COREFUND(R)
FAMILY OF MUTUAL FUNDS
PROSPECTUS
COREFUNDS, INC.
NOVEMBER 1, 1996
INSTITUTIONAL SHARES
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CoreFunds, Inc. is an open-end management investment company
presently offering shares in twenty-three 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
Class Y Shares in seventeen portfolios, including equity, fixed income, and
money market portfolios (the "Funds").
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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, 1996, 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.
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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. AN INVESTMENT IN THE CASH RESERVE, TREASURY RESERVE AND/OR
TAX-FREE RESERVE IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, AND
THERE CAN BE NO ASSURANCE THAT THESE FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE.
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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.
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TABLE OF CONTENTS /X/ COREFUND
<TABLE>
<S> <C>
Transaction and Operating
Expense Tables...................................... 3
Financial Highlights.................................. 7
Highlights............................................ 12
</TABLE>
_____________________ FUNDAMENTALS OF MUTUAL FUND INVESTING ____________________
<TABLE>
<S> <C>
Types of investment vehicles.......................... 15
How to invest in stocks, bonds, and money market
instruments......................................... 17
Developing your investment strategy................... 22
</TABLE>
___________________________ INFORMATION ON THE FUNDS ___________________________
<TABLE>
<S> <C>
Investment Objectives of the Funds.................... 26
Equity Funds..................................... 26
Fixed Income Funds............................... 26
Money Market Funds............................... 27
Investment Policies................................... 27
Equity Funds..................................... 27
Fixed Income Funds............................... 32
Money Market Funds............................... 36
Other Investment Practices
of the Funds.................................. 37
Types of Securities in Which the Funds Invest......... 44
Equity Funds..................................... 44
Taxable Fixed Income Funds....................... 45
Taxable Money Market Funds....................... 47
Tax-Free Fixed Income and Money
Market Funds.................................. 48
Temporary Investments............................ 50
Investment Restrictions............................... 51
Investor Considerations............................... 53
Investment Suitability........................... 53
Investment Risks................................. 55
Distributions......................................... 58
Taxes................................................. 59
Valuation of Shares................................... 62
Net Asset Value.................................. 62
Portfolio Pricing................................ 63
Management............................................ 64
Investment Adviser, Sub-Advisers................. 64
Fund Managers.................................... 66
Administrator.................................... 69
Distributor...................................... 69
Performance Information............................... 70
Total Return and Yield........................... 70
In General....................................... 71
How to Purchase and Redeem Shares..................... 72
Purchase of Shares............................... 72
Redemption of Shares............................. 73
Description of Shares................................. 73
General Information................................... 74
Description of Ratings................................ 75
Description of Municipal and Corporate Bond
Ratings....................................... 75
Description of Municipal
Note Ratings.................................. 76
</TABLE>
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
on any other information or representation.
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2 Table of Contents
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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 Class Y 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>
------------ ------------- ------------- ------------- ---------------------
GROWTH CORE SPECIAL EQUITY INTERNATIONAL
Equity Funds EQUITY EQUITY(5) EQUITY INDEX GROWTH
- ------------ ------------ ------------- ------------- ------------- ---------------------
<S> <C> <C> <C> <C> <C>
Class Y Shares
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases none none none none none
Maximum Sales Load Imposed on
Reinvested Dividends none none none none none
Deferred Sales Load none none none none none
Redemption Fee none none none none none
Exchange Fee none none none none none
ANNUAL FUND OPERATING EXPENSES*
(as a percentage of net assets):
Investment Advisory Fees After Fee
Waivers(1) .75% .74% .83% .15% .80%
12b-1 Fees none none none none none
Other Expenses(2) .21% .26% .22% .22% .36%
Net Annual Fund Operating Expenses(3) .96% 1.00% 1.06% .37% 1.16%
EXAMPLE
You would pay the following
expenses on a $1,000
investment, assuming (1) a 5% 1 year $ 10 $ 10 $ 11 $ 4 $ 12
annual return and (2) 3 years 31 32 34 12 37
redemption at the end of each 5 years 53 55 58 21 64
time period.(4) 10 years 118 122 129 47 141
<CAPTION>
-----------------
Equity Funds BALANCED
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<S> <C>
Class Y 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
Waivers(1) .58%
12b-1 Fees none
Other Expenses(2) .22%
Net Annual Fund Operating Expenses(3) .80%
EXAMPLE
You would pay the following
expenses on a $1,000
investment, assuming (1) a 5% $ 8
annual return and (2) 26
redemption at the end of each 47
time period.(4) 99
</TABLE>
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* Fees shown reflect current fees.
(1) Absent voluntary waivers, the Adviser's investment advisory fees are
calculated at the annual rate of .75%, .74%, 1.50%, .40%, .80%, and .70% of
the average net assets of Growth Equity Fund, Core Equity Fund, Special
Equity Fund, Equity Index Fund, International Growth Fund, and Balanced
Fund, respectively.
(2) Includes (among others) administrative, custodial, legal and auditing fees.
Absent voluntary waivers, the Administrator's fee is calculated at the
annual rate of .25% of each Fund's average net assets.
(3) 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, 1997. Absent any fee waivers, such expense ratios would have
been 1.05%, 1.04%, 1.80%, 0.70%, 1.25% and 1.01% for Growth Equity Fund,
Core Equity Fund, Special 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, these providers may change this waiver so that a Fund's
expense ratio will approach the contractually mandated ratio.
(4) 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, $33, $58 and $128 for Growth Equity Fund; $11, $33, $57
and $127 for Core Equity Fund; $18, $57, $97, and $212 for Special Equity
Fund; $7, $22, $39 and $87 for Equity Index Fund; $13, $40, $69 and $151 for
International Growth Fund; and $10, $32, $56 and $124 for Balanced Fund.
(5) Prior to the date of this Prospectus, this Fund's name was Equity Fund.
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Transaction and Operating Expense Tables 3
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TRANSACTION AND OPERATING EXPENSE TABLES (CONTINUED)
<TABLE>
<CAPTION>
---------------- ---------- -------------- --------------- ----------------
SHORT-
INTERMEDIATE SHORT TERM GOVERNMENT INTERMEDIATE
Fixed Income Funds BOND BOND INCOME INCOME MUNICIPAL BOND
- ------------------ ---------------- ---------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Class Y Shares
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases none none none none none
Maximum Sales Load Imposed on
Reinvested Dividends none none none none none
Deferred Sales Load none none none none none
Redemption Fee none none none none none
Exchange Fee none none none none none
ANNUAL FUND OPERATING EXPENSES*
(as a percentage of net assets):
Investment Advisory Fees After Fee
Waivers(1) .29% .35% .25% .47% .07%
12b-1 Fees none none none none none
Other Expenses(2) .22% .21% .22% .27% .52%
Net Annual Fund Operating Expenses(3) .51% .56% .47% .74% .59%
EXAMPLE
You would pay the following
expenses on a $1,000 investment, 1 year $ 5 $ 6 $ 5 $ 8 $ 6
assuming (1) a 5% annual return 3 years 16 18 15 24 19
and (2) redemption at the end 5 years 29 31 n/a 41 33
of each time period.(4) 10 years 64 70 n/a 92 74
</TABLE>
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* Fees shown reflect current fees.
(1) Absent voluntary waivers, the Adviser's investment advisory fees are
calculated at the annual rate of .50%, .74%, .74%, .50% and .50% of the
average net assets of Short-Intermediate Bond Fund, Bond Fund, Short Term
Income Fund, Government Income Fund and Intermediate Municipal Bond Fund,
respectively.
(2) Includes (among others) administrative, legal, auditing and printing fees.
Absent voluntary waivers, the Administrator's fee is calculated at the
annual rate of .25% of each Fund's average net assets.
(3) 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, 1997. Absent fee waivers, such expense ratios would have
been 0.80%, 1.04%, 1.05%, 0.84% and 1.21% for Short-Intermediate Bond Fund,
Bond Fund, Short Term Income 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,
these providers may change the waiver so that a Fund's expense ratio will
approach the contractually mandated ratio.
(4) 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, $44 and $99 for Short Intermediate Bond Fund; $11,
$33, $57 and $127 for Bond Fund; $11, $33, $58 and $128 for Short-Term
Income Fund; $9, $27, $47 and $104 for Government Income Fund; and $11, $35,
$61 and $135 for Intermediate Municipal Bond Fund.
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4 Transaction and Operating Expense Tables
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/X/ COREFUND
<TABLE>
<CAPTION>
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PENNSYLVANIA NEW JERSEY
MUNICIPAL MUNICIPAL GLOBAL
Fixed Income Funds BOND BOND BOND
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<S> <C> <C> <C> <C>
Class Y 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 Waivers(1) 0% 0% .50%
12b-1 Fees none none none
Other Expenses(2) .08% .13% .34%
Net Annual Fund Operating Expenses(3) .08% .13% .84%
EXAMPLE
You would pay the following
expenses on a $1,000 investment, 1 year $ 1 $ 1 $ 9
assuming (1) a 5% annual return 3 years 3 4 27
and (2) redemption at the end 5 years 5 7 47
of each time period.(4) 10 years 10 17 104
</TABLE>
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* Fees shown reflect current fees.
(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) Includes (among others) administrative, legal, auditing and printing fees.
Absent voluntary waivers, the Administrator's fee is calculated at the
annual rate of .25% of each Fund's average net assets.
(3) 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, 1997. Absent fee waivers, such expense ratios would have
been 0.83%, 0.88% and 1.03% 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, these providers may change the waiver so that a
Fund's expense ratio will approach the contractually mandated ratio.
(4) 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, $26, $46, and $103 for Pennsylvania Municipal Bond Fund;
$9, $28, $49, and $108 for New Jersey Municipal Bond Fund; and $11, $33,
$57, and $126 for Global Bond Fund.
Transaction and Operating Expense Tables ----
5
<PAGE>
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TRANSACTION AND OPERATING EXPENSE TABLES (CONTINUED) /X/ COREFUND
<TABLE>
<CAPTION>
------------- ------------- -------------
CASH TREASURY TAX-FREE
Money Market Funds RESERVE RESERVE RESERVE
- ------------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Class Y 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 Waivers(1) .30% .30% .30%
12b-1 Fees none none none
Other Expenses(2) .21% .21% .21%
Net Annual Fund Operating Expenses(3) .51% .51% .51%
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 16 16 16
and (2) redemption at the end 5 years 29 29 29
of each time period.(4) 10 years 64 64 64
</TABLE>
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* Fees shown reflect current fees.
(1) Absent voluntary waivers, the Adviser's investment advisory fees are
calculated at the annual rate of .40%, .40%, and .40% of the average net
assets of Cash Reserve, Treasury Reserve, and Tax-Free Reserve,
respectively.
(2) Includes (among others) administrative, legal, auditing, and printing fees.
Absent voluntary waivers, the Administrator's fee is calculated at the
annual rate of .25% of each Fund's average net assets.
(3) 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, 1997. Absent any fee waivers, such expense ratios would have
been 0.70%, 0.70% and 0.70%, 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, these
providers may change the waiver so that a Fund's expense ratio will approach
the contractually mandated ratio.
(4) 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 $7, $22, $39 and $87 for Cash Reserve; $7, $22, $39 and $87
for Treasury Reserve; $7, $22, $39 and $87 for Tax-Free Reserve.
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6 Transaction and Operating Expense Tables
<PAGE>
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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 Growth Equity
Fund, Core Equity Fund, Special Equity Fund, Equity Index Fund, International
Growth Fund, Balanced Fund, Government Income Fund, Short Term Income Fund,
Short-Intermediate Bond Fund, Bond Fund, Intermediate Municipal Bond Fund,
Global Bond Fund, Pennsylvania Municipal Bond Fund, New Jersey Municipal Bond
Fund, Cash Reserve Fund, Treasury Reserve Fund and Tax-Free Reserve Fund have
been audited by Ernst & Young LLP, independent auditors, whose report thereon
appears in CoreFunds' annual report which accompanies the Statement of
Additional Information. The financial highlights for each of the Core Equity
Fund, Special Equity Fund, Bond Fund and Short Term Income Fund for the period
ended October 31, 1990 through October 31, 1995 were audited by Coopers &
Lybrand LLP, independent auditors. The annual report for the Funds is available
to shareholders at no charge by calling CoreFunds at 1-800-355-CORE.
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 Ratio of
Value, Net or (Losses) from Net from Net Asset Period Expenses to
Beginning Investment on Investment Capital Value End Total (000 Average Net
of Period Income Securities Income Gains of Period Return(8) omitted) Assets
----------- ----------- ----------- ----------- ----------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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GROWTH EQUITY
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CLASS Y (INSTITUTIONAL)**
1996 $11.18 $0.08 $ 3.36 $(0.08) $(0.35) $14.19 31.36% $120,073 0.89%
1995 9.11 0.08 2.07 (0.08) -- 11.18 23.71 91,345 0.76
1994 9.95 0.05 (0.84) (0.05) -- 9.11 (8.01) 64,877 0.69
1993 8.74 0.08 1.21 (0.08) -- 9.95 14.76 63,777 0.43
1992(1) 10.00 0.05 (1.26) (0.05) -- 8.74 (12.05)+ 33,418 0.14
CLASS A (INDIVIDUAL)**
1996 $11.17 $0.05 $ 3.35 $(0.05) $(0.35) $14.17 31.00% $ 3,162 1.14%
1995 9.10 0.06 2.07 (0.06) -- 11.17 23.44 2,043 1.01
1994 9.95 0.04 (0.85) (0.04) -- 9.10 (8.13) 1,730 0.94
1993(2) 9.80 0.03 0.15 (0.03) -- 9.95 1.80+ 5,224 0.80
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CORE EQUITY(9)
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CLASS Y (INSTITUTIONAL)*
1996 $17.07 $0.14 $ 1.49 $(0.14) $(1.30) $17.26 19.24% $414,824 0.97%
INSTITUTIONAL CLASS*
1995 15.00 0.19 2.87 (0.19) (0.80) 17.07 22.00 78,352 1.05
CLASS A (INDIVIDUAL)*
1996 $17.08 $0.12 $ 1.49 $(0.11) $(1.30) $17.28 19.11% $ 11,178 1.22%
RETAIL CLASS*
1995 15.00 0.18 2.87 (0.17) (0.80) 17.08 21.94 6.591 1.34
PRIOR CLASS
1994 $15.39 $0.11 $ 0.22 $(0.11) $(0.61) $15.00 2.21% $ 50,128 1.49%
1993 13.93 0.14 1.89 (0.14) (0.43) 15.39 14.90 45,677 1.20
1992 13.08 0.19 1.02 (0.19) (0.17) 13.93 9.27 28,103 0.92
1991 8.95 0.26 4.13 (0.26) -- 13.08 49.37 12.830 0.54
1990(3) 10.00 0.14 (1.05) (0.14) -- 8.95 (9.22) 5,982 0.65
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SPECIAL EQUITY(9)
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CLASS Y (INSTITUTIONAL)*
1996 $11.42 $0.07 $ 2.13 $(0.07) $(1.69) $11.86 22.27% $ 63,680 0.34%
INSTITUTIONAL CLASS*
1995 9.37 0.12 2.12 (0.12) (0.07) 11.42 24.44 57,396 0.32
CLASS A (INDIVIDUAL)*
1996 $11.42 $0.08 $ 2.11 $(0.07) $(1.69) $11.85 22.14% $ 1,144 0.37%
RETAIL CLASS*
1995 9.37 0.12 2.12 (0.12) (0.07) 11.42 24.44 7.34 0.27
PRIOR CLASS
1994(4) $10.00 $0.06 $ (0.63) $(0.06) $ -- $ 9.37 (5.72)% $ 10,069 0.15%
<CAPTION>
Ratio of Ratio of
Expenses to Net Income
Ratio of Average Net to Average
Net Income Assets Net Assets Portfolio Average
to Average (Excluding (Excluding Turnover Commission
Net Assets Waivers) Waivers) Rate*** Rate(10)
----------- ----------- ---------- ----------- -----------
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GROWTH EQUITY
- -------------
CLASS Y (INSTITUTIONAL)**
1996 0.64% 1.05% 0.48% 81% $0.0601
1995 0.84 1.10 0.50 113 --
1994 0.48 1.11 0.06 127 --
1993 0.85 1.11 0.17 103 --
1992(1) 1.38 1.12 0.40 66 --
CLASS A (INDIVIDUAL)**
1996 0.40% 1.30% 0.23% 81% $0.0601
1995 0.59 1.35 0.25 113 --
1994 0.23 1.36 (0.19) 127 --
1993(2) 0.39 1.48 (0.29) 103 --
- --------------
CORE EQUITY(9)
- --------------
CLASS Y (INSTITUTIONAL)*
1996 1.15% 1.01% 1.11% 114% $0.0636
INSTITUTIONAL CLASS*
1995 1.44 1.10 1.44 119 --
CLASS A (INDIVIDUAL)*
1996 0.89% 1.26% 0.85% 114% $0.0636
RETAIL CLASS*
1995 1.23 1.53 1.04 119 --
PRIOR CLASS
1994 0.75% 1.51% 0.73% 35% --
1993 0.94 1.41 0.73 24 --
1992 1.47 1.23 1.17 39 --
1991 2.30 1.48 1.36 68 --
1990(3) 2.29 1.59 1.35 43 --
- -----------------
SPECIAL EQUITY(9)
- -----------------
CLASS Y (INSTITUTIONAL)*
1996 0.94% 1.79% (0.51)% 72% $0.0539
INSTITUTIONAL CLASS*
1995 1.14 1.97% (0.51) 129 --
CLASS A (INDIVIDUAL)*
1996 0.91% 1.82% (0.55)% 72% $0.0539
RETAIL CLASS*
1995 1.29 2.24 (0.68) 129 --
PRIOR CLASS
1994(4) 1.06% 2.10% (0.89)% 39% --
</TABLE>
Financial Highlights ----
7
<PAGE>
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FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED JUNE 30, (CONTINUED)
Equity Funds (continued)
______________
<TABLE>
<CAPTION>
Realized
and Net Net Assets,
Net Asset Unrealized Dividends Distribution Asset End of Ratio of
Value, Net Net Gains from Net from Value Period Expenses
Beginning Investment or (Losses) Investment Capital End of Total (000 to Average
of Period Income on Securities Income Gains Period Return(8) omitted) Net Assets
----------- ----------- ------------ ----------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------
EQUITY INDEX
- ------------
CLASS Y**
1996 $23.79 $0.51 $ 5.47 $(0.51) $(0.79) $28.47 25.69% $166,350 0.35%
1995 20.54 0.52 4.24 (0.52) (0.99) 23.79 24.45 112,553 0.37
1994 20.97 0.55 (0.43) (0.55) -- 20.54 0.55 72,552 0.35
1993 19.22 0.52 1.84 (0.52) (0.09) 20.97 12.39 50,551 0.49
1992 18.46 0.52 1.80 (0.48) (1.08) 19.22 12.59 20,166 0.57
1991(5) 19.48 0.03 (0.94) (0.02) (0.09) 18.46 (4.64)+ 12,117 0.97
- --------------------
INTERNATIONAL GROWTH
- --------------------
CLASS Y (INSTITUTIONAL)**
1996 $12.29 $0.16 $ 1.86 $(0.28) $(0.06) $13.97 16.72% $139,275 1.14%
1995 13.18 0.12 (0.17) (0.04) (0.80) 12.29 (0.21) 110,838 1.05
1994 11.71 0.12 1.78 (0.12) (0.31) 13.18 16.28 108,911 0.99
1993 10.52 0.10 1.16 (0.07) -- 11.71 12.06 61,655 0.99
1992 10.10 0.17 0.31 -- (0.06) 10.52 4.90 42,594 0.96
1991 10.75 0.19 (0.44) (0.27) (0.13) 10.10 (2.71) 20,582 0.99
1990(6) 10.00 0.11 0.86 (0.09) (0.13) 10.75 9.74+ 13,513 1.22
CLASS A (INDIVIDUAL)**
1996 $12.27 $0.11 $ 1.89 $(0.25) $(0.06) $13.96 16.54% $ 2,138 1.39%
1995 13.17 0.09 (0.17) (0.02) (0.80) 12.27 (0.48) 1,943 1.30
1994 11.71 0.06 1.82 (0.11) (0.31) 13.17 16.08 2,019 1.24
1993(12) 10.07 0.05 1.59 -- -- 11.71 16.29+ 344 1.15
- --------
BALANCED
- --------
CLASS Y (INSTITUTIONAL)**
1996 $11.06 $0.33 $ 1.68 $(0.33) $(0.15) $12.59 18.41% $102,515 0.81%
1995 9.88 0.35 1.21 (0.35) (0.03) 11.06 16.21 61,092 0.73
1994 10.39 0.35 (0.51) (0.35) -- 9.88 (1.62) 42,429 0.62
1993(2) 10.00 0.16 0.39 (0.16) -- 10.39 5.52+ 29,434 0.45
CLASS A (INDIVIDUAL)**
1996 $11.06 $0.30 $ 1.68 $(0.30) $(0.15) $12.59 18.13% $ 3,188 1.06%
1995 9.89 0.34 1.19 (0.33) (0.03) 11.06 15.84 2,344 0.98
1994 10.38 0.31 (0.49) (0.31) -- 9.89 (1.86) 2,222 0.87
1993(7) 10.00 0.16 0.38 (0.16) -- 10.38 2.50+ 701 0.55
<CAPTION>
Ratio of Ratio of
Expenses to Net Income
Ratio of Average Net to Average
Net Income Assets Net Assets Portfolio Average
to Average (Excluding (Excluding Turnover Commission
Net Assets Waivers) Waivers) Rate*** Rate(10)
----------- ----------- ----------- ----------- -----------
- ------------
EQUITY INDEX
- ------------
CLASS Y**
1996 1.94% 0.71% 1.59% 13% $0.0641
1995 2.48 0.76 2.09 27 --
1994 2.63 0.75 2.23 13 --
1993 2.82 0.88 2.43 4 --
1992 2.66 1.06 2.17 27 --
1991(5) 1.79 1.20 1.56 -- --
- ---------------------
INTERNATIONAL GROWTH
- ---------------------
CLASS Y (Institutional)**
1996 1.05% 1.25% 0.94% 41% $0.0270
1995 0.98 1.19 0.84 59 --
1994 0.23 1.18 0.04 67 --
1993 1.22 1.28 0.93 59 --
1992 1.67 1.40 1.23 87 --
1991 1.80 1.56 1.23 49 --
1990(6) 2.57 1.99 1.80 20 --
CLASS A (Individual)**
1996 0.80% 1.50% 0.69% 41% $0.0270
1995 0.73 1.44 0.59 59 --
1994 0.05 1.43 (0.14) 67 --
1993(2) 1.51 1.44 1.22 59 --
- ---------
BALANCED
- ---------
CLASS Y (Institutional)**
1996 2.79% 1.03% 2.57% 74% $0.0621
1995 3.51 1.07 3.17 46 --
1994 3.46 1.08 3.00 56 --
1993(2) 3.38 1.39 2.45 21 --
CLASS A (Individual)**
1996 2.53% 1.27% 2.32% 74% $0.0621
1995 3.27 1.32 2.93 46 --
1994 3.21 1.33 2.75 56 --
1993(7) 5.76 1.48 4.83 21 --
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* On February 21, 1995 the shares of the Funds were redesignated as either Retail or Institutional shares. For the year
ended October 31, 1995, the Financial Highlights' ratios of expenses, 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. Additionally, on April 15 & 22, 1996 the Conestoga Equity and Special Equity Funds were acquired by
CoreFunds, Inc.; at which time the Institutional Class of shares of these Funds were exchanged for Class Y shares and the
Retail Class of these Funds were exchanged for Class A shares.
** On April 22, 1996 the Series A shares of each fund were redesignated Class Y and the Series B shares of each fund were
redesignated Class A.
*** For 1996, transactions relating to the merger were excluded from the calculation of the Portfolio Turnover Rate.
+ This figure has not been annualized.
(1) Commenced operations February 3, 1992. Unless otherwise noted, all ratios for the period have been annualized.
(2) Commenced operations January 4, 1993. Unless otherwise noted, all ratios for the period have been annualized.
(3) Commenced operations Februrary 28, 1990. Unless otherwise noted, all ratios for the period have been annualized.
(4) Commenced operations March 15, 1994. Unless otherwise noted, all ratios for the period have been annualized.
(5) Commenced operations June 1, 1991. Unless otherwise noted, all ratios for the period have been annualized.
(6) Commenced operations February 12, 1990. Unless otherwise noted, all ratios for the period have been annualized.
(7) Commenced operations March 16, 1993. Unless otherwise noted, all ratios for the period have been annualized.
(8) Total return does not reflect applicable sales load. Additionally total return for Class Y & Class A for the Equity &
Special Equity Funds for 1996 are for an eight month period ended June 30, 1996.
(9) The per share amount for these Funds for 1996 represents the period from November 1, 1995 to June 30, 1996. All prior
years are for the periods November 1 to October 31.
(10) Average commission rate paid per share for security purchases and sales during the period. Presentation of the rate is
only required for fiscal years beginning after September 1, 1995.
</TABLE>
- ----
8 Financial Highlights
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED JUNE 30, (CONTINUED)
Fixed Income Funds
- ------------------
<TABLE>
<CAPTION>
Realized
and Net
Unrealized Assets,
Net Asset Net Gains Dividends Distributions 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(10) omitted)
----------- ----------- ----------- ----------- ----------- ----------- ---------- ----------
- -----------------
GOVERNMENT INCOME
- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS Y (INSTITUTIONAL)**
1996 $ 9.83 $0.61 $(0.21) $(0.61) $ ___ $ 9.62 4.09% $13,943
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
CLASS A (INDIVIDUAL)**
1996 $ 9.84 $0.58 $(0.22) $(0.58) $ ___ $ 9.62 3.73% $ 1,287
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(2) 10.00 0.07 0.17 (0.07) -- 10.17 1.71+ 201
</TABLE>
<TABLE>
<CAPTION>
Ratio of Ratio of
Expenses to Net Income
Ratio of Ratio of Average Net to Average
Expenses to Net Income Assets Net Assets Portfolio
Average Net to Average (Excluding (Excluding Turnover
Assets Net Assets Waivers) Waivers) Rate***
----------- ----------- ----------- ----------- -----------
CLASS Y (INSTITUTIONAL)**
<S> <C> <C> <C> <C> <C>
1996 0.64% 6.17% 0.89% 5.92% 131%
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
CLASS A (INDIVIDUAL)**
1996 0.88% 5.93% 1.14% 5.67% 131%
1995 0.85 6.25 1.24 5.86 368
1994 0.75 4.68 1.25 4.18 157
1993(2) 0.63 5.35 1.29 4.69 93
</TABLE>
<TABLE>
<CAPTION>
Realized
and Net
Unrealized Assets,
Net Asset Net Gains Dividends Distributions 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(10) omitted)
----------- ----------- ----------- ----------- ----------- ----------- ---------- ---------
- --------
BOND(11)
- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS Y (INSTITUTIONAL)*
1996 $10.55 $0.43 $(0.30) $(0.45) $(0.08) $10.15 1.23% $198,605
INSTITUTIONAL CLASS*
1995 9.81 0.61 0.71 (0.58) -- 10.55 13.87 194,442
CLASS A (INDIVIDUAL)*
1996 $10.56 $0.44 $(0.33) $(0.44) $(0.08) $10.15 0.98% $ 1,273
RETAIL CLASS*
1995 9.81 0.60 0.72 (0.57) -- 10.56 13.83 1,373
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(3) 10.00 0.50 (0.04) (0.50) -- 9.96 4.64+ 4.593
</TABLE>
<TABLE>
<CAPTION>
Ratio of Ratio of
Expenses to Net Income
Ratio of Ratio of Average Net to Average
Expenses to Net Income Assets Net Assets Portfolio
Average Net to Average (Excluding (Excluding Turnover
Assets Net Assets Waivers) Waivers) Rate***
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CLASS Y (INSTITUTIONAL)*
1996 0.55% 6.28% 0.97% 5.86% 190%
INSTITUTIONAL CLASS*
1995 0.71 6.09 1.12 5.68 352
CLASS A (INDIVIDUAL)*
1996 0.80% 6.02% 1.22% 5.61% 190%
RETAIL CLASS*
1995 0.97 6.02 1.44 5.55 352
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(3) 0.68 7.75 1.62 6.81 23
</TABLE>
<TABLE>
<CAPTION>
Realized
and Net
Unrealized Assets,
Net Asset Net Gains Dividends Distributions 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(10) omitted)
----------- ----------- ----------- ----------- ----------- ----------- ---------- ---------
- ---------------------
SHORT TERM INCOME(11)
- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS Y (INSTITUTIONAL)*
1996 $10.05 $0.36 $(0.08) $(0.38) $(0.01) $ 9.94 2.78% $30,132
INSTITUTIONAL CLASS*
1995(4) 10.00 0.25 0.03 (0.23) -- 10.05 2.87+ 36,099
CLASS A (INDIVIDUAL)*
1996 $10.04 $0.35 $(0.10) $(0.35) $(0.01) $ 9.93 2.55% $ 1
RETAIL CLASS*
1995(5) 10.01 0.23 0.02 (0.22) -- 10.04 2.57+ 11
</TABLE>
<TABLE>
<CAPTION>
Ratio of Ratio of
Expenses to Net Income
Ratio of Ratio of Average Net to Average
Expenses to Net Income Assets Net Assets Portfolio
Average Net to Average (Excluding (Excluding Turnover
Assets Net Assets Waivers) Waivers) Rate***
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CLASS Y (INSTITUTIONAL)
1996 0.51% 5.31% 1.03% 4.79% 102%
INSTITUTIONAL CLASS*
1995(4) 0.63 5.43 1.08 4.98 40
CLASS A (INDIVIDUAL)*
1996 0.76% 5.05% 1.25% 4.56% 102%
RETAIL CLASS*
1995(5) 0.88 5.05 1.33 4.60 40
</TABLE>
<TABLE>
<CAPTION>
Realized
and Net
Unrealized Assets,
Net Asset Net Gains Dividends Distributions 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(10) omitted)
----------- ----------- ----------- ----------- ----------- ----------- ---------- ---------
- -----------------------
SHORT-INTERMEDIATE BOND
- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS Y (INSTITUTIONAL)**
1996 $ 9.84 $0.57 $(0.08) $(0.57) $ ___ $ 9.76 5.05% $159,841
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(6) 10.00 0.23 0.01 (0.23) -- 10.01 2.49+ 22,623
CLASS A (INDIVIDUAL)**
1996 $ 9.84 $0.54 $(0.08) $(0.54) $ ___ $ 9.76 4.79% $ 3,062
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(2) 10.01 0.20 0.17 (0.20) -- 10.18 3.95+ 5,752
</TABLE>
<TABLE>
<CAPTION>
Ratio of Ratio of
Expenses to Net Income
Ratio of Ratio of Average Net to Average
Expenses to Net Income Assets Net Assets Portfolio
Average Net to Average (Excluding (Excluding Turnover
Assets Net Assets Waivers) Waivers) Rate***
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CLASS Y (INSTITUTIONAL)
1996 0.55% 5.80% 0.81% 5.54% 257%
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(6) 0.11 5.73 0.84 5.00 51
CLASS A (INDIVIDUAL)**
1996 0.81% 5.51% 1.06% 5.27% 257%
1995 0.85 5.27 1.09 5.03 405
1994 0.83 4.05 1.11 3.77 299
1993(2) 0.75 3.78 1.19 3.34 188
</TABLE>
Financial Highlights ----
9
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED JUNE 30, (CONTINUED)
Fixed Income Funds (continued)
- ------------------
<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(10) omitted)
----------- ----------- ----------- ----------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------
INTERMEDIATE MUNICIPAL BOND
- ---------------------------
CLASS Y (INSTITUTIONAL)**
1996 $ 9.83 $0.37 $ 0.09 $(0.37) $ ___ $ 9.92 4.74% $ 403
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(7) 10.00 0.04 0.09 (0.04) -- 10.09 1.33+ 2,009
CLASS A (INDIVIDUAL)**
1996 $ 9.83 $0.35 $ 0.09 $(0.35) $ ___ $ 9.92 4.48% $1,015
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(2) 10.00 0.03 0.08 (0.03) -- 10.08 1.19+ 166
</TABLE>
<TABLE>
<CAPTION>
Ratio of Ratio of
Expenses to Net Income
Ratio of Ratio of Average Net to Average
Expenses to Net Income Assets Net Assets Portfolio
Average Net to Average (Excluding (Excluding Turnover
Assets Net Assets Waivers) Waivers) Rate***
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CLASS Y (INSTITUTIONAL)
1996 0.81% 3.73% 1.31% 3.23% 10%
1995 0.82 3.91 1.26 3.47 9
1994 0.63 3.91 1.17 3.37 43
1993(7) 0.58 2.74 1.45 1.87 10
CLASS A (INDIVIDUAL)
1996 1.08% 3.47% 1.61% 2.94% 10%
1995 1.08 3.65 1.52 3.21 9
1994 0.88 3.66 1.42 3.12 43
1993(2) 0.81 2.51 1.68 1.64 10
</TABLE>
<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(10) omitted)
----------- ----------- ----------- ----------- ----------- ----------- ---------- ---------
- -----------
GLOBAL BOND
- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS Y (INSTITUTIONAL)**
1996 $ 9.62 $0.47 $ 0.30 $(0.69) $ ___ $9.70 8.00% $32,998
1995 9.06 0.62 0.24 (0.30) -- 9.62 9.70 26,898
1994(8) 10.00 0.25 (1.15) (0.04) -- 9.06 (9.00)+ 24,957
CLASS A (INDIVIDUAL)**
1996 $ 9.61 $0.61 $ 0.12 $(0.66) $ ___ $9.68 7.74% $ 152
1995 9.04 0.61 0.24 (0.28) -- 9.61 9.57 170
1994(8) 10.00 0.19 (1.11) (0.04) -- 9.04 (9.22)+ 167
</TABLE>
<TABLE>
<CAPTION>
Ratio of Ratio of
Expenses to Net Income
Ratio of Ratio of Average Net to Average
Expenses to Net Income Assets Net Assets Portfolio
Average Net to Average (Excluding (Excluding Turnover
Assets Net Assets Waivers) Waivers) Rate***
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CLASS Y (INSTITUTIONAL)**
1996 0.71% 5.81% 0.95% 5.57% 67%
1995 0.64 6.84 1.03 6.45 133
1994(8) 0.73 5.04 1.12 4.65 161
CLASS A (INDIVIDUAL)**
1996 0.96% 5.56% 1.20% 5.32% 67%
1995 0.89 6.59 1.28 6.20 133
1994(8) 0.98 4.79 1.37 4.40 161
</TABLE>
<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(10) omitted)
----------- ----------- ----------- ----------- ----------- ----------- ---------- ---------
- ---------------------------
PENNSYLVANIA MUNICIPAL BOND
- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS Y (INSTITUTIONAL)**
1996 $10.16 $0.55 $ 0.06 $(0.55) $ ___ $10.22 6.02% $8,864
1995 9.95 0.51 0.21 (0.51) -- 10.16 7.50 2,272
1994(9) 10.00 0.06 (0.05) (0.06) -- 9.95 0.14+ 434
CLASS A (INDIVIDUAL)**
1996 $10.16 $0.52 $ 0.06 $(0.52) $ ___ $10.22 5.76% $ 994
1995 9.95 0.49 0.21 (0.49) -- 10.16 7.25 317
1994(9) 10.00 0.06 (0.05) (0.06) -- 9.95 0.09+ 163
</TABLE>
<TABLE>
<CAPTION>
Ratio of Ratio of
Expenses to Net Income
Ratio of Ratio of Average Net to Average
Expenses to Net Income Assets Net Assets Portfolio
Average Net to Average (Excluding (Excluding Turnover
Assets Net Assets Waivers) Waivers) Rate***
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CLASS Y (INSTITUTIONAL)
1996 0.21% 5.25% 0.96% 4.50% 92%
1995 0.39 5.26 1.14 4.51 18
1994(9) 0.42 5.09 1.17 4.34 3
CLASS A (INDIVIDUAL)**
1996 0.46% 4.93% 1.21% 4.18% 92%
1995 0.64 4.95 1.39 4.20 18
1994(9) 0.67 4.84 1.42 4.09 3
</TABLE>
<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(10) omitted)
----------- ----------- ----------- ----------- ----------- ----------- ---------- ---------
- -------------------------
NEW JERSEY MUNICIPAL BOND
- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS Y (INSTITUTIONAL)**
1996 $10.12 $0.51 $(0.02) $(0.51) $(0.06) $10.08 5.28% $1,317
1995 9.94 0.52 0.18 (0.52) -- 10.12 7.25 1,550
1994(9) 10.00 0.06 (0.06) (0.06) -- 9.94 0.01+ 1,432
CLASS A (INDIVIDUAL)**
1996 $10.12 $0.48 $(0.01) $(0.48) $(0.06) $10.07 4.93% $ 304
1995 9.95 0.49 0.17 (0.49) -- 10.12 6.84 24
1994(9) 10.00 0.06 (0.05) (0.06) -- 9.95 0.08+ 2
</TABLE>
<TABLE>
<CAPTION>
Ratio of Ratio of
Expenses to Net Income
Ratio of Ratio of Average Net to Average
Expenses to Net Income Assets Net Assets Portfolio
Average Net to Average (Excluding (Excluding Turnover
Assets Net Assets Waivers) Waivers) Rate***
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CLASS Y (INSTITUTIONAL)**
1996 0.37% 4.93% 1.12% 4.18% 21%
1995 0.42 5.21 1.17 4.46 32
1994(9) 0.43 5.07 1.35 4.15 13
CLASS A (INDIVIDUAL)**
1996 0.60% 4.65% 1.35% 3.90% 21%
1995 0.68 4.97 1.44 4.21 32
1994(9) 0.68 4.82 1.60 3.90 13
</TABLE>
- --------------------------------------------------------------------------------
* On February 21, 1995 the shares of the Funds were redesignated as either
Retail or Institutional shares. For the year ended October 31, 1995, the
Financial Highlights' ratios of expenses, 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. Additionally, on
April 22, 1996 the Conestoga Short-Term Income and Bond Funds were acquired
by CoreFunds, Inc. at which time the Institutional Class of shares of these
Funds were redesignated Class Y and the Retail Class of these Funds were
redesignated Class A.
** On April 22, 1996 the Series A shares of each fund, excluding the Short Term
Income and Bond Funds, were redesignated Class Y and the Series B shares of
each fund, excluding the Short Term Income and Bond Funds, were redesignated
Class A.
*** For 1996 transactions relating to the merger were excluded from the
calculation of the Portfolio Turnover Rate.
+ This figure has not been annualized.
1 Commenced operations April 1, 1993. Unless otherwise noted, all ratios for
the period have been annualized.
2 Commenced operations January 4, 1993. Unless otherwise noted, all ratios for
the period have been annualized.
3 Commenced operations February 28, 1990. Unless otherwise noted, all ratios
for the period have been annualized.
4 Commenced operations May 15, 1995. Unless otherwise noted, all ratios for
the period have been annualized.
5 Commenced operations May 17, 1995. Unless otherwise noted, all ratios for
the period have been annualized.
6 Commenced operations February 3, 1992. Unless otherwise noted, all ratios
for the period have been annualized.
7 Commenced operations May 3, 1993. Unless otherwise noted, all ratios for the
period have been annualized.
8 Commenced operations December 15, 1993. Unless otherwise noted, all ratios
for the period have been annualized.
9 Commenced operations May 16, 1994. Unless otherwise noted, all ratios for
the period have been annualized.
10 Total return does not reflect the sales load charged on the Class A shares.
Additionally, total return for Class Y & Class A for the Short Term Income
and Bond Funds for 1996 are for the eight month period ended June 30, 1996.
11 The per share amount for these Funds for 1996 represents the period from
November 1, 1995 to June 30, 1996. All prior years are for the periods
November 1 to October 31.
- ----
10 Financial Highlights
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED JUNE 30, (CONTINUED)
Money Market Funds
- ------------------
<TABLE>
<CAPTION>
Net
Net Asset Dividends Net Assets Ratio of Ratio of
Value Net from Net Asset Value End of Expenses to Net Income
Beginning Investment Investment End of Total Period Average Net to Average
of Period Income Income Period Return (000) Assets Net Assets
----------- ----------- ----------- ----------- ----------- --------- ------------- -----------
- ------------
CASH RESERVE
- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS Y (INSTITUTIONAL)*
1996 $ 1.00 $ 0.05 $ (0.05) $ 1.00 5.26% $ 790,211 0.50% 5.09%
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
CLASS C (INDIVIDUAL)*
1996 $ 1.00 $ 0.05 $ (0.05) $ 1.00 5.00% $ 19,736 0.75% 4.86%
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) 1.00 0.01 (0.01) 1.00 1.23+ 15,330 0.76 2.52
- ----------------
TREASURY RESERVE
- ----------------
CLASS Y (INSTITUTIONAL)*
1996 $ 1.00 $ 0.05 $ (0.05) $ 1.00 5.20% $ 892,562 0.50% 5.02%
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
CLASS C (INDIVIDUAL)*
1996 $ 1.00 $ 0.05 $ (0.05) $ 1.00 4.94% $ 19,386 0.75% 4.81%
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) 1.00 0.01 (0.01) 1.00 1.21+ 7,672 0.75 2.46
- ----------------
TAX-FREE RESERVE
- ----------------
CLASS Y (INSTITUTIONAL)*
1996 $ 1.00 $ 0.03 $ (0.03) $ 1.00 3.20% $ 104,196 0.48% 3.14%
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
CLASS C (INDIVIDUAL)*
1996 $ 1.00 $ 0.03 $ (0.03) $ 1.00 2.95% $ 2,850 0.73% 2.94%
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) 1.00 0.01 (0.01) 1.00 0.85+ 1,795 0.76 1.71
</TABLE>
Ratio of Ratio of
Expenses to Net Income
Average Net to Average
Assets Net Assets
(Excluding (Excluding
Waivers) Waivers)
------------- -----------
- ------------
CASH RESERVE
- ------------
CLASS Y (INSTITUTIONAL)*
1996 0.78% 4.81%
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
CLASS C (INDIVIDUAL)*
1996 1.03% 4.58%
1995 1.10 4.49
1994 1.10 2.32
1993(1) 1.15 2.13
- ----------------
TREASURY RESERVE
- ----------------
CLASS Y (INSTITUTIONAL)*
1996 0.77% 4.75%
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
CLASS C (INDIVIDUAL)*
1996 1.03% 4.53%
1995 1.10 4.44
1994 1.11 2.24
1993(1) 1.14 2.07
- ----------------
TAX-FREE RESERVE
- ----------------
CLASS Y (INSTITUTIONAL)*
1996 0.76% 2.86%
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
CLASS C (INDIVIDUAL)*
1996 1.02% 2.65%
1995 1.10 2.43
1994 1.12 1.37
1993(1) 1.14 1.33
- --------------------------------------------------------------------------------
* On April 22, 1996, Series A shares were redesignated Class Y and Series B
shares were redesignated Class C.
+ Returns are for the period indicated and have not been annualized.
1 Commenced operations January 4, 1993. Ratios for the period have been
annualized.
2 Commenced operations November 21, 1988. Ratios for the period have been
annualized.
3 Commenced operations April 16, 1991. Ratios for the period have been
annualized.
Financial Highlights ----
11
<PAGE>
- --------------------------------------------------------------------------------
HIGHLIGHTS
<TABLE>
<S> <C>
COREFUNDS CoreFunds, Inc. ('CoreFunds') is an open-end management investment company presently offering shares
in twenty diversified and non-diversified portfolios. This Prospectus offers Class Y Shares of
seventeen portfolios. Class Y 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 Class A and Class C 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. Prior to
April 22, 1996, all Class A Shares were known as Series B -- Individual for all portfolios
other than Money Market Funds; Class C Shares were known as Series B -- Individual for the Money
Market Funds; and Class Y Shares were known as Series A -- Institutional. CoreFunds has changed their
designation to conform to the standard designations suggested by the Investment Company Institute.
- --------------------------------------------------------------------------------------------------------------------------------
FUNDAMENTALS OF MUTUAL This section will assist you in appreciating investments generally. It describes the three basic types
FUND INVESTING 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 15
- --------------------------------------------------------------------------------------------------------------------------------
MULTIPLE PORTFOLIOS Investors may choose to invest in any of the seventeen funds of CoreFunds offered in this Prospectus.
EQUITY FUNDS FIXED INCOME FUNDS MONEY MARKET FUNDS
Growth Equity Fund Short-Intermediate Bond Cash Reserve
Core Equity Fund Fund Treasury Reserve
Special Equity Fund Bond Fund Tax-Free Reserve
Equity Index Fund Short Term Income Fund
International Growth Fund Government Income Fund
Balanced Fund Intermediate Municipal
Bond Fund
Pennsylvania Municipal
Bond Fund
New Jersey Municipal Bond
Fund
Global Bond Fund
PAGE 26
- --------------------------------------------------------------------------------------------------------------------------------
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
</TABLE>
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12 Highlights
<PAGE>
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/X/ COREFUND
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 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.
Short-Intermediate Bond Fund, Bond Fund and Short Term
Income Fund may also be exposed to event risk, the possibility
that corporate fixed income securities held by these Funds 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 these Funds,
event risk in the aggregate should be low because of the
Funds' 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 55
- --------------------------------------------------------------------------------
Highlights ----
13
<PAGE>
- --------------------------------------------------------------------------------
HIGHLIGHTS (CONTINUED) /X/ COREFUND
<TABLE>
<S> <C>
INVESTMENT CoreStates Investment Advisers, Inc. ('CoreStates Advisers') serves as the investment adviser for
ADVISER each Fund. The International Growth Fund and Global Bond Fund also retain investment 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 $17.6
billion, for individuals, corporations, institutions and municipalities.
PAGE 64
- ------------------------------------------------------------------------------------------------------------------------------
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 58
- ------------------------------------------------------------------------------------------------------------------------------
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. There will be no federal income tax consequences
to shareholders as a result of the Merger of the Conestoga Funds into the CoreFunds family of mutual
funds. Shareholders of the Conestoga portfolios will recognize no gain or loss on receipt of shares
of the CoreFunds portfolio and shareholders of the CoreFunds portfolios will have no tax consequences
as a result of the Merger.
PAGE 59
- ------------------------------------------------------------------------------------------------------------------------------
PURCHASING Institutional investors may acquire Class Y 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. There is no minimum for subsequent investments.
PAGE 71
- ------------------------------------------------------------------------------------------------------------------------------
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.
PAGE 72
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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14 Highlights
<PAGE>
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FUNDAMENTALS OF MUTUAL FUND INVESTING /X/ COREFUND
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.
- --------------------------------------------------------------------------------
/X/
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?"
----
Fundamentals 15
<PAGE>
- --------------------------------------------------------------------------------
FUNDAMENTALS OF MUTUAL FUND INVESTING (CONTINUED)
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"
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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.
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"
- ----
16 Fundamentals
<PAGE>
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X/ COREFUND
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.
----
Fundamentals 17
<PAGE>
- --------------------------------------------------------------------------------
FUNDAMENTALS OF MUTUAL FUND INVESTING (CONTINUED)
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
- --------------------------------------------------------------------------------
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18 Fundamentals
<PAGE>
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/X/ COREFUND
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 1956 and December 1995, stocks have averaged annual returns of 10.8%,
while long-term bonds have averaged 6.4%, intermediate-term bonds have averaged
7.0%, and money market instruments have averaged 5.7%. During this same period,
inflation averaged 4.5%. 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.
----
Fundamentals 19
<PAGE>
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FUNDAMENTALS OF MUTUAL FUND INVESTING (CONTINUED)
GROWTH OF $1,000
(Historical Performance
of Stocks, Bonds and Cash)
Dollars in Thousands
$60
$50
$40
$30
$20
$10
$ 0
Large Long-Term Intermediate-Term
Year Stocks Gov't Bonds Inflation TBills Gov't Bonds
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
1996 60.01 9.21 5.7 11.86 15.06
$60,013
$15,062
$11,862
$ 9,289
$ 5,719
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 1956-December 1995)
- --------------------------------------------------------------------------------
Stocks 10.8%
Long-Term Government Bonds 6.4
Intermediate-Term Government Bonds 7.0
Cash 5.7
Inflation 4.5
- --------------------------------------------------------------------------------
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
(1956-1995)
Percent
50
40
30
20
10
0
- -10
- -20
- -30
- --------------------------------------------------------------------------------
Annual Returns Rolling Five-Year Periods
- --------------------------------------------------------------------------------
95th Percentile 37.2% 17.9%
5th Percentile -10.9% 1.4%
- --------------------------------------------------------------------------------
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.
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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 62% of the world's equity capitalization, as measured by the Morgan
Stanley World Index in February, 1996. 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)
Dollars in Thousands
$25
$20
$15
$10
$ 5
$ 0
Year MSCI EAFE S&P 500
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
1995 15.229 16.775
$16,775
$15,229
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 1995
Dollars in Thousands
30
25
20
15
10
5
0
Japan 9.57%
U.K. 15.62%
Australia 14.94%
France 27.69%
Canada 23.45%
U.S. 18.30%
Germany 25.91%
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.
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Fundamentals 21
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FUNDAMENTALS OF MUTUAL FUND INVESTING (CONTINUED)
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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 4.5% 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.
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22 Fundamentals
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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.
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Fundamentals 23
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FUNDAMENTALS OF MUTUAL FUND INVESTING (CONTINUED)
REDUCTION OF
RISK OVER TIME
Average Annual Return
50% 40 30 20 10 0 -10 -20 -30
1 Year 5 Years 10 Years 20 Yesrs
43.36 40.36 29.10 14.71 13.31
20.40 21.62 16.98 11.12 10.06
17.59 15.56 13.13 9.17 8.67
14.59 10.45 9.85 7.72 6.36
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 1956 to 1995. 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 1956
and 1995. Past results do not guarantee future performance.
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 8.67 1.57
Stocks 14.58 6.53
Long-Term Bonds 10.45 1.94
Intermediate-Term Bonds 9.85 3.98
Cash 7.72 4
Inflation 6.36 3.37
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.
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24 Fundamentals
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<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 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 70).
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Fundamentals 25
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COREFUND FAMILY OF MUTUAL FUNDS
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.
CORE EQUITY FUND seeks capital growth by investing principally in a diversified
portfolio of common stocks of companies with large, medium or small
capitalizations.
SPECIAL EQUITY FUND seeks capital growth by investing principally in a
diversified portfolio of common stocks of domestic companies expected to
experience growth in earnings and price.
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 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)
SHORT-INTERMEDIATE BOND FUND seeks income through investment in a diversified
portfolio of intermediate term, fixed income obligations with an expected
average weighted maturity of two to five years.
BOND FUND seeks to maximize long-term total return by investing principally in a
diversified portfolio of debt securities.
SHORT TERM INCOME FUND seeks to obtain consistent current income with relative
stability of principal by investing principally in a diversified portfolio of
investment grade debt securities.
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.
There is no assurance that the Funds will achieve their respective objectives.
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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
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>
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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.
CORE EQUITY FUND Core Equity Fund's investment objective is to provide capital
appreciation and income, in excess of stock market indices such as the S&P 500
Index, as measured over a period of time.
SPECIAL EQUITY FUND Special Equity Fund's investment objective is to seek
capital growth by investing principally in a diversified portfolio of common
stocks.
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 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 _____________________________________________________________
SHORT-INTERMEDIATE BOND FUND Short-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 two to five years.
BOND FUND Bond Fund's investment objective is to seek to maximize long-term
total return by investing principally in a diversified portfolio of debt
securities.
SHORT TERM INCOME FUND 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.
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26 Investment Objectives
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/X/ COREFUND
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.
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, Core Equity, Special Equity, Equity Index and Balanced Funds. CoreStates
Advisers has selected Martin Currie, Inc. ('Martin Currie') and Aberdeen Fund
Managers, Inc. ('Aberdeen Managers') to each manage a portion of the
International Growth Fund. These firms are specialists in their investment
styles.
GROWTH EQUITY FUND Growth Equity Fund strives to provide a return in excess of
stock market indices such as the Russell 1000 Growth Stock 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
----
Investment Policies 27
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INFORMATION ON THE FUNDS (CONTINUED)
which CoreStates Advisers believes show the potential for growth of earnings
over time. Stock selection is guided by a top-down 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 growth tends to lead to both higher dividends and capital
appreciation.
CORE EQUITY FUND The Core Equity Fund pursues its investment objective by
investing principally in a diversified portfolio of common stocks of companies
with large, medium or small capitalizations. The Core 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 Core Equity Fund may be listed on a national securities
exchange or may be unlisted securities with an established over-the-counter
market. CoreStates Advisers 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. CoreStates Advisers believes that its
quantitative approach reduces subjectivity in the stock selection process.
Equity securities such as those in which the Core 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.
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 CoreStates Advisers expect will experience growth in
earnings and price. The Special Equity Fund will invest primarily in equity
securities, including common stocks, both debt securities and preferred stocks
convertible into common stocks and foreign securities and sponsored and
unsponsored American Depositary Receipts ('ADRs'), European Depositary Receipts
('EDRs') and Global Depositary Receipts ('GDRs'). The Fund may also purchase
securities convertible into common stocks, preferred stocks, notes, warrants,
and, for daily cash management purposes, short-term obligations (with maturities
of 18 months or less) such as commercial paper (including variable amount
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28 Investment Policies
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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. CoreStates Advisers' quantitative process described above under 'The
Core 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.
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 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 five hundred largest are included in
the S&P 500 Index for diversification purposes.
Traditional methods of mutual fund investment management typically involve
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Investment Policies 29
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INFORMATION ON THE FUNDS (CONTINUED)
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 480 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.
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 according 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
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30 Investment Policies
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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-advisers, Martin Currie and Aberdeen Managers,
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
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Investment Policies 31
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INFORMATION ON THE FUNDS (CONTINUED)
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.
SHORT-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.
Short-Intermediate Bond Fund maintains a maximum average maturity of no
more than five years, pursuant to a fundamental policy of the Fund. 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 rated BBB or
better (investment-grade securities) as set forth in 'Types of Securities in
Which the Funds Invest.'
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See 'Description of Ratings' in this Prospectus and the 'Appendix' to the
Statement of Additional Information for a description of applicable ratings.
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.
A portion of the Fund also 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, preferred
stocks, convertible debt securities, common stock obtained upon the conversion
or exchange of such securities, and short-term money market instruments.
Securities in which the Fund invests may have warrants or options attached. The
Fund anticipates investing no more than 5% of its net assets in below Investment
Grade debt securities.
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 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').
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
intermediate-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.'
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Investment Policies 33
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INFORMATION ON THE FUNDS (CONTINUED)
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.
Pennsylvania Municipal Bond Fund may also hold a portion of its assets in
cash. 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
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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. 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, AnalyticoTSA International, Inc. ('Analytic').
Global 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.
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Investment Policies 35
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INFORMATION ON THE FUNDS (CONTINUED)
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 or sub-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 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.
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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.
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
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Investment Policies 37
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INFORMATION ON THE FUNDS (CONTINUED)
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, Short-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 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.
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WHEN-ISSUED SECURITIES--
Core Equity Fund, Special Equity Fund, Fixed Income Funds, 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.
FOREIGN CURRENCY TRANSACTIONS--
International Growth Fund and
Global Bond Fund
The value of the assets of the 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 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 from a possible
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Investment Policies 39
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INFORMATION ON THE FUNDS (CONTINUED)
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.
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 by the counter-party 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, Core Equity Fund and Special
Equity 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, these Funds may purchase futures
contracts provided that not more than 5% of its total assets are acquired as a
futures contract; in addition, such Funds 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. The risk of loss from investing in futures contracts is
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potentially unlimited based largely on whether the advisers of these Funds
correctly assess the direction of stock prices.
The Equity Fund and Special Equity Fund may purchase and write options on
securities. These Funds will only engage in covered options transactions
(options on securities owned by the Funds) as deemed appropriate by CoreStates
Advisers. Each Fund may purchase options in an amount not exceeding 5% of its
total assets. Under normal conditions, it is not expected that the underlying
value of portfolio securities subject to options transactions would exceed 50%
of the net assets of a Fund.
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 such
contract is priced more attractively than the underlying equity security or
index. The Funds 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, the Funds may invest a
portion of their assets in futures contracts or options transactions as
applicable. Because futures contracts only require a small marginal deposit and
options contracts a small premium payment, 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 such Funds.
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 a Fund's underlying securities. The
risk that these Funds will be unable to close out an outstanding futures and/or
options 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 and/or options 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.
DERIVATIVES--
Derivatives are securities that derive their value from other securities. The
following are considered derivative securities: options on futures, futures,
options (e.g., puts and calls), swap agreements, mortgage-backed securities
(CMDs, REMICs, IOs, and POs), when-issued securities and forward commitments,
floating and variable rate securities, convertible securities, 'stripped' U.S.
Treasury securities (e.g., Receipts and STRIPS), privately-issued stripped
securities (e.g., TGRs, TRs, and CATs). See elsewhere
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Investment Policies 41
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INFORMATION ON THE FUNDS (CONTINUED)
in 'Other Investment Practices of the Funds' for discussion of these various
instruments, and see 'Types of Securities in which the Funds Invest' for more
information about any investment policies and limitations applicable to their
use.
ILLIQUID SECURITIES-- All Funds
The Funds may invest up to 10% of their assets in illiquid securities except for
the Equity Fund, Special Equity Fund, Balanced Fund, Bond Fund, Short Term
Income Fund, Government Income Fund, Intermediate Municipal Bond Fund,
Pennsylvania Municipal Bond Fund, New Jersey Municipal Bond Fund and Global Bond
Fund which may invest up to 15% 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-- All Funds
The Funds 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 33 1/3% of its total assets.
Such loans may be terminated at any time. These Funds will receive cash, letters
of credit, 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
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42 Investment Policies
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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 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 liquid assets in a
segregated account. Global Bond Fund will enter into swaps only with
counterparties deemed creditworthy by its advisers.
FOREIGN SECURITIES --
Special Equity Fund, International Growth Fund, Balanced Fund, Global Bond Fund,
Bond Fund
The Special Equity, International Growth, Balanced Global Bond and Bond Funds
may invest in securities of foreign issuers. The 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).
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 may 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
----
Investment Policies 43
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INFORMATION ON THE FUNDS (CONTINUED)
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.
AMERICAN DEPOSITARY RECEIPTS ('ADRS'), EUROPEAN DEPOSITARY RECEIPTS ('EDRS') and
Global Depositary Receipts ("GDRs") -- Special Equity Fund, Balanced Fund and
International Growth Fund ADRs are securities, typically issued by a U.S.
financial institution (a 'depositary'), that evidence ownership interests in a
security or a pool of securities issued by a foreign issuer and deposited with
the depositary. ADRs include American Depositary Shares and New York Shares.
EDRs are securities, typically issued by a non-U.S. financial institution, that
evidence ownership interests in a security or a pool of securities issued by
either a U.S. or foreign issuer. GDRs are issued globally and evidence a similar
ownership arrangement. As is the case with ADRs, both EDRs and GDRs include
Depositary Shares. Generally, ADRs are designed for trading in the U.S.
securities market, EDRs are designed for trading in European securities markets
and GDRs are designed for trading in non-U.S. securities markets. ADRs, EDRs and
GDRs may be available for investment through 'sponsored' or 'unsponsored'
facilities. A sponsored facility is established jointly by the issuer of the
security underlying the receipt and a depositary, whereas and unsponsored
facility may be established by a depositary without participation by the issuer
of the receipt's underlying security. Holders of an unsponsored depositary
receipt generally bear all the costs of the unsponsored facility. The depositary
of an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security or
to pass through to the holders of the receipts voting rights with respect to the
deposited securities.
/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
CORE EQUITY FUND
SPECIAL 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, BBB or higher by S&P or Moody's.
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44 Types of Securities
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TAXABLE FIXED INCOME FUNDS _____________________________________________________
SHORT-INTERMEDIATE BOND FUND
BOND FUND
SHORT TERM INCOME FUND
The various types of securities which may be purchased by these Funds 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'). 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 Short-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'), or may be privately-issued. 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
----
Types of Securities 45
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INFORMATION ON THE FUNDS (CONTINUED)
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. 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.
Privately-issued mortgage-backed securities will be 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 the Appendix to the
Statement of Additional Information.
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.
The 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 the Appendix to the Statement of Additional Information.
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 these Funds may invest must satisfy certain minimum ratings
at the time of purchase by Moody's or S&P. Corporate bonds must be of investment
grade quality (BBB or better) as rated by S&P or Moody's.
GOVERNMENT INCOME FUND Government Income Fund may invest in U.S. Government
obligations and mortgage-backed securities, and asset-backed securities, as
defined above.
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46 Types of Securities
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/X/ COREFUND
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 previously 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.
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.
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Types of Securities 47
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INFORMATION ON THE FUNDS (CONTINUED)
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.
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
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48 Types of Securities
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/X/ COREFUND
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 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
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Types of Securities 49
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INFORMATION ON THE FUNDS (CONTINUED)
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
CORE EQUITY FUND
SPECIAL 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 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.
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50 Types of Securities
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/X/ COREFUND
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.'
A FUND MAY NOT:
1. Make loans, except that each Fund may purchase or hold certain debt
instruments, engage in lending of portfolio securities, in accordance with its
policies and limitations, 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, Global Bond Fund, Core Equity Fund, Equity Index
Fund, Special Equity
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Investment Restrictions 51
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INFORMATION ON THE FUNDS (CONTINUED)
Fund, Bond Fund or Short Term Income 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 or hold more
than 10% of the outstanding voting securities of 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, Global 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.
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
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52 Investment Restrictions
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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
Core Equity Fund
Special 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 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.
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Investor Considerations 53
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INFORMATION ON THE FUNDS (CONTINUED)
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.
Under the multiple manager structure, CoreStates Advisers has general
oversight responsibility for the investment advisory services provided to the
Fund by Martin Currie and Aberdeen Managers. CoreStates Advisers is also
responsible for managing the allocation of assets among the Fund's sub-advisers.
Accordingly, each sub-adviser will be responsible for the day-to-day investment
management of all or a discrete portion of the assets of the Fund. To the extent
that having multiple sub-advisers responsible for investing separate portions of
the Fund's assets creates the need for coordination among sub-advisers, there is
an increased risk that the Fund may not comply with certain regulatory and tax
requirements.
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.
Short-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.
The Bond Fund will normally invest in domestic and foreign corporate debt
securities, U.S. government securities, mortgage-backed securities and
asset-backed securities, without limitation to the average maturity of the Fund.
Short Term Income Fund will invest in a diversified portfolio of
investment-grade debt securities, including corporate debt securities and U.S.
government securities, having an expected or remaining maturity of three years
or less. The Fund is expected to have an average dollar-weighted maturity of
approximately one year.
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
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54 Investor Considerations
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/X/ COREFUND
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 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
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Investor Considerations 55
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INFORMATION ON THE FUNDS (CONTINUED)
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.
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.
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56 Investor Considerations
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/X/ COREFUND
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 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.
Short-Intermediate Bond Fund, Bond Fund and Short Term Income Fund may
also be exposed to event risk, the possibility that corporate fixed income
securities held by these Funds 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 these Funds, event risk in the aggregate should be low because of the
Funds' diversified holdings.
The Bond Fund, Short Term Income Fund and Government Income Fund may all
acquire mortgage-backed and asset-
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Investor Considerations 57
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INFORMATION ON THE FUNDS (CONTINUED)
backed securities, and therefore, 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 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. Class Y 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. Class Y 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 Class Y 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
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58 Distributions
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/X/ COREFUND
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.
The dividends from Class Y Shares are normally higher than those of Class
A or Class C Shares because of the distribution and incremental transfer agent
expenses charged to Class A or Class C Shares.
The Funds maintain different dividend and capital gain distributions
policies. These are:
EQUITY FUNDS
Growth Equity Fund
Core Equity Fund
Special 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
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Taxes 59
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INFORMATION ON THE FUNDS (CONTINUED)
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 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
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/X/ COREFUND
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 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 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
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Taxes 61
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INFORMATION ON THE FUNDS (CONTINUED)
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 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
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62 Valuation of Shares
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/X/ COREFUND
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.
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.
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Valuation of Shares 63
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INFORMATION ON THE FUNDS (CONTINUED)
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.
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 20 largest bank holding
companies in the United States, and leads the region in investing corporate
cash. CoreStates Corp currently has over $45 billion in assets and discretionary
management over $30 billion in customer accounts through a variety of banking
activities at over 600 domestic and foreign locations.
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 $17.6 billion, for
individuals, corporations, institutions, and municipalities. As a result of the
merger of CoreStates Corp and Meridian Bancorp, Inc. In April 1996, Meridian
Investment Company ('MIC') is now a wholly-owned subsidiary of CoreStates Corp
and an affiliate of Corestates Advisers. Certain employees of MIC perform
investment management and advisory functions for the Funds under the overall
authority of CoreStates Advisers. CoreStates Advisers has extensive experience
in the management of money market, tax-free, fixed income, equity, and
international investments.
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64 Management
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/X/ COREFUND
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 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 the International Growth Fund to Martin Currie and
Aberdeen Managers and with respect to Global Bond Fund to Analytic pursuant to
separate Sub-Advisory Agreements between CoreStates Advisers and each of Martin
Currie, Aberdeen Managers and Analytic.
Martin Currie, Inc., a New York corporation located in Edinburgh,
Scotland, is a wholly-owned subsidiary of Martin Currie, Ltd., which is owned
principally by its full-time working executives. Founded in 1881, Martin Currie
is one of Scotland's largest independent investment management groups. Martin
Currie, Inc. was set up in order to provide foreign investment advisory services
to U.S. taxable and tax exempt 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
was 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.
Aberdeen Managers, a Delaware corporation located in Ft. Lauderdale,
Florida, is wholly owned by Aberdeen Trust PLC, a publicly held U.K. based
corporation. A subsidiary of CoreStates Financial Corp. owns approximately 14%
of Aberdeen Trust. Aberdeen Trust was formed in 1876 and has been managing
investment funds since 1986. It formed Aberdeen Managers in 1995 and it provides
foreign investment advisory services in the U.S. Although Aberdeen Managers 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 Aberdeen Managers has acted in an investment
advisory capacity. Aberdeen Managers is located at Nations Bank Tower, 22nd
Floor, Ft. Lauderdale, Florida 33394.
Analytic is a specialist manager of fixed income securities and cash for
institutional investors. Alpha Global Fixed Income Managers, Inc. ('Alpha
Global'), the predecessor investment sub-adviser to the Global Bond Fund,
recently changed its name to AnalyticoTSA International, Inc. and is in the
process of merging with AnalyticoTSA Global Asset Management, Inc. Alpha Global,
based in London, England and Analytic, whose combined assets under management
currently exceed $2.4 billion are wholly-owned subsidiaries of United Asset
Management Corporation of Boston, Massachusetts whose total assets under
management exceed $160 billion. Analytic is a member of the Investment
Management Regulatory Organization, one of the regulatory bodies approved by the
U.K. Government, and its activities are regulated accordingly. Analytic is
located at 25/28
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Management 65
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INFORMATION ON THE FUNDS (CONTINUED)
Old Burlington Street, London WIX 1LB, England.
As sub-advisers to International Growth Fund and Global Bond Fund, Martin
Currie and Aberdeen Managers, and Analytic manage the investment portfolio of
their respective Funds, 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. Martin Currie and
Aberdeen Managers, and Analytic 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; .74% of the average daily net
assets of Equity Fund; .75% of the average daily net assets of Growth Equity
Fund; .80% of the average daily net assets of International Growth Fund; 1.50%
of the average daily net assets of Special Equity Fund; .70% of the average
daily net assets of Balanced Fund; .74% of the average daily net assets of the
Bond Fund and the Short Term Income Fund, respectively; .60% of the average
daily net assets of Global Bond Fund; .50% of the average daily net assets of
Short-Intermediate Bond Fund, Intermediate Municipal Bond Fund, Government
Income Fund, Pennsylvania Municipal Bond Fund and New Jersey Municipal Bond
Fund, respectively; and .40% of the average daily net asset of Treasury Reserve,
Cash Reserve, and Tax-Free Reserve, respectively. CoreStates Advisers may, from
time 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 sub-advisers to the International Growth
Fund, Martin Currie and Aberdeen Managers are each entitled to receive a fee
from CoreStates Advisers, computed daily and paid monthly, at the annual rate of
.50% and .375%, respectively, of such portion of the Fund's assets managed. For
the services provided as Global Bond Fund's sub-adviser, Analytic 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 is a Senior Managing Director of CoreStates
Advisers and manages the 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.
CORE EQUITY AND SPECIAL EQUITY FUNDS Joseph E. Stocke, CFA, is a Senior Managing
Director of CoreStates Advisers and manages the Core Equity and Special Equity
Funds. He
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66 Management
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/X/ COREFUND
is also a Senior Investment Manager/Equities with Meridian Investment Company,
an affiliate of CoreStates Advisers, for which he has been 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 Meridian's
Equity Unit Committee overseeing the Equity Fund and the Special Equity Fund
since their inception.
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, a Vice President of Martin
Currie, is the lead director of an investment team responsible for managing
International Growth Fund. Mr. Gibson has 24 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. Following three years in that client
services team, he joined the North American team in 1996. He is also a member of
Martin Currie's global asset allocation committee.
Bev Hendry, Chief Executive Officer of Aberdeen Fund Managers Inc., is the
lead director of an investment team responsible for managing the International
Growth Fund. A graduate of the University of Aberdeen he qualified as a
chartered accountant before joining Aberdeen Trust in 1987. He was responsible
for starting up their mutual fund division which now has over $1.3 billion under
management and was appointed a director of the parent company in 1991. Aberdeen
now manages over $6 billion of funds and has offices in London, Singapore and
Fort Lauderdale in addition to their headquarters in Scotland.
BALANCED FUND Steve Dalton, a Vice President of CoreStates Advisers, is
portfolio manager of the Balanced Fund. Mr. Dalton has been a senior portfolio
manager of balanced portfolios since 1986 and a member of the Equity Policy
Committee since 1990. Since 1988 he has been responsible for management of
CoreStates' oldest commingled trust, the CoreStates Balanced Trust. In addition,
Mr. Dalton has managed balanced portfolios for employee benefit customers for
the last seven years, and has been a securities analyst responsible for coverage
of the health care, pharmaceutical, entertainment and broadcasting industries
since joining CoreStates in 1984. Prior to that, he was employed by Girard Bank
as a security analyst. He received a B.S. degree in Psychology from Cornell.
SHORT-INTERMEDIATE BOND FUND Craig A. Moyer, CFA, a Senior Managing Director of
CoreStates Advisers, is portfolio manager of
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Management 67
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INFORMATION ON THE FUNDS (CONTINUED)
the Short-Intermediate Bond Fund. Mr. Moyer is also a Senior Investment
Manager/Fixed Income with Meridian Investment Company, an affiliate of
CoreStates Advisers, for which he has been since 1977. He began his investment
career in 1974 and obtained his B.A. from Pennsylvania State University.
GOVERNMENT INCOME FUND William T. Lawrence, a Vice President of CoreStates
Advisers, is portfolio manager for the Government Income Fund. Mr. Lawrence is
also involved in specialized fixed income products including 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.
BOND FUND Leslie M. Varrelman is a Vice President of CoreStates Advisers. She is
also Vice President and Fixed Income Manager with Meridian Investment Company,
an affiliate of CoreStates Advisers for which she has been since January 1994.
Prior to her position with Meridian, Ms. Varrelman was Vice President of
CoreStates 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 is directly
responsible for management of the Bond Fund.
SHORT TERM INCOME FUND Cathy L. Rahab is an Assistant Vice President of
CoreStates Advisers. She is also an Assistant Vice President and Portfolio
Manager with Meridian Investment Company, an affiliate of CoreStates Advisers.
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 is directly responsible for management of the Short
Term Income Fund.
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, Managing Director of Analytic, is portfolio
manager for Global Bond Fund. Together with United Asset Management Corporation
of Boston, Mr. McNeill founded Alpha Global which has merged with Analytic 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
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68 Management
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/X/ COREFUND
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 John Ackler, Investment Officer, is responsible for the management
of Cash Reserve. He is also responsible for the management of the CoreStates
Liquidity Fund as well as numerous individually managed fixed income funds. In
1992, Mr. Ackler joined CoreStates as an internal auditor and transferred to
CoreStates Advisers in August of 1993. He graduated Summa Cum Laude from the
Philadelphia College of Textiles and Sciences with a B.S. in Finance and
Economics, and is currently an M.B.A. candidate at Lehigh University.
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 Fund Resources ('SFR' or the 'Administrator'), with principal offices at 680
East Swedesford Road, Wayne, PA 19087, acts as each Fund's administrator. For
its administrative services, SFR 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, SFR generally assists in the Funds'
administration and operations. Boston Financial Data Services ('BFDS'), a
subsidiary of 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 Class Y, Class
A and Class C Shares. Class A and Class C 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 Class A or Class C
Shares of each Fund. The Distributor may use this fee as compensation for its
distribution-
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Management 69
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INFORMATION ON THE FUNDS (CONTINUED)
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.
Persons selling Class A or Class C Shares will receive different
compensation with respect to Class A or Class C Shares than Class Y Shares.
EXPENSES CoreFunds allocates expenses attributable to each Fund in compliance
with Rule 18f-3 under the Investment Company Act. 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 Class Y or Class 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
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70 Performance Information
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/X/ COREFUND
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 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 Class Y and Class A or Class C, as appropriate, in any advertisement or
information including performance data of the Funds. Total return and
performance data concerning Class A Shares will reflect the sales charge and
distribution and incremental transfer agent expenses borne exclusively by Class
A Shares. Total return and performance data concerning Class C Shares will
reflect the distribution and incremental of transfer agent expenses borne
exclusively by Class C 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.
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Performance Information 71
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INFORMATION ON THE FUNDS (CONTINUED)
/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 Class Y 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 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
CoreFund's Investor Services 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. 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.
- ----
72 How to Purchase and Redeem Shares
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
REDEMPTION OF SHARES ___________________________________________________________
Class Y 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 Class Y Shares of a Fund must place
their redemption orders with CoreFund's Investor Services 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 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 the following twenty-one portfolios: Growth Equity, Core
Equity, Special Equity, Equity Index, International Growth, Balanced, Short
Intermediate Bond, Bond, Short-Term Income, Government Income, Intermediate
Municipal Bond, Pennsylvania Municipal Bond, New Jersey Municipal Bond and
Global Bond. CoreFunds offers two classes of shares of each portfolio except for
Equity Index Fund, Cash Reserve, Tax-Free Reserve, Treasury Reserve, Elite Cash
Reserve, Elite Government Reserve, Elite Treasury Reserve, and Elite Tax-Free
Reserve. In total, CoreFunds presently offers shares in twenty different
portfolios. CoreFunds may in the future create one or more additional
portfolios, or one or more Classes A and C Shares -- Individual classes of
shares within a portfolio and shares of the Elite Money Market Funds are offered
in separate prospectuses. This Prospectus solely relates to the Class Y Shares
- -- Institutional.
Class A Shares differ from Class Y Shares in that Class A Shares are
subject to a sales load and distribution and transfer agent expenses for certain
additional shareholder services they receive. Class C Shares also differ from
Class Y Shares in that Class C Shares are subject to distribution and transfer
agent expenses for certain additional shareholder services, but unlike Class A
Shares, are not subject to a sales load. Class A and Class C Shares also have
voting rights which Class Y Shares do not, in connection with the Distribution
Plan affecting Class A or Class C Shares. In addition, the distribution and
transfer agent expenses charged to Class A and Class C Shares result in Class A
and Class C Shares having different dividends and performance results from Class
Y Shares. In addition, the minimum initial investment for Class Y Shares is
substantially higher than that required for Class A and Class C Shares with the
exception of the Equity Index Fund.
----
Description of Shares 73
<PAGE>
- --------------------------------------------------------------------------------
INFORMATION ON THE FUNDS (CONTINUED)
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO CLASS Y 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 COREFUND PORTFOLIOS MAY OBTAIN PROSPECTUSES DESCRIBING SUCH
PORTFOLIOS BY CONTACTING THE DISTRIBUTOR AT 1-800-355-CORE.
Except for differences between classes of shares of CoreFunds' portfolios
pertaining to distribution costs, incremental transfer agency fees and any other
incremental expenses identified that should be properly allocated to a class,
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 class 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 class. See
the Statement of Additional Information under 'Description of Shares' for
examples where the Investment Company Act requires voting by portfolio or class.
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
- ----
74 General Information
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
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.
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
----
Description of Ratings 75
<PAGE>
- --------------------------------------------------------------------------------
INFORMATION ON THE FUNDS (CONTINUED) /X/ COREFUND
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.
- ----
76 Description of Ratings
<PAGE>
NOTES
<PAGE>
CoreFunds, Inc.
DIRECTORS
Emil J. Mikity, Chairman
George H. Strong
Erin Anderson
Cheryl H. Wade
Thomas J. Taylor
OFFICERS
David G. Lee, President
James W. Jennings, Secretary
INVESTMENT ADVISER
CoreStates Investment Advisers, Inc.
Philadelphia, PA 19101
ADMINISTRATOR
SEI Fund Resources
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
For current performance, purchase, redemption and
other information, call 1-800-355-CORE (2673)
COR-F-045-04
CORESTATES
CORESTATES
INVESTMENT ADVISERS
COREFUNDS
FAMILY OF MUTUAL FUNDS
Institutional Shares
Prospectus
November 1, 1996
<PAGE>
COREFUND(R)
FAMILY OF
MUTUAL FUNDS
Prospectus
CoreFunds, Inc.
November 1, 1996
Individual Shares
================================================================================
CoreFunds, Inc. is an open-end management investment company
presently offering shares in twenty 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 Class A and
Class C Shares in seventeen portfolios, including equity, fixed income, balanced
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, 1996, 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. AN INVESTMENT IN THE CASH RESERVE, TREASURY RESERVE AND/OR
TAX-FREE RESERVE IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, AND
THERE CAN BE NO ASSURANCE THAT THESE FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE.
- --------------------------------------------------------------------------------
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
Transaction and Operating Expense Tables............. 3
Financial Highlights................................. 7
Highlights........................................... 12
- ---------------------FUNDAMENTALS OF MUTUAL FUND INVESTING----------------------
Types of investment vehicles......................... 16
How to invest in stocks, bonds, and money market
instruments....................................... 18
Developing your investment strategy.................. 23
- ----------------------------INFORMATION ON THE FUNDS----------------------------
Investment Objectives of the Funds................... 27
Equity Funds....................................... 27
Fixed Income Funds................................. 27
Money Market Funds................................. 28
Investment Policies.................................. 28
Equity Funds....................................... 28
Fixed Income Funds................................. 33
Money Market Funds................................. 37
Other Investment Practices of the Funds............ 38
Types of Securities in Which the Funds Invest........ 45
Equity Funds....................................... 45
Taxable Fixed Income Funds......................... 46
Taxable Money Market Funds......................... 48
Tax-Free Fixed Income and Money Market Funds....... 49
Temporary Investments.............................. 51
Investment Restrictions.............................. 52
Investor Considerations.............................. 54
Investment Suitability............................. 54
Investment Risks................................... 56
Distributions........................................ 59
Taxes................................................ 60
Valuation of Shares.................................. 64
Net Asset Value.................................... 64
Portfolio Pricing.................................. 64
Management........................................... 65
Investment Adviser, Sub-Advisers................... 65
Fund Managers...................................... 68
Administrator...................................... 70
Distributor........................................ 71
Performance Information.............................. 72
Total Return and Yield............................. 72
In General......................................... 72
Description of Shares................................ 73
General Information.................................. 74
Description of Ratings............................... 75
Description of Municipal and Corporate Bond
Ratings......................................... 75
Description of Municipal Note
Ratings......................................... 76
- ---------------------------SHAREHOLDER SERVICES GUIDE---------------------------
Opening an Account and Purchasing
Shares............................................ 77
Selling Your Shares.................................. 82
Exchanging Shares.................................... 85
<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 Class A and/or Class C 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>
--------- --------- --------- -------- ----------------
GROWTH CORE SPECIAL EQUITY INTERNATIONAL
Equity Funds EQUITY EQUITY(6) EQUITY INDEX GROWTH
- ------------ --------- --------- --------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Class A Shares
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases 5.50% 5.50% 5.50% 5.50% 5.50%
Maximum Sales Load Imposed on
Reinvested Dividends none none none none none
Deferred Sales Load none none none none none
Redemption Fee none none none none none
Exchange Fee none none none none none
ANNUAL FUND OPERATING EXPENSES*
(as a percentage of net assets):
Investment Advisory Fees After
Fee Waivers(1) .75% .74% .83% .15% .80%
12b-1 Fees(2) .25% .25% .25% .00% .25%
Other Expenses(3) .21% .26% .23% .22% .36%
Net Annual Fund Operating
Expenses(4) 1.21% 1.25% 1.31% .37% 1.41%
EXAMPLE
You would pay the following
expenses on a $1,000
investment, assuming (1) 1 year $ 67 $ 67 $ 68 $59 $ 69
a 5% annual return 3 years 91 92 74 66 97
and (2) redemption at the end 5 years 118 120 123 75 128
of each time period.(5) 10 years 194 198 204 99 215
<CAPTION>
-----------
Equity Funds BALANCED
- -------------- -----------
Class A Shares
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases 5.50%
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 Waivers(1) .58%
12b-1 Fees(2) .25%
Other Expenses(3) .22%
Net Annual Fund Operating
Expenses(4) 1.05%
EXAMPLE
You would pay the following
expenses on a $1,000
investment, assuming (1) $ 65
a 5% annual return 87
and (2) redemption at the end 110
of each time period.(5) 176
</TABLE>
- --------------------------------------------------------------------------------
* Fees shown reflect current fees.
(1) Absent voluntary waivers, the Adviser's investment advisory fees are
calculated at the annual rate of .75%, .74%, 1.50%, .40%, .80%, and .70% of
the average net assets of Growth Equity Fund, Core Equity Fund, Special
Equity Fund, Equity Index, 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) Includes (among others) administrative, legal, auditing and printing fees.
Absent voluntary waivers, the Administrator's fee is calculated at the
annual rate of .25% of each Fund's average net assets.
(4) The Adviser Administrator and the Distributor 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, 1997. Absent any fee waivers, such
expense ratios would have been 1.30%, 1.29%, 2.05%, 0.70%, 1.50% and 1.26%
for Growth Equity Fund, Core Equity Fund, Special Equity Fund, Equity Index
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, 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 $68, $94, $122 and $203 for Growth Equity Fund; $67, $94,
$122 and $202 for Core Equity Fund; $75, $116, $159 and $280 for Special
Equity Fund; $62, $76, $92 and $137 for Equity Index Fund; $69, $100, $132
and $224 for International Growth Fund; and $67, $93, $120, and $199 for
Balanced Fund.
(6) This Fund was formerly known as the Equity Fund.
----
Transaction and Operating Expense Tables 3
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION AND OPERATING EXPENSE TABLES (CONTINUED)
<TABLE>
<CAPTION>
---------------- ----------- ----------- -----------------
SHORT- SHORT
INTERMEDIATE TERM GOVERNMENT
Fixed Income Funds BOND BOND INCOME INCOME
---------------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
Class A Shares
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases 3.25% 4.75% 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) .29% .35% .25% .47%
12b-1 Fees(2) .25% .25% .25% .25%
Other Expenses(3) .22% .21% .22% .27%
Net Annual Fund Operating
Expenses(4) .76% .81% .72% .99%
EXAMPLE
You would pay the following
expenses on a $1,000 investment, 1 year $ 40 $ 55 $ 40 $ 42
assuming (1) a 5% annual return 3 years 56 72 55 63
and (2) redemption at the end 5 years 73 90 n/a 85
of each time period.(5) 10 years 124 143 n/a 150
<CAPTION>
-------------------
INTERMEDIATE
Fixed Income Funds MUNICIPAL BOND
-------------------
<S> <C>
Class A Shares
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases 3.25%
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 Waivers(1) .07%
12b-1 Fees(2) .25%
Other Expenses(3) .52%
Net Annual Fund Operating
Expenses(4) .84%
EXAMPLE
You would pay the following
expenses on a $1,000 investment, $ 41
assuming (1) a 5% annual return 58
and (2) redemption at the end 78
of each time period.(5) 133
</TABLE>
- --------------------------------------------------------------------------------
* Fees shown reflect current fees.
(1) Absent voluntary waivers, the Adviser's investment advisory fees are
calculated at the annual rate of .50%, .74%, .74%, .50% and .50% of the
average net assets of Short Intermediate Bond Fund, Bond Fund, Short-Term
Income 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) Includes (among others) administrative, legal, auditing and printing fees.
Absent voluntary waivers, the Administrator's fee is calculated at the
annual rate of .25% of each Fund's average net assets.
(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, 1997. Absent fee waivers, such expense ratios would have
been 1.05%, 1.29%, 1.30%, 1.09% and 0.99% for Short-Intermediate Bond Fund,
Bond Fund, Short Term Income 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,
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 $43, $65, $89 and $157 for Short Intermediate Bond Fund;
$60, $86, $115 and $196 for Bond Fund; $45, $72, $101 and $184 for
Short-Term Income Fund; $43, $66, $91, and $161 for Government Income Fund;
and $42, $63, $85, and $150 for Intermediate Municipal Bond Fund.
- ----
4 Transaction and Operating Expense Tables
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
<TABLE>
<S> <C> <C> <C>
---------------- ------------- --------
PENNSYLVANIA NEW JERSEY
MUNICIPAL MUNICIPAL GLOBAL
Fixed Income Funds BOND BOND BOND
- ------------------ ---------------- ------------- --------
Class A Shares
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases 4.75% 4.75% 4.75%
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) .00% .00% .50%
12b-1 Fees(2) .25% .25% .25%
Other Expenses(3) .08% .13% .34%
Net Annual Fund Operating Expenses(4) .33% .38% 1.09%
EXAMPLE
You would pay the following
expenses on a $1,000 investment, 1 year $51 $51 $ 58
assuming (1) a 5% annual return 3 years 58 59 81
and (2) redemption at the end 5 years 65 68 105
of each time period.(5) 10 years 87 93 174
</TABLE>
- --------------------------------------------------------------------------------
* Fees shown reflect current fees.
(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) Includes (among others) administrative, legal, auditing and printing fees.
Absent voluntary waivers, the Administrator's fee is calculated at the
annual rate of .25% of each Fund's average net assets.
(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, 1997. Absent fee waivers, such expense ratios would have
been 1.08%, 1.13% and 1.28% 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, 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 $58, $80, $104, and $173 for Pennsylvania Municipal Bond
Fund; $58, $82, $107, and $178 for New Jersey Municipal Bond Fund; and $60,
$86, $114, and $195 for Global Bond Fund.
----
Transaction and Operating Expense Tables 5
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION AND OPERATING EXPENSE TABLES (continued)
<TABLE>
<S> <C> <C> <C>
------------- --------------- ---------------
TREASURY TAX-FREE
Money Market Funds CASH RESERVE RESERVE RESERVE
- ----------------------- ------------- --------------- ---------------
Class C 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 Waivers(1) .30% .30% .30%
12b-1 Fees(2) .25% .25% .25%
Other Expenses(3) .21% .21% .21%
Net Annual Fund Operating Expenses(4) .76% .76% .76%
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 24 24 24
and (2) redemption at the end 5 years 42 42 42
of each time period.(5) 10 years 94 94 94
</TABLE>
- --------------------------------------------------------------------------------
* Fees shown reflect current fees.
(1) Absent voluntary waivers, the Adviser's investment advisory fees are
calculated at the annual rate of .40%, .40%, and .40% 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) Includes (among others) administrative, legal, auditing, and printing fees.
Absent voluntary waivers, the Administrator's fee is calculated at the
annual rate of .25% of each Fund's average net assets.
(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 .95%, .95%, and .95% 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, 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, $30, $53 and $117 for Cash Reserve; $10, $30, $53, and
$117 for Treasury Reserve; and $10, $30, $53 and $117 for Tax-Free Reserve.
- ----
6 Transaction and Operating Expense Tables
<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 Growth Equity
Fund, Core Equity Fund, Special Equity Fund, International Growth Fund, Equity
Index Fund, Balanced Fund, Government Income Fund, Short Term Income Fund,
Short-Intermediate Bond Fund, 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 have been audited by
Ernst & Young LLP, independent auditors, whose report thereon appears in
CoreFunds' annual report which accompanies the Statement of Additional
Information. The financial highlights for each of the Core Equity Fund, Special
Equity Fund, Bond Fund and Short Term Income Fund for the period ended
October 31, 1990 through October 31, 1995 were audited by Coopers & Lybrand LLP,
independent auditors. The annual report for the Funds is available to
shareholders at no charge by calling CoreFunds at 1-800-355-CORE.
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED JUNE 30,
Equity Funds
- ------------
<TABLE>
<CAPTION>
Realized
and Net
Unrealized Assets,
Net Asset Net Gains Dividends Distributions End of Ratio of
Value, Net or (Losses) from Net from Net Asset Period Expenses to
Beginning Investment on Investment Capital Value End Total (000 Average Net
of Period Income Securities Income Gains of Period Return(8) omitted) Assets
----------- ----------- ----------- ----------- ----------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------
GROWTH EQUITY
- -------------
CLASS Y (INSTITUTIONAL)**
1996 $11.18 $0.08 $ 3.36 $(0.08) $(0.35) $14.19 31.36% $120,073 0.89%
1995 9.11 0.08 2.07 (0.08) -- 11.18 23.71 91,345 0.76
1994 9.95 0.05 (0.84) (0.05) -- 9.11 (8.01) 64,877 0.69
1993 8.74 0.08 1.21 (0.08) -- 9.95 14.76 63,777 0.43
1992(1) 10.00 0.05 (1.26) (0.05) -- 8.74 (12.05)+ 33,418 0.14
CLASS A (INDIVIDUAL)**
1996 $11.17 $0.05 $ 3.35 $(0.05) $(0.35) $14.17 31.00% $ 3,162 1.14%
1995 9.10 0.06 2.07 (0.06) -- 11.17 23.44 2,043 1.01
1994 9.95 0.04 (0.85) (0.04) -- 9.10 (8.13) 1,730 0.94
1993(2) 9.80 0.03 0.15 (0.03) -- 9.95 1.80+ 5,224 0.80
- --------------
CORE EQUITY(9)
- --------------
CLASS Y (INSTITUTIONAL)*
1996 $17.07 $0.14 $ 1.49 $(0.14) $(1.30) $17.26 19.24% $414,824 0.97%
INSTITUTIONAL CLASS*
1995 15.00 0.19 2.87 (0.19) (0.80) 17.07 22.00 378,352 1.05
CLASS A (INDIVIDUAL)*
1996 $17.08 $0.12 $ 1.49 $(0.11) $(1.30) $17.28 19.11% $ 11,178 1.22%
RETAIL CLASS*
1995 15.00 0.18 2.87 (0.17) (0.80) 17.08 21.94 6,591 1.34
PRIOR CLASS
1994 $15.39 $0.11 $ 0.22 $(0.11) $(0.61) $15.00 2.21% $ 50,128 1.49%
1993 13.93 0.14 1.89 (0.14) (0.43) 15.39 14.90 45,677 1.20
1992 13.08 0.19 1.02 (0.19) (0.17) 13.93 9.27 28,103 0.92
1991 8.95 0.26 4.13 (0.26) -- 13.08 49.37 12,830 0.54
1990(3) 10.00 0.14 (1.05) (0.14) -- 8.95 (9.22) 5,982 0.65
- -----------------
SPECIAL EQUITY(9)
- -----------------
CLASS Y (INSTITUTIONAL)*
1996 $11.42 $0.07 $ 2.13 $(0.07) $(1.69) $11.86 22.27% $ 63,680 0.34%
INSTITUTIONAL CLASS*
1995 9.37 0.12 2.12 $(0.12) (0.07) 11.42 24.44 57,396 0.32
CLASS A (INDIVIDUAL)*
1996 $11.42 $0.08 $ 2.11 $(0.07) $(1.69) $11.85 22.14% $ 1,144 0.37%
RETAIL CLASS*
1995 9.37 0.12 2.12 (0.12) (0.07) 11.42 24.44 734 0.27
PRIOR CLASS
1994(4) $10.00 $0.06 $ (0.63) $(0.06) $ -- $ 9.37 (5.72)% $ 10,069 0.15%
<CAPTION>
Ratio of Ratio of
Expenses to Net Income
Ratio of Average Net to Average
Net Income Assets Net Assets Portfolio Average
to Average (Excluding (Excluding Turnover Commission
Net Assets Waivers) Waivers) Rate*** Rate(10)
----------- ----------- ----------- ----------- -----------
- -------------
GROWTH EQUITY
- -------------
CLASS Y (INSTITUTIONAL)**
1996 0.64% 1.05% 0.48% 81% $0.0601
1995 0.84 1.10 0.50 113 --
1994 0.48 1.11 0.06 127 --
1993 0.85 1.11 0.17 103 --
1992(1) 1.38 1.12 0.40 66 --
CLASS A (INDIVIDUAL)**
1996 0.40% 1.30% 0.23% 81% $0.0601
1995 0.59 1.35 0.25 113 --
1994 0.23 1.36 (0.19) 127 --
1993(2) 0.39 1.48 (0.29) 103 --
- --------------
CORE EQUITY(9)
- --------------
CLASS Y (INSTITUTIONAL)*
1996 1.15% 1.01% 1.11% 114% $0.0636
INSTITUTIONAL CLASS*
1995 1.44 1.10 1.44 119 --
CLASS A (INDIVIDUAL)*
1996 0.89% 1.26% 0.85% 114% $0.0636
RETAIL CLASS*
1995 1.23 1.53 1.04 119 --
PRIOR CLASS
1994 0.75% 1.51% 0.73% 35% --
1993 0.94 1.41 0.73 24 --
1992 1.47 1.23 1.17 39 --
1991 2.30 1.48 1.36 68 --
1990(3) 2.29 1.59 1.35 43 --
- -----------------
SPECIAL EQUITY(9)
- -----------------
CLASS Y (INSTITUTIONAL)*
1996 0.94% 1.79% (0.51)% 72% $0.0539
INSTITUTIONAL CLASS*
1995 1.14 1.97 (0.51) 129 --
CLASS A (INDIVIDUAL)*
1996 0.91% 1.82% (0.55)% 72% $0.0539
RETAIL CLASS*
1995 1.29 2.24 (0.68) 129 --
PRIOR CLASS
1994(4) 1.06% 2.10% (0.89)% 39% --
</TABLE>
Financial Highlights ----
7
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED JUNE 30, (CONTINUED)
Equity Funds (continued)
- ------------
<TABLE>
<CAPTION>
Realized
and Net
Unrealized Assets,
Net Asset Net Gains Dividends Distributions End of Ratio of
Value, Net or (Losses) from Net from Net Asset Period Expenses to
Beginning Investment on Investment Capital Value End Total (000 Average Net
of Period Income Securities Income Gains of Period Return(8) omitted) Assets
----------- ----------- ----------- ----------- ----------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------
EQUITY INDEX
- ------------
CLASS Y**
1996 $23.79 $0.51 $ 5.47 $(0.51) $(0.79) $28.47 25.69% $166,350 0.35%
1995 20.54 0.52 4.24 (0.52) (0.99) 23.79 24.45 112,533 0.37
1994 20.97 0.55 (0.43) (0.55) -- 20.54 0.55 72,552 0.35
1993 19.22 0.52 1.84 (0.52) (0.09) 20.97 12.39 50,551 0.49
1992 18.46 0.52 1.80 (0.48) (1.08) 19.22 12.59 20,166 0.57
1991(5) 19.48 0.03 (0.94) (0.02) (0.09) 18.46 (4.64)+ 12,117 0.97
- --------------------
INTERNATIONAL GROWTH
- --------------------
CLASS Y (INSTITUTIONAL)**
1996 $12.29 $0.16 $ 1.86 $(0.28) $(0.06) $13.97 16.72% $139,275 1.14%
1995 13.18 0.12 (0.17) (0.04) (0.80) 12.29 (0.21) 110,838 1.05
1994 11.71 0.12 1.78 (0.12) (0.31) 13.18 16.28 108,911 0.99
1993 10.52 0.10 1.16 (0.07) -- 11.71 12.06 61,655 0.99
1992 10.10 0.17 0.31 -- (0.06) 10.52 4.90 42,594 0.96
1991 10.75 0.19 (0.44) (0.27) (0.13) 10.10 (2.71) 20,582 0.99
1990(6) 10.00 0.11 0.86 (0.09) (0.13) 10.75 9.74+ 13,513 1.22
CLASS A (INDIVIDUAL)**
1996 $12.27 $0.11 $ 1.89 $(0.25) $(0.06) $13.96 16.54% $ 2,138 1.39%
1995 13.17 0.09 (0.17) (0.02) (0.80) 12.27 (0.48) 1,943 1.30
1994 11.71 0.06 1.82 (0.11) (0.31) 13.17 16.08 2,019 1.24
1993(2) 10.07 0.05 1.59 -- -- 11.71 16.29+ 344 1.15
- --------
BALANCED
- --------
CLASS Y (INSTITUTIONAL)**
1996 $11.06 $0.33 $ 1.68 $(0.33) $(0.15) $12.59 18.41% $102,515 0.81%
1995 9.88 0.35 1.21 (0.35) (0.03) 11.06 16.21 61,092 0.73
1994 10.39 0.35 (0.51) (0.35) -- 9.88 (1.62) 42,429 0.62
1993(2) 10.00 0.16 0.39 (0.16) -- 10.39 5.52+ 29,434 0.45
CLASS A (INDIVIDUAL)**
1996 $11.06 $0.30 $ 1.68 $(0.30) $(0.15) $12.59 18.13% $ 3,188 1.06%
1995 9.89 0.34 1.19 (0.33) (0.03) 11.06 15.84 2,344 0.98
1994 10.38 0.31 (0.49) (0.31) -- 9.89 (1.86) 2,222 0.87
1993(7) 10.00 0.16 0.38 (0.16) -- 10.38 2.50+ 701 0.55
<CAPTION>
Ratio of Ratio of
Expenses to Net Income
Ratio of Average Net to Average
Net Income Assets Net Assets Portfolio Average
to Average (Excluding (Excluding Turnover Commission
Net Assets Waivers) Waivers) Rate*** Rate(10)
----------- ----------- ----------- ----------- -------------
- ------------
EQUITY INDEX
- ------------
CLASS Y**
1996 1.94% 0.71% 1.59% 13% $0.0641
1995 2.48 0.76 2.09 27 --
1994 2.63 0.75 2.23 13 --
1993 2.82 0.88 2.43 4 --
1992 2.66 1.06 2.17 27 --
1991(5) 1.79 1.20 1.56 -- --
- --------------------
INTERNATIONAL GROWTH
- --------------------
CLASS Y (INSTITUTIONAL)**
1996 1.05% 1.25% 0.94% 41% $0.0270
1995 0.98 1.19 0.84 59 --
1994 0.23 1.18 0.04 67 --
1993 1.22 1.28 0.93 59 --
1992 1.67 1.40 1.23 87 --
1991 1.80 1.56 1.23 49 --
1990(6) 2.57 1.99 1.80 20 --
CLASS A (INDIVIDUAL)**
1996 0.80% 1.50% 0.69% 41% $0.0270
1995 0.73 1.44 0.59 59 --
1994 0.05 1.43 (0.14) 67 --
1993(2) 1.51 1.44 1.22 59 --
- --------
BALANCED
- --------
CLASS Y (INSTITUTIONAL)**
1996 2.79% 1.03% 2.57% 74% $0.0621
1995 3.51 1.07 3.17 46 --
1994 3.46 1.08 3.00 56 --
1993(2) 3.38 1.39 2.45 21 --
CLASS A (INDIVIDUAL)**
1996 2.53% 1.27% 2.32% 74% $0.0621
1995 3.27 1.32 2.93 46 --
1994 3.21 1.33 2.75 56 --
1993(7) 5.76 1.48 4.83 21 --
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
* On February 21, 1995 the share of the Funds were redesignated as either Retail or Institutional shares. For the year
ended October 31, 1995, the Financial Highlights' ratios of expenses, 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. Additionally, on April 15 & 22, 1996 the Conestoga Equity and Special Equity Funds were acquired by
CoreFunds, Inc.; at which time the Institutional Class of these Funds were exchanged for Class A shares.
** On April 22, 1996 the Series A shares of each fund were redesignated Class Y and the Series B shares for each fund were
redesignated Class A.
*** For 1996, transactions relating to the merger were excluded from the calculation of the Portfolio Turnover Rate.
+ This figure has not been annualized.
(1) Commenced operations February 3, 1992. Unless otherwise noted, all ratios for the period have been annualized.
(2) Commenced operations January 4, 1993. Unless otherwise noted, all ratios for the period have been annualized.
(3) Commenced operations Februrary 28, 1990. Unless otherwise noted, all ratios for the period have been annualized.
(4) Commenced operations March 15, 1994. Unless otherwise noted, all ratios for the period have been annualized.
(5) Commenced operations June 1, 1991. Unless otherwise noted, all ratios for the period have been annualized.
(6) Commenced operations February 12, 1990. Unless otherwise noted, all ratios for the period have been annualized.
(7) Commenced operations March 16, 1993. Unless otherwise noted, all ratios for the period have been annualized.
(8) Total return does not reflect applicable sales load. Additionally total return for Class Y & Class A for the Equity &
Special Equity Funds for 1996 are for an eight month period ended June 30, 1996.
(9) The per share amount for these Funds for 1996 represents the period from November 1, 1995 to June 30, 1996. All prior
years are for the periods November 1 to October 31.
(10) Average commission rate paid per share for security purchases and sales during the period. Presentation of the rate is
only required for fiscal years beginning after September 1, 1995.
</TABLE>
- ----
8 Financial Highlights
- -------------------------------------------------------------------------------
/X/ COREFUND
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED JUNE 30, (CONTINUED)
Fixed Income Funds
- ------------------
<TABLE>
<CAPTION>
Realized
and Net
Unrealized Assets,
Net Asset Net Gains Dividends Distributions 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(10) omitted)
----------- ----------- ----------- ----------- ----------- ----------- ---------- ---------
- -----------------
GOVERNMENT INCOME
- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS Y (INSTITUTIONAL)**
1996 $ 9.83 $0.61 $(0.21) $(0.61) $ -- $ 9.62 4.09% $ 13,943
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
CLASS A (INDIVIDUAL)**
1996 $ 9.84 $0.58 $(0.22) $(0.58) $ -- $ 9.62 3.73% $ 1,287
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(2) 10.00 0.07 0.17 (0.07) -- 10.17 1.71+ 201
- --------
BOND(11)
- --------
CLASS Y (INSTITUTIONAL)*
1996 $10.55 $0.43 $(0.30) $(0.45) $(0.08) $10.15 1.23% $198,605
INSTITUTIONAL CLASS*
1995 9.81 0.61 0.71 (0.58) -- 10.55 13.87% 194,442
CLASS A (INDIVIDUAL)*
1996 $10.56 $0.44 $(0.33) $(0.44) $(0.08) $10.15 0.98% $ 1,273
RETAIL CLASS*
1995 9.81 0.60 0.72 (0.57) -- 10.56 13.83 1,373
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(3) 10.00 0.50 (0.04) (0.50) -- 9.96 4.64+ 4,593
- ---------------------
SHORT TERM INCOME(11)
- ---------------------
CLASS Y (INSTITUTIONAL)*
1996 $10.05 $0.36 $(0.08) $(0.38) $(0.01) $ 9.94 2.78% $ 30,132
INSTITUTIONAL CLASS*
1995(4) 10.00 0.25 0.03 (0.23) -- 10.05 2.87+ 36,059
CLASS A (INDIVIDUAL)*
1996 $10.04 $0.35 $(0.10) $(0.35) $(0.01) $ 9.93 2.55% $ 1
RETAIL CLASS*
1995(5) 10.01 0.23 0.02 (0.22) -- 10.04 2.57+ 11
- -----------------------
SHORT-INTERMEDIATE BOND
- -----------------------
CLASS Y (INSTITUTIONAL)**
1996 $ 9.84 $0.57 $(0.08) $(0.57) $ -- $ 9.76 5.05% $159,841
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(6) 10.00 0.23 0.01 (0.23) -- 10.01 2.49+ 22,623
CLASS A (INDIVIDUAL)**
1996 $ 9.84 $0.54 $(0.08) $(0.54) $ -- $ 9.76 4.79% $ 3,062
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(2) 10.01 0.20 0.17 (0.20) -- 10.18 3.95+ 5,752
<CAPTION>
Ratio of Ratio of
Expenses to Net Income
Ratio of Ratio of Average Net to Average
Expenses to Net Income Assets Net Assets Portfolio
Average Net to Average (Excluding (Excluding Turnover
Assets Net Assets Waivers) Waivers) Rate***
----------- ----------- ----------- ----------- -----------
- -----------------
GOVERNMENT INCOME
- -----------------
CLASS Y (INSTITUTIONAL)**
<S> <C> <C> <C> <C> <C>
1996 0.64% 6.17% 0.89% 5.92% 131%
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
CLASS A (INDIVIDUAL)**
1996 0.88% 5.93% 1.14% 5.67% 131%
1995 0.85 6.25 1.24% 5.86 368
1994 0.75 4.68 1.25 4.18 157
1993(2) 0.63 5.35 1.29 4.69 93
- --------
BOND(11)
- --------
CLASS Y (INSTITUTIONAL)*
1996 0.55% 6.28% 0.97% 5.86% 190%
INSTITUTIONAL CLASS*
1995 0.71 6.09 1.12 5.68 352
CLASS A (INDIVIDUAL)*
1996 0.80% 6.02% 1.22% 5.61% 190%
RETAIL CLASS*
1995 0.97 6.02 1.44 5.55 352
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(3) 0.68 7.75 1.62 6.81 23
- ---------------------
SHORT TERM INCOME(11)
- ---------------------
CLASS Y (INSTITUTIONAL)*
1996 0.51% 5.31% 1.03% 4.79% 102%
INSTITUTIONAL CLASS*
1995(4) 0.63 5.43 1.08 4.98 40
CLASS A (INDIVIDUAL)*
1996 0.76% 5.05% 1.25% 4.56% 102%
RETAIL CLASS*
1995(5) 0.88 5.05 1.33 4.60 40
- -----------------------
SHORT-INTERMEDIATE BOND
- -----------------------
CLASS Y (INSTITUTIONAL)**
1996 0.55% 5.80% 0.81% 5.54% 257%
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(6) 0.11 5.73 0.84 5.00 51
CLASS A (INDIVIDUAL)**
1996 0.81% 5.51% 1.06% 5.27% 257%
1995 0.85 5.27 1.09 5.03 405
1994 0.83 4.05 1.11 3.77 299
1993(2) 0.75 3.78 1.19 3.34 188
</TABLE>
----
Financial Highlights 9
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED JUNE 30, (CONTINUED)
Fixed Income Funds (continued)
- ------------------
<TABLE>
Realized
and Net
Unrealized Assets,
Net Asset Net Gains Dividends Distributions End of Ratio of
Value, Net or (Losses) from Net from Net Asset Period Expenses to
Beginning Investment on Investment Capital Value End Total (000 Average Net
of Period Income Securities Income Gains of Period Return(10) omitted) Assets
----------- ----------- ----------- ----------- ----------- ----------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------
INTERMEDIATE MUNICIPAL BOND
- ---------------------------
CLASS Y (INSTITUTIONAL)**
1996 $ 9.83 $0.37 $ 0.09 $(0.37) $ -- $ 9.92 4.74% $ 403 0.81%
1995 9.68 0.38 0.15 (0.38) -- 9.83 5.58 365 0.82
1994 10.09 0.39 (0.41) (0.39) -- 9.68 (0.27) 1,088 0.63
1993(7) 10.00 0.04 0.09 (0.04) -- 10.09 1.33+ 2,009 0.58
CLASS A (INDIVIDUAL)**
1996 $ 9.83 $0.35 $ 0.09 $(0.35) $ -- $ 9.92 4.48% $ 1,015 1.08%
1995 9.67 0.35 0.16 (0.35) -- 9.83 5.42 1,027 1.08
1994 10.08 0.37 (0.41) (0.37) -- 9.67 (0.52) 1,311 0.88
1993(7) 10.00 0.03 0.08 (0.03) -- 10.08 1.19+ 166 0.81
- -----------
GLOBAL BOND
- -----------
CLASS Y (INSTITUTIONAL)**
1996 $ 9.62 $0.47 $ 0.30 $(0.69) $ -- $ 9.70 8.00% $32,998 0.71%
1995 9.06 0.62 0.24 (0.30) -- 9.62 9.70 26,898 0.64
1994(8) 10.00 0.25 (1.15) (0.04) -- 9.06 (9.00)+ 24,957 0.73
CLASS A (INDIVIDUAL)**
1996 $ 9.61 $0.61 $ 0.12 $(0.66) $ -- $ 9.68 7.74% $ 152 0.96%
1995 9.04 0.61 0.24 (0.28) -- 9.61 9.57 170 0.89
1994(8) 10.00 0.19 (1.11) (0.04) -- 9.04 (9.22)+ 167 0.98
- ---------------------------
PENNSYLVANIA MUNICIPAL BOND
- ---------------------------
CLASS Y (INSTITUTIONAL)**
1996 $10.16 $0.55 $ 0.06 $(0.55) $ -- $10.22 6.02% $ 8,864 0.21%
1995 9.95 0.51 0.21 (0.51) -- 10.16 7.50 2,272 0.39
1994(9) 10.00 0.06 (0.05) (0.06) -- 9.95 0.14+ 434 0.42
CLASS A (INDIVIDUAL)**
1996 $10.16 $0.52 $ 0.06 $(0.52) $ -- $10.22 5.76% $ 994 0.46%
1995 9.95 0.49 0.21 (0.49) -- 10.16 7.25 317 0.64
1994(9) 10.00 0.06 (0.05) (0.06) -- 9.95 0.09+ 163 0.67
- -------------------------
NEW JERSEY MUNICIPAL BOND
- -------------------------
CLASS Y (INSTITUTIONAL)**
1996 $10.12 $0.51 $(0.02) $(0.51) $(0.06) $10.08 5.28% $ 1,317 0.37%
1995 9.94 0.52 0.18 (0.52) -- 10.12 7.25 1,550 0.42
1994(9) 10.00 0.06 (0.06) (0.06) -- 9.94 0.01+ 1,432 0.43
CLASS A (INDIVIDUAL)**
1996 $10.12 $0.48 $(0.01) $(0.48) $(0.06) $10.07 4.93% $ 304 0.60%
1995 9.95 0.49 0.17 (0.49) -- 10.12 6.84 24 0.68
1994(9) 10.00 0.06 (0.05) (0.06) -- 9.95 0.08+ 2 0.68
<CAPTION>
Ratio of Ratio of
Expenses to Net Income
Ratio of Average Net to Average
Net Income Assets Net Assets Portfolio
to Average (Excluding (Excluding Turnover
Net Assets Waivers) Waivers) Rate***
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
- ---------------------------
INTERMEDIATE MUNICIPAL BOND
- ---------------------------
CLASS Y (INSTITUTIONAL)**
1996 3.73% 1.31% 3.23% 10%
1995 3.91 1.26 3.47 9
1994 3.91 1.17 3.37 43
1993(7) 2.74 1.45 1.87 10
CLASS A (INDIVIDUAL
1996 3.47% 1.61% 2.94% 10%
1995 3.65 1.52 3.21 9
1994 3.66 1.42 3.12 43
1993(7) 2.51 1.68 1.64 10
- -----------
GLOBAL BOND
- -----------
CLASS Y (INSTITUTIONAL)**
1996 5.81% 0.95% 5.57% 67%
1995 6.84 1.03 6.45 133
1994(8) 5.04 1.12 4.65 161
CLASS A
(INDIVIDUAL)**
1996 5.56% 1.20% 5.32% 67%
1995 6.59 1.28 6.20 133
1994(8) 4.79 1.37 4.40 161
- ---------------------------
PENNSYLVANIA MUNICIPAL BOND
- ---------------------------
CLASS Y (INSTITUTIONAL)**
1996 5.25% 0.96% 4.50% 92%
1995 5.26 1.14 4.51 18
1994(9) 5.09 1.17 4.34 3
CLASS A (INDIVIDUAL
1996 4.93% 1.21% 4.18% 92%
1995 4.95 1.39 4.20 18
1994(9) 4.84 1.42 4.09 3
- -------------------------
NEW JERSEY MUNICIPAL BOND
- -------------------------
CLASS Y (INSTITUTIONAL)**
1996 4.93% 1.12% 4.18% 21%
1995 5.21 1.17 4.46 32
1994(9) 5.07 1.35 4.15 13
CLASS A (INDIVIDUAL
1996 4.65% 1.35% 3.90% 21%
1995 4.97 1.44 4.21 32
1994(9) 4.82 1.60 3.90 13
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* On February 21, 1995 the shares of the Funds were redesignated as either Retail or Institutional shares. For the year ended
October 31, 1995, the Financial Highlights' ratios of expenses, 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.
Additionally, On April 22, 1996 the Conestoga Short-Term Income and Bond Funds were acquired by CoreFunds, Inc. at which time
the Institutional Class of shares of these Funds were redesignated Class Y and the Retail Class of these Funds were
redesignated Class A.
** On April 22, 1996 the Series A shares of each fund, excluding the Short Term Income and Bond Funds, were redesignated Class Y
and the Series B shares of each fund, excluding the Short Term Income and Bond Funds, were redesignated Class A.
*** For 1996 transactions relating to the merger were excluded from the calculation of the Portfolio Turnover Rate.
+ This figure has not been annualized.
(1) Commenced operations April 1, 1993. Unless otherwise noted, all ratios for the period have been annualized.
(2) Commenced operations January 4, 1993. Unless otherwise noted, all ratios for the period have been annualized.
(3) Commenced operations February 28, 1990. Unless otherwise noted, all ratios for the period have been annualized.
(4) Commenced operations May 15, 1995. Unless otherwise noted, all ratios for the period have been annualized.
(5) Commenced operations May 17, 1995. Unless otherwise noted, all ratios for the period have been annualized.
(6) Commenced operations February 3, 1992. Unless otherwise noted, all ratios for the period have been annualized.
(7) Commenced operations May 3, 1993. Unless otherwise noted, all ratios for the period have been annualized.
(8) Commenced operations December 15, 1993. Unless otherwise noted, all ratios for the period have been annualized.
(9) Commenced operations May 16, 1994. Unless otherwise noted, all ratios for the period have been annualized.
(10) Total return does not reflect the sales load charged on the Class A shares. Additionally, total return for Class Y & Class A
for the Short Term Income and Bond Funds for 1996 are for the eight month period ended June 30, 1996.
(11) The per share amount for these Funds for 1996 represents the period from November 1, 1995 to June 30, 1996. All prior years
are for the periods November 1 to October 31.
</TABLE>
- ----
10 Financial Highlights
<PAGE>
- -------------------------------------------------------------------------------
/X/ COREFUND
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED JUNE 30,
Money Market Funds
- ------------------
<TABLE>
Net
Assets
Net Asset Dividends Net End of Ratio of Ratio of
Value Net from Net Asset Value Period Expenses to Net Income
Beginning Investment Investment End of Total (000 Average Net to Average
of Period Income Income Period Return omitted) Assets Net Assets
----------- ----------- ----------- ----------- ----------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------
CASH RESERVE
- ------------
CLASS Y (INSTITUTIONAL)*
1996 $1.00 $0.05 $(0.05) $1.00 5.26% $790,211 0.50% 5.09%
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
CLASS C (INDIVIDUAL)*
1996 $1.00 $0.05 $(0.05) $1.00 5.00% $ 19,736 0.75% 4.86%
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) 1.00 0.01 (0.01) 1.00 1.23+ 15,330 0.76 2.52
- ----------------
TREASURY RESERVE
- ----------------
CLASS Y (INSTITUTIONAL)*
1996 $1.00 $0.05 $(0.05) $1.00 5.20% $892,562 0.50% 5.02%
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
CLASS C (INDIVIDUAL)*
1996 $1.00 $0.05 $(0.05) $1.00 4.94% $ 19,386 0.75% 4.81%
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) 1.00 0.01 (0.01) 1.00 1.21+ 7,672 0.75 2.46
- ----------------
TAX-FREE RESERVE
- ----------------
CLASS Y (INSTITUTIONAL)*
1996 $1.00 $0.03 $(0.03) $1.00 3.20% $104,196 0.48% 3.14%
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
CLASS C (INDIVIDUAL)*
1996 $1.00 $0.03 $(0.03) $1.00 2.95% $ 2,850 0.73% 2.94%
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) 1.00 0.01 (0.01) 1.00 0.85+ 1,795 0.76 1.71
<CAPTION>
Ratio of Ratio of Net
Expenses to Income to
Average Net Average Net
Assets Assets
(Excluding (Excluding
Waivers) Waivers)
------------- -------------
<S> <C> <C>
- ------------
CASH RESERVE
- ------------
CLASS Y (INSTITUTIONAL)*
1996 0.78% 4.81%
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
CLASS C (INDIVIDUAL)*
1996 1.03% 4.58%
1995 1.10 4.49
1994 1.10 2.32
1993(1) 1.15 2.13
- ----------------
TREASURY RESERVE
- ----------------
CLASS Y (INSTITUTIONAL)*
1996 0.77% 4.75%
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
CLASS C (INDIVIDUAL)
1996 1.03% 4.53%
1995 1.10 4.44
1994 1.11 2.24
1993(1) 1.14 2.07
- ----------------
TAX-FREE RESERVE
- ----------------
CLASS Y (INSTITUTIONAL)*
1996 0.76% 2.86%
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
CLASS C (INDIVIDUAL)
1996 1.02% 2.65%
1995 1.10 2.43
1994 1.12 1.37
1993(1) 1.14 1.33
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
* On April 22, 1996, Series A shares were redesignated Class Y and Series B shares were redesignated Class C.
+ Returns are for the period indicated and have not been annualized.
(1) Commenced operations January 4, 1993. Ratios for this period have been annualized.
(2) Commenced operations November 21, 1988. Ratios for this period have been annualized.
(3) Commenced operations on April 16, 1991. Ratios for this period have been annualized.
</TABLE>
Financial Highlights ----
11
<PAGE>
- --------------------------------------------------------------------------------
HIGHLIGHTS /X/ COREFUND
<TABLE>
<S> <C>
COREFUNDS CoreFunds, Inc. ('CoreFunds') is an open-end management investment company presently offering shares
in twenty diversified and non-diversified portfolios. This Prospectus offers Class A of the Equity
and Fixed Income Funds and Class C Shares of the Money Market Funds. Class A and Class C 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 A and C 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 Class Y 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.
Prior to April 22, 1996, all Class A Shares were known as Series B -- Individual for all
portfolios other than Money Market Funds; Class C Shares were known as Series B -- Individual for the
Money Market Funds; and Class Y Shares were known as Series A -- Institutional. CoreFunds has changed
these designations to conform to the standard designations suggested by the Investment Company
Institute.
- -------------------------------------------------------------------------------------------------------------------------------
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 16
- -------------------------------------------------------------------------------------------------------------------------------
MULTIPLE PORTFOLIOS Investors may choose to invest in any of the seventeen funds of CoreFunds offered in this Prospectus.
EQUITY FUNDS FIXED INCOME FUNDS MONEY MARKET FUNDS
Growth Equity Fund Short-Intermediate Bond Fund Cash Reserve
Core Equity Fund Bond Fund Treasury Reserve
Special Equity Fund Short Term Income Fund Tax-Free Reserve
Equity Index Fund Government Income Fund
International Growth Fund Intermediate Municipal
Balanced Fund Bond Fund
Pennsylvania Municipal
Bond Fund
New Jersey Municipal
Bond Fund
Global Bond Fund
PAGE 27
</TABLE>
- ----
12 Highlights
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
<TABLE>
<S> <C>
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.
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.
Short-Intermediate Bond Fund, Bond Fund and Short Term Income Fund may also be exposed to event
risk, the possibility that corporate fixed income securities held by these Funds 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 these Funds, event risk in the
aggregate should be low because of the Funds' 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
</TABLE>
----
Highlights 13
<PAGE>
- --------------------------------------------------------------------------------
HIGHLIGHTS (continued)
<TABLE>
<S> <C>
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 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 56
- ------------------------------------------------------------------------------------------------------------------------------
INVESTMENT CoreStates Investment Advisers, Inc. ('CoreStates Advisers') serves as the investment adviser for
ADVISER each Fund. The International Growth Fund and Global Bond Fund also retain investment 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 $17.6
billion, for individuals, corporations, institutions and municipalities.
PAGE 65
- ------------------------------------------------------------------------------------------------------------------------------
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 59
- ------------------------------------------------------------------------------------------------------------------------------
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.
There will be no federal income tax consequences to shareholders as a result of the Merger of
the Conestoga Funds into the CoreFund family of mutual funds. Shareholders of the Conestoga portfolios
will recognize no gain or loss on receipt of shares of the CoreFunds portfolio and shareholders of
the CoreFunds portfolio will have no tax consequences as a result of the Merger.
PAGE 60
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----
14 Highlights
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
<TABLE>
<S> <C>
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. A maximum sales charge of 5.50%, 4.75%, or 3.25% is imposed on
Class A Shares of each Fund at the time of purchase for amounts less than $50,000 declining to 0%
for amounts of $1 million or more. There is no minimum for subsequent investments. There is also no
minimum initial investment for automatic investment plans.
From time to time, CoreFunds may waive each Fund's sales load for those investors purchasing
shares through advertisements placed in local newspapers and magazines. The advertisements will
detail the procedure for purchasing Fund shares without the imposition of the sales load, including
but not limited to, the duration of the offer.
PAGE 77
- ------------------------------------------------------------------------------------------------------------------------------
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.
PAGE 82
- ------------------------------------------------------------------------------------------------------------------------------
SERVICES FOR 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 77
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
----
Highlights 15
<PAGE>
- --------------------------------------------------------------------------------
FUNDAMENTALS OF MUTUAL FUND INVESTING
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.
- --------------------------------------------------------------------------------
/X/
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?"
- ----
16 Fundamentals
<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"
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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.
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"
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Fundamentals 17
<PAGE>
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FUNDAMENTALS OF MUTUAL FUND INVESTING (continued)
/X/
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.
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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.
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18 Fundamentals
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/X/ COREFUND
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.
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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
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Fundamentals 19
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FUNDAMENTALS OF MUTUAL FUND INVESTING (continued)
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.
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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 1956 and December 1995, stocks have averaged annual returns of 10.8%,
while long-term bonds have averaged 6.4%, intermediate-term bonds have averaged
7.0%, and money market instruments have averaged 5.7%. During this same period,
inflation averaged 4.5%. 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.
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20 Fundamentals
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/X/ COREFUND
GROWTH
OF $1,000
(Historical
Performance
of Stocks,
Bonds and
Cash)
Dollars in Thousands
$60
$50
$40
$30
$20
$10
$ 0
$60,013
$15,062
$11,862
$ 9,289
$ 5,719
Large Long-Term Intermediate-Term
Year Stock Gov't Bonds Inflation TBill Gov't Bonds
1956 1.4 1.04 1.03 0.93 0.99
1957 1.25 1.07 1.06 1.0 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 5.0 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
1996 60.01 9.21 5.7 11.86 15.06
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 1956-
December 1995)
Stocks 10.8%
Long-Term Government Bonds 6.4
Intermediate-Term Government Bonds 7.0
Cash 5.7
Inflation 4.5
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
(1956-1995)
Percent
Annual Returns Rolling Five-Year Periods
95th Percentile 37.2% 17.9%
5th Percentile -10.9% 1.4%
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.
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Fundamentals 21
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FUNDAMENTALS OF MUTUAL FUND INVESTING (continued)
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 62% of the world's equity capitalization, as measured by the Morgan
Stanley World Index in February, 1996. 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)
Dollars in Thousands
$25
$20
$15
$10
$ 5
$ 0
$16,775
$15,229
Year MSCI EAFE S&P 500
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
1995 15.220 16.775
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
1995
30
25
20
15
10
5
0
A COMPARISON OF
FOREIGN GOV'T BOND
RETURN PERFORMANCE
1994
Total Return in U.S. Dollars
Japan 9.57
U.K. 15.62
Australia 14.94
France 27.69
Canada 23.45
U.S. 18.30
Germany 25.91
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.
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22 Fundamentals
<PAGE>
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/X/ COREFUND
/X/
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 4.5% 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.
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Fundamentals 23
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FUNDAMENTALS OF MUTUAL FUND INVESTING (continued)
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.
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24 Fundamentals
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/X/ COREFUND
Reduction of
Risk
Over
Time
Average Annual Return
50%
40
30 1 Year
20 5 Years
10 10 Years
0 20 Years
- -10
- -20
- -30
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 8.67 1.57
Stocks 14.58 6.53
Long Term Bonds 10.45 1.94
Intermediate-Term Bonds 9.85 3.98
Cash 7.72 4.0
Inflation 6.36 3.37
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-cause scenarios presented in this illustration represent the absolute
highest and lowest returns from January 1956 to 1995. 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 1956 and 1995. 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.
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Fundamentals 25
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FUNDAMENTALS OF MUTUAL FUND INVESTING (continued)
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 72).
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26 Fundamentals
<PAGE>
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COREFUND FAMILY OF MUTUAL FUNDS
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.
CORE EQUITY FUND seeks capital growth by investing principally in a diversified
portfolio of common stocks of companies with large, medium or small
capitalizations.
SPECIAL EQUITY FUND seeks capital growth by investing principally in a
diversified portfolio of common stocks of domestic companies expected to
experience growth in earnings and price.
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 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)
SHORT-INTERMEDIATE BOND FUND seeks income through investment in a diversified
portfolio of intermediate term, fixed income obligations with an expected
average weighted maturity of two to five years.
BOND FUND seeks to maximize long-term total return by investing principally in a
diversified portfolio of debt securities.
SHORT TERM INCOME FUND seeks to obtain consistent current income with relative
stability of principal by investing principally in a diversified portfolio of
investment grade debt securities.
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.
There is no assurance that the Funds will achieve their respective objectives.
<PAGE>
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/X/ COREFUND
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
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>
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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.
CORE EQUITY FUND Core Equity Fund's investment objective is to provide capital
appreciation and income, in excess of stock market indices such as the S&P 500
Index, as measured over a period of time.
SPECIAL EQUITY FUND Special Equity Fund's investment objective is to seek
capital growth by investing principally in a diversified portfolio of common
stocks.
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 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 _____________________________________________________________
SHORT-INTERMEDIATE BOND FUND Short-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 two to five years.
BOND FUND Bond Fund's investment objective is to seek to maximize long-term
total return by investing principally in a diversified portfolio of debt
securities.
SHORT TERM INCOME FUND 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.
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Investment Objectives 27
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INFORMATION ON THE FUNDS (continued)
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.
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, Core Equity, Equity Index, Special Equity and Balanced Funds. CoreStates
Advisers has selected Martin Currie, Inc., ('Martin Currie') and Aberdeen Fund
Managers, Inc. ('Aberdeeen Managers') to manage the
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28 Investment Policies
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/X/ COREFUND
International Growth Fund. These firms are specialists in their investment
styles.
GROWTH EQUITY FUND Growth Equity Fund strives to provide a return in excess of
stock market indices such as the Russell 1000 Growth Stock 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 show the
potential for growth of earnings over time. Stock selection is guided by a
top-down 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 growth tends to lead to both higher dividends and
capital appreciation.
CORE EQUITY FUND The Core Equity Fund pursues its investment objective by
investing principally in a diversified portfolio of common stocks of companies
with large, medium or small capitalizations. The Core 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 Core Equity Fund may be listed on a national securities
exchange or may be unlisted securities with an established over-the-counter
market. CoreStates Advisers 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. CoreStates Advisers believes that its
quantitative approach reduces subjectivity in the stock selection process.
Equity securities such as those in which the Core 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.
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
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Investment Policies 29
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INFORMATION ON THE FUNDS (continued)
invest in common stocks of domestic companies that CoreStates Advisers expect
will experience growth in earnings and price. The Special Equity Fund will
invest primarily in equity securities, including common stocks, both debt
securities and preferred stocks convertible into common stocks, foreign
securities and sponsored and unsponsored American Depositary Receipts ('ADRs'),
European Depositary Receipts ('EDRs') and Global Depositary Receipts ('GDRs').
The Fund may also purchase securities convertible into common stocks, preferred
stocks, notes, warrants, and, for daily cash 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. CoreStates Advisers' quantitative process described above
under 'The Core 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.
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 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
- ----
30 Investment Policies
<PAGE>
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/X/ COREFUND
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 five 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 480 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.
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 according to their respective market
----
Investment Policies 31
<PAGE>
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INFORMATION ON THE FUNDS (CONTINUED)
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, as well as Martin Currie and Aberdeen Managers, the
sub-advisers, 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.
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32 Investment Policies
<PAGE>
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/X/ COREFUND
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 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.
SHORT-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
----
Investment Policies 33
<PAGE>
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INFORMATION ON THE FUNDS (continued)
invest at least 65% of its total assets in bonds and 35% or less in other fixed
income securities.
Short-Intermediate Bond Fund maintains a maximum average maturity of no
more than five years, pursuant to a fundamental investment policy of the Fund.
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 rated BBB or
better (investment-grade securities) as set forth in 'Types of Securities in
Which the Funds Invest.' See 'Description of Ratings' in this Prospectus and the
'Appendix' to the Statement of Additional Information for a description of
applicable ratings.
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.
A portion of the Fund also 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, preferred
stocks, convertible debt securities, common stock obtained upon the conversion
or exchange of such securities, and short-term money market instruments.
Securities in which the Fund invests may have warrants or options attached. The
Fund anticipates investing no more than 5% of its net assets in below Investment
Grade debt securities.
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 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').
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.
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34 Investment Policies
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/X/ COREFUND
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
intermediate-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
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Investment Policies 35
<PAGE>
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INFORMATION ON THE FUNDS (continued)
quality standards, and securities subject to Federal Alternative Minimum Tax.
Pennsylvania Municipal Bond Fund may also hold a portion of its assets in
cash. 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.'
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. 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
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36 Investment Policies
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/X/ COREFUND
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, AnalyticoTSA
International, Inc. ('Analytic').
Global 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.
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 or sub-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.
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Investment Policies 37
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INFORMATION ON THE FUNDS (continued)
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 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 repurchase them at a mutually agreed-upon
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38 Investment Policies
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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, Short-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
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Investment Policies 39
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INFORMATION ON THE FUNDS (continued)
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
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--Core Equity Fund, Special Equity Fund, Fixed Income
Funds, 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.
FOREIGN CURRENCY TRANSACTIONS--
International Growth Fund and Global Bond Fund
The value of the assets of the 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 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
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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 from 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.
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 by the counterparty 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, Core Equity Fund and Special Equity 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, these Funds may purchase futures
contracts provided that not
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Investment Policies 41
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INFORMATION ON THE FUNDS (CONTINUED)
more than 5% of its total assets are acquired as a futures contract; in
addition, such Funds 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. The risk of loss from investing in futures contracts is potentially
unlimited based largely on whether the advisers of these Funds correctly assess
the direction of stock prices.
The Equity Fund and Special Equity Fund may purchase and write options on
securities. These funds will only engage in covered options transactions
(options on securities owned by the Funds) as deemed appropriate by CoreStates
Advisers. Each Fund may purchase options in an amount not exceeding 5% of its
total assets. Under normal conditions, it is not expected that the underlying
value of portfolio securities subject to options transactions would exceed 50%
of the net assets of a Fund.
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 such
contract is priced more attractively than the underlying equity security or
index. The Funds 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, the Funds may invest a
portion of their assets in futures contracts or options transactions as
applicable. Because futures contracts only require a small marginal deposit and
options contracts a small premium payment, 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 such Funds.
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 a Fund's underlying securities. The
risk that the Funds will be unable to close out an outstanding futures and/or
options 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 and/or options 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.
DERIVATIVES--
Derivatives are securities that derive their value from other securities. The
following are considered derivative securities: options on futures, futures,
options (e.g., puts and calls), swap agreements, mortgage-backed securities
(CMDs, REMICs, IOs, and POs), when-issued securities and forward commitments,
floating
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and variable rate securities, convertible securities, 'stripped' U.S. Treasury
securities (e.g., Receipts and STRIPS), privately-issued stripped securities
(e.g., TGRs, TRs, and CATs). See elsewhere in 'Other Investment Practices of the
Funds' for discussion of these various instruments, and see 'Types of Securities
in which the Funds Invest' for more information about any investment policies
and limitations applicable to their use.
ILLIQUID SECURITIES--All Funds
The Funds may invest up to 10% of their assets in illiquid securities except for
the CoreFund Special Equity Fund, Balanced Fund, Bond Fund, Short Term Income
Fund, Government Income Fund, Intermediate Municipal Bond Fund, Pennsylvania
Municipal Bond Fund, New Jersey Municipal Bond Fund, and Global Bond Fund which
may invest up to 15% 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--All Funds
The Funds 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 33 1/3% of its total assets.
Such loans may be terminated at any time. These Funds will receive cash, letters
of credit, 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
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Investment Policies 43
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INFORMATION ON THE FUNDS (continued)
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 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 liquid assets in a
segregated account. Global Bond Fund will enter into swaps only with
counterparties deemed creditworthy by its advisers.
FOREIGN SECURITIES--Special Equity Fund, International Growth Fund, Balanced
Fund, Global Bond Fund, Bond Fund
The Special Equity, International Growth, Balanced, Global Bond and Bond Funds
may invest in securities of foreign issuers. The 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).
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 may 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.
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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.
AMERICAN DEPOSITARY RECEIPTS ('ADRS'), EUROPEAN DEPOSITARY RECEIPTS ('EDRS') and
Global Depositary Receipts ('GDRs')--Special Equity Fund, Balanced Fund and
International Growth Fund ADRs are securities, typically issued by a U.S.
financial institution (a 'depositary'), that evidence ownership interests in a
security or a pool of securities issued by a foreign issuer and deposited with
the depositary. ADRs include American Depositary Shares and New York Shares.
EDRs are securities, typically issued by a non-U.S. financial institution, that
evidence ownership interests in a security or a pool of securities issued by
either a U.S. or foreign issuer. GDRs are issued globally and evidence a similar
ownership arrangement. As is the case with ADRs, both EDRs and GDRs include
Depositary Shares. Generally, ADRs are designed for trading in the U.S.
securities market, EDRs are designed for trading in European securities markets
and GDRs are designed for trading in non-U.S. securities markets. ADRs, EDRs and
GDRs may be available for investment through 'sponsored' or 'unsponsored'
facilities. A sponsored facility is established jointly by the issuer of the
security underlying the receipt and a depositary, whereas and unsponsored
facility may be established by a depositary without participation by the issuer
of the receipt's underlying security. Holders of an unsponsored depositary
receipt generally bear all the costs of the unsponsored facility. The depositary
of an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security or
to pass through to the holders of the receipts voting rights with respect to the
deposited securities.
/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
CORE EQUITY FUND
SPECIAL 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
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Types of Securities 45
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INFORMATION ON THE FUNDS (continued)
bank obligations (as described below). Balanced Fund may also invest in
corporate bonds which are rated, at time of purchase, BBB or higher by S&P or
Moody's.
TAXABLE FIXED INCOME FUNDS _____________________________________________________
SHORT-INTERMEDIATE BOND FUND
BOND FUND
SHORT TERM INCOME FUND
The various types of securities which may be purchased by these Funds 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'). 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 Short-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'), or may be privately-issued. 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
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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.
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.
Privately-issued mortgage-backed securities will be 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 the Appendix to the
Statement of Additional Information.
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.
The 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 the Appendix to the Statement of Additional Information.
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 these Funds may invest must satisfy certain minimum ratings
at the time of purchase by Moody's or S&P. Corporate
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Types of Securities 47
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INFORMATION ON THE FUNDS (continued)
bonds must be of investment grade quality (BBB or better) as rated by S&P or
Moody's.
GOVERNMENT INCOME FUND Government Income Fund may invest in U.S. Government
obligations and mortgage-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 previously 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:
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
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48 Types of Securities
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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.
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
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Types of Securities 49
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INFORMATION ON THE FUNDS (CONTINUED)
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 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,
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50 Types of Securities
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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
CORE EQUITY FUND
SPECIAL 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 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 the 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
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Types of Securities 51
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INFORMATION ON THE FUNDS (continued)
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.'
A FUND MAY NOT:
1. Make loans, except that each Fund may purchase or hold certain debt
instruments, engage in lending of portfolio securities, in accordance with its
policies and limitations, 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
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52 Investment Restrictions
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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, Global Bond Fund, Core Equity Fund, Equity Index Fund,
Special Equity Fund, Bond Fund, and Short Term Income 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 or hold more
than 10% of the outstanding voting securities of 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, Global 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, 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.
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Investment Restrictions 53
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INFORMATION ON THE FUNDS (continued)
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
Core Equity Fund
Special 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 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
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54 Investor Considerations
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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.
Under the multiple manager structure, CoreStates Advisers has general
oversight responsibility for the investment advisory services provided to the
Fund by Martin Currie and Aberdeen Managers. CoreStates Advisers is also
responsible for managing the allocation of assets among the Fund's sub-advisers.
Accordingly, each sub-adviser will be responsible for the day-to-day investment
management of all or a discrete portion of the assets of the Fund. To the extent
that having multiple sub-advisers responsible for investing separate portions of
the Fund's assets creates the need for coordination among sub-advisers, there is
an increased risk that the Fund may not comply with certain regulatory and tax
requirements.
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.
Short-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.
The Bond Fund will normally invest in domestic and foreign corporate debt
securities, U.S. government securities, mortgage-backed securities and
asset-backed securities, without limitation to the average maturity of the Fund.
Short Term Income Fund will invest in a diversified portfolio of
investment-grade debt securities, including corporate debt securities and U.S.
government securities, having an expected or remaining maturity of three years
or less. The Fund is expected to have an average dollar-weighted maturity of
approximately one year.
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
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Investor Considerations 55
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INFORMATION ON THE FUNDS (CONTINUED)
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 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
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56 Investor Considerations
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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.
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
----
Investor Considerations 57
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INFORMATION ON THE FUNDS (continued)
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 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.
Short-Intermediate Bond Fund, Bond Fund and Short Term Income Fund may
also be exposed to event risk, the possibility that corporate fixed income
securities held by these Funds 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.
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58 Investor Considerations
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/X/ COREFUND
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 these Funds, event risk in the aggregate should be
low because of the Funds' diversified holdings.
The Bond Fund, Short Term Income Fund and Government Income Fund may all
acquire mortgage-backed and asset-backed securities, and therefore, 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 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. Class C 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. Class 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
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Distributions 59
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INFORMATION ON THE FUNDS (continued)
on which the redemption order for such shares is executed.
Dividends are paid in the form of additional Class A and Class C 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.
The dividends from Class Y Shares are normally higher than those of Class
A or Class C Shares because of the distribution and incremental transfer agent
expenses charged to Class A or Class C Shares.
The Funds maintain different dividend and capital gain distributions
policies. These are:
EQUITY FUNDS
Growth Equity Fund
Core Equity Fund
Special 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
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60 Taxes
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/X/ COREFUND
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.
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
----
Taxes 61
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INFORMATION ON THE FUNDS (continued)
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 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.
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62 Taxes
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/X/ COREFUND
Shares of the Pennsylvania Municipal Bond Fund are exempt from
Pennsylvania county personal property taxes 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 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.
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Taxes 63
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INFORMATION ON THE FUNDS (continued)
/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 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
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64 Valuation of Shares
<PAGE>
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/X/ COREFUND
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.
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 20
largest bank holding companies in the United States, and leads the region in
investing corporate cash. CoreStates Corp currently has over $45 billion in
assets and discretionary management over $30 billion in customer accounts
through a variety of banking activities at over 600 domestic and foreign
locations.
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Management 65
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INFORMATION ON THE FUNDS (continued)
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 $16 billion, for
individuals, corporations, institutions, and municipalities. As a result of the
merger of CoreStates Corp and Meridian Bancorp, Inc. in April 1996, Meridian
Investment Company ('MIC') is now a wholly-owned subsidiary of CoreStates Corp
and an affiliate of CoreStates Advisers. Certain employees of MIC perform
investment management and advisory functions for the Funds under the overall
authority of CoreStates Advisers. 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 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 International Growth Fund to Martin Currie and
Aberdeen Managers, and with respect to Global Bond Fund to Analytic pursuant to
separate Sub-Advisory Agreements between CoreStates Advisers and each of Martin
Currie, Aberdeen Managers and Analytic.
Martin Currie, Inc., a New York corporation located in Edinburgh,
Scotland, is a wholly-owned subsidiary of Martin Currie, Ltd., which is owned
principally by its full-time working executives. Founded in 1881, Martin Currie
is one of Scotland's largest independent investment management groups. Martin
Currie Inc. was set up in order to provide foreign investment advisory services
to U.S. taxable and tax exempt 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
was 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.
Aberdeen Managers, a Delaware corporation located in Ft. Lauderdale,
Florida is wholly owned by Aberdeen Trust PLC, a publicly held U.K. based
corporation. A subsidiary of CoreStates Financial Corp. owns approximately 14%
of Aberdeen Trust. Aberdeen Trust was formed in 1876 and has been managing
investment funds since 1986. It formed Aberdeen Managers in 1995 and it provides
foreign investment advisory services in the U.S. Although Aberdeen Managers 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
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66 Management
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/X/ COREFUND
which Aberdeen Managers has acted in an investment advisory capacity. Aberdeen
Managers is located at Nations Bank Tower, 22nd Floor, Ft. Lauderdale, Florida
33394.
Analytic is a specialist manager of fixed income securities and cash for
institutional investors. Alpha Global Fixed Income Managers, Inc. ('Alpha
Global'), the predecessor investment sub-adviser to the Global Bond Fund,
recently changed its name to AnalyticoTSA International, Inc. and is in the
process of merging with AnalyticoTSA Global Asset Management, Inc. Alpha Global,
based in London, England, and Analytic, whose combined assets under management
currently exceed $2.4 billion are wholly-owned subsidiaries of United Asset
Management Corporation of Boston, Massachusetts whose total assets under
management exceed $160 billion. Analytic 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. Analytic is located
at 25/28 Old Burlington Street, London WIX 1LB, England.
As sub-advisers to International Growth Fund and Global Bond Fund, Martin
Currie and Aberdeen Managers, and Analytic manage the investment portfolio of
their respective Funds, 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. Martin Currie and
Aberdeen Managers, and Analytic 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; .74% of the average daily net
assets of Core Equity Fund; .75% of the average daily net assets of Growth
Equity Fund; .80% of the average daily net assets of International Growth Fund;
1.50% of the average daily net assets of Special Equity Funds; .70% of the
average daily net assets of Balanced Fund; .74% of the average daily net assets
of the Bond Fund and Short Term Income Fund, respectively; .60% of the average
daily net assets of Global Bond Fund; .50% of the average daily net assets of
Short- Intermediate Bond Fund, Intermediate Municipal Bond Fund, Government
Income Fund, Pennsylvania Municipal Bond Fund and New Jersey Municipal Bond
Fund, respectively; and .40% of the average daily net asset of Treasury Reserve,
Cash Reserve, and Tax-Free Reserve, respectively. CoreStates Advisers may, from
time 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 sub-advisors to the International Growth
Fund, Martin Currie and Aberdeen Managers are each entitled to receive a fee
from CoreStates Advisers, computed daily and paid monthly, at the annual rate of
.50% and .375%, respectively, of such portion of the Fund's assets managed. For
the services
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Management 67
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INFORMATION ON THE FUNDS (continued)
provided as Global Bond Fund's sub-adviser, Analytic 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 is a Senior Managing Director of CoreStates
Advisers and manages the 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.
CORE EQUITY AND SPECIAL EQUITY FUNDS Joseph E. Stocke, CFA, is a Senior Managing
Director of CoreStates Advisers and manages the Core Equity and Special Equity
Funds. He is also a Senior Investment Manager/Equities with Meridian Investment
Company, an affiliate of CoreStates Advisers for which he has been 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
Meridian's Equity Unit Committee overseeing the Equity Fund and the Special
Equity Fund since their inception.
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, a Vice President of
Martin Currie, is the lead director of an investment team responsible for
managing International Growth Fund. Mr. Gibson has 24 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. Following three
years in that client services team, he joined the North American team in 1996.
He is also a member of Martin Currie's global asset allocation committee.
Bev Hendry, Chief Executive Officer of Aberdeen Fund Managers Inc., is the
lead director of an investment team responsible for managing the International
Growth Fund. A graduate of the University of Aberdeen he qualified as a
chartered accountant before joining Aberdeen Trust in 1987. He was responsible
for starting up their mutual fund division which now has over $1.3 billion under
management and was appointed a director of the parent company in 1991. Aberdeen
now manages over $6 billion of funds and has offices in London, Singapore and
Fort Lauderdale in addition to their headquarters in Scotland.
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68 Management
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/X/ COREFUND
BALANCED FUND Steve Dalton, a Vice President of CoreStates Advisers, is
portfolio manager of the Balanced Fund. Mr. Dalton has been a senior portfolio
manager of balanced portfolios since 1986 and a member of the Equity Policy
Committee since 1990. Since 1988 he has been responsible for management of
CoreStates' oldest commingled trust, the CoreStates Balanced Trust. In addition,
Mr. Dalton has managed balanced portfolios for employee benefit customers for
the last seven years, and has been a securities analyst responsible for coverage
of the health care, pharmaceutical, entertainment and broadcasting industries
since joining CoreStates in 1984. Prior to that, he was employed by Girard Bank
as a security analyst. He received a B.S. degree in Psychology from Cornell.
SHORT-INTERMEDIATE BOND FUND
Craig A. Moyer, CFA, a Senior Managing Director of CoreStates Advisers, is
Portfolio Manager of the Short-Intermediate Bond Fund. Mr. Moyer is also a
Senior Investment Manager/Fixed Income with Meridian Investment Company, an
affiliate of CoreStates Advisers, for which he has been since 1977. He began his
investment career in 1974 and obtained his B.A. from Pennsylvania State
University.
GOVERNMENT INCOME FUND
William T. Lawrence, a Vice President of CoreStates Advisers, is portfolio
manager for the Government Income Fund. Mr. Lawrence is also involved in
specialized fixed income products including 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.
BOND FUND Leslie M. Varrelman is a Vice President of CoreStates Advisers. She is
also a Vice President and Fixed Income Manager with Meridian Investment Company,
an affiliate of CoreStates Advisers, for which she has been since January 1994.
Prior to her position with Meridian, 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 is
directly responsible for management of the Bond Fund.
SHORT TERM INCOME FUND Cathy L. Rahab is an Assistant Vice President of
CoreStates Advisers. She is also an Assistant Vice President and Portfolio
Manager with Meridian Investment Company, an affiliate of CoreStates Advisers.
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
of Meridian in 1994. Ms. Rahab is directly responsible for management of the
Short Term Income Fund.
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
----
Management 69
<PAGE>
- --------------------------------------------------------------------------------
INFORMATION ON THE FUNDS (continued)
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, Managing Director of Analytic, is portfolio
manager for Global Bond Fund. 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. Together with United Asset
Management Corporation of Boston, Mr. McNeill founded Alpha Global which has
merged with Analytic.
CASH RESERVE John Ackler, Investment Officer, is responsible for the management
of Cash Reserve. He is also responsible for the management of the CoreStates
Liquidity Fund as well as numerous individually managed fixed income funds. In
1992, Mr. Ackler joined CoreStates as an internal auditor and transferred to
CoreStates Advisers in August of 1993. He graduated Summa Cum Laude from the
Philadelphia College of Textiles and Sciences with a B.S. in Finance and
Economics and is currently an M.B.A. candidate at Lehigh University.
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 Fund Resources ('SFR' or the 'Administrator'), with principal offices at 680
East Swedesford Road, Wayne, PA 19087, acts as each Fund's administrator. For
its administrative services, SFR 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, SFR generally assists in the Funds'
administration and operations. Boston
- ----
70 Management
<PAGE>
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/X/ COREFUND
Financial Data Services ('BFDS'), a subsidiary of 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 Class Y, Class
A and Class C Shares. Class A and Class C Shares are also subject to a separate
distribution plan (the 'Distribution Plan') approved by the Board of Directors
on April 23, 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 Class A or Class C
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; 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
inquires 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.
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 Class A or Class C Shares will receive different
compensation with respect to Class A or Class C Shares than Class Y Shares.
EXPENSES CoreFunds allocates expenses attributable to each Fund in compliance
with Rule 18f-3 under the Investment Company Act. 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 Fund. 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 Class A or Class C 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
----
Management 71
<PAGE>
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INFORMATION ON THE FUNDS (continued)
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 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
Class Y and Class A or Class C, as appropriate,
in any advertisement or information including
performance data of the Funds. Total return and performance data concerning
Class A Shares will reflect the sales charge and
- ----
72 Performance Information
<PAGE>
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/X/ COREFUND
distribution and incremental transfer agent expenses borne exclusively by Class
A Shares. Total return and performance data concerning Class C Shares will
reflect the distribution and incremental transfer agent expenses borne
exclusively by Class C 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 the following twenty-one portfolios: Growth Equity, Core
Equity, Special Equity, Equity Index, International Growth, Balanced,
Short-Intermediate Bond, Bond, Short Term Income, Government Income,
Intermediate Municipal Bond, Pennsylvania Municipal Bond, New Jersey Municipal
Bond and Global Bond. In addition, CoreFunds has also set up Class C Shares
representing the Cash Reserve, Treasury Reserve, Tax-Free Reserve, Elite Cash
Reserve, Elite Government Reserve, Elite Treasury Reserve and Elite Tax-Free
Reserve Portfolios. CoreFunds offers two classes of shares of each portfolio
except for Equity Index Fund. In total, CoreFunds presently offers shares in
twenty different portfolios. CoreFunds may in the future create one or more
additional portfolios, or one or more classes of shares within a portfolio.
Class Y Shares -- Institutional and Shares of the Elite Money Market Funds are
offered in separate prospectuses. This Prospectus solely relates to Classes A
and C Shares -- Individual.
Class A Shares differ from Class Y Shares in that Class A Shares are
subject to a sales load and distribution and transfer agent expenses for certain
additional shareholder services they receive. Class C Shares also differ from
Class Y Shares in that Class C Shares are subject to distribution and transfer
agent expense for certain additional shareholder services, but unlike Class A
Shares, are not subject to a sales load. Class A and Class C Shares also have
voting rights which Class Y Shares do not, in connection with the Distribution
Plan affecting Class A and Class C Shares. The distribution and transfer agent
expenses charged to Class A and Class C Shares result in having different
dividends and performance results from Class Y Shares. In addition, the minimum
initial investment for Class Y Shares is substantially higher than that required
for Class A and Class C
----
Description of Shares 73
<PAGE>
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INFORMATION ON THE FUNDS (continued)
Shares, with the exception of the Equity Index Fund.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO CLASS A AND CLASS C 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 COREFUND PORTFOLIOS MAY OBTAIN PROSPECTUSES DESCRIBING SUCH
PORTFOLIOS BY CONTACTING THE DISTRIBUTOR AT 1-800-355-CORE.
Except for differences between classes of shares 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 class, 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 class 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 class. See
the Statement of Additional Information under 'Description of Shares' for
examples where the Investment Company Act requires voting by portfolio or class.
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 CoreFunds' other portfolios.
Assets belonging to a Fund are charged with the
- ----
74 General Information
<PAGE>
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/X/ COREFUND
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.
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
----
Description of Ratings 75
<PAGE>
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INFORMATION ON THE FUNDS (CONTINUED)
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.
/X/ Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
/X/ 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.
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76 Description of Ratings
<PAGE>
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SHAREHOLDER SERVICES GUIDE /X/ COREFUND
<TABLE>
<S> <C>
OPENING AN To open a new account, either by mail or by wire, simply complete and return an Account
ACCOUNT AND Application Form. Your purchase must be equal to or greater than the $500 minimum initial
PURCHASING investment requirement for each Fund. A sales charge will be imposed at the time of purchase. See
SHARES the Sales Charge chart detailed below. There is a $50 per month minimum 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.
From time to time, CoreFunds may waive each Fund's sales load for those investors purchasing
shares through advertisements placed in local newspapers and magazines. The advertisements will
detail the procedure for purchasing Fund shares without the imposition of the sales load,
including but not limited to, the duration of the offer.
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</TABLE>
<TABLE>
<S> <C> <C>
PURCHASING NEW ACCOUNT ADDITIONAL INVESTMENTS TO EXISTING ACCOUNTS
BY MAIL: All purchases made by check should be in U.S. Mail your check with the return stub from your
Complete and sign the dollars and made payable to CoreFunds, or in confirmation or statement to:
enclosed Account the case of a retirement account, the
Application Form. custodian or trustee. Third party checks will
not be accepted.
Mail the Account Application Form and a check
payable to CoreFunds, Inc. (Fund name) in at
least the minimum initial purchase amount to:
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
CoreFunds Investor that investors notify CoreFunds Investor Services at 1-800-355-CORE by 12:00 p.m. (Eastern Time)
Services of their intentions to wire money.
(1-800-355-CORE)
-------------------------------------------------------------------------------------------------
PURCHASING You may open an account or purchase additional shares by making an exchange from an existing
BY CoreFunds account. Call CoreFunds Investor Services at 1-800-355-CORE. For further information
EXCHANGE: regarding exchanges, please refer to page 85.
(from a CoreFund
account)
</TABLE>
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Shareholder Services 77
<PAGE>
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SHAREHOLDER SERVICES GUIDE (CONTINUED)
<TABLE>
<S> <C>
AUTOMATIC A shareholder or prospective shareholder may arrange for periodic investments in a Fund through
INVESTMENT automatic deductions by ACH from a checking account by completing the appropriate section on the
PLAN application or the account change form. 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 or account change form may be obtained by calling 1-800-355-CORE.
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SYSTEMATIC Corefunds offers a Systematic Withdrawal Plan which may be used by shareholders who wish to
WITHDRAWAL receive regular distributions from their account. Upon commencement of the SWP, the account must
PLAN 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 or the account change form. Either of these
forms may be obtained by calling 1-800-355-CORE. 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 CoreFunds Investor
Services or the Transfer Agent.
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</TABLE>
<PAGE>
<TABLE>
<S> <C>
EXECUTION OF An order received before 4:00 p.m. for an Equity or Fixed Income Fund, or prior to 12:00 p.m. for
ORDERS 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 CoreFunds
Investor Service 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
</TABLE>
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78 Shareholder Services
<PAGE>
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/X/ COREFUND
<PAGE>
<TABLE>
<S> <C>
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. 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 Class A Shares are as follows:
CHARGES
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES OF THE EQUITY FUNDS AND BALANCED FUND
SALES CHARGE AS
SALES CHARGE AS A PERCENTAGE OF
AMOUNT OF A PERCENTAGE OF NET AMOUNT BROKER-DEALER
TRANSACTION OFFERING PRICE INVESTED REALLOWANCE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 ..................... 5.50% 5.82% 5.00%
$50,000 but less than $100,000 ........ 4.75% 4.99% 4.25%
$100,000 but less than $250,000 ....... 3.75% 3.90% 3.25%
$250,000 but less than $500,000 ....... 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000 ..... 1.75% 1.78% 1.25%
$1,000,000 and over ................... 0% 0% 0%
- ----------------------------------------------------------------------------------------------------------
CLASS A SHARES OF THE BOND, PENNSYLVANIA MUNICIPAL BOND,
NEW JERSEY MUNICIPAL BOND AND GLOBAL BOND FUNDS
SALES CHARGE AS
SALES CHARGE AS A PERCENTAGE OF
AMOUNT OF A PERCENTAGE OF NET AMOUNT BROKER-DEALER
TRANSACTION OFFERING PRICE INVESTED REALLOWANCE
- ----------------------------------------------------------------------------------------------------------
Less than $50,000 ..................... 4.75% 4.99% 4.25%
$50,000 but less than $100,000 ........ 4.25% 4.44% 3.75%
$100,000 but less than $250,000 ....... 3.25% 3.36% 2.75%
$250,000 but less than $500,000 ....... 2.25% 2.30% 1.75%
$500,000 but less than $1,000,000 ..... 1.75% 1.78% 1.25%
$1,000,000 and over ................... 0% 0% 0%
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</TABLE>
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Shareholder Services 79
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SHAREHOLDER SERVICES GUIDE (CONTINUED)
<TABLE>
<CAPTION>
CLASS A SHARES OF THE SHORT-INTERMEDIATE BOND, SHORT TERM INCOME,
GOVERNMENT INCOME AND INTERMEDIATE MUNICIPAL BOND FUNDS
SALES CHARGE AS
SALES CHARGE AS A PERCENTAGE OF
AMOUNT OF A PERCENTAGE OF NET AMOUNT BROKER-DEALER
TRANSACTION OFFERING PRICE INVESTED REALLOWANCE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 ..................... 3.25% 3.36% 2.75%
$50,000 but less than $100,000 ........ 3.00% 3.09% 2.50%
$100,000 but less than $250,000 ....... 2.75% 2.83% 2.25%
$250,000 but less than $500,000 ....... 2.00% 2.04% 1.50%
$500,000 but less than $1,000,000 ..... 1.25% 1.27% 0.75%
$1,000,000 and over ................... 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 families and significant others) of CoreStates Corp, Martin
Currie, Alpha Global, Aberdeen Managers 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) EdVantage customers; (e) Individual Retirement Account rollovers from
qualified employee benefit plans, Keogh plans, and Simplified Employee Benefit 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
</TABLE>
- ----
80 Shareholder Services
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
<TABLE>
<S> <C>
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 Class A and Class C 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 Class
A and Class C Shares of a Fund. Subsequent investments in the Funds by these investors will be
subject to the applicable sales charge. In addition, the Distributor may, in its own discretion,
waive sales charges on future purchases of Fund shares for certain classes of investors.
</TABLE>
<TABLE>
<S> <C>
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 Class A and Class C Shares may obtain a 'Right of
Accumulation.' This Right allows an investor to combine the current purchase of Class A and Class C
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
Class A and Class C Shares. Each purchase under a 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 Class A and Class C 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
</TABLE>
----
Shareholder Services 81
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES GUIDE (CONTINUED)
<TABLE>
<S> <C>
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 Class A and Class C Shares should complete the appropriate section of the application
or contact the Distributor, CoreStates Securities Corp or a Participating Broker/Dealer.
- ------------------------------------------------------------------------------------------------------------------------------
SELLNG 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.
----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
REDEMPTION Shareholders wishing to make redemptions by telephone must provide the information requested in the
BY Account Application form. Thereafter, telephone redemption requests may be made by calling CoreFunds
TELEPHONE: Investor Services 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>
- ----
82 Shareholders Services
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
<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.
------------------------------------------------------------------------------------------------------
REDEMPTION The Money Market Funds will provide shareholders of record, upon request to CoreFunds Investor
BY CHECK: Services or the Transfer Agent and without charge, with checks drawn on these Funds that will clear
Money Market Funds only 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, fill out the signature card available from CoreFunds Investor Services, and mail the
complete Form and signature card to CoreFunds, Inc., P.O. Box 470,
</TABLE>
----
Shareholder Services 83
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES GUIDE (continued)
<TABLE>
<S> <C>
Wayne, PA 19087-0470. 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 of this Prospectus, the 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 CoreFunds Investor
Services.
------------------------------------------------------------------------------------------------------
REDEMPTION You may sell shares of the Fund by making an exchange into another CoreFunds account. For more
BY information, please see below.
EXCHANGE:
------------------------------------------------------------------------------------------------------
</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 ten calendar 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 'readily marketable'
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.
</TABLE>
- ----
84 Shareholder Services
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
<TABLE>
<S> <C>
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 a value of less
BALANCE 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 Shares of a Fund held by a shareholder of record may be exchanged for shares in any of CoreFunds'
SHARES other retail portfolios. Shareholders wishing to use this telephone exchange privilege must check
EXCHANGING the appropriate box on the Account Application Form or on the account change form. Exchange requests
BY should be directed to CoreFunds Investor Services at 1-800-355-CORE. Telephone exchange privileges
TELEPHONE: are only available in states where exchanges from one CoreFunds portfolio to another can lawfully be
Call CoreFunds made.
Investor Services
(1-800-355-CORE) The Fund undertakes to amend the section entitled 'Exchanging Shares Exchanging by Telephone' by
adding the following language: Redemption orders may be placed by telephone. Neither the Fund nor
the Transfer Agent will be responsible for any loss, liability, cost or expense for acting upon wire
instructions or upon telephone instructions that it reasonably believes to be genuine. The Fund and
the Transfer Agent will each employ reasonable procedures to confirm that instructions communicated
by telephone are genuine. To ensure the authenticity of redemption or exchange instructions received
by telephone, the Transfer Agent examines each shareholder request by verifying the 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. If reasonable procedures are not employed, the Fund and the Transfer Agent may be
liable for any losses due to unauthorized or fraudulent telephone transactions.
----------------------------------------------------------------------------------------------------
</TABLE>
----
Shareholder Services 85
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES GUIDE (continued)
<TABLE>
<S> <C>
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.
----------------------------------------------------------------------------------------------------
IMPORTANT Before you make an exchange, you should consider the following:
EXCHANGE
INFORMATION / / Shareholders may not exchange into a series of a portfolio for which they would not have been
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.
----------------------------------------------------------------------------------------------------
</TABLE>
- ----
86 Shareholder Services
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
<TABLE>
<S> <C>
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.
----------------------------------------------------------------------------------------------------
</TABLE>
----
Shareholder Services 87
<PAGE>
NOTES
<PAGE>
/X/
COREFUND(R)
FAMILY OF
MUTUAL FUNDS
COREFUNDS, INC.
/X/
DIRECTORS
Emil J. Mikity, Chairman
George H. Strong
Erin Anderson
Cheryl H. Wade
Thomas J. Taylor
OFFICERS
David G. Lee, President
James W. Jennings, Secretary
INVESTMENT ADVISER
CoreStates Investment Advisers, Inc.
Philadelphia, PA 19101
ADMINISTRATOR
SEI Fund Resources
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
Investment Adviser
COREFUNDS
FAMILY OF MUTUAL FUNDS
[LOGO]
CORESTATES
INVESTMENT ADVISERS
For current performance, purchase, redemption and
other information, call 1-800-355-CORE (2673)
9513 (11/95)
COR-F-046-05
Individual Shares
Prospectus
November 1, 1996
<PAGE>
/X/
COREFUND(R)
Prospectus
CoreFunds, Inc.
November 1, 1996
Elite Money Market Funds
Class Y and Class C Shares
================================================================================
CoreFunds, Inc. is an open-end management investment company
presently offering two different classes of shares in twenty diversified and
non-diversified portfolios that offer a variety of investment opportunities.
These portfolios are managed by CoreStates Investment Advisers, Inc.
("CoreStates Advisers"). This Prospectus relates to Class Y and Class C shares
in four Elite money market portfolios (the "Elite Funds").
- --------------------------------------------------------------------------------
This Prospectus gives you information about the Elite Funds that you
should be aware of before investing. Additional information about the Funds,
contained in a Statement of Additional Information dated November 1, 1996, 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. SUCH SHARES ARE ALSO NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN
INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT EITHER OF THESE FUNDS WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
- --------------------------------------------------------------------------------
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 Table................ 3 Financial Highlights.................................... 5
</TABLE>
- ----------------------------INFORMATION ON THE FUNDS----------------------------
<TABLE>
<S> <C>
Investment Objectives of the Funds..................... 6 Investment Adviser...................................19
Investment Policies.................................... 6 Fund Managers........................................20
Other Investment Practices of the Administrator........................................20
Funds............................................... 7 Distributor..........................................21
Types of Securities in Which the Funds Expenses.............................................21
Invest.............................................. 9 Glass-Steagall Act...................................21
Investment Restrictions................................13 Performance Information.................................22
Investor Considerations................................15 Total Return and Yield...............................22
Investment Suitability..............................15 In General...........................................22
Investment Risks....................................15 Description of Shares...................................23
Distributions..........................................16 General Information.....................................24
Taxes..................................................16 Description of Ratings..................................24
Valuation of Shares....................................18 Description of Municipal and Corporate
Net Asset Value.....................................18 Bond Ratings.........................................24
Portfolio Pricing...................................18 Description of Municipal Note
Management.............................................19 Ratings..............................................26
</TABLE>
- ----------------------------SHAREHOLDER SERVICES GUIDE--------------------------
<TABLE>
<S> <C>
Opening an Account and Selling Your Shares.....................................29
Purchasing Shares...................................27 Exchanging Shares.......................................32
</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 TABLE /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 Class Y or Class C shares of the Funds.
THE INFORMATION CONTAINED IN THE TABLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN
THOSE SHOWN.
<TABLE>
<CAPTION>
--------- ----------- ---------- ----------
ELITE ELITE ELITE ELITE
CASH GOVERNMENT TREASURY TAX-FREE
RESERVE RESERVE RESERVE RESERVE
--------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Class Y 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 Waivers(1).................... .00% .00% .00% .00%
12b-1 Fees..................................................... none none none none
Other Expenses(2).............................................. .16% .16% .16% .16%
Net Annual Fund Operating Expenses(3)............................ .16% .16% .16% .16%
EXAMPLE
You would pay the following 1 year $2 $2 $2 $2
expenses on a $1,000 investment, 3 year 5 5 5 5
assuming (1) a 5% annual return 5 year 9 9 9 9
and (2) redemption at the end 10 year 20 20 20 20
of each time period.(4)
</TABLE>
- --------------------------------------------------------------------------------
* Fees shown reflect current fees.
(1) Absent voluntary waivers, the Adviser's investment advisory fees are
calculated at the annual rate of .20% of the average net assets of each
Fund.
(2) Includes (among others) administrative, legal, auditing, and printing fees.
Absent voluntary waivers, the Administrator's fee is calculated at the
annual rate of .25% of each Fund's average net assets.
(3) 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, 1997. Absent any fee waivers, such expense ratios would be
.49%, .53%, .55% and .51% for Elite Cash Reserve, Elite Government Reserve,
Elite Treasury Reserve and Elite Tax-Free Reserve, respectively.
(4) Absent the voluntary fee waiver of the Adviser and the Administrator, the
amounts in this Example, for one, three, five and ten years, would be $5,
$16, $27 and $62 for Elite Cash Reserve, $5 and $17 for Elite Government
Reserve, $6, $18, $31 and $69 for Elite Treasury Reserve and $5, $16, $29
and $64 for Elite Tax-Free Reserve.
----
Transaction and Operating Expense Tables 3
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION AND OPERATING EXPENSE TABLES (continued)
<TABLE>
<CAPTION>
--------- -------------- ---------- ----------
ELITE ELITE ELITE ELITE
CASH GOVERNMENT TREASURY TAX-FREE
Class C Shares RESERVE RESERVE RESERVE RESERVE
--------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
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 Waivers(1).................... .00% .00% .00% .00%
12b-1 Fees....................................................... .25% .25% .25% .25%
Other Expenses(2)................................................ .16% .16% .16% .16%
Net Annual Fund Operating Expenses(3)............................ .41% .41% .41% .41%
EXAMPLE
You would pay the following 1 year $4 $4 $4 $4
expenses on a $1,000 investment, 3 year 13 13 13 13
assuming (1) a 5% annual return 5 year 23 23 23 23
and (2) redemption at the end 10 year 52 52 52 52
of each time period.(4)
</TABLE>
- --------------------------------------------------------------------------------
* Fees shown reflect current fees.
(1) Absent voluntary waivers, the Adviser's investment advisory fees are
calculated at the annual rate of .20% of the average net assets of each
Fund.
(2) Includes (among others) administrative, legal, auditing, and printing fees.
Absent voluntary waivers, the Administrator's fee is calculated at the
annual rate of .25% of each Fund's average net assets.
(3) 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, 1997. Absent any fee waivers, such expense ratios would be
.74%, .78%, .80% and .76% for Elite Cash Reserve, Elite Government Reserve,
Elite Treasury Reserve and Elite Tax-Free Reserve, respectively.
(4) Absent the voluntary fee waiver of the Adviser and the Administrator, the
amounts in this Example, for one, three, five and ten years, would be $8,
$24, $41 and $92 for Elite Cash Reserve, $8 and $25 for Elite Government
Reserve, $8, $26, $44 and $99 for Elite Treasury Reserve and $8, $24, $42
and $94 for Elite Tax-Free Reserve.
- -----
4 Transaction and Operating Expense Tables
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS /X/ COREFUND
The tables that follow present information about the investment results of
the Class Y shares of the Elite Cash Reserve, Elite Treasury Reserve and Elite
Tax-Free Reserve Funds (formerly the 'Fiduciary Funds'). The Elite Government
Reserve has not yet commenced operations. In addition, the Class C shares for
each of the Funds have not yet been introduced. The financial highlights for
each of the Elite Cash Reserve, Elite Treasury Reserve and Elite Tax-Free
Reserve have been audited by Ernst & Young LLP, independent auditors, whose
report thereon appears in CoreFunds' annual report which accompanies the
Statement of Additional Information. The annual report for the Funds is
available to shareholders at no charge by calling CoreFunds at 1-800-355-CORE.
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED JUNE 30,
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Net
Assets
Net Asset Dividends End of Ratio of
Value, Net from Net Net Asset Period Expenses to
Beginning Investment Investment Value, End Total (thousands Average Net
Year of Period Income Income of Period Return omitted) Assets
- ---- ----------- ----------- ----------- ----------- --------- --------- -----------
- ------------------
ELITE CASH RESERVE
- ------------------
(FORMERLY FIDUCIARY RESERVE)
CLASS Y
1996.................................... $1.00 0.05 (0.05) $1.00 5.62% $384,446 0.15%
1995.................................... $1.00 0.05 (0.05) $1.00 5.46% $406,597 0.17%
1994.................................... $1.00 0.03 (0.03) $1.00 3.31% $382,814 0.16%
1993.................................... $1.00 0.03 (0.03) $1.00 3.29% $424,363 0.17%
1992.................................... $1.00 0.05 (0.05) $1.00 5.04% $416,945 0.18%
1991.................................... $1.00 0.07 (0.07) $1.00 7.49% $453,947 0.15%
1990(1)................................. $1.00 0.08 (0.08) $1.00 8.03%+ $232,091 0.13%
- ----------------------
ELITE TREASURY RESERVE
- ----------------------
(FORMERLY FIDUCIARY TREASURY RESERVE)
CLASS Y
1996.................................... $1.00 0.05 (0.05) $1.00 5.54% $ 24,498 0.19%
1995.................................... $1.00 0.05 (0.05) $1.00 5.24% $ 18,396 0.23%
1994.................................... $1.00 0.03 (0.03) $1.00 3.10% $ 20,363 0.28%
1993.................................... $1.00 0.03 (0.03) $1.00 3.17% $ 27,614 0.18%
1992(2)................................. $1.00 0.02 (0.02) $1.00 2.00%+ $ 49,328 0.05%
- ----------------------
ELITE TAX-FREE RESERVE
- ----------------------
(FORMERLY FIDUCIARY TAX-FREE RESERVE)
CLASS Y
1996.................................... $1.00 0.03 (0.03) $1.00 3.51% $ 86,477 0.16%
1995.................................... $1.00 0.03 (0.03) $1.00 3.41% $ 72,593 0.19%
1994.................................... $1.00 0.02 (0.02) $1.00 2.32% $ 78,219 0.17%
1993.................................... $1.00 0.02 (0.02) $1.00 2.48% $ 48,424 0.19%
1992(3)................................. $1.00 0.02 (0.02) $1.00 1.50%+ $ 66,158 0.17%
<CAPTION>
Ratio of Ratio of
Expenses to Net Income
Ratio of Average Net to Average
Net Income Assets Net Assets
to Average (Excluding (Excluding
Year Net Assets Waivers) Waivers)
- ---- ----------- ----------- -----------
- ------------------
ELITE CASH RESERVE
- ------------------
(FORMERLY FIDUCIARY RESERVE)
CLASS Y
1996.................................... 5.46% 0.76% 4.85%
1995.................................... 5.35% 0.81% 4.71%
1994.................................... 3.24% 0.84% 2.56%
1993.................................... 3.25% 0.81% 2.61%
1992.................................... 4.96% 0.83% 4.31%
1991.................................... 7.05% 0.80% 6.40%
1990(1)................................. 8.42% 0.83% 7.72%
- ----------------------
ELITE TREASURY RESERVE
- ----------------------
(FORMERLY FIDUCIARY TREASURY RESERVE)
CLASS Y
1996.................................... 5.39% 0.80% 4.78%
1995.................................... 5.09% 0.87% 4.45%
1994.................................... 3.03% 0.91% 2.40%
1993.................................... 3.19% 0.85% 2.52%
1992(2)................................. 3.95% 0.80% 3.20%
- ----------------------
ELITE TAX-FREE RESERVE
- ----------------------
(FORMERLY FIDUCIARY TAX-FREE RESERVE)
CLASS Y
1996.................................... 3.44% 0.76% 2.84%
1995.................................... 3.37% 0.83% 2.73%
1994.................................... 2.29% 0.82% 1.64%
1993.................................... 2.45% 0.83% 1.81%
1992(3)................................. 3.00% 0.89% 2.28%
</TABLE>
- ------------------
+ Returns shown are for the period indicated and have not been annualized.
(1) The Elite Cash Reserve (formerly the Fiduciary Reserve) commenced operations
on August 7, 1989. Ratios for this period have been annualized.
(2) The Elite Treasury Reserve (formerly the Fiduciary Treasury Reserve)
commenced operations on December 10, 1991. Ratios for this period have been
annualized.
(3) The Elite Tax-Free Reserve (formerly the Fiduciary Tax-Free Reserve)
commenced operations on November 19, 1991. Ratios for this period have been
annualized.
----
Financial Highlights 5
<PAGE>
- --------------------------------------------------------------------------------
INFORMATION ON THE FUNDS
/X/
INVESTMENT
OBJECTIVES
OF THE FUNDS
The descriptions that follow are designed to help you choose the Elite Fund that
best fits your investment objectives. The objectives of each Elite 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 other portfolios offered by CoreFunds.
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.
CASH RESERVE The investment objective of CoreFund Elite Cash Reserve ('Cash
Reserve') is to provide as high a level of current interest as is consistent
with liquidity and relative stability of principal.
GOVERNMENT RESERVE The investment objective of CoreFund Elite Government Reserve
('Government Reserve') is to provide current interest income, liquidity and
safety of principal.
TREASURY RESERVE The investment objective of CoreFund Elite Treasury Reserve
('Treasury Reserve') is to provide current interest income, liquidity and safety
of principal.
TAX-FREE RESERVE The investment objective of CoreFund Elite Tax-Free Reserve is
to provide current interest income that is exempt from federal income taxes as
is consistent with liquidity and relative stability of principal.
/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.'
ALL FUNDS Investments by money market funds such as the Funds 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
- ----
6 Investment Objectives
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
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.
GOVERNMENT RESERVE Government Reserve invests in U.S. Treasury obligations,
obligations issued or guaranteed as to principal and interest by the agencies or
instrumentalities of the U.S. government, and repurchase agreements involving
such obligations.
TREASURY RESERVE Treasury Reserve intends to invest in direct obligations of the
U.S. Treasury, such as bills, bonds, and notes, and in 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.
Under normal circumstances, the Fund intends to invest at least 80% of its
assets in tax-free securities. 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
----
Investment Policies 7
<PAGE>
- --------------------------------------------------------------------------------
INFORMATION ON THE FUNDS (continued)
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, as amended (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 and applicable state law. Such investments will be
limited to amounts not in excess of 5% of a Fund's total assets at the time of
purchase.
REVERSE REPURCHASE AGREEMENTS--
Elite Cash Reserve, Elite Government Reserve and Elite Tax-Free Reserve
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.
LENDING OF SECURITIES--All Funds
The Funds 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 33 1/3% of its total assets.
Such loans may be terminated at any time. These Funds will receive cash, letters
of credit, 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
- ----
8 Investment Policies
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
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.
/X/
TYPES OF
SECURITIES IN
WHICH THE
FUNDS
INVEST
CASH RESERVE The various types of securities invested in by Cash Reserve 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'). 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.
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. Because of these features, STRIPS
may be subject to greater interest rate volatility than interest-paying U.S.
Treasury obligations. See also 'Taxes.'
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.
With respect to bank obligations, in addition to certificates of deposit
and bankers' acceptances, Cash Reserve may invest in foreign securities and time
deposits.
----
Types of Securities 9
<PAGE>
- --------------------------------------------------------------------------------
INFORMATION ON THE FUNDS (continued)
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.
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.
With respect to asset-backed securities, the asset-backed securities in
which Cash Reserve invests must have final maturities of 13 months or less.
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 Investors Service, Inc. ('Moody's')
and/or 'A-1' or better by Standard & Poor's Corporation ('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').
GOVERNMENT RESERVE Government Reserve will invest in U.S. Government
Obligations, including U.S. Treasury Securities and U.S. Government Agency
Securities. Government Reserve may also invest in STRIPS.
TREASURY RESERVE Treasury Reserve will invest in U.S. Treasury obligations, such
as bills, notes, and bonds, and separately traded
- ----
10 Types of Securities
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
Interest and principal component parts of such obligations, such as STRIPS.
Treasury Reserve may also invest in repurchase agreements fully collaterized by
U.S. Treasury obligations.
TAX-FREE RESERVE Tax-Free Reserve will invest in municipal securities which
include, but are not limited to, general obligation bonds and notes, bond and/or
grant anticipation notes, construction loan notes, revenue bonds and notes, tax
and/or revenue anticipation notes, tax-exempt commercial paper and variable rate
demand obligations. The two principal classifications of municipal securities
which may be held by this Fund are 'general obligation' securities and 'revenue'
securities. These are discussed below, along with other municipal securities in
which this Fund 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.
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 portfolio of Tax-Free Reserve 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 Tax-Free Reserve 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 the Fund, it 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 Tax-Free Reserve 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
Tax-Free Reserve may purchase municipal securities on a 'when-issued'
basis (as described in 'Other Investment Practices of the Funds'). This 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 the Fund will set aside cash or
liquid assets to satisfy its purchase commitments in the manner described, its
liquidity and ability to manage
----
Types of Securities 11
<PAGE>
- --------------------------------------------------------------------------------
INFORMATION ON THE FUNDS (continued)
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.
CREDIT RATINGS
Municipal securities, in which Tax-Free Reserve invests will be determined by
CoreStates Advisers to present miminal credit risks, pursuant to guidelines
approved by the Board of Directors. Such securities, at the time of purchase,
must be rated in the highest short-term rating category of Moody's and/or S&P.
Therefore, rated municipal securities purchased by the Fund must meet or exceed
the ratings set forth below:
MINIMUM RATINGS
Moody's S&P
--------- -------
Notes 'MIG-1' 'SP-1'
Tax-Exempt Commercial Paper 'Prime-1' 'A-1'
Variable Rate
Demand Obligations 'VMIG-1' 'A-1'
Securities that have no short-term ratings at the time of purchase must be
determined to be of comparable quality by CoreStates Advisers, pursuant to
guidelines approved by the Board of Directors, or must be issued by an issuer
having comparable short-term securities outstanding that satisfy the above
rating criteria. To the extent that the ratings accorded by Moody's or S&P may
change as a result of changes in their rating systems, Tax-Free Reserve will
attempt to use comparable ratings as standards for its investments, in
accordance with the investment policies contained herein. Where necessary to
ensure that an instrument meets, or is of comparable quality to, such Fund's
rating criteria, it will require that the issuer's obligations to pay the
principal of, and the interest on, the instrument be backed by insurance or by
an unconditional bank letter or line of credit, guarantee, or commitment to
lend.
In such event, the underlying guarantee must be deemed by CoreStates
Advisers to present minimal credit risks. See the 'Appendix' to the Statement of
Additional Information for a description of applicable ratings.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
CoreStates Advisers will review the proceedings relating to the issuance of
Municipal Securities or the basis for such opinions.
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. There can be no assurance that the current
federal income tax treatment accorded an investment in the Fund will not be
adversely affected by changes to statutes, regulations, rulings or judicial
precedents upon which such Federal Tax treatment is based. In the event of the
enactment of such legislation, which might materially affect the availability of
Municipal Securities for investment by the Fund and hence the value of the
Fund's portfolio, the Fund would re-evaluate its investment objective and
policies and consider changes in its structure or possible dissolution.
PENNSYLVANIA MUNICIPAL SECURITIES
In managing the Fund's portfolio, CoreStates Advisers intends to invest, when
possible, the Fund's assets in tax-exempt obligations issued by the Commonwealth
of Pennsylvania and its political subdivisions ('Pennsylvania Municipal
Securities'),
- ----
12 Types of Securities
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
provided the investment is consistent with the Fund's investment objective and
policies and its status as a diversified investment company. Because of the
relatively limited number of Pennsylvania municipal issuers and restricted
supply of outstanding Municipal Securities issued by them that meet the Fund's
investment criteria, CoreStates Advisers cannot predict precisely what
percentage of the 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 the Fund'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 the Fund's assets are so
concentrated, the Fund 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.
TEMPORARY INVESTMENTS
The Fund 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, the 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
('Temporary Investments'), the income from which is subject to federal
income tax.
Temporary Investments will generally not exceed 20% of the total assets of
the Fund except when made for temporary defensive purposes, and may include
obligations of the United States Government or its agencies or
instrumentalities; debt securities (including taxable commercial paper) of
issuers having been assigned, at the time of purchase, the highest quality
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.
Under the Investment Company Act of 1940, as amended (the 'Investment
Company Act'), repurchase agreements are considered to be loans by the Fund and
conversely, reverse repurchase agreements are considered to be borrowings by the
Fund. See the Statement of Additional Information for further discussion
regarding Temporary Investments.
/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
----
Investment Restrictions 13
<PAGE>
- --------------------------------------------------------------------------------
INFORMATION ON THE FUNDS (continued)
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, enter into repurchase agreements and lend its portfolio securities,
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. 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 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.
4. 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. With respect to Cash Reserve, Government Reserve and Treasury Reserve,
there is no limitation with respect to its investment in obligations issued or
guaranteed by the U.S. Government or its instrumentalities. With respect to
Tax-Free Reserve, there is no limitation with respect to: (a) obligations issued
by any state, territory or possession of the United States, the District of
Columbia or any of their authorities, agencies, instrumentalities or political
subdivisions; (b) obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; (c) domestic bank certificates of deposit and
bankers' acceptances; or (d) repurchase agreements secured by any of the
foregoing obligations.
PORTFOLIO TURNOVER It is not a policy of the Funds to purchase or sell
securities for trading purposes. However, CoreStates Advisers manages 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.
High rates of portfolio turnover necessarily result in correspondingly
heavily 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
- ----
14 Investment Restrictions
<PAGE>
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/X/ COREFUND
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.
/X/
INVESTOR
CONSIDERATIONS
INVESTMENT SUITABILITY _________________________________________________________
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.
Government Reserve, by investing only in direct obligations of the U.S.
Government, and in U.S. Government Agency securities, is suitable for investors
seeking current income with a higher degree of safety afforded by U.S.
Government and Agency securities.
Treasury Reserve, because it is restricted to direct obligations of the
U.S. Government, is suitable for investors for whom a high degree of safety is a
primary concern. This Fund is considered to be the most secure of the Funds and
is appropriate for investors seeking current income and the highest degree of
safety.
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 _______________________________________________________________
While each of the Funds will attempt to maintain a stable net asset value of
$1.00 per share, there is no guarantee that any Fund will be able to do so. The
Funds are neither insured nor guaranteed by the U.S. Government.
Securities held by Cash Reserve, Government Reserve and Treasury Reserve
may be subject, on a limited basis, to credit risk. Credit risk is the
possibility that an issuer of securities held in a Fund's investment portfolio
will be unable to make timely payments of either principal or interest. 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). Market risk is the potential for a
decline in the price of fixed-income securities due to rising interest rates.
Call risk relates to municipal bonds during periods of falling interest rates
and involves the possibility that securities with high interest rates will be
prepaid (or 'called') by
----
Investor Considerations 15
<PAGE>
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INFORMATION ON THE FUNDS (continued)
the issuer prior to maturity. Such an event would require such Fund to invest
the resulting proceeds elsewhere, at generally lower interest rates, which would
cause fluctuations in its net income.
Because of the concerns listed above, 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.
Investors should understand, however, that while all investments carry a
risk factor, the exposure of the Funds to investment risk will generally be very
low, as a result of their diversification and the high-quality and short-term
maturity of their investment portfolios.
/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. Shares of the 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.
Dividends are paid in the form of additional 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.
The net investment income of each of the Funds is declared daily as a
dividend to its shareholders and paid monthly. Capital gains distributions, if
any, will be made by the 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.
/X/
TAXES
The following is only a brief summary of some of the important federal income
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.
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16 Distributions
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/X/ COREFUND
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.
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, if any) 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.
TAX-FREE RESERVE
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 Tax-Free Reserve 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 this Fund is not deductible for federal income
tax purposes. Furthermore, this Fund 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 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.
Tax-Free Reserve 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 Consquences.
Except as noted below, tax-exempt interest dividends and other
distributions
----
Taxes 17
<PAGE>
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INFORMATION ON THE FUNDS (continued)
paid by Tax-Free Reserve 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.
STRIPS
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.
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 ________________________________________________________________
The net asset value per share of each of the Funds for purposes of pricing
purchase and redemption orders is normally determined as of 4:00 p.m. (Eastern
standard 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. The
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
- ----
18 Valuation of Shares
<PAGE>
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/X/ COREFUND
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.
The assets in the 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 _____________________________________________________________
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 20
largest bank holding companies in the United States, and leads the region in
investing corporate cash. CoreStates Corp currently has over $45 billion in
assets and discretionary management over $30 billion in customer accounts
through a variety of banking activities at over 600 domestic and foreign
locations.
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 $17.6 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 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.
----
Management 19
<PAGE>
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INFORMATION ON THE FUNDS (continued)
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 Fund,
computed daily and paid monthly, at the annual rate of .20% of the average daily
net assets of such Fund. 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.
FUND MANAGERS __________________________________________________________________
The following individuals are primarily responsible for managing the Elite
Funds:
ELITE CASH RESERVE
Joyce Ann Lotkowski, Investment Officer, is portfolio manager of the Elite Cash
Reserve. She is a fixed income portfolio manager responsible for individually
managed corporate trust accounts. Mrs. Lotkowski joined CoreStates Advisers in
1982 as a portfolio manager. She joined the Philadelphia National Bank in 1978
in the CPA and Government Request Department and in 1980 transferred to the
Corporate Trust Department.
ELITE GOVERNMENT RESERVE
ELITE TREASURY RESERVE
Ronald R. Brasten, Senior Investment Officer, is portfolio manager of the Elite
Government and Elite Treasury Reserve. He also manages the CoreFund 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.
ELITE TAX-FREE RESERVE
Folu Abiona, Senior Investment Officer, is portfolio manager of the Elite
Tax-Free Reserve. Ms. Abiona is also portfolio manager of the Tax-Free Reserve
portfolio. She joined CoreStates in 1985 and became fixed income portfolio
manager in 1990. Prior to that, she was mutual fund administrator with
CoreStates' Institutional Custody Division. Ms. Abiona holds an M.B.A. from
Temple University and a B.Sc. from University of lfe, Nigeria.
ADMINISTRATOR __________________________________________________________________
SEI Fund Resources ('SFR' or the 'Administrator'), with principal offices at 680
East Swedesford Road, Wayne, PA 19087, acts as each Fund's administrator. For
its administrative services, SFR 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, SFR generally assists in each Fund's
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.
- ----
20 Management
<PAGE>
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/X/ COREFUND
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 Class Y and
Class C Shares of each Fund. Class C 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 Class C 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; 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.
With respect to the 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.
Compensation received by persons selling Class C Shares will be different
than the compensation received by those persons selling Class Y Shares.
EXPENSES _______________________________________________________________________
CoreFunds allocates expenses attributable to each Fund in compliance with Rule
18f-3 under the Investment Company Act. 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 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
----
Management 21
<PAGE>
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INFORMATION ON THE FUNDS (continued)
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.
In addition to quoting total return, the 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 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.
The Tax-Free Reserve may also advertise its '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 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.
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22 Performance Information
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/X/ COREFUND
/X/
DESCRIPTION
OF SHARES
CoreFunds has set up the following twenty-one portfolios: Growth Equity, Core
Equity, Special Equity, Equity Index, International Growth, Balanced, Bond,
Short-Intermediate Bond, Short Term Income, Government Income, Intermediate
Municipal Bond, Pennsylvania Municipal Bond, New Jersey Municipal Bond, Global
Bond, Cash Reserve, Treasury Reserve, Tax-Free Reserve, Elite Cash Reserve,
Elite Government Reserve, Elite Treasury Reserve and Elite Tax-Free Reserve.
CoreFunds may in the future create one or more additional portfolios, or one or
more classes of shares within a portfolio. Shares of portfolios other than the
Elite Funds are offered in separate prospectuses.
CoreFunds offers two classes of each portfolio. Class Y Shares are
primarily offered to various types of institutional investors. Class A and Class
C Shares are offered to the general public as well as to various types of
institutional investors. Class A Shares differ from Class Y Shares in that Class
A Shares are subject to a sales load and distribution and transfer agent
expenses for certain additional shareholder services they receive. Class C
Shares also differ from Class Y Shares in that Class C Shares are subject to
distribution and transfer agent expense for certain additional shareholder
services, but unlike Class A Shares, are not subject to a sales load. Class A
and Class C Shares also have voting rights which Class Y Shares do not, in
connection with the Distribution Plan affecting Classes A and C Shares. The
distribution and transfer agent expenses charged Classes A and C Shares result
in Classes A and C Shares having different dividends and performance results
from Class Y Shares. In addition, the minimum initial investment for Class Y
Shares is substantially higher than that required for Classes A and C Shares.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO 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 classes of shares 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 class, each share in each portfolio represents an equal proportionate
interest in that portfolio with each other share of the same portfolio and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to such portfolio 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 class 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 class. See
the Statement of Additional Information under 'Description of Shares' for
examples
----
Description of Shares 23
<PAGE>
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INFORMATION ON THE FUNDS (continued)
where the Investment Company Act requires voting by portfolio or class. Voting
rights are not cumulative and, accordingly, the holders of more than 50% of the
aggregate number of shares of all of the portfolios of CoreFunds 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.
Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse
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24 General Information
<PAGE>
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/X/ COREFUND
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 which there
is a very low expectation of investment risk are rated AA by IBCA.
----
Description of Ratings 25
<PAGE>
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INFORMATION ON THE FUNDS (continued)
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.
- ----
26 Description of Ratings
<PAGE>
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SHAREHOLDER SERVICES GUIDE /X/ COREFUND
<TABLE>
<S> <C>
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 $1,000,000 minimum initial
investment requirement and the $500 minimum initial investment requirement for Class Y Shares and
Class C shares, respectively, for each Fund. There is a $50 per month 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
BY MAIL: All purchases made by check should be in U.S. ACCOUNTS
Complete and sign the dollars and made payable to CoreFunds, or in the Mail your check with the return stub from
enclosed Account case of a retirement account, the custodian or your confirmation or statement to:
Application Form. trustee. Third party checks will not be accepted.
Mail the Account Application Form and a check
payable to CoreFunds, Inc. (Fund name) in at least
the minimum initial purchase amount to:
COREFUNDS, INC.,
P.O. BOX 470
WAYNE, PA 19087-0470
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</TABLE>
<TABLE>
<S> <C> <C>
PURCHASING CORESTATES PHIL, for credit to
BY WIRE: Philadelphia, PA COREFUNDS
Money should be wired ABA 031000011, A/C 0169-0541
to: ACCOUNT NUMBER
</TABLE>
<TABLE>
<S> <C>
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
CoreFunds Investor that investors notify CoreFunds Investor Services at 1-800-355-CORE by 12:00 p.m. (Eastern Time)
Services 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 CoreFunds Investor Services at 1-800-355-CORE. For further information
EXCHANGE: regarding exchanges, please refer to page 32.
(from a CoreFund
account)
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</TABLE>
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Shareholder Services 27
<PAGE>
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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 or the account change form. 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 or account change 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 used 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 or the account change form. Either of these
forms may be obtained by calling 1-800-355-CORE. 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 CoreFunds Investor
Services or the Transfer Agent.
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EXECUTION OF ORDERS An order received prior to 12:00 p.m. for any of the Funds, 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 12:00 p.m. on such date, plus any applicable sales charge. An
order received after 12:00 p.m. on any business day 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 CoreFunds Investor Service 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
</TABLE>
<PAGE>
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28 Shareholder Services
- --------------------------------------------------------------------------------
/X/ COREFUND
<TABLE>
<S> <C>
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. 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.
- ------------------------------------------------------------------------------------------------------------------------------
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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</TABLE>
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Shareholder Services 29
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES GUIDE (continued)
<TABLE>
<S> <C>
REDEMPTION Shareholders wishing to make redemptions by telephone must provide the information requested in the
BY Account Application form. Thereafter, telephone redemption requests may be made by calling CoreFunds
TELEPHONE: Investor Services 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.
------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
REDEMPTION The Funds will provide shareholders of record, upon request to CoreFunds Investor Services or the
BY CHECK: Transfer Agent and without charge, with checks drawn on these Funds that will 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 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.
</TABLE>
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30 Shareholder Services
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
<TABLE>
<S> <C>
Shareholders of record wishing to use this method of redemption should check the appropriate box in
the Account Application form, fill out the signature card available from CoreFunds Investor
Services, and mail the complete Form and signature card to CoreFunds, Inc., P.O. Box 470, Wayne, PA
19087-0470. 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 of this Prospectus, the 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 CoreFunds
Investor Services.
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REDEMPTION You may sell shares of the Funds 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 transactions in Fund shares have not caused the value of
REDEMPTION their account to fall below the amount of the intended redemption.
INFORMATION:
/ / Redemption orders for the 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 Fund Resources 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 ten calendar 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 'readily marketable'
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.
----------------------------------------------------------------------------------------------------------
</TABLE>
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Shareholder Services 31
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES GUIDE (continued)
<TABLE>
<S> <C>
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 a value of less
BALANCE 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 Shares of a Fund held by a shareholder of record may be exchanged for shares in any of CoreFunds'
SHARES other retail portfolios. Shareholders wishing to use this telephone exchange privilege must check
EXCHANGING the appropriate box on the Account Application Form or on the account change form. Exchange requests
BY should be directed to CoreFunds Investor Services at 1-800-355-CORE. Telephone exchange privileges
TELEPHONE: are only available in states where exchanges from one CoreFunds portfolio to another can lawfully be
Call CoreFunds made.
Investor Services Redemption orders may be placed by telephone. Neither the Fund nor the Transfer Agent will be
(1-800-355-CORE) responsible for any loss, liability, cost or expense for acting upon wire instructions or upon
telephone instructions that it reasonably believes to be genuine. The Fund and the Transfer Agent
will each employ reasonable procedures to confirm that instructions communicated by telephone are
genuine. To ensure the authenticity of redemption or exchange instructions received by telephone,
the Transfer Agent examines each shareholder request by verifying the 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. If
reasonable procedures are not employed, the Fund and the Transfer Agent may be liable for any losses
due to unauthorized or fraudulent telephone transactions.
</TABLE>
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32 Shareholder Services
<PAGE>
- --------------------------------------------------------------------------------
/X/ COREFUND
<TABLE>
<S> <C>
EXECUTION OF Telephone exchange requests received prior to 12:00 p.m. for a Fund, on any business day will be
EXCHANGE processed on the date of receipt. 'Processing' a telephone exchange request means that shares in the
REQUESTS fund from which the shareholder is making an exchange will be redeemed at the net asset value per
share determined as of 12:00 p.m. for a 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. for an Equity or Fixed Income Fund
(12:00 p.m. for a Money Market Fund) on such business day. Telephone exchange requests received
after 12:00 p.m. for a 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.
----------------------------------------------------------------------------------------------------
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.
</TABLE>
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Shareholder Services 33
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES GUIDE (continued)
<TABLE>
<S> <C>
/ / 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 Fund Resources.
----------------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------------
</TABLE>
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34 Shareholder Services
<PAGE>
NOTES
<PAGE>
/X/
COREFUND(R)
COREFUNDS, INC.
/X/
DIRECTORS
Emil J. Mikity, Chairman
George H. Strong
Erin Anderson
Cheryl H. Wade
Thomas J. Taylor
OFFICERS
David G. Lee, President
James W. Jennings, Secretary
INVESTMENT ADVISER
CoreStates Investment Advisers, Inc.
Philadelphia, PA 19101
ADMINISTRATOR
SEI Fund Resources
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
Investment Adviser
[LOGO]
CORESTATES
CORESTATES
INVESTMENT ADVISERS
For current performance, purchase, redemption and
other information, call 1-800-355-CORE (2673)
COR-F-051-02
Class Y and Class C Shares
Prospectus
November 1, 1996
/X/
Elite Cash Reserve
Elite Government Reserve
Elite Treasury Reserve
Elite Tax-Free Reserve
<PAGE>
COREFUNDS, INC.
Statement of Additional Information
Dated November 1, 1996
TABLE OF CONTENTS
THE COMPANY................................................................. 2
ADDITIONAL INVESTMENT POLICIES.............................................. 3
ADDITIONAL INVESTMENT RESTRICTIONS.......................................... 23
TEMPORARY INVESTMENTS....................................................... 28
SPECIAL CONSIDERATIONS...................................................... 29
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.............................. 30
NET ASSET VALUE............................................................. 31
DIVIDENDS................................................................... 32
TOTAL RETURN................................................................ 33
YIELDS...................................................................... 36
ADDITIONAL INFORMATION CONCERNING TAXES..................................... 39
DESCRIPTION OF SHARES....................................................... 42
DIRECTORS AND OFFICERS...................................................... 44
PRINCIPAL HOLDERS OF SECURITIES............................................. 46
INVESTMENT ADVISER.......................................................... 58
SUB-ADVISERS................................................................ 60
PORTFOLIO TRANSACTIONS...................................................... 62
ADMINISTRATOR............................................................... 64
DISTRIBUTOR................................................................. 65
CUSTODIAN AND TRANSFER AGENT................................................ 67
EXPENSES.................................................................... 67
LEGAL COUNSEL............................................................... 68
MISCELLANEOUS............................................................... 68
APPENDIX.................................................................... 69
FINANCIAL STATEMENTS........................................................ 72
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, 1996 and is incorporated by reference in its
entirety into those Prospectuses. Because this Statement of Additional
Information is not itself a Prospectus, no investment in shares of 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.
<PAGE>
THE COMPANY
CoreFunds, Inc. (the "Company") is an open-end management investment
company presently offering shares in twenty diversified and non-diversified
portfolios (the "Fund" or "Funds"). The Company is authorized to offer separate
series of shares of beneficial interest (the "Shares") of each Fund.
Shareholders may purchase Shares through three separate classes, Class Y, Class
A and Class C, which provide for variations in distribution costs, transfer
agent fees, voting rights, and dividends. Except for these differences between
Class Y, Class A and Class C 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 Classes of Shares 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.
Equity Funds: Taxable Money Market Funds:
- Growth Equity Fund - Cash Reserve
- Core Equity Fund - Treasury Reserve
- Equity Index Fund - Elite Cash Reserve
- International Growth Fund - Elite Government Reserve*
- Balanced Fund - Elite Treasury Reserve
- Special Equity Fund
Fixed Income Funds: Tax-Exempt Money Market Funds:
- Short-Intermediate Bond Fund - Tax-Free Reserve
- Bond Fund - Elite Tax-Free Reserve
- Short Term Income Fund
- Government Income Fund
- Intermediate Municipal Bond Fund
- Pennsylvania Municipal Bond Fund
- New Jersey Municipal Bond Fund
- Global Bond Fund
- ----------
* This Fund has not yet commenced operations
Sale of Shares
Class Y 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.
Class A and Class C 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.
B-2
<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.
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
B-3
<PAGE>
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-third of the Commonwealth's total land area devoted to cropland, pasture and
farm woodlands.
In 1995, the population of Pennsylvania was 12.07 million people.
According to the U.S. Bureau of the Census, Pennsylvania experienced a slight
increase from the 1986 estimate of 11.78 million. Pennsylvania has a high
proportion of persons 65 or older. The Commonwealth is highly urbanized, with
79% 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 44% 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 7.0
percent in 1993. Seasonally adjusted data for March 1996, the most recent month
for which data is available, shows an unemployment rate of 5.6%, the same rate
as that for the United States.
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
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
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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 to 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 (34.1% of General Fund
revenues in fiscal 1995), the 2.8% personal income tax (31.3% of General Fund
revenues in fiscal 1995) and the 9.99% corporate net income tax (11.7% of
General Fund revenues in fiscal 1995). 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 ($6.7
billion of fiscal 1995 expenditures, the projected $6.9 billion of the fiscal
1996 budget and the proposed almost $7.0 billion of the fiscal 1997 budget) and
public health and human services ($12.4 billion of fiscal 1995 expenditures, the
projected $13.1 billion of the fiscal 1996 budget and the proposed decreases of
the fiscal 1997 $12.9 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. The fund balance for the governmental fund
types, as restated, has increased during the 1993, 1994 and 1995 fiscal years.
At June 30, 1995, the fund balance totaled $1,927.6 million including an
unreserved-undesignated fund balance of $104.8 million.
General Fund: Financial Condition/Results of Operations.
Five Year Overview (GAAP Basis). For the five year period fiscal 1991
through fiscal 1995, total revenues and other sources rose at a 9.1 percent
average annual rate while total expenditures and other uses grew by 7.4 percent
annually. Over two-thirds of the increase in total revenues and other sources
during this period occurred during fiscal 1992 when a $2.7 billion tax increase
was enacted to address a fiscal 1991 budget deficit and to fund increased
expenditures for fiscal 1992. For the four year period fiscal 1992 through
fiscal 1995, total revenues and other sources increased at an annual average of
3.3 percent, less than one-half the rate of increase for the five year period
beginning with fiscal 1991. This slower rate of growth was due, in part, to tax
rate reductions and other tax law revisions that restrained the growth of tax
receipts for fiscal years 1993, 1994 and 1995.
Expenditures and other uses followed a pattern similar to that for
revenues, although with smaller growth rates, during the fiscal 1991 through
fiscal 1995 period. Program areas having the largest increase in costs for the
fiscal 1991 to fiscal 1995 period were for protection of persons and property,
due to an expansion of state prisons, and for public health and welfare, due to
rising caseloads, program utilization and increased prices. Recently, efforts to
restrain the
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rapid expansion of public health and welfare program costs have resulted in
expenditure increases at or below the total rate of increase for total
expenditures in each fiscal year. For the period fiscal 1992 through fiscal
1995, public health and welfare costs increased by an average annual rate of 3.5
percent, well below the 5.2 percent average for total expenditures and other
uses during the same period.
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. The fund balance for June 30, 1994,
was restated for the fiscal 1995 financial statements. That restatement totaled
$116.7 million to recognize previously unreported revenues and expenditures for
fiscal 1994. The fund balance for June 30, 1994, as restated, was $776.3 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 (GAAP Basis). Revenues and other sources totaled
$23,771.6 million, an increase of $1,135.0 million (0.5 percent) over the prior
fiscal year. The largest increase was $817.9 million in taxes which represents a
5.6 percent increase over taxes in the prior fiscal year. Expenditures and other
uses rose by $1,364.1 million to $23,821.4 million, an increase over the prior
fiscal year of 6.1 percent. Consequently, an operating deficit of $49.8 million
was recorded for the fiscal year and led to a decline in fund balance to $688.3
million at June 30, 1995. Two items predominately contributed to the fund
balance decline. First, a more comprehensive procedure was used for fiscal 1995
to compute the liabilities for certain public welfare programs leading to an
increase for the year-end accruals. Second, a change to the methodology to
calculate the year-end accrual for corporate tax payables increased the tax
refund liability by $72 million for the 1995 fiscal year when compared to the
previous fiscal year.
Proposed Fiscal 1996 Budget (Budgetary Basis). The approved fiscal 1996
budget provides for $16,165.7 million inappropriations from commonwealth funds,
an increase of 2.7 percent over appropriations, including supplemental
appropriations, for fiscal 1995. The budget includes a reform of the
state-funded public assistance
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program that added certain categories of eligibility to the program 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.
The fiscal 1996 budget is based on anticipated commonwealth revenues,
net of enacted tax changes, of $16,268.7 million, an increase over actual fiscal
1995 commonwealth revenues of 0.3 percent. Excluding the estimated effects of
the tax changes enacted in 1994 and 1995, commonwealth revenues for fiscal 1996
are estimated to increase by approximately 2.9 percent. The fiscal 1996 revenue
estimate is base on a forecast of the national economy for gross domestic
product growth to slow from 4.1 percent in 1994 to an average annual rate for
1995 of 2.4 percent and then to 1.3 percent in 1996.
Tax changes enacted with the fiscal 1996 budget totaled a net reduction
of $282.9 million, representing an approximate 1.7 percent of base revenues. The
largest dollar value changes were in the corporate net income tax where the
scheduled 1997 reduction of the tax rate to 9.99 percent was accelerated to the
1995 tax year; a double-weighting was provided for the sales factor of the
corporate net income apportionment calculation; and the maximum annual allowance
for the net operating loss deduction was increased from $500 thousand to $1
million. The fiscal 1996 cost of these corporate income tax changes is estimated
to be $210.8 million representing approximately 75 percent of the fiscal year's
tax reduction. Other major components of the tax reduction include a $12.1
million decrease for the capital stock and franchise tax from an increase in the
basic exemption; $24.7 million from the repeal of the tax on annuities; and
$27.9 million from an acceleration of the scheduled phase-out of the inheritance
tax on transfers of certain property to a surviving spouse. A 90 day amnesty
program was also authorized in the tax bill. The amnesty program was available
to taxpayers from October 1995 through January 1996. Tax and interest revenues
received from the tax amnesty program after payment of administration costs were
credited to the appropriate fund. Receipts credited to the General Fund in
excess of $67 million, plus any shortfall in delinquent tax collections below
those in fiscal 1995, are to be deposited into a restricted account in the
General Fund for later distribution.
Increases in authorized spending for fiscal 1996 emphasize education.
Appropriations for the basic subsidy for public schools were increased $143
million representing a 4.4 percent increase. This increase reversed a four-year
trend of a declining budget share for education. A limited program to permit
certain residents to choose the school district or private school to provide
their children's education was funded in the budget, but enabling legislation
for the program has yet to be enacted. The budget also contemplates several
changes to certain public welfare programs. The enacted budget also included
most of the Governor's proposed consolidation and elimination of several
organizations and or appropriations. The consolidated programs were absorbed
within existing organizations. Savings of $5.2 million are anticipated to result
from these consolidations and eliminations.
Revised estimates for the fiscal 1996 budget were included in the
Governor's February 1996 submission of his fiscal 1997 budget proposal.
Supplemental appropriations funding needs were recommended totaling $54.2
million, representing 0.3 percent of approved appropriations for fiscal 1996.
The majority of the supplemental appropriations are for the Department of
Corrections to meet the additional operational costs arising from a larger
inmate population than budgeted, and for the Department of Education to meet
local school subsidy costs which were underestimated in the adopted budget. All
anticipated supplemental appropriation needs for the Department of Public
Welfare are expected to be met from a re-allocation of appropriation authority
within the Department. Funding for the requested supplemental appropriations
will be provided by appropriation lapses anticipated during the fiscal year.
Appropriation lapses totaling $50 million from prior fiscal years'
appropriations and $90 million from current fiscal year appropriations are
expected. The $140 million total appropriation lapses estimated for fiscal 1996
compares to actual appropriation lapses totaling $205 million and $194 million
during fiscal 1995 and fiscal 1994 respectively. The General Assembly has not
yet approved the requested supplemental appropriations.
Commonwealth revenues for fiscal 1996 are anticipated to be $2.5
million (less than 0.1 percent) over the official estimate of revenues for the
fiscal year. Within the revised estimate, receipts from the corporate net income
tax
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and interest earnings are anticipated to exceed the official estimate while
receipts from the sales and use tax, the personal income tax and the gross
receipts tax are anticipated to fall below their official estimate levels.
Fiscal 1997 Proposed Budget: In February 1996, the Governor presented
his proposed fiscal 1997 budget to the General Assembly. Proposed appropriations
from General Fund commonwealth revenues totals $16,189.9 million, a reduction
from the estimated $16,219.9 million (including proposed supplemental
appropriations) for fiscal 1996. The proposed reductions represents a decline of
approximately 0.2 percent in appropriations from the prior fiscal year. Revenue
receipts are estimated to increase by $403.9 million, or 2.5 percent, over
anticipated receipts for fiscal 1996. The anticipated increased revenues,
together with the projected $140 million of appropriation lapses during fiscal
1996 and the proposed draw-down of approximately $95 million of surplus provide
the funding sources for the proposed budget. The proposed drawdown of the fiscal
1996 unappropriated surplus produces a projected 1997 fiscal year end surplus of
under $5 million, without any consideration of possible appropriation lapses for
fiscal 1997.
The decline in appropriation authority over the prior fiscal year in
the proposed budget relies on several program changes. The largest changes
proposed are $329 million of cost containment efforts in public health and
welfare programs. The largest savings are generated by proposed changes in
eligibility criteria. Savings of $249 million are projected from the elimination
of medical assistance benefits for able-bodied adult without children and $40
million from tightened standards of employability for those collecting benefits.
Other proposed changes, including changes contained in proposed federal welfare
reform measures, provide an additional $39 million of budgetary savings. Program
reductions are also planned for the residential portion of the mental
health/mental retardation program that could involve a limited number of staff
cuts at state institutions. The budget also relies on certain provisions of
proposed federal welfare reforms. In particular, an increase in the proportion
of federal funding for medical assistance is assumed which is anticipated to
provide $261.8 million of additional federal funds and a commensurate reduction
in required state funds. Other significant cost restraints include reductions to
appropriations for the state-aided colleges and universities and no increases
for the state-related colleges and universities. Funds for basic education
programs to local school districts are proposed to increase slightly. The
largest increase, $33.3 million, is proposed for an initiative to improve the
use of technology in learning. A restructuring of the economic development
programs and incentives of the Commonwealth are also proposed to combine and
improve the delivery of such programs. A proposed securitization of current
loans held by the Sunny Day Fund is budgeted to provide a portion of the initial
capitalization for the realigned programs. The current trend of escalating costs
of the corrections program continues in this budget. An amount of $80.3 million
is included to meet the increased costs of the rising prison population.
The proposed fiscal 1997 budget includes tax reductions totaling $60.2
million. Included in the proposed reductions are a 0.25 mill reduction to the
tax rate for the capital stock and franchise taxes, an exemption of certain
computer services from the sales and use tax, and a $1,000 per job tax credit
for newly created jobs. All require legislative enactment.
The General Assembly is considering the Governor's proposed budget in
committee deliberations and floor action on implementing legislation. The
various legislative bills required to implement the proposed budget have begun
to move through the legislative process. However, legislation enacting medical
assistance program changes estimated in the proposed budget to produce
approximately $249 million in savings was approved by the Senate but rejected by
the House of Representatives. Delay in the enactment of the proposed changes
beyond March 1996 will impede timely implementation of the proposed changes and,
in the absence of other budgetary measures, result in higher spending than
anticipated in the proposed fiscal 1997 budget. Appropriations committees of the
General Assembly are considering 1997 fiscal year budget appropriations, and
upon committee approval of appropriation bills, will be considered by each
house. The General Assembly may change, eliminate or add amounts and items to
the proposed budget submitted by the Governor and there can be no assurance that
the budget, as proposed by the Governor will be enacted into law.
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 the preceding five
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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 $5,045.4 million at June 30, 1995, a
decrease of $30.4 million from June 30, 1994. Over the 10-year period ended June
30, 1995, total outstanding general obligation debt increased at an annual rate
of 1.1% and for the five years ended June 30, 1994, at an annual rate of 1.7%.
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 $500.0 million of tax anticipation notes
for the account of the General Fund in fiscal 1996, all of which matured on June
30, 1996, and will be paid from fiscal 1996 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. In addition, Pennsylvania may choose to take action
to financially assist these organizations. The following agencies had debt
currently outstanding as of December 31, 1995: Delaware River Joint Toll Bridge
Commission ($55.1 million), Delaware River Port Authority ($185.5 million),
Pennsylvania Economic Development Financing Authority ($1,050.8 million),
Pennsylvania Energy Development Authority ($121.0 million), Pennsylvania Higher
Education Assistance Agency ($1,408.8 million), Pennsylvania Higher Educational
Facilities Authority ($2,115.1 million), Pennsylvania Industrial Development
Authority ($344.8 million), Pennsylvania Infrastructure Investment Authority
($213.1 million), Pennsylvania Turnpike Commission ($1,228.7 million),
Philadelphia Regional Port Authority ($62.6 million) and the State Public School
Building Authority ($316.2 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 ($2,164.8 million of
revenue bonds outstanding as of December 31, 1995), 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 ($1.49 million of the loan principal was outstanding
as of December 31, 1995). 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 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
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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
$100,000 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 May 30, 1996, to consider,
inter alia, the report of the Governor's Commission on Public School Finance and
the course of future proceedings including trial; (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 December 15, 1995, Envirotest Systems Corporation, Envirotest Partners
(successor to Envirotest/Synterra Partners) and the Commonwealth of Pennsylvania
entered into a Settlement Agreement pursuant to which the parties settled all
claims which Envirotest might have had against the Commonwealth arising from the
suspension of the emissions testing program. Under the Agreement, Envirotest is
to receive $145 million, with interest at 6% per annum, payable $25 million in
1995, $40 million each in 1996, 1997, and 1998. An additional $15 million may be
required to be paid in 1998, depending upon the results of property liquidations
by Envirotest.
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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. At this time,
Philadelphia is operating under a five year fiscal plan approved by PICA on
April 17, 1995.
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, 1995, showed a
surplus of approximately $80.5 million, up from approximately $1.54 million as
of June 30, 1994.
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 over
one-fifth 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 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 has the Atlantic sea-shore on
the east and lakes and mountains in the north and northwest, which provide
recreation for residents as well as for out-of-state visitors. In 1976, voters
approved casino gambling for Atlantic City, which has become an important State
tourist attraction.
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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. Since then, the unemployment rate fell to an average
of 6.4% during the first ten months of 1995. The average annualized unemployment
rate remained at 6.4% for the fourth quarter of 1995.
Financial Accounting. The State prepares its financial statements on a
"modified accrual" basis utilizing 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,
Component Units-Authorities Funds, College and University Funds, General Fixed
Asset Account Group and its General Long-Term Debt Account Group and its
component units.
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. The appropriations act provides the basic
framework for the operation of 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.
Component Unit-Authorities 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.
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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.
During the course of the fiscal year, the Governor may take steps to
reduce State expenditures if it appears that revenues have fallen below those
originally anticipated. There are additional means by which the Governor may
ensure that the State 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.
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, 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).
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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, 1995, the
outstanding general obligation bonded indebtedness of the State was
approximately $3.7 billion. The amount provided by the General Fund to the Debt
Service Fund for interest and principal payments for the fiscal year ended June
30, 1995 was $103.5 million. This is reflected in the Statement of Revenues,
Expenditures and Changes in Fund Balances as a Transfer to other funds in the
General Fund and a Transfer from other funds in the Debt Service Fund.
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 balances 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. It is anticipated that this program will be continued in Fiscal
Year 1997. 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 the 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 totaled $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, 1995, 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 $240.6 million have been retired and $33.4 million are still outstanding.
As of June 30, 1995, $32.8 million of county college bonds or notes are
outstanding. In addition to these acts, there is legislation which establishes a
school bond reserve within the constitutionally dedicated fund for the Support
of Free Public Schools.
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 State entities. The State has periodically provided the South Jersey
Port Corporation with funds to cover all debt service and property tax
requirements when 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, 1995, outstanding moral obligation indebtedness totalled $735.9
million, with an approximate maximum annual debt service Subject to Moral
Obligation of $67.9 million.
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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 certain amounts
prescribed 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. On May 30, 1995,
the State Legislature amended the New Jersey Transportation Trust Fund Act of
1984 to provide, among other things, for (i) the funding of transportation
projects through June 30, 2000, (ii) the issuance of debt in an aggregate
principal amount in excess of the statutory debt limitation in effect prior to
the enactment of the 1995 Amendments, (iii) an increase in the amount of
revenues available to the Authority and (iv) broadening the scope of
transportation projects.
Pursuant to the Act, the principal amount of the Authority's
bonds, notes or other obligations which may be issued in any fiscal year
generally may not exceed $7.0 million plus amounts carried over from prior
fiscal years. 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. Amounts outstanding as of
June 30, 1995 totaled $615.1 million for this organization.
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.
Negotiations have commenced with three units of State Police employees,
representing approximately 2,400 Troopers, Sergeants and Lieutenants whose
three-year contract expired 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 "Director"). This process ensures 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. The director also
oversees changes to local budgets after adoption as permitted by law, and
enforces regulations pertaining to execution of adopted budgets and financial
administration. In addition to the exercise of regulatory and oversight
functions, the Division
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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.
(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
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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
$82.5 million for claims pending as of December 31, 1995. 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) An individual plaintiff 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 filed an appeal and the State
has responded. On June 12, 1996, the Appellate Division affirmed the
dismissal. The time to appeal the matter on certification to the
Supreme Court has passed.
(i) Fifteen 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 court heard
oral argument on May 30, 1996. On July 15, 1996, in a unanimous
decision of the Appellate Division, the court affirmed the
Commissioner's decision not to share the federal funds with the
counties. Additionally, the court held that it could not provide
equitable relief to the counties because the Legislature chose not to
direct the Commissioner to share the funds and therefore separation of
powers precluded the relief.
(j) 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. The State intends to vigorously defend these suits.
(k) 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. 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. Discovery is proceeding in this matter.
(l) 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.
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(m) A complaint was filed in Tax Court on March 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. The Fixed Income and Tax-Exempt Money Market
Funds 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.
- Short-Intermediate Bond Fund -
- Elite Government Reserve -
- Short Term Income Fund -
- Government Income Fund -
- Bond Fund -
GNMAs
These Funds 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
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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 -
- Short Intermediate Bond Fund -
- Global Bond Fund -
- Short-Term Income Fund-
- Pennsylvania Municipal Bond Fund -
- New Jersey Municipal Bond Fund -
- Tax-Free Reserve -
Puts
Intermediate Municipal Bond Fund, Short-Intermediate Bond Fund, Global Bond
Fund, Short Term Income 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 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
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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.
- Core Equity Fund -
- Special Equity Fund -
- International Growth Fund -
- Growth Equity Fund -
Convertible Securities
Some securities purchased by these Funds (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.
- Core Equity Fund -
- Special Equity Fund -
- 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 on securities for, among other things, the purposes of hedging
against market risks related to the Fund's Portfolio securities, remaining fully
invested, and reducing transaction costs and currency fluctuations. In addition,
as stated in the Prospectus, Core Equity Fund and Special Equity Fund may
purchase or sell options on securities on a hedged and unhedged basis for, among
other things, hedging against market risks, to remain fully invested, reduce
transaction costs and increase income.
Futures. 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 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
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<PAGE>
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. These Funds
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") 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. The International
Growth and Global Bond Funds 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 intended for purchase.
The use of such futures contracts is an effective way in which the
International Growth and Global Bond Funds may control the exposure of its
income to market fluctuations. While these Funds 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.
Options. The Core Equity, Special Equity, International Growth and
Global Bond Funds may also buy and sell put and call options with respect to
securities. Different uses of options have different risk and return
characteristics. Generally, purchasing put options and writing call options are
strategies designed to protect against falling securities prices and can limit
potential gains if prices rise. Purchasing call options and writing put options
are strategies whose returns tend to rise and fall together with securities
prices and can cause losses if prices fall. If securities prices remain
unchanged over time option writing strategies tend to be profitable, while
option buying strategies tend to decline in value.
These Fund's may write (i.e. sell) covered put and call options with
respect to the Fund's portfolio securities. By writing a call option, a Fund
becomes obligated during the term of the option to deliver the securities
underlying the option upon payment of the exercise price if the option is
exercised. By writing a put option, a Fund becomes obligated during the term of
the option to purchase the securities underlying the option at the exercise
price if the option is exercised.
"Writing" options means that so long as a Fund is obligated as the
writer of a call option, it will cover the underlying securities subject to the
option (or comparable securities satisfying the cover requirements of securities
exchanges). Apart from owning the underlying security, a Fund will be considered
"covered" with respect to a put option, if it deposits and maintains with its
custodian liquid assets having a value equal to or greater than the exercise
price of the option.
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Through the writing of call or put options, a Fund may obtain a greater
current return than would be realized on the underlying securities alone. The
Funds receive premiums from writing call or put options, which they retain
whether or not the options are exercised. By writing a call option, a Fund might
lose the potential for gain on the underlying security while the option is open,
and by writing a put option a Fund might become obligated to purchase the
underlying security for more than its current market price upon exercise.
The Fund may purchase put options in order to protect portfolio
holdings in an underlying security against a decline in the market value of such
holdings. Such protection is provided during the life of the put because a Fund
may sell the underlying security at the put exercise price, regardless of a
decline in the underlying security's market price. Any loss to a Fund is limited
to the premium paid for, and transaction costs paid in connection with, the put
plus the initial excess, if any, of the market price of the underlying security
over the exercise price. However, if the market price of such security
increases, the profit a Fund realizes on the sale of the security will be
reduced by the premium paid for the put option less any amount for which the put
is sold.
A Fund may wish to protect certain portfolio securities against a
decline in market value at a time when no put options on those particular
securities are available for purchase. The Fund may therefore purchase a put
option on securities other than those it wishes to protect even though it does
not hold such other securities in its portfolio. While the Fund will only
purchase put option on securities where, in the opinion of the Adviser, changes
in the value of the put option should generally offset changes in the value of
the securities to be hedged, the correlation will be less than in transactions
in which the Funds purchase put options on underlying securities they own.
The Funds may also purchase call options. During the life of the call
option, the Fund may buy the underlying security at the call exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, a Fund will reduce any
profit it might have realized had it bought the underlying security at the time
it purchased the call option by the premium paid for the call option and by
transaction costs.
The securities exchanges have established limitations governing the
maximum number of options which may be written or held by an investor or group
of investors acting in concert. These position limits may restrict a Fund's
ability to purchase or sell options on a particular security. Similarly, the
securities exchanges have also established limitations governing the maximum
number of options which may be exercised by an investor or group of investors
acting as concert. It is possible that with respect to a Fund, the Fund and
other clients of the Adviser or any Sub-Adviser, may be considered to be a group
of investors acting in concert. Thus, the number of options which a Fund may
hold or write may be affected by the options transactions of other investment
advisory clients of the Adviser or of any Sub-Advisers.
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
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<PAGE>
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, 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. In
addition, the Core Equity and Special Equity Funds are not subject to
Restriction #4.
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.
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<PAGE>
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 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), except that the Global Bond Fund
may engage in future contracts.
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 Short 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.
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<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.
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<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.
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<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.
- Core Equity Fund -
- Special Equity Fund -
- Bond Fund -
- Balanced Fund -
- Short Term Income Fund -
- Government Income Fund -
- Intermediate Municipal Bond 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.
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<PAGE>
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).
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
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<PAGE>
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.
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 investment-grade fixed-income debt securities (such as bonds and
notes) issued by banks, corporations, and the U.S. Government or governmental
entities. The Equity Funds anticipate that their investments in investment-grade
debt securities will be generally in those with the most active trading markets.
See the attached Appendix for a description of investment-grade securities
ratings.
In addition, International Growth Fund may invest in fixed-income
investment-grade debt securities of foreign governments or foreign governmental
entities. See the attached Appendix for a description of investment-grade
securities ratings.
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 obligation of the issuer and
B-29
<PAGE>
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-30
<PAGE>
Rights of Accumulation
In calculating the sales charge rates applicable to current purchases
of Class A 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 Class A 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 Class A
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
B-31
<PAGE>
Money Market Fund will neither purchase any security with a remaining maturity
of more than 397 days (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, Core Equity, Special 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 the International Growth Fund is to generally declare and
distribute dividends from its net investment income periodically. Distributions
of any net realized capital gains will be made at least annually.
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-32
<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 Short Intermediate Bond, Bond, Short-Term Income,
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
From time to time, the Funds may advertise total return on an "average
annual total return" basis and on an "aggregate total return" basis for various
periods. Average annual total return reflects the average annual percentage
change in the value of an investment in a Fund over the particular measuring
period. Aggregate total return reflects the cumulative percentage change in
value over the measuring period. Aggregate total return is computed according to
a formula prescribed by the SEC. The formula can be expressed as follows: P (1 +
T)(n) = ERV, where P = a hypothetical initial payment of $1,000; T = average
annual total return; n = number of years; and ERV = ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the designated time period
as of the end of such period or the life of the fund. The formula for
calculating aggregate total return can be expressed as (ERV/P)-1.
The calculation of total return assumes reinvestment of all dividends
and capital gain distribution on the reinvestment dates during the period and
that the entire investment is redeemed at the end of the period. In
B-33
<PAGE>
addition the maximum sales charge for each Fund is deducted from the initial
$1000 payment. Total return may also be shown without giving effect to any sales
charges.
The Funds' performance may from time to time be compared to other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical
Services) or financial and business publications and periodicals, broad groups
of comparable mutual funds, unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs or to other investment alternatives. The Funds may quote
Morningstar, Inc., a service that ranks mutual funds on the basis of
risk-adjusted performance. The Funds may quote Ibbotson Associates of Chicago,
Illinois, which provides historical returns of the capitals markets in the U.S.
The Funds may use long term performance of these capital markets to demonstrate
general long-term risk vs. reward scenarios and could include the value of a
hypothetical investment in any of the capital markets. The Funds may also quote
financial and business publications and periodicals as they relate to fund
management, investment philosophy, and investment techniques.
The Funds may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
Performance
The performance results listed below refer to results on Class Y Shares
and Class A Shares (where applicable) of the Funds.
<TABLE>
<CAPTION>
Average Annual Total Return
--------------------------------------------------------------------
Since
Fund Class One Year Five Year Ten Year Inception
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Equity Index Fund Y 25.69% 14.76% 12.42% 12.42%
------------------------------------------------------------------------------------------
A ** ** ** **
- --------------------------------------------------------------------------------------------------------------------
Core Equity Fund Y 27.88% 16.17% ** 15.81%
------------------------------------------------------------------------------------------
A without Load 27.78% 16.13% ** 15.78%
------------------------------------------------------------------------------------------
A with Load 23.61% 15.37% ** 15.17%
- --------------------------------------------------------------------------------------------------------------------
Special Equity Fund Y 36.21% ** ** 17.04%
------------------------------------------------------------------------------------------
A without Load 36.05% ** ** 16.98%
------------------------------------------------------------------------------------------
A with Load 31.58% ** ** 15.29%
- --------------------------------------------------------------------------------------------------------------------
Growth Equity Fund Y 31.36% ** ** 9.79%
------------------------------------------------------------------------------------------
A without Load 31.00% ** ** 12.61%
------------------------------------------------------------------------------------------
A with Load 26.69% ** ** 11.54%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
B-34
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
-------------------------------------------------------------------
Since
Fund Class One Year Five Year Ten Year Inception
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
International Growth Y 16.72% 9.75% ** 8.68%
Fund ------------------------------------------------------------------------------------------
A without Load 16.54% 9.62% ** 8.58%
------------------------------------------------------------------------------------------
A with Load 12.77% 8.90% ** 8.01%
- -------------------------------------------------------------------------------------------------------------------
Balanced Fund Y 18.41% ** ** 10.77%
-----------------------------------------------------------------------------------------
A without Load 18.13% ** ** 10.20%
-----------------------------------------------------------------------------------------
A with Load 14.31% ** ** 9.09%
- -------------------------------------------------------------------------------------------------------------------
Short-Intermediate Y 5.05% ** ** 5.26%
Bond Fund -----------------------------------------------------------------------------------------
A without Load 4.79% ** ** 4.60%
-----------------------------------------------------------------------------------------
A with Load 1.39% ** ** 3.60%
- -------------------------------------------------------------------------------------------------------------------
Bond Fund Y 4.38% 7.34% ** 7.78%
-----------------------------------------------------------------------------------------
A without Load 4.01% 7.28% ** 7.73%
-----------------------------------------------------------------------------------------
A with Load 0.64% 6.57% ** 7.16%
- -------------------------------------------------------------------------------------------------------------------
Short Term Income Y 4.86% ** ** 5.07%
Fund -----------------------------------------------------------------------------------------
A without Load 4.55% ** ** 4.61%
-----------------------------------------------------------------------------------------
A with Load 1.12% ** ** 1.54%
- -------------------------------------------------------------------------------------------------------------------
Government Income Y 4.09% ** ** 4.91%
Fund -----------------------------------------------------------------------------------------
A without Load 3.73% ** ** 4.38%
-----------------------------------------------------------------------------------------
A with Load 0.36 ** ** 3.29%
- -------------------------------------------------------------------------------------------------------------------
Intermediate Y 4.74% ** ** 3.58%
Municipal Bond Fund -----------------------------------------------------------------------------------------
A without Load 4.48% ** ** 3.32%
-----------------------------------------------------------------------------------------
A with Load 1.09% ** ** 2.23%
- -------------------------------------------------------------------------------------------------------------------
Pennsylvania Y 6.02% ** ** 6.42%
Municipal Bond Fund ------------------------------------------------------------------------------------------
A without Load 5.76% ** ** 6.16%
------------------------------------------------------------------------------------------
A with Load 2.33% ** ** 4.50%
- -------------------------------------------------------------------------------------------------------------------
New Jersey Y 5.28% ** ** 5.89%
Municipal Bond Fund ------------------------------------------------------------------------------------------
A without Load 4.93% ** ** 5.57%
------------------------------------------------------------------------------------------
A with Load 1.52% ** ** 3.92%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
B-35
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
-------------------------------------------------------------------
Since
Fund Class One Year Five Year Ten Year Inception
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Global Bond Fund Y 8.00% ** ** 3.05%
- -------------------------------------------------------------------------------------------------------------------
A without Load 7.74% ** ** 2.77%
------------------------------------------------------------------------------------------
A with Load 4.27% ** ** 1.42%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
** Not in operation during period
YIELDS
- Taxable Money Market Funds -
- Tax-Exempt Money Market Funds -
In General
From time to time, the Funds may advertise their "current yield" and
"effective compound yield". Both yield figures are based on historical earnings
and are not intended to indicate future performance. The "yield" of the Funds
refers to the income generated by an investment in a Fund over a seven-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 week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a 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.
Current or Seven-Day Yield
The current yield of the Funds will be calculated daily based upon the
seven days ending on the date of calculation ("base period"). The yield is
computed by determining the net change (exclusive of capital changes) in the
value of a hypothetical pre-existing shareholder account having a balance of one
share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing such net change by
the value of the account at the beginning of the same period to obtain the base
period return and multiplying the result by (365/7). Realized and unrealized
gains and losses are not included in the calculation of the yield. The effective
compound yield of the Funds is determined by computing the net change, exclusive
of capital changes, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting
1 from the result, according to the following formula: Effective Yield = (Base
Period Return + 1) 365/7) - 1. The current and the effective yields reflect the
reinvestment of net income earned daily on portfolio assets.
The Tax-Exempt Money Market Funds may also calculate its tax equivalent yield as
described below under "Taxable Equivalent Yield".
B-36
<PAGE>
Taxable Equivalent Yield
For a Tax-Exempt Money Market Fund, the taxable equivalent yield is
determined by dividing that portion of the Fund's yield which is tax-exempt by
one minus a stated federal income tax rate and adding the product to that
portion, if any, of the Fund's yield that is not tax-exempt (Tax equivalent
yields assume the payment of federal income taxes at a rate of 39.6%).
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.
For the 7-day period ended June 30, 1996, the Money Market Funds'
current, effective and tax-equivalent yields were as follows:
<TABLE>
<CAPTION>
Fund Class Current Yield Effective Yield Tax-Equivalent Yield
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Treasury Reserve Y 4.84% 4.95% N/A
----------------------------------------------------------------------------------
C 4.59% 4.69% N/A
- ---------------------------------------------------------------------------------------------------------------------
Cash Reserve Y 4.88% 5.00% N/A
-----------------------------------------------------------------------------------
C 4.63% 4.73% N/A
- ---------------------------------------------------------------------------------------------------------------------
Tax-Free Reserve Y 3.06% 3.10% 5.07%
-----------------------------------------------------------------------------------
C 2.81% 2.85% 4.65%
- ---------------------------------------------------------------------------------------------------------------------
Elite Cash Reserve Y 5.22% 5.36% N/A
-----------------------------------------------------------------------------------
C -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Elite Treasury Reserve Y 5.18% 5.32% N/A
-----------------------------------------------------------------------------------
C -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Elite Tax-Free Reserve Y 3.32% 3.37% 5.50%
-----------------------------------------------------------------------------------
C -- -- --
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
- Equity Funds-
-Fixed Income Funds -
Thirty-day Yield
The Equity and Fixed Income Funds may advertise a 30-day yield. These
figures will be based on historical earnings and are not intended to indicate
future performance. The yield of these Funds refers to the annualized income
generated by an investment in the Funds over a specified 30-day period. The
yield is
B-37
<PAGE>
calculated by assuming that the income generated by the investment during that
period generated each period over one year and is shown as a percentage of the
investment. In particular, yield will be calculated according to the following
formula:
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
Yields are one basis upon which investors may compare the Funds with other
funds; however, yields of other funds and other investment vehicles may not be
comparable because of the factors set forth above and differences in the methods
used in valuing portfolio instruments.
The yield of these Funds fluctuates, and the annualization of a week's dividend
is not a representation by the Company as to what an investment in the Fund will
actually yield in the future. Actual yields will depend on such variables as
asset quality, average asset maturity, the type of instruments the Fund invests
in, changes in interest rates on money market instruments, changes in the
expenses of the Fund and other factors.
Taxable Equivalent Yield
The tax equivalent yield for the Intermediate Municipal Bond,
Pennsylvania Municipal Bond and New Jersey Municipal Bond Funds is computed by
dividing that portion of the Fund's yield which is tax-exempt by one minus a
stated federal and/or state income tax rate and adding the product to that
portion, if any, of the Fund's yield that is not tax-exempt. (Tax equivalent
yields assume the payment of federal income taxes at a rate of 39.6% and, if
applicable, New Jersey income taxes at a rate of 6.5% and Pennsylvania income
taxes at a rate of 2.8%).
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.
For the 30-day period ended June 30, 1996, the yields on the Funds, other than
the Money Market Funds, were as follows:
<TABLE>
<CAPTION>
Fund Class SEC 30-Day Yield Tax Equivalent Yield
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Equity Y .40% N/A
------------------------------------------------------------------
A .15% N/A
- -------------------------------------------------------------------------------------------------------
Core Equity Y 1.15% N/A
------------------------------------------------------------------
A .87% N/A
- -------------------------------------------------------------------------------------------------------
Special Equity Y 1.03% N/A
------------------------------------------------------------------
A .75% N/A
- -------------------------------------------------------------------------------------------------------
Equity Index Y 1.81% N/A
------------------------------------------------------------------
A ---- ----
- -------------------------------------------------------------------------------------------------------
International Growth Y ---- ----
------------------------------------------------------------------
A ---- ----
- -------------------------------------------------------------------------------------------------------
</TABLE>
B-38
<PAGE>
<TABLE>
<CAPTION>
Fund Class SEC 30-Day Yield Tax Equivalent Yield
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balanced Y 2.90% N/A
------------------------------------------------------------------
A 2.57% N/A
- -------------------------------------------------------------------------------------------------------
Short-Intermediate Bond Y 4.10% N/A
------------------------------------------------------------------
A 3.73% N/A
- -------------------------------------------------------------------------------------------------------
Bond Y 6.63% N/A
------------------------------------------------------------------
A 6.15% N/A
- -------------------------------------------------------------------------------------------------------
Short-Term Income Y 5.69% N/A
------------------------------------------------------------------
A 5.28% N/A
- -------------------------------------------------------------------------------------------------------
Government Income Y 6.51% N/A
------------------------------------------------------------------
A 6.05% N/A
- -------------------------------------------------------------------------------------------------------
Intermediate Municipal Y 6.30% 10.43%
Bond ------------------------------------------------------------------
A 5.81% 9.62%
- -------------------------------------------------------------------------------------------------------
Pennsylvania Municipal Y 5.26% 8.71%
Bond ------------------------------------------------------------------
A 4.50% 7.45%
- -------------------------------------------------------------------------------------------------------
New Jersey Municipal Y 4.28% 7.09%
Bond ------------------------------------------------------------------
A 3.91% 6.47%
- -------------------------------------------------------------------------------------------------------
Global Bond Y 6.19% N/A
------------------------------------------------------------------
A 5.74% N/A
- -------------------------------------------------------------------------------------------------------
</TABLE>
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 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.
B-39
<PAGE>
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.
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.
B-40
<PAGE>
- 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.
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
B-41
<PAGE>
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 30 billion full and fractional shares of Common Stock.
The Company presently consists of twenty-one portfolios, each having an
institutional class of shares (Class Y) and an individual class of shares (Class
A or Class C), as listed below:
Class of Shares # of Shares Fund
- --------------- ----------- ----
Class Y 1 billion Cash Reserve
Class C 1 billion Cash Reserve
Class Y 1.25 billion Treasury Reserve
Class C 1.25 billion Treasury Reserve
Class Y 50 million Equity Fund
Class A 50 million Equity Fund
Class Y 25 million International
Growth Fund
Class A 25 million International
Growth Fund
Class Y 500 million Equity Index Fund
Class A 500 million Equity Index Fund
Class Y 100 million Growth Equity Fund
Class A 100 million Growth Equity Fund
B-42
<PAGE>
Class of Shares # of Shares Fund
- --------------- ----------- ----
Class Y 100 million Short-Intermediate
Bond Fund
Class A 100 million Short-Intermediate
Bond Fund
Class Y 250 million Tax-Free Reserve
Class C 250 million Tax-Free Reserve
Class Y 100 million Balanced Fund
Class A 100 million Balanced Fund
Class Y 100 million Government Income Fund
Class A 100 million Government Income Fund
Class Y 100 million Intermediate Municipal Bond Fund
Class A 100 million Intermediate Municipal Bond Fund
Class Y 25 million Global Bond Fund
Class A 25 million Global Bond Fund
Class Y 100 million Pennsylvania Municipal Bond Fund
Class A 100 million Pennsylvania Municipal Bond Fund
Class Y 100 million New Jersey Municipal Bond Fund
Class A 100 million New Jersey Municipal Bond Fund
Class Y 750 million Elite Cash Reserve
Class C 750 million Elite Cash Reserve
Class Y 250 million Elite Treasury Reserve
Class C 250 million Elite Treasury Reserve
Class Y 1 billion Elite Government Reserve
Class C 1 billion Elite Government Reserve
Class Y 250 million Elite Tax-Free Reserve
Class C 250 million Elite Tax-Free Reserve
Class Y 1 billion Special Equity Fund
Class A 1 billion Special Equity Fund
Class Y 1 billion Bond Fund
Class A 1 billion Bond Fund
Class Y 1 billion Short Term Income Fund
Class A 1 billion Short Term Income Fund
B-43
<PAGE>
Previously, Class A Shares and Class C Shares were known as Series B
Shares while Class Y Shares were known as Series A Shares. CoreFunds has changed
their designation to conform to the standard designations suggested by the
Investment Company Institute.
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).
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 (6/10/55) - Director - Professor of Marketing, INSEAD,
Fountainebleu, France since 1994; Associate Professor of Marketing, The
Wharton School of the University of Pennsylvania, 1981- 1994.
EMIL J. MIKITY (8/31/28) - Director - Retired; Senior Vice President
Investments, Atochem North America, 1979-1989.
B-44
<PAGE>
GEORGE H. STRONG (7/15/26) - Director - Financial Consultant since
1985; Director and Senior Vice President, Universal Health Services,
Inc., 1979-1984.
THOMAS J. TAYLOR (1/26/39) - Director - Consultant; Chairman, Conestoga
Funds since 1995 and a Trustee 1990-1995; Trustee of Community Heritage
Fund since 1993.
CHERYL H. WADE (11/7/47) - Director - Associate General Secretary and
Treasurer, American Baptist Churches since 1993; Treasurer, the
Ministers and Missionaries Benefit Board, American Baptist Churches,
1990-1993.
DAVID LEE (4/16/52) - President, Chief Executive Officer - 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.
JAMES W. JENNINGS (1/15/37) - Secretary - Partner of the law firm of
Morgan, Lewis & Bockius LLP since 1970.
KEVIN P. ROBINS (4/15/61) - 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 (10/18/53) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of the Administrator and Distributor
since 1983.
KATE STANTON (11/18/58) - 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.
TODD CIPPERMAN (2/14/66) - Vice President, Assistant Secretary - Mr.
Cipperman has been Vice President and Assistant Secretary of SEI
Corporation since November 1995. From 1994 to May 1995, Mr. Cipperman
was an Associate with Dewey Ballentine. Prior to 1994, Mr. Cipperman
was an Associate with Winston & Strawn.
MARC H. CAHN (6/19/57) - Vice President, Assistant Secretary - Mr. Cahn
has been Vice President and Assistant Secretary of SEI Corporation
since July 1996. From 1995 to 1996, Mr. Cahn served as Special Counsel
to Barclays Bank. Prior to 1995, he was counsel for First Fidelity
Bancorporation; Associate, Morgan, Lewis & Bockius LLP (law firm) prior
thereto.
JOSEPH M. LYDON (9/27/59) - Vice President - Mr. Lydon has been
Director of Business Administration-Fund Resources, a division of SEI
Corporation since November 1995. From 1989 to April 1995, Mr. Lydon was
Vice President of Fund Group. Vice President of the Advisor - Dreman
Value Management, L.P. and President of Dreman Financial Services, Inc.
STEPHEN G. MEYER (7/12/65) - 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, 1996, the Company paid a total of $143,000
B-45
<PAGE>
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 respectively, for
the year ended June 30, 1996.
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, 1996 ended June 30, 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Erin Anderson, $28,600 0 0 $28,600
Director
Emil J. Mikity, $28,600 0 0 $28,600
Director
George H. Strong, $28,600 0 0 $28,600
Director
Thomas J. Taylor, $28,600 0 0 $28,600
Director
Cheryl H. Wade, $28,600 0 0 $28,600
Director
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
PRINCIPAL HOLDERS OF SECURITIES
- Growth Equity Fund -
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding Class Y Shares of Growth Equity Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Patterson & Co. 8,208,282.8530 94.56%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
B-46
<PAGE>
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding Class A Shares of Growth Equity Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Patterson & Co. 25,999.8970 11.10%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
- Core Equity Fund -
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding Class Y Shares of Core Equity Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Patterson & Co. 22,144,239.4120 91.95%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding Class A Shares of Core Equity Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
National Financial Services Corp. 156,470.1210 24.14%
For Exclusive Use of our Customers
200 Liberty Street, 4th Fl.
One World Financial Center
New York, NY 10008-3908
</TABLE>
- Special Equity Fund -
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding Class Y Shares of Special Equity Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Patterson & Co. 5,166,082.0530 95.22%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
B-47
<PAGE>
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding Class A Shares of the Special Equity Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
NFSC 23,470.7680 22.45%
One World Financial Center
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
State Street Bank 5,436.5610 5.20%
and Trust Company
for the IRA Rollover of
Bernard J. Daney
121 Park Lane
Wilmington, DE 19807-2129
</TABLE>
- Equity Index Fund -
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding Class Y Shares of the Equity Index Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Patterson & Co. 5,338,357.2250 87.25%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
- International Growth Fund -
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding Class Y Shares of International Growth Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Patterson & Co. 9,381,105.0170 97.33%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
B-48
<PAGE>
As of September 23, 1996, the following accounts were holders of record
of 5% or more of the outstanding Class A Shares of International Growth Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Mark E. Stalnecker & 13,948.2330 9.20%
Susan M. Stalnecker JTTEN
9 Briarcrest Drive
Wallingford, PA 19086-6710
</TABLE>
- Balanced Fund -
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding Class Y Shares of Balanced Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Patterson & Co. 8,196,476.3280 96.02%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
- Short-Intermediate Bond Fund -
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding Class Y Shares of Short-Intermediate Bond Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Patterson & Co. 15,080,846.9590 90.86%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding Class A Shares of Short-Intermediate Bond Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
National Financial Services Corp. 32,560.9640 10.61%
For Exclusive Use of our Customers
200 Liberty St., 4th Fl.
One World Financial Center
New York, NY 10281-1003
</TABLE>
B-49
<PAGE>
- Bond Fund -
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding Class Y Shares of Bond Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Patterson & Co. 19,092,222.6580 97.33%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
As of September 23, 1996, the following accounts were holders of record
of 5% or more of the outstanding Class A Shares of Bond Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
NFSC 22,049.3610 17.87%
One World Financial Center
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Meridian Trust Company 9,697.3150 7.88%
for IRA Rollover of
Shiras E. Holmes
8761 W. Barkhurst Drive
Pittsburgh, PA 15237-4183
CoreStates Bank NA 7,231.8640 5.86%
Cust for the Rollover IRA of
Jane M. Rodel
926 Avenue B
Langhorne, PA 19047-3805
</TABLE>
- Intermediate Municipal Bond Fund -
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding Class Y Shares of Intermediate Municipal Bond
Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Patterson & Co. 63,130.5510 94.78%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
B-50
<PAGE>
As of September 23, 1996, the following accounts were holders of record
of 5% or more of the outstanding Class A Shares of Intermediate Municipal Bond
Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
<S> <C> <C>
Joseph T. Oprocha & 6,944.9460 7.47%
Theresa E. Oprocha JTTEN
107 Snyder Avenue
Philadelphia, PA 19148
Frank B. Holst & 5,885.5480 6.33%
E. Joan Holst JTTEN
2218 Oak Terrace
Lansdale, PA 19446
Thomas Glenn 5,512.8650 5.93%
827 North 63rd Street
Philadelphia, PA 19151
Joanne V. Palestini & 5,878.1310 6.33%
Joseph F. Palestini ITTEN
753 Manatawa Avenue
Philadelphia, PA 19128
National Financial Services Corp. 5,040.2780 5.42%
For Exclusive Use of Our Customers
200 Liberty Street, 4th Floor
1 World Financial Center
New York, NY 10281
Irene Sungaila 5,129.4170 5.52%
5214 Burton Street
Philadelphia, PA 19124
</TABLE>
- Short Term Income Fund -
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding Class Y Shares of Short Term Income Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Patterson & Co. 2,499,479.5560 84.35%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
B-51
<PAGE>
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Meridian Trust Co. TTEE 454,770.0440 15.35%
FBO Knauf Fiber Glass GMBH
Attn. Kathleen M. Szmborski
501 Washington Street
Reading, PA 19601-3416
</TABLE>
As of September 23, 1996, the following accounts were holders of record
of 5% or more of the outstanding Class A Shares of Short Term Income Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
CoreStates Bank NA 8,612.9130 98.60%
Cust for the Rollover IRA of
John M. Ennis
206 Emerald Avenue
Reading, PA 19606-1450
</TABLE>
- Government Income Fund -
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding Class Y Shares of Government Income Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Patterson & Co. 1,871,902.5340 99.20%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
As of September 23, 1996, the following accounts were holders of record
of 5% or more of the outstanding Class A Shares of Government Income Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Jean Taxin 8,400.3320 6.49%
5005 Woodbine Avenue
Philadelphia, PA 19131
CoreStates Bank NA C/F IRS 7,499.9820 5.79%
of Donald A. Fleck
32 Summit Circle
Churchville, PA 18966
</TABLE>
- Pennsylvania Municipal Bond Fund -
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding Class Y Shares of Pennsylvania Municipal Bond
Fund:
B-52
<PAGE>
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Dr. Vernon F. Alibert & 180,742.9970 19.31%
Dolores V. Alibert
1420 Conchester Highway
Boothwyn, PA 19061
Patterson & Co. 712,494.5100 76.13%
PNB Personal Trust Acctg
P.O. Box 7829
Philadelphia, PA 19101
</TABLE>
As of September 23, 1996, the following accounts were holders of record
of 5% or more of the outstanding Class A Shares of Pennsylvania Municipal Bond
Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
National Financial Services Corp. 17,758.9520 21.43%
For The Benefit of Our Customers
One World Financial Center
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
George W. Grosz 4,644.0030 5.60%
Dorothy M. Grosz JT WROS
533 S. Waterloo Rd.
Devon, PA 19333-1729
Lee B. Kirts 4,323.8420 5.22%
Celine Kirts JJ WROS
451 Knightsbridge LN
Hatfield, PA 19440-3603
</TABLE>
- New Jersey Municipal Bond Fund -
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding Class Y Shares of New Jersey Municipal Bond
Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Patterson & Co. 123,813.7170 98.97%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
B-53
<PAGE>
As of September 23, 1996, the following accounts were holders of record
of 5% or more of the outstanding Class A Shares of New Jersey Municipal Bond
Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Nathan J. Bershanoff 8,072.9160 29.46%
5251 Garden Avenue
Pennsauken, NJ 08109
Mary Manchur & 2,404.7250 8.77%
Jean Kent JTTEN
19 Thatchers Road
Frenchtown, NJ 08225
Almira E. Brinser & 2,287.6660 8.35%
Everett L. Brinser JTTEN
802 Chestnut Avenue
Laurel Springs, NJ 08021
Deborah L. Brett 2,091.9310 7.63%
Randall P. Brett JTTEN
7 Sherman Court
Plainsboro, NJ 08536-2332
Andria Hildebrand 1,930.9480 7.05%
Wilfred C. Hildebrand JTTEN
211 S. Main Street
Pennington, NJ 08534
Valerie A. Kern 1,674.5140 6.11%
Helmut O. Kern JTTEN
5 Trinity Pl.
Jackson, N.J. 08527-1821
Francis L. Bates 1,926.6110 7.03%
P.O. Box 250
Port Norris, NJ 08349-0250
Joyce H. Ongradi 1,453.8770 5.31%
116 Ingleside Ave.
Pennington, NJ 08534-3101
Joseph Gizelbach 2,901.3540 10.59%
Adelaide C. Gizelbach JTTEN
14 Winding Way Rd.
Stratford, NJ 08084-1914
</TABLE>
B-54
<PAGE>
- Cash Reserve -
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding Class Y Shares of Cash Reserve:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Patterson & Co. 777,597,413.7000 91.58%
P.O. Box 7618 FC9-1-17
Attn: Jim Quinlan
Philadelphia, PA 19101-7618
</TABLE>
- Treasury Reserve -
As of April 16, 1996, the following accounts were holders of record of
5% or more of the outstanding Class Y Shares of:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Patterson & Co. 565,615,651.4600 62.88%
P.O. Box 7618 FC9-1-17
Attn: Jim Quinlan
Philadelphia, PA 19101-7618
The Bank of New York 96,814,774.2200 10.76%
One Wall Street, 5th Floor/STIF
New York, NY 10286-0001
First Union National Bank 82,296,885.0000 9.15%
401 S. Tryon St., 3rd Floor
Charlotte, NC 28202-1911
</TABLE>
As of September 23, 1996, the following accounts were holders of record
of 5% or more of the outstanding Class C Shares of Treasury Reserve:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Patterson & Co. 9,904,355.3100 62.60%
P.O. Box 7618 FC9-1-17
Attn: Jim Quinlan
Philadelphia, PA 19101-7618
Kessler & Cohen 938,769.7700 5.93%
Attn: Stewart Cohen
1705 Two Penn Center
JFK Blvd./15th St.
Philadelphia, PA 19102
</TABLE>
B-55
<PAGE>
- Tax-Free Reserve -
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding Class Y Shares of Tax-Free Reserve:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Patterson & Co. 107,822,967.7500 94.08%
P.O. Box 7618 FC9-1-17
Attn: Jim Quinlan
Philadelphia, PA 19101
</TABLE>
As of September 23, 1996, the following accounts were holders of record
of 5% or more of the outstanding Class C Shares of Tax-Free Reserve:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Richard E. Meyers 988,189.5800 26.96%
Donna I. Meyers, JT TEN
517 Monroe Rd.
Merion, PA 19066-1017
Marietta E. Williams 236,050.0200 6.44%
RD2 Box 141
Elverson, PA 19520-9435
Elizabeth R. Cabine POA 200,078.00 5.46%
Eleanor P. Jester
2135 Concord Pike
Wilmington, DE 19803-2906
Gregory J. Blazic 199,412.2800 5.44%
Lellus L. Blazic JT TEN
P.O. Box 603 Country Club Road
Valley Forge, PA 19482-0603
Philip J. Harvey 196,943.7000 5.37%
2 Flyway Drive
Newton Square, PA 19073-3008
</TABLE>
- Elite Cash Reserve (formerly Fiduciary Reserve) -
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding shares of Elite Cash Reserve:
B-56
<PAGE>
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Patterson & Co. 391,765,240.5000 100%
P.O. Box 7618 FC9-1-17
Attn: Jim Quinlan
Philadelphia, PA 19101
</TABLE>
- Elite Treasury Reserve (formerly Fiduciary Treasury Reserve) -
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding shares of Elite Treasury Reserve:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Patterson & Co. 25,509,460.0500 100%
P.O. Box 7618 FC9-1-17
Attn: Jim Quinlan
Philadelphia, PA 19101
</TABLE>
- Elite Tax-Free Reserve (formerly Fiduciary Tax-Free Reserve) -
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding shares of Elite Tax-Free Reserve:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Patterson & Co. 99,768,072.3200 100%
P.O. Box 7618 FC9-1-17
Attn: Jim Quinlan
Philadelphia, PA 19101
</TABLE>
- Global Bond Fund -
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding Class Y Shares of Global Bond Fund:
<TABLE>
<CAPTION>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ----------------- ------------------
<S> <C> <C>
Patterson & Co. 3,314,876.7150 96.67%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
</TABLE>
B-57
<PAGE>
As of September 23, 1996, the following account was a holder of record
of 5% or more of the outstanding Class A 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 5,827.3890 35.82%
A. Gilbert Heebner
2 Etienne Arbordeau
Berwyn Baptist Road
Devon, PA 19333
James W. Jennings 4,598.5230 28.27%
2000 One Logan Square
Philadelphia, PA 19103
CoreStates Bank NA C/F IRA of 2,716.3990 16.70%
Allen Luke
17 Bennett Court
East Brunswick, NJ 08816
</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, 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.
In April 1996, CoreStates Corp acquired Meridian Bancorp. Pursuant to
this acquisition, CoreFunds merged the Conestoga Fund portfolios into CoreFunds
Family of Mutual Funds. In particular, the Conestoga Cash Management, Tax-Free,
U.S. Treasury Securities, Equity, Intermediate Income, Pennsylvania Tax-Free
Bond, Balanced and International Equity Funds were merged into existing
comparable CoreFunds portfolios with the successor entity remaining the
CoreFunds portfolio. In addition, the Conestoga Special Equity, Bond and Short
Term Income Funds were merged into newly-created CoreFunds shell portfolios in
order to continue that operation. The shareholders of each of the CoreFunds'
portfolios approved new investment advisory agreements with CoreStates Advisors
as well as new investment sub-advisory agreements with all existing sub-advisors
to the Funds. In connection with the International Growth Fund, shareholders
also approved the addition of Aberdeen Fund Managers, Inc. ("Aberdeen Managers")
as an investment sub-advisor within the contract of a multiple manager system.
B-58
<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 years ended June 30, 1994, 1995 and 1996, the Funds paid the
following investment advisory fees to CoreStates:
<TABLE>
<CAPTION>
Advisory Fees Paid Advisory Fees Waived
-------------------------------------- --------------------------------------
1994 1995 1996 1994 1995 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Equity Fund $320,583 $386,678 $728,921 $248,000 $193,333 $84,312
- --------------------------------------------------------------------------------------------------------------------
Core Equity Fund 121,274 199,645 1,973,776 44,569 51,162 0
- --------------------------------------------------------------------------------------------------------------------
Special Equity Fund * * 25,955 * * 573,349
- --------------------------------------------------------------------------------------------------------------------
Equity Index Fund 73,135 85,692 182,967 219,716 259,535 365,435
- --------------------------------------------------------------------------------------------------------------------
International Growth 664,153 861,592 964,647 85,107 57,439 20,021
- --------------------------------------------------------------------------------------------------------------------
Balanced Fund 134,678 240,853 441,222 145,819 133,801 106,546
- --------------------------------------------------------------------------------------------------------------------
Short-Intermediate
Bond Fund 183,014 203,083 267,327 106,631 87,019 137,169
- --------------------------------------------------------------------------------------------------------------------
Bond Fund * * 457,043 * * 509,285
- --------------------------------------------------------------------------------------------------------------------
Short Term Income
Fund * * 55,281 * * 108,344
- --------------------------------------------------------------------------------------------------------------------
Intermediate Municipal
Bond Fund 1,899 2,752 871 11,626 6,425 5,571
- --------------------------------------------------------------------------------------------------------------------
Governmental Income
Fund 10,608 22,528 49,103 38,912 33,796 23,318
- --------------------------------------------------------------------------------------------------------------------
Pennsylvania
Municipal Bond Fund 0 0 0 361 10,956 22,299
- --------------------------------------------------------------------------------------------------------------------
New Jersey Municipal
Bond Fund 0 0 0 788 8,045 7,888
- --------------------------------------------------------------------------------------------------------------------
Global Bond Fund 41,845 77,740 145,856 41,845 77,729 45,157
- --------------------------------------------------------------------------------------------------------------------
Cash Reserve 1,182,826 1,196,254 1,825,668 1,505,298 1,522,489 1,236,846
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
B-59
<PAGE>
<TABLE>
<CAPTION>
Advisory Fees Paid Advisory Fees Waived
-------------------------------------- --------------------------------------
1994 1995 1996 1994 1995 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Treasury Reserve 1,067,724 1,039,138 1,694,725 1,358,926 1,322,599 1,101,807
- --------------------------------------------------------------------------------------------------------------------
Tax-Free Reserve 197,246 172,635 208,997 252,250 219,739 134,575
- --------------------------------------------------------------------------------------------------------------------
Elite Cash Reserve** 0 0 0 104,101 109,215 103,043
- --------------------------------------------------------------------------------------------------------------------
Elite Treasury
Reserve ** 0 0 0 2,179,755 2,011,375 1,975,514
- --------------------------------------------------------------------------------------------------------------------
Elite Tax-Free
Reserve** 0 0 0 409,628 424,166 436,921
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------
* Not in operation during such period.
** Formerly the Fiduciary Reserve, Fiduciary Treasury Reserve and Fiduciary
Tax-Free Reserve, respectively.
SUB-ADVISERS
- International Growth Fund -
Martin Currie, Inc. ("Martin Currie"), a subsidiary of Martin Currie,
Ltd., and Aberdeen Fund Managers, Inc. ("Aberdeen Managers") a subsidiary of
Aberdeen Trust, PLC, are the International Growth Fund's sub-advisers.
Martin Currie, Ltd., through its various subsidiaries, performs various
investment advisory services for a number of open- and closed-end mutual funds,
investment trusts, unit trusts, offshore funds, pension funds, foundations,
charities and individual accounts. The Group's current assets under management
total over $7.5 billion. The Martin Currie offices are located in Saltire Court,
20 Castle Terrace, Edinburgh, Scotland.
Aberdeen Trust PLC performs various investment advisory services for a
number of Investment Trusts, Unit Trusts, Institutional Funds and Individual
Clients. Current assets under management total over $4 billion. The Aberdeen
Trust PLC offices are located at 10 Queens Terrace, Aberdeen AB9 1QJ Scotland
and Aberdeen Managers officers are located at Nations Bank Tower, 22nd Floor,
Ft. Lauderdale, Florida 33396.
The services provided and the expenses assumed by Martin Currie and
Aberdeen Managers as sub-advisers, as well as the fees payable to them, 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
B-60
<PAGE>
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.
The International Growth Sub-Advisory Agreement between CoreStates
Advisers and Aberdeen Managers provides that Aberdeen Managers 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 Aberdeen
Managers 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 Aberdeen Managers. 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 -
Analytic*TSA International, Inc. ("Analytic") is the sub-adviser to
the Global Bond Fund.
Analytic 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. Analytic 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
Analytic provides that Analytic 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 Analytic 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
Analytic. The
B-61
<PAGE>
Global Bond Sub-Advisory Agreement also terminates automatically in the event of
its assignment, as defined in the Investment Company Act.
PORTFOLIO TRANSACTIONS
- All Funds -
In General
Pursuant to the Funds' respective advisory agreements, CoreStates
Advisers and/or the sub-advisers with regard to the 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
B-62
<PAGE>
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 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 remuneration 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
For the fiscal year ended June 30, 1996, the Funds paid the following brokerage
commissions:
Fund Brokerage Commissions
---- ---------------------
Growth Equity Fund $170,726
Core Equity Fund $1,422,984
Special Equity Fund $218,638
Equity Index Fund $91,443
International Growth Fund $351,779
Balanced Fund $100,170
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 a one year period. With respect to the Fixed
Income
B-63
<PAGE>
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 Fund Resources ("SFR" or "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 Delaware business trust, has its principal
business offices at 680 East Swedesford Road, Wayne, PA 19087-1658. SFR, a
wholly-owned subsidiary of SEI Corporation ("SEI"), is the owner of all
beneficial interest in the Administrator. SEI, its subsidiaries, and the
Administrator are leading providers of funds evaluation services, trust
accounting systems, and brokerage and information services to financial
institutions, institutional investors and money managers. The Administrator also
serves as administrator to the following other mutual funds: The Achievement
Funds Trust, The Advisors' Inner Circle Fund, The Arbor Fund, ARK Funds, Bishop
Street Funds, CrestFunds, Inc., CUFUND, First American Funds, Inc., First
American Investment Funds, Inc., FMB Funds, Inc., Marquis Funds(R), Monitor
Funds, Morgan Grenfell Investment Trust, The PBHG Funds, Inc., The Pillar Funds,
Rembrandt Funds(R), 1784 Funds, Stepstone Funds, STI Classic Funds, STI Classic
Variable Trust, and Turner Funds.
B-64
<PAGE>
Administration Fees
<TABLE>
<CAPTION>
Administrative Fees Paid Administrative Fees Waived
------------------------------------- ---------------------------------------
1994 1995 1996 1994 1995 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Equity Fund $116,502 $123,731 $173,479 $ 73,176 $ 69,600 $97,589
- ------------------------------------------------------------------------------------------------------------------------
Core Equity Fund 34,108 53,535 424,851 21,186 30,067 100,744
- ------------------------------------------------------------------------------------------------------------------------
Special Equity Fund * * 70,780 * * 7,265
- ------------------------------------------------------------------------------------------------------------------------
Equity Index Fund 112,341 137,868 219,368 70,393 77,861 123,395
- ------------------------------------------------------------------------------------------------------------------------
International Growth Fund 144,204 183,805 196,933 89,940 103,392 110,774
- ------------------------------------------------------------------------------------------------------------------------
Balanced Fund 62,159 85,636 130,685 38,369 48,169 64,801
- ------------------------------------------------------------------------------------------------------------------------
Short-Intermediate Bond
Fund 89,032 92,840 128,526 55,791 52,211 73,722
- ------------------------------------------------------------------------------------------------------------------------
Bond Fund * * 217,319 * * 34,028
- ------------------------------------------------------------------------------------------ -----------------------------
Short Term Income Fund * * 36,257 * * 5,897
- ------------------------------------------------------------------------------------------------------------------------
Government Income Fund 14,856 18,024 23,175 9,904 10,139 13,035
- ------------------------------------------------------------------------------------------------------------------------
Intermediate Municipal
Bond Fund 2,665 2,937 2,058 3,994 1,652 1,158
- ------------------------------------------------------------------------------------------------------------------------
Pennsylvania Municipal
Bond Fund 0 0 0 180 5,478 11,150
- ------------------------------------------------------------------------------------------------------------------------
New Jersey Municipal
Bond Fund 0 0 0 394 4,023 3,944
- ------------------------------------------------------------------------------------------------------------------------
Global Bond Fund 21,878 41,460 51,101 12,993 23,318 28,488
- ------------------------------------------------------------------------------------------------------------------------
Treasury Reserve 745,911 755,724 966,980 467,414 425,121 536,353
- ------------------------------------------------------------------------------------------------------------------------
Cash Reserve 825,937 869,998 1,035,263 518,125 489,371 582,385
- ------------------------------------------------------------------------------------------------------------------------
Tax Free Reserve 137,980 125,548 110,075 86,767 70,639 76,537
- ------------------------------------------------------------------------------------------------------------------------
Elite Treasury Reserve** 22,988 24,029 22,923 29,256 30,578 28,626
- ------------------------------------------------------------------------------------------------------------------------
Elite Cash Reserve** 479,759 442,499 457,125 610,315 563,185 532,139
- ------------------------------------------------------------------------------------------------------------------------
Elite Tax-Free Reserve** 90,162 93,316 100,007 114,765 118,767 118,626
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------
* Not in operation during period.
** Formerly the Fiduciary Reserve, Fiduciary Treasury Reserve and Fiduciary
Tax-Free Reserve, respectively.
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 Class A and Class C 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 Class A and Class C Shares 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
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"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
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, 1996, the distributor received
distribution fees (which amount solely represents sales expenses) on the
following Funds:
Funds Class Amount Received
----- ----- ---------------
Growth Equity Fund A $6,154
Core Equity Fund A 14,524
Special Equity Fund A 203
International Growth Fund A 5,111
Balanced Fund A 6,744
Short-Intermediate Bond Fund A 5,560
Bond Fund A 2,227
Short Term Income Fund A 11
Government Income Fund A 3,299
Intermediate Municipal Bond Fund A 2,536
Pennsylvania Municipal Bond Fund A 510
New Jersey Municipal Bond Fund A 284
Global Bond Fund A 423
Cash Reserve C 47,230
Treasury Reserve C 51,148
Tax-Free Reserve C 4,718
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<PAGE>
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.
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
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<PAGE>
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 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.
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<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.
"Baa": Bonds which are rated "Baa" are 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.
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.
"BBB": Debt rated "BBB" has an adequate capacity to pay interest and
repay principal. Whereas such issues normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are
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<PAGE>
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than 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:
"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
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<PAGE>
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.
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<PAGE>
FINANCIAL STATEMENTS
- All Funds -
The Company's Financial Statements for the fiscal year ended June 30,
1996, including notes thereto and the report of Ernst & Young LLP thereon, are
herein incorporated by reference. A copy of the 1996 Annual Report must
accompany the delivery of this Statement of Additional Information.
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