in securities issued
by foreign branches of U.S. banks and foreign banks, in Canadian commercial
paper, and in Europaper (U.S. dollar-denominated commercial paper of a foreign
issuer). As stated above, certain Funds may invest in ECDs, ETDs, CTDs, and
Yankee Cds. The Cash Management Fund may also acquire securities issued by
foreign branches of U.S. banks, foreign banks, or other foreign issuers only
when the Investment Advisor believes that the risks associated with such
instruments are minimal. The Bond, Intermediate Income, Short-Term Income and
Balanced Funds may invest in Yankee Bonds.
For many foreign securities, U.S. dollar-denominated American
Depositary Receipts, or ADRs, which are traded in the United States on exchanges
or over-the-counter, are issued by domestic banks. ADRs represent the right to
receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. ADRs do not eliminate the risk inherent in investing in the
securities of foreign issuers. However, by investing in ADRs rather than
directly in stock of foreign issuers, the Fund can avoid currency risks during
the settlement period for either purchases or sales. In general, there is a
large, liquid market in the United States for many ADRs. The information
available for ADRs is subject to the accounting, auditing and financial
reporting standards of the domestic market or exchange on which they are traded,
which standards are more uniform and more exacting than those to which many
foreign issuers may be subject. The Fund may also invest in European Depositary
Receipts, or EDRs, which are receipts evidencing an arrangement with a European
bank similar to that for ADRs and are designed for use in the European
securities markets. EDRs are not necessarily denominated in the currency of the
underlying security.
Certain ADRs and EDRs, typically those denominated as unsponsored,
require the holders thereof to bear most of the
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costs of such facilities while issuers of sponsored facilities normally pay more
of the costs thereof. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited securities or to pass through the voting rights to
facility holders in respect to the deposited securities, whereas the depositary
of a sponsored facility typically distributes shareholder communications and
passes through the voting rights.
Investment in securities of foreign issuers involves certain risks not
ordinarily associated with investments in securities of domestic issuers. Such
risks include fluctuations in foreign exchange rates, difficulties in predicting
international trade patterns, political, social and economic instability in the
country of the issuer, foreign trading practices (including higher trading
commissions, custodial charges and delayed settlements), foreign withholding and
income taxation, the possible establishment of exchange controls or the adoption
of other foreign governmental restrictions (which might adversely affect the
payment of principal and interest), difficulty in obtaining and enforcing
judgments against foreign issuers, and the possible imposition of exchange
controls or other foreign governmental laws or restrictions. With respect to
certain countries, there is also the possibility of expropriation of assets,
nationalization of assets, limits on removal of currency or other assets,
confiscatory taxation, political or social instability or diplomatic
developments which could adversely affect investments in those countries.
Foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
U.S. domestic companies. There is generally less government regulation of
securities exchanges, brokers and listed companies abroad than in the U.S.
Confiscatory taxation or diplomatic developments could also affect investment in
those countries. In addition, foreign branches of U.S. banks, foreign banks and
foreign issuers may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting, and recordkeeping standards than
those applicable to domestic branches of U.S. banks and U.S. domestic issuers.
Foreign Currency Transactions
The value of the assets of the International Equity Fund as measured in
U.S. dollars may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations, and the Fund may incur
costs in connection with conversions between various currencies. The Fund will
conduct its foreign currency exchange transactions either on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
through forward contracts to
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purchase or sell foreign currencies. A forward foreign currency exchange
contract ("forward currency contracts") involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These forward currency contracts are traded directly
between currency traders (usually large commercial banks) and their customers.
The Fund may enter into forward currency contracts in order to hedge against
adverse movements in exchange rates between currencies.
For example, when the International Equity Fund enters into a contract
for the purchase or sale of a security denominated in a foreign currency, it may
want to establish the U.S. dollar cost or proceeds, as the case may be. By
entering into a forward currency contract in U.S. dollars for the purchase or
sale of the amount of foreign currency involved in an underlying security
transaction, the Fund can help to protect itself against a possible loss between
trade and settlement dates resulting from an adverse change in the relationship
between the U.S. dollar and such foreign currency. Additionally, for example,
when the Fund believes that a foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a forward currency sale contract to
sell an amount of that foreign currency approximating the value of some or all
of the Fund's portfolio securities or other assets denominated in such foreign
currency, or when the Fund believes that the U.S. dollar may suffer a
substantial decline against a foreign currency, it may enter into a forward
currency purchase contract to buy that foreign currency for a fixed U.S. dollar
amount. However, these contracts tend to limit potential gains which might
result from positive changes in currency relationships. The Fund may also hedge
its foreign currency exchange rate risk by engaging in currency financial
futures and options transactions. The forecasting of short-term currency market
movement is extremely difficult and whether short-term hedging strategies would
be successful is highly uncertain.
The International Equity Fund does not intend to enter into such
forward contracts if the Fund would have more than 15% of the value of its total
assets committed to such contracts on a regular or continuous basis. In
addition, the Fund does not intend to enter into forward currency contracts or
maintain a net exposure in such contracts where it would be obligated to deliver
an amount of foreign currency in excess of the value of its portfolio securities
or other assets denominated in that currency.
For further information about the characteristics, risks and possible
benefits of option, futures and foreign currency transactions, see "Investment
Objectives, Policies and Restrictions" in the Statement of Additional
Information.
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Options
The Equity Funds and the Balanced Fund may also purchase put and call
options on securities and the International Equity Fund may purchase put and
call options on foreign currencies, in each case for the purposes of hedging
against market risks related to its portfolio securities and/or adverse
movements in exchange rates between currencies, as applicable. Purchasing
options is a specialized investment technique that entails a substantial risk of
a complete loss of the amounts paid as premiums to writers of options. These
Funds may also engage in writing call options from time to time as the
Investment Advisor (and/or the Sub-advisor with respect to the International
Equity Fund) deems appropriate. These Funds will write only covered call options
(options on securities owned by the Funds). These Funds will forego any capital
appreciation above the exercise price on securities on which it has written a
call option. In order to close out a call option it has written, a Fund will
enter into a "closing purchase transaction" -- the purchase of a call option on
the same security with the same exercise price and expiration date as the call
option which the Fund previously wrote on a particular security. When a
portfolio security subject to a call option is sold, a Fund will effect a
closing purchase transaction to close out any existing call option on that
security. If a Fund is unable to effect a closing purchase transaction, it will
not be able to sell the underlying security until the option expires or the Fund
delivers the underlying security upon exercise. Under normal conditions, it is
not expected that the underlying value of portfolio securities subject to such
options would exceed 50% of the net assets of a Fund.
The International Equity Fund, as part of its option transactions, also
may, for hedging purposes, purchase index put and call options and write index
options. As with options on individual securities, the Fund will write only
covered index call options. Through the writing or purchase of index options,
the Fund can seek to achieve many of the same objectives as through the use of
options on individual securities. Options on securities indices are similar to
options on a security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the securities index upon which the option is based
is greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. Price movements in securities which the Fund owns
or intends to purchase would not be expected to correlate directly with
movements in the level of an index and, therefore, the Fund bears the risk of a
loss on an index option that is not completely offset by movements in the price
of such securities. Because index options are settled in cash, a call writer
cannot determine the amount of its settlement obligations in advance
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and, unlike call writing on specific securities, cannot provide in advance for,
or cover, its potential settlement obligations by acquiring and holding the
underlying securities. The Fund may be required to segregate assets or provide
an initial margin to cover index options that would require it to pay cash upon
exercise.
The Cash Management Fund and the Tax-Free Fund may acquire "puts" with
respect to obligations held in their portfolios. Under a put, a Fund would have
the right to sell a specified obligation within a specified period of time at a
specified price. A put would be sold, transferred, or assigned only with the
underlying obligation. A Fund will acquire puts solely to facilitate portfolio
liquidity, shorten the maturity of the underlying obligations, or permit the
investment of the Fund's assets at a more favorable rate of return. The
aggregate price of a security subject to a put may be higher than the price
which otherwise would be paid for the security without such an option, thereby
increasing the security's cost and reducing its yield.
Futures Contracts
The International Equity Fund may also enter into contracts for the
future delivery of securities and futures contracts based on a specific
security, class of securities, or an index, purchase or sell options on any such
futures contracts and engage in related closing transactions. A futures contract
on a securities index is an agreement obligating either party to pay, and
entitling the other party to receive, while the contract is outstanding, cash
payments based on the level of a specified securities index.
The International Equity Fund may engage in such futures contracts in
an effort to hedge against market risks. For example, when interest rates are
expected to rise or market values of portfolio securities are expected to fall,
the Fund can seek through the sale of futures contracts to offset a decline in
the value of its portfolio securities. When interest rates are expected to fall
or market values are expected to rise, the Fund, through the purchase of such
contracts, can attempt to secure better rates or prices for the Fund than might
later be available in the market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give the International Equity Fund the right (but not the
obligation), for a specified price, to sell or to purchase the underlying
futures contract, upon exercise of the option, at any time during the option
period.
Aggregate initial margin deposits for futures contracts, and premiums
paid for related options, may not exceed 5% of the market value of the
International Equity Fund's total assets, and
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the value of securities that are the subject of such futures and options (both
for receipt and delivery) may not exceed 33-1/3% of the market value of the
Fund's total assets. Futures transactions will be limited to the extent
necessary to maintain the Fund's qualification as a regulated investment
company.
Futures transactions involve brokerage costs and require the
International Equity Fund to segregate assets to cover contracts that would
require it to purchase securities. The Fund may lose the expected benefit of
futures transactions if interest rates, exchange rates or securities prices move
in an unanticipated manner. Such unanticipated changes may also result in poorer
overall performance than if the Fund had not entered into any futures
transactions. In addition, the value of the Fund's futures positions may not
prove to be effectively correlated with the value of its portfolio securities,
which would limit the value of the Fund's hedge against interest rate, exchange
rate and/or market risk, and would give rise to additional risks. There is no
assurance of liquidity in the secondary market for purposes of closing out
futures positions.
Municipal Obligations
The two principal classifications of Municipal Obligations which may be
held by the Tax-Free Fund or the Pennsylvania Tax-Free Bond Fund are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Private activity
bonds are in most cases revenue securities and are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Municipal Obligations may include rated and unrated variable and
floating rate tax-exempt notes, which may have a stated maturity in excess of
397 days but which will, in such event, be subject to a demand feature that will
permit a Fund to demand payment of the principal of the note either (i) at any
time upon
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not more than 30 days' notice or (ii) at specified intervals not exceeding 397
days and upon no more than 30 days' notice. There may be no active secondary
market with respect to a particular variable or floating rate note.
Nevertheless, the periodic readjustments of their interest rates tend to assure
that their value to a Fund will approximate their par value. Variable and
floating rate notes for which no readily available market exists will not be
purchased in an amount which, together with all other illiquid securities held
by the Fund, exceed 10% of the Tax-Free Fund's total assets or 15% of the
Pennsylvania Tax-Free Bond Fund's total assets unless such notes are subject to
a demand feature that will permit a Fund to demand payment of the principal
within seven days after demand by the Fund.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Funds nor the Investment Advisor will review the proceedings relating to the
issuance of Municipal Obligations or the bases for such opinions.
The Tax-Free Fund may invest more than 25% of its assets in Municipal
Obligations which are related in such a way that an economic, business, or
political development or change affecting one such security would likewise
affect the other Municipal Obligations. Examples of such securities are
obligations the payment of which is dependent upon similar types of projects or
projects located in the same state. Such investments would be made only if
deemed necessary or appropriate by the Tax-Free Fund's Investment Advisor. To
the extent that the Tax-Free Fund's assets are concentrated in Municipal
Obligations that are so related, the Tax-Free Fund will be subject to the
peculiar risks presented by such Municipal Obligations, such as negative
developments in a particular industry or state, to a greater extent than it
would be if the Tax-Free Fund's assets were not so concentrated.
Repurchase Agreements
Securities held by each Fund may be subject to repurchase agreements.
There is no limit on a Fund's investments in repurchase agreements. Under the
terms of a repurchase agreement, a Fund would acquire securities from financial
institutions such as banks insured by the Federal Deposit Insurance Corporation
with capital, surplus, and undivided profits in excess of $100,000,000 (as of
the date of their most recently published financial statements) or registered
broker-dealers which the Investment Advisor (and/or the Sub-advisor with respect
to the International Equity Fund) deems creditworthy pursuant to guidelines
approved by the Company's Board of Trustees, subject to the seller's agreement
to repurchase such securities at a mutually agreed-upon date and
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price. The repurchase price would generally equal 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 underlying portfolio securities. The seller under a
repurchase agreement will be required to maintain the value of collateral held
pursuant to the agreement at not less than 102% of the repurchase price
(including accrued interest). The Investment Advisor will monitor the value of
the collateral on an ongoing basis to ensure that the required value is
maintained. In addition, securities subject to repurchase agreements will be
held in a segregated account. If the seller were to default on its repurchase
obligation or become insolvent, a Fund would suffer a loss to the extent that
the proceeds from a sale of the underlying portfolio securities were less than
the repurchase price under the agreement, or to the extent that the disposition
of such securities by the Fund were delayed pending court action. Securities
subject to repurchase agreements will be held by the Company's custodian or
another qualified custodian or in the Federal Reserve/Treasury book-entry
system. Repurchase agreements are considered to be loans by a Fund under the
Investment Company Act of 1940.
An increase in interest rates will generally reduce the value of the
investments in each Fund and a decline in interest rates will generally increase
the value of those investments. Depending upon the prevailing market conditions,
the Investment Advisor (and/or the Sub-advisor with respect to the International
Equity Fund) may purchase debt securities at a discount from face value, which
produces a yield greater than the coupon rate. Conversely, if debt securities
are purchased at a premium over face value, the yield will be lower than the
coupon rate. In making investment decisions, the Investment Advisor (and/or the
Sub-advisor with respect to the International Equity Fund) will consider many
factors other than current yield, including the preservation of capital, the
potential for realizing capital appreciation, maturity, and yield to maturity.
Investment Companies
In connection with the management of its daily cash position, each of
the Funds may invest up to 5% of the value of its total assets in the shares of
a money market fund. However, no more than 10% of a Fund's total assets may be
invested in the securities of money market mutual funds in the aggregate.
Securities of other investment companies will be acquired by a Fund within the
limits prescribed by the Investment Company Act of 1940. As a shareholder of
another investment company, a Fund would bear along with other shareholders, its
pro rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory and other expenses
that the Fund bears directly in connection with its own operations. However, in
order to avoid the imposition of
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additional fees as a result of investments by a Fund in Shares of the Money
Market Funds or other portfolios served by the Investment Advisor ("acquired
fund"), the Investment Advisor will reduce its fees to the investing Fund by an
amount based on the fee formula charged to the acquired Fund.
"When-Issued" Securities
Each Fund may also purchase debt securities on a "when-issued" basis.
"When-issued" securities are new securities purchased for delivery beyond the
normal settlement date at a stated price and yield thereby involving the risk
that the yield obtained in the transaction will be less than that available in
the market when delivery takes place. A Fund will generally not pay for such
securities and no income accrues on the securities until they are received.
Securities purchased on a "when-issued" basis are recorded as an asset when
purchased and are thereafter subject to changes in value based upon changes in
the general level of interest rates. Each Fund expects that commitments to
purchase "when-issued" securities will not exceed 25% of the value of its total
assets under normal market conditions, and that commitments by each Fund to
purchase "when-issued" securities will not exceed 60 days. If commitments to
purchase "when-issued" securities ever exceeded 25% of the value of its assets,
a Fund's liquidity and the Investment Advisor's (and/or Sub-advisor's with
respect to the International Equity Fund) ability to manage it might be
adversely affected. In "when-issued" transactions, a Fund relies on the seller
to complete the transaction; the seller's failure to do so may cause the Fund to
miss a price or yield considered to be advantageous. While purchases may be
considered a form of leverage, a Fund does not intend to purchase "when-issued"
securities for speculative purposes but only for the purpose of acquiring
portfolio securities.
Short-Term Trading and Portfolio Turnover
The Equity Funds, the Bond Funds and the Balanced Fund may engage in
the technique of short-term trading. Such trading involves the selling of
securities held for a short time, ranging from several months to less than a
day. The object of such short-term trading is to increase the potential for
capital appreciation and/or income of a Fund in order to take advantage of what
the Investment Advisor (and/or the Sub-advisor with respect to the International
Equity Fund) believes are changes in market, industry, or individual company
conditions or outlook. Any such trading would increase a Fund's turnover rate
and its transaction costs.
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Portfolio turnover may vary greatly from year to year as well as within
a particular year. High turnover rates will generally result in higher brokerage
commissions and other transaction costs to the Fund. Distributions resulting
from any net short-term capital gains are considered ordinary income for federal
income tax purposes. (See "TAXES.")
Reverse Repurchase Agreements
Each 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, a Fund would sell portfolio
securities to financial institutions such as banks or broker-dealers, and agree
to repurchase them at a mutually agreed-upon date and price. At the time a Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account assets such as U.S. Government securities or other liquid
high-grade debt obligations consistent with the Fund's investment restrictions
having a value equal to the repurchase price (including accrued interest), and
will subsequently monitor the account to ensure that such equivalent value is
maintained. Reverse repurchase agreements involve the risk that the market value
of the securities sold by a Fund may decline below the price at which such Fund
is obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings by a Fund under the Investment Company Act of 1940.
Illiquid Securities
The Non-Money Market Funds may each invest up to 15% and the Money
Market Funds may each invest up to 10% of the value of their respective net
assets in illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days (except that the Bond Fund, the Intermediate
Income Fund and the Equity Fund will not acquire repurchase agreements with
maturities in excess of seven days if such investment, together with other
investments in such Fund which are not readily marketable, exceeds 10% of such
Fund's total assets), time deposits with maturities in excess of seven days,
non-negotiable time deposits, and other securities which are not readily
marketable. This limitation on illiquid securities also includes restricted
securities, except those that may be purchased by institutional buyers under
Rule 144A and for which a liquid trading market exists, as determined by the
Company's Board of Trustees or the Investment Advisor. See the Statement of
Additional Information for further discussion of Rule 144A securities.
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Asset-Backed Securities
The Cash Management, Bond, Intermediate Income, Short-Term Income and
Balanced Funds may purchase asset-backed securities. Like other debt securities,
asset-backed securities (i.e., securities backed by mortgages, installment sales
contracts, credit card receivables or other assets) are subject to declines in
market value during periods of rising interest rates. However, due to the
possibility of prepayment of the underlying obligations, asset-backed securities
have less potential for capital appreciation than other debt securities of
comparable maturities during periods of declining interest rates. As a result,
asset-backed securities may be less effective than other fixed income securities
as a means of locking in attractive interest rates for the long term.
Asset-backed securities purchased at a premium to par may subject these Funds to
losses equal to any unamortized premium if such obligations are repaid prior to
their scheduled maturities. The Cash Management, Bond, Intermediate Income, and
Balanced Funds will invest only in privately-issued asset-backed securities
which are readily marketable and rated at the time of purchase in the two
highest rating categories assigned by a Rating Organization. For a description
of rating symbols see Appendix "A" to the Statement of Additional Information.
Mortgage-Backed Securities
The Bond, Intermediate Income, Short-Term Income and Balanced Funds may
purchase mortgage-backed securities. The investment objective of the
Intermediate Income Fund permits it to purchase mortgage-backed and certain
other securities with stated maturities in excess of ten years if the expected
maturities are ten years or less. The average life of mortgage-backed securities
varies with the maturities of the underlying mortgage instruments, which have
maximum maturities of 40 years. The average life is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities
as the result of mortgage prepayments. The rate of such prepayments, and hence
the average life of the certificates, will be a function of current market
interest rates and current conditions in the relevant housing markets. Estimated
average life will be determined by the Investment Advisor, and such securities
may be purchased by the Intermediate Income Fund if the estimated average life
is determined to be 6 years or less. Various independent mortgage-backed
securities dealers publish average remaining life data using proprietary models
and, in making such determinations for the Intermediate Income Fund, the
Investment Advisor will rely on such data except to the extent such data are
deemed unreliable by the Investment Advisor. The Investment Advisor might deem
data unreliable which appeared to present a significantly different average
remaining expected life for a security than data relating to the average
remaining life
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of comparable securities as provided by other independent mortgage-backed
securities dealers.
The Bond, Intermediate Income and Balanced Funds will invest only in
privately-issued mortgage-backed securities which are readily marketable and
rated at the time of purchase in the two highest rating categories assigned by a
Rating Organization. For a description of rating symbols see Appendix "A" to the
Statement of Additional Information.
Corporate Obligations
The Non-Money Market Funds also may invest in bonds, notes and
debentures of U.S. corporate issuers. Such obligations, in the case of
debentures, will represent unsecured promises to pay, in the case of notes and
bonds, may be secured by mortgages on real property or security interests in
personal property and will vary in their interest rates, maturities and times of
issuance. These Funds will invest in corporate debt securities only if they are
rated at the time of purchase within the four highest rating groups assigned by
a Rating Organization or, if unrated, which the Investment Advisor (and/or the
Sub-advisor with respect to the International Equity Fund) deems to be of
comparable quality. Such securities are considered high or medium-grade
securities. Debt obligations rated in the fourth highest rating group have some
speculative characteristics and repayment of principal and interest are more
likely to be adversely affected by adverse economic conditions or changing
circumstances than are obligations in the higher rated categories.
Short-Term Obligations
The Non-Money Market Funds may each ordinarily hold some short-term
obligations (with maturities of 18 months or less) such as domestic and foreign
commercial paper (including variable amount master demand notes), banker's
acceptances, certificates of deposit and demand and time deposits of domestic
and foreign branches of U.S. banks and foreign banks, and repurchase agreements.
Stand-by Commitments
The Pennsylvania Tax-Free Bond Fund may acquire stand-by commitments
with respect to Pennsylvania Municipal Obligations held in its portfolio. Under
a "stand-by commitment", a dealer agrees to purchase, at the Fund's option,
specified municipal obligations at a price equal to their amortized cost value
plus accrued interest. The Fund will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
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Municipal Notes
Municipal notes in which the Pennsylvania Tax-Free Bond Fund may invest
include project notes, demand notes, and short-term municipal obligations
(including tax anticipation notes, revenue anticipation notes, construction loan
notes and short-term discount notes and tax-exempt commercial paper) rated in
the highest rating category assigned by a Rating Organization.
Municipal Leases
The Pennsylvania Tax-Free Bond Fund may invest in municipal leases and
participations therein. These are obligations in the form of a lease or
installment purchase which is issued by state and local governments to acquire
equipment and facilities. Bonds from such obligations are generally exempt from
local and state taxes in the state of issuance. "Participations" in such leases
are undivided interests in a portion of the total obligation. Participations
entitle their holders to receive a pro rata share of all payments under the
lease. A trustee is usually responsible for administering the terms of the
Participation and enforcing the participants' rights in the underlying lease.
Municipal leases frequently involve special risks not normally
associated with general obligation or revenue bonds. Leases and installment
purchase or conditional sale contracts (which normally provide for title to the
leased asset to pass eventually to the governmental issuer) have evolved as a
means for governmental issuers to acquire property and equipment without meeting
the constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations are deemed to be inapplicable because of the inclusion
in many leases or contracts or "non-appropriation" clauses which provide that
the governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis.
Municipal leases represent a relatively new type of financing. In
certain instances the tax-exempt status of the obligations will not be subject
to the legal opinion of a nationally recognized "bond counsel," as is
customarily required in larger issues of Pennsylvania obligations. However, in
all cases the Pennsylvania Tax-Free Bond Fund will require that a municipal
lease purchased by the Fund be covered by a legal opinion (typically from the
issuer's counsel) to the effect that, as of the effective date of such lease,
the lease is the valid and binding obligation of the governmental issuer.
Certain municipal lease obligations may be deemed illiquid for the
purpose of the Pennsylvania Tax-Free Bond Fund's investment of up to 15% of the
value of its net assets in
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illiquid securities. In determining the liquidity of municipal lease
obligations, the Investment Advisor will consider a variety of factors,
including the following guidelines which have been adopted by the Board of
Trustees: (1) the frequency of trades and quotes for the obligation; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the willingness of dealers to undertake to make a
market in the security; (4) the nature of the marketplace trades; (5) the
general creditworthiness of the municipality and the importance of the property
covered by the lease to the municipality; and (6) the likelihood that the
marketability of the obligation will be maintained throughout the time the
obligation is held by the Fund.
Special Risks and Considerations
The Pennsylvania Tax-Free Bond Fund is classified as a non-diversified
investment company under the Investment Company Act of 1940. Investment return
on a non-diversified portfolio typically is dependent upon the performance of a
smaller number of securities relative to the number held in a diversified
portfolio. Consequently, the change in value of any one security may affect the
overall value of a non-diversified portfolio more than it would a diversified
portfolio, and thereby subject the market-based net asset value per share of the
non-diversified portfolio to greater fluctuation. In addition, a non-diversified
portfolio may be more susceptible to economic, political and regulatory
developments than a diversified investment portfolio with similar objectives
would be.
Because the Fund will normally invest 80% or more of its net assets in
Pennsylvania Municipal Obligations, it is more susceptible to factors affecting
Pennsylvania issuers than is a comparable municipal bond fund not concentrated
in the obligations of issuers located in a single state. Pennsylvania tax-exempt
issuers may be adversely affected by local political and economic conditions and
developments within Pennsylvania. Although the General Fund of the Commonwealth
(the principal operating fund of the Commonwealth) experienced deficits in
fiscal 1990 and 1991, tax increases and spending decreases helped return the
General Fund balance to a surplus at June 30, 1992 of $87.5 million and at June
30, 1993 of $698.9 million. The deficit in the Commonwealth's
unreserved/undesignated funds also has been eliminated, and there was a surplus
of $64.4 million at June 30, 1993. However, rising unemployment, a relatively
high proportion of persons 65 and older, and court ordered increases in
healthcare reimbursement rates continue to place increased pressures on the tax
resources of the Commonwealth and its municipalities. In addition, certain
litigation is pending against the Commonwealth that could adversely affect its
ability to pay debt service. See the Statement of Additional Information
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for further discussion of investment considerations associated with Pennsylvania
Municipal Obligations.
General obligations of Pennsylvania are currently rated "AA-" by S&P
and Fitch and "A1" by Moody's. There can be no assurance that the economic
conditions on which these ratings are based will continue or that particular
bond issues may not be adversely affected by changes in economic, political or
other conditions.
INVESTMENT RESTRICTIONS
The Funds are subject to a number of fundamental investment
restrictions that may be changed only by a vote of a majority of the outstanding
Shares (as defined in the Statement of Additional Information) of each Fund.
MONEY MARKET FUNDS
Cash Management Fund
The Cash Management Fund may not:
1. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the Cash
Management Fund's total assets would be invested in such issuer, except that up
to 25% of the value of the Cash Management Fund's total assets may be invested
without regard to such 5% limitation. (Regulations prohibit investments in
excess of the 5% limitation in more than one issuer or for more than three
business days after purchase.)
2. Purchase any securities which would cause more than 25% of the value
of the Cash Management Fund's total assets at the time of purchase to be
invested in securities of one or more issuers conducting their principal
business activities in the same industry, provided that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, domestic bank certificates of
deposit or banker's acceptances, and repurchase agreements secured by bank
instruments or obligations of the U.S. Government or its agencies or
instrumentalities; (b) wholly-owned finance companies will be considered to be
in the industries of their parents if their activities are primarily related to
financing the activities of their parents; and (c) utilities will be divided
according to their services. For example, gas, gas transmission, electric and
gas, electric, and telephone will each be considered a separate industry.
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Cash Management and U.S. Treasury Securities Funds
The Cash Management and U.S. Treasury Securities Funds may not:
1. Borrow money or issue senior securities, except that each Fund may
borrow from banks and enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any 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 such Fund's total assets at
the time of its borrowing. Neither Fund will purchase securities while its
borrowings (including reverse repurchase agreements) exceed 5% of the total
assets of such Fund.
2. Make loans, except that each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, may lend
portfolio securities in accordance with its investment objective and policies,
and may enter into repurchase agreements.
U.S. Treasury Securities Fund
The U.S. Treasury Securities Fund may not purchase securities other
than short-term obligations issued or guaranteed by the U.S. Treasury, and
repurchase agreements secured by U.S. Treasury obligations.
Tax-Free Fund
The Tax-Free Fund may not:
1. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of its total assets
would be invested in such issuer (except that up to 25% of the value of the
Tax-Free Fund's total assets may be invested without regard to such 5%
limitation). For purposes of this limitation, a security is considered to be
issued by the government entity (or entities) whose assets and revenues back the
security; with respect to a private activity bond that is backed only by the
assets and revenues of a non-governmental user, a security is considered to be
issued by such non-governmental user.
2. Purchase any securities which would cause 25% or more of the
Tax-Free Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry; provided that this limitation shall not apply to Municipal
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Obligations or governmental guarantees of Municipal Obligations; and provided,
further, that for the purpose of this limitation only, private activity bonds
that are backed only by the assets and revenues of a non-governmental user shall
not be deemed to be Municipal Obligations.
3. Borrow money or issue senior securities, except that the Tax-Free
Fund may borrow from banks and enter into reverse repurchase agreements for
temporary purposes in amounts up to 10% of the value of its total assets at the
time of such borrowing; or mortgage, pledge, or hypothecate any 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 Tax-Free Fund's total
assets at the time of its borrowing. The Tax-Free Fund will not purchase
securities while any borrowings are outstanding.
NON-MONEY MARKET FUNDS
The Equity Funds, the Bond Fund and the Intermediate Income, Short-Term
Income and Balanced Funds may not:
1. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the total assets
of such Fund would be invested in such issuer, or hold more than 10% of any
class of securities of the issuer or more than 10% of the outstanding voting
securities of the issuer, except that up to 25% of the value of the total assets
of each such Fund may be invested without regard to such limitations. There is
no limit to the percentage of assets that may be invested in U.S. Treasury
bills, notes, or other obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities.
2. Purchase any securities which would cause more than 25% of the value
of the total assets of such Fund at the time of purchase to be invested in
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents;
and (c) utilities will be divided according to their services. For example, gas,
gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry.
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3. Borrow money or issue senior securities, except that such Funds may
borrow from banks or enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of their respective total assets at
the time of such borrowing; or mortgage, pledge, or hypothecate any 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 total assets of
such Fund at the time of its borrowing. Such Funds will not purchase securities
while their borrowings (including reverse repurchase agreements) exceed 5% of
their respective total assets.
4. Make loans, except that such Funds may purchase or hold debt
instruments and lend portfolio securities in accordance with their respective
investment objectives and policies, and may enter into repurchase agreements.
For the purposes of Investment Restriction 2 above, each of the Equity
Funds treats, as a matter of non-fundamental policy that may be changed without
a vote of shareholders, all supranational organizations as a single industry and
each foreign government (and all of its agencies) as a separate industry.
The Pennsylvania Tax-Free Bond Fund may not:
1. Purchase securities of any one issuer (other than obligations issued
or guaranteed by the U.S. Government, the Commonwealth of Pennsylvania, and
their agencies, authorities, instrumentalities or political subdivisions) if
immediately thereafter more than 5% of the value of the Fund's total assets
would be invested in the securities of any one issuer, except that up to 50% of
the value of the Fund's total assets may be invested without regard to this 5%
limitation, provided, however, that not more than 25% of the Fund's total assets
may be invested in securities of one issuer. For purposes of this limitation, a
security is considered to be issued by the governmental entity (or entities)
whose assets and revenues back the security, or with respect to a private
activity bond that is backed only by the assets and revenues of a
non-governmental user, a security is considered to be issued by such
non-governmental user. In accordance with regulations promulgated by the
Securities and Exchange Commission, the guarantor of a guaranteed security may
be considered to be an issuer in connection with such guarantee.
2. Purchase any securities which would cause more than 25% of the value
of its total assets at the time of purchase to be invested in municipal
obligations with similar characteristics (such as private activity bonds where
the payment of principal and interest is the ultimate responsibility of issuers
in the same industry, pollution control revenue bonds, housing finance agency
bonds or hospital bonds) or the securities of issuers conducting their principal
business activities in the same
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industry, provided that there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government, other governmental issuers of
municipal bonds, and their respective agencies, authorities, instrumentalities
or political subdivisions.
3. Borrow money or issue senior securities, except from domestic banks
for temporary purposes and then in amounts not in excess of 10% of the value of
its total assets at the time of such borrowing (provided that the Fund may
borrow pursuant to reverse repurchase agreements in accordance with its
investment policies and in amounts not in excess of 10% of the value of its
total assets at the time of such borrowing); or mortgage, pledge, or hypothecate
any 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. The Fund will not purchase
securities while borrowings (including reverse repurchase agreements) in excess
of 5% of its total assets are outstanding.
4. Make loans, except that (i) the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and may
enter into repurchase agreements with respect to portfolio securities, and (ii)
the Fund may lend portfolio securities against collateral consisting of cash or
securities which are consistent with the Fund's permitted investments, where the
value of the collateral is equal at all times to at least 100% of the value of
the securities loaned.
* * *
Certain additional investment restrictions, and information about the
Fund's investments, are in the Statement of Additional Information.
TAXES
Federal Income Taxes
Each of the Funds of the Company is treated as a separate entity for
federal tax purposes and intend to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification generally relieves a Fund of liability for federal income taxes to
the extent the Fund's earnings are distributed in accordance with the Code.
The following discussion summarizes some of the important federal tax
considerations generally affecting the Fund and its Shareholders and is not
intended as a substitute for careful tax planning. Accordingly, investors in the
Fund should consult
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their tax advisors with specific reference to their own tax situation.
Shareholders are also advised to consult their tax advisors concerning state and
local taxes, which may differ from the federal income taxes discussed.
Money Market Funds. For each of the Money Market Funds, qualification
as a regulated investment company under the Code requires, among other things,
that each Fund distribute to its Shareholders an amount equal to at least 90% of
its investment company taxable income and at least 90% of its tax-exempt income
net of certain deductions for each taxable year. In general, the investment
company taxable income of a Fund will be its taxable income, including interest,
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 Company contemplates declaring as dividends 100% of the
investment company taxable income of each of the Money Market Funds (before
deduction of dividends paid). Such dividends will be taxable as ordinary income
to the respective Shareholders of the Cash Management and U.S. Treasury
Securities Funds who are not currently exempt from federal income taxes, whether
such dividends are received in cash or reinvested in additional shares. Federal
income taxes for distributions to individual retirement accounts and qualified
retirement plans are deferred under the Code. Because all of the net investment
income of the Cash Management and U.S. Treasury Securities Funds are expected to
be derived from earned interest, it is anticipated that no part of any
distribution will be eligible for the dividends received deduction for
corporations.
For the Tax-Free Fund, qualification as a regulated investment company
under the Code for a taxable year requires, among other things, that it
distribute to its Shareholders an amount equal to at least the sum of 90% of its
exempt-interest income, net of certain deductions, and 90% of its investment
company taxable income (if any) for such year. Certain dividends derived from
exempt-interest income (known as exempt-interest dividends) may be treated by
the Tax-Free Fund's Shareholders as items of interest excludable from their
federal gross income. (Shareholders who may be treated as a "substantial user"
or a "related person" to such user under the Code are advised to consult a tax
advisor with respect to whether exempt-interest dividends retain the exclusion.)
However, such dividends may be taxable to Shareholders under state or local law
as ordinary income, even though all or a portion of the distributions may be
derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such taxes. A percentage of the interest on indebtedness
incurred by a Shareholder to purchase or carry Institutional Shares of the
Tax-Free Fund, equal to the percentage of the total non-capital gain dividends
distributed among the Shareholder's taxable year that is tax-exempt dividends,
will not be deductible for federal income tax
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purposes. It should be noted that, upon the sale or exchange of Institutional
Shares of the Tax-Free Fund, if the Shareholder has not held such Shares for
more than six months, any loss on the sale or exchange of those shares will be
disallowed to the extent of tax-exempt dividends received with respect to the
Shares.
If the Tax-Free Fund should hold certain private activity bonds issued
after August 7, 1986, Shareholders must include, as an item of tax preference,
the portion of dividends paid by the Tax-Free Fund that is attributable to
interest on such bonds in their federal alternative minimum taxable income for
purposes of determining liability (if any) for the federal alternative minimum
tax applicable to individuals and the federal alternative minimum tax and the
environmental tax applicable to corporations. Corporations must also take all
exempt-interest dividends into account in determining certain adjustments for
federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed on the excess of the corporation's
modified federal alternative minimum taxable income over $2,000,000.
Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.
To the extent dividends paid to Shareholders of the Tax-Free Fund are
derived from taxable income (for example, from interest on certificates of
deposit or repurchase agreements) or from long-term or short-term capital gains,
such dividends will be subject to federal income tax.
The U.S. Treasury Securities Fund, the Cash Management Fund and the
Tax-Free Fund do not expect to realize any long-term capital gains and,
therefore, do not foresee paying any "capital gain dividends" as described in
the Code.
Dividends declared by a Fund 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 Shareholders and paid by the Fund on December
31 of such year if such dividends are actually paid during January of the
following year.
Shareholders will be advised at least annually as to the federal income
tax consequences of distributions made to them each year.
The Equity Funds, the Bond Fund and the Intermediate Income, Short-Term
Income and Balanced Funds. Qualification as a regulated investment company under
the Code for a taxable year requires, among other things, that each of these
Funds distribute to its Shareholders an amount equal to at least 90% of its
investment company taxable income and at least 90% of its tax-
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exempt income net of certain deductions for each taxable year. In general, each
such Fund's investment company taxable income will be its taxable income,
including dividends, interest and short-term capital gains (the excess of net
short-term capital gain over net long-term capital loss), 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
policy of the Fund is to distribute as dividends substantially all of its
investment company taxable income each year. With respect to the Equity Funds,
the dividends received deduction for corporations will apply to such ordinary
income distributions to the extent of the total qualifying dividends received by
a Fund from domestic corporations for the taxable year. Because substantially
all of the net investment income of the Bond, Intermediate Income, Short-Term
Income and Balanced Funds are expected to be derived from earned interest, it is
anticipated that no part of any distributions from such Funds will be eligible
for the dividends received deduction for corporations.
Distribution by each of the Equity Funds, the Bond Fund and the
Intermediate Income, Short-Term Income and Balanced Funds of the excess of net
long-term capital gain over net short-term capital loss is taxable to
Shareholders as long-term capital gain, regardless of how long the Shareholder
has held the Institutional Shares and whether such gains are received in cash or
reinvested in additional Institutional Shares. Such distributions are not
eligible for the dividends received deduction for corporations.
Dividends declared by a fund 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 Shareholders and paid by the Funds on
December 31 of such year if such dividends are actually paid during January of
the following year.
Investors considering buying Institutional Shares on or just before the
record date of a dividend should be aware that the amount of the forthcoming
dividend payment, although in effect a return of capital, will be taxable.
A taxable gain or loss may be realized by a Shareholder upon his or her
redemption, transfer or exchange of Institutional Shares of any of the Non-Money
Market Funds depending upon the tax basis and their price at the time of
redemption, transfer, or exchange. Generally, a Shareholder may include sales
charges incurred upon the purchase of Fund Shares in his or her tax basis for
such Shares for the purpose of determining gain or loss on a redemption,
transfer or exchange of such Shares. However, if the Shareholder effects an
exchange of such Shares for Shares of another Fund within 90 days of the
purchase and is able to reduce
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the sales charges applicable to new Shares (by virtue of the Company's exchange
privilege), the amount equal to such reduction may not be included in the tax
basis of the Shareholder's exchanged Shares but may be included (subject to the
same limitation) in the tax basis of the new Shares.
Shareholders will be advised at least annually as to the federal income
tax consequences of distributions made each year.
The Pennsylvania Tax-Free Bond Fund. Qualification as a regulated
investment company under the Code for a taxable year requires, among other
things, that the Pennsylvania Tax-Free Bond Fund distribute to its Shareholders
an amount equal to at least 90% of its tax-exempt income and at least 90% of its
investment company taxable income (if any) for each taxable year. In general,
the Pennsylvania Tax-Free Bond Fund's investment company taxable income will be
its taxable income, including dividends, interest and short-term capital gains
(the excess of net short-term capital gain over net long-term capital loss),
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 policy of the Pennsylvania Tax-Free Bond Fund is to
distribute as dividends substantially all of its investment company taxable
income each year. If, at the close of each quarter of its taxable year, at least
50% of the value of the Fund's total assets is invested in obligations exempt
from federal income tax, the Fund will be eligible to pay dividends that are
excludable by shareholders from gross income for federal income tax purposes
("exempt interest dividends"), unless under the circumstances applicable to the
particular Shareholder the exclusion would be disallowed. (See Statement of
Additional Information -- "Taxes"). The total amount of exempt interest
dividends paid by the Fund to Shareholders with respect to any taxable year
cannot exceed the amount of federally tax-exempt interest received by the Fund
during the year less any expenses allocable to such interest. The Pennsylvania
Tax-Free Bond Fund, however, does not expect to realize significant long-term
capital gains and, therefore, does not foresee paying significant "capital gains
dividends" as described in the Code.
A percentage of the interest on indebtedness incurred or continued to
purchase or carry Institutional Shares of the Pennsylvania Tax-Free Bond Fund,
equal to the percentage of the total non-capital gain dividends distributed
during the Shareholder's taxable year that is exempt interest dividends, will
not be deductible for federal income tax purposes. It should be noted that, upon
the sale or exchange of Shares of the Pennsylvania Tax-Free Bond Fund, if the
Shareholder has not held such Institutional Shares for more than six months, any
loss on the sale or exchange of those Institutional Shares will be disallowed to
the extent of the tax-exempt dividends received with respect to the
Institutional Shares.
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A taxable gain or loss may be realized by a Shareholder upon his or her
redemption, transfer or exchange of Institutional Shares of the Pennsylvania
Tax-Free Bond Fund depending upon the tax basis of such shares when purchased
and their price at the redemption, transfer, or exchange. Generally, a
Shareholder may include sales charges incurred upon the purchase of
Institutional Shares in his or her tax basis for such Shares for the purpose of
determining gain or loss on a redemption, transfer or exchange of such shares.
However, if the Shareholder effects an exchange of such shares for shares of
another Fund within 90 days of the purchase and is able to reduce the sales
charges applicable to new shares (by virtue of the Company's exchange
privilege), the amount equal to such reduction may not be included in the tax
basis of the Shareholder's exchanged Shares but may be included (subject to the
same limitation) in the tax basis of the new Shares.
If the Pennsylvania Tax-Free Bond Fund should hold certain private
activity bonds issued after August 7, 1986, Shareholders must include, as an
item of tax preference, the portion of dividends paid by the Fund that is
attributable to interest on such bonds in their federal alternative minimum
taxable income for purposes of determining liability (if any) for the 26-28%
alternative minimum tax applicable to individuals and the 20% alternative
minimum tax and the environment tax applicable to corporations. Corporations
must also take all exempt-interest dividends into account in determining certain
adjustments for federal alternative minimum and environmental tax purposes. The
environmental tax applicable to corporations is imposed at the rate of .12% on
the excess of the corporation's modified federal alternative minimum taxable
income over $2,000,000. Shareholders receiving Social Security benefits should
note that all exempt-interest dividends will be taken into account in
determining the taxability of such benefits.
Dividends declared by the Pennsylvania Tax-Free Bond Fund 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
Shareholders and paid by the Fund on December 31 of such year if such dividends
are actually paid during January of the following year.
Shareholders will be advised at least annually as to the federal income
tax consequences of distributions made to them each year.
Pennsylvania State Tax
Under current Pennsylvania law, shareholders of the Tax-Free, U.S.
Treasury Securities and Pennsylvania Tax-Free Bond Funds will not be subject to
Pennsylvania Personal Income Tax on distributions from the Funds attributable to
interest income from
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Pennsylvania Municipal Obligations or from obligations of the United States, its
territories and certain of its agencies and instrumentalities ("Federal
Obligations"). However, Pennsylvania Personal Income Tax will apply to
distributions from the Funds attributable to gain realized on the disposition of
any investment, including Pennsylvania Municipal Obligations or Federal
Obligations, or to interest income from investments other than Pennsylvania
Municipal Obligations or Federal Obligations. Shareholders also will be subject
to the Pennsylvania Personal Income tax on any gain they realize on the
disposition of shares in one of the Funds.
Distributions attributable to interest or gain from Pennsylvania
Municipal Obligations or Federal Obligations are not currently subject to the
Philadelphia School District Net Income Tax. However, it is anticipated that
rules similar to those described above for the Pennsylvania Personal Income Tax
ultimately will be applied, and a recently enacted Pennsylvania statute
specifically authorized local taxation of gains on Pennsylvania Municipal
Obligations and Federal Obligations. Accordingly, there can be no assurance that
distributions made by the Tax-Free, U.S. Treasury Securities and Pennsylvania
Tax-Free Bond Funds that are attributable to such gains will be exempt from the
Philadelphia School District Net Income Tax, except that gains attributable to
any investment held for more than six months will continue to be exempt. A
shareholder's gain on the disposition of a share in one of the Funds that he has
held for more than six months will not be subject to the Philadelphia School
District Net Income Tax.
Shareholders of the Tax-Free, U.S. Treasury Securities and Pennsylvania
Tax-Free Bond Funds are not subject to any of the personal property taxes
currently in effect in Pennsylvania to the extent that a Fund is comprised of
Pennsylvania Municipal Obligations and Federal Obligations. The taxes referred
to include the county personal property tax imposed on residents of Pennsylvania
by the Act of June 17, 1913, P.L. 507, as amended, and the additional personal
property taxes imposed on Pittsburgh residents by the School District of
Pittsburgh under the Act of June 20, 1947, P.L. 733, as amended, and by the City
of Pittsburgh under Ordinance No. 599 of December 28, 1967.
PERFORMANCE INFORMATION
Money Market Funds: Seven-day yields are computed for each of the Cash
Management, Tax-Free and U.S. Treasury Securities Funds by determining the net
change in the value of a hypothetical pre-existing account in each such Fund
which has a balance of one Institutional Share 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
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multiplying the base period return by 365/7. The net change in the value of an
account in each such Fund includes the value of additional Institutional Shares
purchased with dividends from the original Institutional Share and dividends
declared on the original Share and any such additional Institutional Shares, net
of all fees charged to all Shareholder accounts in proportion to the length of
the base period and such Fund's average account size, but does not include gains
and losses or unrealized appreciation and depreciation. In addition, these Funds
may use effective annualized yield quotations computed on a compounded basis by
adding 1 to the base period return (calculated as described above), raising that
sum to a power equal to 365/7, and subtracting 1 from the result.
The Tax-Free Fund may also present its "taxable equivalent yield" and
"taxable equivalent effective yield" with respect to its Institutional Shares
which reflect the amount of income subject to federal income taxation that a
taxpayer in a stated tax bracket would have to earn in order to obtain the same
after-tax income as that derived from the yield and effective yield,
respectively, of the Tax-Free Fund. The taxable equivalent yield and taxable
equivalent effective yield will be significantly higher than the yield and
effective yield of the Tax-Free Fund.
From time to time, performance information for the Funds showing their
average annual total return, aggregate total return and yield may be presented
in advertisements, sales literature and in reports to Shareholders. The Funds'
performance information may be quoted and compared to those of other mutual
funds with similar investment objectives and to stock or other relevant indices.
For example, the yields of these Funds may be compared to the IBC/Donoghue's
Money Fund Average, which is an average compiled by IBC/Donoghue's MONEY FUND
REPORT of Holliston, MA 01746, a widely recognized independent publication that
monitors the performance of money market funds, 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 six standard metropolitan
statistical areas, or to data prepared by Lipper Analytical Services, Inc., as
well as to yield data as reported in publications such as Money Magazine,
Forbes, Barron's, The Wall Street Journal, The New York Times, Business Week,
American Banker, Fortune, Institutional Banker, Institutional Investor, Ibbotson
Associates, Inc., Morningstar, Inc., CDA/Wiesenberger, Pensions and Investments,
U.S.A. Today and local newspapers. In addition to yield information, general
information about these Funds that appears in a publication such as those
mentioned above may also be quoted or reproduced in advertisements or in reports
to Shareholders. Reports to shareholders may contain performance information on
any fund of the Company.
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Yields will fluctuate and any quotation of yield should not be
considered as representative of the future performance of any Fund. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in
these 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
portfolio, portfolio maturity, operating expenses, and market conditions. Any
fees charged by an affiliate of the Investment Advisor or correspondents thereof
with respect to customer accounts in investing in shares of these Funds will not
be included in yield calculations; such fees, if charged, would reduce the
actual yield from that quoted.
Non-Money Market Funds: From time to time performance information with
respect to Institutional Shares for these Funds showing each Fund's average
annual total return, aggregate total return and yield may be presented in
advertisements, sales literature and in reports to Shareholders. Such
performance figures are based on historical earnings and are not intended to
indicate future performance. Average annual total return will be calculated on
an annual basis (with respect to the International, Short-Term Income and
Balanced Funds, for certain periods since the establishment of such Fund), and
will, unless otherwise noted, reflect the imposition of the maximum sales
charge. For the information of Shareholders not subject to a sales charge, the
Funds may also publish average annual total returns which include no sales
charge. Average annual total return is measured by comparing the value of an
investment in a Fund at the beginning of the relevant period to the redemption
value of the investment at the end of the period (assuming immediate
reinvestment of any dividends or capital gains distributions) and annualizing
the result. Aggregate total return is calculated similarly, however, the
resulting difference is not annualized. Yield will be computed by dividing such
Fund's net investment income per share earned during a recent 30-day period by
such Fund's per share maximum offering price (reduced by any undeclared earned
income expected to be paid shortly as a dividend) on the last day of the period
and annualizing the result.
Quotations of total return will reflect the maximum sales load charged
by a Fund, except that the Fund may also provide, in conjunction with such
quotations, additional quotations that do not reflect a sales charge when the
quotations are being provided to investors who are exempt from the sales charges
described in this Prospectus. Similarly, a Fund may provide yield quotations in
investor communications (other than advertisements) based on a share's net asset
value (rather than its maximum offering price) per share on the last day of the
period covered by the yield computation. Because these additional quotations
will not
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reflect the maximum sales charge payable by non-exempt investors, such
performance quotations will be higher than the performance quotations computed
in the manner described in the preceding paragraph.
The Pennsylvania Tax-Free Bond Fund may also quote its "taxable
equivalent yield" which demonstrates the level of taxable yield necessary to
produce an after-tax equivalent to the Fund's tax-free yield. It is calculated
by increasing the Fund's yield (calculated as above) by the amount necessary to
reflect the payment of federal and Pennsylvania income taxes at a stated tax
rate. The taxable equivalent yield will always be higher than the Fund's yield.
Investors may also judge the performance of a Fund, by comparing it to
the performance of other mutual funds with comparable investment objectives and
policies through various mutual fund or market indices such as those prepared by
Dow Jones & Co., Inc. and Standard & Poor's Ratings Group, Division of McGraw
Hill and to data prepared by Lipper Analytical Services, Inc. Comparisons may
also be made to indices or data published in Money Magazine, Forbes, Barron's,
The Wall Street Journal, The New York Times, Business Week, American Banker,
Fortune, Institutional Banker, Institutional Investor, Ibbotson Associates,
Inc., Morningstar, Inc., CDA/Wiesenberger, Pensions and Investments, U.S.A.
Today and local newspapers. In addition to yield information, general
information about these Funds that appears in a publication such as those
mentioned above may also be quoted or reproduced in advertisements or in reports
to Shareholders. Reports to Shareholders may contain performance information on
any Fund of the Company.
Yield and total return are functions of the type and quality of
instruments held in the portfolio, operating expenses, and market conditions.
Consequently, current yields and total return will fluctuate and are not
necessarily representative of future results. Any fees charged by an affiliate
of the Investment Advisor or a correspondent thereof with respect to customer
accounts for investing in shares of the Fund will not be included in performance
calculations; such fees, if charged, would reduce the actual yield and total
return from that quoted.
MANAGEMENT OF THE COMPANY
Trustees
Overall responsibility for management of the Company rests with its
Board of Trustees, who are elected by the Shareholders of the Company's Funds.
The Statement of Additional Information contains the names of and general
background information concerning each trustee.
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Investment Advisor
Meridian Investment Company (the "Investment Advisor") is the
investment advisor of the Company. Located in Malvern, Pennsylvania, the
Investment Advisor is a subsidiary of Meridian Bancorp, Inc., a regional
multi-bank holding company with assets over $14 billion, providing a full array
of financial and asset management, commercial banking, and real estate services.
As of November 1, 1994, the Investment Advisor managed and advised a total of
$5.0 billion in a variety of balanced, equity and fixed-income portfolios.
Subject to the general supervision of the Company's Board of Trustees
and in accordance with the investment objectives and restrictions of each Fund,
the Investment Advisor manages the Funds, makes decisions with respect to and
places orders for all purchases and sales of the Funds' investment securities,
and maintains the Funds' records relating to such purchases and sales.
The following individuals serve as portfolio managers for the Funds and
are primarily responsible for the day-to-day management of the portfolios:
Craig A. Moyer, CFA, is a Senior Vice President and Senior Fixed Income
Manager. Mr. Moyer has been with Meridian Investment Company (or a predecessor)
since 1977. Mr. Moyer began his investment career in 1974 and obtained his B.A.
from Pennsylvania State University. Mr. Moyer has been a part of the Fixed
Income Unit overseeing the Bond Funds since their inception. Mr. Moyer currently
manages the Intermediate Income Fund and the Balanced Fund.
Cathy L. Rahab is an Assistant Vice President and Portfolio Manager
with Meridian Investment Company. Ms. Rahab began her investment career in 1986
and obtained her B.S. in Business Administration from Villanova University. Ms.
Rahab joined the Fixed Income Unit in July of 1994. Ms. Rahab currently manages
the Money Market Funds and the Short-Term Income Fund.
Christine M. Frampton is an Investment Officer and Fixed Income
Portfolio Manager with Meridian Investment Company since April 1990. Ms.
Frampton began her investment career with Merrill Lynch & Co. in 1987 and
obtained her B.A. from University of Delaware and M.B.A. from St. Joseph's
University. Ms. Frampton has been part of the Fixed Income Unit overseeing the
Bond Funds since September, 1992. Ms. Frampton currently manages the
Pennsylvania Tax-Free Fund.
Joseph E. Stocke, CFA, is a Senior Vice President and Senior Equity
Manager. Mr. Stocke has been with Meridian Investment Company (or a predecessor)
since 1983. Mr. Stocke began his
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investment career in 1982 and obtained his B.S. in Economics attending The
Wharton School, and University of Pennsylvania and completed graduate courses at
New York University. Mr. Stocke has been part of the Equity Unit overseeing the
Equity Fund and the Special Equity Fund since their inception. Mr. Stocke
currently manages the Balanced Fund.
Leslie M. Varrelman is a Vice President and Fixed Income Manager and
has been with Meridian Investment Company since January 1994. Previously Ms.
Varrelman was Vice President of CoreStates Investment Advisers where she managed
the commingled fixed income funds and managed the Limited Maturity Products
area. Ms. Varrelman obtained her B.S. in Business Administration from Juniata
College in 1981. Ms. Varrelman currently manages the Bond Fund.
For the services provided and expenses assumed pursuant to its
investment advisory agreement with the Company, the Investment Advisor is
entitled to receive a fee from the Fund, computed daily and paid monthly, at an
annual rate equal to the lesser of (a) (i) .40% of the average daily net assets
of each of the Cash Management, Tax-Free and U.S. Treasury Securities Funds,
(ii) .74% of the average daily net assets of each of the Equity, Bond,
Intermediate Income, Pennsylvania Tax-Free Bond and Short Term Income Funds,
(iii) .75% of the average daily net assets of the Balanced Fund, (iv) 1.00% of
the average daily net assets of the International Equity Fund and (v) 1.50% of
the average daily net assets of the Special Equity Fund, or (b) such fee as may
from time to time be agreed upon in writing by a Fund and the Investment Advisor
in advance of the period to which the fee relates. See "Expense Summary." The
maximum investment advisory fees payable by the Special Equity Fund, the
Balanced Fund and the International Equity Fund, respectively, are higher than
the investment advisory fees paid by most comparable mutual funds.
Sub-advisor
Marvin & Palmer Associates, Inc., 1201 N Market Street, Suite 2300,
Wilmington, Delaware 19801-1165, is Sub-advisor for the International Equity
Fund under an agreement with the Advisor (the "Sub-advisory Agreement"). The
Sub-advisor is responsible for the investment and reinvestment of the
International Equity Fund's assets and the placement of brokerage transactions
in connection therewith. For its services under the Sub-advisory Agreement, the
Sub-advisor is paid a monthly fee by the Investment Advisor calculated on an
annual basis equal to .75% of the first $100 million of International Equity
Fund's average daily net assets, .70% of the second $100 million of
International Equity Fund's average daily net assets, .65% of the third $100
million of International Equity Fund's average daily net assets, and .60% of
International Equity Fund's average daily net assets in excess of $300 million.
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The Sub-advisor, a privately held company, was founded in 1986 by David
F. Marvin and Stanley Palmer. The stock of the Sub-advisor is owned by Messrs.
Marvin and Palmer and twenty other holders. The Sub-advisor is engaged in the
management of global, non-United States and emerging markets equity portfolios
for institutional accounts. At September 30, 1994, the Sub-advisor managed a
total of $2.8 billion in investments for 47 institutional investors.
The following five individuals will share the management of
International Equity Fund on behalf of the Sub-advisor:
David F. Marvin, CFA, is chairman of the Sub-advisor and founded the
firm together with Mr. Palmer in 1986. Before founding the Sub-advisor, Mr.
Marvin was Vice president in charge of DuPont Corporation's $10 billion
internally-managed pension fund. Prior to that Mr. Marvin was Associate
Portfolio Manager, and the Head Portfolio Manager, for Investors Diversified
Services' IDS Stock Fund. Mr. Marvin started in the investment business in 1965
as a security analyst for Chicago Title & Trust Company. He received his M.B.A.
from Northwestern University and his B.S. from the University of Illinois, and
is a Chartered Financial Analyst and a member of the Financial Analysts
Federation.
Stanley Palmer, CFA, is President of the Sub-advisor and co-founder of
the firm. Mr. Palmer was Equity Portfolio Manager for DuPont Corporation from
1978 through 1986, an analyst and portfolio manager at Investors Diversified
Services from 1971 through 1978, and an analyst at Harris Trust & Savings Bank
from 1964 through 1971. He received his M.B.A. from the University of Iowa and
his B.S. from Gustavus Adolphus College, and is a Chartered Financial Analyst
and a member of the Financial Analysts Federation.
Terry B. Mason is a Vice President and Portfolio Manager of the
Sub-advisor. Before joining the Sub-advisor, Mr. Mason was employed for 14 years
by DuPont Corporation,the last five as international equity analyst and
international trader. He received his M.B.A. from Widener University and his
B.A. from Glassboro State College.
Jay F. Middleton is a portfolio manager for the Sub-advisor and joined
the firm in 1989. He received his B.A. from Wesleyan University.
Todd D. Marvin is a portfolio manager for the Sub-advisor and joined
the firm in 1991. Before joining the Sub-advisor, Mr. Marvin was employed by
Oppenheimer & Company as an analyst in investment banking. Mr. Marvin received
his B.A. from Wesleyan University.
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Administrator and Distributor
SEI Financial Management Corporation (the "Administrator"), a
wholly-owned subsidiary of SEI Corporation ("SEI"), provides the Company with
administrative services, including fund accounting, regulatory reporting,
necessary office space, equipment, personnel and facilities. SEI Financial
Service Company (the "Distributor"), a wholly-owned subsidiary of SEI, serves as
distributor.
Effective May 1, 1995, the Administrator will receive a fee, which is
calculated daily and paid monthly, at a maximum annual rate of 0.17% of the
average daily net assets of each Fund. Until April 30, 1995, the current
administrator will receive fees equal to .20% the average daily net assets of
each Fund.
Custodians and Transfer Agent
Citibank, N.A. serves as custodian for each Fund other than the
International Equity Fund. The Bank of New York serves as custodian for the
International Equity Fund. The Administrator also serves as the Transfer Agent
for the Company. State Street Bank and Trust Company serves as Sub-Transfer
Agent for the Company pursuant to an agreement with the Administrator.
Expenses
The Investment Advisor and the Administrator each bear all expenses in
connection with the performance of their services as investment advisor and
administrator, respectively, other than the cost of securities (including
brokerage commissions) purchased for the Company. Each Fund of the Company will
bear expenses relating to its respective operations including the following:
taxes; interest; brokerage fees and commissions; fees and travel expenses of the
Trustees of the Company; Securities and Exchange Commission fees; state
securities qualification expenses; costs of preparing and printing prospectuses
for regulatory purposes and for distribution to current Shareholders; outside
auditing and legal expenses; advisory and administration fees; fees and
out-of-pocket expenses of the custodian and transfer agent; expenses incurred
for pricing securities owned by each respective Fund; insurance premiums; costs
of maintenance of the Company's existence; costs of Shareholders' reports and
meetings; proxy solicitation expenses; costs of Board of Trustees meetings and
any extraordinary expenses incurred in each Fund's operation. The holders of
Institutional Shares of a Fund will not bear the cost of any activity primarily
intended to result in the distribution of its Shares; such costs will be borne
by the Distributor.
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Banking Laws
Future changes in federal or state statutes and regulations relating
to permissible activities of banks or bank holding companies and their
subsidiaries and affiliates as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations
could change the manner in which the Investment Advisor may continue to perform
investment advisory services for the Company. See the Statement of Additional
Information - ("Banking Laws") for further discussion.
GENERAL INFORMATION
Description of the Company and Its Shares
The Company was organized as a Massachusetts trust with transferrable
Shares on August 1, 1989. The Company consists of eleven portfolios, each having
two classes of shares, Institutional Shares and Retail Shares: the Cash
Management Fund; the Tax-Free Fund; the U.S. Treasury Securities Fund; the
Equity Fund; the International Equity Fund; the Special Equity Fund; the Bond
Fund; the Intermediate Income Fund; the Pennsylvania Tax-Free Bond Fund; the
Short-Term Income Fund and the Balanced Fund. Each Share represents an equal
proportionate interest in a Fund with other Shares of the same class, and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to that Fund as are declared at the discretion of the Board of
Trustees. Shares have a par value of $.001 per Share and do not have preemptive
or conversion rights.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for any fractional shares held. Shareholders will
vote in the aggregate and not by class except as otherwise expressly required by
law. For example, Shareholders of the Funds will vote in the aggregate with
other shareholders of the Company with respect to the election of Trustees and
the ratification of the selection of independent accountants. Shareholders of a
Fund will vote as a Fund, however, and not in the aggregate with other
shareholders of the Company, for purposes of approval of that Fund's investment
advisory agreement. Voting rights are not cumulative and, accordingly, holders
of more than 50% of the aggregate Shares of the Company may elect all of the
Trustees.
As of November 1, 1994, Meridian Bancorp, Inc. indirectly possessed or
shared power to dispose or vote with respect to more than 25% of the outstanding
shares of the Company and therefore may be considered to be a controlling person
of the Company for purposes of the Act.
-67-
<PAGE>
Annual meetings of Shareholders are not required by the Agreement and
Declaration of Trust, the Investment Company Act of 1940 or other authority
except, under certain circumstances, to elect Trustees, amend the Agreement and
Declaration of Trust, approve investment advisory and distribution agreements,
ratify the selection of accountants and to satisfy certain other requirements.
Shareholders owning not less than 10% of the outstanding shares of the Company
entitled to vote may cause the Board of Trustees to call a special meeting of
Shareholders. At such a meeting, a quorum of Shareholders (constituting a
majority of votes attributable to all outstanding Shares of the Company), by
majority vote, has the power to remove one or more Trustees. To the extent
required by law, the Company will assist in Shareholder communication in such
matters.
Multiple Classes of Shares
In addition to Institutional Shares, the Company also offers Retail
Shares of the Funds, under an exemptive order granted by the Securities and
Exchange Commission. Retail Shares are offered to the general public through
procedures established by the Distributor to Customers satisfying the minimum
purchase requirements of $1,000. Retail Shares (other than those of the Money
Market Funds) are sold subject to a front-end sales load of up to 2.00% and bear
a Rule 12b-1 fee of up to 0.40%. All of the Retail Shares bear their respective
Rule 12b-1 fee expenses under a Distribution and Service Plan pertaining only to
such Retail Shares that has been adopted pursuant to Rule 12b-1 under the 1940
Act. A salesperson or other person entitled to receive compensation for selling
or servicing the shares may receive different compensation with respect to one
particular class of shares over another in the same Fund. For further details
regarding the purchase of Retail Shares call the Company at (800) 344-2716.
The amount of dividends payable with respect to Institutional Shares
will exceed dividends on Retail Shares as a result of the 12b-1 fees applicable
to Retail Shares.
Miscellaneous
Shareholders will receive unaudited mid-year reports and audited
annual reports describing the investment operations of all of the Company's
Funds. The Company may include information in its Annual Reports and Semi-Annual
Reports to Shareholders that (i) describes general economic trends, (ii)
describes general trends within the financial services industry or the mutual
fund industry, (iii) describes past or anticipated portfolio holdings for Funds
within the Company or (iv) describes investment management strategies for such
Funds. Such information is provided to inform Shareholders of the activities of
a Fund for the most recent fiscal year or half-year and to
-68-
<PAGE>
provide the views of the Advisor and/or Company officers regarding expected
trends and strategies.
As used in this Prospectus and in the Statement of Additional
Information, "assets belonging to" a Fund means the consideration received by
the Company upon the issuance or sale of Shares in that Fund, 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, and any funds or payments derived from any reinvestment of such
proceeds, and any general assets of the Company not readily identified as
belonging to a particular Fund that are allocated to that Fund by the Company's
Board of Trustees. The Board of Trustees may allocate such general assets in any
manner it deems fair and equitable. It is anticipated that the factor that will
be used by the Board of Trustees in making allocations of general assets to
particular Funds will be the relative net assets of the respective Funds at the
time of allocation. Assets belonging to a particular Fund are charged with the
direct liabilities and expenses in respect of that Fund, and with a share of the
general liabilities and expenses of the Company not readily identified as
belonging to a particular Fund that are allocated to that Fund in proportion to
the relative net asset values of the respective Funds at the time of allocation.
The allocations of general assets and general liabilities and expenses of the
Company to particular Funds will be determined in accordance with generally
accepted accounting principles. Determinations by the Board of Trustees of the
Company as to the timing of the allocation of general liabilities and expenses
and as to the timing and allocable portion of any general assets with respect to
a particular Fund are conclusive.
As used in this Prospectus and in the Statement of Additional
Information, a "vote of a majority of the outstanding Shares" of the Company or
a particular Fund means the affirmative vote, at a meeting of Shareholders duly
called, of the lesser of (a) 67% or more of the votes of Shareholders of the
Company or such Fund present at a meeting at which the holders of more than 50%
of the votes attributable to Shareholders of record of the Company or such Fund
are represented in person or by proxy, or (b) the holders of more than 50% of
the outstanding votes of Shareholders of the Company or such Fund.
Inquiries regarding the Fund may be directed in writing to the Company
at 680 East Swedesford Road, Wayne, PA 19087-1658 or by calling toll-free (800)
344-2716.
-69-
<PAGE>
CONESTOGA FAMILY OF FUNDS
INVESTMENT ADVISOR
Meridian Investment Company
Valley Stream Parkway
Malvern, Pennsylvania 19355
SUB-INVESTMENT ADVISOR
Marvin & Palmer Associates, Inc.
1201 N. Market Street, Suite 2300
Wilmington, Delaware 19801
ADMINISTRATOR
SEI Financial Management Corporation
680 East Swedesford Road
Wayne, Pennsylvania 19087-1658
LEGAL COUNSEL
DRINKER BIDDLE & REATH
1345 Chestnut Street
Philadelphia, PA 19107-3496
DISTRIBUTOR
SEI Financial Services Company
680 East Swedesford Road
Wayne, Pennsylvania 19087-1658
TRANSFER AGENT
State Street Bank and Trust Company
The BFDS Building
2 Heritage Drive
Quincy, MA 02171
AUDITORS
Coopers & Lybrand L.L.P.
100 East Broad Street
Columbus, Ohio 43215
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................................................................................................3
Expense Summary...................................................................................................6
Financial Highlights..............................................................................................8
Investment Objectives
and Policies...................................................................................................17
How to Purchase
and Redeem Shares..............................................................................................26
Valuation of Shares..............................................................................................30
Dividends........................................................................................................31
Other Investment Policies........................................................................................32
Investment Restrictions..........................................................................................49
Taxes............................................................................................................53
Performance Information..........................................................................................59
Management of the Company........................................................................................62
General Information..............................................................................................67
</TABLE>
-70-
<PAGE>
No person has been authorized to give any information or to make any
representations not contained in this Prospectus or in the 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 Fund 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.
- ----------------
Prospectus dated
February 21, 1995
- ----------------
-71-
CONESTOGA FAMILY OF FUNDS
Supplement Dated November 3, 1995
to the Prospectus Dated February 21, 1995
Retail Shares
1. The following paragraph is added as a second paragraph under the
heading "Financial Highlights" in the Retail Shares Prospectus on page 5:
The financial data set forth below for all periods after October 31,
1994 are unaudited and are not necessarily indicative of future results with
respect to Retail Shares. Information about the prior performance of the
Company is contained in the Company's annual report which may be obtained
without charge.
The following tables supplement the Financial Highlights tables in the
Retail Shares Prospectus on pages 6 through 9:
<TABLE>
<CAPTION>
U.S. Treasury
Cash Management Fund Tax-Free Fund Securities Fund
Retail Retail Retail
Six Months Ended Six Months Ended Six Months Ended
April 30, 1995(1) April 30, 1995(1) April 30, 1995(1)
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00
----- ----- -----
Investment Activities
Net Investment Income 0.025 0.017 0.024
----- ----- -----
Distributions
Net Investment Income (0.025) (0.017) (0.024)
------ ------ ------
Net Asset Value, End of Period $1.00 $1.00 $1.00
====== ====== ======
Total Return 1.75% 1.12% 1.69%
Ratios/Supplementary Data
Net Assets at End of Period (000) $3,425 $1,816 $112,465
Ratio of Expenses to Average Net Assets 0.68%(2) 0.44%(2) 0.75%(2)
Ratio of Net Investment Income to
Average Net Assets 5.14%(2) 3.38%(2) 5.23%(2)
Ratio of Expenses to Average
Net Assets(3) 1.04%(2) 1.11%(2) 0.97%(2)
Ratio of Net Investment Income to
Average Net Assets(3) 4.78%(2) 2.71%(2) 5.01%(2)
</TABLE>
____________________________
<PAGE>
<TABLE>
<CAPTION>
Pennsylvania
Intermediate Tax-Free Bond
Equity Fund Special Equity Fund Bond Fund Income Fund Fund
Retail Retail Retail Retail Retail
Six Months Six Months Six Months Six Months Six Months
Ended Ended Ended Ended Ended
April 30, 1995(1) April 30, 1995(1) April 30, 1995(1) April 30, 1995(1) April 30, 1995(1)
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $15.00 $9.37 $9.81 $10.27 $9.56
------ ------ ------ ------ -----
Investment Activities
Net Investment Income 0.08 0.07 0.30 0.28 0.23
Net Realized and Unrealized
Gains (Losses) on Investments 0.79 0.08 0.25 0.12 0.44
------ ------ ------ ------ -----
Total from Investment Activities 0.87 0.15 0.55 0.40 0.67
Distributions
Net Investment Income (0.08) (0.07) (0.30) (0.28) (0.23)
Net Realized Gains (0.79) (0.07) 0.00 0.00 (0.01)
------ ------ ------ ------ -----
Total Distributions (0.87) (0.14) (0.30) (0.28) (0.24)
------ ------ ------ ------ -----
Net Asset Value, End of Period $15.00 $9.38 $10.06 $10.39 $9.99
====== ====== ====== ====== =====
Total Return 11.11% 6.31% 5.65% 4.46% 6.27%
Ratios/Supplementary Data
Net Assets at End of Period (000) $5,904 $526 $1,412 $1,248 $767
Ratio of Expenses to Average Net
Assets 1.47%(2) 0.15%(2) 1.06%(2) 1.01%(2) 0.47%(2)
Ratio of Net Investment Income to
Average Net Assets 1.16%(2) 1.51%(2) 6.18%(2) 5.42%(2) 4.85%(2)
Ratio of Expenses to Average
Net Assets(3) 1.62%(2) 3.04%(2) 1.71%(2) 1.86%(2) 2.40%(2)
Ratio of Net Investment Income to
Average Net Assets(3) 1.01%(2) (1.38)%(2) 5.54%(2) 4.57%(2) 2.92%(2)
Portfolio Turnover Rate 30.09% 193.20% 121.06% 62.87% 9.17%
</TABLE>
____________________________
-2-
(For a Fund Share Outstanding Throughout the Period presented)
<PAGE>
<TABLE>
<CAPTION>
International Equity Fund Short-Term Income Fund Balanced Fund
Retail Retail Retail
May 15, 1995 to May 17, 1995 to June 29, 1995 to
September 30, 1995(4) September 30, 1995(4) September 30, 1995(4)
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $10.00 $10.01 $ 9.97
------ ------ ------
Investment Activities
Net Investment Income 0.00 0.19 0.08
Net Realized and Unrealized
Gains (Losses) on Investments 1.28 -- 0.44
------ ------ ------
Total from Investment Activities 1.28 0.19 0.52
Distributions
Net Investment Income -- (0.18) (0.02)
Net Realized Gains -- -- --
------ ------ ------
Total Distributions -- (0.18) (0.02)
------ ------ ------
Net Asset Value, End of Period $11.28 $10.02 $10.47
====== ====== ======
Total Return 12.80% 2.02% 5.22%
Ratios/Supplementary Data
Net Assets at End of Period (000) $ 8 $ 11 $ 70
Ratio of Expenses to Average Net Assets 2.07%(2) 0.88%(2) 1.07%(2)
Ratio of Net Investment Income to
Average Net Assets 0.08%(2) 5.26%(2) 1.39%(2)
Ratio of Expenses to Average Net Assets(3) 2.07%(2) 1.32%(2) 3.90%(2)
Ratio of Net Investment Income to
Average Net Assets(3) 0.08%(2) 4.80%(2) 3.23%(2)
Portfolio Turnover Rate 18.00% 3.00% 16.00%
</TABLE>
____________________________
(1) Prior to February 21, 1995, only one class of shares of each portfolio
of the Fund was outstanding. On that date, the shareholders of the Fund
exchanged their shares for either the Fund's Retail or Institutional
shares. The financial data for the six months ended April 30, 1995 are
presented on a basis whereby each Fund's net investment income, expenses
and distributions for the period November 1, 1994 through February 20,
1995 were allocated to each class of shares based upon the relative net
assets of each class of shares as of February 21, 1995 and the results
combined with such information for each applicable class for the period
February 21, 1995 through April 30, 1995.
(2) Annualized.
(3) During the period the investment advisory and/or administration fees
were voluntarily reduced. If such voluntary fee reductions had not
occurred the ratios would have been as indicated.
(4) Period from commencement of operations.
-3-
<PAGE>
2. The following section is added to page 15, before "HOW TO PURCHASE
AND REDEEM SHARES":
RISK FACTORS
Certain risk factors associated with investments in some or all of the
Funds are discussed in the following paragraphs. A general discussion of risk
factors is contained in "PROSPECTUS SUMMARY - Investment Risks and
Characteristics," and other risks are identified throughout the sections
entitled "INVESTMENT OBJECTIVES AND POLICIES" AND "OTHER INVESTMENT POLICIES."
Derivative Securities
A "derivative" is often defined as an instrument that derives
its value from the price of different securities, interest or currency exchange
rates, or indices. The Company considers the following types of securities to
be "derivatives" because they may present atypical or unexpected risks: forward
foreign currency contracts, futures contracts, put and call options purchased
on securities and indices, asset-backed and mortgage-backed securities,
"stripped securities" and variable and floating rate notes. The Funds will
not acquire such derivatives for speculative purposes, and will only acquire
them for investment or hedging purposes as specifically described in this
Prospectus and in the Statement of Additional Information.
Foreign Securities
The Equity Funds and the Balanced Fund may invest in securities of
foreign issuers. Investment in securities of foreign issuers involves certain
risks not ordinarily associated with investments in securities of domestic
issuers. Such risks include fluctuations in foreign exchange rates,
difficulties in predicting international trade patterns, political, social and
economic instability in the country of the issuer, foreign trading practices
(including higher trading commissions, custodial charges and delayed
settlements), foreign withholding and income taxation, the possible
establishment of exchange controls or the adoption of other foreign
governmental restrictions (which might adversely affect the payment of
principal and interest), difficulty in obtaining and enforcing judgments
against foreign issuers, and the possible imposition of exchange controls or
other foreign government laws or restrictions. With respect to certain
countries, there is also the possibility of expropriation of assets,
nationalization of assets, limits on removal of currency or other assets,
confiscatory taxation, political or social instability or diplomatic
developments which could adversely affect investments in those countries.
Foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
U.S. domestic companies. There is generally less government regulation of
securities exchanges, brokers and listed companies. Confiscatory taxation or
diplomatic developments could also affect investment in some countries. In
addition, foreign branches of U.S. banks, foreign banks and foreign issuers may
be subject to less stringent reserve requirements and to different accounting,
auditing, reporting, and recordkeeping standards than those applicable to
domestic branches of U.S. banks and U.S. domestic issuers.
-4-
<PAGE>
Pennsylvania Tax-Free Bond Fund
This Fund is classified as a non-diversified investment company under
the Investment Company Act of 1940. Investment return on a non-diversified
portfolio typically is dependent upon the performance of a smaller number of
securities relative to the number held in a diversified portfolio.
Consequently, the change in value of any one security may affect the overall
value of a non-diversified portfolio more than it would a diversified
portfolio, and thereby subject its net asset value per share to greater
fluctuation. In addition, a non-diversified portfolio may be more susceptible
to economic, political and regulatory developments affecting the portfolio's
investment sector than a diversified investment portfolio with similar
objectives would be.
Because the Fund will normally invest 80% or more of its net assets in
Pennsylvania Municipal Obligations, it is more susceptible to factors affecting
Pennsylvania issuers than is a comparable municipal bond fund not concentrated
in the obligations of issuers located in a single state. Pennsylvania
tax-exempt issuers may be adversely affected by local political and economic
conditions and developments within Pennsylvania. Although the General Fund of
the Commonwealth (the principal operating fund of the Commonwealth) experienced
deficits in fiscal 1990 and 1991, tax increases and spending decreases helped
return the General Fund balance to a surplus in more recent years and the
surplus as of June 30, 1994 was $179.4 million. The deficit in the
Commonwealth's unreserved/undesignated funds also has been eliminated, and
there was a surplus of $72.2 million at June 30, 1994. However, rising
unemployment, a relatively high proportion of persons 65 and older, and court
ordered increases in healthcare reimbursement rates continue to place increased
pressures on the tax resources of the Commonwealth and its municipalities. In
addition, certain litigation is pending against the Commonwealth that could
adversely affect its ability to pay debt service. See the Statement of
Additional Information for further discussion of investment considerations
associated with Pennsylvania Municipal Obligations.
General obligations of Pennsylvania are currently rated "AA-" by S&P
and Fitch and "A1" by Moody's. There can be no assurance that the economic
conditions on which these ratings are based will continue or that particular
bond issues may not be adversely affected by changes in economic, political or
other conditions.
3. The section entitled "Government and Related Obligations" under
"OTHER INVESTMENT POLICIES" on page 19 is replaced with the following two
sections:
Government and Related Obligations
The Funds may invest in Treasury bills, notes and bonds and other
obligations issued or guaranteed by the U.S. Treasury. The Funds may also
acquire repurchase agreements secured by U.S. Treasury obligations. The Funds
(except the U.S. Treasury Fund) may also invest in other obligations issued or
guaranteed by agencies or instrumentalities of the U.S.
-5-
<PAGE>
Government. These obligations may differ from U.S. Treasury obligations in
their interest rates, maturities, and times of issuance.
Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association and the
Export-Import Bank of the United States, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal National
Mortgage Association, may borrow from the Treasury in its discretion; others,
such as those of the Student Loan Marketing Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government will
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law. The obligations of
such agencies and instrumentalities will be purchased only when the Investment
Advisor deems the credit risk with respect thereto to be minimal.
"Stripped" Securities
Each Fund may invest in "stripped" securities, which are U.S. Treasury
bonds and notes the unmatured interest coupons of which have been separated
from the underlying principal obligation. Stripped securities are zero coupon
obligations that are normally issued at a discount to their "face value," and
may exhibit greater price volatility than ordinary debt securities because of
the manner in which their principal and interest are returned to investors.
The U.S. Treasury Fund may only invest in stripped securities issued by the
U.S. Treasury and recorded in the Federal Reserve book- entry record keeping
system. A number of securities firms and banks have stripped the interest
coupons and resold them in custodian receipt programs with proprietary names
such as Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual
on Treasuries ("CATS"). Privately-issued stripped securities such as TIGRS and
CATS are not themselves guaranteed by the U.S. Government, but the future
payment of principal or interest on U.S. Treasury obligations which they
represent is so guaranteed. Such securities will be purchased only when the
Investment Advisor deems the credit risk with respect thereto to be minimal.
PLEASE RETAIN FOR FUTURE REFERENCE
CON-A-001-02
-6-
<PAGE>
CONESTOGA FAMILY OF FUNDS
RETAIL SHARES
680 East Swedesford Road For information,
Wayne, Pennsylvania 19087-1658 call (800) 344-2716
Conestoga Family of Funds (the "Company") is an open-end management
investment company. This Prospectus describes the eleven separate investment
portfolios (the "Funds") which are offered by the Company, each of which is
advised by Meridian Investment Company (the "Investment Advisor"). These Funds
enable the Company to meet a wide range of investment needs. This Prospectus
relates to a separate series of shares (the "Retail Shares") of each of the
Funds.
MONEY MARKET FUNDS
The Conestoga Cash Management Fund's investment objective is to seek
current income with liquidity and stability of principal.
The Conestoga Tax-Free Fund's investment objective is to seek current
income which is exempt from regular federal income tax with liquidity and
stability of principal.
The Conestoga U.S. Treasury Securities Fund's investment objective is
to seek current income with liquidity and stability of principal.
EQUITY FUNDS
The Conestoga Equity Fund seeks capital growth by investing principally
in a diversified portfolio of common stocks.
The Conestoga International Equity Fund's investment objective is to
seek long-term growth of capital.
The Conestoga Special Equity Fund seeks capital growth by investing
principally in a diversified portfolio of common stocks.
BOND FUNDS
The Conestoga Bond (formerly the Income) Fund's investment objective is
to seek to maximize long-term total return by investing principally in a
diversified portfolio of debt securities.
The Conestoga Intermediate Income (formerly the Limited Maturity) Fund
has a primary investment objective of seeking current income by investing
principally in a diversified portfolio of debt securities with remaining or
expected maturities of ten years or less, and a secondary objective of seeking
capital growth.
The Conestoga Pennsylvania Tax-Free Bond Fund's investment objective is
to seek a high level of current income consistent with the preservation of
capital, which income is exempt from federal individual
<PAGE>
income tax and, to the extent possible, from Pennsylvania state and local
personal income tax, and is not a tax preference item under the federal
alternative minimum tax.
The Conestoga Short-Term Income Fund's investment objective is to seek
consistent current income with relative stability of principal by investing
principally in a diversified portfolio of investment grade debt securities.
BALANCED FUND
The Balanced Fund's investment objective is to seek a balance of
capital appreciation and current income consistent with the preservation of
capital.
The Investment Advisor is located in Malvern, Pennsylvania. Marvin &
Palmer Associates, Inc. is the sub-investment adviser to the International
Equity Fund. SEI Financial Management Corporation acts as the Company's
administrator and SEI Financial Services Company acts as the Company's
distributor. Fund shares are not bank deposits or obligations of, or guaranteed
or endorsed by, the Investment Advisor or any of its affiliates, and are not
federally insured by, guaranteed by, obligations of or otherwise supported by
the U.S. Government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other governmental agency. Each of the Cash Management,
Tax-Free and U.S. Treasury Securities Funds seeks to maintain its net asset
value per share at $1.00 for purposes of purchases and redemptions, although
there can be no assurance that it will be able to do so on a continuous basis.
Investment in any Fund involves investment risk, including the possible loss of
principal.
This Prospectus sets forth concisely the information about Retail
Shares of the Funds that a prospective investor ought to know before investing.
Investors should read this Prospectus and retain it for future reference. The
Statement of Additional Information bears the same date as this Prospectus, is
incorporated by reference in its entirety into this Prospectus, and is available
upon request without charge by writing to the Company at its address or by
calling the Company at the telephone number shown above.
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.
The date of this Prospectus is February 21, 1995.
-2-
<PAGE>
PROSPECTUS SUMMARY
SHARES OFFERED:
Units of Beneficial Interest of a separate class (the "Retail Shares")
of each Fund.
OFFERING PRICE AND SALES CHARGE:
The public offering price of Retail Shares of each Fund is equal to its
net asset value per Share which, with respect to the Cash Management, Tax-Free
and U.S. Treasury Securities Funds (the "Money Market Funds"), the Company will
seek to maintain at $1.00 and, with respect to the Equity, Special Equity,
International Equity, Bond, Intermediate Income, Pennsylvania Tax-Free Bond,
Short-Term Income and Balanced Funds (the "Non-Money Market Funds"), includes a
sales charge.
MINIMUM PURCHASE:
$1,000 minimum initial investment with no minimum subsequent
investment.
INVESTMENT OBJECTIVES:
MONEY MARKET FUNDS: The Cash Management Fund and the U.S. Treasury
Securities Fund will each seek current income with liquidity and stability of
principal. The Tax-Free Fund will seek current income which is exempt from
regular federal income tax with liquidity and stability of principal.
EQUITY FUNDS: The Equity Fund and the Special Equity Fund
will each seek capital growth by investing primarily in a
diversified portfolio of common stocks. The International Equity
Fund will seek long-term growth of capital.
BOND FUNDS: The Bond Fund will seek to maximize long-term total return
by investing principally in a diversified portfolio of debt securities. The
Intermediate Income Fund has a primary investment objective of seeking current
income by investing principally in a diversified portfolio of debt securities
with expected or remaining maturities of ten years or less, and a secondary
objective of seeking capital growth. The investment objective of the
Pennsylvania Tax-Free Bond Fund is to seek a high level of current income
consistent with the preservation of capital, which income is exempt from federal
individual income tax and, to the extent possible, from Pennsylvania state and
local personal income tax, and is not a tax preference item under the federal
alternative minimum tax. Shares of the Pennsylvania Tax-Free Bond Fund will be
exempt from Pennsylvania personal property taxes. The Short-Term Income Fund's
investment
-3-
<PAGE>
objective is to seek consistent current income with relative stability of
principal by investing principally in a diversified portfolio of investment
grade debt securities.
BALANCED FUND: The Balanced Fund's investment objective is
to seek a balance of capital appreciation and current income
consistent with the preservation of capital.
INVESTMENT POLICIES:
MONEY MARKET FUNDS: The Cash Management Fund invests principally in
short-term high-quality money market instruments. The Tax-Free Fund invests
principally in short-term high-quality municipal obligations the interest on
which is exempt from regular federal income tax and not treated as a specific
tax preference item under the federal alternative minimum tax. The U.S. Treasury
Securities Fund invests exclusively in short-term obligations issued or
guaranteed by the U.S. Treasury and in repurchase agreements secured by U.S.
Treasury instruments.
EQUITY FUNDS: The Equity Fund will normally invest at least 80% of its
total assets in common stocks. The Special Equity Fund will normally invest in
common stocks of domestic companies that the Investment Advisor expects will
experience growth in earnings and price. The International Equity Fund will
normally invest at least 65% of its total assets in an internationally
diversified portfolio of equity securities which trade in markets other than the
United States.
BOND FUNDS: The Bond Fund will normally invest at least 80% of its
total assets in debt securities of all types. The Intermediate Income Fund will
normally invest at least 80% of its total assets in debt securities of all types
with maximum expected or remaining maturities of ten years or less. The
Pennsylvania Tax-Free Bond Fund will invest substantially all of its assets (but
in no event less than 80%) in investment grade municipal securities the interest
on which is exempt from federal individual income tax and from Pennsylvania
state and local personal income tax, and is not treated as a specific tax
preference item under the federal alternative minimum tax. The Short-Term Income
Fund will invest principally in investment grade debt securities of all types
with maximum expected or remaining maturities of three years or less. The Fund
will normally have an average dollar-weighted portfolio maturity of
approximately one year.
BALANCED FUND: The Balanced Fund will normally invest at all times at
least 30% of the value of its total assets in fixed-income securities and no
more than 70% in equity securities.
-4-
<PAGE>
INVESTMENT RISKS AND CHARACTERISTICS:
Funds investing in debt and equity securities are subject to market
risk. Market risk is the possibility that prices of securities held by a Fund
will decline over a short or even extended period. Stock markets tend to be
cyclical, with periods of generally declining prices. The cycles will affect the
value of a fund investing in equity securities. Funds investing in equity
securities of foreign companies also will be subject to the risks of
fluctuations in the values of foreign currencies relative to the U.S. dollar and
other risks, including future political and economic developments and the
possible imposition of exchange controls or other foreign governmental laws or
restrictions. Funds investing in debt securities are subject to market risk
caused by fluctuations in interest rates and are subject to the risk that
particular issuers will be unable to meet their obligations. See "Investment
Objectives and Policies" and "Other Investment Policies" in the Prospectus and
"Investments, Policies and Restrictions" in the Statement of Additional
Information.
DIVIDENDS AND CAPITAL GAINS:
Dividends from net income are generally declared and paid annually with
respect to the International Equity Fund, quarterly with respect to the Equity
Fund, the Special Equity Fund and the Balanced Fund and monthly with respect to
the Bond Funds. Dividends from net income are declared daily and paid monthly
with respect to the Money Market Funds. Net realized capital gains are
distributed at least annually.
INVESTMENT ADVISOR:
Meridian Investment Company. Marvin & Palmer Associates, Inc.
(the "Sub-advisor") serves as the sub-advisor for the International Equity Fund.
DISTRIBUTOR:
SEI Financial Services Company.
-5-
<PAGE>
EXPENSE SUMMARY
The purpose of the following table is to assist a potential purchaser
of Retail Shares of a Fund in understanding the various costs and expenses that
an investor in such Shares of the Fund will bear directly or indirectly.
<TABLE>
<CAPTION>
Conestoga Conestoga Conestoga
Money Equity Conestoga Balanced
Market Funds Funds Bond Funds Fund
------------ -------- ---------- --------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..................... 0% 2.0% 2.0% 2.0%
Maximum Sales Load Imposed on Reinvested Dividends......... 0% 0% 0% 0%
Deferred Sales Load........................................ 0% 0% 0% 0%
Redemption Fees............................................ 0% 0% 0% 0%
Exchange Fee............................................... 0% 0% 0% 0%
</TABLE>
<TABLE>
<CAPTION>
U.S. Treasury International
Annual Fund Operating Expenses Cash Management Tax-Free Securities Equity Equity
(as a percentage of average net assets Fund Fund Fund Fund Fund
-------------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Advisory Fees After Fee Waivers 1....... .34% .25% .32% .74% 1.00%
12b-1 Fees After Fee Waivers 2.......... .25% .08% .25% .40% .40%
Other Expenses After Reimbursements 3... .25% .32% .25% .27% .92%
---- ---- ---- ---- ----
Total Fund Operating Expenses........... .84% .65% .82% 1.41% 2.32%
==== ==== ==== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania
Special Intermediate Tax-Free Short-Term
Equity Bond Income Bond Income Balanced
Fund Fund Fund Fund Fund Fund
------ ------ ------------ -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees After Fee Waivers 1...... .50% .40% .40% .25% .50% .75%
12b-1 Fees After Fee Waivers 2......... .40% .32% .39% .00% .40% .40%
Other Expenses After Reimbursements 3 . .39% .28% .25% .59% .37% .48%
----- ---- ---- ---- ---- ----
Total Fund Operating Expenses ......... 1.29% 1.00% 1.04% .84% 1.27% 1.63%
===== ===== ===== ==== ===== =====
</TABLE>
- ------------------------
1 Advisory Fees are payable at the maximum annual rates of .40%, .40%, .40%,
.74%, 1.00%, 1.50%, .74%, .74%, .74%, .74% and .75% of the average daily net
assets of the Cash Management Fund, the Tax-Free Fund, the U.S. Treasury
Securities Fund, the Equity Fund, the International Equity Fund, the Special
Equity Fund, the Bond Fund, the Intermediate Income Fund, the Pennsylvania
Tax-Free Bond Fund, the Short-Term Income Fund and the Balanced Fund,
respectively.
2 12b-1 fees are payable at the annual rate of .40%. Long-term
shareholders may pay more than the economic equivalent of the maximum front-end
sales charges permitted by the rules of National Association of Securities
Dealers, Inc. ("NASD") for investment companies without 12b-1 fees. Does not
include other fees which certain financial or other institutions may charge
certain customers in connection with their accounts. (See "MANAGEMENT OF THE
FUND -- Distribution and Services Plan.").
3 "Other Expenses After Reimbursements " include administration fees. Until
April 30, 1995, administration fees will equal .20% of each Fund's average net
assets. Effective May 1, 1995, an Administration Agreement with a new
Administrator provides that administration fees will not exceed .17% of each
Fund's average net assets. (See "MANAGEMENT OF THE FUND -- Investment Advisor
and Administrator and Distributor.")
-6-
<PAGE>
Example
You would pay the following expenses on a $1,000 investment, assuming:
(1) a 5% annual return;
(2) redemption at the end of each time period; and
(3) the imposition of a maximum sales load at the beginning of
the period.
<TABLE>
<CAPTION>
Cash U.S. Treasury International Special
Management Tax-Free Securities Equity Equity Equity Bond
Fund Fund Fund Fund Fund Fund Fund
------ ------ -------- ------ -------- ------ ------
<C> <C> <C> <C> <C> <C> <C> <C>
1 Year............... $9 $7 $8 $34 $43 $36 $30
3 Years............. 27 21 26 64 91 60 51
5 Years.............. 47 36 46 96 89 74
10 Years............. 104 81 101 186 173 140
</TABLE>
<TABLE>
<CAPTION>
Intermediate Pennsylvania Short-Term
Income Tax-Free Income Balanced
Fund Bond Fund Fund Fund
------ ---------- ------ ------
<C> <C> <C> <C> <C>
1 Year............... $30 $28 $33 $36
3 Years............. 52 46 59 70
5 Years.............. 76 66
10 Years............. 145 122
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. THE INTERNATIONAL EQUITY, SHORT-TERM INCOME AND BALANCED FUNDS
ARE NEW. THE ABOVE FIGURES WITH RESPECT TO EACH FUND ARE ESTIMATES FOR THE
CURRENT YEAR ONLY. ACTUAL EXPENSES FOR EACH FUND MAY BE GREATER OR LESSER THAN
THOSE SHOWN.
The Expense Summary has been restated with respect to the Cash Management,
Tax-Free, U.S. Treasury Securities, Equity, Bond, Intermediate Income and
Pennsylvania Tax-Free Bond Funds to reflect various projected fee and expense
rates for the fiscal year ending October 31, 1995. The Special Equity Fund did
not commence investment operations until March 15, 1994. The International
Equity, Short-Term Income and Balanced Funds are expected to commence operations
shortly after the effective date of this Prospectus. Without fee waivers and
expense reimbursements by the Investment Advisor, Total Fund Operating Expenses
for the Cash Management Fund, the Tax-Free Fund, the U.S. Treasury Securities
Fund, the Equity Fund, the International Equity Fund, the Special Equity Fund,
the Bond Fund, the Intermediate Income Fund, the Pennsylvania Tax-Free Bond
Fund, the Short-Term Income Fund and the Balanced Fund would be 1.10%, 1.17%,
1.10%, 1.43%, 2.37%, 2.29%, 1.44%, 1.44%, 2.46%, 1.56%, and 1.68%, respectively,
for the fiscal year or period ending October 31, 1995. Certain of the fee
waivers and expense reimbursements reflected in the Expense Summary are based
upon informal commitments of the Investment Advisor in connection with the
implementation of the Company's multiple class structure to waive or reimburse
certain expenses until February 1996; there can be no assurance that such
commitments will continue thereafter. There may be a charge of $7.00 for each
redemption paid by wire. See "MANAGEMENT OF THE FUND-Expenses" for a more
complete discussion of the shareholder transaction expenses and annual operating
expenses of the Funds.
The information in the foregoing fee tables and examples relates only to the
Retail Shares of each Fund. Each of the Company's eleven Funds also offer
another class of Shares known as Institutional Shares. The Institutional Shares
and Retail Shares of each Fund are subject to the same expenses except that
Institutional Shares are not subject to a Rule 12b-1 fee and the Institutional
Shares of the Equity, International Equity, Special Equity, Bond, Intermediate
Income, Pennsylvania Tax-Free Bond, Short-Term Income and Balanced Funds are not
sold with a sales charge.
-7-
<PAGE>
FINANCIAL HIGHLIGHTS
The "Financial Highlights" in the following tables supplements the
Company's financial statements contained in the Statement of Additional
Information and sets forth certain historic investment results of Shares of each
Fund that had commenced investment operations prior to the date of this
Prospectus. The Company's financial statements and the data reported in
"Financial Highlights" for the years ended October 31, 1994, 1993, 1992 and 1991
and period ended October 31, 1990 with respect to the Cash Management, Tax-Free,
U.S. Treasury Securities, Equity, Bond and Intermediate Income Funds, the years
ended October 31, 1994 and 1993 and period ended October 31, 1992 with respect
to the Pennsylvania Tax-Free Bond Fund, and the period ended October 31, 1994
with respect to the Special Equity Fund were audited by the Company's
independent auditors, whose report thereon is incorporated by reference in the
Statement of Additional Information. Further information about the performance
of the Company is contained in the Company's annual report which may be obtained
without charge.
The information in the following tables is not necessarily indicative
of future results with respect to the Retail Shares.
See the "EXPENSE SUMMARY."
-8-
<PAGE>
CASH MANAGEMENT FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
November 27, 1989
For the Year Ended October 31, to October 31,
-----------------------------------------------
1994 1993 1992 1991 1990(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
Investment Activities
Net Investment Income 0.034 0.028 0.037 0.060 0.073
----- ----- ----- ----- -----
Distributions
Net Investment Income (0.034) (0.028) (0.037) (0.060) (0.073)
------- ------- ------- ------- -------
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
- ---------------------------------------
Total Return 3.41% 2.80% 3.79% 6.22% 7.59%
Ratios/Supplementary Data
Net Assets at end of period (000) $140,545 $215,223 $113,096 $151,166 $39,061
Ratio of Expenses to
Average Net Assets 0.71% 0.65% 0.48% 0.49% 0.42%(2)
Ratio of Net Investment Income to
Average Net Assets 3.32% 2.75% 3.76% 5.84% 7.95%(2)
Ratio of Expenses to Average
Net Assets* 0.99% 0.87% 0.70% 0.79% 0.75%(2)
Ratio of Net Investment Income to Average
Net Assets* 3.05% 2.53% 3.55% 5.54% 7.62%(2)
</TABLE>
- ----------------------------
* During the periods the investment advisory, administration and/or
shareholder servicing plan fees were voluntarily reduced. If such
voluntary fee reductions had not occurred the ratios would have been as
indicated.
(1) Period from commencement of operations.
(2) Annualized.
-9-
<PAGE>
TAX-FREE FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
For the Year Ended October 31, November 27, 1989
---------------------------------------------------- to October 31,
1994 1993 1992 1991 1990(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
Investment Activities
Net Investment Income 0.022 0.020 0.028 0.044 0.052
----- ----- ----- ----- -----
Distributions
Net Investment Income (0.022) (0.020) (0.028) (0.044) (0.052)
----- ----- ----- ----- -----
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
- ---------------------------------------
Total Return 2.21% 1.97% 2.88% 4.44% 5.31%
Ratios/Supplementary Data
Net Assets at end of period (000) $54,904 $46,239 $46,295 $45,647 $24,167
Ratio of Expenses to
Average Net Assets 0.37% 0.45% 0.33% 0.43% 0.31%(2)
Ratio of Net Investment Income to
Average Net Assets 2.22% 1.95% 2.83% 4.37% 5.57%(2)
Ratio of Expenses to Average
Net Assets* 1.05% 0.96% 0.73% 0.87% 0.91%(2)
Ratio of Net Investment Income to Average
Net Assets* 1.53% 1.44% 2.45% 3.93% 4.97%(2)
</TABLE>
- ----------------------------
* During the periods the investment advisory, administration and/or
shareholder servicing plan fees were voluntarily reduced. If such
voluntary fee reductions had not occurred the ratios would have been as
indicated.
(1) Period from commencement of operations.
(2) Annualized.
-10-
<PAGE>
U.S. TREASURY SECURITIES FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
For the Year Ended October 31, November 27, 1989
---------------------------------------------------- to October 31,
1994 1993 1992 1991 1990(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
Investment Activities
Net Investment Income 0.030 0.025 0.036 0.058 0.073
----- ----- ----- ----- -----
Distributions
Net Investment Income (0.030) (0.025) (0.036) (0.058) (0.073)
----- ----- ----- ----- -----
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
- ---------------------------------------
Total Return 3.07% 2.57% 3.64% 5.96% 7.44%
Ratios/Supplementary Data
Net Assets at end of period (000) $325,379 $257,934 $340,904 $341,931 $106,771
Ratio of Expenses to
Average Net Assets 0.72% 0.66% 0.46% 0.51% 0.38%(2)
Ratio of Net Investment Income to
Average Net Assets 3.03% 2.55% 3.65% 5.61% 7.73%(2)
Ratio of Expenses to Average
Net Assets* 0.97% 0.87% 0.69% 0.79% 0.79%(2)
Ratio of Net Investment Income to Average
Net Assets* 2.78% 2.33% 3.44% 5.32% 7.32%(2)
</TABLE>
- ----------------------------
* During the periods the investment advisory, administration and/or
shareholder servicing plan fees were voluntarily reduced. If such
voluntary fee reductions had not occurred the ratios would have been as
indicated.
(1) Period from commencement of operations.
(2) Annualized.
-11-
<PAGE>
EQUITY FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
For the Year Ended October 31, February 28, 1990
-------------------------------------------------- to October 31,
1994 1993 1992 1991 1990(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $15.39 $13.93 $13.08 $8.95 $10.00
------ ------ ------ ----- ------
Investment Activities
Net Investment Income 0.11 0.14 0.19 0.26 0.14
Net Realized and Unrealized Gains
(Losses) on Investments 0.22 1.89 1.02 4.13 (1.05)
---- ------ ------ ----- ------
Total from Investment Activities 0.33 2.03 1.21 4.39 (0.91)
---- ------ ------ ----- ------
Distributions
Net Investment Income (0.11) (0.14) (0.19) (0.26) (0.14)
Net Realized Gains (0.61) (0.43) (0.17)
------ ------ ------
Total Distributions (0.72) (0.57) (0.36) (0.26) (0.14)
------ ------ ------ ------ ------
Net Asset Value, End of Period $15.00 $15.39 $13.93 $13.08 $8.95
====== ====== ====== ====== =====
- ---------------------------------------
Total Return 2.21% 14.90% 9.27% 49.37% (9.22)%
Ratios/Supplementary Data
Net Assets, at end of period (000) $50,128 $45,677 $28,103 $12,830 $5,982
Ratio of Expenses to
Average Net Assets 1.49% 1.20% 0.92% 0.54% 0.65%(2)
Ratio of Net Investment Income to
Average Net Assets 0.75% 0.94% 1.47% 2.30% 2.29%(2)
Ratio of Expenses to Average
Net Assets* 1.51% 1.41% 1.23% 1.48% 1.59%(2)
Ratio of Net Investment Income to Average
Net Assets* 0.73% 0.73% 1.17% 1.36% 1.35%(2)
Portfolio Turnover Rate 35.41% 23.68% 38.90% 68.15% 42.78%
</TABLE>
- ----------------------------
* During the periods the investment advisory, administration and/or
shareholder servicing plan fees were voluntarily reduced. If such
voluntary fee reductions had not occurred the ratios would have been as
indicated.
(1) Period from commencement of operations.
(2) Annualized.
-12-
<PAGE>
SPECIAL EQUITY FUND
(For a Fund Share Outstanding Throughout the Period presented.)
<TABLE>
<CAPTION>
March 15, 1994 to
October 31, 1994(1)
-------------------
<S> <C>
Net Asset Value, Beginning of Period $10.00
------
Investment Activities
Net Investment Income 0.06
Net Realized and Unrealized Gains
(Losses) on Investments (0.63)
----
Total from Investment Activities (0.57)
Distributions
Net Investment Income (0.06)
----
Net Realized Gains
Total Distributions (0.06)
Net Asset Value, End of Period $9.37
=====
- ---------------------------------------
Total Return (5.72)%
Ratios/Supplementary Data
Net Assets at end of period (000) $10,069
Ratio of Expenses to
Average Net Assets 0.15%(2)
Ratio of Net Investment Income to
Average Net Assets 1.06%(2)
Ratio of Expenses to Average
Net Assets* 2.10%(2)
Ratio of Net Investment Income to Average
Net Assets* (0.89)%(2)
Portfolio Turnover Rate 38.70%
</TABLE>
- ----------------------------
* During the periods the investment advisory, administration, and/or
shareholder servicing plan fees were voluntarily reduced. If such
voluntary fee reductions had not occurred the ratios would have been as
indicated.
(1) Period from commencement of operations.
(2) Annualized.
-13-
<PAGE>
BOND FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
For the Year Ended October 31, February 28, 1990
---------------------------------------------------- to October 31,
1994 1993 1992 1991 1990(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $11.18 $10.89 $10.65 $9.96 $10.00
------ ------ ------ ----- ------
Investment Activities
Net Investment Income 0.53 0.56 0.70 0.78 0.50
Net Realized and Unrealized
Gains (Losses) on Investments (1.04) 0.54 0.32 0.69 (0.04)
------ ------ ------ ---- ----
Total from Investment Activities (0.51) 1.10 1.02 1.47 0.46
------ ------ ------ ----- ------
Distributions
Net Investment Income (0.52) (0.56) (0.68) (0.78) (0.50)
Net Realized Gains (0.34) (0.25) (0.10)
------ ------ ------
Total Distributions (0.86) (0.81) (0.78) (0.78) (0.50)
------ ------ ------ ------ ------
Net Asset Value, End of Period $9.81 $11.18 $10.89 $10.65 $9.96
===== ====== ====== ====== =====
- ---------------------------------------
Total Return (4.75)% 10.63% 9.82% 15.16% 4.64%
Ratios/Supplementary Data
Net Assets at end of period (000) $23,377 $27,346 $15,180 $7,255 $4,593
Ratio of Expenses to
Average Net Assets 1.01% 0.88% 0.46% 0.47% 0.68%(2)
Ratio of Net Investment Income to
Average Net Assets 5.07% 5.16% 6.78% 7.71% 7.75%(2)
Ratio of Expenses to Average
Net Assets* 1.60% 1.49% 1.24% 1.41% 1.62%(2)
Ratio of Net Investment Income to Average
Net Assets* 4.48% 4.55% 6.01% 6.78% 6.81%(2)
Portfolio Turnover Rate 231.88% 158.51% 99.03% 47.30% 22.57%
- ----------------------------
</TABLE>
* During the periods the investment advisory, administration and/or
shareholder servicing plan fees were voluntarily reduced. If such
voluntary fee reductions had not occurred the ratios would have been as
indicated.
(1) Period from commencement of operations.
(2) Annualized.
-14-
<PAGE>
INTERMEDIATE INCOME FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
For the Year Ended October 31, February 28, 1990
--------------------------------------------------- to October 31,
1994 1993 1992 1991 1990(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $11.01 $10.87 $10.61 $10.12 $10.00
------ ------ ------ ------ ------
Investment Activities
Net Investment Income 0.50 0.53 0.65 0.77 0.48
Net Realized and Unrealized
Gains (Losses) on Investments (0.61) 0.21 0.29 0.50 0.12
------ ---- ---- ---- ----
Total from Investment Activities (0.11) 0.74 0.94 1.27 0.60
------ ---- ---- ---- ----
Distributions
Net Investment Income (0.49) (0.53) (0.64) (0.77) (0.48)
Net Realized Gains (0.14) (0.07) (0.04) (0.01)
------ ------ ------ ------
Total Distributions (0.63) (0.60) (0.68) (0.78) (0.48)
------ ------ ------ ------ ------
Net Asset Value, End of Period $10.27 $11.01 $10.87 $10.61 $10.12
====== ====== ====== ====== ======
- ---------------------------------------
Total Return (0.97%) 6.99% 9.11% 12.94% 6.10%
Ratios/Supplementary Data
Net Assets at end of period (000) $21,247 $24,047 $16,718 $7,116 $3,986
Ratio of Expenses to
Average Net Assets 0.90% 0.78% 0.47% 0.40% 0.75%(2)
Ratio of Net Investment Income to
Average Net Assets 4.66% 4.89% 6.31% 7.69% 7.42%(2)
Ratio of Expenses to Average
Net Assets* 1.64% 1.50% 1.24% 1.34% 1.69%(2)
Ratio of Net Investment Income to Average
Net Assets* 3.92% 4.17% 5.57% 6.76% 6.48%(2)
Portfolio Turnover Rate 170.23% 90.17% 53.28% 32.94% 39.36%
</TABLE>
- ----------------------------
* During the periods the investment advisory, administration and/or
shareholder servicing plan fees were voluntarily reduced. If such
voluntary fee reductions had not occurred the ratios would have been as
indicated.
(1) Period from commencement of operations.
(2) Annualized.
-15-
<PAGE>
PENNSYLVANIA TAX-FREE BOND FUND
(For a Fund Share Outstanding Throughout the Year and Period presented.)
<TABLE>
<CAPTION>
September 21,
Year Ended October 31, 1992 to
------------------------- October 31,
1994 1993 1992(1)
---- ------ -------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $10.48 $9.77 $10.00
------ ----- ------
Investment Activities
Net Investment Income 0.46 0.45
Net Realized and Unrealized
Gains (Losses) on Investments (0.85) 0.70 (0.23)
------ ------ ------
Total from Investment Activities (0.39) 1.15 (0.23)
------ ------ ------
Distributions
Net Investment Income (0.46) (0.44)
Net Realized Gains (0.07)
------
Total Distributions (0.53) (0.44)
------ ------
Net Asset Value, End of Period $9.56 $10.48 $9.77
===== ====== =====
- ---------------------------------------
Total Return (3.90)% 11.94% (2.28)%
Ratios/Supplementary Data
Net Assets at end of period (000) $7,008 $5,883 $3,405
Ratio of Expenses to
Average Net Assets 0.38% 0.51% 2.67%(2)
Ratio of Net Investment Income to
Average Net Assets 4.61% 4.35% 0.52%(2)
Ratio of Expenses to Average
Net Assets* 1.57% 1.63% 3.41%(2)
Ratio of Net Investment Income to Average
Net Assets* 3.42% 3.23% (0.22)%(2)
Portfolio Turnover Rate 37.23% 50.19% 31.37%
- ----------------------------
</TABLE>
* During the periods the investment advisory, administration and/or
shareholder servicing plan fees were voluntarily reduced. If such
voluntary fee reductions had not occurred the ratios would have been as
indicated.
(1) Period from commencement of operations.
(2) Annualized.
-16-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
MONEY MARKET FUNDS
The Conestoga Cash Management Fund
The investment objective of the Cash Management Fund is to seek current
income with liquidity and stability of principal. The Cash Management Fund will
invest only in those obligations which are considered by the Investment Advisor
to present minimal credit risk and which at the time of purchase are rated of a
high quality, i.e., rated in the highest rating category by a nationally
recognized statistical rating organization ("Rating Organization") in the case
of commercial paper; or rated in one of the two highest rating categories by a
Rating Organization in the case of bonds; or which are unrated at the time of
purchase but are determined to be of comparable quality by the Investment
Advisor pursuant to guidelines approved by the Company's Board of Trustees. All
securities or instruments in which the Cash Management Fund invests have
remaining maturities of 397 days or less, although instruments subject to
repurchase agreements may bear longer maturities. The average dollar-weighted
maturity of the securities in the Cash Management Fund will not exceed 90 days.
Obligations purchased by the Cash Management Fund are limited to U.S.
dollar-denominated obligations which the Board of Trustees has determined
present minimal credit risks.
The Conestoga U.S. Treasury Securities Fund
The U.S. Treasury Securities Fund invests exclusively in short-term
obligations issued or guaranteed by the U.S. Treasury and in repurchase
agreements secured by U.S. Treasury instruments. All securities or instruments
in which the U.S. Treasury Securities Fund invests have remaining maturities of
397 days or less, although instruments subject to repurchase agreements may bear
longer maturities. The average dollar-weighted maturity of the securities in the
U.S. Treasury Securities Fund will not exceed 90 days. Obligations purchased by
the U.S. Treasury Securities Fund are limited to U.S. dollar-denominated
obligations which the Board of Trustees has determined present minimal credit
risks.
To the extent permitted by state and local law, in addition to being
suitable for individuals, institutions, custody and certain trust accounts, the
U.S. Treasury Securities Fund offers an economical and convenient vehicle for
the investment of available cash by state and local governments, their political
subdivisions, agencies, instrumentalities and public authorities, as well as by
trustees and others, of proceeds of tax-exempt bond issues, whether or not
subject to arbitrage limitations or rebate requirements under the Internal
Revenue Code of 1986 as amended. Potential investors should consult their legal
advisors to
-17-
<PAGE>
determine whether or not their state and local statutes, regulations and
applicable governing instruments (such as bond indentures and resolutions)
permit such investors to purchase Shares in the U.S. Treasury Securities Fund.
The U.S. Treasury Securities Fund offers the advantages of liquidity,
diversification and combined investing power, thereby avoiding the generally
greater expense of executing a large number of small transactions. Moreover,
investment in the U.S. Treasury Securities Fund relieves the investor of many
management and administrative burdens associated with the direct purchase and
sale of U.S. Treasury securities. These include selection of investments;
surveying the market for the best terms at which to buy and sell; scheduling and
monitoring maturities and reinvestments; receipt, delivery and safekeeping of
securities; and recordkeeping.
The Conestoga Tax-Free Fund
The investment objective of the Tax-Free Fund is to seek current income
which is exempt from regular federal income tax with liquidity and stability of
principal. The assets of the Tax-Free Fund will be primarily invested in
high-quality bonds and notes issued by, or on behalf of, states (including the
District of Columbia), territories, and possessions of the United States and
their respective authorities, agencies, instrumentalities, and political
subdivisions, the interest on which is exempt from regular federal income tax
and is not treated as a specific tax preference item under the federal
alternative minimum tax ("Municipal Obligations"), and which have remaining
maturities of 397 days or less. The average dollar-weighted maturity of the
securities in the Tax-Free Fund will not exceed 90 days. As a matter of
fundamental policy, under normal market conditions, at least 80% of the Tax-Free
Fund's total assets will be invested in Municipal Obligations.
The Tax-Free Fund may invest in private activity bonds (e.g., bonds
issued by industrial development authorities) that are issued by or on behalf of
public authorities to finance various privately-operated facilities. Private
activity bonds are included in the term "Municipal Obligations" only if the
interest paid thereon is exempt from regular federal income tax and is not
treated as a specific tax preference item under the federal alternative minimum
tax for either individuals or corporations. See "TAXES."
Under normal market conditions, the Tax-Free Fund may invest up to 20%
of its total assets in obligations, the interest on which is either subject to
regular federal income taxation or is treated as a specific tax preference item
under the federal alternative minimum tax ("Taxable Obligations"). If deemed
appropriate for temporary defensive purposes, the Tax-Free Fund may increase its
holdings in Taxable Obligations to over 20% of
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its total assets and may also hold uninvested cash reserves pending investment.
When the Fund is so invested, its investment objective may not be achieved.
Uninvested cash reserves will not earn income. Taxable Obligations may include
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities (some of which may be subject to repurchase agreements),
certificates of deposit and banker's acceptances of selected banks, private
activity bonds and commercial paper meeting the Tax-Free Fund's quality
standards (as described below) for tax-exempt commercial paper. These
obligations are described further in the Statement of Additional Information.
The Tax-Free Fund will invest only in those Municipal Obligations which
are considered by the Investment Advisor to present minimal credit risks and
which at the time of purchase are rated high quality, i.e., rated in one of the
two highest rating categories assigned by a Rating Organization in the case of
bonds; rated in the highest rating category assigned by a Rating Organization in
the case of notes, variable rate demand notes and tax-exempt commercial paper;
or which are unrated at the time of purchase but are determined to be of
comparable quality by the Investment Advisor pursuant to guidelines approved by
the Company's Board of Trustees. Municipal Obligations may be purchased in
reliance upon a rating only where the Rating Organization is not affiliated with
the issuer or guarantor of the Municipal Obligations. If a security is subject
to a demand feature, the security must receive both a short-term and a long-term
high quality rating or must be determined to be of comparable quality by the
Investment Advisor; except that where the demand feature is considered to be
"unconditional" under the Investment Company Act of 1940, the security may be
acquired solely in reliance on a short-term high quality rating or a
determination of comparable quality by the Investment Advisor. The applicable
Municipal Obligations ratings are described in the Appendix to the Statement of
Additional Information.
The Tax-Free Fund is not intended to constitute a balanced investment
program and is not designed for investors seeking capital appreciation or
maximum tax-exempt income irrespective of fluctuations in principal. Investment
in the Tax-Free Fund would not be appropriate for tax-deferred plans, such as
IRA or Keogh plans. Investors should consult a tax or other financial advisor to
determine whether investment in the Tax-Free Fund would be appropriate.
EQUITY FUNDS
The Conestoga Equity Fund
The investment objective of the Equity Fund is to seek
capital growth by investing principally in a diversified
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portfolio of common stocks of companies with large, medium or small
capitalizations. The Equity Fund will normally invest at least 80% of the value
of its total assets in common stocks. The Fund may also invest up to 20% of the
value of its total assets in securities convertible into common stocks,
preferred stocks, corporate bonds, notes, warrants, and short-term obligations
(with maturities of 18 months or less) such as commercial paper (including
variable amount master demand notes), banker's acceptances, certificates of
deposit, repurchase agreements, obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, and demand and time deposits of
domestic and foreign banks and savings and loan associations. During temporary
defensive periods, the Fund has the ability to hold up to 100% of its total
assets in short-term obligations including domestic bank certificates of
deposit, banker's acceptances and repurchase agreements secured by U.S.
Government securities.
Stocks held by the Equity Fund may be listed on a national securities
exchange or may be unlisted securities with an established over-the-counter
market. The Investment Advisor has developed a quantitative process which
evaluates stocks in a number of ways, including the ratios of market price to
book value, recent changes in market price, return on equity, price to earnings
ratios, dividend paying abilities, and liquidity. The Investment Advisor
believes that its quantitative approach reduces subjectivity in the stock
selection process.
Equity securities such as those in which the Equity Fund may invest are
more volatile and carry more risk than some other forms of investment. Depending
upon the performance of the Fund's investments, the net asset value per Share of
the Fund may decrease instead of increase.
The Conestoga International Equity Fund
The investment objective of the International Equity Fund is to seek
long-term growth of capital. Under normal market conditions, the Fund will
invest at least 65% of its total assets in an internationally diversified
portfolio of equity securities which trade in markets other than the United
States. Generally, these securities will be issued by companies (i) domiciled in
countries other than the United States, or (ii) that derive at least 50% of
either their revenues or their pre-tax income from activities outside of the
United States. Equity securities include for this purpose common and preferred
stock, securities (bonds and preferred stock) convertible into common stock,
warrants and securities representing underlying international securities such as
American Depositary Receipts, or ADRs, and European Depositary Receipts, or
EDRs. The Fund may also hold depositary or custodial receipts representing
beneficial interests in any of the foregoing securities.
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The Fund may invest in securities of issuers with large, medium or
small capitalizations in any country, including, but not limited to, Argentina,
Australia, Austria, Belgium, Canada, Chile, Colombia, Denmark, Finland, France,
Germany, Hong Kong, India, Ireland, Israel, Italy, Japan, South Korea, Malaysia,
Mexico, the Netherlands, New Zealand, Norway, Peru, the Philippines, Singapore,
Spain, Sweden, Switzerland, Taiwan, Thailand, the United Kingdom and Venezuela.
Normally, the Fund will invest at least 65% of its total assets in securities
traded in at least three foreign countries, including the countries listed
above. It is possible, although not currently anticipated, that up to 35% of the
Fund's assets could be invested in U.S. companies.
Initial emphasis in the selection of investments is expected to be
placed on selection of countries in which to invest, followed by selection of
industries or sectors within or across countries and by selection of individual
stocks corresponding to the industries or sectors selected. Investments are
expected to be made primarily in developed markets and larger capitalization
companies. However, the Fund also may invest in emerging markets where smaller
capitalization companies are the norm.
Under normal market conditions, it is expected that the Fund will be
fully invested in equity securities and related hedging instruments (except for
short-term investments of cash for liquidity purposes and pending investment).
However, during temporary defensive periods, the Fund may invest up to 100% of
its total assets in short-term obligations (with maturities of 12 months or
less) consisting of commercial paper (including variable amount master demand
notes), bankers' acceptances, certificates of deposit, repurchase and reverse
repurchase agreements, and demand and time deposits of domestic or foreign banks
and savings and loan associations, and in money market mutual funds.
The Conestoga Special Equity Fund
The investment objective of the Special Equity Fund is to seek capital
growth by investing principally in a diversified portfolio of common stocks. The
Special Equity Fund will normally invest in common stocks of domestic companies
that the Investment Advisor expects will experience growth in earnings and
price. The Fund may invest up to 35% of its total assets in foreign securities.
The Fund may also purchase securities convertible into common stocks, preferred
stocks, notes, warrants, and, for daily case management purposes, short-term
obligations (with maturities of 18 months or less) such as commercial paper
(including variable amount master demand notes), banker's acceptances,
certificates of deposit, repurchase agreements, obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, and demand and
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time deposits of domestic and foreign banks and savings and loan associations.
During temporary defensive periods, the Fund has the ability to hold up to 100%
of its total assets in short-term obligations, including domestic bank
certificates of deposit, banker's acceptances and repurchase agreements secured
by U.S. Government securities. The Investment Advisor's quantitative process
described above under "The Conestoga Equity Fund" will be utilized for the
Special Equity Fund.
Many of the companies in which the Special Equity Fund invests will be
small and medium capitalized companies. Small capitalized companies are those
organizations with "stock market capitalizations" between $100 million and $1
billion and medium capitalized companies are those organizations with stock
market capitalizations between $1 billion and $5 billion. "Stock market
capitalizations" means the total number of common shares outstanding multiplied
by the market price per share.
The Special Equity Fund will normally purchase the securities of small
and medium capitalized companies across a wide range of industry sectors. These
securities may be traded over-the-counter or listed on an exchange and may or
may not pay dividends. Small and medium capitalized companies may be more
vulnerable than larger, more established organizations to adverse business or
economic developments. In particular, small capitalized companies may have
limited product lines, markets and financial resources and may be dependent upon
a relatively small management group. Accordingly, equity securities such as
those in which the Fund may invest are more volatile and carry more risk than
some other forms of investment. Depending upon the performance of the Fund's
investments, the net asset value per Share of the Fund may decrease instead of
increase.
BOND FUNDS
The Conestoga Bond Fund
The investment objective of the Bond Fund is to seek to maximize
long-term total return by investing principally in a diversified portfolio of
debt securities. The Bond Fund will normally invest at least 80% of the value of
its total assets in debt securities of all types. Debt securities include
domestic and foreign bonds, debentures, notes, equipment lease and trust
certificates, asset-backed and mortgage-backed securities, and obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. In addition, a portion of the Fund may from time to time be
invested in first mortgage loans and participation certificates in pools of
mortgages issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, in preferred stocks, and in debt securities which are
convertible into, or exchangeable for, common stocks, common stock obtained upon
the conversion or exchange of such
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<PAGE>
securities, and short-term money market instruments and money market funds. Some
of the securities in which the Fund invests may have warrants or options
attached.
The Conestoga Intermediate Income Fund
The Intermediate Income Fund has a primary investment objective of
seeking current income by investing principally in a diversified portfolio of
debt securities with expected or remaining maturities of ten years or less, and
a secondary objective of seeking capital growth. The Fund will normally have an
average dollar-weighted portfolio maturity of three to ten years. The Fund will
normally invest at least 80% of the value of its total assets in debt securities
of all types. Debt securities include domestic and foreign bonds, debentures,
notes, equipment lease and trust certificates, asset-backed and mortgage-backed
securities, and obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. In addition, a portion of the Fund may from time
to time be invested in first mortgage loans and participation certificates in
pools of mortgages issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, in preferred stocks, and in debt securities which are
convertible into, or exchangeable for, common stocks, common stock obtained upon
the conversion or exchange of such securities, and short-term money market
instruments and money market funds. Some of the securities in which the Fund
invests may have warrants or options attached.
The Conestoga Pennsylvania Tax-Free Bond Fund
The investment objective of the Pennsylvania Tax-Free Bond Fund is to
seek a high level of current income consistent with the preservation of capital,
which income is exempt from federal individual income tax and from Pennsylvania
state and local personal income tax, and is not a tax preference item under the
federal alternative minimum tax. Shares of the Fund will be exempt from
Pennsylvania personal property taxes. To achieve this objective, the Fund
anticipates that it will invest primarily in Pennsylvania Municipal Obligations
(as defined below). Under normal market conditions, the Fund will invest
substantially all of its total assets (but in no event less than 80%) in
investment grade municipal securities issued by the Commonwealth of Pennsylvania
and its political subdivisions, agencies, instrumentalities and authorities
("Pennsylvania Municipal Obligations"), the interest on which, in the opinion of
bond counsel to the issuer, is exempt from federal individual income tax and
Pennsylvania state and local personal income tax, and is not treated as a
specific tax preference item under the federal alternative minimum tax. During
temporary defensive periods, the Fund may invest without limitation in other
types of securities. These securities may include other types of bonds,
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<PAGE>
notes, variable rate demand notes and commercial paper, provided such securities
are rated within the relevant categories applicable to the Pennsylvania
Municipal Obligations, or if unrated, are of comparable quality as determined by
the Investment Advisor at the time of purchase. Other debt obligations, such as
bank obligations, may be included. Since the Fund's purchases will be limited to
investment grade securities, it will not acquire lower quality securities which
would carry higher yields and also greater risk.
Pennsylvania Municipal Obligations acquired by the Pennsylvania
Tax-Free Bond Fund will be investment grade at the time of purchase -- that is,
obligations rated in one of the four highest rating categories assigned by a
Rating Organization in the case of bonds; rated "Duff 1," "Duff 2," or "Duff 3"
by D&P, "F-1" or "F-2" by Fitch, "SP-1" or "SP-2" by S&P, or "MIG-1" or "MIG-2"
by Moody's in the case of notes; rated "Duff 1," "Duff 2," or "Duff 3" by D&P,
"F-1" or "F-2" by Fitch, or "VMIG-1" or "VMIG-2" by Moody's in the case of
variable rate demand notes; or rated "Duff 1," "Duff 2," or "Duff 3" by D&P,
"F-1" or "F-2" by Fitch, "A-1" or "A-2" by S&P, or "Prime-1" or "Prime-2" by
Moody's in the case of tax-exempt commercial paper. Unrated obligations acquired
by the Fund will be determined by the Investment Advisor to be of comparable
quality at the time of purchase to rated obligations that may be acquired by the
Fund. Obligations rated in the lowest of the top four rating categories ("BBB"
by D&P, Fitch, or S&P, or "Baa" by Moody's) have speculative characteristics,
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade bonds. Subsequent to its purchase by the Fund, an issue
of Pennsylvania Municipal Obligations may cease to be rated, or its rating may
be reduced below the minimum rating required for purchase by the Fund. The
Investment Advisor will consider such an event in determining whether the Fund
should continue to hold the obligation. See "Appendix A" to the Statement of
Additional Information for a description of these rating designations.
The Conestoga Short-Term Income Fund
The investment objective of the Short-Term Income Fund is to seek
consistent current income with relative stability of principal by investing
principally in a diversified portfolio of investment grade debt securities.
Under normal conditions, the Fund's portfolio securities will have maximum
expected or remaining maturities of three years or less. The Fund will normally
have an average dollar-weighted portfolio maturity of approximately one year.
The Fund will invest principally in debt securities, including bonds,
debentures, notes, equipment lease and trust
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<PAGE>
certificates, asset-backed and mortgage-backed securities, and obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. The Fund may invest up to 35% of its total assets in U.S.
dollar denominated international debt securities for which the primary trading
market is in the United States ("Yankee Bonds").
BALANCED FUND
The Conestoga Balanced Fund
The investment objective of the Balanced Fund is to seek a balance of
capital appreciation and current income consistent with the preservation of
capital. The Fund seeks to achieve its objective through a policy of diversified
investment in fixed income and equity securities. Equity securities will be
selected on the basis of the potential for capital appreciation; current income
will not be a significant consideration. Fixed income securities will be
selected in an effort to maximize total return with respect to the fixed income
portion of the Fund's portfolio. An investor should not consider an investment
in the Fund to be a complete investment program.
The Fund's policy is to invest at all times at least 30% of the value
of its total assets in fixed-income securities and no more than 70% in equity
securities. The actual percentage of assets invested in fixed-income and equity
securities will vary from time to time depending of the judgment of the
Investment Advisor as to the general market and economic conditions, trends and
yields, interest rates and fiscal and monetary developments. The Fund will not
purchase a security if as a result less than 30% of its total assets will be in
fixed-income securities (including short-term obligations, long-term debt
securities, and convertible debt securities and preferred stocks to the extent
their value is attributable to their fixed income characteristics).
During temporary, defensive periods, the Fund may invest up to 100% of
its total assets in short-term obligations (with maturities of 12 months or
less) consisting of commercial paper (including variable amount master demand
notes), banker's acceptances, certificates of deposit, repurchase and reverse
repurchase agreements, and demand and time deposits of domestic or foreign banks
and savings and loan associations, and in money market mutual funds.
Stocks held by the Balanced Fund may be listed on a national securities
exchange or may be unlisted securities with an established over-the-counter
market. The Investment Advisor has developed a quantitative process which
evaluates stocks in a number of ways, including the ratios of market price to
book
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value, recent changes in market price, return on equity, price to earnings
ratios, dividend paying abilities, and liquidity. The Investment Advisor
believes that its quantitative approach reduces subjectivity in the stock
selection process.
Fixed income securities include both debt securities and preferred
stocks, which may be convertible into, or exchangeable for, common stocks. Debt
securities include domestic and foreign bonds, Yankee Bonds, debentures, notes,
equipment lease and trust certificates, asset-backed and mortgage-backed
securities, obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, first mortgage loans and participation
certificates in pools of mortgages issued or guaranteed by the U.S. Government
or its agencies or instrumentalities. Some of the securities in which the Fund
invests may have warrants or options attached.
GENERAL
The investment objective of each of the Cash Management Fund, U.S.
Treasury Securities Fund, Tax-Free Fund, Equity Fund, Special Equity Fund, Bond
Fund, Intermediate Income Fund and Pennsylvania Tax-Free Bond Fund is
fundamental and may not be changed without a vote of the holders of a majority
of the outstanding voting securities of the Fund. The investment objective of
each of the International Equity Fund, Short-Term Income Fund and Balanced Fund
may be changed by the Board of Trustees of the Company.
HOW TO PURCHASE AND REDEEM SHARES
Distributor
Retail Shares of each Fund are sold on a continuous basis by the
Company's distributor, SEI Financial Services Company (the "Distributor"), and
may be purchased directly by mail, by telephone or by wire. The principal office
of the Distributor is 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658.
Retail Shares may also be purchased through a broker-dealer who has established
a dealer agreement with the Distributor. The minimum initial purchase is $1,000;
however, there is no minimum subsequent purchase. The minimum may be waived if
purchases are made in connection with qualified pension plans, payroll savings
plans or other employer plans. (But see "PURCHASING SHARES -- Auto Invest Plan"
below for minimum investment requirements under that plan.) Purchasers will pay
the sum of the next calculated net asset value per Share of a Fund selected
after the Distributor's agent's receipt of an order to purchase Shares plus a
sales charge (see "PURCHASING RETAIL SHARES -- Sales Charges" below).
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<PAGE>
Purchases of Retail Shares
Retail Shares may also be purchased through procedures established by
the Distributor in connection with the requirements of qualified accounts
maintained by or on behalf of certain persons ("Customers") by the Investment
Advisor, its related companies or their correspondents ("Entities"). With
respect to the Money Market Funds, these procedures may include instructions
under which a Customer's account is "swept" automatically no less frequently
than weekly and amounts in excess of a minimum amount agreed upon by an Entity
and its Customer are invested by the Distributor in Shares of one or more of the
Money Market Funds depending upon the type of account or the instructions of the
Customer.
Retail Shares of a Fund sold to an Entity acting in a fiduciary,
advisory, custodial, or other similar capacity on behalf of Customers will
normally be held of record by Entity. With respect to Retail Shares so sold, it
is the responsibility of the holder of record to transmit purchase or redemption
orders to the Distributor and to deliver funds for the purchase thereof on a
timely basis.
Purchase By Mail
To purchase Retail Shares of a Fund by mail, complete an Account
Registration Form and return it along with a check or money order made payable
to the appropriate Fund to:
The Conestoga Family of Funds
P.O. 1912
Boston, MA 02105
An Account Registration Form can be obtained by calling the Company at
(800) 344-2716.
Purchase By Telephone or by Wire
To purchase Retail Shares of a Fund by telephone or by wire, your
Account Registration Form must have been previously received by the Distributor.
To place an order by telephone or by wire call the Company's toll-free number
(800) 344-2716. Payment for Retail Shares ordered by telephone may be made by
check and must be received by the Distributor at the address above within seven
calendar days of the telephone order. If payment for the Retail Shares is not
received within seven days, or if a check timely received does not clear, the
purchase may be cancelled and the investor could be liable for any losses or
fees incurred. When purchasing Retail Shares by wire, contact the Distributor
for wire instructions.
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<PAGE>
Other Information Regarding Purchases
Money Market Funds: Retail Shares of these Funds are purchased at the
net asset value per Share of each such Fund (see "VALUATION OF SHARES") next
determined after receipt by the Distributor of an order in good form to purchase
Retail Shares. An order to purchase Retail Shares will be deemed to have been
received by the Distributor only when federal funds with respect thereto are
available to the Company's custodian for investment. Federal funds are monies
credited to a bank's account with a Federal Reserve Bank. Payment for an order
to purchase Retail Shares which is transmitted by federal funds wire will be
available the same day for investment by the Company's custodian, if received
prior to noon. Payments transmitted by other means (such as by check drawn on a
member of the Federal Reserve System) will normally be converted into federal
funds within two banking days after receipt. The Company strongly recommends
that investors of substantial amounts use federal funds to purchase Retail
Shares.
Purchases of Retail Shares of the Money Market Funds will be effected
only on a Business Day (as defined in "VALUATION OF SHARES") of the Company. An
order received prior to a Valuation Time on any Business Day will be executed at
the net asset value determined as of the next Valuation Time on the date of
receipt. An order received after the last Valuation Time on any Business Day
will be executed at the net asset value determined as of the next Valuation Time
on the next Business Day of the Company. In the case of an order placed through
a broker-dealer, it is the responsibility of the broker-dealer to transmit the
order to the Distributor promptly. Retail Shares purchased before 12:00 noon,
(Eastern Time) begin earning dividends on the same Business Day. All Retail
Shares continue to earn dividends through the day before their redemption.
There is no sales charge imposed by the Company in connection with the
purchase of Retail Shares in the Money Market Funds. Sales charges apply to
Retail Share purchases of the other Funds.
Equity, Bond and Balanced Funds: Purchases of Retail Shares in the
Non-Money Market Funds will be effected only on a Business Day. The purchase
price will be the net asset value per share (see "VALUATION OF SHARES"), plus
the applicable sales charge, as determined on the Business Day the order is
received in good form by the Distributor, but only if the Distributor receives
the order in good form by 4:00 P.M. Eastern Time. Otherwise, the price will be
determined as of 4:00 P.M. Eastern Time on the next Business Day. In the case of
an order for purchase of Retail Shares placed through a broker-dealer, it is the
responsibility of the broker-dealer to transmit the order to the Distributor by
4:00 P.M. Eastern Time. If the broker-dealer
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fails to do so, the investor's right to that day's closing price must be settled
between the investor and the broker-dealer.
All Funds: The minimum investment is $1,000 for the initial purchase of
Retail Shares by an investor. There is no minimum investment for subsequent
purchases. The minimum may be waived if purchases are made in connection with
qualified pension plans or other employer plans. (But see "HOW TO PURCHASE AND
REDEEM SHARES -- Auto Invest Plan" below for minimum investment requirements
under that plan.)
Depending upon the terms of a particular Customer account, an Entity
may charge its Customers account fees for services provided in connection with
investment in the Funds. Information concerning these services and any charges
will be provided by the Entities. This Prospectus should be read in conjunction
with any such information so received from the Entities.
The Company reserves the right to reject any order for the purchase of
its Retail Shares in whole or in part.
Every Shareholder will receive a confirmation of each transaction in
its account, which will also show the total number of Retail Shares of a Fund
owned by the Shareholder. Confirmation of purchases and redemptions of Retail
Shares of the Funds by the Investment Advisor or one of its affiliates or their
correspondents on behalf of a Customer will be sent to the Investment Advisor or
the affiliate. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Retail Shares of the Funds will not be
issued.
Sales Charges
The public offering price of Retail Shares of the Non-Money Market
Funds equals the sum of the net asset value per Share of the applicable Fund
plus a sales load in accordance with the table below. SEI Financial Services
Company receives this sales charge as Distributor. The Distributor will act only
on its own behalf as principal if it chooses to enter into selling agreements
with selected dealers or others, and in such event, the Distributor may reallow
the sales charge as dealer discounts and brokerage commissions as follows:
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<TABLE>
<CAPTION>
Sales Sales
Charge as Charge as Dealer Discounts
% of Net % of and Brokerage
Amount Offering Commissions as % of
Invested Price Offering Price
--------- --------- -------------------
<S> <C> <C> <C> <C>
Less than $50,000..................................... 2.04% 2.00% 1.80%
$50,000 but less than $250,000........................ 1.52 1.50 1.35
$250,000 but less than $500,000....................... 1.27 1.25 1.13
$500,000 but less than $1,000,000..................... 1.01 1.00 0.90
$1,000,000 or more.................................... 0.50 0.50 0.45
</TABLE>
The Distributor, in its sole discretion, may pay certain dealers all or
part of the portion of the sales charge it receives. However, a broker or dealer
who receives a reallowance in excess of 90% of the sales charge may be deemed to
be an "underwriter" as that term is defined in Section 2(11) of the Securities
Act of 1933, as amended. The Distributor, at its expense, will also provide
additional compensation to dealers in connection with sales of Retail Shares of
the Funds. Compensation will include financial assistance to dealers in
connection with conferences, sales or training programs for their employees,
seminars for the public, advertising campaigns regarding the Funds, and/or other
dealer-sponsored special events. In some instances, this compensation will be
made available only to certain dealers whose representatives have sold a
significant amount of Retail Shares. Compensation will include payment for
travel expenses, including lodging, incurred in connection with trips taken by
invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. Compensation will also include the following types of non-cash
compensation offered through sales contests: (i) vacation trips, including the
provision of travel arrangements and lodging at luxury resorts at an exotic
location, (ii) tickets for entertainment events (such as concerts, cruises and
sporting events) and (iii) merchandise (such as clothing, trophies, clocks and
pens). Dealers may not use sales of Retail Shares to qualify for this
compensation to the extent such may be prohibited by the laws of any state or
any self-regulatory agency, such as the National Association of Securities
Dealers, Inc. None of the aforementioned compensation is paid for by any Fund or
its Shareholders.
From time to time, dealers who receive dealer discounts and brokerage
commissions from the Distributor may reallow all or a portion of such dealer
discounts and brokerage commissions to other dealers or brokers.
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Sales Charge Waivers
The following classes of investors may purchase Retail Shares of the
Non-Money Market Funds with no sales charge:
(1) Existing Shareholders of the applicable Fund upon the
automatic reinvestment of dividend and capital gain
distributions;
(2) Trustees of the Company and officers, directors, employees and
retired employees of the Investment Advisor and its
affiliates, SEI Financial Services Company and its affiliates,
and spouses and minor children of each of the foregoing;
(3) Investors for whom the Investment Advisor or one of its
affiliates (except a Conestoga IRA (as defined below)), acts
in a fiduciary, advisory, custodial, agency or similar
capacity and for whom purchases are made through such
accounts;
(4) Investors who purchase Retail Shares of the applicable Fund
through a payroll deduction plan, a 401(k) plan, a 403(b) plan
or other similar retirement plans which by its terms permits
purchases of such Shares;
(5) Investors investing in a Conestoga Fund direct
individual retirement account (a "Conestoga IRA") may
make both initial and subsequent purchases without a
sales charge if the initial purchase is funded in whole
or in part by assets directly transferred to the
Conestoga IRA from a distribution made by a qualified
retirement plan maintained through the asset management
affiliates of Meridian Bancorp, Inc.;
(6) Employees (and their spouses and children under the age of 21)
of any broker-dealer with which the Distributor enters into a
dealer agreement to sell shares of the Funds; and
(7) Orders placed on behalf of other investment companies
distributed by the Distributor or any of its
affiliates.
The Distributor may change or eliminate the foregoing waivers at any
time. The Distributor may also periodically waive the sales charge for all
investors with respect to any Fund.
Directed Dividend Option
A Shareholder may elect to have all income dividends and capital gains
distributions from a Fund paid by check, reinvested
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in shares of the Fund or, if eligible, reinvested in shares of another Fund
(collectively, the "Directed Dividend Option"), without the payment of a sales
charge. A reinvestment may not be made in another Fund, however, unless the
shareholder holds the minimum number of shares in such other Fund and, if this
test is met, the entire directed dividend (100%) must be reinvested into such
other Fund. In addition, this option is available only if the shares in the
other Fund have the same Shareholder registration.
The Directed Dividend Option may be modified or terminated by the
Company at any time after notice to participating Shareholders. Participation in
the Directed Dividend Option may be terminated or changed by the Shareholder at
any time by writing the Distributor.
Conestoga IRAs
A Conestoga IRA enables individuals, even if they participate in an
employer-sponsored retirement plan, to establish their own retirement program.
Conestoga IRA contributions may be tax-deductible and earnings are tax-deferred.
Under the Tax Reform Act of 1986, the tax deductibility of IRA contributions is
restricted or eliminated for individuals who participate in certain employer
pension plans and whose annual income exceeds certain limits. Existing IRA's and
future contributions up to the IRA maximums, whether deductible or not, still
earn income on a tax-deferred basis.
All Conestoga IRA distribution requests must be made in writing to SEI
Financial Services Company. Any additional deposits to a Conestoga IRA must
distinguish the type and year of the contribution.
For more information on a Conestoga IRA call the Company at (800)
344-2716. Investment in Retail Shares of the Tax-Free Fund, the Pennsylvania
Tax-Free Bond Fund or any tax-exempt mutual fund would not be appropriate for
any of the Conestoga IRAs. Shareholders are advised to consult a tax advisor on
Conestoga IRA contribution and withdrawal requirements and restrictions.
Letters of Intent
An investor may obtain a reduced sales charge by means of a written
Letter of Intent which expresses the investor's intention to purchase Retail
Shares of the Non-Money Market Funds sold with a sales load at a specified total
public offering price within a designated 13-month period. Each purchase of
Retail Shares under a Letter of Intent will be made at the net asset value plus
the sales charge applicable at the time of such purchase, assuming
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the purchase of the total dollar amount indicated in the Letter
of Intent.
A Letter of Intent is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment under a
Letter of Intent is 5% of such amount. Retail Shares purchased with the first 5%
of such amount will be held in escrow (although registered in the name of the
investor) to secure payment of the higher sales charge applicable to the Retail
Shares actually purchased if the full amount indicated is not purchased.
Escrowed Retail Shares will be involuntarily redeemed to pay the additional
sales charge, if necessary. Dividends on escrowed Retail Shares, whether paid in
cash or reinvested in additional Retail Shares, are not subject to escrow. The
escrowed Retail Shares may not be redeemed or transferred by the investor until
all purchases pursuant to the Letter of Intent have been made or the higher
sales charge has been paid. When the full amount indicated has been purchased,
the escrow will be released. To the extent that an investor purchases more than
the dollar amount indicated on the Letter of Intent and qualifies for a further
reduced sales charge, the sales charge will be recalculated based on the entire
amount purchased during the 13-month period. Any reduction in sales charges will
be used to purchase additional Retail Shares of the Fund for the investor's
account.
A Letter of Intent may include purchases of Retail Shares made not more
than 90 days prior to the date the investor signs a Letter of Intent; however,
the 13-month period during which the Letter of Intent is in effect will begin on
the date of the earliest purchase to be included. All such adjustments will be
made at the conclusion of the Letter of Intent period at the then current net
asset value. To receive the correct public offering price, Shareholders must, at
the time of purchase, give the Distributor sufficient information to permit
confirmation of qualification.
For further information about Letters of Intent, interested investors
should contact the Company at (800) 344-2716. This program, however, may be
modified or eliminated at any time or from time to time by the Company without
notice.
Auto Invest Plan
The Auto Invest Plan enables Shareholders of any of the Funds to make
regular monthly or quarterly purchases of Retail Shares through automatic
deductions from their bank accounts. With Shareholder authorization, State
Street Bank and Trust Company (the "Transfer Agent") will deduct the amount
specified from the Shareholder's bank account which will automatically be
invested in Retail Shares at the public offering price on the dates of the
deduction. The required minimum initial investment
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when opening an account using the Auto Invest Plan is $100; the minimum amount
for subsequent investments in a Fund is $50. To participate in the Auto Invest
Plan, Shareholders should complete the appropriate section of the account
application which can be acquired by calling (800) 344-2716. For a Shareholder
to change the Auto Invest instructions, the request must be made in writing to
the Distributor.
Concurrent Purchases
For purposes of qualifying for a reduced sales charge, investors have
the privilege of combining concurrent purchases of the Non-Money Market Funds.
For example, if a shareholder concurrently invested $20,000 in one of these
eight Funds and a total of $30,000 in one or more of the other Funds, the sales
charge would be that applicable to a $50,000 purchase as shown in the table
above.
Rights of Accumulation
Pursuant to the right of accumulation, investors are permitted to
purchase Retail Shares at the public offering price applicable to the total of
(a) the dollar amount of all of the Non-Money Market Funds then being purchased
plus (b) an amount equal to the then current net asset value of the purchaser's
combined holdings of the Retail Shares of all eight of such Funds. To receive
the correct public offering price pursuant to the right of accumulation,
Shareholders must, at the time of purchase, give the Distributor sufficient
information to permit confirmation of qualification.
Exchange Privilege
The Company offers an exchange program whereby Shareholders who have
paid a sales load on purchases of Retail Shares of the Non-Money Market Funds
are entitled to exchange those Retail Shares for Retail Shares of another
Non-Money Market Fund at the net asset value per Share. As a result, no
additional sales load will be incurred with respect to such an exchange.
Shareholders may also exchange Retail Shares of the Money Market Funds (each a
"no-load Fund") for Retail Shares of another Money Market Fund at the net asset
value per Share without payment of a sales load. Shareholders who wish to move
all or part of their investments from a Money Market Fund to a Non-Money Market
Fund will be required to use the procedures described herein with respect to
purchases and redemptions of Retail Shares. If, however, Retail Shares of a
Money Market Fund were acquired by a previous exchange from Retail Shares of a
Non-Money Market Fund, then such Retail Shares of the Money Market Fund may be
exchanged for Retail Shares of a Non-Money Market Fund without payment of any
additional load or sales charge. To receive the correct public offering price,
Shareholders must, at the time of purchase, give
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the Distributor sufficient information to permit confirmation of qualification.
The foregoing exchange privilege may be exercised only once during a calendar
year and only upon written authorization by the Shareholder and may be modified
or terminated by the Company at any time.
The Retail Shares exchanged must have a current value of at least
$1,000. Share exchanges will only be permitted where the Retail Shares to be
acquired may legally be sold in the investor's state of residence. An exchange
is considered to be a sale of Retail Shares for federal income tax purposes on
which a Shareholder may realize a capital gain or loss. A Shareholder may
telephone an exchange request by calling (800) 344-2716 or by providing written
instructions to the Distributor. An investor should consult the Distributor for
further information regarding exchanges. During periods of significant economic
or market change, telephone exchanges may be difficult to complete. If a
Shareholder is unable to contact the Distributor by telephone, a Shareholder may
also mail the exchange request to the Distributor at the address listed under
"Redeeming Shares -- By Mail." The Company reserves the right to modify or
terminate the exchange privilege described above at any time and to reject any
exchange request. Any Shareholder who wishes to make an exchange should obtain
and review the current prospectus of the Fund in which he or she wishes to
invest before making the exchange.
The Company's exchange privilege is not intended to afford shareholders
a way to speculate on short-term movements in the market. Accordingly, in order
to prevent excessive use of the exchange privilege that may potentially disrupt
the management of the Company and increase transaction costs, the Company has
established a policy of limiting or preventing future exchanges by a Shareholder
if there is excessive exchange activity. Exchange activity will not be deemed
excessive if limited to four substantive exchange redemptions from a Fund during
any calendar year.
Redemption of Shares
With respect to the Non-Money Market Funds, Shareholders may redeem
their Retail Shares without charge on any day that net asset value is calculated
(see "VALUATION OF SHARES"). Redemptions will be effected at the net asset value
per share next determined after receipt of a redemption request. Redemptions may
be requested by mail or by telephone.
With respect to the Money Market Funds, Retail Shares may ordinarily be
redeemed by mail or by telephone. However, all or part of a Customer's Retail
Shares may be redeemed in accordance with instructions and limitations
pertaining to his or her account at an Entity. For example, if a Customer has
agreed with an Entity to maintain a minimum balance in his or her account
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with the Entity, and the balance in that account falls below that minimum, the
Customer may be obliged to redeem, or the Entity may redeem for and on behalf of
the Customer, all or part of the Customer's Retail Shares of a Fund to the
extent necessary to maintain the required minimum balance. There may be no
notice period affording shareholders an opportunity to increase the account
balance in order to avoid an involuntary redemption by an Entity.
Redemption By Mail
A written request for redemption must be submitted to the Distributor.
The Distributor's address is: SEI Financial Services Company, 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658. The Distributor may require a
signature guarantee by an eligible guarantor institution. For purposes of this
policy, the term "eligible guarantor institution" shall include banks, brokers,
dealers, credit unions, securities exchanges and associations, clearing agencies
and savings associations as those terms are defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended. The Distributor reserves the right
to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000. The signature guarantee requirement will be waived
if all of the following conditions apply: (1) the redemption check is payable to
the Shareholder(s) of record and (2) the redemption check is mailed to the
Shareholder(s) at the address of record or the proceeds are either mailed or
wired to a commercial bank account previously designated on the Account
Registration Form. There is no charge for having redemption requests mailed to a
designated bank account.
Account changes may also require a signature guarantee. Please call the
Company at (800) 344-2716 for more information.
Redemption By Telephone
Retail Shares may be redeemed by telephone if the Account Registration
Form reflects that the Shareholder has that capability. The Shareholder may have
the proceeds mailed to his or her address or mailed or sent electronically to a
commercial bank account previously designated on the Account Registration Form.
Under most circumstances, payments will be transmitted on the next Business Day.
Electronic redemption requests may be made by the Shareholder by telephone to
the Company at (800) 344- 2716. The Distributor may reduce the amount of a
electronic redemption by the Fund's custodian's then-current electronic
redemption charge. This charge, if applied, is presently $7.00 for each wire
redemption. There is no charge for having payment
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of redemption requests mailed to a designated bank account. For telephone
redemptions, call the Distributor at (800) 344-2716. It is not necessary for
Shareholders to confirm telephone redemption requests in writing. During periods
of significant economic or market change, telephone redemptions may be difficult
to complete. If a Shareholder is unable to contact the Company by telephone, a
Shareholder may also mail the redemption request to the Distributor at the
address listed above under "Redemption By Mail." Neither the Distributor, the
Transfer Agent, the Investment Advisor nor the Company will be liable for any
losses, damages, expenses and/or costs arising out of any telephone transactions
(including exchanges and redemptions) effected in accordance with the Funds'
telephone transaction procedures, upon instructions reasonably believed to be
genuine. Each Fund will employ procedures designed to provide reasonable
assurance that instructions communicated by telephone are genuine; if these
procedures are not followed, a Fund may be liable for any losses due to
unauthorized or fraudulent instructions. These procedures include recording all
phone conversations, sending confirmations to Shareholders within 72 hours of
the telephone transaction, verifying the account name and a Shareholder's
account number or tax identification number and sending redemption proceeds only
to the address of record or to a previously authorized bank account. If, due to
temporary adverse conditions, Shareholders are unable to effect telephone
transactions, they may also mail redemption requests to the Company.
Redemption by Check
Free check writing is available with respect to the Money Market Funds.
With this service, a Shareholder may write an unlimited amount of checks per
month in the amount of $1,000 or more. To establish this checkwriting service
after opening an account in a Fund, a Shareholder must contact the Distributor
by telephone or mail to obtain an Account Registration Form. To obtain checks, a
Shareholder must complete the Signature Card that accompanies the Account
Registration Form. A Shareholder will receive the dividends and distributions
declared on the shares to be redeemed up to the day that a check is presented
for payment. Upon 30 days' prior written notice to Shareholders, the check
writing privilege may be modified or terminated. An investor may not close an
account in one of the Funds by writing a check.
Auto Withdrawal Plan
The Auto Withdrawal Plan enables Shareholders of a Fund to make regular
monthly or quarterly redemptions of Retail Shares. With Shareholder
authorization, the Transfer Agent will automatically redeem Retail Shares at the
net asset value on the dates of the withdrawal and have the amount specified
transferred to the Shareholder as designated on their Account Registration
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Form. The required minimum withdrawal is $100. To participate in the Auto
Withdrawal Plan, Shareholders should complete the appropriate section of the
Account Registration Form, which can be obtained by calling (800) 344-2716.
Purchases of additional shares concurrent with withdrawals are ordinarily
disadvantageous to Shareholders because of tax liabilities and sales charges.
For a Shareholder to change the Auto Withdrawal instructions, the request must
be made in writing to the Distributor.
Other Information Regarding Redemption of Retail Shares
All redemption orders are effected at the net asset value per share
next determined after a properly completed redemption order has been received,
as described above. The proceeds paid upon redemption of Retail Shares in a Fund
may be more or less than the amount invested. Payment to Shareholders for Retail
Shares redeemed will normally be made within seven days after receipt by the
Distributor of the request for redemption. To the extent possible, however, the
Company will attempt to honor requests from Shareholders for (a) next day
payments upon redemption of Retail Shares in the Non-Money Market Funds if
received by the Distributor before 4:00 P.M., Eastern Time, on a Business Day
or, if received after 4:00 P.M., Eastern Time, within two Business Days or (b)
same day payments upon redemption of Retail Shares in the Money Market Funds if
the request for redemption is received by the Distributor before 12:00 noon,
Eastern Time, on a Business Day or, if the request for redemption is received
after 12:00 noon, Eastern Time, to honor requests for payment on the next
Business Day; unless it would be disadvantageous in the opinion of the
Investment Advisor, to the Fund to sell or liquidate portfolio securities in an
amount sufficient to satisfy requests for payments in that manner.
At various times a Fund may be requested to redeem Retail Shares for
which it has not yet received good payment. In such circumstances, the
forwarding of proceeds may be delayed for up to fifteen days until payment has
been collected for the purchase of such Retail Shares. Such delay may be avoided
if Retail Shares are purchased by wire transfer of federal funds. The Funds
intend to pay cash for all Retail Shares redeemed, but under abnormal conditions
which make payment in cash unwise, payment may be made wholly or partly in
portfolio securities at their then current market value equal to the redemption
price. In such cases, an investor may incur brokerage costs in converting such
securities to cash.
Due to relatively high cost of handling small investments, the Company
reserves the right to involuntarily redeem, at net asset value, the Retail
Shares of any Shareholder if, because of redemptions of Retail Shares (and not
solely as a result of market price movements) by or on behalf of the
Shareholder, the account of such Shareholder has a value of less than $1,000.
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Before the Company exercises its right to redeem such Retail Shares and to send
the proceeds to the Shareholder, the Shareholder will be given notice that the
value of the Retail Shares in his or her account is less than the minimum amount
and will be allowed 60 days to make an additional investment in an amount which
will increase the value of the account to at least $500. In addition, the
Company reserves the right to redeem, at net asset value, Retail Shares of any
Shareholder to cover any loss resulting from the failure of the Distributor to
receive payment within the time permitted for Retail Shares purchased by
telephone order.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION -- Matters
Affecting Redemption" and "Net Asset Value" in the Statement of Additional
Information for examples of when the Company may suspend the right of redemption
or redeem Retail Shares involuntarily if it appears appropriate to do so in
light of the Company's responsibilities under the Investment Company Act of
1940.
VALUATION OF SHARES
The net asset value of each of the Money Market Funds is determined,
and the Retail Shares of each such Fund are priced, as of 12:00 noon and the
close of regular trading on the New York Stock Exchange ("NYSE") (generally,
4:00 P.M., Eastern Time) on each Business Day of the Company. The net asset
value of each of the Non-Money Market Funds is determined, and the Retail Shares
of each such Fund are priced, as of the close of regular trading on the NYSE
(generally, 4:00 P.M., Eastern Time) on each Business Day. Each time the net
asset value of a Fund is determined and its Retail Shares priced is referred to
as a "Valuation Time." As used herein, a "Business Day" constitutes any day on
which the NYSE is open for trading and the Federal Reserve Bank of Philadelphia
is open, except days on which there are not sufficient changes in the value of
the Fund's portfolio securities that the Fund's net asset value might be
materially affected, or days during which no Shares are tendered for redemption
and no orders to purchase Shares are received. Currently, either the NYSE or the
Federal Reserve Bank of Philadelphia is closed on the customary national
business holidays of New Year's Day, Martin Luther King, Jr., Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veteran's
Day, Thanksgiving Day and Christmas Day. Net asset value per Share for purposes
of pricing sales and redemptions is calculated by dividing the value of all
securities and other assets belonging to the Retail Shares of a Fund less the
liabilities charged to such class of such Fund by the number of its outstanding
Retail Shares.
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The assets in the Money Market Funds are each valued based upon the
amortized cost method. Pursuant to the rules and regulations of the Securities
and Exchange Commission regarding the use of the amortized cost method, the
Money Market Funds will each maintain a dollar-weighted average portfolio
maturity of 90 days or less. Although the Company seeks to maintain the net
asset value per Retail Share of the Money Market Funds at $1.00 each, there can
be no assurance that net asset value will not vary.
The net asset value per Retail Share of the Non-Money Market Funds will
fluctuate as the value of the investment portfolio of each Fund changes. The
securities in these Funds will be valued at market value. If market quotations
are not available, the securities will be valued by a method which the Board of
Trustees believes accurately reflects fair value. For further information about
valuation of investments, see the Statement of Additional Information.
DIVIDENDS
MONEY MARKET FUNDS: The net income of each of these Funds is declared
daily as a dividend to the respective Shareholders of each such Fund at the
close of business on the day of declaration. Dividends are paid monthly, and a
Shareholder's dividends will automatically be reinvested in additional full and
fractional Retail Shares of such Fund at net asset value as of the date of
payment, unless the Shareholder elects to receive dividends in cash or directs
such dividends to another Fund (see "How To Purchase And Redeem Shares --
Directed Dividend Option"). Reinvested dividends receive the same tax treatment
as dividends paid in cash. In the case of redemptions, dividends will be paid in
cash not later than seven Business Days after a Shareholder's complete
redemption of his or her Retail Shares in the Cash Management, Tax-Free and U.S.
Treasury Securities Funds. Such election, or any revocation thereof, must be
made in writing to the Transfer Agent at The BFDS Building, 2 Heritage Drive,
Quincy, MA 02171, and will become effective with respect to dividends paid after
its receipt by the Transfer Agent.
NON-MONEY MARKET FUNDS: The net income of the International Equity Fund
is generally declared annually, the net income of each of the Equity, the
Special Equity and the Balanced Funds is generally declared quarterly, and the
net income of each of the Bond, Intermediate Income, Pennsylvania Tax-Free Bond
and Short-Term Income Funds (collectively, the "Bond Funds") is generally
declared monthly, as a dividend to the respective Shareholders at the close of
business on the record date. Dividends are generally paid annually with respect
to the International Equity Fund, quarterly with respect to the Equity, Special
Equity and Balanced Funds, and monthly with respect to the Bond Funds.
Distributable net realized capital gains are distributed at least
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annually. A Shareholder will automatically receive all income dividends and
capital gain distributions from the Fund in additional full and fractional
Shares of the Fund at net asset value as of the date of payment, unless the
Shareholder elects to receive dividends or distributions in cash. Such election,
or any revocation thereof, must be made in writing to the Transfer Agent at The
BFDS Building, 2 Heritage Drive, Quincy, MA 02171, and will become effective
with respect to dividends and distributions having record dates after its
receipt by the Transfer Agent.
OTHER INVESTMENT POLICIES
Government and Related Obligations
The Funds may invest in Treasury bills, notes and bonds and other
obligations issued or guaranteed by the U.S. Treasury, as well as "stripped"
U.S. Treasury obligations such as Treasury Receipts representing either future
interest or principal payments. Stripped securities are issued at a discount to
their "face value," and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors. The Funds may also acquire repurchase agreements secured
by U.S. Treasury obligations.
The Funds (except the U.S. Treasury Fund) may also invest
in other obligations issued or guaranteed by the agencies or
instrumentalities of the U.S. Government. These obligations may differ from U.S.
Treasury obligations in their interest rates, maturities, and times of issuance.
These Funds may also purchase interests in U.S. Treasury securities (such as
TIGRs and CATS). TIGRs and CATS are not issued by the U.S. Treasury.
Participations other than those issued or guaranteed by the U.S. are not
obligations of the U.S. Government.
Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association and the
Export-Import Bank of the United States, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal National
Mortgage Association, may borrow from the Treasury in its discretion; others,
such as those of the Student Loan Marketing Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government will provide
financial support to U.S. Government-sponsored agencies or instrumentalities if
it is not obligated to do so by law. The obligations of such agencies and
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instrumentalities and stripped securities will only be purchased when the
Investment Advisor deems the credit risk with respect thereto to be minimal.
Banker's Acceptances
The Cash Management Fund may invest in banker's acceptances guaranteed
by domestic and foreign banks if, at the time of investment, the guarantor bank
has capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most recently published financial statements) and the bank, its
parent or holding company is rated "A/B" or better at the time of investment by
Thomson BankWatch, Inc., or unrated at the time of purchase but are determined
to be institutions of comparable quality by the Investment Advisor pursuant to
guidelines approved by the Company's Board of Trustees. For a description of the
rating symbols of Thomson BankWatch, Inc., see Appendix "A" to the Statement of
Additional Information.
Certificates of Deposit and Time Deposits
The Cash Management Fund may invest in certificates of deposit and time
deposits of domestic and foreign banks and savings and loan associations if (a)
at the time of investment the depositary institution has capital, surplus, and
undivided profits in excess of $100,000,000 (as of the date of its most recently
published financial statements) and the depositary institution, its parent or
holding company is rated "A/B" or better at the time of investment by Thomson
BankWatch, Inc., (b) the principal amount of the instrument is insured in full
by the FDIC or the Federal Savings and Loan Insurance Corporation, or (c) which
are unrated at the time of purchase but are determined to be at comparable
quality by the Investment Advisor pursuant to guidelines approved by the
Company's Board of Trustees.
The Funds (except the U.S. Treasury Securities Fund) may invest in
Eurodollar Certificates of Deposits ("ECDs") which are U.S. dollar-denominated
certificates of deposit issued by offices of foreign and domestic banks located
outside the United States; Eurodollar Time Deposits ("ETDs") which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or a foreign
bank; Canadian Time Deposits ("CTDs") which are essentially the same as ETDs
except they are issued by Canadian offices of Canadian banks; and Yankee
Certificates of Deposit ("Yankee CDs") which are certificates of deposit issued
by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the
United States.
The Cash Management Fund will not invest in excess of 10% of its total
assets in time deposits, including ETDs and CTDs but not including certificates
of deposit, with maturities in excess
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of seven days which are subject to penalties upon early withdrawal.
Commercial Paper
The Funds (except the U.S. Treasury Securities Fund) may invest in
short-term promissory notes issued by corporations (including variable amount
master demand notes). In the case of the Cash Management and the Tax-Free Funds,
such instruments must at the time of purchase (1) have received the highest
short-term rating by at least two Rating Organizations, (2) have received the
highest short-term rating by the only rating agencies to have rated the notes,
or (3) are unrated, but are determined to be of comparable quality pursuant to
guidelines adopted by the Board of Trustees. Instruments may be purchased in
reliance upon a rating only when the rating organization is not affiliated with
the issuer or guarantor of the instrument. For a description of the rating
symbols used in this paragraph, see the Appendix to the Statement of Additional
Information. The Funds (except the U.S. Treasury Securities Fund) may also
invest in foreign commercial paper which is U.S. dollar-denominated commercial
paper issued by a foreign corporation or a foreign counterpart of a U.S.
corporation.
Zero Coupon Obligations
The Cash Management, Bond, Intermediate Income, Short-Term and Balanced
Funds may invest in zero coupon obligations, which have greater price volatility
than coupon obligations and which will not result in the payment of interest
until maturity, provided that immediately after any purchase not more than 5% of
the value of the net assets of the respective Fund would be invested in such
obligations.
Foreign Securities
The Equity Funds and the Balanced Fund may invest in securities of
foreign issuers by acquiring both sponsored and unsponsored American Depositary
Receipts ("ADRs"). ADRs are receipts issued by a bank or trust company in the
United States evidencing ownership of underlying securities of a foreign issuer.
Unsponsored ADRs are organized independently and without the cooperation of the
issuer of the underlying securities. As a result, available information
concerning the issuer may not be as current as for sponsored ADRs, and the
prices of unsponsored ADRs may be more volatile than if such instruments were
sponsored by the issuer. The Equity Funds may also invest in securities issued
by foreign branches of U.S. banks and foreign banks, in Canadian commercial
paper, and in Europaper (U.S. dollar-denominated commercial paper of a foreign
issuer). As stated above, certain Funds may invest in ECDs, ETDs, CTDs, and
Yankee CDs. The Cash Management Fund may also acquire securities issued
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by foreign branches of U.S. banks, foreign banks, or other foreign issuers
only when the Investment Advisor believes that the risks associated with such
instruments are minimal. The Bond, Intermediate Income, Short-Term Income and
Balanced Funds may invest in Yankee Bonds.
For many foreign securities, U.S. dollar-denominated American
Depositary Receipts, or ADRs, which are traded in the United States on exchanges
or over-the-counter, are issued by domestic banks. ADRs represent the right to
receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. ADRs do not eliminate the risk inherent in investing in the
securities of foreign issuers. However, by investing in ADRs rather than
directly in stock of foreign issuers, the Fund can avoid currency risks during
the settlement period for either purchases or sales. In general, there is a
large, liquid market in the United States for many ADRs. The information
available for ADRs is subject to the accounting, auditing and financial
reporting standards of the domestic market or exchange on which they are traded,
which standards are more uniform and more exacting than those to which many
foreign issuers may be subject. The Fund may also invest in European Depositary
Receipts, or EDRs, which are receipts evidencing an arrangement with a European
bank similar to that for ADRs and are designed for use in the European
securities markets. EDRs are not necessarily denominated in the currency of the
underlying security.
Certain ADRs and EDRs, typically those denominated as unsponsored,
require the holders thereof to bear most of the costs of such facilities while
issuers of sponsored facilities normally pay more of the costs thereof. The
depositary of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
securities or to pass through the voting rights to facility holders in respect
to the deposited securities, whereas the depositary of a sponsored facility
typically distributes shareholder communications and passes through the voting
rights.
Investment in securities of foreign issuers involves certain risks not
ordinarily associated with investments in securities of domestic issuers. Such
risks include fluctuations in foreign exchange rates, difficulties in predicting
international trade patterns, political, social and economic instability in the
country of the issuer, foreign trading practices (including higher trading
commissions, custodial charges and delayed settlements), foreign withholding and
income taxation, the possible establishment of exchange controls or the adoption
of other foreign governmental restrictions (which might adversely affect the
payment of principal and interest), difficulty in
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obtaining and enforcing judgments against foreign issuers, and the possible
imposition of exchange controls or other foreign governmental laws or
restrictions. With respect to certain countries, there is also the possibility
of expropriation of assets, nationalization of assets, limits on removal of
currency or other assets, confiscatory taxation, political or social instability
or diplomatic developments which could adversely affect investments in those
countries.
Foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
U.S. domestic companies. There is generally less government regulation of
securities exchanges, brokers and listed companies abroad than in the U.S.
Confiscatory taxation or diplomatic developments could also affect investment in
those countries. In addition, foreign branches of U.S. banks, foreign banks and
foreign issuers may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting, and recordkeeping standards than
those applicable to domestic branches of U.S. banks and U.S.
domestic issuers.
Foreign Currency Transactions
The value of the assets of the International Equity Fund as measured in
U.S. dollars may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations, and the Fund may incur
costs in connection with conversions between various currencies. The Fund will
conduct its foreign currency exchange transactions either on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
through forward contracts to purchase or sell foreign currencies. A forward
foreign currency exchange contract ("forward currency contracts") involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These forward currency
contracts are traded directly between currency traders (usually large commercial
banks) and their customers. The Fund may enter into forward currency contracts
in order to hedge against adverse movements in exchange rates between
currencies.
For example, when the International Equity Fund enters into a contract
for the purchase or sale of a security denominated in a foreign currency, it may
want to establish the U.S. dollar cost or proceeds, as the case may be. By
entering into a forward currency contract in U.S. dollars for the purchase or
sale of the amount of foreign currency involved in an underlying security
transaction, the Fund can help to protect itself against a possible loss between
trade and settlement dates resulting from an adverse change in the relationship
between the U.S. dollar and
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such foreign currency. Additionally, for example, when the Fund believes that a
foreign currency may suffer a substantial decline against the U.S. dollar, it
may enter into a forward currency sale contract to sell an amount of that
foreign currency approximating the value of some or all of the Fund's portfolio
securities or other assets denominated in such foreign currency, or when the
Fund believes that the U.S. dollar may suffer a substantial decline against a
foreign currency, it may enter into a forward currency purchase contract to buy
that foreign currency for a fixed U.S. dollar amount. However, these contracts
tend to limit potential gains which might result from positive changes in
currency relationships. The Fund may also hedge its foreign currency exchange
rate risk by engaging in currency financial futures and options transactions.
The forecasting of short-term currency market movement is extremely difficult
and whether short-term hedging strategies would be successful is highly
uncertain.
The International Equity Fund does not intend to enter into such
forward contracts if the Fund would have more than 15% of the value of its total
assets committed to such contracts on a regular or continuous basis. In
addition, the Fund does not intend to enter into forward currency contracts or
maintain a net exposure in such contracts where it would be obligated to deliver
an amount of foreign currency in excess of the value of its portfolio securities
or other assets denominated in that currency.
For further information about the characteristics, risks and possible
benefits of option, futures and foreign currency transactions, see "Investment
Objectives, Policies and Restrictions" in the Statement of Additional
Information.
Options
The Equity Funds and the Balanced Fund may also purchase put and call
options on securities and the International Equity Fund may purchase put and
call options on foreign currencies, in each case for the purposes of hedging
against market risks related to its portfolio securities and/or adverse
movements in exchange rates between currencies, as applicable. Purchasing
options is a specialized investment technique that entails a substantial risk of
a complete loss of the amounts paid as premiums to writers of options. These
Funds may also engage in writing call options from time to time as the
Investment Advisor (and/or the Sub-advisor with respect to the International
Equity Fund) deems appropriate. These Funds will write only covered call options
(options on securities owned by the Funds). These Funds will forego any capital
appreciation above the exercise price on securities on which it has written a
call option. In order to close out a call option it has written, a Fund will
enter into a "closing purchase transaction" -- the purchase of a call option
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on the same security with the same exercise price and expiration date as the
call option which the Fund previously wrote on a particular security. When a
portfolio security subject to a call option is sold, a Fund will effect a
closing purchase transaction to close out any existing call option on that
security. If a Fund is unable to effect a closing purchase transaction, it will
not be able to sell the underlying security until the option expires or the Fund
delivers the underlying security upon exercise. Under normal conditions, it is
not expected that the underlying value of portfolio securities subject to such
options would exceed 50% of the net assets of a Fund.
The International Equity Fund, as part of its option transactions, also
may, for hedging purposes, purchase index put and call options and write index
options. As with options on individual securities, the Fund will write only
covered index call options. Through the writing or purchase of index options,
the Fund can seek to achieve many of the same objectives as through the use of
options on individual securities. Options on securities indices are similar to
options on a security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the securities index upon which the option is based
is greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. Price movements in securities which the Fund owns
or intends to purchase would not be expected to correlate directly with
movements in the level of an index and, therefore, the Fund bears the risk of a
loss on an index option that is not completely offset by movements in the price
of such securities. Because index options are settled in cash, a call writer
cannot determine the amount of its settlement obligations in advance and, unlike
call writing on specific securities, cannot provide in advance for, or cover,
its potential settlement obligations by acquiring and holding the underlying
securities. The Fund may be required to segregate assets or provide an initial
margin to cover index options that would require it to pay cash upon exercise.
The Cash Management Fund and the Tax-Free Fund may acquire "puts" with
respect to obligations held in their portfolios. Under a put, a Fund would have
the right to sell a specified obligation within a specified period of time at a
specified price. A put would be sold, transferred, or assigned only with the
underlying obligation. A Fund will acquire puts solely to facilitate portfolio
liquidity, shorten the maturity of the underlying obligations, or permit the
investment of the Fund's assets at a more favorable rate of return. The
aggregate price of a security subject to a put may be higher than the price
which otherwise would be paid for the security without such an option, thereby
increasing the security's cost and reducing its yield.
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Futures Contracts
The International Equity Fund may also enter into contracts for the
future delivery of securities and futures contracts based on a specific
security, class of securities, or an index, purchase or sell options on any such
futures contracts and engage in related closing transactions. A futures contract
on a securities index is an agreement obligating either party to pay, and
entitling the other party to receive, while the contract is outstanding, cash
payments based on the level of a specified securities index.
The International Equity Fund may engage in such futures contracts in
an effort to hedge against market risks. For example, when interest rates are
expected to rise or market values of portfolio securities are expected to fall,
the Fund can seek through the sale of futures contracts to offset a decline in
the value of its portfolio securities. When interest rates are expected to fall
or market values are expected to rise, the Fund, through the purchase of such
contracts, can attempt to secure better rates or prices for the Fund than might
later be available in the market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give the International Equity Fund the right (but not the
obligation), for a specified price, to sell or to purchase the underlying
futures contract, upon exercise of the option, at any time during the option
period.
Aggregate initial margin deposits for futures contracts, and premiums
paid for related options, may not exceed 5% of the market value of the
International Equity Fund's total assets, and the value of securities that are
the subject of such futures and options (both for receipt and delivery) may not
exceed 33-1/3% of the market value of the Fund's total assets. Futures
transactions will be limited to the extent necessary to maintain the Fund's
qualification as a regulated investment company.
Futures transactions involve brokerage costs and require the
International Equity Fund to segregate assets to cover contracts that would
require it to purchase securities. The Fund may lose the expected benefit of
futures transactions if interest rates, exchange rates or securities prices move
in an unanticipated manner. Such unanticipated changes may also result in poorer
overall performance than if the Fund had not entered into any futures
transactions. In addition, the value of the Fund's futures positions may not
prove to be effectively correlated with the value of its portfolio securities,
which would limit the value of the Fund's hedge against interest rate, exchange
rate and/or market risk, and would give rise to additional risks. There is no
assurance of liquidity in the secondary market for purposes of closing out
futures positions.
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Municipal Obligations
The two principal classifications of Municipal Obligations which may be
held by the Tax-Free Fund or the Pennsylvania Tax-Free Bond Fund are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Private activity
bonds are in most cases revenue securities and are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Municipal Obligations may include rated and unrated variable and
floating rate tax-exempt notes, which may have a stated maturity in excess of
397 days but which will, in such event, be subject to a demand feature that will
permit a Fund to demand payment of the principal of the note either (i) at any
time upon not more than 30 days' notice or (ii) at specified intervals not
exceeding 397 days and upon no more than 30 days' notice. There may be no active
secondary market with respect to a particular variable or floating rate note.
Nevertheless, the periodic readjustments of their interest rates tend to assure
that their value to a Fund will approximate their par value. Variable and
floating rate notes for which no readily available market exists will not be
purchased in an amount which, together with all other illiquid securities held
by the Fund, exceed 10% of the Tax-Free Fund's total assets or 15% of the
Pennsylvania Tax-Free Bond Fund's total assets unless such notes are subject to
a demand feature that will permit a Fund to demand payment of the principal
within seven days after demand by the Fund.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Funds nor the Investment Advisor will review the proceedings relating to the
issuance of Municipal Obligations or the bases for such opinions.
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The Tax-Free Fund may invest more than 25% of its assets in Municipal
Obligations which are related in such a way that an economic, business, or
political development or change affecting one such security would likewise
affect the other Municipal Obligations. Examples of such securities are
obligations the payment of which is dependent upon similar types of projects or
projects located in the same state. Such investments would be made only if
deemed necessary or appropriate by the Tax-Free Fund's Investment Advisor. To
the extent that the Tax-Free Fund's assets are concentrated in Municipal
Obligations that are so related, the Tax-Free Fund will be subject to the
peculiar risks presented by such Municipal Obligations, such as negative
developments in a particular industry or state, to a greater extent than it
would be if the Tax-Free Fund's assets were not so concentrated.
Repurchase Agreements
Securities held by each Fund may be subject to repurchase agreements.
There is no limit on a Fund's investments in repurchase agreements. Under the
terms of a repurchase agreement, a Fund would acquire securities from financial
institutions such as banks insured by the Federal Deposit Insurance Corporation
with capital, surplus, and undivided profits in excess of $100,000,000 (as of
the date of their most recently published financial statements) or registered
broker-dealers which the Investment Advisor (and/or the Sub-advisor with respect
to the International Equity Fund) deems creditworthy pursuant to guidelines
approved by the Company's Board of Trustees, subject to the seller's agreement
to repurchase such securities at a mutually agreed-upon date and price. The
repurchase price would generally equal 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 underlying portfolio securities. The seller under a
repurchase agreement will be required to maintain the value of collateral held
pursuant to the agreement at not less than 102% of the repurchase price
(including accrued interest). The Investment Advisor will monitor the value of
the collateral on an ongoing basis to ensure that the required value is
maintained. In addition, securities subject to repurchase agreements will be
held in a segregated account. If the seller were to default on its repurchase
obligation or become insolvent, a Fund would suffer a loss to the extent that
the proceeds from a sale of the underlying portfolio securities were less than
the repurchase price under the agreement, or to the extent that the disposition
of such securities by the Fund were delayed pending court action. Securities
subject to repurchase agreements will be held by the Company's custodian or
another qualified custodian or in the Federal Reserve/Treasury book-entry
system. Repurchase agreements are considered to be loans by a Fund under the
Investment Company Act of 1940.
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An increase in interest rates will generally reduce the value of the
investments in each Fund and a decline in interest rates will generally increase
the value of those investments. Depending upon the prevailing market conditions,
the Investment Advisor (and/or the Sub-advisor with respect to the International
Equity Fund) may purchase debt securities at a discount from face value, which
produces a yield greater than the coupon rate. Conversely, if debt securities
are purchased at a premium over face value, the yield will be lower than the
coupon rate. In making investment decisions, the Investment Advisor (and/or the
Sub-advisor with respect to the International Equity Fund) will consider many
factors other than current yield, including the preservation of capital, the
potential for realizing capital appreciation, maturity, and yield to maturity.
Investment Companies
In connection with the management of its daily cash position, each of
the Funds may invest up to 5% of the value of its total assets in the shares of
a money market fund. However, no more than 10% of a Fund's total assets may be
invested in the securities of money market mutual funds in the aggregate.
Securities of other investment companies will be acquired by a Fund within the
limits prescribed by the Investment Company Act of 1940. As a shareholder of
another investment company, a Fund would bear along with other shareholders, its
pro rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory and other expenses
that the Fund bears directly in connection with its own operations. However, in
order to avoid the imposition of additional fees as a result of investments by a
Fund in Shares of the Money Market Funds or portfolios served by the Investment
Advisor ("acquired fund"), the Investment Advisor will reduce its fees to the
investing Fund by an amount based on the fee formula charged to the acquired
fund.
"When-Issued" Securities
Each Fund may also purchase debt securities on a "when-issued" basis.
"When-issued" securities are new securities purchased for delivery beyond the
normal settlement date at a stated price and yield thereby involving the risk
that the yield obtained in the transaction will be less than that available in
the market when delivery takes place. A Fund will generally not pay for such
securities and no income accrues on the securities until they are received.
Securities purchased on a "when-issued" basis are recorded as an asset when
purchased and are thereafter subject to changes in value based upon changes in
the general level of interest rates. Each Fund expects that commitments to
purchase "when-issued" securities will not exceed 25% of the value of its total
assets under normal market conditions, and that commitments by each Fund to
purchase "when-issued"
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securities will not exceed 60 days. If commitments to purchase "when-issued"
securities ever exceeded 25% of the value of its assets, a Fund's liquidity and
the Investment Advisor's (and/or Sub-advisor's with respect to the International
Equity Fund) ability to manage it might be adversely affected. In "when-issued"
transactions, a Fund relies on the seller to complete the transaction; the
seller's failure to do so may cause the Fund to miss a price or yield considered
to be advantageous. While purchases may be considered a form of leverage, a Fund
does not intend to purchase "when-issued" securities for speculative purposes
but only for the purpose of acquiring portfolio securities.
Short-Term Trading and Portfolio Turnover
The Equity Funds, the Bond Funds and the Balanced Fund may engage in
the technique of short-term trading. Such trading involves the selling of
securities held for a short time, ranging from several months to less than a
day. The object of such short-term trading is to increase the potential for
capital appreciation and/or income of a Fund in order to take advantage of what
the Investment Advisor (and/or the Sub-advisor with respect to the International
Equity Fund) believes are changes in market, industry, or individual company
conditions or outlook. Any such trading would increase a Fund's turnover rate
and its transaction costs.
Portfolio turnover may vary greatly from year to year as well as within
a particular year. High turnover rates will generally result in higher brokerage
commissions and other transaction costs to the Fund. Distributions resulting
from any net short-term capital gains are considered ordinary income for federal
income tax purposes. (See "TAXES.")
Reverse Repurchase Agreements
Each 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, a Fund would sell portfolio
securities to financial institutions such as banks or broker-dealers, and agree
to repurchase them at a mutually agreed-upon date and price. At the time a Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account assets such as U.S. Government securities or other liquid
high-grade debt obligations consistent with the Fund's investment restrictions
having a value equal to the repurchase price (including accrued interest), and
will subsequently monitor the account to ensure that such equivalent value is
maintained. Reverse repurchase agreements involve the risk that the market value
of the securities sold by a Fund may decline below the price at which such Fund
is obligated to repurchase the securities. Reverse repurchase
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agreements are considered to be borrowings by a Fund under the Investment
Company Act of 1940.
Illiquid Securities
The Non-Money Market Funds may each invest up to 15% and the Money
Market Funds may each invest up to 10% of the value of their respective net
assets in illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days (except that the Bond Fund, the Intermediate
Income Fund and the Equity Fund will not acquire repurchase agreements with
maturities in excess of seven days if such investment, together with other
investments in such Fund which are not readily marketable, exceeds 10% of such
Fund's total assets), time deposits with maturities in excess of seven days,
non-negotiable time deposits, and other securities which are not readily
marketable. This limitation on illiquid securities also includes restricted
securities, except those that may be purchased by institutional buyers under
Rule 144A and for which a liquid trading market exists, as determined by the
Company's Board of Trustees or the Investment Advisor. See the Statement of
Additional Information for further discussion of Rule 144A securities.
Asset-Backed Securities
The Cash Management, Bond, Intermediate Income, Short-Term Income and
Balanced Funds may purchase asset-backed securities. Like other debt securities,
asset-backed securities (i.e., securities backed by mortgages, installment sales
contracts, credit card receivables or other assets) are subject to declines in
market value during periods of rising interest rates. However, due to the
possibility of prepayment of the underlying obligations, asset-backed securities
have less potential for capital appreciation than other debt securities of
comparable maturities during periods of declining interest rates. As a result,
asset-backed securities may be less effective than other fixed income securities
as a means of locking in attractive interest rates for the long term.
Asset-backed securities purchased at a premium to par may subject these Funds to
losses equal to any unamortized premium if such obligations are repaid prior to
their scheduled maturities. The Cash Management, Bond, Intermediate Income,
Short-Term Income and Balanced Funds will invest only in privately-issued
asset-backed securities which are readily marketable and rated at the time of
purchase in the two highest rating categories assigned by a Rating Organization.
For a description of rating symbols see Appendix "A" to the Statement of
Additional Information.
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Mortgage-Backed Securities
The Bond, Intermediate Income, Short-Term Income and Balanced Funds may
purchase mortgage-backed securities. The investment objective of the
Intermediate Income Fund permits it to purchase mortgage-backed and certain
other securities with stated maturities in excess of ten years if the expected
maturities are ten years or less. The average life of mortgage-backed securities
varies with the maturities of the underlying mortgage instruments, which have
maximum maturities of 40 years. The average life is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities
as the result of mortgage prepayments. The rate of such prepayments, and hence
the average life of the certificates, will be a function of current market
interest rates and current conditions in the relevant housing markets. Estimated
average life will be determined by the Investment Advisor, and such securities
may be purchased by the Intermediate Income Fund if the estimated average life
is determined to be 6 years or less. Various independent mortgage-backed
securities dealers publish average remaining life data using proprietary models
and, in making such determinations for the Intermediate Income Fund, the
Investment Advisor will rely on such data except to the extent such data are
deemed unreliable by the Investment Advisor. The Investment Advisor might deem
data unreliable which appeared to present a significantly different average
remaining expected life for a security than data relating to the average
remaining life of comparable securities as provided by other independent
mortgage-backed securities dealers.
The Bond, Intermediate Income and Balanced Funds will invest only in
privately-issued mortgage-backed securities which are readily marketable and
rated at the time of purchase in the two highest rating categories assigned by a
Rating Organization. For a description of rating symbols see Appendix "A" to the
Statement of Additional Information.
Corporate Obligations
The Non-Money Market Funds also may invest in bonds, notes and
debentures of U.S. corporate issuers. Such obligations, in the case of
debentures, will represent unsecured promises to pay, in the case of notes and
bonds, may be secured by mortgages on real property or security interests in
personal property and will vary in their interest rates, maturities and times of
issuance. These Funds will invest in corporate debt securities only if they are
rated at the time of purchase within the four highest rating groups assigned by
a Rating Organization or, if unrated, which the Investment Advisor (and/or the
Sub-advisor with respect to the International Equity Fund) deems to be of
comparable quality. Such securities are considered high or medium-grade
securities. Debt obligations rated in the fourth highest rating group have
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some speculative characteristics and repayment of principal and interest are
more likely to be adversely affected by adverse economic conditions or changing
circumstances than are obligations in the higher rated categories.
Short-Term Obligations
The Non-Money Market Funds may each ordinarily hold some short-term
obligations (with maturities of 18 months or less) such as domestic and foreign
commercial paper (including variable amount master demand notes), banker's
acceptances, certificates of deposit and demand and time deposits of domestic
and foreign branches of U.S. banks and foreign banks, and repurchase agreements.
Stand-by Commitments
The Pennsylvania Tax-Free Bond Fund may acquire stand-by commitments
with respect to Pennsylvania Municipal Obligations held in its portfolio. Under
a "stand-by commitment," a dealer agrees to purchase, at the Fund's option,
specified municipal obligations at a price equal to their amortized cost value
plus accrued interest. The Fund will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
Municipal Notes
Municipal notes in which the Pennsylvania Tax-Free Bond Fund may invest
include project notes, demand notes, and short-term municipal obligations
(including tax anticipation notes, revenue anticipation notes, construction loan
notes and short-term discount notes and tax-exempt commercial paper) rated in
the highest rating category assigned by a Rating Organization.
Municipal Leases
The Pennsylvania Tax-Free Bond Fund may invest in municipal leases and
participations therein. These are obligations in the form of a lease or
installment purchase which is issued by state and local governments to acquire
equipment and facilities. Bonds from such obligations are generally exempt from
local and state taxes in the state of issuance. "Participations" in such leases
are undivided interests in a portion of the total obligation. Participations
entitle their holders to receive a pro rata share of all payments under the
lease. A trustee is usually responsible for administering the terms of the
Participation and enforcing the participants' rights in the underlying lease.
Municipal leases frequently involve special risks not normally
associated with general obligation or revenue bonds. Leases and installment
purchase or conditional sale contracts
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(which normally provide for title to the leased asset to pass eventually to the
governmental issuer) have evolved as a means for governmental issuers to acquire
property and equipment without meeting the constitutional and statutory
requirements for the issuance of debt. The debt-issuance limitations are deemed
to be inapplicable because of the inclusion in many leases or contracts or
"non-appropriation" clauses which provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis.
Municipal leases represent a relatively new type of financing. In
certain instances the tax-exempt status of the obligations will not be subject
to the legal opinion of a nationally recognized "bond counsel," as is
customarily required in larger issues of Pennsylvania obligations. However, in
all cases the Pennsylvania Tax-Free Bond Fund will require that a municipal
lease purchased by the Fund be covered by a legal opinion (typically from the
issuer's counsel) to the effect that, as of the effective date of such lease,
the lease is the valid and binding obligation of the governmental issuer.
Certain municipal lease obligations may be deemed illiquid for the
purpose of the Pennsylvania Tax-Free Bond Fund's investment of up to 15% of the
value of its net assets in illiquid securities. In determining the liquidity of
municipal lease obligations, the Investment Advisor will consider a variety of
factors, including the following guidelines which have been adopted by the Board
of Trustees: (1) the frequency of trades and quotes for the obligation; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the willingness of dealers to undertake to make a
market in the security; (4) the nature of the marketplace trades; (5) the
general creditworthiness of the municipality and the importance of the property
covered by the lease to the municipality; and (6) the likelihood that the
marketability of the obligation will be maintained throughout the time the
obligation is held by the Fund.
Special Risks and Considerations
The Pennsylvania Tax-Free Bond Fund is classified as a non-diversified
investment company under the Investment Company Act of 1940. Investment return
on a non-diversified portfolio typically is dependent upon the performance of a
smaller number of securities relative to the number held in a diversified
portfolio. Consequently, the change in value of any one security may affect the
overall value of a non-diversified portfolio more than it would a diversified
portfolio, and thereby subject the market-based net asset value per share of the
non-diversified portfolio to greater fluctuation. In addition, a non-diversified
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portfolio may be more susceptible to economic, political and regulatory
developments than a diversified investment portfolio with similar objectives
would be.
Because the Fund will normally invest 80% or more of its net assets in
Pennsylvania Municipal Obligations, it is more susceptible to factors affecting
Pennsylvania issuers than is a comparable municipal bond fund not concentrated
in the obligations of issuers located in a single state. Pennsylvania tax-exempt
issuers may be adversely affected by local political and economic conditions and
developments within Pennsylvania. Although the General Fund of the Commonwealth
(the principal operating fund of the Commonwealth) experienced deficits in
fiscal 1990 and 1991, tax increases and spending decreases helped return the
General Fund balance to a surplus at June 30, 1992 of $87.5 million and at June
30, 1993 of $698.9 million. The deficit in the Commonwealth's
unreserved/undesignated funds also has been eliminated, and there was a surplus
of $64.4 million at June 30, 1993. However, rising unemployment, a relatively
high proportion of persons 65 and older, and court ordered increases in
healthcare reimbursement rates continue to place increased pressures on the tax
resources of the Commonwealth and its municipalities. In addition, certain
litigation is pending against the Commonwealth that could adversely affect its
ability to pay debt service. See the Statement of Additional Information for
further discussion of investment considerations associated with Pennsylvania
Municipal Obligations.
General obligations of Pennsylvania are currently rated "AA-" by S&P
and Fitch and "A1" by Moody's. There can be no assurance that the economic
conditions on which these ratings are based will continue or that particular
bond issues may not be adversely affected by changes in economic, political or
other conditions.
INVESTMENT RESTRICTIONS
The Funds are subject to a number of fundamental investment
restrictions that may be changed only by a vote of a majority of the outstanding
Shares (as defined in the Statement of Additional Information) of each Fund.
MONEY MARKET FUNDS
Cash Management Fund
The Cash Management Fund may not:
1. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if, immediately after such purchase, more than 5% of the
value of the Cash Management Fund's
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total assets would be invested in such issuer, except that up to 25% of the
value of the Cash Management Fund's total assets may be invested without regard
to such 5% limitation. (Regulations prohibit investments in excess of the 5%
limitation in more than one issuer or for more than three business days after
purchase.)
2. Purchase any securities which would cause more than 25% of the value
of the Cash Management Fund's total assets at the time of purchase to be
invested in securities of one or more issuers conducting their principal
business activities in the same industry, provided that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, domestic bank certificates of
deposit or banker's acceptances, and repurchase agreements secured by bank
instruments or obligations of the U.S. Government or its agencies or
instrumentalities; (b) wholly-owned finance companies will be considered to be
in the industries of their parents if their activities are primarily related to
financing the activities of their parents; and (c) utilities will be divided
according to their services. For example, gas, gas transmission, electric and
gas, electric, and telephone will each be considered a separate industry.
Cash Management and U.S. Treasury Securities Funds
The Cash Management and U.S. Treasury Securities Funds may
not:
1. Borrow money or issue senior securities, except that each Fund may
borrow from banks and enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any 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 such Fund's total assets at
the time of its borrowing. Neither Fund will purchase securities while its
borrowings (including reverse repurchase agreements) exceed 5% of the total
assets of such Fund.
2. Make loans, except that each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, may lend
portfolio securities in accordance with its investment objective and policies,
and may enter into repurchase agreements.
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U.S. Treasury Securities Fund
The U.S. Treasury Securities Fund may not purchase securities other
than short-term obligations issued or guaranteed by the U.S. Treasury, and
repurchase agreements secured by U.S. Treasury obligations.
Tax-Free Fund
The Tax-Free Fund may not:
1. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of its total assets
would be invested in such issuer (except that up to 25% of the value of the
Tax-Free Fund's total assets may be invested without regard to such 5%
limitation). For purposes of this limitation, a security is considered to be
issued by the government entity (or entities) whose assets and revenues back the
security; with respect to a private activity bond that is backed only by the
assets and revenues of a non-governmental user, a security is considered to be
issued by such non-governmental user.
2. Purchase any securities which would cause 25% or more of the
Tax-Free Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry; provided that this limitation shall not apply to Municipal
Obligations or governmental guarantees of Municipal Obligations; and provided,
further, that for the purpose of this limitation only, private activity bonds
that are backed only by the assets and revenues of a non-governmental user shall
not be deemed to be Municipal Obligations.
3. Borrow money or issue senior securities, except that the Tax-Free
Fund may borrow from banks and enter into reverse repurchase agreements for
temporary purposes in amounts up to 10% of the value of its total assets at the
time of such borrowing; or mortgage, pledge, or hypothecate any 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 Tax-Free Fund's total
assets at the time of its borrowing. The Tax-Free Fund will not purchase
securities while any borrowings are outstanding.
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NON-MONEY MARKET FUNDS
The Equity Funds, the Bond Fund and the Intermediate Income, Short-Term
Income and Balanced Funds may not:
1. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the total assets
of such Fund would be invested in such issuer, or hold more than 10% of any
class of securities of the issuer or more than 10% of the outstanding voting
securities of the issuer, except that up to 25% of the value of the total assets
of each such Fund may be invested without regard to such limitations. There is
no limit to the percentage of assets that may be invested in U.S. Treasury
bills, notes, or other obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities.
2. Purchase any securities which would cause more than 25% of the value
of the total assets of such Fund at the time of purchase to be invested in
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents;
and (c) utilities will be divided according to their services. For example, gas,
gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry.
3. Borrow money or issue senior securities, except that such Funds may
borrow from banks or enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of their respective total assets at
the time of such borrowing; or mortgage, pledge, or hypothecate any 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 total assets of
such Fund at the time of its borrowing. Such Funds will not purchase securities
while their borrowings (including reverse repurchase agreements) exceed 5% of
their respective total assets.
4. Make loans, except that such Funds may purchase or hold debt
instruments and lend portfolio securities in accordance with their respective
investment objectives and policies, and may enter into repurchase agreements.
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For the purposes of Investment Restriction 2 above, each of the Equity
Funds treats, as a matter of non-fundamental policy that may be changed without
a vote of shareholders, all supranational organizations as a single industry and
each foreign government (and all of its agencies) as a separate industry.
The Pennsylvania Tax-Free Bond Fund may not:
1. Purchase securities of any one issuer (other than
obligations issued or guaranteed by the U.S. Government, the Commonwealth of
Pennsylvania, and their agencies, authorities, instrumentalities or political
subdivisions) if immediately thereafter more than 5% of the value of the Fund's
total assets would be invested in the securities of any one issuer, except that
up to 50% of the value of the Fund's total assets may be invested without regard
to this 5% limitation, provided, however, that not more than 25% of the Fund's
total assets may be invested in securities of one issuer. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, a security is considered to be issued by such
non-governmental user. In accordance with regulations promulgated by the
Securities and Exchange Commission, the guarantor of a guaranteed security may
be considered to be an issuer in connection with such guarantee.
2. Purchase any securities which would cause more than 25% of
the value of its total assets at the time of purchase to be invested in
municipal obligations with similar characteristics (such as private activity
bonds where the payment of principal and interest is the ultimate responsibility
of issuers in the same industry, pollution control revenue bonds, housing
finance agency bonds or hospital bonds) or the securities of issuers conducting
their principal business activities in the same industry, provided that there is
no limitation with respect to obligations issued or guaranteed by the U.S.
Government, other governmental issuers of municipal bonds, and their respective
agencies, authorities, instrumentalities or political subdivisions.
3. Borrow money or issue senior securities, except from
domestic banks for temporary purposes and then in amounts not in excess of 10%
of the value of its total assets at the time of such borrowing (provided that
the Fund may borrow pursuant to reverse repurchase agreements in accordance with
its investment policies and in amounts not in excess of 10% of the value of its
total assets at the time of such borrowing); or mortgage, pledge, or hypothecate
any 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. The Fund will not purchase
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securities while borrowings (including reverse repurchase agreements) in excess
of 5% of its total assets are outstanding.
4. Make loans, except that (i) the Fund may purchase or hold
debt instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities, and
(ii) the Fund may lend portfolio securities against collateral consisting of
cash or securities which are consistent with the Fund's permitted investments,
where the value of the collateral is equal at all times to at least 100% of the
value of the securities loaned.
* * *
Certain additional investment restrictions, and information about the
Fund's investments, are in the Statement of Additional Information.
TAXES
Federal Income Taxes
Each of the Funds of the Company is treated as a separate entity for
federal tax purposes and intend to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification generally relieves a Fund of liability for federal income taxes to
the extent the Fund's earnings are distributed in accordance with the Code.
The following discussion summarizes some of the important federal tax
considerations generally affecting the Fund and its Shareholders and is not
intended as a substitute for careful tax planning. Accordingly, investors in the
Fund should consult their tax advisors with specific reference to their own tax
situation. Shareholders are also advised to consult their tax advisors
concerning state and local taxes, which may differ from the federal income taxes
discussed.
Money Market Funds. For each of the Money Market Funds, qualification
as a regulated investment company under the Code requires, among other things,
that each Fund distribute to its Shareholders an amount equal to at least 90% of
its investment company taxable income and at least 90% of its tax-exempt income
net of certain deductions for each taxable year. In general, the investment
company taxable income of a Fund will be its taxable income, including interest,
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 Company contemplates declaring as dividends 100% of the
investment company taxable income of each of the Money
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Market Funds (before deduction of dividends paid). Such dividends will be
taxable as ordinary income to the respective Shareholders of the Cash Management
and U.S. Treasury Securities Funds who are not currently exempt from federal
income taxes, whether such dividends are received in cash or reinvested in
additional shares. Federal income taxes for distributions to individual
retirement accounts and qualified retirement plans are deferred under the Code.
Because all of the net investment income of the Cash Management and U.S.
Treasury Securities Funds are expected to be derived from earned interest, it is
anticipated that no part of any distribution will be eligible for the dividends
received deduction for corporations.
For the Tax-Free Fund, qualification as a regulated investment company
under the Code for a taxable year requires, among other things, that it
distribute to its Shareholders an amount equal to at least the sum of 90% of its
exempt-interest income, net of certain deductions, and 90% of its investment
company taxable income (if any) for such year. Certain dividends derived from
exempt-interest income (known as exempt-interest dividends) may be treated by
the Tax-Free Fund's Shareholders as items of interest excludable from their
federal gross income. (Shareholders who may be treated as a "substantial user"
or a "related person" to such user under the Code are advised to consult a tax
advisor with respect to whether exempt-interest dividends retain the exclusion.)
However, such dividends may be taxable to Shareholders under state or local law
as ordinary income, even though all or a portion of the distributions may be
derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such taxes. A percentage of the interest on indebtedness
incurred by a Shareholder to purchase or carry Retail Shares of the Tax-Free
Fund, equal to the percentage of the total non-capital gain dividends
distributed among the Shareholder's taxable year that is tax-exempt dividends,
will not be deductible for federal income tax purposes. It should be noted that,
upon the sale or exchange of Retail Shares of the Tax-Free Fund, if the
Shareholder has not held such Shares for more than six months, any loss on the
sale or exchange of those shares will be disallowed to the extent of tax-exempt
dividends received with respect to the Shares.
If the Tax-Free Fund should hold certain private activity bonds issued
after August 7, 1986, Shareholders must include, as an item of tax preference,
the portion of dividends paid by the Tax-Free Fund that is attributable to
interest on such bonds in their federal alternative minimum taxable income for
purposes of determining liability (if any) for the federal alternative minimum
tax applicable to individuals and the federal alternative minimum tax and the
environmental tax applicable to corporations. Corporations must also take all
exempt-interest dividends into account in determining certain adjustments for
federal alternative minimum and environmental tax purposes. The
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environmental tax applicable to corporations is imposed on the excess of the
corporation's modified federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.
To the extent dividends paid to Shareholders of the Tax-Free Fund are
derived from taxable income (for example, from interest on certificates of
deposit or repurchase agreements) or from long-term or short-term capital gains,
such dividends will be subject to federal income tax.
The U.S. Treasury Securities Fund, the Cash Management Fund and the
Tax-Free Fund do not expect to realize any long-term capital gains and,
therefore, do not foresee paying any "capital gain dividends" as described in
the Code.
Dividends declared by a Fund 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 Shareholders and paid by the Fund on December
31 of such year if such dividends are actually paid during January of the
following year.
Shareholders will be advised at least annually as to the federal income
tax consequences of distributions made to them each year.
The Equity Funds, the Bond Fund and the Intermediate Income, Short-Term
Income and Balanced Funds. Qualification as a regulated investment company under
the Code for a taxable year requires, among other things, that each of these
Funds distribute to its Shareholders an amount equal to at least 90% of its
investment company taxable income and at least 90% of its tax-exempt income net
of certain deductions for each taxable year. In general, each such Fund's
investment company taxable income will be its taxable income, including
dividends, interest and short-term capital gains (the excess of net short-term
capital gain over net long-term capital loss), 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 policy of the
Fund is to distribute as dividends substantially all of its investment company
taxable income each year. With respect to the Equity Funds, the dividends
received deduction for corporations will apply to such ordinary income
distributions to the extent of the total qualifying dividends received by a Fund
from domestic corporations for the taxable year. Because substantially all of
the net investment income of the Bond, Intermediate Income, Short-Term Income
and Balanced Funds are expected to be derived from earned interest, it is
anticipated that no part of any
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distributions from such Funds will be eligible for the dividends received
deduction for corporations.
Distribution by each of the Equity Funds, the Bond Fund and the
Intermediate Income, Short-Term Income and Balanced Funds of the excess of net
long-term capital gain over net short-term capital loss is taxable to
Shareholders as long-term capital gain, regardless of how long the Shareholder
has held the Retail Shares and whether such gains are received in cash or
reinvested in additional Retail Shares. Such distributions are not eligible for
the dividends received deduction for corporations.
Dividends declared by a fund 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 Shareholders and paid by the Funds on
December 31 of such year if such dividends are actually paid during January of
the following year.
Investors considering buying Retail Shares on or just before the record
date of a dividend should be aware that the amount of the forthcoming dividend
payment, although in effect a return of capital, will be taxable.
A taxable gain or loss may be realized by a Shareholder upon his or her
redemption, transfer or exchange of Retail Shares of any of the Non-Money Market
Funds depending upon the tax basis and their price at the time of redemption,
transfer, or exchange. Generally, a Shareholder may include sales charges
incurred upon the purchase of Fund Shares in his or her tax basis for such
Shares for the purpose of determining gain or loss on a redemption, transfer or
exchange of such Shares. However, if the Shareholder effects an exchange of such
Shares for Shares of another Fund within 90 days of the purchase and is able to
reduce the sales charges applicable to new Shares (by virtue of the Company's
exchange privilege), the amount equal to such reduction may not be included in
the tax basis of the Shareholder's exchanged Shares but may be included (subject
to the same limitation) in the tax basis of the new Shares.
Shareholders will be advised at least annually as to the federal income
tax consequences of distributions made each year.
The Pennsylvania Tax-Free Bond Fund. Qualification as a regulated
investment company under the Code for a taxable year requires, among other
things, that the Pennsylvania Tax-Free Bond Fund distribute to its Shareholders
an amount equal to at least 90% of its tax-exempt income and at least 90% of its
investment company taxable income (if any) for each taxable year. In general,
the Pennsylvania Tax-Free Bond Fund's investment company taxable income will be
its taxable income, including dividends, interest and short-term capital gains
(the excess of net short-
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term capital gain over net long-term capital loss), 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
policy of the Pennsylvania Tax-Free Bond Fund is to distribute as dividends
substantially all of its investment company taxable income each year. If, at the
close of each quarter of its taxable year, at least 50% of the value of the
Fund's total assets is invested in obligations exempt from federal income tax,
the Fund will be eligible to pay dividends that are excludable by shareholders
from gross income for federal income tax purposes ("exempt interest dividends"),
unless under the circumstances applicable to the particular Shareholder the
exclusion would be disallowed (See Statement of Additional Information --
"Taxes"). The total amount of exempt interest dividends paid by the Fund to
Shareholders with respect to any taxable year cannot exceed the amount of
federally tax-exempt interest received by the Fund during the year less any
expenses allocable to such interest. The Pennsylvania Tax-Free Bond Fund,
however, does not expect to realize significant long-term capital gains and,
therefore, does not foresee paying significant "capital gains dividends" as
described in the Code.
A percentage of the interest on indebtedness incurred or continued to
purchase or carry Retail Shares of the Pennsylvania Tax-Free Bond Fund, equal to
the percentage of the total non-capital gain dividends distributed during the
Shareholder's taxable year that is exempt interest dividends, will not be
deductible for federal income tax purposes. It should be noted that, upon the
sale or exchange of Shares of the Pennsylvania Tax-Free Bond Fund, if the
Shareholder has not held such Retail Shares for more than six months, any loss
on the sale or exchange of those Retail Shares will be disallowed to the extent
of the tax-exempt dividends received with respect to the Retail Shares.
A taxable gain or loss may be realized by a Shareholder upon his or her
redemption, transfer or exchange of Retail Shares of the Pennsylvania Tax-Free
Bond Fund depending upon the tax basis of such shares when purchased and their
price at the redemption, transfer, or exchange. Generally, a Shareholder may
include sales charges incurred upon the purchase of Retail Shares in his or her
tax basis for such Shares for the purpose of determining gain or loss on a
redemption, transfer or exchange of such shares. However, if the Shareholder
effects an exchange of such shares for shares of another Fund within 90 days of
the purchase and is able to reduce the sales charges applicable to new shares
(by virtue of the Company's exchange privilege), the amount equal to such
reduction may not be included in the tax basis of the Shareholder's exchanged
Shares but may be included (subject to the same limitation) in the tax basis of
the new Shares.
If the Pennsylvania Tax-Free Bond Fund should hold certain private
activity bonds issued after August 7, 1986, Shareholders
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must include, as an item of tax preference, the portion of dividends paid by the
Fund that is attributable to interest on such bonds in their federal alternative
minimum taxable income for purposes of determining liability (if any) for the
26-28% alternative minimum tax applicable to individuals and the 20% alternative
minimum tax and the environment tax applicable to corporations. Corporations
must also take all exempt-interest dividends into account in determining certain
adjustments for federal alternative minimum and environmental tax purposes. The
environmental tax applicable to corporations is imposed at the rate of .12% on
the excess of the corporation's modified federal alternative minimum taxable
income over $2,000,000. Shareholders receiving Social Security benefits should
note that all exempt-interest dividends will be taken into account in
determining the taxability of such benefits.
Dividends declared by the Pennsylvania Tax-Free Bond Fund 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
Shareholders and paid by the Fund on December 31 of such year if such dividends
are actually paid during January of the following year.
Shareholders will be advised at least annually as to the federal income
tax consequences of distributions made to them each year.
Pennsylvania State Tax
Under current Pennsylvania law, shareholders of the Tax-Free, U.S.
Treasury Securities and Pennsylvania Tax-Free Bond Funds will not be subject to
Pennsylvania Personal Income Tax on distributions from the Funds attributable to
interest income from Pennsylvania Municipal Obligations or from obligations of
the United States, its territories and certain of its agencies and
instrumentalities ("Federal Obligations"). However, Pennsylvania Personal Income
Tax will apply to distributions from the Funds attributable to gain realized on
the disposition of any investment, including Pennsylvania Municipal Obligations
or Federal Obligations, or to interest income from investments other than
Pennsylvania Municipal Obligations or Federal Obligations. Shareholders also
will be subject to the Pennsylvania Personal Income tax on any gain they realize
on the disposition of shares in one of the Funds.
Distributions attributable to interest or gain from Pennsylvania
Municipal Obligations or Federal Obligations are not currently subject to the
Philadelphia School District Net Income Tax. However, it is anticipated that
rules similar to those described above for the Pennsylvania Personal Income Tax
ultimately will be applied, and a recently enacted Pennsylvania statute
specifically authorized local taxation of gains on
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Pennsylvania Municipal Obligations and Federal Obligations. Accordingly, there
can be no assurance that distributions made by the Tax-Free, U.S. Treasury
Securities and Pennsylvania Tax-Free Bond Funds that are attributable to such
gains will be exempt from the Philadelphia School District Net Income Tax,
except that gains attributable to any investment held for more than six months
will continue to be exempt. A shareholder's gain on the disposition of a share
in one of the Funds that he has held for more than six months will not be
subject to the Philadelphia School District Net Income Tax.
Shareholders of the Tax-Free, U.S. Treasury Securities and Pennsylvania
Tax-Free Bond Funds are not subject to any of the personal property taxes
currently in effect in Pennsylvania to the extent that a Fund is comprised of
Pennsylvania Municipal Obligations and Federal Obligations. The taxes referred
to include the county personal property tax imposed on residents of Pennsylvania
by the Act of June 17, 1913, P.L. 507, as amended, and the additional personal
property taxes imposed on Pittsburgh residents by the School District of
Pittsburgh under the Act of June 20, 1947, P.L. 733, as amended, and by the City
of Pittsburgh under Ordinance No. 599 of December 28, 1967.
PERFORMANCE INFORMATION
Money Market Funds: Seven-day yields are computed for each of the Cash
Management, Tax-Free and U.S. Treasury Securities Funds by determining the net
change in the value of a hypothetical pre-existing account in each such Fund
which has a balance of one Retail Share 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 each such Fund includes the value
of additional Retail Shares purchased with dividends from the original Retail
Share and dividends declared on the original Share and any such additional
Retail Shares, net of all fees charged to all Shareholder accounts in proportion
to the length of the base period and such Fund's average account size, but does
not include gains and losses or unrealized appreciation and depreciation. In
addition, these Funds may use effective annualized yield quotations computed on
a compounded basis by adding 1 to the base period return (calculated as
described above), raising that sum to a power equal to 365/7, and subtracting 1
from the result.
The Tax-Free Fund may also present its "taxable equivalent yield" and
"taxable equivalent effective yield" with respect to its Retail Shares which
reflect the amount of income subject to federal income taxation that a taxpayer
in a stated tax bracket would have to earn in order to obtain the same after-tax
income
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as that derived from the yield and effective yield, respectively, of the
Tax-Free Fund. The taxable equivalent yield and taxable equivalent effective
yield will be significantly higher than the yield and effective yield of the
Tax-Free Fund.
From time to time, performance information for the Funds showing their
average annual total return, aggregate total return and yield may be presented
in advertisements, sales literature and in reports to Shareholders. The Funds'
performance information may be quoted and compared to those of other mutual
funds with similar investment objectives and to stock or other relevant indices.
For example, the yields of these Funds may be compared to the IBC/Donoghue's
Money Fund Average, which is an average compiled by IBC/Donoghue's MONEY FUND
REPORT of Holliston, MA 01746, a widely recognized independent publication that
monitors the performance of money market funds, 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 six standard metropolitan
statistical areas, or to data prepared by Lipper Analytical Services, Inc., as
well as to yield data as reported in publications such as Money Magazine,
Forbes, Barron's, The Wall Street Journal, The New York Times, Business Week,
American Banker, Fortune, Institutional Banker, Institutional Investor, Ibbotson
Associates, Inc., Morningstar, Inc., CDA/Wiesenberger, Pensions and Investments,
U.S.A. Today and local newspapers. In addition to yield information, general
information about these Funds that appears in a publication such as those
mentioned above may also be quoted or reproduced in advertisements or in reports
to Shareholders. Reports to shareholders may contain performance information on
any fund of the Company.
Yields will fluctuate and any quotation of yield should not be
considered as representative of the future performance of any Fund. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in
these 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
portfolio, portfolio maturity, operating expenses, and market conditions. Any
fees charged by an affiliate of the Investment Advisor or correspondents thereof
with respect to customer accounts in investing in shares of these Funds will not
be included in yield calculations; such fees, if charged, would reduce the
actual yield from that quoted.
Non-Money Market Funds: From time to time performance information with
respect to Retail Shares for these Funds showing each Fund's average annual
total return, aggregate total return and yield may be presented in
advertisements, sales literature and in reports to Shareholders. Such
performance figures are
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based on historical earnings and are not intended to indicate future
performance. Average annual total return will be calculated on an annual basis
(with respect to the International Equity, Short-Term Income and Balanced Funds,
for certain periods since the establishment of such Fund), and will, unless
otherwise noted, reflect the imposition of the maximum sales charge. For the
information of Shareholders not subject to a sales charge, the Funds may also
publish average annual total returns which include no sales charge. Average
annual total return is measured by comparing the value of an investment in a
Fund at the beginning of the relevant period to the redemption value of the
investment at the end of the period (assuming immediate reinvestment of any
dividends or capital gains distributions) and annualizing the result. Aggregate
total return is calculated similarly, however, the resulting difference is not
annualized. Yield will be computed by dividing such Fund's net investment income
per share earned during a recent 30-day period by such Fund's per share maximum
offering price (reduced by any undeclared earned income expected to be paid
shortly as a dividend) on the last day of the period and annualizing the result.
Quotations of total return will reflect the maximum sales load charged
by a Fund, except that the Fund may also provide, in conjunction with such
quotations, additional quotations that do not reflect a sales charge when the
quotations are being provided to investors who are exempt from the sales charges
described in this Prospectus. Similarly, a Fund may provide yield quotations in
investor communications (other than advertisements) based on a share's net asset
value (rather than its maximum offering price) per share on the last day of the
period covered by the yield computation. Because these additional quotations
will not reflect the maximum sales charge payable by non-exempt investors, such
performance quotations will be higher than the performance quotations computed
in the manner described in the preceding paragraph.
The Pennsylvania Tax-Free Bond Fund may also quote its "taxable
equivalent yield" which demonstrates the level of taxable yield necessary to
produce an after-tax equivalent to the Fund's tax-free yield. It is calculated
by increasing the Fund's yield (calculated as above) by the amount necessary to
reflect the payment of federal and Pennsylvania income taxes at a stated tax
rate. The taxable equivalent yield will always be higher than the Fund's yield.
Investors may also judge the performance of a Fund, by comparing it to
the performance of other mutual funds with comparable investment objectives and
policies through various mutual fund or market indices such as those prepared by
Dow Jones & Co., Inc. and Standard & Poor's Ratings Group, Division of McGraw
Hill and to data prepared by Lipper Analytical Services,
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Inc. Comparisons may also be made to indices or data published in Money
Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times,
Business Week, American Banker, Fortune, Institutional Banker, Institutional
Investor, Ibbotson Associates, Inc., Morningstar, Inc., CDA/Wiesenberger,
Pensions and Investments, U.S.A. Today and local newspapers. In addition to
yield information, general information about these Funds that appears in a
publication such as those mentioned above may also be quoted or reproduced in
advertisements or in reports to Shareholders. Reports to Shareholders may
contain performance information on any Fund of the Company.
Yield and total return are functions of the type and quality of
instruments held in the portfolio, operating expenses, and market conditions.
Consequently, current yields and total return will fluctuate and are not
necessarily representative of future results. Any fees charged by an affiliate
of the Investment Advisor or a correspondent thereof with respect to customer
accounts for investing in shares of the Fund will not be included in performance
calculations; such fees, if charged, would reduce the actual yield and total
return from that quoted.
MANAGEMENT OF THE COMPANY
Trustees
Overall responsibility for management of the Company rests with its
Board of Trustees, who are elected by the Shareholders of the Company's Funds.
The Statement of Additional Information contains the names of and general
background information concerning each trustee.
Investment Advisor
Meridian Investment Company (the "Investment Advisor") is the
investment advisor of the Company. Located in Malvern, Pennsylvania, the
Investment Advisor is a subsidiary of Meridian Bancorp, Inc., a regional
multi-bank holding company with assets over $14 billion, providing a full array
of financial and asset management, commercial banking, and real estate services.
As of November 1, 1994, the Investment Advisor managed and advised a total of
$5.0 billion in a variety of balanced, equity and fixed-income portfolios.
Subject to the general supervision of the Company's Board of Trustees
and in accordance with the investment objectives and restrictions of each Fund,
the Investment Advisor manages the Funds, makes decisions with respect to and
places orders for all purchases and sales of the Funds' investment securities,
and maintains the Funds' records relating to such purchases and sales.
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The following individuals serve as portfolio managers for the Funds and
are primarily responsible for the day-to-day management of the portfolios:
Craig A. Moyer, CFA, is a Senior Vice President and Senior
Fixed Income Manager. Mr. Moyer has been with Meridian Investment Company
(or a predecessor) since 1977. Mr. Moyer began his investment career in 1974 and
obtained his B.A. from Pennsylvania State University. Mr. Moyer has been a part
of the Fixed Income Unit overseeing the Bond Funds since their inception. Mr.
Moyer currently manages the Intermediate Income Fund and the Balanced Fund.
Cathy L. Rahab is an Assistant Vice President and Portfolio
Manager with Meridian Investment Company. Ms. Rahab began her investment
career in 1986 and obtained her B.S. in Business Administration from Villanova
University. Ms. Rahab joined the Fixed Income Unit in July of 1994. Ms. Rahab
currently manages the Money Market Funds and the Short-Term Income Fund.
Christine M. Frampton is an Investment Officer and Fixed
Income Portfolio Manager with Meridian Investment Company since April 1990.
Ms. Frampton began her investment career with Merrill Lynch & Co. in 1987 and
obtained her B.A. from University of Delaware and M.B.A. from St. Joseph's
University. Ms. Frampton has been part of the Fixed Income Unit overseeing the
Bond Funds since September, 1992. Ms. Frampton currently manages the
Pennsylvania Tax-Free Fund.
Joseph E. Stocke, CFA, is a Senior Vice President and Senior
Equity Manager. Mr. Stocke has been with Meridian Investment Company (or a
predecessor) since 1983. Mr. Stocke began his investment career in 1982 and
obtained his B.S. in Economics attending The Wharton School, and University of
Pennsylvania and completed graduate courses at New York University. Mr. Stocke
has been part of the Equity Unit overseeing the Equity Fund and the Special
Equity Fund since their inception. Mr. Stocke currently manages the Balanced
Fund.
Leslie M. Varrelman is a Vice President and Fixed Income
Manager and has been with Meridian Investment Company since January 1994.
Previously, Ms. Varrelman was Vice President of CoreStates Investment Advisers
where she managed the commingled fixed income funds and managed the Limited
Maturity Products area. Ms. Varrelman obtained her B.S. in Business
Administration from Juniata College in 1981. Ms. Varrelman currently manages the
Bond Fund.
For the services provided and expenses assumed pursuant to its
investment advisory agreement with the Company, the Investment Advisor is
entitled to receive a fee from the Fund, computed daily and paid monthly, at an
annual rate equal to the
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lesser of (a) (i) .40% of the average daily net assets of each of the Cash
Management, Tax-Free and U.S. Treasury Securities Funds, (ii) .74% of the
average daily net assets of each of the Equity, Bond, Intermediate Income,
Pennsylvania Tax-Free Bond and Short Term Income Funds, (iii) .75% of the
average daily net assets of the Balanced Fund, (iv) 1.00% of the average daily
net assets of the International Equity Fund and (v) 1.50% of the average daily
net assets of the Special Equity Fund, or (b) such fee as may from time to time
be agreed upon in writing by a Fund and the Investment Advisor in advance of the
period to which the fee relates. See "Expense Summary." The maximum investment
advisory fees payable by the Special Equity, Balanced and International Equity
Funds respectively, are higher than the investment advisory fees paid by most
comparable mutual funds.
Sub-advisor
Marvin & Palmer Associates, Inc., 1201 N. Market Street, Suite 2300,
Wilmington, Delaware 19801-1165, is Sub-advisor for the International Equity
Fund under an agreement with the Advisor (the "Sub-advisory Agreement"). The
Sub-advisor is responsible for the investment and reinvestment of the
International Equity Fund's assets and the placement of brokerage transactions
in connection therewith. For its services under the Sub-advisory Agreement, the
Sub-advisor is paid a monthly fee by the Investment Advisor calculated on an
annual basis equal to .75% of the first $100 million of International Equity
Fund's average daily net assets, .70% of the second $100 million of
International Equity Fund's average daily net assets, .65% of the third $100
million of International Equity Fund's average daily net assets, and .60% of
International Equity Fund's average daily net assets in excess of $300 million.
The Sub-advisor, a privately held company, was founded in 1986 by David
F. Marvin and Stanley Palmer. The stock of the Sub-advisor is owned by Messrs.
Marvin and Palmer and twenty other holders. The Sub-advisor is engaged in the
management of global, non-United States and emerging markets equity portfolios
for institutional accounts. At September 30, 1994, the Sub-advisor managed a
total of $2.8 billion in investments for 47 institutional investors.
The following five individuals will share the management of
International Equity Fund on behalf of the Sub-advisor:
David F. Marvin, CFA, is chairman of the Sub-advisor and
founded the firm together with Mr. Palmer in 1986. Before founding the
Sub-advisor, Mr. Marvin was Vice president in charge of DuPont Corporation's $10
billion internally-managed pension fund. Prior to that Mr. Marvin was Associate
Portfolio Manager, and the Head Portfolio Manager, for Investors Diversified
Services' IDS Stock Fund. Mr. Marvin started in the investment
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business in 1965 as a security analyst for Chicago Title & Trust Company.
He received his M.B.A. from Northwestern University and his B.S. from the
University of Illinois, and is a Chartered Financial Analyst and a member of the
Financial Analysts Federation.
Stanley Palmer, CFA, is President of the Sub-advisor and co-founder of
the firm. Mr. Palmer was Equity Portfolio Manager for DuPont Corporation from
1978 through 1986, an analyst and portfolio manager at Investors Diversified
Services from 1971 through 1978, and an analyst at Harris Trust & Savings Bank
from 1964 through 1971. He received his M.B.A. from the University of Iowa and
his B.S. from Gustavus Adolphus College, and is a Chartered Financial Analyst
and a member of the Financial Analysts Federation.
Terry B. Mason is a Vice President and Portfolio Manager of
the Sub-advisor. Before joining the Sub-advisor, Mr. Mason was employed for
14 years by DuPont Corporation,the last five as international equity analyst and
international trader. He received his M.B.A. from Widener University and his
B.A. from Glassboro State College.
Jay F. Middleton is a portfolio manager for the Sub-advisor
and joined the firm in 1989. He received his B.A. from Wesleyan University.
Todd D. Marvin is a portfolio manager for the Sub-advisor
and joined the firm in 1991. Before joining the Sub-advisor, Mr. Marvin was
employed by Oppenheimer & Company as an analyst in investment banking. Mr.
Marvin received his B.A. from Wesleyan University.
Administrator and Distributor
SEI Financial Management Corporation (the "Administrator"), a
wholly-owned subsidiary of SEI Corporation ("SEI"), provides the Company with
administrative services, including Fund accounting, regulatory reporting,
necessary office space, equipment, personnel, and facilities. SEI Financial
Services Company (the "Distributor"), a wholly-owned subsidiary of SEI, serves
as distributor.
Effective May 1, 1995, the Administrator will receive a fee, which is
calculated daily and paid monthly, at a maximum annual rate of 0.17% of the
average daily net assets of each Fund.
Until April 30, 1995, the current administrator will receive fees equal
to .20% of the average daily net assets of each Fund.
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Custodians and Transfer Agent
Citibank, N.A. serves as custodian for each Fund other than the
International Equity Fund. The Bank of New York serves as custodian for the
International Equity Fund. The Administrator also serves as Transfer Agent for
the Company. State Street Bank & Trust Company serves as the Sub-Transfer Agent
for the Company pursuant to an agreement with the Administrator.
Distribution and Services Plan
Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment
company to pay directly or indirectly expenses associated with the distribution
of its shares in accordance with a plan adopted by an investment company's
trustees and approved by its shareholders. Pursuant to such Rule, with respect
to Retail Shares of the International Equity, Short-Term Income and Balanced
Funds, and subject to shareholder approval with respect to Retail Shares of each
of the other Funds, the Company has adopted a Distribution and Services Plan
(the "Distribution Plan"). Pursuant to the Distribution Plan, each Fund is
authorized to pay or reimburse the distributor for certain expenses that are
incurred in connection with shareholder and distribution Services.
Payments under the Distribution Plan are calculated daily and paid
monthly at an annual rate not to exceed .40% of the average daily net asset
value of Retail Shares of each Fund. Such amount may be used by the Distributor
to pay (i) banks and their affiliates (including Meridian Bank and its
affiliates), and other institutions, including broker-dealers (collectively
"Shareholder Organizations") in connection with providing administrative support
services to the holders of a Fund's Retail Shares or (ii) financial institutions
and industry professionals (such as insurance companies, investment counsellors,
accountants and estate planning firms (but not including banks and savings and
loan associations)), broker-dealers, and the Distributor's affiliates and
subsidiaries (collectively, "Participating Organizations") in connection with
providing distribution services and for expenses assumed in connection with such
services. Payments pursuant to the Distribution Plan are used (i) to compensate
organizations for providing distribution assistance relating to Retail Shares,
(ii) for promotional activities intended to result in the sale of Retail Shares
such as to pay for the preparation, printing and distribution of prospectuses to
other than current shareholders, (iii) printing and distributing advertising and
sales literature and reports to shareholders used in connection with this sale
of a Fund's Retail Shares, and (iv) personnel and communicative equipment used
in servicing shareholder accounts and prospective shareholder inquiries.
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Fees paid pursuant to the Distribution Plan are accrued daily and paid
monthly, and are charged as expenses of Retail Shares of a Fund as accrued.
The services provided by Shareholder Organizations may include
processing purchase, exchange, and redemption requests from Customers and
placing orders with the Transfer Agent; processing dividend and distribution
payments from a Fund on behalf of Customers; providing information periodically
to Customers showing their ownership of shares; providing sub-accounting with
respect to Shares beneficially owned by Customers or the information necessary
for sub-accounting; responding to inquiries from Customers concerning their
investment in shares; arranging for bank wires; and providing such other similar
services as may be reasonably requested.
The Company understands that Shareholder Organizations may charge fees
to their Customers who are the owners of shares in connection with their
Customer accounts. These fees would be in addition to any amounts which may be
received by a Shareholder Organization under its Servicing Agreement with the
Company. The Servicing Agreements require, however, a Shareholder Organization
to disclose to its Customers any compensation payable to the Shareholder
Organization by the Company and any other compensation payable by the Customers
in connection with the investment of their assets in shares. Customers of
Shareholder Organizations should read this Prospectus in light of the terms
governing their accounts with their Shareholder Organizations.
The services provided by Participating Organizations may include
aggregating and placing purchase exchange and redemption orders directly with
the Company's Transfer Agent, engaging in advertising with respect to a fund's
Retail Shares, preparing, printing and distributing a fund prospectus, reports
and sales literature, and such other similar services as the Distributor may
reasonably request to the extent that Participating Organization is permitted to
do so under applicable statutes, rules or regulations. A participating
organization may from time to time also undertake to perform administration
support services similar to those identified above with respect to Shareholder
Organizations.
Conflict of interest restrictions may apply to the receipt by
Shareholder Organizations of compensation from the Company in connection with
the investment of fiduciary assets in shares. Shareholder Organizations,
including banks regulated by the Comptroller of the Currency, the Federal
Reserve Board, or the FDIC, and investment advisers and other money managers
subject to the jurisdiction of the SEC, the Department of Labor, or state
securities commissions, are urged to consult their legal advisers before
investing such assets in shares.
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Expenses
The Investment Advisor and the Administrator each bear all expenses in
connection with the performance of their services as investment advisor and
administrator, respectively, other than the cost of securities (including
brokerage commissions) purchased for the Company. Each Fund of the Company will
bear expenses relating to its respective operations including the following:
taxes; interest; brokerage fees and commissions; fees and travel expenses of the
Trustees of the Company; Securities and Exchange Commission fees; state
securities qualification expenses; costs of preparing and printing prospectuses
for regulatory purposes and for distribution to current Shareholders; outside
auditing and legal expenses; advisory and administration fees; fees and
out-of-pocket expenses of the custodian and transfer agent; expenses incurred
for pricing securities owned by each respective Fund; insurance premiums; costs
of maintenance of the Company's existence; costs of Shareholders' reports and
meetings; proxy solicitation expenses; costs of Board of Trustees meetings and
any extraordinary expenses incurred in each Fund's operation. The holders of
Retail Shares of a Fund will not bear the cost of any activity primarily
intended to result in the distribution of its Shares; such costs will be borne
by the Distributor.
Banking Laws
Future changes in federal or state statutes and regulations relating
to permissible activities of banks or bank holding companies and their
subsidiaries and affiliates as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations
could change the manner in which the Investment Advisor may continue to perform
investment advisory services for the Company. See the Statement of Additional
Information -- "Banking Laws" for further discussion.
GENERAL INFORMATION
Description of the Company and Its Shares
The Company was organized as a Massachusetts trust with transferrable
Shares on August 1, 1989. The Company consists of eleven portfolios, each having
two classes of shares, Institutional Shares and Retail Shares: the Cash
Management Fund; the Tax-Free Fund; the U.S. Treasury Securities Fund; the
Equity Fund; the International Equity Fund; the Special Equity Fund; the Bond
Fund; the Intermediate Income Fund; the Pennsylvania Tax-Free Bond Fund; the
Short-Term Income Fund and the Balanced Fund. Each Share represents an equal
proportionate interest in a Fund with other Shares of the same class, and is
entitled to such dividends and distributions out of the income
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earned on the assets belonging to that Fund as are declared at the discretion of
the Board of Trustees. Shares have a par value of $.001 per Share and do not
have preemptive or conversion rights.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for any fractional shares held. Shareholders will
vote in the aggregate and not by class except as otherwise expressly required by
law. For example, Shareholders of the Funds will vote in the aggregate with
other shareholders of the Company with respect to the election of Trustees and
the ratification of the selection of independent accountants. Shareholders of a
Fund will vote as a Fund, however, and not in the aggregate with other
shareholders of the Company, for purposes of approval of that Fund's investment
advisory agreement. Voting rights are not cumulative and, accordingly, holders
of more than 50% of the aggregate Shares of the Company may elect all of the
Trustees.
As of November 1, 1994, Meridian Bancorp, Inc. indirectly possessed or
shared power to dispose or vote with respect to more than 25% of the outstanding
shares of the Company and therefore may be considered to be a controlling person
of the Company for purposes of the Act.
Annual meetings of Shareholders are not required by the Agreement and
Declaration of Trust, the Investment Company Act of 1940 or other authority
except, under certain circumstances, to elect Trustees, amend the Agreement and
Declaration of Trust, approve investment advisory and distribution agreements,
ratify the selection of accountants and to satisfy certain other requirements.
Shareholders owning not less than 10% of the outstanding shares of the Company
entitled to vote may cause the Board of Trustees to call a special meeting of
Shareholders. At such a meeting, a quorum of Shareholders (constituting a
majority of votes attributable to all outstanding Shares of the Company), by
majority vote, has the power to remove one or more Trustees. To the extent
required by law, the Company will assist in Shareholder communication in such
matters.
Multiple Classes of Shares
In addition to Retail Shares, the Company also offers Institutional
Shares of the Funds, under an exemptive order granted by the Securities and
Exchange Commission. Institutional Shares are sold through procedures that are
established by the Distributor to bank trust departments purchasing
Institutional Shares on behalf of the fiduciary, advisory, agency, custody or
other similar accounts maintained by, or on behalf of, their customers.
Institutional Shares are not sold subject to a sales charge and do not bear
expenses under the Distribution Plan pertaining to Retail Shares. In addition,
Retail Shares may bear
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additional retail transfer agency expenses. A sales person or other person
entitled to receive compensation for selling or servicing the shares may receive
different compensation with respect to one particular class of shares over
another in the same Fund. For further details regarding eligibility requirements
for the purchase of Institutional Shares, call the Company at (800) 344-2716.
The amount of dividends payable with respect to Institutional Shares
will exceed dividends on Retail Shares as a result of the 12b-1 fees applicable
to Retail Shares.
Miscellaneous
Shareholders will receive unaudited mid-year reports and audited
annual reports describing the investment operations of all of the Company's
Funds. The Company may include information in its Annual Reports and Semi-Annual
Reports to Shareholders that (i) describes general economic trends, (ii)
describes general trends within the financial services industry or the mutual
fund industry, (iii) describes past or anticipated portfolio holdings for Funds
within the Company or (iv) describes investment management strategies for such
Funds. Such information is provided to inform Shareholders of the activities of
a Fund for the most recent fiscal year or half-year and to provide the views of
the Advisor and/or Company officers regarding expected trends and strategies.
As used in this Prospectus and in the Statement of Additional
Information, "assets belonging to" a Fund means the consideration received by
the Company upon the issuance or sale of Shares in that Fund, 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, and any funds or payments derived from any reinvestment of such
proceeds, and any general assets of the Company not readily identified as
belonging to a particular Fund that are allocated to that Fund by the Company's
Board of Trustees. The Board of Trustees may allocate such general assets in any
manner it deems fair and equitable. It is anticipated that the factor that will
be used by the Board of Trustees in making allocations of general assets to
particular Funds will be the relative net assets of the respective Funds at the
time of allocation. Assets belonging to a particular Fund are charged with the
direct liabilities and expenses in respect of that Fund, and with a share of the
general liabilities and expenses of the Company not readily identified as
belonging to a particular Fund that are allocated to that Fund in proportion to
the relative net asset values of the respective Funds at the time of allocation.
The allocations of general assets and general liabilities and expenses of the
Company to particular Funds will be determined in accordance with generally
accepted accounting principles.
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Determinations by the Board of Trustees of the Company as to the timing of the
allocation of general liabilities and expenses and as to the timing and
allocable portion of any general assets with respect to a particular Fund are
conclusive.
As used in this Prospectus and in the Statement of Additional
Information, a "vote of a majority of the outstanding Shares" of the Company or
a particular Fund means the affirmative vote, at a meeting of Shareholders duly
called, of the lesser of (a) 67% or more of the votes of Shareholders of the
Company or such Fund present at a meeting at which the holders of more than 50%
of the votes attributable to Shareholders of record of the Company or such Fund
are represented in person or by proxy, or (b) the holders of more than 50% of
the outstanding votes of Shareholders of the Company or such Fund.
Inquiries regarding the Fund may be directed in writing to the Company
at 680 East Swedesford Road, Wayne, PA 19087-1658, or by calling toll-free
(800) 344-2716.
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CONESTOGA FAMILY OF FUNDS
INVESTMENT ADVISOR
Meridian Investment Company
Valley Stream Parkway
Malvern, Pennsylvania 19355
SUB-INVESTMENT ADVISOR
Marvin & Palmer Associates, Inc.
1201 N. Market Street, Suite 2300
Wilmington, Delaware 19801
ADMINISTRATOR
SEI Financial Management Corporation
680 East Swedesford Road
Wayne, Pennsylvania 19087-1658
LEGAL COUNSEL
DRINKER BIDDLE & REATH
1345 Chestnut Street
Philadelphia, PA 19107-3496
DISTRIBUTOR
SEI Financial Services Company
680 East Swedesford Road
Wayne, Pennsylvania 19087-1658
TRANSFER AGENT
State Street Bank and Trust Company
The BFDS Building
2 Heritage Drive
Quincy, MA 02171
AUDITORS
Coopers & Lybrand L.L.P.
100 East Broad Street
Columbus, Ohio 43215
TABLE OF CONTENTS
<TABLE>
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Page
<S> <C>
Prospectus Summary................................................................................................3
Expense Summary...................................................................................................6
Financial Highlights..............................................................................................8
Investment Objectives
and Policies...................................................................................................17
How to Purchase
and Redeem Shares..............................................................................................26
Valuation of Shares..............................................................................................39
Dividends........................................................................................................40
Other Investment Policies........................................................................................41
Investment Restrictions..........................................................................................57
Taxes............................................................................................................62
Performance Information..........................................................................................68
Management of the Company........................................................................................71
General Information..............................................................................................77
</TABLE>
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No person has been authorized to give any information or to make any
representations not contained in this Prospectus or in the 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 Fund 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.
----------------
Prospectus dated
February 21, 1995
----------------
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Statement of Additional Information
May 1, 1995
(as revised November 3, 1995)
This Statement of Additional Information, which applies to Retail and
Institutional Shares of the Conestoga Cash Management Fund, the Conestoga
Tax-Free Fund, the Conestoga U.S. Treasury Securities Fund, the Conestoga Equity
Fund, the Conestoga International Equity Fund, the Conestoga Special Equity
Fund, Conestoga Bond (formerly the Income Fund) Fund, the Conestoga Intermediate
Income (formerly the Limited Maturity Fund) Fund, the Conestoga Pennsylvania
Tax-Free Bond Fund, the Conestoga Short-Term Income Fund, and the Conestoga
Balanced Fund (the "Funds") is meant to be read in conjunction with the
Prospectuses dated February 21, 1995 with respect to Retail and Institutional
Shares of the Funds (collectively, the "Prospectuses" and individually a
"Prospectus"), and is incorporated by reference in its entirety into the
Prospectuses. Because this Statement of Additional Information is not itself a
prospectus, no investment in Retail or Institutional Shares of any Fund should
be made solely upon the information contained herein. Copies of each Prospectus
may be obtained by writing Conestoga Family of Funds at 680 East Swedesford
Road, Wayne, Pennsylvania 19087-1658 or by telephoning (800) 344-2716.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
THE COMPANY..................................................................................................... 1
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS................................................................ 1
Portfolio Transactions................................................................................. 1
Portfolio Turnover..................................................................................... 4
Additional Information on Portfolio Instruments........................................................ 4
Special Risks and Considerations with respect to the Pennsylvania
Tax-Free Bond ................................................................................ 22
Investment Restrictions................................................................................ 26
VALUATION....................................................................................................... 28
Valuation of the Money Market Funds.................................................................... 29
Valuation of the Non-Money Market Funds................................................................ 29
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.................................................................. 31
Calculation of Offering Price.......................................................................... 31
Matters Affecting Purchase and Redemption.............................................................. 32
ADDITIONAL INFORMATION CONCERNING TAXES......................................................................... 33
General .............................................................................................. 33
Taxation of Certain Financial Instruments.............................................................. 35
Special Considerations Pertaining to the
Tax-Free and Pennsylvania Tax-Free Bond Funds................................................. 38
MANAGEMENT OF THE COMPANY....................................................................................... 42
Trustees .............................................................................................. 42
Officers............................................................................................... 43
Investment Advisor..................................................................................... 45
Sub-advisor............................................................................................ 46
Banking Laws........................................................................................... 47
Administrator.......................................................................................... 48
Fund Accountant........................................................................................ 49
Transfer Agent......................................................................................... 50
Distributor............................................................................................ 51
Distribution and Services Plan......................................................................... 51
Custodians............................................................................................. 51
Counsel .............................................................................................. 52
Financial Statements....................................................................................52
PERFORMANCE INFORMATION......................................................................................... 52
General .............................................................................................. 52
Yields of the Cash Management, Tax-Free, U.S. Treasury
Securities and Pennsylvania Tax-Free Bond Funds............................................... 53
The Non-Money Market Funds............................................................................. 54
MISCELLANEOUS................................................................................................... 58
APPENDIX........................................................................................................A-1
</TABLE>
<PAGE>
THE COMPANY
Conestoga Family of Funds (the "Company") is an open-end management
investment company. This Statement of Additional Information relates to Retail
and Institutional Shares in each of the Company's eleven separate investment
portfolios: three Money Market Funds: the Cash Management Fund; the U.S.
Treasury Securities Fund and the Tax-Free Fund, and the eight Non-Money Market
Funds: the Equity Fund; the International Equity Fund; the Special Equity Fund;
the Bond Fund (formerly the Income Fund); the Intermediate Income Fund (formerly
the Limited Maturity Fund); the Pennsylvania Tax-Free Bond Fund; the Short-Term
Income Fund and the Balanced Fund. Each of the Funds with the exception of the
Pennsylvania Tax-Free Bond Fund, is a diversified investment portfolio. Retail
and Institutional Shares of each Fund are described in the applicable
Prospectus. No investment in shares of a Fund should be made without first
reading the applicable Prospectus. Much of the information contained in this
Statement of Additional Information expands on subjects discussed in the
Prospectuses. Capitalized terms not otherwise defined herein are defined in the
Prospectuses.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Portfolio Transactions
Subject to the general control of the Company's Board of Trustees, the
Company's investment advisor, Meridian Investment Company (the "Investment
Advisor"), is responsible for, makes decisions with respect to and places orders
for all purchases and sales of portfolio securities for the Funds. Marvin &
Palmer Associates, Inc. (the "Sub-advisor"), subject to the supervision of both
the Board of Trustees and the Investment Advisor, will assist the Investment
Advisor in providing a continuous investment program for the International
Equity Fund, including investment research and management with respect to all
securities and other investments (including cash equivalents) of the Fund and
shall determine from time to time which securities and other investments will be
purchased, retained or sold for the Fund. The Sub-advisor does not provide
sub-advisory services for any other Fund.
The Investment Advisor (and/or Sub-advisor with respect to the
International Equity Fund) places all orders for purchases and sales of
portfolio securities for the Funds either directly with the issuer or with
dealers. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers may include the spread between the bid and
asked prices. Transactions on U.S. stock exchanges involve the payment
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of negotiated brokerage commissions, while transactions in foreign securities
generally involve the payment of fixed brokerage commissions, which are
generally higher than those in the United States. Transactions in the
over-the-counter market are generally principal transactions with dealers and
the costs of such transactions involve dealer spreads rather than brokerage
commissions. The Company, where possible, will deal directly with dealers who
make a market in the securities involved except in those circumstances where
better price and execution are available elsewhere. Debt securities purchased
and sold by the Funds are generally traded in the over-the-counter market on a
net basis (i.e., without commission) through dealers, or otherwise involve
transactions directly with the issuer of an instrument. The Funds may
participate if and when practicable, in bidding for the purchase of portfolio
securities directly from an issuer in order to take advantage of the lower
purchase price available to members of a bidding group. A Fund will engage in
this practice, however, only when the Investment Advisor (and/or Sub-advisor
with respect to the International Equity Fund) believes such practice to be in
the Fund's interests.
In making portfolio investments, the Investment Advisor (and/or
Sub-advisor with respect to the International Equity Fund) seeks to obtain the
best net price and the most favorable execution of orders. The Investment
Advisor (and/or Sub-advisor with respect to the International Equity Fund) may
purchase and sell portfolio securities to and from brokers and dealers who
provide brokerage and research services (within the meaning of Section 28(e) of
the Securities Exchange Act of 1934) to or for the benefit of the Funds and/or
other accounts over which the Investment Advisor (or Sub-advisor, if applicable)
or any of their affiliates exercise investment discretion. To the extent that
the execution and price offered by more than one dealer are comparable, the
Investment Advisor may, in its discretion, effect transactions in portfolio
securities with dealers who provide the Investment Advisor with research advice
or other services. The Sub-advisor is authorized to pay a broker or dealer who
provides brokerage and research services a commission for executing a portfolio
transaction for the International Equity Fund which is in excess of the amount
of commission another broker or dealer would have charged for effecting that
transaction if the Sub-advisor determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of either that particular
transaction or the Sub-advisor's overall responsibilities to the International
Equity Fund and to the Company.
Supplemental research information so received is in addition to, and
not in lieu of, services required to be performed by the Sub-advisor and does
not reduce the advisory fees payable to the Investment Advisor by the
International Equity Fund. The
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Trustees will periodically review the commissions paid by the International
Equity Fund to consider whether the commissions paid over representative periods
of time appear to be reasonable in relation to the benefits inuring to the Fund.
It is possible that certain of the supplemental research or other services
received will primarily benefit one or more other investment companies or other
accounts for which investment discretion is exercised. Conversely, the
International Equity Fund may be the primary beneficiary of the research or
services received as a result of portfolio transactions effected for such other
account or investment company.
The Company is required to identify any securities of its "regular
brokers or dealers" which the Company has acquired during its most recent fiscal
year. As of November 1, 1994 the Cash Management Fund held repurchase agreements
of Merrill Lynch & Company, Inc. in the amount of $4,159,000, the U.S. Treasury
Securities Fund held repurchase agreements of Merrill Lynch & Company, Inc. in
the amount of $44,881,500, the Bond Fund held corporate bonds of PaineWebber in
the amount of $141,800 and the Intermediate Income Fund held corporate bonds of
PaineWebber in the amount of $101,400 and $155,000 and asset-backed securities
and corporate bonds of Merrill Lynch & Company, Inc. of $415,300 and $435,700,
respectively.
Investment decisions for the Funds are made independently from those
for other customers who may be advised by the Investment Advisor (and/or
Sub-advisor with respect to the International Equity Fund). Such other customers
may invest in the same securities as the Funds. When purchases or sales of the
same security are made on the same day on behalf of such other customers,
transactions are averaged as to price, and available investments allocated as to
amount, in a manner which the Investment Advisor (and/or Sub-advisor with
respect to the International Equity Fund) believes to be equitable to each
customer, including the Funds. In some instances, this investment procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtained for the Funds. To the extent permitted by law, the Investment
Advisor (and/or Sub-advisor with respect to the International Equity Fund) may
aggregate the securities to be sold or purchased for the Funds with those to be
sold or purchased for such other customers in order to obtain best execution.
The Funds will not execute portfolio transactions through, acquire portfolio
securities issued by, make savings or time deposits in or enter into repurchase
agreements with the Investment Advisor, the Sub-advisor, SEI Financial
Management Corporation or any affiliated person -- as such term is defined in
the Investment Company Act of 1940 (the "Act") of any of them, except to the
extent permitted by the Act. For the fiscal years ended October 31, 1991,
October 31, 1992, and October 31, 1993 the Equity Fund was the only portfolio to
pay brokerage commissions, and it paid
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$30,900, $26,000 and $52,330 respectively, in brokerage commissions, all of
which were subject to the Investment Advisor's internal allocation procedure
which takes into account research services provided in selecting broker-dealers
through which transactions are executed. For the fiscal year ended October 31,
1994, the Equity Fund, Special Equity Fund, Limited Maturity Fund, Income Fund
and Tax-Free Fund were the only portfolios to pay brokerage commissions, and
such Funds paid $57,817, $27,351, $59.00, $231.00 and $204.00 respectively, in
brokerage commissions, all of which were subject to the Investment Advisor's
internal allocation procedure which takes into account research services
provided in selecting broker-dealers through which transactions are executed.
Portfolio Turnover
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of a Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the portfolio securities. The calculation excludes
all securities, including options, whose maturities at the time of acquisition
were one year or less. Because the Money Market Funds invest only in short-term
instruments, their portfolio turnover is expected to be zero for regulatory
reporting purposes. Although it is difficult to predict portfolio turnover, it
is presently estimated that the annual turnover rates for each of the
International Equity, Special Equity and Short-Term Income Funds will generally
not exceed 300%. The annual portfolio turnover rate for each of the equity and
fixed income portions of the Balanced Fund will also generally not exceed 300%.
For the fiscal year ended October 31, 1992, the respective portfolio turnover
rate of the Equity, Bond and Intermediate Income Funds was 39%, 99% and 53%. For
the fiscal year ended October 31, 1993, the respective portfolio turnover rate
of such Funds was 24%, 159% and 90% and the portfolio turnover rate of the
Pennsylvania Tax-Free Bond Fund was 50%. For the fiscal year ended October 31,
1994, the portfolio turnover rate of each of the Equity, Special Equity, Bond,
Intermediate Income and Pennsylvania Tax-Free Bond Funds was 35%, 39%, 231%,
170% and 37%, respectively. Portfolio turnover rates may vary greatly from year
to year as well as within a particular year. Portfolio turnover will not be a
limiting factor in making investment decisions.
Additional Information on Portfolio Instruments
The following policies supplement the investment objective and policies
of each Fund as set forth in the Prospectus.
Banker's Acceptances and Certificates of Deposit. All of the Funds of
the Company except the U.S. Treasury Securities Fund may invest in banker's
acceptances, certificates of deposit, and demand and time deposits. Banker's
acceptances are negotiable
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drafts or bills of exchange typically drawn by an importer or exporter to pay
for specific merchandise, which are "accepted" by a bank, meaning, in effect,
that the bank unconditionally agrees to pay the face value of the instrument on
maturity. Banker's acceptances invested in by the International Equity Fund will
be those guaranteed by domestic and foreign banks having, at the time of
investment, capital, surplus, and undivided profits in excess of $100,000,000
(as of the date of their most recently published financial statements).
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return. Certificates of deposit and time
deposits will be those of domestic and foreign banks and savings and loan
associations, if (a) at the time of investment the depository institution has
capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most recently published financial statements), or (b) the principal
amount of the instrument is insured in full by the Federal Deposit Insurance
Corporation. The International Equity Fund may also invest in Eurodollar
Certificates of Deposit, which are U.S. dollar denominated certificates of
deposit issued by offices of foreign and domestic banks located outside the
United States; Yankee Certificates of Deposit, which are certificates of deposit
issued by a U.S. branch of a foreign bank denominated in U.S. dollars and held
in the United States; Eurodollar Time Deposits, which are U.S. dollar
denominated deposits in a foreign branch of a U.S. bank or a foreign bank; and
Canadian Time Deposits, which are basically the same as Eurodollar Time Deposits
except they are issued by Canadian offices of major Canadian banks.
Commercial Paper. Commercial paper consists of unsecured promissory
notes issued by corporations. Except as noted below with respect to variable
amount master demand notes, issues of commercial paper normally have maturities
of less than nine months and fixed rates of return.
The Equity, International Equity, Special Equity, Bond, Intermediate
Income, Short-Term Income and Balanced Funds may purchase commercial paper
consisting of issues rated, at the time of purchase within one of the two
highest categories by a nationally recognized statistical rating organization (a
"NRSRO") (e.g. "A-2" or better by Standard & Poor's Ratings Group, Division of
McGraw Hill ("S&P" or "Standard & Poor") or "Prime-2" or better by Moody's
Investors Service, Inc. ("Moody's")) or, if not rated, found by the Investment
Advisor (and/or Sub-advisor with respect to the International Equity Fund) under
guidelines approved by the Company's Board of Trustees to be of comparable
quality to instruments that are rated high quality by a NRSRO that is neither
controlling, controlled by, or under common control with the issuer of, or any
issuer, guarantor, or provider of credit support for, the instruments. The Cash
Management and
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Tax-Free Funds may invest in commercial paper which is rated "A-I" or better by
S&P or "Prime-I" by Moody's, or if not rated, determined to be of comparable
quality by the Investment Advisor pursuant to guidelines approved by the Board
of Trustees. The Pennsylvania Tax-Free Bond Fund may purchase commercial paper
rated (at the time of purchase) "A-1" by S&P, "Prime-1" by Moody's, "Duff 1" by
D&P or "F-1+" by Fitch's or, when deemed advisable by the Investment Advisor,
"high quality" issues rated "A-2" by S&P, "Prime 2" by Moody's, "Duff 2" by D&P
or "F-2" by Fitch's. For a description of the rating symbols of S&P, Fitch's and
Moody's used in this paragraph, see Appendix "A".
The Cash Management, Equity, International Equity, Special Equity,
Bond, Intermediate Income, Short-Term Income and Balanced Funds may also invest
in Canadian Commercial Paper, which is U.S. dollar-denominated commercial paper
issued by a Canadian corporation or a Canadian counterpart of a U.S.
corporation, and in Europaper which is U.S. dollar-denominated commercial paper
of a foreign issuer.
Variable Amount Demand Notes. Variable amount master demand notes, in
which the Cash Management, Equity, International Equity, Special Equity, Bond,
Intermediate Income, Pennsylvania Tax-Free Bond, Short-Term Income and Balanced
Funds may invest, are unsecured demand notes that permit the indebtedness
thereunder to vary and provide for periodic adjustments in the interest rate
according to the terms of the instrument. They are also referred to as variable
rate demand notes. Because these notes are direct lending arrangements between a
Fund and the issuer, they are not normally traded. Although there may be no
secondary market in the notes, the Fund may demand payment of principal and
accrued interest at any time or during specified periods not exceeding one year,
depending upon the instrument involved, and may resell the notes at any time to
a third party. The absence of an active secondary market, however, could make it
difficult for a Fund to dispose of a variable amount master demand note if the
issuer defaulted on its payment obligations or during periods when such Fund is
not entitled to exercise its demand rights, and the Fund could, for this or
other reasons, suffer a loss to the extent of the default. While the notes are
not typically rated by credit rating agencies, issuers of variable amount master
demand notes must satisfy the same criteria as set forth above for commercial
paper. The Investment Advisor (and/or Sub-advisor with respect to the
International Equity Fund) will consider the earning power, cash flow, and other
liquidity ratios of the issuers of such notes and will continuously monitor
their financial status and ability to meet payment on demand. Where necessary to
ensure that a note is of "high quality," a Fund will require that the issuer's
obligation to pay the principal of the note be backed by an unconditional bank
letter or line of credit, guarantee or commitment to lend. In determining
dollar-weighted average portfolio maturity, a
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variable amount master demand note will be deemed to have a maturity equal to
the period of time remaining until the principal amount can be recovered from
the issuer through demand.
Variable and Floating Rate Notes. Each Fund (except the International
Equity Fund) may acquire variable and floating rate notes, subject to its
investment objective, policies and restrictions. A variable rate note is one
whose terms provide for the readjustment of its interest rate on set dates and
which, upon such readjustment, can reasonably be expected to have a market value
that approximates its par value. A floating rate note is one whose terms provide
for the readjustment of its interest rate whenever a specified interest rate
changes and which, at any time, can reasonably be expected to have a market
value that approximates its par value. Such notes are frequently not rated by an
NRSRO; however, unrated variable and floating rate notes purchased by a Fund
will be determined by the Investment Advisor under guidelines approved by the
Company's Board of Trustees to be of comparable quality, at the time of
purchase, to rated instruments eligible for purchase under a Fund's investment
policies. In making such determinations, the Investment Advisor will consider
the earning power, cash flow and other liquidity ratios of the issuers of such
notes (such issuers include financial, merchandising, bank holding and other
companies) and will continuously monitor their financial condition. Although
there may be no active secondary market with respect to a particular variable or
floating rate note purchased by a Fund, it may resell the note at any time to a
third party. The absence of an active secondary market, however, could make it
difficult for a Fund to dispose of a variable or floating rate note in the event
the issuer of the note defaulted on its payment obligations and the Fund could,
as a result or for other reasons, suffer a loss to the extent of the default.
Variable or floating rate notes may be secured by bank letters of credit.
Variable or floating rate notes purchased by the Cash Management,
Tax-Free and U.S. Treasury Securities Funds may have maturities of more than 13
months, as follows:
1. A note that is issued or guaranteed by the United States Government
or any agency thereof which has a variable rate of interest readjusted no less
frequently than 13 months will be deemed by a Fund to have a maturity equal to
the period remaining until the next readjustment of the interest rate.
2. A variable rate note, the principal amount of which is scheduled on
the face of the instrument to be paid in 13 months or less, will be deemed by a
Fund to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
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3. A variable rate note that is subject to a demand feature will be
deemed by a Fund to have a maturity equal to the longer of the period remaining
until the next readjustment of the interest rate or the period remaining until
the principal amount can be recovered through demand.
4. A floating rate note that is subject to a demand feature will be
deemed by a Fund to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.
As used above, a note is "subject to a demand feature" where a Fund is
entitled to receive the principal amount of the note either at any time on no
more than 30 days' notice or at specified intervals not exceeding 13 months and
upon no more than 30 days' notice.
Lending Portfolio Securities. In order to generate additional income,
the Equity, International Equity, Special Equity, Bond, Intermediate Income,
Short-Term Income and Balanced Funds may, from time to time, lend their
respective portfolio securities to broker-dealers, banks, or institutional
borrowers of securities. There is no limit on the amount of securities which a
Fund may lend, except that the International Equity Fund may lend portfolio
securities up to one-third of the value of its total assets. A Fund must receive
at least 100% collateral in the form of cash or U.S. Government securities. This
collateral will be valued daily by the Investment Advisor (and/or Sub-advisor
with respect to the International Equity Fund). Should the market value of the
loaned securities increase, the borrower will be required to furnish additional
collateral to the applicable Fund. During the time portfolio securities are on
loan, the borrower will pay a Fund any dividends or interest received on such
securities. Loans are subject to termination by a Fund or the borrower at any
time. While a Fund does not have the right to vote securities that are on loan,
it intends to terminate the loan and regain the right to vote if that is
considered important with respect to the investment. A Fund will enter into loan
agreements only with broker-dealers, banks, or other institutions that the
Investment Advisor (and/or Sub-advisor with respect to the International Equity
Fund) has determined are creditworthy pursuant to guidelines approved by the
Company's Board of Trustees.
Foreign Investment. All of the Funds except the U.S. Treasury
Securities and Pennsylvania Tax-Free Bond Funds may, subject to their respective
investment objectives and policies, invest in certain obligations or securities
of foreign issuers. Investments in securities issued by foreign branches of U.S.
banks, foreign banks, or other foreign issuers, including American Depositary
Receipts ("ADRs"), European Depositary Receipts and securities purchased on
foreign securities
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exchanges, may subject the Funds to investment risks that differ in some
respects from those related to investment in obligations of U.S. domestic
issuers or in U.S. securities markets. Such risks include future adverse
political and economic developments, possible seizure, nationalization, or
expropriation of foreign investments, less stringent disclosure requirements,
the possible establishment of exchange controls or taxation at the source, and
the adoption of other foreign governmental restrictions.
Additional risks include currency exchange risks, less publicly
available information, the risk that companies may not be subject to the
accounting, auditing and financial reporting standards and requirements of U.S.
companies, the risk that foreign securities markets may have less volume and
therefore many securities traded in these markets may be less liquid and their
prices more volatile than U.S. securities, and the risk that custodian and
brokerage costs may be higher. Foreign issuers of securities or obligations are
often subject to accounting treatment and engage in business practices different
from those respecting domestic issuers of similar securities or obligations.
Foreign branches of U.S. banks and foreign banks may be subject to less
stringent reserve requirements than those applicable to domestic branches of
U.S. banks.
Fixed commissions on foreign securities exchanges are generally higher
than negotiated commissions on U.S. exchanges, although the Funds endeavor to
achieve the most favorable net results on their portfolio transactions. Foreign
markets also have different clearance and settlement procedures, and in certain
markets there have been times when settlements have been unable to keep pace
with the volume of securities transactions, making it difficult to conduct such
transactions. Such delays in settlement could result in temporary periods when a
portion of the assets of a Fund is uninvested and no return is earned thereon.
The inability of a Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Losses to a Fund due to subsequent declines in the value of portfolio
securities, or losses arising out of the Fund's inability to fulfill a contact
to sell such securities, could result in potential liability to the Fund.
Individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
In many instances, foreign debt securities may provide higher yields
than securities of domestic issuers which have similar maturities and quality.
Under certain market conditions these investments may be less liquid than the
securities of U.S. corporations and are certainly less liquid than securities
issued
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or guaranteed by the U.S. government, its agencies or instrumentalities.
Finally, in the event of a default of any such foreign debt obligations, it may
be more difficult for a Fund to obtain or to enforce a judgment against the
issuers of such securities. If a security is denominated in foreign currency,
the value of the security to a Fund will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of any
foreign currency against the U.S. dollar will result in a corresponding change
in the U.S. dollar value of a Fund's securities denominated in that currency.
Such changes will also affect a Fund's income and distributions to shareholders.
In addition, although a Fund will receive income on foreign securities in such
currencies the Fund will be required to compute and distribute its income in
U.S. dollars. Therefore, if the exchange rate for any such currency declines
materially after a Fund's income has been accrued and translated into U.S.
dollars, the Fund could be required to liquidate portfolio securities to make
required distributions. Similarly, if an exchange rate declines between the time
a Fund incurs expenses in U.S. dollars and the time such expenses are paid, the
amount of such currency required to be converted into U.S. dollars in order to
pay such expenses in U.S. dollars will be greater.
The International Equity Fund may invest in debt securities denominated
in the ECU, which is a "basket" consisting of specified amounts of the
currencies of certain of the twelve member states of the European Community. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Community to reflect changes in relative values of
the underlying currencies. Such adjustments may adversely affect holders of
ECU-denominated obligations or the marketability of such securities. European
governments and supranationals, in particular, issue ECU-denominated
obligations.
Forward Foreign Currency Exchange Contracts. The International Equity
Fund may enter into forward foreign currency exchange contracts.
The Fund will comply with applicable Securities and Exchange Commission
announcements requiring it to segregate assets to cover the International Equity
Fund's commitments with respect to such contracts. At the present time, these
announcements generally require a fund with a long position in a forward foreign
currency contract to establish with its custodian a segregated account
containing cash or liquid high grade debt securities equal to the purchase price
of the contract, and require a fund with a short position in a forward foreign
currency contract to establish with its custodian a segregated account
containing cash or liquid high grade debt securities that, when added to any
margin deposit, equal the market value of
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the currency underlying the forward contract. These requirements will not apply
where the position has been "covered" by entering into an offsetting position.
The Fund generally will not enter into a forward contract with a term longer
than one year.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration of a forward currency contract.
Accordingly, it may be necessary for the Fund to purchase additional currency on
the spot market (and bear the expense of such purchase) if the market value of
the security is less than the amount of foreign currency the Fund is obligated
to deliver when a decision is made to sell the security and make delivery of the
foreign currency in settlement of a forward contract. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward currency contract prices. If the
Fund engages in an offsetting transaction, it may subsequently enter into a new
forward currency contract to sell the foreign currency. Should forward prices
decline during the period between the Fund's entering into a forward currency
contract for the sale of foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund would suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. Although such contracts tend to minimize the risk of loss due to
a decline in the value of the hedged currency, they also tend to limit any
potential gain which might result should the value of such currency increase.
The Fund will have to convert its holdings of foreign currencies into U.S.
dollars from time to time. Foreign exchange dealers realize a profit based on
the difference, or "spread" between the prices at which they are buying and
selling various currencies.
Foreign Currency Options. The International Equity Fund may buy and
sell foreign currency options. A foreign currency option provides the option
buyer with the right to buy or sell a stated amount of foreign currency at the
exercise price at a specified date or during the option period. A call option
gives its owner the right, but not the obligation, to buy the currency, while a
put option gives its owner the right, but not the obligation, to sell the
currency. The option seller (writer) is obligated to fulfill the terms of the
option sold if it is exercised. However, either seller or buyer may close its
position during the
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option period in the secondary market for such options at any time prior to
expiration.
A call rises in value if the underlying currency appreciates.
Conversely, a put rises in value if the underlying currency depreciates. While
purchasing a foreign currency option can protect the Fund against an adverse
movement in the value of a foreign currency, it does not limit the gain which
might result from a favorable movement in the value of such currency. For
example, if the Fund were holding securities denominated in an appreciating
foreign currency and had purchased a foreign currency put to hedge against a
decline in the value of the currency, it would not have to exercise its put.
Similarly, if the Fund has entered into a contract to purchase a security
denominated in a foreign currency and had purchased a foreign currency call to
hedge against a rise in the value of the currency but instead the currency had
depreciated in value between the date of purchase and the settlement date, the
Fund would not have to exercise its call but could acquire in the spot market
the amount of foreign currency needed for settlement.
Foreign Currency Futures Transactions. As part of its financial futures
transactions, the International Equity Fund may use foreign currency futures
contracts and options on such futures contracts. Through the purchase or sale of
such contracts, the Fund may be able to achieve many of the same objectives as
through forward foreign currency exchange contracts more effectively and
possibly at a lower cost.
Unlike forward foreign currency exchange contracts, foreign currency
futures contracts and options on foreign currency futures contracts are
standardized as to amount and delivery period and may be traded on boards of
trade and commodities exchanges or directly with a dealer which makes a market
in such contracts and options. It is anticipated that such contracts may provide
greater liquidity and lower cost than forward foreign currency exchange
contracts.
Regulatory Restrictions. When purchasing a futures contract or writing
a put option or entering into a forward currency exchange purchase, the
International Equity Fund may be required to maintain in a segregated account
cash or liquid high-grade securities equal to the value of such contracts.
Zero Coupon Obligations. As discussed in the Prospectus, certain of the
Funds may invest in zero coupon obligations, provided that immediately after any
purchase, not more than 5% of the value of the net assets of the respective Fund
is invested in such obligations.
Although this type of security pays no interest to holders prior to
maturity, federal income tax regulations require each
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Fund to recognize as interest income a portion of the bond's discount each year.
This income must then be distributed to shareholders along with other income
earned by that Fund. To the extent that any shareholders in a Fund elect to
receive their dividends in cash rather than reinvest such dividends in
additional Fund shares, cash to make these distributions will have to be
provided from either the assets of the particular Fund or other sources such as
proceeds of sales of Fund shares and/or sales of portfolio securities. In such
cases, such Fund will not be able to purchase additional income producing
securities with the cash used to make such distributions and its current income
may ultimately be reduced as a result.
Reverse Repurchase Agreements. As discussed in the Prospectus, each of
the Funds may borrow funds for temporary purposes by entering into reverse
repurchase agreements in accordance with such Fund's investment restrictions.
Pursuant to a reverse repurchase agreement, a Fund would sell portfolio
securities to a financial institution such as a bank or broker-dealer, and agree
to repurchase the securities at a mutually agreed-upon date and price. Each Fund
intends to enter into reverse repurchase agreements only to avoid selling
securities during unfavorable market conditions to meet redemptions. At the time
a Fund enters into a reverse repurchase agreement, it will place in a segregated
custodial account assets such as U.S. Government securities or other liquid,
high grade debt obligations consistent with the Fund's investment restrictions
having a value equal to the repurchase price (including accrued interest), and
will subsequently monitor the account to ensure that such equivalent value is
maintained. Reverse repurchase agreements involve the risk that the market value
of the securities sold by a Fund may decline below the price at which a Fund is
obligated to repurchase such securities. Reverse repurchase agreements are
considered to be borrowings by a Fund under the Investment Company Act of 1940.
Asset-Backed Securities. The Cash Management Fund, Bond Fund and the
Intermediate Income, Short-Term Income and Balanced Funds may invest in
asset-backed securities, including mortgage-backed securities representing an
undivided ownership interest in a pool of mortgages, such as certificates of the
Government National Mortgage Association ("GNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). These certificates are in most cases
pass-through instruments, through which the holder receives a share of all
interest and principal payments from the mortgages underlying the certificate,
net of certain fees. The average life of a mortgage-backed security varies with
the underlying mortgage instruments, which have maximum maturities of 40 years.
The average life is likely to be substantially less than the original maturity
of the mortgage pools underlying the securities as the result of prepayments,
mortgage refinancings or foreclosure. Mortgage prepayment rates are affected by
factors
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including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions. Such
prepayments are passed through to the registered holder with the regular monthly
payments of principal and interest and have the effect of reducing future
payments. Due to the GNMA guarantee, foreclosures impose no risk to principal
investments.
The Cash Management Fund, Bond Fund and the Intermediate Income and
Balanced Funds may also invest in non-mortgage backed securities including
interests in pools of receivables, such as motor vehicle installment purchase
obligations and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities may also be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Non-mortgage backed
securities are not issued or guaranteed by the U.S. Government or its agencies
or instrumentalities; however, the payment of principal and interest on such
obligations may be guaranteed up to certain amounts and for a certain time
period by a letter of credit issued by a financial institution (such as a bank
or insurance company) unaffiliated with the issuers of such securities.
The purchase of non-mortgage backed securities raises considerations
peculiar to the financing of the instruments underlying such securities. For
example, most organizations that issue asset-backed securities relating to motor
vehicle installment purchase obligations perfect their interests in the
respective obligations only by filing a financing statement and by having the
servicer of the obligations, which is usually the originator, take custody
thereof. In such circumstances, if the servicer were to sell the same
obligations to another party, in violation of its duty not to do so, there is a
risk that such party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. Also, although most such
obligations grant a security interest in the motor vehicle being financed, in
most states the security interest in a motor vehicle must be noted on the
certificate of title to perfect such security interest against competing claims
of other parties. Due to the large number of vehicles involved, however, the
certificate of title to each vehicle financed, pursuant to the obligations
underlying the asset-backed securities, usually is not amended to reflect the
assignment of the seller's security interest for the benefit of the holders of
the asset-backed securities. Therefore, there is the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on those securities. In addition, various state and federal laws give
the motor vehicle
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owner the right to assert against the holder of the owner's obligation certain
defenses such owner would have against the seller of the motor vehicle. The
assertion of such defenses could reduce payments on the related asset-backed
securities. Insofar as credit card receivables are concerned, credit card
holders are entitled to the protection of a number of state and federal consumer
credit laws, many of which give such holders the right to set off certain
amounts against balances owed on the credit card, thereby reducing the amounts
paid on such receivables. In addition, unlike most other asset-backed
securities, credit card receivables are unsecured obligations of the cardholder.
The development of non-mortgage backed securities is at an early stage
compared to mortgage backed securities. While the market for asset-backed
securities is becoming increasingly liquid, the market for mortgage backed
securities issued by certain private organizations and non-mortgage backed
securities is not as well developed as that for mortgage backed securities
guaranteed by government agencies or instrumentalities. The Investment Advisor
intends to limit its purchases of mortgage backed securities issued by certain
private organizations and non-mortgage backed securities to securities that are
readily marketable at the time of purchase.
Municipal Obligations. The Tax-Free Fund may invest in Municipal
Obligations which include debt obligations issued by governmental entities to
obtain funds for various public purposes, such as the construction of a wide
range of public facilities, the refunding of outstanding obligations, the
payment of general operating expenses and the extension of loans to other public
institutions and facilities. Private activity bonds that are issued by or on
behalf of public authorities to finance various privately-operated facilities
are included within the term Municipal Obligations if the interest paid thereon
is exempt from regular federal income tax and not treated as a specific tax
preference item for individuals or corporations for purposes of the federal
alternative minimum tax. Opinions relating to the validity of Municipal
Obligations and to the exemption of interest thereon from federal income tax are
rendered by bond counsel to the respective issuing authorities at the time of
issuance. Neither the Tax-Free Fund nor the Investment Advisor will review the
proceedings relating to the issuance of Municipal Obligations or the basis for
such opinions. As used in this Statement of Additional Information, the term
"private activity bonds" also includes industrial development revenue bonds
issued pursuant to the Internal Revenue Code of 1954, as amended.
As described in the Prospectus, the two principal classifications of
Municipal Obligations which may be held by the Tax-Free Fund are "general
obligation" and "revenue" issues. The Tax-Free Fund may also acquire "moral
obligation" issues, which
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are normally issued by special purpose authorities. There are, of course,
variations in the quality of Municipal Obligations both within a particular
classification and between classifications, and the yields on Municipal
Obligations depend upon a variety of factors, including general money market
conditions, the financial condition of the issuer, general conditions of the
municipal bond market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. The ratings of Moody's and S&P represent
their opinions as to the quality of Municipal Obligations. It should be
emphasized, however, that ratings are general and are not absolute standards of
quality, and Municipal Obligations with the same maturity, interest rate and
rating may have different yields, while Municipal Obligations of the same
maturity and interest rate with different ratings may have the same yield.
Subsequent to purchase by the Tax-Free Fund, an issue of Municipal Obligations
may cease to be rated or its rating may be reduced below the minimum rating
required for purchase by the Tax-Free Fund. The Investment Advisor will consider
such an event in determining whether the Tax-Free Fund should continue to hold
the obligation.
An issuer's obligations under its Municipal Obligations are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
the enforcement of such obligations or upon the ability of municipalities to
levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Municipal Obligations may be
materially adversely affected by litigation or other conditions.
Among other types of Municipal Obligations, the Tax-Free Fund may
purchase short-term General Obligation Notes, Tax Anticipation Notes, Bond
Anticipation Notes, Revenue Anticipation Notes, Tax-Exempt Commercial Paper,
Construction Loan Notes and other forms of short-term loans. Such instruments
are issued with a short-term maturity in anticipation of the receipt of tax
funds, the proceeds of bond placements or other revenues. In addition, the
Tax-Free Fund may invest in other types of tax-exempt instruments such as
municipal bonds and private activity bonds, provided they have remaining
maturities of 13 months or less at the time of purchase.
The payment of principal and interest on most securities purchased by
the Tax-Free Fund will depend upon the ability of the issuers to meet their
obligations. The District of Columbia, each state, each of their political
subdivisions, agencies, instrumentalities and authorities and each multi-state
agency of which a state is a member is a separate "issuer" as that term is used
in this Statement of Additional Information and the
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Prospectus. The non-governmental user of facilities financed by private activity
bonds is also considered to be an "issuer."
When-Issued Securities. Each Fund may purchase debt securities on a
"when-issued" or delayed delivery basis (i.e., for delivery beyond the normal
settlement date at a stated price and yield). When a Fund agrees to purchase
securities on a "when-issued" basis, the custodian will set aside cash or high
grade liquid portfolio securities equal to the amount of the commitment in a
segregated account. Normally, the custodian will set aside portfolio securities
to satisfy the purchase commitment, and in such a case a Fund may be required
subsequently to place additional assets in the segregated account in order to
ensure that the value of the account remains equal to the amount of the 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. In addition, because a Fund will set
aside cash or liquid portfolio securities to satisfy its purchase commitments in
the manner described above, the Fund's liquidity and the ability of the
Investment Advisor (and/or Sub-advisor with respect to the International Equity
Fund) to manage it might be affected in the event its commitments to purchase
"when-issued" securities ever exceeded 25% of the value of its assets.
When a Fund engages in "when-issued" transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in a
Fund incurring a loss or missing an opportunity to obtain a price considered to
be advantageous. Each Fund reserves the right to sell these securities before
the settlement date if it is deemed advisable.
Options Trading. As described in the Prospectuses, the Equity,
International Equity, Special Equity and Balanced Funds may purchase put and
call options listed on a national securities exchange and issued by the Options
Clearing Corporation in an amount not exceeding 5% of its net assets. Such
options may relate to particular securities, foreign currencies, or to various
interest rate or stock indices.
Options trading is a highly specialized activity which entails greater
than ordinary investment risks. Regardless of how much the market price of the
underlying security or index increases or decreases, the option buyer's risk is
limited to the amount of the original investment for the purchase of the option.
However, options may be more volatile than the underlying instruments, and
therefore, on a percentage basis, an investment in options may be subject to
greater fluctuation than an investment in the underlying instruments themselves.
A listed call option for a particular security gives the purchaser of the option
the right to buy from a clearing corporation, and a writer
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has the obligation to sell to the clearing corporation, the underlying security
or foreign currency at the stated exercise price at any time prior to the
expiration of the option, regardless of the market price or exchange rate of the
security or foreign currency. The premium paid to the writer is in consideration
for undertaking the obligations under the option contract. A listed put option
gives the purchaser the right to sell to a clearing corporation the underlying
security or foreign currency at the stated exercise price at any time prior to
the expiration date of the option, regardless of the market price or exchange
rate of the security or foreign currency. In contrast to an option on a
particular security, an option on an interest rate or stock index provides the
holder with the right to make or receive a cash settlement upon exercise of the
option. The amount of this settlement will be equal to the difference between
the closing price of the index at the time of exercise and the exercise price of
the option expressed in dollars, times a specified multiple.
The Equity, International Equity, Special Equity and Balanced Funds
will write call options only if they are "covered." The International Equity
Fund will also write covered index call options. In the case of a call option on
a security, the option is "covered" if a Fund owns the security underlying the
call or has an absolute and immediate right to acquire that security without
additional cash consideration (or, if additional cash consideration is required,
cash or cash equivalents in such amount as are held in a segregated account by
its custodian) upon conversion or exchange of other securities held by it. For a
call option on an index, the option is covered if a Fund maintains with its
custodian cash or cash equivalents equal to the contract value. A call option is
also covered if a Fund holds a call on the same security or index as the call
written where the exercise price of the call held is (i) equal to or less than
the exercise price of the call written, or (ii) greater than the exercise price
of the call written provided the difference is maintained by the Fund in cash or
cash equivalents in a segregated account with its custodian.
When a Fund purchases a put or call option, the premium paid by it is
recorded as an asset of the Fund. When a Fund writes an option, an amount equal
to the net premium (the premium less the commission) received by the Fund is
included in the liability section of such Fund's statement of assets and
liabilities as a deferred credit. The amount of this asset or deferred credit
will be subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the average of the closing bid and asked
prices. If an option purchased by a Fund expires unexercised the Fund realizes a
loss equal to the premium paid. If a Fund enters into a closing sale transaction
on an option purchased by it, the Fund
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will realize a gain if the premium received by such Fund on the closing
transaction is more than the premium paid to purchase the option, or a loss if
it is less. If an option written by a Fund expires on the stipulated expiration
date or if the Fund enters into a closing purchase transaction, it will realize
a gain (or loss if the cost of a closing purchase transaction exceeds the net
premium received when the option is sold) and the deferred credit related to
such option will be eliminated. If an option written by a Fund is exercised, the
proceeds of the sale will be increased by the net premium originally received
and the Fund will realize a gain or loss.
As noted previously, there are several risks associated with
transactions in options on securities, currencies and indexes. For example,
there are significant differences between the securities and options markets
that could result in an imperfect correlation between these markets, causing a
given transaction not to achieve its objectives. A decision as to whether, when
and how to use options involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree because of market
behavior or unexpected events.
Illiquid Securities. The SEC has adopted Rule 144A which allows for a
broader institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A in effect permits resales
of certain securities to qualified institutional buyers. Investments in Rule
144A securities could have the effect of increasing the level of illiquidity of
a Fund during any period that qualified institutional buyers were no longer
interested in purchasing these securities. Rule 144A securities, and certain
privately-placed commercial paper, will not be deemed to be illiquid securities
if the Investment Advisor (and/or Sub-advisor with respect to the International
Equity Fund) has determined, in accordance with guidelines established by the
Board of Trustees, that an adequate trading market exists for such securities.
Rule 144A securities will, however, be deemed to be "restricted securities" for
purpose of the Funds' investment policies and restrictions.
Pennsylvania Municipal Securities. The Pennsylvania Tax-Free Bond Fund
may invest in Pennsylvania Municipal Securities which include debt obligations
issued by governmental entities to obtain funds for various public purposes,
such as the construction of a wide range of public facilities, the refunding of
outstanding obligations, the payment of general operating expenses and the
extension of loans to other public institutions and facilities. Private activity
bonds that are issued by or on behalf of public authorities to finance various
privately-operated facilities are included within the term Pennsylvania
Municipal Securities if the interest paid thereon is
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exempt from regular federal income tax and is not treated as a specific tax
preference item for individuals or corporations for purposes of the federal
alternative minimum tax. Opinions relating to the validity of and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuing authorities at the time of issuance. Neither
the Fund nor the Investment Advisor will review the proceedings relating to the
issuance of Pennsylvania Municipal Securities or the basis for such opinions. As
used in this Statement of Additional Information, the term "private activity
bonds" also includes industrial development revenue bonds issued pursuant to the
Internal Revenue Code of 1986, as amended.
As described in the Prospectus, the two principal classifications of
Pennsylvania Municipal Securities which may be held by the Pennsylvania Tax-Free
Bond Fund are "general obligation" and "revenue" bonds. The Fund may also
acquire "moral obligation" bonds, which are normally issued by special purpose
authorities. There are, of course, variations in the quality of Pennsylvania
Municipal Securities both within a particular classification and between
classifications, and the yields on Pennsylvania Municipal Securities depend upon
a variety of factors, including general money market conditions, the financial
condition of the issuer, general conditions of the municipal bond market, the
size of a particular offering, the maturity of the obligation and the rating of
the issue. The ratings of Moody's, S&P, D&P and Fitch's represent their opinions
as to the quality of the Pennsylvania Municipal Securities. It should be
emphasized, however, that ratings are general and are not absolute standards of
quality, and Pennsylvania Municipal Securities with the same maturity, interest
rate and rating may have different yields, while Pennsylvania Municipal
Securities of the same maturity and interest rate with different ratings may
have the same yield. Subsequent to purchase by the Fund, an issue of
Pennsylvania Municipal Securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Fund. The
Investment Advisor will consider such an event in determining whether the Fund
should continue to hold the obligation.
An issuer's obligations are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Code, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon the enforcement of such
obligations or upon the ability of municipalities to levy taxes. The power or
ability of an issuer to meet its obligations for the payment of interest on, and
principal of, its Pennsylvania Municipal Securities may be materially adversely
affected by litigation or other conditions.
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Among other types of Pennsylvania Municipal Securities, the
Pennsylvania Tax-Free Bond Fund may purchase short-term General Obligation
Notes, Tax Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation
Notes, Tax-Exempt Commercial Paper, Construction Loan Notes and other forms of
short-term loans. Such instruments are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues.
The payment of principal and interest on most securities purchased by
the Pennsylvania Tax-Free Bond Fund will depend upon the ability of the issuers
to meet their obligations. The Commonwealth of Pennsylvania and each of its
political subdivisions, agencies, instrumentalities and authorities is a
separate "issuer" as that term is used in this Statement of Additional
Information and the Fund's Prospectus. The non-governmental user of facilities
financed by private activity bonds is also considered to be an "issuer."
Stand-By Commitments. The Pennsylvania Tax-Free Bond Fund may acquire
stand-by commitments with respect to the Pennsylvania Municipal Securities held
by it. Under a stand-by commitment, a dealer or bank agrees to purchase from the
Fund, at the Fund's option, specified municipal obligations at their amortized
cost value to the Fund plus accrued interest, if any. Stand-by commitments may
be sold, transferred or assigned by the Fund only with the underlying
instrument.
The Pennsylvania Tax-Free Bond Fund expects that stand-by commitments
will generally be available without the payment of any direct or indirect
consideration. However, if necessary or advisable, the Fund may pay for a
stand-by commitment either separately in cash or by paying a higher price for
portfolio securities which are acquired subject to the commitment (thus reducing
the yield to maturity otherwise available for the same securities). Where the
Fund paid any consideration directly or indirectly for a stand-by commitment,
its cost would be reflected as unrealized depreciation for the period during
which the commitment was held by the Fund.
The Pennsylvania Tax-Free Bond Fund intends to enter into stand-by
commitments only with dealers, banks and broker-dealers which, in the Investment
Advisor's opinion, present minimal credit risks. The Fund's reliance upon the
credit of these dealers, banks and broker-dealers will be secured by the value
of the underlying municipal obligations that are subject to the commitment. In
evaluating the creditworthiness of the issuer of a stand-by commitment, the
Investment Advisor will review periodically the issuer's assets, liabilities,
contingent claims and other relevant financial information.
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The Pennsylvania Tax-Free Bond Fund will acquire stand-by commitments
solely to facilitate portfolio liquidity and does not intend to exercise its
rights thereunder for trading purposes. Stand-by commitments acquired by the
Fund will be valued at zero in determining net asset value.
Special Risks and Considerations with respect to the Pennsylvania
Tax-Free Bond Fund
The concentration of investments in Pennsylvania Municipal Securities
by the Pennsylvania Tax-Free Bond Fund raises special investment considerations.
In particular, changes in the economic condition and governmental policies of
the Commonwealth of Pennsylvania and its municipalities could adversely affect
the value of the Fund and its portfolio securities. This section briefly
describes current economic trends in Pennsylvania.
Pennsylvania has historically been dependent on heavy industry although
recent declines in the coal, steel and railroad industries have led to
diversification of the Commonwealth's economy. Recent sources of economic growth
in Pennsylvania are in the service sector, including trade, medical and health
services, education and financial institutions. Agriculture continues to be an
important component of the Commonwealth's economic structure, with nearly
one-third of the Commonwealth's total land area devoted to cropland, pasture and
farm woodlands.
Since 1986, Pennsylvania's average annual unemployment rate has been
slightly below the national average. The average unemployment rate from 1981
through 1991 was 5.4% in the Commonwealth as compared with 5.5% in the United
States as a whole.
The Commonwealth utilizes the fund method of accounting and over 120
funds have been established for purposes of recording receipts and disbursements
of the Commonwealth, of which the General Fund is the largest. Most of the
Commonwealth's operating and administrative expenses are payable from the
General Fund. The major tax sources for the General Fund are the sales tax, the
personal income tax and the corporate net income tax. Although the General Fund
experienced deficits in fiscal 1990 and 1991, tax increases and spending
decreases helped return the General Fund balance to a surplus at June 30, 1992
of $87.5 million and at June 30, 1993 of $698.9 million.
The constitution of the Commonwealth provides that operating budget
appropriations of the Commonwealth may not exceed the estimated revenues and
available surplus in the fiscal year for which funds are appropriated. Annual
budgets are enacted for the General Fund (the principal operating fund of the
Commonwealth)
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and for certain special revenue funds which together represent the majority of
expenditures of the Commonwealth.
Current constitutional provisions permit the Commonwealth to issue the
following types of debt: (i) electorate approved debt, (ii) debt for capital
projects subject to an aggregate debt limit of 1.75 times the annual average tax
revenues of the preceding five fiscal years, (iii) tax anticipation notes
payable in the fiscal year of issuance and (iv) debt to suppress insurrection or
rehabilitate areas affected by disaster. Certain state-created agencies issue
debt supported by assets of, or revenues derived from, the various projects
financed, and the debt of such agencies is not an obligation of the
Commonwealth, although some of the agencies are indirectly dependent on
Commonwealth appropriations.
Certain litigation is pending against the Commonwealth that could
adversely affect the ability of the Commonwealth to pay debt service on its
obligations including suits relating to the following matters: (a) the American
Civil Liberties Union ("ACLU") has filed suit in federal court demanding
additional funding for child welfare services; the Commonwealth settled a
similar suit in the Commonwealth Court of Pennsylvania and is seeking the
dismissal of the federal suit, inter alia, because of that settlement. The
district court has denied class certification to the ACLU, and the parties have
stipulated to a judgment against the plaintiffs to allow the plaintiffs to
appeal the denial of a class certification to the Third Circuit Court of Appeals
(no available estimates of potential liability); (b) in 1987, the Supreme Court
of Pennsylvania held the statutory scheme for county funding of the judicial
system to be in conflict with the constitution of the Commonwealth, but stayed
judgment pending enactment by the legislature of funding consistent with the
opinion, and the legislature has yet to consider legislation implementing the
judgment; in 1992, a new action in mandamus was filed seeking to compel the
Commonwealth to comply with the original decision; (c) several banks have filed
suit against the Commonwealth contesting the constitutionality of a law enacted
in 1989 imposing a bank shares tax in July 1994, the Commonwealth Court en banc
upheld the constitutionality of the 1989 bank shares tax law, but struck down a
companion law to provide credits against the bank shares tax for new banks;
cross-appeals from that decision have been filed to the Pennsylvania Supreme
Court; (d) litigation has been filed in both state and federal court by an
association of rural and small schools and several individual school districts
and parents challenging the constitutionality of the Commonwealth's system for
funding local school districts -- the federal case has been stayed pending
resolution of the state case and the state case is in the pretrial stage (no
available estimate of potential liability); (e) the ACLU has brought a class
action on behalf of inmates challenging the conditions of confinement in
thirteen of the
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Commonwealth's correctional institutions; a proposed settlement agreement has
been submitted to the court and members of the class, but the court has not yet
set a date for a hearing on the terms of the agreement (no available estimate of
potential cost of complying with the injunction sought, but capital and
personnel costs might total millions of dollars); (f) a consortium of public
interest law firms has filed a class action suit alleging that the Commonwealth
has not complied with a federal mandate to provide screening, diagnostic and
treatment services for all Medicaid-eligible children under 21; the district
court denied class certification, and the parties have submitted a tentative
settlement agreement to the court for approval; and (g) litigation has been
filed in federal court by the Pennsylvania Medical Society seeking payment of
the full co-pay and deductible in excess of the maximum fees set under the
Commonwealth's medical assistance program for out-patient services provided to
medical assistance patients who also were eligible for Medicare; the
Commonwealth received a favorable decision in the federal district court, but
the Pennsylvania Medical Society won a reversal in the federal circuit court
(potential liability estimated at $50 million per year).
Local government units in the Commonwealth of Pennsylvania (which
include, among other things, counties, cities, boroughs, towns, townships,
school districts and other municipally created units such as industrial
development authorities and municipality authorities, including water and sewer
authorities) are permitted to issue debt for capital projects: (i) in any amount
so long as the debt has been approved by the voters of the local government
unit; or (ii) without electoral approval if the aggregate outstanding principal
amount of debt of the local government unit is not in excess of 100% of its
borrowing base (in the case of a school district of the first class), 300% of
its borrowing base (in the case of a county) or 250% of its borrowing base (in
the case of all other local government units); or (iii) without electoral
approval and without regard to the limit described in (ii) in any amount in the
case of certain subsidized debt and self-liquidating debt (defined to be debt
with no claim on taxing power, secured solely by revenues from a specific source
which have been projected to be sufficient to pay debt service on the related
debt). Lease rental debt may also be issued, in which case the total debt limits
described in section (ii) (taking into account all existing lease rental debt in
addition to all other debt) are increased. The borrowing base for a local
government unit is the average of total revenues for the three fiscal years
preceding the borrowing. The risk of investing in debt issued by any particular
local government unit depends, in the case of general obligation bonds secured
by tax revenues, on the credit-worthiness of that issuer or, in the case of
revenue bonds, on the revenue producing ability of the project being financed,
and not directly on the credit-worthiness of the Commonwealth of Pennsylvania as
a whole.
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The City of Philadelphia (the "City") has experienced severe financial
difficulties which for a time impaired its access to public credit markets. The
City experienced a series of General Fund deficits for Fiscal Years 1988 through
1992. The City has no legal authority to issue deficit reduction bonds on its
own behalf, but state legislation was enacted to create an Intergovernmental
Cooperation Authority (the "Authority") to provide fiscal oversight for
Pennsylvania cities (primarily Philadelphia) suffering recurring financial
difficulties. The Authority is broadly empowered to assist cities in avoiding
defaults and eliminating deficits by encouraging the adoption of sound budgetary
practices and issuing bonds. In order for the Authority to issue bonds on behalf
of the City, the City and the Authority entered into an intergovernmental
cooperative agreement providing the Authority with certain oversight powers with
respect to the fiscal affairs of the City, and the Authority approved a
five-year financial plan prepared by the City. The Authority approved the latest
update of the five-year financial plan on May 2, 1994. The City reported a
surplus of approximately $15 million for the fiscal year ending June 30, 1994.
The City Council and the Authority have approved a fiscal 1994 budget that
projects no deficit for the fiscal year ending June 30, 1994.
In June 1992, the Authority issued $474,555,000 in bonds to liquidate
the City's deficit balance in its General Fund. In July 1993, the Authority
issued $643,430,000 of bonds to refund certain general obligation bonds of the
City and to fund additional capital projects. In August 1993, the Authority
issued $178,675,000 of bonds to refund in advance certain of the bonds issued in
June 1992.
The foregoing information as to certain Pennsylvania risk factors
constitutes only a brief summary, does not purport to be a complete description
of Pennsylvania risk factors and is principally drawn from official statements
relating to securities offerings of the Commonwealth of Pennsylvania that have
come to the Fund's attention and were available as of the date of this Statement
of Additional Information.
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Investment Restrictions
The following investment restrictions, in addition to those set forth
in the Prospectus, are fundamental and may not be changed without the
affirmative vote of the holders of a "majority of the outstanding shares" of the
Fund (as defined in each Prospectus under "General Information --
Miscellaneous").
None of the Funds may:
1. Make investments for the purpose of exercising control or
management.
2. Purchase or sell real estate, provided that the Funds may invest in
securities secured by real estate or interests therein or issued by companies or
investment trusts which invest in real estate or interests therein.
3. Purchase or sell commodities or commodity contracts, or invest in
oil, gas or mineral exploration or development programs.
4. Sell securities short or purchase any securities on margin, except
that the Funds may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of investments (portfolio shares with respect
to the Pennsylvania Tax-Free Bond Fund).
None of the Cash Management, Tax-Free, U.S. Treasury Securities,
Equity, International Equity, Special Equity, Bond, Intermediate Income,
Short-Term Income or Balanced Funds may:
1. Act as an underwriter of securities, except insofar as the Funds may
be deemed to be underwriters under the Securities Act of 1933 in selling its
securities.
The Cash Management, Tax-Free, U.S. Treasury Securities,
Equity, Bond and Intermediate Income Funds may not:
1. Enter into repurchase agreements with maturities in excess of seven
days if such investment, together with other instruments in such Fund which are
not readily marketable, exceeds 10% of such Fund's total assets.
The Cash Management, Tax-Free and U.S. Treasury Securities
Funds may not:
1. Acquire any other investment company or investment company security
except in connection with a merger, consolidation, reorganization or acquisition
of assets.
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<PAGE>
The Bond and Intermediate Income Fund may not:
1. Enter into repurchase agreements with maturities in excess of seven
days if such investment, together with other instruments in the Intermediate
Income Fund and the Bond Fund, respectively, which are not readily marketable,
exceeds 10% of the total assets of the Intermediate Income Fund or the Bond Fund
respectively.
2. Acquire any other investment company or investment company security
except in connection with a merger, consolidation, reorganization or acquisition
of assets, and except that the Intermediate Income Fund and the Bond Fund may
invest in collateralized mortgage obligations issued by issuers which may be
deemed to be an investment company under the Investment Company Act of 1940,
provided that immediately after any purchase not more than 5% of the value of
the total assets of such Fund would be invested in such issuer and not more than
10% of the value of the total assets of such Fund would be invested in all such
issuers.
The Cash Management Fund may not:
1. Write or sell puts, calls, straddles, spreads or combinations
thereof except that the Cash Management Fund may acquire puts with respect to
obligations in its portfolio and sell those puts in conjunction with a sale of
those obligations.
The Pennsylvania Tax-Free Bond Fund may not:
1. Invest more than 10% of the value of its net assets in restricted
securities.
2. Write or sell puts, calls, straddles, spreads, or combinations
thereof except that the Fund may acquire stand-by commitments with respect to
its Pennsylvania Municipal Securities.
3. Act as an underwriter of securities within the meaning of the
Securities Act of 1933, except insofar as the Fund might be deemed to be an
underwriter upon disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer thereof in accordance with
the Fund's investment objective, policies and limitation may be deemed to be
underwriting.
The Tax-Free Fund also has a non-fundamental investment policy that it
will not make loans, except that it may enter into repurchase agreements.
B-27
<PAGE>
* * *
In order to permit the sale of shares of the Funds in certain states,
the Funds may make commitments more restrictive than the investment policies and
restrictions above. Should a Fund determine that any such commitment is no
longer in its best interests, it will revoke the commitment by terminating sales
of its Shares in the state involved.
If a percentage restriction is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in asset
value will not constitute a violation of such restriction.
VALUATION
The net asset value per share of each class of shares in a particular
Fund is calculated by dividing the total value of all portfolio securities and
other assets belonging to the Fund that are attributable to the class, less the
value of any liabilities charged to such Fund that are attributable to the
class, by the total number of shares outstanding in the class. The net asset
value per share for each Fund and for each class of shares within a Fund is
calculated separately. Assets belonging to a particular Fund consist of the
consideration received upon the issuance or sale of shares, irrespective of
class, 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 on a daily basis in
proportion to the relative net assets of the Company's other investment
portfolios. The liabilities that are charged to a Fund are borne by each share
of the Fund, except for payments that are borne solely by Retail Shares pursuant
to the Distribution and Services Plan applicable to such shares as described in
the prospectus for such Retail Shares, and transfer agency expenses which may
vary between Institutional Shares and Retail Shares. Subject to the provisions
of the Agreement and Declaration of Trust, determinations by the Board of
Trustees as to the direct and allocable expenses, and the allocable portion of
any general assets, with respect to a particular Fund or share class are
conclusive.
B-28
<PAGE>
Valuation of the Money Market Funds
As stated in the Prospectuses, computing their net asset value of
shares for purposes of sales and redemptions, these Funds use the amortized cost
method of valuation. Under this method, such Funds value each of their portfolio
securities at cost on the date of purchase and thereafter assume a constant
proportionate accretion of any discount or amortization of any 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 seems to provide
certainty in portfolio valuation, it may result in valuations for such Funds'
securities which are higher or lower than the market value of such securities.
In connection with their use of amortized cost valuation, each such
Fund 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 13 months with certain exceptions. The Company's Board of Trustees has
also established procedures, pursuant to rules promulgated by the Securities and
Exchange Commission, that are intended to stabilize the net asset value per
share of each such 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 such Fund's net asset value
per share calculated by using available market quotations deviates from $1.00
per share. In the event such deviation exceeds 1/2 of 1% with respect to any of
the Funds, 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.
Valuation of the Non-Money Market Funds
Equity securities are valued at the last reported sales prices on the
day of valuation if such prices are readily available, otherwise at the last
quoted bid prices on that day. Debt securities with remaining maturities in
excess of sixty days are valued at the last quoted bid prices on the day of
valuation. Debt securities with remaining maturities of sixty days or less
B-29
<PAGE>
are valued at amortized cost. Other Securities for which quotations are not
readily available are valued at their fair market value under procedures
established by, and under the supervision of, the Company's Board of Trustees.
With respect to the International Equity Fund, investments which are
primarily traded on a domestic exchange (including securities traded through the
National Market System) are valued at the last sale price on that exchange or,
if there is no recent sale, the last current bid price; portfolio securities
which are primarily traded on foreign securities exchanges are generally valued
at the preceding closing values of such securities on their respective
exchanges, except that when an event subsequent to the time where value was so
established is likely to have changed such value, then the fair value of those
securities will be determined by consideration of other factors by or under the
direction of the Board of Trustees. Securities trading in over-the-counter
markets in European and Pacific Basin countries is normally completed well
before 4:00 p.m., Eastern time. In addition, European and Pacific Basin
securities trading may not take place on all Business Days. Furthermore, trading
takes place in Japanese markets on certain Saturdays and in various foreign
markets on days which are not considered to be Business Days. The calculation of
the net asset value of a Fund investing in foreign securities may not take place
contemporaneously with the determination of the prices of portfolio securities
used in such calculation. Events affecting the values of portfolio securities
that occur between the time their prices are determined and 4:00 p.m., Eastern
time, and at other times may not be reflected in the calculation of net asset
value of a Fund. A security which is listed or traded on more than one exchange
shall be valued at the quotation on the exchange determined to be the primary
market for such security; investments in foreign debt securities having a
maturity of 60 days or less shall be valued based upon the amortized cost
method; all other foreign securities are valued at the last current bid
quotation if market quotations are available, or at fair value as determined in
accordance with policies established by the Board of Trustees. For valuation
purposes, quotations of foreign securities in foreign currency shall be
converted to U.S. dollars equivalent at the prevailing market rate on the day of
conversion.
Among the factors that will be considered, if they apply, in valuing
portfolio securities held by the Equity, International Equity, Special Equity,
Bond, Intermediate Income, Pennsylvania Tax-Free Bond Fund, Short-Term Income
and Balanced Funds are the existence of restrictions upon the sale of the
security by the Fund, the absence of a market for the security, the extent of
any discount in acquiring the security, the estimated time during which the
security will not be freely marketable, the expenses of registering or otherwise
qualifying the security for public sale, underwriting commissions if
underwriting would be required to
B-30
<PAGE>
effect a sale, the current yields on comparable securities for debt obligations
traded independently of any equity equivalent, changes in the financial
condition and prospects of the issuer, and any other factors affecting fair
market value. In making valuations, opinions of counsel may be relied upon as to
whether or not securities are restricted securities and as to the legal
requirements for public sale.
The Company may use one or more pricing services to value certain
portfolio securities where the prices provided are believed to reflect the fair
market values of such securities. A pricing service would normally consider such
factors as yield, risk, quality, maturity, type of issue, trading
characteristics, special circumstances and other factors it deems relevant in
determining valuations for normal institutionalized trading units of debt
securities and would not rely exclusively on quoted prices. The methods used by
the pricing services and the valuations so established will be reviewed from
time to time by the Investment Advisor (and/or Sub-advisor with respect to the
International Equity Fund) under the general supervision of the Company's Board
of Trustees.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Calculation of Offering Price
Retail Shares of the Non-Money Market Funds are sold with a maximum
sales charge of 2%.
An illustration of the computation of the offering price per share of
Retail Shares of such Funds, using the value of such Funds' net assets and
number of outstanding securities at the close of business on: (i) April 30, 1995
with respect to the Equity Fund, Bond Fund, Intermediate Income Fund,
Pennsylvania Tax-Free Bond Fund and Special Equity Fund and (ii) September 30,
1995 with respect to the International Equity, Short-Term Income and Balanced
Funds, and the maximum 2.0% sales charge is as follows:
B-31
<PAGE>
<TABLE>
<CAPTION>
Penn- Interna-
Intermediate Special sylvania tional Short-
Income Bond Equity Equity Tax-Free Equity Balanced Term Income
Fund Fund Fund Fund Bond Fund Fund Fund Fund
------------ ------ ------ ------- --------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Assets................... $1,248,200 $1,411,682 $5,904,306 $525,813 $767,269 $8,127 $69,611 $11,266
Outstanding
Securities................ 120,123 140,282 393,744 56,039 76,837 720 6,649 1,124
Net Asset Value
Per Share................. $ 10.39 $ 10.06 $15.00 $9.38 $9.99 $11.29 $10.47 $10.02
Sales charge (2% of the
offering price)........... $.21 $.20 $.30 $.19 $.20 $.23 $.21 $.20
Offering to Public........... $10.60 $10.26 $15.30 $9.57 $10.19 $11.52 $10.68 $10.22
</TABLE>
Institutional Shares of each Fund are sold without a sales load.
No sales load is charged on the reinvestment of dividends or distributions, or
in connection with certain share exchanges with respect to Retail Shares as
described in the Prospectus describing Retail Shares under "Purchasing Shares --
Exchange Privilege." With regard to other circumstances wherein the sales load
may be waived or reduced, see the Prospectus describing Retail Shares under
"Purchasing Shares -- Sales Charge Waivers; Letters of Intent; Concurrent
Purchases; and Rights of Accumulation."
Matters Affecting Purchase and Redemption
Retail and Institutional Shares in each of the Funds are sold on a
continuous basis by the Distributor, and the Distributor has agreed to use
appropriate efforts to solicit all purchase orders. Institutional Shares may be
purchased through procedures established by the Distributor in connection with
the requirements of qualified accounts maintained by or on behalf of certain
persons by the Investment Advisor, its affiliates or their correspondents.
Individuals may not purchase Institutional Shares directly. Retail Shares may be
purchased through financial institutions and industry professionals (such as
insurance companies, investment counselors, accountants and estate planning
associations but not including banks and savings and loan associations),
broker-dealers, and the Distributor's affiliates and subsidiaries.
The Company may suspend the right of redemption or postpone the date of
payment for shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Securities and Exchange Commission, (b) the Exchange is closed for other
than customary weekend and holiday closings, (c) the Securities and Exchange
B-32
<PAGE>
Commission has by order permitted such suspension, or (d) an emergency exists as
determined by the Securities and Exchange Commission.
The Company may redeem shares involuntarily if redemption appears
appropriate in light of the Company's responsibilities under the Act.
ADDITIONAL INFORMATION CONCERNING TAXES
General
The following summarizes certain additional federal tax considerations
generally affecting the Funds and their Shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of a Fund or its Shareholders, and the discussion here and in the
Prospectuses is not intended as a substitute for careful tax planning. This
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. Potential investors
should consult their tax advisors with specific reference to their own tax
situation.
Each Fund of the Company is treated as a separate corporate entity
under the Internal Revenue Code of 1986, as amended (the "Code"), and intends to
qualify as a regulated investment company. By following this policy, each Fund
expects to eliminate or reduce to a nominal amount the federal income taxes to
which it is subject. If for any taxable year a Fund does not qualify for the
special federal tax treatment afforded regulated investment companies, all of
the Fund's taxable income would be subject to tax at regular corporate rates
(without any deduction for distributions to shareholders). In such event, the
Fund's dividend distributions to Shareholders (including, in the case of the Tax
Free Fund and the Pennsylvania Tax-Free Bond Fund, amounts derived from interest
on Municipal Obligations) would be taxable as ordinary income, to the extent of
the current and accumulated earnings and profits of the particular Fund, and
would be eligible for the dividends received deduction in the case of corporate
Shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that each Fund distribute to its Shareholders an
amount equal to at least the sum of 90% of its investment company taxable income
and 90% of its tax-exempt interest income (if any), net of certain deductions
for a taxable year. In addition, each Fund must satisfy certain requirements
with respect to the source of its income for a taxable year. At
B-33
<PAGE>
least 90% of the gross income of each Fund must be derived from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, and other income
(including, but not limited to, gains from options, futures, or forward
contracts) derived with respect to a Fund's business of investing in such stock,
securities or currencies. The Treasury Department may by regulation exclude from
qualifying income foreign currency gains that are not directly related to a
Fund's principal business of investing in stock or securities, or options and
futures with respect to stock or securities. Any income derived by a Fund from a
partnership or trust is treated for this purpose as derived with respect to the
Fund's business of investing in stock, securities or currencies only to the
extent that such income is attributable to items of income which would have been
qualifying income if realized by the Fund in the same manner as by the
partnership or trust.
A Fund will not be treated as a regulated investment company under the
Code if 30% or more of the Fund's gross income for a taxable year is derived
from gains realized on the sale or other disposition of the following
investments held for less than three months: (1) stock and securities (as
defined in section 2(a)(36) of the Investment Company Act of 1940); (2) options,
futures and forward contracts (other than those on foreign currencies); and (3)
foreign currencies (and options, futures and forward contracts on foreign
currencies) that are not directly related to a Fund's principal business of
investing in stock and securities (and options and futures with respect to
stocks and securities) (the "Short-short" test). 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, 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. With respect to covered call
options, if the call is exercised by the holder, the premium and the price
received on exercise constitute the proceeds of sale, and the difference between
the proceeds and the cost of the securities subject to the call is capital gain
or loss. Premiums from expired call options written by a Fund and net gains from
closing purchase transactions are treated as short-term capital gains for
federal income tax purposes, and losses on closing purchase transactions are
short-term capital losses.
Any distribution of the excess of net long-term capital gain
over net short-term capital loss is taxable to a Shareholder as
long-term capital gain, regardless of how long the Shareholder
has held the distributing Fund's Shares and whether such
distribution is received in cash or additional Fund Shares. The
B-34
<PAGE>
Fund will designate such distributions as capital gain dividends in a written
notice mailed to Shareholders within 60 days after the close of the Fund's
taxable year. Shareholders should note that, upon the sale or exchange of Fund
Shares, if the Shareholder has not held such Shares for more than six months,
any loss on the sale or exchange of those Shares will be treated as long-term
capital loss to the extent of the capital gain dividends received with respect
to the Shares.
Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable and
the phase-out of personal exemptions, the maximum effective marginal rate of tax
for some taxpayers may be higher. An individual's long-term capital gains are
taxable at a maximum nominal rate of 28%. For corporations, long-term capital
gains and ordinary income are both taxable at a maximum nominal rate of 35% (or
at a maximum effective marginal rate of 39% in the case of corporations having
taxable income between $100,000 and $335,000).
A 4% non-deductible excise tax is imposed on regulated, investment
companies that fail to currently distribute 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 prior to the end of each calendar year to avoid liability for this excise
tax.
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
Shareholders who have failed to provide a correct tax identification number in
the manner required, who are subject to withholding by the Internal Revenue
Service for failure to properly include on their return payments of taxable
interest or dividends, or who have failed to certify to the Fund either that
they are not subject to back-up withholding when required to do so or that they
are "exempt recipients."
Taxation of Certain Financial Instruments
With respect to the Equity, International Equity, Special Equity, Bond,
Intermediate Income and Balanced Funds, some investments may be subject to
special rules which govern the federal income tax treatment of certain
transactions denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies other than the
U.S. dollar. The types of transactions covered by the special rules include the
following: (1) the acquisition of, or becoming the obligor under, a bond or
other debt instrument (including, to the extent provided in Treasury
regulations,
B-35
<PAGE>
preferred stock); (2) the accruing of certain trade receivables and payables;
and (3) the entering into or acquisition of any forward contract, futures
contract, option or similar financial instrument. The disposition of a currency
other than the U.S. dollar by a U.S. taxpayer is also treated as a transaction
subject to the special currency rules. However, foreign currency-related
regulated futures contracts and non-equity options are generally not subject to
the special currency rules if they are or would be treated as sold for their
fair market value at year-end under the mark-to-market rules (described below),
unless an election is made to have such currency rules apply. With respect to
transactions covered by the special rules, foreign currency gain or loss is
calculated separately from any gain or loss on the underlying transaction and is
normally taxable as ordinary gain or loss. A taxpayer may elect to treat as
capital gain or loss foreign currency gain or loss arising from certain
identified forward contracts, futures contracts and options that are capital
assets in the hands of the taxpayer and which are not part of a straddle. The
Treasury Department has issued regulations under which certain transactions
subject to the special currency rules that are part of a "section 988 hedging
transaction" are not subject to the mark-to-market or loss deferral rules under
the Code. It is anticipated that some of the non-U.S. dollar denominated
investments and foreign currency contracts that the Fund may make or may enter
into will be subject to the special currency rules described above. Gain or loss
attributable to the foreign currency component of transactions engaged in by a
Fund which are not subject to the special currency rules (such as foreign equity
investments other than certain preferred stocks) will be treated as capital gain
or loss and will not be segregated from the gain or loss on the underlying
transaction.
Generally, futures contracts held by a Fund at the close of the Fund's
taxable year will be treated for Federal income tax purposes as sold for their
fair market value on the last business day of such year, a process known as
"mark-to-market." Forty percent of any gain or loss resulting from such
constructive sale will be treated as short-term capital gain or loss and 60% of
such gain or loss will be treated as long-term capital gain or loss without
regard to the length of time the Fund holds the futures contract ("the 40%-60%
rule"). The amount of any capital gain or loss actually realized by a Fund in a
subsequent sale or other disposition of those futures contacts will be adjusted
to reflect any capital gain or loss taken into account by the Fund in a prior
year as a result of the constructive sale of the contacts. With respect to
futures contracts to sell, which will be regarded as parts of a "mixed straddle"
because their values fluctuate inversely to the values of specific securities
held by the Fund, losses as to such contracts to sell will be subject to certain
loss deferral rules which limited the amount of loss currently deductible on
either part of the straddle to the amount
B-36
<PAGE>
thereof which exceeds the unrecognized gain (if any) with respect to the other
part of the straddle, and to certain wash sales regulations. Under short sales
rules, which will also be applicable, the holding period of the securities
forming part of the straddle will (if they have not been held for the long-term
holding period) be deemed not to begin prior to termination of the straddle.
With respect to certain futures contracts, deductions for interest and carrying
charges will not be allowed. Notwithstanding the rules described above, with
respect to futures contracts to sell which are properly identified as such, a
Fund may make an election which will exempt (in whole or in part) those
identified futures contracts from being treated for Federal income tax purposes
as sold on the last business day of the Fund's taxable year, but gains and
losses will be subject to such short sales, wash sales, loss deferral rules and
the requirement to capitalize interest and carrying charges. Under temporary
regulations, a Fund would be allowed (in lieu of the foregoing) to elect either
(1) to offset gains or losses from positions which are part of a mixed straddle
by separately identifying each mixed straddle to which such treatment applies,
or (2) to establish a mixed straddle account for which gains and losses would be
recognized and offset on a periodic basis during the taxable year. Under either
election, the 40%-60% rule will apply to the net gain or loss attributable to
the futures contracts, but in the case of a mixed straddle account election, not
more than 50% of any net gain may be treated as long-term and no more than 40%
of any net loss may be treated as short-term. Options on futures contracts
generally receive federal tax treatment similar to that described above.
Under the Short-short test described above, less than 30% of a
company's gross income must be derived from certain investments held for less
than three months. With respect to futures contracts and other financial
instruments subject to the mark-to-market rules, the Internal Revenue Service
(the "Service") has ruled in private letter rulings issued to other regulated
investment companies that a gain realized from such a futures contract or
financial instrument will be treated as being derived from a security held for
three months or more (regardless of the actual period for which the contract or
instrument is held) if the gain arises as a result of a constructive sale under
the mark-to-market rules,and will be treated as being derived from a security
held for less than three months only if the contract or instrument is terminated
(or transferred) during the taxable year (other than reason of mark-to-market)
and less than three months have elapsed between the date the contract or
instrument is acquired and the termination date. Although private letter rulings
are binding on the service only with respect to the taxpayers to which they are
issued, management believes the service would take the same position with
respect to the Funds. In determining whether the 30% test is met for a taxable
year, increases and decreases in the value of each Fund's futures
B-37
<PAGE>
contracts and other investments that qualify as part of a "designated hedge," as
defined in the Code, may be netted.
Certain foreign currency contracts entered into by a Fund may be
subject to the "mark-to-market" process, but gain or loss will be treated as
100% ordinary income or loss. To receive such federal income tax treatment, a
foreign currency contract must meet the following conditions: (1) the contract
must require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contracts
depends; (2) the contract must be entered into at arm's length at a price
determined by reference to the price in the interbank market; and (3) the
contract must be traded in the interbank market. The Treasury Department has
broad authority to issue regulations under the provisions respecting foreign
currency contracts. As of that date of this Statement of Additional Information,
the Treasury has not issued any such regulations. Foreign currency contracts
entered into by the Fund may result in the creation of one or more straddles for
federal income tax purposes, in which case certain loss deferral, short sales,
and wash sales rules and the requirement to capitalize interest and carrying
charges may apply.
Qualification as a regulated investment company under the Code requires
that each Fund satisfy certain requirements with respect to the source of its
income during a taxable year. At least 90% of the gross income of each Fund must
be derived from dividends, interests, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities or foreign
currencies, and other income (including, but not limited to, gains from options,
futures, or forward contracts) derived with respect to the Fund's business of
investing in such stock, securities or currencies. The Treasury Department may
by regulation exclude from qualifying income foreign currency gains which are
not directly related to a Fund's principal business of investing in stock or
securities, or options and futures with respect to stock or securities, or
options and futures with respect to stock or securities. Any income derived by a
Fund from a partnership or trust is treated for this purpose as derived with
respect to the Fund's business of investing in stock, securities or currencies
only to the extent that such income is attributable to items of income which
would have been qualifying income if realized by the Fund in the same manner as
by the partnership or trust.
Special Considerations Pertaining to the Tax-Free and
Pennsylvania Tax-Free Bond Funds
The policy of the Tax-Free Fund is to pay to its Shareholders each year
as exempt-interest dividends substantially all the Fund's Municipal Securities
interest income net of
B-38
<PAGE>
certain deductions and the policy of the Pennsylvania Tax-Free Bond Fund is to
pay to its Shareholders each year as exempt-interest dividends substantially all
the Fund's Pennsylvania Municipal Securities interest income net of certain
deductions. Exempt-interest dividends generally may be treated by the
Shareholders as items of interest excludable from their gross income under
Section 103(a) of the Code. An exempt-interest dividend is any dividend or part
thereof (other than a capital gain dividend) paid by the Tax-Free and
Pennsylvania Tax-Free Bond Funds and designated as an exempt-interest dividend
in a written notice mailed to Shareholders not later than 60 days after the
close of each Fund's taxable year. However, the aggregate amount of dividends so
designated by such Funds cannot exceed the excess of the amount of interest
exempt from tax under Section 103 of the Code received by either Fund during the
taxable year over any amounts disallowed as deductions under Sections 265 and
171(a)(2) of the Code. Moreover, with respect to the Pennsylvania Tax-Free Bond
Fund, while such dividends and interest are exempt from regular federal income
tax, they may be subject to the federal alternative minimum tax (currently
imposed at the rate of 26-28% in the case of non-corporate taxpayers and at the
rate of 20% in the case of corporate taxpayers), in two circumstances. First,
exempt interest dividends derived from certain "private activity" bonds issued
after August 7, 1986, will generally constitute an item of tax preference for
both corporate and non-corporate taxpayers. The Pennsylvania Tax-Free Bond Fund
intends, when possible, to avoid investing in such "private activity" bonds.
Second, exempt interest dividends derived from all bonds, regardless of the date
of issue, must be taken into account by corporate taxpayers in determining
certain adjustments for the federal alternative minimum tax and the
environmental tax. Receipt of exempt interest dividends may result in collateral
federal income tax consequences to certain other taxpayers, including financial
institutions, property and casualty insurance companies, individual recipients
of Social Security or Railroad Retirement benefits, and foreign corporations
engaged in trade or business in the United States. Prospective investors should
consult their own tax advisors as to such consequences.
The percentage of the total dividends paid for any taxable year which
qualifies as exempt-interest dividends will be the same for all Shareholders
receiving dividends from either the Tax-Free or Pennsylvania Tax-Free Bond Funds
during such year, regardless of the period for which the Shares were held. In
order for each such Fund to pay exempt-interest dividends for any taxable year,
at the close of each quarter of its taxable year at least 50% of the aggregate
value of their respective assets must consist of exempt-interest obligations.
Interest on indebtedness incurred by a shareholder to
purchase or carry shares of either of the Tax-Free and
B-39
<PAGE>
Pennsylvania Tax-Free Bond Funds generally is not deductible for federal income
tax purposes.
Shareholders who may be treated as a "substantial user" or a "related
person" to such user with respect to facilities financed through any "private
activity" obligations held by the Funds are advised to consult their tax
advisors with respect to whether exempt-interest dividends would retain the
exclusion under Section 103(a). A "substantial user" is defined under U.S.
Treasury Regulations to include a non-exempt person who regularly uses a part of
such facilities in his trade or business and whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5% of
the total revenues derived by all users of such facilities, or who occupies more
than 5% of the usable area of such facilities or for whom such facilities or a
part thereof were specifically constructed, reconstructed or acquired. A
"related person" includes certain related natural persons, affiliated
corporations, partners and partnerships and S corporations and their
shareholders.
The Tax-Free and Pennsylvania Tax-Free Bond Funds will distribute
substantially all of their investment company taxable income, if any, for each
taxable year. In general, each such Fund's investment company taxable income
will be its taxable income 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. Each such Fund will be taxed on
any undistributed investment company taxable income. To the extent such income
is distributed by either Fund (whether in cash or additional Shares), it will be
taxable to shareholders as ordinary income. It is not expected that any such
distributions will be eligible for the dividends received deduction for
corporations.
TAXABLE EQUIVALENT YIELD TABLE
TAX EXEMPT VERSUS TAXABLE SECURITIES
The tables below show the effect of the tax status of bonds on
the taxable equivalent yield received by their holders under the regular Federal
income tax and the Pennsylvania personal income tax laws in existence for tax
year 1995. They give the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding 4%, 4.5%, 5%, 5.5%, 6%, 6.5% and 7.0%.
B-40
<PAGE>
<TABLE>
<CAPTION>
1995 Federal Approximate
Taxable Combined TAX EXEMPT YIELD
---------------------------------------------------------------
Income Bracket Federal & PA 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%
---------------- ---- ---- ---- ---- ---- ---- ----
Joint Return Single Return Marginal Tax Rate Taxable Equivalent Yield
---------------- ----------------- ----------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 39,000 0 - 23,350 17.380% 4.841% 5.447% 6.052% 6.657% 7.262% 7.867% 8.473%
39,001 - 94,250 23,351 - 56,550 30.016% 5.716% 6.430% 7.144% 7.859% 8.573% 9.288% 10.002%
94,251 - 143,600 56,551- 117,950 32.932% 5.964% 6.710% 7.455% 8.201% 8.946% 9.692% 10.437%
143,601 - 256,500 117,951 - 256,500 37.792% 6.430% 7.234% 8.038% 8.841% 9.645% 10.449% 11.253%
OVER 256,500 OVER 256,500 41.291% 6.813% 7.665% 8.517% 9.368% 10.220% 11.072% 11.923%
</TABLE>
Equivalent yields are based on a fixed $1,000 investment with all taxes deducted
from income. The 4 mill county intangible personal property tax, which is
applicable in most counties, is not considered in these tables. The 4.96%
Philadelphia school district investment income tax is also not considered in
these tables. While it is expected that the Pennsylvania Tax-Free Bond Fund will
invest primarily in obligations exempt from taxes, other income received by the
Fund may be taxable. Yields shown are for illustration purposes only and are not
meant to represent the Fund's actual yield.
NOTE:
The income amount shown is income subject to Federal income tax reduced by
adjustments to income, exemptions, and itemized deductions (including the
deduction for state and local income taxes). If the standard deduction is taken
for Federal income tax purposes, the taxable equivalent yield required to equal
a specified tax-exempt yield is at least as great as that shown in the tables.
It should also be noted that the interest earned on certain "private activity
bonds" issued after August 7, 1986, while exempt from the regular Federal income
tax, is treated as a tax preference item which could subject the recipient to
the Federal alternative minimum tax. It is assumed in these tables that the
investor is not subject to the Federal alternative minimum tax. Where
applicable, investors should consider that the benefit of certain itemized
deductions and the benefit of personal exemptions are limited in the case of
higher income individuals. For 1995, taxpayers with adjusted gross income in
excess of approximately a $114,700 threshold amount are subject to an overall
limitation on certain itemized deductions, requiring a reduction equal to the
lesser of (i) 3% of adjusted gross income in excess of the $114,700 threshold or
(ii) 80% of the amount of such itemized deductions otherwise allowable. The
benefit of each personal exemption is phased out at the rate of two percentage
points for each $2,500 (or fraction thereof) of adjusted gross income in the
phase-out zone. For single taxpayers the range of adjusted gross income in the
phase-out zone is estimated to be from $114,700 to $237,201 and for married
taxpayers filing a joint return, the range is estimated to be from $172,050 to
$294,551. The Federal tax brackets, the threshold amount at which itemized
deductions are subject to
B-41
<PAGE>
reduction, and the range over which personal exemptions are phased out will be
further adjusted for inflation for each year after 1995.
MANAGEMENT OF THE COMPANY
Trustees
The Company will be managed by the Trustees in accordance with the laws
of the Commonwealth of Massachusetts governing trusts with transferrable shares.
There are currently seven Trustees, three of whom are not "interested persons"
of the Company within the meaning of that term under the Investment Company Act
of 1940. The Board of Trustees, in turn, elects the officers of the Company to
supervise actively its day-to-day operations.
The Trustees of the Company, their addresses, and their principal
occupations during the past five years, are as follows:
<TABLE>
<CAPTION>
Position(s) Held Principal Occupations
Name and Address Age With the Company During Past 5 Years
- ---------------- --- ---------------- -------------------
<S> <C> <C> <C>
Thomas J. Taylor 55 Chairman and Consultant; Trustee, Community
1015 Darby Drive Trustee Heritage Fund
Yardley, PA 19067
*Dominic S. Genuardi, Sr. 71 Trustee Retired; Chief Executive
805 East Germantown Pike Officer, Genuardi Supermarkets,
Norristown, PA 19401 Inc. until October 1990.
*Steven I. Gross 48 Trustee Managing Partner, Gross &
2655 Philmont Avenue Company (certified public
Huntingdon Valley, PA 19006 accountants).
Robert C. Kingston 66 Trustee Consultant; Member of the
1603 River Farm Drive Special Operations Policy
Alexandria, VA 22308 Group of the Secretary of
Defense; Director, Vinnell
Corporation; Founder, Military
Professional Resources, Inc.
Dale E. Smith 64 Trustee President
230 West Washington Square Farm Journal, Inc.
Philadelphia, PA 19106
</TABLE>
- ---------------------------
* May be deemed to be an "interested person" of the Company as
defined in the Investment Company Act of 1940.
The Trustees of the Company receive fees and expenses for
each meeting of the Board of Trustees they attend. Each Trustee
B-42
<PAGE>
is entitled to compensation at the rate of $4,000 per year, plus $1,500 for each
meeting attended in person and $250.00 for each meeting held by conference
telephone, plus all out-of-pocket expenses incurred as a trustee. The Chairman
of the Board of Trustees is entitled to additional compensation at the rate of
$2,500 per year. For the fiscal year ended October 31, 1994, the Company paid
total compensation of $28,000 to persons serving as Trustees.
The following table provides information concerning the compensation of
each of the Company's Trustees for services rendered during the Company's last
fiscal year ended October 31, 1994:
<TABLE>
<CAPTION>
Pension or
Retirement Total
Aggregate Benefits Accrued Compensation
Compensation As Part of from Company
Name of Person From Company Company Expenses and Fund Complex
-------------- ------------ ---------------- ----------------
<S> <C> <C> <C>
Dominic S. Genuardi, Sr...................... $6,000 None Not Applicable(1)
Steven I. Gross.............................. $6,000 None Not Applicable(1)
Robert C. Kingston........................... $4,000 None Not Applicable(1)
Dale E. Smith................................ $6,000 None Not Applicable(1)
Thomas J. Taylor............................. $6,000 None Not Applicable(1)
- --------------------------
(1) The Company is not part of a fund complex.
</TABLE>
Officers
The officers of the Company, and their principal occupations during the
past five years are as follows:
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name and Address With the Company During Past 5 Years
- ---------------- ---------------- -------------------
<S> <C> <C>
David G. Lee President and Senior Vice President of the
Chief Executive Administrator and the Distributor
Officer since 1993. Vice President of the
Administrator and the Distributor
since 1991. President of Sierra
Trust Funds prior to 1991.
Carmen V. Romeo Treasurer and Director, Executive Vice President,
Assistant Chief Financial Officer and
Secretary Treasurer of SEI since 1977.
Director and Treasurer of the
Administrator and Distributor since
1981.
</TABLE>
B-43
<PAGE>
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name and Address With the Company During Past 5 Years
- ---------------- ---------------- -------------------
<S> <C> <C>
Sandra K. Orlow Vice President Vice President and Assistant
and Assistant Secretary of the Administrator
Secretary and Distributor since 1983.
Robert B. Carroll Vice President Vice President, Assistant
and Assistant Secretary of SEI, the
Secretary Administrator and Distributor,
since 1994. United States Securities
and Exchange Commission, Division of
Investment Management, 1990-1994.
Associate, McGuire, Woods, Battle and
Boothe (law firm) before 1990.
Kathryn L. Stanton Vice President Vice President, Assistant Secretary
and Assistant of SEI, the Administrator and
Secretary Distributor, since 1994. Associate,
Morgan, Lewis & Bockius (law firm)
1989-1994.
Kevin P. Robins Vice President Senior Vice President, General
and Assistant Counsel and Secretary of SEI, the
Secretary Administrator and Distributor since
1994. Vice President of SEI, the
Administrator and Distributor 1992-
1994. Associate, Morgan, Lewis &
Bockius (law firm), 1988-1992.
Stephen G. Meyer Controller Vice President and Controller -
and Chief Fund Resources, a division of SEI.
Accounting Director - Internal Audit and Risk
Officer Management - SEI, 1992 to March 1995.
Coopers & Lybrand, Senior Associate,
1990 to 1992.
Henry S. Hilles,Jr. Secretary Partner in the law firm of Drinker
Biddle & Reath, Philadelphia,
Pennsylvania.
Allison E. Koebig Assistant From October, 1993 to present,
Secretary employee of SEI Corporation.
Christine Trecroci Assistant From March, 1994 to present,
Secretary employee of SEI Corporation.
</TABLE>
Each officer other than Mr. Hilles may be reached at 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658. Mr. Hilles may be reached at
1345 Chestnut Street, Philadelphia, Pennsylvania 19107- 3496. The officers of
the Company receive no compensation directly from the Company for performing the
duties of their offices. Each officer other than Mr. Hilles is an employee of
SEI Corporation.
As of October 6 1995, the trustees and officers as a group owned 34.27%
and 16.47% of the outstanding Retail Shares of the Company's Cash Management and
Pennsylvania Tax-Free Bond Funds, respectively. As of the same date, the
trustees and officers of the Company collectively owned less than 1% of the
outstanding Retail and Institutional Shares of each of the Company's other
investment portfolios.
B-44
<PAGE>
Investment Advisor
Meridian Investment Company serves as the Company's Investment Advisor.
Its principal offices are located at 55 Valley Stream Parkway, Malvern,
Pennsylvania 19355. The Investment Advisor is a subsidiary of Meridian Bancorp,
Inc. The Investment Advisor has been engaged in providing investment management
and advice to trusts and other customers since February 1985, but prior to the
Company's commencement of operations had not previously served as an investment
advisor to a registered management investment company.
The Investment Advisor manages each of the Company's portfolios and is
responsible for all purchases and sales of each Fund's portfolio securities. For
the advisory services provided and expenses assumed by it, the Investment
Advisor is entitled to receive a fee, computed daily and payable monthly, based
on each Fund's average net assets at an annual rate equal to the lesser of (i)
.40% for each of the Cash Management, Tax-Free and U.S. Treasury Securities
Funds; .74% for each of the Equity, Bond, Intermediate Income and Pennsylvania
Tax-Free Bond Funds; 1.50% for the Special Equity Fund; .75% for the Balanced
Fund; .74% for the Short-Term Income Fund; and 1.00% for the International
Equity Fund, or (ii) such fee as may from time to time be agreed upon in writing
by a Fund and the Investment Advisor in advance of the period to which the fee
relates. In addition, the Investment Advisor has agreed that if, in any fiscal
year, the expenses borne by any Fund exceed the applicable expense limitations
imposed by the securities regulations of any state in which Shares of such Fund
are registered or qualified for sale to the public, the Investment Adviser will
reimburse such Fund for any excess up to the amount of its fee under the
Investment Advisory Agreement, provided, however, that notwithstanding the
foregoing, the Investment Adviser shall reimburse the Funds for such excess
expenses regardless of the amount of the fees paid to it during such fiscal year
to the extent that the securities regulations of any state having jurisdiction
over the Company so require. Unless otherwise required by law, such
reimbursement would be accrued and paid on the same basis that the advisory fee
is accrued and paid by each Fund. To the Company's 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 net assets, two percent (2%) of the next $70 million
of the average net assets and one and one-half percent (1-1/2%) of the remaining
average net assets determined at least monthly.
For the services provided and expenses assumed by the Investment
Advisor, the Company paid the Investment Advisor, net of voluntary fee
reductions for the fiscal years ended October 31, 1992, October 31, 1993 and
October 31, 1994, advisory fees of
B-45
<PAGE>
$294,483, $406,337 and $321,336, respectively, with respect to the Cash
Management Fund; $65,406, $63,747 and $64,860, respectively, with respect to the
Tax-Free Fund; $826,674, $855,490 and $794,672, respectively, with respect to
the U.S. Treasury Securities Fund; $107,068, $208,264 and $349,644,
respectively, with respect to the Equity Fund; $16,167, $52,947 and $64,219,
with respect to the Bond Fund; and $19,517, $54,314 and $55,664, respectively,
with respect to the Intermediate Income Fund. Net of voluntary fee reductions,
the Company has not paid any fees to the Investment Advisor with respect to
services provided and expenses assumed by it on behalf of the Pennsylvania
Tax-Free Bond Fund since the commencement of the Fund's operations on September
21, 1992. Net of voluntary fee reductions, the Company paid the Investment
Advisor, for the period from March 15, 1994 (commencement of operations) to
October 31, 1994, no advisory fees with respect to the Special Equity Fund.
For the fiscal years ended October 31, 1992, October 31, 1993 and
October 31, 1994, the Investment Advisor voluntarily reduced its fees in the
amount of: $249,326, $243,803 and $243,475, respectively, with respect to the
Cash Management Fund; $152,615, $148,744 and $151,339, respectively, with
respect to the Tax-Free Fund; $709,893, $513,293 and $476,803, respectively,
with respect to the U.S. Treasury Securities Fund; $46,544, $72,302 and $7,814,
respectively, with respect to the Equity Fund; $66,482, $104,028 and $125,789,
respectively, with respect to the Bond Fund; and $69,519, $106,637 and $109,045,
respectively, with respect to the Intermediate Income Fund. For the period
September 21, 1992 (commencement of operations) to October 31, 1992, the fiscal
years ended October 31, 1993 and October 31, 1994, the Investment Advisor
voluntarily reduced its fees in the amount of $1,732, $41,232 and $56,761,
respectively, with respect to the Pennsylvania Tax-Free Bond Fund. For the
period from March 15, 1994 (commencement of operations) to October 31, 1994, the
investment Advisor voluntarily reduced its fees in the amount of $87,643 with
respect to the Special Equity Fund.
Sub-advisor
Marvin & Palmer Associates, Inc., 1201 N. Market Street, Suite 2300,
Wilmington, Delaware 19801-1165, serves as the Sub-advisor with respect to the
International Equity Fund under an agreement with the Investment Advisor (the
"Sub-advisory Agreement"). The Sub-advisor, a privately-held company, was
founded in 1986 by David F. Marvin and Stanley Palmer. The Sub-advisor is
engaged in the management of Non-U.S. global (including emerging markets) equity
portfolios for institutional accounts. At December 31, 1994, the Sub-advisor
managed a total of $2.6 billion in investments for 47 institutional investors.
Pursuant to the Sub-advisory Agreement, the Sub-advisor will
assist the Investment Advisor in providing a continuous investment
B-46
<PAGE>
program for the International Equity Fund, including investment research and
management with the respect to all securities and investments and cash
equivalents of such Fund. The Sub-advisor will also prepare, subject to the
Investment Advisor's approval, lists of foreign countries for investment by the
International Equity Fund and determine from time to time what securities and
other investments will be purchased, retained or sold for the Fund and shall
determine what portion of the Fund's assets will be held in different
currencies. The Sub-advisor shall place orders for the purchase and sale of
portfolio securities and will solicit broker-dealers to execute transactions in
accordance with the Fund's policies and restrictions regarding brokerage
allocations. Under the Sub-advisory Agreement, the Sub-advisor is required,
among other things, to furnish to the Investment Advisor and the Board of
Trustees such periodic and special reports as they may request and attend
regular business and investment related meetings with the Investment Advisor and
Board of Trustees if requested to do so. The Sub-advisor will provide the
Investment Advisor with foreign broker research, a quarterly review of
international economic and investment developments and occasional analyses on
international investment issues.
For the services provided by the Sub-advisor pursuant to the
Sub-advisory Agreement, the Investment Advisor will pay to the Sub-advisor a
fee, payable monthly, at the annual rates of seventy-five one-hundredths of one
percent (0.75%) of the average of the first $100,000,000 of the daily net assets
of the International Equity Fund, seventy one-hundredths of one percent (0.70%)
of the average of the next $100,000,000 of such assets, sixty-five
one-hundredths of one percent (0.65%) of the average of the next $100,000,000 of
such assets, and sixty one-hundredths of one percent (0.60%) of the average of
such assets in excess of $300,000,000.
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 advisor or custodian to such an investment company, or from
purchasing shares of such a company for and upon the order of customers. The
Investment Advisor is subject to such banking laws and regulations.
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 the
B-47
<PAGE>
Investment Advisor from continuing to perform investment advisory services for
the Company. If the Investment Advisor were prohibited from continuing to
perform such services, it is expected that the Company's Board of Trustees would
recommend that the Company enter into a new agreement with another qualified
firm. Any new advisory agreement would be subject to shareholder approval.
Administrator
Effective May 1, 1995, SEI Financial Management Corporation, a
wholly-owned subsidiary of SEI Corporation ("SEI"), serves as administrator (the
"Administrator") to the Company. The Administrator assists in supervising all
operations of each Fund, except those performed by the Investment Advisor under
the Investment Advisory Agreement, by the Sub-advisor under the Sub-advisory
Agreement, by SEI Financial Services Company under the Distribution Agreement
and by Citibank, N.A. or the Bank of New York under their respective Custodian
Agreements.
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities for the Company. The Administrator prepares annual
and semi-annual reports to the Securities and Exchange Commission, prepares
Federal and state tax returns, prepares filings with state securities
commissions, and generally assists in all aspects of the Company's operations
other than those discussed above. Under the Administration Agreement, the
Administrator also provides fund accounting and related accounting services. The
Administrator may delegate its responsibilities under the Administration
Agreement with the Company's written approval.
The Administrator is entitled to receive compensation for services
rendered to the Funds at an annual rate of .17% of the average daily net assets
of each portfolio, which is calculated daily and paid monthly. All subsequent
portfolios will be subject to a minimum annual fee of $60,000 (domestic
portfolios) and $80,000 (international portfolios). An additional minimum fee of
$15,000 for each class of shares in excess of two classes will be imposed on all
current and future portfolios.
Prior to May 1, 1995, The Winsbury Company ("Winsbury") served as
administrator to the Company. For the fiscal years ended October 31, 1992,
October 31, 1993 and October 31, 1994, the Company paid Winsbury, net of
voluntary fee reductions, administration fees of: $224,133, $325,070 and
$282,405, respectively, with respect to the Cash Management Fund; $49,001,
$72,625 and $24,865, respectively, with respect to the Tax-Free Fund; and
$626,249, $684,392 and $635,737, respectively, with respect to the U.S. Treasury
Securities Fund. For the same periods, Winsbury voluntarily reduced its fees in
the amount of
B-48
<PAGE>
$47,772, no reduction and no reduction, respectively, with respect to the Cash
Management Fund; $60,010, $33,620 and $83,234, respectively, with respect to the
Tax-Free Fund; and $142,034, no reduction and no reduction, respectively with
respect to the U.S.
Treasury Securities Fund.
For the fiscal years ended October 31, 1992, October 31, 1993 and
October 31, 1994, the Company paid Winsbury, net of voluntary fee reductions,
administration fees of: $23,224, $68,252 and $96,416, respectively, with respect
to the Equity Fund; $1,527, $17,277 and $25,688, respectively, with respect to
the Bond Fund; and $1,723, $17,578 and $22,266, respectively, with respect to
the Intermediate Income Fund. For the same periods, Winsbury voluntarily reduced
its fees in the amount of: $18,293, $7,577 and no reduction, respectively, with
respect to the Equity Fund; $20,811, $25,149 and $25,666, respectively, with
respect to the Bond Fund; and $22,341, $25,922 and $22,250, respectively, with
respect to the Intermediate Income Fund.
For the period September 21, 1992 (commencement of operations) to
October 31, 1992, the fiscal years ended October 31, 1993 and October 31, 1994,
Winsbury voluntarily reduced its fees in the amount of $252, $11,114 and
$15,341, respectively, with respect to the Pennsylvania Tax-Free Bond Fund.
For the period March 15, 1994 (commencement of operations) to October
31, 1994, the Company paid Winsbury, net of voluntary fee reductions,
administration fees of $0 with respect to the Special Equity Fund. For the same
period, Winsbury voluntarily reduced its fees in the amount of $11,686 with
respect to the Special Equity Fund.
Fund Accountant
As discussed above, the Administrator provides fund accounting and
related accounting services to the Company. Prior to May 1, 1995, BISYS Fund
Services Ohio, Inc. ("BISYS"), an affiliate of Winsbury served as fund
accountant to the Company pursuant to an accounting agreement.
For fiscal years ended October 31, 1992, October 31, 1993 and October
31, 1994, the Company paid BISYS, exclusive of out-of-pocket expenses, fund
accounting fees of: $41,666, $49,441 and $42,684, respectively with respect to
the Cash Management Fund; $24,584, $41,126 and $41,355, respectively, with
respect to the Tax-Free Fund; $114,889, $103,193 and $95,522, respectively, with
respect to the U.S. Treasury Securities Fund; $18,937, $34,954 and $34,957,
respectively, with respect to the Equity Fund; $16,788, $38,671 and $39,076,
respectively, with respect to the Bond Fund; and $15,526, $36,894 and $37,837,
respectively with respect to the Intermediate Income Fund. For the period
September 21, 1992
B-49
<PAGE>
(commencement of operations) to October 31, 1992, the fiscal years ended October
31, 1993 and October 31, 1994, the Company paid BISYS, exclusive of
out-of-pocket expenses, fund accounting fees of $2,240, $23,140 and $25,435,
respectively, with respect to the Pennsylvania Tax-Free Bond Fund.
For the period March 15, 1994 (commencement of operations) to October
31, 1994, the Company paid BISYS, exclusive of out-of-pocket expenses, fund
accounting fees of $20,759 with respect to the Special Equity Fund.
Transfer Agent
SEI Financial Management Corporation also serves as Fund Transfer Agent
pursuant to the Transfer Agent and Service Agreement. The Transfer Agent has
agreed to perform certain services including the following: (i) to issue and
redeem shares of the Company; (ii) to address and mail all communications by the
Company to its Shareholders, including reports to shareholders, dividend and
distribution notices, proxy materials for meetings of shareholders and
prospectuses; (iii) to maintain shareholder accounts; and (iv) to make periodic
reports to the Company's Board of Trustees concerning the Company's operations.
The Company shall pay the Transfer Agent an annual fee equal to .02% of the
total assets of the Fund, plus an annual fee of $25 per shareholder account and
all out-of-pocket expenses.
Prior to May 1, 1995 BISYS served as transfer agent pursuant to a
Transfer Agent and Shareholder Service Agreement. For fiscal years ended October
31, 1992, October 31, 1993 and October 31, 1994, the Company paid BISYS,
exclusive of out-of-pocket expenses, fees of: $5,404, $14,453 and $22,343,
respectively, with respect to the Cash Management Fund; $4,950, $12,056 and
$20,557, respectively, with respect to the Tax-Free Fund; $5,728, $15,656 and
$22,575, respectively with respect to the U.S. Treasury Securities Fund;
$15,244, $29,678 and $55,781, respectively, with respect to the Equity Fund;
$7,261, $16,426 and $32,247, respectively, with respect to the Bond Fund; and
$8,145, $21,844 and $30,876, respectively, with respect to the Intermediate
Income Fund. For the period September 21, 1992 (commencement of operations) to
October 31, 1992, the fiscal years ended October 31, 1993 and October 31, 1994,
the Company paid BISYS, exclusive of out-of-pocket expenses, fees of $966,
$10,081 and $7,531, respectively, with respect to the Pennsylvania Tax-Free Bond
Fund.
For the period March 15, 1994 (commencement of operations) to October
31, 1994, the Company paid BISYS, exclusive of out-of-pocket expenses, fees of
$13,233 with respect to the Special Equity Fund.
B-50
<PAGE>
The Company's agreement with BISYS required the Company to pay it a
reasonable fee in connection with the termination of its services as transfer
agent, which occurred on April 30, 1995.
Distributor
SEI Financial Services Company, a wholly-owned subsidiary of SEI,
serves as distributor (the "Distributor") to the Funds pursuant to the
Distribution Agreement.
Distribution and Services Plan
Under the Funds' Distribution and Services Plan (the "Distribution
Plan"), each Fund will pay a monthly distribution fee (also referred to as a
12b-1 fee) to the Distributor as compensation for its services in connection
with the Distribution Plan at an annual rate not to exceed .40% of the average
daily net assets of the Retail Shares of such Fund.
Payments of the fee by any Money Market Fund under the Distribution
Plan will be reduced to the extent necessary to ensure that the amount of such
fee and any other operating expenses that are accrued on any day with respect to
such Fund will not exceed the gross income accrued with respect to such Fund on
that day.
Custodians
Except with respect to the International Equity Fund, cash and
securities owned by each Fund are held by Citibank, N.A. ("Citibank") as
custodian. Citibank serves as custodian to such Funds pursuant to the Custodian
Agreement under which Citibank has agreed to: (i) maintain a separate account or
accounts in the name of each such Fund; (ii) make receipts and disbursements as
authorized by the Administrator on behalf of each such Fund; (iii) collect and
receive all income and other payments and distributions on account of each such
Fund's portfolio securities; and (iv) make periodic reports to the Company's
Board of Trustees concerning the Company's property held in custody. Citibank
may at its own expense, appoint sub-custodians on behalf of the Company.
Cash and securities owned by the International Equity Fund are held by
The Bank of New York ("BONY") as custodian. BONY serves as custodian to the
International Equity Fund pursuant to the Custodian Agreement under which BONY
has agreed to: (i) maintain a separate account in the name of this Fund; (ii)
make receipts and disbursements as authorized on behalf of this Fund; (iii)
collect and receive all income and other payments and distributions on account
of this International Equity Fund's securities; and (iv) make periodic reports
to the Company's Board of Trustees concerning
B-51
<PAGE>
the Company's property held in custody. BONY may at its own
expense, appoint foreign sub-custodians on behalf of the Company.
Counsel
Drinker Biddle & Reath, 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107 are counsel to the Company and will pass upon certain legal
matters in connection with the Shares offered hereby.
Financial Statements
The financial statements of the Company dated October 31, 1994, which
are incorporated by reference to the Company's October 31, 1994 Annual Report to
Shareholders filed with the Securities and Exchange Commission on February 6,
1995, have been audited by Coopers & Lybrand L.L.P., independent accountants,
whose report thereon appears elsewhere therein, and have been incorporated
herein in reliance upon the report of said firm of accountants given their
authority as experts in auditing and accounting. Coopers & Lybrand L.L.P. has
offices at 100 East Broad Street, Columbus, Ohio 43215.
The financial statements of the International Equity, Short-Term Income
and Balanced Funds for the period ended September 30, 1995, which are attached
hereto, have not been audited.
PERFORMANCE INFORMATION
General
From time to time, a Fund may include general comparative information,
such as statistical data regarding inflation, securities indices or the features
or performance of alternative investments, in advertisements, sales literature
and reports to shareholders. A Fund may also include calculations, such as
hypothetical compounding examples or tax-free compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any Fund. In addition, a Fund may include
charts comparing various tax-free yields versus taxable yield equivalents at
different income levels.
From time to time, the yield and total return of the Fund may be quoted
in advertisements, shareholder reports or other communications to shareholders.
As explained in the prospectuses, the Company offers
Institutional Shares and Retail Shares of the Funds. Institutional
B-52
<PAGE>
Shares are sold through procedures established by the Distributor to bank trust
departments purchasing Institutional Shares on behalf of the fiduciary,
advisory, agency, custody or other similar accounts maintained by, or on behalf
of, their customers. Retail shares are offered to the general public through
procedures established by the Distributor to Customers satisfying the minimum
purchase requirement of $1,000. The Retail Shares and Institutional Shares may
have different sales charges and other expenses, which may affect performance.
Investors may call (800) 344-2716 to obtain more information concerning Retail
and Institutional Shares. Investors may also obtain information concerning
Retail and Institutional Shares from their sales representative or any other
person, such as a broker-dealer or bank who offers Shares in the Funds.
Yields of the Cash Management, Tax-Free, U.S. Treasury Securities
and Pennsylvania Tax-Free Bond Funds
As summarized in the Prospectuses under the heading "Yield
Information," the yield of each of the Money Market Funds for a seven-day period
(the "base period") will be computed separately for each class by determining
the net change in value (calculated as set forth below) of a hypothetical
account having a balance of one share at the beginning of the period, dividing
the net change in account value by the value of the account at the beginning of
the base period to obtain the base period return, and multiplying the base
period return by 365/7 with the resulting yield figure carried to the nearest
hundredth of one percent. Net changes in value of a hypothetical account will
include the value of additional shares purchased with dividends from the
original share and dividends declared on both the original share and any such
additional shares, but will not include realized gains or losses or unrealized
appreciation or depreciation on portfolio investments. Yield may also be
calculated on a compound basis (the "effective yield") which assumes that net
income is reinvested in Fund Shares at the same rate as net income is earned for
the base period.
The Tax-Free and Pennsylvania Tax-Free Bond Funds may also advertise a
"taxable equivalent yield" and a "taxable equivalent effective yield." Taxable
equivalent yield will be computed by dividing that portion of each of the
Tax-Free and Pennsylvania Tax-Free Fund's yield which is tax-exempt by one minus
a stated income tax rate and adding the product to the portion, if any, of the
yield of a Fund that is not tax-exempt. The taxable equivalent effective yield
for Funds is computed by dividing that portion of the effective yield of the
each Fund which is tax-exempt by one minus a stated income tax rate and adding
the product to that portion, if any, of the effective yield of each Fund that is
not tax-exempt.
The yield and effective yield of each of the Money Market Funds and the
taxable equivalent yield and the taxable equivalent
B-53
<PAGE>
effective yield of the Tax-Free and Pennsylvania Tax-Free Bond Funds will vary
in response to fluctuations in interest rates and in the expenses of each Fund.
For comparative purposes the current and effective yields should be compared to
current and effective yields offered by competing financial institutions for the
same base period and calculated by the methods described above.
For the seven-day period ended April 30, 1995, the yield of Retail and
Institutional Shares of the Cash Management Fund was 5.34% and 5.59%,
respectively, and the compounded effective yield was 5.48% and 5.75%,
respectively; the yield of Retail and Institutional Shares of the Tax-Free Fund
was 3.44% and 3.49%, respectively, the compounded effective yield was 3.50% and
3.55%, respectively, the taxable - equivalent yield was 5.70% and 5.78%,
respectively, and the taxable - equivalent effective yield was 5.79% and 5.88%,
respectively, assuming a federal marginal income tax rate of 39.6%; and the
yield of Retail and Institutional Shares of the U.S. Treasury Securities Fund
was 5.26% and 5.41%, respectively, and the compounded effective yield was 5.40%
and 5.56%, respectively. For the thirty-day period ended April 30, 1995, the
taxable-equivalent effective yield of the Retail and Institutional Shares of the
Pennsylvania Tax-Free Bond Fund was 7.33% and 7.48%, respectively, assuming a
federal marginal income tax rate of 39.6%. During these periods, investment
advisory and/or administration fees were voluntarily reduced; without these
voluntary reductions, all of the yields would have been lower than those quoted
above.
The Non-Money Market Funds
Yield Calculations. The yield for Retail and Institutional Shares of
each of the Non-Money Market Funds is calculated separately by dividing the net
investment income per share (as described below) earned by a class during a
30-day (or one month) period by the maximum offering price per share (including
the maximum sales load of 2.0% for Retail Shares) on the last day of the period
and annualizing the result on a semi-annual basis by adding one to the quotient,
raising the sum to the power of six, subtracting one from the result and then
doubling the difference. A Fund's net investment income per share earned during
the period with respect to a particular class is based on the average daily
number of shares outstanding in the class during the period entitled to receive
dividends and includes dividends and interest earned during the period
attributable to that class minus expenses accrued for the period attributable to
that class, net of reimbursements. This calculation can be expressed as follows:
a-b
Yield = 2 [(------ + 1)6 -1]
cd
B-54
<PAGE>
Where: a = dividends and interest earned during the
period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends.
d = maximum offering price per share on the last
day of the period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in that Fund. Interest earned on any debt
obligations held by a Fund is calculated by computing the yield to maturity of
each obligation held by that Fund based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by that Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market values of such debt obligations.
Undeclared earned income will be subtracted from the net asset value
per share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the base period, has not been declared as
a dividend, but is reasonably expected to be and is declared as a dividend
shortly thereafter.
Based on the foregoing calculations, for the one-month period ended
April 30, 1995, the yield of the Retail and Institutional Shares of the Bond
Fund was 6.22% and 6.35%, respectively; the yield of the Retail and
Institutional Shares of the Intermediate Income Fund was 5.62% and 5.73%,
respectively; and the yield of the Retail and Institutional Shares of the
Pennsylvania Tax-Free Bond Fund was 4.43% and 4.52%, respectively. Based on the
foregoing calculations, for the one-month period ended September 30, 1995, the
yield of the Retail and Institutional Shares of the Short-Term
B-55
<PAGE>
Income Fund was 5.09% and 5.39%. During these periods, investment advisory
and/or administration fees were voluntarily reduced; without these voluntary
reductions, all of the yields would have been lower than those quoted above.
Total Return Calculations. The Funds compute their average annual total
returns separately for Retail and Institutional Shares by determining the
average annual compounded rates of return during specified periods that equate
the initial amount invested in a particular share class to the ending redeemable
value of such investment in the class. This is done by dividing the ending
redeemable value of a hypothetical $1,000 initial payment by $1,000 and raising
the quotient to a power equal to one divided by the number of years (or
fractional portion thereof) covered by the computation and subtracting one from
the result. This calculation can be expressed as follows:
<TABLE>
<S> <C> <C>
Average Annual ERV
Total Return = [(----)1/n - 1]
P
Where: ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed
in terms of years.
</TABLE>
The Funds compute their aggregate total returns separately for Retail
and Institutional Shares by determining the aggregate compounded rates of return
during specified periods that likewise equate the initial amount invested in a
particular share class to the ending redeemable value of such investment in the
class. The formula for calculating aggregate total return is as follows:
<TABLE>
<S> <C> <C>
Aggregate ERV
Total Return = [(----) - 1]
P
Where: ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
</TABLE>
The calculations of average annual total return and aggregate total
return assume the reinvestment of all dividends and capital
B-56
<PAGE>
gain distributions on the reinvestment dates during the period. The ending
redeemable value (variable "ERV" in each formula) is determined by assuming
complete redemption of the hypothetical investment and the deduction of all
nonrecurring charges at the end of the period covered by the computations. In
addition, a Fund's average annual total return and aggregate total return
quotations reflect the deduction of the maximum sales charge in connection with
the purchase of Retail Shares.
Since performance will fluctuate, performance data for the Funds should
not 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 is generally a function of the kind and quality
of the instruments held in a portfolio, portfolio maturity, operating expenses
and market conditions.
Based on the foregoing calculations, the average annual total return
for the one and five year periods ended April 30, 1995 and for the period from
February 28, 1990 (commencement of operations) to April 30, 1995 for Retail
Shares of the Equity Fund was 8.17%, 12.63% and 12.27%, respectively; for Retail
Shares of the Bond Fund was 2.91%, 7.94% and 7.37%, respectively; and for Retail
Shares of the Intermediate Income Fund was 2.86%, 7.02% and 6.90%, respectively.
The aggregate total return for Retail Shares of the Equity Fund for the same
periods was 17.14%, 72.28% and 81.88%, respectively; for Retail Shares of the
Bond Fund was 8.44%, 41.63% and 44.42%, respectively; and for Retail Shares of
the Intermediate Income Fund was 8.39%, 41.96% and 41.19%, respectively. The
average annual total return and the aggregate total return for the one year
period ended April 30, 1995 and for the period from September 21, 1992
(commencement of operations) to April 30, 1995 for Retail Shares of the
Pennsylvania Tax-Free Bond Fund was 3.94% and 3.88%; and 10.42% and 10.42%. The
average annual total return and the aggregate total return for the one year
period ended April 30, 1995 and for the period from March 15, 1994 (commencement
of operations) to April 30, 1995 for Retail Shares of the Special Equity Fund
was 1.34% and (5.32)%; and (5.98)% and (5.98)%. The average annual total return
and the aggregate total return for the period from the commencement of
operations (May 15, 1995 with respect to the International Equity Fund, June 29,
1995 with respect to the Balanced Fund and May 17, 1995 with respect to the
Short-Term Income Fund) to September 30, 1995 for Retail Shares of the
International Equity, Balanced and Short-Term Income Funds was 12.80% and
12.80%; 4.92% and 4.92%; and 2.02% and 2.02%. During these periods, investment
advisory and/or administration fees were voluntarily reduced; without such
voluntary fee reductions, the total returns would have been lower than those
stated.
Institutional Shares were first offered on February 21, 1995
("Offering Date"). The average annual total return and the
B-57
<PAGE>
aggregate total return for Institutional Shares of the Equity, Bond,
Intermediate Income, Pennsylvania Tax-Free Bond and Special Equity Funds for the
period form the Offering Date to April 30, 1995 was 6.47% and 6.47%; 3.03% and
3.03%; 2.24% and 2.24%; 1.52% and 1.52% and 4.42% and 4.42%. The average annual
total return and the aggregate total return for Institutional Shares of the
International Equity Fund, Balanced Fund and Short-Term Income Fund for the
period from commencement of operations (May 15, 1995 with respect to the
International Equity Fund, June 27, 1995 with respect to the Balanced Fund and
May 15, 1995 with respect to the Short-Term Income Fund) to September 30, 1995
was 12.90% and 12.90%; 4.92% and 4.92%; and 2.20% and 2.20%. During these
periods, investment advisory and/or administration fees were voluntarily
reduced, without such voluntary fee reductions the total returns would have been
lower than those stated.
MISCELLANEOUS
The Company is a trust of the type commonly known as a "business trust"
and is governed by the laws of the Commonwealth of Massachusetts. 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 Agreement and
Declaration of Trust of the Company provides that shareholders 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 Agreement and Declaration of Trust provides for
indemnification out of the trust property of any shareholder held personally
liable solely by reason of his being or having been a shareholder and not
because of his acts or omissions or some other reason. The Agreement and
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 Agreement and 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 or officer
be personally liable to any person for any action or failure to act except by
reason of his or her own bad faith, willful misfeasance, gross negligence in the
performance of his or her duties or by reason of reckless disregard of his or
her obligations and duties as trustee or officer. It also provides
B-58
<PAGE>
that all persons having any claim against the trustees, officers or the Company
shall look solely to the trust property for payment. With the exceptions stated,
the Agreement and Declaration of Trust provides that each trustee and officer 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 he or she may be involved or with which he or she may be
threatened by reason of his or her being or having been a trustee or officer.
Employees of the Company are similarly entitled to indemnification unless such
person would not be entitled to indemnification had he or she been a trustee or
officer.
Certain Record Holders. As of October 6, 1995, the name, address and
percentage ownership of each investor that held of record or beneficially 5% or
more of the outstanding Retail Shares of the Cash Management Fund were as
follows: Dale E. Smith and Florence Smith, JTTEN, 8 Toft Woods Way, Media, PA
19063, 34.27%. As of October 6, 1995, the name, address and percentage ownership
of each investor that held of record or beneficially 5% or more of the
outstanding Retail Shares of the U.S. Treasury Securities Fund were as follows:
Plymouth Meeting Friends School, Germantown & Butler Pike, Plymouth Meeting, PA,
31.35%; Thomas T. Vrabel, Jr. and Margaret F. Vrabel, JTTEN, 35 Walnut Street,
Middleport, PA 17987, 8.55%; Meridian Trust Company custodian for John G. Fish
rollover IRA, 1009 Homeland Dr., Lancaster, PA 17601, 8.55%; Meridian Trust
Company custodian for Joyce A. Waldman rollover IRA, 640 American Ave., E309,
King of Prussia, PA 19406-4013, 5.97%. As of October 6, 1995, the name, address
and percentage ownership of each investor that held of record or beneficially 5%
or more of the outstanding Retail Shares of the Tax-Free Fund were as follows:
Richard E. Meyers and Donna I. Meyers, JTTEN, 517 Monroe Road, Merion, PA 19066,
5.47%; Marietta E. Williams, RD 2, Box 141, Elverson, PA 19520, 29.09%; Robert
G. Meeker and Judith E. Meeker, JTWROS, 2052 Bethel Rd., Lansdale, PA
19446-5920, 5.40%; and Gregory J. Blazic and Lellus L. Blazic , JTTEN, P.O. Box
603, Country Club Rd., Valley Forge, PA 19482-0603, 14.22%. As of October 6,
1995, the name, address and percentage ownership of each investor that held of
record or beneficially 5% or more of the outstanding Retail Shares of the Equity
Fund were as follows: National Financial Services Corp for the Benefit of our
Customers, One World Financial Center, 200 Liberty St., 4th Floor, New York, NY
10281, 36.56%. As of October 6, 1995, the name, address and percentage ownership
of each investor that held of record or beneficially 5% or more of the
outstanding Retail Shares of the Bond Fund were as follows: National Financial
Services Corp for the Benefit of our Customers, One World Financial Center, 200
Liberty St., 4th Floor, New York, NY 10281, 33.03%; Meridian Trust Company,
custodian for Shiras E. Holmes rollover IRA, 8761 Barkhurst Dr., Pittsburgh, PA
15237, 7.37%. As of October 6, 1995, the name, address and percentage ownership
of each investor that held of record or beneficially 5% or more of the
outstanding Retail
B-59
<PAGE>
Shares of the Intermediate Income Fund were as follows: National Financial
Services Corp, One World Financial Center, 200 Liberty St., 4th Floor, New York,
NY 10281, 31.45%; Elissa A. Graner-Hoffman, 219 South Leh St., Allentown, PA
18104, 5.43%; State Street Bank & Trust Company, custodian for Geneva Smith
rollover IRA, 2137 S. 57th Street, Philadelphia, PA 19143, 6.34%; and Meridian
Trust Company, custodian for John G. Fish rollover IRA, 1009 Homeland Dr.,
Lancaster, PA 17601, 8.25%. As of October 6, 1995, the name, address and
percentage ownership of each investor that held of record or beneficially 5% or
more of the outstanding Retail Shares of the Pennsylvania Tax-Free Bond Fund
were as follows: National Financial Services Corp for the Benefit of our
Customers, One World Financial Center, 200 Liberty St., 4th Floor, New York, NY
10281, 23.86%; Lee B. Kirts and Celine Kirts, JTWROS, 451 Knightsbridge Lane,
Hatfield, PA 19440, 5.51%; and Dale E. Smith and Florence Smith, JTTEN, 8 Toft
Woods Way, Media, PA 19063, 16.47%. As of October 6, 1995, the name, address and
percentage ownership of each investor that held of record or beneficially 5% or
more of the outstanding Retail Shares of the Special Equity Fund were as
follows: National Financial Services Corp for the Benefit of our Customers, One
World Financial Center, 200 Liberty St., 4th Floor, New York, NY 10281, 27.07%;
Meridian Trust Company, custodian for Richard H. Babb rollover IRA, 613 Cherokee
St., Emmaus, PA 18049, 5.41% State Street Bank & Trust Company, custodian for
Bernard J. Daney rollover IRA, 121 Ponds Lane, Wilmington, DE, 7.61%.
As of October 6, 1995, the name, address and percentage ownership of
each investor that held of record or beneficially 5% or more of the outstanding
Retail Shares of the Short-Term Income Fund were as follows: Jenny E. Yuninger,
12 Ocola Dr., Paradise, PA 17562, 97.61%. As of October 6, 1995, the name,
address and percentage ownership of each investor that held of record or
beneficially 5% or more of the outstanding Retail Shares of the Balanced Fund
were as follows: State Street Bank & Trust Company, custodian for Roberta M.
Mercenda rollover IRA, 2 Cedar Hill Court, Voorhees, NJ 08043, 13.43%; State
Street Bank & Trust Company, custodian for Robert J. Merenda rollover IRA, 2
Cedar Hill Court, Voorhees, NJ 08043, 26.73%; and State Street Bank & Trust
Company, custodian for Richard Detwiler rollover IRA, 22 S. Kenhorst Blvd.,
Shillington, PA 19807, 59.48%. As of October 6, 1995, the name, address and
percentage ownership of each investor that held of record or beneficially 5% or
more of the outstanding Retail Shares of the International Equity Fund were as
follows: Elizabeth Altman, 1108 Fayette Street, 2nd Floor, Conshohocken, PA
19428, 5.54%; Colette B. Price and Kim D. Price, JTTEN, 2408 Welsh Rd., Mohnton,
PA 19540, 12.25%; Meridian Trust Company, custodian for Christopher D. Hogan,
711 Pass Road, Golfport, MS 39501, 25.48%; Dawn T. Hogan, 1750 Peachtree Lane,
Norristown, PA 19403, 24.98%; and Meridian Trust Company, custodian for Bridget
A. Vargo rollover IRA, 224 E. King Street, Apt. 108, Lancaster, PA 17602,
19.40%.
B-60
<PAGE>
As of October 6, 1995, the name, address and percentage ownership of
each investor that held of record or beneficially 5% or more of the outstanding
Institutional Shares of the Cash Management Fund were as follows: MAM & Co., c/o
Mark Medura MHO 330, P.O. Box 16006, Mail Code BB0425, Reading, PA 19612-6006,
99.96%. As of October 6, 1995, the name, address and percentage ownership of
each investor that held of record or beneficially 5% or more of the outstanding
Institutional Shares of the U.S. Treasury Securities Fund were as follows: MAM &
Co., c/o Mark Medura MHO 330, P.O. Box 16006, Mail Code BB0425, Reading, PA
19612-6006, 61.59%; and The Bank of New York, One Wall Street, 5th Floor, New
York, NY 10286, 38.41%. As of October 6, 1995, the name, address and percentage
ownership of each investor that held of record or beneficially 5% or more of the
outstanding Institutional Shares of the Tax-Free Fund were as follows: MAM &
Co., c/o Mark Medura MHO 330, P.O. Box 16006, Mail Code BB0425, Reading, PA
19612-6006, 100%. As of October 6, 1995, the name, address and percentage
ownership of each investor that held of record or beneficially 5% or more of the
outstanding Institutional Shares of the Equity Fund were as follows: MAM & Co.,
c/o Kim Kutzer, P.O. Box 16006, Mail Code BB0405, Reading, PA 19612-6004,
98.04%. As of October 6, 1995, the name, address and percentage ownership of
each investor that held of record or beneficially 5% or more of the outstanding
Institutional Shares of the Bond Fund were as follows: MAM & Co., c/o Kim
Kutzer, P.O. Box 16004, Mail Code BB0405, Reading, PA 19612-6004, 95.19%. As of
October 6, 1995, the name, address and percentage ownership of each investor
that held of record or beneficially 5% or more of the outstanding Institutional
Shares of the Intermediate Income Fund were as follows: MAM & Co., c/o Kim
Kutzer, P.O. Box 16004, Mail Code BB0405, Reading, PA 19612-6004, 96.51%. As of
October 6, 1995, the name, address and percentage ownership of each investor
that held of record or beneficially 5% or more of the outstanding Institutional
Shares of the Pennsylvania Tax-Free Bond Fund were as follows: MAM & Co., c/o
Kim Kutzer, P.O. Box 16004, Mail Code BB0405, Reading, PA 19612-6004, 100%. As
of October 6, 1995, the name, address and percentage ownership of each investor
that held of record or beneficially 5% or more of the outstanding Institutional
Shares of the Special Equity Fund were as follows: MAM & Co., c/o Kim Kutzer,
P.O. Box 16006, Mail Code BB0405, Reading, PA 19612-6006, 99.94%. As of October
6, 1995, the name, address and percentage ownership of each investor that held
of record or beneficially 5% or more of the outstanding Institutional Shares of
the Short-Term Income Fund were as follows: MAM & Co., c/o Kim Kutzer, P.O. Box
16004, Mail Code BB0405, Reading, PA 19612-6004, 99.95%. As of October 6, 1995,
the name, address and percentage ownership of each investor the held of record
or beneficially 5% or more of the outstanding Institutional Shares of the
Balanced Fund were as follows: MAM & Co., c/o Kim Kutzer, P.O. Box 16004, Mail
Code BB0405, Reading, PA 19612-6006, 53.31%; and MAM & Co., c/o Kim Kutzer, P.O.
Box 16004, Mail Code BB0405, Reading, PA 19612-6006, 46.63%. As of October 6,
1995, the name,
B-61
<PAGE>
address and percentage ownership of each investor that held of record or
beneficially 5% or more of the outstanding Institutional Shares of the
International Equity Fund were as follows: MAM & Co., c/o Kim Kutzer, P.O. Box
16004, Mail Code BB0405, Reading, PA 19612-6004, 94.61%.
B-62
<PAGE>
<PAGE>
Statement of Net Assets
The Conestoga Funds
September 30, 1995
SHORT TERM INCOME FUND
<TABLE>
<CAPTION>
Unaudited
Face Market
Amount Value
(000) (000)
<S> <C> <C>
U. S. Treasury Obligations (66.1%)
United States Treasury Notes
7.500%, 01/31/96 ................ $ 2,975 $ 2,993
5.125%, 03/31/96 ................ 4,915 4,903
7.875%, 07/31/96 ................ 1,500 1,525
6.500%, 09/30/96 ................ 555 559
7.500%, 01/31/97 ................ 5,000 5,108
6.500%, 05/15/97 ................ 2,140 2,162
5.625%, 08/31/97 ................ 2,000 1,992
7.375%, 11/15/97 ................ 3,000 3,087
5.250%, 07/31/98 ................ 2,000 1,966
Total U. S. Treasury Obligations
(Cost $24,282,933) ............... 24,295
Convertible Bonds (22.1%)
Capital One Bank
8.125%, 02/27/98 ................ 190 197
Capital One Bank MTN
6.490%, 08/15/97 ................ 190 191
First USA Bank MTN
6.880%, 09/12/96 ................ 190 191
Ford Motor Credit MTN
8.850%, 05/01/96 ................ 1,000 1,016
International Lease MTN
7.830%, 11/14/96 ................ 1,000 1,018
Merrill Lynch
5.250%, 10/30/95 ................ 700 700
Phillip Morris Companies MTN
9.400%, 10/01/95 ................ 595 595
6.500%, 12/12/95 ................ 500 500
Provident Bank
5.000%, 06/15/96 ................ 520 517
Salomon Brothers MTN
9.000%, 07/23/96 ................ 500 509
Smith Barney
6.000%, 03/15/97 ................ 600 597
Smithkline Beecham MTN
5.250%, 01/26/96 ................ 1,000 998
Tele-Communications MTN
5.280%, 08/20/96 ................ 560 554
Transcont Gas
8.125%, 01/15/97 ................ 525 536
Total Convertible Bonds
(Cost $8,104,221) ............... 8,119
Mortgage Related (8.6%)
<CAPTION>
Face Market
Amount Value
(000) (000)
<S> <C> <C>
Advanta Home Equity
Loan Trust Series
1992-4 Class A1
7.200%, 11/25/08 ............................ 299 299
Banc One Credit
Card Master Trust
Series 1994-A
7.150%, 12/15/98 ............................ 420 425
Fical Home Equity
Loans Series 1990-1
8.900%, 11/15/97 ............................ 29 29
FNMA Remic Series
G92-24 Class E
6.500%, 11/25/20 ............................ 599 596
Premier Auto Trust
Series 1992-2 Class A
6.375%, 09/15/97 ............................ 103 103
Premier Auto Trust
Series 1994-4 Class A-4
6.450%, 05/02/98 ............................ 600 603
Premier Auto Trust
Series 1995-1 Class 4
7.850%, 09/04/98 ............................ 1,000 1,024
Western Financial
Grantor Trust
Series 1991-3 Class A
6.750%, 01/01/97 ............................ 90 90
Total Mortgage Related
(Cost $3,161,339) ........................... 3,169
Commercial Paper (1.6%)
General Electric
Capital Corporation
5.850%, 10/02/95 ............................ 588 588
Total Commercial Paper
(Cost $587,904) ............................. 588
Total Investments (98.5%)
(Cost $36,136,397) .......................... 36,171
Other Assets and
Liabilities (1.5%)
Other Assets and
Liabilities, Net ............................. 562
Total Other Assets
and Liabilities ............................. 562
Net Assets:
Portfolio shares of the Institutional
Class (unlimited authorization - $0.001
par value) based on 3,660,320
outstanding shares of beneficial interest .... 36,599
Portfolio shares of the Retail Class
(unlimited authorization - $0.001
par value) based on 1,125 outstanding
shares of beneficial interest ................ 11
Undistributed net investment income .......... 64
Undistributed net realized gain
on investments .............................. 24
Net unrealized appreciation on investments ... 35
Total Net Assets: (100.0%) ................... $36,733
Net Asset Value,
Offering Price and
Redemption Price
Per Share -
Institutional Class .......................... $ 10.03
Net Asset Value
and Redemption
Price Per Share -
Retail Class ................................ $ 10.02
Maximum Offering Price
Per Share - Retail
Class (10.02 / 98.0%) ........................ $ 10.22
</TABLE>
MTN- Medium Term Note
FNMA- Federal National Mortgage Association
<PAGE>
Statement of Net Assets
The Conestoga Funds
September 30, 1995
BALANCED FUND
<TABLE>
<CAPTION>
Unaudited
Market
Value
Shares (000)
<S> <C> <C>
Common Stock (39.7%)
Aircraft (1.4%)
Allied Signal ................. 3,800 $ 168
Boeing ........................ 1,500 102
British Airways PLC ADR ....... 800 57
McDonnell Douglas ............. 900 74
Textron Incoporated ........... 1,000 68
United Technologies ........... 900 80
Total Aircraft ................ 549
Apparel/Textiles (0.3%)
Burlington Industries* ........ 1,900 24
Fruit of The Loom* ............ 4,200 87
Total Apparel/Textiles ........ 111
Automotive (0.9%)
Chrysler ...................... 905 48
Ford Motor .................... 7,700 240
Magna International,
Class A ...................... 1,000 45
Total Automotive .............. 333
Banks (4.3%)
Bank of Boston ................ 2,600 124
Bankamerica ................... 7,900 473
Chase Manhattan ............... 7,800 476
Chemical Banking .............. 2,400 146
Citicorp ...................... 3,800 269
MBNA .......................... 3,900 162
Total Banks ................... 1,650
Building & Construction (0.2%)
Webb Del E .................... 4,800 91
Total Building & Construction . 91
Chemicals (2.1%)
Dow Chemical .................. 900 67
Hercules ...................... 1,900 110
IMC Global .................... 5,100 324
Monsanto ...................... 1,500 151
Praxair ....................... 5,800 155
Total Chemicals ............... 807
Communications Equipment (0.6%)
First Alert* .................. 1,200 19
Motorola ...................... 1,300 99
Qualcomm* ..................... 2,500 115
Total Communications Equipment 233
Computers & Services (3.0%)
<CAPTION>
Unaudited
Market
Value
Shares (000)
<S> <C> <C>
Apple Computer ................... 3,600 134
Compaq Computer* ................. 2,000 97
Digital Equipment* ............... 3,800 173
Hewlett Packard .................. 800 67
IBM .............................. 4,000 378
Intel ............................ 3,100 186
International Game Technology .... 5,400 72
Micron Technology ................ 500 40
Pyxis* ........................... 1,000 19
Total Computers & Services ....... 1,166
Concrete & Mineral Products (0.1%)
Owens Corning Fiberglass* ........ 1,200 54
Total Concrete & Mineral Products 54
Containers & Packaging (0.2%)
Owens-Illinois* .................. 5,300 67
Total Containers & Packaging ..... 67
Drugs (0.8%)
Caremark International ........... 900 19
Elan Public* ..................... 3,900 161
Merck ............................ 1,600 90
Teva Pharmaceutical Industries ADR 1,400 51
Total Drugs ...................... 321
Electrical Utilities (2.8%)
American Electric Power .......... 5,200 189
Central And South West ........... 4,100 105
Consolidated Edison .............. 5,400 164
Pacific Gas And Electric ......... 4,200 125
Peco Energy ...................... 8,500 243
SCE CORP ......................... 14,300 254
Total Electrical Utilities ....... 1,080
Entertainment (0.1%)
MGM Grand* ....................... 1,800 46
Total Entertainment .............. 46
Environmental Services (0.3%)
Browning Ferris Industries ....... 4,000 122
Total Environmental Services ..... 122
Financial Services (1.5%)
Dean Witter Discover ............. 3,700 207
Fleet Financial Group ............ 2,000 76
Household International .......... 1,400 87
ITT .............................. 1,500 186
Total Financial Services ......... 556
Food, Beverage & Tobacco (2.8%)
IBP .............................. 3,000 160
Philip Morris .................... 6,700 560
RJR Nabisco Holdings ............. 10,300 333
Total Food, Beverage & Tobacco ... 1,053
Gas/Natural Gas (0.4%)
Enron ............................ 4,000 134
Total Gas/Natural Gas ............ 134
Glass Products (0.2%)
Corning .......................... 2,000 57
Total Glass Products ............. 57
Household Products (0.3%)
Maytag ........................... 2,700 47
PPG Industries ................... 1,700 79
Total Household Products ......... 126
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Unaudited
Market
Value
Shares (000)
<S> <C> <C>
Insurance (2.0%)
Allstate ............................. 463 16
Cigna ................................ 1,400 146
Equitable Companies .................. 7,300 179
FHP International* ................... 1,500 36
Health Systems
International Class A* .............. 700 21
The Travelers Group .................. 5,000 267
U.S. Healthcare ...................... 2,100 74
United Healthcare .................... 500 24
Total Insurance ...................... 763
Machinery (2.6%)
Baker Hughes ......................... 3,000 61
Caterpillar .......................... 1,200 68
Deere ................................ 1,000 81
General Electric ..................... 7,600 484
McDermott International .............. 1,300 26
Philips Electronics ADR .............. 2,700 132
Texas Instruments
Incoporated ......................... 1,800 144
Total Machinery ...................... 996
Medical Products & Services (0.6%)
Beverly Enterprises* ................. 5,100 71
Foundation Health* ................... 1,600 61
Humana* .............................. 1,500 30
Novacare* ............................ 2,300 17
United States Surgical ............... 1,700 45
Total Medical Products & Services .... 224
Metals & Mining (0.3%)
Potash of Saskatchewan ............... 1,700 106
Total Metals & Mining ................ 106
Miscellaneous Business Services (0.9%)
Computer Associates
International ....................... 3,300 139
Manpower ............................. 4,000 116
Novell* .............................. 2,252 41
Stratus Computer* .................... 1,702 45
Total Miscellaneous
Business Services ................... 341
Paper & Paper Products (0.2%)
International Paper .................. 1,800 76
Total Paper & Paper Products ......... 76
Petroleum & Fuel Products (0.1%)
YPF Sociedad Anonima ADR ............. 2,700 49
Total Petroleum &
Fuel Products ....................... 49
Petroleum Refining (3.6%)
Ashland .............................. 3,500 117
British Petroleum PLC ADR ............ 2,500 225
Chevron .............................. 3,600 175
Diamond Shamrock ..................... 1,400 34
Exxon ................................ 600 43
Mobil ................................ 3,000 300
Repsol S.A. ADR ...................... 4,500 143
Royal Dutch Petroleum ................ 2,200 270
Tosco ................................ 2,300 79
Total Petroleum Refining ............. 1,386
Railroads (0.4%)
Burlington Northern Santa Fe ......... 1,100 80
CSX .................................. 500 42
Union Pacific ........................ 500 33
Total Railroads ...................... 155
<CAPTION>
Unaudited
Market
Value
Shares (000)
<S> <C> <C>
Retail (2.5%)
Border Group* ....................... 1,000 17
CML Group ........................... 8,500 60
Darden Restaurants .................. 17,300 199
Fred Meyer* ......................... 200 5
Kroger* ............................. 7,200 245
Lowe's .............................. 6,500 195
Pep Boys ............................ 3,500 95
Safeway* ............................ 600 25
Sears Roebuck ....................... 1,000 37
Venture Stores ...................... 1,200 7
Vicorp Restaurants* ................. 2,200 26
Vons* ............................... 1,500 36
Total Retail ........................ 947
Rubber & Plastic (0.9%)
Goodyear Tire And Rubber ............ 8,800 347
Total Rubber & Plastic .............. 347
Speicalty Machinery (0.3%)
Westinghouse Electric ............... 7,500 113
Total Speicalty Machinery ........... 113
Steel & Steel Works (0.6%)
Birmingham Steel .................... 300 5
Phelps Dodge ........................ 1,900 119
VSX - U.S. Steel Group .............. 3,900 121
Total Steel & Steel Works ........... 245
Technology, General (0.2%)
Xerox ............................... 500 67
Total Technology, General ........... 67
Telephones & Telecommunication (2.1%)
Cellular Communications-
Class A* ........................... 2,000 109
MCI Communications .................. 6,500 169
SBC Communications .................. 3,000 165
Worldcom* ........................... 11,600 373
Total Telephones &
Telecommunication .................. 816
Wholesale (0.1%)
Universal ........................... 900 20
Total Wholesale ..................... 20
Total Common Stock
(Cost $14,121,369) ................. 15,207
Preferred Stocks (0.2%)
Printing & Publishing (0.2%)
News - Preferred Shares ADR ......... 3,200 64
Total Printing & Publishing ......... 64
Total Preferred Stocks (Cost $64,400) 64
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Unaudited
Face Market
Amount Value
(000) (000)
<S> <C> <C>
Commercial Paper (10.6%)
General Electric Capital
5.850%, 10/02/95 .......... $4,054 $4,053
Total Commercial Paper
(Cost $4,053,341) ......... 4,053
Corporate Obligations (6.6%)
Ahmanson H. F ..............
7.875%, 09/01/04 .......... 185 194
Capital One Bank
8.125%, 02/27/98 .......... 85 88
Capital One Bank MTN
6.490%, 08/15/97 .......... 90 90
Carter Holt Harvey
8.375%, 04/15/15 .......... 85 93
Chase Manhattan
7.500%, 12/01/97 .......... 75 77
Crestar Financial
8.750%, 11/15/04 .......... 175 196
CSR Finance Yankee Bond
7.700%, 07/21/25 .......... 200 203
Legrand
8.500%, 02/15/25 .......... 140 157
Lehman Brothers Holdings
7.125%, 09/15/03 .......... 175 175
Manufacturers & Traders
7.000%, 07/01/05 .......... 165 164
Niagara Mohawk Power
8.75% Callable
@ 100 04/01/02
8.750%, 04/01/22 .......... 80 83
Noranda
8.000%, 06/01/03 .......... 100 106
Penske Truck Leasing
6.550%, 09/19/00 .......... 200 199
Provident Bank
6.375%, 01/15/04 .......... 160 155
TCI Communications
8.750%, 08/01/15 .......... 90 94
Tele Communications
8.250%, 01/15/03 .......... 100 104
Toronto-Dominion
Bank-New York
6.150%, 10/15/08 .......... 100 93
United Air Lines
10.670%, 05/01/04 ......... 215 251
Total Corporate Obligations
(Cost $2,496,891) ......... 2,522
Yankee Bond (0.7%)
Quebec Province
Yankee Bonds
7.500%, 07/15/23 .......... 180 177
Santander Finance
Yankee Bonds
7.875%, 04/15/05 .......... 100 106
Total Yankee Bond
(Cost $281,309) ........... 283
U.S. Government
Agency Obligations (3.4%)
FHLMC CMO Pool #E00388
7.000%, 08/01/10 .......... 139 140
FHLMC Pool #D63546
7.000%, 09/01/25 .......... 350 346
FNMA Pool #190203
8.000%, 02/01/23 .......... 177 182
FNMA Pool #290383
7.500%, 05/01/25 .......... 159 160
FNMA Pool #303460
6.500%, 07/01/10 .......... 290 286
FNMA Pool #317278
7.500%, 07/01/25 .......... 175 176
<CAPTION>
Unaudited
Face Market
Amount Value
(000) (000)
<S> <C> <C>
Total U.S. Government
Agency Obligations
(Cost $1,288,051) ................ 1,290
U. S. Treasury Obligations (37.0%)
United States Treasury Bonds
10.750%, 05/15/03 ................ 365 465
8.750%, 05/15/17 ................. 1,090 1,351
7.625%, 02/15/25 ................. 210 238
United States Treasury Notes
7.375%, 05/15/96 ................. 700 707
7.500%, 01/31/97 ................. 950 970
6.500%, 05/15/97 ................. 645 652
7.375%, 11/15/97 ................. 2,030 2,091
8.125%, 02/15/98 ................. 355 372
8.875%, 11/15/98 ................. 1,105 1,196
6.750%, 05/31/99 ................. 1,215 1,245
7.125%, 09/30/99 ................. 600 623
7.500%, 10/31/99 ................. 970 1,021
7.500%, 11/15/01 ................. 1,275 1,365
6.375%, 08/15/02 ................. 815 827
7.250%, 08/15/04 ................. 120 128
9.250%, 02/15/16 ................. 735 949
Total U. S. Treasury
Obligations
(Cost $14,208,081) ............... 14,200
Mortgage Related (0.9%)
Premier Auto Trust
Series 1995-1 Class 4
7.850%, 09/04/98 ................. 110 113
Prudential Home Mortgage
Securities Pool 1994-29
Class A5
7.000%, 10/25/24 ................. 235 226
Total Mortgage Related
(Cost $339,338) .................. 339
<CAPTION>
Unaudited
Face Market
Amount Value
(000) (000)
<S> <C> <C>
Total Investments (99.0%)
(Cost $36,852,780) ............... 37,958
Other Assets and Liabilities (1.0%)
Other Assets and
Liabilities, Net ................. 383
Total Other Assets
and Liabilities .................. 383
Net Assets:
Portfolio shares of the
Institutional Class
(unlimited authorization -
$0.001 par value) based
on 3,656,012 outstanding
shares of beneficial interest .... 36,772
Portfolio shares of the
Retail Class
(unlimited authorization -
$0.001 par value) based
on 6,649 outstanding shares
of beneficial interest ........... 68
Undistributed net
investment income ................ 251
Accumulated net
realized gain
on investments ................... 145
Net unrealized
appreciation
on investments ................... 1,105
Total Net Assets: (100.0%) ........ $38,341
Net Asset Value,
Offering Price
and Redemption
Price Per Share -
Institutional Class .............. $ 10.47
Net Asset Value and
Redemption Price
Per Share -
Retail Class ..................... $ 10.47
Maximum Offering
Price Per Share -
Retail Class
(10.47 / 98.0%) .................. $ 10.68
</TABLE>
* Non Income Producing Security
MTN- Medium Term Note
ADR- American Depository Receipt
FNMA- Federal National Mortgage Association
FHLMC- Federal Home Loan Mortgage Corporation
CMO- Collateralized Mortgage Obligation
<PAGE>
Statement of Net Assets CONESTOGA FUNDS
<TABLE>
<CAPTION>
September 30, 1995 Unaudited
Market
Value
INTERNATIONAL EQUITY FUND Shares (000)
-------------------------------------------------------------------------------
Foreign Common Stocks (94.3%)
-------------------------------------------------------------------------------
<S> <C> <C>
Argentina (1.5%)
Banco Frances Rio Plata ADR ........................ 2,200 $ 47
Cementera Argentina * .............................. 6,500 28
Commercial del Plata * ............................. 19,000 45
Irsa GDR * ......................................... 1,400 34
Quilmes Industrial ................................. 2,200 41
Total Argentina .............................................. 195
Australia (0.9%)
Newscorp ........................................... 21,000 117
Total Australia .............................................. 117
Chile (0.3%)
Madeco ADR ......................................... 900 21
Santa Isabel ADR * ................................. 1,100 24
Total Chile .................................................. 45
Finland (4.8%)
Nokia, Cl A ........................................ 9,000 632
Total Finland ................................................ 632
France (1.6%)
Axa ................................................ 800 42
Business Objects ADR * ............................. 700 30
Castorama * ........................................ 165 27
Cie Bancaire ....................................... 350 33
SGS-Thomson ADR * .................................. 1,500 73
Total France ................................................. 205
Germany (1.1%)
Siemens * .......................................... 100 50
Veba ............................................... 2,250 89
Total Germany ................................................ 139
Hong Kong (5.7%)
Cheung Kong Holdings ............................... 11,000 60
Citic Pacific ...................................... 20,800 63
First Pacific ...................................... 266,000 284
HSBC Holdings ...................................... 15,200 211
Hutchison Whampoa .................................. 12,000 65
Sun Hung Kai Properties ............................ 8,000 65
Total Hong Kong .............................................. 748
India (0.7%)
East India Hotels GDR * ............................ 1,400 27
ITC ADR * .......................................... 4,100 37
<CAPTION>
Statement of Net Assets CONESTOGA FUNDS
September 30, 1995 Unaudited
Market
Value
INTERNATIONAL EQUITY FUND Shares (000)
-------------------------------------------------------------------------------
<S> <C> <C>
Ranbaxy Laboratories GDR ........................... 1,000 $ 28
Total India .................................................. 92
Indonesia (1.1%)
Indonesian Satellite ADR ........................... 4,000 141
Total Indonesia .............................................. 141
Ireland (0.4%)
Elan ADR * ......................................... 1,300 54
Total Ireland ................................................ 54
Israel (0.3%)
ECI Telecommunications ............................. 1,800 40
Total Israel ................................................. 40
Italy (2.0%)
Assicurazioni Generali ............................. 2,200 51
Falck * ............................................ 12,200 30
Fila Holdings ADR* ................................. 900 32
Mediobanca ......................................... 4,000 30
Telecom Italia ..................................... 71,500 119
Total Italy .................................................. 262
Japan (29.2%)
Advantest .......................................... 4,000 237
Alpine Electronics ................................. 4,000 61
Best Denski * ...................................... 2,000 30
Bridgestone ........................................ 3,000 45
Canon .............................................. 4,000 71
Canon Sales ........................................ 1,000 26
Daini Denden ....................................... 32 264
Daiwa Securities ................................... 7,000 88
Fanuc .............................................. 2,000 89
Hirose Electric .................................... 1,050 66
Ito Yokado ......................................... 3,000 166
Keyence ............................................ 500 62
KOA ................................................ 5,000 79
Kokusai Electric ................................... 5,000 114
Komatsu ............................................ 6,000 48
Kubota ............................................. 6,000 40
Kurita Water Industries ............................ 1,000 27
Kyocera ............................................ 4,000 330
Makita ............................................. 2,000 32
Marui .............................................. 2,000 37
Matsushita Electric ................................ 3,000 46
Mitsubishi Electric ................................ 5,000 39
Mitsubishi Estate .................................. 10,000 112
Mitsubishi Trust & Banking ......................... 2,000 31
<PAGE>
<CAPTION>
Statement of Net Assets CONESTOGA FUNDS
September 30, 1995 Unaudited
Market
Value
INTERNATIONAL EQUITY FUND Shares (000)
-------------------------------------------------------------------------------
<S> <C> <C>
Mitsui Fudosan ..................................... 5,000 $ 60
Mitsui Trust & Banking ............................. 4,000 37
Murata Manufacturing ............................... 4,000 150
NEC ................................................ 20,000 279
Nikon * ............................................ 10,000 129
Nippon Telegraph & Telephone ....................... 4 34
Nissan Motors ...................................... 7,000 50
Nomura Securities .................................. 6,000 117
NTT Data Communications ............................ 3 70
Sankyo ............................................. 1,000 23
Sanwa Bank ......................................... 3,000 56
Sharp .............................................. 12,000 168
Sony ............................................... 1,000 52
Sumitomo Bank ...................................... 3,000 58
Sumitomo Trust & Banking ........................... 4,000 55
TDK ................................................ 1,000 51
Tokyo Electronics .................................. 4,000 174
Toray .............................................. 6,000 36
Toyota Motor ....................................... 4,000 76
Ushio * ............................................ 2,000 22
Yamanouchi Pharmaceutical .......................... 1,000 22
Total Japan .................................................. 3,859
Luxembourg (0.1%)
Millicom International * ........................... 500 16
Total Luxembourg ............................................. 16
Malaysia (4.1%)
Arab-Malaysian Merchant Bank ....................... 12,000 148
Malayan Banking .................................... 10,000 81
New Straits Times Press ............................ 20,000 56
Sime Darby Malaysia ................................ 20,000 53
Technology Resources * ............................. 44,000 115
Telekom Malaysia ................................... 4,000 30
United Engineers, F ................................ 9,000 58
Total Malaysia ............................................... 541
Mexico (2.3%)
Bufete Industrial ADR * ............................ 1,600 26
Cemex, Cl A ........................................ 5,300 22
Cifra .............................................. 35,000 44
Grupo Carso ADR * .................................. 2,500 28
Grupo Financiero Banamex, Cl B * ................... 11,000 22
Grupo Financiero Banamex, Cl L * ................... 550 1
Grupo Financiero Inbursa, Cl C ..................... 20,000 63
Grupo Iusacell ADS * ............................... 1,400 18
Grupo Modelo, Cl C * ............................... 5,000 20
Grupo Posadas, Cl A * .............................. 52,300 20
<CAPTION>
Statement of Net Assets CONESTOGA FUNDS
September 30, 1995 Unaudited
Market
Value
INTERNATIONAL EQUITY FUND Shares (000)
-------------------------------------------------------------------------------
<S> <C> <C>
Grupo Synkro ADR * ................................. 80,000 $ 22
Kimberly Clark, Cl A ............................... 1,700 23
Total Mexico ................................................. 309
Netherlands (4.3%)
Advanced Semi-Conductor ADR * ...................... 700 35
ASM Litho Holdings ADR * ........................... 2,000 88
Baan ADR * ......................................... 2,300 104
Elsevier * ......................................... 4,500 58
Getronics * ........................................ 1,000 49
International Nederlanden .......................... 500 29
Madge Networks ADR * ............................... 1,100 35
Philips Electronics * .............................. 1,100 54
Polygram ........................................... 1,100 71
Wolters Kluwer ..................................... 500 46
Total Netherlands ............................................ 569
New Zealand (0.5%)
Telecom New Zealand ADR ............................ 1,015 63
Total New Zealand ............................................ 63
Norway (1.4%)
Hafslund Nycomed, Cl B ............................. 1,200 31
Petroleum Geo-Services ADR * ....................... 6,200 152
Total Norway ................................................. 183
Peru (0.4%)
Banco Wiese ADR .................................... 6,900 47
Total Peru ................................................... 47
Philippines (0.5%)
San Miguel, Cl B ................................... 20,000 71
Total Philippines ............................................ 71
Singapore (2.3%)
Cerebos Pacific .................................... 8,000 48
City Developments .................................. 7,000 43
Creative Technology ADR * .......................... 1,100 15
Flextronics ADR * .................................. 1,000 26
Singapore Press, F ................................. 2,400 37
Straits Steamship Land ............................. 14,000 38
United Overseas Bank, F ............................ 10,600 92
Total Singapore .............................................. 299
South Korea (3.3%)
Korea Fund ......................................... 3,000 66
Korea Mobile Telecom GDR * ......................... 2,500 89
Samsung Electric Non-Voting GDS New * .............. 4,000 280
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets CONESTOGA FUNDS
September 30, 1995 Unaudited
Market
Value
INTERNATIONAL EQUITY FUND Shares (000)
-------------------------------------------------------------------------------
<S> <C> <C>
Samsung Electric Voting GDR * ...................... 22 $ 2
Total South Korea ............................................ 437
Sweden (8.6%)
Allgan Free, Cl B .................................. 3,000 67
Asea Free, Cl B .................................... 1,400 139
Astra Free, Cl B ................................... 5,200 183
Autoliv ............................................ 2,200 134
Ericsson Telephone ADR ............................. 25,000 613
Total Sweden ................................................. 1,136
Switzerland (4.4%)
Brown Boveri & Cie Bearer .......................... 65 75
Ciba Geigy * ....................................... 75 60
Roche Holdings ..................................... 35 247
Sandoz Pharmaceutical * ............................ 260 198
Total Switzerland ............................................ 580
Thailand (2.2%)
Advanced Info Service, F ........................... 9,000 145
Land and House, F .................................. 2,000 31
Total Access Communications ADR .................... 7,000 44
United Communications .............................. 5,000 65
Total Thailand ............................................... 285
United Kingdom (10.3%)
Barclays Bank ...................................... 5,200 62
BAT ................................................ 4,200 35
British Sky Broadcasting ADR * ..................... 6,200 224
Commercial Union ................................... 5,300 49
Glaxo Wellcome ..................................... 7,200 87
Logica * ........................................... 6,100 47
Next ............................................... 12,000 77
Reuters ............................................ 16,200 143
Smithkline Beecham ................................. 20,500 204
Takare ............................................. 6,000 21
Tele-Communications ADR, Cl A ...................... 7,500 140
Vodafone Group ..................................... 26,200 110
WPP Group * ........................................ 11,600 27
Zeneca Group ....................................... 8,000 145
Total United Kingdom ......................................... 1,371
-------------------------------------------------------------------------------
Total Foreign Common Stocks
(Cost $11,442[000]) ....................................... 12,436
-------------------------------------------------------------------------------
<CAPTION>
Statement of Net Assets CONESTOGA FUNDS
September 30, 1995 Unaudited
Market
Value
INTERNATIONAL EQUITY FUND Shares (000)
-------------------------------------------------------------------------------
Foreign Preferred Stocks (1.5%)
-------------------------------------------------------------------------------
<S> <C> <C>
Germany (1.5%)
SAP ................................................ 1,250 $ 203
Total Germany ................................................ 203
-------------------------------------------------------------------------------
Total Foreign Preferred Stocks
(Cost $159[000]) .......................................... 203
-------------------------------------------------------------------------------
<CAPTION>
Face
Amount
(000)
-------------------------------------------------------------------------------
Time Deposit (10.0%)
-------------------------------------------------------------------------------
(10.0%)
Bank of New York - Cayman Time Deposit
6.000%, 10/05/95 ............................... $ 1,315 1,315
Total ........................................................ 1,315
-------------------------------------------------------------------------------
Total Time Deposit
(Cost $1,315[000]) ........................................ 1,315
-------------------------------------------------------------------------------
Total Investments (105.8%)
(Cost $12,916[000]) 13,954
-------------------------------------------------------------------------------
Other Assets and Liabilities (-5.8%)
-------------------------------------------------------------------------------
Other assets and liabilites ....................................... (762)
-------------------------------------------------------------------------------
Total Other Assets and Liabilities ............................... (762)
-------------------------------------------------------------------------------
Net Assets:
Portfolio shares Institutional Class ($.001 par
value - unlimited authorization) based on
1,167,461 outstanding units of beneficial interest .............. 11,899
Portfolio shares Retail Class ($.001 par value -
unlimited authorization) based on 720 outstanding
units of beneficial interest .................................... 8
Undistributed net investment income ............................... 9
Net realized loss on investment transactions ...................... (36)
Net realized gain on forward foreign currency
contracts and foreign currency transactions ..................... 303
Net unrealized appreciation on investments ........................ 1,038
<CAPTION>
Statement of Net Assets CONESTOGA FUNDS
September 30, 1995 Unaudited
Face Market
Amount Value
INTERNATIONAL EQUITY FUND (000) (000)
-------------------------------------------------------------------------------
<S> <C> <C>
Net unrealized depreciation on forward foreign
currency contracts, foreign currency, and
translation of other assets and liabilites in
foreign currenc ................................................. (29)
-------------------------------------------------------------------------------
Total Net Assets: (100.0%) ....................................... $ 13,192
-------------------------------------------------------------------------------
Net asset value, offering price and redemption
price per share - Institutional Class ...........................$ 11.29
Net asset value and redemption price per share -
Retail Class ....................................................$ 11.28
Maximum sales charge of 2.00% (1) .................................$ 0.23
-------------------------------------------------------------------------------
</TABLE>
* Non-Income Producing Security
ADR - American Depository Receipts
ADS - American Depository Shares
GDR - Global Depository Receipts
GDS - Global Depository Shares
F - Foreign Registry Shares
Cl - Class
(1) The offer price is calculated by dividing the
net asset value by 1 minus the maximum sales
charge of 2.00%
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations (000) THE CONESTOGA FUNDS
For the Period Ended from Inception to September 30, 1995 (Unaudited)
Short-Term International
Income Balanced Equity
Fund (1) Fund (2) Fund (1)
<S> <C> <C> <C>
Investment Income:
Interest $ 912 $ 304 $ 46
Dividends -- 83 45
Less: Foreign taxes withheld -- -- (6)
Total investment income 912 387 85
Expenses:
Investment advisory fees 112 65 40
Investment advisory fees waived (67) (22) --
Administration fees 26 15 7
Less administration fees waived -- -- --
Custody fees 3 1 12
Professional fees 4 3 1
Printing fees 2 1 1
Transfer agent fees 4 3 1
Registration and filing fees 10 3 5
Trustee fees 1 1 --
Pricing fees 1 -- 7
Miscellaneous fees -- -- 1
Amortization of deferred organization costs -- 1 1
Total expenses 96 71 76
Net investment income 816 316 9
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) on investment transactions 24 145 (36)
Net realized gain on forward foreign currency
contracts and foreign currency transactions -- -- 303
Net change in unrealized appreciation on
investments 35 1,105 1,038
Net change in unrealized depreciation on forward
foreign currency contracts, foreign currency and
translation of other assets and liabilities in foreign
currency -- -- (29)
Total net realized and unrealized gain on investments 59 1,250 1,276
Net increase in net assets resulting from operations $ 875 $ 1,566 $ 1,285
</TABLE>
1 Commenced operations on May 15, 1995.
2 Commenced operations on June 26, 1995.
Amounts designated as "-" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
<PAGE>
Statement of Changes in Net Assets (000) THE CONESTOGA FUNDS
For the Period from Inception to September 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
Short-Term International
Income Balanced Equity
Fund Fund Fund
5/15/95 6/26/95 5/15/95
to 9/30/95 to 9/30/95 to 9/30/95
<S> <C> <C> <C>
Operations:
Net investment income $ 816 $ 316 $ 9
Net realized gain on investment and 24 145 267
foreign currency transactions
Net change in unrealized appreciation of 35 1,105 1,009
investments and foreign currency transactions
Net increase in net assets resulting from operations 875 1,566 1,285
Dividends distributed from:
Net investment income
Institutional Class (753) (65) --
Retail Class -- -- --
Total dividends distributed (753) (65) --
Capital share transactions (1):
Institutional Class
Proceeds from shares issued 46,440 38,915 12,606
Reinvestment of cash distributions 752 65 --
Cost of shares repurchased (10,592) (2,208) (707)
Increase in net assets derived from
Institutional Class transactions 36,600 36,772 11,899
Retail Class
Proceeds from shares issued 11 68 8
Reinvestment of cash distributions -- -- --
Cost of shares repurchased -- -- --
Increase in net assets derived from
Retail Class transactions 11 68 8
Increase in net assets derived from
capital transactions 36,611 36,840 11,907
Net increase in net assets 36,733 38,341 13,192
Net Assets:
Beginning of period -- -- --
End of period $ 36,733 $ 38,341 $ 13,192
(1) Capital share transactions:
Institutional Class
Shares issued 4,640 3,866 1,230
Shares issued in lieu of cash distributions 75 6 --
Shares repurchased (1,055) (216) (63)
Total Institutional Class Transactions 3,660 3,656 1,167
Retail Class
Shares issued 1 7 1
Shares issued in lieu of cash distributions -- -- --
Shares repurchased -- -- --
Total Retail Class Transactions 1 7 1
Increase in capital shares 3,661 3,663 1,168
</TABLE>
Amounts designated as "-" are $0 or round to $0.
The accompanying notes are an integral part of the financial statements.
<PAGE>
Financial Highlights THE CONESTOGA FUNDS
For the Period from Inception to September 30, 1995 (Unaudited)
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Realized and Net Net
Asset Unrealized Distributions Asset Assets
Value Net Gains or from Net Value End of
Beginning Investment (Losses) Investment End Total Period
of Period Income on Investments Income of Period Return (000)
<S> <C> <C> <C> <C> <C> <C> <C>
Short-Term Income Fund
Institutional
1995(1) $10.00 $0.21 $0.01 $(0.19) $10.03 2.20%* $36,722
Retail
1995(2) 10.01 0.19 -- (0.18) 10.02 2.02%* 11
Balanced Fund
Institutional
1995(3) $10.00 $0.09 $0.40 $(0.02) $10.47 4.92%* $38,271
Retail
1995(4) 9.97 0.08 0.44 (0.02) 10.47 5.22%* 70
International Equity Fund
Institutional
1995(1) $10.00 $0.01 $1.28 $ -- $11.29 12.90%* $13,184
Retail
1995(1) 10.00 -- 1.28 -- 11.28 12.80%* 8
<CAPTION>
Ratio
of Net
Ratio Investment
Ratio of Expenses Income
Ratio of Net to Average to Average
of Expenses Income Net Assets Net Assets Portfolio
to Average to Average (Excluding (Excluding Turnover
Net Assets Net Assets Waivers) Waivers) Rate
<S> <C> <C> <C> <C> <C>
Short-Term Income Fund
Institutional
1995(1) 0.63% 5.33% 1.07% 4.89% 3%
Retail
1995(2) 0.88% 5.26% 1.32% 4.80% 3%
Balanced Fund
Institutional
1995(3) 0.82% 1.07% 3.65% 3.40% 16%
Retail
1995(4) 1.07% 1.39% 3.90% 3.23% 16%
International Equity Fund
Institutional
1995(1) 1.87% 0.22% 1.87% 0.22% 18%
Retail
1995(1) 2.07% 0.08% 2.07% 0.08% 18%
</TABLE>
* Unannualized Figure
(1) Commenced operations on May 15, 1995. All ratios for the period have been
annualized.
(2) Commenced operations on May 17, 1995. All ratios for the period have been
annualized.
(3) Commenced operations on June 27, 1995. All ratios for the period have been
annualized.
(4) Commenced operations on June 29, 1995. All ratios for the period have been
annualized.
The accompanying notes are an integral part of the financial statements.
<PAGE>
Notes to Financial Statements THE CONESTOGA FUNDS
September 30, 1995 (Unaudited)
1. Organization:
The Conestoga Family of Funds (the "Company") was organized as a
Massachusetts business trust under a Declaration of Trust dated August 1, 1989.
The Company is registered under the Investment Company Act of 1940, as amended,
as an open-end management investment company with eleven funds: the U.S.
Treasury Securities Fund, the Cash Management Fund, the Tax-Free Fund
(collectively "the Money Market Funds"), the Intermediate Income Fund, the Bond
Fund, the Pennsylvania Tax-Free Bond Fund, the Short-Term Income Fund
(collectively "the Fixed Income Funds"), the Equity Fund, the Special Equity
Fund, the Balanced Fund, and the International Equity Fund (collectively "the
Equity Funds"). The assets of each Fund are segregated, and a shareholder's
interest is limited to the Fund in which shares are held. The Company is
registered to offer two classes: Institutional and Retail. Each Fund is
authorized to issue an unlimited number of shares of either class which are
units of beneficial interest with a par value of $.001 per share. Each share
represents an equal proportionate interest in a Fund with other shares of the
same class.
These financial statements are for the Short-Term Income Fund and the
International Equity Fund which commenced operations on May 15, 1995, and the
Balanced Fund which commenced operations on June 26, 1995.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by
the Company. These policies arc in conformity with generally accepted accounting
principals.
Security Valuation - Investments in equity securities which are traded on a
national securities exchange (or reported on NASDAQ national market system) are
stated at the last quoted sales price -- if readily available for such equity
securities -- on each business day. If there is no such reported sale, these
securities, and unlisted securities for which market quotations are readily
available, are valued at the most recently quoted bid price.
Debt obligations exceeding 60 days to maturity for which market quotations
are readily available are valued at the most recently quoted bid price. Debt
obligations with 60 days or less until maturity may be valued either at the most
recently quoted bid price or at their amortized cost.
Investment securities held by the Money Market Funds are stated at
amortized cost which approximates market value. Under the amortized cost method,
any discount or premium is amortized ratably to the maturity of the security and
is included in interest income.
Foreign securities in the International Equity Fund are valued based upon
quotations from the primary market in which they are traded.
Federal Income Taxes - It is each Fund's intention to qualify as a
regulated investment company by complying with the appropriate provisions of the
Internal Revenue Code of 1986, as amended. Accordingly, no provisions for
Federal income taxes are required in the accompanying financial statements.
Security Transactions and Investment Income- Security transactions are
accounted for on the trade date of the security purchase or sale. Dividend
income is recognized on ex-dividend date, and interest income is recognized on
an accrual basis and includes, where applicable, the pro rata amortization of
premium or accretion of discount. The cost used in determining net realized
capital gains and losses on the sale of securities are those of the specific
securities sold, adjusted for the accretion and amortization of purchase
discounts and premiums during the respective holding period. Purchase discounts
and premiums on securities held by the Equity and Fixed Income Funds are
accreted and amortized to maturity using the scientific interest method, which
approximates the effective interest method.
Repurchase Agreements - Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective agreements
mature. Provisions of the repurchase agreements ensure that the market value of
the collateral, including accrued interest thereon, is sufficient in the event
of default of the counterparty. If the counterparty defaults and the value of
the collateral declines or if the counterparty enters an insolvency proceeding,
realization of the collateral by the Funds may be delayed or limited.
Net Asset Value Per Share- The net asset value per share of each class of
each Fund is calculated on each business day. In general, it is computed by
dividing the assets of each class of each Fund, less its liabilities, by the
number of outstanding shares of the respective class of the Fund. The maximum
offering price per share for Retail shares of the Equity and Bond Funds is equal
to the net asset value per share plus a sales load of 2.00%.
Foreign Currency Translation- The books and records of the International
Equity Fund are maintained in U.S. dollars on the following basis:
(I) market value of investment securities, assets and liabilities at the
current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates of such
transactions. The International Equity Fund does not isolate that portion of
gains and losses on investments in equity securities which is due to changes in
the foreign exchange rates from that which is due to change in market prices of
equity securities.
The International Equity Fund reports certain foreign currency related
transactions as components of realized gains for financial reporting purposes,
whereas such components are treated as ordinary income for Federal income tax
purposes.
Forward Foreign Currency Contracts-The International Equity Fund enters
into forward foreign currency contracts as hedges against either specific
transactions or fund positions. The aggregate principal amount of the contracts
are not recorded as the International Equity Fund intends to settle the
contracts prior to delivery. All commitments are "marked-to-market" daily at the
applicable foreign exchange rate and any resulting unrealized gains or losses
are recorded currently. The International Equity Fund realizes gains or losses
at the time the forward contracts are extinguished. Unrealized gains or losses
on outstanding positions in forward foreign currency contracts held at the close
of the year will be recognized as ordinary income or loss for Federal income tax
purposes.
Maturity Dates- Certain variable rate and floating rate securities are
subject to "maturity shortening" devices such as put or demand features. Under
Rule 2a-7 of the Investment Company Act of 1940 (the "1940 Act"), as amended,
these securities are deemed to have maturities shorter than the ultimate
maturity dates. Accordingly, the maturity dates reflected in the Statement of
Net Assets are the shorter of the effective demand/put date or the ultimate
maturity date.
Classes- Class-specific expenses are borne by that class. Income, expenses,
and realized and unrealized gains & losses are allocated to their respective
classes on the basis of relative daily net assets.
Other-Distributions from net investment income for the Equity and Fixed
Income Funds are declared and paid to shareholders on a periodic basis.
Distributions from net investment income for the Money Market Funds are declared
daily and paid to shareholders monthly. Any net realized capital gains are
distributed to shareholders at least annually.
3. Administration and Distribution Agreements
The Company and SEI Financial Management Corporation (the "Administrator")
are parties to an administration agreement (the "Administration Agreement")
dated May 1, 1995. Under the terms of the Administration Agreement the
Administrator is entitled to a fee calculated daily and paid monthly at an
annual rate of .17% of the average daily net assets of each Fund. Prior to May
1, 1995, The Winsbury Company ("Winsbury") served as the Administrator to the
Company and was entitled to a fee calculated daily and paid monthly at the
annual rate of .20% of the average daily net assets of each Fund.
The Retail Shares of the Company have adopted a distribution and services
plan (the "Distribution Plan") pursuant to rule 12b-1 under the 1940 Act. As
provided in the Distribution Plan, each Fund is authorized to pay or reimburse
the distributor for certain expenses that are incurred in connection with
shareholder and distribution services in an amount not to exceed on an annual
basis .40% of the average daily net assets of the Retail Shares of the Funds.
The Company and SEI Financial Services Company (the "Distributor"), wholly-owned
subsidiary of SEI Corporation and a registered broker-dealer, are parties to a
distribution agreement (the "Distribution Agreement") dated May 1, 1995. Under
the terms of the Distribution Agreement, the Distributor receives no fees for
its Institutional Class distribution services, and is entitled to receive fees
as set forth in the Distribution Plan for services performed and expenses
assumed under the Distribution Agreement as to the Retail Shares of the Funds.
Prior to May 1, 1995 Winsbury served as Distributor to the Company and was
entitled to receive commissions earned on sales of shares of the Equity and
Fixed Income Funds. For the six months ended April 30, 1995, Winsbury received
$7,736 from commissions earned on sales of shares of the Equity and Fixed Income
funds, of which $261 was reallowed to Meridian Securities Inc., and affiliate of
Meridian Banccorp, and an investment dealer of the Funds.
4. Organizational Costs and Transactions with Affiliates
Organizational costs have been capitalized by the Company and are being, or
were, amortized on a straight line basis over a maximum of sixty months
following commencement of operations. In the event any of the initial shares of
the Company are redeemed by any holder thereof during the period that the
Company is amortizing its organizational costs, the redemption proceeds payable
to the holder thereof by the Company will be reduced by the unamortized
organizational cost in the same ratio as the number of initial shares being
redeemed bears to the number of initial shares outstanding at the time of
redemption.
Certain officers of the Company are also officers of the Administrator
and/or SEI Financial Services Company (the " Distributor"). Such officers are
paid no fees by the Company for serving as officers of the Company.
5. Investment Advisory Agreements
Investment advisory services are provided to the Company by Meridian
Investment Company ("Meridian"), a subsidiary of Meridian Bancorp, Inc.. Under
the terms of the investment advisory agreements, Meridian is entitled to receive
fees based on a percentage of each Fund's average daily net assets at an annual
rate of 0.74% for the Short-Term Income Fund, 0.75% for the Balanced Fund and
1.00% for the International Equity Fund.
Pursuant to the Company's investment advisory agreement for the
International Equity Fund, Meridian has retained Malvin & Palmer Associatcs,
Inc. ("Malvin & Palmer") as Sub-Advisor to such- Fund pursuant to a
Sub-Investment Advisory Agreement. For its services under such Sub-Investment
Advisory Agreement, Malvin & Palmer is paid a monthly fee by Meridian calculated
on an annual basis equal to .75 % of the first $100 million of the International
Equity Fund's average daily net assets, .70 % of the second $100 million of the
International Equity Fund's average daily net assets, .65 % of the third $ 100
million of the International Equity Fund's average daily net assets, and .60% of
the International Equity Fund's average daily net assets in excess of $300
million.
6. Investment Transactions
The cost of security purchases and the proceeds from security sales,
excluding short-term investments, for the period ended September 30, 1995 were
as follows:
<TABLE>
<CAPTION>
Short-Term Income Balanced International Equity
<S> <C> <C> <C>
Purchases $18,058,051 $28,910,273 $13,369,128
Sales 0 11,396,499 1,767,226
US Govt. Purchases 0 0 0
US Govt Sales 1,192,868 0 0
</TABLE>
At September 30, 1995, the total cost of securities and net realized gains
or losses on securities sold for Federal income tax purposes was not materially
different from amounts reported for financial reporting purposes. The aggregate
gross unrealized appreciation and depreciation for securities held by the Equity
and Fixed Income Funds at September 30, 1995 was as follows:
<TABLE>
<CAPTION>
Short-Term Income Balanced International Equity
<S> <C> <C> <C>
Aggregate gross
unrealized appreciation $ 55,826 $ 1,354,707 $ 1,582,129
Aggregate gross
unrealized depreciation (20,825) (249,975) (544,404)
Net unrealized
appreciation/(depreciation) $ 34,821 $ 1,104,732 $l,037,725
</TABLE>
7. Forward Foreign Currency Contracts:
The International Equity Fund may enter into forward foreign currency
exchange contracts as hedges against fund positions. Such contracts, which may
protect the value of the Fund's investment securities against a decline in the
value of currency, do not eliminate fluctuations in the underlying prices of the
securities. They simply establish an exchange rate at a future date. Also,
although such contracts tend to minimize the risk of loss due to a decline in
the value of a hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of such foreign currency
increase.
The following forward foreign currency contracts in the International
Equity Fund were outstanding at September 30, 1995:
<TABLE>
<CAPTION>
Foreign Currency Settlement Currency Contracts to In Exchange Net Unrealized
Sales Date Deliver FX For $ (000) Appreciation /
(000) Depreciation
(000)
<S> <C> <C> <C> <C>
10/4/95 CH 380 312 (17)
10/4/95 CH 50 41 (2)
10/27/95 CH 280 246 4
10/4/95 DM 280 190 (6)
10/4/95 DM 50 34 (1)
10/4/95 DM 30 20 (1)
10/27/95 DM 230 163 2
10/4/95 FI 1,960 447 (12)
10/27/95 FI 1,230 288 0
10/4/95 FF 720 143 (3)
10/27/95 FF 460 93 0
10/5/95 UC 34 54 0
10/4/95 UK 530 819 (18)
10/27/95 UK 380 600
10/4/95 JP 296,090 3,056 66
10/4/95 JP 23,070 225 (8)
10/4/95 JP 131,840 1,313 (18)
10/27/95 JP 156,240 1,590 6
10/3/95 NG 39 24 0
10/4/95 NG 490 298 (8)
10/4/95 NG 90 54 (2)
10/4/95 NG 70 43 (1)
10/27/95 NG 460 290 2
10/4/95 NO 810 125 (4)
10/27/95 NO 510 82
10/4/95 SK 8,720 1,183 (75)
10/27/95 SK 3,700 524 (8)
. $ 12,258 $ (102)
Foreign Currency 10/4/95 AD 32 24 0
Purchases
10/4/95 CH 150 132 (2)
10/4/95 CH 230 202 (3)
10/4/95 CH 50 44 (1)
10/4/95 CH 26 23 0
10/4/95 DM 130 91 0
10/4/95 DM 150 106 (1)
10/4/95 DM 50 35 0
10/4/95 DM 30 21 0
10/4/95 FI 730 171 0
10/4/95 FI 1,230 288 0
10/4/95 FI 282 65 1
10/4/95 FF 260 53 0
10/4/95 FF 460 94 0
10/4/95 UK 150 237 0
10/4/95 UK 380 600 (1)
10/3/95 UK 73 115 0
10/4/95 JP 64,790 621 33
10/4/95 JP 8,200 846 45
10/4/95 JP 143,100 1,452 (7)
10/4/95 JP 23,070 234 (1)
10/4/95 JP 131,840 1,337 (6)
10/2/95 JP 49,039 495 0
10/3/95
10/6/95 MR 74 30 0
10/4/95 NG 190 119 0
10/4/95 NG 300 189 (2)
10/4/95 NG 90 57 (1)
10/4/95 NG 70 44 0
10/4/95 NO 280 45 0
10/4/95 NO 530 85 (1)
10/4/95 SK 3,030 422 15
10/4/95 SK 2,030 288 4
10/4/95 SK 3,660 520 8
10/2/95 TB 1,644 66 0
$19,151 $80
</TABLE>
Currency Legend
CH Switzerland
DM Germany
FI Finnish Mark
FF French Franc
JP Japanese Yen
NG Netherland Guilder
NO Norwegian Krona
SK Swedish Krona
TB Thailand Baht
UK British Sterling Pound
<PAGE>
APPENDIX A
Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market. The following summarizes the rating categories used by
Standard and Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment
is strong. Those issues determined to possess extremely strong
safety characteristics are denoted "A-1+."
"A-2" - Issue's capacity for timely payment is
satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It
is, however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely
payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are
considered to have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal cash
generation; and well established access to a range of financial markets and
assured sources of alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are
considered to have a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many of
the characteristics cited above but to a lesser degree. Earnings
A-1
<PAGE>
trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternative liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D-1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely
payment. Short-term liquidity, including internal operating
factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other
protection factors qualify issue as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"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.
A-2
<PAGE>
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F- 1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment
default.
Fitch may also use the symbol "LOC" with its short-term
ratings to indicate that the rating is based upon a letter of credit issued by a
commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one year or less which is issued by United
States commercial banks, thrifts and non-bank banks; non-United States banks;
and broker-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
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<PAGE>
likelihood that principal and interest will be paid on a timely
basis.
"TBW-2" - This designation indicates that while the degree of
safety regarding timely payment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment
grade category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded
as non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations supported by the highest capacity for
timely repayment.
"A1" - Obligations are supported by a strong capacity for
timely repayment.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment, although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by a satisfactory capacity
for timely repayment. Such capacity is more susceptible to adverse changes in
business, economic or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic or financial conditions.
"C" - Obligations for which there is an inadequate capacity to
ensure timely repayment.
"D" - Obligations which have a high risk of default or which
are currently in default.
A-4
<PAGE>
Corporate and Municipal Long-Term Debt Ratings
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's to a debt obligation and indicates an extremely
strong capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in small
degree.
"A" - Debt is considered to have a strong capacity to pay
interest and repay principal although such issues are somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
debt in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The "B" rating category is
also 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
A-5
<PAGE>
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
"CCC" rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated
to senior debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no
interest is being paid.
"D" - Debt is in payment default. This rating is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S & P believes such payments
will be made during such grace period. "D" rating is also used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are 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
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<PAGE>
generally known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in "Aaa" securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear somewhat larger
than in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the issuer ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issuer ranks at the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
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<PAGE>
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by
Fitch for corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
"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
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<PAGE>
adverse changes in economic conditions and circumstances than bonds with higher
ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" - Bonds that
possess one of these ratings are considered by Fitch to be speculative
investments. The ratings "BB" to "C" represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating "DDD" to "D" is an assessment of the ultimate recovery value through
reorganization or liquidation.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, 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
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<PAGE>
principal and interest is adequate, although adverse changes in business,
economic or financial conditions are more likely to lead to increased investment
risk than for obligations in higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"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.
A-10
<PAGE>
"D" - This designation indicates that the long-term debt
is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
Municipal Note Ratings
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit very
strong or strong capacity to pay principal and interest. Those issues determined
to possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the
best quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
"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
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<PAGE>
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.
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<PAGE>
<PAGE>
[GRAPHIC]
CoreFund Logo
1995
Annual Report
to Our
Shareholders
Year Ending June 30, 1995
<PAGE>
CONTENTS
Choosing the Right Fund
(Inside Cover)
Message to Shareholders 1
CSIA Management Profile 2
Fund Descriptions 2
Investment Advisers
Review 4
Managers Discussion
of Fund Performance 8
Auditors Report 24
Financial Statements 25
FUND SERIES
A Institutional Funds
B Individual Funds
[GRAPHIC]
CoreFund logo
AT THE CENTER OF YOUR INVESTMENT NEEDS.
<PAGE>
INVESTMENT STRATEGY
GROWTH INCOME SAFETY
MUTUAL FUND CATEGORIES
STABILITY Using money market funds, this category seeks to provide strong
safety and stability of principal while providing current income. Funds are
built around high-quality, short-term securities with remaining maturities of 13
months or less.
INCOME This category includes intermediate- and long-term taxable or
tax-exempt bond funds. Depending on the types of bonds in which the funds
invest, these funds seek to provide a moderate to high level of current income,
while aiming to preserve an investors original investment value.
INTERNATIONAL INCOME Global bond funds invest in both U.S. and foreign debt
securities. These funds seek capital appreciation and current income. This
category offers potentially higher returns than domestic bonds, but with less
stability of principal.
GROWTH This category includes stock or balanced funds designed to pursue long-
term growth. Balanced funds can invest in diversified portfolios of bonds and
money market instruments, as well as stocks. Though stocks historically have
offered the greatest growth potential, they have fluctuated more in price from
day to day.
INTERNATIONAL GROWTH This category includes international stock funds that
invest in common stocks and other equity securities of companies located outside
the United States. Compared with domestic stocks, these funds offer higher
potential returns, but carry additional risks.
STABILITY/RETURN
SPECTRUM
<PAGE>
CoreFund
Portfolios
Cash Reserve
Treasury Reserve
Tax-Free Reserve
Intermediate Bond
Government Income
Intermediate Muni Bond
Pennsylvania Muni Bond
New Jersey Muni Bond
Global Bond
Balanced
Equity Index
Value Equity
Growth Equity
International Growth
Each investor has a unique notion of what the right mix of risk and reward
should be. You may, for example, be an investor who seeks to maintain the
highest possible degree of stability in your portfolio, and therefore favors
money market securities. Or, you may be at the opposite end of the spectrum
someone who is willing to accept and tolerate higher degrees of risk in exchange
for the potential of higher returns offered by stocks. Because higher returns
generally mean greater price fluctuations, investment decisions will always
revolve around this tradeoff.
To help you align your portfolios particular blend of stability and return with
your investment preferences, CoreFunds strives to offer a balanced array of
investment options.
As illustrated at left, CoreFunds family of funds falls into distinct categories
that match up with the various stages of the stability/return spectrum. Using
this guide, you can fashion a well-rounded, diversified portfolio that can help
you achieve your individual investment goals while maintaining a level of risk
that is acceptable to you. Through this type of approach, CoreFunds can truly be
at the center of every investors needs.
FINDING THE RIGHT MIX OF RISK AND REWARD
<PAGE>
MESSAGE TO SHAREHOLDERS COREFUND
PROGRESS THROUGH CHANGE.
We are very optimistic about the changes that have been taking shape
recently within the CoreStates organization changes that we believe
will directly affect the CoreFunds group.
Simply put, the CoreStates organization has realigned itself solidly
and uniformly around its customers. At CoreFunds, this will help
further streamline the efficiencies through which we can market and
distribute our investment products and services.
At the same time, CoreFunds is investing in technology that will speed
the delivery of full-service products, providing the convenience,
flexibility and immediate response required by today's investors.
Collectively, all of these changes will put CoreFunds in position to grow
assets and provide added benefits to shareholders.
Change is inevitable elsewhere in the financial and regulatory worlds,
and CoreFunds remains ready to respond to, and support, any new
developments that can enhance investors' ability to pursue their individual
financial goals. For example, Congress is now poised to widen the
availability of Individual Retirement Accounts (IRAs) as savings vehicles. We
endorse this opportunity to enhance individual saving toward major goals,
such as a secure retirement.
We will also continue to seek ways to improve how we communicate with
you, our valued shareholders. As part of our renewed focus on investor
education, we have made several enhancements to this Annual Report,
such as the Stability/Return chart that illustrates various
investment strategies (front cover fold-out). Also, in the Managers'
Discussion and Analysis section (pages 8-23), you will notice that, where
appropriate, we have added indices to help you better understand how your
primary investments relate to the overall investment environment.
In closing, I must acknowledge that Paul G. Finegan is retiring,
after 27 years of achievement, most recently as Chairman and Chief
Executive Officer of CoreStates Investment Advisers (CSIA), the
adviser to CoreFunds. We salute Paul for his invaluable contributions
to the organization, and wish him the best.
Paul will be succeeded by Mark Stalnecker. In his 20 years with
CoreStates, Mark has served in CSIA, and has led Capital Markets,
CoreStates' London office, and the Trust and Investment
Group. He brings extensive experience to his new position.
/s/ Emil J. Mikity
Emil J. Mikity
Chairman
1
<PAGE>
June 30, 1995
MORE ABOUT THE INVESTMENT
ADVISER OF THE COREFUNDS.
CoreFunds, Inc. is a family of 17 mutual funds* managed by CoreStates
Investment Advisers, Inc. (CSIA), an affiliate of CoreStates Financial
Corp. CoreStates is one of the nation's largest and most respected banking
institutions, with a commitment to exceptional service dating back
nearly two centuries. As the investment adviser to CoreFunds, CSIA is
dedicated to providing professional investment management to CoreFund investors.
For years, CSIA has served the financial needs of institutions, corporations,
municipalities, and individual investors. And today, it manages
more than $10 billion in assets, including approximately $2 billion in
the CoreFund Family of Mutual Funds.
[GRAPHIC]
CoreFund Logo
A full range of quality funds, professional management, clear communication,
and convenience are all part of the reason why CoreFunds can be at the
center of your investment needs.
THE RIGHT CHOICES FOR A
WELL-ROUNDED INVESTMENT PROGRAM.
The CoreFund family offers a diverse range of high-quality mutual fund
investment options designed to help you reach your financial goals. These
include: the capital appreciation potential of equity funds; the income
potential of fixed-income funds; the stability of money market funds; and
the expanded reach and potential of international funds. By allowing free
exchange among all funds, CoreFunds make it easy for you to adapt your
individual investment program to your changing needs.
GROWTH EQUITY FUND seeks to provide capital appreciation and an increasing
flow of dividends by investing in common stocks and other equity securities
whose earnings are expected to grow faster than the economy and, therefore,
the market as a whole.
VALUE EQUITY FUND seeks maximum total return from a combination of capital
appreciation and investment income, by investing in stocks considered
undervalued in the marketplace at the time of purchase.
EQUITY INDEX FUND seeks to track the price and yield performance
of the Standard & Poor's 500 Composite Stock Price Index.
INTERNATIONAL GROWTH FUND seeks to provide long-term capital appreciation
by investing in growth-oriented stocks of companies located outside the
United States.
BALANCED FUND seeks to provide long-term growth and current income while
controlling investment risk by investing in a blend of stock, bond and
money market securities.
EQUITY (STOCK) FUNDS
The primary objective of equity funds is long-term growth through investments
in stocks. Historically, the stock market has provided significantly higher
returns than the other major categories of investment, such as fixed income
and money market instruments. Yet, because equity funds invest in stocks
whose share prices can rise or fall, shares in an equity fund when sold may
be worth more or less than their original cost.
*Includes three Fiduciary Funds which are presented in a separate report.
2
<PAGE>
COREFUND FAMILY OF MUTUAL FUNDS
FIXED INCOME (BOND) FUNDS
Bond funds are geared primarily toward providing a high level of current
income. Bond prices rise as interest rates fall. Or, conversely, as
interest rates rise, bond prices fall, which causes the value of bond
funds to fluctuate. Thus, investors' principal will go up and down in price,
and shares when redeemed may be worth more or less than their original
cost.
GOVERNMENT INCOME FUND seeks to provide high current income while preserving
capital by investing exclusively in U.S. Government and Agency securities.
INTERMEDIATE BOND FUND seeks to provide a moderate level of current income
while conserving capital, by investing in a diversified portfolio of
intermediate-term, fixed-income obligations.
INTERMEDIATE MUNICIPAL BOND FUND seeks to preserve capital and provide a
high level of income that is substantially free of federal income taxes
by investing in a diversified mix of state and municipal obligations.
PENNSYLVANIA MUNICIPAL BOND FUND seeks to provide a high rate of current
income that is exempt from both federal income taxes and (for Pennsylvania
residents) Pennsylvania state income taxes. The Fund invests primarily in
highly rated, long-term municipal bonds issued by state, county, and local
agencies within the Commonwealth of Pennsylvania.
NEW JERSEY MUNICIPAL BOND FUND seeks to provide a high rate of current
income that is exempt from both federal income taxes and (for New Jersey
residents) New Jersey state income taxes. The Fund invests primarily in
highly rated, long-term municipal bonds issued by state, county, and local
agencies within the state of New Jersey.
GLOBAL BOND FUND seeks to provide capital appreciation and current income
through investment primarily in fixed income securities of United States
and foreign issuers denominated in United States dollars and in other
currencies.
MONEY MARKET FUNDS
All money market funds invest in short-term securities, which have remaining
maturities of 13 months or less. Every money market fund is managed to maintain
a stable price per share of one dollar, though there is no guarantee that it
will be able to do so.
CASH RESERVE seeks to provide current income consistent with liquidity
and stability of principal by investing in investment-grade money market
securities.
TREASURY RESERVE seeks to provide current interest income and safety of
principal by investing in short-term, direct obligations of the U.S. Treasury
or in instruments backed by Treasury securities.
TAX-FREE RESERVE seeks to provide current income that is substantially free
of federal income taxes by investing in short-term securities of state and
local governments.
3
<PAGE>
June 30, 1995
CORESTATES INVESTMENT ADVISERS' REVIEW
COREFUND
INVESTMENT
REVIEW
Capital market returns during CoreFund's fiscal year (ending June
30, 1995) were nothing short of astonishing. The total return of U.S. stocks,
as measured by the Standard & Poor's 500 Index, was 26.0%. The return on U.S.
fixed-income assets, as measured by the Salomon Brothers Broad Index, was
12.5%. Only non-U.S. stocks showed lackluster performance, as measured by the
Morgan Stanley Capital EAFE (Europe, Australia and Far East) Index, which
showed a return of 1.9%.
GRAPHIC
(Data for chart below)
CAPITAL MARKET RETURNS
TOTAL RETURNS
7/1/94-6/30/95 1/1/95-6/30/95
Dow Jones Industrial Average 29.23% 20.43%
Standard & Poors 500 Index 26.01% 20.16%
Salomon Brothers Broad Index 12.55% 11.51%
JP Morgan Global Bond Index 9.95% 8.74%
Morgan Stanley Capital
International Europe Australia
and Far East Index 1.90% 2.60%
In keeping with the never-ending cycle of security price movements,
the strong performance of domestic stocks and bonds came on the heels of
disappointing returns on these assets during the previous year. In fact,
virtually all of the fiscal year's gains occurred during 1995. Year to date,
domestic stocks have returned 20.4%, with bonds showing an 11.5% return (see
adjacent chart).
Domestic markets performed strongly in 1995 because the economic
climate, and expectations for the future, changed dramatically. Consumer
spending slowed and inventories rose, leading to production cutbacks and a
reduction of inflationary pressures. In turn, this sparked major declines in
interest rates and placed upward pressure on equity valuations, given
relatively strong corporate earnings.
Most investors also view the changed political environment in
Washington as a positive development for the markets. The newly elected
Republican majorities in Congress have changed the terms of the political
debate. In 1993 and 1994, plans to expand government through a major health
care package and other government "investments" made the financial markets
nervous. Since November 1994, however, the political debate has swung to
a discussion of how much, and how quickly, government spending, regulation
and taxation should be reduced.
Because smaller government is generally viewed as conducive
to a more efficient alloca- tion of economic resources, expectations of
the economy's capacity for non-inflationary growth have been raised.
Reductions in the nation's budget deficits will also reduce pressure
on financial markets, through lower borrowing by the Federal Treasury. These
policy developments have undoubtedly created a more "investor-friendly"
environment in the United States.
EQUITY REVIEW
What a difference one year can make. June 1994 marked the middle of a very
disappoint-
4
<PAGE>
COREFUND
ing year for the stock market but twelve months later, investors
found themselves in the midst of a market rally of major proportions.
The change can be traced to the impact that redirected interest
rates have had on
GRAPHIC
Photo:
Mark E. Stalnecker
Chairman and President
CoreStates Investment Advisers, Inc.
equity valuation. By mid-1994, the Federal Reserve's string
of steady short-term interest rate increases, coupled with the resulting
bond market problems, had caused the stock market to decline significantly
(3.4% in the first half of 1994). Things did not begin to change until
the very end of the year, when market interest rates began to decline
in response to weaker economic activity. The resulting rally propelled
the Dow Jones Industrial Average from 3690 on December 9, 1994, to
over 4700 at June 30, 1995.
Then 17 months after the Fed first raised the key Federal Funds rate
in February 1994, touching off a series of increases that doubled the rate
from 3% to 6% the rally gained new momentum from a decrease in the rate of 25
basis points, to 5.75%. Further, despite slower economic growth, the positive
impact of lower interest rates on equity valuation was not offset by reductions
in earnings estimates.
Putting all of these factors together, the U.S. stock market, as
measured by the S&P 500, rose 20.2% for the first half of 1995. The overall
market outlook for the second half of the year remains positive. We are wary of
a correction, but remain fully invested, keeping our portfolio cash levels at
5%, on average.
Two macroeconomic variables will continue to have a major
impact on expected returns from equities: corporate profits and
interest rates. As the rest of 1995 progresses, we are optimistic
that another round of strong corporate profit reports, combined with
continuing (albeit more modest) declines in intermediate and long-term
interest rates, will drive the market to new record levels.
BOND AND MONEY MARKET REVIEW
In retrospect, the past 12 months were among the worst of times and best of
times in the U.S. bond market.
The first six months witnessed extreme bear market conditions, as
interest rates
5
<PAGE>
June 30, 1995
CORESTATES INVESTMENT ADVISERS REVIEW (Continued)
spurred by fears of excessive growth, rising inflationary pressures and
further tightening of monetary policy by the Federal Reserve Board
rose across the maturity spectrum.
During this period, yields on the two-year Treasury note rose an
astonishing 1.5%, as each increase in the Federal Funds rate created
expectations of new increases. While bonds and notes maturing in
10 years or more fared somewhat better (yields rose only 25 to
50 basis points), the broad market indices barely eked out positive
total returns.
The last six months, by contrast, could be characterized as
a major bull market. Yields on securities maturing in one year or
more declined from about 1.25% to 2%, and all broad market indices
registered double-digit total returns. Lower-than-expected inflation
statistics, soft consumer demand and concern over the negative impact of the
Mexican peso crisis on U.S. exports fueled the early phase of the
rally. The rally did not subside until May, when much weaker-than-expected
auto sales combined with an outright decline in non-farm employment
raised the possibility of an inventory recession and a preemptive easing
of monetary policy.
Has the current rally run its course? Should investors sell to protect
their gains? The answers to these questions lie in the outlook for economic
growth and inflation.
In our view, recent consumer spending and employment statistics
suggest that the worst of the current inventory correction is probably behind
us. On the other hand, eco-nomic growth in future months should remain
muted by already high levels of consumer indebtedness, a more cautious attitude
toward investment in plants and equipment because of declining capacity
utilization, and the high probability that fiscal policy will be more
restrictive.
[GRAPHIC]
Line Chart
<TABLE>
<CAPTION>
CHANGES IN THE YIELD CURVE
(US Treasury Securities)
6/30/94 12/31/94 6/30/95
<S> <C> <C> <C>
Yield %
</TABLE>
To the extent this scenario is on target, inflationary pressures
should continue to abate, providing a constructive backdrop for the bond
market. While we expect the Federal Reserve to be cautious in making further
policy moves near- term, the high level of real yield suggests there is room for
lower interest rates in coming quarters.
CONCLUSION
It is unreasonable to expect that the past year's stock and bond market
returns can be matched over the next year. However, the economic fundamentals
remain favorable, and market timing is always dangerous and rarely
successful.
6
<PAGE>
COREFUND
For long-term investors, a regular program of investing in
diversified portfolios of stocks and bonds should prove successful.
Each investor should make asset-allocation decisions (how much
should be invested in stocks, bonds, cash or international assets) based on
their own circumstances. Once the appropriate asset-allocation decision is made,
staying the course is the best way to generate solid investment results. Over
the long term, equity market returns should average 9-10%, with bonds returning
6-7% and money market returns approximating the inflation rate, currently 3-4%.
However, given the recent run-up in stock and bond prices, near-term
performance may be subjected to a pause that results in returns that are lower
than these longer-term expectations.
/s/ Mark E. Stalnecker
Mark E. Stalnecker
Chairman and President
CoreStates Investment Advisers, Inc.
7
<PAGE>
June 30, 1995
MANAGERS' DISCUSSION OF FUND PERFORMANCE
GROWTH EQUITY FUND
The Growth Equity Fund provided a return of 23.71% for the 12-month
period ending June 30, 1995. This compared with a return of 30.72% during the
same period for the S&P Barra Growth Index.
For Series B shares from which a sales charge has been deducted, the
return for the period was 17.87%; for those without a load it was 23.44%.
The Growth Equity Fund began this period in the middle of a very
depressing year for the stock market, and ended it in the midst of a market
rally of almost unbelievable proportions. The difference was the direction of
interest rates.
Mid-1994 found the stock market suffering from a string of interest
rate increases that did not run out until the end of the year. As market
interest rates began to decline in response to weaker economic activity, the
stock market began to rally. The Dow Jones Industrial Average leaped from 3691
on December 9, 1994 to over 4700 at the end of June 1995. And, when the Federal
Reserve announced in early July that it was lowering the Fed Funds rate for the
first time in 17 months, the rally gathered still more steam.
Looking to the second half of 1995, our outlook remains positive. We
are wary of a correction, but we remain fully invested, keeping our portfolio
cash levels at 5% on average. Two macroeconomic variables will have a major
impact on expected returns from equities: corporate profits and interest rates.
As we enter the last half of 1995, we are optimistic that another round of
strong corporate profit reports, along with continuing declines in interest
rates, will drive the market to new record levels.
QUICK FUND FACTS GROWTH EQUITY (6/30/95)
Inception Date: February 3, 1992
Portfolio Size: $93.39 million
Shares Outstanding: 8,354,108 (A&B combined)
<TABLE>
<CAPTION>
Top Five Holdings (as of June 30, 1995)
% of fund investments
<S> <C>
Computer Sciences 2.9%
First Data 2.6%
SmithKline Beecham ADR 2.4%
Amgen 2.3%
Warner Lambert 2.3%
<CAPTION>
Average Annual Total Return 1
1 Year Inception
<S> <C> <C>
Series A 23.71% 4.16%
Series B without Load 23.44% 4.03%
Series B with Load 17.87% 2.63%
[GRAPHIC]
Data for chart to follow:
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
<S> <C>
Growth Equity (Series A) $11,487
Growth Equity (Series B) $10,931
S&P Barra/Growth Index $14,055
Russell 1000 Growth Index $13,654
<CAPTION>
Initial Investment Date 2/29/92 Jun 92 Jun 93 Jun 94 Jun 95
<S> <C> <C> <C> <C> <C>
CoreFund Growth Equity Fund, Class A $10,000 $8,795 $10,093 $9,285 $11,487
CoreFund Growth Equity Fund, Class B
(Synthetic) $9,550 $8,399 $9,639 $8,855 $10,931
S&P/BARRA Growth Index $10,000 $9,743 $10,557 $10,530 $14,055
Frank Russell 1000 Growth Index $10,000 $9,622 $10,490 $10,461 $13,654
</TABLE>
1 For the period ended June 30, 1995. Past performance of the portfolio is not
predictive of future performance. Individual Series B shares were offered
beginning January 4, 1993. The performance shown for Growth Equity Portfolio
Series B (synthetic) prior to that date is based on the performance of
Institutional Series A shares adjusted to reflect the maximum sales charge of
4.5% for the Series B shares. Series A shares of the Growth Equity Portfolio
commenced operations on February 3, 1992.
8
<PAGE>
COREFUND
VALUE EQUITY FUND
The CoreFund Value Equity Fund, Series A, returned 17.29% for the 12-
month period ending June 30, 1995. While in absolute terms this was an
acceptable return, the S&P 500 returned 26.0% in the same timeframe.
For Series B shares from which a sales charge has been deducted, the
return for the period was 11.7%; for those without a sales load it was 17.0%.
The most significant economic event during the period was the series
of moves made by the Federal Reserve Board to tighten interest rates. With
the Fund's exposure to industrial issues that are more economically sensitive,
the Fed's actions negatively affected performance. Investors in the broad market
sold industrial issues and purchased so-called defensive issues in groups such
as pharmaceuticals, tobacco, and food and beverage, where earnings are less
dependent on economic activity. The Fund's exposure in these sectors is
underweighted compared to the broader market.
As the new fiscal year begins, we are optimistic that the industrial
sector will come back into favor. Even as the economy has slowed,
industrial issues have continued to display positive fundamentals and solid
earnings. Productivity enhancements, careful control of inventories and costs,
and exposure to still-healthy global economies have helped these companies
maintain steady results during boom/bust cycles. The interest rate decrease
instituted by the Fed at the beginning of the new fiscal year, combined with
excellent company fundamentals, should bring investors back to the sector.
The Fund has also benefitted from
(continued)
QUICK FUND FACTS VALUE EQUITY (6/30/95)
Inception Date: February 6, 1990
Portfolio Size: $34.71 million
Shares Outstanding: 2,432,599 (A&B combined)
<TABLE>
<CAPTION>
Top Five Holdings (as of June 30, 1995)
% of fund investments
<S> <C>
Salomon Inc. 3.3%
Allied Signal Inc. 3.1%
Sears Roebuck & Co. 3.1%
Mobil Corp 3.0%
Conrail Inc. 3.0%
<CAPTION>
Average Annual Total Return 1
1 Year 5 Year Inception
<S> <C> <C> <C>
Series A 17.29% 9.21% 9.32%
Series B without Load 16.96% 9.10% 9.22%
Series B with Load 11.73% 8.10% 8.29%
{GRAPHIC]
Data for chart to follow:
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
<S> <C>
Value Equity (Series A) $16,111
Value Equity (Series B) $15,314
S&P 500 Index $19,293
<CAPTION>
Initial Investment Date 2/28/90 Jun 90 Jun 91 Jun 92 Jun 93 Jun 94 Jun 95
<S> <C> <C> <C> <C> <C> <C> <C>
CoreFund Value Equity Fund,
Class A $10,000 $10,369 $10,718 $11,788 $13,946 $13,736 $16,111
CoreFund Value Equity Fund,
Class B (Synthetic)
4.50% load $9,550 $9,902 $10,236 $11,258 $13,319 $13,094 $15,314
S&P 500 Composite Index $10,000 $10,909 $11,717 $13,289 $15,099 $15,312 $19,293
</TABLE>
1 For the period ended June 30, 1995. Past performance of the portfolio is
not predictive of future performance. Individual Series B shares were offered
beginning January 4, 1993. The performance shown for Value Equity Portfolio
Series B (synthetic) prior to that date is based on the performance of
Institutional Series A shares adjusted to reflect the maximum sales charge of
4.5% for the Series B shares. Series A shares of the Value Equity Portfolio
commenced operations on February 6, 1990.
9
<PAGE>
June 30, 1995
MANAGERS DISCUSSION OF FUND PERFORMANCE (continued)
VALUE EQUITY FUND (CONTINUED)
investment in financial issues such as security brokerages, investment
management firms, and mutual fund companies. Specific investments have
included Merrill Lynch, Charles Schwab, Salomon Brothers, and Franklin
Resources. As the "graying of America" continues and more government
policies are instituted that reward investment, the long-term outlook
for financial issues remains strong.
Overall, we continue to maintain a constructive outlook for the value
equity market. The breadth of issues participating in the rally indicates that
excesses can be worked off individually, without damaging the fabric of an
overall market that is healthy and improving.
EQUITY INDEX FUND
For the year ended June 30, 1995, the Equity Index Fund returned
24.45%. This compared with a return of 26.01% for the S&P 500 Index.
For the last six months of the period, the Fund returned 19.56%
compared to 20.16% for the Index.
Well-diversified across the large, familiar names of the S&P 500,
the Equity Index Fund offers an alternative to investors who want
to capture the expected, favorable long-term return of the equity market,
without the risks often tied to a particular investment management style.
So it can be managed efficiently, the Fund has historically owned
significantly fewer than 500 names. When the Fund was small, this strategy
played an important role in minimizing the impact of transaction costs. However,
the Fund has experienced rapid growth in the past year; its assets of $113
million on June 30, 1995 represented a 55% increase from $73 million a year
earlier. With growth has come a need to more closely track the S&P 500 Index, to
maintain comparable returns.
To address this need, the number of names owned within the Fund was
increased during the most recent fiscal year, from 230
to 350. The one-time costs associated with this rebalancing had a noticeable
impact on performance. This adjustment was necessary, however, to reduce the
Fund's future tracking error.
Significant cash inflows during the first half of 1995 created the
added challenge of timely reinvestment. Given the particular strength of the
market during this period, any cash position represented a meaningful drag on
relative performance.
10
<PAGE>
COREFUND
QUICK FUND FACTS EQUITY INDEX (6/30/95)
Inception Date: February 14, 19851
Portfolio Size: $112.55 million
Shares Outstanding: 4,731,823 (Series A)
Top Five Holdings (as of June 30, 1995)
<TABLE>
<CAPTION>
% of fund investments
<S> <C>
General Electric 2.3%
AT&T 2.3%
Exxon 2.2%
CocaCola 2.0%
Royal Dutch Pete 1.6%
<CAPTION>
Average Annual Total Return 1
1 Year 5 Year 10 Year
<S> <C> <C> <C>
Series A 24.45% 11.17% 13.09%
Series B without Load
Series B with Load
[GRAPHIC]
Data for chart to follow:
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
<S> <C>
Equity Index (Series A) $37,201
S&P 500 Index $42,228
<CAPTION>
Initial Investment Date 2/28/85 Jun 85 Jun 86 Jun 87 Jun 88 Jun 89 Jun 90
<S> <C> <C> <C> <C> <C> <C> <C>
CoreFund Equity Index Fund $10,000 $10,867 $14,507 $17,828 $16,244 $19,233 $21,901
S&P 500 Composite Index $10,000 $10,742 $14,590 $18,263 $17,007 $20,497 $23,877
Initial Investment Date Jun 91 Jun 92 Jun 93 Jun 94 Jun 95
<S> <C> <C> <C> <C> <C>
CoreFund Equity Index Fund $23,493 $26,451 $29,728 $29,892 $37,201
S&P 500 Composite Index $25,643 $29,085 $33,046 $33,512 $42,228
</TABLE>
1 For the period ended June 30, 1995. Past performance of the portfolio is not
predictive of future performance. Series A shares of the Equity Index Portfolio
commenced operations on February 14, 1985, as a predecessor fund which was
acquired June 1, 1991, by CoreFunds, Inc.
INTERNATIONAL GROWTH FUND
The International Growth Fund, Series A shares, returned (0.21)% for
the year ended June 30, 1995. This compared favorably with the 0.1% increase of
the MSCI EAFE Index during the same period.
For Series B shares from which a sales charge has been deducted, the
return for the period was (4.95)%; for those without a load it was (0.48)%.
Despite continued growth in most of the world's major economies,
international stock markets have been affected by considerable
currency volatility. In December, the Mexican crisis caused investors to
repatriate funds that had been invested in many of the world's smaller or
"emerging" markets.
The International Growth Fund's largest single area of investment is
Japan (34%). This was the worst-performing major market in the period,
falling by 28%. A currency gain softened the damage for the U.S. investor,
however. The Kobe earthquake in February 1995 disrupted Japan's infrastructure
and manufacturing industries, and had a considerable, albeit short-term, impact
on economic activity.
The rise of the Yen is of greater long-term significance. This has
made Japan's exports less competitive, and encouraged a flood of imports.
In turn, this has put pressure on economic growth and corporate margins, and
kept the domestic investor away from the stock market. Although the Japanese
financial sector is hardly in the best of health, the manufacturing sector has
suffered the worst.
One bright spot has been the technology sector, in which the Fund has
a large position.
(continued)
11
<PAGE>
June 30, 1995
MANAGERS DISCUSSION OF FUND PERFORMANCE (continued)
INTERNATIONAL GROWTH FUND (continued)
This allowed the Fund to outperform the Tokyo Stock Exchange
Index over the 12-month period.
Through most of the year, the Fund was partially hedged against
weakness in the Yen, through a forward sale of Yen for U.S. dollars. This hedge
expired in February, shortly before another sharp rise in the Yen (to Y80/US$).
The hedge was subsequently reinstated; currently, 28% of the Fund's Japanese
assets are protected.
Southeast Asia, which currently accounts for 17% of the Fund's
portfolio, was an unrewarding region for most of the year. In Hong Kong,
Singapore and Malaysia, where local currencies are linked to the U.S. dollar,
stock markets suffered at a time when U.S. interest rates were rising. However,
there was a strong recovery toward the end of the period, spurred by the
strengthening U.S. bond market. In Hong Kong (at 6% the Fund's largest position
in the region), the Index rose by 5%, despite concerns about
Chinese politics and weakness in local real estate prices.
In Western Europe, which currently accounts for 40% of the Fund's
holdings, the past 12 months was a period of economic recovery. The improvement
was largely led by exports, as high rates of unemployment in the region
discouraged local consumption. However, the strength of the Deutschemark in the
first half of 1995 created problems for export industries in Germany, where
there is now considerable pressure on corporate earnings.
International confidence in Latin America was dealt a heavy blow at
the end of 1994 by a series of political scandals and a mishandling of the
Mexican economy. This led to a 40% devaluation of the Peso and a collapse in the
Mexican stock market, as international capital, on which the Mexican economy
relies so heavily, was quickly repatriated. Stock markets in Brazil and
Argentina suffered a similar fate (somewhat unfairly, as the commitment to
economic discipline appears much stronger in those countries than in Mexico).
Despite some recovery toward the end of the period, indices in both countries
remain well below their December levels.
The Fund's position in the region had been reduced prior to the
Mexican crisis, and further sales were made thereafter. The Fund now has
only 5% of its portfolio in Latin America, with no holdings in Mexico.
12
<PAGE>
COREFUND
Quick Fund Facts International Growth (6/30/95)
Inception Date: February 12, 1990
Portfolio Size: $112.78 million
Shares Outstanding: 9,180,295 (A&B combined)
<TABLE>
<CAPTION>
Top Five Holdings (as of June 30, 1995)
% of fund investments
<S> <C>
Rohm 1.8%
Hutchinson Whampoa 1.7%
Swire Pacific "A" 1.6%
Kyocera 1.6%
Mitsubishi Heavy Industries 1.6%
<CAPTION>
Average Annual Total Return 1
1 Year 5 Year Inception
<S> <C> <C> <C>
Series A (0.21)% 5.82% 7.24%
Series B without Load (0.48)% 5.73% 7.15%
Series B with Load (4.95)% 4.75% 6.24%
[GRAPHIC]
Data for chart below:
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
<S> <C>
International Growth Equity (Series A) $14,578
International Growth Equity (Series B) $13,861
MSCI EAFE Index $12,352
<CAPTION>
Initial Investment Date 2/28/90 Jun 90 Jun 91 Jun 92 Jun 93 Jun 94 Jun 95
<S> <C> <C> <C> <C> <C> <C> <C>
CoreFund International Growth
Equity Fund, Class A $10,000 $10,985 $10,688 $11,211 $12,563 $14,609 $14,578
CoreFund International Growth
Equity Fund, Class B
(Synthetic) 4.50% load $9,550 $10,491 $10,207 $10,707 $11,998 $13,927 $13,861
Morgan Stanley EAFE Index $10,000 $9,814 $8,690 $8,635 $10,385 $12,151 $12,352
</TABLE>
1 For the period ended June 30, 1995. Past performance of the portfolio is not
predictive of future performance. Individual Series B shares were offered
beginning January 4, 1993. The performance shown for International Growth
Portfolio Series B (synthetic) prior to that date is based on the performance of
Institutional Series A shares adjusted to reflect the maximum sales charge of
4.5% for the Series B shares. Series A shares of the International Growth
Portfolio commenced operations on February 12, 1990.
BALANCED FUND
Performance of Series A shares of the Balanced Fund improved
significantly during the year ended June 30, 1995, generating a 16.21% gain for
the period. This compared with a 26.01% return for the Standard & Poor's 500
Index, and a 10.37% return for the Lehman Brothers Intermediate
Government/Corporate Bond Index.
For Series B shares from which a sales charge has been deducted, the
return for the period was 10.58%; for those without a load
it was 15.84%. The Balanced Fund grew in asset size through June 30 to
$63,436,000.
The Balanced Fund's equity holdings modestly underperformed a very
strong S&P Index during the period, rising 24.0%. Returns from the Fund's
holdings in the technology sector and from pharmaceutical issues matched or
outperformed those sectors in the broader market. Additionally, strong positions
in the cable television, entertainment and gaming industries more than offset
weakness in the Fund's underweighted holdings (relative to the broader market)
in interest-sensitive sectors.
The Fund's fixed-income holdings underperformed the fixed-income
benchmark during the 12-month period (9.2% vs. the
Bond Index's 10.37%). The Fund's bond holdings were overweighted in the
two-years-or-less portion of the yield curve; this market segment generated
smaller returns than longer-dated securities. Our defensive posture, which
served the Fund well during the first six months of the period, made it
difficult to fully exploit the rapid and sharp rally in bond prices during
the final three months of the period.
(continued)
13
<PAGE>
June 30, 1995
MANAGERS DISCUSSION OF FUND PERFORMANCE (continued)
BALANCED FUND (CONTINUED)
Cash levels in the Fund are fairly low, reflecting a fully invested
position in stocks and bonds. We anticipate continued volatility in the capital
markets, with an upward bias, during the second half of 1995. During periods of
weakness, we plan to seek opportunities to add high-coupon, high-quality bonds,
while intensifying our focus on attractively valued stocks of companies with
visible earnings growth and improving fundamentals.
<TABLE>
<CAPTION>
Asset Allocation (as of June 30, 1995)
% of fund investments
<S> <C>
Glenayre Technologies 1.3%
Comcast Corp CI.A 1.2%
Texas Utilities 1.2%
Public Service Enter Group 1.2%
Glaxo 1.2%
<CAPTION>
Average Annual Total Return 1
1 Year Inception
<S> <C> <C>
Series A 16.21% 7.84%
Series B without Load 15.84% 6.91%
Series B with Load 10.58% 4.80%
[GRAPHIC]
Data for chart below:
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
<S> <C>
Balanced (Series A) $11,980
Balanced (Series B) $11,373
S&P 500 Index $13,290
Lehman Govt/Corp Bond $11,475
<CAPTION>
Initial Investment Date 1/31/93 Jun 93 Jun 94 Jun 95
<S> <C> <C> <C> <C>
CoreFund Balanced Fund, Class A $10,000 $10,478 $10,309 $11,980
CoreFund Balanced Fund, Class B
(Synthetic) 4.50% load $9,550 $10,004 $9,818 $11,373
S&P 500 Composite Index $10,000 $10,400 $10,547 $13,290
Lehman Government/Corporate
Bond Index $10,000 $10,551 $10,397 $11,475
</TABLE>
1 For the period ended June 30, 1995. Past performance of the portfolio is not
predictive of future performance. Individual Series B shares were offered
beginning March 16, 1993. The performance shown for Balanced Portfolio Series B
(synthetic) prior to that date is based on the performance of Institutional
Series A shares adjusted to reflect the maximum sales charge of 4.5% for the
Series B shares. Series A shares of the Balanced Portfolio commenced operations
on January 4, 1993.
14
<PAGE>
COREFUND
GOVERNMENT INCOME FUND
The CoreFund Government Income Fund's Series A shares returned 10.26%
for the year ended June 30, 1995. This compared with a 12.54% return for the
Salomon Broad Index. The Fund grew in assets during the period from $10,625,000
to $12,679,000.
For Series B shares from which a sales charge has been deducted, the
return for the period was 5.25%; for those without a load it was 10.23%.
Bond market conditions were extremely volatile during the period. The
extreme bear market conditions of 1994, caused by rapid economic growth and
inflationary fears, gave way to a strong bond market rally in 1995, as consumer
spending slowed, inflationary pressures subsided and the Federal Reserve Board
leaned toward reversing its direction on monetary policy and easing short-term
interest rates.
The Government Income Fund's strong absolute performance during the
period was generated by timely investments of high cash holdings in late
1994, at the peak of longer-term interest rates. Its weak performance relative
to the Index was caused by general underperformance of its mortgagebacked
security holdings, which typically do not perform well during periods of high
volatility and falling rates.
The Fund maintained a shorter duration than the Index during most of
the year. This helped its performance in 1994, but hurt it in 1995. While the
Fund's duration and average maturity characteristics were extended in late 1994,
the drop in interest rates created fears of a rise in mortgage refinancings and
prepayments. This phenomenon effectively shortened the
QUICK FUND FACTS GOVERNMENT INCOME (6/30/95)
Inception Date: April 1, 1993
Portfolio Size: $12.68 million
Shares Outstanding: 1,289,208 (A&B combined)
Average Weighted Maturity: 9.8 years
Maturity Diversification (as of June 30, 1995)
[GRAPHIC]
Data for chart to follow:
Maturity in years
% of fund investments
1-5 yrs
7%
6-10 yrs
74%
over 20 yrs
8%
11-20 yrs
8%
under 1 yr
3%
<TABLE>
<CAPTION>
Average Annual Total Return 1
1 Year Inception
<S> <C> <C>
Series A 10.26% 5.27%
Series B without Load 10.23% 4.68%
Series B with Load 5.25% 2.49%
[GRAPHIC]
Data for chart below
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
<S> <C>
Government Income (Series A) $11,098
Government Income (Series B) $10,588
Salomon Broad Bond Index $11,340
Lehman Aggregate Bond Index $11,324
<CAPTION>
Initial Investment Date 4/30/93 Jun 93 Jun 94 Jun 95
<S> <C> <C> <C> <C>
CoreFund Government Income Fund, Class A $10,000 $10,231 $10,094 $11,098
CoreFund Government Income Fund, Class B
(Synthetic) 4.50% load $9,550 $9,758 $9,605 $10,588
Salomon Broad Investment-Grade Bond Index $10,000 $10,196 $10,076 $11,340
Lehman Brothers Aggregate Bond Index $10,000 $10,194 $10,061 $11,324
</TABLE>
1 For the period ended June 30, 1995. Past performance of the portfolio is not
predictive of future performance. Individual Series B shares were offered
beginning May 3, 1993. The performance shown for Government Income Portfolio
Series B (synthetic) prior to that date is based on the performance of
Institutional Series A shares adjusted to reflect the maximum sales charge of
4.5% for the Series B shares. Series A shares of the Government Income Portfolio
commenced operations on April 1, 1993.
(continued)
15
<PAGE>
June 30, 1995
MANAGERS DISCUSSION OF FUND PERFORMANCE (continued)
GOVERNMENT INCOME FUND (continued)
average maturity of the mortgage holdings, and caused price appreciation of
the Fund's holdings to lag that of the broader market.
This shortening effect was partially offset by extending the maturity
of U.S. Treasury holdings from the two-year area to the ten-year area, and
by the sale of some of the Fund's higher-coupon Ginnie Mae securities, which
were replaced with discount Ginnie Maes.
A primary objective of the Fund is to maintain a relatively high
current yield, and the mortgage holdings did help accomplish this goal (the SEC
30-day Class A yield was 6.88% on June 30, 1995). The Fund continues to hold
relatively low cash balances (only 2.3% of the portfolio at the end of the
period).
In the coming months, we expect the Fed to follow through on market
expectations and reduce short-term rates by at least another 25 basis points. A
steepening of the yield curve should accompany this action and create a more
friendly environment for mortgage securities. While further drops in rates are
possible, we should also expect volatility in the fixed-income markets to
subside. This will place more emphasis on yield enhancement, rather than price
movement, as a source of return for investors.
INTERMEDIATE BOND FUND
The CoreFund Intermediate Bond Fund Series A shares returned 8.22% for
the year ended June 30, 1995. This compared with a 7.71% return for the Merrill
Lynch 1-3 year Treasury Index. The Fund's assets changed during the period from
$57,744,000 to $57,089,000.
For Series B shares from which a sales charge has been deducted, the
return for the period was 3.13%; for those without a load it was 7.95%.
The extremely volatile bond market conditions that characterized the
past year were particularly evident in the intermediate part of the yield curve.
This is evidenced by the wide yield fluctuations in the two-year Treasury note,
which rose by 1.52% during the second half of 1994, and rallied by 1.89% in the
first half of 1995.
The Intermediate Bond Fund was able to outperform its benchmark during
both of these periods. In 1994, the Fund benefitted from a shorter average
maturity, large cash positions (as high as 18%), and large exposure to the
mortgage-backed securities market, which performed well on a relative basis
in 1994.
16
<PAGE>
COREFUND
In late 1994, the Fund began to extend its average maturity and reduce
its cash position, allowing it to benefit from the broad market rally. It
further benefitted from its large holdings of asset-backed securities (as much
as 23% of the portfolio), which performed extremely well in 1995. A shortage of
high- quality corporate bonds allowed spreads to narrow significantly, compared
to Treasuries of similar maturity.
The Fund has maintained its emphasis on credit quality, with over 85%
of its holdings being U.S. government and agency obligations or AAA-rated
securities. Recently, the Fund raised its cash position to 9.9%, due to the
relative unattractiveness of short-to-intermediate Treasuries, which currently
yield less than cash equivalents. We expect this to be a temporary holding.
Looking to the rest of 1995, we expect the Fed to follow through on
market expectations and reduce short-term rates by at least another 25 basis
points. A steepening of the yield curve should accompany this action, creating a
more friendly environment for mortgage-backed securities.
While a further drop in rates is possible, we would also expect
volatility in the fixed-income markets to subside. This would place more
emphasis on yield enhancement, rather than price movement, as a source of
investor return.
Quick Fund Facts Intermediate Bond (6/30/95)
Inception Date: February 3, 1992
Portfolio Size: $57.09 million
Shares Outstanding: 5,800,877 (A&B combined)
Average Weighted Maturity: 3.5 years
QUALITY DIVERSIFICATION (AS OF JUNE 30, 1995)
[GRAPHIC]
Data for chart to follow:
Maturity in years
% of fund investments
AAA
66%
AA
4%
A
10%
NR
20%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1
1 Year Inception
<S> <C> <C>
Series A 8.22% 5.32%
Series B without Load 7.95% 5.12%
Series B with Load 3.13% 3.71%
[GRAPHIC]
Data for chart to follow:
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
<S> <C>
Intermediate Bond (Series A) $11,930
Intermediate Bond (Series B) $11,337
Lehman Govt/Corp Bond Index $12,594
Merrill Lynch 1-3 Yr Treasury $11,997
<CAPTION>
Initial Investment Date 2/29/92 Jun 92 Jun 93 Jun 94 Jun 95
<S> <C> <C> <C> <C> <C>
CoreFund Intermediate-Term Bond Fund, Class A $10,000 $10,249 $11,059 $11,024 $11,930
CoreFund Intermediate-Term Bond Fund, Class B
(Synthetic) 4.50% load $9,550 $9,788 $10,561 $10,502 $11,337
Lehman Intermediate Government/Corporate
Bond Index $10,000 $10,355 $11,442 $11,412 $12,594
Merrill Lynch 1-3 Year Short-Term Treasury $10,000 $10,284 $10,961 $11,138 $11,997
</TABLE>
1 For the period ended June 30, 1995. Past performance of the portfolio is not
predictive of future performance. Individual Series B shares were offered
beginning January 4, 1993. The performance shown for Intermediate Bond Portfolio
Series B (synthetic) prior to that date is based on the performance of
Institutional Series A shares adjusted to reflect the maximum sales charge of
4.5% for the Series B shares. Series A shares of the Intermediate Bond Portfolio
commenced operations on February 3, 1992.
17
<PAGE>
June 30, 1995
MANAGERS DISCUSSION OF FUND PERFORMANCE (continued)
Intermediate Municipal Bond Fund
QUICK FUND FACTS INTERMEDIATE MUNICIPAL (6/30/95)
Inception Date: May 3, 1993
Portfolio Size: $1.39 million
Shares Outstanding: 141,631 (A&B combined)
Average Weighted Maturity: 6.1 years
The Intermediate Municipal Bond Fund, Series A, provided a return of
5.58% for the 12 months ended June 30, 1995. This compared with a return of
8.23% for the Lehman Brothers 7-Year Municipal Bond Index during the same
period.
For Series B shares from which a sales charge has been deducted,
the return was 0.63%; for those without a load, the return was 5.42%. As of
June 30, 1995, the average weighted maturity of the Fund was 6.06 years. The
30-day yield was 3.84% and 3.42% for A and B shares, respectively. Assets in the
Fund decreased from $2,399,000 to $1,392,000.
Fund performance suffered from a large number of redemptions during
the period. The municipal bond market was driven mostly by ebbs and flows
in demand; during the fourth quarter of 1994, many tax-exempt mutual funds
experienced large withdrawals as a result of poor performance. As dealer
inventories swelled, very low prices were offered to sellers, leading to a rise
in yields. Late in 1994, prices dropped further, as the Orange County, CA
bankruptcy caused investors to temporarily flee the municipal bond market.
During the first half of 1995, yields on fixed-income securities fell
as the economy showed signs of a slowdown. The municipal bond market has
underperformed the Treasury market because it has been unable to attract
investors.
We expect the Federal Reserve to continue to lower interest rates if
inflation remains under control. In addition, the municipal bond market is
technically positioned to outperform the Treasury market. We will begin to
lengthen the maturity of the Fund, to achieve a duration closer to that of the
benchmark index.
QUICK FUND FACTS INTERMEDIATE MUNICIPAL (6/30/95)
Inception Date: May 3, 1993
Portfolio Size: $1.39 million
Shares Outstanding: 141,631 (A&B combined)
Average Weighted Maturity: 6.1 years
[GRAPHIC]
Data for chart to follow:
Moody's Rating
% of fund investments
Quality Diversification (as of June 30, 1995)
AAA
64%
A
4%
AA
32%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1
1 Year Inception
<S> <C> <C>
Series A 5.58% 3.05%
Series B without Load 5.42% 2.79%
Series B with Load 0.63% 0.63%
[GRAPHIC]
Data for chart to follow:
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
<S> <C>
Intermediate Municipal Bond (Series A) $10,660
Intermediate Municipal Bond (Series B) $10,126
Lehman 7-Yr Municipal Bond Index $11,139
<CAPTION>
Initial Investment Date 5/31/93 Jun 93 Jun 94 Jun 95
<S> <C> <C> <C> <C>
CoreFund Intermediate-Term Municipal
Bond Fund, Class A $10,000 $10,124 $10,097 $10,660
CoreFund Intermediate-Term Municipal Bond
Fund, Class B (Synthetic) 4.50% load $9,550 $9,656 $9,606 $10,126
Lehman Brothers 7-Year Municipal Bond Index $10,000 $10,183 $10,292 $11,139
</TABLE>
1 For the period ended June 30, 1995. Past performance of the portfolio is not
predictive of future performance. Series A and Series B shares were offered
beginning May 3, 1993. The maximum sales charge for Series B shares is 4.5%.
18
<PAGE>
COREFUND
GLOBAL BOND FUND
The Global Bond Fund returned 9.70% for the period ending June 30,
1995. This compared with a return of 9.95% during the same period for the J.P.
Morgan Non-U.S. Bond Index.
For Series B shares from which a sales charge has been deducted, the
return was 4.60%; for those without a load it was 9.57%.
During the past fiscal year, the global bond market was split into two
distinct six-month periods. In the first period, bond markets were still
obsessed with the possibility of rising inflation and a lack of adequate
capital. Plus, memories of the recent derivative-induced fall still acted as an
emotional depressant on the market. Therefore, even though the lead U.S.
Treasury market looked more undervalued than it had for decades, bond markets
continued to fall until mid-November of 1994. By that time, long-term Treasuries
were yielding 8.25%.
As 1995 began, it became clear that economic growth in the U.S. and
the U.K. was faltering. Further, the increasingly overvalued Deutschemark
and Yen were having a dampening effect on the outlook for growth in Germany,
other members of the ERM, and Japan. The outlook switched from one of rising
interest rates to one where rates were expected to move sideways, or fall.
Thus, the Fund maintained a fairly neutral stance over the first nine
months of the fiscal year, with an emphasis on dollar-bloc markets such as
the U.S., Canada, Australia and New Zealand. When long Treasuries approached
6.5%, we felt this anticipated a greater softening of the U.S. economy than was
reasonable. We then carried out a major portfolio switch to European markets
which we anticipate will continue to offer the best value in the near term.
QUICK FUND FACTS GLOBAL BOND (6/30/95)
Inception Date: December 15, 1993
Portfolio Size: $27.07 million
Shares Outstanding: 2,813,885 (A&B combined)
Average Weighted Maturity: 8.0 years
[GRAPHIC]
Data for chart to follow:
Moody's Rating
% of fund investments
Quality Diversification (as of June 30, 1995)
AAA
69%
AA
19%
A
12%
<TABLE>
<CAPTION>
Average Annual Total Return 1
1 Year Inception
<S> <C> <C>
Series A 9.70% (0.17)%
Series B without Load 9.57% (0.34)%
Series B with Load 4.60% (3.27)%
[GRAPHIC]
Data for chart to follow:
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
<S> <C>
Global Bond (Series A) $ 9,923
Global Bond (Series B) $ 9,443
J.P. Morgan Global Bond US $ $10,434
<CAPTION>
Initial Investment Date 12/31/93 Jun 94 Jun 95
<S> <C> <C> <C>
CoreFund Global Bond Fund, Class A $10,000 $9,045 $9,923
CoreFund Global Bond Fund, Class B
(Synthetic) 4.50% load $9,550 $8,618 $9,443
J.P. Morgan Global Non-U.S. Bond Index, Traded
in U.S. Dollars $10,000 $9,489 $10,434
</TABLE>
1 For the period ended June 30, 1995. Past performance of the portfolio is not
predictive of future performance. Series A and Series B shares were offered
beginning December 15, 1993. The maximum sales charge on Series B shares is
4.5%.
19
<PAGE>
June 30, 1995
MANAGERS DISCUSSION OF FUND PERFORMANCE (continued)
PA Municipal Bond Fund
The PA Municipal Bond Fund, Series A, provided its shareholders with a
return of 7.50% for the 12 months ended June 30, 1995. This compared to a return
for the Lehman PAState Bond Index of 8.84% in the same period. For Series B
shares from which a sales charge has been deducted, the return was 2.41%;
for those without a load, the return was 7.25%.
As of June 30, 1995, the 30-day yield was 5.39% and 4.90%,
respectively, for A and B shares. Assets in the Fund increased from $597,000 to
$2,589,000.
The Fund's lower performance, relative to the benchmark index, was
mainly due to supply factors. During the third quarter of 1994, the Fund grew
dramatically. At that time, supply of municipal bonds was very light (down 40%
from 1993). This forced managers to carry unusually high cash levels due to a
lack of coupon income.
In the municipal bond market was driven mostly by ebbs and flows in
demand during the year. In late 1994, many tax-exempt mutual funds experienced
large withdrawals, because of the bond market's poor performance. As
dealer inventories swelled, demand for bonds decreased and prices fell. Then,
when Orange County, CA declared bankruptcy, investors temporarily fled the
munibond market, causing prices to drop further.
In the first half of 1995, yields on fixed-income securities fell, as
the economy showed signs of a slowdown. The municipal bond
market has been unable to attract investors, and has underperformed the
Treasury market as a result. Demand has been slowed by concern over enactment
of a flat tax, the Orange County default, and the strong appeal of the stock
market.
We believe the Fed will lower interest rates further if inflation
remains under control. In addition, the municipal bond market is
technically positioned to outperform the Treasury market in
the coming months. We continue to seek attractive opportunities to swap or
make new purchases, as the market reacts to these various factors.
QUICK FUND FACTS PA MUNICIPAL BOND (6/30/95)
Inception Date: May 16, 1994
Portfolio Size: $2.59 million
Shares Outstanding: 254,865 (A&B combined)
Average Weighted Maturity: 15.6 years
<TABLE>
<CAPTION>
Average Annual Total Return 1
1 Year Inception
<S> <C> <C>
Series A 7.50% 7.65%
Series B without Load 7.25% 6.52%
Series B with Load 2.41% 2.25%
[GRAPHIC]
Data for chart to follow:
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
<S> <C>
Pennsylvania Municipal Bond (Series A) $10,656
Pennsylvania Municipal Bond (Series B) $10,232
Lehman Pennsylvania State Bond Index $10,958
<CAPTION>
Initial Investment Date 5/31/94 Jun 94 Jun 95
<S> <C> <C> <C>
CoreFund Pennsylvania Municipal Bond Fund, Class A $10,000 $9,913 $10,656
CoreFund Pennsylvania Municipal Bond Fund, Class B
4.50% load $9,550 $9,540 $10,232
Lehman Pennsylvania State Bond Index (MF) $10,000 $9,946 $10,958
</TABLE>
1 For the period ended June 30, 1995. Past performance of the portfolio is not
predictiveof future performance. Series A and Series B shares were offered
beginning May 16, 1994. The maximum sales charge for Series B shares is 4.5%.
20
<PAGE>
COREFUND
NJ MUNICIPAL BOND FUND
The New Jersey Municipal Bond Fund, Series A, provided shareholders
with a return of 7.25% for the 12 months ended June 30, 1995. This compared to a
return of 8.84% in the same period for the Lehman Brothers New Jersey State Bond
Index.
For Series B shares from which a sales charge has been deducted,
the return was 2.02%; for those without a load, the return was 6.84%. As of
June 30, the average weighted maturity of the Fund was 13.31 years. The
30-day yield was 5.10% and 4.62% for Series A and B shares, respectively.
The size of the Fund remained relatively stable during the period.
Assets in the Fund increased from $1,434,000 to $1,574,000. Slow asset
growth caused its performance to lag the benchmark index. The municipal bond
index was driven mostly by ebbs and flows in demand during the year. During the
fourth quarter of 1994, many tax-exempt mutual funds experienced large
withdrawals as a result of poor performance. As dealer inventories swelled, very
low prices were offered to sellers, leading to a rise in yields. Late in 1994,
when Orange County declared bankruptcy, investors temporarily fled the municipal
bond market, causing prices to drop even further.
During the first half of 1995, yields on fixed-income securities fell,
as the economy showed signs of a slowdown. The municipal bond market has been
unable to attract investors and has underperformed the Treasury market. Concern
over enactment of a flat tax, the appeal of the stock market, and lingering
distaste from the Orange Country default continue to hold back demand.
In the coming months, we look for the Federal Reserve to continue to
lower interest rates, if inflation remains under control. In addition, the
municipal bond market is now technically positioned to outperform the Treasury
market. We will maintain an average maturity in the long-intermediate range that
is close to that of the benchmark index.
QUICK FUND FACTS NJ MUNICIPAL BOND (6/30/95)
Inception Date: May 16, 1994
Portfolio Size: $1.57 million
Shares Outstanding: 155,521 (A&B combined)
Average Weighted Maturity: 13.3 years
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1
1 Year Inception
<S> <C> <C>
Series A 7.25% 7.26%
Series B without Load 6.84% 6.14%
Series B with Load 2.02% 1.89%
[GRAPHIC]
DATA FOR CHART BELOW:
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
<S> <C>
New Jersey Municipal Bond (Series A) $10,650
New Jersey Municipal Bond (Series B) $10,140
Lehman New Jersey State Bond Index $10,783
<CAPTION>
Initial Investment Date 5/31/94 Jun 94 Jun 95
<S> <C> <C> <C>
CoreFund New Jersey Municipal Bond Fund, Class A $10,000 $9,930 $10,650
CoreFund New Jersey Municipal Bond Fund, Class B
4.50% load $9,550 $9,491 $10,140
Lehman New Jersey State Bond Index (MF) $10,000 $9,939 $10,783
</TABLE>
1 For the period ended June 30, 1995. Past performance of the portfolio is not
predictive of future performance. Series A and
Series B shares were offered beginning May 16, 1994. The maximum sales charge
for Series B shares is 4.5%.
21
<PAGE>
MANAGERS' DISCUSSION OF FUND PERFORMANCE (CONTINUED)
CASH RESERVE
Quick Fund Facts Cash Reserve (6/30/95)
Inception Date: August 16, 1985
Portfolio Size: $527.92 million (A&B combined)
Average Weighted Maturity: 43 days
Seven Day Yield: 5.75 Series A
5.48 Series B
The CoreFund Cash Reserve continued to offer strong returns to the
money-market investor during the period ending June 30, 1995. The annual total
return for Series A shares during that period was 5.15%. Series B shares, from
which a 12b-1 fee is deducted, had an annual return of 4.89%. These returns
compared favorably to that of the IBC/Donoghue's All-Taxable Money Fund Average,
which was 4.98% on June 30, 1995.
The Cash Reserve experienced modest growth in assets during the
period. The Fund totaled $527,924,000 on June 30, 1995, up from $516,724,000
a year earlier.
The average maturity of the portfolio had been as short as 28 days in
the first quarter of 1995. In a defensive move against declining rates, the
average maturity was then gradually extended. By June 30, it was 43 days.
Portfolio structure of the Cash Reserve has favored commercial paper,
due to the widening spread of returns relative to other investment vehicles. As
spreads fluctuate, we will routinely evaluate the structure, to add value to the
portfolio.
Interest rates appear to have peaked, and the negative tone of the
forward curve would indicate further reductions in rates. In coming months, we
look for further declines on the heels of the recent lowering of the Fed Funds
rate. To maintain yield, we will pursue an extension strategy with the Cash
Reserve, targeting an average weighted maturity of 50 to 55 days.
TREASURY RESERVE
Quick Fund Facts Treasury Reserve (6/30/95)
Inception Date: November 21, 1988
Portfolio Size: $500.82 million (A&B combined)
Average Weighted Maturity: 47 days
Seven Day Yield: 5.68 Series A
5.42 Series B
During a period when short-term interest rates increased 50 basis
points, the Treasury Reserve continued to deliver excellent investment results
for the period ending June 30, 1995. Series A shares returned an effective
average annual yield of 4.98%. The six-month total return for Series A shares
was 5.58%. Series B shares returned an effective average annual yield of 4.72%.
The six-month total return for Series B shares, from which a 12b-1 fee has been
deducted, was 5.32%.
22
<PAGE>
COREFUND
Since June 30, 1994, the CoreFund Treasury Reserve increased in size
by 1.7%. Assets as of June 30, 1995, totaled $500,818,000. The average
maturity increased by 13 days, to 47.
Although assets increased by $8 million, the increase in maturities
was mainly due to the purchase of longer-term Treasury securities. These
securities were purchased in order to hedge against the possibility of an easing
in short-term rates by the Federal Reserve Board.
As of this writing the Fed has lowered the funds rate by 25 basis
points. Economic data is expected to be mixed and inflation should remain under
control during the second half of 1995. Our near-term position remains biased
towards a gradual decline in short-term rates as long as inflationary pressures
remain subdued. For this reason we will continue to look for buying
opportunities along the treasury bill yield curve while keeping the average
maturity in the 45 to 55 day range.
TAX-FREE RESERVE
Quick Fund Facts Tax-Free Reserve (6/30/95)
Inception Date: April 16, 1991
Portfolio Size: $64.28 million (A&B combined)
Average Weighted Maturity: 34 days
Seven Day Yield: 3.56 Series A
3.30 Series B
The CoreFund Tax-Free Reserve, Series A shares, returned 3.12% for
the year ending June 30, 1995. This compared favorably to the 3.11% return
provided by Donoghue's Tax-Free Fund during the same period. For Series B
shares of the CoreFund Tax-Free Reserve, from which a 12b-1 fee has been
deducted, the return for the same period was 2.86%.
The average maturity of the Tax-Free Reserve was shortened from 44 to
34 days during the period, to take advantage of rising interest rates. Net
assets in the Tax-Free Reserve decreased 22% to $64,280,000 on June 30, 1995
from $80,330,000 on December 31, 1994.
The decrease in assets was caused by the volatility of the tax-exempt
money market. Although rates increased steadily throughout the year, the spread
between taxables and non-taxables widened. The taxable equivalent yields on
many tax-exempt money market securities did not compare favorably to their
taxable counterparts. This prompted crossover buyers to move out of their
tax-exempt funds, and into taxable funds.
In coming months, management of the Fund will focus on extending the
average maturity, to pick up yield.
23
<PAGE>
REPORT OF INDEPENDENT AUDITORS COREFUND
Board of Directors and Shareholders
CoreFunds, Inc.
We have audited the accompanying statements of net assets of the Growth
Equity Fund, Value Equity Fund, Equity Index Fund, Balanced Fund, Government
Income Fund, Intermediate Bond Fund, Pennsylvania Municipal Bond Fund, New
Jersey Municipal Bond Fund, Cash Reserve, Treasury Reserve, and Tax-Free
Reserve and the schedules of investments and statements of assets and
liabilities of the International Growth Fund, Intermediate Municipal Bond
Fund, and Global Bond Fund of CoreFunds, Inc. (the "Fund") as of June 30,
1995, and the related statements of operations for the period then ended, and
the statements of changes in net assets and the financial highlights for each
of the periods presented herein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included verification by
examination of securities held by the Custodian as of June 30, 1995 and
confirmation of securities not held by the Custodian by correspondence with
others. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Growth Equity Fund, Value Equity Fund, Equity Index Fund,
International Growth Fund, Balanced Fund, Government Income Fund,
Intermediate Bond Fund, Intermediate Municipal Bond Fund, Global Bond Fund,
Pennsylvania Municipal Bond Fund, New Jersey Municipal Bond Fund, Cash
Reserve, Treasury Reserve, and Tax-Free Reserve of the Fund at June 30, 1995,
the results of their operations for the period then ended, the changes in
their net assets and the financial highlights for each of the periods
presented herein, in conformity with generally accepted accounting
principles.
Philadelphia, Pennsylvania
August 14, 1995
/s/ Ernst & Young LLP
Ernst & Young LLP
24
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
GROWTH EQUITY FUND
[GRAPH]
% of Total Portfolio Investments
Technology 36%
Healthcare 19%
Consumer Cyclical 18%
Financial 12%
Consumer Staples 6%
Capital Goods 4%
Energy 3%
Utilities 2%
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 91.4%
BANKS -- 5.0%
Bank of New York 50,591 $ 2,042
Citicorp 16,000 926
Fleet Financial Group 24,000 891
JP Morgan 12,000 842
-----------
4,701
-----------
BROADCASTING, NEWSPAPERS &
ADVERTISING -- 4.5%
Capital Cities ABC 8,900 933
Comcast, Cl A Special 88,600 1,645
Tele-Communications, Cl A* 70,393 1,650
-----------
4,228
-----------
COMMUNICATIONS EQUIPMENT -- 4.9%
General Instrument* 45,902 1,761
Qualcomm* 48,400 1,673
U.S. Robotics* 10,053 1,096
-----------
4,530
-----------
<PAGE>
COMPUTERS & SOFTWARE SERVICES -- 2.9%
Hewlett Packard 13,426 1,000
Silicon Graphics* 43,884 1,750
-----------
2,750
-----------
DRUGS -- 16.4%
Abbott Laboratories 38,600 1,563
Amgen* 25,932 2,086
Glaxo PLC (ADR) 74,000 1,804
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
DRUGS, (continued)
Johnson & Johnson 29,800 $ 2,015
Merck 36,532 1,790
Schering Plough 40,892 1,804
Smith Kline Beecham (ADR) 48,550 2,199
Warner Lambert 24,050 2,077
-----------
15,338
-----------
ENTERTAINMENT -- 4.0%
Circus Circus Enterprises* 25,253 890
Disney 15,764 877
Mirage Resorts* 64,200 1,966
-----------
3,733
-----------
FINANCIAL SERVICES -- 2.9%
American Express 24,000 843
Federal National Mortgage 19,914 1,879
-----------
2,722
-----------
FOOD, BEVERAGE & TOBACCO -- 5.4%
ConAgra 23,100 806
CPC International 27,100 1,673
PepsiCo 38,450 1,755
Sara Lee 28,500 812
-----------
5,046
-----------
HOTELS & LODGING -- 3.6%
Hilton Hotels 22,600 1,588
Promus Companies* 45,100 1,759
-----------
3,347
-----------
INSURANCE -- 2.9%
American International Group 10,600 1,208
<PAGE>
Chubb 18,389 1,474
-----------
2,682
-----------
MACHINERY -- 3.3%
Emerson Electric 12,900 922
General Electric 17,589 992
Lam Research* 18,640 1,193
-----------
3,107
-----------
MEDICAL PRODUCTS & SERVICES -- 1.0%
Health Management, Cl A* 32,900 962
-----------
MISCELLANEOUS BUSINESS SERVICES -- 12.4%
Cisco Systems* 37,000 1,871
Computer Sciences* 47,494 2,701
CUC International* 43,008 1,806
First Data 42,500 2,417
Microsoft* 11,316 1,023
Oracle Systems* 46,083 1,780
-----------
11,598
-----------
PETROLEUM & FUEL PRODUCTS -- 0.9%
Atlantic Richfield 7,200 790
-----------
</TABLE>
* Non-income producing security
See accompanying notes to financial statements
----
25
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GROWTH EQUITY FUND (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
PETROLEUM REFINING -- 1.8%
Amoco 12,745 $ 849
Mobil 8,870 852
-----------
1,701
<PAGE>
-----------
PRINTING & PUBLISHING -- 1.0%
Time Warner 21,675 891
-----------
PROFESSIONAL SERVICES -- 1.9%
Paychex 49,350 1,789
-----------
RETAIL -- 1.1%
McDonalds 26,200 1,025
-----------
SEMICONDUCTORS/INSTRUMENTS -- 4.3%
Amphenol, Cl A* 33,497 976
Intel 18,104 1,146
Linear Technology 15,971 1,054
Molex 22,075 855
-----------
4,031
-----------
TELEPHONES & TELECOMMUNICATION -- 11.2%
Airtouch Communications* 66,600 1,898
ALC Communications* 40,066 1,808
Glenayre Technologies* 38,725 1,976
LCI International* 41,217 1,262
MFS Communications* 48,356 1,559
Mobile Telecommunication* 70,152 1,920
-----------
10,423
-----------
TOTAL COMMON STOCK
(Cost $70,790,326) 85,394
-----------
<CAPTION>
- ------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS -- 7.2%
Goldman Sachs 6.05%, dated
06/30/95, matures 07/03/95,
repurchase price $2,241,129
(collateralized by U.S.
Treasury Note, par value
$2,335,000, 4.75%, matures
08/31/98: market value,
$2,328,105) $ 2,240 $ 2,240
Republic New York City 6.07%,
dated 06/30/95, matures
07/03/95, repurchase price
$2,240,133 (collateralized by
<PAGE>
U.S. Treasury Note, par value
$2,235,000, 7.5%, matures
12/31/96: market value
$2,285,288) 2,239 2,239
Swiss Bank 6.12%, dated
06/30/95, matures 07/03/95,
repurchase price $2,240,142
(collateralized by U.S.
Treasury Note, par value
$2,240,000, 7.875%, matures
06/30/96: market value
$2,283,904) 2,239 2,239
-----------
TOTAL REPURCHASE AGREEMENTS
(Cost $6,718,000) 6,718
-----------
TOTAL INVESTMENTS -- 98.6%
(Cost $77,508,326) 92,112
-----------
TOTAL OTHER ASSETS AND
LIABILITIES, NET -- 1.4% 1,276
-----------
NET ASSETS:
Portfolio shares -- Series A ($0.001 par value -- 100 million authorized)
based on
8,171,138 outstanding shares 78,691
Portfolio shares -- Series B ($0.001 par value -- 100 million authorized)
based on
182,970 outstanding shares 1,638
Accumulated Net Realized Loss on
Investments (1,547)
Net Unrealized Appreciation on
Investments 14,604
Undistributed Net Investment
Income 2
-----------
TOTAL NET ASSETS -- 100.0% $ 93,388
-----------
-----------
NET ASSET VALUE & REDEMPTION
PRICE PER SHARE
SERIES A $11.18
-----------
-----------
SERIES B $11.17
-----------
<PAGE>
-----------
</TABLE>
*Non-income producing security
- ---- ADR -- American Depository Receipt
26 See accompanying notes to financial statements
<PAGE>
- --------------------------------------------------------------------------------
COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VALUE EQUITY FUND
[GRAPH]
% of Total Portfolio Investments
Capital Goods 28%
Consumer Cyclical 26%
Financial 17%
Energy 9%
Basic Goods 7%
Utilities 5%
Transportation 4%
Staples 3%
Equivalents 1%
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 99.4%
AEROSPACE & DEFENSE -- 4.3%
Loral 11,200 $ 580
Rockwell International 20,000 915
-----------
1,495
-----------
AIR TRANSPORTATION -- 1.2%
Southwest Airlines 18,100 432
-----------
AIRCRAFT -- 3.4%
Boeing 11,200 701
Sundstrand 8,000 478
-----------
1,179
<PAGE>
-----------
AUTOMOTIVE -- 3.1%
Allied Signal 24,500 1,090
-----------
BANKS -- 4.0%
Bank of New York 16,000 646
First Union 8,000 362
Park National 8,000 389
-----------
1,397
-----------
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
CHEMICALS -- 1.6%
FMC* 8,000 $ 538
-----------
DRUGS -- 5.3%
Caremark International 36,800 735
Carter-Wallace 60,000 683
Johnson & Johnson 6,000 406
-----------
1,824
-----------
ELECTRICAL SERVICES -- 4.0%
American Electric Power 20,000 702
Peco Energy 25,000 691
-----------
1,393
-----------
FINANCIAL SERVICES -- 11.5%
Caterpillar 9,500 610
Dial 14,300 354
Franklin Resources 20,000 890
Merrill Lynch 19,000 998
Salomon 28,600 1,147
-----------
3,999
-----------
FOOD, BEVERAGE & TOBACCO -- 2.0%
PepsiCo 15,000 684
-----------
GAS/NATURAL GAS -- 1.0%
<PAGE>
Enron 10,000 351
-----------
GLASS PRODUCTS -- 2.2%
Corning 23,200 760
-----------
HOUSEHOLD PRODUCTS -- 1.5%
Sherwin Williams 14,500 517
-----------
INSURANCE -- 4.0%
American International Group 3,600 410
Progressive of Ohio 25,000 960
-----------
1,370
-----------
</TABLE>
* Non-income producing security
See accompanying notes to financial statements
--------
27
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VALUE EQUITY FUND (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
MACHINERY -- 4.7%
Emerson Electric 10,600 $ 758
Harnischfeger Industries 25,000 866
-----------
1,624
-----------
MEDICAL PRODUCTS &
SERVICES -- 6.8%
Columbia/HCA Healthcare 19,900 860
Manor Care 23,100 673
Varian Associates 15,000 829
-----------
2,362
-----------
<PAGE>
PAPER & PAPER PRODUCTS -- 5.9%
Avery Dennison 15,000 600
Mead 12,900 765
Minnesota Mining & Manufacturing 11,800 676
-----------
2,041
-----------
PETROLEUM & FUEL
PRODUCTS -- 6.1%
Anadarko Petroleum 20,000 863
Atlantic Richfield 7,000 768
Western Atlas 11,000 488
-----------
2,119
-----------
PETROLEUM REFINING -- 3.0%
Mobil 11,000 1,056
-----------
PROFESSIONAL SERVICES -- 1.8%
Flight Safety International 13,000 634
-----------
RAILROADS -- 3.0%
Conrail 18,900 1,051
-----------
<CAPTION>
- ------------------------------------------------------------
Description Shares/Par (000) Value (000)
- --------------------------------------------------------------
<S> <C> <C>
RETAIL -- 14.8%
Bombay* 50,000 $ 394
Circuit City Stores 25,500 806
Heilig-Meyers 31,200 796
Price/Costco* 32,000 520
Sears Roebuck 18,000 1,078
Talbots 10,000 398
Toys R US* 15,000 439
Wendy's International 40,000 715
-----------
5,146
-----------
RUBBER AND PLASTICS
FOOTWEAR -- 2.1%
Nike, Cl B 8,500 714
-----------
SEMI-CONDUCTORS/
INSTRUMENTS -- 2.1%
<PAGE>
AMP 17,000 718
-----------
TOTAL COMMON STOCK
(Cost $29,816,002) 34,494
-----------
REPURCHASE AGREEMENTS -- 1.6%
Goldman Sachs 6.05%, dated
06/30/95, matures
07/03/95, repurchase price
$283,143 (collateralized
by U.S. Treasury Note, par
value $295,000, 4.375%,
matures 08/31/98: market
value $294,129) $ 283 283
-----------
Swiss Bank 6.12%, dated
06/30/95, matures
07/03/95, repurchase price
$282,144 (collateralized
by U.S. Treasury Note, par
value $280,000, 7.875%,
matures 06/30/96: market
value $285,488) 282 282
-----------
TOTAL REPURCHASE AGREEMENTS
(Cost $565,000) 565
-----------
</TABLE>
- ------
28 See accompanying notes to financial statements
<PAGE>
- --------------------------------------------------------------------------------
COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Value (000)
- -------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS -- 101.0%
Cost $30,381,002) $ 35,059
-----------
TOTAL OTHER ASSETS AND LIABILITIES,
NET -- (1.0%) (348)
-----------
<PAGE>
NET ASSETS:
Portfolio Shares -- Series A ($0.001 par value -- 25 million authorized)
based on
2,173,174 outstanding shares 26,113
Portfolio Shares -- Series B ($0.001 par value -- 25 million authorized)
based on
259,425 outstanding shares 2,357
Accumulated Net Realized Gain on
Investments 1,563
Net Unrealized Appreciation on
Investments 4,678
-----------
TOTAL NET ASSETS -- 100.0% $ 34,711
-----------
-----------
NET ASSET VALUE & REDEMPTION PRICE
PER SHARE
SERIES A $14.27
-----------
-----------
SERIES B $14.29
-----------
-----------
</TABLE>
* Non-income producing security
See accompanying notes to financial statements
--------
29
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EQUITY INDEX FUND
[GRAPH]
% of Total Portfolio Investments
Consumer Cyclicals 15%
Consumer Staples 12%
Utilities 12%
Finance 11%
Technology 11%
Energy 10%
Healthcare 9%
<PAGE>
Capital Goods 8%
Basic Material 7%
Miscellaneous 3%
Transportation 2%
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 99.8%
AEROSPACE & DEFENSE -- 0.9%
Lockheed Martin 4,382 $ 276
Loral 1,900 98
Raytheon 3,000 233
Rockwell International 5,763 264
TRW 1,500 120
-----------
991
-----------
AGRICULTURE -- 0.1%
Pioneer Hi-Bred International 2,500 105
-----------
AIR TRANSPORTATION -- 0.6%
AMR* 1,800 134
Delta Air Lines 1,000 74
Federal Express* 1,300 79
Southwest Airlines 3,300 79
UAL* 1,300 182
US Air Group* 15,300 178
-----------
726
-----------
AIRCRAFT -- 1.4%
Aviall 375 3
Boeing 8,937 560
General Dynamics 1,700 75
McDonnell Douglas 2,700 207
Northrop Grumman 1,700 89
Parker Hannifin 2,850 103
Teledyne 3,700 91
Textron 2,000 116
United Technologies 4,300 336
-----------
1,580
-----------
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
<PAGE>
APPAREL/TEXTILES -- 0.2%
Liz Claiborne 5,000 $ 106
Russell 3,100 89
V. F. 1,500 81
-----------
276
-----------
AUTOMOTIVE -- 2.6%
Allied Signal 7,700 343
Chrysler 9,500 455
Echlin 2,500 87
Fleetwood Enterprises 4,055 80
Ford Motor 24,300 723
General Motors 20,100 942
Genuine Parts 2,800 106
Varity* 3,260 143
-----------
2,879
-----------
BANKS -- 5.7%
Banc One 12,222 394
Bank of Boston 2,900 109
Bankamerica 11,372 598
Bankers Trust New York 1,800 112
Barnett Banks 2,200 113
Boatman Bancshares 4,600 162
Chase Manhattan 4,200 197
Chemical Banking 8,000 378
Citicorp 10,500 608
First Chicago 2,100 126
First Fidelity Bancorp 1,800 106
First Interstate Bancorp 1,900 152
First Union 5,500 249
Fleet Financial Group 3,100 115
Golden West Financial 1,800 85
Great Western Financial 3,800 78
H.F. Ahmanson 3,600 79
J P Morgan 5,800 407
Keycorp 7,800 245
MBNA 3,300 111
NBD Bancorp 3,600 115
NationsBank 7,200 386
Norwest 10,900 313
PNC Bank 8,900 235
Shawmut National 3,700 118
Suntrust Banks 4,200 245
U. S. Bancorp 2,900 70
U.S.T. 4,600 137
Wachovia 3,900 139
Wells Fargo 1,500 270
-----------
6,452
-----------
BEAUTY PRODUCTS -- 1.8%
<PAGE>
Alberto Culver 3,200 97
Avon Products 1,600 107
Colgate Palmolive 3,346 245
Dial 3,300 82
International Flavors 2,500 124
Procter & Gamble 19,700 1,416
-----------
2,071
-----------
</TABLE>
- ----- * Non-income producing security
30 See accompanying notes to financial statements
<PAGE>
- --------------------------------------------------------------------------------
COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
BROADCASTING, NEWSPAPERS &
ADVERTISING -- 1.1%
Capital Cities ABC 4,000 $ 419
CBS 1,500 101
Comcast 5,400 100
Interpublic Group 2,200 83
Tele-Communications, Cl A* 16,000 375
Viacom Variable Common Rights* 5,600 8
Viacom Voting* 448 21
Viacom, Cl B Non-Voting* 3,394 157
-----------
1,264
-----------
BUILDING & CONSTRUCTION -- 0.2%
Fluor 1,900 99
McDermott International 3,400 82
Owens Corning Fiberglas* 2,800 103
-----------
284
-----------
CHEMICALS -- 3.5%
Air Products & Chemical 2,600 145
Albemarle 3,750 59
Cytec Industries* 842 34
Dow Chemical 7,250 521
Dupont (E.I.) De Nemour 15,200 1,045
Eastman Chemical 2,850 170
First Mississippi 3,700 126
FMC* 1,400 94
<PAGE>
Great Lakes Chemical 1,600 96
Hercules 2,700 132
Lilly Eli 7,800 612
Monsanto 3,900 351
Nalco Chemical 2,300 84
Praxair 5,200 130
Rohm & Haas 1,500 82
Union Carbide 3,400 113
W.R. Grace 2,100 129
-----------
3,923
-----------
COMMUNICATIONS EQUIPMENT -- 2.1%
Andrew* 2,400 139
Cisco Systems* 7,200 364
DSC Communications* 2,591 120
ITT 2,600 306
Motorola 16,400 1,101
Northern Telecom 5,700 208
Scientific-Atlantic 3,400 75
-----------
2,313
-----------
COMPUTERS & SERVICES -- 6.4%
Amdahl* 8,100 90
Apple Computer 2,600 121
Autodesk 2,400 103
Automatic Data Processing 3,700 233
Ceridian* 3,000 111
Compaq Computer* 8,700 395
Computer Associates International 3,700 251
Computer Sciences* 1,900 108
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
COMPUTERS & SERVICES, (continued)
Digital Equipment* 3,900 $ 159
Harris 1,600 83
Harris Computer Systems* 80 1
Hewlett Packard 14,200 1,058
International Business Machines 16,800 1,612
Lotus Development* 1,800 115
Microsoft* 16,800 1,518
Novell* 8,300 165
Oracle Systems* 11,450 442
Pitney Bowes 5,000 192
Sun Microsystems* 2,800 136
Tandem Computers* 5,986 97
Tandy 1,800 93
Unisys* 7,400 80
-----------
<PAGE>
7,163
-----------
CONTAINERS & PACKAGING -- 0.2%
Crown Cork & Seal* 2,100 105
Newell 3,600 88
-----------
193
-----------
DRUGS -- 4.8%
Allergan 3,200 87
Alza, Cl A* 3,400 79
American Home Products 8,000 619
Amgen* 3,000 241
Bristol-Myers Squibb 13,620 928
Merck 34,100 1,671
Pfizer 8,800 813
Schering Plough 10,900 481
Therapeutic Discovery* 190 1
Upjohn 3,900 148
Warner Lambert 3,700 320
-----------
5,388
-----------
ELECTRICAL EQUIPMENT -- 2.8%
Emerson Electric 6,300 450
General Electric 46,400 2,616
Westinghouse Electric 8,000 117
-----------
3,183
-----------
ELECTRICAL SERVICES -- 3.4%
American Electric Power 4,200 148
Baltimore Gas & Electric 6,050 151
Carolina Power & Light 3,600 109
Central & South West 7,400 194
Consolidated Edison New York 5,300 156
Detroit Edison 3,300 97
Dominion Resources of Virginia 3,500 128
Duke Power 4,600 191
Entergy 5,200 125
FPL Group 6,100 236
Houston Industries 2,900 122
Niagara Mohawk Power 6,200 91
Northern States Power 1,700 78
Ohio Edison 4,100 93
Pacific Gas & Electric 11,500 334
</TABLE>
* Non-income producing security
See accompanying notes to financial statements
--------
31
<PAGE>
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
EQUITY INDEX FUND (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
ELECTRICAL SERVICES, (continued)
Pacificorp 6,400 $ 120
PECO Energy 5,000 138
Public Service Enterprise Group 5,500 153
SCEcorp 21,000 360
Southern 17,100 382
Texas Utilities 5,100 175
Unicom 4,800 128
Union Electric Power 2,300 86
-----------
3,795
-----------
ENTERTAINMENT -- 0.8%
King World Productions* 2,600 105
Walt Disney 14,000 779
-----------
884
-----------
ENVIRONMENTAL SERVICES -- 0.5%
Browning Ferris Industries 5,900 213
WMX Technologies 12,900 366
-----------
579
-----------
FINANCIAL SERVICES -- 2.5%
American Express 12,600 443
Beneficial 2,400 106
Dean Witter Discover 8,341 392
Federal Home Loan Mortgage
Corporation 4,700 323
Federal National Mortgage
Association 8,200 774
Household International 2,100 104
Lehman Brothers Holdings 2,520 55
Mellon Bank 5,700 237
Merrill Lynch 4,600 242
Providian 2,300 83
Salomon 2,500 100
-----------
2,859
<PAGE>
-----------
FOOD, BEVERAGE & TOBACCO -- 8.7%
American Brands 4,500 179
Anheuser Busch 6,900 392
Archer Daniels Midland 22,826 425
Brown Forman, Cl B 2,700 90
Campbell Soup 6,800 333
Coca Cola 34,900 2,226
Conagra 5,600 195
Coors (Adolph), Cl B 5,600 92
CPC International 3,400 210
General Mills 3,600 185
H J Heinz 5,700 253
Hershey Foods 2,000 111
Kellogg 6,100 435
Pepsico 23,000 1,049
Philip Morris Companies 24,300 1,807
Quaker Oats 3,000 99
Ralcorp Holdings* 1,633 37
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
FOOD, BEVERAGE & TOBACCO, (continued)
Ralston-Ralston Purina Group 2,386 $ 122
RJR Nabisco Holdings 4,207 117
Sara Lee 12,600 359
Seagram 10,400 360
Unilever N V 4,200 547
Whitman 5,100 99
Wrigley, William Jr 2,600 121
-----------
9,843
-----------
GAMES AND TOYS -- 0.2%
Hasbro 2,400 76
Mattel 5,000 130
-----------
206
-----------
GAS/NATURAL GAS -- 0.9%
Coastal 2,500 76
Columbia Gas Systems* 3,500 111
Consoldiated Natural Gas 2,100 79
Enron 5,600 197
Nicor 3,700 99
Pacific Enterprises 3,800 93
Panhandle Eastern 4,200 102
Peoples Energy 4,100 106
Sonat 2,300 70
Williams 2,500 87
-----------
<PAGE>
1,020
-----------
GLASS PRODUCTS -- 0.5%
Corning 6,100 200
PPG Industries 7,300 314
-----------
514
-----------
HOTELS & LODGING -- 0.5%
Hilton Hotels 1,100 77
Marriott International 11,000 395
Promus* 2,300 90
-----------
562
-----------
HOUSEHOLD FURNITURE &
FIXTURES -- 0.5%
Armstrong World Industries 1,600 80
Black and Decker 3,500 108
Masco 3,500 95
Sherwin Williams 2,300 82
Snap-On Tools 2,700 105
Stanley Works 1,800 68
-----------
538
-----------
HOUSEHOLD PRODUCTS -- 0.7%
Clorox 1,300 85
Gillette 11,800 526
Maytag 5,600 90
Whirlpool 1,700 94
-----------
795
-----------
</TABLE>
- ----- * Non-income producing security
32 See accompanying notes to financial statements
<PAGE>
- --------------------------------------------------------------------------------
COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Shares Value (000)
- -------------------------------------------------------------
<S> <C> <C>
INSURANCE -- 3.3%
Aetna Life & Casualty 2,500 $ 157
Alexander and Alexander
Services 4,400 105
American General 5,400 182
<PAGE>
American International Group 8,812 1,005
Chubb 2,000 160
Cigna 1,600 124
First Colony 2,508 60
General Re 1,900 254
Jefferson-Pilot 1,400 77
Lincoln National 2,100 92
Marsh & McLennan 1,700 138
Safeco 1,400 80
St. Paul 11,327 558
Torchmark 1,800 68
Transamerica 1,600 93
Travelers 6,481 284
Unum 1,700 80
USF & G 5,500 89
USLife 2,600 105
-----------
3,711
-----------
LUMBER & WOOD PRODUCTS -- 0.5%
Georgia Pacific 2,000 174
Louisiana Pacific 2,500 66
Potlatch 2,100 88
Rayonier 1,000 36
Weyerhaeuser 4,606 217
-----------
581
-----------
MACHINERY -- 1.6%
Caterpillar 6,400 409
Cooper Industries 2,600 103
Deere 1,900 163
Dover 1,400 102
Eaton 1,700 99
Gardner Denver Machinery* 272 5
Harnischfeger Industries 3,300 114
Illinois Tool Works 2,500 138
Ingersoll Rand 2,400 92
National Service Industry 3,000 87
SPX 9,000 102
Tenneco 5,000 230
Tyco International 1,700 92
W W Grainger 1,200 71
-----------
1,807
-----------
MEASURING DEVICES -- 0.6%
General Signal 2,100 83
Honeywell 2,900 125
Johnson Controls 1,500 85
Millipore 1,700 115
Pall 4,500 100
Perkin Elmer 3,725 132
-----------
<PAGE>
640
-----------
<CAPTION>
- -------------------------------------------------------------
Description Shares Value (000)
- -------------------------------------------------------------
<S> <C> <C>
MEDICAL PRODUCTS &
SERVICES -- 2.0%
Bausch & Lomb 2,000 $ 83
Becton Dickinson 1,700 99
Beverly Enterprises* 6,600 82
Biomet* 5,800 90
C R Bard 3,500 105
Columbia/HCA Healthcare 21,132 913
Community Psychiatric* 8,300 93
Manor Care 3,100 90
Medtronic 2,600 201
St. Jude Medical 1,900 95
Tenet Healthcare* 4,100 59
U.S. Healthcare 3,600 110
United Healthcare 3,700 153
United States Surgical 2,900 61
-----------
2,234
-----------
MEDICAL SUPPLIES -- 2.2%
Abbott Laboratories 21,100 855
Baxter International 7,800 284
Caremark International 600 12
Johnson & Johnson 18,400 1,243
Mallinckrodt Group 3,425 122
-----------
2,516
-----------
METALS & MINING -- 0.9%
Alcan Aluminum 5,000 151
Aluminum America 4,000 200
Asarco 3,300 101
Cyprus AMAX Minerals 2,400 68
Englehard 2,800 120
Inco 2,600 73
Newmont Mining 1,900 80
Phelps Dodge 1,600 94
Reynolds Metal 1,500 78
Santa Fe Pacific Gold* 2,519 31
-----------
996
-----------
MISCELLANEOUS BUSINESS
SERVICES -- 0.3%
Ecolab 3,300 81
Ogden 9,600 210
<PAGE>
-----------
291
-----------
MISCELLANEOUS CHEMICAL
PRODUCTS -- 0.1%
Morton International 3,300 96
Raychem 1,900 73
-----------
169
-----------
</TABLE>
* Non-income producing security
See accompanying notes to financial statements
--------
33
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
EQUITY INDEX FUND (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
MISCELLANEOUS CONSUMER
SERVICES -- 0.2%
H & R Block 2,400 $ 98
Service International 2,900 92
-----------
190
-----------
PAPER & PAPER PRODUCTS -- 2.3%
Alco Standard 1,200 96
Avery Dennison 2,300 92
Bemis 3,500 91
Boise Cascade 2,800 113
Champion International 2,200 115
Federal Paper Board 2,700 96
International Paper 3,500 300
James River 3,200 88
Kimberly Clark 3,600 216
Mead 1,600 95
Minnesota Mining &
Manufacturing 12,800 733
Moore 4,100 91
Scott Paper 3,400 168
<PAGE>
Stone Container* 3,800 81
Temple Inland 1,400 67
Union Camp 1,550 90
Westvaco 2,100 93
-----------
2,625
-----------
PETROLEUM REFINING -- 9.8%
Amerada Hess 2,100 103
Amoco 15,800 1,053
Ashland Oil 2,100 74
Atlantic Richfield 4,500 494
Baker Hughes 4,000 82
Brunswick 3,500 60
Burlington Resources 2,900 107
Chevron 19,100 891
Dresser Industries 3,900 87
Enserch 6,600 113
Exxon 34,700 2,450
Halliburton 2,600 93
Helmerich & Payne 7,000 207
Kerr-McGee 1,500 80
Louisiana Land & Exploration 3,100 124
Mobil 11,500 1,104
Occidental Petroleum 6,900 158
Oryx Energy* 8,400 116
Pennzoil 1,500 71
Phillips Petroleum 5,900 197
Royal Dutch Petroleum 15,000 1,828
Santa Fe Energy Resources* 22,000 209
Schlumberger 6,400 398
Texaco 6,800 446
Unocal 6,400 177
USX Marathon Group 6,500 128
USX-U.S. Steel Group 1,900 65
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
PETROLEUM REFINING, (continued)
Western Atlas* 2,594 $ 115
-----------
11,030
-----------
PHOTOGRAPHIC EQUIPMENT &
SUPPLIES -- 0.8%
Eastman Kodak 7,100 430
Polaroid 2,300 94
Xerox 2,800 328
-----------
852
-----------
<PAGE>
PRECIOUS METALS -- 0.7%
Barrick Gold 12,000 303
Echo Bay Mines 23,200 209
Homestake Mining 6,800 112
Placer Dome 5,400 141
-----------
765
-----------
PRINTING & PUBLISHING -- 1.4%
American Greetings, Cl A 3,200 94
Deluxe 2,500 83
Donnelley R R & Sons 3,200 115
Dow Jones 5,600 207
Gannett 3,300 179
Knight-Ridder 1,500 85
McGraw-Hill 1,100 83
Meredith 3,800 96
New York Times, Cl A 3,200 75
Time Warner 9,900 408
Times Mirror, Cl A 3,100 74
Times Mirror, Cl C* 880 19
Tribune 1,500 92
-----------
1,610
-----------
PROFESSIONAL SERVICES -- 0.2%
Dun & Bradstreet 3,800 200
-----------
RAILROADS -- 1.0%
Burlington Northern 2,036 129
Conrail 1,800 100
CSX 2,400 180
Norfolk Southern 3,100 209
Santa Fe Pacific 4,200 107
Union Pacific 6,300 349
-----------
1,074
-----------
RETAIL -- 6.3%
Albertsons 6,400 190
American Stores 3,200 90
Bruno's 9,400 109
Circuit City Stores 3,000 95
Darden Restaurants* 3,600 39
Dayton Hudson 1,600 115
Dillard Department Stores 2,700 79
Gap 3,300 115
Giant Food 3,900 111
Great Atlantic and Pacific 4,000 106
</TABLE>
* Non-income producing security
See accompanying notes to financial statements
<PAGE>
- -----
34
<PAGE>
- --------------------------------------------------------------------------------
COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Shares Value (000)
- -------------------------------------------------------------
<S> <C> <C>
RETAIL, (continued)
Harcourt General 2,300 $ 97
Home Depot 11,866 482
J.C. Penney 6,500 312
K Mart 9,200 135
Kroger* 3,100 83
Limited 9,500 209
Lowe's 3,500 105
May Department Stores 6,900 287
McDonald's 18,900 739
Melville 2,400 82
Mercantile Stores 2,200 102
Nordstrom 1,800 74
Pep Boys -- Manny, Moe & Jack 3,226 86
Price/Costco* 4,900 80
Rite Aid 3,700 95
Sears Roebuck 12,100 724
TJX Companies 6,700 89
Toys R US* 6,500 190
Wal Mart Stores 62,300 1,667
Walgreen 2,800 140
Wendy's International 5,900 105
Winn Dixie Stores 1,700 98
Woolworth* 7,500 113
-----------
7,143
-----------
RUBBER & PLASTIC -- 0.5%
Cooper Tire & Rubber 3,000 73
Goodrich B F 2,100 113
Goodyear Tire & Rubber 3,380 139
Premark International 1,700 88
Rubbermaid 6,300 175
-----------
588
-----------
SEMICONDUCTORS/INSTRUMENTS -- 2.0%
Advanced Micro Devices* 2,800 102
AMP 4,800 203
Intel 23,400 1,481
<PAGE>
National Semiconductor* 4,400 122
Texas Instruments 2,600 348
-----------
2,256
-----------
SHOES -- 0.2%
Nike, Cl B 1,700 143
Reebok International 2,000 68
-----------
211
-----------
<CAPTION>
- -------------------------------------------------------------
Description Shares Value (000)
- -------------------------------------------------------------
<S> <C> <C>
STEEL & STEEL WORKS -- 0.3%
Bethlehem Steel* 5,900 $ 96
Nucor 2,000 107
Worthington Industries 4,600 94
-----------
297
-----------
TELEPHONES & TELECOMMUNICATION -- 8.4%
AT&T 48,836 2,596
Airtouch Communications* 24,900 710
Ameritech 14,400 634
Bell Atlantic 11,400 638
Bellsouth 14,700 933
Cox* 2,399 46
GTE 28,100 959
MCI Communications 17,358 382
NYNEX 11,000 443
Pacific Telesis Group 13,700 366
SBC Telecommunications 17,976 856
Sprint 10,800 363
U S West 11,900 495
-----------
9,421
-----------
TRUCKING -- 0.3%
Cummins Engine 1,900 83
Paccar 1,500 70
Pittston Services Group 3,700 89
Roadway Services 1,300 61
Ryder System 1,500 36
-----------
339
-----------
WHOLESALE -- 0.3%
Fleming Companies 4,700 124
McKesson 900 42
Super-Valu 2,700 79
<PAGE>
Sysco 4,100 121
-----------
366
-----------
TOTAL COMMON STOCK
(Cost $92,407,326) 112,299
-----------
CONVERTIBLE PREFERRED STOCKS -- 0%
AIRCRAFT -- 0%
Teledyne Incorporated $1.20
Series E* 37 1
-----------
TOTAL CONVERTIBLE PREFERRED
STOCKS 1
-----------
</TABLE>
* Non-income producing security
See accompanying notes to financial statements
--------
35
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
- -------------------------------------------------------------
EQUITY INDEX FUND (concluded)
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS -- 0.6%
Goldman Sachs 6.05%, dated
06/30/95, matures 07/03/95,
repurchase price $353,178
(collateralized by U.S.
Treasury Note, par value
$370,000, 4.75%, matures
08/31/98: market value
$368,907) $ 353 $ 353
Sanwa Bank 6.15%, dated
06/30/95, matures 07/03/95,
repurchase price $353,181
(collateralized by U.S.
Treasury Note, par value
$350,000, 6.625%, matures
03/31/97: market value
<PAGE>
$365,825) 353 353
-----------
TOTAL REPURCHASE AGREEMENTS
(Cost $706,000) 706
-----------
TOTAL INVESTMENTS -- 100.4%
(Cost $93,113,326) 113,006
-----------
TOTAL OTHER ASSETS AND
LIABILITIES, NET -- (0.4%) (453)
-----------
NET ASSETS:
Portfolio shares ($0.001 par
value -- 500 million
authorized) based on 4,731,823
outstanding shares 92,048
Accumulated Net Realized Gain on
Investments 612
Net Unrealized Appreciation on
Investments 19,893
-----------
TOTAL NET ASSETS -- 100.0% $ 112,553
-----------
-----------
NET ASSET VALUE & REDEMPTION
PRICE PER SHARE $23.79
-----------
-----------
</TABLE>
* Non-income producing security
See accompanying notes to financial statements
- -----
36
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
INTERNATIONAL GROWTH FUND
[GRAPH]
<PAGE>
% of Total Portfolio Investments
Japan 34%
Europe 22%
United Kingdom 18%
Other Pacific Rim 16%
Smaller Markets 7%
Cash Equivalents 3%
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Description Shares Value (000)
- -----------------------------------------------------------
<S> <C> <C>
FOREIGN STOCKS -- 95.6%
ARGENTINA -- 0.5%
Buenos Aires Embotelladora ADR 4,200 $ 106
Capex GDS* 12,500 181
Compania Naviera Perez ADS 36,700 154
YPF Sociedad Anonima ADS 5,400 103
-----------
544
-----------
AUSTRALIA -- 1.3%
Broken Hill Proprietary 121,770 1,497
-----------
AUSTRIA -- 0.8%
Oest Elektrizatswirts Series A 5,047 370
Vienna International Airport 9,500 505
-----------
875
-----------
BELGIUM -- 0.5%
Kredietbank 2,600 615
-----------
<CAPTION>
- -----------------------------------------------------------
Description Shares Value (000)
- -----------------------------------------------------------
<S> <C> <C>
BRAZIL -- 1.1%
Compania Vale Rio Doce ADR 10,300 $ 395
Rhodia-Ster GDR 20,097 281
Telebras ADR 9,550 322
Usiminas ADR 18,600 205
-----------
1,203
-----------
CHILE -- 1.2%
Madeco ADR 14,830 426
<PAGE>
Maderas Y Sintecticos Sociedad
ADR 17,000 319
Sociedad Quimica Y Minera ADR 13,161 622
-----------
1,367
-----------
COLOMBIA -- 0.5%
Cementos Diamante GDS 18,800 536
-----------
ECUADOR -- 0.2%
La Cemento Nacional GDR 832 200
-----------
FRANCE -- 5.6%
AXA 18,500 999
Cie de Saint-Gobain 3,100 375
Imetal SA 3,887 457
L'Oreal 4,800 1,203
Schneider 12,800 1,013
Seita 35,000 1,052
Societe Nationale Elf Aquitaine 16,000 1,183
-----------
6,282
-----------
GERMANY -- 3.0%
Bayerische Motoren Werk 863 474
Mannesmann AG 4,300 1,315
Veba AG 4,000 1,571
-----------
3,360
-----------
HONG KONG -- 6.3%
Amoy Properties 952,000 837
China Light & Power 200,000 1,029
HSBC Holdings 123,501 1,584
Hutchison Whampoa 374,000 1,807
Swire Pacific 235,000 1,792
-----------
7,049
-----------
INDIA -- 1.2%
Himalayan Fund* 77,718 1,050
Himalayan Fund Warrants* 7,243 5
Indian Opportunities Fund* 29,000 352
-----------
1,407
-----------
</TABLE>
*Non-income producing security ADR -- American Depository Receipts ADS --
American Depository Shares GDR -- Global Depository Receipts GDS -- Global
Depository Shares IDR -- International Depository Receipts
<PAGE>
See accompanying notes to financial statements --------
37
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
- -----------------------------------------------------------
INTERNATIONAL GROWTH FUND (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
ISRAEL -- 0.7%
Near East Opportunities Fund* 80,000 $ 800
-----------
ITALY -- 1.6%
Rinascente 162,000 921
Telecom Italia 345,000 936
-----------
1,857
-----------
JAPAN -- 32.9%
Amano Corporation 47,000 555
Asahi Chemical Industries 198,000 1,301
Asahi Diamond Industrial 43,000 528
Canon Incorporated 93,000 1,515
Daifuku Company Limited 43,000 482
DDI Corporation 147 1,180
Eidensha Limited 27,000 331
Enplas 15,000 301
Hitachi Limited 163,000 1,625
Hitachi Metals 112,000 1,257
Honda Motor Company 79,000 1,212
Ito Yokado Company 22,000 1,160
Itochu Company 236,000 1,379
Kamigumi Company 102,000 1,023
Kirin Beverage 35,000 582
Kuraray Warrants* 360 117
Kyocera Corporation 21,000 1,730
Mabuchi Motor 9,000 620
Marui Company 67,000 1,067
Maspro Denkoh 12,000 241
Mitsubishi Heavy Industries 254,000 1,727
Mitsui Fudosan 101,000 1,157
Nippon Express 151,000 1,390
Nippon System Development 17,000 207
Nomura Securities 77,000 1,345
Organo 40,000 373
<PAGE>
Riso Kagaku Corporation 6,100 425
Rohm Company 37,000 1,913
Sankyo Company 61,000 1,418
Sekisui Warrants* 155 122
Shimachu 17,000 431
Shin-Etsu Chemical 83,000 1,459
Sony Corporation 24,000 1,153
Sumitomo Electric 109,000 1,299
Sumitomo Forestry 88,000 1,464
Sumitomo Trust & Banking 110,000 1,337
Tochigi Fuji Industrial 41,000 314
Tokio Marine & Fire Insurance 117,000 1,342
-----------
37,082
-----------
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
LUXEMBOURG -- 0.5%
Millicom International* 18,000 $ 533
-----------
MALAYSIA -- 2.6%
Arab-Malaysian Merchant Bank 106,000 1,261
Genting Berhad 114,000 1,127
Resorts World Berhad 88,000 516
-----------
2,904
-----------
NETHERLANDS -- 3.8%
Elsevier NV 131,750 1,556
International Nederlanden 22,700 1,256
International Nederlanden Rights* 26,500 37
Koninkijke PTT Nederland* 17,000 611
Polygram 14,500 857
-----------
4,317
-----------
SINGAPORE -- 3.8%
Development Bank of Singapore 88,000 1,002
First Capital Corporation 227,000 702
Jardine Matheson & Company ADR 156,800 1,152
Singapore Press 98,400 1,472
-----------
4,328
-----------
SOUTH AFRICA -- 1.4%
Iscor* 106,100 121
Malbak 50,000 316
Murray & Roberts* 34,500 199
Safmarine & Rennie Holding Limited 80,000 232
Sasol 35,000 336
<PAGE>
South African Brewery 12,000 342
-----------
1,546
-----------
SOUTH KOREA -- 0.6%
Korea Preferred Share Fund* 41,000 400
Seoul Access Trust IDR* 9 140
Seoul Excel Trust IDR* 18 186
-----------
726
-----------
SPAIN -- 1.7%
Banco de Santander 23,000 908
Fom de Const Y Contratas SA* 5,000 425
Repsol Petroleum SA 19,220 605
-----------
1,938
-----------
SWEDEN -- 1.3%
Electrolux 14,900 678
Stora Kopparbergs Series A 61,000 817
-----------
1,495
-----------
SWITZERLAND -- 3.7%
Nestle SA Registered 1,470 1,531
Roche Holding 210 1,354
Zurich Insurance 1,010 1,270
-----------
4,155
-----------
</TABLE>
* Non-income producing security
ADR -- American Depository Receipts
ADS -- American Depository Shares
GDR -- Global Depository Receipts
GDS -- Global Depository Shares
- ---- IDR -- International Depository Receipts
38 See accompanying notes to financial statements
<PAGE>
- --------------------------------------------------------------------------------
COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Description Shares/Par (000) Value (000)
- ---------------------------------------------------------------
<S> <C> <C>
TAIWAN -- 1.1%
<PAGE>
Taiwan Opportunities Fund* 130,000 $ 1,197
-----------
THAILAND -- 0.2%
Krung Thai Bank 42,000 170
-----------
UNITED KINGDOM -- 17.5%
Argyll Group 170,000 908
Barratt Development 377,000 1,097
British Airways 109,000 714
British Telecommunications 138,000 860
BTR Warrants* 265,000 259
Dixons Group 212,000 866
East Midlands Electricity 76,532 780
GKN 102,000 1,039
Glaxo Wellcome 106,000 1,300
Granada Group 124,000 1,198
Grand Metropolitan 189,000 1,158
Ladbroke 250,000 672
Lex Service 119,000 653
McKenchie 84,000 567
NFC 362,000 926
Reckitt & Coleman 118,000 1,244
Tomkins 361,000 1,291
TSB Group 258,000 992
Unilever 72,000 1,458
Wassall 168,750 697
Wolseley 196,000 1,081
-----------
19,760
-----------
TOTAL FOREIGN STOCKS
(Cost $102,618,242) 107,743
-----------
CONVERTIBLE BONDS -- 0.8%
JAPAN -- 0.8%
Daiwa International
2.000%, 03/31/98 80,000 954
-----------
TOTAL CONVERTIBLE BONDS
(Cost $973,449) 954
-----------
TOTAL INVESTMENTS -- 96.4%
(Cost $103,591,691) $ 108,697
-----------
-----------
</TABLE>
<PAGE>
*Non-income producing security ADR -- American Depository Receipts ADS --
American Depository Shares GDR -- Global Depository Receipts GDS -- Global
Depository Shares IDR -- International Depository Receipts
See accompanying notes to financial statements --------
39
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
BALANCED FUND
[GRAPH]
% of Total Portfolio Investments
Technology 23% Consumer Cyclicals 16% Healthcare 16%
Energy 11% Finance 10% Utilities 8% Capital Goods 7%
Consumer Staples 6% Basic Materials 2%
Transportation 1%
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 60.3%
AEROSPACE & DEFENSE -- 1.0%
Loral 12,000 $ 621
-----------
BANKS -- 2.0%
Barnett Banks 11,000 564
J P Morgan 10,000 701
-----------
1,265
-----------
BEAUTY PRODUCTS -- 0.6%
Procter & Gamble 5,275 379
-----------
<PAGE>
BROADCASTING, NEWSPAPERS &
ADVERTISING -- 3.2%
Capital Cities ABC 6,000 629
Comcast 42,522 789
Tele-Communications, Cl A* 25,200 591
-----------
2,009
-----------
COMMUNICATION -- 1.3%
Cisco Systems* 9,100 460
Qualcomm Incorporated* 10,000 346
-----------
806
-----------
<CAPTION>
- ------------------------------------------------------------
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
COMMUNICATIONS EQUIPMENT -- 3.7%
Amphenol -- C1 A* 21,600 $ 629
General Instrument 10,000 384
Glenayre Technologies* 16,350 834
U.S. Robotics* 4,600 501
-----------
2,348
-----------
COMPUTERS & SERVICES -- 1.6%
Hewlett Packard 7,400 552
Silicon Graphics* 12,500 498
-----------
1,050
-----------
DRUGS -- 6.9%
American Home Products 5,700 441
Amgen* 6,800 547
Chiron* 3,767 245
Glaxo PLC ADR 30,400 738
Merck 11,600 568
Schering Plough 13,800 609
Smith Kline Beecham ADR 16,000 724
Warner Lambert 6,150 531
-----------
4,403
-----------
ELECTRICAL EQUIPMENT -- 1.3%
Emerson Electric 5,750 411
General Electric 7,000 395
-----------
806
-----------
ELECTRICAL UTILITIES -- 3.5%
Central & South West 28,000 735
<PAGE>
Public Service Enterprise Group 26,900 746
Texas Utilities 21,900 753
-----------
2,234
-----------
ENTERTAINMENT -- 2.3%
Circus Circus Enterprises* 10,000 353
Walt Disney 8,500 473
Mirage Resorts* 20,000 612
-----------
1,438
-----------
FINANCIAL SERVICES -- 3.1%
American Express 14,200 499
Chelsea GCA Realty REIT 14,900 402
Federal National Mortgage
Association 7,200 680
Horizon Outlet Centers REIT 15,500 360
-----------
1,941
-----------
FOOD, BEVERAGE & TOBACCO -- 2.6%
Coca Cola 7,600 484
Conagra 12,000 419
Pepsico 8,000 365
Sara Lee 13,300 379
-----------
1,647
-----------
</TABLE>
* Non-income producing security
ADR -- American Depository Receipt
FHLMC -- Federal Home Loan Mortgage Corporation
GNMA -- Government National Mortgage Association
- ---- REIT -- Real Estate Investment Trust
40 See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Shares Value (000)
- -------------------------------------------------------------
<S> <C> <C>
HOTELS & LODGING -- 1.5%
Hilton Hotels 6,600 $ 464
Promus Companies* 12,100 472
-----------
936
<PAGE>
-----------
HOUSEHOLD FURNITURE & FIXTURES -- 0.5%
Masco 11,800 319
-----------
HOUSEHOLD PRODUCTS -- 0.7%
Gillette 10,600 473
-----------
INSURANCE -- 1.4%
American International Group 4,000 456
Chubb 5,300 425
-----------
881
-----------
MEASURING DEVICES -- 1.2%
Honeywell 17,000 733
-----------
MEDICAL PRODUCTS & SERVICES
-- 0.6%
Health Management -- Cl A* 13,050 382
-----------
MEDICAL SUPPLIES -- 1.9%
Abbott Laboratories 12,500 506
Johnson and Johnson 10,600 717
-----------
1,223
-----------
PAPER & PAPER PRODUCTS -- 0.9%
Scott Paper 11,800 584
-----------
PETROLEUM REFINING -- 6.7%
Amoco 7,500 500
Atlantic Richfield 5,875 645
Baker Hughes 24,000 492
Burlington Resources 12,500 461
Chevron 10,000 466
Exxon 10,300 726
Mobil 5,100 490
Texaco 7,000 459
-----------
4,239
-----------
PRINTING & PUBLISHING -- 0.7%
Time Warner 10,800 444
-----------
<CAPTION>
- -------------------------------------------------------------
Description Shares Value (000)
- -------------------------------------------------------------
<S> <C> <C>
PROFESSIONAL SERVICES -- 1.5%
First Data 7,000 $ 398
Paychex 15,000 544
-----------
<PAGE>
942
-----------
RAILROADS -- 0.7%
Conrail 8,300 462
-----------
RESTAURANT -- 0.8%
McDonald's 13,100 513
-----------
RETAIL -- 0.4%
Gap 7,500 262
-----------
SEMI-CONDUCTORS/INSTRUMENTS -- 3.2%
Intel 11,200 709
Lam Research* 9,909 634
Linear Technology 10,000 660
-----------
2,003
-----------
SERVICES-PREPACKAGED SOFTWARE -- 0.9%
Oracle Systems* 15,300 591
-----------
TELEPHONES &
TELECOMMUNICATION -- 3.6%
ALC Communications* 10,000 451
Bellsouth 5,500 349
LCI International* 18,000 551
Mobile Telecommunication* 21,000 576
SBC Telecommunications 8,000 381
-----------
2,308
-----------
TOTAL COMMON STOCK
(Cost $32,973,313) 38,242
-----------
CONVERTIBLE PREFERRED STOCKS -- 0.6%
AUTOMOTIVE -- 0.6%
General Motors, Ser C, 3.25%
annual rate, convertible to
1.4078 shares 6,500 410
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $365,290) 410
-----------
</TABLE>
* Non-income producing security
ADR -- American Depository Receipt FHLMC -- Federal Home Loan Mortgage
Corporation GNMA -- Government National Mortgage Association REIT -- Real
Estate Investment Trust See accompanying notes to financial statements
--------
41
<PAGE>
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- -------------------------------------------------------------
BALANCED FUND (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS -- 2.0%
Browning-Ferris, convertible to
24.39 shares
6.250%, 08/15/12 $ 425 $ 426
Masco, convertible to 23.364
shares
5.250%, 02/15/12 100 88
Oryx Energy, convertible to
25.559 shares
7.500%, 05/15/14 400 350
Time Warner, convertible to
1.0476 shares
8.750%, 01/10/15 396 412
-----------
TOTAL CONVERTIBLE BONDS
(Cost $1,327,167) 1,276
-----------
U.S. TREASURY OBLIGATIONS -- 19.8%
U.S. Treasury Bill
7.140%, 12/14/95 1,000 975
U.S. Treasury Bonds
7.250%, 05/15/16 500 531
7.125%, 02/15/23 500 527
U.S. Treasury Notes
4.625%, 08/15/95 1,500 1,498
3.875%, 08/31/95 500 499
3.875%, 10/31/95 500 497
4.000%, 01/31/96 1,000 990
5.875%, 05/31/96 2,000 2,002
7.250%, 08/31/96 500 508
6.500%, 09/30/96 2,500 2,521
6.000%, 12/31/97 500 501
5.125%, 03/31/98 500 490
6.000%, 10/15/99 500 500
6.375%, 01/15/00 500 507
-----------
TOTAL U.S. TREASURY OBLIGATIONS
<PAGE>
(Cost $12,551,608) 12,546
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS
-- 0.8%
FHLMC
6.440%, 01/28/00 500 504
-----------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(Cost $500,000) 504
-----------
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT MORTGAGE-BACKED
BONDS -- 1.7%
GNMA
9.000%, 10/15/19 $ 247 $ 260
7.500%, 12/15/22 799 804
-----------
TOTAL U.S. GOVERNMENT MORTGAGE-
BACKED BONDS
(Cost $1,063,499) 1,064
-----------
U.S. AGENCY MORTGAGE-BACKED
BONDS -- 2.7%
FHLMC
6.000%, 05/01/08 855 828
5.500%, 11/01/08 908 864
-----------
TOTAL U.S. AGENCY MORTGAGE-BACKED
BONDS
(Cost $1,744,652) 1,692
-----------
CORPORATE OBLIGATIONS -- 6.7%
Bell Atlantic
5.470%, 04/27/98 500 489
Bellsouth
7.000%, 02/01/05 500 510
Coca Cola
6.000%, 07/15/03 1,000 961
Dayton Hudson
8.500%, 12/01/22 500 536
Ford Motor Credit
6.375%, 04/15/00 500 494
7.500%, 01/15/03 1,000 1,040
Merrill Lynch
7.000%, 04/27/08 250 246
-----------
TOTAL CORPORATE OBLIGATIONS
(Cost $4,248,417) 4,276
<PAGE>
-----------
REPURCHASE AGREEMENTS -- 5.8%
Goldman Sachs 6.05% dated
06/30/95, matures 07/03/95,
repurchase price $924,466
(collateralized by U.S.
Treasury Note, par value
$965,000, 4.75%, matures
08/31/98: market value
$962,151) 924 924
</TABLE>
* Non-income producing security
ADR -- American Depository Receipt
FHLMC -- Federal Home Loan Mortgage Corporation
GNMA -- Government National Mortgage Association
- ---- REIT -- Real Estate Investment Trust
42 See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS, (continued)
Republic New York City 6.07% dated 06/30/95, matures 07/03/95, repurchase
price $923,467 (collateralized by U.S. Treasury Note, par value $920,000,
7.50%, matures 12/31/96: market value
$940,700) $ 923 $ 923
Sanwa Bank 6.15% dated 06/30/95,
matures 07/03/95, repurchase
price $923,473 (collateralized
by U.S. Treasury Note, par
value $915,000, 6.625%,
matures 03/31/97: market value
$956,241) 923 923
Swiss Bank 6.12% dated 06/30/95,
matures 07/03/95, repurchase
price $923,471 (collateralized
by U.S. Treasury Note, par
value $925,000, 7.875%,
matures 03/31/96: market value
$943,130) 923 923
<PAGE>
-----------
TOTAL REPURCHASE AGREEMENTS
(Cost $3,693,000) 3,693
-----------
TOTAL INVESTMENTS -- 100.4%
(Cost $58,466,946) 63,703
-----------
TOTAL OTHER ASSETS AND LIABILITIES,
NET -- (0.4%) (267)
-----------
<CAPTION>
- -------------------------------------------------------------
Description Value (000)
- -------------------------------------------------------------
<S> <C> <C>
NET ASSETS:
Portfolio Shares -- Series A ($0.001 par value -- 100 million authorized)
based on
5,524,814 outstanding shares $ 56,397
Portfolio Shares -- Series B ($0.001 par value -- 100 million authorized)
based on
211,863 outstanding shares 2,158
Undistributed Net Investment
Income 2
Accumulated Net Realized Loss on
Investments (357)
Net Unrealized Appreciation on
Investments 5,236
-----------
TOTAL NET ASSETS -- 100.0% $ 63,436
-----------
-----------
NET ASSET VALUE & REDEMPTION
PRICE PER SHARE
SERIES A $11.06
-----------
-----------
SERIES B $11.06
-----------
-----------
</TABLE>
* Non-income producing security
ADR -- American Depository Receipt
FHLMC -- Federal Home Loan Mortgage Corporation
GNMA -- Government National Mortgage Association
REIT -- Real Estate Investment Trust
<PAGE>
See accompanying notes to financial statements
--------
43
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (000) COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------
INTERNATIONAL
GROWTH FUND
-----------
<S> <C>
ASSETS:
Investments at Market Value (Cost $103,591,691) $ 108,697
Cash 3,029
Other Assets 1,878
-----------
Total Assets 113,604
-----------
LIABILITIES:
Other Liabilities 823
-----------
Total Liabilities 823
-----------
NET ASSETS:
Portfolio Shares--Series A ($0.001 Par Value--25 million authorized) based on
9,021,890 outstanding shares $ 104,794
Portfolio Shares--Series B ($0.001 Par Value--25 million authorized) based on
158,405 outstanding shares 2,039
Accumulated Net Realized Loss on Investments (299)
Accumulated Net Realized Loss on Foreign Currency Transactions (467)
Net Unrealized Appreciation on Foreign Currency and Translation of Other Assets and Liabilities
Denominated in Foreign Currencies 659
Net Unrealized Appreciation on Investments 5,105
Undistributed Net Investment Income 950
-----------
TOTAL NET ASSETS $ 112,781
-----------
-----------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
SERIES A $ 12.29
-----------
-----------
SERIES B $ 12.27
-----------
-----------
</TABLE>
<PAGE>
- -----
44 See accompanying notes to financial statements
<PAGE>
For the year ended June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (000) COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------- ----------- ---------- ----------- ----------
GROWTH VALUE EQUITY INTERNATIONAL BALANCED
EQUITY FUND EQUITY FUND INDEX FUND GROWTH FUND FUND
----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 855 $ 618 $ 2,376 $ 2,218 $ 1,949
Interest 385 46 86 334 317
Less: Foreign taxes withheld -- -- -- (227) --
----------- ----------- ---------- ----------- ----------
Total investment income 1,240 664 2,462 2,325 2,266
----------- ----------- ---------- ----------- ----------
EXPENSES:
Investment advisory fees 580 251 345 919 375
Waiver of Investment advisory fees (193) (51) (260) (57) (134)
Administrative fees 193 84 216 287 134
Waiver of Administrative fees (70) (30) (78) (103) (48)
Transfer agent fees & expenses 25 10 28 45 17
Custodian fees -- -- -- 32 --
Professional fees 13 6 14 15 9
Registration & filing fees 13 5 17 14 7
Organizational costs -- -- -- -- 6
12b-1 fees 5 12 -- 5 6
Taxes--other than income 11 5 13 21 9
Pricing fees 9 1 2 13 2
Miscellaneous 9 7 18 19 11
----------- ----------- ---------- ----------- ----------
Total expenses 595 300 315 1,210 394
----------- ----------- ---------- ----------- ----------
Net investment income 645 364 2,147 1,115 1,872
----------- ----------- ---------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS, FORWARD FOREIGN
CURRENCY CONTRACTS AND FOREIGN
CURRENCY:
Net realized gain (loss) from
security transactions 308 2,110 3,527 1,400 (155)
Net realized loss on forward
foreign currency contracts and
foreign currency transactions -- -- -- (351) --
Net unrealized appreciation on
<PAGE>
forward foreign currency
contracts and translation of
assets and liabilities in
foreign currency -- -- -- 1,178 --
Net unrealized appreciation
(depreciation) on investments 16,243 2,869 14,303 (3,861) 6,794
----------- ----------- ---------- ----------- ----------
Net realized and unrealized gain
(loss) on investments, forward
foreign currency contracts and
foreign currency 16,551 4,979 17,830 (1,634) 6,639
----------- ----------- ---------- ----------- ----------
Net increase (decrease) in net
assets resulting from operations $17,196 $ 5,343 $ 19,977 $ (519) $ 8,511
----------- ----------- ---------- ----------- ----------
----------- ----------- ---------- ----------- ----------
COMPUTATION OF NET ASSET VALUE AND
OFFERING PRICE--JUNE 30, 1995:
Series A
(1) Net asset value, offer and
redemption price $ 11.18 $ 14.27 $ 23.79 $ 12.29 $ 11.06
----------- ----------- ---------- ----------- ----------
----------- ----------- ---------- ----------- ----------
Series B
(1) Net asset value,
redemption price 11.17 14.29 12.27 11.06
(2) Maximum sales charge of
4.50% 0.53 0.67 0.58 0.52
----------- ----------- ----------- ----------
Offering price $ 11.70 $ 14.96 $ 12.85 $ 11.58
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
</TABLE>
(1) Net asset value per share, as illustrated, is the amount which would be
paid upon the redemption or repurchase of shares.
(2) The offer price is calculated by dividing the net asset value of Series
B by 1 minus the maximum sales charge of 4.50%.
See accompanying notes to financial statements. ----------
45
<PAGE>
<PAGE>
For the periods ended June 30,
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (000)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------
GROWTH
EQUITY FUND
------------------
1995 1994
--------- ---------
<S> <C> <C>
OPERATIONS:
Net investment income $ 645 $ 345
Net realized gain (loss) from security
transactions 308 2,112
Net realized gain (loss) on forward
foreign currency contracts and
foreign currency transactions -- --
Net unrealized appreciation (depreciation) on forward foreign currency
contracts and translation of assets and liabilities in foreign
currencies -- --
Net unrealized appreciation
(depreciation) on investments 16,243 (8,083)
--------- ---------
Net increase (decrease) in net assets
resulting from operations 17,196 (5,626)
--------- ---------
DIVIDENDS DISTRIBUTED FROM:
Net investment income:
Series A (632) (329)
Series B (10) (14)
Net realized gains:
Series A -- --
Series B -- --
--------- ---------
Total dividends distributed (642) (343)
--------- ---------
CAPITAL SHARE TRANSACTIONS:
Series A:
Proceeds from shares issued 28,885 28,410
Shares issued in lieu of cash
distributions 528 256
Cost of shares repurchased (19,116) (21,517)
--------- ---------
Increase in net assets from Series A
transactions 10,297 7,149
Series B:
<PAGE>
Proceeds from shares issued 280 6,201
Shares issued in connection with
acquisition of Capstone Cashman
Farrell Value Fund -- --
Shares issued in lieu of cash
distributions 9 14
Cost of shares repurchased (359) (9,789)
--------- ---------
Increase (decrease) in net assets
from Series B transactions (70) (3,574)
--------- ---------
Increase in net assets derived from
capital share transaction 10,227 3,575
--------- ---------
Net increase (decrease) in net
assets 26,781 (2,394)
--------- ---------
NET ASSETS:
Beginning of period 66,607 69,001
--------- ---------
End of period $ 93,388 $ 66,607
--------- ---------
--------- ---------
CAPITAL SHARE TRANSACTIONS:
Capital shares outstanding at beginning
of period 7,309 6,934
--------- ---------
Series A:
Shares issued 2,945 2,826
Shares issued in lieu of cash
distributions 54 26
Shares repurchased (1,947) (2,142)
--------- ---------
Total Series A transactions 1,052 710
--------- ---------
Series B:
Shares issued 29 598
Shares issued in connection with
acquisition of Capstone Cashman
Farrell Value Fund -- --
Shares issued in lieu of cash
distributions 1 1
Shares repurchased (37) (934)
--------- ---------
Total Series B transactions (7) (335)
--------- ---------
Increase in capital share transactions 1,045 375
--------- ---------
Capital shares outstanding at end of
period 8,354 7,309
--------- ---------
--------- ---------
</TABLE>
<PAGE>
- -----
46 See accompanying notes to financial statements.
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------ ------------------- -------------------- ------------------
VALUE EQUITY INTERNATIONAL BALANCED
EQUITY FUND INDEX FUND GROWTH FUND FUND
------------------ ------------------- -------------------- ------------------
1995 1994 1995 1994 1995 1994 1995 1994
-------- ------- -------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 364 $ 154 $ 2,147 $ 1,932 $ 1,115 $ 211 $ 1,872 $ 1,393
Net realized gain (loss) from security
transactions 2,110 83 3,527 742 1,400 8,097 (155) (35)
Net realized gain (loss) on forward
foreign currency contracts and
foreign currency transactions -- -- -- -- (351) 3 -- --
Net unrealized appreciation
(depreciation) on forward foreign
currency contracts and translation
of assets and liabilities in
foreign currencies -- -- -- -- 1,178 (516) -- --
Net unrealized appreciation
(depreciation) on investments 2,869 (27) 14,303 (2,366) (3,861) 3,291 6,794 (2,519)
-------- ------- -------- ------- -------- -------- ------- -------
Net increase (decrease) in net assets
resulting from operations 5,343 210 19,977 308 (519) 11,086 8,511 (1,161)
-------- ------- -------- ------- -------- -------- ------- -------
DIVIDENDS DISTRIBUTED FROM:
Net investment income:
Series A (321) (138) (2,147) (1,932) (373) (907) (1,799) (1,345)
Series B (39) (16) -- -- (3) (10) (71) (51)
Net realized gains:
Series A (611) (354) (3,652) (9) (7,009) (2,205) (171) --
Series B (104) (94) -- -- (129) (26) (8) --
-------- ------- -------- ------- -------- -------- ------- -------
Total dividends distributed (1,075) (602) (5,799) (1,941) (7,514) (3,148) (2,049) (1,396)
-------- ------- -------- ------- -------- -------- ------- -------
CAPITAL SHARE TRANSACTIONS:
Series A:
Proceeds from shares issued 5,102 25,165 31,601 70,028 16,395 98,169 19,859 48,790
Shares issued in lieu of cash
distributions 889 444 5,180 1,277 6,850 3,021 1,818 960
Cost of shares repurchased (4,118) (14,442) (10,958) (47,671) (13,444) (61,836) (9,222) (34,350)
-------- ------- -------- ------- -------- -------- ------- -------
Increase in net assets from
Series A transactions 1,873 11,167 25,823 23,634 9,801 39,354 12,455 15,400
Series B:
Proceeds from shares issued 345 1,231 -- -- 440 2,342 216 1,803
Shares issued in connection with
acquisition of Capstone Cashman
<PAGE>
Farrell Value Fund -- 3,014 -- -- -- -- -- --
Shares issued in lieu of cash
distributions 139 103 -- -- 129 35 79 33
Cost of shares repurchased (2,099) (1,049) -- -- (486) (738) (427) (162)
-------- ------- -------- ------- -------- -------- ------- -------
Increase (decrease) in net assets
from Series B transactions (1,615) 3,299 -- -- 83 1,639 (132) 1,674
-------- ------- -------- ------- -------- -------- ------- -------
Increase in net assets derived from
capital share transaction 258 14,466 25,823 23,634 9,884 40,993 12,323 17,074
-------- ------- -------- ------- -------- -------- ------- -------
Net increase (decrease) in net
assets 4,526 14,074 40,001 22,001 1,851 48,931 18,785 14,517
-------- ------- -------- ------- -------- -------- ------- -------
NET ASSETS:
Beginning of period 30,185 16,111 72,552 50,551 110,930 61,999 44,651 30,134
-------- ------- -------- ------- -------- -------- ------- -------
End of period $ 34,711 $30,185 $112,553 $72,552 $112,781 $110,930 $63,436 $44,651
-------- ------- -------- ------- -------- -------- ------- -------
-------- ------- -------- ------- -------- -------- ------- -------
CAPITAL SHARE TRANSACTIONS:
Capital shares outstanding at beginning
of period 2,399 1,229 3,532 2,411 8,414 5,294 4,520 2,901
-------- ------- -------- ------- -------- -------- ------- -------
Series A:
Shares issued 390 1,872 1,461 3,292 1,282 7,250 1,956 4,605
Shares issued in lieu of cash
distributions 71 31 254 59 567 228 182 91
Shares repurchased (311) (1,055) (515) (2,230) (1,088) (4,482) (908) (3,234)
-------- ------- -------- ------- -------- -------- ------- -------
Total Series A transactions 150 848 1,200 1,121 761 2,996 1,230 1,462
-------- ------- -------- ------- -------- -------- ------- -------
Series B:
Shares issued 27 91 -- -- 34 177 21 170
Shares issued in connection with
acquisition of Capstone Cashman
Farrell Value Fund -- 300 -- -- -- -- -- --
Shares issued in lieu of cash
distributions 11 8 -- -- 11 3 8 3
Shares repurchased (154) (77) -- -- (40) (56) (42) (16)
-------- ------- -------- ------- -------- -------- ------- -------
Total Series B transactions (116) 322 -- -- 5 124 (13) 157
-------- ------- -------- ------- -------- -------- ------- -------
Increase in capital share transactions 34 1,170 1,200 1,121 766 3,120 1,217 1,619
-------- ------- -------- ------- -------- -------- ------- -------
Capital shares outstanding at end of
period 2,433 2,399 4,732 3,532 9,180 8,414 5,737 4,520
-------- ------- -------- ------- -------- -------- ------- -------
-------- ------- -------- ------- -------- -------- ------- -------
</TABLE>
--------
<PAGE>
47
<PAGE>
For the periods ended June 30,
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS COREFUND EQUITY FUNDS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net
Net Asset Realized and Dividends Net Assets
- --------- Value Net Unrealized Gains from Net Distributions Asset Value End
GROWTH Beginning Investment or (Losses) on Investment from End Total of Period
EQUITY of Period Income Securities Income Capital Gains of Period Return (000)
- --------- --------- ---------- ----------------- ---------- ------------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SERIES A
1995 $ 9.11 $ 0.08 $ 2.07 $(0.08) -- $ 11.18 23.71% $ 91,345
1994 9.95 0.05 (0.84) (0.05) -- 9.11 (8.01) 64,877
1993 8.74 0.08 1.21 (0.08) -- 9.95 14.76 63,777
1992(1) 10.00 0.05 (1.26) (0.05) -- 8.74 (12.05)+ 33,418
SERIES B
1995 $ 9.10 $ 0.06 $ 2.07 $(0.06) -- $ 11.17 23.44% $ 2,043
1994 9.95 0.04 (0.85) (0.04) -- 9.10 (8.13) 1,730
1993* 9.80 0.03 0.15 (0.03) -- 9.95 1.80+ 5,224
- ---------------
VALUE EQUITY
- ---------------
SERIES A
1995 $ 12.58 $ 0.15 $ 1.97 $(0.15) $ (0.28) $ 14.27 17.29% $ 31,003
1994 13.11 0.09 (0.27) (0.09) (0.26) 12.58 (1.51) 25,448
1993 11.22 0.16 1.89 (0.16) -- 13.11 18.31 15,397
1992 10.33 0.15 0.89 (0.15) -- 11.22 9.98 10,882
1991 10.31 0.15 0.18 (0.15) (0.16) 10.33 3.37 5,182
1990(2) 10.00 0.10 0.31 (0.10) -- 10.31 4.10+ 5,154
SERIES B
1995 $ 12.60 $ 0.13 $ 1.96 $(0.12) $ (0.28) $ 14.29 16.96% $ 3,708
1994 13.12 0.06 (0.26) (0.06) (0.26) 12.60 (1.69) 4,737
1993* 12.49 0.05 0.67 (0.09) -- 13.12 5.77+ 714
- ---------------
EQUITY INDEX
- ---------------
SERIES A
1995 $ 20.54 $ 0.52 $ 4.24 $(0.52) $ (0.99) $ 23.79 24.45% $ 112,553
1994 20.97 0.55 (0.43) (0.55) -- 20.54 0.55 72,552
1993 19.22 0.52 1.84 (0.52) (0.09) 20.97 12.39 50,551
1992 18.46 0.52 1.80 (0.48) (1.08) 19.22 12.59 20,166
1991(3) 19.48 0.03 (0.94) (0.02) (0.09) 18.46 (4.64)+ 12,117
<PAGE>
- --------------------------
INTERNATIONAL GROWTH
- --------------------------
SERIES A
1995 $ 13.18 $ 0.12 $ (0.17) $(0.04) $ (0.80) $ 12.29 (0.21)% $ 110,838
1994 11.71 0.12 1.78 (0.12) (0.31) 13.18 16.28 108,911
1993 10.52 0.10 1.16 (0.07) -- 11.71 12.06 61,655
1992 10.10 0.17 0.31 -- (0.06) 10.52 4.90 42,594
1991 10.75 0.19 (0.44) (0.27) (0.13) 10.10 (2.71) 20,582
1990(4) 10.00 0.11 0.86 (0.09) (0.13) 10.75 9.74+ 13,513
SERIES B
1995 $ 13.17 $ 0.09 $ (0.17) $(0.02) $ (0.80) $ 12.27 (0.48)% $ 1,943
1994 11.71 0.06 1.82 (0.11) (0.31) 13.17 16.08 2,019
1993* 10.07 0.05 1.59 -- -- 11.71 16.29+ 344
- -----------
BALANCED
- -----------
SERIES A
1995 $ 9.88 $ 0.35 $ 1.21 $(0.35) $ (0.03) $ 11.06 16.21% $ 61,092
1994 10.39 0.35 (0.51) (0.35) -- 9.88 (1.62) 42,429
1993(5) 10.00 0.16 0.39 (0.16) -- 10.39 5.52+ 29,434
SERIES B
1995 $ 9.89 $ 0.34 $ 1.19 $(0.33) $ (0.03) $ 11.06 15.84% $ 2,344
1994 10.38 0.31 (0.49) (0.31) -- 9.89 (1.86) 2,222
1993* 10.00 0.16 0.38 (0.16) -- 10.38 2.50+ 701
<CAPTION>
Ratio of
Ratio Net
Ratio of Expenses Income(Loss)
Ratio of Net to Average to Average
- --------- of Expenses Income Net Assets Net Assets Portfolio
GROWTH to Average to Average (Excluding (Excluding Turnover
EQUITY Net Assets Net Assets Waivers) Waivers) Rate
- --------- ----------- ---------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
SERIES A
1995 0.76% 0.84% 1.10% 0.50% 113%
1994 0.69 0.48 1.11 0.06 127
1993 0.43 0.85 1.11 0.17 103
1992(1) 0.14 1.38 1.12 0.40 66
SERIES B
1995 1.01% 0.59% 1.35% 0.25% 113%
1994 0.94 0.23 1.36 (0.19) 127
1993* 0.80 0.39 1.48 (0.29) 103
- ------------
VALUE EQUITY
- ------------
SERIES A
1995 0.86% 1.12% 1.10% 0.88% 108%
1994 0.80 0.73 1.09 0.44 78
1993 0.71 1.29 1.18 0.82 97
<PAGE>
1992 0.99 1.36 1.63 0.72 117
1991 1.74 1.53 2.39 0.88 96
1990(2) 1.76 2.35 2.43 1.68 20
SERIES B
1995 1.11% 0.89% 1.35% 0.65% 108%
1994 1.05 0.48 1.34 0.19 78
1993* 0.85 0.97 1.32 0.50 97
- ------------
EQUITY INDEX
- ------------
SERIES A
1995 0.37% 2.48% 0.76% 2.09% 27%
1994 0.35 2.63 0.75 2.23 13
1993 0.49 2.82 0.88 2.43 4
1992 0.57 2.66 1.06 2.17 27
1991(3) 0.97 1.79 1.20 1.56 --
- -------------
INTERNATIONAL
- -------------
SERIES A
1995 1.05% 0.98% 1.19% 0.84% 59%
1994 0.99 0.23 1.18 0.04 67
1993 0.99 1.22 1.28 0.93 59
1992 0.96 1.67 1.40 1.23 87
1991 0.99 1.80 1.56 1.23 49
1990(4) 1.22 2.57 1.99 1.80 20
SERIES B
1995 1.30% 0.73% 1.44% 0.59% 59%
1994 1.24 0.05 1.43 (0.14) 67
1993* 1.15 1.51 1.44 1.22 59
- -----------
BALANCED
- -----------
SERIES A
1995 0.73% 3.51% 1.07% 3.17% 46%
1994 0.62 3.46 1.08 3.00 56
1993(5) 0.45 3.38 1.39 2.45 21
SERIES B
1995 0.98% 3.27% 1.32% 2.93% 46%
1994 0.87 3.21 1.33 2.75 56
1993* 0.55 5.76 1.48 4.83 21
</TABLE>
+ Returns are for the period indicated and have not been annualized.
* Series B has been offered since January 4, 1993. Balanced has
offered Series B since March 16, 1993.
1 Growth Equity commenced operations on February 3, 1992. All ratios for
the period have been annualized.
2 Value Equity commenced operations on February 6, 1990. All ratios for
the period have been annualized.
3 Equity Index commenced operations on June 1, 1991. All ratios for the
period have been annualized.
- ---- 4 International Growth commenced operations on February 12, 1990.
48 All ratios for the period have been annualized.
<PAGE>
5 Balanced commenced operations on January 4, 1993. All ratios for the
period have been annualized.
See accompanying notes to financial statements
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS COREFUND FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
- -------------------------------------------------------------
GOVERNMENT INCOME FUND
[GRAPH]
% of Total Portfolio Investments
U.S. Government Backed Bonds 71%
U.S. Treasury Notes 16%
U.S. Agency Backed Bonds 10%
Cash Equivalents 3%
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT MORTGAGE-BACKED
BONDS -- 70.5%
GNMA 8.000%, 09/15/22 $ 73 $ 75
8.000%, 09/15/09 983 1,015
8.000%, 02/15/22 445 456
8.000%, 10/15/22 323 331
8.000%, 11/15/22 508 521
7.000%, 04/15/23 418 412
7.500%, 08/15/23 1,548 1,557
7.000%, 01/15/24 981 966
8.500%, 09/15/24 989 1,027
9.500%, 01/15/25 1,456 1,544
8.000%, 05/15/25 1,011 1,036
-----------
TOTAL U.S. GOVERNMENT MORTGAGE-
BACKED BONDS
(Cost $8,867,465) 8,940
-----------
U.S. AGENCY MORTGAGE-BACKED BONDS --
10.2%
FHLMC
6.000%, 05/01/08 420 407
FNMA
7.000%, 10/01/22 898 884
<PAGE>
-----------
TOTAL U.S. AGENCY MORTGAGE-BACKED
BONDS
(Cost $1,325,364) 1,291
-----------
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 16.1%
U.S. Treasury Notes
6.875%, 10/31/96 $ 500 $ 507
6.500%, 05/15/05 1,500 1,531
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $2,046,294) 2,038
-----------
REPURCHASE AGREEMENT -- 3.1%
Swiss Bank 6.12%, dated
06/30/95, matures 07/03/95,
repurchase price $397,202
(collateralized by U.S.
Treasury Note, par value
$395,000, 7.875%, matures
06/30/96: market value
$402,742) 397 397
-----------
TOTAL REPURCHASE AGREEMENT
(Cost $397,000) 397
-----------
TOTAL INVESTMENTS -- 99.9%
(Cost $12,636,123) 12,666
-----------
TOTAL OTHER ASSETS AND LIABILITIES,
NET -- 0.1% 13
-----------
NET ASSETS:
Portfolio Shares -- Series A ($0.001 par value -- 100 million authorized)
based on
1,149,549 outstanding shares 11,485
Portfolio Shares -- Series B ($0.001 par value -- 100 million authorized)
based on
139,659 outstanding shares 1,426
Accumulated Net Realized Loss on
<PAGE>
Investments (260)
Net Unrealized Appreciation on
Investments 30
Distributions in Excess of Net
Investment Income (2)
-----------
TOTAL NET ASSETS: -- 100.0% $ 12,679
-----------
-----------
NET ASSET VALUE & REDEMPTION PRICE
PER SHARE
SERIES A $9.83
-----------
-----------
SERIES B $9.84
-----------
-----------
</TABLE>
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
GNMA -- Government National Mortgage Association
See accompanying notes to financial statements
--------
49
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
INTERMEDIATE BOND FUND
[GRAPH]
% of Total Portfolio Investments
Corporate Bonds 39%
U.S. Treasury Notes 28%
U.S. Government Backed Bonds 13%
Cash Equivalents 10%
U.S. Agency Backed Bonds 10%
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Par (000) Value (000)
- ------------------------------------------------------------
<PAGE>
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 27.7%
U.S. Treasury Notes
6.875%, 10/31/96 $ 3,000 $ 3,040
7.250%, 11/30/96 3,500 3,565
7,375%, 11/15/97 4,000 4,129
6.250%, 05/31/00 1,000 1,010
6.500%, 05/15/05 4,000 4,085
-----------
TOTAL U. S. TREASURY OBLIGATIONS
(Cost $15,640,683) 15,829
-----------
U.S. AGENCY OBLIGATION -- 5.2%
FNMA
6.260%, 12/22/97 3,000 2,992
-----------
TOTAL U.S. AGENCY OBLIGATION
(Cost $2,872,770) 2,992
-----------
U.S. GOVERNMENT MORTGAGE-BACKED
BONDS -- 13.3%
GNMA
9.500%, 09/15/16 91 97
9.500%, 12/15/16 75 79
9.500%, 06/15/20 87 93
8.000%, 07/15/22 632 648
8.500%, 08/15/24 3,462 3,597
9.000%, 01/15/25 1,985 2,086
8.000%, 05/15/25 979 1,003
-----------
TOTAL U.S. GOVERNMENT MORTGAGE-
BACKED BONDS
(Cost $7,403,774) 7,603
-----------
<CAPTION>
- ------------------------------------------------------------
Description Par (000) Value (000)
- ------------------------------------------------------------
<S> <C> <C>
U.S. AGENCY MORTGAGE-BACKED
BONDS -- 4.8%
FHLMC
5.500%, 11/01/08 $ 2,297 $ 2,186
FNMA
8.000%, 04/01/07 538 553
-----------
TOTAL U.S. AGENCY MORTGAGE-BACKED
BONDS
(Cost $2,820,339) 2,739
-----------
NON AGENCY MORTGAGE-BACKED BOND -- 3.1%
Advanta, Ser 93-3, CMO 4.900%,
10/25/09 1,836 1,760
<PAGE>
-----------
TOTAL NON AGENCY MORTGAGE-BACKED
BOND
(Cost $1,835,528) 1,760
-----------
CORPORATE OBLIGATIONS -- 14.0%
Associates Corporation of North
America
4.730%, 05/06/96 1,000 989
Dean Witter Discover
6.000%, 03/01/98 1,250 1,241
Ford Motor Credit
6.800%, 08/15/97 1,000 1,013
6.413%, 09/16/98 (A) 1,250 1,248
John Deere Capital
4.625%, 09/02/96 1,500 1,476
Merrill Lynch
5.250%, 10/30/95 500 499
Norwest Financial
6.250%, 02/15/97 1,500 1,502
-----------
TOTAL CORPORATE OBLIGATIONS
(Cost $7,990,734) 7,968
-----------
ASSET BACKED SECURITIES -- 22.0%
American Express Master Trust,
Ser 94-1 A
7.150%, 08/15/99 1,000 1,026
Daimler-Benz Grantor Trust,
Ser 93-A A
3.900%, 10/15/98 833 820
Discover Card Master
Trust I, Ser 94-3 A
6.253%, 04/16/02 (A) 2,000 2,001
Ford Credit Grantor Trust,
Ser 94-A A
6.350%, 05/15/99 1,520 1,525
Premier Auto Trust,
Ser 95-1 A4
7.850%, 02/04/98 2,000 2,054
Sears Credit Master
Trust, Ser 95-3 A
7.000%, 10/15/04 3,000 3,085
</TABLE>
CMO -- Collateralized Mortgage Obligation FHLMC -- Federal Home Loan
Mortgage Corporation FNMA -- Federal National Mortgage Association
GNMA -- Government National Mortgage Association (A) Variable Rate
Security -- The rate reported on the Statement
- ---- of Net Assets is the rate in effect on June 30, 1995.
50 See accompanying notes to financial statements
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COREFUND FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
ASSET BACKED SECURITIES (continued)
Standard Credit Card Master
Trust, Ser 95-6 A
6.750%, 06/07/00 $ 2,000 $ 2,037
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $12,313,990) 12,548
-----------
REPURCHASE AGREEMENTS -- 9.6%
HSBC Securities
5.90%, dated 06/30/95, matures
07/03/95, repurchase price
$2,743,348.15
(collateralized by U.S.
Treasury Note, par value
$2,695,000, 7.375%, matures
11/01/97: market value
$2,829,531) 2,742 2,742
Swiss Bank
6.12%, dated 06/30/95, matures
07/03/95, repurchase price
$2,743,398.42
(collateralized by U.S.
Treasury Note, par value
$2,690,000, 7.375%, matures
11/15/97: market value
$2,821,860) 2,742 2,742
-----------
TOTAL REPURCHASE AGREEMENTS
(Cost $5,484,000) 5,484
-----------
<CAPTION>
- -------------------------------------------------------------
Description Value (000)
- -------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS -- 99.7%
(Cost $56,361,818) $ 56,923
-----------
TOTAL OTHER ASSETS AND LIABILITIES,
<PAGE>
NET 0.3% 166
-----------
NET ASSETS:
Portfolio shares -- Series A ($0.001 par value -- 100 million authorized)
based on
5,601,569 outstanding shares 55,928
Portfolio shares -- Series B ($0.001 par value -- 100 million authorized)
based on
199,308 outstanding shares 2,529
Accumulated Net Realized Loss on
Investments (1,929)
Net Unrealized Appreciation on
Investments 561
-----------
TOTAL NET ASSETS: -- 100% $ 57,089
-----------
-----------
NET ASSET VALUE &
REDEMPTION PRICE PER SHARE
SERIES A $9.84
-----------
-----------
SERIES B $9.84
-----------
-----------
</TABLE>
CMO -- Collateralized Mortgage Obligation
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
GNMA -- Government National Mortgage Association
(A) Variable rate security -- The rate reported on the Statement of Net Assets
is the rate in effect on June 30, 1995. See accompanying notes to financial
statements --------
51
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
- -----------------------------------------------------------
INTERMEDIATE MUNICIPAL BOND FUND
[GRAPH]
% of Total Portfolio Investments
<PAGE>
General Obligations 43%
Revenue Bonds 36%
Pre-Refunded Securities 21%
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Par (000) Value (000)
- ------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS -- 91.2%
FLORIDA -- 3.7%
Jacksonville, Florida Electric
Authority Revenue Bond,
Ser 3-A
5.200%, 10/01/02 $ 50 $ 51
-----------
GEORGIA -- 3.7%
De Kalb County, Georgia Health
Facilities Bond, GO
5.300%, 01/01/03 50 51
-----------
HAWAII -- 3.6%
Hawaii State, GO
5.200%, 06/01/04 50 50
-----------
MARYLAND -- 3.6%
Maryland State Health & Higher
Educational Facilities
Authority for Johns Hopkins
Project
5.125%, 07/01/03 50 50
-----------
<CAPTION>
- ------------------------------------------------------------
Description Par (000) Value (000)
- ------------------------------------------------------------
<S> <C> <C>
MASSACHUSETTS -- 3.6%
Massachusetts Bay Transportation
Authority Revenue Bond, Ser A
5.300%, 03/01/05 $ 50 $ 50
-----------
MICHIGAN -- 6.9%
Grand Haven, Michigan Electric
Revenue Bond (MBIA)
5.000%, 07/01/04 100 97
-----------
NEW JERSEY -- 3.6%
Burlington County, New Jersey
Community Bridge Systems
Revenue Bond, Callable
<PAGE>
10/01/03 at 101
5.050%, 10/01/04 CG 50 50
-----------
PENNSYLVANIA -- 55.6%
Allegheny County, Pennsylvania
Community College Project Ser
A
4.375%, 07/15/02 CGIC 100 93
Allegheny County, Pennsylvania,
Ser C-33, GO
7.450%, 02/15/98 50 53
Bethlehem Pennsylvania School
District GO (FGIC)
4.800%, 09/01/01 50 49
Governor Mifflin, Pennsylvania
School District, GO (AMBAC)
4.850%, 11/15/01 50 49
Luzerne County, Pennsylvania,
Ser A, GO, Callable 09/15/00
at 100 (FGIC)
5.850%, 09/15/02 50 51
Pennsylvania State Higher
Educational Facilities
Authority Hospital Revenue
Bond for Thomas Jefferson
University Project, Pre-
refunded 01/01/98 at 102
8.000%, 01/01/18 100 111
</TABLE>
AMBAC -- American Municipal Bond Assurance Company
CG -- County Guaranty
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guaranty Insurance Company
MBIA -- Municipal Bond Investors Assurance
- ---- GO -- General Obligation
52 See accompanying notes to financial statements
<PAGE>
- --------------------------------------------------------------------------------
COREFUND FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
PENNSYLVANIA, (Continued)
Pennsylvania State Turnpike
Commission Revenue Bond,
Pre-refunded 12/01/99 at 102
<PAGE>
(AMBAC)
7.250%, 12/01/17 $ 100 $ 113
Pennsylvania State Turnpike
Commission Revenue Bond,
Series I, Pre-refunded
12/01/01 at 102 (FGIC)
7.150%, 12/01/11 50 57
Pittsburgh, Pennsylvania School
District, Ser A, GO (FGIC)
4.850%, 09/01/03 100 96
Reading, Pennsylvania Parking
Authority (MBIA)
4.950%, 11/15/02 50 50
Wallenpaupack, Pennsylvania Area
School District, Ser C, GO,
Callable 09/01/00 at 100
(FGIC)
6.000%, 09/01/03 50 52
-----------
TOTAL PENNSYLVANIA 774
-----------
TENNESSEE -- 3.7%
Tennessee State, Ser B, GO
5.900%, 06/01/98 50 52
-----------
WISCONSIN -- 3.2%
Wisconsin State Transportation,
Ser A
5.000%, 07/01/01 45 45
-----------
<CAPTION>
- -------------------------------------------------------------
Description Value (000)
- -------------------------------------------------------------
<S> <C>
TOTAL MUNICIPAL BONDS
(Cost $1,285,772) $ 1,270
-----------
TOTAL INVESTMENTS -- 91.2%
(Cost $1,285,772) $ 1,270
-----------
-----------
</TABLE>
AMBAC -- American Municipal Bond Assurance Company CG -- County Guaranty CGIC
-- Capital Guaranty Insurance Company FGIC -- Financial Guaranty Insurance
Company MBIA -- Municipal Bond Investors Assurance GO -- General Obligation
See accompanying notes to financial statements --------
53
<PAGE>
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS COREFUND FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
GLOBAL BOND FUND
[GRAPH]
% of Total Portfolio Investments
United States 24%
Germany 19%
France 18%
Denmark 10%
United Kingdom 9%
New Zealand 6%
Australia 5%
Netherlands 5%
Other 4%
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Par (000) Value (000)
- ------------------------------------------------------------
<S> <C> <C>
FOREIGN BONDS -- 64.6%
AUSTRALIA -- 4.5%
Australian Government
6.250%, 03/15/99 $ 1,858 $ 1,231
-----------
DENMARK -- 8.8%
Kingdom of Denmark
8.000%, 05/15/03 10,958 1,974
8.000%, 03/15/06 2,350 415
-----------
2,389
-----------
FRANCE -- 15.6%
Electric de France
7.500%, 05/11/12 5,950 1,151
Government of France OAT
7.500%, 04/25/05 6,228 1,273
Kansai Electric Power
7.000%, 08/04/03 2,700 533
Republic of Portugal
7.700%, 06/07/05 6,210 1,256
-----------
4,213
<PAGE>
-----------
<CAPTION>
- ------------------------------------------------------------
Description Par (000) Value (000)
- ------------------------------------------------------------
<S> <C> <C>
GERMANY -- 16.3%
Bundesrepublic
7.375%, 01/03/05 $ 5,205 $ 3,844
World Bank
7.125%, 04/12/05 800 576
-----------
4,420
-----------
IRELAND -- 2.2%
Government of Ireland
9.250%, 07/11/03 356 598
-----------
NETHERLANDS -- 4.5%
Kingdom of Netherlands
8.250%, 09/15/07 1,546 1,078
7.500%, 01/15/23 215 138
-----------
1,216
-----------
NEW ZEALAND -- 4.9%
Government of New Zealand
10.000%, 07/15/97 1,901 1,313
-----------
UNITED KINGDOM -- 7.8%
European Investment Bank
10.375%, 11/22/04 420 732
United Kingdom Treasury
9.000%, 07/12/11 830 1,372
-----------
2,104
-----------
TOTAL FOREIGN BONDS
(Cost $16,762,082) 17,484
-----------
FOREIGN CURRENCY OPTIONS -- 0.5%
UNITED STATES -- 0.5%
Deutsche Mark Put
09/20/95 5,000 134
-----------
TOTAL FOREIGN CURRENCY OPTIONS
(Cost $137,000) 134
-----------
U. S. TREASURY OBLIGATIONS -- 20.3%
UNITED STATES -- 20.3%
U.S. Treasury Notes
8.625%, 10/15/95 870 877
6.125%, 05/31/97 1,790 1,798
<PAGE>
6.875%, 07/31/99 1,180 1,217
7.750%, 11/30/99 1,510 1,612
-----------
TOTAL U. S. TREASURY OBLIGATIONS
(Cost $5,367,698) 5,504
-----------
TOTAL INVESTMENTS -- 85.4%
(Cost $22,266,780) $ 23,122
-----------
-----------
</TABLE>
- -----
54 See accompanying notes to financial statements
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS COREFUND FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
- -------------------------------------------------------------
PENNSYLVANIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS -- 98.4%
PENNSYLVANIA -- 98.4%
Allegheny County, Pennsylvania
Hospital Development
Authority Revenue Bond,
Callable 11/01/02
at 102 (MBIA)
6.000%, 11/01/12 $ 25 $ 25
Allegheny County, Pennsylvania
Redevelopment Authority Home
Improvement Loan-Impac
XIV-A, Callable 02/01/04
at 102 (FHA)
5.700%, 02/01/07 15 15
Allegheny County, Pennsylvania
Sanitation Authority Sewer
Revenue Bond, Ser B,
Callable 06/01/99
at 100 (FGIC)
7.450%, 12/01/09 130 144
Allegheny County, Pennsylvania,
Ser C-43, GO, Callable
<PAGE>
09/15/04 at 100 (MBIA)
5.875%, 09/15/10 60 61
5.875%, 09/15/13 100 100
Bedford, Pennsylvania, Bedford
Area School District, Ser A,
GO, Callable 04/15/04 at
100 (MBIA)
6.200%, 04/15/24 25 25
Berks County, Pennsylvania,
Reading Hospital & Medical
Center Project Revenue
Bond, Ser B, Callable
10/01/04 at 102 (MBIA)
5.600%, 10/01/06 65 65
Center City District,
Pennsylvania Business
Improvement Assessment,
Callable 12/01/07 at 100
(AMBAC)
5.600%, 12/01/08 60 60
Crawford, Pennsylvania
Central School District,
GO (FGIC)
7.000%, 02/15/05 100 112
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
Dover Township, Pennsylvania
Sewer Authority
Revenue Bond
6.250%, 05/01/12 $ 20 $ 21
Elizabeth Forward School
District, Pennsylvania,
Ser A, GO, Callable
09/01/02 at 100 (MBIA)
6.000%, 09/01/09 35 36
Lehigh County, Pennsylvania
Industrial Development
Authority Pollution Control
Revenue Bond for Pennsylvania
Power and Light Project, Ser A,
Callable 11/01/02
at 102 (MBIA)
6.400%, 11/01/21 25 26
Lower Merion Township,
Pennsylvania, GO, Callable
08/01/02 at 100
5.625%, 08/01/05 100 102
Manheim, Pennsylvania,
Manheim Central School
District, GO, Callable
<PAGE>
05/15/04 at 100 (FGIC)
6.100%, 05/15/14 100 101
North Penn, Pennsylvania Water
Authority Revenue Bond,
Callable 11/01/02 at
101 (FGIC)
5.800%, 11/01/05 90 93
6.200%, 11/01/22 25 25
North Wales, Pennsylvania Water
Authority Revenue Bond,
Callable 11/01/04 at
100 (FGIC)
6.750%, 11/01/10 100 107
5.600%, 11/01/20 20 19
Pennsylvania State Convention
Center Authority Revenue
Bond, Ser A (FGIC)
6.700%, 09/01/16 75 84
Pennsylvania State Higher
Education Facilities Authority
for Health Services, Ser A,
Callable 01/01/04 at 102
6.000%, 01/01/10 100 101
</TABLE>
AMBAC -- American Municipal Bond Assurance Company FGIC -- Financial Guaranty
Insurance Company FHA -- Federal Housing Agency FNMA -- Federal National
Mortgage Association MBIA -- Municipal Bond Investors Assurance GO -- General
Obligation
See accompanying notes to financial statements --------
55
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL BOND FUND (Cont.)
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
Pennsylvania State Higher
Education Facilities
Authority for
<PAGE>
University of Pennsylvania,
Ser B
5.850%, 09/01/13 $ 100 $ 99
Pennsylvania State Higher
Education Thomas Jefferson
University, Ser A,
Callable 07/01/99 at 102
6.000%, 07/01/19 150 147
Pennsylvania State Housing
Finance Agency Revenue
Bond, Callable 07/01/02
at 102 (FNMA)
6.400%, 07/01/12 300 301
Pennsylvania State Industrial
Development Authority,
(AMBAC)
6.000%, 01/01/05 25 26
Pennsylvania State Industrial
Development Authority,
Callable 01/01/04 at
102 (AMBAC)
6.000%, 01/01/12 100 101
Pennsylvania State Turnpike
Commission Revenue Bond,
Ser O, Callable 12/01/02
at 102 (FGIC)
5.900%, 12/01/08 125 127
Pennsylvania State Turnpike
Commission Revenue Bond,
Ser P
5.800%, 12/01/06 75 77
Pennsylvania State University,
Callable 03/01/04 at 100
6.150%, 03/01/05 40 42
Pennsylvania State, GO
6.000%, 07/01/05 25 26
Pennsylvania State,
Ser 2, GO
6.250%, 07/01/11 60 63
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
Pittsburgh, Pennsylvania
University of Pittsburgh Higher
Education University Capital
Improvements, Ser A, Callable
06/01/02 at 102 (MBIA)
6.125%, 06/01/21 $ 115 $ 117
Pittsburgh, Pennsylvania, Ser D,
GO, Callable 09/01/02 at 102
(AMBAC)
<PAGE>
6.125%, 09/01/17 25 25
York, Pennsylvania, York City
School District, GO, Callable
03/01/03 at 100 (FGIC)
5.600%, 03/01/07 75 75
-----------
TOTAL MUNICIPAL BONDS
(Cost $2,488,122) 2,548
-----------
TOTAL INVESTMENTS -- 98.4%
(Cost $2,488,122) 2,548
-----------
TOTAL OTHER ASSETS AND LIABILITIES,
NET -- 1.6% 41
-----------
NET ASSETS:
Portfolio Shares -- Series A ($0.001 par value -- 100 million authorized)
based on 223,677
outstanding shares 2,228
Portfolio shares -- Series B ($0.001 par value -- 100 million authorized)
based on 31,188
outstanding shares 313
Accumulated Net Realized Loss on
Investments (12)
Net Unrealized Appreciation on
Investments 60
-----------
TOTAL NET ASSETS: -- 100.0% $ 2,589
-----------
-----------
NET ASSET VALUE & REDEMPTION PRICE
PER SHARE
SERIES A $ 10.16
-----------
-----------
SERIES B $ 10.16
-----------
-----------
</TABLE>
AMBAC -- American Municipal Bond Assurance Company
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Agency
FNMA -- Federal National Mortgage Association
MBIA -- Municipal Bond Investors Assurance
- ---- GO -- General Obligation
56 See accompanying notes to financial statements
<PAGE>
- --------------------------------------------------------------------------------
COREFUND FIXED INCOME FUNDS
<PAGE>
- --------------------------------------------------------------------------------
- -----------------------------------------------------------
NEW JERSEY MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS -- 97.3%
NEW JERSEY -- 97.3%
Atlantic County, New Jersey,
GO, (MBIA)
6.000%, 01/01/11 $ 55 $ 56
Bayonne, New Jersey, GO,
Callable 05/01/05 at 100 (FGIC)
5.900%, 05/01/08 175 179
Cherry Hill Township, New
Jersey, GO, Callable 06/01/02 at
102
5.900%, 06/01/05 50 52
Cinnaminson Township, New Jersey
Cinnaminson Township School
District GO, Callable 07/15/04
at 100, (MBIA)
5.800%, 07/15/05 55 57
Flemington-Raritan, New Jersey
Regional School District GO,
Callable 05/01/04 at 102
5.700%, 05/01/06 50 51
Gloucester County, New Jersey
Improvement Authority Revenue
Bond, Callable 04/01/05 at 100
5.800%, 04/01/06 20 20
Mercer County, New Jersey
Improvement Authority Revenue
Bond
5.400%, 12/01/05 50 51
Monmouth County, New Jersey
Improvement Authority Revenue
Bond
6.625%, 12/01/05 40 43
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
New Jersey Health Care Facilities
Finance Authority Revenue
Bond for Bridgeton Hospital
Association, Ser B
<PAGE>
6.000%, 07/01/13 $ 50 $ 51
New Jersey Health Care Facilities
Finance Authority Revenue
Bond for Burlington County
Memorial Hospital Project
6.000%, 07/01/12 50 51
New Jersey State Economic
Development Authority
Revenue Bond for Peddie
School Project, Ser A
5.400%, 02/01/06 50 50
New Jersey State Economic
Development Authority Revenue
Bond for Rutgers State
University -- Civic Square
(AMBAC)
6.125%, 07/01/24 55 56
New Jersey State, GO
5.500%, 02/15/04 230 236
New York & New Jersey States
Port Authority Revenue Bond,
Eighty-First Series
5.700%, 08/01/07 50 51
North Brunswick Township,
New Jersey, GO
6.125%, 05/15/04 45 48
6.300%, 02/01/12 150 155
North Jersey District Water
Supply Revenue Bond for
Wanaque South Project,
Callable 07/01/03 at 102
(MBIA)
6.000%, 07/01/21 50 50
Secaucus, New Jersey Sewer
Revenue Authority Bond,
Ser A
6.100%, 12/01/10 60 63
</TABLE>
AMBAC -- American Municipal Bond Assurance Company
FGIC -- Financial Guaranty Insurance Company
GO -- General Obligation
MBIA -- Municipal Bond Investors Assurance
See accompanying notes to financial statements --------
57
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS COREFUND FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------
NEW JERSEY MUNICIPAL BOND FUND (Cont.)
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
South Monmouth, New Jersey
Sewer Authority Revenue Bond,
Callable 01/15/04 at 102
(MBIA)
5.550%, 01/15/06 $ 50 $ 51
Teaneck Township, New Jersey
Board of Education, GO
5.750%, 07/01/13 55 54
West Windsor Township, New
Jersey Parking Authority
Revenue Bond, Callable
12/01/04 at 102
6.100%, 12/01/12 50 51
Winslow Township, New Jersey,
GO (AMBAC)
5.950%, 12/01/16 55 55
-----------
TOTAL MUNICIPAL BONDS
(Cost $1,500,935) 1,531
-----------
TOTAL INVESTMENTS -- 97.3%
(Cost $1,500,935) $ 1,531
-----------
<CAPTION>
- -------------------------------------------------------------
Description Value (000)
- -------------------------------------------------------------
<S> <C>
TOTAL OTHER ASSETS AND LIABILITIES --
NET 2.7% $ 43
-----------
NET ASSETS:
Portfolio Shares -- Series A ($0.001 par value -- 100 million authorized)
based on
153,170 outstanding shares 1,516
Portfolio Shares -- Series B
($0.001 par value -- 100
<PAGE>
million authorized) based on
2,351 outstanding shares 24
Accumulated Net Realized Gain on
Investments 4
Net Unrealized Appreciation on
Investments 30
-----------
TOTAL NET ASSETS: -- 100.0% $ 1,574
-----------
-----------
NET ASSET VALUE & REDEMPTION PRICE
PER SHARE
SERIES A $ 10.12
-----------
-----------
SERIES B $ 10.12
-----------
-----------
</TABLE>
AMBAC -- American Municipal Bond Assurance Company
FGIC -- Financial Guaranty Insurance Company
GO -- General Obligation
- ---- MBIA -- Municipal Bond Investors Assurance
58 See accompanying notes to financial statements
<PAGE>
As of June 30, 1995
- ------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (000) COREFUND FIXED INCOME FUNDS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------
INTERMEDIATE
MUNICIPAL
BOND FUND
---------------
<S> <C>
ASSETS:
Investments at Market Value (Cost
$1,285,772) $ 1,270
Receivable -- Investment Securities
<PAGE>
Sold 77
Cash 12
Other Assets 25
----------------
Total Assets 1,384
----------------
LIABILITIES:
Other Liabilities 8
----------------
Total Liabilities 8
----------------
NET ASSETS:
Portfolio Shares -- Series A ($0.001 Par Value -- 100 million authorized)
based on 37,105
outstanding shares 406
Portfolio Shares -- Series B ($0.001
Par Value -- 100 million
authorized) based on 104,526
outstanding shares 1,079
Accumulated Net Realized Loss on
Investments (76)
Net Unrealized Loss on Investments (17)
----------------
TOTAL NET ASSETS $ 1,392
----------------
----------------
NET ASSET VALUE REDEMPTION PRICE PER
SHARE
SERIES A $ 9.83
----------------
----------------
SERIES B $ 9.83
----------------
----------------
--------------
GLOBAL
BOND FUND
--------------
ASSETS:
Investments at Market Value (Cost
$22,266,780) $ 23,122
Cash 3,511
Foreign Currency (Cost $304,586) 305
Interest Receivable 502
Other Assets 12
--------------
Total Assets 27,452
--------------
LIABILITIES:
Other Liabilities 384
--------------
Total Liabilities 384
<PAGE>
--------------
NET ASSETS:
Portfolio Shares--Series A ($0.001
Par Value--25 million authorized)
based on 2,796,181 outstanding
shares 27,872
Portfolio Shares--Series B ($0.001
Par Value--25 million authorized)
based on 17,704 outstanding shares 176
Accumulated Net Realized Loss on
Investments (1,203)
Accumulated Net Realized Loss on
Foreign Currency Transactions (2,052)
Net Unrealized Depreciation on
Foreign Currency and Translation
of Other Assets and Liabilities
Denominated in Foreign Currencies (94)
Net Unrealized Appreciation on
Investments 855
Undistributed Net Investment Income 1,514
--------------
TOTAL NET ASSETS $ 27,068
--------------
--------------
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE
SERIES A $ 9.62
--------------
--------------
SERIES B $ 9.61
--------------
--------------
</TABLE>
See accompanying notes to financial statements --------
59
<PAGE>
<PAGE>
For the year ended June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (000)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------- --------------
GOVERNMENT INTERMEDIATE
INCOME FUND BOND FUND
------------- --------------
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 802 $ 3,673
------------- --------------
EXPENSES:
Investment advisory fees 56 290
Waiver of Investment advisory fees (34) (87)
Administrative fees 28 145
Waiver of Administrative fees (10) (52)
Transfer agent fees 4 19
Custodian fees -- --
Professional fees 2 10
Registration & filing fees 9 5
Organizational costs 6 --
12b-1 fees 3 16
Taxes--other than income 2 3
Pricing fees -- 7
Miscellaneous 4 6
------------- --------------
Total expenses 70 362
------------- --------------
Net investment income 732 3,311
------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS, FORWARD FOREIGN
CURRENCY CONTRACTS AND FOREIGN
CURRENCY:
Net realized gain (loss) from
security transactions (213) (738)
Net realized loss on forward
foreign currency contracts and
foreign currency transactions -- --
Net unrealized appreciation on
forward foreign currency
contracts and translations of
assets and liabilities in
foreign currency -- --
Net unrealized appreciation on
investments 611 1,857
------------- --------------
<PAGE>
Net realized and unrealized gain
on investments 398 1,119
------------- --------------
Net increase in net assets
resulting from operations $ 1,130 $ 4,430
------------- --------------
------------- --------------
COMPUTATION OF NET ASSET VALUE AND
OFFERING PRICE--JUNE 30, 1995:
SERIES A:
(1) Net asset value, offer
and redemption price $ 9.83 $ 9.84
------------- --------------
------------- --------------
SERIES B:
(1) Net asset value,
redemption price 9.84 9.84
(2) Maximum sales charge
4.50% 0.46 0.46
------------- --------------
Offering Price $ 10.30 $ 10.30
------------- --------------
------------- --------------
</TABLE>
(1) Net asset value per share, as illustrated, is the amount which would be
paid upon the redemption or repurchase of shares.
(2) The offer price is calculated by dividing the net asset value of Series B
by 1 minus the maximum sales charge of 4.50%. Amounts designated as '--'
are either $0 or have been rounded to $0.
See accompanying notes to financial statements
- -----
60
<PAGE>
- --------------------------------------------------------------------------------
COREFUND FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------- ---------- -------------- -----------
PENNSYLVANIA NEW JERSEY
INTERMEDIATE GLOBAL MUNICIPAL MUNICIPAL
MUNICIPAL BOND FUND BOND FUND BOND FUND BOND FUND
------------------- ---------- -------------- -----------
<PAGE>
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 87 $ 1,937 $ 124 $ 91
-------- ---------- ------- -----------
EXPENSES:
Investment advisory fees 9 155 11 8
Waiver of Investment advisory fees (7) (78) (11) (8)
Administrative fees 5 65 5 4
Waiver of Administrative fees (2) (23) (5) (4)
Transfer agent fees 1 15 1 1
Custodian fees -- 2 -- --
Professional fees -- 7 1 --
Registration & filing fees 2 3 2 2
Organizational costs 6 1 3 2
12b-1 fees 3 -- -- --
Taxes--other than income -- 8 1 --
Pricing fees -- 4 -- --
Miscellaneous 1 6 1 2
-------- ---------- ------- -----------
Total expenses 18 165 9 7
-------- ---------- ------- -----------
Net investment income 69 1,772 115 84
-------- ---------- ------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS, FORWARD FOREIGN
CURRENCY CONTRACTS AND FOREIGN
CURRENCY:
Net realized gain (loss) from
security transactions (57) 1,044 (12) 4
Net realized loss on forward
foreign currency contracts and
foreign currency transactions -- (1,224) -- --
Net unrealized appreciation on
forward foreign currency
contracts and translations of
assets and liabilities in
foreign currency -- 344 -- --
Net unrealized appreciation on
investments 70 503 64 40
-------- ---------- ------- -----------
Net realized and unrealized gain
on investments 13 667 52 44
-------- ---------- ------- -----------
Net increase in net assets
resulting from operations $ 82 $ 2,439 $ 167 $ 128
-------- ---------- ------- -----------
-------- ---------- ------- -----------
COMPUTATION OF NET ASSET VALUE AND
OFFERING PRICE--JUNE 30, 1995:
<PAGE>
SERIES A:
(1) Net asset value, offer and
redemption price $ 9.83 $ 9.62 $10.16 $ 10.12
-------- ---------- ------- -----------
-------- ---------- ------- -----------
SERIES B:
(1) Net asset value, redemption
price 9.83 9.61 10.16 10.12
(2) Maximum sales charge 4.50% 0.46 0.45 0.48 0.48
-------- ---------- ------- -----------
Offering Price $ 10.29 $ 10.06 $10.64 $ 10.60
-------- ---------- ------- -----------
-------- ---------- ------- -----------
</TABLE>
--------
61
<PAGE>
For the periods ended June 30,
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (000)
<TABLE>
<CAPTION>
--------------------
GOVERNMENT
INCOME FUND
--------------------
1995 1994
--------- ---------
<S> <C> <C>
OPERATIONS:
Net investment income $ 732 $ 486
Net realized gain (loss) from security
transactions (213) (34)
Net realized loss on forward foreign
currency contracts and foreign
currency translations -- --
Net unrealized appreciation (depreciation) on forward foreign currency
contracts and translation of assets and liabilities in foreign
currencies -- --
Net unrealized appreciation
(depreciation) on investments 611 (655)
--------- ---------
Net increase (decrease) in net assets
resulting from operations 1,130 (203)
--------- ---------
DIVIDENDS DISTRIBUTED FROM:
<PAGE>
Net investment income:
Series A (648) (439)
Series B (86) (47)
Net realized gains:
Series A (1) (38)
Series B -- (5)
Dividends in excess of net realized gains:
Series A -- --
Series B -- --
--------- ---------
Total dividends distributed (735) (529)
CAPITAL SHARE TRANSACTIONS:
Series A:
Proceeds from shares issued 3,952 4,302
Shares issued in lieu of cash
distributions 268 135
Cost of shares repurchased (2,353) (1,039)
--------- ---------
Increase (decrease) in net assets
from Series A transactions 1,867 3,398
--------- ---------
Series B:
Proceeds from shares issued 170 1,556
Shares issued in lieu of cash
distributions 72 38
Cost of shares repurchased (450) (159)
--------- ---------
Increase (decrease) in net assets
from Series B transactions (208) 1,435
--------- ---------
Increase (decrease) in net assets
derived from capital share
transactions 1,659 4,833
--------- ---------
Net increase (decrease) in net
assets 2,054 4,101
--------- ---------
NET ASSETS:
Beginning of period 10,625 6,524
--------- ---------
End of period $ 12,679 $ 10,625
--------- ---------
--------- ---------
CAPITAL SHARE TRANSACTIONS:
Capital shares outstanding at beginning
of period 1,116 641
--------- ---------
Series A:
Shares issued 415 425
Shares issued in lieu of cash
distributions 28 13
Shares repurchased (248) (105)
--------- ---------
<PAGE>
Total Series A transactions 195 333
--------- ---------
Series B:
Shares issued 18 154
Shares issued in lieu of cash
distributions 8 4
Shares repurchased (47) (16)
--------- ---------
Total Series B transactions (22) 142
--------- ---------
Increase (decrease) derived from capital
share transaction 173 475
--------- ---------
Capital shares outstanding at end of
period 1,289 1,116
--------- ---------
--------- ---------
</TABLE>
(1) Global Bond Fund commenced operations December 15, 1993.
- ---- (2) Pennsylvania Municipal Bond and New Jersey Municipal Bond Funds
62 commenced operations May 16, 1994.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
COREFUND FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------- -------------------- -------------
INTERMEDIATE
INTERMEDIATE MUNICIPAL GLOBAL
BOND FUND BOND FUND BOND FUND(1)
-------------------- -------------------- -------------
1995 1994 1995 1994 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 3,311 $ 2,468 $ 69 $ 102 $ 1,772
Net realized gain (loss) from security
transactions (738) (824) (57) (2,247) 1,044
Net realized loss on forward foreign
currency contracts and foreign
currency translations -- -- -- -- (1,224)
Net unrealized appreciation (depreciation) on forward foreign currency
contracts and translation of assets and liabilities in foreign
currencies -- -- -- -- 344
Net unrealized appreciation
(depreciation) on investments 1,857 (1,870) 70 (106) 503
------------- ------------- ------ ------ -------------
<PAGE>
Net increase (decrease) in net assets
resulting from operations 4,430 (226) 82 (23) 2,439
------------- ------------- ------ ------ -------------
DIVIDENDS DISTRIBUTED FROM:
Net investment income:
Series A (2,981) (2,115) (27) (68) (845)
Series B (331) (347) (42) (34) (5)
Net realized gains:
Series A (9) (172) -- -- --
Series B (2) (32) -- -- --
Dividends in excess of net realized gains:
Series A -- (301) -- -- --
Series B -- (55) -- -- --
------------- ------------- ------ ------ -------------
Total dividends distributed (3,323) (3,022) (69) (102) (850)
CAPITAL SHARE TRANSACTIONS:
Series A:
Proceeds from shares issued 17,116 22,755 -- 439 327
Shares issued in lieu of cash
distributions 2,752 2,358 10 15 564
Cost of shares repurchased (14,254) (18,757) (732) (1,317) (529)
------------- ------------- ------ ------ -------------
Increase (decrease) in net assets
from Series A transactions 5,614 6,356 (722) (863) 362
------------- ------------- ------ ------ -------------
Series B:
Proceeds from shares issued 62 4,089 76 1,474 76
Shares issued in lieu of cash
distributions 325 386 33 23 4
Cost of shares repurchased (7,763) (283) (407) (285) (87)
------------- ------------- ------ ------ -------------
Increase (decrease) in net assets
from Series B transactions (7,376) 4,192 (298) 1,212 (7)
------------- ------------- ------ ------ -------------
Increase (decrease) in net assets
derived from capital share
transactions (1,762) 10,548 (1,020) 349 355
------------- ------------- ------ ------ -------------
Net increase (decrease) in net
assets (655) 7,300 (1,007) 224 1,944
------------- ------------- ------ ------ -------------
NET ASSETS:
Beginning of period 57,744 50,444 2,399 2,175 25,124
------------- ------------- ------ ------ -------------
End of period $57,089 $57,744 $ 1,392 $ 2,399 $27,068
------------- ------------- ------ ------ -------------
------------- ------------- ------ ------ -------------
CAPITAL SHARE TRANSACTIONS:
Capital shares outstanding at beginning
of period 5,995 4,954 248 215 2,774
------------- ------------- ------ ------ -------------
Series A:
<PAGE>
Shares issued 1,777 2,262 -- 43 36
Shares issued in lieu of cash
distributions 286 235 1 2 62
Shares repurchased (1,484) (1,863) (76) (131) (58)
------------- ------------- ------ ------ -------------
Total Series A transactions 579 634 (75) (86) 40
------------- ------------- ------ ------ -------------
Series B:
Shares issued 6 403 8 146 8
Shares issued in lieu of cash
distributions 34 39 3 2 1
Shares repurchased (813) (35) (42) (29) (9)
------------- ------------- ------ ------ -------------
Total Series B transactions (773) 407 (31) 119 --
------------- ------------- ------ ------ -------------
Increase (decrease) derived from capital
share transaction (194) 1,041 (106) 33 40
------------- ------------- ------ ------ -------------
Capital shares outstanding at end of
period 5,801 5,995 142 248 2,814
------------- ------------- ------ ------ -------------
------------- ------------- ------ ------ -------------
<CAPTION>
PENNSYLVANIA NEW JERSEY
GLOBAL MUNICIPAL MUNICIPAL
BOND FUND(1) BOND FUND(2) BOND FUND(2)
-------------- ------------------------------ ------------------------------
1994 1995 1994 1995 1994
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 703 $ 115 $ 4 $ 84 $ 8
Net realized gain (loss) from security
transactions (2,247) (12) -- 4
Net realized loss on forward foreign
currency contracts and foreign
currency translations (828) -- -- -- --
Net unrealized appreciation (depreciation) on forward foreign currency
contracts and translation of assets and liabilities in foreign
currencies (438) -- -- -- --
Net unrealized appreciation
(depreciation) on investments 352 64 (4) 40 (10)
------------- ------ ----- ------ ------
Net increase (decrease) in net assets
resulting from operations (2,458) 167 -- 128 (2)
------------- ------ ----- ------ ------
DIVIDENDS DISTRIBUTED FROM:
Net investment income:
<PAGE>
Series A (110) (105) (3) (84) (8)
Series B (1) (10) (1) -- --
Net realized gains:
Series A -- -- -- -- --
Series B -- -- -- -- --
Dividends in excess of net realized gains:
Series A -- -- -- -- --
Series B -- -- -- -- --
------------- ------ ----- ------ ------
Total dividends distributed (111) (115) (4) (84) (8)
CAPITAL SHARE TRANSACTIONS:
Series A:
Proceeds from shares issued 27,751 1,718 440 520 1,445
Shares issued in lieu of cash
distributions -- 73 1 54 2
Cost of shares repurchased (241) -- (4) (499) (6)
------------- ------ ----- ------ ------
Increase (decrease) in net assets
from Series A transactions 27,510 1,791 437 75 1,441
------------- ------ ----- ------ ------
Series B:
Proceeds from shares issued 206 154 189 21 3
Shares issued in lieu of cash
distributions -- 9 -- -- --
Cost of shares repurchased (23) (14) (25) -- --
------------- ------ ----- ------ ------
Increase (decrease) in net assets
from Series B transactions 183 149 164 21 3
------------- ------ ----- ------ ------
Increase (decrease) in net assets
derived from capital share
transactions 27,693 1,940 601 96 1,444
------------- ------ ----- ------ ------
Net increase (decrease) in net
assets 25,124 1,992 597 140 1,434
------------- ------ ----- ------ ------
NET ASSETS:
Beginning of period -- 597 -- 1,434 --
------------- ------ ----- ------ ------
End of period $25,124 $ 2,589 $ 597 $ 1,574 $ 1,434
------------- ------ ----- ------ ------
------------- ------ ----- ------ ------
CAPITAL SHARE TRANSACTIONS:
Capital shares outstanding at beginning
of period -- 60 -- 144 --
------------- ------ ----- ------ ------
Series A:
Shares issued 2,781 173 44 54 145
Shares issued in lieu of cash
distributions -- 7 -- 5 --
Shares repurchased (25) -- -- (50) (1)
------------- ------ ----- ------ ------
<PAGE>
Total Series A transactions 2,756 180 44 9 144
------------- ------ ----- ------ ------
Series B:
Shares issued 21 15 19 2 --
Shares issued in lieu of cash
distributions -- 1 -- -- --
Shares repurchased (3) (1) (3) -- --
------------- ------ ----- ------ ------
Total Series B transactions 18 15 16 2 --
------------- ------ ----- ------ ------
Increase (decrease) derived from capital
share transaction 2,774 195 60 11 144
------------- ------ ----- ------ ------
Capital shares outstanding at end of
period 2,774 255 60 155 144
------------- ------ ----- ------ ------
------------- ------ ----- ------ ------
</TABLE>
--------
63
<PAGE>
For the periods ended June 30,
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS COREFUND FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Realized and
Net Unrealized
Asset Gains Dividends Distributions Net Net
Value Net or (Losses) from Net from Asset Value Assets
Beginning Investment on Investment Capital End Total End
of Period Income Securities Income Gains of Period Return of Period
--------- ---------- ------------ ---------- ------------- ----------- ------ ---------
- ------------------------
GOVERNMENT INCOME
- ------------------------
SERIES A
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 9.52 $ 0.62 $ 0.31 $(0.62) $ -- $ 9.83 10.26% $ 11,305
1994 10.18 0.50 (0.62) (0.50) (0.04) 9.52 (1.34) 9,089
1993(1) 10.00 0.13 0.18 (0.13) -- 10.18 3.12+ 6,323
SERIES B
1995 $ 9.51 $ 0.61 $ 0.33 $(0.61) $ -- $ 9.84 10.23% $ 1,374
1994 10.17 0.47 (0.62) (0.47) (0.04) 9.51 (1.57) 1,536
1993* 10.00 0.07 0.17 (0.07) -- 10.17 1.71+ 201
- ----------------------
INTERMEDIATE BOND
- ----------------------
<PAGE>
SERIES A
1995 $ 9.63 $ 0.53 $ 0.21 $(0.53) $ -- $ 9.84 8.22% $ 55,128
1994 10.18 0.43 (0.53) (0.43) (0.02) 9.63 (0.32) 48,379
1993 10.01 0.47 0.31 (0.47) (0.14) 10.18 7.90 44,692
1992(2) 10.00 0.23 0.01 (0.23) -- 10.01 2.49+ 22,623
SERIES B
1995 $ 9.63 $ 0.54 $ 0.20 $(0.53) $ -- $ 9.84 7.95% $ 1,961
1994 10.18 0.41 (0.53) (0.41) (0.02) 9.63 (0.56) 9,365
1993* 10.01 0.20 0.17 (0.20) -- 10.18 3.95+ 5,752
- ------------------------------------
INTERMEDIATE MUNICIPAL BOND
- ------------------------------------
SERIES A
1995 $ 9.68 $ 0.38 $ 0.15 $(0.38) -- $ 9.83 5.58% $ 365
1994 10.09 0.39 (0.41) (0.39) -- 9.68 (0.27) 1,088
1993(3) 10.00 0.04 0.09 (0.04) -- 10.09 1.33+ 2,009
SERIES B
1995 $ 9.67 $ 0.35 $ 0.16 $(0.35) -- $ 9.83 5.42% $ 1,027
1994 10.08 0.37 (0.41) (0.37) -- 9.67 (0.52) 1,311
1993* 10.00 0.03 0.08 (0.03) -- 10.08 1.19+ 166
- ---------------
GLOBAL BOND
- ---------------
SERIES A
1995 $ 9.06 $ 0.62 $ 0.24 $(0.30) -- $ 9.62 9.70% $ 26,898
1994(4) 10.00 0.25 (1.15) (0.04) -- 9.06 (9.00)+ 24,957
SERIES B
1995 $ 9.04 $ 0.61 $ 0.24 $(0.28) -- $ 9.61 9.57% $ 170
1994(4) 10.00 0.19 (1.11) (0.04) -- 9.04 (9.22)+ 167
- ------------------------------------
PENNSYLVANIA MUNICIPAL BOND
- ------------------------------------
SERIES A
1995 $ 9.95 $ 0.51 $ 0.21 $(0.51) -- $ 10.16 7.50% $ 2,272
1994(5) 10.00 0.06 (0.05) (0.06) -- 9.95 0.14+ 434
SERIES B
1995 $ 9.95 $ 0.49 $ 0.21 $(0.49) -- $ 10.16 7.25% $ 317
1994(5) 10.00 0.06 (0.05) (0.06) -- 9.95 0.09+ 163
- ----------------------------------
NEW JERSEY MUNICIPAL BOND
- ----------------------------------
SERIES A
1995 $ 9.94 $ 0.52 $ 0.18 $(0.52) -- $ 10.12 7.25% $ 1,550
1994(5) 10.00 0.06 (0.06) (0.06) -- 9.94 0.01+ 1,432
SERIES B
1995 $ 9.95 $ 0.49 $ 0.17 $(0.49) -- $ 10.12 6.84% $ 24
1994(5) 10.00 0.06 (0.05) (0.06) -- 9.95 0.08+ 2
<CAPTION>
Ratio Ratio of
<PAGE>
Ratio of Expenses Net Income
Ratio of Net to Average to Average
of Expenses Income Net Assets Net Assets Portfolio
to Average to Average (Excluding (Excluding Turnover
Net Assets Net Assets Waivers) Waivers) Rate
----------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
- -----------------
GOVERNMENT INCOME
- -----------------
SERIES A
1995 0.59% 6.53% 0.98% 6.14% 368%
1994 0.50 4.93 1.00 4.43 157
1993(1) 0.44 5.41 1.10 4.75 93
SERIES B
1995 0.85% 6.25% 1.24% 5.86% 368%
1994 0.75 4.68 1.25 4.18 157
1993* 0.63 5.35 1.29 4.69 93
- -----------------
INTERMEDIATE BOND
- -----------------
SERIES A
1995 0.60% 5.76% 0.84% 5.52% 405%
1994 0.58 4.30 0.86 4.02 299
1993 0.42 4.62 0.86 4.18 188
1992(2) 0.11 5.73 0.84 5.00 51
SERIES B
1995 0.85% 5.27% 1.09% 5.03% 405%
1994 0.83 4.05 1.11 3.77 299
1993* 0.75 3.78 1.19 3.34 188
- ---------------------------
INTERMEDIATE MUNICIPAL BOND
- ---------------------------
SERIES A
1995 0.82% 3.91% 1.26% 3.47% 9%
1994 0.63 3.91 1.17 3.37 43
1993(3) 0.58 2.74 1.45 1.87 10
SERIES B
1995 1.08% 3.65% 1.52% 3.21% 9%
1994 0.88 3.66 1.42 3.12 43
1993* 0.81 2.51 1.68 1.64 10
- -------------
GLOBAL BOND
- -------------
SERIES A
1995 0.64% 6.84% 1.03% 6.45% 133%
1994(4) 0.73 5.04 1.12 4.65 161
SERIES B
1995 0.89% 6.59% 1.28% 6.20% 133%
1994(4) 0.98 4.79 1.37 4.40 161
- ---------------------------
PENNSYLVANIA MUNICIPAL BOND
- ---------------------------
SERIES A
<PAGE>
1995 0.39% 5.26% 1.14% 4.51% 18%
1994(5) 0.42 5.09 1.17 4.34 3
SERIES B
1995 0.64% 4.95% 1.39% 4.20% 18%
1994(5) 0.67 4.84 1.42 4.09 3
- -------------------------
NEW JERSEY MUNICIPAL BOND
- -------------------------
SERIES A
1995 0.42% 5.21% 1.17% 4.46% 32%
1994(5) 0.43 5.07 1.35 4.15 13
SERIES B
1995 0.68% 4.97% 1.44% 4.21% 32%
1994(5) 0.68 4.82 1.60 3.90 13
</TABLE>
<TABLE>
<S> <C> <C>
Series B has been offered since January 4, 1993. Government
Income and Intermediate-Term Municipal Funds have + offered Series
B since May 3, 1993. Ratios for these periods have been annualized.
* Government Income commenced operations on April 1, 1993. Ratios
for this period have been annualized.
Intermediate Bond commenced operations on February 3, 1992. Ratios for this period have been annualized.
(1) Intermediate Municipal Bond commenced operations on May 3, 1993. Ratios for this period have been annualized.
(2) Global Bond commenced operations on December 15, 1993. Ratios for this period have been annualized.
(3) Pennsylvania Municipal Bond and New Jersey Municipal Bond Funds commenced operation on May 16, 1994. Ratios for
(4) this period have been annualized.
(5) See accompanying notes to financial statements.
</TABLE>
- ----
64
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS COREFUND MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
CASH RESERVE
[GRAPH]
% of Total Portfolio Investments
Corporate Securities 80%
Time Deposits 9%
U.S. Government Securities 8%
Cash Equivalents 3%
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Par (000) Value (000)
- ------------------------------------------------------------
<PAGE>
<S> <C> <C>
COMMERCIAL PAPER -- 78.3%
A.I. Credit
5.930%, 07/19/95 $ 5,000 $ 4,985
5.930%, 08/02/95 10,000 9,947
American Express Credit
6.010%, 07/17/95 10,000 9,973
Ameritech Capital
6.000%, 07/24/95 10,500 10,460
5.630%, 03/05/96 16,000 15,379
Arco Coal Australia
6.080%, 07/10/95 5,000 4,992
5.780%, 09/19/95 6,191 6,111
Asset Securitization
5.930%, 07/05/95 10,000 9,993
5.900%, 07/21/95 10,000 9,967
AT&T
5.970%, 07/13/95 10,000 9,980
5.970%, 07/26/95 10,000 9,959
5.880%, 08/11/95 5,000 4,967
Barclay's Bank, Canada
5.940%, 07/19/95 5,000 4,985
Caisse Des Depots En Consignations
6.000%, 07/18/95 10,000 9,972
5.890%, 08/21/95 10,000 9,917
Canadian Imperial Bank of Commerce
5.840%, 09/29/95 10,000 9,854
<CAPTION>
- ------------------------------------------------------------
Description Par (000) Value (000)
- ------------------------------------------------------------
<S> <C> <C>
Corporate Asset Funding
5.800%, 09/13/95 $10,000 $ 9,881
Dupont (E.I. De Nemours)
6.000%, 07/07/95 10,000 9,990
Ford Motor Credit
6.000%, 07/11/95 10,000 9,983
General Electric Capital
5.910%, 08/07/95 10,000 9,939
General Electric Credit
5.770%, 09/21/95 5,000 4,934
Goldman Sachs
5.700%, 09/01/95 5,000 4,951
Hewlett-Packard
5.990%, 07/18/95 10,000 9,972
5.870%, 09/28/95 10,000 9,855
J.C. Penney Funding
5.940%, 07/14/95 5,000 4,989
Metropolitan Life Funding
5.900%, 08/07/95 10,000 9,939
Minnesota Mining & Manufacturing
5.600%, 09/08/95 7,300 7,222
<PAGE>
Motorola
5.880%, 07/27/95 6,400 6,373
New Center Asset Trust
6.300%, 07/03/95 20,000 19,994
Province of Alberta
5.900%, 07/10/95 10,000 9,985
Province of British Columbia
6.040%, 08/04/95 12,900 12,826
5.860%, 09/15/95 10,000 9,876
Province of Quebec
5.900%, 08/08/95 10,000 9,938
5.890%, 08/29/95 5,000 4,952
5.880%, 08/30/95 10,000 9,902
Shell Oil
5.750%, 09/15/95 10,000 9,879
Siemens
6.430%, 07/25/95 10,000 9,957
Southwest Bell Capital
6.035%, 07/12/95 15,000 14,972
Swedish Export Credit
6.080%, 07/06/95 10,000 9,992
5.870%, 08/08/95 10,000 9,938
Teco Finance
5.930%, 07/13/95 3,500 3,493
5.930%, 07/14/95 3,500 3,493
Toyota Motor Credit
5.880%, 07/28/95 10,000 9,956
Unilever Capital
6.090%, 10/11/95 15,000 14,741
US West Capital Funding
5.990%, 07/07/95 10,000 9,990
-----------
TOTAL COMMERCIAL PAPER
(Cost $413,353,037) 413,353
-----------
</TABLE>
See accompanying notes to financial statements --------
65
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- -----------------------------------------------------------
CASH RESERVE (continued)
<TABLE>
<CAPTION>
<PAGE>
- ------------------------------------------------------------
Description Par (000) Value (000)
- ------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 8.1%
FNMA
5.700%, 09/22/95 $13,500 $ 13,323
5.420%, 12/04/95 10,000 9,765
5.520%, 12/05/95 10,000 9,759
5.610%, 02/16/96 (A) 10,000 10,000
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $42,846,988) 42,847
-----------
CORPORATE OBLIGATION -- 1.9%
American Express Centurion Bank
6.000%, 06/07/96 (A) 10,000 10,000
-----------
TOTAL CORPORATE OBLIGATION
(Cost $10,000,000) 10,000
-----------
TIME DEPOSITS -- 9.5%
Banque Paribas
6.250%, 07/03/95 25,000 25,000
Sumitomo Bank
6.375%, 07/03/95 25,000 25,000
-----------
TOTAL TIME DEPOSITS
(Cost $50,000,000) 50,000
-----------
MASTER NOTES -- 0.8%
Associates Corporation of North
America
5.867%, (A) 4,328 4,328
Student Loan Marketing
Association
5.660%, (A) 39 39
-----------
TOTAL MASTER NOTES
(Cost $4,366,969) 4,367
-----------
REPURCHASE AGREEMENT -- 1.9%
First National Bank of Chicago 6.18%, dated 06/30/95, matures 07/03/95,
repurchase price $10,005,150 (collateralized by
<PAGE>
U.S. Treasury Bill, par value
$10,345,000, 7.00%, matures
09/28/95: market value
$10,218,791) 10,000 10,000
-----------
TOTAL REPURCHASE AGREEMENT
(Cost $10,000,000) 10,000
-----------
<CAPTION>
- ------------------------------------------------------------
Description Value (000)
- ------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS -- 100.5%
(Cost $530,566,994) $ 530,567
-----------
TOTAL OTHER ASSETS AND LIABILITIES, NET --
(0.5%) (2,643)
-----------
NET ASSETS:
Portfolio Shares -- Series A ($0.001 par value -- 1 billion authorized) based
on 510,344,357
outstanding shares 510,344
Portfolio Shares -- Series B ($0.001 par value -- 1 billion authorized) based
on 17,583,902
outstanding shares 17,584
Accumulated Net Realized Loss on
Investments (4)
-----------
TOTAL NET ASSETS -- 100.0% $ 527,924
-----------
-----------
NET ASSET VALUE & REDEMPTION
PRICE PER SHARE
SERIES A $1.00
-----------
-----------
SERIES B $1.00
-----------
-----------
</TABLE>
(A) Variable Rate Securities--The rate reflected on the Statement of
Net Assets is the rate in effect on June 30, 1995.
FNMA -- Federal National Mortgage Association
See accompanying notes to financial statements.
- ----
66
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COREFUND MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
- -----------------------------------------------------------
TREASURY RESERVE
- -----------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Description Par (000) Value (000)
- ------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 40.5%
U.S. Treasury Bills
5.840%, 07/13/95 $ 10,000 $ 9,981
5.800%, 07/27/95 10,000 9,958
5.800%, 07/27/95 10,000 9,958
6.105%, 08/10/95 10,000 9,932
5.840%, 08/17/95 10,000 9,924
5.350%, 08/24/95 5,000 4,960
5.350%, 08/24/95 5,000 4,960
5.790%, 08/31/95 10,000 9,902
5.520%, 09/07/95 5,000 4,948
5.480%, 09/14/95 5,000 4,943
5.485%, 09/21/95 5,000 4,938
5.550%, 10/05/95 5,000 4,926
5.630%, 10/05/95 6,000 5,910
5.750%, 10/12/95 10,000 9,835
5.460%, 10/19/95 5,000 4,917
5.410%, 10/26/95 5,000 4,912
5.340%, 11/02/95 5,000 4,908
5.635%, 11/02/95 6,000 5,884
5.660%, 11/09/95 5,000 4,897
5.715%, 11/16/95 5,000 4,890
6.620%, 11/16/95 3,000 2,924
5.365%, 11/24/95 5,000 4,891
5.405%, 12/07/95 5,000 4,881
5.415%, 12/21/95 5,000 4,870
5.475%, 04/04/96 5,000 4,789
5.475%, 05/02/96 5,000 4,767
U.S. TREASURY NOTES
4.250%, 11/30/95 20,000 19,863
5.500%, 04/30/96 5,000 4,978
U.S. TREASURY STRIPS
5.651%, 11/15/95 10,000 9,794
6.195%, 05/15/96 6,000 5,691
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $202,930,759) 202,931
-----------
<CAPTION>
<PAGE>
- ------------------------------------------------------------
Description Par (000) Value (000)
- ------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS -- 60.0%
First National Bank of Chicago 6.10%, dated 06/30/95, matures 07/03/95,
repurchase price $10,005,083 (collateralized by various U.S. Treasury Notes,
total par value $10,230,000, 4.75% - 6.00%, 12/31/97 - 09/30/98: total
market value
$10,238,927) $ 10,000 $ 10,000
First National Bank of Chicago 6.18%, dated 06/30/95, matures 07/03/95,
repurchase price $2,465,269 (collateralized by U.S. Treasury Bill, par value
$2,545,000, 7.00%, matures 09/28/95: market value
$2,513,951) 2,464 2,464
Goldman Sachs 6.05%, dated
06/30/95, matures 07/03/95,
repurchase price $10,005,042
(collateralized by U.S. Treasury
Note, par value $10,430,000,
4.75%, matures 08/31/98: market
value $10,399,203) 10,000 10,000
HSBC Securities 5.90%, dated
06/30/95, matures 07/03/95,
repurchase price $18,008,850
(collateralized by U.S. Treasury
Note, par value $17,690,000,
7.375%, matures 11/15/97: market
value $18,573,063) 18,000 18,000
Morgan Stanley 6.02%, dated
06/30/95, matures 07/03/95,
repurchase price 18,009,030
(collateralized by U.S. Treasury
Note, par value $16,685,000,
8.00%, matures 08/15/99: market
value $18,864,633) 18,000 18,000
Republic New York City 6.07%,
dated 06/30/95, matures
07/03/95, repurchase price
$112,056,653 (collateralized by
various U.S. Treasury Notes,
total par value $110,945,000,
5.375% - 7.125%, 5/31/98 -
09/30/99: total market value
$115,659,109) 112,000 112,000
Sanwa Bank 6.15%, dated 06/30/95,
matures 07/03/95, repurchase
<PAGE>
price $120,006,150
(collateralized by various U.S.
Treasury Notes, total par value
$118,280,000, 4.75% - 8.875%,
10/31/98 - 02/29/00: total
market value $123,889,995) 120,000 120,000
</TABLE>
STRIPS -- Separately Traded Registered Interest and Principal Securities See
accompanying notes to financial statements
--------
67
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- -----------------------------------------------------------
TREASURY RESERVE (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
Swiss Bank 6.12%, dated 06/30/95,
matures 07/03/95, repurchase
price $10,005,100
(collateralized by various U.S.
Treasury Notes, total value
$9,940,000, 7.875% - 8.50%,
08/15/95 - 06/30/96: total
market value $10,354,069) $10,000 $ 10,000
-----------
TOTAL REPURCHASE AGREEMENTS
(Cost $300,464,000) 300,464
-----------
TOTAL INVESTMENTS -- 100.5%
(Cost $503,394,759) 503,395
-----------
TOTAL OTHER ASSETS AND LIABILITIES,
NET (0.5%) (2,577)
-----------
NET ASSETS:
Portfolio Shares -- Series A ($0.001 par value -- 1 billion authorized) based
on 479,203,905
outstanding shares 479,204
Portfolio Shares -- Series B
($0.001 par value -- 1 billion
<PAGE>
authorized) based on 21,611,365
outstanding shares 21,611
Accumulated Net Realized Gain on
Investments 3
-----------
TOTAL NET ASSETS: -- 100.0% $ 500,818
-----------
-----------
<CAPTION>
NET ASSET VALUE & REDEMPTION PRICE PER SHARE
SERIES A $1.00
-----------
-----------
SERIES B $1.00
-----------
-----------
</TABLE>
- ----------------------------------------------------------
TAX-FREE RESERVE
[GRAPH]
% of Total Portfolio Investments
Revenue Bonds 54%
Tax-Exempt Commercial Paper 39%
General Obligations 6%
Pre-Refunded Securities 1%
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS -- 97.3%
ALABAMA -- 10.9%
Alabama Housing TECP
3.600%, 09/22/95(C) $ 500 $ 500
Alabama State Housing
Finance Authority Revenue Bond
for Heatherboro Project
4.250%, 07/07/95(A)(B)(C) 900 900
Mobile, Alabama Industrial
Development Authority Revenue
Bond for Scott Paper Project,
Ser A
4.050%, 07/07/95(A)(B)(C) 2,000 2,000
Montgomery, Alabama TECP
4.100%, 07/31/95(C) 380 380
3.250%, 09/21/95(C) 2,000 2,000
Winfield, Alabama Industrial
Development Authority Revenue
<PAGE>
Bond for Union Underwear
Project
4.250%, 07/07/95(A)(B)(C) 1,200 1,200
-----------
6,980
-----------
CALIFORNIA -- 0.6%
Santa Clara, California
Electric Revenue Bond,
Ser A
4.050%, 07/07/95(A)(B)(C) 400 400
-----------
</TABLE>
- ----- STRIPS--Separate Trading of Registered Interest and Principal
68 of Securities.
See accompanying notes to financial statements
<PAGE>
- --------------------------------------------------------------------------------
COREFUND MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
DELAWARE -- 0.2%
Wilmington, Delaware
Hospital Revenue Bond
for Franciscan Health
Systems Project, Ser B
4.350%, 07/03/95(A)(B)(C) $ 100 $ 100
-----------
FLORIDA -- 4.8%
Dade County, Florida Fixed
Capital Asset Acquisition
Revenue Bond 11/01/90
4.300%, 07/07/95(A)(B)(C) 1,500 1,500
Sunshine State TECP
4.250%, 08/15/95(C) 1,600 1,600
-----------
3,100
-----------
HAWAII -- 1.2%
Hawaii State GO, Ser CD
3.850%, 02/01/96 750 750
-----------
ILLINOIS -- 1.1%
<PAGE>
Illinois State Health
Facilities Authority Revenue
Bond for Franciscan
Village Project, Ser A
4.300%, 07/07/95(A)(B)(C) 700 700
-----------
INDIANA -- 8.9%
Gary, Indiana Environmental
Improvement Revenue Bond for
U.S. Steel Project
3.600%, 07/07/95(A)(B)(C) 1,600 1,600
Jasper, Indiana TECP
4.150%, 08/10/95(C) 1,000 1,000
3.600%, 09/25/95(C) 1,590 1,590
Sullivan, Indiana TECP
3.650%, 07/13/95(C) 455 455
3.600%, 08/21/95(C) 500 500
3.650%, 10/02/95(C) 600 600
-----------
5,745
-----------
IOWA -- 3.3%
Des Moines, Iowa Commercial
Development Revenue for
Capitol Center III Project
4.250%, 07/07/95(A)(B)(C) 400 400
West Des Moines, Iowa
Commercial Development
Revenue Bond for Greyhound
Lines Project
4.150%, 07/07/95(A)(B)(C) 1,700 1,700
-----------
2,100
-----------
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
KANSAS -- 5.8%
City of Burlington, Kansas TECP
3.650%, 07/13/95(C) $ 1,000 $ 1,000
3.850%, 08/03/95(C) 1,000 1,000
3.850%, 09/01/95(C) 1,000 1,000
3.650%, 10/02/95(C) 400 400
Kansas City, Kansas
Industrial Revenue Bond
for PQ Project
4.350%, 07/03/95(A)(B)(C) 200 200
Wichita, Kansas Revenue Bond
for Wichita Health Systems
<PAGE>
Project, Ser XXV
4.250%, 07/07/95(A)(B)(C) 100 100
-----------
3,700
-----------
LOUISIANA -- 3.0%
East Baton Rouge,
Louisiana Pollution Control
Revenue Bond
4.250%, 07/03/95(A)(B)(C) 450 450
Jefferson Parish, Louisiana
Industrial Development Board
Revenue Bond for
George J. Ackel, Sr. Project
4.300%, 07/07/95(A)(B)(C) 800 800
Parish of Desota, Louisiana
Pollution Control Revenue
Bond for Central Louisiana
Electric Project, Ser A
3.950%, 07/07/95(A)(B)(C) 700 700
-----------
1,950
-----------
MICHIGAN -- 2.3%
Delta County, Michigan
Environmental Improvement
Revenue Bond for
Escanaba Paper Project,
Ser C
4.250%, 07/03/95(A)(B)(C) 1,500 1,500
-----------
MINNESOTA -- 2.6%
Golden Valley, Minnesota
Industrial Development
Authority Revenue Bond
for Unicare Homes Project
4.150%, 07/07/95(A)(B)(C) 1,300 1,300
Saint Louis Park, Minnesota
Industrial Development
Authority Revenue Bond for
Unicare Homes Project
4.000%, 07/03/95(A)(B)(C) 400 400
-----------
1,700
-----------
</TABLE>
See accompanying notes to financial statements --------
69
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- -------------------------------------------------------------
TAX-FREE RESERVE (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
MISSOURI -- 7.7%
Independence, Missouri TECP
3.300%, 07/12/95(C) $ 2,100 $ 2,100
Missouri State Environmental
Improvement and Energy
Resources Authority Revenue
Bond for Union Electric
Project, Ser B
4.000%, 07/03/95(A)(B)(C) 750 750
Missouri State Environmental
Improvement Authority
TECP
4.250%, 08/09/95(C) 600 600
3.850%, 11/21/95(C) 1,500 1,500
-----------
4,950
-----------
MONTANA -- 3.9%
Forsyth, Montana Pollution
Control Revenue Bond
for Portland General
Electric Project
4.050%, 07/07/95(A)(B)(C) 200 200
Forsyth, Montana Pollution
Control Revenue Bond for
Portland General Electric
Project, Ser A
4.050%, 07/07/95(A)(B)(C) 600 600
Forsyth, Montana Pollution
Control Revenue Bond for
Portland General Electric
Project, Ser B
4.050%, 07/07/95(A)(B)(C) 100 100
Forsyth, Montana Pollution
Control Revenue Bond for
Portland General Electric
Project, Ser C
4.050%, 07/07/95(A)(B)(C) 1,000 1,000
Forsyth, Montana Pollution
Control Revenue Bond for
Portland General Electric
Project, Ser D
<PAGE>
4.050%, 07/07/95(A)(B)(C) 600 600
-----------
2,500
-----------
NEVADA -- 0.8%
Nevada State Housing Division
Revenue Bond for Multi-Unit
Park Vista Project, Ser A
4.200%, 07/07/95(A)(B)(C) 500 500
-----------
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
NORTH CAROLINA -- 0.6%
Wake County, North Carolina
Pollution Control Finance
Authority Revenue Bond for
Carolina Power & Light Project,
Ser A
4.000%, 07/07/95(A)(B)(C) $ 400 $ 400
-----------
OREGON -- 0.9%
Oregon State GO, Ser 73-G
4.150%, 07/07/95(A)(B)(C) 500 500
Umatilla County, Oregon
Hospital Facilities Authority
Revenue Bond for Franciscan
Health Project, Ser B
4.350%, 07/03/95(A)(B)(C) 100 100
-----------
600
-----------
PENNSYLVANIA -- 8.1%
Beaver County Industrial
Development Authority,
Pennsylvania, TECP
4.500%, 10/10/95(C) 2,000 2,000
Beaver County, Pennsylvania
Industrial Development
Authority Revenue Bond for
Duquesne-Mansfield Project,
Ser B
4.150%, 07/07/95(A)(B)(C) 100 100
Langhorne, Pennsylvania
Saint Mary's Hospital
Authority Revenue Bond
for Franciscan Health
Systems, Ser B
4.250%, 07/03/95(A)(B)(C) 550 550
Lehigh County, Pennsylvania
Industrial Development
<PAGE>
Authority Revenue Bond
for Allegheny Electric Project
4.000%, 07/03/95(A)(B)(C) 300 300
Washington County, Pennsylvania
Authority Lease Revenue
Bond for Higher Education
Pooled Equipment Lease
4.250%, 07/07/95(A)(B)(C) 2,255 2,255
-----------
5,205
-----------
</TABLE>
- -----
70 See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
COREFUND MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
RHODE ISLAND -- 1.6%
Rhode Island State Port
Authority & Economic
Development Facilities
Revenue Bond for
Newport Electric Project
4.150%, 07/07/95(A)(B)(C) $ 1,000 $ 1,000
-----------
SOUTH CAROLINA -- 2.2%
Piedmont, South Carolina
Municipal Power Agency
Revenue Bond, Prerefunded
01/01/96 @ 103
9.700%, 01/01/24 500 529
Richland County, South
Carolina Hospital Facilities
Revenue Bond for
Sunhealth-Orangeburg
Project, Ser C-2
4.450%, 07/07/95(A)(B)(C) 450 450
York County, South Carolina
Pollution Control Revenue
Bond for Electric Project,
Ser NRU-84N-2
4.300%, 07/07/95(A)(B)(C) 450 450
<PAGE>
-----------
1,429
-----------
SOUTH DAKOTA -- 1.2%
Rapid City, South Dakota
Industrial Development
Authority Revenue Bond
for Corporate Property
Association Project
4.050%, 07/07/95(A)(B)(C) 765 765
-----------
TENNESSEE -- 0.5%
Sullivan County, Tennessee
Industrial Development
Authority Revenue Bond
for Mead Project
4.350%, 07/03/95(A)(B)(C) 300 300
-----------
TEXAS -- 9.4%
Austin, Texas TECP
3.400%, 09/14/95(C) 1,400 1,400
Camp County, Texas Industrial
Development Authority
Revenue Bond for Texas
Oil & Gas Project
4.450%, 07/07/95(A)(B)(C) 500 500
Dallas/Fort Worth, Texas TECP
3.700%, 09/08/95(C) 1,900 1,900
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
TEXAS (continued)
Harris County, Texas
Industrial Development
Authority Revenue Bond
4.250%, 07/03/95(A)(B)(C) $ 400 $ 400
4.250%, 07/03/95(A)(B)(C) 100 100
Montgomery County, Texas
Industrial Development
Revenue Bond for Dallas Tile
Project, Ser A
4.300%, 07/07/95(A)(B)(C) 100 100
Nueces County, Texas
Health Facilities Development
Revenue Bond for Driscoll
Children's Foundation Project
4.300%, 07/07/95(A)(B)(C) 1,675 1,675
-----------
<PAGE>
6,075
-----------
VERMONT -- 2.2%
Vermont State Student Loan
Revenue Bond
4.000%, 07/03/95(A)(B)(C) 1,400 1,400
-----------
WASHINGTON -- 7.8%
Seattle Light & Power TECP
3.250%, 09/07/95(C) 1,000 1,000
4.200%, 09/11/95(C) 2,000 2,000
Seattle Washington Municipality
Sewer Revenue Bond
3.500%, 07/01/95 2,000 2,000
-----------
5,000
-----------
WASHINGTON, D.C. -- 1.3%
District of Columbia
Revenue Bond for American
University Issue, Ser A
4.300%, 07/07/95(A)(B)(C) 805 805
-----------
WEST VIRGINIA -- 0.6%
West Virginia State Hospital
Finance Authority Revenue
Bond for Saint Mary's
Hospital Project
4.300%, 07/07/95(A)(B)(C) 400 400
-----------
</TABLE>
See accompanying notes to financial statements --------
71
<PAGE>
<PAGE>
As of June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------
<S> <C> <C>
WISCONSIN -- 1.2%
Lac Du Flambeau, Wisconsin,
Lake Superior Chippewa
Indian's Special Obligation
Bond for Simpson
Electric Project
4.100%, 07/07/95(A)(B)(C) $ 800 $ 800
-----------
WYOMING -- 2.6%
Platte County, Wyoming
Pollution Control Revenue
Bond, Ser B
4.350%, 07/03/95(A)(B)(C) 1,300 1,300
Sublette County, Wyoming
Pollution Control Revenue
Bond for Exxon Project
4.200%, 07/03/95(A)(B)(C) 400 400
-----------
1,700
-----------
TOTAL MUNICIPAL BONDS
(Cost $62,554,221) 62,554
-----------
TOTAL INVESTMENTS -- 97.3%
(Cost $62,554,221) 62,554
-----------
TOTAL OTHER ASSETS AND LIABILITIES,
NET -- 2.7% 1,726
-----------
NET ASSETS:
Portfolio Shares -- Series A ($0.001 par value -- 250 million authorized) based
on 62,803,924 outstanding
shares 62,804
Portfolio Shares -- Series B ($0.001
par value -- 250 million authorized)
based on 1,525,087 outstanding
<PAGE>
shares 1,525
Accumulated Net Realized Loss on
Investments (49)
-----------
TOTAL NET ASSETS -- 100.0% $ 64,280
-----------
-----------
NET ASSET VALUE & REDEMPTION PRICE
PER SHARE
SERIES A $1.00
-----------
-----------
SERIES B $1.00
-----------
-----------
</TABLE>
GO -- General Obligation
TECP -- Tax Exempt Commercial Paper
(A) Variable rate securities -- the rate reflected on the Statement of
Net Assets is the rate in effect on June 30, 1995.
(B) Put or Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the lesser
of the put demand date or maturity date.
(C) Securities are held in connection with a letter of credit issued by
a major commercial bank.
- -----
72 See accompanying notes to financial statements.
<PAGE>
For the year ended June 30, 1995
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (000) COREFUND MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------- -------- -------
TAX-
CASH TREASURY FREE
RESERVE RESERVE RESERVE
------- -------- -------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $30,019 $25,449 $2,802
------- -------- -------
EXPENSES:
Investment Advisory fees 2,719 2,362 392
<PAGE>
Less Investment Advisory fees waived (1,522) (1,322) (220)
Administrative fees 1,359 1,181 196
Less Administrative fees waived (489) (425) (71)
Transfer Agent fees 176 153 26
Insurance 16 14 3
Professional fees 91 79 13
Registration & Filing fees 70 56 12
12b-1 fees 38 27 5
Taxes--other than income 79 65 11
Printing 66 58 10
Miscellaneous 47 41 7
------- -------- -------
Total expenses 2,650 2,289 384
------- -------- -------
Net investment income 27,369 23,160 2,418
Net realized gain (loss) on securities
transactions (30) 4 (27)
------- -------- -------
Net increase in net assets resulting
from operations $27,339 $23,164 $2,391
------- -------- -------
------- -------- -------
</TABLE>
See accompanying notes to financial statements. --------
73
<PAGE>
For the period ended June 30,
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (000) COREFUND MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------- --------------------- ------------------
CASH TREASURY TAX-FREE
RESERVE RESERVE RESERVE
--------------------- --------------------- ------------------
1995 1994 1995 1994 1995 1994
---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 27,369 $ 15,827 $ 23,160 $ 13,910 $ 2,418 $ 1,794
Net realized gain (loss) on securities
transactions (30) 9 4 2 (27) (22)
---------- ---------- ---------- ---------- --------- ---------
Net increase in net assets resulting from
operations 27,339 15,836 23,164 13,912 2,391 1,772
---------- ---------- ---------- ---------- --------- ---------
DIVIDENDS DISTRIBUTED FROM:
Net investment income:
Series A (26,626) (15,507) (22,642) (13,703) (2,359) (1,757)
<PAGE>
Series B (743) (320) (518) (207) (59) (37)
Net realized gain:
Series A -- -- -- -- -- --
Series B -- -- -- -- -- --
---------- ---------- ---------- ---------- --------- ---------
Total dividends distributed (27,369) (15,827) (23,160) (13,910) (2,418) (1,794)
CAPITAL SHARE TRANSACTIONS:
Series A:
Proceeds from shares issued 1,153,765 1,182,462 1,884,529 1,580,054 196,955 233,149
Shares issued in lieu of cash distributions 3,226 1,911 5,268 3,520 228 243
Cost of shares repurchased (1,151,894) (1,139,941) (1,895,568) (1,545,390) (213,785) (226,241)
---------- ---------- ---------- ---------- --------- ---------
Increase (decrease) in net assets from Series
A transactions 5,097 44,432 (5,771) 38,184 (16,602) 7,151
Series B:
Proceeds from shares issued 42,775 45,016 31,754 16,771 3,788 7,641
Shares issued in lieu of cash distributions 690 289 257 192 55 35
Cost of shares repurchased (37,332) (49,184) (17,973) (17,062) (5,026) (6,763)
---------- ---------- ---------- ---------- --------- ---------
Increase (decrease) in net assets from Series
B transactions 6,133 (3,879) 14,038 (99) (1,183) 913
---------- ---------- ---------- ---------- --------- ---------
Increase (decrease) in net assets derived from
capital share transactions 11,230 40,553 8,267 38,085 (17,785) 8,064
---------- ---------- ---------- ---------- --------- ---------
Net increase (decrease) in net assets 11,200 40,562 8,271 38,087 (17,812) 8,042
---------- ---------- ---------- ---------- --------- ---------
NET ASSETS:
Beginning of year 516,724 476,162 492,547 454,460 82,092 74,050
---------- ---------- ---------- ---------- --------- ---------
End of year $ 527,924 $ 516,724 $ 500,818 $ 492,547 $ 64,280 $ 82,092
---------- ---------- ---------- ---------- --------- ---------
---------- ---------- ---------- ---------- --------- ---------
CAPITAL SHARE TRANSACTIONS
Capital shares outstanding at beginning of period 516,698 476,145 492,548 454,463 82,113 74,049
Series A:
Shares issued 1,153,765 1,182,462 1,884,530 1,580,054 196,955 233,149
Shares issued in lieu of cash distributions 3,226 1,911 5,268 3,520 228 243
Shares repurchased (1,151,894) (1,139,941) (1,895,567) (1,545,390) (213,785) (226,241)
---------- ---------- ---------- ---------- --------- ---------
Total Series A transactions 5,097 44,432 (5,771) 38,184 (16,602) 7,151
Series B:
Shares issued 42,775 45,016 31,754 16,771 3,788 7,641
Shares issued in lieu of cash distributions 690 289 257 192 55 35
Shares repurchased (37,332) (49,184) (17,973) (17,062) (5,026) (6,763)
---------- ---------- ---------- ---------- --------- ---------
Total Series B transactions 6,133 (3,879) 14,038 (99) (1,183) 913
---------- ---------- ---------- ---------- --------- ---------
Increase (decrease) derived from capital share
transactions 11,230 40,553 8,267 38,085 (17,785) 8,064
---------- ---------- ---------- ---------- --------- ---------
Capital shares outstanding at end of period 527,928 516,698 500,815 492,548 64,328 82,113
---------- ---------- ---------- ---------- --------- ---------
---------- ---------- ---------- ---------- --------- ---------
<PAGE>
</TABLE>
- -----
74 See accompanying notes to financial statements.
<PAGE>
For the period ended June 30,
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS COREFUND MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Net Ratio
Asset Dividends Net Assets Ratio of Net
Value Net from Net Asset Value End of Expenses Income
- ---------------- Beginning Investment Investment End Total of Period to Average to Average
CASH RESERVE of Period Income Income of Period Return (000) Net Assets Net Assets
- ---------------- --------- ---------- ---------- ----------- ------ --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SERIES A
1995 $1.00 $ 0.05 $(0.05) $1.00 5.15% $ 510,341 0.48% 5.04%
1994 1.00 0.03 (0.03) 1.00 3.00 505,273 0.47 2.95
1993 1.00 0.03 (0.03) 1.00 2.99 460,832 0.46 2.97
1992 1.00 0.05 (0.05) 1.00 4.83 568,672 0.38 4.68
1991 1.00 0.07 (0.07) 1.00 7.28 473,187 0.37 6.94
1990 1.00 0.08 (0.08) 1.00 8.65 316,290 0.34 8.28
1989 1.00 0.09 (0.09) 1.00 8.87 186,151 0.37 8.62
1988 1.00 0.07 (0.07) 1.00 6.70 82,399 0.55 6.54
1987 1.00 0.06 (0.06) 1.00 5.85 35,054 0.54 5.60
1986(1) 1.00 0.06 (0.06) 1.00 3.36+ 56,416 0.59 6.93
SERIES B
1995 $1.00 $ 0.05 $(0.05) $1.00 4.89% $ 17,583 0.73% 4.86%
1994 1.00 0.03 (0.03) 1.00 2.74%+ 11,451 0.72 2.70
1993* 1.00 0.01 (0.01) 1.00 1.23+ 15,330 0.76 2.52
- --------------------
TREASURY RESERVE
- --------------------
SERIES A
1995 $1.00 $ 0.05 $(0.05) $1.00 4.98% $ 479,206 0.48% 4.91%
1994 1.00 0.03 (0.03) 1.00 2.91 484,974 0.48 2.87
1993 1.00 0.03 (0.03) 1.00 2.96 446,788 0.46 2.89
1992 1.00 0.05 (0.05) 1.00 4.73 444,388 0.38 4.58
1991 1.00 0.07 (0.07) 1.00 7.11 427,439 0.37 6.80
1990 1.00 0.08 (0.08) 1.00 8.38 270,524 0.37 8.03
1989(2) 1.00 0.06 (0.06) 1.00 4.66+ 220,479 0.20 9.26
SERIES B
1995 $1.00 $ 0.05 $(0.05) $1.00 4.72% $ 21,612 0.73% 4.81%
1994 1.00 0.03 (0.03) 1.00 2.65 7,573 0.73 2.62
<PAGE>
1993* 1.00 0.01 (0.01) 1.00 1.21+ 7,672 0.75 2.46
- --------------------
TAX-FREE RESERVE
- --------------------
SERIES A
1995 $1.00 $ 0.03 $(0.03) $1.00 3.12% $ 62,756 0.48% 3.09%
1994 1.00 0.02 (0.02) 1.00 2.03 79,384 0.49 2.00
1993 1.00 0.02 (0.02) 1.00 2.23 72,255 0.51 2.20
1992 1.00 0.03 (0.03) 1.00 3.56 80,147 0.37 3.39
1991(3) 1.00 0.01 (0.01) 1.00 1.07+ 42,573 0.06 4.20
SERIES B
1995 $1.00 $ 0.03 $(0.03) $1.00 2.86% $ 1,524 0.73% 2.80%
1994 1.00 0.02 (0.02) 1.00 1.78 2,708 0.74 1.75
1993* 1.00 0.01 (0.01) 1.00 0.85+ 1,795 0.76 1.71
<CAPTION>
Ratio Ratio of
of Expenses Net Income
to Average to Average
Net Assets Net Assets
- ---------------- (Excluding (Excluding
CASH RESERVE Waivers) Waivers)
- ---------------- ----------- ----------
<S> <C> <C>
SERIES A
1995 0.85% 4.67%
1994 0.85 2.57
1993 0.85 2.58
1992 0.82 4.24
1991 0.82 6.49
1990 0.80 7.82
1989 0.90 8.05
1988 1.14 5.96
1987 1.01 5.13
1986(1) 1.21 6.31
SERIES B
1995 1.10% 4.49%
1994 1.10 2.32
1993* 1.15 2.13
- --------------------
TREASURY RESERVE
- --------------------
SERIES A
1995 0.85% 4.54%
1994 0.86 2.49
1993 0.85 2.50
1992 0.82 4.14
1991 0.82 6.35
1990 0.84 7.56
1989(2) 0.84 8.62
SERIES B
1995 1.10% 4.44%
1994 1.11 2.24
<PAGE>
1993* 1.14 2.07
- --------------------
TAX-FREE RESERVE
- --------------------
SERIES A
1995 0.85% 2.72%
1994 0.87 1.62
1993 0.89 1.82
1992 0.88 2.88
1991(3) 0.81 3.45
SERIES B
1995 1.10% 2.43%
1994 1.12 1.37
1993* 1.14 1.33
</TABLE>
+ Returns are for the period indicated and have not been annualized.
* Series B has been offered since January 4, 1993. Ratios for this period have
been annualized.
(1) Cash Reserve commenced operations on August 16, 1985. Ratios for this period
have been annualized.
(2) Treasury Reserve commenced operations on November 21, 1988. Ratios for this
period have been annualized.
(3) Tax-Free Reserve commenced operations on April 16, 1991. Ratios for this
period have been annualized.
See accompanying notes to financial statements. --------
75
<PAGE>
<PAGE>
June 30, 1995
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION
The CoreFund Growth Equity Fund, Value Equity Fund, Equity Index Fund,
International Growth Fund, Balanced Fund (the Equity Funds), Government Income
Fund, Intermediate Bond Fund, Intermediate Municipal Bond Fund, Global Bond
Fund, Pennsylvania Municipal Bond Fund, New Jersey Municipal Bond Fund (the
Fixed Income Funds), Cash Reserve, Treasury Reserve, and Tax-Free Reserve (the
Money Market Funds) are portfolios offered by CoreFunds, Inc. (The Company), an
open-end investment company registered under the Investment Company Act of 1940,
as amended. The Company is presently authorized to offer 17 separate portfolios
(the Portfolios):
EQUITY PORTFOLIOS: MONEY MARKET PORTFOLIOS:
Growth Equity Fund Cash Reserve
Value Equity Fund Treasury Reserve
Equity Index Fund Tax-Free Reserve
International Growth Fund Fiduciary Reserve
Balanced Fund Fiduciary Treasury Reserve
Fiduciary Tax-Free Reserve
FIXED INCOME PORTFOLIOS:
Government Income Fund
Intermediate Bond Fund
Intermediate Municipal Bond Fund
Global Bond Fund
Pennsylvania Municipal Bond Fund
New Jersey Municipal Bond Fund
The financial statements of the Equity Funds are included on pages 25 to
48, the financial statements of the Fixed Income Funds are included on pages 49
to 64 and the financial statements of the Money Market Funds are included on
pages 65 to 75. The financial statements of the Fiduciary Reserve, Fiduciary
Treasury Reserve and Fiduciary Tax-Free Reserve are not presented herein. The
assets of each Portfolio are segregated, and a Shareholder's interest is limited
to the Portfolio in which shares are held.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Portfolios.
Security Valuation--Investment securities of the Equity and Fixed Income
Funds which are listed on a securities exchange for which market quotations are
available are valued by an independent pricing service at the last quoted sales
price for such securities on each business day. If there is no such reported
sale, these securities and unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
<PAGE>
Investment securities of the Money Market Funds are stated at amortized
cost which approximates market value. Under this valuation method, purchase
discounts and premiums are accreted and amortized ratably to maturity and are
included in interest income.
The books and records of the International Growth Fund and Global Bond Fund
are maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars on the following basis:
(I) market value of investment securities, assets and liabilities at the
current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates of
such transactions.
- -----
76
<PAGE>
- --------------------------------------------------------------------------------
COREFUND
- --------------------------------------------------------------------------------
The International Growth Fund does not isolate that portion of gains and
losses in investments in equity securities which is due to changes in the
foreign exchange rates from that which is due to changes in market prices of
equity securities.
The International Growth Fund and Global Bond Fund report certain foreign
currency related transactions as components of realized gains for financial
reporting purposes, whereas such components are treated as ordinary income for
Federal income tax purposes.
Forward Foreign Currency Contracts--The International Growth Fund and
Global Bond Fund enter into foreign currency contracts as hedges against either
specific transactions or portfolio positions. The aggregate principal amounts of
the contracts are not recorded as the funds intend to settle the contracts prior
to delivery. All commitments are 'marked-to-market' daily at the applicable
foreign exchange rate and any resulting unrealized gains or losses are recorded
currently. The funds realize gains or losses at the time forward contracts are
extinguished.
Security Transactions and Investment Income--Security transactions are
accounted for on the trade date of the security purchase or sale. Cost used in
determining net realized capital gains and losses on the sale of securities are
those of the specific securities sold, adjusted for the accretion and
amortization of purchase discounts or premiums during the respective holding
period which is calculated using the effective interest method. Interest income
is recorded on the accrual basis. Dividend income is recorded on ex-date.
Repurchase Agreements--Securities pledged as collateral for Repurchase
Agreements are held by each Portfolio's custodian bank until maturity of the
Repurchase Agreements. Provisions of the Agreements and procedures adopted by
<PAGE>
the Adviser ensure that the market value of the collateral, including accrued
interest thereon, is sufficient in the event of default by the counterparty. If
the counterparty defaults and the value of the collateral declines or if the
counterparty enters into insolvency proceedings, realization of collateral by
the Portfolio may be delayed or limited.
Expenses--Expenses that are directly related to one of the Portfolios are
charged directly to that Portfolio. Other operating expenses of the Company are
prorated to the Portfolios on the basis of relative net asset value. Series
specific expenses, such as the 12b-1 fees, are borne by that series. Income,
other expenses and accumulated realized and unrealized gains and losses of a
Portfolio are allocated to the respective series on the basis of the relative
net asset value each day.
Distribution to Shareholders--The Growth Equity, Value Equity, Equity
Index, Balanced, and Global Bond Funds declare and pay dividends on a quarterly
basis. The International Growth Fund declares and pays dividends on a
semi-annual basis. Such dividends are reinvested in additional shares unless
otherwise requested. The Government Income Fund, Intermediate Bond Fund,
Intermediate Municipal Bond Fund, Pennsylvania Municipal Bond Fund, New Jersey
Municipal Bond Fund, Cash Reserve, Treasury Reserve and Tax-Free Reserve
distributions from net investment income are declared on a daily basis and are
payable on the first business day of the following month. Any net realized
capital gains on sales of securities for a Portfolio are distributed to its
shareholders at least annually.
Federal Income Taxes--It is each Portfolio's intention to continue to
qualify as a regulated investment company and distribute all of its taxable
income. Accordingly, no provision for Federal income tax was made. For Federal
income tax purposes required distributions related to realized gains from
security transactions are computed as of October 31st. Dividends distributed
exceed net realized gains from the Intermediate Bond Fund for financial
reporting purposes primarily due to the timing of distributions for tax
purposes.
Other--All organizational costs incurred with the start-up of the Balanced
Fund, Government Income Fund, Intermediate Municipal Bond Fund, Global Bond
Fund, Pennsylvania Municipal Bond Fund and New Jersey Municipal Bond Fund are
being amortized on a straight-line basis over a period of sixty months. If any
or all of the shares representing initial capital of each fund are redeemed by
any holder thereof prior to the end of the amortization period, the proceeds
will be reduced by the unamortized organization cost balance in the same
proportion as the number of shares redeemed bears to the initial shares
outstanding immediately preceding the redemption.
--------
77
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
3. INVESTMENT ADVISORY AND CUSTODIAL SERVICES
Pursuant to investment advisory agreements dated June 23, 1987 (Treasury
<PAGE>
Reserve and Cash Reserve), December 5, 1989 (International Growth and Value
Equity), March 25, 1991 (Equity Index, Growth Equity, Balanced, Government
Income Bond Fund, Intermediate Bond Fund, Intermediate Municipal Bond Fund,
Global Bond Fund and Tax-Free Reserve), and May 15, 1994 (Pennsylvania Municipal
Bond Fund and New Jersey Municipal Bond Fund), investment advisory services are
provided to the Funds by CoreStates Investment Advisers, Inc. (CoreStates
Advisers), a wholly-owned subsidiary of CoreStates Bank, N.A. (CoreStates Bank),
itself a wholly-owned subsidiary of CoreStates Financial Management Corporation.
CoreStates Advisers is entitled to receive an annual fee of 0.75% on the average
net assets of the Growth Equity and Value Equity Funds, 0.40% on the average net
assets of the Equity Index Fund, 0.80% on the average net assets of the
International Growth Fund, 0.70% on the average net assets of the Balanced Fund,
0.60% on the average net assets of the Global Bond Fund and 0.50% on the average
net assets of the Government Income Fund, Intermediate Bond Fund, Intermediate
Municipal Bond Fund, Pennsylvania Municipal Bond Fund, New Jersey Municipal Bond
Fund and each of the Money Market Funds. Such fee is computed daily and paid
monthly. During the year ended June 30, 1995, CoreStates Advisers voluntarily
waived a portion of their fees in order to assist the Funds in maintaining a
competitive expense ratio.
CoreStates Bank serves as Custodian to the Company. No fees are being paid
to CoreStates Bank for such Services. Sub-Advisory services are provided to the
CoreStates Advisers for Value Equity Fund by Cashman, Farrell and Associates and
for the International Growth Fund by Martin Currie, Inc. (The 'Sub-Advisers')
pursuant to a sub-advisory agreements dated December 5, 1989. Sub-Advisory
services are provided for the Global Bond Fund by Alpha Global Fixed Income
Managers, Inc. pursuant to a sub-advisory agreement dated December 15, 1993.
Under the terms of such agreements, the Sub-Advisers are entitled to receive a
fee from CoreStates Advisers. Such a fee is computed daily and paid monthly.
CoreStates Advisers is responsible for the supervision of, and payment of fees
to, the Sub-Adviser in connection with their services.
4. ADMINISTRATIVE, TRANSFER AGENT AND DISTRIBUTION SERVICES
Pursuant to an Administration agreement dated October 30, 1992, as amended
June 1, 1995, SEI Financial Management Company (SEI) acts as the Portfolio's
Administrator. Under the terms of such agreement, SEI is entitled to receive an
annual fee of 0.25% on the average net assets of the Portfolios. Such fee is
computed daily and paid monthly. SEI voluntarily waives a portion of their fees
in order to assist the Funds in maintaining a competitive expense ratio.
Pursuant to a Transfer Agency agreement dated March 4, 1993, SEI acts as
Transfer Agent to the Portfolios. As such, SEI provides transfer agency,
dividend disbursing and shareholder servicing for the Portfolios.
On November 2, 1992, SEI Financial Services Company (SFS), a wholly owned
subsidiary of SEI, became the Portfolios' exclusive Distributor pursuant to a
distribution agreement dated October 30, 1992.
The Company has adopted a Distribution Plan (the Plan) for those Portfolios
offering Series B shares. The Plan provides for the payment by the Company to
the Distributor of up to 0.25% of the daily net assets of each Series B
Portfolio to which the Plan is applicable. The Distributor is authorized to use
this fee as compensation for its distribution related services and as payment to
<PAGE>
certain securities broker/dealers and financial institutions which enter into
shareholder servicing agreements or broker agreements with the Distributor. The
Portfolios paid approximately $468,000 to affiliated brokers for commissions
earned on the sales of the Funds.
Certain officers of the Company are also officers of the Administrator.
Such officers are paid no fees by the Portfolio.
The Portfolios have paid legal fees to a law firm in which the Secretary of
the Company is partner.
- -----
78
<PAGE>
- --------------------------------------------------------------------------------
COREFUND
- --------------------------------------------------------------------------------
5. INVESTMENT TRANSACTIONS
During the year ended June 30, 1995, purchases of securities and proceeds
from sales of securities, other than temporary investments in short-term
securities, were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------- -------------------------------
PURCHASES SALES
------------------------------- -------------------------------
U.S. U.S.
PORTFOLIO INVESTMENT TRANSACTIONS (000) GOVERNMENT OTHER TOTAL GOVERNMENT OTHER TOTAL
---------- ------ ------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Growth Equity Fund -- 91,968 91,968 -- 70,432 70,432
Value Equity Fund -- 36,870 36,870 -- 34,961 34,961
Equity Index -- 46,813 46,813 -- 22,923 22,923
International Growth Fund -- 71,752 71,752 -- 64,683 64,683
Balanced 3,428 30,989 34,417 1,313 20,651 21,964
Government Income 30,917 9,577 40,494 31,916 6,833 38,749
Intermediate Bond Fund 163,832 35,731 199,563 159,485 39,691 199,176
Intermediate Municipal Fund -- 153 153 -- 1,149 1,149
Global Bond 10,061 21,798 31,859 10,329 24,490 34,819
Pennsylvania Municipal Bond Fund -- 2,289 2,289 -- 369 369
New Jersey Municipal Bond Fund -- 722 722 -- 504 504
</TABLE>
- --------------------------------------------------------------------------------
At June 30, 1995, the Growth Equity Fund, Balanced Fund, Government Income
Fund, Intermediate Bond Fund, Intermediate Municipal Bond Fund, Global Bond
Fund, Cash Reserve and Tax-Free Reserve had capital loss carryforwards for
federal tax purposes of approximately $1,520,000, $3,000, $240,000, $1,509,000,
$38,000, $1,203,000, $23,000 and $48,000, respectively, resulting from security
<PAGE>
sales. For tax purposes, the losses in the Funds can be carried forward for a
maximum of eight years to offset any net realized capital gains. The
carryforward for the Growth Equity Fund expires in 2002. The carryforward for
the Balanced Fund, Government Income Fund, Intermediate Bond Fund, Intermediate
Municipal Bond Fund, Global Bond Fund, Cash Reserve and Tax-Free Reserve Funds
expires in 2003. On June 30, 1995, the total cost of securities and the net
realized gains or losses on securities sold for Federal income tax purposes was
not materially different from amounts reported for financial purposes. The
aggregate gross unrealized gain or loss on securities at June 30, 1995 for each
portfolio within CoreFunds is as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------ ------------ -------
AGGREGATE AGGREGATE
GROSS GROSS
AGGREGATE GROSS UNREALIZED GAIN/(LOSS) (000) APPRECIATION DEPRECIATION NET
------------ ------------ -------
<S> <C> <C> <C>
Growth Equity Fund 14,994 (390) 14,604
Value Equity Fund 4,943 (265) 4,678
Equity Index 22,147 (2,254) 19,893
International Growth Fund 10,263 (5,158) 5,105
Balanced 5,877 (641) 5,236
Government Income 154 (124) 30
Intermediate Bond Fund 825 (264) 561
Intermediate Municipal Fund 1 (18) (17)
Global Bond 986 (131) 855
Pennsylvania Municipal Bond Fund 63 (3) 60
New Jersey Municipal Bond Fund 31 (1) 30
</TABLE>
- --------------------------------------------------------------------------------
--------
79
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
6. FORWARD FOREIGN CURRENCY CONTRACTS
The International Growth Fund and Global Bond Fund enter into forward
foreign currency contracts as hedges against portfolio positions. Such
contracts, which protect the value of a Fund's investment securities against a
decline in the value of currency, do not eliminate fluctuations in the
underlying prices of the securities. They simply establish an exchange rate at a
future date. Also, although such contracts tend to minimize the risk of loss due
to a decline in the value of a hedged currency, at the same time they tend to
limit any potential gain that might be realized should the value of such foreign
currency increase.
<PAGE>
The following forward foreign currency contracts were outstanding at June
30, 1995:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------- ----------- --------------
UNREALIZED
CONTRACTS TO IN EXCHANGE APPRECIATION
MATURITY DATE DELIVER/RECEIVE FOR (DEPRECIATION)
----------------------------- ----------------- ----------- --------------
<S> <C> <C> <C> <C>
INTERNATIONAL GROWTH FUND:
FOREIGN CURRENCY SALES:
07/21/95 JY 818,686,161 $10,323,000 $ 631,947
----------- --------------
----------- --------------
GLOBAL BOND FUND:
FOREIGN CURRENCY SALES:
07/13/95-08/22/95 DM 6,425,143 $4,566,510 $ (88,345)
07/13/95-08/22/95 FF 21,182,350 4,328,430 (33,745)
08/16/95-08/22/95 DK 13,270,000 2,445,662 (10,970)
08/16/95-08/22/95 UK 1,363,000 2,180,429 19,556
08/22/95 NG 1,926,000 1,247,409 557
08/30/95 AD 1,800,000 1,284,930 10,299
----------- --------------
$16,053,370 $ (102,648)
----------- --------------
----------- --------------
</TABLE>
- --------------------------------------------------------------------------------
CURRENCY LEGEND
AD Australian Dollars
DK Danish Kroner
DM German Marks
FF French Francs
JY Japanese Yen
NG Netherlands Guilders
UK British Pounds Sterling
7. CONCENTRATION OF CREDIT RISK
The Intermediate Municipal Bond Fund, Pennsylvania Municipal Bond Fund, New
Jersey Municipal Bond Fund, and Tax-Free Reserve invest in debt instruments of
municipal issuers. Although these Funds maintain a diversified portfolio, the
issuers' ability to meet their obligations may be affected by economic
developments in a specific state or region.
- -----
80
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COREFUND
- --------------------------------------------------------------------------------
The Intermediate Municipal Bond Fund, Pennsylvania Municipal Bond Fund, New
Jersey Municipal Bond Fund, and Tax-Free Reserve invest in securities which
include revenue bonds, tax exempt commercial paper, tax and revenue anticipation
notes, and general obligation bonds. At June 30, 1995, the percentage of
portfolio investments by each revenue source was as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------ ------------ ---------- --------
INTERMEDIATE PENNSYLVANIA NEW JERSEY
MUNICIPAL MUNICIPAL MUNICIPAL TAX-FREE
BOND FUND BOND FUND BOND FUND RESERVE
------------ ------------ ---------- --------
<S> <C> <C> <C> <C>
REVENUE BONDS
Education Bonds 19 16 7 7
Health Care Bonds -- 8 7 9
Transportation Bonds 23 8 3 4
Utility Bonds 11 16 14 7
Housing Bonds -- 12 -- 2
Pollution Control Bonds -- -- -- 11
Industrial Bonds -- 6 -- 13
Other 4 5 11 2
GENERAL OBLIGATIONS 43 29 58 6
TAX EXEMPT COMMERCIAL PAPER -- -- -- 39
--- --- --- ---
100% 100% 100% 100%
</TABLE>
- --------------------------------------------------------------------------------
The rating of long-term debt as a percentage of total value of investments
at June 30, 1995 is as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------ ------------ ---------- ------ ------------ ------------
PENNSYLVANIA NEW JERSEY
INTERMEDIATE INTERMEDIATE GOVERNMENT GLOBAL INTERMEDIATE INTERMEDIATE
BOND MUNICIPAL INCOME BOND MUNICIPAL MUNICIPAL
FUND FUND FUND FUND FUND FUND
------------ ------------ ---------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STANDARD & POORS RATINGS:
AAA 71 64 97 70 77 39
AA+ -- 10 -- 2 -- 15
AA -- 15 -- 8 4 23
AA- 4 7 -- -- 9 12
<PAGE>
A+ 5 4 -- -- 6 --
A 5 -- -- -- 4 --
NR 15 -- 3 20 -- 11
--- --- --- ------ --- ---
100% 100% 100% 100% 100% 100%
</TABLE>
- --------------------------------------------------------------------------------
Many municipalities insure their obligations with insurance underwritten by
insurance companies which undertake to pay a holder, when due, the interest and
principal amount on an obligation if the issuer defaults on its obligation.
Although bond insurance reduces the risk of loss due to default by the issuer,
there is no assurance that the insurance company will meet its obligations.
Also, some of the securities have credit enhancements (letters of credit or
guarantees issued by third party domestic or foreign banks or other
institutions). At June 30, 1995, 54.7% of the investments held by the
Intermediate Municipal Bond Fund were insured, of which FGIC insured 22.1%,
Municipal Bond Insurance Association insured 10.6% and American Municipal Bond
insured 11.7%. At June 30, 1995, 71.7% of the investments held by the
Pennsylvania Municipal Bond Fund were insured, of which FGIC insured 34.0%,
American Municipal Bond insured 8.1% and Municipal Bond Insurance Association
insured 17.4%. At June 30, 1995, 13.5% of the investments held by the New Jersey
Municipal Bond Fund were insured, of
--------
81
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (concluded) COREFUND
- --------------------------------------------------------------------------------
which FGIC insured 11.3%. At June 30, 1995, 93.9% of the investments held by the
Tax-Free Reserve Fund had credit enhancements, of which Swiss Bank held 13.5%,
Bank of Nova Scotia insured 6.7%, Morgan Guaranty insured 10.2%, National Rural
Utility Cooperative Financial Corp. insured 8.4%, Barclay's Bank insured 6.7%,
Sanwa Bank insured 5.8% and National West PLC insured 10.2%.
8. ACQUISITION OF CAPSTONE CASHMAN FARRELL VALUE FUND
On November 26, 1993 CoreFund Value Equity acquired all net assets of
Capstone Cashman Farrell Value Fund (Capstone) pursuant to a plan of
reorganization approved by Capstone shareholders on November 2, 1993. The
acquisition was accompanied by a tax-free exchange of 330,695 shares of Capstone
for 300,247 shares of Value Equity Fund Series B outstanding on November 29,
1993. Capstone's net assets at the date were combined with those of CoreFund
Value Equity. The aggregate net assets of CoreFund Value Equity and Capstone
before the acquisition were $18,685,000 and $3,978,000 respectively.
- -----
82
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
NOTICE TO SHAREHOLDERS COREFUND
- --------------------------------------------------------------------------------
(UNAUDITED)
FOR TAXPAYERS FILING ON A CALENDAR YEAR BASIS, THIS
NOTICE IS FOR INFORMATIONAL PURPOSES ONLY.
Dear CoreFund Shareholders:
For the fiscal year ended June 30, 1995, each portfolio is designating
long-term capital gains, qualifying dividends and exempt income with regard to
distributions paid during the year as follows:
<TABLE>
<CAPTION>
(A) (B)
Long Term Ordinary (C) (E)
Capital Gains Income Total (D) Tax (F)
Distributions Distributions Distributions Qualifying Exempt Foreign
Portfolio (Tax Basis) (Tax Basis) (Tax Basis) Dividends(1) Interest Tax Credit(2)
- ------------------------- ------------- ------------- ------------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Growth Equity............ 0% 100% 100% 100% 0% 0%
Value Equity............. 66% 34% 100% 100% 0% 0%
Equity Index............. 59% 41% 100% 91% 0% 0%
International Growth..... 48% 52% 100% 0% 0% 70%(3)
Balanced................. 0% 100% 100% 27% 0% 0%
Government Income........ 0% 100% 100% 0% 0% 0%
Intermediate Bond........ 0% 100% 100% 0% 0% 0%
Intermediate Municipal
Bond................... 0% 100% 100% 0% 0% 0%
Pennsylvania Municipal
Bond................... 0% 100% 100% 0% 100% 0%
New Jersey Municipal
Bond................... 0% 100% 100% 0% 100% 0%
Global Bond.............. 0% 100% 100% 0% 100% 0%
Cash Reserve............. 0% 100% 100% 0% 0% 0%
Treasury Reserve......... 0% 100% 100% 0% 0% 0%
Tax-Free Reserve......... 0% 100% 100% 0% 100% 0%
</TABLE>
- ------------------
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
(2) See attached notice which details the per share amount of foreign taxes
paid by country and the per share amount of each dividend that represents
income derived from sources within each country.
(3) This amount represents the Foreign Tax Credit for Series A. The Foreign
Tax Credit for Series B is 176%.
* Items (A) and (B) are based on a percentage of the portfolio's total
distributions.
** Items (D), (E) and (F) are based on a percentage of ordinary income
distributions of the portfolio. Please consult your tax adviser for proper
treatment of this information.
--------
<PAGE>
83
<PAGE>
- --------------------------------------------------------------------------------
NOTICE TO SHAREHOLDERS (concluded) COREFUND
- --------------------------------------------------------------------------------
(UNAUDITED)
FOR TAXPAYERS FILING ON A CALENDAR YEAR BASIS, THIS
NOTICE IS FOR INFORMATIONAL PURPOSES ONLY.
The CoreFund International Growth Fund has made an election under Section
853 of the Internal Revenue Code to provide a foreign tax deduction or credit to
its shareholders for the fiscal year ended June 30, 1995. The information
provided below is pertinent to taxpayers who meet the following two criteria: 1)
file a U.S. Federal Income Tax Return on the basis of the fiscal year ended June
30, 1995, and 2) held shares of the Fund on the dividend record date of December
29, 1994.
The amount per share of income from and foreign taxes paid to each country
is listed in the following schedule:
<TABLE>
<CAPTION>
Series A Series B
Gross Foreign Gross Foreign
Country Dividend Taxes Paid Dividend Taxes Paid
- ---------------------------------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Argentina............................... 0.0001 0.0000 0.0000 0.0000
Australia............................... 0.0017 0.0007 0.0011 0.0007
Austria................................. 0.0006 0.0002 0.0004 0.0002
Belgium................................. 0.0008 0.0004 0.0006 0.0004
Brazil.................................. 0.0002 0.0001 0.0001 0.0001
Chile................................... 0.0004 0.0002 0.0003 0.0002
France.................................. 0.0043 0.0000 0.0017 0.0000
Germany................................. 0.0016 0.0005 0.0009 0.0005
Great Britain........................... 0.0171 0.0125 0.0143 0.0124
Hong Kong............................... 0.0047 0.0000 0.0019 0.0000
Ireland................................. 0.0006 0.0003 0.0004 0.0003
Italy................................... 0.0020 0.0014 0.0016 0.0014
Japan................................... 0.0107 0.0049 0.0072 0.0049
Malaysia................................ 0.0022 0.0013 0.0017 0.0013
Netherlands............................. 0.0021 0.0005 0.0012 0.0006
Singapore............................... 0.0043 0.0026 0.0033 0.0026
South Africa............................ 0.0006 0.0002 0.0003 0.0002
Spain................................... 0.0020 0.0009 0.0014 0.0010
Sweden.................................. 0.0012 0.0006 0.0008 0.0005
Switzerland............................. 0.0020 0.0009 0.0013 0.0009
United States........................... 0.0094 0.0000 0.0037 0.0000
-------- ---------- -------- ----------
0.0686 0.0282 0.0442 0.0282
<PAGE>
</TABLE>
- -----
84
<PAGE>
CoreFunds offer
a wide range of both domestic and
international
portfolios, including
stock and bond funds
that mesh the
best opportunities
worldwide.
<PAGE>
This report and the financial statements contained herein are
submitted for the general information of the shareholders of
the corporation. The report is not authorized for distribution
to prospective investors in the corporation unless preceded or
accompanied by an effective prospectus. Shares in the Funds
are not deposits or obligations of, or guaranteed or endorsed by,
CoreStates Bank, N.A., the parent corporation of each Fund's
investment adviser. Such shares are also not federally insured
by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency. Investments in shares of a
mutual fund involve risks, including the possible loss of princi-
pal. CoreStates Bank, N.A. serves as custodian for the Funds.
COREFUNDS, INC.
DIRECTORS
Emil J. Mikity, Chairman
George H. Strong
Erin Anderson
OFFICERS
David G. Lee, President
James W. Jennings, Secretary
INVESTMENT ADVISER
CoreStates Investment Advisers, Inc.
Philadelphia, PA 19101
ADMINISTRATOR
SEI Financial Management Corporation
Wayne, PA 19087
DISTRIBUTOR
SEI Financial Services Company
Wayne, PA 19087
LEGAL COUNSEL
Morgan, Lewis & Bockius
Philadelphia, PA 19103
AUDITORS
Ernst & Young LLP
Philadelphia, PA 19103
Investment Adviser
[GRAPHIC]
CoreFund logo
EQUITY FUNDS
Growth Equity
Value Equity
Equity Index
International Growth
Balanced
FIXED INCOME FUNDS
Government Income
Intermediate Bond
Intermediate Municipal Bond
Pennsylvania Municipal Bond
New Jersey Municipal Bond
Global Bond
MONEY MARKET FUNDS
Cash Reserve
Treasury Reserve
Tax-Free Reserve
SHAREHOLDER SERVICES
For more information on opening
a new account, making changes to
existing accounts, purchasing,
exchanging or redeeming shares, or
other investor services, call CoreFund
at 1-800-355-CORE (2673).
<PAGE>
<PAGE>
MESSAGE FROM THE CHAIRMAN
To Our Shareholders:
The fiscal year ended October 31, 1995 was one of positive change in both the
financial markets and our fund family.
During the year, the markets demonstrated the value of investor patience and
perseverance by lagging through the end of calendar year 1994, only to rally
strongly through the first nine months of calendar year 1995. Those who remained
invested during this period have experienced gratifying gains in all three asset
categories: stocks, bonds, and cash equivalents.
For The Conestoga Funds, fiscal year 1995 also marked the beginning of an
exciting new phase in our evolution. Among the most significant developments of
1995 was the introduction of a multi-class share system, in which all Conestoga
Fund portfolios are now available in two classes, Retail Shares and
Institutional Shares.
Another important development was the introduction of three new portfolios. Our
new International Equity Fund offers investors the opportunity to take advantage
of the potential growth in the global equity markets. Our new Short-Term Income
Fund provides a convenient vehicle for investors seeking the relative safety and
stability of a quality-oriented, short-term bond fund. And our new Balanced Fund
offers a convenient choice for those who seek the dual advantages of an
investment in both equities and bonds through a single portfolio.
Together, the new share classes and new portfolios make The Conestoga Funds more
useful to a broad range of investors, including those who incorporate our funds
into such increasingly popular programs as employer-sponsored retirement plans
and asset allocation accounts.
The net effect of these and other developments has been strong asset growth for
our fund family. In addition, assets were further expanded in 1995 by the
conversion of Meridian Asset Management's Employee Benefit Collective Funds into
selected Conestoga portfolios. This conversion has helped many of our portfolios
achieve the "critical mass" that can lead to greater investment opportunities
and more efficient cost structures. And, it affirms that our investment
management approach meets the needs of large institutional investors.
Fiscal year 1995 brought a significant operational change as we appointed SEI
Financial Management Corporation and SEI Financial Services Company, both wholly
owned subsidiaries of SEI Corporation ("SEI"), to the roles of administrator and
distributor, respectively, of The Conestoga Funds, replacing The BISYS Group,
Inc. SEI is a leading mutual fund service provider company, and we are pleased
that their experience and advanced systems will be supporting us as we serve the
growing needs of our investors.
With market conditions appearing relatively favorable and our fund family
growing stronger, we look forward to continued progress in the months ahead.
Thank you for your continued confidence in The Conestoga Funds.
Sincerely,
/s/ THOMAS J. TAYLOR
- --------------------
Thomas J. Taylor
Chairman of the Board
<PAGE>
MESSAGE FROM THE INVESTMENT ADVISOR
OVERVIEW OF THE U.S. ECONOMY AND FINANCIAL MARKETS
Over the last year of transition, investors have experienced a complete change
in sentiment within the financial markets. This ranged from pessimism during the
latter part of 1994, to near-euphoria in some sectors through the third calendar
quarter of 1995. From today's perspective, it seems neither of these extremes
was justified by the actual direction of economic events.
U.S. economic growth slowed over the past year from its rapid pace of the prior
year. The slowdown, dubbed the "soft landing," was engineered by the Federal
Reserve Board via a series of interest rate increases throughout 1994 and into
early 1995. Interest rate sensitive sectors of the economy, such as the housing
industry, languished with rate increases in excess of 2.5 percentage points. In
the spring of 1995, economic activity fell below the Fed's targeted rate of
2.5%, and the Fed was forced to shift its monetary posture away from being
restrictive. On July 6, 1995, the Fed lowered the short-term target rate by
0.25%, citing receding inflationary pressures. The economy rebounded from its
malaise to end the fiscal year on a stronger note.
After the serious declines of 1994, the U.S. financial markets responded in
textbook fashion to a slow but steadily growing economy with moderate interest
rates and subdued inflation by posting their strongest results since 1991. The
stock market, as measured by the S&P 500 Index, gained 26.4% for the year, while
the bond market's benchmark, the Lehman Aggregate Index, returned 15.7% for the
fiscal year. Other factors contributed to the impressive rallies, such as a
rebounding U.S. dollar, merger activity, cash flow into mutual funds, and the
prospects for a viable balanced budget as well as a capital gains tax cut.
OUTLOOK FOR THE ECONOMY AND U.S. FINANCIAL MARKETS
Now in its fifth year of expansion, the economy appears poised to grow at a
steady pace of 2.0 - 2.5% annualized. Interest rate sensitive sectors have
rebounded with the year-long decline in rates, contributing again to the overall
level of growth. Businesses continue to invest in technology to improve their
worldwide competitiveness, albeit at a slower pace than 1994's 16% increase. The
consumer is holding up his end by spending on services. Inflation is benign and
does not appear to pose a threat for the foreseeable future. The U.S. Congress,
under new leadership, seems determined to reach a compromise on the deficit and
reduce spending over the next decade. Therefore, we are optimistic about the
near-term outlook for the economy, which at the hands of the Federal Reserve can
avoid a recession while not heating up to an inflationary level of growth.
Many of the aforementioned factors which propelled the U.S. markets to new highs
this past year remain in place. The stock market, however, faces the uncertainty
of future earnings, as well as somewhat lofty price/earnings ratios. Corporate
profits, while still expanding at a healthy pace, may find it more difficult to
produce positive surprises, an important ingredient for driving stock prices up
to higher highs. In short, we may see a stock market that moves sideways for a
while, digesting the latest round of good news, while evaluating the prospects
for 1996 earnings.
The bond market is faced with a few near-term obstacles, such as the debt
ceiling, logjams on the balanced budget process, and an unresponsive Federal
Reserve. Longer-term, however, we are optimistic on the bond market, given the
current slow pace of economic growth, and more importantly, the lack of
inflationary pressures. In addition, the final passage of the Budget
Reconciliation Bill could help tilt the Federal Reserve toward an accommodative
policy which is a strong positive for the bond market.
In summary, we believe that investors can look forward to overall positive
conditions for all three asset classes, now that the markets appear to have rid
themselves of the need to overreact. Therefore, while we may not witness the
magnitude of the previous year's dramatic turnaround, we hope to see progress of
a more "normal" nature, with gains coming from the application of prudent
investment management skills rather than any sudden shifts in overall market
sentiment.
Sincerely,
/s/ PHILIP H. BROWN, II
- -----------------------
Philip H. Brown, II
President
Meridian Investment Company
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
The Conestoga Funds 1995 Annual Report--October 31, 1995
EQUITY FUND
Value of $10,000 Investment
<TABLE>
<CAPTION>
CONESTOGA EQUITY CONESTOGA EQUITY CONESTOGA EQUITY STANDARD & POOR'S
FUND, RETAIL FUND, RETAIL FUND, INSTI. 500 INDEX
(WITHOUT LOAD) (WITH LOAD) (SYNTHETIC)
---------------- ----------------- ---------------- -------------------
<S> <C> <C> <C> <C>
2/28/90 $10000 $ 9800 $10000 $10000
10/90 9079 8897 9079 9369
10/91 13561 13290 13561 12509
10/92 14822 14526 14822 13754
10/93 17028 16688 17028 15808
10/94 17415 17066 17415 16417
10/95 21235 20811 21246 20756
</TABLE>
<TABLE>
<CAPTION>
Average
One Five Annualized
Year Year Inception
Return Return to Date
- ----------------------------------------------------------------
<S> <C> <C> <C>
22.00% 18.53% 14.21% Institutional (Synthetic)
21.94% 18.52% 14.20% Retail without Load
19.47% 18.05% 13.80% Retail with Load
</TABLE>
Past performance is not indicative of future performance. The inception date of
the Retail Shares was 2/28/90, and the inception date of the Institutional
Shares was 2/21/95. All Shares were previously classified as Retail, but
Institutional clients were not charged the maximum 2.0% sales charge that
applies to the Retail Shares. Total Returns for the periods prior to the
inception date of the Institutional Shares were calculated using a combination
of Institutional and Retail data (synthetic performance).
For the 12 months ended October 31, 1995, Institutional Shares of the Conestoga
Equity Fund produced a total return of 22.00%, while Retail Shares without Load
produced a total return of 21.94%, and Retail Shares with Load produced a total
return of 19.47%. This compares to a total return of 26.43% for the fund's
benchmark, the Standard & Poor's 500 Index.
One reason for the slight underperformance in relation to the benchmark was the
adoption of a relatively defensive posture during late 1994, when the outlook
for the economy was at its most pessimistic, and the new Republican majority in
Congress was generating political uncertainty. This approach prevented the fund
from realizing some of the early gains of 1995, until we could implement a more
aggressive strategy, which then remained in place for the rest of the fiscal
year.
During a year of strong overall market performance, the fund benefitted from an
overweighting in financial issues, which continued to rise due to a combination
of industry consolidation and good fundamental earnings performance. Among the
portfolio's holdings at year-end were Chase Manhattan, Chemical Bank, Travelers
Group, BankAmerica, and CIGNA.
The fund also saw strong gains in the consumer staples category, particularly in
its holdings of supermarket company stocks. Many supermarket companies are
currently enjoying excellent earnings due to a major shift in pricing power away
from the manufacturer, and into the hands of the retailer.
Looking ahead, we see a favorable environment for equities, as the economy
continues to grow at a moderate rate, while relatively low inflation should
prevent any upward pressure on interest rates.
In this environment, corporate profits should continue to grow steadily,
although we believe the current high valuation levels may already reflect much
of the potential increases for the coming year. So, while we do not expect to
experience the same level of results that were enjoyed during the past fiscal
year, we do look forward to continued, if more modest, gains.
The performance of the Conestoga Equity Fund is measured against the Standard &
Poor's 500 Index, an unmanaged index generally representative of the performance
of the U.S. stock market. The index does not reflect the deduction of expenses
associated with a mutual fund, such as investment management and fund accounting
fees. The Fund's performance reflects the deduction of fees for these
value-added services.
1
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL EQUITY FUND
Value of $10,000 Investment
<TABLE>
<CAPTION>
CONESTOGA SPECIAL CONESTOGA SPECIAL CONESTOGA SPECIAL RUSSELL 3000
EQUITY FUND, EQUITY FUND, EQUITY FUND, EQUAL WEIGHTED
RETAIL RETAIL INSTI. INDEX
(WITHOUT LOAD) (WITH LOAD) (SYNTHETIC)
----------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
3/31/94 $10000 $ 9800 $10000 $10000
10/94 10170 9967 10170 10334
10/95 12656 12403 12656 12427
</TABLE>
<TABLE>
<CAPTION>
Average Annualized
One Year Return Inception To Date
- ---------------------------------------------------------------------------
<S> <C> <C>
24.44% 10.30% Institutional (Synthetic)
24.44% 10.30% Retail without Load
21.97% 8.97% Retail with Load
</TABLE>
Past performance is not indicative of future performance. The inception date of
the Retail Shares was 3/15/94, and the inception date of the Institutional
Shares was 2/21/95. All Shares were previously classified as Retail, but
Institutional clients were not charged the maximum 2.0% sales charge that
applies to the Retail Shares. Total Returns for the periods prior to the
inception date of the Institutional Shares were calculated using a combination
of Institutional and Retail data (synthetic performance).
For the 12 months ended October 31, 1995, Institutional Shares of the Conestoga
Special Equity Fund produced a total return of 24.44%, while Retail Shares
without Load produced a total return of 24.44%, and Retail Shares with Load
produced a total return of 21.97%. This compares to a total return of 20.23% for
the fund's benchmark, the Russell 3000 Equal Weighted Index.
The fund's strong performance can be attributed to good overall markets, as well
as key strategic decisions made during the year.
For example, the fund held relatively large positions in the technology area,
with issues such as ComputerVision producing above-average returns. Holdings in
the biotechnology area, such as Gilford Pharmaceuticals, also advanced strongly
during the year.
In addition, while the fund tends to focus on smaller capitalization issues, it
also held significant positions in large-cap stocks in such areas as financial
services, which performed well during the year. Among the financial services
companies in the portfolio at year-end were Bank of Boston, BankAmerica, and
Barnett Banks.
Looking ahead, we believe the environment remains favorable for aggressive
growth companies, and we therefore plan to continue selecting issues that offer
above-average growth potential. In terms of sectors, we plan to remain
overweighted in such areas as financial services and underweighted in the
healthcare industry, which faces continued cost control pressure from government
agencies and private insurers.
However, ours is an issue-by-issue selection process, and we will continue to
search for promising growth companies in any industry, regardless of their
economic sector.
The performance of the Conestoga Special Equity Fund is measured against the
Russell 3000 Equal Weighted Index, an unmanaged index that consists of 3,000
large U.S. companies representing approximately 98% of the U.S. equity market.
The index does not reflect the deduction of expenses associated with a mutual
fund, such as investment management and fund accounting fees. The Fund's
performance reflects the deduction of fees for these value-added services.
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
The Conestoga Funds 1995 Annual Report--October 31, 1995
INTERNATIONAL EQUITY FUND
Value of $10,000 Investment
<TABLE>
<CAPTION>
CONESTOGA CONESTOGA CONESTOGA MORGAN STANLEY
INTERNATIONAL INTERNATIONAL INTERNATIONAL CAPITAL INTERNATIONAL
EQUITY FUND, EQUITY FUND, EQUITY FUND, EAFE INDEX
RETAIL RETAIL INSTI.
(WITHOUT LOAD) (WITH LOAD)
-------------- ------------- ------------- ---------------------
<S> <C> <C> <C> <C>
5/31/95 10000 9800 10000 10000
10/95 11024 10804 11044 9956
</TABLE>
<TABLE>
<CAPTION>
Cumulative Average Annualized
Inception to Date Inception to Date
- ------------------------------------------------------------------
<S> <C> <C>
10.10% 23.10% Institutional
9.90% 23.62% Retail without Load
7.75% 17.48% Retail with Load
</TABLE>
Past performance is not indicative of future performance. The inception date of
the Retail and Institutional Shares was 5/15/95.
For the period, May 31, 1995 through October 31, 1995, Institutional Shares of
the Conestoga International Equity Fund produced a total return of 10.90%, while
Retail Shares without Load produced a total return of 10.24%, and Retail Shares
with Load produced a total return of 8.04%. This compares to a total return of
(0.44)% for the fund's benchmark, the Morgan Stanley Capital International EAFE
Index.
The fund's performance was the result of our focus on strong geographic regions,
and strong stock groups.
Geographically, the fund benefitted particularly from its investments in the
Japanese market, where a recovery in stock prices coincided with a substantial
drop in the value of the Yen, resulting in very strong yields for dollar-based
investors. The proper timing of a currency hedge against the Yen helped to
maximize the fund's gains.
In terms of stock groups, the fund focused on global telecommunications and
technology issues, which were particularly strong during the third quarter of
the fiscal year. In addition, the fund's pharmaceutical and consumer products
holdings performed extremely well.
Looking ahead, we remain very bullish on the international equity markets,
particularly in comparison with the U.S. market which appears to be in the later
phases of its current rally. The emerging international markets, by contrast,
appear to have a great deal of room for expansion, and may benefit from capital
inflows in the event of a downturn in U.S. stocks.
The fund has been underweighted in Japan and Europe throughout the past year,
and will likely remain so as we pursue the potential for stronger gains from
less mature and more robust markets elsewhere.
The performance of the Conestoga International Equity Fund is measured against
the Morgan Stanley Capital International EAFE Index, an unmanaged index
generally representative of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East. The index
does not reflect the deduction of expenses associated with a mutual fund, such
as investment management and fund accounting fees. The Fund's performance
reflects the deduction of fees for these value-added services.
3
<PAGE>
- --------------------------------------------------------------------------------
BALANCED FUND
Value of $10,000 Investment
<TABLE>
<CAPTION>
CONESTOGA CONESTOGA
BALANCED BALANCED
FUND, FUND, CONESTOGA LEHMAN
RETAIL RETAIL BALANCED STANDARD & BROTHERS
(WITHOUT (WITH FUND, POOR'S 500 AGGREGATE BOND
LOAD) LOAD) INSTI. INDEX INDEX
--------- --------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C>
6/30/95 $10000 $ 9800 $10000 $10000 $10000
10/95 10496 10286 10498 10756 10329
</TABLE>
<TABLE>
<CAPTION>
Cumulative Average Annualized
Inception to Date Inception to Date
- ------------------------------------------------------------------------------------
<S> <C> <C>
4.89% 14.71% Institutional
5.27% 16.33% Retail without Load
3.20% 9.72% Retail with Load
</TABLE>
Past performance is not indicative of future performance. The inception date of
the Retail Shares was 6/29/95, and the inception date of the Institutional
Shares was 6/26/95.
For the period June 30, 1995 through October 31, 1995, Institutional Shares of
the Conestoga Balanced Fund produced a total return of 4.98%, while Retail
Shares without Load produced a total return of 4.96%, and Retail Shares with
Load produced a total return of 2.86%. This compares to a total return of 7.56%
for the Standard & Poor's 500 Index and 3.29% for the Lehman Brothers Aggregate
Bond Index, the benchmarks for the Fund.
The fund benefitted from strong performance in both its equity and fixed income
components.
On the equity side, positive results were achieved through holdings in the
financial services sector, where growing profits and continued consolidation
boosted share prices during the period. The consumer staples category also
produced good earnings, resulting in capital appreciation opportunities.
On the fixed income side, the fund experienced good total returns through its
investments in such sectors as industrial bonds and banking and financial
industry securities.
Looking ahead, we see a continuation of the good environment for both equities
and fixed income instruments, with a combination of moderate economic growth and
low inflation.
The performance of the Conestoga Balanced Fund is measured against the Standard
& Poor's 500 Index and the Lehman Brothers Aggregate Bond Index. These unmanaged
indices do not reflect the deduction of expenses associated with a mutual fund,
such as investment management and fund accounting fees. The Fund's performance
reflects the deduction of fees for these value-added services.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
The Conestoga Funds 1995 Annual Report--October 31, 1995
BOND FUND
Value of $10,000 Investment
<TABLE>
<CAPTION>
CONESTOGA CONESTOGA CONESTOGA LEHMAN
BOND BOND BOND BROTHERS
FUND, FUND, FUND, AGGREGATE
RETAIL RETAIL INSTI. BOND
(WITHOUT LOAD) (WITH LOAD) (SYNTHETIC) INDEX
--------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
2/28/90 $10000 $ 9800 $10000 $10000
10/90 10465 10256 10465 10595
10/91 12053 11812 12053 12269
10/92 13233 12968 13233 13476
10/93 14621 14329 14621 15076
10/94 13937 13658 13937 14523
10/95 15864 15547 15870 16795
</TABLE>
<TABLE>
<CAPTION>
Average
One Five Annualized
Year Year Inception
Return Return to Date
- --------------------------------------------------------------------------
<S> <C> <C> <C>
13.87% 8.68% 8.48% Institutional (Synthetic)
13.83% 8.68% 8.48% Retail without Load
11.55% 8.25% 8.10% Retail with Load
</TABLE>
Past performance is not indicative of future performance. The inception date of
the Retail Shares was 2/28/90, and the inception date of the Institutional
Shares was 2/21/95. All Shares were previously classified as Retail, but
Institutional clients were not charged the maximum 2.0% sales charge that
applies to the Retail Shares. Total Returns for the periods prior to the
inception date of the Institutional Shares were calculated using a combination
of Institutional and Retail data (synthetic performance).
For the 12 months ended October 31, 1995, Institutional Shares of the Conestoga
Bond Fund (formerly called the Income Fund) produced a total return of 13.87%,
while Retail Shares without Load produced a total return of 13.83%, and Retail
Shares with Load produced a total return of 11.55%. This compares to a total
return of 15.65% for the fund's benchmark, the Lehman Brothers Aggregate Bond
Index.
As the fiscal year began, the fund favored more defensive bonds and
shorter-duration issues. This strategy helped to keep the portfolio's overall
duration slightly shorter than that of our benchmark.
As the year progressed, assets were shifted along the yield curve and into
higher yielding industrial, banking and financial issues, and Yankee bonds which
we felt were undervalued.
Throughout the year, utility issues were underweighted, due to competitive rate
uncertainties which are currently inherent in these securities.
Looking ahead, we believe it's unlikely that the Federal Reserve Board will move
interest rates significantly in the months ahead, given the relatively low level
of inflation and continued efforts to reduce the Federal deficit. Therefore, we
look forward to a more stable bond market where income, rather than capital
appreciation, will be the predominant theme. We have positioned the portfolio to
take advantage of these conditions by focusing on the higher-yielding sectors
such as corporate and mortgage-backed securities.
The performance of the Conestoga Bond Fund is measured against the Lehman
Brothers Aggregate Bond Index, an unmanaged index generally representative of
the performance of the U.S. bond market. The index does not reflect the
deduction of expenses associated with a mutual fund, such as investment
management and fund accounting fees. The Fund's performance reflects the
deduction of fees for these value-added services.
5
<PAGE>
- --------------------------------------------------------------------------------
INTERMEDIATE INCOME FUND
Value of $10,000 Investment
<TABLE>
<CAPTION>
CONESTOGA CONESTOGA CONESTOGA MERRILL LEHMAN
INTERMEDIATE INTERMEDIATE INTERMEDIATE LYNCH BROTHERS
INCOME INCOME INCOME 1-5 YEAR INTERMEDIATE
FUND, RETAIL FUND, FUND, GOVT/ GOVT/
(WITHOUT RETAIL INSTI. CORPORATE CORPORATE
LOAD) (WITH LOAD) (SYNTHETIC) BOND INDEX BOND INDEX
------------ ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
2/28/90 $10000 $ 9800 $10000 $10000 $10000
10/90 10611 10399 10611 10680 10637
10/91 11985 11746 11985 12009 12109
10/92 13062 12800 13062 13124 13319
10/93 13988 13708 13988 13671 14642
10/94 13851 13574 13851 13665 14359
10/95 15222 14917 15225 15097 16157
</TABLE>
<TABLE>
<CAPTION>
Average
One Five Annualized
Year Year Inception
Return Return to Date
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
9.92% 7.49% 7.69% Institutional (Synthetic)
9.90% 7.48% 7.69% Retail without Load
7.69% 7.04% 7.31% Retail with Load
</TABLE>
Past performance is not indicative of future performance. The inception date of
the Retail Shares was 2/28/90, and the inception date of the Institutional
Shares was 2/21/95. All Shares were previously classified as Retail, but
Institutional clients were not charged the maximum 2.0% sales charge that
applies to the Retail Shares. Total Returns for the periods prior to the
inception date of the Institutional Shares were calculated using a combination
of Institutional and Retail data (synthetic performance).
For the 12 months ended October 31, 1995, Institutional Shares of the Conestoga
Intermediate Income Fund produced a total return of 9.92%, while Retail Shares
without Load produced a total return of 9.90%, and Retail Shares with Load
produced a total return of 7.69%. This compares to a total return of 12.52% for
the fund's benchmark, the Lehman Brothers Intermediate Government/Corporate Bond
Index.
Both the name and the investment parameters of this fund changed during the
year, leading to a corresponding change in overall performance. Prior to
February 21, 1995, the fund was known as the Limited Maturity Fund, and was
restricted to maturities of six years (measured by the Merrill Lynch 1-5 Year
Government/Corporate Bond Index). Thereafter, as the Intermediate Income Fund,
the portfolio was permitted to extend to maturities of up to ten years,
requiring the new benchmark. Had this change occurred earlier in the year, the
fund may have been better positioned to take advantage of the bond market rally
by investing in longer-term issues.
Another contributor to the fund's underperformance was its positions in
shorter-term mortgage securities, which are not included in the benchmark. We
believe that these high-quality securities add value to the portfolio over time,
and intend to retain some representation with mortgage-backed securities in the
portfolio.
Since May, the fund has extended its duration somewhat, to a level that is
neutral to its current index. Average maturity has been extended as well, but
remains on the shorter side of the benchmark, standing at 3.75 years at the end
of fiscal 1995.
Looking ahead, we see a positive environment for intermediate term issues, with
relatively low inflation, moderate economic growth, and little activity from the
Fed. Therefore, we are optimistic that the fund will provide the competitive
yield and relative stability that are characteristic of intermediate-term funds.
The performance of the Conestoga Intermediate Income Fund is measured against
the Lehman Brothers Intermediate Government/Corporate Bond Index, an unmanaged
index generally representative of the performance of U.S. Government and
corporate debt with maturities between one and 9.99 years. The index does not
reflect the deduction of expenses associated with a mutual fund, such as
investment management and fund accounting fees. The Fund's performance reflects
the deduction of fees for these value-added services.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
The Conestoga Funds 1995 Annual Report--October 31, 1995
SHORT-TERM INCOME FUND
Value of $10,000 Investment
<TABLE>
<CAPTION>
CONESTOGA CONESTOGA MERRILL
SHORT-TERM SHORT-TERM CONESTOGA LYNCH
INCOME INCOME SHORT-TERM 1-YEAR
FUND, RETAIL FUND, INCOME TREASURY
(WITHOUT RETAIL FUND, BILL
LOAD) (WITH LOAD) INSTI. INDEX
---------- ----------- ---------- --------
<S> <C> <C> <C> <C>
5/31/95 $10000 $ 9800 $10000 $10000
10/95 10239 10034 10248 10259
</TABLE>
<TABLE>
<CAPTION>
Cumulative Average Annualized
Inception to Date Inception to Date
- --------------------------------------------------------------------
<S> <C> <C>
2.87% 6.31% Institutional
2.57% 5.71% Retail without Load
0.56% 1.23% Retail with Load
</TABLE>
Past performance is not indicative of future performance. The inception date of
the Retail Shares was 5/17/95, and the inception date of the Institutional
Shares was 5/15/95.
For the period May 31, 1995 through October 31, 1995, Institutional Shares of
the Conestoga Short-Term Income Fund produced a total return of 2.48%, while
Retail Shares without Load produced a total return of 2.39%, and Retail Shares
with Load produced a total return of 0.34%. This compares to a total return of
2.59% for the fund's benchmark, the Merrill Lynch 1-Year Treasury Bill Index.
Due to its short-term nature, the fund did not fully participate in the bond
market rally to the same degree as longer-term funds. As issues matured during
the year, it became increasingly difficult to replace them with securities of
comparable quality and yields.
The fund took advantage of high-quality asset-backed securities, including those
which are backed by credit card, automobile, and short-term finance company
receivables, which offered a yield advantage over U.S. Treasury securities.
This strategy allowed the fund to avoid extending its maturity and thus its
volatility throughout the year. At year-end, the average maturity of the fund
remained at the lower end of its parameters, or approximately one year.
Looking ahead, the fund will continue to seek high-quality issues that offer
some level of yield enhancement, while continuing to pursue a strategy of
relative price stability.
The performance of the Conestoga Short-Term Income Fund is measured against the
Merrill Lynch 1-Year Treasury Bill Index, an unmanaged index generally
representative of the total rate of return of one year Treasury Bills based on
daily closing prices. The index does not reflect the deduction of expenses
associated with a mutual fund, such as investment management and fund accounting
fees. The Fund's performance reflects the deduction of fees for these
value-added services.
7
<PAGE>
- --------------------------------------------------------------------------------
PENNSYLVANIA TAX-FREE BOND FUND
Value of $10,000 Investment
<TABLE>
<CAPTION>
CONESTOGA CONESTOGA CONESTOGA LEHMAN
PENNSYLVANIA PENNSYLVANIA PENNSYLVANIA BROTHERS
TAX-FREE TAX-FREE TAX-FREE LEHMAN 5-YEAR
BOND FUND, BOND FUND, BOND FUND, BROTHERS MUNICIPAL
RETAIL RETAIL INST. MUNICIPAL BOND
(WITHOUT LOAD) (WITH LOAD) (SYNTHETIC) BOND INDEX INDEX
-------------- ------------ ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
9/30/92 $10000 $ 9800 $10000 $10000 $10000
10/92 9792 9596 9792 9902 9949
10/93 10962 10743 10962 11295 10922
10/94 10534 10323 10534 10803 10883
10/95 11829 11593 11829 12407 12003
</TABLE>
<TABLE>
<CAPTION>
Average Annualized
One Year Return Inception to Date
- ---------------------------------------------------------------------------
<S> <C> <C>
12.30% 5.48% Institutional (Synthetic)
12.30% 5.48% Retail without Load
10.00% 4.81% Retail with Load
</TABLE>
Past performance is not indicative of future performance. The inception date of
the Retail Shares was 9/21/92, and the inception date of the Institutional
Shares was 2/21/95. All Shares were previously classified as Retail, but
Institutional clients were not charged the maximum 2.0% sales charge that
applies to the Retail Shares. Total Returns for the periods prior to the
inception date of the Institutional Shares were calculated using a combination
of Institutional and Retail data (synthetic performance).
For the 12 months ended October 31, 1995, Institutional Shares of the Conestoga
Pennsylvania Tax-Free Bond Fund produced a total return of 12.30%, while Retail
Shares without Load produced a total return of 12.30%, and Retail Shares with
Load produced a total return of 10.00%. This compares to a total return of
14.85% for the Lehman Brothers Municipal Bond Index and 10.29% for the Lehman
Brothers 5-Year Municipal Bond Index, the benchmarks for the fund.
Throughout the year, tax-free funds were negatively impacted by the continued
prospect of tax reform, including a proposed flat tax which could eliminate the
tax advantage offered by municipal bonds. While we cannot predict the outcome of
this legislative debate, we have taken steps to keep the fund in a defensive
position in order to limit the potential downside.
For example, during most of the year the fund's average maturity was kept to
about 10.5 years, which is at the short end of our target maturity range of 10
to 12 years.
In addition, the portfolio maintained its overall quality level throughout the
year, focusing on high-quality names and non-callable securities. We have
generally steered clear of utility issues, which have been tainted by increasing
competition in the industry. However, we have enhanced the yield of the
portfolio with some hospital and housing issues.
Looking ahead, we plan to remain in a defensive position by maintaining our
shorter maturity level, in the belief that continued uncertainty will affect
both the direction of the market and the availability of attractive new issues.
The performance of the Conestoga Pennsylvania Tax-Free Bond Fund is measured
against the Lehman Brothers Municipal Bond Index and the Lehman Brothers 5-Year
Municipal Bond Index. These unmanaged indices do not refect the deduction of
expenses associated with a mutual fund, such as investment management and fund
accounting fees. The Fund's performance reflects the deduction of fees for these
value-added services.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
The Conestoga Funds 1995 Annual Report--October 31, 1995
CASH MANAGEMENT FUND
For the 12 months ended October 31, 1995, Institutional Shares of the Conestoga
Cash Management Fund produced a total return of 5.43%, while Retail Shares
produced a total return of 5.25%. (Past performance is not indicative of future
performance.) This compares to a total return of 5.38% for the fund's benchmark,
the IBC/Donoghue's Money Fund Average Taxable-First Tier Index.
This performance was achieved through maintaining an average maturity between 35
and 45 days. Increased yield was attained, however, through the addition of
securities which offered favorable yield spreads over Treasury securities.
For much of the year, the largest portion of the fund was invested in
high-quality commercial paper, followed by U.S. Government agency issues and
repurchase agreements backed by Treasuries.
Throughout the year, yields on short-term instruments were dampened somewhat by
the prospect of an easing of credit conditions by the Federal Reserve Board.
Looking ahead, we see this trend continuing. We plan to continue our approach of
enhancing yield through individual security selection.
The performance of the Conestoga Cash Management Fund is measured against the
IBC/Donoghue's Money Fund Average Taxable-First Tier Index, an unmanaged index
based upon the unweighted averages of yields of funds which have similar
investment objectives to the Fund. The index does not reflect the deduction of
expenses associated with a mutual fund, such as investment management and fund
accounting fees. The Fund's performance reflects the deduction of fees for these
value-added services.
U.S. TREASURY SECURITIES FUND
For the 12 months ended October 31, 1995, Institutional Shares of the Conestoga
U.S. Treasury Securities Fund produced a total return of 5.27%, while Retail
Shares produced a total return of 5.16%. (Past performance is not indicative of
future performance.) This compares to a total return of 5.24% for the fund's
benchmark, the IBC/Donoghue's Money Fund Average Taxable-U.S. Treasury & Repo
Index.
Throughout the year, the portfolio maintained an average maturity of between 40
and 50 days, extending on market setbacks to enhance yield. As a result, the
fund outperformed the benchmark.
We will continue to look for opportunities to buy into any weaknesses in the
market, in an effort to extend the maturity and increase the yield on the fund.
The performance of the Conestoga U.S. Treasury Securities Fund is measured
against the IBC/Donoghue's Money Fund Average Taxable-U.S. Treasury & Repo
Index, an unmanaged index based upon the unweighted averages of yields of funds
which have similar investment objectives to the Fund. The index does not reflect
the deduction of expenses associated with a mutual fund, such as investment
management and fund accounting fees. The Fund's performance reflects the
deduction of fees for these value-added services.
TAX-FREE FUND
For the 12 months ended October 31, 1995, Institutional Shares of the Conestoga
Tax-Free Fund produced a total return of 3.43%, while Retail Shares produced a
total return of 3.39%. (Past performance is not indicative of future
performance.) This compares to a total return of 3.31% for the fund's benchmark,
the IBC/Donoghue's Money Fund Average Tax-Free General Purpose Index.
The fund's performance can be attributed to our strategic use of securities of
varying maturities in order to maximize yield. For example, when yields were
less attractive, we made greater use of daily instruments and weekly demand
notes. This gave us the flexibility to purchase longer-maturity issues when
yields rose.
Throughout the year, the average maturity of the portfolio was generally between
40 and 50 days.
Going forward, we will continue to monitor the average maturity of the fund,
considering the prospects of further easing by the Federal Reserve Board. We
will also continue to evaluate the supply and demand factors of the short term
tax-free market in order to enhance the yield of the portfolio.
The performance of the Conestoga Tax-Free Fund is measured against the
IBC/Donoghue's Money Fund Average Tax-Free General Purpose Index, an unmanaged
index based upon the unweighted averages of yields of funds which have similar
investment objectives to the Fund. The index does not reflect the deduction of
expenses associated with a mutual fund, such as investment management and fund
accounting fees. The Fund's performance reflects the deduction of fees for these
value-added services.
9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees
of The Conestoga Funds:
We have audited the accompanying statements of net assets of The Conestoga Funds
(the Fund) (comprising, respectively, the Equity Fund, the Special Equity Fund,
the International Equity Fund, the Balanced Fund, the Bond Fund (formerly the
Income Fund), the Intermediate Income Fund (formerly the Limited Maturity Fund),
the Short-Term Income Fund, the Pennsylvania Tax-Free Bond Fund, the Cash
Management Fund, the U.S. Treasury Securities Fund, and the Tax-Free Fund) as of
October 31, 1995, and the related statements of operations for the year (or
periods) then ended, the statement of changes in net assets, and the financial
highlights for each of the respective periods presented. These financial
statements and the financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the Fund's custodian and brokers, or
other auditing procedures where correspondence from brokers was not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios comprising The Conestoga Funds as of October 31,
1995 and the results of their operations for the year (or periods) then ended
and the changes in their net assets and the financial highlights for the periods
presented in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 8, 1995
10
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Equity Fund
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 98.5%
AEROSPACE & DEFENSE -- 0.9%
Lockheed Martin 25,401 $ 1,730
McDonnell Douglas 21,717 1,776
------
Total Aerospace & Defense 3,506
------
AIRCRAFT -- 2.3%
Allied Signal 84,775 3,603
Boeing 27,310 1,792
Textron 30,000 2,063
United Technologies 16,500 1,464
------
Total Aircraft 8,922
------
APPAREL/TEXTILES -- 0.5%
Burlington Industries* 49,771 554
Fruit Of The Loom* 75,000 1,303
------
Total Apparel/Textiles 1,857
------
AUTOMOTIVE -- 1.8%
Ford Motor 205,000 5,894
Magna International, Class A 27,500 1,189
------
Total Automotive 7,083
------
BANKS -- 10.0%
Bank Of Boston 74,000 3,293
BankAmerica 196,900 11,322
Chase Manhattan 206,600 11,774
Chemical Banking 103,000 5,858
Citicorp 99,000 6,423
------
Total Banks 38,670
------
BUILDING & CONSTRUCTION -- 0.6%
Webb (Dell E.) 105,000 2,179
------
Total Building & Construction 2,179
------
CHEMICALS -- 3.2%
Dow Chemical 25,525 1,752
Hercules 5,100 272
IMC Global 36,600 2,562
Monsanto 32,500 3,404
Praxair 155,000 4,185
------
Total Chemicals 12,175
------
COMMUNICATIONS EQUIPMENT -- 1.4%
First Alert* 33,800 524
Motorola 32,175 2,111
Qualcomm* 65,000 2,503
------
Total Communications Equipment 5,138
------
COMPUTER SOFTWARE -- 1.4%
Autotote -- Class A* 90,230 271
Computer Associates
International 52,500 2,887
International Game Technology 146,358 1,701
Pyxis* 24,839 314
------
Total Computer Software 5,173
------
COMPUTER AND OFFICE EQUIPMENT -- 3.1%
Hewlett Packard 14,330 1,327
IBM 98,000 9,531
Novell* 56,435 931
------
Total Computer and Office Equipment 11,789
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
COMPUTERS & SERVICES -- 2.9%
Apple Computer 94,000 $ 3,413
Compaq Computer* 57,500 3,206
Digital Equipment* 84,750 4,587
------
Total Computers & Services 11,206
------
CONCRETE & MINERAL PRODUCTS -- 0.5%
Owens Corning Fiberglass* 46,910 1,988
------
Total Concrete & Mineral Products 1,988
------
CONTAINERS & PACKAGING -- 0.4%
Owens-Illinois* 119,455 1,508
------
Total Containers & Packaging 1,508
------
ELECTRICAL SERVICES -- 6.3%
Central & South West 124,200 3,322
Consolidated Edison New York 142,000 4,313
Pacific Gas & Electric 120,800 3,549
Peco Energy 200,000 5,850
SCE 425,000 7,225
------
Total Electrical Services 24,259
------
ELECTRONIC AND OTHER ELECTRICAL EQUIPMENT -- 3.9%
General Electric 180,000 11,385
Philips Electronics ADR 75,000 2,897
Texas Instruments 13,100 894
------
Total Electronic and Other
Electrical Equipment 15,176
------
ENTERTAINMENT -- 0.3%
MGM Grand* 43,870 1,047
President Casinos* 31,325 96
------
Total Entertainment 1,143
------
ENVIRONMENTAL SERVICES -- 1.0%
Browning Ferris Industries 125,000 3,641
------
Total Environmental Services 3,641
------
FINANCIAL SERVICES -- 4.1%
Dean Witter Discover 89,013 4,428
Fleet Financial Group 55,000 2,131
Household International 38,000 2,138
ITT 40,000 4,901
MBNA 62,900 2,319
------
Total Financial Services 15,917
------
FOOD, BEVERAGE & TOBACCO -- 7.9%
Buenos Aires Embotellado-ADR 27,355 626
IBP 38,200 2,287
Nabisco Holdings -- Class A 179,500 4,824
Philip Morris Companies 173,860 14,691
RJR Nabisco Holdings 256,160 7,877
------
Total Food, Beverage & Tobacco 30,305
------
</TABLE>
11
<PAGE>
- -------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
HOUSEHOLD PRODUCTS -- 0.4%
Maytag 85,800 $ 1,630
------
Total Household Products 1,630
------
INSURANCE -- 4.0%
Aetna Life & Casualty 30,000 2,111
Cigna 30,000 2,974
Equitable Companies 195,500 4,154
The Travelers Group 125,000 6,312
Transport Holdings -- Class A* 625 25
------
Total Insurance 15,576
------
MACHINERY -- 3.0%
Baker Hughes 90,000 1,766
Brunswick 80,800 1,576
Case Equipment 55,000 2,097
Caterpillar 33,700 1,891
Deere 40,000 3,575
McDermott International 30,635 486
------
Total Machinery 11,391
------
MEDICAL PRODUCTS & SERVICES -- 2.6%
Beverly Enterprises* 136,600 1,605
Community Psychiatric* 48,400 526
Coram Healthcare* 100,000 400
FHP International* 45,000 1,091
Foundation Health* 53,704 2,276
Humana* 122,300 2,585
Novacare* 25,964 162
United Healthcare 9,850 523
United States Surgical 37,557 920
------
Total Medical Products & Services 10,088
------
METALS & MINING -- 0.9%
Potash of Saskatchewan 49,400 3,439
------
Total Metals & Mining 3,439
------
OIL AND GAS FIELD EXPLORATION SERVICES -- 9.7%
Ashland 100,000 3,163
British Petroleum Plc ADR 92,000 8,118
Diamond Shamrock 31,750 818
Enron 85,000 2,922
Mobil 78,600 7,919
Repsol S.A. ADR 161,500 4,784
Royal Dutch Petroleum 53,550 6,580
Tosco 57,700 1,991
YPF Sociedad Anonima ADR 72,385 1,240
------
Total Oil and Gas Field
Exploration Services 37,535
------
PAPER & PAPER PRODUCTS -- 0.5%
International Paper 50,000 1,850
------
Total Paper & Paper Products 1,850
------
PHARMACEUTICALS -- 2.6%
Caremark International 23,200 479
Elan Public* 111,100 4,457
Merck 45,805 2,634
Mylan Laboratories 63,100 1,199
Teva Pharmaceutical Industries
ADR 32,672 1,282
------
Total Pharmaceuticals 10,051
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
PHOTOGRAPHIC EQUIPMENT & SUPPLIES -- 0.4%
Xerox 13,000 $ 1,687
------
Total Photographic Equipment & Supplies 1,687
------
RAILROADS -- 1.3%
Burlington Northern Santa Fe 30,000 2,517
CSX 28,600 2,395
------
Total Railroads 4,912
------
RESTAURANTS -- 2.0%
Darden Restaurants* 619,000 7,041
Rally's Hamburgers* 18,426 35
Vicorp Restaurants* 61,534 677
------
Total Restaurants 7,753
------
RETAIL -- 4.6%
Bed, Bath & Beyond* 7,600 238
Borders Group* 187,000 3,202
CML Group 275,000 1,581
Kroger* 169,505 5,657
Lowe's 159,200 4,298
Pep Boys 100,000 2,188
Vons* 23,000 584
------
Total Retail 17,748
------
RUBBER & PLASTIC -- 2.4%
Goodyear Tire & Rubber 245,000 9,310
------
Total Rubber & Plastic 9,310
------
SEMI-CONDUCTORS/INSTRUMENTS -- 2.5%
Intel 73,400 5,129
Micron Technology 24,500 1,730
National Semiconductor* 76,000 1,853
VLSI Technology 40,000 940
------
Total Semi-Conductors/Instruments 9,652
------
SERVICES-EMPLOYMENT AGENCIES -- 0.8%
Manpower 116,000 3,147
------
Total Services-Employment Agencies 3,147
------
SPECIALTY MACHINERY -- 0.9%
Westinghouse Electric 235,000 3,319
------
Total Specialty Machinery 3,319
------
STEEL & STEEL WORKS -- 1.6%
Birmingham Steel 8,070 123
Phelps Dodge 46,600 2,953
USX -- U.S. Steel Group 100,100 2,991
------
Total Steel & Steel Works 6,067
------
</TABLE>
12
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Equity Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Shares/Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
TELEPHONES & TELECOMMUNICATION -- 5.6%
Cellular Communications -- Class
A* 24,773 $ 1,328
MCI Communications 178,475 4,451
SBC Communications 80,000 4,470
Worldcom* 350,100 11,422
------
Total Telephones & Telecommunication 21,671
------
WHOLESALE -- 0.2%
Jan Bell Marketing* 80,480 272
Michael Foods 3,726 45
Universal -- Va 21,770 457
------
Total Wholesale 774
------
Total Common Stock
(Cost $362,939,414) 379,235
------
PREFERRED STOCKS -- 0.7%
PRINTING & PUBLISHING -- 0.4%
News -- Preferred Shares ADR 72,915 1,331
------
Total Printing & Publishing 1,331
------
TELEPHONES & TELECOMMUNICATION -- 0.3%
Cellular Communications
Preferred* 23,866 1,280
------
Total Telephones & Telecommunication 1,280
------
Total Preferred Stocks
(Cost $2,565,048) 2,611
------
COMMERCIAL PAPER -- 0.9%
American Express
5.750%, 11/01/95 $ 3,336 3,336
------
Total Commercial Paper
(Cost $3,336,000) 3,336
------
Total Investments -- 100.1%
(Cost $368,840,462) 385,182
------
OTHER ASSETS AND LIABILITIES -- (0.1%)
Other Assets and Liabilities,
Net (239)
------
Total Other Assets and Liabilities (239)
------
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 22,159,807
outstanding shares of
beneficial interest 334,512
Portfolio shares of the Retail
Class (unlimited
authorization -- $0.001 par
value) based on 385,955
outstanding shares of
beneficial interest 5,056
Undistributed net investment
income 101
Undistributed net realized gain
on investments 28,932
Unrealized appreciation on
investments 16,342
------
Total Net Assets -- 100.0% $ 384,943
======
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
Net Asset Value, Offering Price
and Redemption Price Per
Share -- Institutional Class $ 17.07
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 17.08
======
Maximum Offering Price Per
Share -- Retail Class
($17.08 / 98.0%) $ 17.43
======
* Non-income producing security
ADR American Depository Receipt
SPECIAL EQUITY FUND
COMMON STOCK -- 96.1%
AEROSPACE & DEFENSE -- 1.0%
McDonnell Douglas 7,500 $ 613
------
Total Aerospace & Defense 613
------
AGRICULTURE PRODUCTS -- 0.8%
Terra Industries 35,000 442
------
Total Agriculture Products 442
------
APPAREL/TEXTILES -- 3.7%
Burlington Industries* 5,117 57
Cyrk International* 20,100 221
Fieldcrest Cannon* 17,400 335
Gadzooks* 1,000 19
Gucci Group* 2,700 81
Haggar 20,000 330
Oneita Industries* 55,000 371
Oxford Industries 20,000 325
Quaker Fabric* 11,900 107
Supreme International* 18,400 294
------
Total Apparel/Textiles 2,140
------
AUTOMOTIVE -- 1.2%
Ford 13,000 373
Magna International -- Class A 6,500 281
Walbro 3,000 59
------
Total Automotive 713
------
BANKS -- 5.4%
Bank of Boston 14,500 645
BankAmerica 13,900 799
Barnett Banks 7,000 387
Chase Manhattan 12,000 684
Chemical Banking 9,100 518
MBNA 2,200 81
------
Total Banks 3,114
------
BROADCASTING, NEWSPAPERS & ADVERTISING -- 0.1%
Argyle Television* 2,000 34
------
Total Broadcasting, Newspapers & Advertising 34
------
</TABLE>
13
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
BUILDING & CONSTRUCTION -- 1.4%
Empresas ICA S.A.-ADS 7,500 $ 71
Webb (Del. E.) 35,000 727
------
Total Building & Construction 798
------
CHEMICALS -- 0.4%
Kinark* 65,000 195
------
Total Chemicals 195
------
COMMUNICATIONS EQUIPMENT -- 1.0%
ECI Telecommunications* 9,000 171
First Alert* 22,000 341
Qualcomm* 1,500 58
------
Total Communications Equipment 570
------
COMPUTER SOFTWARE -- 4.7%
Autotote -- Class A* 35,000 105
Checkfree* 3,600 76
Computer Associates
International 8,500 468
Computervision* 72,500 850
Control Data Systems* 60,000 795
Gametek* 10,000 18
Pyxis* 16,947 214
Simware* 18,400 173
------
Total Computer Software 2,699
------
COMPUTERS & SERVICES -- 2.4%
IBM 8,500 826
International Game Technology 21,514 250
Landmark Graphics* 7,200 157
Mizar* 18,200 155
------
Total Computers & Services 1,388
------
CONCRETE & MINERAL PRODUCTS -- 1.3%
Owens Corning Fiberglass* 17,500 742
------
Total Concrete & Mineral Products 742
------
CONTAINERS & PACKAGING -- 0.6%
Owens-Illinois* 25,700 324
------
Total Containers & Packaging 324
------
ELECTRICAL SERVICES -- 1.0%
SCE 35,000 595
------
Total Electrical Services 595
------
ELECTRONIC GAMING DEVICES -- 1.1%
Mikohn Gaming* 110,000 495
Video Lottery Technologies* 34,200 162
------
Total Electronic Gaming Devices 657
------
ELECTRONIC AND OTHER ELECTRICAL EQUIPMENT -- 1.9%
Cincinnati Microwave* 27,300 157
Philips Electronics ADR* 18,300 707
Rexel* 18,800 216
Smartflex Systems* 2,300 34
------
Total Electronic and Other Electrical Equipment 1,114
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
ENERGY & POWER -- 1.3%
Zurn Industries 30,000 $ 750
------
Total Energy & Power 750
------
ENGINEERING CONSULTING -- 0.1%
Corrpro Companies* 9,700 55
------
Total Engineering Consulting 55
------
ENTERTAINMENT -- 1.0%
Boomtown* 17,000 125
Cinergi Pictures Entertainment* 14,300 55
Hollywood Park* 20,000 194
President Casinos* 17,226 53
Sports Club* 38,000 162
------
Total Entertainment 589
------
ENVIRONMENTAL CONSULTING -- 0.5%
Harding Associates* 40,300 277
------
Total Environmental Consulting 277
------
ENVIRONMENTAL SERVICES -- 1.3%
Browning Ferris Industries 25,000 728
------
Total Environmental Services 728
------
FINANCIAL SERVICES -- 3.7%
Donaldson, Luftkin, & Jenrette* 4,800 143
Household International 5,600 315
ITT 5,000 613
Jayhawk Acceptance* 27,400 329
WFS Financial* 45,000 747
------
Total Financial Services 2,147
------
FOOD, BEVERAGE & TOBACCO -- 5.6%
Cott 19,000 157
Michael Foods 51,476 624
Pepsi-Cola Puerto Rico Bottling* 69,200 944
Philip Morris Companies 8,500 718
RJR Nabisco Holdings 19,200 590
Rymer Foods* 178,600 223
------
Total Food, Beverage & Tobacco 3,256
------
HOME BUILDERS -- 0.4%
Belmont Homes* 4,100 72
Cavalier Homes 10,925 185
------
Total Home Builders 257
------
HOTELS & LODGING -- 1.3%
John Q. Hammons Hotels* 9,600 113
Prime Hospitality* 64,500 637
------
Total Hotels & Lodging 750
------
HOUSEHOLD FURNITURE & FIXTURES -- 0.7%
Ameriwood Industries
International* 20,900 105
Winsleow Furniture* 44,180 287
------
Total Household Furniture & Fixtures 392
------
</TABLE>
14
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Special Equity Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
INSURANCE -- 3.5%
Allstate 740 $ 27
Gryphon Holdings* 36,700 573
Pac Rim Holding* 87,700 252
Prudential Reinsurance Holdings* 32,700 667
St. Paul Companies 3,840 195
The Travelers Group 6,500 328
Transport Holdings* 33 1
------
Total Insurance 2,043
------
LABORATORY ANALYTICAL INSTRUMENTS -- 0.4%
Molecular Dynamics* 1,400 8
Perseptive Biosystems* 21,000 224
------
Total Laboratory Analytical Instruments 232
------
MACHINERY -- 3.9%
Agco 8,950 401
Caterpillar 11,500 645
Deere 7,500 670
Kuhlman 50,000 575
------
Total Machinery 2,291
------
MEDICAL PRODUCTS & SERVICES -- 6.0%
Acme United* 129,200 388
Aequitron Medical* 9,000 71
Community Psychiatric* 12,400 135
Cooper Companies* 50,000 294
Keravision* 34,500 427
Metra Biosystems* 6,800 126
Pace Health Management Systems* 43,500 201
Possis Medical* 22,600 319
Resound* 47,400 373
Scios Nova* 218,200 789
Sterling House* 18,000 223
United Healthcare 1,366 73
Value Health* 5,400 124
------
Total Medical Products & Services 3,543
------
METALS & MINING -- 0.9%
Potash of Saskatchewan 7,800 543
------
Total Metals & Mining 543
------
OIL AND GAS FIELD EXPLORATION SERVICES -- 1.9%
Enron 10,000 344
Repsol S.A. ADR 25,000 740
------
Total Oil and Gas Field
Exploration Services 1,084
------
PAPER & PAPER PRODUCTS -- 1.1%
International Paper 17,000 629
------
Total Paper & Paper Products 629
------
PETROLEUM & FUEL PRODUCTS -- 0.1%
Kelley Oil & Gas* 15,000 38
------
Total Petroleum & Fuel Products 38
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
PHARMACEUTICALS -- 7.1%
Alpharma 18,700 $ 449
Anesta* 45,200 480
Aphton* 24,300 231
Elan* 17,000 682
Guilford Pharmaceuticals* 22,600 373
ISIP Pharmaceuticals* 27,300 276
NBTY* 26,500 133
Pharmaceutical Resources* 91,300 753
Roberts Pharmaceutical* 12,500 242
Teva Pharmaceutical Industries
ADR 14,000 550
------
Total Pharmaceuticals 4,169
------
RAILROADS -- 1.0%
CSX 7,200 603
------
Total Railroads 603
------
REAL ESTATE -- 0.2%
Agree Realty 9,400 139
------
Total Real Estate 139
------
REPAIR SERVICES -- 0.1%
Earl Scheib* 4,900 29
------
Total Repair Services 29
------
RESTAURANTS -- 4.0%
Darden Restaurants* 81,500 927
Hometown Buffet* 44,800 588
Rally's Hamburgers* 5,815 11
Uno Restaurant* 90,000 686
Vicorp Restaurants* 5,000 55
Vie De France* 21,000 66
------
Total Restaurants 2,333
------
RETAIL -- 6.4%
Bed Bath & Beyond* 3,500 109
Bon-Ton Stores* 51,000 332
Border Group* 54,000 926
Chico's Fas* 8,300 37
CML Group 92,200 530
De Rigo S.P.A. ADR* 200 4
Drug Emporium* 92,100 374
Intimate Brands* 5,400 90
Kroger* 16,000 534
Pacific Sunwear of California* 74,900 543
Sportmart Class A* 14,400 68
Sportmart* 14,400 110
Strouds* 19,000 88
------
Total Retail 3,745
------
RUBBER & PLASTIC -- 1.7%
Goodyear Tire And Rubber 13,000 494
O'Sullivan 45,000 495
------
Total Rubber & Plastic 989
------
</TABLE>
15
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Shares/Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
SEMI-CONDUCTORS -- 3.8%
ESS Technology* 9,100 $ 273
Intel 7,400 517
Lam Research* 7,500 457
Micron Technology 7,800 550
National Semiconductor* 17,300 422
------
Total Semi-Conductors 2,219
------
SERVICES-EMPLOYMENT AGENCIES -- 0.9%
Manpower 20,000 543
------
Total Services-Employment Agencies 543
------
SPORTING AND ATHLETIC GOODS -- 1.2%
Callaway Golf 36,500 597
Meridian Sports* 17,300 104
------
Total Sporting and Athletic Goods 701
------
STEEL & STEEL WORKS -- 2.5%
Ak Steel Holding 22,000 682
Cold Metal Products* 42,800 246
USX 17,500 523
------
Total Steel & Steel Works 1,451
------
TELEPHONES & TELECOMMUNICATION -- 2.3%
Cellular Communications -- Class
A* 5,439 292
Executone Information Systems* 55,900 143
Intermedia Communications of
Florida* 40,500 511
Nextel Communications* 15,000 208
Peoples Telephone* 14,300 37
Telefonica De Espana ADR 4,000 151
------
Total Telephones & Telecommunication 1,342
------
TRUCKING -- 1.6%
Expeditors International of
Washington 25,000 656
PST Vans* 45,900 258
------
Total Trucking 914
------
VIDEO TECHNOLOGY -- 1.3%
Videonics* 55,000 770
------
Total Video Technology 770
------
WHOLESALE -- 0.3%
Government Technology Services* 33,500 188
------
Total Wholesale 188
------
Total Common Stock
(Cost $55,333,061) 55,877
------
COMMERCIAL PAPER -- 4.4%
American Express
5.750%, 11/01/95 $ 2,540 2,540
------
Total Commercial Paper
(Cost $2,540,000) 2,540
------
Total Investments -- 100.5%
(Cost $57,873,061) 58,417
------
OTHER ASSETS AND LIABILITIES -- (0.5%)
Other Assets and Liabilities,
Net (287)
------
Total Other Assets and Liabilities (287)
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 5,027,349
outstanding shares of
beneficial interest $ 48,443
Portfolio shares of the Retail
Class (unlimited
authorization -- $0.001 par
value) based on 64,279
outstanding shares of
beneficial interest 643
Undistributed net investment
income 16
Undistributed net realized gain
on investments 8,483
Unrealized appreciation on
investments 545
------
Total Net Assets: -- 100.0% $ 58,130
======
Net Asset Value, Offering Price
and Redemption Price Per
Share -- Institutional Class $ 11.42
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 11.42
======
Maximum Offering Price Per
Share -- Retail Class
($11.42 / 98.0%) $ 11.65
======
* Non-income producing security
ADR American Depository Receipt
INTERNATIONAL EQUITY FUND
FOREIGN COMMON STOCKS 90.2%
ARGENTINA 1.4%
Banco Frances Rio Plata ADR 2,200 $ 49
Cementera Argentina* 6,500 28
Commercial del Plata* 19,000 38
Irsa GDR* 1,400 29
Quilmes Industrial 2,200 39
------
Total Argentina 183
------
AUSTRALIA 0.8%
Newscorp 21,000 106
------
Total Australia 106
------
CHILE 0.2%
Santa Isabel ADR* 1,100 25
------
Total Chile 25
------
FINLAND 3.6%
Nokia, Cl A 8,400 481
------
Total Finland 481
------
</TABLE>
16
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
International Equity Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
FRANCE 1.7%
Axa 800 $ 44
Business Objects ADR* 1,300 56
Castorama 165 27
Cie Bancaire 350 36
SGS-Thomson ADR* 1,500 68
------
Total France 231
------
GERMANY 0.7%
Veba 2,250 92
------
Total Germany 92
------
HONG KONG 5.9%
Cheung Kong Holdings 11,000 62
Citic Pacific 20,800 65
First Pacific 266,000 306
HSBC Holdings 15,200 221
Hutchison Whampoa 12,000 66
Sun Hung Kai Properties 8,000 64
------
Total Hong Kong 784
------
INDIA 0.6%
East India Hotels GDR* 1,400 24
I.T.C. ADR* 4,100 36
Ranbaxy Laboratories GDR 1,000 22
------
Total India 82
------
INDONESIA 1.0%
Indonesian Satellite ADR 4,000 133
------
Total Indonesia 133
------
IRELAND 0.4%
Elan ADR* 1,300 52
------
Total Ireland 52
------
ISRAEL 0.3%
ECI Telecommunications 1,800 34
------
Total Israel 34
------
ITALY 2.7%
Assicurazioni Generali 2,200 51
Falck* 12,200 28
Fila Holdings ADR 900 39
Gucci Group ADR* 3,100 93
Mediobanca 4,000 27
Telecom Italia 71,500 120
------
Total Italy 358
------
JAPAN 27.7%
Advantest 4,000 227
Alpine Electronics 4,000 56
Best Denski 2,000 29
Bridgestone 3,000 42
Canon 6,000 103
Canon Sales 1,000 24
Daini Denden 32 259
Daiwa Securities 7,000 82
Fanuc 2,000 87
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
Hirose Electric 1,050 $ 67
Ito Yokado 3,000 164
Keyence 500 62
Koa 5,000 81
Kokusai Electric 5,000 114
Komatsu 6,000 47
Kubota 6,000 37
Kurita Water Industries 1,000 28
Kyocera 4,000 328
Makita 2,000 31
Marui 2,000 35
Matsushita Electric 3,000 43
Mitsubishi Electric 5,000 37
Mitsubishi Estate 7,000 75
Mitsubishi Trust & Banking 2,000 28
Mitsui Fudosan 5,000 57
Murata 4,000 140
NEC 20,000 264
Nikon 10,000 143
Nippon Telegraph & Telephone 4 33
Nissan Motors 7,000 47
Nomura Securities 6,000 110
NTT Data Communications 3 75
Sankyo 1,000 22
Sanwa Bank 3,000 51
Sharp 7,000 97
Sony 1,000 45
Sumitomo Bank 3,000 53
Sumitomo Trust & Banking 4,000 46
Takeda Chemical Industries 2,000 28
TDK 1,000 52
Tokyo Electronics 4,000 174
Toray 6,000 37
Toyota Motor 4,000 74
Ushio 2,000 23
Yamanouchi Pharmaceutical 3,000 67
------
Total Japan 3,724
------
LUXEMBOURG 0.1%
Millicom International* 500 17
------
Total Luxembourg 17
------
MALAYSIA 3.8%
Arab-Malaysian Merchant Bank 12,000 148
Malayan Banking 10,000 81
New Straits Times Press 20,000 63
Sime Darby Malaysia 20,000 50
Technology Resources* 44,000 112
United Engineers 9,000 56
------
Total Malaysia 510
------
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
MEXICO 2.0%
Bufete Industrial ADR* 1,600 $ 21
Cemex, Cl A 5,300 16
Cifra* 35,000 37
Grupo Carso ADR* 2,500 24
Grupo Financiero Banamex, Cl B 11,000 19
Grupo Financiero Banamex, Cl L 550 1
Grupo Financiero Inbursa, Cl C 20,000 55
Grupo Iusacell ADS* 1,400 17
Grupo Modelo, Cl C 5,000 19
Grupo Posadas, Cl A* 52,300 17
Grupo Synkro ADR, Cl B* 80,000 20
Kimberly Clark, Cl A 1,700 22
------
Total Mexico 268
------
NETHERLANDS 4.7%
Advanced Semi-Conductor ADR* 700 33
ASM Litho Holdings ADR* 2,000 97
Baan ADR* 2,300 98
Elsevier 4,500 58
Getronics 1,000 48
International Nederlanden 500 30
Madge Networks ADR* 1,900 80
Philips Electronics 1,800 70
Polygram 1,100 69
Wolters Kluwer 500 46
------
Total Netherlands 629
------
NEW ZEALAND 0.5%
Telecom New Zealand ADR 1,015 67
------
Total New Zealand 67
------
NORWAY 1.2%
Hafslund Nycomed, Cl B 1,200 34
Petroleum Geo-Services ADR* 6,200 120
------
Total Norway 154
------
PERU 0.3%
Banco Wiese ADR 6,900 46
------
Total Peru 46
------
PHILIPPINES 0.5%
San Miguel, Cl B 20,000 66
------
Total Philippines 66
------
SINGAPORE 1.9%
City Development 7,000 43
Creative Technology ADR* 1,100 13
Flextronics ADR* 1,000 23
Singapore Press, F 2,400 38
Straits Steamship Land 14,000 39
United Overseas Bank, F 10,600 93
------
Total Singapore 249
------
SOUTH KOREA 3.1%
Korea Fund 3,000 65
Korea Mobile Telecom GDR* 2,500 93
Samsung Electric Non-Voting
GDS New* 4,000 256
Samsung Electric Voting GDR* 22 2
------
Total South Korea 416
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
SWEDEN 7.4%
Allgan, Cl B 1,600 $ 24
Asea, Cl B 1,400 138
Astra, Cl B 5,200 188
Autoliv 2,200 126
Ericsson Telephone ADR 23,400 500
Pharmacia, Cl B 500 17
------
Total Sweden 993
------
SWITZERLAND 4.9%
Brown Boveri & Cie Bearer 65 75
Ciba Geigy 125 108
Roche Holdings 35 255
Sandoz Pharmaceutical 260 215
------
Total Switzerland 653
------
THAILAND 2.3%
Advanced Info Service, F 9,000 148
Land and House, F 2,000 32
Total Access Communications ADR 11,000 67
United Communications 5,000 63
------
Total Thailand 310
------
UNITED KINGDOM 10.5%
Barclays Bank 5,200 61
BAT 4,200 34
British Sky Broadcasting ADR 5,500 197
Commercial Union 5,300 51
Glaxo Wellcome 7,200 97
Logica 6,100 46
Next 12,000 78
Reuters 16,200 151
Smithkline Beecham 20,500 210
Takare 6,000 19
Tele-Communications ADR, Cl A* 7,500 170
Vodafone Group 26,200 108
WPP Group 11,600 28
Zeneca Group 8,000 149
------
Total United Kingdom 1,399
------
Total Foreign Common Stocks
(Cost $11,387,561) 12,062
------
FOREIGN PREFERRED STOCKS 1.4%
GERMANY 1.4%
SAP 1,250 191
------
Total Germany 191
------
Total Foreign Preferred Stocks
(Cost $158,684) 191
------
</TABLE>
18
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
International Equity Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
TIME DEPOSIT 7.7%
Bank of New York -- Cayman
Time Deposit
5.563%, 11/01/95 $ 1,029 $ 1,029
------
Total Time Deposit
(Cost $1,028,558) 1,029
------
Total Investments (99.3% of Net Assets)
(Cost $12,574,803) 13,282
------
OTHER ASSETS AND LIABILITIES 0.7%
Other Assets and Liabilities, Net 99
------
Total Other Assets and Liabilities 99
------
NET ASSETS:
Portfolio shares of
Institutional
Class (unlimited
authorization -- $0.001 par
value) -- based on
1,214,982 outstanding shares 12,425
Portfolio shares of Retail
Class (unlimited
authorization -- $0.001 par
value) -- based on
758 outstanding shares 8
Accumulated net investment loss (5)
Undistributed net realized gain
on investments and foreign
currency transactions 201
Unrealized appreciation on
forward foreign currency
contracts, foreign currency
and translation of other
assets and liabilities in
foreign currency 45
Unrealized appreciation on
investments 707
------
Total Net Assets: -- 100.0% $ 13,381
======
Net Asset Value, Offering Price
and
Redemption Price Per Share --
Institutional Class $ 11.01
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 10.99
======
Maximum Offering Price Per
Share -- Retail Class
($10.99 / 98%) $ 11.21
======
* Non-income producing security
ADR American Depository Receipts
ADS American Depository Shares
GDR Global Depository Receipts
GDS Global Depository Shares
Cl Class
F Foreign Registry Shares
BALANCED FUND
COMMON STOCK -- 38.5%
AEROSPACE & DEFENSE -- 0.2%
McDonnell Douglas 900 $ 74
------
Total Aerospace & Defense 74
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
AIRCRAFT -- 1.1%
Allied Signal 3,800 $ 162
Boeing 1,500 98
Textron 1,000 69
United Technologies 900 80
------
Total Aircraft 409
------
APPAREL/TEXTILES -- 0.2%
Burlington Industries* 1,900 21
Fruit Of The Loom* 3,000 52
------
Total Apparel/Textiles 73
------
AUTOMOTIVE -- 0.7%
Ford Motor 7,700 222
Magna International, Class A 1,000 43
------
Total Automotive 265
------
BANKS -- 3.9%
Bank of Boston 2,600 116
BankAmerica 8,300 477
Chase Manhattan 7,800 445
Chemical Banking 4,400 250
Citicorp 3,500 227
------
Total Banks 1,515
------
BOOKS -- 0.0%
Borders Group* 1,000 17
------
Total Books 17
------
BUILDING & CONSTRUCTION -- 0.3%
Webb (Del E.) 5,400 112
------
Total Building & Construction 112
------
CHEMICALS -- 1.5%
Dow Chemical 900 62
Hercules 1,900 101
IMC Global 1,700 119
Monsanto 1,200 126
Praxair 6,500 175
------
Total Chemicals 583
------
COMMUNICATIONS EQUIPMENT -- 0.5%
First Alert* 1,200 19
Motorola 1,300 85
Qualcomm* 2,500 96
------
Total Communications Equipment 200
------
COMPUTER SOFTWARE -- 0.5%
Computer Associates
International 2,400 131
International Game Technology 5,400 63
Pyxis* 1,000 13
------
Total Computer Software 207
------
</TABLE>
19
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
COMPUTERS & SERVICES -- 2.4%
Apple Computer 3,600 $ 131
Compaq Computer* 2,000 112
Digital Equipment* 3,500 189
Hewlett Packard 800 74
IBM 4,000 389
Novell* 2,252 37
------
Total Computers & Services 932
------
CONCRETE & MINERAL PRODUCTS -- 0.1%
Owens Corning Fiberglass* 1,200 51
------
Total Concrete & Mineral Products 51
------
CONTAINERS & PACKAGING -- 0.2%
Owens-Illinois* 5,300 67
------
Total Containers & Packaging 67
------
ELECTRICAL SERVICES -- 2.5%
American Electric Power 1,800 69
Central And South West 4,100 110
Consolidated Edison New York 5,400 164
Pacific Gas And Electric 4,200 123
Peco Energy 8,500 248
SCE 14,300 243
------
Total Electrical Services 957
------
ELECTRONIC AND OTHER ELECTRICAL EQUIPMENT -- 1.8%
General Electric 7,200 456
Philips Electronics ADR 2,700 104
Texas Instruments 1,800 123
------
Total Electronic and Other
Electrical Equipment 683
------
ENTERTAINMENT -- 0.1%
MGM Grand* 1,800 43
------
Total Entertainment 43
------
ENVIRONMENTAL SERVICES -- 0.3%
Browning Ferris Industries 4,500 131
------
Total Environmental Services 131
------
FINANCIAL SERVICES -- 1.6%
Dean Witter Discover 3,700 183
Fleet Financial Group 2,000 78
Household International 1,400 79
ITT 1,500 184
MBNA 2,500 92
------
Total Financial Services 616
------
FOOD, BEVERAGE & TOBACCO -- 3.1%
IBP 1,900 114
Nabisco Holdings -- Class A 8,000 215
Philip Morris Companies 6,700 566
RJR Nabisco Holdings 10,300 317
------
Total Food, Beverage & Tobacco 1,212
------
HOUSEHOLD PRODUCTS -- 0.1%
Maytag 2,700 51
------
Total Household Products 51
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C>
INSURANCE -- 1.6%
Aetna Life And Casualty 1,200 $ 84
Allstate 462 17
Cigna 1,200 119
Equitable Companies 7,300 155
The Travelers Group 5,000 253
Transport Holdings -- Class A* 25 1
------
Total Insurance 629
------
MACHINERY -- 1.1%
Baker Hughes 3,000 59
Case Equipment 2,500 95
Caterpillar 1,200 67
Deere 1,800 161
McDermott International 1,300 21
------
Total Machinery 403
------
MEDICAL PRODUCTS & SERVICES -- 0.8%
Beverly Enterprises* 5,100 60
Community Psychiatric* 1,500 16
FHP International* 1,500 36
Foundation Health* 1,600 68
Health Systems International
Class A* 700 21
Humana* 1,500 32
Novacare* 2,300 14
United Healthcare 500 27
United States Surgical 1,700 42
------
Total Medical Products & Services 316
------
METALS & MINING -- 0.3%
Potash of Saskatchewan 1,700 118
------
Total Metals & Mining 118
------
OIL AND GAS FIELD EXPLORATION SERVICES -- 4.0%
Ashland 3,500 111
British Petroleum PLC ADR 4,000 353
Diamond Shamrock 1,400 36
Enron 3,500 120
Mobil 3,200 322
Repsol S.A. ADR 7,100 210
Royal Dutch Petroleum 2,200 270
Tosco 2,300 79
YPF Sociedad Anonima ADR 2,700 46
------
Total Oil and Gas Field Exploration Services 1,547
------
PAPER & PAPER PRODUCTS -- 0.2%
International Paper 1,800 67
------
Total Paper & Paper Products 67
------
PHARMACEUTICALS -- 1.0%
Caremark International 900 19
Elan Public* 3,900 156
Merck 1,600 92
Mylan Laboratories 2,500 48
Teva Pharmaceutical Industries
ADR 1,400 55
------
Total Pharmaceuticals 370
------
</TABLE>
20
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Balanced Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
PHOTOGRAPHIC EQUIPMENT & SUPPLIES -- 0.2%
Xerox 500 $ 65
------
Total Photographic Equipment & Supplies 65
------
RAILROADS -- 0.5%
Burlington Northern Santa Fe 1,100 92
CSX 1,200 101
------
Total Railroads 193
------
RESTAURANTS -- 0.6%
Darden Restaurants* 17,300 197
Vicorp Restaurants* 2,200 24
------
Total Restaurants 221
------
RETAIL -- 1.5%
CML Group 9,000 52
Kroger* 7,200 239
Lowe's 6,500 176
Pep Boys 3,500 77
Vons* 1,500 38
------
Total Retail 582
------
RUBBER & PLASTIC -- 1.0%
Goodyear Tire And Rubber 9,700 369
------
Total Rubber & Plastic 369
------
SEMI-CONDUCTORS/INSTRUMENTS -- 1.0%
Intel 3,100 216
Micron Technology 900 64
National Semiconductor* 3,200 78
VLSI Technology 1,500 35
------
Total Semi-Conductors/Instruments 393
------
SERVICES-EMPLOYMENT AGENCIES -- 0.3%
Manpower 4,000 109
------
Total Services-Employment Agencies 109
------
SPECIALTY MACHINERY -- 0.3%
Westinghouse Electric 7,500 106
------
Total Specialty Machinery 106
------
STEEL & STEEL WORKS -- 0.6%
Birmingham Steel 300 5
Phelps Dodge 1,900 120
USX -- U.S. Steel Group 3,900 117
------
Total Steel & Steel Works 242
------
TELEPHONES & TELECOMMUNICATION -- 2.3%
Cellular Communications -- Class
A* 2,000 107
MCI Communications 6,500 162
SBC Communications 3,000 168
Worldcom* 14,300 467
------
Total Telephones & Telecommunication 904
------
WHOLESALE -- 0.1%
Universal -- Va 900 19
------
Total Wholesale 19
------
Total Common Stock
(Cost $14,129,471) 14,851
------
PREFERRED STOCKS -- 0.1%
PRINTING & PUBLISHING -- 0.1%
News -- Preferred Shares ADR 3,200 58
------
Total Printing & Publishing 58
------
Total Preferred Stocks
(Cost $64,400) 58
------
<CAPTION>
----------------------------------------------------------
Shares/Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 34.8%
U.S. Treasury Bonds
8.750%, 05/15/17 $ 1,040 $ 1,320
7.625%, 02/15/25 80 93
U.S. Treasury Notes
7.375%, 05/15/96 700 707
7.500%, 01/31/97 950 971
6.500%, 05/15/97 645 653
8.500%, 05/15/97 85 89
7.375%, 11/15/97 1,645 1,699
8.125%, 02/15/98 355 373
9.000%, 05/15/98 815 878
9.250%, 08/15/98 430 469
8.875%, 11/15/98 1,105 1,201
6.750%, 05/31/99 1,215 1,253
7.125%, 09/30/99 600 627
7.500%, 10/31/99 970 1,028
7.500%, 11/15/01 1,275 1,379
9.250%, 02/15/16 510 673
------
Total U.S. Treasury Obligations
(Cost $13,321,228) 13,413
------
CORPORATE OBLIGATIONS -- 5.2%
Ahmanson H. F
7.875%, 09/01/04 185 197
Bear Stearns
6.875%, 10/01/05 175 175
Capital One Bank
8.125%, 02/27/98 90 94
Chase Manhattan Bank
6.500%, 08/01/05 100 98
Chemical Bank
6.125%, 11/01/08 230 214
First Nationwide
10.000%, 10/01/06 50 59
Lehman Brothers Holdings
7.125%, 09/15/03 175 176
Manufacturers & Traders
7.000%, 07/01/05 165 165
Niagara Mohawk Power
Callable @100 04/01/02
8.750%, 04/01/22 80 76
Provident Bank
6.375%, 01/15/04 160 156
TCI Communications
8.750%, 08/01/15 90 96
Tele-Communications
8.250%, 01/15/03 100 105
United Air Lines
10.670%, 05/01/04 320 375
------
Total Corporate Obligations
(Cost $1,968,434) 1,986
------
</TABLE>
21
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 6.2%
FHLMC CMO Pool #E00388
7.000%, 08/01/10 $ 139 $ 140
FHLMC Pool #D63546
7.000%, 09/01/25 350 347
FNMA Pool #190203
8.000%, 02/01/23 176 180
FNMA Pool #290383
7.500%, 05/01/25 159 161
FNMA Pool #303460
6.500%, 07/01/10 288 286
FNMA Pool #317278
7.500%, 07/01/25 175 176
GNMA Pool #356688
7.000%, 07/15/23 386 384
GNMA Pool #780190
7.500%, 07/15/25 715 728
------
Total U.S. Government Agency Obligations
(Cost $2,393,321) 2,402
------
YANKEE BONDS -- 3.3%
AAB-Global
7.250%, 05/31/05 250 260
Carter Holt Harvey
8.375%, 04/15/15 85 94
CSR Finance
7.700%, 07/21/25 200 208
Laidlaw
8.750%, 04/15/25 75 86
Noranda
8.000%, 06/01/03 100 107
Quebec Province
7.500%, 07/15/23 280 281
Santander Finance
7.875%, 04/15/05 100 107
Toronto-Domnion Bank -- New York
6.150%, 10/15/08 140 131
------
Total Yankee Bonds
(Cost $1,251,897) 1,274
------
COMMERCIAL PAPER -- 10.5%
American Express
5.750%, 11/01/95 4,030 4,030
------
Total Commercial Paper
(Cost $4,030,000) 4,030
------
MORTGAGE RELATED -- 0.9%
Premier Auto Trust Series 1995-1
Class A4
7.850%, 09/04/98 110 113
Prudential Home Mortgage
Securities Pool #1994-29 Class
A5
7.000%, 10/25/24 235 230
------
Total Mortgage Related
(Cost $339,218) 343
------
Total Investments -- 99.5%
(Cost $37,497,969) 38,357
------
OTHER ASSETS AND LIABILITIES -- 0.5%
Other Assets and Liabilities, Net 206
------
Total Other Assets and Liabilities 206
------
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 3,707,254
outstanding shares of
beneficial interest $ 37,304
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value) based on
6,676 outstanding shares of
beneficial interest 68
Undistributed net investment
income 47
Undistributed net realized gain
on investments 285
Unrealized appreciation on
investments 859
------
Total Net Assets: -- 100.0% $ 38,563
======
Net Asset Value, Offering Price
and Redemption Price Per
Share -- Institutional Class $ 10.38
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 10.39
======
Maximum Offering Price Per
Share -- Retail Class
($10.39 / 98.0%) $ 10.60
======
</TABLE>
* Non-income producing security
ADR American Depository Receipt
CMO Collateralized Mortgage Obligation
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
<TABLE>
<CAPTION>
BOND FUND
U.S. TREASURY OBLIGATIONS -- 35.8%
<S> <C> <C>
U.S. Treasury Bonds
10.750%, 05/15/03 $ 200 $ 257
8.750%, 05/15/17 8,745 11,099
8.125%, 08/15/19 195 235
8.500%, 02/15/20 2,600 3,251
7.500%, 11/15/24 500 571
7.625%, 02/15/25 2,450 2,843
U.S. Treasury Notes
7.500%, 01/31/97 1,065 1,089
6.500%, 05/15/97 1,155 1,170
8.500%, 05/15/97 1,225 1,276
8.500%, 07/15/97 2,075 2,170
9.000%, 05/15/98 6,345 6,836
9.250%, 08/15/98 12,140 13,231
8.875%, 02/15/99 4,568 4,991
6.750%, 05/31/99 6,050 6,239
7.125%, 09/30/99 6,335 6,625
</TABLE>
22
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Bond Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- CONTINUED
7.500%, 10/31/99 $ 3,955 $ 4,192
7.750%, 01/31/00 3,780 4,051
------
Total U.S. Treasury Obligations
(Cost $69,349,806) 70,126
------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 30.9%
FHLMC Pool #D63546
7.000%, 09/01/25 3,542 3,517
FHLMC Pool #E00388
7.000%, 08/01/10 1,386 1,398
FHLMC Pool #E20013
7.500%, 01/01/08 3,674 3,748
FHLMC Pool #E20185
7.000%, 07/01/10 1,559 1,572
FHLMC Series 1254 Class F
7.250%, 04/15/18 2,020 2,025
FHLMC Series 1411 Class E
6.000%, 02/15/16 2,580 2,562
FHLMC Series 1519 Class F
6.750%, 03/15/07 1,925 1,953
FHLMC Series 1528 Class C
6.500%, 05/15/05 1,920 1,848
FHLMC Series 1606 Class KA
6.250%, 11/15/08 1,971 1,970
FHLMC Series 30 Class D
9.500%, 02/15/20 2,000 2,186
FNMA Pool #190203
8.000%, 02/01/23 1,836 1,883
FNMA Pool #290383
7.500%, 05/01/25 1,651 1,669
FNMA Pool #303460
6.500%, 07/01/10 3,340 3,313
FNMA Pool #317278
7.500%, 07/01/25 1,840 1,860
FNMA Pool #50726
7.000%, 05/01/23 3,534 3,505
FNMA Series 1992-124 Class PG
7.000%, 01/25/18 1,930 1,942
FNMA Series 1992-196 Class E
5.750%, 02/25/03 1,680 1,655
FNMA Series 1992-210 Class H
6.500%, 03/25/19 1,660 1,641
FNMA Series 1992-65 Class H
8.500%, 01/25/20 1,836 1,914
FNMA Series 1993-194 Class B
5.500%, 10/25/98 1,585 1,543
FNMA Series 1993-2 Class PD
6.750%, 01/25/16 1,600 1,603
FNMA Series G92-24 Class E
6.500%, 11/25/20 1,397 1,392
GNMA Pool #286395
9.000%, 04/15/20 2,611 2,744
GNMA Pool #356688
7.000%, 07/15/23 3,825 3,802
GNMA Pool #780190
7.500%, 07/15/25 7,153 7,280
------
Total U.S. Government Agency Obligations
(Cost $59,949,162) 60,525
------
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
CORPORATE OBLIGATIONS -- 15.4%
Ahmanson H. F.
7.875%, 09/01/04 $ 2,500 $ 2,656
Bear Stearns
6.875%, 10/01/05 1,640 1,638
Capital One Bank
8.125%, 02/27/98 910 948
Chase Manhattan Bank
6.500%, 08/01/05 1,005 980
Chemical Bank
6.125%, 11/01/08 2,140 1,988
First Nationwide
10.000%, 10/01/06 485 572
Georgia Pacific
7.700%, 06/15/15 975 997
8.250%, 03/01/23 770 805
Great Lakes Power
8.900%, 12/01/99 750 798
Laidlaw
8.750%, 04/15/25 1,485 1,710
Lehman Brothers
9.875%, 10/15/00 1,050 1,188
Lehman Brothers Holdings
7.125%, 09/15/03 1,725 1,736
Manufacturers & Traders
7.000%, 07/01/05 1,605 1,605
Niagara Mohawk Power
Callable 04/01/02 @ 104
8.750%, 04/01/22 940 888
Provident Bank
6.375%, 01/15/04 1,855 1,813
Southern Cal Gas
7.500%, 06/15/23 665 687
System Energy Resources
10.500%, 09/01/96 1,020 1,057
TCI Communications
8.750%, 08/01/15 905 965
Tele-Communications
Callable 01/15/03
9.250%, 01/15/23 1,885 2,019
Texas Utilities
Callable 04/01/03 @ 103.85
7.875%, 04/01/24 720 751
United Air Lines
10.670%, 05/01/04 2,910 3,427
Virginia Electric & Power
Callable 03/01/05 @ 103.48
8.250%, 03/01/25 840 919
------
Total Corporate Obligations
(Cost $29,483,836) 30,147
------
MORTGAGE RELATED -- 3.3%
GE Capital Mortgage Services
Series 1994-2 Class A4
6.000%, 01/25/09 2,680 2,605
Prudential Home Mortgage
Securities Series 1994-29
Class A5
7.000%, 10/25/24 2,475 2,419
</TABLE>
23
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
MORTGAGE RELATED -- CONTINUED
Residential Funding Mtg Sec 1
Series 1993-S7 Class A6
7.150%, 02/25/08 $ 1,500 $ 1,499
------
Total Mortgage Related
(Cost $6,450,512) 6,523
------
ASSET BACKED SECURITIES -- 2.5%
Banc One Credit Card Master
Trust Series 1994-A Class A
7.150%, 12/15/98 1,970 2,003
Premier Auto Trust Series 1995-1
Class A4
7.850%, 09/04/98 1,080 1,111
Standard Credit Card Master
Trust Series 1991-4 Class B
8.250%, 10/07/97 1,675 1,710
------
Total Asset Backed Securities
(Cost $4,788,625) 4,824
------
YANKEE BOND -- 7.0%
AAB-Global
7.250%, 05/31/05 2,070 2,150
Carter Holt Harvey
8.375%, 04/15/15 865 961
CSR Finance
7.700%, 07/21/25 1,815 1,885
Korea Electric Power
7.750%, 04/01/13 805 830
Noranda
8.000%, 06/01/03 1,330 1,423
Quebec Province
7.500%, 07/15/23 2,895 2,903
Santander Finance
7.875%, 04/15/05 2,265 2,418
Toronto-Domnion Bank-New York
6.150%, 10/15/08 1,160 1,088
------
Total Yankee Bond
(Cost $13,291,504) 13,658
------
MEDIUM TERM NOTE -- 1.2%
Paine Webber
6.730%, 01/20/04 1,300 1,267
Salomon
6.280%, 02/05/97 1,160 1,156
------
Total Medium Term Note
(Cost $2,339,420) 2,423
------
COMMERCIAL PAPER -- 2.4%
American Express
5.750%, 11/01/95 4,607 4,607
------
Total Commercial Paper
(Cost $4,607,000) 4,607
------
Total Investments -- 98.5%
(Cost $190,259,865) 192,833
------
OTHER ASSETS AND LIABILITIES -- 1.5%
Other Assets and Liabilities, Net 2,982
------
Total Other Assets and Liabilities 2,982
------
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 18,422,250
outstanding shares of
beneficial interest $ 189,788
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value) based on
130,046 outstanding shares of
beneficial interest 1,372
Undistributed net investment
income 384
Undistributed net realized gain
on investments 1,698
Unrealized appreciation on
investments 2,573
------
Total Net Assets: -- 100.0% $ 195,815
======
Net Asset Value, Offering Price
and
Redemption Price Per Share --
Institutional Class $ 10.55
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 10.56
======
Maximum Offering Price Per
Share -- Retail Class
($10.56 / 98.0%) $ 10.78
======
</TABLE>
CMO Collateralized Mortgage Obligation
FNMA Federal National Mortgage Association
FHLMC Federal Home Loan Mortgage Corporation
GNMA Government National Mortgage Association
<TABLE>
<CAPTION>
INTERMEDIATE INCOME FUND
U.S. TREASURY OBLIGATIONS -- 61.1%
<S> <C> <C>
U.S. Treasury Notes
7.500%, 01/31/97 $ 4,110 $ 4,202
6.500%, 05/15/97 7,010 7,098
8.500%, 05/15/97 700 729
8.500%, 07/15/97 8,670 9,068
6.500%, 08/15/97 6,890 6,990
7.375%, 11/15/97 2,420 2,499
8.125%, 02/15/98 145 153
9.000%, 05/15/98 4,050 4,364
9.250%, 08/15/98 10,580 11,531
6.750%, 05/31/99 2,215 2,284
7.125%, 09/30/99 7,015 7,336
7.500%, 10/31/99 6,270 6,646
7.750%, 11/30/99 230 246
7.750%, 01/31/00 3,315 3,553
7.500%, 11/15/01 14,690 15,883
7.500%, 02/15/05 2,360 2,602
------
Total U.S. Treasury Obligations
(Cost $84,374,220) 85,184
------
</TABLE>
24
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Intermediate Income Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
CORPORATE OBLIGATIONS -- 13.3%
Bear Stearns
6.875%, 10/01/05 $ 710 $ 709
Capital One Bank
8.125%, 02/27/98 800 833
Chase Manhattan Bank
6.500%, 08/01/05 695 678
Chrysler, Callable @ 100 08/01/97
10.400%, 08/01/99 1,095 1,162
Colonial National Bank
7.000%, 08/01/03 1,595 1,609
First National Bank of Boston
8.000%, 09/15/04 2,000 2,150
Great Lakes Power
8.900%, 12/01/99 990 1,053
KN Energy
9.940%, 02/01/96 300 303
Lehman Bothers
9.875%, 10/15/00 2,000 2,263
Pennsylvania Power And Light
7.750%, 05/01/02 1,280 1,358
Philip Morris, Callable @ 100
06/11/92
6.500%, 12/12/95 250 250
Provident Bank
5.000%, 06/15/96 225 224
System Energy Resources
10.500%, 09/01/96 725 751
Tele-Communications
8.250%, 01/15/03 1,600 1,672
Transcont Gas
8.125%, 01/15/97 1,055 1,076
United Airlines
6.750%, 12/01/97 2,435 2,426
------
Total Corporate Obligations
(Cost $18,319,062) 18,517
------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 10.6%
FHLMC Remic Series 1254 Class F
7.250%, 04/15/18 205 205
FHLMC Remic Series 1411 Class E
6.000%, 02/15/16 1,725 1,713
FHLMC Remic Series 1509 Class A
6.500%, 10/15/00 1,233 1,216
FHLMC Remic Series 1519 Class F
6.750%, 03/15/07 1,755 1,780
FHLMC Remic Series 1528 Class C
6.500%, 05/15/05 1,755 1,689
FHLMC Remic Series 1606 Class KA
6.250%, 11/15/08 757 757
FNMA Pool #303460
6.500%, 07/01/10 1,809 1,795
FNMA Pool #327118
6.500%, 10/01/10 1,360 1,349
FNMA Remic Series 1992-124 Class
PG
7.000%, 01/25/18 300 302
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
FNMA Remic Series 1992-196 Class
E
5.750%, 02/25/03 1,140 $ 1,123
FNMA Remic Series 1993-194 Class
B
5.500%, 10/25/98 $1,900 1,851
FNMA Remic Series G92-24 Class E
6.500%, 11/25/20 947 943
------
Total U.S. Government Agency Obligations
(Cost $14,643,023) 14,723
------
YANKEE BONDS -- 7.0%
BHP Financial
5.625%, 11/01/00 1,730 1,661
Carter Holt Harvey
8.875%, 12/01/04 1,120 1,277
CSR America
6.875%, 07/21/05 1,670 1,693
Korea Development Bank
6.250%, 05/01/00 1,000 994
Laidlaw
7.875%, 04/15/05 1,490 1,585
Noranda
8.000%, 06/01/03 775 829
Santander Finance
7.875%, 04/15/05 1,625 1,734
------
Total Yankee Bonds
(Cost $9,551,082) 9,773
------
MEDIUM TERM NOTES -- 2.2%
First USA Bank
6.880%, 09/12/96 655 661
Fleet Financial Group
7.180%, 07/09/97 160 163
International Leases
7.830%, 11/14/96 1,345 1,370
Paine Webber
6.730%, 01/20/04 750 731
Paine Webber Group
6.630%, 09/17/97 160 161
------
Total Medium Term Notes
(Cost $3,018,165) 3,086
------
ASSET BACKED SECURITIES -- 3.1%
Banc One Credit Card
Master Trust 1994-A
7.150%, 12/15/98 1,675 1,703
Premier Auto Trust Series 1992-2
Class A
6.375%, 09/15/97 15 15
Premier Auto Trust Series 1994-4
Class A4
6.450%, 05/02/98 1,625 1,639
Premier Auto Trust Series 1995-1
Class 4
7.850%, 09/04/98 870 895
------
Total Asset Backed Securities
(Cost $4,230,806) 4,252
------
</TABLE>
25
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER -- 1.1%
American Express
5.750%, 11/01/95 $1,567 $ 1,567
------
Total Commercial Paper
(Cost $1,567,000) 1,567
------
Total Investments -- 98.3%
(Cost $135,703,358) 137,102
------
OTHER ASSETS AND LIABILITIES -- 1.7%
Other Assets and Liabilities, Net 2,371
------
Total Other Assets and Liabilities 2,371
------
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 12,909,945
outstanding shares of
beneficial interest 135,805
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value) based on
114,722 outstanding shares of
beneficial interest 1,243
Undistributed net investment
income 261
Undistributed net realized gain
on investments 765
Unrealized appreciation on
investments 1,399
------
Total Net Assets: -- 100.0% $ 139,473
======
Net Asset Value, Offering Price and
Redemption Price Per Share --
Institutional Class $ 10.71
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 10.72
======
Maximum Offering Price Per
Share -- Retail Class
($10.72 / 98.0%) $ 10.94
======
</TABLE>
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
REMIC Real Estate Mortgage Investment Conduit
<TABLE>
<CAPTION>
SHORT-TERM INCOME FUND
U.S. TREASURY OBLIGATIONS -- 65.8%
<S> <C> <C>
U.S. Treasury Notes
7.500%, 01/31/96 $2,975 $ 2,989
5.125%, 03/31/96 4,515 4,508
7.875%, 07/31/96 1,500 1,525
6.500%, 09/30/96 555 559
7.500%, 01/31/97 5,000 5,113
6.500%, 05/15/97 2,140 2,167
8.500%, 05/15/97 190 198
5.625%, 08/31/97 2,000 2,000
7.375%, 11/15/97 2,500 2,582
7.125%, 09/30/99 2,000 2,091
------
Total U.S. Treasury Obligations
(Cost $23,674,766) 23,732
------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS -- 13.0%
Philip Morris
6.500%, 12/12/95 500 $ 500
Provident Bank
5.000%, 06/15/96 520 518
Smith Barney
6.000%, 03/15/97 600 599
Smithkline Beecham
5.250%, 01/26/96 1,000 999
Tele-Communications
5.280%, 08/20/96 560 555
Transcont Gas
8.125%, 01/15/97 525 536
W.R. Grace
6.500%, 12/01/95 1,000 1,000
------
Total Corporate Bonds
(Cost $4,698,191) 4,707
------
MEDIUM TERM NOTES -- 9.0%
First USA Bank
6.880%, 09/12/96 190 192
Ford Motor Credit
8.850%, 05/01/96 1,000 1,015
International Lease
7.830%, 11/14/96 1,000 1,018
McDonnell Douglas Finance
7.310%, 02/19/96 500 502
Salomon Brothers
9.000%, 07/23/96 500 509
------
Total Medium Term Notes
(Cost $3,224,578) 3,236
------
ASSET BACKED SECURITIES -- 6.1%
Banc One Credit Card
Master Trust 1994-A
7.150%, 12/15/98 420 427
Fical Home Equity Loans 90-1a
8.900%, 11/15/97 23 23
Premier Auto Trust 1994-4
Class A-4
6.450%, 05/02/98 600 605
</TABLE>
26
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Short-Term Income Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
ASSET BACKED SECURITIES -- CONTINUED
Premier Auto Trust Series 1992-2
Class A
6.375%, 09/15/97 $ 103 $ 103
Premier Auto Trust Series 1995-1
Class 4
7.850%, 09/04/98 1,000 1,028
------
Total Asset Backed Securities
(Cost $2,176,405) 2,186
------
U.S. GOVERNMENT AGENCY OBLIGATION -- 1.6%
FNMA Remic Series G92-24 Class E
6.500%, 11/25/20 577 575
------
Total U.S. Government Agency Obligation
(Cost $569,547) 575
------
COMMERCIAL PAPER -- 2.6%
American Express
5.750%, 11/01/95 932 932
------
Total Commercial Paper
(Cost $932,000) 932
------
Total Investments -- 98.1%
(Cost $35,275,487) 35,368
------
OTHER ASSETS AND LIABILITIES -- 1.9%
Other Assets and Liabilities,
Net 702
------
Total Other Assets and Liabilities 702
------
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 3,587,673
outstanding shares of
beneficial interest 35,870
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value) based on
1,131 outstanding shares of
beneficial interest 11
Undistributed net investment
income 64
Undistributed net realized gain
on investments 33
Unrealized appreciation on
investments 92
------
Total Net Assets: -- 100.0% $ 36,070
======
Net Asset Value, Offering Price
and
Redemption Price Per Share --
Institutional Class $ 10.05
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 10.04
======
Maximum Offering Price Per
Share -- Retail Class
($10.04 / 98.0%) $ 10.24
======
FNMA Federal National Mortgage Association
REMIC Real Estate Mortgage Investment Conduit
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
PENNSYLVANIA TAX-FREE
Bond Fund
MUNICIPAL BONDS -- 100.8%
PENNSYLVANIA -- 100.8%
Allegheny County, Mercy Hospital
of Pittsburgh, RB, AMBAC
6.450%, 04/01/01 $ 200 $ 219
Allegheny County, Montefiore
Hospital Improvement, RB,
Escrowed To Maturity
5.800%, 10/01/03 140 146
Allentown, Water Authority, RB
5.650%, 07/15/96 100 101
Central Bucks, School District,
GO
6.600%, 02/01/03 175 191
Dauphin County, Correctional
Facility, GO, MBIA
5.450%, 08/01/07 200 204
Delaware County GO,
Callable @ 100 09/01/96
7.100%, 12/01/98 170 176
Delaware County, Villanova
University, RB, AMBAC
5.400%, 08/01/08 200 203
Erie County, Correctional
Facility, GO, MBIA, Escrowed
To Maturity
5.850%, 11/01/96 100 102
Gettysburg, Gettysburg College,
RB
5.300%, 02/15/97 250 254
Gettysburg, RB, VRDN
3.950%, 03/01/04 (B) 100 100
Hampden Township,
Sewer Authority, SO,
Escrowed To Maturity
5.350%, 04/01/03 140 145
Harrisburg, Resource Recovery,
RB
5.875%, 09/01/13 (A) 200 201
Hempfield, School District, GO,
FGIC
5.300%, 10/15/14 250 241
Keystone, School District, GO,
FGIC
4.750%, 09/01/06 240 231
Lehigh County, Sewer Authority,
RB, VRDN, FGIC
3.850%, 03/15/05 (B) 200 200
Lower Burrell, Sewer Authority,
RB, AMBAC
5.125%, 02/01/16 250 234
Millcreek Township, Sewer
Authority, RB, MBIA,
Pre-Refunded
6.000%, 11/01/99 (C) 150 159
Montgomery County, Hospital
Authority, Abington Hospital,
Series A, RB, AMBAC
5.125%, 06/01/14 250 232
</TABLE>
27
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
PENNSYLVANIA -- CONTINUED
Montgomery County, Public
Improvements, GO,
Callable @ 100 10/15/03
5.750%, 10/15/11 $ 175 $ 179
Nazareth, School District, GO,
AMBAC
5.500%, 11/15/12 200 198
Northampton County, Lehigh
University, Series A, RB, MBIA
5.750%, 11/15/18 150 150
Pennsylvania State, Allegheny
General Hospital, Series A, RB
6.300%, 09/01/97 200 207
Pennsylvania State, Housing
Finance Authority, Series 37a,
RB
5.450%, 10/01/17 (A) 200 183
Pennsylvania State, Industrial
Development Authority, RB,
AMBAC
5.800%, 07/01/09 250 258
Pennsylvania State,
Miscellaneous Improvement, GO,
Callable @ 100 09/01/99
6.250%, 09/01/00 150 154
Pennsylvania State, Penn State
University, RB, Callable @ 100
03/01/04
6.150%, 03/01/05 (A) 145 157
Pennsylvania State, Turnpike
Commission, Series P, RB
5.100%, 12/01/99 250 257
5.350%, 12/01/01 250 259
Pennsylvania State, University
Improvement, Series F, RB,
AMBAC, Callable @ 100 12/15/02
6.000%, 12/15/09 225 232
Philadelphia, Pennsylvania
Hospital, Series A, RB
5.250%, 02/15/14 250 236
Philadelphia, Philadelphia Gas
Works, Series 15, RB, MBIA
4.600%, 08/01/03 250 247
Quakertown, Hospital Authority,
RB, VRDN
3.750%, 07/01/05 (A) (B) 100 100
Rose Tree Media, School
District, GO, FGIC
5.350%, 02/15/10 150 150
Scranton-Lackawanna, University
of Scranton, Series A, RB,
Callable @ 100 03/01/02
6.150%, 03/01/03 (A) 150 160
Venango, Pollution Control, RB,
VRDN
4.600%, 12/01/12 (A) (B) 200 200
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
Wayne County, Housing Authority,
RB, MBIA
5.350%, 10/01/07 $ 190 $ 186
------
Total Pennsylvania 6,852
------
Total Municipal Bonds
(Cost $6,839,773) 6,852
------
Total Investments -- 100.8%
(Cost $6,839,773) 6,852
------
OTHER ASSETS AND LIABILITIES -- (0.8)%
Other Assets and Liabilities, Net (55)
------
Total Other Assets and Liabilities (55)
------
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 584,020
outstanding shares of
beneficial interest 6,018
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value) based on
80,106 outstanding shares of
beneficial interest 825
Undistributed net investment
income 10
Accumulated net realized loss on
investments (68)
Unrealized appreciation on
investments 12
------
Total Net Assets: -- 100.0% $ 6,797
======
Net Asset Value, Offering Price
and Redemption Price Per
Share -- Institutional Class $ 10.23
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 10.23
======
Maximum Offering Price Per
Share -- Retail Class
($10.23 / 98.0%) $ 10.44
======
</TABLE>
AMBAC American Municipal Bond Assurance Company
FGIC Federal Guaranty Insurance Corporation
GO General Obligation
MBIA Municipal Bond Insurance Association
RB Revenue Bonds
SO Special Obligation
VRDN Variable Rate Demand Note
(A) Securities are held in connection with a letter of
credit or other credit support.
(B) Floating Rate Security -- the rate reflected on the
Statement of Net Assets is the rate in effect on October
31, 1995.
(C) Pre-Refunded Security -- The Maturity Date shown is the
pre-refunded date.
28
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
CASH MANAGEMENT FUND
<TABLE>
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER -- 36.6%
Abbey National
5.590%, 01/08/96 $ 5,000 $ 4,947
AIG Funding
6.035%, 11/01/95 3,000 3,000
American Express
5.700%, 11/01/95 5,000 5,002
5.690%, 01/12/96 5,000 4,943
Associates
5.700%, 01/23/96 5,000 4,934
Caisse Des Depots Et
Consignations
5.640%, 01/16/96 5,000 4,940
Eli Lilly
5.820%, 01/16/96 3,000 2,963
General Electric Capital
5.670%, 11/16/95 4,000 3,991
5.660%, 02/12/96 5,000 4,919
International Lease Finance
5.710%, 01/08/96 5,000 4,946
5.630%, 01/22/96 5,000 4,936
J.C. Penney
5.710%, 11/30/95 5,000 4,977
Pepsico
5.670%, 11/03/95 5,000 4,998
Province of Alberta
5.550%, 01/12/96 3,000 2,967
Sara Lee
5.800%, 11/02/95 5,000 4,999
5.710%, 11/08/95 5,000 4,994
Toronto Dominion Bank
5.660%, 01/17/96 5,000 4,939
5.490%, 03/19/96 5,000 4,894
Transamerica Finance
5.620%, 02/15/96 5,000 4,917
------
Total Commercial Paper
(Cost $87,206,251) 87,206
------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 7.5%
FHLB
5.490%, 01/17/96 3,000 2,965
FHLMC
5.560%, 11/21/95 5,000 4,985
FNMA
5.590%, 01/04/96 5,000 4,950
5.580%, 02/20/96 5,000 4,914
------
Total U.S. Government Agency Obligations
(Cost $17,813,615) 17,814
------
BANK NOTES -- 3.8%
FCC National Bank
5.900%, 08/21/96 5,000 4,996
5.650%, 11/01/96 4,000 3,997
------
Total Bank Notes
(Cost $8,993,431) 8,993
------
U.S. TREASURY OBLIGATIONS -- 3.3%
U.S. Treasury Bills
5.410%, 01/11/96 $ 3,000 2,968
5.540%, 07/25/96 5,000 4,795
------
Total U.S. Treasury Obligations
(Cost $7,762,549) 7,763
------
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
CERTIFICATES OF DEPOSIT -- 2.1%
National Westminster Bank
5.770%, 12/11/95 5,000 $ 5,000
------
Total Certificates of Deposit
(Cost $5,000,000) 5,000
------
REPURCHASE AGREEMENTS -- 48.8%
Hong Kong Shanghai Banking
5.850%, dated 10/31/95,
matures 11/01/95, repurchase
price $35,005,688
(collateralized by
U.S. Treasury Note, par value
$35,000,000, 6.875%, matures
03/31/97: market value
$35,803,299) 35,000 35,000
Merrill Lynch
5.850%, dated 10/31/95,
matures 11/01/95, repurchase
price $46,173,402
(collateralized by various
U.S. Treasury Notes,
total par value $44,803,000,
6.500%-6.875%, 04/30/97: total
market value $47,090,599) 46,166 46,166
Morgan Stanley
5.850%, dated 10/31/95,
matures 11/01/95, repurchase
price $35,005,688
(collateralized by
U.S. Treasury Note, par value
$26,675,000, 9.250%, matures
02/15/16: market value
$35,747,093) 35,000 35,000
------
Total Repurchase Agreements
(Cost $116,165,900) 116,166
------
Total Investments -- 102.1%
(Cost $242,941,746) 242,942
------
OTHER ASSETS AND LIABILITIES -- (2.1%)
Other Assets and Liabilities,
Net (5,064)
------
Total Other Assets and Liabilities (5,064)
------
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 234,652,830
outstanding shares of
beneficial interest 234,653
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value) based on
3,361,129 outstanding shares
of
beneficial interest 3,361
</TABLE>
29
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
NET ASSETS -- CONTINUED
Accumulated net realized loss on
investments $ (136)
------
Total Net Assets: -- 100.0% $ 237,878
======
Net Asset Value, Offering Price
and Redemption Price Per
Share -- Institutional Class $ 1.00
======
Net Asset Value, Offering Price
and Redemption Price Per
Share --
Retail Class $ 1.00
======
</TABLE>
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
<TABLE>
<CAPTION>
U.S. TREASURY
SECURITIES FUND
U.S. TREASURY OBLIGATIONS -- 39.9%
<S> <C> <C>
U.S. Treasury Bills
5.720%, 11/09/95 $ 10,000 $ 9,987
5.400%, 12/21/95 20,000 19,850
5.340%, 01/04/96 25,000 24,763
5.310%, 01/11/96 10,000 9,895
5.410%, 01/11/96 10,000 9,893
5.830%, 01/11/96 10,000 9,885
5.780%, 02/08/96 10,000 9,851
5.300%, 03/07/96 15,000 14,720
5.290%, 03/14/96 10,000 9,803
5.310%, 04/04/96 15,000 14,657
6.020%, 04/04/96 5,000 4,875
5.540%, 05/02/96 10,000 9,718
5.540%, 07/25/96 5,000 4,795
U.S. Treasury Notes
7.500%, 02/29/96 10,000 10,062
7.625%, 04/30/96 10,000 10,096
U.S. Treasury Strip
05/15/96 5,000 4,854
------
Total U.S. Treasury Obligations
(Cost $177,703,757) 177,704
------
REPURCHASE AGREEMENTS -- 60.5%
Barclays De Zoete Wedd
5.850%, dated 10/31/95,
matures 11/01/95, repurchase
price $50,008,125
(collateralized by
U.S. Treasury Note, par value
$32,632,000, 11.250%, matures
02/15/15: market value
$51,069,081) 50,000 50,000
Hong Kong Shanghai Banking
5.850%, dated 10/31/95,
matures 11/01/95, repurchase
price $85,013,813
(collateralized by various
U.S. Treasury Notes,
total par value $70,220,000,
7.125%-12.500%,
08/15/14-02/15/23:
total market value
$87,257,890) $ 85,000 $ 85,000
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
Merrill Lynch
5.850%, dated 10/31/95,
matures 11/01/95, repurchase
price $49,579,455
(collateralized by various
U.S. Treasury Notes, total par
value $40,257,000, 7.250%-
9.875%, 11/15/15-05/15/17:
total market value
$50,566,595) $ 49,571 $ 49,571
Morgan Stanley
5.850%, dated 10/31/95,
matures 11/01/95, repurchase
price $85,013,813
(collateralized by
U.S. Treasury Note, par value
$66,670,000, 8.750%, matures
08/15/20: market value
$86,689,520) 85,000 85,000
------
Total Repurchase Agreements
(Cost $269,571,400) 269,571
------
Total Investments -- 100.4%
(Cost $447,275,157) 447,275
------
OTHER ASSETS AND LIABILITIES -- (0.4%)
Other Assets and Liabilities,
Net (2,016)
------
Total Other Assets and Liabilities (2,016)
------
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 444,422,563
outstanding shares of
beneficial interest 444,423
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value) based on
729,856 outstanding shares of
beneficial interest 730
Undistributed net realized gain
on investments 106
------
Total Net Assets: -- 100.0% $ 445,259
======
Net Asset Value, Offering and
Redemption Price Per Share --
Institutional Class $ 1.00
======
Net Asset Value, Offering and
Redemption Price Per Share --
Retail Class $ 1.00
======
</TABLE>
30
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
TAX-FREE FUND
<TABLE>
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS -- 99.9%
ALABAMA -- 0.7%
McIntosh, Industrial Development
Board, Ciba Geigy Corporate
Project, RB, VRDN
4.000%, 07/01/04 (A) (B) $ 400 $ 400
------
Total Alabama 400
------
ARIZONA -- 0.4%
Flagstaff, TECP
3.500%, 12/05/95 (B) 250 250
------
Total Arizona 250
------
ARKANSAS -- 4.9%
Mesa, Municipal Developement,
TECP
3.800%, 12/06/95 (B) 3,000 3,000
------
Total Arkansas 3,000
------
COLORADO -- 3.2%
Colorado State, Health
Facilities Authority, RB,
VRDN, MBIA
3.900%, 10/01/14 (A) 1,955 1,955
------
Total Colorado 1,955
------
FLORIDA -- 1.1%
Hillsborough, Pollution Control,
RB, VRDN
4.000%, 09/01/25 (A) (B) 700 700
------
Total Florida 700
------
GEORGIA -- 3.9%
Burke County, TECP
3.750%, 12/07/95 (B) 2,400 2,400
------
Total Georgia 2,400
------
HAWAII -- 2.4%
St County Honolulu, TECP
3.800%, 12/05/95 (B) 1,500 1,500
------
Total Hawaii 1,500
------
ILLINOIS -- 1.9%
Chicago, O'Hare Airport, RB,
VRDN
3.900%, 01/01/18 (A) (B) 1,200 1,200
------
Total Illinois 1,200
------
KANSAS -- 4.8%
Burlington, TECP
3.750%, 11/15/95 (B) 1,450 1,450
3.850%, 12/13/95 (B) 1,500 1,500
------
Total Kansas 2,950
------
KENTUCKY -- 3.6%
Jefferson County, TECP
3.800%, 11/20/95 (B) 2,200 2,200
------
Total Kentucky 2,200
------
LOUISIANA -- 2.5%
Louisiana State, Public
Facilities, RB, VRDN, FGIC
3.900%, 09/01/10 (A) $ 1,565 1,565
------
Total Louisiana 1,565
------
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
MICHIGAN -- 4.5%
Delta County, TECP
3.750%, 11/21/95 (B) 1,300 $ 1,300
Michigan State, Storage Tank
Financial Authority, RB, VRDN
3.900%, 12/01/04 (A) (B) 1,500 1,500
------
Total Michigan 2,800
------
MINNESOTA -- 6.0%
Robbinsdale, Industrial
Development, Unicare Homes
Project,
RB, VRDN
4.000%, 10/01/14 (A) (B) 1,100 1,100
Rochester, TECP
3.150%, 11/09/95 (B) 1,100 1,100
3.800%, 01/22/96 (B) 1,500 1,500
------
Total Minnesota 3,700
------
MISSISSIPPI -- 6.2%
Independence, Waste, TECP
3.500%, 11/03/95 (B) 2,000 2,000
Jackson County, Pollution
Control, RB, VRDN
3.900%, 12/01/16 (A) 1,000 1,000
Perry County, Pollution Control,
RB, VRDN
3.950%, 03/01/02 (A) (B) 800 800
------
Total Mississippi 3,800
------
MISSOURI -- 1.1%
Kansas City, Hospital, RB, VRDN,
MBIA
4.000%, 04/15/15 (A) 700 700
------
Total Missouri 700
------
MONTANA -- 1.0%
Billings, Industrial
Development, RB, VRDN
3.950%, 12/01/14 (A) (B) 600 600
------
Total Montana 600
------
NEW YORK -- 2.1%
New York, Water Finance
Authority, RB, VRDN, FGIC
4.000%, 06/15/22 (A) 300 300
4.000%, 06/15/23 (A) 1,000 1,000
------
Total New York 1,300
------
NORTH CAROLINA -- 6.6%
Eastern Municipal Agency, Power
Systems, RB, Prerefunded
01/01/96 @ 103
7.750%, 01/01/96 (C) 2,000 2,070
</TABLE>
31
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
NORTH CAROLINA -- CONTINUED
North Carolina, Municipal Power,
TECP
3.750%, 01/24/96 (B) $ 2,000 $ 2,000
------
Total North Carolina 4,070
------
OHIO -- 8.1%
Ohio State, Air Quality
Development Authority, RB,
VRDN
4.000%, 09/01/30 (A)(B) 2,000 2,000
Ohio State, Air Quality, TECP
3.700%, 11/06/95 (B) 3,000 3,000
------
Total Ohio 5,000
------
PENNSYLVANIA -- 2.4%
Delaware County, TECP, FGIC
3.600%, 11/02/95 1,500 1,500
------
Total Pennsylvania 1,500
------
TEXAS -- 12.3%
Harris County, RB, VRDN
4.000%, 03/01/24 (A) (B) 1,100 1,100
San Antonio, Independent School
District, GO, Prerefunded
11/01/95 @ 100
8.000%, 11/01/95 (C) 1,700 1,700
Texas A & M, TECP
3.800%, 12/08/95 (B) 1,500 1,500
Texas Port Development
Authority, Stolt Terminals
Project, RB, VRDN
3.850%, 01/15/14 (A) (B) 1,300 1,300
Texas State, TAN
4.750%, 08/30/96 2,000 2,012
------
Total Texas 7,612
------
VIRGINIA -- 3.2%
Chesapeake, Independent
Development Authority, TECP
3.600%, 11/06/95 (B) 1,000 1,000
Penninsula Ports, TECP
3.650%, 11/07/95 (B) 1,000 1,000
------
Total Virginia 2,000
------
WASHINGTON, D.C. -- 4.6%
District of Columbia, Education
Bonds, American University
Issue A, RB, VRDN
3.950%, 12/01/15 (A) (B) 2,835 2,835
------
Total Washington, D.C. 2,835
------
WYOMING -- 12.5%
Converse, TECP
3.500%, 11/06/95 (B) 1,000 1,000
Gillette County, TECP
3.700%, 11/17/95 (B) 1,000 1,000
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
Lincoln County, TECP
3.700%, 11/21/95 (B) $ 1,400 $ 1,400
Sweetwater County, TECP
3.650%, 12/08/95 2,500 2,499
Uinta County, Pollution Control,
RB, VRDN
3.900%, 08/15/02 (A) (B) 1,800 1,800
------
Total Wyoming 7,699
------
Total Municipal Bonds
(Cost $61,736,077) 61,736
------
Total Investments -- 99.9%
(Cost $61,736,077) 61,736
------
OTHER ASSETS AND LIABILITIES -- 0.1%
Other Assets and Liabilites, Net 55
------
Total Other Assets and Liabilities 55
------
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 60,491,930
outstanding shares of
beneficial interest 60,492
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value ) based on
1,281,648 outstanding shares
of
beneficial interest 1,282
Undistributed net realized gain
on investments 17
------
Total Net Assets: -- 100.0% $ 61,791
======
Net Asset Value, Offering and
Redemption Price Per Share --
Institutional Class $ 1.00
======
Net Asset Value, Offering and
Redemption Price Per Share --
Retail Class $ 1.00
======
</TABLE>
FGIC Financial Guaranty Insurance Corporation
GO General Obligation
MBIA Municipal Bond Insurance Association
RB Revenue Bond
TAN Tax Anticipation Note
TECP Tax Exempt Commercial Paper
VRDN Variable Rate Demand Note
(A) Floating Rate Security -- the rate reflected on the
Statement of Net Assets is the rate in effect on October
31, 1995.
(B) Securities are held in conjunction with a letter of
credit or other credit support.
(C) The maturity date shown is the pre-refunded date.
32
<PAGE>
STATEMENT OF OPERATIONS (000)
- --------------------------------------------------------------------------------
The Conestoga Funds--For the year ended October 31, 1995
<TABLE>
<CAPTION>
------- ------- ------------ --------
SPECIAL INTERNATIONAL
EQUITY EQUITY EQUITY BALANCED
FUND FUND FUND(1) FUND(2)
------- ------- ------------ --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest Income $ 582 $ 121 $ 50 $ 427
Dividend Income 4,507 351 48 104
Less Foreign Taxes Withheld -- -- (6) --
------- ------- -------- -------
Total Investment Income 5,089 472 92 531
------- ------- -------- -------
EXPENSES:
Investment Advisory Fees 1,503 480 51 89
Investment Advisory Fees Waived -- (466) -- (30)
Reimbursement from Advisor -- (50) -- --
Administrator Fees 352 56 9 20
Administrator Fees Waived (97) (18) -- (1)
Shareholder Servicing Fees(3) 38 8 -- --
Shareholder Servicing Fees Waived -- (8) -- --
Distribution Fees(4) 17 2 -- --
Distribution Fees Waived (10) (2) -- --
Registration Fees 114 20 5 4
Custody and Accounting Fees 71 30 17 2
Professional Fees 48 11 1 4
Transfer Agent Fees 86 25 1 4
Printing Fees 25 4 1 1
Pricing Expense 3 -- 8 --
Trustee Fees 12 2 -- 1
Insurance and Other Fees 3 2 2 1
Amortization of Deferred Organization Costs -- 8 2 2
------- ------- -------- -------
Total Expenses 2,165 104 97 97
------- ------- -------- -------
NET INVESTMENT INCOME (LOSS) 2,924 368 (5) 434
------- ------- -------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net Realized Gain (Loss) on Security Transactions 28,979 8,512 (33) 285
Net Realized Gain on Foreign Currency Transactions -- -- 234 --
Net Change in Unrealized Appreciation on Investments 12,894 1,127 707 859
Net Change in Unrealized Appreciation on Foreign
Currency
and Translation of Other Assets and Liabilities in
Foreign Currencies -- -- 45 --
------- ------- -------- -------
Net Realized and Unrealized Gain (Loss) on
Investments: 41,873 9,639 953 1,144
------- ------- -------- -------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $44,797 $10,007 $ 948 $1,578
------- ------- -------- -------
------- ------- -------- -------
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
(1) The International Equity Fund and the Short-Term Income Fund commenced
operations on May 15, 1995.
(2) The Balanced Fund commenced operations on June 26, 1995.
(3) Shareholder Servicing Fees relate to a Shareholder Service Plan that was in
effect through February 20, 1995.
(4) Distribution Fees relate to a Distribution Plan effective February 21, 1995
and are incurred solely by the Retail Class.
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------- ------------ ---------- ------------ ---------- ------------- --------
PENNSYLVANIA
INTERMEDIATE SHORT-TERM TAX-FREE CASH U.S. TREASURY
BOND INCOME INCOME BOND MANAGEMENT SECURITIES TAX-FREE
FUND FUND FUND(1) FUND FUND FUND FUND
------- ------------ ---------- ------------ ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 6,924 $4,760 $1,095 $323 $ 11,680 $21,001 $2,484
-- -- -- -- -- -- --
-- -- -- -- -- -- --
------- --------- -------- -------- -------- ---------- -------
6,924 4,760 1,095 323 11,680 21,001 2,484
------- --------- -------- -------- -------- ---------- -------
750 552 135 46 794 1,457 259
(409) (365) (82) (39) (397) (456) (158)
-- (6) -- (24) -- -- --
176 129 31 11 366 671 120
(13) (5) -- (3) -- (35) (35)
21 14 -- 5 145 266 51
(3) (8) -- (5) (62) (106) (51)
3 4 -- 2 10 30 5
(1) (2) -- (2) (3) (13) (5)
63 47 13 1 53 63 21
46 38 3 21 64 100 27
31 26 3 4 62 116 19
39 36 5 11 43 61 23
12 9 2 2 20 44 9
2 5 1 1 -- -- --
6 4 1 -- 11 24 4
3 6 1 1 19 45 7
-- -- 1 -- -- -- --
------- --------- -------- -------- -------- ---------- -------
726 484 114 32 1,125 2,267 296
------- --------- -------- -------- -------- ---------- -------
6,198 4,276 981 291 10,555 18,734 2,188
------- --------- -------- -------- -------- ---------- -------
3,058 1,152 32 (68) 2 41 (4)
-- -- -- -- -- -- --
3,499 1,825 92 501 -- -- --
-- -- -- -- -- -- --
------- --------- -------- -------- -------- ---------- -------
6,557 2,977 124 433 2 41 (4)
------- --------- -------- -------- -------- ---------- -------
$12,755 $7,253 $1,105 $724 $ 10,557 $18,775 $2,184
------- --------- -------- -------- -------- ---------- -------
------- --------- -------- -------- -------- ---------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (000)
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
<TABLE>
<CAPTION>
-------------------- -------------------- ----------- ---------- --------------------
SPECIAL INTERNATIONAL
EQUITY EQUITY EQUITY BALANCED BOND
FUND FUND FUND FUND FUND
-------------------- -------------------- ----------- ---------- --------------------
11/1/94 11/1/93 11/1/94 3/15/94** 5/15/95** 6/26/95** 11/1/94 11/1/93
to 10/31/95 to 10/31/94 to 10/31/95 to 10/31/94 to 10/31/95 to 10/31/95 to 10/31/95 to 10/31/94
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net Investment Income
(Loss) $ 2,924 $ 361 $ 368 $ 62 $ (5) $ 434 $ 6,198 $ 1,302
Net Realized Gain (Loss)
on Securities and
Foreign Currency
Transactions 28,979 2,619 8,512 51 201 285 3,058 (1,359)
Net Change in Unrealized
Appreciation
(Depreciation) of
Investments and Foreign
Currencies 12,894 (1,933) 1,127 (583) 752 859 3,499 (1,239)
-------- -------- -------- -------- --------- -------- -------- --------
Increase (Decrease) in
Net Assets Resulting
from Operations 44,797 1,047 10,007 (470) 948 1,578 12,755 (1,296)
-------- -------- -------- -------- --------- -------- -------- --------
DISTRIBUTIONS TO
SHAREHOLDERS:
Net Investment Income:
Prior Class (a)* (125) (361) (35) (57) -- -- (359) (1,291)
Retail Class (b)* (53) -- (5) -- -- (1) (56) --
Institutional Class
(b)* (2,638) -- (316) -- -- (386) (5,443) --
Net Realized Gains:
Prior Class (a)* (2,660) (1,895) (80) -- -- -- -- (841)
-------- -------- -------- -------- --------- -------- -------- --------
Total Distributions (5,476) (2,256) (436) (57) -- (387) (5,858) (2,132)
CAPITAL TRANSACTIONS (C):
Prior Class (a)*:
Redesignated to Retail
Class (5,674) -- (471) -- -- -- (1,365) --
Redesignated to
Institutional Class (42,589) -- (9,970) -- -- -- (29,097) --
Proceeds from Shares
Issued 4,679 15,691 652 11,284 -- -- 9,204 5,563
Reinvestment of Cash
Distributions 2,420 1,929 115 57 -- -- 244 1,430
Cost of Shares
Repurchased (6,294) (11,959) (81) (745) -- -- (2,665) (7,534)
-------- -------- -------- -------- --------- -------- -------- --------
Increase (Decrease) in
Net Assets Derived from
Prior Class
Transactions (47,458) 5,661 (9,755) 10,596 -- -- (23,679) (541)
Retail Class (b)*:
Redesignated from Prior
Class 5,674 -- 471 -- -- -- 1,365 --
Proceeds from Shares
Issued 676 -- 186 -- 9 68 164 --
Reinvestment of Cash
Distributions 52 -- 5 -- -- -- 48 --
Cost of Shares
Repurchased (948) -- (57) -- (1) -- (291) --
-------- -------- -------- -------- --------- -------- -------- --------
Increase in Net Assets
Derived from Retail
Class Transactions 5,454 -- 605 -- 8 68 1,286 --
Institutional Class (b)*:
Redesignated from Prior
Class 42,589 -- 9,970 -- -- -- 29,097 --
Proceeds from Shares
Issued 351,837 -- 46,892 -- 13,282 39,740 192,154 --
Reinvestment of Cash
Distributions 2,568 -- 316 -- -- 386 5,109 --
Cost of Shares
Repurchased (59,497) -- (9,538) -- (857) (2,822) (38,426) --
-------- -------- -------- -------- --------- -------- -------- --------
Increase (Decrease) in
Net Assets Derived from
Institutional Class
Transactions 337,497 -- 47,640 -- 12,425 37,304 187,934 --
-------- -------- -------- -------- --------- -------- -------- --------
Increase (Decrease) in Net
Assets Derived from
Capital Transactions 295,493 5,661 38,490 10,596 12,433 37,372 165,541 (541)
-------- -------- -------- -------- --------- -------- -------- --------
Net Increase (Decrease)
in Net Assets 334,815 4,452 48,061 10,069 13,381 38,563 172,438 (3,969)
-------- -------- -------- -------- --------- -------- -------- --------
NET ASSETS:
Beginning of Period 50,128 45,676 10,069 -- -- -- 23,377 27,346
-------- -------- -------- -------- --------- -------- -------- --------
End of Period $ 384,943 $ 50,128 $58,130 $10,069 $13,381 $38,563 $ 195,815 $23,377
-------- -------- -------- -------- --------- -------- -------- --------
-------- -------- -------- -------- --------- -------- -------- --------
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
* On February 21, 1995, the shareholders of each fund ratified the
classification of such fund's outstanding shares into Retail and
Institutional shares.
** Commencement of operations.
(a) For the current fiscal year Prior Class figures represent activity from
November 1, 1994 to February 21, 1995.
(b) Retail and Institutional Class figures represent activity from February 22,
1995 through October 31, 1995.
(c) See Capital Share Transactions in the Notes to the Financial Statements.
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------- ---------- -------------------- -------------------- -------------------- -----------
SHORT- PENNSYLVANIA
INTERMEDIATE TERM TAX-FREE CASH U.S. TREASURY
INCOME INCOME BOND MANAGEMENT SECURITIES TAX-FREE
FUND FUND FUND FUND FUND FUND
-------------------- ---------- -------------------- -------------------- -------------------- -----------
11/1/94 11/1/93 5/15/95** 11/1/94 11/1/93 11/1/94 11/1/93 11/1/94 11/1/93 11/1/94
to 10/31/95 to 10/31/94 to 10/31/95 to 10/31/95 to 10/31/94 to 10/31/95 to 10/31/94 to 10/31/95 to 10/31/94 to 10/31/95
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 4,276 $ 1,036 $ 981 $ 291 $ 354 $ 10,555 $ 4,692 $ 18,734 $ 9,637 $ 2,188
1,152 (387) 32 (68) 9 2 (220) 41 10 (4)
1,825 (920) 92 501 (767) -- -- -- -- --
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
7,253 (271) 1,105 724 (404) 10,557 4,472 18,775 9,647 2,184
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
(264) (1,030) -- (81) (351) (2,788) (4,692) (5,069) (9,637) (706)
(50) -- -- (25) -- (133) -- (586) -- (42)
(3,736) -- (917) (186) -- (7,634) -- (13,079) -- (1,440)
-- (294) -- (9) (42) -- -- -- -- --
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
(4,050) (1,324) (917) (301) (393) (10,555) (4,692) (18,734) (9,637) (2,188)
(1,398) -- -- (684) -- (4,185) -- (618) -- (2,456)
(15,213) -- -- (5,397) -- (206,899) -- (311,650) -- (67,736)
1,544 8,000 -- 470 6,261 229,934 588,009 304,528 797,674 113,629
179 891 -- 40 175 31 34 10 17 86
(6,352) (10,096) -- (1,662) (4,513) (159,426) (662,501) (317,660) (730,256) (98,423)
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
(21,240) (1,205) -- (7,233) 1,923 (140,545) (74,458) (325,390) 67,435 (54,900)
1,398 -- -- 684 -- 4,185 -- 618 -- 2,456
161 -- 11 168 -- 1,981 -- 130,272 -- 330
46 -- -- 23 -- 126 -- 22 -- 42
(429) -- -- (78) -- (2,934) -- (130,182) -- (1,546)
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
1,176 -- 11 797 -- 3,358 -- 730 -- 1,282
15,213 -- -- 5,397 -- 206,899 -- 311,650 -- 67,736
139,413 -- 46,933 1,858 -- 457,561 -- 1,003,030 -- 201,870
3,580 -- 917 73 -- 478 -- 683 -- 91
(23,119) -- (11,979) (1,527) -- (430,420) -- (870,864) -- (209,187)
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
[135,087] -- 35,871 5,801 -- 234,518 -- 444,499 -- 60,510
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
115,023 (1,205) 35,882 (634) 1,923 97,331 (74,458) 119,839 67,435 6,891
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
118,226 (2,800) 36,070 (211) 1,126 97,333 (74,678) 119,880 67,445 6,887
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
21,247 24,047 -- 7,008 5,882 140,545 215,223 325,379 257,934 54,904
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
$ 139,473 $ 21,247 $ 36,070 $ 6,797 $ 7,008 $ 237,878 $ 140,545 $ 445,259 $ 325,379 $ 61,791
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
<CAPTION>
TAX-FREE
FUND
-----------
11/1/93
to 10/31/94
------------
<S> <C>
$ 1,197
--
--
---------
1,197
---------
(1,197)
--
--
--
---------
(1,197)
--
--
261,151
73
(252,559)
---------
8,665
--
--
--
--
---------
--
--
--
--
--
---------
--
---------
8,665
---------
8,665
---------
46,239
---------
$ 54,904
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Conestoga Funds--For the year ended October 31, 1995
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net
Realized and
Unrealized Net
Net Asset Gains Dividends Distributions Assets
Value Net (Losses) from Net from Net Asset End of
Beginning Investment on Investment Realized Value End Total Period
of Period Income Investments Income Capital Gains of Period Return* (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------
EQUITY FUND
- -------------
RETAIL
1995(1) $ 15.00 $ 0.18 $ 2.87 $(0.17) $ (0.80) $ 17.08 21.94% $ 6,591
INSTITUTIONAL
1995(1) 15.00 0.19 2.87 (0.19) (0.80) 17.07 22.00% 378,352
PRIOR CLASS
1994 15.39 0.11 0.22 (0.11) (0.61) 15.00 2.21% 50,128
1993 13.93 0.14 1.89 (0.14) (0.43) 15.39 14.90% 45,677
1992 13.08 0.19 1.02 (0.19) (0.17) 13.93 9.27% 28,103
1991 8.95 0.26 4.13 (0.26) -- 13.08 49.37% 12,830
1990(2) 10.00 0.14 (1.05) (0.14) -- 8.95 (9.22)% 5,982
- ----------------------
SPECIAL EQUITY FUND
- ----------------------
RETAIL
1995(1) $ 9.37 $ 0.12 $ 2.12 $(0.12) $ (0.07) $ 11.42 24.44% $ 734
INSTITUTIONAL
1995(1) 9.37 0.12 2.12 (0.12) (0.07) 11.42 24.44% 57,396
PRIOR CLASS
1994(3) 10.00 0.06 (0.63) (0.06) -- 9.37 (5.72)% 10,069
- ----------------------------
INTERNATIONAL EQUITY FUND
- ----------------------------
RETAIL
1995(4) $ 10.00 $ (.01) $ 1.00 $ -- $ -- $ 10.99 9.90% $ 9
INSTITUTIONAL
1995(4) 10.00 -- 1.01 -- -- 11.01 10.10% 13,372
- ----------------
BALANCED FUND
- ----------------
RETAIL
1995(5) $ 9.97 $ 0.11 $ 0.42 $(0.11) $ -- $ 10.39 5.27% $ 69
INSTITUTIONAL
1995(6) 10.00 0.12 0.37 (0.11) -- 10.38 4.89% 38,494
- ------------
BOND FUND
- ------------
RETAIL
1995(1) $ 9.81 $ 0.60 $ 0.72 $(0.57) $ -- $ 10.56 13.83% $ 1,373
INSTITUTIONAL
1995(1) 9.81 0.61 0.71 (0.58) -- 10.55 13.87% 194,442
PRIOR CLASS
1994 11.18 0.53 (1.04) (0.52) (0.34) 9.81 (4.75)% 23,377
1993 10.89 0.56 0.54 (0.56) (0.25) 11.18 10.63% 27,346
1992 10.65 0.70 0.32 (0.68) (0.10) 10.89 9.82% 15,180
1991 9.96 0.78 0.69 (0.78) -- 10.65 15.16% 7,255
1990(2) 10.00 0.50 (0.04) (0.50) -- 9.96 4.64% 4,593
- -----------------------------
INTERMEDIATE INCOME FUND
- -----------------------------
RETAIL
1995(1) $ 10.27 $ 0.55 $ 0.44 $(0.54) $ -- $ 10.72 9.90% $ 1,230
INSTITUTIONAL
1995(1) 10.27 0.57 0.42 (0.55) -- 10.71 9.92% 138,243
PRIOR CLASS
1994 11.01 0.50 (0.61) (0.49) (0.14) 10.27 (0.97)% 21,247
1993 10.87 0.53 0.21 (0.53) (0.07) 11.01 6.99% 24,047
1992 10.61 0.65 0.29 (0.64) (0.04) 10.87 9.11% 16,718
1991 10.12 0.77 0.50 (0.77) (0.01) 10.61 12.94% 7,116
1990(2) 10.00 0.48 0.12 (0.48) -- 10.12 6.10% 3,986
- ----------------------------
SHORT-TERM INCOME FUND
- ----------------------------
RETAIL
1995(7) $ 10.01 $ 0.23 $ 0.02 $(0.22) $ -- $ 10.04 2.57% $ 11
INSTITUTIONAL
1995(4) 10.00 0.25 0.03 (0.23) -- 10.05 2.87% 36,059
<CAPTION>
Ratio of
Ratio of of Expenses Income
Net to Average to Average
Ratio of Investment Net Assets Net Assets
Expenses Income (Excluding (Excluding Portfolio
to Average to Average Waivers and Waivers and Turnover
Net Assets Net Assets Reimbursements) Reimbursements) Rate
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -------------
EQUITY FUND
- -------------
RETAIL
1995(1) 1.34% 1.23% 1.53% 1.04% 119%
INSTITUTIONAL
1995(1) 1.05% 1.44% 1.10% 1.44% 119%
PRIOR CLASS
1994 1.49% 0.75% 1.51% 0.73% 35%
1993 1.20% 0.94% 1.41% 0.73% 24%
1992 0.92% 1.47% 1.23% 1.17% 39%
1991 0.54% 2.30% 1.48% 1.36% 68%
1990(2) 0.65% 2.29% 1.59% 1.35% 43%
- ----------------------
SPECIAL EQUITY FUND
- ----------------------
RETAIL
1995(1) 0.27% 1.29% 2.24% (0.68)% 129%
INSTITUTIONAL
1995(1) 0.32% 1.14% 1.97% (0.51)% 129%
PRIOR CLASS
1994(3) 0.15% 1.06% 2.10% (0.89)% 39%
- ----------------------------
INTERNATIONAL EQUITY FUND
- ----------------------------
RETAIL
1995(4) 2.13% (.69)% 2.26% (.83)% 23%
INSTITUTIONAL
1995(4) 1.88% (0.10)% 1.88% (0.10)% 23%
- ---------------
BALANCED FUND
- ---------------
RETAIL
1995(5) 1.07% 3.37% 1.32% 3.12% 65%
INSTITUTIONAL
1995(6) 0.82% 3.66% 1.07% 3.41% 65%
- ------------
BOND FUND
- ------------
RETAIL
1995(1) 0.97% 6.02% 1.44% 5.55% 352%
INSTITUTIONAL
1995(1) 0.71% 6.09% 1.12% 5.68% 352%
PRIOR CLASS
1994 1.01% 5.07% 1.60% 4.48% 232%
1993 0.88% 5.16% 1.49% 4.55% 158%
1992 0.46% 6.78% 1.24% 6.01% 99%
1991 0.47% 7.71% 1.41% 6.78% 47%
1990(2) 0.68% 7.75% 1.62% 6.81% 23%
- -----------------------------
INTERMEDIATE INCOME FUND
- -----------------------------
RETAIL
1995(1) 0.93% 5.47% 1.51% 4.89% 260%
INSTITUTIONAL
1995(1) 0.64% 5.72% 1.15% 5.21% 260%
PRIOR CLASS
1994 0.90% 4.66% 1.64% 3.92% 170%
1993 0.78% 4.89% 1.50% 4.17% 90%
1992 0.47% 6.31% 1.24% 5.57% 53%
1991 0.40% 7.69% 1.34% 6.76% 33%
1990(2) 0.75% 7.42% 1.69% 6.48% 39%
- ----------------------------
SHORT-TERM INCOME FUND
- ----------------------------
RETAIL
1995(7) 0.88% 5.05% 1.33% 4.60% 40%
INSTITUTIONAL
1995(4) 0.63% 5.43% 1.08% 4.98% 40%
</TABLE>
37
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
Realized and
Unrealized Net
Net Asset Gains Dividends Distributions Assets
Value Net (Losses) from Net from Net Asset End of
Beginning Investment on Investment Realized Value End Total Period
of Period Income Investments Income Capital Gains of Period Return* (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------
PENNSYLVANIA TAX-FREE BOND FUND
- --------------------------------------
RETAIL
1995(1) $ 9.56 $ 0.47 $ 0.67 $(0.46) $ (0.01) $ 10.23 12.30% $ 820
INSTITUTIONAL
1995(1) 9.56 0.47 0.67 (0.46) (0.01) 10.23 12.30% 5,977
PRIOR CLASS
1994 10.48 0.46 (0.85) (0.46) (0.07) 9.56 (3.90)% 7,008
1993 9.77 0.45 0.70 (0.44) -- 10.48 11.94% 5,883
1992(8) 10.00 -- (0.23) -- -- 9.77 (2.28)% 3,405
- --------------------------
CASH MANAGEMENT FUND
- --------------------------
RETAIL
1995(1) $ 1.00 $ 0.05 $ -- $(0.05) $ -- $ 1.00 5.25% $ 3,358
INSTITUTIONAL
1995(1) 1.00 0.05 -- (0.05) -- 1.00 5.43% 234,520
PRIOR CLASS
1994 1.00 0.03 (0.03) -- -- 1.00 3.41% 140,545
1993 1.00 0.03 (0.03) -- -- 1.00 2.80% 215,223
1992 1.00 0.04 (0.04) -- -- 1.00 3.79% 113,096
1991 1.00 0.06 (0.06) -- -- 1.00 6.22% 151,166
1990(9) 1.00 0.07 (0.07) -- -- 1.00 7.59% 39,061
- ---------------------------------
U.S. TREASURY SECURITIES FUND
- ---------------------------------
RETAIL
1995(1) $ 1.00 $ 0.05 $ -- $(0.05) $ -- $ 1.00 5.16% $ 730
INSTITUTIONAL
1995(1) 1.00 0.05 -- (0.05) -- 1.00 5.27% 444,529
PRIOR CLASS
1994 1.00 0.03 (0.03) -- -- 1.00 3.07% 325,379
1993 1.00 0.03 (0.03) -- -- 1.00 2.57% 257,934
1992 1.00 0.04 (0.04) -- -- 1.00 3.64% 340,904
1991 1.00 0.06 (0.06) -- -- 1.00 5.96% 341,931
1990(9) 1.00 0.07 (0.07) -- -- 1.00 7.44% 106,771
- ----------------
TAX-FREE FUND
- ----------------
RETAIL
1995(1) $ 1.00 $ 0.03 $ -- $(0.03) $ -- $ 1.00 3.39% $ 1,282
INSTITUTIONAL
1995(1) 1.00 0.03 -- (0.03) -- 1.00 3.43% 60,509
PRIOR CLASS
1994 1.00 0.02 (0.02) -- -- 1.00 2.21% 54,904
1993 1.00 0.02 (0.02) -- -- 1.00 1.97% 46,239
1992 1.00 0.03 (0.03) -- -- 1.00 2.88% 46,295
1991 1.00 0.04 (0.04) -- -- 1.00 4.44% 45,647
1990(9) 1.00 0.05 (0.05) -- -- 1.00 5.31% 24,167
<CAPTION>
Ratio of
Ratio of of Expenses Income
Net to Average to Average
Ratio of Investment Net Assets Net Assets
Expenses Income (Excluding (Excluding Portfolio
to Average to Average Waivers and Waivers and Turnover
Net Assets Net Assets Reimbursements) Reimbursements) Rate
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------
PENNSYLVANIA TAX-FREE BOND FUND
- --------------------------------------
RETAIL
1995(1) 0.51% 4.64% 1.62% 3.53% 15%
INSTITUTIONAL
1995(1) 0.51% 4.64% 1.65% 3.50% 15%
PRIOR CLASS
1994 0.38% 4.61% 1.57% 3.42% 37%
1993 0.51% 4.35% 1.63% 3.23% 50%
1992(8) 2.67% 0.52% 3.41% (0.22)% 31%
- --------------------------
CASH MANAGEMENT FUND
- --------------------------
RETAIL
1995(1) 0.74% 5.16% 0.97% 4.93% N/A
INSTITUTIONAL
1995(1) 0.56% 5.32% 0.79% 5.09% N/A
PRIOR CLASS
1994 0.71% 3.32% 0.99% 3.05% N/A
1993 0.65% 2.75% 0.87% 2.53% N/A
1992 0.48% 3.76% 0.70% 3.55% N/A
1991 0.49% 5.84% 0.79% 5.54% N/A
1990(9) 0.42% 7.95% 0.75% 7.62% N/A
- ---------------------------------
U.S. TREASURY SECURITIES FUND
- ---------------------------------
RETAIL
1995(1) 0.73% 5.26% 0.79% 5.20% N/A
INSTITUTIONAL
1995(1) 0.62% 5.14% 0.78% 4.98% N/A
PRIOR CLASS
1994 0.72% 3.03% 0.97% 2.78% N/A
1993 0.66% 2.55% 0.87% 2.33% N/A
1992 0.46% 3.65% 0.69% 3.44% N/A
1991 0.51% 5.61% 0.79% 5.32% N/A
1990(9) 0.38% 7.73% 0.79% 7.32% N/A
- ----------------
TAX-FREE FUND
- ----------------
RETAIL
1995(1) 0.48% 3.35% 0.88% 2.95% N/A
INSTITUTIONAL
1995(1) 0.46% 3.37% 0.83% 3.00% N/A
PRIOR CLASS
1994 0.37% 2.22% 1.05% 1.53% N/A
1993 0.45% 1.95% 0.96% 1.44% N/A
1992 0.33% 2.83% 0.73% 2.45% N/A
1991 0.43% 4.37% 0.87% 3.93% N/A
1990(9) 0.31% 5.57% 0.91% 4.97% N/A
</TABLE>
* Total Return figures do not reflect applicable sales loads.
(1) On February 21, 1995 the shares of the Fund were redesignated as either
Retail or Institutional shares. For the year ended October 31, 1995, the
Financial Highlights' ratios of expenses, ratios of net investment income,
total return, and the per share investment activities and distributions are
presented on a basis whereby the Fund's net investment income, expenses, and
distributions for the period November 1, 1994 through February 20, 1995 were
allocated to each class of shares based upon the relative net assets of each
class of shares as of February 21, 1995 and the results combined therewith
the results of operations and distributions for each applicable class for
the period February 21, 1995 through October 31, 1995.
(2) Commenced operations on February 28, 1990. All ratios for the period have
been annualized.
(3) Commenced operations on March 15, 1994. All ratios for the period have been
annualized.
(4) Commenced operations on May 15, 1995. All ratios for the period have been
annualized.
(5) Commenced operations on June 29, 1995. All ratios for the period have been
annualized.
(6) Commenced operations on June 26, 1995. All ratios for the period have been
annualized.
(7) Commenced operations on May 17, 1995. All ratios for the period have been
annualized.
(8) Commenced operations on September 21, 1992. All ratios for the period have
been annualized.
(9) Commenced operations on November 27, 1989. All ratios for the period have
been annualized.
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
1. Organization:
The Conestoga Family of Funds (the "Company") was organized as a Massachusetts
business trust under a Declaration of Trust dated August 1, 1989. The Company is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company with eleven funds: the U.S. Treasury Securities
Fund, the Cash Management Fund, the Tax-Free Fund (collectively "the Money
Market Funds"), the Intermediate Income Fund, the Bond Fund, the Pennsylvania
Tax-Free Bond Fund, the Short-Term Income Fund (collectively "the Fixed Income
Funds"), the Equity Fund, the Special Equity Fund, the International Equity Fund
(collectively "the Equity Funds") and the Balanced Fund. The assets of each Fund
are segregated, and a shareholder's interest is limited to the Fund in which
shares are held. The Company currently offers two classes of shares in each
Fund: Institutional and Retail. Each Fund is authorized to issue an unlimited
number of shares of either class which are units of beneficial interest with a
par value of $0.001 per share. The Institutional and Retail Shares of each Fund
are subject to the same expenses except that Institutional Shares are not
subject to a distribution fee, and the Institutional Shares of the Fixed Income
and Equity Funds are not sold with a sales charge.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by the
Company. These policies are
in conformity with generally accepted accounting principles.
Security Valuation--Investments in equity securities which are traded on a
national securities exchange (or reported on the NASDAQ national market system)
are stated at the last quoted sales price--if readily available for such equity
securities--on each business day. If there is no such reported sale, these
securities, and unlisted securities for which market quotations are readily
available, are valued at the most recently quoted bid price.
Debt obligations exceeding 60 days to maturity for which market quotations
are readily available are valued at the most recently quoted bid price. Debt
obligations with 60 days or less until maturity may be valued either at the most
recently quoted bid price or at their amortized cost.
Investment securities held by the Money Market Funds are stated at
amortized cost which approximates market value. Under the amortized cost method,
any discount or premium is amortized ratably to the maturity of the security and
is included in interest income.
Foreign securities in the International Equity Fund are valued based upon
quotations from the primary market in which they are traded.
Federal Income Taxes--It is each Fund's intention to qualify as a regulated
investment company by complying with the appropriate provisions of the Internal
Revenue Code of 1986, as amended. Accordingly, no provisions for Federal income
taxes are required in the accompanying financial statements.
Security Transactions and Investment Income--
Security transactions are accounted for on the trade date of the security
purchase or sale. Dividend income is recognized on ex-dividend date, and
interest income is recognized on an accrual basis and includes the pro rata
amortization of premium or accretion of discount. The cost used in determining
net realized capital gains and losses on the sale of securities are those of the
specific securities sold, adjusted for the accretion and amortization of
purchase discounts and premiums during the applicable holding period. Purchase
discounts and premiums on securities held by the Equity and Fixed Income Funds
are accreted and amortized to maturity using the scientific amortization method,
which approximates the effective interest method.
Repurchase Agreements--Securities pledged as collateral for repurchase
agreements are held at a custodian bank in the name of the Fund until the
repurchase agreements mature. Provisions of the repurchase agreements ensure
that the market value of the collateral, including accrued interest thereon, is
sufficient in the event of default of the counterparty. If the counterparty
defaults and the value of the collateral declines or if the counterparty enters
an insolvency proceeding, realization of the collateral by the Funds may be
delayed or limited.
Net Asset Value Per Share--The net asset value per share of each class of
each Fund is calculated on each business day. In general, it is computed by
dividing the assets of each class of each Fund, less its liabilities, by the
number of outstanding shares of the respective class of the Fund. The maximum
offering price per share for Retail Shares of the Equity and Fixed Income Funds
is
39
<PAGE>
- --------------------------------------------------------------------------------
equal to the net asset value per share plus a sales load of 2.00%. The offering
price per share for the Institutional Shares of the Equity and Fixed Income
Funds is the net asset value per share. The offering price for Institutional and
Retail Shares of the Money Market Funds is the amortized cost per share, which
approximates net asset value per share.
Foreign Currency Translation--The books and records of the International
Equity Fund are maintained in U.S. dollars on the following basis:
(I) market value of investment securities, assets and liabilities at the
current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates of
such transactions.
The International Equity Fund does not isolate that portion of gains and
losses on investments in equity securities which is due to changes in the
foreign exchange rates from that which is due to changes in market prices of
equity securities.
The International Equity Fund reports certain foreign currency related
transactions as components of realized gains for financial reporting purposes,
whereas such components are treated as ordinary income for Federal income tax
purposes.
Forward Foreign Currency Contracts--The International Equity Fund enters
into forward foreign currency contracts as hedges against either specific
transactions or Fund positions. All commitments are "marked-to-market" daily at
the applicable foreign exchange rate and any resulting unrealized gains or
losses are recorded currently. The International Equity Fund realizes gains or
losses at the time the forward contracts are extinguished. Unrealized gains or
losses on outstanding positions in forward foreign currency contracts held at
the close of the year will be recognized as ordinary income or loss for Federal
income tax purposes.
Maturity Dates--Certain variable rate and floating rate securities are
subject to "maturity shortening" devices such as put or demand features. Under
Rule 2a-7 of the Investment Company Act of 1940 (the "1940 Act"), as amended,
these securities are deemed to have maturities shorter than the ultimate
maturity dates. Accordingly, the maturity dates reflected in the Statement of
Net Assets are the shorter of the effective demand/put date or the ultimate
maturity date.
Classes--Class-specific expenses are borne by that class. Other expenses,
income, and realized and unrealized gains and losses are allocated to their
respective classes on the basis of relative daily net assets.
Other--Distributions from net investment income for the Equity and Fixed
Income Funds are declared and paid to shareholders on a periodic basis.
Distributions from net investment income for the Money Market Funds are declared
daily and paid to shareholders monthly. Any net realized capital gains are
distributed to shareholders at least annually.
3. Administration and Distribution Agreements:
The Company and SEI Financial Management Corporation (the "Administrator") are
parties to an administration agreement (the "Administration Agreement") dated
May 1, 1995. Under the terms of the Administration Agreement the Administrator
is entitled to a fee calculated daily and paid monthly at an annual rate of .17%
of the average daily net assets of each Fund. Prior to May 1, 1995, The Winsbury
Company ("Winsbury") served as the Administrator to the Company and was entitled
to a fee calculated daily and paid monthly at the annual rate of .20% of the
average daily net assets of each Fund.
The Company has adopted a distribution and services plan (the "Distribution
Plan") applicable to the Retail Shares pursuant to rule 12b-1 under the 1940
Act. As provided in the Distribution Plan, each Fund is authorized to pay the
distributor a fee for distribution services in an amount not to exceed on an
annual basis .40% of the average daily net assets of the Retail Shares of the
Funds. The Company and SEI Financial Services Company (the "Distributor"), a
wholly-owned subsidiary of SEI Corporation and a registered broker-dealer, are
parties to a distribution agreement (the "Distribution Agreement") dated May 1,
1995. Under the terms of the Distribution Agreement, the Distributor receives no
fees for its Institutional Shares distribution services, and is entitled to
receive fees as set forth in the Distribution Plan for services performed and
expenses assumed under the Distribution Agreement as to the Retail Shares of the
Funds. Prior to May 1, 1995 Winsbury served as Distributor to the Company and
was entitled to receive commissions earned on sales of shares of the Equity and
40
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Fixed Income Funds. For the six months ended April 30, 1995, Winsbury received
$7,736 from commissions earned on sales of shares of the Equity and Fixed Income
Funds, of which $261 was reallowed to Meridian Securities Inc., an affiliate of
Meridian Bancorp, and an investment dealer of the Funds.
4. Investment Advisory Agreements:
Investment advisory services are provided to the Company by Meridian Investment
Company (the "Investment Advisor"), a subsidiary of Meridian Bancorp, Inc. Under
the terms of the investment advisory agreements, the Investment Advisor is
entitled to receive a fee from the Fund, computed daily and paid monthly, at an
annual rate equal to the lesser of (a) (i) .40% of the average daily net assets
of each of the Cash Management, Tax-Free and U.S. Treasury Securities Funds,
(ii) .74% of the average daily net assets of each of the Equity, Bond,
Intermediate Income, Pennsylvania Tax-Free Bond, and Short-Term Income Funds,
(iii) .75% of the average daily net assets of the Balanced Fund, (iv) 1.00% of
the average daily net assets of the International Equity Fund, and (v) 1.50% of
the average daily net assets of the Special Equity Fund, or (b) such fee as
agreed upon in writing by a Fund and the Investment Advisor in advance of the
period to which the fee relates.
Pursuant to the Company's investment advisory agreement for the
International Equity Fund, the Investment Advisor has retained Marvin & Palmer
Associates, Inc. ("Marvin & Palmer") as Sub-Advisor to such Fund pursuant to a
Sub-Investment Advisory Agreement. For its services under such Sub-Investment
Advisory Agreement, Marvin & Palmer is paid a monthly fee by Meridian calculated
on an annual basis equal to .75% of the first $100 million of the International
Equity Fund's average daily net assets, .70% of the second $100 million of the
International Equity Fund's average daily net assets, .65% of the third $100
million of the International Equity Fund's average daily net assets, and .60% of
the International Equity Fund's average daily net assets in excess of $300
million.
5. Organizational Costs and
Transactions with Affiliates:
Organizational costs have been capitalized by the Company and are being, or
were, amortized on a straight line basis over a maximum of sixty months
following commencement of operations. In the event any of the initial shares of
the Company are redeemed by any holder thereof during the period that the
Company is amortizing its organizational costs, the redemption proceeds payable
to the holder thereof by the Company will be reduced by the unamortized
organizational cost in the same ratio as the number of initial shares being
redeemed bears to the number of initial shares outstanding at the time of
redemption.
Certain officers of the Company are also officers of the Administrator
and/or SEI Financial Services Company (the "Distributor"). Such officers are
paid no fees by the Company for serving as officers of the Company.
6. Investment Transactions:
The cost of security purchases and the proceeds from security sales, excluding
short-term investments, for the year ended October 31, 1995 were as follows:
<TABLE>
<CAPTION>
U.S. Govt.
Purchases Sales Purchases U.S. Govt. Sales
(000) (000) (000) (000)
------- ------- ------- ----------
<S> <C> <C> <C> <C>
Equity $ 228,276 $229,329 -- --
Special Equity 38,281 39,567 -- --
International Equity 14,651 2,343 -- --
Balanced 52,677 20,147 -- --
Bond 255,196 251,397 $ 163,069 $182,327
Intermediate Income 140,542 138,144 101,752 100,103
Short-Term Income 20,442 7,585 16,637 5,479
Pennsylvania
Tax-Free Bond 897 1,865 -- --
</TABLE>
At October 31, 1995, the total cost of securities and net realized gains or
losses on securities sold for Federal income tax purposes was not materially
different from amounts reported for financial reporting purposes. The aggregate
gross unrealized appreciation and depreciation for securities held by the Equity
41
<PAGE>
- --------------------------------------------------------------------------------
and Fixed Income Funds at October 31, 1995 were as follows:
<TABLE>
<CAPTION>
Net
Unrealized
Appreciated Depreciated Appreciation--
Securities Securities (Depreciation)
(000) (000) (000)
------- ------- ---------
<S> <C> <C> <C>
Equity $28,816 $12,474 $16,342
Special Equity 5,315 4,771 544
International Equity 1,081 374 707
Balanced 1,218 359 859
Bond 2,765 192 2,573
Intermediate Income 1,472 73 1,399
Short-Term Income 94 2 92
Pennsylvania Tax-Free Bond 89 77 12
</TABLE>
At October 31, 1995 the following Funds had available realized capital
losses to offset future net capital gains in the amounts shown as follows:
<TABLE>
<CAPTION>
Capital Loss Carryover
Fund October 31, 1995 Expiring 2002 Expiring 2003
- --- -------------- -------- --------
<S> <C> <C> <C>
International Equity $ 21,098 $ -- $21,098
Pennsylvania
Tax-Free Bond 68,029 -- 68,029
Cash Management 217,837 217,837 --
Tax-Free 3,824 -- 3,824
</TABLE>
The Bond Fund utilized its entire capital loss carryforward balance of
$1,283,474 which was carried over from the previous year.
The Cash Management Fund utilized $2,310 of its capital loss carryforward
balance during the year.
The Intermediate Income Fund utilized its entire capital loss carryforward
balance of $383,000 which was carried over from the previous year.
7. Forward Foreign Currency Contracts:
The International Equity Fund may enter into forward foreign currency exchange
contracts as hedges against fund positions. Such contracts, which may protect
the value of the Fund's investment securities against a decline in the value of
currency, do not eliminate fluctuations in the underlying prices of the
securities. They simply establish an exchange rate at a future date. Also,
although such contracts tend to minimize the risk of loss due to a decline in
the value of a hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of such foreign currency
increase.
The following forward foreign currency contracts
in the International Equity Fund were outstanding at
October 31, 1995:
<TABLE>
<CAPTION>
Net Unrealized
Contracts to In Exchange Appreciation/
Settlement Deliver FX For $ Depreciation
Date Currency (000) (000) (000)
------- ----- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Foreign Currency 11/30/95 UK 450 $ 709 $ --
Sales 11/30/95 JY 191,660 1,930 46
11/02/95 JY 3,209 31 --
11/02/95 SK 139 21 --
----------- ---
$ 2,691 $ 46
----------- ---
Foreign Currency 11/02/95 JY 2,927 $ 29 $ --
Purchases 11/02/95 JY 2,237 22 --
----------- ---
$ 51 $ --
----------- ---
$ 46
==========
</TABLE>
Currency Legend
JY Japanese Yen
SK Swedish Krona
UK British Sterling Pound
42
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
8. Share Transactions:
<TABLE>
<CAPTION>
Special International Intermediate
Equity Equity Equity Balanced Bond Income
Fund Fund Fund Fund Fund Fund
---- ---- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
PERIOD FROM
NOVEMBER 1, 1994
THROUGH
FEBRUARY 21, 1995:
Exchange out to
Retail Class (401) (52) -- -- (138) (136)
Exchange out to
Institutional Class (3,007) (1,099) -- -- (2,935) (1,478)
Shares issued 331 73 -- -- 938 151
Shares issued in
lieu of cash
distributions 180 13 -- -- 25 18
Shares repurchased (446) (9) -- -- (273) (625)
------ ------ ----- ----- ------ ------
Net Decrease (3,343) (1,074) -- -- (2,383) (2,070)
====== ====== ===== ===== ====== ======
PERIOD FROM
FEBRUARY 22, 1995
THROUGH
OCTOBER 31, 1995:
RETAIL CLASS:
Exchange in from
previous class 401 52 -- -- 138 136
Shares issued 41 17 1 7 15 15
Shares issued in
lieu of cash
distributions 3 -- -- -- 5 4
Shares repurchased (59) (5) -- -- (28) (40)
------ ------ ----- ----- ------ ------
Net Increase 386 64 1 7 130 115
====== ====== ===== ===== ====== ======
INSTITUTIONAL CLASS:
Exchange in from
previous class 3,007 1,099 -- -- 2,935 1,478
Shares issued 22,654 4,786 1,291 3,945 18,682 13,274
Shares issued in
lieu of cash
distributions 151 28 -- 37 491 338
Shares repurchased (3,652) (886) (76) (275) (3,686) (2,180)
------ ------ ----- ----- ------ ------
Increase in net
assets derived from
Institutional
transactions 22,160 5,027 1,215 3,707 18,422 12,910
====== ====== ===== ===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania
Short-Term Tax-Free Cash U.S. Treasury
Income Bond Management Securities Tax-Free
Fund Fund Fund Fund Fund
------ -------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
PERIOD FROM
NOVEMBER 1, 1994
THROUGH
FEBRUARY 21, 1995:
Exchange out to
Retail Class -- (69) (4,188) (618) (2,456)
Exchange out to
Institutional
Class -- (543) (207,034) (311,574) (67,719)
Shares issued -- 49 229,934 304,528 113,629
Shares issued in lieu
of cash distributions -- 4 31 10 86
Shares repurchased -- (174) (159,426) (317,660) (98,423)
--
---- -------- -------- -------
Net Decrease -- (733) (140,683) (325,314) (54,883)
== ==== ======== ======== =======
PERIOD FROM
FEBRUARY 22, 1995
THROUGH OCTOBER 31,
1995:
RETAIL CLASS:
Exchange in from
previous class -- 69 4,188 618 2,456
Shares issued 1 16 1,981 130,272 332
Shares issued in lieu
of cash distributions -- 2 126 22 42
Shares repurchased -- (7) (2,934) (130,182) (1,548)
--
---- -------- -------- -------
Net Increase 1 80 3,361 730 1,282
== ==== ======== ======== =======
INSTITUTIONAL CLASS:
Exchange in from
previous class -- 543 207,034 311,574 67,719
Shares issued 4,689 185 457,561 1,003,029 201,868
Shares issued in lieu
of cash distributions 91 7 479 683 91
Shares repurchased (1,192) (151) (430,420) (870,863) (209,186)
--
---- -------- -------- -------
Net Increase 3,588 584 234,654 444,423 60,492
== ==== ======== ======== =======
</TABLE>
43
<PAGE>
- --------------------------------------------------------------------------------
9. Shareholder Voting Results:
A special meeting of shareholders was held on January 9, 1995 (reconvened
January 12, 1995, January 13, 1995 and February 10, 1995) for the Company to
vote on the following proposals (i) the election of a Board of seven (7)
trustees (Dominic S. Genuardi, Sr., Steven I. Gross, J. David Huber, Robert C.
Kingston, Dale E. Smith, Thomas J. Taylor and William J. Tomko); (ii) the
ratification of the selection of Coopers & Lybrand, L.L.P. as independent
accountants for the Company for the fiscal year ending October 31, 1995; (iii)
the approval of the adoption of a new Distribution and Services Plan with
respect to the Retail Shares of each of the Company's existing Funds (the U.S.
Treasury Securities Fund, the Cash Management Fund, the Tax-Free Fund, the
Intermediate Income Fund, the Bond Fund, the Equity Fund, the Pennsylvania
Tax-Free Bond Fund and the Special Equity Fund), pursuant to Rule 12b-1 under
the Investment Company Act of 1940; (iv) with respect to the Bond Fund only, the
approval of a change in the fundamental investment objective of the Fund; and
(v) with respect to the Intermediate Income Fund only, the approval of a change
in the fundamental investment objective of the Fund. The following were the
results of the vote (Unaudited):
MEETING OF SHAREHOLDERS
JANUARY 9, 1995
<TABLE>
<CAPTION>
Proposal 3 Cash Management Tax-Free Special Equity
- ---------------------- --------------- ---------- --------------
<S> <C> <C> <C>
For................... 81,862,297 30,681,945 934,540
Against............... 3,217,557 634,459 1,368
Abstentions........... 8,118,366 1,444,175 none
</TABLE>
RECONVENED
JANUARY 13, 1995
<TABLE>
<CAPTION>
Proposal 1 In Favor Withheld
- ------------------------ ----------- -----------
<S> <C> <C>
Dominic S. Genuardi,
Sr..................... 347,299,332 23,395,703
Steven I. Gross......... 347,159,952 23,535,083
J. David Huber.......... 347,283,622 23,411,413
Robert C. Kingston...... 346,762,700 23,932,336
Dale E. Smith........... 347,304,576 23,390,459
Thomas J. Taylor........ 347,283,622 23,411,413
William J. Tomko........ 347,283,622 23,411,413
</TABLE>
<TABLE>
<CAPTION>
Proposal 2
- -------------------------
<S> <C>
COOPERS & LYBRAND, L.L.P.
For...................... 330,010,191
Against.................. 16,943,555
Abstentions.............. 23,741,287
</TABLE>
<TABLE>
<CAPTION>
Proposal 3 Intermediate Income Bond Equity PA Tax-Free
- ---------------------- ------------------- --------- -------------- -----------
<S> <C> <C> <C> <C>
For................... 1,107,049 1,110,841 1,343,747 369,400
Against............... 5,266 54,399 366,865 10,079
Abstentions........... 9,098 39,677 102,000 47,478
</TABLE>
<TABLE>
<CAPTION>
Proposal 4 Bond
- -------------------------- ---------
<S> <C>
For....................... 1,138,236
Against................... 29,140
Abstentions............... 37,540
</TABLE>
<TABLE>
<CAPTION>
Proposal 5 Intermediate Income
- -------------------- -------------------
<S> <C>
For................. 1,107,122
Against............. 5,722
Abstentions......... 8,568
</TABLE>
RECONVENED
FEBRUARY 10, 1995
<TABLE>
<CAPTION>
U.S. Treasury
Proposal 3 Securities
- ----------------- ------------------------
<S> <C>
For.............. 178,314,048
Against.......... 3,692,885
Abstentions...... 50,897,923
</TABLE>
44
<PAGE>
NOTICE TO SHAREHOLDERS OF THE CONESTOGA FUNDS
For shareholders that do not have an October 31, 1995 taxable year end, this
notice is for informational purposes only. For shareholders with an October 31,
1995 taxable year end, please consult your tax advisor as to the pertinence of
this notice.
For the fiscal year ended October 31, 1995 the portfolios of The Conestoga Funds
are designating long term capital gains and qualifying dividend income with
regard to distributions paid during the year as follows:
<TABLE>
<CAPTION>
(A) (B)
LONG TERM ORDINARY
CAPITAL GAINS INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
FUND (TAX BASIS) (TAX BASIS) (TAX BASIS)
- ---------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Equity 37% 63% 100%
Special Equity 0% 100% 100%
International Equity 0% 100% 100%
Balanced 0% 100% 100%
Bond 0% 100% 100%
Intermediate Income 0% 100% 100%
Short-Term Income 0% 100% 100%
Pennsylvania Tax-Free Bond 3% 97% 100%
Cash Management 0% 100% 100%
U.S. Treasury Securities 0% 100% 100%
Tax-Free 0% 100% 100%
</TABLE>
<TABLE>
<CAPTION>
(C) (D) (E)
QUALIFYING TAX EXEMPT FOREIGN
FUND DIVIDENDS (1) INTEREST TAX CREDIT
- ---------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Equity 53% 0% 0%
Special Equity 49% 0% 0%
International Equity 0% 0% 0%
Balanced 10% 0% 0%
Bond N/A 0% 0%
Intermediate Income N/A 0% 0%
Short-Term Income N/A 0% 0%
Pennsylvania Tax-Free Bond N/A 100% 0%
Cash Management N/A 0% 0%
U.S. Treasury Securities N/A 0% 0%
Tax-Free N/A 97% 0%
</TABLE>
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
* Items (A) and (B) are based on the percentage of each portfolio's total
distribution.
** Items (C) and (D) are based on the percentage of gross income of each
portfolio.
45
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
CON-F-004-02
<PAGE>
---THE---
CONESTOGA
--FUNDS--
Equity Fund
Special Equity Fund
International Equity Fund
Balanced Fund
Bond Fund
Intermediate Income Fund
Short-Term Income Fund
Pennsylvania Tax-Free Bond Fund
Cash Management Fund
U.S. Treasury Securities Fund
Tax-Free Fund
------------------------------
ANNUAL REPORT
OCTOBER 31, 1995
------------------------------
