PROSPECTUS FOR INSTITUTIONAL SHARES
JUNE 30, 1997
CoreFunds Investing our experience in your future
EQUITY FUNDS
BALANCED FUND
INCOME FUNDS
TAX-EXEMPT INCOME FUNDS
MONEY MARKET FUNDS
/ / CoreFund(R)
Family of Mutual Funds
<PAGE>
INTRODUCING COREFUNDS
This Prospectus introduces you to seventeen of the mutual funds offered by
CoreFunds, Inc. ("CoreFunds"), an open-end management investment company.
CoreFunds presently offers shares in twenty diversified and non-diversified
portfolios. This Prospectus offers:
Class Y (Institutional) shares of the Equity Funds
Class Y (Institutional) shares of the Fixed Income Funds and
Class Y (Institutional) shares of the Money Market Funds.
Materials relating to Class A or Class C (Individual) shares of the Funds may be
obtained by calling 1-800-355-CORE or by writing to:
COREFUNDS, INC.
c/o SEI INVESTMENTS
P.O. BOX 470
WAYNE, PA 19087-0470
CoreStates Investment Advisers, Inc. ("CoreStates Advisers") serves as the
investment adviser to 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.
You may choose to invest in any of the CoreFunds offered in this Prospectus.
Read your prospectus before you invest and keep it for future reference.
Additional information about the Funds, contained in a Statement of Additional
Information dated June 30, 1997, has been filed with the Securities and Exchange
Commission. It is incorporated in this Prospectus by reference. To obtain a copy
without charge, call
1-800-355-CORE or write to:
COREFUNDS, INC.
C/O SEI INVESTMENTS
P.O. BOX 470
WAYNE, PA 19087-0470
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.
SHARES IN THE FUNDS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENT IN THE FUND SHARES INVOLVES RISK, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
AN INVESTMENT IN THE CASH RESERVE, TREASURY RESERVE AND/OR TAX-FREE RESERVE
IS NOT INSURED AND IS NOT GUARANTEED BY THE U.S. GOVERNMENT, AND WE CAN NOT
ASSURE YOU THAT THESE FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES. ALSO, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
What You Will Find In This Prospectus
Information on the Funds
Equity funds
Equity Index 2
Core Equity 4
Growth Equity 6
Special Equity 8
International Growth 10
Balanced Fund
Balanced 12
Fixed Income Funds
Short Term Income 14
Short-Intermediate Bond 16
Government Income 18
Bond 20
Global Bond 22
Intermediate Municipal Bond 24
Pennsylvania Municipal Bond 26
New Jersey Municipal Bond 28
Money Market Funds
Treasury Reserve 30
Cash Reserve 32
Tax-Free Reserve 34
General Information
General Investment Policies and Practices 36
Temporary Investments 39
Distributions 42
Taxes 42
Valuation of Shares 44
Management 45
Performance Information 47
How to Purchase and Redeem Shares 47
Description of Shares 48
General Information 49
EQUITY INDEX FUND
SUMMARY
Equity Index Fund seeks to match the performance of the Standard & Poor's 500
Composite Stock Price Index (S&P 500 Index) by investing primarily in stocks
represented in the S&P 500 Index.
PORTFOLIO INVESTMENTS
The Fund invests at least 90% of its total assets in equity securities that
represent a composite of the S&P 500 Index. 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.
The Fund's investment portfolio will generally consist of common stocks of as
many issuers listed in the S&P 500 Index as is feasible. CoreStates Advisers
uses a computer model that closely monitors industry weightings of the S&P 500
Index. Although CoreStates Advisers does not screen securities 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 the Fund's ability to achieve its investment
objective.
Equity Index Fund strives to provide a total return comparable to the S&P 500
Index. (Please see page 36 for more information about General Investment
Policies and Practices.)
Equity Index Fund is not sponsored by nor affiliated with Standard & Poor's
Corporation ("S&P").
RISK CONSIDERATIONS
Like all equity funds, Equity Index Fund is subject to two primary types of
risk:
MARKET RISK - The possibility that stock prices in general will decline over
short, or even extended, periods of time. This is because stock markets tend to
be cyclical, with periods when stock prices generally rise and periods when
stock prices generally decline.
FUND RISK - The possibility that the Fund's performance during a specific period
may not meet or exceed that of the stock market as a whole.
INVESTMENT OBJECTIVE
Equity Index Fund seeks investment results that achieve price and yield
performance similar to the S&P 500 Index.
INVESTMENT SUITABILITY
Equity Index Fund may be appropriate for investors who:
are seeking long-term capital growth
do not need to earn current income
are willing to hold an investment over a long time period in
anticipation of the returns that common stocks can provide and
are able to tolerate fluctuations in the principal value of their
investment.
FUND MANAGEMENT
Lary Aasheim, CFA, a Vice President of CoreStates Advisers, is portfolio manager
of Equity Index Fund. 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. (Please see page 45 for more information
about the Fund's Investment Adviser.)
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class Y shares of Equity Index Fund. The financial highlights for the Fund for
the periods from inception through June 30, 1996 have been audited by Ernst &
Young LLP, independent auditors, whose report appears in CoreFunds' annual
report which accompanies the Statement of Additional Information. The annual
report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
CLASS Y (INSTITUTIONAL)* 1996 1996 1995 1994
-------------- --------------------------------------------
For a Share Outstanding Throughout the Period Ended December 31(3) June 30
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 28.47 23.79 20.54 20.97
Net Investment Income $ 0.26 0.51 0.52 0.55
Realized and Unrealized Net Gains (Losses) on Securities $ 3.06 5.47 4.24 (0.43)
Distributions from Net Investment Income $ (0.26) (0.51) (0.52) (0.55)
Distributions from Capital Gains $ (0.24) (0.79) (0.99) --
Net Asset Value, End of Period $ 31.29 28.47 23.79 20.54
Total Return 11.70%+ 25.69 24.45 0.55
Net Assets, End of Period (000 omitted) $196,329 166,350 112,553 72,552
Ratio of Expenses to Average Net Assets 0.37% 0.35 0.37 0.35
Ratio of Net Income to Average Net Assets 1.78% 1.94 2.48 2.63
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.73% 0.71 0.76 0.75
Ratio of Net Income to Average Net Assets (Excluding Waivers) 1.42% 1.59 2.09 2.23
Portfolio Turnover Rate 4% 13 27 13
Average Commission Rate Paid(2) $ 0.0646 0.0641 n/a n/a
</TABLE>
<TABLE>
<CAPTION>
CLASS Y (INSTITUTIONAL)* 1993 1992 1991(1)
----------------------------------
For a Share Outstanding Throughout the Period Ended
<S> <C> <C> <C>
Net Asset Value, Beginning of Period 19.22 18.46 19.48
Net Investment Income 0.52 0.52 0.03
Realized and Unrealized Net Gains (Losses) on Securities 1.84 1.80 (0.94)
Distributions from Net Investment Income (0.52) (0.48) (0.02)
Distributions from Capital Gains (0.09) (1.08) (0.09)
Net Asset Value, End of Period 20.97 19.22 18.46
Total Return 12.39 12.59 (4.64)+
Net Assets, End of Period (000 omitted) 50,551 20,166 12,117
Ratio of Expenses to Average Net Assets 0.49 0.57 0.97
Ratio of Net Income to Average Net Assets 2.82 2.66 1.79
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.88 1.06 1.20
Ratio of Net Income to Average Net Assets (Excluding Waivers) 2.43 2.17 1.56
Portfolio Turnover Rate 4 27 --
Average Commission Rate Paid(2) n/a n/a n/a
</TABLE>
* On April 22, 1996, the Series A shares of the Fund were redesignated Class Y
shares.
+ This figure has not been annualized.
(1) Commenced operations June 1, 1991. Unless otherwise noted, all ratios for
the period have been annualized.
(2) Presentation of the rate is only required for fiscal periods beginning after
September 1, 1995.
(3) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Fund.
CLASS Y (INSTITUTIONAL)
Shareholder Transaction Expenses none
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .15%
12b-1 Fees none
Other Expenses After Fee Waivers(2) .22%
Total Fund Operating Expenses After Fee Waivers(3) .37%
EXAMPLE
1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $4 12 21 47
$1,000 investment, assuming (1) a 5% annual
return and (2) redemption at the end
of each time period.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
(1) Absent voluntary waivers, investment advisory fees would be .40% of average
net assets.
(2) Absent voluntary waivers by the Administrator, Other Expenses would be .31%
of average net assets.
(3) Absent the fee waivers described above, Total Operating Expenses would have
been .71%. These fee waivers are voluntary and may be discontinued at any
time at the discretion of the service provider that is waiving its fee.
3
<PAGE>
CORE EQUITY FUND
SUMMARY
Core Equity Fund seeks maximum total return by investing in a diversified
portfolio of common stocks.
PORTFOLIO INVESTMENTS
The Fund invests principally in a diversified portfolio of common stocks
including stocks of companies with:
large market capitalizations
medium market capitalizations and
small market capitalizations.
Market capitalization means the total number of common shares of a company's
stock outstanding multiplied by the market price per share.
In addition, up to 20% of the Fund's total assets may be invested in:
securities convertible into common stocks
preferred stocks
corporate bonds and notes
warrants
Short-Term Obligations and
sponsored and unsponsored American Depositary Receipts ("ADRs").
Core Equity Fund strives to provide a total return greater than stock market
indices such as the S&P 500 Index. (Please see page 36 for more information
about General Investment Policies and Practices.)
RISK CONSIDERATIONS
Like all equity funds, Core Equity Fund is subject to two primary types of risk:
MARKET RISK - The possibility that stock prices in general will decline over
short, or even extended, periods of time. This is because stock markets tend to
be cyclical, with periods when stock prices generally rise and periods when
stock prices generally decline.
FUND RISK - The possibility that the Fund's performance, during a specific
period, may not meet or exceed that of the stock market as a whole.
INVESTMENT OBJECTIVE
Core Equity Fund seeks maximum total return in excess of the S&P 500 Index.
INVESTMENT SUITABILITY
Core Equity Fund may be appropriate for investors who:
are seeking long-term capital growth
do not need to earn current income
are willing to hold an investment over a long time period in anticipation of the
returns that common stocks can provide and
are able to tolerate fluctuations in the principal value of their investment.
FUND MANAGEMENT
Joseph E. Stocke, CFA, is a Senior Managing Director of CoreStates Advisers and
manages Core Equity and Special Equity Funds. He is also a Senior Investment
Manager/Equities with Meridian Investment Company, an affiliate of CoreStates
Advisers. He has been with Meridian since 1983. (Please see page 45 for more
information about the Fund's Investment Adviser.)
4
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class Y shares of Core Equity Fund(a). The financial highlights for the Fund for
the period November 1, 1995 through June 30, 1996 have been audited by Ernst &
Young LLP, independent auditors, whose report appears in CoreFunds' annual
report which accompanies the Statement of Additional Information. The financial
highlights for the Fund for the periods ended October 31, 1990 through October
31, 1995 were audited by Coopers & Lybrand LLP, independent auditors. The annual
report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
INSTITUTIONAL PRIOR
Unaudited CLASS* CLASS
CLASS Y (INSTITUTIONAL)(3) 1996 1996 1995 1994
------------- --------- ------------------------
For a Share Outstanding Throughout the Period Ended December 31(5) June 30
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 17.26 17.07 15.00 15.39
Net Investment Income $ 0.08 0.14 0.19 0.11
Realized and Unrealized Net Gains (Losses) on Securities $ 2.30 1.49 2.87 0.22
Distributions from Net Investment Income $ (0.08) (0.14) (0.19) (0.11)
Distributions from Capital Gains $ (1.47) (1.30) (0.80) (0.61)
Net Asset Value, End of Period $ 18.09 17.26 17.07 15.00
Total Return(2) 13.82%+ 19.24 22.00 2.21
Net Assets, End of Period (000 omitted) $ 458,064 414,824 378,352 50,128
Ratio of Expenses to Average Net Assets 0.95% 0.97 1.05 1.49
Ratio of Net Income to Average Net Assets 0.88% 1.15 1.44 0.75
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.04% 1.01 1.10 1.51
Ratio of Net Income to Average Net Assets (Excluding Waivers) 0.79% 1.11 1.44 0.73
Portfolio Turnover Rate** 46% 114 119 35
Average Commission Rate Paid(4) $ 0.0631 0.0636 n/a n/a
</TABLE>
<TABLE>
<CAPTION>
CLASS Y (INSTITUTIONAL)(3) 1993 1992 1991 1990(1)
-------------------------------------------------
For a Share Outstanding Throughout the Period Ended October 31
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period 13.93 13.08 8.95 10.00
Net Investment Income 0.14 0.19 0.26 0.14
Realized and Unrealized Net Gains (Losses) on Securities 1.89 1.02 4.13 (1.05)
Distributions from Net Investment Income (0.14) (0.19) (0.26) (0.14)
Distributions from Capital Gains (0.43) (0.17) -- --
Net Asset Value, End of Period 15.39 13.93 13.08 8.95
Total Return(2) 14.90 9.27 49.37 (9.22)
Net Assets, End of Period (000 omitted) 45,677 28,103 12,830 5,982
Ratio of Expenses to Average Net Assets 1.20 0.92 0.54 0.65
Ratio of Net Income to Average Net Assets 0.94 1.47 2.30 2.29
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.41 1.23 1.48 1.59
Ratio of Net Income to Average Net Assets (Excluding Waivers) 0.73 1.17 1.36 1.35
Portfolio Turnover Rate** 24 39 68 43
Average Commission Rate Paid(4) n/a n/a n/a n/a
</TABLE>
(a) This Fund was formerly known as Equity Fund
* On February 21, 1995, the shares of the Fund were redesignated as either
Retail or Institutional shares. On that date, 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. The basis for the
allocation was the relative net assets of each class of shares as of February
21, 1995. The results were combined with the results of operations and
distributions for each applicable class for the period February 21, 1995
through October 31, 1995. 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 reflect this allocation.
Also, on April 15, 1996, the Conestoga Equity Fund was acquired by CoreFunds.
At that time the Institutional Class shares of the Fund were exchanged for
Class Y shares.
**For the period ended June 30, 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 28, 1990. Unless otherwise noted, all ratios
for the period have been annualized.
(2) Total return for the period ended June 30, 1996 is for an eight- month
period.
(3) The per share amount for the period ended June 30, 1996 represents the
period from November 1, 1995 to June 30, 1996. All prior years are for the
periods November 1 to October 31.
(4) Presentation of the rate is only required for fiscal periods beginning after
September 1, 1995.
(5) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Fund.
CLASS Y (INSTITUTIONAL)
Shareholder Transaction Expenses none
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees .74%
12b-1 Fees none
Other Expenses After Fee Waivers(1) .26%
Total Operating Expenses After Fee Waivers(2) 1.00%
EXAMPLE
1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $10 32 55 122
$1,000 investment, assuming (1) a 5% annual
return and (2) redemption at the end
of each time period.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
(1) Absent voluntary waivers by the Administrator, Other Expenses would be .30%
of average net assets.
(2) Absent the fee waivers described above, Total Operating Expenses would have
been 1.04%. This fee waiver is voluntary and may be discontinued at any time
at the discretion of the service provider that is waiving its fee.
5
<PAGE>
GROWTH EQUITY FUND
SUMMARY
Growth Equity Fund seeks capital growth and an increasing flow of dividends by
investing primarily in common stocks.
PORTFOLIO INVESTMENTS
The Fund invests in a diversified portfolio of equity securities including:
common stocks
preferred stocks
convertible securities and
other equity securities of companies which CoreStates Advisers believe show the
potential for growth of earnings over time.
Growth Equity Fund strives to provide a return greater than stock market indices
such as the Russell 1000 Growth Index, the S&P 500 Index and the Lipper Growth
Index. (Please see page 36 for more information about General Investment
Policies and Practices.)
RISK CONSIDERATIONS
Like all equity funds, the Growth Equity Fund is subject to two primary types of
risk:
MARKET RISK - The possibility that stock prices in general will decline over
short, or even extended, periods of time. This is because stock markets tend to
be cyclical, with periods when stock prices generally rise and periods when
stock prices generally decline.
FUND RISK - The possibility that the Fund's performance, during a specific
period, may not meet or exceed that of the stock market as a whole.
INVESTMENT OBJECTIVE
Growth Equity Fund seeks capital growth and an increasing flow of dividends.
INVESTMENT SUITABILITY
Growth Equity Fund may be appropriate for investors who:
are seeking long-term capital growth
do not need to earn current income
are willing to hold an investment over a long time period in anticipation of the
returns that common stocks can provide and
are able to tolerate fluctuations in the principal value of their
investment.
FUND MANAGEMENT
Timothy R. Stives is a Senior Managing Director of CoreStates Advisers and
manages Growth Equity Fund. He joined CoreStates Advisers in 1994. Mr. Stives
was a Vice President and Partner at Chancellor Capital Management since 1988.
Prior to that, he was a securities analyst and portfolio manager with CitiCorp
Investment Management. (Please see page 45 for more information about the Fund's
Investment Adviser.)
6
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class Y shares of Growth Equity Fund. The financial highlights for the Fund for
the periods from inception through June 30, 1996 have been audited by Ernst &
Young LLP, independent auditors, whose report appears in CoreFunds' annual
report which accompanies the Statement of Additional Information. The annual
report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
CLASS Y (INSTITUTIONAL)* 1996 1996 1995
-------------- --------- ---------
For a Share Outstanding Throughout the Period Ended December 31(3) June 30
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 14.19 11.18 9.11
Net Investment Income $ 0.03 0.08 0.08
Realized and Unrealized Net Gains (Losses) on Securities $ 0.82 3.36 2.07
Distributions from Net Investment Income $ (0.03) (0.08) (0.08)
Distributions from Capital Gains $ (1.57) (0.35) --
Net Asset Value, End of Period $ 13.44 14.19 11.18
Total Return 5.86%+ 31.36 23.71
Net Assets, End of Period (000 omitted) $ 131,447 120,073 91,345
Ratio of Expenses to Average Net Assets 0.95% 0.89 0.76
Ratio of Net Income to Average Net Assets 0.39% 0.64 0.84
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.07% 1.05 1.10
Ratio of Net Income to Average Net Assets (Excluding Waivers) 0.27% 0.48 0.50
Portfolio Turnover Rate 30% 81 113
Average Commission Rate Paid(2) $ 0.0600 0.0601 n/a
</TABLE>
<TABLE>
<CAPTION>
CLASS Y (INSTITUTIONAL)* 1994 1993 1992(1)
----------------------------------
For a Share Outstanding Throughout the Period Ended October 31
<S> <C> <C> <C>
Net Asset Value, Beginning of Period 9.95 8.74 10.00
Net Investment Income 0.05 0.08 0.05
Realized and Unrealized Net Gains (Losses) on Securities (0.84) 1.21 (1.26)
Distributions from Net Investment Income (0.05) (0.08) (0.05)
Distributions from Capital Gains -- -- --
Net Asset Value, End of Period 9.11 9.95 8.74
Total Return (8.01) 14.76 (12.05)+
Net Assets, End of Period (000 omitted) 64,877 63,777 33,418
Ratio of Expenses to Average Net Assets 0.69 0.43 0.14
Ratio of Net Income to Average Net Assets 0.48 0.85 1.38
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.11 1.11 1.12
Ratio of Net Income to Average Net Assets (Excluding Waivers) 0.06 0.17 0.40
Portfolio Turnover Rate 127 103 66
Average Commission Rate Paid(2) n/a n/a n/a
</TABLE>
* On April 22, 1996, the Series A shares of the Fund were redesignated Class Y
shares.
+ This figure has not been annualized.
(1) Commenced operations February 3, 1992. Unless otherwise noted, all ratios
for the period have been annualized.
(2) Presentation of the rate is only required for fiscal periods beginning after
September 1, 1995.
(3) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Fund.
CLASS Y (INSTITUTIONAL)
Shareholder Transaction Expenses none
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees .75%
12b-1 Fees none
Other Expenses After Fee Waivers(1) .21%
Total Operating Expenses After Fee Waivers(2) .96%
EXAMPLE
1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $10 31 53 118
$1,000 investment, assuming (1) a 5% annual
return and (2) redemption at the end
of each time period.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
(1) Absent voluntary waivers by the Administrator, Other Expenses would be .30%
of average net assets.
(2) Absent the fee waivers described above, Total Operating Expenses would have
been 1.05%. This fee waiver is voluntary and may be discontinued at any time
at the discretion of the service provider that is waiving its fee.
7
<PAGE>
SPECIAL EQUITY FUND
SUMMARY
Special Equity Fund seeks capital growth by investing principally in a
diversified portfolio of common stocks.
PORTFOLIO INVESTMENTS
The Fund invests principally in a diversified portfolio of common stocks of
domestic companies that CoreStates Advisers expect will experience growth in
earnings and price including stocks of companies with:
small market capitalizations
medium market capitalizations and
large market capitalizations.
Market capitalization means the total number of common shares of a company's
stock outstanding multiplied by the market price per share.
In addition, up to 35% of the Fund's total assets may be invested in:
preferred stocks
securities convertible into common stock
corporate bonds and notes
warrants
Short-Term Obligations and
sponsored and unsponsored ADRs, European Depositary Receipts ("EDRs") and Global
Depositary Receipts ("GDRs").
Special Equity Fund strives to provide a return greater than stock market
indices such as the Russell 3000 Equal Weighted Index. (Please see page 36 for
more information about General Investment Policies and Practices.)
INVESTMENT OBJECTIVE
Special Equity Fund seeks capital growth.
RISK CONSIDERATIONS
Increased Business and Economic Sensitivity - Small and medium capitalization
companies may be more vulnerable than larger, more established organizations to
adverse business or economic developments. In particular, small capitalization
companies may have limited product lines, markets and financial resources and
may be dependent upon a relatively small management group. These securities may
be traded over-the-counter or listed on an exchange and may or may not pay
dividends.
Also, like all equity funds, Special Equity Fund is subject to two other primary
types of risk:
MARKET RISK - The possibility that stock prices in general will decline over
short, or even extended, periods of time. This is because stock markets tend to
be cyclical, with periods when stock prices generally rise and periods when
stock prices generally decline.
FUND RISK - The possibility that the Fund's performance during a specific period
may not meet or exceed that of the stock market as a whole.
INVESTMENT SUITABILITY
Special Equity Fund may be appropriate for investors who:
are seeking long-term capital growth
do not need to earn current income
are willing to hold an investment over a long time period in
anticipation of the returns that common stocks can provide and
are able to tolerate fluctuations in the principal value of their
investment.
FUND MANAGEMENT
Joseph E. Stocke, CFA, is a Senior Managing Director of CoreStates Advisers and
manages Core Equity and Special Equity Funds. He is also a Senior Investment
Manager/Equities with Meridian Investment Company, an affiliate of CoreStates
Advisers. He has been with Meridian since 1983. (Please see page 45 for more
information about the Fund's Investment Adviser.)
8
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class Y shares of Special Equity Fund. The financial highlights for the Fund for
the period November 1, 1995 through June 30, 1996 have been audited by Ernst &
Young LLP, independent auditors, whose report appears in CoreFunds' annual
report which accompanies the Statement of Additional Information. The financial
highlights for the Fund for the periods ended October 31, 1994 through October
31, 1995 were audited by Coopers & Lybrand LLP, independent auditors. The annual
report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
INSTITUTIONAL PRIOR
Unaudited CLASS* CLASS
CLASS Y (INSTITUTIONAL)(3) 1996 1996 1995 1994(1)
-------------- --------- ------------------------
For a Share Outstanding Throughout the Period Ended December 31(5) June 30 October 31
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 11.86 11.42 9.37 10.00
Net Investment Income $ 0.03 0.07 0.12 0.06
Realized and Unrealized Net Gains (Losses) on Securities $ 0.73 2.13 2.12 (0.63)
Distributions from Net Investment Income $ (0.03) (0.07) (0.12) (0.06)
Distributions from Capital Gains $ (2.39) (1.69) (0.07) --
Net Asset Value, End of Period $ 10.20 11.86 11.42 9.37
Total Return(2) 6.75%+ 22.27 24.44 (5.72)
Net Assets, End of Period (000 omitted) $ 65,173 63,680 57,396 10,069
Ratio of Expenses to Average Net Assets 0.57% 0.34 0.32 0.15
Ratio of Net Income to Average Net Assets 0.54% 0.94 1.14 1.06
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.82% 1.79 1.97 2.10
Ratio of Net (Loss) to Average Net Assets (Excluding Waivers) (0.71)% (0.51) (0.51) (0.89)
Portfolio Turnover Rate 44% 72 129 39
Average Commission Rate Paid(4) $ 0.0594 0.0539 n/a n/a
</TABLE>
* On February 21, 1995, the shares of the Fund were redesignated as either
Retail or Institutional shares. On that date, 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. The basis for the
allocation was the relative net assets of each class of shares as of February
21, 1995. The results were combined with the results of operations and
distributions for each applicable class for the period February 21, 1995
through October 31, 1995. 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 reflect this allocation.
Also, on April 22, 1996, the Conestoga Special Equity Fund was acquired by
CoreFunds. At that time the Institutional Class shares of the Fund were
exchanged for Class Y shares.
+ This figure has not been annualized.
(1) Commenced operations March 15, 1994. Unless otherwise noted, all ratios for
the period have been annualized.
(2) Total return for the period ended June 30, 1996 is for an eight-month
period.
(3) The per share amount for the period ended June 30, 1996 represents the
period from November 1, 1995 to June 30, 1996. All prior years are for the
period November 1 to October 31.
(4) Presentation of the rate is only required for fiscal periods beginning after
September 1, 1995.
(5) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Fund.
CLASS Y (INSTITUTIONAL)
Shareholder Transaction Expenses none
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .83%
12b-1 Fees none
Other Expenses After Fee Waivers(2) .22%
Total Operating Expenses After Fee Waivers(3) 1.05%
EXAMPLE
1 Year 3 Years 5 Years 10 years
You would pay the following expenses on a $11 34 58 129
$1,000 investment, assuming (1) a 5% annual
return and (2) redemption at the end
of each time period.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
(1) Absent voluntary waivers, investment advisory fees would be 1.50% of average
net assets.
(2) Absent voluntary waivers by the Administrator, Other Expenses would be .31%
of average net assets.
(3) Absent the fee waivers described above, Total Operating Expenses would have
been 1.81%. These fee waivers are voluntary and may be discontinued at any
time at the discretion of the service provider that is waiving its fee.
9
<PAGE>
INTERNATIONAL GROWTH FUND
SUMMARY
International Growth Fund seeks long-term capital appreciation by investing
primarily in equity securities of companies located outside the United States.
PORTFOLIO INVESTMENTS
Under normal market conditions, the Fund will invest at least 65% of its total
assets in the equity securities of companies located in at least three different
countries. Companies are located in a country if they are headquartered or doing
business primarily there.
The Fund invests in appreciation-oriented equity securities of companies located
outside the United States, including:
Australia Hong Kong Singapore Germany
Canada Japan Sweden Netherlands
France Mexico Switzerland United Kingdom
'Appreciation-oriented' securities are equity securities of companies that the
Fund's Adviser and Sub-Advisers believe have the greatest potential for
long-term growth.
Most foreign equity securities are purchased in over-the-counter markets or on
stock exchanges located in the countries in which the principal offices of the
issuers are located.
International Growth Fund strives to provide a return greater than stock market
indices such as the Morgan Stanley Capital International EAFE Index. (Please see
page 36 for more information about General Investment Policies and Practices.)
RISK CONSIDERATIONS
There are special risks associated with international investing. See 'Foreign
Securities' information on page 36.
Also, like all equity funds, International Equity Fund is subject to two primary
types of risk:
MARKET RISK - The possibility that stock prices in general will decline over
short, or even extended, periods of time. This is because stock markets tend to
be cyclical, with periods when stock prices generally rise and periods when
stock prices generally decline.
FUND RISK - The possibility that the Fund's performance during a specific period
may not meet or exceed that of the stock market as a whole.
INVESTMENT OBJECTIVE
International Growth Fund seeks long-term capital appreciation, consistent with
reasonable risk, by investing primarily in appreciation-oriented equity
securities of companies located outside the United States.
INVESTMENT SUITABILITY
International Growth Fund may be appropriate for investors who:
are seeking long-term capital growth
do not need to earn current income
are willing to hold an investment over a long time period in
anticipation of the returns that foreign stocks can provide
are able to tolerate fluctuations in the principal value of their
investment and
are aware of the unique risks of international investing, including their
exposure to currency fluctuations.
FUND MANAGEMENT
CoreStates Advisers has delegated some of its portfolio management functions to
Martin Currie and Aberdeen Managers (the "Sub-Advisers").
Michael J. Gibson, a Vice President of Martin Currie, is the lead director of an
investment team responsible for managing a portion of International Growth Fund.
Mr. Gibson has 24 years of portfolio investment experience in international
stock markets. He joined Martin Currie in 1983.
Bev Hendry, Chief Executive Officer of Aberdeen Fund Managers Inc., is the lead
director of an investment team responsible for managing a portion of
International Growth Fund. He joined Aberdeen Trust in 1987. (Please see page 45
for more information about the Fund's Investment Adviser and Sub-Advisers.)
10
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class Y shares of International Growth Fund. The financial highlights for the
Fund for the periods from inception through June 30, 1996 have been audited by
Ernst & Young LLP, independent auditors, whose report appears in CoreFunds'
annual report which accompanies the Statement of Additional Information. The
annual report for the Fund is available to shareholders at no charge
by calling CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
CLASS Y (INSTITUTIONAL)* 1996 1996 1995 1994
-------------- ----------------------------------------
For a Share Outstanding Throughout the Period Ended December 31(3)
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.97 12.29 13.18 11.71
Net Investment Income $ 0.03 0.16 0.12 0.12
Realized and Unrealized Net Gains (Losses) on Securities 0.39 1.86 (0.17) 1.78
Distributions from Net Investment Income $ (0.37) (0.28) (0.04) (0.12)
Distributions from Capital Gains $ (0.86) (0.06) (0.80) (0.31)
Net Asset Value, End of Period $ 13.16 13.97 12.29 13.18
Total Return 3.20%+ 16.72 (0.21) 16.28
Net Assets, End of Period (000 omitted) $ 136,532 139,275 110,838 108,911
Ratio of Expenses to Average Net Assets 1.11% 1.14 1.05 0.99
Ratio of Net Income to Average Net Assets 0.39% 1.05 0.98 0.23
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.21% 1.25 1.19 1.18
Ratio of Net Income to Average Net Assets (Excluding Waivers) 0.29% 0.94 0.84 0.04
Portfolio Turnover Rate** 29% 41 59 67
Average Commission Rate Paid(2) $ 0.0223 0.0270 n/a n/a
</TABLE>
<TABLE>
<CAPTION>
CLASS Y (INSTITUTIONAL)* 1993 1992 1991 1990(1)
------------------------------------------------------
For a Share Outstanding Throughout the Period Ended June 30
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period 10.52 10.10 10.75 10.00
Net Investment Income 0.10 0.17 0.19 0.11
Realized and Unrealized Net Gains (Losses) on Securities 1.16 0.31 (0.44) 0.86
Distributions from Net Investment Income (0.07) -- (0.27) (0.09)
Distributions from Capital Gains -- (0.06) (0.13) (0.13)
Net Asset Value, End of Period 11.71 10.52 10.10 10.75
Total Return 12.06 4.90 (2.71) 9.74+
Net Assets, End of Period (000 omitted) 61,655 42,594 20,582 13,513
Ratio of Expenses to Average Net Assets 0.99 0.96 0.99 1.22
Ratio of Net Income to Average Net Assets 1.22 1.67 1.80 2.57
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.28 1.40 1.56 1.99
Ratio of Net Income to Average Net Assets (Excluding Waivers) 0.93 1.23 1.23 1.80
Portfolio Turnover Rate** 59 87 49 20
Average Commission Rate Paid(2) n/a n/a n/a n/a
</TABLE>
* On April 15, 1996, the Conestoga International Equity Fund was acquired by
CoreFunds. At that time, the Institutional Class shares of the Fund were
exchanged for Class Y shares.
**For the period ended June 30, 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 12, 1990. Unless otherwise noted, all ratios
for the period have been annualized.
(2) Presentation of the rate is only required for fiscal periods beginning after
September 1, 1995.
(3) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Fund.
CLASS Y (INSTITUTIONAL)
Shareholder Transaction Expenses none
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees .80%
12b-1 Fees none
Other Expenses After Fee Waivers(1) .36%
Total Operating Expenses After Fee Waivers(2) 1.16%
EXAMPLE
1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $12 37 64 141
$1,000 investment, assuming (1) a 5% annual
return and (2) redemption at the end
of each time period.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
(1) Absent voluntary waivers by the Administrator, Other Expenses would be .45%
of average net assets.
(2) Absent the fee waivers described above, Total Operating Expenses would have
been 1.25%. This fee waiver is voluntary and may be discontinued at any time
at the discretion of the service provider that is waiving its fee.
11
<PAGE>
BALANCED FUND
SUMMARY
Balanced Fund seeks to provide total return while preserving capital by
investing in a combination of common stocks and fixed income securities.
PORTFOLIO INVESTMENTS
The Fund invests in a combination of:
common stocks
convertible securities
fixed income securities and
Short-Term Obligations.
Under normal conditions, the Fund will invest a minimum of 25% of its assets in
senior fixed income securities and between 30% and 75% of its assets in common
stocks. Balanced Fund may also invest in U.S. dollar denominated securities of
foreign issuers (including ADRs).
In managing Balanced Fund, CoreStates Advisers combines separate equity, fixed
income and asset allocation strategies. Long-term growth is pursued through
equity holdings, and current income through fixed income securities and common
stock dividends. The asset allocation strategy shifts the stock / fixed income /
money market instrument mix based on their judgment of the relative
attractiveness of these markets and securities.
Balanced Fund strives to provide a return greater than indices such as the
Lipper Balanced Fund Average. (Please see page 36 for more information about
General Investment Policies and Practices.)
INVESTMENT OBJECTIVE
Balanced Fund seeks to provide total return while preserving capital.
RISK CONSIDERATIONS
Because Balanced Fund invests in both stocks and fixed income securities, it is
subject to five primary types of risk:
MARKET RISK - The possibility that stock prices in general will decline over
short, or even extended, periods of time. This is because stock markets tend to
be cyclical, with periods when stock prices generally rise and periods when
stock prices generally decline.
FUND RISK - The possibility that the Fund's performance during a specific period
may not meet or exceed that of the stock market as a whole.
INTEREST RATE RISK - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
CREDIT RISK - The possibility that an issuer will be unable to make timely
payments of either principal or interest.
CALL RISK - The possibility that securities with high interest rates will be
prepaid (or 'called') by the issuer prior to maturity during periods of falling
interest rates. This would require the Fund to invest the resulting proceeds
elsewhere, at generally lower interest rates. It is also known as Income Risk.
INVESTMENT SUITABILITY
Balanced Fund may be appropriate for investors who:
seek to capture the interest income of bonds
seek the capital appreciation of stocks and
want to reduce risk through diversification among these securities and asset
types.
FUND MANAGEMENT
Steve Dalton, a Vice President of CoreStates Advisers, is portfolio manager of
Balanced Fund. Mr. Dalton has been a senior portfolio manager of balanced
portfolios since 1986 and a member of the CoreStates Advisers' Equity Policy
Committee since 1990. (Please see page 45 for more information about the Fund's
Investment Adviser.)
12
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class Y shares of Balanced Fund. The financial highlights for the Fund for the
periods from inception through June 30, 1996 have been audited by Ernst & Young
LLP, independent auditors, whose report appears in CoreFunds' annual report
which accompanies the Statement of Additional Information. The annual report for
the Fund is available to shareholders at no charge by calling CoreFunds at
1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
CLASS Y (INSTITUTIONAL)* 1996 1996 1995 1994 1993(1)
--------------- ------------------------------------------------
For a Share Outstanding Throughout the Period Ended December 31(3) June 30
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.59 11.06 9.88 10.39 10.00
Net Investment Income $ 0.18 0.33 0.35 0.35 0.16
Realized and Unrealized Net Gains (Losses) on Securities $ 0.45 1.68 1.21 (0.51) 0.39
Distributions from Net Investment Income $ (0.18) (0.33) (0.35) (0.35) (0.16)
Distributions from Capital Gains $ (0.68) (0.15) (0.03) -- --
Net Asset Value, End of Period $ 12.36 12.59 11.06 9.88 10.39
Total Return 5.01%+ 18.41 16.21 (1.62) 5.52+
Net Assets, End of Period (000 omitted) $ 109,744 102,515 61,092 42,429 29,434
Ratio of Expenses to Average Net Assets 0.77% 0.81 0.73 0.62 0.45
Ratio of Net Income to Average Net Assets 2.86% 2.79 3.51 3.46 3.38
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.99% 1.03 1.07 1.08 1.39
Ratio of Net Income to Average Net Assets (Excluding Waivers) 2.64% 2.57 3.17 3.00 2.45
Portfolio Turnover Rate** 28% 74 46 56 21
Average Commission Rate Paid(2) $ 0.0610 0.0621 n/a n/a n/a
</TABLE>
* On April 15, 1996, the Conestoga Balanced Fund was acquired by CoreFunds.
At that time, the Institutional class shares of the Fund were exchanged for
Class Y shares.
**For the year ended June 30, 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 January 4, 1993. Unless otherwise noted, all ratios for
the period have been annualized.
(2) Presentation of the rate is only required for fiscal periods beginning after
September 1, 1995.
(3) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Fund.
CLASS Y (INSTITUTIONAL)
Shareholder Transaction Expenses 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 After Fee Waivers(2) .22%
Total Operating Expenses After Fee Waivers(3) .80%
EXAMPLE
1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $8 26 44 99
$1,000 investment, assuming (1) a 5% annual
return and (2) redemption at the end
of each time period.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
(1) Absent voluntary waivers, investment advisory fees would be .70% of average
net assets.
(2) Absent voluntary waivers by the Administrator, Other Expenses would be .31%
of average net assets.
(3) Absent the fee waivers described above, Total Operating Expenses would have
been 1.01%. These fee waivers are voluntary and may be discontinued at any
time at the discretion of the service provider that is waiving its fee.
13
<PAGE>
SHORT TERM INCOME FUND
SUMMARY
Short Term Income Fund seeks to provide investors with consistent income and
principal stability by investing in a portfolio of investment grade debt
securities.
PORTFOLIO INVESTMENTS
The Fund invests principally in investment grade debt securities including:
corporate bonds, debentures and 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.
If a security held by the Fund is downgraded below the minimum required ratings,
CoreStates Advisers will reassess the creditworthiness of the security.
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 the U.S.
('Yankee Bonds'). Normally, the Fund's portfolio securities will have maximum
expected or remaining maturities of three years or less. The Fund's normal
average dollar-weighted portfolio maturity is about one year.
Short Term Income Fund strives to provide a return greater than bond indices
such as the Merrill Lynch 1-year Treasury Bill Index. (Please see page 36 for
more information about General Investment Policies and Practices.)
INVESTMENT OBJECTIVE
Short Term Income Fund seeks consistent current income with relative stability
of principal.
RISK CONSIDERATIONS
Like all fixed income funds, Short Term Income Fund is subject to:
INTEREST RATE RISK - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
CREDIT RISK - The possibility that an issuer will be unable to make timely
payments of either principal or interest.
CALL RISK - The possibility that securities with high interest rates will
be prepaid (or 'called') by the issuer prior to maturity during periods of
falling interest rates. This would require the Fund to invest the resulting
proceeds elsewhere, at generally lower interest rates. This is also known as
Income Risk.
The Fund may also be subject to:
EVENT RISK - The possibility that corporate fixed income securities
may suffer substantial declines in credit quality and market value due to
corporate restructurings. While event risk may be high for certain corporate
securities held by the Fund, event risk in the aggregate should be low because
of the Fund's diversified holdings.
SPECIAL RISK FACTORS - The risk that mortgage-backed and asset-backed securities
may be retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of any premium paid.
INVESTMENT SUITABILITY
Short Term Income Fund may be appropriate for investors who:
are looking for a higher level of current income and
want low to moderate share price fluctuations.
FUND MANAGEMENT
John Ackler is Investment Officer of CoreStates Advisers and manages Short Term
Income Fund and Cash Reserve. He is also responsible for the management of the
CoreStates Liquidity Fund, as well as numerous individually managed fixed income
funds. Mr. Ackler joined CoreStates as an internal auditor in 1992 and
transferred to CoreStates Advisers in August 1993. (Please see page 45 for more
information about the Fund's Investment Adviser.)
14
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class Y shares of Short Term Income Fund. The financial highlights for the Fund
for the period November 1, 1995 through June 30, 1996 have been audited by Ernst
& Young LLP, independent auditors, whose report appears in CoreFunds' annual
report which accompanies the Statement of Additional Information. The financial
highlights for the Fund for the period ended October 31, 1995 were audited by
Coopers & Lybrand LLP, independent auditors. The annual report for the Fund is
available to shareholders at no charge by calling CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
INSTITUTIONAL
Unaudited CLASS*
CLASS Y (INSTITUTIONAL)(3) 1996 1996 1995(1)
--------------- --------- --------------
<S> <C> <C> <C>
For a Share Outstanding Throughout the Period Ended December 31(4) June 30 October 31
Net Asset Value, Beginning of Period $ 9.94 10.05 10.00
Net Investment Income $ 0.27 0.36 0.25
Realized and Unrealized Net Gains (Losses) on Securities $ 0.03 (0.08) 0.03
Distributions from Net Investment Income $ (0.27) (0.38) (0.23)
Distributions from Capital Gains $ -- (0.01) --
Net Asset Value, End of Period $ 9.97 9.94 10.05
Total Return(2) 3.05%+ 2.78 2.87+
Net Assets, End of Period (000 omitted) $30,449 30,132 36,059
Ratio of Expenses to Average Net Assets 0.46% 0.51 0.63
Ratio of Net Income to Average Net Assets 5.38% 5.31 5.43
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.04% 1.03 1.08
Ratio of Net Income to Average Net Assets (Excluding Waivers) 4.80% 4.79 4.98
Portfolio Turnover Rate 25% 102 40
</TABLE>
* On February 21, 1995, the shares of the Fund were redesignated as either
Retail or Institutional shares. On that date, 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. The basis for the
allocation was the relative net assets of each class of shares as of February
21, 1995. The results were combined with the results of operations and
distributions for each applicable class for the period February 21, 1995
through October 31, 1995. 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 reflect this allocation.
Also, on April 22, 1996, the Conestoga Short-Term Income Fund was acquired by
CoreFunds. At that time the Institutional Class shares of the Fund were
exchanged for Class Y shares.
+ This figure has not been annualized.
(1) Commenced operations May 15, 1995. Unless otherwise noted, all ratios for
the period have been annualized.
(2) Total return for the period ended June 30, 1996 is for an eight-month
period.
(3) The per share amount for the period ended June 30, 1996 represents the
period from November 1, 1995 to June 30, 1996. The prior year is for the
period from inception to October 31.
(4) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Fund.
CLASS Y (INSTITUTIONAL)
Shareholder Transaction Expenses none
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .25%
12b-1 Fees none
Other Expenses After Fee Waivers(2) .22%
Total Operating Expenses After Fee Waivers(3) .47%
EXAMPLE
1 Year 3 Years 5 Years 1o Years
You would pay the following expenses on a $5 15 26 59
$1,000 investment, assuming (1) a 5% annual
return and (2) redemption at the end of each
time period.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
(1) Absent voluntary waivers, investment advisory fees would be .74% of average
net assets.
(2) Absent voluntary waivers by the Administrator, Other Expenses
would be .31% of average net assets.
(3) Absent the fee waivers described above, Total Operating Expenses would have
been 1.05%. These fee waivers are voluntary, and may be discontinued at any
time at the discretion of the service provider that is waiving its fee.
15
<PAGE>
SHORT-INTERMEDIATE BOND FUND
SUMMARY
Short-Intermediate Bond Fund seeks to provide investors with income by investing
in a diversified portfolio of fixed income securities with maturities averaging
from two to five years.
PORTFOLIO INVESTMENTS
The Fund intends to invest at least 65% of its total assets in bonds under
normal market conditions. The Fund maintains a maximum average maturity of no
more than five years. By maintaining this maturity range, CoreStates Advisers
expects the Fund's net asset value to be relatively stable while providing
higher income than money market funds.
The Fund invests primarily in a portfolio of intermediate-term, investment
grade, fixed income obligations with an expected average weighted maturity of
two to five years including:
corporate debt securities (bonds and commercial paper)
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
If a security held by the Fund is downgraded below the minimum required ratings,
CoreStates Advisers will reassess the creditworthiness of the security.
Short-Intermediate Bond Fund strives to provide a return greater than bond
indices such as the Merrill Lynch 1-3 year Treasury Index. (Please see page 36
for more information about General Investment Policies and Practices.)
INVESTMENT OBJECTIVE
Short-Intermediate Bond Fund seeks a moderate level of current income consistent
with conservation of capital.
RISK CONSIDERATIONS
Like all fixed income funds, Short-Intermediate Bond Fund is subject to:
INTEREST RATE RISK - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
CREDIT RISK - The possibility that an issuer will be unable to make timely
payments of either principal or interest.
CALL RISK - The possibility that securities with high interest rates will
be prepaid (or 'called') by the issuer prior to maturity during periods of
falling interest rates. This would require the Fund to invest the resulting
proceeds elsewhere, at generally lower interest rates. This is also known as
Income Risk.
The Fund may also be subject to:
EVENT RISK - The possibility that corporate fixed income securities may suffer
substantial declines in credit quality and market value due to corporate
restructurings. While event risk may be high for certain corporate securities
held by the Fund, event risk in the aggregate should be low because of the
Fund's diversified holdings.
INVESTMENT SUITABILITY
Short-Intermediate Bond Fund may be appropriate for investors who:
are looking for a higher level of current income and
want low to moderate share price fluctuations.
FUND MANAGEMENT
Daniel R. Taylor is an Investment Officer of CoreStates Advisers and the
portfolio manager of the Short-Intermediate Bond Fund. He has been employed by
CoreStates for a number of years in various capacities, including Commercial
Lending Credit Analyst. (Please see page 45 for more information about the
Fund's Investment Adviser.)
16
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class Y shares of Short-Intermediate Bond Fund. The financial highlights for the
Fund for the periods from inception through June 30, 1996 have been audited by
Ernst & Young LLP, independent auditors, whose report appears in CoreFunds'
annual report which accompanies the Statement of Additional Information. The
annual report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
CLASS Y (INSTITUTIONAL)* 1996 1996 1995 1994 1993 1992(1)
--------------- --------------------------------------------------
For a Share Outstanding Throughout the Period Ended December 31(2) June 30
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.76 9.84 9.63 10.18 10.01 10.00
Net Investment Income $ 0.30 0.57 0.53 0.43 0.47 0.23
Realized and Unrealized Net Gains (Losses) on Securities $ 0.10 (0.08) 0.21 (0.53) 0.31 0.01
Distributions from Net Investment Income $ (0.30) (0.57) (0.53) (0.43) (0.47) (0.23)
Distributions from Capital Gains $ -- -- -- (0.02) (0.14) --
Net Asset Value, End of Period $ 9.86 9.76 9.84 9.63 10.18 10.01
Total Return 4.14%+ 5.05 8.22 (0.32) 7.90 2.49+
Net Assets, End of Period (000 omitted) $162,763 159,841 55,128 48,379 44,692 22,623
Ratio of Expenses to Average Net Assets 0.47% 0.55 0.60 0.58 0.42 0.11
Ratio of Net Income to Average Net Assets 6.03% 5.80 5.76 4.30 4.62 5.73
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.73% 0.81 0.84 0.86 0.86 0.84
Ratio of Net Income to Average Net Assets (Excluding Waivers) 5.77% 5.54 5.52 4.02 4.18 5.00
Portfolio Turnover Rate** 83% 257 405 299 188 51
</TABLE>
* On April 15, 1996, the Conestoga Intermediate Income Fund was acquired by
CoreFunds. At that time, the Institutional Class shares of the Fund were
exchanged for Class Y shares.
**For the year ended June 30, 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) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Fund.
CLASS Y (INSTITUTIONAL)
Shareholder Transaction Expenses none
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .29%
12b-1 Fees none
Other Expenses After Fee Waivers(2) .22%
Total Operating Expenses After Fee Waivers(3) .51%
EXAMPLE
1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $5 16 29 64
$1,000 investment, assuming (1) a 5%
annual return and (2) redemption at the
end of each time period.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
(1) Absent voluntary waivers, investment advisory fees would be .50% of average
net assets.
(2) Absent voluntary waivers by the Administrator, Other Expenses would be
.31% of average net assets.
(3) Absent the fee waivers described above, Total Operating Expenses would have
been .81%. These fee waivers are voluntary, and may be discontinued at any
time at the discretion of the service provider that is waiving its fee.
17
<PAGE>
GOVERNMENT INCOME FUND
SUMMARY
Government Income Fund seeks to provide investors with income, as well as
preservation of principal investment and liquidity by investing in a portfolio
of U.S. Government guaranteed securities.
PORTFOLIO INVESTMENTS
The Fund invests exclusively in:
U.S. Treasury securities
mortgage-backed securities issued or guaranteed by U.S. Government agencies and
repurchase agreements involving any of these obligations.
The Fund's average maturity is generally about seven years.
Government Income Fund strives to provide a return greater than bond indices
such as the Salomon Brothers Broad Investment Grade Bond Index. (Please see page
36 for more information about General Investment Policies and Practices.)
INVESTMENT OBJECTIVE
Government Income Fund seeks current income while preserving principal value and
maintaining liquidity.
RISK CONSIDERATIONS
Like all fixed income funds, Government Income Fund is subject to:
INTEREST RATE RISK - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
CREDIT RISK - The possibility that an issuer will be unable to make timely
payments of either principal or interest.
CALL RISK - The possibility that securities with high interest rates will be
prepaid (or 'called') by the issuer prior to maturity during periods of falling
interest rates. This would require the Fund to invest the resulting proceeds
elsewhere, at generally lower interest rates. This is also known as Income Risk.
The Fund may also be subject to:
SPECIAL RISK FACTORS - The risk that mortgage-backed and asset-backed securities
may be retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of any premium paid.
INVESTMENT SUITABILITY
Government Income Fund may be appropriate for investors who:
are looking for a higher level of current income and
want low to moderate share price fluctuations.
FUND MANAGEMENT
William T. Lawrence, a Vice President of CoreStates Advisers, is the portfolio
manager for Government Income Fund and Bond Fund. He joined CoreStates Advisers
in 1991. Prior to that, he was Vice President, Fixed Income Sales, for First
Boston Corp. (Please see page 45 for more information about the Fund's
Investment Adviser.)
18
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class Y shares of Government Income Fund. The financial highlights for the Fund
for the periods from inception through June 30, 1996 have been audited by Ernst
& Young LLP, independent auditors, whose report appears in CoreFunds' annual
report which accompanies the Statement of Additional Information. The annual
report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
CLASS Y (INSTITUTIONAL)* 1996 1996 1995 1994 1993(1)
-------------- -------------------------------------------------
For a Share Outstanding Throughout the Period Ended December 31(2) June 30
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.62 9.83 9.52 10.18 10.00
Net Investment Income $ 0.31 0.61 0.62 0.50 0.13
Realized and Unrealized Net Gains (Losses) on Securities $ 0.14 (0.21) 0.31 (0.62) 0.18
Distributions from Net Investment Income $ (0.31) (0.61) (0.62) (0.50) (0.13)
Distributions from Capital Gains $ -- -- -- (0.04) --
Net Asset Value, End of Period $ 9.76 9.62 9.83 9.52 10.18
Total Return 4.77%+ 4.09 10.26 (1.34) 3.12+
Net Assets, End of Period (000 omitted) $ 19,547 13,943 11,305 9,089 6,323
Ratio of Expenses to Average Net Assets 0.66% 0.64 0.59 0.50 0.44
Ratio of Net Income to Average Net Assets 6.38% 6.17 6.53 4.93 5.41
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.86% 0.89 0.98 1.00 1.10
Ratio of Net Income to Average Net Assets (Excluding Waivers) 6.18% 5.92 6.14 4.43 4.75
Portfolio Turnover Rate 80% 131 368 157 93
</TABLE>
* On April 22, 1996, the Series A shares of the Fund were redesignated Class Y
shares.
+ This figure has not been annualized.
(1) Commenced operations April 1, 1993. Unless otherwise noted, all ratios for
the period have been annualized.
(2) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Fund. THE INFORMATION
CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
CLASS Y (INSTITUTIONAL)
Shareholder Transaction Expenses none
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .47%
12b-1 Fees none
Other Expenses After Fee Waivers(2) .27%
Total Operating Expenses After Fee Waivers(3) .74%
EXAMPLE
1 Year 3 Years 5 Years 10 years
You would pay the following expenses on a $8 24 41 92
$1,000 investment, assuming (1) a 5%
annual return and (2) redemption at the
end of each time period.
(1) Absent voluntary waivers, investment advisory fees would be .50% of average
net assets.
(2) Absent voluntary waivers by the Administrator, Other Expenses
would be .36% of average net assets.
(3) Absent the fee waivers described above, Total Operating Expenses would have
been .86%. These fee waivers are voluntary and may be discontinued at any
time at the discretion of the service provider that is waiving its fee.
19
<PAGE>
BOND FUND
SUMMARY
Bond Fund seeks to provide investors with maximum long-term total return by
investing in a diversified portfolio of debt securities.
PORTFOLIO INVESTMENTS
The Fund normally invests at least 80% of its total assets in investment grade
debt securities of all types including:
domestic and foreign bonds, debentures and 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.
If a security held by the Fund is downgraded below the minimum required ratings,
CoreStates Advisers will reassess the creditworthiness of the security.
The Fund also may invest in:
first mortgage loans and participation certificates
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 convertible securities
and
Short-Term Obligations.
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 debt securities
rated below investment grade.
Bond Fund strives to provide a return greater than bond indices such as the
Lehman Aggregate Bond Index. (Please see page 36 for more information about
General Investment Policies and Practices.)
INVESTMENT OBJECTIVE
Bond Fund seeks to maximize long-term total return.
RISK CONSIDERATIONS
Like all fixed income funds, Bond Fund is subject to:
INTEREST RATE RISK - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
CREDIT RISK - The possibility that an issuer will be unable to make timely
payments of either principal or interest.
CALL RISK - The possibility that securities with high interest rates will be
prepaid (or 'called') by the issuer prior to maturity during periods of falling
interest rates. This would require the Fund to invest the resulting proceeds
elsewhere, at generally lower interest rates. This is also known as Income Risk.
The Fund may also be subject to:
EVENT RISK - The possibility that corporate fixed income securities may suffer
substantial declines in credit quality and market value due to corporate
restructurings. While event risk may be high for certain corporate securities
held by the Fund, event risk in the aggregate should be low because of the
Fund's diversified holdings.
SPECIAL RISK FACTORS - The risk that mortgage-backed and asset-backed securities
may be retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of any premium paid.
INVESTMENT SUITABILITY
Bond Fund may be appropriate for investors who:
are looking for a higher level of current income and
want low to moderate share price fluctuations.
FUND MANAGEMENT
William T. Lawrence, a Vice President of CoreStates Advisers, is the portfolio
manager for the Bond Fund and the Government Income Fund. He joined CoreStates
Advisers in 1991. Prior to that, he was Vice President, Fixed Income Sales, for
First Boston Corp. (Please see page 45 for more information about the Fund's
Investment Adviser.)
20
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class Y shares of Bond Fund. The financial highlights for the Fund for the
period November 1, 1995 through June 30, 1996 have been audited by Ernst & Young
LLP, independent auditors, whose report appears in CoreFunds' annual report
which accompanies the Statement of Additional Information. The financial
highlights for the Fund for the periods ended October 31, 1990 through October
31, 1995 were audited by Coopers & Lybrand LLP, independent auditors. The annual
report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
INSTITUTIONAL PRIOR
Unaudited CLASS* CLASS
CLASS Y (INSTITUTIONAL)(3) 1996 1996 1995 1994 1993
--------------- --------- --------------------------------------
For a Share Outstanding Throughout the Period Ended December 31(4) June 30 October 31
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.15 10.55 9.81 11.18 10.89
Net Investment Income $ 0.32 0.43 0.61 0.53 0.56
Realized and Unrealized Net Gains (Losses) on Securities $ 0.14 (0.30) 0.71 (1.04) 0.54
Distributions from Net Investment Income $ (0.32) (0.45) (0.58) (0.52) (0.56)
Distributions from Capital Gains $ -- (0.08) -- (0.34) (0.25)
Net Asset Value, End of Period $ 10.29 10.15 10.55 9.81 11.18
Total Return(2) 4.63%+ 1.23 13.87 (4.75) 10.63
Net Assets, End of Period (000 omitted) $195,046 198,605 194,442 23,377 27,346
Ratio of Expenses to Average Net Assets 0.56% 0.55 0.71 1.01 0.88
Ratio of Net Income to Average Net Assets 6.27% 6.28 6.09 5.07 5.16
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.04% 0.97 1.12 1.60 1.49
Ratio of Net Income to Average Net Assets (Excluding Waivers) 5.79% 5.86 5.68 4.48 4.55
Portfolio Turnover Rate 114% 190 352 232 158
</TABLE>
<TABLE>
<CAPTION>
CLASS Y (INSTITUTIONAL)(3) 1992 1991 1990(1)
-----------------------------------
For a Share Outstanding Throughout the Period Ended
<S> <C> <C> <C>
Net Asset Value, Beginning of Period 10.65 9.96 10.00
Net Investment Income 0.70 0.78 0.50
Realized and Unrealized Net Gains (Losses) on Securities 0.32 0.69 (0.04)
Distributions from Net Investment Income (0.68) (0.78) (0.50)
Distributions from Capital Gains (0.10) -- --
Net Asset Value, End of Period 10.89 10.65 9.96
Total Return(2) 9.82 15.16 4.64+
Net Assets, End of Period (000 omitted) 15,180 7,255 4,593
Ratio of Expenses to Average Net Assets 0.46 0.47 0.68
Ratio of Net Income to Average Net Assets 6.78 7.71 7.75
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.24 1.41 1.62
Ratio of Net Income to Average Net Assets (Excluding Waivers) 6.01 6.78 6.81
Portfolio Turnover Rate 99 47 23
</TABLE>
* On February 21, 1995, the shares of the Fund were redesignated as either
Retail or Institutional shares. On that date, 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. The basis for the
allocation was the relative net assets of each class of shares as of February
21, 1995. The results were combined with the results of operations and
distributions for each applicable class for the period February 21, 1995
through October 31, 1995. 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 reflect this allocation.
Also, on April 22, 1996, the Conestoga Bond Fund was acquired by CoreFunds. At
that time the Institutional Class shares of the Fund were exchanged for Class
Y shares.
+ This figure has not been annualized.
(1) Commenced operations February 28, 1990. Unless otherwise noted, all ratios
for the period have been annualized.
(2) Total return for the period ended June 30, 1996 is for an eight-month
period.
(3) The per share amount for the period ended June 30, 1996 represents the
period from November 1, 1995 to June 30, 1996. All prior years are for the
period from November 1 to October 31.
(4) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Fund.
CLASS Y (INSTITUTIONAL)
Shareholder Transaction Expenses none
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .35%
12b-1 Fees none
Other Expenses After Fee Waivers(2) .21%
Total Operating Expenses After Fee Waivers(3) .56%
EXAMPLE
1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $6 18 31 70
$1,000 investment, assuming (1) a 5%
annual return and (2) redemption at the end
of each time period.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
(1) Absent voluntary waivers, investment advisory fees would be .74% of average
net assets.
(2) Absent voluntary waivers by the Administrator, Other Expenses would be .30%
of average net assets.
(3) Absent the fee waivers described above, Total Operating Expenses would have
been 1.04%. These fee waivers are voluntary and may be discontinued at any
time at the discretion of the service provider that is waiving its fee.
21
<PAGE>
GLOBAL BOND FUND
SUMMARY
Global Bond Fund seeks to provide investors with capital appreciation and income
by investing in a portfolio of U.S.
and foreign fixed income securities.
PORTFOLIO INVESTMENTS
The Fund invests primarily in U.S. government and corporate debt
securities and fixed income securities of foreign issuers denominated in U.S.
dollars and other currencies. Under normal circumstances, the Fund will invest
at least 65% of its total assets in investment grade fixed income securities,
including:
debt obligations of foreign or domestic government entities
corporate obligations and
obligations of supranational agencies, including the International Bank of
Reconstruction and Development, the InterAmerican Development Bank, and the
Asian Development Bank.
If a security held by the Fund is downgraded below the minimum required ratings,
CoreStates Advisers will reassess the creditworthiness of the security. There
are no restrictions on the average maturity of the Fund or the maturity of any
single instrument.
The Fund will invest in securities of issuers, governments or agencies located
in at least three of the following countries:
Austria Finland Japan Spain
Australia France Luxembourg Sweden
Belgium Germany Netherlands Switzerland
Canada Ireland New Zealand United Kingdom
Denmark Italy Norway United States
Issuers are located in a country if they are headquartered or doing business
primarily there.
The Fund may invest up to 5% of its assets in debt obligations that are
denominated in the currencies of developing countries and that are of comparable
quality, as determined by the Adviser and Sub-Adviser, Analytic o TSA
International, Inc. ('Analytic').
Global Bond Fund strives to provide a return greater than bond indices such as
the J.P. Morgan Global Government Bond Index $U.S. hedged. (Please see page 36
for more information about General Investment Policies and Practices.)
INVESTMENT OBJECTIVE
Global Bond Fund seeks capital appreciation and current income.
RISK CONSIDERATIONS
There are special risks associated with international investing. See 'Foreign
Securities' information on page 36.
Also, like all fixed income funds, Global Bond Fund is subject to:
INTEREST RATE RISK - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
CREDIT RISK - The possibility that an issuer will be unable to make timely
payments of either principal or interest.
CALL RISK - The possibility that securities with high interest rates will be
prepaid (or 'called') by the issuer prior to maturity during periods of falling
interest rates. This would require the Fund to invest the resulting proceeds
elsewhere, at generally lower interest rates. This is also known as Income Risk.
INVESTMENT SUITABILITY
Global Bond Fund may be appropriate for investors who are:
looking for capital appreciation and current income
seeking enhanced overall returns by virtue of international
diversification
able to hold their investment over a long time period in anticipation of the
returns that foreign securities can provide
able to tolerate fluctuations in the principal value of their investment and
aware of the unique risks of international investing, including their exposure
to currency fluctuations.
FUND MANAGEMENT
CoreStates Advisers has delegated some of its portfolio management functions to
Analytic (the "Sub-Adviser").
George McNeill is Managing Director of Analytic and the portfolio manager for
Global Bond Fund. He has over 25 years of experience in managing fixed income
portfolios. He served as the senior investment officer for Gillett Brothers
(1977-1981), Reserve Asset Managers (1981-1989), and Axe-Houghton, Ltd.
(1989-1996). Together with United Asset Management Corporation of Boston, Mr.
McNeill founded Alpha Global in 1996 which then merged with Analytic. (Please
see page 45 for more information about the Fund's Investment Adviser and
Sub-Adviser.)
22
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class Y shares of Global Bond Fund. The financial highlights for the Fund for
the periods from inception through June 30, 1996 have been audited by Ernst &
Young LLP, independent auditors, whose report appears in CoreFunds' annual
report which accompanies the Statement of Additional Information. The annual
report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
CLASS Y (INSTITUTIONAL)* 1996 1996 1995 1994(1)
-------------- --------------------------------------
For a Share Outstanding Throughout the Period Ended December 31(2) June 30
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.70 9.62 9.06 10.00
Net Investment Income $ 0.26 0.47 0.62 0.25
Realized and Unrealized Net Gains (Losses) on Securities $ 0.17 0.30 0.24 (1.15)
Distributions from Net Investment Income $ (0.43) (0.69) (0.30) (0.04)
Distributions from Capital Gains $ -- -- -- --
Net Asset Value, End of Period $ 9.70 9.70 9.62 9.06
Total Return 4.48%+ 8.00 9.70 (9.00)+
Net Assets, End of Period (000 omitted) $34,599 32,998 26,898 24,957
Ratio of Expenses to Average Net Assets 0.78% 0.71 0.64 0.73
Ratio of Net Income to Average Net Assets 5.53% 5.81 6.84 5.04
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.96% 0.95 1.03 1.12
Ratio of Net Income to Average Net Assets (Excluding Waivers) 5.35% 5.57 6.45 4.65
Portfolio Turnover Rate 13% 67 133 161
</TABLE>
* On April 22, 1996, the Series A shares of the Fund were redesignated Class Y
shares.
+ This figure has not been annualized.
(1) Commenced operations December 15, 1993. Unless otherwise noted, all ratios
for the period have been annualized.
(2) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Fund.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
CLASS Y (INSTITUTIONAL)
Shareholder Transaction Expenses none
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .50%
12b-1 Fees none
Other Expenses After Fee Waivers(2) .34%
Total Operating Expenses After Fee Waivers(3) .84%
EXAMPLE
1 Year 3 Years 5 Years 10 years
You would pay the following expenses on a $9 27 47 104
$1,000 investment, assuming (1) a 5%
annual return and (2) redemption at the
end of each time period.
(1) Absent voluntary waivers, investment advisory fees would be .60% of average
net assets.
(2) Absent voluntary waivers by the Administrator, Other Expenses would be .43%
of average net assets.
(3) Absent the fee waivers described above, Total Operating Expenses would have
been 1.03%. These fee waivers are voluntary and may be discontinued at any
time at the discretion of the service provider that is waiving its fee.
23
<PAGE>
INTERMEDIATE MUNICIPAL BOND FUND
SUMMARY
Intermediate Municipal Bond Fund seeks to provide investors with federal
tax-free income, as well as preservation of principal investment by investing in
a portfolio of high quality, municipal securities with intermediate-term
maturities.
PORTFOLIO INVESTMENTS
The Fund invests in a diversified portfolio of high quality, intermediate-term
municipal securities. Substantially all of the Fund's assets are invested in
intermediate-term municipal obligations, including those issued by, or on behalf
of:
states
municipalities
territories and possessions of the U.S.
the District of Columbia and
their political subdivisions, agencies, instrumentalities and authorities.
If a security held by the Fund is downgraded below the minimum required ratings,
CoreStates Advisers will reassess the creditworthiness of the security.
The Fund often purchases securities supported by credit enhancements from
financial institutions. Changes in the credit quality of these institutions
could adversely affect the share price.
Under normal circumstances, at least 80% of the Fund's assets are invested in
municipal securities, the interest on which is exempt from federal income taxes,
in the opinion of counsel to the issuer. Up to 20% of the Fund's assets can be
invested in taxable obligations for defensive purposes or when appropriate
tax-exempt securities are not available.
Intermediate Municipal Bond Fund strives to provide a return greater than bond
indices such as the Lehman Brothers 7-Year Municipal Bond Index. (Please see
page 36 for more information about General Investment Policies and Practices.)
INVESTMENT OBJECTIVE
Intermediate Municipal Bond Fund seeks the highest level of income exempt from
federal income taxes that can be obtained, consistent with the preservation of
capital.
RISK CONSIDERATIONS
Like all fixed income funds, Intermediate Municipal Bond Fund is subject to:
INTEREST RATE RISK - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
CREDIT RISK - The possibility that an issuer (or its guarantor) will be unable
to make timely payments of either principal or interest.
CALL RISK - The possibility that securities with high interest rates will be
prepaid (or 'called') by the issuer prior to maturity during periods of falling
interest rates. This would require the Fund to invest the resulting proceeds
elsewhere, at generally lower interest rates. This is also known as Income Risk.
INVESTMENT SUITABILITY
Intermediate Municipal Bond Fund may be appropriate for investors who:
are looking for an investment that offers a higher level of current income
exempt from federal income taxes and some state income taxes and
want low to moderate share price fluctuations.
FUND MANAGEMENT
Joseph R. Baxter is a Vice President of CoreStates Advisers and head of the
Tax-Advantaged unit at CoreStates Advisers. He manages Intermediate Municipal
Bond Fund, Pennsylvania Municipal Bond Fund, and New Jersey Municipal Bond Fund.
He is also directly responsible for management of the CoreStates Pennsylvania
Tax-Exempt Common Trust Fund. In October 1984, he joined the Investment
Management Division of CoreStates Bank, N.A. (Please see page 45 for more
information about the Fund's Investment Adviser.)
24
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class Y shares of Intermediate Municipal Bond Fund. The financial highlights for
the Fund for the periods from inception through June 30, 1996 have been audited
by Ernst & Young LLP, independent auditors, whose report appears in CoreFunds'
annual report which accompanies the Statement of Additional Information. The
annual report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
CLASS Y (INSTITUTIONAL)* 1996 1996 1995 1994 1993(1)
--------------- ---------------------------------------------
For a Share Outstanding Throughout the Period Ended December 31(2) June 30
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.92 9.83 9.68 10.09 10.00
Net Investment Income $ 0.21 0.37 0.38 0.39 0.04
Realized and Unrealized Net Gains (Losses) on Securities $ 0.14 0.09 0.15 (0.41) 0.09
Distributions from Net Investment Income $(0.21) (0.37) (0.38) (0.39) (0.04)
Distributions from Capital Gains $ -- -- -- -- --
Net Asset Value, End of Period $10.06 9.92 9.83 9.68 10.09
Total Return 3.54%+ 4.74 5.58 (0.27) 1.33+
Net Assets, End of Period (000 omitted) $ 955 403 365 1,088 2,009
Ratio of Expenses to Average Net Assets 0.53% 0.81 0.82 0.63 0.58
Ratio of Net Income to Average Net Assets 4.17% 3.73 3.91 3.91 2.74
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.91% 1.31 1.26 1.17 1.45
Ratio of Net Income to Average Net Assets (Excluding Waivers) 3.79% 3.23 3.47 3.37 1.87
Portfolio Turnover Rate 8% 10 9 43 10
</TABLE>
* On April 22, 1996, the Series A shares of the Fund were redesignated Class Y
shares.
+ This figure has not been annualized.
(1) Commenced operations May 3, 1993. Unless otherwise noted, all ratios for the
period have been annualized.
(2) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Fund.
CLASS Y (INSTITUTIONAL)
Shareholder Transaction Expenses none
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .07%
12b-1 Fees none
Other Expenses After Fee Waivers(2) .52%
Total Operating Expenses After Fee Waivers(3) .59%
EXAMPLE
1 Year 3 Years 5 Years 10 years
You would pay the following expenses on a $6 19 33 74
$1,000 investment, assuming (1) a 5%
annual return and (2) redemption at the
end of each time period.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
(1) Absent voluntary waivers, investment advisory fees would be.50% of average
net assets.
(2) Absent voluntary waivers by the Administrator, Other Expenses would be .61%
of average net assets.
(3) Absent the fee waivers described above, Total Operating Expenses would have
been 1.11%. These fee waivers are voluntary and may be discontinued at any
time at the discretion of the service provider that is waiving its fee.
25
<PAGE>
PENNSYLVANIA MUNICIPAL BOND FUND
SUMMARY
Pennsylvania Municipal Bond Fund seeks to provide investors with income free of
federal and Pennsylvania income taxes, as well as preservation of principal
investment by investing in a portfolio of high grade municipal securities.
PORTFOLIO INVESTMENTS
The Fund invests primarily in municipal securities, including:
municipal bonds rated in one of the three highest ratings categories and
municipal notes rated in one of the two highest ratings categories.
The Fund may invest up to 20% of its assets in municipal bonds rated BBB by S&P
or Baa by Moody's Investors Services, Inc. ('Moody's'). If a security held by
the Fund is downgraded below the minimum required ratings, CoreStates Advisers
will reassess the creditworthiness of the security. The Fund will not hold
securities rated below BB.
Under normal circumstances, at least 80% of the Fund's assets will be invested
in municipal securities, the interest on which is exempt from federal income
tax. 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'). There are no restrictions on the average
maturity of the Fund or the maturity of a single instrument.
The Fund will generally invest more than 25% of its net assets in municipal
securities whose issuers are located in Pennsylvania. The Fund may also invest
up to 20% of its assets in taxable obligations, including:
commercial paper
unrated securities of comparable quality, as determined by CoreStates Advisers
and
securities subject to the Federal Alternative Minimum Tax ("AMT").
Pennsylvania Municipal Bond Fund strives to provide a return greater than bond
indices such as the Lehman Brothers Pennsylvania Bond Index. (Please see page 36
for more information about General Investment Policies and Practices.)
INVESTMENT OBJECTIVE
Pennsylvania Municipal Bond Fund seeks current income exempt from federal and
Pennsylvania income taxation with preservation of capital.
RISK CONSIDERATIONS
Like all fixed income funds, Pennsylvania Municipal Bond Fund is subject to:
INTEREST RATE RISK - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
CREDIT RISK - The possibility that an issuer (or its guarantor) will be unable
to make timely payments of either principal or interest.
CALL RISK - The possibility that securities with high interest rates will be
prepaid (or 'called') by the issuer prior to maturity during periods of falling
interest rates. This would require the Fund to invest the resulting proceeds
elsewhere, at generally lower interest rates. This is also known as Income Risk.
The Fund may also be subject to:
SPECIAL RISK FACTORS - The Fund's concentration of investments in Pennsylvania
Municipal Securities raises special investment considerations. Changes in the
economic condition and governmental policies of the Commonwealth of Pennsylvania
and its municipalities could adversely affect the value of the Fund. See
'Special Risk Factors--Pennsylvania Municipal Securities' in the Statement of
Additional Information.
INVESTMENT SUITABILITY
Pennsylvania Municipal Bond Fund may be appropriate for investors who:
are Pennsylvania residents
are looking for an investment that offers a higher level of current income
exempt from federal income taxes and Pennsylvania state income taxes and
want low to moderate share price fluctuations.
FUND MANAGEMENT
Joseph R. Baxter is a Vice President of CoreStates Advisers and head of the
Tax-Advantaged unit at CoreStates Advisers. He manages Intermediate Municipal
Bond Fund, Pennsylvania Municipal Bond Fund, and New Jersey Municipal Bond Fund.
He is also directly responsible for management of the CoreStates Pennsylvania
Tax-Exempt Common Trust Fund. In October 1984, he joined the Investment
Management Division of CoreStates Bank, N.A. (Please see page 45 for more
information about the Fund's Investment Adviser.)
26
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class Y shares of Pennsylvania Municipal Bond Fund. The financial highlights for
the Fund for the periods from inception through June 30, 1996 have been audited
by Ernst & Young LLP, independent auditors, whose report appears in CoreFunds'
annual report which accompanies the Statement of Additional Information. The
annual report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
CLASS Y (INSTITUTIONAL)* 1996 1996 1995 1994(1)
-------------- -------------------------------------
For a Share Outstanding Throughout the Period Ended December 31(2) June 30
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.22 10.16 9.95 10.00
Net Investment Income $ 0.27 0.55 0.51 0.06
Realized and Unrealized Net Gains (Losses) on Securities $ 0.21 0.06 0.21 (0.05)
Distributions from Net Investment Income $(0.27) (0.55) (0.51) (0.06)
Distributions from Capital Gains $ -- -- -- --
Net Asset Value, End of Period $10.43 10.22 10.16 9.95
Total Return 4.75%+ 6.02 7.50 0.14+
Net Assets, End of Period (000 omitted) $9,888 8,864 2,272 434
Ratio of Expenses to Average Net Assets 0.09% 0.21 0.39 0.42
Ratio of Net Income to Average Net Assets 5.25% 5.25 5.26 5.09
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.84% 0.96 1.14 1.17
Ratio of Net Income to Average Net Assets (Excluding Waivers) 4.50% 4.50 4.51 4.34
Portfolio Turnover Rate** 23% 92 18 3
</TABLE>
* On April 15, 1996, the Conestoga Pennsylvania Tax-Free Bond Fund was acquired
by CoreFunds. At that time, the Institutional Class Shares of the Fund were
exchanged for Class Y Shares.
**For the year ended June 30, 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 May 16, 1994. Unless otherwise noted, all ratios for
the period have been annualized.
(2) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Fund.
CLASS Y (INSTITUTIONAL)
Shareholder Transaction Expenses none
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .00%
12b-1 Fees none
Other Expenses After Fee Waivers(2) .08%
Total Operating Expenses After Fee Waivers(3) .08%
EXAMPLE
1 Year 3 Years 5 Years 10 years
You would pay the following expenses on a $1 3 5 10
$1,000 investment, assuming (1) a 5%
annual return and (2) redemption at the
end of each time period.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
(1) Absent voluntary waivers, investment advisory fees would be .50% of average
net assets.
(2) Absent voluntary waivers by the Administrator, Other Expenses would be .33%
of average net assets.
(3) Absent the fee waivers described above, Total Operating Expenses would have
been .83%. These fee waivers are voluntary and may be discontinued at any
time at the discretion of the service provider that is waiving its fee.
27
<PAGE>
NEW JERSEY MUNICIPAL BOND FUND
SUMMARY
New Jersey Municipal Bond Fund seeks to provide investors with income free of
federal and New Jersey income taxes, as well as preservation of principal
investment by investing in a portfolio of high grade municipal securities.
PORTFOLIO INVESTMENTS
The Fund invests primarily in municipal securities, including:
municipal bonds rated in one of the three highest ratings categories and
municipal notes rated in one of the two highest ratings categories.
The Fund may invest up to 20% of its assets in municipal bonds rated BBB by S&P
or Baa by Moody's. If a security held by the Fund is downgraded below the
minimum required ratings, CoreStates Advisers will reassess the creditworthiness
of the security. The Fund will not hold securities rated below BB.
Under normal circumstances, at least 80% of this Fund's assets will be invested
in municipal securities, the interest on which is exempt from federal income
tax. 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'). There are no restrictions on the average maturity of the
Fund or the maturity of a single instrument.
The Fund will generally invest more than 25% of its net assets in municipal
securities whose issuers are located in New Jersey. The Fund may also invest up
to 20% of its assets in taxable obligations, including:
commercial paper
unrated securities of comparable quality, as determined by CoreStates Advisers
and
securities subject to AMT.
New Jersey Municipal Bond Fund strives to provide a return greater than bond
indices such as the Lehman Brothers New Jersey Bond Index. (Please see page 36
for more information about General Investment Policies and Practices.)
INVESTMENT OBJECTIVE
New Jersey Municipal Bond Fund seeks current income exempt from federal and New
Jersey income taxation with preservation of capital.
RISK CONSIDERATIONS
Like all fixed income funds, New Jersey Municipal Bond Fund is subject to:
INTEREST RATE RISK - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
CREDIT RISK - The possibility that an issuer (or its guarantor) will be unable
to make timely payments of either principal or interest.
CALL RISK - The possibility that securities with high interest rates will be
prepaid (or 'called') by the issuer prior to maturity during periods of falling
interest rates. This would require the Fund to invest the resulting proceeds
elsewhere, at generally lower interest rates. This is also known as Income Risk.
The Fund may also be subject to:
SPECIAL RISK FACTORS - The Fund's concentration of investments in New Jersey
Municipal Securities raises special investment considerations. Changes in the
economic condition and governmental policies of the State of New Jersey and its
municipalities could adversely affect the value of the Fund. See 'Special Risk
Factors-- New Jersey Municipal Securities' in the Statement of Additional
Information.
INVESTMENT SUITABILITY
New Jersey Municipal Bond Fund may be appropriate for investors who:
are New Jersey residents
are looking for an investment that offers a higher level of current income
exempt from federal income taxes and New Jersey state income taxes and
want low to moderate share price fluctuations.
FUND MANAGEMENT
Joseph R. Baxter is a Vice President of CoreStates Advisers and head of the
Tax-Advantaged unit at CoreStates Advisers. He manages Intermediate Municipal
Bond Fund, Pennsylvania Municipal Bond Fund, and New Jersey Municipal Bond Fund.
He is also directly responsible for management of the CoreStates Pennsylvania
Tax-Exempt Common Trust Fund. In October 1984, he joined the Investment
Management Division of CoreStates Bank, N.A. (Please see page 45 for more
information about the Fund's Investment Adviser.)
28
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class Y shares of New Jersey Municipal Bond Fund. The financial highlights for
the Fund for the periods from inception through June 30, 1996 have been audited
by Ernst & Young LLP, independent auditors, whose report appears in CoreFunds'
annual report which accompanies the Statement of Additional Information. The
annual report for the Fund is available to shareholders
at no charge by calling CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
CLASS Y (INSTITUTIONAL)* 1996 1996 1995 1994(1)
-------------- --------------------------------------
For a Share Outstanding Throughout the Period Ended December 31(2) June 30
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.08 10.12 9.94 10.00
Net Investment Income $ 0.25 0.51 0.52 0.06
Realized and Unrealized Net Gains (Losses) on Securities $ 0.13 0.02 0.18 (0.06)
Distributions from Net Investment Income $(0.25) (0.51) (0.52) (0.06)
Distributions from Capital Gains $(0.07) (0.06) -- --
Net Asset Value, End of Period $10.14 10.08 10.12 9.94
Total Return 3.83%+ 5.28 7.25 0.01+
Net Assets, End of Period (000 omitted) $1,346 1,317 1,550 1,432
Ratio of Expenses to Average Net Assets 0.31% 0.37 0.42 0.43
Ratio of Net Income to Average Net Assets 4.91% 4.93 5.21 5.07
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.06% 1.12 1.17 1.35
Ratio of Net Income to Average Net Assets (Excluding Waivers) 4.16% 4.18 4.46 4.15
Portfolio Turnover Rate 9% 21 32 13
</TABLE>
* On April 22, 1996, the Series A shares of the Fund were redesignated Class Y
shares.
+ This figure has not been annualized.
(1) Commenced operations May 16, 1994. Unless otherwise noted, all ratios for
the period have been annualized.
(2) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Fund.
CLASS Y (INSTITUTIONAL)
Shareholder Transaction Expenses none
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .00%
12b-1 Fees none
Other Expenses After Fee Waivers(2) .13%
Total Operating Expenses After Fee Waivers(3) .13%
EXAMPLE
1 Year 3 Years 5 Years 10 years
You would pay the following expenses on $1 4 7 17
a $1,000 investment, assuming (1) a 5%
annual return and (2) redemption at the
end of each time period.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
(1) Absent voluntary waivers, investment advisory fees would be .50% of average
net assets.
(2) Absent voluntary waivers by the Administrator, Other Expenses would be .38%
of average net assets.
(3) Absent the fee waivers described above, Total Operating Expenses would have
been .88%. These fee waivers are voluntary and may be discontinued at any
time at the discretion of the service provider that is waiving its fee.
29
<PAGE>
TREASURY RESERVE
SUMMARY
Treasury Reserve seeks to provide investors with income, liquidity and stability
of principal by investing in direct obligations of the U.S. Treasury and
repurchase agreements.
PORTFOLIO INVESTMENTS
The Fund invests in a portfolio of direct obligations of the U.S. Treasury,
specifically:
Treasury Bills
Treasury Bonds and
Treasury Notes.
The Fund may also invest in:
separately traded interest and principal component parts of U.S. Treasury
obligations that are transferable through the Federal book-entry system, known
as Separately Traded Registered Investment and Principal Securities ("STRIPS")
and
repurchase agreements relating to U.S. Treasury obligations.
The Fund is governed by SEC Rules which impose certain quality, maturity and
diversification requirements. The Fund's assets are valued using the amortized
cost method, which enables the Fund to maintain a stable net asset value per
share. All securities purchased by the Fund must have remaining maturities of 13
months or less.
Treasury Reserve strives to provide a return greater than money market indices
such as the IBC Donoghue 100% Treasury and Repurchase Index. (Please see page 36
for more information about General Investment Policies and Practices.)
RISK CONSIDERATIONS
Treasury Reserve may be subject to:
INTEREST RATE RISK - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
INVESTMENT OBJECTIVE
Treasury Reserve seeks current interest income, liquidity and safety of
principal.
INVESTMENT SUITABILITY
Treasury Reserve may be appropriate for investors who:
are unwilling to accept the credit risk associated with non-Treasury money
market funds
are unable to tolerate fluctuations in the principal value of their investments
and
want an investment that provides current interest income at competitive rates of
return.
Although the Fund is managed to maintain a stable price per share of $1.00,
there is no guarantee that price will be constantly maintained.
FUND MANAGEMENT
Ronald R. Brasten is Senior Investment Officer of CoreStates Advisers and
manages Treasury Reserve . He also manages CoreFund Elite Treasury Reserve and
has investment responsibility for individually managed corporate and personal
accounts. He joined CoreStates Advisers in August 1989. (Please see page 45 for
more information about the Fund's Investment Adviser.)
30
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class Y shares of Treasury Reserve. The financial highlights for the Fund for
the periods from inception through June 30, 1996 have been audited by Ernst &
Young LLP, independent auditors, whose report appears in CoreFunds' annual
report which accompanies the Statement of Additional Information. The annual
report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
CLASS Y (INSTITUTIONAL)* 1996 1996 1995 1994
--------------- ------------------------------------
For a Share Outstanding Throughout the Period Ended December 31(2)
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 1.00 1.00 1.00
Net Investment Income $ 0.02 0.05 0.05 0.03
Distributions from Net Investment Income $ (0.02) (0.05) (0.05) (0.03)
Net Asset Value, End of Period $ 1.00 1.00 1.00 1.00
Total Return 2.46%+ 5.20 4.98 2.91
Net Assets, End of Period (000 omitted) $847,112 892,562 479,206 484,974
Ratio of Expenses to Average Net Assets 0.50% 0.50 0.48 0.48
Ratio of Net Income to Average Net Assets 4.84% 5.02 4.91 2.87
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.71% 0.77 0.85 0.86
Ratio of Net Income to Average Net Assets (Excluding Waivers) 4.63% 4.75 4.54 2.49
</TABLE>
<TABLE>
<CAPTION>
CLASS Y (INSTITUTIONAL)* 1993 1992 1991 1990 1989(1)
--------------------------------------------------------------------
For a Share Outstanding Throughout the Period Ended June 30
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period 1.00 1.00 1.00 1.00 1.00
Net Investment Income 0.03 0.05 0.07 0.08 0.06
Distributions from Net Investment Income (0.03) (0.05) (0.07) (0.08) (0.06)
Net Asset Value, End of Period 1.00 1.00 1.00 1.00 1.00
Total Return 2.96 4.73 7.11 8.38 4.66+
Net Assets, End of Period (000 omitted) 446,788 444,388 427,439 270,524 220,479
Ratio of Expenses to Average Net Assets 0.46 0.38 0.37 0.37 0.20
Ratio of Net Income to Average Net Assets 2.89 4.58 6.80 8.03 9.26
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.85 0.82 0.82 0.84 0.84
Ratio of Net Income to Average Net Assets (Excluding Waivers) 2.50 4.14 6.35 7.56 8.62
</TABLE>
* On April 22, 1996, the Series A shares of the Fund were redesignated Class Y
shares.
+ This figure has not been annualized.
(1) Commenced operations November 21, 1988. Unless otherwise noted, all ratios
for the period have been annualized.
(2) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Fund.
CLASS Y (INSTITUTIONAL)
Shareholder Transaction Expenses none
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .30%
12b-1 Fees none
Other Expenses After Fee Waivers(2) .21%
Total Operating Expenses After Fee Waivers(3) .51%
EXAMPLE
1 Year 3 Years 5 Years 10 years
You would pay the following expenses on a $5 16 29 64
$1,000 investment, assuming (1) a 5%
annual return and (2) redemption at the
end of each time period.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
(1) Absent voluntary waivers, investment advisory fees would be .40% of average
net assets.
(2) Absent voluntary waivers by the Administrator, Other Expenses would be .30%
of average net assets.
(3) Absent the fee waivers described above, Total Operating Expenses would have
been 70%. These fee waivers are voluntary and may be discontinued at any
time at the discretion of the service provider that is waiving its fee.
31
<PAGE>
CASH RESERVE
SUMMARY
Cash Reserve seeks to provide investors with a high level of income, liquidity
and relative stability of principal by investing in a diversified portfolio of
the highest quality money market instruments.
PORTFOLIO INVESTMENTS
The Fund invests in a diversified portfolio of money market instruments of the
highest quality, including:
U.S. dollar-denominated government obligations
bank obligations and
commercial paper.
The Fund is governed by SEC Rules which impose certain quality, maturity and
diversification requirements. The Fund's assets are valued using the amortized
cost method, which enables the Fund to maintain a stable net asset value per
share. All securities purchased by the Fund must have remaining maturities of 13
months or less.
Cash Reserve strives to provide a return greater than money market indices such
as the IBC Donoghue All-Taxable Money Fund Average. (Please see page 36 for more
information about General Investment Policies and Practices.)
RISK CONSIDERATIONS
Cash Reserve may be subject on a limited basis to:
INTEREST RATE RISK - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
CREDIT RISK - The possibility that an issuer will be unable to make timely
payments of either principal or interest.
CALL RISK - The possibility that securities with high interest rates will be
prepaid (or 'called') by the issuer prior to maturity during periods of falling
interest rates. This would require the Fund to invest the resulting proceeds
elsewhere, at generally lower interest rates. This is also known as Income Risk.
INVESTMENT OBJECTIVE
Cash Reserve seeks as high a level of current income as is consistent with
liquidity and relative stability of principal.
INVESTMENT SUITABILITY
Cash Reserve may be appropriate for investors who:
are unable to tolerate fluctuations in the principal value of their investments
and
want an investment that provides current interest income at competitive rates of
return.
Although the Fund is managed to maintain a stable price per share of $1.00,
there is no guarantee that price will be constantly maintained.
FUND MANAGEMENT
John Ackler is Investment Officer of CoreStates Advisers and manages Short Term
Income Fund and Cash Reserve. He is also responsible for the management of the
CoreStates Liquidity Fund, as well as numerous individually managed fixed income
funds. Mr. Ackler joined CoreStates as an internal auditor in 1992 and
transferred to CoreStates Advisers in August 1993. (Please see page 45 for more
information about the Fund's Investment Adviser.)
32
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class Y shares of Cash Reserve. The financial highlights for the Fund for the
periods from inception through June 30, 1996 have been audited by Ernst & Young
LLP, independent auditors, whose report appears in CoreFunds' annual report
which accompanies the Statement of Additional Information. The annual report for
the Fund is available to shareholders at no charge by calling CoreFunds at
1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
CLASS Y (INSTITUTIONAL)* 1996 1996 1995 1994 1993 1992
-------------- ------------------------------------------------------
For a Share Outstanding Throughout the Period Ended December 31(1) June 30
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 1.00 1.00 1.00 1.00 1.00
Net Investment Income $ 0.02 0.05 0.05 0.03 0.03 0.05
Distributions from Net Investment Income $ (0.02) (0.05) (0.05) (0.03) (0.03) (0.05)
Net Asset Value, End of Period $ 1.00 1.00 1.00 1.00 1.00 1.00
Total Return 2.51+ 5.26 5.15 3.00 2.99 4.83
Net Assets, End of Period (000 omitted) $787,560 790,211 510,341 505,273 460,832 568,672
Ratio of Expenses to Average Net Assets 0.49% 0.50 0.48 0.47 0.46 0.38
Ratio of Net Income to Average Net Assets 4.92% 5.09 5.04 2.95 2.97 4.68
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.70% 0.78 0.85 0.85 0.85 0.82
Ratio of Net Income to Average Net Assets (Excluding Waivers) 4.71% 4.81 4.67 2.57 2.58 4.24
</TABLE>
<TABLE>
<CAPTION>
CLASS Y (INSTITUTIONAL)* 1991 1990 1989 1988 1987
--------------------------------------------------------------
For a Share Outstanding Throughout the Period Ended
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period 1.00 1.00 1.00 1.00 1.00
Net Investment Income 0.07 0.08 0.09 0.07 0.06
Distributions from Net Investment Income (0.07) (0.08) (0.09) (0.07) (0.06)
Net Asset Value, End of Period 1.00 1.00 1.00 1.00 1.00
Total Return 7.28 8.65 8.87 6.70 5.85
Net Assets, End of Period (000 omitted) 473,187 316,290 186,151 82,399 35,054
Ratio of Expenses to Average Net Assets 0.37 0.34 0.37 0.55 0.54
Ratio of Net Income to Average Net Assets 6.94 8.28 8.62 6.54 5.60
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.82 0.80 0.90 1.14 1.01
Ratio of Net Income to Average Net Assets (Excluding Waivers) 6.49 7.82 8.05 5.96 5.13
</TABLE>
* On April 22, 1996, the Series A shares of the Fund were redesignated Class Y
shares.
+ This figure has not been annualized.
(1) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Fund.
CLASS Y (INSTITUTIONAL)
Shareholder Transaction Expenses none
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .30%
12b-1 Fees none
Other Expenses After Fee Waivers(2) .21%
Total Operating Expenses After Fee Waivers(3) .51%
EXAMPLE
1 Year 3 Years 5 Years 10 years
You would pay the following expenses on a $5 16 29 64
$1,000 investment, assuming (1) a 5%
annual return and (2) redemption at the
end of each time period.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
(1) Absent voluntary waivers, investment advisory fees would be .40% of average
net assets.
(2) Absent voluntary waivers by the Administrator, Other Expenses would be .30%
of average net assets.
(3) Absent the fee waivers described above, Total Operating Expenses would have
been .70%. These fee waivers are voluntary and may be discontinued at any
time at the discretion of the service provider that is waiving its fee.
33
<PAGE>
TAX-FREE RESERVE
SUMMARY
Tax-Free Reserve seeks to provide investors with a high level of tax-free
income, liquidity and stability of principal by investing in short-term
obligations issued by, or on behalf of, state and local governments.
PORTFOLIO INVESTMENTS
The Fund invests at least 80% of its assets in tax-free securities under normal
market conditions. The interest on each security must be exempt from federal
income tax, in the opinion of counsel to the issuer. The Fund invests in a
diversified portfolio of short-term, tax-free obligations issued by, or on
behalf of:
states
municipalities
territories and possessions of the U.S.
the District of Columbia and
their political subdivisions, agencies, instrumentalities and authorities.
Up to 20% of all assets in the Fund can be invested in taxable debt securities
for defensive purposes or when appropriate tax-exempt securities are not
available. The manager works to take advantage of key seasonal supply and demand
factors that govern short-term rates.
The Fund often purchases securities supported by credit enhancements from
financial institutions. Changes in the credit quality of these institutions
could adversely affect the share price.
The Fund is governed by SEC Rules which impose certain quality, maturity and
diversification requirements. The Fund's assets are valued using the amortized
cost method, which enables the Fund to maintain a stable net asset value per
share. All securities purchased by the Fund must have remaining maturities of 13
months or less.
Tax-Free Reserve strives to provide a return greater than money market indices
such as the IBC Donoghue Tax-Free Average. (Please see page 36 for more
information about General Investment Policies and Practices.)
INVESTMENT OBJECTIVE
Tax-Free Reserve seeks 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.
RISK CONSIDERATIONS
Tax-Free Reserve may be subject on a limited basis to:
INTEREST RATE RISK - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
CREDIT RISK - The possibility that an issuer (or its guarantor) will be unable
to make timely payments of either principal or interest.
CALL RISK - The possibility that securities with high interest rates will be
prepaid (or 'called') by the issuer prior to maturity during periods of falling
interest rates. This would require the Fund to invest the resulting proceeds
elsewhere, at generally lower interest rates. This is also known as Income Risk.
INVESTMENT SUITABILITY
Tax-Free Reserve may be 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 taxes. Although the
Fund is managed to maintain a stable price per share of $1.00, there is no
guarantee that price will be constantly maintained.
FUND MANAGEMENT
Folu Abiona is Senior Investment Officer for CoreStates Advisers and manages
Tax-Free Reserve. Ms. Abiona also manages CoreFund Elite Tax-Free Reserve. She
joined CoreStates Advisers in 1985 and became fixed income portfolio manager in
1990. (Please see page 45 for more information about the Fund's Investment
Adviser.)
34
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class Y shares of Tax-Free Reserve. The financial highlights for the Fund for
the periods from inception through June 30, 1996 have been audited by Ernst &
Young LLP, independent auditors, whose report appears in CoreFunds' annual
report which accompanies the Statement of Additional Information. The annual
report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
CLASS Y (INSTITUTIONAL)* 1996 1996 1995 1994 1993 1992 1991(1)
-------------- ------------------------------------------------------
For a Share Outstanding Throughout the Period Ended December 31(2) June 30
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00
Net Investment Income $ 0.02 0.03 0.03 0.02 0.02 0.03 0.01
Distributions from Net Investment Income $ (0.02) (0.03) (0.03) (0.02) (0.02) (0.03) (0.01)
Net Asset Value, End of Period $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00
Total Return 1.53%+ 3.20 3.12 2.03 2.23 3.56 1.07+
Net Assets, End of Period (000 omitted) $119,214 104,196 62,756 79,384 72,255 80,147 42,573
Ratio of Expenses to Average Net Assets 0.49% 0.48 0.48 0.49 0.51 0.37 0.06
Ratio of Net Income to Average Net Assets 3.03% 3.14 3.09 2.00 2.20 3.39 4.20
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.70% 0.76 0.85 0.87 0.89 0.88 0.81
Ratio of Net Income to Average Net Assets (Excluding Waivers) 2.82% 2.86 2.72 1.62 1.82 2.88 3.45
</TABLE>
* On April 22, 1996, the Series A shares of the Fund were redesignated Class Y
shares.
+ This figure has not been annualized.
(1) Commenced operations April 16, 1991. Unless otherwise noted, all ratios for
the period have been annualized.
(2) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Fund.
Class y (institutional)
Shareholder Transaction Expenses none
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .30%
12b-1 Fees none
Other Expenses After Fee Waivers(2) .21%
Total Operating Expenses After Fee Waivers(3) .51%
EXAMPLE
1 Year 3 Years 5 Years 10 years
You would pay the following expenses on $5 16 29 64
a $1,000 investment, assuming (1) a 5%
annual return and (2) redemption at the
end of each time period.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
(1) Absent voluntary waivers, investment advisory fees would be .40% of average
net assets.
(2) Absent voluntary waivers by the Administrator, Other Expenses would be .30%
of average net assets.
(3) Absent the fee waivers described above, Total Operating Expenses would have
been .70%. These fee waivers are voluntary and may be discontinued at any
time at the discretion of the service provider that is waiving its fee.
35
<PAGE>
GENERAL INFORMATION
General Investment Policies and Practices
In addition to making investments as described above, the Funds may engage in a
number of additional investment practices. These practices are defined below.
The tables starting on page 39 describe which Funds engage in which practices.
ADRs, EDRs, and GDRs
ADRs are American Depositary Receipts, typically issued by a U.S. financial
institution (a 'depositary'). They evidence ownership interests in a security or
a pool of securities issued by a foreign issuer and deposited with the
depositary. Generally, ADRs are designed for trading in the U.S. securities
market.
EDRs are European Depositary Receipts, typically issued by a non-U.S. financial
institution. They evidence ownership interests in a security or a pool of
securities issued by either a U.S. or foreign issuer. Generally, EDRs are
designed for trading in European securities markets.
GDRs are Global Depositary Receipts. They are issued globally and evidence a
similar ownership arrangement. Generally, GDRs are designed for trading in
non-U.S. securities markets.
ASSET-BACKED SECURITIES
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 investor. The Funds will invest only in 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.
BANK OBLIGATIONS
Investments in domestic branches of U.S. banks, specifically:
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.
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.
FOREIGN CURRENCY TRANSACTIONS
Contracts used to hedge against adverse movements in exchange rates between
currencies. Transactions may be conducted either on a cash basis or through
forward contracts. A forward contract involves an obligation to purchase or sell
a specific currency at a future date at a price set at the time of the contract.
FOREIGN SECURITIES
Securities of foreign issuers, securities issued by foreign branches of U.S.
banks and foreign banks, Canadian commercial paper and Europaper (U.S.
dollar-denominated commercial paper of foreign issuers).
There are special risks associated with international investing:
Currency Risk - The possibility that changes in foreign exchange rates will
affect, favorably or unfavorably, the value of foreign securities.
Volatility - Investments in foreign stock markets can be more volatile than
investments in U.S. markets. Diplomatic, political or economic developments
could affect investment in foreign countries
Expense Considerations - Fixed commissions on many foreign stock exchanges are
generally higher than negotiated commissions on U.S. exchanges. Expenses for
custodial arrangements of foreign securities may be somewhat greater than
typical expenses for custodial arrangements for handling U.S. securities of
equal value.
Foreign Taxes - 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 securities comprising the portfolio.
Regulatory Environment - 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. 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 record-keeping standards than those applicable to
domestic branches of U.S. banks and U.S. domestic issuers.
36
<PAGE>
FUTURES CONTRACTS OR OPTIONS TRANSACTIONS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specified security at a specified
future time and at a specified price.
An option on a futures contract gives the purchaser the right, in exchange for a
premium, to assume a position in a futures contract at a specified exercise
price during the term of the option.
A put option gives the purchaser of the option the right to sell, and the writer
of the option the obligation to buy, the underlying security at any time during
the option period.
A call option gives the purchaser of the option the right to buy, and the writer
of the option the obligation to sell, the underlying security at any time during
the option period.
These transactions are used to:
maintain cash reserves while remaining fully invested
facilitate trading
reduce transaction costs or
seek higher investment returns when the 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. See 'Risks Associated with Futures
and Options' in the Statement of Additional Information.
ILLIQUID SECURITIES
Securities that cannot be sold or disposed of in seven days or less at
approximately their carrying value.
LENDING OF SECURITIES
The lending of portfolio securities to qualified brokers, dealers, banks and
other financial institutions to realize additional net investment income. The
Funds receive collateral of at least 100% of the loaned securities' market value
plus accrued interest.
MORTGAGE-BACKED SECURITIES
Securities backed by pools of mortgages which pass principal and/or interest
payments to the investor.
Some are issued or guaranteed by U.S. Government agencies, such as:
GNMA, or Government National Mortgage Association, which issues modified
pass-through securities evidencing 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. Both interest and
principal payments (including prepayments) are passed through monthly to the
investor. The full faith and credit of the United States is pledged to the
timely payment of principal and interest by GNMA.
Fannie Mae, a federally chartered and stockholder-owned corporation, issues
pass-through certificates which are guaranteed as to principal and interest by
Fannie Mae.
FHLMC, or Federal Home Loan Mortgage Corporation, 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 Fannie Mae and FHLMC are not backed by the
full faith and credit of the United States.
Mortgaged-backed securities also include:
CMOs, collateralized mortgage obligations and
REMICs, real estate mortgage investment conduits, a type of CMO.
CMOs and REMICs are mortgage pass-through securities issued in multiple classes.
Each class of a CMO is issued with a specified 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.
MUNICIPAL SECURITIES
Securities issued by municipalities, including:
General Obligation Securities, secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of principal and interest.
Revenue Securities, 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 the Funds are revenue securities whose credit quality is usually directly
related to the credit standing of the corporate user of the facility involved.
Moral Obligation Bonds, 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.
Variable Rate Demand Obligations, tax-exempt obligations upon which interest is
payable at a floating or variable rate. The Fund 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.
37
<PAGE>
Municipal Lease Obligations, 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.
OTHER INVESTMENT COMPANIES
Shares of investment companies may be purchased by the Funds to the extent
consistent with applicable law.
PUT TRANSACTIONS
The option to sell a security at a fixed price before maturity. The premium paid
reduces the underlying yield.
REPURCHASE AGREEMENTS
The purchase of securities subject to the seller's agreement to repurchase them
at a mutually agreed upon date and price. The seller must be deemed creditworthy
and maintain collateral of at least 100% of the repurchase price.
REVERSE REPURCHASE AGREEMENTS
The sale of securities subject to the Fund's agreement to repurchase them at a
mutually agreed upon date and price. The Fund must maintain collateral of at
least 100% of the repurchase price.
SHORT-TERM OBLIGATIONS
Commercial paper (including variable amount master demand notes), bankers'
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.
SWAPS
Agreements used to shift the investment exposure from one type of investment to
another, such as:
interest rate swaps - 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.
currency swaps - the swap agreement provides for interest payments in different
currencies. The parties might agree to exchange the notional principal amount as
well.
caps and floors - one party agrees to make payments only under specified
circumstances, usually in return for payment of a fee by the other party.
collars - combine elements of buying a cap and selling a floor.
Swaps can be highly volatile and may have a considerable impact on a Fund's
performance. Any obligation a Fund may have under these types of arrangements
must be covered by setting aside liquid assets.
VARIABLE AMOUNT MASTER DEMAND NOTES
Unsecured demand notes issued by corporations, insurance companies and other
borrowers that permit the indebtedness to vary and provide for periodic
adjustments in the interest rate according to the terms of the instrument.
Although there is no secondary market in the notes, the Fund may demand payment
of principal and accrued interest at any time.
U.S. GOVERNMENT OBLIGATIONS
Securities of the U.S. Government, including:
U.S. Treasury Securities - 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.
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; obligations
supported by the discretionary authority of the U.S. Treasury to purchase the
agency's obligations; and obligations supported only by the credit of the agency
or instrumentality. 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.
STRIPS - zero coupon U.S. Treasury securities, sold at a substantial discount
and redeemed at face value at maturity without interim cash payments of interest
or principal. This discount is amortized over the life of the security, and the
amortization constitutes the income earned on the security for both accounting
and tax purposes.
WHEN-ISSUED SECURITIES
Securities which settle on a future date. However, the interest rate is fixed on
the purchase date and no interest accrues before settlement. The Fund must
maintain liquid assets in an amount at least equal to the value of its
commitments to purchase such securities.
38
<PAGE>
TEMPORARY INVESTMENTS
Certain of the Funds are permitted to make temporary investments in Short-Term
Obligations. Such investments may be used to:
invest uncommitted cash balances
maintain liquidity to meet shareholder redemptions or
take a temporary defensive position against potential or serious stock market
declines.
The tables which follow describe which investments, including temporary
investments, each Fund may make.
<TABLE>
<CAPTION>
Equity Core Growth Special International
Index Equity Equity Equity Growth Balanced
<S> <C> <C> <C> <C> <C> <C>
ADRs, EDRs and GDRs - 35% - 35% o 45%
Asset-backed securities - - - - - 70%
Bank obligations 10% 35% 35% 35% 35% 45%
Foreign currency transactions - - - - o -
Foreign securities - - - 35% o 35%
Futures contracts - 5%(a)/20%(b) - 5%(a)/20%(b) 5%(a)/20%(b) -
Illiquid securities 10% 15% 10% 15% 10% 15%
Investment companies 10% 10% 10% 10% 10% 10%
Lending of securities 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3%
Mortgage-backed securities - - - - - 70%
Options transactions - 5%(a)/20%(b) - 5%(a)/20%(b) 5%(a)/20%(b) -
Repurchase agreements 10% 35% 35% 35% 35% 45%
Reverse repurchase agreements 10% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3%
U.S. Government obligations 10% 35% 35% 35% 35% 45%
When-issued securities 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3%
TEMPORARY INVESTMENTS
Cash 100% 100% 100% 100% 100% 100%
Short-term obligations 100% 100% 100% 100% 100% 100%
Long-term and short-term
debt instruments, rated A or higher - 10% 10% 10% 10% 100%
INVESTMENT RESTRICTIONS
Securities of any one issuer(c), (d) 5% 5% 5% 5% 5% 5%
Outstanding voting securities of any one issuer 10% 10% 10% 10% 10% 10%
Securities of issuers in any one industry 25% 25% 25% 25% 25% 25%
Expected annual portfolio turnover *100% *100% *100% *100% *100% *100%(e)
</TABLE>
* Less than
o Fund may invest in security without limitation
- - Fund may not invest.
Percentages are of total assets (except Illiquid Securities, which are shown as
a percentage of net assets).
(a) Fund may not purchase futures contracts or options where premiums and margin
deposit exceed 5% of total assets.
(b) Fund may not enter into futures contracts or options where its obligations
would exceed 20% of total assets.
(c) Except securities of the U.S. Government, its agencies or instrumentalities.
(d) Except that up to 25% of the Fund's total assets may be invested without
regard to the 5% limitation.
(e) Annual portfolio turnover for the fixed income portion of Balanced Fund is
not expected to exceed 250%.
39
<PAGE>
<TABLE>
<CAPTION>
Short- Intermediate PA NJ
Short Term Intermediate Government Global Municipal Municipal Municipal
Income Bond Income Bond Bond Bond Bond Bond
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asset-backed securities o 35% - o 35% - - -
Bank obligations o 35% - 35% 35% - - -
Foreign currency transactions - - - - o - - -
Foreign securities - - - 35% o - - -
Futures contracts - - - - 5%(a)/20%(b) - - -
Illiquid securities 15% 10% 15% 15% 15% 15% 15% 15%
Investment companies 10% 10% 10% 10% 10% 10% 10% 10%
Lending of securities 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3%
Mortgage-backed securities o 35% o o 35% - - -
Municipal securities - - - - - o o o
Options transactions - - - 5%(a)/20%(b) - - -
Put transactions (c) - o - - o o o o
Repurchase agreements o 35% 35% 35% 35% 20% 20% 20%
Reverse repurchase agreements 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 10% 10% 10%
Swaps - - - - o - - -
U.S. Government obligations o o o o o 20% 20% 20%
When-issued securities 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 25% 25% 25%
TEMPORARY INVESTMENTS
Taxable obligations 100% 100% 100% 100% 100% *20% *20% *20%
Short-term obligations,
U.S. dollar and foreign 100% 100% 100% 100% 100%(g) - - -
INVESTMENT RESTRICTIONS
Securities of any one issuer (d), (e) 5% 5% 5% 5% - 5% - -
Outstanding voting securities
of any one issuer 10% 10% 10% 10% - 10% - -
Securities of issuers in
any one industry 25% 25% 25% 25% 25% 25%(f) 25%(f) 25%(f)
Expected annual portfolio turnover *100% *250% *150% *200% *150% *100% *100% *100%
</TABLE>
* Less than
o Fund may invest in security without limitation.
- - Fund may not invest.
Percentages are of total assets (except Illiquid Securities, which are shown as
a percentage of net assets).
(a) Fund may not purchase futures contracts or options where premiums and margin
deposit exceed 5% of total assets.
(b) Fund may not enter into futures contracts or options where its obligations
would exceed 20% of total assets.
(c) Except premiums on all puts outstanding will not exceed 2% of total assets.
(d) Except securities of the U.S. Government, its agencies or instrumentalities.
(e) Except that up to 25% of the Fund's total assets may be invested without
regard to the 5% limitation.
(f) Limitation does not apply to investments in tax-exempt securities issued by
governments or political subdivisions of governments.
(g) May also purchase short-term obligations denominated in foreign currencies.
40
<PAGE>
<TABLE>
<CAPTION>
Treasury Reserve Cash Reserve Tax-Free Reserve
<S> <C> <C> <C>
Asset-backed securities - o -
Bank obligations - o 20%
Illiquid securities 10% 10% 10%
Investment companies 10% 10% 10%
Lending of securities 33 1/3% 33 1/3% 33 1/3%
Mortgage-backed securities - o 20%
Municipal securities - - o
Put transactions (a) - - o
Repurchase agreements o o 20%
Reverse repurchase agreements 10% 10% 10%
U.S. Government obligations o o 20%
Variable amount master demand notes - o -
When-issued securities - - 25%
TEMPORARY INVESTMENTS
Cash 100% 100% 100%
Taxable obligations 100% 100% *20%
INVESTMENT RESTRICTIONS
Securities of any one issuer (b), (c) 5% 5% 5%
Securities of issuers in any one industry NA 25% 25%(d)
</TABLE>
* Less than
o Fund may invest in security without limitation.
- - Fund may not invest.
Percentages are of total assets (except Illiquid Securities, which are shown as
a percentage of net assets).
(a) Except premiums on all puts outstanding will not exceed 2% of total assets.
(b) Except securities of the U.S. Government, its agencies or instrumentalities.
(c) Except that up to 25% of the Fund's total assets may be invested without
regard to the 5% limitation.
(d) Limitation does not apply to investments in tax-exempt securities issued by
governments or political subdivisions of governments.
41
<PAGE>
Distributions
Shareholders of each Fund are entitled to any distributions from the net
investment income and capital gains earned on investments held by the Fund,
provided that they are shareholders of record on the date the distributions are
declared ('Record Date').
Class Y Shares of the Money Market Funds begin earning income on the business
day on which the purchase order for the shares is executed. They continue to
earn income through, and including, the day before the redemption order for
these shares is executed.
Class Y Shares of the Fixed Income Funds begin earning income on the business
day following the day on which the purchase order for the shares is executed and
continue to earn income through, and including, the day on which the redemption
order for these shares is executed.
Distributions 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 Opening Form:
Cash Dividend Option - To receive income distributions in cash and capital gains
distributions in additional shares of the Fund at net asset value.
All Cash Option - To receive both income and capital gains distributions in
cash.
If neither option is selected on the Account Opening Form, the Transfer Agent
will automatically reinvest all income and capital gains distributions in
additional shares at the net asset value in effect at the close of business on
the reinvestment date. Distributions are automatically paid in cash (along with
any redemption proceeds) within seven business days of a shareholder closing an
account with the Fund.
The distributions from Class Y Shares are normally higher than those from Class
A or Class C Shares because of the distribution and transfer agent expenses
charged to Class A and Class C Shares.
Distributions from the Net Investment Income of:
Domestic Equity Funds and Global Bond Fund are declared and paid to shareholders
on a quarterly basis.
International Growth Fund are periodically declared and paid to shareholders.
Domestic Fixed Income Funds and Money Market Funds are declared daily as a
dividend and paid monthly to shareholders.
NOTE: DISTRIBUTIONS PAID SHORTLY AFTER THE PURCHASE OF SHARES BY AN INVESTOR,
ALTHOUGH IN EFFECT A RETURN OF CAPITAL, ARE TAXABLE AS ORDINARY INCOME.
Distributions of any capital gains will be made at least annually for each Fund.
Taxes
The following is only a brief summary of some of the important tax
considerations generally affecting the Funds and their shareholders. We have not
attempted to present a tax treatment of the Funds or their shareholders, and
this discussion is not intended as a substitute for careful tax planning.
Potential investors and shareholders 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 other CoreFunds portfolios. Each Fund intends to qualify
for the favorable tax treatment afforded a 'regulated investment company' under
the Code.
Whether paid in cash or in additional shares, distributions attributable to a
Fund's net investment income (including ordinary income and net short-term
capital gains) will be taxable to shareholders as ordinary income. This includes
any distributions attributable to taxable net investment income of Tax-Free
Reserve or Intermediate Municipal Bond Fund.
Capital gains distributions of all Funds will be taxable as long-term capital
gain, regardless of how long a shareholder has held the shares.
If a Fund declares distributions payable to shareholders of record on a date in
October, November or December of any year, the distributions 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.
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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
in connection with an exchange among the CoreFunds portfolios.
In the opinion of counsel, distributions made by 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.
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. If either Fund holds equity or debt securities of
foreign corporations valued at more than 50% of total assets at the close of any
taxable year, the Fund may elect (for U.S. federal income tax purposes) to treat
each shareholder as having additional income equal to a proportionate amount of
the foreign taxes paid by the Fund and as having directly paid these foreign
taxes. If a Fund makes this decision, shareholders will be treated as having
directly earned a portion of the Fund's gross income from foreign sources.
Shareholders will be subject to U.S. federal income taxes for this additional
income from foreign sources net of the foreign taxes paid. The Fund will make
this decision only if it deems it to be in the best interests of its
shareholders and will notify shareholders accordingly.
TREASURY RESERVE
CASH RESERVE
TAX-FREE RESERVE
Investments in STRIPS and Receipts 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 these obligations even
though the Fund has not received any interest payments on the 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 the
imputed income, which may occur at a time when the investment adviser would not
have chosen to sell the securities and which may result in a taxable gain or
loss.
INTERMEDIATE MUNICIPAL BOND FUND
PENNSYLVANIA MUNICIPAL BOND FUND
NEW JERSEY MUNICIPAL BOND FUND
TAX-FREE RESERVE
Each of these Funds expects to qualify to pay tax-exempt interest income
distributions to its shareholders. In general, the Fund's shareholders may
exclude tax-exempt income distributions from their gross income, unless their
specific circumstances disallow it. Intermediate Municipal Bond Fund and
Tax-Free Reserve are permitted to purchase 'private activity bonds' that are
subject to the Federal Alternative Minimum Tax (the 'AMT') consistent with their
20% limitation on taxable obligations.
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. 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.
Corporate shareholders should note that all tax-exempt interest income
distributions are includable in the computation of 'adjusted current earnings'
for AMT purposes, regardless of when the bonds from which they are derived were
issued or whether they are derived from 'private activity bonds.' Accordingly,
corporate shareholders should consult their tax advisers regarding the impact
that holding shares of these Funds would have on their own AMT liability.
Tax-exempt interest income distributions 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.
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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 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.
Distributions made by 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. territories and possessions.
To the extent that gain on the disposition of a share represents gain realized
on Pennsylvania Municipal Securities held by 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 in 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:
maintaining its registration as a registered investment company
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
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 the
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.
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 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) 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 adding the value of all of the Fund's portfolio securities and
other assets, subtracting the liabilities, and dividing by the total 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 is normally determined as
of 12:00 noon (Eastern time) on each business day. These Funds are managed to
maintain a stable price per share of $1.00.
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PORTFOLIO PRICING
Portfolio securities that 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 that business day or, if there is no such reported sale,
the current bid price. 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 to reflect
their fair market value, pursuant to procedures adopted by the Board of
Directors.
International Growth Fund
Global Bond Fund
Securities listed on a foreign exchange are valued at the most recent closing
price available before the assets are valued. All prices of listed securities
are taken from the exchange where the security is primarily traded.
Money Market Funds
The assets in the Money Market Funds are valued based upon the amortized cost
method, in accordance with rules adopted under the Investment Company Act. With
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).
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
Fund. CoreStates Advisers is a wholly-owned subsidiary of CoreStates Bank, N.A.,
which is itself a wholly-owned subsidiary of CoreStates Financial Corp
('CoreStates Corp'). CoreStates Corp, based in Philadelphia, Pennsylvania, is
one of the 25 largest bank holding companies in the United States.
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, as well as related
investment advisory, research, trading and fund management functions. 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,
Philadelphia, PA 19102.
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.
As investment adviser, CoreStates Advisers manages the investment portfolio of
each Fund, makes decisions about and places orders for all purchases and sales
of a Fund's portfolio securities, and maintains certain records relating to
these 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 for
International Growth Fund to Martin Currie and Aberdeen Managers, and, for
Global Bond Fund, to Analytic, under separate Sub-Advisory Agreements between
CoreStates Advisers and Martin Currie, Aberdeen Managers and Analytic,
respectively (the "Sub-Advisers").
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Under a multiple manager structure, CoreStates Advisers has general oversight
responsibility for the investment advisory services provided to International
Growth Fund by Martin Currie and Aberdeen Managers. CoreStates Advisers is also
responsible for managing the allocation of assets between the Fund's
Sub-Advisers. Accordingly, each Sub-Adviser will be responsible for the
day-to-day investment management of all or a portion of the assets of the Fund.
However, having multiple sub-advisers responsible for investing separate
portions of the Fund's assets creates the need for coordination among
sub-advisers.
As sub-advisers to International Growth Fund and Global Bond Fund, the
Sub-Advisers manage the investment portfolio of their respective Funds, make
decisions about and place orders for the majority of the purchases and sales of
the Fund's portfolio securities, and maintain certain records relating to these
purchases and sales. The Sub-Advisers 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.
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 established to provide foreign investment advisory services to U.S. taxable
and tax-exempt funds seeking diversification into international markets. Martin
Currie is located at Saltire Court, 20 Castle Terrace, Edinburgh EH 2ES,
Scotland.
Aberdeen Managers, a Delaware corporation located in Fort Lauderdale, Florida,
is wholly owned by Aberdeen Trust PLC, a publicly held corporation based in the
United Kingdom. A subsidiary of CoreStates 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 to provide
foreign investment advisory services in the U.S. Aberdeen Managers is located at
NationsBank Tower, 22nd Floor, Fort 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 Analytic TSA International, Inc. and is in the
process of merging with Analytico TSA 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 located at 25/28 Old
Burlington Street, London WIX 1LB, England.
ADMINISTRATOR AND TRANSFER AGENT
SEI Fund Resources ('SFR' or the 'Administrator'), with principal offices at 530
East Swedesford Road, Wayne, PA 19087, acts as the administrator for each Fund.
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 the 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 Investments Distribution Co. (the 'Distributor'), with principal offices at
1 Freedom Valley Drive, Oaks, PA 19456, serves as each Fund's distributor
pursuant to a Distribution Agreement.
With respect to the Money Market Funds, the Distributor may provide promotional
incentives, from time to time and at its own expense, 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.
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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 and income 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 and capital gains distributions paid
during the period.
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. (The 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
shares, 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 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.
How to Purchase and Redeem Shares
PURCHASE OF SHARES
Shares of the Funds are sold on a continuous basis by the Distributor. Shares
may also be purchased through CoreStates Securities Corp. Shares of the Funds
are only offered to residents of states in which the shares are eligible for
purchase.
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.
We recognize receipt of an order to purchase shares by Federal Funds wire on the
business day of the wire, but only if you notify CoreFunds Investor Services at
1-800-355-CORE by 12:00 noon (Eastern Time) of your intention to wire money.
Before wiring funds, make sure that wire instructions include your account
number.
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Please wire money to:
CORESTATES PHIL
Philadelphia, PA
ABA 031000011
for credit to:
COREFUNDS
A/C 0169-0541
[ACCOUNT NUMBER]
For Equity and Fixed Income Funds, federal funds must be transmitted or
delivered to the Fund's custodian by close of business on the next business day.
For Money Market Funds, federal funds must be transmitted or delivered to the
Fund's custodian by close of business on the same day.
We will execute an order on any business day at the net asset value per share
determined on that day if we receive it:
before 4:00 p.m. for an equity or fixed income fund or
before 12:00 noon for a money market fund.
We will determine the net asset value as of 4:00 p.m. (12:00 noon for a money
market fund) on that date.
If we receive an order after 4:00 p.m. on any business day for an equity or
fixed income fund, or after 12:00 noon for a money market fund, we will execute
it on the next business day of the Fund.
We recognize receipt of an order when the Transfer Agent or its authorized agent
receives it. A Fund may establish special procedures to expedite receipt of
orders from institutional investors.
The minimum investment amount is $1,000,000 for the initial purchase of shares.
This minimum may be waived at the discretion of the Distributor. There is no
minimum for subsequent investments. The Distributor reserves the right to reject
any purchase order when it determines that it is not in the best interests of
the Fund and its shareholders to accept it.
Every shareholder of record will receive a confirmation of each new share
transaction with a Fund. The confirmation will also show the total number of
shares the Transfer Agent is holding in safekeeping for the account of the
shareholder. Certificates representing shares in the Funds will not be issued.
Institutions will record beneficial ownership of shares held of record on behalf
of their customers. They will reflect this ownership in the regular account
statements they provide to their customers.
REDEMPTION OF SHARES
Institutional investors may redeem all or part of the shares beneficially owned
by a customer according to instructions and limitations pertaining to the
customer's account at the institution.
Important Redemption Information:
We execute redemption orders for the Fixed Income and Equity Funds at the net
asset value per share at 4:00 p.m. that day if we receive the order by 4:00 p.m.
that day.
We execute redemption orders for the Money Market Funds at the net asset value
per share at 12:00 noon that day if we receive the order by 12:00 noon that day.
We recognize receipt of an order when the Transfer Agent or its authorized agent
receives it.
The Transfer Agent will make payment on the next business day by transfer of
federal funds.
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 market value equal
to the redemption price. In such cases, you may incur brokerage costs in
converting these securities to cash.
Description of Shares
In addition to the portfolios described in this Prospectus, CoreFunds has also
set up Class C Shares representing the Elite Treasury Reserve, Elite Cash
Reserve and Elite Tax-Free Reserve portfolios. CoreFunds offers two classes of
shares of each portfolio. In total, CoreFunds presently offers shares in twenty
different portfolios. CoreFunds may in the future create additional portfolios
or classes of shares within a portfolio. Class A and Class C Shares --
Individual and Shares of the Elite Money Market Funds are offered in separate
prospectuses. This Prospectus solely relates to Classes Y Shares --
Institutional.
If you wish to obtain similar information regarding other CoreFund portfolios,
you may request prospectuses describing the portfolios by contacting the
Distributor at 1-800-355-CORE.
Differences exist between classes of shares of some CoreFunds portfolios
pertaining to distribution costs, incremental transfer agency fees and any other
incremental expenses identified that should be properly allocated to a class.
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Class A Shares are subject to a sales load and distribution and transfer agent
expenses for certain shareholder services they receive. Class C Shares are
subject to similar expenses, but are not subject to a sales load. Class A and
Class C Shares also have voting rights, 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 their having different
income distributions and performance results from Class Y Shares.
Aside from these differences, each share in each Fund represents an equal
proportionate interest in that Fund with each other share of the same Fund. Each
share in each Fund is entitled to distributions out of the income earned on the
assets belonging to the Fund, as the Board of Directors declares at its
discretion.
CoreFunds' shareholders are entitled to one vote for each full share held, and
fractional votes for fractional shares held. Shareholders 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.
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:
more than 50% of the outstanding shares of a Fund or
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.
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 that Fund.
'Assets belonging to a Fund' are defined as:
the consideration received by CoreFunds upon the issuance or sale of shares in a
Fund
all income, earnings, profits and proceeds derived from the investment and
any proceeds from the sale, exchange or liquidation of the investments.
Assets belonging to a Fund are charged with the direct liabilities of that Fund
as well as a share of the general liabilities of CoreFunds. The general
liabilities of CoreFunds are allocated in proportion to the relative asset
values of each of CoreFunds portfolios at the time the expense or liability is
incurred. CoreFunds management charges the Funds for liabilities when they are
incurred and credits the Funds for assets when they are acquired. These
determinations are reviewed and approved annually by the Board of Directors and
are conclusive.
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SHAREHOLDER NOTES
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SHAREHOLDER NOTES
51
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SHAREHOLDER NOTES
52
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The CoreFund Family of Mutual Funds
COREFUNDS, INC.
DIRECTORS
Emil J. Mikity, Chairman
George H. Strong
Erin Anderson
Thomas J. Taylor
Cheryl H. Wade
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 Investments Distribution Co.
Oaks, PA 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Philadelphia, PA 19103
INVESTMENT ADVISER
[CORESTATES LOGO]
For current performance, purchase, redemption, and other information, call
1-800-355-CORE (2673).
[COREFUND LOGO]
SEI Investments Distribution Co., Distributor
Oaks, PA 19456
1-800-355-CORE
The CoreFund Family of Mutual Funds
EQUITY
Equity Index
Core Equity
Growth Equity
Special Equity
International Growth
BALANCED
Balanced
INCOME
Short Term Income
Short-Intermediate Bond
Government Income
Bond
Global Bond
TAX-EXEMPT INCOME
Intermediate Municipal Bond
Pennsylvania Municipal Bond
New Jersey Municipal Bond
MONEY MARKET
Treasury Reserve
Cash Reserve
Tax-Free Reserve
<PAGE>
PROSPECTUS FOR INDIVIDUAL SHARES
JUNE 30, 1997
CoreFunds Investing our experience in your future
EQUITY FUNDS
BALANCED FUND
INCOME FUNDS
TAX-EXEMPT INCOME FUNDS
MONEY MARKET FUNDS
[CoreFund Logo]
<PAGE>
INTRODUCING COREFUNDS
This Prospectus introduces you to seventeen of the mutual funds offered by
CoreFunds, Inc. ("CoreFunds"), an open-end management investment company.
CoreFunds presently offers shares in twenty diversified and non-diversified
portfolios. This Prospectus offers:
Class A (Individual) shares of the Equity Funds
Class A (Individual) shares of the Fixed Income Funds and
Class C (Individual) shares of the Money Market Funds.
Materials relating to Class Y (Institutional) shares of the Funds may be
obtained by calling 1-800-355-CORE or by writing to:
COREFUNDS, INC.
c/o SEI INVESTMENTS
P.O. BOX 470
WAYNE, PA 19087-0470
CoreStates Investment Advisers, Inc. ("CoreStates Advisers") serves as the
investment adviser to 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.
You may choose to invest in any of the CoreFunds offered in this Prospectus.
Read your prospectus before you invest and keep it for future reference.
Additional information about the Funds, contained in a Statement of Additional
Information dated June 30, 1997, has been filed with the Securities and Exchange
Commission. It is incorporated in this Prospectus by reference. To obtain a copy
without charge, call 1-800-355-CORE or write to:
COREFUNDS, INC.
c/o SEI INVESTMENTS
P.O. BOX 470
WAYNE, PA 19087-0470
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.
SHARES IN THE FUNDS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENT IN THE FUND SHARES INVOLVES RISK, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
AN INVESTMENT IN THE CASH RESERVE, TREASURY RESERVE AND/OR TAX-FREE RESERVE IS
NOT INSURED AND IS NOT GUARANTEED BY THE U.S. GOVERNMENT, AND WE CAN NOT ASSURE
YOU THAT THESE FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES. ALSO, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
WHAT YOU WILL FIND IN THIS PROSPECTUS
INFORMATION ON THE FUNDS
EQUITY FUNDS
Equity Index..............................................2
Core Equity...............................................4
Growth Equity.............................................6
Special Equity........................................... 8
International Growth.....................................10
BALANCED FUND
Balanced.................................................12
FIXED INCOME FUNDS
Short Term Income........................................14
Short-Intermediate Bond..................................16
Government Income........................................18
Bond.....................................................20
Global Bond..............................................22
Intermediate Municipal Bond..............................24
Pennsylvania Municipal Bond..............................26
New Jersey Municipal Bond................................28
MONEY MARKET FUNDS
Treasury Reserve.........................................30
Cash Reserve.............................................32
Tax-Free Reserve.........................................34
GENERAL INFORMATION
General Investment Policies and Practices................36
Temporary Investments....................................39
Distributions............................................42
Taxes....................................................42
Valuation of Shares......................................44
Management...............................................45
Performance Information..................................47
Description of Shares....................................48
General Information......................................48
SHAREHOLDER SERVICES GUIDE
Opening an Account and Purchasing Shares.................49
Exchanging Shares........................................52
Selling (Redeeming) Your Shares..........................52
1
<PAGE>
EQUITY INDEX FUND
SUMMARY
Equity Index Fund seeks to match the performance of the Standard & Poor's 500
Composite Stock Price Index (S&P 500 Index) by investing primarily in stocks
represented in the S&P 500 Index.
PORTFOLIO INVESTMENTS
The Fund invests at least 90% of its total assets in equity securities that
represent a composite of the S&P 500 Index. 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.
The Fund's investment portfolio will generally consist of common stocks of as
many issuers listed in the S&P 500 Index as is feasible. CoreStates Advisers
uses a computer model that closely monitors industry weightings of the S&P 500
Index. Although CoreStates Advisers does not screen securities 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 the Fund's ability to achieve its investment
objective.
Equity Index Fund strives to provide a total return comparable to the S&P 500
Index. (Please see page 36 for more information about General Investment
Policies and Practices.)
Equity Index Fund is not sponsored by nor affiliated with Standard & Poor's
Corporation ("S&P").
RISK CONSIDERATIONS
Like all equity funds, Equity Index Fund is subject to two primary types of
risk:
Market Risk - The possibility that stock prices in general will decline over
short, or even extended, periods of time. This is because stock markets tend to
be cyclical, with periods when stock prices generally rise and periods when
stock prices generally decline.
Fund Risk - The possibility that the Fund's performance during a specific period
may not meet or exceed that of the stock market as a whole.
INVESTMENT OBJECTIVE
Equity Index Fund seeks investment results that achieve price and yield
performance similar to the S&P 500 Index.
INVESTMENT SUITABILITY
Equity Index Fund may be appropriate for investors who:
are seeking long-term capital growth
do not need to earn current income
are willing to hold an investment over a long time period in
anticipation of the returns that common stocks can provide and
are able to tolerate fluctuations in the principal value of their
investment.
FUND MANAGEMENT
Lary Aasheim, CFA, a Vice President of CoreStates Advisers, is portfolio manager
of Equity Index Fund. 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. (Please see page 45 for more information
about the Fund's Investment Adviser.)
2
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class A shares of Equity Index Fund. The CoreFunds' annual report which
accompanies the Statement of Additional Information is available to shareholders
at no charge by calling CoreFunds at 1-800-355-CORE.
Unaudited
CLASS A (INDIVIDUAL) 1996
- -------------------- --------------
For a Share Outstanding Throughout the Period Ended December 31(1)
Net Asset Value, Beginning of Period $ 29.62
Net Investment Income $ 0.06
Realized and Unrealized Net Gains on Securities $ 1.97
Distributions from Net Investment Income $ (0.13)
Distributions from Capital Gains $ (0.24)
Net Asset Value, End of Period $ 31.28
Total Return(2) 6.85%+
Net Assets, End of Period (000 omitted) $ 932
Ratio of Expenses to Average Net Assets 0.37%
Ratio of Net Income to Average Net Assets 1.73%
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.71%
Ratio of Net Income to Average Net Assets (Excluding Waivers) 1.39%
Portfolio Turnover Rate 4%
Average Commission Rate Paid(3) $0.0646
- --------------------
+ This figure has not been annualized.
(1) Commenced operations October 9, 1996. Unless otherwise noted, all ratios for
the period have been annualized.
(2) Total return does not reflect applicable sales load. Additionally, total
return for the period ended December 31, 1996 is for a two-month period.
(3) Average commission rate paid per share for security purchases and sales
during the period.
INVESTOR EXPENSES
The purpose of the following table 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 Shares of the Fund.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
CLASS A (INDIVIDUAL)
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases 5.50%
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .15%
12b-1 Fees After Fee Waivers(2) .00%
Other Expenses After Fee Waivers(3) .22%
Total Operating Expenses After Fee Waivers(4) .37%
EXAMPLE
1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $59 66 75 99
$1,000 investment, assuming (1) imposition
of the maximum sales charge, (2) a 5% annual
return and (3) redemption at the
end of each time period.
(1) Absent voluntary waivers, investment advisory fees would be .40% of average
net assets.
(2) Absent voluntary waivers, Rule 12b-1 fees would be .25% of average net
assets. Long-term shareholders may pay more than the economic equivalent of
the maximum front-end charge permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc.
(3) Absent voluntary waivers by the Administrator, Other Expenses would be .31%
of average net assets.
(4) Absent the fee waivers described above, Total Operating Expenses would have
been .96%. These fee waivers are voluntary and may be discontinued at any
time at the discretion of the service provider that is waiving its fee.
3
<PAGE>
CORE EQUITY FUND
SUMMARY
Core Equity Fund seeks maximum total return by investing in a diversified
portfolio of common stocks.
PORTFOLIO INVESTMENTS
The Fund invests principally in a diversified portfolio of common stocks
including stocks of companies with:
large market capitalizations
medium market capitalizations and
small market capitalizations.
Market capitalization means the total number of common shares of a company's
stock outstanding multiplied by the market price per share.
In addition, up to 20% of the Fund's total assets may be invested in:
securities convertible into common stocks
preferred stocks
corporate bonds and notes
warrants
Short-Term Obligations and
sponsored and unsponsored American Depositary Receipts ("ADRs").
Core Equity Fund strives to provide a total return greater than stock market
indices such as the S&P 500 Index. (Please see page 36 for more information
about General Investment Policies and Practices.)
RISK CONSIDERATIONS
Like all equity funds, Core Equity Fund is subject to two primary types of risk:
Market Risk - The possibility that stock prices in general will decline over
short, or even extended, periods of time. This is because stock markets tend to
be cyclical, with periods when stock prices generally rise and periods when
stock prices generally decline.
Fund Risk - The possibility that the Fund's performance, during a specific
period, may not meet or exceed that of the stock market as a whole.
INVESTMENT OBJECTIVE
Core Equity Fund seeks maximum total return in excess of the S&P 500 Index.
INVESTMENT SUITABILITY
Core Equity Fund may be appropriate for investors who:
are seeking long-term capital growth
do not need to earn current income
are willing to hold an investment over a long time period in anticipation of the
returns that common stocks can provide and
are able to tolerate fluctuations in the principal value of their investment.
FUND MANAGEMENT
Joseph E. Stocke, CFA, is a Senior Managing Director of CoreStates Advisers and
manages Core Equity and Special Equity Funds. He is also a Senior Investment
Manager/Equities with Meridian Investment Company, an affiliate of CoreStates
Advisers. He has been with Meridian since 1983. (Please see page 45 for more
information about the Fund's Investment Adviser.)
4
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class A shares of Core Equity Fund(a). The financial highlights for the Fund for
the period November 1, 1995 through June 30, 1996 have been audited by Ernst &
Young LLP, independent auditors, whose report appears in CoreFunds' annual
report which accompanies the Statement of Additional Information. The financial
highlights for the Fund for the periods ended October 31, 1990 through October
31, 1995 were audited by Coopers & Lybrand LLP, independent auditors. The annual
report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
RETAIL PRIOR
Unaudited CLASS* CLASS
Class A (Individual)(3) 1996 1996 1995 1994 1993 1992
------------ ---- -----------------------------------------
For a Share Outstanding Throughout the Period Ended December 31(5) June 30 October 31
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 17.28 17.08 15.00 15.39 13.93 13.08
Net Investment Income $ 0.05 0.12 0.18 0.11 0.14 0.19
Realized and Unrealized Net Gains (Losses) on Securities $ 2.31 1.49 2.87 0.22 1.89 1.02
Distributions from Net Investment Income $ (0.06) (0.11) (0.17) (0.11) (0.14) (0.19)
Distributions from Capital Gains $ (1.47) (1.30) (0.80) (0.61) (0.43) (0.17)
Net Asset Value, End of Period $ 18.11 17.28 17.08 15.00 15.39 13.93
Total Return(2) 13.68%+ 19.11 21.94 2.21 14.90 9.27
Net Assets, End of Period (000 omitted) $13,033 11,178 6,591 50,128 45,677 28,103
Ratio of Expenses to Average Net Assets 1.20% 1.22 1.34 1.49 1.20 0.92
Ratio of Net Income to Average Net Assets 0.63% 0.89 1.23 0.75 0.94 1.47
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.29% 1.26 1.53 1.51 1.41 1.23
Ratio of Net Income to Average Net Assets (Excluding Waivers) 0.54% 0.85 1.04 0.73 0.73 1.17
Portfolio Turnover Rate** 45% 114 119 35 24 39
Average Commission Rate Paid(4) $0.0631 0.0636 - - - -
<CAPTION>
Class A (Individual)(3) 1991 1990(1)
----------------------
For a Share Outstanding Throughout the Period Ended
<S> <C> <C>
Net Asset Value, Beginning of Period 8.95 10.00
Net Investment Income 0.26 0.14
Realized and Unrealized Net Gains (Losses) on Securities 4.13 (1.05)
Distributions from Net Investment Income (0.26) (0.14)
Distributions from Capital Gains - -
Net Asset Value, End of Period 13.08 8.95
Total Return(2) 49.37 (9.22)
Net Assets, End of Period (000 omitted) 12,830 5,982
Ratio of Expenses to Average Net Assets 0.54 0.65
Ratio of Net Income to Average Net Assets 2.30 2.29
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.48 1.59
Ratio of Net Income to Average Net Assets (Excluding Waivers) 1.36 1.35
Portfolio Turnover Rate** 68 43
Average Commission Rate Paid(4) - -
</TABLE>
(a) This Fund was formerly known as Equity Fund.
* On February 21, 1995, the shares of the Fund were redesignated as either
Retail or Institutional shares. On that date, 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. The basis for the
allocation was the relative net assets of each class of shares as of
February 21, 1995. The results were combined with the results of operations
and distributions for each applicable class for the period February 21, 1995
through October 31, 1995. 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 reflect this allocation.
Also, on April 15, 1996, the Conestoga Equity Fund was acquired by
CoreFunds. At that time the Retail Class shares of the Fund were exchanged
for Class A shares.
** For the period ended June 30, 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 28, 1990. Unless otherwise noted, all ratios
for the period have been annualized.
(2) Total return does not reflect applicable sales load. Additionally, total
return for the period ended June 30, 1996 is for an eight-month period.
(3) The per share amount for the period ended June 30, 1996 represents the
period from November 1, 1995 to June 30, 1996. All prior years are for the
periods November 1 to October 31.
(4) Presentation of the rate is only required for fiscal periods beginning after
September 1, 1995.
(5) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Shares of the Fund.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
CLASS A (INDIVIDUAL)
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases 5.50%
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees .74%
12b-1 Fees(1) .25%
Other Expenses After Fee Waivers(2) .26%
Total Operating Expenses After Fee Waivers(3) 1.25%
EXAMPLE
You would pay the following expenses on a 1 Year 3 Years 5 Years 10 Years
$1,000 investment, assuming (1) imposition $67 $92 $120 198
of the maximum sales charge, (2) a 5% annual
return and (3) redemption at the end of each
time period.
(1) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end charge permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc.
(2) Absent voluntary waivers by the Administrator, Other Expenses would be .30%
of average net assets.
(3) Absent the fee waivers described above, Total Operating Expenses would have
been 1.29%. This fee waiver is voluntary and may be discontinued at any time
at the discretion of the service provider that is waiving its fee.
5
<PAGE>
GROWTH EQUITY FUND
SUMMARY
Growth Equity Fund seeks capital growth and an increasing flow of dividends by
investing primarily in common stocks.
PORTFOLIO INVESTMENTS
The Fund invests in a diversified portfolio of equity securities including:
common stocks
preferred stocks
convertible securities and
other equity securities of companies which CoreStates Advisers believe show the
potential for growth of earnings over time.
Growth Equity Fund strives to provide a return greater than stock market indices
such as the Russell 1000 Growth Index, the S&P 500 Index and the Lipper Growth
Index. (Please see page 36 for more information about General Investment
Policies and Practices.)
RISK CONSIDERATIONS
Like all equity funds, the Growth Equity Fund is subject to two primary types of
risk:
Market Risk - The possibility that stock prices in general will decline over
short, or even extended, periods of time. This is because stock markets tend to
be cyclical, with periods when stock prices generally rise and periods when
stock prices generally decline.
Fund Risk - The possibility that the Fund's performance, during a specific
period, may not meet or exceed that of the stock market as a whole.
INVESTMENT OBJECTIVE
Growth Equity Fund seeks capital growth and an increasing flow of dividends.
INVESTMENT SUITABILITY
Growth Equity Fund may be appropriate for investors who:
are seeking long-term capital growth
do not need to earn current income
are willing to hold an investment over a long time period in anticipation of the
returns that common stocks can provide and
are able to tolerate fluctuations in the principal value of their investment.
FUND MANAGEMENT
Timothy R. Stives is a Senior Managing Director of CoreStates Advisers and
manages Growth Equity Fund. He joined CoreStates Advisers in 1994. Mr. Stives
was a Vice President and Partner at Chancellor Capital Management since 1988.
Prior to that, he was a securities analyst and portfolio manager with CitiCorp
Investment Management. (Please see page 45 for more information about the Fund's
Investment Adviser.)
6
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class A shares of Growth Equity Fund. The financial highlights for the Fund for
the periods from inception through June 30, 1996 have been audited by Ernst &
Young LLP, independent auditors, whose report appears in CoreFunds' annual
report which accompanies the Statement of Additional Information. The annual
report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
CLASS A (INDIVIDUAL)* 1996 1996 1995 1994 1993(1)
------------- ---- ---- ---- ------
For a Share Outstanding Throughout the Period Ended December 31(4) June 30
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 14.17 11.17 9.10 9.95 9.80
Net Investment Income $ 0.01 0.05 0.06 0.04 0.03
Realized and Unrealized Net Gains (Losses) on Securities $ 0.82 3.35 2.07 (0.85) 0.15
Distributions from Net Investment Income $ (0.01) (0.05) (0.06) (0.04) (0.03)
Distributions from Capital Gains $ (1.57) (0.35) -- -- --
Net Asset Value, End of Period $ 13.42 14.17 11.17 9.10 9.95
Total Return(2) 5.76%+ 31.00 23.44 (8.13) 1.80+
Net Assets, End of Period (000 omitted) $ 3,895 3,162 2,043 1,730 5,224
Ratio of Expenses to Average Net Assets 1.20% 1.14 1.01 0.94 0.80
Ratio of Net Income to Average Net Assets 0.13% 0.40 0.59 0.23 0.39
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.32% 1.30 1.35 1.36 1.48
Ratio of Net Income (Loss) to Average Net Assets (Excluding Waivers) 0.01% 0.23 0.25 (0.19) (0.29)
Portfolio Turnover Rate 30% 81 113 127 103
Average Commission Rate Paid(3) $0.0600 0.0601 -- -- --
</TABLE>
* On April 22, 1996, the Series B shares of the Fund were redesignated Class A
shares.
+ This figure has not been annualized.
(1) Commenced operations January 4, 1993. Unless otherwise noted, all ratios for
the period have been annualized.
(2) Total return does not reflect applicable sales load.
(3) Presentation of the rate is only required for fiscal periods beginning after
September 1, 1995.
(4) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Shares of the Fund.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
CLASS A (INDIVIDUAL)
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases 5.50%
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees .75%
12b-1 Fees(1) .25%
Other Expenses After Fee Waivers(2) .21%
Total Operating Expenses After Fee Waivers(3) 1.21%
EXAMPLE
1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $67 91 118 194
$1,000 investment, assuming (1) imposition
of the maximum sales charge, (2) a 5% annual
return and (3) redemption at the end of each
time period.
(1) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end charge permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc.
(2) Absent voluntary waivers by the Administrator, Other Expenses would be .30%
of average net assets.
(3) Absent the fee waivers described above, Total Operating Expenses would have
been 1.30%. This fee waiver is voluntary and may be discontinued at any time at
the discretion of the service provider that is waiving its fee.
7
<PAGE>
SPECIAL EQUITY FUND
SUMMARY
Special Equity Fund seeks capital growth by investing principally in a
diversified portfolio of common stocks.
PORTFOLIO INVESTMENTS
The Fund invests principally in a diversified portfolio of common stocks of
domestic companies that CoreStates Advisers expect will experience growth in
earnings and price including stocks of companies with:
small market capitalizations
medium market capitalizations and
large market capitalizations.
Market capitalization means the total number of common shares of a company's
stock outstanding multiplied by the market price per share.
In addition, up to 35% of the Fund's total assets may be invested in:
preferred stocks
securities convertible into common stock
corporate bonds and notes
warrants
Short-Term Obligations and
sponsored and unsponsored ADRs, European Depositary Receipts ("EDRs") and Global
Depositary Receipts ("GDRs").
Special Equity Fund strives to provide a return greater than stock market
indices such as the Russell 3000 Equal Weighted Index. (Please see page 36 for
more information about General Investment Policies and Practices.)
INVESTMENT OBJECTIVE
Special Equity Fund seeks capital growth.
RISK CONSIDERATIONS
Increased Business and Economic Sensitivity - Small and medium capitalization
companies may be more vulnerable than larger, more established organizations to
adverse business or economic developments. In particular, small capitalization
companies may have limited product lines, markets and financial resources and
may be dependent upon a relatively small management group. These securities may
be traded over-the-counter or listed on an exchange and may or may not pay
dividends.
Also, like all equity funds, Special Equity Fund is subject to two other primary
types of risk:
Market Risk - The possibility that stock prices in general will decline over
short, or even extended, periods of time. This is because stock markets tend to
be cyclical, with periods when stock prices generally rise and periods when
stock prices generally decline.
Fund Risk - The possibility that the Fund's performance during a specific period
may not meet or exceed that of the stock market as a whole.
INVESTMENT SUITABILITY
Special Equity Fund may be appropriate for investors who:
are seeking long-term capital growth
do not need to earn current income
are willing to hold an investment over a long time period in
anticipation of the returns that common stocks can provide and
are able to tolerate fluctuations in the principal value of their
investment.
FUND MANAGEMENT
Joseph E. Stocke, CFA, is a Senior Managing Director of CoreStates Advisers and
manages Core Equity and Special Equity Funds. He is also a Senior Investment
Manager/Equities with Meridian Investment Company, an affiliate of CoreStates
Advisers. He has been with Meridian since 1983. (Please see page 45 for more
information about the Fund's Investment Adviser.)
8
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class A shares of Special Equity Fund. The financial highlights for the Fund for
the period November 1, 1995 through June 30, 1996 have been audited by Ernst &
Young LLP, independent auditors, whose report appears in CoreFunds' annual
report which accompanies the Statement of Additional Information. The financial
highlights for the Fund for the periods ended October 31, 1994 through October
31, 1995 were audited by Coopers & Lybrand LLP, independent auditors. The annual
report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
RETAIL PRIOR
Unaudited CLASS* CLASS(1)
CLASS A (INDIVIDUAL)(3) 1996 1996 1995 1994
---- ---- ---- ----
For a Share Outstanding Throughout the Period Ended December 31(5) June 30 October 31
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $11.85 11.42 9.37 10.00
Net Investment Income $ 0.02 0.08 0.12 0.06
Realized and Unrealized Net Gains (Losses) on Securities $ 0.73 2.11 2.12 (0.63)
Distributions from Net Investment Income $(0.02) (0.07) (0.12) (0.06)
Distributions from Capital Gains $(2.39) (1.69) (0.07) -
Net Asset Value, End of Period $10.19 11.85 11.42 9.37
Total Return(2) 6.63%+ 22.14 24.44 (5.72)
Net Assets, End of Period (000 omitted) $1,646 1,144 734 10,069
Ratio of Expenses to Average Net Assets 0.85% 0.37 0.27 0.15
Ratio of Net Income to Average Net Assets 0.28% 0.91 1.29 1.06
Ratio of Expenses to Average Net Assets (Excluding Waivers) 2.07% 1.82 2.24 2.10
Ratio of Net Loss to Average Net Assets (Excluding Waivers) (0.94)% (0.55) (0.68) (0.89)
Portfolio Turnover Rate 44% 72 129 39
Average Commission Rate Paid(4) $0.0594 0.0539 - -
</TABLE>
* On February 21, 1995, the shares of the Fund were redesignated as either
Retail or Institutional shares. On that date, 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. The basis for the allocation was
the relative net assets of each class of shares as of February 21, 1995. The
results were combined with the results of operations and distributions for each
applicable class for the period February 21, 1995 through October 31, 1995. 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 reflect this allocation. Also, on April 22, 1996, the Conestoga
Special Equity Fund was acquired by CoreFunds. At that time the Retail Class
shares of the Fund were exchanged for Class A shares.
+ This figure has not been annualized.
(1) Commenced operations March 15, 1994. Unless otherwise noted, all ratios for
the period have been annualized.
(2) Total return does not reflect applicable sales load. Additionally, total
return for the period ended June 30, 1996 is for an eight-month period.
(3) The per share amount for the period ended June 30, 1996 represents the
period from November 1, 1995 to June 30, 1996. All prior years are for the
period November 1 to October 31.
(4) Presentation of the rate is only required for fiscal periods beginning after
September 1, 1995.
(5) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Shares of the Fund
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
CLASS A (INDIVIDUAL)
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases 5.50%
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .83%
12b-1 Fees(2) .25%
Other Expenses After Fee Waivers(3) .22%
Total Operating Expenses After Fee Waivers(4) 1.30%
EXAMPLE
1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $68 94 123 204
$1,000 investment, assuming (1) imposition
of the maximum sales charge, (2) a 5% annual
return and (3) redemption at the end of each
time period.
(1) Absent voluntary waivers, investment advisory fees would be 1.50% of average
net assets.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end charge permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc.
(3) Absent voluntary waivers by the Administrator, Other Expenses would be .31%
of average net assets.
(4) Absent the fee waivers described above, Total Operating Expenses would have
been 2.06%. These fee waivers are voluntary and may be discontinued at any time
at the discretion of the service provider that is waiving its fee.
9
<PAGE>
INTERNATIONAL GROWTH FUND
SUMMARY
International Growth Fund seeks long-term capital appreciation by investing
primarily in equity securities of companies located outside the United States.
PORTFOLIO INVESTMENTS
Under normal market conditions, the Fund will invest at least 65% of its total
assets in the equity securities of companies located in at least three different
countries. Companies are located in a country if they are headquartered or doing
business primarily there.
The Fund invests in appreciation-oriented equity securities of companies located
outside the United States, including:
Australia Hong Kong Singapore Germany
Canada Japan Sweden Netherlands
France Mexico Switzerland United Kingdom
'Appreciation-oriented' securities are equity securities of companies that the
Fund's Adviser and Sub-Advisers believe have the greatest potential for
long-term growth.
Most foreign equity securities are purchased in over-the-counter markets or on
stock exchanges located in the countries in which the principal offices of the
issuers are located.
International Growth Fund strives to provide a return greater than stock market
indices such as the Morgan Stanley Capital International EAFE Index. (Please see
page 36 for more information about General Investment Policies and Practices.)
RISK CONSIDERATIONS
There are special risks associated with international investing. See `Foreign
Securities' information on page 36.
Also, like all equity funds, International Equity Fund is subject to two primary
types of risk:
Market Risk - The possibility that stock prices in general will decline over
short, or even extended, periods of time. This is because stock markets tend to
be cyclical, with periods when stock prices generally rise and periods when
stock prices generally decline.
Fund Risk - The possibility that the Fund's performance during a specific period
may not meet or exceed that of the stock market as a whole.
INVESTMENT OBJECTIVE
International Growth Fund seeks long-term capital appreciation, consistent with
reasonable risk, by investing primarily in appreciation-oriented equity
securities of companies located outside the United States.
INVESTMENT SUITABILITY
International Growth Fund may be appropriate for investors who:
are seeking long-term capital growth
do not need to earn current income
are willing to hold an investment over a long time period in
anticipation of the returns that foreign stocks can provide
are able to tolerate fluctuations in the principal value of their
investment and
are aware of the unique risks of international investing, including their
exposure to currency fluctuations.
FUND MANAGEMENT
CoreStates Advisers has delegated some of its portfolio management functions to
Martin Currie and Aberdeen Managers (the "Sub-Advisers").
Michael J. Gibson, a Vice President of Martin Currie, is the lead director of an
investment team responsible for managing a portion of International Growth Fund.
Mr. Gibson has 24 years of portfolio investment experience in international
stock markets. He joined Martin Currie in 1983.
Bev Hendry, Chief Executive Officer of Aberdeen Fund Managers Inc., is the lead
director of an investment team responsible for managing a portion of
International Growth Fund. He joined Aberdeen Trust in 1987. (Please see page 45
for more information about the Fund's Investment Adviser and Sub-Advisers.)
10
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class A shares of International Growth Fund. The financial highlights for the
Fund for the periods from inception through June 30, 1996 have been audited by
Ernst & Young LLP, independent auditors, whose report appears in CoreFunds'
annual report which accompanies the Statement of Additional Information. The
annual report for the Fund is available to shareholders at no charge
by calling CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
CLASS A (INDIVIDUAL)* 1996 1996 1995 1994 1993(1)
--------- ---- ---- ---- -------
For a Share Outstanding Throughout the Period Ended December 31(4) June 30
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.96 12.27 13.17 11.71 10.07
Net Investment Income $ 0.02 0.11 0.09 0.06 0.05
Realized and Unrealized Net Gains (Losses) on Securities $ 0.38 1.89 (0.17) 1.82 1.59
Distributions from Net Investment Income $ (0.34) (0.25) (0.02) (0.11) -
Distributions from Capital Gains $ (0.86) (0.06) (0.80) (0.31) -
Net Asset Value, End of Period $ 13.16 13.96 12.27 13.17 11.71
Total Return(2) 3.04%+ 16.54 (0.48) 16.08 16.29+
Net Assets, End of Period (000 omitted) $ 2,139 2,138 1,943 2,019 344
Ratio of Expenses to Average Net Assets 1.36% 1.39 1.30 1.24 1.15
Ratio of Net Income to Average Net Assets 0.14% 0.80 0.73 0.05 1.51
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.46% 1.50 1.44 1.43 1.44
Ratio of Net Income (Loss) to Average Net Assets (Excluding Waivers) 0.04% 0.69 0.59 (0.14) 1.22
Portfolio Turnover Rate** 29% 41 59 67 59
Average Commission Rate Paid(3) $0.0223 0.0270 - - -
</TABLE>
* On April 15, 1996, the Conestoga International Equity Fund was acquired by
CoreFunds. At that time, the Retail class shares of the Fund were exchanged for
Class A shares.
**For the period ended June 30, 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 January 4, 1993. Unless otherwise noted, all ratios for
the period have been annualized.
(2) Total return does not reflect applicable sales load.
(3) Presentation of the rate is only required for fiscal periods beginning after
September 1, 1995.
(4) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Shares of the Fund.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
CLASS A (INDIVIDUAL)
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases 5.50%
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees .80%
12b-1 Fees(1) .25%
Other Expenses After Fee Waivers(2) .36%
Total Operating Expenses After Fee Waivers(3) 1.41%
EXAMPLE
1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $69 97 128 215
$1,000 investment, assuming (1) imposition
of the maximum sales charge, (2) a 5% annual
return and (3) redemption at the end of each
time period.
(1) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end charge permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc.
(2) Absent voluntary waivers by the Administrator, Other Expenses would be .45%
of average net assets.
(3) Absent the fee waivers described above, Total Operating Expenses would have
been 1.50%. This fee waiver is voluntary and may be discontinued at any time at
the discretion of the service provider that is waiving its fee.
11
<PAGE>
BALANCED FUND
SUMMARY
Balanced Fund seeks to provide total return while preserving capital by
investing in a combination of common stocks and fixed income securities.
PORTFOLIO INVESTMENTS
The Fund invests in a combination of:
common stocks
convertible securities
fixed income securities and
Short-Term Obligations.
Under normal conditions, the Fund will invest a minimum of 25% of its assets in
senior fixed income securities and between 30% and 75% of its assets in common
stocks. Balanced Fund may also invest in U.S. dollar denominated securities of
foreign issuers (including ADRs).
In managing Balanced Fund, CoreStates Advisers combines separate equity, fixed
income and asset allocation strategies. Long-term growth is pursued through
equity holdings, and current income through fixed income securities and common
stock dividends. The asset allocation strategy shifts the stock / fixed income /
money market instrument mix based on their judgment of the relative
attractiveness of these markets and securities.
Balanced Fund strives to provide a return greater than indices such as the
Lipper Balanced Fund Average. (Please see page 36 for more information about
General Investment Policies and Practices.)
INVESTMENT OBJECTIVE
Balanced Fund seeks to provide total return while preserving capital.
RISK CONSIDERATIONS
Because Balanced Fund invests in both stocks and fixed income securities, it is
subject to five primary types of risk:
Market Risk - The possibility that stock prices in general will decline over
short, or even extended, periods of time. This is because stock markets tend to
be cyclical, with periods when stock prices generally rise and periods when
stock prices generally decline.
Fund Risk - The possibility that the Fund's performance during a specific period
may not meet or exceed that of the stock market as a whole.
Interest Rate Risk - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
Credit Risk - The possibility that an issuer will be unable to make timely
payments of either principal or interest.
Call Risk - The possibility that securities with high interest rates will be
prepaid (or 'called') by the issuer prior to maturity during periods of falling
interest rates. This would require the Fund to invest the resulting proceeds
elsewhere, at generally lower interest rates. It is also known as Income Risk.
INVESTMENT SUITABILITY
Balanced Fund may be appropriate for investors who:
seek to capture the interest income of bonds
seek the capital appreciation of stocks and
want to reduce risk through diversification among these securities and asset
types.
FUND MANAGEMENT
Steve Dalton, a Vice President of CoreStates Advisers, is portfolio manager of
Balanced Fund. Mr. Dalton has been a senior portfolio manager of balanced
portfolios since 1986 and a member of the CoreStates Advisers' Equity Policy
Committee since 1990. (Please see page 45 for more information about the Fund's
Investment Adviser.)
12
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class A shares of Balanced Fund. The financial highlights for the Fund for the
periods from inception through June 30, 1996 have been audited by Ernst & Young
LLP, independent auditors, whose report appears in CoreFunds' annual report
which accompanies the Statement of Additional Information. The annual report for
the Fund is available to shareholders at no charge by calling CoreFunds at
1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
CLASS A (INDIVIDUAL)* 1996 1996 1995 1994 1993(1)
---- ---- ---- ---- ------
For a Share Outstanding Throughout the Period Ended December 31(4) June 30
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.59 11.06 9.89 10.38 10.00
Net Investment Income $ 0.16 0.30 0.34 0.31 0.16
Realized and Unrealized Net Gains (Losses) on Securities $ 0.47 1.68 1.19 (0.49) 0.38
Distributions from Net Investment Income $ (0.17) (0.30) (0.33) (0.31) (0.16)
Distributions from Capital Gains $ (0.68) (0.15) (0.03) - -
Net Asset Value, End of Period $ 12.37 12.59 11.06 9.89 10.38
Total Return(2) 4.97%+ 18.13 15.84 (1.86) 2.50+
Net Assets, End of Period (000 omitted) $ 3,527 3,188 2,344 2,222 701
Ratio of Expenses to Average Net Assets 1.02% 1.06 0.98 0.87 0.55
Ratio of Net Income to Average Net Assets 2.61% 2.53 3.27 3.21 5.76
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.24% 1.27 1.32 1.33 1.48
Ratio of Net Income to Average Net Assets (Excluding Waivers) 2.39% 2.32 2.93 2.75 4.83
Portfolio Turnover Rate** 28% 74 46 56 21
Average Commission Rate Paid(3) $0.0610 0.0621 - - -
</TABLE>
* On April 15, 1996, the Conestoga Balanced Fund was acquired by CoreFunds. At
that time, the Retail class shares of the Fund were exchanged for Class A
shares.
**For the year ended June 30, 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 March 16, 1993. Unless otherwise noted, all ratios for
the period have been annualized.
(2) Total return does not reflect applicable sales load.
(3) Presentation of the rate is only required for fiscal periods beginning after
September 1, 1995.
(4) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Shares of the Fund.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
CLASS A (INDIVIDUAL)
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases 5.50%
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 After Fee Waivers(3) .22%
Total Operating Expenses After Fee Waivers(4) 1.05%
EXAMPLE
1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $ 65 87 110 176
$1,000 investment, assuming (1) imposition
of the maximum sales charge, (2) a 5% annual
return and (3) redemption at the end of each
time period.
(1) Absent voluntary waivers, investment advisory fees would be .70% of average
net assets.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end charge permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc.
(3) Absent voluntary waivers by the Administrator, Other Expenses would be .31%
of average net assets.
(4) Absent the fee waivers described above, Total Operating Expenses would have
been 1.26%. These fee waivers are voluntary and may be discontinued at any time
at the discretion of the service provider that is waiving its fee.
13
<PAGE>
SHORT TERM INCOME FUND
SUMMARY
Short Term Income Fund seeks to provide investors with consistent income and
principal stability by investing in a portfolio of investment grade debt
securities.
PORTFOLIO INVESTMENTS
The Fund invests principally in investment grade debt securities including:
corporate bonds, debentures and 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.
If a security held by the Fund is downgraded below the minimum required ratings,
CoreStates Advisers will reassess the creditworthiness of the security.
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 the U.S.
(`Yankee Bonds'). Normally, the Fund's portfolio securities will have maximum
expected or remaining maturities of three years or less. The Fund's normal
average dollar-weighted portfolio maturity is about one year.
Short Term Income Fund strives to provide a return greater than bond indices
such as the Merrill Lynch 1-year Treasury Bill Index. (Please see page 36 for
more information about General Investment Policies and Practices.)
INVESTMENT OBJECTIVE
Short Term Income Fund seeks consistent current income with relative stability
of principal.
RISK CONSIDERATIONS
Like all fixed income funds, Short Term Income Fund is subject to:
Interest Rate Risk - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
Credit Risk - The possibility that an issuer will be unable to make timely
payments of either principal or interest.
Call Risk -The possibility that securities with high interest rates will
be prepaid (or 'called') by the issuer prior to maturity during periods of
falling interest rates. This would require the Fund to invest the resulting
proceeds elsewhere, at generally lower interest rates. This is also known as
Income Risk.
The Fund may also be subject to:
Event Risk - The possibility that corporate fixed income securities
may suffer substantial declines in credit quality and market value due to
corporate restructurings. While event risk may be high for certain corporate
securities held by the Fund, event risk in the aggregate should be low because
of the Fund's diversified holdings.
Special Risk Factors - The risk that mortgage-backed and asset-backed securities
may be retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of any premium paid.
INVESTMENT SUITABILITY
Short Term Income Fund may be appropriate for investors who:
are looking for a higher level of current income and
want low to moderate share price fluctuations.
FUND MANAGEMENT
John Ackler is Investment Officer of CoreStates Advisers and manages Short Term
Income Fund and Cash Reserve. He is also responsible for the management of the
CoreStates Liquidity Fund, as well as numerous individually managed fixed income
funds. Mr. Ackler joined CoreStates as an internal auditor in 1992 and
transferred to CoreStates Advisers in August 1993. (Please see page 45 for more
information about the Fund's Investment Adviser.)
14
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class A shares of Short Term Income Fund. The financial highlights for the Fund
for the period November 1, 1995 through June 30, 1996 have been audited by Ernst
& Young LLP, independent auditors, whose report appears in CoreFunds' annual
report which accompanies the Statement of Additional Information. The financial
highlights for the Fund for the period ended October 31, 1995 were audited by
Coopers & Lybrand LLP, independent auditors. The annual report for the Fund is
available to shareholders at no charge by calling CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
RETAIL
Unaudited CLASS*
CLASS A (INDIVIDUAL)(3) 1996 1996 1995
---- ---- ----
For a Share Outstanding Throughout the Period Ended December 31(4) June 30 October 31(1)
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.93 10.04 10.01
Net Investment Income $ 0.26 0.35 0.23
Realized and Unrealized Net Gains (Losses) on Securities $ 0.04 (0.10) 0.02
Distributions from Net Investment Income $ (0.26) (0.35) (0.22)
Distributions from Capital Gains $ - (0.01) -
Net Asset Value, End of Period $ 9.97 9.93 10.04
Total Return(2) 3.05%+ 2.55 2.57+
Net Assets, End of Period (000 omitted) $ 145 1 11
Ratio of Expenses to Average Net Assets 0.72% 0.76 0.88
Ratio of Net Income to Average Net Assets 5.16% 5.05 5.05
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.30% 1.25 1.33
Ratio of Net Income to Average Net Assets (Excluding Waivers) 4.58% 4.56 4.60
Portfolio Turnover Rate 25% 102 40
</TABLE>
* On February 21, 1995, the shares of the Fund were redesignated as either
Retail or Institutional shares. On that date, 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. The basis for the allocation was
the relative net assets of each class of shares as of February 21, 1995. The
results were combined with the results of operations and distributions for each
applicable class for the period February 21, 1995 through October 31, 1995. 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 reflect this allocation. Also, on April 22, 1996, the Conestoga
Short-Term Income Fund was acquired by CoreFunds. At that time the Retail Class
shares of the Fund were exchanged for Class A shares.
+ This figure has not been annualized.
(1) Commenced operations May 17, 1995. Unless otherwise noted, all ratios for
the period have been annualized.
(2) Total return does not reflect applicable sales load. Additionally, total
return for the period ended June 30, 1996 is for an eight-month period.
(3) The per share amount for the period ended June 30, 1996 represents the
period from November 1, 1995 to June 30, 1996. The prior year is for the period
from inception to October 31.
(4) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Shares of the Fund.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
CLASS A (INDIVIDUAL)
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases 3.25%
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .25%
12b-1 Fees(2) .25%
Other Expenses After Fee Waivers(3) .22%
Total Operating Expenses After Fee Waivers(4) .72%
EXAMPLE
1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $40 55 71 119
$1,000 investment, assuming (1) imposition
of the maximum sales charge, (2) a 5% annual
return and (3) redemption at the end of each
time period.
(1) Absent voluntary waivers, investment advisory fees would be .74% of average
net assets.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end charge permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc.
(3) Absent voluntary waivers by the Administrator, Other Expenses would be .31%
of average net assets.
(4) Absent the fee waivers described above, Total Operating Expenses would have
been 1.30%. These fee waivers are voluntary and may be discontinued at any time
at the discretion of the service provider that is waiving its fee.
15
<PAGE>
SHORT-INTERMEDIATE BOND FUND
SUMMARY
Short-Intermediate Bond Fund seeks to provide investors with income by investing
in a diversified portfolio of fixed income securities with maturities averaging
from two to five years.
PORTFOLIO INVESTMENTS
The Fund intends to invest at least 65% of its total assets in bonds under
normal market conditions. The Fund maintains a maximum average maturity of no
more than five years. By maintaining this maturity range, CoreStates Advisers
expects the Fund's net asset value to be relatively stable while providing
higher income than money market funds.
The Fund invests primarily in a portfolio of intermediate-term, investment
grade, fixed income obligations with an expected average weighted maturity of
two to five years including:
corporate debt securities (bonds and commercial paper)
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
If a security held by the Fund is downgraded below the minimum required ratings,
CoreStates Advisers will reassess the creditworthiness of the security.
Short-Intermediate Bond Fund strives to provide a return greater than bond
indices such as the Merrill Lynch 1-3 year Treasury Index. (Please see page 36
for more information about General Investment Policies and Practices.)
INVESTMENT OBJECTIVE
Short-Intermediate Bond Fund seeks a moderate level of current income consistent
with conservation of capital.
RISK CONSIDERATIONS
Like all fixed income funds, Short-Intermediate Bond Fund is subject to:
Interest Rate Risk - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
Credit Risk - The possibility that an issuer will be unable to make timely
payments of either principal or interest.
Call Risk - The possibility that securities with high interest rates will
be prepaid (or 'called') by the issuer prior to maturity during periods of
falling interest rates. This would require the Fund to invest the resulting
proceeds elsewhere, at generally lower interest rates. This is also known as
Income Risk.
The Fund may also be subject to:
Event Risk - The possibility that corporate fixed income securities may suffer
substantial declines in credit quality and market value due to corporate
restructurings. While event risk may be high for certain corporate securities
held by the Fund, event risk in the aggregate should be low because of the
Fund's diversified holdings.
INVESTMENT SUITABILITY
Short-Intermediate Bond Fund may be appropriate for investors who:
are looking for a higher level of current income and
want low to moderate share price fluctuations.
FUND MANAGEMENT
Daniel R. Taylor is an Investment Officer of CoreStates Advisers and the
portfolio manager of the Short-Intermediate Bond Fund. He has been employed by
CoreStates for a number of years in various capacities, including Commercial
Lending Credit Analyst. (Please see page 45 for more information about the
Fund's Investment Adviser.)
16
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class A shares of Short-Intermediate Bond Fund. The financial highlights for the
Fund for the periods from inception through June 30, 1996 have been audited by
Ernst & Young LLP, independent auditors, whose report appears in CoreFunds'
annual report which accompanies the Statement of Additional Information. The
annual report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
CLASS A (INDIVIDUAL)* 1996 1996 1995 1994 1993(1)
---- ---- ---- ---- -------
For a Share Outstanding Throughout the Period Ended December 31(3) June 30
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.76 9.84 9.63 10.18 10.01
Net Investment Income $ 0.29 0.54 0.54 0.41 0.20
Realized and Unrealized Net Gains (Losses) on Securities $ 0.10 (0.08) 0.20 (0.53) 0.17
Distributions from Net Investment Income $ (0.29) (0.54) (0.53) (0.41) (0.20)
Distributions from Capital Gains $ - - - (0.02) -
Net Asset Value, End of Period $ 9.86 9.76 9.84 9.63 10.18
Total Return(2) 4.01%+ 4.79 7.95 (0.56) 3.95+
Net Assets, End of Period (000 omitted) $ 3,057 3,062 1,961 9,365 5,752
Ratio of Expenses to Average Net Assets 0.72% 0.81 0.85 0.83 0.75
Ratio of Net Income to Average Net Assets 5.78% 5.51 5.27 4.05 3.78
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.98% 1.06 1.09 1.11 1.19
Ratio of Net Income to Average Net Assets (Excluding Waivers) 5.52% 5.27 5.03 3.77 3.34
Portfolio Turnover Rate** 83% 257 405 299 188
</TABLE>
* On April 15, 1996, the Conestoga Intermediate Income Fund was acquired by
CoreFunds. At that time the Retail Class shares of the Fund were exchanged for
Class A shares.
**For the year ended June 30, 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 January 4, 1993. Unless otherwise noted, all ratios for
the period have been annualized.
(2) Total return does not reflect applicable sales load.
(3) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Shares of the Fund.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
CLASS A (INDIVIDUAL)
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases 3.25%
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .29%
12b-1 Fees(2) .25%
Other Expenses After Fee Waivers(3) .22%
Total Operating Expenses After Fee Waivers(4) .76%
EXAMPLE
1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $ 40 56 73 124
$1,000 investment, assuming (1) imposition
of the maximum sales charge, (2) a 5% annual
return and (3) redemption at the end of each
time period.
(1) Absent voluntary waivers, investment advisory fees would be .50% of average
net assets.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end charge permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc.
(3) Absent voluntary waivers by the Administrator, Other Expenses would be .31%
of average net assets.
(4) Absent the fee waivers described above, Total Operating Expenses would have
been 1.06%. These fee waivers are voluntary and may be discontinued at any time
at the discretion of the service provider that is waiving its fee.
17
<PAGE>
GOVERNMENT INCOME FUND
SUMMARY
Government Income Fund seeks to provide investors with income, as well as
preservation of principal investment and liquidity by investing in a portfolio
of U.S. Government guaranteed securities.
PORTFOLIO INVESTMENTS
The Fund invests exclusively in:
U.S. Treasury securities
mortgage-backed securities issued or guaranteed by U.S. Government agencies and
repurchase agreements involving any of these obligations.
The Fund's average maturity is generally about seven years.
Government Income Fund strives to provide a return greater than bond indices
such as the Salomon Brothers Broad Investment Grade Bond Index. (Please see page
36 for more information about General Investment Policies and Practices.)
INVESTMENT OBJECTIVE
Government Income Fund seeks current income while preserving principal value and
maintaining liquidity.
RISK CONSIDERATIONS
Like all fixed income funds, Government Income Fund is subject to:
Interest Rate Risk - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
Credit Risk - The possibility that an issuer will be unable to make timely
payments of either principal or interest.
Call Risk - The possibility that securities with high interest rates will be
prepaid (or 'called') by the issuer prior to maturity during periods of falling
interest rates. This would require the Fund to invest the resulting proceeds
elsewhere, at generally lower interest rates. This is also known as Income Risk.
The Fund may also be subject to:
Special Risk Factors - The risk that mortgage-backed and asset-backed securities
may be retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of any premium paid.
INVESTMENT SUITABILITY
Government Income Fund may be appropriate for investors who:
are looking for a higher level of current income and
want low to moderate share price fluctuations.
FUND MANAGEMENT
William T. Lawrence, a Vice President of CoreStates Advisers, is the portfolio
manager for Government Income Fund and Bond Fund. He joined CoreStates Advisers
in 1991. Prior to that, he was Vice President, Fixed Income Sales, for First
Boston Corp. (Please see page 45 for more information about the Fund's
Investment Adviser.)
18
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class A shares of Government Income Fund. The financial highlights for the Fund
for the periods from inception through June 30, 1996 have been audited by Ernst
& Young LLP, independent auditors, whose report appears in CoreFunds' annual
report which accompanies the Statement of Additional Information. The annual
report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
Class A (Individual)* 1996 1996 1995 1994 1993(1)
---- ---- ---- ---- -------
For a Share Outstanding Throughout the Period Ended December 31(3) June 30
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.62 9.84 9.51 10.17 10.00
Net Investment Income $ 0.30 0.58 0.61 0.47 0.07
Realized and Unrealized Net Gains (Losses) on Securities $ 0.15 (0.22) 0.33 (0.62) 0.17
Distributions from Net Investment Income $ (0.30) (0.58) (0.61) (0.47) (0.07)
Distributions from Capital Gains $ - - - (0.04) -
Net Asset Value, End of Period $ 9.77 9.62 9.84 9.51 10.17
Total Return(2) 4.74%+ 3.73 10.23 (1.57) 1.71+
Net Assets, End of Period (000 omitted) $ 1,499 1,287 1,374 1,536 201
Ratio of Expenses to Average Net Assets 0.91% 0.88 0.85 0.75 0.63
Ratio of Net Income to Average Net Assets 6.13% 5.93 6.25 4.68 5.35
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.11% 1.14 1.24 1.25 1.29
Ratio of Net Income to Average Net Assets (Excluding Waivers) 5.93% 5.67 5.86 4.18 4.69
Portfolio Turnover Rate 80% 131 368 157 93
</TABLE>
* On April 22, 1996, the Series B shares of the Fund were redesignated Class A
shares.
(+) This figure has not been annualized.
(1) Commenced operations January 4, 1993. Unless otherwise noted, all ratios for
the period have been annualized.
(2) Total return does not reflect applicable sales load.
(3) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Shares of the Fund.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
CLASS A (INDIVIDUAL)
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases 3.25%
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .47%
12b-1 Fees(2) .25%
Other Expenses After Fee Waivers(3) .27%
Total Operating Expenses After Fee Waivers(4) .99%
EXAMPLE
1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $ 42 63 85 150
$1,000 investment, assuming (1) imposition
of the maximum sales charge, (2) a 5% annual
return and (3) redemption at the end of each
time period.
(1) Absent voluntary waivers, investment advisory fees would be .50% of average
net assets.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end charge permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc.
(3) Absent voluntary waivers by the Administrator, Other Expenses would be .36%
of average net assets.
(4) Absent the fee waivers described above, Total Operating Expenses would have
been 1.11%. These fee waivers are voluntary and may be discontinued at any time
at the discretion of the service provider that is waiving its fee.
19
<PAGE>
BOND FUND
SUMMARY
Bond Fund seeks to provide investors with maximum long-term total return by
investing in a diversified portfolio of debt securities.
PORTFOLIO INVESTMENTS
The Fund normally invests at least 80% of its total assets in investment grade
debt securities of all types including:
domestic and foreign bonds, debentures and 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.
If a security held by the Fund is downgraded below the minimum required ratings,
CoreStates Advisers will reassess the creditworthiness of the security.
The Fund also may invest in:
first mortgage loans and participation certificates
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 convertible securities
and
Short-Term Obligations.
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 debt securities
rated below investment grade.
Bond Fund strives to provide a return greater than bond indices such as the
Lehman Aggregate Bond Index. (Please see page 36 for more information about
General Investment Policies and Practices.)
INVESTMENT OBJECTIVE
Bond Fund seeks to maximize long-term total return.
RISK CONSIDERATIONS
Like all fixed income funds, Bond Fund is subject to:
Interest Rate Risk - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
Credit Risk - The possibility that an issuer will be unable to make timely
payments of either principal or interest.
Call Risk - The possibility that securities with high interest rates will be
prepaid (or 'called') by the issuer prior to maturity during periods of falling
interest rates. This would require the Fund to invest the resulting proceeds
elsewhere, at generally lower interest rates. This is also known as Income Risk.
The Fund may also be subject to:
Event Risk - The possibility that corporate fixed income securities may suffer
substantial declines in credit quality and market value due to corporate
restructurings. While event risk may be high for certain corporate securities
held by the Fund, event risk in the aggregate should be low because of the
Fund's diversified holdings.
Special Risk Factors - The risk that mortgage-backed and asset-backed securities
may be retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of any premium paid.
INVESTMENT SUITABILITY
Bond Fund may be appropriate for investors who:
are looking for a higher level of current income and
want low to moderate share price fluctuations.
FUND MANAGEMENT
William T. Lawrence, a Vice President of CoreStates Advisers, is the portfolio
manager for the Bond Fund and the Government Income Fund. He joined CoreStates
Advisers in 1991. Prior to that, he was Vice President , Fixed Income Sales, for
First Boston Corp. (Please see page 45 for more information about the Fund's
Investment Adviser.)
20
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class A shares of Bond Fund. The financial highlights for the Fund for the
period November 1, 1995 through June 30, 1996 have been audited by Ernst & Young
LLP, independent auditors, whose report appears in CoreFunds' annual report
which accompanies the Statement of Additional Information. The financial
highlights for the Fund for the periods ended October 31, 1990 through October
31, 1995 were audited by Coopers & Lybrand LLP, independent auditors. The annual
report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
RETAIL PRIOR
Unaudited CLASS* CLASS
CLASS A (INDIVIDUAL)(3) 1996 1996 1995 1994 1993
---- ---- ---- ---- ----
For a Share Outstanding Throughout the Period Ended December 31(4) June 30 October 31
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.15 10.56 9.81 11.18 10.89
Net Investment Income $ 0.31 0.44 0.60 0.53 0.56
Realized and Unrealized Net Gains (Losses) on Securities $ 0.14 (0.33) 0.72 (1.04) 0.54
Distributions from Net Investment Income $ (0.31) (0.44) (0.57) (0.52) (0.56)
Distributions from Capital Gains $ - (0.08) - (0.34) (0.25)
Net Asset Value, End of Period $ 10.29 10.15 10.56 9.81 11.18
Total Return(2) 4.49%+ 0.98 13.83 (4.75) 10.63
Net Assets, End of Period (000 omitted) $ 1,376 1,273 1,373 23,377 27,346
Ratio of Expenses to Average Net Assets 0.81% 0.80 0.97 1.01 0.88
Ratio of Net Income to Average Net Assets 6.02% 6.02 6.02 5.07 5.16
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.29% 1.22 1.44 1.60 1.49
Ratio of Net Income to Average Net Assets (Excluding Waivers) 5.54% 5.61 5.55 4.48 4.55
Portfolio Turnover Rate 114% 190 352 232 158
<CAPTION>
1992 1991 1990(1)
---- ---- -------
Net Asset Value, Beginning of Period 10.65 9.96 10.00
Net Investment Income 0.70 0.78 0.50
Realized and Unrealized Net Gains (Losses) on Securities 0.32 0.69 (0.04)
Distributions from Net Investment Income (0.68) (0.78) (0.50)
Distributions from Capital Gains (0.10) - -
Net Asset Value, End of Period 10.89 10.65 9.96
Total Return(2) 9.82 15.16 4.64+
Net Assets, End of Period (000 omitted) 15,180 7,255 4,593
Ratio of Expenses to Average Net Assets 0.46 0.47 0.68
Ratio of Net Income to Average Net Assets 6.78 7.71 7.75
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.24 1.41 1.62
Ratio of Net Income to Average Net Assets (Excluding Waivers) 6.01 6.78 6.81
Portfolio Turnover Rate 99 47 23
</TABLE>
* On February 21, 1995, the shares of the Fund were redesignated as either
Retail or Institutional shares. On that date, 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. The basis for the allocation was
the relative net assets of each class of shares as of February 21, 1995. The
results were combined with the results of operations and distributions for each
applicable class for the period February 21, 1995 through October 31, 1995. 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 reflect this allocation. Also, on April 22, 1996, the Conestoga
Bond Fund was acquired by CoreFunds. At that time the Retail Class shares of the
Fund were exchanged for Class A shares.
+ This figure has not been annualized.
(1) Commenced operations February 28, 1990. Unless otherwise noted, all ratios
for the period have been annualized.
(2) Total return does not reflect applicable sales load. Additionally, total
return for the period ended June 30, 1996 is for an eight-month period.
(3) The per share amount for the period ended June 30, 1996 represents the
period from November 1, 1995 to June 30, 1996. All prior years are for the
period from November 1 to October 31.
(4) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Shares of the Fund.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
CLASS A (INDIVIDUAL)
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases 4.75%
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .35%
12b-1 Fees(2) .25%
Other Expenses After Fee Waivers(3) .21%
Total Operating Expenses After Fee Waivers(4) .81%
EXAMPLE
1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $ 55 72 90 143
$1,000 investment, assuming (1) imposition
of the maximum sales charge, (2) a 5% annual
return and (3) redemption at the end of each
time period.
(1) Absent voluntary waivers, investment advisory fees would be .74% of average
net assets.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end charge permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc.
(3) Absent voluntary waivers by the Administrator, Other Expenses would be .30%
of average net assets.
(4) Absent the fee waivers described above, Total Operating Expenses would have
been 1.29%. These fee waivers are voluntary and may be discontinued at any time
at the discretion of the service provider that is waiving its fee.
21
<PAGE>
GLOBAL BOND FUND
SUMMARY
Global Bond Fund seeks to provide investors with capital appreciation and income
by investing in a portfolio of U.S. and foreign fixed income securities.
PORTFOLIO INVESTMENTS
The Fund invests primarily in U.S. government and corporate debt
securities and fixed income securities of foreign issuers denominated in U.S.
dollars and other currencies. Under normal circumstances, the Fund will invest
at least 65% of its total assets in investment grade fixed income securities,
including:
debt obligations of foreign or domestic government entities
corporate obligations and
obligations of supranational agencies, including the International Bank of
Reconstruction and Development, the InterAmerican Development Bank, and the
Asian Development Bank.
If a security held by the Fund is downgraded below the minimum required ratings,
CoreStates Advisers will reassess the creditworthiness of the security. There
are no restrictions on the average maturity of the Fund or the maturity of any
single instrument.
The Fund will invest in securities of issuers, governments or agencies located
in at least three of the following countries:
Austria Finland Japan Spain
Australia France Luxembourg Sweden
Belgium Germany Netherlands Switzerland
Canada Ireland New Zealand United Kingdom
Denmark Italy Norway United States
Issuers are located in a country if they are headquartered or doing business
primarily there.
The Fund may invest up to 5% of its assets in debt obligations that are
denominated in the currencies of developing countries and that are of comparable
quality, as determined by the Adviser and Sub-Adviser, Analytico TSA
International, Inc. ('Analytic').
Global Bond Fund strives to provide a return greater than bond indices such as
the J.P. Morgan Global Government Bond Index $U.S. hedged. (Please see page 36
for more information about General Investment Policies and Practices.)
INVESTMENT OBJECTIVE
Global Bond Fund seeks capital appreciation and current income.
RISK CONSIDERATIONS
There are special risks associated with international investing. See `Foreign
Securities' information on page 36.
Also, like all fixed income funds, Global Bond Fund is subject to:
Interest Rate Risk - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
Credit Risk - The possibility that an issuer will be unable to make timely
payments of either principal or interest.
Call Risk - The possibility that securities with high interest rates will be
prepaid (or 'called') by the issuer prior to maturity during periods of falling
interest rates. This would require the Fund to invest the resulting proceeds
elsewhere, at generally lower interest rates. This is also known as Income Risk.
INVESTMENT SUITABILITY
Global Bond Fund may be appropriate for investors who are:
looking for capital appreciation and current income
seeking enhanced overall returns by virtue of international diversification
able to hold their investment over a long time period in anticipation of the
returns that foreign securities can provide
able to tolerate fluctuations in the principal value of their investment and
aware of the unique risks of international investing, including their exposure
to currency fluctuations.
FUND MANAGEMENT
CoreStates Advisers has delegated some of its portfolio management functions to
Analytic (the "Sub-Adviser").
George McNeill is Managing Director of Analytic and the portfolio
manager for Global Bond Fund. He has over 25 years of experience in managing
fixed income portfolios. He served as the senior investment officer for Gillett
Brothers (1977-1981), Reserve Asset Managers (1981-1989), and Axe-Houghton, Ltd.
(1989-1996). Together with United Asset Management Corporation of Boston, Mr.
McNeill founded Alpha Global in 1996 which then merged with Analytic. (Please
see page 45 for more information about the Fund's Investment Adviser and
Sub-Adviser.)
22
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class A shares of Global Bond Fund. The financial highlights for the Fund for
the periods from inception through June 30, 1996 have been audited by Ernst &
Young LLP, independent auditors, whose report appears in CoreFunds' annual
report which accompanies the Statement of Additional Information. The annual
report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
CLASS A (INDIVIDUAL)* 1996 1996 1995 1994(1)
---- ---- ---- ------
For a Share Outstanding Throughout the Period Ended December 31(3) June 30
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.68 9.61 9.04 10.00
Net Investment Income $ 0.23 0.61 0.61 0.19
Realized and Unrealized Net Gains (Losses) on Securities $ 0.20 0.12 0.24 (1.11)
Distributions from Net Investment Income $ (0.42) (0.66) (0.28) (0.04)
Distributions from Capital Gains $ - - - -
Net Asset Value, End of Period $ 9.69 9.68 9.61 9.04
Total Return(2) 4.47%+ 7.74 9.57 (9.22)+
Net Assets, End of Period (000 omitted) $ 167 152 170 167
Ratio of Expenses to Average Net Assets 1.03% 0.96 0.89 0.98
Ratio of Net Income to Average Net Assets 5.28% 5.56 6.59 4.79
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.21% 1.20 1.28 1.37
Ratio of Net Income to Average Net Assets (Excluding Waivers) 5.10% 5.32 6.20 4.40
Portfolio Turnover Rate 13% 67 133 161
</TABLE>
* On April 22, 1996, the Series B shares of the Fund were redesignated Class A
shares.
+ This figure has not been annualized.
(1) Commenced operations December 15, 1993. Unless otherwise noted, all ratios
for the period have been annualized.
(2) Total return does not reflect applicable sales load.
(3) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Shares of the Fund.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
CLASS A (INDIVIDUAL)
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases 4.75%
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .50%
12b-1 Fees(2) .25%
Other Expenses After Fee Waivers(3) .34%
Total Operating Expenses After Fee Waivers(4) 1.09%
EXAMPLE
1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $58 81 105 174
$1,000 investment, assuming (1) imposition
of the maximum sales charge, (2) a 5% annual
return and (3) redemption at the end of each
time period.
(1) Absent voluntary waivers, investment advisory fees would be .60% of average
net assets.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end charge permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc.
(3) Absent voluntary waivers by the Administrator, Other Expenses would be .43%
of average net assets.
(4) Absent the fee waivers described above, Total Operating Expenses would have
been 1.28%. These fee waivers are voluntary and may be discontinued at any time
at the discretion of the service provider that is waiving its fee.
23
<PAGE>
INTERMEDIATE MUNICIPAL BOND FUND
SUMMARY
Intermediate Municipal Bond Fund seeks to provide investors with federal
tax-free income, as well as preservation of principal investment by investing in
a portfolio of high quality, municipal securities with intermediate-term
maturities.
INVESTMENT OBJECTIVE
Intermediate Municipal Bond Fund seeks the highest level of income exempt from
federal income taxes that can be obtained, consistent with the preservation of
capital.
PORTFOLIO INVESTMENTS
The Fund invests in a diversified portfolio of high quality, intermediate-term
municipal securities. Substantially all of the Fund's assets are invested in
intermediate-term municipal obligations, including those issued by, or on behalf
of:
states
municipalities
territories and possessions of the U.S.
the District of Columbia and
their political subdivisions, agencies, instrumentalities and authorities.
If a security held by the Fund is downgraded below the minimum required ratings,
CoreStates Advisers will reassess the creditworthiness of the security.
The Fund often purchases securities supported by credit enhancements from
financial institutions. Changes in the credit quality of these institutions
could adversely affect the share price.
Under normal circumstances, at least 80% of the Fund's assets are invested in
municipal securities, the interest on which is exempt from federal income taxes,
in the opinion of counsel to the issuer. Up to 20% of the Fund's assets can be
invested in taxable obligations for defensive purposes or when appropriate
tax-exempt securities are not available.
Intermediate Municipal Bond Fund strives to provide a return greater than bond
indices such as the Lehman Brothers 7-Year Municipal Bond Index. (Please see
page 36 for more information about General Investment Policies and Practices.)
RISK CONSIDERATIONS
Like all fixed income funds, Intermediate Municipal Bond Fund is subject to:
Interest Rate Risk - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
Credit Risk - The possibility that an issuer (or its guarantor) will be unable
to make timely payments of either principal or interest.
Call Risk - The possibility that securities with high interest rates will be
prepaid (or 'called') by the issuer prior to maturity during periods of falling
interest rates. This would require the Fund to invest the resulting proceeds
elsewhere, at generally lower interest rates. This is also known as Income Risk.
INVESTMENT SUITABILITY
Intermediate Municipal Bond Fund may be appropriate for investors who:
are looking for an investment that offers a higher level of current income
exempt from federal income taxes and some state income taxes and
want low to moderate share price fluctuations.
FUND MANAGEMENT
Joseph R. Baxter is a Vice President of CoreStates Advisers and head of the
Tax-Advantaged unit at CoreStates Advisers. He manages Intermediate Municipal
Bond Fund, Pennsylvania Municipal Bond Fund, and New Jersey Municipal Bond Fund.
He is also directly responsible for management of the CoreStates Pennsylvania
Tax-Exempt Common Trust Fund. In October 1984, he joined the Investment
Management Division of CoreStates Bank, N.A. (Please see page 45 for more
information about the Fund's Investment Adviser.)
24
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class A shares of Intermediate Municipal Bond Fund. The financial highlights for
the Fund for the periods from inception through June 30, 1996 have been audited
by Ernst & Young LLP, independent auditors, whose report appears in CoreFunds'
annual report which accompanies the Statement of Additional Information. The
annual report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
CLASS A (INDIVIDUAL)* 1996 1996 1995 1994 1993(1)
------------------------------------------------------------
For a Share Outstanding Throughout the Period Ended December 31(3) June 30
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .......................... $ 9.92 9.83 9.67 10.08 10.00
Net Investment Income ......................................... $ 0.20 0.35 0.35 0.37 0.03
Realized and Unrealized Net Gains (Losses) on Securities ...... $ 0.14 0.09 0.16 (0.41) 0.08
Distributions from Net Investment Income ...................... $(0.20) (0.35) (0.35) (0.37) (0.03)
Distributions from Capital Gains .............................. $ -- -- -- -- --
Net Asset Value, End of Period ................................ $10.06 9.92 9.83 9.67 10.08
Total Return2 ................................................. 3.41%+ 4.48 5.42 (0.52) 1.19+
Net Assets, End of Period (000 omitted) ....................... $ 966 1,015 1,027 1,311 166
Ratio of Expenses to Average Net Assets ....................... 0.77% 1.08 1.08 0.88 0.81
Ratio of Net Income to Average Net Assets ..................... 3.88% 3.47 3.65 3.66 2.51
Ratio of Expenses to Average Net Assets (Excluding Waivers) ... 1.12% 1.61 1.52 1.42 1.68
Ratio of Net Income to Average Net Assets (Excluding Waivers).. 3.53% 2.94 3.21 3.12 1.64
Portfolio Turnover Rate ....................................... 8% 10 9 43 10
</TABLE>
- ----------
* On April 22, 1996, the Series B shares of the Fund were redesignated Class A
shares.
+ This figure has not been annualized.
(1) Commenced operations January 4, 1993. Unless otherwise noted, all ratios
for the period have been annualized.
(2) Total return does not reflect applicable sales load.
(3) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Shares of the Fund.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
CLASS A (INDIVIDUAL)
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases 3.25%
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 After Fee Waivers(3) .52%
Total Operating Expenses After Fee Waivers(4) .84%
EXAMPLE 1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $41 58 78 133
$1,000 investment, assuming (1) imposition
of the maximum sales charge, (2) a 5% annual
return and (3) redemption at the end of each
time period.
- ----------
(1) Absent voluntary waivers, investment advisory fees would be .50% of average
net assets.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end charge permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc.
(3) Absent voluntary waivers by the Administrator, Other Expenses would be .61%
of average net assets.
(4) Absent the fee waivers described above, Total Operating Expenses would have
been 1.36%. These fee waivers are voluntary and may be discontinued at any
time at the discretion of the service provider that is waiving its fee.
25
<PAGE>
PENNSYLVANIA MUNICIPAL BOND FUND
SUMMARY
Pennsylvania Municipal Bond Fund seeks to provide investors with income free of
federal and Pennsylvania income taxes, as well as preservation of principal
investment by investing in a portfolio of high grade municipal securities.
portfolio investments
INVESTMENT OBJECTIVE
Pennsylvania Municipal Bond Fund seeks current income exempt from federal and
Pennsylvania income taxation with preservation of capital.
PORTFOLIO INVESTMENTS
The Fund invests primarily in municipal securities, including:
municipal bonds rated in one of the three highest ratings categories and
municipal notes rated in one of the two highest ratings categories.
The Fund may invest up to 20% of its assets in municipal bonds rated BBB by S&P
or Baa by Moody's Investors Services, Inc. ('Moody's'). If a security held by
the Fund is downgraded below the minimum required ratings, CoreStates Advisers
will reassess the creditworthiness of the security. The Fund will not hold
securities rated below BB.
Under normal circumstances, at least 80% of the Fund's assets will be invested
in municipal securities, the interest on which is exempt from federal income
tax. 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'). There are no restrictions on the average
maturity of the Fund or the maturity of a single instrument.
The Fund will generally invest more than 25% of its net assets in municipal
securities whose issuers are located in Pennsylvania. The Fund may also invest
up to 20% of its assets in taxable obligations, including:
commercial paper
unrated securities of comparable quality, as determined by CoreStates Advisers
and
securities subject to the Federal Alternative Minimum Tax ("AMT").
Pennsylvania Municipal Bond Fund strives to provide a return greater than bond
indices such as the Lehman Brothers Pennsylvania Bond Index. (Please see page 36
for more information about General Investment Policies and Practices.)
RISK CONSIDERATIONS
Like all fixed income funds, Pennsylvania Municipal Bond Fund is subject to:
Interest Rate Risk - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
Credit Risk - The possibility that an issuer (or its guarantor) will be unable
to make timely payments of either principal or interest.
Call Risk - The possibility that securities with high interest rates will be
prepaid (or 'called') by the issuer prior to maturity during periods of falling
interest rates. This would require the Fund to invest the resulting proceeds
elsewhere, at generally lower interest rates. This is also known as Income Risk.
The Fund may also be subject to:
Special Risk Factors - The Fund's concentration of investments in Pennsylvania
Municipal Securities raises special investment considerations. Changes in the
economic condition and governmental policies of the Commonwealth of Pennsylvania
and its municipalities could adversely affect the value of the Fund. See
'Special Risk Factors-- Pennsylvania Municipal Securities' in the Statement of
Additional Information.
INVESTMENT SUITABILITY
Pennsylvania Municipal Bond Fund may be appropriate for investors who:
are Pennsylvania residents
are looking for an investment that offers a higher level of current income
exempt from federal income taxes and Pennsylvania state income taxes and
want low to moderate share price fluctuations.
FUND MANAGEMENT
Joseph R. Baxter is a Vice President of CoreStates Advisers and head of the
Tax-Advantaged unit at CoreStates Advisers. He manages Intermediate Municipal
Bond Fund, Pennsylvania Municipal Bond Fund, and New Jersey Municipal Bond Fund.
He is also directly responsible for management of the CoreStates Pennsylvania
Tax-Exempt Common Trust Fund. In October 1984, he joined the Investment
Management Division of CoreStates Bank, N.A. (Please see page 45 for more
information about the Fund's Investment Adviser.)
26
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class A shares of Pennsylvania Municipal Bond Fund. The financial highlights for
the Fund for the periods from inception through June 30, 1996 have been audited
by Ernst & Young LLP, independent auditors, whose report appears in CoreFunds'
annual report which accompanies the Statement of Additional Information. The
annual report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
CLASS A (INDIVIDUAL)* 1996 1996 1995 1994(1)
-----------------------------------------------------
For a Share Outstanding Throughout the Period Ended December 31(3) June 30
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.22 10.16 9.95 10.00
Net Investment Income $ 0.26 0.52 0.49 0.06
Realized and Unrealized Net Gains (Losses) on Securities $ 0.21 0.06 0.21 (0.05)
Distributions from Net Investment Income $ (0.26) (0.52) (0.49) (0.06)
Distributions from Capital Gains $ -- -- -- --
Net Asset Value, End of Period $ 10.43 10.22 10.16 9.95
Total Return(2) 4.62%+ 5.76 7.25 0.09+
Net Assets, End of Period (000 omitted) $ 1,021 994 317 163
Ratio of Expenses to Average Net Assets 0.34% 0.46 0.64 0.67
Ratio of Net Income to Average Net Assets 5.00% 4.93 4.95 4.84
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.09% 1.21 1.39 1.42
Ratio of Net Income to Average Net Assets (Excluding Waivers) 4.25% 4.18 4.20 4.09
Portfolio Turnover Rate** 23% 92 18 3
</TABLE>
- ----------
* On April 15, 1996, the Conestoga Pennsylvania Tax-Free Bond Fund was
acquired by CoreFunds. At that time, the Retail class shares of the Fund
were exchanged for Class A shares.
** For the year ended June 30, 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 May 16, 1994. Unless otherwise noted, all ratios for
the period have been annualized.
(2) Total return does not reflect applicable sales load.
(3) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Shares of the Fund.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
CLASS A (INDIVIDUAL)
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases 4.75%
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .00%
12b-1 Fees(2) .25%
Other Expenses After Fee Waivers(3) .08%
Total Operating Expenses After Fee Waivers(4) .33%
EXAMPLE 1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $51 58 65 87
$1,000 investment, assuming (1) imposition
of the maximum sales charge, (2) a 5% annual
return and (3) redemption at the end of each
time period.
- ----------
(1) Absent voluntary waivers, investment advisory fees would be .50% of average
net assets.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end charge permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc.
(3) Absent voluntary waivers by the Administrator, Other Expenses would be .33%
of average net assets.
(4) Absent the fee waivers described above, Total Operating Expenses would have
been 1.08%. These fee waivers are voluntary and may be discontinued at any
time at the discretion of the service provider that is waiving its fee.
27
<PAGE>
NEW JERSEY MUNICIPAL BOND FUND
SUMMARY
New Jersey Municipal Bond Fund seeks to provide investors with income free of
federal and New Jersey income taxes, as well as preservation of principal
investment by investing in a portfolio of high grade municipal securities.
INVESTMENT OBJECTIVE
New Jersey Municipal Bond Fund seeks current income exempt from federal and New
Jersey income taxation with preservation of capital.
PORTFOLIO INVESTMENTS
The Fund invests primarily in municipal securities, including:
municipal bonds rated in one of the three highest ratings categories and
municipal notes rated in one of the two highest ratings categories.
The Fund may invest up to 20% of its assets in municipal bonds rated BBB by S&P
or Baa by Moody's. If a security held by the Fund is downgraded below the
minimum required ratings, CoreStates Advisers will reassess the creditworthiness
of the security. The Fund will not hold securities rated below BB.
Under normal circumstances, at least 80% of this Fund's assets will be invested
in municipal securities, the interest on which is exempt from federal income
tax. 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'). There are no restrictions on the average maturity of the
Fund or the maturity of a single instrument.
The Fund will generally invest more than 25% of its net assets in municipal
securities whose issuers are located in New Jersey. The Fund may also invest up
to 20% of its assets in taxable obligations, including:
commercial paper
unrated securities of comparable quality, as determined by CoreStates Advisers
and
securities subject to AMT.
New Jersey Municipal Bond Fund strives to provide a return greater than bond
indices such as the Lehman Brothers New Jersey Bond Index. (Please see page 36
for more information about General Investment Policies and Practices.)
RISK CONSIDERATIONS
Like all fixed income funds, New Jersey Municipal Bond Fund is subject to:
Interest Rate Risk - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
Credit Risk - The possibility that an issuer (or its guarantor) will be unable
to make timely payments of either principal or interest.
Call Risk - The possibility that securities with high interest rates will be
prepaid (or 'called') by the issuer prior to maturity during periods of falling
interest rates. This would require the Fund to invest the resulting proceeds
elsewhere, at generally lower interest rates. This is also known as Income Risk.
The Fund may also be subject to:
Special Risk Factors - The Fund's concentration of investments in New Jersey
Municipal Securities raises special investment considerations. Changes in the
economic condition and governmental policies of the State of New Jersey and its
municipalities could adversely affect the value of the Fund. See 'Special Risk
Factors -- New Jersey Municipal Securities' in the Statement of Additional
Information.
INVESTMENT SUITABILITY
New Jersey Municipal Bond Fund may be appropriate for investors who:
are New Jersey residents
are looking for an investment that offers a higher level of current income
exempt from federal income taxes and New Jersey state income taxes and
want low to moderate share price fluctuations.
FUND MANAGEMENT
Joseph R. Baxter is a Vice President of CoreStates Advisers and head of the
Tax-Advantaged unit at CoreStates Advisers. He manages Intermediate Municipal
Bond Fund, Pennsylvania Municipal Bond Fund, and New Jersey Municipal Bond Fund.
He is also directly responsible for management of the CoreStates Pennsylvania
Tax-Exempt Common Trust Fund. In October 1984, he joined the Investment
Management Division of CoreStates Bank, N.A. (Please see page 45 for more
information about the Fund's Investment Adviser.)
28
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class A shares of New Jersey Municipal Bond Fund. The financial highlights for
the Fund for the periods from inception through June 30, 1996 have been audited
by Ernst & Young LLP, independent auditors, whose report appears in CoreFunds'
annual report which accompanies the Statement of Additional Information. The
annual report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
CLASS A (INDIVIDUAL)* 1996 1996 1995 1994(1)
-----------------------------------------------
For a Share Outstanding Throughout the Period Ended December 31(3) June 30
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.07 10.12 9.95 10.00
Net Investment Income $ 0.24 0.48 0.49 0.06
Realized and Unrealized Net Gains (Losses) on Securities $ 0.14 (0.01) 0.17 (0.05)
Distributions from Net Investment Income $(0.24) (0.48) (0.49) (0.06)
Distributions from Capital Gains $(0.07) (0.06) -- --
Net Asset Value, End of Period $10.14 10.07 10.12 9.95
Total Return(2) 3.80%+ 4.93 6.84 0.08+
Net Assets, End of Period (000 omitted) $ 331 304 24 2
Ratio of Expenses to Average Net Assets 0.54% 0.60 0.68 0.68
Ratio of Net Income to Average Net Assets 4.71% 4.65 4.97 4.82
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.29% 1.35 1.44 1.60
Ratio of Net Income to Average Net Assets (Excluding Waivers) 3.96% 3.90 4.21 3.90
Portfolio Turnover Rate 9% 21 32 13
</TABLE>
- ----------
* On April 22, 1996, the Series B shares of the Fund were redesignated Class A
shares.
+ This figure has not been annualized.
(1) Commenced operations May 16, 1994. Unless otherwise noted, all ratios for
the period have been annualized.
(2) Total return does not reflect applicable sales load.
(3) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 Shares of the Fund.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
CLASS A (INDIVIDUAL)
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases 4.75%
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .00%
12b-1 Fees(2) .25%
Other Expenses After Fee Waivers(3) .13%
Total Operating Expenses After Fee Waivers(4) .38%
EXAMPLE 1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $51 59 68 93
$1,000 investment, assuming (1) imposition
of the maximum sales charge, (2) a 5% annual
return and (3) redemption at the end of each
time period.
- ----------
(1) Absent voluntary waivers, investment advisory fees would be .50% of average
net assets.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end charge permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc.
(3) Absent voluntary waivers by the Administrator, Other Expenses would be .38%
of average net assets.
(4) Absent the fee waivers described above, Total Operating Expenses would have
been 1.13%. These fee waivers are voluntary and may be discontinued at any
time at the discretion of the service provider that is waiving its fee.
29
<PAGE>
TREASURY RESERVE
SUMMARY
Treasury Reserve seeks to provide investors with income, liquidity and stability
of principal by investing in direct obligations of the U.S. Treasury and
repurchase agreements.
INVESTMENT OBJECTIVE
Treasury Reserve seeks current interest income, liquidity and safety of
principal.
PORTFOLIO INVESTMENTS
The Fund invests in a portfolio of direct obligations of the U.S. Treasury,
specifically:
Treasury Bills
Treasury Bonds and
Treasury Notes.
The Fund may also invest in:
separately traded interest and principal component parts of U.S. Treasury
obligations that are transferable through the Federal book-entry system, known
as Separately Traded Registered Investment and Principal Securities ("STRIPS")
and
repurchase agreements relating to U.S. Treasury obligations.
The Fund is governed by SEC Rules which impose certain quality, maturity and
diversification requirements. The Fund's assets are valued using the amortized
cost method, which enables the Fund to maintain a stable net asset value per
share. All securities purchased by the Fund must have remaining maturities of 13
months or less.
Treasury Reserve strives to provide a return greater than money market indices
such as the IBC Donoghue 100% Treasury and Repurchase Index. (Please see page 36
for more information about General Investment Policies and Practices.)
RISK CONSIDERATIONS
Treasury Reserve may be subject to:
Interest Rate Risk - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
INVESTMENT SUITABILITY
Treasury Reserve may be appropriate for investors who:
are unwilling to accept the credit risk associated with non-Treasury money
market funds
are unable to tolerate fluctuations in the principal value of their investments
and
want an investment that provides current interest income at competitive rates of
return.
Although the Fund is managed to maintain a stable price per share of $1.00,
there is no guarantee that price will be constantly maintained.
FUND MANAGEMENT
Ronald R. Brasten is Senior Investment Officer of CoreStates Advisers and
manages Treasury Reserve. He also manages CoreFund Elite Treasury Reserve and
has investment responsibility for individually managed corporate and personal
accounts. He joined CoreStates Advisers in August 1989. (Please see page 45 for
more information about the Fund's Investment Adviser.)
30
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class C shares of Treasury Reserve. The financial highlights for the Fund for
the periods from inception through June 30, 1996 have been audited by Ernst &
Young LLP, independent auditors, whose report appears in CoreFunds' annual
report which accompanies the Statement of Additional Information. The annual
report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
Class C (Individual)* 1996 1996 1995 1994 1993(1)
-------------------------------------------------------------------
For a Share Outstanding Throughout the Period Ended December 31(2) June 30
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 1.00 1.00 1.00 1.00
Net Investment Income $ 0.02 0.05 0.05 0.03 0.01
Distributions from Net Investment Income $(0.02) (0.05) (0.05) (0.03) (0.01)
Net Asset Value, End of Period $ 1.00 1.00 1.00 1.00 1.00
Total Return 2.34%+ 4.94 4.72 2.65 1.21+
Net Assets, End of Period (000 omitted) $14,012 19,386 21,612 7,573 7,672
Ratio of Expenses to Average Net Assets 0.75% 0.75 0.73 0.73 0.75
Ratio of Net Income to Average Net Assets 4.58% 4.81 4.81 2.62 2.46
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.96% 1.03 1.10 1.11 1.14
Ratio of Net Income to Average Net Assets (Excluding Waivers) 4.37% 4.53 4.44 2.24 2.07
</TABLE>
- ----------
* On April 22, 1996, the Series B shares of the Fund were redesignated Class C
shares.
+ This figure has not been annualized.
(1) Commenced operations January 4, 1993. Unless otherwise noted, all ratios for
the period have been annualized.
(2) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 C Shares of the Fund.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
CLASS C (INDIVIDUAL)
Shareholder Transaction Expenses none
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .30%
12b-1 Fees(2) .25%
Other Expenses After Fee Waivers(3) .21%
Total Operating Expenses After Fee Waivers(4) .76%
EXAMPLE 1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $8 24 42 94
$1,000 investment, assuming (1) a 5% annual
return and (2) redemption at the end of each
time period.
- ----------
(1) Absent voluntary waivers, investment advisory fees would be .40% of average
net assets.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end charge permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc.
(3) Absent voluntary waivers by the Administrator, Other Expenses would be .30%
of average net assets.
(4) Absent the fee waivers described above, Total Operating Expenses would have
been .95%. These fee waivers are voluntary and may be discontinued at any
time at the discretion of the service provider that is waiving its fee.
31
<PAGE>
CASH RESERVE
SUMMARY
Cash Reserve seeks to provide investors with a high level of income, liquidity
and relative stability of principal by investing in a diversified portfolio of
the highest quality money market instruments.
INVESTMENT OBJECTIVE
Cash Reserve seeks as high a level of current income as is consistent with
liquidity and relative stability of principal.
PORTFOLIO INVESTMENTS
The Fund invests in a diversified portfolio of money market instruments of the
highest quality, including:
U.S. dollar-denominated government obligations
bank obligations and
commercial paper.
The Fund is governed by SEC Rules which impose certain quality, maturity and
diversification requirements. The Fund's assets are valued using the amortized
cost method, which enables the Fund to maintain a stable net asset value per
share. All securities purchased by the Fund must have remaining maturities of 13
months or less.
Cash Reserve strives to provide a return greater than money market indices such
as the IBC Donoghue All-Taxable Money Fund Average. (Please see page 36 for more
information about General Investment Policies and Practices.)
RISK CONSIDERATIONS
Cash Reserve may be subject on a limited basis to:
Interest Rate Risk - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
Credit Risk - The possibility that an issuer will be unable to make timely
payments of either principal or interest.
Call Risk -The possibility that securities with high interest rates will be
prepaid (or 'called') by the issuer prior to maturity during periods of falling
interest rates. This would require the Fund to invest the resulting proceeds
elsewhere, at generally lower interest rates. This is also known as Income Risk.
INVESTMENT SUITABILITY
Cash Reserve may be appropriate for investors who:
are unable to tolerate fluctuations in the principal value of their investments
and
want an investment that provides current interest income at competitive rates of
return.
Although the Fund is managed to maintain a stable price per share of $1.00,
there is no guarantee that price will be constantly maintained.
FUND MANAGEMENT
John Ackler is Investment Officer of CoreStates Advisers and manages Short Term
Income Fund and Cash Reserve. He is also responsible for the management of the
CoreStates Liquidity Fund, as well as numerous individually managed fixed income
funds. Mr. Ackler joined CoreStates as an internal auditor in 1992 and
transferred to CoreStates Advisers in August 1993. (Please see page 45 for more
information about the Fund's Investment Adviser.)
32
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class C shares of Cash Reserve. The financial highlights for the Fund for the
periods from inception through June 30, 1996 have been audited by Ernst & Young
LLP, independent auditors, whose report appears in CoreFunds' annual report
which accompanies the Statement of Additional Information. The annual report for
the Fund is available to shareholders at no charge by calling CoreFunds at
1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
Class C (Individual)* 1996 1996 1995 1994 1993(1)
---------------------------------------------------------------
For a Share Outstanding Throughout the Period Ended December 31(2) June 30
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 1.00 1.00 1.00 1.00
Net Investment Income $ 0.02 0.05 0.05 0.03 0.01
Distributions from Net Investment Income $ (0.02) (0.05) (0.05) (0.03) (0.01)
Net Asset Value, End of Period $ 1.00 1.00 1.00 1.00 1.00
Total Return 2.38%+ 5.00 4.89 2.74 1.23+
Net Assets, End of Period (000 omitted) $21,518 19,736 17,583 11,451 15,330
Ratio of Expenses to Average Net Assets 0.74% 0.75 0.73 0.72 0.76
Ratio of Net Income to Average Net Assets 4.67% 4.86 4.86 2.70 2.52
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.95% 1.03 1.10 1.10 1.15
Ratio of Net Income to Average Net Assets (Excluding Waivers) 4.46% 4.58 4.49 2.32 2.13
</TABLE>
- ----------
* On April 22, 1996, the Series B shares of the Fund were redesignated Class C
shares.
+ This figure has not been annualized.
(1) Commenced operations January 4, 1993. Unless otherwise noted, all ratios for
the period have been annualized.
(2) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 C Shares of the Fund.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
CLASS C (INDIVIDUAL)
Shareholder Transaction Expenses none
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .30%
12b-1 Fees(2) .25%
Other Expenses After Fee Waivers(3) .21%
Total Operating Expenses After Fee Waivers(4) .76%
EXAMPLE 1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $8 24 42 94
$1,000 investment, assuming (1) a 5% annual
return and (2) redemption at the end of each
time period.
(1) Absent voluntary waivers, investment advisory fees would be .40% of average
net assets.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end charge permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc.
(3) Absent voluntary waivers by the Administrator, Other Expenses would be .30%
of average net assets.
(4) Absent the fee waivers described above, Total Operating Expenses would have
been .95%. These fee waivers are voluntary and may be discontinued at any
time at the discretion of the service provider that is waiving its fee.
33
<PAGE>
TAX-FREE RESERVE
SUMMARY
Tax-Free Reserve seeks to provide investors with a high level of tax-free
income, liquidity and stability of principal by investing in short-term
obligations issued by, or on behalf of, state and local governments.
INVESTMENT OBJECTIVE
Tax-Free Reserve seeks 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.
PORTFOLIO INVESTMENTS
The Fund invests at least 80% of its assets in tax-free securities under normal
market conditions. The interest on each security must be exempt from federal
income tax, in the opinion of counsel to the issuer. The Fund invests in a
diversified portfolio of short-term, tax-free obligations issued by, or on
behalf of:
states
municipalities
territories and possessions of the U.S.
the District of Columbia and
their political subdivisions, agencies, instrumentalities and authorities.
Up to 20% of all assets in the Fund can be invested in taxable debt securities
for defensive purposes or when appropriate tax-exempt securities are not
available. The manager works to take advantage of key seasonal supply and demand
factors that govern short-term rates.
The Fund often purchases securities supported by credit enhancements from
financial institutions. Changes in the credit quality of these institutions
could adversely affect the share price.
The Fund is governed by SEC Rules which impose certain quality, maturity and
diversification requirements. The Fund's assets are valued using the amortized
cost method, which enables the Fund to maintain a stable net asset value per
share. All securities purchased by the Fund must have remaining maturities of 13
months or less.
Tax-Free Reserve strives to provide a return greater than money market indices
such as the IBC Donoghue Tax -Free Average. (Please see page 36 for more
information about General Investment Policies and Practices.)
RISK CONSIDERATIONS
Tax-Free Reserve may be subject on a limited basis to:
Interest Rate Risk - The potential for a decline in the price of fixed income
securities due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities.
Credit Risk - The possibility that an issuer (or its guarantor) will be unable
to make timely payments of either principal or interest.
Call Risk - The possibility that securities with high interest rates will be
prepaid (or 'called') by the issuer prior to maturity during periods of falling
interest rates. This would require the Fund to invest the resulting proceeds
elsewhere, at generally lower interest rates. This is also known as Income Risk.
INVESTMENT SUITABILITY
Tax-Free Reserve may be 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 taxes. Although the
Fund is managed to maintain a stable price per share of $1.00, there is no
guarantee that price will be constantly maintained.
FUND MANAGEMENT
Folu Abiona is Senior Investment Officer for CoreStates Advisers and manages
Tax-Free Reserve. Ms. Abiona also manages CoreFund Elite Tax-Free Reserve. She
joined CoreStates Advisers in 1985 and became fixed income portfolio manager in
1990. (Please see page 45 for more information about the Fund's Investment
Adviser.)
34
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents information about the investment results of the
Class C shares of Tax-Free Reserve. The financial highlights for the Fund for
the periods from inception through June 30, 1996 have been audited by Ernst &
Young LLP, independent auditors, whose report appears in CoreFunds' annual
report which accompanies the Statement of Additional Information. The annual
report for the Fund is available to shareholders at no charge by calling
CoreFunds at 1-800-355-CORE.
<TABLE>
<CAPTION>
Unaudited
CLASS C (INDIVIDUAL)* 1996 1996 1995 1994 1993(1)
------------------------------------------------------------
For a Share Outstanding Throughout the Period Ended December 31(2) June 30
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 1.00 1.00 1.00 1.00
Net Investment Income $ 0.01 0.03 0.03 0.02 0.01
Distributions from Net Investment Income $ (0.01) (0.03) (0.03) (0.02) (0.01)
Net Asset Value, End of Period $ 1.00 1.00 1.00 1.00 1.00
Total Return 1.41%+ 2.95 2.86 1.78 0.85+
Net Assets, End of Period (000 omitted) $ 2,895 2,850 1,524 2,708 1,795
Ratio of Expenses to Average Net Assets 0.74% 0.73 0.73 0.74 0.76
Ratio of Net Income to Average Net Assets 2.78% 2.94 2.80 1.75 1.71
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.95% 1.02 1.10 1.12 1.14
Ratio of Net Income to Average Net Assets (Excluding Waivers) 2.57% 2.65 2.43 1.37 1.33
</TABLE>
- ----------
* On April 22, 1996, the Series B shares of the Fund were redesignated Class C
shares.
+ This figure has not been annualized.
(1) Commenced operations January 4, 1993. Unless otherwise noted, all ratios for
the period have been annualized.
(2) Ratios for the six-month period ended December 31, 1996 have been
annualized.
INVESTOR EXPENSES
The purpose of the following table 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 C Shares of the Fund.
THE INFORMATION CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
CLASS C (INDIVIDUAL)
Shareholder Transaction Expenses none
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fees After Fee Waivers(1) .30%
12b-1 Fees(2) .25%
Other Expenses After Fee Waivers(3) .21%
Total Operating Expenses After Fee Waivers(4) .76%
EXAMPLE 1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $8 24 42 94
$1,000 investment, assuming (1) imposition
of the maximum sales charge, and (2) redemption
at the end of each time period.
- ----------
(1) Absent voluntary waivers, investment advisory fees would be .40% of average
net assets.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end charge permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc.
(3) Absent voluntary waivers by the Administrator, Other Expenses would be .30%
of average net assets.
(4) Absent the fee waivers described above, Total Operating Expenses would have
been .95%. These fee waivers are voluntary and may be discontinued at any
time at the discretion of the service provider that is waiving its fee.
35
<PAGE>
GENERAL INFORMATION
General Investment Policies and Practices
In addition to making investments as described above, the Funds may engage in a
number of additional investment practices. These practices are defined below.
The tables starting on page 39 describe which Funds engage in which practices.
ADRS, EDRS, AND GDRS
ADRs are American Depositary Receipts, typically issued by a U.S. financial
institution (a 'depositary'). They evidence ownership interests in a security or
a pool of securities issued by a foreign issuer and deposited with the
depositary. Generally, ADRs are designed for trading in the U.S. securities
market.
EDRs are European Depositary Receipts, typically issued by a non-U.S. financial
institution. They evidence ownership interests in a security or a pool of
securities issued by either a U.S. or foreign issuer. Generally, EDRs are
designed for trading in European securities markets.
GDRs are Global Depositary Receipts. They are issued globally and evidence a
similar ownership arrangement. Generally, GDRs are designed for trading in
non-U.S. securities markets.
ASSET-BACKED SECURITIES
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 investor. The Funds will invest only in 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.
BANK OBLIGATIONS
Investments in domestic branches of U.S. banks, specifically:
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.
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.
FOREIGN CURRENCY TRANSACTIONS
Contracts used to hedge against adverse movements in exchange rates between
currencies. Transactions may be conducted either on a cash basis or through
forward contracts. A forward contract involves an obligation to purchase or sell
a specific currency at a future date at a price set at the time of the contract.
FOREIGN SECURITIES
Securities of foreign issuers, securities issued by foreign branches of U.S.
banks and foreign banks, Canadian commercial paper and Europaper (U.S.
dollar-denominated commercial paper of foreign issuers).
There are special risks associated with international investing:
Currency Risk - The possibility that changes in foreign exchange rates will
affect, favorably or unfavorably, the value of foreign securities.
Volatility - Investments in foreign stock markets can be more volatile than
investments in U.S. markets. Diplomatic, political or economic developments
could affect investment in foreign countries.
Expense Considerations - Fixed commissions on many foreign stock exchanges are
generally higher than negotiated commissions on U.S. exchanges. Expenses for
custodial arrangements of foreign securities may be somewhat greater than
typical expenses for custodial arrangements for handling U.S. securities of
equal value.
Foreign Taxes - 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 securities comprising the portfolio.
Regulatory Environment - 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. 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 record-keeping standards than those applicable to
domestic branches of U.S. banks and U.S. domestic issuers.
36
<PAGE>
FUTURES CONTRACTS OR OPTIONS TRANSACTIONS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specified security at a specified
future time and at a specified price.
An option on a futures contract gives the purchaser the right, in exchange for a
premium, to assume a position in a futures contract at a specified exercise
price during the term of the option.
A put option gives the purchaser of the option the right to sell, and the writer
of the option the obligation to buy, the underlying security at any time during
the option period.
A call option gives the purchaser of the option the right to buy, and the writer
of the option the obligation to sell, the underlying security at any time during
the option period.
These transactions are used to:
maintain cash reserves while remaining fully invested
facilitate trading
reduce transaction costs or
seek higher investment returns when the 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. See 'Risks Associated with Futures
and Options' in the Statement of Additional Information.
ILLIQUID SECURITIES
Securities that cannot be sold or disposed of in seven days or less at
approximately their carrying value.
LENDING OF SECURITIES
The lending of portfolio securities to qualified brokers, dealers, banks and
other financial institutions to realize additional net investment income. The
Funds receive collateral of at least 100% of the loaned securities' market value
plus accrued interest.
MORTGAGE-BACKED SECURITIES
Securities backed by pools of mortgages which pass principal and/or interest
payments to the investor.
Some are issued or guaranteed by U.S. Government agencies, such as:
GNMA, or Government National Mortgage Association, which issues modified
pass-through securities evidencing 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. Both interest and
principal payments (including prepayments) are passed through monthly to the
investor. The full faith and credit of the United States is pledged to the
timely payment of principal and interest by GNMA.
Fannie Mae, a federally chartered and stockholder-owned corporation, issues
pass-through certificates which are guaranteed as to principal and interest by
Fannie Mae.
FHLMC, or Federal Home Loan Mortgage Corporation, 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 Fannie Mae and FHLMC are not backed by the
full faith and credit of the United States.
Mortgaged-backed securities also include:
CMOs, collateralized mortgage obligations and
REMICs, real estate mortgage investment conduits, a type of CMO.
CMOs and REMICs are mortgage pass-through securities issued in multiple classes.
Each class of a CMO is issued with a specified 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.
MUNICIPAL SECURITIES
Securities issued by municipalities, including:
General Obligation Securities, secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of principal and interest.
Revenue Securities, 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 the Funds are revenue securities whose credit quality is usually directly
related to the credit standing of the corporate user of the facility involved.
Moral Obligation Bonds, 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.
Variable Rate Demand Obligations, tax-exempt obligations upon which interest is
payable at a floating or variable rate. The Fund 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.
37
<PAGE>
Municipal Lease Obligations, 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.
OTHER INVESTMENT COMPANIES
Shares of investment companies may be purchased by the Funds to the extent
consistent with applicable law.
PUT TRANSACTIONS
The option to sell a security at a fixed price before maturity. The premium paid
reduces the underlying yield.
REPURCHASE AGREEMENTS
The purchase of securities subject to the seller's agreement to repurchase them
at a mutually agreed upon date and price. The seller must be deemed creditworthy
and maintain collateral of at least 100% of the repurchase price.
REVERSE REPURCHASE AGREEMENTS
The sale of securities subject to the Fund's agreement to repurchase them at a
mutually agreed upon date and price. The Fund must maintain collateral of at
least 100% of the repurchase price.
SHORT-TERM OBLIGATIONS
Commercial paper (including variable amount master demand notes), bankers'
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.
SWAPS
Agreements used to shift the investment exposure from one type of investment to
another, such as:
interest rate swaps - 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.
currency swaps - the swap agreement provides for interest payments in different
currencies. The parties might agree to exchange the notional principal amount as
well.
caps and floors - one party agrees to make payments only under specified
circumstances, usually in return for payment of a fee by the other party.
collars - combine elements of buying a cap and selling a floor.
Swaps can be highly volatile and may have a considerable impact on a Fund's
performance. Any obligation a Fund may have under these types of arrangements
must be covered by setting aside liquid assets.
VARIABLE AMOUNT MASTER DEMAND NOTES
Unsecured demand notes issued by corporations, insurance companies and other
borrowers that permit the indebtedness to vary and provide for periodic
adjustments in the interest rate according to the terms of the instrument.
Although there is no secondary market in the notes, the Fund may demand payment
of principal and accrued interest at any time.
U.S. GOVERNMENT OBLIGATIONS
Securities of the U.S. Government, including:
U.S. Treasury Securities - 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.
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;
obligations supported by the discretionary authority of the U.S.
Treasury to purchase the agency's obligations; and obligations supported only by
the credit of the agency or instrumentality. 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.
STRIPS - zero coupon U.S. Treasury securities, sold at a substantial discount
and redeemed at face value at maturity without interim cash payments of interest
or principal. This discount is amortized over the life of the security, and the
amortization constitutes the income earned on the security for both accounting
and tax purposes.
WHEN-ISSUED SECURITIES
Securities which settle on a future date. However, the interest rate is fixed on
the purchase date and no interest accrues before settlement. The Fund must
maintain liquid assets in an amount at least equal to the value of its
commitments to purchase such securities.
38
<PAGE>
Temporary Investments
Certain of the Funds are permitted to make temporary investments in Short-Term
Obligations. Such investments may be used to:
invest uncommitted cash balances
maintain liquidity to meet shareholder redemptions or
take a temporary defensive position against potential or serious stock market
declines.
The tables which follow describe which investments, including temporary
investments, each Fund may make.
<TABLE>
<CAPTION>
Inter-
Equity Core Growth Special national
Index Equity Equity Equity Growth Balanced
<S> <C> <C> <C> <C> <C> <C>
ADRs, EDRs and GDRs -- 35% -- 35% o 45%
Asset-backed securities -- -- -- -- -- 70%
Bank obligations 10% 35% 35% 35% 35% 45%
Foreign currency transactions -- -- -- -- o --
Foreign securities -- -- -- 35% o 35%
Futures contracts -- 5%(a)/20%(b) -- 5%(a)/20%(b) 5%(a)/20%(b) --
Illiquid securities 10% 15% 10% 15% 10% 15%
Investment companies 10% 10% 10% 10% 10% 10%
Lending of securities 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3%
Mortgage-backed securities -- -- -- -- -- 70%
Options transactions -- 5%(a)/20%(b) -- 5%(a)/20%(b) 5%(a)/20%(b) --
Repurchase agreements 10% 35% 35% 35% 35% 45%
Reverse repurchase agreements 10% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3%
U.S. Government obligations 10% 35% 35% 35% 35% 45%
When-issued securities 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3%
Temporary Investments
Cash 100% 100% 100% 100% 100% 100%
Short-term obligations 100% 100% 100% 100% 100% 100%
Long-term and short-term
debt instruments, rated A or higher -- 10% 10% 10% 10% 100%
Investment Restrictions
Securities of any one issuer(c), (d) 5% 5% 5% 5% 5% 5%
Outstanding voting securities of any one issuer 10% 10% 10% 10% 10% 10%
Securities of issuers in any one industry 25% 25% 25% 25% 25% 25%
Expected annual portfolio turnover *100% *100% *100% *100% *100% *100%(e)
</TABLE>
* Equals a less than symbol.
- ----------
o Fund may invest in security without limitation.
- - Fund may not invest.
Percentages are of total assets (except Illiquid Securities, which are shown as
a percentage of net assets).
(a) Fund may not purchase futures contracts or options where premiums and margin
deposit exceed 5% of total assets.
(b) Fund may not enter into futures contracts or options where its obligations
would exceed 20% of total assets.
(c) Except securities of the U.S. Government, its agencies or instrumentalities.
(d) Except that up to 25% of the Fund's total assets may be invested without
regard to the 5% limitation.
(e) Annual portfolio turnover for the fixed income portion of Balanced Fund is
not expected to exceed 250%.
39
<PAGE>
<TABLE>
<CAPTION>
Short Inter-
Short Inter- Govern- mediate PA NJ
Term mediate ment Global Municipal Municipal Municipal
Income Bond Income Bond Bond Bond Bond Bond
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asset-backed securities o 35% -- o 35% -- -- --
Bank obligations o 35% -- 35% 35% -- -- --
Foreign currency transactions -- -- -- -- o -- -- --
Foreign securities -- -- -- 35% o -- -- --
Futures contracts -- -- -- -- 5%(a)/20%(b) -- -- --
Illiquid securities 15% 10% 15% 15% 15% 15% 15% 15%
Investment companies 10% 10% 10% 10% 10% 10% 10% 10%
Lending of securities 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3%
Mortgage-backed securities o 35% o o 35% -- -- --
Municipal securities -- -- -- -- -- o o o
Options transactions -- -- -- -- 5%(a)/20%(b) -- -- --
Put transactions (c) -- o -- -- o o o o
Repurchase agreements o 35% 35% 35% 35% 20% 20% 20%
Reverse repurchase agreements 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 10% 10% 10%
Swaps -- -- -- -- o -- -- --
U.S. Government obligations o o o o o 20% 20% 20%
When-issued securities 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 25% 25% 25%
Temporary Investments
Taxable obligations 100% 100% 100% 100% 100% *20% *20% *20%
Short-term obligations,
U.S. dollar and foreign 100% 100% 100% 100% 100%(g) -- -- --
Investment Restrictions
Securities of any one issuer (d), (e) 5% 5% 5% 5% -- 5% -- --
Outstanding voting securities
of any one issuer 10% 10% 10% 10% -- 10% -- --
Securities of issuers in
any one industry 25% 25% 25% 25% 25% 25%(f) 25%(f) 25%(f)
Expected annual portfolio turnover *100% *250% *150% *200% *150% *100% *100% *100%
</TABLE>
*Equals a less than symbol.
- ----------
o Fund may invest in security without limitation.
- - Fund may not invest.
Percentages are of total assets (except Illiquid Securities, which are shown as
a percentage of net assets).
(a) Fund may not purchase futures contracts or options where premiums and margin
deposit exceed 5% of total assets.
(b) Fund may not enter into futures contracts or options where its obligations
would exceed 20% of total assets.
(c) Except premiums on all puts outstanding will not exceed 2% of total assets.
(d) Except securities of the U.S. Government, its agencies or instrumentalities.
(e) Except that up to 25% of the Fund's total assets may be invested without
regard to the 5% limitation.
(f) Limitation does not apply to investments in tax-exempt securities issued by
governments or political subdivisions of governments.
(g) May also purchase short term obligations denominated in foreign currencies.
40
<PAGE>
<TABLE>
<CAPTION>
Treasury Cash Tax-Free
Reserve Reserve Reserve
<S> <C> <C> <C>
Asset-backed securities -- o --
Bank obligations -- o 20%
Illiquid securities 10% 10% 10%
Investment companies 10% 10% 10%
Lending of securities 33 1/3% 33 1/3% 33 1/3%
Mortgage-backed securities -- o 20%
Municipal securities -- -- o
Put transactions (a) -- -- o
Repurchase agreements o o 20%
Reverse repurchase agreements 10% 10% 10%
U.S. Government obligations o o 20%
Variable amount master demand notes -- o --
When-issued securities -- -- 25%
Temporary Investments
Cash 100% 100% 100%
Taxable obligations 100% 100% *20%
Investment Restrictions
Securities of any one issuer(b), (c) 5% 5% 5%
Securities of issuers in any one industry NA 25% 25%(d)
</TABLE>
* Equals less than symbol.
- ----------
o Fund may invest in security without limitation.
- - Fund may not invest.
Percentages are of total assets (except Illiquid Securities, which are shown as
a percentage of net assets).
(a) Except premiums on all puts outstanding will not exceed 2% of total assets.
(b) Except securities of the U.S. Government, its agencies or instrumentalities.
(c) Except that up to 25% of the Fund's total assets may be invested without
regard to the 5% limitation.
(d) Limitation does not apply to investments in tax-exempt securities issued by
governments or political subdivisions of governments.
41
<PAGE>
Distributions
Shareholders of each Fund are entitled to any distributions from the net
investment income and capital gains earned on investments held by the Fund,
provided that they are shareholders of record on the date the distributions are
declared ('Record Date').
Class C Shares of the Money Market Funds begin earning income on the business
day on which the purchase order for the shares is executed. They continue to
earn income through, and including, the day before the redemption order for
these shares is executed.
Class A Shares of the Fixed Income Funds begin earning income on the business
day following the day on which the purchase order for the shares is executed and
continue to earn income through, and including, the day on which the redemption
order for these shares is executed.
Distributions 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
Opening Form:
Cash Dividend Option - To receive income distributions in cash and capital gains
distributions in additional shares of the Fund at net asset value.
All Cash Option - To receive both income and capital gains distributions in
cash.
If neither option is selected on the Account Opening Form, the Transfer Agent
will automatically reinvest all income and capital gains distributions in
additional shares at the net asset value in effect at the close of business on
the reinvestment date. Distributions are automatically paid in cash (along with
any redemption proceeds) within seven business days of a shareholder closing an
account with the Fund.
The distributions from Class Y Shares are normally higher than those from Class
A or Class C Shares because of the distribution and transfer agent expenses
charged to Class A and Class C Shares.
Distributions from the Net Investment Income of:
Domestic Equity Funds and Global Bond Fund are declared and paid to shareholders
on a quarterly basis.
International Growth Fund are periodically declared and paid to shareholders.
Domestic Fixed Income Funds and Money Market Funds are declared daily as a
dividend and paid monthly to shareholders.
NOTE: DISTRIBUTIONS PAID SHORTLY AFTER THE PURCHASE OF SHARES BY AN INVESTOR,
ALTHOUGH IN EFFECT A RETURN OF CAPITAL, ARE TAXABLE AS ORDINARY INCOME.
Distributions of any capital gains will be made at least annually for each Fund.
Taxes
The following is only a brief summary of some of the important tax
considerations generally affecting the Funds and their shareholders. We have not
attempted to present a tax treatment of the Funds or their shareholders, and
this discussion is not intended as a substitute for careful tax planning.
Potential investors and shareholders 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 other CoreFunds portfolios. Each Fund intends to qualify
for the favorable tax treatment afforded a 'regulated investment company' under
the Code.
Whether paid in cash or in additional shares, distributions attributable to a
Fund's net investment income (including ordinary income and net short-term
capital gains) will be taxable to shareholders as ordinary income. This includes
any distributions attributable to taxable net investment income of Tax-Free
Reserve or Intermediate Municipal Bond Fund.
Capital gains distributions of all Funds will be taxable as long-term capital
gain, regardless of how long a shareholder has held the shares.
If a Fund declares distributions payable to shareholders of record on a date in
October, November or December of any year, the distributions 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.
42
<PAGE>
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
in connection with an exchange among the CoreFunds portfolios.
In the opinion of counsel, distributions made by 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.
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. If either Fund holds equity or debt securities of
foreign corporations valued at more than 50% of total assets at the close of any
taxable year, the Fund may elect (for U.S. federal income tax purposes) to treat
each shareholder as having additional income equal to a proportionate amount of
the foreign taxes paid by the Fund and as having directly paid these foreign
taxes. If a Fund makes this decision, shareholders will be treated as having
directly earned a portion of the Fund's gross income from foreign sources.
Shareholders will be subject to U.S. federal income taxes for this additional
income from foreign sources net of the foreign taxes paid. The Fund will make
this decision only if it deems it to be in the best interests of its
shareholders and will notify shareholders accordingly.
TREASURY RESERVE
CASH RESERVE
TAX-FREE RESERVE
Investments in STRIPS and Receipts 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 these obligations even
though the Fund has not received any interest payments on the 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 the
imputed income, which may occur at a time when the investment adviser would not
have chosen to sell the securities and which may result in a taxable gain or
loss.
INTERMEDIATE MUNICIPAL BOND FUND
PENNSYLVANIA MUNICIPAL BOND FUND
NEW JERSEY MUNICIPAL BOND FUND
TAX-FREE RESERVE
Each of these Funds expects to qualify to pay tax-exempt interest income
distributions to its shareholders. In general, the Fund's shareholders may
exclude tax-exempt income distributions from their gross income, unless their
specific circumstances disallow it. Intermediate Municipal Bond Fund and
Tax-Free Reserve are permitted to purchase 'private activity bonds' that are
subject to the Federal Alternative Minimum Tax (the 'AMT') consistent with their
20% limitation on taxable obligations.
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. 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.
Corporate shareholders should note that all tax-exempt interest income
distributions are includable in the computation of 'adjusted current earnings'
for AMT purposes, regardless of when the bonds from which they are derived were
issued or whether they are derived from 'private activity bonds.' Accordingly,
corporate shareholders should consult their tax advisers regarding the impact
that holding shares of these Funds would have on their own AMT liability.
Tax-exempt interest income distributions 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.
43
<PAGE>
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 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.
Distributions made by 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. territories and possessions.
To the extent that gain on the disposition of a share represents gain realized
on Pennsylvania Municipal Securities held by 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 in 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:
maintaining its registration as a registered investment company
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
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 the 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.
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 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) 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 adding the value of all of the Fund's portfolio securities and
other assets, subtracting the liabilities, and dividing by the total 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 is normally determined as
of 12:00 noon (Eastern time) on each business day. These Funds are managed to
maintain a stable price per share of $1.00.
44
<PAGE>
PORTFOLIO PRICING
Portfolio securities that 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 that business day or, if there is no such reported sale,
the current bid price. 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 to reflect
their fair market value, pursuant to procedures adopted by the Board of
Directors.
International Growth Fund
Global Bond Fund
Securities listed on a foreign exchange are valued at the most recent closing
price available before the assets are valued. All prices of listed securities
are taken from the exchange where the security is primarily traded.
Money Market Funds
The assets in the Money Market Funds are valued based upon the
amortized cost method, in accordance with rules adopted under the Investment
Company Act. With 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).
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
Fund. CoreStates Advisers is a wholly-owned subsidiary of CoreStates Bank, N.A.,
which is itself a wholly-owned subsidiary of CoreStates Financial Corp
('CoreStates Corp'). CoreStates Corp, based in Philadelphia, Pennsylvania, is
one of the 25 largest bank holding companies in the United States.
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, as well as related
investment advisory, research, trading and fund management functions. 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,
Philadelphia, PA 19102.
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.
As investment adviser, CoreStates Advisers manages the investment portfolio of
each Fund, makes decisions about and places orders for all purchases and sales
of a Fund's portfolio securities, and maintains certain records relating to
these 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 for
International Growth Fund to Martin Currie and Aberdeen Managers, and, for
Global Bond Fund, to Analytic, under separate Sub-Advisory Agreements between
CoreStates Advisers and Martin Currie, Aberdeen Managers and Analytic,
respectively (the "Sub-Advisers").
45
<PAGE>
Under a multiple manager structure, CoreStates Advisers has general oversight
responsibility for the investment advisory services provided to International
Growth Fund by Martin Currie and Aberdeen Managers. CoreStates Advisers is also
responsible for managing the allocation of assets between the Fund's
Sub-Advisers. Accordingly, each Sub-Adviser will be responsible for the
day-to-day investment management of all or a portion of the assets of the Fund.
However, having multiple sub-advisers responsible for investing separate
portions of the Fund's assets creates the need for coordination among
sub-advisers.
As sub-advisers to International Growth Fund and Global Bond Fund, the
Sub-Advisers manage the investment portfolio of their respective Funds, make
decisions about and place orders for the majority of the purchases and sales of
the Fund's portfolio securities, and maintain certain records relating to these
purchases and sales. The Sub-Advisers 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.
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 established to provide foreign investment advisory services to U.S. taxable
and tax-exempt funds seeking diversification into international markets. Martin
Currie is located at Saltire Court, 20 Castle Terrace, Edinburgh EH 2ES,
Scotland.
Aberdeen Managers, a Delaware corporation located in Fort Lauderdale, Florida,
is wholly owned by Aberdeen Trust PLC, a publicly held corporation based in the
United Kingdom. A subsidiary of CoreStates 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 to provide
foreign investment advisory services in the U.S. Aberdeen Managers is located at
NationsBank Tower, 22nd Floor, Fort 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 Analytic TSA International, Inc. and is in the
process of merging with Analytic o TSA 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 located at 25/28 Old
Burlington Street, London WIX 1LB, England.
ADMINISTRATOR AND TRANSFER AGENT
SEI Fund Resources ('SFR' or the 'Administrator'), with principal offices at 530
East Swedesford Road, Wayne, PA 19087, acts as the administrator for each Fund.
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 the 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 Investments Distribution Co. (or the 'Distributor'), with principal offices
at 1 Freedom Valley Drive, Oaks, PA 19456, serves as each Fund's distributor
pursuant to a Distribution Agreement. Class A and Class C Shares are also
subject to a separate distribution plan (the 'Distribution Plan') approved by
the Board of Directors. 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 or shareholder
services. CoreState Bank, N.A., has entered into a Shareholder Servicing
Agreement with the Distributor.
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
placing net purchase and redemption orders with the Distributor
46
<PAGE>
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 distribution options, account designations and
addresses
performing sub-accounting functions
processing distribution 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 provide promotional
incentives, from time to time and at its own expense, 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.
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 and income 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 and capital gains distributions paid
during the period.
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. (The 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 A or Class C shares, 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 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.
47
<PAGE>
Description of Shares
In addition to the portfolios described in this Prospectus, CoreFunds has also
set up Class C Shares representing the Elite Treasury Reserve, Elite Cash
Reserve and Elite Tax-Free Reserve portfolios. CoreFunds offers two classes of
shares of each portfolio. In total, CoreFunds presently offers shares in twenty
different portfolios. CoreFunds may in the future create additional portfolios
or 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.
If you wish to obtain similar information regarding other CoreFund portfolios,
you may request prospectuses describing the portfolios by contacting the
Distributor at 1-800-355-CORE.
Differences exist between classes of shares of some CoreFunds portfolios
pertaining to distribution costs, incremental transfer agency fees and any other
incremental expenses identified that should be properly allocated to a class.
Class A Shares are subject to a sales load and distribution and transfer agent
expenses for certain shareholder services they receive. Class C Shares are
subject to similar expenses, but are not subject to a sales load. Class A and
Class C Shares also have voting rights, 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 their having different
income distributions and performance results from Class Y Shares.
Aside from these differences, each share in each Fund represents an equal
proportionate interest in that Fund with each other share of the same Fund. Each
share in each Fund is entitled to distributions out of the income earned on the
assets belonging to the Fund, as the Board of Directors declares at its
discretion.
CoreFunds' shareholders are entitled to one vote for each full share held, and
fractional votes for fractional shares held. Shareholders 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.
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:
more than 50% of the outstanding shares of a Fund or
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.
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 that Fund.
'Assets belonging to a Fund' are defined as:
the consideration received by CoreFunds upon the issuance or sale
of shares in a Fund
all income, earnings, profits and proceeds derived from the
investment and
any proceeds from the sale, exchange or liquidation of the
investments.
Assets belonging to a Fund are charged with the direct liabilities of that Fund
as well as a share of the general liabilities of CoreFunds. The general
liabilities of CoreFunds are allocated in proportion to the relative asset
values of each of CoreFunds portfolios at the time the expense or liability is
incurred. CoreFunds management charges the Funds for liabilities when they are
incurred and credits the Funds for assets when they are acquired. These
determinations are reviewed and approved annually by the Board of Directors and
are conclusive.
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<PAGE>
SHAREHOLDER SERVICES GUIDE
OPENING AN ACCOUNT
AND PURCHASING SHARES
To open a new account, either by mail or by wire, simply complete and return an
Account Opening Form with at least the $500 minimum initial investment required
by each Fund. Shares of the Funds are only offered to residents of states in
which the shares are eligible for purchase.
You may pay a sales charge when you purchase. Please see the Sales Charges
charts on page 50.
From time to time, CoreFunds may waive each Fund's sales charge for those
investors purchasing shares through advertisements placed in newspapers and
magazines. The advertisements will detail the procedure for purchasing Fund
shares without the imposition of the sales charge during the offer.
If you need assistance with the Account Opening Form or have any questions about
the Funds, please call 1-800-355-CORE. We will be happy to help you.
Initial Purchases of Fund Shares by Check
All purchases made by check should be in U.S. dollars. Please make the check
payable to CoreFunds, Inc. (Fund name), or, in the case of a retirement account,
the custodian or trustee for the account. We will not accept third-party checks.
Mail the Account Opening Form and payment for at least the $500 minimum initial
investment to:
COREFUNDS, INC.
C/O SEI INVESTMENTS
P.O. BOX 470
WAYNE, PA 19087-0470
Adding to an Existing Account
Mail your check with the return stub from your confirmation or monthly statement
to:
COREFUNDS, INC.
C/O SEI INVESTMENTS
P.O. BOX 470
WAYNE, PA 19087-0470
PURCHASING FUND SHARES BY WIRE
Before wiring funds, make sure that wire instructions include your account
number. We recognize receipt of an order to purchase shares by Federal Funds
wire on the business day of the wire, but only if you notify CoreFunds Investor
Services at 1-800-355-CORE by 12:00 noon (Eastern Time) of your intention to
wire money.
Please wire money to:
CORESTATES PHIL
PHILADELPHIA, PA
ABA 031000011
for credit to:
COREFUNDS
A/C 0169-0541
[ACCOUNT NUMBER]
Automatic Investment Plan (AIP)
You may arrange for automatic periodic investments in a Fund through deductions
from your checking account by Automated Clearing House (`ACH'). To do so,
complete the appropriate section on the Account Opening Form, or on the Account
Change Form if you are already a shareholder. There is a $50 per month minimum
investment requirement for AIPs. You may obtain an Account Opening Form or
Account Change Form by calling 1-800-355-CORE.
Systematic Withdrawal Plan (SWP)
A SWP enables you to receive regular distributions from your account.
To begin the Plan, your account must have a current value of $5,000 or more. You
may elect to receive automatic payments of $50 or more by check or ACH on a
monthly, quarterly, semi-annual or annual basis.
We normally process automatic withdrawals on the 25th day of the month. If that
is not a business day, we process automatic withdrawals on the previous business
day and pay promptly after that. To arrange a SWP, complete the appropriate
section on the Account Opening Form or the Account Change Form. You may obtain
either of these forms by calling 1-800-355-CORE.
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<PAGE>
Please be aware that if your withdrawals exceed your income, you will deplete
the invested principal in your account. Your original investment could be
exhausted entirely, depending upon the frequency and amounts of the withdrawal
payments and/or any fluctuations in the net asset value per share. To
participate in the SWP, you must have your dividends automatically reinvested.
You may change, or cancel, the SWP at any time, by writing to CoreFunds Investor
Services or the Transfer Agent.
Execution of Orders
We will execute an order on any business day at the net asset value per share
determined on that day if we receive it:
before 4:00 p.m. for an equity or fixed income fund or
before 12:00 noon for a money market fund.
We will determine the net asset value as of 4:00 p.m. (12:00 noon for a money
market fund) on that date.
If we receive an order after 4:00 p.m. on any business day for an equity
or fixed income fund, or after 12:00 noon for a money market fund, we will
execute it on the next business day of the Fund.
We recognize receipt of an order when the Transfer Agent or its authorized agent
receives it. A Fund may establish special procedures to expedite receipt of
orders from institutional investors. The Distributor reserves the right to
reject any purchase order when it determines that it is not in the best
interests of the Fund and its shareholders to accept it.
Sales Charges
Class A Shares of the Equity Funds
and Balanced Fund
The sales charges for Class A Shares are as follows:
<TABLE>
<CAPTION>
Sales Charge as a Sales Charge as a
Percentage of Percentage of Net Broker-Dealer
Amount of Transaction Offering Price Amount 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%
</TABLE>
Class A Shares of the Bond, Pennsylvania
Municipal Bond, New Jersey Municipal
Bond and Global Bond Funds
The sales charges for Class A Shares are as follows:
<TABLE>
<CAPTION>
Sales Charge as a Sales Charge as a
Percentage of Percentage of Net Broker-Dealer
Amount of Transaction Offering Price Amount Invested Reallowance
<S> <C> <C> <C>
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%
</TABLE>
Class A Shares of the Short Term Income,
Short-Intermediate Bond, Government
Income and Intermediate Municipal
Bond Funds
The sales charges for Class A Shares are as follows:
<TABLE>
<CAPTION>
Sales Charge as a Sales Charge as a
Percentage of Percentage of Net Broker-Dealer
Amount of Transaction Offering Price Amount 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>
50
<PAGE>
The Reallowances shown above apply to sales through financial institutions. The
Distributor may use its own funds to compensate financial institutions in
additional amounts. The Distributor may also provide promotional incentives at
its own expense, in the form of cash or other compensation. The Distributor may
pay these incentives to 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. With respect to purchases of Class A shares of $1,000,000 or
more, payment equal to as much as 1.00% of the purchase price may be paid to
financial intermediaries through which sales are made.
The Funds exempt the following classes of shareholders from paying any sales
charge:
employees and retirees (including members of their families and
significant others) of CoreStates Corp, Martin Currie, Analytic, Aberdeen
Managers and their affiliates and those persons engaged in the sale and
distribution of CoreFunds
employees and retirees of the Administrator and Distributor
directors and officers of CoreFunds
EdVantage customers
Individual Retirement Account rollovers from qualified employee benefit plans,
Keogh plans and Simplified Employee Benefit Plans where CoreStates Corp or its
affiliate serves as trustee or investment manager
any retirement plan qualified under Section 401(a) of the Code or any other
non-qualified benefit plan
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
persons purchasing shares directly through a payroll deduction program
administered by CoreStates Corp or its affiliates.
In addition, the Funds will waive the initial sales charge for:
investors who are transferring shares from another investment
company which has a contractual broker/dealer agreement with CoreFunds for which
they have already paid a sales charge since October 26, 1992
customers converting from CoreStates Personal Financial Services Asset
Allocation Program (CorePath) to Class A and Class C Shares of a Fund
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
shareholders who have purchased shares through a bank where the bank has entered
into a shareholder servicing agreement with the Distributor and
participants in retirement plans administered by CoreStates Bank, N.A., where
there are more than 125 employees in the plan.
Subsequent investments in the Funds by these investors will be subject
to the applicable sales charge. The Distributor may, in its own discretion,
waive sales charges on future purchases of Fund shares for certain classes of
investors.
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.
Right of Accumulation
If you purchase additional Class A and Class C Shares you may obtain a 'Right of
Accumulation'. This Right allows you 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 you hold of any portfolio of CoreFunds which assesses a
sales charge in order to reduce your sales charge.
To obtain the reduced sales charge through a Right of Accumulation, you must
provide the Distributor, either directly or through your investment
representative, with sufficient information to verify that you have this right.
CoreFunds may amend or terminate this Right of Accumulation at any time. Please
contact your investment representative or call CoreFunds Investor Services at
1-800-355-CORE if you wish to exercise your Right of Accumulation.
Letter of Intent
You may also obtain the reduced sales charge shown above by executing
a 'Letter of Intent' which states that your intention is to invest at least
$50,000 within a 13-month period in Class A and Class C Shares. You will make
each purchase under a Letter of Intent at the offering price applicable at the
time of the purchase, up 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.
51
<PAGE>
Any redemptions you make during the 13-month period will be subtracted from the
amount of your purchases in determining whether you have met the terms of the
Letter of Intent. 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 you do not purchase the full
amount specified. The escrowed shares will be released when you have purchased
the full amount specified. If you do not purchase the full amount specified
within the 13-month period, you will be required to pay an amount equal to the
difference in the dollar amount of sales charge actually paid and the amount of
sales charge that you would have had to pay on your 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. If you wish to enter into a Letter
of Intent in conjunction with an investment in Class A and Class C shares, you
should complete the appropriate section of the Account Opening Form, contact
your investment representative or call CoreFunds Investor Services at
1-800-355-CORE.
EXCHANGING SHARES
Purchasing by Exchange
You may open an account or purchase additional shares by making an exchange from
an existing CoreFunds account. Call CoreFunds Investor Services at
1-800-355-CORE to purchase by exchange.
As a shareholder of record, you may exchange shares of a Fund for shares in any
of CoreFunds' other individual portfolios. Direct your exchange requests to
CoreFunds Investor Services at 1-800-355-CORE. Telephone exchange privileges are
only available in states where you can lawfully exchange from one CoreFunds
portfolio to another. You may place exchange orders 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.
Redeeming Shares by Exchange
You may sell shares of the Fund by making an exchange into another CoreFunds
account.
Important Exchange Information
Before you make an exchange, you should consider the following:
You may not exchange into a series of a portfolio for which you would not have
been eligible initially.
If you exchange into any portfolio which imposes a sales charge, you may be
subject to that sales charge, if it is applicable and you have not previously
paid it.
You should consider the investment objective, policies and restrictions of the
Fund into which you are making an exchange, as set forth in the applicable
prospectus. You may obtain a copy of the prospectus for any of the CoreFunds
portfolios by calling 1-800-355-CORE.
Any exchange must satisfy the requirements for the minimum initial investment
amount of the Fund involved.
The Funds reserve the right to reject any exchange request and to modify or
terminate the exchange privilege at any time, upon sixty days' written notice to
Shareholders.
The Funds may limit the amount or frequency of exchanges, and may establish
other restrictions to ensure that the exchanges do not disadvantage any Fund or
its shareholders.
Selling (Redeeming) Your Shares
You may withdraw any portion of the funds in your account by redeeming shares at
any time. You may make your request in writing or by telephone. Your redemption
proceeds can be sent to you by mail, wire, or ACH.
Payment for the redemption of shares purchased by check may not be made until a
Fund can verify that the payment for the purchase has been, or will be,
collected. This 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 market value equal to the
redemption price. In such cases, you may incur brokerage costs in converting
these securities to cash.
52
<PAGE>
Redeeming Your Shares By Mail
The Transfer Agent or its authorized agent must receive a written request for
redemption in order to constitute a valid tender for redemption by mail. Mail
requests to:
COREFUNDS, INC.
C/O SEI INVESTMENTS
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:
your redemption request exceeds $25,000
you direct the redemption proceeds to be sent to a name and/or address that
differs from the registered name or address of record or
you request a transfer of registration.
Otherwise, the Transfer Agent may accept written redemption requests by mail
without a signature guarantee.
Redeeming Your Shares By Telephone
To redeem your shares by telephone, you must provide the information requested
on the Account Opening Form. You may request telephone redemption by calling
CoreFunds Investor Services at 1-800-355-CORE. We will normally transmit payment
for telephone redemptions 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.
In the interest of security, you may not close your account by telephone.
Receiving Your Payment By Wire
As a shareholder of record, you may have your telephone redemption
proceeds paid by a direct wire to a domestic commercial bank account previously
designated by you on the Account Opening Form. The Transfer Agent may deduct its
wire fee from the proceeds for wire redemptions. As of the date of this
Prospectus, this fee is $10.00 for each wire redemption. There is no minimum for
telephone redemptions paid by wire.
Receiving Your Payment By Mail
You may have your redemption proceeds paid by a check mailed to the name and
address in which your account is registered with a Fund. There is no minimum for
telephone redemptions paid by check.
Checkwriting Privileges For Money
Market Funds
CoreFunds will provide checks to shareholders of the Money Market Funds without
charge. Direct your request to CoreFunds Investor Services at 1-800-355-CORE.
These checks will clear through CoreStates Bank of Delaware, N.A. (the 'Clearing
Bank'). You will be required to sign signature cards and will be subject to any
applicable rules and regulations of the Clearing Bank relating to check
redemption privileges. You may make checks drawn on the Money Market Funds
payable to the order of any payee in an amount of $250 or more.
Banks, corporations, trusts and other organizations should contact the Funds
before submitting signature cards, since we may require corporate resolutions or
other supporting documents before the checkwriting privilege may be used. When a
check is presented to the Clearing Bank for payment, and the Fund accepts the
check, the Clearing Bank has the Fund redeem a sufficient number of full and
fractional shares in your account to cover the amount of the check, at the net
asset value next determined after presentation. The Clearing Bank will return
checks if there are insufficient shares to meet the withdrawal amount.
If you wish to use this method of redemption, you should check the appropriate
box in the Account Opening Form, fill out the signature card available from
CoreFunds Investor Services, and mail the complete Form and signature card to:
COREFUNDS, INC.
C/O SEI INVESTMENTS
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
where there are insufficient shares to meet the withdrawal amount. As of the
date of this Prospectus, the overdraft fee is $30.00.
The Clearing Bank will not ordinarily return canceled checks to you, although
you may obtain copies of canceled checks drawn on the Funds by requesting them
in writing from CoreFunds Investor Services.
53
<PAGE>
Important Redemption Information
We execute redemption orders for the Fixed Income and Equity Funds at the net
asset value per share at 4:00 p.m. that day if we receive the order by 4:00 p.m.
that day.
We execute redemption orders for the Money Market Funds at the net asset value
per share at 12:00 noon that day if we receive the order by 12:00 noon that day.
We recognize receipt of an order when the Transfer Agent or its authorized agent
receives it.
The Transfer Agent will pay shareholders for redeemed shares within seven
business days after receiving the request for redemption, except under
extraordinary circumstances.
Minimum Account Balance Requirement
Because of the relatively high cost of handling small investments, the Funds
reserve the right to redeem your shares at net asset value, if your account
value decreases to less than $500. You will not be subject to involuntary
redemption if the value of your account falls below $500 solely because of
market action. Before a Fund redeems your shares and sends you the proceeds, the
Fund will give you notice that the value of the shares in your account is less
than the minimum amount and you will have sixty days to make an additional
investment to increase the value of your account to at least $500.
For more information on opening a new account, making changes to existing
accounts, purchasing, exchanging or redeeming shares, or other investor
services, please call:
1-800-355-CORE (2673)
MONDAY THROUGH FRIDAY
BETWEEN 8:30 A.M. AND 8:00 P.M.
Or write to us at:
COREFUNDS, INC.
C/O SEI INVESTMENTS
P.O. BOX 470
WAYNE, PA 19087-0470
EQUITY FUNDS
Equity Index (659)
Core Equity (742)
Growth Equity (747)
Special Equity (665)
International Growth (744)
BALANCED FUND
Balanced (751)
FIXED INCOME FUNDS
Short Term Income (663)
Short-Intermediate Bond (740)
Government Income (749)
Bond (661)
Global Bond (755)
TAX-EXEMPT INCOME FUNDS
Intermediate Municipal Bond (753)
Pennsylvania Municipal Bond (757)
New Jersey Municipal Bond (759)
MONEY MARKET FUNDS
Treasury Reserve (733)
Cash Reserve (731)
Tax-Free Reserve (737)
54
<PAGE>
The CoreFund Family of Mutual Funds
COREFUNDS, INC.
DIRECTORS
Emil J. Mikity, Chairman
George H. Strong
Erin Anderson
Thomas J. Taylor
Cheryl H. Wade
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 Investments Distribution Co.
Oaks, PA 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Philadelphia, PA 19103
INVESTMENT ADVISER
[CORESTATES LOGO]
For current performance, purchase, redemption, and other information, call
1-800-355-CORE (2673).
[COREFUND LOGO]
SEI Investments Distribution Co., Distributor
Oaks, PA 19456
1-800-355-CORE
The CoreFund Family of Mutual Funds
EQUITY
Equity Index
Core Equity
Growth Equity
Special Equity
International Growth
BALANCED
Balanced
INCOME
Short Term Income
Short-Intermediate Bond
Government Income
Bond
Global Bond
TAX-EXEMPT INCOME
Intermediate Municipal Bond
Pennsylvania Municipal Bond
New Jersey Municipal Bond
MONEY MARKET
Treasury Reserve
Cash Reserve
Tax-Free Reserve
<PAGE>
COREFUNDS, INC.
Statement of Additional Information
Dated June 30, 1997
TABLE OF CONTENTS
-----------------
Page
----
THE COMPANY..................................................................2
ADDITIONAL INVESTMENT POLICIES...............................................3
ADDITIONAL INVESTMENT RESTRICTIONS..........................................24
TEMPORARY INVESTMENTS.......................................................29
SPECIAL CONSIDERATIONS......................................................31
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..............................32
NET ASSET VALUE.............................................................33
DIVIDENDS...................................................................34
TOTAL RETURN................................................................35
YIELDS ...................................................................38
ADDITIONAL INFORMATION CONCERNING TAXES.....................................41
DESCRIPTION OF SHARES.......................................................44
DIRECTORS AND OFFICERS......................................................47
PRINCIPAL HOLDERS OF SECURITIES.............................................49
INVESTMENT ADVISER..........................................................60
SUB-ADVISERS................................................................62
PORTFOLIO TRANSACTIONS......................................................64
ADMINISTRATOR...............................................................66
DISTRIBUTOR.................................................................67
CUSTODIAN AND TRANSFER AGENT................................................69
EXPENSES ...................................................................69
LEGAL COUNSEL...............................................................70
MISCELLANEOUS...............................................................70
APPENDIX ...................................................................71
FINANCIAL STATEMENTS........................................................74
This Statement of Additional Information is meant to be read in
conjunction with the applicable Prospectuses for the Portfolios offered by
CoreFunds, Inc. dated June 30, 1997, 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
Oaks, Pennsylvania 19456, 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
B-2
<PAGE>
whose assets a Fund acquires in a tax-free reorganization, who propose to become
shareholders of the Fund as a result of such reorganization. In addition, Class
C Shares are offered to cash sweep customers of CoreStates Bank, N.A.
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.
B-3
<PAGE>
Among other types of municipal securities, the Funds may purchase
short-term general obligation notes, tax anticipation notes, bond anticipation
notes, revenue anticipation notes, tax-exempt commercial paper, construction
loan notes and other forms of short-term loans. Such instruments are issued with
a short-term maturity in anticipation of the receipt of tax funds, the proceeds
of bond placements, or other revenues. In addition, these Funds may invest in
other types of tax-exempt instruments such as municipal bonds, industrial
development bonds and pollution control bonds, provided (for the Tax-Exempt
Money Market Funds) they have remaining maturities of 397 days or less at the
time of purchase.
Special Risk Factors - Pennsylvania Municipal Securities
The following information as to certain Pennsylvania risk factors has
been provided in view of the policy of concentrating in Pennsylvania Municipal
Securities by the Pennsylvania Municipal Bond Fund. This information constitutes
only a brief summary, does not purport to be a complete description of
Pennsylvania risk factors and is principally drawn from official statements
relating to securities offerings of the Commonwealth of Pennsylvania that have
come to the attention of the Pennsylvania Municipal Bond Fund and were available
as of the date of this Statement of Additional Information. The Fund has not
independently verified any of this information but is not aware of any fact
which would render such information inaccurate.
General. Pennsylvania has historically been dependent on heavy industry
although recent declines in the coal, steel and railroad industries have led to
diversification of the Commonwealth's economy. Recent sources of economic growth
in Pennsylvania are in the service sector, including trade, medical and health
services, education and financial institutions. Agriculture continues to be an
important component of the Commonwealth's economic structure, with nearly
one-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.
B-4
<PAGE>
Financial information for the funds is maintained on a budgetary basis
of accounting ("Budgetary"). Since 1984, the Commonwealth has also prepared
financial statements in accordance with generally accepted accounting principles
("GAAP"). The GAAP statements have been audited jointly by the Auditor General
of the Commonwealth and an independent public accounting firm. The Budgetary
information is adjusted at fiscal year end to reflect appropriate accruals for
financial reporting in conformity with GAAP. The Commonwealth maintains a June
30th fiscal year end.
The Constitution of Pennsylvania provides that operating budget
appropriations may not exceed the actual and estimated revenues and available
surplus in the fiscal year for which funds are appropriated. Annual budgets are
enacted for the General Fund and for certain special revenue funds which
represent the majority of expenditures of the Commonwealth.
Revenues and Expenditures. Pennsylvania's Governmental Fund Types
receive over 57% of their revenues from taxes levied by the Commonwealth.
Interest earnings, licenses and fees, lottery ticket sales, liquor store
profits, miscellaneous revenues, augmentations and federal government grants
supply the balance of the receipts 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.
B-5
<PAGE>
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 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.
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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 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.
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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 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 adults 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.
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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 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
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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 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
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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.
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.
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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.
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.
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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.
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
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1995 are $549.3 million and $563 million, respectively. The estimates for fiscal
1996 reflect amounts contained in the Fiscal Year 1996 Appropriations Act and
Supplemental Appropriations enacted through September 1, 1993. It should be
noted that an adverse determination in certain litigation in which the State is
a party would have a significant impact on fiscal 1995 and subsequent fiscal
year fund balances (see "Litigation" section).
Indebtedness of the State.
General Obligation Bonds. The primary method for State
financing of capital projects is through the sale of the general obligation
bonds of the State. These bonds are backed by the full faith and credit of the
State. State tax revenues and certain other fees are pledged to meet the
principal payments, interest payments and if provided, redemption premium
payments, if any, required to fully pay the bonds. As of June 30, 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
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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.
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
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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 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.
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The State is unable to estimate its exposure for these claims and
cases. An independent study estimated an aggregate potential exposure
of $50 million for tort claims pending as of January 1, 1982. It is
estimated that were a similar study made of claims currently pending,
the amount of such estimated exposure would be somewhat higher.
(f) At any given time, there are various claims of contract and other
claims against the State, and State agencies including environmental
claims arising from the alleged disposal of hazardous waste. The State
is unable to estimate its exposure for these claims.
(g) At any given time, there are various numbers of claims and cases
pending against the University of Medicine and Dentistry ("University")
and its employees seeking recovery of damages that are paid out of the
Self Insurance Reserve Fund created pursuant to the State's Tort Claims
Act. An independent study estimated an aggregate potential exposure of
$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. 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.
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.
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- 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
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
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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 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 -
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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
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.
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Options. 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.
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
covered 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.
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.
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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.
Risks Associated with Futures and Options. 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.
Forward Currency Contracts
Forward currency contracts involve an obligation to purchase or sell a
specified currency at a future date at a price set at the time of the contract.
Forward currency contracts do not eliminate fluctuations in the values of
portfolio securities but, rather, allow International Growth Fund and Global
Bond Fund to establish a rate of exchange for a future point in time.
When entering into a forward currency contract for the purchase or sale
of a security in a foreign currency, these Funds may enter into a contract for
the amount of the purchase or sale price to protect against variations between
the date the security is purchased or sold and the date on which payment is made
or received, in the value of the foreign currency relative to the U.S. dollar or
other foreign currency.
Also, when the advisers anticipate that a particular foreign currency
may decline substantially relative to the U.S. dollar or other leading
currencies, in order to reduce risk, International Growth Fund and Global Bond
Fund may enter into a contract to sell, for a fixed amount, the amount of
foreign currency approximating the value of its securities denominated in such
foreign currency. With respect to any such forward currency contract, 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.
Illiquid Securities
The Funds may invest some of their assets in illiquid securities. Each
Fund's advisers, under the Board of Directors' supervision, determine the
liquidity of the Fund's investments. The absence of a trading market can make it
difficult to determine a market value for illiquid investments. Disposing these
investments can 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.
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<PAGE>
Lending of Securities
The Funds may lend their portfolio securities to qualified brokers,
dealers, banks, and other financial institutions in exchange for 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
the right to receive dividends, interest, or other distributions. Voting rights
pass with the lending. If a material issue affecting the investment needs to be
voted upon, then the Funds will call the loans to vote proxies.
The Funds will only loan securities to borrowers that CoreStates
Advisers deems to be of good standing. Such loans still would involve the risk
of delay in receiving additional collateral in the event the value of the
collateral decreased below the value of the securities loaned, or the risk of
delay in recovering the securities loaned, or even the loss of rights in the
collateral, should the borrower fail financially.
Swaps
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 upon how the Fund uses these agreements, swap
agreements may increase or decrease the overall volatility of the Global Bond
Fund's investments as well as its share price and yield. The Fund will only
enter swaps with counterparties that its advisers deem creditworthy.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks assumed.
These agreements are subject to the 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.
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 -
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<PAGE>
The following policies are applicable to the Equity Funds, except International
Growth Fund, which is subject only to Restrictions #5, #7, #8, #10 and #11. In
addition, the Core Equity and Special Equity Funds are not subject to
Restrictions #2 and #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.
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.
11. 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.
- Fixed Income Funds -
The following policies are applicable to the Fixed Income Funds.
A Fixed Income Fund may not:
B-25
<PAGE>
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.
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.
11. 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.
- 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).
B-26
<PAGE>
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.
11. 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.
- 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
B-27
<PAGE>
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.
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.
13. 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.
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
B-28
<PAGE>
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.
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'
B-29
<PAGE>
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 Fannie Mae, are supported by the
discretionary authority of the U.S. Treasury to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the agency or instrumentality.
No assurance can be given that the U.S. Government would provide financial
support to U.S. Government-sponsored instrumentalities if it is not obligated to
do so by law.
In addition, International Growth Fund may invest in the obligations of
foreign governments or foreign governmental agencies deemed to be creditworthy
under guidelines approved by the Company's management. Such investments may
include securities issued by supranational organizations, such as the European
Economic Community and the World Bank, which are chartered to promote economic
development and are supported by various governments and governmental entities.
3. Repurchase Agreements. The Equity and Tax-Exempt Money Market Funds
may enter into repurchase agreements with respect to portfolio securities. Under
the terms of a repurchase agreement, a Fund purchases securities ("collateral")
from financial institutions such as banks and broker-dealers ("seller") which
are deemed to be creditworthy under guidelines approved by the Funds'
management, subject to the seller's agreement to repurchase them at a mutually
agreed-upon date and price. The repurchase price generally equals the price paid
by a Fund (plus interest) negotiated on the basis of current short-term rates
(which may be more or less than the rate on the underlying portfolio
securities). The seller under a repurchase agreement is required to maintain the
value of the collateral held pursuant to the agreement at not less than 100% of
the repurchase price, and securities subject to repurchase agreements are held
by the Custodian in the Federal Reserve's book-entry system. Default by the
seller would, however, expose a Fund to possible loss because of adverse market
action or delay in connection with the disposition of the underlying securities.
Repurchase agreements are considered to be loans by the Funds under the
Investment Company Act.
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 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.
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<PAGE>
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 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
B-31
<PAGE>
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."
Sales Charge Waivers
From time to time, the Company may enter into arrangements with certain
classes of purchasers who are eligible to purchase Class A Shares of the Funds
without a sales charge (see "Sales Charges" in the Individual Shares
prospectus).
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
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<PAGE>
purchased up to 90 days prior to the date the Letter is signed. The 13-month
period begins on the date of the earliest purchase. If the intended investment
is not completed, the purchaser will be asked to pay an amount equal to the
difference between the sales charge on the shares purchased at the reduced rate
and the sales charge otherwise applicable to the total shares purchased. If such
payment is not made within 20 days following the expiration of the 13-month
period, the Administrator will surrender an appropriate number of the escrowed
shares for redemption in order to realize the difference. Such purchasers may
include the market value of all their shares of the Fund, and of any of the
other Funds, previously purchased and still held as of the date of their Letter
of Intent toward the completion of such Letter.
NET ASSET VALUE
- Taxable Money Market Funds -
- Tax-Exempt Money Market Funds -
Rule 2a-7
Each Money Market Fund has elected to use the amortized cost method of
valuation pursuant to Rule 2a-7 under the Investment Company Act. This involves
valuing an instrument at its cost initially and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. This method
may result in periods during which the value of an instrument, as determined by
amortized cost, is higher or lower than the price a Money Market Fund would
receive if it sold the instrument. The value of securities held by the Money
Market Funds can be expected to vary inversely with changes in prevailing
interest rates.
Pursuant to Rule 2a-7, as amended, each Money Market Fund will maintain
a dollar-weighted average portfolio maturity appropriate to its objective of
maintaining a stable net asset value per share, provided that a Money Market
Fund will neither purchase any security with a remaining maturity of more than
397 days (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
B-33
<PAGE>
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.
- 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.
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-34
<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-35
<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>
- --------------------------------------------------------------------------------------------------------------------
Fund Class Average Annual Total Return
--------------------------------------------------------------------
One Year Five Year Ten Year Since
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-36
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Fund Class Average Annual Total Return
--------------------------------------------------------------------
One Year Five Year Ten Year Since
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-37
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Fund Class Average Annual Total Return
--------------------------------------------------------------------
One Year Five Year Ten Year Since
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-38
<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-39
<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-40
<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-41
<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.
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
B-42
<PAGE>
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.
- 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.
B-43
<PAGE>
Issuers of bonds purchased by a Fund (or the beneficiary of such bonds)
may have made certain representations or covenants in connection with the
issuance of such bonds to satisfy certain requirements of the Code that must be
satisfied subsequent to the issuance of such bonds. Shareholders should be aware
that exempt- interest dividends may become subject to federal income taxation
retroactively to the date of issuance of the bonds to which such dividends are
attributable if such representations are determined to have been inaccurate or
if the issuers (or the beneficiary) of the bonds fail to comply with certain
covenants made at that time.
The percentage of total dividends paid by each Fund with respect to
any taxable year which qualifies as federal exempt-interest dividends will be
the same for all shareholders receiving dividends during such year. Interest on
indebtedness incurred by a shareholder to purchase or carry Fund shares will
generally not be deductible for federal income tax purposes. Any loss on the
sale or exchange of shares held for six months or less will be disallowed to the
extent of any exempt-interest dividends received by the selling shareholder with
respect to such shares.
In addition, while each of these Funds will seek to invest
substantially all of its assets in tax-exempt obligations (except on a temporary
basis or for temporary defensive periods), any investment company taxable income
earned by a Fund will be distributed. In general, a Fund's investment company
taxable income would include interest income received from Temporary Investments
(as defined herein), plus any net short-term capital gains realized by the Fund,
subject to certain adjustments and excluding net long-term capital gains for the
taxable year over the net short-term capital losses, if any, for such year ("net
capital gains"). To the extent such income is distributed by a Fund (whether in
cash or additional Shares), it will generally be taxable to shareholders as
ordinary income. Additionally, any net capital gains distributed to shareholders
will be taxable to shareholders as long-term capital gains, regardless of how
long a shareholder has held Fund shares.
DESCRIPTION OF SHARES
- All Funds -
The Company's Articles of Incorporation authorize the Board of
Directors to issue up to 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
B-44
<PAGE>
Class of Shares # of Shares 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
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
B-45
<PAGE>
Class of Shares # of Shares 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
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).
B-46
<PAGE>
DIRECTORS AND OFFICERS
- All Funds -
The names and general background information of the Company's Directors
and Executive Officers are set forth below:
ERIN ANDERSON (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.
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
B-47
<PAGE>
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.
CAROL ROONEY (5/8/64) - Controller, Treasurer, and Assistant Secretary
- A Director of SEI Fund Resources since 1992.
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 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.
<TABLE>
<CAPTION>
COMPENSATION TABLE
=============================================================================================================================
(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>
B-48
<PAGE>
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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
Patterson & Co. 8,208,282.8530 94.56%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
Patterson & Co. 25,999.8970 11.10%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
- 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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
Patterson & Co. 22,144,239.4120 91.95%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
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
B-49
<PAGE>
- 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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
Patterson & Co. 5,166,082.0530 95.22%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
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 and 5,436.5610 5.20%
Trust Company
for the IRA Rollover of
Bernard J. Daney
121 Park Lane
Wilmington, DE 19807-2129
- 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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
Patterson & Co. 5,338,357.2250 87.25%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
- International Growth Fund -
B-50
<PAGE>
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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
Patterson & Co. 9,381,105.0170 97.33%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
Mark E. Stalnecker & 13,948.2330 9.20%
Susan M. Stalnecker JTTEN
9 Briarcrest Drive
Wallingford, PA 19086-6710
- 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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
Patterson & Co. 8,196,476.3280 96.02%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
- 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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
Patterson & Co. 15,080,846.9590 90.86%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
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:
B-51
<PAGE>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
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
- 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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
Patterson & Co. 19,092,222.6580 97.33%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
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
- Intermediate Municipal Bond Fund -
B-52
<PAGE>
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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
Patterson & Co. 63,130.5510 94.78%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
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
- 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:
B-53
<PAGE>
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
Patterson & Co. 2,499,479.5560 84.35%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
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
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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
CoreStates Bank NA 8,612.9130 98.60%
Cust for the Rollover IRA of
John M. Ennis
206 Emerald Avenue
Reading, PA 19606-1450
- 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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
Patterson & Co. 1,871,902.5340 99.20%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
Jean Taxin 8,400.3320 6.49%
5005 Woodbine Avenue
Philadelphia, PA 19131
B-54
<PAGE>
CoreStates Bank NA C/F IRS 7,499.9820 5.79%
of Donald A. Fleck
32 Summit Circle
Churchville, PA 18966
- 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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
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
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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
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
B-55
<PAGE>
- 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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
Patterson & Co. 123,813.7170 98.97%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
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
B-56
<PAGE>
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
- 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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
Patterson & Co. 777,597,413.7000 91.58%
P.O. Box 7618 FC9-1-17
Attn: Jim Quinlan
Philadelphia, PA 19101-7618
- 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 Treasury Reserve:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
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
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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
Patterson & Co. 9,904,355.3100 62.60%
P.O. Box 7618 FC9-1-17
B-57
<PAGE>
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
- 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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
Patterson & Co. 107,822,967.7500 94.08%
P.O. Box 7618 FC9-1-17
Attn: Jim Quinlan
Philadelphia, PA 19101
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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
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
B-58
<PAGE>
- 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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
Patterson & Co. 391,765,240.5000 100%
P.O. Box 7618 FC9-1-17
Attn: Jim Quinlan
Philadelphia, PA 19101
- 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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
Patterson & Co. 25,509,460.0500 100%
P.O. Box 7618 FC9-1-17
Attn: Jim Quinlan
Philadelphia, PA 19101
- 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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
Patterson & Co. 99,768,072.3200 100%
P.O. Box 7618 FC9-1-17
Attn: Jim Quinlan
Philadelphia, PA 19101
- 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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
Patterson & Co. 3,314,876.7150 96.67%
PNB Personal Trust Accounting
P.O. Box 7829
Philadelphia, PA 19101-7829
B-59
<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:
Amount of Record Percent of Total
Name Ownership Shares Outstanding
---- ---------------- ------------------
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
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
subsidiary, CoreStates Bank (a national banking association), 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-60
<PAGE>
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 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.
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
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
B-61
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================
Advisory Fees Paid Advisory Fees Waived
-----------------------------------------------------------------------------------
1994 1995 1996 1994 1995 1996
====================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Short Term Income
Fund * * 55,281 * * 108,344
Intermediate Municipal
Bond Fund 0 2,752 871 0 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
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 Treasury
Reserve** 0 0 0 104,101 109,215 96,785
Elite Cash Reserve ** 0 0 0 2,179,755 2,011,375 1,892,127
Elite Tax-Free 0 0 0 409,628 424,166 405,929
Reserve**
====================================================================================================================
</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 Groups 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.
B-62
<PAGE>
The International Growth Sub-Advisory Agreement
The International Growth Sub-Advisory Agreement between CoreStates
Advisers and Martin Currie provides that Martin Currie shall not be liable for
any error of judgment or mistake of law or for any loss suffered by
International Growth Fund in connection with its performance under this
Sub-Advisory Agreement, except a loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services or loss resulting from
willful misfeasance, bad faith or gross negligence on the part of Martin Currie
in the performance of its duties, or from reckless disregard by it of its duties
and obligations thereunder.
Unless sooner terminated, the International Growth Sub-Advisory
Agreement will remain in effect from year to year if such continuance is
approved at least annually by CoreFunds' Board of Directors, or by vote of a
majority of the outstanding shares of International Growth Fund (as defined in
the Prospectuses), and by a majority of the Directors who are not parties to
this Sub-Advisory Agreement or interested persons (as defined in the Investment
Company Act) of any party to this Sub-Advisory Agreement, by vote cast in person
at a meeting called for such purpose. The International Growth Sub-Advisory
Agreement is terminable at any time on sixty days' written notice without
penalty by the Directors, by vote of a majority of the outstanding shares of the
Fund, by CoreStates Advisers, or by Martin Currie. The International Growth
Sub-Advisory Agreement also terminates automatically in the event of its
assignment, as defined in the Investment Company Act.
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 o 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
B-63
<PAGE>
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 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.
B-64
<PAGE>
Investment decisions for each Fund are made independently from those
for any other investment portfolios or accounts ("accounts") managed by the
Advisers. Such accounts may also invest in the same securities as a Fund. When a
purchase or sale of the same security is made at substantially the same time on
behalf of a Fund and another account, the transaction will be averaged as to
price, and available investments allocated as to amount, in a manner which the
Advisers believe to be equitable to the Fund and such other account. In some
instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained or sold by the Fund. To
the extent permitted by law, the Advisers may aggregate the securities to be
sold or purchased for a Fund with those to be sold or purchased for other
accounts in order to obtain the best execution.
As provided by their respective Agreements, in making investment
recommendations for a Fund, the Advisers will not inquire or take into
consideration whether the issuer of securities proposed for purchase or sale by
a Fund is another commercial customer of any of the Advisers and, in dealing
with their other commercial customers, the Advisers will not inquire or take
into consideration whether securities of those customers are held by a Fund.
It is expected that the Funds may execute brokerage or other agency
transactions through the Distributor, a registered broker-dealer, or an
affiliate of the Adviser for a commission in conformity with the Investment
Company Act, the Securities Exchange Act of 1934 and rules promulgated by the
Securities and Exchange Commission. Under these provisions, the 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
- --------------------------------------------------------------------------------
B-65
<PAGE>
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 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 Oaks, PA 19456. SFR, a wholly-owned subsidiary of SEI
Investments Company ("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,
The Expedition Funds, First American Funds, Inc., First American Investment
Funds, Inc., First American Strategy Funds, Inc., FMB Funds, Inc., HighMark
Funds, Marquis Funds(R),
B-66
<PAGE>
Monitor Funds, Profit Funds Investment Trust, Morgan Grenfell Investment Trust,
The PBHG Funds, Inc., The Pillar Funds, Rembrandt Funds(R), Santa Barbara Group
of Mutual Funds, Inc., 1784 Funds, STI Classic Funds, STI Classic Variable
Trust, and TIP Funds.
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 Investments Distribution Co. (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
B-67
<PAGE>
(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 "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. The Company has entered into a shareholder servicing
agreement with CoreStates Bank, N.A.
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
- --------------------------------------------------------------------------------
B-68
<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
B-69
<PAGE>
the Funds' existence, costs of shareholder reports and shareholder meetings, and
any extraordinary expenses incurred in the Funds' operations.
The aggregate rates of the investment advisory, sub-advisory, and
administrative fees payable to the Advisers and the Distributor are not subject
to reduction as the Funds' net assets increase. However, if total expenses borne
by a Fund in any fiscal year exceed expense limitations imposed by applicable
state securities regulations, the Adviser(s) and the Distributor will reimburse
the Fund by the amount of such excess in proportion to their respective fees.
Certain of each Fund's expenses may be reduced because the regulations
in various states where Fund Shares may be qualified for sale impose limitations
on the annual expense ratio of a Fund. For example, under California law, a
Fund's aggregate annual expenses (excluding brokerage commissions, interest,
taxes, and extraordinary expenses such as legal claims, liabilities, litigation
costs and indemnification related thereto) may not exceed 2.5% of the first $30
million of its average daily net assets; 2.0% of the next $70 million of average
daily net assets; and 1.5% of average daily net assets in excess of $100
million. The Funds may also seek to qualify their Shares in other jurisdictions
which impose expense limitations.
To the Company's knowledge, as of the date hereof, there are no state
expense limitations applicable to any Fund. Any future expense reimbursements
required to be paid by the Advisers and the Distributor would be estimated daily
and reconciled and paid on a monthly basis.
LEGAL COUNSEL
- All Funds -
Morgan, Lewis & Bockius LLP (of which Mr. Jennings, Secretary of the
Company, is a partner), 2000 One Logan Square, Philadelphia, Pennsylvania 19103,
is counsel to the Company and has passed upon certain matters in connection with
these offerings. From time to time, Morgan, Lewis & Bockius LLP has rendered
legal services to the Administrator, Distributor and CoreStates Corp.
MISCELLANEOUS
- All Funds -
The Company is registered with the SEC as a management investment
company. Such registration does not involve supervision by the Commission of the
management or policies of any Fund.
The Funds' Prospectuses and this Statement of Additional Information
omit certain of the information contained in the Company's Registration
Statement filed with the Securities and Exchange Commission. Copies of such
information may be obtained from the Commission upon payment of the prescribed
fee.
The Funds' Prospectuses and this Statement of Additional Information do
not constitute an offering of the securities 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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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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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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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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FINANCIAL STATEMENTS
- All Funds -
The Company's Financial Statements for the fiscal period ended June 30,
1996, including notes thereto and the report of Ernst & Young LLP thereon, are
herein incorporated by reference. In addition, the Company's unaudited financial
statements for the period ended December 31, 1996, including the notes thereto,
are herein incorporated by reference. Copies of the 1996 Annual Report and the
1996 Semi-Annual Report must accompany the delivery of this Statement of
Additional Information.
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